Hubbell(HUBB) - 2024 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section presents Hubbell Incorporated's unaudited condensed consolidated financial statements and management's discussion and analysis for the periods ended June 30, 2024, and 2023 ITEM 1 Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements of Hubbell Incorporated for the periods ended June 30, 2024, and June 30, 2023, including statements of income, comprehensive income, balance sheets, cash flows, and detailed notes Condensed Consolidated Statements of Income This statement provides a detailed breakdown of Hubbell's revenues, costs, and net income for the three and six months ended June 30, 2024 and 2023 | (in millions, except per share amounts) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $1,452.5 | $1,365.9 | $2,851.6 | $2,651.3 | | Cost of goods sold | 943.8 | 869.7 | 1,895.2 | 1,706.8 | | Gross profit | 508.7 | 496.2 | 956.4 | 944.5 | | Selling & administrative expenses | 207.5 | 208.4 | 426.7 | 407.9 | | Operating income | 301.2 | 287.8 | 529.7 | 536.6 | | Interest expense, net | (19.8) | (9.2) | (40.9) | (18.9) | | Loss on disposition of business | — | — | (5.3) | — | | Other expense, net | (1.2) | (4.8) | (1.9) | (8.9) | | Total other expense | (21.0) | (14.0) | (48.1) | (27.8) | | Income before income taxes | 280.2 | 273.8 | 481.6 | 508.8 | | Provision for income taxes | 65.0 | 65.6 | 117.3 | 117.2 | | Net income | 215.2 | 208.2 | 364.3 | 391.6 | | Less: Net income attributable to noncontrolling interest | (1.6) | (1.4) | (2.9) | (2.9) | | Net income attributable to Hubbell Incorporated | $213.6 | $206.8 | $361.4 | $388.7 | | Earnings per share: | | | | | | Basic earnings per share | $3.97 | $3.85 | $6.72 | $7.24 | | Diluted earnings per share | $3.94 | $3.82 | $6.67 | $7.19 | Condensed Consolidated Statements of Comprehensive Income This statement presents Hubbell's net income and other comprehensive income components, including foreign currency adjustments and pension plan changes, for the periods ended June 30, 2024 and 2023 | (in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :-------------------------------------------------------------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $215.2 | $208.2 | $364.3 | $391.6 | | Other comprehensive income (loss): | | | | | | Foreign currency translation adjustments | (19.0) | 5.4 | (30.9) | 13.3 | | Defined benefit pension and post-retirement plans, net of taxes | 1.7 | 2.0 | 4.2 | 3.4 | | Unrealized gain (loss) on investments, net of taxes | (0.1) | (0.3) | (0.4) | — | | Unrealized gain (loss) on cash flow hedges, net of taxes | 0.1 | (0.6) | 0.5 | (0.9) | | Other comprehensive income (loss) | (17.3) | 6.5 | (26.6) | 15.8 | | Comprehensive income | 197.9 | 214.7 | 337.7 | 407.4 | | Less: Comprehensive income attributable to noncontrolling interest | 1.6 | 1.4 | 2.9 | 2.9 | | Comprehensive income attributable to Hubbell Incorporated | $196.3 | $213.3 | $334.8 | $404.5 | Condensed Consolidated Balance Sheets This statement provides a snapshot of Hubbell's financial position, detailing assets, liabilities, and equity as of June 30, 2024, and December 31, 2023 | (in millions) | June 30, 2024 | December 31, 2023 | | :--------------------------------------------------------- | :------------ | :---------------- | | ASSETS | | | | Current Assets | | | | Cash and cash equivalents | $397.2 | $336.1 | | Short-term investments | 9.3 | 12.6 | | Accounts receivable (net of allowances) | 893.2 | 785.4 | | Inventories, net | 856.5 | 832.9 | | Other current assets | 118.5 | 129.7 | | Assets held for sale - current | — | 70.5 | | Total Current Assets | 2,274.7 | 2,167.2 | | Property, Plant, and Equipment, net | 674.5 | 652.6 | | Other Assets | | | | Investments | 80.8 | 75.8 | | Goodwill | 2,513.7 | 2,533.4 | | Other intangible assets, net | 1,135.7 | 1,196.0 | | Other long-term assets | 192.3 | 197.1 | | Assets held for sale - non-current | — | 91.9 | | TOTAL ASSETS | $6,871.7 | $6,914.0 | | LIABILITIES AND EQUITY | | | | Current Liabilities | | | | Short-term debt and current portion of long-term debt | $110.5 | $117.4 | | Accounts payable | 586.7 | 563.5 | | Accrued salaries, wages and employee benefits | 110.9 | 173.6 | | Accrued insurance | 76.1 | 79.1 | | Other accrued liabilities | 374.3 | 365.2 | | Liabilities held for sale - current | — | 24.6 | | Total Current Liabilities | 1,258.5 | 1,323.4 | | Long-Term Debt | 1,892.7 | 2,023.2 | | Other Non-Current Liabilities | 654.2 | 660.6 | | Liabilities held for sale - non-current | — | 17.5 | | TOTAL LIABILITIES | 3,805.4 | 4,024.7 | | Commitments and contingencies (Note 15) | | | | Hubbell Incorporated Shareholders' Equity | 3,052.6 | 2,877.0 | | Noncontrolling interest | 13.7 | 12.3 | | TOTAL