HILLENBRAND, INC., 10-Q filed on 2/6/2020
Quarterly Report
v3.19.3.a.u2
Cover Page - shares
3 Months Ended
Dec. 31, 2019
Jan. 31, 2020
Cover page.    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Dec. 31, 2019  
Document Transition Report false  
Entity File Number 001-33794  
Entity Registrant Name HILLENBRAND, INC.  
Entity Incorporation, State or Country Code IN  
Entity Tax Identification Number 26-1342272  
Entity Address, Address Line One One Batesville Boulevard  
Entity Address, City or Town Batesville  
Entity Address, State or Province IN  
Entity Address, Postal Zip Code 47006  
City Area Code 812  
Local Phone Number 934-7500  
Title of 12(b) Security Common Stock, without par value  
Trading Symbol HI  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   74,718,686
Entity Central Index Key 0001417398  
Current Fiscal Year End Date --09-30  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Amendment Flag false  
v3.19.3.a.u2
Consolidated Statements of Income - USD ($)
shares in Millions, $ in Millions
3 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Income Statement [Abstract]    
Net revenue $ 566.9 $ 410.3
Cost of goods sold 395.1 263.3
Gross profit 171.8 147.0
Operating expenses 157.4 90.7
Amortization expense 14.8 7.8
Interest expense 14.7 5.5
Other income, net 1.9 0.5
(Loss) income before income taxes (13.2) 43.5
Income tax (benefit) expense (12.4) 14.5
Consolidated net (loss) income (0.8) 29.0
Less: Net income attributable to noncontrolling interests 2.3 0.7
Net income (loss) $ (3.1) $ 28.3
Net income attributable to Hillenbrand — per share of common stock:    
Basic (loss) earnings per share $ (0.05) $ 0.45
Diluted (loss) earnings per share $ (0.05) $ 0.45
Weighted average shares outstanding (basic) 68.4 62.9
Weighted average shares outstanding (diluted) 68.4 63.5
v3.19.3.a.u2
Consolidated Statements of Comprehensive Income - USD ($)
$ in Millions
3 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]    
Consolidated net income (loss) $ (0.8) $ 29.0
Changes in other comprehensive income (loss), net of tax    
Currency translation adjustment 17.3 (4.9)
Pension and postretirement (net of tax of $0.5 and $0.1) 1.1 0.2
Change in net unrealized gain (loss) on derivative instruments (net of tax of $0.2 and $1.7) 1.4 (5.2)
Total changes in other comprehensive income (loss), net of tax 19.8 (9.9)
Consolidated comprehensive income 19.0 19.1
Less: Comprehensive income attributable to noncontrolling interests 2.2 0.9
Comprehensive income (loss) [1] $ 16.8 $ 18.2
[1]













