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EXCEL - IDEA: XBRL DOCUMENT - Hillenbrand, Inc. | Financial_Report.xls |
EX-32.1 - EXHIBIT 32.1 - Hillenbrand, Inc. | c11203exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - Hillenbrand, Inc. | c11203exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - Hillenbrand, Inc. | c11203exv31w1.htm |
EX-32.2 - EXHIBIT 32.2 - Hillenbrand, Inc. | c11203exv32w2.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended December 31, 2010
Commission File No. 001-33794
Commission File No. 001-33794
HILLENBRAND, INC.
(Exact name of registrant as specified in its charter)
Indiana | 26-1342272 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No) | |
incorporation or organization) | ||
One Batesville Boulevard | 47006 | |
Batesville, IN | (Zip Code) | |
(Address of principal executive offices) |
(812) 934-7500
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year if changed since last report)
(Former name, former address and former fiscal year if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, 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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Common Stock, without par value 62,646,910 shares as of January 28, 2011.
HILLENBRAND, INC.
INDEX TO FORM 10-Q
Page | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
615 | ||||||||
1621 | ||||||||
22 | ||||||||
22 | ||||||||
23 | ||||||||
23 | ||||||||
23 | ||||||||
23 | ||||||||
24 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | FINANCIAL STATEMENTS |
Hillenbrand, Inc.
Consolidated Statements of Income (Unaudited)
(in millions, except per share data)
(in millions, except per share data)
Three Months Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
Net revenues |
$ | 211.0 | $ | 161.5 | ||||
Cost of goods sold |
119.8 | 89.5 | ||||||
Gross profit |
91.2 | 72.0 | ||||||
Operating expenses (including business acquisition costs) |
49.1 | 30.9 | ||||||
Operating profit |
42.1 | 41.1 | ||||||
Interest expense |
(2.8 | ) | (0.2 | ) | ||||
Investment income and other |
3.0 | 3.7 | ||||||
Income before income taxes |
42.3 | 44.6 | ||||||
Income tax expense |
15.2 | 15.1 | ||||||
Net income |
$ | 27.1 | $ | 29.5 | ||||
Income per common share basic and diluted |
$ | 0.44 | $ | 0.48 | ||||
Weighted average common shares outstanding basic and diluted |
62.0 | 61.8 | ||||||
Cash dividends per common share |
$ | 0.1900 | $ | 0.1875 | ||||
See Notes to Consolidated Financial Statements |
3
Table of Contents
Hillenbrand, Inc.
Consolidated Balance Sheets (Unaudited)
( in millions)
( in millions)
December 31, | September 30, | |||||||
2010 | 2010 | |||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 136.0 | $ | 98.4 | ||||
Trade receivables, net |
114.5 | 109.0 | ||||||
Inventories, net |
68.3 | 64.9 | ||||||
Interest receivable from Forethought |
10.0 | 10.0 | ||||||
Deferred income taxes |
25.0 | 25.1 | ||||||
Other current assets |
7.4 | 15.4 | ||||||
Total current assets |
361.2 | 322.8 | ||||||
Property, net |
108.7 | 109.6 | ||||||
Intangible assets, net |
425.2 | 423.0 | ||||||
Auction rate securities |
12.3 | 11.9 | ||||||
Note and long-term interest receivable from Forethought |
137.6 | 134.8 | ||||||
Investments |
17.3 | 18.2 | ||||||
Other assets |
32.1 | 31.8 | ||||||
Total Assets |
$ | 1,094.4 | $ | 1,052.1 | ||||
LIABILITIES |
||||||||
Current Liabilities |
||||||||
Trade accounts payable |
$ | 22.4 | $ | 26.9 | ||||
Accrued compensation |
20.1 | 35.7 | ||||||
Accrued customer rebates and advances |
29.0 | 27.1 | ||||||
Other current liabilities |
40.1 | 28.3 | ||||||
Total current liabilities |
111.6 | 118.0 | ||||||
Long-term debt |
423.4 | 403.4 | ||||||
Accrued pension and long-term postretirement healthcare |
89.2 | 88.7 | ||||||
Deferred income taxes |
35.2 | 35.7 | ||||||
Other long-term liabilities |
34.5 | 34.4 | ||||||
Total Liabilities |
693.9 | 680.2 | ||||||
Commitments and contingencies |
||||||||
SHAREHOLDERS EQUITY |
||||||||
Common stock, no par value, 63.4 and 63.1 shares
issued, 62.6 and 62.3 shares outstanding, of which 0.9
and 0.6 are restricted at December 31, 2010 and
September 30, 2010 |
| | ||||||
Additional paid-in-capital |
307.3 | 304.9 | ||||||
Retained earnings |
139.9 | 124.8 | ||||||
Treasury stock, at cost; 0.8 shares at December 31,
2010 and September 30, 2010 |
(14.5 | ) | (14.8 | ) | ||||
Accumulated other comprehensive loss |
(32.2 | ) | (43.0 | ) | ||||
Total Shareholders Equity |
400.5 | 371.9 | ||||||
Total Liabilities and Shareholders Equity |
$ | 1,094.4 | $ | 1,052.1 | ||||
See Notes to Consolidated Financial Statements
4
Table of Contents
Hillenbrand, Inc.
Consolidated Statements of Cash Flows (Unaudited)
( in millions)
( in millions)
Three Months Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
Operating Activities |
||||||||
Net income |
$ | 27.1 | $ | 29.5 | ||||
Adjustments to reconcile net income to cash provided by operating
activities: |
||||||||
Depreciation and amortization |
8.7 | 4.5 | ||||||
Deferred income taxes |
(1.5 | ) | (3.0 | ) | ||||
Net gain on auction rate securities, related put right, and investments |
| (0.2 | ) | |||||
Interest income on Forethought note |
(2.8 | ) | (3.3 | ) | ||||
Equity in net income from affiliates |
(0.6 | ) | (0.1 | ) | ||||
Stock-based compensation |
2.5 | 2.1 | ||||||
Trade accounts receivable |
(4.6 | ) | (3.0 | ) | ||||
Inventories |
(2.9 | ) | | |||||
Other current assets |
2.6 | (4.4 | ) | |||||
Trade accounts payable |
(4.9 | ) | 3.9 | |||||
Accrued expenses and other current liabilities |
(11.9 | ) | (3.6 | ) | ||||
Income taxes prepaid or payable |
14.9 | 12.1 | ||||||
Defined benefit plan funding |
(0.6 | ) | (0.4 | ) | ||||
Defined benefit plan expense |
2.2 | 2.2 | ||||||
Other, net |
(0.4 | ) | 0.1 | |||||
Net cash provided by operating activities |
27.8 | 36.4 | ||||||
Investing Activities |
||||||||
Capital expenditures |
(3.5 | ) | (3.0 | ) | ||||
Proceeds from redemption and sales of auction rate securities and
investments |
0.2 | 6.2 | ||||||
Capital contributions to affiliates |
(0.2 | ) | (0.2 | ) | ||||
Return of investment capital from affiliates |
1.7 | 0.9 | ||||||
Net cash (used in) provided by investing activities |
(1.8 | ) | 3.9 | |||||
Financing Activities |
||||||||
Proceeds from revolving credit facilities |
20.0 | 25.0 | ||||||
Repayments on revolving credit facilities |
| (85.0 | ) | |||||
Payment of dividends on common stock |
(11.7 | ) | (11.5 | ) | ||||
Proceeds from issuance of common stock |
| 0.2 | ||||||
Financing costs and other |
| (0.2 | ) | |||||
Net cash provided by (used in) financing activities |
8.3 | (71.5 | ) | |||||
Effect of exchange rates on cash and cash equivalents |
3.3 | 0.1 | ||||||
Net cash flows |
37.6 | (31.1 | ) | |||||
Cash and cash equivalents |
||||||||
At beginning of period |
98.4 | 35.2 | ||||||
At end of period |
$ | 136.0 | $ | 4.1 | ||||
See Notes to Consolidated Financial Statements
5
Table of Contents
Hillenbrand, Inc.
