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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
For the quarterly period ended September 30, 2022
For the transition period from ______________ to ______________
Commission File Number 1-2958
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
| (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 | ||||||
| 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. | ☑ | 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). | ☑ | 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): | |||||||||||||||||||||||||||||
| ☑ | 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 21, 2022 was 53,705,829 .
HUBBELL INCORPORATED-Form 10-Q 1
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Index
| Table of Contents | ||||||||
HUBBELL INCORPORATED-Form 10-Q 2
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| 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) | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||
| Cost of goods sold | ||||||||||||||
| Gross profit | ||||||||||||||
| Selling & administrative expenses | ||||||||||||||
| Operating income | ||||||||||||||
| Interest expense, net | ( | ( | ( | ( | ||||||||||
| Loss on disposition of business | ( | ( | ||||||||||||
| Loss on extinguishment of debt | ( | |||||||||||||
| Pension charge (Note 13) | ( | ( | ||||||||||||
| Other income, net | ||||||||||||||
| Total other expense | ( | ( | ( | ( | ||||||||||
| Income from continuing operations before income taxes | ||||||||||||||
| Provision for income taxes | ||||||||||||||
| Net income from continuing operations | ||||||||||||||
| Less: Net income from continuing operations attributable to noncontrolling interest | ( | ( | ( | ( | ||||||||||
| Net income from continuing operations attributable to Hubbell Incorporated | ||||||||||||||
| (Loss) income from discontinued operations, net of tax (Note 2) | ( | |||||||||||||
| Net Income attributable to Hubbell Incorporated | $ | $ | $ | $ | ||||||||||
| Earnings per share: | ||||||||||||||
| Basic earnings per share from continuing operations | $ | $ | $ | $ | ||||||||||
| Basic (loss) earnings per share from discontinued operations | ( | |||||||||||||
| Basic earnings per share | $ | $ | $ | $ | ||||||||||
| Diluted earnings per share from continuing operations | $ | $ | $ | $ | ||||||||||
| Diluted (loss) earnings per share from discontinued operations | ( | |||||||||||||
| Diluted earnings per share | $ | $ | $ | $ | ||||||||||
| Cash dividends per common share | $ | $ | $ | $ | ||||||||||
See notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 3
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Condensed Consolidated Statements of Comprehensive Income (unaudited)
| Three Months Ended September 30, | ||||||||
| (in millions) | 2022 | 2021 | ||||||
| Net income | $ | $ | ||||||
| Other comprehensive (loss) income: | ||||||||
| Currency translation adjustments: | ||||||||
| Foreign currency translation adjustments | ( | ( | ||||||
Defined benefit pension and post-retirement plans, net of taxes of $( | ||||||||
Unrealized losses on investments, net of taxes of $ | ( | ( | ||||||
Unrealized gains on cash flow hedges, net of taxes of $( | ||||||||
| Other comprehensive (loss) income | ( | ( | ||||||
| Comprehensive income | ||||||||
| Less: Comprehensive income attributable to noncontrolling interest | ||||||||
| Comprehensive income attributable to Hubbell Incorporated | $ | $ | ||||||
See notes to unaudited Condensed Consolidated Financial Statements.
