NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
1. Background
Hillenbrand, Inc. 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, and great professional opportunities for our employees, and to be responsible to our communities through deployment of the Hillenbrand Operating Model (“HOM”). The HOM is a consistent and repeatable framework designed to produce sustainable and predictable results. The HOM describes the Company’s mission, vision, values, and mindset as leaders; applies our management practices in Strategy Management, Segmentation, Lean, Talent Development, and Acquisitions; and prescribes three steps (Understand, Focus, and Grow) designed to make the Company’s businesses both bigger and better. The Company’s goal is to continue developing Hillenbrand as a world-class global diversified industrial company through the deployment of the HOM.
On July 12, 2019, Hillenbrand entered into a definitive agreement (the “Merger Agreement”) to acquire Milacron Holdings Corp. (“Milacron”) in a cash and stock merger transaction. The Company completed the acquisition on November 21, 2019 through a merger of its wholly-owned subsidiary with and into Milacron, resulting in ownership of 100% of Milacron’s common stock that was issued and outstanding after the merger. The Consolidated Financial Statements include the financial results of Milacron from the date of acquisition. See Note 4 for further information on the acquisition.
Hillenbrand’s portfolio is composed of three reportable operating segments: Advanced Process Solutions, Molding Technology Solutions, and Batesville®. Advanced Process Solutions operating companies design, develop, manufacture, and service highly engineered industrial equipment and systems around the world. Molding Technology Solutions is a global leader in highly engineered and customized equipment and systems in plastic technology and processing. Batesville is a recognized leader in the death care industry in North America. “Hillenbrand,” the “Company,” “we,” “us,” “our,” and similar words refer to Hillenbrand and its subsidiaries unless context otherwise requires.
On March 11, 2020, the World Health Organization declared the outbreak of the novel strain of coronavirus (“COVID-19”) a global pandemic and recommended containment and mitigation measures worldwide, and the effects of the ongoing COVID-19 pandemic and such associated measures on management’s estimates and results of operations through September 30, 2021 are reflected in the Consolidated Financial Statements. Given the unprecedented nature of the ongoing COVID-19 pandemic, the Company cannot reasonably estimate the full extent of the impact that the ongoing COVID-19 pandemic will continue to have on its consolidated financial condition, results of operations, or cash flows in the foreseeable future. The ultimate impact of the COVID-19 pandemic on the Company is highly uncertain and will depend on future developments, and such impacts could exist for an extended period of time, even after the ongoing COVID-19 pandemic subsides or if variant strains of the virus further impact the global economy or the Company. Events and changes in circumstances arising after September 30, 2021, including those resulting from the ongoing impacts of the COVID-19 pandemic, will be reflected in management’s estimates for future periods in subsequent periodic filings.
2. Summary of Significant Accounting Policies
Basis of presentation — The accompanying Consolidated Financial Statements include the accounts of Hillenbrand and its subsidiaries. They also include two subsidiaries where the Company’s ownership percentage is less than 100%. The portion of the businesses that are not owned by the Company is presented as noncontrolling interests within equity in the Consolidated Balance Sheets. Income attributable to the noncontrolling interests is separately reported within the Consolidated Statements of Operations. All significant intercompany accounts and transactions have been eliminated.
Use of estimates — The Company prepared the Consolidated Financial Statements in conformity with U.S. generally accepted accounting principles (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of net revenue and expenses during the reporting period. The Company’s results are affected by economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies, government policies surrounding the containment of the ongoing COVID-19 pandemic and changes in the prices of raw materials, can have a significant effect on operations. Actual results could differ from those estimates.
Foreign currency translation — The financial statements of the Company’s foreign subsidiaries are translated into U.S. dollars using period-end exchange rates for assets and liabilities and average exchange rates for operating results. Unrealized translation gains and losses are included in accumulated other comprehensive loss in shareholders’ equity. When a transaction is denominated in a currency other than the subsidiary’s functional currency, the Company recognizes a transaction gain or loss in other (expense) income, net within the Consolidated Statements of Operations when the transaction is settled.
Cash and cash equivalents include short-term investments with original maturities of three months or less. The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents are valued at cost, which approximates their fair value.
Trade receivables are recorded at the invoiced amount and generally do not bear interest, unless they become past due. The allowance for doubtful accounts is a best estimate of the amount of probable credit losses and collection risk in the existing trade receivables portfolio. The allowance for cash discounts and sales returns reserve are based upon historical experience and trends. Account balances are charged against the allowance when the Company believes it is probable the receivable will not be recovered. The Company generally holds trade receivables until they are collected. At September 30, 2021 and 2020, the Company had reserves against trade receivables of $26.0 and $24.0, respectively.
The Company specifically considered the impact of the ongoing COVID-19 pandemic on its trade receivables and determined there was no material impact on existing trade receivables at September 30, 2021 or 2020.
Inventories are valued at the lower of cost or market. Inventory costs that are determined by the last-in, first-out (“LIFO”) method represented approximately 10% of inventories at both September 30, 2021 and 2020. Costs of remaining inventories have been determined principally by the first-in, first-out (“FIFO”) and average cost methods. If the FIFO method of inventory accounting, which approximates current cost, had been used for inventories accounted for using the LIFO method, that inventories would have been approximately $16.2 and $14.9 higher than reported at September 30, 2021 and 2020, respectively. Inventories are comprised of the following amounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2021
|
|
2020
|
Finished goods
|
$
|
154.5
|
|
|
$
|
163.4
|
|
Raw materials and components
|
153.1
|
|
|
133.3
|
|
Work in process
|
104.0
|
|
|
88.7
|
|
Total inventories
|
$
|
411.6
|
|
|
$
|
385.4
|
|
The Company specifically considered the impact of the ongoing COVID-19 pandemic on its inventories, and determined there was no material impact on existing inventories at September 30, 2021 or 2020.
Property, plant, and equipment are carried at cost less accumulated depreciation. Depreciation is computed using principally the straight-line method based on estimated useful lives of three to 50 years for buildings and improvements and three to 25 years for machinery and equipment. Major improvements that extend the useful lives of such assets are capitalized while expenditures for maintenance, repairs, and minor improvements are expensed as incurred. Upon disposal or retirement, the cost and accumulated depreciation of assets are eliminated. Any gain or loss is reflected within other income (expense), net on the Consolidated Statements of Operations. The Company reviews these assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. An impairment loss would be recognized when estimated future undiscounted cash flows relating to the asset (i.e. fair value) are less than its carrying amount. The impairment loss is measured as the amount by which the carrying amount of an asset exceeds its fair value. There was no impairment loss during the years ended September 30, 2021, 2020, or 2019. Total depreciation expense for the years ended September 30, 2021, 2020, and 2019 was $56.1, $55.7, and $23.2, respectively. Property, plant, and equipment are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
Cost
|
|
Accumulated
Depreciation
|
|
Cost
|
|
Accumulated
Depreciation
|
Land and land improvements
|
$
|
26.2
|
|
|
$
|
(3.8)
|
|
|
$
|
27.8
|
|
|
$
|
(3.6)
|
|
Buildings and building equipment
|
164.7
|
|
|
(79.1)
|
|
|
159.4
|
|
|
(70.1)
|
|
Machinery and equipment
|
485.8
|
|
|
(298.7)
|
|
|
469.1
|
|
|
(268.4)
|
|
Total
|
$
|
676.7
|
|
|
$
|
(381.6)
|
|
|
$
|
656.3
|
|
|
$
|
(342.1)
|
|
Goodwill is not amortized, but is tested for impairment at least annually, or on an interim basis upon the occurrence of triggering events or substantive changes in circumstances. Goodwill has been assigned to reporting units. The Company assesses the carrying value of goodwill annually, or more often if events or changes in circumstances indicate there may be impairment. Impairment testing is performed at a reporting unit level.
The following table summarizes the changes in the Company’s goodwill, by reportable segment, for the years ended September 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Process Solutions
|
|
Molding Technology Solutions
|
|
Batesville
|
|
Total
|
Balance September 30, 2019
|
$
|
462.4
|
|
|
$
|
—
|
|
|
$
|
8.3
|
|
|
$
|
470.7
|
|
Acquisitions (1)
|
1.7
|
|
|
714.7
|
|
|
—
|
|
|
716.4
|
|
Divestiture (2)
|
—
|
|
|
(77.9)
|
|
|
—
|
|
|
(77.9)
|
|
Foreign currency adjustments
|
21.0
|
|
|
7.6
|
|
|
—
|
|
|
28.6
|
|
September 30, 2020 (3)
|
485.1
|
|
|
644.4
|
|
|
8.3
|
|
|
1,137.8
|
|
Acquisitions (1)
|
—
|
|
|
19.6
|
|
|
—
|
|
|
19.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency adjustments
|
(0.2)
|
|
|
11.4
|
|
|
—
|
|
|
11.2
|
|
Balance September 30, 2021
|
$
|
484.9
|
|
|
$
|
675.4
|
|
|
$
|
8.3
|
|
|
$
|
1,168.6
|
|
(1)See Note 4 for further information on the acquisitions of Milacron
(2)See Note 4 for further information on the divestiture of Cimcool and flow control businesses.
(3)The goodwill impairment charges recorded during 2020 for the reporting units within the Advanced Process Solutions reportable operating segment are not shown in the table above as the related goodwill is classified as assets held for sale on the Consolidated Balance Sheets. See Note 4 for further information.
Annual impairment assessment
Change in annual impairment assessment date
Testing for impairment of goodwill and indefinite-lived intangible assets must be performed annually, or on an interim basis upon the occurrence of triggering events or substantive changes in circumstances that indicate that the fair value of the asset or reporting unit may have decreased below the carrying value.
The Company has historically performed its annual goodwill and indefinite-lived intangible asset impairment assessments at different times for each of its reporting units within the fiscal year (April 1, May 31 and July 1). During the second quarter of fiscal 2021, the Company voluntarily decided to change the dates of its annual impairment assessments of goodwill and indefinite-lived intangible assets so that the assessments for all of the Company’s reporting units and indefinite-lived intangible assets will occur on July 1, the first day of the fourth quarter of the Company’s fiscal year. The change was made to more closely align the annual impairment assessment dates with the Company’s annual planning and budgeting process, as well as its long-term planning and forecasting process for all reporting units. This change is also expected to provide more consistency in the application of our annual goodwill and indefinite-lived intangible asset impairment assessments across each of the Company’s reporting units. The Company has determined this voluntary change in accounting principle is preferable and will not affect the Consolidated Financial Statements. Pursuant to the authoritative accounting literature, in fiscal 2021, the Company performed its impairment assessment as of the first day of its third fiscal quarter of 2021 (April 1), and as of May 31 for one reporting unit, to ensure that the change in annual impairment assessment dates, to July 1, did not delay, accelerate or avoid an impairment charge. At April 1, 2021 and May 31, 2021, the goodwill and indefinite-lived intangible asset impairment assessments for certain of the Company’s reporting units and indefinite-lived intangible assets were completed using a qualitative assessment. For those reporting units and indefinite-lived intangible assets evaluated at April 1, 2021 and May 31, 2021, it was determined that it is not more likely than not that the fair values of the reporting units and indefinite-lived intangible assets were less than their carrying values, and therefore no further analysis was required and no impairment loss was recognized.
This change was not applied retrospectively as it is impractical to do so because retrospective application would require application of significant estimates and assumptions with the use of hindsight. Accordingly, the change in the annual goodwill and indefinite-lived intangible asset impairment date will be applied prospectively.
The Company performed its now annual July 1 goodwill and indefinite-lived intangible asset impairment assessments during the fourth quarter of fiscal 2021 for all reporting units. For all reporting units, the fair value was determined to exceed the
carrying value, resulting in no impairment to goodwill as part of this test. As a result of the recent Milacron acquisition, see Note 4, there is less cushion, or headroom, for the reporting units with the Molding Technology Solutions reportable operating segment. The estimated fair value, as calculated at July 1, 2021, for all four reporting units within the Molding Technology Solutions reportable operating segment ranged from approximately 9% to 45% greater than their carrying value (3% to 16% at the previous impairment assessment date).
Determining the fair value of a reporting unit requires the Company to make significant judgments, estimates, and assumptions. The Company believes these estimates and assumptions are reasonable. However, future changes in the judgments, assumptions and estimates that are used in the impairment testing for goodwill, including discount and tax rates and future cash flow projections, could result in significantly different estimates of the fair values.
The key assumptions for the market and income approaches we use to determine fair value of our reporting units are updated at least annually. Those assumptions and estimates include macroeconomic conditions, competitive activities, cost containment, achievement of synergy initiatives, market data and market multiples, discount rates, and terminal growth rates, as well as future levels of revenue growth and operating margins, which are based upon the Company’s strategic plan. The strategic plan is updated as part of its annual planning process and is reviewed and approved by management and the Board of Directors. The strategic plan may be revised as necessary during a fiscal year, based on changes in market conditions or other changes in the reporting units. The discount rate assumption is based on the overall after-tax rate of return required by a market participant whose weighted-average cost of capital includes both equity and debt, including a risk premium. The discount rates may be impacted by adverse changes in the macroeconomic environment, including specifically the ongoing COVID-19 pandemic, volatility in the equity and debt markets or other factors. While the Company can implement and has implemented certain strategies to address these events, changes in operating plans or adverse changes in the future could reduce the underlying cash flows used to estimate reporting unit fair values and could result in a decline in fair value that would trigger a future material impairment charge of the reporting units’ goodwill balance.
Although there are always changes in assumptions to reflect changing business and market conditions, our overall valuation methodology and the types of assumptions we use have remained consistent. While we use the best available information to prepare the cash flow and discount rate assumptions, actual future cash flows or market conditions could differ significantly resulting in future impairment charges related to recorded goodwill balances.
The Company is required to provide additional disclosures about fair value measurements as part of the Consolidated Financial Statements for each major category of assets and liabilities measured at fair value on a nonrecurring basis (including impairment assessments). Goodwill and indefinite-lived intangible assets were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows (income approach). Significant increases (decreases) in any of those unobservable inputs in isolation would result in a significantly higher (lower) fair value measurement.
Impairment recorded in the prior year
Fourth quarter of 2020
As a result of classifying certain reporting units within the Advanced Process Solutions reportable operating segment as held for sale at September 30, 2020, the Company recorded a goodwill impairment of $16.9 during the fourth quarter of 2020. See Note 4 for further information.
Second quarter of 2020
In connection with the preparation of the Consolidated Financial Statements for the second quarter of 2020, an interim impairment assessment was performed for select reporting units within the Advanced Process Solutions and Molding Technology Solutions reportable operating segments as a result of certain triggering events and changes in circumstances discussed in detail below. Additionally, based on the macroeconomic factors below, as well as the decline in the Company’s common stock price during the second quarter of 2020, the Company performed a qualitative review for all remaining reporting units and determined that those reporting units did not require an interim impairment test as it was more likely than not that the current fair value of those reporting units exceeded their carrying value, based on their current and projected financial performance as well as the headroom from previous goodwill impairment tests.
For certain reporting units within the Advanced Process Solutions reportable operating segment, an interim impairment review was triggered during the second quarter of 2020 by the Company’s decision to redirect its strategic investments as it remained focused on deleveraging following two major events: (1) the continued evaluation of the Company’s operations following the
acquisition of Milacron completed on November 21, 2019, and (2) adverse macroeconomic conditions primarily driven by the COVID-19 pandemic. In connection with these events, the Company made the decision to limit its future strategic investment in its two reporting units that primarily sell and manufacture products in the flow control sector. The decision to limit future investment, as well as the Company’s updated forecasts, which considered the impact of the COVID-19 pandemic, reduced those reporting units’ anticipated annual revenue growth rates and corresponding profitability and cash flows. The annual revenue growth rates utilized in the Company’s fair value estimate were consistent with the reporting units’ operating plans. As a result of the change to expected future cash flows, along with comparable fair value information, the Company concluded that the carrying value for these reporting units exceeded their fair value, resulting in goodwill impairment charges of $72.3 during the second quarter of 2020. The pre-impairment goodwill balance for these reporting units was $95.2. Additionally, under the relief-from-royalty fair value method, the Company concluded that the carrying value of a trade name associated with one of these reporting units exceeded its fair value. As a result, an impairment charge of $0.7 was recorded for this trade name during the second quarter of 2020. The pre-impairment balance for this trade name was $4.4.
For the reporting units within the Molding Technology Solutions reportable operating segment, an interim impairment review was triggered during the second quarter of 2020, due to adverse macroeconomic conditions primarily driven by the ongoing COVID-19 pandemic. Subsequent to the Company completing the acquisition of Milacron on November 21, 2019, the Company revised its forecasts for all reporting units within the Molding Technology Solutions reportable operating segment due to the deterioration in the overall global economy largely as a result of the ongoing COVID-19 pandemic. As a result of the decline in forecasted net revenue, under the relief-from-royalty fair value method, the Company concluded that the carrying value of certain trade names and technology associated with these reporting units exceeded their fair value. As a result, impairment charges of $9.5 were recorded for these intangible assets during the second quarter of 2020. The pre-impairment balance for these intangible assets was $125.0.
