Quarterly Report (10-q)

Date : 10/30/2019 @ 12:13PM
Source : Edgar (US Regulatory)
Stock : Hubbell Incorporated (HUBB)
Quote : 148.7  -0.34 (-0.23%) @ 9:02PM
After Hours
Last Trade
Last $ 148.70 ◊ 0.00 (0.00%)

Quarterly Report (10-q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 1-2958

LHUBX1X1A03A03.JPG   
HUBBELL INCORPORATED
(Exact name of registrant as specified in its charter)
 
Connecticut
06-0397030
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
40 Waterview Drive

Shelton,
CT
06484
(Address of principal executive offices)
(Zip Code)
(475)
882-4000
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report.)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock - par value $0.01 per share
HUBB
New York Stock Exchange
Indicate by check mark
 
 
 
 
 
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes
No
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
Accelerated filer 
Non-accelerated filer 
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standard provided pursuant to Section 13(a) of the Exchange Act.
whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No
 The number of shares outstanding of Hubbell Common Stock as of October 28, 2019 was 54,385,600.

HUBBELL INCORPORATED-Form 10-Q    1


Index



HUBBELL INCORPORATED-Form 10-Q    2


PART I
FINANCIAL INFORMATION

ITEM 1
Financial Statements

Condensed Consolidated Statements of Income (unaudited)

 
Three Months Ended September 30,
Nine Months Ended September 30,
(in millions, except per share amounts)
2019

2018

2019

2018

Net sales
$
1,204.0

$
1,179.7

$
3,487.7

$
3,337.6

Cost of goods sold
842.0

830.7

2,461.0

2,357.8

Gross profit
362.0

349.0

1,026.7

979.8

Selling & administrative expenses
189.1

185.2

566.0

559.5

Operating income
172.9

163.8

460.7

420.3

Gain on disposition of business (Note 3)
21.7


21.7


Multi-employer pension charge (Note 15)


(22.9
)

Interest expense, net
(17.0
)
(18.4
)
(51.7
)
(54.5
)
Other expense, net
(9.6
)
(2.9
)
(18.2
)
(13.5
)
Total other expense
(4.9
)
(21.3
)
(71.1
)
(68.0
)
Income before income taxes
168.0

142.5

389.6

352.3

Provision for income taxes
35.4

27.8

85.3

75.4

Net income
132.6

114.7

304.3

276.9

Less: Net income attributable to noncontrolling interest
1.9

1.1

5.3

4.7

Net income attributable to Hubbell
$
130.7

$
113.6

$
299.0

$
272.2

Earnings per share
 

 

 

 

Basic
$
2.40

$
2.07

$
5.48

$
4.96

Diluted
$
2.38

$
2.06

$
5.45

$
4.93

Cash dividends per common share
$
0.84

$
0.77

$
2.52

$
2.31

See notes to unaudited Condensed Consolidated Financial Statements.

HUBBELL INCORPORATED-Form 10-Q    3


Condensed Consolidated Statements of Comprehensive Income (unaudited)
 
 
Three Months Ended September 30,
(in millions)
2019

2018

Net income
$
132.6

$
114.7

Other comprehensive income (loss):
 

 

Currency translation adjustment:
 
 
Foreign currency translation adjustments
(12.2
)
(0.7
)
Reclassification of currency translation gains included in net income
(7.7
)

Defined benefit pension and post-retirement plans, net of taxes of ($0.7) and ($1.6)
1.9

7.0

Available-for-sale investments, net of taxes of ($0.0) and $0.1
1.9


Unrealized gain (loss) on cash flow hedges, net of taxes of ($0.1) and $0.4
0.1

(0.9
)
Other comprehensive (loss) income
(16.0
)
5.4

Total comprehensive income
116.6

120.1

Less: Comprehensive income attributable to noncontrolling interest
1.9

1.1

Comprehensive income attributable to Hubbell
$
114.7

$
119.0

See notes to unaudited Condensed Consolidated Financial Statements.

 
Nine Months Ended September 30,
(in millions)
2019

2018

Net income
$
304.3

$
276.9

Other comprehensive income (loss):
 
 
Currency translation adjustment:
 
 
Foreign currency translation adjustments
(8.9
)
(21.5
)
Reclassification of currency translation gains included in net income
(7.7
)

Defined benefit pension and post-retirement plans, net of taxes of ($1.8) and ($2.8)
5.3

10.9

Available-for-sale investments, net of taxes of ($0.2) and $0.1
2.5

(0.4
)
Unrealized gain (loss) on cash flow hedges, net of taxes of $0.4 and ($0.2)
(1.2
)
0.7

Other comprehensive (loss) income
(10.0
)
(10.3
)
Total comprehensive income
294.3

266.6

Less: Comprehensive income attributable to noncontrolling interest
5.3

4.7

Comprehensive income attributable to Hubbell
$
289.0

$
261.9

See notes to unaudited Condensed Consolidated Financial Statements.