| Nine Months Ended September 30, | ||||||||
| (in millions) | 2022 | 2021 | ||||||
| Net income | $ | $ | ||||||
| Other comprehensive (loss) income: | ||||||||
| Currency translation adjustment: | ||||||||
| Foreign currency translation adjustments | ( | ( | ||||||
| Reclassification of currency translation losses included in net income | ||||||||
Defined benefit pension and post-retirement plans, net of taxes of $( | ||||||||
Unrealized losses on investments, net of taxes of $ | ( | ( | ||||||
Unrealized gains on cash flow hedges, net of taxes of $( | ||||||||
| Other comprehensive (loss) income | ( | ( | ||||||
| Comprehensive income | ||||||||
| Less: Comprehensive income attributable to noncontrolling interest | ||||||||
| Comprehensive income attributable to Hubbell Incorporated | $ | $ | ||||||
See notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 4
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Condensed Consolidated Balance Sheets (unaudited)
(in millions) | September 30, 2022 | December 31, 2021 | ||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Short-term investments | ||||||||
Accounts receivable (net of allowances of $ | ||||||||
Inventories, net | ||||||||
| Other current assets | ||||||||
| Assets held for sale - current | ||||||||
| Total Current Assets | ||||||||
| Property, Plant, and Equipment, net | ||||||||
| Other Assets | ||||||||
| Investments | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Other long-term assets | ||||||||
| Assets held for sale - non-current | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND EQUITY | ||||||||
| Current Liabilities | ||||||||
| Short-term debt | $ | $ | ||||||
Accounts payable | ||||||||
Accrued salaries, wages and employee benefits | ||||||||
Accrued insurance | ||||||||
Other accrued liabilities | ||||||||
| Liabilities held for sale - current | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Debt | ||||||||
| Other Non-Current Liabilities | ||||||||
| Liabilities held for sale - non-current | ||||||||
| TOTAL LIABILITIES | ||||||||
| Hubbell Incorporated Shareholders’ Equity | ||||||||
| Noncontrolling interest | ||||||||
| TOTAL EQUITY | ||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | ||||||
See notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 5
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Condensed Consolidated Statements of Cash Flows (unaudited)
| Nine Months Ended September 30, | ||||||||
| (in millions) | 2022 | 2021 | ||||||
| Cash Flows from Operating Activities of Continuing Operations | ||||||||
| Net income from continuing operations | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | ||||||||
| Deferred income taxes | ( | |||||||
| Stock-based compensation | ||||||||
| Provision for bad debt expense | ( | |||||||
| Loss on disposition of business | ||||||||
| Loss on extinguishment of debt | ||||||||
| Pension charge | ||||||||
| Loss (gain) on sale of assets | ( | |||||||
| Changes in assets and liabilities, excluding effects of acquisitions: | ||||||||
| Increase in accounts receivable, net | ( | ( | ||||||
| Increase in inventories, net | ( | ( | ||||||
| Increase in accounts payable | ||||||||
| Increase in current liabilities | ||||||||
| Changes in other assets and liabilities, net | ( | |||||||
| Contribution to qualified defined benefit pension plans | ( | ( | ||||||
| Other, net | ||||||||
| Net cash provided by operating activities from Continuing Operations | ||||||||
| Cash Flows from Investing Activities of Continuing Operations | ||||||||
| Capital expenditures | ( | ( | ||||||
| Acquisitions, net of cash acquired | ( | |||||||
| Proceeds from disposal of business, net of cash | ||||||||
| Purchases of available-for-sale investments | ( | ( | ||||||
| Proceeds from available-for-sale investments | ||||||||
| Other, net | ||||||||
| Net cash provided (used in) investing activities from Continuing Operations | ( | |||||||
| Cash Flows from Financing Activities of Continuing Operations | ||||||||
| Issuance of long-term debt | ||||||||
| Payment of long-term debt | ( | |||||||
| Payment of short-term debt, net | ( | ( | ||||||
| Payment of dividends | ( | ( | ||||||
| Make whole payment for retirement of long-term debt | ( | |||||||
| Acquisition of common shares | ( | ( | ||||||
| Other, net | ( | ( | ||||||
| Net cash used in financing activities from Continuing Operations | ( | ( | ||||||
| Discontinued Operations: | ||||||||
| Cash (used in) provided by operating activities | ( | |||||||
| Cash used in investing activities | ( | ( | ||||||
| Cash (used in) provided by discontinued operations | ( | |||||||
| Effect of exchange rate changes on cash and cash equivalents | ( | ( | ||||||
| Increase (decrease) in cash and cash equivalents | ( | |||||||
| Cash and cash equivalents, beginning of year | ||||||||
| Cash and cash equivalents within assets held for sale, beginning of year | ||||||||
| Restricted cash, included in other assets, beginning of year | ||||||||
| Less: Restricted cash, included in Other Assets | ||||||||
| Less: Cash and cash equivalents within assets held for sale, end of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
See notes to unaudited Condensed Consolidated Financial Statements.
HUBBELL INCORPORATED-Form 10-Q 6
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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, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022.