The impairment charges to goodwill and the intangible assets were nondeductible for tax purposes. The following table summarizes the impairment charges during the second quarter of 2020 by reportable operating segment recorded by the Company during the year-ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advanced Process Solutions
|
|
Molding Technology Solutions
|
|
Total
|
Goodwill
|
$
|
72.3
|
|
|
$
|
—
|
|
|
$
|
72.3
|
|
Trade names
|
0.7
|
|
|
7.9
|
|
|
8.6
|
|
Technology, including patents
|
—
|
|
|
1.6
|
|
|
1.6
|
|
Total
|
$
|
73.0
|
|
|
$
|
9.5
|
|
|
$
|
82.5
|
|
Intangible assets are stated at the lower of cost or fair value. With the exception of certain trade names, intangible assets are amortized on a straight-line basis over periods ranging from three to 21 years, representing the period over which the Company expects to receive future economic benefits from these intangible assets. The Company assesses the carrying value of indefinite-lived trade names annually, or more often if events or changes in circumstances indicate there may be impairment. Estimated amortization expense related to intangible assets for the next five years is: $56.7 in 2022, $56.3 in 2023, $56.2 in 2024, $53.0 in 2025, and $52.2 in 2026.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
September 30, 2020
|
|
Cost
|
|
Accumulated
Amortization
|
|
Cost
|
|
Accumulated
Amortization
|
Finite-lived assets:
|
|
|
|
|
|
|
|
Trade names
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
(0.2)
|
|
Customer relationships
|
798.8
|
|
|
(195.4)
|
|
|
787.6
|
|
|
(151.8)
|
|
Technology, including patents
|
137.6
|
|
|
(62.7)
|
|
|
137.6
|
|
|
(51.0)
|
|
Software
|
68.3
|
|
|
(59.4)
|
|
|
65.6
|
|
|
(54.1)
|
|
Backlog
|
—
|
|
|
—
|
|
|
10.0
|
|
|
(10.0)
|
|
Other
|
—
|
|
|
—
|
|
|
0.1
|
|
|
(0.1)
|
|
|
1,004.7
|
|
|
(317.5)
|
|
|
1,001.1
|
|
|
(267.2)
|
|
Indefinite-lived assets:
|
|
|
|
|
|
|
|
Trade names
|
226.6
|
|
|
—
|
|
|
226.8
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
1,231.3
|
|
|
$
|
(317.5)
|
|
|
$
|
1,227.9
|
|
|
$
|
(267.2)
|
|
The net change in intangible assets during the year ended September 30, 2021, was driven primarily by amortization and foreign currency adjustments.
Annual impairment assessment
As a result of the required annual impairment assessment performed in the third and fourth quarters of 2021, as discussed in the goodwill section above, the fair value of indefinite-lived trade names was determined to exceed the carrying value for all indefinite-lived trade names, resulting in no impairment to indefinite-lived trade names as a result of the annual impairment tests during the year ended September 30, 2021. The key assumptions used to determine the fair value of the Company’s indefinite-lived trade names are consistent with those described in the Goodwill section above.
Prior year interim impairment assessments
Second quarter of 2020
Impairment charges of $10.2 were recorded to indefinite-lived intangible assets as a result of an interim impairment review triggered during the second quarter of 2020. See discussion of interim impairment assessments in the Goodwill section above for further information on the impairment charges.
Environmental liabilities — Expenditures that relate to an existing condition caused by past operations which do not contribute to current or future net revenue generation are expensed. A reserve is established when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These reserves are determined without consideration of possible loss recoveries. Based on consultations with an environmental engineer, the range of liability is estimated based on current interpretations of environmental laws and regulations. A determination is made of the specific measures that are believed to be required to remediate the site, the estimated total cost to carry out the remediation plan, and the periods in which the Company will make payments toward the remediation plan. The Company does not make an estimate of inflation for environmental matters because the number of sites is relatively small, the Company believes the magnitude of costs to execute remediation plans is not significant, and the estimated time frames to remediate sites are not believed to be lengthy.
Specific costs included in environmental expense and reserves include site assessment, remediation plan development, clean-up costs, post-remediation expenditures, monitoring, fines, penalties, and legal fees. The amount reserved represents the expected undiscounted future cash outflows associated with such plans and actions and the Company believes is not significant to Hillenbrand.
Self-insurance — The Company is self-funded up to certain limits in the U.S. for product and general liability, workers compensation, and auto liability insurance programs, as well as certain employee health benefits including medical, drug, and dental. Claims covered by insurance have in most instances deductibles and self-funded retentions up to $0.5 per occurrence, depending upon the type of coverage and policy period. The Company’s policy is to estimate reserves for product and general liability, workers compensation, and auto liability based upon a number of factors, including known claims, estimated incurred but not reported claims, and outside actuarial analysis. The outside actuarial analysis is based on historical information along with certain assumptions about future events. These reserves are classified as other current liabilities and other long-term liabilities within the Consolidated Balance Sheets.
Treasury stock consists of the Company’s common shares that have been issued but subsequently reacquired. The Company accounts for treasury stock purchases under the cost method. When these shares are reissued, the Company uses an average-cost method to determine cost. Proceeds in excess of cost are credited to additional paid-in capital.
In December 2018, the Board of Directors authorized a new share repurchase program of up to $200.0 in replacement of the Company’s prior share repurchase program, which eliminated the balance of approximately $39.6 remaining under that prior authorization. The repurchase program has no expiration date but may be terminated by the Board of Directors at any time. Share repurchases under the program are classified as treasury stock. The Company repurchased 2,792,205 shares of common stock during 2021, at a total cost of $121.1. There were no shares repurchased during 2020 and 2019. During the years ended September 30, 2021, 2020, and 2019, there were shares of approximately 700,000, 200,000, and 400,000, respectively, issued from treasury stock under stock compensation programs. At September 30, 2021, the Company had $78.9 remaining for share repurchases under the existing Board of Director’s authorization. Subsequent to September 30, 2021, the Company has repurchased an additional 624,317 shares of common stock at a total cost of $28.9.
Preferred stock — The Company has authorized 1,000,000 shares of preferred stock (no par value), of which no shares were issued or outstanding at September 30, 2021 and 2020.
Accumulated other comprehensive loss includes all changes in Hillenbrand shareholders’ equity during the period except those that resulted from investments by or distributions to shareholders. Accumulated other comprehensive loss was comprised of the following amounts as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2021
|
|
2020
|
Currency translation
|
$
|
13.1
|
|
|
$
|
(21.1)
|
|
Pension and postretirement (net of taxes of $17.8 and $24.2)
|
(49.2)
|
|
|
(69.6)
|
|
Unrealized loss on derivative instruments (net of taxes of $0.7 and $0.7)
|
(10.2)
|
|
|
(12.1)
|
|
Accumulated other comprehensive loss
|
$
|
(46.3)
|
|
|
$
|
(102.8)
|
|
Revenue recognition — Net revenue includes gross revenue less sales discounts, customer rebates, sales incentives, and product returns, all of which require us to make estimates for the portion of these allowances that have yet to be credited or paid to our customers. 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.
Performance Obligations & Contract Estimates
The Advanced Process Solutions operating companies design, engineer, manufacture, market, and service differentiated process and material handling equipment and systems for a wide variety of industries. A large portion of net revenue across the Advanced Process Solutions reportable operating segment is derived from manufactured equipment, which may be standard, customized to meet customer specifications, or turnkey.
Contracts with customers in the Advanced Process Solutions reportable operating segment often include multiple performance obligations. Performance obligations are promises in a contract to transfer a distinct good or service to the customer, and are the basis for determining how revenue is recognized. For instance, a contract may include obligations to deliver equipment, installation services, and spare parts. The Company frequently has contracts for which the equipment and the installation services, as well as highly engineered or specialized spare parts, are all considered a single performance obligation, as in these instances the installation services and/or spare parts are not separately identifiable. However, due to the varying nature of equipment and contracts across the Advanced Process Solutions reportable operating segment, the Company also has contracts where the installation services and/or spare parts are deemed to be separately identifiable and therefore deemed to be distinct performance obligations.
A contract’s transaction price is allocated to each distinct performance obligation based on its respective standalone selling price, and recognized as revenue when, or as, the performance obligation is satisfied. When a distinct performance obligation is not sold separately, the value of the standalone selling price is estimated considering all reasonably available information. When an obligation is distinct, as defined in ASC 606, the Company allocates a portion of the contract price to the obligation and recognizes it separately from the other performance obligations.
As a result, the timing of revenue recognition for each performance obligation is either over time or at a point in time. The Company recognizes revenue over time for long-term manufacturing contracts that have an enforceable right to collect payment for performance completed to date upon customer cancellation and provide one or more of the following: (i) service over a period of time, (ii) highly customized equipment, or (iii) parts which are highly engineered and have no alternative use. Revenue generated from standard equipment and highly-customized equipment or parts contracts without an enforceable right to payment for performance completed to date, as well as non-specialized parts sales and sales of death care products, is recognized at a point in time.
The Company uses the input method of “cost-to-cost” to recognize revenue over time for long-term manufacturing contracts. Accounting for these contracts involves management judgment in estimating total contract revenue and cost. Contract revenues is largely determined by negotiated contract prices and quantities, modified by the Company’s assumptions regarding contract options, change orders, and incentive and award provisions associated with technical performance clauses. Contract costs are incurred over longer periods of time and, accordingly, the estimation of these costs requires judgment. The Company measures progress based on costs incurred to date relative to total estimated cost at completion. Incurred cost represents work performed, which corresponds with, and the Company believes thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, and certain overhead expenses. Cost estimates are based on various assumptions to project the outcome
of future events, including labor productivity and availability, the complexity of the work to be performed, the cost of materials, and the performance of suppliers and subcontractors. Significant factors that influence these estimates include inflationary trends, technical and schedule risk, internal and subcontractor performance trends, business volume assumptions, asset utilization, and anticipated labor agreements. Revenue and cost estimates are regularly monitored and revised based on changes in circumstances. Anticipated losses on long-term manufacturing contracts are recognized immediately when such losses become evident.
Standalone service revenue is recognized either over time proportionately over the period of the underlying contract or as invoiced, depending on the terms of the arrangement. Standalone service revenue is not material to the Company.
For the products where revenue is recognized at a point in time within the Advanced Process Solutions, Molding Technology Solutions, and Batesville reportable operating segments, the Company recognizes revenue when customers take control of the asset. The Company defines this as the point in time at which the customer has the capability of full beneficial use of the asset per the contract.
Contract balances
In the Advanced Process Solutions and Molding Technology Solutions reportable operating segments, the Company often requires an advance deposit based on the terms and conditions of contracts with customers for many of its contracts. Payment terms generally require an upfront payment at the start of the contract, and the remaining payments during the contract or within a certain number of days of delivery. Typically, net revenue is recognized within one year of receiving an advance deposit. For certain contracts within the Advanced Process Solutions reportable operating segment where an advance payment is received greater than one year from expected net revenue recognition, or a portion of the payment due extends beyond one year, the Company has determined it does not constitute a significant financing component.
The timing of revenue recognition, billings, and cash collections can result in trade receivables, advance payments, and billings in excess of revenue recognized. Customer receivables include amounts billed and currently due from customers and are included in trade receivables, net, as well as unbilled amounts (contract assets) which are included in receivables from long-term manufacturing contracts on the Consolidated Balance Sheets. Amounts are billed in accordance with contractual terms or as work progresses in accordance with contractual terms. Unbilled amounts arise when the timing of billing differs from the timing of net revenue recognized, such as when contract provisions require specific milestones to be met before a customer can be billed. Unbilled amounts primarily relate to performance obligations satisfied over time when the cost-to-cost method is used and the revenue recognized exceeds the amount billed to the customer as there is not yet a right to payment in accordance with contractual terms. Unbilled amounts are recorded as a contract asset when the net revenue associated with the contract is recognized prior to billing and derecognized when billed in accordance with the terms of the contract. Trade receivables are recorded at face amounts and represent the amounts the Company believes to be collectible. The Company maintains an allowance for doubtful accounts for estimated losses as a result of customers’ inability to make required payments. Management evaluates the aging of the trade receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of trade receivables that may not be collected in the future, and records the appropriate provision.
Advance payments and billings in excess of net revenue recognized are included in liabilities from long-term manufacturing contracts and advances on the Consolidated Balance Sheets. Advance payments and billings in excess of net revenue recognized represent contract liabilities and are recorded when customers remit contractual cash payments in advance of us satisfying performance obligations under contractual arrangements, including those with performance obligations satisfied over time. Billings in excess of net revenue recognized primarily relate to performance obligations satisfied over time when the cost-to-cost method is used and revenue cannot yet be recognized as the Company has not completed the corresponding performance obligation. Contract liabilities are derecognized when net revenue is recognized and the performance obligation is satisfied.
The balance in receivables from long-term manufacturing contracts at September 30, 2021 and 2020 was $121.9 and $138.1, 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 September 30, 2021 and 2020 was $296.6 and $189.1, respectively, and consists primarily of cash payments received or due in advance of satisfying performance obligations. The net revenue recognized for the years ended September 30, 2021 and 2020 related to liabilities from long-term manufacturing contracts and advances as of September 30, 2020 and 2019 was $154.2 and $128.4, respectively. During the year ended September 30, 2021 and 2020, the adjustments related to performance obligations satisfied in previous periods were immaterial.
Costs incurred to obtain a customer contract are not material to the Company. The Company elected to apply the practical expedient to not capitalize contract costs to obtain contracts with a duration of one year or less, which are expensed as incurred.
Cost of goods sold consists primarily of purchased material costs, fixed manufacturing expense, variable direct labor, and overhead costs. It also includes costs associated with the distribution and delivery of products.
Research and development costs are expensed as incurred as a component of operating expenses and were $21.4, $18.6, and $10.6 for the years ended September 30, 2021, 2020, and 2019, respectively.
Warranty costs — The Company records the estimated warranty cost of a product at the time net revenue is recognized. Warranty expense is accrued based upon historical information and may also include specific provisions for known conditions. Warranty obligations are affected by actual product performance and by material usage and service costs incurred in making product corrections. The Company’s warranty provision takes into account the best estimate of amounts necessary to settle future and existing claims on products sold. The Company engages in extensive product quality programs and processes in an effort to minimize warranty obligations, including active monitoring and evaluation of the quality of component suppliers. Warranty reserves were $24.2 and $23.8 as of September 30, 2021 and 2020, respectively. Warranty costs were $13.3, $12.6, and $3.4 during 2021, 2020, and 2019, respectively. The increase in warranty costs from 2019 to 2020 is related to the acquisition of Milacron.
Income taxes — The Company establishes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Consolidated Financial Statements. Deferred tax assets and liabilities are determined in part based on the differences between the accounting treatment of tax assets and liabilities under GAAP and the tax basis of assets and liabilities using statutory tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in statutory tax rates on deferred tax assets and liabilities is recognized in net income in the period that includes the enactment date. The Company continues to assert that most of the cash at its foreign subsidiaries represents earnings considered to be permanently reinvested for which deferred taxes have not been recorded in the Consolidated Financial Statements, as the Company does not intend, nor does the Company foresee a need, to repatriate these funds. The Company continues to actively evaluate its global capital deployment and cash needs.
The Company has a variety of deferred income tax assets in numerous tax jurisdictions. The recoverability of these deferred income tax assets is assessed periodically, and valuation allowances are recognized if it is determined that it is more likely than not that the benefits will not be realized. When performing this assessment, the Company considers the ability to carryback losses to prior tax periods, future taxable income, the reversal of existing temporary differences, and tax planning strategies. The Company accounts for accrued interest and penalties related to unrecognized tax benefits in income tax expense.
Derivative financial instruments — The Company has hedging programs in place to manage its currency exposures. The objectives of the Company’s hedging programs are to mitigate exposures in gross margin and non-functional-currency-denominated assets and liabilities. Under these programs, the Company uses derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates. These include foreign currency exchange forward contracts, which generally have terms up to 24 months. Additionally, the Company periodically enters into interest rate swaps to manage or hedge the risks associated with indebtedness and interest payments. The Company’s objectives in using these swaps are to add stability to interest expense and to manage exposure to interest rate movements.
The Company measures all derivative instruments at fair value and reports them on the Consolidated Balance Sheets as assets or liabilities. Changes in the fair value of derivatives are accounted for depending on the intended use of the derivative, designation of the hedging relationship, and whether or not the criteria to apply hedge accounting have been satisfied. If a derivative is designated as a fair value hedge, the gain or loss on the derivative and the offsetting loss or gain on the hedged asset or liability are recognized in earnings. For derivative instruments designated as a cash flow hedge, the effective portion of the gain or loss on the derivative instrument is reported as a component of accumulated other comprehensive income and reclassified to earnings in the same period that the hedged transaction affects earnings. The portion of the gain or loss that does not qualify for hedge accounting is immediately recognized in earnings.
The aggregate notional amount of all derivative instruments was $186.4 and $232.8 at September 30, 2021 and 2020, respectively. The carrying value of all of the Company’s derivative instruments at fair value resulted in assets of $1.9 and $2.6 (included in other current assets and other assets) and liabilities of $2.5 and $1.6 (included in other current liabilities) at September 30, 2021 and 2020, respectively. See Note 14 for additional information on the fair value of the Company’s derivative instruments.
Foreign currency derivatives
Contracts designated as cash flow hedges for customer orders or intercompany purchases have an offsetting tax-adjusted amount in accumulated other comprehensive loss. Foreign exchange contracts intended to manage foreign currency exposures within the Consolidated Balance Sheets have an offsetting amount recorded in other income (expense), net. The cash flows from such hedges are presented in the same category in the Consolidated Statement of Cash Flows as the items being hedged.
