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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2014

 

Commission File No. 001-33794

 

HILLENBRAND, INC.

(Exact name of registrant as specified in its charter)

 

Indiana (State of incorporation)		26-1342272 (I.R.S. Employer Identification No.)
One Batesville Boulevard
Batesville, IN		47006
(Address of principal executive offices)		(Zip Code)

 

(812) 934-7500

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  x   No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  x   No  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).   Yes  o   No  x

 

The registrant had 62,845,997 shares of common stock, no par value per share, outstanding as of July 31, 2014.

 

 

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HILLENBRAND, INC.

INDEX TO FORM 10-Q

 

		Page
	PART I — FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income for the Three and Nine Months Ended June 30, 2014 and 2013	3
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended June 30, 2014 and 2013	4
	Consolidated Balance Sheets at June 30, 2014, and September 30, 2013	5
	Consolidated Statements of Cash Flow for the Nine Months Ended June 30, 2014 and 2013	6
	Condensed Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risks	35
Item 4.	Controls and Procedures	35
	PART II — OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6.	Exhibits	41
SIGNATURES

 

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PART I — FINANCIAL INFORMATION

 

Item 1. FINANCIAL STATEMENTS

 

Hillenbrand, Inc.

Consolidated Statements of Income (Unaudited)

( in millions, except per share data )

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2014			2013			2014			2013
Net revenue		$	416.8		$	408.8		$	1,198.5		$	1,112.5
Cost of goods sold		267.5			276.0			775.4			735.2
Gross profit		149.3			132.8			423.1			377.3
Operating expenses		97.7			107.1			291.6			301.9
Operating profit		51.6			25.7			131.5			75.4
Interest expense		5.6			5.9			17.5			17.2
Other income (expense), net		0.1			(0.3		)	9.7			0.3
Income before income taxes		46.1			19.5			123.7			58.5
Income tax expense		12.7			5.8			35.4			17.0
Consolidated net income		33.4			13.7			88.3			41.5
Less: Net income attributable to noncontrolling interests		0.6			0.4			2.2			1.2
Net income(1)		$	32.8		$	13.3		$	86.1		$	40.3
Net income(1)  — per share of common stock:
Basic earnings per share		$	0.52		$	0.21		$	1.36		$	0.64
Diluted earnings per share		$	0.51		$	0.21		$	1.35		$	0.64
Weighted average shares outstanding (basic)		63.1			62.8			63.2			62.7
Weighted average shares outstanding (diluted)		63.7			63.2			63.8			63.0
Cash dividends per share		$	0.1975		$	0.1950		$	0.5925		$	0.5850

 

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(1) Net income attributable to Hillenbrand

 

See Condensed Notes to Consolidated Financial Statements

 

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Hillenbrand, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

(in millions)

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2014			2013			2014			2013
Consolidated net income		$	33.4		$	13.7		$	88.3		$	41.5
Changes in other comprehensive income (loss), net of tax
Currency translation adjustment		(3.3		)	5.2			5.3			(3.8		)
Pension and postretirement (net of quarter-to-date tax of $0.3 and $0.1 and year-to date tax of $1.8 and $1.5)		0.7			1.7			3.8			3.0
Change in net unrealized gain (loss) on derivative instruments (net of quarter-to-date tax of $— and $0.1 and year-to-date tax of $0.1 and $0.3)		(0.5		)	0.2			(0.2		)	(0.5		)
Change in net unrealized gain (loss) on available-for-sale securities (net of quarter-to-date tax of $— and $— and year-to-date tax of $— and $0.1)		—			—			—			(0.2		)
Total changes in other comprehensive income (loss), net of tax		(3.1		)	7.1			8.9			(1.5		)
Consolidated comprehensive income (loss)		30.3			20.8			97.2			40.0
Less: Comprehensive income attributable to noncontrolling interests		0.6			0.4			2.2			1.2
Comprehensive income (loss)(2)		$	29.7		$	20.4		$	95.0		$	38.8

 

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(2) Comprehensive income (loss) attributable to Hillenbrand

 

See Condensed Notes to Consolidated Financial Statements

 

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Hillenbrand, Inc.