v3.19.3.a.u2
Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)
$ in Millions
3 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Statement of Comprehensive Income [Abstract]    
Pension and postretirement, tax $ (0.5) $ (0.1)
Change in net unrealized gain (loss) on derivative instruments, tax $ (0.2) $ 1.7
v3.19.3.a.u2
Consolidated Balance Sheets - USD ($)
$ in Millions
Dec. 31, 2019
Sep. 30, 2019
Current Assets    
Cash and cash equivalents $ 142.4 $ 399.0
Trade receivables, net 344.3 217.4
Receivables from long-term manufacturing contracts 205.9 181.1
Inventories, net 442.1 176.6
Prepaid expenses and other current assets 87.4 49.1
Other current assets 87.4 49.1
Total current assets 1,222.1 1,023.2
Property, plant, and equipment, net 398.1 140.3
Operating lease right-of-use assets 172.5 0.0
Intangible assets, net 1,317.7 454.9
Goodwill 1,256.9 578.0
Other long-term assets 53.4 32.2
Total Assets 4,420.7 2,228.6
Current Liabilities    
Trade accounts payable 349.0 236.2
Liabilities from long-term manufacturing contracts and advances 183.1 158.2
Current portion of long-term debt 42.1 0.0
Accrued compensation 86.2 73.2
Other current liabilities 219.4 121.7
Total current liabilities 879.8 589.3
Long-term debt 1,822.6 619.5
Accrued pension and postretirement healthcare 162.0 131.3
Operating lease liabilities 137.1 0.0
Deferred Income Tax Liabilities, Net 215.4 73.6
Other long-term liabilities 60.0 45.1
Total Liabilities 3,276.9 1,458.8
Commitments and contingencies (Note 15)
SHAREHOLDERS’ EQUITY    
Common stock, no par value (75.8 and 63.9 shares issued, 74.7 and 62.7 shares outstanding) 0.0 0.0
Additional paid-in capital 712.9 345.3
Retained earnings 586.5 599.5
Treasury stock (1.1 and 1.2 shares) (45.6) (50.1)
Accumulated other comprehensive loss (126.7) (140.6)
Hillenbrand Shareholders’ Equity 1,127.1 754.1
Noncontrolling interests 16.7 15.7
Total Shareholders’ Equity 1,143.8 769.8
Total Liabilities and Shareholders’ Equity $ 4,420.7 $ 2,228.6
v3.19.3.a.u2
Consolidated Balance Sheets (Parenthetical) - $ / shares
shares in Millions
Dec. 31, 2019
Sep. 30, 2019
Statement of Financial Position [Abstract]    
Common stock, par value (in dollars per share)
Common stock, shares issued 63.9 63.9
Common stock, shares outstanding 62.6 62.3
Treasury stock, shares 1.3 1.6
v3.19.3.a.u2
Consolidated Statements of Cash Flow - USD ($)
$ in Thousands
3 Months Ended
Dec. 31, 2019
Dec. 31, 2018
Operating Activities    
Consolidated net (loss) income $ (800) $ 29,000
Adjustments to reconcile net (loss) income to cash provided by operating activities:    
Depreciation and amortization 25,900 14,100
Deferred income taxes (29,000) 5,300
Amortization of deferred financing costs 500 100
Share-based compensation 2,300 1,900
Settlement of Milacron share-based equity awards (5,900) 0
Trade accounts receivable and receivables from long-term manufacturing contracts (9,400) 15,700
Inventories 26,300 (8,900)
Prepaid expenses and other current assets 14,500 1,900
Trade accounts payable (1,800) (600)
accrued compensation, and other current liabilities (21,300) (9,700)
Income taxes payable 6,500 (12,100)
Defined benefit plan and postretirement funding (2,700) (2,300)
Defined benefit plan and postretirement expense 1,500 800
Other, net (600) 300
Net cash provided by operating activities 17,800 35,500
Investing Activities    
Capital expenditures (6,300) (3,600)
Proceeds from sales of property, plant, and equipment 13,300 0
Acquisition of businesses, net of cash acquired (1,503,100) (26,200)
Net cash used in investing activities (1,496,100) (29,800)
Financing Activities    
Proceeds from issuance of long-term debt 725,000 0
Repayments on long-term debt (9,100) 0
Proceeds from revolving credit facilities 747,500 160,200
Repayments on revolving credit facilities (222,500) (139,600)
Payment of deferred financing costs (5,400) 0
Payments of dividends on common stock (15,800) (13,100)
Proceeds from stock option exercises 200 300
Payments for employee taxes on net settlement equity awards (1,800) (4,100)
Other, net 3,300 (900)
Net cash provided by financing activities 1,221,400 2,800
Effect of exchange rates on cash and cash equivalents 400 300
Net cash flows (256,500) 8,800
Cash, cash equivalents, and restricted cash:    
At beginning of period 399,400 56,500
At end of period $ 142,900 $ 65,300
v3.19.3.a.u2
Consolidated Statements of Cash Flow Cash, Cash Equivalents, and Restricted Cash - USD ($)
$ in Millions
Dec. 31, 2019
Sep. 30, 2019
Dec. 31, 2018
Sep. 30, 2018
Supplemental Cash Flow Elements [Abstract]        
Cash and cash equivalents $ 142.4 $ 399.0 $ 64.8  
Short-term restricted cash included in other current assets 0.5 0.4 0.5  
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows $ 142.9 $ 399.4 $ 65.3 $ 56.5
v3.19.3.a.u2
Consolidated Statements of Shareholders Equity Statement - USD ($)
$ in Millions
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Treasury Stock
AOCI Attributable to Parent [Member]
Noncontrolling Interests
Common Stock, Dividends, Per Share, Declared $ 0.2100            
Balance at Sep. 30, 2018 $ 744.1   $ 351.4 $ 531.0 $ (67.1) $ (84.2) $ 13.0
Balance, shares at Sep. 30, 2018   63,900,000     1,600,000    
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Total other comprehensive income (loss), net of tax (9.9)         (10.1) 0.2
Consolidated net (loss) income 29.0     28.3     0.7
Common stock, shares issued   0     (200,000)    
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture (3.8)   (11.7)   $ 7.9    
Share-based compensation 1.9   1.9        
Other 0.2     0.2      
Dividends, Common Stock (14.1)   (0.1) (13.2)     (1.0)
Balance at Dec. 31, 2018 $ 747.4   341.7 546.3 $ (59.2) (94.3) 12.9
Balance, shares at Dec. 31, 2018   63,900,000     1,400,000    
Common Stock, Dividends, Per Share, Declared $ 0.2125            
Balance at Sep. 30, 2019 $ 769.8   345.3 599.5 $ (50.1) (140.6) 15.7
Balance, shares at Sep. 30, 2019   63,900,000     1,200,000    
Increase (Decrease) in Stockholders' Equity [Roll Forward]              
Total other comprehensive income (loss), net of tax 19.8         19.9 (0.1)
Consolidated net (loss) income (0.8)     (3.1)     2.3
Common stock, shares issued   0     (100,000)    
Shares Granted, Value, Share-based Payment Arrangement, after Forfeiture (1.6)   (6.1)   $ 4.5    
Share-based compensation 2.3   2.3        
Treasury Stock, Shares, Acquired         0    
Treasury Stock, Value, Acquired, Cost Method (371.3) $ (11.9) (371.3)   $ 0.0    
Dividends, Common Stock (17.0)   (0.1) (15.9)     (1.2)
Balance at Dec. 31, 2019 $ 1,143.8   $ 712.9 $ 586.5 $ (45.6) $ (126.7) $ 16.7
Balance, shares at Dec. 31, 2019   75,800,000     1,100,000    
v3.19.3.a.u2
Background and Basis of Presentation
3 Months Ended
Dec. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Background and Basis of Presentation
Background and Basis of Presentation
 
Hillenbrand, Inc. (the “Company” or “Hillenbrand”) is a global diversified industrial company with multiple leading brands that serve a wide variety of industries around the world.  The Company strives to provide superior return for our shareholders, exceptional value for our customers, great professional opportunities for our employees, and to be responsible to our communities through deployment of the Hillenbrand Operating Model (“HOM”). The HOM is a consistent and repeatable framework designed to produce sustainable and predictable results.  The HOM describes the Company’s mission, vision, values, and mindset as leaders; applies our management practices in Strategy Management, Segmentation, Lean, Talent Development, and Acquisitions; and prescribes three steps (Understand, Focus, and Grow) designed to make the Company’s businesses both bigger and better.  The Company’s goal is to continue developing Hillenbrand as a world-class global diversified industrial company through the deployment of the HOM.

