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(1)	Income tax effects of the Tax Act (as defined in Note 2) were reclassified from accumulated other comprehensive loss to retained earnings due to the adoption of ASU 2018-02. See Note 2 for more information.

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1.	Background and Basis of Presentation

 

Hillenbrand, Inc. (the “Company” or “Hillenbrand”) is a global diversified industrial company with multiple leading brands that serve a wide variety of industries around the world.  The Company strives to provide superior return for our shareholders, exceptional value for our customers, great professional opportunities for our employees, and to be responsible to our communities through deployment of the Hillenbrand Operating Model (“HOM”). The HOM is a consistent and repeatable framework designed to produce sustainable and predictable results.  The HOM describes the Company’s mission, vision, values, and mindset as leaders; applies our management practices in Strategy Management, Segmentation, Lean, Talent Development, and Acquisitions; and prescribes three steps (Understand, Focus, and Grow) designed to make the Company’s businesses both bigger and better.  The Company’s goal is to continue developing Hillenbrand as a world-class global diversified industrial company through the deployment of the HOM.

On July 12, 2019, Hillenbrand entered into a definitive agreement (the “Merger Agreement”) to acquire Milacron Holdings Corp. (“Milacron”) in a cash and stock merger transaction. The Company completed the acquisition on November 21, 2019 through a merger of its wholly-owned subsidiary with and into Milacron, resulting in ownership of 100% of Milacron’s common stock that was issued and outstanding after the merger. The Consolidated Financial Statements as of and for the three months ended December 31, 2019 include the financial results of Milacron from the date of acquisition. See Note 4 for further information on the acquisition.

Hillenbrand’s portfolio is composed of three reportable business segments:  the Process Equipment Group, Milacron^®, and Batesville^®.  The Process Equipment Group businesses design, develop, manufacture, and service highly engineered industrial equipment around the world. Milacron is a global leader in highly engineered and customized systems in plastics technology and processing. Batesville is a recognized leader in the death care industry in North America. “Hillenbrand,” the “Company,” “we,” “us,” “our,” and similar words refer to Hillenbrand and its subsidiaries within this Form 10-Q unless context otherwise requires.

 

The accompanying unaudited Consolidated Financial Statements include the accounts of Hillenbrand and its subsidiaries.  They also include two 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 United States generally accepted accounting principles (“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 the Company’s latest Annual Report on Form 10-K for the year ended September 30, 2019, as filed with the SEC. In the opinion of management, these Consolidated 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 flows as of the dates and for the periods presented. The interim period results are subject to variation and are not necessarily indicative of the results of operations to be expected for the full fiscal year.

 

The preparation of the Consolidated Financial Statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses 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, preliminary purchase price allocations, 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 incentive compensation programs.

2.	Summary of Significant Accounting Policies

 

The significant accounting policies used in preparing the Consolidated Financial Statements are consistent with the accounting policies described in the Company’s Annual Report on Form 10-K for 2019, except as described below.

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Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updated (“ASU”) 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 requires lessees to recognize a right of use asset and related lease liability for leases that have terms of more than twelve months. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance, with the classifications based on criteria that are similar to those applied under the current lease guidance, without the explicit bright lines. ASU 2016-02 became effective for the Company’s fiscal year that began on October 1, 2019. The Company adopted ASU 2016-02 under the allowable transition method to use the effective date as the date of initial application on transition without adjusting the comparative periods presented (modified retrospective method).

At transition, the Company elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs. Additionally, ASU 2016-02 also provides practical expedients for an entity’s ongoing accounting. The Company elected to not separate lease and non-lease components. Additionally, the Company will not recognize an asset for leases with a term of twelve months or less and will apply a portfolio approach in determining discount rates.

The Company surveyed its businesses, assessed its portfolio of leases, and compiled a central repository of all leases. Additionally, the Company identified and implemented appropriate changes to policies, procedures, and controls pertaining to existing and future lease arrangements to support recognition and disclosure requirements under ASU 2016-02. As a result of the adoption of ASU 2016-02, the Company recorded right-of-use assets of $172.5 and corresponding lease liabilities of $170.0 for its operating leases at December 31, 2019. Approximately $41.0 of the right-of-use assets and $39.0 of the corresponding lease liabilities were recorded in connection with the Milacron acquisition. The adoption of ASU 2016-02 did not have a material impact to the Company’s Consolidated Statements of Operations or Consolidated Statements of Cash Flows. See Note 6 for additional information.

In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 allows for the reclassification of stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) from accumulated other comprehensive loss to retained earnings. The Company adopted ASU 2018-02 on October 1, 2019, which resulted in a decrease to accumulated other comprehensive loss and an increase to retained earnings of $6.0 each on the Consolidated Balance Sheets, primarily related to deferred taxes previously recorded for pension and other postretirement benefits. The adoption of ASU 2018-02 did not have an impact to the Consolidated Statements of Operations or Consolidated Statements of Cash Flows.

Recently Issued Accounting Standards

 

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Statements (“ASU 2016-13”). ASU 2016-13 replaces the current incurred loss impairment model with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. ASU 2016-13 will be effective for the Company’s fiscal year beginning on October 1, 2020. The Company is currently evaluating the impact that ASU 2016-13 will have on the Consolidated Financial Statements.

No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the Consolidated Financial Statements.

3.	Revenue Recognition

Net revenue includes gross revenue less sales discounts, customer rebates, sales incentives, and product returns, all of which require the Company to make estimates for the portion of these allowances that have yet to be credited or paid to customers. The Company estimates these allowances using the expected value method, which is based upon historical rates and projections of customer purchases toward contractual rebate thresholds.

Contract balances

The balance in receivables from long-term manufacturing contracts at December 31, 2019 and September 30, 2019 was $205.9 and $181.1, respectively. The change was driven by the impact of net revenue recognized prior to billings. The balance in the liabilities from long-term manufacturing contracts and advances at December 31, 2019 and September 30, 2019 was $183.1 and $158.2, respectively, and consists primarily of cash payments received or due in advance of satisfying performance obligations. The revenue recognized for the three months ended December 31, 2019 and 2018 related to liabilities from long-term manufacturing

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contracts and advances as of September 30, 2019 and 2018 was $55.3 and $78.0, respectively. During the three months ended December 31, 2019 and 2018, the adjustments related to performance obligations satisfied in previous periods were immaterial.

Transaction price allocated to the remaining performance obligations

                                            

As of December 31, 2019, the aggregate amount of transaction price of remaining performance obligations, which corresponds to backlog as defined in Item 2 of this Form 10-Q, for the Company was $1,047.7. Approximately 85% of these performance obligations are expected to be satisfied over the next twelve months, and the remaining performance obligations, primarily within one to three years.

Disaggregation of revenue

As a result of completing the acquisition of Milacron during the current year, the Company now sells products in the following additional end markets: custom molders, automotive, consumer goods, packaging, electronics, and construction. The following tables present net revenue by end market, which include reclassifications in the prior year period to conform to the current year presentation:

	Three Months Ended December 31, 2019
	Process Equipment Group				Milacron				Batesville				Total
Revenue by End Market
Plastics	$	202.0			$	—			$	—			$	202.0
Automotive	—				25.0				—				25.0
Chemicals	24.4				—				—				24.4
Consumer goods	—				18.4				—				18.4
Food and pharmaceuticals	18.0				—				—				18.0
Custom molders	—				16.8				—				16.8
Construction	—				16.8				—				16.8
Packaging	—				13.8				—				13.8
Minerals and mining	13.3				—				—				13.3
Electronics	—				8.3				—				8.3
Death care	—				—				127.0				127.0
Other industrial	48.9				34.2				—				83.1
Total	$	306.6			$	133.3			$	127.0			$	566.9

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	Three Months Ended December 31, 2018
	Process Equipment Group				Batesville				Total
Revenue by End Market
Plastics	$	160.9			$	—			$	160.9
Chemicals	29.6				—				29.6
Minerals and mining	28.0				—				28.0
Food and pharmaceuticals	16.5				—				16.5
Death care	—				128.1				128.1
Other industrial	47.2				—				47.2
Total	$	282.2			$	128.1			$	410.3

The following tables present net revenue by products and services:

	Three Months Ended December 31, 2019
	Process Equipment Group				Milacron				Batesville				Total
Products and Services
Equipment	$	206.0			$	82.2			$	—			$	288.2
Parts and services	100.6				32.2				—				132.8
Death care	—				—				127.0				127.0
Other	—				18.9				—				18.9
Total	$	306.6			$	133.3			$	127.0			$	566.9

	Three Months Ended December 31, 2018
	Process Equipment Group				Batesville				Total
Products and Services
Equipment	$	183.4			$	—			$	183.4
Parts and services	98.8				—				98.8
Death care	—				128.1				128.1
Total	$	282.2			$	128.1			$	410.3

The following tables present net revenue by timing of transfer:

	Three Months Ended December 31, 2019
	Process Equipment Group				Milacron				Batesville				Total
Timing of Transfer
Point in time	$	147.3			$	133.3			$	127.0			$	407.6
Over time	159.3				—				—				159.3
Total	$	306.6			$	133.3			$	127.0			$	566.9

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	Three Months Ended December 31, 2018
	Process Equipment Group				Batesville				Total
Timing of Transfer
Point in time	$	163.7			$	128.1			$	291.8
Over time	118.5				—				118.5
Total	$	282.2			$	128.1			$	410.3

4.	Business Acquisitions

Acquisition of Milacron

Background

On November 21, 2019, the Company completed the acquisition of Milacron, a global leader in highly engineered and customized systems in plastic technology and processing, through a merger of its wholly-owned subsidiary with and into Milacron, resulting in ownership of 100% of Milacron common stock that was issued and outstanding after the acquisition. The acquisition provides Hillenbrand with increased scale and meaningful product diversification, enhancing its ability to serve customers with expanded capabilities across the plastics value chain.

The results of Milacron are currently reported separately in its own reportable segment. See Note 17 for further information.

Purchase price consideration

As a result of the acquisition, Milacron stockholders received $11.80 in cash per share and a fixed exchange ratio of 0.1612 shares of Hillenbrand common stock for each share of Milacron common stock they owned, with cash paid in lieu of fractional shares. In addition, concurrent with the closing of the acquisition, the Company made a cash payment of $772.9 to repay outstanding Milacron debt, including accrued interest. The Company funded the acquisition through a combination of cash on hand, new debt financing, and the issuance of common stock. See Note 8 for a discussion of the debt financing.

Pursuant to the Merger Agreement, certain of Milacron’s outstanding stock options, restricted stock awards, restricted stock unit awards, and performance stock unit awards immediately vested and converted into the right to receive $11.80 per share in cash and 0.1612 shares of Hillenbrand common stock per share. Additionally, certain of Milacron’s stock appreciation rights were canceled and converted into the right to receive a lump sum cash payment. The fair value of share-based equity awards was apportioned between purchase price consideration and immediate expense. The portion of the fair value of partially vested awards associated with pre-acquisition service of Milacron employees represented a component of the total purchase price consideration, while the remaining portion of the fair value was immediately recognized as expense within operating expenses in the Consolidated Statements of Operations during the three months ended December 31, 2019.

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The following table summarizes the aggregate purchase price consideration to acquire Milacron:

Cash consideration paid to Milacron stockholders	$	835.9
Repayment of Milacron debt, including accrued interest	772.9
Cash consideration paid to settle outstanding share-based equity awards	34.2
Total cash consideration	1,643.0
Fair value of Hillenbrand common stock issued to Milacron stockholders (1)	356.9
Stock consideration issued to settle outstanding share-based equity awards (1)	14.4
Total consideration transferred	2,014.3
Portion of cash settlement of outstanding share-based equity awards recognized as expense (2)	(14.1		)
Portion of stock settlement of outstanding share-based equity awards recognized as expense (2)	(5.9		)
Total purchase price consideration	$	1,994.3

(1)

The fair value of the 11.4 million shares of Hillenbrand’s common stock issued as of the acquisition date was determined based on a per share price of $31.26, which was the closing price of the Hillenbrand’s common stock on November 20, 2019, the last trading day before the acquisition closed on November 21, 2019. This includes a nominal amount of cash paid in lieu of fractional shares. Additionally, 0.5 million shares of Hillenbrand’s common stock were issued to settle certain of Milacron’s outstanding share-based equity awards, as previously discussed.

(2)	In total, $20.0 was immediately recognized as expense within operating expenses on the Consolidated Statements of Operations during the three months ended December 31, 2019, which represents the portion of the fair value of outstanding share-based equity awards that was not associated with pre-acquisition service of Milacron employees, as previously discussed.

Purchase price allocation

The acquisition was accounted for as a business combination in accordance with Accounting Standards Codification Topic 805, Business Combinations. The purchase price was allocated to the assets acquired and liabilities assumed based on management’s estimate of the respective fair values at the date of acquisition. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized.  The factors contributing to the recognition of goodwill were based on strategic benefits that are expected to be realized from the acquisition.  None of the goodwill is expected to be deductible for income tax purposes.

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The following table summarizes preliminary estimates of fair values of the assets acquired and liabilities assumed as of the acquisition date:

	November 21, 2019
Assets acquired:
Cash and cash equivalents	$	125.8
Trade receivables	135.5
Inventories	288.7
Prepaid expense and other current assets	64.3
Property, plant, and equipment	262.9
Operating lease right-of-use assets	41.3
Identifiable intangible assets	865.0
Goodwill	666.5
Other long-term assets	22.6
Total assets acquired	2,472.6
Liabilities assumed:
Trade accounts payable	110.2
Liabilities from long-term manufacturing contracts and advances	32.7
Accrued compensation	23.2
Other current liabilities	72.2
Accrued pension and postretirement healthcare	29.4
Deferred income taxes	166.3
Operating lease liabilities - long-term	31.2
Other long-term liabilities	13.1
Total liabilities assumed	478.3
Total purchase price consideration	$	1,994.3

The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (defined as the 12 months following the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired and deferred income taxes. The Company expects to continue to obtain information for the purpose of determining the fair value of the assets acquired and liabilities assumed at the acquisition date throughout the remainder of the measurement period.

The preliminary purchase price allocation included $865.0 of acquired identifiable intangible assets. The preliminary fair value of the identifiable intangible assets has been estimated using the income approach through a discounted cash flow analysis with the cash flow projections. The cash flows are based on estimates used to price the Milacron acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return to the Company’s pricing model and the weighted average cost of capital. Definite-lived intangible assets are being amortized over the estimated useful life on a straight-line basis.  The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future cash flows of the Company post acquisition of Milacron.  In addition, Hillenbrand reviewed certain technological trends and considered the relative stability in the current Milacron customer base.

The preliminary amounts allocated to intangible assets are as follows:

		Gross Carrying Amount				Weighted-Average Useful Life
Customer relationships		$	555.0			19 years
Trade names		205.0				Indefinite
Technology, including patents		95.0				10 years
Backlog		10.0				3 months
Total		$	865.0

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The Company is required to provide additional disclosures about fair value measurements as part of the Consolidated Financial Statements for each major category of assets and liabilities measured at fair value on a nonrecurring basis (including business acquisitions). The working capital assets and liabilities, as well as the property and equipment acquired, were valued using Level 2 inputs which included data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill and identifiable intangible assets were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows (income approach). Significant increases (decreases) in any of those unobservable inputs in isolation would result in a significantly lower (higher) fair value measurement.  Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values, and specifically those considered Level 3 measurements. Management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.

Impact on results of operations

The results of Milacron’s operations have been included in Hillenbrand’s Consolidated Financial Statements since the November 21, 2019 acquisition date. The following table provides the results of operations for Milacron included in Hillenbrand’s Consolidated Statements of Operations for the current period:

	Three Months Ended December 31, 2019
Net revenue	$	133.3
Income before income taxes	0.7

In connection with the acquisition of Milacron, the Company incurred a total of $53.8 of business acquisition and integration costs for the three months ended December 31, 2019, which were recorded within operating expenses in the Consolidated Statements of Operations.

Supplemental Pro Forma Information

The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Milacron acquisition had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that Hillenbrand believes are reasonable under the circumstances.

The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the Milacron acquisition had occurred on October 1, 2018 to give effect to certain events that Hillenbrand believes to be directly attributable to the Milacron acquisition. These pro forma adjustments primarily include:

•	an increase to depreciation and amortization expense that would have been recognized due to acquired tangible and intangible assets;

•	an adjustment to interest expense to reflect the additional borrowings of Hillenbrand and the repayment of Milacron’s historical debt in conjunction with the acquisition;

•	an adjustment to remove business acquisition and integration costs, inventory step-up costs, and backlog amortization during the three months ended December 31, 2019, as these costs are non-recurring in nature and will not have a continuing effect on Hillenbrand’s results; and

•	the related income tax effects of the adjustments noted above.

The supplemental pro forma financial information for the periods presented is as follows:

	Three Months Ended December 31,
	2019				2018
Net revenue	$	682.6			$	699.9
Net income attributable to Hillenbrand	20.6				30.9
Net income attributable to Hillenbrand  — per share of common stock:
Basic earnings per share	$	0.27			$	0.41
Diluted earnings per share	0.27				0.41

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Sale of Milacron facility

In December 2019, the Company completed the sale of a Milacron manufacturing facility located in Germany. As a result of the sale, the Company received net cash proceeds of $13.1. There was no material impact to the Consolidated Statement of Operations resulting from the sale of the facility.

Acquisition of Burnaby Machine and Mill Equipment Ltd.

5.	Supplemental Consolidated Balance Sheet Information

 

	December 31, 2019				September 30, 2019
Trade accounts receivable reserves	$	26.2			$	22.8
Accumulated depreciation on property, plant, and equipment	$	316.1			$	309.0
Inventories:
Raw materials and components	$	144.9			$	72.3
Work in process	85.3				44.0
Finished goods	211.9				60.3
Total inventories	$	442.1			$	176.6

 

The Company had restricted cash of $0.5 and $0.4 recorded within other current assets in the Consolidated Balance Sheets at December 31, 2019 and September 30, 2019, respectively.

6.	Leases

The Company’s lease portfolio is comprised of operating leases primarily for manufacturing facilities, offices, vehicles, and certain equipment. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on whether the contract conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Leases are classified as operating or finance leases at the commencement date of the lease. Operating leases are recorded within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the Consolidated Balance Sheets. The Company’s finance leases were insignificant as of December 31, 2019. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. We have elected an accounting policy to combine lease and non-lease components for all leases.

Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the implicit rate is generally not readily determinable for most leases, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The incremental borrowing rate reflects the estimated rate of interest that the Company would pay to borrow on a collateralized basis over a similar term in a similar economic environment. Lease expense for operating leases is recognized on a straight-line basis over the lease term.

Leases may include renewal options, and the renewal option is included in the lease term if the Company concludes that it is reasonably certain that the option will be exercised. A certain number of the Company’s leases contain rent escalation clauses, either fixed or adjusted periodically for inflation of market rates, that are factored into the calculation of lease payments to the extent they are fixed and determinable at lease inception. The Company also has variable lease payments that do not depend on a rate or index, primarily for items such as common area maintenance and real estate taxes, which are recorded as variable costs when incurred.

For the three months ended December 31, 2019, the Company recognized $8.0 of operating lease expense, including short-term lease expense and variable lease costs, which were immaterial in the quarter.

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The following table presents supplemental Consolidated Balance Sheet information related to the Company’s operating leases.

	December 31, 2019
Operating lease right-of-use assets	$	172.5
Other current liabilities	$	32.9
Operating lease liabilities	137.1
Total operating lease liabilities	$	170.0
Weighted-average remaining lease term (in years)	7.9
Weighted-average discount rate	2.2		%

As of December 31, 2019, the maturities of the Company’s operating lease liabilities were as follows:

2020 (excluding the three months ended December 31, 2019)	$	27.4
2021	32.8
2022	28.0
2023	22.8
2024	15.4
Thereafter	57.8
Total lease payments	184.2
Less: imputed interest	(14.2		)
Total present value of lease payments	$	170.0

Supplemental Consolidated Statement of Cash Flow information is as follows:

	Three Months Ended December 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	8.0
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities	13.3

7.	Intangible Assets and Goodwill

Intangible Assets

Intangible assets are stated at the lower of cost or fair value. With the exception of most trade names, intangible assets are amortized on a straight-line basis over periods ranging from three to 21 years, representing the period over which the Company expects to receive future economic benefits from these assets. The Company assesses the carrying value of most trade names annually, or more often if events or changes in circumstances indicate there may be an impairment.

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The following tables summarize the carrying amounts and related accumulated amortization for intangible assets as of December 31, 2019 and September 30, 2019:

	December 31, 2019								September 30, 2019
	Cost				Accumulated Amortization				Cost				Accumulated Amortization
Finite-lived assets:
Trade names	$	0.2			$	(0.2	)		$	0.2			$	(0.2	)
Customer relationships	1,026.3				(179.4		)		464.2				(169.2		)
Technology, including patents	173.0				(52.2		)		76.8				(49.4		)
Software	65.4				(53.1		)		58.7				(51.7		)
Backlog	10.0				(4.2		)		—				—
Other	0.1				(0.1		)		0.2				(0.2		)
	1,275.0				(289.2		)		600.1				(270.7		)
Indefinite-lived assets:
Trade names	331.9				—				125.5				—
Total	$	1,606.9			$	(289.2	)		$	725.6			$	(270.7	)

The net change in intangible assets during the three months ended December 31, 2019 was driven primarily by the acquisition of Milacron, which included acquired intangible assets of $865.0, normal amortization, and foreign currency adjustments. See Note 4 for further information on the acquisition of Milacron. Estimated amortization expense related to intangible assets for the next five years is: $72.7 in 2020 (includes three months actual and nine months estimated), $68.7 in 2021, $67.7 in 2022, $67.3 in 2023, and $67.1 in 2024.

Goodwill

Goodwill is not amortized, but is subject to annual impairment tests.  Goodwill has been assigned to reporting units within the reportable segments.  The Company assesses the carrying value of goodwill annually, or more often if events or changes in circumstances indicate there may be impairment.  Impairment testing is performed at a reporting unit level. There were no goodwill impairment charges during the three months ended December 31, 2019 and 2018.

The following table summarizes the changes in the Company’s goodwill, by reportable segment, for the three months ended December 31, 2019.

	Process Equipment Group				Milacron				Batesville				Total
Balance as of September 30, 2019	$	569.7			$	—			$	8.3			$	578.0
Acquisition (see Note 4)	1.7				666.5				—				668.2
Foreign currency adjustments	8.4				2.3				—				10.7
Balance as of December 31, 2019	$	579.8			$	668.8			$	8.3			$	1,256.9

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8.	Financing Agreements

The following table summarizes Hillenbrand’s current and long-term debt as of the dates reported in the Consolidated Balance Sheets.

	December 31, 2019				September 30, 2019
$900.0 revolving credit facility (excluding outstanding letters of credit)	$	525.0			$	—
$500.0 term loan facility (1)	492.2				—
$375.0 senior unsecured notes, net of discount (2)	370.2				370.1
$225.0 term loan facility (3)	221.7				—
$150.0 senior unsecured notes, net of discount (4)	149.8				149.7
$100.0 Series A Notes (5)	99.7				99.7
Other	6.1				—
Total debt	1,864.7				619.5
Less: current portion	42.1				—
Total long-term debt	$	1,822.6			$	619.5

(1)	Includes debt issuance costs of $1.5 at December 31, 2019.

(2)	Includes debt issuance costs of $4.2 and $4.3 at December 31, 2019 and September 30, 2019, respectively.

(3)	Includes debt issuance costs of $0.5 at December 31, 2019.

(4)	Includes debt issuance costs of $0.1 and $0.2 at December 31, 2019 and September 30, 2019, respectively.

(5)	Includes debt issuance costs of $0.3 and $0.3 at December 31, 2019 and September 30, 2019, respectively.

Financing for Milacron Acquisition

Upon completing the acquisition of Milacron on November 21, 2019, Hillenbrand incurred borrowings under its two term loans in aggregate principal amounts of $500.0 and $225.0 (the “Term Loan Facilities”), which are provided for under the Company’s Third Amended and Restated Credit Agreement dated August 28, 2019 and subsequently amended on October 8, 2019 and January 10, 2020 (the “Credit Agreement”). The $500.0 term loan matures on the fifth anniversary of the date on which it was borrowed, subject to quarterly amortization payments (equal to 5% of the original principal amount of the term loan in each of years 1 and 2, 7.5% in each of years 3 and 4, and 10% in year 5) and the $225.0 term loan matures on the third anniversary of the date on which it was borrowed, subject to quarterly amortization payments (equal to 5% of the original principal amount of the term loan in each of years 1 and 2, and 7.5% in year 3). The $500.0 term loan accrues interest, at the Company’s option, at the LIBO Rate or the Alternate Base Rate (each as defined in the Credit Agreement) plus a margin based on the Company’s leverage ratio, ranging from 1.00% to 1.875% for term loans bearing interest at the LIBO Rate and 0.0% to 0.875% for term loans bearing interest at the Alternate Base Rate. The $225.0 term loan accrues interest, at the Company’s option, at the LIBO Rate or the Alternate Base Rate plus a margin based on the Company’s leverage ratio, ranging from 0.875% to 1.75% for term loans bearing interest at the LIBO Rate and 0.0% to 0.75% for term loans bearing interest at the Alternate Base Rate. For the period since the acquisition, the weighted average interest rates were 3.49% for the $500.0 term loan and 3.37% for the $225.0 term loan. Deferred financing costs of $2.0 are being amortized to interest expense over the respective terms of the Term Loan Facilities.

In addition to the Term Loan Facilities, Hillenbrand incurred $650.0 of additional borrowings from its revolving credit facility under the Credit Agreement (the “Revolver”) at the closing of the Milacron acquisition. The additional borrowings under the Term Loan Facilities and the Revolver, in addition to the $375.0 of senior unsecured notes issued during the quarter ended September 30, 2019, were used to pay a portion of the cash consideration in connection with the acquisition of Milacron, fees and expenses related to the acquisition, and to repay certain indebtedness of Milacron and its subsidiaries upon closing the acquisition.

With respect to the Revolver, the Company made repayments subsequent to the closing date of the acquisition of Milacron, resulting in an outstanding balance of $525.0 as of December 31, 2019. As of December 31, 2019, the Company had $8.3 in outstanding letters of credit issued and $366.7 of maximum borrowing capacity under the Revolver. $361.5 of this borrowing capacity was immediately available based on the Company’s most restrictive covenant at December 31, 2019. The weighted-average interest rates on borrowings under the Revolver were 3.13% for the three months ended December 31, 2019, and 2.37% for the same period in the prior year. The weighted average facility fee was 0.17% for the three months ended December 31, 2019, and 0.11% for the same period in the prior year.

 

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Other credit arrangements

In the normal course of business, operating companies within the Process Equipment Group and Milacron reportable segments provide to certain customers 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, the Company maintains adequate capacity to provide the guarantees. As of December 31, 2019, the Company had credit arrangements totaling $344.2, under which $249.3 was used for this purpose. These arrangements include the Company’s Syndicated Letter of Guarantee Facility (as amended, the “L/G Facility Agreement”) and other ancillary credit facilities. On January 10, 2020, the L/G Facility Agreement was amended to expand the size of the existing €150.0 facility by an additional €25.0.

Covenants related to current financing agreements

The Credit Agreement, the L/G Facility Agreement, and the Series A Notes pursuant to the Private Shelf Agreement, dated as of December 6, 2012 (as amended, the “Shelf Agreement”), contain the following financial covenants: a maximum ratio of Indebtedness (as defined in the agreements) to EBITDA (as further defined in the agreements, the “Leverage Ratio”) of 3.5 to 1.0 including the application of cash as a reduction of Indebtedness (subject to certain limitations); a maximum Leverage Ratio resulting from an acquisition in excess of $75.0 of 4.0 to 1.0 for a period of three consecutive quarters following such acquisition; and a minimum ratio of EBITDA (as defined in the agreements) to interest expense of 3.0 to 1.0.

On January 10, 2020, with a retroactive effective date of December 31, 2019, the Company amended the Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement to, among other things, (i) increase the maximum permitted leverage ratio to (A) 4.50 to 1.00 for the fiscal quarters ending December 31, 2019 and March 31, 2020, (B) 4.25 to 1.00 for the fiscal quarter ending June 30, 2020, (C) 4.00 to 1.00 for the fiscal quarter ending September 30, 2020, (D) 3.75 to 1.00 for the fiscal quarter ending December 31, 2020, and (E) 3.50 to 1.00 for the fiscal quarter ending March 31, 2021 and each fiscal quarter ending thereafter and (ii) add additional pricing levels to compensate for the increase in permitted leverage ratios.

As of December 31, 2019, Hillenbrand was in compliance with all covenants under these agreements. Additionally, the Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement provide the Company with the ability to sell assets and to incur debt at its international subsidiaries under certain conditions.

All obligations of the Company arising under the Credit Agreement, the $375.0 and $150.0 senior unsecured notes, the Series A Notes, and the L/G Facility Agreement are fully and unconditionally, and jointly and severally, guaranteed by certain of the Company’s domestic subsidiaries.

The Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement each contain certain other customary covenants, representations and warranties and events of default. The indentures governing both the $375.0 and$150.0 senior unsecured notes do not limit the Company’s ability to incur additional indebtedness. They do, however, contain certain covenants that restrict the Company’s ability to incur secured debt and to engage in certain sale and leaseback transactions. The indentures also contain customary events of default. The indentures provide holders of the senior unsecured notes with remedies if the Company fails to perform specific obligations. As of December 31, 2019, Hillenbrand was in compliance with all covenants and there were no events of default.

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9.	Retirement Benefits

 

Defined Benefit Plans

In connection with the Milacron acquisition, the Company acquired three noncontributory defined benefit plans for certain non-U.S. employees and retirees. One plan covers certain employees in the United Kingdom and the other two plans cover certain employees in Germany. The aggregate fair value of the liability assumed for these defined benefit plans was $30.7 at November 21, 2019. Contributions to these plans are expected to approximate benefit payments each year.

Components of net periodic pension cost included in the Consolidated Statements of Operations were as follows:

 

	U.S. Pension Benefits								Non-U.S. Pension Benefits
	Three Months Ended December 31,								Three Months Ended December 31,
	2019				2018				2019				2018
Service costs	$	0.4			$	0.6			$	0.6			$	0.3
Interest costs	2.0				2.6				0.2				0.3
Expected return on plan assets	(3.2		)		(3.3		)		(0.1		)		(0.1		)
Amortization of net loss	1.2				0.2				0.4				0.2
Net periodic pension cost	$	0.4			$	0.1			$	1.1			$	0.7

Defined Contribution Plans

In connection with the Milacron acquisition, the Company assumed a defined contribution plan (the “401(k) Plan”) for eligible U.S. employees and defined contribution plans for eligible employees at certain foreign subsidiaries. For the 401(k) Plan, eligible employees are permitted to contribute a percentage of their compensation and employees are immediately vested in their voluntary contributions. The Company’s contributions to the 401(k) Plan are based on matching a portion of the employee contributions and employees become vested in the Company contributions once they attain a year of credited service. For the assumed foreign plans, employees are immediately vested in both their voluntary and company matching contributions.

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10.	Income Taxes

 

The effective tax rates for the three months ended December 31, 2019 and 2018 were 93.9% and 33.3%, respectively. Due to the current quarter net loss position, the tax benefit recognized from the revaluation of current and deferred tax balances in connection with enacted statutory tax rate reductions in certain foreign jurisdictions significantly increased the tax rate, partially offset by the impact of nondeductible expenses associated with the Milacron acquisition. The change in the effective tax rate compared to the prior year was also impacted by the prior year increase in the reserve for unrecognized tax benefits that did not recur in the current year.

11.	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, 2019 and 2018, potential dilutive effects, representing approximately 256,000 and 400,000 shares, respectively, were excluded from the computation of diluted earnings per share as the related performance criteria were not yet met, although the Company expects to meet various levels of criteria in the future.

	Three Months Ended December 31,
	2019				2018
Net (loss) income attributable to Hillenbrand	$	(3.1	)		$	28.3
Weighted average shares outstanding (basic - in millions) (1)	68.4				62.9
Effect of dilutive stock options and other unvested equity awards (in millions) (2)	—				0.6
Weighted average shares outstanding (diluted - in millions)	68.4				63.5
Basic (loss) earnings per share	$	(0.05	)		$	0.45
Diluted (loss) earnings per share	$	(0.05	)		$	0.45
Shares with anti-dilutive effect excluded from the computation of diluted earnings per share (in millions)	2.4				0.7

 

(1)	The increase in weighted average shares outstanding during the current quarter was due to 11.9 million of additional shares issued on November 21, 2019 in connection with the acquisition of Milacron. See Note 4 for further information.

(2)	As a result of the net loss attributable to Hillenbrand during the three months ended December 31, 2019, the effect of stock options and other unvested equity awards would be antidilutive. In accordance with GAAP, they have been excluded from the diluted EPS calculation.

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12.	Accumulated Other Comprehensive Loss

The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive 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, 2019	$	(62.3	)		$	(64.7	)		$	(13.6	)		$	(140.6	)
Other comprehensive income (loss) before reclassifications
Before tax amount	—				17.4				1.3				18.7				$	(0.1	)		$	18.6
Tax expense	—				—				(0.3		)		(0.3		)		—				(0.3		)
After tax amount	—				17.4				1.0				18.4				(0.1		)		18.3
Amounts reclassified from accumulated other comprehensive loss(1)	1.1				—				0.4				1.5				—				1.5
Net current period other comprehensive income (loss)	1.1				17.4				1.4				19.9				(0.1		)		$	19.8
Reclassification of certain income tax effects (2)	(6.0		)		—				—				(6.0		)
Balance at December 31, 2019	$	(67.2	)		$	(47.3	)		$	(12.2	)		$	(126.7	)

(1)	Amounts are net of tax.

(2)	Income tax effects of the Tax Act were reclassified from accumulated other comprehensive loss to retained earnings due to the adoption of ASU 2018-02. See Note 2 for more information.

	Pension and Postretirement				Currency Translation				Net Unrealized Gain (Loss) on Derivative Instruments				Total Attributable to Hillenbrand, Inc.				Noncontrolling Interests				Total
Balance at September 30, 2018	$	(41.0	)		$	(44.1	)		$	0.9			$	(84.2	)
Other comprehensive income before reclassifications
Before tax amount	—				(5.1		)		(6.8		)		(11.9		)		$	0.2			$	(11.7	)
Tax benefit	—				—				1.6				1.6				—				1.6
After tax amount	—				(5.1		)		(5.2		)		(10.3		)		0.2				(10.1		)
Amounts reclassified from accumulated other comprehensive loss(1)	0.2				—				—				0.2				—				0.2
Net current period other comprehensive income (loss)	0.2				(5.1		)		(5.2		)		(10.1		)		$	0.2			$	(9.9	)
Balance at December 31, 2018	$	(40.8	)		$	(49.2	)		$	(4.3	)		$	(94.3	)

(1)	Amounts are net of tax.

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Reclassifications out of accumulated other comprehensive loss include: 

	Three Months Ended December 31, 2019
	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	—				—				(0.2		)		(0.2		)
Other income, net	1.6				—				0.5				2.1
Total before tax	$	1.6			$	—			$	0.4			$	2.0
Tax expense													(0.5		)
Total reclassifications for the period, net of tax													$	1.5

(1)	These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 9).

	Three Months Ended December 31, 2018
	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	—				—				(0.1		)		(0.1		)
Other income, net	0.3				—				—				0.3
Total before tax	$	0.3			$	—			$	—			$	0.3
Tax expense													(0.1		)
Total reclassifications for the period, net of tax													$	0.2

(1)	These accumulated other comprehensive loss components are included in the computation of net periodic pension cost (see Note 9).

13.	Share-Based Compensation

 

	Three Months Ended December 31,
	2019				2018
Share-based compensation costs	$	2.3			$	1.9
Less impact of income tax benefit	0.5				0.4
Share-based compensation costs, net of tax	$	1.8			$	1.5

 

The Company has share-based compensation with long-term performance-based metrics that are contingent upon the Company’s relative total shareholder return and the creation of shareholder value. Relative total shareholder return is determined by comparing the Company’s total shareholder return during a three-year period to the respective total shareholder returns of companies in a designated performance peer group or stock index, as applicable. Creation of shareholder value is measured by the cumulative cash returns and final period net operating profit after tax compared to the established hurdle rate over a three-year period.  For the performance-based awards contingent upon the creation of shareholder value, compensation expense is adjusted each quarter based upon actual results to date and any changes to forecasted information on each of the separate grants. 

 

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During the three months ended December 31, 2019, the Company made the following grants:

 

	Number of Units
Stock options	454,929
Time-based stock awards	250,741
Performance-based stock awards (maximum that can be earned)	247,112

 

Stock options granted during fiscal 2020 had a weighted-average exercise price of $31.94 and a weighted-average grant date fair value of $6.63.  The Company’s time-based stock awards and performance-based stock awards granted during fiscal 2020 had weighted-average grant date fair values of $31.94 and $34.97.  Included in the performance-based stock awards granted during fiscal 2020 are 247,112 units whose payout level is based upon the Company’s relative total shareholder return over the three-year measurement period, as described above.  These units will be expensed on a straight-line basis over the measurement period and are not subsequently adjusted after the grant date.

 

14.	Other Income, Net

	Three Months Ended December 31,
	2019				2018
Interest income	$	1.3			$	0.2
Foreign currency exchange gain, net	0.1				0.4
Other, net	0.5				(0.1		)
Other income, net	$	1.9			$	0.5

15.	Commitments and Contingencies

 

Like most companies, Hillenbrand is involved from time to time in claims, lawsuits, and government proceedings relating to its 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 the Company believes 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 these matters.  If a loss is not considered probable and/or cannot be reasonably estimated, the Company is 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 covered by insurance have in most instances deductibles and self-funded retentions up to $0.5 per occurrence or per claim, depending upon the type of coverage and policy period.  For auto, workers compensation, and general liability, outside insurance companies and third-party claims administrators generally assist in establishing individual claim reserves. An independent outside actuary provides estimates of ultimate projected losses, including incurred but not reported claims, which are used to establish reserves for losses.  For all other types of claims, reserves are established based upon advice from internal and external counsel and historical settlement information for claims when such amounts are considered probable of payment.

 

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

16.	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:

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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, 2019				Fair Value at December 31, 2019 Using Inputs Considered as:
					Level 1				Level 2				Level 3
Assets:
Cash and cash equivalents	$	142.4			$	142.4			$	—			$	—
Investments in rabbi trust	5.0				5.0				—				—
Derivative instruments	2.7				—				2.7				—
Liabilities:
Revolver	525.0				—				525.0				—
$500.0 term loan facility	493.7				—				493.7				—
$375.0 senior unsecured notes	374.4				393.1				—				—
$225.0 term loan facility	222.2				—				222.2				—
$150.0 senior unsecured notes	149.9				152.3				—				—
$100.0 Series A Notes	100.0				—				104.9				—
Derivative instruments	2.1				—				2.1				—

 

	Carrying Value at September 30, 2019				Fair Value at September 30, 2019 Using Inputs Considered as:
					Level 1				Level 2				Level 3
Assets:
Cash and cash equivalents	$	399.0			$	399.0			$	—			$	—
Investments in rabbi trust	4.2				4.2				—				—
Derivative instruments	2.5				—				2.5				—
Liabilities:
$375.0 senior unsecured notes	374.4				380.6				—				—
$150.0 senior unsecured notes	149.9				152.8				—				—
Series A Notes	100.0				—				108.5				—
Derivative instruments	2.6				—				2.6				—

Valuation Techniques

 

•

Cash and cash equivalents and investments in rabbi trust are classified within Level 1 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets. The types of financial instruments the Company classifies within Level 1 include most bank deposits, money market securities, and publicly traded mutual funds. The Company does not adjust the quoted market price for such financial instruments.

•	The Company estimates the fair value of foreign currency derivatives using industry accepted models.  The significant Level 2 inputs used in the valuation of derivatives include spot rates, forward rates, and volatility.  These inputs were obtained from pricing services, broker quotes, and other sources.

•	The fair value of the amounts outstanding under the Revolver and Term Loan Facilities approximate carrying value.

•	The fair values of the Series A Notes were estimated based on internally-developed models, using current market interest rate data for similar issues, as there is no active market for the Series A Notes.

•	The fair values of the $375.0 and $150.0 senior unsecured notes were based on quoted prices in active markets

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Derivative instruments

The Company has hedging programs in place to manage its currency exposures. The objectives of the Company’s hedging programs are to mitigate exposures in gross margin and non-functional-currency-denominated assets and liabilities. Under these programs, the Company uses derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates. These include foreign currency exchange forward contracts, which generally have terms up to 24 months. The aggregate notional value of derivatives was $163.1 and $128.9 at December 31, 2019 and September 30, 2019, respectively. The derivatives are recorded at fair value primarily in other current assets and other current liabilities on the Consolidated Balance Sheets.

17.	Segment and Geographical Information

Prior to completing the acquisition of Milacron on November 21, 2019, the Company conducted operations through two reportable business segments: the Process Equipment Group and Batesville. Upon completing the acquisition, the Company has been undertaking a planning process of assessing its management and organizational structure. As of December 31, 2019, the Company is still assessing changes in its internal management reporting structure to incorporate Milacron and the effects it may have on the Company’s reportable segments, if any. Because this process was not complete as of December 31, 2019, the Company has reported the results of operations of Milacron from the acquisition date through December 31, 2019 as a separate reportable segment.

The Company records the direct costs of business operations to the reportable business segments, including stock-based compensation, asset impairments, restructuring activities, and business acquisition costs.  Corporate provides management and administrative services to each reportable segment.  These services include treasury management, human resources, legal, business development, and other public company support functions such as internal audit, investor relations, financial reporting, and tax compliance.  With limited exception for certain professional services and back-office and technology costs, the Company does not allocate these types of corporate expenses to the reportable segments.

The following tables present financial information for the Company’s reportable segments and significant geographical locations:

	Three Months Ended December 31,
	2019				2018
Net revenue
Process Equipment Group	$	306.6			$	282.2
Milacron	133.3				—
Batesville	127.0				128.1
Total	$	566.9			$	410.3
Adjusted EBITDA (1)
Process Equipment Group	$	51.5			$	46.2
Milacron	26.3				—
Batesville	23.0				26.7
Corporate	(8.9		)		(8.8		)
Net revenue (2)
United States	$	272.9			$	214.8
Germany	155.4				111.3
All other foreign business units	138.6				84.2
Total	$	566.9			$	410.3

 

(1)	Adjusted EBITDA is a non-GAAP measure used by management to measure segment performance and make operating decisions. See the Operating Performance Measures section of Management’s Discussion and Analysis for further information on adjusted EBITDA, which is reconciled to consolidated net (loss) income below.

(2)	The Company attributes net revenue to a geography based upon the location of the business that consummates the external sale.

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	December 31, 2019				September 30, 2019
Total assets assigned
Process Equipment Group	$	1,791.7			$	1,729.1
Milacron	2,347.7				—
Batesville	227.7				186.1
Corporate	53.6				313.4
Total	$	4,420.7			$	2,228.6
Tangible long-lived assets, net(1)
United States	$	238.5			$	75.8
Germany	106.9				40.2
China	63.4				4.4
All other foreign business units	161.8				19.9
Total	$	570.6			$	140.3

(1)	Tangible long-lived assets, net includes operating lease right-of-use assets as of December 31, 2019 due to the adoption of ASU 2016-02 in the current year.

The following schedule reconciles reportable segment adjusted EBITDA to consolidated net income.

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18.	Condensed Consolidating Information

 

Certain 100% owned domestic subsidiaries of Hillenbrand fully and unconditionally, jointly and severally, agreed to guarantee all of the indebtedness and guarantee obligations relating to obligations under its senior unsecured notes.  The following are the condensed consolidating financial statements, including the guarantors, which present the statements of operations, 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 Operations

	Three Months Ended December 31, 2019																				Three Months Ended December 31, 2018
	Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated				Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
Net revenue	$	—			$	205.5			$	417.0			$	(55.6	)		$	566.9			$	—			$	216.1			$	247.8			$	(53.6	)		$	410.3
Cost of goods sold	—				117.7				306.3				(28.9		)		395.1				—				115.8				174.4				(26.9		)		263.3
Gross profit	—				87.8				110.7				(26.7		)		171.8				—				100.3				73.4				(26.7		)		147.0
Operating expenses	48.6				58.5				77.0				(26.7		)		157.4				10.2				61.4				45.8				(26.7		)		90.7
Amortization expense	—				3.3				11.5				—				14.8				—				3.3				4.5				—				7.8
Interest expense	5.2				—				9.5				—				14.7				4.5				—				1.0				—				5.5
Other income (expense), net	0.9				(0.9		)		1.9				—				1.9				(0.3		)		—				0.8				—				0.5
Equity in net income of subsidiaries	25.6				1.8				—				(27.4		)		—				42.0				2.2				—				(44.2		)		—
(Loss) income before income taxes	(27.3		)		26.9				14.6				(27.4		)		(13.2		)		27.0				37.8				22.9				(44.2		)		43.5
Income tax (benefit) expense	(24.2		)		6.2				5.6				—				(12.4		)		(1.3		)		9.9				5.9				—				14.5
Consolidated net (loss) income	(3.1		)		20.7				9.0				(27.4		)		(0.8		)		28.3				27.9				17.0				(44.2		)		29.0
Less: Net income attributable to
noncontrolling interests	—				—				2.3				—				2.3				—				—				0.7				—				0.7
Net (loss) income attributable to Hillenbrand	$	(3.1	)		$	20.7			$	6.7			$	(27.4	)		$	(3.1	)		$	28.3			$	27.9			$	16.3			$	(44.2	)		$	28.3
Consolidated comprehensive income	$	16.8			$	18.9			$	25.9			$	(42.6	)		$	19.0			$	18.2			$	27.8			$	11.8			$	(38.7	)		$	19.1
Less: Comprehensive income attributable
to noncontrolling interests	—				—				2.2				—				2.2				—				—				0.9				—				0.9
Comprehensive income attributable to Hillenbrand	$	16.8			$	18.9			$	23.7			$	(42.6	)		$	16.8			$	18.2			$	27.8			$	10.9			$	(38.7	)		$	18.2

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Condensed Consolidating Balance Sheets

	December 31, 2019																				September 30, 2019
	Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated				Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
Cash and cash equivalents	$	1.3			$	1.7			$	139.4			$	—			$	142.4			$	283.1			$	9.6			$	106.3			$	—			$	399.0
Trade receivables, net	—				100.7				243.6				—				344.3				—				113.6				103.8				—				217.4
Receivables from long-term manufacturing contracts	—				11.7				194.2				—				205.9				—				9.8				171.3				—				181.1
Inventories	—				79.0				365.9				(2.8		)		442.1				—				78.2				101.2				(2.8		)		176.6
Intercompany receivables	70.5				1,225.4				—				(1,295.9		)		—				—				1,179.7				—				(1,179.7		)		—
Prepaid expenses and other current assets	6.3				8.0				72.5				0.6				87.4				2.5				6.1				40.1				0.4				49.1
Total current assets	78.1				1,426.5				1,015.6				(1,298.1		)		1,222.1				285.6				1,397.0				522.7				(1,182.1		)		1,023.2
Property, plant and equipment, net	3.4				60.9				333.8				—				398.1				3.8				61.2				75.3				—				140.3
Operating lease right-of-use assets	0.8				13.4				158.3				—				172.5				—				—				—				—				—
Intangible assets, net	2.4				177.8				1,137.5				—				1,317.7				2.4				181.4				271.1				—				454.9
Goodwill	—				225.0				1,031.9				—				1,256.9				—				225.0				353.0				—				578.0
Investment in consolidated subsidiaries	2,913.7				655.1				—				(3,568.8		)		—				2,266.4				655.2				—				(2,921.6		)		—
Other long-term assets	48.3				24.6				37.0				(56.5		)		53.4				33.8				20.5				3.1				(25.2		)		32.2
Total Assets	$	3,046.7			$	2,583.3			$	3,714.1			$	(4,923.4	)		$	4,420.7			$	2,592.0			$	2,540.3			$	1,225.2			$	(4,128.9	)		$	2,228.6
Trade accounts payable	$	5.0			$	67.0			$	277.0			$	—			$	349.0			$	2.6			$	59.0			$	174.6			$	—			$	236.2
Liabilities from long-term manufacturing contracts and advances	—				17.3				165.8				—				183.1				—				13.5				144.7				—				158.2
Current portion of long-term debt	36.2				—				5.9				—				42.1				—				—				—				—				—
Accrued compensation	2.6				15.1				68.5				—				86.2				6.9				20.8				45.5				—				73.2
Intercompany payables	—				—				1,298.7				(1,298.7		)		—				1,167.0				10.2				5.3				(1,182.5		)		—
Other current liabilities	29.8				58.1				148.4				(16.9		)		219.4				19.2				45.0				67.1				(9.6		)		121.7
Total current liabilities	73.6				157.5				1,964.3				(1,315.6		)		879.8				1,195.7				148.5				437.2				(1,192.1		)		589.3
Long-term debt	1,822.4				—				0.2				—				1,822.6				619.5				—				—				—				619.5
Accrued pension and postretirement healthcare	1.0				31.1				129.9				—				162.0				0.8				32.1				98.4				—				131.3
Operating lease liabilities	0.4				10.5				126.2				—				137.1				—				—				—				—				—
Deferred income taxes	—				20.4				234.0				(39.0		)		215.4				—				24.0				64.8				(15.2		)		73.6
Other long-term liabilities	22.2				16.6				21.2				—				60.0				21.9				12.5				10.7				—				45.1
Total Liabilities	1,919.6				236.1				2,475.8				(1,354.6		)		3,276.9				1,837.9				217.1				611.1				(1,207.3		)		1,458.8
Hillenbrand Shareholders’ Equity	1,127.1				2,347.2				1,221.6				(3,568.8		)		1,127.1				754.1				2,323.2				598.4				(2,921.6		)		754.1
Noncontrolling interests	—				—				16.7				—				16.7				—				—				15.7				—				15.7
Total Shareholders’ Equity	1,127.1				2,347.2				1,238.3				(3,568.8		)		1,143.8				754.1				2,323.2				614.1				(2,921.6		)		769.8
Total Liabilities and Shareholders’ Equity	$	3,046.7			$	2,583.3			$	3,714.1			$	(4,923.4	)		$	4,420.7			$	2,592.0			$	2,540.3			$	1,225.2			$	(4,128.9	)		$	2,228.6

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Condensed Consolidating Statements of Cash Flows

 

	Three Months Ended December 31, 2019																				Three Months Ended December 31, 2018
	Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated				Parent				Guarantors				Non- Guarantors				Eliminations				Consolidated
Net cash provided by (used in)      operating activities	$	3.6			$	(5.6	)		$	19.8			$	—			$	17.8			$	(17.5	)		$	0.1			$	52.9			$	—			$	35.5
Investing activities:
Capital expenditures	(0.2		)		(2.3		)		(3.8		)		—				(6.3		)		—				(1.7		)		(1.9		)		—				(3.6		)
Proceeds from sales of property, plant, and      equipment	—				—				13.3				—				13.3				—				—				—				—				—
Acquisition of business, net of cash      acquired	(1,503.1		)		—				—				—				(1,503.1		)		—				—				(26.2		)		—				(26.2		)
Net cash (used in) provided by investing        activities	(1,503.3		)		(2.3		)		9.5				—				(1,496.1		)		—				(1.7		)		(28.1		)		—				(29.8		)
Financing activities:
Proceeds from issuance of long-term debt	725.0				—				—				—				725.0				—				—				—				—				—
Repayments on term loan	(9.1		)		—				—				—				(9.1		)		—				—				—				—				—
Proceeds from revolving credit facilities,      net of financing costs	747.3				—				0.2				—				747.5				106.0				—				54.2				—				160.2
Repayments on revolving credit facilities	(222.5		)		—				—				—				(222.5		)		(72.3		)		—				(67.3		)		—				(139.6		)
Payment of deferred financing costs	(5.4		)		—				—				—				(5.4		)		—				—				—				—				—
Payment of dividends on common stock	(15.8		)		—				—				—				(15.8		)		(13.1		)		—				—				—				(13.1		)
Proceeds from stock option exercises and      other	0.2				—				—				—				0.2				0.3				—				—				—				0.3
Payments for employee taxes on net      settlement equity awards	(1.8		)		—				—				—				(1.8		)		(4.1		)		—				—				—				(4.1		)
Other, net	—				—				3.3				—				3.3				—				—				(0.9		)		—				(0.9		)
Net cash provided by (used in)      financing activities	1,217.9				—				3.5				—				1,221.4				16.8				—				(14.0		)		—				2.8
Effect of exchange rates on cash and      cash equivalents	—				—				0.4				—				0.4				—				—				0.3				—				0.3
Net cash flow	(281.8		)		(7.9		)		33.2				—				(256.5		)		(0.7		)		(1.6		)		11.1				—				8.8
Cash, cash equivalents and restricted cash at      beginning of period	283.1				9.6				106.7				—				399.4				1.1				5.8				49.6				—				56.5
Cash, cash equivalents and restricted cash at      end of period	$	1.3			$	1.7			$	139.9			$	—			$	142.9			$	0.4			$	4.2			$	60.7			$	—			$	65.3

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19.	Restructuring

 

The following schedule details the restructuring charges by reportable segment and the classification of those charges on the Consolidated Statements of Operations.

	Three Months Ended December 31, 2019												Three Months Ended December 31, 2018
	Cost of goods sold				Operating expenses				Total				Cost of goods sold				Operating expenses				Total
Process Equipment Group	$	0.7			$	0.9			$	1.6			$	0.2			$	0.1			$	0.3
Milacron	—				0.8				0.8				—				—				—
Batesville	0.1				0.3				0.4				0.1				0.1				0.2
Corporate	—				0.3				0.3				—				—				—
Total	$	0.8			$	2.3			$	3.1			$	0.3			$	0.2			$	0.5

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•	The Process Equipment Group’s net revenue increased $24.4 (9%), primarily due to higher volume (7%) and favorable pricing. Foreign currency impact decreased net revenue by 2%.

•	Batesville’s net revenue decreased $1.1 (1%), primarily due to a decrease in average selling price (2%), partially offset by an increase in volume (1%). Higher volume was driven by an increase in burial sales despite what we estimate to be a decrease in North American burials driven by an increased rate at which families opted for cremation.

•

The Process Equipment Group’s gross profit was flat compared to the prior year, primarily due to unfavorable mix due to an increased proportion of lower margin, large systems sales in plastics, a decline in demand for screening and separating equipment (including equipment that processes proppants for hydraulic fracturing), and cost inflation, offset by pricing and productivity improvements and an increase in volume. Foreign currency impact decreased gross profit by 1%. Gross profit margin decreased 290 basis points to 33.6% in 2020, primarily due to an increased proportion of lower margin, large systems sales in plastics, and cost inflation, partially offset by pricing and productivity improvements.

•	Milacron’s gross profit was $29.3 and gross profit margin was 22.0% for the period since the acquisition date. Milacron’s gross profit included inventory step-up charges of $9.6. Excluding these charges, adjusted gross profit margin was 29.1%.

•	Batesville’s gross profit decreased $4.5 (10%) and gross profit margin decreased 330 basis points to 31.0%.  The decrease in gross profit and gross profit margin was primarily due to inflation in wages and benefits, including higher healthcare costs, and unfavorable mix, partially offset by productivity initiatives and the higher burial volume.

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•	certain tax items related to the acquisition of Milacron, including the revaluation of deferred tax balances in connection with enacted statutory tax rate reductions in certain foreign jurisdictions ($7.4 in fiscal 2020);

•	an adjustment to our transition tax liability pursuant to the Tax Act ($0.5 in fiscal 2019);

•	an adjustment to our deferred tax liability as a result of revising our permanent reinvestment assertion on earnings of foreign subsidiaries driven by the Tax Act ($1.3 in fiscal 2019); and

•	the tax effect of the adjustments previously discussed within this section.

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(1)

Business acquisition, development, and integration costs during the three months ended December 31, 2019 primarily included expenses for the settlement of outstanding Milacron share-based equity awards, professional fees, and severance and employee-related costs in connection with the acquisition and integration of Milacron. Business acquisition, development, and integration costs during the three months ended December 31, 2018 primarily included professional fees.

(2)	Restructuring and restructuring-related charges primarily included severance costs, unrelated to the acquisition and integration of Milacron, during the three months ended December 31, 2019 and 2018.

(3)	Represents the non-cash charges related to the fair value adjustment of inventories acquired in connection with the acquisitions of Milacron and BM&M during the three months ended December 31, 2019 and 2018, respectively.

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•	$374.4 (net of discount) was raised in connection with issuing publicly traded notes in September 2019;

•	$650.0 of additional borrowings under the Revolver. Hillenbrand made repayments subsequent to the closing of the acquisition to reduce the outstanding balance of the Revolver, which was $525.0 as of December 31, 2019; and

•	Two term loan commitments totaling $725.0 in principal.

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(1)	The Revolver expires in August 2024. Although we may make earlier principal payments, we have reflected the principal balance due at expiration.

(2)	Cash obligations for interest requirements relate to our fixed-rate debt obligations at the contractual rates and our variable-rate debt obligations at the current rates as of December 31, 2019.

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•	the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the merger or integration;

•	managing a larger combined business;

•	maintaining employee morale and retaining key management and other employees;

•	retaining existing business and operational relationships, including customers, suppliers and employees and other counterparties, as may be impacted by contracts containing consent and/or other provisions that may be triggered by the merger, and attracting new business and operational relationships;

•	the possibility of faulty assumptions underlying expectations regarding the integration process;

•	consolidating corporate and administrative infrastructures and eliminating duplicative operations;

•	coordinating geographically separate organizations; and

•	unanticipated issues in integrating information technology, communications and other systems.

•	We may be more vulnerable to general adverse economic and industry conditions, because we have lower borrowing capacity.

•	We may be required to dedicate a larger portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including business development efforts and acquisitions.

•	We will continue to be exposed to the risk of increased interest rates, because a portion of our borrowings is at variable rates of interest.

•	We may be more limited in our flexibility in planning for, or reacting to, changes in our businesses and the industries in which they operate, thereby placing us at a competitive disadvantage compared to competitors that have less indebtedness.

•	We may be more vulnerable to credit rating downgrades which could have an impact on our ability to secure future financing at attractive interest rates.

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