Hillenbrand(HI) - 2021 Q4 - Annual Report

Part I Business Hillenbrand is a global diversified industrial company with three segments: Advanced Process Solutions, Molding Technology Solutions, and Batesville, driven by its Hillenbrand Operating Model - Hillenbrand operates through three main segments: Advanced Process Solutions (highly engineered industrial equipment), Molding Technology Solutions (plastics processing, expanded by the Milacron acquisition), and Batesville (death care products)[16] - The company's core strategy is driven by the Hillenbrand Operating Model (HOM), a framework for sustainable and predictable results focusing on Strategy Management, Lean principles, Talent Development, and Acquisitions[25][26] - As of September 30, 2021, the company had approximately 10,500 employees worldwide, with about 3,800 in the U.S. and 6,700 internationally[29] - The company has actively managed its portfolio through the acquisition of Milacron in 2019 and the divestiture of several businesses, including Red Valve, ABEL, and TerraSource Global, to focus on strategic assets[18][21] Advanced Process Solutions (APS) APS designs and manufactures process and material handling equipment for diverse industries, with aftermarket services contributing significantly and future growth driven by global megatrends - APS provides compounding, extrusion, material handling, and screening equipment under brands like Coperion, Coperion K-Tron, and Rotex[40][46] - Aftermarket parts and services constituted approximately 31% of APS's total net revenue in fiscal 2021[43] - Geographically, APS revenue in 2021 was sourced 26% from the Americas, 46% from Asia, and 28% from EMEA[51] - The segment's strategy focuses on strengthening leadership positions, driving innovation in areas like recycling and biopolymers, and using the HOM to expand margins[56] Molding Technology Solutions (MTS) MTS is a global leader in plastic technology, providing injection molding, hot runner systems, and mold components, with aftermarket services contributing significantly and a strategy focused on innovation and efficiency - MTS offers a full-line product portfolio including injection molding equipment (Milacron), hot runner systems (Mold-Masters), and mold components (DME)[24][57] - Aftermarket parts and services accounted for approximately 26% of MTS's total net revenue in fiscal 2021[57] - In 2021, MTS's net revenue was geographically distributed with 53% from the Americas, 30% from Asia, and 17% from EMEA[65] - The strategy for MTS includes leveraging its position in the plastics value chain, expanding into recycling and biodegradable plastics, and driving margin expansion through the HOM[71][72][78] Batesville Batesville is a leading North American funeral service products provider, impacted by cremation trends, focusing its strategy on sustaining volume, enhancing customer experience, and maintaining profitability through HOM - Batesville's offerings include Burial Solutions (caskets), Cremation Options (urns, containers), and Technology Solutions (software for funeral homes)[74] - The business is impacted by the rising cremation rate, which was estimated at 56.1% in the U.S. and 73.1% in Canada at the end of calendar 2020[83] - Batesville's strategy is to grow its leadership position, use technology to create efficiencies for customers, and apply HOM principles to maintain an optimal cost structure[89] Risk Factors The company faces key risks including COVID-19 impacts, raw material price volatility, labor competition, IT system failures, Milacron integration challenges, goodwill impairment, and significant debt levels - The COVID-19 pandemic continues to pose risks of demand volatility, supply chain disruptions, and operational interruptions[110][111] - Profitability is affected by increased prices and sourcing difficulties for raw materials, such as steel and plastics, and by supply chain disruptions[112][114] - The company faces risks in successfully integrating the Milacron acquisition and realizing anticipated synergies, with potential challenges in managing a larger business and retaining key employees[121][122] - A significant portion of total assets consists of goodwill and other intangible assets, which are subject to impairment risk, particularly for the Molding Technology Solutions segment due to the recent Milacron acquisition[132][133] - The company has significant debt of $1.21 billion as of September 30, 2021, which could make it more vulnerable to adverse economic conditions and limit flexibility[141] - The Batesville segment is exposed to risks from continued increases in the cremation rate and fluctuations in mortality rates, which could adversely affect burial casket sales[153] Properties The company operates 32 global manufacturing facilities across its segments, a mix of owned and leased properties, which are deemed adequate for current and expected demand - As of September 30, 2021, the company operated 