Indiana | 35-1160484 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
1069 State Route 46 East | ||
Batesville, Indiana | 47006-8835 | |
(Address of principal executive offices) | (Zip Code) |
2
Quarterly | ||||||||
Period Ended | ||||||||
12/31/06 | 12/31/05 | |||||||
Net Revenues |
||||||||
Health Care sales |
$ | 210.8 | $ | 195.3 | ||||
Health Care rentals |
110.2 | 116.5 | ||||||
Funeral Services sales |
162.2 | 165.7 | ||||||
Total revenues |
483.2 | 477.5 | ||||||
Cost of Revenues |
||||||||
Health Care cost of goods sold |
122.4 | 118.1 | ||||||
Health Care rental expenses |
53.2 | 55.2 | ||||||
Funeral Services cost of goods sold |
93.4 | 100.9 | ||||||
Total cost of revenues |
269.0 | 274.2 | ||||||
Gross Profit |
214.2 | 203.3 | ||||||
Other operating expenses |
135.1 | 132.7 | ||||||
Special charges |
— | 2.4 | ||||||
Operating Profit |
79.1 | 68.2 | ||||||
Other income (expense), net: |
||||||||
Interest expense |
(5.7 | ) | (5.0 | ) | ||||
Investment income and other |
8.8 | 14.8 | ||||||
Income from Continuing Operations Before Income Taxes |
82.2 | 78.0 | ||||||
Income tax expense (Note 8) |
30.3 | 29.4 | ||||||
Income from Continuing Operations |
51.9 | 48.6 | ||||||
Discontinued Operations (Note 4): |
||||||||
Loss from discontinued operations before income taxes
(including loss on divestiture of $0 and $1.0) |
— | (0.5 | ) | |||||
Income tax benefit |
— | (0.2 | ) | |||||
Loss from discontinued operations |
— | (0.3 | ) | |||||
Net Income |
$ | 51.9 | $ | 48.3 | ||||
Income per common share from continuing operations
– Basic (Note 9) |
$ | 0.84 | $ | 0.79 | ||||
Loss per common share from discontinued operations
– Basic (Note 9) |
— | (0.01 | ) | |||||
Net Income per Common Share – Basic |
$ | 0.84 | $ | 0.79 | ||||
Income per common share from continuing operations
– Diluted (Note 9) |
$ | 0.84 | $ | 0.79 | ||||
Loss per common share from discontinued operations
– Diluted (Note 9) |
— | (0.01 | ) | |||||
Net Income per Common Share – Diluted |
$ | 0.84 | $ | 0.79 | ||||
Dividends per Common Share |
$ | 0.2825 | $ | 0.2825 | ||||
Average Common Shares Outstanding – Basic (thousands) |
61,587 | 61,375 | ||||||
Average Common Shares Outstanding – Diluted (thousands) |
61,835 | 61,458 | ||||||
3
12/31/06 | 9/30/06 | |||||||
ASSETS |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 93.9 | $ | 81.9 | ||||
Current investments (Note 1) |
41.6 | — | ||||||
Trade receivables, net |
468.0 | 495.1 | ||||||
Inventories |
142.5 | 129.8 | ||||||
Income taxes receivable |
— | 5.9 | ||||||
Deferred income taxes |
30.0 | 28.2 | ||||||
Other |
24.1 | 23.0 | ||||||
Total current assets |
800.1 | 763.9 | ||||||
Equipment Leased to Others, net |
167.5 | 160.7 | ||||||
Property, net |
204.5 | 208.4 | ||||||
Investments (Note 1) |
62.8 | 64.3 | ||||||
Other Assets |
||||||||
Intangible assets: |
||||||||
Goodwill |
428.3 | 414.1 | ||||||
Software and other, net |
155.2 | 157.6 | ||||||
Notes receivable, net of discounts |
132.7 | 134.4 | ||||||
Prepaid pension costs |
23.7 | 25.2 | ||||||
Deferred charges and other assets |
28.0 | 23.6 | ||||||
Total other assets |
767.9 | 754.9 | ||||||
Total Assets |
$ | 2,002.8 | $ | 1,952.2 | ||||
LIABILITIES |
||||||||
Current Liabilities |
||||||||
Trade accounts payable |
$ | 93.6 | $ | 91.7 | ||||
Short-term borrowings |
11.6 | 10.9 | ||||||
Accrued compensation |
78.9 | 88.5 | ||||||
Income taxes payable (Note 8) |
21.6 | — | ||||||
Accrued warranty (Note 11) |
17.9 | 17.8 | ||||||
Accrued customer rebates |
21.9 | 23.4 | ||||||
Accrued restructuring (Note 7) |
6.4 | 8.9 | ||||||
Accrued litigation (Note 13) |
22.5 | 22.6 | ||||||
Other |
57.6 | 61.4 | ||||||
Total current liabilities |
332.0 | 325.2 | ||||||
Long-Term Debt |
347.4 | 347.0 | ||||||
Other Long-Term Liabilities |
91.3 | 91.3 | ||||||
Deferred Income Taxes |
61.5 | 57.0 | ||||||
Total Liabilities |
832.2 | 820.5 | ||||||
Commitments and Contingencies (Note 13) |
||||||||
SHAREHOLDERS’ EQUITY |
||||||||
Common stock |
4.4 | 4.4 | ||||||
Additional paid-in capital |
80.7 | 79.1 | ||||||
Retained earnings |
1,681.2 | 1,646.8 | ||||||
Accumulated other comprehensive loss, net-of-tax (Note 6) |
(0.2 | ) | (0.3 | ) | ||||
Treasury stock |
(595.5 | ) | (598.3 | ) | ||||
Total Shareholders’ Equity |
1,170.6 | 1,131.7 | ||||||
Total Liabilities and Shareholders’ Equity |
$ | 2,002.8 | $ | 1,952.2 | ||||
4
Year-to-Date Period Ended | ||||||||
12/31/06 | 12/31/05 | |||||||
Operating Activities |
||||||||
Net income |
$ | 51.9 | $ | 48.3 | ||||
Adjustments to reconcile net income to net cash flows from
operating activities: |
||||||||
Depreciation and amortization |
26.4 | 27.5 | ||||||
Accretion and capitalized interest on financing provided on
divestiture |
(3.7 | ) | (3.5 | ) | ||||
Loss on divestiture of discontinued operations (net-of-tax) |
— | 0.6 | ||||||
Investment income/gains on equity method investments |
(4.2 | ) | (9.1 | ) | ||||
Provision for deferred income taxes |
1.5 | 2.3 | ||||||
(Gain) loss on disposal of fixed assets |
(0.4 | ) | 0.7 | |||||
Change in working capital excluding cash, current
investments, current debt, prepaid pension costs,
acquisitions and dispositions |
26.6 | (22.7 | ) | |||||
Other, net |
3.7 | 10.2 | ||||||
Net cash provided by operating activities |
101.8 | 54.3 | ||||||
Investing Activities |
||||||||
Capital expenditures and purchase of intangibles |
(27.3 | ) | (17.2 | ) | ||||
Proceeds on sales of fixed assets |
0.7 | — | ||||||
Acquisitions of businesses, net of cash acquired |
(14.5 | ) | (5.7 | ) | ||||
Investment purchases and capital calls |
(65.2 | ) | (27.2 | ) | ||||
Proceeds on investment sales/maturities |
29.4 | 83.2 | ||||||
Bank investments: |
||||||||
Purchases |
— | (5.0 | ) | |||||
Proceeds on maturities |
— | 4.7 | ||||||
Net cash (used in) provided by investing activities |
(76.9 | ) | 32.8 | |||||
Financing Activities |
||||||||
Change in short-term debt |
0.7 | 1.2 | ||||||
Payment of cash dividends |
(17.5 | ) | (17.4 | ) | ||||
Proceeds on exercise of options |
3.5 | 0.8 | ||||||
Treasury stock acquired |
(0.6 | ) | (0.2 | ) | ||||
Bank deposits received |
— | 4.1 | ||||||
Net cash used in financing activities |
(13.9 | ) | (11.5 | ) | ||||
Effect of exchange rate changes on cash |
1.0 | (0.3 | ) | |||||
Total Cash Flows |
12.0 | 75.3 | ||||||
Cash and Cash Equivalents: |
||||||||
At beginning of period |
81.9 | 76.8 | ||||||
At end of period |
$ | 93.9 | $ | 152.1 | ||||
5
1. | Summary of Significant Accounting Policies | |
Basis of Presentation | ||
The unaudited, condensed consolidated financial statements appearing in this quarterly report on Form 10-Q should be read in conjunction with the financial statements and notes thereto included in the Company’s latest Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission. Unless the context otherwise requires, the terms “Hillenbrand,” “the Company,” “we,” “our” and “us” refer to Hillenbrand Industries, Inc. and its consolidated subsidiaries, and the terms “Hill-Rom Company,” “Batesville Casket Company,” and derivations thereof, refer to one or more of the subsidiary companies of Hillenbrand that comprise those respective business units. The year-end Condensed Consolidated Balance Sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. In the opinion of management, the financial statements herein include all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position, results of operations, and cash flows for the interim periods presented. Quarterly results are not necessarily indicative of annual results. | ||
