HILLENBRAND, INC., 10-K filed on 11/13/2019
Annual Report
v3.19.3
Document and Entity Information - USD ($)
12 Months Ended
Sep. 30, 2019
Nov. 07, 2019
Mar. 29, 2019
Document and Entity Information      
Title of 12(b) Security Common Stock, without par value    
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 Registrant Name HILLENBRAND, INC.    
Entity Central Index Key 0001417398    
Current Fiscal Year End Date --09-30    
Entity Filer Category Large Accelerated Filer    
Entity Emerging Growth Company false    
Document Type 10-K    
Document Annual Report true    
Document Period End Date Sep. 30, 2019    
Document Transition Report false    
Document Fiscal Year Focus 2019    
Document Fiscal Period Focus FY    
Amendment Flag false    
Entity Well-known Seasoned Issuer Yes    
Entity Voluntary Filers No    
Entity Current Reporting Status Yes    
Entity Common Stock, Shares Outstanding   62,744,927  
Entity Public Float     $ 2,521,789,389
Entity File Number 001-33794    
City Area Code 812    
Local Phone Number 934-7500    
Entity Interactive Data Current Yes    
Entity Shell Company false    
Entity Address, Postal Zip Code 47006    
Trading Symbol HI    
Security Exchange Name NYSE    
Entity Small Business false    
v3.19.3
CONSOLIDATED STATEMENTS OF INCOME - USD ($)
shares in Millions, $ in Millions
3 Months Ended 12 Months Ended
Sep. 30, 2019
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Sep. 30, 2018
Jun. 30, 2018
Mar. 31, 2018
Dec. 31, 2017
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2017
Income Statement [Abstract]                      
Net revenue $ 485.8 $ 446.6 $ 464.6 $ 410.3 $ 474.7 $ 446.0 $ 452.2 $ 397.2 $ 1,807.3 $ 1,770.1 $ 1,590.2
Cost of Goods and Services Sold                 1,184.3 1,128.0 999.4
Gross profit 166.7 148.4 160.9 147.0 163.8 163.5 168.6 146.2 623.0 642.1 590.8
Operating expenses                 379.7 378.9 343.5
Amortization expense                 32.5 30.2 29.2
Impairment charges                 0.0 63.4 0.0
Interest expense                 27.4 23.3 25.2
Other (expense) income, net                 (6.7) 0.2 (4.6)
Income before income taxes                 176.7 146.5 188.3
Income tax expense                 50.5 65.3 59.9
Consolidated net income                 126.2 81.2 128.4
Less: Net income attributable to noncontrolling interests                 4.8 4.6 2.2
Net income $ 24.7 $ 30.4 $ 38.0 $ 28.3 $ 44.5 $ 35.9 $ (21.9) $ 18.1 $ 121.4 [1] $ 76.6 [1] $ 126.2 [1]
Net income - per share of common stock:                      
Basic earnings per share (in dollars per share) $ 0.39 $ 0.48 $ 0.60 $ 0.45 $ 0.71 $ 0.57 $ (0.34) $ 0.28 $ 1.93 [1] $ 1.21 [1] $ 1.99 [1]
Diluted earnings per share (in dollars per share) $ 0.39 $ 0.48 $ 0.60 $ 0.45 $ 0.70 $ 0.56 $ (0.34) $ 0.28 $ 1.92 [1] $ 1.20 [1] $ 1.97 [1]
Weighted-average shares outstanding-basic (in shares)                 62.9 63.1 63.6
Weighted-average shares outstanding-diluted (in shares)                 63.3 63.8 64.0
[1] Net income attributable to Hillenbrand
v3.19.3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($)
$ in Millions
12 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2017
Statement of Comprehensive Income [Abstract]      
Consolidated net income $ 126.2 $ 81.2 $ 128.4
Other comprehensive (loss) income, net of tax      
Currency translation (20.6) (7.9) 24.9
Pension and postretirement (net of tax of $7.7, $1.3, and $10.9) (21.3) 4.3 22.2
Net unrealized (loss) gain on derivative instruments (net of tax of $0.2, $0.0, and $1.0) (14.5) (0.1) 1.7
Total other comprehensive (loss) income, net of tax (56.4) (3.7) 48.8
Consolidated comprehensive income 69.8 77.5 177.2
Less: Comprehensive income attributable to noncontrolling interests 4.8 3.9 2.4
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [1] $ 65.0 $ 73.6 $ 174.8
[1] Comprehensive income attributable to Hillenbrand
v3.19.3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($)
$ in Millions
12 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2017
Statement of Comprehensive Income [Abstract]      
Pension and postretirement, tax $ (7.7) $ 1.3 $ (10.9)
Net unrealized (loss) gain on derivative instruments, tax $ (3.5) $ 0.0 $ 1.0
v3.19.3
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Millions
Sep. 30, 2019
Sep. 30, 2018
Current Assets    
Cash and cash equivalents $ 399.0 $ 56.0
Trade receivables, net 217.4 218.5
Receivables from long-term manufacturing contracts 181.1 120.3
Inventories 176.6 172.5
Prepaid expenses 26.7 25.2
Other current assets 22.4 18.1
Total current assets 1,023.2 610.6
Property, plant, and equipment, net 140.3 142.0
Intangible assets, net 454.9 487.3
Goodwill 578.0 581.9
Other assets 32.2 42.8
Total Assets 2,228.6 1,864.6
Current Liabilities    
Trade accounts payable 236.2 196.8
Liabilities from long-term manufacturing contracts and advances 158.2 125.9
Current portion of long-term debt 0.0 0.0
Accrued compensation 73.2 71.9
Other current liabilities 121.7 137.1
Total current liabilities 589.3 531.7
Long-term debt 619.5 344.6
Accrued pension and postretirement healthcare 131.3 120.5
Deferred income taxes 73.6 76.4
Other long-term liabilities 45.1 47.3
Total Liabilities 1,458.8 1,120.5
Commitments and contingencies (Note 11)
SHAREHOLDERS’ EQUITY    
Common stock, no par value (63.9 and 63.9 shares issued, 62.7 and 62.3 shares outstanding) 0.0 0.0
Additional paid-in capital 345.3 351.4
Retained earnings 599.5 531.0
Treasury stock (1.2 and 1.6 shares) (50.1) (67.1)
Accumulated other comprehensive loss (140.6) (84.2)
Hillenbrand Shareholders’ Equity 754.1 731.1
Noncontrolling interests 15.7 13.0
Total Shareholders’ Equity 769.8 744.1
Total Liabilities and Equity $ 2,228.6 $ 1,864.6
v3.19.3
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
shares in Millions
Sep. 30, 2019
Sep. 30, 2018
Statement of Financial Position [Abstract]    
Common stock, par value (in dollars per share) $ 0 $ 0
Common stock, shares issued 63.9 63.8
Common stock, shares outstanding 62.3 63.1
Treasury stock, shares 1.6 0.7
v3.19.3
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Millions
12 Months Ended
Sep. 30, 2019
Sep. 30, 2018
Sep. 30, 2017
Operating Activities      
Consolidated net income $ 126.2 $ 81.2 $ 128.4
Adjustments to reconcile net income to cash provided by operating activities:      
Depreciation and amortization 58.5 56.5 56.6
Impairment charges 0.0 63.4 0.0
Deferred income taxes 6.7 3.7 37.1
Net loss (gain) on disposal or impairment of property 0.0 0.7 (4.6)
Equity in net loss (income) from affiliates 0.0 0.0 0.4
Share-based compensation 12.0 12.1 10.5
Trade accounts receivable and receivables on long-term manufacturing contracts (66.2) (13.0) 10.7
Inventories (8.6) (24.0) 5.4
Prepaid expenses and other current assets (7.6) (0.1) (6.2)
Trade accounts payable 46.4 41.6 17.2
Liabilities from long-term manufacturing contracts and advances, accrued compensation, and other current liabilities 36.0 5.8 64.6
Income taxes payable (9.6) 23.0 4.8
Defined benefit plan funding (10.3) (10.9) (90.6)
Defined benefit plan expense 3.5 3.6 6.4
Settlement of interest rate swaps, net (13.8) 0.0 0.0
Amortization of deferred financing costs 6.8 0.9 0.3
Other, net (1.1) 3.8 5.2
Net cash provided by operating activities 178.9 248.3 246.2
Investing Activities      
Capital expenditures (25.5) (27.0) (22.0)
Proceeds from sales of property, plant, and equipment 0.2 3.7 5.7
Acquisitions of businesses, net of cash acquired (25.9) 0.0 0.0
Return of investment capital from affiliates 0.0 0.0 3.2
Other, net 0.0 (0.1) (0.4)
Net cash used in investing activities (51.2) (23.4) (13.5)
Financing Activities      
Proceeds from long-term debt, net of discount 374.4 0.0 0.0
Repayments of long-term debt 0.0 (148.5) (13.5)
Proceeds from revolving credit facility 897.3 1,096.8 819.3
Repayments on revolving credit facility (990.4) (1,065.7) (953.0)
Payment of deferred financing costs (7.5) (2.8) 0.0
Payment of dividends on common stock (52.6) (52.1) (51.9)
Repurchases of common stock 0.0 (61.0) (28.0)
Proceeds from stock option exercises and other 2.6 11.2 16.3
Payments for employee taxes on net settlement equity awards (4.2) (4.1) (2.6)
Other, net (2.1) (6.3) (1.7)
Net cash provided by (used in) financing activities 217.5 (232.5) (215.1)
Effect of exchange rate changes on cash and cash equivalents (2.3) (2.7) (3.6)
Net cash flows 342.9 (10.3) 14.0
Cash, cash equivalents, and restricted cash:      
At end of period 399.0 56.0  
Restricted Cash 0.4 0.5  
Cash paid for interest 19.9 20.7 20.3
Cash paid for income taxes 53.3 38.9 18.2
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract]      
At Beginning of Period 56.5 66.8 52.8
At End of Period $ 399.4 $ 56.5 $ 66.8
v3.19.3
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($)
Total
Common Stock
Additional Paid-in Capital
Retained Earnings
Treasury Stock
Accumulated Other Comprehensive Loss
Noncontrolling Interests
Balance at Sep. 30, 2016 $ 646,200,000   $ 348,700,000 $ 433,300,000 $ (19,900,000) $ (129,800,000) $ 13,900,000
Balance (in shares) at Sep. 30, 2016   63,700,000     700,000    
Increase (Decrease) in Stockholders' Equity              
Total other comprehensive loss, net of tax 48,800,000         48,600,000 200,000
Net income 128,400,000     126,200,000     2,200,000
Issuance/retirement of stock for stock awards/options (13,700,000)   9,800,000   $ (23,500,000)    
Issuance/retirement of stock for stock awards/options (in shares)   (100,000)     (700,000)    
Share-based compensation 10,500,000   10,500,000        
Treasury Stock, Shares, Acquired         700,000    
Purchases of common stock 28,000,000.0       $ 28,000,000.0    
Dividends ($0.8400 per share) (53,700,000)   (500,000) (52,400,000)     (1,800,000)
Balance at Sep. 30, 2017 765,900,000   349,900,000 507,100,000 $ (24,400,000) (81,200,000) 14,500,000
Balance (in shares) at Sep. 30, 2017   63,800,000     700,000    
Increase (Decrease) in Stockholders' Equity              
Total other comprehensive loss, net of tax (3,700,000)         (3,000,000.0) (700,000)
Net income 81,200,000     76,600,000     4,600,000
Issuance/retirement of stock for stock awards/options $ (7,100,000)   (11,200,000)   $ (18,300,000)    
Issuance/retirement of stock for stock awards/options (in shares) (500,000) (100,000)     (500,000)    
Share-based compensation $ 12,100,000   12,100,000        
Treasury Stock, Shares, Acquired         1,400,000    
Purchases of common stock 61,000,000.0       $ 61,000,000.0    
Dividends ($0.8400 per share) (57,500,000)   (600,000) (52,700,000)     (5,400,000)
Other 200,000   0       0
Balance at Sep. 30, 2018 744,100,000   351,400,000 531,000,000.0 $ (67,100,000) (84,200,000) 13,000,000.0
Balance (in shares) at Sep. 30, 2018   63,900,000     1,600,000    
Increase (Decrease) in Stockholders' Equity              
Total other comprehensive loss, net of tax (56,400,000)         (56,400,000) 0
Net income 126,200,000     121,400,000     4,800,000
Issuance/retirement of stock for stock awards/options $ 1,600,000   (18,600,000)   $ (17,000,000.0)    
Issuance/retirement of stock for stock awards/options (in shares) (400,000) 0     (400,000)    
Share-based compensation $ 12,000,000.0   12,000,000.0        
Dividends ($0.8400 per share) (54,700,000)   (500,000) (53,100,000)     (2,100,000)
Balance at Sep. 30, 2019 $ 769,800,000   $ 345,300,000 $ 599,500,000 $ (50,100,000) $ (140,600,000) $ 15,700,000
Balance (in shares) at Sep. 30, 2019   63,900,000     1,200,000    
v3.19.3
Background
12 Months Ended
Sep. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Background Background
 