Consolidated Balance Sheets (Unaudited)

( in millions )

 

		June 30,			September 30,
		2014			2013
ASSETS
Current Assets
Cash and cash equivalents		$	61.7		$	42.7
Trade receivables, net		177.3			213.4
Unbilled receivables from long-term manufacturing contracts		146.3			142.1
Inventories		184.5			177.5
Deferred income taxes		23.4			22.3
Prepaid expenses		32.6			20.4
Other current assets		20.1			21.0
Total current assets		645.9			639.4
Property, plant, and equipment, net		169.4			171.9
Intangible assets, net		539.3			558.6
Goodwill		596.1			585.8
Other assets		40.7			47.5
Total Assets		$	1,991.4		$	2,003.2
LIABILITIES
Current Liabilities
Trade accounts payable		$	178.0		$	183.2
Liabilities from long-term manufacturing contracts and advances		100.5			80.9
Current portion of long-term debt		14.5			10.0
Accrued compensation		61.7			59.6
Deferred income taxes		15.4			12.1
Other current liabilities		107.6			119.7
Total current liabilities		477.7			465.5
Long-term debt		582.1			654.3
Long-term portion of accrued pension and postretirement healthcare		187.7			190.3
Deferred income taxes		69.9			75.4
Other long-term liabilities		33.1			41.4
Total Liabilities		1,350.5			1,426.9
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Common stock, no par value (63.5 and 63.1 shares issued, 62.8 and 62.9 shares outstanding)		—			—
Additional paid-in capital		341.6			321.7
Retained earnings		300.5			252.2
Treasury stock (0.7 and 0.2 shares)		(20.3		)	(4.2		)
Accumulated other comprehensive income (loss)		7.5			(1.4		)
Hillenbrand Shareholders’ Equity		629.3			568.3
Noncontrolling interests		11.6			8.0
Total Shareholders’ Equity		640.9			576.3
Total Liabilities and Equity		$	1,991.4		$	2,003.2

 

See Condensed Notes to Consolidated Financial Statements

 

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Hillenbrand, Inc.

Consolidated Statements of Cash Flow (Unaudited)

( in millions )

 

		Nine Months Ended
		June 30,
		2014			2013
Operating Activities
Consolidated net income		$	88.3		$	41.5
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization		43.7			70.3
Deferred income taxes		(4.6		)	(20.4		)
Share-based compensation		6.2			5.0
Net (gain) loss on investments		(7.8		)	0.8
Trade accounts receivable and receivables on long-term manufacturing contracts		33.6			(10.0		)
Inventories		(6.2		)	11.3
Other current assets		(12.8		)	(26.4		)
Trade accounts payable		(7.0		)	(1.2		)
Accrued expenses and other current liabilities		14.5			(38.2		)
Income taxes payable		(7.9		)	16.2
Pension plan funding		(13.4		)	(15.4		)
Pension and postretirement plan expense		10.8			13.1
Other, net		(0.5		)	4.2
Net cash provided by operating activities		136.9			50.8
Investing Activities
Capital expenditures		(17.9		)	(19.1		)
Proceeds from sales of property, plant, and equipment		0.8			1.3
Proceeds from investments		5.5			1.7
Acquisition of business, net of cash acquired		—			(415.7		)
Other, net		1.1			1.0
Net cash used in investing activities		(10.5		)	(430.8		)
Financing Activities
Proceeds from term loan		—			200.0
Repayments on term loan		(7.5		)	(7.5		)
Proceeds from revolving credit facilities, net of financing costs		247.1			648.9
Repayments on revolving credit facilities		(309.2		)	(404.1		)
Proceeds from other borrowings		0.7			—
Payments of dividends on common stock		(37.2		)	(36.5		)
Repurchases of common stock		(16.5		)	—
Net proceeds (payments) on stock plans		13.5			(1.3		)
Other, net		0.2			0.4
Net cash (used in) provided by financing activities		(108.9		)	399.9
Effect of exchange rates on cash and cash equivalents		1.5			1.0
Net cash flows		19.0			20.9
Cash and cash equivalents:
At beginning of period		42.7			20.2
At end of period		$	61.7		$	41.1

