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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2012

 

Commission File No. 001-33794

 

HILLENBRAND, INC.

(Exact name of registrant as specified in its charter)

 

 

Telephone:  (812) 934-7500

 

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.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

The registrant had 62,594,765 shares of common stock, no par value per share, outstanding as of July 26, 2012.

 

 

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HILLENBRAND, INC.

INDEX TO FORM 10-Q

 

		Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income for the Three and Nine Months Ended June 30, 2012 and 2011	3
	Consolidated Balance Sheets at June 30, 2012, and September 30, 2011	4
	Consolidated Statements of Cash Flow for the Nine Months Ended June 30, 2012 and 2011	5
	Condensed Notes to Consolidated Financial Statements	6 – 15
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16 – 24
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	25
Item 4.	Controls and Procedures	25
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 6.	Exhibits	26
SIGNATURES

 

Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

Exhibit 32.2

Exhibit 101 Instance document

Exhibit 101 Schema document

Exhibit 101 Calculation linkbase document

Exhibit 101 Labels linkbase document

Exhibit 101 Presentation linkbase document

Exhibit 101 Definition linkbase document

 

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PART I — FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

Hillenbrand, Inc.

Consolidated Statements of Income (Unaudited)

(in millions, except per share data)

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
Net revenue		$	238.4		$	211.2		$	729.7		$	652.2
Cost of goods sold		147.6			125.1			440.9			373.0
Gross profit		90.8			86.1			288.8			279.2
Operating expenses		57.8			51.2			178.6			154.4
Operating profit		33.0			34.9			110.2			124.8
Interest expense		3.0			2.6			8.8			8.3
Other income (expense), net		(0.1		)	0.7			(0.8		)	9.3
Income before income taxes		29.9			33.0			100.6			125.8
Income tax expense		8.6			10.5			20.6			43.2
Net income		$	21.3		$	22.5		$	80.0		$	82.6
Basic earnings per share		$	0.34		$	0.36		$	1.29		$	1.33
Diluted earnings per share		$	0.34		$	0.36		$	1.28		$	1.33
Weighted average shares outstanding — basic		62.3			62.1			62.1			62.0
Weighted average shares outstanding — diluted		62.5			62.1			62.4			62.0
Cash dividends per share		$	0.1925		$	0.1900		$	0.5775		$	0.5700

 

See Condensed Notes to Consolidated Financial Statements

 

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Hillenbrand, Inc.

Consolidated Balance Sheets (Unaudited)

(in millions)

 

		June 30,			September 30,
		2012			2011
ASSETS
Current Assets
Cash and cash equivalents		$	16.0		$	115.5
Trade receivables, net		118.9			131.7
Inventories		94.2			83.7
Deferred income taxes		23.1			28.3
Other current assets		24.3			20.9
Total current assets		276.5			380.1
Property, plant and equipment, net		117.0			120.6
Intangible assets, net		314.3			332.8
Goodwill		303.3			300.0
Other assets		46.4			47.2
Total Assets		$	1,057.5		$	1,180.7
LIABILITIES
Current Liabilities
Trade accounts payable		$	33.8		$	30.5
Accrued compensation		27.9			36.6
Other current liabilities		73.2			69.1
Total current liabilities		134.9			136.2
Long-term debt		273.6			431.5
Accrued pension and postretirement healthcare		111.2			108.5
Deferred income taxes		24.1			30.1
Other long-term liabilities		25.3			31.3
Total Liabilities		569.1			737.6
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Common stock, no par value, 63.2 and 63.4 shares issued, 62.6 and 62.5 shares outstanding, 0.6 and 0.6 restricted		—			—
Additional paid-in capital		319.9			317.0
Retained earnings		225.8			182.7
Treasury stock, 0.6 and 0.9 shares		(12.0		)	(17.1		)
Accumulated other comprehensive loss		(45.3		)	(39.5		)
Total Shareholders’ Equity		488.4			443.1
Total Liabilities and Shareholders’ Equity		$	1,057.5		$	1,180.7

 

See Condensed Notes to Consolidated Financial Statements

 

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Hillenbrand, Inc.

Consolidated Statements of Cash Flow (Unaudited)

(in millions)

 

		Nine Months Ended
		June 30,
		2012			2011
Operating Activities
Net income		$	80.0		$	82.6
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		31.0			26.0
Deferred income taxes		(6.8		)	0.4
Forethought note — interest income		—			(6.4		)
Forethought note — interest payment		—			59.7
Gain on equity method investments		(1.4		)	(4.1		)
Share-based compensation		7.1			8.5
Trade accounts receivable		12.2			2.3
Inventories		(10.8		)	(9.1		)
Other current assets		(7.0		)	0.2
Trade accounts payable		3.6			(2.5		)
Accrued expenses and other current liabilities		(3.6		)	(1.5		)
Income taxes payable		(2.1		)	(5.6		)
Defined benefit plan funding		(2.1		)	(2.0		)
Defined benefit plan expense		9.5			6.8
Net cash provided by operating activities		109.6			155.3
Investing Activities
Capital expenditures		(14.0		)	(11.8		)
Forethought note — principal repayment		—			91.5
Proceeds from redemption and sales of auction rate securities and investments		—			12.4
Return of investment capital from affiliates		0.4			6.6
Net cash (used in) provided by investing activities		(13.6		)	98.7
Financing Activities
Proceeds from revolving credit facilities		150.0			20.0
Repayments on revolving credit facilities		(308.0		)	(151.0		)
Payment of dividends on common stock		(35.8		)	(35.2		)
Other, net		(0.2		)	0.7
Net cash used in financing activities		(194.0		)	(165.5		)
Effect of exchange rates on cash and cash equivalents		(1.5		)	11.4
Net cash flow		(99.5		)	99.9
Cash and cash equivalents
At beginning of period		115.5			98.4
At end of period		$	16.0		$	198.3

 

See Condensed Notes to Consolidated Financial Statements

 

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Hillenbrand, Inc.

Condensed Notes to Consolidated Financial Statements (Unaudited)

(in millions, except share and per share data)

 

1.               Background and Basis of Presentation

 

Hillenbrand, Inc. is a global diversified industrial company that makes and sells premium business-to-business products and services for a wide variety of industries.  Hillenbrand has two business platforms: Batesville and the Process Equipment Group.  Batesville is a recognized leader in the North American funeral products industry, and the Process Equipment Group is a recognized leader in the design and production of equipment and systems used in processing applications.  “Hillenbrand,” “the Company,” “we,” “us,” “our,” and similar words refer to Hillenbrand, Inc. and its subsidiaries.

 

The accompanying unaudited consolidated financial statements include the accounts of Hillenbrand and its wholly owned subsidiaries.  These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial statements and therefore do not include all information required in accordance with accounting principles generally accepted in the United States (GAAP).  The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the fiscal year ended September 30, 2011.  Certain prior period balances have been reclassified to conform to the current presentation.  In the opinion of management, these financial statements reflect all normal and recurring adjustments considered necessary to present fairly the Company’s consolidated financial position and the consolidated results of operations and cash flow as of the dates and for the periods presented.

 

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosures of contingent assets and liabilities as of the dates presented.  Actual results could differ from those estimates.  Examples of such estimates include, but are not limited to, the establishment of reserves related to customer rebates, allowance for doubtful accounts, warranties, early-pay discounts, inventories, income taxes, accrued litigation, self-insurance, and progress toward achievement of performance criteria under the incentive compensation programs.

 

2.               Summary of Significant Accounting Policies

 

The accounting policies used in preparing these financial statements are consistent with the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, filed with the SEC on November 28, 2011.  The following represent additions and changes to significant accounting policies in the Form 10-K.

