Notes to Condensed Consolidated Financial Statements (unaudited)
NOTE 1 Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements of Hubbell Incorporated (“Hubbell”, the “Company”, “registrant”, “we”, “our” or “us”, which references include its divisions and subsidiaries) have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by United States of America (“U.S.”) GAAP for audited financial statements. In the opinion of management, all adjustments consisting only of normal recurring adjustments considered necessary for a fair statement of the results of the periods presented have been included. Operating results for the six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2021.
Effective January 1, 2021 the Company consolidated the three business groups within its Electrical segment and renamed the segment as Hubbell Electrical Solutions ("Electrical Solutions"). The Electrical Solutions segment unites businesses with similar operating models, products, and go to market strategies under one operating banner and common leadership to drive synergies and long-term growth opportunities.
Also effective January 1, 2021, the Company moved its Hubbell Gas Connectors and Accessories business from the Electrical Solutions segment to the Utility Solutions segment to create synergies with the existing gas products already offered within the Utility Solutions segment and to better serve its utility customers. The information provided in the Condensed Consolidated Financial Statements and the related notes reflects the impact of this change for all periods presented.
The balance sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Hubbell Incorporated Annual Report on Form 10-K for the year ended December 31, 2020.
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 and 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.
Recently Adopted Accounting Pronouncements
No accounting standards were adopted during the six months ended June 30, 2021 that had a material impact on the Company's consolidated financial position, results of operations, or cash flows.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting", which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are effective for all entities beginning on March 12, 2020 through December 31, 2022. The Company may elect to apply the amendments prospectively through December 31, 2022. The Company has not adopted this ASU as of June 30, 2021. The Company is currently assessing the impact of adopting this standard on its financial statements and the timing of adoption.
HUBBELL INCORPORATED-Form 10-Q 7
NOTE 2 Revenue
The Company recognizes revenue when performance obligations identified under the terms of contracts with its customers are satisfied, which generally occurs, for products, upon the transfer of control in accordance with the contractual terms and conditions of the sale. The majority of the Company’s revenue associated with products is recognized at a point in time when the product is shipped to the customer, with a relatively small amount of transactions primarily in the Utility Solutions segment recognized upon delivery of the product at the destination. Revenue from service contracts and post-shipment performance obligations are approximately three percent of total annual consolidated net revenue and those service contracts and post-shipment obligations are primarily within the Utility Solutions segment. Revenue from service contracts and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and on occasion will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue.
Within the Electrical Solutions segment, certain businesses require a portion of the transaction price to be paid in advance of transfer of control. Advance payments are not considered a significant financing component as they are received less than one year before the related performance obligations are satisfied. In addition, in the Utility Solutions segment, certain businesses offer annual maintenance service contracts that require payment at the beginning of the contract period. These payments are treated as a contract liability and are classified in Other accrued liabilities in the Condensed Consolidated Balance Sheets. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Condensed Consolidated Statements of Income. The deferred revenue relating to the annual maintenance service contracts is recognized in the Condensed Consolidated Statements of Income on a straight-line basis over the expected term of the contract.
The following table presents disaggregated revenue by business group. Prior period amounts have been reclassified to conform to our organizational changes as described in Note 1 - Basis of Presentation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|
in millions
|
2021
|
2020
|
2021
|
2020
|
|
Net sales
|
|
|
|
|
|
Commercial and Industrial
|
$
|
423.6
|
|
$
|
312.5
|
|
$
|
802.1
|
|
$
|
693.5
|
|
|
Heavy Industrial
|
85.8
|
|
67.2
|
|
162.1
|
|
153.5
|
|
|
Residential and Retail
|
93.5
|
|
89.7
|
|
184.9
|
|
186.1
|
|
|
Total Electrical Solutions
|
$
|
602.9
|
|
$
|
469.4
|
|
$
|
1,149.1
|
|
$
|
1,033.1
|
|
|
Utility T&D Components
|
421.3
|
|
337.5
|
|
796.2
|
|
692.4
|
|
|
Utility Communications and Controls
|
167.6
|
|
142.3
|
|
324.9
|
|
314.0
|
|
|
Total Utility Solutions
|
$
|
588.9
|
|
$
|
479.8
|
|
$
|
1,121.1
|
|
$
|
1,006.4
|
|
|
TOTAL
|
$
|
1,191.8
|
|
$
|
949.2
|
|
$
|
2,270.2
|
|
$
|
2,039.5
|
|
|
HUBBELL INCORPORATED-Form 10-Q 8
The following table presents disaggregated revenue by geographic location (on a geographic basis, the Company defines "international" as operations based outside of the United States and its possessions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|
in millions
|
2021
|
2020
|
2021
|
2020
|
|
|
Net sales
|
|
|
|
|
|
|
United States
|
$
|
534.0
|
|
$
|
424.2
|
|
$
|
1,022.0
|
|
$
|
931.5
|
|
|
|
International
|
68.9
|
|
45.2
|
|
127.1
|
|
101.6
|
|
|
|
Total Electrical Solutions
|
$
|
602.9
|
|
$
|
469.4
|
|
$
|
1,149.1
|
|
$
|
1,033.1
|
|
|
|
United States
|
560.3
|
|
456.5
|
|
1,061.7
|
|
954.4
|
|
|
|
International
|
28.6
|
|
23.3
|
|
59.4
|
|
52.0
|
|
|
|
Total Utility Solutions
|
$
|
588.9
|
|
$
|
479.8
|
|
$
|
1,121.1
|
|
$
|
1,006.4
|
|
|
|
TOTAL
|
$
|
1,191.8
|
|
$
|
949.2
|
|
$
|
2,270.2
|
|
$
|
2,039.5
|
|
|
|
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 Condensed Consolidated Balance Sheets.
Contract liabilities were $14.5 million as of June 30, 2021 compared to $30.9 million as of December 31, 2020. The $16.4 million decrease in our contract liabilities balance was primarily due to the recognition of $25.8 million in revenue related to amounts that were recorded in contract liabilities at January 1, 2021 and a $1.5 million decline in contract liabilities relating to the disposition of a business, partially offset by a $10.9 million net increase in current year deferrals primarily due to timing of advance payments on certain orders. The Company has an immaterial amount of contract assets relating to performance obligations satisfied prior to payment that is recorded in Other long-term assets in the Condensed Consolidated Balance Sheets. Impairment losses recognized on our receivables and contract assets were immaterial for the three and six months ended June 30, 2021.