Interest rate swap contracts
During the first quarter of 2019, the Company entered into interest rate swap contracts to hedge the interest rate associated with the forecasted issuance of $150.0 ten-year, fixed-rate debt. In September 2019, the Company issued $375.0 of senior unsecured notes (the “2019 Notes” as defined in Note 6) with a term of seven years. As a result of this issuance, Hillenbrand terminated and settled the interest rate swap contracts for a cash payment of $20.2.
Upon the issuance of the 2019 Notes, Hillenbrand determined that it was probable that the originally forecasted issuance of ten-year, fixed-rate debt would not occur. As a result, the Company accelerated the release of accumulated other comprehensive loss related to the missed forecasted transaction, resulting in a loss on settlement of $6.4. The loss on settlement was recorded within other (expense) income, net, on the Consolidated Statements of Operations during the year ended September 30, 2020. The remaining $13.8 is classified within accumulated other comprehensive loss and will be amortized into interest expense over the seven-year term of the 2019 Notes. As of September 30, 2021, the Company expects to reclassify amounts of $2.0 out of accumulated other comprehensive loss into interest expense over the next twelve months related to these interest rate swap contracts.
Business acquisitions and related business acquisition and integration costs — Assets and liabilities associated with business acquisitions are recorded at fair value, using the acquisition method of accounting. The Company allocates the purchase price of acquisitions based upon the fair value of each component, which may be derived from observable or unobservable inputs and assumptions. The Company may utilize third-party valuation specialists to assist us in this allocation. Initial purchase price allocations are preliminary and subject to revision within the measurement period, generally not to exceed one year from the date of acquisition.
Business acquisition and integration costs are expensed as incurred and are reported as a component of cost of goods sold, operating expenses, and other income (expense), net, depending on the nature of the cost. The Company defines these costs to include finder’s fees, advisory, legal, accounting, valuation, and other professional or consulting fees, as well as travel associated with investigating opportunities (including acquisition and disposition). Business acquisition and integration costs also include costs associated with acquisition tax planning, retention bonuses, and related integration costs. These costs exclude the ongoing expenses of the Company’s business development department.
Businesses and assets held for sale — Businesses and assets held for sale represent components that meet accounting requirements to be classified as held for sale and are presented as single asset and liability amounts in the Consolidated Financial Statements with a valuation allowance, if necessary, to recognize the net carrying amount at the lower of cost or fair value, less cost to sell.
For assets (disposal group) held for sale, the disposal group as a whole is measured at the lower of its carrying amount or fair value less cost to sell after adjusting the individual assets of the disposal group, if necessary. If the carrying value of assets, after the consideration of other asset valuation guidance, exceeds fair value less cost to sell, the Company establishes a valuation adjustment which would offset the original carrying value of disposal group. This valuation adjustment would be adjusted based on subsequent changes in our estimate of fair value less cost to sell. If the fair value less cost to sell increases, the carrying amount of the long-lived assets would be adjusted upward; however, the increased carrying amount cannot exceed the carrying amount of the disposal group before the decision to dispose of the assets was made. Estimates are required to determine the fair value, the disposal costs and the time period to dispose of the assets. The estimate of fair value incorporates the transaction approach, which utilizes pricing indications derived from recent acquisition transactions involving comparable companies. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. The Company reviews all businesses and assets held for sale each reporting period to determine whether the existing carrying amounts are fully recoverable in comparison to estimated fair values, less cost to sell. See Note 4 for further information.
Restructuring costs may occur when the Company takes action to exit or significantly curtail a part of the Company’s operations or change the deployment of assets or personnel. A restructuring charge can consist of an impairment or accelerated
depreciation of affected assets, severance costs associated with reductions to the workforce, costs to terminate an operating lease or contract, and charges for legal obligations for which no future benefit will be derived.
Recently adopted accounting standards — In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Statements (“ASU 2016-03”). 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 became effective for the Company’s fiscal year beginning on October 1, 2020. As a result of the Company's assessment on its trade receivables and receivables from long-term manufacturing contracts, ASU 2016-13 did not have a material impact on the Consolidated Financial Statements.
Recently issued accounting standards — In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. ASU 2019-12 will be effective for the Company’s fiscal year beginning on October 1, 2021. The Company does not expect ASU 2019-12 to have a material impact 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.
3. 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.
Transaction price allocated to the remaining performance obligations
As of September 30, 2021, the aggregate amount of transaction price of remaining performance obligations, which corresponds to backlog, as defined in Part II, Item 7 of this Form 10-K, for the Company was $1,715.0. Approximately 71% of these remaining 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 net revenue
The following tables present net revenue by end market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2021
|
|
Year Ended September 30, 2020
|
|
Advanced Process Solutions
|
|
Molding Technology Solutions
|
|
Batesville
|
|
Total
|
|
Advanced Process Solutions
|
|
Molding Technology Solutions
|
|
Batesville
|
|
Total
|
End Market
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plastics
|
$
|
869.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
869.2
|
|
|
$
|
798.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
798.7
|
|
Automotive
|
—
|
|
|
171.8
|
|
|
—
|
|
|
171.8
|
|
|
—
|
|
|
124.1
|
|
|
—
|
|
|
124.1
|
|
Chemicals
|
85.6
|
|
|
—
|
|
|
—
|
|
|
85.6
|
|
|
100.0
|
|
|
—
|
|
|
—
|
|
|
100.0
|
|
Consumer goods
|
—
|
|
|
156.3
|
|
|
—
|
|
|
156.3
|
|
|
—
|
|
|
110.1
|
|
|
—
|
|
|
110.1
|
|
Food and pharmaceuticals
|
90.3
|
|
|
—
|
|
|
—
|
|
|
90.3
|
|
|
81.6
|
|
|
—
|
|
|
—
|
|
|
81.6
|
|
Custom molders
|
—
|
|
|
142.5
|
|
|
—
|
|
|
142.5
|
|
|
—
|
|
|
97.7
|
|
|
—
|
|
|
97.7
|
|
Packaging
|
—
|
|
|
131.5
|
|
|
—
|
|
|
131.5
|
|
|
—
|
|
|
90.6
|
|
|
—
|
|
|
90.6
|
|
Construction
|
—
|
|
|
108.0
|
|
|
—
|
|
|
108.0
|
|
|
—
|
|
|
79.2
|
|
|
—
|
|
|
79.2
|
|
Minerals and mining
|
50.5
|
|
|
—
|
|
|
—
|
|
|
50.5
|
|
|
58.2
|
|
|
—
|
|
|
—
|
|
|
58.2
|
|
Electronics
|
—
|
|
|
72.7
|
|
|
—
|
|
|
72.7
|
|
|
—
|
|
|
58.8
|
|
|
—
|
|
|
58.8
|
|
Medical
|
—
|
|
|
86.0
|
|
|
—
|
|
|
86.0
|
|
|
—
|
|
|
59.8
|
|
|
—
|
|
|
59.8
|
|
Death care
|
—
|
|
|
—
|
|
|
623.4
|
|
|
623.4
|
|
|
—
|
|
|
—
|
|
|
552.6
|
|
|
552.6
|
|
Other industrial
|
150.1
|
|
|
126.9
|
|
|
—
|
|
|
277.0
|
|
|
190.1
|
|
|
115.5
|
|
|
—
|
|
|
305.6
|
|
Total
|
$
|
1,245.7
|
|
|
$
|
995.7
|
|
|
$
|
623.4
|
|
|
$
|
2,864.8
|
|
|
$
|
1,228.6
|
|
|
$
|
735.8
|
|
|
$
|
552.6
|
|
|
$
|
2,517.0
|
|
The following tables present net revenue by geographical market:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2021
|
|
Year Ended September 30, 2020
|
|
Advanced Process Solutions
|
|
Molding Technology Solutions
|
|
Batesville
|
|
Total
|
|
Advanced Process Solutions
|
|
Molding Technology Solutions
|
|
Batesville
|
|
Total
|
Geographical Markets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
$
|
327.2
|
|
|
$
|
532.4
|
|
|
$
|
623.4
|
|
|
$
|
1,483.0
|
|
|
$
|
408.0
|
|
|
$
|
406.6
|
|
|
$
|
552.6
|
|
|
$
|
1,367.2
|
|
Asia
|
568.3
|
|
|
296.2
|
|
|
—
|
|
|
864.5
|
|
|
494.9
|
|
|
199.2
|
|
|
—
|
|
|
694.1
|
|
Europe, the Middle East, and Africa
|
350.2
|
|
|
167.1
|
|
|
—
|
|
|
517.3
|
|
|
325.7
|
|
|
130.0
|
|
|
—
|
|
|
455.7
|
|
Total
|
$
|
1,245.7
|
|
|
$
|
995.7
|
|
|
$
|
623.4
|
|
|
$
|
2,864.8
|
|
|
$
|
1,228.6
|
|
|
$
|
735.8
|
|
|
$
|
552.6
|
|
|
$
|
2,517.0
|
|
The following tables present net revenue by products and services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2021
|
|
Year Ended September 30, 2020
|
|
Advanced Process Solutions
|
|
Molding Technology Solutions
|
|
Batesville
|
|
Total
|
|
Advanced Process Solutions
|
|
Molding Technology Solutions
|
|
Batesville
|
|
Total
|
Products and Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment
|
$
|
862.2
|
|
|
$
|
666.0
|
|
|
$
|
—
|
|
|
$
|
1,528.2
|
|
|
$
|
826.9
|
|
|
$
|
446.0
|
|
|
$
|
—
|
|
|
$
|
1,272.9
|
|
Parts and services
|
383.5
|
|
|
262.7
|
|
|
—
|
|
|
646.2
|
|
|
401.7
|
|
|
202.0
|
|
|
—
|
|
|
603.7
|
|
Death care
|
—
|
|
|
—
|
|
|
623.4
|
|
|
623.4
|
|
|
—
|
|
|
—
|
|
|
552.6
|
|
|
552.6
|
|
Other
|
—
|
|
|
67.0
|
|
|
—
|
|
|
67.0
|
|
|
—
|
|
|
87.8
|
|
|
—
|
|
|
87.8
|
|
Total
|
$
|
1,245.7
|
|
|
$
|
995.7
|
|
|
$
|
623.4
|
|
|
$
|
2,864.8
|
|
|
$
|
1,228.6
|
|
|
$
|
735.8
|
|
|
$
|
552.6
|
|
|
$
|
2,517.0
|
|
The following tables present net revenue by timing of transfer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2021
|
|
Year Ended September 30, 2020
|
|
Advanced Process Solutions
|
|
Molding Technology Solutions
|
|
Batesville
|
|
Total
|
|
Advanced Process Solutions
|
|
Molding Technology Solutions
|
|
Batesville
|
|
Total
|
Timing of Transfer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Point in time
|
$
|
611.2
|
|
|
$
|
993.6
|
|
|
$
|
623.4
|
|
|
$
|
2,228.2
|
|
|
$
|
609.1
|
|
|
$
|
735.8
|
|
|
$
|
552.6
|
|
|
$
|
1,897.5
|
|
Over time
|
634.5
|
|
|
2.1
|
|
|
—
|
|
|
636.6
|
|
|
619.5
|
|
|
—
|
|
|
—
|
|
|
619.5
|
|
Total
|
$
|
1,245.7
|
|
|
$
|
995.7
|
|
|
$
|
623.4
|
|
|
$
|
2,864.8
|
|
|
$
|
1,228.6
|
|
|
$
|
735.8
|
|
|
$
|
552.6
|
|
|
$
|
2,517.0
|
|
4. Business Acquisitions and Divestitures
Acquisition of Milacron
Background
On November 21, 2019, the Company completed the acquisition of Milacron, a global leader in highly engineered and customized systems in plastic technology and processing, through a merger of its wholly-owned subsidiary with and into Milacron, resulting in ownership of 100% of Milacron common stock that was issued and outstanding after the acquisition. The acquisition provides Hillenbrand with increased scale and meaningful product diversification, enhancing its ability to serve customers with expanded capabilities across the plastics value chain.
The results of Milacron are reported separately in its own reportable operating segment (Molding Technology Solutions). See Note 15 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 6 for a discussion of the debt financing.
Pursuant to the Merger Agreement, certain of Milacron’s outstanding stock options, restricted stock awards, restricted stock unit awards, and performance stock unit awards immediately vested and converted into the right to receive $11.80 per share in cash and 0.1612 shares of Hillenbrand common stock per share. Additionally, certain of Milacron’s stock appreciation rights were canceled and converted into the right to receive a lump sum cash payment. The fair value of share-based equity awards was apportioned between purchase price consideration and immediate expense. The portion of the fair value of partially vested awards associated with pre-acquisition service of Milacron employees represented a component of the total purchase price consideration, while the remaining portion of the fair value was immediately recognized as expense within operating expenses in the Consolidated Statement of Operations during the year ended September 30, 2020.
The following table summarizes the aggregate purchase price consideration to acquire Milacron:
|
|
|
|
|
|
Cash consideration paid to Milacron stockholders
|
$
|
835.9
|
|
Repayment of Milacron debt, including accrued interest
|
772.9
|
|
Cash consideration paid to settle outstanding share-based equity awards
|
34.2
|
|
Total cash consideration
|
1,643.0
|
|
Fair value of Hillenbrand common stock issued to Milacron stockholders (1)
|
356.9
|
|
Stock consideration issued to settle outstanding share-based equity awards (1)
|
14.4
|
|
Total consideration transferred
|
2,014.3
|
|
Portion of cash settlement of outstanding share-based equity awards recognized as expense (2)
|
(14.1)
|
|
Portion of stock settlement of outstanding share-based equity awards recognized as expense (2)
|
(5.9)
|
|
Total purchase price consideration
|
$
|
1,994.3
|
|
(1)The fair value of the 11.4 million shares of Hillenbrand’s common stock issued as of the acquisition date was determined based on a per share price of $31.26, which was the closing price of Hillenbrand’s common stock on November 20, 2019, the last trading day before the acquisition closed on November 21, 2019. This includes a nominal amount of cash paid in lieu of fractional shares. Additionally, 0.5 million shares of Hillenbrand’s common stock were issued to settle certain of Milacron’s outstanding share-based equity awards, as previously discussed.
(2)In total, $20.0 was immediately recognized as expense within operating expenses in the Consolidated Statement of Operations during the year ended September 30, 2020, which represents the portion of the fair value of outstanding share-based equity awards that was not associated with pre-acquisition service of Milacron employees.
Purchase price allocation
The acquisition was accounted for as a business combination in accordance with ASC Topic 805, Business Combinations. The purchase price was allocated to the assets acquired and liabilities assumed based on management’s estimate of the respective fair values at the date of acquisition. Goodwill was calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill were based on strategic benefits that are expected to be realized from the acquisition. None of the goodwill is deductible for income tax purposes.
The following table summarizes the final (as of November 21, 2020) 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
|
|
133.1
|
|
Inventories
|
|
287.7
|
|
Prepaid expense and other current assets
|
|
69.2
|
|
Property, plant, and equipment
|
|
233.9
|
|
Operating lease right-of-use assets
|
|
41.3
|
|
Identifiable intangible assets
|
|
815.0
|
|
Goodwill
|
|
734.2
|
|
Other long-term assets
|
|
21.0
|
|
Total assets acquired
|
|
2,461.2
|
|
|
|
|
Liabilities assumed:
|
|
|
Trade accounts payable
|
|
110.2
|
|
Liabilities from long-term manufacturing contracts and advances
|
|
32.7
|
|
Accrued compensation
|
|
20.8
|
|
Other current liabilities
|
|
89.4
|
|
Accrued pension and postretirement healthcare
|
|
29.4
|
|
Deferred income taxes
|
|
139.0
|
|
Operating lease liabilities - long-term
|
|
31.2
|
|
Other long-term liabilities
|
|
14.2
|
|
Total liabilities assumed
|
|
466.9
|
|
|
|
|
Total purchase price consideration
|
|
$
|
1,994.3
|
|
Intangible assets identified
The purchase price allocation included $815.0 of acquired identifiable intangible assets. The fair value of the identifiable intangible assets were estimated using the income approach through a discounted cash flow analysis with cash flow projections. The cash flows were 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 (10.5-12.0%). Definite-lived intangible assets are being amortized over the estimated useful life on a straight-line basis. The determination of the useful lives was 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 amounts allocated to identifiable intangible assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Carrying Amount
|
|
Weighted-Average Useful Life
|
Customer relationships
|
|
$
|
560.0
|
|
|
19 years
|
Trade names
|
|
150.0
|
|
|
Indefinite
|
Technology, including patents
|
|
95.0
|
|
|
10 years
|
Backlog
|
|
10.0
|
|
|
3 months
|
Total
|
|
$
|
815.0
|
|
|
|
The Company is required to provide additional disclosures about fair value measurements as part of the Consolidated Financial Statements for each major category of assets and liabilities measured at fair value on a nonrecurring basis (including business acquisitions). The working capital assets and liabilities, as well as the property, plant, and equipment acquired, were valued using Level 2 inputs which included data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill and identifiable intangible assets were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows (income approach). Significant increases (decreases) in any of those unobservable inputs in isolation would result in a significantly higher (lower) fair value measurement. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values, and specifically those considered Level 3 measurements along with Level 2 measurements for certain tangible assets. Management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.