The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.
For further information, refer to the consolidated financial statements and footnotes thereto included in the Hubbell Incorporated Annual Report on Form 10-K for the year ended December 31, 2021.
Impact of the COVID-19 Pandemic
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic has had, and may continue to have, a significant effect on global economic conditions. U.S. Federal, state, local, and foreign governments reacted to the public health crisis with mitigation measures, creating significant uncertainties in the U.S. and global economies. Notwithstanding a general improvement in conditions and reduction of adverse effects from the pandemic, there continues to be significant uncertainty around the scope, severity, and duration of the pandemic, as well as the breadth and duration of business disruptions related to it. As economies have re-opened, global supply chains have struggled to keep up with increasing demand, and the resulting supply chain disruptions have, in certain cases, affected our ability to ship finished products in a timely manner. These supply chain disruptions and the increase in demand have also led to increased freight, labor and commodity costs. The extent to which the coronavirus pandemic will continue to affect our business, operations, supply chains, and our financial results will depend on numerous evolving factors that we may not be able to accurately predict and which may cause the actual results to differ from the estimates and assumptions we are required to make in the preparation of financial statements according to GAAP.
Recently Issued Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting," which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments are effective for all entities beginning on March 12, 2020 through December 31, 2022. The Company may elect to apply the amendments prospectively through December 31, 2022. The Company has not adopted this ASU as of September 30, 2022. The Company is currently assessing the impact of adopting this standard on its financial statements and the timing of adoption.
HUBBELL INCORPORATED-Form 10-Q 7
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In October 2021, the FASB issued ASU No. 2021-08, "Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers." ASU 2021-08 requires an acquirer to recognize and measure contract assets and contract liabilities, including deferred revenue, acquired in a business combination in accordance with Revenue from Contracts with Customers (Topic 606) as if the acquirer had originated the contracts at the date of the business combination. The provisions of ASU 2021-08 are effective for interim periods and fiscal years beginning after December 15, 2022, with early adoption permitted. If early adopted, the provisions of ASU 2021-08 apply retrospectively to all business combinations that occurred on or after the first day of the fiscal year in which the standard is adopted. The Company elected to early adopt the standard during the third quarter of 2022. The impact of the adoption of the standard was not material.
In November 2021, the FASB issued ASU No. 2021-10, "Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance." This update requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy. This standard is effective for financial statements issued for annual periods beginning after December 15, 2021 and should be applied either prospectively or retrospectively. Early adoption is permitted. The Company is currently assessing the impact of adopting this standard on its financial statements and the timing of adoption.
In September 2022, the FASB issued ASU 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” which adds certain disclosure requirements for a buyer in a supplier finance program. The amendments require a buyer that uses supplier finance programs to make annual disclosures about each such program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and associated rollforward information. Only the amount outstanding at the end of the period must be disclosed in interim periods. The amendments are effective for all entities for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the requirement to disclose rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. Early adoption is permitted. The Company is currently assessing the impact of adopting the amendments on its financial statements and the timing of adoption.
NOTE 2 Discontinued Operations
On February 1, 2022, the Company completed the sale of the C&I Lighting business to GE Current, a Daintree Company, for total net cash consideration of $332.8 million. The sale of this business represents a strategic shift that will have a major effect on our operations and financial results, and as a result, is reported as a discontinued operation in our Condensed Consolidated Financial Statements for all periods presented. The assets and liabilities of this business are also presented as held for sale in the Condensed Consolidated Balance Sheets, in the periods prior to the sale. The C&I Lighting business was previously included in the Electrical Solutions segment.
Under the terms of the transaction, Hubbell and the buyer entered into a transition services agreement ("TSA"), pursuant to which the Company provides certain administrative and operational services for a period of 12 months or less. Furthermore, we entered into a short-term supply agreement whereby the Company acts as a supplier of finished goods and component parts to the C&I Lighting business after the completion of the sale. Income from the TSA and supply agreement was $3.2 million and $10.8 million, respectively, for the three and nine months ended September 30, 2022 and was recorded in Other Income in the Condensed Consolidated Financial Statements.