Unsatisfied Performance Obligations
As of June 30, 2021, the Company had approximately $430 million of unsatisfied performance obligations for contracts with an original expected length of greater than one year, primarily relating to long-term contracts of the Utility Solutions segment to deliver and install meters, metering communications and grid monitoring sensor technology. The Company expects that a majority of the unsatisfied performance obligations will be completed and recognized over the next three years.
HUBBELL INCORPORATED-Form 10-Q 9
NOTE 3 Segment Information
The Company's reporting segments consist of the Electrical Solutions segment and the Utility Solutions segment. Effective January 1, 2021, the Company moved its Hubbell Gas Connectors and Accessories business, from the Electrical Solutions segment to the Utility Solutions segment, consolidated the former three business groups within its Electrical segment and renamed the segment as Hubbell Electrical Solutions ("Electrical Solutions"). The Hubbell Gas Connectors and Accessories business has been moved to Utility Solutions to create synergies with the existing gas products already offered within the Utility Solutions segment and to better serve its utility customers. Comparable prior period segment results have been re-cast to reflect this change. The consolidation of business groups within the Electrical Solutions segment unites businesses with similar operating models, products, and go to market strategies under one operating banner and common leadership to drive synergies and long-term growth opportunities.
The Electrical Solutions segment comprises businesses that sell stock and custom products including standard and special application wiring device products, rough-in electrical products, connector and grounding products, lighting fixtures and controls, and other electrical equipment. The products are typically used in and around industrial, commercial and institutional facilities by electrical contractors, maintenance personnel, electricians, utilities, and telecommunications companies. In addition, certain of our businesses design and manufacture industrial controls and communication systems used in the non-residential and industrial markets. Many of these products are designed such that they can also be used in harsh and hazardous locations where a potential for fire and explosion exists due to the presence of flammable gasses and vapors. Harsh and hazardous products are primarily used in the oil and gas (onshore and offshore) and mining industries. There are also a variety of 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 primarily sold through electrical and industrial distributors, home centers, retail and hardware outlets, lighting showrooms and residential product-oriented internet sites. Special application products are primarily sold through wholesale distributors to contractors, industrial customers and OEMs.
The Utility Solutions segment consists of businesses that design and manufacture various distribution, transmission, substation and telecommunications products primarily used by the electric, water, gas, and telecommunication utility industries. These offerings include advanced metering infrastructure, meter and edge devices, software and infrastructure services, which are primarily sold to the electric, water, and gas utility industries, as well as components and assemblies for the natural gas distribution market. 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, industrial firms, construction and engineering firms.
The following table sets forth financial information by business segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
Operating Income
|
Operating Income as a % of Net Sales
|
|
2021
|
2020
|
2021
|
2020
|
2021
|
2020
|
Three Months Ended June 30,
|
|
|
|
|
|
|
Electrical Solutions
|
$
|
602.9
|
|
$
|
469.4
|
|
$
|
76.3
|
|
$
|
52.8
|
|
12.7
|
%
|
11.2
|
%
|
Utility Solutions
|
588.9
|
|
479.8
|
|
76.4
|
|
78.7
|
|
13.0
|
%
|
16.4
|
%
|
TOTAL
|
$
|
1,191.8
|
|
$
|
949.2
|
|
$
|
152.7
|
|
$
|
131.5
|
|
12.8
|
%
|
13.9
|
%
|
Six Months Ended June 30,
|
|
|
|
|
|
|
Electrical Solutions
|
$
|
1,149.1
|
|
$
|
1,033.1
|
|
$
|
129.3
|
|
$
|
105.2
|
|
11.3
|
%
|
10.2
|
%
|
Utility Solutions
|
1,121.1
|
|
1,006.4
|
|
141.0
|
|
145.1
|
|
12.6
|
%
|
14.4
|
%
|
TOTAL
|
$
|
2,270.2
|
|
$
|
2,039.5
|
|
$
|
270.3
|
|
$
|
250.3
|
|
11.9
|
%
|
12.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUBBELL INCORPORATED-Form 10-Q 10
NOTE 4 Inventories, net
Inventories, net consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
December 31, 2020
|
Raw material
|
$
|
236.0
|
|
$
|
219.5
|
|
Work-in-process
|
120.5
|
|
108.3
|
|
Finished goods
|
369.2
|
|
366.8
|
|
Subtotal
|
725.7
|
|
694.6
|
|
Excess of FIFO over LIFO cost basis
|
(87.4)
|
|
(87.3)
|
|
TOTAL
|
$
|
638.3
|
|
$
|
607.3
|
|
HUBBELL INCORPORATED-Form 10-Q 11
NOTE 5 Goodwill and Other Intangible Assets, net
Changes in the carrying values of goodwill for the six months ended June 30, 2021, were as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
|
|
|
Electrical Solutions
|
Utility Solutions
|
Total
|
BALANCE DECEMBER 31, 2020
|
$
|
663.9
|
|
$
|
1,259.4
|
|
$
|
1,923.3
|
|
Prior year acquisitions
|
—
|
|
1.8
|
|
1.8
|
|
Current year dispositions
|
—
|
|
(1.9)
|
|
(1.9)
|
|
Foreign currency translation
|
0.6
|
|
(0.9)
|
|
(0.3)
|
|
BALANCE JUNE 30, 2021
|
$
|
664.5
|
|
$
|
1,258.4
|
|
$
|
1,922.9
|
|
In June of 2021, the Company completed the sale of the Consumer Analytics Solutions business for $9.8 million. The Consumer Analytics Solutions business was part of Aclara and was previously included in the Utility Solutions segment. Upon disposition, the Consumer Analytics Solutions business had assets of $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 comprised of deferred revenue). As a result of the sale of the Consumer Analytics Solutions business, we recognized a pre-tax loss of $6.8 million that is included in Total other expense in the Condensed Consolidated Statements of Income.