HUBBELL INCORPORATED-Form 10-Q    4


Condensed Consolidated Balance Sheets (unaudited)
 
(in millions)
September 30, 2019

December 31, 2018

ASSETS
 

 

Current Assets
 

 

Cash and cash equivalents
$
300.0

$
189.0

Short-term investments
11.3

9.2

Accounts receivable, net
787.1

725.4

Inventories, net
662.0

651.0

   Other current assets
49.5

69.1

Total Current Assets
1,809.9

1,643.7

Property, Plant, and Equipment, net
497.6

502.1

Other Assets
 

 

Investments
50.0

56.3

Goodwill
1,781.4

1,784.4

Intangible assets, net
765.0

819.5

Other long-term assets
170.4

66.1

TOTAL ASSETS
$
5,074.3

$
4,872.1

LIABILITIES AND EQUITY
 

 

Current Liabilities
 

 

Short-term debt and current portion of long-term debt
$
35.9

$
56.1

Accounts payable
414.7

393.7

Accrued salaries, wages and employee benefits
92.8

101.6

Accrued insurance
70.2

61.3

Other accrued liabilities
252.6

226.6

Total Current Liabilities
866.2

839.3

Long-Term Debt
1,714.1

1,737.1

Other Non-Current Liabilities
578.4

496.8

TOTAL LIABILITIES
3,158.7

3,073.2

Total Hubbell Shareholders’ Equity
1,903.1

1,780.6

Noncontrolling interest
12.5

18.3

Total Equity
1,915.6

1,798.9

TOTAL LIABILITIES AND EQUITY
$
5,074.3

$
4,872.1

See notes to unaudited Condensed Consolidated Financial Statements.

HUBBELL INCORPORATED-Form 10-Q    5


Condensed Consolidated Statements of Cash Flows (unaudited)

 
Nine Months Ended September 30,
(in millions)
2019
2018
Cash Flows from Operating Activities
 

 

Net income
$
304.3

$
276.9

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
Depreciation and amortization
111.1

112.8

Deferred income taxes
(2.9
)
22.2

Stock-based compensation
13.5

13.4

    Gain on disposition of business
(21.7
)

Multi-employer pension charge
22.9


Changes in assets and liabilities, excluding effects of acquisitions:
 

 
Increase in accounts receivable, net
(66.7
)
(133.9
)
Decrease (increase) in inventories, net
(23.4
)
17.8

Increase in accounts payable
30.6

48.1

Decrease in current liabilities
(2.4
)
(10.2
)
Changes in other assets and liabilities, net
15.7

(3.4
)
Contribution to qualified defined benefit pension plans
(0.3
)
(11.4
)
Other, net
4.4

6.9

Net cash provided by operating activities
385.1

339.2

Cash Flows from Investing Activities
 

 

Capital expenditures
(72.6
)
(70.7
)
Proceeds from disposal of business, net of cash
33.4


Acquisition of businesses, net of cash acquired
(5.0
)
(1,118.0
)
Purchases of available-for-sale investments
(4.5
)
(16.6
)
Proceeds from available-for-sale investments
10.4

17.5

Other, net
3.8

2.3

Net cash used in investing activities
(34.5
)
(1,185.5
)
Cash Flows from Financing Activities
 
 

Long-term debt (repayments) borrowings, net
(18.8
)
835.0

Short-term debt (repayments) borrowings, net
(26.6
)
37.0

Payment of dividends
(137.1
)
(126.5
)
Payment of dividends to noncontrolling interest
(11.1
)
(3.8
)
Repurchase of common shares
(35.0
)
(20.0
)
Debt issuance costs

(7.6
)
Other, net
(9.1
)
(9.4
)
Net cash (used) provided by financing activities
(237.7
)
704.7

Effect of foreign currency exchange rate changes on cash and cash equivalents
(1.9
)
(4.6
)
Increase (decrease) in cash and cash equivalents
111.0

(146.2
)
Cash and cash equivalents
 
 
Beginning of period
189.0

375.0

End of period
$
300.0

$
228.8

See notes to unaudited Condensed Consolidated Financial Statements.

HUBBELL INCORPORATED-Form 10-Q    6


Notes to Condensed Consolidated Financial Statements (unaudited)

NOTE 1 Basis of Presentation
 
 
The accompanying unaudited Condensed Consolidated Financial Statements of Hubbell Incorporated (“Hubbell”, the “Company”, “registrant”, “we”, “our” or “us”, which references include its divisions and subsidiaries) have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by United States of America (“U.S.”) GAAP for audited financial statements. In the opinion of management, all adjustments consisting only of normal recurring adjustments considered necessary for a fair statement of the results of the periods presented have been included. Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
 
The balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the U.S. 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, 2018.

Leases

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 twelve 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 have 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 Condensed Consolidated Statements of Income or Condensed 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 Condensed 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 the 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.


HUBBELL INCORPORATED-Form 10-Q    7


Recent Accounting Pronouncements

In June 2016, the FASB issued an Accounting Standards Update (ASU 2016-13), "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments", which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for periods beginning after 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. The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.

