HILLENBRAND, INC., 10-Q filed on 5/6/2020
Quarterly Report
v3.20.1
Cover Page - shares
6 Months Ended
Mar. 31, 2020
Apr. 30, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 31, 2020  
Document Transition Report false  
Entity File Number 001-33794  
Entity Registrant Name HILLENBRAND, INC.  
Entity Incorporation, State or Country Code IN  
Entity Tax Identification Number 26-1342272  
Entity Address, Address Line One One Batesville Boulevard  
Entity Address, City or Town Batesville  
Entity Address, State or Province IN  
Entity Address, Postal Zip Code 47006  
City Area Code 812  
Local Phone Number 934-7500  
Title of 12(b) Security Common Stock, without par value  
Trading Symbol HI  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   74,718,686
Entity Central Index Key 0001417398  
Current Fiscal Year End Date --09-30  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q2  
Amendment Flag false  
v3.20.1
Consolidated Statements of Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]        
Net revenue $ 648.9 $ 713.3 $ 1,331.5 $ 1,413.1
Net revenue 648.9 464.6 1,215.8 874.9
Cost of goods sold 455.2 303.7 850.3 567.0
Gross profit 193.7 160.9 365.5 307.9
Operating expenses 136.0 93.7 293.4 184.4
Amortization expense 24.0 8.6 38.8 16.4
Goodwill and Intangible Asset Impairment 82.5 0.0 82.5 0.0
Interest expense 20.9 5.4 35.6 10.9
Other (expense) income, net (0.7) 0.1 1.2 0.6
(Loss) income before income taxes (70.4) 53.3 (83.6) 96.8
Income tax expense (benefit) 1.8 13.8 (10.6) 28.3
Consolidated net (loss) income (72.2) 39.5 (73.0) 68.5
Less: Net income attributable to noncontrolling interests 1.8 1.5 4.1 2.2
Net income (loss) $ (74.0) $ 38.0 $ (77.1) $ 66.3
Net income attributable to Hillenbrand — per share of common stock:        
Basic (loss) earnings per share $ (0.99) $ 0.60 $ (1.07) $ 1.05
Diluted (loss) earnings per share $ (0.99) $ 0.60 $ (1.07) $ 1.05
Weighted average shares outstanding (basic) 75.1 62.9 71.7 62.9
Weighted average shares outstanding (diluted) 75.1 63.4 71.7 63.4
v3.20.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]        
Consolidated net income (loss) $ (72.2) $ 39.5 $ (73.0) $ 68.5
Changes in other comprehensive (loss) income, net of tax        
Currency translation adjustment (30.2) (4.6) (12.9) (9.5)
Pension and postretirement (net of quarter-to-date tax of $0.4 and $0.1 and year-to-date tax of $0.9 and $0.2) 1.4 0.3 2.5 0.5
Change in net unrealized loss on derivative instruments (net of quarter-to-date tax of $0.9 and $0.9 and year-to-date tax of $0.7 and $2.6) (3.3) (3.2) (1.9) (8.4)
Total changes in other comprehensive loss, net of tax (32.1) (7.5) (12.3) (17.4)
Consolidated comprehensive (loss) income (104.3) 32.0 (85.3) 51.1
Less: Comprehensive income attributable to noncontrolling interests 1.3 1.5 3.5 2.4
Comprehensive income (loss) $ (105.6) $ 30.5 $ (88.8) $ 48.7
v3.20.1
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]        
Pension and postretirement, tax $ (0.4) $ (0.1) $ (0.9) $ (0.2)
Change in net unrealized gain (loss) on derivative instruments, tax $ 0.8 $ 0.9 $ 0.6 $ 2.6
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Millions
Mar. 31, 2020
Sep. 30, 2019
Current Assets    
Cash and cash equivalents $ 374.0 $ 399.0
Trade receivables, net 292.8 217.4
Receivables from long-term manufacturing contracts 187.3 181.1
Inventories, net 423.3 176.6
Prepaid expenses and other current assets 86.7 49.1
Other current assets 86.7 49.1
Total current assets 1,364.1 1,023.2
Property, plant, and equipment, net 348.7 140.3
Operating lease right-of-use assets 165.0 0.0
Intangible assets, net 1,101.3 454.9
Goodwill 1,133.5 578.0
Other long-term assets 78.1 32.2
Total Assets 4,190.7 2,228.6
Current Liabilities    
Trade accounts payable 297.9 236.2
Liabilities from long-term manufacturing contracts and advances 176.6 158.2
Current portion of long-term debt 46.7 0.0
Accrued compensation 78.2 73.2
Other current liabilities 205.8 121.7
Total current liabilities 805.2 589.3
Long-term debt 1,826.6 619.5
Accrued pension and postretirement healthcare 157.9 131.3
Operating lease liabilities 130.8 0.0
Deferred Income Tax Liabilities, Net 187.5 73.6
Other long-term liabilities 55.7 45.1
Total Liabilities 3,163.7 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) 0.0 0.0
Additional paid-in capital 716.3 345.3
Retained earnings 496.4 599.5
Treasury stock (1.1 and 1.2 shares) (45.4) (50.1)
Accumulated other comprehensive loss (158.3) (140.6)
Hillenbrand Shareholders’ Equity 1,009.0 754.1
Noncontrolling interests 18.0 15.7
Total Shareholders’ Equity 1,027.0 769.8
Total Liabilities and Shareholders’ Equity $ 4,190.7 $ 2,228.6
v3.20.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
shares in Millions
Mar. 31, 2020
Sep. 30, 2019
Statement of Financial Position [Abstract]    
Common stock, par value (in dollars per share)
Common stock, shares issued 75.8 63.9
Common stock, shares outstanding 74.7 62.3
Treasury stock, shares 1.1 1.6
v3.20.1
Consolidated Statements of Cash Flow - USD ($)
$ in Thousands
6 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Operating Activities    
Consolidated net (loss) income $ (73,000) $ 68,500
Adjustments to reconcile net (loss) income to cash provided by operating activities:    
Depreciation and amortization 64,500 29,200
Impairment charges 82,500 0
Deferred income taxes (47,000) 8,700
Amortization of deferred financing costs 1,400 600
Share-based compensation 5,700 5,800
Settlement of Milacron share-based equity awards (5,900) 0
Net loss on divestiture 3,000 0
Trade accounts receivable and receivables from long-term manufacturing contracts 37,700 (24,800)
Inventories 35,400 (12,100)
Prepaid expenses and other current assets 8,700 (800)
Trade accounts payable (41,000) 12,700
accrued compensation, and other current liabilities (45,700) (24,600)
Income taxes payable 14,400 (12,800)
Defined benefit plan and postretirement funding (5,200) (4,600)
Defined benefit plan and postretirement expense 3,200 1,700
Other, net (5,200) (1,000)
Net cash provided by operating activities 45,300 46,500
Investing Activities    
Capital expenditures (15,000) (8,300)
Proceeds from sales of property, plant, and equipment 13,300 0
Acquisition of businesses, net of cash acquired (1,503,100) (26,200)
Proceeds from divestiture, net of cash divested 222,400 0
Other, net 0 100
Net cash used in investing activities (1,282,400) (34,400)
Financing Activities    
Proceeds from issuance of long-term debt 725,000 0
Repayments on long-term debt (9,100) 0
Proceeds from revolving credit facilities 1,082,800 342,000
Repayments on revolving credit facilities (544,700) (323,800)
Payment of deferred financing costs (7,000) 0
Payments of dividends on common stock (31,700) (26,200)
Proceeds from stock option exercises 200 1,400
Payments for employee taxes on net settlement equity awards (1,800) (4,200)
Other, net (1,100) (500)
Net cash provided by (used in) financing activities 1,212,600 (11,300)
Effect of exchange rates on cash and cash equivalents (500) 2,100
Net cash flows (25,000) 2,900
Cash, cash equivalents, and restricted cash:    
At beginning of period 399,400 56,500
At end of period $ 374,400 $ 59,400
v3.20.1
Consolidated Statements of Cash Flow Cash, Cash Equivalents, and Restricted Cash - USD ($)
$ in Millions
Mar. 31, 2020
Sep. 30, 2019
Mar. 31, 2019
Sep. 30, 2018
Supplemental Cash Flow Elements [Abstract]        
Cash and cash equivalents $ 374.0 $ 399.0 $ 58.6  
Short-term restricted cash included in other current assets 0.4   0.8  
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows $ 374.4 $ 399.4 $ 59.4 $ 56.5
v3.20.1
Consolidated Statements of Shareholders Equity Statement - USD ($)
$ in Millions
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock
AOCI Attributable to Parent [Member]
Noncontrolling Interests
Milacron
Common Stock [Member]
Common Stock, Dividends, Per Share, Declared $ 0.42              
Balance at Sep. 30, 2018 $ 744.1   $ 351.4 $ 531.0 $ (67.1) $ (84.2) $ 13.0  
Balance, shares at Sep. 30, 2018   63,900,000     1,600,000      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Total other comprehensive income (loss), net of tax (17.4)         (17.6) 0.2  
Consolidated net (loss) income 68.5     66.3     2.2  
Common stock, shares issued   0     (300,000)      
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture (2.8)   (14.3)   $ 11.5      
Share-based compensation 5.8   5.8          
Other 0.2     0.2        
Dividends, Common Stock 28.3   (0.2) 26.4     (2.1)  
Balance at Mar. 31, 2019 $ 770.1   343.1 571.1 $ (55.6) (101.8) 13.3  
Balance, shares at Mar. 31, 2019   63,900,000     1,300,000      
Common Stock, Dividends, Per Share, Declared $ 0.21              
Balance at Dec. 31, 2018 $ 747.4   341.7 546.3 $ (59.2) (94.3) 12.9  
Balance, shares at Dec. 31, 2018   63,900,000     1,400,000      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Total other comprehensive income (loss), net of tax (7.5)         (7.5) 0.0  
Consolidated net (loss) income 39.5     38.0     1.5  
Common stock, shares issued   0     (100,000)      
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture 1.0   (2.6)   $ 3.6      
Share-based compensation 3.9   3.9          
Dividends, Common Stock 14.2   (0.1) 13.2     (1.1)  
Balance at Mar. 31, 2019 $ 770.1   343.1 571.1 $ (55.6) (101.8) 13.3  
Balance, shares at Mar. 31, 2019   63,900,000     1,300,000      
Common Stock, Dividends, Per Share, Declared $ 0.4250              
Balance at Sep. 30, 2019 $ 769.8   345.3 599.5 $ (50.1) (140.6) 15.7  
Balance, shares at Sep. 30, 2019   63,900,000     1,200,000      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Total other comprehensive income (loss), net of tax (12.3)         (11.7) (0.6)  
Consolidated net (loss) income (73.0)     (77.1)     4.1  
Common stock, shares issued   0     (100,000)      
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture (1.6)   (6.3)   $ 4.7      
Share-based compensation 5.7   5.7          
Other 0.0     6.0   (6.0)    
Treasury Stock, Shares, Acquired         0      
Dividends, Common Stock 32.9   (0.3) 32.0     (1.2)  
Stock Issued During Period, Shares, Acquisitions               11,900,000
Treasury Stock, Value, Acquired, Cost Method 371.3   (371.3)   $ 0.0      
Balance at Mar. 31, 2020 $ 1,027.0   716.3 496.4 $ (45.4) (158.3) 18.0  
Balance, shares at Mar. 31, 2020   75,800,000     1,100,000      
Common Stock, Dividends, Per Share, Declared $ 0.2125              
Balance at Dec. 31, 2019 $ 1,143.8   712.9 586.5 $ (45.6) (126.7) 16.7  
Balance, shares at Dec. 31, 2019   75,800,000     1,100,000      
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Total other comprehensive income (loss), net of tax (32.1)         (31.6) (0.5)  
Consolidated net (loss) income (72.2)     (74.0)     1.8  
Common stock, shares issued   0     0      
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture 0.0   (0.2)   $ 0.2      
Share-based compensation 3.4   3.4          
Dividends, Common Stock 15.9   (0.2) 16.1        
Balance at Mar. 31, 2020 $ 1,027.0   $ 716.3 $ 496.4 $ (45.4) $ (158.3) $ 18.0  
Balance, shares at Mar. 31, 2020   75,800,000     1,100,000      
v3.20.1
Background and Basis of Presentation
6 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Background and Basis of Presentation
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 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 plastic 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, determination of reporting unit and identifiable intangible asset fair value, 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.

