Condensed Notes to Consolidated Financial Statements (Unaudited)
(in millions, except share and per share data)
1.Background and Basis of Presentation
Hillenbrand, Inc. (the “Company” or “Hillenbrand”) is a global industrial company that provides highly-engineered, mission-critical 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. The Company strives to provide superior return for our shareholders, exceptional value for our customers, great professional opportunities for our employees, and to be responsible to our communities through deployment of the Hillenbrand Operating Model (“HOM”). The HOM is a consistent and repeatable framework designed to produce sustainable and predictable results. The Company recently enhanced the HOM to support our transformation to a pure-play industrial company by incorporating Purpose, updating our management practices, and restating our values. The HOM describes the Company’s Purpose, mission, vision, values, and mindset as leaders; applies our management practices in Strategy, People, Operational Excellence, and Innovation & Technology; and prescribes four steps (Understand, Focus, Execute, and Grow) designed to make the Company’s businesses both bigger and better. The Company’s goal is to continue developing Hillenbrand as a world-class global industrial company through the deployment of the HOM. “Hillenbrand,” the “Company,” “we,” “us,” “our,” and similar words refer to Hillenbrand, Inc. and its subsidiaries unless context otherwise requires.
On December 15, 2022, the Company entered into a definitive agreement to sell its 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. On February 1, 2023, the Company completed the divestiture. 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 Batesville reportable operating segment have been reflected as discontinued operations in the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows, 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 the historical Batesville reportable operating segment. See Note 4 for additional information on this divestiture.
Subsequent to the completion of the sale, the Company began providing certain transition services to Batesville for applicable fees. The transition services are expected to vary in duration depending upon the type of service provided.
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.
The Consolidated Financial Statements include the accounts of Hillenbrand and its subsidiaries. They also include four subsidiaries where the Company’s ownership percentage is less than 100%. The Company’s fiscal year ends on September 30. Unless otherwise stated, references to years relate to fiscal years.
These unaudited Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements and therefore do not include all information required in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The unaudited Consolidated Financial Statements have been prepared on the same basis as, and should be read in conjunction with, the audited Consolidated Financial Statements and notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended September 30, 2022, as filed with the SEC on November 16, 2022. In the opinion of management, these unaudited Consolidated Financial Statements reflect all adjustments necessary to present a fair statement of the Company’s consolidated financial position and the consolidated results of operations and cash flows as of the dates and for the periods presented and are normal and recurring in nature. The interim period results are subject to variation and are not necessarily indicative of the consolidated results of operations to be expected for the full fiscal year.
The preparation of the Consolidated Financial Statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of net revenue and expenses during the period. Actual results could differ from those estimates. Examples of such estimates include, but are not limited to, revenue recognition under
the over time method, establishment of reserves related to doubtful accounts, warranties, inventories, income taxes, litigation, self-insurance, and progress toward achievement of performance criteria under incentive compensation programs.
As a result of the Russian Federation’s invasion of Ukraine in February 2022 (the “Ukraine War”), various nations, including the U.S., have instituted economic sanctions and other responsive measures, which have resulted in an increased level of global economic and political uncertainty. The results of such geopolitical instability and uncertainty have had, and could continue to have, an impact on our ability to sell to, ship products to, collect payments from, and support customers in certain regions. The effects of the Ukraine War and such associated measures on management’s estimates and consolidated results of operations through March 31, 2023, are reflected in the Consolidated Financial Statements. As of and for the three and six months ended March 31, 2023 and 2022, the effects of the Ukraine War did not have a material impact on the Consolidated Financial Statements.
2.Summary of Significant Accounting Policies
The significant accounting policies used in preparing the Consolidated Financial Statements are consistent with the accounting policies described in the Company’s Annual Report on Form 10-K as of and for the year ended September 30, 2022.
Recently Adopted Accounting Standards
In 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 2019-12 clarifies and simplifies accounting for income taxes by eliminating certain exceptions for intraperiod tax allocation principles, the methodology for calculating income tax rates in an interim period, and recognition of deferred taxes for outside basis differences in an investment, among other updates. The Company adopted ASU 2019-12 during the year ended September 30, 2022, and has applied it to all periods presented, as applicable.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805) - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires companies to apply Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business 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 an acquirer recognize and measure the assets it acquires and liabilities it assumes at fair value on the acquisition date. ASU 2021-08 is effective for the Company’s fiscal year beginning October 1, 2023, with early adoption permitted. The Company early adopted ASU 2021-08 during the year ended September 30, 2022, and has 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.
Contract balances
The balance in receivables from long-term manufacturing contracts at March 31, 2023 and September 30, 2022, was $299.8 and $213.3, respectively. The change was driven by the impact of net revenue recognized prior to billings to customers. The balance in the liabilities from long-term manufacturing contracts and advances at March 31, 2023 and September 30, 2022, was $390.7 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 six months ended March 31, 2023 and 2022, related to liabilities from long-term manufacturing contracts and advances as of September 30, 2022 and 2021, was $147.1 and $171.3, respectively. During the three and six months ended March 31, 2023 and 2022, the adjustments related to performance obligations satisfied in previous periods were immaterial.
Transaction price allocated to the remaining performance obligations
As of March 31, 2023, the aggregate amount of transaction price of remaining performance obligations for the Company, which corresponds to backlog as defined in Part I, Item 2 of this Quarterly Report on Form 10-Q, was $1,971.6. Approximately 77% of these performance obligations are expected to be satisfied over the next twelve months, and the remaining performance obligations, primarily within one to three years.
