UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual☒Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 20172023
OR
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ____ to _____
Commission File No. 001-33794
HILLENBRAND, INC.
(Exact name of registrant as specified in its charter)
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IndianaIN | | 26-1342272 |
(State or other jurisdiction of incorporation)incorporation or organization) | | (I.R.S. Employer Identification No.) |
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| One Batesville Boulevard | | |
Batesville, Indiana | IN | | 47006 |
| (Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (812) 934-7500931-5000
Securities registered pursuant to Section 12(b) of the Act:
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| Title of Each Class | | Trading Symbol(s) | | Name of Each Exchange on Which Registered |
| Common Stock, without par value | | New York Stock ExchangeHI | | NYSE |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o☐ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | | ý | | | | | Accelerated filer | o | Emerging growth company | ☐ |
| Non-accelerated filer | | o | | (Do not check if a smaller reporting company) | Smaller reporting company | o
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| ☐ | | | | | | | Emerging growth company | o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes x No o
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No x
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The aggregate market value of votingcapital stock (consisting solely of shares of common stock) held by non-affiliates of the registrant as of March 31, 20172023 was $2,259,976,005.$3,252,045,631. As of November 10, 2017, 63,023,2452023, 69,921,378 shares of common stock were outstanding.
Documents Incorporated by Reference
Portions of our definitive proxy statement for the 20182024 Annual Meeting of Shareholders are incorporated by reference into Part III of this report. The proxy statement will be filed no later than January 5, 2018.
TABLE OF CONTENTS
(monetary amounts in millions, except per share data)
PART I
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Throughout this Form 10-K, we make a number of “forward-looking statements”statements,” including statements that are within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995.1995, and that are intended to be covered by the safe harbor provided under these sections. As the words imply, these are statements about future sales, earnings, cash flow, results of operations, uses of cash, financings, share repurchases, ability to meet deleveraging goals, and other measures of financial performance or potential future plans or events, strategies, objectives, beliefs, prospects, assumptions, expectations, and expectationsprojected costs or savings or transactions of the Company that might or might not happen in the future, as contrasted with historical information. Forward-looking statements are based on assumptions that we believe are reasonable, but by their very nature are subject to a wide range of risks. If our assumptions prove inaccurate or unknown risks and uncertainties materialize, actual results could vary materially from Hillenbrand’s expectations and projections.
Accordingly, in this Form 10-K, we may say something like,
“We expect that future net revenue associated with the Process Equipment Group will be influenced by order backlog.”
That is a forward-looking statement, as indicated by the word “expect” and by the clear meaning of the sentence.
Other words that could indicate we are making forward-looking statements include:include the following:
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| intend | believe | plan | expect | may | goal | would | project | position |
| become | pursue | estimate | will | forecast | continue | could | anticipate | remain |
becometarget | pursueencourage | estimatepromise | willimprove | forecastprogress | continuepotential | could |
| should | impact | | | | | |
targeted | encourage | promise | improve | progress | potential | should |
This is not an exhaustive list, but is intended to give you an idea of how we try to identify forward-looking statements. The absence of any of these words, however, does not mean that the statement is not forward-looking.
Here is the key point: Forward-looking statements are not guarantees of future performance or events, and our actual results or events could differ materially from those set forth in any forward-looking statements.
Any number of factors, many of which are beyond our control, could cause our performance to differ significantly from what is described in the forward-looking statements. For a discussionThese factors include, but are not limited to: global market and economic conditions, including those related to the financial markets; the risk of factorsbusiness disruptions associated with information technology, cyber-attacks, or catastrophic losses affecting infrastructure; the impact of disease outbreaks, such as the COVID-19 pandemic, or other health crises; increasing competition for highly skilled and talented workers, as well as labor shortages; uncertainty related to environmental regulation and industry standards, as well as physical risks of climate change; increased costs, poor quality, or unavailability of raw materials or certain outsourced services and supply chain disruptions; uncertainty in United States global trade policy; our level of international sales and operations; the impact of incurring significant amounts of indebtedness and any inability of the Company to respond to changes in its business or make future desirable acquisitions; the ability of the Company to comply with financial or other covenants in debt agreements; negative effects of acquisitions, including the Schenck Process Food and Performance Materials (“FPM”) business and Linxis Group SAS (“Linxis”) acquisitions, on the Company’s business, financial condition, results of operations and financial performance (including the ability of the Company to maintain relationships with its customers, suppliers, and others with whom it does business); the possibility that the anticipated benefits from acquisitions including the FPM and Linxis acquisitions cannot be realized by the Company in full or at all, or may take longer to realize than expected; risks that the integrations of FPM or Linxis or other acquired businesses disrupt current operations or pose potential difficulties in employee retention or otherwise affect financial or operating results; competition in the industries in which we operate, including on price; cyclical demand for industrial capital goods; the ability to recognize the benefits of any acquisition or divestiture, including potential synergies and cost savings or the failure of the Company or any acquired company to achieve its plans and objectives generally; impairment charges to goodwill and other identifiable intangible assets; impacts of decreases in demand or changes in technological advances, laws, or regulation on the net revenues that we derive from the plastics industry; changes in food consumption patterns due to dietary trends, or economic conditions, or other reasons; our reliance upon employees, agents, and business
partners to comply with laws in many countries and jurisdictions; the impact to the Company’s effective tax rate of changes in the mix of earnings or in tax laws and certain other tax-related matters; exposure to tax uncertainties and audits; involvement in claims, lawsuits, and governmental proceedings related to operations; uncertainty in the U.S. political and regulatory environment; adverse foreign currency fluctuations; labor disruptions; and the effect of certain provisions of the Company’s governing documents and Indiana law that could cause actual results to differ from those contained in forward-looking statements, seedecrease the discussions undertrading price of the heading “Risk Factors” in Item 1A of this Form 10-K. We assume no obligation to update or revise any forward-looking statements.Company’s common stock.
Item 1. BUSINESS
In this section of the Form 10-K, we provide you a general overview of the Company, including a high-level review of our reportable segments and how we operate. We then present our reportable operating segments in greater detail, including the products we manufacture and sell, how those products are distributed and to whom, with whom we compete, the key inputs to production, and an explanation of our business strategies. We also provide you information on any key patents, trademarks, and regulatory matters important to our business. Finally, we provide you a brief background on our executive officers so that you can understand their experience and qualifications.
Further quantitative information about the business, by segment and geography, is set forth in Note 14 to our financial statements included in Part II, Item 8, of this Form 10-K.
GENERAL
Hillenbrand (www.Hillenbrand.com) is a global diversified industrial company with multiple market-leadingthat provides highly-engineered processing equipment and solutions to customers around the world. Our portfolio is composed of leading industrial brands that serve a wide variety of industries around the world. large, attractive end markets, including durable plastics, food, and recycling. Guided by our Purpose, Shape What Matters For Tomorrow™, we pursue excellence, collaboration, and innovation to shape solutions that best serve our people, our customers, and our communities. Customers choose Hillenbrand due to our reputation for designing, manufacturing, and servicing highly-engineered, mission-critical equipment and solutions that meet their unique and complex processing requirements.
Hillenbrand’s portfolio is composed of two businessreportable operating segments: Advanced Process Solutions and Molding Technology Solutions. Advanced Process Solutions is a leading global provider of highly-engineered process and material handling equipment, systems, and aftermarket parts and services for a variety of industries, including durable plastics, food, and recycling. Key technologies within the Advanced Process Equipment GroupSolutions portfolio include compounding, extrusion, material handling, conveying, mixing, ingredient automation, portion process, and Batesville®. The Process Equipment Group businesses design, develop, manufacture,screening and separating equipment. Molding Technology Solutions is a global leader in highly-engineered equipment, systems, and aftermarket parts and service highly engineered industrialfor the plastic technology processing industry. Molding Technology Solutions has a comprehensive product portfolio that includes injection molding and extrusion equipment, aroundhot runner systems, process control systems, mold bases and components, and maintenance, repair, and operating (“MRO”) supplies. These reportable operating segments are characterized by well-known brands that are recognized for technological capabilities and process expertise that can be shared across the world. Batesville isreportable operating segments to serve customers globally. These reportable operating segments address macro trends supported by a recognized leadergrowing middle class driving demand for plastics in the North American death care industry. a variety of applications, such as construction, food safety, and recycling, and demand for more sustainable food sources such as plant-based proteins,
Hillenbrand was incorporated on November 1, 2007, in the state of Indiana and began trading on the New York Stock Exchange
under the symbol “HI” on April 1, 2008. “Hillenbrand,” “the Company,” “we,” “us,” “our,” and similar words refer to Hillenbrand, Inc. and its subsidiaries unless context otherwise requires.
Although Hillenbrand has been a publicpublicly traded company for more than nine years,since 2008, the businessesbrands owned by Hillenbrand have been in operation for many decades.
Between 2010 and 2014, Hillenbrand completed three majorOver the past several years, we have significantly transformed our business through not only the completion of several strategic acquisitions, of companies that formedbut also the foundationdivestiture of our legacy death care reportable operating segment, Batesville, as well as the divestiture of certain other non-core brands. The acquisitions provided leading brands, complementary technologies, and enhanced scale in attractive end markets, including food and recycling. These end markets are attractive to Hillenbrand because they have strong, long-term growth characteristics, and allow us to leverage our existing expertise in process technology and systems engineering to provide comprehensive solutions to our customers.
Acquisitions
The following acquisitions were made during the years ended September 30, 2023 and 2022, and are all currently included within our Advanced Process Solutions reportable operating segment:
•On September 1, 2023, the Company completed the acquisition of Schenck Process Food and Performance Materials (“FPM”) business;
•On December 1, 2022, the Company completed the acquisition of the Peerless Food Equipment Group: K-Tron International,division (“Peerless”) of Illinois Tool Works Inc.;
•On October 6, 2022, the Company completed the acquisition of LINXIS Group SAS (“K-Tron”Linxis”) in April 2010, Rotex Global, LLC (“Rotex”) in;
•On August 2011, and Coperion Capital31, 2022, the Company completed the acquisition of Herbold Meckesheim GmbH (“Coperion”Herbold”) in December 2012. ; and
•On June 30, 2022, the Company completed the acquisition of Gabler Engineering GmbH and affiliate (“Gabler”).
TerraSource Global, also part of our Process Equipment Group, was organized in July 2012 from three brands, Gundlach Equipment Corporation, Jeffrey Rader Corporation, and Pennsylvania Crusher Corporation, each acquired as part of the K-Tron acquisition. The remaining K-Tron brands merged with Coperion during 2013.
On October 2, 2015, Hillenbrand acquired Abel Pumps LP, Abel GmbH & Co. KG, and certain of their affiliates (collectively “Abel”). Additionally, on February 1, 2016, Hillenbrand acquired Red Valve Company, Inc. (“Red Valve”). Both Abel and Red Valve are now included in our Process Equipment Group segment.
SeeFor further information, see Note 35 to our financial statementsConsolidated Financial Statements included in Part II, Item 8, of this Form 10-K for more information on10-K.
Divestitures
On December 31, 2020, the Abel andCompany completed the divestiture of Red Valve acquisitions.Company, Inc. (“Red Valve”). The results of operations and cash flows of the Company include Red Valve through December 31, 2020.
BusinessOn March 10, 2021, the Company completed the divestiture of ABEL GmbH (“ABEL”). The results of operations and cash flows of the Company include ABEL through March 10, 2021.
On October 22, 2021, the Company completed the divestiture of TerraSource Global (“TerraSource”). The results of operations and cash flows of the Company include TerraSource through October 22, 2021.
On February 1, 2023, the Company completed the divestiture of its historical Batesville reportable operating segment. This divestiture represented a strategic shift in Hillenbrand’s business and qualified as a discontinued operation. Accordingly, the operating results and cash flows related to the historical Batesville reportable operating segment have been reflected as discontinued operations in the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows for all periods presented, while the assets and liabilities that were divested were classified within the Consolidated Balance Sheets as held for sale in the periods preceding the divestiture. Unless otherwise noted, discussion within this Form 10-K relates to continuing operations only and excludes the historical Batesville reportable operating segment.
For further information, see Note 4 to our Consolidated Financial Statements included in Part II, Item 8, of this Form 10-K.
Reportable Operating Segments
Advanced Process Equipment GroupSolutions
TheAdvanced Process Equipment GroupSolutions is a leading global provider of compounding, extrusion,highly-engineered process and material handling; size reduction; screeninghandling equipment, systems, and separating; and flow control productsaftermarket parts and services for a wide variety of manufacturingindustries, including durable plastics, food, and other industrial processes.recycling. Key technologies within the Advanced Process Solutions portfolio include compounding, extrusion, material handling, conveying, mixing, ingredient automation, portion process, and screening and separating equipment.
We believe theAdvanced Process Equipment GroupSolutions has attractive fundamentals including:
Geographic diversification;•Strong product and technology positions with substantial brand value and recognition;
•Industry-leading applications and engineering expertise;
•Comprehensive solutions capabilities through a differentiated suite of complementary processing technologies;
•A large installed base that supports an aftermarket parts and service business with historically stable revenue and attractive margins;
•A customer base that is highly diversified, and hasincluding a strong history of long-term relationships with blue-chip end user customers; and
Proven products•A strong global footprint for sales, manufacturing, engineering, and service, including established operations in high growth countries such as India and China.
Molding Technology Solutions
Molding Technology Solutions is a global leader in highly-engineered equipment, systems, and aftermarket parts and service for the plastic technology processing industry. Molding Technology Solutions has a comprehensive product portfolio that includes injection molding and extrusion equipment, hot runner systems, process control systems, mold bases and components, and maintenance, repair, and operating (“MRO”) supplies.
We believe Molding Technology Solutions has attractive fundamentals including:
•Strong product and technology positions with substantial brand value and recognition, combined with industry-leading applicationsrecognition;
•Strong market positions and engineering expertise.expertise;
Batesville
Batesville is a leader in the North American death care industry through the manufacture•A large installed base that supports an aftermarket parts and sale of funeral service products, including burial caskets, cremation caskets, containers and urns, selection room display fixtures, other personalization and memorialization products, and web-based technology applications.
We believe Batesville has attractive fundamentals including:
Historically predictable strong cash flowbusiness with historically stable revenue and attractive margins;
Historically high return on invested capital;•A customer base that is highly diversified in end markets and
Substantial brand value and recognition, combined applications, with quality service, a nationwide distribution network, and a strong history of long-term customer base.relationships; and
•Geographic diversification, including established operations in high growth countries such as India and China.
How We Operate
WeGuided by our Purpose, Shape What Matters for Tomorrow, we strive 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 the execution of our profitable growth strategy. We aim to deliver sustainable revenue expansion, profit growth, and substantial free cash flow through our world-class products, solutions, and service, drive continuous improvement through the deployment of the Hillenbrand Operating Model (HOM).(“HOM”), and effectively deploy our cash flow to maximize shareholder value creation.
Driving Growth
Our growth is driven by several key factors, including:
•Our leading positions in large, attractive end markets that are supported by long-term macro demand trends, including the expanding global middle class, the desire for more sustainable products and solutions, and the evolution of the global supply chain;
•Our strong global footprint and large installed base, which supports profitable aftermarket expansion; and
•A disciplined mergers and acquisitions framework that accelerates our growth with a focus on leading brands that enhance our technological capabilities and build scale in key end markets and/or geographies.
The Hillenbrand Operating Model
Our continuous improvement culture is fueled by the HOM. The HOM is a consistent and repeatable framework designed to produce sustainable and predictable results. The HOM describes ourthe Company’s Purpose, mission, vision, values, and mindset as leaders; applies our management practices in Strategy, Management, Segmentation, Lean, Talent Development,People, Operational Excellence, and Acquisitions;Innovation & Technology; and prescribes threefour steps (Understand, Focus, Execute, and Grow) designed to make ourthe Company’s businesses both biggerdeliver sustainable revenue expansion, profit growth, and better. Oursubstantial free cash flow. The Company’s goal is to continue developing Hillenbrand as a world-class global diversified industrial company through the deployment of the HOM.HOM to drive product innovation, best-in-class pricing and commercial practices, and margin enhancement through productivity and integration-related synergy realization.
Sustainability
Sustainability is a key component of the HOM. We believe sustainability to be a source of value creation that must be aligned with the core strategy of the Company. We expect to continue developing this part of our strategy as we grow in our sustainability practice. Among other things, we believe climate change will require meaningful action on a global scale, and we expect that further developing our understanding of our energy consumption and emissions will be an important part of examining the challenges posed by climate change. To date, our costs relating to addressing climate change have not been material.
Capital Allocation Framework
Our strategycapital allocation framework is built around three core priorities in the following order:
•Safety and financial sustainability
◦Maintaining adequate liquidity to leveragesupport and sustain our historically strong financial foundationongoing operations;
◦Honoring our current dividend policy, which provides an attractive cash return to our shareholders.
•Growing our business
◦Reinvesting in the business organically to drive innovation, growth, and operating efficiency;
◦Enhancing our growth with strategic acquisitions that expand our technological capabilities, accelerate scale in key end markets or geographies, and provide an appropriate return for our shareholders;
◦Maintaining an appropriate capital structure with a net debt to adjusted EBITDA target range of 1.7x to 2.7x.
•Return capital
◦Periodic opportunistic share repurchases to return capital to our shareholders.
Given the implementationacquisitions completed in fiscal year 2023, we intend to continue to prioritize cash flow deployment to pay down debt, invest in organic initiatives for growth and operating efficiencies, as well as integration-related activities.
Human Capital Management
Purpose and Core Values
Purpose remains our clear foundation. It is the “why” behind everything we do. Purpose shapes the actions we take, the business decisions we make, and how we think about our business, including human capital management and sustainability more broadly. Our employees are at the center of everything we do because without them, we can’t move the world forward. They are the designers, engineers, manufacturers, makers, and shapers that bring our products and brands to life and strengthen our communities.
Our Purpose is underpinned by four Core Values: Win As One, Partner With Possibility, Make It Matter, and Drive To Deliver. Purpose champions across the business remain focused on bringing our Purpose and Core Values to life locally through our daily practices. Purpose and Core Values are an important part of our onboarding as we welcome new employees and acquired companies. We connect the new capabilities and experiences of these companies to our shared Purpose. As we continue to grow as a company, living out our Purpose and Core Values empowers us to better serve one another, our communities, and our customers while we continue to pursue exceptional performance and long-term shareholder value.
People
People are a key pillar of the HOM, and our talent management philosophy is to deliver sustainable profitdevelop and promote internal employees and supplement with external hires where we require new or different skills and capabilities. This approach has yielded a deep understanding among our employee base of our products and our customers, while encouraging new employees to bring innovative ideas in support of our continuous improvement mindset. We believe that our average employee tenure across the globe — 10.1 years as of the end of fiscal 2023 — reflects the high engagement and dedication of our employees. Our talent acquisition team uses internal and external resources to recruit highly skilled and talented employees, and we encourage employee referrals for open positions.
Once employees are hired, performance expectations are established and tracked annually. Additionally, development plans are created and monitored for critical roles to ensure progress is made along established timelines. Development plans also intersect with our mission, helping us increase our commitment to serve the needs of the local communities in which we operate, while simultaneously providing leadership development opportunities for our employees. Effectively managing employee performance and linking pay to performance management is a critical part of our approach.
Workplace Demographics
Hillenbrand is committed to the growth revenue expansionof our employees by developing talent and substantial free cash flowbuilding a growth-minded culture. We believe our employees give us the strength and skills to compete, and we must in turn help our employees reach their potential.
As of September 30, 2023, we had approximately 10,400 employees worldwide. Approximately 3,200 employees were located within the United States (“U.S.”) and 7,200 employees were located outside of the U.S., primarily throughout Europe and Asia. Approximately 62% of our workforce within the U.S. is composed of manufacturing direct labor, and the remaining population includes all other selling, general, and administrative professional employees.
As of September 30, 2023, approximately 3,300 employees globally work under collective bargaining agreements and works councils. Hillenbrand strives to maintain satisfactory relationships with all its employees, including the unions and works councils representing those employees. As a result, we have not experienced a significant work stoppage due to labor relations in more than 20 years.
Health and Safety
The health and safety of our employees is our highest priority. In fiscal 2023, with both our people and our Core Values in mind, we expanded our focus to driving standardization of health and safety measures across our operations. We restructured our sustainability working groups and created a Global Environment, Health & Safety (EHS) Council to help streamline reporting functions and improve data quality and transparency. This group, made up of EHS representatives from across the
enterprise, leads our safety strategy and provides a forum for collaboration and data collection.The Council captures historic and ongoing safety data from our facilities, which is incorporated into our annual Sustainability Report.
Diversity, Equity and Inclusion
Diversity, Equity, and Inclusion (“DEI”) at Hillenbrand is embedded in how we live and work and is part of our Core Values. By listening and acting with respect, embracing our individuality, and trusting in each other’s strengths, we create an inclusive culture that brings our Purpose to life. We continue to focus on making meaningful progress in our DEI Roadmap established in 2021. In fiscal 2023, we continued to cascade DEI into our talent practices by focusing on qualified diverse slates of candidates for senior leadership positions and assessing the diversity of succession plans for pipeline development. Additionally, leaders at director level and above (excluding leaders from our recent acquisitions) committed to a leadership goal related to Environmental, Social and Governance (“ESG”) progress as part of their annual performance goal setting.
We also engage the diverse perspectives of our employees through Business Resource Groups (“BRGs”). During the year, BRG leaders and members championed celebrations and observances, led personal and professional development sessions, and provided our employees with education and awareness about their communities. As we continue to embed our inclusive mindset across Hillenbrand, we launched a DEI foundation building learning program and a Women of Hillenbrand program in addition to our unconscious bias learning program for leaders.
We also hold ourselves accountable through measurement and transparency, including sharing our DEI progress regularly with our Board of Directors and publicly disclosing our global gender and U.S. ethnically diverse representation in our annual Sustainability Report, which can be found on the “Sustainability” section of our website at www.hillenbrand.com.
Total Rewards
Hillenbrand offers rewards programs focused on supporting employees and their families as they navigate work and life. Hillenbrand’s programs are designed to ensure employees are effectively compensated in terms of base salary, incentive compensation, and other benefits that support the health and wellness of themselves and their families. While specific compensation and benefits vary worldwide and are based on regional practices, we offer market-competitive compensation and benefits to retain and attract top talent.Our compensation programs focus on pay for performance, and we strive to pay within pay ranges developed based on market data and internal pay equity. We focus many benefit programs on employee wellness and have implemented solutions including onsite wellness centers, mental health support, telemedicine, and healthy weight loss programs. We believe that these solutions have helped us successfully manage healthcare and prescription drug costs for our employee population.
Hillenbrand believes in supporting employee’s mental health in addition to physical well-being. Mental health care is a covered service under all U.S. Company medical plans, including inpatient care facility services, inpatient professional services, office visits, and outpatient care.
Hillenbrand recognizes the importance of preparing for retirement.Employees are encouraged to participate in their own retirement savings where available. In the U.S., the majority of employees are eligible to participate in one of several 401(k) savings plans.Features of the plans vary but may include automatic Company contributions, Company matching contributions on employee contributions, and automatic enrollment.The plans provide a wide range of investment choices along with tax-deferred investment growth.
Outside of the U.S., Hillenbrand provides an array of benefits to support employees and their families. These include benefits such as paid leaves of absence, medical insurance, disability coverage and life insurance, among others.
Hillenbrand is committed to attracting, developing, engaging, and retaining the best people from around the world to make our businesses run and grow. In everything we do, we strive to provide great professional opportunities for our people and recognize the critical role our human capital plays in supporting our strategy.
As Hillenbrand acquires companies, it will take time to integrate them into our overall programs.Recently acquired companies are at varying stages of implementation as of September 30, 2023.
Cybersecurity
Our approach to cybersecurity begins with our responsibility for strong governance and controls. Security begins at the top of our organization, where Company leadership consistently communicates the requirements for vigilance and compliance throughout the organization, and then reinvest available cash inleads by example. The cybersecurity program is led by Hillenbrand’s Chief Information Security Officer, who provides quarterly updates to the Audit Committee of our Board of Directors, annual updates to the Board of Directors, and regular reports to the Executive Management Team about the program, including information about cyber risk management governance and the status of ongoing efforts to strengthen cybersecurity effectiveness.
We also educate and share best practices globally with our employees to raise awareness of cybersecurity threats. As part of our onboarding process, we train all new growth initiatives thatemployees on cybersecurity and maintain an annual retraining for all employees on cybersecurity standards, as well as how to recognize and properly respond to phishing and social engineering schemes. Hillenbrand has deployed a phishing detection system to report suspicious emails, which are focusedflagged for further review, as well as an automated monthly process to retrain employees who do not maintain an acceptable pass rate on building leadership positions in our core marketsphishing recognition training. To round out our robust awareness program, we have specific and near adjacencies, both organically and inorganically, in order to create shareholder value.regular training for our IT professionals.
REPORTABLE OPERATING SEGMENTS
Advanced Process Equipment GroupSolutions
TheAdvanced Process Equipment GroupSolutions designs, engineers, manufactures, markets, and services differentiated process and material handling equipment and systems for a wide variety of industries, including plastics, food and pharmaceuticals, chemicals, fertilizers, minerals, energy, recycling, and mining, energy, wastewater treatment, and forest products. Theother general industrials. Advanced Process Equipment GroupSolutions uses its strong applications and process engineering expertise to solve problems for customers. Its highly engineered capital equipment and systems offerings require after-marketaftermarket service and/or parts replacement, providing an opportunity for ongoing revenue at attractive margins.
Advanced Process Equipment Group:Solutions: Products and Services
TheAdvanced Process Equipment GroupSolutions’ product portfolio has grown through a series of acquisitions over the past seven years and now includes products and services for compounding, extrusion, and material handling; size reduction;handling, conveying, mixing, ingredient automation, portion process, and screening and separating; and flow control. Theseparating equipment. Advanced Process Equipment Group businessesSolutions’ product lines are supported by replacementaftermarket parts and services, that representwhich represented approximately 36%28% of the group’sAdvanced Process Solutions’ total revenue.net revenue during fiscal 2023. Products are offered under brand names that are recognized among theas leaders in their respective categories.
•Compounding, Extrusion,extrusion, and Material Handling Equipment,material handling equipment and Equipment System Designequipment system design
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• | Twin screw compounding and extrusion machines range from small laboratory compounding machines to high performance, high throughput extrusion systems. Small and mid-sized compounders are used by customers in engineering plastics, masterbatch, PVC, and other applications for the plastics, chemical, and food and pharmaceutical industries. These products are sold under the Coperion® brand. Extrusion systems are sold to customers in the polyolefin industry for base resin production. The extrusion products are sold under the Coperion® brand.
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• | Material handling equipment includes pneumatic and hydraulic conveying equipment for difficult-to-move materials; high-precision feeders that can operate at both very high and very low fill rates; blenders for pellets and powders; and rotary valves, diverter valves, and slide-gate valves used for feeding, dosing, discharge, and distribution during pneumatic conveying. The proprietary equipment is highly engineered and designed to solve the needs of customers for customized solutions. Material handling equipment is sold to a variety of industries, including plastics, food and pharmaceuticals, chemicals, and minerals and mining. These products are sold under the Coperion® and Coperion K-Tron® brands.
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◦Twin screw compounding and extrusion machines range from small laboratory compounding machines to high performance, high throughput extrusion systems. Small and mid-sized compounders are used by customers in engineered plastics, masterbatch, PVC, recycling, biodegradable products, and other applications for the plastics, chemical, food, and pharmaceutical industries. With the acquisition of FPM in 2023, the Company now offers broader application solutions to support these industries. Extrusion systems are sold to customers in multiple industries. These extrusion products are sold under the Coperion® brand.
◦Material handling equipment includes pneumatic and hydraulic conveying equipment for difficult-to-move materials; high-precision feeders that can operate at both very high and very low fill rates; blenders for pellets and powders; and rotary valves, diverter valves, and slide-gate valves used for feeding, dosing, discharge, and distribution during pneumatic conveying. The proprietary equipment is highly engineered and designed to solve the needs of customers for customized solutions. Material handling equipment is sold to a variety of industries, including plastics, food and pharmaceuticals, chemicals, and minerals. With the acquisition of FPM in 2023, the Company offers expanded material handling capabilities in each of these industries. These products are sold under the Coperion®, Coperion K-Tron®,and Herbold® brands.
◦Compounding, extrusion, and material handling equipment can be sold as a complete system, where strong application and process engineering expertise is used to design and create a broad system solution for customers. Systems can range from a single manufacturing line to large scale manufacturing lines and turnkey systems. Larger system sales are generally fulfilled over 1218 to 1824 months. A variable amountconsiderable portion of revenue for large system sales typically comes from third-party-sourced products that carry only a small up-charge. As a result, margin percentages tend to be lower on these large system sales when compared to the rest of the business. reportable operating segment. With the acquisition of Herbold in fiscal 2022, the Company now offers complete, innovative recycling solutions leveraging both Coperion and Herbold complementary
Size Reduction Equipmenttechnologies. From mechanical processing — shredding, washing, separating, drying, and agglomerating of plastics — to bulk material handling, feeding and extrusion, as well as compounding and pelletizing, our product offering encompasses the complete process chain. With the acquisition of FPM in 2023, the Company offers end-to-end systems and full production line capabilities, as well as broader expertise in food and pet food applications. These products are sold under the Coperion and Herbold brands.
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• | Size reduction equipment is used to reduce the size of friable materials. Pennsylvania Crusher® and Gundlach® products are used to crush materials in the power generation, mining, quarrying, glass making, salt processing, and fertilizer manufacturing industries. Jeffrey Rader® products are used in industries including forest products, pulp and paper, biomass power and energy generation, and plastics/base resin manufacturing. Jeffrey Rader also designs and provides complete material handling and pneumatic or mechanical conveying systems to meet product specifications, including boiler feed, resource recovery, rail and truck loading/unloading, and recycling systems.
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•Mixing technology, ingredient automation, and portion process
◦Mixing machines for both solids and liquids range from small laboratory mixers to large industrial equipment. These products are primarily sold under the VMI, Shaffer, Peerless, and Diosna brands. Ingredient automation provides complete systems for bulk ingredient storage, micro automation, liquid handling, and process control.These products are primarily sold under the Shick Esteve brand. Portion process provides processing equipment, portioning, and equipment solutions.These products are primarily sold under Unifiller and BAKON brands.Primary industries served include food, pharmaceutical, and cosmetics.
•Screening and Separating Equipment
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• | Screening and separating equipment sorts dry, granular products based on the size of the particles being processed. This equipment is sold under the Rotex® brand to customers in a variety of industries including proppants, fertilizers, chemicals, agricultural goods, plastics, and food processing. The equipment uses a unique technology based on a specific gyratory-reciprocating motion that provides an optimal material distribution on the screens, gentle handling of particles, and accurate separations.
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Flow Control Solutions
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• | Pump solutions mainly consist of piston and piston diaphragm pump technology that transfer abrasive or corrosive fluids and fluids with a high sludge or solids content for mission critical applications. This equipment is sold under the ABEL® Pump Technologybrand into the power generation, wastewater treatment, mining, general industry, and marine markets. This equipment lends itself to a superior total cost of ownership over time compared to other pumping technologies.
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• | Valve solutions mainly consist of pinch valves and duckbill check valves that manage fluids for mission-critical, severe service applications. These valves, among others, are sold under Red Valve®, Tideflex Technologies, and RKL Controls brands into the water and wastewater, drainage and storm water, mining, chemicals, and power markets. These engineered valves are designed for long life in the toughest municipal and industrial applications, lending themselves to superior total costs of ownership over time.
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Replacement Parts and Serviceseparating equipment
Replacement◦Screening and separating equipment sorts dry, granular products based on the size of the particles being processed. These products are sold under the Rotex® and BM&M® brands to customers in a variety of industries including proppants, fertilizers, chemicals, agricultural goods, plastics, forest products, and food processing. A majority of the products use a unique technology based on a specific gyratory-reciprocating motion that provides an optimal material distribution on the screens, gentle handling of particles, and accurate separations.
•Aftermarket parts and service
◦Aftermarket parts and service are a major component of most of theAdvanced Process Equipment Group businessSolutions’ product lines. Service engineers and technicians are located around the globe to better respond to customers’ machines and systems service needs. The parts and service divisionAdvanced Process Solutions offers its customers serviceservices such as installation, consulting, training, maintenance and repairs, spare parts, and modernization solutions. These services are a key component of each business within the
Advanced Process Equipment Group.
Process Equipment Group:Solutions: Sales, Distribution, and Operations
TheAdvanced Process Equipment GroupSolutions sells equipment and systems throughout the world using a combination of direct sales and a global network of independent sales representatives and distributors. A part of theAdvanced Process Equipment Group’sSolutions’ sales especially in North America, is made through independent sales representatives who are compensated by commission. In situations where a representative purchases equipment and resells it as a distributor, the product is sold at a price net of commission, depending on the type of product sold.
Equipment and systems orders are often for unique, engineered-to-order items. Therefore, the Process Equipment Group does not typically maintain significant amounts of raw material and component stock inventory on hand at any one time, except to cover replacement part orders. Products are either assembled and tested at an Advanced Process Equipment Group facilitiesSolutions facility and then shipped to a customer or are assembled at the customer’s desired location.
We expect that future net revenue associated with theAdvanced Process Equipment GroupSolutions will be influenced by order backlog because of the lead time involved in fulfilling engineered-to-order equipment and solutions for customers. Backlog represents the amount of net revenue that we expect to realize on contracts awarded to Advanced Process Solutions. Though backlog can be an indicator of future net revenue, it does not include projects and partsaftermarket orders that are booked and shipped within the same quarter. The timing of order placement, size of order, extent of customization, and customer delivery dates can create fluctuations in backlog and net revenue. RevenueNet revenue attributable to backlog may also be affected by foreign exchange fluctuations for orders denominated in currencies other than United States (“U.S.”) dollars. dollars or by provisions for cancellation, termination, or suspension at the discretion of the customer.
Advanced Process Equipment Group:Solutions: Customers
TheAdvanced Process Equipment GroupSolutions has customers in a wide range of industries, including plastics, food and pharmaceuticals, chemicals, fertilizers, minerals, and mining, energy, wastewater treatment, and forest products.recycling. These customers range from large, Fortune 500 global companies to regional and local businesses. No one Advanced Process Solutions customer accounted for more than 10% of Hillenbrand’s consolidated net revenue during 2017.the years ended September 30, 2023, 2022, or 2021. For large or customized orders, customers generally pay a deposit and make progress payments in accordance with the project progress. Often, long-term relationships are established with these customers.
TheAdvanced Process Equipment Group’s sales areSolutions’ net revenue is diversified by end markets, and further penetration of these end markets is an important element of its strategy. Currently, projects in the plastics industry represent greater than half of the Process Equipment Group’s sales. Geographically, approximately three quarters37% of theAdvanced Process Solutions’ net revenue in the Process Equipment Group comesfiscal 2023 came from the Americas, 32% from Asia, and 31% from EMEA (Europe, the Middle East, and Africa), with the remaining quarter coming from Asia..
We believe that long-term growth for this segment is driven by megatrends such as a rapidly growing middle class in China and India and a growing global population, resulting in rising demand for products sold in many of the end markets that Advanced Process Solutions serves, including plastic goods, food, and recycling. These trends include increased use of lightweight plastics in the automotive industry to improve fuel efficiency; more effective packaging in emerging markets to improve food shelf life, freshness, and safety; increased consumption of processed foods in emerging markets; innovation in a variety of applications in the medical space designed to improve safety, drug and therapy delivery, and durability; increased use of engineered plastics in construction that are more durable, lightweight and require little maintenance; increased use of biopolymers to help preserve the environment; and more sustainable food sources such as plant-based proteins. Additionally, we expect Advanced Process Equipment Group serves.Solutions to be able to leverage its technical know-how to win in emerging end markets such as recycling and biodegradable plastics. While overall demand for these products is expected to increase over the long run, we expect short-term periodic fluctuations in demand from time-to-time.
Advanced Process Equipment Group:Solutions: Competition
We believe theAdvanced Process Equipment GroupSolutions holds leading positions in key industries and has strong brand name recognition because of its commitment to serving the broad needs of customers through the design and quality of products, extensive application and process engineering expertise, product support services, brand name recognition, and commitmentits unique ability to serving the needsprovide compounding, extrusion and material handling equipment as a complete system that optimizes output, quality, and energy efficiency to achieve a lower overall cost of ownership for its customers.
TheAdvanced Process Equipment GroupSolutions brands face strong competition in the markets where they compete.competition. Competitors range in size from small, privately-held companies serving narrow market segments or geographical areas to larger, well-known global companies serving national and international markets with multiple product lines. We believe theAdvanced Process Equipment Group’sSolutions’ diversification into multiple industries and markets, its base of replacement partsaftermarket business, and its strong worldwide network of suppliers and dealers will allow it to maintain leading marketleadership positions even during economic downturns.
Advanced Process Equipment Group:Solutions: Raw and Component Materials
The manufacturing of theAdvanced Process Equipment Group’sSolutions’ products involves the machining and welding of raw materials (primarily sheet metals and steel) and castings that are assembled with other component parts purchased from third-party suppliers that generally require particular specifications or qualifications purchased from third-party suppliers.qualifications. Although most of these raw materials and components are generally available from several sources, some of these items are currently purchased from single sources. Volatility in the prices theAdvanced Process Equipment GroupSolutions pays for raw materials used in its products including sheet metals and steel, has a direct effect on profitability. TheAdvanced Process Equipment GroupSolutions regularly takes steps designed to mitigate the impact of volatility in raw and component material prices, including executing Lean initiatives through the application of HOM and various pricing and sourcing actions. In instances where third-party suppliers are depended upon for outsourced products or components, there is risk of customer dissatisfaction with the quality or performance of the products sold due to supplier failure. In addition, difficultiesDifficulties experienced by third-party suppliers can interrupt theAdvanced Process Solutions’ ability to obtain the outsourced product and ultimately to supply products to customers. Regardless, we believeWhile global supply chains have recently suffered from various headwinds, those supporting our products have generally remained intact, providing access to sufficient inventory of the key materials needed for manufacturing. However, Advanced Process Equipment Group will generally beSolutions has experienced significant delays of certain raw materials and components, but has largely been able to mitigate the impact on our consolidated results of operations. Advance Process Solutions continues to identify and qualify alternative sources to mitigate risk associated to single or sole source supply continuity, and has and may continue to obtain adequate suppliespurchase certain materials in safety stock where we have supply chain continuity concerns. See Part I, Item 1A of key products or appropriate substitutes at reasonable costs.this Form 10-K for a more in-depth discussion of Risk Factors that could impact Advanced Process Solutions’ ability to fulfill customer obligations.
Advanced Process Equipment Group:Solutions: Strategy
TheAdvanced Process Equipment GroupSolutions seeks profitable growth through the following strategic initiatives:
Build and grow•Strengthen leadership positions and build targeted platforms
◦Grow platforms to critical mass to achieve benefits of leadership positionsand scale in coreattractive end markets organically and nearthrough acquisitions.
◦Capitalize on emerging trends in end markets such as food, recycling, and biopolymers.
◦Leverage global footprint to provide leading aftermarket support to customers.
•Drive innovation and new product development
◦Provide innovative product and service solutions to solve customers’ challenges.
◦Extend applications expertise to win in adjacent markets through introduction ofwith high growth potential.
◦Develop new products driven by voice of customer input and applicationchanging needs.
◦Provide value-added end-to-end solutions from individual components to integrated systems.
•Leverage HOM to drive margin expansion and profitable growth
◦Apply HOM principles and tools, including voice of process expertise.customer and segmentation, for profitable growth.
Leverage our geographic presence◦Drive best-in-class lead times to grow share in aftermarket business.
◦Implement strategic supplier relationships to improve accesscost and quality.
◦Enhance productivity through process standardization.
Molding Technology Solutions
Molding Technology Solutions is a global leader in highly-engineered equipment, systems, and aftermarket parts and service for the plastic technology processing industry. Molding Technology Solutions has a comprehensive product portfolio that includes injection molding and extrusion equipment, hot runner systems, process control systems, mold bases and components, and maintenance, repair, and operating (“MRO”) supplies. The product lines within Molding Technology Solutions have strong brand recognition and an established global footprint, and we believe are well-positioned to underpenetrated channels and local regionsbenefit from continued robust industry growth in both developed and emerging markets. Molding Technology Solutions’ breadth of products, long history, and global reach have resulted in a large installed base of plastic processing equipment and hot runner systems.
Pursue acquisitions that strengthen our relative market leadership position in key markets.
Utilize the Hillenbrand Operating Model principles and tools to strengthen our competitive position and maintain an optimal cost structure to support profitability
Continually improve processes to be more consistent and cost efficient and to yield industry leading quality products and services that our customers value.
Batesville
Batesville® is a recognized leader in the North American death care industry, where it has been designing, manufacturing, distributing, and selling funeral service products and solutions to licensed funeral directors operating licensed funeral homes for more than 100 years. Batesville-branded products include: burial caskets; cremation caskets and urns; selection room display fixturing for funeral homes; personalization and memorialization products and services; and web-based technology applications that include funeral planning, website products, and back office software for licensed funeral homes. Batesville also develops and markets comprehensive operational management software solutions for cemeteries.
Batesville:Molding Technology Solutions: Products and Services
AsMolding Technology Solutions has a product portfolio that includes injection molding and extrusion equipment and hot runner systems and process controller technology. Molding Technology Solutions maintains leadership positions across these product lines, as well as leading positions in process control systems, mold bases and components, and MRO supplies. The Molding Technology Solutions product lines are supported by aftermarket parts and services, which represented approximately 28% of Molding Technology Solutions’ total net revenue during fiscal 2023. Products are offered under brand names that are recognized as being among the leaders in their respective industries.
•Injection molding and extrusion equipment
◦Molding Technology Solutions designs, manufactures and sells plastic processing equipment and systems, which include injection molding, extrusion and auxiliary systems. This equipment is sold under the Milacron® brand to a diverse set of customers, including companies in the automotive, consumer goods, electronics, construction, medical and packaging end markets.
•Hot runner and process control systems
◦Molding Technology Solutions designs, manufactures and sells highly-engineered, technically advanced hot runner and process control systems. Hot runner and controller systems are sold under the Mold-Masters® brand and designed for each product a customer manufactures on an injection molding machine. Hot runner systems are end product-specific and replaced frequently due to design changes and innovation in customers’ end products, with a typical aftermarket cycle of one to five years. Recurring sales are supported by a large installed base of hot runner systems worldwide.
•Mold components
◦Molding Technology Solutions designs, manufactures, and sells high-quality mold bases and plates available in various configurations to meet the needs of funeral professionals and consumers have evolved, Batesville has expanded its offerings with new products, value-added services, and leading partnerships. Today, Batesville provides products and services to customers under three primary solutions platforms: (1) Burial Solutions, which accounts for the majority of Batesville’s revenue, (2) Cremation Options®, and (3) Technology Solutions. Each platform is underpinned by expert profitability solutions designed to help funeral professionals optimize their business.
Burial Solutions
As the leading casket manufacturer in North America, Batesville is recognized for innovation in materials, design, and proprietary features that benefit funeral professionals and the families they serve. The company has been on the forefront of casket innovation for more than 60 years - from the first mass-produced gasketed casket to the introduction of Dimensions® oversized caskets, to casket personalization and memorialization elements, such as LifeSymbols® designs, LifeStories® medallions and keepsakes, and LifeView® panels.
Batesville produces gasketed caskets from four types of metal: carbon steel, stainless steel, copper, and bronze. Batesville also produces and markets an expanding selection of non-gasketed steel caskets. Additionally, Batesville manufactures solid hardwood and veneer caskets from multiple wood species and uses a variety of finishesapplications under the DME® brand. Pre-engineered assemblies, plates and components provide the economic and technical benefits of interchangeability.
•Aftermarket parts and service
◦Aftermarket parts and service are a major component of most of the Molding Technology Solutions product lines. Service engineers and technicians are located around the globe to appealbetter respond to different consumers. Its wood products cover the spectrum in varietycustomers’ machines and value - from an exclusive line of Marsellus® premium solid wood caskets, to cloth-covered unitssystems service needs. Molding Technology Solutions offers its customers service, consulting, training, maintenance and all-wood construction caskets, which are also suitable for green burials.repairs, spare parts, and retrofits and rebuilds.
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• | The Cremation Options® platform is focused on helping funeral professionals capitalize on the growing consumer trend to select cremation. In addition to a broad line of cremation caskets, containers, and urns, Batesville offers training, merchandising, packaging support, and a complete line of marketing support materials to educate funeral directors and consumers on product and service options. Cremation caskets and containers are manufactured primarily of hardwoods and fiberboard using processes and material similar to those used to make wood burial caskets. Batesville’s memorial urns are made from a variety of materials including bronze, wood, acrylic, cloisonné, brass, and marble. Batesville also offers a broad selection of biodegradable and scattering urns.
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Molding Technology Solutions
Technology solutions are increasingly important in the death care industry. Batesville is the leading partner to approximately 5,700 funeral homes and cemeteries across North America. The company offers a suite of integrated, easy-to-use technology products and services, including funeral home websites, e-commerce solutions, digital selection and arrangement software, and business management systems for funeral homes and cemeteries. All of these solutions are designed to support customers by (1) creating marketing and revenue opportunities; (2) making the funeral planning process easier and more efficient; and (3) creating more positive relationships with the families and communities they serve. Batesville also has exclusive agreements with leading brands such as: Legacy.com®, an on-line obituary network provider; and FTD®, an international provider of sympathy flowers and gifts that can be ordered directly from the funeral home’s website.
Batesville:Solutions: Sales, Distribution, and Operations
Batesville offers several marketingMolding Technology Solutions sells equipment and merchandising programs to funeral professionals. Batesville-branded caskets are marketed bysystems throughout the world using a combination of direct sales force onlyand a global network of independent sales representatives and distributors. A part of Molding Technology Solutions’ sales is made through independent sales representatives who are compensated by commission.
Molding Technology Solutions does not typically have long-term supply agreements with customers, and terms are generally negotiated on an individual order basis. Pricing is set at the time of order, typically on a customized basis for each product. Raw materials and component purchases are managed based on order trends and mid-term contracts with strategic vendors, allowing Molding Technology Solutions to licensed funeral professionals operating licensed funeral establishments throughoutpartially mitigate the risk of short-term changes in raw material and components pricing. The majority of hot runner and mold base equipment orders are fulfilled within three months. Injection molding and extrusion equipment orders are generally fulfilled within twelve months, but we expect some future net revenue associated with injection molding and extrusion equipment will be influenced by order backlog because of the lead time in fulfilling some engineered-to-order products. Backlog represents the amount of net revenue that we expect to realize on contracts awarded to Molding Technology Solutions. Though backlog can be an indicator of future net revenue, it does not include projects and aftermarket parts orders that are booked and shipped within the same quarter. The timing of order placement, size of order, extent of customization, and customer delivery dates can create fluctuations in backlog and net revenue. Net revenue attributable to backlog may also be affected by foreign exchange fluctuations for orders denominated in currencies other than U.S. dollars, or by provisions for cancellation, termination, or suspension at the discretion of the customer.
Molding Technology Solutions: Customers
Molding Technology Solutions has customers in a wide range of industries, including automotive, medical, consumer goods, packaging, construction and electronics. These customers range from large, Fortune 500 global companies to regional and local businesses, including original equipment manufacturers (“OEMs”), Puerto Rico, Canada, Mexico,molders and Australia. Batesville also marketsmold-makers. Molding Technology Solutions has long-standing relationships with its products to select independent distribution facilities as well as full-service funeral establishments offering funeral products in conformance with state law in states that do not have specific licensing requirements.
Batesville has sales contracts in place with certain national death care service providers and also serves approximately 12,000 independent, privately owned funeral homes across North America. Nonelargest customers, having served many of Batesville’s customersthem for over 30 years. No one Molding Technology Solutions customer accounted for more than 10% of Hillenbrand’s consolidated net revenue during 2017.the years ended September 30, 2023, 2022, or 2021. Customers purchasing injection molding or extrusion machines generally pay a deposit and make progress payments prior to shipment.
Batesville: Customer PreferencesMolding Technology Solutions’ net revenue is further diversified by end markets, and Demographicscontinued expansion into these end markets is an important element of its strategy. Geographically, approximately 58% of Molding Technology Solutions’ net revenue in fiscal 2023 came from the Americas, 27% from Asia, and 15% from EMEA (Europe, the Middle East, and Africa).
The deathGlobal population growth, coupled with continued urbanization, increased purchasing power and improved lifestyle in emerging markets and technical innovation has resulted in greater demand for a broad range of a family member causes most peoplefinished plastic products in many segments of the economy, including automotive, medical, construction and consumer products. We believe Molding Technology Solutions’ strong global presence positions it well to seekbenefit from this growth. Molding Technology Solutions has made significant investments in China and India in order to capitalize on the projected growth in plastics in these markets and expects to further expand in Mexico as well.
Molding Technology Solutions: Competition
Molding Technology Solutions holds leading positions in key industries because of design and quality of products, extensive application and process engineering expertise, product support services, brand name recognition, and commitment to serving the broad needs of a state-licensed funeral director. Most consumers have limited familiaritycustomers.
Molding Technology Solutions brands face strong competition in the markets where they compete. Competitors range in size from small, privately-held companies serving niche industries or geographical areas to larger, well-known global companies serving national and international markets with funeral-related productsmultiple product lines. We believe Molding Technology Solutions’ leading product quality and expect funeral directors to provide information on product and service alternatives. Although caskets and urns can be purchased fromdesign inclusion in a variety of sources, including internet sellers and casket stores, the overwhelming majority of consumers who arrange a funeral purchase these products directly from a funeral home.
Demand for Batesville products and services is partially impacted by a few key external factors: U.S. and Canadian population demographics, the number of deaths annually,flagship products, diversification into multiple industries and markets, its base of aftermarket parts business, and its strong worldwide network of suppliers and dealers will allow it to maintain leadership positions even during economic downturns.
Molding Technology Solutions: Raw and Component Materials
Steel, which Molding Technology Solutions sources both directly and indirectly through its component suppliers, is the rate at which consumers select cremation. These primary factors have negatively impacted the burial volume trend in recent years, although periodic fluctuations can impact demand and revenue in a given quarter and year. We anticipate this trend in burials and demand will remain relatively consistent, in part because the continued shift toward cremation will be partially offset by the anticipated higher number of deaths among the aging post-World War II baby boomer generation. As a percentage of total deaths, the estimated cremation rate in 2017 was approximately 50%material used in the U.S.manufacturing of its products. Molding Technology Solutions does not enter into derivative financial instruments to hedge its commodity price risk but it does have some long-term supply contracts with key suppliers. Molding Technology Solutions has developed a global network of reliable, low-cost suppliers in order to secure its supply needs. Difficulties experienced by third-party suppliers can interrupt Molding Technology Solutions’ ability to obtain materials or components and 70% in Canada (Source: Cremation Associationultimately to supply products to customers. While global supply chains have recently suffered from various headwinds, those supporting Molding Technology Solutions products have generally remained intact, providing access to sufficient inventory of North America). Another important factor impacting the death care industry iskey materials needed for manufacturing. However, Molding Technology Solutions has experienced significant delays of certain raw materials and components, but has largely been able to mitigate the gradual increase in consumer preferences for lower-price caskets.
Batesville: Competition
Batesville is a recognized leader in the saleimpact on our consolidated results of death care products in North America. We believe competition in this industry is largely based on product quality, service, price, delivery, design features and personalization. Batesville competes with several national and regional casket manufacturers, as well as more than 100 independent casket distributors, most of whom serve fairly narrow geographic segments. Some non-traditional death care providers, such as large discount retail stores, casket stores, and internet casket retailers also sell caskets directly to consumers. The industry has seen a few foreign manufacturers, mostly from China, import caskets into the U.S. and Canada. Sales from these non-traditional and foreign providers collectively currently represent less than 10% of total casket sales in North America.
The effect of declining casket demandoperations. Molding Technology Solutions continues to put added economic pressures on casket manufacturersidentify and distributors as they seekqualify alternative sources to maintain volume. Existing domestic over-capacitymitigate risk associated to single or sole source supply continuity, and commodity price increases could further impact these pressures, resultinghas and may continue to purchase certain materials in higher per unit costs.safety stock where there are supply chain continuity concerns.
Batesville: Raw Materials
Batesville uses carbon and stainless steel, copper and bronze sheets, wood, fabrics, finishing materials, rubber gaskets, plastic and zinc in the manufacture of its caskets. Although most of these raw materials are generally available from several sources, some are currently procured from a single source.
Volatility in the prices BatesvilleMolding Technology Solutions pays for raw materials used in its products, including steel, fuel, petroleum-based products,sheet metals and fuel-related delivery costs,steel, has a direct effect on profitability. The company generally does not engage in hedging transactions for these purchases but does enter into fixed-price supply contracts at times. BatesvilleMolding Technology Solutions regularly takes steps designed to mitigate the impact of volatility in raw material and fuelcomponent material prices, including executing Lean initiatives and various pricing and sourcing actions. Where possible, Molding Technology Solutions seeks alternative sources and, in some situations, is able to reformulate product with alternative materials without impacting performance, environmental, and health and safety features. We believe that Molding Technology Solutions has taken reasonable steps to mitigate recent increases to these risks. See Part I, Item 1A of this Form 10-K for a more in-depth discussion of Risk Factors that could impact Molding Technology Solutions’ ability to source the necessary materials to fulfill customer obligations.
Most of Batesville’s sales are made pursuant to supply agreements with its customers, and historically it has instituted annual price adjustments to help offset some, but not necessarily all, raw material cost increases.
Batesville:Molding Technology Solutions: Strategy
While we believe thereMolding Technology Solutions seeks to execute its strategy through the following initiatives:
•Strengthen leadership positions in global markets
◦Leverage core technologies and applications expertise to expand presence in current end markets.
◦Leverage Hillenbrand’s strong positions across the plastics value chain to cross-sell product lines.
◦Expand product offering in key end markets, including emerging markets and new segments for sustainability such as recycling and biodegradable plastics.
•Drive innovation and new product development
◦Provide innovative product and service solutions to solve customers’ challenges, leveraging shared research and development and technology across the enterprise.
◦Develop new products that are opportunities to generate additional revenue within a wider range of death care products and services, sustaining volume in the burial casket space continues to be a top priority. Batesville’s leadership team is focused on two strategic initiativessolidifying Molding Technology Solutions’ current market positions and expanding the market through the introduction of technology that displaces other materials, primarily metal and glass.
◦Provide value-added end-to-end solutions from individual components to sustain burial volume:integrated systems.
◦Enable the customer to fulfill sustainability requirements (e.g., reduction of virgin resin).
Grow our leadership position in the death care industry
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• | Focus on building and delivering value propositions that align with the needs of each customer segment to continue Batesville’s mission of helping families honor the lives of those they love®.
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•Leverage HOM to drive margin expansion and profitable growth
Utilize the Hillenbrand Operating Model
◦Apply HOM principles and tools, including voice of customer and segmentation with a goal to strengthen our leadership positiondrive profitable growth.
◦Leverage Hillenbrand’s global footprint and maintain an optimalenhance support to customers through the entire lifecycle of their equipment usage to expand sales of aftermarket parts and services.
◦Drive global supply strategy to achieve supply chain and operating efficiencies to improve cost structure to support profitabilityand quality.
Continually improve processes to be more consistent and efficient and to clearly yield industry leading quality products and services that our customers value.◦Enhance productivity through process standardization.
HILLENBRAND PATENTS AND TRADEMARKSINTELLECTUAL PROPERTY
We own a number of patents on our products and manufacturing processes and maintain trade secrets related to manufacturing processes. These are important patents and trade secrets, are of importance, but we do not believe any single patent or trade secret, or related group of patents or trade secrets is of material significance to our business as a whole. We also own a number of trademarks and service marks relating to products and services which are of importance. We believe the marks Coperion,®, Coperion K-Tron,®, TerraSource Global®, Pennsylvania Crusher®, Gundlach®, Jeffrey Rader®, K-Tron,®, Rotex,®, ABEL® Pump Technology, BM&M, Herbold,VMI, Bakon, Shaffer, Peerless, Shick Esteve, Unifiller, and Red Valve®DIOSNA brandsare of material significance to theour Advanced Process Equipment Group.Solutions reportable operating segment. We believe the trademark Batesville® is ofmarks Milacronand Mold-Masters are material significance to our Molding Technology Solutions reportable operating segment. As our historical Batesville segment.reportable operating segment was divested in early fiscal 2023, the Company no longer owns the trademark Batesville®, and as a result we do not believe it was material for the year ended September 30, 2023.
Coperion, Coperion K-Tron, K-tron, Rotex, BM&M, Herbold, VMI, Bakon, Shaffer, Peerless, Shick Esteve, Unifiller, DIOSNA, Milacron, and Mold-Masters, as well as other registered or common law trade names, trademarks or service marks appearing in this Annual Report on Form 10-K are the property of Hillenbrand or its subsidiaries. Except as set forth above and solely for convenience, the trademarks, trade names or service marks in this Annual Report on Form 10-K are generally referred to without the ™ and ® symbols, but such references should not be construed as any indicator that their respective owners will not assert their rights thereto.
Our ability to compete effectively depends, to an extent, on our ability to maintain the proprietary nature of our intellectual property. In the past, certain of our products have been copied and sold by others.others and could continue to be. Hillenbrand vigorously seeks to enforce its intellectual property rights. However, we may not be sufficiently protected by our various patents, trademarks, and service marks, and they may be challenged, invalidated, cancelled, narrowed, or circumvented. Beyond that, we may not receive the pending or contemplated patents, trademarks, or service marks for which we have applied or filed.
HILLENBRAND REGULATORY MATTERS
Both theThe Advanced Process Equipment GroupSolutions and BatesvilleMolding Technology Solutions reportable operating segments are subject to a variety of federal, state, local, and foreign laws and regulations relating to environmental, health, and safety concerns, including relating to the handling, storage, discharge, and disposal of hazardous materials used in or derived from our manufacturing processes. We are committed to operating all our businesses in a manner that protects the environment and makes us good corporate citizens in the communities in which we operate. We have established various cross-functional sustainability working groups, which include top operational leaders and other key team members, to support our sustainability strategy and to facilitate and drive key priorities, including those related to the environment. In addition, we maintain standards for our global suppliers in support of critical environmental policies and other regulatory requirements, and Hillenbrand’s Global Supply Management department engages with our suppliers to support compliance with applicable standards and legal requirements. While we believe that continued compliance with current federal, state, local and foreign laws relating to the protection of the environment and supply chain diligence will not have a material effect on our capital expenditures, earnings or competitive position, future events or changes in existing laws and regulations or their interpretation may require us to make additional expenditures in the future.The cost or need for any such additional expenditure is not known.
HILLENBRAND FOREIGN OPERATIONS AND EXPORT SALES
Quantitative information about foreign operations is set forth in tables relating to geographic information in Note 14 to our financial statements included in Part II, Item 8, of this Form 10-K. For a discussion of risks related to our non-U.S. operations and foreign currency exchange, refer to Part I, Item 1A. Risk Factors, of this Form 10-K.
HILLENBRAND EMPLOYEES
At September 30, 2017, we had approximately 6,000 employees worldwide. Approximately 3,000 employees were located within the U.S. and 3,000 employees were located outside of the U.S., primarily throughout Europe and China. Approximately 2,500 employees in North America and Europe work under collective bargaining agreements. Hillenbrand strives to maintain satisfactory relationships with all its employees, including the unions representing those employees. As a result, we have not experienced a significant work stoppage due to labor relations in more than 20 years.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE REGISTRANT
Our Board of Directors is responsible for electing the Company’s executive officers annually and from time to time as necessary. Executive officers serve in the ensuing year and until their respective successors are elected and qualified. There are no family relationships between any of our executive officers or between any of them and any members of the Board of Directors. The following is a list of our executive officers as of November 15, 2017.2023.
Joe A. Raver, 51, Kimberly K. Ryan, 56, has served as a director and as President and Chief Executive Officer of the Company since September 2013. He hasDecember 2021. Prior to becoming Chief Executive Officer, Ms. Ryan was the Company’s Executive Vice President, beginning in June 2021. Prior to that role, she served as President of the Company’s Process Equipment Group since March 2011. Mr. Raver was elected as a directorCoperion business beginning in September 2015, also overseeing Hillenbrand’s Rotex business during part of Applied Industrial Technologies, Inc. (“AIT,” a leading industrial distributor serving MRO and OEM customers in virtually every industry) in August 2017. In October 2017, Mr. Raver was appointed to both the Audit and the Corporate Governance Committees of AIT. Hethat period. She previously served as President of Batesville Casket Company from 2008 to 2011. He also previously served as Vice President and General Manager of the respiratory care division of Hill-Rom Holdings (“Hill-Rom”), a leading global provider of medical equipment and services and the Company’s former parent, as well as Hill-Rom’s Vice President of Strategy and Shared Services. Prior to that, Mr. Raver spent 10 yearshistorical Batesville reportable operating segment (death care) beginning in April 2011, at which time she was also named a variety of leadership positions at Batesville Casket Company and Hill-Rom.
Kristina A. Cerniglia, 51, was elected Senior Vice President, Chief Financial Officer effective August 2014. Ms. Cerniglia has more than 25 years of industrial experience. Before assuming the role as Hillenbrand’s Chief Financial Officer, she spent 17 years serving in a variety of leadership roles, most recently as Vice President and Corporate Controller (2010-2014), at Stanley Black & Decker, a global provider of power and hand tools, mechanical access solutions, and electronic monitoring systems. Prior to that, she spent nine years of her career at United Technologies Corporation in various financial roles.
Diane R. Bohman, 47, was elected Senior Vice President, Strategy and Corporate Development, effective January 2017. She simultaneously served as the interim Senior Vice President, Human Resources from January 2017 until July 2017. Prior to that, Ms. Bohman held the position of Chief Administrative Officer effective May 2014. Ms. Bohman previously served as the Company’s Senior Vice President, Integration, since December 2012, and prior to that was the Company’s Vice President, Corporate Strategy from June 2011. From November 2013 to May 2014, Ms. Bohman served as the interim Chief Financial Officer for Coperion GmbH. From 2005 to 2011, Ms. Bohman served various roles at Batesville, including Vice President, Logistics; Vice President and Chief Financial Officer; and Vice President, Strategy. Prior to joining Batesville, Ms. Bohman worked for seven years at the Company’s former parent, Hill-Rom Holdings, holding a broad array of positions in the finance organization. She began her career in the business assurance practice of Coopers & Lybrand, LLC. Ms. Bohman is a Certified Public Accountant.
Kimberly K. Ryan, 50, was elected President of Coperion GmbH effective September 2015. Ms. Ryan has also been a Senior Vice President of Hillenbrand since April 2011. Prior to being appointed President of Coperion, Ms. Ryan served as President of Batesville effective April 2011. Prior to joining Hillenbrand from 2006 until 2011, Ms. Ryan served as Senior Vice President, North America, Post-Acute Care of Hill-Rom Holdings. Prior to that, she held various senior and leadership roles at Hillenbrand Industries, Inc., our former parent, and its subsidiaries, including leading its Turnaround Program, Shared Services, and Information Technology from 2005-2007, and from 2000 to 2005 serving in roles including Vice President, Shared Services; Vice President, Batesville Business Information Systems; and Director, Enterprise Systems.Hillenbrand. Ms. Ryan began her career with Batesville in 1989, holding positions of increasing responsibility within Batesville and the Company’s former parent in finance, strategy, operations, logistics, and information technology.
Christopher H. Trainor, 47, was elected President
From 2014 to 2023, Ms. Ryan served on the Board of Batesville Casket Company effective September 2015, after havingDirectors of Kimball International, Inc., a public manufacturing company (“Kimball”), including as a member of the Audit Committee. She also served as Senior Vice President, CFOKimball’s Board Chair from November 2018 to October 2021, during which time she also served on the Compensation Committee and Chief Administrative Officer. Mr. Trainor Governance Committee.