Impact on results of operations
The results of Milacron’s operations have been included in the Consolidated Financial Statements since the November 21, 2019 acquisition date. The following table provides the results of operations for Milacron included in the Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2021
|
|
2020
|
Net revenue
|
$
|
995.7
|
|
|
$
|
735.8
|
|
Income before income taxes
|
126.8
|
|
|
13.4
|
|
In connection with the acquisition of Milacron, the Company incurred a total of $25.7 and $71.6 of business acquisition and integration costs during the years ended September 30, 2021 and 2020, respectively, which were recorded within operating expenses in the Consolidated Statements of Operations.
Supplemental Pro Forma Information
The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Milacron acquisition had been completed on the date indicated, does not reflect synergies that might have been achieved, nor is it indicative of future operating results or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that Hillenbrand believes are reasonable under the circumstances.
The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the Milacron acquisition had occurred on October 1, 2018 to give effect to certain events that Hillenbrand believes to be directly attributable to the Milacron acquisition. These pro forma adjustments primarily include:
•an increase to depreciation and amortization expense that would have been recognized due to acquired tangible and identifiable intangible assets;
•an adjustment to interest expense to reflect the additional borrowings of Hillenbrand and the repayment of Milacron’s historical debt in conjunction with the acquisition;
•an adjustment to remove business acquisition and integration costs, inventory step-up costs, and backlog amortization during the year ended September 30, 2021, 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2020
|
|
2019
|
Net revenue
|
$
|
2,632.7
|
|
|
$
|
2,867.3
|
|
Net (loss) income attributable to Hillenbrand
|
(1.2)
|
|
|
129.3
|
|
|
|
|
|
Net income attributable to Hillenbrand — per share of common stock:
|
|
|
|
Basic (loss) earnings per share
|
$
|
(0.02)
|
|
|
$
|
1.73
|
|
Diluted (loss) earnings per share
|
$
|
(0.02)
|
|
|
$
|
1.72
|
|
Assets and liabilities held for sale
During the fourth quarter of 2020, the Company announced that it had initiated a plan to divest the TerraSource Global and flow control businesses, which operated within the Advanced Process Solutions reportable operating segment, as these businesses were no longer considered a strategic fit with the Company’s long-term growth plan and operational objectives. As discussed below, the Company completed the sale of Red Valve on December 31, 2020, and ABEL on March 10, 2021. On October 22, 2021, the Company completed the divestiture of TerraSource Global. As of September 30, 2020, the Company determined that these businesses met the criteria to be classified as held for sale, and therefore classified the related assets and liabilities as held for sale on the Consolidated Balance Sheets. As of September 30, 2021, the TerraSource Global business continued to be classified as held for sale.
During the second quarter of 2020, the Company performed an interim impairment review for certain of these businesses and recognized impairment charges of $73.0 to goodwill and trade names (see Note 2 for further information). Consistent with the Company’s historical practice, the valuation methodology for purposes of the interim impairment review was based on an equal weighting of both the market and income approaches. As a result of classifying these assets and liabilities as held for sale during the fourth quarter of 2020, the Company recognized a valuation adjustment, as necessary, to recognize the net carrying amount at the lower of cost or fair value, less estimated costs to sell. For determining the fair value of these businesses, the Company incorporated the transaction approach, which utilizes pricing indications derived from recent acquisition transactions involving comparable companies. During the fourth quarter of 2020, the Company recognized a non-cash charge of $62.3, which included a goodwill impairment of $16.9 and a valuation adjustment of $45.4, to recognize the assets of these businesses at fair value less estimated costs to sell. During the fourth quarter of 2021, the Company signed a definitive agreement to sell TerraSource Global, with a closing date subsequent to September 30, 2021. As a result of signing the definitive agreement, we recognized a non-cash valuation adjustment of $11.2 to recognize TerraSource Global at fair value less estimated cost to sell. The non-cash charges of $11.2 and $62.3 for the year ended September 30, 2021 and 2020, respectively, were recorded within the impairment charges caption on the Consolidated Statements of Operations.
The following is a summary of the major categories of assets and liabilities that have been reclassified to held for sale on the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2021
|
|
2020
|
Cash and cash equivalents
|
$
|
3.5
|
|
|
$
|
—
|
|
Trade receivables, net
|
7.8
|
|
|
19.8
|
|
Inventories
|
12.0
|
|
|
22.0
|
|
Property, plant and equipment, net (1)
|
12.0
|
|
|
18.1
|
|
Operating lease right-of-use assets
|
1.9
|
|
|
4.3
|
|
Intangible assets, net
|
49.5
|
|
|
133.6
|
|
Goodwill
|
12.4
|
|
|
19.5
|
|
Other assets
|
4.4
|
|
|
9.4
|
|
Valuation adjustment (allowance) on disposal group (2)
|
(47.1)
|
|
|
(45.4)
|
|
Total assets held for sale
|
$
|
56.4
|
|
|
$
|
181.3
|
|
|
|
|
|
Trade accounts payable
|
$
|
5.2
|
|
|
$
|
7.3
|
|
Liabilities from long-term manufacturing contracts and advances
|
7.5
|
|
|
4.9
|
|
Operating lease liabilities
|
2.0
|
|
|
4.5
|
|
Deferred income taxes
|
4.9
|
|
|
8.8
|
|
Other liabilities
|
2.3
|
|
|
7.0
|
|
Total liabilities held for sale
|
$
|
21.9
|
|
|
$
|
32.5
|
|
(1)Total assets held for sale in this table include certain parcels of real estate that are also classified as held for sale on the Company’s Consolidated Balance Sheets as of September 30, 2021 and 2020.
(2)The Company adjusted the carrying value to fair value less costs to sell for certain assets held for sale during the year ended September 30, 2021 and 2020.
The Company determined that the exit from these businesses did not represent a strategic shift that had or will have a major effect on its Consolidated Results of Operations, and therefore these businesses were not classified as a discontinued operation. The results of operations up to the respective dates of sale for these businesses are included within the Advanced Process Solutions reportable operating segment for all periods presented.
Divestiture of Flow Control Businesses and TerraSource Global
On December 31, 2020, the Company completed the divestiture of Red Valve to DeZURIK, Inc. in a transaction valued at $63.0. The sale included cash proceeds received at closing of $59.4, including working capital adjustments, and a $5.0 note receivable, included within other long-term assets on the Consolidated Balance Sheet at September 30, 2021. The sale followed the Company’s previously announced intent to exit certain non-strategic, sub-scale businesses, and Red Valve was classified as held for sale at September 30, 2020.
As a result of the Red Valve divestiture, the Company recorded a pre-tax gain of $31.6 in the Consolidated Statement of Operations during the year ended September 30, 2021. The related tax effect resulted in tax expense of $9.3 and was included within income tax expense in the Consolidated Statement of Operations during the year ended September 30, 2021. The Company incurred $2.9 of transaction costs associated with the sale during the year ended September 30, 2021, which were recorded within operating expenses in the Consolidated Statement of Operations.
On March 10, 2021, the Company completed the divestiture of ABEL to IDEX Corporation, in a transaction valued at $103.5, subject to customary post-closing adjustments. The sale included cash proceeds received at closing of $106.3, including working capital adjustments. The sale followed the Company's previously announced intent to exit certain non-strategic, sub-scale businesses, resulting in ABEL being classified as held for sale at September 30, 2020.
As a result of the ABEL sale, the Company recorded a pre-tax gain after post-closing adjustments of $35.5 in the Consolidated Statement of Operations during the year ended September 30, 2021. The related tax effect resulted in tax expense of $3.8 and was included within income tax expense in the Consolidated Statement of Operations during the year ended September 30, 2021. The Company incurred $3.9 of transaction costs associated with the sale during the year ended September 30, 2021, which were recorded within operating expenses in the Consolidated Statement of Operations.
On October 22, 2021, the Company completed the divestiture of TerraSource Global. The results of operations and cash flows of the Company for all periods presented in the Consolidated Financial Statements include TerraSource Global.
Divestiture of Cimcool
On March 30, 2020, the Company completed the divestiture of its Cimcool business (“Cimcool”), which represented the former Fluids Technologies reportable segment of Milacron before its acquisition by the Company, to DuBois Chemicals, Inc. The sale resulted in cash proceeds received of $221.9, net of cash divested.
In addition, the Company may receive contingent consideration for the sale of Cimcool of up to an aggregate of $26.0 based on multiple earn-out provisions. The Company accounts for contingent consideration under a loss recovery approach. Under a loss recovery approach, the Company records a contingent consideration asset only to the extent of the lesser of (1) the amount that the non-contingent consideration received is exceeded by the net assets deconsolidated, or (2) the amount of contingent consideration that it is probable will be received. As of the transaction date (and at September 30, 2021), the Company was unable to determine that it was probable that any of the contingent consideration would be received, and accordingly no amounts were recorded for contingent consideration. Subsequent measurement of contingent consideration will be based on the guidance for gain contingencies and any gain from contingent consideration will be recorded at the time the consideration is received.
As a result of the sale, the Company recorded a pre-tax loss of $3.5, using Level 2 nonrecurring fair value measurements, within other income (expense), net in the Consolidated Statement of Operations during the year ended September 30, 2020. The related tax effect resulted in tax expense of $12.7 and was included within income tax expense in the Consolidated Statement of Operations during the year ended September 30, 2020. The Company incurred $4.5 of transaction costs associated with the sale during the year ended September 30, 2020, which were recorded within operating expenses in the Consolidated Statements of Operations.
The Company determined that the divestiture of Cimcool did not represent a strategic shift that had or will have a major effect on its consolidated results of operations, and therefore Cimcool was not classified as a discontinued operation. Cimcool’s
results of operations were included within the Molding Technology Solutions reportable operating segment until the completion of the sale on March 30, 2020.
Sale of Molding Technology Solutions’ facilities
In December 2019, the Company completed the sale of a Molding Technology Solutions reportable operating segment manufacturing facility located in Germany. As a result of the sale, the Company received net cash proceeds of $13.1 during the year ended September 30, 2020. There was no material impact to the Consolidated Statement of Operations resulting from the sale of the facility during the year ended September 30, 2020.
In September 2020, the Company completed the sale of a Molding Technology Solutions reportable operating segment manufacturing facility located in the Czech Republic. As a result of the sale, the Company received net cash proceeds of $6.8 during the year ended September 30, 2020. As required by local law, the cash proceeds were held in an escrow account until October 2020, and therefore were classified as restricted cash and recorded within other current assets at September 30, 2020 on the Consolidated Balance Sheets. There was no material impact to the Consolidated Statement of Operations resulting from the sale of the facility during the year ended September 30, 2020.
5. 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 September 30, 2021 and 2020. Leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheets. The Company elected an accounting policy to combine lease and non-lease components for all leases.
Operating lease right-of-use assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As the implicit rate is generally not readily determinable for most leases, the Company uses an incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate reflects the estimated rate of interest that the Company would pay to borrow on a collateralized basis over a similar term in a similar economic environment. Lease expense for operating leases is recognized on a straight-line basis over the lease term.
Leases may include renewal options, and the renewal option is included in the lease term if the Company concludes that it is reasonably certain that the option will be exercised. A certain number of the Company’s leases contain rent escalation clauses, either fixed or adjusted periodically for inflation of market rates, that are factored into the calculation of lease payments to the extent they are fixed and determinable at lease inception. The Company also has variable lease payments that do not depend on a rate or index, primarily for items such as common area maintenance and real estate taxes, which are recorded as variable costs when incurred.
For the years ended September 30, 2021 and 2020, the Company recognized $35.6 and $36.3 of operating lease expense, including short-term lease expense and variable lease costs, which were immaterial.
The following table presents supplemental Consolidated Balance Sheet information related to the Company’s operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2021
|
|
2020
|
Operating lease right-of-use assets
|
$
|
138.1
|
|
$
|
154.4
|
|
|
|
|
Other current liabilities
|
30.7
|
|
31.2
|
Operating lease liabilities
|
105.6
|
|
120.9
|
Total operating lease liabilities
|
$
|
136.3
|
|
$
|
152.1
|
|
|
|
|
Weighted-average remaining lease term (in years)
|
7.2
|
|
7.6
|
|
|
|
|
Weighted-average discount rate
|
2.1
|
%
|
|
2.5 %
|
As of September 30, 2021, the maturities of the Company’s operating lease liabilities were as follows:
|
|
|
|
|
|
2022
|
$
|
32.9
|
|
2023
|
27.2
|
|
2024
|
18.7
|
|
2025
|
12.2
|
|
2026
|
9.7
|
|
Thereafter
|
43.3
|
|
Total lease payments
|
144.0
|
|
Less: imputed interest
|
(7.7)
|
|
Total present value of lease payments
|
$
|
136.3
|
|
Supplemental Consolidated Statement of Cash Flow information is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
2021
|
|
2020
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
37.7
|
|
|
$
|
37.5
|
|
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities
|
|
18.6
|
|
|
26.2
|
|
6. Financing Agreements
The following table summarizes Hillenbrand’s current and long-term debt as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2021
|
|
2020
|
$500.0 term loan (1)
|
$
|
—
|
|
|
$
|
473.7
|
|
$400.0 senior unsecured notes (2)
|
395.8
|
|
|
394.8
|
|
$375.0 senior unsecured notes, net of discount (3)
|
371.5
|
|
|
370.8
|
|
$350.0 senior unsecured notes (4)
|
345.8
|
|
|
—
|
|
$225.0 term loan (5)
|
—
|
|
|
213.4
|
|
$100.0 Series A Notes (6)
|
99.8
|
|
|
99.7
|
|
$900.0 revolving credit facility (excluding outstanding letters of credit)
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
0.2
|
|
Total debt
|
1,212.9
|
|
|
1,552.6
|
|
Less: current portion
|
—
|
|
|
(36.3)
|
|
Total long-term debt
|
$
|
1,212.9
|
|
|
$
|
1,516.3
|
|
(1) Includes unamortized debt issuance costs of $1.3 at September 30, 2020.
(2) Includes unamortized debt issuance costs of $4.2 and $5.2 at September 30, 2021 and 2020, respectively.
(3) Includes unamortized debt issuance costs of $3.1 and $3.7 at September 30, 2021 and 2020, respectively.
(4) Includes unamortized debt issuance costs of $4.2 at September 30, 2021.
(5) Includes unamortized debt issuance costs of $0.3 at September 30, 2020.
(6) Includes unamortized debt issuance costs of $0.2 and $0.3 at September 30, 2021 and 2020, respectively.
The following table summarizes the scheduled maturities of long-term debt for 2022 through 2026:
|
|
|
|
|
|
|
Amount
|
2022
|
$
|
—
|
|
2023
|
—
|
|
2024
|
—
|
|
2025
|
500.0
|
|
2026
|
375.0
|
|
$350.0 senior unsecured notes
On March 3, 2021, the Company issued $350.0 of senior unsecured notes due March 2031 (the “2021 Notes”). The 2021 Notes were issued at par value and bear interest at a fixed rate of 3.75% per year, payable semi-annually in arrears beginning September 2021. Unamortized deferred financing costs associated with the 2021 Notes of $4.2 are being amortized to interest expense on a straight-line basis (which approximates the effective interest method) over the term of the 2021 Notes. The 2021 Notes are unsecured unsubordinated obligations of the Company and rank equally in right of payment with all other existing and future unsubordinated obligations.
Subject to certain limitations, in the event of a change of control repurchase event (as defined in the 2021 Notes), the Company will be required to make an offer to purchase the 2021 Notes at a price equal to 101% of the principal amount of the 2021 Notes, plus any accrued and unpaid interest to, but excluding, the date of repurchase. The Company may redeem the 2021 Notes at any time in whole, or from time to time in part, prior to March 1, 2026, at its option at the “make-whole” redemption price, as described in the Indenture. The Company may also redeem the 2021 Notes at any time in whole, or from time to time in part, on or after March 1 of the relevant year listed, as follows: 2026 at a redemption price of 101.875%; 2027 at a redemption price of 101.250%; 2028 at a redemption price of 100.625%; and 2029 and thereafter at a redemption price of 100.000%. At any time prior to March 1, 2024, the Company may redeem up to 40% of the aggregate principal amount of the 2021 Notes with the proceeds of one or more Equity Offerings (as defined in the Indenture) at a redemption price of 103.750% of the principal amount of the 2021 Notes being redeemed. In each of the above cases, the Company will also pay any accrued and unpaid interest to, but excluding, the applicable redemption date.
$400.0 senior unsecured notes
On June 16, 2020, the Company issued $400.0 of senior unsecured notes due June 2025 (the “2020 Notes”). The 2020 Notes were issued at par value and bear interest at a fixed rate of 5.75% per year, payable semi-annually in arrears beginning December 2020. Unamortized deferred financing costs associated with the 2020 Notes of $4.2 are being amortized to interest expense on a straight-line basis (which approximates the effective interest method) over the remaining term of the 2020 Notes. The 2020 Notes are unsubordinated obligations of the Company and rank equally in right of payment with all other existing and future unsubordinated obligations.
Subject to certain limitations, in the event of a change of control repurchase event, the Company will be required to make an offer to purchase the 2020 Notes at a price equal to 101% of the principal amount of the 2020 Notes, plus any accrued and unpaid interest to, but excluding, the date of repurchase. In addition, the 2020 Notes are redeemable with prior notice at a price equal to par plus accrued interest and a make-whole amount, as described in the Indenture. The Company may also redeem the 2020 Notes at any time in whole, or from time to time in part, on or after June 15 of the relevant year listed, as follows: 2022 at a redemption price of 102.875%; 2023 at a redemption price of 101.438%; and 2024 at a redemption price of 100%.