On March 11, 2020, the World Health Organization declared the outbreak of the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide, and the effects of the COVID-19 pandemic and such associated measures on management’s estimates and results of operations through March 31, 2020 are reflected in the Consolidated Financial Statements. Events and changes in circumstances arising after March 31, 2020, including those resulting from the ongoing impacts of the COVID-19 pandemic, will be reflected in management’s estimates for future periods in subsequent periodic filings.
v3.20.1
Summary of Significant Accounting Policies
6 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
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 Update (“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 $165.0 and corresponding lease liabilities of $162.5 for its operating leases at March 31, 2020. The adoption of ASU 2016-02 did not have a material impact to the 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.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-13”). ASU 2019-13 clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. ASU 2019-12 will be effective for the Company’s fiscal year beginning on October 1, 2021. The Company is currently evaluating the impact of ASU 2019-12 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.
v3.20.1
Revenue Recognition
6 Months Ended
Mar. 31, 2020
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
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 March 31, 2020 and September 30, 2019 was $187.3 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 March 31, 2020 and September 30, 2019 was $176.6 and $158.2, respectively, and consists primarily of cash payments received in advance of satisfying performance obligations. The revenue recognized for the six months ended March 31, 2020 and 2019 related to liabilities from long-term manufacturing contracts and advances as of September 30, 2019 and 2018 was $87.8 and $107.0, respectively. During the three and six months ended March 31, 2020 and 2019, the adjustments related to performance obligations satisfied in previous periods were immaterial.