Robert M. VanHimbergen, 47, has also been a the Company’s Senior Vice President of Hillenbrand since December 2015. Mr. Trainor joined Batesville in 2010 as Vice President and Chief Financial Officer since April 2022. Mr. VanHimbergen joined the Company as Executive Vice President, Finance for a transition period in March 2022 from Johnson Controls International plc (“Johnson Controls”), a manufacturer of HVAC systems, security solutions, fire protection, and smart building technologies, where he was later assigned additional responsibilities for oversight of Human Resources and Information Technology.most recently Vice President, Corporate Controller beginning December 2017. Prior to joining Batesville, Mr. Trainor spent 17that he served in various roles of increasing responsibility over approximately 15 years with Kraft Foodsat Johnson Controls, including as Chief Financial Officer of Yangfeng Automotive Interiors in Shanghai, China, where he heldlived for five years. Prior to Johnson Controls, Mr. VanHimbergen spent nearly a varietydecade at Pricewaterhouse Coopers LLP working with large multinational manufacturing companies. Mr. VanHimbergen also serves as the Chair of finance roles in bothAscension SE Wisconsin Foundation (since October 2015).
Aneesha Arora, 45, has served as the United States and United Kingdom.
Glennis A. Williams, 41, was electedCompany’s Senior Vice President &and Chief Human Resources Officer effective July 17, 2017. Ms. Williamssince January 2022. She brings with her nearly 20 yearsto this role more than two decades of diverse experience in human resources serving most recently asacross multiple industries. Prior to joining Hillenbrand, Ms. Arora was Vice President of Global Human ResourcesHR Services for WelbiltHoneywell International Inc. in New Port Richey, Florida.(“Honeywell”), a diversified technology and manufacturing company, from October 2019 through December 2021. Prior to that, she served as Vice President, Global Human Resources and Communications, Safety and Productivity Solutions at Honeywell from November 2016 to October 2019. Since September 2020, Ms. Arora has also served on the Board of Advisors of the Michigan State University School of Human Resources at Joy Globaland Labor Relations.
Ulrich Bartel, 63, was appointed President of the Company’s Coperion business and Senior Vice President of Hillenbrand in June 2021. Since June 2022, he has also served as President of Advance Process Solutions, in which role he also oversees the Company’s Rotex business. Prior to these roles, Mr. Bartel served as President of Coperion’s Polymer Division from March 2020 to June 2021 and as Coperion’s Vice President of Compounding Machines from October 2013 to February 2020. Mr. Bartel began his career at Coperion in 1990 as a Human Resources Leader at Westinghouse Electric.process engineer, holding positions of increasing responsibility within Coperion in sales, service, process technology, engineering, manufacturing, and research.
Nicholas R. Farrell, 38, was elected44, is the Company’s Senior Vice President, General Counsel, and Secretary. He has served as General Counsel and Secretary effective Octobersince 2015 and in December 2016 was also namedserved as the Company'sCompany’s Chief Compliance Officer.Officer from 2016 until March 2023. Mr. Farrell began his career with the Company in 2011 as Corporate and Securities Counsel, and prior to his current role served asin 2014 was named Vice President, Associate General Counsel and Assistant
Secretary, beginning in 2014. Secretary. Prior to joining Hillenbrand, Mr. Farrell was in private practice for six years with global law firm Troutman Sanders. Pepper. Mr. Farrell is also Chair of the Board of Trustees of Cure SMA, an international not-for-profit organization committed to developing a treatment and cure for spinal muscular atrophy, the number one genetic cause of death for infants.
James A. Hooven, 46, was electedLeo J. Kulmaczewski, Jr., 58, has served as the Company’s Senior Vice President, Hillenbrand Operating Model effective June 5, 2017.Operations Center of Excellence and HOM since February 2021. Mr. Hooven has overKulmaczewski brings more than 20 years of technical and manufacturing experience, with diversified industrial manufacturing companies. Heserving most recently served as General Manager with SL Industries (purchased by Handy & Harman in 2016).Senior Vice President of Operations and Lean Enterprise of Belden Inc., a manufacturer of networking, connectivity, and cable products, from October 2018 through November 2020. Prior to that, he served as Vice President of Operational ExcellenceOperations, Global Supply Chain, and Danaher Business Systems at SL IndustriesLeica Biosystems, a research, instrument, and medical device company that is a division of Danaher Corporation, from September 2016 through September 2018. During the time at Leica Biosystems, Mr. Kulmaczewski also served as Senior Director and Vice President of Operations and Site Leader, from May 2014 through September 2016. Mr. Kulmaczewski’s experience before Leica Biosystems included technical and manufacturing roles with generally increasing levels of responsibility at various other public and private manufacturing companies.
Tamara Morytko, 52, was appointed Senior Vice President of Hillenbrand and President, Molding Technology Solutions (MTS) in various operationalSeptember 2023. Ms. Morytko has more than two decades of leadership in regional and global business operations. Prior to joining Hillenbrand, she served most recently as President of the Pumps Division at Flowserve Corporation, a manufacturer of pumps, valves, and seals, beginning in September 2020. Prior to that role, she served as Chief Operating Officer of Norsk Titanium, an aerospace-grade components manufacturer, beginning in February 2018, and previously held positions of increasing responsibility in finance, general management, and supply chain leadership, including at Baker Hughes (energy technology) and Pratt & Whitney (aircraft engines). She began her career as an auditor at accounting firm Arthur Andersen LLP. From May 2019 through December 2022, Ms. Morytko served on the board for The Crosby Group (rigging, lifting, and material handling applications), a KKR company. She currently serves on the Board of Directors of EnerSys (stored energy solutions for industrial applications), a position she has held since December 2022, including as a member of its Compensation and Audit Committees.
Carole A. Phillips, 51, became the Company’s Senior Vice President, Chief Procurement Officer in January 2023. Ms. Phillips joined the Company as Vice President, Procurement for a transition period beginning September 2022, from Stanley Black & Decker (“Stanley”), a global provider of power and hand tools, mechanical access solutions, and electronic monitoring systems, where she was most recently Vice President, Global Supply Management – M&A, Integrations, and Divestitures (from July 2021). Prior to that role, Ms. Phillips served at Stanley as Vice President, Global Supply Management – Outdoor (from October 2019 to July 2021) and Vice President, Global Supply Management – Industrial Division (from January 2015 to October 2019), as part of more than 25 years of experience in global manufacturing environments, including 17 years with Stanley.
Bhavik N. Soni, 50, was elected Senior Vice President, Chief Information Officer effective January 2023, prior to which he served as Vice President, Chief Information Officer beginning May 2017. Mr. Soni joined the Company from Honda Aircraft Company, a jet airplane manufacturer, where he served as Chief Information Officer – IT & Engineering Systems Division from 2015 to 2017. Prior to that, he served as Chief Information Officer for Artificial Lift, GE Oil & Gas at General Electric Company (“GE”), an energy technology company, from 2013 to 2015, preceded by fifteen years in other information technology related roles of increasing responsibility at GE. Mr. Soni’s experience prior to GE included software engineering roles at DanaherRockwell Collins, Inc. (aerospace) and Trane.General Dynamics Corporation (aerospace and defense).
Eric M. Teegarden, 40, J. Michael Whitted, 51, was elected Senior Vice President, ControllerStrategy and Chief Accounting OfficerCorporate Development effective July 2015.June 2018. Prior to joining the Company, Mr. Teegarden spent nearly eight yearsWhitted served as Vice President, Corporate Development for SPX Corporation and SPX Flow, Inc., diversified global suppliers of infrastructure equipment to various industries, from 2001 to 2015. Prior to that, he served as a Vice President for Bear Stearns (investment banking) from 1998 to 2001, where he led corporate finance and M&A advisory transactions. Mr. Whitted’s experience prior to Bear Stearns included corporate finance and M&A advisory roles at CIBC World Markets, Bankers Trust, and First Chicago NBD (investment banks).
Megan A. Walke, 44, was elected Vice President, Chief Accounting Officer in controllerMay 2022, after serving in an interim capacity beginning February 2022. Prior to that time, she served as the Company’s Director, Financial Reporting since August 2014 and prior to that in roles of increasing responsibility within General Electric Company (GE), serving in the Company’s finance organization. Ms. Walke began her career with nearly a wide range of GE manufacturing businesses, from appliances to lighting to jet engines. Prior to GE, he served in reporting and accounting roles in two smaller, publicly-traded manufacturing companies. Mr. Teegarden spent the first three years of his career, beginning in 2000,decade in public accounting for both Arthur Andersenat the firm of Ernst and Deloitte & Touche where his focus wasYoung LLP. Since 2013, she has also served as a member of the Board of Trustees of Oldenburg Academy, a private high school in Indiana. Ms. Walke also serves on energy companies. Mr. Teegarden is a Certified Public Accountant.the board of the Ripley County Community Foundation since February 2023.
AVAILABILITY OF REPORTS AND OTHER INFORMATION
Our website is www.hillenbrand.com. We make available on this website, free of charge, access to press releases, conference calls, our annual and quarterly reports, and other documents filed with or furnished to the Securities and Exchange Commission (SEC)(“SEC”) as soon as reasonably practicable after these reports are filed or furnished. We also make available through the “Investors” section of this website information related to the corporate governance of the Company, including position specifications for the Chairperson and each of the members of the Board of Directors, as well as for committee chairpersons; the Corporate Governance Standards of our Board of Directors; the charters of each of the standing committees of the Board of Directors; our Code of Ethical Business Conduct; our Global Anti-Corruption Policy; and our Supply Chain Transparency Policy. All of these documents are also available to shareholders in print upon request.
All reports and documents filed with the SEC are also available via the SEC website, www.sec.gov, or may be read and copied at the SEC Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.www.sec.gov.
Item 1A. RISK FACTORS
In this section of the Form 10-K, we describe the risks we believe are most important for you to think about when you consider investing in, selling, or owning our stock or debt.securities. This information should be assessed along with the other information we provide you in this Form 10-K.10-K and that we file from time to time with the SEC. Like most companies, our business involves risks. The risks described below are not the only risks we face, but these are the ones we currently think have the potential to significantly affect stakeholders in our Company if they were to develop adversely (due to size, volatility, or both). We exclude risks that we believe are inherent in all businesses broadly as a function of simply being “in business.” Additional risks not currently known or considered immaterial by us at this time and thus not listed below could also result in adverse effects on our business. We
1.Global market and economic conditions, including those related to the financial markets, could have assigneda material adverse effect on our consolidated results of operations, financial condition, and liquidity.
Our business is sensitive to changes in general economic conditions, both inside and outside the risks into categoriesU.S. Instability in the global economy and financial markets can adversely affect our business in several ways, including limiting our customers’ ability to help you understand from where they emanate (e.g.
obtain sufficient credit or to pay for our products within the overall Companyterms of sale. Competition could further intensify among the manufacturers and distributors with whom we compete for volume and market share, resulting in lower net revenue due to steeper discounts and product mix-down. In addition, if certain key or sole suppliers were to become capacity constrained or insolvent, it could result in a reduction or interruption in supplies or a specific segment).
Risk Related to Hillenbrandsignificant increase in the price of supplies.
1.Substantial losses in the equity markets could have an adverse effect on the assets of the Company’s pension plans. Volatility of interest rates and negative equity returns could require greater contributions to the defined benefit plans in the future.
2.The performance of the Company may suffer from business disruptions associated with information technology, cyber-attacks or unauthorized access, or catastrophic losses affecting infrastructure.
The Company relies heavily on computer systems to manage and operate its businesses and record and process transactions. Computer systems are important to production planning, customer service, and order management, as well as other critical processes.
Despite efforts to prevent such situations and the existence of established risk management practices that partially mitigate these risks, the Company’s systems may be affected by damage or interruption from, among other causes, power outages, system failures, or computer viruses. Computer hardware and storage equipment that is integral to efficient operations, such as email, telephone and other functionality, is concentrated in certain physical locations in the various geographies in which the Company operates.
In addition, cybersecurity threats and sophisticated computer crime pose a potential risk to the security of the Company’s information technology systems, operational technology systems, networks, and services, as well as the confidentiality and integrity of the Company’s data. Cyber-attacks, security breaches, and other cyber incidents could include, among other things, computer viruses, malicious or destructive code, ransomware, social engineering attacks (including phishing and impersonation), hacking, denial-of-service attacks, and other attacks. These risks may be heightened given our employees’ increased use of remote working environments. Sensitive information is also stored by our vendors and on the platforms and networks of third-party providers. Cyber-attacks on the Company, our vendors, or our third-party providers of service and software could result in inappropriate access to intellectual property, personally identifiable information of our global workforce, suppliers, or customers, or personal credit card or other payment information of our customers. Potential consequences of a successful cyber-attack or other cybersecurity incident include remediation costs, increased cybersecurity protection costs, lost revenue resulting from the unauthorized use of proprietary information or the failure to retain or attract customers following an attack, litigation and legal risks including governmental or regulatory enforcement actions, increased insurance premiums, reputational damage that adversely affects customer or investor confidence, and damage to the Company’s competitiveness, stock price, and long-term shareholder value. The Company has been subject to cyber-attacks and unauthorized access in the past, which it deemed immaterial to its business and operations, and may be subject to cyber-attacks or unauthorized access of its systems in the future. There can be no assurance that any future cyber-attacks or unauthorized access to the Company’s information systems will not be material to the Company’s business, operations, or financial condition. While we believe that our insurance plan provides appropriate levels of coverage for cyber risks and have taken steps to address these risks by implementing enhanced security technologies, internal controls, and business continuity plans, these measures may not be adequate to cover or prevent all potential losses nor remedy related damage to our reputation.
Regulators globally are increasingly imposing greater fines and penalties for privacy and data protection violations. For example, the European Union and other jurisdictions, including China and some U.S. states, have enacted, and others may enact, new and expanded sets of compliance requirements on companies, like ours, that collect or process personal data. Failure to comply with these or other data protection regulations could expose us to potentially significant liabilities. If the Company suffers a loss or disclosure of protected information due to security breaches or other reasons, and if business continuity plans do not effectively address these issues on a timely basis, the Company may incur fines or penalties, or suffer interruption in its ability to manage operations, as well as reputational, competitive, or business harm, which could have a material adverse effect on our business, financial condition, and consolidated results of operations.
3.A disease outbreak, such as the COVID-19 pandemic, or other health crisis, could have a material adverse effect on our business and consolidated results of operations, the nature and extent of which are highly uncertain and unpredictable.
We have global operations, and the COVID-19 pandemic or other widespread pandemic, disease outbreak, or other health crisis, and the various government, industry and consumer actions related thereto, including mandated or voluntary shutdowns, could have negative impacts on our business and have created or could create or intensify adverse conditions described in our other risk factors. These impacts and conditions include, but may not be limited to, potential significant volatility or decreases
in demand for our products, changes in customer behavior and preferences, disruptions in or closures of our manufacturing operations or those of our customers and suppliers, disruptions within our supply chain, limitations on our employees’ ability to work and travel, potential increased vulnerability to cybersecurity incidents, including breaches of information systems security that could be due to widespread remote working arrangements or other conditions, potential financial difficulties of customers and suppliers, significant changes in economic or political conditions, including rapidly changing government orders and regulations and our efforts to comply with them, and related financial and commodity volatility, including volatility in raw material and other input costs (including but not limited to oil prices), any of which could last for extended periods. Disruption caused by a pandemic and the Company’s response thereto could also increase the Company’s exposure to claims from customers, suppliers, financial institutions, regulators, payment card associations, employees and others, and to other workforce related risks, any of which could have a material adverse effect on the Company’s financial condition and results of operations.
Despite our efforts to manage through a widespread pandemic, disease outbreak, or other health crisis, the degree to which these events ultimately impact our business, financial position, results of operations, and cash flows may depend on certain factors beyond our control, including the duration, spread, and severity of the event, the actions taken to contain the event and mitigate its public health effects, the impact on the U.S. and global economies and demand for our products, and how quickly and to what extent normal economic and operating conditions resume or become impacted by long-lasting changes. The extent to which a disease outbreak, including COVID-19, or any other health crisis, could impact our business cannot be predicted with certainty.
4.Increasing competition for highly skilled and talented workers, as well as labor shortages, could adversely affect our business.
The successful implementation of our business strategy depends, in part, on our ability to attract and retain a skilled and talented workforce. Because of the complex nature of many of our products and services, we are generally dependent on a thoroughly trained and highly skilled workforce, including, for example, our engineers. In many of the geographies where we operate, we face a potential shortage of qualified employees.
A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, and government regulations. Although we have not experienced any material labor shortages to date, the labor market has become increasingly competitive. The increasing competition for highly skilled and talented employees could result in higher compensation costs, difficulties in maintaining a capable workforce, and leadership succession planning challenges. Although we believe we will be able to attract and retain talented personnel and replace key personnel should the need arise, if we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take to respond to a decrease in labor availability, such as overtime and third-party outsourcing, have unintended negative effects, our business could be adversely affected. A sustained labor shortage, lack of skilled labor, or increased turnover or labor inflation could lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees, which could negatively affect our ability to efficiently operate our manufacturing and distribution facilities and overall business and have other material adverse effects on our business, financial condition, and consolidated results of operations.
5.Increasing environmental regulation and industry standards, as well as physical risks of climate change, could adversely impact the Company's consolidated results of operations, financial condition, and liquidity.
New environmental-related regulations could require the Company to change its manufacturing processes or obtain substitute materials that may cost more or be less available for its manufacturing operations. For example, various jurisdictions in which the Company does business have implemented, or in the future could implement or amend, a tax on carbon emissions or restrictions of greenhouse gases. Regulations on energy management and material management and other rules and regulations to address climate change and other environmental risks may increase the Company’s expenses and adversely affect its consolidated results of operations. In addition, the physical risks of climate change are highly uncertain and may differ in the geographic regions in which the Company operates. These physical risks may impact the availability and cost of materials, sources and supply of energy, or product demand and manufacturing, and could increase insurance and other operating costs. Any future increased worldwide regulatory activity relating to climate change could expand the nature, scope, and complexity of matters that the Company is required to control, assess, and report. If environmental laws or regulations or industry standards are either changed or adopted and impose significant operational restrictions and compliance requirements upon the Company, its suppliers, its customers or its products, or if the Company’s operations are disrupted due to physical impacts of climate change, its customers, or its suppliers, the Company’s business, results of operations, and financial condition could be adversely impacted. Further, any failure to adequately address stakeholder expectations or to achieve announced initiatives or goals with respect to environmental, social and governance matters may adversely impact our reputation, business, consolidated results of operations, financial condition, and liquidity.
6.Increased prices for, poor quality of, or extended inability to source raw materials used in our products or associated services, or supply chain disruptions, could adversely affect profitability.
Our profitability is affected by the prices of the raw materials used in the manufacture of our products. These prices fluctuate based on a number of factors beyond our control, including changes in supply and demand, general economic conditions, labor costs, fuel-related delivery costs, competition, import duties, tariffs, currency exchange rates, and, in some cases, government regulation. Significant increases in the prices of raw materials, similar to the inflationary increases we have experienced recently, that cannot be recovered through increases in the price of our products and services could adversely affect our results of operations and cash flows.
We cannot guarantee that the prices we are paying for raw materials today will continue in the future or that the marketplace will continue to support current prices for our products or that such prices can be adjusted to fully or partially offset raw material price increases in the future. Any increases in prices of these or other commodities or services could adversely affect our profitability. We do not engage in hedging transactions for raw material purchases, but we do enter into some fixed-price supply contracts, in an attempt to delay or suppress the impacts of higher prices in the market.
Our dependency upon regular deliveries of supplies and the quality of those supplies upon delivery from particular suppliers means that interruptions, stoppages, or deterioration of quality in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made. Some of the raw materials used in the manufacture of our products currently are procured from a single source. In some cases, we also outsource certain services to suppliers, including but not limited to, engineering, assembly, shipping, and commissioning services. If a supplier were unable to deliver these materials or services, or unable to deliver quality materials or services, for an extended period of time as a result of financial difficulties, catastrophic events affecting their facilities, or other factors, including recent supply chain disruptions we have experienced, or if we were unable to negotiate acceptable terms for the supply of materials or services with these suppliers, our business could be adversely affected. We may not be able to find acceptable alternatives, and any such alternatives could result in increased costs. We believe that our supply management and production practices are based on an appropriate balancing of the foreseeable risks and the costs of alternative practices. Nonetheless, reduced availability or interruption in supplies, whether resulting from more stringent regulatory requirements, increases in duties or tariff costs, disruptions in transportation, severe weather, the occurrence or threat of wars or other conflicts, or any other reason, could have an adverse effect on our financial condition, consolidated results of operations, and cash flows. Extended inability to source a necessary raw material or service could cause us to cease manufacturing one or more products for a period of time, which could also lead to loss of customers, as well as reputational, competitive, or business harm, which could have a material adverse effect on our business, financial condition, and consolidated results of operations.
7.Uncertainty in United States global trade policy could negatively impact our business.
The U.S. government has at times indicated a willingness to significantly change, and has in some cases significantly changed, trade policies and/or agreements. Specific legislative and regulatory developments and proposals that could have a material impact on us involve matters including (but not limited to) changes to existing trade agreements or entry into new trade agreements, sanctions policies, import and export regulations, tariffs, taxes and customs duties, public company reporting requirements, environmental regulation, and antitrust enforcement. In addition, certain countries that are central to our businesses have imposed and/or been subject to imposition or have threatened imposition of retaliatory tariffs in response to tariffs imposed by the U.S. upon various raw materials and finished goods, including steel and others that are important to our businesses. This exposes us to risks of disruption and cost increases in our established patterns for sourcing our raw materials, and creates increased uncertainties in planning our sourcing strategies and forecasting our margins. Changes in U.S. tariffs, quotas, trade relationships or agreements, or tax law could reduce the supply of goods available to us or increase our cost of goods. Although such changes would in many cases have implications across the entire industry, we may fail to effectively adapt to and manage the adjustments in strategy that would be necessary in response to those changes. In addition to the general uncertainty and overall risk from potential changes in U.S. laws and policies, as we make business decisions in the face of uncertainty, we may incorrectly anticipate the outcomes, miss out on business opportunities or fail to effectively adapt our business strategies and manage the adjustments that are necessary in response to those changes. These risks could materially and adversely impact our business, results of operations and financial condition in the periods to come.
8.International economic, political, legal, and business factors could negatively affect our operating results, cash flows, financial condition, and growth.
We derived approximately 62%, 67%, and 68% of our net revenue from our operations outside the U.S. for the years ended September 30, 2023, 2022, and 2021, respectively. This net revenue was primarily generated in Europe, the Middle East, Asia, South America, and Canada. In addition, we have manufacturing operations, suppliers, and employees located outside the U.S. Since our growth strategy depends in part on our ability to further penetrate markets outside the U.S., we expect to continue to increase our revenue and presence outside the U.S., including in emerging markets.
Our international business is subject to risks that are often encountered in non-U.S. operations, including:
•interruption in the transportation of materials to us and finished goods to our customers, including conditions where recovery from natural disasters may be delayed due to country-specific infrastructure and resources;
•threat of wars or other conflicts;
•differences in terms of sale, including payment terms;
•local product preferences and product requirements;
•changes in a country’s or region’s political or economic condition, including with respect to safety and health issues;
•trade protection measures and import or export licensing requirements;
•unexpected changes in laws or regulatory requirements, including unfavorable changes with respect to tax, trade, sanctions compliance, or climate change related matters;
•limitations on ownership and on repatriation of earnings and cash;
•difficulty in staffing and managing widespread operations;
•differing labor regulations;
•difficulties in enforcing contract and property rights under local law;
•difficulties in implementing restructuring actions on a timely or comprehensive basis; and
•differing protection of intellectual property.
Such risks may be more likely or pronounced in emerging markets, where our operations may be subject to greater uncertainty due to increased volatility associated with the developing nature of their economic, legal, and governmental systems.
If we are unable to successfully manage the risks associated with expanding our global business or to adequately manage operational fluctuations, it could adversely affect our business, financial condition, or consolidated results of operations.
9.We have a significant amount of debt, which could adversely affect the Company and limit our ability to respond to changes in our business or make future desirable acquisitions.
As of September 30, 2023, our outstanding debt was $2,010.1, and this amount could increase if additional levels of liquidity are needed. This amount of debt (and additional debt we may incur) has important consequences to our businesses. For example:
•We may be more vulnerable to general adverse economic and industry conditions, because we have lower borrowing capacity.
•We may be required to dedicate a larger portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including business development efforts and acquisitions, working capital requirements, and capital expenditures.
•We could be exposed to the risk of increased interest rates, because our capital structure target normally includes a component of variable rate debt in addition to fixed rate debt.
•We may be more limited in our flexibility in planning for, or reacting to, changes in our businesses and the industries in which they operate, thereby placing us at a competitive disadvantage compared to competitors that may have less indebtedness.
We may be vulnerable to credit rating downgrades, which could have an impact on our ability to secure future financing on terms commercially acceptable to us, to access the credit and capital markets, or to negotiate favorable covenants in any future amendments to our financial documents or new financings.
10.If we are unable to comply with the financial and other covenants in our debt agreements, our business, financial condition, and liquidity could be materially adversely affected.
Our Credit Agreement and the L/G Facility Agreement (each as defined below) contain financial and other restrictive covenants. These covenants could adversely affect us by limiting our financial and operating flexibility as well as our ability to plan for and react to market conditions, including as a result of global financial, socioeconomic, and political uncertainty and
the effect on our business, and to meet our capital needs. Our failure to comply with these covenants could result in events of default which, if not cured or waived, could result in us being required to repay indebtedness before its due date, and we may not have the financial resources or be able to arrange alternative financing to do so. Any event that requires us to repay any of our debt before it is due could require us to borrow additional amounts at unfavorable borrowing terms, cause a significant reduction in our liquidity, and impair our ability to pay amounts due on our indebtedness. Moreover, if we are required to repay any of our debt before it becomes due, we may be unable to borrow or draw additional amounts under the Credit Agreement and L/G Facility Agreement or otherwise obtain the cash necessary to repay that additional debt when due, which could materially adversely affect our business, financial condition, and liquidity. Furthermore, interest rates we pay on our borrowings and our ability to borrow or draw under the Credit Agreement and L/G Facility Agreement or any other credit facility in the future, or pursuant to other available sources, could be adversely affected by matters including market volatility, economic downturns, or other instability or uncertainty. In addition, in light of the impacts to our ability to generate cash from operations during periods of global financial, socioeconomic, and political uncertainty, our results may be further negatively impacted by our payment obligations (including interest) with respect to our outstanding borrowings under the Facility and our other credit agreements (each as defined below).
11.We may be unable to successfully integrate with the businesses of FPM or Linxis, or other acquired companies, or to realize the anticipated benefits of such acquisitions.
The successes of these acquisitions will depend, in part, on the Company’s ability to successfully combine and integrate these and other acquired businesses and realize the anticipated benefits, including synergies, cost savings, revenue and innovation opportunities, and operational efficiencies, in a manner that does not materially disrupt existing customer, supplier, and employee relations, or result in decreased revenue due to losses of, or decreases in orders by, customers. If the Company is unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected, and the value of the Company’s common stock may decline.
The integration of these companies may result in material challenges, including, without limitation:
•the diversion of management’s attention from ongoing business concerns, and performance shortfalls as a result of the devotion of management’s attention to the integration;
•managing a larger combined business;
•maintaining employee morale and retaining key management and other employees;
•retaining existing business and operational relationships, including customers, suppliers and other counterparties, and attracting new business and operational relationships;
•the possibility of faulty assumptions underlying expectations regarding the integration process;
•consolidating corporate and administrative infrastructures and eliminating duplicative operations;
•coordinating geographically separate organizations; and
•unanticipated issues in integrating information technology, communications and other systems.
As discussed elsewhere in our risk factors, some of these factors are outside of the Company’s control, and any one of them could result in delays, increased costs, decreases in the amount of expected revenue or synergies, and diversion of management’s time and energy, which could materially affect our financial position, consolidated results of operations, and cash flows.
We have incurred substantial expenses in connection with the completion of the acquisitions of FPM, Linxis, Herbold and Peerless, and we expect to incur further expenses in order to integrate a large number of processes, policies, procedures, operations, technologies, and systems in connection with these acquisitions.
12.We operate in highly competitive industries, many of which are currently subject to intense price competition, and if we are unable to compete successfully, it could have a material adverse effect on our business, financial condition, and consolidated results of operations.
Many of the industries in which we operate are highly competitive. Our products may not compete successfully with those of our competitors. The markets for plastic processing equipment and related products, material handling equipment, complete equipment systems, mold components, are highly competitive and include a number of North American, European, and Asian competitors. Principal competitive factors in the plastic processing industry, material handling equipment, and complete equipment systems include price, lead time, product features, technology, total cost of ownership, performance, reliability, quality, delivery, and customer service. Principal competitive factors in the mold components industry include technology, price, quality, performance, and delivery.
Our competitors may be positioned to offer more favorable pricing to customers, resulting in reduced volume and profitability. In certain cases, we have lost business to competitors who offered prices lower than ours. Competition may also limit our ability to pass on the effects of increases in our cost structure. In addition, some of our competitors may have greater financial resources and less debt than we do, which may place us at a competitive disadvantage in the future. These competitors may be better able to withstand and respond to changes in conditions within our industry.
Competition in any of these areas may reduce our sales and adversely affect our earnings or cash flow by resulting in decreased sales volumes, reduced prices, and increased costs of manufacturing, distributing and selling our products.
13.We operate in cyclical industries.
As an industrial capital goods supplier, we serve industries that are cyclical and sensitive to changes in general economic conditions, such as packaging, automotive, construction, consumer goods, electronics, chemicals, and plastics industries. The performance of many of our businesses is directly related to the production levels of our customers. In particular, prices for plastic resins used to make plastic products and parts tend to fluctuate to a greater degree than our customers can adjust for in the pricing of their products. When resin prices increase, certain of our customers’ profit margins decrease, which may result in lower demand for our products. Therefore, our business is affected by fluctuations in the price of resin, which could have an adverse effect on our business and ability to generate operating cash flows.
During periods of economic expansion, when capital spending normally increases, our businesses generally benefit from greater demand for our products. During periods of economic contraction, when capital spending normally decreases, they generally are adversely affected by declining demand for new equipment orders, and may be subject to increases in uncollectible receivables from customers who become insolvent. There can be no assurance that economic expansion or increased demand will be sustainable, and our financial condition, consolidated results of operations, and cash flows could be materially adversely affected.
14.A key component of our growth strategy is making significant acquisitions, some of which may be outside the industries in which we currently operate. We may not be able to achieve some or all of the benefits that we expect to achieve from these acquisitions. If an acquisition were to perform unfavorably, it could have an adverse impact on our value.business and consolidated results of operations.
All acquisitions, including the FPM, Linxis, Herbold, and Peerless acquisitions, involve inherent uncertainties, which may include, among other things, our ability to:
•successfully identify the most suitable targets for acquisition;
•negotiate reasonable terms;
•properly perform due diligence and determine all the significant risks associated with a particular acquisition;
•successfully transition the acquired company into our business and achieve the desired performance;performance of the acquired company;
•avoid diversion of Company management’s attention from other important business activities; and
•where applicable, implement restructuring activities without an adverse impact to business operations.
We may acquire businesses with unknown liabilities, contingent liabilities, internal control deficiencies, or other risks. We have plans and procedures to review potential acquisition candidates for a variety of due diligence matters, including compliance with applicable regulations and laws prior to acquisition. Despite these efforts, realization of any of these liabilities
or deficiencies may increase our expenses, adversely affect our financial position, or cause us to fail to meet our public financial reporting obligations.
We generally seek indemnification from sellers covering these matters; however, the liability of the sellers is often limited, and certain former owners may be unable to meet their indemnification responsibilities. We cannot be assured that these indemnification provisions will fully protect us, and as a result we may face unexpected liabilities that adversely affect our profitability and financial position.
We may not achieve the intended benefits of our acquisitions. Under such circumstances, management could be required to spend significant amounts of time and resources in the transition of the acquired business, and we may not fully realize benefits anticipated from key initiatives, including the application of the HOM. We may also decide to sell previously acquired businesses, or portions thereof, that no longer meet our strategic objectives, potentially resulting in a loss, accounting charge, or other negative impact. As a result of these factors, our business, cash flows, and consolidated results of operations could be materially impacted.
If we acquire a company that operates in an industry that is different from the ones in which we currently operate, our lack of experience with that company’s industry could have a material adverse impact on our ability to manage that business and realize the benefits of that acquisition.
2.Global market15.We have completed several divestitures, including the recent divestiture of our historical Batesville reportable operating segment, and economic conditions,we continually assess the strategic fit of our existing businesses. We may divest or otherwise dispose of businesses that are deemed not to fit with our strategic plan or are not achieving the desired return on investment, and we cannot be certain that our business, consolidated results of operations, and financial condition will not be materially and adversely affected.
A successful divestiture depends on various factors, including reaching an agreement with potential buyers on terms we deem attractive, as well as our ability to effectively transfer liabilities, contracts, facilities, and employees to any purchaser, identify and separate the intellectual property to be divested from the intellectual property that we wish to retain, reduce fixed costs previously associated with the divested assets or business, and collect the proceeds from any divestitures. These efforts require varying levels of management resources, which may divert our attention from other business operations. If we do not realize the expected benefits of any divestiture transaction or experience unexpected costs or similar risks, our consolidated financial position, results of operations, and cash flows could be negatively impacted. In addition, divestitures of businesses involve a number of risks, including significant costs and expenses, the potential loss of or changes to customer, employee, or supplier relationships, potential adverse impacts to volume-based pricing under existing and future purchasing arrangements, and a decrease in net revenue and earnings associated with the divested business. Furthermore, any divestiture may result in a dilutive impact to our future earnings if we are unable to offset the dilutive impact from the associated loss of revenue, and may also result in significant write-offs, including those related to the financial markets,goodwill and other intangible assets, any of which could have a material adverse effect on our results of operations and financial condition.
In addition, divestitures, in particular the recent divestiture of our historical Batesville reportable operating results,segment, potentially involve significant post-closing separation and transition activities, which could involve the expenditure of material financial resources and significant employee resources. These activities may require diversion of significant capital and other resources that otherwise could have been used in our business operations. There can be no assurance that divestitures, including the historical Batesville reportable operating segment divestiture, will be ultimately beneficial to us or have a positive effect on shareholder value.
16.Goodwill and other identifiable indefinite-lived intangible assets, which are subject to periodic impairment evaluations, represent a significant portion of our total assets. An impairment charge on these assets could have a material adverse impact on our financial condition and liquidity.consolidated results of operations.
OurWe maintain intangible assets related to the acquisitions of Burnaby Machine and Mill Equipment Ltd. (“BM&M”), Coperion, FPM, Gabler, Herbold, K-Tron, Linxis, Milacron, Peerless, and Rotex, portions of which were identified as either goodwill or indefinite-lived assets. We periodically assess these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets, divestitures, and market capitalization declines may impair these assets, and any of these factors may be increasingly impactful during a period of ongoing global supply chain disruption or macroeconomic uncertainty.
As required by applicable accounting standards, we review goodwill and other identifiable intangible assets for impairment either annually or whenever changes in circumstances indicate that the carrying value may not be recoverable. The risk of impairment to goodwill and other indefinite-lived intangible assets is generally higher during the early years following an acquisition, because the fair values of these assets align very closely with what we paid to acquire them. As a result, and especially if the acquired business is sensitive to changes in general economic conditions, both inside and outsidea separate reporting unit, the U.S. Continuing uncertainties indifference between the eurozone, including future implications from the voluntary exitcarrying value of the United Kingdom from the European Union (commonlyreporting unit and its fair value (typically referred to as “Brexit”“headroom”) and uncertaintiesis smaller at the time of acquisition. If the acquired business is included in Chinaan existing reporting unit, this impact often can be less significant. In any case, until this headroom grows over time, due to business growth or lower carrying value of the reporting unit, a small decline in reporting unit fair value may depress demand intrigger impairment charges. When impairment charges are triggered, they tend to be material due to the size of the assets involved. Future acquisitions could present these areas and create additional risksame risks as with the acquisitions we have made to our financial results.date.
Instability in the global economy and financial markets canAny charges relating to such impairments could adversely affect our business in several ways, including limiting our customers’ ability to obtain sufficient credit or pay for our products within the termsresults of sale. Competition could further intensify among the manufacturers and distributors with whom we compete for volume and market share, resulting in lower net revenue due to steeper discounts and product mix-down. In particular, if certain key or sole suppliers were to become capacity constrained or insolvent, it could result in a reduction or interruption in supplies or a significant increaseoperations in the price of supplies.periods recognized.
Substantial losses17.We derive significant revenue from the plastics industry. Decrease in demand for base resin or engineering plastics or equipment used in the equity marketsproduction of these products, changes in technological advances, or changes in laws or
regulations could have ana material adverse effect on the assets of the Company’s pension plans. Volatility of interest rates and negative equity returns could require greater contributions to the defined benefit plans in the future.
3.International economic, political, legal, andour business, factors could negatively affect our operating results, cash flows, financial condition, and growth.consolidated results of operations.
We derived approximately 44%, 44%, and 43%The majority of ournet revenue from our operations outsideMolding Technology Solutions reportable operating segment is realized from the U.S.manufacture, distribution, and service of highly engineered and customized systems within the plastic technology and processing market. Advanced Process Solutions also sells equipment, including highly engineered extruders, feeders, and conveying systems, to the plastics industry for the years ended September 30, 2017, 2016,production of base resins, durable engineering grade plastics, and 2015. This revenueother compounded plastics (including bioplastics and recycled plastic product). Sales volume is primarily generated in Europe,dependent upon the Middle East, Asia, South America, and Canada. In addition, we have manufacturing operations, suppliers, and employees located outsideneed for equipment used to produce these products, which may be significantly influenced by the U.S. Since our growth strategy depends in part on our ability to further penetrate markets outsidedemand for plastics, the U.S., we expect to continue to increase our sales and presence outside the U.S., including in emerging markets.
Our international business is subject to risks that are often encountered in non-U.S. operations, including:
interruptioncapital investment needs of companies in the transportation of materials to us and finished goods to our customers, including conditions where recovery from natural disasters may be delayed due to country-specific infrastructure and resources;
differences in terms of sale, including payment terms;
local product preferences and product requirements;
plastics industry, changes in a country’stechnological advances, or region’s political or economic condition, including with respect to safety and health issues;
trade protection measures and import or export licensing requirements;
unexpected changes in laws or regulatoryregulations such as, but not limited to, those related to single-use plastics, expanded-polystyrene and polystryrene foams, extended producer responsibility, content requirements including negative changesfor products, recycled content requirements, and reduction mandates. Unfavorable developments in tax laws;the plastics industry could impact our customers and, as a result, have a material adverse effect on our business, financial condition, and consolidated results of operations.
limitations on ownership and on repatriation of earnings and cash;
difficulty18.Changes in staffing and managing widespread operations;
differing labor regulations;
difficulties in enforcing contract and property rights under local law;
difficulties in implementing restructuring actions on a timely or comprehensive basis; and
differing protection of intellectual property.
Such risks may be more likely or pronounced in emerging markets, where our operations may be subject to greater uncertaintyfood consumption patterns due to increased volatility associated with the developing nature of theirdietary trends, economic legal, and governmental systems.
If we are unable to successfully manage the risks associated with expanding our global businessconditions, or to adequately manage operational fluctuations, it couldother reasons may adversely affect our business, financial condition, or results of operations.operations, and cash flows.
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4. | Changes in the United States political environment could negatively impact our business.
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The 2016 presidentialDietary trends can positively or negatively impact demand for certain types of food, including, for example, proteins or carbohydrates, or for certain packaging or categories of food products, including, for example, easy to prepare, transportable meals or traditional canned food products. Because demand for different food types, packagings, or categories can quickly fluctuate as a function of dietary, health, convenience, sustainability, or other trends, food processors can be challenged in accurately forecasting their needed manufacturing capacity and congressional electionsthe related investment in the United States have resulted in significant uncertainty with respect to,equipment and could result in changes in, legislation, regulationservices. Rising food and government policy. While it is not possible to predict whether and when any such changes will occur, changes at the local, state or federal level could significantlyother input costs, as well as recessionary fears, may negatively impact our businesscustomers’ ability to forecast consumer demand for various food products, including pet food, and the industries in which we compete. Specific legislativeas a result negatively impact demand for our goods and regulatory proposals discussed during and after the election thatservices. A demand shift away from protein products or processed foods could have a material impactadverse effect on us include, but are not limited to, changes to existing trade agreements, import and export regulations, tariffs and customs duties, income tax regulations and the federal tax code, public company reporting requirements, environmental regulation and antitrust enforcement. To the extent changes in the political environment have a negative impact on the Company or our markets, it may materially and adversely impact our business, financial condition, consolidated results of operations, and financial condition in the periods to come.cash flows.
5.19.We rely upon our employees, agents, and business partners to comply with laws in many different countries and jurisdictions. We establish policies and provide training to assist them in understanding our policies and the regulations most applicable to our business; however, our reputation, ability to do business, and financial results may be impaired by improper conduct by these individuals.parties.
We cannot provide assurance that our internal controls and compliance systems will always protect us from acts committed by our employees, agents, or business partners that would violate U.S. and/or non-U.S. laws, including the laws governing payments to government officials, bribery, fraud, anti-kickback, and false claims, competition, export and import compliance, moneyincluding the U.S. Commerce Department’s Export Administration Regulations, trade sanctions promulgated by the Office of Foreign Asset Control (“OFAC”), anti-money laundering, and data privacy. In particular, the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries, including us, from making improper payments to government officials or other parties for the purpose of obtaining or retaining business, and we operate in many parts of the world that have experienced governmental corruption to some degree. Consequently, we are subject to the jurisdiction of various governments and regulatory agencies outside of the U.S., which may bring our personnel into contact with foreign officials responsible for issuing or renewing permits, licenses or approvals or for enforcing other governmental regulations. In addition, some of the international locations in which we operate lack a developed legal system and have elevated levels of corruption. Our global operations expose us to the risk of violating, or being accused of violating, the foregoing or other anti-corruption laws. Any such improper actions could subject us to civil or criminal investigations in the U.S. and in other jurisdictions; could lead to substantial civil and criminal, monetary, and non-monetary penalties, and related shareholder lawsuits; could cause us to incur significant legal fees; and could damage our reputation.
6.We are subject to risks arising from currency exchange rate fluctuations, which may adversely affect our results of operations and financial condition.
We are subject to currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenues. In addition, since our financial statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations. The Company’s predominant exposures are in European, Canadian, Swiss, Mexican, and Asian currencies, including the Chinese Renminbi. In preparing financial statements for foreign operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at current exchange rates, and income and expenses are translated using weighted-average exchange rates. With respect to the effects on translated earnings, if the U.S. dollar strengthens relative to local currencies, the Company’s earnings could be negatively impacted. Although we address currency risk management through regular operating and financing activities and through the use of derivative financial instruments, those actions may not prove to be fully effective.
7.Increased prices for, or unavailability of, raw materials used in our products could adversely affect profitability.
Our profitability is affected by the prices of the raw materials used in the manufacture of our products. These prices fluctuate based on a number of factors beyond our control, including changes in supply and demand, general economic conditions, labor costs, fuel-related delivery costs, competition, import duties, tariffs, currency exchange rates, and, in some cases, government regulation. Significant increases in the prices of raw materials that cannot be recovered through increases in the price of our products could adversely affect our results of operations and cash flows.
We cannot guarantee that the prices we are paying for raw materials today will continue in the future or that the marketplace will continue to support current prices for our products or that such prices can be adjusted to fully or partially offset raw material price increases in the future. Any increases in prices resulting from a tightening supply of these or other commodities could adversely affect our profitability. We do not engage in hedging transactions for raw material purchases, but we do enter into some fixed-price supply contracts.
Our dependency upon regular deliveries of supplies from particular suppliers means that interruptions or stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made. Several of the raw materials used in the manufacture of our products currently are procured from a single source. If any of these sole-source suppliers were unable to deliver these materials for an extended period of time as a result of financial difficulties, catastrophic events affecting their facilities, or other factors, or if we were unable to negotiate acceptable terms for the supply of materials with these sole-source suppliers, our business could be adversely affected. We may not be able to find acceptable alternatives, and any such alternatives could result in increased costs. Extended unavailability of a necessary raw material could cause us to cease manufacturing one or more products for a period of time.
8.The Company could face labor disruptions that would interfere with operations.
As of September 30, 2017, approximately 42% of Hillenbrand’s employees work under collective bargaining agreements. Although we have not experienced any significant work stoppages in the past 20 years as a result of labor disagreements, we cannot ensure that such a stoppage will not occur in the future. Inability to negotiate satisfactory new agreements or a labor disturbance at one or more of our facilities could have a material adverse effect on our operations.
9. We are involved from time to time in claims, lawsuits, and governmental proceedings relating to our operations, including environmental, antitrust, patent infringement, business practices, commercial transactions, and other matters. The ultimate outcome of these claims, lawsuits, and governmental proceedings cannot be predicted with certainty but could have a material adverse effect on our financial condition, results of operations, and cash flows.
We are also subject to other potential claims, including product and general liability, workers compensation, auto liability, and employment-related matters. While we maintain insurance for certain of these exposures, the policies in place are high-deductible policies. For a more detailed discussion of claims, see Note 11 to our financial statements included in Part II, Item 8, of this Form 10-K.
10. We have a significant amount of debt, which could adversely affect the Company and limit our ability to respond to changes in our business or make future desirable acquisitions.
As of September 30, 2017, our outstanding debt was $465.7. This level of debt and additional debt we may incur in the future could have important consequences to our businesses. For example:
We may be more vulnerable to general adverse economic and industry conditions, because we have lower borrowing capacity.
We will be required to dedicate a larger portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including business development efforts and acquisitions.
We will continue to be exposed to the risk of increased interest rates, because a portion of our borrowings is at variable rates of interest.
We may be more limited in our flexibility in planning for, or reacting to, changes in our businesses and the industries in which they operate, thereby placing us at a competitive disadvantage compared to competitors that have less indebtedness.
We may be more vulnerable to credit rating downgrades which could have an impact on our ability to secure future financing at attractive interest rates.
11. The performance of the Company may suffer from business disruptions associated with information technology, cyber-attacks, or catastrophic losses affecting infrastructure.
The Company relies heavily on computer systems to manage and operate its businesses and record and process transactions. Computer systems are important to production planning, customer service, and order management, as well as other critical processes.
Despite efforts to prevent such situations and the existence of established risk management practices that partially mitigate these risks, the Company’s systems may be affected by damage or interruption from, among other causes, power outages, system failures, or computer viruses. Computer hardware and storage equipment that is integral to efficient operations, such as email, telephone and other functionality, is concentrated in certain physical locations in the various geographies in which the Company operates.
In addition, security threats and sophisticated computer crime pose a potential risk to the security of the Company’s information technology systems, networks, and services, as well as the confidentiality and integrity of the Company’s data. If the Company suffers a loss or disclosure of business or stakeholder information due to security breaches, and if business continuity plans do not effectively address these issues on a timely basis, the Company may suffer interruption in its ability to manage operations, as well as reputational, competitive, or business harm, which may adversely impact the Company’s business, financial condition, and results of operations.
12. 20.The effective tax rate of the Company may be negatively impacted by economic downturnschanges in the mix of earnings as well as future changes to tax laws in global jurisdictions in which we operate.
We are subject to income taxes in the United StatesU.S. and various other global jurisdictions. Our effective tax rate could be adversely affected by changes in the mix of earnings by jurisdiction and the valuation of deferred tax assets and liabilities. There is a global effort among developed countries to enact international tax reform that would change the way multinational organizations are taxed. If the tax reform proposals are enacted, they could have a material impact on our tax provision and value of deferred tax assets and liabilities. We recognize deferred tax assets and liabilities based on the differences between the consolidated financial statement carrying amounts and the tax basis of assets and liabilities. Our deferred tax assets, net of valuation allowances, totaled approximately $112.7 and $153.3 at September 30, 2017 and 2016. Significant judgment is required in determining our provision for income taxes. We regularly review our deferred tax assets for recoverability and establish a valuation allowance if it is more likely than not that some portion or all of a deferred tax asset will not be realized. If we are unable to generate sufficient future taxable income, if there is a material change in the actual effective tax rates, or if there is a change to the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance against our deferred tax assets, which could result in a material increase in our effective tax rate.
In addition, changesChanges in tax laws or tax rulings could have a material impact on our effective tax rate. Certain changes to U.S. tax laws, including limitations on the ability to defer U.S. taxation on earnings outside of the United States until those earnings are repatriated to the United States, could affect the tax treatment of our foreign earnings. Additionally, manyMany countries in the European Union, as well as a number ofseveral other countries and organizations such as the Organization for Economic Cooperation and Development, are actively considering changes to existing tax laws. Certain proposals could include recommendations that could increase our tax obligations in manythose countries where we do business. Any changes in the taxation of our activities in such jurisdictions may result in a material increase in our effective tax rate.
13. 21.We are exposed to a number of different tax uncertainties, which could have a material adverse effect on our consolidated results of operations.
We are required to pay taxes in multiple jurisdictions. We determine the tax liability we are required to pay based on our interpretation of applicable tax laws and regulations in the jurisdictions in which we operate. We may be subject to unfavorable changes, including retroactive changes, in the tax laws and regulations to which we are subject.
We are subject to tax audits by governmental authorities in the U.S. and numerous non-U.S. jurisdictions, which are inherently uncertain. Negative or unexpected results from one or more such tax audits could adversely affect our results of operations. Tax controls and changes in tax laws or regulations or the interpretation given to them may expose us to negative tax consequences, including interest payments and potential penalties, which could have a material adverse effect on our results of operations.
22.We are involved from time to time in claims, lawsuits, and governmental proceedings relating to our operations, including environmental, antitrust, patent infringement, business practices, commercial transactions, and other matters. The ultimate outcome of these claims, lawsuits, and governmental proceedings cannot be predicted with certainty but could have a material adverse effect on our financial condition, consolidated results of operations, and cash flows.
We are also subject to other potential claims, 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. While we maintain insurance for certain of these exposures, the policies in place are often high-deductible policies. It is difficult to measure the actual loss that might be incurred related to litigation or other potential claims, and the ultimate outcome of claims, lawsuits, and proceedings could have a material adverse effect on our financial condition, results of operations, and cash flows. For a more detailed discussion of claims, see Note 13 to our Consolidated Financial Statement included in Part II, Item 8, of this Form 10-K.
23.Uncertainty in the U.S. political and regulatory environment could negatively impact our business.
The political environment, especially in an election year in the U.S., may create uncertainty with respect to, and could result in additional changes in, or potential gridlock hindering legislation, regulation, international relations, and government policy, or could result in possible civil unrest or other disturbances in connection therewith. Additionally, the scope, clarity of guidance from regulators, and uncertain enforcement and implementation times allowed for new regulations in the U.S. and other jurisdictions may result in increased costs or temporarily impact business operations. While it is not possible to predict whether and when any such additional changes or disturbances could occur, any such events, whether at the local, state or federal level, or outside the U.S., could significantly impact our business and the industries in which we compete. To the extent such disturbances or changes in the political or regulatory environment have a negative impact on the Company or the markets in which we operate, it may materially and adversely impact our business, consolidated results of operations, and financial condition in the periods to come.
24.We are subject to risks arising from currency exchange rate fluctuations, which may adversely affect our consolidated results of operations and financial condition.
We are subject to currency exchange rate risk to the extent that our costs are denominated in currencies other than those in which we earn revenue. In addition, since our Consolidated Financial Statements are denominated in U.S. dollars, changes in currency exchange rates between the U.S. dollar and other currencies have had, and will continue to have, an impact on our results of operations. The Company’s predominant exposures are to the Euro, Canadian dollar, Swiss franc, Mexican peso, Chinese Renminbi, Japanese Yen, Indian Rupee, and British pound sterling (along with others to a lesser degree). In preparing financial statements for foreign operations with functional currencies other than the U.S. dollar, asset and liability accounts are translated at current exchange rates and income and expenses are translated using weighted-average exchange rates. With respect to the effects on translated earnings, if the U.S. dollar strengthens relative to local currencies, as happens from time to time, the Company’s earnings could be negatively impacted. Although we address currency risk management through regular operating and financing activities and through the use of derivative financial instruments, those actions may not prove to be fully effective.
25.The Company could face labor disruptions that would interfere with operations.
As of September 30, 2023 and 2022, approximately 31% and 30%, respectively, of Hillenbrand’s employees work under collective bargaining agreements or works councils. Although we have not experienced any significant work stoppages in the past 20 years as a result of labor disagreements, we will need to negotiate new labor agreements in coming years and cannot ensure that such a stoppage will not occur in the future. Inability to negotiate satisfactory new agreements or a labor disturbance at one or more of our facilities could have a material adverse effect on our operations.
26.Provisions in our Articles of Incorporation and By-laws and facets of Indiana law may prevent or delay an acquisition of the Company, which could decrease the trading price of our common stock.
Our Articles of Incorporation and By-laws, as well as Indiana law, contain provisions that could delay or prevent changes in control if our Board of Directors determines that such changes in control are not in the best interests of our shareholders. While these provisions have the effect of encouraging persons seeking to acquire control of our Company to negotiate with our Board of Directors, they could enable our Board of Directors to hinder or frustrate a transaction that the Board of Directors believes is not in the best interests of shareholders, but which some, or a majority, of our shareholders might believe to be in their best interests.
These provisions include, among others:
•the division of our Board of Directors into three classes with staggered terms;
•the inability of our shareholders to act by less than unanimous written consent;
•rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings;
•the right of our Board of Directors to issue preferred stock without shareholder approval; and
•limitations on the right of shareholders to remove directors.
Indiana law also imposes some restrictions on mergers and other business combinations between the Company and any holder of 10% or more of our outstanding common stock.
We believe these provisions are important for a public company and protect our shareholders from coercive or otherwise potentially unfair takeover tactics by encouraging potential acquirers to negotiate with our Board of Directors and by providing
our Board of Directors with appropriate time to assess any acquisition proposal. These provisions are not intended to make our Company immune from takeovers; however, they may apply if the Board of Directors determines that a takeover offer is not in the best interests of our shareholders, even if some shareholders believe the offer to be beneficial.
Risk Related to the Process Equipment Group
1.A significant portion of our investments in the Process Equipment Group includes goodwill and intangible assets that are subject to periodic impairment evaluations. An impairment loss on these assets could have a material adverse impact on our financial condition and results of operations.
We acquired intangible assets with the acquisitions of Coperion, K-Tron (including TerraSource Global), Rotex, Abel, and Red Valve, portions of which were identified as either goodwill or indefinite-lived assets. We periodically assess these assets to determine if they are impaired. Significant negative industry or economic trends, disruptions to our business, inability to effectively integrate acquired businesses, unexpected significant changes, or planned changes in use of the assets, divestitures, and market capitalization declines may impair these assets. Any charges relating to such impairments could adversely affect our results of operations in the periods recognized.
2.The Process Equipment Group operates in cyclical industries.
As an industrial capital goods supplier, the Process Equipment Group serves industries that are cyclical. During periods of economic expansion, when capital spending normally increases, the Process Equipment Group generally benefits from greater demand for its products. During periods of economic contraction, when capital spending normally decreases, the Process Equipment Group generally is adversely affected by declining demand for new equipment orders, and it may be subject to increases in uncollectible receivables from customers who become insolvent. There can be no assurance that economic expansion or increased demand will be sustainable, and our financial condition, results of operations, and cash flows could be materially adversely affected.
3.The Process Equipment Group derives significant revenues from the plastics industry. Any decrease in demand for plastics or equipment used in the plastics industry could have a material adverse effect on our business, financial condition, and results of operations.
The Process Equipment Group sells extruders and compounding systems to the plastics industry. Sales volume is tied to the need for equipment used to produce plastics products, which may be significantly influenced by the demand for plastics, the capital investment needs of companies in the plastics industry, and changes in technological advances. As a result, any downturn in or disruption to the plastics industry or decrease in the demand for plastics could have a material adverse effect on our business, financial condition, and results of operations.
4.The Process Equipment Group derives revenues from the energy industry. Any decrease in demand for electricity, oil, natural gas, coal, and mining equipment or an increase in regulation of the energy industry could have a material adverse effect on our business, financial condition, and results of operations.
A portion of the Process Equipment Group’s sales are affected by the consumption of oil, natural gas, and coal. The demand for oil, natural gas, coal, and mining equipment is dependent upon, among other things, the availability and cost of alternative sources of energy, such as solar, wind, or nuclear power. Additionally, the cost of compliance with federal, state, and local laws and regulations on the energy industry may impact the demand for our products. As a result, any downturn in or disruption to the oil, natural gas, or coal and mining industries or decrease in the demand for electricity could have a material adverse effect on our business, financial condition, and results of operations.
Risk Related to Batesville
1.Continued fluctuations in mortality rates and increased cremations may adversely affect the sales volume of our burial caskets.
The life expectancy of U.S. citizens has increased steadily since the 1950s and is expected to continue to do so for the foreseeable future. However, we do anticipate a modest increase in deaths every year driven by the aging U.S. population.
Cremations as a percentage of total U.S. deaths have increased steadily since the 1960s and are expected to continue to increase for the foreseeable future. The increase in the number of cremations in the U.S. has resulted in a contraction in the demand for
burial caskets. This has been a contributing factor to lower burial casket sales volumes for Batesville in recent years. We expect these trends will continue in the foreseeable future and will likely continue to negatively impact burial casket volumes.
Finally, the number of deaths can vary over short periods of time and among different geographical areas due to a variety of factors, including the timing and severity of seasonal outbreaks of illnesses such as pneumonia and influenza. Such variations could cause the sale of burial caskets to fluctuate from quarter to quarter and year to year, which could have a material adverse effect on our financial condition, results of operations, and cash flows.
2.Batesville’s business is dependent on several major contracts with large national funeral providers. The relationships with these customers pose several risks.
Batesville has contracts with a number of national funeral home customers that constitute a sizeable portion of its overall sales volume. Also, while contracts with national funeral service providers give Batesville important access to purchasers of death care products, they may obligate Batesville to sell products at contracted prices for extended periods of time, therefore limiting Batesville’s ability, in the short term, to raise prices in response to significant increases in raw material prices or other factors. Any decision by national funeral home customers to discontinue or limit purchases from Batesville could have a material adverse effect on our financial condition, results of operations, and cash flows.
3.Batesville is facing competition from a number of non-traditional sources and from caskets manufactured abroad and imported into North America.
Non-traditional death care product providers, such as large discount retail stores, casket stores, and internet casket retailers could present more of a competitive threat to Batesville and its sales channel than is currently anticipated. In addition, a few foreign manufacturers, mostly from China, import caskets into the U.S. and Canada. Sales from these non-traditional and foreign providers currently represent less than 10% of total casket sales in North America, but this percentage could grow. It is not possible to quantify the financial impact that these competitors will have on Batesville in the future. These competitors and any new entrants into the funeral products business may drive pricing and other competitive actions in an industry that already has domestic production over-capacity. Such competitive developments could have a negative impact on our results of operations and cash flows.
Item 1B. UNRESOLVED STAFF COMMENTS
We have not received any comments from the staff of the SEC regarding our periodic or current reports that remain unresolved.
Item 2. PROPERTIES
Our corporate headquarters is located in Batesville, Indiana, in a facility that we own.lease. At September 30, 2017, the2023, Advanced Process Equipment GroupSolutions operated 1716 significant manufacturing facilities located in the U.S. (New Jersey,(in Kansas, Missouri, Ohio, Illinois, North Carolina and Virginia),
Germany, France, Switzerland, China, India,Canada, and the United Kingdom. NineSeven of these facilities are owned and eightnine are leased. TheAdvanced Process Equipment Group also leases or owns a number of sales offices in Europe, Asia, Canada, and South America.
At September 30, 2017, Batesville operated four significant manufacturing facilities located in Indiana, Tennessee, Mississippi, and Mexico. Three of these facilities are owned and one is leased. BatesvilleSolutions also leases or owns a number of warehouse distribution centers, service centers, and sales offices located in the U.S., Europe, Asia, Canada, and South America.
At September 30, 2023, Molding Technology Solutions operated nine significant manufacturing facilities located in the U.S. (in Ohio and Kansas), Germany, China, India, Canada, and the Czech Republic. Five of these facilities are owned and four are leased. Molding Technology Solutions also leases or owns a number of warehouse distribution centers, service centers, and sales offices located in the U.S., Mexico, Canada, Europe, Asia, and Australia.South America.
Facilities often serve multiple purposes, such as administration, sales, manufacturing, testing, warehousing, and distribution. We believe our current facilities will provide adequate capacity to meet expected demand for the next several years.
Item 3. LEGAL PROCEEDINGS
WeLike most companies, we are involved from time to time in claims, lawsuits, and government proceedings relating to our operations, including environmental, antitrust, patent infringement, business practices, commercial transactions, and other matters. We are also subject to other claims and potential claims, including those relating to product and general liability, cybersecurity and privacy matters, workers’ compensation, auto liability, employment-related, and employment-relatedother matters. The ultimate outcome of any claims, lawsuits, and proceedings cannot be predicted with certainty. We carry various forms of commercial, property and casualty, cybersecurity, product liability, and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us.us, and in most instances have deductibles and self-funded retentions up to $0.5 per occurrence or per claim, depending upon the type of coverage and policy period. It is difficult to measure the actual loss that might be incurred related to litigation, and the ultimate outcome of these claims, lawsuits, and proceedings could have a material adverse effect on our financial condition, results of operations, and cash flows.
For more information on various legal proceedings, see Note 1113 to our financial statementsConsolidated Financial Statements included in Part II, Item 8, of this Form 10-K. That information is incorporated into this Item 3 by reference.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES
Hillenbrand common stock is traded on the New York Stock Exchange under the ticker symbol “HI.” The following table reflects the quarterly range of high and low closing sales prices of our common stock for 2017 and 2016.
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | High | | Low | | High | | Low |
| First quarter | $ | 38.35 |
| | $ | 29.10 |
| | $ | 31.36 |
| | $ | 25.82 |
|
| Second quarter | $ | 38.65 |
| | $ | 35.35 |
| | $ | 29.95 |
| | $ | 24.65 |
|
| Third quarter | $ | 38.40 |
| | $ | 34.90 |
| | $ | 31.27 |
| | $ | 28.51 |
|
| Fourth quarter | $ | 39.35 |
| | $ | 35.10 |
| | $ | 32.99 |
| | $ | 29.65 |
|
As of November 10, 2017,2023, we had approximately 1,9001,502 shareholders of record.
DividendsShare Repurchases
Although we have paid cash dividends since our inception on April 1, 2008, the declaration and payment of cash dividends is at the sole discretion ofOn December 2, 2021, our Board of Directors and depends upon many factors, including our financial condition, earnings potential, capital requirements, alternative uses of cash, covenants associated with debt obligations, legal requirements, and other factors deemed relevant by the Board of Directors. We currently expect that comparable quarterly cash dividends will continue to be paid in the future. The following table provides detail on the quarterly dividends paid to shareholders for the past three years.
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| First quarter | $ | 0.2050 |
| | $ | 0.2025 |
| | $ | 0.2000 |
|
| Second quarter | $ | 0.2050 |
| | $ | 0.2025 |
| | $ | 0.2000 |
|
| Third quarter | $ | 0.2050 |
| | $ | 0.2025 |
| | $ | 0.2000 |
|
| Fourth quarter | $ | 0.2050 |
| | $ | 0.2025 |
| | $ | 0.2000 |
|
Share Repurchases
On July 24, 2008, our Board of Directors approvedauthorized a stocknew share repurchase program for the repurchase of up to $100.0 of our common stock. On February 23, 2017, our Board of Directors approved an increase of $100.0 to$300.0, which replaced the existing stockprevious $200.0 share repurchase program. The authorization brings the maximum cumulative repurchase authorization up to $200.0.program authorized on December 7, 2018. The repurchase program has no expiration date but may be terminated by the Board of Directors at any time. As of September 30, 2017, we had repurchased approximately 3,600,000 shares for approximately $99.4 in the aggregate. Such shares were classified as treasury stock. We repurchased approximately 778,000 shares of our common stock during 2017, at a total cost of approximately $28.0. No purchases of our common stock were made during the quarteryear ended September 30, 2017. At2023.
Dividend Policy
We returned $61.3 to shareholders in fiscal 2023 in the form of quarterly dividends. We increased our quarterly dividend in fiscal 2023 to $0.2200 per common share from $0.2175 per common share paid in fiscal 2022. We currently expect to pay approximately $15.6 each quarter in fiscal 2024 based on our outstanding common stock at September 30, 2017, we had approximately $100.6 remaining for share repurchases under the existing Board authorization.2023.
Item 6. SELECTED FINANCIAL DATAReserved
(in millions, except per share data):
|
| | | | | | | | | | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013(a) |
| Net revenue | $ | 1,590.2 |
| | $ | 1,538.4 |
| | $ | 1,596.8 |
| | $ | 1,667.2 |
| | $ | 1,553.4 |
|
| Gross profit | $ | 591.3 |
| | $ | 570.6 |
| | $ | 570.4 |
| | $ | 589.2 |
| | $ | 518.7 |
|
Net income(1) | $ | 126.2 |
| | $ | 112.8 |
| | $ | 111.4 |
| | $ | 109.7 |
| | $ | 63.4 |
|
| Earnings per share - basic | $ | 1.99 |
| | $ | 1.78 |
| | $ | 1.76 |
| | $ | 1.74 |
| | $ | 1.01 |
|
| Earnings per share - diluted | $ | 1.97 |
| | $ | 1.77 |
| | $ | 1.74 |
| | $ | 1.72 |
| | $ | 1.01 |
|
| Cash dividends per share | $ | 0.82 |
| | $ | 0.81 |
| | $ | 0.80 |
| | $ | 0.79 |
| | $ | 0.78 |
|
| Total assets | $ | 1,956.5 |
| | $ | 1,959.7 |
| | $ | 1,808.1 |
| | $ | 1,918.5 |
| | $ | 2,003.2 |
|
| Long-term obligations | $ | 678.9 |
| | $ | 879.8 |
| | $ | 798.1 |
| | $ | 833.6 |
| | $ | 961.4 |
|
| Cash flows provided by operating activities | $ | 246.2 |
| | $ | 238.2 |
| | $ | 105.0 |
| | $ | 179.6 |
| | $ | 127.2 |
|
| Cash flows used in investing activities | $ | (13.5 | ) | | $ | (253.5 | ) | | $ | (29.5 | ) | | $ | (8.3 | ) | | $ | (441.0 | ) |
| Cash flows provided by (used in) financing activities | $ | (215.1 | ) | | $ | 21.6 |
| | $ | (83.2 | ) | | $ | (155.5 | ) | | $ | 336.5 |
|
| Capital expenditures | $ | 22.0 |
| | $ | 21.2 |
| | $ | 31.0 |
| | $ | 23.6 |
| | $ | 29.9 |
|
| Depreciation and amortization | $ | 56.6 |
| | $ | 60.4 |
| | $ | 54.3 |
| | $ | 58.4 |
| | $ | 89.4 |
|
27
(1) Net income attributable to Hillenbrand
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(dollar amountsdollars in millions throughout Management’s Discussion and Analysis)Analysis of Financial Condition and Results of Operations)
(unless otherwise stated, references to years relate to fiscal years)
The following discussion compares our results for the year ended September 30, 2017,2023, to the year ended September 30, 2016, and also compares2022. The discussion comparing our results for the year ended September 30, 2016,2022, to the year ended September 30, 2015. Unless otherwise stated, references to years relate to fiscal years.2021, is included within Management’s Discussion and Analysis of Financial Condition and Results of Operation in our Annual Report on Form 10-K for the year ended September 30, 2022, filed with the SEC on November 16, 2022. We begin the discussion at a consolidated level and then provide separate detail about theAdvanced Process Equipment Group, Batesville,Solutions and Molding Technology Solutions reportable operating segments, as well as Corporate. These financial results are prepared in accordance with accounting principlesUnited States (“U.S.”) generally accepted in the U.S.accounting principles (“GAAP”).
We also provide certain non-GAAP operating performance measures. These non-GAAP measures are referred to as “adjusted” measures and primarily exclude expenses associated with backlog intangible amortization, the following items:
•business acquisitions, divestiture, and integration costs;
•restructuring and restructuring-related charges;
•impairment charges;
•inventory step-up business acquisitioncosts related to acquisitions;
•gains and integration, restructuring and restructuring related charges, a pension settlement charge, trade name impairment, and certain litigation costs. Thelosses on divestitures;
•the related income tax impact for all of these items is also excluded. This non-GAAPitems; and
•the revaluation of deferred tax balances resulting from fluctuations in currency exchange rates and non-routine changes in tax rates for certain foreign jurisdictions, and the impact that the Molding Technology Solutions reportable operating segment’s loss carryforward attributes have on tax provisions related to the imposition of tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries, the Foreign Derived Intangible Income Deduction (“FDII”), and the Base Erosion and Anti-Abuse Tax (“BEAT”).
Non-GAAP information is provided as a supplement to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.
We use this non-GAAP information internally to make operating decisions and believe it is helpful to investors because it allows more meaningful period-to-period comparisons of our ongoing operating results. The information can also be used to perform trend analysis and to better identify operating trends that may otherwise be masked or distorted by these types ofitems such as the above excluded items. We believe this information provides a higher degree of transparency.
An important non-GAAP measure that we use is adjusted earnings before interest, income tax, depreciation, and amortization (“adjusted EBITDA”). A part of Hillenbrand’s strategy is to selectively acquire companies that we believe can benefit from the Hillenbrand Operating Model (“HOM”) to spur faster and more profitable growth. Given that strategy, it is a natural consequence to incur related expenses, such as amortization from acquired intangible assets and additional interest expense from debt-funded acquisitions. Accordingly, we use adjusted EBITDA, among other measures, to monitor our business performance.
Another important non-GAAP operational measure used is backlog. Backlog Adjusted EBITDA is not a recognized term recognized under GAAP; however, it is a common measurement used in industries with extended lead times for order fulfillment (long-term contracts), like those in which our Process Equipment Group competes. Order backlog represents the amount of consolidated revenue that we expect
GAAP and therefore does not purport to realize on contracts awarded to the Process Equipment Group. For purposes of calculating backlog, 100% of estimated revenue attributablebe an alternative to consolidated subsidiaries is included. Backlog includes expected revenue from large systems and equipment, as well as replacement parts, components, and service. The lengthnet income. Further, the Company’s measure of time that projects remain in backlog can span from days for replacement parts or serviceadjusted EBITDA may not be comparable to approximately 18 months for larger system sales. Backlog includes expected revenue from the remaining portionsimilarly titled measures of firm orders not yet completed, as well as revenue from change orders to the extent that they are reasonably expected to be realized. We include in backlog the full contract award, including awards subject to further customer approvals, which we expect to result in revenue in future periods. In accordance with industry practice, our contracts may include provisions for cancellation, termination or suspension at the discretion of the customer.other companies.
We expect that future net revenue associated with the Process Equipment Groupour reportable operating segments will be influenced by order backlog because of the lead time involved in fulfilling engineered-to-order equipment and solutions for customers. Although backlog can be an indicator of future net revenue, it does not include projects and aftermarket parts orders that are booked and shipped within the same quarter. The timing of order placement, size, extent of customization, and customer delivery dates can create fluctuations in backlog and net revenue. RevenueNet revenue attributable to backlog may also be affected by foreign exchange fluctuations for orders denominated in currencies other than U.S. dollars.
We calculate the foreign currency impact on net revenue, gross profit, and operating expenses, consolidated net income and consolidated adjusted EBITDA, in order to better measure the comparability of results between periods. We calculate the foreign currency impact by translating current year results at prior year foreign exchange rates. This information is provided because exchange rates can distort the underlying change in sales,these metrics, either positively or negatively. The cost structures
for Corporate and Batesville areis generally not significantly impacted by the fluctuation in foreign exchange rates, and we do not disclose the foreign currency impact in the Operations Review below where the impact is not significant.
Another important operational measure used is backlog. Backlog is not a term recognized under GAAP; however, it is a common measurement used in industries with extended lead times for order fulfillment (long-term contracts), like those in which our reportable operating segments compete. Backlog represents the amount of net revenue that we expect to realize on contracts awarded to our reportable operating segments. For purposes of calculating backlog, 100% of estimated net revenue attributable to consolidated subsidiaries is included. Backlog includes expected net revenue from large systems and equipment, as well as aftermarket parts, components, and service. The length of time that projects remain in backlog can span from days for aftermarket parts or service to approximately 18 to 24 months for larger system sales within the Advanced Process Solutions reportable operating segment. The majority of the backlog within the Molding Technology Solutions reportable operating segment is expected to be fulfilled within the next twelve months. Backlog includes expected net revenue from the remaining portion of firm orders not yet completed, as well as net revenue from change orders to the extent that they are reasonably expected to be realized. We include in backlog the full contract award, including awards subject to further customer approvals, which we expect to result in net revenue in future periods. In accordance with industry practice, our contracts may include provisions for cancellation, termination, or suspension at the discretion of the customer.
See page 3140 for reconciliation of adjusted EBITDA to consolidated net income, the most directly comparable GAAP measure. We use non-GAAP measures in certain other instances and include information reconciling such non-GAAP measures to the respective most directly comparable GAAP measures. Given that therebacklog is no GAAP financialan operational measure comparable toand that the Company’s methodology for calculating backlog does not meet the definition of a non-GAAP measure, as that term is defined by the SEC, a quantitative reconciliation is not required or provided.
CRITICAL ACCOUNTING ESTIMATES
Our financial results are affected by the selection and application of accounting policies and methods. Significant accounting policies which require management’s judgment are discussed below. A detailed description of our accounting policies is included in the notesNotes to our financial statementsConsolidated Financial Statements included in Part II, Item 8, of this Form 10-K.
Revenue Recognition —
Net revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services and is recognized when performance obligations are satisfied under the terms of contracts with customers.
A performance obligation is deemed to be satisfied by the Company when control of the product or service is transferred to the customer. The transaction price of a contract, or the amount the Company expects to receive upon satisfaction of the performance obligation, is determined by reference to the contract’s terms and includes gross revenue lessadjustments, if applicable, for any variable consideration, such as sales discounts customer rebates,and sales incentives, and product returns, all of which require us to make estimates for the portion of these allowances that have yet to be credited or paid to our customers. We estimate these allowances using the expected value method, which is based upon historical rates and projections of customer purchases toward contractual rebate or incentive thresholds.
A portion of Hillenbrand’s revenue If a contract contains more than one distinct performance obligation, the transaction price is derived from long-term manufacturing contracts. The majority of this revenue is recognizedallocated to each performance obligation based on the percentage-of-completion method. Under this method,standalone selling price of each performance obligation; however, these situations do not occur frequently and are not material to the Consolidated Financial Statements, as our contracts generally include one performance obligation for the transfer of goods or services.
The timing of revenue recognition for the contract’s performance obligation is recognized basedeither over time or at a point in time. We recognize revenue over time for contracts that have an enforceable right to collect payment for performance completed to date upon customer cancellation and provide one or more of the costs incurredfollowing: (i) service over a period of time, (ii) highly customized equipment, or (iii) parts which are highly engineered and have no alternative use. Net revenue generated from standard equipment and highly customized equipment or parts contracts without an enforceable right to payment for performance completed to date, as comparedwell as net revenue from non-specialized parts sales, is recognized at a point in time.
We use the input method of “cost-to-cost” to the total estimated project costs. Approximately 25%, 24%, and 25% of Hillenbrand’srecognize net revenue was attributable to these long-term manufacturing contracts for 2017, 2016, and 2015.
over time. Accounting for these contracts involves management judgment in estimating total contract revenue and cost. Contract revenues arerevenue is largely determined by negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders, and incentive and award provisions associated with technical performance clauses. Contract costs are incurred over longer periods of time and, accordingly, the estimation of these costs requires management judgment. We measure progress based on costs incurred to date relative to total estimated cost at completion. Incurred cost represents work performed, which corresponds with, and we believe thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, and certain overhead expenses. Cost
estimates are largely based on negotiated or estimated purchase contract terms, historicalvarious 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 trends,of suppliers and other economic projections.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. RevenueNet 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. We maintain financial controls over the customer qualification, contract pricing, and estimation processes designed to reduce the risk of contract losses.
Revenue for components, most replacement parts, andStandalone service net revenue is recognized when title and risk of loss passes toeither over time proportionately over the customer.
Performance-Based Stock Compensation — The vesting of a portion of our performance-based stock awards is contingent upon the creation of shareholder value as measured by the cumulative cash returns and final period net operating profit after tax
compared to the established hurdle rate over a three-year period. The hurdle rate is a reflection of the weighted-average cost of capital and targeted capital structure. Based on the extent to which the performance criteria are achieved, it is possible for none of the awards to vestunderlying contract or for a range up to the maximum to vest, which is reflected in the performance-based stock award table in Note 9 to our financial statements included in Part II, Item 8, of this Form 10-K. We record 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 and its business units is evaluated quarterly, and the expense is adjusted according to the new projection if it has changed significantly. As a result,as invoiced, depending on the degree to which performance criteria are achieved or our projections change, our expenses relatedterms of the arrangement. Standalone service revenue is not material to the performance-based stock awards may become more volatile as we approach the final performance measurement date at the end of the three years. This increase in volatility stems from the requirement to increase or reduce compensation expense as the projection of performance changes. Thus, any one period’s financial results could be significantly affected by the cumulative effect of the adjustment. Preparing the projection of performance requires us to exercise significant judgment as to the expected outcome of final performance up to three years in the future. In making the projection, we consider both actual results and probable business plans for the future. At September 30, 2017, we have recorded cumulative compensation expense associated with unvested shareholder value performance-based stock awards of approximately $2.4, which continues to be subject to periodic adjustments as the related awards approach their final performance measurement dates.Company.
Retirement and PostretirementBenefit Plans —
We sponsor retirement and postretirement benefit plans covering some of our employees. Expense recognized for the plans is based upon actuarial valuations. Inherent in those valuations are key assumptions including discount rates, expected returns on assets, and projected future salary rates. The actuarial assumptions we use may differ significantly from actual results due to changing economic conditions, participant life span, and withdrawal rates. These differences may result in a material impact to the amount of net periodic pension expense to be recorded in our financial statements in the future. The discount rates used in the valuation of our defined benefit pension and postretirementretirement benefit plans are evaluated annually based on current market conditions. Prior to 2016, we estimated the service and interest cost components using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Beginning in fiscal 2016, we elected toWe use a full yield curve approach in the estimation of thesethe service and interest cost components of our defined benefit cost.retirement plans. Under this approach, we applied discounting using individual spot rates from a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date. These spot rates align to each of the projected benefit obligations and service cost cash flows. The service cost component relates to the active participants in the plan,plans, 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 projected yield curve scenario), or gains and losses merely resulting from the timing and magnitude of cash outflows associated with our benefit obligations.
We elected to use the full yield curve approach since 2016 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 costs. This change did not affect the measurement of our total benefit obligations as the change in the service cost and interest cost was completely offset in the actuarial (gain) loss reported. We accounted for this change as a change in estimate and have accounted for it prospectively starting in fiscal 2016.
Our overall expected long-term rate of return on pension assets 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. Our rate of assumed compensation increase for pension benefits is also based on our specific historical trends of past wage adjustments in recent years and expectations for the future.
Changes in retirement and postretirement benefit expensecost and the recognized obligations may occur in the future as a result of a number of factors, including changes to key assumptions such as the weighted-average expected long-term rate of return on pension assets and the weighted-average discount rate. Our weighted-average expected long-term rate of return on domestic and international pension plan assets was 5.2%, 4.9%,4.8% and 5.9% 4.7% at the end of 2017, 2016,September 30, 2023 and 2015.2022, respectively. The weighted-average discount rate at the end of 2017 was 2.9%was 4.9% and 4.6% for the domestic and international defined benefit pension plans at September 30, 2023 and 3.3% for the postretirement healthcare plan.2022, respectively. A 50 basis-point change in the expected long-term rate of return on domestic and international pension plan assets would change annual net periodic pension expensecost by $1.4.$1.5. A 50 basis-point change in the weighted-average discount rate would change the annual domestic and internationalnet periodic pension expensecost by $2.1 and the annual postretirement healthcare plan expense by less than $0.1. $0.2.Impacts from assumption changes could be positive or negative depending on the direction of the change in rates. Based upon rates and assumptions at September 30, 2017, we expect the aggregate expense associated with our defined benefit and postretirement plans to decrease from $6.4 in 2017 to $3.6 in 2018. The expected decrease in expense is primarily due to transitioning certain employees covered by our defined benefit pension plans to a defined contribution structure as discussed below.
During 2017, we began implementing a plan to transition our U.S. employees not covered by a collective bargaining agreement and our employees covered by collective bargaining agreements at two of our U.S. facilities from a defined benefit-based model to a defined contribution structure over a three-year sunset period. This change caused remeasurement events for the U.S. defined benefit pension plan for the affected populations. The remeasurements did not cause a material change as the assumptions did not materially differ from the assumptions at September, 30, 2016.
See Note 58 to our financial statementsConsolidated Financial Statements included in Part II, Item 8, of this Form 10-K, for key assumptions and other information regarding our retirement and postretirement benefit plans.
Uncertain Income Tax Positions — In assessing
Asset Impairment Determinations
Impairment of goodwill and intangible assets
Goodwill and other intangible assets with indefinite lives, primarily tradenames, are tested for impairment at least annually and upon the need for reserves for uncertain tax positions,occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value may be below carrying value.
Impairment of goodwill is tested at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment if discrete financial information is prepared and regularly reviewed by operating segment management. For the purpose of the goodwill impairment test, the Company can elect to perform a quantitative or qualitative analysis. If the qualitative test is elected, qualitative factors are assessed to determine whether it is more likely than not that the fair values of its reporting units are less than the respective carrying values of those reporting units. Such factors we make judgments regardingconsider in a qualitative
analysis include, but are not limited to, macroeconomic conditions, industry and market considerations, cost factors, Company-specific events, events affecting the technical meritreporting unit, and the overall financial performance of the reporting unit. If after performing the qualitative analysis, the Company determines that it is more likely than not that the fair value of a tax positionreporting unit is less than its carrying value, then the Company must perform the quantitative goodwill impairment test.
If we elect to perform or are required to perform a quantitative analysis, we compare the carrying amount of the reporting unit’s net assets, including goodwill, to the fair value of the reporting unit. If the fair value exceeds the carrying value, no further evaluation is required, and no impairment loss is recognized. If the carrying value exceeds the fair value, an impairment charge is recognized for the difference between carrying amount and fair value, not to exceed the original amount of goodwill.
In determining the estimated fair value of the reporting units when necessary,performing a quantitative analysis, we consider both the market approach and the income approach. For purposes of the goodwill impairment test, weighting is equally attributed to both the market and income approaches in arriving at the fair value of the reporting units.
Under the market approach, we utilize the guideline company method, which involves calculating valuation multiples based on financial data from comparable publicly traded companies. Multiples derived from these companies provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. These multiples are then applied to the financial data for our reporting units to arrive at an indication of value.
Under the income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows utilizing a market-based weighted-average cost of capital determined separately for each reporting unit.
To determine the reasonableness of the calculated fair values of our reporting units, the Company reviews the assumptions described below to ensure that neither the market approach nor the income approach yields significantly different valuations. We selected these valuation approaches because we believe the combination of these approaches, along with our best judgment regarding underlying assumptions and estimates, provides us with the best estimate of fair value of our reporting units. We believe these valuation approaches are appropriate for the settlement amountindustry and widely accepted by investors.
Determining the fair value of a reporting unit requires us 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 rates or future cash flow projections, could result in significantly different estimates of the fair values. As a result of these factors and the limited cushion (or headroom, as commonly referred) due to the acquisition of Milacron in fiscal 2020 and the impact of macroeconomic conditions, goodwill for the reporting units within the Molding Technology Solutions reportable operating segment generally are more susceptible to impairment risk.
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 (6.5-11.0 times adjusted EBITDA), discount rates (12.5-16.0%), and terminal growth rates (2.0%), as well as future levels of revenue growth, adjusted EBITDA, and working capital requirements, which are based upon the probabilityCompany’s strategic plan. Hillenbrand’s strategic plan is updated as part of its annual planning process and is reviewed and approved by management and the outcome. At September 30, 2017, we had reservesBoard of $9.9 established for uncertain tax positionsDirectors. The strategic plan may be revised as necessary during a fiscal year, based upon our estimates. Our ability to make and update these estimates is limited to the information we have at any given pointon changes in time. This information can include how taxing authorities have treated the positionmarket conditions or other changes in the past, how similar cases have settled,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, volatility in the equity and debt markets or where we areother factors. While the Company can implement and has implemented certain strategies to address these events, changes in discussionsoperating plans or negotiations with taxing authorities on a particular issue, among others. As information availableadverse changes in the future could reduce the underlying cash flows used to us evolves, we update our reserves quarterly. These updates can result in volatility to our income tax rate (particularly in a given quarter) if new information or developmentsestimate reporting unit fair values and could result in a significant changefurther 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 and conservative. 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.
Similar to goodwill, the Company can elect to perform the annual impairment test for indefinite-lived intangibles other than goodwill (primarily trade names) using a qualitative analysis, considering similar factors as outlined in the goodwill discussion in order to determine if it is more likely than not that the fair values of the trade names are less than the respective carrying values. If we elect to perform or are required to perform a quantitative analysis, the test consists of a comparison of the fair
value of the indefinite-lived intangible asset to the carrying value of the asset as of the impairment testing date. We estimate the fair value of indefinite-lived intangible assets using the relief-from-royalty method, which we believe is an appropriate and widely used valuation technique for such assets. The fair value derived from the relief-from-royalty method is measured as the discounted cash flow savings realized from owning such trade names and not being required to pay a royalty for their use. The royalty rates utilized by the Company range from 0.5% to 3.0%.
Annual impairment assessment
The Company performed its annual July 1 goodwill impairment assessment during the fourth quarter of fiscal 2023 for all reporting units. For all reporting units, the fair value of the reporting unit was determined to exceed the carrying value, resulting in no impairment to goodwill as part of this test. As a result of the Milacron acquisition in fiscal 2020 and the impact of macroeconomic headwinds, 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, 2023, for the three reporting units within the Molding Technology Solutions reportable operating segment ranged from approximately 10% to 28% greater than their carrying value (13% to 54% at the previous impairment assessment date).
Impairment of long-lived assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. 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 allowance which would offset the original carrying value of disposal group. This valuation allowance would be adjusted based on subsequent changes in our estimate.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.
During the fourth quarter of 2021, the Company recognized a non-cash valuation adjustment of $11.2 to recognize TerraSource at fair value less estimated cost to sell based on the definitive agreement the Company entered into to sell TerraSource. The non-cash charge of $11.2 for the year ended September 30, 2021, was recorded within the impairment charges caption on the Consolidated Statements of Operations. For further information, see Note 4 to our Consolidated Financial Statements included in Part II, Item 8, of this Form 10-K.
For assets held and used, impairment may occur if projected undiscounted cash flows do not exceed the carrying value of the assets. In such cases, additional analysis is conducted to determine the amount of loss to be recognized, and the impairment loss is determined as the amount the carrying value of the asset or asset group exceeds the estimated fair value, measured by future discounted cash flows. The analysis requires estimates of the amount and timing of projected cash flows and, where applicable, judgment associated with, among other factors, the appropriate discount rate. 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. Our judgment regarding the existence of circumstances that indicate the potential impairment of an asset’s carrying value is based on several factors, including, but not limited to, changes in business environment, a decline in operating cash flows or a decision to close a manufacturing facility. The variability of these factors depends on a number of conditions, including uncertainty about future events and general economic conditions.
Business Combinations —
Estimating fair value for acquired assets and liabilities as part of a business combination typically requires us to exercise judgment, particularly for those assets and liabilities that may be unique or not easily determined by reference to market data. Often estimates for these types of acquired assets and liabilities will be developed using valuation models that require both historical and forecasted inputs, as well as market participant expectations. Thus, the valuation is directly affected by the inputs we judge as best under the given circumstances. When material, we expect to seekutilize the assistance of competent valuation professionals when the underlying valuation is more complex or unique.
We anticipate that in In most cases, if material, we will exercise significant judgment in estimating the fair value of identifiable intangible assets, contingent liabilities, and contingent consideration.property, plant, and equipment. This list is not exhaustive, but is designed to give you a better understanding of where we think a larger degree of judgment will be required due to the nature of the item and the way it is typically valued.
Asset Impairment Determinations — Goodwill and other intangible assets with indefinite lives, primarily trade names, are not amortized; rather, they are tested for impairment at least annually and upon
The Company makes an initial allocation of the occurrence of certain triggering events or substantive changes in circumstances that indicate that the fair value may be impaired.
Impairment of goodwill is testedpurchase price at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment. For the purposedate of the goodwill impairment test, the Company can elect to perform a qualitative analysis to determine if it is more likely than not that the fair values of its reporting units are less than the respective carrying values of those reporting units. Such factors we consider in a qualitative analysis include, but are not limited to, macroeconomic conditions, industry and market considerations, cost factors, entity-specific events, events affecting the reporting unit, and the overall financial performance of the reporting unit.
If we elect to perform or are required to perform a quantitative analysis, the first step is to compare the carrying amount of the reporting unit’s net assets, including goodwill, to the fair value of the reporting unit. If the fair value exceeds the carrying value, no further evaluation is required and no impairment loss is recognized. If the carrying amount exceeds the fair value, then a second step must be completed, which involves allocating the fair value of the reporting unit to each asset and liability, with the excess being implied goodwill. An impairment loss occurs if the amount of the recorded goodwill exceeds the implied goodwill.
In determining the estimated fair value of the reporting units when performing a quantitative analysis, we consider both the market approach and the income approach. Weighting is equally attributed to both the market and income approaches in arriving at the fair value of the reporting units.
Under the market approach, we utilize the guideline company method, which involves calculating valuation multiples based on operating data from comparable publicly traded companies. Multiples derived from these companies provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. These multiples are then applied to the operating data for our reporting units to arrive at an indication of value.
Under the income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows utilizing a market-based weighted-average cost of capital determined separately for each reporting unit.
To determine the reasonableness of the calculated fair values of our reporting units, the Company reviews the assumptions described below to ensure that neither the market approach nor the income approach yields significantly different valuations. We selected these valuation approaches because we believe the combination of these approaches, along with our best judgment regarding underlying assumptions and estimates, provides us with the best estimate of fair value of our reporting units. We believe these valuation approaches are appropriate for the industry and widely accepted by investors.
Determining the fair value of a reporting unit requires us to make significant judgments, estimates, and assumptions. While we believe that the estimates and assumptions underlying our valuation methodology are reasonable, these estimates and assumptions could have a significant impact on whether an impairment charge is recognized and also on the magnitude of any such charge. The results of an impairment analysis are as of a point in time. There is no assurance that actual future earnings or cash flows of our reporting units will not decline significantly from our projections. We will monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.
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 market data and market multiples (7.5-14.5 times adjusted EBITDA), discount rates (10.1-12.5%), and terminal growth rates (2.5-3.0%) as well as future levels of revenue growth, operating margins, depreciation, amortization, and working capital requirements, which areacquisition based upon the Company’s strategic plan. Hillenbrand’s strategic plan is updated as part of its annual planning process and is reviewed and approved by management and the Board of Directors. 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.
Although there are always changes in assumptions to reflect changing business and market conditions, our overall valuation methodology and the types of assumptions we used 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.
We performed our required impairment tests in 2017 and determined that the goodwill allocated to our reporting units was not impaired. The fair value of the reporting unit in the Process Equipment Group segment that is most directly impacted by demand in domestic coal mining and coal power exceeded its carrying value by less than 10%. The carrying value of goodwill at September 30, 2017 for this reporting unit was $71.3. The Company performed a sensitivity analysis on this reporting unit relative to the discount rate and long-term growth rate selected and determined a one percentage point decrease in the terminal growth rate or a one percentage point increase in the discount rate would not result in a fair value calculation less than the carrying value. In the event that the assumptions used (e.g., order backlog, revenue and profit growth rates, discount rate, industry valuation multiples) for this reporting unit are not consistent with actual performance in 2018, we may be required to perform an interim impairment analysis with respect to the carrying value of goodwill for this reporting unit prior to our annual test, and based on the outcome of that analysis, could be required to take a non-cash impairment charge as a result of any such test.
Similar to goodwill, the Company can elect to perform the impairment test for indefinite-lived intangibles other than goodwill (primarily trade names) using a qualitative analysis, considering similar factors as outlined in the goodwill discussion, to determine if it is more likely than not that the fair values of the trade names are less than the respective carrying values. If we elect to perform or are required to perform a quantitative analysis, the test consists of a comparisonunderstanding of the fair value of the indefinite-livedacquired assets, including identifiable intangible assets, and assumed liabilities. We obtain this information during due diligence and through other sources. In the months after closing, as we obtain additional information about these assets and liabilities, including through tangible asset appraisals, and learn more about the newly acquired business, we are able to refine the carrying valueestimates of the asset as of the impairment testing date. We estimate the fair value and more accurately allocate the purchase price. The determination of indefinite-lived intangibles usingidentifiable intangible assets is subjective and generally requires complex valuation methodologies including the relief-from-royaltyrelief from royalty method and multi-period excess earnings method, for which we believe isgenerally use a widely usedthird-party valuation technique for such assets.specialist. The fair value derived from the relief-from-royalty method is measured as the discounted cash flow savings realized from owning such trade names and not being required to pay a royalty for their use.
In 2016, the Company recorded a trade name impairment charge of $2.2 on two trade names related to the Process Equipment Group segment. The decline in the estimated fair value of these trade names was largely driven by the decreased demand for equipment and parts used in coal mining and coal power. As of September 30, 2017, we had approximately $13 of trade name book value in the Process Equipment Group segment’s reporting units most significantlyidentifiable intangible assets are impacted by demand for coal mininga number of judgmental assumptions including future revenue growth rates and coal power. EBITDA margins on such revenue, customer attrition rates, and the discount rates.
See Note 25 to our financial statementsConsolidated Financial Statements included in Part II, Item 8, of this Form 10-K, for morefurther information on our trade names. There can be no assurance that goodwill or indefinite-lived intangibles impairment will not occur in the future.recent business combinations.
EXECUTIVE OVERVIEW
Hillenbrand (www.Hillenbrand.com) is a global diversified industrial company with multiple market-leadingthat provides highly-engineered processing equipment and solutions to customers around the world. Our portfolio is composed of leading industrial brands that serve a wide variety of industries around the world. large, attractive end markets, including durable plastics, food, and recycling. Guided by our Purpose, Shape What Matters For Tomorrow™, we pursue excellence, collaboration, and innovation to shape solutions that best serve our people, our customers, and our communities. Customers choose Hillenbrand due to our reputation for designing, manufacturing, and servicing highly-engineered, mission-critical equipment and solutions that meet their unique and complex processing requirements.
Hillenbrand’s portfolio is composed of two businessreportable operating segments: Advanced Process Solutions and Molding Technology Solutions. Advanced Process Solutions is a leading global provider of highly-engineered process and material handling equipment, systems, and aftermarket parts and services for a variety of industries, including durable plastics, food, and recycling. Key technologies within the Advanced Process Equipment GroupSolutions portfolio include compounding, extrusion, material handling, conveying, mixing, ingredient automation, portion process, and Batesville®. The Process Equipment Group businesses design, develop, manufacture,screening and separating equipment. Molding Technology Solutions is a global leader in highly-engineered equipment, systems, and aftermarket parts and service highly engineered industrialfor the plastic technology processing industry. Molding Technology Solutions has a comprehensive product portfolio that includes injection molding and extrusion equipment, aroundhot runner systems, process control systems, mold bases and components, and maintenance, repair, and operating (“MRO”) supplies. These reportable operating segments are characterized by well-known brands that are recognized for technological capabilities and process expertise that can be shared across the world. Batesville isreportable operating segments to serve customers globally. These reportable operating segments address macro trends supported by a recognized leadergrowing middle class driving demand for plastics in the North American death care industry. a variety of applications, such as construction, food safety, and recycling.
WeGuided by our Purpose, Shape What Matters for Tomorrow, we strive 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 deploymentthe execution of the HOM. The HOM is a consistentour profitable growth strategy. We aim to deliver sustainable revenue expansion, profit growth, and repeatable framework designed to produce sustainablesubstantial free cash flow through our world-class products, solutions, and predictable results. The HOM describes our mission, vision, values and mindset as leaders; applies our management practices in Strategy Management, Segmentation, Lean, Talent Development, and Acquisitions; and prescribes three steps (Understand, Focus, and Grow) designedto make our businesses both bigger and better. Our goal is to continue developing Hillenbrand as a world-class global diversified industrial companyservice, drive continuous improvement through the deployment of the HOM.Hillenbrand Operating Model (“HOM”), and effectively deploy our cash flow to maximize shareholder value creation.
Our strategy isDuring the year ended September 30, 2023, the following operational decisions and economic developments had an impact on our current and may impact our future cash flows, consolidated results of operations, and financial position.
Supply Chain and Inflation
While global supply chains have recently suffered from various headwinds, those supporting our products have generally remained intact, providing access to leveragesufficient inventory of the key materials needed for manufacturing. We have experienced significant delays in certain raw materials and components, but we have largely been able to mitigate the impact of these delays on our historically strong financial foundationconsolidated results of operations. We continue to identify and qualify alternative sources to mitigate risk associated with single or sole sources of supply, and we may choose to purchase certain materials in safety stock where we have supply chain continuity concerns. We have experienced, and it remains possible that we may experience interruptions to our supply chains, and such an interruption could materially affect our ability to timely manufacture and distribute our products and could also have a significant impact on the Company’s consolidated net revenue, results of operations, and cash flows during fiscal 2024 and beyond.
We also experienced material and supply chain inflation during fiscal 2023, as further discussed in our Operations Review. Pricing actions and supply chain productivity initiatives have mitigated and are expected to continue to mitigate some of these
inflationary pressures, but we may not be successful in fully offsetting these incremental costs, which could have a significant impact on the Company’s consolidated results of operations, and cash flows during fiscal 2024 and beyond.
For additional information regarding labor, supply chain, and other risks, see Item 1A of this Form 10-K.
Divestitures
Divestiture of Batesville
As previously described, on February 1, 2023, the Company completed the divestiture of its historical Batesville reportable operating segment to BL Memorial Partners, LLC, a Delaware limited liability company owned by funds affiliated with LongRange Capital, L.P., for $761.5, subject to closing adjustments, and including an $11.5 subordinated note. At closing, after the applicable adjustments, the Company received $698.0 in pre-tax cash proceeds, including an adjustment for cash on hand acquired from the Company, and the HOMpreviously mentioned subordinated note. The Company recognized a $586.0 pre-tax gain on divestiture, recorded within gain on divestiture of discontinued operations (net of income tax expense) in the Consolidated Statement of Operations for the year ended September 30, 2023.
This divestiture represented a strategic shift in Hillenbrand’s business and qualified as a discontinued operation. Unless otherwise noted, amounts presented in Management’s Discussion and Analysis are for continuing operations only.
Subsequent to deliver sustainable profit growth, revenue expansionthe completion of the divestiture, the Company began providing certain transition services to Batesville for applicable fees which are not material to the Company. The transition services are expected to vary in duration depending upon the type of service provided.
Divestiture of TerraSource
On October 22, 2021, the Company completed the divestiture of TerraSource pursuant to a Contribution Agreement (“Agreement”) between the Company and substantial freecertain affiliated companies of industrial holding company Right Lane Industries (“RLI”). Under the terms of the Agreement, Hillenbrand contributed TerraSource and its subsidiaries to a newly formed entity, TerraSource Holdings, LLC (“Holdings”), with RLI obtaining majority ownership and full operational control of TerraSource. In exchange for contributing the TerraSource business, the Company received consideration in the form of a five-year note with initial principal amount of $25.6, subject to certain adjustments, and an April 2028 maturity date, and also retained a 49% equity interest in Holdings through one of the Company’s indirect wholly-owned subsidiaries, which became an approximately 46% interest in connection with the January 2023 amendment to the five-year note. The fair value of the total consideration received by the Company was $27.7.
As a result of the TerraSource divestiture, the Company recorded a pre-tax loss of $3.1, after post-closing adjustments, in the Consolidated Statement of Operations during the year ended September 30, 2022. The Company incurred $0.4 of transaction costs associated with the divestiture during the year ended September 30, 2022, which were recorded within operating expenses in the Consolidated Statement of Operations. TerraSource’s results of operations were included within the Advanced Process Solutions reportable operating segment until the completion of the divestiture on October 22, 2021. Subsequent to the divestiture, the Company’s equity interest in Holdings is accounted for under the equity method of accounting as prescribed by Generally Accepted Accounting Principles (“GAAP”).
Acquisitions
Acquisition of Schenck Process Food and Performance Materials Business
On September 1, 2023, the Company completed the acquisition of the Schenck Process Food and Performance Materials (“FPM”) business, a portfolio company of Blackstone, for total aggregate consideration of $748.7, net of certain customary post-closing adjustments, and including cash flowacquired, using available borrowings under its multi-currency revolving credit facility (the “Facility”). Headquartered in Kansas City, Missouri, FPM specializes in the design, manufacturing, and then reinvest available cash in new growth initiativesservice of feeding, filtration, baking, and material handling technologies and systems that are focused on building leadership positionshighly complementary to the equipment and solutions offered in our core marketsAdvanced Process Solutions reportable operating segment. The results of FPM since the date of acquisition are included in the Advanced Process Solutions reportable operating segment.
Acquisition of Peerless Food Equipment
On December 1, 2022, the Company completed the acquisition of the Peerless Food Equipment division (“Peerless”) of Illinois Tool Works Inc. for a purchase price of $59.2, net of certain customary post-closing adjustments and near adjacencies, both organicallyincluding cash acquired, using available borrowings under the Facility. Headquartered in Sidney, Ohio, Peerless is a premier supplier of industrial food processing equipment. The equipment and inorganically,solutions offered by Peerless are highly complementary to those offered by the Linxis brands. The results of Peerless since the date of acquisition are included in orderthe Advanced Process Solutions reportable operating segment.
Acquisition of LINXIS Group SAS
On October 6, 2022, the Company completed the acquisition of LINXIS Group SAS (“Linxis”) from IBERIS INTERNATIONAL S.À R.L, an affiliate of IK Partners, and additional sellers (collectively, the “Sellers”). As a result of the acquisition, the Company acquired from the Sellers all of the issued and outstanding securities of Linxis, and Linxis became a wholly owned subsidiary of the Company for total aggregate consideration of $590.8 (€596.2) in cash, reflecting an approximate enterprise value of $566.8 (€572.0) plus cash acquired at closing, subject to create shareholder value.post-closing adjustments. The Company used available borrowings under the Facility to fund this acquisition.
Linxis has six market-leading brands – Bakon, Diosna, Shaffer, Shick Esteve, Unifiller, and VMI – that serve customers in over 100 countries. With a global manufacturing, sales, and service footprint, Linxis specializes in design, manufacturing, and service of dosing, kneading, mixing, granulating, drying, and coating technologies. The results of Linxis since the date of acquisition are included in the Advanced Process Solutions reportable operating segment.
Acquisition of Herbold Meckesheim GmbH
On August 31, 2022, the Company completed the acquisition of Herbold Meckesheim GmbH (“Herbold”) for $77.7 (€77.5) in cash, pursuant to a definitive acquisition agreement dated June 30, 2022. Based in Meckesheim, Germany, Herbold is a leader in recycling systems, specializing in key process steps such as washing, separating, drying, shredding, and pulverizing. The results of Herbold since the date of acquisition are included in the Advanced Process Solutions reportable operating segment.
Acquisition of Gabler Engineering GmbH
On June 30, 2022, the Company completed the acquisition of Gabler Engineering GmbH (“Gabler”) for $12.9 (€12.6) in cash, which was funded with cash on hand. Gabler, based in Malsch, Germany, specializes in the design, engineering, manufacturing, and implementation of plants and equipment for the confectionery and pharmaceutical industries. The results of Gabler since the date of acquisition are included in the Advanced Process Solutions reportable operating segment.
Change in Reportable Operating Segments
As a result of the divestiture of the historical Batesville reportable operating segment, Hillenbrand is now composed of two reportable operating segments: Advanced Process Solutions and Molding Technology Solutions. Advanced Process Solutions is a global leader in highly-engineered process and material handling equipment and systems for a wide variety of industries, including durable plastics, food, and recycling industries. Molding Technology Solutions is a global leader in highly-engineered processing equipment, systems, and aftermarket parts and service for the plastic technology processing industry.
OPERATIONS REVIEW — CONSOLIDATED
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended September 30, |
| | 2023 | | 2022 |
| | Amount | | % of
Net Revenue | | Amount | | % of
Net Revenue |
| Net revenue | | $ | 2,826.0 | | | 100.0 | | | $ | 2,315.3 | | | 100.0 | |
| Gross profit | | 948.2 | | | 33.6 | | | 763.8 | | | 33.0 | |
| Operating expenses | | 574.0 | | | 20.3 | | | 442.7 | | | 19.1 | |
| Amortization expense | | 79.6 | | | | | 54.0 | | | |
| Loss on divestiture | | — | | | | | 3.1 | | | |
| | | | | | | | |
| Interest expense | | 77.7 | | | | | 64.3 | | | |
| Income tax expense | | 102.8 | | | | | 84.0 | | | |
| Net income attributable to Hillenbrand | | 569.7 | | | | | 208.9 | | | |
|
| | | | | | | | | | | | |
| | | Year Ended September 30, |
| Hillenbrand | | 2017 | | 2016 | | 2015 |
| Net revenue | | $ | 1,590.2 |
| | $ | 1,538.4 |
| | $ | 1,596.8 |
|
| Gross profit | | 591.3 |
| | 570.6 |
| | 570.4 |
|
| Operating expenses | | 344.4 |
| | 346.5 |
| | 330.6 |
|
| Amortization expense | | 29.2 |
| | 33.0 |
| | 28.1 |
|
| Pension settlement charge | | — |
| | — |
| | 17.7 |
|
| Interest expense | | 25.2 |
| | 25.3 |
| | 23.8 |
|
| Other (expense) income, net | | (4.2 | ) | | (1.7 | ) | | (7.9 | ) |
| Income tax expense | | 59.9 |
| | 47.3 |
| | 49.1 |
|
Net income(1) | | 126.2 |
| | 112.8 |
| | 111.4 |
|
(1) Net income attributable to Hillenbrand
Year Ended September 30, 20172023 Compared to Year Ended September 30, 20162022
Net revenue increased $51.8 (3%$510.7 (22%), which included an unfavorable foreign currency impact of $3.5.(2%).
The•Advanced Process Equipment Group’sSolutions’ net revenue increased $63.5 (7%$553.7 (44%) primarily due todriven by the increased demand for plastics projectsimpact of acquisitions ($456.8), favorable pricing, and screeninghigher aftermarket parts and separating equipment (including equipment that processes proppants for hydraulic fracturing), four additional months of Red Valve revenue ($14.1) in the current year, and increased demand for equipment and systems used in food and pharmaceutical applications, partially offset by unfavorable foreignservice net revenue. Foreign currency impact ($3.8) and lower demand for industrial equipment and parts used in power and mining (including coal)decreased net revenue by 1%.
Batesville’s•Molding Technology Solutions’ net revenue decreased $11.7 (2%$43.0 (4%) primarily due to a decrease in volume ($18.3), partially offset by an increase in average selling price ($6.3). Lower volume wasprimarily driven by a decrease in burialhot runner equipment sales, resulting from what we estimate to be a decrease in North American burials drivenpartially offset by the increased rate at which families opted for cremation, as well as product line simplification initiatives.
Gross profit increased $20.7 (4%), which included an unfavorable foreignfavorable pricing and higher aftermarket parts and service net revenue. Foreign currency impact of $1.4.decreased net revenue by 2%.
Gross profit increased $184.4 (24%). Gross profit margin improved 1060 basis points to 37.2%33.6%. On an adjusted basis, which excluded inventory step-up cost related to acquisitions ($11.7 in 2023), restructuring and restructuring relatedrestructuring-related charges ($2.3 in 2023 and inventory step-up charges,$2.2 in 2022), business acquisition, divestiture, and integration costs ($1.2 in 2023 and $0.4 in 2022), and other one-time costs ($1.0 in 2022), gross profit increased $22.0 (4%$196.0 (26%), and adjusted gross profit margin improved 10100 basis points to 37.6%34.1%.
The•Advanced Process Equipment Group’sSolutions’ gross profit increased $33.5 (10%$213.1 (49%), primarily driven by increased demand for plastics projects and screening and separating equipment (including equipment that processes proppants for hydraulic fracturing), increased profits from four additional months of Red Valve results in the current year, increased demand for equipment and systems used in food and pharmaceutical applications, savings related to restructuring actions taken in 2016, restructuring and restructuring related charges in fiscal 2016 that did not repeat in fiscal 2017, and inventory step-up charges relateddue to the Abelimpact of acquisitions, favorable pricing, productivity improvements, and Red Valve acquisitions in 2016 that did not repeat in 2017,higher volume, partially offset by unfavorable foreigncost inflation and an increase in inventory step-up costs related to acquisitions. Foreign currency impact ($1.4), and lower demand for industrial equipment and parts used in power and mining (including coal)decreased gross profit by 1%. Gross profit margin improved 110120 basis points to 37.1%,35.7% in 2023, primarily driven by pricing and productivity improvements, the higher margin associated with Red Valve, a decrease in restructuring and restructuring related charges, inventory step-up charges relateddue to the Abelimpact of acquisitions and Red Valve acquisitions in fiscal 2016 that did not repeat in fiscal 2017, and savings related to restructuring actions taken in 2016,favorable pricing, partially offset by unfavorable product mix.cost inflation.
GrossAdvanced Process Solutions’ gross profit included inventory step-up costs related to acquisitions ($11.7 in 2023), business acquisition, divestiture, and integration costs ($0.5 in 2023 and $0.1 in 2022), restructuring and restructuring relatedrestructuring-related charges ($0.62.1 in 20172022), and $3.2other one-time costs ($0.8 in 2016) and inventory step-up charges related to the Abel and Red Valve acquisitions ($2.4 in 2016)2022). Excluding these items,charges, adjusted gross profit increased $28.5 (8%$222.2 (50%) and adjusted gross profit margin improved 50160 basis points to 37.1% in 2017.36.4%.
Batesville’s•Molding Technology Solutions’ gross profit decreased $12.8 (6%$28.7 (9%), primarily due to cost inflation, unfavorable product mix, and a decrease in volume, partially offset by favorable pricing and productivity improvements. Foreign currency impact decreased gross profit by 2%. Gross profit margin decreased 150 basis points to 37.4%. The decrease29.6% in gross profit2023, primarily driven by cost inflation and gross profit margin was primarily due to an increase in restructuring and restructuring related charges, higher commodity and fuel costs, and the decline in volume,unfavorable product mix, partially offset by favorable pricing and productivity improvements across the supply chain including the impact of one-time projects, along with an increase in average selling price.
improvements.
GrossMolding Technology Solutions’ gross profit included restructuring and restructuring relatedrestructuring-related charges ($6.82.3 in 20172023 and $0.5$0.1 in 2016)2022) and business acquisition, divestiture, and integration costs ($0.7 in 2023 and $0.3 in 2022). Excluding these charges, adjusted gross profit decreased $6.5 (3%$26.2 (8%) and adjusted gross profit margin decreased 40130 basis points to 38.6%29.9%.
Operating expenses increased $131.3 (30%), primarily driven by higher commodity and fuel costs and the decline in volume, partially offset by the increase in average selling price.
Operating expenses decreased $2.1 (1%) primarily due to favorable foreign currency impact of $1.0, lower compensation and benefits resulting from fiscal 2016 restructuring actions, current year productivity initiatives, a decrease in acquisition and integration costs, a decrease in restructuring and restructuring related charges, and a trade name impairment in 2016 that did not repeat in 2017, partially offset by four additional months of Red Valve operating expenses in the current year,acquisitions, an increase in variable compensation,strategic investments, cost inflation, and an increase in sales and marketing investments. Our operating expense-to-revenue ratio improved by 80 basis points to 21.7% in 2017. Operating expenses included the following items:
|
| | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 |
| Business acquisition and integration costs | $ | 1.1 |
| | $ | 3.7 |
|
| Restructuring and restructuring related charges | 4.9 |
| | 6.4 |
|
| Trade name impairment | — |
| | 2.2 |
|
On an adjusted basis, which excluded business acquisition, divestiture, and integration costs, restructuring and restructuring related charges, and a trade name impairment, operating expenses increased $4.2 (1%) primarily driven by four additional months of Red Valve operating expenses in the current year, an increase in variable compensation, and an increase in sales and marketing investments, partially offset by favorable foreign currency impact of $0.5, lower compensation and benefits resulting from fiscal 2016 restructuring actions and current year productivity initiatives. Our adjusted operating expense-to-revenue ratio improved by 40 basis points to 21.3% in 2017.
Amortization expense decreased $3.8 (12%) primarily due to backlog amortization related to Abel and Red Valve in fiscal 2016 that did not repeat in fiscal 2017, partially offset by amortization on the acquired intangibles of Red Valve.
Interest expense was flat compared to the prior year, primarily due to slightly higher interest rates on lower debt balances.
Other (expense) income, net increased $2.5 from $1.7 of expense in 2016 to $4.2 of expense in 2017, primarily driven by an increase in foreign exchange loss.
The effective tax rate was 31.8% in 2017 compared to 28.8% in 2016. The increase was primarily a result of the recognition of a deferred tax liability for unremitted earnings, a one-time reduction in the domestic manufacturer’s deduction, and a change in the geographic mix of income. These unfavorable items were partially offset by a decrease in variable compensation. Foreign currency impact decreased operating expenses by 3%. Our operating expense-to-revenue ratio increased 120 basis points to 20.3%. This increase is primarily due to the valuation allowanceimpact of acquisitions, an increase in strategic investments, and inflation, partially offset by a decrease in variable compensation. Operating expenses included the following items:
| | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 |
| Business acquisition, divestiture, and integration costs | $ | 45.0 | | | $ | 29.0 | |
| Restructuring and restructuring-related charges | 2.8 | | | 0.9 | |
| Other one-time costs | — | | | 2.3 | |
On an adjusted basis, which excludes business acquisition, divestiture, and integration costs, restructuring and restructuring-related charges, and other one-time costs including reserves against deferred tax assetscertain receivables, operating expenses increased $115.7
(28%), which included favorable foreign currency impact (3%). Adjusted operating expenses as a percentage of net revenue increased 90 basis points to 18.6%.
Amortization expense increased $25.6 (47%), primarily due to the impact of acquisitions.
Loss on divestitures of $3.1 in 2017.the prior year was due to the loss realized on the divestiture of TerraSource that did not repeat in 2023. For morefurther information on divestitures, see Note 74 to our financial statementsConsolidated Financial Statements included in Part II, Item 8 of this Form 10-K. Excluding the tax effect of the adjustments discussed above, our adjusted effective income tax rate was 32.1% in 2017 compared to 29.5% in 2016.
Year Ended September 30, 2016 Compared to Year Ended September 30, 2015
Net revenue decreased $58.4 (4%Interest expense increased $13.4 (21%), which included an unfavorable foreign currency impact of $23.4.
The Process Equipment Group’s revenue decreased $28.1 (3%) primarily due to unfavorable foreign currency impact ($20.4), as well as decreased volume in equipment that processes proppants (used in hydraulic fracturing) and parts and equipment used in power and mining (including coal). These decreases were partially offset by the increased revenue associated with the acquisitions of Abel and Red Valve.
Batesville’s revenue decreased $30.3 (5%) primarily due to unfavorable foreign currency impact ($3.0) and a decrease in volume ($26.8). Lower volume was driven by what we estimate to be a decrease in North American burials primarily due to an increase in the rate at which families optedborrowing for cremation.
Gross profit increased $0.2 (less than 1%), which included an unfavorable foreign currency impact of $7.1. Gross profit margin improved 140 basis points to 37.1%. On an adjusted basis, which excluded restructuring and inventory step-up charges, gross profit increased $3.1 (1%), and adjusted gross profit margin improved 160 basis points to 37.5%.
The Process Equipment Group’s gross profit increased $9.7 (3%), primarily driven by the increased profits associated with the acquisitions of Abel and Red Valve, as well as productivity and pricing improvements. The gross profit increase was partially offset by an unfavorable foreign currency impact ($6.7), decreased demand for equipment that processes proppants (used in hydraulic fracturing) and parts and equipment used in power and mining (including coal), a decline in product and business mix, the inventory step-up charges related to the Abel and Red Valve acquisitions, and an increase in restructuring and restructuring related charges. Gross profit margin improved 200 basis points to 36.0%, primarily driven by productivity and pricing improvements and the higher margins associated with Abel and Red Valve, partially offset by under-absorption of fixed overhead costs, a decline in product and business mix, inventory step-up charges, and an increase in restructuring and restructuring related charges.
Gross profit included restructuring and restructuring related charges ($3.2 in 2016 and $1.5 in 2015) and inventory step-up charges related to the Abel and Red Valve acquisitions ($2.4 in 2016). Excluding these items, adjusted gross profit increased $13.8 (4%) and adjusted gross profit margin improved 240 basis points to 36.6% in 2016.
Batesville’s gross profit decreased $9.5 (4%), and gross profit margin improved 40 basis points to 38.9%. The decline in gross profit was primarily due to the decrease in volume, partially offset by productivity improvements across the supply chain, lower commodity and fuel costs, and a decrease in restructuring and restructuring related charges. The improved gross profit margin was primarily driven by productivity improvements across the supply chain, lower commodity costs, and a decrease in restructuring and restructuring related charges.
Gross profit included restructuring and restructuring related charges ($0.5 in 2016 and $1.7 in 2015). Excluding these charges, adjusted gross profit decreased $10.7 (5%) and adjusted gross profit margin improved 20 basis points to 39.0% in 2016.
Operating expenses increased $15.9 (5%) primarily driven by the addition of operating expenses from Abel and Red Valve, higher corporate project costs, a trade name impairment recorded in 2016, and an increase in restructuring and restructuring related charges. These increases were partially offset by favorable foreign currency impact ($4.7), lower compensation and benefits resulting from current year restructuring actions, and certain litigation costs in fiscal 2015 that did not repeat in 2016. Our operating expense-to-revenue ratio increased by 180 basis points to 22.5% in 2016. The increased ratio was primarily due to the net revenue decline, higher corporate project costs, a trade name impairment in 2016, and increased restructuring and restructuring related charges, and was partially offset by lower compensation and benefits resulting from current year restructuring actions. Operating expenses included the following items:
|
| | | | | | | |
| | Year Ended September 30, |
| | 2016 | | 2015 |
| Business acquisition and integration costs | $ | 3.7 |
| | $ | 3.6 |
|
| Restructuring and restructuring related charges | 6.4 |
| | 5.6 |
|
| Litigation expenses | — |
| | 0.5 |
|
| Trade name impairment | 2.2 |
| | — |
|
On an adjusted basis, which excluded business acquisition and integration costs, restructuring and restructuring related charges, a trade name impairment, and certain litigation expenses, operating expenses increased $13.3 (4%), primarily driven by the addition of operating expenses from Abel and Red Valve and higher corporate project costs, partially offset by favorable foreign currency impact ($4.7) and lower compensation and benefits resulting from current year restructuring actions. Our adjusted operating expense-to-revenue ratio increased by 160 basis points to 21.7% in 2016. The increased ratio was primarily due to the net revenue decline and higher corporate project costs, partially offset by lower compensation and benefits resulting from current year restructuring actions.
Amortization expense increased $4.9 (17%) primarily due to the acquired intangibles of Abel and Red Valve.
Pension settlement charge decreased $17.7 due to one-time lump-sum payments made in 2015 from the Company’s U.S. pension plan to former employees who elected to receive such payments. These payments settled the Company’s pension obligations to those who made the election to participate. Seeacquisitions. For further information, see Note 57 to our financial statementsConsolidated Financial Statements included in Part II, Item 8 of this Form 10-K for further information on this settlement.10-K.
Interest expense increased $1.5 primarily due to an increase in our weighted-average outstanding borrowings and higher variable interest rates.
Other (expense) income, net decreased $6.2 from $7.9 of expense in 2015 to $1.7 of expense in 2016, primarily driven by positive change in foreign exchange gain (loss) of $4.7 in 2016. The foreign exchange loss of $4.4 in 2015 was largely driven by the rapid appreciation of the Swiss Franc against other currencies after the Swiss National Bank removed currency support tied to the Euro in January 2015.
The incomeeffective tax ratewas 28.8%47.4% in 2016fiscal 2023 compared to 30.2%42.1% in 2015.fiscal 2022. The year-over-year decreaseincrease in the effective tax rate was largely due toprimarily driven by an increase in tax expense associated with recent acquisitions and related legal entity reorganization, the excessrecognition of valuation allowances on current year tax benefits on share-based compensationlosses in certain jurisdictions, and the shiftingsettlement of income to lower tax rate jurisdictions,audits of prior tax years, partially offset by a year-over-year reduction of the net increaseprovision for taxes on distributions from foreign subsidiaries as a result of lower foreign cash positions, and a reduction in the valuation allowance on deferredaccrual of taxes for uncertain tax assets. For more information, see Note 7 to our financial statements includedpositions in Part II, Item 8, of this Form 10-K. Excluding the tax effect of all adjustments discussed above, ourcurrent year.
Our adjusted effective income tax rate was 29.5% in 20162023 compared to 31.2%31.5% in 2015.2022. The adjusted effective income tax rate primarily excludes the tax effect of the following items:
•The tax effect of the legal entity reorganization and transaction costs associated with recent acquisitions ($33.3 expense in 2023); •The divestiture of TerraSource ($0.6 expense in 2022);
•The impact of tax loss carryforwards on net domestic taxes on foreign earnings ($12.7 expense in 2022);
•The revaluation of deferred and current tax balances as a result of tax rate changes ($2.7 benefit in 2023 and $0.5 expense in 2022);
•The revaluation of deferred tax balances as a result of foreign currency fluctuations ($0.3 expense in 2023 and $2.2 benefit in 2022); and
•Adjustments previously discussed within this section, including business acquisition, divestiture, and integration costs, intangible amortization, and restructuring and restructuring-related charges ($34.1 benefit in 2023 and $19.7 benefit in 2022).
Excluding these items, the increase in the current year adjusted effective tax rate was primarily due to an increase in tax expense associated with the recognition of valuation allowances on current year deferred tax items in certain jurisdictions and the settlement of tax audits of prior tax years, partially offset by a year-over-year reduction of the provision for taxes on distributions from foreign subsidiaries as a result of lower foreign cash positions, and reduction in the accrual of taxes for uncertain tax positions in the current year.
OPERATIONS REVIEW — ADVANCED PROCESS EQUIPMENT GROUPSOLUTIONS
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 |
| | Amount | | % of
Net Revenue | | Amount | | % of
Net Revenue |
| Net revenue | $ | 1,823.5 | | | 100.0 | | | $ | 1,269.8 | | | 100.0 | |
| Gross profit | 651.5 | | | 35.7 | | | 438.4 | | | 34.5 | |
| Operating expenses | 337.6 | | | 18.5 | | | 210.0 | | | 16.5 | |
| Amortization expense | 44.2 | | | | | 17.6 | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % of Revenue |
| Net revenue | $ | 1,028.2 |
| | 100.0 | | $ | 964.7 |
| | 100.0 | | $ | 992.8 |
| | 100.0 |
| Gross profit | 381.0 |
| | 37.1 | | 347.5 |
| | 36.0 | | 337.8 |
| | 34.0 |
| Operating expenses | 218.1 |
| | 21.2 | | 212.5 |
| | 22.0 | | 193.5 |
| | 19.5 |
| Amortization expense | 29.0 |
| | 2.8 | | 32.7 |
| | 3.4 | | 25.7 |
| | 2.6 |
Year Ended September 30, 20172023 Compared to Year Ended September 30, 20162022
Net revenueincreased $63.5 (7%$553.7 (44%) primarily due todriven by the increased demand for plastics projectsimpact of acquisitions ($456.8), favorable pricing, and screeninghigher aftermarket parts and separating equipment (including equipment that processes proppants for hydraulic fracturing), four additional months of Red Valve revenue ($14.1) in the current year, and increased demand for equipment and systems used in food and pharmaceutical applications, partially offset by unfavorable foreignservice net revenue. Foreign currency impact ($3.8) and lower demand for industrial equipment and parts used in power and mining (including coal)decreased net revenue by 1%.
We expect future net revenue for theAdvanced Process Equipment GroupSolutions to continue to be influenced by order backlog because of the lead time involved in fulfilling engineered-to-order equipment and solutions for customers. Though backlog can be an indicator of future net revenue, it does not include projects and aftermarket parts orders that are booked and shipped within the same quarter. The timing of order placement, size of orders, extent of order customization, and customer delivery dates can create fluctuations in backlog and net revenue. RevenueNet revenue attributable to backlog is also affected by foreign exchange rate fluctuations for orders denominated in currencies other than U.S. dollars. BacklogOrder backlog increased $132.0 (26%$468.5 (34%) from $500.2 on$1,397.9 at September 30, 2016,2022, to $632.2 on$1,866.4 at September 30, 2017, which included2023. The increase in order backlog was primarily driven by acquisitions and a favorable foreign currency impact of $20.8. The increase in(5%). On a sequential basis, order backlog isincreased $262.4 (16%) to $1,866.4 at September 30, 2023, up from $1,604.0 at June 30, 2023, primarily driven by an increase in orders for projects in the plastics industry, as well as screening and separating equipment that processes proppants (used in hydraulic fracturing).
Gross profit increased $33.5 (10%) primarily driven by increased demand for plastics projects and screening and separating equipment (including equipment that processes proppants for hydraulic fracturing), increased profits from four additional months of Red Valve results in the current year, increased demand for equipment and systems used in food and pharmaceutical applications, savings relateddue to restructuring actions taken in 2016, restructuring and restructuring related charges in fiscal 2016 that did not repeat in fiscal 2017, and inventory step-up charges related to the Abel and Red Valve acquisitions, in 2016 that did not repeat in 2017, partially offset by unfavorable foreign currency impact ($1.4)(3%).
Gross profit increased $213.1 (49%), primarily due to the impact of acquisitions, favorable pricing, productivity improvements, and lower demand for industrial equipmenthigher volume, partially offset by cost inflation and parts usedan increase in power and mining (including coal)inventory step-up costs related to acquisitions. Foreign currency impact decreased gross profit by 1%. Gross profit margin improved 110120 basis points to 37.1%,35.7% in 2023, primarily driven by pricing and productivity improvements, the higher margin associated with Red Valve, a decrease in restructuring and restructuring related charges, inventory step-up charges relateddue to the Abelimpact of acquisitions and Red Valve acquisitions in 2016 that did not repeat in 2017, and savings related to restructuring actions taken in 2016,favorable pricing, partially offset by unfavorable product mix.cost inflation.
GrossAdvanced Process Solutions’ gross profit included inventory step-up costs related to acquisitions ($11.7 in 2023), business acquisition, divestiture, and integration costs ($0.5 in 2023 and $0.1 in 2022), restructuring and restructuring relatedrestructuring-related charges ($0.62.1 in 20172022), and $3.2other one-time costs ($0.8 in 2016) and inventory step-up charges related to the Abel and Red Valve acquisitions ($2.4 in 2016)2022). Excluding these items,charges, adjusted gross profit increased $28.5 (8%$222.2 (50%) and adjusted gross profit margin improved 50160 basis points to 37.1% in 2017.36.4%.
Operating expenses increased $5.6 (3%$127.6 (61%), primarily driven by four additional monthsthe impact of Red Valve operating expenses in the current year,acquisitions, an increase in variable compensation,strategic investments, cost inflation, and an increase in salesbusiness acquisition, divestiture, and marketing investments, partially offset by favorable currency impact ($0.9),integration costs. Operating expenses as a decrease in restructuring and restructuring related charges, and a trade name impairment recorded in 2016 that did not repeat in 2017. Our operating expense-to-revenue ratio improved by 80percentage of net revenue increased 200 basis points to 21.2%18.5%, primarily due to the impact of acquisitions, an increase in strategic investments, and inflation.
Operating expenses includedbusiness acquisition, divestiture, and integration costs ($0.68.1 in 20172023 and $0.3$1.5 in 2016)2022), restructuring and restructuring related costsrestructuring-related charges ($2.21.5 in 20172023 and $4.8$0.1 in 2016)2022), and a trade name impairmentother one-time costs including reserves against certain receivables ($2.6 in 2016 of $2.2. 2022). Excluding these items, adjusted operating expenses increased $10.1 (5%$122.1 (59%), primarily driven by four additional months of Red Valve operating expenses in the current year, an increase in variable compensation, and an increase in sales and marketing investments, partially offset by favorable foreign currency impact of $1.0.. Adjusted operating expenses as a percentage of net revenue improved 40increased 180 basis points to 20.9% in 2017.18.0%.
Amortization expense decreased $3.7 (11% increased $26.6 (151%), primarily due to backlog amortization related to Abel and Red Valve in fiscal 2016 that did not repeat in fiscal 2017, partially offset by amortization on the acquired intangiblesimpact of Red Valve.acquisitions.
OPERATIONS REVIEW — MOLDING TECHNOLOGY SOLUTIONS
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| 2023 | | 2022 |
| | Amount | | % of Net
Revenue | | Amount | | % of Net
Revenue |
| Net revenue | $ | 1,002.5 | | | 100.0 | | | $ | 1,045.5 | | | 100.0 | |
| Gross profit | 296.7 | | | 29.6 | | | 325.4 | | | 31.1 | |
| Operating expenses | 140.0 | | | 14.0 | | | 139.7 | | | 13.4 | |
| Amortization expense | 35.4 | | | | | 36.4 | | | |
| | | | | | | |
| | | | | | | |
Year Ended September 30, 20162023 Compared to Year Ended September 30, 20152022
Net revenue decreased $28.1 (3%), primarily due to unfavorable foreign currency impact ($20.4), as well as decreased volume in equipment that processes proppants (used in hydraulic fracturing) and parts and equipment used in power and mining (including coal). These decreases were partially offset by the increased revenue associated with the acquisitions of Abel and Red Valve.
Gross profit increased $9.7 (3%$43.0 (4%), primarily driven by the increased profits associated with the acquisitions of Abel and Red Valve, as well as productivity and pricing improvements. The gross profit increase wasa decrease in hot runner equipment sales, partially offset by an unfavorable foreignfavorable pricing and higher aftermarket parts and service net revenue. Foreign currency impact ($6.7), decreased demand for equipment that processes proppants (used in hydraulic fracturing) and parts and equipment used in power and mining (including coal), a decline in product and business mix, the inventory step-up charges relatednet revenue by 2%.
Order backlog decreased $130.9 (36%) from $364.1 at September 30, 2022, to the Abel and Red Valve acquisitions, and an increase in restructuring and restructuring related charges. Gross profit margin improved 200 basis points to 36.0%, primarily driven by productivity and pricing improvements and the higher margins associated with Abel and Red Valve, partially offset by under-absorption of fixed overhead costs, a decline in product and business mix, inventory step-up charges, and an increase in restructuring and restructuring related charges.
Gross profit included restructuring and restructuring related charges ($3.2 in 2016 and $1.5 in 2015) and inventory step-up charges related to the Abel and Red Valve acquisitions ($2.4 in 2016). Excluding these items, adjusted gross profit increased $13.8 (4%) and adjusted gross profit margin improved 240 basis points to 36.6% in 2016, primarily driven by productivity and
pricing improvements and the higher margins associated with Abel and Red Valve, partially offset by under-absorption of fixed overhead costs and a decline in product and business mix.
Operating expenses increased $19.0 (10%)$233.2 at September 30, 2023, primarily driven by the additionexecution of operating expenses from Abel and Red Valve, a trade name impairment charge, and an increase in restructuring and restructuring related costs, partially offset by favorable foreign currency impact ($4.4)existing backlog and a decrease in business acquisition and integration costs. Our operating expense-to-revenue ratioorders within our injection molding equipment product line. Foreign currency impact increased order backlog by 2501%. On a sequential basis, pointsorder backlog decreased $33.2 (12%) to 22.0%, primarily due to the net revenue decline, a trade name impairment recorded in 2016, and the increase in restructuring and restructuring related charges, partially offset by a$233.2 at September 30, 2023, down from $266.4 at June 30, 2023. The decrease in business acquisition and integration costs.
Operating expenses included business acquisition and integration costs ($0.3 in 2016 and $1.1 in 2015), restructuring and restructuring related costs ($4.8 in 2016 and $3.9 in 2015), and a trade name impairment in 2016 of $2.2. Excluding these items, adjusted operating expenses increased $16.7 (9%), which included favorable foreign currency impact of $4.4. The increase in adjusted operating expensesorder backlog was primarily driven by the additionexecution of operating expenses from Abel and Red Valve. Our adjusted operating expense-to-revenue ratio increased 230 basis points to 21.3%. The increased ratio was primarily due to the net revenue decline.existing backlog.
Amortization expense increased $7.0 (27%
Gross profit decreased $28.7 (9%) primarily due to the acquired intangibles of Abelcost inflation, unfavorable product mix, and Red Valve.
OPERATIONS REVIEW — BATESVILLE
|
| | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % of Revenue |
| Net revenue | $ | 562.0 |
| | 100.0 | | $ | 573.7 |
| | 100.0 | | $ | 604.0 |
| | 100.0 |
| Gross profit | 210.3 |
| | 37.4 | | 223.1 |
| | 38.9 | | 232.6 |
| | 38.5 |
| Operating expenses | 83.9 |
| | 14.9 | | 91.4 |
| | 15.9 | | 97.8 |
| | 16.2 |
| Amortization expense | 0.2 |
| | — | | 0.3 |
| | 0.1 | | 2.0 |
| | 0.3 |
Year Ended September 30, 2017 Compared to Year Ended September 30, 2016
Net revenue decreased $11.7 (2%), primarily due to a decrease in volume, ($18.3), partially offset by an increase in average selling price ($6.3)favorable pricing and productivity improvements. Foreign currency impact decreased gross profit by 2%. Lower volume was driven by a decrease in burial sales resulting from what we estimate to be a decrease in North American burials driven by the increased rate at which families opted for cremation, as well as product line simplification initiatives.
Gross profitdecreased $12.8 (6%), and gross profit margin decreased 150 basis points to 37.4%. The decrease29.6% in gross profit2023, primarily driven by cost inflation and gross profit margin was primarily due to an increase in restructuring and restructuring related charges, higher commodity and fuel costs, and the decline in volume,unfavorable product mix, partially offset by favorable pricing and productivity improvements across the supply chain including the impact of one-time projects, along with an increase in average selling price.improvements.
GrossMolding Technology Solutions’ gross profit included restructuring and restructuring relatedrestructuring-related charges ($6.82.3 in 20172023 and $0.5$0.1 in 2016)2022) and business acquisition, divestiture, and integration costs ($0.7 in 2023 and $0.3 in 2022). Excluding restructuring and restructuring relatedthese charges, adjusted gross profit decreased $6.5 (3%$26.2 (8%) and adjusted gross profit margin decreased 40130 basis points to 38.6% in 2017.29.9%.
Operating expenses increased $0.3, primarily due to cost inflation, partially offset by lower variable compensation. Foreign currency impact decreased $7.5 (8%) to $83.9 in 2017, and our operating expense-to-revenue ratio improved 100expense by 5%. Operating expenses as a percentage of net revenue increased 60 basis points to 14.9%, primarily due to lower compensation and benefits resulting from fiscal year 2016 restructuring actions, current year productivity initiatives, and a decrease in restructuring and restructuring related charges.14.0%.
Operating expenses included business acquisition, divestiture, and integration costs ($1.8 in 2023 and $1.3 in 2022) and restructuring and restructuring relatedrestructuring-related charges of $1.1($1.1 in 2016.2023 and $0.5 in 2022). Excluding these charges, adjusted operating expenses decreased $6.4 (7%) and our adjusted operating expense-to-revenue ratio improved 80as a percentage of net revenue increased 50 basis points to 14.9%, primarily due to lower compensation and benefits resulting from fiscal 2016 restructuring actions and current year productivity initiatives.
Year Ended September 30, 2016 Compared to Year Ended September 30, 2015
Net revenue decreased $30.3 (5%), primarily due to unfavorable foreign currency impact ($3.0) and a decrease in volume ($26.8). Lower volume was driven by what we estimate to be a decrease in North American burials primarily due to an increase in the rate at which families opted for cremation.
Gross profit decreased $9.5 (4%), and gross profit margin improved 40 basis points to 38.9%. The decline in gross profit was primarily due to the decrease in volume, partially offset by productivity improvements across the supply chain, lower commodity and fuel costs, and a decrease in restructuring and restructuring related charges. The improved gross profit margin was primarily driven by productivity improvements across the supply chain, lower commodity costs, and a decrease in restructuring and restructuring related charges.
Gross profit included restructuring and restructuring related charges ($0.5 in 2016 and $1.7 in 2015). Excluding restructuring and restructuring related charges, adjusted gross profit decreased $10.7 (5%) and adjusted gross profit margin improved 20 basis points to 39.0% in 2016.
Operating expenses decreased $6.4 (7%) to $91.4 in 2016 primarily due to lower compensation and benefits resulting from current year restructuring actions, lower variable compensation expense, and certain litigation costs in fiscal 2015 that did not repeat in 2016. These decreases were partially offset by an increase in restructuring and restructuring related charges in 2016. Our operating expense-to-revenue ratio improved 30 basis points to 15.9%.
Operating expenses included restructuring and restructuring related charges ($1.1 in 2016 and $0.2 in 2015) and $0.5 of certain litigation costs in 2015. Excluding these costs, adjusted operating expenses decreased 7% to $90.3 in 2016, which was primarily due to lower compensation and benefits resulting from current year restructuring actions and lower variable compensation expense. Our adjusted operating expense-to-revenue ratio improved 40 basis points to 15.7%13.7%.
REVIEW OF CORPORATE EXPENSES
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 |
| | Amount | | % of
Net Revenue | | Amount | | % of
Net Revenue |
| Core operating expenses | $ | 61.1 | | | 2.2 | | | $ | 66.4 | | | 2.9 | |
| Business acquisition, divestiture, and integration costs | 35.1 | | | 1.2 | | | 26.1 | | | 1.1 | |
| Restructuring and restructuring-related charges | 0.2 | | | — | | | 0.8 | | | — | |
| Other | — | | | — | | | (0.3) | | | — | |
| Operating expenses | $ | 96.4 | | | 3.4 | | | $ | 93.0 | | | 4.0 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| | Amount | | % of Revenue | | Amount | | % of Revenue | | Amount | | % of Revenue |
| Core operating expenses | $ | 39.2 |
| | 2.5 | | $ | 38.7 |
| | 2.5 | | $ | 35.3 |
| | 2.2 |
| Business acquisition and integration costs | 0.5 |
| | — | | 3.4 |
| | 0.2 | | 2.5 |
| | 0.2 |
| Restructuring and restructuring related charges | 2.7 |
| | 0.2 | | 0.5 |
| | 0.1 | | 1.5 |
| | 0.1 |
| Operating expenses | $ | 42.4 |
| | 2.7 | | $ | 42.6 |
| | 2.8 | | $ | 39.3 |
| | 2.5 |
CoreCorporate operating expenses representinclude the cost of providing management and administrative services to each reportable operating segment. These services include treasury management, human resources, legal, business development, information technology, tax compliance, procurement, sustainability, and other public company support functions such as internal audit, investor relations, and financial reporting. Corporate operating expenses excluding restructuring and restructuring related charges andalso include costs related to business acquisition, divestiture, and integration, which we incur as a result of our strategy to grow through selective acquisitions.
Year Ended September 30, 2017 Compared to Year Ended September 30, 2016
Core operating expenses increased $0.5 (1%) in 2017 primarily duerepresent corporate operating expenses excluding costs related to an increase in variable compensation. These expenses as a percentage of net revenue were flat compared to 2016. business acquisition, divestiture, and integration costs.
Business acquisition, divestiture, and integration costs include legal, tax, accounting, and other advisory fees and due diligence costs associated with investigating opportunities (including acquisitions and divestitures) and integrating completed acquisitions.
As a natural consequenceresult of our acquisition strategy, we incurclassifying the historical Batesville reportable operating segment as a discontinued operation, certain indirect corporate costs included within operating expenses in the Consolidated Statements of Operations that were previously allocated to investigate opportunities that ultimatelythe historical Batesville reportable operating segment do not always resultqualify for classification within discontinued operations and are now reported as operating expenses in a consummated transaction. The depth of these effortscontinuing operations within corporate expenses for all periods presented preceding the sale. In addition, costs directly attributable to the historical Batesville reportable operating segment divestiture have been reflected in discontinued operations for the years ended September 30, 2023 and the significance of the associated costs will fluctuate from time-to-time.2022.
Year Ended September 30, 20162023 Compared to Year Ended September 30, 20152022
Core operatingOperating expenses increased $3.4 (10%(4%) in 20162023, primarily due to higher corporate projectan increase in business acquisition, divestiture, and integration costs, an increase in strategic investments, and cost inflation, partially offset by a decrease in variable compensation. Thesecompensation and prior year one-time expenses associated with the realignment of the executive management team that did not repeat in 2023. Operating expenses as a percentage of net revenue increased 30were 3.4%, an improvement of 60 basis points from the prior year.
Core operating expenses decreased $5.3 (8%) in 2023, primarily due to 2.5%.a decrease in variable compensation and prior year one-time expenses associated with the realignment of the executive management team that did not repeat in 2023, partially offset by
an increase in strategic investments and cost inflation. Operating expenses as a percentage of net revenue were 2.2%, an improvement of 70 basis points from the prior year.
NON-GAAP OPERATING PERFORMANCE MEASURES
The following is a reconciliation from consolidated net income, the most directly comparable GAAP operating performance measure, to our non-GAAP adjusted EBITDA.
| | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 |
| Consolidated net income | $ | 576.7 | | | $ | 215.2 | |
| Interest expense, net | 77.7 | | | 64.3 | |
| Income tax expense | 102.8 | | | 84.0 | |
| Depreciation and amortization | 125.6 | | | 98.6 | |
| Consolidated EBITDA | 882.8 | | | 462.1 | |
| Income from discontinued operations (net of income tax expense) | (462.6) | | | (99.5) | |
| | | |
Business acquisition, divestiture, and integration costs (1) | 46.2 | | | 29.4 | |
Restructuring and restructuring-related charges (2) | 5.1 | | | 3.1 | |
| Inventory step-up costs related to acquisitions | 11.7 | | | — | |
Loss on divestiture (3) | — | | | 3.1 | |
| Other | — | | | 3.3 | |
| Adjusted EBITDA | $ | 483.2 | | | $ | 401.5 | |
|
| | | | | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| Consolidated Net Income | $ | 128.4 |
| | $ | 116.8 |
| | $ | 113.2 |
|
| Interest income | (0.9 | ) | | (1.2 | ) | | (1.0 | ) |
| Interest expense | 25.2 |
| | 25.3 |
| | 23.8 |
|
| Income tax expense | 59.9 |
| | 47.3 |
| | 49.1 |
|
| Depreciation and amortization | 56.6 |
| | 60.4 |
| | 54.3 |
|
| EBITDA | $ | 269.2 |
| | $ | 248.6 |
| | $ | 239.4 |
|
| Business acquisition and integration | 1.1 |
| | 3.7 |
| | 3.6 |
|
| Inventory step-up | — |
| | 2.4 |
| | — |
|
| Restructuring and restructuring related | 10.7 |
| | 10.2 |
| | 7.5 |
|
| Trade name impairment | — |
| | 2.2 |
| | — |
|
| Pension settlement charge | — |
| | — |
| | 17.7 |
|
| Litigation costs | — |
| | — |
| | 0.5 |
|
| Adjusted EBITDA | $ | 281.0 |
| | $ | 267.1 |
| | $ | 268.7 |
|
(1)Business acquisition, divestiture, and integration costs during 2023 primarily included professional fees related to the Linxis, Peerless, and FPM acquisitions and professional fees and employee-related costs attributable to the integration of Milacron and Linxis. Business acquisition, divestiture, and integration costs during 2022 primarily included professional fees related to the Gabler, Herbold, and Linxis acquisitions and professional fees and employee-related costs attributable to the integration of Milacron and the divestiture of TerraSource.
(2)Restructuring and restructuring-related charges primarily included severance costs during 2023 and 2022.
(3)The amount during 2022 represents the loss on divestiture of TerraSource.
Consolidated net income for 20172023 compared to 20162022 increased $11.6 (10%$361.5 (168%),. The increase was primarily driven by the increased demand for plastics projects, screening and separating equipment (including equipment that processes proppants for hydraulic fracturing), and equipment and systems used in food and pharmaceutical applications, as well as increased earnings associated with the acquisition of Red Valve, pricing and productivity improvements, backlog amortization related to Abel and Red Valve in fiscal 2016 that did not repeat in fiscal 2017, savings related to restructuring actions taken in 2016, a reduction in business acquisition and integration costs, inventory step-up charges related to Abel and Red Valve in 2016 that did not repeat in 2017, a trade name impairment in 2016 that did not repeat in 2017, and a favorable foreign currency impact ($0.6). This increase in consolidated nettotal income was partially offset by unfavorable product mix, lower demand for industrial equipment and parts used in power and mining (including coal), a decrease in volume at Batesville, an increase in the effective tax rate, increased commodity and fuel costs at Batesville, and an increase in variable compensation.
Adjusted EBITDA for 2017 compared to 2016 increased $13.9 (5%), primarily driven by the increased demand for plastics projects, screening and separating equipment (including equipment that processes proppants for hydraulic fracturing), and equipment and systems used in food and pharmaceutical applications, as well as increased earnings associated with the acquisition of Red Valve,from discontinued operations, favorable pricing and productivity improvements, and savings related to restructuring actions taken in 2016. Thisan increase in consolidated adjusted EBITDA wasdemand for equipment within the Advanced Process Solutions reportable operating segment, partially offset by unfavorable foreigncost inflation, an increase in depreciation and amortization, an increase in strategic investments, an increase in business acquisition, divestiture, and integration costs, an increase in interest expense, and inventory step-up costs related to acquisitions. Foreign currency impact ($0.9), unfavorable product mix, lower demanddecreased consolidated net income $8.1.
Consolidated adjusted EBITDA for industrial equipment2023 compared to 2022 increased $81.7 (20%). The increase was primarily driven by favorable pricing and parts used in power and mining (including coal), a decrease in volume at Batesville, increased commodity and fuel costs at Batesville,productivity improvements and an increase in variable compensation.
Consolidated net incomedemand for 2016 compared to 2015 increased $3.6 (3%), primarily driven by a pension settlement charge in 2015 that did not recur in 2016,equipment within the increased earnings associated with the acquisitions of Abel and Red Valve, productivity and pricing improvements, improvement in the effective tax rate, and a decrease in foreign currency exchange loss,Advanced Process Solutions reportable operating segment, partially offset by unfavorable foreign currency impact ($1.3), a decrease in the volume of equipment sales at the Process Equipment Group,cost inflation, and an increase in restructuring and restructuring related charges, inventory step-up charges related to the Abel and Red Valve acquisitions, and a trade name impairment in 2016.
Adjusted EBITDA for 2016 compared to 2015 decreased $1.6 (1%), driven by unfavorable foreignstrategic investments. Foreign currency impact ($2.7) and a decrease in the volume of equipment sales at the Process Equipment Group, partially offsetdecreased consolidated adjusted EBITDA by the increased earnings associated with the acquisitions of Abel and Red Valve, productivity and pricing improvements, and a decrease in foreign currency exchange loss.$9.5.
LIQUIDITY AND CAPITAL RESOURCES
In this section, we discuss our ability to access cash to meet business needs. We discuss how we see cash flow being affected for the next twelve months and how we intend to use it.months. We describe actual results in generating and utilizingusing cash by
comparing 20172023 to 2016.2022. Finally, we identify other significant matters, such as contractual obligations and contingent liabilities and commitments that could affect liquidity on an ongoing basis.
Ability to Access Cash
Our debt financing includes long term notes, including the 5.5% senior unsecured notes and the 4.60% Series A unsecured notes (“Series A Notes”), and ourhas historically included revolving credit facilityfacilities, term loans, and term loan (collectively, the “Facility”)long-term notes as part of our overall financing strategy. We believe we continue to have ready access to capital markets and regularly review and adjust the optimal mix of fixed-rate and variable-rate debt. In additiondebt within our capital structure in order to cash balancesachieve a target range based on our financing strategy.
We have taken proactive measures to maintain financial flexibility. We believe the Company ended the fiscal year with and our abilitycontinues to access long-term financing, we had $621.2 of maximum borrowing capacity available underhave sufficient liquidity to operate in the current business environment.
With respect to the Facility, as of September 30, 2017,2023, the Company had an outstanding balance of $505.1. As of September 30, 2023, the Company had $19.8 in outstanding letters of credit issued and $475.1 of available borrowing capacity under the Facility, all of which $554.4 of borrowing capacity iswas immediately available based on our leverage covenant at September 30, 2017, with additional amounts available in the event of a qualifying acquisition. The available borrowing capacity reflects a reduction of $10.8 for outstanding letters of credit issued under the Facility.most restrictive covenant. The Company may request an increase of up to $300.0$600.0 in the total borrowing capacity under the Facility,Amended Credit Agreement, subject to approval of the lenders.
In the normal course of business, the Process Equipment Group providesoperating companies within our reportable operating segments provide to certain customers bank guarantees and other credit arrangements in support of performance, warranty, advance payment, and other contractual obligations. This form of trade finance is customary in the industry and, as a result, we are required to maintain adequate capacity to provide the guarantees. As of September 30, 2017,2023, we had guarantee arrangements totaling $227.9,$587.9, under which $174.6$326.9 was utilized for this purpose. These arrangements include a €150.0 Syndicated Letter of Guarantee Facility (as amended, the “LG Facility”)Amended L/G Agreement (defined below) under which unsecured letters of credit, bank guarantees, or other surety bonds may be issued. The Company may request an increase to the total capacity under the LG facilityAmended L/G Agreement by an additional €70.0,€100, subject to approval of the lenders.
We have significant operations outside the U.S. TheWe continue to assert that the basis differences in the majority of our foreign earnings are consideredsubsidiaries continue to be indefinitelypermanently reinvested in foreign jurisdictions whereoutside of the U.S. We have recorded tax liabilities associated with distribution taxes on expected distributions of available cash and current earnings. The Company has made, and intends to continue to make, substantial investments in our businesses in foreign jurisdictions to support the ongoing development and growth of our international operations. Accordingly, no significant U.S. federal and state income taxes have been accrued on the portionAs of our foreign earnings that is considered to be indefinitely reinvested in foreign jurisdictions. During fiscal 2017, the Company recognizedSeptember 30, 2023, we had a deferredtransition tax liability of $4.0 representing$11.2 pursuant to the assumed foreign taxes on the distribution of funds among certain of our foreign subsidiaries. However, we expect these funds will remain indefinitely reinvested outside of the U.S.2017 Tax Cuts and Jobs Act (the “Tax Act”). The cash at our international subsidiaries, including U.S. subsidiaries participating in non-U.S. cash pooling arrangements, totaled $60.4$193.2 at September 30, 2017.2023. We do not intend, nor do we foresee a need,continue to repatriate these funds to the U.S. Such repatriation for use in domestic operations would expose us to additional taxes pursuant to current regulatoryactively evaluate our global capital deployment and tax laws.cash needs.
12-month Outlook
We believeLeverage update
The Company’s net leverage (defined as debt, net of cash, to pro forma adjusted EBITDA) at September 30, 2023 was 3.2x. The Company remains committed to de-leveraging and intends to prioritize paying down its debt over the 12-month outlooknext twelve months.
Other activities
The Company is required to pay a transition tax on unremitted earnings of its foreign subsidiaries, resulting in an estimated liability of $11.2 recorded as of September 30, 2023. The transition tax liability is expected to be paid over the next two years.
On December 2, 2021, the Board of Directors authorized a new share repurchase program of up to $300.0, which replaced the previous $200.0 share repurchase program. The repurchase program has no expiration date but may be terminated by the Board of Directors at any time. As of September 30, 2023, we repurchased 4,143,000 shares under the December 2, 2021 share repurchase program for our business remains positive. Although cash flow from operationsapproximately $175.0 in the Process Equipment Group naturally experiences substantial fluctuations drivenaggregate. At September 30, 2023, we had approximately $125.0 remaining for share repurchases under the existing authorization by changes in working capital requirements (due to the typeBoard of product and geography of customer projects in process at any point in time), we believe we have significant flexibility to meet our financial commitments including working capital needs, capital expenditures, and financing obligations.
We expect to continue to grow at least partially through acquisitions and to continue to focus on building platforms based on highly engineered equipment and systems for diverse niche markets. Therefore, we expect to continue to use a combination of someDirectors. No purchases of our cash flows from operations and our Facility to fund these acquisitions. When we consider attractive targets, we often look for companies with a relatively low physical asset base, in order to limitcommon stock were made during the need to invest significant additional cash into targets post-acquisition.year ended September 30, 2023.
Our anticipated contribution to our U.S. and non-U.S.defined benefit pension plans in 2018 is $9.9. This amount is lower than 2017, as we do not anticipate contributing to our U.S. defined benefit pension plan in 2018. In 2017, we contributed $80.0 to our U.S. defined benefit pension plan, which was funded with cash on hand and funds borrowed from the Facility. As a result, the U.S. defined benefit pension plan assets are now greater than the benefit obligations at September 30, 2017. See Note 5 to our financial statements included in Part II, Item 8, of this Form 10-K for more detail. 2024 is $10.9.We will continue to monitor plan funding levels, performance of the assets within the plans, and overall economic activity, and we may make additional discretionary funding decisions based on the net impact of the above factors.
We currently expect to pay quarterlyapproximately $15.6 in cash dividends in the future comparable to those we paid in 2017, which will require approximately $13 each quarter in fiscal 2024 based on our outstanding common stock at September 30, 2017.2023. We are authorized byincreased our Board of Directorsquarterly dividend in 2023 to purchase up to $200.0 of our$0.2200 per common stockshare from $0.2175 per common share paid in total under our existing share repurchase program, and may make such purchases, depending on market conditions and other needs for cash consistent with our growth strategy. We repurchased approximately 778,000 shares of our common stock in 2017, for a total cost of approximately $28.0. At2022.
September 30, 2017, we had approximately $100.6 remaining for share repurchases under the existing Board authorization. See Part I, Item 5 within this Form 10-K for more information on share repurchases.
We believe existing cash and cash equivalents, cash flows from operations, borrowings under existing arrangements, and the issuance of debt will continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities. Based on these factors, we believe our current liquidity position is strongsufficient and will continue to meet all of our financial commitments in the current business environment.
Key Liquidity Events
Amendments to current financing agreements
On June 21, 2023, the Company entered into Amendment No. 1 the Credit Agreement (as amended, the “Amended Credit Agreement”). The Amended Credit Agreement includes, among other changes, establishment of a euro-denominated, delayed-draw term loan facility available to the Company’s wholly owned subsidiary, Hillenbrand Switzerland GmbH, in an initial aggregate principal amount of up to €185 (the “€185 Term Loan”) and the inclusion of requirements that would be triggered by a Collateral Springing Event.
On June 22, 2023, the Company entered into an Amendment and Restatement Agreement (as amended, the “Amended L/G Agreement”), which amends and restates the L/G Facility Agreement. The Amended L/G Agreement includes, among other changes, an increase in the facility from €225 to €325 and the inclusion of requirements that would be triggered by a Collateral Springing Event. See Note 7 to our Consolidated Financial Statements included in Part II, Item 8 of this Form 10-K for the foreseeable future.further details on these amendments.
Cash Flows
|
| | | | | | | | | | | | |
| | | Year Ended September 30, |
| (in millions) | | 2017 | | 2016 | | 2015 |
| Cash flows provided by (used in) | | |
| | |
| | |
|
| Operating activities | | $ | 246.2 |
| | $ | 238.2 |
| | $ | 105.0 |
|
| Investing activities | | (13.5 | ) | | (253.5 | ) | | (29.5 | ) |
| Financing activities | | (215.1 | ) | | 21.6 |
| | (83.2 | ) |
| Effect of exchange rate changes on cash and cash equivalents | | (3.6 | ) | | (2.6 | ) | | (2.0 | ) |
| Increase (decrease) in cash and cash equivalents | | $ | 14.0 |
| | $ | 3.7 |
| | $ | (9.7 | ) |
| | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended September 30, |
| (in millions) | | 2023 | | 2022 | | 2021 | | |
| Cash flows provided by (used in): | | | | | | | | |
| Operating activities from continuing operations | | $ | 207.0 | | | $ | 63.3 | | | $ | 362.7 | | | |
| Investing activities from continuing operations | | (722.3) | | | (131.7) | | | 137.6 | | | |
| Financing activities from continuing operations | | 693.4 | | | (244.2) | | | (523.3) | | | |
| Net cash flows from discontinued operations | | (144.4) | | | 116.1 | | | 154.1 | | | |
| Effect of exchange rate changes on cash and cash equivalents | | (21.1) | | | (16.8) | | | 8.0 | | | |
| Net cash flows | | $ | 12.6 | | | $ | (213.3) | | | $ | 139.1 | | | |
Operating Activities
Operating activities provided $246.2$207.0 of cash during 2017, in contrast to providing $238.22023, and provided $63.3 of cash during 2016, an $8.02022, a $143.7 (227%) increase. ThisThe increase in operating cash flow was primarily due to thefavorable timing of working capital requirements within the Process Equipment Group, which was partially offset by the $80 contributionrelated to our U.S. defined benefit pension plan in 2017. In addition, aslarge plastics projects and a result of the pension contribution, tax payments were lower in 2017 by approximately $30. The decrease in working capital requirements was primarily driven by the timing of project orders, the associated advanced payments, and decreased payables to suppliers that were outstanding at the end of 2017.inventory.
Operating activities provided $238.2 of cash during 2016, in contrast to providing $105.0 of cash during 2015, a $133.2 increase. This increase was primarily driven by the timing of working capital requirements within the Process Equipment Group and the payment of a litigation settlement at Batesville in fiscal 2015 that did not repeat in 2016. These increases in operating cash flow were partially offset by an increase in cash paid for taxes. The decrease in working capital requirements within the Process Equipment Group was primarily driven by the timing of project orders and the associated payables to suppliers that were outstanding at the end of 2016. The working capital balance at September 30, 2015 was higher due to an increased outflow of supplier payments in 2015 driven by several significant project orders that were received in the final quarter of 2014. In addition, payments on certain customer contracts were delayed due to the movement of delivery dates, causing our net working capital investment in those contracts to increase during 2015.
Working capital requirements for the Process Equipment Groupour reportable operating segments fluctuate and may continue to fluctuate in this mannerthe future due primarily to the type of product and geography of customer projects in process at any point in time. Working capital needs are lower when advance payments from customers are more heavily weighted toward the beginning of the project. Conversely, working capital needs are higher when a larger portion of the cash is to be received in later stages of manufacturing.
Investing Activities
Cash usedThe $590.6 decrease in net cash flows from investing activities in 2017 compared to 2016 decreased $240during 2023 was primarily due to the acquisitions of AbelFPM, Linxis and Red ValvePeerless, and an increase in 2016, compared to no acquisitions in 2017.
Cash used in investing activities in 2016 compared to 2015 increased $224.0 primarily due to the acquisitions of Abel and Red Valve,capital expenditures, partially offset by lower capital expenditures.the proceeds received on the divestiture of the historical Batesville reportable operating segment. See Notes 4 and 5 to our Consolidated Financial Statements included in Part II, Item 8, of this Form 10-K for further information on these acquisitions and divestitures.
Financing Activities
Cash provided by (used in) financing activities was largely impacted by our net borrowing activities.activity and share repurchases. Our general practice is to utilize ouruse available cash to pay down debt unless it is needed for an acquisition. Daily borrowing and repayment activity under the FacilityAmended Credit Agreement may fluctuate significantly between periods as we fulfill the capital needs of our business units. Cash used in financing activities in 2017 was $215.1 compared to cash provided by financing activities in 2016during 2023 was $693.4, an increase of $21.6. We had net repayments of $147.2 in 2017 compared$937.6 from 2022. The increase was primarily due to net borrowings of $83.6 in 2016. The decrease in cash provided by financing activities was due primarily to borrowings usedhigher borrowing activity to fund the acquisitions, of Abel and Red Valve in 2016 that did not repeat in 2017 and an increase
partially offset by a decreases in repurchases of common stock, partially offset by the borrowings used to fund the $80.0 contribution to the Company’s U.S. defined benefit pension plan in 2017 and an increase in proceeds from stock plans.stock.
Cash provided by financing activities in 2016 was $21.6 compared to cash used in financing activities in 2015 of $83.2. We had net borrowings of $83.6 in 2016 compared to net repayments of $26.2 in 2015, due primarily to the acquisitions of Abel and Red Valve, partially offset by the improvement in working capital needs within the Process Equipment Group.
We returned $51.9$61.3 to shareholders in 20172023 in the form of quarterly dividends.dividends compared to $62.0 in 2022. We increased our quarterly dividend in 20172023 to $0.2050$0.2200 per common share from $0.2025$0.2175 paid during 2016 and $0.2000 paid in 2015. We repurchased approximately 778,000 shares of our common stock during 2017, for a total cost of approximately $28.0.2022.
Off-Balance Sheet Arrangements
As part of its normal course of business, Hillenbrand is a party to various financial guarantees and other commitments. These arrangements involve elements of performance and credit risk that are not included in the Consolidated Balance Sheets. The possibility that Hillenbrand would have to make actual cash expenditures in connection with these obligations is largely dependent on the performance of the guaranteed party, or the occurrence of future events that Hillenbrand is unable to predict. We have no significant off-balance sheet arrangements outsidefinancing agreements or guarantees as of those disclosed previously in the AbilitySeptember 30, 2023 that we believe are reasonably likely to Access Cash sectionhave a current or the Contractual Obligations and Contingent Liabilities and Commitments section below.
Inflation
Thefuture effect on our financial condition, results of broad-based inflation on the Company’s revenues and net earnings was not significant in 2017, 2016,operations, or 2015.cash flows.
Contractual Obligations and Contingent Liabilities and Commitments
The following table summarizes our future obligations not quantified and disclosed elsewhere in this Form 10-K as of September 30, 2017.2023. This will help give you an understanding of the significance of cash outlays that are fixed beyond the normal accounts payable and other obligations we have already incurred, and have recorded, and disclosed in the financial statements.Consolidated Financial Statements included in Part II, Item 8, of this Form 10-K.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Payment Due by Period |
| (in millions) | | Total | | Less Than 1 Year | | 1-3 Years | | 4-5 Years | | After 5 Years |
| 10 year, 5.5% fixed rate senior unsecured notes | | $ | 150.0 |
| | $ | — |
| | $ | 150.0 |
| | $ | — |
| | $ | — |
|
Revolving credit facility (1) | | 68.0 |
| | — |
| | 68.0 |
| | — |
| | — |
|
| Term loan | | 148.5 |
| | 18.0 |
| | 130.5 |
| | — |
| | — |
|
| Series A Notes | | 100.0 |
| | — |
| | — |
| | — |
| | 100.0 |
|
Interest on financing agreements (2) | | 69.0 |
| | 17.9 |
| | 31.0 |
| | 9.8 |
| | 10.3 |
|
| Operating lease obligations (noncancellable) | | 100.4 |
| | 18.5 |
| | 27.9 |
| | 18.7 |
| | 35.3 |
|
Purchase obligations (3) | | 198.1 |
| | 190.0 |
| | 7.3 |
| | 0.8 |
| | — |
|
Defined benefit plan funding (4) | | 138.6 |
| | 10.7 |
| | 21.2 |
| | 20.0 |
| | 86.7 |
|
Other long-term liabilities (5) | | 19.1 |
| | 5.6 |
| | 4.7 |
| | 2.4 |
| | 6.4 |
|
Total contractual obligations (6) | | $ | 991.7 |
| | $ | 260.7 |
| | $ | 440.6 |
| | $ | 51.7 |
| | $ | 238.7 |
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| | | Payment Due by Period |
| (in millions) | | Total | | Less
Than 1
Year | | 1-3
Years | | 4-5
Years | | After 5
Years |
Interest on financing agreements (1) | | 375.1 | | | 106.2 | | | 177.6 | | | 59.6 | | | 31.7 | |
Purchase obligations (2) | | 383.7 | | | 364.0 | | | 18.7 | | | 0.9 | | | 0.1 | |
Other obligations (3) | | 49.9 | | | 35.0 | | | 8.7 | | | 2.0 | | | 4.2 | |
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Total contractual obligations (4)(5) | | $ | 808.7 | | | $ | 505.2 | | | $ | 205.0 | | | $ | 62.5 | | | $ | 36.0 | |
(1)Cash obligations for interest requirements relate to our fixed-rate debt obligations at the contractual rates as of September 30, 2023.
(2)Agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction.
(3)Primarily includes estimated payments for amounts payable to a financial institution in connection with a trade receivables financing arrangement, transition tax liability, the estimated liquidation of liabilities related to both our self-insurance reserves, and severance payments.
(4)We have excluded from the table our $38.9 liability related to uncertain tax positions as the current portion is not significant and we are not able to reasonably estimate the timing of the long-term portion.
(5)See Notes 6, 7, and 8 to our Consolidated Financial Statements included in Part II, Item 8, of this Form 10-K for lease, financing, and pension obligations, respectively.
Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities
Summarized financial information of Hillenbrand (the “Parent”) and our subsidiaries that are guarantors of our senior unsecured notes (the “Guarantor Subsidiaries”) is shown below on a combined basis as the “Obligor Group.” The Company’s senior unsecured notes are guaranteed by certain of our wholly-owned domestic subsidiaries and rank equally in right of payment with all of our existing and financial information of the Obligor Group. All intercompany balances and transactions between the Parent and Guarantor Subsidiaries have been eliminated and all information excludes subsidiaries that are not issuers or guarantors of our senior unsecured notes, including earnings from and investments in these entities.
Upon the divestiture of Batesville on February 1, 2023, each of the subsidiaries of Batesville that were Guarantor Subsidiaries ceased to be a guarantor of the senior unsecured notes.
| | | | | | | | | | | | | | |
| | September 30, 2023 | | September 30, 2022 |
| Combined Balance Sheets Information: | | | | |
Current assets (1) | | $ | 2,710.8 | | | $ | 2,590.3 | |
| Non-current assets | | 3,533.3 | | | 2,656.1 | |
| Current liabilities | | 985.1 | | | 623.2 | |
| Non-current liabilities | | 1,583.5 | | | 1,289.6 | |
| | | | |
| | Year Ended
September 30, 2023 | | Year Ended
September 30, 2022 |
| Combined Statements of Operations Information: | | | | |
Net revenue (2) | | $ | 441.5 | | | $ | 1,042.0 | |
| Gross profit | | 93.0 | | | 353.5 | |
| Net income attributable to Obligors | | 223.2 | | | 396.7 | |
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(1) | Our revolving credit facility expires in December 2019. Although we may make earlier principal payments, we have reflected the principal balance due at expiration. |
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(2) | Cash obligations for interest requirements relate to our fixed-rate debt obligation at its contractual rate and borrowings under the variable-rate revolving credit facility and term loan at their current rate at September 30, 2017. |
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(3) | Agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. |
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(4) | Includes both projected contributions to achieve minimum funding objectives and additional discretionary contributions, where currently planned. |
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(5) | Includes the estimated liquidation of liabilities related to both our short-term and long-term casket pricing obligation, self-insurance reserves, and severance payments. |
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(6) | We have excluded from the table our $9.9 liability related to uncertain tax positions as the current portion is not significant and we are not able to reasonably estimate the timing of the long-term portion. |
(1) Current assets include intercompany receivables from non-guarantors of $2,070.6 and $1,868.7 as of September 30, 2023 and September 30, 2022, respectively.
(2) Net revenue includes intercompany sales with non-guarantors of $5.0 and $32.2 for the years ended September 30, 2023 and 2022, respectively.
Recently Issued and Adopted Accounting Standards
For a summary of recently issued and adopted accounting standards applicable to us, see Note 2 to our financial statementsConsolidated Financial Statements included in Part II, Item 8, of this Form 10-K.10-K, none of which has or is expected to have a material impact on the Consolidated Financial Statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In this section, we tell you about market risks we think could have a significant impact on our bottom line or the financial strength of our Company. The term “market risk” generally means how results of operations and the value of assets and liabilities could be affected by market factors such as interest rates, currency exchange rates, the value of commodities, and debt and equity price risks. If those factors change significantly, it could help or hurt our bottom line, depending on how we react to them.
We are exposed to various market risks. We have established policies, procedures, and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks. Our primary exposures are typically to: fluctuations in market prices for purchases of certain commodities; volatility in interest rates associated with our revolving credit facility and term loan;the Facility; volatility in the fair value of the assets held by our pension plans; and variability in exchange rates in foreign locations.
We are subject to market risk from fluctuating market prices of certain purchased commodity raw materials including steel, wood, red metals, and fuel.steel. While these materials are typically available from multiple suppliers, commodity raw materials are subject to market price fluctuations. We generally buy these commodities based upon market prices that are established with the supplier as part of the purchasing process. We generally attempt to obtain firm pricing from our larger suppliers for volumes consistent with planned production. To the extent that commodity prices increase and we do not have firm pricing from our suppliers, or if our
suppliers are not able to honor such prices, we may experience a decline in our gross margins to the extent we are not able to increase selling prices of our products or obtain supply chain efficiencies, including as a result of current global supply chain disruptions, to offset increases in commodity costs.
At September 30, 2017, we had $68.0 outstanding under2023, our $700.0 revolving credit facility and $148.5 outstanding under a related term loan.variable rate debt obligations were $892.6, which included borrowings on the Facility. We are subject to interest rate risk associated with our revolving credit facility and related term loan,such borrowings, which bear a variable rate of interest that is based upon, at the lender’s base rateCompany’s option, (A) if denominated in US dollars, at the Term SOFR Rate or the LIBOR rate.Alternate Base Rate (each as defined in the Amended Credit Agreement), (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, a margin based on the Company’s leverage ratio. The interest we pay on oursuch borrowings is dependent on interest rate conditions and the timing of our financing needs. Part ofIf we assumed borrowings under our variable rate debt obligations remained unchanged for the exposure to this variability is managed through the use of interest rate swaps. Assuming these borrowings remain at $216.5 for 12 months,next fiscal year, a one percentage point change in the related interest rates would increasedecrease or decreaseincrease our annual interest expense by approximately $1.7 (net of related interest rate swap impact). Based upon debt balances as of September 30, 2016, a one percentage point change in the related interest rates would have increased or decreased our annual interest expense by approximately $3.6.$8.9.
Our pension plans’ assets are also subject to volatility that can be caused by fluctuationsfluctuations in general economic conditions. Plan assets are invested by the plans’ fiduciaries, which direct investments according to specific policies. Those policies subject investments to the following restrictions in our domestic plan: short-term securities must be rated A2/P2 or higher,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. Favorable or unfavorable investment performance over the long term will impact our pension expense if it deviates from our assumption related to future rate of return.
We are subject to variability in foreign currency exchange rates in our international operations. Exposure to this variability is periodically managed through the use of natural hedges and also by entering into currency exchange agreements. AsThe aggregate notional amount of all derivative instruments was $164.6 and $156 at September 30, 2023 and 2022, respectively. The carrying value of all of the Company’s derivative instruments at fair value resulted in assets of $1.5 and $2.6 (included in prepaid expenses and other current assets) and liabilities of $1.7 and $8.0 (included in other current liabilities and other long-term liabilities) at September 30, 2023 and 2022, respectively. The fair value of these financial instruments would hypothetically change by $1.2 and $7.6 as of September 30, 20172023 and 2016,2022, respectively, if there were a 10% changemovement in the foreign exchange rates affecting unhedged balance sheet exposures would have impacted pre-tax earnings by less than 1%.end-of-period market rates.
The translation of the financial statements of our non-U.S. operations from local currencies into U.S. dollars is also sensitive to changes in foreign exchange rates. These translation gains or losses are recorded as cumulative translation adjustments (“CTA”) within accumulated other comprehensive loss on our balance sheet.Consolidated Balance Sheets. The hypothetical change in CTA is calculated by multiplying the net assets of our non-U.S. operations by a 10% change in the applicable foreign exchange rates. The result of the appreciation or depreciation of all applicable currencies against the U.S. dollar would be a change in shareholders’ equity of approximately $55$122.0 and $63$118.6 as of September 30, 20172023 and 2016.2022, respectively.
Item 8. Financial Statements and Supplementary DataFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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| Consolidated Financial Statements: | |
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Consolidated Financial Statement Schedule for years ended September 30, 2017, 2016,2023, 2022, and 2015:2021: | |
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MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, management has conducted an assessment, including testing, using the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework (2013 Framework). The Company’s internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, (asas amended, Exchange Act), is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has excluded Linxis, Peerless, and FPM from its assessment of internal controls over financial reporting as of September 30, 2023, because the Company acquired Linxis effective October 6, 2022, Peerless effective December 1, 2022, and FPM effective September 1, 2023. Linxis, Peerless, and FPM are included in the 2023 consolidated financial statements of Hillenbrand, Inc. and constituted approximately 35% of total consolidated assets as of September 30, 2023 and approximately 15% of total consolidated net revenue for the year then ended.
Based on our assessment under the criteria established in Internal Control — Integrated Framework (2013 Framework), issued by the COSO, management has concluded that the Company maintained effective internal control over financial reporting as of September 30, 2017.2023.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 2017,2023, has been audited by PricewaterhouseCoopersErnst & Young LLP, an independent registered public accounting firm, as stated in their report included herein.
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| | | | |
| By: | /s/ Eric M. TeegardenMegan A. Walke |
| Eric M. TeegardenMegan A. Walke |
| Vice President Controller and Chief Accounting Officer |
| |
| By: | /s/ Kristina A. CernigliaRobert M. VanHimbergen |
| Kristina A. CernigliaRobert M. VanHimbergen |
| Senior Vice President and Chief Financial Officer |
| |
| By: | /s/ Joe A. RaverKimberly K. Ryan |
| Joe A. RaverKimberly K. Ryan |
| President and Chief Executive Officer |
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors and Shareholders of Hillenbrand, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position ofOpinion on Internal Control over Financial Reporting
We have audited Hillenbrand, Inc. and its subsidiaries’s internal control over financial reporting as of September 30, 2017 and September 30, 2016, and2023, based on criteria established in Internal Control—Integrated Framework issued by the resultsCommittee of their operations and their cash flows for eachSponsoring Organizations of the three years in the period ended September 30, 2017 in conformity with accounting principles generally accepted in the United States of America.Treadway Commission (2013 framework) (the COSO criteria). In addition, in our opinion, the financial statement schedule listed in the accompanying indexpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the CompanyHillenbrand, Inc. (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017,2023, based on criteria establishedthe COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control - Integrated Framework (2013) issued byover Financial Reporting, management’s assessment of and conclusion on the Committeeeffectiveness of Sponsoring Organizationsinternal control over financial reporting did not include the internal controls of LINXIS Group SAS (Linxis), Peerless Food Equipment (Peerless), and Schenck Process Food and Performance Materials (FPM), which are included in the 2023 consolidated financial statements of Hillenbrand, Inc. and constituted approximately 35% of total consolidated assets as of September 30, 2023 and approximately 15% of total consolidated net revenue for the year then ended. Our audit of internal control over financial reporting of the Treadway Commission (COSO). Company also did not include an evaluation of the internal control over financial reporting of Linxis, Peerless, and FPM.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 30, 2023, and the related notes and consolidated financial statement schedule listed in the Index at Item 15(a)(2), and our report dated November 15, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
The Company'sCompany’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management'sManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements,an opinion on the financial statement schedule, and on the Company'sCompany’s internal control over financial reporting based on our integrated audits. audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also includedrisk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audits provideaudit provides a reasonable basis for our opinions.opinion.
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for deferred tax assetsDefinition and liabilities in 2017.Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statementsstatements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Cincinnati, Ohio
November 15, 2023
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Hillenbrand, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hillenbrand, Inc. (the “Company”) as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended September 30, 2023, and the related notes and consolidated financial statement schedule listed in the Index at Item 15(a)(2) (collectively, “the consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2023, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated November 15, 2023, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
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/s/PricewaterhouseCoopers LLP | Revenue Recognition - Over Time Revenue Recognition for Long-Term Manufacturing Contracts |
Indianapolis, IndianaDescription of the Matter
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November 15, 2017As discussed in Note 3 to the consolidated financial statements, $939.8 million of the Company’s total net revenue for the year ended September 30, 2023, relates to net revenue recognized over time from long-term manufacturing contracts and is based on the cost-to-cost input method. Under this method, the Company recognizes net revenue, cost of goods sold and gross margin over time based on costs incurred to date relative to total estimated cost at completion. Auditing the Company's measurement of net revenue recognized over time on long-term manufacturing contracts is especially challenging because it involves subjective management assumptions regarding the estimated remaining costs of the long-term manufacturing contract that could span from several months to several years. These assumptions could be impacted by labor productivity and availability, the complexity of the work to be performed, the cost of materials, and the performance of suppliers and subcontractors and may be affected by future market or economic conditions.
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How We Addressed the Matter in Our Audit
| We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s process to recognize net revenue over time on long-term manufacturing contracts, including internal controls over management’s review of the significant underlying assumptions described above.
Our audit procedures also included, among others, evaluating the significant assumptions and the accuracy and completeness of the underlying data used in management's calculations. This included, for example, inspection of the executed contract and testing management’s cost estimates by comparing the inputs to the Company’s historical data or experience for similar contracts, the performance of sensitivity analyses and the performance of retrospective review analysis of prior management cost estimates to actual costs incurred for completed contracts. Additionally, procedures were performed to evaluate the timely identification of circumstances which may warrant a modification to a previous cost estimate, including changes in the Company’s internal and subcontractor performance trends.
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| Evaluation of Goodwill and Indefinite-Lived Intangible Assets Impairment for the Reporting Units within the Molding Technology Solutions reportable operating segment |
Description of the Matter
| At September 30, 2023, the Company has $633.2 million and $112.1 million of goodwill and indefinite-lived intangible assets, respectively, within the Molding Technology Solutions reportable operating segment. As discussed in Note 2 to the consolidated financial statements, goodwill and indefinite-lived intangible assets are tested for impairment annually on July 1st, or more frequently upon the occurrence of triggering events or substantive changes in circumstances that indicate that the fair value of the reporting unit or indefinite-lived intangible asset may have decreased below the carrying value. The Company’s annual impairment test on July 1, 2023, did not result in an impairment of goodwill or indefinite-lived intangible assets for any of the Company’s reporting units.
Auditing management’s annual goodwill and indefinite-lived intangible assets impairment test on July 1, 2023, related to the reporting units and indefinite-lived intangible assets within the Molding Technology Solutions reportable operating segment was challenging due to the complexity of forecasting the long-term cash flows of these reporting units and related indefinite-lived intangible assets and the significant estimation uncertainty of certain assumptions included within such forecasts. The significant estimation uncertainty was primarily due to the sensitivity of the reporting units’ and related indefinite-lived intangibles assets’ fair value to changes in the significant assumptions used in the income approach and the related relief-from-royalty approach, as applicable, such as forecasted net revenue, earnings before income taxes, depreciation and amortization (EBITDA) margins, discount rates, and royalty rates. These significant assumptions require a high degree of estimation and judgment based on an evaluation of historical performance, current and forecasted industry trends, and macroeconomic conditions.
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How We Addressed the Matter in Our Audit
| We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s annual goodwill and indefinite-lived intangible assets impairment process, including internal controls over management’s review of the significant assumptions described above as well as internal controls over management’s review of its financial forecasts and carrying values of its reporting units and indefinite-lived intangible assets.
To test the estimated fair value of the reporting units and indefinite-lived intangible assets within the Molding Technology Solutions reportable operating segment, we performed audit procedures that included, among others, using an internal valuation specialist to assist in our evaluation of the methodologies and certain significant assumptions used by the Company, specifically the discount rates. We assessed the reasonableness of the Company’s assumptions around forecasted net revenue, EBITDA margins, discount rates, and royalty rates by comparing those assumptions to recent historical performance, current and forecasted economic and industry trends, recent transactions and financial forecasts. We also assessed the reasonableness of estimates included in the Company’s financial forecasts by evaluating how such assumptions compared to economic, industry, and peer expectations. We evaluated management’s historical accuracy of forecasting net revenue and EBITDA margins by comparing past forecasts to subsequent actual activity. We performed various sensitivity analyses around these significant assumptions to understand the impact on the reporting units and indefinite-lived intangible assets fair value calculations.
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| Valuation of the Customer Relationships Intangible Assets Acquired in the LINXIS Group SAS (Linxis) and Schenck Food and Performance Materials (FPM) Business Combinations |
Description of the Matter
| As described in Note 5 of the consolidated financial statements, the Company completed its acquisitions of Linxis and FPM for a total purchase price of $590.8 million and $748.7 million, respectively. The acquisitions were accounted for as business combinations in accordance with Accounting Standards Codification Topic 805, Business Combinations. The consideration paid in the acquisitions must be allocated to the acquired assets and liabilities assumed generally based on their fair value with the excess of the purchase price over those fair values allocated to goodwill.
Auditing the Company’s accounting for its acquisitions of Linxis and FPM was complex primarily due to the significant estimation uncertainty involved in estimating the fair value of the customer relationships intangible assets. The total fair value ascribed to the customer relationships intangible assets for the Linxis and FPM acquisitions was $211.1 million and $290.0 million, respectively. The Company used the multi-period excess earnings method to value the customer relationships intangible assets. The significant assumptions used to estimate the fair value of customer relationships included the forecasted net revenue growth, EBITDA margin, and discount rates. These significant assumptions are forward-looking and could be affected by future economic and market conditions.
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How We Addressed the Matter in Our Audit
| We obtained an understanding, evaluated the design, and tested the operating effectiveness of internal controls over the Company’s accounting for the Linxis and FPM acquisitions, including internal controls over the recognition and measurement of the customer relationships intangible assets and management's judgements and evaluation over the underlying assumptions with regard to the valuation model applied. We also tested management’s internal controls to validate that the data used in the valuation models was complete and accurate.
To test the estimated fair value of the acquired customer relationships intangible assets, our audit procedures included, among others, assessing the appropriateness of the valuation methodology used, evaluating the significant assumptions discussed above, and evaluating the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. For the forecasted net revenue growth and EBITDA margins, we compared the financial projections to current industry and economic trends, the historic financial performance of the acquired businesses, the Company’s history with other acquisitions, and forecasted performance of guideline public companies. We also performed sensitivity analyses to evaluate the changes in the fair value of the customer relationship intangible assets that would result from changes in the significant assumptions. We involved our valuation specialists to assist in evaluating the methodologies used to estimate the fair value of the customer relationships intangible assets and to test certain significant assumptions, including the discount rate, which included comparison of the selected discount rates to the acquired business’ weighted average cost of capital, an evaluation of the relationships of the weighted average cost of capital, internal rate of return and weighted-average return on assets, and consideration of guideline public company benchmarking analyses reflecting the composition of purchase prices for similar transactions.
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/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2019.
Cincinnati, Ohio
November 15, 2023
HILLENBRAND, INC.
CONSOLIDATED STATEMENTS OF INCOMEOPERATIONS
(in millions, except per share amounts)
| | | | Year Ended September 30, | | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 | | 2023 | | 2022 | | 2021 |
| Net revenue | $ | 1,590.2 |
| | $ | 1,538.4 |
| | $ | 1,596.8 |
| Net revenue | $ | 2,826.0 | | | $ | 2,315.3 | | | $ | 2,241.4 | |
| Cost of goods sold | 998.9 |
| | 967.8 |
| | 1,026.4 |
| Cost of goods sold | 1,877.8 | | | 1,551.5 | | | 1,509.1 | |
| Gross profit | 591.3 |
| | 570.6 |
| | 570.4 |
| Gross profit | 948.2 | | | 763.8 | | | 732.3 | |
| Operating expenses | 344.4 |
| | 346.5 |
| | 330.6 |
| Operating expenses | 574.0 | | | 442.7 | | | 451.6 | |
| Amortization expense | 29.2 |
| | 33.0 |
| | 28.1 |
| Amortization expense | 79.6 | | | 54.0 | | | 55.7 | |
| Pension settlement charge | — |
| | — |
| | 17.7 |
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| Interest expense | 25.2 |
| | 25.3 |
| | 23.8 |
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| Other (expense) income, net | (4.2 | ) | | (1.7 | ) | | (7.9 | ) | |
| Loss (gain) on divestitures | | Loss (gain) on divestitures | — | | | 3.1 | | | (67.1) | |
| Impairment charges | | Impairment charges | — | | | — | | | 11.2 | |
| Interest expense, net | | Interest expense, net | 77.7 | | | 64.3 | | | 74.3 | |
| Income before income taxes | 188.3 |
| | 164.1 |
| | 162.3 |
| Income before income taxes | 216.9 | | | 199.7 | | | 206.6 | |
| Income tax expense | 59.9 |
| | 47.3 |
| | 49.1 |
| Income tax expense | 102.8 | | | 84.0 | | | 78.6 | |
| Income from continuing operations | | Income from continuing operations | 114.1 | | | 115.7 | | | 128.0 | |
| Income from discontinued operations (net of income tax expense) | | Income from discontinued operations (net of income tax expense) | 19.5 | | | 99.5 | | | 127.2 | |
| Gain on divestiture of discontinued operations (net of income tax expense) | | Gain on divestiture of discontinued operations (net of income tax expense) | 443.1 | | | — | | | — | |
| Total income from discontinued operations | | Total income from discontinued operations | 462.6 | | | 99.5 | | | 127.2 | |
| Consolidated net income | 128.4 |
| | 116.8 |
| | 113.2 |
| Consolidated net income | 576.7 | | | 215.2 | | | 255.2 | |
| Less: Net income attributable to noncontrolling interests | 2.2 |
| | 4.0 |
| | 1.8 |
| Less: Net income attributable to noncontrolling interests | 7.0 | | | 6.3 | | | 5.3 | |
Net income(1) | $ | 126.2 |
| | $ | 112.8 |
| | $ | 111.4 |
| |
| Net income attributable to Hillenbrand | | Net income attributable to Hillenbrand | $ | 569.7 | | | $ | 208.9 | | | $ | 249.9 | |
| | | | | | | | | | | | |
Net income(1) — per share of common stock | |
| | |
| | |
| |
| Earnings per share | | Earnings per share | |
| Basic earnings per share | $ | 1.99 |
| | $ | 1.78 |
| | $ | 1.76 |
| Basic earnings per share | |
| Income from continuing operations attributable to Hillenbrand | | Income from continuing operations attributable to Hillenbrand | $ | 1.53 | | | $ | 1.52 | | | $ | 1.64 | |
| Income from discontinued operations | | Income from discontinued operations | 6.63 | | | 1.39 | | | 1.70 | |
| Net income attributable to Hillenbrand | | Net income attributable to Hillenbrand | $ | 8.16 | | | $ | 2.91 | | | $ | 3.34 | |
| Diluted earnings per share | $ | 1.97 |
| | $ | 1.77 |
| | $ | 1.74 |
| Diluted earnings per share | | | | | |
| Income from continuing operations attributable to Hillenbrand | | Income from continuing operations attributable to Hillenbrand | $ | 1.53 | | | $ | 1.51 | | | $ | 1.63 | |
| Income from discontinued operations | | Income from discontinued operations | 6.60 | | | 1.38 | | | 1.68 | |
| Net income attributable to Hillenbrand | | Net income attributable to Hillenbrand | $ | 8.13 | | | $ | 2.89 | | | $ | 3.31 | |
| Weighted-average shares outstanding — basic | 63.6 |
| | 63.3 |
| | 63.2 |
| Weighted-average shares outstanding — basic | 69.8 | | | 71.7 | | | 74.9 | |
| Weighted-average shares outstanding — diluted | 64.0 |
| | 63.8 |
| | 63.9 |
| Weighted-average shares outstanding — diluted | 70.1 | | | 72.2 | | | 75.4 | |
| | | | | | | |
| Cash dividends per share | $ | 0.8200 |
| | $ | 0.8100 |
| | $ | 0.8000 |
| |
|
(1) Net income attributable to Hillenbrand
See Notes to Consolidated Financial Statements
HILLENBRAND, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
| | | | Year Ended September 30, | | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 | | 2023 | | 2022 | | 2021 |
| Consolidated net income | $ | 128.4 |
| | $ | 116.8 |
| | $ | 113.2 |
| Consolidated net income | $ | 576.7 | | | $ | 215.2 | | | $ | 255.2 | |
| Other comprehensive (loss) income, net of tax | |
| | |
| | |
| |
| Other comprehensive income (loss), net of tax | | Other comprehensive income (loss), net of tax | |
| Currency translation | 24.9 |
| | (9.8 | ) | | (47.6 | ) | Currency translation | 6.5 | | | (129.0) | | | 34.1 | |
| Pension and postretirement (net of tax of $10.9, $4.8, and $2.1) | 22.2 |
| | (13.1 | ) | | (8.4 | ) | |
| Net unrealized (loss) gain on derivative instruments (net of tax of $1.0, $0.2, and $0.4) | 1.7 |
| | 0.7 |
| | (0.1 | ) | |
| Pension and postretirement | | Pension and postretirement | (1.7) | | | 16.4 | | | 20.4 | |
| Change in net unrealized gain on derivative instruments | | Change in net unrealized gain on derivative instruments | 3.6 | | | 1.1 | | | 1.9 | |
| | Total other comprehensive income (loss), net of tax | 48.8 |
| | (22.2 | ) | | (56.1 | ) | Total other comprehensive income (loss), net of tax | 8.4 | | | (111.5) | | | 56.4 | |
| Consolidated comprehensive income | 177.2 |
| | 94.6 |
| | 57.1 |
| Consolidated comprehensive income | 585.1 | | | 103.7 | | | 311.6 | |
| Less: Comprehensive income attributable to noncontrolling interests | 2.4 |
| | 3.7 |
| | 1.4 |
| Less: Comprehensive income attributable to noncontrolling interests | 6.9 | | | 4.1 | | | 5.2 | |
Comprehensive income(2) | $ | 174.8 |
| | $ | 90.9 |
| | $ | 55.7 |
| |
| Comprehensive income attributable to Hillenbrand | | Comprehensive income attributable to Hillenbrand | $ | 578.2 | | | $ | 99.6 | | | $ | 306.4 | |
(2) Comprehensive income attributable to Hillenbrand
See Notes to Consolidated Financial Statements
HILLENBRAND, INC.