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

Hillenbrand’s portfolio is composed of three reportable business segments:  the Process Equipment Group, Milacron®, and Batesville®.  The Process Equipment Group businesses design, develop, manufacture, and service highly engineered industrial equipment around the world. Milacron is a global leader in highly engineered and customized systems in plastics technology and processing. Batesville is a recognized leader in the death care industry in North America. “Hillenbrand,” the “Company,” “we,” “us,” “our,” and similar words refer to Hillenbrand and its subsidiaries within this Form 10-Q unless context otherwise requires.
 
The accompanying unaudited Consolidated Financial Statements include the accounts of Hillenbrand and its subsidiaries.  They also include two subsidiaries where the Company’s ownership percentage is less than 100%.  The Company’s fiscal year ends on September 30.  Unless otherwise stated, references to years relate to fiscal years.
 
These unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements and therefore do not include all information required in accordance with United States generally accepted accounting principles (“GAAP”).  The unaudited Consolidated Financial Statements have been prepared on the same basis as, and should be read in conjunction with, the audited Consolidated Financial Statements and notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended September 30, 2019, as filed with the SEC. In the opinion of management, these Consolidated Financial Statements reflect all adjustments necessary to present a fair statement of the Company’s consolidated financial position and the consolidated results of operations and cash flows as of the dates and for the periods presented. The interim period results are subject to variation and are not necessarily indicative of the results of operations to be expected for the full fiscal year.
 
The preparation of the Consolidated Financial Statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the period.  Actual results could differ from those estimates.  Examples of such estimates include, but are not limited to, revenue recognition under the percentage-of-completion method, preliminary purchase price allocations, and the establishment of reserves related to customer rebates, doubtful accounts, warranties, early-pay discounts, inventories, income taxes, litigation, self-insurance, and progress toward achievement of performance criteria under incentive compensation programs.
v3.19.3.a.u2
Summary of Significant Accounting Policies
3 Months Ended
Dec. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
 
The significant accounting policies used in preparing the Consolidated Financial Statements are consistent with the accounting policies described in the Company’s Annual Report on Form 10-K for 2019, except as described below.

Recently Adopted Accounting Standards

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

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

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

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

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

No other new accounting pronouncements recently adopted or issued had or are expected to have a material impact on the Consolidated Financial Statements.
v3.19.3.a.u2
Revenue Recognition
3 Months Ended
Dec. 31, 2019
Revenue from Contract with Customer [Abstract]  
Revenue Recognition
Revenue Recognition

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

Contract balances

The balance in receivables from long-term manufacturing contracts at December 31, 2019 and September 30, 2019 was $205.9 and $181.1, respectively. The change was driven by the impact of net revenue recognized prior to billings. The balance in the liabilities from long-term manufacturing contracts and advances at December 31, 2019 and September 30, 2019 was $183.1 and $158.2, respectively, and consists primarily of cash payments received or due in advance of satisfying performance obligations. The revenue recognized for the three months ended December 31, 2019 and 2018 related to liabilities from long-term manufacturing
contracts and advances as of September 30, 2019 and 2018 was $55.3 and $78.0, respectively. During the three months ended December 31, 2019 and 2018, the adjustments related to performance obligations satisfied in previous periods were immaterial.

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

Disaggregation of revenue

As a result of completing the acquisition of Milacron during the current year, the Company now sells products in the following additional end markets: custom molders, automotive, consumer goods, packaging, electronics, and construction. The following tables present net revenue by end market, which include reclassifications in the prior year period to conform to the current year presentation:
 
Three Months Ended December 31, 2019
 
Process Equipment Group
 
Milacron
 
Batesville
 
Total
Revenue by End Market
 
 
 
 
 
 
 
  Plastics
$
202.0

 
$

 
$

 
$
202.0

  Automotive

 
25.0

 

 
25.0

  Chemicals
24.4

 

 

 
24.4

  Consumer goods

 
18.4

 

 
18.4

  Food and pharmaceuticals
18.0

 

 

 
18.0

  Custom molders

 
16.8

 

 
16.8

Construction

 
16.8

 

 
16.8

Packaging

 
13.8

 

 
13.8

  Minerals and mining
13.3

 

 

 
13.3

  Electronics

 
8.3

 

 
8.3

  Death care

 

 
127.0

 
127.0

  Other industrial
48.9

 
34.2

 

 
83.1

    Total
$
306.6

 
$
133.3

 
$
127.0

 
$
566.9

 
Three Months Ended December 31, 2018
 
Process Equipment Group
 
Batesville
 
Total
Revenue by End Market
 
 
 
 
 
  Plastics
$
160.9

 
$

 
$
160.9

  Chemicals
29.6

 