 

See Condensed Notes to Consolidated Financial Statements

 

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Hillenbrand, Inc.

Condensed Notes to Consolidated Financial Statements (Unaudited)

( in millions, except share and per share data )

 

1.               Background and Basis of Presentation

 

Hillenbrand, Inc. (“Hillenbrand”) is a global diversified industrial company that makes and sells premium business-to-business products and services for a wide variety of industries.  We pursue profitable growth and meaningful dividends for our shareholders by leveraging our leading brands, robust cash generation capabilities, and strong core competencies.  Hillenbrand has two segments:  the Process Equipment Group and Batesville ® .  The Process Equipment Group has multiple market-leading brands of process and material handling equipment and systems serving a wide variety of industries across the globe.  Batesville is a recognized leader in the North American death care industry.  Hillenbrand was incorporated on November 1, 2007, in the state of Indiana and began trading on the New York Stock Exchange under the symbol “HI” on April 1, 2008.  “Hillenbrand,” “the Company,” “we,” “us,” “our,” and similar words refer to Hillenbrand and its subsidiaries.

 

The accompanying unaudited consolidated financial statements include the accounts of Hillenbrand and its subsidiaries, including Coperion Capital GmbH (“Coperion”), which was acquired on December 1, 2012.  The acquisition of Coperion included a few small subsidiaries where Coperion’s ownership percentage was 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 accounting principles generally accepted in the United States (“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 our latest Annual Report on Form 10-K for the year ended September 30, 2013, as filed with the SEC.  The September 30, 2013 Consolidated Balance Sheet included in this Form 10-Q was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP for a year-end balance sheet included in Form 10-K.  Certain prior period balances have been reclassified to conform to the current presentation.  In the opinion of management, these 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 flow as of the dates and for the periods presented.

 

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense 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 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 the incentive compensation programs.

 

Correction of Errors

 

During the first quarter of 2014, we recorded an adjustment to operating expenses to correct errors related to the accounting for sales commissions at Coperion in 2013.  The adjustment reduced operating expenses in the first quarter of 2014 by $2.0, which should have been recorded in 2013.  In connection with this same issue, we identified a classification error of $8.5 between operating expenses and cost of goods sold in 2013.  We have revised our consolidated statement of income for the three and nine months ended June 30, 2013, to increase cost of goods sold and decrease operating expenses by $2.3 and $5.0, respectively.  We will revise the September 30, 2013 consolidated statements of income to reflect the corrections in future filings.  These corrections decreased operating expenses and increase cost of goods sold by $8.5 for the year ended September 30, 2013.  We believe the impact of these income statement classification errors and the $2.0 adjustment to correct a prior period error was immaterial to our consolidated financial statements for the current and prior periods.

 

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2.               Summary of Significant Accounting Policies

 

The significant accounting policies used in preparing these consolidated financial statements are consistent with the accounting policies described in our Annual Report on Form 10-K for 2013.

 

Recently Adopted and Issued Accounting Standards

 

In February 2013, the FASB issued Accounting Standards Update (“ASU”) 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income .  ASU 2013-02 is intended to improve the reporting of reclassifications out of accumulated other comprehensive income of various components.  An entity is required to present significant amounts reclassified from each component of accumulated other comprehensive income and the income statement affected by the reclassification.  The new disclosure requirements became effective and were adopted for our fiscal year beginning October 1, 2013.  The adoption of this disclosure-only guidance did not have an impact on our consolidated financial statements.