The carrying value of other intangible assets included in Other intangible assets, net in the Condensed Consolidated Balance Sheets is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
December 31, 2020
|
|
Gross Amount
|
Accumulated
Amortization
|
Gross Amount
|
Accumulated
Amortization
|
Definite-lived:
|
|
|
|
|
Patents, tradenames and trademarks
|
$
|
213.3
|
|
$
|
(78.6)
|
|
$
|
213.4
|
|
$
|
(73.8)
|
|
Customer relationships, developed technology and other
|
942.9
|
|
(373.1)
|
|
958.0
|
|
(340.6)
|
|
TOTAL DEFINITE-LIVED INTANGIBLES
|
$
|
1,156.2
|
|
$
|
(451.7)
|
|
$
|
1,171.4
|
|
$
|
(414.4)
|
|
Indefinite-lived:
|
|
|
|
|
Tradenames and other
|
53.8
|
|
—
|
|
53.6
|
|
—
|
|
TOTAL OTHER INTANGIBLE ASSETS
|
$
|
1,210.0
|
|
$
|
(451.7)
|
|
$
|
1,225.0
|
|
$
|
(414.4)
|
|
Amortization expense associated with definite-lived intangible assets was $19.9 million and $18.6 million during the three months ended June 30, 2021 and 2020, respectively, and $40.7 million and $37.7 million during the six months ended June 30, 2021 and 2020, respectively. Future amortization expense associated with these intangible assets is estimated to be $39.1 million for the remainder of 2021, $73.1 million in 2022, $68.4 million in 2023, $63.5 million in 2024, $58.9 million in 2025, and $55.2 million in 2026. 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 76% of the gross value of definite-lived intangible assets follow an accelerated amortization method.
The Company completed its annual goodwill impairment test as of April 1, 2021. The Company applied the "Step-zero" test to one of its five reporting units, which allows the Company to first assess qualitative factors to determine whether it is more likely than not that a reporting unit's fair value is greater than its carrying amount. 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 four 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. If the estimated fair value of a 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 judgment is required to estimate the fair value of reporting units including 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. The Company uses 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.
HUBBELL INCORPORATED-Form 10-Q 12
Significant changes in these estimates and assumptions could affect the determination of fair value and/or goodwill impairment for each reporting unit.
As of April 1, 2021, the impairment testing resulted in implied fair values for each reporting unit that exceeded such reporting unit's carrying value, including goodwill. The Company did not have any reporting units at risk of failing the quantitative impairment test as the excess of the implied fair value significantly 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 performs its impairment assessment of indefinite-lived intangible assets as of April 1st of each year, unless circumstances dictate the need for more frequent assessments. For the 2021 test, the Company elected to utilize the quantitative impairment testing process as permitted in the accounting guidance, by comparing the fair value of the indefinite-lived intangible assets to their carrying values. If the fair value of the indefinite-lived intangible assets exceeds their carrying value, no impairment exists. 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, 2021, 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.
HUBBELL INCORPORATED-Form 10-Q 13
NOTE 6 Other Accrued Liabilities
Other accrued liabilities consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
December 31, 2020
|
Customer program incentives
|
$
|
42.5
|
|
$
|
40.7
|
|
Accrued income taxes
|
5.8
|
|
4.6
|
|
Contract liabilities - deferred revenue
|
14.5
|
|
30.9
|
|
Customer refund liability
|
17.6
|
|
17.4
|
|
Accrued warranties(1)
|
24.0
|
|
28.7
|
|
Current operating lease liabilities
|
29.8
|
|
32.1
|
|
Other
|
106.5
|
|
99.6
|
|
TOTAL
|
$
|
240.7
|
|
$
|
254.0
|
|
(1) Refer to Note 21 - Guarantees, in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information regarding warranties.
NOTE 7 Other Non-Current Liabilities
Other non-current liabilities consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
June 30, 2021
|
December 31, 2020
|
Pensions
|
$
|
190.3
|
|
$
|
199.0
|
|
Other post-retirement benefits
|
21.2
|
|
21.2
|
|
Deferred tax liabilities
|
142.8
|
|
135.3
|
|
Accrued warranties long-term(1)
|
51.5
|
|
51.8
|
|
Non-current operating lease liabilities
|
66.6
|
|
74.9
|
|
Other
|
125.9
|
|
132.4
|
|
TOTAL
|
$
|
598.3
|
|
$
|
614.6
|
|
(1) Refer to Note 21 - Guarantees, in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information regarding warranties.
HUBBELL INCORPORATED-Form 10-Q 14
NOTE 8 Total Equity
A summary of changes in total equity for the three and six months ended June 30, 2021 and the three and six months ended June 30, 2020 is provided below (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Total Hubbell
Shareholders'
Equity
|
Non-
controlling
interest
|
BALANCE AT DECEMBER 31, 2020
|
$
|
0.6
|
|
$
|
4.9
|
|
$
|
2,393.7
|
|
$
|
(329.2)
|
|
$
|
2,070.0
|
|
$
|
15.4
|
|
Net income
|
—
|
|
—
|
|
77.7
|
|
—
|
|
77.7
|
|
1.4
|
|
Other comprehensive (loss) income
|
—
|
|
—
|
|
—
|
|
(4.6)
|
|
(4.6)
|
|
—
|
|
Stock-based compensation
|
—
|
|
9.5
|
|
—
|
|
—
|
|
9.5
|
|
—
|
|
|
|
|
|
|
