Business Acquisitions

On February 2, 2018, the Company completed the acquisition of 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 issuance of 3.50% Senior Notes due 2028 in the aggregate principal amount of $450 million and issuances of commercial paper.

Preliminary Allocation of Consideration Transferred to Net Assets Acquired

The following table presents the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the Company's acquisition of Aclara. 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.” As the Company finalizes the fair value 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 is a preliminary estimate of the assets acquired and the liabilities assumed by the Company in the merger, reconciled to the estimated acquisition consideration (in millions):



Accounts receivable	$	119.6
Inventories	77.1
Other current assets	9.0
Property, plant and equipment	32.2
Intangible assets	444.0
Accounts payable	(51.8		)
Other accrued liabilities	(79.4		)
Deferred tax liabilities, net	(78.2		)
Other non-current liabilities	(38.8		)
Noncontrolling interest	(2.5		)
Goodwill	685.1
Total Estimate of Consideration Transferred, Net of Cash Acquired	$	1,116.3

Cash used for the acquisition of businesses, net of cash acquired as reported in the Condensed Consolidated Statement of Cash Flows for the nine months ended September 30, 2018 is $1,118.0 million and includes approximately $1.7 million of deferred purchase price and net working capital settlements relating to acquisitions completed in prior years.

In connection with the merger, the Company recorded goodwill of $685.1 million, which is attributable primarily to expected synergies, expanded market opportunities, and other expected benefits that the Company believes will result from combining its operations with the operations of Aclara. The historical goodwill of Aclara resulting from their prior asset acquisitions is expected to be deductible for tax purposes. Any incremental goodwill created in the merger is not deductible for tax purposes. The goodwill resulting from the acquisition of Aclara is subject to potential significant changes as the purchase price allocation is completed. Goodwill has been allocated to the Power segment.

The preliminary purchase price allocation to identifiable intangible assets acquired is as follows:



	Estimated Fair Value		Weighted Average Estimated Useful Life
Patents, tradenames and trademarks	$	55.0	20.0
Customer relationships	204.0		17.0
Developed technology	185.0		13.0
Total	$	444.0

Customer relationship and developed technology intangible assets acquired are amortized using 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.

Supplemental Pro-Forma Data

Aclara’s results of operations have been included in the Company's 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. Following that approach, for the purpose of the pro-forma results presented in the tables below, certain costs incurred by the Company during the three and nine months ended September 30, 2018 and three months ended December 31, 2017 have been reclassified out of their respective periods and into the pro-forma periods ended September 30, 2017. Those reclassifications primarily include the following, which represent the amount of increase or (decrease) to reported results to arrive at the pro forma results. Per share amounts in 2018 reflect the reduction in the U.S. federal corporate income tax rate from 35% to 21%:



(pre-tax in millions, except per share amounts)	Three Months Ended September 30,						Per Diluted Share
	2018			2017			2018			2017
Aclara transaction costs incurred in the third quarter of 2018⁽¹⁾	$	1.5		$	(1.5	)	$	0.02		$	(0.02	)
Intangible amortization and inventory step up amortization⁽²⁾	(1.9		)	(10.0		)	(0.03		)	(0.11		)
Interest expense⁽³⁾	4.6			(8.0		)	0.06			(0.09		)



(pre-tax in millions, except per share amounts)	Nine Months Ended September 30,						Per Diluted Share
	2018			2017			2018			2017
Aclara transaction costs incurred in the first nine months of 2018⁽¹⁾	$	12.1		$	(12.1	)	$	0.18		$	(0.16	)
Aclara transaction costs incurred in the fourth quarter of 2017⁽¹⁾	—			(7.1		)	—			(0.10		)
Intangible amortization and inventory step up⁽²⁾	(1.3		)	(36.8		)	(0.02		)	(0.41		)
Interest expense⁽³⁾	3.1			(22.3		)	0.04			(0.25		)

⁽¹⁾ Aclara transaction costs incurred in the three and nine months ended September 30, 2018 have been reclassified into the comparable pro-forma September 30, 2017 period. The pro-forma nine months ended September 30, 2017 period also includes transaction costs incurred by the Company during the fourth quarter of 2017.

⁽²⁾ Aclara intangible amortization and inventory step up amortization incurred in three and nine months ended September 30, 2018 has been reclassified into the comparable pro-forma September 30, 2017 period and, in the nine month period, increased to reflect the assumption the transaction was completed on January 1, 2017. The pro-forma September 30, 2018 periods include the intangible amortization that would be incurred assuming the transaction had been completed on January 1, 2017.

⁽³⁾ Interest expense incurred in the three and nine months ended September 30, 2018, reflecting amounts incurred from the date of the acquisition, has been reclassified into the pro-forma September 30, 2017 period and, in the nine month period, increased to reflect the assumption the transaction was completed on January 1, 2017. The pro-forma September 30, 2018 period includes the interest expense that would have been incurred assuming the transaction 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, as described above:



	Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
Net sales	$	1,180.4	$	1,112.7	$	3,385.8	$	3,150.2
Net income attributable to Hubbell	$	117.3	$	77.4	$	284.5	$	193.7
Earnings Per Share:
Basic	$	2.14	$	1.41	$	5.18	$	3.52
Diluted	$	2.13	$	1.40	$	5.16	$	3.50

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.