 

In July 2013, the FASB issued ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists .  ASU 2013-11 requires the netting of unrecognized tax benefits (“UTBs”) against a deferred tax asset for a loss or other carryforward that would apply in settlement of the uncertain tax positions.  Under ASU 2013-11, UTBs will be netted against all available same—jurisdiction loss or other tax carryforwards that would be utilized, rather than only against carryforwards that are created by the UTBs.  ASU 2013-11 will be effective for our fiscal year beginning October 1, 2014.  We do not expect the adoption of ASU 2013-11 to have a significant impact on our consolidated financial statements.

 

In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity , which includes amendments that change the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under ASU 2014-08, only disposals representing a strategic shift in operations should be presented as discontinued operations.  ASU 2014-08 will be effective for our fiscal year beginning October 1, 2015. We do not expect the adoption of ASU 2014-08 to have a material impact on our consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 supersedes the revenue recognition requirements in Revenue Recognition (Topic 605) , and 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 to in exchange for those goods or services. ASU 2014-09 will be effective for our fiscal year beginning October 1, 2017, including interim periods within that reporting period, and allows for either full retrospective adoption or modified retrospective adoption, with early adoption not permitted. We are currently evaluating the impact that ASU 2014-09 will have on our consolidated financial statements.

 

In June 2014, the FASB issued ASU 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period .  ASU 2014-12 states that a performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition. ASU 2014-12 will be effective for our fiscal year beginning October 1, 2016, with early adoption permitted.  We are currently evaluating the impact that ASU 2014-12 will have on our consolidated financial statements.

 

3.               Business Acquisitions

 

We completed the acquisition of Coperion on December 1, 2012, in a transaction valued at $545.0.  The aggregate purchase consideration consisted of $269.1 of cash, net of cash acquired, and the assumption of $146.0 of debt and $129.9 of pension liabilities.  We utilized $426.3 of borrowings under our revolving credit facility and cash on hand to finance the acquisition, including the repayment of $146.0 of debt outstanding under Coperion’s prior financing arrangements.

 

This acquisition was the largest in the Company’s history and represented an important step in the execution of our strategic plans to further diversify Hillenbrand and accelerate the growth of the Process Equipment Group.  The integration of Coperion with the Process Equipment Group will continue to be a key initiative for the near term. 

 

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Combining Coperion’s product offerings with those of our other Process Equipment Group companies to provide a more complete system solution is an important part of our integration.  In addition, we believe leveraging Coperion’s global infrastructure will enable all businesses within our Process Equipment Group to enter new global markets more quickly.  We also expect the Process Equipment Group’s strong U.S. sales network will enhance Coperion’s expansion in North America.  Finally, the application of the Company’s Lean tools and other core competencies to Coperion’s operations is expected to continue to contribute to improved margins and increased customer satisfaction.

 

The following table summarizes fair values of the assets acquired and liabilities assumed for the Coperion acquisition:

 

		December 1, 2012
Cash and cash equivalents		$	32.8
Inventory		112.4
Current assets, excluding cash and cash equivalents and inventory		180.0
Property, plant, and equipment		54.4
Identifiable intangible assets		291.8
Goodwill		273.8
Other assets		2.1
Total assets acquired		947.3
Current liabilities		287.3
Accrued pension obligations		129.9
Deferred income taxes		67.3
Other long-term liabilities		6.7
Total liabilities assumed		491.2
Noncontrolling interests		8.2
Aggregate purchase price		$	447.9

 

Final purchase accounting adjustments were made during the first quarter of 2014 that increased goodwill ($7.3) and the accrued pension obligations ($4.3) based on finalization of the actuarial analysis for Coperion’s defined benefit plans.  In addition, adjustments were made to increase current liabilities ($1.3) and noncontrolling interests ($1.7).  In the second quarter of 2014, an immaterial $1.3 correction was made to the first quarter pension adjustment to decrease deferred income taxes resulting in total purchase accounting adjustments that increased goodwill by $6.0 in 2014.  These adjustments are reflected in the table above.