|
|
Acquisition/surrender of common shares(1)
|
—
|
|
(14.0)
|
|
(2.7)
|
|
—
|
|
(16.7)
|
|
—
|
|
Cash dividends declared ($0.98 per share)
|
—
|
|
—
|
|
(53.3)
|
|
—
|
|
(53.3)
|
|
—
|
|
Dividends to noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(1.5)
|
|
|
|
|
|
|
|
|
Directors deferred compensation
|
—
|
|
0.1
|
|
—
|
|
—
|
|
0.1
|
|
—
|
|
|
|
|
|
|
|
|
BALANCE AT MARCH 31, 2021
|
$
|
0.6
|
|
$
|
0.5
|
|
$
|
2,415.4
|
|
$
|
(333.8)
|
|
$
|
2,082.7
|
|
$
|
15.3
|
|
Net income
|
—
|
|
—
|
|
95.8
|
|
—
|
|
95.8
|
|
0.8
|
|
Other comprehensive (loss) income
|
—
|
|
—
|
|
—
|
|
11.6
|
|
11.6
|
|
—
|
|
Stock-based compensation
|
—
|
|
3.9
|
|
—
|
|
—
|
|
3.9
|
|
—
|
|
Acquisition/surrender of common shares(1)
|
—
|
|
(4.5)
|
|
(10.5)
|
|
—
|
|
(15.0)
|
|
—
|
|
Cash dividends declared ($0.98 per share)
|
—
|
|
—
|
|
(53.4)
|
|
—
|
|
(53.4)
|
|
—
|
|
Dividends to noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.9)
|
|
Directors deferred compensation
|
—
|
|
0.1
|
|
—
|
|
—
|
|
0.1
|
|
—
|
|
|
|
|
|
|
|
|
BALANCE AT JUNE 30, 2021
|
$
|
0.6
|
|
$
|
—
|
|
$
|
2,447.3
|
|
$
|
(322.2)
|
|
$
|
2,125.7
|
|
$
|
15.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HUBBELL INCORPORATED-Form 10-Q 15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
—
|
|
—
|
|
75.0
|
|
—
|
|
75.0
|
|
0.7
|
|
Other comprehensive (loss) income
|
—
|
|
—
|
|
—
|
|
(22.4)
|
|
(22.4)
|
|
—
|
|
Stock-based compensation
|
—
|
|
11.6
|
|
—
|
|
—
|
|
11.6
|
|
—
|
|
Acquisition/surrender of common shares(1)
|
—
|
|
(10.4)
|
|
(34.1)
|
|
—
|
|
(44.5)
|
|
—
|
|
Cash dividends declared ($0.91 per share)
|
—
|
|
—
|
|
(49.7)
|
|
—
|
|
(49.7)
|
|
—
|
|
Dividends to noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.5)
|
|
Directors deferred compensation
|
—
|
|
(1.2)
|
|
—
|
|
—
|
|
(1.2)
|
|
—
|
|
Cumulative effect from adoption of CECL accounting standard
|
—
|
|
—
|
|
(1.0)
|
|
—
|
|
(1.0)
|
|
—
|
|
BALANCE AT MARCH 31, 2020
|
$
|
0.6
|
|
$
|
—
|
|
$
|
2,269.6
|
|
$
|
(355.3)
|
|
$
|
1,914.9
|
|
$
|
13.6
|
|
Net income
|
—
|
|
—
|
|
88.2
|
|
—
|
|
88.2
|
|
0.9
|
|
Other comprehensive (loss) income
|
—
|
|
—
|
|
—
|
|
3.4
|
|
3.4
|
|
—
|
|
Stock-based compensation
|
—
|
|
4.3
|
|
—
|
|
—
|
|
4.3
|
|
—
|
|
Acquisition/surrender of common shares(1)
|
—
|
|
(1.6)
|
|
—
|
|
—
|
|
(1.6)
|
|
—
|
|
Cash dividends declared ($0.91 per share)
|
—
|
|
—
|
|
(49.4)
|
|
—
|
|
(49.4)
|
|
—
|
|
Dividends to noncontrolling interest
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
(0.9)
|
|
Directors deferred compensation
|
—
|
|
0.1
|
|
—
|
|
—
|
|
0.1
|
|
—
|
|
BALANCE AT JUNE 30, 2020
|
$
|
0.6
|
|
$
|
2.8
|
|
$
|
2,308.4
|
|
$
|
(351.9)
|
|
$
|
1,959.9
|
|
$
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 $13.2 million and $34.1 million in the first six months of 2021 and 2020, respectively, reflects this accounting treatment.
The detailed components of total comprehensive income are presented in the Condensed Consolidated Statements of Comprehensive Income.
HUBBELL INCORPORATED-Form 10-Q 16
NOTE 9 Accumulated Other Comprehensive Loss
A summary of the changes in Accumulated other comprehensive loss (net of tax) for the six months ended June 30, 2021 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, 2020
|
$
|
(0.7)
|
|
$
|
1.0
|
|
$
|
(212.0)
|
|
$
|
(117.5)
|
|
$
|
(329.2)
|
|
Other comprehensive income (loss) before reclassifications
|
(0.5)
|
|
(0.1)
|
|
—
|
|
2.7
|
|
2.1
|
|
Amounts reclassified from accumulated other comprehensive loss
|
0.8
|
|
—
|
|
4.1
|
|
—
|
|
4.9
|
|
Current period other comprehensive income (loss)
|
0.3
|
|
(0.1)
|
|
4.1
|
|
2.7
|
|
7.0
|
|
BALANCE AT JUNE 30, 2021
|
$
|
(0.4)
|
|
$
|
0.9
|
|
$
|
(207.9)
|
|
$
|
(114.8)
|
|
$
|
(322.2)
|
|
A summary of the gain (loss) reclassifications out of Accumulated other comprehensive loss for the three and six months ended June 30, 2021 and 2020 is provided below (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
Details about Accumulated Other
Comprehensive Loss Components
|
2021
|
2020
|
|
2021
|
2020
|
Location of Gain (Loss) Reclassified into Income
|
Cash flow hedges gain (loss):
|
|
|
|
|
|
|
Forward exchange contracts
|
$
|
—
|
|
$
|
0.2
|
|
|
$
|
(0.1)
|
|
$
|
0.3
|
|
Net sales
|
|
(0.5)
|
|
0.3
|
|
|
(0.8)
|
|
0.5
|
|
Cost of goods sold
|
|
(0.2)
|
|
—
|
|
(0.2)
|
|
—
|
|
Other expense, net
|
|
(0.7)
|
|
0.5
|
|
|
(1.1)
|
|
0.8
|
|
Total before tax
|
|
0.2
|
|
(0.1)
|
|
|
0.3
|
|
(0.2)
|
|
Tax benefit (expense)
|
|
$
|
(0.5)
|
|
$
|
0.4
|
|
|
$
|
(0.8)
|
|
$
|
0.6
|
|
Gain (loss) net of tax
|
Amortization of defined benefit pension and post retirement benefit items:
|
|
|
|
|
|
|
Prior-service costs (a)
|
$
|
(0.1)
|
|
$
|
—
|
|
|
$
|
(0.1)
|
|
$
|
0.1
|
|
|
Actuarial gains/(losses) (a)
|
(2.7)
|
|
(2.3)
|
|
|
(5.4)
|
|
(4.7)
|
|
|
|
|
|
|
|
|
|
|
(2.8)
|
|
(2.3)
|
|
|
(5.5)
|
|
(4.6)
|
|
Total before tax
|
|
0.7
|
|
0.5
|
|
|
1.4
|
|
1.1
|
|
Tax benefit (expense)
|
|
$
|
(2.1)
|
|
$
|
(1.8)
|
|
|
$
|
(4.1)
|
|
$
|
(3.5)
|
|
Gain (loss) net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) reclassified into earnings
|
$
|
(2.6)
|
|
$
|
(1.4)
|
|
|
$
|
(4.9)
|
|
$
|
(2.9)
|
|
|
(a) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 11 - Pension and Other Benefits in the Notes to Condensed Consolidated Financial Statements for additional details).