The following table presents the summarized components of income from discontinued operations, net of income taxes, for the C&I Lighting business:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| (in millions) | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||
| Cost of goods sold | ||||||||||||||
| Gross profit | ||||||||||||||
| Selling & administrative expenses | ||||||||||||||
| Operating (loss) income | ( | ( | ||||||||||||
| (Loss) Gain on disposal of business | ( | |||||||||||||
| Other expense | ( | ( | ( | ( | ||||||||||
| (Loss) income from discontinued operations before income taxes | ( | |||||||||||||
| Provision for income taxes | ||||||||||||||
| (Loss) income from discontinued operations, net of taxes | $ | ( | $ | $ | $ | |||||||||
HUBBELL INCORPORATED-Form 10-Q 8
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(Loss) income from discontinued operations, net of taxes for the three and nine months ended September 30, 2022 includes transaction and separation costs of $3.0 million and $9.7 million, respectively. The gain on disposal of business for the nine months ended September 30, 2022 includes a net working capital adjustment of $15.8 million that was cash settled in the third quarter of 2022.
The following table presents the major classes of assets and liabilities classified as held for sale in the Condensed Consolidated Balance Sheet for the year ended December 31, 2021:
| (in millions) | December 31, 2021 | ||||
| Cash and cash equivalents | $ | ||||
| Accounts receivable | |||||
| Inventories, net | |||||
| Other current assets | |||||
| Assets held for sale - current | $ | ||||
| Property, Plant, and Equipment, net | |||||
| Goodwill | |||||
| Other intangible assets, net | |||||
| Other long-term assets | |||||
| Assets held for sale - non-current | $ | ||||
| Accounts payable | |||||
| Accrued salaries, wages and employee benefits | |||||
| Accrued insurance | |||||
| Other accrued liabilities | |||||
| Liabilities held for sale - current | $ | ||||
| Other Non-Current Liabilities | |||||
| Liabilities held for sale - non-current | $ | ||||
NOTE 3 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 two percent of total annual consolidated net revenue and those service contracts and post-shipment obligations are primarily within the Utility Solutions segment. Revenue from service contracts and post-shipment performance obligations is recognized when or as those obligations are satisfied. The Company primarily offers assurance-type standard warranties that do not represent separate performance obligations and on occasion will separately offer and price extended warranties that are separate performance obligations for which the associated revenue is recognized over-time based on the extended warranty period. The Company records amounts billed to customers for reimbursement of shipping and handling costs within revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as fulfillment costs and are included in cost of goods sold. Sales taxes and other usage-based taxes are excluded from revenue.
Within the Electrical Solutions segment, certain businesses require a portion of the transaction price to be paid in advance of transfer of control. Advance payments are not considered a significant financing component as they are received less than one year before the related performance obligations are satisfied. In addition, in the Utility Solutions segment, certain businesses offer annual maintenance service contracts that require payment at the beginning of the contract period. These payments are treated as a contract liability and are classified in Other accrued liabilities in the Condensed Consolidated Balance Sheets. Once control transfers to the customer and the Company meets the revenue recognition criteria, the deferred revenue is recognized in the Condensed Consolidated Statements of Income. The deferred revenue relating to the annual maintenance service contracts is recognized in the Condensed Consolidated Statements of Income on a straight-line basis over the expected term of the contract.