CONSOLIDATED BALANCE SHEETS
(in millions)
|
| | | | | | | |
| | September 30, |
| | 2017 | | 2016 |
| ASSETS | |
| | |
|
| Current Assets | |
| | |
|
| Cash and cash equivalents | $ | 66.0 |
| | $ | 52.0 |
|
| Trade receivables, net | 206.1 |
| | 205.0 |
|
| Receivables from long-term manufacturing contracts | 125.2 |
| | 125.8 |
|
| Inventories | 151.6 |
| | 153.1 |
|
| Deferred income taxes | — |
| | 23.9 |
|
| Prepaid expenses | 28.2 |
| | 18.2 |
|
| Other current assets | 16.5 |
| | 22.3 |
|
| Total current assets | 593.6 |
| | 600.3 |
|
| Property, plant, and equipment, net | 150.4 |
| | 152.5 |
|
| Intangible assets, net | 523.9 |
| | 541.5 |
|
| Goodwill | 647.5 |
| | 634.3 |
|
| Other assets | 41.1 |
| | 31.1 |
|
| Total Assets | $ | 1,956.5 |
| | $ | 1,959.7 |
|
| | | | |
| LIABILITIES | |
| | |
|
| Current Liabilities | |
| | |
|
| Trade accounts payable | $ | 158.0 |
| | $ | 135.7 |
|
| Liabilities from long-term manufacturing contracts and advances | 132.3 |
| | 78.6 |
|
| Current portion of long-term debt | 18.8 |
| | 13.8 |
|
| Accrued compensation | 66.9 |
| | 57.3 |
|
| Deferred income taxes | — |
| | 22.8 |
|
| Other current liabilities | 135.7 |
| | 125.5 |
|
| Total current liabilities | 511.7 |
| | 433.7 |
|
| Long-term debt | 446.9 |
| | 595.1 |
|
| Accrued pension and postretirement healthcare | 129.6 |
| | 232.7 |
|
| Deferred income taxes | 75.7 |
| | 22.6 |
|
| Other long-term liabilities | 26.7 |
| | 29.4 |
|
| Total Liabilities | 1,190.6 |
| | 1,313.5 |
|
| | | | |
| Commitments and contingencies (Note 11) |
|
| |
|
|
| | | | |
| SHAREHOLDERS’ EQUITY | |
| | |
|
Common stock, no par value (63.8 and 63.7 shares issued, 63.1 and 63.0 shares outstanding) | — |
| | — |
|
| Additional paid-in capital | 349.9 |
| | 348.7 |
|
| Retained earnings | 507.1 |
| | 433.3 |
|
| Treasury stock (0.7 and 0.7 shares) | (24.4 | ) | | (19.9 | ) |
| Accumulated other comprehensive loss | (81.2 | ) | | (129.8 | ) |
| Hillenbrand Shareholders’ Equity | 751.4 |
| | 632.3 |
|
| Noncontrolling interests | 14.5 |
| | 13.9 |
|
| Total Shareholders’ Equity | 765.9 |
| | 646.2 |
|
| | | | |
| Total Liabilities and Equity | $ | 1,956.5 |
| | $ | 1,959.7 |
|
| | | | | | | | | | | |
| | September 30, |
| | 2023 | | 2022 |
| ASSETS | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | 242.9 | | | $ | 232.2 | |
| Trade receivables, net | 398.7 | | | 252.9 | |
| Receivables from long-term manufacturing contracts | 260.2 | | | 213.3 | |
| Inventories | 592.6 | | | 485.6 | |
| Prepaid expenses and other current assets | 113.2 | | | 102.8 | |
| Current assets held for sale | — | | | 116.1 | |
| Total current assets | 1,607.6 | | | 1,402.9 | |
| Property, plant, and equipment, net | 320.7 | | | 231.9 | |
| Operating lease right-of-use assets | 111.3 | | | 87.9 | |
| Intangible assets, net | 1,377.1 | | | 808.0 | |
| Goodwill | 2,028.1 | | | 1,151.1 | |
| Other long-term assets | 102.9 | | | 80.4 | |
| Long-term assets held for sale | — | | | 105.3 | |
| Total Assets | $ | 5,547.7 | | | $ | 3,867.5 | |
| | | |
| LIABILITIES | | | |
| Current Liabilities | | | |
| Trade accounts payable | $ | 451.5 | | | $ | 371.0 | |
| Liabilities from long-term manufacturing contracts and advances | 388.5 | | | 290.3 | |
| Current portion of long-term debt | 19.7 | | | — | |
| Accrued compensation | 99.6 | | | 97.0 | |
| Other current liabilities | 331.7 | | | 205.7 | |
| Current liabilities held for sale | — | | | 113.8 | |
| Total current liabilities | 1,291.0 | | | 1,077.8 | |
| Long-term debt | 1,990.4 | | | 1,222.1 | |
| Accrued pension and postretirement healthcare | 101.4 | | | 101.3 | |
| Operating lease liabilities | 88.1 | | | 70.5 | |
| Deferred income taxes | 351.2 | | | 210.2 | |
| Other long-term liabilities | 62.7 | | | 51.8 | |
| Long-term liabilities held for sale | — | | | 25.8 | |
| Total Liabilities | 3,884.8 | | | 2,759.5 | |
| | | |
| Commitments and contingencies (Note 13) | | | |
| | | |
| SHAREHOLDERS’ EQUITY | | | |
Common stock, no par value (75.8 and 75.8 shares issued, 69.9 and 68.9 shares outstanding) | — | | | — | |
| Additional paid-in capital | 709.5 | | | 723.8 | |
| Retained earnings | 1,319.6 | | | 812.0 | |
| Treasury stock (5.9 and 6.9 shares), at cost | (251.7) | | | (297.3) | |
| Accumulated other comprehensive loss | (147.1) | | | (155.6) | |
| Hillenbrand Shareholders’ Equity | 1,630.3 | | | 1,082.9 | |
| Noncontrolling interests | 32.6 | | | 25.1 | |
| Total Shareholders’ Equity | 1,662.9 | | | 1,108.0 | |
| | | |
| Total Liabilities and Equity | $ | 5,547.7 | | | $ | 3,867.5 | |
See Notes to Consolidated Financial Statements
HILLENBRAND, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
| | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 | | 2021 |
| Operating activities from continuing operations | | | | | |
| Consolidated net income | $ | 576.7 | | | $ | 215.2 | | | $ | 255.2 | |
| Adjustments to reconcile consolidated net income to cash provided by operating activities from continuing operations: | | | | | |
| Total income from discontinued operations (net of income tax expense) | (462.6) | | | (99.5) | | | (127.2) | |
| Depreciation and amortization | 125.6 | | | 98.6 | | | 104.6 | |
| | | | | |
| Impairment charges | — | | | — | | | 11.2 | |
| Deferred income taxes | (5.6) | | | 12.5 | | | (7.9) | |
| | | | | |
| Amortization of deferred financing costs | 3.8 | | | 3.6 | | | 7.2 | |
| | | | | |
| Share-based compensation | 18.8 | | | 19.0 | | | 17.4 | |
| | | | | |
| Loss (gain) on divestitures | — | | | 3.1 | | | (67.1) | |
| Trade receivables and receivables from long-term manufacturing contracts | (30.8) | | | (124.2) | | | (17.5) | |
| Inventories | 57.2 | | | (115.7) | | | (30.2) | |
| Prepaid expenses and other current assets | 19.5 | | | (24.0) | | | (1.3) | |
| Trade accounts payable | (14.7) | | | 95.0 | | | 80.8 | |
| Liabilities from long-term manufacturing contracts and advances, | | | | | |
| accrued compensation, and other current liabilities | (95.8) | | | (9.5) | | | 141.9 | |
| Income taxes payable | 29.4 | | | 6.7 | | | (2.6) | |
| Accrued pension and postretirement | (9.4) | | | (9.5) | | | (9.4) | |
| | | | | |
| Other, net | (5.1) | | | (8.0) | | | 7.6 | |
| Net cash provided by operating activities | 207.0 | | | 63.3 | | | 362.7 | |
| | | | | |
| Investing activities from continuing operations | | | | | |
| Capital expenditures | (69.3) | | | (38.3) | | | (28.2) | |
| Proceeds from sales of property, plant, and equipment | 0.8 | | | 1.7 | | | — | |
| Acquisitions of businesses, net of cash acquired | (1,350.9) | | | (90.6) | | | — | |
| Proceeds from divestitures, net of cash divested | 696.7 | | | (4.5) | | | 165.8 | |
| Other, net | 0.4 | | | — | | | — | |
| Net cash (used in) provided by investing activities | (722.3) | | | (131.7) | | | 137.6 | |
| | | | | |
| Financing activities from continuing operations | | | | | |
| Proceeds from issuance of long-term debt | 401.4 | | | — | | | 350.0 | |
| Repayments of long-term debt | (107.5) | | | — | | | (688.8) | |
| Proceeds from revolving credit facility | 1,467.4 | | | 83.0 | | | 395.0 | |
| Repayments on revolving credit facility | (1,009.4) | | | (74.3) | | | (395.0) | |
| Payment of deferred financing costs | (3.3) | | | (3.7) | | | (5.4) | |
| Payment of dividends on common stock | (61.3) | | | (62.0) | | | (64.0) | |
| Repurchases of common stock | — | | | (203.9) | | | (121.1) | |
| Proceeds from stock option exercises and other | 21.0 | | | 25.3 | | | 13.1 | |
| Payments for employee taxes on net settlement equity awards | (12.7) | | | (7.0) | | | (3.5) | |
| Other, net | (2.2) | | | (1.6) | | | (3.6) | |
| Net cash provided by (used in) financing activities | 693.4 | | | (244.2) | | | (523.3) | |
| Cash provided by (used in) continuing operations | 178.1 | | (312.6) | | | (23.0) | |
| | | | | |
| Cash (used in) provided by discontinued operations: | | | | | |
| Operating cash flows | (136.8) | | | 127.8 | | | 165.7 | |
| Investing cash flows | (7.6) | | | (11.7) | | | (11.6) | |
| Total cash (used in) provided by discontinued operations | (144.4) | | | 116.1 | | | 154.1 | |
| Effect of exchange rates on cash and cash equivalents | (21.1) | | | (16.8) | | | 8.0 | |
| | | | | |
| Net cash flows | 12.6 | | | (213.3) | | | 139.1 | |
| | | | | |
| Cash, cash equivalents, restricted cash, and cash and cash equivalents held for sale: | | | | | |
| At beginning of period | 237.6 | | | 450.9 | | | 311.8 | |
| At end of period | $ | 250.2 | | | $ | 237.6 | | | $ | 450.9 | |
| | | | | |
| Cash paid for interest | $ | 80.6 | | | $ | 62.6 | | | $ | 63.2 | |
| Cash paid for income taxes | $ | 238.6 | | | $ | 71.5 | | | $ | 93.2 | |
|
| | | | | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| Operating Activities | |
| | |
| | |
|
| Consolidated net income | $ | 128.4 |
| | $ | 116.8 |
| | $ | 113.2 |
|
| Adjustments to reconcile net income to cash provided by operating activities: | |
| | |
| | |
|
| Depreciation and amortization | 56.6 |
| | 60.4 |
| | 54.3 |
|
| Trade name impairment | — |
| | 2.2 |
| | — |
|
| Pension settlement charge | — |
| | — |
| | 17.7 |
|
| Deferred income taxes | 37.1 |
| | (4.7 | ) | | (0.5 | ) |
| Net loss (gain) on disposal or impairment of property | (4.6 | ) | | 0.3 |
| | (2.1 | ) |
| Equity in net (income) loss from affiliates | 0.4 |
| | (0.3 | ) | | 2.1 |
|
| Share-based compensation | 10.5 |
| | 8.5 |
| | 12.0 |
|
| Trade accounts receivable and receivables on long-term manufacturing contracts | 10.7 |
| | 9.7 |
| | (15.4 | ) |
| Inventories | 5.4 |
| | 11.3 |
| | 5.2 |
|
| Prepaid expenses and other current assets | (6.2 | ) | | 5.5 |
| | (8.5 | ) |
| Trade accounts payable | 17.2 |
| | 30.2 |
| | (76.6 | ) |
| Accrued expenses and other current liabilities | 64.6 |
| | (10.7 | ) | | 1.0 |
|
| Income taxes payable | 4.8 |
| | 3.8 |
| | 13.5 |
|
| Defined benefit plan funding | (90.6 | ) | | (15.5 | ) | | (15.4 | ) |
| Defined benefit plan expense | 6.4 |
| | 11.9 |
| | 14.5 |
|
| Other, net | 5.5 |
| | 8.8 |
| | (10.0 | ) |
| Net cash provided by operating activities | 246.2 |
| | 238.2 |
| | 105.0 |
|
| | | | | | |
| Investing Activities | |
| | |
| | |
|
| Capital expenditures | (22.0 | ) | | (21.2 | ) | | (31.0 | ) |
| Proceeds from sales of property, plant, and equipment | 5.7 |
| | 2.0 |
| | 2.8 |
|
| Acquisitions of businesses, net of cash acquired | — |
| | (235.4 | ) | | — |
|
| Return of investment capital from affiliates | 3.2 |
| | 1.1 |
| | 1.5 |
|
| Other, net | (0.4 | ) | | — |
| | (2.8 | ) |
| Net cash used in investing activities | (13.5 | ) | | (253.5 | ) | | (29.5 | ) |
| | | | | | |
| Financing Activities | |
| | |
| | |
|
| Repayments on term loan | (13.5 | ) | | (9.0 | ) | | (9.0 | ) |
| Proceeds from revolving credit facility | 819.3 |
| | 719.8 |
| | 430.2 |
|
| Repayments on revolving credit facility | (953.0 | ) | | (627.2 | ) | | (547.0 | ) |
| Proceeds from unsecured Series A Notes, net of financing costs | — |
| | — |
| | 99.6 |
|
| Payment of dividends on common stock | (51.9 | ) | | (51.1 | ) | | (50.4 | ) |
| Repurchases of common stock | (28.0 | ) | | (21.2 | ) | | (11.2 | ) |
| Net proceeds on stock plans | 13.7 |
| | 11.1 |
| | 3.4 |
|
| Other, net | (1.7 | ) | | (0.8 | ) | | 1.2 |
|
| Net cash provided by (used in) financing activities | (215.1 | ) | | 21.6 |
| | (83.2 | ) |
| | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | (3.6 | ) | | (2.6 | ) | | (2.0 | ) |
| | | | | | |
| Net cash flows | 14.0 |
| | 3.7 |
| | (9.7 | ) |
| | | | | | |
| Cash and cash equivalents: | |
| | |
| | |
|
| At beginning of period | 52.0 |
| | 48.3 |
| | 58.0 |
|
| At end of period | $ | 66.0 |
| | $ | 52.0 |
| | $ | 48.3 |
|
| | | | | | |
| Cash paid for interest | $ | 20.3 |
| | $ | 22.7 |
| | $ | 20.0 |
|
| Cash paid for income taxes | $ | 18.2 |
| | $ | 48.0 |
| | $ | 36.4 |
|
See Notes to Consolidated Financial Statements
HILLENBRAND, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in millions)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shareholders of Hillenbrand, Inc. |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Loss | | Noncontrolling Interests | | Total |
| | Shares | | | | Shares | | Amount | | | |
| Balance at September 30, 2014 | 63.5 |
| | $ | 342.1 |
| | $ | 311.7 |
| | 0.6 |
| | $ | (18.3 | ) | | $ | (52.2 | ) | | $ | 10.5 |
| | $ | 593.8 |
|
| Total other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (55.7 | ) | | (0.4 | ) | | (56.1 | ) |
| Net income | — |
| | — |
| | 111.4 |
| | — |
| | — |
| | — |
| | 1.8 |
| | 113.2 |
|
| Issuance/retirement of stock for stock awards/options | 0.1 |
| | (5.1 | ) | | — |
| | (0.3 | ) | | 8.5 |
| | — |
| | — |
| | 3.4 |
|
| Share-based compensation | — |
| | 12.0 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 12.0 |
|
| Purchases of common stock | — |
| | — |
| | — |
| | 0.4 |
| | (11.2 | ) | | — |
| | — |
| | (11.2 | ) |
| Dividends | — |
| | 0.6 |
| | (51.0 | ) | | — |
| | — |
| | — |
| | — |
| | (50.4 | ) |
| Other | — |
| | 1.3 |
| | — |
| | — |
| | — |
| | — |
| | (0.2 | ) | | 1.1 |
|
| Balance at September 30, 2015 | 63.6 |
| | 350.9 |
| | 372.1 |
| | 0.7 |
| | (21.0 | ) | | (107.9 | ) | | 11.7 |
| | 605.8 |
|
| Total other comprehensive loss, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | (21.9 | ) | | (0.3 | ) | | (22.2 | ) |
| Net income | — |
| | — |
| | 112.8 |
| | — |
| | — |
| | — |
| | 4.0 |
| | 116.8 |
|
| Issuance/retirement of stock for stock awards/options | 0.1 |
| | (11.2 | ) | | — |
| | (0.7 | ) | | 22.3 |
| | — |
| | — |
| | 11.1 |
|
| Share-based compensation | — |
| | 8.5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 8.5 |
|
| Purchases of common stock | — |
| | — |
| | — |
| | 0.7 |
| | (21.2 | ) | | — |
| | — |
| | (21.2 | ) |
| Dividends | — |
| | 0.5 |
| | (51.6 | ) | | — |
| | — |
| | — |
| | (1.5 | ) | | (52.6 | ) |
| Balance at September 30, 2016 | 63.7 |
| | 348.7 |
| | 433.3 |
| | 0.7 |
| | (19.9 | ) | | (129.8 | ) | | 13.9 |
| | 646.2 |
|
| Total other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | — |
| | 48.6 |
| | 0.2 |
| | 48.8 |
|
| Net income | — |
| | — |
| | 126.2 |
| | — |
| | — |
| | — |
| | 2.2 |
| | 128.4 |
|
| Issuance/retirement of stock for stock awards/options | 0.1 |
| | (9.8 | ) | | — |
| | (0.7 | ) | | 23.5 |
| | — |
| | — |
| | 13.7 |
|
| Share-based compensation | — |
| | 10.5 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 10.5 |
|
| Purchases of common stock | — |
| | — |
| | — |
| | 0.7 |
| | (28.0 | ) | | — |
| | — |
| | (28.0 | ) |
| Dividends | — |
| | 0.5 |
| | (52.4 | ) | | — |
| | — |
| | — |
| | (1.8 | ) | | (53.7 | ) |
| Balance at September 30, 2017 | 63.8 |
| | $ | 349.9 |
| | $ | 507.1 |
| | 0.7 |
| | $ | (24.4 | ) | | $ | (81.2 | ) | | $ | 14.5 |
| | $ | 765.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Shareholders of Hillenbrand, Inc. | | | | | | |
| | Common Stock | | Additional
Paid-in
Capital | | Retained
Earnings | | Treasury Stock | | Accumulated
Other
Comprehensive
Loss | | Noncontrolling
Interests | | Total | | |
| | Shares | | | | Shares | | Amount | | | | | |
| Balance at September 30, 2020 | 75.8 | | | $ | 723.6 | | | $ | 481.4 | | | 1.0 | | | $ | (43.2) | | | $ | (102.8) | | | $ | 20.4 | | | $ | 1,079.4 | | | |
| Total other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | 56.5 | | | (0.1) | | | 56.4 | | | |
| Net income | — | | | — | | | 249.9 | | | — | | | — | | | — | | | 5.3 | | | 255.2 | | | |
| Issuance/retirement of stock for stock awards/options | — | | | (19.0) | | | — | | | (0.7) | | | 28.6 | | | — | | | — | | | 9.6 | | | |
| Share-based compensation | — | | | 19.7 | | | — | | | — | | | — | | | — | | | — | | | 19.7 | | | |
| Purchases of common stock | — | | | — | | | — | | | 2.8 | | | (121.1) | | | — | | | — | | | (121.1) | | | |
| Dividends ($0.8600 per share) | — | | | 1.1 | | | (65.1) | | | — | | | — | | | — | | | (3.0) | | | (67.0) | | | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Balance at September 30, 2021 | 75.8 | | | 725.4 | | | 666.2 | | | 3.1 | | | (135.7) | | | (46.3) | | | 22.6 | | | 1,232.2 | | | |
| Total other comprehensive loss, net of tax | — | | | — | | | — | | | — | | | — | | | (109.3) | | | (2.2) | | | (111.5) | | | |
| Net income | — | | | — | | | 208.9 | | | — | | | — | | | — | | | 6.3 | | | 215.2 | | | |
| Issuance/retirement of stock for stock awards/options | — | | | (24.0) | | | — | | | (1.0) | | | 42.3 | | | — | | | — | | | 18.3 | | | |
| Share-based compensation | — | | | 21.3 | | | — | | | — | | | — | | | — | | | — | | | 21.3 | | | |
| Purchases of common stock | — | | | — | | | — | | | 4.8 | | | (203.9) | | | — | | | — | | | (203.9) | | | |
| Dividends ($0.8700 per share) | — | | | 1.1 | | | (63.1) | | | — | | | — | | | — | | | (1.6) | | | (63.6) | | | |
| | | | | | | | | | | | | | | | | |
| Balance at September 30, 2022 | 75.8 | | | 723.8 | | | 812.0 | | | 6.9 | | | (297.3) | | | (155.6) | | | 25.1 | | | 1,108.0 | | | |
| Total other comprehensive income (loss), net of tax | — | | | — | | | — | | | — | | | — | | | 8.5 | | | (0.1) | | | 8.4 | | | |
| Net income | — | | | — | | | 569.7 | | | — | | | — | | | — | | | 7.0 | | | 576.7 | | | |
| Issuance/retirement of stock for stock awards/options | — | | | (37.3) | | | — | | | (1.0) | | | 45.6 | | | — | | | — | | | 8.3 | | | |
| Share-based compensation | — | | | 22.2 | | | — | | | — | | | — | | | — | | | — | | | 22.2 | | | |
| | | | | | | | | | | | | | | | | |
| Dividends ($0.8800 per share) | — | | | 0.8 | | | (62.1) | | | — | | | — | | | — | | | (1.6) | | | (62.9) | | | |
| Acquisition of noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | 3.0 | | | 3.0 | | | |
| Purchase of noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | (0.8) | | | (0.8) | | | |
| Balance at September 30, 2023 | 75.8 | | | $ | 709.5 | | | $ | 1,319.6 | | | 5.9 | | | $ | (251.7) | | | $ | (147.1) | | | $ | 32.6 | | | $ | 1,662.9 | | | |
| | | | | | | | | | | | | | | | | |
See Notes to Consolidated Financial Statements
HILLENBRAND, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions, except share and per share data)
1.Background
Hillenbrand, Inc. (“Hillenbrand” or the “Company”) is a global diversified industrial company with multiple market-leadingthat provides highly-engineered processing equipment and solutions to customers around the world. Our portfolio is composed of leading industrial brands that serve large, attractive end markets, including durable plastics, food, and recycling. Guided by our Purpose, Shape What Matters For Tomorrow™, we pursue excellence, collaboration, and innovation to shape solutions that best serve our people, our customers, and our communities. Customers choose Hillenbrand due to our reputation for designing, manufacturing, and servicing highly-engineered, mission-critical equipment and solutions that meet their unique and complex processing requirements.
On February 1, 2023, the Company completed the divestiture of its historical Batesville reportable operating segment (“Batesville”) to BL Memorial Partners, LLC, a wideDelaware limited liability company owned by funds affiliated with LongRange Capital, L.P., for $761.5, subject to customary post-closing adjustments, and including an $11.5 subordinated note.
This divestiture represented a strategic shift in Hillenbrand’s business and qualified as a discontinued operation. Accordingly, the operating results and cash flows related to Batesville have been reflected as discontinued operations in the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows for all periods presented, while the assets and liabilities that were divested were classified within the Consolidated Balance Sheets as held for sale in the periods preceding the divestiture. Unless otherwise noted, discussion within the notes to the Consolidated Financial Statements relates to continuing operations only and excludes Batesville. See Note 4 for additional information on this divestiture.
The Company is providing, and will continue to provide, certain transition services to Batesville for applicable fees that are not material to the Company. The transition services vary in duration depending upon the type of service provided.
As a result of the divestiture of Batesville, Hillenbrand is now composed of two reportable operating segments: Advanced Process Solutions and Molding Technology Solutions. Advanced Process Solutions is a leading global provider of highly-engineered process and material handling equipment, systems, and aftermarket parts and services for a variety of industries, aroundincluding durable plastics, food, and recycling. Key technologies within the world. We strive to provide superior return for our shareholders, exceptional value for our customers,Advanced Process Solutions portfolio include compounding, extrusion, material handling, conveying, mixing, ingredient automation, portion process, and great professional opportunities for our employees through deployment of the Hillenbrand Operating Model (“HOM”). The HOMscreening and separating equipment. Molding Technology Solutions is a consistentglobal leader in highly-engineered equipment, systems, and repeatable framework designed to produce sustainable and predictable results. The HOM describes our mission, vision, values and mindset as leaders; applies our management practices in Strategy Management, Segmentation, Lean, Talent Development, and Acquisitions; and prescribes three steps (Understand, Focus, and Grow) designedto make our businesses both bigger and better. Our goal is to continue developing Hillenbrand as a world-class global diversified industrial company through the deployment of the HOM.
Our strategy is to leverage our historically strong financial foundation and the implementation of the HOM to deliver sustainable profit growth, revenue expansion and substantial free cash flow and then reinvest available cash in new growth initiatives that are focused on building leadership positions in our core markets and near adjacencies, both organically and inorganically, in order to create shareholder value.
Hillenbrand is composed of two business segments: the Process Equipment Group and Batesville®. The Process Equipment Group businesses design, develop, manufacture,aftermarket parts and service highly engineered industrialfor the plastic technology processing industry. Molding Technology Solutions has a comprehensive product portfolio that includes injection molding and extrusion equipment, around the world. Batesville is a recognized leader in the North American death care industry. Hillenbrand was incorporated on November 1, 2007, in the state of Indianahot runner systems, process control systems, mold bases and began trading on the New York Stock Exchange under the symbol “HI” on April 1, 2008. “Hillenbrand,” “the Company,” “we,” “us,” “our,”components, and similar words refer to Hillenbrandmaintenance, repair, and its subsidiaries.operating (“MRO”) supplies.
2.Summary of Significant Accounting Policies
Basis of presentation — The accompanying consolidated financial statementsConsolidated Financial Statements include the accounts of Hillenbrand and its subsidiaries. They also include twosubsidiaries, as well as four subsidiaries where the Company’s ownership percentage is less than 100%. The portion of the businessbusinesses that isare not owned by the Company is presented as noncontrolling interests within shareholders’ equity in the balance sheets.Consolidated Balance Sheets. Income attributable to the noncontrolling interests is separately reported within the statementsConsolidated Statements of income.Operations. All significant intercompany accounts and transactions have been eliminated. Certain prior period balances have been reclassified to conform to the current presentation.
Use of estimates — WeThe Company prepared the consolidated financial statementsConsolidated Financial Statements in conformity with accounting principlesUnited States (“U.S.”) generally accepted in the U.S.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 financial statementsConsolidated Financial Statements and the reported amounts of revenuesnet revenue and expenses during the reporting period. ActualThe Company’s results couldare affected by economic, political, legislative, regulatory and legal actions. Economic conditions, such as recessionary trends, inflation, interest and monetary exchange rates, government fiscal policies, and changes in the prices of raw materials, can have a significant effect on operations. These factors and other events may cause actual results to differ from thosemanagement’s estimates.
Foreign currency translation — The financial statements of ourthe 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.equity in the Consolidated Balance Sheets. When a transaction is denominated in a currency other than the subsidiary’s functional currency, we recognizethe Company
recognizes a transaction gain or loss in “other (expense) income, net”operating expenses, net within the Consolidated Statements of Operations when the transaction is settled.
Cash and cash equivalents and restricted cash include short-term investments with original maturities of three months or less. The carrying amounts reported in the balance sheetConsolidated Balance Sheets for cash and cash equivalents and restricted cash are valued at cost, which approximates their fair value.
The following table provides a reconciliation of cash and cash equivalents, restricted cash, cash and cash equivalents held for sale reported within the Consolidated Balance Sheets that sum to the total of the same amounts show in the Consolidated Statements of Cash Flows:
| | | | | | | | | | | |
| September 30, |
| 2023 | | 2022 |
| Cash and cash equivalents | $ | 242.9 | | | $ | 232.2 | |
| Short-term restricted cash included in other current assets | 7.3 | | | 3.5 | |
| Cash and cash equivalents held for sale | — | | | 1.9 | |
| | | |
| Total cash, cash equivalents, restricted cash and cash and cash equivalents held for sale shown in the Consolidated Statements of Cash Flows | $ | 250.2 | | | $ | 237.6 | |
Trade receivables are recorded at the invoiced amount and generally do not bear interest, unless they become past due. The allowance for doubtful accountscredit losses is a best estimate of the amount of probable credit losses and collection risk in the existing accounts receivabletrade 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 we believethe Company believes it is probable the receivabletrade receivables will not be recovered. WeThe Company generally holdholds trade accounts receivablereceivables until they are collected. At September 30, 20172023 and 2016, we2022, the Company had reservesan allowance for credit losses against trade receivables of $21.6$10.1 and $21.0.$6.4, respectively.
Inventories are generally valued at the lower of cost or market. Inventory costsnet realizable value, unless the inventories are determined by the last-in, first-out (“LIFO”) methodacquired in a business combination, at which time it is recorded at fair value. See Note 5 for approximately 32% of inventories at September 30, 2017 and 2016.additional information. Costs of remaining inventories have been determined principally by the first-in, first-out (“FIFO”) and average cost methods. IfInventories are comprised of the FIFO method of inventory accounting, whichfollowing amounts at:
approximates current cost, had been used for inventory accounted for using the LIFO method, that inventory would have been approximately $15.0 and $15.2 higher than reported at September 30, 2017 and 2016.
| | | | September 30, | | September 30, |
| | 2017 | | 2016 | | 2023 | | 2022 |
| Raw materials and components | $ | 52.6 |
| | $ | 51.4 |
| Raw materials and components | $ | 285.2 | | | $ | 210.1 | |
| Work in process | 55.4 |
| | 54.0 |
| Work in process | 135.0 | | | 107.9 | |
| Finished goods | 43.6 |
| | 47.7 |
| Finished goods | 172.4 | | | 167.6 | |
| Total inventories | $ | 151.6 |
| | $ | 153.1 |
| Total inventories | $ | 592.6 | | | $ | 485.6 | |
Property, plant, and equipment are carried at cost less accumulated depreciation.depreciation, unless the property, plant and equipment is acquired in a business combination, at which time is recorded at fair value. See Note 5 for additional information on current year business combinations. 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. MaintenanceMajor improvements that extend the useful lives of such assets are capitalized while expenditures for maintenance, repairs, and repairsminor improvements are expensed as incurred. Upon disposal or retirement, the cost and accumulated depreciation of assets are eliminated. Any gain or loss is reflected inwithin operating expenses, net on the Company’s income from operations. We reviewConsolidated 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, 2023, 2022, or 2021. Total depreciation expense for 2017, 2016,the years ended September 30, 2023, 2022, and 20152021 was $25.4, $25.6,$42.1, $41.7, and $26.2.$46.2, respectively. Property, plant, and equipment are summarized as follows at:
| | | | September 30, 2017 | | September 30, 2016 | | September 30, 2023 | | September 30, 2022 |
| | Cost | | Accumulated Depreciation | | Cost | | Accumulated Depreciation | | Cost | | Accumulated
Depreciation | | Cost | | Accumulated
Depreciation |
| Land and land improvements | $ | 15.9 |
| | $ | (3.5 | ) | | $ | 17.3 |
| | $ | (3.6 | ) | Land and land improvements | $ | 31.1 | | | $ | (1.3) | | | $ | 22.2 | | | $ | (1.4) | |
| Buildings and building equipment | 110.5 |
| | (68.0 | ) | | 105.6 |
| | (64.3 | ) | Buildings and building equipment | 144.5 | | | (46.1) | | | 109.5 | | | (38.5) | |
| Machinery and equipment | 335.8 |
| | (240.3 | ) | | 329.0 |
| | (231.5 | ) | Machinery and equipment | 371.8 | | | (179.3) | | | 297.8 | | | (157.7) | |
| Total | $ | 462.2 |
| | $ | (311.8 | ) | | $ | 451.9 |
| | $ | (299.4 | ) | Total | $ | 547.4 | | | $ | (226.7) | | | $ | 429.5 | | | $ | (197.6) | |
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 operating segment, for the years ended September 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | |
| | Advanced Process Solutions | | Molding Technology Solutions | | Total |
| Balance September 30, 2021 | $ | 484.9 | | | $ | 675.4 | | | $ | 1,160.3 | |
Acquisitions (1) | 74.9 | | | — | | | 74.9 | |
| | | | | |
| Foreign currency adjustments | (43.8) | | | (40.3) | | | (84.1) | |
| Balance September 30, 2022 | 516.0 | | | 635.1 | | | 1,151.1 | |
Acquisitions (2) | 859.4 | | | — | | | 859.4 | |
| | | | | |
| | | | | |
| Acquisition measurement period adjustments | (38.9) | | | — | | | (38.9) | |
| Foreign currency adjustments | 58.4 | | | (1.9) | | | 56.5 | |
| Balance September 30, 2023 | $ | 1,394.9 | | | $ | 633.2 | | | $ | 2,028.1 | |
(1)See Note 5 for further information on the acquisitions of Gabler Engineering GmbH and affiliate (“Gabler”) and Herbold Meckesheim GmbH (“Herbold”).
(2)See Note 5 for further information on the acquisitions of LINXIS Group SAS (“Linxis”), the Peerless Food Equipment business (“Peerless”), and the Schenck Process Food and Performance Materials (“FPM”) business
Annual impairment assessment
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 performed its annual July 1 goodwill and indefinite-lived intangible asset impairment assessments 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 for the years ended September 30, 2023 and 2022. As a result of the Milacron acquisition in fiscal 2020 and the impact of macroeconomic conditions, 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, 2023, for all three reporting units within the Molding Technology Solutions reportable operating segment ranged from approximately 10% to 28% greater than their carrying value (13% to 54% 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 net 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, 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.
Intangible assets are stated at the lower of cost or fair value. With the exception of certain trade names, intangible assets are amortized on a straight-line basis over periods ranging from three to 21 years, representing the period over which we expectthe Company expects to receive future economic benefits from these intangible assets. We assessThe 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: $32.2$102.7 in 2018, $32.02024, $99.8 in 2019, $31.42025, $99.1 in 2020, $30.42026, $99.0 in 2021,2027, and $29.3$99.0 in 2022.2028. Intangible assets are summarized as follows at:
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2023 | | September 30, 2022 |
| | Cost | | Accumulated
Amortization | | Cost | | Accumulated
Amortization |
| Finite-lived assets: | | | | | | | |
| Customer relationships | 1,290.2 | | | (291.4) | | | 739.6 | | | (221.1) | |
| Technology, including patents | 192.3 | | | (83.1) | | | 132.9 | | | (68.4) | |
| Software | 41.7 | | | (31.7) | | | 34.4 | | | (27.0) | |
| Trade Names | 41.9 | | | (4.2) | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| | 1,566.1 | | | (410.4) | | | 906.9 | | | (316.5) | |
| Indefinite-lived assets: | | | | | | | |
| Trade names | 221.4 | | | — | | | 217.6 | | | — | |
| | | | | | | |
| Total | $ | 1,787.5 | | | $ | (410.4) | | | $ | 1,124.5 | | | $ | (316.5) | |
|
| | | | | | | | | | | | | | | |
| | September 30, 2017 | | September 30, 2016 |
| | Cost | | Accumulated Amortization | | Cost | | Accumulated Amortization |
| Finite-lived assets: | |
| | |
| | |
| | |
|
| Trade names | $ | 0.2 |
| | $ | (0.1 | ) | | $ | 0.2 |
| | $ | (0.1 | ) |
| Customer relationships | 468.7 |
| | (125.9 | ) | | 459.5 |
| | (100.7 | ) |
| Technology, including patents | 80.7 |
| | (39.9 | ) | | 77.9 |
| | (33.3 | ) |
| Software | 48.3 |
| | (41.5 | ) | | 47.4 |
| | (39.8 | ) |
| Other | 0.2 |
| | (0.2 | ) | | 0.4 |
| | (0.3 | ) |
| | 598.1 |
| | (207.6 | ) | | 585.4 |
| | (174.2 | ) |
| Indefinite-lived assets: | |
| | |
| | |
| | |
|
| Trade names | 133.4 |
| | — |
| | 130.3 |
| | — |
|
| | | | | | | | |
| Total | $ | 731.5 |
| | $ | (207.6 | ) | | $ | 715.7 |
| | $ | (174.2 | ) |
In the third quarterFinite-lived intangible assets, net of 2016, the Company recorded a trade name impairment charge of $2.2,$740.0 and $136.8 are included in the Advanced Process Solutions reportable operating expenses, on two trade names related to the Process Equipment Group segment. The declinesegment at September 30, 2023 and 2022, respectively. Indefinite-lived intangible assets of $109.3 and $105.5 are included in the estimated fair value of these trade names was largely driven by the decreased demand for equipment and parts used in coal mining and coal power. As ofAdvanced Process Solutions reportable operating segment at September 30, 2017, we had approximately $13 of trade name book value2023 and 2022, respectively. The net change in intangible assets in the Advanced Process Equipment Group segment’s reporting units most significantly impactedSolutions reportable operating segment during the years ended September 30, 2023 and 2022, was driven primarily by demand for coal miningacquisitions, amortization, and coal power.foreign currency adjustments. Finite-lived intangible assets, net of $412.9 and $450.3 are included in the Molding Technology Solutions reportable operating segment at September 30, 2023 and 2022, respectively. Indefinite-lived intangible assets of $112.1 are included in the Molding Technology Solutions reportable operating segment at both September 30, 2023 and 2022. The net change in intangible assets in the Molding Technology Solutions reportable operating segment during the years ended September 30, 2023 and 2022, was driven primarily by amortization and foreign currency adjustments.
Annual impairment assessment
As a result of the required annual impairment assessment performed in the thirdfourth quarter of 2017,2023 and 2022, as discussed in the goodwill section above, the fair value of indefinite-lived trade names was determined to meet or exceed the carrying value for all indefinite-lived trade names, resulting in no impairment to indefinite-lived trade names.
Goodwill is not amortized, but is subject to annual impairment tests. Goodwill has been assigned to reporting units. We assess the carrying value of goodwill annually, or more often if events or changes in circumstances indicate there may be impairment. Impairment testing is performed at a reporting unit level.
|
| | | | | | | | | | | |
| | Process Equipment Group | | Batesville | | Total |
| Balance September 30, 2015 | $ | 535.7 |
| | $ | 8.3 |
| | $ | 544.0 |
|
| Acquisitions | 96.4 |
| | — |
| | 96.4 |
|
| Adjustments | (0.3 | ) | | — |
| | (0.3 | ) |
| Foreign currency adjustments | (5.8 | ) | | — |
| | (5.8 | ) |
| Balance September 30, 2016 | 626.0 |
| | 8.3 |
| | 634.3 |
|
| Acquisitions, including purchase price adjustments | (0.9 | ) | | — |
| | (0.9 | ) |
| Foreign currency adjustments | 14.1 |
| | — |
| | 14.1 |
|
| Balance September 30, 2017 | $ | 639.2 |
| | $ | 8.3 |
| | $ | 647.5 |
|
Asnames as a result of the required annual impairment assessment performed intests during the third quarter of 2017, the Company tested the recoverability of its goodwill,years ended September 30, 2023 and in all reporting units,2022. The key assumptions used to determine the fair value of goodwill was determined to exceed the carrying value, resultingCompany’s indefinite-lived trade names are consistent with those described in no impairment of goodwill. Since the fair value of each reporting unit exceeded its carrying value,Goodwill section above, with the second stepexception of the goodwill impairment test was not necessary. The fair value of the reporting unitroyalty rate utilized in the Process Equipment Group segment that is most directly impacted by demand in domestic coal mining and coal power exceeded its carrying value by less than 10%. The carrying value of goodwill at September 30, 2017 for this reporting unit was $71.3. In the event that the assumptions used (e.g., order backlog, revenue and profit growth rates, discount rate, industry valuation multiples) for this reporting unit are not consistent with actual performance in 2018, we may be requiredrelief-from-royalty method, which ranged from 0.5% to perform an interim impairment analysis with respect to the carrying value of goodwill for this reporting unit prior to our annual test, and based on the outcome of that analysis, could be required to take a non-cash impairment charge as a result of any such test.3.0%.
Investments — Our investment portfolio consists of investments in private equity limited partnerships. The carrying value of the portfolio was $1.4 and $7.6 at September 30, 2017 and 2016 and is included in other assets on the balance sheets. The fair value of these investments is not readily available. We use the equity method of accounting for substantially all private equity limited partnerships, with earnings or losses reported in “other (expense) income, net” in the income statements. We regularly evaluate all investments for possible impairment.
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 wethe Company will make payments toward the remediation plan. We doThe 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 — We areThe 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. These policiesClaims 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. OurThe 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 balance sheets.Consolidated Balance Sheets.
Pension benefit plans —The Company sponsors retirement benefit plans covering some of our employees. The funded status of the Company’s retirement benefit plans is recognized in the Consolidated Balance Sheets. The funded status is measured as the difference between the fair value of plan assets and the benefit obligation at September 30, the measurement date. For defined benefit retirement plans, the benefit obligation is the projected benefit obligation (“PBO”). The PBO represents the actuarial present value of benefits expected to be paid upon retirement based on estimated future compensation levels. These valuations reflect the terms of the plans and use participant-specific information such as compensation, age and years of service, as well as certain key assumptions that require significant judgment, including, but not limited to, estimates of discount rates, expected return on plan assets, rate of compensation increases, interest rates and mortality rates. The Company recognizes the change in the fair value of plan assets and net actuarial gains and losses annually in the fourth quarter of each fiscal year and whenever a plan is determined to qualify for a remeasurement. The remaining components of net pension (benefit) costs are recorded ratably on a quarterly basis.
Treasury stock consists of ourthe Company’s common shares that have been issued but subsequently reacquired. We accountThe Company accounts for treasury stock purchases under the cost method. When these shares are reissued, we usethe Company uses an average-cost method to determine cost. Proceeds in excess of cost are credited to additional paid-in capital.
On July 24, 2008, our Board of Directors approved a stock repurchase program forThere were no shares repurchased during the repurchase of up to $100.0 of our common stock. On February 23, 2017, our Board of Directors approved an increase of $100.0 to the existing stock repurchase program. The authorization brings the maximum cumulative repurchase authorization up to $200.0. The repurchase program has no expiration date, but may be terminated by the Board of Directors at any time. As ofyear ended September 30, 2017, we had2023. During the year ended September 30, 2022, the Company repurchased approximately 3,600,0004,767,000 shares for approximately $99.4$203.9 in the aggregate. Such shares were classified as treasury stock. We repurchased approximately 778,000During the years ended September 30, 2023, 2022, and 2021, there were shares of our common stock during 2017, at a total cost of approximately $28.0. In 20171,000,000, 1,000,000, and 2016, approximately 700,000, shares and 800,000 shares wererespectively, issued from treasury stock under our stock compensation programs. At September 30, 2017, we had approximately $100.6 remaining for share repurchases under the existing Board authorization.
Preferred stock — The Company has authorized 1,000,000 shares of preferred stock (no par value), of which no shares were issued or outstanding at September 30, 20172023 and 2016.2022.
Accumulated other comprehensive loss included — Includes all changes in Hillenbrand shareholders’ equity during athe period except those that resulted from investments by or distributions to our shareholders. Accumulated other comprehensive loss was comprised of the following amounts as of:
| | | | September 30, | | September 30, |
| | 2017 | | 2016 | | 2023 | | 2022 |
| Currency translation | $ | (36.9 | ) | | $ | (61.6 | ) | Currency translation | $ | (107.1) | | | $ | (113.7) | |
| Pension and postretirement (net of taxes of $23.4 and $34.1) | (45.3 | ) | | (67.5 | ) | |
| Unrealized gain (loss) on derivative instruments (net of taxes of $0.8 and $0.5) | 1.0 |
| | (0.7 | ) | |
| Pension and postretirement (net of taxes of $11.5 and $11.9) | | Pension and postretirement (net of taxes of $11.5 and $11.9) | (34.5) | | | (32.8) | |
| Unrealized loss on derivative instruments (net of taxes of $0.7 and $1.2) | | Unrealized loss on derivative instruments (net of taxes of $0.7 and $1.2) | (5.5) | | | (9.1) | |
| Accumulated other comprehensive loss | $ | (81.2 | ) | | $ | (129.8 | ) | Accumulated other comprehensive loss | $ | (147.1) | | | $ | (155.6) | |
Revenue recognition — Net revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services and is recognized when performance obligations are satisfied under the terms of contracts with customers.
A performance obligation is deemed to be satisfied by the Company when control of the product or service is transferred to the customer. The transaction price of a contract, or the amount the Company expects to receive upon satisfaction of the performance obligation, is determined by reference to the contract’s terms and includes gross revenue lessadjustments, if applicable, for any variable consideration, such as sales discounts customer rebates,and sales incentives, and product returns, all of which require us to make estimates for the portion of these allowances that have yet to be credited or paid to our customers. We estimate these allowances using the expected value method, which is based upon historical rates and projections of customer purchases toward contractual rebate or incentive thresholds.
A portion of Hillenbrand’s revenue If a contract contains more than one distinct performance obligation, the transaction price is derived from long-term manufacturing contracts. The majority of this revenue is recognizedallocated to each performance obligation based on the percentage-of-completion method. Under this method,standalone selling price of each performance obligation; however, these situations do not occur frequently and are not material to the Consolidated Financial Statements, as our contracts generally include one performance obligation for the transfer of goods or services.
The timing of revenue recognition for the contract’s performance obligation is recognized basedeither over time or at a point in time. We recognize revenue over time for contracts that have an enforceable right to collect payment for performance completed to date upon customer cancellation and provide one or more of the costs incurredfollowing: (i) service over a period of time, (ii) highly customized equipment, or (iii) parts which are highly engineered and have no alternative use. Net revenue generated from standard equipment and highly customized equipment or parts contracts without an enforceable right to payment for performance completed to date, as comparedwell as net revenue from non-specialized parts sales, is recognized at a point in time.
We use the input method of “cost-to-cost” to the total estimated project costs. Approximately 25%, 24%, and 25% of Hillenbrand’srecognize net revenue was attributable to these long-term manufacturing contracts for 2017, 2016, and 2015.
over time. Accounting for these contracts involves management judgment in estimating total contract revenue and cost. Contract revenues arerevenue is largely determined by negotiated contract prices and quantities, modified by our assumptions regarding contract options, change orders, and incentive and award provisions associated with technical performance clauses. Contract costs are incurred over longer periods of time and, accordingly, the estimation of these costs requires management judgment. We measure progress based on costs incurred to date relative to total estimated cost at completion. Incurred cost represents work performed, which corresponds with, and we believe thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, and certain overhead expenses. Cost estimates are largely based on negotiated or estimated purchase contract terms, historicalvarious 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 trends,of suppliers and other economic projections.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. RevenueNet 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. We maintain financial controls over the customer qualification, contract pricing, and estimation processes designed to reduce the risk of contract losses.
Revenue for components, most replacement parts, andStandalone service net revenue is recognized when title and riskeither over time proportionately over the period of loss passesthe underlying contract or as invoiced, depending on the terms of the arrangement. Standalone service revenue is not material to the customer.Company.
Contract balances
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 net 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.
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 become unrecognized when net revenue is recognized and the performance obligation is satisfied.
The balance in receivables from long-term manufacturing contracts at September 30, 2023 and 2022 was $260.2 and $213.3, respectively. The change was driven by acquisitions and the impact of net revenue recognized prior to billings. The balance in the liabilities from long-term manufacturing contracts and advances at September 30, 2023 and 2022 was $388.5 and $290.3, 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, 2023 and 2022 related to liabilities from long-term manufacturing contracts and advances as of September 30, 2022 and 2021 was $218.5 and $203.8, respectively. During the years ended September 30, 2023, 2022, and 2021, 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 costsare expensed as incurred as a component of operating expenses and were $11.9, $12.6,$25.4, $19.8, and $12.7$20.3 for 2017, 2016,the years ended September 30, 2023, 2022, and 2015.2021, respectively.
Warranty costs — We provide forThe 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. OurThe Company’s warranty provision takes into account the best estimate of amounts necessary to settle future and existing claims on products sold. The Process Equipment Group generally offers a one to two-year warranty on a majority of its products. ItCompany 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 $15.8$35.8 and $16.6 for 2017$22.4 as of September 30, 2023 and 2016.2022, respectively. Warranty costs are recorded as a component of cost of goods sold and were $4.1, $4.3,$15.2, $10.6, and $4.0 for 2017, 2016,$13.3 during the years ended September 30, 2023, 2022, and 2015.2021, respectively.
Income taxes — We establishThe Company establishes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.Consolidated Financial Statements. Deferred tax assets and liabilities are determined in part based on the differences between the financial statementsaccounting treatment of tax assets and liabilities under GAAP and the tax basis of assets and liabilities using enactedstatutory 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 consolidated net income in the period that includes the enactment date. The majorityCompany continues to assert that most of the cash at ourits foreign subsidiaries represents earnings considered to be permanently reinvested for which deferred taxes have not been provided,recorded in the Consolidated Financial
Statements, as we dothe Company does not intend, nor do wedoes the Company foresee a need, to repatriate these funds. The Company continues to actively evaluate its global capital deployment and cash needs.
We haveThe 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, we considerthe Company considers the ability to carryback losses to prior tax periods, future taxable income, the reversal of existing temporary differences, and tax planning strategies. We accountThe 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 ourthe Company’s hedging programs are to mitigate exposures in gross margin and non-functional-currency-denominated assets and liabilities. Under these programs, we usethe 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.
TheAdditionally, the Company hasperiodically enters into interest rate and cross currency swaps in place to manage or hedge the risks associated with our indebtedness and interest payments. OurThe Company’s objectives in using these interest rate swaps are to add stability to interest expense and to manage our exposure to interest rate movements.
We require that hedging derivative instruments be highly effective in reducing the risk exposure that they are designated to hedge. As a result, there was no significant ineffectiveness from any of our derivative activities during the period. We formally designate any instrument that meets these hedging criteria as a hedge.
The aggregate notional amount of all derivative instruments was $262.4 and $208.3 at September 30, 2017 and 2016.
We measureCompany measures all derivative instruments at fair value and reportreports them on our balance sheetsthe Consolidated Balance Sheets as assets or liabilities. Contracts designated as hedges for customer orders or intercompany purchases have an offsetting tax-adjusted amount in accumulated other comprehensive gain (loss). Foreign exchange contracts designated to hedge foreign currency exposures within our balance sheet have an offsetting amount recorded in “Other (expense) income, net”.
The carrying value of all of derivative instruments at fair value resulted in assets of $3.8 and $1.4 (included in other current assets and other assets) and liabilities of $2.3 and $3.3 (included in other current liabilities) at September 30, 2017 and 2016. See Note 13 for additional information on the fair value of our derivative instruments.
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 hashave been satisfied. GainsIf a derivative is designated as a fair value hedge, the gain or loss on the derivative and lossesthe 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 loss 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 $164.6 and $156.0 at September 30, 2023 and 2022, respectively. The carrying value of all of the Company’s derivative instruments at fair value resulted in assets of $1.5 and $2.6 (included in prepaid expenses and other current assets) and liabilities of $1.7 and $8.0 (included in other current liabilities and other long-term liabilities) at September 30, 2023 and 2022, 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 gain (loss)loss. Foreign exchange contracts intended to manage foreign currency exposures within the Consolidated Balance Sheets have an offsetting amount recorded in other income, net. The cash flows from such hedges are subsequentlypresented in the same category in the Consolidated Statement of Cash Flows as the items being hedged.
Other financial instruments— The Company has a trade receivables financing arrangement (the “Arrangement”) with a financial institution (the “Factor”). In accordance with Accounting Standards Codification (“ASC”) 860, Transfers and Servicing, this Arrangement is not deemed a true sale, as the Company retains effective control over the transferred trade receivables. As such, the Company continues to report the transferred financial assets as trade receivables on the Consolidated Balance Sheet with no change in the assets’ measurement, and recorded the amounts payable to the Factor as secured borrowings. As of September 30, 2023, the Company’s secured borrowing (liability) under this arrangement was $20.9, which is included in earningsother current liabilities in the periods in which earnings are affected by the hedged item. The amounts recognized in accumulated other comprehensive income (loss) and subsequently through earnings wereConsolidated Balance Sheet. This Arrangement did not significant from 2015 through 2017. Net gains and losses on foreign exchange contracts offset foreign exchange effects on the hedged items. The Company does not enter into derivative contracts for purposes of speculation.exist at September 30, 2022.
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. We allocateThe 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. We may utilizeThe Company generally utilizes 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 and operating expenses interest expense, and “other (expense) income, net,” depending on the nature of the cost. We defineThe 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 the evaluationinvestigating opportunities (including acquisition and effort to acquire specific businesses.divestitures). 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 ourthe 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 we takethe Company takes action to exit or significantly curtail a part of ourthe Company’s operations or change the deployment of assets or personnel. A restructuring charge can consist of an impairment or accelerated depreciation of effectedaffected 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 2014,December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12clarifies 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 became effective for the Company’s fiscal year beginning on October 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Consolidated Financial Statements.
In October 2021, the FASB issued ASU 2014-12, 2021-08, Business Combinations (Topic 805) - Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service PeriodContract Assets and Contract Liabilities from Contracts with Customers. ASU 2014-12 states that a performance target2021-08 requires companies to apply Accounting Standards Codification 606, Revenue from Contracts with Customers (“ASC 606”), to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a share-based paymentbusiness combination. This generally will result in an acquirer recognizing contract assets and contract liabilities at amounts consistent with those recorded by the acquiree immediately before the acquisition as compared to the ASC 805, Business Combinations (“ASC 805”) requirement that affects vestingan acquirer recognize and that could be achieved aftermeasure the requisite service period should be accountedassets it acquires and liabilities it assumes at fair value on the acquisition date. ASU 2021-08 is effective for as a performance condition. ASU 2014-12 became effective and was adopted for ourthe Company’s fiscal year beginning October 1, 2016.2023, with early adoption permitted. The adoptionCompany elected to early adopt ASU 2021-08, and applied it to all acquisitions executed in the current year, as applicable.
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 and sales incentives, 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, 2023, the aggregate amount of transaction price of remaining performance obligations, which corresponds to backlog, as defined in Part II, Item 7 of this standard did not haveForm 10-K, for the Company was $2,099.7. Approximately 81% 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, 2023 | | Year Ended September 30, 2022 | | | | | |
| Advanced Process Solutions | | Molding Technology Solutions | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | Total | | | | | | | |
| End Market | | | | | | | | | | | | | | | | | | |
| Plastics and recycling | $ | 1,033.3 | | | $ | — | | | $ | 1,033.3 | | | $ | 925.2 | | | $ | — | | | $ | 925.2 | | | | | | | | |
| Automotive | — | | | 208.4 | | | 208.4 | | | — | | | 196.7 | | | 196.7 | | | | | | | | |
| Chemicals | 126.3 | | | — | | | 126.3 | | | 101.0 | | | — | | | 101.0 | | | | | | | | |
| Consumer goods | — | | | 134.4 | | | 134.4 | | | — | | | 159.4 | | | 159.4 | | | | | | | | |
| Food and pharmaceuticals | 470.5 | | | — | | | 470.5 | | | 91.1 | | | — | | | 91.1 | | | | | | | | |
| Custom molders | — | | | 110.1 | | | 110.1 | | | — | | | 143.9 | | | 143.9 | | | | | | | | |
| Packaging | — | | | 135.0 | | | 135.0 | | | — | | | 130.3 | | | 130.3 | | | | | | | | |
| Construction | — | | | 131.8 | | | 131.8 | | | — | | | 121.3 | | | 121.3 | | | | | | | | |
| Minerals | 62.6 | | | — | | | 62.6 | | | 49.3 | | | — | | | 49.3 | | | | | | | | |
| Electronics | — | | | 75.4 | | | 75.4 | | | — | | | 77.6 | | | 77.6 | | | | | | | | |
| Medical | — | | | 67.0 | | | 67.0 | | | — | | | 82.2 | | | 82.2 | | | | | | | | |
| Other industrial | 130.8 | | | 140.4 | | | 271.2 | | | 103.2 | | | 134.1 | | | 237.3 | | | | | | | | |
| Total | $ | 1,823.5 | | | $ | 1,002.5 | | | $ | 2,826.0 | | | $ | 1,269.8 | | | $ | 1,045.5 | | | $ | 2,315.3 | | | | | | | | |
The following tables present net revenue by geographical market:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended September 30, 2023 | | Year Ended September 30, 2022 |
| Advanced Process Solutions | | Molding Technology Solutions | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | Total |
| Geographical Markets | | | | | | | | | | | |
| Americas | $ | 670.1 | | | $ | 579.3 | | | $ | 1,249.4 | | | $ | 308.4 | | | $ | 583.0 | | | $ | 891.4 | |
| Asia | 586.2 | | | 270.9 | | | 857.1 | | | 646.5 | | | 308.1 | | | 954.6 | |
| Europe, the Middle East, and Africa | 567.2 | | | 152.3 | | | 719.5 | | | 314.9 | | | 154.4 | | | 469.3 | |
| Total | $ | 1,823.5 | | | $ | 1,002.5 | | | $ | 2,826.0 | | | $ | 1,269.8 | | | $ | 1,045.5 | | | $ | 2,315.3 | |
The following tables present net revenue by products and services:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended September 30, 2023 | | Year Ended September 30, 2022 |
| Advanced Process Solutions | | Molding Technology Solutions | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | Total |
| Products and Services | | | | | | | | | | | |
| Equipment | $ | 1,319.5 | | | $ | 658.1 | | | $ | 1,977.6 | | | $ | 892.8 | | | $ | 718.2 | | | $ | 1,611.0 | |
| Parts and services | 504.0 | | | 281.4 | | | 785.4 | | | 377.0 | | | 261.9 | | | 638.9 | |
| Other | — | | | 63.0 | | | 63.0 | | | — | | | 65.4 | | | 65.4 | |
| Total | $ | 1,823.5 | | | $ | 1,002.5 | | | $ | 2,826.0 | | | $ | 1,269.8 | | | $ | 1,045.5 | | | $ | 2,315.3 | |
| | | | | | | | | | | |
The following tables present net revenue by timing of transfer:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended September 30, 2023 | | Year Ended September 30, 2022 |
| Advanced Process Solutions | | Molding Technology Solutions | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | Total |
| Timing of Transfer | | | | | | | | | | | |
| Point in time | $ | 972.1 | | | $ | 914.1 | | | $ | 1,886.2 | | | $ | 573.4 | | | $ | 1,001.5 | | | $ | 1,574.9 | |
| Over time | 851.4 | | | 88.4 | | | 939.8 | | | 696.4 | | | 44.0 | | | 740.4 | |
| Total | $ | 1,823.5 | | | $ | 1,002.5 | | | $ | 2,826.0 | | | $ | 1,269.8 | | | $ | 1,045.5 | | | $ | 2,315.3 | |
4.Divestitures
Batesville
As previously described, on February 1, 2023, the Company completed the divestiture of Batesville to BL Memorial Partners, LLC, a significant impactDelaware limited liability company owned by funds affiliated with LongRange Capital, L.P., for $761.5, subject to closing adjustments, and including an $11.5 subordinated note. At closing, after the applicable adjustments, the Company received $698.0 in pre-tax cash proceeds, including an adjustment for cash on our consolidated financial statements.hand acquired from the Company, and the previously mentioned subordinated note.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern. ASU 2014-15 provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continueThis divestiture represented a strategic shift in Hillenbrand’s business and qualified as a going concern or to provide related footnote disclosures. ASU 2014-15 became effectivediscontinued operation. Accordingly, the operating results and was adopted for our fiscal year beginning October 1, 2016. The adoption of this standard did not have an impact on our consolidated financial statements.
In January 2015, the FASB issued ASU 2015-01, Income Statement—Extraordinary and Unusual Items. ASU 2015-01 eliminates from GAAP the concept of extraordinary items. ASU 2015-01 became effective and was adopted for our fiscal year beginning October 1, 2016. The adoption of this standard did not have a significant impact on our consolidated financial statements.
In February 2015, the FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis. The new standard amends the consolidation guidance in ASC 810 and significantly changes the consolidation analysis required under current generally accepted accounting principles. ASU 2015-02 became effective and was adopted for our fiscal year beginning October 1, 2016. The adoption of this standard did not have a significant impact on our consolidated financial statements.
In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest. ASU 2015-03 simplifies the presentation of debt issuance costs. The amendments in this ASU require that debt issuance costscash flows related to Batesville have been reflected as discontinued operations in the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows for all periods presented, while the assets and liabilities that were divested were classified within the Consolidated Balance Sheets as held for sale in the periods preceding the divestiture. The Company recognized a recognized debt liability be$586.0 pre-tax gain on divestiture, recorded within gain on divestiture of discontinued operations (net of income tax expense) in the Consolidated Statement of Operations for the year ended September 30, 2023.
Certain indirect corporate costs included within operating expenses in the Consolidated Statements of Operations that were previously allocated to Batesville do not qualify for classification within discontinued operations and are now reported as operating expenses in continuing operations within corporate expenses. In addition, costs directly attributable to Batesville have been reflected in discontinued operations. As a result, income before income taxes of Batesville decreased $16.0, $3.1 and $0.7 for the years ended September 30, 2023, 2022 and 2021, respectively.
Discontinued operations
Components of amounts reflected in the Consolidated Statements of Operations related to discontinued operations are presented in the balance sheettable, as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended September 30, |
| 2023 | | 2022 | | 2021 |
| Net revenue | $ | 213.7 | | | $ | 625.6 | | | $ | 623.4 | |
| Cost of goods sold | 142.2 | | | 434.8 | | | 398.4 | |
| Gross profit | 71.5 | | | 190.8 | | | 225.0 | |
| Operating expense | 42.3 | | | 76.4 | | | 77.9 | |
| Income from discontinued operations before income taxes | 29.2 | | | 114.4 | | | 147.1 | |
| Income tax expense | 9.7 | | | 14.9 | | | 19.9 | |
| Income from discontinued operations (net of income tax expense) | 19.5 | | | 99.5 | | | 127.2 | |
| Gain on divestiture of discontinued operations (net of income tax expense of $142.9) | 443.1 | | | — | | | — | |
| Total income from discontinued operations | $ | 462.6 | | | $ | 99.5 | | | $ | 127.2 | |
| | | | | |
Assets and liabilities held for sale
The assets and liabilities of Batesville had been reflected as assets and liabilities held for sale in the periods preceding the divestiture. The following is a summary of the major categories of assets and liabilities held for sale at September 30, 2022:
| | | | | | | | | |
| Cash and cash equivalents | | | $ | 1.9 | |
| Trade receivables, net | | | 59.5 | |
| Inventories | | | 48.2 | |
| | | |
| | | |
| | | |
| | | |
| Other assets | | | 6.5 | |
| Current assets held for sale | | | $ | 116.1 | |
| | | |
| Property, plant and equipment, net | | | $ | 49.1 | |
| Operating lease right-of-use assets, net | | | 35.6 | |
| Intangible assets, net | | | 2.7 | |
| Goodwill | | | 8.3 | |
| Long-term assets | | | 9.6 | |
| Long-term assets held for sale | | | $ | 105.3 | |
| | | |
| Trade accounts payable | | | $ | 62.0 | |
| Accrued compensation | | | 13.6 | |
| Operating lease liabilities | | | 13.0 | |
| Other liabilities | | | 25.2 | |
| Current liabilities held for sale | | | $ | 113.8 | |
| | | |
| Operating lease liabilities | | | $ | 22.1 | |
| Other liabilities | | | 3.7 | |
| Long-term liabilities held for sale | | | $ | 25.8 | |
Divestiture of Flow Control Businesses
On December 31, 2020, the Company completed the divestiture of Red Valve to DeZURIK, Inc. in a transaction valued at $63.0. The divestiture 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, 2023 and 2022.
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 divestiture during the year ended September 30, 2021, which were recorded within operating expenses in the Consolidated Statement of Operations. Red Valve’s results of operations were included within the Advanced Process Solutions reportable operating segment until the completion of the sale on December 31, 2020.
On March 10, 2021, the Company completed the divestiture of ABEL to IDEX Corporation, in a transaction valued at $103.5. The divestiture included cash proceeds received at closing of $106.3, including working capital adjustments.
As a result of the ABEL divestiture, the Company recorded a pre-tax gain of $35.5, after post-closing adjustments, 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 divestiture during the year ended September 30, 2021, which were recorded within operating expenses in the Consolidated Statement of Operations. ABEL’s
results of operations were included within the Advanced Process Solutions reportable operating segment until the completion of the sale on March 10, 2021.
Divestiture of TerraSource
During the fourth quarter of 2021, the Company signed a definitive agreement to sell TerraSource, and as a direct deduction fromresult, recognized a non-cash valuation adjustment of $11.2 to recognize TerraSource at fair value less estimated cost to sell. The non-cash charge of $11.2 for the carryingyear ended September 30, 2021, was recorded within impairment charges on the Consolidated Statements of Operations.
On October 22, 2021, the Company completed the divestiture of TerraSource pursuant to a Contribution Agreement (“Agreement”) between the Company and certain affiliated companies of industrial holding company Right Lane Industries (“RLI”). Under the terms of the Agreement, Hillenbrand contributed TerraSource and its subsidiaries to a newly formed entity, TerraSource Holdings, LLC (“Holdings”), with RLI obtaining majority ownership and full operational control of TerraSource. In exchange for contributing the TerraSource business, the Company received consideration in the form of a five-year note with initial principal amount of that debt liability, consistent with debt discounts. In August 2015, the FASB issued ASU 2015-15, Interest - Imputation of Interest: Presentation$25.6, subject to certain adjustments, and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. This standard permits an entity to defer and present debt issuance costs related to line-of-credit arrangements as an asset and to subsequently amortize the deferred debt issuance costs ratably over the termalso retained a 49% equity interest in Holdings through one of the line-of-credit arrangement. These new standards do not affect the recognition and measurement of debt issuance costs. ASU 2015-03 and ASU 2015-15 became effective and were retrospectively adopted for our fiscal year beginning October 1, 2016.Company’s indirect wholly-owned subsidiaries. The retrospective adoption resulted in $1.2 of debt issuance costs being reclassified from other assets to a reductionfair value of the carryingtotal consideration received by the Company was $27.7. Subsequent to the divestiture, the Company’s equity interest in Holdings, which is not material to the Company, is accounted for under the equity method of accounting as prescribed by GAAP.
As a result of the TerraSource divestiture, the Company recorded a pre-tax loss of $3.1, after post-closing adjustments, in the Consolidated Statement of Operations during the year ended September 30, 2022. The Company incurred $0.4 of transaction costs associated with the divestiture during the year ended September 30, 2022, which were recorded within operating expenses in the Consolidated Statement of Operations. TerraSource’s results of operations were included within the Advanced Process Solutions reportable operating segment until the completion of the divestiture on October 22, 2021.