32 significant manufacturing facilities across its three segments worldwide[171][172][173] - The facilities are located in the U.S., Germany, Switzerland, China, India, Canada, the United Kingdom, and Mexico, consisting of both owned and leased properties[171][172][173] Legal Proceedings The company is routinely involved in legal proceedings, including environmental and patent matters, which could materially affect its financial condition, with further details in Note 12 - The company is subject to routine legal proceedings across various areas such as environmental, patent infringement, and commercial transactions[175] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities Hillenbrand's common stock trades on the NYSE, with the company repurchasing $121.1 million in shares and increasing its quarterly dividend in fiscal 2021 Issuer Purchases of Equity Securities | Period | Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | July 2021 | 1,289,102 | $43.88 | | August 2021 | — | — | | September 2021 | 509,751 | $41.39 | | Q4 Total | 1,798,853 | $43.17 | - As of September 30, 2021, approximately $78.9 million remained available for share repurchases under the existing board authorization[181] - The quarterly dividend was increased to $0.2150 per common share in 2021, up from $0.2125 in 2020[182] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) In fiscal 2021, Hillenbrand's net revenue increased 14% to $2.86 billion, with net income turning positive and Adjusted EBITDA growing 16%, supported by strong liquidity and strategic divestitures Consolidated Financial Highlights | Metric | FY 2021 (in millions) | FY 2020 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Net Revenue | $2,864.8 | $2,517.0 | 14% | | Gross Profit | $957.3 | $813.3 | 18% | | Net Income (Loss) | $249.9 | ($60.1) | N/A | | Adjusted EBITDA | $538.2 | $464.4 | 16% | - The increase in net income was primarily driven by strong demand in the MTS segment, higher volume at Batesville, gains on the divestitures of Red Valve and ABEL, and the absence of prior-year impairment charges and Milacron-related inventory step-up costs[294] - Cash flow from operating activities increased 49% to $528.4 million in 2021 from $354.8 million in 2020, mainly due to favorable working capital timing and lower business acquisition/integration costs[314] - The company's net leverage ratio (debt, net of cash, to adjusted EBITDA) was 1.4x at year-end, within its targeted range, enabling a return to strategic acquisitions and share repurchases[304] Critical Accounting Estimates Critical accounting estimates include revenue recognition for long-term contracts, retirement benefit plans, and asset impairment for goodwill and intangibles, particularly for the Molding Technology Solutions segment after the Milacron acquisition - Revenue for long-term contracts in the APS segment is recognized over time using the 'cost-to-cost' input method, which requires significant judgment in estimating total contract costs and revenue[195][199] - Goodwill and indefinite-lived intangible assets are tested for impairment annually on July 1, with the fair value of the three reporting units within the Molding Technology Solutions segment estimated to be 9% to 45% greater than their carrying value at the July 1, 2021 test[220] - In the prior year (FY 2020), the company recorded significant impairment charges totaling $144.8 million, including $82.5 million related to goodwill and intangibles in Q2 and $62.3 million related to assets held for sale in Q4[258][226] Operations Review Consolidated revenue increased 14% to $2.86 billion in FY2021, with strong growth in MTS (35%) and Batesville (13%), and a 37% increase in APS backlog Segment Performance Highlights | Segment | FY 2021 Revenue (in millions) | FY 2020 Revenue (in millions) | % Change | FY 2021 Adj. EBITDA (in millions) | FY 2020 Adj. EBITDA (in millions) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Advanced Process Solutions | $1,245.7 | $1,228.6 | 1% | $234.5 | $234.5 | 0% | | Molding Technology Solutions | $995.7 | $735.8 | 35% | $201.8 | $147.0 | 37% | | Batesville | $623.4 | $552.6 | 13% | $160.2 | $127.1 | 26% | - APS order backlog increased 37% year-over-year to $1.35 billion, driven by demand for large plastics systems[264] - MTS order backlog grew 51% year-over-year to $365.6 million, primarily from increased orders for injection molding and extrusion equipment[273] Liquidity and Capital Resources The company maintains strong liquidity with $446.1 million cash and $883.6 million available credit, achieving $528.4 million in operating cash flow and reducing net leverage to 1.4x Cash Flow Activity | Cash Flow Activity (in millions) | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net cash from Operating activities | $528.4 | $354.8 | | Net cash from (used in) Investing activities | $126.0 | ($1,295.9) | | Net cash (used in) from Financing activities | ($523.3) | $854.9 | - As of September 30, 2021, the company had $446.1 million in cash and cash equivalents and $883.6 million of available borrowing capacity under its revolver[378][299] - In March 2021, the company issued $350.0 million of 3.75% senior unsecured notes due 2031[310] - The company repurchased $121.1 million of its common stock and paid $64.0 million in dividends during fiscal 2021[319] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity price fluctuations, interest rates, pension assets, and foreign currency exchange rates, managing the latter with derivatives - The company is exposed to market risk from fluctuating prices of commodities such as steel, wood, red metals, and fuel[328] - Foreign currency exchange rate variability is a key risk due to significant international operations, with the company using derivative instruments to manage this exposure, with an aggregate notional amount of $186.4 million at September 30, 2021[331] - A hypothetical 10% adverse change in foreign exchange rates would impact shareholders' equity by approximately $121.0 million due to translation adjustments[332] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for FY2021, including Management's Report on Internal Control and the independent audit report, detailing financial performance, position, and key accounting policies Consolidated Financial Statements Consolidated financial statements show FY2021 net revenue of $2.86 billion, a net income of $249.9 million, and strong operating cash flow of $528.4 million, a significant improvement from the prior year's loss Consolidated Statement of Operations Highlights (in millions) | | FY 2021 | FY 2020 | | :--- | :--- | :--- | | Net revenue | $2,864.8 | $2,517.0 | | Gross profit | $957.3 | $813.3 | | Income (loss) before income taxes | $353.8 | ($18.5) | | Net income (loss) attributable to Hillenbrand | $249.9 | ($60.1) | | Diluted earnings (loss) per share | $3.31 | ($0.82) | Consolidated Balance Sheet Highlights (in millions) | | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Total current assets | $1,434.5 | $1,369.7 | | Total assets | $4,014.9 | $3,987.4 | | Total current liabilities | $1,035.1 | $852.1 | | Long-term debt | $1,212.9 | $1,516.3 | | Total shareholders' equity | $1,232.2 | $1,079.4 | Notes to Consolidated Financial Statements Notes to financial statements detail the $1.99 billion Milacron acquisition, divestitures, $1.21 billion total debt, segment performance, and key accounting policies including the goodwill impairment testing date change - The acquisition of Milacron was completed on November 21, 2019, for a total purchase price consideration of $1.994 billion, which included $734.2 million of goodwill[460][464][466] - The company completed the divestiture of Red Valve for $63.0 million and ABEL for $103.5 million during fiscal 2021, resulting in a combined pre-tax gain of $67.1 million[478][480][257] - Total debt as of September 30, 2021, was $1.21 billion, a decrease from $1.55 billion in the prior year, primarily consisting of senior unsecured notes[496] - The company changed its annual goodwill and indefinite-lived intangible asset impairment assessment date for all reporting units to July 1 to better align with its planning process[399] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of September 30, 2021, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[597] - The company maintained effective internal control over financial reporting as of September 30, 2021, based on the COSO 2013 framework[592] Part III Directors, Executive Officers, and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Required information for this item is incorporated by reference from the 2022 Proxy Statement[599][600] Executive Compensation Information regarding executive compensation is incorporated by reference from the 2022 Proxy Statement - Required information for this item is incorporated by reference from the 2022 Proxy Statement[601] Security Ownership of Certain Beneficial Owners and Management, and Related Shareholder Matters Information on security ownership of beneficial owners, management, and related shareholder matters is incorporated by reference from the 2022 Proxy Statement - Required information for this item is incorporated by reference from the 2022 Proxy Statement[601] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2022 Proxy Statement - Required information for this item is incorporated by reference from the 2022 Proxy Statement[602] Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the 2022 Proxy Statement - Required information for this item is incorporated by reference from the 2022 Proxy Statement[602] Part IV Exhibits and Financial Statement Schedule This section lists all documents filed as part of the Form 10-K, including consolidated financial statements, financial schedules, and an Exhibit Index - This item lists the financial statements, financial statement schedule, and all exhibits filed with the Form 10-K[603][604][605]