 
29.6

Minerals and mining
28.0

 

 
28.0

Food and pharmaceuticals
16.5

 

 
16.5

  Death care

 
128.1

 
128.1

  Other industrial
47.2

 

 
47.2

    Total
$
282.2

 
$
128.1

 
$
410.3


The following tables present net revenue by products and services:
 
Three Months Ended December 31, 2019
 
Process Equipment Group
 
Milacron
 
Batesville
 
Total
Products and Services
 
 
 
 
 
 
 
Equipment
$
206.0

 
$
82.2

 
$

 
$
288.2

Parts and services
100.6

 
32.2

 

 
132.8

Death care

 

 
127.0

 
127.0

Other

 
18.9

 

 
18.9

    Total
$
306.6

 
$
133.3

 
$
127.0

 
$
566.9


 
Three Months Ended December 31, 2018
 
Process Equipment Group
 
Batesville
 
Total
Products and Services
 
 
 
 
 
Equipment
$
183.4

 
$

 
$
183.4

Parts and services
98.8

 

 
98.8

Death care

 
128.1

 
128.1

    Total
$
282.2

 
$
128.1

 
$
410.3


The following tables present net revenue by timing of transfer:
 
Three Months Ended December 31, 2019
 
Process Equipment Group
 
Milacron
 
Batesville
 
Total
Timing of Transfer
 
 
 
 
 
 
 
Point in time
$
147.3

 
$
133.3

 
$
127.0

 
$
407.6

Over time
159.3

 

 

 
159.3

    Total
$
306.6

 
$
133.3

 
$
127.0

 
$
566.9


 
Three Months Ended December 31, 2018
 
Process Equipment Group
 
Batesville
 
Total
Timing of Transfer
 
 
 
 
 
Point in time
$
163.7

 
$
128.1

 
$
291.8

Over time
118.5

 

 
118.5

    Total
$
282.2

 
$
128.1

 
$
410.3


v3.19.3.a.u2
Business Acquisitions
3 Months Ended
Dec. 31, 2019
Business Combinations [Abstract]  
Business Acquisitions
Business Acquisitions

Acquisition of Milacron

Background

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

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

Purchase price consideration

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

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

The following table summarizes the aggregate purchase price consideration to acquire Milacron:
Cash consideration paid to Milacron stockholders
$
835.9

Repayment of Milacron debt, including accrued interest
772.9

Cash consideration paid to settle outstanding share-based equity awards
34.2

Total cash consideration
1,643.0

Fair value of Hillenbrand common stock issued to Milacron stockholders (1)
356.9

Stock consideration issued to settle outstanding share-based equity awards (1)
14.4

Total consideration transferred
2,014.3

Portion of cash settlement of outstanding share-based equity awards recognized as expense (2)
(14.1
)
Portion of stock settlement of outstanding share-based equity awards recognized as expense (2)
(5.9
)
     Total purchase price consideration
$
1,994.3

 
(1) 
The fair value of the 11.4 million shares of Hillenbrand’s common stock issued as of the acquisition date was determined based on a per share price of $31.26, which was the closing price of the Hillenbrand’s common stock on November 20, 2019, the last trading day before the acquisition closed on November 21, 2019. This includes a nominal amount of cash paid in lieu of fractional shares. Additionally, 0.5 million shares of Hillenbrand’s common stock were issued to settle certain of Milacron’s outstanding share-based equity awards, as previously discussed.
(2) 
In total, $20.0 was immediately recognized as expense within operating expenses on the Consolidated Statements of Operations during the three months ended December 31, 2019, which represents the portion of the fair value of outstanding share-based equity awards that was not associated with pre-acquisition service of Milacron employees, as previously discussed.

Purchase price allocation

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

The following table summarizes preliminary estimates of fair values of the assets acquired and liabilities assumed as of the acquisition date:
 
November 21, 2019
Assets acquired:
 
Cash and cash equivalents
$
125.8

Trade receivables
135.5

Inventories
288.7

Prepaid expense and other current assets
64.3

Property, plant, and equipment
262.9

Operating lease right-of-use assets
41.3

Identifiable intangible assets
865.0

Goodwill
666.5

Other long-term assets
22.6

Total assets acquired
2,472.6

 
 
Liabilities assumed:
 
Trade accounts payable
110.2

Liabilities from long-term manufacturing contracts and advances
32.7

Accrued compensation
23.2

Other current liabilities
72.2

Accrued pension and postretirement healthcare
29.4

Deferred income taxes
166.3

Operating lease liabilities - long-term
31.2

Other long-term liabilities
13.1

Total liabilities assumed
478.3

 
 
Total purchase price consideration
$
1,994.3



The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (defined as the 12 months following the acquisition date). The primary areas of the preliminary purchase price allocation that are not yet finalized relate to the fair value of certain tangible assets acquired and liabilities assumed, the valuation of intangible assets acquired and deferred income taxes. The Company expects to continue to obtain information for the purpose of determining the fair value of the assets acquired and liabilities assumed at the acquisition date throughout the remainder of the measurement period.
The preliminary purchase price allocation included $865.0 of acquired identifiable intangible assets. The preliminary fair value of the identifiable intangible assets has been estimated using the income approach through a discounted cash flow analysis with the cash flow projections. The cash flows are based on estimates used to price the Milacron acquisition, and the discount rates applied were benchmarked with reference to the implied rate of return to the Company’s pricing model and the weighted average cost of capital. Definite-lived intangible assets are being amortized over the estimated useful life on a straight-line basis.  The determination of the useful lives is based upon various industry studies, historical acquisition experience, economic factors, and future cash flows of the Company post acquisition of Milacron.  In addition, Hillenbrand reviewed certain technological trends and considered the relative stability in the current Milacron customer base.