In January 2017, the FASB issued an Accounting Standards Update (ASU 2017-04) “Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount. Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed. ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019, although early adoption is permitted. The Company elected to early adopt this standard in the first quarter of 2019. The adoption of this standard had no material impact on our consolidated financial statements.

In August 2017, the FASB issued an Accounting Standards Update (ASU 2017-12), "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities". The standard requires certain changes in the presentation of hedge accounting in the financial statements and some new or modified disclosures. ASU 2017-12 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 Tax Cuts and Job Act of 2017 ("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.

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 is currently assessing the impact of adopting this standard on its consolidated financial statements.

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 in the Power segment recognized upon delivery of the product at the destination. Revenue from service contracts and post-shipment performance obligations are less than four percent of total annual consolidated net revenue and those service contracts and post-shipment obligations are primarily within the Power 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.


HUBBELL INCORPORATED-Form 10-Q    8


Within the Electrical 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 Power segment, certain businesses offer annual maintenance service contracts that require payment at the beginning of the contract period. These payments are treated as a contract liability and are classified in Other accrued liabilities in the Condensed Consolidated Balance Sheets. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Condensed Consolidated Statements of Income. The deferred revenue relating to the annual maintenance service contracts is recognized in the Condensed Consolidated Statements of Income on a straight-line basis over the expected term of the contract.


The following table presents disaggregated revenue by business group:
 
Three Months Ended September 30,
 
2019
2018
2019
2018
2019
2018
in millions
Electrical
Power
Total
Net sales
 
 
 
 
 
 
Hubbell Commercial and Industrial
$
237.0

$
234.2

$

$

$
237.0

$
234.2

Hubbell Construction and Energy
213.0

204.9



213.0

204.9

Hubbell Lighting
239.3

248.3



239.3

248.3

Hubbell Power Systems


514.7

492.3

514.7

492.3

Total net sales
$
689.3

$
687.4

$
514.7

$
492.3

$
1,204.0

$
1,179.7


 
Nine Months Ended September 30,
 
2019
2018
2019
2018
2019
2018
in millions
Electrical
Power
Total
Net sales
 
 
 
 
 
 
Hubbell Commercial and Industrial
$
692.6

$
685.0

$

$

$
692.6

$
685.0

Hubbell Construction and Energy
608.7

598.7



608.7

598.7

Hubbell Lighting
706.4

710.4



706.4

710.4

Hubbell Power Systems


1,480.0

1,343.5

1,480.0

1,343.5

Total net sales
$
2,007.7

$
1,994.1

$
1,480.0

$
1,343.5

$
3,487.7

$
3,337.6



HUBBELL INCORPORATED-Form 10-Q    9


The following table presents disaggregated revenue by geographic location (on a geographic basis, the Company defines "international" as operations based outside of the United States and its possessions):
 
Three Months Ended September 30,
 
2019
2018
2019
2018
2019
2018
in millions
Electrical
Power
Total
Net sales
 
 
 
 
 
 
United States
$
618.2

$
615.3

$
477.7

$
448.0

$
1,095.9

$
1,063.3

International
71.1

72.1

37.0

44.3

108.1

116.4

Total net sales
$
689.3

$
687.4

$
514.7

$
492.3

$
1,204.0

$
1,179.7


 
Nine Months Ended September 30,
 
2019
2018
2019
2018
2019
2018
in millions
Electrical
Power
Total
Net sales
 
 
 
 
 
 
United States
$
1,804.3

$
1,776.1

$
1,386.7

$
1,236.4

$
3,191.0

$
3,012.5

International
203.4

218.0

93.3

107.1

296.7

325.1

Total net sales
$
2,007.7

$
1,994.1

$
1,480.0

$
1,343.5

$
3,487.7

$
3,337.6



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 $30.2 million as of September 30, 2019 compared to $27.7 million as of December 31, 2018. The $2.5 million increase in our contract liabilities balance was primarily due to a $20.1 million net increase in current year deferrals primarily due to timing of advance payments on certain orders, partially offset by the recognition of $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. The Company has an immaterial amount of contract assets relating to performance obligations satisfied prior to payment that is recorded in Other long-term assets in the Condensed Consolidated Balance Sheets. Impairment losses recognized on our receivables and contract assets were immaterial for the three and nine months ended September 30, 2019.

Unsatisfied Performance Obligations

As of September 30, 2019, the Company had approximately $370 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 Power segment to deliver and install meters. The Company expects that a majority of the unsatisfied performance obligations will be completed and recognized over the next 3 years.



HUBBELL INCORPORATED-Form 10-Q    10


NOTE 3 Business Acquisitions and Dispositions
 
 
Acquisitions

On February 2, 2018, the Company completed the acquisition of Meter Readings Holding Group, LLC ("Aclara Technologies" or "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 a new unsecured term loan facility in the aggregate principal amount of $500 million (the "Term Loan"), the issuance of 3.50% Senior Notes due 2028 in the aggregate principal amount of $450 million, and issuances of commercial paper.