EQUITY | 3,066.3 | 2,889.3 | | TOTAL LIABILITIES AND EQUITY | $6,871.7 | $6,914.0 | Condensed Consolidated Statements of Cash Flows This statement summarizes Hubbell's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2024 and 2023 | (in millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------------------------------- | :----------------------------- | :----------------------------- | | Cash Flows from Operating Activities | | | | Net cash provided by operating activities | $331.8 | $341.4 | | Cash Flows from Investing Activities | | | | Capital expenditures | (74.2) | (68.9) | | Acquisitions, net of cash acquired | 5.9 | (60.0) | | Proceeds from disposal of business, net of cash | 122.9 | — | | Net cash provided by (used in) investing activities | $56.1 | $(128.2) | | Cash Flows from Financing Activities | | | | Payment of long-term debt | (128.8) | — | | Payment of short-term debt, net | (10.9) | (2.8) | | Payment of dividends | (131.0) | (120.1) | | Acquisition of common shares | (20.0) | (20.0) | | Net cash used in financing activities | $(319.3) | $(165.9) | | Effect of exchange rate changes on cash and cash equivalents | (8.0) | 5.1 | | Increase (decrease) in cash and cash equivalents | 60.6 | 52.4 | | Cash and cash equivalents, beginning of year | 336.1 | 440.5 | | Cash and cash equivalents, end of period | $397.2 | $492.6 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and supplementary information for the condensed consolidated financial statements, clarifying accounting policies and significant transactions NOTE 1 Basis of Presentation This note outlines the basis for preparing the unaudited condensed consolidated financial statements in accordance with GAAP for interim financial information, including normal recurring adjustments. It also details the Company's supplier finance programs and recently issued accounting pronouncements - The financial statements are prepared in accordance with GAAP for interim financial information, including normal recurring adjustments. Operating results for the first six months of 2024 are not necessarily indicative of the full year[33] Supplier Finance Program Obligations (Six Months Ended June 30, 2024) | Confirmed obligations outstanding at the beginning of the period | (in millions) | | :--------------------------------------------------------------- | :------------ | | Invoices confirmed during the period | $101.3 | | Confirmed invoices paid during the period | 174.0 | | Confirmed obligations outstanding at the end of the period | (167.2) | | Confirmed obligations outstanding at the end of the period | $108.1 | Commercial Card Program Obligations (Six Months Ended June 30, 2024) | Confirmed obligations outstanding at the beginning of the period | (in millions) | | :--------------------------------------------------------------- | :------------ | | Invoices confirmed during the period | $2.0 | | Confirmed invoices paid during the period | 11.6 | | Confirmed obligations outstanding at the end of the period | (11.9) | | Confirmed obligations outstanding at the end of the period | $1.7 | - The Company adopted ASU 2022-04 on Supplier Finance Programs in Q1 2023, with rollforward information effective Q1 2024. It is assessing the impact of ASU 2023-07 on Segment Reporting and ASU 2023-09 on Income Tax Disclosures, effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively[34][37][237] NOTE 2 Business Acquisitions and Dispositions This note details the Company's acquisition activities in 2023, including Systems Control, Balestro, and EIG, and the disposition of its residential lighting business in Q1 2024, which resulted in a pre-tax loss - In Q4 2023, Hubbell acquired Systems Control for approximately $1.1 billion, a manufacturer of substation control and relay panels, reported in the Utility Solutions segment[239] - In Q4 2023, Hubbell acquired Balestro for approximately $87 million, a Brazilian manufacturer of electrical utility products, reported in the Utility Solutions segment[269] - In Q2 2023, Hubbell acquired EI Electronics LLC (EIG) for approximately $60 million, providing energy management and power quality monitoring solutions, reported in the Utility Solutions segment[216] - In Q1 2024, the Company completed the sale of its residential lighting business for $131 million cash, recording a pre-tax loss of $5.3 million[41][116] NOTE 3 Revenue This note explains the Company's revenue recognition policies, primarily at the point of shipment, and provides disaggregated revenue by business group and geographic region. It also details contract balances and unsatisfied performance obligations - Revenue is primarily recognized at the point of shipment, with some customized products in Utility Solutions recognized over time