Hillenbrand Inc (HI) 2011 Q4 法說會逐字稿

Good morning, everyone, and welcome to Hillebrand's earnings call for the fourth fiscal quarter of 2011. A replay of the call will be available until midnight Eastern time Tuesday, December 13, 2011, by dialing 1-888-203-1112 in the United States and Canada or 1-719-457-0820 internationally. And using the passcode 8822146. This webcast will be archived at www.HillenbrandInc.com through November 29, 2012. If you ask a question today, it will be included in a future use of this recording. Also note that any recording, transcript, or other transmission of the text or audio is not permitted without Hillenbrand's written consent. At this time, it is my pleasure to turn the conference over to Chris Gordon, Director of Investor Relations. Mr. Gordon, please go ahead.

Thank you, Kathy, and good morning, everyone. Welcome to our earnings call for the fourth quarter of fiscal 2011, which ended September 30. With me on the call today are Hillenbrand President and CEO, Ken Camp; and Hillenbrand Chief Financial Officer, Cindy Lucchese. During the course of today's conference call and the question-and-answer session that follows, we may make projections or other forward-looking statements that are subject to the Safe Harbor provisions of the securities laws regarding future events for the financial performance of the Company. We caution you that these statements are only our view of the future and that actual results may differ materially. We also alert you to the risk described in the documents we file with the Securities and Exchange Commission such as our annual and quarterly reports on forms 10K and 10Q. We do not undertake any obligations to update or correct any forward-looking statements.

Now, let me provide some information regarding our call. We've scheduled one hour, and we will start with prepared remarks from Ken and Cindy that should last approximately 20 minutes. We'll start with an overview of the business for the past quarter and the 2011 fiscal year, Cindy will follow with financial results, and then Ken will wrap up the prepared portion of the call. After that, we will move directly to Q&A. If you have follow-up questions after the call has ended, please don't hesitate to call me at 812-931-5001 or e-mail me at Chris.Gordon@Hillenbrand.com. Now it's my pleasure to turn the call over to Ken Camp, Hillenbrand's President and CEO. Ken?

Thanks Chris. Good morning, everyone. I hope you had a wonderful Thanksgiving holiday last week, and I thank you for joining us today for the call. After the market closed yesterday, we released our earnings and filed our 10K. Both documents are available on our public website. And as you saw, Hillenbrand finished the fourth quarter and fiscal 2011 with strong results in revenue, net income, and earnings per share. Before I go further into the results along with Cindy, I would like to take a moment to talk about Hillenbrand's structure as a diversified global manufacturing company.

We currently have two business platforms. The Process Equipment Group designs, manufactures, and sells equipment used in a wide variety of global industrial applications. From processing such commercial products as food, pharmaceuticals and plastics, to crushing, sizing, and separating coal, pot ash, wood and biomass, and other materials. Our second platform is our original one, Batesville, which is the leader in the funeral service industry. While Batesville's core products is its well-known line of burial caskets, it also manufactures, sells, and distributes cremation products and burial vaults. Batesville's experienced North American sales force provides additional support of their funeral home customers through turnkey selection room displays, business analysis, and merchandising systems, and web-based e-business applications.

Taken together, these two business platforms create an attractive value proposition that provides strong growth potential, both domestically and globally. As part of their respective portfolio missions, Batesville provides stable, consistent profitability, and generates substantial cash flow. And the Process Equipment Group provides a significant growth component along with additional cash flow. Using this strategy in the fourth quarter, the Process Equipment Group improved revenue by 32% over the prior year. They delivered on their organic growth initiatives, contributing 17% overall to the Hillenbrand revenue growth; and even excluding the favorable impact of foreign currency, organic growth in Q4 was a healthy 10%.