Supplemental Pro-Forma Data

Aclara’s results of operations have been included in the Company's Condensed Consolidated Financial Statements for the period subsequent to the completion of the acquisition on February 2, 2018. Aclara contributed sales of approximately $429.7 million and operating income of approximately $12.8 million for the period from the completion of the acquisition through September 30, 2018.

The following unaudited supplemental pro-forma information presents consolidated results as if the acquisition had been completed on January 1, 2017. The pro-forma results were calculated by combining the results of the Company with the stand-alone results of Aclara for the pre-acquisition periods. 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.
 
 Pro-forma
Nine Months Ended
 
September 30, 2018
Net sales
$
3,385.8

Net income attributable to Hubbell
$
284.5

Earnings Per Share:
 
   Basic
$
5.18

   Diluted
$
5.16


 
Dispositions

In August 2019, the Company completed the sale of Haefely Test, AG (“Haefely”) for $38.1 million. Haefely designs and manufactures high voltage test equipment and is based in Basel, Switzerland. The Haefely business was previously included within the Electrical segment. Upon disposition, the Haefely business had tangible assets of $32.3 million (primarily comprised of cash, accounts receivable, inventories, and property, plant and equipment), goodwill of $3.1 million, total liabilities of $12.2 million (primarily comprised 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. As a result of the sale of Haefely, we recognized a pre-tax gain of $21.7 million that is included in Total other expense in the Condensed Consolidated Statements of Income.



HUBBELL INCORPORATED-Form 10-Q    11


NOTE 4 Segment Information
 

The Company's reporting segments consist of the Electrical segment and the Power segment. The Electrical 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, components and assemblies for the natural gas distribution market 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 businesses design and manufacture a variety of high voltage test and measurement equipment, 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. High voltage products are also sold direct to customers through our sales engineers. The Electrical segment comprises three business groups, which have been aggregated as they have similar long-term economic characteristics, customers and distribution channels, among other factors.

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, and construction and engineering firms. The 2018 acquisition of Aclara expanded offerings to include advanced metering infrastructure, meter and edge devices, and software and infrastructure services, which are primarily sold to the electrical, water, and gas utility industries.

The following table sets forth financial information by business segment (in millions):
 
Net Sales
Operating Income
Operating Income as a % of Net Sales
 
2019

2018

2019

2018

2019

2018

Three Months Ended September 30,
 
 

 
 

 
 

Electrical
$
689.3

$
687.4

$
90.2

$
94.0

13.1
%
13.7
%
Power
514.7

492.3

82.7

69.8

16.1
%
14.2
%
TOTAL
$
1,204.0

$
1,179.7

$
172.9

$
163.8

14.4
%
13.9
%
Nine Months Ended September 30,
 
 

 
 

 
 

Electrical
$
2,007.7

$
1,994.1

$
246.8

$
246.5

12.3
%
12.4
%
Power
1,480.0

1,343.5

213.9

173.8

14.5
%
12.9
%
TOTAL
$
3,487.7

$
3,337.6

$
460.7

$
420.3

13.2
%
12.6
%




NOTE 5 Inventories, net
 
 
Inventories, net are composed of the following (in millions):
 
September 30, 2019

December 31, 2018

Raw material
$
225.2

$
220.2

Work-in-process
109.0

110.3

Finished goods
410.1

402.3

 
744.3

732.8

Excess of FIFO over LIFO cost basis
(82.3
)
(81.8
)
TOTAL
$
662.0

$
651.0



HUBBELL INCORPORATED-Form 10-Q    12


NOTE 6 Goodwill and Intangible Assets, net
 

Changes in the carrying values of goodwill for the nine months ended September 30, 2019, were as follows (in millions):
 
Segment
 

 
Electrical

Power

Total

BALANCE DECEMBER 31, 2018
$
714.1

$
1,070.3

$
1,784.4

Current year acquisitions
4.7


4.7

Dispositions (Note 3 - Business Acquisitions and Dispositions)
(3.1
)

(3.1
)
Foreign currency translation
(1.2
)
(3.4
)
(4.6
)
BALANCE SEPTEMBER 30, 2019
$
714.5

$
1,066.9

$
1,781.4


 
The carrying value of other intangible assets included in Intangible assets, net in the Condensed Consolidated Balance Sheets is as follows (in millions):
 
September 30, 2019
December 31, 2018
 
Gross Amount

Accumulated
Amortization

Gross Amount

Accumulated
Amortization

Definite-lived:
 

 

 

 

Patents, tradenames and trademarks
$
201.2

$
(62.6
)
$
204.4

$
(58.6
)
Customer/agent relationships and other
827.1

(254.2
)
833.0

(212.6
)
Total
$
1,028.3

$
(316.8
)
$
1,037.4

$
(271.2
)
Indefinite-lived:
 

 

 

 

Tradenames and other
53.5


53.3


TOTAL
$
1,081.8

$
(316.8
)
$
1,090.7

$
(271.2
)

 
Amortization expense associated with definite-lived intangible assets was $53.4 million and $53.2 million for the nine months ended September 30, 2019 and 2018, respectively. Future amortization expense associated with these intangible assets is expected to be $18.1 million for the remainder of 2019, $70.7 million in 2020, $69.0 million in 2021, $63.6 million in 2022, $58.9 million in 2023, and $53.9 million in 2024.