HUBBELL INCORPORATED-Form 10-Q 17
NOTE 10 Earnings Per Share
The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities. Service-based and performance-based restricted stock awards granted by the Company are considered participating securities as these awards contain a non-forfeitable right to dividends.
The following table sets forth the computation of earnings per share for the three and six months ended June 30, 2021 and 2020 (in millions, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|
2021
|
2020
|
2021
|
2020
|
Numerator:
|
|
|
|
|
Net income attributable to Hubbell Incorporated
|
$
|
95.8
|
|
$
|
88.2
|
|
$
|
173.5
|
|
$
|
163.2
|
|
Less: Earnings allocated to participating securities
|
(0.3)
|
|
(0.3)
|
|
(0.6)
|
|
(0.6)
|
|
Net income available to common shareholders
|
$
|
95.5
|
|
$
|
87.9
|
|
$
|
172.9
|
|
$
|
162.6
|
|
Denominator:
|
|
|
|
|
Average number of common shares outstanding
|
54.3
|
|
54.1
|
|
54.3
|
|
54.2
|
|
Potential dilutive common shares
|
0.4
|
|
0.2
|
|
0.4
|
|
0.2
|
|
Average number of diluted shares outstanding
|
54.7
|
|
54.3
|
|
54.7
|
|
54.4
|
|
Earnings per share:
|
|
|
|
|
Basic
|
$
|
1.76
|
|
$
|
1.62
|
|
$
|
3.19
|
|
$
|
3.00
|
|
Diluted
|
$
|
1.74
|
|
$
|
1.62
|
|
$
|
3.16
|
|
$
|
2.99
|
|
The Company did not have any significant anti-dilutive securities outstanding during the three and six months ended June 30, 2021 and 2020.
HUBBELL INCORPORATED-Form 10-Q 18
NOTE 11 Pension and Other Benefits
The following table sets forth the components of net pension and other benefit costs for the three and six months ended June 30, 2021 and 2020 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
Other Benefits
|
|
2021
|
2020
|
2021
|
2020
|
Three Months Ended June 30,
|
|
|
|
|
Service cost
|
$
|
0.3
|
|
$
|
0.2
|
|
$
|
—
|
|
$
|
—
|
|
Interest cost
|
6.0
|
|
7.2
|
|
0.2
|
|
0.2
|
|
Expected return on plan assets
|
(9.2)
|
|
(8.4)
|
|
—
|
|
—
|
|
Amortization of prior service cost
|
0.1
|
|
0.1
|
|
—
|
|
(0.1)
|
|
Amortization of actuarial losses
|
2.7
|
|
2.3
|
|
—
|
|
—
|
|
|
|
|
|
|
NET PERIODIC BENEFIT COST
|
$
|
(0.1)
|
|
$
|
1.4
|
|
$
|
0.2
|
|
$
|
0.1
|
|
Six Months Ended June 30,
|
|
|
|
|
Service cost
|
$
|
0.5
|
|
$
|
0.5
|
|
$
|
—
|
|
$
|
—
|
|
Interest cost
|
12.0
|
|
14.4
|
|
0.3
|
|
0.4
|
|
Expected return on plan assets
|
(18.3)
|
|
(16.9)
|
|
—
|
|
—
|
|
Amortization of prior service cost
|
0.1
|
|
0.1
|
|
—
|
|
(0.2)
|
|
Amortization of actuarial losses
|
5.4
|
|
4.7
|
|
—
|
|
—
|
|
|
|
|
|
|
NET PERIODIC BENEFIT COST
|
$
|
(0.3)
|
|
$
|
2.8
|
|
$
|
0.3
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer Contributions
The Company has made no material required contributions to its foreign pension plans during 2021. As of June 30, 2021 the Company has contributed $0.1 million. Although not required by ERISA and the Internal Revenue Code, the Company may elect to make an additional voluntary contribution to its qualified domestic defined benefit pension plan in 2021. Additionally, we anticipate making cash payments of $5.0 million due in 2021, related to the previously disclosed settlement agreement with a multi-employer pension plan.
HUBBELL INCORPORATED-Form 10-Q 19
NOTE 12 Guarantees
The Company records a liability equal to the fair value of guarantees in accordance with the accounting guidance for guarantees. When it is probable that a liability has been incurred and the amount can be reasonably estimated, the Company accrues for costs associated with guarantees. The most likely costs to be incurred are accrued based on an evaluation of currently available facts and, where no amount within a range of estimates is more likely, the minimum is accrued. As of June 30, 2021 and December 31, 2020, the fair value and maximum potential payment related to the Company’s guarantees were not material.
The Company offers product warranties that cover defects on most of its products. These warranties primarily apply to products that are properly installed, maintained and used for their intended purpose. The Company accrues estimated warranty costs at the time of sale. Estimated warranty expenses, recorded in cost of goods sold, are based upon historical information such as past experience, product failure rates, or the estimated number of units to be repaired or replaced. Adjustments are made to the product warranty accrual as claims are incurred, additional information becomes known, or as historical experience indicates.
Changes in the accrual for product warranties during the six months ended June 30, 2021 and 2020 are set forth below (in millions):
|
|
|
|
|
|
|
|
|
|
2021
|
2020
|
BALANCE AT JANUARY 1, (a)
|
$
|
80.5
|
|
$
|
82.1
|
|
Provision
|
5.8
|
|
7.5
|
|
Expenditures/payments/other
|
(10.8)
|
|
(7.6)
|
|
BALANCE AT JUNE 30, (a)
|
$
|
75.5
|
|
$
|
82.0
|
|
(a) Refer to Note 6 – Other Accrued Liabilities and Note 7 – Other Non-Current Liabilities for a breakout of short-term and long-term warranties.