Transaction price allocated to the remaining performance obligations
                                            
As of March 31, 2020, the aggregate amount of transaction price of remaining performance obligations within the Process Equipment Group and Milacron reportable segments, which corresponds to backlog as defined in Item 2 of this Form 10-Q, was $1,169.5. Approximately 83% 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 fiscal 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 March 31, 2020
 
Six Months Ended March 31, 2020
 
Process Equipment Group
 
Milacron
 
Batesville
 
Total
 
Process Equipment Group
 
Milacron
 
Batesville
 
Total
End Market
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Plastics
$
206.6

 
$

 
$

 
$
206.6

 
$
408.7

 
$

 
$

 
$
408.7

  Automotive

 
38.1

 

 
38.1

 

 
63.2

 

 
63.2

  Chemicals
24.1

 

 

 
24.1

 
48.4

 

 

 
48.4

  Consumer goods

 
19.3

 

 
19.3

 

 
37.6

 

 
37.6

  Food and pharmaceuticals
17.2

 

 

 
17.2

 
35.2

 

 

 
35.2

  Custom molders

 
21.3

 

 
21.3

 

 
38.1

 

 
38.1

Packaging

 
22.8

 

 
22.8

 

 
36.6

 

 
36.6

Construction

 
14.9

 

 
14.9

 

 
31.8

 

 
31.8

  Minerals and mining
15.4

 