HUBBELL INCORPORATED-Form 10-Q 9
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The following table presents disaggregated revenue by business group. On January 1, 2022, we internally reorganized certain businesses within our Electrical Solutions segment to simplify the organization structure and align the organization to better serve our customers. This change had no impact to our reportable segments. In conjunction with this change, prior period amounts have been reclassified to conform to the organizational changes within the Electrical Solutions segment.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Net sales | ||||||||||||||
| Utility T&D Components | $ | $ | $ | $ | ||||||||||
| Utility Communications and Controls | ||||||||||||||
| Total Utility Solutions | $ | $ | $ | $ | ||||||||||
| Electrical Products | ||||||||||||||
| Connection and Bonding | ||||||||||||||
| Industrial Controls | ||||||||||||||
| Retail and Builder | ||||||||||||||
| Total Electrical Solutions | $ | $ | $ | $ | ||||||||||
| TOTAL | $ | $ | $ | $ | ||||||||||
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, | Nine Months Ended September 30, | |||||||||||||
| in millions | 2022 | 2021 | 2022 | 2021 | ||||||||||
| Net sales | ||||||||||||||
| United States | $ | $ | $ | $ | ||||||||||
| International | ||||||||||||||
| Total Utility Solutions | $ | $ | $ | $ | ||||||||||
| United States | ||||||||||||||
| International | ||||||||||||||
| Total Electrical Solutions | $ | $ | $ | $ | ||||||||||
| TOTAL | $ | $ | $ | $ | ||||||||||
Contract Balances
Our contract liabilities consist of advance payments for products as well as deferred revenue on service obligations and extended warranties. Deferred revenue is included in Other accrued liabilities in the Condensed Consolidated Balance Sheets.
Contract liabilities were $55.4 million as of September 30, 2022 compared to $16.7 million as of December 31, 2021. The $38.7 million increase in our contract liabilities balance was primarily due to a $30.4 million net increase in current year deferrals primarily due to timing of advance payments on certain orders and a $20.1 million increase due to acquisitions, partially offset by the recognition of $11.8 million in revenue related to amounts that were recorded in contract liabilities at January 1, 2022. The Company has an immaterial amount of contract assets relating to performance obligations satisfied prior to payment that is recorded in Other long-term assets in the Condensed Consolidated Balance Sheets. Impairment losses recognized on our receivables and contract assets were immaterial for the three and nine months ended September 30, 2022.
Unsatisfied Performance Obligations
As of September 30, 2022, the Company had approximately $340 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 10
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NOTE 4 Business Acquisitions
2022 Acquisitions
In the third quarter of 2022, the Company acquired all of the issued and outstanding membership interests of PCX Holdings LLC ("PCX") for a cash purchase price of approximately $114.0 million, net of cash acquired, subject to customary purchase price adjustments. PCX is a leading designer and manufacturer of factory built modular power solutions for applications in the data center market. This business is reported in the Electrical Solutions segment. We have recognized intangible assets of $48.6 million and goodwill of $78.0 million as a result of this acquisition. The intangible assets of $48.6 million consists primarily of customer relationships, backlog and a tradename and will be amortized over a weighted average period of approximately 11 years. All of the goodwill is expected to be deductible for tax purposes.
In the third quarter of 2022, the Company also acquired all of the issued and outstanding membership interests of Ripley Tools, LLC and Nooks Hill Road, LLC, collectively referred to as Ripley Tools, for a cash purchase price of approximately $49.6 million, net of cash acquired, subject to customary purchase price adjustments. Ripley Tools is a leading manufacturer of cable and fiber prep tools and test equipment that services both the utility and communications markets. This business is reported in the Utility Solutions segment. We have recognized intangible assets of $19.0 million and goodwill of $22.2 million as a result of this acquisition. The intangible assets of $19.0 million consists primarily of customer relationships and a tradename and will be amortized over a weighted average period of approximately 17 years. All of the goodwill is expected to be deductible for tax purposes.
These business acquisitions have been accounted for as business combinations and have resulted in the recognition of goodwill. The goodwill relates to a number of factors implied in the purchase prices, including the future earnings and cash flow potential of the businesses as well as the complementary strategic fit and resulting synergies that such business acquisitions bring to the Company’s existing operations.
Preliminary Allocation of Consideration Transferred to Net Assets Acquired
The following table presents the preliminary determination of the fair values of identifiable assets acquired and liabilities assumed from the Company's acquisitions in the third quarter of 2022. The final determination of the fair value of certain assets and liabilities will be completed within the one year measurement period as required by the FASB ASC Topic 805, “Business Combinations.” Because the Company finalizes the fair values of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. Fair value estimates are based on a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions. The judgments used to determine the estimated fair value assigned to each class of assets acquired and liabilities assumed, as well as asset lives, can materially impact the Company's results of operations. The finalization of the purchase accounting assessment may result in a change in the valuation of assets acquired and liabilities assumed and may have a material impact on the Company's results of operations and financial position.