based on costs incurred[243][43] Disaggregated Net Sales by Business Group (Six Months Ended June 30) | in millions | 2024 | 2023 | | :------------------------- | :---------- | :---------- | | Grid Infrastructure | $1,267.3 | $1,144.8 | | Grid Automation | 553.2 | 467.6 | | Total Utility Solutions| $1,820.5| $1,612.4| | Electrical Products | $434.6 | $417.0 | | Connection and Bonding | 367.8 | 319.6 | | Industrial Controls | 207.5 | 203.0 | | Retail and Builder | 21.2 | 99.3 | | Total Electrical Solutions| $1,031.1| $1,038.9| | TOTAL | $2,851.6| $2,651.3| Disaggregated Net Sales by Geographic Region (Six Months Ended June 30) | in millions | 2024 | 2023 | | :------------------------- | :---------- | :---------- | | Total Utility Solutions| $1,820.5| $1,612.4| | United States | 1,732.9 | 1,526.9 | | International | 87.6 | 85.5 | | Total Electrical Solutions| $1,031.1| $1,038.9| | United States | 882.1 | 904.2 | | International | 149.0 | 134.7 | | TOTAL | $2,851.6| $2,651.3| - Contract liabilities increased by $29.9 million to $148.5 million as of June 30, 2024, primarily due to a net increase in current year deferrals from advance payments, partially offset by revenue recognition[45] - The Company had approximately $100 million of unsatisfied performance obligations for long-term contracts, mainly in the Utility Solutions segment, expected to be recognized over the next two years[247] NOTE 4 Segment Information This note provides financial information for Hubbell's two reporting segments: Utility Solutions and Electrical Solutions, detailing their product offerings, markets served, and financial performance - The Utility Solutions segment designs, manufactures, and sells electrical distribution, transmission, substation, and telecommunications products, including smart meters and communication systems, serving various utility infrastructure markets[47] - The Electrical Solutions segment offers stock and custom electrical products, rough-in products, connectors, grounding products, lighting, and industrial controls for industrial, commercial, institutional, and residential markets[279] Segment Financial Performance (Six Months Ended June 30) | in millions | Net Sales 2024 | Net Sales 2023 | Operating Income 2024 | Operating Income 2023 | Operating Income as a % of Net Sales 2024 | Operating Income as a % of Net Sales 2023 | | :----------------- | :------------- | :------------- | :-------------------- | :-------------------- | :---------------------------------------- | :---------------------------------------- | | Utility Solutions | $1,820.5 | $1,612.4 | $353.6 | $377.0 | 19.4% | 23.4% | | Electrical Solutions | 1,031.1 | 1,038.9 | 176.1 | 159.6 | 17.1% | 15.4% | | TOTAL | $2,851.6 | $2,651.3 | $529.7 | $536.6 | 18.6% | 20.2% | NOTE 5 Inventories, net This note provides a breakdown of the Company's inventories, net, as of June 30, 2024, and December 31, 2023 Inventories, net (in millions) | | June 30, 2024 | December 31, 2023 | | :---------------------------------- | :------------ | :---------------- | | Raw material | $398.5 | $394.1 | | Work-in-process | 214.0 | 189.2 | | Finished goods | 405.8 | 412.1 | | Subtotal | 1,018.3 | 995.4 | | Excess of FIFO over LIFO cost basis | (161.8) | (162.5) | | TOTAL | $856.5 | $832.9 | NOTE 6 Goodwill and Other Intangible Assets, net This note details the carrying values of goodwill and other intangible assets, net, by segment, and discusses the annual impairment tests performed as of April 1, 2024, which indicated no impairment Changes in Goodwill by Segment (Six Months Ended June 30, 2024) | | Utility Solutions (in millions) | Electrical Solutions (in millions) | Total (in millions) | | :----------------------------- | :------------------------------ | :--------------------------------- | :------------------ | | BALANCE AT DECEMBER 31, 2023 | $1,897.5 | $635.9 | $2,533.4 | | Prior year acquisitions | (6.5) | — | (6.5) | | Foreign currency translation | (11.9) | (1.3) | (13.2) | | BALANCE AT JUNE 30, 2024 | $1,879.1 | $634.6 | $2,513.7 | Other Intangible Assets, net (in millions) | | June 30, 2024 Gross Amount | June 30, 2024 Accumulated Amortization | December 31, 2023 Gross Amount | December 31, 2023 Accumulated Amortization | | :--------------------------------------- | :------------------------- | :------------------------------------- | :----------------------------- | :----------------------------------------- | | Definite-lived: | | | | | | Patents, tradenames and trademarks | $233.0 | $(90.1) | $233.7 | $(84.8) | | Customer relationships, developed technology and other | 1,509.0 | (550.0) | 1,513.1 | (500.1) | | TOTAL DEFINITE-LIVED INTANGIBLES | $1,742.0 | $(640.1) | $1,746.8 | $(584.9) | | Indefinite-lived: | | | | | | Tradenames