Warranty
The Company offers product warranties that cover defects on most of its products. These warranties primarily apply to products that are properly installed, maintained and used for their intended purpose. The Company accrues estimated warranty costs at the time of sale. Estimated warranty expenses, recorded in cost of goods sold, are based upon historical information such as past experience, product failure rates, or the estimated number of units to be repaired or replaced. Adjustments are made to the product warranty accrual as claims are incurred, additional information becomes known or as historical experience indicates.
Valuation of Long-Lived Assets, Goodwill, and Indefinite-Lived Intangible Assets
Our long-lived assets include land, buildings, equipment, molds and dies, software, goodwill and other intangible assets. Long-lived assets, other than land, goodwill and indefinite-lived intangibles, are depreciated over their estimated useful lives. The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the dates of acquisition. Goodwill represents purchase price in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets primarily consist of patents, tradenames, developed technology and customer related intangibles.
Goodwill and indefinite-lived intangible assets are reviewed annually for impairment unless circumstances dictate the need for more frequent assessment. We perform our annual goodwill impairment testing as of April 1st of each year. The accounting guidance provides entities an option of performing a qualitative assessment (the "Step-zero" test) before performing a quantitative analysis. If the entity determines, on the basis of certain qualitative factors, that it is more-likely-than-not that the goodwill is not impaired, the entity would not need to proceed to the quantitative goodwill impairment testing process as prescribed in the guidance. If the Company does not elect to complete the qualitative assessment, the Company completes the quantitative assessment whereby the estimated fair value of each reporting unit is compared to its carrying value.
The organizational changes within Electrical Solutions effective January 1, 2022 resulted in a change in the Company’s reporting units. As a result, the Company performed an interim goodwill impairment assessment as of January 1, 2022. For the three reporting units within the Electrical Solutions segment, the Company elected to utilize the quantitative goodwill impairment testing process, as permitted in the accounting guidance, by comparing the estimated fair value of the reporting units to their carrying values. The Company did not have any reporting units at risk of failing the quantitative impairment test as the excess of the implied fair value exceeded the carrying value of each of the reporting units. Additionally, the Company did not have any reporting units with zero or negative carrying amounts.
The Company also completed its annual goodwill impairment test as of April 1, 2022. The Company applied the Step-zero test to one of its four reporting units. Based on the qualitative assessment, the Company concluded that it was more likely than not that the fair value of this reporting unit substantially exceeded its carrying value and, therefore, further quantitative analysis was not required. For the other three reporting units, the Company elected to utilize the quantitative goodwill impairment testing process, as permitted in the accounting guidance, by comparing the estimated fair value of the reporting units to their carrying values. As of April 1, 2022, the impairment testing resulted in implied fair values of our reporting units that exceeded the reporting unit’s carrying value, including goodwill. The range of fair value in excess of carrying value, including goodwill, of the reporting units was 57% to 308%. The Company did not have any reporting units with zero or negative carrying amounts.
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36 | HUBBELL INCORPORATED - Form 10-K |
The goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future discounted cash flows, determining appropriate discount rates and other assumptions, including assumptions about secular economic and market conditions, such as increases in interest rates, the potential continuing effects of the COVID-19 pandemic, impacts to the supply chain and higher inflation. We use internal discounted cash flow models to estimate fair value. These cash flow estimates are derived from historical experience, third-party end market data, and future long-term business plans and include assumptions of future sales growth, gross margin, operating margin, terminal growth rate, and the application of an appropriate discount rate. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit. We corroborate the values determined from our discounted cash flow models by reconciling the sum of the estimated fair values of each reporting unit to our market capitalization at the testing date, including consideration of a control premium. We have not recorded any goodwill impairments since the initial adoption of the accounting guidance in 2002.
The identification and measurement of impairment of indefinite-lived intangible assets involves either an assessment of qualitative factors to determine whether events or circumstances indicate that it is more-likely-than-not that an indefinite-lived intangible asset is impaired or a quantitative assessment whereby the estimated fair value of each indefinite-lived intangible asset is compared to its carrying value. If it is more-likely-than-not that the asset is impaired, the fair value of the indefinite lived intangibles will be determined using discounted cash flow estimates. If the carrying value of these assets exceeds the estimated fair value, the carrying value will be reduced to the estimated fair value. For the Company’s annual impairment test as of April 1, 2022, the Company elected to utilize the quantitative impairment testing process as permitted in the accounting guidance. The fair value was determined utilizing an income approach (relief from royalty method). Significant judgment is required to estimate the fair value of the indefinite-lived intangible assets including assumptions for future revenues, discount rates, royalty rates, and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic. Significant changes in these estimates and assumptions could affect the determination of fair value and/or impairment for each indefinite-lived intangible asset. As of April 1, 2022, the impairment testing resulted in fair values for each indefinite-lived intangible asset that significantly exceeded the carrying values and there were no indefinite-lived intangible assets at risk of failing the quantitative impairment test. We did not record any impairments related to indefinite-lived intangible assets in 2022, 2021, or 2020.
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HUBBELL INCORPORATED- Form 10-K | 37 |
Forward-Looking Statements
Some of the information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-K, contain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These include statements about our expected capital resources, liquidity, financial performance, pension funding, and results of operations and are based on our reasonable current expectations. In addition, all statements regarding the expected financial impact of the integration of acquisitions and completion of certain divestitures, adoption of updated accounting standards and any expected effects of such adoption, restructuring plans and expected associated costs and benefits, intent to repurchase shares of common stock, and change in operating results, anticipated market conditions and productivity initiatives are forward looking. Forward-looking statements may be identified by the use of words, such as “believe”, “expect”, “anticipate”, “intend”, “depend”, “should”, “plan”, “estimated”, “predict”, “could”, “may”, “subject to”, “continues”, “growing”, “prospective”, “forecast”, “projected”, “purport”, “might”, “if”, “contemplate”, “potential”, “pending,” “target”, “goals”, “scheduled”, "will", “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.
•Effects of unfavorable foreign currency exchange rates and the potential use of hedging instruments to hedge the exposure to fluctuating rates of foreign currency exchange on inventory purchases.
•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.
•General economic and business conditions in particular industries, markets or geographic regions, as well as inflationary trends.
•Regulatory issues, changes in tax laws including multijurisdictional implementation of the OECD's comprehensive base erosion and profit shifting plan, or changes in geographic profit mix affecting tax rates and availability of tax incentives.
•A major disruption in one or more of our manufacturing or distribution facilities or headquarters, including the impact of plant consolidations and relocations.
•Changes in our relationships with, or the financial condition or performance of, key distributors and other customers, agents or business partners which could adversely affect our results of operations.
•Impact of productivity improvements on lead times, quality and delivery of product.
•Anticipated future contributions and assumptions including increases in interest rates and changes in plan assets with respect to pensions and other retirement benefits, as well as pension withdrawal liabilities.
•Adjustments to product warranty accruals in response to claims incurred, historical experiences and known costs.
•Unexpected costs or charges, certain of which might be outside of our control.
•Changes in strategy due to economic conditions or other conditions outside of our control affecting anticipated future global product sourcing levels.
•Ability to carry out future acquisitions and strategic investments in our core businesses as well as the acquisition related costs.
•Ability to successfully execute, manage and integrate key acquisitions, mergers, and other transactions, such as the recent acquisition of PCX, Ripley Tools and REF, 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.
•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.
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38 | HUBBELL INCORPORATED - Form 10-K |
•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.
•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, 2022.
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 7A Quantitative and Qualitative Disclosures about Market Risk
In the operation of our business, we have various exposures to areas of risk related to factors within and outside the control of management. Significant areas of risk and our strategies to manage the exposure are discussed below.
In 2022, we manufactured and/or assembled products in the United States, Canada, Puerto Rico, Mexico, China, the UK, Brazil, Spain and Australia and sold products in those markets as well as through offices in Singapore, Italy, China, Mexico, and South Korea and countries in the Middle East. In 2022, Hubbell also participated in joint ventures in Hong Kong and the Philippines. As a percentage of the Company’s total Net sales, shipments from foreign operations directly to third parties were 8% in 2022, 9% in 2021 and 9% in 2020, with the Canadian and UK operations representing approximately 32% and 31%, respectively, of 2022 total international Net sales. As such, our operating results could be affected by changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we sell our products. To manage this exposure, we closely monitor the working capital requirements of our international units and may enter into forward foreign exchange contracts.
Product purchases representing approximately 15% of our Net sales are sourced from unaffiliated suppliers located outside the United States, primarily in Mexico, China and other Asian countries, Europe, India and Brazil. Foreign sourcing of products may result in unexpected fluctuations in product cost or increased risk of business interruption due to lack of product or component availability due to any one of the following:
•Political or economic uncertainty in the source country
•Fluctuations in the rate of exchange between the U.S. dollar and the currencies of the source countries
•Changes in U.S. laws and policies governing foreign trade
•Increased logistical complexity including supply chain interruption or delay, port of departure or entry disruption and overall time to market
•Loss of proprietary information
•Product quality issues outside the control of the Company
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HUBBELL INCORPORATED- Form 10-K | 39 |
We have developed plans that address many of these risks. Such actions include careful selection of products to be outsourced and the suppliers selected; ensuring multiple sources of supply; limiting concentrations of activity by port, broker, freight forwarder, etc.; processes related to quality control; and maintaining control over operations, technologies and manufacturing deemed to provide a competitive advantage. Many of our businesses have a dependency on certain basic raw materials needed to produce their products including steel, aluminum, brass, copper, bronze, zinc, nickel, plastics, phenols, elastomers and petrochemicals as well as purchased electrical and electronic components. Our financial results could be affected by the availability and changes in prices of these materials and components.
Certain of these materials are sourced from a limited number of suppliers. These materials are also key source materials for many other companies in our industry and within the universe of industrial manufacturers in general. As such, in periods of rising demand for these materials, we may experience both increased costs and/or limited supply. These conditions can potentially result in our inability to acquire these key materials on a timely basis to produce our products and satisfy our incoming sales orders. Similarly, the cost of these materials can rise suddenly and result in materially higher costs of producing our products. We believe we have adequate primary and secondary sources of supply for each of our key materials and that, in periods of rising prices, we expect to recover a majority of the increased cost in the form of higher selling prices. However, recoveries typically lag the effect of cost increases due to the nature of our markets.
Our financial results are subject to interest rate fluctuations to the extent there is a difference between the amount of our interest-earning assets and the amount of interest-bearing liabilities. The principal objectives of our investment management activities are to preserve capital while earning net investment income that is commensurate with acceptable levels of interest rate, default and liquidity risk taking into account our funding needs. As part of our investment management strategy, we may use derivative financial products such as interest rate hedges and interest rate swaps.
From time to time or when required, we issue commercial paper, which exposes us to changes in interest rates. Our cash position includes amounts denominated in foreign currencies. We manage our worldwide cash requirements by considering available funds held by our subsidiaries and the cost effectiveness with which these funds can be accessed.
As of December 31, 2022, the long-term debt outstanding related to the fixed-rate senior notes was $1,450.0 million. The senior notes are not exposed to interest rate risk as the bonds are at a fixed-rate until maturity.
We continually evaluate risk retention and insurance levels for product liability, property damage and other potential exposures to risk. We devote significant effort to maintaining and improving safety and internal control programs, which are intended to reduce our exposure to certain risks. We determine the level of insurance coverage and the likelihood of a loss and believe that the current levels of risk retention are consistent with those of comparable companies in the industries in which we operate. There can be no assurance that we will not incur losses beyond the limits of our insurance. However, our liquidity, financial position and profitability are not expected to be materially affected by the levels of risk retention that we accept.
The following table presents cost and weighted average interest rate information related to financial instruments that are sensitive to changes in interest rates, by maturity at December 31, 2022 (dollars in millions):
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| 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | Fair Value 12/31/22 |
ASSETS | | | | | | | | |
Available-for-sale investments | $ | 14.4 | | $ | 17.0 | | $ | 10.2 | | $ | 8.6 | | $ | 2.3 | | $ | 10.1 | | $ | 62.6 | | $ | 61.4 | |
Avg. interest rate | 4.38 | % | 3.95 | % | 3.73 | % | 4.88 | % | 4.57 | % | 3.28 | % | | |
LIABILITIES | | | | | | | | |
Senior Notes | $ | — | | $ | — | | $ | — | | $ | 400.0 | | $ | 300.0 | | $ | 750.0 | | $ | 1,450.0 | | $ | 1,306.5 | |
Avg. interest rate | — | | — | | — | | 3.35 | % | 3.15 | % | 3.02 | % | | |
We use derivative financial instruments only if they are matched with a specific asset, liability, or proposed future transaction. We do not speculate or use leverage when trading a financial derivative product.
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40 | HUBBELL INCORPORATED - Form 10-K |
ITEM 8 Financial Statements and Supplementary Data
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All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
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HUBBELL INCORPORATED- Form 10-K | 41 |
Reports of Management
Report on Management’s Responsibility for Financial Statements Our management is responsible for the preparation, integrity and fair presentation of our published financial statements. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on informed judgments made by management.
We believe it is critical to provide investors and other users of our financial statements with information that is relevant, objective, understandable and timely, so that they can make informed decisions. As a result, we have established and maintain systems and practices and internal control processes designed to provide reasonable, but not absolute, assurance that transactions are properly executed and recorded and that our policies and procedures are carried out appropriately. Management strives to recruit, train and retain high quality people to ensure that controls are designed, implemented and maintained in a high-quality, reliable manner.
Our independent registered public accounting firm audited our financial statements and the effectiveness of our internal control over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board (United States). Their report appears on the next page within this Annual Report on Form 10-K.
Our Board of Directors normally meets at least eight times per year to provide oversight, to review corporate strategies and operations, and to assess management’s conduct of the business. The Board of Directors also schedules additional meetings on an as needed basis. The Audit Committee of our Board of Directors is composed of at least three individuals all of whom must be “independent” under current New York Stock Exchange listing standards and regulations adopted by the SEC under the federal securities laws. The Audit Committee meets regularly with our internal auditors and independent registered public accounting firm, as well as, management to review, among other matters, accounting, auditing, internal controls and financial reporting issues and practices. Both the internal auditors and independent registered public accounting firm have full, unlimited access to the Audit Committee.
Management’s Annual Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate systems of internal control over financial reporting as defined by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.
During the year ended December 31, 2022, the Company acquired PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. for an aggregate purchase price of $177.1 million. Because the Company has not yet fully incorporated the internal controls and procedures of the acquired entities into the Company's internal control over financial reporting, management excluded these businesses from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2022. These entities accounted for 2% of the Company's total assets excluding intangibles and goodwill as of December 31, 2022 and less than 1% of the Company's net sales for the year then ended December 31, 2022.
In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this assessment, management concluded that our internal control over financial reporting was effective at a reasonable assurance level as of December 31, 2022.
The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm as stated in their report which is included below within this Annual Report on Form 10-K.
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/s/ GERBEN W. BAKKER | | /s/ WILLIAM R. SPERRY |
Gerben W. Bakker | | William R. Sperry |
Chairman of the Board, President and Chief Executive Officer | | Executive Vice President and Chief Financial Officer |
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42 | HUBBELL INCORPORATED - Form 10-K |
Report of Independent Registered Public Accounting Firm
Tothe Board of Directors and Shareholders of Hubbell Incorporated
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Hubbell Incorporated and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. from its assessment of internal control over financial reporting as of December 31, 2022 because they were acquired by the Company in a purchase business combination during 2022. We have also excluded PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. from our audit of internal control over financial reporting. PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 2% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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HUBBELL INCORPORATED- Form 10-K | 43 |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessments – One of the Reporting Units Subject to a Quantitative Assessment
As described in Notes 1 and 7 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,970.5 million as of December 31, 2022. Goodwill represents purchase price in excess of fair values of the underlying net assets of acquired companies. Goodwill is subject to annual impairment testing. Management performs its goodwill impairment testing as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. On January 1, 2022, the Company reorganized certain businesses within the Electrical Solutions segment to simplify the organization structure and align the organization to better serve their customers. As a result of the change in reporting units, management performed an interim goodwill impairment assessment prior to the change, for reporting units within the Electrical Solutions segment. As disclosed by management, management also completed its annual goodwill impairment assessment as of April 1, 2022. For three of its reporting units, management elected to utilize the quantitative goodwill impairment testing process, as permitted in the accounting guidance, by comparing the estimated fair value of the Company's reporting units to their carrying values for both assessments. If the estimated fair value of the reporting unit exceeds its carrying value, no impairment exists. Goodwill impairment testing requires judgment by management, including the identification of reporting units, assigning assets and liabilities to reporting units and determining the fair value of each reporting unit. Management uses internal discounted cash flow models to estimate fair value. Significant judgments required by management to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic, impacts to the supply chain and higher inflation. These cash flow estimates are derived from historical experience, third party end market data, and future long-term business plans and include assumptions of future sales growth, gross margin, operating margin, terminal growth rate and the application of an appropriate discount rate.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for one of the reporting units subject to a quantitative assessment is a critical audit matter are (i) the significant judgment by management when estimating the fair value of the reporting unit and (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to future sales growth, gross margin, and operating expenses.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s quantitative goodwill impairment assessment, including controls over the estimation of the fair value of the reporting unit. These procedures also included, among others, (i) testing management’s process for estimating the fair value of the reporting unit; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of the underlying data used in the model; and (iv) evaluating the reasonableness of significant assumptions used by management related to future sales growth, gross margin, and operating expenses. Evaluating management’s assumptions related to the future sales growth, gross margin, and operating expenses involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit; (ii) the consistency with industry and third party data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 9, 2023
We have served as the Company’s auditor since at least 1961. We have not been able to determine the specific year we began serving as auditor of the Company.
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44 | HUBBELL INCORPORATED - Form 10-K |
Consolidated Statement of Income
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| Year Ended December 31, |
(in millions, except per share amounts) | 2022 | 2021 | 2020 |
Net sales | $ | 4,947.9 | | $ | 4,194.1 | | $ | 3,682.5 | |
Cost of goods sold | 3,476.3 | | 3,042.6 | | 2,596.7 | |
Gross profit | 1,471.6 | | 1,151.5 | | 1,085.8 | |
Selling & administrative expenses | 762.5 | | 619.2 | | 591.3 | |
Operating income | 709.1 | | 532.3 | | 494.5 | |
Loss on disposition of business (Note 4) | — | | (6.9) | | — | |
Loss on extinguishment of debt (Note 13) | — | | (16.8) | | — | |
Pension charge (Note 12) | (7.0) | | — | | (7.6) | |
Interest expense, net | (49.6) | | (54.7) | | (60.1) | |
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Other income (expense), net | 4.5 | | 5.4 | | (2.3) | |
Total other expense | (52.1) | | (73.0) | | (70.0) | |
Income from continuing operations before income taxes | 657.0 | | 459.3 | | 424.5 | |
Provision for income taxes | 140.2 | | 88.2 | | 89.8 | |
Net income from continuing operations | 516.8 | | 371.1 | | 334.7 | |
Less: Net income from continuing operations attributable to noncontrolling interest | (5.5) | | (6.1) | | (4.7) | |
Net income from continuing operations attributable to Hubbell Incorporated | 511.3 | | 365.0 | | 330.0 | |
Income from discontinued operations, net of tax (Note 2) | 34.6 | | 34.5 | | 21.2 | |
Net income attributable to Hubbell Incorporated | $ | 545.9 | | $ | 399.5 | | $ | 351.2 | |
| | | |
Earnings per share | | | |
Basic earnings per share from continuing operations | $ | 9.49 | | $ | 6.70 | | $ | 6.07 | |
Basic earnings per share from discontinued operations | $ | 0.64 | | $ | 0.63 | | $ | 0.39 | |
Basic earnings per share | $ | 10.13 | | $ | 7.33 | | $ | 6.46 | |
| | | |
Diluted earnings per share from continuing operations | $ | 9.43 | | $ | 6.66 | | $ | 6.04 | |
Diluted earnings per share from discontinued operations | $ | 0.64 | | $ | 0.62 | | $ | 0.39 | |
Diluted earnings per share | $ | 10.07 | | $ | 7.28 | | $ | 6.43 | |
See notes to consolidated financial statements.
| | | | | |
HUBBELL INCORPORATED- Form 10-K | 45 |
Consolidated Statement of Comprehensive Income
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2022 | 2021 | 2020 |
Net income | $ | 551.4 | | $ | 405.6 | | $ | 355.9 | |
Other comprehensive income (loss): | | | |
Currency translation adjustment: | | | |
Foreign currency translation adjustments | (27.9) | | (11.5) | | 12.3 | |
Reclassification of currency translation gains included in net income | 0.5 | | — | | — | |
Defined benefit pension and post-retirement plans, net of taxes of $(4.8), $(3.2) and $2.9 | 14.2 | | 9.2 | | (8.8) | |
Unrealized gain (loss) on investments, net of taxes of $0.4, $0.1 and $(0.1) | (1.4) | | (0.4) | | 0.4 | |
Unrealized gains (losses) on cash flow hedges, net of taxes of $(0.1), $(0.4) and $0.5 | 0.2 | | 1.1 | | (0.2) | |
Other comprehensive (loss) income | (14.4) | | (1.6) | | 3.7 | |
Comprehensive income | 537.0 | | 404.0 | | 359.6 | |
Less: Comprehensive income attributable to noncontrolling interest | 5.5 | | 6.1 | | 4.7 | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO HUBBELL | $ | 531.5 | | $ | 397.9 | | $ | 354.9 | |
See notes to consolidated financial statements.
| | | | | |
46 | HUBBELL INCORPORATED - Form 10-K |
Consolidated Balance Sheet
| | | | | | | | |
| At December 31, |
(in millions, except per share amounts) | 2022 | 2021 |
ASSETS | | |
Current Assets | | |
Cash and cash equivalents | $ | 440.5 | | $ | 286.2 | |
Short-term investments | 14.3 | | 9.4 | |
Accounts receivable (net of allowances of $14.3 and $10.6) | 741.6 | | 675.3 | |
Inventories, net | 740.7 | | 662.1 | |
Other current assets | 84.3 | | 66.8 | |
Assets held for sale - current | — | | 179.5 | |
Total Current Assets | 2,021.4 | | 1,879.3 | |
Property, Plant, and Equipment, net | 528.0 | | 459.5 | |
Other Assets | | |
Investments | 65.9 | | 69.1 | |
Goodwill | 1,970.5 | | 1,871.3 | |
Other intangible assets, net | 669.9 | | 681.5 | |
Other long-term assets | 146.9 | | 143.7 | |
Assets held for sale - non-current | — | | 177.1 | |
TOTAL ASSETS | $ | 5,402.6 | | $ | 5,281.5 | |
LIABILITIES AND EQUITY | | |
Current Liabilities | | |
Short-term debt and current portion of long-term debt | $ | 4.7 | | $ | 9.7 | |
Accounts payable | 529.9 | | 532.8 | |
Accrued salaries, wages and employee benefits | 144.2 | | 94.7 | |
Accrued insurance | 75.6 | | 73.3 | |
Other accrued liabilities | 334.1 | | 263.4 | |
Liabilities held for sale - current | — | | 91.3 | |
Total Current Liabilities | 1,088.5 | | 1,065.2 | |
Long-term Debt | 1,437.9 | | 1,435.5 | |
Other Non-Current Liabilities | 505.6 | | 521.3 | |
Liabilities held for sale - non-current | — | | 18.8 | |
TOTAL LIABILITIES | $ | 3,032.0 | | $ | 3,040.8 | |
Commitments and Contingencies (see Note 16) | | |
Hubbell Incorporated Shareholders’ Equity | | |
Common stock, par value $0.01 | | |
Common stock - Authorized 200,000,000 shares, outstanding 53,689,539 and 54,518,047 shares | $ | 0.6 | | $ | 0.6 | |
Additional paid-in capital | — | | — | |
Retained earnings | 2,705.5 | | 2,560.0 | |
Accumulated other comprehensive loss | (345.2) | | (330.8) | |
Total Hubbell Incorporated Shareholders’ Equity | 2,360.9 | | 2,229.8 | |
Noncontrolling interest | 9.7 | | 10.9 | |
TOTAL EQUITY | 2,370.6 | | 2,240.7 | |
TOTAL LIABILITIES AND EQUITY | $ | 5,402.6 | | $ | 5,281.5 | |
See notes to consolidated financial statements.
| | | | | |
HUBBELL INCORPORATED- Form 10-K | 47 |
Consolidated Statement of Cash Flows | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2022 | 2021 | 2020 |
Cash Flows from Operating Activities of Continuing Operations | | | |
Net income from continuing operations | $ | 516.8 | | $ | 371.1 | | $ | 334.7 | |
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities, net of acquisitions: | | | |
Depreciation and amortization | 148.5 | | 149.1 | | 144.5 | |
Deferred income taxes | (27.8) | | 9.2 | | 1.4 | |
Stock-based compensation | 24.5 | | 17.5 | | 21.9 | |
Provision for bad debt expense | 7.4 | | 1.3 | | 6.7 | |
Loss on disposition of business | — | | 6.9 | | — | |
Loss on extinguishment of debt | — | | 16.8 | | — | |
Pension charge | 7.0 | | — | | 7.6 | |
Loss (gain) on sale of assets | 3.5 | | (4.7) | | 0.2 | |
Changes in assets and liabilities, net of acquisitions: | | | |
(Increase) decrease in accounts receivable | (74.2) | | (124.8) | | 41.7 | |
(Increase) decrease in inventories | (66.5) | | (138.9) | | 45.8 | |
(Decrease) increase in accounts payable | (15.3) | | 195.1 | | 20.7 | |
Increase (decrease) in current liabilities | 108.3 | | 27.6 | | (26.9) | |
Changes in other assets and liabilities, net | 13.2 | | (14.9) | | 19.2 | |
Contributions to qualified defined benefit pension plans | (12.5) | | (0.1) | | (23.2) | |
Other, net | 3.3 | | 2.5 | | 8.6 | |
NET CASH PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONS | 636.2 | | 513.7 | | 602.9 | |
Cash Flows from Investing Activities of Continuing Operations | | | |
Capital expenditures | (129.3) | | (90.2) | | (82.8) | |
Acquisitions, net of cash acquired | (177.1) | | 0.1 | | (239.6) | |
Proceeds from disposal of business, net of cash | 332.8 | | 8.5 | | — | |
Purchases of available-for-sale investments | (33.7) | | (11.4) | | (35.1) | |
Proceeds from sales of available-for-sale investments | 23.0 | | 11.5 | | 28.9 | |
Other, net | 2.4 | | 9.4 | | 5.3 | |
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES FROM CONTINUING OPERATIONS | 18.1 | | (72.1) | | (323.3) | |
Cash Flows from Financing Activities of Continuing Operations | | | |
Issuance of long-term debt | — | | 298.7 | | 225.0 | |
Payment of long-term debt | — | | (300.0) | | (331.3) | |
Issuance of short-term debt | — | | 8.1 | | 125.5 | |
Payment of short-term debt | (4.8) | | (151.6) | | (3.6) | |
Payment of dividends | (229.6) | | (216.9) | | (201.4) | |
Make whole payment for retirement of long-term debt | — | | (16.0) | | — | |
Debt issuance cost | — | | (4.5) | | — | |
Acquisition of common shares | (182.0) | | (11.2) | | (41.3) | |
Other | (20.7) | | (39.6) | | (17.1) | |
NET CASH USED IN FINANCING ACTIVITIES FROM CONTINUING OPERATIONS | (437.1) | | (433.0) | | (244.2) | |
Discontinued Operations: | | | |
Cash (used) provided by operating activities | (53.0) | | 30.1 | | 45.1 | |
Cash used by investing activities | (1.7) | | (5.7) | | (5.5) | |
| | | |
Cash (used) provided by discontinued operations | (54.7) | | 24.4 | | 39.6 | |
Effect of foreign currency exchange rate changes on cash and cash equivalents | (8.8) | | (3.0) | | 2.6 | |
Increase in cash, cash equivalents, and restricted cash | 153.7 | | 30.0 | | 77.6 | |
Cash and cash equivalents, beginning of year | 286.2 | | 258.6 | | 179.8 | |
Cash and cash equivalents within assets held for sale, beginning of year | 0.7 | | 1.0 | | 2.2 | |
Restricted cash, included in other assets, beginning of year | 2.7 | | — | | — | |
Less: Restricted cash, included in Other Assets | 2.8 | | 2.7 | | — | |
Less: Cash and cash equivalents within assets held for sale, end of year | — | | 0.7 | | 1.0 | |
Cash and cash equivalents, end of year | $ | 440.5 | | $ | 286.2 | | $ | 258.6 | |
See notes to consolidated financial statements.
| | | | | |
48 | HUBBELL INCORPORATED - Form 10-K |
Consolidated Statement of Changes in Equity
| | | | | | | | | | | | | | | | | | | | |
| |
(in millions, except per share amounts) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Hubbell Shareholders' Equity | Non- controlling interest |
BALANCE AT DECEMBER 31, 2019 | $ | 0.6 | | $ | — | | $ | 2,279.4 | | $ | (332.9) | | $ | 1,947.1 | | $ | 13.4 | |
Net income | — | — | 351.2 | — | 351.2 | 4.7 |
Other comprehensive (loss) income | — | — | — | 3.7 | 3.7 | — |
Stock-based compensation | — | 23.9 | — | — | 23.9 | — |
Acquisition/surrender of common shares (1) | — | (17.8) | (34.1) | — | (51.9) | — |
Cash dividends declared ($3.71 per share) | — | — | (201.8) | — | (201.8) | — |
Dividends to noncontrolling interest | — | — | — | — | — | (2.7) |
Directors deferred compensation | — | (1.2) | — | — | (1.2) | — |
Cumulative effect from adoption of CECL accounting standard | — | — | (1.0) | — | (1.0) | — |
BALANCE AT DECEMBER 31, 2020 | $ | 0.6 | | $ | 4.9 | | $ | 2,393.7 | | $ | (329.2) | | $ | 2,070.0 | | $ | 15.4 | |
Net income | — | — | 399.5 | — | 399.5 | 6.1 |
Other comprehensive (loss) income | — | — | — | (1.6) | (1.6) | — |
Stock-based compensation | — | 18.6 | — | — | 18.6 | — |
Acquisition/surrender of common shares (1) | — | (24.2) | (15.8) | — | (40.0) | — |
Cash dividends declared ($3.99 per share) | — | — | (217.4) | — | (217.4) | — |
Dividends to noncontrolling interest | — | — | — | — | — | (10.6) |
Directors deferred compensation | — | 0.7 | — | — | 0.7 | — |
BALANCE AT DECEMBER 31, 2021 | $ | 0.6 | | $ | — | | $ | 2,560.0 | | $ | (330.8) | | $ | 2,229.8 | | $ | 10.9 | |
Net income | — | — | 545.9 | — | 545.9 | 5.5 |
Other comprehensive (loss) income | — | — | — | (14.4) | | (14.4) | — |
Stock-based compensation | — | 24.5 | — | — | 24.5 | — |
Acquisition/surrender of common shares (1) | — | (23.1) | | (170.5) | — | (193.6) | — |
Cash dividends declared ($4.27 per share) | — | — | (229.9) | — | (229.9) | — |
Dividends to noncontrolling interest | — | — | — | — | — | (6.7) |
Directors deferred compensation | — | (1.4) | — | — | (1.4) | — |
BALANCE AT DECEMBER 31, 2022 | $ | 0.6 | | $ | — | | $ | 2,705.5 | | $ | (345.2) | | $ | 2,360.9 | | $ | 9.7 | |
See notes to consolidated financial statements.
(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 $170.5 million, $15.8 million and $34.1 million in 2022, 2021 and 2020, respectively, reflects this accounting treatment.
| | | | | |
HUBBELL INCORPORATED- Form 10-K | 49 |
Notes to Consolidated Financial Statements
NOTE 1 Significant Accounting Policies Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
On February 1, 2022, the Company completed the sale of the Commercial and Industrial Lighting business (the "C&I Lighting business") to GE Current, a Daintree Company, for total net cash consideration of $332.8 million. The C&I Lighting business had sales of $509.4 million in 2021 as part of the Electrical Solutions segment and designs, manufactures, and sells LED lighting and control solutions for commercial and industrial customers. As a result of the agreement, the C&I Lighting business met the criteria set forth in ASC 205-20 to be presented as a discontinued operation. The C&I Lighting business' results of operations and the related cash flows have been presented as income from discontinued operations in the Consolidated Statements of Income and cash flows from discontinued operations in the Consolidated Statements of Cash Flows, respectively, for all periods presented. See Note 2, Discontinued Operations, to the Consolidated Financial Statements for further information.
Principles of Consolidation
The Consolidated Financial Statements include all wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company participates in two joint ventures that have been consolidated in accordance with the consolidation accounting guidance. An analysis is performed to determine which reporting entity, if any, has a controlling financial interest in a variable interest entity (“VIE”) with a primarily qualitative analysis. The qualitative analysis is based on identifying the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance (the “power criterion”) and the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE (the “losses/benefit criterion”). The party that meets both these criteria is deemed to have a controlling financial interest. The party with the controlling financial interest is considered to be the primary beneficiary and as a result is required to consolidate the VIE. The Company has a 50% interest in a joint venture in Hong Kong, established as Hubbell Asia Limited (“HAL”). The principal objective of HAL is to manage the operations of its wholly-owned manufacturing company in China. Under the accounting guidance, the Company is the primary beneficiary of HAL and as a result consolidates HAL.
This determination is based on the fact that HAL’s sole business purpose is to manufacture product exclusively for the Company (the power criterion) and the Company is financially responsible for ensuring HAL maintains a fixed operating margin (the losses/benefit criterion). The consolidation of HAL is not material to the Company’s consolidated financial statements.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements. Actual results could differ from the estimates that are used.
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 have reacted to the public health crisis with mitigation measures, creating significant uncertainties in the U.S. and global economies. 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.
Assets and Liabilities Held for Sale
The Company classifies assets and liabilities (disposal groups) to be sold as held for sale in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the disposal group; the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; an active program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond the Company's control extend the period of time required to sell the disposal group beyond one year; the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
| | | | | |
50 | HUBBELL INCORPORATED - Form 10-K |
The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the carrying value of the disposal group at the time it was initially classified as held for sale.
Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group, if material, in the line items assets held for sale and liabilities held for sale in the consolidated statements of financial position. Refer to Note 2, "Discontinued Operations," of the notes to Consolidated Financial Statements for further information. In conjunction with the C&I Lighting Business being classified as held for sale, depreciation and amortization ceased.
Revenue Recognition
The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs, for products, upon the transfer of control in accordance with the contractual terms and conditions of the sale. The majority of the Company’s revenue associated with products is recognized at a point in time when the product is shipped to the customer, with a relatively small amount of transactions in the Utility Solutions segment recognized upon delivery of the product at the contractually specified destination. Revenue from service contracts and post-shipment performance obligations is approximately two percent of total annual consolidated net revenue and those service contracts and post-shipment obligations are primarily within the Utility Solutions segment. Revenue from service contracts and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and on occasion will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue.
Within the Electrical Solutions segment, certain businesses require a portion of the transaction price to be paid in advance of transfer of control. Advance payments are not considered a significant financing component as they are received less than one year before the related performance obligations are satisfied. In addition, in the Utility Solutions segment, certain businesses offer annual maintenance service contracts that require payment at the beginning of the contract period. These payments are treated as a contract liability and are classified in Other accrued liabilities in the Consolidated Balance Sheet. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Consolidated Statement of Income. The deferred revenue relating to the annual maintenance service contracts is recognized in the Consolidated Statement of Income on a straight line basis over the expected term of the contract.
The Company has certain arrangements that require us to estimate at the time of sale the amounts of variable consideration that should not be recorded as revenue as certain amounts are not expected to be collected from customers, as well as an estimate of the value of the product to be returned. The Company principally relies on historical experience, specific customer agreements and anticipated future trends to estimate these amounts at the time of shipment and to reduce the transaction price. These arrangements include sales discounts and allowances based on sales volumes, specific programs and special pricing allowances, and returned goods, as are customary in the electrical products industry. Customer returns have historically been approximately 1% of gross sales.
Shipping and Handling Costs
The Company records shipping and handling costs as part of Cost of goods sold in the Consolidated Statement of Income.
Foreign Currency Translation
The assets and liabilities of international subsidiaries are translated to U.S. dollars at exchange rates in effect at the end of the year, and income and expense items are translated at average exchange rates in effect during the year. The effects of exchange rate fluctuations on the translated amounts of foreign currency assets and liabilities are included as translation adjustments in Accumulated other comprehensive loss within Hubbell shareholders’ equity. Gains and losses from foreign currency transactions are included in results of operations.
Cash and Cash Equivalents
The carrying value of cash equivalents approximates fair value. Cash equivalents consist of highly liquid investments with original maturities to the Company of three months or less.
| | | | | |
HUBBELL INCORPORATED- Form 10-K | 51 |
Investments
Investments in debt and equity securities are classified by individual security as available-for-sale, held-to-maturity or trading securities. Our available-for-sale securities, consisting of municipal bonds, are carried on the balance sheet at fair value with current period adjustments to carrying value recorded in Accumulated other comprehensive loss within Hubbell shareholders’ equity, net of tax. Realized gains and losses are recorded in income in the period of sale. The Company’s trading securities are carried on the balance sheet at fair value and consist primarily of debt and equity mutual funds. Gains and losses associated with these trading securities are reflected in the results of operations. The Company did not have any investments classified as held-to-maturity as of December 31, 2022 and 2021.
Accounts Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The allowance for doubtful accounts is based on an estimated amount of probable credit losses in existing accounts receivable. The allowance is calculated based upon a combination of historical write-off experience, fixed percentages applied to aging categories and specific identification based upon a review of past due balances and problem accounts. Account balances are charged off against the allowance when it is determined that internal collection efforts should no longer be pursued. The Company also maintains a reserve for credit memos and cash discounts which are principally calculated based upon historical experience, specific customer agreements, as well as anticipated future trends.
Inventories
Inventories are stated at the lower of cost or market value. Approximately 60% of total net inventory value is determined utilizing the last-in, first-out (LIFO) method of inventory accounting. The cost of foreign inventories and certain domestic inventories is determined utilizing average cost or first-in, first-out (FIFO) methods of inventory accounting. Reserves for excess and obsolete inventory are provided based on current assessments about future demand compared to on-hand quantities.
Property, Plant, and Equipment
Property, plant, and equipment values are stated at cost less accumulated depreciation. Maintenance and repair expenditures that do not significantly increase the life of an asset are charged to expense when incurred. Property, plant, and equipment placed in service prior to January 1, 1999 are depreciated over their estimated useful lives, principally, using accelerated methods. Assets placed in service subsequent to January 1, 1999 are depreciated over their estimated useful lives, using straight-line methods. Leasehold improvements are amortized over the shorter of their economic lives or the lease term. Gains and losses arising on the disposal of property, plant and equipment are included in Operating income in the Consolidated Statement of Income.
Capitalized Computer Software Costs
Capitalized computer software costs, net of amortization, were $7.0 million and $10.8 million at December 31, 2022 and 2021, respectively. This balance is reflected in Other long-term assets in the Consolidated Balance Sheet. Capitalized computer software is for internal use and costs primarily consist of purchased materials, external services and salary costs for personnel dedicated to the projects. Software is amortized on a straight-line basis over appropriate periods, generally between three and five years. The Company recorded amortization expense of $6.6 million in 2022, $9.6 million in 2021 and $10.0 million in 2020 relating to capitalized computer software.
Goodwill and Other Intangible Assets
Goodwill represents purchase price in excess of fair values of the underlying net assets of acquired companies. Indefinite-lived intangible assets and goodwill are subject to annual impairment testing using the specific guidance and criteria described in the accounting guidance. The Company performs its goodwill impairment testing as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. The accounting guidance provides entities an option of performing a qualitative assessment (a "step-zero" test) before performing a quantitative analysis. If the entity determines, on the basis of certain qualitative factors, that it is more-likely-than-not that the goodwill is not impaired, the entity would not need to proceed to quantitative goodwill impairment testing process as prescribed in the guidance. The Company applied the "step-zero" test to one of its four reporting units. Based on that qualitative assessment, the Company concluded it was more-likely-than-not that the fair value of this reporting unit exceeded its carrying value and therefore, further quantitative analysis was not required. For the other three reporting units the Company has elected to utilize the quantitative goodwill impairment testing process as permitted in the accounting guidance, by comparing the estimated fair value of the Company's reporting units to their carrying values. If the fair value of the reporting unit exceeds its carrying value, no impairment exists.
Goodwill impairment testing requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future discounted cash flows, determining appropriate discount rates and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic, impacts to the supply chain and higher inflation. We use internal discounted cash flow models to estimate fair value. These cash flow estimates are derived from historical experience, third party end market data, and future long-term business plans and include assumptions on future sales growth, gross margin, operating margin, terminal growth rate, and the application of an appropriate discount rate. Changes in these estimates and assumptions could affect the determination of fair value and/or goodwill impairment for each reporting unit. The Company believes that its estimated aggregate fair value of its reporting units is reasonable when compared to the Company's market capitalization on the valuation date.
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52 | HUBBELL INCORPORATED - Form 10-K |
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. As a result of the change in reporting units, the Company performed an interim goodwill impairment assessment prior to the change, for the reporting units within the Electrical Solutions segment. Because the changes did not affect the Utility Solutions segment, no interim goodwill impairment assessment was required for that segment.
As of April 1, 2022, the impairment testing resulted in implied fair values of our reporting units that exceeded the reporting unit's carrying value, including goodwill. The range of fair value in excess of carrying value, including goodwill, of the reporting units was 57% to 308%. Additionally, the Company did not have any reporting units with zero or negative carrying amounts. The Company has not recorded any goodwill impairments since the initial adoption of the accounting guidance in 2002.
The Company’s intangible assets consist primarily of customer relationships, tradenames, developed technology and patents. Intangible assets with definite lives are amortized over periods generally ranging from 5-30 years. The Company amortizes intangible assets with definite lives using either an accelerated method that reflects the pattern in which economic benefits of the intangible assets are consumed and results in higher amortization in the earlier years of the assets' useful life, or using a straight line method. Approximately 80% of the gross value of definite-lived intangible assets follow an accelerated amortization method. These definite lived intangibles are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The Company did not record any material impairments related to its definite lived intangible assets in 2022, 2021 or 2020. The Company also has some tradenames that are considered to be indefinite-lived intangible assets. These indefinite-lived intangible assets are not amortized and are tested for impairment annually, unless circumstances dictate the need for more frequent assessment.
The identification and measurement of impairment of indefinite-lived intangible assets involves either an assessment of qualitative factors to determine whether events or circumstances indicate that it is more-likely-than-not that an indefinite-lived intangible asset is impaired or a quantitative assessment whereby the estimated fair value of each indefinite-lived intangible asset is compared to its carrying value. If it is more-likely-than-not that the asset is impaired, the fair value of the indefinite lived intangibles will be determined using discounted cash flow estimates. If the carrying value of these assets exceeds the estimated fair value, the carrying value will be reduced to the estimated fair value. For the Company’s annual impairment test as of April 1, 2022, the Company elected to utilize the quantitative impairment testing process as permitted in the accounting guidance. The fair value was determined utilizing an income approach (relief from royalty method). Significant judgment is required to estimate the fair value of the indefinite-lived intangible assets including assumptions for future revenues,
discount rates, royalty rates, and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic. Significant changes in these estimates and assumptions could affect the determination of fair value and/or impairment for each indefinite-lived intangible asset. As of April 1, 2022, the impairment testing resulted in fair values for each indefinite-lived intangible asset that significantly exceeded the carrying values and there were no indefinite-lived intangible assets at risk of failing the quantitative impairment test. The Company did not record any impairments related to indefinite-lived intangible assets in 2022, 2021 and 2020.
Other Long-Lived Assets
The Company reviews depreciable long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If such a change in circumstances occurs, the related estimated future undiscounted cash flows expected to result from the use of the asset group and its eventual disposition is compared to the carrying amount. If the sum of the expected cash flows of the asset group is less than the carrying amount, an impairment charge is recorded. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of impaired assets is determined using expected cash flow estimates, quoted market prices when available and appraisals as appropriate. WeThe Company did not record any material impairment charges related to long-lived assets in 2019, 2018,2022, 2021 or 2017.2020.
GoodwillLeases
We determine if an arrangement is a lease at inception. Operating leases are included as ROU assets within other long-term assets, other accrued liabilities, and indefinite-lived intangibleother non-current liabilities in our Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. The Company's finance leases are immaterial.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are reviewed annually for impairment unless circumstances dictaterecognized at the need for more frequent assessment.lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We perform our goodwill impairment testinguse an implicit rate when readily determinable. For leases existing as of AprilJanuary 1,st 2019, we have elected to use the remaining lease term as of each year unless circumstances dictate the need for more frequent assessments. The accounting guidance provides entities an optionadoption date in determining the incremental borrowing rate. Our determination of performing a qualitative assessment before performing a quantitative analysis. If the entity determines, onlease term may include options to extend or terminate the basis of certain qualitative factors, thatlease when it is more-likely-than-notreasonably certain that the goodwill is not impaired, the entity would not need to proceed to the quantitative goodwill impairment testing process as prescribed in the guidance. The Company performed a qualitative assessment for four of its seven reporting units. The Company elected to bypass the qualitative assessment and proceeded directly to the quantitative analysis for its remaining reporting units.we will exercise that option.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for our vehicle leases, we apply a portfolio approach regarding the assumed lease term.
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HUBBELL INCORPORATED - Form 10-K | 3353 |
Accrued Insurance
The goodwill impairment test requires judgment,Company retains a significant portion of the risks associated with workers’ compensation, medical, automobile and general liability insurance. The Company estimates self-insurance liabilities using a number of factors, including the identification of reporting units, assigning assets and liabilities to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future discounted cash flows, determining appropriate discount rateshistorical claims experience, demographic factors, and other actuarial assumptions. We use internal discounted cash flow estimatesThe accrued liabilities associated with these programs are based on the Company’s estimate of the ultimate costs to settle known claims as well as claims incurred but not reported as of the balance sheet date. The Company periodically reviews the assumptions with a third party actuary to determine fair value.the adequacy of these self-insurance reserves.
Accrued Warranty
The Company offers product warranties which cover defects on most of its products. These cash flow estimateswarranties primarily apply to products that are derived fromproperly 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 and future long-term business plans and include assumptions of future sales growth, gross margin, operating margin, terminal growth rate, and the application of an appropriate discount rate. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit. As of April 1, 2019, our goodwill testing resulted in fair values for each reporting unit that substantially exceeded the reporting unit’s carrying value. We have not recorded any goodwill impairments since the initial adoption of the accounting guidance in 2002.indicates.
Income Taxes
The identificationCompany operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax authorities routinely examine the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. The Company makes adequate provisions for best estimates of exposures on previously filed tax returns. Deferred income taxes are recognized for the tax consequence of differences between financial statement carrying amounts and the tax basis of assets and liabilities by applying the currently enacted statutory tax rates in accordance with the accounting guidance for income taxes. The effect of a change in statutory tax rates is recognized in the period that includes the enactment date. Additionally, deferred tax assets are required to be reduced by a valuation allowance if it is more-likely-than-not that a portion or all of the deferred tax asset will not be realized. The Company uses factors to assess the likelihood of realization of deferred tax assets such as the forecast of future taxable income and available tax planning that could be implemented to realize the deferred tax assets.
