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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 2019
OR
☐ Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _____ to _____
Commission File Number. 001-33794
HILLENBRAND, INC.
(Exact name of registrant as specified in its charter)
|
| | | |
Indiana | | 26-1342272 |
(State of incorporation) | | (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)
Securities registered pursuant to Section 12(b) of the Act:
|
| | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, without par value | | HI | | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| | | | | | | | |
Large accelerated filer | | ☒ | | Accelerated filer | | ☐ | Emerging growth company | ☐ |
Non-accelerated filer | | ☐ | | Smaller reporting company | | ☐ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 74,718,686 shares of common stock, no par value per share, outstanding as of January 31, 2020.
HILLENBRAND, INC.
INDEX TO FORM 10-Q
PART I — FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Hillenbrand, Inc.
Consolidated Statements of Operations (Unaudited)
(in millions, except per share data)
|
| | | | | | | |
| Three Months Ended December 31, |
| 2019 | | 2018 |
Net revenue | $ | 566.9 |
| | $ | 410.3 |
|
Cost of goods sold | 395.1 |
| | 263.3 |
|
Gross profit | 171.8 |
| | 147.0 |
|
Operating expenses | 157.4 |
| | 90.7 |
|
Amortization expense | 14.8 |
| | 7.8 |
|
Interest expense | 14.7 |
| | 5.5 |
|
Other income, net | 1.9 |
| | 0.5 |
|
(Loss) income before income taxes | (13.2 | ) | | 43.5 |
|
Income tax (benefit) expense | (12.4 | ) | | 14.5 |
|
Consolidated net (loss) income | (0.8 | ) | | 29.0 |
|
Less: Net income attributable to noncontrolling interests | 2.3 |
| | 0.7 |
|
Net (loss) income attributable to Hillenbrand | $ | (3.1 | ) | | $ | 28.3 |
|
| | | |
Net (loss) income attributable to Hillenbrand — per share of common stock: | | | |
Basic (loss) earnings per share | $ | (0.05 | ) | | $ | 0.45 |
|
Diluted (loss) earnings per share | $ | (0.05 | ) | | $ | 0.45 |
|
Weighted average shares outstanding (basic) | 68.4 |
| | 62.9 |
|
Weighted average shares outstanding (diluted) | 68.4 |
| | 63.5 |
|
See Condensed Notes to Consolidated Financial Statements
Hillenbrand, Inc.
Consolidated Statements of Comprehensive Income (Unaudited)
(in millions)
|
| | | | | | | |
| Three Months Ended December 31, |
| 2019 | | 2018 |
Consolidated net (loss) income | $ | (0.8 | ) | | $ | 29.0 |
|
Changes in other comprehensive income (loss), net of tax | | | |
Currency translation adjustment | 17.3 |
| | (4.9 | ) |
Pension and postretirement (net of tax of $0.5 and $0.1) | 1.1 |
| | 0.2 |
|
Change in net unrealized gain (loss) on derivative instruments (net of tax of $0.2 and $1.7) | 1.4 |
| | (5.2 | ) |
Total changes in other comprehensive income (loss), net of tax | 19.8 |
| | (9.9 | ) |
Consolidated comprehensive income | 19.0 |
| | 19.1 |
|
Less: Comprehensive income attributable to noncontrolling interests | 2.2 |
| | 0.9 |
|
Comprehensive income attributable to Hillenbrand | $ | 16.8 |
| | $ | 18.2 |
|
See Condensed Notes to Consolidated Financial Statements
Hillenbrand, Inc.
Consolidated Balance Sheets
(in millions)
|
| | | | | | | |
| December 31, 2019 (unaudited) | | September 30, 2019 |
ASSETS | |
| | |
|
Current Assets | |
| | |
|
Cash and cash equivalents | $ | 142.4 |
| | $ | 399.0 |
|
Trade receivables, net | 344.3 |
| | 217.4 |
|
Receivables from long-term manufacturing contracts | 205.9 |
| | 181.1 |
|
Inventories, net | 442.1 |
| | 176.6 |
|
Prepaid expenses and other current assets | 87.4 |
| | 49.1 |
|
Total current assets | 1,222.1 |
| | 1,023.2 |
|
Property, plant, and equipment, net | 398.1 |
| | 140.3 |
|
Operating lease right-of-use assets | 172.5 |
| | — |
|
Intangible assets, net | 1,317.7 |
| | 454.9 |
|
Goodwill | 1,256.9 |
| | 578.0 |
|
Other long-term assets | 53.4 |
| | 32.2 |
|
Total Assets | $ | 4,420.7 |
| | $ | 2,228.6 |
|
| | | |
LIABILITIES | |
| | |
|
Current Liabilities | |
| | |
|
Trade accounts payable | $ | 349.0 |
| | $ | 236.2 |
|
Liabilities from long-term manufacturing contracts and advances | 183.1 |
| | 158.2 |
|
Current portion of long-term debt | 42.1 |
| | — |
|
Accrued compensation | 86.2 |
| | 73.2 |
|
Other current liabilities | 219.4 |
| | 121.7 |
|
Total current liabilities | 879.8 |
| | 589.3 |
|
Long-term debt | 1,822.6 |
| | 619.5 |
|
Accrued pension and postretirement healthcare | 162.0 |
| | 131.3 |
|
Operating lease liabilities | 137.1 |
| | — |
|
Deferred income taxes | 215.4 |
| | 73.6 |
|
Other long-term liabilities | 60.0 |
| | 45.1 |
|
Total Liabilities | 3,276.9 |
| | 1,458.8 |
|
| | | |
Commitments and contingencies (Note 15) |
|
| |
|
|
| | | |
SHAREHOLDERS’ EQUITY | |
| | |
|
Common stock, no par value (75.8 and 63.9 shares issued, 74.7 and 62.7 shares outstanding) | — |
| | — |
|
Additional paid-in capital | 712.9 |
| | 345.3 |
|
Retained earnings | 586.5 |
| | 599.5 |
|
Treasury stock (1.1 and 1.2 shares) | (45.6 | ) | | (50.1 | ) |
Accumulated other comprehensive loss | (126.7 | ) | | (140.6 | ) |
Hillenbrand Shareholders’ Equity | 1,127.1 |
| | 754.1 |
|
Noncontrolling interests | 16.7 |
| | 15.7 |
|
Total Shareholders’ Equity | 1,143.8 |
| | 769.8 |
|
| | | |
Total Liabilities and Shareholders’ Equity | $ | 4,420.7 |
| | $ | 2,228.6 |
|
See Condensed Notes to Consolidated Financial Statements
Hillenbrand, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in millions)
|
| | | | | | | |
| Three Months Ended December 31, |
| 2019 | | 2018 |
Operating Activities | |
| | |
|
Consolidated net (loss) income | $ | (0.8 | ) | | $ | 29.0 |
|
Adjustments to reconcile net (loss) income to cash provided by operating activities: | |
| | |
|
Depreciation and amortization | 25.9 |
| | 14.1 |
|
Deferred income taxes | (29.0 | ) | | 5.3 |
|
Amortization of deferred financing costs | 0.5 |
| | 0.1 |
|
Share-based compensation | 2.3 |
| | 1.9 |
|
Settlement of Milacron share-based equity awards | 5.9 |
| | — |
|
Trade accounts receivable and receivables from long-term manufacturing contracts | (9.4 | ) | | 15.7 |
|
Inventories | 26.3 |
| | (8.9 | ) |
Prepaid expenses and other current assets | 14.5 |
| | 1.9 |
|
Trade accounts payable | (1.8 | ) | | (0.6 | ) |
Liabilities from long-term manufacturing contracts and advances, | | | |
accrued compensation, and other current liabilities | (21.3 | ) | | (9.7 | ) |
Income taxes payable | 6.5 |
| | (12.1 | ) |
Defined benefit plan and postretirement funding | (2.7 | ) | | (2.3 | ) |
Defined benefit plan and postretirement expense | 1.5 |
| | 0.8 |
|
Other, net | (0.6 | ) | | 0.3 |
|
Net cash provided by operating activities | 17.8 |
| | 35.5 |
|
| | | |
Investing Activities | |
| | |
|
Capital expenditures | (6.3 | ) | | (3.6 | ) |
Proceeds from sales of property, plant, and equipment | 13.3 |
| | — |
|
Acquisition of businesses, net of cash acquired | (1,503.1 | ) | | (26.2 | ) |
Net cash used in investing activities | (1,496.1 | ) | | (29.8 | ) |
| | | |
Financing Activities | |
| | |
|
Proceeds from issuance of long-term debt | 725.0 |
| | — |
|
Repayments on long-term debt | (9.1 | ) | | — |
|
Proceeds from revolving credit facilities | 747.5 |
| | 160.2 |
|
Repayments on revolving credit facilities | (222.5 | ) | | (139.6 | ) |
Payment of deferred financing costs | (5.4 | ) | | — |
|
Payments of dividends on common stock | (15.8 | ) | | (13.1 | ) |
Proceeds from stock option exercises | 0.2 |
| | 0.3 |
|
Payments for employee taxes on net settlement equity awards | (1.8 | ) | | (4.1 | ) |
Other, net | 3.3 |
| | (0.9 | ) |
Net cash provided by financing activities | 1,221.4 |
| | 2.8 |
|
| | | |
Effect of exchange rates on cash and cash equivalents | 0.4 |
| | 0.3 |
|
| | | |
Net cash flows | (256.5 | ) | | 8.8 |
|
| | | |
Cash, cash equivalents, and restricted cash: | |
| | |
|
At beginning of period | 399.4 |
| | 56.5 |
|
At end of period | $ | 142.9 |
| | $ | 65.3 |
|
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same amounts shown in the Consolidated Statements of Cash Flows:
|
| | | | | | | |
| December 31, 2019 | | December 31, 2018 |
Cash and cash equivalents | $ | 142.4 |
| | $ | 64.8 |
|
Short-term restricted cash included in other current assets | 0.5 |
| | 0.5 |
|
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows | $ | 142.9 |
| | $ | 65.3 |
|
See Condensed Notes to Consolidated Financial Statements
Hillenbrand, Inc.
Consolidated Statements of Shareholders’ Equity (Unaudited)
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2019 |
| Shareholders of Hillenbrand, Inc. |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total |
| Shares | | | | Shares | | Amount | | | |
Balance at September 30, 2019 | 63.9 |
| | $ | 345.3 |
| | $ | 599.5 |
| | 1.2 |
| | $ | (50.1 | ) | | $ | (140.6 | ) | | $ | 15.7 |
| | $ | 769.8 |
|
Total other comprehensive income (loss), net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 19.9 |
| | (0.1 | ) | | 19.8 |
|
Net (loss) income | — |
| | — |
| | (3.1 | ) | | — |
| | — |
| | — |
| | 2.3 |
| | (0.8 | ) |
Issuance/retirement of stock for stock awards/options | — |
| | (6.1 | ) | | — |
| | (0.1 | ) | | 4.5 |
| | — |
| | — |
| | (1.6 | ) |
Share-based compensation | — |
| | 2.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2.3 |
|
Dividends ($0.2125 per share) | — |
| | 0.1 |
| | (15.9 | ) | | — |
| | — |
| | — |
| | (1.2 | ) | | (17.0 | ) |
Common stock issued to acquire Milacron (see Note 4) | 11.9 |
| | 371.3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 371.3 |
|
Reclassification of certain income tax effects (1) | — |
| | — |
| | 6.0 |
| | — |
| | — |
| | (6.0 | ) | | — |
| | — |
|
Balance at December 31, 2019 | 75.8 |
| | $ | 712.9 |
| | $ | 586.5 |
| | 1.1 |
| | $ | (45.6 | ) | | $ | (126.7 | ) | | $ | 16.7 |
| | $ | 1,143.8 |
|
| | | | | | | | | | | | | | | |
| Three Months Ended December 31, 2018 |
| Shareholders of Hillenbrand, Inc. |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total |
| Shares | | | | Shares | | Amount | | | |
Balance at September 30, 2018 | 63.9 |
| | $ | 351.4 |
| | $ | 531.0 |
| | 1.6 |
| | $ | (67.1 | ) | | $ | (84.2 | ) | | $ | 13.0 |
| | $ | 744.1 |
|
Total other comprehensive (loss) income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (10.1 | ) | | 0.2 |
| | (9.9 | ) |
Net income | — |
| | — |
| | 28.3 |
| | — |
| | — |
| | — |
| | 0.7 |
| | 29.0 |
|
Issuance/retirement of stock for stock awards/options | — |
| | (11.7 | ) | | — |
| | (0.2 | ) | | 7.9 |
| | — |
| | — |
| | (3.8 | ) |
Share-based compensation | — |
| | 1.9 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1.9 |
|
Dividends ($0.2100 per share) | — |
| | 0.1 |
| | (13.2 | ) | | — |
| | — |
| | — |
| | (1.0 | ) | | (14.1 | ) |
Other | — |
| | — |
| | 0.2 |
| | — |
| | — |
| | — |
| | — |
| | 0.2 |
|
Balance at December 31, 2018 | 63.9 |
| | $ | 341.7 |
| | $ | 546.3 |
| | 1.4 |
| | $ | (59.2 | ) | | $ | (94.3 | ) | | $ | 12.9 |
| | $ | 747.4 |
|
| |
(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. |
See Condensed Notes to Consolidated Financial Statements
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. (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.
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.
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
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 |
|
|
| | | | | | | | | | | |
| 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 |
|
|
| | | | | | | | | | | |
| 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 |
|
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.
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.
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 |
| | |
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 |
|
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.
During the three months ended December 31, 2018, the Company completed the acquisition of Burnaby Machine and Mill Equipment Ltd. (“BM&M”) for $26.2 in cash, which included post-closing working capital adjustments. The Company used its revolving credit facility to fund the acquisition. Based in Canada, BM&M provides high-speed gyratory screeners for a variety of industries. The results of BM&M are reported in the Process Equipment Group reportable segment.
| |
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.
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.
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.
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 |