HUBBELL INCORPORATED-Form 10-Q    13


NOTE 7 Other Accrued Liabilities
 

Other accrued liabilities are composed of the following (in millions):
 
September 30, 2019

December 31, 2018

Customer program incentives
$
44.0

$
52.4

Accrued income taxes
7.5

3.4

Contract liabilities - deferred revenue
30.2

27.7

Customer refund liability
18.2

15.3

Accrued warranties
28.2

33.5

Current operating lease liabilities(a)
28.7


Other
95.8

94.3

TOTAL
$
252.6

$
226.6

(a) Current operating lease liabilities are related to the adoption of ASU 2016-02. Refer to Note 1 - Basis of Presentation, in the Notes to Condensed Consolidated Financial Statements for additional information.

NOTE 8 Other Non-Current Liabilities
 

Other non-current liabilities are composed of the following (in millions):
 
September 30, 2019

December 31, 2018

Pensions
$
177.0

$
177.0

Other post-retirement benefits
23.7

23.7

Deferred tax liabilities
117.8

120.0

Accrued warranties long-term
54.3

59.2

Non-current operating lease liabilities(a)
67.5


Other
138.1

116.9

TOTAL
$
578.4

$
496.8

(a) Non-current operating lease liabilities related to the adoption of ASU 2016-02. Refer to Note 1 - Basis of Presentation, in the Notes to Condensed Consolidated Financial Statements for additional information.

HUBBELL INCORPORATED-Form 10-Q    14


NOTE 9 Total Equity
 

The following table shows the changes in shareholders' equity for the three and nine months ended September 30, 2019 (in million, 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, 2018
$
0.6

$
1.3

$
2,064.4

$
(285.7
)
$
1,780.6

$
18.3

Net income


168.3


168.3

3.4

Other comprehensive (loss) income



6.0

6.0


Stock-based compensation

8.3



8.3


Reclassification of stranded tax effects


30.0

(30.0
)


Acquisition/surrender of common shares(1)

(8.8
)
(27.2
)

(36.0
)

Cash dividends declared ($0.84 per share)


(91.7
)

(91.7
)

Dividends to noncontrolling interest





(2.6
)
Directors deferred compensation

0.4



0.4


BALANCE AT JUNE 30, 2019
$
0.6

$
1.2

$
2,143.8

$
(309.7
)
$
1,835.9

$
19.1

Net income


130.7


130.7

1.9

Other comprehensive (loss) income



(16.0
)
(16.0
)

Stock-based compensation

5.2



5.2


Acquisition/surrender of common shares(1)

(5.8
)
(1.4
)

(7.2
)

Cash dividends declared ($0.84 per share)


(45.6
)

(45.6
)

Dividends to noncontrolling interest





(8.5
)
Directors deferred compensation

0.1



0.1


BALANCE AT SEPTEMBER 30, 2019
$
0.6

$
0.7

$
2,227.5

$
(325.7
)
$
1,903.1

$
12.5


(1) For accounting purposes, the Company treats repurchased shares as constructively retired when acquired and accordingly charges the purchase price against Common Stock par value, Additional paid-in capital, to the extent available, and Retained earnings. As a result of this accounting treatment, during the first nine months of 2019, $28.6 million of the purchase price paid for repurchased shares was allocated to retained earnings.


HUBBELL INCORPORATED-Form 10-Q    15


The following table shows the changes in shareholders' equity for the three and nine months ended September 30, 2018 (in million, 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, 2017
$
0.6

$
11.0

$
1,892.4

$
(269.8
)
$
1,634.2

$
13.7

Net income


158.6


158.6

3.6

Other comprehensive (loss) income



(15.7
)
(15.7
)

Stock-based compensation

9.5



9.5


ASC 606 adoption to retained earnings


0.6


0.6


Acquisition/surrender of common shares(1)

(18.0
)


(18.0
)

Cash dividends declared ($0.77 per share)


(84.6
)

(84.6
)

Dividends to noncontrolling interest





(2.8
)
Aclara noncontrolling interest





2.4

Directors deferred compensation

0.3



0.3


BALANCE AT JUNE 30, 2018
$
0.6

$
2.8

$
1,967.0

$
(285.5
)
$
1,684.9

$
16.9

Net income


113.6


113.6

1.1

Other comprehensive (loss) income



5.4

5.4


Stock-based compensation

3.9



3.9


Acquisition/surrender of common shares(1)

(6.7
)
(4.1
)

(10.8
)

Cash dividends declared ($0.77 per share)


(42.4
)

(42.4
)

Dividends to noncontrolling interest





(1.0
)
Directors deferred compensation

0.2



0.2


BALANCE AT SEPTEMBER 30, 2018
$
0.6

$
0.2

$
2,034.1

$
(280.1
)
$
1,754.8

$
17.0


(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. As a result of this accounting treatment, during the first nine months of 2018, $4.1 million of the purchase price paid for repurchased shares was allocated to retained earnings.