In addition, the accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of impairmentthe tax position taken or expected to be taken in a tax return. For any amount of indefinite-lived intangible assets involves an assessment of qualitative factorsbenefit to determine whether events or circumstances indicatebe recognized, it must be determined that it is more-likely-than-not that an indefinite-lived intangible asset is impaired. If it is more-likely-than-not thata tax position will be sustained upon examination by taxing authorities based on the asset is impaired, the fair valuetechnical merits of the indefinite lived intangibles willposition. The amount of benefit to be determined using discounted cash flow estimates. Ifrecognized is based on the carrying valueCompany’s assertion of thesethe most likely outcome resulting from an examination, including resolution of any related appeals or litigation processes. Companies are required to reflect only those tax positions that are more-likely-than-not to be sustained. See Note 14 — Income Taxes for additional information.
Research and Development
Research and development expenditures represent costs to discover and/or apply new knowledge in developing a new product, process, or in bringing about a significant improvement to an existing product or process. Research and development expenses are recorded as a component of Cost of goods sold. Expenses for research and development were approximately 2% of Net Sales in each of 2022 and 2021 and 3% in 2020.
Government Assistance
We have adopted Accounting Standards Update ("ASU") 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance, which requires footnote disclosure of assistance received from government entities. We record amounts received from government entities as a reduction of the associated expense. Amounts received related to depreciable assets exceeds the estimated fair value, the carrying value will be reducedare recognized as a reduction to depreciation expense. The total impact of government assistance was not material to the estimated fair value. We didCompany in 2022, and prior periods presented.
Retirement Benefits
The Company maintains various defined benefit pension plans for some of its U.S. and foreign employees. The accounting guidance for retirement benefits requires the Company to recognize the funded status of its defined benefit pension and postretirement plans as an asset or liability in the Consolidated Balance Sheet. Gains or losses, prior service costs or credits, and transition assets or obligations that have not record any impairments relatedyet been included in net periodic benefit cost as of the end of the year are recognized as components of Accumulated other comprehensive loss, net of tax, within Hubbell shareholders’ equity. The Company’s policy is to indefinite-lived intangible assets in 2019, 2018,fund pension costs within the ranges prescribed by applicable regulations. In addition to providing defined benefit pension benefits, the Company provides health care and life insurance benefits for some of its active and retired employees. The Company’s policy is to fund these benefits through insurance premiums or 2017.as actual expenditures are made. See also Note 12 — Retirement Benefits.
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54 | HUBBELL INCORPORATED - Form 10-K |
Earnings Per Share
Restricted stock granted by the Company is considered a participating security since it contains a non-forfeitable right to dividends. As a result, the earnings per share accounting guidance requires the Company to use the two-class method for calculating earnings per share. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities. Basic earnings per share is calculated as net income available to common shareholders divided by the weighted average number of shares of common stock outstanding. Earnings per diluted share is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding of common stock plus the incremental shares outstanding assuming the exercise of dilutive stock options, stock appreciation rights and performance shares. See also Note 19 — Earnings Per Share.
Stock-Based CompensationBasis for Opinions
We determine the grant date fair value of certain stock-based compensation awards using either a lattice model or the Black-Scholes option pricing model. Both of these models require management to make certain assumptions with respect to selected model inputs. These inputs include assumptions for the expected term, stock volatility, dividend yield and risk-free interest rate. Changes in these inputs impact fair value and could impact our stock-based compensation expense in the future. In addition, we are required to estimate the expected forfeiture rate and recognize expense only for those awards expected to meet the service and performance vesting conditions. If our actual forfeiture rate is different from our estimate, adjustments to stock-based compensation expense may be required. See also Note 17 — Stock-Based Compensation in the Notes to Consolidated Financial Statements.
Forward-Looking Statements
Some of the information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-K, contain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These include statements about our expected capital resources, liquidity, financial performance, pension funding, and results of operations and are based on our reasonable current expectations. In addition, all statements regarding the expected financial impact of the integration of acquisitions, adoption of updated accounting standards and any expected effects of such adoption, restructuring plans and expected associated costs and benefits, intent to repurchase shares of Common Stock, and change in operating results, anticipated market conditions and productivity initiatives are forward looking. Forward-looking statements may be identified by the use of words, such as “believe”, “expect”, “anticipate”, “intend”, “depend”, “should”, “plan”, “estimated”, “predict”, “could”, “may”, “subject to”, “continues”, “growing”, “prospective”, “forecast”, “projected”, “purport”, “might”, “if”, “contemplate”, “potential”, “pending,” “target”, “goals”, “scheduled”, “will likely be”, and similar words and phrases. Discussions of strategies, plans or intentions often contain forward-looking statements. Important factors, among others, that could cause our actual results and future actions to differ materially from those described in forward-looking statements include, but are not limited to:
Changes in demand for our products, market conditions, product quality, or product availability adversely affecting sales levels.
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 initiative and strategic sourcing plans.
The expected benefits and the timing of other actions in connection with our Enterprise Resource Planning ("ERP") system.
The ability to effectively implement ERP systems without disrupting operational and financial processes.
Availability and costs of raw materials, purchased components, energy and freight.
Changes in expected or future levels of operating cash flow, indebtedness and capital spending.
General economic and business conditions in particular industries, markets or geographic regions, as well as inflationary trends.
Impacts of trade tariffs, import quotas or other trade restrictions or measures taken by the U.S., U.K., and other countries.
Regulatory issues, changes in tax laws including 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.
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34 | HUBBELL INCORPORATED - Form 10-K
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Anticipated future contributions and assumptions including changes in interest rates and plan assets with respect to pensions and other retirement benefits.
Adjustments to product warranty accruals in response to claims incurred, historical experiences and known costs.
Unexpected costs or charges, certain of which might be outside of our control.
Changes in strategy, economic conditions or other conditions outside of our control affecting anticipated future global product sourcing levels.
Ability to carry out future acquisitions and strategic investments in our core businesses as well as the acquisition related costs.
Ability to successfully execute, manage and integrate key acquisitions and mergers.
Unanticipated difficulties integrating acquisitions as well as the realization of expected synergies and benefits anticipated when we first enter into a transaction.
The ability of governments to meet their financial obligations.
Political unrest in foreign countries.
The impact of Brexit and other world economic and political issues.
Natural disasters.
Failure of information technology systems or security breaches resulting in unauthorized disclosure of confidential information.
Future revisions to or clarifications of the TCJA.
Future repurchases of common stock under our common stock repurchase program.
Changes in accounting principles, interpretations, or estimates.
The outcome of environmental, legal and tax contingencies or costs compared to amounts provided for such contingencies.
Adverse changes in foreign currency exchange rates and the potential use of hedging instruments to hedge the exposure to fluctuating rates of foreign currency exchange on inventory purchases.
Transitioning from LIBOR to a replacement alternative reference rate.
Other factors described in our Securities and Exchange Commission filings, including the “Business”, “Risk Factors” and “Quantitative and Qualitative Disclosures about Market Risk” sections in this Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
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 7A Quantitative and Qualitative Disclosures about Market Risk
In the operation of our business, we have various exposures to areas of risk related to factors within and outside the control of management. Significant areas of risk and our strategies to manage the exposure are discussed below.
In 2019, we manufactured and/or assembled products in the United States, Canada, Puerto Rico, Mexico, China, UK, Brazil, Spain and Australia and sold products in those markets as well as through offices in Singapore, Italy, China, Mexico, and South Korea and countries in the Middle East. In 2019, Hubbell also participated in joint ventures in Taiwan, Hong Kong and the Philippines. Shipments to third party customers from non-U.S. subsidiaries as a percentage of the Company’s total net sales were 9% in 2019, 10% in 2018 and 11% in 2017, with the UK and Canadian operations each representing approximately 29% of 2019 total international net sales. As such, our operating results could be affected by changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we sell our products. To manage this exposure, we closely monitor the working capital requirements of our international units and may enter into forward foreign exchange contracts. Further discussion of forward exchange contracts can be found in Note 14 — Financial Instruments and Fair Value Measurement in the Notes to Consolidated Financial Statements.
Product purchases representing approximately 19% of our net sales are sourced from unaffiliated suppliers located outside the United States, primarily in China and other Asian countries, Europe and Brazil. Foreign sourcing of products may result in unexpected fluctuations in product cost or increased risk of business interruption due to lack of product or component availability due to any one of the following:
Political or economic uncertainty in the source country
Fluctuations in the rate of exchange between the U.S. dollar and the currencies of the source countries
Changes in U.S. laws and policies governing foreign trade
Increased logistical complexity including supply chain interruption or delay, port of departure or entry disruption and overall time to market
Loss of proprietary information
Product quality issues outside the control of the Company
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HUBBELL INCORPORATED- Form 10-K
| 35 |
We have developed plans that address many of these risks. Such actions include careful selection of products to be outsourced and the suppliers selected; ensuring multiple sources of supply; limiting concentrations of activity by port, broker, freight forwarder, etc.; processes related to quality control; and maintaining control over operations, technologies and manufacturing deemed to provide competitive advantage. Many of our businesses have a dependency on certain basic raw materials needed to produce their products including steel, aluminum, brass, copper, bronze, zinc, nickel, plastics, phenols, elastomers and petrochemicals as well as purchased electrical and electronic components. Our financial results could be affected by the availability and changes in prices of these materials and components.
Certain of these materials are sourced from a limited number of suppliers. These materials are also key source materials for many other companies in our industry and within the universe of industrial manufacturers in general. As such, in periods of rising demand for these materials, we may experience both increased costs and/or limited supply. These conditions can potentially result in our inability to acquire these key materials on a timely basis to produce our products and satisfy our incoming sales orders. Similarly, the cost of these materials can rise suddenly and result in materially higher costs of producing our products. We believe we have adequate primary and secondary sources of supply for each of our key materials and that, in periods of rising prices, we expect to recover a majority of the increased cost in the form of higher selling prices. However, recoveries typically lag the effect of cost increases due to the nature of our markets.
Our financial results are subject to interest rate fluctuations to the extent there is a difference between the amount of our interest-earning assets and the amount of interest-bearing liabilities. The principal objectives of our investment management activities are to preserve capital while earning net investment income that is commensurate with acceptable levels of interest rate, default and liquidity risk taking into account our funding needs. As part of our investment management strategy, we may use derivative financial products such as interest rate hedges and interest rate swaps.
From time to time or when required, we issue commercial paper, which exposes us to changes in interest rates. Our cash position includes amounts denominated in foreign currencies. We manage our worldwide cash requirements by considering available funds held by our subsidiaries and the cost effectiveness with which these funds can be accessed.
Our long-term debt portfolio is comprised of fixed-rate senior notes and a term loan with an interest rate based on either adjusted LIBOR plus an applicable margin (determined by a ratings based grid) or the alternate base rate. As of December 31, 2019, the long-term debt outstanding related to the fixed-rate senior notes and term loan was $1,450.0 million and $106.3 million, respectively. The senior notes are not exposed to interest rate risk as the bonds are at a fixed-rate until maturity.
We continually evaluate risk retention and insurance levels for product liability, property damage and other potential exposures to risk. We devote significant effort to maintaining and improving safety and internal control programs, which are intended to reduce our exposure to certain risks. We determine the level of insurance coverage and the likelihood of a loss and believe that the current levels of risk retention are consistent with those of comparable companies in the industries in which we operate. There can be no assurance that we will not incur losses beyond the limits of our insurance. However, our liquidity, financial position and profitability are not expected to be materially affected by the levels of risk retention that we accept.
The following table presents cost and weighted average interest rate information related to financial instruments that are sensitive to changes in interest rates, by maturity at December 31, 2019 (dollars in millions):
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| Total | Fair Value 12/31/19 |
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Available-for-sale investments | $ | 14.2 |
| $ | 5.7 |
| $ | 5.9 |
| $ | 5.0 |
| $ | 6.6 |
| $ | 12.6 |
| $ | 50.0 |
| $ | 50.7 |
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Avg. interest rate | 4.77 | % | 4.84 | % | 4.72 | % | 4.72 | % | 4.59 | % | 4.46 | % | |
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Senior Notes | $ | — |
| $ | — |
| $ | 300.0 |
| $ | — |
| $ | — |
| $ | 1,150.0 |
| $ | 1,450.0 |
| $ | 1,486.6 |
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Avg. interest rate | — |
| — |
| 3.63 | % | — |
| — |
| 3.36 | % | | |
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Term Loan | $ | 34.4 |
| $ | 46.9 |
| $ | 25.0 |
| $ | — |
| $ | — |
| $ | — |
| $ | 106.3 |
| $ | 105.6 |
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Avg. interest rate | 2.75 | % | 2.75 | % | 2.75 | % | — |
| — |
| — |
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We use derivative financial instruments only if they are matched with a specific asset, liability, or proposed future transaction. We do not speculate or use leverage when trading a financial derivative product.
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36 | HUBBELL INCORPORATED - Form 10-K
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ITEM 8 Financial Statements and Supplementary Data
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All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
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HUBBELL INCORPORATED- Form 10-K
| 37 |
Reports of Management
Report on Management’s Responsibility for Financial Statements
OurCompany's management is responsible for the preparation, integrity and fair presentation of our published financial statements. Thethese consolidated financial statements, have been prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on informed judgments made by management.
We believe it is critical to provide investors and other users of our financial statements with information that is relevant, objective, understandable and timely, so that they can make informed decisions. As a result, we have established and maintain systems and practices and internal control processes designed to provide reasonable, but not absolute, assurance that transactions are properly executed and recorded and that our policies and procedures are carried out appropriately. Management strives to recruit, train and retain high quality people to ensure that controls are designed, implemented and maintained in a high-quality, reliable manner.
Our independent registered public accounting firm audited our financial statements and the effectiveness of ourfor maintaining effective internal control over financial reporting, in accordance with standards established by the Public Company Accounting Oversight Board (United States). Their report appears on the next page within this Annual Report on Form 10-K.
Our Board of Directors normally meets at least nine times per year to provide oversight, to review corporate strategies and operations, and to assess management’s conductfor its assessment of the business. The Boardeffectiveness of Directors also schedules additional meetings on an as needed basis. The Audit Committee of our Board of Directors is composed of at least three individuals all of whom must be “independent” under current New York Stock Exchange listing standards and regulations adopted by the SEC under the federal securities laws. The Audit Committee meets regularly with our internal auditors and independent registered public accounting firm, as well as, management to review, among other matters, accounting, auditing, internal controls andcontrol over financial reporting, issues and practices. Both the internal auditors and independent registered public accounting firm have full, unlimited access to the Audit Committee.
included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Management is responsibleOur audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for establishingour opinions.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded PCX Holdings LLC, Ripley Tools, LLC and maintaining adequate systemsNooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. from its assessment of internal control over financial reporting as definedof December 31, 2022 because they were acquired by Rules 13a-15(f)the Company in a purchase business combination during 2022. We have also excluded PCX Holdings LLC, Ripley Tools, LLC and 15d-15(f) under the Securities Exchange ActNooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. from our audit of 1934, as amended. Ourinternal control over financial reporting. PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 2% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the United Statescompany; and (iii) provide reasonable assurance regarding prevention or timely detection of America. unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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HUBBELL INCORPORATED- Form 10-K | 43 |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessedAlso, projections of any evaluation of effectiveness to future periods are subject to the effectivenessrisk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our internal control over especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial reportingstatements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessments – One of the Reporting Units Subject to a Quantitative Assessment
As described in Notes 1 and 7 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,970.5 million as of December 31, 2019.
In making this assessment, management used the criteria set forth2022. Goodwill represents purchase price in Internal Control-Integrated Framework (2013 framework) issued by the Committeeexcess of Sponsoring Organizationsfair values of the Treadway Commission ("COSO"). Based on this assessment, management concluded that our internal control over financial reporting was effective at a reasonable assurance levelunderlying net assets of acquired companies. Goodwill is subject to annual impairment testing. Management performs its goodwill impairment testing as of December 31, 2019.April 1st of each year, unless circumstances dictate the need for more frequent assessments. On January 1, 2022, the Company reorganized certain businesses within the Electrical Solutions segment to simplify the organization structure and align the organization to better serve their customers. As a result of the change in reporting units, management performed an interim goodwill impairment assessment prior to the change, for reporting units within the Electrical Solutions segment. As disclosed by management, management also completed its annual goodwill impairment assessment as of April 1, 2022. For three of its reporting units, management elected to utilize the quantitative goodwill impairment testing process, as permitted in the accounting guidance, by comparing the estimated fair value of the Company's reporting units to their carrying values for both assessments. If the estimated fair value of the reporting unit exceeds its carrying value, no impairment exists. Goodwill impairment testing requires judgment by management, including the identification of reporting units, assigning assets and liabilities to reporting units and determining the fair value of each reporting unit. Management uses internal discounted cash flow models to estimate fair value. Significant judgments required by management to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic, impacts to the supply chain and higher inflation. These cash flow estimates are derived from historical experience, third party end market data, and future long-term business plans and include assumptions of future sales growth, gross margin, operating margin, terminal growth rate and the application of an appropriate discount rate.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for one of the reporting units subject to a quantitative assessment is a critical audit matter are (i) the significant judgment by management when estimating the fair value of the reporting unit and (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to future sales growth, gross margin, and operating expenses.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of our internal controlcontrols relating to management’s quantitative goodwill impairment assessment, including controls over financialthe estimation of the fair value of the reporting asunit. These procedures also included, among others, (i) testing management’s process for estimating the fair value of December 31, 2019 has been auditedthe reporting unit; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of the underlying data used in the model; and (iv) evaluating the reasonableness of significant assumptions used by management related to future sales growth, gross margin, and operating expenses. Evaluating management’s assumptions related to the future sales growth, gross margin, and operating expenses involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit; (ii) the consistency with industry and third party data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP our independent registered public accounting firm
Hartford, Connecticut
February 9, 2023
We have served as stated in their report which is included below within this Annual Report on Form 10-K.
the Company’s auditor since at least 1961. We have not been able to determine the specific year we began serving as auditor of the Company.
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/s/ DAVID G. NORD | | /s/ WILLIAM R. SPERRY |
David G. Nord | | William R. Sperry |
Chairman of the Board and Chief Executive Officer | | Executive Vice President, Chief Financial Officer and Treasurer |
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3844 | HUBBELL INCORPORATED - Form 10-K |
Consolidated Statement of Income
Report of Independent Registered Public Accounting Firm | | | | | | | | | | | |
| Year Ended December 31, |
(in millions, except per share amounts) | 2022 | 2021 | 2020 |
Net sales | $ | 4,947.9 | | $ | 4,194.1 | | $ | 3,682.5 | |
Cost of goods sold | 3,476.3 | | 3,042.6 | | 2,596.7 | |
Gross profit | 1,471.6 | | 1,151.5 | | 1,085.8 | |
Selling & administrative expenses | 762.5 | | 619.2 | | 591.3 | |
Operating income | 709.1 | | 532.3 | | 494.5 | |
Loss on disposition of business (Note 4) | — | | (6.9) | | — | |
Loss on extinguishment of debt (Note 13) | — | | (16.8) | | — | |
Pension charge (Note 12) | (7.0) | | — | | (7.6) | |
Interest expense, net | (49.6) | | (54.7) | | (60.1) | |
| | | |
Other income (expense), net | 4.5 | | 5.4 | | (2.3) | |
Total other expense | (52.1) | | (73.0) | | (70.0) | |
Income from continuing operations before income taxes | 657.0 | | 459.3 | | 424.5 | |
Provision for income taxes | 140.2 | | 88.2 | | 89.8 | |
Net income from continuing operations | 516.8 | | 371.1 | | 334.7 | |
Less: Net income from continuing operations attributable to noncontrolling interest | (5.5) | | (6.1) | | (4.7) | |
Net income from continuing operations attributable to Hubbell Incorporated | 511.3 | | 365.0 | | 330.0 | |
Income from discontinued operations, net of tax (Note 2) | 34.6 | | 34.5 | | 21.2 | |
Net income attributable to Hubbell Incorporated | $ | 545.9 | | $ | 399.5 | | $ | 351.2 | |
| | | |
Earnings per share | | | |
Basic earnings per share from continuing operations | $ | 9.49 | | $ | 6.70 | | $ | 6.07 | |
Basic earnings per share from discontinued operations | $ | 0.64 | | $ | 0.63 | | $ | 0.39 | |
Basic earnings per share | $ | 10.13 | | $ | 7.33 | | $ | 6.46 | |
| | | |
Diluted earnings per share from continuing operations | $ | 9.43 | | $ | 6.66 | | $ | 6.04 | |
Diluted earnings per share from discontinued operations | $ | 0.64 | | $ | 0.62 | | $ | 0.39 | |
Diluted earnings per share | $ | 10.07 | | $ | 7.28 | | $ | 6.43 | |
See notes to consolidated financial statements.
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HUBBELL INCORPORATED- Form 10-K | 45 |
Consolidated Statement of Comprehensive Income
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2022 | 2021 | 2020 |
Net income | $ | 551.4 | | $ | 405.6 | | $ | 355.9 | |
Other comprehensive income (loss): | | | |
Currency translation adjustment: | | | |
Foreign currency translation adjustments | (27.9) | | (11.5) | | 12.3 | |
Reclassification of currency translation gains included in net income | 0.5 | | — | | — | |
Defined benefit pension and post-retirement plans, net of taxes of $(4.8), $(3.2) and $2.9 | 14.2 | | 9.2 | | (8.8) | |
Unrealized gain (loss) on investments, net of taxes of $0.4, $0.1 and $(0.1) | (1.4) | | (0.4) | | 0.4 | |
Unrealized gains (losses) on cash flow hedges, net of taxes of $(0.1), $(0.4) and $0.5 | 0.2 | | 1.1 | | (0.2) | |
Other comprehensive (loss) income | (14.4) | | (1.6) | | 3.7 | |
Comprehensive income | 537.0 | | 404.0 | | 359.6 | |
Less: Comprehensive income attributable to noncontrolling interest | 5.5 | | 6.1 | | 4.7 | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO HUBBELL | $ | 531.5 | | $ | 397.9 | | $ | 354.9 | |
See notes to consolidated financial statements.
the Board of Directors and Shareholders of Hubbell Incorporated
Opinions on | | | | | |
46 | HUBBELL INCORPORATED - Form 10-K |
Consolidated Balance Sheet
| | | | | | | | |
| At December 31, |
(in millions, except per share amounts) | 2022 | 2021 |
ASSETS | | |
Current Assets | | |
Cash and cash equivalents | $ | 440.5 | | $ | 286.2 | |
Short-term investments | 14.3 | | 9.4 | |
Accounts receivable (net of allowances of $14.3 and $10.6) | 741.6 | | 675.3 | |
Inventories, net | 740.7 | | 662.1 | |
Other current assets | 84.3 | | 66.8 | |
Assets held for sale - current | — | | 179.5 | |
Total Current Assets | 2,021.4 | | 1,879.3 | |
Property, Plant, and Equipment, net | 528.0 | | 459.5 | |
Other Assets | | |
Investments | 65.9 | | 69.1 | |
Goodwill | 1,970.5 | | 1,871.3 | |
Other intangible assets, net | 669.9 | | 681.5 | |
Other long-term assets | 146.9 | | 143.7 | |
Assets held for sale - non-current | — | | 177.1 | |
TOTAL ASSETS | $ | 5,402.6 | | $ | 5,281.5 | |
LIABILITIES AND EQUITY | | |
Current Liabilities | | |
Short-term debt and current portion of long-term debt | $ | 4.7 | | $ | 9.7 | |
Accounts payable | 529.9 | | 532.8 | |
Accrued salaries, wages and employee benefits | 144.2 | | 94.7 | |
Accrued insurance | 75.6 | | 73.3 | |
Other accrued liabilities | 334.1 | | 263.4 | |
Liabilities held for sale - current | — | | 91.3 | |
Total Current Liabilities | 1,088.5 | | 1,065.2 | |
Long-term Debt | 1,437.9 | | 1,435.5 | |
Other Non-Current Liabilities | 505.6 | | 521.3 | |
Liabilities held for sale - non-current | — | | 18.8 | |
TOTAL LIABILITIES | $ | 3,032.0 | | $ | 3,040.8 | |
Commitments and Contingencies (see Note 16) | | |
Hubbell Incorporated Shareholders’ Equity | | |
Common stock, par value $0.01 | | |
Common stock - Authorized 200,000,000 shares, outstanding 53,689,539 and 54,518,047 shares | $ | 0.6 | | $ | 0.6 | |
Additional paid-in capital | — | | — | |
Retained earnings | 2,705.5 | | 2,560.0 | |
Accumulated other comprehensive loss | (345.2) | | (330.8) | |
Total Hubbell Incorporated Shareholders’ Equity | 2,360.9 | | 2,229.8 | |
Noncontrolling interest | 9.7 | | 10.9 | |
TOTAL EQUITY | 2,370.6 | | 2,240.7 | |
TOTAL LIABILITIES AND EQUITY | $ | 5,402.6 | | $ | 5,281.5 | |
See notes to consolidated financial statements.
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HUBBELL INCORPORATED- Form 10-K | 47 |
Consolidated Statement of Cash Flows | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2022 | 2021 | 2020 |
Cash Flows from Operating Activities of Continuing Operations | | | |
Net income from continuing operations | $ | 516.8 | | $ | 371.1 | | $ | 334.7 | |
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities, net of acquisitions: | | | |
Depreciation and amortization | 148.5 | | 149.1 | | 144.5 | |
Deferred income taxes | (27.8) | | 9.2 | | 1.4 | |
Stock-based compensation | 24.5 | | 17.5 | | 21.9 | |
Provision for bad debt expense | 7.4 | | 1.3 | | 6.7 | |
Loss on disposition of business | — | | 6.9 | | — | |
Loss on extinguishment of debt | — | | 16.8 | | — | |
Pension charge | 7.0 | | — | | 7.6 | |
Loss (gain) on sale of assets | 3.5 | | (4.7) | | 0.2 | |
Changes in assets and liabilities, net of acquisitions: | | | |
(Increase) decrease in accounts receivable | (74.2) | | (124.8) | | 41.7 | |
(Increase) decrease in inventories | (66.5) | | (138.9) | | 45.8 | |
(Decrease) increase in accounts payable | (15.3) | | 195.1 | | 20.7 | |
Increase (decrease) in current liabilities | 108.3 | | 27.6 | | (26.9) | |
Changes in other assets and liabilities, net | 13.2 | | (14.9) | | 19.2 | |
Contributions to qualified defined benefit pension plans | (12.5) | | (0.1) | | (23.2) | |
Other, net | 3.3 | | 2.5 | | 8.6 | |
NET CASH PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONS | 636.2 | | 513.7 | | 602.9 | |
Cash Flows from Investing Activities of Continuing Operations | | | |
Capital expenditures | (129.3) | | (90.2) | | (82.8) | |
Acquisitions, net of cash acquired | (177.1) | | 0.1 | | (239.6) | |
Proceeds from disposal of business, net of cash | 332.8 | | 8.5 | | — | |
Purchases of available-for-sale investments | (33.7) | | (11.4) | | (35.1) | |
Proceeds from sales of available-for-sale investments | 23.0 | | 11.5 | | 28.9 | |
Other, net | 2.4 | | 9.4 | | 5.3 | |
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES FROM CONTINUING OPERATIONS | 18.1 | | (72.1) | | (323.3) | |
Cash Flows from Financing Activities of Continuing Operations | | | |
Issuance of long-term debt | — | | 298.7 | | 225.0 | |
Payment of long-term debt | — | | (300.0) | | (331.3) | |
Issuance of short-term debt | — | | 8.1 | | 125.5 | |
Payment of short-term debt | (4.8) | | (151.6) | | (3.6) | |
Payment of dividends | (229.6) | | (216.9) | | (201.4) | |
Make whole payment for retirement of long-term debt | — | | (16.0) | | — | |
Debt issuance cost | — | | (4.5) | | — | |
Acquisition of common shares | (182.0) | | (11.2) | | (41.3) | |
Other | (20.7) | | (39.6) | | (17.1) | |
NET CASH USED IN FINANCING ACTIVITIES FROM CONTINUING OPERATIONS | (437.1) | | (433.0) | | (244.2) | |
Discontinued Operations: | | | |
Cash (used) provided by operating activities | (53.0) | | 30.1 | | 45.1 | |
Cash used by investing activities | (1.7) | | (5.7) | | (5.5) | |
| | | |
Cash (used) provided by discontinued operations | (54.7) | | 24.4 | | 39.6 | |
Effect of foreign currency exchange rate changes on cash and cash equivalents | (8.8) | | (3.0) | | 2.6 | |
Increase in cash, cash equivalents, and restricted cash | 153.7 | | 30.0 | | 77.6 | |
Cash and cash equivalents, beginning of year | 286.2 | | 258.6 | | 179.8 | |
Cash and cash equivalents within assets held for sale, beginning of year | 0.7 | | 1.0 | | 2.2 | |
Restricted cash, included in other assets, beginning of year | 2.7 | | — | | — | |
Less: Restricted cash, included in Other Assets | 2.8 | | 2.7 | | — | |
Less: Cash and cash equivalents within assets held for sale, end of year | — | | 0.7 | | 1.0 | |
Cash and cash equivalents, end of year | $ | 440.5 | | $ | 286.2 | | $ | 258.6 | |
See notes to consolidated financial statements.
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48 | HUBBELL INCORPORATED - Form 10-K |
Consolidated Statement of Changes in Equity
| | | | | | | | | | | | | | | | | | | | |
| |
(in millions, except per share amounts) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Hubbell Shareholders' Equity | Non- controlling interest |
BALANCE AT DECEMBER 31, 2019 | $ | 0.6 | | $ | — | | $ | 2,279.4 | | $ | (332.9) | | $ | 1,947.1 | | $ | 13.4 | |
Net income | — | — | 351.2 | — | 351.2 | 4.7 |
Other comprehensive (loss) income | — | — | — | 3.7 | 3.7 | — |
Stock-based compensation | — | 23.9 | — | — | 23.9 | — |
Acquisition/surrender of common shares (1) | — | (17.8) | (34.1) | — | (51.9) | — |
Cash dividends declared ($3.71 per share) | — | — | (201.8) | — | (201.8) | — |
Dividends to noncontrolling interest | — | — | — | — | — | (2.7) |
Directors deferred compensation | — | (1.2) | — | — | (1.2) | — |
Cumulative effect from adoption of CECL accounting standard | — | — | (1.0) | — | (1.0) | — |
BALANCE AT DECEMBER 31, 2020 | $ | 0.6 | | $ | 4.9 | | $ | 2,393.7 | | $ | (329.2) | | $ | 2,070.0 | | $ | 15.4 | |
Net income | — | — | 399.5 | — | 399.5 | 6.1 |
Other comprehensive (loss) income | — | — | — | (1.6) | (1.6) | — |
Stock-based compensation | — | 18.6 | — | — | 18.6 | — |
Acquisition/surrender of common shares (1) | — | (24.2) | (15.8) | — | (40.0) | — |
Cash dividends declared ($3.99 per share) | — | — | (217.4) | — | (217.4) | — |
Dividends to noncontrolling interest | — | — | — | — | — | (10.6) |
Directors deferred compensation | — | 0.7 | — | — | 0.7 | — |
BALANCE AT DECEMBER 31, 2021 | $ | 0.6 | | $ | — | | $ | 2,560.0 | | $ | (330.8) | | $ | 2,229.8 | | $ | 10.9 | |
Net income | — | — | 545.9 | — | 545.9 | 5.5 |
Other comprehensive (loss) income | — | — | — | (14.4) | | (14.4) | — |
Stock-based compensation | — | 24.5 | — | — | 24.5 | — |
Acquisition/surrender of common shares (1) | — | (23.1) | | (170.5) | — | (193.6) | — |
Cash dividends declared ($4.27 per share) | — | — | (229.9) | — | (229.9) | — |
Dividends to noncontrolling interest | — | — | — | — | — | (6.7) |
Directors deferred compensation | — | (1.4) | — | — | (1.4) | — |
BALANCE AT DECEMBER 31, 2022 | $ | 0.6 | | $ | — | | $ | 2,705.5 | | $ | (345.2) | | $ | 2,360.9 | | $ | 9.7 | |
See notes to consolidated financial statements.
(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 $170.5 million, $15.8 million and $34.1 million in 2022, 2021 and 2020, respectively, reflects this accounting treatment.
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HUBBELL INCORPORATED- Form 10-K | 49 |
Notes to Consolidated Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheet of Hubbell Incorporated and its subsidiaries (the "Company") as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2019, including the related notes and schedule of valuation and qualifying accounts and reserves for each of the three years ended December 31, 2019 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, theNOTE 1 Significant Accounting PoliciesBasis of Presentation
The accompanying consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three yearshave been prepared in the period ended December 31, 2019 in conformityaccordance with accounting principles generally accepted in the United States of America. Also in our opinion,America (“GAAP”).
On February 1, 2022, the Company maintained,completed the sale of the Commercial and Industrial Lighting business (the "C&I Lighting business") to GE Current, a Daintree Company, for total net cash consideration of $332.8 million. The C&I Lighting business had sales of $509.4 million in 2021 as part of the Electrical Solutions segment and designs, manufactures, and sells LED lighting and control solutions for commercial and industrial customers. As a result of the agreement, the C&I Lighting business met the criteria set forth in ASC 205-20 to be presented as a discontinued operation. The C&I Lighting business' results of operations and the related cash flows have been presented as income from discontinued operations in the Consolidated Statements of Income and cash flows from discontinued operations in the Consolidated Statements of Cash Flows, respectively, for all periods presented. See Note 2, Discontinued Operations, to the Consolidated Financial Statements for further information.
Principles of Consolidation
The Consolidated Financial Statements include all wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company participates in two joint ventures that have been consolidated in accordance with the consolidation accounting guidance. An analysis is performed to determine which reporting entity, if any, has a controlling financial interest in a variable interest entity (“VIE”) with a primarily qualitative analysis. The qualitative analysis is based on identifying the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance (the “power criterion”) and the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE (the “losses/benefit criterion”). The party that meets both these criteria is deemed to have a controlling financial interest. The party with the controlling financial interest is considered to be the primary beneficiary and as a result is required to consolidate the VIE. The Company has a 50% interest in a joint venture in Hong Kong, established as Hubbell Asia Limited (“HAL”). The principal objective of HAL is to manage the operations of its wholly-owned manufacturing company in China. Under the accounting guidance, the Company is the primary beneficiary of HAL and as a result consolidates HAL.
This determination is based on the fact that HAL’s sole business purpose is to manufacture product exclusively for the Company (the power criterion) and the Company is financially responsible for ensuring HAL maintains a fixed operating margin (the losses/benefit criterion). The consolidation of HAL is not material respects, effective internalto the Company’s consolidated financial statements.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements. Actual results could differ from the estimates that are used.
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 have reacted to the public health crisis with mitigation measures, creating significant uncertainties in the U.S. and global economies. 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.
Assets and Liabilities Held for Sale
The Company classifies assets and liabilities (disposal groups) to be sold as held for sale in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the disposal group; the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; an active program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond the Company's control extend the period of time required to sell the disposal group beyond one year; the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
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50 | HUBBELL INCORPORATED - Form 10-K |
The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the carrying value of the disposal group at the time it was initially classified as held for sale.
Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group, if material, in the line items assets held for sale and liabilities held for sale in the consolidated statements of financial position. Refer to Note 2, "Discontinued Operations," of the notes to Consolidated Financial Statements for further information. In conjunction with the C&I Lighting Business being classified as held for sale, depreciation and amortization ceased.
Revenue Recognition
The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs, for products, upon the transfer of control in accordance with the contractual terms and conditions of the sale. The majority of the Company’s revenue associated with products is recognized at a point in time when the product is shipped to the customer, with a relatively small amount of transactions in the Utility Solutions segment recognized upon delivery of the product at the contractually specified destination. Revenue from service contracts and post-shipment performance obligations is approximately two percent of total annual consolidated net revenue and those service contracts and post-shipment obligations are primarily within the Utility Solutions segment. Revenue from service contracts and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and on occasion will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over financial reportinga 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 Consolidated Balance Sheet. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Consolidated Statement of Income. The deferred revenue relating to the annual maintenance service contracts is recognized in the Consolidated Statement of Income on a straight line basis over the expected term of the contract.
The Company has certain arrangements that require us to estimate at the time of sale the amounts of variable consideration that should not be recorded as revenue as certain amounts are not expected to be collected from customers, as well as an estimate of the value of the product to be returned. The Company principally relies on historical experience, specific customer agreements and anticipated future trends to estimate these amounts at the time of shipment and to reduce the transaction price. These arrangements include sales discounts and allowances based on sales volumes, specific programs and special pricing allowances, and returned goods, as are customary in the electrical products industry. Customer returns have historically been approximately 1% of gross sales.
Shipping and Handling Costs
The Company records shipping and handling costs as part of Cost of goods sold in the Consolidated Statement of Income.
Foreign Currency Translation
The assets and liabilities of international subsidiaries are translated to U.S. dollars at exchange rates in effect at the end of the year, and income and expense items are translated at average exchange rates in effect during the year. The effects of exchange rate fluctuations on the translated amounts of foreign currency assets and liabilities are included as translation adjustments in Accumulated other comprehensive loss within Hubbell shareholders’ equity. Gains and losses from foreign currency transactions are included in results of operations.
Cash and Cash Equivalents
The carrying value of cash equivalents approximates fair value. Cash equivalents consist of highly liquid investments with original maturities to the Company of three months or less.
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HUBBELL INCORPORATED- Form 10-K | 51 |
Investments
Investments in debt and equity securities are classified by individual security as available-for-sale, held-to-maturity or trading securities. Our available-for-sale securities, consisting of municipal bonds, are carried on the balance sheet at fair value with current period adjustments to carrying value recorded in Accumulated other comprehensive loss within Hubbell shareholders’ equity, net of tax. Realized gains and losses are recorded in income in the period of sale. The Company’s trading securities are carried on the balance sheet at fair value and consist primarily of debt and equity mutual funds. Gains and losses associated with these trading securities are reflected in the results of operations. The Company did not have any investments classified as held-to-maturity as of December 31, 2019,2022 and 2021.
Accounts Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The allowance for doubtful accounts is based on an estimated amount of probable credit losses in existing accounts receivable. The allowance is calculated based upon a combination of historical write-off experience, fixed percentages applied to aging categories and specific identification based upon a review of past due balances and problem accounts. Account balances are charged off against the allowance when it is determined that internal collection efforts should no longer be pursued. The Company also maintains a reserve for credit memos and cash discounts which are principally calculated based upon historical experience, specific customer agreements, as well as anticipated future trends.
Inventories
Inventories are stated at the lower of cost or market value. Approximately 60% of total net inventory value is determined utilizing the last-in, first-out (LIFO) method of inventory accounting. The cost of foreign inventories and certain domestic inventories is determined utilizing average cost or first-in, first-out (FIFO) methods of inventory accounting. Reserves for excess and obsolete inventory are provided based on current assessments about future demand compared to on-hand quantities.
Property, Plant, and Equipment
Property, plant, and equipment values are stated at cost less accumulated depreciation. Maintenance and repair expenditures that do not significantly increase the life of an asset are charged to expense when incurred. Property, plant, and equipment placed in service prior to January 1, 1999 are depreciated over their estimated useful lives, principally, using accelerated methods. Assets placed in service subsequent to January 1, 1999 are depreciated over their estimated useful lives, using straight-line methods. Leasehold improvements are amortized over the shorter of their economic lives or the lease term. Gains and losses arising on the disposal of property, plant and equipment are included in Operating income in the Consolidated Statement of Income.
Capitalized Computer Software Costs
Capitalized computer software costs, net of amortization, were $7.0 million and $10.8 million at December 31, 2022 and 2021, respectively. This balance is reflected in Other long-term assets in the Consolidated Balance Sheet. Capitalized computer software is for internal use and costs primarily consist of purchased materials, external services and salary costs for personnel dedicated to the projects. Software is amortized on a straight-line basis over appropriate periods, generally between three and five years. The Company recorded amortization expense of $6.6 million in 2022, $9.6 million in 2021 and $10.0 million in 2020 relating to capitalized computer software.
Goodwill and Other Intangible Assets
Goodwill represents purchase price in excess of fair values of the underlying net assets of acquired companies. Indefinite-lived intangible assets and goodwill are subject to annual impairment testing using the specific guidance and criteria establisheddescribed in the accounting guidance. The Company performs its goodwill impairment testing as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. The accounting guidance provides entities an option of performing a qualitative assessment (a "step-zero" test) before performing a quantitative analysis. If the entity determines, on the basis of certain qualitative factors, that it is more-likely-than-not that the goodwill is not impaired, the entity would not need to proceed to quantitative goodwill impairment testing process as prescribed in the guidance. The Company applied the "step-zero" test to one of its four reporting units. Based on that qualitative assessment, the Company concluded it was more-likely-than-not that the fair value of this reporting unit exceeded its carrying value and therefore, further quantitative analysis was not required. For the other three reporting units the Company has elected to utilize the quantitative goodwill impairment testing process as permitted in the accounting guidance, by comparing the estimated fair value of the Company's reporting units to their carrying values. If the fair value of the reporting unit exceeds its carrying value, no impairment exists.
Goodwill impairment testing requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future discounted cash flows, determining appropriate discount rates and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic, impacts to the supply chain and higher inflation. We use internal discounted cash flow models to estimate fair value. These cash flow estimates are derived from historical experience, third party end market data, and future long-term business plans and include assumptions on future sales growth, gross margin, operating margin, terminal growth rate, and the application of an appropriate discount rate. Changes in these estimates and assumptions could affect the determination of fair value and/or goodwill impairment for each reporting unit. The Company believes that its estimated aggregate fair value of its reporting units is reasonable when compared to the Company's market capitalization on the valuation date.
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52 | HUBBELL INCORPORATED - Form 10-K |
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. As a result of the change in reporting units, the Company performed an interim goodwill impairment assessment prior to the change, for the reporting units within the Electrical Solutions segment. Because the changes did not affect the Utility Solutions segment, no interim goodwill impairment assessment was required for that segment.
Internal Control - Integrated Framework
As of April 1, 2022, the impairment testing resulted in implied fair values of our reporting units that exceeded the reporting unit's carrying value, including goodwill. The range of fair value in excess of carrying value, including goodwill, of the reporting units was 57% to 308%. Additionally, the Company did not have any reporting units with zero or negative carrying amounts. The Company has not recorded any goodwill impairments since the initial adoption of the accounting guidance in 2002.
The Company’s intangible assets consist primarily of customer relationships, tradenames, developed technology and patents. Intangible assets with definite lives are amortized over periods generally ranging from 5-30 years. The Company amortizes intangible assets with definite lives using either an accelerated method that reflects the pattern in which economic benefits of the intangible assets are consumed and results in higher amortization in the earlier years of the assets' useful life, or using a straight line method. Approximately 80% of the gross value of definite-lived intangible assets follow an accelerated amortization method. These definite lived intangibles are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The Company did not record any material impairments related to its definite lived intangible assets in 2022, 2021 or 2020. The Company also has some tradenames that are considered to be indefinite-lived intangible assets. These indefinite-lived intangible assets are not amortized and are tested for impairment annually, unless circumstances dictate the need for more frequent assessment.
The identification and measurement of impairment of indefinite-lived intangible assets involves either an assessment of qualitative factors to determine whether events or circumstances indicate that it is more-likely-than-not that an indefinite-lived intangible asset is impaired or a quantitative assessment whereby the estimated fair value of each indefinite-lived intangible asset is compared to its carrying value. If it is more-likely-than-not that the asset is impaired, the fair value of the indefinite lived intangibles will be determined using discounted cash flow estimates. If the carrying value of these assets exceeds the estimated fair value, the carrying value will be reduced to the estimated fair value. For the Company’s annual impairment test as of April 1, 2022, the Company elected to utilize the quantitative impairment testing process as permitted in the accounting guidance. The fair value was determined utilizing an income approach (relief from royalty method). Significant judgment is required to estimate the fair value of the indefinite-lived intangible assets including assumptions for future revenues,
discount rates, royalty rates, and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic. Significant changes in these estimates and assumptions could affect the determination of fair value and/or impairment for each indefinite-lived intangible asset. As of April 1, 2022, the impairment testing resulted in fair values for each indefinite-lived intangible asset that significantly exceeded the carrying values and there were no indefinite-lived intangible assets at risk of failing the quantitative impairment test. The Company did not record any impairments related to indefinite-lived intangible assets in 2022, 2021 and 2020.
Other Long-Lived Assets
The Company reviews depreciable long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If such a change in circumstances occurs, the related estimated future undiscounted cash flows expected to result from the use of the asset group and its eventual disposition is compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, an impairment charge is recorded. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of impaired assets is determined using expected cash flow estimates, quoted market prices when available and appraisals as appropriate. The Company did not record any material impairment charges in 2022, 2021 or 2020.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included as ROU assets within other long-term assets, other accrued liabilities, and other non-current liabilities in our Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. The Company's finance leases are immaterial.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use an implicit rate when readily determinable. For leases existing as of January 1, 2019, we have elected to use the remaining lease term as of the adoption date in determining the incremental borrowing rate. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for our vehicle leases, we apply a portfolio approach regarding the assumed lease term.
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HUBBELL INCORPORATED- Form 10-K | 53 |
Accrued Insurance
(2013)
The Company retains a significant portion of the risks associated with workers’ compensation, medical, automobile and general liability insurance. The Company estimates self-insurance liabilities using a number of factors, including historical claims experience, demographic factors, and other actuarial assumptions. The accrued liabilities associated with these programs are based on the Company’s estimate of the ultimate costs to settle known claims as well as claims incurred but not reported as of the balance sheet date. The Company periodically reviews the assumptions with a third party actuary to determine the adequacy of these self-insurance reserves.
Accrued Warranty
The Company offers product warranties which 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.
Income Taxes
The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax authorities routinely examine the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. The Company makes adequate provisions for best estimates of exposures on previously filed tax returns. Deferred income taxes are recognized for the tax consequence of differences between financial statement carrying amounts and the tax basis of assets and liabilities by applying the currently enacted statutory tax rates in accordance with the accounting guidance for income taxes. The effect of a change in statutory tax rates is recognized in the period that includes the enactment date. Additionally, deferred tax assets are required to be reduced by a valuation allowance if it is more-likely-than-not that a portion or all of the deferred tax asset will not be realized. The Company uses factors to assess the likelihood of realization of deferred tax assets such as the forecast of future taxable income and available tax planning that could be implemented to realize the deferred tax assets.
In addition, the accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of the tax position taken or expected to be taken in a tax return. For any amount of benefit to be recognized, it must be determined that it is more-likely-than-not that a tax position will be sustained upon examination by taxing authorities based on the technical merits of the position. The amount of benefit to be recognized is based on the Company’s assertion of the most likely outcome resulting from an examination, including resolution of any related appeals or litigation processes. Companies are required to reflect only those tax positions that are more-likely-than-not to be sustained. See Note 14 — Income Taxes for additional information.
Research and Development
Research and development expenditures represent costs to discover and/or apply new knowledge in developing a new product, process, or in bringing about a significant improvement to an existing product or process. Research and development expenses are recorded as a component of Cost of goods sold. Expenses for research and development were approximately 2% of Net Sales in each of 2022 and 2021 and 3% in 2020.
Government Assistance
We have adopted Accounting Standards Update ("ASU") 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance, which requires footnote disclosure of assistance received from government entities. We record amounts received from government entities as a reduction of the associated expense. Amounts received related to depreciable assets are recognized as a reduction to depreciation expense. The total impact of government assistance was not material to the Company in 2022, and prior periods presented.
issued
Retirement Benefits
The Company maintains various defined benefit pension plans for some of its U.S. and foreign employees. The accounting guidance for retirement benefits requires the Company to recognize the funded status of its defined benefit pension and postretirement plans as an asset or liability in the Consolidated Balance Sheet. Gains or losses, prior service costs or credits, and transition assets or obligations that have not yet been included in net periodic benefit cost as of the end of the year are recognized as components of Accumulated other comprehensive loss, net of tax, within Hubbell shareholders’ equity. The Company’s policy is to fund pension costs within the ranges prescribed by applicable regulations. In addition to providing defined benefit pension benefits, the Company provides health care and life insurance benefits for some of its active and retired employees. The Company’s policy is to fund these benefits through insurance premiums or as actual expenditures are made. See also Note 12 — Retirement Benefits.
