Hillenbrand(HI) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited consolidated financial information, including statements, notes, and management's discussion and analysis Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements for Hillenbrand, Inc., including statements of operations, comprehensive income, balance sheets, cash flows, and shareholders' equity, along with condensed notes detailing accounting policies, revenue recognition, acquisitions, debt, and other financial disclosures Consolidated Statements of Operations (Unaudited) This section provides unaudited consolidated statements of operations, detailing net revenue, net income, and earnings per share Net Revenue | Period | 2024 (Millions) | 2023 (Millions) | YoY Change (Millions) | YoY % Change | | :-------------------------- | :---------------- | :---------------- | :-------------------- | :------------- | | Three Months Ended June 30 | $786.6 | $716.6 | $70.0 | 9.8% | | Nine Months Ended June 30 | $2,345.2 | $2,063.2 | $282.0 | 13.7% | Consolidated Net (Loss) Income | Period | 2024 (Millions) | 2023 (Millions) | YoY Change (Millions) | | :-------------------------- | :---------------- | :---------------- | :-------------------- | | Three Months Ended June 30 | $(246.9) | $45.0 | $(291.9) | | Nine Months Ended June 30 | $(219.1) | $556.3 | $(775.4) | Net (Loss) Income Attributable to Hillenbrand | Period | 2024 (Millions) | 2023 (Millions) | | :-------------------------- | :---------------- | :---------------- | | Three Months Ended June 30 | $(248.9) | $43.3 | | Nine Months Ended June 30 | $(225.6) | $551.5 | Basic (Loss) Earnings Per Share Attributable to Hillenbrand | Period | 2024 | 2023 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $(3.53) | $0.62 | | Nine Months Ended June 30 | $(3.20) | $7.91 | - The consolidated net loss was primarily driven by impairment charges of $265.0 million and pension settlement charges of $26.9 million (three months) and $35.2 million (nine months)[4] Consolidated Statements of Comprehensive (Loss) Income (Unaudited) This section presents the unaudited consolidated statements of comprehensive income, including total changes in other comprehensive income Consolidated Comprehensive (Loss) Income | Period | 2024 (Millions) | 2023 (Millions) | | :-------------------------- | :---------------- | :---------------- | | Three Months Ended June 30 | $(228.3) | $20.9 | | Nine Months Ended June 30 | $(178.4) | $596.4 | Total Changes in Other Comprehensive Income (Loss), Net of Tax | Period | 2024 (Millions) | 2023 (Millions) | | :-------------------------- | :---------------- | :---------------- | | Three Months Ended June 30 | $18.6 | $(24.1) | | Nine Months Ended June 30 | $40.7 | $40.1 | Consolidated Balance Sheets (Unaudited) This section details the unaudited consolidated balance sheets, outlining assets, liabilities, and shareholders' equity Key Balance Sheet Items | Item | June 30, 2024 (Millions) | September 30, 2023 (Millions) | Change (Millions) | | :-------------------- | :----------------------- | :---------------------------- | :---------------- | | Total Assets | $5,271.5 | $5,547.7 | $(276.2) | | Total Liabilities | $3,830.1 | $3,884.8 | $(54.7) | | Total Shareholders' Equity | $1,441.4 | $1,662.9 | $(221.5) | | Goodwill | $1,788.3 | $2,028.1 | $(239.8) | - The decrease in goodwill is primarily due to impairment charges recorded during the period[9] Consolidated Statements of Cash Flows (Unaudited) This section presents the unaudited consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Cash Flows from Continuing Operations (Nine Months Ended June 30) | Activity | 2024 (Millions) | 2023 (Millions) | Change (Millions) | | :------------------------------------------ | :---------------- | :---------------- | :---------------- | | Operating activities | $24.8 | $133.6 | $(108.8) | | Investing activities | $(40.2) | $25.0 | $(65.2) | | Financing activities | $13.4 | $21.4 | $(8.0) | Net Cash Flows | Period | 2024 (Millions) | 2023 (Millions) | Change (Millions) | | :-------------------------- | :---------------- | :---------------- | :---------------- | | Nine Months Ended June 30 | $(25.6) | $53.7 | $(79.3) | - Net cash provided by operating activities from continuing operations decreased by $108.8 million, primarily due to unfavorable timing of working capital requirements and a decline in operating results[10] Consolidated Statements of Shareholders' Equity (Unaudited) This section provides the unaudited consolidated statements of shareholders' equity, detailing changes in equity balances Total Shareholders' Equity | Period | Amount (Millions) | | :-------------------- | :---------------- | | Balance at September 30, 2023 | $1,662.9 | | Balance at June 30, 2024 | $1,441.4 | | Change | $(221.5) | - The decrease in total shareholders' equity was significantly impacted by the net loss attributable to Hillenbrand of $(225.6) million for the nine months ended June 30, 2024[12] Dividends Paid on Common Stock (Nine Months Ended June 30) | Year | Amount (Millions) | | :--- | :---------------- | | 2024 | $(47.4) | | 2023 | $(46.5) | Condensed Notes to Consolidated Financial Statements This section provides condensed notes to the unaudited consolidated financial statements, offering detailed disclosures on accounting policies, acquisitions, debt, and other financial items 1. Background and Basis of Presentation This note outlines the company's global industrial operations, its segment structure, and the basis for financial statement presentation - Hillenbrand, Inc. is a global industrial company providing highly-engineered processing equipment and solutions for durable plastics, food, and recycling markets[17] - The company completed the divestiture of its Batesville segment on February 1, 2023, for $761.5 million, which is now classified as a discontinued operation[17][18] - Hillenbrand is now composed of two reportable operating segments: Advanced Process Solutions and Molding Technology Solutions[19] 2. Summary of Significant Accounting Policies This note summarizes the company's significant accounting policies and recent accounting standard adoptions - Significant accounting policies are consistent with the Annual Report on Form 10-K for the year ended September 30, 2023[23] - The company adopted ASU 2022-04 (Supplier Finance Programs) effective October 1, 2023, with no material effect on financial statements[24] - The company is currently evaluating the impact of ASU 2023-07 (Segment Reporting) effective fiscal 2025 and ASU 2023-09 (Income Tax Disclosures) effective fiscal 2026[25] 3. Revenue Recognition This note details the company's revenue recognition policies, contract balances, and backlog by segment, end market, geography, and product type - Net revenue is recognized when performance obligations are satisfied under customer contracts[27] Contract Balances | Item | June 30, 2024 (Millions) | September 30, 2023 (Millions) | | :------------------------------------------ | :----------------------- | :---------------------------- | | Receivables from long-term manufacturing contracts | $340.7 | $260.2 | | Liabilities from long-term manufacturing contracts and advances | $332.6 | $388.5 | - The aggregate transaction price of remaining performance obligations (backlog) was $1,974.2 million as of June 30, 2024, with approximately 85% expected to be satisfied within the next twelve months[29] Net Revenue by Segment and End Market (Nine Months Ended June 30, 2024) | End Market | Advanced Process Solutions (Millions) | Molding Technology Solutions (Millions) | Total (Millions) | | :------------------------- | :------------------------------------ | :-------------------------------------- | :--------------- | | Plastics and recycling | $786.9 | — | $786.9 | | Food and pharmaceuticals | $545.6 | — | $545.6 | | Other industrial | $126.0 | $90.8 | $216.8 | | Automotive | — | $133.6 | $133.6 | | Packaging | — | $99.5 | $99.5 | | Construction | $45.6 | $85.4 | $131.0 | | Total | $1,696.9 | $648.3 | $2,345.2 | Net Revenue by Geography (Nine Months Ended June 30, 2024) | Geography | Advanced Process Solutions (Millions) | Molding Technology Solutions (Millions) | Total (Millions) | | :------------------------------------ | :------------------------------------ | :-------------------------------------- | :--------------- | | Americas | $797.5 | $353.1 | $1,150.6 | | Asia | $408.8 | $188.0 | $596.8 | | Europe, the Middle East, and Africa | $490.6 | $107.2 | $597.8 | | Total | $1,696.9 | $648.3 | $2,345.2 | Net Revenue by Products and Services (Nine Months Ended June 30, 2024) | Products and services | Advanced Process Solutions (Millions) | Molding Technology Solutions (Millions) | Total (Millions) | | :-------------------- | :------------------------------------ | :-------------------------------------- | :--------------- | | Equipment | $1,142.4 | $391.4 | $1,533.8 | | Parts and services | $554.5 | $212.6 | $767.1 | | Other | — | $44.3 | $44.3 | | Total | $1,696.9 | $648.3 | $2,345.2 | 4. Divestiture This note provides details on the divestiture of the Batesville segment, including proceeds and discontinued operations income - The divestiture of the Batesville segment was completed on February 1, 2023, for $761.5 million, including an $11.5 million subordinated note[39] - The company received $698.0 million in pre-tax cash proceeds at closing[39] Total Income (Loss) from Discontinued Operations (Nine Months Ended June 30, 2023) | Item | Amount (Millions) | | :---------------------------------------------------------------------------------------------------- | :---------------- | | Net revenue | $213.7 | | Gross profit | $71.5 | | Income (loss) from discontinued operations (net of income tax (benefit) expense) | $20.1 | | Gain on divestiture of discontinued operations (net of income tax expense) | $441.3 | | Total income (loss) from discontinued operations | $461.4 | 5. Acquisitions This note details recent acquisitions, including FPM, Peerless Food Equipment, and LINXIS Group, and their preliminary purchase price allocations - The acquisition of Schenck Process Food and Performance Materials (FPM) was completed on September 1, 2023, for $763.3 million, and its results are included in the Advanced Process Solutions segment[43][44] FPM Preliminary Purchase Price Allocation (Adjusted September 1, 2023) | Assets Acquired | Amount (Millions) | Liabilities Assumed | Amount (Millions) | | :------------------------------------ | :---------------- | :------------------------------------------ | :---------------- | | Total assets acquired | $1,043.0 | Total liabilities assumed | $279.7 | | Net assets acquired | $763.3 | | | FPM Acquired Intangible Assets | Intangible Asset | Gross Carrying Amount (Millions) | Weighted-Average Useful Life | | :------------------------ | :------------------------------- | :--------------------------- | | Customer relationships | $285.0 | 15 years | | Technology | $49.0 | 12 years | | Trade name | $5.0 | 5 years | | Other | $1.0 | 6 years | | Total intangible assets | $340.0 | | - The acquisition of Peerless Food Equipment was completed on December 1, 2022, for $59.2 million, enhancing the company's scale in the food end market[53] - The acquisition of LINXIS Group SAS was completed on October 6, 2022, for $590.8 million, specializing in various food processing technologies[54][55] 6. Supplemental Consolidated Balance Sheet Information This note provides supplemental details on selected balance sheet items, including allowances, reserves, inventories, and supplier finance programs Selected Balance Sheet Information | Item | June 30, 2024 (Millions) | September 30, 2023 (Millions) | | :------------------------------------ | :----------------------- | :---------------------------- | | Allowance for credit losses | $10.8 | $10.1 | | Warranty reserves | $43.6 | $35.8 | | Total inventories, net | $573.5 | $592.6 | | Total other current liabilities | $303.1 | $331.7 | - Outstanding obligations related to suppliers participating in the Supplier Finance Program were $27.4 million at June 30, 2024, down from $29.1 million at September 30, 2023[62] - The company sold $197.7 million of trade receivables under an amended financing arrangement during the nine months ended June 30, 2024[63] 7. Leases This note outlines the company's lease accounting, including operating lease expenses, liabilities, and maturity schedules - Operating lease expense was $24.3 million for the nine months ended June 30, 2024[65] Operating Lease Liabilities | Item | June 30, 2024 (Millions) | September 30, 2023 (Millions) | | :-------------------------- | :----------------------- | :---------------------------- | | Operating lease right-of-use assets, net | $111.4 | $111.3 | | Total operating lease liabilities | $104.9 | $106.7 | | Weighted-average remaining lease term | 6.4 years | 7.1 years | | Weighted-average discount rate | 4.1% | 3.8% | Maturities of Operating Lease Liabilities (as of June 30, 2024) | Year | Amount (Millions) | | :------------------------------------ | :---------------- | | 2024 (excluding 9 months ended June 30, 2024) | $6.4 | | 2025 | $23.6 | | 2026 | $19.6 | | 2027 | $16.3 | | 2028 | $14.1 | | Thereafter | $38.0 | | Total lease payments | $118.0 | | Less: imputed interest | $(13.1) | | Total present value of lease payments | $104.9 | 8. Intangible Assets and Goodwill This note details the company's intangible assets and goodwill, including impairment assessments and charges within the Molding Technology Solutions segment - An interim impairment assessment was performed for select indefinite-lived intangible assets and reporting units within the Molding Technology Solutions segment due to macroeconomic conditions, high interest rates, inflationary costs, and declining demand for hot runner equipment[69][70][133] - A goodwill impairment charge of $238.0 million was recorded during the three and nine months ended June 30, 2024, for a reporting unit within Molding Technology Solutions, where the pre-impairment balance was $417.0 million[70] - An impairment charge of $27.0 million was recorded for a trade name associated with the same reporting unit, with a pre-impairment balance of $88.6 million[71] - Goodwill and indefinite-lived assets for the Molding Technology Solutions segment are more susceptible to impairment risk, with estimated fair value ranging from approximately 0% to 6% greater than their carrying value (compared to 10% to 25% at the previous annual assessment)[72] Changes in Goodwill by Segment (Nine Months Ended June 30, 2024) | Segment | Balance as of September 30, 2023 (Millions) | Acquisition measurement period adjustments (Millions) | Impairment charge (Millions) | Foreign currency adjustments (Millions) | Balance as of June 30, 2024 (Millions) | | :---------------------------- | :------------------------------------------ | :------------------------------------------ | :--------------------------- | :-------------------------------------- | :--------------------------------------- | | Advanced Process Solutions | $1,394.9 | $(10.5) | — | $6.9 | $1,391.3 | | Molding Technology Solutions | $633.2 | — | $(238.0) | $1.8 | $397.0 | | Total | $2,028.1 | $(10.5) | $(238.0) | $8.7 | $1,788.3 | 9. Debt This note provides information on the company's debt structure, including total debt, new note issuances, credit facility capacity, and covenant compliance Total Debt | Item | June 30, 2024 (Millions) | September 30, 2023 (Millions) | | :-------------------------- | :----------------------- | :---------------------------- | | Total debt | $2,088.8 | $2,010.1 | | Less: current portion | $19.9 | $19.7 | | Total long-term debt | $2,068.9 | $1,990.4 | - The $400.0 million senior unsecured notes due June 2025 were repaid in full during the three months ended June 30, 2024, using proceeds from the newly issued 2024 Notes[80] - The company issued $500.0 million of senior unsecured notes due February 2029 on February 14, 2024, bearing interest at a fixed rate of 6.25% per year[81] - As of June 30, 2024, the company had $482.7 million of borrowing capacity under its multi-currency revolving credit facility, with $455.7 million immediately available[83] - The weighted-average interest rate on borrowings under the Facility increased to 5.55% for the three months ended June 30, 2024, from 4.45% in the prior year period[83] - Hillenbrand was in compliance with all debt covenants as of June 30, 2024[86] 10. Retirement Benefits This note details the company's retirement benefit plans, including pension costs, settlement charges, and defined contribution plan expenses Net Periodic Pension Cost (Benefit) (Three Months Ended June 30, 2024) | Component | U.S. Pension Benefits (Millions) | Non-U.S. Pension Benefits (Millions) | | :-------------------------- | :------------------------------- | :----------------------------------- | | Service costs | — | $0.5 | | Interest costs | $2.3 | $1.1 | | Expected return on plan assets | $(2.8) | $(0.4) | | Amortization of net loss (gain) | $0.1 | $(0.2) | | Settlement charge | $26.9 | — | | Net periodic pension cost (benefit) | $26.5 | $1.0 | - The company recorded a non-cash settlement pre-tax charge of $26.9 million (three months) and $35.2 million (nine months) related to the termination and liquidation of its U.S. defined benefit pension plan in April 2024[89] - Expenses for defined contribution plans were $8.1 million for the nine months ended June 30, 2024, consistent with the prior year[90] 11. Income Taxes This note provides information on the company's income taxes, including effective tax rates and factors influencing tax expense Effective Tax Rates | Period | 2024 | 2023 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | 4.1% | 35.1% | | Nine Months Ended June 30 | (1.7)% | 34.6% | - The decrease in the effective tax rate for both periods was primarily driven by the negative effect of the loss from continuing operations (due to impairment charges) and a decrease in the tax accrual on unrepatriated earnings[91] 12. Earnings per share This note details the calculation of basic and diluted earnings per share from continuing operations attributable to Hillenbrand Basic (Loss) Earnings Per Share from Continuing Operations Attributable to Hillenbrand | Period | 2024 | 2023 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $(3.53) | $0.60 | | Nine Months Ended June 30 | $(3.20) | $1.29 | Diluted (Loss) Earnings Per Share from Continuing Operations Attributable to Hillenbrand | Period | 2024 | 2023 | | :-------------------------- | :----- | :----- | | Three Months Ended June 30 | $(3.53) | $0.60 | | Nine Months Ended June 30 | $(3.20) | $1.29 | - Stock options and other unvested equity awards were anti-dilutive and excluded from diluted EPS calculations for the three and nine months ended June 30, 2024, due to the net loss attributable to Hillenbrand[92] 13. Accumulated Other Comprehensive Loss This note provides a breakdown of accumulated other comprehensive loss, including changes and reclassifications Accumulated Other Comprehensive Loss Attributable to Hillenbrand, Inc. | Period | Amount (Millions) | | :-------------------- | :---------------- | | Balance at September 30, 2023 | $(147.1) | | Balance at June 30, 2024 | $(106.3) | | Change | $40.8 | - Net current period other comprehensive income was $40.7 million for the nine months ended June 30, 2024[93] - Reclassifications out of accumulated other comprehensive loss, net of tax, totaled $32.7 million for the nine months ended June 30, 2024[96] 14. Share-Based Compensation This note details the company's share-based compensation plans, including costs, granted awards, and fair values Share-Based Compensation Costs (Nine Months Ended June 30) | Year | Amount (Millions) | | :--- | :---------------- | | 2024 | $14.9 | | 2023 | $14.0 | - During the nine months ended June 30, 2024, the company granted 385,739 time-based stock awards and 264,234 performance-based stock awards[101] - Weighted-average grant date fair values were $39.64 for time-based awards and $41.44 for performance-based awards[101] 15. Commitments and Contingencies This note outlines the company's commitments and contingencies, including legal proceedings and commercial dispute liabilities - The company is involved in various claims, lawsuits, and government proceedings, with estimated losses recognized when probable and reasonably estimable[102] - Liabilities related to a discrete commercial dispute stemming from a Molding Technology Solutions customer contract increased to $11.2 million at June 30, 2024, from $5.1 million at September 30, 2023[104] 16. Fair Value Measurements This note provides fair value measurements for assets and liabilities, including derivative instruments and hedging strategies Fair Value of Assets and Liabilities (June 30, 2024) | Asset/Liability | Carrying Value (Millions) | Level 1 (Millions) | Level 2 (Millions) | Level 3 (Millions) | | :------------------------------------ | :------------------------ | :----------------- | :----------------- | :----------------- | | Cash and cash equivalents | $223.8 | $223.8 | — | — | | Derivative instruments (assets) | $18.0 | — | $18.0 | — | | Facility | $498.6 | — | $498.6 | — | | $500 senior unsecured notes | $500.0 | $502.3 | — | — | | Derivative instruments (liabilities) | $14.6 | — | $14.6 | — | - The company entered into cross-currency swap agreements to hedge foreign currency exchange rates and lower borrowing costs, resulting in a $1.2 million reduction in interest expense for the three and nine months ended June 30, 2024[111] - The aggregate notional value of cross-currency swap agreements was $694.3 million at June 30, 2024, and foreign currency exchange forward contracts was $159.1 million[112] 17. Segment and Geographical Information This note presents net revenue and adjusted EBITDA by segment and net revenue by geography, detailing operational performance across business units and regions Net Revenue by Segment (Nine Months Ended June 30) | Segment | 2024 (Millions) | 2023 (Millions) | YoY Change (Millions) | YoY % Change | | :---------------------------- | :---------------- | :---------------- | :-------------------- | :------------- | | Advanced Process Solutions | $1,696.9 | $1,308.0 | $388.9 | 29.7% | | Molding Technology Solutions | $648.3 | $755.2 | $(106.9) | (14.2)% | | Total | $2,345.2 | $2,063.2 | $282.0 | 13.7% | Adjusted EBITDA by Segment (Nine Months Ended June 30) | Segment | 2024 (Millions) | 2023 (Millions) | YoY Change (Millions) | YoY % Change | | :---------------------------- | :---------------- | :---------------- | :-------------------- | :------------- | | Advanced Process Solutions | $306.0 | $238.1 | $67.9 | 28.5% | | Molding Technology Solutions | $100.3 | $141.4 | $(41.1) | (29.1)% | | Corporate | $(38.5) | $(43.5) | $5.0 | 11.5% | | Total Adjusted EBITDA | $367.8 | $336.0 | $31.8 | 9.5% | Net Revenue by Geography (Nine Months Ended June 30) | Geography | 2024 (Millions) | 2023 (Millions) | YoY Change (Millions) | YoY % Change | | :-------------------- | :---------------- | :---------------- | :-------------------- | :------------- | | United States | $978.7 | $763.9 | $214.8 | 28.1% | | China | $265.2 | $355.3 | $(90.1) | (25.4)% | | India | $175.1 | $164.8 | $10.3 | 6.2% | | Germany | $183.1 | $150.5 | $32.6 | 21.7% | | All other countries | $743.1 | $628.7 | $114.4 | 18.2% | | Total | $2,345.2 | $2,063.2 | $282.0 | 13.7% | 18. Restructuring This note details restructuring charges by segment, primarily related to cost reduction and operational efficiency initiatives within Molding Technology Solutions Restructuring Charges by Segment (Nine Months Ended June 30, 2024) | Segment | Cost of goods sold (Millions) | Operating expenses (Millions) | Total (Millions) | | :---------------------------- | :---------------------------- | :---------------------------- | :--------------- | | Advanced Process Solutions | $0.8 | $0.3 | $1.1 | | Molding Technology Solutions | $13.7 | $6.6 | $20.3 | | Corporate | — | $0.1 | $0.1 | | Total | $14.5 | $7.0 | $21.5 | - The company announced a program to reduce costs and improve operational efficiency within the Molding Technology Solutions segment, primarily involving severance costs, with a total liability of $13.8 million as of June 30, 2024[122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook. It discusses forward-looking statements, an executive overview of key operational decisions and economic developments, operating performance measures (GAAP and non-GAAP), critical accounting estimates, detailed reviews of consolidated and segment-level operations, corporate expenses, and an analysis of liquidity and capital resources FORWARD-LOOKING STATEMENTS AND FACTORS THAT MAY AFFECT FUTURE RESULTS This section highlights that forward-looking statements are not guarantees of future performance and are subject to various risks and uncertainties - Forward-looking statements are not guarantees of future performance and actual results may differ materially due to various risks[125] - Key risk factors include global market and economic conditions, supply chain disruptions, inflation, competition, negative effects of acquisitions (FPM and Linxis), impairment charges, and adverse foreign currency fluctuations[126] EXECUTIVE OVERVIEW This section provides an executive summary of the company's key operational decisions, economic developments, and strategic initiatives - The company experienced material and supply chain inflation, partially mitigated by pricing actions and productivity initiatives[130] - An interim impairment assessment resulted in a $238.0 million goodwill impairment and a $27.0 million trade name impairment within the Molding Technology Solutions segment, driven by macroeconomic conditions and declining demand[132][133] - The Batesville segment was divested on February 1, 2023, for $761.5 million, and is reported as discontinued operations[134] - Recent acquisitions include Schenck Process Food and Performance Materials (FPM) for $763.3 million, Peerless Food Equipment for $59.2 million, and LINXIS Group SAS for $590.8 million, all integrated into the Advanced Process Solutions segment[135][136][137] - A restructuring program was announced in the Molding Technology Solutions segment to reduce costs and improve operational efficiency, primarily through severance costs[138] OPERATING PERFORMANCE MEASURES This section describes the company's key operating performance measures, including both GAAP and non-GAAP metrics, and their significance - The company uses non-GAAP 'adjusted' measures, such as adjusted EBITDA, to supplement GAAP results, excluding items like acquisition/divestiture costs, restructuring, impairment, pension settlement, and inventory step-up charges[140][142] - Backlog is an operational measure representing expected net revenue from awarded contracts, influencing future net revenue due to lead times[143][144] - Foreign currency impact on financial metrics is calculated by translating current year results at prior year foreign exchange rates to enhance comparability[146] CRITICAL ACCOUNTING ESTIMATES This section discusses the critical accounting estimates that require significant judgment and their potential impact on financial results - There were no significant changes to critical accounting estimates for the three and nine months ended June 30, 2024, compared to the Annual Report on Form 10-K for September 30, 2023[148] OPERATIONS REVIEW — CONSOLIDATED This section provides a consolidated review of the company's operations, analyzing key financial performance indicators and their drivers Consolidated Net Revenue (YoY Change) | Period | 2024 (Millions) | 2023 (Millions) | Change (Millions) | % Change | | :-------------------------- | :---------------- | :---------------- | :---------------- | :------- | | Three Months Ended June 30 | $786.6 | $716.6 | $70.0 | 10% | | Nine Months Ended June 30 | $2,345.2 | $2,063.2 | $282.0 | 14% | Consolidated Gross Profit (YoY Change) | Period | 2024 (Millions) | 2023 (Millions) | Change (Millions) | % Change | Gross Profit Margin 2024 | Gross Profit Margin 2023 | | :-------------------------- | :---------------- | :---------------- | :---------------- | :------- | :----------------------- | :----------------------- | | Three Months Ended June 30 | $266.4 | $246.9 | $19.5 | 8% | 33.9% | 34.5% | | Nine Months Ended June 30 | $768.1 | $680.7 | $87.4 | 13% | 32.8% | 33.0% | - Operating expenses increased $30.6 million (21%) for the three months and $92.4 million (22%) for the nine months ended June 30, 2024, primarily due to the FPM acquisition, cost inflation, and increased business acquisition costs[154][159] - Impairment charges of $265.0 million and pension settlement charges of $26.9 million (three months) and $35.2 million (nine months) significantly impacted consolidated results[155][163] - Interest expense, net, increased $16.4 million (104%) for the three months and $36.9 million (66%) for the nine months ended June 30, 2024, due to increased borrowing for acquisitions[155][163] - The effective tax rate decreased to 4.1% (three months) and (1.7)% (nine months) in 2024, primarily driven by the pre-tax loss from impairment charges[156][164] OPERATIONS REVIEW — Advanced Process Solutions This section reviews the operational performance of the Advanced Process Solutions segment, highlighting revenue drivers, backlog, and profitability - Net revenue increased $104.7 million (23%) for the three months and $388.9 million (30%) for the nine months ended June 30, 2024, primarily driven by the FPM acquisition ($136.7 million and $412.2 million, respectively), higher aftermarket parts and service revenue, and favorable pricing[166][168] - Order backlog increased $131.7 million (8%) to $1,735.7 million at June 30, 2024, primarily due to the FPM acquisition, but decreased $141.4 million (8%) sequentially from March 31, 2024[166][167] - Gross profit increased $33.5 million (20%) for the three months and $137.5 million (30%) for the nine months ended June 30, 2024, driven by acquisitions and favorable pricing/product mix, despite cost inflation[167][169] - Operating expenses increased $26.5 million (31%) for the three months and $75.7 million (30%) for the nine months ended June 30, 2024, mainly due to the FPM acquisition and increased business acquisition costs[168][169] OPERATIONS REVIEW — Molding Technology Solutions This section reviews the operational performance of the Molding Technology Solutions segment, focusing on revenue trends, backlog, profitability, and impairment impacts - Net revenue decreased $34.7 million (14%) for the three months and $106.9 million (14%) for the nine months ended June 30, 2024, primarily due to a decrease in injection molding equipment volumes[171][173] - Order backlog decreased $28.0 million (11%) to $238.5 million at June 30, 2024, primarily due to the execution of existing backlog[171] - Gross profit decreased $14.0 million (19%) for the three months and $50.1 million (22%) for the nine months ended June 30, 2024, driven by decreased volume, increased restructuring charges, and cost inflation[171][174] - Operating expenses increased $9.9 million (31%) for the three months and $26.6 million (26%) for the nine months ended June 30, 2024, due to increased business acquisition costs, trade show expenses, and restructuring charges[172][175] - Impairment charges of $265.0 million were recorded due to goodwill and indefinite-lived intangible asset impairments within this segment[173][176] REVIEW OF CORPORATE EXPENSES This section provides an analysis of corporate expenses, detailing changes and underlying factors impacting overhead costs - Corporate operating expenses decreased $5.8 million (22%) for the three months and $10.0 million (15%) for the nine months ended June 30, 2024, primarily due to decreased strategic investments and increased equity earnings from affiliates[179][180] - Core operating expenses, excluding acquisition/divestiture and restructuring costs, decreased $5.3 million (28%) for the three months and $4.6 million (10%) for the nine months ended June 30, 2024[179][180] NON-GAAP OPERATING PERFORMANCE MEASURES This section reconciles GAAP to non-GAAP operating performance measures, providing adjusted financial metrics for a clearer view of underlying business performance Adjusted EBITDA from Continuing Operations (Nine Months Ended June 30) | Item | 2024 (Millions) | 2023 (Millions) | | :---------------------------------------------------------------------------------------------------- | :---------------- | :---------------- | | Consolidated net (loss) income | $(219.1) | $556.3 | | Interest expense, net | $92.8 | $55.9 | | Income tax (benefit) expense | $3.7 | $50.2 | | Depreciation and amortization | $118.8 | $93.1 | | Consolidated EBITDA | $(3.8) | $755.5 | | (Income) loss from discontinued operations (net of income tax expense (benefit)) | $0.3 | $(461.4) | | Impairment charges | $265.0 | — | | Pension settlement charges | $35.2 | — | | Business acquisition, divestiture, and integration costs | $39.6 | $28.5 | | Inventory step-up charges | $0.6 | $11.1 | | Restructuring and restructuring-related charges | $24.8 | $2.3 | | Other non-recurring costs related to a discrete commercial dispute | $6.1 | — | | Adjusted EBITDA from continuing operations | $367.8 | $336.0 | - Consolidated net (loss) income decreased $291.9 million (649%) for the three months and $775.4 million (139%) for the nine months ended June 30, 2024, primarily due to impairment charges, pension settlement charges, and lower volume[184][187] - Consolidated adjusted EBITDA from continuing operations increased $4.9 million (4%) for the three months and $31.8 million (10%) for the nine months ended June 30, 2024, driven by the FPM acquisition, favorable pricing, and cost containment[185][188] LIQUIDITY AND CAPITAL RESOURCES This section analyzes the company's liquidity position and capital resources, including cash flows, borrowing capacity, and capital allocation strategies - The company believes it has sufficient liquidity, with $482.7 million of borrowing capacity under its revolving credit facility, of which $455.7 million was immediately available as of June 30, 2024[190] - Guarantee arrangements totaled $572.0 million, with $379.3 million used for guarantees as of June 30, 2024[191] - A transition tax liability of $11.2 million is expected to be paid over the next two years[193] - Approximately $125.0 million remains under the existing share repurchase authorization[195] - The company expects to pay quarterly cash dividends of approximately $15.6 million and increased its quarterly dividend to $0.2225 per common share in fiscal 2024[195][201] Cash Flows Provided by (Used in) (Nine Months Ended June 30) | Activity | 2024 (Millions) | 2023 (Millions) | | :------------------------------------------ | :---------------- | :---------------- | | Operating activities from continuing operations | $24.8 | $133.6 | | Investing activities from continuing operations | $(40.2) | $25.0 | | Financing activities from continuing operations | $13.4 | $21.4 | | Net cash flows from discontinued operations | $(23.3) | $(117.0) | | Net cash flows | $(25.6) | $53.7 | Summarized Financial Information for Guarantors and the Issuer of Guaranteed Securities This section provides summarized financial information for the guarantors and the issuer of guaranteed securities, detailing their combined financial position and performance Combined Balance Sheets Information (June 30, 2024) | Item | Amount (Millions) | | :-------------------- | :---------------- | | Current assets | $2,906.4 | | Non-current assets | $5,625.5 | | Current liabilities | $808.8 | | Non-current liabilities | $1,610.6 | Combined Statements of Operations Information (Nine Months Ended June 30, 2024) | Item | Amount (Millions) | | :---------------------------------------------------------------------------------------------------- | :---------------- | | Net revenue | $579.3 | | Gross profit | $158.8 | | Consolidated net loss from continuing operations attributable to Obligors | $(137.4) | | Total income from discontinued operations (net of income tax expense) attributable to Obligors | $0.3 | | Net loss attributable to Obligors | $(137.7) | Recently Adopted and Issued Accounting Standards This section provides an overview of recently adopted and issued accounting standards and their impact on the company's financial statements - For a summary of recently issued and adopted accounting standards, refer to Note 2 of Part I of this Form 10-Q[204] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the full discussion of market risk disclosures in the company's 2023 Form 10-K, noting no material changes since that filing - There have been no material changes in quantitative and qualitative disclosures about market risk since the filing of the 2023 Form 10-K[205] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures, concluding they were effective as of June 30, 2024. No material changes in internal control over financial reporting were identified - The company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2024[206] - No changes in internal control over financial reporting were identified that materially affected, or are reasonably likely to materially affect, internal control over financial reporting for the quarter ended June 30, 2024[207] PART II — OTHER INFORMATION This section contains other information not included in the financial statements, such as legal proceedings, risk factors, and other disclosures Item 1. Legal Proceedings Information regarding legal proceedings is referenced in Note 15 to the Consolidated Financial Statements - Information pertaining to legal proceedings can be found in Note 15 to the Consolidated Financial Statements[208] Item 1A. Risk Factors For information on risks faced by the company, readers are directed to Item 1A. Risk Factors in the Annual Report on Form 10-K for the year ended September 30, 2023 - For information regarding the risks faced by the company, refer to Item 1A. Risk Factors in the Annual Report on Form 10-K for the year ended September 30, 2023[209] Item 5. Other Information This section details the adoption of an Executive Matching Shares Program by the Compensation and Management Development Committee, designed to align executive interests with shareholders and encourage long-term retention. It also states that no Rule 10b5-1 trading arrangements were adopted or terminated by directors or officers during the quarter - The Compensation and Management Development Committee adopted an Executive Matching Shares Program on August 1, 2024, to allow executives to receive matching grants of restricted stock units for qualifying share acquisitions, promoting alignment with shareholders and long-term retention[210][211][212] - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended June 30, 2024[212] Item 6. Exhibits This section lists the exhibits filed with the report, including corporate governance documents, the Executive Matching Shares Program, certifications, and XBRL financial statements. It also provides a disclaimer regarding representations and warranties in agreements - Exhibits filed include corporate governance documents (Articles of Incorporation, By-Laws), the Executive Matching Shares Program, certifications (CEO/CFO Sarbanes-Oxley Act), and Inline XBRL formatted financial statements[214] - A disclaimer notes that representations and warranties in exhibit agreements are for the benefit of the parties, not necessarily categorical statements of fact, and may be qualified by disclosures[215] SIGNATURES This section contains the required signatures for the report, certifying its accuracy and completeness - The report was signed on August 7, 2024, by Robert M. VanHimbergen, Senior Vice President and Chief Financial Officer, and Megan A. Walke, Vice President and Chief Accounting Officer[218]