HUBBELL INCORPORATED-Form 10-Q 20
NOTE 13 Fair Value Measurement
Financial Instruments
Financial instruments which potentially subject the Company to significant concentrations of credit loss risk consist of trade receivables, cash equivalents and investments. The Company grants credit terms in the normal course of business to its customers. Due to the diversity of its product lines, the Company has an extensive customer base including electrical distributors and wholesalers, electric utilities, equipment manufacturers, electrical contractors, telecommunication companies and retail and hardware outlets. As part of its ongoing procedures, the Company monitors the credit worthiness of its customers. Bad debt write-offs have historically been minimal. The Company places its cash and cash equivalents with financial institutions and limits the amount of exposure in any one institution.
At June 30, 2021 our accounts receivable balance was $762.3 million, net of allowances of $11.8 million. During the six months ended June 30, 2021 our allowances decreased approximately $0.7 million. The decrease is primarily the result of the improvement in general economic conditions.
Investments
At June 30, 2021 and December 31, 2020, the Company had $58.5 million and $57.7 million, respectively, of available-for-sale municipal debt securities. These investments had an amortized cost of $57.4 million and $56.4 million, respectively. No allowance for credit losses related to our available-for-sale debt securities was recorded for the six months ended June 30, 2021. As of June 30, 2021 and December 31, 2020 the unrealized losses attributable to our available-for-sale debt securities was $0.1 million. The fair value of available-for-sale debt securities with unrealized losses was $5.8 million at June 30, 2021 and $6.1 million at December 31, 2020.
The Company also had trading securities of $23.8 million at June 30, 2021 and $22.7 million at December 31, 2020 that are carried on the balance sheet at fair value. Unrealized gains and losses associated with available-for-sale debt securities are reflected in Accumulated other comprehensive loss, net of tax, while unrealized gains and losses associated with trading securities are reflected in the results of operations.
Fair value measurements
Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The FASB fair value measurement guidance established a fair value hierarchy that prioritizes the inputs used to measure fair value. The three broad levels of the fair value hierarchy are as follows:
Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 – Quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly.
Level 3 – Unobservable inputs for which little or no market data exists, therefore requiring a company to develop its own assumptions.
HUBBELL INCORPORATED-Form 10-Q 21
The following table shows, by level within the fair value hierarchy, our financial assets and liabilities that are accounted for at fair value on a recurring basis at June 30, 2021 and December 31, 2020 (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
|
June 30, 2021
|
|
|
|
|
Money market funds(a)
|
$
|
41.5
|
|
$
|
—
|
|
$
|
—
|
|
$
|
41.5
|
|
|
|
|
|
|
Available for sale investments
|
—
|
|
58.5
|
|
—
|
|
58.5
|
|
Trading securities
|
23.8
|
|
—
|
|
—
|
|
23.8
|
|
Deferred compensation plan liabilities
|
(23.8)
|
|
—
|
|
—
|
|
(23.8)
|
|
Derivatives:
|
|
|
|
|
Forward exchange contracts-Assets(b)
|
—
|
|
0.1
|
|
—
|
|
0.1
|
|
Forward exchange contracts-(Liabilities)(c)
|
—
|
|
(0.6)
|
|
—
|
|
(0.6)
|
|
TOTAL
|
$
|
41.5
|
|
$
|
58.0
|
|
$
|
—
|
|
$
|
99.5
|
|
|
|
|
|
|
Asset (Liability)
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Quoted Prices in
Active Markets for
Similar Assets
(Level 2)
|
Unobservable inputs
for which little or no
market data exists
(Level 3)
|
Total
|
December 31, 2020
|
|
|
|
|
Money market funds(a)
|
$
|
26.6
|
|
$
|
—
|
|
$
|
—
|
|
$
|
26.6
|
|
|
|
|
|
|
Available for sale investments
|
—
|
|
57.7
|
|
—
|
|
57.7
|
|
Trading securities
|
22.7
|
|
—
|
|
—
|
|
22.7
|
|
Deferred compensation plan liabilities
|
(22.7)
|
|
—
|
|
—
|
|
(22.7)
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
Forward exchange contracts-(Liabilities)(c)
|
—
|
|
(0.8)
|
|
—
|
|
(0.8)
|
|
TOTAL
|
$
|
26.6
|
|
$
|
56.9
|
|
$
|
—
|
|
$
|
83.5
|
|
(a) Money market funds are reflected in Cash and cash equivalents in the Condensed Consolidated Balance Sheets.
(b) Forward exchange contracts-Assets are reflected in Other current assets in the Condensed Consolidated Balance Sheets.
(c) Forward exchange contracts-(Liabilities) are reflected in Other accrued liabilities in the Condensed Consolidated Balance Sheets.
The methods and assumptions used to estimate the Level 2 fair values were as follows:
Forward exchange contracts – The fair value of forward exchange contracts was based on quoted forward foreign exchange prices at the reporting date.
Available-for-sale municipal bonds classified in Level 2 – The fair value of available-for-sale investments in municipal bonds is based on observable market-based inputs, other than quoted prices in active markets for identical assets.
Deferred compensation plans
The Company offers certain employees the opportunity to participate in non-qualified deferred compensation plans. A participant’s deferrals are invested in a variety of participant-directed debt and equity mutual funds that are classified as trading securities. The Company purchased $2.3 million and $2.5 million of trading securities related to these deferred compensation plans during the six months ended June 30, 2021 and 2020, respectively. As a result of participant distributions, the Company sold $3.0 million of these trading securities during the six months ended June 30, 2021 and $1.6 million during the six months ended June 30, 2020. 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 June 30, 2021 and December 31, 2020, the carrying value of long-term debt, net of unamortized discount and debt issuance costs, was $1,434.2 million and $1,436.9 million, respectively. The estimated fair value of the long-term debt as of June 30, 2021 and December 31, 2020 was $1,548.9 million and $1,569.5 million, respectively, using quoted market prices in active markets for similar liabilities (Level 2).