The detailed components of total comprehensive income are presented in the Condensed Consolidated Statements of Comprehensive Income.

HUBBELL INCORPORATED-Form 10-Q    16


NOTE 10 Accumulated Other Comprehensive Loss
 

A summary of the changes in Accumulated other comprehensive loss (net of tax) for the nine months ended September 30, 2019 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, 2018
$
0.8

$
(2.0
)
$
(158.7
)
$
(125.8
)
$
(285.7
)
Other comprehensive income (loss) before reclassifications
(0.5
)
0.7


(8.9
)
(8.7
)
Amounts reclassified from accumulated other comprehensive loss
(0.7
)
1.8

5.3

(7.7
)
(1.3
)
Current period other comprehensive income (loss)
(1.2
)
2.5

5.3

(16.6
)
(10.0
)
Reclassification of stranded tax effects


(30.0
)

(30.0
)
BALANCE AT SEPTEMBER 30, 2019
$
(0.4
)
$
0.5

$
(183.4
)
$
(142.4
)
$
(325.7
)

 

A summary of the gain (loss) reclassifications out of Accumulated other comprehensive loss for the three and nine months ended September 30, 2019 and 2018 is provided below (in millions): 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Details about Accumulated Other
Comprehensive Loss Components
2019
2018
 
2019
2018
Location of Gain (Loss)
Reclassified into Income
Cash flow hedges gain (loss):
 

 

 
 

 

 
Forward exchange contracts
$
0.1

$
0.1

 
$
0.4

$

Net sales
 

0.2

 
0.5


Cost of goods sold
 
0.1

0.3

 
0.9


Total before tax
 

(0.1
)
 
(0.2
)

Tax benefit (expense)
 
$
0.1

$
0.2

 
$
0.7

$

Gain (loss) net of tax
Amortization of defined benefit pension and post retirement benefit items:
 

 

 
 

 

 
Prior-service costs (a)
$
0.1

$
0.2

 
$
0.5

$
0.7

 
Actuarial gains/(losses) (a)
(2.4
)
(2.6
)
 
(7.3
)
(8.2
)
 
Settlement and curtailment losses (a)
(0.3
)

 
(0.3
)

 
 
(2.6
)
(2.4
)
 
(7.1
)
(7.5
)
Total before tax
 
0.7

0.5

 
1.8

1.7

Tax benefit (expense)
 
$
(1.9
)
$
(1.9
)
 
$
(5.3
)
$
(5.8
)
Gain (loss) net of tax
 
 
 
 
 
 
 
Reclassification of gains (losses) on available-for-sale securities
$
(1.8
)
$

 
$
(1.8
)
$

Other expense, net
 


 


Tax benefit (expense)
 
$
(1.8
)
$

 
$
(1.8
)
$

 
 
 
 
 
 
 
 
Reclassification of currency translation gain
$
7.7

$

 
$
7.7

$

Gain on disposition of business (Note 3)
 


 


Tax benefit (expense)
 
$
7.7

$

 
$
7.7

$

 
 
 
 
 
 
 
 
Gains (losses) reclassified into earnings
$
4.1

$
(1.7
)
 
$
1.3

$
(5.8
)
 
(a)
These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 12 Pension and Other Benefits in the Notes to Condensed Consolidated Financial Statements for additional details).

HUBBELL INCORPORATED-Form 10-Q    17


NOTE 11 Earnings Per Share
 

The Company computes earnings per share using the two-class method, which is an earnings allocation formula that determines earnings per share for common stock and participating securities. Service-based and performance-based restricted stock awards granted by the Company are considered participating securities as these awards contain a non-forfeitable right to dividends.
 
The following table sets forth the computation of earnings per share for the three and nine months ended September 30, 2019 and 2018 (in millions, except per share amounts):
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
2019

2018

2019

2018

Numerator:
 

 

 

 

Net income attributable to Hubbell
$
130.7

$
113.6

$
299.0

$
272.2

Less: Earnings allocated to participating securities
(0.5
)
(0.4
)
(1.2
)
(1.0
)
Net income available to common shareholders
$
130.2

$
113.2

$
297.8

$
271.2

Denominator:
 

 

 

 

Average number of common shares outstanding
54.3

54.6

54.4

54.7

Potential dilutive common shares
0.3

0.3

0.3

0.3

Average number of diluted shares outstanding
54.6

54.9

54.7

55.0

Earnings per share:
 

 

 

 

Basic
$
2.40

$
2.07

$
5.48

$
4.96

Diluted
$
2.38

$
2.06

$
5.45

$
4.93


 
The Company did not have outstanding any significant anti-dilutive securities during the three and nine months ended September 30, 2019 and 2018.