and other | 33.8 | — | 34.1 | — | | TOTAL OTHER INTANGIBLE ASSETS | $1,775.8 | $(640.1) | $1,780.9 | $(584.9) | - The Company completed its annual goodwill and indefinite-lived intangible asset impairment tests as of April 1, 2024, and found that the estimated fair values significantly exceeded their carrying values, indicating no impairment[252][283][284] - Amortization expense for definite-lived intangible assets was $57.0 million for the six months ended June 30, 2024, up from $35.9 million in the prior year, with approximately 85% using an accelerated amortization method[282] NOTE 7 Other Accrued Liabilities This note provides a detailed breakdown of the Company's other accrued liabilities as of June 30, 2024, and December 31, 2023 Other Accrued Liabilities (in millions) | | June 30, 2024 | December 31, 2023 | | :-------------------------------------- | :------------ | :---------------- | | Customer program incentives | $41.0 | $57.4 | | Accrued income taxes | 21.1 | 21.1 | | Contract liabilities - deferred revenue | 141.5 | 111.5 | | Customer refund liability | 19.9 | 18.1 | | Accrued warranties short-term | 15.5 | 15.6 | | Current operating lease liabilities | 33.7 | 30.6 | | Other | 101.6 | 110.9 | | TOTAL | $374.3 | $365.2 | NOTE 8 Other Non-Current Liabilities This note provides a detailed breakdown of the Company's other non-current liabilities as of June 30, 2024, and December 31, 2023 Other Non-Current Liabilities (in millions) | | June 30, 2024 | December 31, 2023 | | :---------------------------- | :------------ | :---------------- | | Deferred income taxes, net | $132.2 | $135.0 | | Pension and other benefits | 14.4 | 14.4 | | Long-term operating lease liabilities | 248.2 | 240.3 | | Environmental liabilities | 24.5 | 23.6 | | Accrued insurance | 114.0 | 118.8 | | Other | 120.9 | 128.5 | | TOTAL | $654.2 | $660.6 | NOTE 9 Total Equity This note summarizes the changes in total equity for Hubbell Incorporated for the three and six months ended June 30, 2024, and 2023, including net income, other comprehensive income, stock-based compensation, share repurchases, and dividends Changes in Total Equity (Six Months Ended June 30, 2024) | | Common Stock (in millions) | Additional Paid-in Capital (in millions) | Retained Earnings (in millions) | Accumulated Other Comprehensive Income (Loss) (in millions) | Total Hubbell Shareholders' Equity (in millions) | Noncontrolling interest (in millions) | | :------------------------------------------------ | :------------------------- | :--------------------------------------- | :------------------------------ | :---------------------------------------------------------- | :----------------------------------------------- | :------------------------------------ | | BALANCE AT DECEMBER 31, 2023 | $0.6 | $6.1 | $3,182.7 | $(312.4) | $2,877.0 | $12.3 | | Net income | — | — | 361.4 | — | 361.4 | 2.9 | | Other comprehensive (loss) income | — | — | — | (26.6) | (26.6) | — | | Stock-based compensation | — | 18.9 | — | — | 18.9 | — | | Acquisition/surrender of common shares | — | (23.1) | (23.9) | — | (47.0) | — | | Cash dividends declared ($2.44 per share) | — | — | (131.3) | — | (131.3) | — | | Dividends to noncontrolling interest | — | — | — | — | — | (1.5) | | Directors deferred compensation | — | 0.2 | — | — | 0.2 | — | | BALANCE AT JUNE 30, 2024 | $0.6 | $2.1 | $3,388.9 | $(339.0) | $3,052.6 | $13.7 | Changes in Total Equity (Six Months Ended June 30, 2023) | | Common Stock (in millions) | Additional Paid-in Capital (in millions) | Retained Earnings (in millions) | Accumulated Other Comprehensive Income (Loss) (in millions) | Total Hubbell Shareholders' Equity (in millions) | Noncontrolling interest (in millions) | | :------------------------------------------------ | :------------------------- | :--------------------------------------- | :------------------------------ | :---------------------------------------------------------- | :----------------------------------------------- | :------------------------------------ | | BALANCE AT DECEMBER 31, 2022 | $0.6 | $0.0 | $2,705.5 | $(345.2) | $2,360.9 | $9.7 | | Net income | — | — | 391.6 | — | 391.6 | 2.9 | | Other comprehensive (loss) income | — | — | — | 15.8 | 15.8 | — | | Stock-based compensation | — | 16.1 | — | — | 16.1 | — | | Acquisition/surrender of common shares | — | (16.3) | (24.5) | — | (40.8) | — | | Cash dividends declared ($2.24 per share) | — | — | (120.2) | — | (120.2) | — | | Dividends to noncontrolling interest | — | — | — | — | — | (2.2) | | Directors deferred compensation | — | 0.2 | — | — | 0.2 | — | | BALANCE AT JUNE 30, 2023 | $0.6 | $0.0 | $2,949.5 | $(329.4) | $2,620.7 | $10.4 | NOTE 10 Accumulated Other Comprehensive Loss This note provides a summary of the changes