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54 | HUBBELL INCORPORATED - Form 10-K |
Earnings Per Share
Restricted stock granted by the COSO.Company is considered a participating security since it contains a non-forfeitable right to dividends. As a result, the earnings per share accounting guidance requires the Company to use the two-class method for calculating earnings per share. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities. Basic earnings per share is calculated as net income available to common shareholders divided by the weighted average number of shares of common stock outstanding. Earnings per diluted share is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding of common stock plus the incremental shares outstanding assuming the exercise of dilutive stock options, stock appreciation rights and performance shares. See also Note 19 — Earnings Per Share.
BasisUse of Estimates
We are required to make assumptions and estimates and apply judgments in the preparation of our financial statements that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors deemed relevant by management, such as projections of future performance. We continually review these estimates and their underlying assumptions to ensure they are appropriate for Opinionsthe circumstances. Changes in estimates and assumptions used by us could have a material impact on our financial results, and actual results could differ significantly from those estimates. We believe that the following estimates are among the most critical in fully understanding and evaluating our reported financial results. These items utilize assumptions and estimates about the effect of future events that are inherently uncertain and are based on our judgment.
Revenue Recognition
The Company'sCompany recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs, for products, upon the transfer of control in accordance with the contractual terms and conditions of the sale. The majority of the Company’s revenue associated with products is recognized at a point in time when the product is shipped to the customer, with a relatively small amount of transactions in the Utility Solutions segment recognized upon delivery of the product at the contractually specified destination. Revenue from service contracts and post-shipment performance obligations is approximately two percent of total annual consolidated net revenue and those service contracts and post-shipment obligations are primarily within the Utility Solutions segment. Revenue from service contracts and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and on occasion will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue.
The Company has certain arrangements that require us to estimate at the time of sale the amounts of variable consideration that should not be recorded as revenue as certain amounts are not expected to be collected from customers, as well as an estimate of the value of the product to be returned. The Company principally relies on historical experience, specific customer agreements and anticipated future trends to estimate these amounts at the time of shipment and to reduce the transaction price. These arrangements include sales discounts and allowances based on sales volumes, specific programs and special pricing allowances, and returned goods, as are customary in the electrical products industry. Customer returns have historically been approximately one percent of gross sales.
Inventory Valuation
Inventories in the U.S. are primarily valued at the lower of LIFO cost or market, while non-U.S. inventories are valued at the lower of FIFO cost or market. We routinely evaluate the carrying value of our inventories to ensure they are carried at the lower of LIFO or FIFO cost or market value. Such evaluation is based on our judgment and use of estimates, including sales forecasts, gross margins for particular product groupings, planned dispositions of product lines, technological events and overall industry trends. In addition, the evaluation is based on changes in inventory management practices which may influence the timing of exiting products and method of disposing of excess inventory.
Excess inventory is generally identified by comparing future expected inventory usage to actual on-hand quantities. Inventory values are reduced for on-hand inventory in excess of pre-defined usage forecasts. Forecast usage is primarily determined by projecting historical (actual) sales and inventory usage levels forward to future periods. Changes in these estimates may necessitate future adjustments to inventory values.
Employee Benefits Costs and Funding
We sponsor domestic and foreign defined benefit pension, defined contribution and other postretirement plans. Significant assumptions used in the accounting for these employee benefit plans include the discount rate, expected return on the pension fund assets, rate of increase in employee compensation levels and health care cost increase projections. These assumptions are determined based on Company data and appropriate market indicators, and are evaluated each year as of the plans’ measurement dates. Further discussion of the assumptions used in 2022 and 2021 are included above under “Pension Funding Status” and in Note 12 — Retirement Benefits in the Notes to Consolidated Financial Statements.
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HUBBELL INCORPORATED- Form 10-K | 35 |
Taxes
We account for income taxes in accordance with the applicable accounting guidance which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. Additionally, deferred tax assets are required to be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. The factors used to assess the likelihood of realization of deferred tax assets are the forecast of future taxable income, available tax planning strategies that could be implemented to realize the net deferred tax assets, and future reversals of deferred tax liabilities. Failure to achieve forecasted taxable income can affect the ultimate realization of net deferred tax assets.
We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. The Internal Revenue Service (“IRS”) and other tax authorities routinely review our tax returns. These audits can involve complex issues, which may require an extended period of time to resolve. The Company records uncertain tax positions when it has determined that it is more-likely-than-not that a tax position will not be sustained upon examination by taxing authorities based on the technical merits of the position. The Company uses the criteria established in the accounting guidance to determine whether an item meets the definition of more-likely-than-not. The Company’s policy is to recognize these uncertain tax positions when the more-likely-than-not threshold is met, when the statute of limitations has expired or upon settlement. In management’s opinion, adequate provision has been made for potential adjustments arising from any examinations. See Note 14 — Income Taxes in the Notes to Consolidated Financial Statements.
Valuation of Long-Lived Assets, Goodwill, and Indefinite-Lived Intangible Assets
Our long-lived assets include land, buildings, equipment, molds and dies, software, goodwill and other intangible assets. Long-lived assets, other than land, goodwill and indefinite-lived intangibles, are depreciated over their estimated useful lives. The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the dates of acquisition. Goodwill represents purchase price in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets primarily consist of patents, tradenames, developed technology and customer related intangibles.
Goodwill and indefinite-lived intangible assets are reviewed annually for impairment unless circumstances dictate the need for more frequent assessment. We perform our annual goodwill impairment testing as of April 1st of each year. The accounting guidance provides entities an option of performing a qualitative assessment (the "Step-zero" test) before performing a quantitative analysis. If the entity determines, on the basis of certain qualitative factors, that it is more-likely-than-not that the goodwill is not impaired, the entity would not need to proceed to the quantitative goodwill impairment testing process as prescribed in the guidance. If the Company does not elect to complete the qualitative assessment, the Company completes the quantitative assessment whereby the estimated fair value of each reporting unit is compared to its carrying value.
The organizational changes within Electrical Solutions effective January 1, 2022 resulted in a change in the Company’s reporting units. As a result, the Company performed an interim goodwill impairment assessment as of January 1, 2022. For the three reporting units within the Electrical Solutions segment, the Company elected to utilize the quantitative goodwill impairment testing process, as permitted in the accounting guidance, by comparing the estimated fair value of the reporting units to their carrying values. The Company did not have any reporting units at risk of failing the quantitative impairment test as the excess of the implied fair value exceeded the carrying value of each of the reporting units. Additionally, the Company did not have any reporting units with zero or negative carrying amounts.
The Company also completed its annual goodwill impairment test as of April 1, 2022. The Company applied the Step-zero test to one of its four reporting units. Based on the qualitative assessment, the Company concluded that it was more likely than not that the fair value of this reporting unit substantially exceeded its carrying value and, therefore, further quantitative analysis was not required. For the other three reporting units, the Company elected to utilize the quantitative goodwill impairment testing process, as permitted in the accounting guidance, by comparing the estimated fair value of the reporting units to their carrying values. As of April 1, 2022, the impairment testing resulted in implied fair values of our reporting units that exceeded the reporting unit’s carrying value, including goodwill. The range of fair value in excess of carrying value, including goodwill, of the reporting units was 57% to 308%. The Company did not have any reporting units with zero or negative carrying amounts.
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36 | HUBBELL INCORPORATED - Form 10-K |
The goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future discounted cash flows, determining appropriate discount rates and other assumptions, including assumptions about secular economic and market conditions, such as increases in interest rates, the potential continuing effects of the COVID-19 pandemic, impacts to the supply chain and higher inflation. We use internal discounted cash flow models to estimate fair value. These cash flow estimates are derived from historical experience, third-party end market data, and future long-term business plans and include assumptions of future sales growth, gross margin, operating margin, terminal growth rate, and the application of an appropriate discount rate. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit. We corroborate the values determined from our discounted cash flow models by reconciling the sum of the estimated fair values of each reporting unit to our market capitalization at the testing date, including consideration of a control premium. We have not recorded any goodwill impairments since the initial adoption of the accounting guidance in 2002.
The identification and measurement of impairment of indefinite-lived intangible assets involves either an assessment of qualitative factors to determine whether events or circumstances indicate that it is more-likely-than-not that an indefinite-lived intangible asset is impaired or a quantitative assessment whereby the estimated fair value of each indefinite-lived intangible asset is compared to its carrying value. If it is more-likely-than-not that the asset is impaired, the fair value of the indefinite lived intangibles will be determined using discounted cash flow estimates. If the carrying value of these assets exceeds the estimated fair value, the carrying value will be reduced to the estimated fair value. For the Company’s annual impairment test as of April 1, 2022, the Company elected to utilize the quantitative impairment testing process as permitted in the accounting guidance. The fair value was determined utilizing an income approach (relief from royalty method). Significant judgment is required to estimate the fair value of the indefinite-lived intangible assets including assumptions for future revenues, discount rates, royalty rates, and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic. Significant changes in these estimates and assumptions could affect the determination of fair value and/or impairment for each indefinite-lived intangible asset. As of April 1, 2022, the impairment testing resulted in fair values for each indefinite-lived intangible asset that significantly exceeded the carrying values and there were no indefinite-lived intangible assets at risk of failing the quantitative impairment test. We did not record any impairments related to indefinite-lived intangible assets in 2022, 2021, or 2020.
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HUBBELL INCORPORATED- Form 10-K | 37 |
Forward-Looking Statements
Some of the information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-K, contain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These include statements about our expected capital resources, liquidity, financial performance, pension funding, and results of operations and are based on our reasonable current expectations. In addition, all statements regarding the expected financial impact of the integration of acquisitions and completion of certain divestitures, adoption of updated accounting standards and any expected effects of such adoption, restructuring plans and expected associated costs and benefits, intent to repurchase shares of common stock, and change in operating results, anticipated market conditions and productivity initiatives are forward looking. Forward-looking statements may be identified by the use of words, such as “believe”, “expect”, “anticipate”, “intend”, “depend”, “should”, “plan”, “estimated”, “predict”, “could”, “may”, “subject to”, “continues”, “growing”, “prospective”, “forecast”, “projected”, “purport”, “might”, “if”, “contemplate”, “potential”, “pending,” “target”, “goals”, “scheduled”, "will", “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.
•Effects of unfavorable foreign currency exchange rates and the potential use of hedging instruments to hedge the exposure to fluctuating rates of foreign currency exchange on inventory purchases.
•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.
•General economic and business conditions in particular industries, markets or geographic regions, as well as inflationary trends.
•Regulatory issues, changes in tax laws including multijurisdictional implementation of the OECD's comprehensive base erosion and profit shifting plan, or changes in geographic profit mix affecting tax rates and availability of tax incentives.
•A major disruption in one or more of our manufacturing or distribution facilities or headquarters, including the impact of plant consolidations and relocations.
•Changes in our relationships with, or the financial condition or performance of, key distributors and other customers, agents or business partners which could adversely affect our results of operations.
•Impact of productivity improvements on lead times, quality and delivery of product.
•Anticipated future contributions and assumptions including increases in interest rates and changes in plan assets with respect to pensions and other retirement benefits, as well as pension withdrawal liabilities.
•Adjustments to product warranty accruals in response to claims incurred, historical experiences and known costs.
•Unexpected costs or charges, certain of which might be outside of our control.
•Changes in strategy due to economic conditions or other conditions outside of our control affecting anticipated future global product sourcing levels.
•Ability to carry out future acquisitions and strategic investments in our core businesses as well as the acquisition related costs.
•Ability to successfully execute, manage and integrate key acquisitions, mergers, and other transactions, such as the recent acquisition of PCX, Ripley Tools and REF, 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.
•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.
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38 | HUBBELL INCORPORATED - Form 10-K |
•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.
•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, 2022.
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 7A Quantitative and Qualitative Disclosures about Market Risk
In the operation of our business, we have various exposures to areas of risk related to factors within and outside the control of management. Significant areas of risk and our strategies to manage the exposure are discussed below.
In 2022, we manufactured and/or assembled products in the United States, Canada, Puerto Rico, Mexico, China, the UK, Brazil, Spain and Australia and sold products in those markets as well as through offices in Singapore, Italy, China, Mexico, and South Korea and countries in the Middle East. In 2022, Hubbell also participated in joint ventures in Hong Kong and the Philippines. As a percentage of the Company’s total Net sales, shipments from foreign operations directly to third parties were 8% in 2022, 9% in 2021 and 9% in 2020, with the Canadian and UK operations representing approximately 32% and 31%, respectively, of 2022 total international Net sales. As such, our operating results could be affected by changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we sell our products. To manage this exposure, we closely monitor the working capital requirements of our international units and may enter into forward foreign exchange contracts.
Product purchases representing approximately 15% of our Net sales are sourced from unaffiliated suppliers located outside the United States, primarily in Mexico, China and other Asian countries, Europe, India and Brazil. Foreign sourcing of products may result in unexpected fluctuations in product cost or increased risk of business interruption due to lack of product or component availability due to any one of the following:
•Political or economic uncertainty in the source country
•Fluctuations in the rate of exchange between the U.S. dollar and the currencies of the source countries
•Changes in U.S. laws and policies governing foreign trade
•Increased logistical complexity including supply chain interruption or delay, port of departure or entry disruption and overall time to market
•Loss of proprietary information
•Product quality issues outside the control of the Company
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HUBBELL INCORPORATED- Form 10-K | 39 |
We have developed plans that address many of these risks. Such actions include careful selection of products to be outsourced and the suppliers selected; ensuring multiple sources of supply; limiting concentrations of activity by port, broker, freight forwarder, etc.; processes related to quality control; and maintaining control over operations, technologies and manufacturing deemed to provide a competitive advantage. Many of our businesses have a dependency on certain basic raw materials needed to produce their products including steel, aluminum, brass, copper, bronze, zinc, nickel, plastics, phenols, elastomers and petrochemicals as well as purchased electrical and electronic components. Our financial results could be affected by the availability and changes in prices of these materials and components.
Certain of these materials are sourced from a limited number of suppliers. These materials are also key source materials for many other companies in our industry and within the universe of industrial manufacturers in general. As such, in periods of rising demand for these materials, we may experience both increased costs and/or limited supply. These conditions can potentially result in our inability to acquire these key materials on a timely basis to produce our products and satisfy our incoming sales orders. Similarly, the cost of these materials can rise suddenly and result in materially higher costs of producing our products. We believe we have adequate primary and secondary sources of supply for each of our key materials and that, in periods of rising prices, we expect to recover a majority of the increased cost in the form of higher selling prices. However, recoveries typically lag the effect of cost increases due to the nature of our markets.
Our financial results are subject to interest rate fluctuations to the extent there is a difference between the amount of our interest-earning assets and the amount of interest-bearing liabilities. The principal objectives of our investment management activities are to preserve capital while earning net investment income that is commensurate with acceptable levels of interest rate, default and liquidity risk taking into account our funding needs. As part of our investment management strategy, we may use derivative financial products such as interest rate hedges and interest rate swaps.
From time to time or when required, we issue commercial paper, which exposes us to changes in interest rates. Our cash position includes amounts denominated in foreign currencies. We manage our worldwide cash requirements by considering available funds held by our subsidiaries and the cost effectiveness with which these funds can be accessed.
As of December 31, 2022, the long-term debt outstanding related to the fixed-rate senior notes was $1,450.0 million. The senior notes are not exposed to interest rate risk as the bonds are at a fixed-rate until maturity.
We continually evaluate risk retention and insurance levels for product liability, property damage and other potential exposures to risk. We devote significant effort to maintaining and improving safety and internal control programs, which are intended to reduce our exposure to certain risks. We determine the level of insurance coverage and the likelihood of a loss and believe that the current levels of risk retention are consistent with those of comparable companies in the industries in which we operate. There can be no assurance that we will not incur losses beyond the limits of our insurance. However, our liquidity, financial position and profitability are not expected to be materially affected by the levels of risk retention that we accept.
The following table presents cost and weighted average interest rate information related to financial instruments that are sensitive to changes in interest rates, by maturity at December 31, 2022 (dollars in millions):
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| 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | Fair Value 12/31/22 |
ASSETS | | | | | | | | |
Available-for-sale investments | $ | 14.4 | | $ | 17.0 | | $ | 10.2 | | $ | 8.6 | | $ | 2.3 | | $ | 10.1 | | $ | 62.6 | | $ | 61.4 | |
Avg. interest rate | 4.38 | % | 3.95 | % | 3.73 | % | 4.88 | % | 4.57 | % | 3.28 | % | | |
LIABILITIES | | | | | | | | |
Senior Notes | $ | — | | $ | — | | $ | — | | $ | 400.0 | | $ | 300.0 | | $ | 750.0 | | $ | 1,450.0 | | $ | 1,306.5 | |
Avg. interest rate | — | | — | | — | | 3.35 | % | 3.15 | % | 3.02 | % | | |
We use derivative financial instruments only if they are matched with a specific asset, liability, or proposed future transaction. We do not speculate or use leverage when trading a financial derivative product.
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40 | HUBBELL INCORPORATED - Form 10-K |
ITEM 8 Financial Statements and Supplementary Data
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All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
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HUBBELL INCORPORATED- Form 10-K | 41 |
Reports of Management
Report on Management’s Responsibility for Financial Statements Our management is responsible for these consolidatedthe preparation, integrity and fair presentation of our published financial statements. The financial statements for maintaining effectivehave been prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on informed judgments made by management.
We believe it is critical to provide investors and other users of our financial statements with information that is relevant, objective, understandable and timely, so that they can make informed decisions. As a result, we have established and maintain systems and practices and internal control processes designed to provide reasonable, but not absolute, assurance that transactions are properly executed and recorded and that our policies and procedures are carried out appropriately. Management strives to recruit, train and retain high quality people to ensure that controls are designed, implemented and maintained in a high-quality, reliable manner.
Our independent registered public accounting firm audited our financial statements and the effectiveness of our internal control over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board (United States). Their report appears on the next page within this Annual Report on Form 10-K.
Our Board of Directors normally meets at least eight times per year to provide oversight, to review corporate strategies and for its assessmentoperations, and to assess management’s conduct of the effectivenessbusiness. The Board of Directors also schedules additional meetings on an as needed basis. The Audit Committee of our Board of Directors is composed of at least three individuals all of whom must be “independent” under current New York Stock Exchange listing standards and regulations adopted by the SEC under the federal securities laws. The Audit Committee meets regularly with our internal control overauditors and independent registered public accounting firm, as well as, management to review, among other matters, accounting, auditing, internal controls and financial reporting included inissues and practices. Both the accompanying internal auditors and independent registered public accounting firm have full, unlimited access to the Audit Committee.
Management’s Annual Report on Internal Control over Financial Reporting. Our responsibilityReporting Management is to express opinions on the Company’s consolidated financial statementsresponsible for establishing and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our auditmaintaining adequate systems of internal control over financial reporting included obtaining an understandingas defined by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain toprinciples in the maintenanceUnited States of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsManagement has assessed the effectiveness of any evaluationour internal control over financial reporting as of December 31, 2022.
During the year ended December 31, 2022, the Company acquired PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. for an aggregate purchase price of $177.1 million. Because the Company has not yet fully incorporated the internal controls and procedures of the acquired entities into the Company's internal control over financial reporting, management excluded these businesses from its assessment of the effectiveness to future periods are subject toof internal control over financial reporting as of December 31, 2022. These entities accounted for 2% of the riskCompany's total assets excluding intangibles and goodwill as of December 31, 2022 and less than 1% of the Company's net sales for the year then ended December 31, 2022.
In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this assessment, management concluded that controls may become inadequate becauseour internal control over financial reporting was effective at a reasonable assurance level as of changesDecember 31, 2022.
The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm as stated in conditions, or that the degree of compliance with the policies or procedures may deteriorate.their report which is included below within this Annual Report on Form 10-K.
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/s/ GERBEN W. BAKKER | | /s/ WILLIAM R. SPERRY |
Gerben W. Bakker | | William R. Sperry |
Chairman of the Board, President and Chief Executive Officer | | Executive Vice President and Chief Financial Officer |
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HUBBELL INCORPORATED- Form 10-K
| 39 |
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment - Certain Reporting Units Subject to a Quantitative Analysis
As described in Notes 1 and 6 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,811.8 million as of December 31, 2019. Goodwill represents purchase price in excess of fair values of the underlying net assets of acquired companies. Goodwill is subject to annual impairment testing. Management performs its goodwill impairment testing as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. For three of its reporting units, management has elected to utilize the quantitative goodwill impairment testing process as permitted in the accounting guidance, by comparing the fair value of the Company's reporting units to their carrying values. If the fair value of the reporting unit exceeds its carrying value, no impairment exists. Goodwill impairment testing requires judgment by management, including the identification of reporting units, assigning assets and liabilities to reporting units and determining the fair value of each reporting unit. Management uses internal discounted cash flow estimates to determine fair value. Significant judgments required by management to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions. These cash flow estimates are derived from historical experience and future long-term business plans and include assumptions on future sales growth, gross margin, operating margin, terminal growth rate and the application of an appropriate discount rate.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for certain reporting units subject to a quantitative analysis is a critical audit matter are that there was significant judgment by management when developing the fair value measurement of the reporting units. This in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating evidence relating to management’s discounted cash flow estimates and significant assumptions, including forecasted sales growth, gross margin, terminal growth rate and discount rate. In addition, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s quantitative goodwill impairment assessment, including controls over the determination of the fair value of the Company’s reporting units. These procedures also included, among others, testing management’s process for developing the fair value estimates; evaluating the appropriateness of the discounted cash flow estimates; testing the completeness, accuracy and relevance of the underlying data used in the discounted cash flow estimates; and evaluating the significant assumptions used by management, including forecasted sales growth, gross margin, terminal growth rate and discount rate. Evaluating management’s assumptions related to the forecasted sales growth, gross margin and terminal growth rate involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units, (ii) the consistency with industry and third party data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s discounted cash flow estimates, including the discount rate.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 14, 2020
We have served as the Company's auditor since at least 1961. We have not been able to determine the specific year we began serving as auditor of the Company.
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40 | HUBBELL INCORPORATED - Form 10-K
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Consolidated Statement of Income
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| Year Ended December 31, |
(in millions, except per share amounts) | 2019 |
| 2018 |
| 2017 |
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Net sales | $ | 4,591.0 |
| $ | 4,481.7 |
| $ | 3,668.8 |
|
Cost of goods sold | 3,238.3 |
| 3,181.3 |
| 2,513.7 |
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Gross profit | 1,352.7 |
| 1,300.4 |
| 1,155.1 |
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Selling & administrative expenses | 756.1 |
| 743.5 |
| 636.3 |
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Operating income | 596.6 |
| 556.9 |
| 518.8 |
|
Gain on disposition of business (Note 3) | 21.7 |
| — |
| — |
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Multi-employer pension charge (Note 15) | (8.5 | ) | — |
| — |
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Interest expense | (69.4 | ) | (72.4 | ) | (44.9 | ) |
Investment income | 1.5 |
| 0.1 |
| 0.9 |
|
Loss on extinguishment of debt | — |
| — |
| (10.1 | ) |
Other expense, net | (21.4 | ) | (17.6 | ) | (21.6 | ) |
Total other expense | (76.1 | ) | (89.9 | ) | (75.7 | ) |
Income before income taxes | 520.5 |
| 467.0 |
| 443.1 |
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Provision for income taxes | 113.1 |
| 100.9 |
| 193.2 |
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Net income | 407.4 |
| 366.1 |
| 249.9 |
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Less: Net income attributable to noncontrolling interest | 6.5 |
| 5.9 |
| 6.8 |
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NET INCOME ATTRIBUTABLE TO HUBBELL | $ | 400.9 |
| $ | 360.2 |
| $ | 243.1 |
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Earnings per share | |
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Basic | $ | 7.35 |
| $ | 6.57 |
| $ | 4.42 |
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Diluted | $ | 7.31 |
| $ | 6.54 |
| $ | 4.39 |
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See notes to consolidated financial statements.
Consolidated Statement of Comprehensive Income
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| Year Ended December 31, |
(in millions) | 2019 |
| 2018 |
| 2017 |
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Net income | $ | 407.4 |
| $ | 366.1 |
| $ | 249.9 |
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Other comprehensive income (loss): | |
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Currency translation adjustment: | | | |
Foreign currency translation adjustments | 3.7 |
| (33.9 | ) | 28.9 |
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Reclassification of currency translation gains included in net income | (7.7 | ) | — |
| — |
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Defined benefit pension and post-retirement plans, net of taxes of $5.3, ($6.3) and ($1.0) | (14.5 | ) | 17.8 |
| 4.0 |
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Unrealized gain (loss) on investments, net of taxes of ($0.2), $0.4 and ($0.2) | 2.6 |
| (1.4 | ) | 0.6 |
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Unrealized gains (losses) on cash flow hedges, net of taxes of $0.5, ($0.5) and $0.4 | (1.3 | ) | 1.6 |
| (0.8 | ) |
Other comprehensive income (loss) | (17.2 | ) | (15.9 | ) | 32.7 |
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Comprehensive income | 390.2 |
| 350.2 |
| 282.6 |
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Less: Comprehensive income attributable to noncontrolling interest | 6.5 |
| 5.9 |
| 6.8 |
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COMPREHENSIVE INCOME ATTRIBUTABLE TO HUBBELL | $ | 383.7 |
| $ | 344.3 |
| $ | 275.8 |
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See notes to consolidated financial statements.
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HUBBELL INCORPORATED- Form 10-K
| 41 |
Consolidated Balance Sheet
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| At December 31, |
(in millions, except per share amounts) | 2019 |
| 2018 |
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ASSETS | |
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Current Assets | |
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Cash and cash equivalents | $ | 182.0 |
| $ | 189.0 |
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Short-term investments | 14.2 |
| 9.2 |
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Accounts receivable, net | 683.0 |
| 725.4 |
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Inventories, net | 633.0 |
| 651.0 |
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Other current assets | 62.0 |
| 69.1 |
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Total Current Assets | 1,574.2 |
| 1,643.7 |
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Property, Plant, and Equipment, net | 505.2 |
| 502.1 |
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Other Assets | |
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Investments | 55.7 |
| 56.3 |
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Goodwill | 1,811.8 |
| 1,784.4 |
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Intangible assets, net | 781.5 |
| 819.5 |
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Other long-term assets | 174.6 |
| 66.1 |
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TOTAL ASSETS | $ | 4,903.0 |
| $ | 4,872.1 |
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LIABILITIES AND EQUITY | |
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Current Liabilities | |
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Short-term debt and current portion of long-term debt | $ | 65.4 |
| $ | 56.1 |
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Accounts payable | 347.7 |
| 393.7 |
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Accrued salaries, wages and employee benefits | 101.5 |
| 101.6 |
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Accrued insurance | 68.1 |
| 61.3 |
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Other accrued liabilities | 262.2 |
| 226.6 |
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Total Current Liabilities | 844.9 |
| 839.3 |
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Long-term Debt | 1,506.0 |
| 1,737.1 |
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Other Non-Current Liabilities | 591.6 |
| 496.8 |
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TOTAL LIABILITIES | 2,942.5 |
| 3,073.2 |
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Commitments and Contingencies (see Note 15) |
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Hubbell Shareholders’ Equity | |
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Common stock, par value $.01 | |
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Common Stock - Authorized 200,000,000 shares, outstanding 54,514,172 and 54,715,188 shares | $ | 0.6 |
| $ | 0.6 |
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Additional paid-in capital | — |
| 1.3 |
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Retained earnings | 2,279.4 |
| 2,064.4 |
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Accumulated other comprehensive loss | (332.9 | ) | (285.7 | ) |
Total Hubbell Shareholders’ Equity | 1,947.1 |
| 1,780.6 |
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Noncontrolling interest | 13.4 |
| 18.3 |
|
TOTAL EQUITY | 1,960.5 |
| 1,798.9 |
|
TOTAL LIABILITIES AND EQUITY | $ | 4,903.0 |
| $ | 4,872.1 |
|
See notes to consolidated financial statements.
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42 | HUBBELL INCORPORATED - Form 10-K |
Consolidated StatementReport of Cash FlowsIndependent Registered Public Accounting Firm
Tothe Board of Directors and Shareholders of Hubbell Incorporated
Opinions on the Financial Statements and Internal Control over Financial Reporting
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| Year Ended December 31, |
(in millions) | 2019 |
| 2018 |
| 2017 |
|
Cash Flows from Operating Activities | |
| |
| |
|
Net income | $ | 407.4 |
| $ | 366.1 |
| $ | 249.9 |
|
Adjustments to reconcile net income to net cash provided by operating activities, net of acquisitions: |
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|
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Depreciation and amortization | 151.0 |
| 148.4 |
| 98.2 |
|
Deferred income taxes | 6.1 |
| 49.0 |
| (14.3 | ) |
Stock-based compensation | 16.4 |
| 24.2 |
| 22.3 |
|
Gain on disposition of business | (21.7 | ) | — |
| — |
|
Multi-employer pension charge | 8.5 |
| — |
| — |
|
Loss on extinguishment of debt | — |
| — |
| 10.1 |
|
Gain on sale of assets | (0.4 | ) | (4.0 | ) | (11.6 | ) |
Changes in assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
Decrease (increase) in accounts receivable | 46.2 |
| (75.4 | ) | 3.9 |
|
Decrease (increase) in inventories | 12.2 |
| 34.2 |
| (90.3 | ) |
(Decrease) increase in current liabilities | (36.2 | ) | 15.6 |
| 57.4 |
|
Changes in other assets and liabilities, net | 0.9 |
| (20.4 | ) | 50.7 |
|
Contributions to qualified defined benefit pension plans | (10.4 | ) | (27.9 | ) | (1.7 | ) |
Other, net | 11.6 |
| 7.3 |
| 4.4 |
|
NET CASH PROVIDED BY OPERATING ACTIVITIES | 591.6 |
| 517.1 |
| 379.0 |
|
Cash Flows from Investing Activities |
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|
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Capital expenditures | (93.9 | ) | (96.2 | ) | (79.7 | ) |
Acquisitions, net of cash acquired | (70.8 | ) | (1,118.0 | ) | (184.1 | ) |
Proceeds from disposal of business, net of cash | 33.4 |
| — |
| — |
|
Purchases of available-for-sale investments | (14.1 | ) | (16.6 | ) | (20.9 | ) |
Proceeds from sales of available-for-sale investments | 12.5 |
| 20.5 |
| 17.4 |
|
Proceeds from disposition of assets | 3.1 |
| 6.8 |
| 18.4 |
|
Other, net | 0.9 |
| 2.1 |
| 3.3 |
|
NET CASH USED IN INVESTING ACTIVITIES | (128.9 | ) | (1,201.4 | ) | (245.6 | ) |
Cash Flows from Financing Activities |
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|
|
Issuance of long-term debt | — |
| 947.5 |
| 297.6 |
|
Payment of long-term debt | (225.0 | ) | (168.8 | ) | (300.0 | ) |
Issuance of short-term debt | 0.7 |
| 0.8 |
| 66.3 |
|
Payment of short-term debt | (0.8 | ) | (38.0 | ) | (1.7 | ) |
Make whole payment for extinguishment of long-term debt | — |
| — |
| (9.9 | ) |
Debt issuance cost | — |
| (7.6 | ) | (3.0 | ) |
Payment of dividends | (186.6 | ) | (172.3 | ) | (157.6 | ) |
Payment of dividends to noncontrolling interest | (11.3 | ) | (3.9 | ) | (3.5 | ) |
Acquisition of common shares | (35.0 | ) | (40.0 | ) | (92.5 | ) |
Other | (13.0 | ) | (11.2 | ) | (10.0 | ) |
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES | (471.0 | ) | 506.5 |
| (214.3 | ) |
Effect of foreign currency exchange rate changes on cash and cash equivalents | 1.3 |
| (8.2 | ) | 18.3 |
|
Increase (Decrease) in cash and cash equivalents | (7.0 | ) | (186.0 | ) | (62.6 | ) |
Cash and cash equivalents, beginning of year | 189.0 |
| 375.0 |
| 437.6 |
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Cash and cash equivalents, end of year | $ | 182.0 |
| $ | 189.0 |
| $ | 375.0 |
|
SeeWe have audited the accompanying consolidated balance sheets of Hubbell Incorporated and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 appearing under Item 15 (collectively referred to consolidatedas the “consolidated financial statements.
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HUBBELL INCORPORATED- Form 10-K
| 43 |
Consolidated Statementstatements”). We also have audited the Company's internal control over financial reporting as of ChangesDecember 31, 2022, based on criteria established in Equity
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| |
(in millions, except per share amounts) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Hubbell Shareholders' Equity | Non- controlling interest |
BALANCE AT DECEMBER 31, 2016 | $ | 0.6 |
| $ | 15.4 |
| $ | 1,879.3 |
| $ | (302.5 | ) | $ | 1,592.8 |
| $ | 10.4 |
|
Net income | | | 243.1 |
| | 243.1 |
| 6.8 |
|
Other comprehensive (loss) income | | | | 32.7 |
| 32.7 |
| |
Stock-based compensation | | 22.3 |
| | | 22.3 |
| |
Acquisition/surrender of common shares(1) | | (27.2 | ) | (72.1 | ) | | (99.3 | ) | |
Cash dividends declared ($2.87 per share) | | | (157.9 | ) | | (157.9 | ) | |
Dividends to noncontrolling interest | | | | | | (3.5 | ) |
Directors deferred compensation | | 0.5 |
| | | 0.5 |
| |
BALANCE AT DECEMBER 31, 2017 | $ | 0.6 |
| $ | 11.0 |
| $ | 1,892.4 |
| $ | (269.8 | ) | $ | 1,634.2 |
| $ | 13.7 |
|
Net income | | | 360.2 |
| | 360.2 |
| 5.9 |
|
Other comprehensive (loss) income | | | | (15.9 | ) | (15.9 | ) | |
Stock-based compensation | | 24.2 |
| | | 24.2 |
| |
ASC 606 adoption to retained earnings | | | 0.6 |
| | 0.6 |
| |
Acquisition/surrender of common shares(1) | | (34.5 | ) | (16.0 | ) | | (50.5 | ) | |
Cash dividends declared ($3.15 per share) | | | (172.8 | ) | | (172.8 | ) | |
Dividends to noncontrolling interest | | | | | | (3.9 | ) |
Aclara noncontrolling interest | | | | | | 2.6 |
|
Directors deferred compensation | | 0.6 |
| | | 0.6 |
| |
BALANCE AT DECEMBER 31, 2018 | $ | 0.6 |
| $ | 1.3 |
| $ | 2,064.4 |
| $ | (285.7 | ) | $ | 1,780.6 |
| $ | 18.3 |
|
Net income | | | 400.9 |
| | 400.9 |
| 6.5 |
|
Other comprehensive (loss) income | | | | (17.2 | ) | (17.2 | ) | |
Stock-based compensation | | 16.4 |
| | | 16.4 |
| |
Reclassification of stranded tax effects | | | 30.0 |
| (30.0 | ) | | |
Acquisition/surrender of common shares(1) | | (18.3 | ) | (28.9 | ) | | (47.2 | ) | |
Cash dividends declared ($3.43 per share) | | | (187.0 | ) | | (187.0 | ) | |
Dividends to noncontrolling interest | | | | | | (11.4 | ) |
Directors deferred compensation | | 0.6 |
| | | 0.6 |
| |
BALANCE AT DECEMBER 31, 2019 | $ | 0.6 |
| $ | — |
| $ | 2,279.4 |
| $ | (332.9 | ) | $ | 1,947.1 |
| $ | 13.4 |
|
See notes to consolidated financial statements.
Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
(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 $28.9 million, $16.0 million and $72.1 million in 2019, 2018 and 2017, respectively, reflects this accounting treatment.
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44 | HUBBELL INCORPORATED - Form 10-K
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Notes to Consolidated Financial Statements
NOTE 1 Significant Accounting Policies
Basis of Presentation
The accompanyingIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company have been preparedas of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in accordancethe period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
PrinciplesAmerica. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of Consolidation
The Consolidated Financial Statements include all wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company participates in 3 joint ventures, one of which is accounted for using the equity method, the others have been consolidated in accordance with the consolidation accounting guidance. An analysis is performed to determine which reporting entity, if any, has a controlling financial interest in a variable interest entity (“VIE”) with a primarily qualitative analysis. The qualitative analysis isDecember 31, 2022, based on identifyingcriteria established in Internal Control - Integrated Framework(2013)issued by the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance (the “power criterion”) and the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE (the “losses/benefit criterion”). The party that meets both these criteria is deemed to have a controlling financial interest. The party with the controlling financial interest is considered to be the primary beneficiary and as a result is required to consolidate the VIE. The Company has a 50% interest in a joint venture in Hong Kong, established as Hubbell Asia Limited (“HAL”). The principal objective of HAL is to manage the operations of its wholly-owned manufacturing company in China. Under the accounting guidance, the Company is the primary beneficiary of HAL and as a result consolidates HAL. This determination is based on the fact that HAL’s sole business purpose is to manufacture product exclusively for the Company (the power criterion) and the Company is financially responsible for ensuring HAL maintains a fixed operating margin (the losses/benefit criterion). The consolidation of HAL is not material to the Company’s consolidated financial statements.COSO.
Use of Estimates
TheWe are required to make assumptions and estimates and apply judgments in the preparation of our financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors deemed relevant by management, such as projections of future performance. We continually review these estimates and their underlying assumptions to ensure they are appropriate for the circumstances. Changes in the Consolidated Financial Statementsestimates and accompanying Notes to Consolidated Financial Statements. Actualassumptions used by us could have a material impact on our financial results, and actual results could differ significantly from those estimates. We believe that the following estimates are among the most critical in fully understanding and evaluating our reported financial results. These items utilize assumptions and estimates about the effect of future events that are used.inherently uncertain and are based on our judgment.
Revenue Recognition
The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs, for products, upon the transfer of control in accordance with the contractual terms and conditions of the sale. The majority of the Company’s revenue associated with products is recognized at a point in time when the product is shipped to the customer, with a relatively small amount of transactions in the PowerUtility Solutions segment recognized upon delivery of the product at the contractually specified destination. Revenue from service contracts and post-shipment performance obligations is approximately 3two percent of total annual consolidated net revenue and those service contracts and post-shipment obligations are primarily within the PowerUtility Solutions segment. Revenue from service contracts and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and on occasion will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue.
The Company has certain arrangements that require us to estimate at the time of sale the amounts of variable consideration that should not be recorded as revenue as certain amounts are not expected to be collected from customers, as well as an estimate of the value of the product to be returned. The Company principally relies on historical experience, specific customer agreements and anticipated future trends to estimate these amounts at the time of shipment and to reduce the transaction price. These arrangements include sales discounts and allowances based on sales volumes, specific programs and special pricing allowances, and returned goods, as are customary in the electrical products industry. Customer returns have historically been approximately one percent of gross sales.
Inventory Valuation
Inventories in the U.S. are primarily valued at the lower of LIFO cost or market, while non-U.S. inventories are valued at the lower of FIFO cost or market. We routinely evaluate the carrying value of our inventories to ensure they are carried at the lower of LIFO or FIFO cost or market value. Such evaluation is based on our judgment and use of estimates, including sales forecasts, gross margins for particular product groupings, planned dispositions of product lines, technological events and overall industry trends. In addition, the evaluation is based on changes in inventory management practices which may influence the timing of exiting products and method of disposing of excess inventory.
Excess inventory is generally identified by comparing future expected inventory usage to actual on-hand quantities. Inventory values are reduced for on-hand inventory in excess of pre-defined usage forecasts. Forecast usage is primarily determined by projecting historical (actual) sales and inventory usage levels forward to future periods. Changes in these estimates may necessitate future adjustments to inventory values.
Employee Benefits Costs and Funding
We sponsor domestic and foreign defined benefit pension, defined contribution and other postretirement plans. Significant assumptions used in the accounting for these employee benefit plans include the discount rate, expected return on the pension fund assets, rate of increase in employee compensation levels and health care cost increase projections. These assumptions are determined based on Company data and appropriate market indicators, and are evaluated each year as of the plans’ measurement dates. Further discussion of the assumptions used in 2022 and 2021 are included above under “Pension Funding Status” and in Note 12 — Retirement Benefits in the Notes to Consolidated Financial Statements.
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HUBBELL INCORPORATED- Form 10-K | 35 |
Taxes
We account for income taxes in accordance with the applicable accounting guidance which requires that deferred tax assets and liabilities be recognized using enacted tax rates for the effect of temporary differences between the book and tax basis of recorded assets and liabilities. Additionally, deferred tax assets are required to be reduced by a valuation allowance if it is more-likely-than-not that some portion or all of a deferred tax asset will not be realized. The factors used to assess the likelihood of realization of deferred tax assets are the forecast of future taxable income, available tax planning strategies that could be implemented to realize the net deferred tax assets, and future reversals of deferred tax liabilities. Failure to achieve forecasted taxable income can affect the ultimate realization of net deferred tax assets.
We operate within multiple taxing jurisdictions and are subject to audit in these jurisdictions. The Internal Revenue Service (“IRS”) and other tax authorities routinely review our tax returns. These audits can involve complex issues, which may require an extended period of time to resolve. The Company records uncertain tax positions when it has determined that it is more-likely-than-not that a tax position will not be sustained upon examination by taxing authorities based on the technical merits of the position. The Company uses the criteria established in the accounting guidance to determine whether an item meets the definition of more-likely-than-not. The Company’s policy is to recognize these uncertain tax positions when the more-likely-than-not threshold is met, when the statute of limitations has expired or upon settlement. In management’s opinion, adequate provision has been made for potential adjustments arising from any examinations. See Note 14 — Income Taxes in the Notes to Consolidated Financial Statements.
Valuation of Long-Lived Assets, Goodwill, and Indefinite-Lived Intangible Assets
Our long-lived assets include land, buildings, equipment, molds and dies, software, goodwill and other intangible assets. Long-lived assets, other than land, goodwill and indefinite-lived intangibles, are depreciated over their estimated useful lives. The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the dates of acquisition. Goodwill represents purchase price in excess of fair values assigned to the underlying identifiable net assets of acquired businesses. Intangible assets primarily consist of patents, tradenames, developed technology and customer related intangibles.
Goodwill and indefinite-lived intangible assets are reviewed annually for impairment unless circumstances dictate the need for more frequent assessment. We perform our annual goodwill impairment testing as of April 1st of each year. The accounting guidance provides entities an option of performing a qualitative assessment (the "Step-zero" test) before performing a quantitative analysis. If the entity determines, on the basis of certain qualitative factors, that it is more-likely-than-not that the goodwill is not impaired, the entity would not need to proceed to the quantitative goodwill impairment testing process as prescribed in the guidance. If the Company does not elect to complete the qualitative assessment, the Company completes the quantitative assessment whereby the estimated fair value of each reporting unit is compared to its carrying value.
The organizational changes within Electrical Solutions effective January 1, 2022 resulted in a change in the Company’s reporting units. As a result, the Company performed an interim goodwill impairment assessment as of January 1, 2022. For the three reporting units within the Electrical Solutions segment, the Company elected to utilize the quantitative goodwill impairment testing process, as permitted in the accounting guidance, by comparing the estimated fair value of the reporting units to their carrying values. The Company did not have any reporting units at risk of failing the quantitative impairment test as the excess of the implied fair value exceeded the carrying value of each of the reporting units. Additionally, the Company did not have any reporting units with zero or negative carrying amounts.
The Company also completed its annual goodwill impairment test as of April 1, 2022. The Company applied the Step-zero test to one of its four reporting units. Based on the qualitative assessment, the Company concluded that it was more likely than not that the fair value of this reporting unit substantially exceeded its carrying value and, therefore, further quantitative analysis was not required. For the other three reporting units, the Company elected to utilize the quantitative goodwill impairment testing process, as permitted in the accounting guidance, by comparing the estimated fair value of the reporting units to their carrying values. As of April 1, 2022, the impairment testing resulted in implied fair values of our reporting units that exceeded the reporting unit’s carrying value, including goodwill. The range of fair value in excess of carrying value, including goodwill, of the reporting units was 57% to 308%. The Company did not have any reporting units with zero or negative carrying amounts.
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36 | HUBBELL INCORPORATED - Form 10-K |
The goodwill impairment test requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future discounted cash flows, determining appropriate discount rates and other assumptions, including assumptions about secular economic and market conditions, such as increases in interest rates, the potential continuing effects of the COVID-19 pandemic, impacts to the supply chain and higher inflation. We use internal discounted cash flow models to estimate fair value. These cash flow estimates are derived from historical experience, third-party end market data, and future long-term business plans and include assumptions of future sales growth, gross margin, operating margin, terminal growth rate, and the application of an appropriate discount rate. Changes in these estimates and assumptions could materially affect the determination of fair value and/or goodwill impairment for each reporting unit. We corroborate the values determined from our discounted cash flow models by reconciling the sum of the estimated fair values of each reporting unit to our market capitalization at the testing date, including consideration of a control premium. We have not recorded any goodwill impairments since the initial adoption of the accounting guidance in 2002.
The identification and measurement of impairment of indefinite-lived intangible assets involves either an assessment of qualitative factors to determine whether events or circumstances indicate that it is more-likely-than-not that an indefinite-lived intangible asset is impaired or a quantitative assessment whereby the estimated fair value of each indefinite-lived intangible asset is compared to its carrying value. If it is more-likely-than-not that the asset is impaired, the fair value of the indefinite lived intangibles will be determined using discounted cash flow estimates. If the carrying value of these assets exceeds the estimated fair value, the carrying value will be reduced to the estimated fair value. For the Company’s annual impairment test as of April 1, 2022, the Company elected to utilize the quantitative impairment testing process as permitted in the accounting guidance. The fair value was determined utilizing an income approach (relief from royalty method). Significant judgment is required to estimate the fair value of the indefinite-lived intangible assets including assumptions for future revenues, discount rates, royalty rates, and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic. Significant changes in these estimates and assumptions could affect the determination of fair value and/or impairment for each indefinite-lived intangible asset. As of April 1, 2022, the impairment testing resulted in fair values for each indefinite-lived intangible asset that significantly exceeded the carrying values and there were no indefinite-lived intangible assets at risk of failing the quantitative impairment test. We did not record any impairments related to indefinite-lived intangible assets in 2022, 2021, or 2020.
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HUBBELL INCORPORATED- Form 10-K | 37 |
Forward-Looking Statements
Some of the information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, and elsewhere in this Form 10-K, contain “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These include statements about our expected capital resources, liquidity, financial performance, pension funding, and results of operations and are based on our reasonable current expectations. In addition, all statements regarding the expected financial impact of the integration of acquisitions and completion of certain divestitures, adoption of updated accounting standards and any expected effects of such adoption, restructuring plans and expected associated costs and benefits, intent to repurchase shares of common stock, and change in operating results, anticipated market conditions and productivity initiatives are forward looking. Forward-looking statements may be identified by the use of words, such as “believe”, “expect”, “anticipate”, “intend”, “depend”, “should”, “plan”, “estimated”, “predict”, “could”, “may”, “subject to”, “continues”, “growing”, “prospective”, “forecast”, “projected”, “purport”, “might”, “if”, “contemplate”, “potential”, “pending,” “target”, “goals”, “scheduled”, "will", “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.
