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 an aggregate principal amount of $500 million, the issuance of 3.50% Senior Notes due 2028 in an aggregate principal amount of $450 million and commercial paper borrowings.

Allocation of Consideration Transferred to Net Assets Acquired

The following table presents the determination of the fair value of identifiable assets acquired and liabilities assumed from the Company's acquisition of Aclara. 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 following are the assets acquired and the liabilities assumed by the Company in the Aclara acquisition, reconciled to the acquisition consideration (in millions):



Accounts receivable	$	118.1
Inventories	73.5
Other current assets	8.5
Property, plant and equipment	30.9
Intangible assets	434.0
Accounts payable	(51.8		)
Other accrued liabilities	(93.3		)
Deferred tax liabilities, net	(42.1		)
Other non-current liabilities	(67.7		)
Noncontrolling interest	(2.5		)
Goodwill	708.7
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 Consolidated Statement of Cash Flows for the twelve months ended December 31, 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 Aclara transaction, the Company recorded goodwill of $708.7 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. For tax purposes, $159.9 million of the Aclara historical goodwill is deductible. The incremental goodwill created as a result of the acquisition is not deductible for tax purposes. Goodwill has been allocated to the Power segment.

The purchase price allocation to identifiable intangible assets acquired is as follows (in millions, except useful life amounts):



	Estimated Fair Value		Weighted Average Estimated Useful Life
Patents, tradenames and trademarks	$	55.0	20.0
Customer relationships	194.0		18.0
Developed technology	185.0		13.0
Total	$	434.0

Customer relationships 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.

For the year ended December 31, 2018 and 2017, the Company recorded transaction costs of $12.8 million and $7.1 million, respectively, relating to the Acquisition of Aclara. These costs were recorded in the respective financial statement line items as follows (in millions):



	Twelve Months Ended December 31,
	2018		2017
Selling & administrative expense	$	9.5	$	6.7
Interest expense	3.3		0.4
Total Aclara Transaction Costs	$	12.8	$	7.1

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 $611.1 million and operating income of approximately $29.6 million, before any transaction costs described below, for the period from the completion of the acquisition through December 31, 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 2018 have been reclassified into the pro-forma 2017 period. 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)	Twelve Months Ended December 31,					Per Diluted Share
	2018		2017			2018		2017
Aclara transaction costs incurred in 2018⁽¹⁾	$	12.8	$	(12.8	)	$	0.19	$	(0.16	)
Intangible amortization and inventory step up⁽²⁾	1.3		(44.3		)	0.02		(0.50		)
Interest expense⁽³⁾	3.8		(27.6		)	0.05		(0.31		)

⁽¹⁾ Aclara transaction costs incurred in 2018 have been reclassified into the comparable pro-forma 2017 period.

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

⁽³⁾ Interest expense incurred in 2018, reflecting amounts incurred from the date of the acquisition, has been reclassified into the pro-forma 2017 period and increased to reflect the assumption the transaction was completed on January 1, 2017. The pro-forma 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:



(in millions, except per share amounts)	Twelve Months Ended December 31,
	2018		2017
Net sales	$	4,531.2	$	4,180.9
Net income attributable to Hubbell	$	376.4	$	209.8
Earnings Per Share:
Basic	$	6.86	$	3.82
Diluted	$	6.83	$	3.81

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.