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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 March 31, 2014

 

Commission File No. 001-33794

 

HILLENBRAND, INC.

(Exact name of registrant as specified in its charter)

 

 

(812) 934-7500

(Registrant’s telephone number, including area code)

 

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 website, 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.

 

 

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 62,804,907 shares of common stock, no par value per share, outstanding as of April 30, 2014.

 

 

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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 Six Months Ended March 31, 2014 and 2013	3
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended March 31, 2014 and 2013	4
	Consolidated Balance Sheets at March 31, 2014, and September 30, 2013	5
	Consolidated Statements of Cash Flow for the Six Months Ended March 31, 2014 and 2013	6
	Condensed Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	35
Item 4.	Controls and Procedures	35
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	42
SIGNATURES

 

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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						Six Months Ended
		March 31,						March 31,
		2014			2013			2014			2013
Net revenue		$	396.8		$	398.5		$	781.7		$	703.7
Cost of goods sold		254.0			264.5			507.9			459.2
Gross profit		142.8			134.0			273.8			244.5
Operating expenses		99.9			108.4			193.9			194.8
Operating profit		42.9			25.6			79.9			49.7
Interest expense		5.6			6.8			11.9			11.3
Other income (expense), net		9.7			(0.3		)	9.6			0.6
Income before income taxes		47.0			18.5			77.6			39.0
Income tax expense		13.7			5.3			22.7			11.2
Consolidated net income		33.3			13.2			54.9			27.8
Less: Net income attributable to noncontrolling interests		0.3			0.5			1.6			0.8
Net income(1)		$	33.0		$	12.7		$	53.3		$	27.0
Net income(1)  — per share of common stock:
Basic earnings per share		$	0.52		$	0.20		$	0.84		$	0.43
Diluted earnings per share		$	0.51		$	0.20		$	0.83		$	0.43
Weighted average shares outstanding (basic)		63.3			62.7			63.2			62.6
Weighted average shares outstanding (diluted)		63.9			63.1			63.9			62.9
Cash dividends per share		$	0.1975		$	0.1950		$	0.3950		$	0.3900

 

(1) Net income attributable to Hillenbrand

 

See Condensed Notes to Consolidated Financial Statements

 

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Hillenbrand, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

(in millions)

 

		Three Months Ended						Six Months Ended
		March 31,						March 31,
		2014			2013			2014			2013
Consolidated net income		$	33.3		$	13.2		$	54.9		$	27.8
Changes in other comprehensive income (loss), net of tax
Currency translation adjustment		—			(19.2		)	8.6			(9.0		)
Pension and postretirement (net of quarter-to-date tax of $0.5 and $0.7 and year-to date tax of $1.5 and $1.4)		0.9			0.2			3.1			1.3
Change in net unrealized gain (loss) on derivative instruments (net of quarter-to-date tax of $0.3 and $0.2 and year-to-date tax of $0.1 and $0.2)		(0.2		)	(0.9		)	0.3			(0.7		)
Change in net unrealized gain (loss) on available-for-sale securities		—			—			—			(0.2		)
Total changes in other comprehensive income (loss), net of tax		0.7			(19.9		)	12.0			(8.6		)
Consolidated comprehensive income (loss)		34.0			(6.7		)	66.9			19.2
Less: Comprehensive income attributable to noncontrolling interests		0.5			0.5			1.7			0.8
Comprehensive income (loss)(2)		$	33.5		$	(7.2	)	$	65.2		$	18.4

 

(2) Comprehensive income (loss) attributable to Hillenbrand

 

See Condensed Notes to Consolidated Financial Statements

 

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Hillenbrand, Inc.

Consolidated Balance Sheets (Unaudited)

(in millions)

 