 

 
15.4

 
28.7

 

 

 
28.7

  Electronics

 
14.5

 

 
14.5

 

 
22.8

 

 
22.8

  Death care

 

 
138.8

 
138.8

 

 

 
265.8

 
265.8

  Other industrial
47.8

 
68.1

 

 
115.9

 
96.7

 
102.2

 

 
198.9

    Total
$
311.1

 
$
199.0

 
$
138.8

 
$
648.9

 
$
617.7

 
$
332.3

 
$
265.8

 
$
1,215.8

 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
 
Process Equipment Group
 
Batesville
 
Total
 
Process Equipment Group
 
Batesville
 
Total
End Market
 
 
 
 
 
 
 
 
 
 
 
  Plastics
$
202.2

 
$

 
$
202.2

 
$
363.1

 
$

 
$
363.1

  Chemicals
22.9

 

 
22.9

 
52.5

 

 
52.5

Food and pharmaceuticals
24.4

 

 
24.4

 
40.9

 

 
40.9

Minerals and mining
22.2

 

 
22.2

 
50.2

 

 
50.2

  Death care

 
137.9

 
137.9

 

 
266.0

 
266.0

  Other industrial
55.0

 

 
55.0

 
102.2

 

 
102.2

    Total
$
326.7

 
$
137.9

 
$
464.6

 
$
608.9

 
$
266.0

 
$
874.9


The following tables present net revenue by products and services:
 
Three Months Ended March 31, 2020
 
Six Months Ended March 31, 2020
 
Process Equipment Group
 
Milacron
 
Batesville
 
Total
 
Process Equipment Group
 
Milacron
 
Batesville
 
Total
Products and Services
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equipment
$
207.9

 
$
99.0

 
$

 
$
306.9

 
$
413.9

 
$
181.2

 
$

 
$
595.1

Parts and services
103.2

 
58.3

 

 
161.5

 
203.8

 
90.5

 

 
294.3

Death care

 

 
138.8

 
138.8

 

 

 
265.8

 
265.8

Other

 
41.7

 

 
41.7

 

 
60.6

 

 
60.6

    Total
$
311.1

 
$
199.0

 
$
138.8

 
$
648.9

 
$
617.7

 
$
332.3

 
$
265.8

 
$
1,215.8


 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
 
Process Equipment Group
 
Batesville
 
Total
 
Process Equipment Group
 
Batesville
 
Total
Products and Services
 
 
 
 
 
 
 
 
 
 
 
Equipment
$
227.6

 
$

 
$
227.6

 
$
411.0

 
$

 
$
411.0

Parts and services
99.1

 

 
99.1

 
197.9

 

 
197.9

Death care

 
137.9

 
137.9

 

 
266.0

 
266.0

    Total
$
326.7

 
$
137.9

 
$
464.6

 
$
608.9

 
$
266.0

 
$
874.9


The following tables present net revenue by timing of transfer:
 
Three Months Ended March 31, 2020
 
Six Months Ended March 31, 2020
 
Process Equipment Group
 
Milacron
 
Batesville
 
Total
 
Process Equipment Group
 
Milacron
 
Batesville
 
Total
Timing of Transfer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Point in time
$
149.4

 
$
199.0

 
$
138.8

 
$
487.2

 
$
296.7

 
$
332.3

 
$
265.8

 
$
894.8

Over time
161.7

 

 

 
161.7

 
321.0

 

 

 
321.0

    Total
$
311.1

 
$
199.0

 
$
138.8

 
$
648.9

 
$
617.7

 
$
332.3

 
$
265.8

 
$
1,215.8


 
Three Months Ended March 31, 2019
 
Six Months Ended March 31, 2019
 
Process Equipment Group
 
Batesville
 
Total
 
Process Equipment Group
 
Batesville
 
Total
Timing of Transfer
 
 
 
 
 
 
 
 
 
 
 
Point in time
$
176.8

 
$
137.9

 
$
314.7

 
$
340.5

 
$
266.0

 
$
606.5

Over time
149.9

 

 
149.9

 
268.4

 

 
268.4

    Total
$
326.7

 
$
137.9

 
$
464.6

 
$
608.9

 
$
266.0

 
$
874.9


v3.20.1
Business Acquisitions and Divestitures
6 Months Ended
Mar. 31, 2020
Business Combinations [Abstract]  
Business Acquisitions
Business Acquisitions and Divestitures

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 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 Statement of Operations during the six months ended March 31, 2020.