The preliminary amounts allocated to intangible assets are as follows:
 
 
Gross Carrying Amount
 
Weighted-Average Useful Life
Customer relationships
 
$
555.0

 
19 years
Trade names
 
205.0

 
Indefinite
Technology, including patents
 
95.0

 
10 years
Backlog
 
10.0

 
3 months
    Total
 
$
865.0

 
 


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

Impact on results of operations

The results of Milacron’s operations have been included in Hillenbrand’s Consolidated Financial Statements since the November 21, 2019 acquisition date. The following table provides the results of operations for Milacron included in Hillenbrand’s Consolidated Statements of Operations for the current period:
 
Three Months Ended December 31, 2019
Net revenue
$
133.3

Income before income taxes
0.7



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

Supplemental Pro Forma Information

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

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

an increase to depreciation and amortization expense that would have been recognized due to acquired tangible and intangible assets;
an adjustment to interest expense to reflect the additional borrowings of Hillenbrand and the repayment of Milacron’s historical debt in conjunction with the acquisition;
an adjustment to remove business acquisition and integration costs, inventory step-up costs, and backlog amortization during the three months ended December 31, 2019, as these costs are non-recurring in nature and will not have a continuing effect on Hillenbrand’s results; and
the related income tax effects of the adjustments noted above.

The supplemental pro forma financial information for the periods presented is as follows:
 
Three Months Ended December 31,
 
2019
 
2018
Net revenue
$
682.6

 
$
699.9

Net income attributable to Hillenbrand
20.6

 
30.9

 
 
 
 
Net income attributable to Hillenbrand  — per share of common stock:
 
 
 
Basic earnings per share
$
0.27

 
$
0.41

Diluted earnings per share
0.27

 
0.41



Sale of Milacron facility

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

Acquisition of Burnaby Machine and Mill Equipment Ltd.

During the three months ended December 31, 2018, the Company completed the acquisition of Burnaby Machine and Mill Equipment Ltd. (“BM&M”) for $26.2 in cash, which included post-closing working capital adjustments. The Company used its revolving credit facility to fund the acquisition.  Based in Canada, BM&M provides high-speed gyratory screeners for a variety of industries. The results of BM&M are reported in the Process Equipment Group reportable segment.
v3.19.3.a.u2
Supplemental Balance Sheet Information
3 Months Ended
Dec. 31, 2019
Balance Sheet Related Disclosures [Abstract]  
Supplemental Balance Sheet Information
Supplemental Consolidated Balance Sheet Information
 
 
December 31,
2019
 
September 30,
2019
Trade accounts receivable reserves
$
26.2

 
$
22.8

 
 
 
 
Accumulated depreciation on property, plant, and equipment
$
316.1

 
$
309.0

 
 
 
 
Inventories:
 

 
 

Raw materials and components
$
144.9

 
$
72.3

Work in process
85.3

 
44.0

Finished goods
211.9

 
60.3

Total inventories
$
442.1

 
$
176.6

 

The Company had restricted cash of $0.5 and $0.4 recorded within other current assets in the Consolidated Balance Sheets at December 31, 2019 and September 30, 2019, respectively.
v3.19.3.a.u2
Leases
3 Months Ended
Dec. 31, 2019
Leases [Abstract]  
Leases
Leases

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

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

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

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

The following table presents supplemental Consolidated Balance Sheet information related to the Company’s operating leases.
 
December 31, 2019
Operating lease right-of-use assets
$
172.5

 
 
Other current liabilities
$
32.9

Operating lease liabilities
137.1

Total operating lease liabilities
$
170.0

 
 
Weighted-average remaining lease term (in years)
7.9

 
 
Weighted-average discount rate
2.2
%


As of December 31, 2019, the maturities of the Company’s operating lease liabilities were as follows:
2020 (excluding the three months ended December 31, 2019)
$
27.4

2021
32.8

2022
28.0

2023
22.8

2024
15.4

Thereafter
57.8

Total lease payments
184.2

Less: imputed interest
(14.2
)
Total present value of lease payments
$
170.0



Supplemental Consolidated Statement of Cash Flow information is as follows:
 
Three Months Ended December 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities
$
8.0

Operating lease right-of-use assets obtained in exchange for new operating lease liabilities
13.3


v3.19.3.a.u2
Intangible Assets and Goodwill
3 Months Ended
Dec. 31, 2019
Goodwill and Intangible Assets Disclosure [Abstract]  
Intangible Assets and Goodwill
Intangible Assets and Goodwill

Intangible Assets

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

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

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

 
 

 
 

 
 

Trade names
$
0.2

 
$
(0.2
)
 
$
0.2

 
$
(0.2
)
Customer relationships
1,026.3

 
(179.4
)
 
464.2

 
(169.2
)
Technology, including patents
173.0

 
(52.2
)
 
76.8

 
(49.4
)
Software
65.4

 
(53.1
)
 
58.7

 
(51.7
)
Backlog
10.0

 
(4.2
)
 

 

Other
0.1

 
(0.1
)
 