5.Acquisitions
Acquisition of Schenck Process Food and Performance Materials Business
On September 1, 2023, the Company completed its acquisition of FPM for total aggregate consideration of approximately $748.7, net of certain customary post-closing adjustments, and including cash acquired. The Company used available borrowings under its multi-currency revolving credit facility (the “Facility”) to fund this acquisition.
Headquartered in Kansas City, Missouri, FPM specializes in the design, manufacturing, and service of feeding, filtration, baking, and material handling technologies and systems that are highly complementary to the equipment and solutions offered in our Advanced Process Solutions reportable operating segment. The results of FPM since the date of the acquisition are included in the Advanced Process Solutions reportable operating segment.
Preliminary purchase price allocation and other items
The Company utilized the services of an independent valuation consultant, along with estimates and assumptions determined by management, to estimate the fair value of long-term debtthe assets acquired and liabilities assumed. Given the timing of the acquisition, the valuation of property, plant, and equipment and leases is still in process of being valued by an independent valuation consultant. The preliminary allocation of the purchase price was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data. The purchase price allocation of the assets acquired and liabilities assumed is preliminary until the contractual post-closing adjustments are finalized, the final independent valuation consultant report is issued, and the measurement period allowed for under ASC 805 has closed. The final determination of the fair value of assets acquired and liabilities assumed will be completed within the one-year measurement period as of September 30, 2016. Debt issuance costs related to line-of-credit arrangements were not reclassified.
In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other - Internal-Use Software. ASU 2015-05 helps entities evaluate the accounting for fees paidallowed by a customer in a cloud computing arrangement by providing guidance as to whether an arrangement includes the sale or license of software. ASU 2015-05 became effective and was adopted for our fiscal year beginning October 1, 2016. The adoption of this standard did not have a significant impact on our consolidated financial statements.
In September 2015, the FASB issued ASU 2015-16, Business Combinations. ASU 2015-16 simplifies the accounting for adjustments made to provisional amounts. The amendments in ASU 2015-16 require that the acquirer recognize adjustments to
provisional amounts that are identifiedASC 805. Changes during the measurement period could be material. Based on the timing of this acquisition, there were no measurement period adjustments during the year ended September 30, 2023. Based on current fair value estimates, the preliminary purchase price for FPM has been allocated to individual assets acquired and liabilities assumed as of the acquisition date:
| | | | | |
| September 1, 2023 |
| Assets acquired: | |
| Cash and cash equivalents | $ | 17.3 | |
| Trade receivables | 65.2 | |
| Receivables from long-term manufacturing contracts | 22.4 | |
| Inventories | 64.8 | |
| Prepaid expenses and other current assets | 10.3 | |
| Property, plant, and equipment | 27.3 | |
| Operating lease right-of-use assets | 11.0 | |
| Intangible assets | 338.0 | |
| Goodwill | 476.5 | |
| Other non-current assets | 2.7 | |
| Total assets acquired | 1,035.5 | |
| |
| Liabilities assumed: | |
| Trade accounts payable | 59.4 | |
| Liabilities from long-term manufacturing contracts | 86.6 | |
| Accrued compensation | 13.5 | |
| Other current liabilities | 45.7 |
| |
| Operating lease liabilities | 9.5 | |
| Deferred income taxes | 69.0 | |
| Other non-current liabilities | 3.1 | |
| Total liabilities assumed | 286.8 | |
| Net assets acquired | $ | 748.7 | |
| |
Intangible assets identified
The preliminary purchase price allocation included $338.0 of acquired identifiable intangible assets. Intangible assets consist of FPM’s technology and customer relationships and will be amortized on a straight-line basis over the respective estimated periods for which the intangible assets will provide economic benefit to the Company. The determination of the useful lives is based upon various industry studies, historical acquisition experience, degree of stability in the reporting period in whichcurrent FPM customer base, economic factors, and expected future cash flows of the adjustment amount is determined.Company following the acquisition of FPM. The acquirer is also required to record,technology was valued using the relief-from-royalty method of the income approach. Customer relationships were valued using the multi-period excess earnings method of the income approach. Significant assumptions used in the same period’s financial statements,valuations included FPM’s future cash flow projections, which were based on estimates used to price the effectFPM acquisition, discount rates that were benchmarked with reference to the implied rate of return to the Company’s pricing model, and the applicable weighted-average cost of capital (12%).
The preliminary amounts allocated to intangible assets are as follows:
| | | | | | | | | | | |
| Gross Carrying Amount | | Weighted-Average Useful Life |
| Customer relationships | $ | 290.0 | | | 15 years |
| Technology | 48.0 | | | 12 years |
| Total intangible assets | $ | 338.0 | | | |
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 earningsstrategic benefits that are expected to be realized from the acquisition. None of changesthe goodwill is expected to be deductible for income tax purposes.
The working capital assets and liabilities 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 depreciation, amortization, orany of those unobservable inputs in isolation would result in a significantly lower (higher) fair value measurement. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values, specifically those considered Level 3 measurements. Management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.
Impact on results of operations
The results of FPM’s operations have been included in Hillenbrand’s Consolidated Financial Statements since the September 1, 2023, acquisition date. The following table provides the results of operations for FPM included in Hillenbrand’s Consolidated Statement of Operations:
| | | | | |
| Year Ended
September 30, 2023 |
| Net revenue | $ | 43.3 | |
| Income from continuing operations before income taxes | 3.4 | |
During the year ended September 30, 2023, the Company incurred $16.2 in acquisition expenses related to the FPM acquisition, which are included in operating expenses in the Consolidated Statement of Operations.
Acquisition of Peerless Food Equipment
On December 1, 2022, the Company completed the acquisition of Peerless for a purchase price of $59.2, net of certain customary post-closing adjustments and including cash acquired, using available borrowings under the Facility. Headquartered in Sidney, Ohio, Peerless is a premier supplier of industrial food processing equipment.
The acquisition of Peerless increased the Company’s scale in the food end market, and combining Peerless’ highly complementary equipment and solutions with other income effects, if any,Advanced Process Solutions reportable operating segment technologies now allows the Company to deliver more comprehensive solutions to its customers. The results of Peerless since the date of acquisition are included in the Advanced Process Solutions reportable operating segment.
Preliminary purchase price allocation and other items
The Company utilized the services of an independent valuation consultant, along with estimates and assumptions determined by management, to estimate the fair value of the assets acquired and liabilities assumed. The preliminary allocation of the purchase price was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data. The purchase price allocation of the assets acquired and liabilities assumed is preliminary until the contractual post-closing adjustments are finalized, the final independent valuation consultant report is issued, and the measurement period allowed for under ASC 805 has closed. The final determination of the fair value of assets acquired and liabilities assumed will be completed within the one-year measurement period as allowed by ASC 805. Changes during the measurement period could be material. Based on current fair value estimates, the preliminary purchase price for Peerless has been allocated to individual assets acquired and liabilities assumed as of the acquisition date:
| | | | | | | | | | | |
| December 1, 2022 (as initially reported) | Measurement Period Adjustments | December 1, 2022 (as adjusted) |
| Assets acquired: | | | |
| Current assets | $ | 16.2 | | $ | 1.3 | | $ | 17.5 | |
| Property, plant, and equipment | 2.3 | | — | | 2.3 | |
| Intangible assets | — | | 25.3 | | 25.3 | |
| Goodwill | 50.9 | | (27.3) | | 23.6 | |
| Total assets acquired | 69.4 | | (0.7) | | 68.7 | |
| | | |
| Liabilities assumed: | | | |
| Current liabilities | 9.5 | | — | | 9.5 | |
| | | |
| Total liabilities assumed | 9.5 | | — | | 9.5 | |
| Net assets acquired | $ | 59.9 | | $ | (0.7) | | $ | 59.2 | |
Measurement period adjustments
The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (defined as one year following the acquisition date). As a result of further refining its estimates and assumptions since the changedate of the acquisition, the Company recorded measurement period adjustments to the provisional amounts, calculatedinitial opening balance sheet as if the accounting had been completed at the acquisition date. In addition, an entity is required to present separately on the face of the income statement or discloseshown in the notestable above. Adjustments were primarily made to the financial statements the portion of the amount recorded in current-periodintangible assets and goodwill. There were no measurement period adjustments materially impacting earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amountsadjustments had been recognized as of the acquisition date. ASU 2015-16 became effective
Intangible assets identified
The preliminary purchase price allocation included $25.3 of acquired identifiable intangible assets. Intangible assets consist of Peerless’ trade name and customer relationships, and will be amortized on a straight-line basis over the respective estimated periods for which the intangible assets will provide economic benefit to the Company. The determination of the useful lives is based upon various industry studies, historical acquisition experience, stability in the current Peerless customer base, economic factors, and future expected cash flows of the Company following the acquisition of Peerless. The trade name was adopted for our fiscal year beginning October 1, 2016. valued using the relief-from-royalty method of the income approach. Customer relationships were valued using the multi-period excess earnings method of the income approach. Significant assumptions used in the valuations included Peerless’ future cash flow projections, which were based on estimates used to price the Peerless acquisition, discount rates that were benchmarked with reference to the implied rate of return to the Company’s pricing model, and the applicable weighted-average cost of capital (13%).
The adoptionpreliminary amounts allocated to intangible assets are as follows:
| | | | | | | | | | | |
| Gross Carrying Amount | | Weighted-Average Useful Life |
| Customer relationships | $ | 22.0 | | | 13 years |
| Trade name | 3.3 | | | 10 years |
| Total intangible assets | $ | 25.3 | | | |
Goodwill was calculated as the excess of this standard did not have a significant impact on our consolidated financial statements.
In November 2015, the FASB issued ASU 2015-17, Income Taxes. ASU 2015-17 requires that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of financial position in order to simplify the presentation of deferred income taxes. ASU 2015-17 was early adopted for our fiscal year beginning October 1, 2016. The adoption of this standard resulted in a reclassification of $7.4 from current deferred income taxes to non-current deferred income taxes on the Consolidated Balance Sheets as of September 30, 2017. No periods prior to adoption were retrospectively adjusted.
Recently issued accounting standards — In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration 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 which the entity expectsrecognition of goodwill were based on strategic benefits that are expected to be entitled in exchangerealized from the acquisition. Goodwill is expected to be deductible for those goodstax purposes.
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 services. The FASB has also issued several updates to ASU 2014-09. The new standard supersedes U.S. GAAP guidance on revenue recognitionestablished market values of comparable assets (market approach). Goodwill and requires the useidentifiable intangible assets were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of more estimates and judgments than the present standards. It also requires significant disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue andfuture cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes(income approach). Significant increases
(decreases) in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 will be effective for our fiscal year beginning October 1, 2018, including interim periods within that reporting period, and allows for either full retrospective adoption or modified retrospective adoption, with early adoption permitted on October 1, 2017.
We have begun the assessment process and continue to evaluate the impact that ASU 2014-09 will have on our consolidated financial statements and financial reporting processes, including evaluating new disclosure requirements. Based on our initial assessment, which included a comparisonany of our existing accounting policies and practices against the new standard and a review of contracts active during and through the end of 2016, we believe the key areas of consideration for our financial statements include percentage-of-completion accounting, separate performance obligations, and related revenue recognized over time. Based on our initial assessment, we also expect to adopt this new standard using the modified retrospective method, which willthose unobservable inputs in isolation would result in a cumulative effect adjustmentsignificantly lower (higher) fair value measurement. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values, specifically those considered Level 3 measurements. Management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.
Impact on results of operations
The results of Peerless’ operations have been included in Hillenbrand’s Consolidated Financial Statements since the December 1, 2022, acquisition date. The following table provides the results of operations for Peerless included in Hillenbrand’s Consolidated Statement of Operations:
| | | | | |
| Year Ended
September 30, 2023 |
| Net revenue | $ | 32.1 | |
| Income from continuing operations before income taxes | 2.6 | |
During the year ended September 30, 2023, the Company incurred $0.5 in acquisition expenses related to the Peerless acquisition, which are included in operating expenses in the Consolidated Statement of Operations.
Acquisition of LINXIS Group SAS
On October 6, 2022, the Company completed the acquisition of Linxis from IBERIS INTERNATIONAL S.À R.L, an affiliate of IK Partners, and additional sellers (collectively, the “Sellers”). As a result of the acquisition, the Company acquired from the Sellers all of the issued and outstanding securities of Linxis, and Linxis became a wholly owned subsidiary of the Company for total aggregate consideration of $590.8 (€596.2) in cash, reflecting an approximate enterprise value of $566.8 (€572.0) plus cash acquired at closing, subject to certain customary post-closing adjustments. The Company used available borrowings under the Facility to fund this acquisition. With a global manufacturing, sales and service footprint, Linxis specializes in design, manufacturing, and service of dosing, kneading, mixing, granulating, drying, and coating technologies. The results of Linxis since the date of acquisition are included in the Advanced Process Solutions reportable operating segment.
Purchase price allocation and other items
The Company utilized the services of an independent valuation consultant, along with estimates and assumptions determined by management, to estimate the fair value of the assets acquired and liabilities assumed. The allocation of the purchase price was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data.
The following table summarizes the final fair values of the assets acquired and liabilities assumed as of the acquisition date:
| | | | | | | | | | | |
| October 6, 2022 (as initially reported) | Measurement Period Adjustments | October 6, 2022 (as adjusted) |
| Assets acquired: | | | |
| Cash and cash equivalents | $ | 22.9 | | $ | — | | $ | 22.9 | |
| Trade receivables | 31.5 | | (1.1) | | 30.4 | |
| Receivables from long-term manufacturing contracts | 12.1 | | 1.0 | | 13.1 | |
| Inventories | 80.1 | | (5.3) | | 74.8 | |
| Prepaid expenses and other current assets | 11.7 | | (0.4) | | 11.3 | |
| Property, plant, and equipment | 36.7 | | 1.1 | | 37.8 | |
| Operating lease right-of-use assets | 15.0 | | — | | 15.0 | |
| Intangible assets | 243.8 | | — | | 243.8 | |
| Goodwill | 332.0 | | (7.8) | | 324.2 | |
| Other non-current assets | 1.0 | | 2.0 | | 3.0 | |
| Total assets acquired | 786.8 | | (10.5) | | 776.3 | |
| | | |
| Liabilities assumed: | | | |
| Trade accounts payable | 18.9 | | — | | 18.9 | |
| Liabilities from long-term manufacturing contracts | 52.0 | | — | | 52.0 | |
| Accrued compensation | 10.3 | | — | | 10.3 | |
| Other current liabilities | 19.6 | | 1.1 | | 20.7 | |
| Accrued pension and postretirement healthcare | 3.9 | | — | | 3.9 | |
| Operating lease liabilities | 9.4 | | — | | 9.4 | |
| Deferred income taxes | 77.0 | | (10.0) | | 67.0 | |
| Other non-current liabilities | 0.3 | | — | | 0.3 | |
| Total liabilities assumed | 191.4 | | (8.9) | | 182.5 | |
| Net assets acquired | 595.4 | | (1.6) | | 593.8 | |
| | | |
Less: Fair value of Linxis noncontrolling interest (1) | (4.6) | | 1.6 | | (3.0) | |
| Purchase price consideration | $ | 590.8 | | $ | — | | $ | 590.8 | |
(1) While the Company acquired all issued and outstanding securities of Linxis in the acquisition, there remain certain noncontrolling interests in two subsidiaries of Linxis that existed as of the acquisition date.
Measurement period adjustments
The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (defined as one year following the acquisition date). As a result of further refining its estimates and assumptions since the date of adoption,the acquisition, the Company recorded measurement period adjustments to the initial opening balance sheet as shown in the table above. Adjustments were primarily made to inventories, other non-current assets, intangible assets and we currently dogoodwill. There were no measurement period adjustments materially impacting earnings that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date.
During the year ended September 30, 2023, the purchase price allocation for the acquisition was finalized.
Intangible assets identified
The purchase price allocation included $243.8 of acquired identifiable intangible assets. Intangible assets consist of Linxis’s trade name portfolio and customer relationships and will be amortized on a straight-line basis over the respective estimated periods for which the intangible assets will provide economic benefit to the Company. The determination of the useful lives is
based upon various industry studies, historical acquisition experience, degree of stability in the current Linxis customer base, economic factors, and expected future cash flows of the Company following the acquisition of Linxis. The trade name portfolio was valued using the relief-from-royalty method of the income approach. Customer relationships were valued using the multi-period excess earnings method of the income approach. Significant assumptions used in the valuations included Linxis’ cash flow projections, which were based on estimates used to price the Linxis acquisition, discount rates that were benchmarked with reference to the implied rate of return to the Company’s pricing model, and the applicable weighted-average cost of capital (12%).
The amounts allocated to intangible assets are as follows:
| | | | | | | | | | | |
| Gross Carrying Amount | | Weighted-Average Useful Life |
| Customer relationships | $ | 211.1 | | | 13 years |
| Trade name | 32.7 | | | 10 years |
| Total intangible assets | $ | 243.8 | | | |
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 expectbe individually identified and separately recognized. The factors contributing to the adoptionrecognition of ASU 2014-09goodwill were based on strategic benefits that are expected to havebe realized from the acquisition. None of the goodwill is expected to be deductible for income tax purposes.
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 material impactsignificantly lower (higher) fair value measurement. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values, specifically those considered Level 3 measurements. Management ultimately oversees the third-party valuation firm to ensure that the transaction-specific assumptions are appropriate for the Company.
Impact on our results of operations financial condition, or
The results of Linxis’ operations have been included in Hillenbrand’s Consolidated Financial Statements since the October 6, 2022, acquisition date. The following table provides the results of operations for Linxis included in Hillenbrand’s Consolidated Statement of Operations:
| | | | | |
| Year Ended
September 30, 2023 |
| Net revenue | $ | 324.4 | |
| Income from continuing operations before income taxes | 14.2 | |
During the years ended September 30, 2023 and 2022, the Company incurred $1.4 and $4.5, respectively, in acquisition expenses related to the Linxis acquisition, which are included in operating expenses in the Consolidated Statements of Operations.
Acquisition of Herbold Meckesheim GmbH
On August 31, 2022, the Company completed the acquisition of Herbold Meckesheim GmbH (“Herbold”) for $77.7 (€77.5) in cash, flows.pursuant to a definitive acquisition agreement dated June 30, 2022. Based in Meckesheim, Germany, Herbold is a leader in recycling systems, specializing in key process steps such as washing, separating, drying, shredding, and pulverizing.
In February 2016,The acquisition of Herbold advances the FASB issued ASU 2016-02, LeasesCompany’s long-term growth strategy in the key end market of recycling. Herbold offers highly complementary technologies to Hillenbrand’s Coperion branded products and enhances the Company’s offering of complete recycling solutions. The results of Herbold since the date of acquisition are included in the Advanced Process Solutions reportable operating segment.
Purchase price allocation and other items
The Company utilized the services of an independent valuation consultant, along with estimates and assumptions determined by management, to estimate the fair value of the assets acquired and liabilities assumed. The allocation of the purchase price was based on an evaluation of the appropriate fair values and represents management’s best estimate based on available data.
The following table summarizes the final fair values of the assets acquired and liabilities assumed as of the acquisition date:
| | | | | | | | | | | | | | | | | |
| August 31, 2022 (as initially reported) | | Measurement Period Adjustments | | August 31, 2022 (as adjusted) |
| Assets acquired: | | | | | |
| Current assets | $ | 38.2 | | | $ | (0.5) | | | $ | 37.7 | |
| Property, plant, and equipment | 4.7 | | | 1.5 | | | 6.2 |
| Intangible assets | — | | | 22.6 | | | 22.6 |
| Goodwill | 69.3 | | | (4.4) | | 64.9 |
| Other assets | 5.3 | | | 0.4 | | | 5.7 |
| Total assets acquired | 117.5 | | | 19.6 | | | 137.1 | |
| | | | | |
| Liabilities assumed: | | | | | |
| Current liabilities | 33.9 | | | 11.4 | | | 45.3 | |
| Other long-term liabilities | 5.9 | | | 8.2 | | | 14.1 | |
| Total liabilities assumed | 39.8 | | | 19.6 | | | 59.4 | |
| Net assets acquired | $ | 77.7 | | | $ | — | | | $ | 77.7 | |
Measurement period adjustments
The preliminary purchase price allocation was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period (defined as one year following the acquisition date). ASU 2016-02 requires lesseesAs a result of further refining its estimates and assumptions since the date of the acquisition, the Company recorded measurement period adjustments to recognizethe initial opening balance sheet as shown in the table above. Adjustments were primarily made to intangible assets, goodwill, current liabilities, and other long-term liabilities. There were no measurement period adjustments materially impacting earnings that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition date.
During the year ended September 30, 2023, the purchase price allocation for the acquisition was finalized.
Intangible assets identified
The purchase price allocation included $22.6 of acquired identifiable intangible assets. Intangible assets consist of Herbold’s trade name, technology, and customer relationships, and will be amortized on a rightstraight-line basis over the respective estimated periods for which the intangible assets will provide economic benefit to the Company. The determination of use assetthe useful lives is based upon various industry studies, historical acquisition experience, stability in the current Herbold customer base, economic factors, and related lease liability for leasesfuture expected cash flows of the Company following the acquisition of Herbold. The trade name and technology were valued using the relief-from-royalty method of the income approach. Customer relationships were valued using the multi-period excess earnings method of the income approach. Significant assumptions used in the valuations included Herbold’s future cash flow projections, which were based on estimates used to price the Herbold acquisition, discount rates that have termswere benchmarked with reference to the implied rate of more than twelve months. For income statement purposes,return to the FASB retained a dualCompany’s pricing model, requiring leasesand the applicable weighted-average cost of capital (20%).
The amounts allocated to intangible assets are as follows:
| | | | | | | | | | | |
| Gross Carrying Amount | | Weighted-Average Useful Life |
| Customer relationships | $ | 10.2 | | | 15 years |
| Trade name | 8.0 | | | 10 years |
| Technology | 4.4 | | | 7 years |
| Total intangible assets | $ | 22.6 | | | |
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 classifiedrealized from the acquisition. None of the goodwill is expected to be deductible for income tax purposes.
The working capital assets and liabilities, as either operating or finance, withwell as the classifications based on criteriaproperty, plant and equipment acquired, were valued using Level 2 inputs, which included data points that are similarobservable, such as definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill and identifiable intangible assets were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows (income approach). Significant increases (decreases) in any of those unobservable inputs in isolation would result in a significantly lower (higher) fair value measurement. Management used a third-party valuation firm to assist in the determination of the preliminary purchase accounting fair values, specifically those applied underconsidered Level 3 measurements. Management ultimately oversees the current lease guidance, withoutthird-party valuation firm to ensure that the explicit bright lines. ASU 2016-02 will be effectivetransaction-specific assumptions are appropriate for our fiscal year beginningthe Company.
Impact on October 1, 2019, with early adoption permitted. We are currently evaluatingresults of operations
The results of Herbold’s operations have been included in Hillenbrand’s Consolidated Financial Statements since the impact that ASU 2016-02 will have on our consolidated financial statements.
In June 2016,August 31, 2022, acquisition date. The following table provides the FASB issued ASU 2016-13, "Measurementresults of Credit Losses on Financial Statements." ASU 2016-13 replaces the current incurred loss impairment model with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates. ASU 2016-13 will be effectiveoperations for our fiscal year beginning on October 1, 2020, with early adoption permitted for our fiscal year beginning October 1, 2019. We are currently evaluating the impact that ASU 2016-13 will have on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Herbold included in Hillenbrand’s Consolidated Statement of Cash Flows: Restricted Cash. ASU 2016-18 requires that a statement of cash flows explainOperations:
| | | | | | | | | | | |
| Year Ended September 30, |
| 2023 | | 2022 |
| Net revenue | $ | 69.9 | | | $ | 1.9 | |
| Income (loss) from continuing operations before income taxes | 1.3 | | | (1.2) | |
During the change duringyears ended September 30, 2023 and 2022, the periodCompany incurred $0.1 and $1.8, respectively, in acquisition expenses related to the Herbold acquisition, which are included in operating expenses in the totalConsolidated Statements of cash, cash equivalents,Operations.
Acquisition of Gabler Engineering GmbH
On June 30, 2022, the Company completed the acquisition of Gabler Engineering GmbH (“Gabler”) for $12.9 (€12.6) in cash. Gabler, based in Malsch, Germany, specializes in the design, engineering, manufacturing, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cashimplementation of plants and restricted cash equivalents should be included with cashequipment for the confectionery and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-17 will be effective for our fiscal year beginning on October 1, 2018, with early adoption permitted. We expect the adoption of ASU 2016-18 to have a financial statement presentation and disclosure impact only.
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business. ASU 2017-01 assists entities in determining whether a transaction involves an asset or a business. Specifically, it states that when substantially allpharmaceutical industries. The final determination of the fair value of the gross assets acquired (or disposed of) is concentratedand liabilities assumed was completed during the year ended September 30, 2023. The majority of the purchase price allocation was assigned to the fair value of the acquired property, plant and equipment, working capital assets and liabilities, and residual goodwill (which was $6.2). There were no material changes in a single identifiable asset or group of similar identifiable assets, the setpurchase price allocation during 2023 the year ended September 30, 2023. Goodwill is not a business. If this initial testdeductible for tax purposes. The results of Gabler are included in the Advanced Process Solutions reportable operating segment and are not material to the Consolidated Financial Statements for the years ended September 30, 2023 or 2022.
Supplemental Pro Forma Information
The supplemental pro forma financial information presented below is for illustrative purposes only and is not met, a set cannot be considered a business unless it includes an inputnecessarily indicative of the financial position or results of operations that would have been realized if the Gabler, Herbold, Linxis, Peerless, and a substantive process that together significantly contribute toFPM acquisitions had been completed on the ability to create output. ASU 2017-01 will be effective for our fiscal year beginning on October 1, 2018, with early adoption permitted. We are currently evaluating ASU 2017-01, butdate indicated, do not expect a significant impact on our consolidatedreflect synergies that might have been achieved, and are not indicative of future results of operations or financial statements.position. The pro forma adjustments are based upon currently available information and certain assumptions that Hillenbrand believes are reasonable under the circumstances.
In January 2017,
The supplemental pro forma financial information reflects pro forma adjustments to present the FASB issued ASU 2017-04, Simplifyingcombined pro forma results of operations as if the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 from the goodwill impairment testacquisitions of Gabler, Herbold, Linxis, Peerless, and modifies the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. ASU 2017-04 will be effective for our fiscal year beginningFPM had occurred on October 1, 2020, with early adoption permitted. We are currently evaluating the impactto give effect to certain events that ASU 2017-04 will have on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 states that an employer must report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period and present the other components of net benefit cost (as defined in paragraphs 715-30-35-4 and 715-60-35-9) in the income statement separately from the service cost component and outside a subtotal of income from operations (if one is presented). In addition, ASU 2017-07 limits the capitalization of compensation costsHillenbrand believes to be directly attributable to the service cost component only (if capitalization is appropriate). ASU 2017-07 will be effective for our fiscal year beginning on October 1, 2018, with early adoption permitted. We are currently evaluatingacquisitions. These pro forma adjustments primarily include:
•an increase to depreciation and amortization expense that would have been recognized due to acquired tangible and intangible assets;
•an adjustment to interest expense to reflect the impact that ASU 2017-07 will have on our consolidated financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scopeadditional borrowings of Modification Accounting. ASU 2017-09 clarifies when changes to the terms or conditions of a share-based payment award must be accounted for as modifications (in accordance with Topic 718). The new guidance will provide relief to entities that make non-substantive changes to share-based payment awards. ASU 2017-09 will be effective for our fiscal year beginning on October 1, 2018, with early adoption permitted. The amendment would be applied prospectively to an award modified on or after the adoption date. We do not expect ASU 2017-09 to have a significant impact on our consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 intends to better align an entity's risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationshipsHillenbrand and the presentationrepayment of hedge results. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components, and alignLinxis’s historical debt in conjunction with the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. In addition, this ASU makes certain targeted improvementsacquisition;
•an adjustment to simplify the application of hedge accounting guidance. ASU 2017-12 will be effective for our fiscal year beginning on October 1, 2019, with early adoption permitted. The amendment would be applied to hedging relationships existing on the date of adoption and the effect of adoption would be reflected as of the beginning of the fiscal year of adoption (that is, the initial application date). We are currently evaluating the impact that ASU 2017-12 will have on our consolidated financial statements.
3.Business Acquisitions
We incurred $1.1 and $3.7 ofremove business acquisition and integration costs and inventory step-up costs during 2017the years ended September 30, 2023, 2022 and 2016, recorded2021, as these costs are non-recurring in operating expenses.
Abel
We completed the acquisition of Abel Pumps LPnature and Abel GmbH & Co. KG and certain of their affiliates (collectively “Abel”) on October 2, 2015, for €95 in cash. We utilized borrowings under our $700.0 revolving credit facility and $180.0 term loan (together, the “Facility”) to fund this acquisition. Based in Büchen, Germany, Abel is a globally-recognized leader in positive displacement pumps. Abel specializes in designing, developing, and manufacturing piston and piston diaphragm pumps as well as pumping solutions and in providing related parts and service. This equipment is sold under the ABEL® Pump Technologybrandin the power generation, wastewater treatment, mining, general industry, and marine markets. The results of Abel are reported in our Process Equipment Group segment for the relevant periods.
Based on the final purchase allocation, we recorded goodwill of $36 and acquired identifiable intangible assets of $58, which consisted of $5 of trade names not subject to amortization, $9 of developed technology, $3 of backlog, and $41 of customer relationships. In addition, we recorded $14 of net tangible assets, primarily working capital. Goodwill is deductible for tax
purposes. Supplemental proforma information has not been provided as the acquisition didwould not have a material impactcontinuing effect on consolidatedHillenbrand’s results of operations.operations; and
•the related income tax effects of the adjustments noted above.
Red Valve
The supplemental pro forma financial information for the periods presented is as follows:
On February 1, 2016, we completed | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 | | 2021 |
| Net revenue | | $ | 3,331.3 | | | $ | 3,241.4 | | | $ | 3,070.0 | |
| Income from continuing operations attributable to Hillenbrand | | 137.7 | | | 111.3 | | | 125.6 | |
| | | | | | |
| Income from continuing operations attributable to Hillenbrand — per share of common stock: | | | | | | |
| Basic earnings per share from continuing operations | | $ | 1.97 | | | $ | 1.55 | | | $ | 1.68 | |
| Diluted earnings per share from continuing operations | | $ | 1.96 | | | $ | 1.54 | | | $ | 1.67 | |
6.Leases
The Company’s lease portfolio is comprised of operating leases primarily for manufacturing facilities, offices, vehicles, and certain equipment. At the acquisitioninception of Red Valvean arrangement, the Company Inc. (“Red Valve”)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 $130.4a period of time in cash, netexchange for consideration. Leases are classified as operating or finance leases at the commencement date of certain adjustments. We utilized borrowings under our Facility to fund this acquisition. Based in Carnegie, Pennsylvania, Red Valve is a global leader in highly-engineered valves designed to operatethe lease. Operating leases are recorded within operating lease right-of-use assets, other current liabilities, and operating lease liabilities in the harshest municipalConsolidated Balance Sheets. The Company’s finance leases were insignificant as of September 30, 2023 and industrial wastewater environments. Its products support mission critical applications in water/wastewater, power and mining, and other general industrial markets. The results2022. Leases with an initial term of Red Valve12 months or less are reported in our Process Equipment Group segment for the relevant periods.
Basednot recorded on the final purchase allocation, we recorded goodwill of $59Consolidated Balance Sheets. The Company elected an accounting policy to combine lease and acquired identifiable intangiblenon-lease components for all leases.
Operating lease right-of-use assets of $61, which consisted of $4 of trade names not subject to amortization, $8 of developed technology, $1 of backlog, and $48 of customer relationships. In addition, we recorded $10 of net tangible assets, primarily working capital. Goodwill is deductible for tax purposes. Supplemental proforma information has not been provided, asliabilities are recognized at the acquisition did not have a material impactcommencement date based on consolidated results of operations.
Both of these acquisitions continue Hillenbrand’s strategy to transform into a world-class global diversified industrial company by increasing our ability to expand into new markets and geographies within the highly attractive flow control space. The fairpresent value of these acquisitions didlease payments over the lease term. As the implicit rate is generally not ascribereadily 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 significant amountcollateralized 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 tangible assets,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 we often seekcommon area maintenance and real estate taxes, which are recorded as variable costs when incurred.
For the years ended September 30, 2023 and 2022, the Company recognized $28.9 and $25.4 of operating lease expense, including short-term lease expense and variable lease costs, which were immaterial, in both periods.
The following table presents supplemental Consolidated Balance Sheet information related to acquire companies with a relatively low physical asset base in order to limit the need to invest significant additional cash post-acquisition.Company’s operating leases as of:
| | | | | | | | | | | |
| September 30, |
| 2023 | | 2022 |
| Operating lease right-of-use assets, net | $ | 111.3 | | $ | 87.9 |
| | | |
| Other current liabilities | 18.6 | | 15.7 |
| Operating lease liabilities | 88.1 | | 70.5 |
| Total operating lease liabilities | $ | 106.7 | | $ | 86.2 |
| | | |
| Weighted-average remaining lease term (in years) | 7.1 | | 5.6 |
| | | |
| Weighted-average discount rate | 3.8 | % | | 2.9 | % |
4.As of September 30, 2023, the maturities of the Company’s operating lease liabilities were as follows:
| | | | | |
| 2024 | $ | 23.0 | |
| 2025 | 19.7 | |
| 2026 | 16.2 | |
| 2027 | 13.4 | |
| 2028 | 12.0 | |
| Thereafter | 36.4 | |
| Total lease payments | 120.7 | |
| Less: imputed interest | (14.0) | |
| Total present value of lease payments | $ | 106.7 | |
Supplemental Consolidated Statement of Cash Flow information is as follows:
| | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 |
| Cash paid for amounts included in the measurement of operating lease liabilities | | $ | 24.3 | | | $ | 20.7 | |
| Operating lease right-of-use assets obtained in exchange for new operating lease liabilities | | 12.2 | | | 24.4 | |
| Operating leases acquired in business combinations | | 31.4 | | 4.9 |
7.Financing Agreements
The following table summarizes Hillenbrand’s current and long-term debt as of:
| | | | | | | | | | | |
| | September 30, |
| | 2023 | | 2022 |
| $1,000 revolving credit facility (excluding outstanding letters of credit) | $ | 505.1 | | | $ | 6.7 | |
| $200 term loan | 192.5 | | — | |
| €185 term loan | 195.0 | | — | |
$400 senior unsecured notes (1) | 398.0 | | | 397.1 | |
$375 senior unsecured notes (2) | 372.9 | | | 372.2 | |
$350 senior unsecured notes (3) | 346.6 | | | 346.2 | |
$100 Series A Notes (4) | — | | | 99.9 | |
| | | |
| Total debt | 2,010.1 | | | 1,222.1 | |
| Less: current portion | 19.7 | | | — | |
| Total long-term debt | $ | 1,990.4 | | | $ | 1,222.1 | |
(1) Includes unamortized debt issuance costs of $2.0 and $2.9 at September 30, 2023 and 2022, respectively.
(2) Includes unamortized debt issuance costs of $1.8 and $2.5 at September 30, 2023 and 2022, respectively.
(3) Includes unamortized debt issuance costs of $3.4 and $3.8 at September 30, 2023 and 2022, respectively.
|
| | | | | | | |
| | September 30, |
| | 2017 | | 2016 |
| $700 revolving credit facility (excluding outstanding letters of credit) | $ | 68.0 |
| | $ | 198.5 |
|
| $180 term loan | 148.5 |
| | 162.0 |
|
$150 senior unsecured notes, net of discount (1) | 148.9 |
| | 148.5 |
|
$100 Series A Notes (2) | 99.7 |
| | 99.6 |
|
| Other | 0.6 |
| | 0.3 |
|
| Total debt | 465.7 |
| | 608.9 |
|
| Less: current portion | 18.8 |
| | 13.8 |
|
| Total long-term debt | $ | 446.9 |
| | $ | 595.1 |
|
| | | | |
| (1) Includes debt issuance costs of $0.6 and $0.8 at September 30, 2017 and September 30, 2016. |
| (2) Includes debt issuance costs of $0.3 and $0.4 at September 30, 2017 and September 30, 2016. |
The following table summarizes the scheduled maturities of long-term debt for 20182024 through 2022:2028:
| | | | | |
| | Amount |
| 2024 | $ | 19.7 | |
| 2025 | 419.7 | |
| 2026 | 403.4 | |
| 2027 | 824.8 | |
| 2028 | — | |
|
| | | |
| | Amount |
| 2018 | $ | 18.0 |
|
| 2019 | 18.0 |
|
| 2020 | 330.5 |
|
| 2021 | — |
|
| 2022 | — |
|
$1,000 Revolving Credit Facility, $200 Term Loan, and €185 Term Loan
On December 19, 2014,June 8, 2022, the Company entered into a Second Amendment (the “JPM Amendment”) to theFourth Amended and Restated Credit Agreement dated as of November 19, 2012,(the “Credit Agreement”), which governs our Facility,the multi-currency revolving credit facility (the “Facility”), by and among the CompanyHillenbrand and certain of its affiliates, the lenders party thereto from time to time, and JPMorgan Chase Bank, N.A., as administrative agent. The JPM Amendment providesCredit Agreement increased the maximum principal amount available for revolving loansborrowing under the Facility to $1,000. The aggregate principal amount available for borrowing under the Credit Agreement may be expanded, subject to the approval of up to $700.0 and a term loan in the amount of $180.0 and extendslenders, by an additional $600. The Credit Agreement extended the maturity date of the Facility to December 19, 2019.June 8, 2027. The JPM Amendment also amendsCredit Agreement further provided for a financial covenantdelayed-draw term loan facility in an aggregate principal amount of up to $200. The term loan commitment was subject to ticking fees if not drawn within 60 days of closing.
The Credit Agreement fully transitioned interest rate benchmarks from LIBOR-based interest rates to SOFR-based interest rates for U.S. dollar borrowings. Borrowings under the Credit Agreement may bear interest (A) if denominated in US dollars, at the Term SOFR Rate or the Alternate Base Rate (each as defined in the FacilityCredit 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, margin based on the Company’s leverage ratio, ranging from 0% to provide0.525% for borrowings bearing interest at the Alternate Base Rate and from 0.90% to 1.525% for all other borrowings. The $200 Term Loan accrues interest, at the Company’s option, at the Term SOFR Rate or the Alternate Base Rate plus a margin based on the Company’s leverage ratio, ranging from 1.00% to 1.75% for term loans bearing interest at the Term SOFR Rate and 0% to 0.75% for term loans bearing interest at the Alternate Base Rate.
In November 2022, the Company drew $200.0 on the $200 Term Loan. The $200 Term Loan is subject to quarterly amortization payments equal to $2.5 for the first full twelve calendar quarters following the funding date, and its subsidiaries greater flexibilityquarterly amortization payments equal to consummate acquisitions.$3.8 thereafter until the maturity date. The financial covenant amendment allows$200 Term Loan will mature on June 8, 2027.
On June 21, 2023, the Company entered into Amendment No. 1 the Credit Agreement (as amended, the “Amended Credit Agreement”). The Amended Credit Agreement includes, among other changes, establishment of a euro-denominated, delayed-draw term loan facility available to the Company’s wholly owned subsidiary, Hillenbrand Switzerland GmbH, in an initial aggregate principal amount of up to €185 (the “€185 Term Loan”) and the inclusion of requirements that would be triggered by a Collateral Springing Event (described below).
In August 2023, the Company drew €185.0 on the €185 Term Loan. The €185 Term Loan is subject to quarterly amortization payments equal to €2.3 for an increasethe first full eight calendar quarters following the funding date, and €3.5 thereafter until the maturity date. The €185 Term Loan accrues interest at the Adjusted EURIBO Rate (as defined in the Amended Credit Agreement) plus a margin based on the Company’s permitted maximum leverage ratio, ranging from 1.00% to 2.25%, and will mature on June 8, 2027.
The Amended Credit Agreement increases the maximum permitted leverage ratio to 4.50x for the twelve-month period ending June 30, 2024, stepping down to 4.00x for the three months ended September 30, 2024 and December 31, 2024, to 3.75x for the three months ended March 31, 2025, and to 3.50x for the three months ended June 30, 2025, and thereafter. The Amended Credit Agreement also requires mandatory prepayments of the €185 Term Loan with 100% of net proceeds from asset sales (subject to customary carve outs and reinvestment rights) and contains additional limitations on liens and restricted payments during the three quarters subsequent to an
acquisition valued in excess of $75.0. We are allowed this increase up to two timesAdjustment Period (defined below). Except for the amendments applicable during the termAdjustment Period (defined below), the Amended Credit Agreement contains substantially the same affirmative and negative covenants and events of the Facility (each, a “Leverage Holiday”).
default. New deferred financing costs related to the JPM AmendmentAmended Credit Agreement were $1.0,$2.6, which along with existing costs of $2.0,$3.4, are being amortized to interest expense over the remaining term of the Facility.
Borrowings underOn July 14, 2023, the Facility bear interest at variable rates plusCompany entered into Amendment No. 2 to the Fourth Amended and Restated Credit Agreement. Amendment No. 2 clarifies and further defines the requirements for inclusion as a margin amount based upon our leverage. There is also a facility fee based upon our leverage. All revolving amounts due underLetter of Credit, as defined in the Facility mature upon expiration. By its terms, the term loan amortizes such that 38% of the principal will be repaid over approximately a five-year term, with the balance due at maturity. The Company also has the ability, under certain circumstances and with the lenders’ approval, to increase the total borrowing capacity under the Facility by $300.0. These borrowings are classified as long-term, with the exception of the term loan, where payments due within the next 12 months are classified as current. The Facility is an unsubordinated obligation of Hillenbrand and ranks equally in right of payment with all our other existing and future unsubordinated obligations.Amended Credit Agreement.
With respect to the Facility, as of September 30, 2017, we2023 and 2022, the Company had $10.8outstanding balances of $505.1 and $6.7, respectively. As of September 30, 2023, the Company had $19.8 in outstanding letters of credit issued and $621.2$475.1 of maximum borrowing capacity. Of the maximumavailable borrowing capacity $554.4 isunder the Facility, all of which was immediately available based on our leverage covenant at September 30, 2017, with additional amounts available in the event of a qualifying acquisition.most restrictive covenant. The weighted-average interest ratesrate on borrowings under the Facility were 1.40%was 3.05% and 1.48%2.28% for 2017the years ended September 30, 2023 and 2016.2022, respectively. The weighted average facility fee was 0.23%0.17% and 0.21%0.15% for 2017the years ended September 30, 2023 and 2016.2022, respectively. The weighted-average interest rate on the term loan$200 Term Loan was 2.27% and 1.76%6.30% for 2017 and 2016. We havethe year ended September 30, 2023. The weighted-average interest rate swaps on $50.0 of outstanding borrowings under the Facility in order to manage exposure to our variable rate interest payments. We have cross currency swaps on $55.0 of outstanding borrowings under€185 Term Loan was 5.39% for the revolving credit facility to manage currency and interest rate risk exposure on foreign currency denominated debt.year ended September 30, 2023. The cross currency swaps are not designated as hedging instrumentsweighted average ticking fees for accounting purposes.the $200 Term Loan was 0.15% for the period ended September 30, 2022.
In July 2010, we issued $150 of senior unsecured notes (“Notes”) due July 2020. The Notes bear interest at a fixed rate of 5.5% per year, payable semi-annually in arrears beginning January 2011. The Notes were issued at a discount of $1.6, resulting in an initial carrying value of $148.4. We are amortizing the discount to interest expense over the term of the Notes using the effective interest rate method, resulting in an annual interest rate of 5.65%. Deferred financing costs associated with the Notes of $2.1 are being amortized to interest expense on a straight-line basis over the term of the Notes. The Notes are unsubordinated obligations ofOn June 9, 2022, Hillenbrand and rank equally in right of payment with all of our other existing and future unsubordinated obligations.
The indenture governing the Notes does not limit our ability to incur additional indebtedness. It does, however, contain certain covenants that restrict our ability to incur secured debt and to engage in certain sale and leaseback transactions. The indenture provides holders of debt securities with remedies if we fail to perform specific obligations. In the event of a “Change of Control Triggering Event” (as defined in the indenture), each holder of the Notes has the right to require the Company to purchase all or a portion of its Notes at a purchase price equal to 101% ofdomestic subsidiaries entered into the principal amount plus accrued and unpaid interest. The Notes are redeemable with prior notice at a price equal to par plus accrued interest and a make-whole amount.
On December 15, 2014, we issued $100.0 in 4.60% Series A unsecured notes (“Series A Notes”) pursuanteighth amendment to the Private Shelf Agreement, which amends the private shelf agreement dated as of December 6, 2012, (as amended, the “Shelf Agreement”), among Hillenbrand, the Company,subsidiary guarantors, Prudential, Investment Management, Inc. (“Prudential”) and each Prudential Affiliate (as defined therein) that became a purchaser thereunder. The, pursuant to which the Company issued $100, 4.6% Series A Notes are unsecured mature onnotes maturing December 15, 2024, and bear interest at 4.60% payable semi-annually in arrears.2024. 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 therein). Deferred financing costs of $0.4 related to the Series A Notes are being amortized to interest expense over the term of the Series A Notes.
On December 15, 2014, December 19, 2014, and March 24, 2016, the Company andamendment conforms certain of the Company’s domestic subsidiaries entered into amendments (collectively, the “Prudential Amendments”) to the Shelf Agreement. The Prudential Amendments, among other things, amend a financial covenant contained in the Shelf Agreement to provide for Leverage Holidays similar to those discussed above regarding the Facility, extend the maturity dateterms of the Shelf Agreement with those contained in the Credit Agreement.
€325 L/G Facility Agreement
On June 21, 2022, Hillenbrand and certain of its subsidiaries entered into a Syndicated L/G Facility Agreement (the “L/G Facility Agreement”) with Commerzbank Aktiengesellschaft, as coordinator, mandated lead arranger, and bookrunner, the other financial institutions party thereto as lenders and issuing banks, and Commerzbank Finance & Covered Bond S.A., as agent. The L/G Facility Agreement replaced the Company’s Syndicated L/G Facility Agreement dated March 8, 2018, as amended, and permits Hillenbrand and certain of its subsidiaries (collectively, the “Participants”) to March 24, 2019, and increaserequest that one or more of the aggregate principal amount available under the private shelf facility from $150 to $200, of which $100.0 has been drawn. The Shelf Agreement is an uncommitted facility, and the issuance of notes under the Shelf Agreement is subject to successful placement by Prudential. If a Leverage Holiday is elected, in addition to the interest accruinglenders issue, on the Series A Notes, the Company must payParticipants’ behalf, up to each holderan aggregate of a Series A Note a fee equivalent to 0.75% per annum during the Leverage Holiday period.
On February 18, 2015, weentered into an Amendment Agreement (the “Amendment Agreement”), amending and restating our €150.0 Syndicated Letter of Guarantee Facility (as amended, “LG Facility”), dated as of June 3, 2013, under which€225 in unsecured letters of credit, bank guarantees or other surety bonds may be issued. (collectively, the “Guarantees”).
The AmendmentGuarantees carry an annual fee that varies based on the Company’s leverage ratio. The L/G Facility Agreement extendsalso provides for a leverage-based commitment fee assessed on the maturity dateundrawn portion of the LGfacility.
On June 22, 2023, the Company entered into an Amendment and Restatement Agreement (as amended, the “Amended L/G Agreement”) which amends and restates the L/G Facility until at least December 19, 2019, and,Agreement. The Amended L/G Agreement includes, among other amendments, amendschanges, an increase in the facility from €225 to €325 and the inclusion of requirements that would be triggered by a financial covenant contained inCollateral Springing Event (described below).
The Amended L/G Agreement increases the LG Facilitymaximum permitted leverage ratio to provide4.50x for Leverage Holidays similarthe twelve-month period ended June 30, 2024, stepping down to those discussed above regarding4.00x for the Facility. The Company has the potential, under certain circumstances and with the lenders’ approval, to increase the total capacity under the LG facility by an additional €70.0. Guarantees provided under the LG Facility are priced at tiered rates based upon our leverage, and charges for unused capacity are assessed at 35% of the applicable guarantee rate (0.90% atthree months ended September 30, 2017)2024 and December 31, 2024, to 3.75x for the three months ended March 31, 2025, and to 3.50x for the three months ended June 30, 2025, and thereafter. The Amended L/G Agreement contains additional limitations on liens and restricted payments during the Adjustment Period (defined below). DeferredExcept for the amendments applicable during the Adjustment Period (defined below), the Amended L/G Agreement contains substantially the same affirmative and negative covenants and events of default. New deferred financing costs related to the Amended L/G Agreement were $0.7, which along with existing costs of $1.3$1.0, are being amortized to interest expense over the remaining term of the LG Facility. There were no direct borrowingsAmended L/G Agreement.
Guarantees may be issued in euros or certain other agreed-upon currencies. Specified sublimits apply, based on the specific lender and currency. The Amended L/G Agreement also provides for a leverage-based commitment fee assessed on the undrawn portion of the facility. The Amended L/G Agreement matures on June 22, 2027, but can be extended or terminated earlier under certain conditions. The Amended L/G Agreement contains representations, warranties and covenants that are customary for agreements of this type and contains specified customary events of default. The obligations under the LG Facility.Amended L/G Agreement are guaranteed by Hillenbrand and certain of its domestic subsidiaries named therein.
In the normal course of business, the Process Equipment GroupCompany provides, primarily to certain customers, bank guarantees and other credit arrangements in support of performance, warranty, advance payment, and other contractual obligations. This form of trade finance is customary in the industry and, as a result, we are required to maintainthe Company maintains adequate capacity to provide the guarantees. As of
September 30, 2017, we2023, the Company had credit arrangements totaling $227.9,$587.9, under which $174.6$326.9 was utilized for this purpose. These arrangements included the LG Facilityfacilities under the Amended L/G Agreement and other ancillary credit facilities.
Collateral Springing Event
The availability of borrowings under the Facility, the ShelfAmended Credit Agreement and the LG Facility is subjectAmended L/G Agreement require the Company and certain domestic subsidiaries that are guarantors thereunder to our ability to meettake certain conditions including compliance with covenants, absence of default, and continued accuracy of certain representations and warranties. Financial covenants includeactions if a maximum ratio of Indebtedness to EBITDACollateral Springing Event (as defined in the agreements) occurs before the later of 3.5April 1, 2025 or the date that all principal, interest, and other amounts owing in respect of the €185 Term Loan have been paid in full (the “Adjustment Period”). After a Collateral Springing Event, the Company and the guarantors would be required to 1.0grant liens on substantially all of their assets (subject to customary exceptions for excluded assets, including an exception for Principal Property (as defined in the Company’s indentures in respect of its senior notes) and for capital stock of entities that own any such Principal Property) in favor of the Administrative Agent and L/G Agent, as applicable, for the benefit of the secured parties.
Long Term Notes
$350 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 $3.4 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 101.25%; 2028 at a redemption price of 100.625%; and 2029 and thereafter at a redemption price of 100%. 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 103.75% 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 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 $2.0 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: 2023 at a redemption price of 101.438%; and 2024 at a redemption price of 100%.
$375 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%, 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 $1.8 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.
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.
$100.0 Series A Unsecured Notes
On December 15, 2014, the Company issued $100.0 in 4.6% Series A unsecured notes (“Series A Notes”) pursuant to the Private Shelf Agreement, dated as of December 6, 2012, among the Company, Prudential Investment Management, Inc. (“Prudential”) and each Prudential Affiliate (as defined therein) that became a purchaser thereunder. During the year ended September 30, 2023, the Company repaid in full the Series A Notes using a portion of the net proceeds from the Batesville divestiture and wrote off the remaining issuance costs ($0.1).
Covenants related to current Hillenbrand financing agreements
Except as described above, the Amended Credit Agreement and the Amended L/G Facility Agreement contain the following financial covenants: 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 3.53.00 to 1.0. As1.00. The Company may elect to increase the maximum permitted leverage ratio to a ratio of September 30, 2017, we were4.00 to 1.00 following certain acquisitions for four full fiscal quarters (plus the fiscal quarter in compliancewhich the acquisition takes place). Additionally, the Amended Credit Agreement and the Amended L/G Facility Agreement provide the Company with all covenants.the ability to sell assets and to incur debt at its international subsidiaries under certain conditions.
The Facility,All obligations of the Company arising under the Amended Credit Agreement, the 2021 Notes, Series Athe 2020 Notes, the 2019 Notes, and LGthe Amended L/G Facility Agreement are fully and unconditionally, and jointly and severally, guaranteed by certain of the Company’s domestic subsidiaries.
We had restricted cashThe Credit Agreement and the L/G Facility Agreement each contains certain other customary covenants, representations and warranties and events of $0.8 includeddefault. 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 other current assets incertain sale and leaseback transactions. The indentures also contain customary events of default. The indentures provide holders of the Consolidated Balance Sheets at September 30, 2017 and 2016.
In April 2015,notes with remedies if the FASB issued ASU 2015-03, Interest - Imputation of Interest, which requires that debt issuance costs relatedCompany fails to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This standard became effective and was retrospectively adopted for our fiscal year beginning October 1, 2016.perform specific obligations. As of September 30, 20172023, the Company was in compliance with all covenants and 2016, there were $0.9 and $1.2 in debt issuance costs recorded as a reduction in the carrying valueno events of the related debt liability under the senior unsecured notes and Series A Notes. The $0.9 in debt issuance costs as of September 30, 2017 will be amortized over the remaining terms of the senior unsecured Notes and Series A Notes.default.
5.8.Retirement Benefits
Defined Benefit Retirement Plans — Approximately 44%Certain of ourthe Company’s employees participate in one of fourten defined benefit retirement programs, including the master defined benefit retirement plan in the U.S., the defined benefit retirement plans of our German and Swisscertain of the Company’s foreign subsidiaries, and the supplemental executive defined benefit retirement plan. We fundThe Company funds the pensionretirement plan trusts in compliance with ERISAthe 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 pensiondefined benefit retirement plans have a September 30 measurement date.
Effect on the Consolidated Statements of Operations — The components of net pension (benefit) costs under defined benefit retirement plans were:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Benefits
Year Ended September 30, | | Non-U.S. Pension Benefits
Year Ended September 30, |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
Service cost (1) | $ | — | | | $ | — | | | $ | — | | | $ | 1.5 | | | $ | 1.8 | | | $ | 2.0 | |
| Interest cost | 11.1 | | | 6.2 | | | 5.8 | | | 4.2 | | | 0.8 | | | 0.7 | |
| Expected return on plan assets | (13.6) | | | (10.8) | | | (10.9) | | | (1.5) | | | (0.9) | | | (0.9) | |
| Amortization of unrecognized prior service cost, net | — | | | — | | | — | | | 0.1 | | | 0.1 | | | 0.1 | |
| Amortization of actuarial loss (gain) | 0.3 | | | 1.5 | | | 2.2 | | | (0.8) | | | 1.8 | | | 2.9 | |
| Settlement (benefit) expense | — | | | — | | | — | | | (0.3) | | | 0.1 | | | 0.3 | |
| | | | | | | | | | | |
| Other one-time expense | — | | | — | | | — | | | — | | | 0.3 | | | — | |
Net pension (benefit) costs (2) | $ | (2.2) | | | $ | (3.1) | | | $ | (2.9) | | | $ | 3.2 | | | $ | 4.0 | | | $ | 5.1 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. Pension Benefits Year Ended September 30, | | Non-U.S. Pension Benefits Year Ended September 30, |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Service cost | $ | 3.6 |
| | $ | 3.9 |
| | $ | 4.3 |
| | $ | 1.3 |
| | $ | 1.8 |
| | $ | 1.7 |
|
| Interest cost | 8.8 |
| | 9.5 |
| | 14.4 |
| | 0.7 |
| | 1.8 |
| | 2.8 |
|
| Expected return on plan assets | (13.7 | ) | | (9.7 | ) | | (14.3 | ) | | (0.5 | ) | | (1.0 | ) | | (1.0 | ) |
| Amortization of unrecognized prior service cost, net | 0.4 |
| | 0.6 |
| | 0.9 |
| | 0.1 |
| | 0.1 |
| | — |
|
| Amortization of actuarial loss | 3.6 |
| | 3.8 |
| | 5.3 |
| | 1.1 |
| | 0.3 |
| | 0.1 |
|
| Settlement expense | 0.1 |
| | — |
| | 17.7 |
| | 0.6 |
| | 0.5 |
| | — |
|
| Net pension costs | $ | 2.8 |
| | $ | 8.1 |
| | $ | 28.3 |
| | $ | 3.3 |
| | $ | 3.5 |
| | $ | 3.6 |
|
(1) Service cost for U.S. Pension Benefits includes $0.1, $0.5 and $0.7 included within discontinued operations for the years ended September 30, 2023, 2022 and 2021, respectively.
(2) The components of net pension (benefit) costs are recorded within operating expenses on the Consolidated Statements of Operations.
Prior to 2016, we estimated
The Company uses a full yield curve approach in the estimation of the service and interest cost components of our defined benefit retirement plans using a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. Beginning in fiscal 2016, we elected to use a full yield curve approach in the estimation of these components of benefit cost.plans. Under this approach, we appliedthe 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 ourthe Company’s benefit obligations.
We elected 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. This change did not affect the measurement of our total benefit obligations as the change in service cost and interest cost was completely offset in the actuarial (gain) loss reported. We accounted for this change as a change in estimate prospectively starting in fiscal 2016. The change drove a collective decrease in service cost and interest cost of approximately $3.1 in 2016.
On April 1, 2015, we announced an offer to provide former employees who are participants in the Company’s U.S. defined benefit pension plan (the “Plan”) the opportunity to elect a lump sum distribution of their earned Plan benefits. The Plan’s fiduciaries made lump sum payments to electing eligible participants in September 2015, funded by the existing assets in the Plan. As a result, the assets in the Plan decreased by benefits paid of $75.9, and the projected obligation of the plan decreased by $81.9, consisting of benefits paid of $75.9 and the gain due to settlement of $6.0, which was included in accumulated other comprehensive income. The Company also recorded a non-cash income statement settlement pre-tax charge of $17.7 in September 2015.
During 2017, we also began implementing a plan2019, the Company completed all negotiations to transition our U.S.all employees not covered by a collective bargaining agreement and our employees covered by collective bargaining agreements at two of our U.S. facilities from a defined benefit-based model to a defined contribution structure over a three-year sunset period. This changeperiods, the latest of which ended January 1, 2023. These changes caused remeasurements for the U.S. defined benefit pensionretirement plan for the affected populations.populations as they were implemented. The remeasurements did not cause a material change,changes, as the assumptions did not materially differ from the assumptions at September 30, 2016.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, | | U.S. Pension Benefits
September 30, | | Non-U.S. Pension Benefits
September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 | | 2023 | | 2022 | | 2023 | | 2022 |
| Change in benefit obligation: | |
| | |
| | |
| | |
| Change in benefit obligation: | | | | | | | |
| Projected benefit obligation at beginning of year | $ | 294.2 |
| | $ | 272.2 |
| | $ | 140.9 |
| | $ | 134.2 |
| Projected benefit obligation at beginning of year | $ | 226.8 | | | $ | 302.3 | | | $ | 118.1 | | | $ | 171.7 | |
| Projected benefit obligation attributable to acquisitions | | Projected benefit obligation attributable to acquisitions | — | | | — | | | 2.7 | | | 1.4 | |
| Service cost | 3.6 |
| | 3.9 |
| | 1.3 |
| | 1.8 |
| Service cost | — | | | — | | | 1.5 | | | 1.8 | |
| Interest cost | 8.8 |
| | 9.5 |
| | 0.7 |
| | 1.8 |
| Interest cost | 11.1 | | | 6.2 | | | 4.2 | | | 0.8 | |
| | Actuarial (gain) loss | (6.9 | ) | | 19.7 |
| | (9.5 | ) | | 11.7 |
| Actuarial (gain) loss | (9.1) | | | (66.2) | | | 1.5 | | | (30.2) | |
| Benefits paid | (11.0 | ) | | (11.1 | ) | | (5.7 | ) | | (8.8 | ) | Benefits paid | (15.3) | | | (16.0) | | | (3.5) | | | (5.1) | |
| Gain due to settlement | (6.9 | ) | | — |
| | (1.2 | ) | | — |
| |
| Settlements | | Settlements | — | | | — | | | (3.7) | | | (2.8) | |
| Employee contributions | — |
| | — |
| | 0.8 |
| | 0.7 |
| Employee contributions | — | | | — | | | 1.3 | | | 1.1 | |
| Other events | | Other events | 0.1 | | | 0.5 | | | — | | | 0.3 | |
| Effect of exchange rates on projected benefit obligation | — |
| | — |
| | 6.1 |
| | (0.5 | ) | Effect of exchange rates on projected benefit obligation | — | | | — | | | 9.4 | | | (20.9) | |
| Projected benefit obligation at end of year | 281.8 |
| | 294.2 |
| | 133.4 |
| | 140.9 |
| Projected benefit obligation at end of year | 213.6 | | | 226.8 | | | 131.5 | | | 118.1 | |
| | | | | | | | | |
| Change in plan assets: | |
| | |
| | |
| | |
| Change in plan assets: | | | | | | | |
| Fair value of plan assets at beginning of year | 173.7 |
| | 158.9 |
| | 29.7 |
| | 29.5 |
| Fair value of plan assets at beginning of year | 225.4 | | | 303.2 | | | 41.5 | | | 47.6 | |
| Actual return on plan assets | 17.9 |
| | 19.1 |
| | 0.3 |
| | 0.5 |
| |
| Fair value of pension assets attributable to acquisitions | | Fair value of pension assets attributable to acquisitions | — | | | — | | | — | | | 0.2 | |
| Actual return (loss) on plan assets | | Actual return (loss) on plan assets | 7.1 | | | (63.9) | | | 1.7 | | | (4.1) | |
| Employee and employer contributions | 81.8 |
| | 6.8 |
| | 8.5 |
| | 8.5 |
| Employee and employer contributions | 2.0 | | | 2.1 | | | 9.8 | | | 9.2 | |
| Benefits paid | (11.0 | ) | | (11.1 | ) | | (5.7 | ) | | (8.8 | ) | Benefits paid | (15.3) | | | (16.0) | | | (3.5) | | | (5.1) | |
| Gain due to settlement | — |
| | — |
| | (1.6 | ) | | — |
| |
| Settlements | | Settlements | — | | | — | | | (3.7) | | | (2.8) | |
| Effect of exchange rates on plan assets | — |
| | — |
| | 0.2 |
| | — |
| Effect of exchange rates on plan assets | — | | | — | | | 3.2 | | | (3.5) | |
| Fair value of plan assets at end of year | 262.4 |
| | 173.7 |
| | 31.4 |
| | 29.7 |
| Fair value of plan assets at end of year | 219.2 | | | 225.4 | | | 49.0 | | | 41.5 | |
| | | | | | | | | |
| Funded status: | |
| | |
| | |
| | |
| Funded status: | | | | | | | |
| Plan assets less than benefit obligations | $ | (19.4 | ) | | $ | (120.5 | ) | | $ | (102.0 | ) | | $ | (111.2 | ) | Plan assets less than benefit obligations | $ | 5.6 | | | $ | (1.4) | | | $ | (82.5) | | | $ | (76.6) | |
| | | | | | | | | |
| Amounts recorded in the consolidated balance sheets: | |
| | |
| | |
| | |
| |
| Amounts recorded in the Consolidated Balance Sheets: | | Amounts recorded in the Consolidated Balance Sheets: | | | | | | | |
| Prepaid pension costs, non-current | $ | 8.2 |
| | $ | — |
| | $ | 0.4 |
| | $ | — |
| Prepaid pension costs, non-current | $ | 25.3 | | | $ | 19.6 | | | $ | 4.7 | | | $ | 5.4 | |
| Accrued pension costs, current portion | (1.8 | ) | | (1.8 | ) | | (6.8 | ) | | (6.6 | ) | Accrued pension costs, current portion | (1.9) | | | (2.0) | | | (6.7) | | | (5.7) | |
| Accrued pension costs, long-term portion | (25.8 | ) | | (118.7 | ) | | (95.6 | ) | | (104.6 | ) | Accrued pension costs, long-term portion | (17.8) | | | (19.0) | | | (80.5) | | | (76.3) | |
| Plan assets greater (less) than benefit obligations | $ | (19.4 | ) | | $ | (120.5 | ) | | $ | (102.0 | ) | | $ | (111.2 | ) | |
| Plan assets less than benefit obligations | | Plan assets less than benefit obligations | $ | 5.6 | | | $ | (1.4) | | | $ | (82.5) | | | $ | (76.6) | |
Net actuarial losses ($71.9)46.2) and prior service costs ($1.0)0.1), less an aggregate tax effect ($25.0)11.7), are included as components of accumulated other comprehensive loss at September 30, 2017.2023. Net actuarial losses ($103.4)46.5) and prior service costs ($1.6)0.1), less an aggregate tax effect ($35.2)12.4), are included as components of accumulated other comprehensive loss at September 30, 2016.2022. The amount that will be amortized from accumulated other comprehensive loss into net pension costs in 20182024 is expected to be $4.1.$(0.4).