 

Set forth below is unaudited pro forma information for the nine months ended June 30, 2013.  The unaudited pro forma information is presented for informational purposes only and does not necessarily reflect the results of operations that would actually have been achieved.

 

		Nine Months Ended June 30, 2013
Pro forma net revenue		$	1,227.7
Pro forma net income(1)		$	87.9
Pro forma basic earnings per share		$	1.40
Pro forma diluted earnings per share		$	1.40

 

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(1)Pro forma net income attributable to Hillenbrand

 

We incurred $13.5 of net business acquisition costs associated with the acquisition during the nine months ended June 30, 2013.  These costs consisted of $13.4 of operating expenses and $1.1 of interest expense, partially offset by $1.0 of other income.

 

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4.               Supplemental Balance Sheet Information

 

		June 30,			September 30,
		2014			2013
Trade accounts receivable reserves		$	18.4		$	19.3
Accumulated depreciation on property, plant, and equipment		$	281.4		$	268.0
Accumulated amortization on intangible assets		$	126.4		$	99.6
Inventories:
Raw materials and components		$	57.3		$	58.3
Work in process		80.1			74.8
Finished goods		47.1			44.4
Total inventories		$	184.5		$	177.5

 

5.               Financing Agreements

 

		June 30,			September 30,
		2014			2013
$700 revolving credit facility (excludes outstanding letters of credit)		$	264.4		$	325.5
$200 term loan		182.5			190.0
$150 senior unsecured notes, due July 15, 2020, net of discount		148.9			148.8
Other borrowings		0.8			—
Total debt		596.6			664.3
Less: current portion		14.5			10.0
Total long-term debt		$	582.1		$	654.3

 

With respect to the $700 revolving credit facility (the “Facility”), as of June 30, 2014, we had $13.1 in outstanding letters of credit issued and $422.5 of maximum borrowing capacity.  $342.8 of borrowing capacity is immediately available based on our leverage covenant at June 30, 2014, with additional amounts available in the event of a qualifying acquisition.  The weighted-average interest rates on borrowings under the Facility were 1.32% and 1.35% for the three and nine months ended June 30, 2014, and 1.37% for the same periods in the prior year.  The Facility carries a leverage-based facility fee, assessed on the entire facility amount.

 

The weighted average interest rates on the term loan were 1.58% and 1.64% for the three and nine months ended June 30, 2014, and 1.70% and 1.73% for the same periods in the prior year.

 

In the normal course of business, the Process Equipment Group provides customers with 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 June 30, 2014, we had guarantee arrangements with capacity totaling $279.3 under which $220.6 was utilized for this purpose.  These arrangements include a €150.0 Syndicated Letter of Guarantee Facility (“LG Facility”) under which unsecured letters of credit, bank guarantees, or other surety bonds may be issued.

 

The availability of borrowings under the Facility and the LG Facility is subject to our ability to meet certain conditions including compliance with covenants, absence of default, and continued accuracy of certain representations and warranties.  As of June 30, 2014, we were in compliance with all covenants.

 

We had restricted cash of $0.5 and $1.3 at June 30, 2014 and September 30, 2013.

 

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6.               Retirement Benefits

 

Defined Benefit Plans

 

		U.S. Pension Benefits						Non-U.S. Pension Benefits
		Three Months Ended June 30,						Three Months Ended June 30,
		2014			2013			2014			2013
Service costs		$	1.0		$	1.2		$	0.4		$	0.4
Interest costs		3.6			3.5			1.1			0.8
Expected return on plan assets		(3.5		)	(3.6		)	(0.3		)	0.1
Amortization of unrecognized prior service costs, net		0.3			0.3			—			—
Amortization of net loss		0.9			1.8			—			—
Net pension costs		$	2.3		$	3.2		$	1.2		$	1.3

 

		U.S. Pension Benefits						Non-U.S. Pension Benefits
		Nine Months Ended June 30,						Nine Months Ended June 30,
		2014			2013			2014			2013
Service costs		$	3.0		$	3.6		$	1.2		$	1.2
Interest costs		10.9			9.4			3.2			2.8
Expected return on plan assets		(10.5		)	(9.6		)	(0.8		)	(0.8		)
Amortization of unrecognized prior service costs, net		0.7			0.7			—			—
Amortization of net loss		2.8			5.4			—			—
Net pension costs		$	6.9		$	9.5		$	3.6		$	3.2

 

Postretirement Healthcare Plans — Net postretirement healthcare costs were $0.1 and $0.1 for the three months ended June 30, 2014 and 2013, and $0.3 and $0.4 for the nine months ended June 30, 2014 and 2013.

 

Defined Contribution Plans — Expenses related to our defined contribution plans were $2.3 and $2.1 for the three months ended June 30, 2014 and 2013, and $6.5 and $6.2 for the nine months ended June 30, 2014 and 2013.

 

7.               Income Taxes

 

The effective tax rates for the three months ended June 30, 2014 and 2013 were 27.5% and 29.7%.  The effective tax rates for the nine months ended June 30, 2014 and 2013 were 28.6% and 29.1%.  The decrease in the effective tax rates during the three and nine months ended June 30, 2014 was primarily due to current year discrete tax benefits.

 

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8.               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 June 30, 2014 and 2013, potential dilutive effects, representing approximately 1,800,000 and 2,000,000 shares were excluded from the computation of diluted earnings per share as the related performance criteria were not yet met, although we expect to meet various levels of criteria in the future.

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2014			2013			2014			2013
Net income(1)		$	32.8		$	13.3		$	86.1		$	40.3
Weighted average shares outstanding (basic - in millions)		63.1			62.8			63.2			62.7
Effect of dilutive stock options and other unvested equity awards (in millions)		0.6			0.4			0.6			0.3
Weighted average shares outstanding (diluted - in millions)		63.7			63.2			63.8			63.0
Basic earnings per share		$	0.52		$	0.21		$	1.36		$	0.64
Diluted earnings per share		$	0.51		$	0.21		$	1.35		$	0.64
Shares with anti-dilutive effect excluded from the computation of diluted earnings per share (in millions)		0.4			1.8			0.4			1.7

 

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(1) Net income attributable to Hillenbrand

 

9.               Shareholders’ Equity

 

During the nine months ended June 30, 2014, we paid $37.2 of cash dividends and acquired the remaining shares of a previously less than wholly-owned subsidiary for $1.4.  We also repurchased approximately 527,000 shares of our common stock during the nine months ended June 30, 2014, for a total cost of $16.5, as part of an approved and publicly announced program.

 

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10.        Other Comprehensive Income (Loss)

 

		Pension and Postretirement			Currency Translation			Net Unrealized Gain (Loss) on Derivative Instruments			Net Unrealized Gain (Loss) on Available- for-Sale Securities			Total Attributable to Hillenbrand, Inc.			Noncontrolling Interests			Total
Balance at September 30, 2013		$	(33.0	)	$	31.4		$	0.2		$	—		$	(1.4	)
Other comprehensive income before reclassifications
Before tax amount		2.4			5.3			1.0			—			8.7			$	—		$	8.7
Tax benefit (expense)		(0.7		)	—			(0.3		)	—			(1.0		)	—			(1.0		)
After tax amount		1.7			5.3			0.7			—			7.7			—			7.7
Amounts reclassified from accumulated other comprehensive income(1)		2.1			—			(0.9		)	—			1.2			—			1.2
Net current period other comprehensive income (loss)		3.8			5.3			(0.2		)	—			8.9			$	—		$	8.9
Balance at June 30, 2014		$	(29.2	)	$	36.7		$	—		$	—		$	7.5

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(1)  Amounts are net of tax.