0.2

 
(0.2
)
 
1,275.0

 
(289.2
)
 
600.1

 
(270.7
)
Indefinite-lived assets:
 

 
 

 
 

 
 

Trade names
331.9

 

 
125.5

 

 
 
 
 
 
 
 
 
Total
$
1,606.9

 
$
(289.2
)
 
$
725.6

 
$
(270.7
)


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

Goodwill

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

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

 
$

 
$
8.3

 
$
578.0

Acquisition (see Note 4)
1.7

 
666.5

 

 
668.2

Foreign currency adjustments
8.4

 
2.3

 

 
10.7

Balance as of December 31, 2019
$
579.8

 
$
668.8

 
$
8.3

 
$
1,256.9


v3.19.3.a.u2
Financing Agreements
3 Months Ended
Dec. 31, 2019
Debt Disclosure [Abstract]  
Financing Agreements
Financing Agreements

The following table summarizes Hillenbrand’s current and long-term debt as of the dates reported in the Consolidated Balance Sheets.
 
December 31,
2019
 
September 30,
2019
$900.0 revolving credit facility (excluding outstanding letters of credit)
$
525.0

 
$

$500.0 term loan facility (1)
492.2

 

$375.0 senior unsecured notes, net of discount (2)
370.2

 
370.1

$225.0 term loan facility (3)
221.7

 

$150.0 senior unsecured notes, net of discount (4)
149.8

 
149.7

$100.0 Series A Notes (5)
99.7

 
99.7

Other
6.1

 

Total debt
1,864.7

 
619.5

Less: current portion
42.1

 

Total long-term debt
$
1,822.6

 
$
619.5


 
(1) 
Includes debt issuance costs of $1.5 at December 31, 2019.
(2) 
Includes debt issuance costs of $4.2 and $4.3 at December 31, 2019 and September 30, 2019, respectively.
(3) 
Includes debt issuance costs of $0.5 at December 31, 2019.
(4) 
Includes debt issuance costs of $0.1 and $0.2 at December 31, 2019 and September 30, 2019, respectively.
(5) 
Includes debt issuance costs of $0.3 and $0.3 at December 31, 2019 and September 30, 2019, respectively.

Financing for Milacron Acquisition

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

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

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

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

Covenants related to current financing agreements

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

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

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

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

The Credit Agreement, the L/G Facility Agreement, and the Shelf Agreement each contain certain other customary covenants, representations and warranties and events of default. The indentures governing both the $375.0 and$150.0 senior unsecured notes do not limit the Company’s ability to incur additional indebtedness. They do, however, contain certain covenants that restrict the Company’s ability to incur secured debt and to engage in certain sale and leaseback transactions. The indentures also contain customary events of default. The indentures provide holders of the senior unsecured notes with remedies if the Company fails to perform specific obligations. As of December 31, 2019, Hillenbrand was in compliance with all covenants and there were no events of default.
v3.19.3.a.u2
Retirement Benefits
3 Months Ended
Dec. 31, 2019
Defined Benefit Plan [Abstract]  
Retirement Benefits
Retirement Benefits
 
Defined Benefit Plans

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

Components of net periodic pension cost included in the Consolidated Statements of Operations were as follows:
 
 
U.S. Pension Benefits
 
Non-U.S. Pension Benefits
 
Three Months Ended December 31,
 
Three Months Ended December 31,
 
2019
 
2018
 
2019
 
2018
Service costs
$
0.4

 
$
0.6

 
$
0.6

 
$
0.3

Interest costs
2.0

 
2.6

 
0.2

 
0.3

Expected return on plan assets
(3.2
)
 
(3.3
)
 
(0.1
)
 
(0.1
)
Amortization of net loss
1.2

 
0.2

 
0.4

 
0.2

Net periodic pension cost
$
0.4

 
$
0.1

 
$
1.1

 
$
0.7


Defined Contribution Plans

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

Expenses related to the Company’s defined contribution plans were $3.3 and $2.8 for the three months ended December 31, 2019 and 2018, respectively.
v3.19.3.a.u2
Income Taxes
3 Months Ended
Dec. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
 
The effective tax rates for the three months ended December 31, 2019 and 2018 were 93.9% and 33.3%, respectively. Due to the current quarter net loss position, the tax benefit recognized from the revaluation of current and deferred tax balances in connection with enacted statutory tax rate reductions in certain foreign jurisdictions significantly increased the tax rate, partially offset by the impact of nondeductible expenses associated with the Milacron acquisition. The change in the effective tax rate compared to the prior year was also impacted by the prior year increase in the reserve for unrecognized tax benefits that did not recur in the current year.