In 2004, we closed the sale of Forethought Financial Services, Inc. (“Forethought”), and in January 2006 closed on the sale of Forethought Federal Savings Bank (“FFSB”), which had been a subsidiary of Forethought (see Note 4). As the sale was not completed prior to fiscal 2006, the operations of FFSB continue to be presented as discontinued operations within our Condensed Consolidated Statements of Income for that period. Under this presentation, the revenues and costs associated with the business were removed from the individual line items comprising the Condensed Consolidated Statements of Income and presented in a separate section entitled, “Discontinued Operations.” Within the Condensed Consolidated Statements of Cash Flows, year-to-date operating, investing and financing activities of FFSB for the first quarter of fiscal 2006 were reflected within the respective captions of the Condensed Consolidated Statements of Cash Flows. | ||
Principles of Consolidation | ||
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Material intercompany accounts and transactions have been eliminated in consolidation. | ||
Use of Estimates | ||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Examples of such estimates include the establishment of liabilities related to our accounts receivable reserves (Note 2), income taxes (Note 8), accrued warranties (Note 11) and accrued litigation and self insurance reserves (Note 13), among others. | ||
Revision of Prior Year Amounts | ||
In order to better align the presentation of our cost structure between cost of goods sold and operating expenses, we made revisions to the classification of certain costs within our |
6
Condensed Consolidated Statements of Income beginning in the fourth quarter of fiscal 2006. All product distribution costs, which were previously included as a component of operating expenses, are now included within costs of goods sold. This is consistent with the previous classification of distribution and logistics costs associated with Health Care rentals. Additionally, rental sales costs, including commissions, are now reflected as a component of operating expenses. This is consistent with the previous classification of selling expenses associated with Health Care and Funeral Services sales. Collectively these revisions offer a better reflection of true product sourcing and delivery costs, improve the consistency of the classification of such costs within our various revenue streams and also generally increase the comparability of our results with those of our peers. The classification of certain prior year amounts has been revised herein to conform to this new presentation. Distribution costs of $28.7 million were moved from operating expenses to cost of goods sold for the first quarter of fiscal 2006 and $15.7 million of rental sales expenses were moved from cost of goods sold to operating expenses for the same period. This revision had no impact on operating income, cash flows or earnings per share. | ||
Current Investments | ||
At December 31, 2006, we held $41.6 million of current investments, which consist of auction rate municipal bonds classified as available-for-sale securities. Our investments in these securities are recorded at cost, which approximates fair market value due to their variable interest rates. These current investments typically reset every 7 to 35 days, and, despite the long-term nature of their stated contractual maturities, we have the ability to quickly liquidate these securities. As a result, we had no cumulative gross unrealized holding gains (losses) or gross realized gains (losses) from our current investments. All income generated from these current investments was recorded within Investment income and other within the Condensed Consolidated Statements of Income. | ||
Investments | ||
We use the equity method of accounting for certain private equity limited partnership investments, with earnings or losses reported within Investment income and other in the Condensed Consolidated Statements of Income. Our portion of any unrealized gains (losses) related to such investments, as well as unrealized gain (losses) on our other investments, are charged or credited to Accumulated other comprehensive loss in shareholders’ equity, and deferred taxes are recognized for the income tax effect of any such unrealized gains (losses). Earnings and values for investments accounted for under the equity method are determined based on financial statements provided by the investment companies. | ||
Other minority investments are accounted for on either a cost, fair value or equity basis, dependent upon our level of influence over the investee. The seller financing provided upon the divestiture of Forethought included preferred stock at a notional amount of $28.7 million, which accrues cumulative dividends at the rate of 5 percent per annum. The preferred stock is redeemable at any time at the option of FFS Holdings, Inc., the entity that purchased Forethought, and must be redeemed by FFS Holdings, Inc. under specified circumstances. This investment is classified as held-to-maturity and recorded at amortized cost. | ||
When an investment is sold, we report the difference between the sales proceeds and amortized cost (determined based on specific identification) as a capital gain or loss. | ||
We regularly evaluate all investments for possible impairment based on current economic conditions, credit loss experience and other criteria. If there is a decline in a security’s net realizable value that is other-than-temporary, the decline is recognized as a realized loss and the cost basis of the investment is reduced to its estimated fair value. The evaluation of investments for impairment requires significant judgments to be made including (i) the identification of potentially impaired securities; (ii) the determination of their estimated fair |
7
value; and (iii) assessment of whether any decline in estimated fair value is other-than-temporary. | ||
For the quarterly periods ended December 31, 2006 and 2005, we recognized income on our investments of $5.0 million and $9.8 million, respectively. These amounts were recorded as a component of Investment income and other within our Condensed Consolidated Statements of Income. | ||
Recently Issued Accounting Standards | ||
In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”), which clarifies the accounting for income taxes by prescribing the minimum recognition threshold as “more-likely-than-not” that a tax position must meet before being recognized in the financial statements. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting for income taxes in interim periods, financial statement disclosure and transition rules. This Interpretation is effective for fiscal years beginning after December 15, 2006. As such, we are required to adopt FIN 48 by October 1, 2007. We have not yet analyzed the effect of this Interpretation on our consolidated financial statements or results of operations. | ||
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. This Statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The adoption of SFAS No. 157 is not expected to have a material impact on our consolidated financial statements or results of operations. | ||