Disaggregation of revenue
The following tables present net revenue by end market: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Six Months Ended March 31, 2023 |
| Advanced Process Solutions | | Molding Technology Solutions | | | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | | | Total |
End market | | | | | | | | | | | | | | | |
Plastics | $ | 248.3 | | | $ | — | | | | | $ | 248.3 | | | $ | 489.1 | | | $ | — | | | | | $ | 489.1 | |
Automotive | — | | | 52.5 | | | | | 52.5 | | | — | | | 101.7 | | | | | 101.7 | |
Chemicals | 32.1 | | | — | | | | | 32.1 | | | 56.8 | | | — | | | | | 56.8 | |
Consumer goods | — | | | 34.3 | | | | | 34.3 | | | — | | | 67.4 | | | | | 67.4 | |
Food and pharmaceuticals | 98.6 | | | — | | | | | 98.6 | | | 202.4 | | | — | | | | | 202.4 | |
Custom molders | — | | | 30.7 | | | | | 30.7 | | | — | | | 57.3 | | | | | 57.3 | |
Packaging | — | | | 37.4 | | | | | 37.4 | | | — | | | 66.0 | | | | | 66.0 | |
Construction | — | | | 38.7 | | | | | 38.7 | | | — | | | 69.8 | | | | | 69.8 | |
Minerals | 18.7 | | | — | | | | | 18.7 | | | 32.5 | | | — | | | | | 32.5 | |
Electronics | — | | | 19.7 | | | | | 19.7 | | | — | | | 35.6 | | | | | 35.6 | |
Medical | — | | | 15.2 | | | | | 15.2 | | | — | | | 31.7 | | | | | 31.7 | |
Other industrial | 32.8 | | | 31.9 | | | | | 64.7 | | | 62.5 | | | 73.8 | | | | | 136.3 | |
Total | $ | 430.5 | | | $ | 260.4 | | | | | $ | 690.9 | | | $ | 843.3 | | | $ | 503.3 | | | | | $ | 1,346.6 | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Six Months Ended March 31, 2022 |
| Advanced Process Solutions | | Molding Technology Solutions | | | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | | | Total |
End market | | | | | | | | | | | | | | | |
Plastics | $ | 229.5 | | | $ | — | | | | | $ | 229.5 | | | $ | 464.5 | | | $ | — | | | | | $ | 464.5 | |
Automotive | — | | | 56.3 | | | | | 56.3 | | | — | | | 105.9 | | | | | 105.9 | |
Chemicals | 25.3 | | | — | | | | | 25.3 | | | 49.5 | | | — | | | | | 49.5 | |
Consumer goods | — | | | 35.3 | | | | | 35.3 | | | — | | | 75.0 | | | | | 75.0 | |
Food and pharmaceuticals | 24.5 | | | — | | | | | 24.5 | | | 46.3 | | | — | | | | | 46.3 | |
Custom molders | — | | | 34.7 | | | | | 34.7 | | | — | | | 73.0 | | | | | 73.0 | |
Packaging | — | | | 31.2 | | | | | 31.2 | | | — | | | 66.4 | | | | | 66.4 | |
Construction | — | | | 23.8 | | | | | 23.8 | | | — | | | 48.4 | | | | | 48.4 | |
Minerals | 10.9 | | | — | | | | | 10.9 | | | 23.0 | | | — | | | | | 23.0 | |
Electronics | — | | | 20.0 | | | | | 20.0 | | | — | | | 34.3 | | | | | 34.3 | |
Medical | — | | | 20.2 | | | | | 20.2 | | | — | | | 40.2 | | | | | 40.2 | |
| | | | | | | | | | | | | | | |
Other industrial | 24.4 | | | 29.6 | | | | | 54.0 | | | 48.4 | | | 56.7 | | | | | 105.1 | |
Total | $ | 314.6 | | | $ | 251.1 | | | | | $ | 565.7 | | | $ | 631.7 | | | $ | 499.9 | | | | | $ | 1,131.6 | |
The following tables present net revenue by geography:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Six Months Ended March 31, 2023 |
| Advanced Process Solutions | | Molding Technology Solutions | | | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | | | Total |
Geography (1) | | | | | | | | | | | | | | | |
Americas | $ | 159.0 | | | $ | 157.1 | | | | | $ | 316.1 | | | $ | 297.5 | | | $ | 293.3 | | | | | $ | 590.8 | |
Asia | 142.3 | | | 65.3 | | | | | 207.6 | | | 291.0 | | | 133.5 | | | | | 424.5 | |
Europe, the Middle East, and Africa | 129.2 | | | 38.0 | | | | | 167.2 | | | 254.8 | | | 76.5 | | | | | 331.3 | |
Total | $ | 430.5 | | | $ | 260.4 | | | | | $ | 690.9 | | | $ | 843.3 | | | $ | 503.3 | | | | | $ | 1,346.6 | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Six Months Ended March 31, 2022 |
| Advanced Process Solutions | | Molding Technology Solutions | | | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | | | Total |
Geography (1) | | | | | | | | | | | | | | | |
Americas | $ | 75.4 | | | $ | 136.1 | | | | | $ | 211.5 | | | $ | 139.0 | | | $ | 265.2 | | | | | $ | 404.2 | |
Asia | 158.2 | | | 75.0 | | | | | 233.2 | | | 326.8 | | | 156.6 | | | | | 483.4 | |
Europe, the Middle East, and Africa | 81.0 | | | 40.0 | | | | | 121.0 | | | 165.9 | | | 78.1 | | | | | 244.0 | |
Total | $ | 314.6 | | | $ | 251.1 | | | | | $ | 565.7 | | | $ | 631.7 | | | $ | 499.9 | | | | | $ | 1,131.6 | |
(1)The Company attributes net revenue to a geography based upon the location of the end customer.
The following tables present net revenue by products and services:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Six Months Ended March 31, 2023 |
| Advanced Process Solutions | | Molding Technology Solutions | | | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | | | Total |
Products and services | | | | | | | | | | | | | | | |
Equipment | $ | 305.5 | | | $ | 173.2 | | | | | $ | 478.7 | | | $ | 610.8 | | | $ | 335.3 | | | | | $ | 946.1 | |
Parts and services | 125.0 | | | 70.8 | | | | | 195.8 | | | 232.5 | | | 135.4 | | | | | 367.9 | |
Other | — | | | 16.4 | | | | | 16.4 | | | — | | | 32.6 | | | | | 32.6 | |
Total | $ | 430.5 | | | $ | 260.4 | | | | | $ | 690.9 | | | $ | 843.3 | | | $ | 503.3 | | | | | $ | 1,346.6 | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Six Months Ended March 31, 2022 |
| Advanced Process Solutions | | Molding Technology Solutions | | | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | | | Total |
Products and services | | | | | | | | | | | | | | | |
Equipment | $ | 222.9 | | | $ | 169.1 | | | | | $ | 392.0 | | | $ | 454.4 | | | $ | 340.9 | | | | | $ | 795.3 | |
Parts and services | 91.7 | | | 65.2 | | | | | 156.9 | | | 177.3 | | | 125.5 | | | | | 302.8 | |
Other | — | | | 16.8 | | | | | 16.8 | | | — | | | 33.5 | | | | | 33.5 | |
Total | $ | 314.6 | | | $ | 251.1 | | | | | $ | 565.7 | | | $ | 631.7 | | | $ | 499.9 | | | | | $ | 1,131.6 | |
The following tables present net revenue by timing of transfer:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Six Months Ended March 31, 2023 |
| Advanced Process Solutions | | Molding Technology Solutions | | | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | | | Total |
Timing of transfer | | | | | | | | | | | | | | | |
Point in time | $ | 221.6 | | | $ | 226.1 | | | | | $ | 447.7 | | | $ | 441.8 | | | $ | 456.1 | | | | | $ | 897.9 | |
Over time | 208.9 | | | 34.3 | | | | | 243.2 | | | 401.5 | | | 47.2 | | | | | 448.7 | |
Total | $ | 430.5 | | | $ | 260.4 | | | | | $ | 690.9 | | | $ | 843.3 | | | $ | 503.3 | | | | | $ | 1,346.6 | |
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Six Months Ended March 31, 2022 |
| Advanced Process Solutions | | Molding Technology Solutions | | | | Total | | Advanced Process Solutions | | Molding Technology Solutions | | | | Total |
Timing of transfer | | | | | | | | | | | | | | | |
Point in time | $ | 134.4 | | | $ | 240.8 | | | | | $ | 375.2 | | | $ | 269.4 | | | $ | 486.9 | | | | | $ | 756.3 | |
Over time | 180.2 | | | 10.3 | | | | | 190.5 | | | 362.3 | | | 13.0 | | | | | 375.3 | |
Total | $ | 314.6 | | | $ | 251.1 | | | | | $ | 565.7 | | | $ | 631.7 | | | $ | 499.9 | | | | | $ | 1,131.6 | |
4. Divestitures
Batesville
As previously described, on February 1, 2023, the Company completed the sale of its 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 previously mentioned 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 the Batesville reportable operating segment have been reflected as discontinued operations in the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows, 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 $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 three and six months ended March 31, 2023.
Certain indirect corporate costs included within operating expenses in the Consolidated Statements of Operations that were previously allocated to the Batesville reportable operating segment 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 the Batesville reportable operating segment divestiture have been reflected in discontinued operations. As a result, income before income taxes of the historical Batesville reportable operating segment decreased $14.4 and $17.9 for the three and six months ended March 31, 2023, respectively, and decreased $0.3 and $0.6 for the three and six months ended March 31, 2022, respectively.
Discontinued operations
Components of amounts reflected in the Consolidated Statements of Operations related to discontinued operations are presented in the table, as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net revenue | $ | 57.7 | | | $ | 176.3 | | | $ | 213.7 | | | $ | 338.8 | |
Cost of goods sold | 38.5 | | 121.7 | | 142.2 | | 228.7 |
Gross profit | 19.2 | | 54.6 | | 71.5 | | 110.1 |
Operating expenses | 23.4 | | 18.3 | | 43.0 | | 34.4 |
Other (income) expense, net | (0.3) | | | 1.6 | | 1.0 | | 3.1 |
(Loss) income from discontinued operations before income taxes | (3.9) | | | 34.7 | | 27.5 | | 72.6 |
Income tax (benefit) expense | (2.4) | | | 8.3 | | 8.0 | | 18.3 |
(Loss) income from discontinued operations (net of income tax (benefit) expense) | (1.5) | | | 26.4 | | | 19.5 | | | 54.3 | |
Gain on divestiture of discontinued operations (net of $145.1 income tax expense) | 440.9 | | | — | | | 440.9 | | | — | |
Total income from discontinued operations | $ | 439.4 | | | $ | 26.4 | | | $ | 460.4 | | | $ | 54.3 | |
| | | | | | | |
Held for sale
The assets and liabilities of the Batesville reportable operating segment 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, net | | | 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 TerraSource
On October 22, 2021, the Company completed the divestiture of its TerraSource Global business (“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 (i) received consideration in the form of a $25.6 five-year note, which was extended, subordinated, amended and restated in January 2023 to reflect a principal amount of $27.0, subject to certain adjustments, and an April 2028 maturity date, and (ii) 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 at closing 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 six months ended March 31, 2022. The Company incurred $0.4 of transaction costs associated with the divestiture during the six months ended March 31, 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 GAAP.
5. Acquisitions
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 including cash acquired, using available borrowings under its existing $1,000.0 multi-currency credit facility (the “Facility”). Headquartered in Sidney, Ohio, Peerless is a premier supplier of industrial food processing equipment.
The acquisition of Peerless increases the Company's scale in the food end market, and by combining Peerless’s highly complementary equipment and solutions with existing Advanced Process Solutions reportable operating segment technologies, allows the Company to deliver more comprehensive solutions to its customers.
The results of Peerless 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 date of 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 intangible assets and goodwill. 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.
Intangible assets identified
The preliminary purchase price allocation included $25.3 of acquired identifiable intangible assets. Intangible assets consist of Peerless’s 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 post acquisition of Peerless. The trade name 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 Peerless 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 preliminary 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 the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The factors contributing to the recognition of goodwill were based on strategic benefits that are expected to be realized from the acquisition. Goodwill is expected to be deductible for 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 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 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:
| | | | | | | | |
| Three Months Ended March 31, 2023 | Six Months Ended March 31, 2023 |
Net revenue | $ | 7.5 | | $ | 11.4 | |
(Loss) income from continuing operations before income taxes | (1.0) | | 0.1 | |
During the six months ended March 31, 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 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 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 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 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 Linxis has been allocated to individual 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 | | — | | 31.5 | |
Receivables from long-term manufacturing contracts | 12.1 | | — | | 12.1 | |
Inventories | 80.1 | | — | | 80.1 | |
Prepaid expenses and other current assets | 11.7 | | — | | 11.7 | |
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 | | (1.7) | | 330.3 | |
Other noncurrent assets | 1.0 | | — | | 1.0 | |
Total assets acquired | 786.8 | | (0.6) | | 786.2 | |
| | | |
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 | | 0.6 | | 20.2 | |
Accrued pension and postretirement healthcare | 3.9 | | — | | 3.9 | |
Operating lease liabilities | 9.4 | | — | | 9.4 | |
Deferred income taxes | 77.0 | | (1.2) | | 75.8 | |
Other noncurrent liabilities | 0.3 | | — | | 0.3 | |
Total liabilities assumed | 191.4 | | (0.6) | | 190.8 | |
Net assets acquired | 595.4 | | — | | 595.4 | |
| | | |
Less: Fair value of Linxis noncontrolling interest (1) | (4.6) | | — | | (4.6) | |
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 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 property, plant and equipment, deferred income taxes, and goodwill. 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.
Intangible assets identified
The preliminary 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 post 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 preliminary 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 be individually identified and separately recognized. The factors contributing to the recognition of goodwill were based on strategic benefits that are expected to be realized from the acquisition. None of the goodwill is expected to be deductible for income tax purposes.
The working capital assets and liabilities, as well as the property, plant and equipment acquired, were valued using Level 2 inputs, which included data points that are observable, such as definitive sales agreements, appraisals or established market values of comparable assets (market approach). Goodwill and identifiable intangible assets were valued using Level 3 inputs, which are unobservable by nature, and included internal estimates of future cash flows (income approach). Significant increases (decreases) in any of those unobservable inputs in isolation would result in a significantly 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 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:
| | | | | | | | |
| Three Months Ended March 31, 2023 | Six Months Ended March 31, 2023 |
Net revenue | $ | 71.5 | | $ | 152.5 | |
Loss from continuing operations before income taxes | (2.5) | | (2.6) | |
During the six months ended March 31, 2023, the Company incurred $0.9 in acquisition expenses related to the Linxis acquisition, which are included in operating expenses in the Consolidated Statement 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, 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 acquisition of Herbold advances the Company’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 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 Herbold has been allocated to individual 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 | | | $ | 2.3 | | | $ | 40.5 | |
Property, plant, and equipment | 4.7 | | | 2.3 | | | 7.0 |
Intangible assets | — | | | 22.6 | | | 22.6 |
Goodwill | 69.3 | | | (18.8) | | 50.5 |
Other assets | 5.3 | | | — | | | 5.3 |
Total assets acquired | 117.5 | | | 8.4 | | | 125.9 | |
| | | | | |
Liabilities assumed: | | | | | |
Current liabilities | 33.9 | | | 1.4 | | | 35.3 | |
Other long-term liabilities | 5.9 | | | 7.0 | | | 12.9 | |
Total liabilities assumed | 39.8 | | | 8.4 | | | 48.2 | |
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). As a result of further refining its estimates and assumptions since the date of 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 intangible assets and goodwill. 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.
Intangible assets identified
The preliminary 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 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 Herbold customer base, economic factors, and future expected cash flows of the Company post 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 cash flow projections which were based on estimates used to price the Herbold 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 (20%).
The preliminary 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 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 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 Herbold’s operations have been included in Hillenbrand’s Consolidated Financial Statements since the August 31, 2022, acquisition date. The following table provides the results of operations for Herbold included in Hillenbrand’s Consolidated Statement of Operations:
| | | | | | | | |
| Three Months Ended March 31, 2023 | Six Months Ended March 31, 2023 |
Net revenue | $ | 12.2 | | $ | 32.2 | |
Loss from continuing operations before income taxes | (1.6) | | (3.4) | |
During the three and six months ended March 31, 2023, the acquisition expenses related to the Herbold acquisition were not material.
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 implementation of plants and equipment for the confectionery and pharmaceutical industries. The determination of the preliminary purchase price allocation to specific assets acquired and liabilities assumed is incomplete for Gabler. 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. The majority of the preliminary 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 is currently estimated to be approximately $5.4). There were no material changes in the preliminary purchase price allocation during the three and six months ended March 31, 2023. Goodwill is not expected to be deductible 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 three and six months ended March 31, 2023.
Supplemental Pro Forma Information
The supplemental pro forma financial information presented below is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Gabler, Herbold, Linxis, and Peerless acquisitions had been completed on the date indicated, does not reflect synergies that might have been achieved, and is
not indicative of future results of operations or financial position. The pro forma adjustments are based upon currently available information and certain assumptions that Hillenbrand believes are reasonable under the circumstances.
The supplemental pro forma financial information reflects pro forma adjustments to present the combined pro forma results of operations as if the acquisitions of Gabler, Herbold, Linxis, and Peerless had occurred on October 1, 2021, to give effect to certain events that Hillenbrand believes to be directly attributable to the acquisitions. These pro forma adjustments primarily include:
•an increase to depreciation and amortization expense that would have been recognized due to acquired tangible and intangible assets;
•an adjustment to interest expense to reflect the additional borrowings of Hillenbrand and the repayment of Linxis’s historical debt in conjunction with the acquisition;
•an adjustment to remove business acquisition and integration costs and inventory step-up costs during the three and six months ended March 31, 2023, as these costs are non-recurring in nature and would not have a continuing effect on Hillenbrand’s results of operations; and
•the related income tax effects of the adjustments noted above.
The supplemental pro forma financial information for the periods presented is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net revenue | $ | 690.9 | | | $ | 686.2 | | | $ | 1,352.4 | | | $ | 1,347.2 | |
Income from continuing operations attributable to Hillenbrand | 28.9 | | | 29.6 | | | 63.7 | | | 48.6 | |
| | | | | | | |
Income from continuing operations attributable to Hillenbrand — per share of common stock: | | | | | | | |
Basic earnings per share from continuing operations | $ | 0.41 | | | $ | 0.40 | | | $ | 0.92 | | | $ | 0.67 | |
Diluted earnings per share from continuing operations | $ | 0.41 | | | $ | 0.40 | | | $ | 0.91 | | | $ | 0.66 | |
6.Supplemental Consolidated Balance Sheet Information
| | | | | | | | | | | |
| March 31, 2023 | | September 30, 2022 |
Allowance for doubtful accounts | $ | 7.3 | | | $ | 6.4 | |
| | | |
Warranty reserves | $ | 27.9 | | | $ | 22.4 | |
| | | |
Accumulated depreciation on property, plant, and equipment | $ | 210.7 | | | $ | 197.6 | |
| | | |
Inventories, net: | | | |
Raw materials and components | $ | 276.9 | | | $ | 210.1 | |
Work in process | 125.8 | | | 107.9 | |
Finished goods | 185.6 | | | 167.6 | |
Total inventories, net | $ | 588.3 | | | $ | 485.6 | |
| | | |
Other current liabilities: | | | |
Income tax payable | $ | 204.6 | | | $ | 33.6 | |
Other current liabilities | 208.0 | | | 172.1 | |
Total other current liabilities | $ | 412.6 | | | $ | 205.7 | |
The following table provides a reconciliation of cash and cash equivalents, restricted cash, and cash and cash equivalents held for sale reported within the Consolidated Balance Sheets that sum to the total of the same amounts shown in the Consolidated Statements of Cash Flows:
| | | | | | | | | | | |
| March 31, 2023 | | March 31, 2022 |
Cash and cash equivalents | $ | 315.1 | | | $ | 442.9 | |
Cash and cash equivalents held for sale | — | | | 1.9 | |
Short-term restricted cash included in other current assets | 0.8 | | | 1.2 | |
| | | |
Total cash and cash equivalents, restricted cash, and cash and cash equivalents held for sale shown in the Consolidated Statements of Cash Flows | $ | 315.9 | | | $ | 446.0 | |
7.Leases
For the three and six months ended March 31, 2023 and 2022, the Company recognized $8.1 and $15.2, and $6.8 and $12.9 of operating lease expense, respectively, including short-term lease expense and variable lease costs, which were immaterial in each period. The Company’s finance leases were insignificant as of March 31, 2023 and September 30, 2022.
The following table presents supplemental Consolidated Balance Sheet information related to the Company’s operating leases:
| | | | | | | | | | | |
| March 31, 2023 | | September 30, 2022 |
Operating lease right-of-use assets, net | $ | 108.0 | | $ | 87.9 |
| | | |
Other current liabilities | 20.4 | | 15.7 |
Operating lease liabilities | 83.2 | | 70.5 |
Total operating lease liabilities | $ | 103.6 | | $ | 86.2 |
| | | |
Weighted-average remaining lease term (in years) | 7.6 | | 7.9 |
| | | |
Weighted-average discount rate | 3.1 | % | | 2.7 | % |
As of March 31, 2023, the maturities of the Company’s operating lease liabilities were as follows:
| | | | | |
2023 (excluding the six months ended March 31, 2023) | $ | 11.1 | |
2024 | 18.8 | |
2025 | 16.3 | |
2026 | 13.7 | |
2027 | 11.7 | |
Thereafter | 43.7 | |
Total lease payments | 115.3 | |
Less: imputed interest | (11.7) | |
Total present value of lease payments | $ | 103.6 | |
Supplemental Consolidated Statements of Cash Flow information related to the Company’s operating leases is as follows:
| | | | | | | | | | | |
| Six Months Ended March 31, |
| 2023 | | 2022 |
Cash paid for amounts included in the measurement of operating lease liabilities | $ | 10.8 | | | $ | 10.3 | |
Operating lease right-of-use assets, net obtained in exchange for new operating lease liabilities | 8.1 | | | 15.5 | |
Operating leases acquired in acquisitions | 15.0 | | | — | |
8.Intangible Assets and Goodwill
Intangible Assets
Intangible assets are stated at the lower of cost or fair value. Intangible assets are amortized on a straight-line basis over periods ranging from three to 21 years, representing the period over which the Company expects to receive future economic benefits from these assets. The Company assesses the carrying value of indefinite-lived trade names annually, or more often if events or changes in circumstances indicate there may be an impairment.
The following table summarizes the carrying amounts and related accumulated amortization for intangible assets as of:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | September 30, 2022 |
| Cost | | Accumulated Amortization | | Cost | | Accumulated Amortization |
Finite-lived assets: | | | | | | | |
Customer relationships | $ | 1,032.9 | | | $ | (262.1) | | | $ | 739.6 | | | $ | (221.1) | |
Trade names | 47.9 | | | (2.4) | | | — | | | — | |
Technology, including patents | 141.8 | | | (77.7) | | | 132.9 | | | (68.4) | |
Software | 39.3 | | | (30.4) | | | 34.4 | | | (27.0) | |
| | | | | | | |
| | | | | | | |
| 1,261.9 | | | (372.6) | | | 906.9 | | | (316.5) | |
Indefinite-lived assets: | | | | | | | |
Trade names | 223.0 | | | — | | | 217.6 | | | — | |
| | | | | | | |
Total | $ | 1,484.9 | | | $ | (372.6) | | | $ | 1,124.5 | | | $ | (316.5) | |
The net change in intangible assets during the six months ended March 31, 2023, was driven primarily by the acquisitions of Linxis, Herbold, and Peerless which included acquired intangible assets of $291.7, including impact of measurement period adjustments, normal amortization, and foreign currency adjustments. See Note 5 for further detail on the acquisitions of Linxis, Herbold, and Peerless. Estimated amortization expense related to intangible assets for the next five years is: $76.1 in 2023, $76.0 in 2024, $73.2 in 2025, $72.4 in 2026, and $72.6 in 2027.
Goodwill
Goodwill is not amortized, but is subject to annual impairment tests. Goodwill has been assigned to reporting units within the reportable operating segments. The Company assesses the carrying value of goodwill annually, or more often if events or changes in circumstances indicate there may be impairment. Impairment testing is performed at a reporting unit level.
The following table summarizes the changes in the Company’s goodwill, by reportable operating segment, for the six months ended March 31, 2023:
| | | | | | | | | | | | | | | | | | | |
| Advanced Process Solutions | | Molding Technology Solutions | | | | Total |
Balance as of September 30, 2022 | $ | 516.0 | | | $ | 635.1 | | | | | $ | 1,151.1 | |
Acquisitions(1) | 353.9 | | | — | | | | | 353.9 | |
Acquisition measurement period adjustments | (18.7) | | | — | | | | | (18.7) | |
| | | | | | | |
| | | | | | | |
Foreign currency adjustments | 60.5 | | | 14.4 | | | | | 74.9 | |
Balance as of March 31, 2023 | $ | 911.7 | | | $ | 649.5 | | | | | $ | 1,561.2 | |
(1)See Note 5 for further information on the acquisitions of Linxis and Peerless.
During the three and six months ended March 31, 2023 and 2022, the Company did not observe any triggering events or substantive changes in circumstances requiring the need for an interim impairment assessment.
9.Financing Agreements
The following table summarizes Hillenbrand’s current and long-term debt as of:
| | | | | | | | | | | |
| March 31, 2023 | | September 30, 2022 |
$1,000.0 revolving credit facility (excluding outstanding letters of credit) | $ | — | | | $ | 6.7 | |
$200.0 term loan | 197.5 | | | — | |
$400.0 senior unsecured notes (1) | 397.5 | | | 397.1 | |
$375.0 senior unsecured notes, net of discount (2) | 372.5 | | | 372.2 | |
$350.0 senior unsecured notes (3) | 346.4 | | | 346.2 | |
$100.0 Series A Notes (4) | — | | | 99.9 | |
| | | |
Total debt | 1,313.9 | | | 1,222.1 | |
Less: current portion | 10.0 | | | — | |
Total long-term debt | $ | 1,303.9 | | | $ | 1,222.1 | |
(1)Includes unamortized debt issuance costs of $2.5 and $2.9 at March 31, 2023 and September 30, 2022, respectively.
(2)Includes unamortized debt issuance costs of $2.2 and $2.5 at March 31, 2023 and September 30, 2022, respectively.
(3)Includes unamortized debt issuance costs of $3.6 and $3.8 at March 31, 2023 and September 30, 2022, respectively.
(4)Includes unamortized debt issuance costs of $0.1 at September 30, 2022.
With respect to the Facility, as of March 31, 2023 and September 30, 2022, the Company had outstanding balances of $0 and $6.7, respectively. As of March 31, 2023, the Company had $18.3 in outstanding letters of credit issued and $981.7 of borrowing capacity under the Facility, of which $793.0 was immediately available based on the Company’s most restrictive covenant. During the six months ended March 31, 2023, the Company executed a $200.0 draw on the term loan commitment provided for by the Fourth Amended and Restated Credit Agreement (the “Credit Agreement”). The term loan will mature upon the maturity date of the Facility, June 8, 2027. The weighted-average interest rate on borrowings under the Facility was 3.12% and 2.53% for the three and six months ended March 31, 2023, respectively. There were no borrowings under the Facility during the three and six months ended March 31, 2022. The weighted-average interest rate on the term loan was 5.99% and 5.84% for the three and six months ended March 31, 2023, respectively. There were no borrowings on the term loan during the three and six months ended March 31, 2022. The weighted average facility fee on the Facility was 0.20% and 0.16% for the three and six months ended March 31, 2023, respectively, and 0.15% for both the three and six months ended March 31, 2022.
$100.0 Series A Unsecured Notes
On December 15, 2014, the Company issued $100.0 in 4.60% Series A unsecured notes (“Series A Notes”) pursuant to the Private Shelf Agreement, dated as of December 6, 2012 (as amended, the “Shelf Agreement”), among the Company, Prudential Investment Management, Inc. (“Prudential”) and each Prudential Affiliate (as defined therein) that became a purchaser thereunder. During the three months ended March 31, 2023, the Company repaid in full the $100.0 in Series A Notes using a portion of the net proceeds from the Batesville divestiture and wrote off the remaining issuance costs associated with the Series A Notes.
Other credit arrangements
In the normal course of business, certain operating 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, the Company maintains adequate capacity to provide the guarantees. As of March 31, 2023 and September 30, 2022, the Company had credit arrangements totaling $435.3 and $373.6, respectively, under which $311.0 and $247.4, respectively, were used for guarantees. These arrangements include the Company’s Syndicated L/G Facility Agreement (“L/G Facility Agreement”) and other ancillary credit facilities.
Covenants related to current financing agreements
The Credit Agreement, L/G Facility Agreement and Shelf Agreement contain the following financial covenants: a maximum leverage ratio (as defined in the agreements) of 3.50 to 1.00 and a minimum ratio of earnings before interest, income tax, depreciation, and amortization (“EBITDA”) (as defined in the agreements) to interest expense of 3.00 to 1.00. The Company may elect to increase the maximum permitted leverage ratio to 4.00 to 1.00, following certain acquisitions, for four full fiscal quarters (plus the fiscal quarter in which the acquisition takes place). As permitted in the Credit Agreement, L/G Facility Agreement, and Shelf Agreement, following the acquisition of Linxis on October 6, 2022, the Company elected to increase the maximum permitted leverage ratio to 4.00 to 1.00 for the quarter ended December 31, 2022, and for the four succeeding quarters. The obligations under the Credit Agreement, L/G Facility Agreement and the Shelf Agreement are unsecured.
All obligations of the Company arising under the Credit Agreement, L/G Facility Agreement, $400.0 of senior unsecured notes due June 2025 (the “2020 Notes”), $375.0 of senior unsecured notes due September 2026 (the “2019 Notes”), and the $350.0 of senior unsecured notes due March 2031 (the “2021 Notes”), are fully and unconditionally, jointly and severally, guaranteed by certain of the Company’s domestic subsidiaries.
As of March 31, 2023, Hillenbrand was in compliance with all covenants contained in the foregoing agreements and credit instruments and there were no events of default.
10.Retirement Benefits
Defined Benefit Plans
Components of net periodic pension (benefit) cost included in the Consolidated Statements of Operations were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| U.S. Pension Benefits | | Non-U.S. Pension Benefits |
| Three Months Ended March 31, | | Three Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Service costs | $ | — | | | $ | — | | | $ | 0.5 | | | $ | 0.6 | |
Interest costs | 2.8 | | | 1.6 | | | 1.0 | | | 0.2 | |
Expected return on plan assets | (3.4) | | | (2.7) | | | (0.2) | | | (0.3) | |
| | | | | | | |
Amortization of net loss (gain) | 0.1 | | | 0.4 | | | (0.2) | | | — | |
Net periodic pension (benefit) cost | $ | (0.5) | | | $ | (0.7) | | | $ | 1.1 | | | $ | 0.5 | |
| | | | | | | |
| U.S. Pension Benefits | | Non-U.S. Pension Benefits |
| Six Months Ended March 31, | | Six Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Service costs | $ | — | | | $ | — | | | $ | 1.0 | | | $ | 1.1 | |
Interest costs | 5.6 | | | 3.1 | | | 1.9 | | | 0.4 | |
Expected return on plan assets | (6.8) | | | (5.4) | | | (0.5) | | | (0.5) | |
Amortization of net loss (gain) | 0.2 | | | 0.8 | | | (0.4) | | | 0.6 | |
Net periodic pension (benefit) cost | $ | (1.0) | | | $ | (1.5) | | | $ | 2.0 | | | $ | 1.6 | |
Defined Contribution Plans
Expenses related to the Company’s defined contribution plans were $2.5 and $5.4 for the three and six months ended March 31, 2023, respectively, and $2.0 and $4.7 for the three and six months ended March 31, 2022, respectively.
11.Income Taxes
The effective tax rates for the three months ended March 31, 2023 and 2022 were 50.0% and 41.9%, respectively. The increase in the effective tax rate was primarily driven by an increase in the accrual for taxes on unremitted foreign earnings, partially offset by a non-recurring prior period unfavorable change in estimate related to foreign tax credits, the impact of divestitures, the impact of tax loss carryforwards within the Molding Technology Solutions reportable operating segment on the net domestic taxes on foreign earnings, and the revaluation of deferred tax balances as a result of foreign currency fluctuations.
The effective tax rates for the six months ended March 31, 2023 and 2022 were 34.2% and 40.1%, respectively. The decrease in the effective tax rate was primarily driven by the favorable recognition of discrete tax benefits resulting from the approval of the incentive tax rate for certain operations located in China, the tax benefit of equity compensation, a non-recurring prior period unfavorable change in estimate related to foreign tax credits, the impact of divestitures, the impact of tax loss carryforwards within the Molding Technology Solutions reportable operating segment on the net domestic taxes on foreign earnings, and the revaluation of deferred tax balances as a result of foreign currency fluctuations. These items were partially offset by an increase in the accrual for taxes on unremitted foreign earnings.
12.Earnings per share
The dilutive effects of performance-based stock awards were included in the computation of diluted earnings per share at the level the related performance criteria were met through the respective Consolidated Balance Sheet date. Potential dilutive effects, representing approximately 350,000 and 400,000 shares at March 31, 2023 and 2022, respectively, were excluded from the computation of diluted earnings per share as the related performance criteria were not yet met, although the Company expects to meet various levels of criteria in the future.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Income from continuing operations | $ | 24.1 | | | $ | 29.4 | | | $ | 50.9 | | | $ | 51.6 | |
Less: Net income attributable to noncontrolling interests | 0.8 | | | 1.5 | | | 3.1 | | | 2.6 | |
Income from continuing operations attributable to Hillenbrand | $ | 23.3 | | | $ | 27.9 | | | $ | 47.8 | | | $ | 49.0 | |
| | | | | | | |
Weighted-average shares outstanding (basic - in millions) | 69.7 | | | 73.1 | | | 69.6 | | | 72.9 | |
Effect of dilutive stock options and other unvested equity awards (in millions) | 0.4 | | | 0.6 | | | 0.3 | | | 0.6 | |
Weighted-average shares outstanding (diluted - in millions) | 70.1 | | | 73.7 | | | 69.9 | | | 73.5 | |
| | | | | | | |
Basic earnings per share from continuing operations attributable to Hillenbrand | $ | 0.33 | | | $ | 0.38 | | | $ | 0.69 | | | $ | 0.67 | |
Diluted earnings per share from continuing operations attributable to Hillenbrand | $ | 0.33 | | | $ | 0.38 | | | $ | 0.68 | | | $ | 0.66 | |
| | | | | | | |
Shares with anti-dilutive effect excluded from the computation of diluted earnings per share (in millions) | 0.6 | | | 0.1 | | | 0.5 | | | 0.1 | |
13. Accumulated Other Comprehensive Loss
The following tables summarize the changes in the accumulated balances for each component of accumulated other comprehensive loss:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension and Postretirement | | Currency Translation (1) | | Net Unrealized (Loss) Gain 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 before reclassifications: | | | | | | | | | | | |
Before tax amount | — | | | 62.4 | | | 4.1 | | | 66.5 | | | $ | — | | | $ | 66.5 | |
Tax expense | — | | | — | | | (1.2) | | | (1.2) | | | — | | | (1.2) | |
After tax amount | — | | | 62.4 | | | 2.9 | | | 65.3 | | | — | | | 65.3 | |
Amounts reclassified from accumulated other comprehensive loss (2) | (1.5) | | | — | | | 0.4 | | | (1.1) | | | — | | | (1.1) | |
Net current period other comprehensive (loss) income | (1.5) | | | 62.4 | | | 3.3 | | | 64.2 | | | $ | — | | | $ | 64.2 | |
Balance at March 31, 2023 | $ | (34.3) | | | $ | (51.3) | | | $ | (5.8) | | | $ | (91.4) | | | | | |
(1)Includes gain and losses on intra-entity foreign currency transactions that are of a long-term investment nature.
(2)Amounts are net of tax.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension and Postretirement | | Currency Translation (1) | | Net Unrealized (Loss) Gain 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 (loss) income before reclassifications: | | | | | | | | | | | |
Before tax amount | — | | | (4.7) | | | 1.3 | | | (3.4) | | | $ | (0.3) | | | $ | (3.7) | |
Tax expense | — | | | — | | | (0.2) | | | (0.2) | | | — | | | (0.2) | |
After tax amount | — | | | (4.7) | | | 1.1 | | | (3.6) | | | (0.3) | | | (3.9) | |
Amounts reclassified from accumulated other comprehensive loss (2) | 1.4 | | | — | | | 0.8 | | | 2.2 | | | — | | | 2.2 | |
Net current period other comprehensive income (loss) | 1.4 | | | (4.7) | | | 1.9 | | | (1.4) | | | $ | (0.3) | | | $ | (1.7) | |
| | | | | | | | | | | |
Balance at March 31, 2022 | $ | (47.8) | | | $ | 8.4 | | | $ | (8.3) | | | $ | (47.7) | | | | | |
(1)Includes gains and losses on intra-foreign currency transactions that are of a long-term investment nature.
(2)Amounts are net of tax.
Reclassifications out of accumulated other comprehensive loss include:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 |
| Amortization of Pension and Postretirement (1) | | (Gain) Loss on | | |
| Net Gain Recognized | | Prior Service Costs Recognized | | Derivative Instruments | | Total |
Affected Line in the Consolidated Statement of Operations: | | | | | | | |
Net revenue | $ | — | | | $ | — | | | $ | 0.1 | | | $ | 0.1 | |
Cost of goods sold | — | | | — | | | (0.9) | | | (0.9) | |
| | | | | | | |
Other income, net | (0.2) | | | — | | | 0.5 | | | 0.3 | |
Gain on divestiture of discontinued operations (net of income tax expense) | (1.4) | | | (0.1) | | | — | | | (1.5) | |
Total before tax | $ | (1.6) | | | $ | (0.1) | | | $ | (0.3) | | | $ | (2.0) | |
Tax expense | | | | | | | 0.8 | |
Total reclassifications for the period, net of tax | | | | | | | $ | (1.2) | |
| | | | | | | |
| Six Months Ended March 31, 2023 |
| Amortization of Pension and Postretirement (1) | | (Gain) Loss on | | |
| Net Loss Recognized | | Prior Service Costs Recognized | | Derivative Instruments | | Total |
Affected Line in the Consolidated Statement of Operations: | | | | | | | |
| | | | | | | |
Cost of goods sold | $ | — | | | $ | — | | | $ | (1.0) | | | $ | (1.0) | |
| | | | | | | |
Other income, net | (0.3) | | | — | | | 1.0 | | | 0.7 | |
Gain on divestiture of discontinued operations (net of income tax expense) | (1.4) | | | (0.1) | | | — | | | (1.5) | |
Total before tax | $ | (1.7) | | | $ | (0.1) | | | $ | — | | | $ | (1.8) | |
Tax expense | | | | | | | 0.7 | |
Total reclassifications for the period, net of tax | | | | | | | $ | (1.1) | |
(1)These accumulated other comprehensive loss components are included in the computation of net periodic pension (benefit) cost (see Note 10).
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2022 |
| Amortization of Pension and Postretirement (1) | | (Gain) Loss on | | |
| Net Loss Recognized | | Prior Service Costs Recognized | | Derivative Instruments | | Total |
Affected Line in the Consolidated Statement of Operations: | | | | | | | |
| | | | | | | |
Cost of goods sold | $ | — | | | $ | — | | | $ | (0.1) | | | $ | (0.1) | |
| | | | | | | |
Other income, net | 0.8 | | | — | | | 0.4 | | | 1.2 | |
Total before tax | $ | 0.8 | | | $ | — | | | $ | 0.3 | | | $ | 1.1 | |
Tax expense | | | | | | | — | |
Total reclassifications for the period, net of tax | | | | | | | $ | 1.1 | |
| | | | | | | |
| | | | | | | |
| Six Months Ended March 31, 2022 |
| Amortization of Pension and Postretirement (1) | | Loss (Gain) on | | |
| Net Loss Recognized | | Prior Service Costs Recognized | | Derivative Instruments | | Total |
Affected Line in the Consolidated Statement of Operations: | | | | | | | |
| | | | | | | |
Cost of goods sold | $ | — | | | $ | — | | | $ | (0.3) | | | $ | (0.3) | |
| | | | | | | |
Other income, net | 1.7 | | | — | | | 1.0 | | | 2.7 | |
Total before tax | $ | 1.7 | | | $ | — | | | $ | 0.7 | | | $ | 2.4 | |
Tax expense | | | | | | | (0.2) | |
Total reclassifications for the period, net of tax | | | | | | | $ | 2.2 | |
| | | | | | | |
(1)These accumulated other comprehensive loss components are included in the computation of net periodic pension (benefit) cost (see Note 10).
14.Share-Based Compensation
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Share-based compensation costs | $ | 4.5 | | | $ | 5.5 | | | $ | 9.1 | | | $ | 10.8 | |
Less impact of income taxes | 1.0 | | | 1.2 | | | 2.1 | | | 2.5 | |
Share-based compensation costs, net of tax | $ | 3.5 | | | $ | 4.3 | | | $ | 7.0 | | | $ | 8.3 | |
The Company has share-based compensation with long-term performance-based metrics that are contingent upon the Company’s relative total shareholder return and the creation of shareholder value, as well as time-based awards. Relative total shareholder return is determined by comparing the Company’s total shareholder return during a three-year period to the respective total shareholder returns of companies in a designated stock index. Creation of shareholder value is measured by the cumulative cash returns and final period net operating profit after tax compared to the established hurdle rate over a three-year period. For the performance-based awards contingent upon the creation of shareholder value, compensation expense is adjusted each quarter based upon actual results to date and any changes to forecasted information on each of the separate grants.
During the six months ended March 31, 2023, the Company made the following grants:
| | | | | |
| Number of Units |
Time-based stock awards | 256,927 | |
Performance-based stock awards (maximum that can be earned) | 365,139 | |
The Company’s time-based stock awards and performance-based stock awards granted during the six months ended March 31, 2023, had weighted-average grant date fair values of $51.32 and $67.38, respectively. Included in the performance-based stock awards granted during the six months ended March 31, 2023 are 214,566 units whose payout level is based upon the Company’s relative total shareholder return over the three-year measurement period, as described above. These units will be expensed on a straight-line basis over the measurement period and are not subsequently adjusted after the grant date.
15.Other Income, Net
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
| | | | | | | |
Interest income | $ | (2.5) | | | $ | (1.8) | | | $ | (4.3) | | | $ | (2.7) | |
Foreign currency exchange loss (gain), net | 0.3 | | | (0.7) | | | 0.3 | | | 0.2 | |
Other, net | (2.2) | | | (3.9) | | | (3.3) | | | (4.3) | |
Other income, net | $ | (4.4) | | | $ | (6.4) | | | $ | (7.3) | | | $ | (6.8) | |
16.Commitments and Contingencies
Like most companies, Hillenbrand is involved from time to time in claims, lawsuits, and government proceedings relating to its operations, including environmental, antitrust, patent infringement, business practices, commercial transactions, product and general liability, workers’ compensation, auto liability, employment-related, and other matters. The ultimate outcome of any claims, lawsuits, and proceedings cannot be predicted with certainty. An estimated loss from these contingencies is recognized when the Company believes it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated; however, it is difficult to measure the actual loss that might be incurred related to these matters. If a loss is not considered probable and/or cannot be reasonably estimated, the Company is required to make a disclosure if there is at least a reasonable possibility that a significant loss may have been incurred. Legal fees associated with claims and lawsuits are generally expensed as incurred.
Claims covered by insurance have in most instances deductibles and self-funded retentions up to $0.5 per occurrence or per claim, depending upon the type of coverage and policy period. For auto, workers’ compensation, and general liability claims in the U.S., outside insurance companies and third-party claims administrators generally assist in establishing individual claim reserves. An independent outside actuary often provides estimates of ultimate projected losses, including incurred but not reported claims, which are used to establish reserves for losses. For all other types of claims, reserves are established when payment is considered probable and are based upon advice from internal and external counsel and historical settlement information for such claims.
The liabilities recorded represent the best estimate of costs that the Company will incur in relation to such exposures, but it is possible that actual costs will differ from those estimates.
17.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 certain assets and liabilities.
| | | | | | | | | | | | | | | | | | | | | | | |
| Carrying Value at March 31, 2023 | | Fair Value at March 31, 2023 Using Inputs Considered as: |
| | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Cash and cash equivalents | $ | 315.1 | | | $ | 315.1 | | | $ | — | | | $ | — | |
Restricted cash | 0.8 | | | 0.8 | | | — | | | — | |
| | | | | | | |
Investments in rabbi trust | 3.1 | | | 3.1 | | | — | | | — | |
Derivative instruments | 2.5 | | | — | | | 2.5 | | | — | |
| | | | | | | |
Liabilities: | | | | | | | |
| | | | | | | |
Term loan | 197.5 | | | — | | | 197.5 | | | — | |
2021 Notes | 350.0 | | | 294.4 | | | — | | | — | |
2020 Notes | 400.0 | | | 400.1 | | | — | | | — | |
2019 Notes | 374.7 | | | 367.3 | | | — | | | — | |
| | | | | | | |
Derivative instruments | 2.7 | | | — | | | 2.7 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Carrying Value at September 30, 2022 | | Fair Value at September 30, 2022 Using Inputs Considered as: |
| | Level 1 | | Level 2 | | Level 3 |
Assets: | | | | | | | |
Cash and cash equivalents | $ | 232.2 | | | $ | 232.2 | | | $ | — | | | $ | — | |
Restricted cash | 3.5 | | | 3.5 | | | — | | | — | |
Cash and cash equivalents held for sale | 1.9 | | | 1.9 | | | — | | | — | |
Investments in rabbi trust | 2.4 | | | 2.4 | | | — | | | — | |
Derivative instruments | 2.6 | | | — | | | 2.6 | | | — | |
| | | | | | | |
Liabilities: | | | | | | | |
The Facility | 6.7 | | | — | | | 6.7 | | | — | |
2021 Notes | 350.0 | | | 268.7 | | | — | | | — | |
2020 Notes | 400.0 | | | 394.5 | | | — | | | — | |
2019 Notes | 374.7 | | | 349.6 | | | — | | | — | |
Series A Notes | 100.0 | | | — | | | 97.6 | | | — | |
Derivative instruments | 8.0 | | | — | | | 8.0 | | | — | |
Valuation techniques
•Cash and cash equivalents, restricted cash, cash and cash equivalents held for sale, and investments in rabbi trust are classified within Level 1 of the fair value hierarchy. Financial instruments classified as Level 1 are based on quoted market prices in active markets. The types of financial instruments the Company classifies within Level 1 include most bank deposits, money market securities, and publicly traded mutual funds. The Company does not adjust the quoted market price for such financial instruments.
•The Company estimates the fair value of foreign currency derivatives using industry accepted models. The significant Level 2 inputs used in the valuation of derivatives include spot rates, forward rates, and volatility. These inputs were obtained from pricing services, broker quotes, and other sources.
•The fair values of the Facility, 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 the Facility, term loan, or Series A Notes, and therefore, are classified within Level 2 of the fair value hierarchy.
•The fair values of the 2021 Notes, 2020 Notes, and 2019 Notes were based on quoted prices in active markets and are classified within Level 1 of the fair value hierarchy. The Company does not adjust the quoted market prices for such financial instruments.
Derivative instruments
The Company has hedging programs in place to manage its currency exposures. The objectives of the Company’s hedging programs are to mitigate exposures in gross margin and non-functional-currency-denominated assets and liabilities. Under these programs, the Company uses derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates. These include foreign currency exchange forward contracts, which generally have terms up to 24 months. The aggregate notional value of derivatives was $240.1 and $156.0 at March 31, 2023 and September 30, 2022, respectively. The derivatives are recorded at fair value primarily in other current assets and other current liabilities in the Consolidated Balance Sheets.
18.Segment and Geographical Information
As previously described, on February 1, 2023, the Company completed the divestiture of its Batesville reportable operating segment. The operating results and cash flows for the Batesville reportable operating segment have been classified as discontinued operations within the Consolidated Financial Statements for all periods presented.
Hillenbrand is now composed of two reportable operating segments: Advanced Process Solutions and Molding Technology Solutions. The Company’s reportable operating segments maintain separate financial information for which results of operations are evaluated on a regular basis by the Company’s chief operating decision maker in deciding how to allocate resources and in assessing performance.
The Company records the direct costs of business operations to the reportable operating segments, including stock-based compensation, asset impairments, restructuring activities, and business acquisition costs. Corporate provides management and administrative services to each reportable operating segment. These services include treasury management, human resources, legal, business development, information technology, tax compliance, global supply management, sustainability, and other public company support functions such as internal audit, investor relations, and financial reporting. With limited exception for certain professional services and back-office and technology costs, the Company does not allocate these types of corporate expenses to the reportable operating segments.
The following tables present financial information for the Company’s reportable operating segments and significant geographical locations:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Net revenue | | | | | | | |
Advanced Process Solutions | $ | 430.5 | | | $ | 314.6 | | | $ | 843.3 | | | $ | 631.7 | |
Molding Technology Solutions | 260.4 | | | 251.1 | | | 503.3 | | | 499.9 | |
| | | | | | | |
Total | $ | 690.9 | | | $ | 565.7 | | | $ | 1,346.6 | | | $ | 1,131.6 | |
| | | | | | | |
Adjusted EBITDA (1) | | | | | | | |
Advanced Process Solutions | $ | 73.2 | | | $ | 65.4 | | | $ | 144.5 | | | $ | 120.0 | |
Molding Technology Solutions | 47.5 | | | 50.4 | | | 90.6 | | | 102.2 | |
| | | | | | | |
Corporate | (12.1) | | | (15.5) | | | (25.2) | | | (32.4) | |
| | | | | | | |
Net revenue (2) | | | | | | | |
United States | $ | 273.0 | | | $ | 180.0 | | | $ | 505.9 | | | $ | 342.9 | |
China | 111.7 | | | 139.3 | | | 231.9 | | | 288.0 | |
India | 55.3 | | | 51.1 | | | 107.7 | | | 102.0 | |
Germany | 52.8 | | | 37.3 | | | 97.3 | | | 71.5 | |
All other countries | 198.1 | | | 158.0 | | | 403.8 | | | 327.2 | |
Total | $ | 690.9 | | | $ | 565.7 | | | $ | 1,346.6 | | | $ | 1,131.6 | |
(1)Adjusted earnings before interest, income tax, depreciation, and amortization (“adjusted EBITDA”) is a non-GAAP measure used by management to measure segment performance and make operating decisions.
(2)The Company attributes net revenue to a geography based upon the location of the end customer.
| | | | | | | | | | | |
| March 31, 2023 | | September 30, 2022 |
Total assets | | | |
Advanced Process Solutions | $ | 2,737.5 | | | $ | 1,494.2 | |
Molding Technology Solutions | 1,973.1 | | | 2,052.6 | |
| | | |
Corporate | 119.9 | | | 99.3 | |
Held for sale assets | — | | | 221.4 | |
Total | $ | 4,830.5 | | | $ | 3,867.5 | |
| | | |
Tangible long-lived assets, net | | | |
United States | $ | 103.2 | | | $ | 79.3 | |
Germany | 132.4 | | | 104.1 | |
China | 42.9 | | | 42.2 | |
India | 39.4 | | | 40.7 | |
All other countries | 85.3 | | | 53.5 | |
Total | $ | 403.2 | | | $ | 319.8 | |
The following schedule reconciles reportable operating segment adjusted EBITDA to consolidated net income:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | Six Months Ended March 31, |
| 2023 | | 2022 | | 2023 | | 2022 |
Adjusted EBITDA: | | | | | | | |
Advanced Process Solutions | $ | 73.2 | | | $ | 65.4 | | | $ | 144.5 | | | $ | 120.0 | |
Molding Technology Solutions | 47.5 | | | 50.4 | | | 90.6 | | | 102.2 | |
| | | | | | | |
Corporate | (12.1) | | | (15.5) | | | (25.2) | | | (32.4) | |
Add: | | | | | | | |
Total income from discontinued operations | 439.4 | | | 26.4 | | | 460.4 | | | 54.3 | |
Less: | | | | | | | |
Interest income | (2.5) | | | (1.8) | | | (4.3) | | | (2.7) | |
Interest expense | 21.1 | | | 17.3 | | | 44.4 | | | 35.2 | |
Income tax expense | 24.1 | | | 21.2 | | | 26.4 | | | 34.5 | |
Depreciation and amortization | 31.0 | | | 24.6 | | | 62.0 | | | 50.2 | |
| | | | | | | |
Business acquisition, disposition, and integration costs | 7.2 | | | 3.9 | | | 17.9 | | | 11.5 | |
Inventory step-up charges | 3.1 | | | — | | | 11.1 | | | — | |
Restructuring and restructuring-related charges | 0.5 | | | 2.6 | | | 1.5 | | | 3.3 | |
| | | | | | | |
Loss on divestiture | — | | | — | | | — | | | 3.1 | |
Other | — | | | 3.1 | | | — | | | 3.1 | |
Consolidated net income | $ | 463.5 | | | $ | 55.8 | | | $ | 511.3 | | | $ | 105.9 | |
19.Restructuring
The following schedule details the restructuring charges by reportable operating segment and the classification of those charges in the Consolidated Statements of Operations.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2023 | | Three Months Ended March 31, 2022 |
| Cost of goods sold | | Operating expenses | | Total | | Cost of goods sold | | Operating expenses | | Total |
Advanced Process Solutions | $ | (0.2) | | | $ | — | | | $ | (0.2) | | | $ | 1.3 | | | $ | — | | | $ | 1.3 | |
Molding Technology Solutions | — | | | 0.5 | | | 0.5 | | | — | | | — | | | — | |
| | | | | | | | | | | |
Corporate | — | | | — | | | — | | | — | | | 1.0 | | | 1.0 | |
Total | $ | (0.2) | | | $ | 0.5 | | | $ | 0.3 | | | $ | 1.3 | | | $ | 1.0 | | | $ | 2.3 | |
| | | | | | | | | | | |
| Six Months Ended March 31, 2023 | | Six Months Ended March 31, 2022 |
| Cost of goods sold | | Operating expenses | | Total | | Cost of goods sold | | Operating expenses | | Total |
Advanced Process Solutions | $ | (0.1) | | | $ | 1.0 | | | $ | 0.9 | | | $ | 2.2 | | | $ | 0.2 | | | $ | 2.4 | |
Molding Technology Solutions | — | | | 0.5 | | | 0.5 | | | 0.1 | | | — | | | 0.1 | |
| | | | | | | | | | | |
Corporate | — | | | — | | | — | | | — | | | 1.0 | | | 1.0 | |
Total | $ | (0.1) | | | $ | 1.5 | | | $ | 1.4 | | | $ | 2.3 | | | $ | 1.2 | | | $ | 3.5 | |
The restructuring charges during the three and six months ended March 31, 2023 and 2022, related primarily to severance costs. At March 31, 2023, $1.6 of restructuring costs were accrued and expected to be paid over the next twelve months.