Hillenbrand, Inc. (“Hillenbrand”) is a global diversified industrial company with multiple leading brands that serve a wide variety of industries around the world.  We strive 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 our 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 our businesses both bigger and better.  Our goal is to continue developing Hillenbrand as a world-class global diversified industrial company through the deployment of the HOM. Hillenbrand’s portfolio is composed of two business segments:  the Process Equipment Group and Batesville®.  The Process Equipment Group businesses design, develop, manufacture, and service highly engineered industrial equipment around the world.  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 unless context otherwise requires.
v3.19.3
Summary of Significant Accounting Policies
12 Months Ended
Sep. 30, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
 
Basis of presentation — The accompanying 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 portion of the business that is not owned by the Company is presented as noncontrolling interests within equity in the balance sheets.  Income attributable to the noncontrolling interests is separately reported within the Consolidated Statements of Income.  All significant intercompany accounts and transactions have been eliminated. 
 
Use of estimates — We prepared the Consolidated Financial Statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”).  GAAP requires management 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 reporting period.  Actual results could differ from those estimates.
 
Foreign currency translation — The financial statements of our foreign subsidiaries are translated into U.S. dollars using period-end exchange rates for assets and liabilities and average exchange rates for operating results.  Unrealized translation gains and losses are included in accumulated other comprehensive loss in shareholders’ equity.  When a transaction is denominated in a currency other than the subsidiary’s functional currency, we recognize a transaction gain or loss in Other (expense) income, net within the Consolidated Statements of Income when the transaction is settled.
 
Cash and cash equivalents include short-term investments with original maturities of three months or less.  The carrying amounts reported in the balance sheet for cash and cash equivalents are valued at cost, which approximates their fair value.
 
Trade receivables are recorded at the invoiced amount and generally do not bear interest, unless they become past due.  The allowance for doubtful accounts is a best estimate of the amount of probable credit losses and collection risk in the existing accounts receivable portfolio.  The allowance for cash discounts and sales returns reserve are based upon historical experience and trends.  Account balances are charged against the allowance when we believe it is probable the receivable will not be recovered. We generally hold trade accounts receivable until they are collected.  At September 30, 2019 and 2018, we had reserves against trade receivables of $22.8 and $22.2.
 
Inventories are valued at the lower of cost or market.  Inventory costs are determined by the last-in, first-out (“LIFO”) method for approximately 28% and 30% of inventories at September 30, 2019 and 2018.  Costs of remaining inventories have been determined principally by the first-in, first-out (“FIFO”) and average cost methods.  If the FIFO method of inventory accounting, which approximates current cost, had been used for inventory accounted for using the LIFO method, that inventory would have been approximately $17.3 and $15.7 higher than reported at September 30, 2019 and 2018.
 
September 30,
 
2019
 
2018
Raw materials and components
$
72.3

 
$
68.3

Work in process
44.0

 
44.7

Finished goods
60.3

 
59.5

Total inventories
$
176.6

 
$
172.5


 
Property, plant, and equipment are carried at cost less accumulated depreciation. Depreciation is computed using principally the straight-line method based on estimated useful lives of three to 50 years for buildings and improvements and three to 25 years for machinery and equipment. Major improvements that extend the useful lives of such assets are capitalized while expenditures for maintenance, repairs, and minor improvements are expensed as incurred. Upon disposal or retirement, the cost and accumulated depreciation of assets are eliminated. Any gain or loss is reflected in the Company’s income from operations. We review these assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss would be recognized when estimated future undiscounted cash flows relating to the asset are less than its carrying amount. The impairment loss is measured as the amount by which the carrying amount of an asset exceeds its fair value. Total depreciation expense for 2019, 2018, and 2017 was $23.2, $23.4, and $25.4.
 
 
September 30, 2019
 
September 30, 2018
 
Cost
 
Accumulated
Depreciation
 
Cost
 
Accumulated
Depreciation
Land and land improvements
$
15.0

 
$
(3.4
)
 
$
15.0

 
$
(3.3
)
Buildings and building equipment
103.5

 
(64.2
)
 
102.3

 
(60.7
)
Machinery and equipment
330.8

 
(241.4
)
 
328.5

 
(239.8
)
Total
$
449.3

 
$
(309.0
)
 
$
445.8

 
$
(303.8
)

 
Intangible assets are stated at the lower of cost or fair value.  With the exception of certain trade names, intangible assets are amortized on a straight-line basis over periods ranging from three to 21 years, representing the period over which we expect to receive future economic benefits from these assets.  We assess the carrying value of trade names annually, or more often if events or changes in circumstances indicate there may be impairment. Estimated amortization expense related to intangible assets for the next five years is: $30.6 in 2020, $29.5 in 2021, $28.5 in 2022, $28.1 in 2023, and $27.9 in 2024.
 
 
September 30, 2019
 
September 30, 2018
 
Cost
 
Accumulated
Amortization
 
Cost
 
Accumulated
Amortization
Finite-lived assets:
 

 
 

 
 

 
 

Trade names
$
0.2

 
$
(0.2
)
 
$
0.2

 
$
(0.2
)
Customer relationships
464.2

 
(169.2
)
 
464.5

 
(148.4
)
Technology, including patents
76.8

 
(49.4
)
 
79.6

 
(45.1
)
Software
58.7

 
(51.7
)
 
58.0

 
(48.9
)
Other
0.2

 
(0.2
)
 
0.2

 
(0.2
)
 
600.1

 
(270.7
)
 
602.5

 
(242.8
)
Indefinite-lived assets:
 

 
 

 
 

 
 

Trade names
125.5

 

 
127.6

 

 
 
 
 
 
 
 
 
Total
$
725.6

 
$
(270.7
)
 
$
730.1

 
$
(242.8
)


The net change in intangible assets during the year ended September 30, 2019 was driven by normal amortization and foreign currency translation, partially offset by the acquisition of BM&M in November 2018, which included intangible assets of approximately $14. See Note 4 for further detail on the acquisition of BM&M.