		March 31,			September 30,
		2014			2013
ASSETS
Current Assets
Cash and cash equivalents		$	51.0		$	42.7
Trade receivables, net		185.2			213.4
Unbilled receivables from long-term manufacturing contracts		137.3			142.1
Inventories		183.1			177.5
Deferred income taxes		15.0			22.3
Prepaid expenses		34.1			20.4
Other current assets		19.6			21.0
Total current assets		625.3			639.4
Property, plant, and equipment, net		170.4			171.9
Intangible assets, net		548.8			558.6
Goodwill		598.0			585.8
Other assets		51.6			47.5
Total Assets		$	1,994.1		$	2,003.2
LIABILITIES
Current Liabilities
Trade accounts payable		$	177.7		$	183.2
Liabilities from long-term manufacturing contracts and advances		96.8			80.9
Current portion of long-term debt		13.5			10.0
Accrued compensation		53.6			59.6
Deferred income taxes		13.6			12.1
Other current liabilities		102.0			119.7
Total current liabilities		457.2			465.5
Long-term debt		612.6			654.3
Accrued pension and postretirement healthcare		191.2			190.3
Deferred income taxes		71.5			75.4
Other long-term liabilities		40.8			41.4
Total Liabilities		1,373.3			1,426.9
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Common stock, no par value (63.5 and 63.1 shares issued, 62.8 and 62.9 shares outstanding)		—			—
Additional paid-in capital		340.7			321.7
Retained earnings		280.2			252.2
Treasury stock (0.7 and 0.2 shares)		(21.6		)	(4.2		)
Accumulated other comprehensive income (loss)		10.5			(1.4		)
Hillenbrand Shareholders’ Equity		609.8			568.3
Noncontrolling interests		11.0			8.0
Total Shareholders’ Equity		620.8			576.3
Total Liabilities and Equity		$	1,994.1		$	2,003.2

 

See Condensed Notes to Consolidated Financial Statements

 

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Hillenbrand, Inc.

Consolidated Statements of Cash Flow (Unaudited)

(in millions)

 

		Six Months Ended
		March 31,
		2014			2013
Operating Activities
Consolidated net income		$	54.9		$	27.8
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		29.0			42.9
Deferred income taxes		3.4			(15.9		)
Share-based compensation		5.1			6.0
Net gain on investments		(7.9		)	(0.3		)
Trade accounts receivable and receivables on long-term manufacturing contracts		36.2			(4.6		)
Inventories		(4.3		)	6.1
Other current assets		(11.7		)	(20.3		)
Trade accounts payable		(8.3		)	0.3
Accrued expenses and other current liabilities		1.4			(37.0		)
Income taxes payable		(14.6		)	13.0
Defined benefit plan funding		(8.3		)	(4.3		)
Defined benefit plan expense		7.2			8.5
Other, net		0.1			(2.5		)
Net cash provided by operating activities		82.2			19.7
Investing Activities
Capital expenditures		(11.4		)	(11.2		)
Proceeds from sales of property, plant, and equipment		0.7			1.1
Proceeds from investments		5.7			1.8
Acquisition of business, net of cash acquired		—			(415.6		)
Other, net		0.9			—
Net cash used in investing activities		(4.1		)	(423.9		)
Financing Activities
Proceeds from term loan		—			200.0
Repayments on term loan		(5.0		)	(5.0		)
Proceeds from revolving credit facilities, net of financing costs		182.6			576.7
Repayments on revolving credit facilities		(218.6		)	(323.0		)
Proceeds from other borrowings		1.0			—
Payment of dividends on common stock		(24.8		)	(24.3		)
Purchases of common stock		(16.5		)	—
Net proceeds (payments) on stock plans		12.7			(0.8		)
Other, net		0.1			0.4
Net cash provided by (used in) financing activities		(68.5		)	424.0
Effect of exchange rates on cash and cash equivalents		(1.3		)	0.7
Net cash flows		8.3			20.5
Cash and cash equivalents:
At beginning of period		42.7			20.2
At end of period		$	51.0		$	40.7

 

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. (“Hillenbrand”) is a global diversified industrial company that makes and sells premium business-to-business products and services for a wide variety of industries.  We pursue profitable growth and meaningful dividends for our shareholders by leveraging our leading brands, robust cash generation capabilities, and strong core competencies.  Hillenbrand has two segments:  the Process Equipment Group and Batesville®.  The Process Equipment Group has multiple market-leading brands of process and material handling equipment and systems serving a wide variety of industries across the globe.  Batesville is a recognized leader in the North American death care industry.  Hillenbrand was incorporated on November 1, 2007, in the state of Indiana and began trading on the New York Stock Exchange under the symbol “HI” on April 1, 2008.  “Hillenbrand,” “the Company,” “we,” “us,” “our,” and similar words refer to Hillenbrand and its subsidiaries.

 

The accompanying unaudited consolidated financial statements include the accounts of Hillenbrand and its subsidiaries, including Coperion Capital GmbH (“Coperion”), which was acquired on December 1, 2012.  The acquisition of Coperion included a few small subsidiaries where Coperion’s ownership percentage was less than 100%.  The Company’s fiscal year ends on September 30.  Unless otherwise stated, references to years relate to fiscal years.