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 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 in the Consolidated Statement of Operations during the six months ended March 31, 2020, 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 (“ASC”) 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
(as initially reported)
 
Measurement Period Adjustments
 
November 21, 2019
(as adjusted)
Assets acquired:
 
 
 
 
 
Cash and cash equivalents
$
125.8

 
$

 
$
125.8

Trade receivables
135.5

 
1.3

 
136.8

Inventories
288.7

 
5.7

 
294.4

Prepaid expense and other current assets
64.3

 
1.3

 
65.6

Property, plant, and equipment
262.9

 
(17.7
)
 
245.2

Operating lease right-of-use assets
41.3

 

 
41.3

Identifiable intangible assets
865.0

 
(50.0
)
 
815.0

Goodwill
666.5

 
38.8

 
705.3

Other long-term assets
22.6

 
2.7

 
25.3

Total assets acquired
2,472.6


(17.9
)
 
2,454.7

 
 
 
 
 
 
Liabilities assumed:
 
 
 
 
 
Trade accounts payable
110.2

 

 
110.2

Liabilities from long-term manufacturing contracts and advances
32.7

 

 
32.7

Accrued compensation
23.2

 
(2.4
)
 
20.8

Other current liabilities
72.2

 
(0.3
)
 
71.9

Accrued pension and postretirement healthcare
29.4

 

 
29.4

Deferred income taxes
166.3

 
(15.2
)
 
151.1

Operating lease liabilities - long-term
31.2

 

 
31.2

Other long-term liabilities
13.1

 

 
13.1

Total liabilities assumed
478.3


(17.9
)
 
460.4

 
 
 
 
 
 
Total purchase price consideration
$
1,994.3


$

 
$
1,994.3



Measurement period adjustments
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 one year following the acquisition date). As a result of further refining its estimates and assumptions during the current quarter, the Company recorded measurement period adjustments to the initial opening balance sheet as shown in the table above. Adjustments were primarily made to property, plant, and equipment, identifiable intangible assets, goodwill, and deferred income taxes. Due to the timing of the acquisition, which was completed in the middle of the Company’s previous quarter, there were no measurement period adjustments materially impacting earnings that would have been recorded in the previous reporting period if the adjustments had been recognized as of the acquisition date.
As of March 31, 2020, the allocation of the purchase price has not been finalized and the one-year measurement period has not ended. 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 identifiable 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.
Intangible assets identified
The preliminary purchase price allocation included $815.0 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. 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
 
$
560.0

 
19 years
Trade names
 
150.0

 
Indefinite
Technology, including patents
 
95.0

 
10 years
Backlog
 
10.0

 
3 months
    Total
 
$
815.0

 
 


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, plant, 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 higher (lower) 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 along with Level 2 measurements for certain tangible assets. 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 three and six months ended March 31, 2020:
 
Three Months Ended
March 31, 2020
 
Six Months Ended
March 31, 2020
Net revenue
$
199.0

 
$
332.3

Loss before income taxes
(30.2
)
 
(29.5
)


In connection with the acquisition of Milacron, the Company incurred a total of $3.9 and $57.7 of business acquisition and integration costs during the three and six months ended March 31, 2020, respectively, 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 identifiable 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 and six months ended March 31, 2020, 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
March 31,
 
Six Months Ended
March 31,
 
2020
 
2019
 
2020
 
2019
Net revenue
$
648.9

 
$
713.3

 
$
1,331.5

 
$
1,413.1

Net (loss) income attributable to Hillenbrand
(46.8
)
 
37.5

 
(31.3
)
 
67.4

 
 
 
 
 
 
 
 
Net income attributable to Hillenbrand  — per share of common stock:
 
 
 
 
 
 
 
Basic (loss) earnings per share
$
(0.62
)
 
$
0.50

 
$
(0.42
)
 
$
0.90

Diluted (loss) earnings per share
$
(0.62
)
 
$
0.50

 
$
(0.42
)
 
$
0.90



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 during the six months ended March 31, 2020. There was no material impact to the Consolidated Statement of Operations resulting from the sale of the facility during the six months ended March 31, 2020.

Divestiture of Cimcool

On March 30, 2020, the Company completed the sale of its Cimcool business (“Cimcool”), which represented the former Fluids Technologies reportable segment of Milacron before its acquisition by the Company, to DuBois Chemicals, Inc. The sale resulted in cash proceeds received at closing of $222.4, net of cash divested.

In addition, the Company may receive contingent consideration for the sale of Cimcool of up to an aggregate of $26.0 based on multiple earn-out provisions. The Company accounts for contingent consideration under a loss recovery approach. Under a loss recovery approach, the Company records a contingent consideration asset only to the extent of the lesser of (1) the amount that the non-contingent consideration received is exceeded by the net assets deconsolidated, or (2) the amount of contingent consideration that it is probable will be received. As of the transaction date (and at March 31, 2020), the Company was unable to determine that it was probable that any of the contingent consideration would be received, and accordingly no asset was recorded for contingent consideration. Subsequent measurement of contingent consideration will be based on the guidance for gain contingencies and any gain from contingent consideration will be recorded at the time the consideration is received.

As a result of the sale, the Company recorded a pre-tax loss of $3.0, using Level 2 nonrecurring fair value measurements, within other (expense) income, net in the Consolidated Statements of Operations during the three and six months ended March 31, 2020. The related tax effect resulted in tax expense of $13.0 and was included within income tax expense (benefit) in the Consolidated Statements of Operations during the three and six months ended March 31, 2020. The Company incurred $3.8 of transaction costs associated with the sale during the three and six months ended March 31, 2020, which were recorded within operating expenses in the Consolidated Statements of Operations.

The Company determined that the sale of Cimcool did not represent a strategic shift that had or will have a major effect on its consolidated operations and financial results, and therefore Cimcool was not classified as a discontinued operation. Cimcool’s results of operations were included within the Milacron reportable segment until the completion of the sale on March 30, 2020.