As a result of the required annual impairment assessment performed in the third quarter of 2019, the fair value of trade names was determined to meet or exceed the carrying value for all trade names, resulting in no impairment to trade names during the year ended September 30, 2019.

An impairment charge of $4.6 pre-tax ($3.5 after tax) was recorded during the year ended September 30, 2018 for trade names most directly impacted by domestic coal mining and coal power. See discussion of Goodwill below for further information on the impairment charge.

Goodwill is not amortized, but is subject to annual impairment tests.  Goodwill has been assigned to reporting units.  We assess 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.
 
Process
Equipment
Group
 
Batesville
 
Total
Balance September 30, 2017
$
639.2

 
$
8.3

 
$
647.5

Impairment charge
(58.8
)
 

 
(58.8
)
Foreign currency adjustments
(6.8
)
 

 
(6.8
)
Balance September 30, 2018
573.6

 
8.3

 
581.9

Acquisitions, including purchase price adjustments
12.4

 

 
12.4

Foreign currency adjustments
(16.3
)
 

 
(16.3
)
Balance September 30, 2019
$
569.7

 
$
8.3

 
$
578.0



As a result of the required annual impairment assessment performed in the third quarter of 2019, the Company tested the recoverability of its goodwill, and in all reporting units, the fair value of goodwill was determined to exceed the carrying value, resulting in no impairment of goodwill.

In connection with the preparation of the quarterly financial statements for the second quarter of 2018, an interim impairment assessment was performed at the reporting unit most directly impacted by domestic coal mining and coal power. During the quarter ended March 31, 2018, published industry reports reduced their forecasts for domestic coal production and consumption. The reporting unit also experienced a larger than expected decline in orders for equipment and parts used in the domestic coal mining and coal power industries. In conjunction with these events and as part of the long-term strategic forecasting process, the Company made the decision to redirect strategic investments for growth, significantly reducing the reporting unit’s terminal growth rate. As a result of this change in expected future cash flows, along with comparable fair value information, management concluded that the reporting unit carrying value exceeded its fair value, resulting in a goodwill impairment charge of $58.8 during the year ended September 30, 2018.
 
Environmental liabilities — Expenditures that relate to an existing condition caused by past operations which do not contribute to current or future revenue generation are expensed.  A reserve is established when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated.  These reserves are determined without consideration of possible loss recoveries.  Based on consultations with an environmental engineer, the range of liability is estimated based on current interpretations of environmental laws and regulations.  A determination is made of the specific measures that are believed to be required to remediate the site, the estimated total cost to carry out the remediation plan, and the periods in which we will make payments toward the remediation plan.  We do not make an estimate of inflation for environmental matters because the number of sites is relatively small, we believe the magnitude of costs to execute remediation plans is not significant, and the estimated time frames to remediate sites are not believed to be lengthy.
 
Specific costs included in environmental expense and reserves include site assessment, remediation plan development, clean-up costs, post-remediation expenditures, monitoring, fines, penalties, and legal fees.  The amount reserved represents the expected undiscounted future cash outflows associated with such plans and actions and we believe is not significant to Hillenbrand.
 
Self-insurance — We are self-funded up to certain limits for product and general liability, workers compensation, and auto liability insurance programs, as well as certain employee health benefits including medical, drug, and dental.  Claims covered by insurance have in most instances deductibles and self-funded retentions up to $0.5 per occurrence, depending upon the type of coverage and policy period.  Our policy is to estimate reserves for product and general liability, workers compensation, and auto liability based upon a number of factors, including known claims, estimated incurred but not reported claims, and outside actuarial analysis.  The outside actuarial analysis is based on historical information along with certain assumptions about future events.  These reserves are classified as Other current liabilities and Other long-term liabilities within the Consolidated Balance Sheets.
 
Treasury stock consists of our common shares that have been issued but subsequently reacquired.  We account for treasury stock purchases under the cost method.  When these shares are reissued, we use an average-cost method to determine cost.  Proceeds in excess of cost are credited to additional paid-in capital.
 
In December 2018, the Board of Directors authorized a new share repurchase program of up to $200.0 in replacement of the Company’s prior share repurchase program, which eliminated the balance of approximately $39.6 remaining under that prior authorization. The repurchase program has no expiration date but may be terminated by the Board of Directors at any time.  Share repurchases under the program are classified as treasury stock. We made no repurchases of our common stock during 2019. We repurchased approximately 1,385,600 shares of our common stock during 2018, at a total cost of $61.0. In 2019 and 2018, approximately 400,000 shares and 500,000 shares were issued from treasury stock under our stock compensation programs.  At September 30, 2019, we had $200.0 remaining for share repurchases under the existing Board authorization.
 
Preferred stock — The Company has authorized 1,000,000 shares of preferred stock (no par value), of which no shares were issued at September 30, 2019 and 2018.
 
Accumulated other comprehensive loss includes all changes in Hillenbrand shareholders’ equity during the period except those that resulted from investments by or distributions to our shareholders.
 
September 30,
 
2019
 
2018
Currency translation
$
(64.7
)
 
$
(44.1
)
Pension and postretirement (net of taxes of $30.0 and $22.3)
(62.3
)
 
(41.0
)
Unrealized (loss) gain on derivative instruments (net of taxes of $0.7 and $0.3)
(13.6
)
 
0.9

Accumulated other comprehensive loss
$
(140.6
)
 
$
(84.2
)

 
Revenue recognition — Effective October 1, 2018, we adopted Accounting Standards Codification (“ASC”) 606 under the modified retrospective transition approach. See Note 3 for our policy for recognizing revenue under ASC 606 as well as the various other disclosures required by ASC 606.

For the years ended September 30, 2018 and 2017, revenue continues to be presented based on prior guidance. Under such guidance, net revenue included gross revenue less sales discounts, customer rebates, sales incentives, and product returns, all of which require us to make estimates for the portion of these allowances that have yet to be credited or paid to our customers.  We estimated these allowances based upon historical rates and projections of customer purchases toward contractual rebate thresholds.
 
A portion of Hillenbrand’s revenue was derived from long-term manufacturing contracts.  The majority of this revenue was recognized based on the percentage-of-completion method. Under this method, revenue is recognized based upon the costs incurred to date as compared to the total estimated project costs.  Approximately 25% of Hillenbrand’s revenue was attributable to these long-term manufacturing contracts for both 2018 and 2017.
 
Accounting for these contracts involves management judgment in estimating total contract revenue and cost.  Contract revenues are largely determined by negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders, and incentive and award provisions associated with technical performance clauses.  Contract costs are incurred over longer periods of time and, accordingly, the estimation of these costs requires management judgment.  Cost estimates are largely based on negotiated or estimated purchase contract terms, historical performance trends, and other economic projections.  Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements.  Revenue and cost estimates are regularly monitored and revised based on changes in circumstances.  Anticipated losses on long-term contracts are recognized immediately when such losses become evident.  We maintain financial controls over the customer qualification, contract pricing, and estimation processes to seek to reduce the risk of contract losses.
 
Revenue for components, most replacement parts, and service is recognized when title and risk of loss passes to the customer.
 
Cost of goods sold consists primarily of purchased material costs, fixed manufacturing expense, variable direct labor, and overhead costs.  It also includes costs associated with the distribution and delivery of products.
 
Research and development costs are expensed as incurred as a component of operating expenses and were $10.6, $11.7, and $11.9 for 2019, 2018, and 2017.
 
Warranty costs — We provide for the estimated warranty cost of a product at the time revenue is recognized.  Warranty expense is accrued based upon historical information and may also include specific provisions for known conditions.  Warranty obligations are affected by actual product performance and by material usage and service costs incurred in making product corrections.  Our
warranty provision takes into account the best estimate of amounts necessary to settle future and existing claims on products sold.  The Process Equipment Group generally offers a one- to two-year warranty on a majority of its products.  It engages in extensive product quality programs and processes in an effort to minimize warranty obligations, including active monitoring and evaluation of the quality of component suppliers.  Warranty reserves were $17.1 and $16.9 for 2019 and 2018.  Warranty costs were $3.4, $3.3, and $4.1 for 2019, 2018, and 2017.
 
Income taxesOn December 22, 2017, the U.S. government enacted the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). The Tax Act made broad and complex changes to the U.S. tax code, some of which went into effect during our fiscal year ended September 30, 2018 including, but not limited to (a) a reduction of the U.S. federal corporate tax rate from 35% to 21%, (b) a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries (“Transition Tax”), and (c) immediate expensing of certain capital expenditures. Since the effective date of the reduced tax rate was January 1, 2018, our fiscal year ended September 30, 2018 had a prorated U.S. federal corporate tax rate of 24.5%. In addition to the 21% tax rate, other key provisions of the Tax Act, such as the repeal of the Domestic Production Activities Deduction, imposition of tax on Global Intangible Low-Taxed Income (GILTI) earned by certain foreign subsidiaries, the Foreign Derived Intangible Income Deduction (FDII), and the Base Erosion and Anti-Abuse Tax (BEAT) went into effect in our fiscal year ended September 30, 2019. A company can elect to either recognize deferred taxes or provide tax expense in the year GILTI is incurred. The Company has elected to account for GILTI in the year the tax is incurred.