The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition related to all transactions (in millions):
| Tangible assets acquired | $ | ||||
| Intangible assets | |||||
| Goodwill | |||||
| Net deferred taxes | |||||
| Other liabilities assumed | ( | ||||
| Total Estimate of Consideration Transferred, Net of Cash Acquired | $ | ||||
The Condensed Consolidated Financial Statements include the results of operations of the acquired businesses from their respective dates of acquisition. Pro forma information related to these acquisitions has not been included because the impact of net sales and earnings related to these acquisitions for the nine months ended September 30, 2022 was not material to the Company’s condensed consolidated results of operations.
HUBBELL INCORPORATED-Form 10-Q 11
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NOTE 5 Segment Information
The Company's reporting segments consist of the Utility Solutions segment and the Electrical Solutions segment. The Utility Solutions segment consists of businesses that design, manufacture, and sell a wide variety of electrical distribution, transmission, substation, and telecommunications products. This includes utility transmission & distribution (T&D) components such as arresters, insulators, connectors, anchors, bushings, and enclosures. The Utility Solutions segment also offers solutions that serve the utility infrastructure, including smart meters, communications systems, and protection and control devices. Hubbell Utility Solutions supports the electrical distribution, electrical transmission, water, gas distribution, telecommunications, and solar and wind markets. Products are sold to distributors and directly to users such as utilities, telecommunication companies, industrial firms, construction and engineering firms.
The Electrical Solutions segment comprises businesses that sell stock and custom products including standard and special application wiring device products, rough-in electrical products, connector and grounding products, lighting fixtures, components and other electrical equipment. The products are typically used in and around industrial, commercial and institutional facilities by electrical contractors, maintenance personnel, electricians, utilities, and telecommunications companies. In addition, certain of our businesses design and manufacture industrial controls and communication systems used in the non-residential and industrial markets. Many of these products are designed such that they can also be used in harsh and hazardous locations where a potential for fire and explosion exists due to the presence of flammable gasses and vapors. Harsh and hazardous products are primarily used in the oil and gas (onshore and offshore) and mining industries. There are also a variety of wiring devices, lighting fixtures and electrical products that have residential and utility applications, including residential products with Internet-of-Things ("IoT") enabled technologies. These products are primarily sold through electrical and industrial distributors, home centers, retail and hardware outlets, lighting showrooms and residential product oriented internet sites. Special application products are primarily sold through wholesale distributors to contractors, industrial customers and OEMs.
The following table sets forth financial information by business segment (in millions):
| Net Sales | Operating Income | Operating Income as a % of Net Sales | ||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | |||||||||||||||
| Three Months Ended September 30, | ||||||||||||||||||||
| Utility Solutions | $ | $ | $ | $ | % | % | ||||||||||||||
| Electrical Solutions | % | % | ||||||||||||||||||
| TOTAL | $ | $ | $ | $ | % | % | ||||||||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||
| Utility Solutions | $ | $ | $ | $ | % | % | ||||||||||||||
| Electrical Solutions | % | % | ||||||||||||||||||
| TOTAL | $ | $ | $ | $ | % | % | ||||||||||||||
HUBBELL INCORPORATED-Form 10-Q 12
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NOTE 6 Inventories, net
Inventories, net consists of the following (in millions):
| September 30, 2022 | December 31, 2021 | |||||||
| Raw material | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Subtotal | ||||||||
| Excess of FIFO over LIFO cost basis | ( | ( | ||||||
| TOTAL | $ | $ | ||||||
HUBBELL INCORPORATED-Form 10-Q 13
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NOTE 7 Goodwill and Other Intangible Assets, net
Changes in the carrying values of goodwill for the nine months ended September 30, 2022, by segment, were as follows (in millions):
| Segment | |||||||||||
| Utility Solutions | Electrical Solutions | Total | |||||||||
| BALANCE DECEMBER 31, 2021 | $ | $ | $ | ||||||||
Current year acquisitions(1) | |||||||||||
| Foreign currency translation | ( | ( | ( | ||||||||
| BALANCE SEPTEMBER 30, 2022 | $ | $ | $ | ||||||||
(1) Refer to Note 4 – Business Acquisitions for additional information.