 

These unaudited consolidated 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, and should be read in conjunction with, the audited consolidated financial statements and notes thereto included in our latest Annual Report on Form 10-K for the year ended September 30, 2013, as filed with the SEC.  The September 30, 2013 Consolidated Balance Sheet included in this Form 10-Q was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP for a year-end balance sheet included in Form 10-K.  Certain prior period balances have been reclassified to conform to the current presentation.  In the opinion of management, these financial statements reflect all adjustments necessary to present a fair statement of 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 at the date of the consolidated financial statements and the reported amounts of revenue and expense during the period.  Actual results could differ from those estimates.  Examples of such estimates include, but are not limited to, revenue recognition under the percentage-of-completion method, the establishment of reserves related to customer rebates, doubtful accounts, warranties, early-pay discounts, inventories, income taxes, litigation, self-insurance, and progress toward achievement of performance criteria under the incentive compensation programs.

 

Correction of Errors

 

During the first quarter of 2014, we recorded an adjustment to operating expenses to correct errors related to the accounting for sales commissions at Coperion in 2013.  The adjustment reduced operating expenses in the first quarter of 2014 by $2.0, which should have been recorded in 2013.  In connection with this same issue, we identified a classification error of $8.5 between operating expenses and cost of goods sold in 2013.  We have revised our consolidated statement of income for the three and six months ended March 31, 2013, to increase cost of goods sold and decrease operating expenses by $2.6 and $2.7.  We will revise the June 30, 2013 and September 30, 2013 consolidated statements of income to reflect the corrections in future filings.  These corrections will decrease operating expenses and increase cost of goods sold $2.3 in the third quarter of 2013, and $8.5 for 2013.  We believe the impact of these income statement classification errors and the $2.0 adjustment to correct a prior period error was immaterial to our consolidated financial statements for the current and prior periods.

 

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2.              Summary of Significant Accounting Policies

 

The significant accounting policies used in preparing these consolidated financial statements are consistent with the accounting policies described in our Annual Report on Form 10-K for 2013.

 

Recently Adopted and Issued Accounting Standards

 

In February 2013, the FASB issued an accounting standard update titled Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  This standard is intended to improve the reporting of reclassifications out of accumulated other comprehensive income of various components.  An entity is required to present significant amounts reclassified from each component of accumulated other comprehensive income and the income statement affected by the reclassification.  The new disclosure requirements became effective and were adopted for our fiscal year beginning October 1, 2013.  The adoption of this disclosure-only guidance did not have an impact on our consolidated financial statements.

 

In July 2013, the FASB issued an accounting standard update titled Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.  The new standard requires the netting of unrecognized tax benefits (“UTBs”) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions.  Under the new standard, UTBs will be netted against all available same—jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs.  The standard will be effective for our fiscal year beginning October 1, 2014.  We do not expect the adoption of this standard to have a significant impact on our consolidated financial statements.

 

3.              Business Acquisitions

 

We completed the acquisition of Coperion on December 1, 2012, in a transaction valued at $545.0.  The aggregate purchase consideration consisted of $269.1 of cash, net of cash acquired, and the assumption of $146.0 of debt and $129.9 of pension liabilities.  We utilized $426.3 of borrowings under our revolving credit facility and cash on hand to finance the acquisition, including the repayment of $146.0 of debt outstanding under Coperion’s prior financing arrangements.

 

This acquisition was the largest in the Company’s history and represented an important step in the execution of our strategic plans to further diversify Hillenbrand and accelerate the growth of the Process Equipment Group.  The integration of Coperion with the Process Equipment Group will continue to be a key initiative for the near term.  Combining our product offerings to provide a more complete system solution is an important part of our integration.  In addition, we believe leveraging Coperion’s global infrastructure will enable the existing businesses within the Process Equipment Group to enter new global markets more quickly.  We also expect the Process Equipment Group’s existing strong U.S. sales network will enhance Coperion’s expansion in North America.  Finally, the application of the Company’s Lean tools and other core competencies to Coperion’s operations is expected to contribute to improved margins and increased customer satisfaction.

 

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The following table summarizes fair values of the assets acquired and liabilities assumed for the Coperion acquisition:

 

		December 1, 2012
Cash and cash equivalents		$	32.8
Inventory		112.4
Current assets, excluding cash and cash equivalents and inventory		180.0
Property, plant, and equipment		54.4
Identifiable intangible assets		291.8
Goodwill		273.8
Other assets		2.1
Total assets acquired		947.3
Current liabilities		287.3
Accrued pension obligations		129.9
Deferred income taxes		67.3
Other long-term liabilities		6.7
Total liabilities assumed		491.2
Noncontrolling interests		8.2
Aggregate purchase price		$	447.9

 

Final purchase accounting adjustments were made during the first quarter of 2014 that increased goodwill ($7.3) and the accrued pension obligations ($4.3) based on finalization of the actuarial analysis for Coperion’s defined benefit plans.  In addition, adjustments were made to increase current liabilities ($1.3) and noncontrolling interests ($1.7).  In the second quarter of 2014, a $1.3 correction was made to the first quarter pension adjustment to decrease deferred income taxes resulting in total purchase accounting adjustments that increased goodwill by $6.0 in 2014.  These adjustments are reflected in the table above.

 

Set forth below is unaudited pro forma information for the six months ended March 31, 2013.  The unaudited pro forma information is presented for informational purposes only and does not necessarily reflect the results of operations that would actually have been achieved.

 

		Six Months Ended March 31, 2013
Pro forma net revenue		$	818.9
Pro forma net income(1)		58.0
Pro forma basic earnings per share		$	0.93
Pro forma diluted earnings per share		$	0.93

 

(1)Pro forma net income attributable to Hillenbrand

 

We incurred $10.7 of net business acquisition costs associated with the acquisition during the six months ended March 31, 2013.  These costs consisted of $10.9 of operating expenses and $0.6 of interest expense, partially offset by $0.8 of other income.

 

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4.              Supplemental Balance Sheet Information

 

		March 31,			September 30,
		2014			2013
Trade accounts receivable reserves		$	19.0		$	19.3
Accumulated depreciation on property, plant, and equipment		$	276.2		$	268.0
Accumulated amortization on intangible assets		$	118.3		$	99.6
Inventories:
Raw materials and components		$	55.9		$	58.3
Work in process		81.2			74.8
Finished goods		46.0			44.4
Total inventories		$	183.1		$	177.5

 

5.              Financing Agreements

 

		March 31,			September 30,
		2014			2013
$700 revolving credit facility (excludes outstanding letters of credit)		$	291.2		$	325.5
$200 term loan		185.0			190.0
$150 senior unsecured notes, due July 15, 2020, net of discount		148.9			148.8
Other borrowings		1.0			—
Total debt		626.1			664.3
Less: current portion		13.5			10.0
Total long-term debt		$	612.6		$	654.3

 

With respect to the $700 revolving credit facility (the “Facility”), as of March 31, 2014, we had $15.2 in outstanding letters of credit issued and $393.6 of maximum borrowing capacity.  Approximately $283 of borrowing capacity is immediately available based on our leverage covenant at March 31, 2014, with additional amounts available in the event of a qualifying acquisition.  The weighted-average interest rate on borrowings under the Facility were 1.37% and 1.36% for the three- and six-month periods ended March 31, 2014, and 1.39% and 1.38% for the same periods in the prior year.  The Facility carries a leverage-based facility fee, assessed on the entire facility amount.

 

The weighted average interest rates on the term loan were 1.66% and 1.67% for the three- and six-month periods ended March 31, 2014, and 1.71% and 1.74% for the same periods in the prior year.

 

In the normal course of business, the Process Equipment Group provides certain customers with bank guarantees and other credit arrangements in support of performance, warranty, advance payment, and other contractual obligations.  This form of trade finance is customary in the industry and, as a result, we maintain adequate capacity to provide the guarantees.  As of March 31, 2014, we had credit capacity totaling $291.6 under which $217.3 was utilized for this purpose.  These arrangements include a €150.0 Syndicated Letter of Guarantee Facility (“LG Facility”) under which unsecured letters of credit, bank guarantees, or other surety bonds may be issued.

 

The availability of borrowings under the Facility and the LG Facility is subject to our ability to meet certain conditions including compliance with covenants, absence of default, and continued accuracy of certain representations and warranties.  As of March 31, 2014, we were in compliance with all covenants.

 

Other borrowings of $1.0 at March 31, 2014 were comprised of debt at international locations maintained for working capital purposes.

 

We had restricted cash of $0.5 and $1.3 at March 31, 2014 and 2013.

 

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6.              Retirement Benefits

 

Defined Benefit Plans

 

		U.S. Pension Benefits						Non-U.S. Pension Benefits
		Three Months Ended March 31,						Three Months Ended March 31,
		2014			2013			2014			2013
Service costs		$	1.0		$	1.2		$	0.4		$	0.4
Interest costs		3.6			3.0			1.0			1.4
Expected return on plan assets		(3.5		)	(3.0		)	(0.2		)	(0.5		)
Amortization of unrecognized prior service costs, net		0.2			0.2			—			—
Amortization of net loss		1.0			1.8			—			—
Net pension costs		$	2.3		$	3.2		$	1.2		$	1.3

 

		U.S. Pension Benefits						Non-U.S. Pension Benefits
		Six Months Ended March 31,						Six Months Ended March 31,
		2014			2013			2014			2013
Service costs		$	2.0		$	2.4		$	0.8		$	0.8
Interest costs		7.3			5.9			2.1			2.0
Expected return on plan assets		(7.0		)	(6.0		)	(0.5		)	(0.9		)
Amortization of unrecognized prior service costs, net		0.4			0.4			—			—
Amortization of net loss		1.9			3.6			—			—
Net pension costs		$	4.6		$	6.3		$	2.4		$	1.9

 

Postretirement Healthcare Plans — Net postretirement healthcare costs were $0.1 and $0.2 for the three months ended March 31, 2014 and 2013, and $0.2 and $0.3 for the six months ended March 31, 2014 and 2013.

 

Defined Contribution Plans — Expenses related to our defined contribution plans were $2.2 and $2.1 for the three months ended March 31, 2014 and 2013, and $4.3 and $4.1 for the six months ended March 31, 2014 and 2013.

 

7.              Income Taxes

 

The effective tax rates for the three months ended March 31, 2014 and 2013 were 29.1% and 28.6%.  The effective tax rates for the six months ended March 31, 2014 and 2013 were 29.3% and 28.7%.  The year-over-year change in the effective tax rate was largely due to a prior year discrete tax benefit.

 

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8.             Earnings Per Share

 

The dilutive effects of performance-based stock awards were included in the computation of diluted earnings per share at the level the related performance criteria were met through the respective balance sheet date.  At March 31, 2014 and 2013, potential dilutive effects, representing approximately 1,800,000 and 2,000,000 shares were excluded from the computation of diluted earnings per share as the related performance criteria were not yet met, although we expect to meet various levels of criteria in the future.

 

		Three Months Ended						Six Months Ended
		March 31,						March 31,
		2014			2013			2014			2013
Net income(1)		$	33.0		$	12.7		$	53.3		$	27.0
Weighted average shares outstanding (basic - in millions)		63.3			62.7			63.2			62.6
Effect of dilutive stock options and other unvested equity awards (in millions)		0.6			0.4			0.7			0.3
Weighted average shares outstanding (diluted - in millions)		63.9			63.1			63.9			62.9
Basic earnings per share		$	0.52		$	0.20		$	0.84		$	0.43
Diluted earnings per share		$	0.51		$	0.20		$	0.83		$	0.43
Shares with anti-dilutive effect excluded from the computation of diluted earnings per share (in millions)		0.4			1.2			0.4			1.9

 

(1) Net income attributable to Hillenbrand

 

9.              Shareholders’ Equity

 

During the six months ended March 31, 2014, we paid $24.8 of cash dividends and acquired the remaining shares of a previously less than wholly-owned subsidiary for $1.4.  We also purchased approximately 527,000 shares of our common stock for $16.5 as part of an approved and publicly announced program.

 

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10.       Other Comprehensive Income (Loss)

 

		Pension and Postretirement			Currency Translation			Net Unrealized Gain (Loss) on Derivative Instruments			Net Unrealized Gain (Loss) on Available- for-Sale Securities			Total attributable to Hillenbrand, Inc.			Noncontrolling Interests			Total
Balance at September 30, 2013		$	(33.0	)	$	31.4		$	0.2		$	—		$	(1.4	)
Other comprehensive income before reclassifications
Before tax amount		2.4			8.5			1.2			—			12.1			$	0.1		$	12.2
Tax benefit (expense)		(0.7		)	—			(0.3		)	—			(1.0		)	—			(1.0		)
After tax amount		1.7			8.5			0.9			—			11.1			0.1			11.2
Amounts reclassified from accumulated other comprehensive income(1)		1.4			—			(0.6		)	—			0.8			—			0.8
Net current period other comprehensive income (loss)		3.1			8.5			0.3			—			11.9			$	0.1		$	12.0
Balance at March 31, 2014		$	(29.9	)	$	39.9		$	0.5		$	—		$	10.5

 

(1)  Amounts are net of tax.

 

Reclassifications out of Accumulated Other Comprehensive Income include:

 

		Three Months Ended March 31, 2014
		Amortization of Pension and
		Postretirement (1)						(Gain)/Loss on
		Net Loss			Prior Service Costs			Derivative
		Recognized			Recognized			Instruments			Total
Affected Line in the Consolidated Statement of Operations:
Net revenue		$	—		$	—		$	(0.5	)	$	(0.5	)
Cost of goods sold		0.7			0.2			(0.2		)	0.7
Operating expenses		0.2			—			—			0.2
Other income (expense), net		—			—			(0.4		)	(0.4		)
Total before tax		$	0.9		$	0.2		$	(1.1	)	—
Tax expense											—
Total reclassifications for the period, net of tax											$	—

 

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		Six Months Ended March 31, 2014
		Amortization of Pension and
		Postretirement (1)						(Gain)/Loss on
		Net Loss			Prior Service Costs			Derivative
		Recognized			Recognized			Instruments			Total
Affected Line in the Consolidated Statement of Operations:
Net revenue		$	—		$	—		$	(0.4	)	$	(0.4	)
Cost of goods sold		1.3			0.3			(0.3		)	1.3
Operating expenses		0.5			0.1			—			0.6
Other income (expense), net		—			—			(0.3		)	(0.3		)
Total before tax		$	1.8		$	0.4		$	(1.0	)	1.2
Tax expense											(0.4		)
Total reclassifications for the period, net of tax											$	0.8

 

(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 6).

 

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11.       Share-Based Compensation

 

		Three Months Ended						Six Months Ended
		March 31,						March 31,
		2014			2013			2014			2013
Share-based compensation costs		$	3.4		$	1.5		$	5.1		$	6.0
Less income tax benefit		1.3			0.6			1.9			2.2
Share-based compensation costs, net of tax		$	2.1		$	0.9		$	3.2		$	3.8

 

During the six months ended March 31, 2014, we made the following grants:

 

		Number of Units
Stock options		449,828
Time-based stock awards		59,294
Performance-based stock awards (maximum that can be earned)		574,600

 

Stock options granted had a weighted-average exercise price of $28.16 and a weighted-average grant date fair value of $6.97.  Our time-based stock awards and performance-based stock awards had a weighted-average grant date fair value of $29.26 and $28.55.  Included in the performance-based stock awards granted during 2014 are 185,327 units whose payout level is based upon the Company’s total shareholder return as it relates to the performance of companies in its compensation peer group over a three-year measurement period.  These units will be expensed on a straight-line basis over the measurement period.

 

During the second quarter of 2014, we increased the shares issuable under the stock compensation plans by 3,900,000.

 

12.       Other Income (Expense), Net

 

		Three Months Ended						Six Months Ended
		March 31,						March 31,
		2014			2013			2014			2013
Equity in net income (loss) of affiliates		$	2.9		$	(0.4	)	$	2.7		$	(0.6	)
Foreign currency exchange gain (loss), net		(0.4		)	0.3			(0.7		)	1.1
Business acquisition and transition costs, net		—			—			—			0.8
Gain on exercise of warrants		5.2			—			5.2			—
Service agreement cancellation		2.5			—			2.5			—
Other, net		(0.5		)	(0.2		)	(0.1		)	(0.7		)
Other income and expense, net		$	9.7		$	(0.3	)	$	9.6		$	0.6

 

Since our spin-off from our former parent, we have held warrants to purchase the common stock of Forethought Financial Group, Inc. (“Forethought”).  Forethought was acquired by a third-party during the second quarter of 2014.  In connection with that acquisition, these warrants were exercised for $6.2, resulting in a gain of $5.2.

 

We recognized a $2.5 gain related to the cancellation of a service agreement at Batesville.

 

The acquisition of Coperion was transacted in euros.  Business acquisition and integration costs, net within other income and expense represent the foreign exchange gain recognized on euro-denominated cash required to fund the acquisition, offset by the costs of derivative contracts that hedged currency exposure on the funds required to close the transaction.

 

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