Accumulated Benefit Obligation — The accumulated benefit obligation for all defined benefit retirement plans was $407.7$345.0 and $414.7$344.9 at September 30, 20172023 and 2016.2022, 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, |
| | 2023 | | 2022 | | 2023 | | 2022 |
| Projected benefit obligation | $ | 19.7 | | | $ | 20.9 | | | $ | 87.5 | | | $ | 82.3 | |
| Accumulated benefit obligation | 19.7 | | | 20.9 | | | 87.5 | | | 82.3 | |
| Fair value of plan assets | — | | | — | | | 0.3 | | | 0.3 | |
|
| | | | | | | | | | | | | | | |
| | U.S. Pension Benefits September 30, | | Non-U.S. Pension Benefits September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Projected benefit obligation | $ | 27.7 |
| | $ | 294.2 |
| | $ | 102.0 |
| | $ | 108.6 |
|
| Accumulated benefit obligation | 27.6 |
| | 276.5 |
| | 102.0 |
| | 108.6 |
|
| Fair value of plan assets | — |
| | 173.7 |
| | — |
| | — |
|
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, |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| Discount rate for obligation, end of year | 3.7 | % | | 3.6 | % | | 4.4 | % | | 1.1 | % | | 1.0 | % | | 2.1 | % |
| Discount rate for expense, during the year | 3.5 | % | | 4.4 | % | | 4.4 | % | | 0.5 | % | | 1.7 | % | | 1.9 | % |
| Expected rate of return on plan assets | 5.6 | % | | 5.5 | % | | 6.3 | % | | 2.0 | % | | 2.0 | % | | 3.5 | % |
| Rate of compensation increase | 3.0 | % | | 3.0 | % | | 3.0 | % | | 2.0 | % | | 2.0 | % | | 0.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Benefits
Year Ended September 30, | | Non-U.S. Pension Benefits
Year Ended September 30, |
| | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Discount rate for obligation, end of year | 5.7 | % | | 5.3 | % | | 2.8 | % | | 3.5 | % | | 3.3 | % | | 0.8 | % |
| Discount rate for (benefit) costs, during the year | 5.4 | % | | 3.0 | % | | 3.9 | % | | 3.9 | % | | 1.1 | % | | 0.7 | % |
| Expected rate of return on plan assets | 5.2 | % | | 5.2 | % | | 4.0 | % | | 3.1 | % | | 1.9 | % | | 2.0 | % |
| Rate of compensation increase | N/A | | 3.0 | % | | 2.4 | % | | 2.0 | % | | 2.0 | % | | 2.0 | % |
The discount rates are evaluated annually based on current market conditions. In setting these rates, we utilizethe Company utilizes long-term bond indices and yield curves as a preliminary indication of interest rate movements, then makemakes 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. See prior comments on our change to a full yield curve approach in 2016. 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 ourthe Company’s specific historical trends of past wage adjustments in recent years.
U.S. Pension Plan Assets — Long-term strategic investment objectives utilizeThe Company terminated the U.S. Pension Plan on June 30, 2023, and is taking steps to wind down the plan and transfer the resulting liability to an insurance company in 2024.Accordingly, the Company currently employs a diversified mix100% liability-hedging portfolio of investments in order to reduce the volatility associated with 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 is not to exceed 60% of total domesticinvestments. Pension plan assets. Plan assets are invested by the plans’ fiduciaries, which direct investments according to specific policies. Those policies subject investments to the following restrictions in ourthe Company’s domestic plan: short-term securities must be rated A2/P2 or higher,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.
During the first quarter of 2017, we made an $80.0 contribution to our U.S. defined benefit pension plan using cash on hand and funds borrowed from our Facility. Although this action increased Plan assets and reduced 2017 pension expense, the majority of the pension expense savings in 2017 from this action was offset by the additional interest expense on the funds borrowed and certain tax effects from the transaction.
Non-U.S. Pension Plan Assets — Long-term strategic investment objectives utilize a diversified mix of suitable assets of appropriate liquidity to generate income and capital growth that, together with contributions from participants, and Hillenbrand, we believethe 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 pensiondefined benefit retirement plan trusts at September 30, 2017.2023 or 2022.
The tables below provide the fair value of ourthe Company’s pension plan assets by asset category at September 30, 20172023 and 2016.2022. 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 1315 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.
Corporate bonds actively traded are stated at the closing price reported in the active markets in which the•Fixed income securities, include government and corporate bonds, are traded.generally classified within Level 1 or Level 2 of the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources, primarily matrix pricing, with reasonable levels of price transparency. Matrix pricing, primarily used for corporate bonds, is based on quoted prices for securities with similar coupons, ratings, and maturities, rather than on specific bids and offers for the specific security.
•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 ourthe Company’s U.S. pension plans consist of cash equivalents as well as 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, 20172023 and 2016,2022, the fair values of these investments were $262.4$144.5 and $173.7.$222.1, respectively. At September 30, 2023, and 2022, the fair value of cash equivalents, were $74.7 and $3.3, respectively, and are categorized in Level 1 in the fair value hierarchy.
Non-U.S. Pension Plans
| | | | Fair Value at September 30, 2023 Using Inputs Considered as: |
| | | | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | Fair Value at September 30, 2017 Using Inputs Considered as: | |
| | Total | | Level 1 | | Level 2 | | Level 3 | |
| Non-U.S. Pension Plans | |
| | |
| | |
| | |
| Non-U.S. Pension Plans | | | | | | | |
| Cash equivalents | $ | 5.2 |
| | $ | 5.2 |
| | $ | — |
| | $ | — |
| Cash equivalents | $ | 5.4 | | | $ | 5.4 | | | $ | — | | | $ | — | |
| Equity securities | 6.8 |
| | 6.8 |
| | — |
| | — |
| Equity securities | 9.8 | | | 9.8 | | | — | | | — | |
| Other types of investments: | | | | | | | | |
| Government index funds | 5.7 |
| | 5.7 |
| | — |
| | — |
| |
| Corporate bond funds | 9.8 |
| | 9.8 |
| | — |
| | — |
| |
| | Fixed income securities: | | Fixed income securities: | |
| Government bonds | | Government bonds | 7.3 | | | 7.3 | | | — | | | — | |
| Corporate bonds | | Corporate bonds | 18.6 | | | — | | | 18.6 | | | — | |
| | Real estate and real estate funds | 2.0 |
| | — |
| | — |
| | 2.0 |
| Real estate and real estate funds | 6.5 | | | — | | | — | | | 6.5 | |
| Other | 1.9 |
| | — |
| | 1.9 |
| | — |
| Other | 1.4 | | | — | | | 1.4 | | | — | |
| Total Non-U.S. pension plan assets | $ | 31.4 |
| | $ | 27.5 |
| | $ | 1.9 |
| | $ | 2.0 |
| Total Non-U.S. pension plan assets | $ | 49.0 | | | $ | 22.5 | | | $ | 20.0 | | | $ | 6.5 | |
| | | | | Fair Value at September 30, 2022 Using Inputs Considered as: |
| | | | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | Fair Value at September 30, 2016 Using Inputs Considered as: | |
| | Total | | Level 1 | | Level 2 | | Level 3 | |
| Non-U.S. Pension Plans | |
| | |
| | |
| | |
| Non-U.S. Pension Plans | | | | | | | |
| Cash equivalents | $ | 4.1 |
| | $ | 4.1 |
| | $ | — |
| | $ | — |
| Cash equivalents | $ | 4.0 | | | $ | 4.0 | | | $ | — | | | $ | — | |
| Equity securities | 6.5 |
| | 6.5 |
| | — |
| | — |
| Equity securities | 10.9 | | | 10.9 | | | — | | | — | |
| | Other types of investments: | 0 |
| | 0 |
| | 0 |
| | 0 |
| Other types of investments: | 0 | | 0 | | 0 | | 0 |
| Government index funds | 5.8 |
| | 5.8 |
| | — |
| | — |
| Government index funds | 4.1 | | | 4.1 | | | — | | | — | |
| Corporate bond funds | 9.7 |
| | 9.7 |
| | — |
| | — |
| Corporate bond funds | 16.7 | | | — | | | 16.7 | | | — | |
| | Real estate and real estate funds | 2.0 |
| | — |
| | — |
| | 2.0 |
| Real estate and real estate funds | 4.3 | | | — | | | — | | | 4.3 | |
| Other | 1.6 |
| | — |
| | 1.6 |
| | — |
| Other | 1.5 | | | — | | | 1.5 | | | — | |
| Total Non-U.S. pension plan assets | $ | 29.7 |
| | $ | 26.1 |
| | $ | 1.6 |
| | $ | 2.0 |
| Total Non-U.S. pension plan assets | $ | 41.5 | | | $ | 19.0 | | | $ | 18.2 | | | $ | 4.3 | |
Cash Flows — During 2017, 2016,2023, 2022, and 2015 we2021 the Company contributed cash of $89.6, $14.6,$10.3, $10.0, and $14.9,$11.0, respectively, to our defined benefit pensionretirement plans. We expectThe Company expects to make estimated contributions of $9.9 $10.9 in 2018 to our pension plans. Due2024 to the funded status of our U.S. defined benefit pension plan, we do not expect to make contributions to this plan in 2018. We will evaluate business conditions and capital and equity market volatility to determine whether we will make any additional discretionary contributions.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 |
| 2024 | $ | 61.4 | | | $ | 8.9 | |
| 2025 | 14.9 | | | 9.2 | |
| 2026 | 14.7 | | | 9.4 | |
| 2027 | 14.5 | | | 9.4 | |
| 2028 | 14.3 | | | 9.0 | |
| 2029-2032 | 66.5 | | | 43.2 | |
|
| | | | | | | |
| | U.S. Pension Plans Projected Pension Benefits Payout | | Non-U.S. Pension Plans Projected Pension Benefits Payout |
| 2018 | $ | 12.9 |
| | $ | 8.0 |
|
| 2019 | 13.4 |
| | 7.7 |
|
| 2020 | 14.1 |
| | 7.9 |
|
| 2021 | 14.8 |
| | 7.2 |
|
| 2022 | 15.4 |
| | 7.3 |
|
| 2023 - 2027 | 82.4 |
| | 34.4 |
|
Defined Contribution Plans — We sponsorThe Company sponsors a number of defined contribution plans. Depending on the plan, wethe 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 fivethree years. Expenses related to ourthe Company’s defined contribution plans were $11.4,
$9.9,$10.4, $9.0, and $9.1$8.8 for 2017, 2016,the years ended September 30, 2023, 2022, and 2015.2021, respectively. See comments above regarding ourthe Company’s retirement strategy change for certainto transition its U.S. employees in 2017.to a defined contribution structure over three-year sunset periods, the latest of which ended January 1, 2023.
Postretirement Healthcare Plan —
9.Income Taxes
The Company offers a domestic postretirement healthcare plan that provides healthcare benefits to eligible qualified retireesprovision for taxes based on income consists of:
| | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 | | 2021 |
| Domestic | $ | 50.7 | | | $ | (63.6) | | | $ | (80.3) | |
| Foreign | 166.2 | | | 263.3 | | | 286.9 | |
| Total earnings before income taxes | $ | 216.9 | | | $ | 199.7 | | | $ | 206.6 | |
| | | | | |
| Income tax expense: | | | | | |
| Current provision (benefit): | | | | | |
| Federal | $ | 24.0 | | | $ | 5.6 | | | $ | 11.9 | |
| State | 2.9 | | | 2.6 | | | (0.3) | |
| Foreign | 81.5 | | | 63.3 | | | 74.9 | |
| Total current provision | 108.4 | | | 71.5 | | | 86.5 | |
| | | | | |
| Deferred provision (benefit): | | | | | |
| Federal | 3.8 | | | (0.9) | | | (6.0) | |
| State | 1.6 | | | 0.2 | | | (0.7) | |
| Foreign | (11.0) | | | 13.2 | | | (1.2) | |
| Total deferred (benefit) provision | (5.6) | | | 12.5 | | | (7.9) | |
| Income tax expense | $ | 102.8 | | | $ | 84.0 | | | $ | 78.6 | |
A reconciliation of the statutory federal income tax rate and their spouses. The plan includes retiree cost-sharing provisions and generally extends retiree coverage for medical, prescription, and dental benefits beyond the COBRA continuation period to the date of Medicare eligibility. We use a measurement date of September 30. The net postretirement healthcare benefit cost for 2017, 2016, and 2015 was $0.3 for each year.
effective tax rate is as follows:
|
| | | | | | | |
| | September 30, |
| | 2017 | | 2016 |
| Benefit obligation at beginning of year | $ | 10.3 |
| | $ | 10.3 |
|
| Interest cost | 0.2 |
| | 0.3 |
|
| Service cost | 0.4 |
| | 0.4 |
|
| Actuarial (gain) loss | (0.9 | ) | | 0.2 |
|
| Net benefits paid | (1.0 | ) | | (0.9 | ) |
| Benefit obligation at end of year | $ | 9.0 |
| | $ | 10.3 |
|
| | | | |
| Amounts recorded in the balance sheets: | |
| | |
|
| Accrued postretirement benefits, current portion | $ | 0.8 |
| | $ | 0.9 |
|
| Accrued postretirement benefits, long-term portion | 8.2 |
| | 9.4 |
|
| Net amount recognized | $ | 9.0 |
| | $ | 10.3 |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 | | 2021 |
| Federal statutory rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| Adjustments resulting from the tax effect of: | | | | | |
| State income taxes, net of federal benefit | 1.4 | | | 1.2 | | | (0.4) | |
| Foreign income tax rate differential | 6.4 | | | 2.7 | | | 3.2 | |
| Share-based compensation | 1.3 | | | 1.6 | | | 0.8 | |
| Foreign distribution taxes | 3.6 | | | 7.4 | | | 5.4 | |
| Valuation allowance | 3.3 | | | — | | | 0.5 | |
| | | | | |
Impact of inclusion of foreign income (1) | 3.9 | | | 7.9 | | | 8.2 | |
| | | | | |
| Divestitures | — | | | 0.3 | | | (4.5) | |
| Impact of foreign legislative rate changes | (2.9) | | | — | | | — | |
| Transaction costs | 7.2 | | | — | | | — | |
| Unrecognized tax benefits | (1.4) | | | 0.1 | | | 2.9 | |
| Tax audit settlements | 2.0 | | | — | | | — | |
| Other, net | 1.6 | | | (0.1) | | | 0.9 | |
| Effective income tax rate | 47.4 | % | | 42.1 | % | | 38.0 | % |
(1) Represents Subpart F income, GILTI (less Section 250 deduction), and FDII net of associated foreign tax credits
The weighted-average assumptions used in revaluing our obligation under the postretirement healthcare plan were:tax effects of significant temporary differences that comprise tax balances were as follows:
|
| | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| Discount rate for obligation | 3.3 | % | | 3.1 | % | | 3.7 | % |
| Healthcare cost rate assumed for next year | 7.6 | % | | 7.3 | % | | 7.6 | % |
| Ultimate trend rate | 4.5 | % | | 4.5 | % | | 4.5 | % |
Net actuarial gains of $3.4 and $3.1 and prior service costs of $0.8 and $0.5, less tax of $1.6 and $1.3, were included as a component of accumulated other comprehensive loss at September 30, 2017 and 2016. The estimated amount that will be amortized from accumulated other comprehensive loss as a reduction to postretirement healthcare costs in 2018 is $0.4. A one percentage-point increase or decrease in the assumed healthcare cost trend rates as of September 30, 2017, would cause an increase or decrease in service and interest costs of $0.1, along with an increase or decrease in the benefit obligation of $0.6.
We fund 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.
6.Other Long-Term Liabilities
|
| | | | | | | |
| | September 30, |
| | 2017 | | 2016 |
| Casket pricing obligation | $ | 3.1 |
| | $ | 3.9 |
|
| Rabbi trust liability | 4.3 |
| | 4.0 |
|
| Self-insurance loss reserves | 14.3 |
| | 13.3 |
|
| Other | 11.8 |
| | 13.7 |
|
| | 33.5 |
| | 34.9 |
|
| Less current portion | (6.8 | ) | | (5.5 | ) |
| Total long-term portion | $ | 26.7 |
| | $ | 29.4 |
|
The casket pricing obligation is associated with a program for the future sale of caskets made in connection with prearranged funerals and was discontinued for arrangements made after December 31, 2004. The remaining liability under the program is being recognized as a component of revenue as casket sales subject to the program are delivered and the obligation is satisfied.
7.Income Taxes
|
| | | | | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| Domestic | $ | 108.2 |
| | $ | 99.3 |
| | $ | 110.0 |
|
| Foreign | 80.1 |
| | 64.8 |
| | 52.3 |
|
| Total earnings before income taxes | $ | 188.3 |
| | $ | 164.1 |
| | $ | 162.3 |
|
| | | | | | |
| Income tax expense: | |
| | |
| | |
|
| Current provision: | |
| | |
| | |
|
| Federal | $ | 0.5 |
| | $ | 28.9 |
| | $ | 35.0 |
|
| State | (0.4 | ) | | 5.1 |
| | 4.4 |
|
| Foreign | 22.7 |
| | 18.0 |
| | 10.2 |
|
| Total current provision | 22.8 |
| | 52.0 |
| | 49.6 |
|
| | | | | | |
| Deferred provision (benefit): | |
| | |
| | |
|
| Federal | 32.0 |
| | 3.2 |
| | (0.5 | ) |
| State | 5.0 |
| | (0.7 | ) | | 1.6 |
|
| Foreign | 0.1 |
| | (7.2 | ) | | (1.6 | ) |
| Total deferred provision (benefit) | 37.1 |
| | (4.7 | ) | | (0.5 | ) |
| Income tax expense | $ | 59.9 |
| | $ | 47.3 |
| | $ | 49.1 |
|
|
| | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| Federal statutory rates | 35.0 | % | | 35.0 | % | | 35.0 | % |
| Adjustments resulting from the tax effect of: | |
| | |
| | |
|
| State income taxes, net of federal benefit | 1.6 |
| | 2.0 |
| | 2.3 |
|
| Foreign income tax rate differential | (5.8 | ) | | (6.7 | ) | | (6.2 | ) |
| Domestic manufacturer’s deduction | (0.3 | ) | | (1.9 | ) | | (2.2 | ) |
| Share-based compensation | (1.1 | ) | | (1.5 | ) | | — |
|
| Unremitted Earnings | 2.7 |
| | — |
| | — |
|
| Valuation allowance | (1.3 | ) | | 1.7 |
| | 0.3 |
|
| Other, net | 1.0 |
| | 0.2 |
| | 1.0 |
|
| Effective income tax rate | 31.8 | % | | 28.8 | % | | 30.2 | % |
| | | | September 30, | | September 30, |
| | 2017 | | 2016 | | 2023 | | 2022 |
| Deferred tax assets: | |
| | |
| Deferred tax assets: | | | |
| Employee benefit accruals | $ | 46.0 |
| | $ | 90.1 |
| Employee benefit accruals | $ | 19.6 | | | $ | 25.9 | |
| Loss and tax credit carryforwards | 43.7 |
| | 40.6 |
| Loss and tax credit carryforwards | 20.3 | | | 15.7 | |
| Interest limitation carryforward | | Interest limitation carryforward | 38.3 | | | 19.3 | |
| Operating lease liabilities | | Operating lease liabilities | 28.8 | | | 30.4 | |
| Rebates and other discounts | 5.8 |
| | 5.7 |
| Rebates and other discounts | 0.5 | | | 4.2 | |
| Research and development costs | | Research and development costs | 13.5 | | | — | |
| Self-insurance reserves | 4.6 |
| | 4.6 |
| Self-insurance reserves | 0.8 | | | 2.9 | |
| Casket pricing obligation | 1.3 |
| | 1.6 |
| |
| Allowance for doubtful accounts | 1.0 |
| | 1.1 |
| |
| | Inventory, net | 3.1 |
| | 3.2 |
| Inventory, net | 14.1 | | | 8.5 | |
| Other, net | 10.3 |
| | 11.9 |
| Other, net | 28.9 | | | 26.0 | |
| Total deferred tax assets before valuation allowance | 115.8 |
| | 158.8 |
| Total deferred tax assets before valuation allowance | 164.8 | | | 132.9 | |
| Less valuation allowance | (3.1 | ) | | (5.5 | ) | Less valuation allowance | (34.1) | | | (11.8) | |
| Total deferred tax assets, net | 112.7 |
| | 153.3 |
| Total deferred tax assets, net | 130.7 | | | 121.1 | |
| Deferred tax liabilities: | |
| | |
| Deferred tax liabilities: | | | |
| Depreciation | (11.6 | ) | | (9.7 | ) | Depreciation | (23.7) | | | (21.2) | |
| Amortization | (134.9 | ) | | (134.9 | ) | Amortization | (325.5) | | | (185.2) | |
| Long-term contracts and customer prepayments | (28.9 | ) | | (21.2 | ) | |
| Operating right-of-use assets | | Operating right-of-use assets | (30.0) | | | (31.0) | |
| Assets and liabilities from long-term manufacturing contracts and advances | | Assets and liabilities from long-term manufacturing contracts and advances | (83.3) | | | (68.9) | |
| Unremitted earnings of foreign operations | (4.2 | ) | | (0.2 | ) | Unremitted earnings of foreign operations | (8.6) | | | (14.7) | |
| Other, net | (5.1 | ) | | (8.8 | ) | Other, net | (2.5) | | | (3.5) | |
| Total deferred tax liabilities | (184.7 | ) | | (174.8 | ) | Total deferred tax liabilities | (473.6) | | | (324.5) | |
| Deferred tax liabilities, net | $ | (72.0 | ) | | $ | (21.5 | ) | Deferred tax liabilities, net | $ | (342.9) | | | $ | (203.4) | |
| | | | | | | | |
| Amounts recorded in the balance sheets: | |
| | |
| |
| Deferred tax assets, current | $ | — |
| | $ | 23.9 |
| |
| Amounts recorded in the Consolidated Balance Sheets: | | Amounts recorded in the Consolidated Balance Sheets: | | | |
| Deferred tax assets, non-current | 3.7 |
| | — |
| Deferred tax assets, non-current | 8.3 | | | 6.8 | |
| Deferred tax liabilities, current | — |
| | (22.8 | ) | |
| Deferred tax liabilities, non-current | (75.7 | ) | | (22.6 | ) | Deferred tax liabilities, non-current | (351.2) | | | (210.2) | |
| Total | $ | (72.0 | ) | | $ | (21.5 | ) | Total | $ | (342.9) | | | $ | (203.4) | |
At September 30, 2017, we2023 and 2022, respectively, the Company had $4.7$1.7 and $3.9 of deferred tax assets related to U.S. federal and state net operating losses and tax credit carryforwards, which will begin to expire in 2018,2024, and $39.0$32.8 and $28.9 of deferred tax assets related to foreign net operating loss and interest carryforwards. The majority of the foreign net operating loss and interest carryforwards whichhave unlimited carryforward periods. Portions of the net operating loss carryforwards with expiration periods will begin to expire in 2018.2024. Deferred tax assets as of September 30, 2017,2023 and 2022, were reduced by a valuation allowance of $3.1$34.1 and $11.8, respectively, relating to foreign net operating loss carryforwards and foreign tax credit carryforwards. At September 30, 20172023 and 2016, we2022, the Company had $18.3$72.8 and $16.6$33.5, respectively, of current income tax payable classified asincluded in other current liabilities on our balance sheets.the Consolidated Balance Sheets. As of September 30, 2023 and 2022, the Company also had a transition tax liability of $11.2 and $14.9 included within other long-term liabilities on the Consolidated Balance Sheets.
We establishThe 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, 20172023, and 2016, U.S. federal2022, respectively, $8.6 and state income taxes have not been provided on accumulated undistributed earnings of substantially all our foreign subsidiaries, as these earnings were considered permanently reinvested. However, as of September 30, 2017, $4.0$14.7 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 ourthe Company’s foreign subsidiaries. The total
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 earningsoutside of the U.S. If these amounts were $241.2not considered permanently reinvested, deferred tax liabilities would be recorded for any additional income taxes, distribution taxes, and $172.7 for 2017 and 2016. These amounts represent book earnings translatedwithholding taxes payable in various countries. A determination of the unrecognized deferred tax liabilities on the permanently reinvested basis differences at historical rates. ItSeptember 30, 2023 is not practicable to estimate the tax liabilities that would be incurred upon full repatriationpracticable.
A reconciliation of the unrecognized tax benefits is as follows: | | | | | | | | | | September 30, |
| | September 30, | | 2023 | | 2022 | | 2021 |
| Balance at beginning of year | | Balance at beginning of year | $ | 33.9 | | | $ | 40.5 | | | $ | 35.7 | |
| | 2017 | | 2016 | | 2015 | |
| Balance at September 30 | $ | 7.7 |
| | $ | 7.8 |
| | $ | 8.4 |
| |
| Additions for tax positions related to the current year | 0.7 |
| | 0.2 |
| | 0.6 |
| Additions for tax positions related to the current year | 0.7 | | | — | | | 6.5 | |
| Additions for tax positions of prior years | 3.4 |
| | 1.7 |
| | 0.8 |
| Additions for tax positions of prior years | 0.6 | | | 1.0 | | | 1.6 | |
| Reductions for tax positions of prior years | (1.5 | ) | | (2.0 | ) | | (2.0 | ) | Reductions for tax positions of prior years | (2.9) | | | (6.9) | | | (3.3) | |
| Settlements | (0.4 | ) | | — |
| | — |
| Settlements | (1.7) | | | (0.7) | | | — | |
| Balance at September 30 | $ | 9.9 |
| | $ | 7.7 |
| | $ | 7.8 |
| |
| Balance attributable to acquisitions | | Balance attributable to acquisitions | 8.3 | | | — | | | — | |
| Balance at end of year | | Balance at end of year | $ | 38.9 | | | $ | 33.9 | | | $ | 40.5 | |
The gross unrecognized tax benefit included $9.9$38.9 and $7.7$33.9 at September 30, 20172023 and 2016,2022, respectively, which, if recognized, would impact the effective tax rate in future periods.
We recognizeThe Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. During 20172023 and 2016, we2022, the Company recognized $0.7$0.9 and $0.5, respectively, in additional interest and penalties. Excluded from the reconciliation were $1.3$4.9 and $1.3$3.8 of accrued interest and penalties at September 30, 20172023 and 2016.2022, respectively.
We operateThe 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. Specifically, weThere are currently under examinationongoing audits in India, Canada, Germany, and the U.S.Czech Republic specifically which could prove to be significant for 2016 and under examination in Germany for 2009 through 2013.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 $1.0$0.5 based on current estimates. Audit outcomes and the timing of audit settlements are subject to significant uncertainty. Although we believethe Company believes that adequate provision has been made for such issues, it is possible that their ultimate resolution could affect our earnings. Conversely, if these issues are resolved favorably in the future, the related provision would be reduced and yield a positive impact on earnings. We doThe Company does not expect that the outcome of these audits will significantly impact the financial statements.Consolidated Financial Statements.
8.10.Earnings per Share
The dilutive effects of performance-based stock awards described in Note 910 are included in the computation of diluted earnings per share at the level the related performance criteria are met through the respective balance sheetConsolidated Balance Sheet date. At September 30, 2017, 2016,2023, 2022, and 2015,2021, potential dilutive effects representing 600,000, 800,000,349,000, 373,000, and 1,600,000450,000 shares, respectively, were excluded from the computation of diluted earnings per share as the related performance criteria were not yet met, although we expectthe Company expects to meet various levels of criteria in the future.
| | | | | | | | | | Year Ended September 30, |
| | Year Ended September 30, | | 2023 | | 2022 | | 2021 |
| Income from continuing operations | | Income from continuing operations | $ | 114.1 | | | $ | 115.7 | | | $ | 128.0 | |
| Less: Net income attributable to noncontrolling interests | | Less: Net income attributable to noncontrolling interests | 7.0 | | | 6.3 | | | 5.3 | |
| Income from continuing operations attributable to Hillenbrand | | Income from continuing operations attributable to Hillenbrand | $ | 107.1 | | | $ | 109.4 | | | $ | 122.7 | |
| | 2017 | | 2016 | | 2015 | | | | | | |
Net income(1) | $ | 126.2 |
| | $ | 112.8 |
| | $ | 111.4 |
| |
| Weighted average shares outstanding — basic (in millions) | 63.6 |
| | 63.3 |
| | 63.2 |
| Weighted average shares outstanding — basic (in millions) | 69.8 | | | 71.7 | | | 74.9 | |
Effect of dilutive stock options and unvested time-based restricted stock (in millions) | 0.4 |
| | 0.5 |
| | 0.7 |
| Effect of dilutive stock options and unvested time-based
restricted stock (in millions) | 0.3 | | | 0.5 | | | 0.5 | |
| Weighted average shares outstanding — diluted (in millions) | 64.0 |
| | 63.8 |
| | 63.9 |
| Weighted average shares outstanding — diluted (in millions) | 70.1 | | | 72.2 | | | 75.4 | |
| |
|
| |
|
| |
|
| | | | | | |
| Earnings per share — basic | $ | 1.99 |
| | $ | 1.78 |
| | $ | 1.76 |
| |
| Earnings per share — diluted | $ | 1.97 |
| | $ | 1.77 |
| | $ | 1.74 |
| |
| Basic earnings per share from continuing operations attributable to Hillenbrand | | Basic earnings per share from continuing operations attributable to Hillenbrand | $ | 1.53 | | | $ | 1.52 | | | $ | 1.64 | |
| Diluted earnings per share from continuing operations attributable to Hillenbrand | | Diluted earnings per share from continuing operations attributable to Hillenbrand | $ | 1.53 | | | $ | 1.51 | | | $ | 1.63 | |
| | | | | | | |
Shares with anti-dilutive effect excluded from the computation of diluted earnings per share (millions) | 0.4 |
| | 0.8 |
| | 0.7 |
| Shares with anti-dilutive effect excluded from the computation
of diluted earnings per share (millions) | 0.2 | | | 0.3 | | | 0.8 | |
(1) Net income attributable to Hillenbrand
9.11. Share-Based Compensation
We haveThe Company has share-based compensation plans under which 12,685,43615,385,436 shares are registered. As of September 30, 2017, 2,908,0182023, 1,988,835 shares were outstanding under these plans and 5,672,77810,197,059 shares had been issued, leaving 4,104,6403,199,542 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. In addition, our Executive Deferred Compensation Program and our Board of Directors’ Deferred Compensation Plan allow for voluntary deferrals of compensation and directors’ fees into restricted stock units. These programs are administered by the Board of Directors and its Compensation and Management Development Committee.
| | | | Year Ended September 30, | | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 | | 2023 | | 2022 | | 2021 |
| Stock-based compensation cost | $ | 10.5 |
| | $ | 8.5 |
|
| $ | 12.0 |
| Stock-based compensation cost | $ | 22.2 | | | $ | 21.3 | | | $ | 19.7 | |
| Less impact of income tax | 3.8 |
| | 3.1 |
|
| 4.4 |
| Less impact of income tax | 5.1 | | | 4.9 | | | 4.5 | |
| Stock-based compensation cost, net of tax | $ | 6.7 |
| | $ | 5.4 |
|
| $ | 7.6 |
| Stock-based compensation cost, net of tax | $ | 17.1 | | | $ | 16.4 | | | $ | 15.2 | |
The Company realized current tax benefits of $6.0$6.4, $5.8 and $3.9 from the exercise of stock options and the payment of stock awards during 2017.the years ended September 30, 2023, 2022 and 2021, respectively.
Stock Options — TheNo stock options were issued during the years ended September 30, 2023, 2022 and 2021. For grants issued prior to 2021, fair values of option grants arewere estimated on the date of grant using the Black-Scholes option-pricing model. For grants issued prior to 2017, fair values were estimated using the binomial 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 $8.37, $7.80, and $8.38$6.63 per share for 2017, 2016, and 2015.2020. The following assumptions were used in the determination of fair value:value for the year ended September 30, 2020:
| | | | | |
| Risk-free interest rate | 1.6 | % |
| Weighted-average dividend yield | 2.7 | % |
| Weighted-average volatility factor | 27.9 | % |
| Expected life (years) | 5.8 |
|
| | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| Risk-free interest rate | 1.9 | % | | 0.5 - 2.2% |
| | 0.1 - 2.2% |
|
| Weighted-average dividend yield | 2.2 | % | | 2.6 | % | | 2.5 | % |
| Weighted-average volatility factor | 28.8 | % | | 31.0 | % | | 31.8 | % |
Exercise factor(1) | n/a |
| | 33.6 | % | | 33.1 | % |
Post-vesting termination rate(1) | n/a |
| | 5.0 | % | | 5.0 | % |
| Expected life (years) | 5.8 |
| | 4.5 |
| | 4.6 |
|
(1) Assumption only applicable to the binomial option-pricing model used in 2016 and 2015
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. In 2017, the expected life wasoutstanding based on historical exercise activity. Prior to 2017, the expected life was a derived output of the binomial model. The post-vesting termination rate and the exercise factor are based on the history of exercises and forfeitures for previous stock options.
A summary of outstanding stock option awards as of September 30, 20172023 and changes during the year is presented below:
| | | | | | | Number
of Shares | | Weighted-Average
Exercise Price |
| | Number of Shares | | Weighted-Average Exercise Price | |
| Outstanding at September 30, 2016 | 2,274,596 |
| | $ | 25.41 |
| |
| Outstanding at September 30, 2021 | | Outstanding at September 30, 2021 | 1,962,950 | | | $ | 36.35 | |
| Granted | 477,594 |
| | 35.90 |
| Granted | — | | | — | |
| Exercised | (800,248 | ) | | 22.37 |
| Exercised | (702,712) | | | 36.13 | |
| Forfeited | (109,606 | ) | | 34.06 |
| Forfeited | (544) | | | 44.22 | |
| Expired/cancelled | (8,405 | ) | | 30.44 |
| Expired/cancelled | (7,972) | | | 35.91 | |
| Outstanding at September 30, 2017 | 1,833,931 |
| | $ | 28.93 |
| |
| Outstanding at September 30, 2022 | | Outstanding at September 30, 2022 | 1,251,722 | | | 36.47 | |
| Granted | | Granted | — | | | — | |
| Exercised | | Exercised | (618,414) | | | 34.39 | |
| Forfeited | | Forfeited | — | | | — | |
| Expired/cancelled | | Expired/cancelled | (5,699) | | | 31.14 | |
| Outstanding at September 30, 2023 | | Outstanding at September 30, 2023 | 627,609 | | | $ | 38.56 | |
| | | | | | | |
| Exercisable at September 30, 2017 | 1,103,512 |
| | $ | 25.58 |
| |
| Exercisable at September 30, 2023 | | Exercisable at September 30, 2023 | 627,609 | | | $ | 38.56 | |
As of September 30, 2017,2023, there was $2.9 ofno unrecognized stock-based compensation associated with unvested stock options expected to be recognized over a weighted-average period of 1.8 years. This unrecognized compensation expense included a reduction for our estimate of potential forfeitures.options. As of September 30, 2017,2023, the average remaining life of the outstanding and exercisable stock options was 6.54.0 years with an aggregate intrinsic value of $18.2. As of September 30, 2017, the average remaining life of the exercisable stock options was 5.1 years with an aggregate intrinsic value of $14.6.$3.2. The total intrinsic value of options exercised by employees and directors during 2017, 2016,2023, 2022, and 20152021 was $11.2, $7.5,$9.2, $9.6, and $2.8.$6.6, respectively. The grant-date fair value of options that vested during 2023, 2022, and 2021 was $2.2, $11.5, and $15.9, respectively.
Time-Based Stock Awards and Performance-Based Stock Awards — These awards are consistent with ourthe 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. We believeThe Company believes that ourthe 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. OurThe 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”).
OurThe Company’s time-based stock awards provide an unconditional delivery of shares after a specified period of service. We recordThe 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 2023 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 ourthe 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 (200 percent) to vest. We recordThe 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 we approachthe Company approaches the final performance measurement date at the end of the three-year period.
The vesting of TSR awards isgranted in fiscal 2023 will be determined by comparing ourthe Company’s total shareholder return during a three-year period to the respective total shareholder returns of companies in a designated performance peer groupmembers of 15 companies.the Standard & Poor’s 400 Mid Cap Industrials index (the “Index Companies”). Based on the Company’s relative ranking within the Index Companies, performance peer group, it is possible
below the 25th percentile earns a zero payout, a 25 percent minimum payout for none of the awards to vest or for a range up to the maximum to vest. The Monte-Carlo simulation method is used to determine fair value of TSR awardsachievement at the grant date. The Monte-Carlo simulation model estimates the fair value of this market-based award based upon the expected term, risk-free interest rate, expected dividend yield,25th percentile, 100 percent payout at 50th percentile achievement, and expected volatility measure for the Company200 percent payout at 75th percentile achievement and its peer group.above. 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, |
| | 2023 | | 2022 | | 2021 |
| Expected term (years) | 2.83 | | 2.83 | | 2.83 |
| Risk-free interest rate | 3.96 | % | | 0.86 | % | | 0.20 | % |
| Share price volatility | 44.70 | % | | 43.90 | % | | 43.04 | % |
| Expected dividend yield | — | % | | — | % | | — | % |
| Actual dividend yield | 1.97 | % | | 1.91 | % | | 2.24 | % |
A summary of the non-vested stock awards, including dividends, as of September 30, 20172023 (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 | | Number of Shares | | Weighted-Average
Grant Date
Fair Value |
| Time-Based Stock Awards | | Time-Based Stock Awards | |
| Non-vested time-based stock awards at September 30, 2016 | | 82,615 |
| | $ | 30.80 |
| |
| Non-vested time-based stock awards at September 30, 2021 | | Non-vested time-based stock awards at September 30, 2021 | | 617,135 | | | $ | 37.21 | |
| Granted | | 47,024 |
| | 35.41 |
| Granted | | 408,467 | | | 45.46 | |
| Vested | | (33,388 | ) | | 31.28 |
| Vested | | (252,346) | | | 35.36 | |
| Forfeited | | (5,977 | ) | | 32.50 |
| Forfeited | | (112,796) | | | 40.28 | |
| Non-vested time-based stock awards at September 30, 2017 | | 90,274 |
| | $ | 33.04 |
| |
| Non-vested time-based stock awards at September 30, 2022 | | Non-vested time-based stock awards at September 30, 2022 | | 660,460 | | | 42.50 | |
| Granted | | Granted | | 268,503 | | | 50.54 | |
| Vested | | Vested | | (358,592) | | | 41.36 | |
| Forfeited | | Forfeited | | (71,635) | | | 47.62 | |
| Non-vested time-based stock awards at September 30, 2023 | | Non-vested time-based stock awards at September 30, 2023 | | 498,736 | | | $ | 46.91 | |
| | | | | Number of Shares | | Weighted-Average Grant Date Fair Value | | Number of Shares | | Weighted-Average
Grant Date
Fair Value |
| Performance-Based Stock Awards | | Performance-Based Stock Awards | |
| Non-vested performance-based stock awards at September 30, 2016 | | 783,436 |
| | $ | 33.33 |
| |
| Non-vested performance-based stock awards at September 30, 2020 | | Non-vested performance-based stock awards at September 30, 2020 | | 733,649 | | | $ | 37.38 | |
| Granted | | 302,407 |
| | 39.72 |
| Granted | | 321,472 | | | 51.93 | |
| Vested | | (203,981 | ) | | 33.42 |
| Vested | | (242,117) | | | 33.65 | |
| Forfeited | | (284,408 | ) | | 34.16 |
| Forfeited | | (274,652) | | | 39.22 | |
| Non-vested performance-based stock awards at September 30, 2017 | | 597,454 |
| | $ | 36.14 |
| |
| Non-vested performance-based stock awards at September 30, 2022 | | Non-vested performance-based stock awards at September 30, 2022 | | 538,352 | | | 47.69 | |
| Granted | | Granted | | 368,419 | | | 67.04 | |
| Vested | | Vested | | (187,894) | | | 43.15 | |
| Forfeited | | Forfeited | | (136,401) | | | 54.78 | |
| Non-vested performance-based stock awards at September 30, 2023 | | Non-vested performance-based stock awards at September 30, 2023 | | 582,476 | | | $ | 59.90 | |
The total vest date fair value of shares held by Hillenbrand employees and directors which vested during 2017, 2016,2023, 2022, and 20152021 was $10.9, $7.4,$28.0, $23.0, and $7.1$11.1 (including dividends)., respectively.
As of September 30, 2017, $1.22023, $12.1 and $5.4$8.5 of unrecognized stock-based compensation was associated with ourthe Company’s unvested time-based and performance-based (including SV and TSR) stock awards.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 basedperformance-based awards is expected to be recognized over a weighted-average period of 1.91.7 and 1.7 years
and includes a reduction for an estimate of potential forfeitures. As of September 30, 2017,2023, the outstanding time-based stock awards and performance-based stock awards had an aggregate fair value of $3.6$21.1 and $23.0. The weighted-average grant date fair value of time-based stock awards was $30.59 and $30.99 per share for 2016 and 2015. The weighted-average grant date fair value of performance-based stock awards was $33.14 and $33.44 per share for 2016 and 2015.$18.5, 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, 2017,2023, a total of 14,13832,308 shares had accumulated on unvested stock awards due to dividend reinvestments and were excluded fromincluded in the tables above. The aggregate fair value of these shares at September 30, 20172023 was $0.5.$1.4.
Vested Deferred Stock — Certain stock-based compensation programs allow or require deferred delivery of shares after vesting. As of September 30, 2017,2023, there were 372,221280,015 fully vested deferred shares, which were excluded from the tables above. The aggregate fair value of these shares at September 30, 20172023 was $14.5.$11.8.
10.12. Other Comprehensive Income (Loss)
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension and Postretirement | | Currency Translation | | Net Unrealized Gain (Loss) on Derivative Instruments | | Total Attributable to Hillenbrand, Inc. | | Noncontrolling Interests | | Total |
| Balance at September 30, 2016 | $ | (67.5 | ) | | $ | (61.6 | ) | | $ | (0.7 | ) | | $ | (129.8 | ) | | |
| | |
|
| Other comprehensive income before reclassifications | |
| | |
| | |
| | | | |
| | |
|
| Before tax amount | 28.1 |
| | 24.7 |
| | 3.2 |
| | 56.0 |
| | $ | 0.2 |
| | $ | 56.2 |
|
| Tax expense | (9.3 | ) | | — |
| | (1.2 | ) | | (10.5 | ) | | — |
| | (10.5 | ) |
| After tax amount | 18.8 |
| | 24.7 |
| | 2.0 |
| | 45.5 |
| | 0.2 |
| | 45.7 |
|
Amounts reclassified from accumulated other comprehensive income(1) | 3.4 |
| | — |
| | (0.3 | ) | | 3.1 |
| | — |
| | 3.1 |
|
| Net current period other comprehensive income | 22.2 |
| | 24.7 |
| | 1.7 |
| | 48.6 |
| | $ | 0.2 |
| | $ | 48.8 |
|
| Balance at September 30, 2017 | $ | (45.3 | ) | | $ | (36.9 | ) | | $ | 1.0 |
| | $ | (81.2 | ) | | |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension and
Postretirement | | Currency Translation (1) | | Net
Unrealized
Gain (Loss) on
Derivative
Instruments | | | | Total
Attributable
to
Hillenbrand,
Inc. | | Noncontrolling
Interests | | Total |
| Balance at September 30, 2022 | $ | (32.8) | | | $ | (113.7) | | | $ | (9.1) | | | | | $ | (155.6) | | | | | |
| Other comprehensive income (loss) before reclassifications | | | | | | | | | | | | | |
| Before tax amount | 0.2 | | | 6.6 | | | 3.5 | | | | | 10.3 | | | $ | (0.1) | | | $ | 10.2 | |
| Tax benefit | (0.6) | | | — | | | (0.9) | | | | | (1.5) | | | | | (1.5) | |
| After tax amount | (0.4) | | | 6.6 | | | 2.6 | | | | | 8.8 | | | (0.1) | | | 8.7 | |
Amounts reclassified from accumulated other comprehensive loss (2) | (1.3) | | | — | | | 1.0 | | | | | (0.3) | | | — | | | (0.3) | |
| Net current period other comprehensive (loss) income | (1.7) | | | 6.6 | | | 3.6 | | | | | 8.5 | | | $ | (0.1) | | | $ | 8.4 | |
| | | | | | | | | | | | | |
| Balance at September 30, 2023 | $ | (34.5) | | | $ | (107.1) | | | $ | (5.5) | | | | | $ | (147.1) | | | | | |
(1) Includes gains and losses on intra-entity foreign currency transactions that are of a long-term investment nature.
(2) Amounts are net of tax.
Reclassifications out of Accumulated Other Comprehensive Incomeaccumulated other comprehensive loss include:
|
| | | | | | | | | | | | | | | |
| | Year Ended September 30, 2017 |
| | 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 | $ | — |
| | $ | — |
| | $ | (0.1 | ) | | $ | (0.1 | ) |
| Cost of goods sold | 3.2 |
| | 0.3 |
| | (0.5 | ) | | 3.0 |
|
| Operating expenses | 1.4 |
| | 0.1 |
| | — |
| | 1.5 |
|
| Other (expense) income, net | — |
| | — |
| | 0.1 |
| | 0.1 |
|
| Total before tax | $ | 4.6 |
| | $ | 0.4 |
| | $ | (0.5 | ) | | 4.5 |
|
| Tax expense | |
| | |
| | |
| | (1.4 | ) |
| Total reclassifications for the period, net of tax | |
| | |
| | |
| | $ | 3.1 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, 2023 |
| | Amortization of Pension and Postretirement (1) | | (Gain)Loss on Derivative
Instruments | | Total |
| | 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 | — | | | — | | | (1.3) | | | $ | (1.3) | |
| | | | | | | |
| Operating expenses | 0.1 | | | — | | | 2.0 | | | $ | 2.1 | |
| Gain on divestiture of discontinued operations (net of income tax expense) | (1.4) | | | (0.1) | | | — | | | $ | (1.5) | |
| Total before tax | $ | (1.3) | | | $ | (0.1) | | | $ | 0.6 | | | $ | (0.8) | |
| Tax benefit | | | | | | | 0.5 | |
| Total reclassifications for the period, net of tax | | | | | | | $ | (0.3) | |
(1)These accumulated other comprehensive incomeloss components are included in the computation of net periodic pension cost (see Note 5)8).
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension and Postretirement | | Currency Translation | | Net Unrealized Gain (Loss) on Derivative Instruments | | Total Attributable to Hillenbrand, Inc. | | Noncontrolling Interests | | Total |
| Balance at September 30, 2015 | $ | (54.4 | ) | | $ | (52.1 | ) | | $ | (1.4 | ) | | $ | (107.9 | ) | | |
| | |
| Other comprehensive income before reclassifications | | | | | | | |
| | |
| | |
| Before tax amount | (22.7 | ) | | (9.5 | ) | | 0.2 |
| | (32.0 | ) | | $ | (0.3 | ) | | $ | (32.3 | ) |
| Tax benefit (expense) | 6.5 |
| | — |
| | 0.1 |
| | 6.6 |
| | — |
| | 6.6 |
|
| After tax amount | (16.2 | ) | | (9.5 | ) | | 0.3 |
| | (25.4 | ) | | (0.3 | ) | | (25.7 | ) |
Amounts reclassified from accumulated other comprehensive income(1) | 3.1 |
| | — |
| | 0.4 |
| | 3.5 |
| | — |
| | 3.5 |
|
| Net current period other comprehensive income (loss) | (13.1 | ) | | (9.5 | ) | | 0.7 |
| | (21.9 | ) | | $ | (0.3 | ) | | $ | (22.2 | ) |
| Balance at September 30, 2016 | $ | (67.5 | ) | | $ | (61.6 | ) | | $ | (0.7 | ) | | $ | (129.8 | ) | | |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension and
Postretirement | | Currency Translation (1) | | Net
Unrealized
Gain (Loss) on
Derivative
Instruments | | Total
Attributable
to
Hillenbrand,
Inc. | | Noncontrolling
Interests | | Total |
| Balance at September 30, 2021 | $ | (49.2) | | | $ | 13.1 | | | $ | (10.2) | | | $ | (46.3) | | | | | |
| Other comprehensive income (loss) before reclassifications | | | | | | | | | | | |
| Before tax amount | 18.4 | | | (126.8) | | | (0.6) | | | (109.0) | | | $ | (2.2) | | | $ | (111.2) | |
| Tax benefit | (5.7) | | | — | | | 0.3 | | | (5.4) | | | — | | | (5.4) | |
| After tax amount | 12.7 | | | (126.8) | | | (0.3) | | | (114.4) | | | (2.2) | | | (116.6) | |
Amounts reclassified from accumulated other comprehensive loss (2) | 3.7 | | | — | | | 1.4 | | | 5.1 | | | — | | | 5.1 | |
| Net current period other comprehensive income (loss) | 16.4 | | | (126.8) | | | 1.1 | | | (109.3) | | | $ | (2.2) | | | $ | (111.5) | |
| | | | | | | | | | | |
| Balance at September 30, 2022 | $ | (32.8) | | | $ | (113.7) | | | $ | (9.1) | | | $ | (155.6) | | | | | |
(1) Includes gains and losses on intra-entity foreign currency transactions that are of a long-term investment nature.
(2) Amounts are net of tax.
Reclassifications out of Accumulated Other Comprehensive Incomeaccumulated other comprehensive loss include:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, 2022 |
| | Amortization of Pension and Postretirement (1) | | (Gain) Loss on Derivative
Instruments | | (Gain) Loss on Divestiture | | Total |
| | 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 | — | | | — | | | (0.7) | | | — | | | $ | (0.7) | |
| | | | | | | | | |
| Operating expenses | 4.0 | | | — | | | 1.9 | | | — | | | $ | 5.9 | |
| Total before tax | $ | 4.0 | | | $ | — | | | $ | 1.1 | | | $ | — | | | $ | 5.1 | |
| Tax benefit | | | | | | | | | — | |
| Total reclassifications for the period, net of tax | | | | | | | | | $ | 5.1 | |
|
| | | | | | | | | | | | | | | |
| | Year Ended September 30, 2016 |
| | 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 | $ | — |
| | $ | — |
| | $ | 0.3 |
| | $ | 0.3 |
|
| Cost of goods sold | 3.0 |
| | 0.3 |
| | — |
| | 3.3 |
|
| Operating expenses | 1.3 |
| | 0.2 |
| | — |
| | 1.5 |
|
| Other (expense) income, net | — |
| | — |
| | 0.4 |
| | 0.4 |
|
| Total before tax | $ | 4.3 |
| | $ | 0.5 |
| | $ | 0.7 |
| | 5.5 |
|
| Tax expense | |
| | |
| | |
| | (2.0 | ) |
| Total reclassifications for the period, net of tax | |
| | |
| | |
| | $ | 3.5 |
|
(1)These accumulated other comprehensive incomeloss components are included in the computation of net periodic pension cost (see Note 5)8).
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension and Postretirement | | Currency Translation | | Net Unrealized Gain (Loss) on Derivative Instruments | | Total Attributable to Hillenbrand, Inc. | | Noncontrolling Interests | | Total |
| Balance at September 30, 2014 | $ | (46.0 | ) | | $ | (4.9 | ) | | $ | (1.3 | ) | | $ | (52.2 | ) | | |
| | |
|
| Other comprehensive income before reclassifications | |
| | |
| | |
| | |
| | |
| | |
|
| Before tax amount | (18.0 | ) | | (47.2 | ) | | (6.6 | ) | | (71.8 | ) | | $ | (0.4 | ) | | $ | (72.2 | ) |
| Tax benefit | 6.1 |
| | — |
| | 3.1 |
| | 9.2 |
| | — |
| | 9.2 |
|
| After tax amount | (11.9 | ) | | (47.2 | ) | | (3.5 | ) | | (62.6 | ) | | (0.4 | ) | | (63.0 | ) |
Amounts reclassified from accumulated other comprehensive income(1) | 3.5 |
| | — |
| | 3.4 |
| | 6.9 |
| | — |
| | 6.9 |
|
| Net current period other comprehensive loss | (8.4 | ) | | (47.2 | ) | | (0.1 | ) | | (55.7 | ) | | $ | (0.4 | ) | | $ | (56.1 | ) |
| Balance at September 30, 2015 | $ | (54.4 | ) | | $ | (52.1 | ) | | $ | (1.4 | ) | | $ | (107.9 | ) | | |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension and
Postretirement | | Currency Translation (1) | | 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 expense | (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 (2) | 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) Includes gains and losses on intra-entity foreign currency transactions that are of a long-term investment nature.
(2) Amounts are net of tax.
Reclassifications out of Accumulated Other Comprehensive Incomeaccumulated other comprehensive loss include:
|
| | | | | | | | | | | | | | | |
| | Year Ended September 30, 2015 |
| | 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 | $ | — |
| | $ | — |
| | $ | 2.5 |
| | $ | 2.5 |
|
| Cost of goods sold | 3.5 |
| | 0.5 |
| | 0.1 |
| | 4.1 |
|
| Operating expenses | 1.3 |
| | 0.3 |
| | — |
| | 1.6 |
|
| Other (expense) income, net | — |
| | — |
| | 1.9 |
| | 1.9 |
|
| Total before tax | $ | 4.8 |
| | $ | 0.8 |
| | $ | 4.5 |
| | 10.1 |
|
| Tax expense | |
| | |
| | |
| | (3.2 | ) |
| Total reclassifications for the period, net of tax | |
| | |
| | |
| | $ | 6.9 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, 2021 |
| | Amortization of Pension and Postretirement (1) | | (Gain)/Loss on Derivative
Instruments | | (Gain)/Loss on Divestiture | | Total |
| | 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) | |
| | | | | | | | | |
| Operating expenses | 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 incomeloss components are included in the computation of net periodic pension cost (see Note 5)8).
11.13. Commitments and Contingencies
Lease Commitments — We lease certain manufacturing facilities, warehouse distribution centers, service centers, and sales offices under operating leases. Rental expense for 2017, 2016, and 2015 was $23.6, $27.8 and $30.0. The aggregate future minimum lease payments for operating leases, excluding renewable periods, as of September 30, 2017, were as follows:
|
| | | |
| | Amount |
| 2018 | $ | 18.5 |
|
| 2019 | 15.8 |
|
| 2020 | 12.1 |
|
| 2021 | 10.4 |
|
| 2022 | 8.3 |
|
| Thereafter | 35.3 |
|
| | $ | 100.4 |
|
Litigation
General — Like most companies, we arethe Company is involved from time to time in claims, lawsuits, and government proceedings relating to ourits operations, including environmental, antitrust, patent infringement, business practices, commercial transactions, product and general liability, cybersecurity and privacy matters, workers’ compensation, auto liability, employment,employment-related, and other matters. The ultimate outcome of these mattersany claims, lawsuits, and proceedings cannot be predicted with certainty. An estimated loss from these contingencies is recognized when we believethe 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 litigation.these matters. If a loss is not considered probable and/or cannot be reasonably estimated, we arethe 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 other than employment and employment-related matterscovered 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. OutsideFor 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, and an
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. ClaimFor all other types of claims, reserves for employment-related matters are established when payment is considered probable and are based upon advice from internal and external counsel and historical settlement information for claims and related fees when such amounts are considered probable of payment.information.
The recorded amounts represent ourthe best estimate of the costs wethe Company will incur in relation to such exposures, but it is possible that actual costs will differ from those estimates.
12.Other (Expense) Income, Net14.Fair Value Measurements
|
| | | | | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| Equity in net income (loss) of affiliates | $ | (0.4 | ) | | $ | 0.3 |
| | $ | (2.1 | ) |
| Foreign currency exchange gain (loss), net | (1.4 | ) | | 0.3 |
| | (4.4 | ) |
| Other, net | (2.4 | ) | | (2.3 | ) | | (1.4 | ) |
| Other (expense) income, net | $ | (4.2 | ) | | $ | (1.7 | ) | | $ | (7.9 | ) |
13.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
9/30/2017 | | Fair Value at September 30, 2017 | | Carrying Value at September 30,
2023 | | Fair Value at September 30, 2023 |
| | | Using Inputs Considered as: | | | Using Inputs Considered as: |
| | | Level 1 | | Level 2 | | Level 3 | | | Level 1 | | Level 2 | | Level 3 |
| Assets: | |
| | |
| | |
| | |
| Assets: | | | | | | | |
| Cash and cash equivalents | $ | 66.0 |
| | $ | 66.0 |
| | $ | — |
| | $ | — |
| Cash and cash equivalents | $ | 242.9 | | | $ | 242.9 | | | $ | — | | | $ | — | |
| Restricted cash | | Restricted cash | 7.3 | | | 7.3 | | | — | | | — | |
| | Investments in rabbi trust | 4.3 |
| | 4.3 |
| | — |
| | — |
| Investments in rabbi trust | 3.3 | | | 3.3 | | | — | | | — | |
| Derivative instruments | 3.8 |
| | — |
| | 3.8 |
| | — |
| Derivative instruments | 1.5 | | | — | | | 1.5 | | | — | |
| | | | | | | | | |
| Liabilities: | |
| | |
| | |
| | |
| Liabilities: | | | | | | | |
| $150 senior unsecured notes | 149.5 |
| | 161.2 |
| | — |
| | — |
| |
| Revolving credit facility | 68.0 |
| | — |
| | 68.0 |
| | — |
| |
| Term loan | 148.5 |
| | — |
| | 148.5 |
| | — |
| |
| $100 Series A Notes | 100.0 |
| | — |
| | 106.7 |
| | — |
| |
| Revolving Credit Facility | | Revolving Credit Facility | 505.1 | | | — | | | 505.1 | | | — | |
| $200.0 term loan | | $200.0 term loan | 192.5 | | — | | | 192.5 | | | — | |
| €185 term loan | | €185 term loan | 195.0 | | — | | | 195.0 | | | — | |
| 2021 Notes | | 2021 Notes | 350.0 | | | 281.6 | | | — | | | — | |
| 2020 Notes | | 2020 Notes | 400.0 | | | 395.1 | | | — | | | — | |
| 2019 Notes | | 2019 Notes | 374.7 | | | 355.0 | | | — | | | — | |
| Series A Notes | | Series A Notes | — | | | — | | | — | | | — | |
| Derivative instruments | 2.3 |
| | — |
| | 2.3 |
| | — |
| Derivative instruments | 1.7 | | | — | | | 1.7 | | | — | |
| | | | Carrying
Value at
9/30/2016 | | Fair Value at September 30, 2016 | | Carrying Value at September 30,
2022 | | Fair Value at September 30, 2022 |
| | | Using Inputs Considered as: | | | Using Inputs Considered as: |
| | | Level 1 | | Level 2 | | Level 3 | | | Level 1 | | Level 2 | | Level 3 |
| Assets: | |
| | |
| | |
| | |
| Assets: | | | | | | | |
| Cash and cash equivalents | $ | 52.0 |
| | $ | 52.0 |
| | $ | — |
| | $ | — |
| Cash and cash equivalents | $ | 232.2 | | | $ | 232.2 | | | $ | — | | | $ | — | |
| Restricted cash | | Restricted cash | 3.5 | | | 3.5 | | | — | | | — | |
| Cash and cash equivalents held for sale | | Cash and cash equivalents held for sale | 1.9 | | | 1.9 | | | — | | | — | |
| Investments in rabbi trust | 4.0 |
| | 4.0 |
| | — |
| | — |
| Investments in rabbi trust | 2.4 | | | 2.4 | | | — | | | — | |
| Derivative instruments | 1.4 |
| | — |
| | 1.4 |
| | — |
| Derivative instruments | 2.6 | | | — | | | 2.6 | | | — | |
| |
|
| | | | | | | |
| Liabilities: | |
| | |
| | |
| | |
| Liabilities: | | | | | | | |
| $150 senior unsecured notes | 149.3 |
| | 163.5 |
| | — |
| | — |
| |
| Revolving credit facility | 198.5 |
| | — |
| | 198.5 |
| | — |
| |
| Term loan | 162.0 |
| | — |
| | 162.0 |
| | — |
| |
| $100 Series A Notes | 100.0 |
| | — |
| | 110.8 |
| | — |
| |
| 2021 Notes | | 2021 Notes | 350.0 | | | 268.7 | | | — | | | — | |
| 2020 Notes | | 2020 Notes | 400.0 | | | 394.5 | | | — | | | — | |
| 2019 Notes | | 2019 Notes | 374.7 | | | 349.6 | | | — | | | — | |
| Series A Notes | | Series A Notes | 100.0 | | | — | | | 97.6 | | | — | |
| | Derivative instruments | 3.3 |
| | — |
| | 3.3 |
| | — |
| Derivative instruments | 8.0 | | | — | | | 8.0 | | | — | |
Valuation Techniques
The•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 of the investments in the rabbi trust werehierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets. The trust assets consisttypes of participant-directed investments infinancial 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.
We estimate•The Company estimates the fair value of our foreign currency derivatives using industry accepted models. The significant Level 2 inputs used in the valuation of our derivatives include spot rates, forward rates, and volatility. These inputs were obtained from pricing services, broker quotes, and other sources.
•The fair valuevalues of the 10-year, 5.5% fixed-rate senior unsecured notes was2021 Notes, 2020 Notes, and 2019 Notes were based on quoted prices in an active market.markets.
•The fair values of the revolving credit facility,Revolving Credit Facility, $200.0 term loan, €185 term loan, and 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 our revolving credit facility, term loanthe Facility or Series A Notes.
14.
15.Segment and Geographical Information
We conduct ourAs previously described, on February 1, 2023, the Company completed the divestiture of Batesville. The operating results and cash flows for Batesville have been classified as discontinued operations throughwithin the Consolidated Financial Statements for all periods presented.
Hillenbrand is now composed of two reportable businessoperating segments: theAdvanced Process Equipment GroupSolutions and Batesville. These reportingMolding Technology Solutions. The Company’s reportable operating segments are determined on the basis of our management structure, and how we internally reportmaintain separate financial information usedfor which results of operations are evaluated on a regular basis by the Company’s chief operating decision maker in deciding how to make operating decisionsallocate resources and evaluate results.in assessing performance.
We recordThe Company records the direct costs of business operations to the reportingreportable operating segments, including stock-based compensation, asset impairments, restructuring activities, and business acquisition costs. Corporate provides management and administrative services to each reportingreportable 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, we dothe Company does not allocate these types of corporate expenses to the reportingreportable operating segments.
|
| | | | | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| Net revenue | |
| | |
| | |
|
| Process Equipment Group | $ | 1,028.2 |
| | $ | 964.7 |
| | $ | 992.8 |
|
| Batesville | 562.0 |
| | 573.7 |
| | 604.0 |
|
| Total net revenue | $ | 1,590.2 |
| | $ | 1,538.4 |
| | $ | 1,596.8 |
|
| | | | | | |
| Adjusted EBITDA | | | |
| | |
|
| Process Equipment Group | $ | 177.7 |
| | $ | 160.9 |
| | $ | 160.5 |
|
| Batesville | 141.9 |
| | 143.5 |
| | 145.5 |
|
| Corporate | (38.6 | ) | | (37.3 | ) | | (37.3 | ) |
| | | | | | |
Net revenue(1) (2) | | | |
| | |
|
| United States | $ | 896.1 |
| | $ | 857.0 |
| | $ | 915.0 |
|
| Germany | 425.6 |
| | 403.0 |
| | 420.7 |
|
| All other foreign business units | 268.5 |
| | 278.4 |
| | 261.1 |
|
| Total revenue | $ | 1,590.2 |
| | $ | 1,538.4 |
| | $ | 1,596.8 |
|
| | | | | | |
| Depreciation and amortization | |
| | |
| | |
|
| Process Equipment Group | $ | 41.3 |
| | $ | 45.2 |
| | $ | 37.2 |
|
| Batesville | 13.8 |
| | 14.1 |
| | 15.8 |
|
| Corporate | 1.5 |
| | 1.1 |
| | 1.3 |
|
| Total depreciation and amortization | $ | 56.6 |
| | $ | 60.4 |
| | $ | 54.3 |
|
The following tables present financial information for the Company’s reportable operating segments and significant geographical locations:
| | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 | | 2021 |
| Net revenue | | | | | |
| Advanced Process Solutions | $ | 1,823.5 | | | $ | 1,269.8 | | | $ | 1,245.7 | |
| Molding Technology Solutions | 1,002.5 | | | 1,045.5 | | | 995.7 | |
| Total net revenue | $ | 2,826.0 | | | $ | 2,315.3 | | | $ | 2,241.4 | |
| | | | | |
Adjusted EBITDA (1) | | | | | |
| Advanced Process Solutions | $ | 355.7 | | | $ | 249.1 | | | $ | 234.5 | |
| Molding Technology Solutions | 187.1 | | | 216.2 | | | 201.8 | |
| Corporate | (59.6) | | | (63.8) | | | (57.6) | |
| | | | | |
| Net revenue | | | | | |
| United States | $ | 1,061.6 | | | $ | 760.3 | | | $ | 724.3 | |
| China | 451.1 | | | 573.1 | | | 503.6 | |
| India | 229.5 | | | 196.3 | | | 178.9 | |
| Germany | 210.2 | | | 140.9 | | | 139.0 | |
| All other countries | 873.6 | | | 644.7 | | | 695.6 | |
| Total net revenue | $ | 2,826.0 | | | $ | 2,315.3 | | | $ | 2,241.4 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
(1)We attribute revenue Adjusted earnings before interest, income tax, depreciation, and amortization (“adjusted EBITDA”) is a non-GAAP measure used by management to a geography based upon the location of the business unit that consummates the external sale.measure segment performance and make operating decisions.
(2) In 2017, the Company corrected its disclosure of net revenue by geography. The effect of this adjustment for the year ended September 30, 2016 was to decrease Germany net revenue by $79.7, from $482.7 as previously disclosed to $403.0 and to increase the All other foreign business units net revenue by $79.7, from $198.7 as previously disclosed to $278.4. The effect for the year ended September 30, 2015 was to decrease Germany net revenue by $56.6, from $477.3 as previously disclosed to $420.7 and to increase the All other foreign business units net revenue by $56.6, from $204.5 as previously disclosed to $261.1. Management performed an assessment of the materiality of this correction and concluded that the net revenue by geography as originally disclosed was not material to previously issued financial statements.
| | | | | | | | | | | |
| September 30, |
| | 2023 | | 2022 |
| Total assets assigned | | | |
| Advanced Process Solutions | $ | 3,525.5 | | | $ | 1,494.2 | |
| Molding Technology Solutions | 1,883.0 | | | 2,052.6 | |
| Corporate | 139.2 | | | 99.3 | |
| Held for sale assets | — | | | 221.4 | |
| Total assets assigned | $ | 5,547.7 | | | $ | 3,867.5 | |
| | | |
| Tangible long-lived assets, net | | | |
| United States | $ | 134.1 | | | $ | 79.3 | |
| Germany | 136.0 | | | 104.1 | |
| China | 38.9 | | | 42.2 | |
| India | 38.1 | | | 40.7 | |
| All other foreign business units | 84.9 | | | 53.5 | |
| Tangible long-lived assets, net | $ | 432.0 | | | $ | 319.8 | |
| | | |
|
| | | | | | | |
| | September 30, |
| | 2017 | | 2016 |
| Total assets assigned | |
| | |
|
| Process Equipment Group | $ | 1,722.2 |
| | $ | 1,694.6 |
|
| Batesville | 203.4 |
| | 211.8 |
|
| Corporate | 30.9 |
| | 53.3 |
|
| Total assets | $ | 1,956.5 |
| | $ | 1,959.7 |
|
| | | | |
| Tangible long-lived assets, net | | | |
|
| United States | $ | 84.4 |
| | $ | 89.5 |
|
| Germany | 39.0 |
| | 35.8 |
|
| All other foreign business units | 27.0 |
| | 27.2 |
|
| Tangible long-lived assets, net | $ | 150.4 |
| | $ | 152.5 |
|
The following schedule reconciles segment adjusted EBITDA to consolidated net income.income:
| | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2023 | | 2022 | | 2021 |
| Adjusted EBITDA: | | | | | |
| Advanced Process Solutions | $ | 355.7 | | | $ | 249.1 | | | $ | 234.5 | |
| Molding Technology Solutions | 187.1 | | | 216.2 | | | 201.8 | |
| Corporate | (59.6) | | | (63.8) | | | (57.6) | |
| Add: | | | | | |
| Income from discontinued operations (net of income tax expense) | 462.6 | | | 99.5 | | | 127.2 | |
| Less: | 00 | | 00 | | 00 |
| Interest expense, net | 77.7 | | | 64.3 | | | 74.3 | |
| Income tax expense | 102.8 | | | 84.0 | | | 78.6 | |
| Depreciation and amortization | 125.6 | | | 98.6 | | | 104.7 | |
| Impairment charges | — | | | — | | | 11.2 | |
| Business acquisition, divestiture, and integration costs | 46.2 | | | 29.4 | | | 33.9 | |
| Restructuring and restructuring-related charges | 5.1 | | | 3.1 | | | 13.6 | |
| Inventory step-up costs related to acquisitions | 11.7 | | | — | | | — | |
| Loss (gain) on divestiture | — | | | 3.1 | | | (67.1) | |
| | | | | |
| Other | — | | | 3.3 | | | 1.5 | |
| Consolidated net income | $ | 576.7 | | | $ | 215.2 | | | $ | 255.2 | |
| | | | | |
|
| | | | | | | | | | | |
| | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 |
| Adjusted EBITDA: | |
| | |
| | |
|
| Process Equipment Group | $ | 177.7 |
| | $ | 160.9 |
| | $ | 160.5 |
|
| Batesville | 141.9 |
| | 143.5 |
| | 145.5 |
|
| Corporate | (38.6 | ) | | (37.3 | ) | | (37.3 | ) |
| Less: | |
| | |
| | |
|
| Interest income | (0.9 | ) | | (1.2 | ) | | (1.0 | ) |
| Interest expense | 25.2 |
| | 25.3 |
| | 23.8 |
|
| Income tax expense | 59.9 |
| | 47.3 |
| | 49.1 |
|
| Depreciation and amortization | 56.6 |
| | 60.4 |
| | 54.3 |
|
| Business acquisition costs | 1.1 |
| | 3.7 |
| | 3.6 |
|
| Inventory step-up | — |
| | 2.4 |
| | — |
|
| Restructuring and restructuring related | 10.7 |
| | 10.2 |
| | 7.5 |
|
| Litigation | — |
| | — |
| | 0.5 |
|
| Pension settlement charge | — |
| | — |
| | 17.7 |
|
| Trade name impairment | — |
| | 2.2 |
| | — |
|
| Consolidated net income | $ | 128.4 |
| | $ | 116.8 |
| | $ | 113.2 |
|
15.Unaudited Quarterly Financial Information
|
| | | | | | | | | | | | | | | |
| | First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
| 2017 | |
| | |
| | |
| | |
|
| Net revenue | $ | 356.1 |
| | $ | 395.3 |
| | $ | 395.9 |
| | $ | 442.9 |
|
| Gross profit | 126.0 |
| | 148.6 |
| | 152.4 |
| | 164.3 |
|
Net income(1) | 21.7 |
| | 33.4 |
| | 32.9 |
| | 38.2 |
|
| Earnings per share — basic | 0.34 |
| | 0.52 |
| | 0.52 |
| | 0.60 |
|
| Earnings per share —diluted | 0.34 |
| | 0.52 |
| | 0.52 |
| | 0.60 |
|
| | | | | | | | |
| 2016 | |
| | |
| | |
| | |
|
| Net revenue | $ | 351.7 |
| | $ | 387.0 |
| | $ | 371.0 |
| | $ | 428.7 |
|
| Gross profit | 128.2 |
| | 142.7 |
| | 143.5 |
| | 156.2 |
|
Net income(1) | 20.0 |
| | 26.1 |
| | 30.7 |
| | 36.0 |
|
| Earnings per share — basic | 0.32 |
| | 0.41 |
| | 0.49 |
| | 0.57 |
|
| Earnings per share —diluted | 0.31 |
| | 0.41 |
| | 0.48 |
| | 0.56 |
|
(1) Net income attributableHillenbrand periodically undergoes restructuring activities in order to Hillenbrand
16.Condensed Consolidating Information
Certain 100% owned domestic subsidiaries of Hillenbrand fullyenhance profitability through streamlined operations and unconditionally, jointly and severally, agreed to guarantee all of the indebtedness and guarantee obligations relating to our obligations under our senior unsecured notes. The following are the condensed consolidating financial statements, including the guarantors, which present the statements of income, balance sheets, and cash flows of (i) the parent holding company, (ii) the guarantor subsidiaries, (iii) the non-guarantor subsidiaries, and (iv) eliminations necessary to present the information for Hillenbrand on a consolidated basis.
Condensed Consolidating Statements of Income
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, 2017 | | Year Ended September 30, 2016 | | Year Ended September 30, 2015 |
| | Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated | | Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated | | Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
| Net revenue | $ | — |
| | $ | 901.4 |
| | $ | 904.7 |
| | $ | (215.9 | ) | | $ | 1,590.2 |
| | $ | — |
| | $ | 846.8 |
|
| $ | 892.8 |
|
| $ | (201.2 | ) |
| $ | 1,538.4 |
|
| $ | — |
|
| $ | 912.0 |
|
| $ | 889.0 |
|
| $ | (204.2 | ) |
| $ | 1,596.8 |
|
| Cost of goods sold | — |
| | 467.3 |
| | 647.4 |
| | (115.8 | ) | | 998.9 |
| | — |
| | 428.7 |
|
| 638.4 |
|
| (99.3 | ) |
| 967.8 |
|
| — |
|
| 475.6 |
|
| 654.5 |
|
| (103.7 | ) |
| 1,026.4 |
|
| Gross profit | — |
| | 434.1 |
| | 257.3 |
| | (100.1 | ) | | 591.3 |
| | — |
| | 418.1 |
| | 254.4 |
| | (101.9 | ) | | 570.6 |
|
| — |
|
| 436.4 |
|
| 234.5 |
|
| (100.5 | ) |
| 570.4 |
|
| Operating expenses | 42.4 |
| | 237.8 |
| | 164.3 |
| | (100.1 | ) | | 344.4 |
| | 41.8 |
| | 242.0 |
|
| 164.6 |
|
| (101.9 | ) |
| 346.5 |
|
| 33.1 |
|
| 244.1 |
|
| 153.9 |
|
| (100.5 | ) |
| 330.6 |
|
| Amortization expense | — |
| | 13.5 |
| | 15.7 |
| | — |
| | 29.2 |
| | — |
| | 13.0 |
| | 20.0 |
| | — |
| | 33.0 |
| | 0.4 |
| | 11.4 |
| | 16.3 |
| | — |
| | 28.1 |
|
| Pension settlement charge | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
| — |
|
| — |
|
| — |
|
| 3.3 |
|
| 14.4 |
|
| — |
|
| — |
|
| 17.7 |
|
| Interest expense | 21.8 |
| | — |
| | 3.4 |
| | — |
| | 25.2 |
| | 22.7 |
| | 0.2 |
|
| 2.4 |
|
| — |
|
| 25.3 |
|
| 20.5 |
|
| 0.8 |
|
| 2.5 |
|
| — |
|
| 23.8 |
|
| Other income (expense), net | (0.6 | ) | | (3.4 | ) | | (0.2 | ) | | — |
| | (4.2 | ) | | (0.3 | ) | | (2.2 | ) |
| 0.8 |
|
| — |
|
| (1.7 | ) |
| (0.2 | ) |
| (4.0 | ) |
| (3.7 | ) |
| — |
|
| (7.9 | ) |
| Equity in net income (loss) of subsidiaries | 164.4 |
| | 8.2 |
| | — |
| | (172.6 | ) | | — |
| | 144.4 |
| | 10.2 |
|
| — |
|
| (154.6 | ) |
| — |
|
| 141.1 |
|
| 12.5 |
|
| — |
|
| (153.6 | ) |
| — |
|
| Income (loss) before income taxes | 99.6 |
| | 187.6 |
| | 73.7 |
| | (172.6 | ) | | 188.3 |
| | 79.6 |
| | 170.9 |
|
| 68.2 |
|
| (154.6 | ) |
| 164.1 |
|
| 83.6 |
|
| 174.2 |
|
| 58.1 |
|
| (153.6 | ) |
| 162.3 |
|
| Income tax expense (benefit) | (26.6 | ) | | 65.9 |
| | 20.6 |
| | — |
| | 59.9 |
| | (33.2 | ) | | 62.4 |
|
| 18.1 |
|
| — |
|
| 47.3 |
|
| (27.8 | ) |
| 60.5 |
|
| 16.4 |
|
| — |
|
| 49.1 |
|
| Consolidated net income | 126.2 |
| | 121.7 |
| | 53.1 |
| | (172.6 | ) | | 128.4 |
| | 112.8 |
| | 108.5 |
|
| 50.1 |
|
| (154.6 | ) |
| 116.8 |
|
| 111.4 |
|
| 113.7 |
|
| 41.7 |
|
| (153.6 | ) |
| 113.2 |
|
| Less: Net income attributable to noncontrolling interests | — |
| | — |
| | 2.2 |
| | — |
| | 2.2 |
| | — |
| | — |
|
| 4.0 |
|
| — |
|
| 4.0 |
|
| — |
|
| — |
|
| 1.8 |
|
| — |
|
| 1.8 |
|
Net income (loss)(1) | $ | 126.2 |
| | $ | 121.7 |
| | $ | 50.9 |
| | $ | (172.6 | ) | | $ | 126.2 |
| | $ | 112.8 |
| | $ | 108.5 |
|
| $ | 46.1 |
|
| $ | (154.6 | ) |
| $ | 112.8 |
|
| $ | 111.4 |
|
| $ | 113.7 |
|
| $ | 39.9 |
|
| $ | (153.6 | ) |
| $ | 111.4 |
|
| Consolidated comprehensive income (loss) | $ | 174.8 |
| | $ | 131.8 |
| | $ | 86.4 |
| | $ | (215.8 | ) | | $ | 177.2 |
| | $ | 90.9 |
| | $ | 116.4 |
|
| $ | 33.1 |
|
| $ | (145.8 | ) |
| $ | 94.6 |
|
| $ | 55.7 |
|
| $ | 103.5 |
|
| $ | 0.8 |
|
| $ | (102.9 | ) |
| $ | 57.1 |
|
| Less: Comprehensive income attributable to noncontrolling interests | — |
| | — |
| | 2.4 |
| | — |
| | 2.4 |
| | — |
| | — |
| | 3.7 |
| | — |
| | 3.7 |
|
| — |
|
| — |
|
| 1.4 |
|
| — |
| | 1.4 |
|
Comprehensive income (loss)(2) | $ | 174.8 |
| | $ | 131.8 |
| | $ | 84.0 |
| | $ | (215.8 | ) | | $ | 174.8 |
| | $ | 90.9 |
| | $ | 116.4 |
|
| $ | 29.4 |
|
| $ | (145.8 | ) |
| $ | 90.9 |
|
| $ | 55.7 |
|
| $ | 103.5 |
|
| $ | (0.6 | ) |
| $ | (102.9 | ) |
| $ | 55.7 |
|
(1) Net income attributable to Hillenbrand
(2) Comprehensive income attributable to Hillenbrand
Condensed Consolidating Balance Sheets
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2017 | | September 30, 2016 |
| | Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated | | Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
| Cash and cash equivalents | $ | 0.1 |
|
| $ | 4.9 |
|
| $ | 61.0 |
|
| $ | — |
|
| $ | 66.0 |
|
| $ | 4.4 |
|
| $ | 5.6 |
|
| $ | 42.0 |
|
| $ | — |
|
| $ | 52.0 |
|
| Trade receivables, net | — |
|
| 114.5 |
|
| 91.6 |
|
| — |
|
| 206.1 |
|
| — |
|
| 120.6 |
|
| 84.4 |
|
| — |
|
| 205.0 |
|
| Receivables from long-term manufacturing contracts | — |
|
| 8.5 |
|
| 116.7 |
|
| — |
|
| 125.2 |
|
| — |
|
| 10.6 |
|
| 115.2 |
|
| — |
|
| 125.8 |
|
| Inventories | — |
|
| 68.2 |
|
| 85.9 |
|
| (2.5 | ) |
| 151.6 |
|
| — |
|
| 69.8 |
|
| 86.1 |
|
| (2.8 | ) |
| 153.1 |
|
| Deferred income taxes | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1.6 |
|
| 17.4 |
|
| — |
|
| 4.9 |
|
| 23.9 |
|
| Prepaid expense | 2.1 |
|
| 7.6 |
|
| 18.5 |
|
| — |
|
| 28.2 |
|
| 2.2 |
|
| 6.5 |
|
| 9.5 |
|
| — |
|
| 18.2 |
|
| Intercompany receivables | — |
|
| 1,050.4 |
|
| 93.9 |
|
| (1,144.3 | ) |
| — |
|
| — |
|
| 1,003.1 |
|
| 97.4 |
|
| (1,100.5 | ) |
| — |
|
| Other current assets | 0.2 |
|
| 1.6 |
|
| 14.4 |
|
| 0.3 |
|
| 16.5 |
|
| 4.6 |
|
| 1.5 |
|
| 15.9 |
|
| 0.3 |
|
| 22.3 |
|
| Total current assets | 2.4 |
|
| 1,255.7 |
|
| 482.0 |
|
| (1,146.5 | ) |
| 593.6 |
|
| 12.8 |
|
| 1,235.1 |
|
| 450.5 |
|
| (1,098.1 | ) |
| 600.3 |
|
| Property, plant and equipment, net | 4.7 |
|
| 64.5 |
|
| 81.2 |
|
| — |
|
| 150.4 |
|
| 4.9 |
|
| 65.7 |
|
| 81.9 |
|
| — |
|
| 152.5 |
|
| Intangible assets, net | 3.6 |
|
| 211.3 |
|
| 309.0 |
|
| — |
|
| 523.9 |
|
| 4.1 |
|
| 220.4 |
|
| 317.0 |
|
| — |
|
| 541.5 |
|
| Goodwill | — |
|
| 283.9 |
|
| 363.6 |
|
| — |
|
| 647.5 |
|
| — |
|
| 271.8 |
|
| 362.5 |
|
| — |
|
| 634.3 |
|
| Investment in consolidated subsidiaries | 2,298.0 |
|
| 664.1 |
|
| — |
|
| (2,962.1 | ) |
| — |
|
| 2,143.4 |
|
| 820.2 |
|
| — |
|
| (2,963.6 | ) |
| — |
|
| Other assets | 20.2 |
|
| 29.0 |
|
| 4.4 |
|
| (12.5 | ) |
| 41.1 |
|
| 18.9 |
|
| 22.7 |
|
| 0.8 |
|
| (11.3 | ) |
| 31.1 |
|
| Total Assets | $ | 2,328.9 |
|
| $ | 2,508.5 |
|
| $ | 1,240.2 |
|
| $ | (4,121.1 | ) |
| $ | 1,956.5 |
|
| $ | 2,184.1 |
|
| $ | 2,635.9 |
|
| $ | 1,212.7 |
|
| $ | (4,073.0 | ) |
| $ | 1,959.7 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Trade accounts payable | $ | 1.0 |
|
| $ | 36.7 |
|
| $ | 120.0 |
|
| $ | 0.3 |
|
| $ | 158.0 |
|
| $ | 0.4 |
|
| $ | 28.4 |
|
| $ | 106.9 |
|
| $ | — |
|
| $ | 135.7 |
|
| Liabilities from long-term manufacturing contracts and advances | — |
|
| 26.2 |
|
| 106.1 |
|
| — |
|
| 132.3 |
|
| — |
|
| 14.0 |
|
| 64.6 |
|
| — |
|
| 78.6 |
|
| Current portion of long-term debt | 18.0 |
|
| — |
|
| 0.8 |
|
| — |
|
| 18.8 |
|
| 13.5 |
|
| — |
|
| 0.3 |
|
| — |
|
| 13.8 |
|
| Accrued compensation | 7.6 |
|
| 17.9 |
|
| 41.4 |
|
| — |
|
| 66.9 |
|
| 4.7 |
|
| 17.3 |
|
| 35.3 |
|
| — |
|
| 57.3 |
|
| Deferred income taxes | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 18.1 |
|
| 4.7 |
|
| 22.8 |
|
| Intercompany payables | 1,142.8 |
|
| 4.0 |
|
| — |
|
| (1,146.8 | ) |
| — |
|
| 1,098.8 |
|
| 4.5 |
|
| — |
|
| (1,103.3 | ) |
| — |
|
| Other current liabilities | 14.0 |
|
| 42.2 |
|
| 79.3 |
|
| 0.2 |
|
| 135.7 |
|
| 13.9 |
|
| 39.8 |
|
| 71.6 |
|
| 0.2 |
|
| 125.5 |
|
| Total current liabilities | 1,183.4 |
|
| 127.0 |
|
| 347.6 |
|
| (1,146.3 | ) |
| 511.7 |
|
| 1,131.3 |
|
| 104.0 |
|
| 296.8 |
|
| (1,098.4 | ) |
| 433.7 |
|
| Long-term debt | 392.0 |
|
| — |
|
| 54.9 |
|
| — |
|
| 446.9 |
|
| 416.6 |
|
| — |
|
| 178.5 |
|
| — |
|
| 595.1 |
|
| Accrued pension and postretirement healthcare | 0.8 |
|
| 33.3 |
|
| 95.5 |
|
| — |
|
| 129.6 |
|
| 1.1 |
|
| 127.0 |
|
| 104.6 |
|
| — |
|
| 232.7 |
|
| Deferred income taxes | — |
|
| 27.5 |
|
| 60.9 |
|
| (12.7 | ) |
| 75.7 |
|
| — |
|
| 5.8 |
|
| 27.8 |
|
| (11.0 | ) |
| 22.6 |
|
| Other long-term liabilities | 1.3 |
|
| 15.3 |
|
| 10.1 |
|
| — |
|
| 26.7 |
|
| 2.8 |
|
| 16.3 |
|
| 10.3 |
|
| — |
|
| 29.4 |
|
| Total Liabilities | 1,577.5 |
|
| 203.1 |
|
| 569.0 |
|
| (1,159.0 | ) |
| 1,190.6 |
|
| 1,551.8 |
|
| 253.1 |
|
| 618.0 |
|
| (1,109.4 | ) |
| 1,313.5 |
|
| Total Hillenbrand Shareholders’ Equity | 751.4 |
|
| 2,305.4 |
|
| 656.7 |
|
| (2,962.1 | ) |
| 751.4 |
|
| 632.3 |
|
| 2,382.8 |
|
| 580.8 |
|
| (2,963.6 | ) |
| 632.3 |
|
| Noncontrolling interests | — |
|
| — |
|
| 14.5 |
|
| — |
|
| 14.5 |
|
| — |
|
| — |
|
| 13.9 |
|
| — |
|
| 13.9 |
|
| Total Equity | 751.4 |
|
| 2,305.4 |
|
| 671.2 |
|
| (2,962.1 | ) |
| 765.9 |
|
| 632.3 |
|
| 2,382.8 |
|
| 594.7 |
|
| (2,963.6 | ) |
| 646.2 |
|
| Total Liabilities and Equity | $ | 2,328.9 |
|
| $ | 2,508.5 |
|
| $ | 1,240.2 |
|
| $ | (4,121.1 | ) |
| $ | 1,956.5 |
|
| $ | 2,184.1 |
|
| $ | 2,635.9 |
|
| $ | 1,212.7 |
|
| $ | (4,073.0 | ) |
| $ | 1,959.7 |
|
Condensed Consolidating Statements of Cash Flows
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, 2017 | | Year Ended September 30, 2016 | | Year Ended September 30, 2015 |
| | Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated | | Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated | | Parent | | Guarantors | | Non- Guarantors | | Eliminations | | Consolidated |
| Net cash provided by (used in) operating activities | $ | 79.9 |
|
| $ | 126.7 |
|
| $ | 168.3 |
|
| $ | (128.7 | ) |
| $ | 246.2 |
|
| $ | 157.8 |
|
| $ | 239.9 |
|
| $ | (49.5 | ) |
| $ | (110.0 | ) |
| $ | 238.2 |
|
| $ | 76.0 |
|
| $ | 91.0 |
|
| $ | 23.6 |
|
| $ | (85.6 | ) |
| $ | 105.0 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Capital expenditures | (0.7 | ) |
| (9.7 | ) |
| (11.6 | ) |
| — |
|
| (22.0 | ) |
| (2.6 | ) |
| (8.0 | ) |
| (10.6 | ) |
| — |
|
| (21.2 | ) |
| (1.1 | ) |
| (14.5 | ) |
| (15.4 | ) |
| — |
|
| (31.0 | ) |
| Proceeds from property, plant, and equipment | — |
|
| 5.3 |
|
| 0.4 |
|
| — |
|
| 5.7 |
|
| — |
|
| 1.6 |
|
| 0.4 |
|
| — |
|
| 2.0 |
|
| — |
|
| 2.8 |
|
| — |
|
| — |
|
| 2.8 |
|
| Acquisition of business, net of cash acquired | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (130.4 | ) |
| (105.0 | ) |
| — |
|
| (235.4 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| Return of investment capital from affiliates | 3.2 |
| | — |
| | — |
| | — |
| | 3.2 |
| | 1.1 |
| | — |
| | — |
| | — |
| | 1.1 |
| | 1.5 |
| | — |
| | — |
| | — |
| | 1.5 |
|
| Other, net | — |
|
| (0.4 | ) |
| — |
|
| — |
|
| (0.4 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (2.5 | ) |
| (0.3 | ) |
| — |
|
| (2.8 | ) |
| Net cash provided by (used in) investing activities | 2.5 |
|
| (4.8 | ) |
| (11.2 | ) |
| — |
|
| (13.5 | ) |
| (1.5 | ) |
| (136.8 | ) |
| (115.2 | ) |
| — |
|
| (253.5 | ) |
| 0.4 |
|
| (14.2 | ) |
| (15.7 | ) |
| — |
|
| (29.5 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| Repayments on term loan | (13.5 | ) |
| — |
|
| — |
|
| — |
|
| (13.5 | ) |
| (9.0 | ) |
| — |
|
| — |
|
| — |
|
| (9.0 | ) |
| (9.0 | ) |
| — |
|
| — |
|
| — |
|
| (9.0 | ) |
| Proceeds from revolving credit facility | 289.5 |
|
| — |
|
| 529.8 |
|
| — |
|
| 819.3 |
|
| 375.5 |
|
| — |
|
| 344.3 |
|
| — |
|
| 719.8 |
|
| 331.7 |
|
| — |
|
| 98.5 |
|
| — |
|
| 430.2 |
|
| Repayments on revolving credit facility | (296.5 | ) |
| — |
|
| (656.5 | ) |
| — |
|
| (953.0 | ) |
| (457.5 | ) |
| — |
|
| (169.7 | ) |
| — |
|
| (627.2 | ) |
| (441.8 | ) |
| — |
|
| (105.2 | ) |
| — |
|
| (547.0 | ) |
| Proceeds from Series A unsecured notes, net of financing costs | — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 99.6 |
|
| — |
|
| — |
|
| — |
|
| 99.6 |
|
| Payment of dividends - intercompany | — |
|
| (122.6 | ) |
| (6.1 | ) |
| 128.7 |
|
| — |
|
| — |
|
| (104.6 | ) |
| (5.4 | ) |
| 110.0 |
|
| — |
|
| — |
|
| (80.3 | ) |
| (5.3 | ) |
| 85.6 |
|
| — |
|
| Payment of dividends on common stock | (51.9 | ) |
| — |
|
| — |
|
| — |
|
| (51.9 | ) |
| (51.1 | ) |
| — |
|
| — |
|
| — |
|
| (51.1 | ) |
| (50.4 | ) |
| — |
|
| — |
|
| — |
|
| (50.4 | ) |
| Repurchases of common stock | (28.0 | ) |
| — |
|
| — |
|
| — |
|
| (28.0 | ) |
| (21.2 | ) |
| — |
|
| — |
|
| — |
|
| (21.2 | ) |
| (11.2 | ) |
| — |
|
| — |
|
| — |
|
| (11.2 | ) |
| Net proceeds (payments) on stock plans | 13.7 |
|
| — |
|
| — |
|
| — |
|
| 13.7 |
|
| 11.1 |
|
| — |
|
| — |
|
| — |
|
| 11.1 |
|
| 3.4 |
|
| — |
|
| — |
|
| — |
|
| 3.4 |
|
| Other, net | — |
|
| — |
|
| (1.7 | ) |
| — |
|
| (1.7 | ) |
| — |
|
| — |
|
| (0.8 | ) |
| — |
|
| (0.8 | ) |
| 1.2 |
|
| — |
|
| — |
|
| — |
|
| 1.2 |
|
| Net cash (used in) provided by financing activities | (86.7 | ) |
| (122.6 | ) |
| (134.5 | ) |
| 128.7 |
|
| (215.1 | ) |
| (152.2 | ) |
| (104.6 | ) |
| 168.4 |
|
| 110.0 |
|
| 21.6 |
|
| (76.5 | ) |
| (80.3 | ) |
| (12.0 | ) |
| 85.6 |
|
| (83.2 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Effect of exchange rates on cash and cash equivalents | — |
|
| — |
|
| (3.6 | ) |
| — |
|
| (3.6 | ) |
| — |
|
| — |
|
| (2.6 | ) |
| — |
|
| (2.6 | ) |
| — |
|
| — |
|
| (2.0 | ) |
| — |
|
| (2.0 | ) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash flow | (4.3 | ) |
| (0.7 | ) |
| 19.0 |
|
| — |
|
| 14.0 |
|
| 4.1 |
|
| (1.5 | ) |
| 1.1 |
|
| — |
|
| 3.7 |
|
| (0.1 | ) |
| (3.5 | ) |
| (6.1 | ) |
| — |
|
| (9.7 | ) |
| Cash and equivalents at beginning of period | 4.4 |
|
| 5.6 |
|
| 42.0 |
|
| — |
|
| 52.0 |
|
| 0.3 |
|
| 7.1 |
|
| 40.9 |
|
| — |
|
| 48.3 |
|
| 0.4 |
|
| 10.6 |
|
| 47.0 |
|
| — |
|
| 58.0 |
|
| Cash and equivalents at end of period | $ | 0.1 |
|
| $ | 4.9 |
|
| $ | 61.0 |
|
| $ | — |
|
| $ | 66.0 |
|
| $ | 4.4 |
|
| $ | 5.6 |
|
| $ | 42.0 |
|
| $ | — |
|
| $ | 52.0 |
|
| $ | 0.3 |
|
| $ | 7.1 |
|
| $ | 40.9 |
|
| $ | — |
|
| $ | 48.3 |
|
17.Restructuring
an improved overall cost structure. The following schedule details the restructuring charges by reportable operating segment and the classification of those charges on the income statement.Consolidated Statements of Operations.
| | | | | | | | | | | | | | | | Year Ended September 30, |
| | Year Ended September 30, | | 2023 | | 2022 | | 2021 |
| | 2017 | | 2016 | | Cost of goods sold | | Operating expenses | | Total | | Cost of goods sold | | Operating expenses | | Total | | Cost of goods sold | | Operating expenses | | Total |
| | Cost of goods sold | | Operating expenses | | Total | | Cost of goods sold | | Operating expenses | | Total | |
| Process Equipment Group | $ | 0.5 |
| | $ | 1.4 |
| | $ | 1.9 |
| | $ | 3.0 |
| | $ | 4.1 |
| | $ | 7.1 |
| |
| Batesville | 5.5 |
| | — |
| | 5.5 |
| | 0.2 |
| | 1.1 |
| | 1.3 |
| |
| Advanced Process Solutions | | Advanced Process Solutions | $ | (0.1) | | | $ | 1.3 | | | $ | 1.2 | | | $ | 1.8 | | | $ | (0.2) | | | $ | 1.6 | | | $ | 9.3 | | | $ | 5.9 | | | $ | 15.2 | |
| Molding Technology Solutions | | Molding Technology Solutions | 2.1 | | | 0.9 | | | 3.0 | | | — | | | 0.2 | | | 0.2 | | | 4.1 | | | 1.0 | | | 5.1 | |
| Corporate | — |
| | 2.1 |
| | 2.1 |
| | — |
| | 0.5 |
| | 0.5 |
| Corporate | — | | | 0.2 | | | 0.2 | | | — | | | 0.8 | | | 0.8 | | | — | | | 0.7 | | | 0.7 | |
| Total | $ | 6.0 |
| | $ | 3.5 |
| | $ | 9.5 |
| | $ | 3.2 |
| | $ | 5.7 |
| | $ | 8.9 |
| Total | $ | 2.0 | | | $ | 2.4 | | | $ | 4.4 | | | $ | 1.8 | | | $ | 0.8 | | | $ | 2.6 | | | $ | 13.4 | | | $ | 7.6 | | | $ | 21.0 | |
|
The 2017restructuring charges within the Advanced Process Solutions reportable operating segment during the years ended September 30, 2023, 2022, and 2021 are related primarily to severance costs. The restructuring charges within the closure of a plant at BatesvilleMolding Technology Solutions reportable operating segment and corporate functional restructuring. The 2016 chargesCorporate during the years ended September 30, 2023, 2022 and 2021 were primarily related to severance costs atassociated with the Process Equipment Groupongoing integration of Milacron, as we integrated and streamlinedwell as productivity initiatives within the business operations within theMolding Technology Solutions reportable operating segment. At September 30, 2017,2023, $2.7 of restructuring costs were accrued and are expected to be paid over the next twelve months.
SCHEDULE II
HILLENBRAND, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 2017, 2016,2023, 2022, AND 20152021
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | Additions | | | | |
| (in millions) | | Balance at Beginning of Period | | Charged to Revenue, Costs, and Expense | | Charged to Other Accounts | | Deductions Net of Recoveries (a) | | Balance at End of Period |
| Allowance for doubtful accounts, early pay discounts, and sales returns: | | |
| | |
| | |
| | |
| | |
|
| | | | | | | | | | | |
| Year ended September 30, 2017 | | $ | 21.0 |
| | $ | 2.5 |
| | $ | 0.1 |
| | $ | (2.0 | ) | | $ | 21.6 |
|
| Year ended September 30, 2016 | | $ | 20.0 |
| | $ | 3.7 |
| | $ | 0.4 |
| | $ | (3.1 | ) | | $ | 21.0 |
|
| Year ended September 30, 2015 | | $ | 19.2 |
| | $ | 2.4 |
| | $ | (0.2 | ) | | $ | (1.4 | ) | | $ | 20.0 |
|
| | | | | | | | | | | |
| Allowance for inventory valuation: | | |
| | |
| | |
| | |
| | |
|
| | | | | | | | | | | |
| Year ended September 30, 2017 | | $ | 18.0 |
| | $ | 2.4 |
| | $ | 0.8 |
| | $ | (2.2 | ) | | $ | 19.0 |
|
| Year ended September 30, 2016 | | $ | 14.8 |
| | $ | 4.3 |
| | $ | 0.6 |
| | $ | (1.7 | ) | | $ | 18.0 |
|
| Year ended September 30, 2015 | | $ | 14.6 |
| | $ | 3.4 |
| | $ | (1.2 | ) | | $ | (2.0 | ) | | $ | 14.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Additions | | | | |
| (in millions) | | Balance at
Beginning
of Period | | Charged to Revenue,
Costs, and
Expense | | Charged to
Other
Accounts | | Deductions
Net of
Recoveries (a) | | Balance
at End
of Period |
| Allowance for doubtful accounts, early pay discounts, and sales returns: | | | | | | | | | | |
| | | | | | | | | | |
| Year ended September 30, 2023 | | $ | 6.4 | | | $ | 2.6 | | | $ | 1.7 | | | $ | (0.6) | | | $ | 10.1 | |
| Year ended September 30, 2022 | | $ | 5.7 | | | $ | 2.1 | | | $ | (0.8) | | | $ | (0.6) | | | $ | 6.4 | |
| Year ended September 30, 2021 | | $ | 5.9 | | | $ | 0.8 | | | $ | 0.1 | | | $ | (1.1) | | | $ | 5.7 | |
| | | | | | | | | | |
| Allowance for inventory valuation: | | | | | | | | | | |
| | | | | | | | | | |
| Year ended September 30, 2023 | | $ | 29.5 | | | $ | 8.9 | | | $ | 5.8 | | | $ | (2.5) | | | $ | 41.7 | |
| Year ended September 30, 2022 | | $ | 28.4 | | | $ | 8.5 | | | $ | (3.0) | | | $ | (4.4) | | | $ | 29.5 | |
| Year ended September 30, 2021 | | $ | 24.1 | | | $ | 5.6 | | | $ | 3.0 | | | $ | (4.3) | | | $ | 28.4 | |
(a) Reflects the write-off of specific trade receivables against recorded reserves and other adjustments.
Item 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, management has conducted an assessment, including testing, using the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework (2013 Framework). The Company’s internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended (Exchange Act)(the “Exchange Act”), is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on our assessment under the criteria established in Internal Control — Integrated Framework (2013 Framework), issued by the COSO, management has concluded that the Company maintained effective internal control over financial reporting as of September 30, 2017.2023.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 2017,2023, has been audited by PricewaterhouseCoopersErnst & Young LLP, an independent registered public accounting firm, as stated in their report which appears in Part II, Item 8, of this Form 10-K.
On October 6, 2022, we completed the acquisition of Linxis, on page 38.December 1, 2022, we completed the acquisition of Peerless, and on September 1, 2023, we completed the acquisition of FPM, each of which includes their existing information systems and internal controls over financial reporting. In conducting our evaluation of the effectiveness of our internal control over financial reporting for our fiscal year ended September 30, 2023, we have excluded Linxis, Peerless and FPM from our evaluation as permitted under existing SEC Staff interpretive guidance for newly acquired businesses. We are currently in the process of evaluating and integrating Linxis, Peerless, and FPM’s historical internal controls over financial reporting with ours. The integrations may lead to changes in future fiscal periods, but we do not expect these changes to materially affect our internal control over financial reporting. We expect to complete these internal controls integrations in fiscal 2024. For the year ended and as of September 30, 2023, Linxis, Peerless, and FPM accounted for approximately 15% of total consolidated net revenue and approximately 35% of total consolidated assets.
ThereOther than as noted above, there have been no changes to our internal controlscontrol over financial reporting.reporting, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management’s report on our internal control over financial reporting is included under Item 8.
We have established disclosure controls and procedures and internal controlscontrol over financial reporting to provide reasonable assurance that material information relating to us, including our consolidated subsidiaries, is made known on a timely basis to management and the Board of Directors. No control system, no matter how well designed and operated, can provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Our management, with the participation of our President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer (the “Certifying Officers”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)).Act. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures as of the end of the period covered by this report are effective.
Item 9B. OTHER INFORMATION
None.(a) Effective November 14, 2023, our Board of Directors approved an amendment of the Company’s Amended and Restated code of By-laws (the “By-law Amendment”). The By-law Amendment prohibits any indemnification or advancement of expenses to a Company director, officer, or employee that would be against public policy, in further support of the Company’s revised Clawback Policy adopted in compliance with listing standards required by the new SEC Rule 10D-1.
The complete text of the Company’s By-laws, as well as a marked copy of the By-laws illustrating the changes made by the By-law Amendment, are attached hereto as Exhibits 3.2 and 3.2(a). The foregoing descriptions are summaries only, do not purport to be complete, and are qualified in their entirety by reference to the complete text of the By-laws which is attached as Exhibit 3.2 and incorporated herein by reference.
(b) Rule 10b5-1 Trading Plans
During the fiscal quarter ended September 30, 2023, none of our directors or executive officers (as defined in Section 16 of the Securities Exchange Act of 1934, as amended), adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408(a) and (c) of Regulation S-K).
Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Information related to executive officers is included in this report under Part I, Item 1 within the caption “Executive Officers of the Registrant.“Information about our Executive Officers.” Information relating to the directors will appear in the section entitled “Election of Directors” in our Proxy Statement to be filed with the Securities and Exchange Commission relating to our 20182024 Annual Meeting of Shareholders (“the 2018(the “2024 Proxy Statement”), which section is incorporated herein by reference. Required informationInformation regarding our Code of Ethical Business Conduct, compliance with Section 16(a) of the Exchange Act, is incorporated by reference to the 2018 Proxy Statement, where such information will be included under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” Information regarding our Code of Ethical Business Conduct and the corporate governance matters covered by this Item is incorporated by reference to the 20182024 Proxy Statement, where such information will be included under the headingheadings “The Board of Directors and Committees.Committees” and “Delinquent Section 16(a) Reports.” Information related to corporate governance of the Company, including its Code of Ethics and Business Conduct, information concerning executive officers, directors and Board committees, and transactions in our securities by directors and executive officers, is also available free of charge on or through the “Investors” section of our website at www.hillenbrand.com.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the 20182024 Proxy Statement, where such information will be included under the headings “The Board of Directors and Committees,” “Executive Compensation,” “Security Ownership of Beneficial Owners of More than 5% of the Company’s Common Stock,” and “Compensation of Directors.”
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND
RELATED SHAREHOLDER MATTERS
The information required by this Item is incorporated herein by reference to the 20182024 Proxy Statement, where such information will be included under the headings “Election of Directors,” “Security Ownership of Directors and Management,” and “Equity Compensation Plan Information.”
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated herein by reference to the 20182024 Proxy Statement, where such information will be included under the heading “The Board of Directors and Committees.”
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the 20182024 Proxy Statement, where such information will be included under the heading “Ratification of Appointment of the Independent Registered Public Accounting Firm.”
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULESSCHEDULE
(a) The following documents have been filed as a part of this report or, where noted, incorporated by reference:
(1) Consolidated Financial Statements
The financial statements of the Company and its consolidated subsidiaries listed on the Index to Consolidated Financial Statements on page 36.46.
(2) Consolidated Financial Statement Schedule
The financial statement schedule on page 78104 is filed in response to Item 8 and Item 15(d) of Form 10-K and is listed on the Index to Consolidated Financial Statements.
(3) Exhibits
The Exhibit Index which index follows the signature page to this report and is hereby incorporated herein by reference, sets forth a list of those exhibits filed herewith, and includes and identifies management contracts or compensatory plans or arrangements required to be filed as exhibits to this Form 10-K by Item 601(b)(10)(iii) of Regulation S-K.
In reviewing any agreements included as exhibits to this report, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements may contain representations and warranties by the parties to the agreements, including us. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
•should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
•may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
•may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
•were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time.
Exhibit Index
|
| | | | | | | | | | | | | |
| | *** | | Securities Purchase Agreement, dated as of September 15, 2022, among Hillenbrand France Acquisition Holdings SAS and the Sellers identified therein with respect to Linxis Group (Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed September 15, 2022) |
| | *** | | Share Purchase Agreement, dated as of May 23, 2023, between Milacron LLC and Schenck
Process Holdings GmbH (Incorporated by reference to Exhibit 2.1 to Current Report on Form
8-K filed September 1, 2023) |
| | | | Securities Purchase Agreement, dated as of December 15, 2022, between BL Memorial Partners, LLC and Hillenbrand, Inc. (Incorporated by reference to Exhibit 2.1 to Current Report on Form 8-K filed December 21, 2022) |
| | | | Restated and Amended Articles of Incorporation of Hillenbrand, Inc., effective March 31, 2008as of February 13, 2020 (Incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K filed February 14, 2020) |
| | * | | ArticlesAmended and Restated Code of Correction of the Restated and Amended Articles of IncorporationBy-Laws of Hillenbrand, Inc., effective March 31, 2008as of November 14, 2023 |
| | * | | ArticlesAmended and Restated Code of Amendment of the Restated and Amended Articles of IncorporationBy-Laws of Hillenbrand, Inc., effective February 27, 2015as of November 14, 2023 (redline version of amended sections) |
| | | | Amended and Restated Code of By-laws of Hillenbrand, Inc. |
| | | | Form of Indenture between Hillenbrand, Inc. and U.S. Bank National Association as trustee, dated July 09, 2010 (Incorporated by reference to Exhibit 4.11 to Form S-3 filed July 6, 2010) |
| | | | | | | | | | | | | | |
| | | | Form of Hillenbrand, Inc. 5.5% fixed rate 10 year global note |
| | | | Supplemental Indenture dated as of January 10, 2013, by and among Hillenbrand, Inc., Batesville Casket Company, Inc., Batesville Manufacturing, Inc., Batesville Services, Inc., Coperion Corporation, K-Tron Investment Co., TerraSource Global Corporation, Process Equipment Group, Inc., Rotex Global, LLC, and U.S. Bank National Association, as trustee (the “Trustee”) (Incorporated by reference to Exhibit 4.1 to Current Report on Form 8-K filed on January 11, 2013) |
| | | | Supplemental Indenture No.3, dated as of September 25, 2019, by and among the Company, the subsidiary guarantors party thereto and the Trustee (Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed September 25, 2019) |
| | | | Form of the Company’s 4.500% Senior Notes due 2026 (Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed September 25, 2019) |
| | * | | Description of the Company’s Securities Registered Pursuant to Section 12 of the Exchange Act |
| | | | Supplemental Indenture No. 4, dated as of June 16, 2020, by and among the Company, the subsidiary guarantors party thereto and the Trustee (Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed June 16, 2020) |
| | | | Form of the Company’s 5.7500% Senior Notes due 2025 (Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed June 16, 2020) |
| | | | Supplemental Indenture No. 5, dated as of December 15, 2020, by and among the Company, the subsidiary guarantors party thereto and the Trustee (Incorporated by reference to Exhibit 4.1 to Quarterly Report on Form 10-Q filed May 4, 2021) |
| | | | Supplemental Indenture No. 6, dated as of December 15, 2020, by and among the Company, the subsidiary guarantors party thereto and the Trustee (Incorporated by reference to Exhibit 4.2 to Quarterly Report on Form 10-Q filed May 4, 2021) |
| | | | Supplemental Indenture No. 7, dated as of March 3, 2021, by and among the Company, the subsidiary guarantors party thereto and the Trustee (Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed March 3, 2021) |
| | | | Form of the Company’s 3.7500% Senior Notes due 2031 (Incorporated by reference to Exhibit 4.2 to Current Report on Form 8-K filed March 3, 2021) |
| | ** | | Form of Indemnity Agreement between Hillenbrand, Inc. and certain executive officers, including named executive officers |
| | ** | | Form of Indemnity Agreement between Hillenbrand, Inc. and its non-employee directors (Incorporated by reference to Exhibit 10.11 to Registration Statement on Form 10) |
| | ** | | Hillenbrand, Inc. Board of Directors’ Deferred Compensation Plan (Incorporated by reference to Exhibit 10.13 to Quarterly Report on Form 10-Q filed May 14, 2008) |
| | ** | | Hillenbrand, Inc. Executive Deferred Compensation Program (Incorporated by reference to Exhibit 10.16 to Registration Statement on Form 10) |
| | ** | | Hillenbrand, Inc. Supplemental Executive Retirement Plan (As Amended and Restated July 1, 2010) (Incorporated by reference as Exhibit 10.31 to Annual Report on Form 10-K filed November 23, 2010) |
| | ** | | Hillenbrand, Inc. Supplemental Retirement Plan effective as of July 1, 2010 (Incorporated by reference to Exhibit 10.32 to Annual Report on Form 10-K filed November 23, 2010) |
| | ** | | Employment Agreement dated as of December 30, 2021, between Hillenbrand, Inc. and Kimberly K. Ryan (Incorporated by reference to Exhibit 10.2 to Quarterly Report on Form 10-Q filed February 2, 2022) |
| | ** | | Change in Control Agreement dated as of December 30, 2021, between Hillenbrand, Inc. and Kimberly K. Ryan (Incorporated by reference to Exhibit 10.3 to Quarterly Report on Form 10-Q filed February 2, 2022) |
| | ** | | Employment Agreement dated as of March 31, 2011, between Batesville Services, Inc., and Kimberly K. Ryan |
| | | | Credit Agreement dated as of July 27, 2012 among Hillenbrand, Inc., the subsidiary borrowers named therein, the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent for the lenders |
| | | | Amendment and Restatement Agreement dated as of November 19, 2012, among Hillenbrand, Inc., the subsidiary borrowers named therein, the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent for the lenders |
| | | | Guarantee Facility Agreement dated as of December 3, 2012,14, 2022, by and between Coperion GmbHHillenbrand, Inc. and Commerzbank AktiengesellschaftRobert M. VanHimbergen (Incorporated by reference to Exhibit 10.1 to Quarterly Report on Form 10-Q filed May 9, 2022) |
| | | | Guaranty dated as of December 3, 2012, by Hillenbrand, Inc. in favor of Commerzbank Aktiengesellschaft |
| | | | Private Shelf Agreement dated as of December 6, 2012, by and between Hillenbrand, Inc. and Prudential Investment Management, Inc. (Incorporated by reference to Exhibit 10.6 to Quarterly Report on Form 10-Q filed February 4, 2013) |
| | ** | | Form ofAmended and Restated Hillenbrand, Inc. Stock Incentive Plan Performance Based Unit Award Agreement(Amended and Restated as of December 3, 2020 (Incorporated by and between Hillenbrand, Inc. and certain employees including executive officersreference to Exhibit 10.1 to Current Report on Form 8-K filed February 11, 2021) |
| | ** | | Annex to Guaranty dated as of January 10, 2013, by Coperion Corporation in favor of JPMorgan Chase Bank, N.A., as administrative agent, and various other agents and lenders named therein |
| | ** | | Employment Agreement dated as of April 26, 2013, by and between Hillenbrand, Inc. and Joe A. Raver |
| | ** | | Amendment Agreement dated as of April 26, 2013, by and between Hillenbrand, Inc. and Joe A. Raver |
| | | | Syndicated L/G Facility Agreement dated as of June 3, 2013, by and among Hillenbrand, Inc., and certain of its subsidiaries, and Commerzbank Aktiengesellschaft, as arranger and lender, and various other lenders named therein |
| | ** | | Employment Agreement dated as of November 4, 2013, by and between Hillenbrand, Inc. and William A. Canady |
| | ** | | Form of Hillenbrand, Inc. Stock Incentive Plan Performance Based Unit Award Agreement - Relative Total Shareholder Value,(Incorporated by and between Hillenbrand, Inc. and certain employees including executive officersreference to Exhibit 10.3 to Current Report on Form 8-K filed February 27, 2014) |
| | ** | | Form of Change in Control Agreement between Hillenbrand, Inc. Third Amended and certain of its executive officers, including its named executive officers |
| | ** | | Hillenbrand, Inc. Stock Incentive Plan10.1 to Current Report on Form 8-K filed December 7, 2021) |
|
| | | | | | | | | | | | | |
| | ** | | Hillenbrand, Inc. Short-Term Incentive Compensation Plan for Key Executives |
| | ** | | Employment Agreement, dated as of June 18, 2014, by andJanuary 3, 2022, between Hillenbrand, Inc. and Kristina CernigliaAneesha Arora (Incorporated by reference to Exhibit 10.13 to Annual Report on Form 10-K filed November
16, 2022) |
| | ** | | Cash Award and Repayment Agreement dated as of August 7, 2014, between Hillenbrand, Inc. and Kristina Cerniglia |
| | ** | | Restricted Stock Unit Award Agreement, dated as of August 7, 2014,January 3, 2022, between Hillenbrand, Inc. and Kristina CernigliaAneesha Arora (Incorporated by reference to Exhibit 10.14 to Annual Report on Form 10-K
filed November 16, 2022) |
| | ** | | Sign-on and Retention Agreement, dated as of November 17, 2021, between Hillenbrand, Inc. and Aneesha Arora (Incorporated by reference to Exhibit 10.15 to Annual Report on Form 10-K
filed November 16, 2022) |
| | ** | | Cash Award Agreement, dated as of January 3, 2022, between Hillenbrand, Inc. and Aneesha Arora (Incorporated by reference to Exhibit 10.16 to Annual Report on Form 10-K filed
November 16, 2022) |
| | ** | | Employment Agreement, dated as of October 1, 2015, between Hillenbrand, Inc. and Nicholas Farrell (Incorporated by reference to Exhibit 10.17 to Annual Report on Form 10-K filed
November 16, 2022) |
| | ** | | Form of Change in Control Agreement (2021 revision) (Incorporated by reference to Exhibit
10.18 to Annual Report on Form 10-K filed November 16, 2022) |
| | | | Amendment No. 1 to Private Shelf Agreement, dated December 15, 2014, by and among Hillenbrand, Inc., Prudential Investment Management, Inc. and each Prudential Affiliate (as therein defined) that has become or becomes bound thereby (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K, filed December 19, 2014) |
| | | | Amendment No. 2 to Private Shelf Agreement, dated December 19, 2014, by and among Hillenbrand, Inc., Prudential Investment Management, Inc. and each Prudential Affiliate (as therein defined) that has become or becomes bound thereby (Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed December 19, 2014) |
| | | | Amendment No. 2 to Amended and Restated Credit Agreement, dated December 19, 2014, by and among Hillenbrand, Inc., the subsidiary borrowers named therein, the subsidiary guarantors named therein, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent |
| | | | Amendment Agreement, dated as of February 18, 2015, among Hillenbrand, Inc. and certain of its subsidiaries named therein, Commerzbank Aktiengesellschaft and various other lenders named therein, and Commerzbank International S.A., acting as agent |
| | | | Amendment No. 3 to Private Shelf Agreement, dated March 24, 2016, by and among Hillenbrand, Inc., PGIM, Inc. (f/k/a Prudential Investment Management, Inc.), and each Prudential Affiliate (as therein defined) that has become or becomes bound thereby (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed March 30, 2016) |
| | | | CodeAmendment No. 4 to the Private Shelf Agreement, dated as of Ethical Business ConductDecember 8, 2017, by and among Hillenbrand, Inc., PGIM, Inc. (f/k/a Prudential Investment Management, Inc.), the subsidiary guarantors named therein, and the additional parties thereto (Incorporated by reference as Exhibit 10.2 to Current Report on Form 8-K filed December 12, 2017) |
| | ** | | Employment Agreement dated as of June 18, 2018, by and between Hillenbrand, Inc. and J. Michael Whitted (Incorporated by reference as Exhibit 10.33 to Annual Report on Form 10-K filed November 13, 2018) |
| | *,** | | Employment Agreement, dated January 21, 2014, by and between Hillenbrand Germany
Holding GmbH and Ulrich Bartel |
| | ** | | Employment Agreement, dated March 30, 2020, by and between Mold-Masters (2007) Limited and Ling An-Heid (Incorporated by reference as Exhibit 10.1 to Quarterly Report on Form 10-Q filed February 3, 2021) |
| | | | Fourth Amended and Restated Credit Agreement, dated as of June 8, 2022, among Hillenbrand, Inc., the subsidiary borrowers named therein, the lenders named therein, JPMorgan Chase Bank, N.A., as administrative agent for the lenders, and the co-syndication agents and co-documentation agents named therein (Incorporated by reference as Exhibit 10.1 to Current Report on Form 8-K filed June 13, 2022) |
| | | | Amendment No. 5 to Private Shelf Agreement, dated as of September 4, 2019, by and among Hillenbrand, Inc., PGIM, Inc. (f/k/a Prudential Investment Management, Inc.), the subsidiary guarantors named therein, and the additional parties thereto (Incorporated by reference as Exhibit 10.2 to Current Report on Form 8-K filed September 4, 2019) |
| | | | Amendment No. 6 to Private Shelf Agreement, dated as of January 10, 2020, among Hillenbrand, Inc., PGIM, Inc. (f/k/a Prudential Investment Management, Inc.), the subsidiary guarantors party thereto, and the additional parties thereto (Incorporated by reference as Exhibit 10.2 to Current Report on Form 8-K filed January 10, 2020) |
| | *** | | Warranty Agreement, dated as of September 15, 2022, by and between Hillenbrand France Acquisition Holding SAS and the Sellers identified therein with respect to Linxis Group (Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed September 15, 2022) |
| | | | | | | | | | | | | | |
| | | | Amendment No. 7 to Private Shelf Agreement, dated as of May 19, 2020, among Hillenbrand, Inc., PGIM, Inc. (f/k/a Prudential Investment Management, Inc.), the subsidiary guarantors party thereto, and the additional parties thereto (Incorporated by reference as Exhibit 10.2 to Current Report on Form 8-K filed May 20, 2020) |
| | *** | | Syndicated L/G Facility Agreement, dated June 21, 2022, among Hillenbrand, Inc., certain of its subsidiaries party thereto, Commerzbank Aktiengesellschaft and other lenders party thereto, and Commerzbank Finance & Covered Bond S.A., acting as agent (Incorporated by reference as Exhibit 10.1 to Current Report on Form 8-K filed June 23, 2022) |
| | ** | | Form of Performance-Based Unit Award Agreement (Shareholder Value Delivered) (2021 revision) (Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed February 11, 2021) |
| | ** | | Form of Performance Based Unit Award Agreement (Relative Total Shareholder Return) (2021 revision) (Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed February 11, 2021) |
| | ** | | Form of Restricted Stock Unit Award Agreement (2021 revision) (Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed February 11, 2021) |
| | ** | | Form of Restricted Stock Unit Award Agreement (Non-Employee Director) (2021 revision) (Incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed February 11, 2021) |
| | | | Amendment No. 8 to Private Shelf Agreement, dated as of June 9, 2022, among Hillenbrand, Inc., PGIM, Inc. (f/k/a Prudential Investment Management, Inc.), the subsidiary guarantors party thereto, and the additional parties thereto (Incorporated by reference as Exhibit 10.2 to Current Report on Form 8-K filed June 13, 2022) |
| | ** | | Amendment No. 1 to Fourth Amended and Restated Credit Agreement, dated as of June 21, 2023, among Hillenbrand, Inc., the subsidiary borrowers thereto, the lenders party thereto and JPMorgan Chase Bank, N.A. (Incorporated by reference as Exhibit 10.1 to Current Report on Form 8-K filed June 23, 2023) |
| | ** | | Amendment No. 2 to Fourth Amended and Restated Credit Agreement, dated as of July 14, 2023, among Hillenbrand, Inc., the subsidiary borrowers thereto, the lenders party thereto and JPMorgan Chase Bank, N.A. (Incorporated by reference as Exhibit 10.3 to Quarterly Report on Form 10-Q filed August 2, 2023) |
| | | | Amendment and Restatement Agreement, dated June 22, 2023, between Hillenbrand, Inc., the subsidiary borrowers party thereto, the subsidiary guarantors party thereto, Commerzbank Aktiengesellschaft and the other financial institutions party thereto (Incorporated by reference as Exhibit 10.2 to Current Report on Form 8-K filed June 23, 2023) |
| | * | | Subsidiaries of Hillenbrand, Inc. |
| | * | | List of Guarantor Subsidiaries of Hillenbrand, Inc. |
| | * | | Consent of Independent Registered Public Accounting FirmErnst & Young LLP |
| | * | | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | * | | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | * | | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | * | | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| | * | | Hillenbrand, Inc. Clawback Policy |
The following materialsdocuments are being filed pursuant to Inline XBRL: |
| | | | |
| Exhibit 101 | | | | The following financial statements from the Hillenbrand, Inc.Company’s Annual Report on Form 10-K for the year ended September 30, 2017,2023, formatted in XBRL (eXtensible Business Reporting Language);Inline XBRL: (i) Consolidated StatementStatements of Income for the years ended September 30, 2017, 2016 and 2015,Operations, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheet for the years ended September 30, 2017, 2016 and 2015,Sheets, (iv) Consolidated StatementStatements of Cash Flows, for the years ended September 30, 2017, 2016 and 2015, (v) Consolidated StatementStatements of Shareholders’ Equity, and Comprehensive Income for the years ended September 30, 2017, 2016 and 2015, and (vi) the Notes to Consolidated Financial Statements, tagged as blocks of text.text and including detailed tags. |
| Exhibit 104 | | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
|
| | |
| * | Filed herewith. |
| ** | Management contracts or compensatory plans or arrangements required to be filed as exhibits to this form pursuant to Item 15(a)(3) of this Form 10-K. |
| *** | Schedules and certain exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Hillenbrand hereby undertakes to furnish supplemental copies of any of the omitted schedules and exhibits upon request by the U.S. Securities and Exchange Commission. |
Item 16. Form 10-K Summary
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | |
| HILLENBRAND, INC. |
| | |
| By: | /s/ Joe A. RaverKimberly K. Ryan |
| | Joe A. RaverKimberly K. Ryan |
| | President and Chief Executive Officer |
| | November 15, 20172023 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been duly signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | | | | |
| Signatures | | Title | | Date |
| | | | |
| /s/ Helen W. Cornell | | Chairperson of the Board | | November 15, 2023 |
| Helen W. Cornell | | | | |
| | | | |
| /s/ Kimberly K. Ryan | | President, Chief Executive Officer, and Director | | November 15, 2023 |
| Kimberly K. Ryan | | (Principal Executive Officer) | | |
| | | | |
| /s/ Robert M. VanHimbergen | | Senior Vice President and Chief Financial Officer | | November 15, 2023 |
| Robert M. VanHimbergen | | (Principal Financial Officer) | | |
| | | | |
| /s/ Megan A. Walke | | Vice President and Chief Accounting Officer | | November 15, 2023 |
| Megan A. Walke | | (Principal Accounting Officer) | | |
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| /s/ Gary L. Collar | | Director | | November 15, 2023 |
| Gary L. Collar | | | | |
| | | | |
| /s/ Joy M. Greenway | | Director | | November 15, 2023 |
| Joy M. Greenway | | | | |
| | | | |
| /s/ Daniel C. Hillenbrand | | Director | | November 15, 2023 |
| Daniel C. Hillenbrand | | | | |
| | | | |
| /s/ Neil S. Novich | | Director | | November 15, 2023 |
| Neil S. Novich | | | | |
| | | | |
| /s/ Dennis W. Pullin | | Director | | November 15, 2023 |
| Dennis W. Pullin | | | | |
| | | | |
| /s/ Jennifer W. Rumsey | | Director | | November 15, 2023 |
| Jennifer W. Rumsey | | | | |
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Signatures/s/ Inderpreet Sawhney | | TitleDirector | | DateNovember 15, 2023 |
| Inderpreet Sawhney | | | | |
/s/F. Joseph Loughrey | | Chairperson of the Board | | November 15, 2017 |
F. Joseph Loughrey | | | | |
| | | | |
/s/Joe A. Raver | | President, Chief Executive Officer, and Director | | November 15, 2017 |
Joe A. Raver | | (Principal Executive Officer) | | |
| | | | |
/s/Kristina A. Cerniglia | | Senior Vice President and Chief Financial Officer | | November 15, 2017 |
Kristina A. Cerniglia | | (Principal Financial Officer) | | |
| | | | |
/s/Eric M. Teegarden | | Vice President, Controller, and Chief Accounting | | November 15, 2017 |
Eric M. Teegarden | | Officer (Principal Accounting Officer) | | |
| | | | |
/s/Edward B. Cloues II | | Director | | November 15, 2017 |
Edward B. Cloues II | | | | |
| | | | |
/s/Gary L. Collar | | Director | | November 15, 2017 |
Gary L. Collar | | | | |
| | | | |
/s/Helen W. Cornell | | Director | | November 15, 2017 |
Helen W. Cornell | | | | |
| | | | |
/s/Mark C. Deluzio | | Director | | November 15, 2017 |
Mark C. Deluzio | | | | |
| | | | |
/s/Joy M. Greenway | | Director | | November 15, 2017 |
Joy M. Greenway | | | | |
| | | | |
/s/Thomas H. Johnson | | Director | | November 15, 2017 |
Thomas H. Johnson | | | | |
| | | | |
/s/Eduardo R. Menascé | | Director | | November 15, 2017 |
Eduardo R. Menascé | | | | |
| | | | |
/s/Neil S. Novich | | Director | | November 15, 2017 |
Neil S. Novich | | | | |
| | | | |
/s/Stuart A. Taylor II | | Director | | November 15, 20172023 |
| Stuart A. Taylor II | | | | |
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