HUBBELL INCORPORATED-Form 10-Q    18


NOTE 12 Pension and Other Benefits
 
 
The following table sets forth the components of net pension and other benefit costs for the three and nine months ended September 30, 2019 and 2018 (in millions):
 
Pension Benefits
Other Benefits
 
2019

2018

2019

2018

Three Months Ended September 30,
 

 

 

 

Service cost
$
0.5

$
1.0

$
0.1

$

Interest cost
8.7

8.6

0.2

0.2

Expected return on plan assets
(7.7
)
(8.3
)


Amortization of prior service cost
0.2


(0.3
)
(0.2
)
Amortization of actuarial losses
2.3

2.6

0.1


Settlement and curtailment losses
0.3




NET PERIODIC BENEFIT COST
$
4.3

$
3.9

$
0.1

$

Nine Months Ended September 30,
 

 

 

 

Service cost
$
1.6

$
3.2

$
0.1

$
0.1

Interest cost
26.0

25.8

0.8

0.7

Expected return on plan assets
(23.0
)
(25.3
)


Amortization of prior service cost
0.2


(0.7
)
(0.7
)
Amortization of actuarial losses
7.2

8.1

0.1

0.1

Settlement and curtailment losses
0.3




NET PERIODIC BENEFIT COST
$
12.3

$
11.8

$
0.3

$
0.2


 
Employer Contributions
 
Although not required by ERISA and the Internal Revenue Code, the Company may elect to make a voluntary contribution to its qualified domestic defined benefit pension plan in 2019. The Company anticipates making required contributions of approximately $0.4 million to its foreign pension plans during 2019, of which $0.3 million has been contributed through September 30, 2019.
 

HUBBELL INCORPORATED-Form 10-Q    19


NOTE 13 Guarantees
 

The Company records a liability equal to the fair value of guarantees in accordance with the accounting guidance for guarantees. When it is probable that a liability has been incurred and the amount can be reasonably estimated, the Company accrues for costs associated with guarantees. The most likely costs to be incurred are accrued based on an evaluation of currently available facts and, where no amount within a range of estimates is more likely, the minimum is accrued. As of September 30, 2019 and December 31, 2018, the fair value and maximum potential payment related to the Company’s guarantees were not material.
 
The Company offers product warranties that cover defects on most of its products. These warranties primarily apply to products that are properly installed, maintained and used for their intended purpose. The Company accrues estimated warranty costs at the time of sale. Estimated warranty expenses, recorded in cost of goods sold, are based upon historical information such as past experience, product failure rates, or the estimated number of units to be repaired or replaced. Adjustments are made to the product warranty accrual as claims are incurred, additional information becomes known, or as historical experience indicates.
 
Changes in the accrual for product warranties during the nine months ended September 30, 2019 and 2018 are set forth below (in millions):
 
2019
2018
BALANCE AT JANUARY 1,
$
92.7

$
14.0

Provision(a)
13.0

9.5

Expenditures/payments/other
(23.2
)
(14.9
)
Acquisitions(b)

52.8

BALANCE AT SEPTEMBER 30,
$
82.5

$
61.4


(a) Refer to Note 7 Other Accrued Liabilities and Note 8 Other Non-Current Liabilities for a breakout of short-term and long-term warranties.
(b) The acquisition amount disclosed relates to the Aclara acquisition.

HUBBELL INCORPORATED-Form 10-Q    20


NOTE 14 Fair Value Measurement
 
 
Investments
 
At September 30, 2019 and December 31, 2018, the Company had $42.8 million and $51.2 million, respectively, of available-for-sale securities. Available-for-sale securities classified in Level 2 of the fair value hierarchy consist of municipal bonds. 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. The Company also had $18.5 million of trading securities at September 30, 2019 and $14.3 million at December 31, 2018 that are carried on the balance sheet at fair value. Unrealized gains and losses associated with available-for-sale 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 September 30, 2019 and December 31, 2018 (in millions):
Asset (Liability)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Quoted Prices in
Active Markets for
Similar Assets
(Level 2)
Unobservable inputs
for which little or no
market data exists
(Level 3)
Total

September 30, 2019
 
 
 
 
Money market funds(a)
$
61.3

$

$

$
61.3

Time Deposits(a)

20.2


20.2

Available for sale investments

42.8


42.8

Trading securities
18.5



18.5

Deferred compensation plan liabilities
(18.5
)


(18.5
)
Derivatives:
 
 
 
 
Forward exchange contracts-Assets(b)

0.2


0.2

Forward exchange contracts-(Liabilities)(c)

(0.2
)

(0.2
)
TOTAL
$
61.3

$
63.0

$

$
124.3

 
 
 
 
 
 
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, 2018
 
 
 
 
Money market funds(a)
$
15.1

$

$

$
15.1

Time Deposits(a)

20.9


20.9

Available for sale investments

48.9

2.3

51.2

Trading securities
14.3



14.3

Deferred compensation plan liabilities
(14.3
)


(14.3
)
Derivatives:
 
 
 
 
Forward exchange contracts-Assets(b)

1.6


1.6

Forward exchange contracts-(Liabilities)(c)




TOTAL
$
15.1

$
71.4

$
2.3

$
88.8

(a) Money market funds and time deposits are reflected in Cash and cash equivalents in the Condensed Consolidated Balance Sheets.
(b) Forward exchange contracts-Assets are reflected in Other current assets in the Condensed Consolidated Balance Sheets.
(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 and Level 3 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.