Acquisition of Burnaby Machine and Mill Equipment Ltd.

The Company completed the acquisition of Burnaby Machine and Mill Equipment Ltd. (“BM&M”) in November 2018 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.
v3.20.1
Supplemental Balance Sheet Information
6 Months Ended
Mar. 31, 2020
Balance Sheet Related Disclosures [Abstract]  
Supplemental Balance Sheet Information
Supplemental Consolidated Balance Sheet Information
 
 
March 31,
2020
 
September 30,
2019
Trade accounts receivable reserves
$
24.6

 
$
22.8

 
 
 
 
Accumulated depreciation on property, plant, and equipment
$
322.3

 
$
309.0

 
 
 
 
Inventories, net:
 

 
 

Finished goods
$
184.0

 
$
60.3

Raw materials and components
138.0

 
72.3

Work in process
101.3

 
44.0

Total inventories, net
$
423.3

 
$
176.6

 

Trade accounts receivable reserves consist of the allowance of doubtful accounts, which is a best estimate of the amount of probable credit losses and collection risk in the existing trade receivables portfolio, and the allowance for cash discounts and sales returns, which is based upon historical experience and trends. The Company considers a variety of factors when determining the accounts receivable reserves including macroeconomic conditions, specific industry trends, and customer classes. The Company specifically considered the impact of the COVID-19 pandemic on our trade receivables and determined there was no material impact on existing trade receivables at March 31, 2020.
v3.20.1
Leases
6 Months Ended
Mar. 31, 2020
Leases [Abstract]  
Leases
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 March 31, 2020. 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 the 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 the 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 and six months ended March 31, 2020, the Company recognized $9.8 and $17.8, respectively, of operating lease expense, including short-term lease expense and variable lease costs, which were immaterial in both periods.

The following table presents supplemental Consolidated Balance Sheet information related to the Company’s operating leases:
 
March 31, 2020
Operating lease right-of-use assets
$
165.0

 
 
Other current liabilities
$
31.7

Operating lease liabilities
130.8

Total operating lease liabilities
$
162.5

 
 
Weighted-average remaining lease term (in years)
7.8

 
 
Weighted-average discount rate
2.1
%


As of March 31, 2020, the maturities of the Company’s operating lease liabilities were as follows:
2020 (excluding the six months ended March 31, 2020)
$
17.3

2021
32.6

2022
28.1

2023
23.0

2024
15.6

Thereafter
57.0

Total lease payments
173.6

Less: imputed interest
(11.1
)
Total present value of lease payments
$
162.5



Supplemental Consolidated Statement of Cash Flow information is as follows:
 
 
Six Months Ended March 31, 2020
Cash paid for amounts included in the measurement of operating lease liabilities
 
$
18.0

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities
 
18.7


v3.20.1
Intangible Assets and Goodwill
6 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets and Goodwill
Intangible Assets and Goodwill

Impairment assessment

Impairment recorded during the period

Testing for impairment of goodwill and indefinite lived assets must be performed annually, or on an interim basis upon the occurrence of triggering events or substantive changes in circumstances that indicate that the fair value of the asset or reporting unit may have decreased below the carrying value.  The Company’s annual assessment is performed at the reporting unit level, which consists of determining each reporting unit’s current fair value compared to its current carrying value. In connection with the preparation of the Consolidated Financial Statements for the three months ended March 31, 2020, an interim impairment assessment was performed for select reporting units within the Process Equipment Group and Milacron reportable segments as a result of certain triggering events and changes in circumstances discussed in detail below. Additionally, based on the macroeconomic factors below, as well as the decline in the Company’s common stock price during the three months ended March 31, 2020, the Company performed a qualitative review for all remaining reporting units and determined that those reporting units did not require an interim impairment test as it was more likely than not that the current fair value of those reporting units exceeded their carrying value, based on their current and projected financial performance as well as the headroom from previous goodwill impairment tests.

For certain reporting units within the Process Equipment Group reportable segment, an interim impairment review was triggered by the Company’s decision to redirect its strategic investments as it remains focused on deleveraging following two major events within the six months ended March 31, 2020: (1) the continued evaluation of the Company’s operations following the acquisition of Milacron completed on November 21, 2019, and (2) current adverse macroeconomic conditions primarily driven by the COVID-19 pandemic. In connection with these events, the Company has made the decision to limit its future strategic investment in its two reporting units that primarily sell and manufacture products in the flow control sector. The decision to limit future
investment as well as the Company’s updated forecasts, which considered the impact of the COVID-19 pandemic, reduced those reporting units’ anticipated annual revenue growth rates and corresponding profitability and cash flows. The annual revenue growth rates utilized in the Company’s fair value estimate are consistent with the reporting units’ operating plans. As a result of the change to expected future cash flows, along with comparable fair value information, the Company concluded that the carrying value for these reporting units exceeded their fair value, resulting in goodwill impairment charges of $72.3 during the three and six months ended March 31, 2020. The pre-impairment goodwill balance for these reporting units was $95.2.  A 10% further reduction in the fair value of these reporting units would indicate a potential additional goodwill impairment of approximately $12.0.  Additionally, under the relief-from-royalty fair value method, the Company concluded that the carrying value of a trade name associated with one of these reporting units exceeded its fair value. As a result, an impairment charge of $0.7 was recorded for this trade name during the three and six months ended March 31, 2020. The pre-impairment balance for this trade name was $4.4.