Notes to Consolidated Financial Statements (Unaudited)
( in millions, except share and per share data)
( in millions, except share and per share data)
1. | Background and Basis of Presentation |
|
Hillenbrand, Inc. (Hillenbrand or the Company) is the parent holding company of its wholly owned
subsidiaries, Batesville Services, Inc. (Batesville) and K-Tron International, Inc. (K-Tron). |
||
Through Batesville, we are the leader in the North American death care products industry where we
manufacture, distribute, and sell funeral service products to licensed funeral directors who
operate licensed funeral homes. Our Batesville-branded products consist primarily of burial caskets
but also include cremation caskets, containers and urns, selection room display fixturing for
funeral homes, and other personalization and memorialization products and services, including web
based applications and the creation and hosting of websites for licensed funeral homes. |
||
Through K-Tron, we design, produce, market, and service bulk solids material handling equipment and
systems for a wide variety of industrial markets, particularly in the plastics, food, chemical,
pharmaceutical, power generation, coal mining, pulp and paper, wood and forest products, and
biomass energy generation industries. |
||
The accompanying unaudited consolidated financial statements include the accounts of Hillenbrand,
Inc. and its wholly owned subsidiaries. These unaudited financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim
financial statements and therefore do not include all information required in accordance with
accounting principles generally accepted in the U.S. (U.S. GAAP). The unaudited consolidated
financial statements have been prepared on the same basis as the consolidated financial statements
as of and for the fiscal year ended September 30, 2010. Certain prior period balances have been
reclassified to conform to our current presentation. In the opinion of management, these financial
statements reflect all normal and recurring adjustments considered necessary to present fairly the
Companys consolidated financial position and the consolidated results of our operations and our
cash flows as of the dates and for the periods presented. |
||
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates
and assumptions that affect the reported amounts of certain assets and liabilities and disclosures
of contingent assets and liabilities as of the dates presented. Actual results could differ from
those estimates. Examples of such estimates include, but are not limited to, the collectability of
our note receivable from Forethought Financial Group, Inc. (Forethought); the establishment of
reserves related to our customer rebates, allowance for doubtful accounts, warranties, early pay
discounts, inventories, income taxes, accrued litigation, and self-insurance reserves; the
estimation of progress towards performance criteria under our incentive compensation programs; and
the estimation of fair value associated with our auction rate securities (ARS). |
2. | Summary of Significant Accounting Policies |
|
The accounting policies used in preparing these financial statements are consistent with the
accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2010. The following represent additions and changes to our significant accounting
policies as described in our previously filed Form 10-K. |
||
Recently Adopted Accounting Standards |
||
On December 31, 2010, we adopted the Financial Accounting Standards Boards (FASBs) accounting
standard update 2010-20, Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses. The standard requires companies to provide additional disclosures
about the credit quality of their financing receivables and the credit reserves held against them.
The disclosure requirements of this standard are included in Note 5. |
6
Table of Contents
3. | Business Acquisitions |
|
K-Tron Acquisition |
||
The unaudited financial information in the table below summarizes the combined results of
operations for the Company, including K-Tron, for the three months ended December 31, 2009, on a
pro forma basis, as though the companies were combined as of the beginning of the period presented.
The pro forma financial information is presented for informational purposes only and may not be
indicative of the results of operations if the acquisition had actually taken place at the
beginning of the period presented and should not be considered representative of our future
consolidated results of operations. The pro forma financial information for the three months ended
December 31, 2009, includes adjustments for additional interest expense (assuming we would have
been able to borrow $375.0 at October 1, 2009) and additional depreciation and amortization expense
(associated with fair value adjustments to property and intangible assets), and excludes $2.8 of
business acquisition costs and the non-recurring effects of fair value adjustments to inventory and
backlog, all net of estimated income tax effects. See Note 17 for further information regarding
K-Trons financial contribution to our consolidated financial results. |
Three Months Ended | ||||
December 31, 2009 | ||||
Pro forma net revenues |
$ | 205.2 | ||
Pro forma net income |
33.3 | |||
Pro forma diluted earnings per share |
0.54 |
4. | Supplemental Balance Sheet Information |
December 31, | September 30, | |||||||
2010 | 2010 | |||||||
Trade accounts receivable reserves |
$ | 20.3 | $ | 20.1 | ||||
Inventories: |
||||||||
Raw materials and components |
$ | 28.5 | $ | 26.6 | ||||
Work in process |
7.2 | 6.7 | ||||||
Finished products |
35.8 | 34.8 | ||||||
Reserves for excess or obsolescence |
(3.2 | ) | (3.2 | ) | ||||
Total inventories |
$ | 68.3 | $ | 64.9 | ||||
Accumulated depreciation on property |
$ | 244.2 | $ | 239.7 | ||||
Accumulated amortization of intangible assets |
$ | 38.3 | $ | 36.0 | ||||
5. | Financing Receivables and Allowances for Credit Losses |
|
In accordance with accounting standard update 2010-20, Disclosures about the Credit Quality of
Financing Receivables and the Allowance for Credit Losses, Hillenbrand has two types of financing
instruments that require quarterly disclosure: our Forethought note and our notes receivable from
customers. We have no significant changes to report to the disclosures regarding the Forethought
note contained in our previously filed Form 10-K for the year ended September 30, 2010. |
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Table of Contents
As of December 31, 2010, we had $7.8 of notes receivable from customers representing long-term
payment plans that were negotiated to settle unpaid balances. These notes generally carry
repayment terms up to five years at a weighted average interest rate of 6.5%. The current portion
of these notes, $4.3, is included in trade receivables and the long-term portion, $3.5, is included