•Effects of unfavorable foreign currency exchange rates and the potential use of hedging instruments to hedge the exposure to fluctuating rates of foreign currency exchange on inventory purchases.
•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.
•General economic and business conditions in particular industries, markets or geographic regions, as well as inflationary trends.
•Regulatory issues, changes in tax laws including multijurisdictional implementation of the OECD's comprehensive base erosion and profit shifting plan, or changes in geographic profit mix affecting tax rates and availability of tax incentives.
•A major disruption in one or more of our manufacturing or distribution facilities or headquarters, including the impact of plant consolidations and relocations.
•Changes in our relationships with, or the financial condition or performance of, key distributors and other customers, agents or business partners which could adversely affect our results of operations.
•Impact of productivity improvements on lead times, quality and delivery of product.
•Anticipated future contributions and assumptions including increases in interest rates and changes in plan assets with respect to pensions and other retirement benefits, as well as pension withdrawal liabilities.
•Adjustments to product warranty accruals in response to claims incurred, historical experiences and known costs.
•Unexpected costs or charges, certain of which might be outside of our control.
•Changes in strategy due to economic conditions or other conditions outside of our control affecting anticipated future global product sourcing levels.
•Ability to carry out future acquisitions and strategic investments in our core businesses as well as the acquisition related costs.
•Ability to successfully execute, manage and integrate key acquisitions, mergers, and other transactions, such as the recent acquisition of PCX, Ripley Tools and REF, 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.
•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.
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38 | HUBBELL INCORPORATED - Form 10-K |
•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.
•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, 2022.
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 7A Quantitative and Qualitative Disclosures about Market Risk
In the operation of our business, we have various exposures to areas of risk related to factors within and outside the control of management. Significant areas of risk and our strategies to manage the exposure are discussed below.
In 2022, we manufactured and/or assembled products in the United States, Canada, Puerto Rico, Mexico, China, the UK, Brazil, Spain and Australia and sold products in those markets as well as through offices in Singapore, Italy, China, Mexico, and South Korea and countries in the Middle East. In 2022, Hubbell also participated in joint ventures in Hong Kong and the Philippines. As a percentage of the Company’s total Net sales, shipments from foreign operations directly to third parties were 8% in 2022, 9% in 2021 and 9% in 2020, with the Canadian and UK operations representing approximately 32% and 31%, respectively, of 2022 total international Net sales. As such, our operating results could be affected by changes in foreign currency exchange rates or weak economic conditions in the foreign markets in which we sell our products. To manage this exposure, we closely monitor the working capital requirements of our international units and may enter into forward foreign exchange contracts.
Product purchases representing approximately 15% of our Net sales are sourced from unaffiliated suppliers located outside the United States, primarily in Mexico, China and other Asian countries, Europe, India and Brazil. Foreign sourcing of products may result in unexpected fluctuations in product cost or increased risk of business interruption due to lack of product or component availability due to any one of the following:
•Political or economic uncertainty in the source country
•Fluctuations in the rate of exchange between the U.S. dollar and the currencies of the source countries
•Changes in U.S. laws and policies governing foreign trade
•Increased logistical complexity including supply chain interruption or delay, port of departure or entry disruption and overall time to market
•Loss of proprietary information
•Product quality issues outside the control of the Company
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HUBBELL INCORPORATED- Form 10-K | 39 |
We have developed plans that address many of these risks. Such actions include careful selection of products to be outsourced and the suppliers selected; ensuring multiple sources of supply; limiting concentrations of activity by port, broker, freight forwarder, etc.; processes related to quality control; and maintaining control over operations, technologies and manufacturing deemed to provide a competitive advantage. Many of our businesses have a dependency on certain basic raw materials needed to produce their products including steel, aluminum, brass, copper, bronze, zinc, nickel, plastics, phenols, elastomers and petrochemicals as well as purchased electrical and electronic components. Our financial results could be affected by the availability and changes in prices of these materials and components.
Certain of these materials are sourced from a limited number of suppliers. These materials are also key source materials for many other companies in our industry and within the universe of industrial manufacturers in general. As such, in periods of rising demand for these materials, we may experience both increased costs and/or limited supply. These conditions can potentially result in our inability to acquire these key materials on a timely basis to produce our products and satisfy our incoming sales orders. Similarly, the cost of these materials can rise suddenly and result in materially higher costs of producing our products. We believe we have adequate primary and secondary sources of supply for each of our key materials and that, in periods of rising prices, we expect to recover a majority of the increased cost in the form of higher selling prices. However, recoveries typically lag the effect of cost increases due to the nature of our markets.
Our financial results are subject to interest rate fluctuations to the extent there is a difference between the amount of our interest-earning assets and the amount of interest-bearing liabilities. The principal objectives of our investment management activities are to preserve capital while earning net investment income that is commensurate with acceptable levels of interest rate, default and liquidity risk taking into account our funding needs. As part of our investment management strategy, we may use derivative financial products such as interest rate hedges and interest rate swaps.
From time to time or when required, we issue commercial paper, which exposes us to changes in interest rates. Our cash position includes amounts denominated in foreign currencies. We manage our worldwide cash requirements by considering available funds held by our subsidiaries and the cost effectiveness with which these funds can be accessed.
As of December 31, 2022, the long-term debt outstanding related to the fixed-rate senior notes was $1,450.0 million. The senior notes are not exposed to interest rate risk as the bonds are at a fixed-rate until maturity.
We continually evaluate risk retention and insurance levels for product liability, property damage and other potential exposures to risk. We devote significant effort to maintaining and improving safety and internal control programs, which are intended to reduce our exposure to certain risks. We determine the level of insurance coverage and the likelihood of a loss and believe that the current levels of risk retention are consistent with those of comparable companies in the industries in which we operate. There can be no assurance that we will not incur losses beyond the limits of our insurance. However, our liquidity, financial position and profitability are not expected to be materially affected by the levels of risk retention that we accept.
The following table presents cost and weighted average interest rate information related to financial instruments that are sensitive to changes in interest rates, by maturity at December 31, 2022 (dollars in millions):
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| 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | Fair Value 12/31/22 |
ASSETS | | | | | | | | |
Available-for-sale investments | $ | 14.4 | | $ | 17.0 | | $ | 10.2 | | $ | 8.6 | | $ | 2.3 | | $ | 10.1 | | $ | 62.6 | | $ | 61.4 | |
Avg. interest rate | 4.38 | % | 3.95 | % | 3.73 | % | 4.88 | % | 4.57 | % | 3.28 | % | | |
LIABILITIES | | | | | | | | |
Senior Notes | $ | — | | $ | — | | $ | — | | $ | 400.0 | | $ | 300.0 | | $ | 750.0 | | $ | 1,450.0 | | $ | 1,306.5 | |
Avg. interest rate | — | | — | | — | | 3.35 | % | 3.15 | % | 3.02 | % | | |
We use derivative financial instruments only if they are matched with a specific asset, liability, or proposed future transaction. We do not speculate or use leverage when trading a financial derivative product.
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40 | HUBBELL INCORPORATED - Form 10-K |
ITEM 8 Financial Statements and Supplementary Data
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All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
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HUBBELL INCORPORATED- Form 10-K | 41 |
Reports of Management
Report on Management’s Responsibility for Financial Statements Our management is responsible for the preparation, integrity and fair presentation of our published financial statements. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and include amounts based on informed judgments made by management.
We believe it is critical to provide investors and other users of our financial statements with information that is relevant, objective, understandable and timely, so that they can make informed decisions. As a result, we have established and maintain systems and practices and internal control processes designed to provide reasonable, but not absolute, assurance that transactions are properly executed and recorded and that our policies and procedures are carried out appropriately. Management strives to recruit, train and retain high quality people to ensure that controls are designed, implemented and maintained in a high-quality, reliable manner.
Our independent registered public accounting firm audited our financial statements and the effectiveness of our internal control over financial reporting in accordance with standards established by the Public Company Accounting Oversight Board (United States). Their report appears on the next page within this Annual Report on Form 10-K.
Our Board of Directors normally meets at least eight times per year to provide oversight, to review corporate strategies and operations, and to assess management’s conduct of the business. The Board of Directors also schedules additional meetings on an as needed basis. The Audit Committee of our Board of Directors is composed of at least three individuals all of whom must be “independent” under current New York Stock Exchange listing standards and regulations adopted by the SEC under the federal securities laws. The Audit Committee meets regularly with our internal auditors and independent registered public accounting firm, as well as, management to review, among other matters, accounting, auditing, internal controls and financial reporting issues and practices. Both the internal auditors and independent registered public accounting firm have full, unlimited access to the Audit Committee.
Management’s Annual Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate systems of internal control over financial reporting as defined by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of our internal control over financial reporting as of December 31, 2022.
During the year ended December 31, 2022, the Company acquired PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. for an aggregate purchase price of $177.1 million. Because the Company has not yet fully incorporated the internal controls and procedures of the acquired entities into the Company's internal control over financial reporting, management excluded these businesses from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2022. These entities accounted for 2% of the Company's total assets excluding intangibles and goodwill as of December 31, 2022 and less than 1% of the Company's net sales for the year then ended December 31, 2022.
In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework (2013 framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on this assessment, management concluded that our internal control over financial reporting was effective at a reasonable assurance level as of December 31, 2022.
The effectiveness of our internal control over financial reporting as of December 31, 2022 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm as stated in their report which is included below within this Annual Report on Form 10-K.
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/s/ GERBEN W. BAKKER | | /s/ WILLIAM R. SPERRY |
Gerben W. Bakker | | William R. Sperry |
Chairman of the Board, President and Chief Executive Officer | | Executive Vice President and Chief Financial Officer |
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42 | HUBBELL INCORPORATED - Form 10-K |
Report of Independent Registered Public Accounting Firm
Tothe Board of Directors and Shareholders of Hubbell Incorporated
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Hubbell Incorporated and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended December 31, 2022 appearing under Item 15 (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework(2013)issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 8. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidatedfinancial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. from its assessment of internal control over financial reporting as of December 31, 2022 because they were acquired by the Company in a purchase business combination during 2022. We have also excluded PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. from our audit of internal control over financial reporting. PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. are wholly-owned subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 2% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
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HUBBELL INCORPORATED- Form 10-K | 43 |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessments – One of the Reporting Units Subject to a Quantitative Assessment
As described in Notes 1 and 7 to the consolidated financial statements, the Company’s consolidated goodwill balance was $1,970.5 million as of December 31, 2022. Goodwill represents purchase price in excess of fair values of the underlying net assets of acquired companies. Goodwill is subject to annual impairment testing. Management performs its goodwill impairment testing as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. On January 1, 2022, the Company reorganized certain businesses within the Electrical Solutions segment to simplify the organization structure and align the organization to better serve their customers. As a result of the change in reporting units, management performed an interim goodwill impairment assessment prior to the change, for reporting units within the Electrical Solutions segment. As disclosed by management, management also completed its annual goodwill impairment assessment as of April 1, 2022. For three of its reporting units, management elected to utilize the quantitative goodwill impairment testing process, as permitted in the accounting guidance, by comparing the estimated fair value of the Company's reporting units to their carrying values for both assessments. If the estimated fair value of the reporting unit exceeds its carrying value, no impairment exists. Goodwill impairment testing requires judgment by management, including the identification of reporting units, assigning assets and liabilities to reporting units and determining the fair value of each reporting unit. Management uses internal discounted cash flow models to estimate fair value. Significant judgments required by management to estimate the fair value of reporting units include estimating future cash flows, determining appropriate discount rates and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic, impacts to the supply chain and higher inflation. These cash flow estimates are derived from historical experience, third party end market data, and future long-term business plans and include assumptions of future sales growth, gross margin, operating margin, terminal growth rate and the application of an appropriate discount rate.
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment for one of the reporting units subject to a quantitative assessment is a critical audit matter are (i) the significant judgment by management when estimating the fair value of the reporting unit and (ii) the high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to future sales growth, gross margin, and operating expenses.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s quantitative goodwill impairment assessment, including controls over the estimation of the fair value of the reporting unit. These procedures also included, among others, (i) testing management’s process for estimating the fair value of the reporting unit; (ii) evaluating the appropriateness of the discounted cash flow model; (iii) testing the completeness and accuracy of the underlying data used in the model; and (iv) evaluating the reasonableness of significant assumptions used by management related to future sales growth, gross margin, and operating expenses. Evaluating management’s assumptions related to the future sales growth, gross margin, and operating expenses involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit; (ii) the consistency with industry and third party data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.
/s/ PricewaterhouseCoopers LLP
Hartford, Connecticut
February 9, 2023
We have served as the Company’s auditor since at least 1961. We have not been able to determine the specific year we began serving as auditor of the Company.
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44 | HUBBELL INCORPORATED - Form 10-K |
Consolidated Statement of Income
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions, except per share amounts) | 2022 | 2021 | 2020 |
Net sales | $ | 4,947.9 | | $ | 4,194.1 | | $ | 3,682.5 | |
Cost of goods sold | 3,476.3 | | 3,042.6 | | 2,596.7 | |
Gross profit | 1,471.6 | | 1,151.5 | | 1,085.8 | |
Selling & administrative expenses | 762.5 | | 619.2 | | 591.3 | |
Operating income | 709.1 | | 532.3 | | 494.5 | |
Loss on disposition of business (Note 4) | — | | (6.9) | | — | |
Loss on extinguishment of debt (Note 13) | — | | (16.8) | | — | |
Pension charge (Note 12) | (7.0) | | — | | (7.6) | |
Interest expense, net | (49.6) | | (54.7) | | (60.1) | |
| | | |
Other income (expense), net | 4.5 | | 5.4 | | (2.3) | |
Total other expense | (52.1) | | (73.0) | | (70.0) | |
Income from continuing operations before income taxes | 657.0 | | 459.3 | | 424.5 | |
Provision for income taxes | 140.2 | | 88.2 | | 89.8 | |
Net income from continuing operations | 516.8 | | 371.1 | | 334.7 | |
Less: Net income from continuing operations attributable to noncontrolling interest | (5.5) | | (6.1) | | (4.7) | |
Net income from continuing operations attributable to Hubbell Incorporated | 511.3 | | 365.0 | | 330.0 | |
Income from discontinued operations, net of tax (Note 2) | 34.6 | | 34.5 | | 21.2 | |
Net income attributable to Hubbell Incorporated | $ | 545.9 | | $ | 399.5 | | $ | 351.2 | |
| | | |
Earnings per share | | | |
Basic earnings per share from continuing operations | $ | 9.49 | | $ | 6.70 | | $ | 6.07 | |
Basic earnings per share from discontinued operations | $ | 0.64 | | $ | 0.63 | | $ | 0.39 | |
Basic earnings per share | $ | 10.13 | | $ | 7.33 | | $ | 6.46 | |
| | | |
Diluted earnings per share from continuing operations | $ | 9.43 | | $ | 6.66 | | $ | 6.04 | |
Diluted earnings per share from discontinued operations | $ | 0.64 | | $ | 0.62 | | $ | 0.39 | |
Diluted earnings per share | $ | 10.07 | | $ | 7.28 | | $ | 6.43 | |
See notes to consolidated financial statements.
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HUBBELL INCORPORATED- Form 10-K | 45 |
Consolidated Statement of Comprehensive Income
| | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2022 | 2021 | 2020 |
Net income | $ | 551.4 | | $ | 405.6 | | $ | 355.9 | |
Other comprehensive income (loss): | | | |
Currency translation adjustment: | | | |
Foreign currency translation adjustments | (27.9) | | (11.5) | | 12.3 | |
Reclassification of currency translation gains included in net income | 0.5 | | — | | — | |
Defined benefit pension and post-retirement plans, net of taxes of $(4.8), $(3.2) and $2.9 | 14.2 | | 9.2 | | (8.8) | |
Unrealized gain (loss) on investments, net of taxes of $0.4, $0.1 and $(0.1) | (1.4) | | (0.4) | | 0.4 | |
Unrealized gains (losses) on cash flow hedges, net of taxes of $(0.1), $(0.4) and $0.5 | 0.2 | | 1.1 | | (0.2) | |
Other comprehensive (loss) income | (14.4) | | (1.6) | | 3.7 | |
Comprehensive income | 537.0 | | 404.0 | | 359.6 | |
Less: Comprehensive income attributable to noncontrolling interest | 5.5 | | 6.1 | | 4.7 | |
COMPREHENSIVE INCOME ATTRIBUTABLE TO HUBBELL | $ | 531.5 | | $ | 397.9 | | $ | 354.9 | |
See notes to consolidated financial statements.
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46 | HUBBELL INCORPORATED - Form 10-K |
Consolidated Balance Sheet
| | | | | | | | |
| At December 31, |
(in millions, except per share amounts) | 2022 | 2021 |
ASSETS | | |
Current Assets | | |
Cash and cash equivalents | $ | 440.5 | | $ | 286.2 | |
Short-term investments | 14.3 | | 9.4 | |
Accounts receivable (net of allowances of $14.3 and $10.6) | 741.6 | | 675.3 | |
Inventories, net | 740.7 | | 662.1 | |
Other current assets | 84.3 | | 66.8 | |
Assets held for sale - current | — | | 179.5 | |
Total Current Assets | 2,021.4 | | 1,879.3 | |
Property, Plant, and Equipment, net | 528.0 | | 459.5 | |
Other Assets | | |
Investments | 65.9 | | 69.1 | |
Goodwill | 1,970.5 | | 1,871.3 | |
Other intangible assets, net | 669.9 | | 681.5 | |
Other long-term assets | 146.9 | | 143.7 | |
Assets held for sale - non-current | — | | 177.1 | |
TOTAL ASSETS | $ | 5,402.6 | | $ | 5,281.5 | |
LIABILITIES AND EQUITY | | |
Current Liabilities | | |
Short-term debt and current portion of long-term debt | $ | 4.7 | | $ | 9.7 | |
Accounts payable | 529.9 | | 532.8 | |
Accrued salaries, wages and employee benefits | 144.2 | | 94.7 | |
Accrued insurance | 75.6 | | 73.3 | |
Other accrued liabilities | 334.1 | | 263.4 | |
Liabilities held for sale - current | — | | 91.3 | |
Total Current Liabilities | 1,088.5 | | 1,065.2 | |
Long-term Debt | 1,437.9 | | 1,435.5 | |
Other Non-Current Liabilities | 505.6 | | 521.3 | |
Liabilities held for sale - non-current | — | | 18.8 | |
TOTAL LIABILITIES | $ | 3,032.0 | | $ | 3,040.8 | |
Commitments and Contingencies (see Note 16) | | |
Hubbell Incorporated Shareholders’ Equity | | |
Common stock, par value $0.01 | | |
Common stock - Authorized 200,000,000 shares, outstanding 53,689,539 and 54,518,047 shares | $ | 0.6 | | $ | 0.6 | |
Additional paid-in capital | — | | — | |
Retained earnings | 2,705.5 | | 2,560.0 | |
Accumulated other comprehensive loss | (345.2) | | (330.8) | |
Total Hubbell Incorporated Shareholders’ Equity | 2,360.9 | | 2,229.8 | |
Noncontrolling interest | 9.7 | | 10.9 | |
TOTAL EQUITY | 2,370.6 | | 2,240.7 | |
TOTAL LIABILITIES AND EQUITY | $ | 5,402.6 | | $ | 5,281.5 | |
See notes to consolidated financial statements.
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HUBBELL INCORPORATED- Form 10-K | 47 |
Consolidated Statement of Cash Flows | | | | | | | | | | | |
| Year Ended December 31, |
(in millions) | 2022 | 2021 | 2020 |
Cash Flows from Operating Activities of Continuing Operations | | | |
Net income from continuing operations | $ | 516.8 | | $ | 371.1 | | $ | 334.7 | |
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities, net of acquisitions: | | | |
Depreciation and amortization | 148.5 | | 149.1 | | 144.5 | |
Deferred income taxes | (27.8) | | 9.2 | | 1.4 | |
Stock-based compensation | 24.5 | | 17.5 | | 21.9 | |
Provision for bad debt expense | 7.4 | | 1.3 | | 6.7 | |
Loss on disposition of business | — | | 6.9 | | — | |
Loss on extinguishment of debt | — | | 16.8 | | — | |
Pension charge | 7.0 | | — | | 7.6 | |
Loss (gain) on sale of assets | 3.5 | | (4.7) | | 0.2 | |
Changes in assets and liabilities, net of acquisitions: | | | |
(Increase) decrease in accounts receivable | (74.2) | | (124.8) | | 41.7 | |
(Increase) decrease in inventories | (66.5) | | (138.9) | | 45.8 | |
(Decrease) increase in accounts payable | (15.3) | | 195.1 | | 20.7 | |
Increase (decrease) in current liabilities | 108.3 | | 27.6 | | (26.9) | |
Changes in other assets and liabilities, net | 13.2 | | (14.9) | | 19.2 | |
Contributions to qualified defined benefit pension plans | (12.5) | | (0.1) | | (23.2) | |
Other, net | 3.3 | | 2.5 | | 8.6 | |
NET CASH PROVIDED BY OPERATING ACTIVITIES FROM CONTINUING OPERATIONS | 636.2 | | 513.7 | | 602.9 | |
Cash Flows from Investing Activities of Continuing Operations | | | |
Capital expenditures | (129.3) | | (90.2) | | (82.8) | |
Acquisitions, net of cash acquired | (177.1) | | 0.1 | | (239.6) | |
Proceeds from disposal of business, net of cash | 332.8 | | 8.5 | | — | |
Purchases of available-for-sale investments | (33.7) | | (11.4) | | (35.1) | |
Proceeds from sales of available-for-sale investments | 23.0 | | 11.5 | | 28.9 | |
Other, net | 2.4 | | 9.4 | | 5.3 | |
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES FROM CONTINUING OPERATIONS | 18.1 | | (72.1) | | (323.3) | |
Cash Flows from Financing Activities of Continuing Operations | | | |
Issuance of long-term debt | — | | 298.7 | | 225.0 | |
Payment of long-term debt | — | | (300.0) | | (331.3) | |
Issuance of short-term debt | — | | 8.1 | | 125.5 | |
Payment of short-term debt | (4.8) | | (151.6) | | (3.6) | |
Payment of dividends | (229.6) | | (216.9) | | (201.4) | |
Make whole payment for retirement of long-term debt | — | | (16.0) | | — | |
Debt issuance cost | — | | (4.5) | | — | |
Acquisition of common shares | (182.0) | | (11.2) | | (41.3) | |
Other | (20.7) | | (39.6) | | (17.1) | |
NET CASH USED IN FINANCING ACTIVITIES FROM CONTINUING OPERATIONS | (437.1) | | (433.0) | | (244.2) | |
Discontinued Operations: | | | |
Cash (used) provided by operating activities | (53.0) | | 30.1 | | 45.1 | |
Cash used by investing activities | (1.7) | | (5.7) | | (5.5) | |
| | | |
Cash (used) provided by discontinued operations | (54.7) | | 24.4 | | 39.6 | |
Effect of foreign currency exchange rate changes on cash and cash equivalents | (8.8) | | (3.0) | | 2.6 | |
Increase in cash, cash equivalents, and restricted cash | 153.7 | | 30.0 | | 77.6 | |
Cash and cash equivalents, beginning of year | 286.2 | | 258.6 | | 179.8 | |
Cash and cash equivalents within assets held for sale, beginning of year | 0.7 | | 1.0 | | 2.2 | |
Restricted cash, included in other assets, beginning of year | 2.7 | | — | | — | |
Less: Restricted cash, included in Other Assets | 2.8 | | 2.7 | | — | |
Less: Cash and cash equivalents within assets held for sale, end of year | — | | 0.7 | | 1.0 | |
Cash and cash equivalents, end of year | $ | 440.5 | | $ | 286.2 | | $ | 258.6 | |
See notes to consolidated financial statements.
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48 | HUBBELL INCORPORATED - Form 10-K |
Consolidated Statement of Changes in Equity
| | | | | | | | | | | | | | | | | | | | |
| |
(in millions, except per share amounts) | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Hubbell Shareholders' Equity | Non- controlling interest |
BALANCE AT DECEMBER 31, 2019 | $ | 0.6 | | $ | — | | $ | 2,279.4 | | $ | (332.9) | | $ | 1,947.1 | | $ | 13.4 | |
Net income | — | — | 351.2 | — | 351.2 | 4.7 |
Other comprehensive (loss) income | — | — | — | 3.7 | 3.7 | — |
Stock-based compensation | — | 23.9 | — | — | 23.9 | — |
Acquisition/surrender of common shares (1) | — | (17.8) | (34.1) | — | (51.9) | — |
Cash dividends declared ($3.71 per share) | — | — | (201.8) | — | (201.8) | — |
Dividends to noncontrolling interest | — | — | — | — | — | (2.7) |
Directors deferred compensation | — | (1.2) | — | — | (1.2) | — |
Cumulative effect from adoption of CECL accounting standard | — | — | (1.0) | — | (1.0) | — |
BALANCE AT DECEMBER 31, 2020 | $ | 0.6 | | $ | 4.9 | | $ | 2,393.7 | | $ | (329.2) | | $ | 2,070.0 | | $ | 15.4 | |
Net income | — | — | 399.5 | — | 399.5 | 6.1 |
Other comprehensive (loss) income | — | — | — | (1.6) | (1.6) | — |
Stock-based compensation | — | 18.6 | — | — | 18.6 | — |
Acquisition/surrender of common shares (1) | — | (24.2) | (15.8) | — | (40.0) | — |
Cash dividends declared ($3.99 per share) | — | — | (217.4) | — | (217.4) | — |
Dividends to noncontrolling interest | — | — | — | — | — | (10.6) |
Directors deferred compensation | — | 0.7 | — | — | 0.7 | — |
BALANCE AT DECEMBER 31, 2021 | $ | 0.6 | | $ | — | | $ | 2,560.0 | | $ | (330.8) | | $ | 2,229.8 | | $ | 10.9 | |
Net income | — | — | 545.9 | — | 545.9 | 5.5 |
Other comprehensive (loss) income | — | — | — | (14.4) | | (14.4) | — |
Stock-based compensation | — | 24.5 | — | — | 24.5 | — |
Acquisition/surrender of common shares (1) | — | (23.1) | | (170.5) | — | (193.6) | — |
Cash dividends declared ($4.27 per share) | — | — | (229.9) | — | (229.9) | — |
Dividends to noncontrolling interest | — | — | — | — | — | (6.7) |
Directors deferred compensation | — | (1.4) | — | — | (1.4) | — |
BALANCE AT DECEMBER 31, 2022 | $ | 0.6 | | $ | — | | $ | 2,705.5 | | $ | (345.2) | | $ | 2,360.9 | | $ | 9.7 | |
See notes to consolidated financial statements.
(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 $170.5 million, $15.8 million and $34.1 million in 2022, 2021 and 2020, respectively, reflects this accounting treatment.
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HUBBELL INCORPORATED- Form 10-K | 49 |
Notes to Consolidated Financial Statements
NOTE 1 Significant Accounting Policies Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
On February 1, 2022, the Company completed the sale of the Commercial and Industrial Lighting business (the "C&I Lighting business") to GE Current, a Daintree Company, for total net cash consideration of $332.8 million. The C&I Lighting business had sales of $509.4 million in 2021 as part of the Electrical Solutions segment and designs, manufactures, and sells LED lighting and control solutions for commercial and industrial customers. As a result of the agreement, the C&I Lighting business met the criteria set forth in ASC 205-20 to be presented as a discontinued operation. The C&I Lighting business' results of operations and the related cash flows have been presented as income from discontinued operations in the Consolidated Statements of Income and cash flows from discontinued operations in the Consolidated Statements of Cash Flows, respectively, for all periods presented. See Note 2, Discontinued Operations, to the Consolidated Financial Statements for further information.
Principles of Consolidation
The Consolidated Financial Statements include all wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The Company participates in two joint ventures that have been consolidated in accordance with the consolidation accounting guidance. An analysis is performed to determine which reporting entity, if any, has a controlling financial interest in a variable interest entity (“VIE”) with a primarily qualitative analysis. The qualitative analysis is based on identifying the party that has both the power to direct the activities that most significantly impact the VIE’s economic performance (the “power criterion”) and the obligation to absorb losses from or the right to receive benefits of the VIE that could potentially be significant to the VIE (the “losses/benefit criterion”). The party that meets both these criteria is deemed to have a controlling financial interest. The party with the controlling financial interest is considered to be the primary beneficiary and as a result is required to consolidate the VIE. The Company has a 50% interest in a joint venture in Hong Kong, established as Hubbell Asia Limited (“HAL”). The principal objective of HAL is to manage the operations of its wholly-owned manufacturing company in China. Under the accounting guidance, the Company is the primary beneficiary of HAL and as a result consolidates HAL.
This determination is based on the fact that HAL’s sole business purpose is to manufacture product exclusively for the Company (the power criterion) and the Company is financially responsible for ensuring HAL maintains a fixed operating margin (the losses/benefit criterion). The consolidation of HAL is not material to the Company’s consolidated financial statements.
Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts in the Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements. Actual results could differ from the estimates that are used.
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 have reacted to the public health crisis with mitigation measures, creating significant uncertainties in the U.S. and global economies. 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.
Assets and Liabilities Held for Sale
The Company classifies assets and liabilities (disposal groups) to be sold as held for sale in the period in which all of the following criteria are met: management, having the authority to approve the action, commits to a plan to sell the disposal group; the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such disposal groups; an active program to locate a buyer and other actions required to complete the plan to sell the disposal group have been initiated; the sale of the disposal group is probable, and transfer of the disposal group is expected to qualify for recognition as a completed sale within one year, except if events or circumstances beyond the Company's control extend the period of time required to sell the disposal group beyond one year; the disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
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50 | HUBBELL INCORPORATED - Form 10-K |
The Company initially measures a disposal group that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in the period in which the held for sale criteria are met. Conversely, gains are not recognized on the sale of a disposal group until the date of sale. The Company assesses the fair value of a disposal group, less any costs to sell, each reporting period it remains classified as held for sale and reports any subsequent changes as an adjustment to the carrying value of the disposal group, as long as the new carrying value does not exceed the carrying value of the disposal group at the time it was initially classified as held for sale.
Upon determining that a disposal group meets the criteria to be classified as held for sale, the Company reports the assets and liabilities of the disposal group, if material, in the line items assets held for sale and liabilities held for sale in the consolidated statements of financial position. Refer to Note 2, "Discontinued Operations," of the notes to Consolidated Financial Statements for further information. In conjunction with the C&I Lighting Business being classified as held for sale, depreciation and amortization ceased.
Revenue Recognition
The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs, for products, upon the transfer of control in accordance with the contractual terms and conditions of the sale. The majority of the Company’s revenue associated with products is recognized at a point in time when the product is shipped to the customer, with a relatively small amount of transactions in the Utility Solutions segment recognized upon delivery of the product at the contractually specified destination. Revenue from service contracts and post-shipment performance obligations is approximately two percent of total annual consolidated net revenue and those service contracts and post-shipment obligations are primarily within the Utility Solutions segment. Revenue from service contracts and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and on occasion will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue.
Within the Electrical Solutions segment, certain businesses require a portion of the transaction price to be paid in advance of transfer of control. Advance payments are not considered a significant financing component as they are received less than one year before the related performance obligations are satisfied. In addition, in the PowerUtility 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 Consolidated Balance Sheet. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Consolidated Statement of Income. The deferred revenue relating to the annual maintenance service contracts is recognized in the Consolidated Statement of Income on a straight line basis over the expected term of the contract.
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HUBBELL INCORPORATED- Form 10-K
| 45 |
The Company has certain arrangements that require us to estimate at the time of sale the amounts of variable consideration that should not be recorded as revenue as certain amounts are not expected to be collected from customers, as well as an estimate of the value of the product to be returned. The Company principally relies on historical experience, specific customer agreements and anticipated future trends to estimate these amounts at the time of shipment and to reduce the transaction price. These arrangements include sales discounts and allowances based on sales volumes, specific programs and special pricing allowances, and returned goods, as are customary in the electrical products industry. Customer returns have historically ranged frombeen approximately 1%-2% of gross sales.
Shipping and Handling Costs
The Company records shipping and handling costs as part of Cost of goods sold in the Consolidated Statement of Income.
Foreign Currency Translation
The assets and liabilities of international subsidiaries are translated to U.S. dollars at exchange rates in effect at the end of the year, and income and expense items are translated at average exchange rates in effect during the year. The effects of exchange rate fluctuations on the translated amounts of foreign currency assets and liabilities are included as translation adjustments in Accumulated other comprehensive loss within Hubbell shareholders’ equity. Gains and losses from foreign currency transactions are included in results of operations.
Cash and Cash Equivalents
The carrying value of cash equivalents approximates fair value. Cash equivalents consist of highly liquid investments with original maturities to the Company of three months or less.
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HUBBELL INCORPORATED- Form 10-K | 51 |
Investments
Investments in debt and equity securities are classified by individual security as available-for-sale, held-to-maturity or trading securities. Our available-for-sale securities, consisting of municipal bonds, and the redeemable preferred stock of a privately held company, are carried on the balance sheet at fair value with current period adjustments to carrying value recorded in Accumulated other comprehensive loss within Hubbell shareholders’ equity, net of tax. Realized gains and losses are recorded in income in the period of sale. The Company’s trading securities are carried on the balance sheet at fair value and consist primarily of debt and equity mutual funds. Gains and losses associated with these trading securities are reflected in the results of operations. The Company did not have any investments classified as held-to-maturity as of December 31, 20192022 and 2018.2021.
Accounts Receivable and Allowances
Trade accounts receivable are recorded at the invoiced amount and generally do not bear interest. The allowance for doubtful accounts is based on an estimated amount of probable credit losses in existing accounts receivable. The allowance is calculated based upon a combination of historical write-off experience, fixed percentages applied to aging categories and specific identification based upon a review of past due balances and problem accounts. Account balances are charged off against the allowance when it is determined that internal collection efforts should no longer be pursued. The Company also maintains a reserve for credit memos and cash discounts which are principally calculated based upon historical experience, specific customer agreements, as well as anticipated future trends.
Inventories
Inventories are stated at the lower of cost or market value. Approximately 61%60% of total net inventory value is determined utilizing the last-in, first-out (LIFO) method of inventory accounting. The cost of foreign inventories and certain domestic inventories is determined utilizing average cost or first-in, first-out (FIFO) methods of inventory accounting. Reserves for excess and obsolete inventory are provided based on current assessments about future demand compared to on-hand quantities.
Property, Plant, and Equipment
Property, plant, and equipment values are stated at cost less accumulated depreciation. Maintenance and repair expenditures that do not significantly increase the life of an asset are charged to expense when incurred. Property, plant, and equipment placed in service prior to January 1, 1999 are depreciated over their estimated useful lives, principally, using accelerated methods. Assets placed in service subsequent to January 1, 1999 are depreciated over their estimated useful lives, using straight-line methods. Leasehold improvements are amortized over the shorter of their economic lives or the lease term. Gains and losses arising on the disposal of property, plant and equipment are included in Operating income in the Consolidated Statement of Income.
Capitalized Computer Software Costs
Capitalized computer software costs, net of amortization, were $22.5$7.0 million and $20.2$10.8 million at December 31, 20192022 and 2018,2021, respectively. This balance is reflected in Other long-term assets in the Consolidated Balance Sheet. Capitalized computer software is for internal use and costs primarily consist of purchased materials, external services and salary costs for personnel dedicated to the projects. Software is amortized on a straight-line basis over appropriate periods, generally between three and five years. The Company recorded amortization expense of $9.0$6.6 million in 2019, $6.42022, $9.6 million in 20182021 and $5.6$10.0 million in 20172020 relating to capitalized computer software.
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46 | HUBBELL INCORPORATED - Form 10-K
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Goodwill and Other Intangible Assets
Goodwill represents purchase price in excess of fair values of the underlying net assets of acquired companies. Indefinite-lived intangible assets and goodwill are subject to annual impairment testing using the specific guidance and criteria described in the accounting guidance. The Company performs its goodwill impairment testing as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. The accounting guidance provides entities an option of performing a qualitative assessment (a "step-zero" test) before performing a quantitative analysis. If the entity determines, on the basis of certain qualitative factors, that it is more-likely-than-not that the goodwill is not impaired, the entity would not need to proceed to quantitative goodwill impairment testing process as prescribed in the guidance. The Company applied the "step-zero" test to 4one of its 7four reporting units. Based on that qualitative assessment, the Company concluded it was more-likely-than-not that the fair value of thesethis reporting unitsunit exceeded theirits carrying value and therefore, further quantitative analysis was not required. For the other three reporting units the Company has elected to utilize the quantitative goodwill impairment testing process as permitted in the accounting guidance, by comparing the estimated fair value of the Company's reporting units to their carrying values. If the fair value of the reporting unit exceeds its carrying value, no impairment exists.
Goodwill impairment testing requires judgment, including the identification of reporting units, assigning assets and liabilities to reporting units and determining the fair value of each reporting unit. Significant judgments required to estimate the fair value of reporting units include estimating future discounted cash flows, determining appropriate discount rates and other assumptions.assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic, impacts to the supply chain and higher inflation. We use internal discounted cash flow estimatesmodels to determineestimate fair value. These cash flow estimates are derived from historical experience, third party end market data, and future long-term business plans and include assumptions on future sales growth, gross margin, operating margin, terminal growth rate, and the application of an appropriate discount rate. Changes in these estimates and assumptions could affect the determination of fair value and/or goodwill impairment for each reporting unit. The Company believes that its estimated aggregate fair value of its reporting units is reasonable when compared to the Company's market capitalization on the valuation date.
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52 | HUBBELL INCORPORATED - Form 10-K |
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. As a result of the change in reporting units, the Company performed an interim goodwill impairment assessment prior to the change, for the reporting units within the Electrical Solutions segment. Because the changes did not affect the Utility Solutions segment, no interim goodwill impairment assessment was required for that segment.
As of April 1, 2019,2022, the impairment testing resulted in implied fair values for eachof our reporting unitunits that substantially exceeded the reporting unit's carrying value, including goodwill. The Company did not have any reporting units at riskrange of failing the quantitative impairment test as thefair value in excess of the implied faircarrying value, significantly exceeded the carrying valueincluding goodwill, of the reporting units.units was 57% to 308%. Additionally, the Company did not have any reporting units with zero or negative carrying amounts. The Company has not recorded any goodwill impairments since the initial adoption of the accounting guidance in 2002.
The Company’s intangible assets consist primarily of customer relationships, tradenames, developed technology and patents. Intangible assets with definite lives are amortized over periods generally ranging from 5-30 years. The Company amortizes intangible assets with definite lives using either an accelerated method that reflects the pattern in which economic benefits of the intangible assets are consumed and results in higher amortization in the earlier years of the assets' useful life, or using a straight line method. Approximately 75%80% of the gross value of definite-lived intangible assets follow an accelerated amortization method. These definite lived intangibles are tested for impairment whenever events or circumstances indicate that the carrying amount of an asset (asset group) may not be recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the estimated undiscounted cash flows used in determining the fair value of the asset. The Company did not record any material impairments related to its definite lived intangible assets in 2019, 20182022, 2021 or 2017.2020. The Company also has some tradenames that are considered to be indefinite-lived intangible assets. These indefinite-lived intangible assets are not amortized and are tested for impairment annually, unless circumstances dictate the need for more frequent assessment.
The accounting guidance related to testingidentification and measurement of impairment of indefinite-lived intangible assets for impairment provides entitiesinvolves either an optionassessment of performingqualitative factors to determine whether events or circumstances indicate that it is more-likely-than-not that an indefinite-lived intangible asset is impaired or a qualitativequantitative assessment before calculatingwhereby the estimated fair value of the asset.each indefinite-lived intangible asset is compared to its carrying value. If the entity determines, on the basis of certain qualitative factors, that it is more-likely-than-not that the asset is not impaired, the entity would not need to calculate the fair value of the indefinite lived intangibles will be determined using discounted cash flow estimates. If the carrying value of these assets exceeds the estimated fair value, the carrying value will be reduced to the estimated fair value. For the Company’s annual impairment test as of April 1, 2022, the Company elected to utilize the quantitative impairment testing process as permitted in the accounting guidance. The fair value was determined utilizing an income approach (relief from royalty method). Significant judgment is required to estimate the fair value of the indefinite-lived intangible assets including assumptions for future revenues,
discount rates, royalty rates, and other assumptions, including assumptions about secular economic and market conditions, such as the potential continuing effects of the COVID-19 pandemic. Significant changes in these estimates and assumptions could affect the determination of fair value and/or impairment for each indefinite-lived intangible asset. As of April 1, 2022, the impairment testing resulted in fair values for each indefinite-lived intangible asset that significantly exceeded the carrying values and there were no indefinite-lived intangible assets at risk of failing the quantitative impairment test. The Company performed the qualitative assessment which resulteddid not record any impairments related to indefinite-lived intangible assets in 0 impairment in 2019, 20182022, 2021 and 2017.2020.
Other Long-Lived Assets
The Company reviews depreciable long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. If such a change in circumstances occurs, the related estimated future undiscounted cash flows expected to result from the use of the asset group and its eventual disposition is compared to the carrying amount. If the sum of the expected cash flows is less than the carrying amount, an impairment charge is recorded. The impairment charge is measured as the amount by which the carrying amount exceeds the fair value of the asset. The fair value of impaired assets is determined using expected cash flow estimates, quoted market prices when available and appraisals as appropriate. The Company did not record any material impairment charges in 2019, 20182022, 2021 or 2017.2020.
Leases
We determine if an arrangement is a lease at inception. Operating leases are included as ROU assets within other long-term assets, other accrued liabilities, and other non-current liabilities in our Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. The Company's finance leases are immaterial.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use an implicit rate when readily determinable. For leases existing as of January 1, 2019, we have elected to use the remaining lease term as of the adoption date in determining the incremental borrowing rate. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for our vehicle leases, we apply a portfolio approach regarding the assumed lease term.
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HUBBELL INCORPORATED- Form 10-K | 53 |
Accrued Insurance
The Company retains a significant portion of the risks associated with workers’ compensation, medical, automobile and general liability insurance. The Company estimates self-insurance liabilities using a number of factors, including historical claims experience, demographic factors, and other actuarial assumptions. The accrued liabilities associated with these programs are based on the Company’s estimate of the ultimate costs to settle known claims as well as claims incurred but not reported as of the balance sheet date. The Company periodically reviews the assumptions with a third party actuary to determine the adequacy of these self-insurance reserves.
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HUBBELL INCORPORATED- Form 10-K
| 47 |
Accrued Warranty
The Company offers product warranties which 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. In 2018, the Company assumed warranty obligations with an estimated fair value of $89.4 million in connection with the acquisition of Aclara.
Income Taxes
The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax authorities routinely examine the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. The Company makes adequate provisions for best estimates of exposures on previously filed tax returns. Deferred income taxes are recognized for the tax consequence of differences between financial statement carrying amounts and the tax basis of assets and liabilities by applying the currently enacted statutory tax rates in accordance with the accounting guidance for income taxes. The effect of a change in statutory tax rates is recognized in the period that includes the enactment date. Additionally, deferred tax assets are required to be reduced by a valuation allowance if it is more-likely-than-not that a portion or all of the deferred tax asset will not be realized. The Company uses factors to assess the likelihood of realization of deferred tax assets such as the forecast of future taxable income and available tax planning that could be implemented to realize the deferred tax assets.
In addition, the accounting guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of the tax position taken or expected to be taken in a tax return. For any amount of benefit to be recognized, it must be determined that it is more-likely-than-not that a tax position will be sustained upon examination by taxing authorities based on the technical merits of the position. The amount of benefit to be recognized is based on the Company’s assertion of the most likely outcome resulting from an examination, including resolution of any related appeals or litigation processes. Companies are required to reflect only those tax positions that are more-likely-than-not to be sustained.
See Note 1314 — Income Taxes for additional information.
Research and Development
Research and development expenditures represent costs to discover and/or apply new knowledge in developing a new product, process, or in bringing about a significant improvement to an existing product or process. Research and development expenses are recorded as a component of Cost of goods sold. Expenses for research and development were approximately 3% of Cost of goods soldapproximately 2% of Net Sales in each of 2019, 20182022 and 2021 and 3% in 2017.
2020.
Government Assistance
We have adopted Accounting Standards Update ("ASU") 2021-10, Government Assistance (Topic 832) Disclosures by Business Entities about Government Assistance, which requires footnote disclosure of assistance received from government entities. We record amounts received from government entities as a reduction of the associated expense. Amounts received related to depreciable assets are recognized as a reduction to depreciation expense. The total impact of government assistance was not material to the Company in 2022, and prior periods presented.
Retirement Benefits
The Company maintains various defined benefit pension plans for some of its U.S. and foreign employees. The accounting guidance for retirement benefits requires the Company to recognize the funded status of its defined benefit pension and postretirement plans as an asset or liability in the Consolidated Balance Sheet. Gains or losses, prior service costs or credits, and transition assets or obligations that have not yet been included in net periodic benefit cost as of the end of the year are recognized as components of Accumulated other comprehensive loss, net of tax, within Hubbell shareholders’ equity. The Company’s policy is to fund pension costs within the ranges prescribed by applicable regulations. In addition to providing defined benefit pension benefits, the Company provides health care and life insurance benefits for some of its active and retired employees. The Company’s policy is to fund these benefits through insurance premiums or as actual expenditures are made. See also Note 1112 — Retirement Benefits.
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54 | HUBBELL INCORPORATED - Form 10-K |
Earnings Per Share
Restricted stock granted by the Company is considered a participating security since it contains a non-forfeitable right to dividends. As a result, the earnings per share accounting guidance requires the Company to use the two-class method for calculating earnings per share. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities. Basic earnings per share is calculated as net income available to common shareholders divided by the weighted average number of shares of common stock outstanding. Earnings per diluted share is calculated as net income available to common shareholders divided by the weighted average number of shares outstanding of common stock plus the incremental shares outstanding assuming the exercise of dilutive stock options, stock appreciation rights and performance shares. See also Note 1819 — Earnings Per Share.
Stock-Based Compensation
The Company recognizes the grant-date fair value of all stock-based awards on a straight-line basis over their respective requisite service periods (generally equal to an award’s vesting period). A stock-based award is considered vested for expense attribution purposes when the retention of the award is no longer contingent on providing subsequent service. Accordingly, the Company generally recognizes compensation cost immediately for awards granted to 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 expense is recorded in Cost of goods sold and S&A expense in the Consolidated Statement of Income based on the recipients’ respective functions within the organization.
The Company records deferred tax assets for awards that will result in deductions on its tax returns, based upon the amount of compensation cost recognized and the statutory tax rate in the jurisdiction in which it will receive a deduction. See also Note 1718 — Stock-Based Compensation.
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48 | HUBBELL INCORPORATED - Form 10-K
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Derivatives
In order to limit financial risk in the management of its assets, liabilities and debt, the Company may use derivative financial instruments such as foreign currency hedges, interest rate hedges and interest rate swaps. All derivative financial instruments are matched with an existing Company asset, liability or proposed transaction. The Company does not speculate or use leverage when trading a derivative product. Market value gains or losses on the derivative financial instrument are recognized in income when the effects of the related price changes of the underlying asset or liability are recognized in income. See Note 14 — Financial Instruments and Fair Value Measurement for more information regarding our derivative instruments.
RecentRecently Issued Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board ("FASB") issued an Accounting Standards Update (ASU 2016-02) related to the accounting and financial statement presentation for leases. This new guidance requires a lessee to recognize right-of-use ("ROU") assets and lease liabilities on the balance sheet, with an election to exempt leases with a term of 12 months or less. For those leases classified as operating leases, the lessee will recognize a straight-line lease expense, and for those leases classified as financing leases, the lessee will recognize interest expense and amortize the ROU asset.