For the reporting units within the Milacron reportable segment, an interim impairment review was triggered by recent macroeconomic conditions primarily driven by the COVID-19 pandemic. Subsequent to the Company completing the acquisition of Milacron on November 21, 2019, the Company has since revised its forecasts for all reporting units within the Milacron reportable segment due to the deterioration in the overall global economy as a result of the pandemic. As a result of the decline in forecasted revenues, under the relief-from-royalty fair value method, the Company concluded that the carrying value of certain trade names and technology associated with these reporting units exceeded their fair value. As a result, impairment charges of $9.5 were recorded for these intangible assets during the three and six months ended March 31, 2020. The pre-impairment balance for these intangible assets was $125.0. A 10% further reduction in the fair value of these intangible assets, caused by further declines in forecasted revenues and changes in the discount rate selected by the Company, would indicate a potential additional impairment of approximately $12.0

The impairment charges to goodwill and the identifiable intangible assets were nondeductible for tax purposes. The following table summarizes the impairment charges recorded by the Company during the three and six months ended March 31, 2020:
 
Impairment Charges
 
Process Equipment Group
 
Milacron
 
Total
Goodwill
$
72.3

 
$

 
$
72.3

Trade names
0.7

 
7.9

 
8.6

Technology, including patents

 
1.6

 
1.6

Total
$
73.0

 
$
9.5

 
$
82.5



Additionally, as a result of the Company’s revised forecasts driven by the COVID-19 pandemic for all reporting units within the Milacron reportable segment, the Company performed an interim impairment review for these reporting units during the three months ended March 31, 2020 and determined that no impairment of goodwill occurred as a result of this triggering event. The estimated fair value, as calculated, for all four reporting units within the Milacron reportable segment ranged from approximately 3% to 16% greater than their carrying value as of March 31, 2020.

The valuation used to test goodwill for impairment is dependent upon a number of significant estimates and assumptions, including macroeconomic conditions, growth rates, competitive activities, cost containment, achievement of synergy initiatives, margin expansion, and the Company's business plans. The Company believes these estimates and assumptions are reasonable. However, future changes in the judgments, assumptions and estimates that are used in the impairment testing for goodwill, including discount and tax rates or future cash flow projections, could result in significantly different estimates of the fair values. As a result of these factors and the limited cushion (or headroom as commonly referred) due to the recent acquisition of Milacron, goodwill for the reporting units within the Milacron reportable segment are more susceptible to impairment risk.

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 impairment assessments). Goodwill and 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 higher (lower) fair value measurement.

The most significant assumptions used in the determination of the estimated fair value of the reporting units are the revenue and EBITDA growth rates (including terminal growth rates) and the discount rate. The terminal growth rate represents the rate at which the reporting unit is expected to grow beyond the shorter-term business planning period. The terminal growth rate utilized in the Company’s fair value estimate is consistent with the reporting unit operating plans and approximates expected long-term category market growth rates and inflation. The discount rate, which is consistent with a weighted-average cost of capital that is likely to
be expected by a market participant, is based upon industry required rates of return, including consideration of both debt and equity components of the capital structure. The discount rates may be impacted by adverse changes in the macroeconomic environment, specifically the COVID-19 pandemic, volatility in the equity and debt markets or other factors.

While the Company can implement and has implemented certain strategies to address these events, changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate reporting unit fair values and could result in a further decline in fair value that would trigger a future material impairment charge of the reporting units’ goodwill balance.

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 table summarizes the carrying amounts and related accumulated amortization for intangible assets as of March 31, 2020 and September 30, 2019:

 
March 31, 2020
 
September 30, 2019
 
Cost
 
Accumulated
Amortization
 
Cost
 
Accumulated
Amortization
Finite-lived assets:
 

 
 

 
 

 
 

Trade names
$
0.2

 
$
(0.2
)
 
$
0.2

 
$
(0.2
)
Customer relationships
943.0

 
(191.2
)
 
464.2

 
(169.2
)
Technology, including patents
156.0

 
(55.4
)
 
76.8

 
(49.4
)
Software
65.6

 
(54.2
)
 
58.7

 
(51.7
)
Backlog
10.0

 
(10.0
)
 

 

Other
0.1

 
(0.1
)
 
0.2

 
(0.2
)
 
1,174.9

 
(311.1
)
 
600.1

 
(270.7
)
Indefinite-lived assets:
 

 
 

 
 

 
 

Trade names
237.5

 

 
125.5

 

 
 
 
 
 
 
 
 
Total
$
1,412.4

 
$
(311.1
)
 
$
725.6

 
$
(270.7
)


The net change in intangible assets during the six months ended March 31, 2020 was driven primarily by the following:

the acquisition of Milacron, which included acquired intangible assets of $815.0;
the divestiture of Cimcool, which included divested gross intangible assets of $122.1;
impairment charges to intangible assets of $10.2;
normal amortization; and
foreign currency adjustments.