The acquisition of Milacron was completed as a taxable acquisition of the outstanding common stock of Milacron. In connection with the acquisition, the Company recorded a net deferred tax liability of $110.9 associated with the difference between the financial accounting basis and the tax basis in the acquired assets and liabilities assumed. Included in the acquired deferred taxes were deferred tax assets for the carryforward of Milacron’s tax net operating losses from federal, state, and foreign tax jurisdictions of $62.7, which were partially offset by the recognition of preliminary valuation allowances of $26.7 related to the estimated realizability of these items. The utilization of the acquired U.S. federal and state net operating losses to reduce Hillenbrand’s taxable income will be limited annually under Section 382 of the Internal Revenue Code. The Section 382 limitation analysis is in process as part of purchase accounting finalization and was not completed as of December 31, 2019. Additionally, Hillenbrand incurred transaction costs of $53.8, inclusive of the settlement of share-based equity awards, associated with the acquisition of Milacron. A preliminary estimate of the nondeductible portion of these costs has been determined to be approximately $24.7 and recognized as an adjustment to the forecasted tax rate for the year. As the Company continues to analyze the tax attributes of the acquisition, it will revise these preliminary estimates and appropriately record the impact of any changes in estimates.
v3.19.3.a.u2
Earnings Per Share
3 Months Ended
Dec. 31, 2019
Earnings Per Share [Abstract]  
Earnings Per Share

The dilutive effects of performance-based stock awards were included in the computation of diluted earnings per share at the level the related performance criteria were met through the respective balance sheet date.  At December 31, 2019 and 2018, potential dilutive effects, representing approximately 256,000 and 400,000 shares, respectively, were excluded from the computation of diluted earnings per share as the related performance criteria were not yet met, although the Company expects to meet various levels of criteria in the future.
 
Three Months Ended
December 31,
 
2019
 
2018
Net (loss) income attributable to Hillenbrand
$
(3.1
)
 
$
28.3

Weighted average shares outstanding (basic - in millions) (1)
68.4

 
62.9

Effect of dilutive stock options and other unvested equity awards (in millions) (2)

 
0.6

Weighted average shares outstanding (diluted - in millions)
68.4

 
63.5

 
 
 
 
Basic (loss) earnings per share
$
(0.05
)
 
$
0.45

Diluted (loss) earnings per share
$
(0.05
)
 
$
0.45

 
 
 
 
Shares with anti-dilutive effect excluded from the computation of diluted earnings per share (in millions)
2.4

 
0.7


 
 
(1) 
The increase in weighted average shares outstanding during the current quarter was due to 11.9 million of additional shares issued on November 21, 2019 in connection with the acquisition of Milacron. See Note 4 for further information.
(2) 
As a result of the net loss attributable to Hillenbrand during the three months ended December 31, 2019, the effect of stock options and other unvested equity awards would be antidilutive. In accordance with GAAP, they have been excluded from the diluted EPS calculation.
v3.19.3.a.u2
Other Comprehensive Income (Loss)
3 Months Ended
Dec. 31, 2019
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]  
Schedule of reclassifications of AOCI Other Comprehensive Loss

The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive loss:
 
Pension and
Postretirement
 
Currency
Translation
 
Net
Unrealized
Gain (Loss)
on Derivative
Instruments
 
Total
Attributable
to
Hillenbrand,
Inc.
 
Noncontrolling
Interests
 
Total
Balance at September 30, 2019
$
(62.3
)
 
$
(64.7
)
 
$
(13.6
)
 
$
(140.6
)
 
 

 
 

Other comprehensive income (loss) before reclassifications
 

 
 

 
 

 
 

 
 

 
 

Before tax amount

 
17.4

 
1.3

 
18.7

 
$
(0.1
)
 
$
18.6

Tax expense

 

 
(0.3
)
 
(0.3
)
 

 
(0.3
)
After tax amount

 
17.4

 
1.0

 
18.4

 
(0.1
)
 
18.3

Amounts reclassified from accumulated other comprehensive loss(1)
1.1

 

 
0.4

 
1.5

 

 
1.5

Net current period other comprehensive income (loss)
1.1

 
17.4

 
1.4

 
19.9

 
(0.1
)
 
$
19.8

Reclassification of certain income tax effects (2)

(6.0
)
 

 

 
(6.0
)
 
 
 
 
Balance at December 31, 2019
$
(67.2
)
 
$
(47.3
)
 
$
(12.2
)
 
$
(126.7
)
 
 

 
 

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

 
Pension and
Postretirement
 
Currency
Translation
 
Net
Unrealized
Gain (Loss)
on Derivative
Instruments
 
Total
Attributable
to
Hillenbrand,
Inc.
 
Noncontrolling
Interests
 
Total
Balance at September 30, 2018
$
(41.0
)
 
$
(44.1
)
 
$
0.9

 
$
(84.2
)
 
 

 
 

Other comprehensive income before reclassifications
 

 
 

 
 

 
 

 
 

 
 

Before tax amount

 
(5.1
)
 
(6.8
)
 
(11.9
)
 
$
0.2

 
$
(11.7
)
Tax benefit

 

 
1.6

 
1.6

 

 
1.6

After tax amount

 
(5.1
)
 
(5.2
)
 
(10.3
)
 
0.2

 
(10.1
)
Amounts reclassified from accumulated other comprehensive loss(1)
0.2

 

 

 
0.2

 

 
0.2

Net current period other comprehensive income (loss)
0.2

 
(5.1
)
 
(5.2
)
 
(10.1
)
 
$
0.2

 
$
(9.9
)
Balance at December 31, 2018
$
(40.8
)
 
$
(49.2
)
 
$
(4.3
)
 
$
(94.3
)
 
 

 
 


 

(1) 
Amounts are net of tax.