 

Recently Adopted and Issued Accounting Standards

 

In May 2011, the FASB issued Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Topic 820, Fair Value Measurement).  The new standard provides updates to measurement guidance and enhanced disclosure requirements.  The most significant change is an expansion of the information required for Level 3 measurements based on unobservable inputs.  The new disclosure requirements were effective for Hillenbrand beginning January 1, 2012.  The adoption of this standard did not have a significant impact on our consolidated financial statements for the period presented.

 

In June 2011, the FASB issued an accounting standards update titled Presentation of Comprehensive Income.  This update eliminates the current option to report other comprehensive income and its components in the statement of changes in shareholders’ equity.  An entity can elect to present items of net income and other comprehensive income in one continuous statement or in two separate consecutive statements.  Each component of net income and other comprehensive income, together with totals for comprehensive income and its two parts, net income and other comprehensive income, must be displayed under either alternative.  The new disclosure requirements will be effective for Hillenbrand in our fiscal year beginning October 1, 2012.  As the new standard relates to presentation only, we do not expect that the adoption of this standard will have a significant impact on our consolidated financial statements.

 

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In September 2011, the FASB issued an accounting standards update titled Intangibles — Goodwill and Other:  Testing Goodwill for Impairment.  This update gives the option of performing a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and, in some cases, skipping the two-step impairment test.  The adoption of this standard did not have a significant impact on our consolidated financial statements.

 

3.               Business Acquisitions

 

We completed the acquisition of Rotex Global, LLC, on August 31, 2011.  We have recorded the identifiable assets acquired and liabilities assumed at their fair values on the acquisition date.  As expected, tax-related purchase accounting adjustments were recorded as of June 30, 2012.  The adjustments increased goodwill and net deferred taxes and other liabilities by $6.5.

 

The financial information in the table below summarizes the combined results of operations for the Company, including Rotex for the three and nine months ended June 30, 2011, on a pro forma basis, as though the companies were combined as of the beginning of the period presented.  The pro forma financial information is presented for informational purposes only and may not be indicative of the results of operations if the acquisition had actually taken place at the beginning of the period presented.  This pro forma financial information should not be considered representative of future consolidated results of operations.

 

		Three Months Ended June 30, 2011			Nine Months Ended June 30, 2011
Pro forma net revenue		$	240.0		$	723.9
Pro forma net income		27.4			93.0
Pro forma diluted earnings per share		0.44			1.50

 

4.               Supplemental Balance Sheet Information

 

		June 30,			September 30,
		2012			2011
Trade accounts receivable reserves		$	19.3		$	21.7
Accumulated depreciation on property, plant, and equipment		$	264.1		$	256.2
Accumulated amortization on intangible assets		$	67.8		$	51.4
Inventories:
Raw materials and components		$	40.8		$	36.0
Work in process		14.2			10.8
Finished goods		39.2			36.9
Total inventories		$	94.2		$	83.7

 

5.               Financing Receivables

 

As of June 30, 2012, Batesville had $6.8 of customer notes receivable, primarily representing long-term payment plans negotiated to collect unpaid balances.  These notes generally carry repayment terms of up to five years and had a weighted-average interest rate of 5.3% at June 30, 2012.  The current portion of these notes ($4.1) is included in trade receivables, and the long-term portion ($2.7) is included in other assets in the consolidated balance sheet at June 30, 2012.

 

We evaluate the recoverability of each note receivable quarterly and record allowances based upon the customer’s credit score, historical experience, and individual customer collection experience.  As of June 30, 2012, $2.7 of customer notes receivable were over 31 days past due.  We have established an allowance of $0.9 related to these notes, with a gross balance of $2.1 as of June 30, 2012.   There has not been a significant change in the reserve during the periods presented.  Each quarter we perform a detailed review of all notes to determine whether any amounts should be charged off.  Amounts are charged off when they are deemed to no longer be collectible.

 

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6.               Financing Agreements

 

		June 30,			September 30,
		2012			2011
$400 revolving credit facility (excludes outstanding letters of credit)		$	125.0		$	283.0
$150 senior unsecured notes, due July 15, 2020, net of discount		148.6			148.5
Total long-term debt		$	273.6		$	431.5

 

As of June 30, 2012, we (i) had $6.5 outstanding letters of credit under our $400 revolving credit facility, (ii) were in compliance with all covenants, and (iii) had $268.5 of remaining borrowing capacity available.  The weighted-average interest rate was 0.7% for the three- and nine-month periods ended June 30, 2012 and 2011.  We entered into a new $600 five-year senior unsecured revolving credit facility on July 27, 2012, which replaced our $400 revolving credit facility.  See Note 18 for further details.  Under the Distribution Agreement with Hill-Rom Holdings, Inc., our ability to borrow using the revolving credit facility for certain strategic transactions such as acquisitions may be limited.  The Distribution Agreement is described fully in our Annual Report on Form 10-K for the year ended September 30, 2011.

 

As of June 30, 2012, our Swiss subsidiary maintained additional availability of $18.3 through local credit facilities collateralized by cash or real property.  There were no borrowings under these facilities as of June 30, and availability was reduced by $4.9 for outstanding bank guarantees.  We had $9.9 additional outstanding letters of credit and bank guarantees with other financial institutions and restricted cash of $1.6 at June 30, 2012.

 

On July 9, 2010, we issued $150 fixed-rate senior unsecured notes due July 15, 2020 (the Notes).  The Notes bear interest at a fixed rate of 5.5%, payable semi-annually in arrears.  The Notes were issued at an original issue discount of $1.6, which is being amortized to interest expense over the term of the Notes using the effective interest rate method, resulting in an annual interest rate of 5.65%.  Deferred financing costs of $2.1 are being amortized to interest expense over the term of the Notes.

 

7.               Retirement Benefits

 

Defined Benefit Plans

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
Service costs		$	1.5		$	1.4		$	4.5		$	4.1
Interest costs		3.2			3.2			9.5			9.6
Expected return on plan assets		(3.4		)	(3.9		)	(10.1		)	(11.5		)
Amortization of unrecognized prior service costs, net		0.2			0.2			0.6			0.6
Amortization of net loss		1.4			1.0			4.3			3.0
Net pension costs		$	2.9		$	1.9		$	8.8		$	5.8

 

Postretirement Healthcare Plans — Net postretirement healthcare costs were $0.3 for both of the three months ended June 30, 2012 and 2011, and $0.7 and $1.0 for the nine months ended June 30, 2012 and 2011.

 

Defined Contribution Plans — Expenses related to our defined contribution plans were $2.2 and $1.7 for the three months ended June 30, 2012 and 2011, and $6.1 and $5.0 for the nine months ended June 30, 2012 and 2011.

 

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8.               Income Taxes

 

The following is a reconciliation of the U.S. federal statutory income tax rate to the effective income tax rate:

 

		Three Months Ended				Nine Months Ended
		June 30,				June 30,
		2012		2011		2012		2011
Federal statutory rates		35.0	%	35.0	%	35.0	%	35.0	%
Adjustments:
Permanent reinvestment of unremitted earnings		—		—		(10.9	)	—
State and local income taxes, net of federal benefit		2.5		3.3		2.5		3.3
Foreign income tax rate differential		(2.9	)	(2.7	)	(2.4	)	(1.6	)
Domestic manufacturer’s deduction		(3.2	)	(2.8	)	(2.7	)	(2.5	)
Unrecognized tax benefits		(3.3	)	(1.1	)	(1.6	)	—
Other, net		0.7		0.1		0.6		0.1
Effective income tax rate		28.8	%	31.8	%	20.5	%	34.3	%

 

In connection with the acquisition of K-Tron in April 2010, we recorded a deferred tax liability related to the historical earnings of its Swiss operations that would be subject to U.S. income taxes upon earnings repatriation.  With the acquisition of Rotex, we identified the need to retain cash overseas to support the continued growth of the Process Equipment Group and began developing a plan to integrate Rotex into our existing international structure.  As a result, during the first quarter of fiscal 2012, we asserted the K-Tron historical earnings to be permanently reinvested.  Accordingly, a tax benefit of $10.4 was recognized, representing the full release of the deferred tax liability.  During the period ended March 31, 2012, we completed the plan of integrating Rotex into our existing international structure.  As of June 30, 2012, U.S. federal and state income taxes have not been provided on accumulated undistributed earnings of substantially all our foreign subsidiaries, as these earnings are considered permanently reinvested.

 

The activity within our reserve for unrecognized tax benefits was:

 

Balance at September 30, 2011		$	7.3
Additions for tax positions for the current year		0.1
Additions for tax positions of prior years		0.2
Reductions in tax positions of prior years		(4.2		)
Settlements		(0.4		)
Balance attributable to acquisition of Rotex		0.1
Balance at June 30, 2012		$	3.1
Other amounts accrued at June 30, 2012, for interest and penalties		$	0.4

 

9.               Earnings Per Share

 

At June 30, 2012 and 2011, potential dilutive effects of 2.0 million shares relating to unvested time-based restricted stock units and stock options were excluded from the computation of earnings per share as their effects were anti-dilutive.  At June 30, 2012 and 2011, potential dilutive effects of 1.8 million and 1.7 million shares relating to unvested performance-based stock awards were excluded from the computation of diluted earnings per share as the related performance period is not yet complete.  The effects of these performance-based shares will be dilutive in the future to the extent various levels of performance criteria are met.

 

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		Three Months Ended						Nine Months Ended
		June 30,						June 30,
(in millions)		2012			2011			2012			2011
Net income — basic and diluted		$	21.3		$	22.5		$	80.0		$	82.6
Weighted average shares outstanding — basic		62.3			62.1			62.1			62.0
Effect of dilutive stock options and unvested time-based restricted stock awards		0.2			—			0.3			—
Weighted average shares outstanding — diluted		62.5			62.1			62.4			62.0

 

10.         Shareholders’ Equity

 

During the nine months ended June 30, 2012, we paid $35.8 of cash dividends.  In connection with unvested performance-based stock awards, we retired 0.2 million shares of stock.

 

11.         Comprehensive Income and Accumulated Other Comprehensive Loss

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
Net income		$	21.3		$	22.5		$	80.0		$	82.6
Change in currency translation adjustment		(8.7		)	18.5			(7.4		)	32.8
Change in pension and postretirement		1.0			0.8			2.2			2.3
Change in net unrealized gains (losses) on derivative instruments		0.2			0.1			(0.2		)	(0.2		)
Change in net unrealized gains (losses) on available-for-sale securities		0.5			0.9			(0.4		)	1.0
Comprehensive income		$	14.3		$	42.8		$	74.2		$	118.5

 

		June 30,			September 30,
		2012			2011
Currency translation adjustment		$	13.0		$	20.4
Pension and postretirement		(58.3		)	(60.5		)
Net unrealized gain on derivative instruments		—			0.2
Net unrealized gain on available-for-sale securities		—			0.4
Accumulated other comprehensive loss		$	(45.3	)	$	(39.5	)

 

12.         Share-Based Compensation

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
Share-based compensation		$	0.2		$	2.3		$	7.1		$	8.5
Less income tax benefit		0.1			0.8			2.6			3.2
Share-based compensation, net of tax		$	0.1		$	1.5		$	4.5		$	5.3

 

The decrease in share-based compensation expense from the prior year for both the three and nine-month periods ending June 30, 2012 was driven by a decline in operating results in the current year.

 

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During the nine months ended June 30, 2012, we made the following grants:

 

		Number of Units
Stock options		546,642
Time-based stock awards		65,162
Performance-based stock awards (maximum that can be earned)		700,560

 

Stock options granted had a weighted-average exercise price of $22.37 and a weighted-average grant date fair value of $5.88 for the nine-month period ended June 30, 2012. Our time-based stock awards and performance-based stock awards had a weighted-average grant date fair value of $23.04 and $22.34 for the nine-month period ended June 30, 2012.

 

13.         Other Income and Expense

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
Interest income on note receivable from Forethought		$	—		$	0.6		$	—		$	6.4
Equity in net income of affiliates		1.0			1.1			1.4			4.1
Realized gain on sale of ARS		—			—			—			0.5
Foreign currency exchange loss		(0.2		)	(0.4		)	(0.3		)	(0.7		)
Other, net		(0.9		)	(0.6		)	(1.9		)	(1.0		)
Other income and expense, net		$	(0.1	)	$	0.7		$	(0.8	)	$	9.3

 

14.         Commitments and Contingencies

 

Litigation

 

General

 

Like most companies, we are involved on an ongoing basis in claims, lawsuits, and government proceedings relating to our operations, including environmental, antitrust, patent infringement, business practices, commercial transactions, product and general liability, workers’ compensation, auto liability, employment, and other matters.  The ultimate outcome of these matters cannot be predicted with certainty.  An estimated loss from these contingencies is recognized when we believe it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated; however, it is difficult to measure the actual loss that might be incurred related to litigation.  If a loss is not considered probable and/or cannot be reasonably estimated, we are required to make a disclosure if there is at least a reasonable possibility that a material loss may have been incurred.  Legal fees associated with claims and lawsuits are generally expensed as incurred.

 

Claims other than employment and related matters have deductibles and self-insured retentions ranging from $0.5 to $1.0 per occurrence or per claim, depending upon the type of coverage and policy period.  Outside insurance companies and third-party claims administrators assist in establishing individual claim reserves, and an independent outside actuary provides estimates of ultimate projected losses, including incurred but not reported claims, which are used to establish reserves for losses.  Claim reserves for employment-related matters are established based upon advice from internal and external counsel and historical settlement information for claims and related fees, when such amounts are considered probable of payment.

 

The recorded amounts represent our best estimate of the costs we will incur in relation to such exposures, but it is possible that actual costs will differ from those estimates.

 

Antitrust Litigation

 

In 2005, the Funeral Consumers Alliance, Inc. (FCA) and a number of individual consumer casket purchasers filed a purported class action antitrust lawsuit on behalf of certain consumer purchasers of Batesville® caskets against the Company and our former parent company, Hillenbrand Industries, Inc., now Hill-Rom Holdings, Inc. (Hill-Rom),

 

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and three national funeral home businesses (the FCA Action).  A more detailed history of the litigation has been disclosed in our previous filings.

 

The lawsuit claimed, among other things, that the Company’s maintenance and enforcement of, and alleged modifications to, its long-standing policy of selling caskets only to licensed funeral homes were the product of a conspiracy among the Company, the other defendants, and others to exclude “independent casket discounters,” resulting in suppressed competition in the alleged market for caskets and allegedly leading consumers to pay higher than competitive prices for caskets.

 

Plaintiffs in the FCA Action have generally sought monetary damages on behalf of a class of purchasers of Batesville caskets, trebling of any such damages that may be awarded, recovery of attorneys’ fees and costs, and injunctive relief.  The plaintiffs in the FCA Action filed a report indicating that they were seeking damages ranging from approximately $947 to approximately $1,460 before trebling on behalf of the purported class of consumers they seek to represent, based on approximately one million casket purchases by the purported class members.

 

The Federal District Court for the Southern District of Texas denied class certification on March 26, 2009, and ultimately dismissed the lawsuit on September 24, 2010, concluding that “plaintiffs shall take nothing by their suit.”  Currently, the FCA Action is on appeal to the Fifth Circuit Court of Appeals.  Plaintiffs have appealed both the District Court’s order of dismissal and the order denying class certification.  The parties have submitted all appellate briefs, and the Court of Appeals heard oral argument from the parties on December 5, 2011.  The Court of Appeals has not yet issued its ruling affirming or reversing the District Court.

 

If plaintiffs succeed in overturning the judgment, reversing the District Court order denying class certification, and a class is subsequently certified in the FCA Action filed against Hill-Rom and Batesville, and if the plaintiffs prevail at a trial of the class action, the damages awarded to the plaintiffs, which would be trebled as a matter of law, could have a material adverse effect on our results of operations, financial condition, and cash flow.  In antitrust actions such as the FCA Action, the plaintiffs may elect to enforce any judgment against any or all of the co-defendants, who have no statutory contribution rights against each other.  We and Hill-Rom have entered into a Judgment Sharing Agreement that apportions the costs and any potential liabilities associated with this litigation between us and Hill-Rom.

 

The defendants are vigorously contesting both liability and the plaintiffs’ damages theories.

 

As of June 30, 2012, we had incurred approximately $29.2 in cumulative legal and related costs associated with the FCA Action since its inception.  Costs incurred in 2012 were $0.5.

 

Matthews Litigation

 

In August 2010, the York Group, Inc., Milso Industries Corporation, and Matthews International Corporation (collectively the plaintiffs) filed a lawsuit against Scott Pontone and Batesville Casket Company, Inc. in the United States District Court, Western District of Pennsylvania, which was subsequently amended by the plaintiffs in February 2011 to include two additional defendants, Harry Pontone and Pontone Casket Company, LLC (the Litigation).  The Litigation arises, in part, as a result of a Marketing Consulting Agreement entered into between Batesville and Pontone Casket Company effective June 24, 2010, and Batesville’s hiring of two former employees of certain plaintiff entities in June 2010.  Scott Pontone provides consulting services to Batesville pursuant to the Marketing Consulting Agreement.  The plaintiffs allege that Scott Pontone and Harry Pontone breached contractual and business obligations with the plaintiffs and that Batesville induced certain of those breaches as part of its sales initiatives in the New York metropolitan area.

 

The plaintiffs claim that they have lost revenue and will lose future revenue in the New York metropolitan area, although the amount of those alleged damages is unspecified.  The plaintiffs seek to: (i) recover compensatory damages, punitive damages, attorneys’ fees, and costs; and (ii) enjoin certain activities by Harry Pontone, Scott Pontone,  Pontone Casket Company, and Batesville and its employees in the New York metropolitan area.  The plaintiffs had also originally requested a preliminary injunction, but withdrew that request after expedited discovery.

 

No trial date has been set, and the parties are engaged in ongoing motions practice and discovery.

 

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The Company believes it acted lawfully and intends to defend this matter vigorously.  Batesville also has several counterclaims pending against plaintiffs in the Litigation, including but not limited to:  (i) tortious interference with prospective economic advantage and unfair competition; (ii) abuse of process; (iii) malicious prosecution; and (iv) unjust enrichment.  The Company does not believe, based on currently available information, that the outcome of this lawsuit will have a material adverse effect on the Company’s financial condition and liquidity.  If the plaintiffs prevail at trial, however, the outcome could be materially adverse to the Company’s operating results or cash flow for the particular period, depending, in part, upon the operating results or cash flow for such period.

 

15.         Fair Value Measurements

 

		Carrying
		Value at			Fair Value at June 30, 2012
		June 30,			Using Inputs Considered as:
		2012			Level 1			Level 2			Level 3
Assets:
Cash and cash equivalents		$	16.0		$	16.0		$	—		$	—
Equity investments		3.0			2.0			—			1.0
Investments in rabbi trust		5.2			5.2			—			—
Derivative instruments		0.3			—			0.3			—
Liabilities:
$150 senior unsecured notes		148.6			154.4			—			—

 

The fair value of the 10-year, 5.5% fixed rate senior unsecured notes was based on quoted prices in an active market.  The revolving credit facility approximated fair value at June 30, 2012.  There were no changes in the fair value of measurements using significant unobservable inputs during the quarter.

 

16.   Segment and Geographical Information

 

		Three Months Ended June 30,						Nine Months Ended June 30,
		2012			2011			2012			2011
Net revenue
Batesville		$	145.7		$	150.6		$	455.1		$	482.7
Process Equipment Group		92.7			60.6			274.6			169.5
Total		$	238.4		$	211.2		$	729.7		$	652.2
Gross profit
Batesville		$	51.2		$	59.3		$	171.0		$	203.0
Process Equipment Group		39.6			26.8			117.8			76.2
Total		$	90.8		$	86.1		$	288.8		$	279.2
Operating profit (loss)
Batesville		$	25.8		$	33.5		$	98.9		$	125.2
Process Equipment Group		13.0			9.2			34.6			24.6
Corporate		(5.8		)	(7.8		)	(23.3		)	(25.0		)
Total		$	33.0		$	34.9		$	110.2		$	124.8
EBITDA
Batesville		$	29.3		$	37.6		$	109.6		$	137.1
Process Equipment Group		17.6			12.6			52.0			35.8
Corporate		(4.7		)	(6.7		)	(21.6		)	(20.0		)
Total		$	42.2		$	43.5		$	140.0		$	152.9
Net revenue (1)
United States		$	198.6		$	172.4		$	605.9		$	546.3
Canada		11.0			13.9			34.5			38.3
Switzerland		16.3			19.4			58.4			53.4
All other foreign business units		12.5			5.5			30.9			14.2
Total		$	238.4		$	211.2		$	729.7		$	652.2

 

(1)     Revenue is attributed to a geography based upon the location of the business unit that consummated the external sale.

 

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		June 30, 2012			September 30, 2011
Total assets
Batesville		$	226.3		$	246.5
Process Equipment Group		741.1			847.8
Corporate		90.1			86.4
Total		$	1,057.5		$	1,180.7
Tangible long-lived assets
United States		$	99.9		$	106.8
Switzerland		10.7			11.0
All other foreign business units		6.4			2.8
Total		$	117.0		$	120.6

 

The following schedule reconciles total segment EBITDA to consolidated net income.

 

		Three Months Ended June 30,						Nine Months Ended June 30,
		2012			2011			2012			2011
Net income		$	21.3		$	22.5		$	80.0		$	82.6
Interest income		(0.1		)	(0.8		)	(0.4		)	(7.2		)
Interest expense		3.0			2.6			8.8			8.3
Income tax expense		8.6			10.5			20.6			43.2
Depreciation and amortization		9.4			8.7			31.0			26.0
EBITDA		$	42.2		$	43.5		$	140.0		$	152.9

 

17.         Restructuring

 

During the three months ended June 30, 2012, Hillenbrand incurred $2.4 of restructuring costs ($1.4 at the Batesville business platform and $1.0 at the Process Equipment Group).  These costs consisted of $1.2 of termination benefits at Batesville and the Process Equipment Group classified as cost of goods sold, as well as $1.2 of operating expenses that consisted of termination benefits at Batesville and costs related to the consolidation of manufacturing facilities in the Process Equipment Group.  Restructuring charges for the nine-month period ended June 30, 2012 totaled $3.4 at Batesville and $3.8 at the Process Equipment Group.  Future charges related to these restructurings are not expected to be significant.

 

Batesville management consistently sizes their operations to respond to changing market conditions and consumer preferences, and continuously evaluates capacity to ensure they are making the products their customers require in the most efficient manner possible.  Earlier in the year Batesville consolidated its first and second shifts at one of its plants.  In the third quarter, Batesville incurred $1.4 of restructuring charges related to a workforce reduction.

 

We continue to see progress in the implementation of Hillenbrand Lean Business principles in our Process Equipment Group.  Earlier this fiscal year, we strategically realigned the Process Equipment Group through the consolidation of certain manufacturing facilities.  This resulted in the closure of one manufacturing plant enabling the Process Equipment Group to more efficiently meet customer needs, while continuing to provide the same high-quality products and services.

 

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