We establish deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Consolidated Financial Statements. Deferred tax assets and liabilities are determined in part based on the differences between the accounting treatment of tax assets and liabilities under GAAP and the tax basis of assets and liabilities using statutory tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in statutory tax rates on deferred tax assets and liabilities is recognized in net income in the period that includes the enactment date. We continue to assert that most of the cash at our foreign subsidiaries represents earnings considered to be permanently reinvested for which deferred taxes have not been recorded in our Consolidated Financial Statements, as we do not intend, nor do we foresee a need, to repatriate these funds. We continue to actively evaluate our global capital deployment and cash needs.

We have a variety of deferred income tax assets in numerous tax jurisdictions. The recoverability of these deferred income tax assets is assessed periodically and valuation allowances are recognized if it is determined that it is more likely than not that the benefits will not be realized. When performing this assessment, we consider future taxable income, the reversal of existing temporary differences, and tax planning strategies. We account for accrued interest and penalties related to unrecognized tax benefits in income tax expense.

Derivative financial instruments — The Company has hedging programs in place to manage its currency exposures.  The objectives of our hedging programs are to mitigate exposures in gross margin and non-functional-currency-denominated assets and liabilities. Under these programs, we use derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates.  These include foreign currency exchange forward contracts, which generally have terms up to 24 months. Additionally, the Company periodically enters into interest rate swaps to manage or hedge the risks associated with our indebtedness and interest payments. Our objectives in using these swaps are to add stability to interest expense and to manage our exposure to interest rate movements.

We measure all derivative instruments at fair value and report them on our balance sheets as assets or liabilities.  Changes in the fair value of derivatives are accounted for depending on the intended use of the derivative, designation of the hedging relationship, and whether or not the criteria to apply hedge accounting has been satisfied.  If a derivative is designated as a fair value hedge, the gain or loss on the derivative and the offsetting loss or gain on the hedged asset or liability are recognized in earnings. For derivative instruments designated as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified to earnings in the same period that the hedged transaction affects earnings. The portion of the gain or loss that does not qualify for hedge accounting is immediately recognized in earnings.

The aggregate notional amount of all derivative instruments was $128.9 and $152.6 at September 30, 2019 and 2018. The carrying value of all of our derivative instruments at fair value resulted in assets of $2.5 and $1.9 (included in other current assets and other assets) and liabilities of $2.6 and $2.2 (included in other current liabilities) at September 30, 2019 and 2018.  See Note 13 for additional information on the fair value of our derivative instruments.

Foreign currency derivatives

Contracts designated as cash flow hedges for customer orders or intercompany purchases have an offsetting tax-adjusted amount in Accumulated other comprehensive loss.  Foreign exchange contracts intended to manage foreign currency exposures within our balance sheet have an offsetting amount recorded in “Other (expense) income, net”.  The cash flows from such hedges are presented in the same category in the Company’s Consolidated Statement of Cash Flows as the items being hedged.

Interest rate swap contracts

During the first quarter of 2019, the Company entered into interest rate swap contracts to hedge the interest rate associated with the forecasted issuance of $150.0 ten-year, fixed-rate debt. In September 2019, we issued $375.0 of senior unsecured notes (the “2019 Notes” as defined in Note 5) with a term of seven years. As a result of this issuance, Hillenbrand terminated and settled the interest rate swap contracts for a cash payment of $20.2.

Upon the issuance of the 2019 Notes, Hillenbrand determined that it was probable that the originally forecasted issuance of ten-year, fixed-rate debt would not occur. As a result, the Company accelerated the release of accumulated other comprehensive loss related to the missed forecasted transaction, resulting in a loss on settlement of $6.4. The loss on settlement was recorded within Other (expense) income, net, on the Consolidated Statements of Income. The remaining $13.8 is classified within Accumulated other comprehensive loss and will be amortized into Interest expense over the seven-year term of the 2019 Notes. The Company expects to reclassify amounts of $2.0 out of Accumulated other comprehensive loss into Interest expense over the next twelve months related to these interest rate swap contracts.

During the year ended September 30, 2018, we entered into interest rate swap contracts on $50.0 of outstanding borrowings under the Revolver (as defined in Note 5) in order to manage exposure to our variable interest payments. We terminated these interest rate swaps in the fourth quarter of 2018. As a result, a gain on settlement of $2.3 was released from Accumulated other comprehensive loss to Other (expense) income, net.

Business acquisitions and related business acquisition, development, and integration costs — Assets and liabilities associated with business acquisitions are recorded at fair value, using the acquisition method of accounting.  We allocate the purchase price of acquisitions based upon the fair value of each component, which may be derived from observable or unobservable inputs and assumptions.  We may utilize third-party valuation specialists to assist us in this allocation.  Initial purchase price allocations are preliminary and subject to revision within the measurement period, generally not to exceed one year from the date of acquisition.
 
Business acquisition, development, and integration costs are expensed as incurred and are reported as a component of Cost of goods sold, Operating expenses, and Other (expense) income, net, depending on the nature of the cost.  We define these costs to include finder’s fees, advisory, legal, accounting, valuation, and other professional or consulting fees, as well as travel associated with investigating opportunities (including acquisition and disposition).  Business acquisition, development, and integration costs also include costs associated with acquisition tax planning, retention bonuses, and related integration costs.  These costs exclude the ongoing expenses of our business development department.
 
Restructuring costs may occur when we take action to exit or significantly curtail a part of our operations or change the deployment of assets or personnel.  A restructuring charge can consist of an impairment or accelerated depreciation of affected assets, severance costs associated with reductions to the workforce, costs to terminate an operating lease or contract, and charges for legal obligations for which no future benefit will be derived.
 
Recently adopted accounting standards — In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 intends to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components, and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the Consolidated Financial Statements. In addition, this ASU makes certain targeted improvements to simplify the application of hedge accounting guidance. ASU 2017-12 was early adopted for our fiscal year beginning on October 1, 2018 on a prospective basis. The adoption of this standard did not have a significant impact on our Consolidated Financial Statements.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total
amounts shown on the statement of cash flows. ASU 2016-18 became effective and was adopted for our fiscal year beginning on October 1, 2018. The adoption of ASU 2016-18 had a financial statement presentation and disclosure impact only.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 from the goodwill impairment test and modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. We early adopted this standard for fiscal year 2018. See Critical Accounting Estimates within this Form 10-K for further information on the impact this adoption had on our consolidated results of operations, financial position, and cash flows.

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business. ASU 2017-01 assists entities in determining whether a transaction involves an asset or a business. Specifically, it states that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not a business. If this initial test is not met, a set cannot be considered a business unless it includes an input and a substantive process that together significantly contribute to the ability to create output.  ASU 2017-01 became effective and was adopted for our fiscal year beginning on October 1, 2018. The adoption of ASU 2017-01 did not have a significant impact on our Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 states that an employer must report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period and present the other components of net benefit cost (as defined in paragraphs 715-30-35-4 and 715-60-35-9) in the income statement separately from the service cost component and outside a subtotal of income from operations (if one is presented). In addition, ASU 2017-07 limits the capitalization of compensation costs to the service cost component only (if capitalization is appropriate). ASU 2017-07 became effective and was adopted for our fiscal year beginning on October 1, 2018. On the Consolidated Statements of Income, the adoption of this standard resulted in the reclassification of $0.8 credit from Cost of goods sold to Other (expense) income, net, for the year ended September 30, 2018, and $0.5 credit from Cost of goods sold and $0.9 from Operating expenses to Other (expense) income, net, for the year ended September 30, 2017.

In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications (in accordance with Topic 718). The new guidance will provide relief to entities that make non-substantive changes to share-based payment awards. ASU 2017-09 became effective and was adopted for our fiscal year beginning on October 1, 2018. The adoption of ASU 2017-09 did not have a significant impact on our Consolidated Financial Statements.

Beginning in 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (“ASC 606”), plus a number of related ASUs designed to clarify and interpret ASC 606. The new standard requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard supersedes U.S. GAAP guidance on revenue recognition and requires the use of more estimates than the previously effective standards. It also requires significant disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The new standard became effective for our fiscal year beginning on October 1, 2018 and was adopted on a modified retrospective basis. The Company elected the practical expedient and only evaluated contracts for which substantially all revenue had not been recognized under ASC Topic 605, with the cumulative effect of the new guidance recorded as of the date of initial application.

The primary changes from the adoption of ASC 606 resulted from certain performance obligations that were previously recognized at a point in time that are now recognized over time. The cumulative effect of the changes made to the Consolidated Balance Sheet as of October 1, 2018 for the adoption of ASC 606 was as follows:
 
Balance at September 30, 2018
 
Adjustments due to ASC 606
 
Balance at October 1, 2018
Assets
 
 
 
 
 
Receivables from long-term manufacturing contracts
$
120.3

 
$
1.9

 
$
122.2

Inventories
172.5

 
(1.6
)
 
170.9

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Deferred income taxes
$
76.4

 
$
0.1

 
$
76.5

 
 
 
 
 
 
Shareholders’ Equity
 
 
 
 
 
Retained earnings
$
531.0

 
$
0.2

 
$
531.2


The following tables summarize the impacts of adopting ASC 606 on the Company’s Consolidated Financial Statements as of and for the year ended September 30, 2019.