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, January 10, 2020, May 29, 2020, February 2, 2021, and June 14, 2021 (as amended, the “Credit Agreement”). During the year ended September 30, 2021, the Company repaid the $225.0 and $500.0 term loans in full with a combination of cash on hand and borrowings from its revolving credit facility. For 2021 and 2020, the weighted average interest rates were 2.65% and 2.99%, respectively, for the $500.0 term loan and 2.63% and 2.86%, respectively, for the $225.0 term loan.
In addition to the Term Loan Facilities, Hillenbrand incurred $650.0 of borrowings from its revolving credit facility under the Credit Agreement (the “Revolver”) at the closing of the Milacron acquisition. These borrowings along with the $375.0 of senior unsecured notes issued during the year ended September 30, 2019, were used to pay a portion of the cash consideration in connection with the acquisition of Milacron and fees and expenses related to the acquisition, and to repay certain indebtedness of Milacron and its subsidiaries upon closing the acquisition.
With respect to the Revolver, the Company has made net repayments since the closing date of the acquisition of Milacron, resulting in no outstanding balance as of September 30, 2021. As of September 30, 2021, the Company had $16.4 in outstanding letters of credit issued and $883.6 of maximum borrowing capacity under the Revolver. All of this borrowing capacity was immediately available based on the Company’s most restrictive covenant at September 30, 2021. The weighted-
average interest rate on borrowings under the Revolver were 2.28%, 2.76%, and 2.54% for 2021, 2020, and 2019, respectively. The weighted average facility fee was 0.22%, 0.26% and 0.12% for 2021, 2020, and 2019, respectively.
$375.0 Senior Unsecured Notes
On September 25, 2019, the Company issued $375.0 of senior unsecured notes due September 2026 (“2019 Notes”). The 2019 Notes initially had a fixed coupon rate of 4.5% per year, payable semi-annually in arrears beginning March 2020. The coupon rate on the 2019 Notes is impacted by public bond ratings from Moody’s and S&P Global, as downgrades from either rating agency increases the coupon rate by 0.25% per downgrade level below investment grade. During the third quarter of 2020, Moody’s and S&P Global each downgraded the Company’s senior unsecured credit rating by one level. As such, the original coupon rate of 4.5% on the 2019 Notes increased to 5.0%, effective September 15, 2020.
The 2019 Notes were issued at a discount of $0.6, resulting in an initial carrying value of $374.4. The Company is amortizing the discount to interest expense over the term of the 2019 Notes using the effective interest rate method, resulting in an annual interest rate of 4.53%. Unamortized deferred financing costs associated with the 2019 Notes of $3.1 are being amortized to interest expense on a straight-line basis (which approximates the effective interest method) over the remaining term of the 2019 Notes. The 2019 Notes are unsubordinated obligations of Hillenbrand and rank equally in right of payment with all of the Company’s other existing and future unsubordinated obligations. In conjunction with the issuance of the 2019 Notes, the Company terminated its interest rate swaps associated with the forecasted debt issuance. See Note 2 for further information on the termination of interest rate swaps.
Subject to certain limitations, in the event of a change of control, the Company will be required to make an offer to purchase the 2019 Notes at a price equal to 101% of the principal amount of the 2019 Notes, plus accrued and unpaid interest, if any, to but excluding the date of repurchase. In addition, the 2019 Notes are redeemable with prior notice at a price equal to par plus accrued interest and a make-whole amount.
Series A Notes
On December 15, 2014, the Company issued $100.0 in 4.60% Series A unsecured notes (“Series A Notes”) pursuant to the Private Shelf Agreement, dated as of December 6, 2012 (as amended, the “Shelf Agreement”), among the Company, Prudential Investment Management, Inc. (“Prudential”) and each Prudential Affiliate (as defined therein) that became a purchaser thereunder. The Series A Notes are unsecured, mature on December 15, 2024, and bear interest at 4.60% payable semi-annually in arrears. The Company may at any time upon providing notice, prepay all or part of the Series A Notes at 100% of the principal amount prepaid plus a make-whole amount (as defined in the Shelf Agreement). Unamortized deferred financing costs of $0.2 related to the Series A Notes are being amortized to interest expense over the remaining term of the Series A Notes.
On December 19, 2014, March 24, 2016, December 8, 2017, and September 4, 2019, the Company and certain of the Company’s domestic subsidiaries entered into amendments to the Shelf Agreement. The latest amendment conformed certain terms of the Shelf Agreement with those contained in the Credit Agreement. The Shelf Agreement governs the Series A Notes, but the Company’s ability to issue new notes under the Shelf Agreement expired in March 2019.
L/G Facility Agreement
On March 8, 2018, the Company entered into the Syndicated Letter of Guarantee Facility Agreement by and among the Company and certain of its affiliates, the lenders party thereto, and Commerzbank Finance & Covered Bond S.A., acting as agent (the “L/G Facility Agreement”). 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. The L/G Facility Agreement permits the Company and certain of its subsidiaries to request that one or more of the participating lenders issue up to an aggregate of €175.0 in unsecured letters of credit, bank guarantees or other surety bonds (collectively, the “Guarantees”).
The Guarantees carry an annual fee that varies based on the Company’s leverage ratio. The L/G Facility Agreement also provides for a leverage-based commitment fee assessed on the undrawn portion of the facility. The L/G Facility Agreement matures in December 2022 but can be extended or terminated earlier under certain conditions. Unamortized deferred financing costs of $0.5 are being amortized to interest expense over the remaining term of the L/G Facility Agreement.
In the normal course of business, Advanced Process Solutions provides to certain customers bank guarantees and other credit arrangements in support of performance, warranty, advance payment, and other contractual obligations. This form of trade finance is customary in the industry and, as a result, the Company maintains adequate capacity to provide the guarantees. As of
September 30, 2021, the Company had credit arrangements totaling $411.5, under which $254.0 was utilized for this purpose. These arrangements included the facilities under the L/G Facility Agreement and other ancillary credit facilities.
Amendments to current financing agreements
The Company’s June 14, 2021 amendment to the Credit Agreement, among other things, amended certain provisions implemented in May 2020 in response to the COVID-19 pandemic, namely to: (i) decrease the maximum permitted leverage ratio to 3.50 to 1.00 but permit the Company to increase the maximum permitted leverage ratio to 4.00 to 1.00 for 3 consecutive fiscal quarters following certain acquisitions; (ii) decrease the applicable margin (the “Applicable Rate”) paid on revolving loans at certain pricing levels; (iii) remove additional pricing levels previously added to the Applicable Rate under certain circumstances; (iv) decrease the interest rate floor for the Alternate Base Rate (as defined in the Credit Agreement) to 1.00% and for the CDOR Screen Rate and the LIBO Screen Rate (each as defined in the Credit Agreement) to 0.00%; (v) remove the condition to each borrowing under the Revolver that, subject to certain exceptions, the amount of cash or cash equivalents on the Consolidated Balance Sheet not exceed $350.0; and (vi) remove certain restrictions on the Company’s ability to make restricted payments and grant liens on the Company’s assets that would have otherwise been in effect through January 1, 2022.
The amendment also amends the Credit Agreement to include customary benchmark replacement language relating to future unavailability of certain interest rates, including the LIBO Rate (as defined in the Credit Agreement). The amendment also provides that borrowings under the Credit Agreement may bear interest (A) if denominated in US dollars, at the LIBO Rate or the Alternate Base Rate (as defined in the Credit Agreement) at the Company’s option, (B) if denominated in Japanese yen, Canadian dollars or euros, at rates based on the rates offered for deposits in the applicable interbank markets for such currencies and (C) if denominated in pounds sterling or Swiss francs, at SONIA and SARON, respectively (each as defined in the Credit Agreement), plus, in each case, the Applicable Rate; and includes provisions governing erroneous payments made by the Agent to lenders part to the Credit Agreement.
Covenants related to current Hillenbrand financing agreements
The Credit Agreement and the Shelf Agreement contain the following financial covenants for the current quarter: a maximum leverage ratio (as described above and defined in the agreements) of 3.50 to 1.00 and minimum ratio of EBITDA (as defined in the agreements) to interest expense of 3.00 to 1.00. The L/G Facility Agreement contains a maximum leverage ratio of 4.00 to 1.00 for the current quarter and a minimum ratio of EBITDA to interest expense of 3.00 to 1.00 (both as defined in such agreement). 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 2021 Notes, the 2020 Notes, the 2019 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 Shelf Agreement and the L/G Facility Agreement each contains certain other customary covenants, representations and warranties and events of default. The indentures governing the 2021 Notes, 2020 Notes and 2019 Notes do not limit our ability to incur additional indebtedness. They do, however, contain certain covenants that restrict our ability to incur secured debt and to engage in certain sale and leaseback transactions. The indentures also contain customary events of default. The indentures provide holders of the notes with remedies if the Company fails to perform specific obligations. As of September 30, 2021, the Company was in compliance with all covenants and there were no events of default.
7. Retirement Benefits
Defined Benefit Retirement Plans — Approximately 21% of the Company’s employees participate in one of seven defined benefit retirement programs, including the master defined benefit retirement plan in the U.S., the defined benefit retirement plans of certain of the Company’s German and Swiss subsidiaries, the supplemental executive defined benefit retirement plan, and the three defined benefit retirement plans assumed in connection with the Milacron acquisition. The Company funds the retirement plan trusts in compliance with the Employment Retirement Income Security Act (ERISA) or local funding requirements and as necessary to provide for current service and for any unfunded projected future benefit obligations over a reasonable period. The benefits for these plans are based primarily on years of service and the employee’s level of compensation during specific periods of employment. All defined benefit retirement plans have a September 30 measurement date.
Effect on the Consolidated Statements of Operations — The components of net pension costs under defined benefit retirement plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
Year Ended September 30,
|
|
Non-U.S. Pension Benefits
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Service cost
|
$
|
0.7
|
|
|
$
|
1.4
|
|
|
$
|
2.3
|
|
|
$
|
2.0
|
|
|
$
|
1.9
|
|
|
$
|
1.2
|
|
Interest cost
|
5.8
|
|
|
8.0
|
|
|
9.8
|
|
|
0.7
|
|
|
0.6
|
|
|
1.2
|
|
Expected return on plan assets
|
(10.9)
|
|
|
(12.8)
|
|
|
(13.3)
|
|
|
(0.9)
|
|
|
(0.8)
|
|
|
(0.5)
|
|
Amortization of unrecognized prior service cost, net
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
|
0.1
|
|
Amortization of actuarial loss
|
2.2
|
|
|
4.8
|
|
|
1.2
|
|
|
2.9
|
|
|
2.5
|
|
|
0.9
|
|
Settlement expense
|
—
|
|
|
—
|
|
|
0.2
|
|
|
0.3
|
|
|
1.0
|
|
|
0.4
|
|
Net pension costs (1)
|
$
|
(2.2)
|
|
|
$
|
1.4
|
|
|
$
|
0.3
|
|
|
$
|
5.1
|
|
|
$
|
5.3
|
|
|
$
|
3.3
|
|
(1) Excluding service cost, the components of net pension costs are recorded within other income (expense), net on the Consolidated Statements of Operations.
The Company uses a full yield curve approach in the estimation of the service and interest cost components of our defined benefit retirement plans. Under this approach, the Company applies discounting using individual spot rates from a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date. These spot rates align to each of the projected benefit obligations and service cost cash flows. The service cost component relates to the active participants in the plan, so the relevant cash flows on which to apply the yield curve are considerably longer in duration on average than the total projected benefit obligation cash flows, which also include benefit payments to retirees. Interest cost is computed by multiplying each spot rate by the corresponding discounted projected benefit obligation cash flows. The full yield curve approach reduces any actuarial gains and losses based upon interest rate expectations (e.g. built-in gains in interest cost in an upward sloping yield curve scenario), or gains and losses merely resulting from the timing and magnitude of cash outflows associated with the Company’s benefit obligations. The Company uses the full yield curve approach to improve the correlation between projected benefit cash flows and the corresponding yield curve spot rates and to provide a more precise measurement of service and interest rate costs.
During 2019, the Company completed all negotiations to transition all employees at U.S. facilities from a defined benefit-based model to a defined contribution structure over three-year sunset periods, the latest of which ends January 1, 2023. These changes caused remeasurements for the U.S. defined benefit retirement plan for the affected populations as they were implemented. The remeasurements did not cause material changes, as the assumptions did not materially differ from the assumptions prior to the remeasurements.
Obligations and Funded Status — The change in benefit obligation and funded status of the Company’s defined benefit retirement plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
September 30,
|
|
Non-U.S. Pension Benefits
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
$
|
316.6
|
|
|
$
|
300.4
|
|
|
$
|
184.8
|
|
|
$
|
137.8
|
|
Projected benefit obligation attributable to acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
37.7
|
|
Service cost
|
0.7
|
|
|
1.4
|
|
|
2.0
|
|
|
1.9
|
|
Interest cost
|
5.8
|
|
|
8.0
|
|
|
0.7
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
(5.5)
|
|
|
20.6
|
|
|
(7.0)
|
|
|
2.3
|
|
Benefits paid
|
(15.3)
|
|
|
(13.8)
|
|
|
(5.4)
|
|
|
(3.4)
|
|
Gain due to settlement
|
—
|
|
|
—
|
|
|
(4.1)
|
|
|
(4.7)
|
|
Employee contributions
|
—
|
|
|
—
|
|
|
1.0
|
|
|
1.0
|
|
Effect of exchange rates on projected benefit obligation
|
—
|
|
|
—
|
|
|
(0.3)
|
|
|
11.6
|
|
Projected benefit obligation at end of year
|
302.3
|
|
|
316.6
|
|
|
171.7
|
|
|
184.8
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
297.9
|
|
|
280.6
|
|
|
43.8
|
|
|
33.5
|
|
Fair value of pension assets attributable to acquisitions
|
—
|
|
|
—
|
|
|
—
|
|
|
7.6
|
|
Actual return (loss) on plan assets
|
18.8
|
|
|
29.3
|
|
|
3.2
|
|
|
(1.1)
|
|
Employee and employer contributions
|
1.9
|
|
|
1.8
|
|
|
10.1
|
|
|
9.2
|
|
Benefits paid
|
(15.4)
|
|
|
(13.8)
|
|
|
(5.4)
|
|
|
(3.4)
|
|
Settlements
|
—
|
|
|
—
|
|
|
(4.1)
|
|
|
(4.7)
|
|
Effect of exchange rates on plan assets
|
—
|
|
|
—
|
|
|
—
|
|
|
2.7
|
|
Fair value of plan assets at end of year
|
303.2
|
|
|
297.9
|
|
|
47.6
|
|
|
43.8
|
|
|
|
|
|
|
|
|
|
Funded status:
|
|
|
|
|
|
|
|
Plan assets less than benefit obligations
|
$
|
0.9
|
|
|
$
|
(18.7)
|
|
|
$
|
(124.1)
|
|
|
$
|
(141.0)
|
|
|
|
|
|
|
|
|
|
Amounts recorded in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
Prepaid pension costs, non-current
|
$
|
28.0
|
|
|
$
|
9.0
|
|
|
$
|
1.6
|
|
|
$
|
0.5
|
|
Accrued pension costs, current portion
|
(2.0)
|
|
|
(2.0)
|
|
|
(7.2)
|
|
|
(8.1)
|
|
Accrued pension costs, long-term portion
|
(25.1)
|
|
|
(25.7)
|
|
|
(118.5)
|
|
|
(133.3)
|
|
Plan assets less than benefit obligations
|
$
|
0.9
|
|
|
$
|
(18.7)
|
|
|
$
|
(124.1)
|
|
|
$
|
(140.9)
|
|
Net actuarial losses ($67.5) and prior service costs ($0.2), less an aggregate tax effect ($17.9), are included as components of accumulated other comprehensive loss at September 30, 2021. Net actuarial losses ($95.3) and prior service costs ($0.4), less an aggregate tax effect ($25.6), are included as components of accumulated other comprehensive loss at September 30, 2020. The amount that will be amortized from accumulated other comprehensive loss into net pension costs in 2022 is expected to be $3.6.