The Company adopted the requirements of the new standard as of January 1, 2019 and applied the modified retrospective approach, whereby the cumulative effect of adoption is recognized as of the date of adoption and comparative prior periods are not retrospectively adjusted. As a result, upon adoption, we recognized ROU assets of $109.3 million and lease liabilities of $109.3 million associated with our operating leases. The standard had no material impact to retained earnings or on our Consolidated Statements of Income or Consolidated Statements of Cash Flows.
We determine if an arrangement is a lease at inception. Operating leases are included as ROU assets within other long-term assets, other accrued liabilities, and other non-current liabilities in our Consolidated Balance Sheets. Finance leases are included in property, plant, and equipment, net, other accrued liabilities, and other non-current liabilities. The Company's finance leases are immaterial.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use an implicit rate when readily determinable. For leases existing as of January 1, 2019, we have elected to use the remaining lease term as of the adoption date in determining the incremental borrowing rate. Our determination of the lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for our vehicle leases, we apply a portfolio approach regarding the assumed lease term.
We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carryforward the historical lease classification. We also elected a practical expedient to determine the reasonably certain lease term.
In June 2016,March 2020, the FASB issued an Accounting Standards Update (ASU 2016-13), "Financial Instruments - Credit LossesASU No. 2020-04, "Reference Rate Reform (Topic 326)848): MeasurementFacilitation of Credit Lossesthe Effects of Reference Rate Reform on Financial Instruments"Reporting", which amends the impairment modelprovides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses onreference rate reform if certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 iscriteria are met. The amendments are effective for periodsall entities beginning afteron March 12, 2020 through December 15, 2019, with early adoption permitted. The standard requires that any impact of adoption is to be recognized as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective.31, 2022. The Company does not expectmay elect to apply the adoption will have a material impact on results of operations.amendments prospectively through December 31, 2022.
In January 2017,December 2022, the FASB issued an Accounting Standards Update (ASU 2017-04) “Intangibles-Goodwill and OtherASU No. 2022-06 Reference Rate Reform (Topic 350)848): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates step twoDeferral of the goodwill impairment test and specifies that goodwill impairment should be measured by comparingSunset Date of Topic 848, which extends the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocatedtemporary accounting rules under Topic 848 to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective for periods beginning after December 15, 2018. The Company adopted the standard during the first quarter of 2019, with no material impact to the consolidated financial statements.
In February 2018, the FASB issued an Accounting Standards Update (ASU 2018-02) providing guidance on reclassifying certain tax effects in Accumulated Other Comprehensive Income (“AOCI”) following the enactment of the TCJA and a reduction of the corporate income tax rate from 35% to 21%. Specifically, the guidance permits a reclassification to retained earnings of the stranded tax effects in AOCI resulting from a revaluation of deferred taxes to the lower tax rate. The guidance is effective for fiscal years beginning after December 15, 2018 including interim periods within those annual periods. The stranded tax effects relate primarily to pension and other employee benefit plans and absent the ASU, the Company’s policy is to release stranded tax effects upon plan termination. The Company elected to reclassify these stranded tax effects in the first quarter of 2019, with the effect of decreasing AOCI and increasing retained earnings by approximately $30.0 million.
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HUBBELL INCORPORATED- Form 10-K
| 49 |
In August 2018, the FASB issued an Accounting Standards Update (ASU 2018-15) "Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract", which clarifies the accounting for implementation costs in cloud computing arrangements. ASU 2018-15 is effective in the first quarter of fiscal 2020, and early adoption is permitted. The Company does not expect the adoption will have a material impact on results of operations.
In December 2019, the FASB issued an Accounting Standards Update (ASU 2019-12) "Simplifying the Accounting for Income Taxes", which simplifies the accounting for income taxes, eliminates certain exceptions within ASC 740, Income Taxes, and clarifies certain aspects of the current guidance to promote consistency among reporting entities. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. Most amendments within the standard are required to be applied on a prospective basis, while certain amendments must be applied on a retrospective or modified retrospective basis.31, 2024. The Company is currently assessing the impact of adopting this standard on its financial statements.statements and the timing of adoption.
NOTE 2 RevenueDiscontinued Operations
On February 1, 2022, the Company completed the sale of the C&I Lighting business to GE Current, a Daintree Company, for total net cash consideration of $332.8 million. We have concluded the divestiture 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 Consolidated Financial Statements for all periods presented. The assets and liabilities of this business are also presented as held for sale in the Consolidated Balance Sheets for the year ended December 31, 2021. The C&I Lighting business was previously included in the Electrical Solutions segment.
Under the terms of the transaction, Hubbell and the buyer entered into a transition services agreement ("TSA"), pursuant to which the Company provides certain administrative and operational services for a period of 12 months or less. 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 $13.3 million for the year ended December 31, 2022 and was recorded in Other Income in the Consolidated Financial Statements.
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HUBBELL INCORPORATED- Form 10-K | 55 |
The following table presents the summarized components of income from discontinued operations, net of income taxes, for the Commercial and Industrial Lighting business:
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| Year Ended December 31, |
(in millions) | 2022 | 2021 | 2020 |
Net sales | $ | 29.1 | | $ | 509.4 | | $ | 503.5 | |
Cost of goods sold | 27.8 | | 403.4 | | 385.6 | |
Gross profit | 1.3 | | 106.0 | | 117.9 | |
Selling & administrative expenses | 17.3 | | 88.5 | | 85.1 | |
Operating (Loss) income | (16.0) | | 17.5 | | 32.8 | |
Gain on disposal of business | 73.9 | | — | | — | |
Other expense | (1.5) | | (4.1) | | (4.0) | |
Income from discontinued operations before income taxes | 56.4 | | 13.4 | | 28.8 | |
Provision (benefit) for income taxes | 21.8 | | (21.1) | | 7.6 | |
Income from discontinued operations, net of taxes | $ | 34.6 | | $ | 34.5 | | $ | 21.2 | |
Income from discontinued operations, net of taxes for the year ended December 31, 2022 and December 31, 2021 includes pre-tax transaction and separation costs of $8.8 million and $7.0 million, respectively. The provision for income taxes on discontinued operations in 2022 includes a correction of $19 million of income tax expense recognized in the fourth quarter of 2022 that should have been recognized in the first quarter of 2022. The Company evaluated the materiality of the adjustment to prior-period financial statements and concluded the effect of the adjustment was immaterial. In addition, a one-time tax benefit of $25.1 million related to book-to-tax basis differences of the business was recorded in the year ended December 31, 2021.
The following table presents balance sheet information for assets and liabilities held for sale:
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| | At December 31, |
(in millions) | | 2021 |
Cash and cash equivalents | | $ | 0.7 | |
Accounts receivable | | 83.1 | |
Inventories, net | | 89.8 | |
Other current assets | | 5.9 | |
Assets held for sale - current | | $ | 179.5 | |
Property, Plant, and Equipment, net | | 77.7 | |
Goodwill | | 50.2 | |
Other Intangible assets, net | | 37.3 | |
Other long-term assets | | 11.9 | |
Assets held for sale - non-current | | $ | 177.1 | |
Accounts payable | | 50.2 | |
Accrued salaries, wages and employee benefits | | 8.5 | |
Accrued insurance | | 3.9 | |
Other accrued liabilities | | 28.7 | |
Liabilities held for sale - current | | $ | 91.3 | |
Other Non-Current Liabilities | | 18.8 | |
Liabilities held for sale - non-current | | $ | 18.8 | |
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56 | HUBBELL INCORPORATED - Form 10-K |
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. Approximately two-thirdsthree-fourths of the Company's netNet sales are to distributors who then sell directly into the residential, non-residential, industrial, electrical transmission and distribution, and oil and gasour end markets. Within the PowerUtility Solutions segment, our businesses sell to distributors, with the majority of sales to the utility end markets. Our businesses within the Power segmentmarkets and also sell directly into transmission and distribution utility markets. 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 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 Consolidated Balance Sheets. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Consolidated Statements of Income. The deferred revenue relating to the annual maintenance service contracts is recognized in the Consolidated Statements of Income on a straight-line basis over the expected term of the contract.
The following table presents disaggregated revenue by business group (in millions) forgroup. On January 1, 2022, we internally reorganized certain businesses within our Electrical Solutions segment to simplify the twelve months ended December 31, 2019, 2018organization structure and 2017: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.
| | | | | | | | | | | | |
| Twelve Months Ended December 31, | |
in millions | 2022 | 2021 | 2020 | |
Net sales | | | | |
Utility T&D Components | $ | 2,218.8 | | $ | 1,679.8 | | $ | 1,445.1 | | |
Utility Communications and Controls | 652.3 | | 654.6 | | 634.3 | | |
Total Utility Solutions | $ | 2,871.1 | | $ | 2,334.4 | | $ | 2,079.4 | | |
Electrical Products | 902.4 | | 809.6 | | 663.9 | | |
Connection and Bonding | 608.7 | | 525.3 | | 430.2 | | |
Industrial Controls | 337.7 | | 257.8 | | 236.2 | | |
Retail and Builder | 228.0 | | 267.0 | | 272.8 | | |
Total Electrical Solutions | $ | 2,076.8 | | $ | 1,859.7 | | $ | 1,603.1 | | |
TOTAL | $ | 4,947.9 | | $ | 4,194.1 | | $ | 3,682.5 | | |
|
| | | | | | | | | |
| Twelve Months Ended December 31, |
| 2019 | 2018 | 2017 |
Net sales | | | |
Hubbell Commercial and Industrial | $ | 902.1 |
| $ | 910.8 |
| $ | 864.5 |
|
Hubbell Construction and Energy | 808.7 |
| 799.7 |
| 732.6 |
|
Hubbell Lighting | 914.9 |
| 950.1 |
| 935.7 |
|
Hubbell Power Systems | 1,965.3 |
| 1,821.1 |
| 1,136.0 |
|
Total net sales | $ | 4,591.0 |
| $ | 4,481.7 |
| $ | 3,668.8 |
|
| | | | | |
HUBBELL INCORPORATED- Form 10-K | 57 |
The following table presents disaggregated third-party netNet sales by geographic location (in millions) for the twelve months ended December 31, 2019, 2018 and 2017 (on a geographic basis, the Company defines "international" in the following table as businessesoperations based outside of the United States and its possessions):
| | | | | | | | | | | |
| Twelve Months Ended December 31, |
in millions | 2022 | 2021 | 2020 |
Net sales | | | |
United States | $ | 2,715.8 | | $ | 2,204.9 | | $ | 1,967.9 | |
International | 155.3 | | 129.5 | | 111.5 | |
Total Utility Solutions | $ | 2,871.1 | | $ | 2,334.4 | | $ | 2,079.4 | |
United States | 1,820.6 | | 1,604.9 | | 1,389.0 | |
International | 256.2 | | 254.8 | | 214.1 | |
Total Electrical Solutions | $ | 2,076.8 | | $ | 1,859.7 | | $ | 1,603.1 | |
TOTAL | $ | 4,947.9 | | $ | 4,194.1 | | $ | 3,682.5 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2019 | | Twelve Months Ended December 31, 2018 | | Twelve Months Ended December 31, 2017 |
| Electrical | Power | Total | | Electrical | Power | Total | | Electrical | Power | Total |
Net sales | | | | | | | | | | | |
United States | $ | 2,358.2 |
| $ | 1,832.3 |
| $ | 4,190.5 |
| | $ | 2,365.4 |
| $ | 1,675.2 |
| $ | 4,040.6 |
| | $ | 2,229.3 |
| $ | 1,051.6 |
| $ | 3,280.9 |
|
International | 267.5 |
| 133.0 |
| 400.5 |
| | 295.2 |
| 145.9 |
| 441.1 |
| | 303.5 |
| 84.4 |
| 387.9 |
|
Total net sales | $ | 2,625.7 |
| $ | 1,965.3 |
| $ | 4,591.0 |
| | $ | 2,660.6 |
| $ | 1,821.1 |
| $ | 4,481.7 |
| | $ | 2,532.8 |
| $ | 1,136.0 |
| $ | 3,668.8 |
|
|
| |
50 | HUBBELL INCORPORATED - Form 10-K
|
Contract Balances
Our contract liabilities consist of advance payments for products as well as deferred revenue on service obligations and extended warranties. The current portion of deferred revenue is included in Other accrued liabilities and the non-current portion of deferred revenue is included in Other non-current liabilities in the Consolidated Balance Sheet.
Contract liabilities were $31.0$45.8 million as of December 31, 20192022 compared to $27.7$16.7 million as of December 31, 2018.2021. The $3.3$29.1 million increase in our contract liabilities balance was primarily due to a $22.4$21.8 million net increase in current year deferrals primarily due to timing of advance payments on certain orders and a $20.1 million increase due to acquisitions, partially offset by the recognition of $14.3$12.8 million in revenue related to amounts that were recorded in contract liabilities at January 1, 2019 and a $4.8 million decline in contract liabilities relating to the disposition of the Haefely business.The2022. 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 Sheet.Sheets. Impairment losses recognized on our receivables and contract assets were immaterial in the twelve months ended December 31, 2019.2022. See Note 1 – Basis of Presentation and Note 3 – Business Acquisitions and DispositionsSignificant Accounting Policies in the Notes to Consolidated Financial Statements for additional information.
Unsatisfied Performance Obligations
The Company has elected the practical expedient to disclose only the value of unsatisfied performance obligations for contracts with an original expected length greater than one year. Prior to the acquisition of Aclara, the majority of Hubbell's revenues resulted from sales of inventoried products with short periods of manufacture and delivery and thus are excluded from this disclosure. As of December 31, 2019,2022, the Company had approximately $395$320 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 Aclara business (within the PowerUtility 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 32 years.
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 5158 |
NOTE 34 Business Acquisitions and Dispositions
20192022 Acquisitions
In the fourththird quarter of 2019,2022, the Company acquired all of the issued and outstanding sharesmembership interests of Cantega Technologies Inc., including its wholly owned subsidiary Greenjacket Inc., and all of the issued and outstanding shares of Reliaguard Inc. (collectively “Cantega”PCX Holdings LLC ("PCX") for $36.3a cash purchase price of approximately $112.8 million, net of cash acquired. CantegaPCX is a providerleading designer and manufacturer of innovative asset protectionfactory built modular power solutions and services for electrical utilities that complementsapplications in the Company's existing power systems business. Cantegadata center market. This business is reported in the PowerElectrical Solutions segment. We have recognized intangible assets of $20.4$49.1 million and goodwill of $14.2$77.4 million as a result of this acquisition. The $20.4 million of intangible assets consistsof $49.1 million consist primarily of customer relationships, backlog and technologya tradename and will be amortized over a weighted average period of approximately 12 years using an accelerated method that reflects the pattern in which economic benefits11 years. All of the intangible assets are consumed and results in higher amortization in the earlier years of the assets' useful life. The goodwill is notexpected to be deductible for tax purposes.
In the fourththird quarter of 2019,2022, the Company also acquired substantially all of the assetsissued and outstanding membership interests of Connector Products, Incorporated (“CPI”)Ripley Tools, LLC and Nooks Hill Road, LLC, collectively referred to as Ripley Tools, for $28.0 million. CPIa cash purchase price of approximately $50.1 million, net of cash acquired. Ripley Tools is a leading manufacturer of electrical connectorscable and accessories for power utilitiesfiber prep tools and mass transit systems. CPItest equipment that services both the utility and communications markets. This business is reported in the ElectricalUtility Solutions segment. We have recognized intangible assets of $12.8$18.2 million and goodwill of $10.5$23.8 million as a result of this acquisition. The $12.8 million of intangible assets consistsof $18.2 million consist primarily of customer relationships and a tradename, and will be amortized over a weighted average period of approximately 18 years using an accelerated method that reflects the pattern in which economic benefits of the intangible assets are consumed and results in higher amortization in the earlier years of the assets' useful life. All17 years. Substantially all of the goodwill is expected to be deductible for tax purposes.
In 2019the fourth quarter of 2022, the Company also completedacquired all of the issued and outstanding equity interests of REF Automation Limited and REF Alabama Inc. (collectively "REF") for a $5.0cash purchase price of $14.1 million, asset acquisition,net of cash acquired, subject to customary purchase price adjustments. REF designs and manufactures electrical power components utilizing high-volume precision machining, as well as custom fabricated structural products and assemblies for the OEM, industrial and renewables markets. This business is reported in the Electrical Solutions segments. We have recognized $4.7goodwill of $10.2 million of goodwill as a result. Allresult of the acquisition. None of the goodwill associated with this acquisition 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 price,prices, including the future earnings and cash flow potential of the businesses as well as the complementary strategic fit and resulting synergies theythat 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 value of identifiable assets acquired and liabilities assumed from the Company's 20192022 acquisitions. 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.” As the Company finalizes the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. Fair value estimatesestimates 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.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed atas of the respective date of acquisition related tofor all transactions (in millions):
| | | | | |
| |
Tangible assets acquired | $ | 41.4 | |
Intangible assets | 67.3 | |
Goodwill | 111.4 | |
| |
Other liabilities assumed | (43.0) | |
Total Estimate of Consideration Transferred, Net of Cash Acquired | 177.1 | |
|
| | | |
Tangible assets acquired | $ | 21.7 |
|
Intangible assets | 33.2 |
|
Goodwill | 29.4 |
|
Net deferred taxes | (5.7 | ) |
Other liabilities assumed | (9.3 | ) |
Total Estimate of Consideration Transferred, Net of Cash Acquired | $ | 69.3 |
|
The Consolidated Financial Statements include the results of operations of the acquired businesses from their respective dates of acquisition. Net sales and earnings related to these acquisitions for the year ended December 31, 20192022 were not significant to the consolidated results. Pro forma information related to these acquisitions has not been included because the impact to the Company’sCompany's consolidated results of operations was not material.
Cash used for the acquisition of businesses, net of cash acquired as reported in the Consolidated Statement of Cash Flows for the year ended December 31, 2019 is $70.8 million and includes approximately $1.5 million of deferred purchase price relating to an acquisition completed in a previous year.
|
| |
HUBBELL INCORPORATED- Form 10-K
| 52 |
2018 Acquisition
On February 2, 2018, the Company completed the acquisition of Aclara for approximately $1.1 billion. Aclara is a leading global provider of smart infrastructure solutions for electric, gas, and water utilities, with advanced metering solutions and grid monitoring sensor technology, as well as leading software enabled installation services. The acquisition was structured as a merger in which Aclara became a wholly owned indirect subsidiary of the Company. Aclara's businesses have been added to the Power segment. The acquisition extends the Power segment's capabilities into smart automation technologies, accelerates ongoing innovation efforts to address utility customer demand for data and integrated solutions, and expands the segment's reach to a broader set of utility customers.
The Company financed the acquisition and related transactions with net proceeds from borrowings under an unsecured term loan facility in an aggregate principal amount of $500 million, the issuance of 3.50% Senior Notes due 2028 in an aggregate principal amount of $450 million and commercial paper borrowings.
Allocation of Consideration Transferred to Net Assets Acquired
The following table presents the determination of the fair value of identifiable assets acquired and liabilities assumed from the Company's acquisition of Aclara. 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 following are the assets acquired and the liabilities assumed by the Company in the Aclara acquisition, reconciled to the acquisition consideration (in millions):
|
| | | |
Accounts receivable | $ | 118.1 |
|
Inventories | 73.5 |
|
Other current assets | 8.5 |
|
Property, plant and equipment | 30.9 |
|
Intangible assets | 434.0 |
|
Accounts payable | (51.8 | ) |
Other accrued liabilities | (93.3 | ) |
Deferred tax liabilities, net | (42.1 | ) |
Other non-current liabilities | (67.7 | ) |
Noncontrolling interest | (2.5 | ) |
Goodwill | 708.7 |
|
Total Estimate of Consideration Transferred, Net of Cash Acquired | $ | 1,116.3 |
|
Cash used for the acquisition of businesses, net of cash acquired as reported in the Consolidated Statement of Cash Flows for the twelve months ended December 31, 2018 is $1,118.0 million and includes approximately $1.7 million of deferred purchase price and net working capital settlements relating to acquisitions completed in previous years.
In connection with the Aclara transaction, the Company recorded goodwill of $708.7 million, which is attributable primarily to expected synergies, expanded market opportunities, and other expected benefits that the Company believes will result from combining its operations with the operations of Aclara. For tax purposes, $159.9 million of the Aclara historical goodwill is deductible. The incremental goodwill created as a result of the acquisition is not deductible for tax purposes. Goodwill has been allocated to the Power segment.
The purchase price allocation to identifiable intangible assets acquired is as follows (in millions, except useful life amounts):
|
| | | | | |
| Estimated Fair Value | | Weighted Average Estimated Useful Life |
Patents, tradenames and trademarks | $ | 55.0 |
| | 20.0 |
Customer relationships | 194.0 |
| | 18.0 |
Developed technology | 185.0 |
| | 13.0 |
Total | $ | 434.0 |
| | |
Dispositions
Customer relationships and developed technology intangible assets acquired are amortized using 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.
For the year ended December 31, 2018 and 2017, the Company recorded transaction costs of $12.8 million and $7.1 million, respectively, relating to the acquisition of Aclara. These costs were recorded in the respective financial statement line items as follows (in millions):
|
| | | | | | | |
| Twelve Months Ended December 31, |
| 2018 | | 2017 |
Selling & administrative expense | $ | 9.5 |
| | $ | 6.7 |
|
Interest expense | 3.3 |
| | 0.4 |
|
Total Aclara Transaction Costs | $ | 12.8 |
| | $ | 7.1 |
|
|
| |
HUBBELL INCORPORATED- Form 10-K
| 53 |
Supplemental Pro-Forma Data
Aclara’s results of operations have been included in the Company's financial statements for the period subsequent to the completion of the acquisition on February 2, 2018. Aclara contributed sales of approximately $611.1 million and operating income of approximately $29.6 million, before any transaction costs described below, for the period from the completion of the acquisition through December 31, 2018.
The following unaudited supplemental pro-forma information presents consolidated results as if the acquisition had been completed on January 1, 2017. The unaudited supplemental pro-forma financial information does not reflect the actual performance of Aclara in the periods presented and does not reflect the potential realization of cost savings relating to the integration of the two companies. Further, the pro-forma data should not be considered indicative of the results that would have occurred if the acquisition and related financing had been consummated on January 1, 2017, nor are they indicative of future results. Per share amounts in 2018 reflect the reduction in the U.S. federal corporate income tax rate from 35% to 21%:
|
| | | | | | | |
(in millions, except per share amounts) | Twelve Months Ended December 31, |
| 2018 | | 2017 |
Net sales | $ | 4,531.2 |
| | $ | 4,180.9 |
|
Net income attributable to Hubbell | $ | 376.4 |
| | $ | 209.8 |
|
Earnings Per Share: | | | |
Basic | $ | 6.86 |
| | $ | 3.82 |
|
Diluted | $ | 6.83 |
| | $ | 3.81 |
|
In August 2019,June of 2021, the Company completed the sale of Haefely Test, AG (“Haefely”)the Consumer Analytics Solutions business for $38.1$9.8 million. Haefely designsThe Consumer Analytics Solutions business was part of Aclara and manufactures high voltage test equipment and is based in Basel, Switzerland. The Haefely business was previously included withinin the ElectricalUtility Solutions segment. Upon disposition, the HaefelyConsumer Analytics Solutions business had tangible assets of $32.3$15.9 million, including definite-lived intangibles of $8.7 million (primarily customer relationships and developed technology), goodwill of $1.9 million and total liabilities of $1.5 million (primarily composed of cash, accounts receivable, inventories, and property, plant and equipment), goodwill of $3.1 million, total liabilities of $12.2 million (primarily composed of accounts payable, accrued expenses, and cash received in advance from customers) and a $7.7 million balance of cumulative currency translation adjustments recognized within Accumulated other comprehensive income.deferred revenue). As a result of the sale of Haefely,the Consumer Analytics Solutions business, we recognized a pre-tax gainloss of $21.7$6.9 million that is included in Total other expense in the Consolidated Statement of Income.
NOTE 4 Receivables and Allowances
Receivables consist of the following components at December 31, (in millions):
|
| | | | | | |
| 2019 |
| 2018 |
|
Trade accounts receivable | $ | 696.8 |
| $ | 739.1 |
|
Non-trade receivables | 29.9 |
| 26.2 |
|
Accounts receivable, gross | 726.7 |
| 765.3 |
|
Allowance for credit memos, returns and cash discounts | (36.0 | ) | (35.1 | ) |
Allowance for doubtful accounts | (7.7 | ) | (4.8 | ) |
Total allowances | (43.7 | ) | (39.9 | ) |
ACCOUNTS RECEIVABLE, NET | $ | 683.0 |
| $ | 725.4 |
|
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 5459 |
NOTE 5 InventoriesReceivables and Allowances
Receivables consist of the following components at December 31, (in millions): | | | | | | | | |
| 2022 | 2021 |
Trade accounts receivable | $ | 778.0 | | $ | 695.7 | |
Non-trade receivables | 22.1 | | 24.9 | |
Accounts receivable, gross | 800.1 | | 720.6 | |
Allowance for credit memos, returns and cash discounts | (44.2) | | (34.7) | |
Allowance for doubtful accounts | (14.3) | | (10.6) | |
Total allowances | (58.5) | | (45.3) | |
ACCOUNTS RECEIVABLE, NET | $ | 741.6 | | $ | 675.3 | |
Inventories are classified as follows at December 31, (in millions): | | | | | | | | |
| 2022 | 2021 |
Raw material | $ | 302.8 | | $ | 241.0 | |
Work-in-process | 161.7 | | 129.4 | |
Finished goods | 463.2 | | 428.6 | |
Subtotal | 927.7 | | 799.0 | |
Excess of FIFO over LIFO cost basis | (187.0) | | (136.9) | |
INVENTORIES, NET | $ | 740.7 | | $ | 662.1 | |
|
| | | | | | |
| 2019 |
| 2018 |
|
Raw material | $ | 217.4 |
| $ | 220.2 |
|
Work-in-process | 101.8 |
| 110.3 |
|
Finished goods | 403.6 |
| 402.3 |
|
| 722.8 |
| 732.8 |
|
Excess of FIFO over LIFO cost basis | (89.8 | ) | (81.8 | ) |
INVENTORIES, NET | $ | 633.0 |
| $ | 651.0 |
|
| | | | | |
60 | HUBBELL INCORPORATED - Form 10-K |
NOTE 67 Goodwill and Other Intangible Assets
Changes in the carrying amounts of goodwill for the years ended December 31, 20192022 and 2018,2021, by segment, were as follows (in millions):
|
| | | | | | | | | |
| Segment | |
| Electrical |
| Power |
| Total |
|
BALANCE AT DECEMBER 31, 2017 | $ | 717.6 |
| $ | 371.4 |
| $ | 1,089.0 |
|
Current year acquisitions | — |
| 708.7 |
| 708.7 |
|
Foreign currency translation and prior year acquisitions | (3.5 | ) | (9.8 | ) | (13.3 | ) |
BALANCE AT DECEMBER 31, 2018 | $ | 714.1 |
| $ | 1,070.3 |
| $ | 1,784.4 |
|
Current year acquisitions(1) | 15.2 |
| 14.2 |
| 29.4 |
|
Dispositions(1) | (3.1 | ) | — |
| (3.1 | ) |
Foreign currency translation | 1.5 |
| (0.4 | ) | 1.1 |
|
BALANCE AT DECEMBER 31, 2019 | $ | 727.7 |
| $ | 1,084.1 |
| $ | 1,811.8 |
|
| | | | | | | | | | | |
| Segment | |
| Utility Solutions | Electrical Solutions | Total |
BALANCE AT DECEMBER 31, 2020 | $ | 1,259.4 | | $ | 613.7 | | $ | 1,873.1 | |
Prior year acquisitions(1) | 6.6 | | — | | 6.6 | |
Dispositions(1) | (1.9) | | — | | (1.9) | |
Foreign currency translation | (5.3) | | (1.2) | | (6.5) | |
BALANCE AT DECEMBER 31, 2021 | $ | 1,258.8 | | $ | 612.5 | | $ | 1,871.3 | |
Current year acquisitions(1) | 23.8 | | 87.6 | | 111.4 | |
| | | |
Foreign currency translation | (6.7) | | (5.5) | | (12.2) | |
BALANCE AT DECEMBER 31, 2022 | $ | 1,275.9 | | $ | 694.6 | | $ | 1,970.5 | |
(1) Refer to Note 34 – Business Acquisitions and Dispositions for additional information.
In 2019,2022, the Company completed multiple acquisitions. These acquisitions have been accounted for as business combinations and have resulted in the recognition of $29.4$111.4 million of goodwill. The Company has not recorded any material goodwill impairments since the initial adoption of the related accounting guidance in 2002.
Identifiable intangible assets are recorded in IntangibleOther intangible assets, net in the Consolidated Balance Sheet. Identifiable intangible assets are comprised of the following (in millions):
|
| | | | | | | | | | | | | |
| December 31, 2019 | | December 31, 2018 |
| Gross Amount |
| Accumulated Amortization |
| | Gross Amount |
| Accumulated Amortization |
|
Definite-lived: | |
| |
| | |
| |
|
Patents, tradenames and trademarks | $ | 202.7 |
| $ | (65.0 | ) | | $ | 204.4 |
| $ | (58.6 | ) |
Customer relationships, developed technology and other | 861.0 |
| (270.8 | ) | | 833.0 |
| (212.6 | ) |
TOTAL DEFINITE-LIVED INTANGIBLES | 1,063.7 |
| (335.8 | ) | | 1,037.4 |
| (271.2 | ) |
Indefinite-lived: | |
| |
| | |
| |
|
Tradenames and other | 53.6 |
| — |
| | 53.3 |
| — |
|
TOTAL INTANGIBLE ASSETS | $ | 1,117.3 |
| $ | (335.8 | ) | | $ | 1,090.7 |
| $ | (271.2 | ) |
| | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Gross Amount | Accumulated Amortization | | Gross Amount | Accumulated Amortization |
Definite-lived: | | | | | |
Patents, tradenames and trademarks | $ | 187.9 | | $ | (75.7) | | | $ | 181.3 | | $ | (67.6) | |
Customer relationships, developed technology and other | 955.3 | | (437.8) | | | 901.2 | | (374.0) | |
TOTAL DEFINITE-LIVED INTANGIBLES | 1,143.2 | | (513.5) | | | 1,082.5 | | (441.6) | |
Indefinite-lived: | | | | | |
Tradenames and other | 40.2 | | — | | | 40.6 | | — | |
TOTAL OTHER INTANGIBLE ASSETS | $ | 1,183.4 | | $ | (513.5) | | | $ | 1,123.1 | | $ | (441.6) | |
Amortization expense associated with these definite-lived intangible assets was $72.0$75.7 million, $68.9$75.7 million and $34.9$72.1 million in 2019, 20182022, 2021 and 2017, respectively.2020, respectively. Amortization expense associated with these intangible assets is expected to be $74.3 million in 2020, $72.3 million in 2021, $67.2 million in 2022, $62.4$71.2 million in 2023, and $57.0$66.0 million in 2024. 2024, $63.6 million in 2025, $60.0 million in 2026 and $54.5 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 assetsassets' useful life, or using a straight line method. Approximately 75% 80% of the gross value of definite-lived intangible assets follow an accelerated amortization method.
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| | | | |
HUBBELL INCORPORATED - Form 10-K | 5561 |
NOTE 78 Investments
At December 31, 20192022 and December 31, 2018,2021, the Company held investments classified as available-for-sale and investments classified as trading securities. Investments classified as available-for-sale consisted of municipal bonds with an amortized cost basis of $50.0$62.6 million as of December 31, 2019. In the third quarter of 2019, the Company disposed of an available-for-sale investment in a privately-held company that was previously classified in Level 3 of the fair value hierarchy.2022. Investments classified as trading securities were composed primarily of debt and equity mutual funds and are stated at fair market value based on current quotes.
The following table sets forth selected data with respect to the Company’s investments at December 31, (in millions): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Carrying Value | | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Carrying Value |
Available-for-sale securities | $ | 62.6 | | $ | 0.1 | | $ | (1.3) | | $ | 61.4 | | $ | 61.4 | | | $ | 53.3 | | $ | 0.8 | | $ | (0.1) | | $ | 54.0 | | $ | 54.0 | |
Trading securities | 10.2 | | 8.6 | | — | | 18.8 | | 18.8 | | | 12.2 | | 12.3 | | — | | 24.5 | | 24.5 | |
TOTAL INVESTMENTS | $ | 72.8 | | $ | 8.7 | | $ | (1.3) | | $ | 80.2 | | $ | 80.2 | | | $ | 65.5 | | $ | 13.1 | | $ | (0.1) | | $ | 78.5 | | $ | 78.5 | |
|
| | | | | | | | | | | |
| 2019 | | 2018 |
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Carrying Value | | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Carrying Value |
Available-for-sale securities | $50.0 | $0.8 | $(0.1) | $50.7 | $50.7 | | $54.0 | $1.1 | $(3.9) | $51.2 | $51.2 |
Trading securities | 12.0 | 7.2 | — | 19.2 | 19.2 | | 10.1 | 4.2 | — | 14.3 | 14.3 |
TOTAL INVESTMENTS | $62.0 | $8.0 | $(0.1) | $69.9 | $69.9 | | $64.1 | $5.3 | $(3.9) | $65.5 | $65.5 |
Contractual maturities of our investments in available-for-sale securities at December 31, 20192022 were as follows (in millions):
|
| | | | | | |
| Amortized Cost |
| Fair Value |
|
Available-for-sale securities | |
| |
|
Due within 1 year | $ | 14.2 |
| $ | 14.2 |
|
After 1 year but within 5 years | 23.1 |
| 23.6 |
|
After 5 years but within 10 years | 4.9 |
| 5.1 |
|
Due after 10 years | 7.8 |
| 7.8 |
|
TOTAL | $ | 50.0 |
| $ | 50.7 |
|
| | | | | | | | |
| Amortized Cost | Fair Value |
Available-for-sale securities | | |
Due within 1 year | $ | 14.4 | | $ | 14.3 | |
After 1 year but within 5 years | 38.0 | | 37.4 | |
After 5 years but within 10 years | — | | — | |
Due after 10 years | 10.2 | | 9.7 | |
TOTAL | $ | 62.6 | | $ | 61.4 | |
The total unrealized gain/(loss) recognized in the year relating to available-for-sale securities, net of tax, was $2.6 $(1.4) million and $(1.4)$(0.4) million atfor the year ended December 31, 20192022 and 2018,2021, respectively. These net unrealized gains/(losses) are included in Accumulated other comprehensive loss, net of tax. Net unrealized gains relating to trading securities have been reflected in the results of operations. The Company uses the specific identification method when identifying the cost basis used to calculate the gain or loss on these securities. Gains and losses for both available-for-sale and trading securities were not material in 2019, 20182022, 2021 and 2017.2020.
At December 31, 2022 and December 31, 2021, the Company had $61.4 million and $54.0 million, respectively, of available-for-sale municipal debt securities. These investments had an amortized cost of $62.6 million and $53.3 million, respectively. No allowance for credit losses related to our available-for-sale debt securities was recorded for the twelve months ended December 31, 2022. As of December 31, 2022 and December 31, 2021 the unrealized losses attributable to our available-for-sale debt securities was $1.3 million and $0.1 million, respectively, at each period end. The fair value of available-for-sale debt securities with unrealized losses was $53.7 million at December 31, 2022 and $12.2 million at December 31, 2021.
NOTE 89 Property, Plant, and Equipment
Property, plant, and equipment, carried at cost, is summarized as follows at December 31, (in millions):
|
| | | | | | |
| 2019 |
| 2018 |
|
Land | $ | 37.7 |
| $ | 42.2 |
|
Buildings and improvements | 285.3 |
| 277.3 |
|
Machinery, tools, and equipment | 896.0 |
| 863.5 |
|
Construction-in-progress | 35.3 |
| 46.2 |
|
Gross property, plant, and equipment | 1,254.3 |
| 1,229.2 |
|
Less accumulated depreciation | (749.1 | ) | (727.1 | ) |
PROPERTY, PLANT, AND EQUIPMENT, NET | $ | 505.2 |
| $ | 502.1 |
|
| | | | | | | | |
| 2022 | 2021 |
Land | $ | 29.8 | | $ | 28.1 | |
Buildings and improvements | 212.1 | | 209.7 | |
Machinery, tools, and equipment | 905.7 | | 846.6 | |
Construction-in-progress | 99.0 | | 69.5 | |
Gross property, plant, and equipment | 1,246.6 | | 1,153.9 | |
Less accumulated depreciation | (718.6) | | (694.4) | |
PROPERTY, PLANT, AND EQUIPMENT, NET | $ | 528.0 | | $ | 459.5 | |
Depreciable lives on buildings range between 20-45 years. Depreciable lives on machinery, tools, and equipment range between 3-15 years. The Company recorded depreciation expense of $70.0$63.4 million, $66.1$61.7 million and $57.5$61.7 million for 2019, 20182022, 2021 and 2017,2020, respectively.
|
| | | | |
5662 | HUBBELL INCORPORATED - Form 10-K |
NOTE 910 Other Accrued Liabilities
Other accrued liabilities consist of the following at December 31, (in millions):
|
| | | | | | |
| 2019 |
| 2018 |
|
Customer program incentives | $ | 49.0 |
| $ | 52.4 |
|
Accrued income taxes | 6.0 |
| 3.4 |
|
Contract liabilities - deferred revenue | 31.0 |
| 27.7 |
|
Customer refund liability | 19.0 |
| 15.3 |
|
Accrued warranties(1) | 24.0 |
| 33.5 |
|
Current operating lease liabilities(2) | 29.6 |
| — |
|
Other | 103.6 |
| 94.3 |
|
TOTAL | $ | 262.2 |
| $ | 226.6 |
|
| | | | | | | | |
| 2022 | 2021 |
Customer program incentives | $ | 87.8 | | $ | 67.3 | |
Accrued income taxes | 4.5 | | 4.8 | |
Contract liabilities - deferred revenue | 45.8 | | 16.7 | |
Customer refund liability | 14.8 | | 16.7 | |
Accrued warranties(1) | 20.2 | | 36.7 | |
Current operating lease liabilities | 30.5 | | 27.1 | |
Other | 130.5 | | 94.1 | |
TOTAL | $ | 334.1 | | $ | 263.4 | |
(1) Refer to Note 2122 – Guarantees for additional information regarding warranties.
(2)Current operating lease liabilities are related to the adoption of ASU 2016-02. Refer to Note 1 - Basis of Presentation, in the Notes to Consolidated Financial Statements for additional information.
NOTE 1011 Other Non-Current Liabilities
Other non-current liabilities consists of the following at December 31, (in millions):
|
| | | | | | |
| 2019 |
| 2018 |
|
Pensions | $ | 198.5 |
| $ | 177.0 |
|
Other post-employment benefits | 21.5 |
| 23.7 |
|
Deferred tax liabilities | 126.8 |
| 120.0 |
|
Accrued warranties long-term(1) | 58.1 |
| 59.2 |
|
Non-current operating lease liabilities(2) | 71.7 |
| — |
|
Other | 115.0 |
| 116.9 |
|
TOTAL | $ | 591.6 |
| $ | 496.8 |
|
| | | | | | | | |
| 2022 | 2021 |
Pensions | $ | 155.3 | | $ | 189.8 | |
Other post-employment benefits | 14.3 | | 17.0 | |
Deferred tax liabilities | 113.8 | | 114.7 | |
Accrued warranties long-term(1) | 26.0 | | 29.4 | |
Non-current operating lease liabilities | 84.9 | | 58.3 | |
Other | 111.3 | | 112.1 | |
TOTAL | $ | 505.6 | | $ | 521.3 | |
(1) Refer to Note 2122 – Guarantees for additional information regarding warranties.
(2)Non-current operating lease liabilities are related to the adoption of ASU 2016-02. Refer to Note 1 - Basis of Presentation, in the Notes to Consolidated Financial Statements for additional information.
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 5763 |
NOTE 1112 Retirement Benefits
The Company has funded and unfunded non-contributory U.S. and foreign defined benefit pension plans. Benefits under these plans are generally provided based on either years of service and final average pay or a specified dollar amount per year of service. The U.S. defined benefit pension plan has been closed to new participants since 2004, while the Canadian and UK defined benefit pension plans have been closed to new entrants since 2006 and 2007, respectively. These U.S., Canadian and UK employees are eligible instead for defined contribution plans.
The Company also has a number of health care and life insurance benefit plans covering eligible employees who reached retirement age while working for the Company. These benefits have been discontinued for substantially all future retirees. The Company anticipates future cost-sharing charges for its discontinued plans that are consistent with past practices. The Company uses a December 31 measurement date for all of its plans.
In 2020 and 2022, the Company recognized a settlement loss in continuing operations relating to retirees that elected to receive lump-sum distributions from the Company's defined benefit pension plans of $7.6 million and $7.0 million, respectively. This charge was the result of lump-sum payments which exceeded the threshold for settlement accounting under U.S. GAAP in each year.
In 2019, the Company approved amendments to the one of its domestic qualified defined benefit pension plans, which froze service accruals for nearly all active participants within the plan effective January 1, 2020. As a result of the amendment, the Company recognized a $0.3 million curtailment charge, net of tax. Effective January 1, 2020, the amortization of unrecognized gains and losses of all of the Company's qualified defined benefit pension plans is recognized over the remaining life expectancy of participants, as nearly all participants are considered inactive as a result of plan amendments.
In the third quarter of 2018, the Company approved amendments to 1 of its foreign defined benefit pension plans, which closed the plan to future service accruals effective August 31, 2018. As a result of the amendments, in the third quarter of 2018, the Company recognized a curtailment gain of approximately $4.7 million, net of tax, in Accumulated other comprehensive income. In addition, effective August 31, 2018, the amortization of actuarial gains and losses is being recognized over the remaining life expectancy of the participants of this plan, as all participants are considered inactive as a result of the amendment.
In 2018, we completed transactions with a third-party insurer to settle approximately $28 million of projected benefit obligation of our domestic qualified defined benefit pension plans.