in Accumulated Other Comprehensive Loss (net of tax) for the six months ended June 30, 2024, detailing components such as cash flow hedges, pension and post-retirement benefit adjustments, and cumulative translation adjustments Changes in Accumulated Other Comprehensive Loss (Six Months Ended June 30, 2024) | | Cash flow hedge gain (loss) (in millions) | Unrealized gain (loss) on available-for-sale securities (in millions) | Pension and post retirement benefit plan adjustment (in millions) | Cumulative translation adjustment (in millions) | Total (in millions) | | :----------------------------------------------------- | :---------------------------------------- | :-------------------------------------------------------------------- | :---------------------------------------------------------------- | :---------------------------------------------- | :------------------ | | BALANCE AT DECEMBER 31, 2023 | $(0.2) | $(178.4) | $(133.5) | $(312.4) | | | Other comprehensive income (loss) before reclassifications | (0.4) | — | (30.9) | (30.7) | | | Amounts reclassified from accumulated other comprehensive income (loss) | — | 4.2 | — | 4.1 | | | Current period other comprehensive income (loss) | (0.4) | 4.2 | (30.9) | (26.6) | | | BALANCE AT JUNE 30, 2024 | $(0.6) | $(174.2) | $(164.4) | $(339.0) | | Reclassified Gains (Losses) into Earnings (Six Months Ended June 30) | | 2024 (in millions) | 2023 (in millions) | Location of Gain (Loss) Reclassified into Income | | :------------------------------------------------------------ | :----------------- | :----------------- | :----------------------------------------------- | | Cash flow hedges gain (loss) net of tax | $0.1 | $0.5 | Net sales, Cost of goods sold | | Amortization of defined benefit pension and post retirement benefit items net of tax | $(4.2) | $(3.4) | | | Gains (losses) reclassified into earnings net of tax | $(4.1) | $(2.9) | | NOTE 11 Earnings Per Share This note details the computation of basic and diluted earnings per share using the two-class method, considering restricted stock awards as participating securities - The Company computes EPS using the two-class method, treating service-based and performance-based restricted stock awards as participating securities due to their non-forfeitable right to dividends[290] Earnings Per Share Computation (Six Months Ended June 30) | (in millions, except per share amounts) | 2024 | 2023 | | :-------------------------------------- | :----- | :----- | | Net income available to common shareholders | $360.7 | $387.8 | | Average number of common shares outstanding | 53.7 | 53.6 | | Potential dilutive common shares | 0.4 | 0.3 | | Average number of diluted shares outstanding | 54.1 | 53.9 | | Basic earnings per share | $6.72 | $7.24 | | Diluted earnings per share | $6.67 | $7.19 | NOTE 12 Pension and Other Benefits This note outlines the net periodic benefit cost for pension and other benefits and details employer contributions to pension plans Net Periodic Benefit Cost (Six Months Ended June 30) | | Pension Benefits 2024 (in millions) | Pension Benefits 2023 (in millions) | Other Benefits 2024 (in millions) | Other Benefits 2023 (in millions) | | :--------------------------------------- | :---------------------------------- | :---------------------------------- | :-------------------------------- | :-------------------------------- | | Service cost | $0.3 | $0.2 | $0.0 | $0.0 | | Interest cost | 16.6 | 17.5 | 0.4 | 0.4 | | Expected return on plan assets | (15.3) | (14.0) | — | — | | Amortization of prior service cost | 0.2 | 0.2 | — | — | | Amortization of actuarial losses (gains) | 5.4 | 5.2 | (0.2) | (0.2) | | NET PERIODIC BENEFIT COST | $7.2 | $9.1 | $0.2 | $0.2 | - The Company contributed $1.3 million to its foreign pension plans during the first six months of 2024 and made no contributions to its qualified domestic defined benefit pension plan, though additional voluntary contributions may be made[60] NOTE 13 Guarantees This note describes the Company's product warranty policies, including accrual methods and changes in the accrual for product warranties - The Company accrues estimated product warranty costs at the time of sale based on historical data, with adjustments made as new information becomes available. Fair value and maximum potential payment related to guarantees were not material[293][61] Changes in Accrual for Product Warranties (Six Months Ended June 30) | | 2024 (in millions) | 2023 (in millions) | | :---------------------------- | :----------------- | :----------------- | | BALANCE AT JANUARY 1 | $39.2 | $46.2 | | Provision | 4.6 | 6.5 | | Expenditures/payments/other | (3.8) | (6.9) | | BALANCE AT JUNE 30 | $40.0 | $45.8 | NOTE 14 Fair Value Measurement This note