Accumulated Benefit Obligation — The accumulated benefit obligation for all defined benefit retirement plans was $469.7 and $496.7 at September 30, 2021 and 2020, respectively. Selected information for plans with accumulated benefit obligations in excess of plan assets was:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
September 30,
|
|
Non-U.S. Pension Benefits
September 30,
|
|
2021
|
|
2020
|
|
2021
|
|
2020
|
Projected benefit obligation
|
$
|
27.1
|
|
|
$
|
27.7
|
|
|
$
|
125.8
|
|
|
$
|
184.8
|
|
Accumulated benefit obligation
|
27.1
|
|
|
27.7
|
|
|
125.7
|
|
|
180.9
|
|
Fair value of plan assets
|
—
|
|
|
—
|
|
|
0.1
|
|
|
43.8
|
|
The weighted-average assumptions used in accounting for defined benefit retirement plans were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Benefits
Year Ended September 30,
|
|
Non-U.S. Pension Benefits
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
|
2021
|
|
2020
|
|
2019
|
Discount rate for obligation, end of year
|
2.8
|
%
|
|
2.6
|
%
|
|
3.1
|
%
|
|
0.8
|
%
|
|
0.6
|
%
|
|
0.3
|
%
|
Discount rate for expense, during the year
|
3.9
|
%
|
|
3.0
|
%
|
|
4.1
|
%
|
|
0.7
|
%
|
|
0.3
|
%
|
|
1.5
|
%
|
Expected rate of return on plan assets
|
4.0
|
%
|
|
4.1
|
%
|
|
5.2
|
%
|
|
2.0
|
%
|
|
1.9
|
%
|
|
1.5
|
%
|
Rate of compensation increase
|
2.4
|
%
|
|
3.0
|
%
|
|
3.0
|
%
|
|
2.0
|
%
|
|
2.0
|
%
|
|
2.0
|
%
|
The discount rates are evaluated annually based on current market conditions. In setting these rates, the Company utilizes long-term bond indices and yield curves as a preliminary indication of interest rate movements, then makes adjustments to the indices to reflect differences in the terms of the bonds covered under the indices in comparison to the projected outflow of pension obligations. The overall expected long-term rate of return is based on historical and expected future returns, which are inflation-adjusted and weighted for the expected return for each component of the investment portfolio. The rate of assumed compensation increase is also based on the Company’s specific historical trends of past wage adjustments in recent years.
U.S. Pension Plan Assets — Long-term strategic investment objectives utilize a diversified mix of equity and fixed income securities to preserve the funded status of the trusts and balance risk and return. The primary investment strategy is a dynamic target allocation method that periodically rebalances among various investment categories depending on the current funded position. This program is designed to actively move from return-seeking investments (such as equities) toward liability-hedging investments (such as long-duration fixed income) as funding levels improve. The target investment in return-seeking assets may vary from 60% to 20% of total pension plan assets based on the plan’s funding level. Pension plan assets are invested by the plans’ fiduciaries, which direct investments according to specific policies. Those policies subject investments to the following restrictions in the Company’s domestic plan: short-term securities must be rated A1/P1, liability-hedging fixed income securities must have an average quality credit rating of investment grade and investments in equities in any one company may not exceed 10% of the equity portfolio.
Non-U.S. Pension Plan Assets — Long-term strategic investment objectives utilize a diversified mix of suitable assets of appropriate liquidity to generate income and capital growth that, together with contributions from participants, the Company believes will meet the cost of the current and future benefits that the plan provides. Long-term strategic investment objectives also seek to limit the risk of the assets failing to meet the liabilities over the long term.
None of Hillenbrand’s common stock was directly owned by the defined benefit retirement plan trusts at September 30, 2021 or 2020.
The tables below provide the fair value of the Company’s pension plan assets by asset category at September 30, 2021 and 2020. The accounting guidance on fair value measurements specifies a fair value hierarchy based upon the observability of inputs used in valuation techniques (Level 1, 2, and 3). See Note 14 for definitions.
Fair values are determined as follows:
•Cash equivalents are stated at the carrying amount, which approximates fair value, or at the fund’s net asset value.
•Equity securities are stated at the last reported sales price on the day of valuation.
•Government index funds are stated at the closing price reported in the active market in which the fund is traded.
•Corporate bond funds and equity mutual funds are stated at the closing price in the active markets in which the underlying securities of the funds are traded.
•Real estate is stated based on a discounted cash flow approach, which includes future rental receipts, expenses, and residual values as the highest and best use of the real estate from a market participant view as rental property.
U.S. Pension Plans
The pension plan assets of the Company’s U.S. pension plans consist of certain investments (common collective trusts) that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient. The underlying investments of the common collective trusts are generally composed of marketable debt and equity securities. The underlying investments are subject to various risks including interest rate, market and credit risks. Because the common collective trusts are not readily marketable, the estimated carrying values are subject to uncertainty and, therefore, may differ from the value that would have been used had a public market existed. There are no liquidity restrictions with respect to the common collective trusts after appropriate sale notification is provided. Accordingly, these assets are not required to be classified and reported under the fair value hierarchy. At September 30, 2021 and 2020, the fair values of these investments were $303.2 and $297.9, respectively.
Non-U.S. Pension Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2021 Using Inputs Considered as:
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Pension Plans
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
4.8
|
|
|
$
|
4.8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities
|
16.3
|
|
|
16.3
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other types of investments:
|
|
|
|
|
|
|
|
Government index funds
|
4.8
|
|
|
4.8
|
|
|
—
|
|
|
—
|
|
Corporate bond funds
|
13.7
|
|
|
13.7
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Real estate and real estate funds
|
4.5
|
|
|
—
|
|
|
—
|
|
|
4.5
|
|
Other
|
3.5
|
|
|
—
|
|
|
3.5
|
|
|
—
|
|
Total Non-U.S. pension plan assets
|
$
|
47.6
|
|
|
$
|
39.6
|
|
|
$
|
3.5
|
|
|
$
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at September 30, 2020 Using Inputs Considered as:
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Pension Plans
|
|
|
|
|
|
|
|
Cash equivalents
|
$
|
5.6
|
|
|
$
|
5.6
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities
|
12.4
|
|
|
12.4
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Other types of investments:
|
0
|
|
0
|
|
0
|
|
0
|
Government index funds
|
6.0
|
|
|
6.0
|
|
|
—
|
|
|
—
|
|
Corporate bond funds
|
12.7
|
|
|
12.7
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Real estate and real estate funds
|
3.8
|
|
|
—
|
|
|
—
|
|
|
3.8
|
|
Other
|
3.3
|
|
|
—
|
|
|
3.3
|
|
|
—
|
|
Total Non-U.S. pension plan assets
|
$
|
43.8
|
|
|
$
|
36.7
|
|
|
$
|
3.3
|
|
|
$
|
3.8
|
|
Cash Flows — During 2021, 2020, and 2019 the Company contributed cash of $11.0, $10.0, and $9.3, respectively, to defined benefit retirement plans. The Company expects to make estimated contributions of $10.9 in 2022 to the defined benefit retirement plans.
Estimated Future Benefit Payments — The following represents estimated future benefit payments, including expected future service, which are expected to be paid from plan assets or Company contributions as necessary:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension Plans
Projected Pension
Benefits Payout
|
|
Non-U.S. Pension Plans
Projected Pension
Benefits Payout
|
2022
|
$
|
16.1
|
|
|
$
|
9.1
|
|
2023
|
16.2
|
|
|
9.2
|
|
2024
|
16.5
|
|
|
8.8
|
|
2025
|
16.7
|
|
|
8.6
|
|
2026
|
16.9
|
|
|
8.8
|
|
2027-2031
|
84.6
|
|
|
41.1
|
|
Defined Contribution Plans — The Company sponsors a number of defined contribution plans. Depending on the plan, the Company may make contributions up to 4% of an employee’s eligible compensation and matching contributions up to 6% of eligible compensation. Company contributions generally vest over a period of zero to three years. Expenses related to the Company’s defined contribution plans were $15.7, $15.3, and $11.6 for 2021, 2020, and 2019, respectively. See comments above regarding the Company’s retirement strategy to transition its U.S. employees to a defined contribution structure over three-year sunset periods, the latest of which ends January 1, 2023.
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 as part of the Milacron acquisition, employees are immediately vested in both their voluntary and Company matching contributions.
Postretirement Healthcare Plan — The Company offers a domestic postretirement healthcare plan that provides healthcare benefits to eligible qualified retirees and their spouses. The plan includes retiree cost-sharing provisions and generally extends retiree coverage for medical, prescription, and dental benefits beyond the COBRA continuation period to the date of Medicare eligibility. The Company uses a measurement date of September 30. The net postretirement healthcare cost for 2021 was $0.2, cost for 2020 was $0.1, and benefit for 2019 was $0.1.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2021
|
|
2020
|
Benefit obligation at beginning of year
|
$
|
8.5
|
|
|
$
|
8.2
|
|
Interest cost
|
0.1
|
|
|
0.2
|
|
Service cost
|
0.3
|
|
|
0.2
|
|
Actuarial loss
|
0.2
|
|
|
2.0
|
|
Benefits paid
|
(0.6)
|
|
|
(2.1)
|
|
Benefit obligation at end of year
|
$
|
8.5
|
|
|
$
|
8.5
|
|
|
|
|
|
Amounts recorded in the consolidated balance sheets:
|
|
|
|
Accrued postretirement benefits, current portion
|
$
|
0.8
|
|
|
$
|
0.7
|
|
Accrued postretirement benefits, long-term portion
|
7.7
|
|
|
7.8
|
|
Net amount recognized
|
$
|
8.5
|
|
|
$
|
8.5
|
|
The weighted-average assumptions used in revaluing the Company’s obligation under the postretirement healthcare plan were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
Discount rate for obligation
|
2.4
|
%
|
|
2.1
|
%
|
|
2.8
|
%
|
Healthcare cost rate assumed for next year
|
6.4
|
%
|
|
6.6
|
%
|
|
6.9
|
%
|
Ultimate trend rate
|
4.5
|
%
|
|
4.5
|
%
|
|
4.5
|
%
|
Net actuarial gains of $0.2 and $0.3 and prior service costs of $0.2 and $0.4, less tax of $0.1 and $0.2, were included as a component of accumulated other comprehensive loss at September 30, 2021 and 2020, respectively.
The Company funds the postretirement healthcare plan as benefits are paid. Current plan benefits are expected to require net Company contributions for retirees of $0.8 per year for the foreseeable future.
8. Income Taxes
The provision for taxes based on income consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
Domestic
|
$
|
64.1
|
|
|
$
|
(40.3)
|
|
|
$
|
44.1
|
|
Foreign
|
289.7
|
|
|
21.8
|
|
|
132.6
|
|
Total earnings (loss) before income taxes
|
$
|
353.8
|
|
|
$
|
(18.5)
|
|
|
$
|
176.7
|
|
|
|
|
|
|
|
Income tax expense:
|
|
|
|
|
|
Current provision:
|
|
|
|
|
|
Federal
|
$
|
6.0
|
|
|
$
|
(2.4)
|
|
|
$
|
11.1
|
|
State
|
4.8
|
|
|
3.0
|
|
|
4.5
|
|
Foreign
|
75.6
|
|
|
53.8
|
|
|
28.2
|
|
Total current provision
|
86.4
|
|
|
54.4
|
|
|
43.8
|
|
|
|
|
|
|
|
Deferred provision (benefit):
|
|
|
|
|
|
Federal
|
13.9
|
|
|
(6.6)
|
|
|
(3.8)
|
|
State
|
(0.5)
|
|
|
(2.4)
|
|
|
(0.2)
|
|
Foreign
|
(1.2)
|
|
|
(10.5)
|
|
|
10.7
|
|
Total deferred provision (benefit)
|
12.2
|
|
|
(19.5)
|
|
|
6.7
|
|
Income tax expense
|
$
|
98.6
|
|
|
$
|
34.9
|
|
|
$
|
50.5
|
|
A reconciliation of the statutory federal income tax rate and the effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
Federal statutory rates
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
Adjustments resulting from the tax effect of:
|
|
|
|
|
|
State income taxes, net of federal benefit
|
0.9
|
|
|
0.3
|
|
|
1.6
|
|
Foreign income tax rate differential
|
2.0
|
|
|
(14.3)
|
|
|
4.1
|
|
Share-based compensation
|
0.4
|
|
|
(19.1)
|
|
|
(1.2)
|
|
Foreign distribution taxes
|
3.1
|
|
|
(54.7)
|
|
|
1.0
|
|
Valuation allowance
|
0.3
|
|
|
(2.1)
|
|
|
(0.4)
|
|
Goodwill impairment charge
|
—
|
|
|
(14.1)
|
|
|
—
|
|
Impact of inclusion of foreign income (1)
|
0.5
|
|
|
(101.1)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of foreign legislative rate changes
|
—
|
|
|
41.5
|
|
|
—
|
|
Transaction costs
|
—
|
|
|
(8.7)
|
|
|
—
|
|
Divestitures
|
(2.6)
|
|
|
—
|
|
|
—
|
|
Unrecognized tax benefits
|
1.7
|
|
|
(4.0)
|
|
|
1.9
|
|
Other, net
|
0.6
|
|
|
(33.3)
|
|
|
0.6
|
|
Effective income tax rate
|
27.9
|
%
|
|
(188.6)
|
%
|
|
28.6
|
%
|
(1) Represents Subpart F income, GILTI (less Section 250 deduction), and FDII net of associated foreign tax credits
The effective tax rate was 27.9% for the year ended September 30, 2021 compared to (188.6)% for the year ended September 30, 2020. The effective tax rate for fiscal 2021 differed from the statutory rate primarily related to the effect of taxes on foreign earnings and taxes on current and anticipated future distributions amongst our subsidiaries and the net tax effects of the divestiture and closure of certain businesses. The effective tax rate for fiscal 2020 differed from the statutory rate primarily related to the Company reporting a net loss for the year, while being in a taxable position, before utilization of tax attributes, for income tax purposes. The taxable position was primarily a result of nondeductible impairment charges and taxable gains from the sale of the Cimcool business.
The tax effects of significant temporary differences that comprise tax balances were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2021
|
|
2020
|
Deferred tax assets:
|
|
|
|
Employee benefit accruals
|
$
|
37.6
|
|
|
$
|
30.9
|
|
Loss and tax credit carryforwards
|
38.9
|
|
|
51.4
|
|
Interest limitation carryforward
|
23.2
|
|
|
26.0
|
|
Operating lease liabilities
|
37.0
|
|
|
31.3
|
|
Rebates and other discounts
|
5.2
|
|
|
4.6
|
|
Self-insurance reserves
|
2.9
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
Inventory, net
|
8.3
|
|
|
4.8
|
|
Other, net
|
20.0
|
|
|
16.8
|
|
Total deferred tax assets before valuation allowance
|
173.1
|
|
|
168.6
|
|
Less valuation allowance
|
(24.4)
|
|
|
(21.0)
|
|
Total deferred tax assets, net
|
148.7
|
|
|
147.6
|
|
Deferred tax liabilities:
|
|
|
|
Depreciation
|
(24.5)
|
|
|
(27.6)
|
|
Amortization
|
(210.1)
|
|
|
(202.3)
|
|
Operating right-of-use assets
|
(37.4)
|
|
|
(32.0)
|
|
Long-term contracts and customer prepayments
|
(55.3)
|
|
|
(43.8)
|
|
Unremitted earnings of foreign operations
|
(15.0)
|
|
|
(13.2)
|
|
Other, net
|
(4.1)
|
|
|
(1.4)
|
|
Total deferred tax liabilities
|
(346.4)
|
|
|
(320.3)
|
|
Deferred tax liabilities, net
|
$
|
(197.7)
|
|
|
$
|
(172.7)
|
|
|
|
|
|
Amounts recorded in the Consolidated Balance Sheets:
|
|
|
|
Deferred tax assets, non-current
|
9.0
|
|
|
13.1
|
|
Deferred tax liabilities, non-current
|
(206.7)
|
|
|
(185.8)
|
|
Total
|
$
|
(197.7)
|
|
|
$
|
(172.7)
|
|
At September 30, 2021 and 2020, respectively, the Company had $15.5 and $24.9 of deferred tax assets related to U.S. federal and state net operating losses and tax credit carryforwards, which will begin to expire in 2022, and $45.6 and $51.8 of deferred tax assets related to foreign net operating loss and interest carryforwards. The majority of the foreign net operating loss and interest carryforwards have unlimited carryforward periods. Portions of the net operating loss carryforwards with expiration periods will begin to expire in 2022. Deferred tax assets as of September 30, 2021 and 2020, were reduced by a valuation allowance of $24.4 and $21.0, respectively, relating to foreign net operating loss carryforwards and foreign tax credit carryforwards. At September 30, 2021 and 2020, the Company had $26.3 and $36.0, respectively, of current income tax payable included in other current liabilities on the Consolidated Balance Sheets. As of September 30, 2021 and 2020, the Company also had a transition tax liability of $16.9 and $18.9 included within other long-term liabilities on the Consolidated Balance Sheets.
A deferred tax asset of $2.0 was recognized as of September 30, 2021 for the outside basis difference of the investment in TerraSource Global in connection with the October 22, 2021 divestiture of the business. A corresponding valuation allowance of $2.0 was recorded against the deferred tax asset as the realization of the deferred tax asset is not more-likely-than-not.
The Company establishes a valuation allowance for deferred tax assets when it is determined that the amount of expected future taxable income is not likely to support the use of the deduction or credit.
As of September 30, 2021, and 2020, respectively, $15.0 and $13.2 of deferred tax liability on unremitted earnings of foreign subsidiaries was recognized, representing the assumed tax on the future distribution and tax withholdings on the distribution of such earnings among certain of the Company’s foreign subsidiaries.
Deferred tax liabilities were not recorded for any additional basis differences inherent in the Company’s foreign subsidiaries (i.e., basis differences in excess of those subject to the Transition Tax) as these amounts continue to be permanently reinvested outside of the U.S. If these amounts were not considered permanently reinvested, deferred tax liabilities would be recorded for any additional income taxes, distribution taxes, and withholding taxes payable in various countries. A determination of the unrecognized deferred tax liabilities on the permanently reinvested basis differences at September 30, 2021 is not practicable.