The Company's U.S. defined benefit pension plans were approximately 88%90% of the $938.7$670.8 million total pension benefit obligations at December 31, 2019.2022.
|
| | | | |
5864 | HUBBELL INCORPORATED - Form 10-K |
The following table sets forth the reconciliation of beginning and ending balances of the benefit obligations and the plan assets for the Company’s defined benefit pension and other benefit plans at December 31, (in millions):
|
| | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2019 |
| 2018 |
| | 2019 |
| 2018 |
|
Change in benefit obligation | |
| |
| | |
| |
|
Benefit obligation at beginning of year | $ | 844.3 |
| $ | 956.1 |
| | $ | 26.1 |
| $ | 27.0 |
|
Acquisitions | — |
| 1.3 |
| | — |
| — |
|
Service cost | 2.2 |
| 3.8 |
| | 0.1 |
| 0.1 |
|
Interest cost | 34.6 |
| 34.3 |
| | 1.1 |
| 1.0 |
|
Plan participants’ contributions | 0.4 |
| 0.4 |
| | — |
| — |
|
Amendments | — |
| 3.6 |
| | — |
| — |
|
Actuarial loss/(gain) | 107.0 |
| (72.4 | ) | | (2.0 | ) | (0.5 | ) |
Curtailment gain | — |
| (5.7 | ) | | — |
| — |
|
Currency impact | 3.6 |
| (5.7 | ) | | — |
| — |
|
Other | 0.1 |
| (0.5 | ) | | — |
| — |
|
Benefits paid | (53.5 | ) | (70.9 | ) | | (1.5 | ) | (1.5 | ) |
Benefit obligation at end of year | $ | 938.7 |
| $ | 844.3 |
| | $ | 23.8 |
| $ | 26.1 |
|
Change in plan assets | | | | | |
Fair value of plan assets at beginning of year | $ | 670.1 |
| $ | 738.8 |
| | $ | — |
| $ | — |
|
Acquisitions | — |
| 1.2 |
| | — |
| — |
|
Actual return on plan assets | 106.2 |
| (27.5 | ) | | — |
| — |
|
Employer contributions | 16.4 |
| 34.0 |
| | 1.5 |
| 1.5 |
|
Plan participants’ contributions | 0.4 |
| 0.4 |
| | — |
| — |
|
Currency impact | 3.8 |
| (5.9 | ) | | — |
| — |
|
Benefits paid | (53.5 | ) | (70.9 | ) | | (1.5 | ) | (1.5 | ) |
Fair value of plan assets at end of year | $ | 743.4 |
| $ | 670.1 |
| | $ | — |
| $ | — |
|
FUNDED STATUS | $ | (195.3 | ) | $ | (174.2 | ) | | $ | (23.8 | ) | $ | (26.1 | ) |
Amounts recognized in the consolidated balance sheet consist of: | | | | | |
Prepaid pensions (included in Other long-term assets) | $ | 8.6 |
| $ | 8.0 |
| | $ | — |
| $ | — |
|
Accrued benefit liability (short-term and long-term) | (203.9 | ) | (182.2 | ) | | (23.8 | ) | (26.1 | ) |
NET AMOUNT RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET | $ | (195.3 | ) | $ | (174.2 | ) | | $ | (23.8 | ) | $ | (26.1 | ) |
Amounts recognized in Accumulated other comprehensive loss (income) consist of: | | | | | |
Net actuarial loss | $ | 263.4 |
| $ | 240.8 |
| | $ | 0.3 |
| $ | 2.4 |
|
Prior service cost (credit) | 3.6 |
| 4.1 |
| | (0.4 | ) | (1.3 | ) |
NET AMOUNT RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE LOSS | $ | 267.0 |
| $ | 244.9 |
| | $ | (0.1 | ) | $ | 1.1 |
|
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2022 | 2021 | | 2022 | 2021 |
Change in benefit obligation | | | | | |
Benefit obligation at beginning of year | $ | 937.7 | | $ | 994.2 | | | $ | 18.9 | | $ | 23.2 | |
| | | | | |
Service cost | 0.9 | | 1.0 | | | — | | — | |
Interest cost | 28.0 | | 23.8 | | | 0.5 | | 0.6 | |
Plan participants’ contributions | — | | — | | | — | | — | |
Amendments | — | | 3.6 | | | — | | — | |
Actuarial loss/(gain) | (214.2) | | (22.0) | | | (2.2) | | (4.2) | |
Curtailment gain | — | | — | | | — | | — | |
Settlements | (22.5) | | (0.1) | | | — | | — | |
Currency impact | (10.5) | | (0.9) | | | — | | — | |
Other | (0.5) | | (0.3) | | | — | | — | |
Benefits paid | (48.1) | | (61.6) | | | (1.3) | | (0.7) | |
Benefit obligation at end of year | $ | 670.8 | | $ | 937.7 | | | $ | 15.9 | | $ | 18.9 | |
Change in plan assets | | | | | |
Fair value of plan assets at beginning of year | $ | 765.6 | | $ | 805.1 | | | $ | — | | $ | — | |
| | | | | |
Actual return on plan assets | (186.6) | | 15.6 | | | — | | — | |
Employer contributions | 19.8 | | 7.9 | | | 1.3 | | 0.7 | |
Plan participants’ contributions | — | | — | | | — | | — | |
Settlements | (22.5) | | (0.1) | | | — | | — | |
Currency impact | (12.8) | | (1.3) | | | — | | — | |
Benefits paid | (48.1) | | (61.6) | | | (1.3) | | (0.7) | |
Fair value of plan assets at end of year | $ | 515.4 | | $ | 765.6 | | | $ | — | | $ | — | |
FUNDED STATUS | $ | (155.4) | | $ | (172.1) | | | $ | (15.9) | | $ | (18.9) | |
Amounts recognized in the consolidated balance sheet consist of: | | | | | |
Prepaid pensions (included in Other long-term assets) | $ | 6.8 | | $ | 24.8 | | | $ | — | | $ | — | |
Accrued benefit liability (short-term and long-term) | (162.2) | | (196.9) | | | (15.9) | | (18.9) | |
NET AMOUNT RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET | $ | (155.4) | | $ | (172.1) | | | $ | (15.9) | | $ | (18.9) | |
Amounts recognized in Accumulated other comprehensive loss (income) consist of: | | | | | |
Net actuarial loss (gain) | $ | 244.4 | | $ | 263.1 | | | $ | (5.5) | | $ | (3.4) | |
Prior service cost (credit) | 6.3 | | 6.9 | | | — | | — | |
NET AMOUNT RECOGNIZED IN ACCUMULATED OTHER COMPREHENSIVE LOSS | $ | 250.7 | | $ | 270.0 | | | $ | (5.5) | | $ | (3.4) | |
The accumulated benefit obligation for all defined benefit pension plans was $933.5$670.8 million and $835.6$937.7 million at December 31, 20192022 and 2018,2021, respectively. Information with respect to plans with accumulated benefit obligations in excess of plan assets is as follows, (in millions):
|
| | | | | | |
| 2019 |
| 2018 |
|
Projected benefit obligation | $ | 823.8 |
| $ | 744.0 |
|
Accumulated benefit obligation | $ | 819.0 |
| $ | 735.4 |
|
Fair value of plan assets | $ | 620.0 |
| $ | 561.7 |
|
| | | | | | | | |
| 2022 | 2021 |
Projected benefit obligation | $ | 468.0 | | $ | 817.7 | |
Accumulated benefit obligation | $ | 468.0 | | $ | 817.7 | |
Fair value of plan assets | $ | 305.8 | | $ | 620.7 | |
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 5965 |
The following table sets forth the components of pension and other benefit costs for the years ended December 31, (in millions): | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits | |
| 2022 | 2021 | 2020 | | 2022 | 2021 | 2020 | |
Components of net periodic benefit cost: | | | | | | | | |
Service cost | $ | 0.9 | | $ | 1.0 | | $ | 1.2 | | | $ | — | | $ | — | | $ | — | | |
Interest cost | 28.0 | | 23.8 | | 28.0 | | | 0.5 | | 0.6 | | 0.7 | | |
Expected return on plan assets | (30.8) | | (36.5) | | (33.9) | | | — | | — | | — | | |
Amortization of prior service cost (credit) | 0.4 | | 0.2 | | 0.2 | | | — | | — | | (0.4) | | |
Amortization of actuarial losses (gains) | 10.8 | | 10.8 | | 9.8 | | | (0.2) | | (0.1) | | (0.1) | | |
Curtailment and settlement losses | 8.8 | | — | | 7.5 | | | — | | — | | — | | |
Net periodic benefit cost | $ | 18.1 | | $ | (0.7) | | $ | 12.8 | | | $ | 0.3 | | $ | 0.5 | | $ | 0.2 | | |
Changes recognized in other comprehensive loss (income), before tax: | | | | | | | | |
Current year net actuarial loss (gain) | $ | 2.6 | | $ | (1.4) | | $ | 28.6 | | | $ | (2.2) | | $ | (4.1) | | $ | 0.1 | | |
Current year prior service credit | — | | 3.6 | | — | | | — | | — | | — | | |
Amortization of prior service (cost) credit | (0.4) | | (0.2) | | (0.2) | | | — | | — | | 0.4 | | |
Amortization of net actuarial (losses) gains | (10.8) | | (10.8) | | (9.8) | | | 0.2 | | 0.1 | | 0.1 | | |
Currency impact | (2.0) | | (0.2) | | 0.1 | | | — | | — | | — | | |
Settlement adjustment | (8.8) | | — | | (7.6) | | | — | | — | | — | | |
Curtailment adjustments | — | | — | | 0.1 | | | — | | — | | — | | |
Total recognized in other comprehensive loss | (19.4) | | (9.0) | | 11.2 | | | (2.0) | | (4.0) | | 0.6 | | |
TOTAL RECOGNIZED IN NET PERIODIC PENSION COST AND OTHER COMPREHENSIVE LOSS | $ | (1.3) | | $ | (9.7) | | $ | 24.0 | | | $ | (1.7) | | $ | (3.5) | | $ | 0.8 | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
|
Components of net periodic benefit cost: | |
| |
| |
| | |
| |
| |
|
Service cost | $ | 2.2 |
| $ | 3.8 |
| $ | 5.9 |
| | $ | 0.1 |
| $ | 0.1 |
| $ | 0.1 |
|
Interest cost | 34.6 |
| 34.3 |
| 37.2 |
| | 1.1 |
| 1.0 |
| 1.0 |
|
Expected return on plan assets | (30.7 | ) | (33.5 | ) | (34.1 | ) | | — |
| — |
| — |
|
Amortization of prior service cost (credit) | 0.2 |
| 0.1 |
| 0.1 |
| | (0.9 | ) | (0.8 | ) | (1.0 | ) |
Amortization of actuarial losses (gains) | 9.6 |
| 10.5 |
| 11.4 |
| | 0.1 |
| — |
| — |
|
Curtailment and settlement losses | 0.3 |
| — |
| 0.4 |
| | — |
| — |
| — |
|
Net periodic benefit cost | $ | 16.2 |
| $ | 15.2 |
| $ | 20.9 |
| | $ | 0.4 |
| $ | 0.3 |
| $ | 0.1 |
|
Changes recognized in other comprehensive loss (income), before tax: | | | | | | | |
Current year net actuarial loss (gain) | $ | 31.5 |
| $ | (15.8 | ) | $ | 4.2 |
| | $ | (2.0 | ) | $ | (0.4 | ) | $ | 1.4 |
|
Current year prior service credit | — |
| 2.0 |
| 0.3 |
| | — |
| — |
| — |
|
Amortization of prior service (cost) credit | (0.2 | ) | (0.1 | ) | (0.1 | ) | | 0.9 |
| 1.0 |
| 1.0 |
|
Amortization of net actuarial (losses) gains | (9.6 | ) | (10.5 | ) | (11.4 | ) | | (0.1 | ) | (0.2 | ) | — |
|
Currency impact | 0.7 |
| (1.3 | ) | 3.5 |
| | — |
| — |
| — |
|
Other adjustments | (0.3 | ) | — |
| (0.4 | ) | | — |
| — |
| — |
|
Total recognized in other comprehensive loss | 22.1 |
| (25.7 | ) | (3.9 | ) | | (1.2 | ) | 0.4 |
| 2.4 |
|
TOTAL RECOGNIZED IN NET PERIODIC PENSION COST AND OTHER COMPREHENSIVE LOSS | $ | 38.3 |
| $ | (10.5 | ) | $ | 17.0 |
| | $ | (0.8 | ) | $ | 0.7 |
| $ | 2.5 |
|
During 2022, the Company recognized $7.0 million of settlement losses in continuing operations and $1.8 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.
The Company also maintains 5four primary defined contribution pension plans. The total cost of the Company's defined contribution plans was $23.4$25.8 million in 2019, $22.52022, $23.3 million in 20182021 and $19.8$21.0 million in 2017,2020, excluding the employer match for the 401(k) plan. This cost is not included in the above net periodic benefit cost for the defined benefit pension plans.
In 20182020, 2021 and 20192022 the Company participated in 1one multi-employer defined benefit pension plan. The Company participated in another multi-employer pension plan that it withdrew from in 2017. The Company’s total contributions while participating in these plansthis plan was $0.2 million in 2019, $0.2 million in 2018, and $0.4 million in 2017.each of these years.
The risks of participating in multi-employer plans are different from single-employer plans in that assets contributed are pooled and may be used to provide benefits to employees of other participating employers. If a participating employer stops contributing to the plan, the unfunded obligations of the plan may have to be assumed by the remaining participant employers. If we choose to stop participating in a multi-employer plan we may be required to pay those plans a withdrawal liability based on the unfunded status of the plan.
In 2016, the Company recorded a charge of $12.5 million in Cost of goods sold representing the estimated withdrawal liability from a multi-employer plan from which it subsequently withdrew in 2017. In March 2019, the remaining employer in that multi-employer pension plan filed for protection under Chapter 11 of the United States Bankruptcy Code and was proceeding towards liquidation as of June 2019. It was therefore deemed probable that the Company would be subject to mass withdrawal liability under the terms customary to multi-employer plans. Further, the trustees of the pension fund announced the termination of the multi-employer pension plan and declared the amounts attributed to the other employer uncollectable. In December 2019, the Company entered into a settlement agreement with the multi-employer pension plan. As a result, the Company recognized an additional $8.5 million net charge in 2019 to settle the mass withdrawal obligation and a $10.0 million cash payment in the fourth quarter of 2019, with remaining cash payments of $6.0 million and $5.0 million due in 2020 and 2021, respectively.
|
| | | | |
6066 | HUBBELL INCORPORATED - Form 10-K |
The following assumptions were used to determine the projected benefit obligations at the measurement date and the net periodic benefit cost for the year:
|
| | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2019 |
| 2018 |
| 2017 |
| | 2019 |
| 2018 |
| 2017 |
|
Weighted-average assumptions used to determine benefit obligations at December 31, | |
| |
| |
| | | |
| |
|
Discount rate | 3.17 | % | 4.24 | % | 3.67 | % | | 3.30 | % | 4.40 | % | 3.70 | % |
Rate of compensation increase | 2.94 | % | 3.25 | % | 3.24 | % | | 4.00 | % | 4.05 | % | 4.00 | % |
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, | | | | | | | |
Discount rate | 4.24 | % | 3.67 | % | 4.12 | % | | 4.40 | % | 3.70 | % | 4.10 | % |
Expected return on plan assets | 4.75 | % | 4.68 | % | 4.94 | % | | N/A |
| N/A |
| N/A |
|
Rate of compensation increase | 3.25 | % | 3.24 | % | 3.55 | % | | 4.05 | % | 4.00 | % | 3.93 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Benefits |
| 2022 | 2021 | 2020 | | 2022 | 2021 | 2020 |
Weighted-average assumptions used to determine benefit obligations at December 31, | | | | | | | |
Discount rate | 5.46 | % | 2.79 | % | 2.47 | % | | 5.50 | % | 2.90 | % | 2.50 | % |
Rate of compensation increase | 0.08 | % | 0.08 | % | 0.24 | % | | 3.93 | % | 3.87 | % | 3.99 | % |
Weighted-average assumptions used to determine net periodic benefit cost for years ended December 31, | | | | | | | |
Discount rate | 2.79 | % | 2.47 | % | 3.17 | % | | 2.90 | % | 2.50 | % | 3.30 | % |
Expected return on plan assets | 4.59 | % | 4.66 | % | 4.69 | % | | N/A | N/A | N/A |
Rate of compensation increase | 0.08 | % | 0.24 | % | 2.94 | % | | 3.87 | % | 3.99 | % | 4.00 | % |
At the end of each year, the Company determines the appropriate expected return on assets for each plan based upon its strategic asset allocation (see discussion below). In making this determination, the Company utilizes expected returns for each asset class based upon current market conditions and expected risk premiums for each asset class.
The Company also determines the discount rate to be used to calculate the present value of pension plan liabilities at the end of each year. The discount rate for the Company’s U.S. and Canadian pension plans is determined by matching the expected cash flows associated with its benefit obligations to the expected cash flows of a hypothetical portfolio of high quality, fixed income debt instruments with maturities that closely match the expected funding period of its pension liabilities. As of December 31, 2019,2022, the Company used a discount rate of 3.30%5.50% for its U.S. pension plans compared to a discount rate of 4.40%2.90% used in 2018.2021. For its Canadian pension plan, the Company used a discount rate of 3.00%5.01% as of December 31, 20192022 compared to the 3.60%a 2.98% discount rate used in 2018.2021.
For its UK pension plan the discount rate was derived using a full yield curve and uses plan specific cash flows. The derived discount rate is the single discount rate equivalent to discounting these liability cash flows at the term-dependent spot rate of AA corporate bonds. This methodology resulted in a December 31, 20192022 discount rate for the UK pension plan of 2.10%5.00% as compared to a discount rate of 2.90%1.80% used in 2018.2021.
In 20192020 we changedused the Pri-2012 mortality table used to calculate the present value of our pension plan liabilities fromand adopted the RP-2014 mortality table, with generationalMP-2020 projection from 2006 using Scale MP-2018 toscale, and in 2021 and 2022 we used the Pri-2012 mortality table and adopted the MP-2021 projection scale The Pri-2012 mortality table with adjustment for collar as appropriate and generational projection from 2012 using Scale MP-2019. That change did not have a material impact to the projected benefit obligation of our U.S. plans upon remeasurement at December 31, 2019. The Pri-2012 mortality table, with generational projection from 2012 using Scale MP-2019MP-2021 was chosen as the best estimate based on the observed and anticipated experience of the plans after considering alternative tables. These changes did not have a material impact to the projected benefit obligation of our U.S. plans upon remeasurement.
The rate of compensation increase assumption reflects the Company’s actual experience and best estimate of future increases.
The assumed health care cost trend rates used to determine the projected postretirement benefit obligation are as follows:
|
| | | | | | |
| Other Benefits |
| 2019 |
| 2018 |
| 2017 |
|
Assumed health care cost trend rates at December 31, | |
| |
| |
|
Health care cost trend assumed for next year | 6.6 | % | 6.8 | % | 7.0 | % |
Rate to which the cost trend is assumed to decline | 5.0 | % | 5.0 | % | 5.0 | % |
Year that the rate reaches the ultimate trend rate | 2028 |
| 2028 |
| 2028 |
|
| | | | | | | | | | | |
| Other Benefits |
| 2022 | 2021 | 2020 |
Assumed health care cost trend rates at December 31, | | | |
Health care cost trend assumed for next year | 7.0 | % | 6.2 | % | 6.4 | % |
Rate to which the cost trend is assumed to decline | 5.0 | % | 5.0 | % | 5.0 | % |
Year that the rate reaches the ultimate trend rate | 2031 | 2028 | 2028 |
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 6167 |
Plan Assets
The Company’s combined targeted 20202023 weighted average asset allocation for domestic and foreign pension plans and the actual weighted average asset allocation for domestic and foreign pension plans at December 31, 20192022 and 20182021 by asset category are as follows:
|
| | | | | | |
| Percentage of Plan Assets |
| Target | Actual |
Asset Category | 2020 |
| 2019 |
| 2018 |
|
Equity securities | 22 | % | 25 | % | 19 | % |
Debt securities & Cash | 76 | % | 73 | % | 67 | % |
Alternative Investments | 2 | % | 2 | % | 14 | % |
TOTAL | 100 | % | 100 | % | 100 | % |
| | | | | | | | | | | |
| Percentage of Plan Assets |
| Target | Actual |
Asset Category | 2023 | 2022 | 2021 |
Equity securities | 32 | % | 23 | % | 22 | % |
Debt securities & Cash | 68 | % | 77 | % | 77 | % |
Alternative Investments | — | % | — | % | 1 | % |
TOTAL | 100 | % | 100 | % | 100 | % |
At the end of each year, the Company estimates the expected long-term rate of return on pension plan assets based on the strategic asset allocation for its plans. In making this determination, the Company utilizes expected rates of return for each asset class based upon current market conditions and expected risk premiums for each asset class. The Company has written investment policies and asset allocation guidelines for its domestic and foreign pension plans. In establishing these policies, the Company has considered that its various pension plans are a major retirement vehicle for most plan participants and has acted to discharge its fiduciary responsibilities with regard to the plans solely in the interest of such participants and their beneficiaries. The goal underlying the establishment of the investment policies is to provide that pension assets shall be invested in a prudent manner and so that, together with the expected contributions to the plans, the funds will be sufficient to meet the obligations of the plans as they become due.
To achieve this result, the Company conducts a periodic strategic asset allocation study to form a basis for the allocation of pension assets between various asset categories. Specific policy benchmark percentages are assigned to each asset category with minimum and maximum ranges established for each. The assets are then tactically managed within these ranges. Derivative investments include futures contracts used by the plan to adjust the level of its investments within an asset allocation category. The actual and target percentages reported in the preceding table reflect the economic exposure to each asset category, including the impact of derivative positions. All futures contracts are 100% supported by cash or cash equivalent investments. At no time may derivatives be utilized to leverage the asset portfolio. At December 31, 20192022 and 2018,2021, there were 0no holdings of Company stock in pension plan assets.
The Company’s other post-employment benefits are unfunded; therefore, no asset information is reported.
|
| | | | |
6268 | HUBBELL INCORPORATED - Form 10-K |
The fair value of the Company’s pension plan assets at December 31, 20192022 and 2018,2021, by asset category are as follows (in millions):
| | | | Quoted Prices in Active Markets for Identical Assets | Quoted Prices in Active Market for Similar Asset | Significant Unobservable Inputs | Investments Priced Using Net Asset Value | | Quoted Prices in Active Markets for Identical Assets | Quoted Prices in Active Market for Similar Asset | Significant Unobservable Inputs | Investments Priced Using Net Asset Value |
Asset Category | Total | (Level 1) | (Level 2) | (Level 3) | | Asset Category | Total | (Level 1) | (Level 2) | (Level 3) | |
Cash and cash equivalents | $ | 16.6 |
| $ | 16.6 |
| $ | — |
| $ | — |
| $ | — |
| Cash and cash equivalents | $ | 9.8 | | $ | 3.5 | | $ | 6.3 | | $ | — | | $ | — | |
Equity securities: | |
|
|
|
|
|
| | Equity securities: | | |
| Equity Mutual Funds | 31.6 |
| 31.6 |
| — |
| — |
| — |
| Equity Mutual Funds | 21.5 | | 21.5 | | — | | — | | — | |
Common Pooled Equity Funds (b) | 144.0 |
| — |
| 144.0 |
| — |
| — |
| |
Common Pooled Equity Funds (a) | | Common Pooled Equity Funds (a) | 84.5 | | — | | 84.5 | | — | | — | |
| Fixed Income Securities: | |
|
|
|
|
|
|
| | Fixed Income Securities: | | |
U.S. Treasuries | 64.5 |
| — |
| 64.5 |
| — |
| — |
| U.S. Treasuries | 47.2 | | — | | 47.2 | | — | | — | |
State and Local Municipal Bonds | 9.4 |
| — |
| 9.4 |
| — |
| — |
| State and Local Municipal Bonds | 6.4 | | — | | 6.4 | | — | | — | |
Sovereign Debt | 7.6 |
| — |
| 7.6 |
| — |
| — |
| Sovereign Debt | 4.9 | | — | | 4.9 | | — | | — | |
Corporate Bonds (c) | 122.9 |
| 0.1 |
| 122.8 |
| — |
| — |
| |
Corporate Bonds (b) | | Corporate Bonds (b) | 105.5 | | — | | 105.5 | | — | | — | |
Fixed Income Mutual Funds | 54.2 |
| 54.2 |
| — |
| — |
| — |
| Fixed Income Mutual Funds | 41.8 | | 41.8 | | — | | — | | — | |
Common Pooled Fixed Income Funds (d) | 252.3 |
| — |
| 252.3 |
| — |
| — |
| |
Alternative Investment Funds (e) | 18.1 |
| — |
| 0.9 |
| — |
| 17.2 |
| |
Common Pooled Funds (f) | 22.2 |
| 0.5 |
| 21.7 |
| — |
| — |
| |
BALANCE AT DECEMBER 31, 2019 | $ | 743.4 |
| $ | 103.0 |
| $ | 623.2 |
| $ | — |
| $ | 17.2 |
| |
Common Pooled Fixed Income Funds (c) | | Common Pooled Fixed Income Funds (c) | 174.2 | | — | | 148.7 | | — | | 25.5 | |
| Alternative Investment Funds (d) | | Alternative Investment Funds (d) | 2.1 | | — | | — | | — | | 2.1 | |
Common Pooled Funds (e) | | Common Pooled Funds (e) | 17.5 | | 0.4 | | 17.1 | | — | | — | |
BALANCE AT DECEMBER 31, 2022 | | BALANCE AT DECEMBER 31, 2022 | $ | 515.4 | | $ | 67.2 | | $ | 420.6 | | $ | — | | $ | 27.6 | |
| | | | | | | | | | | | | | | | | |
| | Quoted Prices in Active Markets for Identical Assets | Quoted Prices in Active Market for Similar Asset | Significant Unobservable Inputs | Investments Priced Using Net Asset Value |
Asset Category | Total | (Level 1) | (Level 2) | (Level 3) | |
Cash and cash equivalents | $ | 8.9 | | $ | 8.9 | | $ | — | | $ | — | | $ | — | |
Equity securities: | | | | | |
Equity Mutual Funds | 31.7 | | 31.7 | | — | | — | | — | |
| | | | | |
| | | | | |
| | | | | |
Common Pooled Equity Funds (a) | 123.3 | | — | | 123.3 | | — | | — | |
Fixed Income Securities: | | | | | |
U.S. Treasuries | 55.0 | | — | | 55.0 | | — | | — | |
State and Local Municipal Bonds | 6.2 | | — | | 6.2 | | — | | — | |
Sovereign Debt | 7.1 | | — | | 7.1 | | — | | — | |
Corporate Bonds (b) | 141.6 | | — | | 141.6 | | — | | — | |
Fixed Income Mutual Funds | 55.5 | | 55.5 | | — | | — | | — | |
Common Pooled Fixed Income Funds (c) | 306.3 | | — | | 275.2 | | — | | 31.1 | |
| | | | | |
| | | | | |
| | | | | |
Alternative Investment Funds (d) | 7.1 | | — | | — | | — | | 7.1 | |
Common Pooled Funds (e) | 22.9 | | 0.5 | | 22.4 | | — | | — | |
BALANCE AT DECEMBER 31, 2021 | $ | 765.6 | | $ | 96.6 | | $ | 630.8 | | $ | — | | $ | 38.2 | |
|
| | | | | | | | | | | | | | | |
| | Quoted Prices in Active Markets for Identical Assets | Quoted Prices in Active Market for Similar Asset | Significant Unobservable Inputs | Investments Priced Using Net Asset Value |
Asset Category | Total | (Level 1) | (Level 2) | (Level 3) | |
Cash and cash equivalents | $ | 47.0 |
| $ | 47.0 |
| $ | — |
| $ | — |
| $ | — |
|
Equity securities: | |
| | | | |
U.S. Large-cap (g) | 8.2 |
| 8.2 |
| — |
| — |
| — |
|
U.S. Mid-cap and Small-cap Growth (h) | 3.1 |
| 3.1 |
| — |
| — |
| — |
|
International Large-cap | 8.6 |
| 8.6 |
| — |
| — |
| — |
|
Emerging Markets (a) | 13.3 |
| 8.1 |
| 5.2 |
| — |
| — |
|
Common Pooled Equity Funds (b) | 12.7 |
| — |
| 12.7 |
| — |
| — |
|
Fixed Income Securities: | |
|
|
|
|
|
|
| |
U.S. Treasuries | 378.0 |
| — |
| 378.0 |
| — |
| — |
|
Corporate Bonds (c) | 0.3 |
| 0.3 |
| — |
| — |
| — |
|
Asset Backed Securities and Other | 22.8 |
| — |
| 22.8 |
| — |
| — |
|
Common Pooled Fixed Income Funds (d) | 61.8 |
| — |
| 57.6 |
| — |
| 4.2 |
|
Derivatives: | |
|
|
|
|
|
|
| |
Assets (i) | 8.2 |
| 8.0 |
| 0.2 |
| — |
| — |
|
(Liabilities) (i) | (7.9 | ) | (6.9 | ) | (1.0 | ) | — |
| — |
|
Alternative Investment Funds (e) | 96.8 |
| 11.6 |
| 3.3 |
| — |
| 81.9 |
|
Common Pooled Funds (f) | 17.7 |
| 0.9 |
| 16.8 |
| — |
| — |
|
BALANCE AT DECEMBER 31, 2018 | $ | 670.6 |
| $ | 88.9 |
| $ | 495.6 |
| $ | — |
| $ | 86.1 |
|
| |
(a) | Includes open ended emerging markets mutual funds. |
| |
(b) | Investments in Common Pooled Equity Funds, including funds and fund products investing in various equity securities |
| |
(c) | Includes primarily investment grade bonds from diverse industries |
| |
(d) | Investments in Common Pooled Fixed Income Funds, including funds and fund products investing in various fixed income investments |
| |
(e) | Includes investments in hedge funds, including fund of funds products and open end mutual funds |
| |
(f) | Investments in Common Pooled Funds, consisting of equities and fixed income securities |
| |
(g) | Includes an actively managed portfolio of large-cap U.S. stocks. |
| |
(h) | Includes an investment in a small cap open ended mutual fund. |
| |
(i) | Includes primarily U.S. and foreign equity futures as well as foreign fixed income futures and positions in U.S. Treasury futures to adjust the duration of the portfolio. |
(a)Investments in Common Pooled Equity Funds, including funds and fund products investing in various equity securities.
(b)Includes primarily investment grade bonds from diverse industries
(c)Investments in Common Pooled Fixed Income Funds, including funds and fund products investing in various fixed income investments
(d)Includes investments in hedge funds, including fund of funds products and open-end mutual funds |
| |
HUBBELL INCORPORATED(e)Investments in Common Pooled Funds, consisting of equities and fixed income securities
- Form 10-K
| 63 |
Investments priced using Net Asset Value ("NAV") within Alternative Investment Funds and Common Pooled Fixed Income Funds in the preceding tables consist of fund of fund products. These products invest in a number of investment funds managed by a diversified group of third-party investment managers who employ a variety of alternative investment strategies, including relative value, security selection, distressed value, global macro, specialized credit and directional strategies. The objective of these funds is to achieve the desired capital appreciation or fixed income as applicable with lower volatility than either traditional equity or fixed income securities.
| | | | | |
HUBBELL INCORPORATED- Form 10-K | 69 |
Contributions
The Company made $10.4 million ofIn 2021, there were no contributions to itsthe Company's U.S. qualified defined benefit pension plans in 2019, including $10.0 million of U.S. voluntary contributions that were not required underby the Pension Protection Act of 2006. Further, as stated earlier within this Note 11, theThe Company contributed $10.0 million and $2.5 million to its U.S. and foreign qualified plans, respectively, in 2022. The Company entered into a settlement agreement with a multi-employer pension plan in December of 2019 and, pursuant to that agreement, made a $10.0$6.0 million cash payment in the fourth quarter of 2019, with remaining scheduled cash payments of $6.0 million2020, and $5.0 million duecash payment in 2020 and 2021, respectively. The Company expectsaccording to contribute approximately $4.3 million to its foreign plans in 2020.the terms of that settlement agreement.
Estimated Future Benefit Payments
The following domestic and foreign benefit payments, which reflect future service, as appropriate, are expected to be paid as follows (in millions):
| | | | | | | | |
| Pension Benefits | Other Benefits |
2023 | $ | 53.4 | | $ | 1.7 | |
2024 | $ | 53.6 | | $ | 1.6 | |
2025 | $ | 53.8 | | $ | 1.6 | |
2026 | $ | 53.9 | | $ | 1.5 | |
2027 | $ | 53.2 | | $ | 1.4 | |
2028-2031 | $ | 255.0 | | $ | 6.0 | |
|
| | | | | | |
| Pension Benefits |
| Other Benefits |
|
2020 | $ | 53.9 |
| $ | 2.2 |
|
2021 | $ | 53.2 |
| $ | 2.1 |
|
2022 | $ | 54.8 |
| $ | 2.0 |
|
2023 | $ | 55.3 |
| $ | 1.9 |
|
2024 | $ | 55.2 |
| $ | 1.8 |
|
2025-2028 | $ | 270.3 |
| $ | 7.5 |
|
NOTE 1213 Debt
The following table sets forth the Company’s long-term debt at December 31, (in millions):
|
| | | | | | | |
| Maturity | 2019 | 2018 |
|
Senior notes at 3.625% | 2022 | $ | 298.8 |
| $ | 298.3 |
|
Senior notes at 3.35% | 2026 | 395.7 |
| 395.1 |
|
Senior notes at 3.15% | 2027 | 295.9 |
| 295.4 |
|
Senior notes at 3.50% | 2028 | 444.0 |
| 443.3 |
|
Term loan, net of current portion of $34.4 and $25 million, respectively | 2023 | 71.6 |
| 305.0 |
|
TOTAL LONG-TERM DEBT(a) | | $ | 1,506.0 |
| $ | 1,737.1 |
|
| | | | | | | | | | | |
| Maturity | 2022 | 2021 |
| | | |
Senior notes at 3.35% | 2026 | $ | 397.9 | | $ | 397.2 | |
Senior notes at 3.15% | 2027 | 297.5 | | 297.0 | |
Senior notes at 3.50% | 2028 | 446.2 | | 445.5 | |
Senior notes at 2.300% | 2031 | 296.3 | | 295.8 | |
TOTAL LONG-TERM DEBT(a) | | $ | 1,437.9 | | $ | 1,435.5 | |
(a) Long-term debt is presented net of debt issuance costs and unamortized discounts.
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, 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.
The interest rate applicable to borrowings under the 2021 Credit Facility is either (i) the alternate base rate (as defined in the Revolving Credit Agreement) or (ii) the adjusted LIBOR rate (as defined in the 2021 Credit Facility) plus, in the case of this clause (ii), 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 December 31, 2022. As of December 31, 2022 and December 31, 2021, the 2021 Credit Facility was undrawn.
In connection with entry into the 2021 Credit Facility, the Company terminated all commitments under the existing credit facility dated as of January 31, 2018.
| | | | | |
70 | HUBBELL INCORPORATED - Form 10-K |
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”). 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 Company used the net proceeds from the offering of the 2031 Notes, together with cash on hand, to redeem in full all of the Company’s outstanding 3.625% Senior Notes due 2022 in an aggregate principal amount of $300 million, which had a stated maturity date of November 15, 2022 (the “2022 Notes”), and to pay any premium and accrued interest in respect thereof, which redemption was completed on April 2, 2021. The redemption resulted in a $16.8 million loss on extinguishment of indebtedness that was recognized in the second quarter of 2021. The loss on extinguishment includes a cash premium of $16.0 million paid upon redemption in accordance with the terms of the 2022 Notes.
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 2031 Notes are callable at any time with a make whole premium and are only subject to accelerated payment prior to maturity in the event of a default (including as a result of the Company's failure to meet certain non-financial covenants) under the indenture governing the notes or upon a change in control triggering event as defined in such indenture. The Company was in compliance with all non-financial covenants as of December 31, 2022.
In February 2018, the Company completed a public offering of $450 million of senior, unsecured, notes maturing in February 2028 and bearing interest at a fixed rate of 3.50% (the "2028 Notes"). Net proceeds from the issuance of the 2028 Notes were $442.6 million after deducting the discount on such notes and offering expenses paid by the Company. The 2028 Notes are callable at any time at specified prices and are only subject to accelerated payment prior to maturity upon customary events of a default under the indenture governing the 2028 Notes, as modified by the supplemental indenture creating such notes, or upon a change in control triggering event as defined in such indenture.
In January 2018, the Company entered into the Term Loan Agreement. The Term Loan Agreement provided the Company, with the ability to borrow, in a single borrowing on the Aclara acquisition date, up to $500 million on an unsecured basis to partially finance the Aclara acquisition (the "Term Loan"). On February 2, 2018, the Company borrowed $500 million under the Term Loan Agreement. The interest rate applicable to borrowings under the Term Loan Agreement is generally either adjusted LIBOR plus an applicable margin (determined by a ratings based grid) or the alternate base rate. The principal amount of borrowings under the Term Loan Agreement amortize in equal quarterly installments of 5% per year in year one, 5% per year in year two, 7.5% per year in year three, 10% per year in year four, 10% per year in year five, and any remaining borrowings under the Term Loan Agreement are due and payable in full in February 2023. The Company may also make principal payments in excess of the amortization schedule at its discretion. Proceeds of the 2028 Notes and Term Loan were used to fund the Aclara acquisition.
In December 2019, the Company made discretionary payments of $200 million against the outstanding principal amount of the Term Loan. The sole financial covenant in the Term Loan Agreement requires that total debt not exceed 65% of total capitalization as of the last day of each fiscal quarter of the Company. The Company was in compliance with this covenant as of December 31, 2019 and 2018.
|
| |
64 | HUBBELL INCORPORATED - Form 10-K
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In January 2018, the Company entered into the 2018 Credit Facility with a syndicate of lenders that provides a $750 million committed revolving credit facility. In connection with the acquisition of Aclara, the Company terminated all commitments under the Company's previous 2015 credit facility. Commitments under the 2018 Credit Facility may be increased to an aggregate amount not to exceed $1.250 billion. The interest rate applicable to borrowings under the 2018 Credit Facility is generally either adjusted LIBOR plus an applicable margin (determined by a ratings based grid) or the alternate base rate. The 2018 Credit Facility expires in February 2023. The sole financial covenant in the 2018 Credit Facility requires that total debt not exceed 65% of total capitalization as of the last day of each fiscal quarter of the Company. The Company was in compliance with this covenant as of December 31, 2019. As of December 31, 2019, the Company has not drawn against the 2018 Credit Facility.
In August 2017, the Company completed a public debt offering of $300 million of long-term unsecured, unsubordinated notes maturing in August 2027 and bearing interest at a fixed rate of 3.15% (the "2027 Notes"). Net proceeds from the issuance were $294.6 million after deducting the discount on the notes and offering expenses paid by the Company.
In September 2017, the Company applied the net proceeds from the 2027 Notes to redeem all of its $300 million outstanding long-term, unsecured, unsubordinated notes maturing in 2018 and bearing interest at a fixed rate of 5.95% (the "2018 Notes"). In connection with this redemption, the Company recognized a loss on the early extinguishment of the 2018 Notes of $10.1 million on a before-tax basis.
In March 2016, the Company completed a public debt offering of $400 million of long-term unsecured, unsubordinated notes maturing in March 2026 and bearing interest at a fixed rate of 3.35% (the "2026 Notes"). Net proceeds from the issuance were $393.4 million after deducting the discount on the notes and offering expenses paid by the Company.
In November 2010, the Company completed a public debt offering for $300 million of long-term unsecured, unsubordinated notes maturing in November 2022 (“2022 Notes”) and bearing interest at a fixed rate of 3.625%. Prior to the issuance of the 2022 Notes, the Company entered into a forward interest rate lock which resulted in a $1.6 million loss. This amount was recorded in Accumulated other comprehensive loss, net of tax, and is being amortized over the life of the 2022 Notes.
The 2022 Notes, 2026 Notes, 2027 Notes, 2028 Notes and 20282031 Notes, are all fixed rate indebtedness, are callable at any time with a make whole premium and are only subject to accelerated payment prior to maturity in the event of a default (including as a result of the Company's failure to meet certain non-financial covenants) under the indenture governing the notes, as modified by the supplemental indentures creating such notes, or upon a change in control triggering event as defined in such indenture. The Company was in compliance with all non-financial covenants as of December 31, 2019.
2022.
At December 31, 20192022 and 2018,2021, the Company had $65.4no commercial paper borrowings outstanding and had $4.7 million and $56.1$9.7 million, respectively,respectively, of short-term debt outstanding composed of;of:
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◦ | $26.0 million of commercial paper borrowings outstanding at December 31, 2019 and 2018. |
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◦ | $34.4 million at December 31, 2019 and $25.0 million at December 31, 2018, respectively, of long-term debt classified as short-term within current liabilities in the Consolidated Balance Sheets, reflecting maturities within the next twelve months relating to our borrowing under the Term Loan. |
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◦ | $5.0 million at December 31, 2019 and $5.1 million at December 31, 2018, respectively, of borrowings to support our international operations in China. |
◦$2.8 million at December 31, 2022 and $1.6 million at December 31, 2021, respectively, of borrowings to support our international operations in China as well as $1.9 million and $8.1 million of other short term debt at December 31, 2022 and December 31, 2021, respectively, to support operations.
Other information related to short-term debt at December 31, is summarized below:
| | | | | | | | |
| 2022 | 2021 |
Weighted average interest rate on short-term debt: | | |
At year end | 2.57 | % | 2.98 | % |
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| | | | |
| 2019 | 2018 |
Interest rate on short-term debt: | |
| |
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At year end | 2.59 | % | 3.21 | % |
The Company also maintains other lines of credit that are primarily used to support the issuance of letters of credit. Interest rates and other terms of borrowing under these lines of credit vary from country to country, depending on local market conditions. At December 31, 20192022 and 20182021 these lines totaled $23.0$55.8 million and $54.8$30.0 million, respectively, of which $15.7$31.7 million and $20.3$23.2 million was utilized to support letters of credit and the remaining amount was unused. The annual commitment fees associated with these lines of credit are not material.
Interest and fees paid related to total indebtedness was $62.8$47.5 million, $59.5$65.6 million and $47.9$54.4 million in 2019, 20182022, 2021 and 2017,2020, respectively. The $47.9$65.6 million paid in 20172021 includes $9.9$16.0 million related to the make whole payment for the extinguishment of the 20182022 Notes.
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HUBBELL INCORPORATED - Form 10-K | 6571 |
NOTE 1314 Income Taxes
The following table sets forth selected data with respect to the Company’s income tax provisions of continuing operations for the years ended December 31, (in millions):
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
Income before income taxes: | | | |
United States | $ | 528.9 | | $ | 347.5 | | $ | 340.7 | |
International | 128.1 | | 111.8 | | 83.8 | |
TOTAL INCOME BEFORE INCOME TAXES | $ | 657.0 | | $ | 459.3 | | $ | 424.5 | |
Provision for income taxes — current: | | | |
Federal | $ | 120.3 | | $ | 43.3 | | $ | 56.3 | |
State | 24.2 | | 13.0 | | 15.1 | |
International | 23.5 | | 22.7 | | 17.0 | |
Total provision — current | 168.0 | | 79.0 | | 88.4 | |
Provision for income taxes — deferred: | | | |
Federal | (26.2) | | 8.8 | | 1.5 | |
State | (3.9) | | 1.9 | | 0.2 | |
International | 2.3 | | (1.5) | | (0.3) | |
Total provision — deferred | (27.8) | | 9.2 | | 1.4 | |
TOTAL PROVISION FOR INCOME TAXES | $ | 140.2 | | $ | 88.2 | | $ | 89.8 | |
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| | | | | | | | | |
| 2019 |
| 2018 |
| 2017 |
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Income before income taxes: | | | |
United States | $ | 406.7 |
| $ | 360.8 |
| $ | 354.7 |
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International | 113.8 |
| 106.2 |
| 88.4 |
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TOTAL INCOME BEFORE INCOME TAXES | $ | 520.5 |
| $ | 467.0 |
| $ | 443.1 |
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Provision for income taxes — current: | | | |
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Federal | $ | 65.0 |
| $ | 12.3 |
| $ | 164.1 |
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State | 16.6 |
| 21.8 |
| 15.3 |
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International | 25.4 |
| 17.8 |
| 28.1 |
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Total provision — current | 107.0 |
| 51.9 |
| 207.5 |
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Provision for income taxes — deferred: | |
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| |
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Federal | 8.6 |
| 35.0 |
| (10.4 | ) |
State | 0.5 |
| 9.4 |
| (0.9 | ) |
International | (3.0 | ) | 4.6 |
| (3.0 | ) |
Total provision — deferred | 6.1 |
| 49.0 |
| (14.3 | ) |
TOTAL PROVISION FOR INCOME TAXES | $ | 113.1 |
| $ | 100.9 |
| $ | 193.2 |
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As a result of the enactment of TCJA on December 22, 2017, the Company recognized a provisional estimate of $56.5 million in the fourth quarter of 2017 to account for specific income tax effects of the TCJA for which a reasonable estimate could be determined. During 2018, the Company completed its analysis of the specific income tax effects of TCJA and recognized a net tax benefit of approximately $6 million from adjustments to the prior provisional estimates and to record amounts related to items for which a prior provisional estimate had not been made.
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6672 | HUBBELL INCORPORATED - Form 10-K |
Deferred tax assets and liabilities result from differences in the basis of assets and liabilities for tax and financial statement purposes. The components of the deferred tax assets/(liabilities) of continuing operations at December 31, were as follows (in millions):
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| 2019 |
| 2018 |
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Deferred tax assets: | | |
Inventories | $ | 10.1 |
| $ | 6.2 |
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Right-of-use assets | 24.8 |
| — |
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Income tax credits | 26.9 |
| 24.5 |
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Accrued liabilities | 37.8 |
| 35.9 |
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Pension | 53.4 |
| 49.6 |
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Post retirement and post employment benefits | 6.0 |
| 6.6 |
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Stock-based compensation | 9.7 |
| 13.1 |
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Loss Carryforwards | 21.3 |
| 22.2 |
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Miscellaneous other | 11.9 |
| 8.8 |
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Gross deferred tax assets | 201.9 |
| 166.9 |
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Valuation allowance | (29.0 | ) | (21.8 | ) |
Total deferred tax assets, net of valuation allowance | 172.9 |
| 145.1 |
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Deferred tax liabilities: | |
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Liability on undistributed foreign earnings | (8.6 | ) | (10.9 | ) |
Goodwill and Intangibles | (212.3 | ) | (206.4 | ) |
Lease liabilities | (24.2 | ) | — |
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Property, plant, and equipment | (48.4 | ) | (41.4 | ) |
Total deferred tax liabilities | (293.5 | ) | (258.7 | ) |
TOTAL NET DEFERRED TAX LIABILITY | $ | (120.6 | ) | $ | (113.6 | ) |
Deferred taxes are reflected in the Consolidated Balance Sheet as follows: | |
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Non-current tax assets (included in Other long-term assets) | 6.2 |
| 6.4 |
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Non-current tax liabilities (included in Other Non-Current Liabilities) | (126.8 | ) | (120.0 | ) |
TOTAL NET DEFERRED TAX LIABILITY | $ | (120.6 | ) | $ | (113.6 | ) |
| | | | | | | | |
| 2022 | 2021 |
Deferred tax assets: | | |
Inventories | $ | 9.6 | | $ | 10.2 | |
Lease liabilities | 27.4 | | 20.5 | |
Income tax credits | 22.8 | | 22.8 | |
Accrued liabilities | 40.8 | | 38.5 | |
Pension | 38.9 | | 43.1 | |
Basis difference in subsidiary | — | | 25.1 | |
Post retirement and post employment benefits | 4.5 | | 4.9 | |
Stock-based compensation | 6.9 | | 6.7 | |
Loss carryforwards | 14.2 | | 17.3 | |
Capitalized research expenditures | 18.4 | | — | |
Miscellaneous other | 16.4 | | 17.0 | |
Gross deferred tax assets | 199.9 | | 206.1 | |
Valuation allowance | (32.2) | | (32.6) | |
Total deferred tax assets, net of valuation allowance | 167.7 | | 173.5 | |
Deferred tax liabilities: | | |
Liability on undistributed foreign earnings | (7.0) | | (7.9) | |
Goodwill and intangibles | (185.0) | | (205.2) | |
Right-of-use assets | (26.1) | | (19.5) | |
Property, plant, and equipment | (57.9) | | (50.4) | |
Total deferred tax liabilities | (276.0) | | (283.0) | |
TOTAL NET DEFERRED TAX LIABILITY | $ | (108.3) | | $ | (109.5) | |
Deferred taxes are reflected in the Consolidated Balance Sheet as follows: | | |
Non-current tax assets (included in Other long-term assets) | $ | 5.5 | | $ | 5.2 | |
Non-current tax liabilities (included in Other Non-Current Liabilities) | (113.8) | | (114.7) | |
TOTAL NET DEFERRED TAX LIABILITY | $ | (108.3) | | $ | (109.5) | |
As of December 31, 2019,2022, the Company had a total of $26.9$22.8 million of U.S. federal, state (net of federal benefit) and foreign tax credit carryforwards, available to offset future income taxes. As of December 31, 2019, $15.52022, $1.9 million of the tax credits may be carried forward indefinitely while the remaining $11.4$20.9 million will begin to expire at various times in 20202023 through 2036.2051. As of December 31, 2019,2022, the Company had recorded tax benefits totaling $20.1$14.0 million for U.S. federal, state and foreign net operating loss carryforwards (“NOLs”). As of December 31, 2019, $7.42022, $5.5 million of NOLs may be carried forward indefinitely while the remaining $12.7$8.5 million will begin to expire at various times in 20212023 through 2038.2052. The tax benefit related to a portion of these NOLs has been adjusted to reflect an “ownership change” pursuant to Internal Revenue Code Section 382, which imposes an annual limitation on the utilization of pre-acquisition operating losses. The Company has recorded a net valuation allowance of $29.0$32.2 million for theon certain deferred tax assets including a portion of the foreign tax and state tax credit carryforwards, capital loss carryforwards and foreign NOLs that the Company anticipates will expire prior to utilization.
During 2019,2022, the Company repatriated certain of its foreign earnings. As of December 31, 2019,2022, the Company also anticipates repatriating certain of its foreign earnings in the future. The accompanying financial statements reflect the income tax expense associated with actual and anticipated remittances related to certain of our outside basis differences. The Company has not provided for the income tax effects of distributing the remaining approximately $250$400 million of undistributed foreign earnings as those amounts are either permanently reinvested or intended to be reinvested in our international operations. It is not practicable to estimate the tax cost associated with a remittance of such earnings.
Cash payments of income taxes were $91.9$168.0 million, $106.3$84.0 million and $130.8$96.2 million in 2019, 2018,2022, 2021, and 2017,2020, respectively.
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HUBBELL INCORPORATED - Form 10-K | 6773 |
The Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. The IRS and other tax authorities routinely audit the Company’s tax returns. These audits can involve complex issues which may require an extended period of time to resolve. TheIn January 2023 the Company is not currently undercompleted its 2018 U.S. federal tax examination for any open tax year.with no material adjustments. With few exceptions, the Company is no longer subject to state, local, or income tax examinations by tax authorities for years prior to 2015.2018.
The following tax years, by major jurisdiction, are still subject to examination by taxing authorities:
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| | | | |
Jurisdiction | Open Years |
United States | 2016-20192019-2022 |
UK | 2018-20192021-2022 |
Puerto Rico | 2015-20192018-2022 |
Canada | 2015-20192018-2022 |
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in millions):
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| | | | | | | | | |
| 2019 |
| 2018 |
| 2017 |
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Unrecognized tax benefits at beginning of year | $ | 38.9 |
| $ | 29.5 |
| $ | 20.2 |
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Additions based on tax positions relating to the current year | 7.0 |
| 3.8 |
| 13.6 |
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Reductions based on expiration of statute of limitations | (5.2 | ) | (1.7 | ) | (1.4 | ) |
Additions to tax positions relating to previous years | 1.6 |
| 7.4 |
| 1.0 |
|
Settlements | (0.4 | ) | (0.1 | ) | (3.9 | ) |
TOTAL UNRECOGNIZED TAX BENEFITS | $ | 41.9 |
| $ | 38.9 |
| $ | 29.5 |
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| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
Unrecognized tax benefits at beginning of year | $ | 41.2 | | $ | 47.6 | | $ | 41.9 | |
Additions based on tax positions relating to the current year | 12.1 | | 6.1 | | 7.4 | |
Reductions based on expiration of statute of limitations | (4.8) | | (10.3) | | (6.2) | |
Additions/(Subtractions) to tax positions relating to previous years | (6.2) | | (2.2) | | 4.5 | |
Settlements | (0.2) | | — | | — | |
TOTAL UNRECOGNIZED TAX BENEFITS | $ | 42.1 | | $ | 41.2 | | $ | 47.6 | |
Included in the balance at December 31, 20192022 are approximately $33.4$33.9 million of tax positions which, if in the future are determined to be recognizable, would affect the annual effective income tax rate. Additionally, there are $5.2$4.3 million of tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty as to the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the applicable taxing authority to an earlier period. It is reasonably possible that in the next twelve months, because of changes in facts and circumstances, the unrecognized tax benefits may increase or decrease.