defines fair value measurement and its hierarchy, and provides a breakdown of financial assets and liabilities measured at fair value, including investments, deferred compensation plans, and long-term debt - The Company's financial instruments include trade receivables, cash equivalents, and investments. Credit risk is managed through a diverse customer base and monitoring creditworthiness, with historically minimal bad debt write-offs[63] Financial Assets and Liabilities at Fair Value (June 30, 2024) | Asset (Liability) | Quoted Prices Active Markets Identical Assets (Level 1) (in millions) | Quoted Prices in Active Markets for Similar Assets (Level 2) (in millions) | Unobservable inputs which little or no data exists (Level 3) (in millions) | Total (in millions) | | :------------------------------------- | :------------------------------------------------------ | :----------------------------------------------------------- | :----------------------------------------------------------- | :------------------ | | Money market funds | $175.4 | $— | $— | 175.4 | | Available for sale investments | — | 63.4 | — | 63.4 | | Trading securities | 26.7 | — | — | 26.7 | | Deferred compensation plan liabilities | (26.7) | — | — | (26.7) | | Derivatives: Forward exchange contracts-Assets | — | 0.2 | — | 0.2 | | TOTAL | $175.4 | $63.6 | $— | $239.0 | - The estimated fair value of long-term debt was $1,818.3 million at June 30, 2024, compared to a carrying value of $1,911.4 million, using Level 2 inputs (quoted market prices for similar liabilities)[68] NOTE 15 Commitments and Contingencies This note addresses the Company's involvement in various legal proceedings arising in the normal course of business, including product liability, intellectual property, workers' compensation, and environmental matters. The Company accrues for probable and estimable costs - The Company is subject to various legal proceedings and accrues liabilities for contingencies that are probable and reasonably estimable, continually reassessing the likelihood of adverse outcomes and potential losses[69] NOTE 16 Restructuring Costs and Other This note details the restructuring actions initiated in 2024 and prior years, including costs incurred for facility consolidation and workforce reductions, and summarizes the accrued liabilities for these activities - The Company incurred $9.7 million in GAAP restructuring costs during the first six months of 2024, primarily for severance and employee benefits, asset impairments, and facility closure costs, with an additional $5.3 million expected[15][301] Total Restructuring Costs (GAAP measure) (in millions) | | Costs incurred in the six months ended June 30, 2024 | Additional expected costs | Expected completion date | | :--------------------------------- | :--------------------------------------------------- | :------------------------ | :----------------------- | | 2024 Restructuring Actions | 8.5 | $4.2 | 2025 | | 2023 and Prior Restructuring Actions | 1.2 | 1.1 | 2025 | | Total Restructuring cost (GAAP measure) | 9.7 | $5.3 | | Accrued Liabilities for Restructuring Actions (June 30, 2024) | | Beginning Restructuring Balance 1/1/24 (in millions) | Accrued Pre-tax Restructuring Costs (in millions) | Utilization and Foreign Exchange (in millions) | Ending Accrued Restructuring Balance 6/30/24 (in millions) | | :--------------------------------- | :------------------------------------- | :---------------------------------- | :------------------------------- | :------------------------------------------- | | Total 2024 Restructuring Actions | $0.0 | $8.5 | $(1.3) | $7.2 | | Total 2023 and Prior Restructuring Actions | $4.0 | $1.2 | $(3.8) | $1.4 | | Total Restructuring Actions | $4.0 | $9.7 | $(5.1) | $8.6 | NOTE 17 Debt and Financing Arrangements This note provides details on the Company's debt and financing arrangements, including long-term debt, the Term Loan Agreement, the Revolving Credit Facility, unsecured senior notes, and short-term debt Long-Term Debt (in millions) | | Maturity | June 30, 2024 | December 31, 2023 | | :-------------------------------------------------------------------------- | :------- | :------------ | :---------------- | | Senior notes at 3.35% | 2026 | $398.9 | $398.6 | | Senior notes at 3.15% | 2027 | 298.3 | 298.0 | | Senior notes at 3.50% | 2028 | 447.4 | 447.0 | | Senior notes at 2.300% | 2031 | 297.0 | 296.7 | | Term loan, net of current portion of $18.7 million and $15.0 million, respectively | 2026 | 451.1 | 582.9 | | TOTAL LONG-TERM DEBT | | $1,892.7 | $2,023.2 | - The Company entered into a $600 million unsecured Term Loan Agreement in December 2023, with quarterly principal payments and full maturity in December 2026. $128.8 million in principal