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. 

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 expected cash flows and the discount rate.

Deferred compensation plans
 
The Company offers certain employees the opportunity to participate in non-qualified deferred compensation plans. A participant’s deferrals are invested in a variety of participant-directed debt and equity mutual funds that are classified as trading securities. The Company purchased $3.1 million and $2.6 million of trading securities related to these deferred compensation plans during the nine months ended September 30, 2019 and 2018, respectively. As a result of participant distributions, the Company sold $1.0 million of these trading securities during the nine months ended September 30, 2019 and $0.5 million during the nine months ended September 30, 2018. 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.


HUBBELL INCORPORATED-Form 10-Q    22


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 forecasted 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, liability or forecasted transaction are recognized in income. Derivative assets and derivative liabilities are not offset in the Condensed Consolidated Balance Sheets.
 
In 2019 and 2018, the Company entered into a series of forward exchange contracts to purchase U.S. dollars in order to hedge exposure to fluctuating rates of exchange for both anticipated inventory purchases and forecasted sales by its subsidiaries that transact business in Canada. As of September 30, 2019, the Company had 36 individual forward exchange contracts for an aggregate notional amount of $41.0 million, having various expiration dates through September 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 the three months ended September 30, 2019 and 2018 (in millions):
 
Derivative Gain/(Loss) Recognized in
Accumulated Other Comprehensive
Income (net of tax)
Location of Gain/(Loss)
Reclassified into Income
Gain/(Loss) Reclassified into
Earnings Effective Portion (net of tax)
Derivative Instrument
2019

2018

(Effective Portion)
2019

2018

Forward exchange contract
$
0.2

$
(0.7
)
Net sales
$
0.1

$

 
 
 
Cost of goods sold
$

$
0.2



The following table summarizes the results of cash flow hedging relationships for the nine months ended September 30, 2019 and 2018 (in millions):
 
 
 
 
 
 
 
Derivative Gain/(Loss) Recognized in
Accumulated Other Comprehensive
Loss (net of tax)
Location of Gain/(Loss)
Reclassified into Income
Gain/(Loss) Reclassified into
Earnings Effective Portion (net of tax)
Derivative Instrument
2019

2018

(Effective Portion)
2019

2018

Forward exchange contract
$
(0.5
)
$
0.7

Net sales
$
0.3

$

 
 
 
Cost of goods sold
$
0.4

$




Long Term Debt

As of September 30, 2019 and December 31, 2018, the carrying value of the long-term debt including the $31.3 million and $25.0 million current portion of the Term Loan was $1,745.4 million and $1,762.1 million, respectively. The estimated fair value of the long-term debt as of September 30, 2019 and December 31, 2018 was $1,798.8 million and $1,688.1 million, respectively, using quoted market prices in active markets for similar liabilities (Level 2).

HUBBELL INCORPORATED-Form 10-Q    23


NOTE 15 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.

As previously reported, in the fourth quarter of 2016, the Company recorded a charge of $12.5 million in Cost of goods sold representing its estimated withdrawal liability from one of the multi-employer pension plans in which it participated. 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. Under the terms customary to multi-employer pension plans, it is probable that the Company will be subject to mass withdrawal liability, estimated to be an additional $22.9 million, as a result of the other employer's withdrawal from the pension plan and anticipated liquidation.

HUBBELL INCORPORATED-Form 10-Q    24


NOTE 16 Restructuring Costs and Other
 

In the three and nine months ended September 30, 2019, we incurred costs for restructuring actions initiated in 2019 as well as costs for 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 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, and certain pension obligations, which may be cash settled over multiple years.

Pre-tax restructuring costs incurred in each of our reporting segments and the location of the costs in the Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2019 and 2018 is as follows (in millions):
 
Three Months Ended September 30,
 
2019
2018
2019
2018
2019
2018
 
Cost of goods sold
Selling & administrative expense
Total
Electrical
$
2.7

$
0.9

$
1.4

$
0.5

$
4.1

$
1.4

Power
1.3

0.1

(0.2
)
0.9

1.1

1.0

Total Pre-Tax Restructuring Costs
$
4.0

$
1.0

$
1.2

$
1.4

$
5.2

$
2.4

 
Nine Months Ended September 30,
 
2019
2018
2019
2018
2019
2018