in other assets in the consolidated balance sheets. We evaluate the
recoverability of notes receivable and record allowances thereon based upon historical experience
and individual customer collection experience. Of our $7.8 notes receivable, $7.1 was current and
$0.7 was over 31 days past due as of December 31, 2010. Accordingly, we established $0.4 of
reserves to address potential collectability as of December 31, 2010. Each quarter we perform a
detailed review of all notes upon which a reserve was established to determine whether any amounts
should be charged off. |
6. | Auction Rate Securities |
A | B | C | ||||||||||
Balance at September 30, 2010 |
$ | 11.9 | $ | | $ | | ||||||
Change in fair value |
0.5 | (0.5 | ) | | ||||||||
Purchases |
| | | |||||||||
Sales and redemptions |
(0.1 | ) | | | ||||||||
Balance at December 31, 2010 |
$ | 12.3 | $ | (0.5 | ) | $ | | |||||
A | Auction rate securities available for sale, at fair value |
|
B | Amount included in accumulated other comprehensive loss (pre-tax) |
|
C | (Gain) loss included in investment income (loss) and other (pre-tax) |
See Note 16 for information related to the determination of fair value. See Note 18 for
information regarding a subsequent event. |
7. | Financing Agreements |
|
Borrowings under our financing agreements included: |
December 31, | September 30, | |||||||
2010 | 2010 | |||||||
$400 revolving credit facility |
$ | 275.0 | $ | 255.0 | ||||
$150 senior unsecured notes, due July 15, 2020, net of discount |
148.4 | 148.4 | ||||||
Total long-term debt |
$ | 423.4 | $ | 403.4 | ||||
$400 Revolving Credit Facility |
||
As of December 31, 2010, we (i) had $6.9 outstanding undrawn letters of credit under the facility,
(ii) were in compliance with all covenants set forth in the credit agreement, and (iii) had $118.1
of remaining borrowing capacity available under the facility. Under our Distribution Agreement with
Hill-Rom, our ability to borrow against the facility for certain strategic transactions such as
acquisitions may be limited. The term of the revolving credit facility expires in March 2013.
During the three-month periods ended December 31, 2010 and 2009, the applicable weighted average
interest rates were 0.7%. |
||
Our Swiss location maintains $19.2 local credit facilities secured by cash or real property. As of
December 31, 2010, there were no borrowings under these facilities and availability was reduced by
$4.1 for outstanding bank guarantees. We had additional outstanding letters of credit and bank
guarantees with other financial institutions totaling $3.6 and $0.3 of restricted cash at December
31, 2010. |
||
$150 Senior Unsecured Notes |
||
On July 9, 2010, we issued and sold $150.0 fixed-rate senior unsecured notes due July 15, 2020 (the
Notes). The Notes bear interest at a fixed rate of 5.5%, payable semi-annually in arrears
commencing on January 15, 2011. The Notes were issued at an original issue discount of $1.6, which
is being amortized into 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. |
8
Table of Contents
8. | Retirement and Postemployment Benefits |
|
Defined Benefit Plans |
||
Components of net pension costs were: |
Three Months Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
Service costs |
$ | 1.3 | $ | 1.1 | ||||
Interest costs |
3.2 | 3.1 | ||||||
Expected return on plan assets |
(3.8 | ) | (3.3 | ) | ||||
Amortization of unrecognized prior service costs, net |
0.2 | 0.2 | ||||||
Amortization of net loss |
1.0 | 0.8 | ||||||
Net pension costs |
$ | 1.9 | $ | 1.9 | ||||
The net postretirement healthcare costs recorded during the three months ended December 31, 2010
and 2009 were $0.3 and $0.3. |
||
Defined Contribution Plans |
||
For the three months ended December 31, 2010 and 2009, expenses related to our defined contribution
plans were $1.6 and $1.2. |
9. | Income Taxes |
|
The effective tax rates for the three months ended December 31, 2010 and 2009 were 35.9% and 33.9%.
The increase in the December 31, 2010 effective tax rate was primarily attributable to a favorable
adjustment of $0.6 recorded in the prior year as a result of periodic reconciliation of our income
tax accounts to filed income tax returns. |
||
The activity within our reserve for unrecognized tax benefits was: |
Balance at September 30, 2010 |
$ | 7.2 | ||
Additions for current-year tax positions |
0.1 | |||
Balance at December 31, 2010 |
$ | 7.3 | ||
Other amounts accrued at December 31, 2010 for interest and penalties |
$ | 1.5 | ||
10. | Income per Common Share |
|
At December 31, 2010 and 2009, potential dilutive effects of our time-based restricted stock units
and stock option awards, representing approximately 2.2 million and 1.7 million common shares, were
excluded from income per common share as their effects were anti-dilutive. The dilutive effects of
our performance-based stock awards will be included in diluted net income per share when the
related performance criteria are met. At December 31, 2010 and 2009, potential dilutive effects,
representing approximately 1.6 million and 1.1 million common shares, were excluded from the
computation of income per common share as the related performance criteria was not met, although we
expect to meet various levels of criteria in the future. There was no significant difference in
basic and diluted net income per share and average common shares outstanding as a result of
dilutive equity awards for the three-month periods ended December 31, 2010 and 2009. |
9
Table of Contents
11. | Shareholders Equity |
|
During the three months ended December 31, 2010, we paid $11.7 of cash dividends and issued 0.3
million shares of our common stock pursuant to our stock incentive plans. |
12. | Stock-Based Compensation |
Three Months Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
Stock-based compensation costs |
$ | 2.4 | $ | 2.1 | ||||
Income tax benefit |
0.9 | 0.8 | ||||||
Stock-based compensation costs, net of tax |
$ | 1.5 | $ | 1.3 | ||||
During the three months ended December 31, 2010, we made the following grants: |
Number of Units | ||||
Stock options |
481,776 | |||
Restricted stock units (RSUs) |
2,883 | |||
Performance-based stock units (PBUs) |
541,947 |
Stock options granted had a weighted average exercise price of $19.49, and our RSUs and PBUs had a
weighted average grant date fair value of $21.51 and $19.50 for the three month period ended
December 31, 2010. |
13. | Comprehensive Income and Accumulated Other Comprehensive Loss |
The components of comprehensive income, each net of tax (corresponding to income tax rates between
35.4% and 37.3%, excluding foreign currency translation adjustment), were: |
Three Months Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
Net income |
$ | 27.1 | $ | 29.5 | ||||
Foreign currency translation adjustment |
9.8 | 0.2 | ||||||
Change in items not recognized as a component of net pension and
postretirement healthcare costs |
0.8 | 0.6 | ||||||