The carrying value of other intangible assets included in Other intangible assets, net in the Condensed Consolidated Balance Sheets is as follows (in millions):
| September 30, 2022 | December 31, 2021 | |||||||||||||
| Gross Amount | Accumulated Amortization | Gross Amount | Accumulated Amortization | |||||||||||
| Definite-lived: | ||||||||||||||
| Patents, tradenames and trademarks | $ | $ | ( | $ | $ | ( | ||||||||
| Customer relationships, developed technology and other | ( | ( | ||||||||||||
| TOTAL DEFINITE-LIVED INTANGIBLES | $ | $ | ( | $ | $ | ( | ||||||||
| Indefinite-lived: | ||||||||||||||
| Tradenames and other | — | — | ||||||||||||
| TOTAL OTHER INTANGIBLE ASSETS | $ | $ | ( | $ | $ | ( | ||||||||
Amortization expense associated with definite-lived intangible assets was $18.7 million and $17.9 million during the three months ended September 30, 2022 and 2021, respectively, and $53.6 million and $56.9 million during the nine months ended September 30, 2022 and 2021, respectively. Future amortization expense associated with these intangible assets is estimated to be $18.8 million for the remainder of 2022, $71.0 million in 2023, $67.9 million in 2024, $63.5 million in 2025, $59.9 million in 2026, and $54.3 million in 2027. The Company amortizes intangible assets with definite lives using either an accelerated method that reflects the pattern in which economic benefits of the intangible assets are consumed and results in higher amortization in the earlier years of the asset's useful life, or using a straight line method. Approximately 80 % of the gross value of definite-lived intangible assets follow an accelerated amortization method.
HUBBELL INCORPORATED-Form 10-Q 14
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NOTE 8 Other Accrued Liabilities
Other accrued liabilities consists of the following (in millions):
| September 30, 2022 | December 31, 2021 | |||||||
| Customer program incentives | $ | $ | ||||||
| Accrued income taxes | ||||||||
| Contract liabilities - deferred revenue | ||||||||
| Customer refund liability | ||||||||
Accrued warranties(1) | ||||||||
| Current operating lease liabilities | ||||||||
| Other | ||||||||
| TOTAL | $ | $ | ||||||
(1) Refer to Note 22 - Guarantees, in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information regarding warranties.
NOTE 9 Other Non-Current Liabilities
Other non-current liabilities consists of the following (in millions):
| September 30, 2022 | December 31, 2021 | |||||||
| Pensions | $ | $ | ||||||
| Other post-retirement benefits | ||||||||
| Deferred tax liabilities | ||||||||
Accrued warranties long-term(1) | ||||||||
| Non-current operating lease liabilities | ||||||||
| Other | ||||||||
| TOTAL | $ | $ | ||||||
(1) Refer to Note 22 - Guarantees, in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information regarding warranties.
HUBBELL INCORPORATED-Form 10-Q 15
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NOTE 10 Total Equity
A summary of changes in total equity for the three and nine months ended September 30, 2022 and the three and nine months ended September 30, 2021 is provided below (in millions, except per share amounts):
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Hubbell Shareholders' Equity | Non- controlling interest | |||||||||||||||
| BALANCE AT DECEMBER 31, 2021 | $ | $ | $ | $ | ( | $ | $ | |||||||||||||
| Net income | — | — | — | |||||||||||||||||
| Other comprehensive (loss) income | — | — | — | ( | ( | — | ||||||||||||||
| Stock-based compensation | — | — | — | — | ||||||||||||||||
Acquisition/surrender of common shares(1) | — | ( | ( | — | ( | — | ||||||||||||||
Cash dividends declared ($ | — | — | ( | — | ( | — | ||||||||||||||
| Dividends to noncontrolling interest | — | — | — | — | — | ( | ||||||||||||||
| Directors deferred compensation | — | — | — | — | ||||||||||||||||
| BALANCE AT JUNE 30, 2022 | $ | $ | ||||||||||||||||||