The Company estimates a possible decrease of approximately $5.0$5 million to $7.0$11 million within the next twelve months due to the expiration of the statute of limitations.limitations and audit resolutions.
The Company’s policy is to record interest and penalties associated with the underpayment of income taxes within Provision for income taxes in the Consolidated Statement of Income. The Company recognized (benefit) expense, before federal tax impact, related to interest and penalties of approximately $0.1$(1.0) million in 2019, $1.82022, $0.3 million in 20182021 and $0.5$0.2 million in 2017.2020. The Company had $7.1$6.7 million and $7.0$7.6 million accrued for the payment of interest and penalties as of December 31, 20192022 and December 31, 2018,2021, respectively.
The consolidated effective income tax rate varied from the United States federal statutory income tax rate of continuing operations for the years ended December 31, as follows:
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| | | | | | |
| 2019 |
| 2018 |
| 2017 |
|
Federal statutory income tax rate | 21.0 | % | 21.0 | % | 35.0 | % |
State income taxes, net of federal benefit | 2.8 |
| 4.5 |
| 1.2 |
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Foreign income taxes | (0.7 | ) | (1.1 | ) | (3.1 | ) |
Federal R&D Credit | (1.2 | ) | (1.0 | ) | (1.0 | ) |
TCJA and related | — |
| (1.3 | ) | 12.8 |
|
Other, net | (0.2 | ) | (0.5 | ) | (1.3 | ) |
CONSOLIDATED EFFECTIVE INCOME TAX RATE | 21.7 | % | 21.6 | % | 43.6 | % |
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
Federal statutory income tax rate | 21.0 | % | 21.0 | % | 21.0 | % |
State income taxes, net of federal benefit | 2.4 | | 2.5 | | 2.9 | |
Foreign income taxes | (0.2) | | (0.5) | | (0.2) | |
Federal R&D Credit | (0.8) | | (1.4) | | (1.3) | |
Other, net | (1.1) | | (2.4) | | (1.2) | |
CONSOLIDATED EFFECTIVE INCOME TAX RATE | 21.3 | % | 19.2 | % | 21.2 | % |
The foreign income tax benefit shown is primarily due to lower statutory rates in foreign jurisdictions compared to the FederalUnited States federal statutory income tax rate. The TCJA and related benefit in 2018 is primarily related to net favorable adjustments to the TCJA provisional estimate recorded in 2017.
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6874 | HUBBELL INCORPORATED - Form 10-K |
NOTE 1415 Financial Instruments and Fair Value Measurement
Financial Instruments
Concentrations of Credit Risk: Financial instruments which potentially subject the Company to significant concentrations of credit 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. NoWe are not dependent on a single customer, accounted for more than 10% of total sales in any year during the three years ended December 31, 2019. However,however, the Company’s top ten customers account for approximately 41% 43% of its netNet sales. 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 December 31, 2022 our accounts receivable balance was $741.6 million, net of allowances of $14.3 million. The allowance for doubtful accounts has not materially changed since December 31, 2021.
Fair Value: The carrying amounts reported in the Consolidated Balance Sheet for cash and cash equivalents, short-term investments, receivables, bank borrowings, accounts payable and accruals approximate their fair values given the immediate or short-term nature of these items. See also Note 78 — Investments.
Fair value measurements
At December 31, 20192022 and 20182021 the Company had $69.9$80.2 million and $65.5$78.5 million respectively, of investments carried on the balance sheet at fair value. 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. Refer to Note 78 — Investments for more information about these investments.
The three broad levels of the fair value hierarchy are as follows:
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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 | Quoted prices (unadjusted) in active markets for identical assets or liabilities |
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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 |
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Level 3 -
| Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions |
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HUBBELL INCORPORATED - Form 10-K | 6975 |
The following tables show, by level within the fair value hierarchy, the Company’s financial assets and liabilities that are accounted for at fair value on a recurring basis at December 31, 20192022 and 20182021 (in millions):
| | Asset (Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Quoted Prices in Active Markets for Similar Assets (Level 2) | Unobservable inputs for which little or no market data exists (Level 3) | Total | Asset (Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Quoted Prices in Active Markets for Similar Assets (Level 2) | Unobservable inputs for which little or no market data exists (Level 3) | Total |
Money market funds (a) | $ | 27.5 |
| $ | — |
| $ | — |
| $ | 27.5 |
| Money market funds (a) | $ | 147.9 | | $ | — | | $ | — | | $ | 147.9 | |
Time Deposits (a) | | Time Deposits (a) | — | | 4.8 | | — | | 4.8 | |
Available for sale investments | — |
| 50.7 |
| — |
| 50.7 |
| Available for sale investments | — | | 61.4 | | — | | 61.4 | |
Trading securities | 19.2 |
| — |
| — |
| 19.2 |
| Trading securities | 18.8 | | — | | — | | 18.8 | |
Deferred compensation plan liabilities | (19.2 | ) | — |
| — |
| (19.2 | ) | Deferred compensation plan liabilities | (18.8) | | — | | — | | (18.8) | |
Derivatives: | | Derivatives: | |
Forward exchange contracts-Assets (b) | — |
| — |
| — |
| — |
| Forward exchange contracts-Assets (b) | — | | 1.1 | | — | | 1.1 | |
Forward exchange contracts-(Liabilities) (c) | — |
| (0.3 | ) | — |
| (0.3 | ) | |
BALANCE AT DECEMBER 31, 2019 | $ | 27.5 |
| $ | 50.4 |
| $ | — |
| $ | 77.9 |
| |
| BALANCE AT DECEMBER 31, 2022 | | BALANCE AT DECEMBER 31, 2022 | $ | 147.9 | | $ | 67.3 | | $ | — | | $ | 215.2 | |
| | Asset (Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Quoted Prices in Active Markets for Similar Assets (Level 2) | Unobservable inputs for which little or no market data exists (Level 3) | Total | Asset (Liability) | Quoted Prices in Active Markets for Identical Assets (Level 1) | Quoted Prices in Active Markets for Similar Assets (Level 2) | Unobservable inputs for which little or no market data exists (Level 3) | Total |
Money market funds (a) | $ | 15.1 |
| $ | — |
| $ | — |
| $ | 15.1 |
| Money market funds (a) | $ | 58.5 | | $ | — | | $ | — | | $ | 58.5 | |
Time Deposits (a) | — |
| 20.9 |
| — |
| 20.9 |
| |
| Available-for-sale investments | — |
| 48.9 |
| 2.3 |
| 51.2 |
| Available-for-sale investments | — | | 54.0 | | — | | 54.0 | |
Trading securities | 14.3 |
| — |
| — |
| 14.3 |
| Trading securities | 24.5 | | — | | — | | 24.5 | |
Deferred compensation plan liabilities | (14.3 | ) | — |
| — |
| (14.3 | ) | Deferred compensation plan liabilities | (24.5) | | — | | — | | (24.5) | |
Derivatives: | |
| |
| | Derivatives: | | |
Forward exchange contracts-Assets (b) | — |
| 1.6 |
| — |
| 1.6 |
| Forward exchange contracts-Assets (b) | — | | 0.5 | | — | | 0.5 | |
Forward exchange contracts-(Liabilities) (c) | — |
| — |
| — |
| — |
| |
BALANCE AT DECEMBER 31, 2018 | $ | 15.1 |
| $ | 71.4 |
| $ | 2.3 |
| $ | 88.8 |
| |
| BALANCE AT DECEMBER 31, 2021 | | BALANCE AT DECEMBER 31, 2021 | $ | 58.5 | | $ | 54.5 | | $ | — | | $ | 113.0 | |
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(a) | Money market funds and time deposits are included in Cash and cash equivalents in the Consolidated Balance Sheet. |
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(b) | Forward exchange contracts-Assets are reflected in Other current assets in the Consolidated Balance Sheet. |
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(c) | Forward exchange contracts-(Liabilities) are reflected in Other accrued liabilities in the Consolidated Balance Sheet. |
(a)Money market funds and time deposits are included in Cash and cash equivalents in the Consolidated Balance Sheet.
(b)Forward exchange contracts-Assets are reflected in Other current assets in the Consolidated Balance Sheet.
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 were based on quoted forward foreign exchange prices at the reporting date.
MunicipalAvailable-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.
Available-for-sale redeemable preferred stock classified in Level 3 – The fair value of the available-for-sale investment in redeemable preferred stock is valued based on a discounted cash flow model, using significant unobservable inputs, including assumptions regarding expected cash flows and discount rates.
As of December 31, 2018, the Company had 1 financial asset that was classified in Level 3 of the fair value hierarchy. In the third quarter of 2019, the Company disposed of an available-for-sale investment that was previously classified in Level 3 of the fair value hierarchy.
Deferred compensation plan
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. During 20192022 and 2018,2021, the Company purchased $3.2$2.2 million and $2.7 million, respectively, of trading securities related to these deferred compensation plans. As a result of participant distributions, the Company sold $1.3$4.2 million and $1.5$3.6 million of these trading securities in 20192022 and 20182021 respectively. 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 December 31, 2022 and December 31, 2021, the carrying value of long-term debt, net of unamortized discount and debt issuance costs, was $1,437.9 million and $1,435.5 million, respectively. The estimated fair value of the long-term debt as of December 31, 2022 and December 31, 2021 was $1,306.5 million and $1,524.5 million, respectively, using quoted market prices in active markets for similar liabilities (Level 2).
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| | | | |
7076 | HUBBELL INCORPORATED - Form 10-K |
Derivatives
In order to limit financial risk in the management of its assets, liabilities and debt, the Company may use derivative financial instruments such as foreign currency hedges, commodity hedges, interest rate hedges and interest rate swaps. All derivative financial instruments are matched with an existing Company asset, liability or proposed transaction. Market value gains or losses on the derivative financial instrument are recognized in income when the effects of the related price changes of the underlying asset or liability are recognized in income.
Forward exchange contracts
In 2019 and 2018, the Company entered into a series of forward exchange contracts to purchase U.S. dollars in order to hedge its exposure to fluctuating rates of exchange on anticipated inventory purchases and forecasted sales by its subsidiaries who transact business in Canadian dollars. As of December 31, 2019, the Company had 36 individual forward exchange contracts for notional amounts which range from $0.5 million to $1.6 million each, which have various expiration dates through December 2020. These contracts have been designated as cash flow hedges in accordance with the accounting guidance for derivatives.
The following table summarizes the results of cash flow hedging relationships for years ended December 31, (in millions):
|
| | | | | | | | | | | | | |
| Derivative Gain/(Loss) Recognized in Accumulated Other Comprehensive Loss, net of tax | Location of Gain/(Loss) when reclassified | Gain/(Loss) Reclassified into Earnings (Effective Portion), net of tax |
Derivative Instrument | 2019 |
| 2018 |
| (Effective Portion) | 2019 |
| 2018 |
|
Forward exchange contract | $ | (0.8 | ) | $ | 1.9 |
| Net sales | $ | 0.2 |
| $ | 0.1 |
|
| | | Cost of goods sold | $ | 0.3 |
| $ | 0.2 |
|
There was 0 material hedge ineffectiveness with respect to the forward exchange cash flow hedges during 2019, 2018NOTE 16 Commitments and 2017.
Long-term Debt
The total carrying value of long-term debt including the $34.4 million current portion of the Term Loan as of December 31, 2019 was $1,540.4 million, net of unamortized discount and debt issuance costs. As of December 31, 2019 the total carrying value of long-term debt was 1,506.0 million, net of unamortized discount and debt issuance costs. As of December 31, 2019 and 2018, the estimated fair value of the long-term debt was $1,592.2 million and $1,688.1 million, respectively, based on quoted market prices. The Company’s long-term debt falls within level 2 of the fair value hierarchy.
Contingencies | | | | | |
| |
HUBBELL INCORPORATED- Form 10-K
| 71 |
NOTE 15 Commitments and Contingencies
Legal and Environmental
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.
As previously reported, in the fourth quarter of 2016, the Company recorded a charge of $12.5 million in Cost of goods sold representing the estimated withdrawal liability from the multi-employer plans from which it subsequently withdrew in 2017. In March 2019, the remaining employer in that multi-employer pension plan filed for protection under Chapter 11 of the United States Bankruptcy Code and was proceeding towards liquidation as of June 2019. As a result of the other employer's withdrawal from the pension plan and the plan's termination, under the terms customary to multi-employer pension plans, it was probable that the Company would be subject to mass withdrawal liability. In December 2019, the Company entered into a settlement agreement with the multi-employer pension plan. As a result, the Company recognized an additional $8.5 million net charge in 2019 to settle the mass withdrawal obligation and a $10.0 million cash payment in the fourth quarter of 2019, with remaining cash payments of $6.0 million and $5.0 million due in 2020 and 2021, respectively.
The Company is subject to environmental laws and regulations which may require that it investigate and remediate the effects of potential contamination associated with past and present operations as well as those acquired through business combinations. Environmental liabilities are recorded when remedial efforts are probable and the costs can be reasonably estimated. The Company continues to monitor these environmental matters and revalues its liabilities as necessary. Total environmental liabilities were $8.0$6.3 million and $8.5$6.4 million as of December 31, 20192022 and 2018,2021, respectively.
The Company accounts for conditional asset retirement and environmental obligations in accordance with the applicable accounting guidance. The accounting guidance defines “conditional asset retirement obligation” as a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Company. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. Asset retirement obligations were not material as of December 31, 20192022 and 2018.2021.
| | | | | |
HUBBELL INCORPORATED- Form 10-K | 77 |
NOTE 17 Capital Stock | | | | | |
| |
72 | HUBBELL INCORPORATED - Form 10-K
|
NOTE 16 Capital Stock
Activity in the Company’s common shares outstanding is set forth below for the three years ended December 31, 20192022 (in thousands):
|
| | | | |
| Common Stock |
|
OUTSTANDING AT DECEMBER 31, 20162019 | 55,53254,514 |
|
Exercise of stock options/stock appreciation rights | 5387 |
|
Director compensation arrangements, net | 109 |
|
Restricted/performance shares activity, net of forfeitures | 89132 |
|
Acquisition/surrender of shares | (802(359) | ) |
OUTSTANDING AT DECEMBER 31, 20172020 | 54,88254,383 |
|
Exercise of stock appreciation rights | 66147 |
|
Director compensation arrangements, net | 117 |
|
Restricted/performance shares activity, net of forfeitures | 165101 |
|
Acquisition/surrender of shares | (409(120) | ) |
OUTSTANDING AT DECEMBER 31, 20182021 | 54,71554,518 |
|
Exercise of stock appreciation rights | 8462 |
|
Director compensation arrangements, net | 106 |
|
Restricted/performance shares activity, net of forfeitures | 3986 |
|
Acquisition/surrender of shares | (334(983) | ) |
OUTSTANDING AT DECEMBER 31, 20192022 | 54,51453,689 |
|
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 and Retained earnings to the extent required. Shares may be repurchased through the Company’s stock repurchase program, acquired by the Company from employees or surrendered to the Company by employees in settlement of their minimum tax liability on vesting of restricted shares and performance shares under the Hubbell Incorporated 2005 Incentive Award Plan as amended and restated (the “Award Plan”).
Shares of the Company’s common stock were reserved at December 31, 20192022 as follows (in thousands):
|
| | | | |
| Common Stock |
|
|
Future grant of stock-based compensation | 2,3331,489 |
|
Shares reserved under other equity compensation plans | 152127 |
|
TOTAL | 2,4851,616 |
|
| | | | | |
78 | HUBBELL INCORPORATED - Form 10-K |
NOTE 18 Stock-Based Compensation | | | | | |
| |
HUBBELL INCORPORATED- Form 10-K
| 73 |
NOTE 17 Stock-Based Compensation
As of December 31, 2019,2022, 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 Stockcommon stock pursuant to the Award Plan. Under the Award Plan, the Company may authorize up to 9.7 million shares of Common Stockcommon stock to settle awards of restricted stock, performance shares, or SARs. The Company issues new shares to settle stock-based awards. In 2019,2022, the Company's grant of stock-based awards primarily issued in connection with promotions during 2019, included restricted stock, SARs and SARs.performance shares.
Stock-based compensation expense recognized by the Company was $16.4$24.5 million in 2019, $24.22022, $17.5 million in 20182021 and $22.3$21.9 million in 2017, and was lower in 2019 as the Company shifted the timing of its annual grant from the fourth quarter of 2019 to the first quarter of 2020. The total income tax benefit recognized was $2.2$3.9 million in 2019, $5.32022, $3.2 million in 2018,2021, and $5.4$3.2 million in 2017.2020. The net tax windfall recorded as a result of exercise or vesting (depending on the type of award) was $3.3$3.2 million, $2.4$6.8 million, and $2.5$3.4 million in 2019, 20182022, 2021 and 2017,2020, respectively. As of December 31, 2019,2022, there was $14.2$18.1 million, pretax, of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be primarily recognized through 2021.2025.
Stock-based compensation expense is recorded in S&A expense as well as Cost of goods sold. Of the total 20192022 expense, $15.4$23.2 million was recorded to S&A expense and $1.0$1.3 million was recorded to Cost of goods sold. In 20182021 and 2017, $23.42020, $15.8 million and $21.1$20.4 million, respectively, was recorded to S&A expense and $0.8$1.7 million and $1.2$1.5 million, respectively, was recorded to Cost of goods sold. Stock-based compensation costs capitalized to inventory was $0.2$0.4 million in 2019, $0.2 million in 2018each of 2022, 2021 and $0.3 million in 2017.2020.
Each of the compensation arrangements is discussed below.
Restricted Stock
The Company issues various types of restricted stock awards all of which are considered outstanding at the time of grant, as the award holders are entitled to dividends and voting rights. Unvested restricted stock awards are considered participating securities when computing earnings per share. Restricted stock grants are not transferable and are subject to forfeiture in the event of the recipient’s termination of employment prior to vesting.
Restricted Stock Issued to Employees - Service Condition
Restricted stock awards that vest based upon a service condition are expensed on a straight-line basis over the requisite service period. These awards generally vest either in three equal installments on each of the first three anniversaries of the grant date however in December 2018 and July 2019 the company granted a certain number of these awards that vestor 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”).
Restricted Stock Issued to Employees - Market Condition
The Company granted certain restricted stock awards that vest subject to the achievement of a market-based condition (referred to a performance based restricted stock, or PBRS). These awards were granted to certain employees in 2016 and 2017. No PBRS awards were granted in 2018 or 2019. PBRS awards are expensed on a straight-line basis over the requisite service period which starts on the date of the grant and ends upon the completion of the performance period. Expense is recognized irrespective of the market condition being achieved.
PBRS awards will be earned if the Company’s relative TSR performance over a three year period is equal to or exceeds the 20th percentile as compared to the TSR of other companies in the S&P Capital Goods 900 Index, and service through the requisite service period or the retirement-eligibility date. If this market-based condition is achieved, the awards will vest at 100% of the number of awards granted. If the market-based condition is not achieved the awards will not vest. The fair value of these awards was determined based upon a lattice model.
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| |
74 | HUBBELL INCORPORATED - Form 10-K
|
The three year performance period for awards granted in 2016 ended on December 31, 2019. The performance condition was met and approximately 19,500 shares vested and were approved by the Compensation Committee in February 2020. The fair value of the shares at vesting was approximately $2.9 million.
The following table summarizes the assumptions used in estimating the fair value of the outstanding PBRS:
|
| | | | | | | | | | | |
Grant Date | Stock Price on Measurement Date | Expected Volatility | Risk Free Interest Rate | Expected Term | Weighted Avg. Grant Date Fair Value |
2017 | $ | 127.51 |
| 24.7 | % | 1.9 | % | 3 Years | $ | 119.88 |
|
Restricted Stock Issued to Non-employee Directors
In 2019, 20182022, 2021 and 2017,2020, each non-employee director received a restricted stock grant. These grants are made on the date of the annual meeting of shareholders and vest at the following year’s annual meeting of shareholders, or upon certain other events. The grant is subject to forfeiture if the director’s service terminates prior to the date of the next regularly scheduled annual meeting of shareholders. During 2019, 20182022, 2021 and 2017,2020, the Company granted 8,2165,952 shares, 9,3766,741 shares, and 8,4807,413 shares, respectively, to non-employee directors.
| | | | | |
HUBBELL INCORPORATED- Form 10-K | 79 |
Restricted Stock Issued to Employees and Non-employee Directors
Activity related to both employee and non-employee restricted stock for the year ended December 31, 20192022 is as follows (in thousands, except per share amounts):
|
| | | | | |
| Shares | Weighted Average Grant Date Fair Value/Share |
RESTRICTED STOCK AT DECEMBER 31, 2018 | 284 |
| $ | 108.40 |
|
Shares granted | 18 |
| 127.89 |
|
Shares vested | (84 | ) | 105.70 |
|
Shares forfeited | (20 | ) | 110.71 |
|
RESTRICTED STOCK AT DECEMBER 31, 2019 | 198 |
| $ | 110.89 |
|
| | | | | | | | |
| Shares | Weighted Average Grant Date Fair Value/Share |
RESTRICTED STOCK AT DECEMBER 31, 2021 | 184 | | $ | 141.99 | |
Shares granted | 64 | | 187.07 | |
Shares vested | (56) | | 148.93 | |
Shares forfeited | (13) | | 163.54 | |
RESTRICTED STOCK AT DECEMBER 31, 2022 | 179 | | $ | 154.09 | |
The weighted average fair value per share of restricted stock granted in 2019, 20182022, 2021 and 20172020 was $127.89, $108.74$187.07, $166.46 and $123.39,$145.48, respectively. The total fair value of restricted stock vested in 2019, 20182022, 2021 and 20172020 was $8.9$8.4 million, $8.6$12.6 million and $6.6$7.8 million, respectively.
Stock Appreciation Rights
SARs grant the holder the right to receive, once vested, the value in shares of the Company's Common Stockcommon 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 Stockcommon stock on the measurement date, and the fair market value of the Company’s Common Stockcommon stock on the date of exercise. This amount is payable in shares of the Company’s Common Stock.common stock. SARs vest and become exercisable in three equal installments during the first three years following the grant date and expire ten years from the grant date.
Activity related to SARs for the year ended December 31, 20192022 is as follows (in thousands, except per share amounts):
|
| | | | | | | | | |
| Number of Rights | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value |
OUTSTANDING AT DECEMBER 31, 2018 | 2,111 |
| $ | 107.01 |
| | |
|
Granted | 40 |
| 129.28 |
| | |
|
Exercised | (474 | ) | 94.72 |
| | |
|
Forfeited | (93 | ) | 115.63 |
| | |
|
Canceled | (12 | ) | 128.32 |
| | |
OUTSTANDING AT DECEMBER 31, 2019 | 1,572 |
| $ | 110.66 |
| 6.8 Years | $ | 58,410 |
|
EXERCISABLE AT DECEMBER 31, 2019 | 1,198 |
| $ | 109.01 |
| 6.2 Years | $ | 46,497 |
|
| | | | | | | | | | | | | | |
| Number of Rights | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term | Aggregate Intrinsic Value |
OUTSTANDING AT DECEMBER 31, 2021 | 907 | | $ | 132.78 | | | |
Granted | 143 | | 186.62 | | | |
Exercised | (245) | | 122.49 | | | |
Forfeited | (26) | | 170.12 | | | |
Canceled | — | | — | | | |
OUTSTANDING AT DECEMBER 31, 2022 | 779 | | $ | 144.66 | | 6.8 years | $ | 70,146 | |
EXERCISABLE AT DECEMBER 31, 2022 | 452 | | $ | 127.44 | | 5.7 years | $ | 48,506 | |
The aggregated intrinsic value of SARs exercised during 2019, 20182022, 2021 and 20172020 was $17.8$21.0 million, $14.1$46.8 million and $10.1$20.2 million, respectively.
The fair value of each SAR award was measured using the Black-Scholes option pricing model.
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| |
HUBBELL INCORPORATED- Form 10-K
| 75 |
The following table summarizes the weighted-average assumptions used in estimating the fair value of the SARs granted during the years 2019, 20182022, 2021 and 2017:2020:
|
| | | | | | | | | | |
Grant Date | Expected Dividend Yield | Expected Volatility | Risk Free Interest Rate | Expected Term | Weighted Avg. Grant Date Fair Value of 1 SAR |
2019 | 2.7 | % | 22.7 | % | 1.8 | % | 5.5 Years | $ | 21.25 |
|
2018 | 2.9 | % | 21.7 | % | 2.8 | % | 5.5 Years | $ | 18.23 |
|
2017 | 2.6 | % | 18.0 | % | 2.2 | % | 5.5 Years | $ | 17.45 |
|
| | | | | | | | | | | | | | | | | |
Grant Date | Expected Dividend Yield | Expected Volatility | Risk Free Interest Rate | Expected Term | Weighted Avg. Grant Date Fair Value of 1 SAR |
2022 | 2.1 | % | 27.4 | % | 1.9 | % | 4.9 years | $ | 39.68 | |
2021 | 2.4 | % | 26.5 | % | 0.6 | % | 5.5 years | $ | 29.58 | |
2020 | 2.5 | % | 23.5 | % | 1.3 | % | 5.5 years | $ | 24.52 | |
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 stock options and 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.
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80 | HUBBELL INCORPORATED - Form 10-K |
Performance Shares
Performance shares represent the right to receive a share of the Company’s Common Stockcommon stock subject to the achievement of certain market or performance conditions established by the Company’s Compensation Committee and measured over a three year period. Partial vesting in these awards may occur after separation from the Company for retirement eligible employees. Shares are not vested until approved by the Company’s Compensation Committee.
Performance Shares - Performance and Market Conditions
In February 2020 and December 2018, the Company granted performance share awards with a target payout of 63,868 and 60,008 shares, respectively, that will vest subject to a performance condition and service requirement. The number of shares vested is then modified by a market condition as described below.
Thirty-four percent of sharesthe award granted will vest based on Hubbell’s compounded annual growth rate of netNet sales as compared to that of the companies that comprise the S&P Capital Goods 900 index. Thirty-three percent of sharesthe award granted will vest based on achieved operating margin performance as compared to internal targets, and thirty-three percent of sharesthe award granted will vest based on achieved trade working capital as a percent of netNet sales as compared to internal targets. Each of these performance conditions is measured over the same three-year performance period. The cumulative result of these performance conditions can result in a number of shares earned in the range of 0% - 200% of the target number of shares granted.subject to the award. That cumulative performance achieved is then further modified based on the Company'Company's three year TSR relative to the companies that constitute the S&P Capital Goods 900 index, to potentially increase or reduce the shares earned by 20%.a multiple of up to 1.5 or 1.2, depending on the award year.
The fair value of the award was determined based upon a lattice model. The Company expenses these awards on a straight-line basis over the requisite service period and includingwhich includes an assessment of the performance achieved to date. The weighted average fair value per share was $151.78 for the awards granted in 2020 and $98.80 for the awards granted in 2018.
|
| | | | | | | | |
Grant Date | Shares Outstanding at 12/31/2019 | Fair Value | Performance Period | Payout Range |
2018 | 51,062 | $ | 98.80 |
| Jan 2019-Dec 2021 | 0-200% +/- 20% |
| | | | | | | | | | | | | | | | | | | | |
Grant Date | Shares Outstanding at 12/31/2022 | Fair Value | Performance Period | Payout Range |
2020 | 43,949 | $ | 151.78 | | Jan 2020-Dec 2022 | 0-200% + up to a multiple of 150x |
2018 | — | $ | 98.80 | | Jan 2019-Dec 2021 | 0-200% + up to a multiple of 120x |
During 2022, approximately 38,000 shares from the 2018 awards vested as a result of the cumulative achievement of the performance metrics, and the fair value of the awards at vesting was approximately $7.3 million.
Performance Shares - Market Condition
In December 2017,February 2022 and 2021, the Company granted 24,675 performance share awards with a target payout of 14,076 and 15,741 shares, respectively, 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 TSRtotal shareholder return ("TSR") compared to the TSR generated by the companies of a referencethat comprise the S&P Capital Goods 900 index over a three year performance period of three years.period. Performance at target will result in vesting and aissuance of the number of performance shares earnedsubject to the award, equal to 100% of shares granted.payout. Performance below or above target can result in a number of shares earnedissuance in the range of 0%-200% of the number of shares granted.subject to the award. Expense is recognized irrespective of the market condition being achieved.
In February 2020, approximately 17,000 shares vested related to the December 2016 performance award grant and were approved by the Compensation Committee. The performance period associated with this award was from January 1, 2017 through December 31, 2019 and was based upon the Company's TSR compared to the TSR generated by the other companies that comprise the S&P Capital Goods 900 index. The number of shares vested in February 2020 was based upon achieving 72% of the market based criteria and the fair value of the awards at vesting was approximately $2.5 million.
The fair value of the performance share awards with a market condition for the fiscal year 2017these grants was determined based upon a lattice model.
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76 | HUBBELL INCORPORATED - Form 10-K
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The following table summarizes the related assumptions used to determine the fair values of the performance share awards with a market condition granted during 2017:February 2022 and 2021:
|
| | | | | | | | | | | | | |
Grant Date | Stock Price on Measurement Date | Dividend Yield | Expected Volatility | Risk Free Interest Rate | Expected Term | Weighted Avg. Grant Date Fair Value |
2017 | $ | 127.51 |
| 2.4 | % | 24.7 | % | 1.9 | % | 3 Years | $ | 142.89 |
|
| | | | | | | | | | | | | | | | | | | | |
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 | $185.87 | 2.3% | 39.7% | 1.6% | 2.9 years | $221.94 |
February 2021 | $163.26 | 2.4% | 40.6% | 0.2% | 3 years | $198.89 |
Expected volatilities are based on historical volatilities of the Company’sCompany's and members of the peer group's stock over a three year period.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 December 2017February 2022 and 2021, the Company granted 24,675 performance share awards with a target payout of 28,628 and 31,543 shares, respectively, that arewill vest subject to aan internal Company-based performance condition and service requirement duringrequirement.
| | | | | |
HUBBELL INCORPORATED- Form 10-K | 81 |
Fifty percent of these performance shares subject to the performance period of three years. The performance condition associated with the awards isaward will vest based on the Company's relativeHubbell's compounded annual growth rate of Net sales growthas compared to the relative sales growththat of the companies that comprise the S&P Capital Goods 900 index. Fifty percent of a reference index, further adjusted bythese performance shares subject to the Company achieving a target net incomeaward will vest based on achieved operating profit margin eachperformance as compared to internal targets. Each of these performance conditions is measured over the same three yearthree-year performance period. Performance at target willThe cumulative result in vesting and a number of shares earned equal to 100% of shares granted. Performance below or above targetthese performance conditions can result in a number of shares earned in the range of 0%-250%-200% of shares granted.
In May 2019, the Company paid out 47,693 shares related to the December 2015 performance award grant. The performance period associated with this award was from January 1, 2016 through December 31, 2018 and was based upon the Company’s net sales growth compared to the net sales growth by the other companies that comprise the S&P Capital Goods 900 Index. Thetarget number of shares vested in May 2019 was based upon achieving 160% ofsubject to the market-based criteria and the fair value of the awards at vesting was $6.2 million.award.
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 following table summarizesweighted average fair value per share was $174.48 and $151.92 for the attributes of the performance sharesawards granted in 20162022 and 2017 and outstanding at December 31, 2019:2021, respectively.
|
| | | | | | | | |
Grant Date | Shares Outstanding at 12/31/2019 | Fair Value | Performance Period | Payout Range |
2017 | 19,389 | $ | 118.55 |
| Jan 2018 - Dec 2020 | 0-250% |
2016 | 23,276 | $ | 105.48 |
| Jan 2017 - Dec 2019 | 0-250% |
|
| | | | | | | | | | | | | | | | |
Grant Date | Fair Value | Performance Period | Payout Range |
February 2022 | $174.48 | Jan 2022 - Dec 2024 | 0-200% |
February 2021 | $151.92 | Jan 2021 - Dec 2023 | 0-200% |
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82 | HUBBELL INCORPORATED - - Form 10-K | 77 |
NOTE 1819 Earnings Per Share
The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities. Restricted stock granted by the Company is considered a participating security since it contains a non-forfeitable right to dividends.
The following table sets forth the computation of earnings per share for the three years ended December 31 (in millions, except per share amounts):
|
| | | | | | | | | |
| 2019 |
| 2018 |
| 2017 |
|
Numerator: | |
| |
| |
|
Net income attributable to Hubbell | $ | 400.9 |
| $ | 360.2 |
| $ | 243.1 |
|
Less: Earnings allocated to participating securities | (1.5 | ) | (1.3 | ) | (0.8 | ) |
Net income available to common shareholders | $ | 399.4 |
| $ | 358.9 |
| $ | 242.3 |
|
Denominator: | |
| | |
Average number of common shares outstanding | 54.4 |
| 54.6 |
| 54.8 |
|
Potential dilutive shares | 0.3 |
| 0.3 |
| 0.3 |
|
Average number of diluted shares outstanding | 54.7 |
| 54.9 |
| 55.1 |
|
Earnings per share: | |
| | |
Basic | $ | 7.35 |
| $ | 6.57 |
| $ | 4.42 |
|
Diluted | $ | 7.31 |
| $ | 6.54 |
| $ | 4.39 |
|
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
Numerator: | | | |
Net income from continuing operations attributable to Hubbell Incorporated | $ | 511.3 | | $ | 365.0 | | $ | 330.0 | |
Less: Earnings allocated to participating securities | (1.3) | | (1.1) | | (1.1) | |
Net income from continuing operations available to common shareholders | $ | 510.0 | | $ | 363.9 | | $ | 328.9 | |
| | | |
Net income from discontinued operations attributable to Hubbell Incorporated | $ | 34.6 | | $ | 34.5 | | $ | 21.2 | |
Less: Earnings allocated to participating securities | (0.1) | | (0.1) | | (0.1) | |
Net income from discontinued operations available to common shareholders | $ | 34.5 | | $ | 34.4 | | $ | 21.1 | |
| | | |
Net income attributable to Hubbell Incorporated | $ | 545.9 | | $ | 399.5 | | $ | 351.2 | |
Less: Earnings allocated to participating securities | (1.4) | | (1.2) | | (1.2) | |
Net income available to common shareholders | $ | 544.5 | | $ | 398.3 | | $ | 350.0 | |
| | | |
Denominator: | | | |
Average number of common shares outstanding | 53.7 | | 54.3 | | 54.2 | |
Potential dilutive shares | 0.4 | | 0.4 | | 0.3 | |
Average number of diluted shares outstanding | 54.1 | | 54.7 | | 54.5 | |
| | | |
Basic earnings per share: | | | |
Basic earnings per share from continuing operations | $ | 9.49 | | $ | 6.70 | | $ | 6.07 | |
Basic earnings per share from discontinued operations | $ | 0.64 | | $ | 0.63 | | $ | 0.39 | |
Basic earnings per share | $ | 10.13 | | $ | 7.33 | | $ | 6.46 | |
| | | |
Diluted earnings per share: | | | |
Diluted earnings per share from continuing operations | $ | 9.43 | | $ | 6.66 | | $ | 6.04 | |
Diluted earnings per share from discontinued operations | $ | 0.64 | | $ | 0.62 | | $ | 0.39 | |
Diluted earnings per share | $ | 10.07 | | $ | 7.28 | | $ | 6.43 | |
The Company did not have any significant anti-dilutive securities in 2019, 20182022, 2021 or 2017.2020.
|
| | | | |
78 | HUBBELL INCORPORATED - Form 10-K | 83 |
NOTE 1920 Accumulated Other Comprehensive Loss
A summary of the changes in Accumulated other comprehensive loss (net of tax) for the three years ended December 31, 20192022 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 | Cumulative Translation Adjustment | Total |
BALANCE AT DECEMBER 31, 2016 | $ | — |
| $ | (1.2 | ) | $ | (180.5 | ) | $ | (120.8 | ) | $ | (302.5 | ) |
Other comprehensive income (loss) before Reclassifications | (1.7 | ) | 0.6 |
| (3.4 | ) | 28.9 |
| 24.4 |
|
Amounts reclassified from accumulated other comprehensive loss | 0.9 |
| — |
| 7.4 |
| — |
| 8.3 |
|
Current period other comprehensive income (loss) | (0.8 | ) | 0.6 |
| 4.0 |
| 28.9 |
| 32.7 |
|
BALANCE AT DECEMBER 31, 2017 | $ | (0.8 | ) | $ | (0.6 | ) | $ | (176.5 | ) | $ | (91.9 | ) | $ | (269.8 | ) |
Other comprehensive income (loss) before Reclassifications | 1.9 |
| (1.4 | ) | 10.4 |
| (33.9 | ) | (23.0 | ) |
Amounts reclassified from accumulated other comprehensive loss | (0.3 | ) | �� |
| 7.4 |
| — |
| 7.1 |
|
Current period other comprehensive income (loss) | 1.6 |
| (1.4 | ) | 17.8 |
| (33.9 | ) | (15.9 | ) |
BALANCE AT DECEMBER 31, 2018 | $ | 0.8 |
| $ | (2.0 | ) | $ | (158.7 | ) | $ | (125.8 | ) | $ | (285.7 | ) |
Other comprehensive income (loss) before Reclassifications | (0.8 | ) | 0.8 |
| (21.5 | ) | 3.7 |
| (17.8 | ) |
Amounts reclassified from accumulated other comprehensive loss | (0.5 | ) | 1.8 |
| 7.0 |
| (7.7 | ) | 0.6 |
|
Current period other comprehensive income (loss) | (1.3 | ) | 2.6 |
| (14.5 | ) | (4.0 | ) | (17.2 | ) |
Reclassification of stranded tax effects | — |
| — |
| (30.0 | ) | — |
| (30.0 | ) |
BALANCE AT DECEMBER 31, 2019 | $ | (0.5 | ) | $ | 0.6 |
| $ | (203.2 | ) | $ | (129.8 | ) | $ | (332.9 | ) |
|
| |
HUBBELL INCORPORATED- Form 10-K
| 79 |
| | | | | | | | | | | | | | | | | |
(Debit) credit | Cash Flow Hedge (Loss) Gain | Unrealized Gain (Loss) on Available-for-Sale Securities | Pension and Post Retirement Benefit Plan Adjustment | Cumulative Translation Adjustment | Total |
BALANCE AT DECEMBER 31, 2019 | $ | (0.5) | | $ | 0.6 | | $ | (203.2) | | $ | (129.8) | | $ | (332.9) | |
Other comprehensive income (loss) before reclassifications | 0.4 | | 0.4 | | (21.6) | | 12.3 | | (8.5) | |
Amounts reclassified from accumulated other comprehensive loss | (0.6) | | — | | 12.8 | | — | | 12.2 | |
Current period other comprehensive income (loss) | (0.2) | | 0.4 | | (8.8) | | 12.3 | | 3.7 | |
BALANCE AT DECEMBER 31, 2020 | $ | (0.7) | | $ | 1.0 | | $ | (212.0) | | $ | (117.5) | | $ | (329.2) | |
Other comprehensive income (loss) before reclassifications | 0.4 | | (0.4) | | 1.1 | | (11.5) | | (10.4) | |
Amounts reclassified from accumulated other comprehensive loss | 0.7 | | — | | 8.1 | | — | | 8.8 | |
Current period other comprehensive income (loss) | 1.1 | | (0.4) | | 9.2 | | (11.5) | | (1.6) | |
| | | | | |
BALANCE AT DECEMBER 31, 2021 | $ | 0.4 | | $ | 0.6 | | $ | (202.8) | | $ | (129.0) | | $ | (330.8) | |
Other comprehensive income (loss) before reclassifications | 1.2 | | (1.4) | | (0.6) | | (27.9) | | (28.7) | |
Amounts reclassified from accumulated other comprehensive loss | (1.0) | | — | | 14.8 | | 0.5 | | 14.3 | |
Current period other comprehensive income (loss) | 0.2 | | (1.4) | | 14.2 | | (27.4) | | (14.4) | |
BALANCE AT DECEMBER 31, 2022 | $ | 0.6 | | $ | (0.8) | | $ | (188.6) | | $ | (156.4) | | $ | (345.2) | |
A summary of the gain (loss) reclassifications out of Accumulated other comprehensive loss for the two years ended December 31 is provided below (in millions):
| | | | | | | | | | | | | | | | | | |
Details about Accumulated Other Comprehensive Loss Components | 2022 | | 2021 | | Location of Gain (Loss) Reclassified into Income | |
Cash flow hedges gain (loss): | | | | | | |
Forward exchange contracts | $ | — | | | $ | (0.1) | | | Net Sales | |
| 1.2 | | | (0.9) | | | Cost of goods sold | |
| 1.2 | | | (1.0) | | | Total before tax | |
| (0.2) | | | 0.3 | | | Tax (expense) benefit | |
| $ | 1.0 | | | $ | (0.7) | | | Gain (loss) net of tax | |
Amortization of defined benefit pension and post retirement benefit items: | | | | | | |
Prior-service credits | $ | (0.4) | | (a) | $ | (0.2) | | (a) | | |
Actuarial gains/(losses) | (10.6) | | (a) | (10.7) | | (a) | | |
Settlement and curtailment losses | (8.8) | | (a) | — | | (a) | | |
| (19.8) | | | (10.9) | | | Total before tax | |
| 5.0 | | | 2.8 | | | Tax benefit (expense) | |
| $ | (14.8) | | | $ | (8.1) | | | (Loss) gain net of tax | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Reclassification of currency translation gain | $ | (0.5) | | | $ | — | | | Gain on disposition of business (Note 2) | |
| — | | | — | | | Tax benefit (expense) | |
| (0.5) | | | — | | | Gain (loss) net of tax | |
| | | | | | |
Gains (losses) reclassified into earnings | $ | (14.3) | | | $ | (8.8) | | | (Loss) gain net of tax | |
|
| | | | | | | | | |
Details about Accumulated Other Comprehensive Loss Components | 2019 |
| | 2018 |
| | Location of Gain (Loss) Reclassified into Income |
Cash flow hedges gain (loss): | |
| | | | |
Forward exchange contracts | $ | 0.3 |
| | $ | 0.1 |
| | Net Sales |
| 0.4 |
| | 0.3 |
| | Cost of goods sold |
| 0.7 |
| | 0.4 |
| | Total before tax |
| (0.2 | ) | | (0.1 | ) | | Tax (expense) benefit |
| $ | 0.5 |
| | $ | 0.3 |
| | Gain (loss) net of tax |
Amortization of defined benefit pension and post retirement benefit items: | |
| | |
| | |
Prior-service costs | $ | 0.7 |
| (a) | $ | 0.9 |
| (a) | |
Actuarial gains/(losses) | (9.7 | ) | (a) | (10.7 | ) | (a) | |
Settlement and curtailment losses | (0.3 | ) | (a) | — |
| (a) | |
| (9.3 | ) | | (9.8 | ) | | Total before tax |
| 2.3 |
| | 2.4 |
| | Tax benefit (expense) |
| $ | (7.0 | ) | | $ | (7.4 | ) | | (Loss) gain net of tax |
Reclassification of gains (losses) on available-for-sale securities | $ | (1.8 | ) | | $ | — |
| | Other expense, net |
| — |
| | — |
| | Tax benefit (expense) |
| $ | (1.8 | ) | | $ | — |
| | (Loss) gain net of tax |
Reclassification of currency translation gain | $ | 7.7 |
| | $ | — |
| | Gain on disposition of business (Note 3) |
| — |
| | — |
| | Tax benefit (expense) |
| $ | 7.7 |
| | $ | — |
| | Gain (loss) net of tax |
Gains (losses) reclassified into earnings | $ | (0.6 | ) | | $ | (7.1 | ) | | (Loss) gain net of tax |
(a)These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 12 — Retirement Benefits for additional details).
| | | | | |
(a) | These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 11 — Retirement Benefits for additional details). |
|
| |
8084 | HUBBELL INCORPORATED - Form 10-K |
NOTE 2021 Industry Segments and Geographic Area Information
Nature of Operations
Hubbell designs, manufactures and sellsis a global manufacturer of quality electrical products and electronic productsutility solutions for a broad range of non-residentialcustomer and residential construction, industrial and utilityend-market applications. Products are either sourced complete, manufactured or assembled by subsidiaries in the United States, Canada, Puerto Rico, China, Mexico, the UK, Brazil, Australia, Spain and Ireland. Hubbell also participates in joint ventures in Taiwan, Hong Kong and the Philippines and maintains offices in Singapore, Italy, China, India, Mexico, South Korea, Chile and countries in the Middle East. Each of the above references to manufacturing locations, joint venture participation, and office locations relate to the three year period ending December 31, 2019.2022.
The Company’s reporting segments consist of the ElectricalUtility Solutions segment and the PowerElectrical Solutions segment, as described below.
The Utility Solutions segment consists of businesses that design, manufacture, and sell a wide variety of electrical distribution, transmission, substation, and telecommunications products, which support applications In Front of the Meter. This includes utility transmission & distribution (T&D) components such as arresters, insulators, connectors, anchors, bushings, enclosures cutoffs and switches. The Utility Solutions segment also offers solutions that serve The Edge of 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.
Hubbell Electrical Solutions is positioned Behind the Meter, providing key components to building operators and industrial customers that enable them to manage their energy and operate critical infrastructure more efficiently and effectively. 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, and lighting fixtures, and controls, components and assemblies for the natural gas distribution market andas well as other electrical equipment. The
Products of the Electrical Solutions segment have applications in the light industrial, non-residential, wireless communications, transportation, data center, and heavy industrial markets. Electrical Solutions segment 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 areWe also offer a variety of lighting fixtures, wiring devices and electrical products that have residential and utility applications, including residential products with Internet-of-Things ("IoT") enabled technologies.
These products are sold under various brands and/or trademarks and 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. High voltage products are also sold direct to customers through our sales engineers. The Electrical segment comprises 3 business groups, which have been aggregated as they have similar economic characteristics, customers and distribution channels, among other factors.
original equipment manufacturers (“OEMs”).
The Power segment consists of operations that design and manufacture various distribution, transmission, substation and telecommunications products primarily used by the electrical utility industry. In addition, certain of these products are used in the civil construction, water utility, and transportation industries. Products are sold to distributors and directly to users such as utilities, telecommunication companies, pipeline and mining operations, industrial firms, construction and engineering firms. The 2018 acquisition of Aclara expanded offerings, to include advanced metering infrastructure, meter and edge devices, software and infrastructure services, which are primarily sold to the electrical, water, and gas utility industries.
Financial Information
Financial information by industry segment, product class and geographic area for each of the three years ended December 31, 2019, 20182022, 2021 and 20172020 is summarized below (in millions). When reading the data the following items should be noted:
•Net sales comprise sales to unaffiliated customers — inter-segment and inter-area sales are not significant.
•Segment operating income consists of netNet sales less operating expenses, including total corporate expenses, which are generally allocated to each segment on the basis of the segment’s percentage of consolidated netNet sales. Interest expense and investment income and other expense, net have not been allocated to segments as these items are centrally managed by the Company.
•General corporate assets not allocated to segments are principally cash, prepaid pensions, investments and deferred taxes. These assets have not been allocated as they are centrally managed by the Company.