Consolidated Statements of Income:
 
Year Ended September 30, 2019
 
As Reported
 
Adjustments Due to ASC 606
 
Balances without Adoption
Net revenue
$
1,807.3

 
$

 
$
1,807.3

Cost of goods sold
1,184.3

 

 
1,184.3

Gross profit
623.0

 

 
623.0

Income before income taxes
176.7

 

 
176.7

Consolidated net income
126.2

 

 
126.2


Consolidated Balance Sheet:
 
September 30, 2019
 
As Reported
 
Adjustments Due to ASC 606
 
Balances without Adoption
Assets
 
 
 
 
 
Receivables from long-term manufacturing contracts
$
181.1

 
$
(1.9
)
 
$
179.2

Inventories
176.6

 
1.7

 
178.3

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Deferred income taxes
$
73.6

 
$

 
$
73.6

 
 
 
 
 
 
Shareholders’ Equity
 
 
 
 
 
Retained earnings
$
599.5

 
$
(0.2
)
 
$
599.3


The Company has elected the following as a result of adopting the new standard on revenue recognition:

Hillenbrand elected not to adjust the promised amount of consideration for the effects of the time value of money for contracts in which the anticipated period between when Hillenbrand transfers the goods or services to the customer and when the customer pays is equal to one year or less.

Hillenbrand elected to account for shipping and handling activities that occur after the customer has obtained control of a good as fulfillment activities rather than as a promised service.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, and that are collected by the Company from a customer, are excluded from revenue.

Recently issued accounting standards — In February 2016, the FASB issued ASU 2016-02, Leases. 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. The FASB has also issued several updates to ASU 2016-02. ASU 2016-02 is effective for our fiscal year beginning on October 1, 2019. The Company plans to utilize the optional transition method to use the effective date as the date of initial application on transition. At transition, the Company has elected the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification, and initial direct costs. The new standard also provides practical expedients for an entity’s ongoing accounting. We will elect the short-term lease recognition exemption for all leases that qualify and we expect to elect the practical expedient to not separate lease and non-lease components for all of our leases.

We have developed a project plan for implementation, surveyed our businesses, assessed our portfolio of leases, and compiled a central repository of all leases. Additionally, we have identified and implemented appropriate changes to policies, procedures and controls pertaining to existing and future lease arrangements to support recognition and disclosure requirements under the new standard. Although we are still finalizing our evaluation of the impact of the new lease accounting guidance, we expect to recognize $120.0 to $140.0 in right-of-use assets and lease liabilities in the Consolidated Balance Sheet upon adoption.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Statements. 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 our fiscal year beginning on October 1, 2020. We are currently evaluating the impact that ASU 2016-13 will have on our Consolidated Financial Statements.

v3.19.3
Revenue Recognition
12 Months Ended
Sep. 30, 2019
Revenue Recognition [Abstract]  
Revenue from Contract with Customer [Text Block] Revenue Recognition

We adopted ASC 606, Revenue from Contracts with Customers, on October 1, 2018. As a result, we have changed our accounting policy for revenue recognition as detailed below.

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

Performance Obligations & Contract Estimates

The Process Equipment Group designs, engineers, manufactures, markets, and services differentiated process and material handling equipment and systems for a wide variety of industries. A large portion of our revenue across the Process Equipment Group is derived from manufactured equipment, which may be standard, customized to meet customer specifications, or turnkey.

Our contracts with customers in the Process Equipment Group segment often include multiple performance obligations. Performance obligations are promises in a contract to transfer a distinct good or service to the customer, and are the basis for determining how revenue is recognized. For instance, a contract may include obligations to deliver equipment, installation services, and spare parts. We frequently have contracts for which the equipment and the installation services, as well as highly engineered or specialized spare parts, are all considered a single performance obligation, as in these instances the installation services and/or spare parts are not separately identifiable. However, due to the varying nature of equipment and contracts across the Process Equipment Group, we also have contracts where the installation services and/or spare parts are deemed to be separately identifiable and therefore deemed to be distinct performance obligations.

A contract’s transaction price is allocated to each distinct performance obligation based on its respective standalone selling price, and recognized as revenue when, or as, the performance obligation is satisfied. When a distinct performance obligation is not sold separately, the value of the standalone selling price is estimated considering all reasonably available information. When an obligation is distinct, as defined in ASC 606, we allocate a portion of the contract price to the obligation and recognize it separately from the other performance obligations.

The timing of revenue recognition for each performance obligation is either over time or at a point in time. We recognize revenue over time for long-term manufacturing contracts that have an enforceable right to collect payment for performance completed to
date upon customer cancellation and provide one or more of the following: (i) service over a period of time, (ii) highly customized equipment, or (iii) parts which are highly engineered and have no alternative use. Revenue generated from standard equipment and highly-customized equipment or parts contracts without an enforceable right to payment for performance completed to date, as well as non-specialized parts sales and sales of death care products, is recognized at a point in time.

We use the input method of “cost-to-cost” to recognize revenue over time for long-term manufacturing contracts. Accounting for these contracts involves management judgment in estimating total contract revenue and cost. Contract revenues are largely determined by negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders, and incentive and award provisions associated with technical performance clauses. Contract costs are incurred over longer periods of time and, accordingly, the estimation of these costs requires judgment. We measure progress based on costs incurred to date relative to total estimated cost at completion. Incurred cost represents work performed, which corresponds with, and we believe thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, and certain overhead expenses. Cost estimates are based on various assumptions to project the outcome of future events, including labor productivity and availability, the complexity of the work to be performed, the cost of materials, and the performance of subcontractors. Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements. Revenue and cost estimates are regularly monitored and revised based on changes in circumstances. Anticipated losses on long-term contracts are recognized immediately when such losses become evident. We maintain financial controls over the customer qualification, contract pricing, and estimation processes to seek to reduce the risk of contract losses.

Standalone service revenue is recognized either over time proportionately over the period of the underlying contract or as invoiced, depending on the terms of the arrangement. Standalone service revenue is not material to the Company.

For the Process Equipment Group and Batesville segment products where revenue is recognized at a point in time, we recognize revenue when our customers take control of the asset. We define this as the point in time at which the customer has the capability of full beneficial use of the asset per the contract.

Contract balances

In the Process Equipment Group segment, the Company requires an advance deposit based on the terms and conditions of contracts with customers for many of its contracts. Payment terms generally require an upfront payment at the start of the contract, and the remaining payments during the contract or within a certain number of days of delivery. Typically, revenue is recognized within one year of receiving an advance deposit. For contracts where an advance payment is received greater than one year from expected revenue recognition, or a portion of the payment due extends beyond one year, the Company has determined it does not constitute a significant financing component.

The timing of revenue recognition, billings, and cash collections can result in customer receivables, advance payments, and billings in excess of revenue recognized. Customer receivables include amounts billed and currently due from customers and are included in Trade receivables, net, as well as unbilled amounts (contract assets) which are included in Receivables from long-term manufacturing contracts on our Consolidated Balance Sheets. Amounts are billed in accordance with contractual terms or as work progresses in accordance with contractual terms. Unbilled amounts arise when the timing of billing differs from the timing of revenue recognized, such as when contract provisions require specific milestones to be met before a customer can be billed. Unbilled amounts primarily relate to performance obligations satisfied over time when the cost-to-cost method is used and the revenue recognized exceeds the amount billed to the customer as there is not yet a right to payment in accordance with contractual terms. Unbilled amounts are recorded as a contract asset when the revenue associated with the contract is recognized prior to billing and derecognized when billed in accordance with the terms of the contract. Trade receivables are recorded at face amounts and represent the amounts we believe to be collectible. The Company maintains allowances for doubtful accounts for estimated losses as a result of customers’ inability to make required payments. Management evaluates the aging of the customer receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of customer receivables that may not be collected in the future, and records the appropriate provision.

Advance payments and billings in excess of revenue recognized are included in Liabilities from long-term manufacturing contracts and advances on our Consolidated Balance Sheets. Advance payments and billings in excess of revenue recognized represent contract liabilities and are recorded when customers remit contractual cash payments in advance of us satisfying performance obligations under contractual arrangements, including those with performance obligations satisfied over time. Billings in excess of revenue recognized primarily relate to performance obligations satisfied over time when the cost-to-cost method is used and revenue cannot yet be recognized as the Company has not completed the corresponding performance obligation. Contract liabilities are derecognized when revenue is recognized and the performance obligation is satisfied.

The balance in Receivables from long-term manufacturing contracts at September 30, 2019 and 2018 was $181.1 and $120.3. The change was driven by the adoption of ASC 606 ($1.9) and the impact of net revenue recognized prior to billings ($58.9). The balance in the Liabilities from long-term manufacturing contracts and advances at September 30, 2019 and 2018 was $158.2 and $125.9 and consists primarily of cash payments received or due in advance of satisfying our performance obligations. The revenue recognized for the year ended September 30, 2019 related to Liabilities from long-term manufacturing contracts and advances as of September 30, 2018 was $110.6. During the year ended September 30, 2019, the adjustments related to performance obligations satisfied in previous periods were immaterial.

Costs incurred to obtain a customer contract are not material to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed as incurred.