HUBBELL INCORPORATED-Form 10-Q 22
NOTE 14 Commitments and Contingencies
The Company is subject to various legal proceedings arising in the normal course of its business. These proceedings include claims for damages arising out of use of the Company’s products, intellectual property, workers’ compensation and environmental matters. The Company is self-insured up to specified limits for certain types of claims, including product liability and workers’ compensation, and is fully self-insured for certain other types of claims, including environmental and intellectual property matters. The Company recognizes a liability for any contingency that in management’s judgment is probable of occurrence and can be reasonably estimated. We continually reassess the likelihood of adverse judgments and outcomes in these matters, as well as estimated ranges of possible losses based upon an analysis of each matter which includes advice of outside legal counsel and, if applicable, other experts.
HUBBELL INCORPORATED-Form 10-Q 23
NOTE 15 Restructuring Costs and Other
In the three and six months ended June 30, 2021, we incurred costs for restructuring actions initiated in 2021 as well as costs for restructuring actions initiated in the prior years. Our restructuring actions are associated with cost reduction efforts that include the consolidation of manufacturing and distribution facilities as well as workforce reductions. Restructuring costs include severance and employee benefits, asset impairments, accelerated depreciation, as well as facility closure, contract termination and certain pension costs that are directly related to restructuring actions. These costs are predominantly settled in cash from our operating activities and are generally settled within one year, with the exception of asset impairments, which are non-cash.
Pre-tax restructuring costs incurred in each of our reporting segments and the location of the costs in the Condensed Consolidated Statements of Income for the three and six months ended June 30, 2021 and 2020 is as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
2021
|
2020
|
2021
|
2020
|
2021
|
2020
|
|
Cost of goods sold
|
Selling & administrative expense
|
Total
|
Electrical Solutions
|
$
|
0.8
|
|
$
|
2.6
|
|
$
|
0.3
|
|
$
|
1.5
|
|
$
|
1.1
|
|
$
|
4.1
|
|
Utility Solutions
|
0.3
|
|
1.4
|
|
0.1
|
|
0.2
|
|
0.4
|
|
1.6
|
|
Total Pre-Tax Restructuring Costs
|
$
|
1.1
|
|
$
|
4.0
|
|
$
|
0.4
|
|
$
|
1.7
|
|
$
|
1.5
|
|
$
|
5.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2021
|
2020
|
2021
|
2020
|
2021
|
2020
|
|
Cost of goods sold
|
Selling & administrative expense
|
Total
|
Electrical Solutions
|
$
|
1.3
|
|
$
|
2.7
|
|
$
|
0.1
|
|
$
|
1.9
|
|
$
|
1.4
|
|
$
|
4.6
|
|
Utility Solutions
|
0.6
|
|
4.3
|
|
0.1
|
|
0.3
|
|
0.7
|
|
4.6
|
|
Total Pre-Tax Restructuring Costs
|
$
|
1.9
|
|
$
|
7.0
|
|
$
|
0.2
|
|
$
|
2.2
|
|
$
|
2.1
|
|
$
|
9.2
|
|
The following table summarizes the accrued liabilities for our restructuring actions (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Accrued
Restructuring Balance 1/1/21
|
Pre-tax Restructuring Costs
|
Utilization and Foreign Exchange
|
Ending Accrued
Restructuring Balance 6/30/2021
|
2021 Restructuring Actions
|
|
|
|
|
Severance
|
$
|
—
|
|
$
|
0.3
|
|
$
|
(0.2)
|
|
$
|
0.1
|
|
Asset write-downs
|
—
|
|
—
|
|
—
|
|
—
|
|
Facility closure and other costs
|
—
|
|
—
|
|
—
|
|
—
|
|
Total 2021 Restructuring Actions
|
$
|
—
|
|
$
|
0.3
|
|
$
|
(0.2)
|
|
$
|
0.1
|
|
2020 and Prior Restructuring Actions
|
|
|
|
|
Severance
|
$
|
8.9
|
|
$
|
0.2
|
|
$
|
(3.5)
|
|
$
|
5.6
|
|
Asset write-downs
|
—
|
|
—
|
|
—
|
|
—
|
|
Facility closure and other costs
|
1.7
|
|
1.6
|
|
(1.9)
|
|
1.4
|
|
Total 2020 and Prior Restructuring Actions
|
$
|
10.6
|
|
$
|
1.8
|
|
$
|
(5.4)
|
|
$
|
7.0
|
|
Total Restructuring Actions
|
$
|
10.6
|
|
$
|
2.1
|
|
$
|
(5.6)
|
|
$
|
7.1
|
|
HUBBELL INCORPORATED-Form 10-Q 24
The actual costs incurred and total expected cost in each of our reporting segments of our on-going restructuring actions are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expected costs
|
Costs incurred during 2020
|
Costs incurred in the first six months of 2021
|
Remaining costs at 6/30/2021
|
2021 Restructuring Actions
|
|
|
|
|
Electrical Solutions
|
$
|
0.3
|
|
$
|
—
|
|
$
|
0.3
|
|
$
|
—
|
|
Utility Solutions
|
—
|
|
—
|
|
—
|
|
—
|
|
Total 2021 Restructuring Actions
|
$
|
0.3
|
|
$
|
—
|
|
$
|
0.3
|
|
$
|
—
|
|
2020 and Prior Restructuring Actions
|
|
|
|
|
Electrical Solutions
|
$
|
21.8
|
|
$
|
16.0
|
|
$
|
1.1
|
|
$
|
4.7
|
|
Utility Solutions
|
10.2
|
|
8.1
|
|
0.7
|
|
1.4
|
|
Total 2020 and Prior Restructuring Actions
|
$
|
32.0
|
|
$
|
24.1
|
|
$
|
1.8
|
|
$
|
6.1
|
|
Total Restructuring Actions
|
$
|
32.3
|
|
$
|
24.1
|
|
$
|
2.1
|
|
$
|
6.1
|
|
HUBBELL INCORPORATED-Form 10-Q 25
NOTE 16 Debt and Financing Arrangements
Long-term debt consists of the following (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity
|
June 30, 2021
|
December 31, 2020
|
Senior notes at 3.625%
|
2022
|
$
|
—
|
|
$
|
299.2
|
|
Senior notes at 3.35%
|
2026
|
396.8
|
|
396.5
|
|
Senior notes at 3.15%
|
2027
|
296.7
|
|
296.4
|
|
Senior notes at 3.50%
|
2028
|
445.1
|
|
444.8
|
|
Senior notes at 2.300%
|
2031
|
295.6
|
|
—
|
|
|
|
|
|
TOTAL LONG-TERM DEBT(a)
|
|
$
|
1,434.2
|
|
$
|
1,436.9
|
|
(a)Long-term debt is presented net of debt issuance costs and unamortized discounts.
2.300% Senior Notes due 2031
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 June 30, 2021.
2021 Credit Facility
On March 12, 2021, the Company, as borrower, and its subsidiaries Hubbell Power Holdings S.à r.l. and Harvey Hubbell Holdings S.à r.l., each as a subsidiary borrower (collectively, the “Subsidiary Borrowers”), entered into a new five-year credit agreement with a syndicate of lenders and JPMorgan Chase, 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 June 30, 2021. As of June 30, 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.
Short-Term Debt
The Company had $137.6 million and $153.1 million of short-term debt outstanding at June 30, 2021 and December 31, 2020, respectively, primarily of commercial paper borrowings.
HUBBELL INCORPORATED-Form 10-Q 26
NOTE 17 Stock-Based Compensation
As of June 30, 2021, the Company had various stock-based awards outstanding which were issued to executives and other key employees. The Company recognizes the grant-date fair value of all stock-based awards to employees over their respective requisite service periods (generally equal to an award’s vesting period), net of estimated forfeitures. A stock-based award is considered vested for expense attribution purposes when the employee’s retention of the award is no longer contingent on providing subsequent service. For those awards that vest immediately upon retirement eligibility, the Company recognizes compensation cost immediately for retirement-eligible individuals or over the period from the grant date to the date retirement eligibility is achieved, if less than the stated vesting period.
The Company’s long-term incentive program for awarding stock-based compensation includes a combination of restricted stock, stock appreciation rights (“SARs”), and performance shares of the Company’s common stock pursuant to the Hubbell Incorporated 2005 Incentive Award Plan as amended and restated (the "Award Plan"). Under the Award Plan, the Company may authorize up to 9.7 million shares of common stock to settle awards of restricted stock, performance shares, or SARs. The Company issues new shares to settle stock-based awards. During the three months ended March 31, 2021, the Company's grant of stock-based awards included restricted stock, SARs and performance shares. There were no material awards granted during the three months ended June 30, 2021.
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 in three equal installments on each of the first three anniversaries of the grant date; however starting in December 2018, the Company granted a certain number of these awards that generally vest on the third-year anniversary of the grant date. The fair value of these awards is measured by the average of the high and low trading prices of the Company’s common stock on the most recent trading day immediately preceding the grant date (“measurement date”).
In February 2021, the Company granted 67,166 restricted stock awards with a fair value per share of $163.26.
Stock Appreciation Rights
SARs grant the holder the right to receive, once vested, the value in shares of the Company's common stock equal to the positive difference between the grant price, as determined using the mean of the high and low trading prices of the Company’s common stock on the measurement date, and the fair market value of the Company’s common stock on the date of exercise. This amount is payable in shares of the Company’s common stock. SARs vest and become exercisable in three equal installments during the first three years following the grant date and expire ten years from the grant date.
In February 2021, the Company granted 182,441 SAR awards. The fair value of each SAR award was measured using the Black-Scholes option pricing model.
The following table summarizes the weighted-average assumptions used in estimating the fair value of the SARs granted during the first three months of 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
Expected Dividend Yield
|
Expected Volatility
|
Risk Free Interest Rate
|
Expected Term
|
Weighted Avg. Grant Date Fair Value of 1 SAR
|
February 2021
|
2.4%
|
26.5%
|
0.6%
|
5.5 years
|
$29.43
|
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.
HUBBELL INCORPORATED-Form 10-Q 27
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the award.
Performance Shares
Performance shares represent the right to receive a share of the Company’s common stock subject to the achievement of certain market or performance conditions established by the Company’s Compensation Committee and measured over a three-year period. Partial vesting in these awards may occur after separation from the Company for retirement eligible employees. Shares are not vested until approved by the Company’s Compensation Committee.
Performance Shares - Market Condition
In February 2021, the Company granted 15,741 performance shares that will vest subject to a market condition and service condition through the performance period. The market condition associated with the awards is the Company's total shareholder return ("TSR") compared to the TSR generated by the companies that comprise the S&P Capital Goods 900 index over a three year performance period. Performance at target will result in vesting and issuance of the number of performance shares granted, equal to 100% payout. Performance below or above target can result in issuance in the range of 0%-200% of the number of shares granted. Expense is recognized irrespective of the market condition being achieved.
The fair value of the performance share awards with a market condition for the 2021 grant was determined based upon a lattice model.
The following table summarizes the related assumptions used to determine the fair values of the performance share awards with a market condition granted during February 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
Stock Price on Measurement Date
|
Dividend Yield
|
Expected Volatility
|
Risk Free Interest Rate
|
Expected Term
|
Weighted Avg. Grant Date Fair Value
|
February 2021
|
$163.26
|
2.4%
|
40.6%
|
0.2%
|
3 years
|
$198.89
|
Expected volatilities are based on historical volatilities of the Company’s and members of the peer group's stock over a three year period. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the expected term of the award.
Performance Shares - Performance Condition
In February 2021, the Company granted 31,543 performance shares that will vest subject to an internal Company-based performance condition and service requirement.
Fifty percent of these performance shares granted will vest based on Hubbell’s compounded annual growth rate of Net sales as compared to that of the companies that comprise the S&P Capital Goods 900 index. Fifty percent of these performance shares granted will vest based on achieved operating profit margin performance as compared to internal targets. Each of these performance conditions is measured over the same three-year performance period. The cumulative result of these performance conditions can result in a number of shares earned in the range of 0% - 200% of the target number of shares granted.
The fair value of the award is measured based upon the average of the high and low trading prices of the Company's common stock on the measurement date reduced by the present value of dividends expected to be paid during the requisite service period. The Company expenses these awards on a straight-line basis over the requisite service period and including an assessment of the performance achieved to date. The weighted average fair value per share was $151.92 for the awards granted in the first quarter of 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
Fair Value
|
Performance Period
|
Payout Range
|
February 2021
|
$151.92
|
Jan 2021 - Dec 2023
|
0-200%
|
HUBBELL INCORPORATED-Form 10-Q 28