We also completed the Rotex acquisition on August 31 allowing us to add a full month of their revenue to the Process Equipment Group's results. In line with their portfolio mission, the Batesville team played an important role in the growth story in Q4 by providing strong operating profit and cash flow. We reinvested a significant portion of that cash in strategic initiatives, where we have the greatest growth potential, both at Batesville and within the Process Equipment Group. As we continue the transformation to being a diversified global manufacturing Company, we are now attracting more industrial investors. Therefore, I think it's appropriate to again mentioned the role that cash plays in the Hillenbrand thinking. In short, while earnings are often the result of an accountant's opinion, cash is a fact.

The decisions we make are designed to protect and increase our ability to generate cash flow streams that can be effectively used to increase shareholder value. And we use that cash in several ways. First, we pay our shareholders a healthy dividend with current yield of about 3.5% and a current payout ratio of about 45%. Second, we reinvest capital in our companies to keep them operating efficiently, and to allow them to identify and implement strategic growth initiatives. And third, we actively pursue acquisition opportunities that will support the current platforms or to acquire additional business platforms for profitable future growth. This is the strategy we introduced at the time we became a public company in 2008; and as you can see from our results, it is serving us well.

Now, I'd like to take a few minutes to update you on the initiatives and results for each business platform, starting with the Process Equipment Group. As I mentioned earlier, the Process Equipment Group had strong organic growth for both the quarter and the year. Excluding the impact of acquisition and FX, their core revenue grew 10% in the quarter and 18% for the year. This is particularly important because our strategy is to acquire strong businesses with good long-term organic growth prospects and to help them improve. We continue to believe that an increasing world population and expanding middle-class in some of the fastest growing countries will have human needs, which drive demand for the industries we serve; including fertilizers, packaged goods, plastics, energy, and petrochemicals.

In addition to picking the right markets and customers to serve, one of the keys to accelerating organic growth in the Process Equipment Group is using Hillenbrand's lean business competency. The Hillenbrand lean business process, which is based on the Toyota production system, helps us to find and eliminate bottlenecks at business processes, to eliminate waste and to reduce time-to-market. In short, it allows the Company's we acquire to serve their customers better and faster, and to eliminate costly waste as they do so. One example of how lean business practices can help generate growth is an issue that's currently underway in the Process Equipment Group. Their leadership teams are working to significantly reduce the time it takes to create an accurate and timely quote for a system or equipment project. By streamlining legacy processes, our engineers in Switzerland, China, and the US can all work on a single system so that progress can be made almost 24 hours per day. Once this is accomplished, it will provide a competitive advantage that will enable us to respond to customers more quickly than do competitors.

In addition, the use of related software tools will enable our engineers to pool their expertise on a specific project, and level load our global knowledge resources to efficiently work on projects across the globe, wherever they are needed most. Many other lean business initiatives are currently underway at the Process Equipment Group companies, and they are on the march to master lean business practices in the same way that Batesville has. Incorporating lean business into an organization is a slow but inexorable process at first, but the cultural change as it gains momentum and produces greater results each year. Throughout the Process Equipment Group, two additional key themes for growth will continue in 2012. The first is geographic expansion.

We made appropriate investments in China over the past 12 months to expand our presence in coal mining, coal fire power generation, and the plastics and food processing industries. While there's plenty yet to do, capital equipment sales in China are growing; and we are implemented initiatives to increase our profitable sales of consumable parts by expanding our parts sales and service capabilities in the region. We also are expanding in Eastern Europe in mineral and coal mining. After Canada, Eastern Russia contains the world's second largest source of pot ash, which is a key ingredient in fertilizer. We are establishing a more significant presence in Russia that will allow our Gundlach, Pennsylvania Crusher, and Rotex brands to capitalize on these opportunities.

The second key theme is increasing the sales of engineered systems. We've always provided individual components for production processes and provided engineered systems on somewhat a limited basis. We know however, there is great potential to use our application knowledge and engineering expertise to build and install integrated system solutions, and to incorporate equipment for more than one of the Process Equipment Group's operating companies. We're also continuing to explore acquisition opportunities to bolster this effort and to increase our share of our customer's production process. In total, as a result of strong global demand and their commitment to strategic planning and lean business, the Process Equipment Group has surpassed our expectations for their first full year as part of Hillenbrand.

