Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. HUBBELL INC (48898) 10-Q published on May 01, 2019 at 8:12 am
Reporting Period: Mar 30, 2019
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.
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.
We have operating leases for office space, certain manufacturing facilities, office and manufacturing equipment, and vehicles. Our finance leases are not material. The term of these leases is generally 10 years or less, in some cases with options to extend the term for up to 5 years, or options to terminate after one year without penalty. In general, our vehicle lease payments contain a monthly base rent payment which is adjusted based on changes to the LIBOR rate over the lease term. Certain other lease agreements contain variable payments related to a consumer price index or similar metric. Any change in payment amounts as a result of a change in a rate or index are considered variable lease payments and recognized as profit or loss when incurred.
Net income attributable to Hubbell was $72.3 million in the first quarter of 2019 and increased twenty-four percent as compared to the first quarter of 2018, primarily as a result of higher operating income discussed above, partially offset by an increase in the effective tax rate during the 2019 period. Excluding amortization of acquisition-related intangibles and Aclara transaction costs, adjusted net income attributable to Hubbell was $85.9 million in the first quarter of 2019 and increased three percent compared to the first quarter of 2018. Earnings per diluted share in the first quarter of 2019 increased twenty-six percent as compared to the first quarter of 2018. Adjusted earnings per diluted share in the first quarter of 2019 increased four percent as compared to the first quarter of 2018 and reflects higher adjusted net income as well as a decline in the average number of diluted shares outstanding of 0.5 million as compared to the same period of the prior year.
Operating income in the Power segment for the first quarter of 2019 increased by thirty-six percent to $52.3 million as compared to the same period of 2018. Operating margin in the first quarter of 2019 increased to 11.4% as compared to 10.3% in the same period of 2018. The increase in operating income and operating margin reflects $8.7 million of Aclara transaction costs incurred in the first quarter of 2018 that did not repeat in the first quarter of 2019, as well as intangible amortization associated with the Aclara acquisition that was approximately $3.0 million lower in the first quarter of 2019. Excluding amortization of acquisition-related intangibles and Aclara transaction costs, operating margin decreased by 280 basis points to 14.2%, primarily driven by three months of operating results of the Aclara business in the first quarter of 2019 as compared to two months of operating results of the Aclara business in the first quarter of 2018, and unfavorable Aclara net sales mix. The decrease attributed to those items was partially offset by a benefit from higher net sales volume and favorable price realization that was in excess of material cost increases including tariffs.