See Note 4 for further information on the acquisition of Milacron and the divestiture of Cimcool. Estimated amortization expense related to intangible assets for the next five years is: $71.3 in 2020 (includes six months actual and six months estimated), $65.2 in 2021, $64.2 in 2022, $63.7 in 2023, and $63.6 in 2024.

Goodwill

As discussed above, goodwill is not amortized but is tested for impairment at least annually, or on an interim basis upon the occurrence of triggering events or substantive changes in circumstances.  Goodwill has been assigned to reporting units.  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.

The following table summarizes the changes in the Company’s goodwill, by reportable segment, for the six months ended March 31, 2020:
 
Process
Equipment
Group
 
Milacron
 
Batesville
 
Total
Balance as of September 30, 2019
$
569.7

 
$

 
$
8.3

 
$
578.0

Acquisitions (1)
1.7

 
705.3

 

 
707.0

Divestiture (2)

 
(77.9
)
 

 
(77.9
)
Impairment charges
(72.3
)
 

 

 
(72.3
)
Foreign currency adjustments
4.6

 
(5.9
)
 

 
(1.3
)
Balance as of March 31, 2020 (3)
$
503.7

 
$
621.5

 
$
8.3

 
$
1,133.5


 
(1) 
See Note 4 for further information on the acquisitions of Milacron and BM&M.
(2) 
See Note 4 for further information on the divestiture of Cimcool.
(3) 
There was accumulated goodwill impairment of $131.1 and $58.8 within the Process Equipment Group as of March 31, 2020 and September 30, 2019, respectively.
v3.20.1
Financing Agreements
6 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Financing Agreements
Financing Agreements

The following table summarizes Hillenbrand’s current and long-term debt as of the dates reported in the Consolidated Balance Sheets:
 
March 31,
2020
 
September 30,
2019
$900.0 revolving credit facility (excluding outstanding letters of credit)
$
537.6

 
$

$500.0 term loan facility (1)
492.3

 

$375.0 senior unsecured notes, net of discount (2)
370.4

 
370.1

$225.0 term loan facility (3)
221.8

 

$150.0 senior unsecured notes, net of discount (4)
149.9

 
149.7

$100.0 Series A Notes (5)
99.7

 
99.7

Other
1.6

 

Total debt
1,873.3

 
619.5

Less: current portion
46.7

 

Total long-term debt
$
1,826.6

 
$
619.5


 
(1) 
Includes unamortized debt issuance costs of $1.5 at March 31, 2020.
(2) 
Includes unamortized debt issuance costs of $4.0 and $4.3 at March 31, 2020 and September 30, 2019, respectively.
(3) 
Includes unamortized debt issuance costs of $0.4 at March 31, 2020.
(4) 
Includes unamortized debt issuance costs of $0.1 and $0.2 at March 31, 2020 and September 30, 2019, respectively.
(5) 
Includes unamortized debt issuance costs of $0.3 at both March 31, 2020 and September 30, 2019.

The following table summarizes the scheduled maturities of long-term debt for 2020 through 2024:
 
Amount
2020 (remaining six months) (1)
$
177.2

2021
36.2

2022
54.4

2023
223.2

2024
587.6

 
(1) 
Includes the $150.0 senior unsecured notes which mature in July 2020. Upon maturity, the Company expects to refinance the notes on a long-term basis.  The Company has the intent and believes it has the ability to refinance the notes due to expected available borrowing capacity under the Revolver, although the financing source ultimately used to refinance the notes may be different.  As such, these obligations continue to be classified as long-term debt within the Consolidated Balance Sheets.

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 three and six months ended March 31, 2020, the weighted average interest rates were 3.36% and 3.40%, respectively, for the $500.0 term loan and 3.23% and 3.27%, respectively, 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 has made net repayments since the closing date of the acquisition of Milacron, resulting in an outstanding balance of $537.6 as of March 31, 2020. As of March 31, 2020, the Company had $8.3 in outstanding letters of credit issued and $354.1 of maximum borrowing capacity under the Revolver. $159.7 of this borrowing capacity was immediately available based on the Company’s most restrictive covenant at March 31, 2020. The weighted-average interest rates on borrowings under the Revolver were 2.84% and 2.88% for the three and six months ended March 31, 2020, respectively, and 2.73% and 2.57% for the same periods in the prior year, respectively. The weighted average facility fee was 0.25% and 0.21% for the three and six months ended March 31, 2020, respectively, and 0.12% and 0.11% for the same periods in the prior year, respectively.
 
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 March 31, 2020, the Company had credit arrangements totaling $379.7, under which $277.0 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 quarters ending December 31, 2019 and March 31, 2020, (B) 4.25 to 1.00 for the quarter ending June 30, 2020, (C) 4.00 to 1.00 for the quarter ending September 30, 2020, (D) 3.75 to 1.00 for the quarter ending December 31, 2020, and (E) 3.50 to 1.00 for the quarter ending March 31, 2021 and each quarter ending thereafter and (ii) add additional pricing levels to compensate for the increase in permitted leverage ratios.

As of March 31, 2020, 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 March 31, 2020, Hillenbrand was in compliance with all covenants and there were no events of default.