Changes in net unrealized gains (losses) on derivative instruments |
(0.1 | ) | 0.1 | |||||
Changes in net unrealized gains (losses) on available for sale securities |
0.3 | (0.2 | ) | |||||
Comprehensive income |
$ | 37.9 | $ | 30.2 | ||||
The components of accumulated other comprehensive loss, each net of tax (corresponding to income
tax rates between 35.4% and 37.3%, excluding cumulative foreign currency translation adjustment),
were: |
December 31, | September 30, | |||||||
2010 | 2010 | |||||||
Cumulative foreign currency translation adjustment |
$ | 18.9 | $ | 9.1 | ||||
Items not recognized as a component of net pension and postretirement
benefit costs |
(51.2 | ) | (52.0 | ) | ||||
Net unrealized (loss) on derivative instruments |
(0.2 | ) | (0.1 | ) | ||||
Net unrealized gain on available for sale securities |
0.3 | | ||||||
Accumulated other comprehensive loss |
$ | (32.2 | ) | $ | (43.0 | ) | ||
10
Table of Contents
14. | Investment Income and Other |
|
The components of investment income and other were: |
Three Months Ended December 31, | ||||||||
2010 | 2009 | |||||||
Interest income on note receivable from Forethought |
$ | 2.8 | $ | 3.3 | ||||
Interest income on ARS |
| 0.1 | ||||||
Equity in net income of affiliates |
0.6 | 0.1 | ||||||
Realized gain on sale of investments |
| 0.5 | ||||||
Net realized (loss) on sale or impairment of ARS |
| (0.3 | ) | |||||
Foreign currency exchange (loss), net |
(0.3 | ) | | |||||
Other, net |
(0.1 | ) | | |||||
Investment income and other |
$ | 3.0 | $ | 3.7 | ||||
15. | Commitments and Contingencies |
|
Antitrust Litigation |
||
In 2005 the Funeral Consumers Alliance, Inc. (FCA) and a number of individual consumer casket
purchasers filed a purported class action antitrust lawsuit on behalf of certain consumer
purchasers of Batesville® caskets against the Company and our former parent company,
Hillenbrand Industries, Inc., now Hill-Rom Holdings, Inc. (Hill-Rom), and three national funeral
home businesses (the FCA Action). A similar purported antitrust class action lawsuit was later
filed by Pioneer Valley Casket Co. and several so-called independent casket distributors on
behalf of casket sellers who were unaffiliated with any licensed funeral home (the Pioneer Valley
Action). Class certification hearings in the FCA Action and the Pioneer Valley Action were held
before a Magistrate Judge in early December 2006. On November 24, 2008, the Magistrate Judge
recommended that the plaintiffs motions for class certification in both cases be denied. On March
26, 2009, the District Judge adopted the memoranda and recommendations of the Magistrate Judge and
denied class certification in both cases. On April 9, 2009, the plaintiffs in the FCA case filed a
petition with the United States Court of Appeals for the Fifth Circuit for leave to file an appeal
of the Courts order denying class certification. On June 19, 2009, a three-judge panel of the
Fifth Circuit denied the FCA plaintiffs petition. On July 9, 2009, the FCA plaintiffs filed a
request for reconsideration of the denial of their petition. On July 29, 2009, a three-judge panel
of the Fifth Circuit denied the FCA plaintiffs motion for reconsideration and their alternative
motion for leave to file a petition for rehearing en banc (by all the judges sitting on the Fifth
Circuit Court of Appeals). |
||
The Pioneer Valley plaintiffs did not appeal the District Courts order denying class certification
and, on April 29, 2009, pursuant to a stipulation among the parties, the District Court dismissed
the Pioneer Valley Action with prejudice (i.e., Pioneer Valley cannot appeal or otherwise
reinstitute the case). Neither the Company nor Hill-Rom provided any payment or consideration for
the plaintiffs to dismiss this case, other than agreeing to bear their own costs rather than
pursuing plaintiffs for costs. |
||
Plaintiffs in the FCA Action have generally sought monetary damages on behalf of a class, trebling
of any such damages that may be awarded, recovery of attorneys fees and costs, and injunctive
relief. The plaintiffs in the FCA Action filed a report indicating that they were seeking damages
ranging from approximately $947.0 million to approximately $1.46 billion before trebling on behalf
of the purported class of consumers they seek to represent, based on approximately one million
casket purchases by the purported class members. |
||
Because Batesville continues to adhere to its long-standing policy of selling Batesville caskets
only to licensed funeral directors operating licensed funeral homes, a policy that it continues to
believe is appropriate and lawful, if the case goes to trial, the plaintiffs are likely to claim
additional alleged damages for periods between their reports and the time of trial. At this point,
it is not possible to estimate the amount of any additional alleged damage claims they may make.
The defendants are vigorously contesting both liability and the plaintiffs damages theories. |
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Despite the ruling denying class certification, the FCA plaintiffs continued to pursue their
individual injunctive and damages claims. Their individual damages claims are limited to the
alleged overcharges on the plaintiffs individual casket purchases (the complaint currently alleges
a total of eight casket purchases by the individual plaintiffs), which would be trebled, plus
reasonable attorneys fees and costs. |
In June 2010, co-defendant Stewart Enterprises, Inc. announced a settlement with the plaintiffs. On
July 16, 2010, the District Court granted the remaining defendants motion for leave to file a
motion to dismiss for lack of subject matter jurisdiction. On August 2, 2010, the District Court
heard argument on the motion and ordered full dismissal of the lawsuit on September 24, 2010,
concluding that plaintiffs shall take nothing by their suit. In light of this decision,
defendants filed a motion requesting that the Court order plaintiffs to pay costs incurred by
Batesville and SCI in the approximate amount of $0.7 million. The Court denied this motion on
October 22, 2010. |
||
Plaintiffs had 30 days to declare their intent to appeal the dismissal of their lawsuit, and they
did so by way of a Notice of Appeal filed on October 19, 2010. Plaintiffs Notice indicates that
they intend to appeal both the Courts final judgment of dismissal entered on September 24, 2010
and the Courts order denying class certification entered on March 26, 2009. The appeal is to the
United States Court of Appeals for the Fifth Circuit. |
||
Plaintiffs recently requested an enlargement of time to file their brief appealing the denial of
the two District Court orders. The request was granted by the Court of Appeals on January 3, 2011;
therefore, plaintiffs brief must now be filed by February 23, 2011. Defendants brief will be due
30 days after receiving plaintiffs brief, unless an enlargement of time is requested and granted.
Plaintiffs will then have an opportunity to file a reply brief. Once all briefs are submitted, the
Court of Appeals may hear oral argument by the parties attorneys and will then issue its ruling as
to whether or not the District Courts decisions should be reversed or affirmed. It should be
noted, however, that the above appellate schedule is only approximate and is subject to change
dependent upon a number of factors, including the granting of any extensions of time and the
relative congestion of the docket of the Court of Appeals. |
||
If plaintiffs succeed in overturning the judgment, reversing the District Court order denying class
certification, and a class is subsequently certified in the FCA Action filed against Hill-Rom and
Batesville, and if the plaintiffs prevail at a trial of the class action, the damages awarded to
the plaintiffs, which would be trebled as a matter of law, could have a significant material
adverse effect on our results of operations, financial condition, and/or liquidity. In antitrust
actions such as the FCA Action, the plaintiffs may elect to enforce any judgment against any or all
of the co-defendants, who have no statutory contribution rights against each other. We and Hill-Rom
have entered into a judgment sharing agreement that apportions the costs and any potential
liabilities associated with this litigation between us and Hill-Rom. See Note 6 to our Annual
Report on Form 10-K for the fiscal year ended September 30, 2010. |
||
As of December 2010, we had incurred approximately $27.8 million in cumulative legal and related
costs associated with the FCA matter since its inception. |
||
General |
||
We are involved on an ongoing basis in claims and lawsuits relating to our operations, including
environmental, antitrust, patent infringement, business practices, commercial transactions, and
other matters. The ultimate outcome of these lawsuits cannot be predicted with certainty. An
estimated loss from these contingencies is recognized when we believe 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. The ultimate outcome of
these lawsuits could have a material adverse effect on our financial condition, results of
operations, and cash flow. |
||
Legal fees associated with claims and lawsuits are generally expensed as incurred. Upon recognition
of an estimated loss resulting from a settlement, an estimate of legal fees to complete the
settlement is also included in the amount of the loss recognized. |
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We are also involved in other possible claims, including product and general liability, workers
compensation, auto liability, and employment-related matters. Claims other than employment and
related matters have deductibles and self-insured retentions ranging from $0.5 million to $1.0
million per occurrence or per claim, depending upon the
type of coverage and policy period. Outside insurance companies and third-party claims
administrators establish individual claim reserves, and an independent outside actuary provides
estimates of ultimate projected losses, including incurred but not reported claims, which are used
to establish reserves for losses. Claim reserves for employment-related matters are established
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. |
The recorded amounts represent our best estimate of the costs we will incur in relation to such
exposures, but it is virtually certain that actual costs will differ from those estimates. |
16. | Fair Value Measurements |
|
Our fair value measurements for our financial assets and liabilities were classified into one of
three categories as defined in Note 14 to our Annual Report on Form 10-K for the fiscal year ended
September 30, 2010. |
Fair Value Measurements at | ||||||||||||||||||||
December 31, 2010 using: | ||||||||||||||||||||
Significant | ||||||||||||||||||||
Carrying | Quoted Prices | Other | Significant | |||||||||||||||||
Value at | Fair Value at | in Active | Observable | Unobservable | ||||||||||||||||
December 31, | December 31, | Markets | Inputs | Inputs | ||||||||||||||||
Description | 2010 | 2010 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||||
Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 136.0 | $ | 136.0 | $ | 136.0 | $ | | $ | | ||||||||||
ARS |
12.3 | 12.3 | | 12.3 | | |||||||||||||||
Forethought note |
147.6 | 125.7 | | | 125.7 | |||||||||||||||
Equity investments |
3.0 | 3.0 | | | 3.0 | |||||||||||||||
Investments in rabbi trust |
5.9 | 5.9 | 5.9 | | | |||||||||||||||
Liabilities: |
||||||||||||||||||||
Revolving credit facility |
275.0 | 264.5 | | 264.5 | | |||||||||||||||
$150 senior unsecured notes |
148.4 | 151.7 | 151.7 | | | |||||||||||||||
Derivative instruments, net |
0.2 | 0.2 | | 0.2 | |
The following table reconciles the change in our Level 3 financial assets: |
Measurements Using Significant | ||||||||
Unobservable Inputs | ||||||||
Forethought | Equity | |||||||
Note | Investments | |||||||
Balance at September 30, 2010 |
$ | 127.0 | $ | 3.0 | ||||
Total gains (losses) (realized and unrealized): |
||||||||
Included in earnings, net |
| | ||||||
Included in other comprehensive income |
| | ||||||
Change in fair value |
(1.3 | ) | | |||||
Purchases, issuances, and settlements |
| | ||||||
Transfers in (out) of Level 3 |
| | ||||||
Balance at December 31, 2010 |
$ | 125.7 | $ | 3.0 | ||||
The methods and assumptions used to estimate the fair value of each class of financial instrument
for which it is practicable to estimate that value are described in our Annual Report on Form 10-K
for the fiscal year ended September 30, 2010. The decrease in the fair value of the Forethought
Note at December 31, 2010 was attributable to a 1.6% increase in the required yield to maturity
(discount rate) observed in the marketplace on comparable debt instruments. Assets excluded from
the tables above are described in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2010. |
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17. | Segment and Geographical Information |
|
Our operations consist of two reporting segments, Batesville and K-Tron. The following tables
provide summary financial information regarding these segments and our corporate operations: |
Three Months Ended December 31, | ||||||||
2010 | 2009 | |||||||
Net revenues: |
||||||||
Batesville |
$ | 159.9 | $ | 161.5 | ||||
K-Tron |
51.1 | | ||||||
Total consolidated net revenues |
$ | 211.0 | $ | 161.5 | ||||
Gross profit: |
||||||||
Batesville |
$ | 68.4 | $ | 72.0 | ||||
K-Tron |
22.8 | | ||||||
Total consolidated gross profit |
$ | 91.2 | $ | 72.0 | ||||
Operating profit (loss): |
||||||||
Batesville1 |
$ | 42.6 | $ | 50.2 | ||||
K-Tron2 |
6.9 | | ||||||
Corporate 3 |
(7.4 | ) | (9.1 | ) | ||||
Total consolidated operating profit |
$ | 42.1 | $ | 41.1 | ||||
EBITDA: |
||||||||
Batesville |
$ | 46.5 | $ | 54.2 | ||||
K-Tron |
10.5 | | ||||||
Corporate |
(6.5 | ) | (8.5 | ) | ||||
Total EBITDA |
$ | 50.5 | $ | 45.7 | ||||
Net revenues: 4 |
||||||||
United States |
$ | 178.7 | $ | 150.2 | ||||
Canada |
11.3 | 9.6 | ||||||
Switzerland |
18.3 | | ||||||
All other foreign business units |
2.7 | 1.7 | ||||||
Total consolidated net revenues |
$ | 211.0 | $ | 161.5 | ||||
1 | Batesville operating profit includes sales tax recoveries of $0.6 and $4.1 offset in
part by antitrust litigation expense of $0.3 and $0.2 for the three months ended December
31, 2010 and 2009. |
|
2 | K-Tron operating profit includes $2.7 of incremental amortization expense related to
the intangible assets that were acquired and $0.1 for business acquisition costs during the
three months ended December 31, 2010. |
|
3 | Corporate operating loss includes $0.2 and $2.8 for business acquisition costs for the
three months ended December 31, 2010 and 2009. |
|
4 | Revenue is attributed to a geography based upon the location of the business unit that
consummated the external sale. |
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December 31, | September 30, | |||||||
2010 | 2010 | |||||||
Total assets assigned: |
||||||||
Batesville |
$ | 250.0 | $ | 249.0 | ||||
K-Tron |
571.7 | 561.3 | ||||||
Corporate |
272.7 | 241.8 | ||||||
Total consolidated assets |
$ | 1,094.4 | $ | 1,052.1 | ||||
Total goodwill assigned: |
||||||||
Batesville |
$ | 5.7 | $ | 5.7 | ||||
K-Tron |
194.5 | 190.7 | ||||||
Total consolidated goodwill |
$ | 200.2 | $ | 196.4 | ||||
Property, net, by physical location |
||||||||
United States |
$ | 94.7 | $ | 96.2 | ||||
Switzerland |
10.9 | 10.6 | ||||||
All other foreign business units |
3.1 | 2.8 | ||||||
Total property, net |
$ | 108.7 | $ | 109.6 | ||||
18. | Subsequent Events |
|
In January 2011, we sold our remaining ARS for proceeds of $12.3, resulting in a gain of $0.5. We
have now fully liquidated the original $56.9 portfolio of ARS transferred to us on March 31, 2008,
in connection with our separation from Hill-Rom. We recovered approximately 95.5% of the
historical cost of these securities. |
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Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
Forward-Looking Statements and Factors That May Affect Future Results
Throughout this Form 10-Q, we made a number of forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. As the words imply, forward-looking
statements are statements about our future plans, objectives, beliefs, and expectations that might
or might not happen in the future, as contrasted with historical information. Our forward-looking
statements are based on assumptions that we believe are reasonable, but by their very nature they
are subject to a wide range of risks.
Accordingly, in this Form 10-Q, we may say something like,
We anticipate that the burial rate will be flat to slightly declining in future years.
That is a forward-looking statement, as indicated by the word anticipate and by the clear meaning
of the sentence.
Other words that could indicate we are making forward-looking statements include:
intend
|
believe | plan | expect | may | goal | |||||
become
|
pursue | estimate | will | forecast | continue | |||||
targeted
|
encourage | promise | improve | progress | potential |
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, and
our actual results 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 those described in the forward-looking statements.
For a discussion of factors that could cause actual results to differ from those contained in
forward-looking statements, see the discussions under the heading Risk Factors in Item 1A of our
Form 10-K filed with the SEC on November 23, 2010 and Part II, Item 1A, of this Form 10-Q. We
assume no obligation to update or revise any forward-looking statements.
16
Table of Contents
Executive Overview
In this executive overview, we provide information so that you may review the Companys performance
and assess its financial condition as management does.
( in millions throughout Managements Discussion and Analysis)
Three Months Ended | ||||||||
December 31, 2010 | ||||||||
Hillenbrand | 2010 | 2009 | ||||||
Net revenues |
$ | 211.0 | $ | 161.5 | ||||
Gross profit |
91.2 | 72.0 | ||||||
Operating expenses (including business acquisition costs) |
49.1 | 30.9 | ||||||
Operating profit |
42.1 | 41.1 | ||||||
Interest expense |
(2.8 | ) | (0.2 | ) | ||||
Investment income and other |
3.0 | 3.7 | ||||||
Income taxes |
15.2 | 15.1 | ||||||
Net income |
27.1 | 29.5 |
The question that arises when reviewing our consolidated results is most likely, How did net
revenues for the three months ended December 31, 2010, increase by 31% compared to the same period
in the prior year while net income declined by 8%? The information below provides detail on the
key drivers of our results.
| Our net revenues were positively impacted by the K-Tron acquisition in April 2010,
providing $51.1 of additional net revenue in the three months ended December 31, 2010,
compared to the same period in the prior year. Batesvilles revenues were relatively flat,
decreasing $1.6 or 1% in the three months ended December 31, 2010, compared to the same period
in the prior year. |
| Gross profit margin for the three months ended December 31, 2010, declined by 140 basis
points compared to the same period in the prior year, largely driven by rising commodity costs
at Batesville, principally steel and fuel. Batesvilles gross profit margin was 42.8% and
44.6% for the three months ended December 31, 2010 and 2009. K-Trons gross profit margin was
44.6% for the three months ended December 31, 2010. |
| Operating expenses increased $18.2 in the three months ended December 31, 2010, compared to
the same period in the prior year. |
| The addition of K-Tron into our results added $15.9 of operating expenses,
including $2.7 relating to incremental amortization of the acquired intangible assets. |
||
| An increase of $3.5 in operating expenses was due to sales tax recoveries for
Batesville. These recoveries relate to overpayments in previous years and are not a
normal part of ongoing operations. Additional recoveries are not expected to be
significant. We recognized a benefit of $0.6 in the three months ended December 31,
2010, compared to $4.1 in the same period in the prior year. |
||
| We incurred $0.3 of business acquisitions costs in the three months ended
December 31, 2010, compared to $2.8 in the same period of the prior year. |
Absent sales tax recoveries, operating expenses remained relatively flat for Batesville for the
three months ended December 31, 2010, compared to the same period in the prior year. Excluding
incremental amortization expense, operating expenses for K-Tron were relatively flat compared to
the same period a year ago, yielding an improved operating expense to sales ratio given the
revenue growth. Due to the technical nature of its products and related customer support
requirements, K-Trons business model has a higher ratio of operating expenses to sales compared
to Batesville. This results in a higher consolidated operating expense to sales ratio for
Hillenbrand post-acquisition. |
Interest expense increased $2.6 for the three months ended December 31, 2010, compared to the same
period in the prior year, due to the borrowings to fund the K-Tron acquisition.
Investment income and other decreased $0.7 for the three months ended December 31, 2010, compared
to the same period in the prior year. See Note 14 for more detailed information.
Our income tax rate was 35.9% for the three months ended December 31, 2010, an increase of 2.0%
over the same period in the prior year. The increase was primarily due to a favorable adjustment of
$0.6 recorded in the prior year as a result of periodic reconciliation of our income tax accounts
to filed income tax returns.
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While we report financial results in accordance with U.S. GAAP, we would also like to discuss a
non-GAAP measure, Earnings Before Interest, Income Tax, Depreciation and Amortization (EBITDA). We
have previously discussed our strategy to prudently acquire selected manufacturing businesses that
have a record of success, but which could benefit from our core competencies to spur faster and
more profitable growth. Given that strategy, it is a natural consequence to incur related expenses
such as amortization from intangible assets acquired and additional interest expense from
debt-funded acquisitions. Accordingly, we use EBITDA, among other measures, to monitor our business
performance. While EBITDA is not in accordance with, nor is it a
substitute for, a U.S. GAAP measure, we
believe it provides information to investors so they can see the financial results through the
eyes of management. We also believe that it better enables investors to understand the ongoing
operating performance of the Company. Investors should consider non-GAAP measures in addition to,
not as a substitute for, or as superior to, measures of financial performance prepared in
accordance with U.S. GAAP.
EBITDA for the three months ended December 31, 2010, was $50.5 million compared to $45.7 million
for the three months ended December 31, 2009. The reconciliation
to U.S. GAAP net income is provided
below:
Three Months Ended | ||||||||
December 31, 2010 | ||||||||
EBITDA | 2010 | 2009 | ||||||
Net income |
$ | 27.1 | $ | 29.5 | ||||
Interest income |
(3.3 | ) | (3.6 | ) | ||||
Interest expense |
2.8 | 0.2 | ||||||
Income tax expense |
15.2 | 15.1 | ||||||
Depreciation and amortization |
8.7 | 4.5 | ||||||
EBITDA1 |
$ | 50.5 | $ | 45.7 | ||||
1 | For the three months ended December 31, 2010 and 2009, EBITDA includes $0.3 and $0.2 of
antitrust litigation expense, $0.3 and $2.8
of business acquisition costs, and $0.6 and $4.1 of sales tax recoveries. |
Results of Operations
The consolidated operating results of our Company are included in the consolidated financial
statements in Part I, Item 1, of this Form 10-Q. We disaggregated the relevant operating
information into our two reporting segments, Batesville and K-Tron, along with our corporate
operations. See Note 17 for a reconciliation of the financial information below to our consolidated
financial results.
The sections that follow present operating results for Batesville, K-Tron, and our corporate
operations. We also discuss changes in non-operating expenses and income, along with our income tax
provision, in further detail below.
Three Months Ended December 31, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
% of | % of | |||||||||||||||
Batesville | Amount | Revenue | Amount | Revenue | ||||||||||||
Revenue |
$ | 159.9 | 100.0 | $ | 161.5 | 100.0 | ||||||||||
Gross profit |
68.4 | 42.8 | 72.0 | 44.6 | ||||||||||||
Operating expenses1 |
25.8 | 16.1 | 21.8 | 13.5 | ||||||||||||
Operating profit1 |
42.6 | 26.6 | 50.2 | 31.1 |
1 | Operating expenses and operating profit include sales tax recoveries of $0.6 and $4.1
offset in part by antitrust litigation expense of
$0.3 and $0.2 for the three months ended December 31, 2010 and 2009. |
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Revenue Batesvilles net revenues for the three months ended December 31, 2010
decreased from the same period last year by $1.6 or 1.0%. Burial unit volume decreased 1.8% or $2.2
and was the primary contributor to the reduction in net revenue. We believe the volume decrease was
largely attributable to year-over-year increases in
cremation rates, which reduce the number of burials. Although cremations continue to increase, we
have observed a more typical year-over-year growth rate of about 110 to 120 basis points in 2010,
following significant increases in 2009. Offsetting this impact was a modest increase in the
average selling price that contributed $0.2 to revenue. We believe that Batesvilles merchandising
initiatives and new product launches helped improve average selling prices and slow the downward
trend in product mix, especially in customer locations that used the Batesville merchandising
system. The strengthening Canadian dollar increased revenue by $0.4 in the three months ended
December 31, 2010, compared to the same period in the prior year.
Gross profit Batesvilles gross profit for the three months ended December 31, 2010,
decreased $3.6 million or 5.0% compared to the same period in the prior year. Despite the lower
revenue noted above, cost of goods sold increased $2.0 million, driven primarily by rising
commodity costs of $2.9 million, particularly steel and fuel. These commodity increases were
partially offset by lower operating costs as we continue to optimize our cost structure using lean
business principles.
Operating expenses Batesville operating expenses increased $4.0 or 18.3% for the three
months ended December 31, 2010, compared to the same period in the prior year. This was driven by
the prior year impact of recording a $4.1 sales tax receivable for tax overpayments, reducing prior
year operating expenses. We recovered an additional $0.6 in sales tax overpayments in the current
quarter, which was largely offset by $0.5 of strategic initiative spending. During the three months
ended December 31, 2010 and 2009, we incurred legal fees of $0.3 and $0.2 related to our FCA
antitrust litigation discussed in Note 15.
Three Months Ended | ||||||||
December 31, 2010 | ||||||||
K-Tron | Amount | % of Revenue | ||||||
Revenue |
$ | 51.1 | 100.0 | |||||
Gross profit |
22.8 | 44.6 | ||||||
Operating expenses1 |
15.9 | 31.1 | ||||||
Operating profit1 |
6.9 | 13.5 |
1 | Operating expenses and operating profit includes $2.7 of incremental amortization
expense associated with the acquisition of K-Tron and $0.1 of business acquisition costs.
|
Comparative results are not presented as K-Tron was acquired on April 1, 2010.
Future revenue associated with K-Trons business lines is influenced by order backlog. This is due
to the lead time involved in manufacturing specialized equipment and parts for customers. Backlog
can be an indicator of future revenue; however, it may not include many projects and parts orders
that are booked and shipped within the same quarter (i.e. backlog primarily represents new
equipment orders). The timing of order placement, size, and customer delivery dates can create
unusual fluctuations in backlog. Backlog is also affected by foreign exchange fluctuations because
a portion of the orders are denominated in currencies other than U.S. dollars.
Based upon new orders accepted, less orders completed and shipped during the three months ended
December 31, 2010, K-Trons backlog increased $10.8 to $67.9.
Three Months Ended December 31, | ||||||||
Corporate | 2010 | 2009 | ||||||
Operating expenses, excluding business acquisition costs |
$ | 7.2 | $ | 6.3 | ||||
Business acquisition costs |
0.2 | 2.8 |
Operating expenses, excluding business acquisition costs We excluded business
acquisition costs because we believe this provides a clearer picture for analyzing our operating
cost structure due to their significant and infrequent nature. Operating expenses excluding
business acquisition costs increased $0.9 or 14.3% for the three months ended December 31, 2010,
compared to the same period in the prior year. The increases were primarily related to compensation
and benefits.
Business acquisition costs We incurred $0.3 of acquisition related expenditures during
the three months ended December 31, 2010, of which $0.2 were incurred by our corporate operations.
Business acquisition costs were $2.8
for the three months ended December 31, 2009. The decline is attributable to the reduction in
business acquisition activity following our acquisition of K-Tron on April 1, 2010.
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Table of Contents
Liquidity and Capital Resources
We believe the ability to generate cash is critical to the value of our Company. In this section,
we tell you about our ability to generate and access cash to meet our business needs.
First, we will describe our actual results in generating and utilizing cash by comparing the first
three months to the same period last year. We will also talk about any significant trends we are
seeing to help you understand how this could impact us going forward.
Second, we will tell you about how we see operating, investing, and financing cash flows being
affected for the next 12 months. While it is not a certainty, we will tell you where we think the
cash will come from and how we intend to use it. We will also talk about significant risks or
possible changes to our thinking that could change our expectation.
Third, we will tell you about other significant matters that could affect our liquidity on an
ongoing basis.
Three Months Ended December 31, | ||||||||
2010 | 2009 | |||||||
Cash flows provided by (used in): |
||||||||
Operating activities |
$ | 27.8 | $ | 36.4 | ||||
Investing activities |
(1.8 | ) | 3.9 | |||||
Financing activities |
8.3 | (71.5 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents |
3.3 | 0.1 | ||||||
Increase (decrease) in cash and cash equivalents |
$ | 37.6 | $ | (31.1 | ) | |||
Operating activities
Historically, net cash flows from operating activities have represented our primary source of funds
for the growth of our business, including capital expenditures. The degree of correlation between
operating cash flow and net income is impacted by the non-cash expenditures we incur (such as
non-cash stock-based compensation), non-cash earnings (such as interest income on our note
receivable from Forethought), and the timing of income tax payments. Interim periods can also be
more volatile individually as they are affected to a greater degree by the seasonality of our
revenues.
Net cash flows from operating activities were $8.6 lower during the three months ended December 31,
2010, compared to the same period in the prior year. This decline was primarily driven by the
timing of payments to our vendors. Additionally, annual incentive compensation earned in fiscal
year 2010 and paid in the first quarter of fiscal 2011 was higher compared to the prior year period.
These cash flow declines were partially offset by K-Trons pre-tax operating cash flows, as well as
lower income tax payments.
Investing activities
Net cash receipts from investing activities for the three months ended December 31, 2010, decreased
compared to the same period last year by $5.7, primarily due to lower redemptions on auction rate
securities and investments.
Financing activities
Net cash receipts from financing activities for the three months ended December 31, 2010, increased
$79.8 compared to the same period in the prior year, primarily because no repayments were made on
our revolving credit facility.
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Table of Contents
During the quarter ended December 31, 2010, we announced an increase in our quarterly dividend to
$0.19 per common share, which we paid on December 31, 2010. We plan to pay a cash dividend that
will require about $11.7 each quarter based on our outstanding common stock at December 31, 2010.
12-Month Outlook
In January 2011, we sold our remaining ARS for proceeds of $12.3 resulting in a gain of $0.5. We
believe that our cash on hand, cash generated from operations, and cash available under our credit
facility will be sufficient to fund operations, working capital needs, capital expenditure
requirements, and financing obligations.
We have no other significant changes to report to the discussion included in our previously filed
Form 10-K for the year ended September 30, 2010.
Other Liquidity Matters
As of December 31, 2010, we: (i) had $6.9 in outstanding undrawn letters of credit under our
revolving credit facility, (ii) were in compliance with all covenants set forth in the credit
agreement, and (iii) had complete access to the remaining $118.1 of borrowing capacity available
under the facility. In addition, we have approximately $15.1 of available credit under our Swiss
facilities. We have no other significant changes to report to the discussion included in our
previously filed Form 10-K for the year ended September 30, 2010.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements.
Contractual Obligations or Contingent Liabilities and Commitments
There have been no significant changes to our contractual obligations or contingent liabilities and
commitments during the three months ended December 31, 2010.
Critical Accounting Estimates
There have been no significant changes to this information during the three months ended December
31, 2010, as outlined in our Annual Report on Form 10-K for the year ended September 30, 2010.
Recently Adopted Accounting Standards
On December 31, 2010, we adopted the Financial Accounting Standards Boards (FASBs) accounting
standard update 2010-20, Disclosures about the Credit Quality of Financing Receivables and the
Allowance for Credit Losses. The standard requires companies to provide additional disclosures
about the credit quality of their financing receivables and the credit reserves held against them.
The disclosure requirements of this standard are included in Note 5.
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Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
There have been no significant changes to this information during the three months ended December
31, 2010, as outlined in our Annual Report on Form 10-K for the year ended September 30, 2010.
Item 4. | CONTROLS AND PROCEDURES |
Our management, with the participation of our President and Chief Executive Officer and our Senior
Vice President and Chief Financial Officer (the Certifying Officers), has 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) under the Securities Exchange Act of 1934, as amended (the Exchange
Act), as of the end of the period covered by this report. Based upon that evaluation, the
Certifying Officers concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this report for the information required to be disclosed in the
reports we file or submit under the Exchange Act to be recorded, processed, summarized, and
reported within the time periods specified in the Securities and Exchange Commissions rules and
forms and such information is accumulated and communicated to management as appropriate to allow
timely decisions regarding required disclosure. There were no changes in our internal control over
financial reporting during the quarter ended December 31, 2010 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. | LEGAL PROCEEDINGS |
Our material legal proceedings are described in detail in Note 15 to our consolidated financial
statements in Part I, Item 1, of this report. You should read that note carefully to understand the
background and current status of those matters.
Item 1A. | RISK FACTORS |
For information regarding the risks we face, see the discussion under Item 1A. Risk Factors in
our Annual Report on Form 10-K for the year ended September 30, 2010. There have been no material
changes to the risk factors described in that report.
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
There were no unregistered sales of equity securities in the three months ended December 31, 2010.
Item 6. | EXHIBITS |
The exhibits filed with this report are listed on the Exhibit Index, which is incorporated herein
by reference. 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.
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SIGNATURES
Pursuant to the requirements 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. | ||||||
DATE: February 2, 2011
|
BY: | /s/ Cynthia L. Lucchese
|
||||
Senior Vice President and Chief Financial Officer | ||||||
DATE: February 2, 2011
|
BY: | /s/ Elizabeth E. Dreyer | ||||
Vice President, Controller and Chief Accounting Officer |
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EXHIBIT INDEX
Exhibit 31.1* | Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
|
Exhibit 31.2* | Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 |
|
Exhibit 32.1* | 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 |
|
Exhibit 32.2* | 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 |
|
Exhibit 101.INS** | Instance document |
|
Exhibit 101.SCH** | Schema document |
|
Exhibit 101.CAL** | Calculation linkbase document |
|
Exhibit 101.LAB** | Labels linkbase document |
|
Exhibit 101.PRE** | Presentation linkbase document |
|
Exhibit 101.DEF** | Definition linkbase document |
* | Filed herewith. |
|
** | Pursuant to Regulation S-T, this interactive data file is deemed
not filed or part of a registration statement or prospectus for
purposes of Sections 11 or 12 of the Securities Act of 1933, is
deemed not filed for purposes of Section 18 of the Securities
Exchange Act of 1934, and otherwise is not subject to liability
under these sections. |
25