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 8185 |
INDUSTRY SEGMENT DATA
|
| | | | | | | | | |
| 2019 |
| 2018 |
| 2017 |
|
Net Sales: | |
| |
| |
|
Electrical | $ | 2,625.7 |
| $ | 2,660.6 |
| $ | 2,532.8 |
|
Power | 1,965.3 |
| 1,821.1 |
| 1,136.0 |
|
TOTAL NET SALES | $ | 4,591.0 |
| $ | 4,481.7 |
| $ | 3,668.8 |
|
Operating Income: | |
| |
| |
|
Electrical | $ | 320.1 |
| $ | 320.8 |
| $ | 294.0 |
|
Power | 276.5 |
| 236.1 |
| 224.8 |
|
Operating Income | $ | 596.6 |
| $ | 556.9 |
| $ | 518.8 |
|
Gain on disposition of business (Note 3) | 21.7 |
| — |
| — |
|
Multi-employer pension charge (Note 15) | (8.5 | ) | — |
| — |
|
Interest expense | (69.4 | ) | (72.4 | ) | (44.9 | ) |
Loss on extinguishment of debt | — |
| — |
| (10.1 | ) |
Investment income and other expense, net | (19.9 | ) | (17.5 | ) | (20.7 | ) |
INCOME BEFORE INCOME TAXES | $ | 520.5 |
| $ | 467.0 |
| $ | 443.1 |
|
Assets: | |
| |
| |
|
Electrical | $ | 2,197.8 |
| $ | 2,228.5 |
| $ | 2,344.7 |
|
Power | 2,401.3 |
| 2,395.8 |
| 1,102.2 |
|
General Corporate | 303.9 |
| 247.8 |
| 273.7 |
|
TOTAL ASSETS | $ | 4,903.0 |
| $ | 4,872.1 |
| $ | 3,720.6 |
|
Capital Expenditures: | |
| |
| |
|
Electrical | $ | 45.8 |
| $ | 53.0 |
| $ | 48.0 |
|
Power | 45.4 |
| 36.8 |
| 29.0 |
|
General Corporate | 2.7 |
| 6.4 |
| 2.7 |
|
TOTAL CAPITAL EXPENDITURES | $ | 93.9 |
| $ | 96.2 |
| $ | 79.7 |
|
Depreciation and Amortization: | |
| |
| |
|
Electrical | $ | 65.0 |
| $ | 61.4 |
| $ | 64.7 |
|
Power | 86.0 |
| 87.0 |
| 33.5 |
|
TOTAL DEPRECIATION AND AMORTIZATION | $ | 151.0 |
| $ | 148.4 |
| $ | 98.2 |
|
| | | | | | | | | | | | | | | |
| 2022 | 2021 | 2020 | | | | |
Net Sales: | | | | | | | |
Utility Solutions | $ | 2,871.1 | | $ | 2,334.4 | | $ | 2,079.4 | | | | | |
Electrical Solutions | 2,076.8 | | 1,859.7 | | 1,603.1 | | | | | |
TOTAL NET SALES | $ | 4,947.9 | | $ | 4,194.1 | | $ | 3,682.5 | | | | | |
Operating Income: | | | | | | | |
Utility Solutions | $ | 438.2 | | $ | 284.1 | | $ | 305.6 | | | | | |
Electrical Solutions | 270.9 | | 248.2 | | 188.9 | | | | | |
Operating Income | $ | 709.1 | | $ | 532.3 | | $ | 494.5 | | | | | |
Loss on disposition of business (Note 4) | — | | (6.9) | | — | | | | | |
Loss on extinguishment of debt (Note 13) | — | | (16.8) | | — | | | | | |
Pension charge (Note 12) | (7.0) | | — | | (7.6) | | | | | |
Interest expense, net | (49.6) | | (54.7) | | (60.1) | | | | | |
| | | | | | | |
Other income (expense), net | 4.5 | | 5.4 | | (2.3) | | | | | |
INCOME BEFORE INCOME TAXES | $ | 657.0 | | $ | 459.3 | | $ | 424.5 | | | | | |
Assets: | | | | | | | |
Utility Solutions | $ | 3,011.9 | | $ | 2,823.8 | | $ | 2,812.4 | | | | | |
Electrical Solutions | 1,972.9 | | 2,142.1 | | 1,984.4 | | | | | |
General Corporate | 417.8 | | 315.6 | | 288.3 | | | | | |
TOTAL ASSETS(1) | $ | 5,402.6 | | $ | 5,281.5 | | $ | 5,085.1 | | | | | |
Capital Expenditures: | | | | | | | |
Utility Solutions | $ | 86.9 | | $ | 55.8 | | $ | 55.9 | | | | | |
Electrical Solutions | 39.5 | | 31.1 | | 25.0 | | | | | |
General Corporate | 2.9 | | 3.3 | | 1.9 | | | | | |
TOTAL CAPITAL EXPENDITURES | $ | 129.3 | | $ | 90.2 | | $ | 82.8 | | | | | |
Depreciation and Amortization: | | | | | | | |
Utility Solutions | $ | 99.2 | | $ | 108.5 | | $ | 103.2 | | | | | |
Electrical Solutions | 49.3 | | 40.6 | | 41.3 | | | | | |
TOTAL DEPRECIATION AND AMORTIZATION | $ | 148.5 | | $ | 149.1 | | $ | 144.5 | | | | | |
GEOGRAPHIC AREA DATA | | | | | | | | | | | |
| 2022 | 2021 | 2020 |
Net Sales: | | | |
United States | $ | 4,536.4 | | $ | 3,809.8 | | $ | 3,356.9 | |
International | 411.5 | | 384.3 | | 325.6 | |
TOTAL NET SALES | $ | 4,947.9 | | $ | 4,194.1 | | $ | 3,682.5 | |
Operating Income: | | | |
United States | $ | 598.5 | | $ | 439.6 | | $ | 436.3 | |
International | 110.6 | | 92.7 | | 58.2 | |
TOTAL OPERATING INCOME | $ | 709.1 | | $ | 532.3 | | $ | 494.5 | |
Long-lived Assets: | | | |
United States | $ | 2,983.5 | | $ | 3,038.1 | | $ | 3,113.7 | |
International | 392.3 | | 359.0 | | 378.7 | |
TOTAL LONG-LIVED ASSETS(1) | $ | 3,375.8 | | $ | 3,397.1 | | $ | 3,492.4 | |
(1) Total Assets and Long-lived assets attributable to the Company's formerly owned Commercial and Industrial Lighting business, totaling $356.6 million and $177.1 million were included in total assets held for sale, and noncurrent portion respectively as of December 31, 2021 on the Company's Consolidated Balance Sheets. See Note 2, Discontinued Operations, for further information on the Company's sale of the C&I Lighting business.
|
| | | | | | | | | |
| 2019 |
| 2018 |
| 2017 |
|
Net Sales: | |
| |
| |
|
United States | $ | 4,190.5 |
| $ | 4,040.6 |
| $ | 3,280.9 |
|
International | 400.5 |
| 441.1 |
| 387.9 |
|
TOTAL NET SALES | $ | 4,591.0 |
| $ | 4,481.7 |
| $ | 3,668.8 |
|
Operating Income: | |
| |
| |
|
United States | $ | 529.7 |
| $ | 478.0 |
| $ | 435.8 |
|
International | 66.9 |
| 78.9 |
| 83.0 |
|
TOTAL OPERATING INCOME | $ | 596.6 |
| $ | 556.9 |
| $ | 518.8 |
|
Long-lived Assets: | |
| |
| |
|
United States | $ | 2,950.4 |
| $ | 2,972.4 |
| $ | 1,877.4 |
|
International | 372.2 |
| 245.0 |
| 232.8 |
|
TOTAL LONG-LIVED ASSETS | $ | 3,322.6 |
| $ | 3,217.4 |
| $ | 2,110.2 |
|
On a geographic basis, the Company defines “international” as operations based outside of the United States and its possessions. As a percentage of total netNet sales, shipments from foreign operations directly to third parties were 8% in 2022, 9% in 2019, 10%2021 and 9% in 2018 and 11% in 2017,2020, with the UK and Canadian operations representing approximately 29%32%, and 29%31% respectively, of 20192022 total international netNet sales.
Long-lived assets, excluding deferred tax assets, of international subsidiaries were 11% of the consolidated total in 2019, 8% in 2018 and 11% in 2017, with the UK, Spain, and Canada operations representing approximately 31%, 21%, and 16%, respectively, of the 2019 international total. Export sales from United States operations were $262.7 million in 2019, $261.9 million in 2018 and $217.2 million in 2017.
|
| | | | |
8286 | HUBBELL INCORPORATED - Form 10-K |
Long-lived assets, excluding deferred tax assets, of international subsidiaries were 12% of the consolidated total in 2022, 11% in 2021 and 11% in 2020, with the UK, Spain, and Canada operations representing approximately 26%, 17%, and 16%, respectively, of the 2022 international total. Export sales from United States operations were $253.0 million in 2022, $227.0 million in 2021 and $233.8 million in 2020.
NOTE 2122 Guarantees
The Company records a liability equal to the fair value of guarantees in the Consolidated Balance Sheet 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 December 31, 2019,2022, the fair value and maximum potential payment related to the Company’s guarantees were not material.
The Company offers product warranties which cover defects on most of its products. These warranties primarily apply to products that are properly installed, maintained and used for their intended purpose. The Company accrues estimated warranty costs at the time of sale. Estimated warranty expenses, recorded in cost of goods sold, are based upon historical information such as past experience, product failure rates, or the estimated number of units to be repaired or replaced. Adjustments are made to the product warranty accrual as claims are incurred, additional information becomes known or as historical experience indicates.
Changes in the accrual for product warranties in 20192022 are set forth below (in millions):
|
| | | |
BALANCE AT DECEMBER 31, 2017 | $ | 14.0 |
|
Provision | 12.0 |
|
Expenditures/other | (22.7 | ) |
Acquisitions(a) | 89.4 |
|
BALANCE AT DECEMBER 31, 2018 | $ | 92.7 |
|
Provision | 15.8 |
|
Expenditures/other | (26.4 | ) |
BALANCE AT DECEMBER 31, 2019(b) | $ | 82.1 |
|
| | | | | |
BALANCE AT DECEMBER 31, 2020 | $ | 72.7 | |
Provision | 8.8 | |
Expenditures/other | (15.4) | |
| |
BALANCE AT DECEMBER 31, 2021 | $ | 66.1 | |
Provision | 12.7 | |
Expenditures/other | (32.6) | |
| |
BALANCE AT DECEMBER 31, 2022(a) | $ | 46.2 | |
(a) Relates to the Aclara acquisition. Refer to Note 3 – Business Acquisitions for additional information.
(b) Refer to Note 910 – Other Accrued Liabilities and Note 1011 – Other Non-Current Liabilities for a breakout of short-term and long-term warranties.
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 8387 |
NOTE 2223 Restructuring Costs
During 2019,2022, we incurred costs for restructuring actions initiated in 20192022 as well as costs relating to restructuring actions initiated in the prior year. Our restructuring actions are associated with cost reduction efforts that include the consolidation of manufacturing and distribution facilities, as well as, workforce reductions and the sale or exit of business units we determine to be non-strategic. Restructuring costs are primarily severance and employee benefits, asset impairments, as well as facility closure, contract termination and certain pension costs that are directly related to restructuring actions. These costs are predominantly settled in cash from our operating activities and are generally settled within one year, with the exception of asset impairments, which are non-cash.
Pre-tax restructuring costs incurred in each of our segments and the location of the costs in the Consolidated Statement of Income for the years ended December 31, 2019, 20182022, 2021 and 20172020 are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2022 | | Twelve Months Ended December 31, 2021 | | Twelve Months Ended December 31, 2020 |
| Utility Solutions | Electrical Solutions | Total | | Utility Solutions | Electrical Solutions | Total | | Utility Solutions | Electrical Solutions | Total |
Restructuring costs | | | | | | | | | | | |
Cost of goods sold | $ | 4.5 | | $ | 5.4 | | $ | 9.9 | | | $ | 1.3 | | $ | 1.1 | | $ | 2.4 | | | $ | 9.2 | | $ | 7.1 | | $ | 16.3 | |
S&A expense | (0.5) | | 0.9 | | 0.4 | | | 1.1 | | 0.4 | | 1.5 | | | 1.2 | | 2.9 | | 4.1 | |
Total restructuring costs | $ | 4.0 | | $ | 6.3 | | $ | 10.3 | | | $ | 2.4 | | $ | 1.5 | | $ | 3.9 | | | $ | 10.4 | | $ | 10.0 | | $ | 20.4 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, 2019 | | Twelve Months Ended December 31, 2018 | | Twelve Months Ended December 31, 2017 |
| Electrical | Power | Total | | Electrical | Power | Total | | Electrical | Power | Total |
Restructuring costs | | | | | | | | | | | |
Cost of goods sold | $ | 12.5 |
| $ | 9.8 |
| $ | 22.3 |
| | $ | 4.9 |
| $ | 3.3 |
| $ | 8.2 |
| | $ | 11.5 |
| $ | 2.2 |
| $ | 13.7 |
|
S&A expense | 8.0 |
| 1.7 |
| 9.7 |
| | 3.4 |
| 0.4 |
| 3.8 |
| | 5.4 |
| 1.2 |
| 6.6 |
|
Total restructuring costs | $ | 20.5 |
| $ | 11.5 |
| $ | 32.0 |
| | $ | 8.3 |
| $ | 3.7 |
| $ | 12.0 |
| | $ | 16.9 |
| $ | 3.4 |
| $ | 20.3 |
|
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 12/31/22 |
2022 Restructuring Actions | | | | |
Severance | $ | — | | $ | 6.9 | | $ | (1.3) | | $ | 5.6 | |
Asset write-downs | — | | 0.8 | | (0.8) | | — | |
Facility closure and other costs | — | | 3.5 | | (3.2) | | 0.3 | |
Total 2022 Restructuring Actions | $ | — | | $ | 11.2 | | $ | (5.3) | | $ | 5.9 | |
2021 and Prior Restructuring Actions | | | | |
Severance | $ | 4.1 | | $ | (0.4) | | $ | (1.8) | | $ | 1.9 | |
Asset write-downs | — | | — | | — | | — | |
Facility closure and other costs | 0.1 | | (0.5) | | 0.5 | | 0.1 | |
Total 2021 and Prior Restructuring Actions | $ | 4.2 | | $ | (0.9) | | $ | (1.3) | | $ | 2.0 | |
Total Restructuring Actions | $ | 4.2 | | $ | 10.3 | | $ | (6.6) | | $ | 7.9 | |
|
| | | | | | | | | | | | |
| Beginning Accrued Restructuring Balance 1/1/19 | Pre-tax Restructuring Costs | Utilization and Foreign Exchange | Ending Accrued Restructuring Balance 12/31/19 |
2019 Restructuring Actions | | | | |
Severance | $ | — |
| $ | 16.6 |
| $ | (8.3 | ) | $ | 8.3 |
|
Asset write-downs | — |
| 4.8 |
| (4.8 | ) | — |
|
Facility closure and other costs | — |
| 7.7 |
| (7.6 | ) | 0.1 |
|
Total 2019 Restructuring Actions | $ | — |
| $ | 29.1 |
| $ | (20.7 | ) | $ | 8.4 |
|
2018 and Prior Restructuring Actions | | | | |
Severance | $ | 7.7 |
| $ | 0.3 |
| $ | (5.0 | ) | $ | 3.0 |
|
Asset write-downs | — |
| 0.3 |
| (0.3 | ) | — |
|
Facility closure and other costs | 13.3 |
| 2.3 |
| (9.6 | ) | 6.0 |
|
Total 2018 and Prior Restructuring Actions | $ | 21.0 |
| $ | 2.9 |
| $ | (14.9 | ) | $ | 9.0 |
|
Total Restructuring Actions | $ | 21.0 |
| $ | 32.0 |
| $ | (35.6 | ) | $ | 17.4 |
|
The actual and expected pre-tax costs for our restructuring actions are as follows (in millions): | | | | | | | | | | | | | | | | | |
| Expected Costs | Costs incurred in 2020 | Costs incurred in 2021 | Costs incurred in 2022 | Remaining costs at 12/31/22 |
2022 Restructuring Actions | | | | | |
Utility Solutions | $ | 5.0 | | $ | — | | $ | — | | $ | 4.7 | | $ | 0.3 | |
Electrical Solutions | 10.2 | | — | | — | | 6.5 | | 3.7 | |
Total 2022 Restructuring Actions | $ | 15.2 | | $ | — | | $ | — | | $ | 11.2 | | $ | 4.0 | |
2021 Restructuring Actions | | | | | |
Utility Solutions | $ | 3.7 | | $ | — | | $ | 1.8 | | $ | (0.7) | | $ | 2.6 | |
Electrical Solutions | 0.4 | | — | | 0.6 | | (0.2) | | — | |
Total 2021 Restructuring Actions | $ | 4.1 | | $ | — | | $ | 2.4 | | $ | (0.9) | | $ | 2.6 | |
2020 and Prior Restructuring Actions | | | | | |
Utility Solutions | $ | 11.0 | | $ | 10.4 | | $ | 0.6 | | $ | — | | $ | — | |
Electrical Solutions | 10.9 | | 10.0 | | 0.9 | | — | | — | |
Total 2020 and Prior Restructuring Actions | $ | 21.9 | | $ | 20.4 | | $ | 1.5 | | $ | — | | $ | — | |
Total Restructuring Actions | $ | 41.2 | | $ | 20.4 | | $ | 3.9 | | $ | 10.3 | | $ | 6.6 | |
|
| | | | | | | | | | | | | | | |
| Expected Costs | Costs incurred in 2017 | Costs incurred in 2018 | Costs incurred in 2019 | Remaining costs at 12/31/19 |
2019 Restructuring Actions | | | | | |
Electrical Segment | $ | 21.2 |
| $ | — |
| $ | — |
| $ | 18.3 |
| $ | 2.9 |
|
Power Segment | 21.0 |
| — |
| — |
| 10.8 |
| 10.2 |
|
Total 2019 Restructuring Actions | $ | 42.2 |
| $ | — |
| $ | — |
| $ | 29.1 |
| $ | 13.1 |
|
2018 Restructuring Actions | | | | | |
Electrical Segment | $ | 12.5 |
| $ | — |
| $ | 8.6 |
| $ | 2.2 |
| $ | 1.7 |
|
Power Segment | 4.8 |
| — |
| 4.1 |
| 0.7 |
| — |
|
Total 2018 Restructuring Actions | $ | 17.3 |
| $ | — |
| $ | 12.7 |
| $ | 2.9 |
| $ | 1.7 |
|
2017 and Prior Restructuring Actions | | | | | |
Electrical Segment | $ | 16.6 |
| $ | 16.9 |
| $ | (0.3 | ) | $ | — |
| $ | — |
|
Power Segment | 3.0 |
| 3.4 |
| (0.4 | ) | — |
| — |
|
Total 2017 and Prior Restructuring Actions | $ | 19.6 |
| $ | 20.3 |
| $ | (0.7 | ) | $ | — |
| $ | — |
|
Total Restructuring Actions | $ | 79.1 |
| $ | 20.3 |
| $ | 12.0 |
| $ | 32.0 |
| $ | 14.8 |
|
|
| | | | |
8488 | HUBBELL INCORPORATED - Form 10-K |
NOTE 2324 Leases
Our operating leases primarily consist of office space, certain manufacturing facilities, and vehicles. Our finance leases are not material. The term of theseour operating leases is generally 10 years or less, in some cases, with options to extend the term for up to 5 years, or options to terminate after one year without penalty. In general, our vehicle lease payments contain a monthly base rent payment which is adjusted based on changes to the LIBOR rate over the lease term. Certain other lease agreements contain variable payments related to a consumer price index or similar metric. Any change in payment amounts as a result of a change in a rate or index are considered variable lease payments and recognized as profit or loss when incurred.
Rent expense for operating leases in the Consolidated Statements of Income for the twelve monthsyears ended December 31, 2019 was $39.1 million.2022, December 31, 2021, and December 31, 2020 were $35.7 million, $34.1 million, and $35.5 million, respectively. Cash paid for operating leases duringfor the year ended December 31, 2019 was $36.42022 and December 31, 2021 were $36.3 million and $36.7 million reported as cash outflows from operating activities in the Consolidated Statements of Cash Flows. Right-of-use ("ROU") assets obtained in exchange for lease obligations duringfor the year ended December 31, 2019 was $22.1 million.2022 and December 31, 2021 were $58.9 million and $17.8 million, respectively, which includes $7.4 million related to acquisitions in 2022.
Amounts recognized for operating leases in the Consolidated Balance Sheets is as follows (in millions):
| | | | | | | | | | | |
| December 31, 2022 | December 31, 2021 |
Operating lease right-of-use assets | $ | 108.0 | | $ | 81.3 | |
TOTAL ASSETS | $ | 108.0 | | $ | 81.3 | |
| | |
Other accrued liabilities | $ | 30.5 | | $ | 27.1 | |
Other non-current liabilities | 84.9 | | 58.3 | |
TOTAL LIABILITIES | $ | 115.4 | | $ | 85.4 | |
|
| | | |
| December 31, 2019 |
Operating lease right-of-use assets | $ | 96.8 |
|
TOTAL ASSETS | $ | 96.8 |
|
| |
Other accrued liabilities | $ | 29.6 |
|
Other non-current liabilities | 71.7 |
|
TOTAL LIABILITIES | $ | 101.3 |
|
TheThe weighted average remaining lease term as of December 31, 20192022 and December 31, 2021 for operating leases waswere 5.5 and 4 years.years, respectively. The weighted average discount rate used to measure the ROU asset and lease liability for operating leases was 3.5%3.2% as of December 31, 2019.2022 and 2.7% as of December 31, 2021.
Future maturities of our operating lease liabilities as of December 31, 20192022 are as follows (in millions):
|
| | | | | | | | | |
| 2020 | 2021 | 2022 | 2023 | 2024 | Thereafter | Total Payments | Imputed Interest | Total |
Operating Leases | 32.7 | 24.6 | 15.8 | 13.2 | 8.4 | 15.9 | 110.6 | (9.3) | $101.3 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total Payments | Imputed Interest | Total |
Operating Leases | 33.8 | 23.9 | 17.7 | 14.3 | 12.3 | 24.5 | 126.5 | (11.1) | $115.4 |
Total rental expense underFuture maturities of our operating leases was $44.8 million in 2018 and $30.5 million in 2017. The minimum annual rentals on non-cancelable, long-term, operating leases in effect atlease liabilities as of December 31, 2018 was $23.5 million in 2019, $21.0 million in 2020, $16.5 million in 2021 $13.2 million in 2022, $10.5 million in 2023 and $26.5 million thereafter.are as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total Payments | Imputed Interest | Total |
Operating Leases | 29.0 | 22.9 | 13.6 | 8.8 | 6.4 | 9.2 | 89.9 | (4.5) | $85.4 |
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 8589 |
NOTE 24
Quarterly Financial Data (Unaudited)
The table below sets forth summarized quarterly consolidated financial data for the years ended December 31, 2019 and 2018 (in millions, except per share amounts):
|
| | | | | | | | | | | | |
| Reported First Quarter |
| Reported Second Quarter |
| Reported Third Quarter |
| Fourth Quarter |
|
2019 | |
| |
| |
| |
|
Net sales | $ | 1,087.3 |
| $ | 1,196.4 |
| $ | 1,204.0 |
| $ | 1,103.3 |
|
Cost of goods sold | $ | 780.0 |
| $ | 839.0 |
| $ | 842.0 |
| $ | 777.3 |
|
Gross profit | $ | 307.3 |
| $ | 357.4 |
| $ | 362.0 |
| $ | 326.0 |
|
Selling & administrative expenses | $ | 186.4 |
| $ | 190.5 |
| $ | 189.1 |
| $ | 190.1 |
|
Net income | $ | 73.8 |
| $ | 97.9 |
| $ | 132.6 |
| $ | 103.1 |
|
Net Income attributable to Hubbell | $ | 72.3 |
| $ | 96.0 |
| $ | 130.7 |
| $ | 101.9 |
|
Earnings per share — Basic | $ | 1.32 |
| $ | 1.76 |
| $ | 2.40 |
| $ | 1.87 |
|
Earnings per share — Diluted | $ | 1.32 |
| $ | 1.75 |
| $ | 2.38 |
| $ | 1.85 |
|
|
| Reported First Quarter |
| Reported Second Quarter |
| Reported Third Quarter |
| Fourth Quarter |
|
2018 | |
| |
| |
| |
|
Net sales | $ | 991.2 |
| $ | 1,166.7 |
| $ | 1,179.7 |
| $ | 1,144.1 |
|
Cost of goods sold | $ | 708.3 |
| $ | 818.8 |
| $ | 830.7 |
| $ | 823.5 |
|
Gross profit | $ | 282.9 |
| $ | 347.9 |
| $ | 349.0 |
| $ | 320.6 |
|
Selling & administrative expenses | $ | 183.3 |
| $ | 191.0 |
| $ | 185.2 |
| $ | 184.0 |
|
Net income | $ | 59.8 |
| $ | 102.4 |
| $ | 114.7 |
| $ | 89.2 |
|
Net Income attributable to Hubbell | $ | 58.3 |
| $ | 100.3 |
| $ | 113.6 |
| $ | 88.0 |
|
Earnings per share — Basic | $ | 1.06 |
| $ | 1.83 |
| $ | 2.07 |
| $ | 1.61 |
|
Earnings per share — Diluted | $ | 1.05 |
| $ | 1.82 |
| $ | 2.06 |
| $ | 1.60 |
|
|
| |
86 | HUBBELL INCORPORATED - Form 10-K
|
ITEM 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
ITEM 9A Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, 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. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures which, by their nature, can provide only reasonable assurance that the controls and procedures will meet their objectives.
During the year ended December 31, 2022, the Company acquired PCX Holdings LLC, Ripley Tools, LLC and Nooks Hill Road, LLC, and REF Automation Limited and REF Alabama Inc. for an aggregate of $177.1 million. Because the Company has not yet fully incorporated the internal controls and procedures of the acquired entities into the Company's internal control over financial reporting, management excluded these business from its assessment of the effectiveness of internal control over financial reporting as of December 31, 2022. These entities accounted for 2% of the Company's total assets excluding intangibles and goodwill as of December 31, 2022 and less than 1% of the Company's net sales for the year then ended December 31, 2022.
The Company carried out an evaluation, under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation 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 report on Form 10-K. Based upon that evaluation, each of the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective at a reasonable assurance level. Management’s annual report on internal control over financial reporting and the independent registered public accounting firm’s audit report on the effectiveness of our internal control over financial reporting as of December 31, 20192022 are included in Item 8 of this Annual Report on Form 10-K.
There has been no change in the Company’s internal control over financial reporting that occurred during the fiscal year ended December 31, 20192022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B Other Information
Not applicable.
ITEM 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 8790 |
ITEM 10 Directors, Executive Officers and Corporate Governance(1)
ITEM 11 Executive Compensation(2)
ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
The following table provides information as of December 31, 20192022 with respect to the Company’s common stock that may be issued under the Company’s equity compensation plans (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | |
| A | | B | | C | |
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A) | |
Equity Compensation Plans Approved by Shareholders(a) | 1,016 | | (c)(d) | $ | 144.66 | | (e) | 1,489 | | (c) |
Equity Compensation Plans Not Requiring Shareholder Approval(b) | 53 | | (c)(f) | — | | | 127 | | (c) |
TOTAL | 1,069 | | | $ | 144.66 | | | 1,616 | | |
|
| | | | | | | | | | |
| A | | B | | C | |
Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options,Warrants and Rights | | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column A) | |
Equity Compensation Plans Approved by Shareholders(a) | 1,833 |
| (c)(e) | $ | 110.66 |
| (f) | 2,333 |
| (c) |
Equity Compensation Plans Not Requiring Shareholder Approval(b) | 72 |
| (c)(d)
| — |
| | 152 |
| (c) |
TOTAL | 1,905 |
| | $ | 110.66 |
| | 2,485 |
| |
(a)The Company’s (1) Stock Option Plan for Key Employees and (2) 2005 Incentive Award Plan as amended and restated. | |
(a) | The Company’s (1) Stock Option Plan for Key Employees and (2) 2005 Incentive Award Plan as amended and restated. |
| |
(b) | The Company’s Deferred Compensation Plan for Directors as amended and restated. |
| |
(d) | Represents amount of shares currently deferred under this plan. These shares are not included in the total weighted average exercise price included in column B. |
| |
(e) | Includes 210,000 performance share awards assuming a maximum payout target. The Company does not anticipate that the maximum payout target will be achieved for all of these awards. |
| |
(f) | Weighted average exercise price excludes performance share awards included in column A. |
(b)The Company’s Deferred Compensation Plan for Directors as amended and restated. For a description of the material features of the plan, the information is incorporated by reference to the subheading “Deferred Compensation Plan” of the definitive proxy statement for the Company’s 2023 annual meeting of shareholders.
(c)Hubbell Common Stock.
(d)Includes approximately 150,000 performance share awards assuming a maximum payout target. The maximum payout target may not be achieved for all of these awards.
(e)Weighted average exercise price excludes performance share awards included in column A.
(f)Represents amount of shares currently deferred under this plan. These shares are not included in the total weighted average exercise price included in column B.
The remaining information required by this item is incorporated by reference to the subheading “Voting Rights and Security Ownership of Certain Beneficial Owners and Management” of the definitive proxy statement for the Company’s 2023 annual meeting of shareholders scheduled to be held on May 5, 2020.
(1)Certain of the information required by this item regarding executive officers is included under the subheading “Information about our Executive Officers” at the end of Part I of this Form 10-K and the remaining required information is incorporated by reference from our definitive proxy statement to be filed in connection with the Company’s 2023 annual meeting of shareholders.
(2)The information required by this item is incorporated by reference from our definitive proxy statement to be filed in connection with the Company’s 2023 annual meeting of shareholders.
| |
(1) | Certain of the information required by this item regarding executive officers is included under the subheading “Executive Officers of the Registrant” at the end of Part I of this Form 10-K and the remaining required information is incorporated by reference from our definitive proxy statement to be filed in connection with the Company’s annual meeting of shareholders scheduled to be held on May 5, 2020. |
| |
(2) | The information required by this item is incorporated by reference from our definitive proxy statement to be filed in connection with the Company’s annual meeting of shareholders scheduled to be held on May 5, 2020. |
|
| |
88 | HUBBELL INCORPORATED - Form 10-K | 91 |
ITEM 13 Certain Relationships and Related Transactions and Director Independence(3)
ITEM 14 Principal Accountant Fees and Services(4)
| |
(3) | The information required by this item is incorporated by reference from our definitive proxy statement to be filed in connection with the Company’s annual meeting of shareholders scheduled to be held on May 5, 2020. |
| |
(4) | The information required by this item is incorporated by reference from our definitive proxy statement to be filed in connection with the Company’s annual meeting of shareholders scheduled to be held on May 5, 2020. |
(3)The information required by this item is incorporated by reference from our definitive proxy statement to be filed in connection with the Company’s 2023 annual meeting of shareholders.
(4)The information required by this item is incorporated by reference from our definitive proxy statement to be filed in connection with the Company’s 2023 annual meeting of shareholders.
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 8992 |
ITEM 15 Exhibits and Financial Statement Schedule
1. Financial Statements and Schedule
Financial statements and schedule listed in the Index to Financial Statements and Schedule are filed as part of this Annual Report on Form 10-K.
2. Exhibits
|
| | | | | | |
| | Incorporated by Reference | |
Number | Description | Form | File No. | Exhibit | Filing Date | Filed/ Furnished Herewith |
2.1†† | Agreement and Plan of Merger, dated as of December 22, 2017, by and among Meter Readings Holding Group, LLC, Hubbell Power Systems, Inc., Yellow Merger Sub, Inc., Sun Meter Readings, LP, as representative for the members and optionholders, and, for the limited purposes set forth therein, Hubbell Incorporated. | 8-K | 001-02958 | 2.1 | 12/26/2017 | |
3.1 | | 8-A12B | 001-02958 | 3.1 | 12/23/2015 | |
3.2 | | 8-K | 001-02958 | 3.1 | 5/10/2013 | |
4.1 | | S-4 | 333-90754 | 4a | 6/18/2002 | |
4.2 | | 8-K | 001-02958 | 4.2 | 6/2/2008 | |
4.3 | | 8-K | 001-02958 | 4.2 | 11/17/2010 | |
4.4 | | 8-K | 001-02958 | 4.2 | 3/1/2016 | |
4.5 | | 8-K | 001-02958 | 4.3 | 3/1/2016 | |
|
| |
90 | HUBBELL INCORPORATED - Form 10-K
|
|
| | | | | | |
| | Incorporated by Reference | |
Number | Description | Form | File No. | Exhibit | Filing Date | Filed/ Furnished Herewith |
4.6 | | 8-K | 001-02958 | 4.2 | 8/3/2017 | |
4.7 | | 8-K | 001-02958 | 4.3 | 8/3/2017 | |
4.8 | | 8-K | 001-02958 | 4.2 | 2/2/2018 | |
4.9 | | 8-K | 001-02958 | 4.3 | 2/2/2018 | |
4.10 | | | | | | * |
10.1† | | 10-Q | 001-02958 | 10a | 10/26/2007 | |
10.1(a)† | | 10-K | 001-02958 | 10.nn | 2/25/2008 | |
10.1(b)† | | 10-K | 001-02958 | 10a(1) | 2/16/2011 | |
10.1(c)† | | 10-K | 001-02958 | 10.1(c) | 2/16/2017 | |
10.2† | | 10-Q | 001-02958 | 10i | 10/26/2007 | |
10.3† | | S-8POS | 333-206898 | 4.4 | 12/24/2015 | |
10.4† | | 10-K | 001-02958 | 10.5 | 2/18/2016 | |
10.4(a)† | | | | | | * |
10.5† | | 10-Q | 001-02958 | 10w | 10/26/2007 | |
10.5(a)† | | 10-K | 001-02958 | 10w(1) | 2/16/2011 | |
10.5(b)† | | 10-K | 001-02958 | 10.5(b) | 2/16/2017 | |
10.5(c)†
| | | | | | * |
10.6† | | 10-K | 001-02958 | 10z | 3/20/2002 | |
10.6(a)†
| | | | | | * |
10.7† | | | | | | * |
10.8† | | 10-Q | 001-02958 | 10.8 | 7/19/2013 | |
10.9† | | 10-K | 001-02958 | 10.10 | 2/16/2017 | |
10.10† | | 10-K | 001-02958 | 10.11 | 2/16/2017 | |
| | | | | | | | | | | | | | | | | | | | |
| | Incorporated by Reference | |
Number | Description | Form | File No. | Exhibit | Filing Date | Filed/ Furnished Herewith |
3.1 | | 8-A12B | 001-02958 | 3.1 | 12/23/2015 | |
3.2 | | 8-K | 001-02958 | 3.1 | 5/10/2013 | |
4.1 | | S-4 | 333-90754 | 4a | 6/18/2002 | |
4.2 | | 8-K | 001-02958 | 4.2 | 11/17/2010 | |
4.3 | | 8-K | 001-02958 | 4.2 | 3/1/2016 | |
4.4 | | 8-K | 001-02958 | 4.3 | 3/1/2016 | |
4.5 | | 8-K | 001-02958 | 4.2 | 8/3/2017 | |
4.6 | | 8-K | 001-02958 | 4.3 | 8/3/2017 | |
4.7 | | 8-K | 001-02958 | 4.2 | 2/2/2018 | |
4.8 | | 8-K | 001-02958 | 4.3 | 2/2/2018 | |
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 9193 |
| | | | | | | | | | | | | | | | | | | | |
| | Incorporated by Reference | |
Number | Description | Form | File No. | Exhibit | Filing Date | Filed/ Furnished Herewith |
4.9 | | 8-K | 001-02958 | 4.2 | 3/12/2021 | |
4.10 | | 8-K | 001-02958 | 4.2 | 3/12/2021 | |
4.11 | | 10-K | 001-02958 | 4.1 | 2/14/2020 | |
10.1† | | 10-Q | 001-02958 | 10i | 10/26/2007 | |
10.2† | | S-8POS | 333-206898 | 4.4 | 12/24/2015 | |
10.3† | | 10-K | 001-02958 | 10.5 | 2/18/2016 | |
10.3(a)† | | 10-K | 001-02958 | 10.4(a) | 2/14/2020 | |
10.4† | | 10-Q | 001-02958 | 10w | 10/26/2007 | |
10.4(a)† | | 10-K | 001-02958 | 10w(1) | 2/16/2011 | |
10.4(b)† | | 10-K | 001-02958 | 10.5(b) | 2/16/2017 | |
10.4(c)†
| | 10-K | 001-02958 | 10.5(c) | 2/14/2020 | |
10.5† | | 10-K | 001-02958 | 10z | 3/20/2002 | |
10.5(a)†
| | 10-K | 001-02958 | 10.6(a) | 2/14/2020 | |
10.6† | | 10-K | 001-02958 | 10.7 | 2/14/2020 | |
10.7† | | 10-Q | 001-02958 | 10.8 | 7/19/2013 | |
10.8† | | | | | | * |
10.9† | | | | | | * |
10.10† | | | | | | * |
10.11† | | | | | | * |
10.12† | | | | | | * |
10.13† | | | | | | * |
10.14† | | 10-K | 001-02958 | 10.16 | 2/18/2016 | |
10.14(a)† | | 10-K | 001-02958 | 10.14(a) | 2/16/2017 | |
10.14(b)† | | 10-K | 001-02958 | 10.12(b) | 2/14/2020 | |
|
| | | | | | |
| | Incorporated by Reference | |
Number | Description | Form | File No. | Exhibit | Filing Date | Filed/ Furnished Herewith |
10.11† | | 10-K | 001-02958 | 10.12 | 2/16/2017 | |
10.12† | | 10-K | 001-02958 | 10.13 | 2/16/2017 | |
10.12(b)† | | | | | | * |
10.13† | | 10-K | 001-02958 | 10.16 | 2/18/2016 | |
10.13(a)† | | 10-K | 001-02958 | 10.14(a) | 2/16/2017 | |
10.14† | | | | | | * |
10.15† | | 10-K | 001-02958 | 10.18 | 2/18/2016 | |
10.16† | | 10-K | 001-02958 | 10.19 | 2/18/2016 | |
10.17† | | 10-K | 001-02958 | 10.20 | 2/18/2016 | |
10.18† | | 8-K | 001-02958 | 10.2 | 1/5/2011 | |
10.18(a)† | | 8-K | 001-02958 | 10.1 | 12/6/2012 | |
10.19† | | 8-K | 001-02958 | 99.1 | 9/6/2005 | |
10.20† | | 8-K | 001-02958 | 10.1 | 9/17/2012 | |
10.20(a)† | | 8-K | 001-02958 | 10.2 | 9/17/2012 | |
10.21† | | 10-K | 001-02958 | 10.36 | 2/18/2014 | |
10.22† | | | | | | * |
10.22(a)†
| | | | | | * |
10.23† | | | | | | * |
10.24 | | 8-K | 001-02958 | 99.1 | 1/31/2018 | |
10.25 | | 8-K | 001-02958 | 99.2 | 1/31/2018 | |
10.26 | | 8-K | 001-02958 | 10.1 | 1/11/2018 | |
21.1 | | | | | | * |
23.1 | | | | | | * |
31.1 | | | | | | * |
|
| |
92 | HUBBELL INCORPORATED - Form 10-K
|
|
| | | | | | |
| | Incorporated by Reference | |
Number | Description | HUBBELL INCORPORATED - Form 10-K | File No.
| Exhibit | Filing
Date
| Filed/
Furnished Herewith
|
31.2 | | | | | | * |
32.1 | | | | | | ** |
32.2 | | | | | | ** |
101.INS | Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document | | | | | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | | | | | * |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | * |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | * |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | * |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | * |
104 | The cover page of this Annual Report on Form 10-K for the year end Dcember 31, 2019, formatted in Inline XBRL (included within the Exhibit 101 attachments) | | | | | *94 |
| | | | | | | | | | | | | | | | | | | | |
| | Incorporated by Reference | |
Number | Description | Form | File No. | Exhibit | Filing Date | Filed/ Furnished Herewith |
10.14(c)† | | 10-Q | 001-02958 | 10.2 | 4/28/2021 | |
10.15† | | 10-K | 001-02958 | 10.14 | 2/14/2020 | |
10.16† | | 10-K | 001-02958 | 10.18 | 2/18/2016 | |
10.17† | | 10-K | 001-02958 | 10.19 | 2/18/2016 | |
10.18† | | 10-K | 001-02958 | 10.20 | 2/18/2016 | |
10.19† | | 8-K | 001-02958 | 10.1 | 12/30/2022 | |
10.20† | | 8-K | 001-02958 | 10.2 | 12/30/2022 | |
10.21† | | 8-K | 001-02958 | 10.3 | 12/30/2022 | |
10.22† | | 8-K | 001-02958 | 10.4 | 12/30/2022 | |
10.23 | | 8-K | 001-02958 | 99.2 | 1/31/2018 | |
10.24 | | 8-K | 001-02958 | 10.1 | 1/11/2018 | |
21.1 | | | | | | * |
23.1 | | | | | | * |
31.1 | | | | | | * |
31.2 | | | | | | * |
32.1 | | | | | | ** |
32.2 | | | | | | ** |
101 | The following materials from Hubbell Incorporated's Annual Report on Form 10-K for the year ended December 31, 2022 formatted in Inline Extensible Business Reporting Language (iXBRL): (i) the Consolidated Statements of Income, (ii) the Consolidated Statements of Comprehensive Income, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated Statements of Changes in Equity, and (vi) Notes to the Consolidated Financial Statements. | | | | | * |
104 | The cover page of this Annual Report on Form 10-K for the year end December 31, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments) | | | | | * |
|
| | | | |
†HUBBELL INCORPORATED- Form 10-K | 95 |
| | | | | |
† | A management contract or compensatory plan or arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K. |
†† | Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplemental copies of such omitted schedules and exhibits to the Securities and Exchange Commission upon request. |
* | Filed herewith. |
** | Furnished herewith. |
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 9396 |
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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.
|
| | | | | | | | | | | | | |
| HUBBELL INCORPORATED | | | |
By | /s/ JOSEPH A. CAPOZZOLIJONATHAN M. DEL NERO | | By | /s/ WILLIAM R. SPERRY |
| Joseph A. CapozzoliJonathan M. Del Nero | | | William R. Sperry |
| Vice President, Controller | | | Executive Vice President Chief Financial
and |
| | | | Chief Financial Officer and Treasurer
|
Date: | February 14, 20209, 2023 | | | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.(1)
|
| | | | | | | | | | |
| | Title | Date |
By | /s/ D. G. NORDW. BAKKER D. G. NordW. Bakker
| Chairman of the Board, President and Chief Executive Officer | 2/14/20209/2023 |
By | /s/ W. R. SPERRY W. R. Sperry | Executive Vice President and Chief Financial Officer and Treasurer | 2/14/20209/2023 |
By | /s/ J. A. CAPOZZOLIM. DEL NERO J. A. CapozzoliM. Del Nero | Vice President, Controller (Principal Accounting Officer) | 2/14/20209/2023 |
By | /s/ C. M. CARDOSO C. M. Cardoso | Director | 2/14/20209/2023 |
By | /s/ A. J. GUZZI A. J. Guzzi | Director | 2/14/20209/2023 |
By | /s/ R. A. HERNANDEZ R. A. Hernandez | Director | 2/9/2023 |
By | /s/ N. J. KEATING N. J. Keating | Director | 2/14/20209/2023 |
By | /s/ B. C. LIND B. C. Lind | Director | 2/14/20209/2023 |
By | /s/ J. F. MALLOY J. F. Malloy | Director | 2/14/20209/2023 |
By | /s/ J. F. MARKSM. POLLINO J. F. MarksM. Pollino | Director | 2/14/20209/2023 |
By | /s/ J. G. RUSSELL J. G. Russell | Director | 2/14/20209/2023 |
By | /s/ S. R. SHAWLEY
S. R. Shawley
| Director | 2/14/2020 |
(1)As of February 9, 2023.
| |
(1) | As of February 14, 2020. |
|
| |
94 | HUBBELL INCORPORATED - Form 10-K | 97 |
Valuation and Qualifying Accounts and Reserves for the Years Ended December 31, 2017, 20182020, 2021 and 20192022
Reserves deducted in the balance sheet from the assets to which they apply (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Year | | Additions / (Reversals) Charged to Costs and Expenses | | Deductions | | | Balance at End of Year |
Allowances for doubtful accounts receivable: | | | | | |
Year 2020(a) | | $ | 8.0 | | | $ | 4.0 | | | $ | (1.4) | | | | $ | 10.6 | |
Year 2021 | | $ | 10.6 | | | $ | 2.0 | | | $ | (2.0) | | | | $ | 10.6 | |
Year 2022 | | $ | 10.6 | | | $ | 7.2 | | | $ | (3.5) | | | | $ | 14.3 | |
Allowance for credit memos, returns and cash discounts: | | | | | |
Year 2020 | | $ | 33.5 | | | $ | 267.9 | | | $ | (269.5) | | | | $ | 31.9 | |
Year 2021 | | $ | 31.9 | | | $ | 296.5 | | | $ | (293.7) | | | | $ | 34.7 | |
Year 2022 | | $ | 34.7 | | | $ | 365.1 | | | $ | (355.7) | | | | $ | 44.1 | |
Valuation allowance on deferred tax assets: | | | | | |
Year 2020 | | $ | 25.9 | | | $ | 3.6 | | | $ | — | | | | $ | 29.5 | |
Year 2021 | | $ | 29.5 | | | $ | 3.1 | | | $ | — | | | | $ | 32.6 | |
Year 2022 | | $ | 32.6 | | | $ | (0.4) | | | $ | — | | | | $ | 32.2 | |
(a) The cumulative effect of the adoption of ASC 326 resulted in a $1.2 million increase to the opening balance.
|
| | | | | | | | | | | | | | | | | | | | |
| | Balance at Beginning of Year | | Additions / (Reversals) Charged to Costs and Expenses | | Deductions | | Acquisitions | | Balance at End of Year |
Allowances for doubtful accounts receivable: | | |
| | | | |
|
Year 2017 | | $ | 4.7 |
| | $ | 1.5 |
| | $ | (3.5 | ) | | $ | 1.9 |
| | $ | 4.6 |
|
Year 2018 | | $ | 4.6 |
| | $ | — |
| | $ | (1.4 | ) | | $ | 1.6 |
| | $ | 4.8 |
|
Year 2019 | | $ | 4.8 |
| | $ | 3.4 |
| | $ | (0.5 | ) | | $ | — |
| | $ | 7.7 |
|
Allowance for credit memos, returns and cash discounts: | | |
| | | | |
|
Year 2017 | | $ | 45.9 |
| | $ | 260.8 |
| | $ | (256.3 | ) | | $ | 0.1 |
| | $ | 50.5 |
|
Year 2018 | | $ | 50.5 |
| | $ | 278.0 |
| | $ | (293.5 | ) | | $ | 0.1 |
| | $ | 35.1 |
|
Year 2019 | | $ | 35.1 |
| | $ | 299.1 |
| | $ | (298.2 | ) | | $ | — |
| | $ | 36.0 |
|
Valuation allowance on deferred tax assets: | | |
| | | | |
|
Year 2017 | | $ | 22.6 |
| | $ | (3.2 | ) | | $ | — |
| | $ | — |
| | $ | 19.4 |
|
Year 2018 | | $ | 19.4 |
| | $ | 0.7 |
| | $ | — |
| | $ | 1.7 |
| | $ | 21.8 |
|
Year 2019 | | $ | 21.8 |
| | $ | 7.2 |
| | $ | — |
| | $ | — |
| | $ | 29.0 |
|
|
| | | | |
HUBBELL INCORPORATED - Form 10-K | 9598 |