Transaction price allocated to the remaining performance obligations

As of September 30, 2019, the aggregate amount of transaction price of remaining performance obligations, which corresponds to backlog, as defined in Part II, Item 7 of this Form 10-K, for the Company was $863.5. Approximately 85% of these 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
 
Year Ended September 30, 2019
 
Process Equipment Group
 
Batesville
 
Total
Revenue by End Market
 
 
 
 
 
   Plastics
$
785.7

 
$

 
$
785.7

   Chemicals
111.6

 

 
111.6

   Food & Pharmaceuticals
81.0

 

 
81.0

   Minerals & Mining
83.2

 

 
83.2

   Water & Wastewater
32.7

 

 
32.7

   Death Care

 
532.9

 
532.9

   Other
180.2

 

 
180.2

      Total
$
1,274.4

 
$
532.9

 
$
1,807.3


 
Year Ended September 30, 2019
 
Process Equipment Group
 
Batesville
 
Total
Products and Services
 
 
 
 
 
   Equipment
$
862.2

 
$

 
$
862.2

   Parts and Services
412.2

 

 
412.2

   Death Care

 
532.9

 
532.9

      Total
$
1,274.4

 
$
532.9

 
$
1,807.3


 
Year Ended September 30, 2019
 
Process Equipment Group
 
Batesville
 
Total
Timing of Transfer
 
 
 
 
 
   Point in Time
$
681.3

 
$
532.9

 
$
1,214.2

   Over Time
593.1

 

 
593.1

      Total
$
1,274.4

 
$
532.9

 
$
1,807.3


v3.19.3
Business Acquisitions
12 Months Ended
Sep. 30, 2019
Acquisitions  
Mergers, Acquisitions and Dispositions Disclosures [Text Block] Business Acquisitions

We incurred $16.6 and $3.5 of business acquisition and integration costs during fiscal 2019 and fiscal 2018, which were recorded within Operating expenses on the Consolidated Statements of Income. The costs incurred during 2019 were largely attributable to the proposed acquisition of Milacron discussed below.
 
BM&M

We completed the acquisition of Burnaby Machine and Mill Equipment Ltd. (“BM&M”) in November 2018 for $25.9 in cash, which included post-closing working capital adjustments. We used the Revolver (as defined in Note 5) 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 segment. Based on our purchase price allocation, we recorded $12 million of goodwill and $14 of intangible assets, which consisted of $10 of customer relationship, $1 of trade names, and $3 of backlog. Goodwill is not deductible for tax purposes. The fair value of this acquisition did not ascribe a significant amount to tangible assets, as we often seek to acquire companies with a relatively low physical asset base in order to limit the need to invest significant additional cash post-acquisition.

Proposed Acquisition of Milacron

On July 12, 2019, we entered into a definitive agreement (the “Merger Agreement”) to acquire Milacron Holdings Corp. (“Milacron”) in a cash and stock merger transaction valued at approximately $2 billion, including debt, net of cash on hand. The proposed transaction, which is expected to close in the fourth calendar quarter of 2019, is subject to customary closing conditions, including the approval of stockholders of Milacron, which is scheduled to be sought at a special meeting on November 20, 2019. Under the terms of the Merger Agreement, upon closing Milacron stockholders will receive $11.80 in cash and a fixed exchange ratio of 0.1612 shares of Hillenbrand common stock for each share of Milacron common stock they own. See Note 5 for discussion of the financing that Hillenbrand has secured to fund the proposed acquisition.
v3.19.3
Financing Agreements
12 Months Ended
Sep. 30, 2019
Debt Disclosure [Abstract]  
Financing Agreements Financing Agreements
 
 
September 30,
 
2019
 
2018
$375 senior unsecured notes, net of discount (1)
$
370.1

 
$

$150 senior unsecured notes, net of discount (2)
149.7

 
149.3

$100 Series A Notes (3)
99.7

 
99.6

$900 revolving credit facility (excluding outstanding letters of credit)

 
95.7

Total debt
619.5

 
344.6

Less: current portion

 

Total long-term debt
$
619.5

 
$
344.6

 
(1)  Includes debt issuance costs of $4.3 at September 30, 2019.
(2) Includes debt issuance costs of $0.2 and $0.4 at September 30, 2019 and September 30, 2018.
(3) Includes debt issuance costs of $0.3 and $0.4 at September 30, 2019 and September 30, 2018.

The following table summarizes the scheduled maturities of long-term debt for 2020 through 2024:
 
Amount
2020 (1)
$
150.0

2021

2022

2023

2024

 
(1)  These notes are classified as Long-term debt within the Consolidated Balance Sheets. See below for further information.

Third Amended and Restated Credit Agreement

The Company has in place a revolving credit facility of up to $900 (which may be expanded, subject to the approval of the lenders, by an additional $450) in an aggregate principal amount (the “Revolver”). The Revolver is governed by the Third Amended and Restated Credit Agreement dated August 28, 2019 and subsequently amended on October 8, 2019 (the “Credit Agreement”), by and among the Company and certain of its affiliates, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, which amended and restated in its entirety the Company’s Second Amended and Restated Credit Agreement. The Credit Agreement extended the maturity date of the Revolver to August 28, 2024 and provided for two new term loans (undrawn at September 30, 2019) in aggregate principal amounts of up to $500 and $225 (the “Term Loan Facilities”). New deferred financing costs related to the Revolver were $1.1, which along with existing unamortized costs of $2.0, are being amortized to interest expense over the remaining term of the Revolver.
Borrowings under the Revolver bear interest at variable rates plus a margin amount based upon our leverage. There is also a facility fee based upon our leverage.  All borrowings under the Revolver mature upon expiration, and are therefore classified as Long-term debt in the Consolidated Balance Sheets. The Revolver is an unsubordinated obligation of Hillenbrand and ranks equally in right of payment with all our other existing and future unsubordinated obligations.

With respect to the Revolver, as of September 30, 2019, we had $7.1 in outstanding letters of credit issued and $892.9 of maximum borrowing capacity, all of which was immediately available based on our most restrictive covenant at September 30, 2019.  The weighted-average interest rates on borrowings under the Revolver were 2.54%, 1.83%, and 1.40% for 2019, 2018, and 2017.  The weighted average facility fee was 0.12%, 0.15%, and 0.23% for 2019, 2018, and 2017.

The lenders’ commitments to advance term loans to the Company under the Term Loan Facilities are subject to customary closing conditions, including the concurrent closing of the Company’s previously announced acquisition of Milacron, as contemplated by the Agreement and Plan of Merger (the “Merger Agreement”), dated as of July 12, 2019, by and among the Company, Milacron, and Bengal Delaware Holding Corporation. The proceeds of the Term Loan Facilities will be used solely to pay a portion of the consideration payable in connection with proposed acquisition of Milacron, fees and expenses related to the proposed acquisition, and to repay certain indebtedness of Milacron and its subsidiaries on closing of the proposed acquisition.
Once borrowed, the $500 term loan will mature on the fifth anniversary of the date on which it is 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 term loan will mature on the third anniversary of the date on which it is 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 term loan commitments will bear a ticking fee of 0.15% on the amount of the commitments commencing 60 days after the signing dates (August 28, 2019 for the $500 term loan and October 8, 2019 for the $225 term loan) until the date the term loans are funded or the commitments under the Term Loan Facilities are terminated. The $500 term loan will, once borrowed, accrue 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 1.75% 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. The $225 term loan will, once borrowed, accrue 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 0.875% to 1.625% for term loans bearing interest at the LIBO Rate and 0.0% to 0.625% for term loans bearing interest at the Alternate Base Rate.
Second Amended and Restated Credit Agreement

On December 8, 2017, the Company entered into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”), which was amended and restated in its entirety on August 28, 2019 by the Credit Agreement. The Second Amended and Restated Credit Agreement extended the Company’s former credit agreement, which provided for a revolving credit facility of up to $700.0 in aggregate principal amount and a term loan in an original principal amount of $180.0. Additionally, the Second Amended and Restated Credit Agreement increased the maximum principal amount available for borrowing under the Revolver from $700.0 to $900.0. In connection with the Second Amended and Restated Credit Agreement, the Company repaid the prior $180.0 term loan in full with borrowings under the Revolver. The weighted-average interest rate on the prior $180.0 term loan was 2.60% for 2018.

Senior Unsecured Notes

On September 25, 2019, the Company issued $375.0 of senior unsecured notes due September 2026 (“2019 Notes”).  The 2019 Notes bear interest at a fixed rate of 4.5% per year, payable semi-annually in arrears beginning March 2020.  The 2019 Notes were issued at a discount of $0.6, resulting in an initial carrying value of $374.4.  We are amortizing the discount to interest expense
over the term of the 2019 Notes using the effective interest rate method, resulting in an annual interest rate of 4.53%.  Deferred financing costs associated with the 2019 Notes of $4.3 are being amortized to interest expense on a straight-line basis over the term of the 2019 Notes.  The 2019 Notes are unsubordinated obligations of Hillenbrand and rank equally in right of payment with all of our other existing and future unsubordinated obligations. In conjunction with the issuance of the 2019 Notes, we terminated our interest rate swaps associated with the forecasted debt issuance. See Note 2 for further information on the termination of interest rate swaps.

In July 2010, the Company issued $150 of senior unsecured notes (“2010 Notes” and, together with the 2019 Notes, the “Notes”) due July 2020.  The 2010 Notes bear interest at a fixed rate of 5.5% per year, payable semi-annually in arrears beginning January 2011.  The 2010 Notes were issued at a discount of $1.6, resulting in an initial carrying value of $148.4.  We are amortizing the discount to interest expense over the term of the 2010 Notes using the effective interest rate method, resulting in an annual interest rate of 5.65%.  Unamortized deferred financing costs associated with the 2010 Notes of $0.2 are being amortized to interest expense on a straight-line basis over the remaining term of the 2010 Notes.  The 2010 Notes are unsubordinated obligations of Hillenbrand and rank equally in right of payment with all of our other existing and future unsubordinated obligations. Upon maturity in July 2020, the Company expects to refinance the 2010 Notes on a long-term basis.  The Company has the intent and believes it has the ability to refinance the 2010 Notes due to expected available borrowing capacity under the Revolver, although the financing source ultimately used to refinance the 2010 Notes may be different.  As such, these obligations continue to be classified as Long-term debt within the Consolidated Balance Sheets.

Subject to certain limitations, in the event of a change of control (as defined in the 2010 Notes and in the indenture governing the 2019 Notes), the Company will be required to make an offer to purchase the applicable Notes at a price equal to 101% of the principal amount of such Notes, plus accrued and unpaid interest, if any, to but excluding the date of repurchase. Additionally, if the Company does not consummate the acquisition of Milacron, on or prior to July 6, 2020 or, if prior to such date, the Merger Agreement is terminated, the 2019 Notes will be subject to a special mandatory redemption at a price equal to 101% of the aggregate principal amount of the 2019 Notes, plus accrued and unpaid interest on the 2019 Notes to, but not including, the special mandatory redemption date (as defined in the indenture governing the 2019 Notes). In addition, both the 2010 Notes and 2019 Notes are redeemable with prior notice at a price equal to par plus accrued interest and a make-whole amount.

Senior Unsecured Bridge Facility

The Company entered into a commitment letter on July 12, 2019, pursuant to which JPMorgan Chase Bank, N.A. committed to fully provide a 364-day senior unsecured bridge facility (the “Bridge Facility”) in an aggregate principal amount of $1.1 billion. The commitments under the Bridge Facility commitment letter were reduced to zero upon the issuance of the 2019 Notes and with the commitments for the term loans under the Term Loan Facilities, and the Bridge Facility commitment letter was terminated. Deferred financing costs related to the Bridge Facility were $5.6, which were fully amortized to interest expense during the year ended September 30, 2019.

Series A Notes

On December 15, 2014, we issued $100.0 in 4.60% Series A unsecured notes (“Series A Notes”) pursuant to the Private Shelf Agreement, dated as of December 6, 2012 (as amended, the “Shelf Agreement”), among the Company, Prudential Investment Management, Inc. (“Prudential”) and each Prudential Affiliate (as defined therein) that became a purchaser thereunder. The Series A Notes are unsecured, mature on December 15, 2024, and bear interest at 4.60% payable semi-annually in arrears. The Company may at any time upon providing notice, prepay all or part of the Series A Notes at 100% of the principal amount prepaid plus a make-whole amount (as defined in the Shelf Agreement). Unamortized deferred financing costs of $0.3 related to the Series A Notes are being amortized to interest expense over the remaining term of the Series A Notes.

On December 19, 2014, March 24, 2016, December 8, 2017, and September 4, 2019, the Company and certain of the Company’s domestic subsidiaries entered into amendments to the Shelf Agreement. The latest amendment conformed certain terms of the Shelf Agreement with those contained in the Credit Agreement. The Shelf Agreement governs our Series A Notes, but our ability to issue new notes under the Shelf Agreement expired in March 2019.

L/G Facility Agreement

On March 8, 2018, the Company entered into the €150.0 Syndicated Letter of Guarantee Facility Agreement by and among the Company and certain of its affiliates, the lenders party thereto, and Commerzbank Finance & Covered Bond S.A., acting as agent (the “L/G Facility Agreement”). The L/G Facility Agreement permits the Company and certain of its subsidiaries to request that one or more of the participating lenders issue up to an aggregate of €150.0 in unsecured letters of credit, bank guarantees or other surety bonds (collectively, the “Guarantees”). On September 4, 2019, the Company and certain of its subsidiaries entered into an
Amendment and Restatement Agreement (the “L/G Amendment”), which amends the L/G Facility Agreement. The L/G Amendment aligns certain covenants, definitions and other provisions in the L/G Facility Agreement with those under the Credit Agreement.

The Guarantees carry an annual fee that varies based on the Company’s leverage ratio. The L/G Facility Agreement also provides for a leverage-based commitment fee assessed on the undrawn portion of the facility. The L/G Facility Agreement matures in December 2022 but can be extended or terminated earlier under certain conditions. Unamortized deferred financing costs associated with the L/G Facility Agreement of $1.1 are being amortized to interest expense over the term of the L/G Facility Agreement.

In the normal course of business, the Process Equipment Group provides 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, we maintain adequate capacity to provide the guarantees.  As of September 30, 2019, we had credit arrangements totaling $305.7, under which $252.2 was utilized for this purpose.  These arrangements included the facilities under the L/G Facility Agreement and other ancillary credit facilities.

Covenants related to current Hillenbrand financing agreements

The Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement contain the following financial covenants: a maximum ratio of consolidated indebtedness (which excludes the 2019 Notes until the Milacron acquisition is consummated or the Merger Agreement is terminated) to EBITDA (as further defined in the agreements, “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. 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 our international subsidiaries under certain conditions.

All obligations of the Company arising under the Credit Agreement, the 2010 Notes and 2019 Notes, the Shelf Agreement, the Series A Notes, and the L/G Facility Agreement are fully and unconditionally, jointly and severally, guaranteed by certain of the Company’s domestic subsidiaries.

The Credit Agreement, the Shelf Agreement and the L/G Facility Agreement each contain certain other customary covenants, representations and warranties and events of default. The indentures governing both the 2010 Notes and 2019 Notes do not limit our ability to incur additional indebtedness. They do, however, contain certain covenants that restrict our 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 Notes with remedies if we fail to perform specific obligations. As of September 30, 2019, we were in compliance with all covenants and there were no events of default.
v3.19.3
Retirement Benefits
12 Months Ended
Sep. 30, 2019
Defined Benefit Plan [Abstract]  
Retirement Benefits Retirement Benefits
 
Defined Benefit Retirement Plans — Approximately 38% of our employees participate in one of four defined benefit retirement programs, including the master defined benefit retirement plan in the U.S., the defined benefit plans of our German and Swiss subsidiaries, and the supplemental executive defined benefit retirement plan.  We fund the pension trusts in compliance with ERISA or local funding requirements and as necessary to provide for current service and for any unfunded projected future benefit obligations over a reasonable period.  The benefits for these plans are based primarily on years of service and the employee’s level of compensation during specific periods of employment.  All pension plans have a September 30 measurement date.
 
Effect on Operations — The components of net pension costs under defined benefit retirement plans were:
 
 
U.S. Pension Benefits
Year Ended September 30,
 
Non-U.S. Pension Benefits
Year Ended September 30,
 
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Service cost
$
2.3

 
$
2.7

 
$
3.6

 
$
1.2

 
$
1.4

 
$
1.3

Interest cost
9.8

 
8.7

 
8.8

 
1.2

 
1.1

 
0.7

Expected return on plan assets
(13.3
)
 
(14.0
)
 
(13.7
)
 
(0.5
)
 
(0.6
)
 
(0.5
)
Amortization of unrecognized prior service cost, net
0.1

 
0.2

 
0.4

 
0.1

 
0.1

 
0.1

Amortization of actuarial loss
1.2

 
3.2

 
3.6

 
0.9

 
0.7

 
1.1

Settlement expense
0.2

 

 
0.1

 
0.4

 

 
0.6

Net pension costs
$
0.3

 
$
0.8

 
$
2.8

 
$
3.3

 
$
2.7

 
$
3.3



We use a full yield curve approach in the estimation of the service and interest cost components of our defined benefit retirement plans. Under this approach, we applied discounting using individual spot rates from a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date. These spot rates align to each of the projected benefit obligations and service cost cash flows. The service cost component relates to the active participants in the plan, so the relevant cash flows on which to apply the yield curve are considerably longer in duration on average than the total projected benefit obligation cash flows, which also include benefit payments to retirees. Interest cost is computed by multiplying each spot rate by the corresponding discounted projected benefit obligation cash flows. The full yield curve approach reduces any actuarial gains and losses based upon interest rate expectations (e.g. built-in gains in interest cost in an upward sloping yield curve scenario), or gains and losses merely resulting from the timing and magnitude of cash outflows associated with our benefit obligations. We use the full yield curve approach to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest rate costs.
During 2019, we completed all negotiations to transition our U.S. employees not covered by a collective bargaining agreement and our employees covered by collective bargaining agreements at our U.S. facilities from a defined benefit-based model to a defined contribution structure over three-year sunset periods, the latest of which ends January 1, 2023.  These changes caused remeasurements for the U.S. defined benefit pension plan for the affected populations as they were implemented. The remeasurements did not cause material changes, as the assumptions did not materially differ from the assumptions prior to the remeasurements.

Obligations and Funded Status The change in benefit obligation and funded status of the Company’s defined benefit retirement plans were: 

 
U.S. Pension Benefits
September 30,
 
Non-U.S. Pension Benefits
September 30,
 
2019
 
2018
 
2019
 
2018
Change in benefit obligation:
 

 
 

 
 

 
 

Projected benefit obligation at beginning of year
$
267.0

 
$
281.8

 
$
126.3

 
$
133.4

Service cost
2.3

 
2.7

 
1.2

 
1.4

Interest cost
9.8

 
8.7

 
1.2

 
1.1

Actuarial (gain) loss
37.1

 
(14.7
)
 
22.6

 
0.4

Benefits paid
(14.1
)
 
(11.5
)
 
(5.7
)
 
(5.2
)
Gain due to settlement
(1.7
)
 

 
(2.2
)
 
(3.4
)
Employee contributions

 

 
0.9

 
0.9

Effect of exchange rates on projected benefit obligation

 

 
(6.5
)
 
(2.3
)
Projected benefit obligation at end of year
300.4

 
267.0

 
137.8

 
126.3

 
 
 
 
 
 
 
 
Change in plan assets:
 

 
 

 
 

 
 

Fair value of plan assets at beginning of year
253.3

 
262.4

 
31.9

 
31.4

Actual return on plan assets
39.6

 
0.6

 
1.5

 
(0.1
)
Employee and employer contributions
1.8

 
1.8

 
8.6

 
9.0

Benefits paid
(14.1
)
 
(11.5
)
 
(5.7
)
 
(5.2
)
Gain due to settlement

 

 
(2.2
)
 
(3.0
)
Effect of exchange rates on plan assets

 

 
(0.6
)
 
(0.2
)
Fair value of plan assets at end of year
280.6

 
253.3

 
33.5

 
31.9

 
 
 
 
 
 
 
 
Funded status:
 

 
 

 
 

 
 

Plan assets less than benefit obligations
$
(19.8
)
 
$
(13.7
)
 
$
(104.3
)
 
$
(94.4
)
 
 
 
 
 
 
 
 
Amounts recorded in the consolidated balance sheets:
 

 
 

 
 

 
 

Prepaid pension costs, non-current
$
7.7

 
$
12.0

 
$

 
$
2.2

Accrued pension costs, current portion
(2.0
)
 
(2.0
)
 
(6.0
)
 
(6.6
)
Accrued pension costs, long-term portion
(25.5
)
 
(23.7
)
 
(98.3
)
 
(90.0
)
Plan assets greater (less) than benefit obligations
$
(19.8
)
 
$
(13.7
)
 
$
(104.3
)
 
$
(94.4
)

 
Net actuarial losses ($94.9) and prior service costs ($0.5), less an aggregate tax effect ($31.1), are included as components of accumulated other comprehensive loss at September 30, 2019.  Net actuarial losses ($67.2) and prior service costs ($0.8), less an aggregate tax effect ($24.0), are included as components of accumulated other comprehensive loss at September 30, 2018.  The amount that will be amortized from accumulated other comprehensive loss into net pension costs in 2020 is expected to be $7.3.
 
Accumulated Benefit Obligation — The accumulated benefit obligation for all defined benefit retirement plans was $433.6 and $387.0 at September 30, 2019 and 2018.  Selected information for plans with accumulated benefit obligations in excess of plan assets was:
 
 
U.S. Pension Benefits
September 30,
 
Non-U.S. Pension Benefits
September 30,
 
2019
 
2018
 
2019
 
2018
Projected benefit obligation
$
27.4

 
$
25.7

 
$
102.3

 
$
96.6

Accumulated benefit obligation
27.4

 
25.7

 
102.3

 
96.6

Fair value of plan assets

 

 

 



The weighted-average assumptions used in accounting for defined benefit retirement plans were:
 
 
U.S. Pension Benefits
Year Ended September 30,
 
Non-U.S. Pension Benefits
Year Ended September 30,
 
2019
 
2018
 
2017
 
2019
 
2018
 
2017
Discount rate for obligation, end of year
3.1
%
 
4.2
%
 
3.7
%
 
0.3
%
 
1.2
%
 
1.1
%
Discount rate for expense, during the year
4.1
%
 
3.4
%
 
3.5
%
 
1.5
%
 
1.5
%
 
0.5
%
Expected rate of return on plan assets
5.2
%
 
5.6
%
 
5.6
%
 
1.5
%
 
2.0
%
 
2.0
%
Rate of compensation increase
3.0
%
 
3.0
%
 
3.0
%
 
2.0
%
 
2.0
%
 
2.0
%

 
The discount rates are evaluated annually based on current market conditions.  In setting these rates, we utilize long-term bond indices and yield curves as a preliminary indication of interest rate movements, then make adjustments to the indices to reflect differences in the terms of the bonds covered under the indices in comparison to the projected outflow of pension obligations. The overall expected long-term rate of return is based on historical and expected future returns, which are inflation-adjusted and weighted for the expected return for each component of the investment portfolio.  The rate of assumed compensation increase is also based on our specific historical trends of past wage adjustments in recent years.
 
U.S. Pension Plan Assets — Long-term strategic investment objectives utilize a diversified mix of equity and fixed income securities to preserve the funded status of the trusts and balance risk and return.  The primary investment strategy is a dynamic target allocation method that periodically rebalances among various investment categories depending on the current funded position.  This program is designed to actively move from return-seeking investments (such as equities) toward liability-hedging investments (such as long-duration fixed income) as funding levels improve.  The target investment in return-seeking assets may vary from 60% to 20% of total plan assets based on the plan’s funding level. Plan assets are invested by the plans’ fiduciaries, which direct investments according to specific policies.  Those policies subject investments to the following restrictions in our domestic plan: short-term securities must be rated A1/P1, liability-hedging fixed income securities must have an average quality credit rating of investment grade and investments in equities in any one company may not exceed 10% of the equity portfolio.

Non-U.S. Pension Plan Assets — Long-term strategic investment objectives utilize a diversified mix of suitable assets of appropriate liquidity to generate income and capital growth that, together with contributions from participants and Hillenbrand, we believe will meet the cost of the current and future benefits that the plan provides.  Long-term strategic investment objectives also seek to limit the risk of the assets failing to meet the liabilities over the long term.
 
None of Hillenbrand’s common stock was directly owned by the pension plan trusts at September 30, 2019.
 
The tables below provide the fair value of our pension plan assets by asset category at September 30, 2019 and 2018.  The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques (Level 1, 2, and 3).  See Note 13 for definitions.
 
Fair values are determined as follows:
 
Cash equivalents are stated at the carrying amount, which approximates fair value, or at the fund’s net asset value.
Equity securities are stated at the last reported sales price on the day of valuation.
Government index funds are stated at the closing price reported in the active market in which the fund is traded.
Corporate bond funds and equity mutual funds are stated at the closing price in the active markets in which the underlying securities of the funds are traded.
Real estate is stated based on a discounted cash flow approach, which includes future rental receipts, expenses, and residual values as the highest and best use of the real estate from a market participant view as rental property.

U.S. Pension Plans

The plan assets of our U.S. pension plans consist of certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient. Accordingly, these assets are not required to be classified and reported under the fair value hierarchy. At September 30, 2019 and 2018, the fair values of these investments were $280.6 and $253.3.

Non-U.S. Pension Plans
 
Fair Value at September 30, 2019 Using Inputs Considered as:
 
Total
 
Level 1
 
Level 2
 
Level 3
Non-U.S. Pension Plans
 

 
 

 
 

 
 

Cash equivalents
$
4.3

 
$
4.3

 
$

 
$

Equity securities
7.5

 
7.5

 

 

Other types of investments:
 
 
 
 
 
 
 
Government index funds
5.7

 
5.7

 

 

Corporate bond funds
11.0

 
11.0

 

 

Real estate and real estate funds
2.4

 

 

 
2.4

Other
2.6

 

 
2.6

 

Total Non-U.S. pension plan assets
$
33.5

 
$
28.5

 
$
2.6

 
$
2.4

 
 
Fair Value at September 30, 2018 Using Inputs Considered as:
 
Total
 
Level 1
 
Level 2
 
Level 3
Non-U.S. Pension Plans
 

 
 

 
 

 
 

Cash equivalents
$
2.4

 
$
2.4

 
$

 
$

Equity securities
7.3

 
7.3

 

 

Other types of investments:
0

 
0

 
0

 
0

Government index funds
5.6

 
5.6

 

 

Corporate bond funds
12.1

 
12.1

 

 

Real estate and real estate funds
2.4

 

 

 
2.4

Other
2.1

 

 
2.1

 

Total Non-U.S. pension plan assets
$
31.9

 
$
27.4

 
$
2.1

 
$
2.4


 
Cash Flows — During 2019, 2018, and 2017 we contributed cash of $9.3, $10.0, and $89.6 to our defined benefit pension plans.  We expect to make estimated contributions of $9.3 in 2020 to our pension plans.  Due to the funded status of our U.S. defined benefit pension plan, we do not expect to make contributions to this plan in 2020.

Estimated Future Benefit Payments — The following represents estimated future benefit payments, including expected future service, which are expected to be paid from plan assets or Company contributions as necessary:
 
U.S. Pension Plans
Projected Pension
Benefits Payout
 
Non-U.S. Pension Plans
Projected Pension
Benefits Payout
2020
$
14.5

 
$
7.2

2021
14.8

 
6.9

2022
15.5

 
7.0

2023
15.9

 
7.1

2024
16.2

 
7.1

2025-2029
83.8

 
32.1


 
Defined Contribution Plans — We sponsor a number of defined contribution plans.  Depending on the plan, we may make contributions up to 4% of an employee’s eligible compensation and matching contributions up to 6% of eligible compensation.  Company contributions generally vest over a period of zero to three years.  Expenses related to our defined contribution plans were $11.6, $11.3, and $11.4 for 2019, 2018, and 2017. See comments above regarding our retirement strategy to transition our U.S. employees to a defined contribution structure over three-year sunset periods, the latest of which ends January 1, 2023.
 
Postretirement Healthcare Plan — The Company offers a domestic postretirement healthcare plan that provides healthcare benefits to eligible qualified retirees and their spouses.  The plan includes retiree cost-sharing provisions and generally extends retiree coverage for medical, prescription, and dental benefits beyond the COBRA continuation period to the date of Medicare eligibility.  We use a measurement date of September 30.  The net postretirement healthcare benefit for 2019 was $0.1, cost for 2018 was $0.1, and cost for 2017 was $0.3.
 
 
September 30,
 
2019
 
2018
Benefit obligation at beginning of year
$
7.6

 
$
9.0

Interest cost