Now, I'll briefly update you on the Batesville business platform. Batesville continues to be a stable industry-leading business focused on providing innovative, high-quality products and services while using a high velocity distribution system to meet evolving funeral director/customer needs. Their decades of expertise in lean business and effective cost management provide the cash flow we used to fund growth initiatives across the enterprise. In the funeral service industry, the cremation rate has been increasing at a steady, predictable pace since the 1960s.

Combining cremation growth with a relatively flat number of annual deaths has yielded an ongoing modest decline in the number of burials. This creates an increasingly competitive environment for funeral directors and for their suppliers. Batesville seeks to maintain and grow its business by continuing to leverage the largest sales force in the industry, to merchandise, train, and serve our funeral home customers. Batesville's ability to meet their customers needs by delivering the right product at the right time with a 99% plus success rate is a competitive advantage, which Batesville customers highly value. Another way Batesville maintains its profitability is by using the lean business system in all its operations. Many companies talk about being lean, but there's a reason why our operating profit is significantly higher than that of our competitors.

Lean business is integrated into the Batesville culture. The continuous application of these tools and practices allows the Batesville management team to counteract part of the impact of increased cost for fuel and raw materials throughout the supply chain. Batesville's formula for success lies in improving the quality of funerals and increasing the profitability of their funeral home customers. They are approaching a challenge in two ways. The first is to invest in differentiated products and merchandising that give families more and better choices for memorializing their loved ones; and second, the Company is accelerating their growth business. In 2011, the options cremation's business grew at more than twice the market rate. During the same period, revenue from the online offerings of Batesville interactive doubled over the prior year.

The Company has launched a strong lightweight durable product into the vault market that has a competitive advantage over concrete. The vault business began to see stronger results in the fourth quarter, and we anticipate the vault business will continue to grow in 2012. Although some of the points I've made this minor pretty well-known to many on the call, I think it's important for us to help investors really understand our Company strategy and better appreciate the core competencies which we employ in the competitive arena. Now, I'll turn the call over to Cindy.

Thank you, Ken. We are very pleased with our strong results for the fourth quarter. Process Equipment Group led the way, delivering a 32% increase in revenue over the prior year. While the Rotex acquisition was a factor, strong performance in the original Process Equipment Group, which consisted of K-Tron as a side production group grew 17% revenue growth and double digit growth of 10% on a constant currency basis. Our Batesville platform also delivered solid results particularly given their challenging environment with fourth -quarter revenue of $155 million, up slightly over the prior year.

In total, consolidated revenue for the quarter grew 9% to $231 million. Another important note regarding fourth quarter revenue is the composition of that revenue. About 2/3 came from Batesville, and 1/3 from the Process Equipment Group. We expect to continue to see the proportion of revenue from the Process Equipment Group grow, given their strong growth fundamentals and our acquisition strategy. For the year, revenue increased 18% to $883 million, 16% on a constant currency basis. Batesville's revenue was relatively flat so the strong growth came from the Process Equipment Group.

Because we didn't own any of these companies for the first half of 2010, acquisitions were a key driver of the growth. However, looking at the underlying year over year performance of the original Process Equipment Group, organic revenue grew 25%, 18% excluding the impact of foreign currency. Our gross profit margin was 39.2%, compared to 41.8% in the prior year. However, the inventory step up charge from the Rotex acquisition require further explanation. That's why we provide adjusted numbers.

Our adjusted gross profit margin was 40.4% in the fourth quarter of 2011, a 140 basis point decline from the prior quarter largely driven by commodity increases in our Batesville business. For the quarter, operating expenses as a percentage of sales improved by 80 basis points to 24.6% compared to the prior year. After excluding nonrecurring items like sales tax recoveries, business acquisition costs, and backlog amortization, our Q4, 2011 ratio was 22.1%, an improvement of 50 basis points over the prior year. On an annual basis, our OpEx ratio was 23.9% or 22.9% on an adjusted basis. But both higher than prior year due to a full year of non-cash intangible amortization expense related to the K-Tron acquisition, which was only six months in the prior year.

Now, we are pleased at the discipline shown at both of our business platforms. We saw good improvement in these ratios over the year at Process Equipment Group, where our lean efforts are just starting to deliver results. As you know, our baseball platform has deeply integrated lean into its culture, yielding attractive adjusted OpEx margins consistently each quarter in the 15% to 16% range. Interest expense was flat quarter over quarter. However, on an annual basis our interest expense was $11 million versus $4 million in the prior year. Now this increase was due to having a full year of interest expense on the notes we issued in July 2010 versus only three months in fiscal year 2010. You will recall that we used the proceeds from the notes to pay down our revolver last year.

Investment income was relatively flat quarter over quarter; however, on an annual basis it was $10 million in 2011 compared to about $13 million in 2010. The decline relates to $6 million less Forethought interest income offset by increased limited partnership investment income in 2011 as compared to 2010. You will recall that we received early payment of the Forethought note last April. While this will result in a decline in interest income, it's important to remember that we have redeployed that cash into the purchase of Rotex, an asset that is in line with our strategic goal, and one that we believe will provide greater return to our shareholders than the previous value of interest received. Our tax rate for the quarter was 26.6% compared to 39% in the prior year; and on an annual basis, our tax rate was 32.8% in 2012 compared to 37% in the prior year. The rate was favorably impacted by a decrease in state income tax rate, an increase in foreign income and lower rate jurisdiction, an increase in the domestic manufacturing deduction, and nondeductible business acquisition costs incurred in 2010. So these items should continue to favorably impact our tax rate in the future.

However, another driver impacted the tax rate in the fourth quarter; a change in the value of deferred tax assets and liabilities, which reduced the annual rate by roughly 100 basis points. These types of adjustments occur sporadically and are not indicative of the underlying rate, so therefore, you should expect our future tax rate to be higher by 100 basis points or so than the one that we saw in 2011. Operating cash flow was strong versus the prior year both in the quarter where it was up $33 million; and the year, up $71 million. The timing of income tax payments favorably impacted both the quarter and the year. Annual cash flow also benefited from the collection of the Forethought note.

For the quarter, net income increased 17% over the prior year to $24 million, with earnings per share growing 19% to $0.38. EBITDA increased 8% to $45 million. The year over year increases were higher when you look on an adjusted basis, with net income up 19% to $29 million, earnings per share up 20% to $0.48, and EBITDA up 11% to $53 million. Now for the annual comparison, net income grew 15% to $106 million or $1.71 per share, while EBITDA increased 19% to $198 million. On an adjusted basis, net income grew 2% to $114 million or $1.84 per share and EBITDA grew 9% to $208 million.

Now, I would like to turn to guidance. Before we get into that discussion, I would like to provide some insight to some of the special items on our income statement. Since we are an acquisitive Company, we naturally have one-time charges and new recurring charges that make year over year comparisons more challenging. We group these items into two buckets. First, we have one-time charges that are related to the first year of an acquisition. These include the cost to identify, acquire, and integrate the new business. They also include step-up charges for items like backlog and inventory. In 2011, we had pretax charges of about $3 million for inventory step-up and about $1 million of backlog step-up amortization.

Now in 2012, we expect to expense the remaining $2.5 million for Rotex backlog in the first quarter. And there are a few things to keep in mind regarding these charges. First, because they are not reflective of our ongoing operations, we exclude these charges and we calculate adjusted earnings per share and net income. And second, the inventory step-up and backlog amortization are non-cash items and they result from purchase accounting. Next, we have expenses caused by the acquisitions that are expected to recur for a number of years. These expenses are in the form of amortization expense for our newly acquired intangible assets as well as additional interest expense due to the money borrowed to finance the acquisition.

The Rotex acquisition added about $5 million of annual, non-cash amortization expense, and much of that will continue for the next 20 years. Now, we also expect to pay about $2 million more of interest expense and 2012 compared to the prior year. It is very important to note, we do not exclude these expenses in our EPS and net income calculation. In addition, we have some items related to our spend from Hill-Rom that have caused volatility in our results over the past few years. We inherited some financial instruments including the Forethought note, auction rate securities, and investments in limited partnerships. We have managed these investments prudently with the goal of liquidating them at the appropriate time to provide additional capital for acquisitions and to fund organic growth. We have been quite successful in this regard over the past three years.

We collected the full $151 million balance of the Forethought note in April 2011. As the note was generating interesting of about $12 million or $0.12 a share on an annual basis, and we earned at about $6 million or $0.06 per share before it was repaid in 2011. So as a result, our interest income in 2012 will be about $6 million lower than 2011. In a similar fashion, we liquidated our entire investment in auction rate securities, roughly $50 million netting a little better than $0.96 on the dollar. Therefore, when the Forethought note and auction rate securities are combined, we converted more than $200 million of the non-core illiquid assets transferred to us at the time of the spend to cash. This cash in turn has been redeployed to provide better return.

Now, all that remains of the financial instruments we received at the time of the spend is about $17 million of investments, most of which is in private equity limited partnerships. These partnerships are highly illiquid and would be difficult to sell even at a deep discount. So as a result, it's most prudent to maintain them through dissolution. Most should be wrapping up in the next several years. In the meantime, these investments will cause volatility in our investment income line. Note that in the past few years alone, we have seen swings ranging from a gain of $6 million to a loss of $5 million. So in 2011, these investments performed positively generating gains of $6 million. We can't predict the performance of these investments, therefore we didn't build any gain or loss on these investments into our guidance forecast.

So now on to guidance. Building off of the strong year we had in 2011, we expect 2012 global revenue to exceed the $1 billion mark, increasing between 13% and 17%. This will be driven by double-digit organic topline growth from the Process Equipment Group, and a full year of revenue from Rotex. Batesville is expected to deliver low single-digit topline growth. Given current foreign exchange rates, we expect foreign currency to be favorable in the early part of the year, then largely offset in the latter part resulting in minimal total translation impact when compared to fiscal 2011. Now although we don't issue guidance on gross margins, we want to provide some insight regarding our expectations for 2012.

During the latter half of 2011, our gross margin percentage declined mainly due to rising costs from fuel and steel in our Batesville business. As I explained earlier, Batesville instituted pricing adjustments for higher scale and fuel costs, which were absorbed in 2011 and are being incurred in 2012. This price increase, along with a continued focus on lean to reduce cost and increase efficiencies is expected to bring our overall Hillenbrand gross margin percentage back in line with 2011 averages. Another item I want to provide some color on is capital expenditures. We've historically been a low CapEx consumer, spending less than 3% of revenue on an annual basis. We expect this trend to continue in 2012.

Diluted EPS is projected to range from $1.75 to $1.85 on a GAAP basis. As a reminder, this range includes $5 million of intangible amortization expense, $2.5 million of backlog amortization for Rotex, and about $12 million less investment income due to the collection of the Forethought note and lower limited partnership income. Our 2012 diluted adjusted EPS range is expected to be $1.82 to $1.92 after making adjustments for such items as business acquisition costs, backlog step-up amortization and antitrust litigation expense. Note that the impact of the Forethought note, limited partnership investments, and $5 million of amortization are not removed from adjusted EPS; therefore, both our GAAP and adjusted EPS numbers reflect the impact of these items. Now I will turn the call back to Ken for his concluding remarks. Ken?

Thanks, Cindy. Before we take questions, I would like to take a moment to update you on the progress of the Rotex integration. Rotex has wasted no time participating in deep projects for the Process Equipment Group. There already collaborating on expansion into China and Russia, including some shared marketing initiatives. And they have launched lean business projects in Cincinnati and their London, England operations. As with K-tron last year, we believe Rotex is a terrific Company with a very talented management team. And they also are a strong fit with our organization, and we are delighted to have them join the Hillenbrand family of companies.

In 2012, we will continue to execute on our organic growth strategy. This includes an ongoing effort to help our operating Companies increase their proficiency, in our core competencies of strategy management, Hillenbrand lean business, and talent development. As we move forward, acquisitions will continue to play an important role in our strategy. We have a pipeline of opportunities that would support existing business platforms and create opportunities to add new ones. And while we certainly can't predict what will happen in this complicated, uncertain, and rapidly evolving world economy, we remain focused on our growth strategy.

We have talented people around the world who are dedicated to taking care of customers, making good products, and continuously improving how they do things. In the end, we believe those factors will determine our ability to grow and excel as a global enterprise. The transformation of Hillenbrand from a funeral products Company to a growing, diversified, global manufacturing Company is well underway. Our Q&A session will be joined this morning by Kim Dennis, Batesville's President; and Joe Raver, the Process Equipment Group president who is calling in from Switzerland. Now, we are ready to take questions. I will ask the operator if you would please open the lines.

Certainly, sir. (Operator Instructions) And we'll take our first question from Clint Fendley of Davenport & Co.

Thank you. Good morning, Ken, Cindy, Kim, and Joe.

Morning.

I wondered if we could begin, if you could remind us just what your total exposure is now to Europe post the Rotex acquisition here, and how those end markets have fared during the quarter?

Joe is on the line.

Yes, sorry about that, Clint. Let me jump in. It's Cindy. We've got Joe on the line on video and so we were trying to decide whether he was going to take it or not. Basically, if you look at our revenue, total overall about 15% of our revenues are outside the US. And a bigger piece obviously is outside the US with regard to the Process Equipment Group. In terms of in Europe, it's not as huge percent of their total, I'm guessing it's around 10% or so. And, I guess, Joe might want to add a little bit more commentary about what he's seeing in the markets right now.

Yes, Clint, it is Joe. Obviously, we are acutely aware of what's happening in the European economy. It seems like being in Switzerland especially, it seems like you can't pick up a newspaper or turn on the television or turn on the radio without getting some sort of a headline about the European debt crisis. So that's clearly causing a lot of uncertainty in the marketplace; and we have seen volatility, you have seen the volatility in the equity markets certainly. And, of course, our customers are feeling some of that volatility as well. I will tell you, as we head into 2012, I think a couple of points are worth talking about.

I think the first one is, we are heading into 2012 with a strong backlog, and that includes a strong backlog in our European and Asian operations. The businesses are performing well. We are always trying to improve processes, take waste out, and improve our service to our customers. So we feel good about the performance of the business as we've worked to handle strong volumes this year. And I think the third point really is we still feel really good about our long-term strategy. Our long-term strategy is not really dependent on the ups and downs of individual markets. We are looking to grow globally, and especially in some of the emerging markets like China and Russia as Ken mentioned, and was invested pretty heavily over the last 12 months or so to grow in those markets.

Those markets are also being driven by some pretty big macro trends like middle-class growth, which drives demand for energy and processed foods, things made out of plastics like cars and other forms of transportation, fertilizers to grow crops. So a lot of the industries we serve will do well in those global markets, and that's been a big piece of our strategy. I guess the second part of the strategy has really been to help drive system solutions, and as many of the European economies and the western economies are looking to increase productivity. That's going to be a key to coming out of any economic downturn; and our systems approach can really increase yields, reduce downtime, reduce costs to help the western countries and companies improve productivity. So we feel good going into 2012 with a strong backlog, we feel good about the long-term strategy that we have in place. We certainly can't do anything to solve the European debt crisis; but we feel like we are in good position to take advantage of whatever the market gives us, and we are taking actions to make sure that whatever happens, we will treat it as an opportunity and improve our competitive position. So I'm not sure that answers your question, but that's kind of how we think about what's going on in the world economy.

It does, thank you, that is very good color. And next question, I wondered if you could remind us Cindy, what the restructuring charge was for the quarter? Obviously one of the reconciling items on the pro forma.

Sure. And actually it relates to Batesville so I'm going to let Kim explain what that is.

All right, Clint, this is Kim. Those restructuring charges were actually associated with some changes and rebalancing that we have done in our manufacturing plants, primarily. Specifically moving some of our volumes around and rebalancing our wood and metal manufacturing plants both in the second and third quarters of this year. Very minor changes out in our field delivery network, all those were primarily related to manufacturing.

Okay.

Clint, it's Ken, if I could add something. I know you know this well, but I don't know that others on the call know it. As part of the lean business environment, what we try to do all the time is to make sure we do not have excess capacity lying around for a lot of reasons, it's costly and it makes management make bad decisions. So what we typically do is, as you look back over time, we will reduce capacity and rebalance as Kim said, across our plants to provide ourselves some level of redundancy, but also to make sure that we don't have excess capacity. And we use our lean capabilities to enable to handle flu seasons or any other unusual spikes that might come about.

Okay. Got it. And then last question here, I know, Ken, you mentioned in your remarks, strong fourth quarter for the vaults; I just wondered if you had anymore color on the developments there?

Yes, I will see if Kim wants me to do that one. I like the prospect of this vault business. They're changing the rules in the way cemeterians approach vaults. They historically use concrete vaults that are heavy, cumbersome, require a lift truck to deliver. Our vaults are a new technology, high strength resin and I think I've told you before, we wanted to create this to be strong enough that two elephants could stand on it and light enough that two Girl Scouts could lift it. And we got the first part dead on, and the second part actually two adults could lift it. It might be a little strained for Girl Scouts but it doesn't need a lift truck at all. The point is, we are changing the rules in cemeteries, that's taking some time. You and I have known each other for a long time, you're well aware that I don't wait well, and encouraging still they felt (inaudible)--.

I will let it stand as this.

We are pleased but not yet satisfied.

We are moving quickly into number of new markets both geographically and with different customers. Different than those sometimes that we serve with our casket market. So it's been a great opportunity for us to establish relationships not only with those we've done business with for 100 years, but also with a number of new customers who see this as a tremendous opportunity for them to capture margin. In a market where, where those margins are being challenged literally on a daily basis. So that's really a key part of what our core mission is for the long-term health of our funeral home customer.

Okay. Great. Thank you, and I look forward to seeing all of you next month in New York.

Thanks, we appreciate it Clint.

And we'll take our next question from Jamie Clement of Sidoti.

Good morning.

Good morning, Jamie.

I know that over the last 18 months or so, you all have highlighted Russia and China as targets of investment in your non-death care industrial businesses. Obviously, it sounds like you've done a good job there. What are some of the other countries that are number three through five on the list over the course of the next three to five years?

Hi Jamie, is Joe Raver.

Hi, Joe.

It's nice to hear from you again.

Thank you.

Clearly, China and Russia have been two places that we have been heavily focused on and particularly in China. If you go after that, we believe that probably the next largest opportunity that we have started some work on is in South America. And we believe this opportunity in South America across each of the Process Equipment Group companies, so that's K-tron, the size reduction group, as well as Rotex. The other part about South America is it's pretty vast geographically, and so we believe there is some benefit to going as a group. Going as a group and sharing infrastructure, for example, office space, warehouse space, getting set up, those kinds of things. So, South America is a focus. And then of course, India is such a large market and has that emerging middle class with big demand for power, for transportation, for some agricultural products. And so I would say that India would be next on the list in terms of a focus for the Process Equipment Group. It varies a little bit from operating company to operating company inside; but generally, I would say China and Russia are at the top of the list, we're quickly moving into South America and India as well.

Okay. Thanks very much for that. And kind of switching gears, Ken, the guidance section you alluded to the possibility of some antitrust litigation charges. What exactly -- where exactly does that stand right now? It seems like most of that's kind of been wrapped up. I would have to reread the press release, but I don't think you put a dollar value on that.