A reconciliation of the unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2021
|
|
2020
|
|
2019
|
Balance at September 30
|
$
|
35.7
|
|
|
$
|
9.7
|
|
|
$
|
12.1
|
|
Assumed and recognized tax positions as part of Milacron acquisition
|
—
|
|
|
29.2
|
|
|
—
|
|
Additions for tax positions related to the current year
|
6.5
|
|
|
0.6
|
|
|
0.3
|
|
Additions for tax positions of prior years
|
1.6
|
|
|
0.7
|
|
|
4.0
|
|
Reductions for tax positions of prior years
|
(3.3)
|
|
|
(4.4)
|
|
|
(0.4)
|
|
Settlements
|
—
|
|
|
(0.1)
|
|
|
(6.3)
|
|
|
|
|
|
|
|
Balance at September 30
|
$
|
40.5
|
|
|
$
|
35.7
|
|
|
$
|
9.7
|
|
The gross unrecognized tax benefit included $40.5 and $35.7 at September 30, 2021 and 2020, respectively, which, if recognized, would impact the effective tax rate in future periods. The assumed and recognized tax positions as part of the Milacron acquisition, includes historical unrecognized tax benefits related to Milacron, as well as certain unrecognized tax benefits recorded as part of purchase accounting.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. During 2021 and 2020, the Company recognized $1.2 and $1.0, respectively, in additional interest and penalties. Excluded from the reconciliation were $3.7 and $2.5 of accrued interest and penalties at September 30, 2021 and 2020, respectively.
The Company operates in multiple income tax jurisdictions both inside and outside the U.S. and are currently under examination in various federal, state, and foreign jurisdictions. There are ongoing audits in India, Canada, Germany, and the Czech Republic specifically which could prove to be significant for the Company. In addition, there are other ongoing audits in various stages of completion in several state and foreign jurisdictions.
It is possible that the liability associated with the unrecognized tax benefits will increase or decrease within the next 12 months. These changes may be the result of ongoing audits or the expiration of statutes of limitations and could range up to $2.5 based on current estimates. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. Although the Company believes that adequate provision has been made for such issues, it is possible that their ultimate resolution could affect earnings. Conversely, if these issues are resolved favorably in the future, the related provision would be reduced and yield a positive impact on earnings. The Company does not expect that the outcome of these audits will significantly impact the Consolidated Financial Statements.
9. Earnings (Loss) per Share
The dilutive effects of performance-based stock awards described in Note 10 are included in the computation of diluted earnings per share at the level the related performance criteria are met through the respective Consolidated Balance Sheet date. At September 30, 2021, 2020, and 2019, potential dilutive effects representing 450,000, 400,000, 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
Net income (loss) attributable to Hillenbrand
|
$
|
249.9
|
|
|
$
|
(60.1)
|
|
|
$
|
121.4
|
|
Weighted average shares outstanding — basic (in millions) (1)
|
74.9
|
|
|
73.4
|
|
|
62.9
|
|
Effect of dilutive stock options and unvested time-based
restricted stock (in millions) (2)
|
0.5
|
|
|
—
|
|
|
0.4
|
|
Weighted average shares outstanding — diluted (in millions)
|
75.4
|
|
|
73.4
|
|
|
63.3
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
$
|
3.34
|
|
|
$
|
(0.82)
|
|
|
$
|
1.93
|
|
Diluted earnings (loss) per share
|
$
|
3.31
|
|
|
$
|
(0.82)
|
|
|
$
|
1.92
|
|
|
|
|
|
|
|
Shares with anti-dilutive effect excluded from the computation
of diluted earnings per share (millions)
|
0.8
|
|
|
2.8
|
|
|
0.8
|
|
(1)The increase in weighted-average shares outstanding during the year ended September 30, 2020 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 year ended September 30, 2020, the effect of stock options and other unvested equity awards would be antidilutive. In accordance with GAAP, they have been excluded from the diluted earnings per share calculation.
10. Share-Based Compensation
The Company has share-based compensation plans under which 12,685,436 shares are registered. As of September 30, 2021, 3,640,286 shares were outstanding under these plans and 7,715,641 shares had been issued, leaving 1,329,510 shares available for future issuance. Our primary plan, the Hillenbrand, Inc. Stock Incentive Plan, provides for long-term performance compensation for management and members of the Board of Directors. Under the Stock Incentive Plan, a variety of discretionary awards for employees and non-employee directors are authorized, including incentive or non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, and bonus stock. These programs are administered by the Board of Directors and its Compensation and Management Development Committee.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
Stock-based compensation cost
|
$
|
19.7
|
|
|
$
|
14.0
|
|
|
$
|
12.0
|
|
Less impact of income tax
|
4.5
|
|
|
3.2
|
|
|
2.8
|
|
Stock-based compensation cost, net of tax
|
$
|
15.2
|
|
|
$
|
10.8
|
|
|
$
|
9.2
|
|
The Company realized current tax benefits of $3.9 and $1.2 from the exercise of stock options and the payment of stock awards during 2021 and 2020, respectively.
Stock Options — No stock options were issued during the year ended September 30, 2021. For grants issued prior to 2021, fair values of were estimated on the date of grant using the Black-Scholes option-pricing model. The grants are contingent upon continued employment and generally vest over a three-year period. Expense is recognized on a straight-line basis over the applicable vesting periods. Option terms generally do not exceed 10 years. The weighted-average fair value of options granted was $6.63, and $10.15 per share for 2020 and 2019, respectively. The following assumptions were used in the determination of fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Year Ended September 30,
|
|
|
2020
|
|
2019
|
Risk-free interest rate
|
|
1.6
|
%
|
|
2.9
|
%
|
Weighted-average dividend yield
|
|
2.7
|
%
|
|
2.0
|
%
|
Weighted-average volatility factor
|
|
27.9
|
%
|
|
27.5
|
%
|
Expected life (years)
|
|
5.8
|
|
5.7
|
The risk-free interest rate is based upon observed interest rates appropriate for the term of the employee stock options. The remaining assumptions require significant judgment utilizing historical information, peer data, and future expectations. The dividend yield is based on the history of dividend payouts and the computation of expected volatility is based on historical stock volatility. The expected life of employee stock options represents the weighted-average period the stock options are expected to remain outstanding based on historical exercise activity.
A summary of outstanding stock option awards as of September 30, 2021 and changes during the year is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares
|
|
Weighted-Average
Exercise Price
|
Outstanding at September 30, 2019
|
2,137,604
|
|
|
$
|
35.43
|
|
Granted
|
454,929
|
|
|
31.94
|
|
Exercised
|
(58,618)
|
|
|
20.91
|
|
Forfeited
|
(45,255)
|
|
|
36.94
|
|
Expired/cancelled
|
(52,217)
|
|
|
39.93
|
|
Outstanding at September 30, 2020
|
2,436,443
|
|
|
35.00
|
|
Granted
|
—
|
|
|
—
|
|
Exercised
|
(453,059)
|
|
|
28.86
|
|
Forfeited
|
(9,783)
|
|
|
41.52
|
|
Expired/cancelled
|
(10,651)
|
|
|
41.74
|
|
Outstanding at September 30, 2021
|
1,962,950
|
|
|
$
|
36.35
|
|
|
|
|
|
Exercisable at September 30, 2021
|
1,566,256
|
|
|
$
|
36.81
|
|
As of September 30, 2021, there was $0.5 of unrecognized stock-based compensation associated with unvested stock options expected to be recognized over a weighted-average period of 0.8 years. This unrecognized compensation expense included a reduction for the Company’s estimate of potential forfeitures. As of September 30, 2021, the average remaining life of the outstanding stock options was 5.7 years with an aggregate intrinsic value of $13.7. As of September 30, 2021, the average remaining life of the exercisable stock options was 5.1 years with an aggregate intrinsic value of $10.4. The total intrinsic value of options exercised by employees and directors during 2021, 2020, and 2019 was $6.6, $0.6, and $1.4, respectively. The grant-date fair value of options that vested during 2021, 2020, and 2019 was $15.9, $15.6, and $15.4, respectively.
Time-Based Stock Awards and Performance-Based Stock Awards — These awards are consistent with the Company’s compensation program’s guiding principles and are designed to (i) align management’s interests with those of shareholders, (ii) motivate and provide incentive to achieve superior results, (iii) maintain a significant portion of at-risk incentive compensation, (iv) delineate clear accountabilities, and (v) ensure competitive compensation. The Company believes that the blend of compensation components provides the Company’s management with the appropriate incentives to create long-term value for shareholders while taking thoughtful and prudent risks to grow the value of the Company. The Company’s stock plan enables us to grant several types of restricted stock unit awards including time-based, performance-based contingent on the creation of shareholder value (“SV”), and performance-based based on a relative total shareholder return formula (“TSR”).
The Company’s time-based stock awards provide an unconditional delivery of shares after a specified period of service. The Company records expense associated with time-based awards on a straight-line basis over the vesting period, net of estimated forfeitures.
The vesting of the SV awards granted in fiscal 2021 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 established hurdle rate over a three-year period and a corresponding service requirement. The hurdle rate is a reflection of the weighted-average cost of capital and targeted capital structure. The number of shares awarded is based upon the fair value of the Company’s common stock at the date of grant adjusted for the attainment level at the end of the period. Based on the extent to which the performance criteria are achieved, it is possible for none of the awards to vest or for a range up to the maximum to vest. The Company records expense associated with the awards on a straight-line basis over the vesting period based upon an estimate of projected performance. The actual performance of the Company is evaluated quarterly, and the expense is adjusted according to the new projections. As a result, depending on the degree to which performance criteria are achieved or projections change, expenses
related to the SV awards may become more volatile as the Company approaches the final performance measurement date at the end of the three-year period.
The vesting of TSR awards granted in fiscal 2021 and 2020 will be determined by comparing the Company’s total shareholder return during a three-year period to the respective total shareholder returns of members of the Standard & Poor’s 400 Mid Cap Industrials index (the “Index Companies”). This is a change from prior year grants, when we used our then-applicable compensation peer group to measure relative TSR. Based on the Company’s relative ranking within the performance peer group (for awards granted in fiscal 2019, vesting in fiscal 2021) or within the Index Companies for awards granted in fiscal 2020 and fiscal 2021, vesting in fiscal 2022 and fiscal 2023, respectively), it is possible for none of the awards to vest or for a range up to the maximum to vest. Compensation expense for the TSR awards is recognized over the vesting period regardless of whether the market conditions are expected to be achieved.
The Company estimates the fair value of TSR awards using a Monte-Carlo simulation model which included the following key assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
Expected term (years)
|
2.83
|
|
2.82
|
|
2.83
|
Risk-free interest rate
|
0.20
|
%
|
|
1.60
|
%
|
|
2.83
|
%
|
Share price volatility
|
43.04
|
%
|
|
25.61
|
%
|
|
21.99
|
%
|
Expected dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Actual dividend yield
|
2.24
|
%
|
|
2.63
|
%
|
|
1.87
|
%
|
A summary of the non-vested stock awards, including dividends, as of September 30, 2021 (representing the maximum number of shares that could be vested) and changes during the year is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
Time-Based Stock Awards
|
|
|
Non-vested time-based stock awards at September 30, 2019
|
|
68,930
|
|
|
$
|
41.19
|
|
Granted
|
|
338,105
|
|
|
31.21
|
|
Vested
|
|
(28,741)
|
|
|
38.15
|
|
Forfeited
|
|
(31,669)
|
|
|
32.99
|
|
Non-vested time-based stock awards at September 30, 2020
|
|
346,625
|
|
|
32.46
|
|
Granted
|
|
454,873
|
|
|
39.37
|
|
Vested
|
|
(117,370)
|
|
|
32.95
|
|
Forfeited
|
|
(66,993)
|
|
|
34.72
|
|
Non-vested time-based stock awards at September 30, 2021
|
|
617,135
|
|
|
$
|
37.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
Weighted-Average
Grant Date
Fair Value
|
Performance-Based Stock Awards
|
|
|
Non-vested performance-based stock awards at September 30, 2019
|
|
520,145
|
|
|
$
|
46.41
|
|
Granted
|
|
429,782
|
|
|
33.58
|
|
Vested
|
|
(114,043)
|
|
|
53.29
|
|
Forfeited
|
|
(141,589)
|
|
|
50.05
|
|
Non-vested performance-based stock awards at September 30, 2020
|
|
694,295
|
|
|
36.59
|
|
Granted
|
|
369,138
|
|
|
44.36
|
|
Vested
|
|
(135,569)
|
|
|
38.35
|
|
Forfeited
|
|
(194,215)
|
|
|
46.88
|
|
Non-vested performance-based stock awards at September 30, 2021
|
|
733,649
|
|
|
$
|
37.38
|
|
The total vest date fair value of shares held by Hillenbrand employees and directors which vested during 2021, 2020, and 2019 was $11.1, $5.5, and $7.2 (including dividends), respectively.
As of September 30, 2021, $13.3 and $7.1 of unrecognized stock-based compensation was associated with the Company’s unvested time-based and performance-based (including SV and TSR) stock awards, respectively. The unrecognized amount of compensation related to the SV awards is based upon projected performance to date. The unrecognized compensation cost of the time-based and performance-based awards is expected to be recognized over a weighted-average period of 2.5 and 1.7 years and includes a reduction for an estimate of potential forfeitures. As of September 30, 2021, the outstanding time-based stock awards and performance-based stock awards had an aggregate fair value of $26.3 and $24.9, respectively.
Dividends payable in stock accrue on both time-based and SV awards during the performance period and are subject to the same terms as the original grants. Dividends do not accrue on TSR awards during the performance period. As of September 30, 2021, a total of 49,315 shares had accumulated on unvested stock awards due to dividend reinvestments and were included in the tables above. The aggregate fair value of these shares at September 30, 2021 was $2.1.
Vested Deferred Stock — Certain stock-based compensation programs allow or require deferred delivery of shares after vesting. As of September 30, 2021, there were 326,552 fully vested deferred shares, which were excluded from the tables above. The aggregate fair value of these shares at September 30, 2021 was $13.9.
11. Other Comprehensive (Loss) Income
The following table summarize the changes in the accumulated balances for each component of accumulated other comprehensive loss during the year ended September 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension and
Postretirement
|
|
Currency
Translation
|
|
Net
Unrealized
Gain (Loss) on
Derivative
Instruments
|
|
|
|
Total
Attributable
to
Hillenbrand,
Inc.
|
|
Noncontrolling
Interests
|
|
Total
|
Balance at September 30, 2020
|
$
|
(69.6)
|
|
|
$
|
(21.1)
|
|
|
$
|
(12.1)
|
|
|
|
|
$
|
(102.8)
|
|
|
|
|
|
Other comprehensive (loss) income before reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before tax amount
|
22.5
|
|
|
42.2
|
|
|
0.9
|
|
|
|
|
65.6
|
|
|
$
|
(0.1)
|
|
|
$
|
65.5
|
|
Tax benefit
|
(5.6)
|
|
|
—
|
|
|
(0.2)
|
|
|
|
|
(5.8)
|
|
|
—
|
|
|
(5.8)
|
|
After tax amount
|
16.9
|
|
|
42.2
|
|
|
0.7
|
|
|
|
|
59.8
|
|
|
(0.1)
|
|
|
59.7
|
|
Amounts reclassified from accumulated other comprehensive loss (1)
|
3.5
|
|
|
(8.0)
|
|
|
1.2
|
|
|
|
|
(3.3)
|
|
|
—
|
|
|
(3.3)
|
|
Net current period other comprehensive (loss) income
|
20.4
|
|
|
34.2
|
|
|
1.9
|
|
|
|
|
56.5
|
|
|
$
|
(0.1)
|
|
|
$
|
56.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021
|
$
|
(49.2)
|
|
|
$
|
13.1
|
|
|
$
|
(10.2)
|
|
|
|
|
$
|
(46.3)
|
|
|
|
|
|
(1) Amounts are net of tax.
Reclassifications out of accumulated other comprehensive loss include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2021
|
|
Amortization of Pension
and Postretirement (1)
|
|
(Gain)/Loss on Derivative
Instruments
|
|
(Gain)/Loss on Divestiture
|
|
|
|
Net Loss
Recognized
|
|
Prior Service Costs
Recognized
|
Affected Line in the Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
|
|
Net revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Cost of goods sold
|
—
|
|
|
—
|
|
|
(1.0)
|
|
|
—
|
|
|
(1.0)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
4.2
|
|
|
(0.1)
|
|
|
1.9
|
|
|
(8.0)
|
|
|
(2.0)
|
|
Total before tax
|
$
|
4.2
|
|
|
$
|
(0.1)
|
|
|
$
|
1.0
|
|
|
$
|
(8.0)
|
|
|
(2.9)
|
|
Tax benefit
|
|
|
|
|
|
|
|
|
(0.4)
|
|
Total reclassifications for the period, net of tax
|
|
|
|
|
|
|
|
|
$
|
(3.3)
|
|
(1)These accumulated other comprehensive loss components are included in the computation of net pension cost (see Note 7).
