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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2014

Commission File No. 001-33794

HILLENBRAND, INC.

(Exact name of registrant as specified in its charter)

(812) 934-7500

(Registrant’s telephone number, including area code)

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

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

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

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

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

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HILLENBRAND, INC.

INDEX TO FORM 10-Q

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PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Hillenbrand, Inc.

Consolidated Statements of Income (Unaudited)

(in millions, except per share data)

(1) Net income attributable to Hillenbrand

See Condensed Notes to Consolidated Financial Statements

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Hillenbrand, Inc.

Consolidated Statements of Comprehensive Income (Unaudited)

(in millions)

(2) Comprehensive income (loss) attributable to Hillenbrand

See Condensed Notes to Consolidated Financial Statements

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Hillenbrand, Inc.

Consolidated Balance Sheets (Unaudited)

(in millions)

See Condensed Notes to Consolidated Financial Statements

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Hillenbrand, Inc.

Consolidated Statements of Cash Flow (Unaudited)

(in millions)

See Condensed Notes to Consolidated Financial Statements

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Hillenbrand, Inc.

Condensed Notes to Consolidated Financial Statements (Unaudited)

(in millions, except share and per share data)

1.              Background and Basis of Presentation

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

The accompanying unaudited consolidated financial statements include the accounts of Hillenbrand and its subsidiaries, including Coperion Capital GmbH (“Coperion”), which was acquired on December 1, 2012.  The acquisition of Coperion included a few small subsidiaries where Coperion’s ownership percentage was less than 100%.  The Company’s fiscal year ends on September 30.  Unless otherwise stated, references to years relate to fiscal years.

These unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements and therefore do not include all information required in accordance with accounting principles generally accepted in the United States (“GAAP”).  The unaudited consolidated financial statements have been prepared on the same basis as, and should be read in conjunction with, the audited consolidated financial statements and notes thereto included in our latest Annual Report on Form 10-K for the year ended September 30, 2013, as filed with the SEC.  The September 30, 2013 Consolidated Balance Sheet included in this Form 10-Q was derived from audited consolidated financial statements, but does not include all disclosures required by GAAP for a year-end balance sheet included in Form 10-K.  Certain prior period balances have been reclassified to conform to the current presentation.  In the opinion of management, these financial statements reflect all adjustments necessary to present a fair statement of the Company’s consolidated financial position and the consolidated results of operations and cash flow as of the dates and for the periods presented.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expense during the period.  Actual results could differ from those estimates.  Examples of such estimates include, but are not limited to, revenue recognition under the percentage-of-completion method and the establishment of reserves related to customer rebates, doubtful accounts, warranties, early-pay discounts, inventories, income taxes, litigation, self-insurance, and progress toward achievement of performance criteria under the incentive compensation programs.

Correction of Errors

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

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2.              Summary of Significant Accounting Policies

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

Recently Adopted and Issued Accounting Standards

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

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

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

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 will be effective for our fiscal year beginning October 1, 2017, including interim periods within that reporting period, and allows for either full retrospective adoption or modified retrospective adoption, with early adoption not permitted. We are currently evaluating the impact that ASU 2014-09 will have on our consolidated financial statements.

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

3.              Business Acquisitions

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

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

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

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

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

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

(1)Pro forma net income attributable to Hillenbrand

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

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4.              Supplemental Balance Sheet Information

5.              Financing Agreements

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

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

In the normal course of business, the Process Equipment Group provides customers with bank guarantees and other credit arrangements in support of performance, warranty, advance payment, and other contractual obligations.  This form of trade finance is customary in the industry and, as a result, we maintain adequate capacity to provide the guarantees.  As of June 30, 2014, we had guarantee arrangements with capacity totaling $279.3 under which $220.6 was utilized for this purpose.  These arrangements include a €150.0 Syndicated Letter of Guarantee Facility (“LG Facility”) under which unsecured letters of credit, bank guarantees, or other surety bonds may be issued.

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

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

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6.              Retirement Benefits

Defined Benefit Plans

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

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

7.              Income Taxes

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

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8.              Earnings Per Share

The dilutive effects of performance-based stock awards were included in the computation of diluted earnings per share at the level the related performance criteria were met through the respective balance sheet date.  At June 30, 2014 and 2013, potential dilutive effects, representing approximately 1,800,000 and 2,000,000 shares were excluded from the computation of diluted earnings per share as the related performance criteria were not yet met, although we expect to meet various levels of criteria in the future.

(1) Net income attributable to Hillenbrand

9.              Shareholders’ Equity

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

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10.       Other Comprehensive Income (Loss)

(1)  Amounts are net of tax.

Reclassifications out of Accumulated Other Comprehensive Income include:

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

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11.       Share-Based Compensation

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

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

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

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

12.       Other Income (Expense), Net