 

Reclassifications out of Accumulated Other Comprehensive Income include:

 

		Three Months Ended June 30, 2014
		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		0.6			0.1			(0.1		)	0.6
Operating expenses		0.2			0.1			—			0.3
Other income (expense), net		—			—			(0.1		)	(0.1		)
Total before tax		$	0.8		$	0.2		$	(0.3	)	0.7
Tax expense											(0.3		)
Total reclassifications for the period, net of tax											$	0.4

 

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		Nine Months Ended June 30, 2014
		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		$	—		$	—		$	(0.5	)	$	(0.5	)
Cost of goods sold		1.9			0.4			(0.4		)	1.9
Operating expenses		0.7			0.2			—			0.9
Other income (expense), net		—			—			(0.4		)	(0.4		)
Total before tax		$	2.6		$	0.6		$	(1.3	)	1.9
Tax expense											(0.7		)
Total reclassifications for the period, net of tax											$	1.2

 

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(1) These accumulated other comprehensive income components are included in the computation of net periodic pension cost (see Note 6).

 

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11.        Share-Based Compensation

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2014			2013			2014			2013
Share-based compensation costs (income)		$	1.1		$	(1.0	)	$	6.2		$	5.0
Less impact of income tax benefit (expense)		0.4			(0.4		)	2.3			1.8
Share-based compensation costs (income),net of tax		$	0.7		$	(0.6	)	$	3.9		$	3.2

 

Share-based compensation related to our long-term performance-based stock awards is contingent upon the creation of shareholder value as measured by the cumulative cash returns and final period net operating profit after tax compared to the performance-based targets for each grant over a three-year period.  For certain performance based awards, compensation expense is adjusted each quarter based upon actual results to date and any changes to forecasted information on each of the separate grants.  The share-based compensation income recognized during the three months ended June 30, 2013 was driven by these adjustments.

 

During the nine months ended June 30, 2014, we made the following grants:

 

		Number of Units
Stock options		455,922
Time-based stock awards		60,154
Performance-based stock awards (maximum that can be earned)		582,391

 

Stock options granted had a weighted-average exercise price of $28.18 and a weighted-average grant date fair value of $6.97.  Our time-based stock awards and performance-based stock awards had a weighted-average grant date fair value of $29.30 and $28.56.  Included in the performance-based stock awards granted during 2014 are 187,847 units whose payout level is based upon the Company’s total shareholder return as it relates to the performance of companies in its compensation peer group over a three-year measurement period.  These units will be expensed on a straight-line basis over the measurement period and are not subsequently adjusted after the grant date.

 

During the nine months ended June 30, 2014, we increased the shares issuable under the stock compensation plans by approximately 3,900,000.

 

12.        Other Income (Expense), Net

 

		Three Months Ended						Nine Months Ended
		June 30,						June 30,
		2014			2013			2014			2013
Equity in net income (loss) of affiliates		$	—		$	(0.2	)	$	2.6		$	(0.8	)
Foreign currency exchange gain (loss), net		—			(0.2		)	(0.6		)	0.9
Business acquisition and transition costs, net		—			0.2			—			1.0
Gain on exercise of warrants		—			—			5.2			—
Service agreement cancellation		—			—			2.5			—
Other, net		0.1			(0.1		)	—			(0.8		)
Other income and expense, net		$	0.1		$	(0.3	)	$	9.7		$	0.3

 

Since our spin-off from our former parent, we have held warrants to purchase the common stock of Forethought Financial Group, Inc. (“Forethought”).  Forethought was acquired by a third-party during the second quarter of 2014.  In connection with that acquisition, these warrants were exercised for $6.2, resulting in a gain of $5.2 during the second quarter of 2014.

 

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