In September 2006, the FASB also issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This Statement requires recognition of the funded status of a benefit plan in the statement of financial position. SFAS No. 158 also requires recognition in other comprehensive income of certain gains and losses that arise during the period but are deferred under pension accounting rules, as well as modifies the timing of reporting and adds certain disclosures. The Statement provides recognition and disclosure elements to be effective as of the end of the fiscal year after December 15, 2006 and measurement elements to be effective for fiscal years ending after December 15, 2008. As such, we will adopt the recognition and disclosure elements at the end of our current fiscal year. Had the recognition elements been effective as of the end of our last fiscal year, total assets would have been approximately $27 million lower due to the elimination of prepaid and intangible pension assets, and total liabilities would have been unchanged as the recognition of additional accrued pension costs to fully reflect the funded status of our defined benefit pension plans would have been offset by a reduction in deferred tax liabilities at September 30, 2006. Additionally, Accumulated other comprehensive loss would have increased by approximately $27 million. |
8
2. | Supplementary Balance Sheet Information | |
The following information pertains to assets and consolidated shareholders’ equity: |
12/31/06 | 9/30/06 | |||||||
Allowance for possible losses and
discounts on trade receivables |
$ | 59.1 | $ | 58.8 | ||||
Inventories: |
||||||||
Finished products |
$ | 94.5 | $ | 83.0 | ||||
Work in process |
13.3 | 13.7 | ||||||
Raw materials |
34.7 | 33.1 | ||||||
Total inventory |
$ | 142.5 | $ | 129.8 | ||||
Accumulated depreciation of equipment
leased to others and property |
$ | 721.8 | $ | 703.5 | ||||
Accumulated amortization of intangible assets |
$ | 84.2 | $ | 117.9 | ||||
Capital Stock: |
||||||||
Preferred stock, without par value: |
||||||||
Authorized 1,000,000 shares; shares issued |
None | None | ||||||
Common stock, without par value: |
||||||||
Authorized 199,000,000 shares; shares issued |
80,323,912 | 80,323,912 | ||||||
Shares outstanding |
61,513,295 | 61,415,314 | ||||||
Treasury shares outstanding |
18,810,617 | 18,908,598 |
3. | Acquisitions | |
The results of acquired businesses are included in the Condensed Consolidated Financial Statements since each acquisition’s date of close. | ||
On October 6, 2006, Hill-Rom acquired Medicraft, Australia PTY, LTD (“Medicraft”), the leader in acute and post-acute hospital beds and furniture in Australia. The acquisition expands Hill-Rom’s sales channel for therapy and higher acuity products, and we believe that several Medicraft products can be adapted for global and price-sensitive bed market segments throughout the world. The purchase price for Medicraft of $15.9 million, which includes direct acquisition costs, is subject to adjustment based on working capital at the time of closing. We are still in the process of finalizing the valuation of certain of the assets and liabilities acquired such that the purchase price remains subject to adjustment. If the purchase had occurred at the beginning of fiscal 2006, the impact to our results of operations and financial condition would not have been material. | ||
In March 2006, Batesville Casket made an acquisition of a small regional casket distributor. Goodwill of $1.6 million was recorded on the transaction. If the purchase had occurred at the beginning of fiscal 2006, the impact to our results of operations and financial condition would not have been material. |
9
4. | Discontinued Operations | |
In 2004, we closed the sale of Forethought Financial Services, Inc. (“Forethought”) to FFS Holdings, Inc., an acquisition vehicle formed by the Devlin Group, LLC, which acquired all the common stock of Forethought and its subsidiaries for a combination of cash and other consideration. Because of the need for regulatory approval, we were not able to include with that transaction the sale of Forethought Federal Savings Bank (“FFSB”), which had been a subsidiary of Forethought, but instead retained ownership of FFSB pending approval from the Office of Thrift Supervision. We received that approval at the end of December 2005 and closed the sale on January 3, 2006, receiving cash consideration of approximately $6.5 million. We recognized a loss on this transaction of $0.6 million (net-of-tax) in the first quarter of fiscal 2006. | ||
As the sale of FFSB was not completed prior to fiscal 2006, its results continued to be reflected as discontinued operations within the Condensed Consolidated Statement of Income for the 2006 period presented herein in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. | ||
Operating results for FFSB were as follows for the quarterly period ended December 31, 2005: |
Quarterly Period Ended | ||||
12/31/05 | ||||
Revenues from discontinued operations |
$ | 1.1 | ||
Other operating expenses |
(0.6 | ) | ||
Loss on divestiture |
(1.0 | ) | ||
Pre-tax loss from discontinued operations |
(0.5 | ) | ||
Income tax benefit |
(0.2 | ) | ||
Loss from discontinued operations |
$ | (0.3 | ) | |
5. | Retirement Plans | |
Hillenbrand and its subsidiaries have several defined benefit retirement plans covering the majority of employees, including certain employees in foreign countries. We contribute funds to trusts as necessary to provide for current service and for any unfunded projected future benefit obligation over a reasonable period. The benefits for these plans are based primarily on years of service and the employee’s level of compensation during specific periods of employment. We also sponsor nonqualified, unfunded defined benefit pension plans for certain members of management. | ||
The components of net pension expense for defined benefit retirement plans were as follows: |
Quarterly | ||||||||
Period Ended | ||||||||
12/31/06 | 12/31/05 | |||||||
Service cost |
$ | 2.5 | $ | 2.8 | ||||
Interest cost |
5.4 | 5.1 | ||||||
Expected return on plan assets |
(6.3 | ) | (6.1 | ) | ||||
Amortization of prior service cost, net |
0.4 | 0.4 | ||||||
Actuarial loss |
— | 0.3 | ||||||
Net periodic benefit cost |
$ | 2.0 | $ | 2.5 | ||||
10
As of December 31, 2006 we have made no contributions to our defined benefit retirement plans during fiscal 2007, however, we presently anticipate contributing $2.0 million during the remainder of fiscal year 2007 to fund our pension plans. | ||
We sponsor both qualified and nonqualified defined contribution retirement plans for all eligible employees, as defined in the plan documents. The qualified plans fall under Section 401(k) of the Internal Revenue Code. Contributions to the qualified plans are based on both employee and Company contributions. Our contributions to the plans were $3.4 and $3.4 million, for the quarterly periods ended December 31, 2006 and 2005, respectively. We expect to contribute an additional $12.1 million to the plans during the remainder of fiscal year 2007 for a total of $15.5 million compared to $15.0 million in fiscal 2006. The nonqualified defined contribution plans are unfunded and carried a liability of less than $1 million at December 31, 2006 and September 30, 2006. | ||
6. | Comprehensive Income | |