Reclassifications out of accumulated other comprehensive loss include: 
 
Three Months Ended December 31, 2019
 
Amortization of Pension and
Postretirement 
(1)
 
(Gain)/Loss on
 
 
 
Net Loss
Recognized
 
Prior Service Costs
Recognized
 
Derivative
Instruments
 
Total
Affected Line in the Consolidated Statement of Operations:
 

 
 

 
 

 
 

Net revenue
$

 
$

 
$
0.1

 
$
0.1

Cost of goods sold

 

 
(0.2
)
 
(0.2
)
Other income, net
1.6

 

 
0.5

 
2.1

Total before tax
$
1.6

 
$

 
$
0.4

 
$
2.0

Tax expense
 
 
 
 
 
 
(0.5
)
Total reclassifications for the period, net of tax
 
 
 
 
 
 
$
1.5

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

 
Three Months Ended December 31, 2018
 
Amortization of Pension and
Postretirement (1)
 
(Gain)/Loss on
 
 
 
Net Loss
Recognized
 
Prior Service Costs
Recognized
 
Derivative
Instruments
 
Total
Affected Line in the Consolidated Statement of Operations:
 

 
 

 
 

 
 

Net revenue
$

 
$

 
$
0.1

 
$
0.1

Cost of goods sold

 

 
(0.1
)
 
(0.1
)
Other income, net
0.3

 

 

 
0.3

Total before tax
$
0.3

 
$

 
$

 
$
0.3

Tax expense
 

 
 

 
 

 
(0.1
)
Total reclassifications for the period, net of tax
 

 
 

 
 

 
$
0.2


 

v3.19.3.a.u2
Share-Based Compensation
3 Months Ended
Dec. 31, 2019
Compensation Related Costs [Abstract]  
Share-Based Compensation
Share-Based Compensation
 
 
Three Months Ended
December 31,
 
2019
 
2018
Share-based compensation costs
$
2.3

 
$
1.9

Less impact of income tax benefit
0.5

 
0.4

Share-based compensation costs, net of tax
$
1.8

 
$
1.5


 
The Company has share-based compensation with long-term performance-based metrics that are contingent upon the Company’s relative total shareholder return and the creation of shareholder value. Relative total shareholder return is determined by comparing the Company’s total shareholder return during a three-year period to the respective total shareholder returns of companies in a designated performance peer group or stock index, as applicable. Creation of shareholder value is measured by the cumulative cash returns and final period net operating profit after tax compared to the established hurdle rate over a three-year period.  For the performance-based awards contingent upon the creation of shareholder value, compensation expense is adjusted each quarter based upon actual results to date and any changes to forecasted information on each of the separate grants. 
 
During the three months ended December 31, 2019, the Company made the following grants:
 
 
Number of
Units
Stock options
454,929

Time-based stock awards
250,741

Performance-based stock awards (maximum that can be earned)
247,112


 
Stock options granted during fiscal 2020 had a weighted-average exercise price of $31.94 and a weighted-average grant date fair value of $6.63.  The Company’s time-based stock awards and performance-based stock awards granted during fiscal 2020 had weighted-average grant date fair values of $31.94 and $34.97.  Included in the performance-based stock awards granted during fiscal 2020 are 247,112 units whose payout level is based upon the Company’s relative total shareholder return over the three-year measurement period, as described above.  These units will be expensed on a straight-line basis over the measurement period and are not subsequently adjusted after the grant date.
 
v3.19.3.a.u2
Other Income, Net
3 Months Ended
Dec. 31, 2019
Other Nonoperating Income (Expense) [Abstract]  
Other Income, Net
Other Income, Net

 
Three Months Ended
December 31,
 
2019
 
2018
Interest income
$
1.3

 
$
0.2

Foreign currency exchange gain, net
0.1

 
0.4

Other, net
0.5

 
(0.1
)
Other income, net
$
1.9

 
$
0.5


v3.19.3.a.u2
Commitments and Contingencies
3 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
 
Like most companies, Hillenbrand is involved from time to time in claims, lawsuits, and government proceedings relating to its operations, including environmental, patent infringement, business practices, commercial transactions, product and general liability, workers’ compensation, auto liability, employment, and other matters.  The ultimate outcome of these matters cannot be predicted with certainty.  An estimated loss from these contingencies is recognized when the Company believes it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated; however, it is difficult to measure the actual loss that might be incurred related these matters.  If a loss is not considered probable and/or cannot be reasonably estimated, the Company is required to make a disclosure if there is at least a reasonable possibility that a significant loss may have been incurred.  Legal fees associated with claims and lawsuits are generally expensed as incurred.
 
Claims covered by insurance have in most instances deductibles and self-funded retentions up to $0.5 per occurrence or per claim, depending upon the type of coverage and policy period.  For auto, workers compensation, and general liability, outside insurance companies and third-party claims administrators generally assist in establishing individual claim reserves. An independent outside actuary provides estimates of ultimate projected losses, including incurred but not reported claims, which are used to establish reserves for losses.  For all other types of claims, reserves are established based upon advice from internal and external counsel and historical settlement information for claims when such amounts are considered probable of payment.
 
The recorded amounts represent the best estimate of the costs that the Company will incur in relation to such exposures, but it is possible that actual costs will differ from those estimates.
v3.19.3.a.u2
Fair Value Measurements
3 Months Ended
Dec. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
 
Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date.  The authoritative guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are from sources independent of the Company.  Unobservable inputs reflect the Company’s assumptions about the factors market participants would use in valuing the asset or liability, developed based upon the best information available in the circumstances.  The categorization of financial assets and liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  The hierarchy is broken down into three levels:
 
Level 1:
Inputs are quoted prices in active markets for identical assets or liabilities.
Level 2:
Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly.
Level 3: