Table of Contents

 

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 December 31, 2014
 
Commission File No. 001-33794
 
HILLENBRAND, INC.
(Exact name of registrant as specified in its charter)
 
Indiana
(State of incorporation)
 
26-1342272
(I.R.S. Employer Identification No.)
 
 
 
One Batesville Boulevard
 
 
Batesville, IN
 
47006
(Address of principal executive offices)
 
(Zip Code)
 
(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 ý  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 ý  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.
 
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o
 
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No ý
 
The registrant had 62,958,394 shares of common stock, no par value per share, outstanding as of January 28, 2015.

 


Table of Contents

HILLENBRAND, INC.
INDEX TO FORM 10-Q
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1
Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS
 
Hillenbrand, Inc.
Consolidated Statements of Income (Unaudited)
(in millions, except per share data)
 
 
Three Months Ended
December 31,
 
2014
 
2013
Net revenue
$
401.5

 
$
384.9

Cost of goods sold
263.1

 
253.9

Gross profit
138.4

 
131.0

Operating expenses
91.2

 
94.0

Operating profit
47.2

 
37.0

Interest expense
5.7

 
6.3

Other expense, net
—

 
(0.1
)
Income before income taxes
41.5

 
30.6

Income tax expense
11.8

 
9.0

Consolidated net income
29.7

 
21.6

Less: Net income attributable to noncontrolling interests
0.2

 
1.3

Net income(1)
$
29.5

 
$
20.3

 
 
 
 
Net income(1)  — per share of common stock:
 

 
 

Basic earnings per share
$
0.47

 
$
0.32

Diluted earnings per share
$
0.46

 
$
0.32

Weighted average shares outstanding (basic)
63.1

 
63.1

Weighted average shares outstanding (diluted)
63.9

 
63.7

 
 
 
 
Cash dividends declared per share
$
0.2000

 
$
0.1975


 
(1) Net income attributable to Hillenbrand
 
See Condensed Notes to Consolidated Financial Statements


2
Table of Contents

Hillenbrand, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
(in millions)
 
 
Three Months Ended
December 31,
 
2014
 
2013
Consolidated net income
$
29.7

 
$
21.6

Changes in other comprehensive income (loss), net of tax
 

 
 

Currency translation adjustment
(20.1
)
 
8.7

Pension and postretirement (net of tax of $0.5 and $1.0)
0.8

 
2.2

Change in net unrealized gain (loss) on derivative instruments (net of tax of $0.2 and $0.2)
(0.5
)
 
0.5

Total changes in other comprehensive income (loss), net of tax
(19.8
)
 
11.4

Consolidated comprehensive income
9.9

 
33.0

Less: Comprehensive income attributable to noncontrolling interests
0.1

 
1.2

Comprehensive income (2)
$
9.8

 
$
31.8

 
 
(2) Comprehensive income attributable to Hillenbrand
 
See Condensed Notes to Consolidated Financial Statements


3
Table of Contents

Hillenbrand, Inc.
Consolidated Balance Sheets (Unaudited)
(in millions) 
 
December 31,
2014
 
September 30,
2014
ASSETS
 

 
 

Current Assets
 

 
 

Cash and cash equivalents
$
52.0

 
$
58.0

Trade receivables, net
174.3

 
191.0

Unbilled receivables from long-term manufacturing contracts
152.8

 
149.3

Inventories
177.1

 
168.5

Deferred income taxes
33.2

 
30.5

Prepaid expenses
20.2

 
19.0

Other current assets
19.5

 
21.5

Total current assets
629.1

 
637.8

Property, plant, and equipment, net
157.9

 
159.5

Intangible assets, net
493.7

 
510.5

Goodwill
558.7

 
570.7

Other assets
44.8

 
40.0

Total Assets
$
1,884.2

 
$
1,918.5

 
 
 
 
LIABILITIES
 

 
 

Current Liabilities
 

 
 

Trade accounts payable
$
140.1

 
$
192.6

Liabilities from long-term manufacturing contracts and advances
75.9

 
76.1

Current portion of long-term debt
9.0

 
15.0

Accrued compensation
46.4

 
69.6

Deferred income taxes
23.8

 
20.7

Other current liabilities
106.3

 
117.1

Total current liabilities
401.5

 
491.1

Long-term debt
608.1

 
543.5

Long-term portion of accrued pension and postretirement healthcare
196.8

 
200.9

Deferred income taxes
53.7

 
55.4

Other long-term liabilities
35.2

 
33.8

Total Liabilities
$
1,295.3

 
$
1,324.7

 
 
 
 
Commitments and contingencies


 


 
 
 
 
SHAREHOLDERS’ EQUITY
 

 
 

Common stock, no par value (63.6 and 63.5 shares issued, 62.9 and 62.9 shares outstanding)
—

 
—

Additional paid-in capital
342.7

 
342.1

Retained earnings
328.6

 
311.7

Treasury stock (0.7 and 0.6 shares)
(21.0
)
 
(18.3
)
Accumulated other comprehensive income (loss)
(71.9
)
 
(52.2
)
Hillenbrand Shareholders’ Equity
578.4

 
583.3

Noncontrolling interests
10.5

 
10.5

Total Shareholders’ Equity
588.9

 
593.8

 
 
 
 
Total Liabilities and Equity
$
1,884.2

 
$
1,918.5


 See Condensed Notes to Consolidated Financial Statements

4
Table of Contents

Hillenbrand, Inc.
Consolidated Statements of Cash Flow (Unaudited)
(in millions)
 
 
Three Months Ended
December 31,
 
2014
 
2013
Operating Activities
 

 
 

Consolidated net income
$
29.7

 
$
21.6

Adjustments to reconcile net income to cash provided by operating activities:
 

 
 

Depreciation and amortization
15.0

 
14.3

Deferred income taxes
0.5

 
(5.4
)
Share-based compensation
2.2

 
1.7

Trade accounts receivable and receivables on long-term manufacturing contracts
5.5

 
38.3

Inventories
(11.7
)
 
0.4

Other current assets
0.3

 
(2.1
)
Trade accounts payable
(48.7
)
 
(16.6
)
Accrued expenses and other current liabilities
(37.9
)
 
(5.6
)
Income taxes payable
8.4

 
(2.6
)
Defined benefit plan and postretirement funding
(2.7
)
 
(4.2
)
Defined benefit plan and postretirement expense
3.6

 
3.6

Other, net
(6.1
)
 
2.5

Net cash (used in) provided by operating activities
(41.9
)
 
45.9

 
 
 
 
Investing Activities
 

 
 

Capital expenditures
(5.7
)
 
(5.6
)
Proceeds from sales of property, plant, and equipment
0.5

 
—

Other, net
(2.6
)
 
(0.6
)
Net cash used in investing activities
(7.8
)
 
(6.2
)
 
 
 
 
Financing Activities
 

 
 

Repayments on term loan
(2.3
)
 
(2.5
)
Proceeds from revolving credit facilities
149.3

 
94.2

Repayments on revolving credit facilities
(187.2
)
 
(105.9
)
Proceeds from unsecured Series A Notes, net of financing costs
99.7

 
—

Payments of dividends on common stock
(12.6
)
 
(12.4
)
Repurchases of common stock
(6.8
)
 
—

Net proceeds on stock plans
1.2

 
7.6

Other, net
1.0

 
(0.3
)
Net cash provided by (used in) financing activities
42.3

 
(19.3
)
 
 
 
 
Effect of exchange rates on cash and cash equivalents
1.4

 
(0.8
)
 
 
 
 
Net cash flows
(6.0
)
 
19.6

 
 
 
 
Cash and cash equivalents:
 

 
 

At beginning of period
58.0

 
42.7

At end of period
$
52.0

 
$
62.3

 
See Condensed Notes to Consolidated Financial Statements

5
Table of Contents

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 and robust cash generation capabilities.  We have begun to implement a set of management practices to be applied consistently across the enterprise. These practices, which together are known as the Hillenbrand Business System (HBS), include Lean, Talent Development, and Strategy Management. 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,” “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.  They also include a few small subsidiaries where the Company’s ownership percentage is 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, 2014, as filed with the SEC.  The September 30, 2014 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.  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 and 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.

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 2014.
 
Recently Issued Accounting Standard
 
In January 2015, the FASB issued ASU 2015-01, Income Statement—Extraordinary and Unusual Items. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. ASU 2015-01 will be effective for our fiscal year beginning October 1, 2016, with early adoption permitted. We do not expect the adoption of ASU 2015-01 to have a material impact on our consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern. ASU 2014-15 provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. ASU 2014-15 will be effective for our fiscal year beginning October 1, 2016, with early adoption permitted. We do not expect the adoption of ASU 2014-15 to have a material impact on our consolidated financial statements.



6
Table of Contents

3.
Supplemental Balance Sheet Information
 
 
December 31,
2014
 
September 30,
2014
Trade accounts receivable reserves
$
20.7

 
$
19.2

 
 
 
 
Accumulated depreciation on property, plant, and equipment
$
284.3

 
$
278.3

 
 
 
 
Accumulated amortization on intangible assets
$
135.8

 
$
127.4

 
 
 
 
Inventories:
 

 
 

Raw materials and components
$
54.3

 
$
53.2

Work in process
77.9

 
73.3

Finished goods
44.9

 
42.0

Total inventories
$
177.1

 
$
168.5

 

4.
Financing Agreements
 
December 31,
2014
 
September 30,
2014
$700 revolving credit facility, maturing December 19, 2019
$
190.3

 
$
229.6

$200 term loan, final maturity December 19, 2019
177.8

 
180.0

$150 senior unsecured notes, due July 15, 2020, net of discount
149.0

 
148.9

$100 unsecured Series A Notes, due December 15, 2024
100.0

 
—

Total debt
617.1

 
558.5

Less: current portion
9.0

 
15.0

Total long-term debt
$
608.1

 
$
543.5

 
On December 15, 2014, we issued $100.0 in 4.60% Series A unsecured notes (“Series A Notes”) pursuant to the Private Shelf Agreement, dated as of December 6, 2012 (the “Shelf Agreement”), among the Company, Prudential Investment Management, Inc. (“Prudential”) and each Prudential Affiliate (as defined therein) that becomes a purchaser thereunder. The Series A Notes are unsecured, mature on December 15, 2024, and bear interest at 4.60% payable semi-annually in arrears. The Company may at any time upon providing notice, prepay all or part of the Series A Notes at 100% of the principal amount prepaid plus a Make-Whole Amount (as defined therein). Consistent with our revolving credit facility, term loan, senior unsecured notes, and LG facility, the Series A Notes are fully and unconditionally guaranteed by certain of the Company’s domestic subsidiaries (the “Guarantors”). Deferred financing costs of $0.4 related to the Series A Notes are being amortized to interest expense over the term of the Series A Notes.

On December 15, 2014, we entered into an amendment (the “First Amendment”) to the Shelf Agreement and on December 19, 2014, the Company and the Guarantors entered into a separate amendment (the “Second Amendment” and, collectively with the First Amendment, the “Prudential Amendments”) to the Shelf Agreement. The Prudential Amendments, among other things, amend a financial covenant contained in the Shelf Agreement to provide the Company greater flexibility to consummate acquisitions. The financial covenant amendment allows for an increase in the Company’s permitted maximum leverage ratio during the three quarters subsequent to an acquisition valued in excess of $75.0. We are allowed this increase up to two times during the term of the Shelf Agreement (each, a “Leverage Holiday”). If a Leverage Holiday is elected, in addition to the interest accruing on the Series A Notes, the Company must pay to each holder of a Series A Note a fee (an “Excess Leverage Fee”) equivalent to 0.75% per annum.

On December 19, 2014, the Company entered into a Second Amendment (the “JPM Amendment”) to the $700 revolving credit facility and term loan in the amount of $200, dated as of November 19, 2012 (as amended, the “Facility”), among the Company, the subsidiary borrowers, the subsidiary guarantors, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A., as administrative agent. The Facility provides for revolving loans of up to $700, plus a term loan in the amount of $180.0. The JPM Amendment extends the maturity date of the Facility to December 19, 2019 and, among other amendments, amends the Facility to provide for Leverage Holidays similar to those discussed above regarding the Series A Notes. New deferred financing costs related to the JPM Amendment were $1.5, along with existing costs of $1.9, are being amortized to interest expense over the term of the Facility.

7
Table of Contents


With respect to the Facility, as of December 31, 2014, we had $14.4 in outstanding letters of credit issued and $495.3 of maximum borrowing capacity, of which $361.9 of borrowing capacity is immediately available based on our leverage covenant at December 31, 2014, with additional amounts available in the event of a qualifying acquisition.  The weighted-average interest rates on borrowings under the Facility were 1.27% for the three months ended December 31, 2014, and 1.35% for the same period in the prior year.  The Facility carries a leverage-based facility fee, assessed on the entire facility amount. The weighted average facility fee was 0.25% for the three months ended December 31, 2014.
 
The weighted average interest rates on the term loan were 1.54% for the three months ended December 31, 2014, and 1.68% for the same period in the prior year.
 
In the normal course of business, the Process Equipment Group provides 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 December 31, 2014, we had guarantee arrangements with capacity totaling $236.5 under which $179.6 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. Financial covenants include a maximum ratio of Indebtedness to EBITDA (as such terms defined in the relevant agreements) of 3.5 to 1.0 and a minimum ratio of EBITDA (as defined in the agreements) to interest expense of 3.5 to 1.0. As of December 31, 2014, the LG Facility does not provide for Leverage Holidays. As of December 31, 2014, we were in compliance with all covenants.
 
We had restricted cash of $0.6 and $0.4 at December 31, 2014 and September 30, 2014.

5.
Retirement Benefits
 
Defined Benefit Plans
 
 
U.S. Pension Benefits
Three Months Ended December 31,
 
Non-U.S. Pension Benefits
Three Months Ended December 31,
 
2014
 
2013
 
2014
 
2013
Service costs
$
1.1

 
$
1.0

 
$
0.4

 
$
0.4

Interest costs
3.6

 
3.7

 
0.8

 
1.1

Expected return on plan assets
(3.5
)
 
(3.5
)
 
(0.3
)
 
(0.3
)
Amortization of unrecognized prior service costs, net
0.2

 
0.2

 
—

 
—

Amortization of net loss
1.2

 
0.9

 
—

 
—

Net pension costs
$
2.6

 
$
2.3

 
$
0.9

 
$
1.2

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

Defined Contribution Plans — Expenses related to our defined contribution plans were $2.1 and $2.1 for the three months ended December 31, 2014 and 2013.
 
6.
Income Taxes
 
The effective tax rates for the three months ended December 31, 2014 and 2013 were 28.4% and 29.4%. The decrease in the effective tax rate during the three months ended December 31, 2014 was primarily due to a reduction in the reserve for uncertain tax positions.


8
Table of Contents


7.
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 December 31, 2014 and 2013, potential dilutive effects, representing approximately 1,400,000 and 1,800,000 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
December 31,
 
2014
 
2013
Net income(1)
$
29.5

 
$
20.3

Weighted average shares outstanding (basic - in millions)
63.1

 
63.1

Effect of dilutive stock options and other unvested equity awards (in millions)
0.8

 
0.6

Weighted average shares outstanding (diluted - in millions)
63.9

 
63.7

 
 
 
 
Basic earnings per share
$
0.47

 
$
0.32

Diluted earnings per share
$
0.46

 
$
0.32

 
 
 
 
Shares with anti-dilutive effect excluded from the computation of diluted earnings per share (in millions)
0.4

 
0.6

 
(1) Net income attributable to Hillenbrand
 
8.
Shareholders’ Equity
 
During the three months ended December 31, 2014, we paid $12.6 of cash dividends.  We also repurchased approximately 222,000 shares of our common stock during the three months ended December 31, 2014, for a total cost of $6.8. In connection with our share based compensation plans discussed further in Note 10, we also issued approximately 200,000 shares of common stock, of which approximately 130,000 shares were issued out of treasury stock.


9.
Other Comprehensive Income (Loss)
 
Pension and
Postretirement
 
Currency
Translation
 
Net
Unrealized
Gain (Loss)
on Derivative
Instruments
 
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
2.1

 
8.7

 
0.6

 
11.4

 
$
(0.1
)
 
$
11.3

Tax expense
(0.6
)
 
—

 
(0.2
)
 
(0.8
)
 
—

 
(0.8
)
After tax amount
1.5

 
8.7

 
0.4

 
10.6

 
(0.1
)
 
10.5

Amounts reclassified from accumulated other comprehensive income(1)
0.7

 
—

 
0.1

 
0.8

 
—

 
0.8

Net current period other comprehensive income (loss)
2.2

 
8.7

 
0.5

 
11.4

 
$
(0.1
)
 
$
11.3

Balance at December 31, 2013
$
(30.8
)
 
$
40.1

 
$
0.7

 
$
10.0

 
 

 
 


 (1)  Amounts are net of tax.

9
Table of Contents

 
Pension and
Postretirement
 
Currency
Translation
 
Net
Unrealized
Gain (Loss)
on Derivative
Instruments
 
Total
Attributable
to
Hillenbrand,
Inc.
 
Noncontrolling
Interests
 
Total
Balance at September 30, 2014
$
(46.0
)
 
$
(4.9
)
 
$
(1.3
)
 
$
(52.2
)
 
 

 
 

Other comprehensive income before reclassifications
 

 
 

 
 

 
 

 
 

 
 

Before tax amount
—

 
(20.0
)
 
(1.5
)
 
(21.5
)
 
$
(0.1
)
 
$
(21.6
)
Tax expense
—

 
—

 
0.5

 
0.5

 
—

 
0.5

After tax amount
—

 
(20.0
)
 
(1.0
)
 
(21.0
)
 
(0.1
)
 
(21.1
)
Amounts reclassified from accumulated other comprehensive income(1)
0.8

 
—

 
0.5

 
1.3

 
—

 
1.3

Net current period other comprehensive income (loss)
0.8

 
(20.0
)
 
(0.5
)
 
(19.7
)
 
$
(0.1
)
 
$
(19.8
)
Balance at December 31, 2014
$
(45.2
)
 
$
(24.9
)
 
$
(1.8
)
 
$
(71.9
)
 
 

 
 

(1)  Amounts are net of tax.
 
Reclassifications out of Accumulated Other Comprehensive Income include: 
 
Three Months Ended December 31, 2013
 
Amortization of Pension and
Postretirement (1)
 
(Gain)/Loss on
 
 
 
Net Loss
Recognized
 
Prior Service Costs
Recognized
 
Derivative
Instruments
 
Total
Affected Line in the Consolidated Statement of Operations:
 

 
 

 
 

 
 

Net revenue
$
—

 
$
—

 
$
0.1

 
$
0.1

Cost of goods sold
0.6

 
0.1

 
(0.1
)
 
0.6

Operating expenses
0.3

 
0.1

 
—

 
0.4

Other income (expense), net
—

 
—

 
0.1

 
0.1

Total before tax
$
0.9

 
$
0.2

 
$
0.1

 
$
1.2

Tax expense
 

 
 

 
 

 
(0.4
)
Total reclassifications for the period, net of tax
 

 
 

 
 

 
$
0.8

 
Three Months Ended December 31, 2014
 
Amortization of Pension and
Postretirement (1)
 
(Gain)/Loss on
 
 
 
Net Loss
Recognized
 
Prior Service Costs
Recognized
 
Derivative
Instruments
 
Total
Affected Line in the Consolidated Statement of Operations:
 

 
 

 
 

 
 

Net revenue
$
—

 
$
—

 
$
0.5

 
$
0.5

Cost of goods sold
0.9

 
0.1

 
(0.1
)
 
0.9

Operating expenses
0.3

 
0.1

 
—

 
0.4

Other income (expense), net
—

 
—

 
0.3

 
0.3

Total before tax
$
1.2

 
$
0.2

 
$
0.7

 
$
2.1

Tax expense
 

 
 

 
 

 
(0.8
)
Total reclassifications for the period, net of tax
 

 
 

 
 

 
$
1.3

 
(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 5).


10
Table of Contents

10.
Share-Based Compensation
 
 
Three Months Ended
December 31,
 
2014
 
2013
Share-based compensation costs
$
2.2

 
$
1.7

Less impact of income tax benefit
0.8

 
0.6

Share-based compensation costs, net of tax
$
1.4

 
$
1.1

 
Share-based compensation related to our long-term performance-based stock awards is contingent upon the creation of shareholder value as measured by the cumulative cash returns and final period net operating profit after tax compared to the performance-based targets for each grant over a three-year period.  For certain performance-based awards, compensation expense is adjusted each quarter based upon actual results to date and any changes to forecasted information on each of the separate grants. 
 
During the three months ended December 31, 2014, we made the following grants:
 
 
Number of
Units
Stock options
360,903

Time-based stock awards
13,962

Performance-based stock awards (maximum that can be earned)
474,599

 
Stock options granted had a weighted-average exercise price of $32.66 and a weighted-average grant date fair value of $4.88.  Our time-based stock awards and performance-based stock awards had a weighted-average grant date fair value of $32.48 and $19.45.  Included in the performance-based stock awards granted in the first quarter of fiscal 2015 are 150,464 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 and are not subsequently adjusted after the grant date.
 
11.
Other Income (Expense), Net
 
 
Three Months Ended
December 31,
 
2014
 
2013
Equity in net income (loss) of affiliates
$
0.3

 
$
(0.2
)
Foreign currency exchange loss, net
(0.8
)
 
(0.3
)
Other, net
0.5

 
0.4

Other income and expense, net
$
—

 
$
(0.1
)
  
12.
Commitments and Contingencies
 
Litigation
 
General — Like most companies, from time to time we are involved in claims, lawsuits, and government proceedings relating to our operations, including environmental, 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 significant 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

11
Table of Contents

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.
 
13.
Fair Value Measurements
 
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.  The authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are from sources independent of the Company.  Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability developed based upon the best information available in the circumstances.  The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  The hierarchy is broken down into three levels:
 
Level 1:
Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2:
Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.
Level 3:
Inputs are unobservable for the asset or liability.
 
 
Carrying
 
 
 
 
 
 
 
Value at
December 31,
 
Fair Value at December 31, 2014
Using Inputs Considered as:
 
2014
 
Level 1
 
Level 2
 
Level 3
Assets:
 

 
 

 
 

 
 

Cash and cash equivalents
$
52.0

 
$
52.0

 
$
—

 
$
—

Investments in rabbi trust
5.5

 
5.5

 
—

 
—

Derivative instruments
1.7

 
—

 
1.7

 
—

 
 
 
 
 
 
 
 
Liabilities:
 

 
 

 
 

 
 

$150 senior unsecured notes
149.0

 
162.3

 
—

 
—

Revolving credit facility
190.3

 
—

 
190.3

 
—

Term loan
177.8

 
—

 
177.8

 
—

  $100 Series A Notes
100.0

 
—

 
102.2

 
—

Derivative instruments
5.2

 
—

 
5.2

 
—

 
The fair values of the revolving credit facility and term loan approximated carrying value at December 31, 2014.  The fair values of the revolving credit facility, term loan, and Series A Notes are estimated based on internally developed models, using current market interest rate data for similar issues as there is no active market for our revolving credit facility, term loan, or Series A Notes.

The fair values of the Company’s derivative instruments are based upon pricing models using inputs derived from third-party pricing services or observable market data such as currency spot and forward rates.  These values are periodically validated by comparing to third-party broker quotes.  The aggregate notional value of these derivatives was $110.9 at December 31, 2014.
 


12
Table of Contents

14.
Segment and Geographical Information
 
 
Three Months Ended December 31,
 
2014
 
2013
Net revenue
 

 
 

Process Equipment Group
$
256.4

 
$
242.2

Batesville
145.1

 
142.7

Total
$
401.5

 
$
384.9

 
 
 
 
Adjusted EBITDA
 

 
 

Process Equipment Group
$
38.1

 
$
26.7

Batesville
32.6

 
34.5

Corporate
(7.3
)
 
(8.0
)
 
 
 
 
Net revenue (1)
 

 
 

United States
$
216.6

 
$
202.4

International
184.9

 
182.5

Total
$
401.5

 
$
384.9

 
(1) We attribute revenue to a geography based upon the location of the business unit that consummates the external sale.
 
 
December 31,
2014
 
September 30,
2014
Total assets assigned
 

 
 

Process Equipment Group
$
1,587.5

 
$
1,632.8

Batesville
227.9

 
237.8

Corporate
68.8

 
47.9

Total
$
1,884.2

 
$
1,918.5

 
 
 
 
Tangible long-lived assets, net
 

 
 

United States
$
94.6

 
$
93.7

International
63.3

 
65.8

Total
$
157.9

 
$
159.5



13
Table of Contents

The following schedule reconciles segment adjusted EBITDA to consolidated net income.
 
 
Three Months Ended
December 31,
 
2014
 
2013
Adjusted EBITDA:
 

 
 

Process Equipment Group
$
38.1

 
$
26.7

Batesville
32.6

 
34.5

Corporate
(7.3
)
 
(8.0
)
Less:
 

 
 

Interest income
(0.3
)
 
(0.2
)
Interest expense
5.7

 
6.3

Income tax expense
11.8

 
9.0

Depreciation and amortization
15.0

 
14.3

Business acquisition and integration
0.3

 
1.9

Restructuring
0.7

 
0.3

Litigation
0.5

 
—

Consolidated net income
$
29.7

 
$
21.6

 

14
Table of Contents

15.
Condensed Consolidating Information
 
Certain 100% owned subsidiaries of Hillenbrand fully and unconditionally, jointly and severally, agreed to guarantee all of the indebtedness relating to our obligations under our revolving credit facility, term loan, senior unsecured notes, Series A Notes, and LG Facility.  The following are the condensed consolidating financial statements, including the guarantors, which present the statements of income, balance sheets, and cash flows of (i) the parent holding company, (ii) the guarantor subsidiaries, (iii) the non-guarantor subsidiaries, and (iv) eliminations necessary to present the information for Hillenbrand on a consolidated basis.

Condensed Consolidating Statements of Income

 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2013
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Consolidated
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Net revenue
$
—

 
$
216.7

 
$
233.5

 
$
(48.7
)
 
$
401.5

 
$
—

 
$
200.3

 
$
225.0

 
$
(40.4
)
 
$
384.9

Cost of goods sold
—

 
114.3

 
172.8

 
(24.0
)
 
263.1

 
—

 
102.5

 
166.6

 
(15.2
)
 
253.9

Gross profit
—

 
102.4

 
60.7

 
(24.7
)
 
138.4

 
—

 
97.8

 
58.4

 
(25.2
)
 
131.0

Operating expenses
8.1

 
62.9

 
44.9

 
(24.7
)
 
91.2

 
9.0

 
61.9

 
48.3

 
(25.2
)
 
94.0

Operating profit
(8.1
)
 
39.5

 
15.8

 
—

 
47.2

 
(9.0
)
 
35.9

 
10.1

 
—

 
37.0

Interest expense
4.9

 
—

 
0.8

 
—

 
5.7

 
4.9

 
0.1

 
1.3

 
—

 
6.3

Other income (expense), net
—

 
—

 
—

 
—

 
—

 
(0.1
)
 
(0.7
)
 
0.7

 
—

 
(0.1
)
Equity in net income (loss) of subsidiaries
34.1

 
2.2

 
—

 
(36.3
)
 
—

 
28.6

 
1.9

 
—

 
(30.5
)
 
—

Income (loss) before income taxes
21.1

 
41.7

 
15.0

 
(36.3
)
 
41.5

 
14.6

 
37.0

 
9.5

 
(30.5
)
 
30.6

Income tax expense (benefit)
(8.4
)
 
14.9

 
5.3

 
—

 
11.8

 
(5.7
)
 
13.2

 
1.5

 
—

 
9.0

Consolidated net income
29.5

 
26.8

 
9.7

 
(36.3
)
 
29.7

 
20.3

 
23.8

 
8.0

 
(30.5
)
 
21.6

Less: Net income attributable to noncontrolling interests
—

 
—

 
0.2

 
—

 
0.2

 
—

 
—

 
1.3

 
—

 
1.3

Net income (1)
$
29.5

 
$
26.8

 
$
9.5

 
$
(36.3
)
 
$
29.5

 
$
20.3

 
$
23.8

 
$
6.7

 
$
(30.5
)
 
$
20.3

Consolidated comprehensive income
$
9.8

 
$
27.6

 
$
2.3

 
$
(29.8
)
 
$
9.9

 
$
31.8

 
$
24.5

 
$
18.7

 
$
(42.0
)
 
$
33.0

Less: Comprehensive income attributable to noncontrolling interests
—

 
—

 
0.1

 
—

 
0.1

 
—

 
—

 
1.2

 
—

 
1.2

Comprehensive income (2)
$
9.8

 
$
27.6

 
$
2.2

 
$
(29.8
)
 
$
9.8

 
$
31.8

 
$
24.5

 
$
17.5

 
$
(42.0
)
 
$
31.8


 (1) Net income attributable to Hillenbrand
(2) Comprehensive income attributable to Hillenbrand










15
Table of Contents

Condensed Consolidating Balance Sheets
 
December 31, 2014
 
September 30, 2014
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Consolidated
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Cash and equivalents
$
1.0

 
$
9.0

 
$
42.0

 
$
—

 
$
52.0

 
$
0.4

 
$
10.6

 
$
47.0

 
$
—

 
$
58.0

Trade receivables, net
—

 
105.9

 
68.4

 
—

 
174.3

 
—

 
113.2

 
77.8

 
—

 
191.0

Unbilled receivables from long-term manufacturing contracts
—

 
5.0

 
147.8

 
—

 
152.8

 
—

 
4.0

 
145.3

 
—

 
149.3

Inventories
—

 
73.9

 
106.4

 
(3.2
)
 
177.1

 
—

 
69.7

 
101.8

 
(3.0
)
 
168.5

Deferred income taxes
13.3

 
17.3

 
2.6

 
—

 
33.2

 
10.6

 
17.3

 
2.6

 
—

 
30.5

Prepaid expense
3.1

 
5.3

 
11.8

 
—

 
20.2

 
2.5

 
4.9

 
11.6

 
—

 
19.0

Intercompany receivables
290.7

 
1,152.3

 
30.8

 
(1,473.8
)
 
—

 
291.0

 
1,189.9

 
5.3

 
(1,486.2
)
 
—

Other current assets
1.0

 
1.8

 
16.7

 
—

 
19.5

 
1.2

 
2.1

 
17.8

 
0.4

 
21.5

Total current assets
309.1

 
1,370.5

 
426.5

 
(1,477.0
)
 
629.1

 
305.7

 
1,411.7

 
409.2

 
(1,488.8
)
 
637.8

Property, plant and equipment, net
6.7

 
65.9

 
85.3

 
—

 
157.9

 
6.7

 
65.4

 
87.4

 
—

 
159.5

Intangible assets, net
2.4

 
183.2

 
308.1

 
—

 
493.7

 
2.5

 
186.1

 
321.9

 
—

 
510.5

Goodwill
—

 
211.7

 
347.0

 
—

 
558.7

 
—

 
211.7

 
359.0

 
—

 
570.7

Investment in consolidated subsidiaries
2,039.3

 
643.8

 
—

 
(2,683.1
)
 
—

 
2,000.2

 
644.0

 
—

 
(2,644.2
)
 
—

Other assets
35.6

 
26.9

 
4.1

 
(21.8
)
 
44.8

 
25.8

 
9.9

 
4.3

 
—

 
40.0

Total Assets
$
2,393.1

 
$
2,502.0

 
$
1,171.0

 
$
(4,181.9
)
 
$
1,884.2

 
$
2,340.9

 
$
2,528.8

 
$
1,181.8

 
$
(4,133.0
)
 
$
1,918.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade accounts payable
$
1.3

 
$
20.9

 
$
117.9

 
$
—

 
$
140.1

 
$
3.0

 
$
32.8

 
$
156.8

 
$
—

 
$
192.6

Liabilities from long-term manufacturing contracts and advances
—

 
25.0

 
50.9

 
—

 
75.9

 
—

 
20.4

 
55.7

 
—

 
76.1

Current portion of long-term debt
9.0

 
—

 
—

 
—

 
9.0

 
15.0

 
—

 
—

 
—

 
15.0

Accrued compensation
22.4

 
16.5

 
7.5

 
—

 
46.4

 
5.0

 
55.3

 
9.3

 
—

 
69.6

Deferred income taxes
—

 
—

 
23.8

 
—

 
23.8

 
—

 
1.6

 
19.1

 
—

 
20.7

Intercompany payables
1,192.0

 
285.0

 
—

 
(1,477.0
)
 
—

 
1,202.7

 
286.5

 
—

 
(1,489.2
)
 
—

Other current liabilities
4.7

 
49.1

 
73.0

 
(20.5
)
 
106.3

 
4.1

 
61.6

 
51.0

 
0.4

 
117.1

Total current liabilities
1,229.4

 
396.5

 
273.1

 
(1,497.5
)
 
401.5

 
1,229.8

 
458.2

 
291.9

 
(1,488.8
)
 
491.1

Long-term debt
583.8

 
—

 
24.3

 
—

 
608.1

 
525.9

 
—

 
17.6

 
—

 
543.5

Accrued pension and postretirement healthcare
1.0

 
94.9

 
100.9

 
—

 
196.8

 
1.0

 
94.2

 
105.7

 
—

 
200.9

Deferred income taxes
0.4

 
16.4

 
36.9

 
—

 
53.7

 
0.8

 
15.1

 
39.5

 
—

 
55.4

Other long-term liabilities
0.1

 
25.3

 
11.1

 
(1.3
)
 
35.2

 
0.1

 
27.7

 
6.0

 
—

 
33.8

Total Liabilities
1,814.7

 
533.1

 
446.3

 
(1,498.8
)
 
1,295.3

 
1,757.6

 
595.2

 
460.7

 
(1,488.8
)
 
1,324.7

Total Hillenbrand Shareholders’ Equity
578.4

 
1,968.9

 
714.2

 
(2,683.1
)
 
578.4

 
583.3

 
1,933.6

 
710.6

 
(2,644.2
)
 
583.3

Noncontrolling interests
—

 
—

 
10.5

 
—

 
10.5

 
—

 
—

 
10.5

 
—

 
10.5

Total Equity
578.4

 
1,968.9

 
724.7

 
(2,683.1
)
 
588.9

 
583.3

 
1,933.6

 
721.1

 
(2,644.2
)
 
593.8

Total Liabilities and Equity
$
2,393.1

 
$
2,502.0

 
$
1,171.0

 
$
(4,181.9
)
 
$
1,884.2

 
$
2,340.9

 
$
2,528.8

 
$
1,181.8

 
$
(4,133.0
)
 
$
1,918.5




16
Table of Contents

Condensed Consolidating Statements of Cash Flows
 
 
Three Months Ended December 31, 2014
 
Three Months Ended December 31, 2013
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Consolidated
 
Parent
 
Guarantors
 
Non-
Guarantors
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$
(33.3
)
 
$
3.6

 
$
(12.2
)
 
$
—

 
$
(41.9
)
 
$
11.8

 
$
2.2

 
$
31.9

 
$
—

 
$
45.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Investing activities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Capital expenditures
(0.3
)
 
(3.3
)
 
(2.1
)
 
—

 
(5.7
)
 
(0.3
)
 
(1.9
)
 
(3.4
)
 
—

 
(5.6
)
Proceeds from property, plant, and equipment
—

 
0.5

 
—

 
—

 
0.5

 
—

 
—

 
—

 
—

 
—

Other, net
—

 
(2.4
)
 
(0.2
)
 
—

 
(2.6
)
 
(0.6
)
 
—

 
—

 
—

 
(0.6
)
Net cash used in investing activities
(0.3
)
 
(5.2
)
 
(2.3
)
 
—

 
(7.8
)
 
(0.9
)
 
(1.9
)
 
(3.4
)
 
—

 
(6.2
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financing activities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Repayments on term loan
(2.3
)
 
—

 
—

 
—

 
(2.3
)
 
(2.5
)
 
—

 
—

 
—

 
(2.5
)
Proceeds from revolving credit facilities
111.5

 
—

 
37.8

 
—

 
149.3

 
76.5

 
—

 
17.7

 
—

 
94.2

Repayments on revolving credit facilities
(157.5
)
 
—

 
(29.7
)
 
—

 
(187.2
)
 
(80.0
)
 
—

 
(25.9
)
 
—

 
(105.9
)
Proceeds from unsecured Series A Notes, net of financing costs
99.7

 
—

 
—

 
—

 
99.7