SFAS No. 130, “Reporting Comprehensive Income,” requires the net-of-tax effect of unrealized gains or losses on our available-for-sale securities, foreign currency translation adjustments and minimum pension liability adjustments to be included in comprehensive income. | ||
The components of comprehensive income are as follows: |
Quarterly | ||||||||
Period Ended | ||||||||
12/31/06 | 12/31/05 | |||||||
Net income |
$ | 51.9 | $ | 48.3 | ||||
Unrealized gains on available-for-sale securities: |
||||||||
Unrealized holding gains arising during
period, net-of-tax |
2.1 | 5.1 | ||||||
Less: Reclassification adjustment for gains
realized in net income, net-of-tax |
(2.4 | ) | (5.7 | ) | ||||
Net unrealized loss, net-of-tax |
(0.3 | ) | (0.6 | ) | ||||
Foreign currency translation
adjustment, net-of-tax |
0.4 | (1.1 | ) | |||||
Minimum pension liability, net-of-tax |
— | (0.2 | ) | |||||
Comprehensive income |
$ | 52.0 | $ | 46.4 | ||||
The composition of Accumulated other comprehensive (loss) income at December 31, 2006 and September 30, 2006 consisted of unrealized gains or (losses) on available-for-sale securities of $3.1 million and $3.4 million, foreign currency translation adjustments of ($0.1) million and ($0.5) million, and a minimum pension liability of ($3.2) million and ($3.2) million, respectively. | ||
7. | Special Charges | |
2006 Actions | ||
In the fourth fiscal quarter of 2006, we initiated restructuring actions taken primarily to right-size Hill-Rom’s North America field service organization in response to declines in rental revenue. This restructuring resulted in the elimination of approximately 140 positions and the rationalization of certain rental product offerings which were no longer strategically necessary, and resulted in a one-time charge of $4.2 million in the fourth quarter of fiscal 2006. The cash component of this charge was $2.6 million, and the majority is to be paid by September 30, 2007. As of December 31, 2006, approximately $1.5 million remained in the reserve. |
11
2005 Actions | ||
During the fourth fiscal quarter of 2005, we announced several changes intended to simplify both the corporate and Hill-Rom organizational structures and to support Hill-Rom’s strategy to focus on its core hospital bed frames, therapy support surfaces and services businesses, while remaining flexible for future opportunities. As part of this change, Hill-Rom established new commercial divisions and also combined sourcing, manufacturing and product development under one new function to support the commercial divisions. Additionally, all Hillenbrand corporate functions, including human resources, finance, strategy, legal and information technology, were consolidated with those of Hill-Rom. | ||
In building on these announced changes and to further capitalize on progress we made with the works council at our Pluvigner, France facility with respect to voluntary departures, we took additional restructuring actions, in the United States and Europe during the fourth quarter of 2005. These actions included the elimination of salaried and hourly positions in the United States and Europe, the outsourcing of various products and sub-assembly parts, the impairment of certain assets no longer considered necessary to the execution of our strategy and the termination of certain contractual obligations. These actions resulted in a fourth quarter fiscal 2005 charge of approximately $30.8 million, including cash charges related to severance and benefits costs of $24.0 million and contract termination costs of $0.8 million. The reduction in employees participating in our Supplemental Executive Retirement plan related to this action necessitated a curtailment charge of approximately $1.2 million. Non-cash charges of $4.8 million were incurred related to the asset impairments previously mentioned. In fiscal 2006, additional charges under these actions were incurred in the amount of $1.4 million. This included $2.4 million of charges in the first quarter, primarily related to the continuation of European restructuring activities. This amount was partially offset by the reversal of excess reserves in later quarters. As of December 31, 2006, approximately $4.5 million remained in the reserve related to these actions. | ||
8. | Income Taxes | |
The effective tax rate for the first quarter of fiscal 2007 was 36.9 percent compared to 37.7 percent for the first quarter of 2006. The lower rate in 2007 is the result of a number of factors, including a lower foreign tax rate differential due to lower anticipated losses in France, the reinstatement of the research and development tax credit for a full year and the ability to take advantage of the deduction for qualified domestic production activities in fiscal 2007. | ||
9. | Earnings per Common Share | |
Basic earnings per share is calculated based upon the weighted average number of outstanding common shares for the period, plus the effect of deferred vested shares. Diluted earnings per share is calculated consistent with the basic earnings per share calculation plus the effect of dilutive unissued common shares related to stock-based employee compensation programs. For all periods presented, anti-dilutive stock options were excluded from the calculation of diluted earnings per share. Excluded shares were 377,165 and 1,942,132 for the three-month periods ended December 31, 2006 and 2005. Cumulative treasury stock acquired, less cumulative shares reissued, have been excluded in determining the average number of shares outstanding. |
12
Earnings per share is calculated as follows: |
Quarterly | ||||||||
Period Ended | ||||||||
12/31/06 | 12/31/05 | |||||||
Net income (thousands) |
$ | 51,864 | $ | 48,276 | ||||
Average shares outstanding
– Basic (thousands) |
61,587 | 61,375 | ||||||
Add potential effect of: |
||||||||
Exercise of stock options and other
unvested equity awards (thousands) |
248 | 83 | ||||||
Average shares outstanding
– Diluted (thousands) |
61,835 | 61,458 | ||||||
Income per common share from
continuing operations — Basic |
$ | 0.84 | $ | 0.79 | ||||
Loss per common share from
discontinued operations — Basic |
— | (0.01 | ) | |||||
Net income per common
share – Basic |
$ | 0.84 | $ | 0.79 | ||||
Income per common share from
continuing operations — Diluted |
$ | 0.84 | $ | 0.79 | ||||
Loss per common share from
discontinued operations — Diluted |
— | (0.01 | ) | |||||
Net income per common
share – Diluted |
$ | 0.84 | $ | 0.79 | ||||
Note: Certain per share amounts may not accurately add due to rounding. | ||
10. | Stock Based Compensation | |
We adopted SFAS 123(R) in the first quarter of fiscal 2006, and thus recognize the cost of our stock based compensation plans using the fair value based method for both periods presented. | ||
The stock based compensation cost that was charged against income for all plans was $1.6 million and $0.9 million for the quarters ended December 31, 2006 and 2005, respectively. The total income tax benefit recognized in the income statement for stock compensation costs was $0.6 million and $0.3 million for the quarters ended December 31, 2006 and 2005, respectively. | ||
11. | Guarantees | |
We routinely grant limited warranties on our products with respect to defects in material and workmanship. The terms of these warranties are generally one year, however, certain components and products have substantially longer warranty periods. We recognize a reserve with respect to these obligations at the time of product sale, with subsequent warranty claims recorded directly against the reserve. The amount of the warranty reserve is determined based on historical trend experience for the covered products. For more significant warranty-related matters which might require a broad-based correction, separate reserves are established when such events are identified and the cost of correction can be reasonably estimated. |
13
A reconciliation of changes in the warranty reserve for the periods covered in this report is as follows: |
Quarterly | ||||||||
Period Ended | ||||||||
12/31/06 | 12/31/05 | |||||||
Balance at beginning of period |
$ | 17.8 | $ | 16.6 | ||||
Provision for warranties during the period |
4.0 | 4.0 | ||||||
Warranty claims incurred during the period |
(3.9 | ) | (4.2 | ) | ||||
Balance at end of period |
$ | 17.9 | $ | 16.4 | ||||
In the normal course of business we enter into various other guarantees and indemnities in our relationships with suppliers, service providers, customers, business partners and others. Examples of these arrangements would include guarantees of product performance, indemnifications to service providers and indemnifications of our actions to business partners. These guarantees and indemnifications would not materially impact our financial condition or results of operations, although indemnifications associated with our actions generally have no dollar limitations. | ||
In conjunction with our acquisition and divestiture activities, we have entered into select guarantees and indemnifications of performance with respect to the fulfillment of commitments under applicable purchase and sale agreements. The arrangements generally indemnify the buyer or seller for damages associated with breach of contract, inaccuracies in representations and warranties surviving the closing date and satisfaction of liabilities and commitments retained under the applicable contract. For those representations and warranties that survive closing, they generally survive for periods up to five years or the expiration of the applicable statutes of limitations. Potential losses under the indemnifications are generally limited to a portion of the original transaction price, or to other lesser specific dollar amounts for select provisions. With respect to sale transactions, we also routinely enter into non-competition agreements for varying periods of time. Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have a materially adverse impact on our financial condition and results of operations. | ||
12. | Segment Reporting | |
We are organized into two operating companies, Hill-Rom and Batesville Casket. SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information” requires reporting of segment information that is consistent with the way in which management operates and views the Company. Accordingly, Hill-Rom’s segment activities are reported herein in a manner consistent with the way management monitors its performance. | ||
In October 2006, we initiated new operational strategies and associated initiatives for our two operating companies, and as a result, Hill-Rom’s organizational structure was modified to better align with those strategies and initiatives. The new structure categorizes Hill-Rom activities into three commercial divisions, reflecting our broad customer segments. Sourcing, manufacturing, and product development continue to be combined under one function to support these commercial divisions. When combined with the Batesville Casket segment, our 2007 reporting segments are as follows: |
• | North America Acute Care (Acute) | ||
• | North America Post-Acute Care (Post-Acute) | ||
• | International and Surgical | ||
• | Batesville Casket |
14
Hill-Rom performance under each segment reporting presentation is measured on a divisional income basis before special items. Divisional income represents the division’s standard gross profit less their direct operating costs. With respect to the reporting of revenues in this structure, the division responsible for the ultimate sale to the end customer is the only division to receive credit for the revenue. As a result, there are no intersegment sales between the divisions requiring elimination for segment reporting purposes. | ||
Functional costs include common costs, such as administration, finance and non-divisional legal and human resource costs and other charges not directly attributable to the segments; along with operations and development costs such as fixed manufacturing overhead, research and development, and distribution. Functional costs and eliminations, while not considered a segment, are presented separately to aid in the reconciliation of segment information to consolidated Hill-Rom financial information. We also break out certain continuing public entity corporate-related costs separately to improve readability and understanding. | ||
The performance of Batesville Casket is measured on the basis of income from continuing operations before special charges and income taxes. Intersegment sales do not occur between Hill-Rom and Batesville Casket. | ||
Financial information regarding our reportable segments is presented below. Segment data for fiscal 2006 has been restated to conform with the new reporting structure outlined above: |
Hill-Rom/Corporate | ||||||||||||||||||||||||||||||
International | Functional | Hill-Rom/ | Batesville | |||||||||||||||||||||||||||
Acute | Post-Acute | & Surgical | Costs | Corporate | Casket | Consolidated | ||||||||||||||||||||||||
Quarterly Period Ended December 31, 2006 |
||||||||||||||||||||||||||||||
Net revenues |
$ | 204.2 | $ | 45.4 | $ | 71.4 | $ | — | $ | 321.0 | $ | 162.2 | $ | 483.2 | ||||||||||||||||
Divisional income (loss) |
$ | 68.7 | $ | 15.7 | $ | 15.9 | $ | (59.6 | ) | $ | 40.7 | $ | 44.3 | $ | 85.0 | |||||||||||||||
Public entity costs and other |
$ | (5.9 | ) | |||||||||||||||||||||||||||
Income from continuing operations
before income taxes |
$ | 37.6 | $ | 44.6 | $ | 82.2 | ||||||||||||||||||||||||
Income tax expense |
$ | 30.3 | ||||||||||||||||||||||||||||
Net income |
$ | 51.9 | ||||||||||||||||||||||||||||
Assets |
$ | 1,715.6 | $ | 287.2 | $ | 2,002.8 | ||||||||||||||||||||||||
Capital expenditures and intangible assets |
$ | 25.3 | $ | 2.0 | $ | 27.3 | ||||||||||||||||||||||||
Depreciation and amortization |
$ | 22.1 | $ | 4.3 | $ | 26.4 |
Hill-Rom/Corporate | ||||||||||||||||||||||||||||||
International | Functional | Hill-Rom/ | Batesville | |||||||||||||||||||||||||||
Acute | Post-Acute | & Surgical | Costs | Corporate | Casket | Consolidated | ||||||||||||||||||||||||
Quarterly Period Ended December 31, 2005 |
||||||||||||||||||||||||||||||
Net revenues |
$ | 204.0 | $ | 43.3 | $ | 64.5 | $ | — | $ | 311.8 | $ | 165.7 | $ | 477.5 | ||||||||||||||||
Divisional income (loss) |
$ | 65.1 | $ | 14.7 | $ | 16.3 | $ | (61.1 | ) | $ | 35.0 | $ | 41.6 | $ | 76.6 | |||||||||||||||
Public entity costs and other |
$ | (6.0 | ) | |||||||||||||||||||||||||||
Income from continuing operations
before income taxes and special charges |
$ | 38.7 | $ | 41.7 | $ | 80.4 | ||||||||||||||||||||||||
Special charges |
$ | (2.4 | ) | |||||||||||||||||||||||||||
Income from continuing operations
before income taxes |
$ | 78.0 | ||||||||||||||||||||||||||||
Income tax expense |
$ | 29.4 | ||||||||||||||||||||||||||||
Income from continuing operations |
$ | 48.6 | ||||||||||||||||||||||||||||
Loss from discontinued operations |
$ | (0.3 | ) | |||||||||||||||||||||||||||
Net income |
$ | 48.3 | ||||||||||||||||||||||||||||
Assets |
$ | 1,975.1 | $ | 289.1 | $ | 2,264.2 | ||||||||||||||||||||||||
Capital expenditures and intangible assets |
$ | 14.1 | $ | 3.1 | $ | 17.2 | ||||||||||||||||||||||||
Depreciation and amortization |
$ | 23.2 | $ | 4.3 | $ | 27.5 |
15
13. | Commitments and Contingencies | |
As previously reported, on June 30, 2003, Spartanburg Regional Healthcare System (the “Plaintiff”) filed a purported antitrust class action lawsuit against Hillenbrand, Hill-Rom, Inc. and Hill-Rom Company, Inc. in the United States District Court for the District of South Carolina, alleging violations of the federal antitrust laws. Plaintiff sought to certify a class of all purchasers of Hill-RomÒ standard and/or specialty hospital beds, and/or architectural and in-room products from 1990 to the present where there had been contracts between Hill-Rom and such purchasers, either on behalf of themselves or through purchasing organizations, conditioning discounts on Hill-RomÒ hospital beds and other architectural and in-room products on commitments to rent or purchase a very high percentage (e.g. ninety percent) of specialty beds from Hill-Rom. Plaintiff subsequently narrowed the definition of its proposed class to acute and subacute facilities. | ||
On February 3, 2006, the Court preliminarily approved a definitive agreement among Hillenbrand, its Hill-Rom subsidiaries, Spartanburg Regional Healthcare System, and its attorneys to settle the case for $337.5 million in cash. The Court entered an Order and Final Judgment approving the settlement following a fairness hearing on June 14, 2006. As finally approved by the Court, the settlement resolves all of the claims of class members that did not opt out of the settlement, including the claims of all U.S. and Canadian purchasers or renters of Hill-Rom® products from 1990 through February 2, 2006 related to or arising out of the subject matter of the lawsuit, and the claims that may have resulted from the current or future effects of conduct or events occurring through February 2, 2006. The original settlement amount of $337.5 million was reduced by almost $21.2 million, to $316.3 million, reflecting the portion attributable to customers who opted out of the settlement. Opt-outs from the settlement account for roughly six percent of the total U.S. and Canadian revenue during the class period, and over 99 percent of that figure is attributable to the U.S. government’s decision to opt out of the settlement. We believe we have meritorious defenses against any claims the U.S. government may choose to make, due to, among other reasons, pricing practices of government purchases that are different than the pricing practices primarily at issue in the lawsuit. | ||
The settlement agreement includes Hill-Rom’s commitment to continue certain company-initiated discounting practices for a period of three years. Essentially, Hill-Rom implemented a policy in October 2002, which it has agreed to follow until at least February 2009. Under that policy, which did not represent a material change in our discounting practices, Hill-Rom refrains from entering into new contracts that condition incremental discounts on Hill-Rom® hospital beds or architectural products on commitments to rent therapy products from Hill-Rom. While such products may be sold together, rental therapy products are separately priced and discounted. Under the settlement Hill-Rom may continue to offer all other discounts such as volume discounts, early payment discounts, capitation, etc. Further, the discounting practices that gave rise to the Spartanburg litigation have already been discontinued (or will be discontinued on the expiration of certain existing contracts) and have been replaced by alternative practices for each of the last four fiscal years. Therefore, any impact of the discontinuance of such practices on our business is already fully reflected in our reported results. | ||
In connection with our assessment that it was probable that a settlement would be reached and finally approved by the Court during fiscal 2006, we recorded a litigation charge and established a litigation accrual in the amount of $358.6 million in the fourth quarter of fiscal 2005, which included certain legal and other costs associated with the proposed settlement. With the Court’s entering of the Order and Final Judgment in the third quarter of fiscal 2006, we reversed $2.3 million of the $21.1 million of estimated legal and other costs originally provided as part of the litigation accrual as such amounts are not probable of payment. We paid the remaining $266.3 million of the settlement amount |
16
into escrow in August 2006 and have retained a $21.2 million litigation accrual associated with the opt-outs. | ||
On May 2, 2005, a non-profit entity called Funeral Consumers Alliance, Inc. (“FCA”) and several individual consumers filed a purported class action antitrust lawsuit (“FCA Action”) against three national funeral home businesses, Service Corporation International (“SCI”), Alderwoods Group, Inc. (“Alderwoods”), and Stewart Enterprises, Inc. (“Stewart”) together with Hillenbrand and its Batesville Casket Company, Inc. subsidiary (“Batesville”), in the United States District Court for the Northern District of California. This lawsuit alleged a conspiracy to suppress competition in an alleged market for the sale of caskets through a group boycott of so-called “independent casket discounters,” that is, third-party casket sellers unaffiliated with licensed funeral homes; a campaign of disparagement against these independent casket discounters; and concerted efforts to restrict casket price competition and to coordinate and fix casket pricing, all in violation of federal antitrust law and California’s Unfair Competition Law. The lawsuit claimed, among other things, that Batesville’s maintenance and enforcement of, and alleged modifications to, its long-standing policy of selling caskets only to licensed funeral homes were the product of a conspiracy among Batesville, the other defendants and others to exclude “independent casket discounters” and that this alleged conspiracy, combined with other alleged matters, suppressed competition in the alleged market for caskets and led consumers to pay higher than competitive prices for caskets. The FCA Action alleged that two of Batesville’s competitors, York Group, Inc. and Aurora Casket Company, are co-conspirators but did not name them as defendants. The FCA Action also alleged that SCI, Alderwoods, Stewart and other unnamed co-conspirators conspired to monopolize the alleged market for the sale of caskets in the United States. | ||
Batesville, Hillenbrand, and the other defendants filed motions to dismiss the FCA Action and a motion to transfer to a more convenient forum. In response, the court in California permitted the plaintiffs to replead the complaint and later granted defendants’ motion to transfer the action to the United States District Court for the Southern District of Texas (Houston, Texas) (“Court”). | ||
On October 12, 2005, the FCA plaintiffs filed an amended complaint containing substantially the same basic allegations as the original FCA complaint in the United States District Court for the Southern District of Texas. It is not unusual to have multiple copycat class action suits filed after an initial filing, and it is possible that additional suits based on the same or similar allegations will be brought against Hillenbrand and Batesville. To date, other purported consumer class actions that had been filed in the wake of the FCA action have either been consolidated into the FCA Action or dismissed. On October 26, 2006, however, a new purported class action was filed by the estates of Dale Van Coley and Joye Katherine Coley, Candace D. Robinson, Personal Representative, consumer plaintiffs, against Batesville and Hillenbrand in the Western District of Oklahoma alleging violation of the antitrust laws in fourteen states based on allegations that Batesville engaged in conduct designed to foreclose competition and gain a monopoly position in the market. This lawsuit is largely based on similar factual allegations to the FCA Action. The Company moved to transfer this case to the Southern District of Texas in order to coordinate this action with the FCA Action, and the Company intends to file a motion to dismiss this action. | ||
The FCA plaintiffs are seeking certification of a class that includes all United States consumers who purchased Batesville caskets from any of the funeral home co-defendants at any time during the fullest period permitted by the applicable statute of limitations. Plaintiffs generally seek actual unspecified monetary damages, trebling of any such damages that may be awarded, recovery of attorneys’ fees and costs, and injunctive relief. On October 18, 2006, the district court denied Batesville’s, Hillenbrand’s, and other defendants’ November 2005 motions to dismiss the amended FCA complaint. A class certification hearing was held in the FCA Action in early December 2006. |
17
In addition to the consumer lawsuits discussed above, on July 8, 2005, Pioneer Valley Casket Co. (“Pioneer Valley”), an alleged casket store and Internet retailer, also filed a purported class action lawsuit against Batesville, Hillenbrand, SCI, Alderwoods, and Stewart in the Northern District of California on behalf of the class of “independent casket distributors,” alleging violations of state and federal antitrust law and state unfair and deceptive practices laws based on essentially the same factual allegations as in the consumer cases. Pioneer Valley claimed that it and other independent casket distributors were injured by the defendants’ alleged conspiracy to boycott and suppress competition in the alleged market for caskets, and by an alleged conspiracy among SCI, Alderwoods, Stewart and other unnamed co-conspirators to monopolize the alleged market for caskets. | ||
Plaintiff Pioneer Valley seeks certification of a class of all independent casket distributors who are now in business or have been in business since July 8, 2001. Pioneer Valley generally seeks actual unspecified monetary damages on behalf of the purported class, trebling of any such damages that may be awarded, recovery of attorneys’ fees and costs, and injunctive relief. | ||
The Pioneer Valley complaint was also transferred to the Southern District of Texas but was not consolidated with the FCA Action, although the scheduling orders for both cases are identical. On October 21, 2005, Pioneer Valley filed an amended complaint adding three new plaintiffs, each of whom purports to be a current or former “independent casket distributor.” Like Pioneer Valley’s original complaint, the amended complaint alleges violations of federal antitrust laws, but it has dropped the causes of actions for alleged price fixing, conspiracy to monopolize, and violations of state antitrust law and state unfair and deceptive practices laws. On October 25, 2006, the district court denied Hillenbrand’s and Batesville’s December 2005 motions to dismiss the amended Pioneer Valley complaint. The class certification hearing in the Pioneer Valley case was held on December 8, 2006. Post-hearing briefing on the plaintiffs’ class certification motion in both the FCA and Pioneer Valley Actions is scheduled to be completed by March 2007. Trials in the FCA and Pioneer Valley Actions are scheduled to begin on or about February 4, 2008. | ||
If a class is certified in any of the antitrust cases filed against Hillenbrand and Batesville and if the plaintiffs in any such case prevail at trial, potential trebled damages awarded to the plaintiffs could have a significant material adverse effect on our results of operations, financial condition, and/or liquidity. Accordingly, we are aggressively defending against the allegations made in all of these cases and intend to assert what we believe to be meritorious defenses to class certification and to plaintiffs’ allegations and damage theories. | ||
After the FCA Action was filed, in the summer and fall of 2005, Batesville was served with Civil Investigative Demands (“CIDs”) by the Attorney General of Maryland and certain other state attorneys general who have begun an investigation of possible anticompetitive practices in the funeral service industry relating to a range of funeral services and products, including caskets. Batesville has been informed that approximately 26 state attorneys general offices are participating in the joint investigation, although more could join. Batesville is cooperating with the attorneys general. To date, no claims have been filed against Batesville. | ||
In August 2005, Hill-Rom received a civil subpoena from the Office of the Connecticut Attorney General seeking documents and information related to the Attorney General’s investigation of the Healthcare Research & Development Institute, LLC (“HRDI”), a health care trade organization, of which Hill-Rom was a corporate member. Hill-Rom has responded to that subpoena. On April 3, 2006, Hill-Rom received a set of supplemental interrogatories from the Attorney General’s Office. Hill-Rom has responded to those interrogatories. In December 2006, Hill-Rom received a civil subpoena from the Office of the Illinois Attorney General seeking documents and information related to the Attorney General’s investigation of HRDI. Hill-Rom is in the process of responding to this |
18
subpoena. On January 25, 2007, the Connecticut Attorney General’s Office announced a settlement with HRDI and its hospital Chief Executive Officer members, at the same time announcing that the investigation is ongoing as to supplier members and others. The investigation appears to concern whether HRDI supplier members had influence over hospitals represented among HRDI’s Chief Executive Officer members. We are cooperating with both investigations and no claims have been filed against Hill-Rom. | ||
We are subject to various other claims and contingencies arising out of the normal course of business, including those relating to commercial transactions, product liability, employee related matters, antitrust, safety, health, taxes, environmental and other matters. Litigation is subject to many uncertainties and the outcome of individual litigated matters is not predictable with assurance. It is possible that some litigation matters for which reserves have not been established could be decided unfavorably to us, and that any such unfavorable decisions could have a material adverse effect on our financial condition, results of operations and cash flows. | ||
We are also involved in other possible claims, including product liability, workers compensation, auto liability and employment related matters. These have deductibles and self-insured retentions ranging from $150 thousand to $1.5 million per occurrence or per claim, depending upon the type of coverage and policy period. | ||
Since December 1999, we have purchased deductible reimbursement policies from our wholly-owned insurance company, Sycamore Insurance Company, for the deductibles and self-insured retentions associated with our product liability, workers compensation and auto liability programs. For these self-insured exposures, 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. The actuary also provides estimates of ultimate projected losses used to determine accrual adequacy for losses incurred prior to December 1999. These independent third-party estimates are used to record reserves for all projected deductible and self-insured retention exposures. | ||
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. | ||
14. | Subsequent Events | |
In line with our strategy to grow through acquisitions, in January 2007, Batesville Casket acquired a small regional casket distributor. This acquisition capitalizes on our capacity to serve the broad needs of funeral service professionals and maximizes our distribution base in the Midwest and Florida. We are still in the process of finalizing the valuation of certain of the assets and liabilities acquired. As a result, the purchase price remains subject to adjustment, and goodwill associated with the transaction has not been determined. If the purchase had occurred at the beginning of fiscal 2007, the impact to our results of operations and financial condition would not have been material. |
19
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
20
Three Months Ended | ||||||||||||
December 31, | ||||||||||||
(Dollars in millions) | 2006 | 2005 | % Change | |||||||||
Revenues: |
||||||||||||
Health Care sales |
$ | 210.8 | $ | 195.3 | 7.9 | |||||||
Health Care rentals |
110.2 | 116.5 | (5.4 | ) | ||||||||
Funeral Services sales |
162.2 | 165.7 | (2.1 | ) | ||||||||
Total Revenues |
$ | 483.2 | $ | 477.5 | 1.2 | |||||||
Three Months Ended | Three Months Ended | |||||||||||||||
December 31, 2006 | December 31, 2005 | |||||||||||||||
% of Related | % of Related | |||||||||||||||
(Dollars in millions) | Revenues | Revenues | ||||||||||||||
Gross Profit |
||||||||||||||||
Health Care sales |
$ | 88.4 | 41.9 | $ | 77.2 | 39.5 | ||||||||||
Health Care rentals |
57.0 | 51.7 | 61.3 | 52.6 | ||||||||||||
Funeral Services |
68.8 | 42.4 | 64.8 | 39.1 | ||||||||||||
Total Gross Profit |
$ | 214.2 | 44.3 | $ | 203.3 | 42.6 | ||||||||||
21
Three Months Ended | ||||||||||||
December 31, | ||||||||||||
(Dollars in millions) | 2006 | 2005 | % Change | |||||||||
Other operating expenses |
$ | 135.1 | $ | 132.7 | 1.8 | |||||||
Percent of Total Revenues |
28.0 | % | 27.8 | % | ||||||||
Special charges |
— | 2.4 | (100.0 | ) | ||||||||
Interest expense |
$ | (5.7 | ) | $ | (5.0 | ) | 14.0 | |||||
Investment income |
9.8 | 14.8 | (33.8 | ) | ||||||||
Other |
(1.0 | ) | — | N/A | ||||||||
Other income/(expense), net |
$ | 3.1 | $ | 9.8 | (68.4 | ) | ||||||
22
Three Months Ended | ||||||||||||
December 31, | ||||||||||||
(Dollars in millions) | 2006 | 2005 | % Change | |||||||||
Revenues: |
||||||||||||
North America Acute Care |
$ | 204.2 | $ | 204.0 | 0.1 | |||||||
North America Post-Acute Care |
45.4 | 43.3 | 4.8 | |||||||||
International and Surgical |
71.4 | 64.5 | 10.7 | |||||||||
Total Hill-Rom |
321.0 | 311.8 | 3.0 | |||||||||
Batesville Casket |
162.2 | 165.7 | (2.1 | ) | ||||||||
Total revenues |
$ | 483.2 | $ | 477.5 | 1.2 | |||||||
Divisional income: |
||||||||||||
North America Acute Care |
$ | 68.7 | $ | 65.1 | 5.5 | |||||||
North America Post-Acute Care |
15.7 | 14.7 | 6.8 | |||||||||
International and Surgical |
15.9 | 16.3 | (2.5 | ) | ||||||||
Functional Costs |
(59.6 | ) | (61.1 | ) | (2.5 | ) | ||||||
Total Hill-Rom |
40.7 | 35.0 | 16.3 | |||||||||
Batesville Casket |
44.3 | 41.6 | 6.5 | |||||||||
Total divisional income |
$ | 85.0 | $ | 76.6 | 11.0 | |||||||
Three Months Ended | ||||||||||||
December 31, | ||||||||||||
(Dollars in millions) | 2006 | 2005 | % Change | |||||||||
Segment divisional income |
$ | 85.0 | $ | 76.6 | 11.0 | |||||||
Public entity costs and other |
(5.9 | ) | (6.0 | ) | (1.7 | ) | ||||||
Special charges |
— | (2.4 | ) | (100.0 | ) | |||||||
Other income/(expense) |
3.1 | 9.8 | (68.4 | ) | ||||||||
Income from continuing operations
before income taxes |
$ | 82.2 | $ | 78.0 | 5.4 |
23
24
Three Months Ended | ||||||||
December 31, | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Cash Flows Provided By (Used In): |
||||||||
Operating activities |
$ | 101.8 | $ | 54.3 | ||||
Investing activities |
(76.9 | ) | 32.8 | |||||
Financing activities |
(13.9 | ) | (11.5 | ) | ||||
Effect of exchange rate
changes on cash |
1.0 | (0.3 | ) | |||||
Increase in Cash and Cash Equivalents |
$ | 12.0 | $ | 75.3 | ||||
25
26
27
28
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS |
Item 4. | CONTROLS AND PROCEDURES |
29
Item 1. | LEGAL PROCEEDINGS |
Item 1A. | RISK FACTORS |
30
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Total Number of | Maximum Number | |||||||||||||||
Shares Purchased | of Shares that May | |||||||||||||||
Total Number | as Part of Publicly | Yet Be Purchased | ||||||||||||||
of Shares | Average Price | Announced Plans | Under the Plans or | |||||||||||||
Period | Purchased 1 | Paid per Share | or Programs 2 | Programs | ||||||||||||
October 1, 2006 – October 31, 2006 |
65 | 57.07 | — | 3,000,000 | ||||||||||||
November 1, 2006 – November 30, 2006 |
— | — | — | 3,000,000 | ||||||||||||
December 1, 2006 – December 31, 2006 |
10,765 | 58.92 | — | 3,000,000 | ||||||||||||
Total |
10,830 | 58.91 | — | 3,000,000 |
1 | All shares purchased in the three months ended December 31, 2006 were in connection with employee payroll tax withholding for restricted and deferred stock distributions. | |
2 | In January 2000, the Board of Directors approved the repurchase of a total of 24,289,067 shares of common stock. There were no purchases under this approval in the three months ended December 31, 2006. The approval has no expiration, and there were no terminations or expirations of plans in the current quarter. However, effective October 26, 2006, the Board of Directors authorized the repurchase of an additional 1,421,600 shares, bringing the total available for repurchase to 3,000,000 shares. |
31
Item 6. | EXHIBITS |
A. | Exhibits |
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 99.1 | Plaintiffs’ First Amended Consolidated Class Action Complaint, dated October 12, 2005, In re Funeral Consumers Antitrust Litigation |
Exhibit 99.2 | Plaintiffs’ First Amended Class Action Complaint, dated October 21, 2005, Pioneer Valley Casket Co., Inc. et al. v. Service Corporation International et al. |
Exhibit 99.3 | Plaintiffs’ Class Action Complaint dated October 26, 2006, Estates of Dale Van Coley and Joye Katherine Coley, Candace D. Robinson, Personal Representative, v. Hillenbrand Industries, Inc. and Batesville Casket Company |
32
HILLENBRAND INDUSTRIES, INC. | ||||||
DATE: February 7, 2007
|
BY: | /S/ | Gregory N. Miller | |||
Gregory N. Miller | ||||||
Senior Vice President and Chief Financial Officer | ||||||
DATE: February 7, 2007
|
BY: | /S/ | Richard G. Keller | |||
Richard G. Keller | ||||||
Vice President, Controller and Chief Accounting Officer |
33