The following table summarize the changes in the accumulated balances for each component of accumulated other comprehensive loss during the year ended September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 loss before reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
Before tax amount
|
(8.5)
|
|
|
43.6
|
|
|
(1.2)
|
|
|
33.9
|
|
|
$
|
(0.5)
|
|
|
$
|
33.4
|
|
Tax benefit
|
2.0
|
|
|
—
|
|
|
0.2
|
|
|
2.2
|
|
|
—
|
|
|
2.2
|
|
After tax amount
|
(6.5)
|
|
|
43.6
|
|
|
(1.0)
|
|
|
36.1
|
|
|
(0.5)
|
|
|
35.6
|
|
Amounts reclassified from accumulated other comprehensive loss (1)
|
5.2
|
|
|
—
|
|
|
2.5
|
|
|
7.7
|
|
|
—
|
|
|
7.7
|
|
Net current period other comprehensive loss
|
(1.3)
|
|
|
43.6
|
|
|
1.5
|
|
|
43.8
|
|
|
$
|
(0.5)
|
|
|
$
|
43.3
|
|
Reclassification of certain income tax effects(2)
|
$
|
(6.0)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6.0)
|
|
|
|
|
|
Balance at September 30, 2020
|
$
|
(69.6)
|
|
|
$
|
(21.1)
|
|
|
$
|
(12.1)
|
|
|
$
|
(102.8)
|
|
|
|
|
|
(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.
Reclassifications out of accumulated other comprehensive loss include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2020
|
|
Amortization of Pension and
Postretirement (1)
|
|
(Gain)/Loss on Derivative
Instruments
|
|
|
|
Net Loss
Recognized
|
|
Prior Service Costs
Recognized
|
|
|
Total
|
Affected Line in the Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
Net revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.2)
|
|
|
$
|
(0.2)
|
|
Cost of goods sold
|
—
|
|
|
—
|
|
|
0.8
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
7.1
|
|
|
—
|
|
|
2.0
|
|
|
9.1
|
|
Total before tax
|
$
|
7.1
|
|
|
$
|
—
|
|
|
$
|
2.6
|
|
|
9.7
|
|
Tax benefit
|
|
|
|
|
|
|
(2.0)
|
|
Total reclassifications for the period, net of tax
|
|
|
|
|
|
|
$
|
7.7
|
|
(1)These accumulated other comprehensive loss components are included in the computation of net pension cost (see Note 7).
The following table summarize the changes in the accumulated balances for each component of accumulated other comprehensive loss during the year ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (loss) before reclassifications
|
|
|
|
|
|
|
|
|
|
|
|
Before tax amount
|
(30.7)
|
|
|
(20.6)
|
|
|
(20.6)
|
|
|
(71.9)
|
|
|
$
|
—
|
|
|
$
|
(71.9)
|
|
Tax expense
|
8.2
|
|
|
—
|
|
|
1.6
|
|
|
9.8
|
|
|
—
|
|
|
9.8
|
|
After tax amount
|
(22.5)
|
|
|
(20.6)
|
|
|
(19.0)
|
|
|
(62.1)
|
|
|
—
|
|
|
(62.1)
|
|
Amounts reclassified from accumulated other comprehensive loss (1)
|
1.2
|
|
|
—
|
|
|
4.5
|
|
|
5.7
|
|
|
—
|
|
|
5.7
|
|
Net current period other comprehensive income (loss)
|
(21.3)
|
|
|
(20.6)
|
|
|
(14.5)
|
|
|
(56.4)
|
|
|
$
|
—
|
|
|
$
|
(56.4)
|
|
Balance at September 30, 2019
|
$
|
(62.3)
|
|
|
$
|
(64.7)
|
|
|
$
|
(13.6)
|
|
|
$
|
(140.6)
|
|
|
|
|
|
(1) Amounts are net of tax.
Reclassifications out of accumulated other comprehensive loss include:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2019
|
|
Amortization of Pension and
Postretirement (1)
|
|
(Gain)/Loss on Derivative
Instruments
|
|
|
|
Net Loss
Recognized
|
|
Prior Service Costs
Recognized
|
|
|
Total
|
Affected Line in the Consolidated Statement of Operations:
|
|
|
|
|
|
|
|
Net revenue
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Cost of goods sold
|
—
|
|
|
—
|
|
|
(0.8)
|
|
|
(0.8)
|
|
|
|
|
|
|
|
|
|
Other income (expense), net
|
1.7
|
|
|
—
|
|
|
6.5
|
|
|
8.2
|
|
Total before tax
|
$
|
1.7
|
|
|
$
|
—
|
|
|
$
|
5.9
|
|
|
7.6
|
|
Tax benefit
|
|
|
|
|
|
|
(1.9)
|
|
Total reclassifications for the period, net of tax
|
|
|
|
|
|
|
$
|
5.7
|
|
(1)These accumulated other comprehensive loss components are included in the computation of net pension cost (see Note 7).
12. Commitments and Contingencies
Litigation
Like most companies, the Company is involved from time to time in claims, lawsuits, and government proceedings relating to its operations, including environmental, antitrust, patent infringement, business practices, commercial transactions, product and general liability, cybersecurity and privacy matters, workers’ compensation, auto liability, employment-related, and other matters. The ultimate outcome of any claims, lawsuits, and proceedings 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 to 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 claims in the U.S., outside insurance companies and third-party claims administrators generally assist in establishing individual claim reserves. An independent outside actuary often 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 such claims when payment is considered probable.
The recorded amounts represent the best estimate of the costs the Company will incur in relation to such exposures, but it is possible that actual costs will differ from those estimates.
13. Other Income (Expense), Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
Interest income
|
$
|
3.4
|
|
|
$
|
3.2
|
|
|
$
|
1.1
|
|
|
|
|
|
|
|
Foreign currency exchange gain, net
|
0.1
|
|
|
1.2
|
|
|
0.2
|
|
Loss on settlement of interest rate swaps (1)
|
—
|
|
|
—
|
|
|
(6.4)
|
|
Other, net
|
(3.2)
|
|
|
(0.4)
|
|
|
(1.6)
|
|
Other income (expense), net
|
$
|
0.3
|
|
|
$
|
4.0
|
|
|
$
|
(6.7)
|
|
(1) Represents amounts immediately reclassified out of accumulated other comprehensive loss upon the settlement of interest rate swaps. See Note 2 for further information.
14. 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:
|
Inputs are unobservable for the asset or liability.
|
See the section below titled “Valuation Techniques” for further discussion of how Hillenbrand determines fair value for investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at September 30,
2021
|
|
Fair Value at September 30, 2021
|
|
|
Using Inputs Considered as:
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
446.1
|
|
|
$
|
446.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
1.3
|
|
|
1.3
|
|
|
—
|
|
|
—
|
|
Cash and cash equivalents held for sale
|
3.5
|
|
|
3.5
|
|
|
|
|
|
Investments in rabbi trust
|
4.2
|
|
|
4.2
|
|
|
—
|
|
|
—
|
|
Derivative instruments
|
1.9
|
|
|
—
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
2021 Notes
|
350.0
|
|
|
349.0
|
|
|
—
|
|
|
—
|
|
2020 Notes
|
400.0
|
|
|
422.8
|
|
|
—
|
|
|
—
|
|
2019 Notes
|
374.6
|
|
|
421.3
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Notes
|
100.0
|
|
|
—
|
|
|
107.6
|
|
|
—
|
|
Derivative instruments
|
2.5
|
|
|
—
|
|
|
2.5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying Value at September 30,
2020
|
|
Fair Value at September 30, 2020
|
|
|
Using Inputs Considered as:
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
302.2
|
|
|
$
|
302.2
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted cash
|
9.6
|
|
|
9.6
|
|
|
—
|
|
|
—
|
|
Investments in rabbi trust
|
3.9
|
|
|
3.9
|
|
|
—
|
|
|
—
|
|
Derivative instruments
|
2.6
|
|
|
—
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
$500.0 term loan
|
475.0
|
|
|
—
|
|
|
475.0
|
|
|
—
|
|
2020 Notes
|
400.0
|
|
|
429.0
|
|
|
—
|
|
|
—
|
|
2019 Notes
|
374.5
|
|
|
409.0
|
|
|
—
|
|
|
—
|
|
$225.0 term loan
|
213.7
|
|
|
—
|
|
|
213.7
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Series A Notes
|
100.0
|
|
|
—
|
|
|
105.3
|
|
|
—
|
|
Derivative instruments
|
1.6
|
|
|
—
|
|
|
1.6
|
|
|
—
|
|
Valuation Techniques
•Cash and cash equivalents, restricted cash, cash and cash equivalents held for sale, and investments in rabbi trust are classified within Level 1 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets. The types of financial instruments the Company classifies within Level 1 include most bank deposits, money market securities, and publicly traded mutual funds. The Company does not adjust the quoted market price for such financial instruments.
•The Company estimates the fair value of foreign currency derivatives using industry accepted models. The significant Level 2 inputs used in the valuation of derivatives include spot rates, forward rates, and volatility. These inputs were obtained from pricing services, broker quotes, and other sources.
•The fair value of the amounts outstanding under the Term Loan Facilities approximate carrying value, as the Company believes their variable interest rate terms correspond to current market terms.
•The fair values of the 2021 Notes, 2020 Notes, and 2019 Notes were based on quoted prices in active markets.
•The fair values of the Series A Notes were estimated based on internally-developed models, using current market interest rate data for similar issues, as there is no active market for the Series A Notes.
15. Segment and Geographical Information
The Company conducts operations through three reportable operating segments: Advanced Process Solutions, Molding Technology Solutions, and Batesville. The Company’s segments maintain separate financial information for which results of operations are evaluated on a regular basis by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company records the direct costs of business operations to the reportable operating segments, including stock-based compensation, asset impairments, restructuring activities, and business acquisition costs. Corporate provides management and administrative services to each reportable operating segment. These services include treasury management, human resources, legal, business development, and other public company support functions such as internal audit, investor relations, financial reporting, and tax compliance. With limited exception for certain professional services and back-office and technology costs, the Company does not allocate these types of corporate expenses to the reportable operating segments.
The following tables present financial information for the Company’s reportable operating segments and significant geographical locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
Net revenue
|
|
|
|
|
|
Advanced Process Solutions
|
$
|
1,245.7
|
|
|
$
|
1,228.6
|
|
|
$
|
1,274.4
|
|
Molding Technology Solutions
|
995.7
|
|
|
735.8
|
|
|
—
|
|
Batesville
|
623.4
|
|
|
552.6
|
|
|
532.9
|
|
Total net revenue
|
$
|
2,864.8
|
|
|
$
|
2,517.0
|
|
|
$
|
1,807.3
|
|
|
|
|
|
|
|
Adjusted EBITDA (1)
|
|
|
|
|
|
Advanced Process Solutions
|
$
|
234.5
|
|
|
$
|
234.5
|
|
|
$
|
223.3
|
|
Molding Technology Solutions
|
201.8
|
|
|
147.0
|
|
|
—
|
|
Batesville
|
160.2
|
|
|
127.1
|
|
|
114.2
|
|
Corporate
|
(58.3)
|
|
|
(44.2)
|
|
|
(42.2)
|
|
|
|
|
|
|
|
Net revenue (2)
|
|
|
|
|
|
United States
|
$
|
1,312.8
|
|
|
$
|
1,202.8
|
|
|
$
|
918.9
|
|
Germany
|
139.0
|
|
|
149.4
|
|
|
120.9
|
|
China
|
503.6
|
|
|
349.1
|
|
|
209.9
|
|
India
|
178.9
|
|
|
122.3
|
|
|
60.6
|
|
All other countries
|
730.5
|
|
|
693.4
|
|
|
497.0
|
|
Total revenue
|
$
|
2,864.8
|
|
|
$
|
2,517.0
|
|
|
$
|
1,807.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Adjusted EBITDA is a non-GAAP measure used by management to measure segment performance and make operating decisions.
(2)The Company attributes net revenue to a geography based upon the location of the end customer. Prior to fiscal 2021, the Company attributed net revenue to a geography based upon the location of the business that consummates the external sale for purpose of this disclosure. As such, the net revenue figures for the year ended September 30, 2020, have been revised to conform to the current year methodology.
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2021
|
|
2020
|
Total assets assigned
|
|
|
|
Advanced Process Solutions
|
$
|
1,596.5
|
|
|
$
|
1,666.5
|
|
Molding Technology Solutions
|
2,103.0
|
|
|
2,032.4
|
|
Batesville
|
231.5
|
|
|
225.3
|
|
Corporate
|
83.9
|
|
|
63.2
|
|
Total assets
|
$
|
4,014.9
|
|
|
$
|
3,987.4
|
|
|
|
|
|
Tangible long-lived assets, net
|
|
|
|
United States
|
$
|
161.1
|
|
|
$
|
182.4
|
|
Germany
|
113.8
|
|
|
110.4
|
|
China
|
53.0
|
|
|
54.2
|
|
All other foreign business units
|
105.3
|
|
|
121.6
|
|
Tangible long-lived assets, net
|
$
|
433.2
|
|
|
$
|
468.6
|
|
The following schedule reconciles segment adjusted EBITDA to consolidated net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
Adjusted EBITDA:
|
|
|
|
|
|
Advanced Process Solutions
|
$
|
234.5
|
|
|
$
|
234.5
|
|
|
$
|
223.3
|
|
Molding Technology Solutions
|
201.8
|
|
|
147.0
|
|
|
—
|
|
Batesville
|
160.2
|
|
|
127.1
|
|
|
114.2
|
|
Corporate
|
(58.3)
|
|
|
(44.2)
|
|
|
(42.2)
|
|
Less:
|
|
|
|
|
|
Interest income
|
(3.4)
|
|
|
(3.2)
|
|
|
(1.1)
|
|
Interest expense
|
77.6
|
|
|
77.4
|
|
|
27.4
|
|
Income tax expense
|
98.6
|
|
|
34.9
|
|
|
50.5
|
|
Depreciation and amortization
|
115.2
|
|
|
130.6
|
|
|
58.5
|
|
Impairment charges
|
11.2
|
|
|
144.8
|
|
|
—
|
|
Business acquisition, disposition, and integration costs
|
34.5
|
|
|
77.2
|
|
|
16.6
|
|
Restructuring and restructuring-related charges
|
14.5
|
|
|
9.3
|
|
|
10.6
|
|
Inventory step-up
|
—
|
|
|
40.7
|
|
|
0.2
|
|
(Gain) loss on divestiture
|
(67.1)
|
|
|
3.5
|
|
|
—
|
|
Loss on settlement of interest rate swaps
|
—
|
|
|
—
|
|
|
6.4
|
|
Other
|
1.9
|
|
|
2.6
|
|
|
—
|
|
Consolidated net income (loss)
|
$
|
255.2
|
|
|
$
|
(53.4)
|
|
|
$
|
126.2
|
|
16. Restructuring
Hillenbrand periodically undergoes restructuring activities in order to enhance profitability through streamlined operations and an improved overall cost structure. The following schedule details the restructuring charges by reportable operating segment and the classification of those charges on the Consolidated Statements of Operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2021
|
|
2020
|
|
2019
|
|
Cost of goods sold
|
|
Operating expenses
|
|
Total
|
|
Cost of goods sold
|
|
Operating expenses
|
|
Total
|
|
Cost of goods sold
|
|
Operating expenses
|
|
Total
|
Advanced Process Solutions
|
$
|
9.3
|
|
|
$
|
5.9
|
|
|
$
|
15.2
|
|
|
$
|
0.9
|
|
|
$
|
3.1
|
|
|
$
|
4.0
|
|
|
$
|
0.7
|
|
|
$
|
4.8
|
|
|
$
|
5.5
|
|
Molding Technology Solutions
|
4.1
|
|
|
1.0
|
|
|
5.1
|
|
|
2.0
|
|
|
2.0
|
|
|
4.0
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Batesville
|
0.1
|
|
|
1.1
|
|
|
1.2
|
|
|
—
|
|
|
0.7
|
|
|
0.7
|
|
|
0.5
|
|
|
4.2
|
|
|
4.7
|
|
Corporate
|
—
|
|
|
0.7
|
|
|
0.7
|
|
|
—
|
|
|
1.8
|
|
|
1.8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
$
|
13.5
|
|
|
$
|
8.7
|
|
|
$
|
22.2
|
|
|
$
|
2.9
|
|
|
$
|
7.6
|
|
|
$
|
10.5
|
|
|
$
|
1.2
|
|
|
$
|
9.0
|
|
|
$
|
10.2
|
|
The restructuring charges within the Advanced Process Solutions and Batesville reportable operating segments during 2021, 2020, and 2019 related primarily to severance costs. The restructuring charges within the Molding Technology Solutions reportable operating segment and Corporate during 2021 and 2020 were primarily related to severance costs associated with the ongoing integration of Milacron, as well as productivity initiatives within the Molding Technology Solutions reportable operating segment. At September 30, 2021, $7.6 of restructuring costs were accrued and are expected to be paid over the next twelve months.
During 2021, the Company's wholly-owned subsidiary Coperion GmbH entered into an agreement with its local works council setting forth a restructuring plan related to its manufacturing facilities in Stuttgart and Weingarten, Germany whereby certain operational functions will be shifted to the Company’s operations in Switzerland or to a third party provider (the “Plan”). As a result, the Company expects to incur severance and other related costs of approximately $12.0 to $13.0 and restructuring-related costs of $4.0 to $5.0 over the next 9 to 12 months. Substantially all of these costs will result in future cash expenditures that are expected to be substantially paid by the end of calendar year 2022. As the employees are required to render service in order to receive termination benefits, the associated liability related to the Plan will be recognized ratably over the future service period. During the year ended September 30, 2021, the Company recognized $7.3 of expense, and these amounts were included within cost of goods sold and operating expenses in the Company's Consolidated Statements of Operations. The total liability related to the Plan was $5.3 as of September 30, 2021.