payments were made in the first six months of 2024[18][303] - The 2021 Credit Facility provides a $750 million committed revolving credit facility, which was undrawn as of June 30, 2024, and can be increased to $1.25 billion[19][31] - Short-term debt and current portion of long-term debt totaled $110.5 million at June 30, 2024, including $90.0 million in commercial paper borrowings and $18.7 million of the Term Loan's current portion[25][104][305] NOTE 18 Stock-Based Compensation This note describes the Company's long-term incentive program, which includes restricted stock, stock appreciation rights (SARs), and performance shares, detailing their grant dates, fair value measurements, and vesting conditions - The Company's long-term incentive program includes restricted stock, SARs, and performance shares, with awards expensed over their service periods. New shares are issued to settle awards[105][306] - In February 2024, the Company granted 37,817 restricted stock awards with a fair value of $352.55 per share, vesting over three years[339] - In February 2024, 62,908 SAR awards were granted, with a weighted average grant date fair value of $88.03, measured using the Black-Scholes model. SARs vest in three equal installments over three years and expire in ten years[108][309][78] - In February 2024, 8,736 performance shares with a market condition (TSR vs. S&P Capital Goods 900 index) and 17,770 performance shares with internal performance conditions (Net sales growth and operating profit margin) were granted. Payouts range from 0%-200% over a three-year period[79][111][343] ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's discussion and analysis of Hubbell's financial condition and results of operations for the three and six months ended June 30, 2024, compared to the prior year, including an executive overview, detailed results by segment, and analysis of liquidity and capital resources Executive Overview of the Business This overview describes Hubbell's global operations, strategic focus on critical infrastructure, and ongoing initiatives for cost optimization and growth - Hubbell is a global manufacturer of electrical products and utility solutions, serving critical infrastructure across 'In Front of the Meter,' 'On The Edge,' and 'Behind the Meter' applications[139] - The Company's long-term strategy focuses on reliable and innovative solutions, competitive cost structure, organic growth complemented by acquisitions, and effective capital allocation[113][345] - Ongoing restructuring and productivity initiatives aim to optimize manufacturing footprint, cost structure, and workforce efficiency, while managing inflationary pressures through pricing actions[140][315] Overview This section provides a high-level summary of Hubbell's financial performance for the second quarter of 2024, highlighting key drivers of sales and margin changes - Second quarter 2024 net sales increased by 6% to $1,452.5 million, driven by 2% organic growth from price realization and 4% from acquisitions net of divestitures[347] - Organic growth in Electrical Solutions was strong, led by datacenter and renewables, while Utility Solutions saw a 1.5% organic decline due to customer inventory management and weak telcom markets, offset by transmission, substation, and grid automation strength[142] - Operating margin contracted by 40 basis points to 20.7% in Q2 2024, but adjusted operating margin expanded by 40 basis points to 22.8%, primarily due to favorable price realization and improved operational productivity, partially offset by cost inflation and investments[376] Results of Operations – Second Quarter of 2024 compared to the Second Quarter of 2023 This section analyzes Hubbell's financial performance for the second quarter of 2024 compared to 2023, detailing changes in sales, costs, and profitability SUMMARY OF CONDENSED CONSOLIDATED RESULTS This table summarizes Hubbell's condensed consolidated financial results for the three months ended June 30, 2024 and 2023, including key income statement metrics | | 2024 (in millions) | % of Net sales | 2023 (in millions) | % of Net sales | | :-------------------------------------------------------- | :----------------- | :------------- | :----------------- | :------------- | | Net sales | $1,452.5 | | $1,365.9 | | | Cost of goods sold | 943.8 | 65.0% | 869.7 | 63.7% | | Gross profit | 508.7 | 35.0% | 496.2 | 36.3% | | Selling & administrative ("S&A") expense | 207.5 | 14.3% | 208.4 | 15.2% | | Operating income | 301.2 | 20.7% | 287.8 | 21.1% | | Net income | 215.2 | 14.8% | 208.2 | 15.2% | | Net income attributable to Hubbell Incorporated | 213.6 | 14.7% | 206.8 | 15.1% | | Diluted Earnings Per Share | $3.94 | | $3.82 | | Non-GAAP Financial Measures This section reconciles GAAP financial measures to non-GAAP adjusted measures, providing additional insights into Hubbell's operational performance - The Company uses 'adjusted' operating measures, excluding amortization of acquisition-related intangibles, transaction, integration & separation costs, and gains/losses on business dispositions, to provide insights into underlying performance and comparability[144][118][351] - Organic net sales growth, a non-GAAP measure, excludes the impact of acquisitions, divestitures, and foreign currency fluctuations to better reflect underlying operational trends[353] Adjusted Operating Income Reconciliation (Three Months Ended June 30) | | 2024 (in millions) | % of Net sales | 2023 (in millions) | % of Net sales | | :---------------------------------------------------- | :----------------- | :------------- | :----------------- | :------------- | | Operating income (GAAP measure) | $301.2 | 20.7% | $287.8 | 21.1% | | Amortization of acquisition-related intangible assets | 28.5 | 2.0% | 18.1 | 1.3% | | Transaction, integration & separation costs | 1.7 | 0.1% | — | —% | | Adjusted operating income (non-GAAP measure) | $331.4 | 22.8% | $305.9 | 22.4% | Adjusted Net Income and EPS Reconciliation (Three Months Ended June 30) | | 2024 (in millions) | Diluted Per Share | 2023 (in millions) | Diluted Per Share | | :--------------------------------------------------------------------- | :----------------- | :---------------- | :----------------- | :---------------- | | Net income attributable to Hubbell Incorporated (GAAP measure) | $213.6 | 3.95 | $206.8 | 3.83 | | Amortization of acquisition-related intangible assets | 28.5 | 0.53 | 18.1 | 0.34 | | Transaction, integration & separation costs | 1.7 | 0.03 | — | — | | Subtotal | $243.8 | 4.51 | $224.9 | 4.17 | | Income tax effects | 7.3 | 0.13 | 4.5 | 0.09 | | Adjusted net income attributable to Hubbell Incorporated (nonGAAP measure) | $236.5 | 4.38 | $220.4 | 4.08 | | Less: Earnings allocated to participating securities | (0.5) | (0.01) | (0.5) | (0.01) | | Adjusted net income available to common shareholders (nonGAAP measure) | $236.0 | 4.37 | $219.9 | 4.07 | Net Sales This section analyzes the drivers of Hubbell's net sales performance for the second quarter of 2024, including organic growth, acquisitions, and divestitures - Net sales in Q2 2024 increased by $86.6 million (6.3%) to $1,452.5 million, driven by 1.9% organic growth (price realization) and 8.0% from acquisitions, partially offset by 3.5% from divestitures[122][150] Cost of Goods Sold and Gross Profit This section examines the changes in Hubbell's cost of goods sold and gross profit margin for the second quarter of 2024, highlighting factors impacting profitability - Cost of goods sold increased by 130 basis points to 65.0% of net sales in Q2 2024, leading to a gross profit margin contraction to 35.0%. This was due to higher intangible amortization, material costs, and inflation, partially offset by favorable price realization and improved productivity[151] Selling & Administrative Expenses This section details the changes in Hubbell's selling and administrative expenses for the second quarter of 2024, including factors influencing cost efficiency - S&A expense decreased by $0.9 million (0.4%) to $207.5 million in Q2 2024, primarily due to lower professional services and employee incentive expense, despite the impact of 2023 acquisitions[123] - S&A expense as a percentage of Net sales improved to 14.3% in Q2 2024 from 15.2% in Q2 2023[123] Total Other Expense This section explains the changes in Hubbell's total other expense for the second quarter of 2024, primarily focusing on interest expense fluctuations - Total other expense increased by $7.0 million to $21.0 million in Q2 2024, mainly due to a $10.6 million increase in net interest expense from the Systems Control acquisition debt and higher market interest rates[152] Income Taxes This section discusses the effective tax rate and its drivers for Hubbell during the second quarter of 2024, including earnings mix and tax benefits - The effective tax rate decreased to 23.2% in Q2 2024 from 24.0% in Q2 2023, primarily due to earnings mix, partially offset by lower tax benefits from stock-based compensation[124] Net Income Attributable to Hubbell Incorporated and Earnings Per Diluted Share This section reports Hubbell's net income and diluted earnings per share for the second quarter of 2024, including adjusted non-GAAP measures - Net income attributable to Hubbell Incorporated increased by 3.3% to $213.6 million in Q2 2024, with diluted EPS increasing by 3% to $3.94[153][377] - Adjusted net income attributable to Hubbell Incorporated increased by 7% to $236.5 million in Q2 2024[153] Segment Results Thi