No, it is -- we anticipate it's a relatively small number of probably $0.01 per share. And it's just a function of the upcoming oral arguments with the appellate court in the Fifth Circuit. We have won at every single step, and this is just it doesn't -- it just kind of hangs in there. So someone wrote on our message board the other day that we finally get our last day in Court. We hope. We have to be alert to the fact that these things can be costly. One of my quotes about those (inaudible) a military historian about resting on the eve of battle. The plains of hesitation are littered with the bleached bones of those who rested on the eve of battle and lost.

Fair enough.

Right to the end.

Over the last couple of year, or over the last two years, you periodically -- you all have discussed pricing pressure towards the lower end of the casket market. Is that just an ongoing reality of the operating environment going forward? Because it's not something you touched on here. I don't sense anything's gotten particularly better, so is that just sort of the reality of the operating environment these days? So not something that is really worth you all bringing up every three months?

Jamie, it's Kim. I do think that is a reality certainly in an overcapacity industry. And as Ken indicated earlier when he discussed our lean business practices and our desire to make sure that we are constantly reviewing our capacity so that we don't do things like try and push products out into the marketplace and do that at any cost. Those are the type of challenges that we do face in our slightly overcapacity industry. But I also do think that there is still a great opportunity as we continue to move and March towards a time period where we believe that burial's will level out. And there will be an opportunity to continue to focus on consumerization, and focus on meaningful funerals and the types of diversified products that we deliver into the marketplace. For many, many funeral directors and many, many funeral homes, that still provides a great value to families at a differentiated value at a time when the market can become commoditized if you don't focus on the types of things.

Okay. Great. Thank you all very much for your time.

Thank you.

And we'll move next to Arnold Ursaner of CJS Securities.

This is actually Dan Moore sitting in for Arnie. Good morning.

Good morning, Dan.

Couple questions, one focusing on the core Batesville group obviously got back to flat to slightly up for the quarter. Can you break that out perhaps between price and volume or give us a sense? And as we look out to 2012, the guidance is for certainly an improvement from what we saw in 2011. What gives you the confidence that you can start to grow again as we look out over the next 12 months?

Okay. Well, Dan, it's Cindy. I'll take the first half of the question and then Kim can jump in for the latter half. Basically, volume was down about $8.5 million for the year. And then average selling price, which is really a combo of mix and our price sort of together is $2.9 million. And then FX was another -- that was a favorable item, and then FX was a favorable $2.8 million. So that's basically the blend of how we got there.

I would say that our opportunities on the revenue growth side are focussed on a number of different initiatives. First of all the continued growth in our basic casket platform, we've got a number of initiatives going on there in the way we segment and serve various customer segments to purchase our caskets. But we've also got these three growth engines that we've spoken with you about on a number of the quarterly calls; that being our options cremation business, which as we've indicated has -- last year grew at more than twice the market rate. That continues to be a nice healthy little business with us that is really continuing to rise. The growth trends that we see in the market, that market is growing at about 3.5% a year. We've outperformed that as we continued to grow our relative share in that market place.

We've also obviously been focusing on the vault business, and trying to have a Batesville inside, Batesville outside in every burial that we serve kind of mindset. So we continue to see growth in that area. And then obviously our technology initiatives in terms of our efforts to serve funeral directors and their needs with everything to websites to consumer offered products in that marketplace, and so on. So it's a combination of those four areas of focus that we feel gives us the ability to deliver on our commitment to the corporation on the revenue growth side this year.

Excellent. And then switching gears to Process Equipment Group, backlog was up 26% in Q4. Can you break that out, what was the organic contribution from K-Tron versus the contribution from Rotex acquired?

Yes. This is Joe, Dan. We don't break the backlog out specifically, but I can tell you at a high level, backlog -- we had a nice fourth quarter, we had some big projects ship in the fourth quarter, which of course, we expected and planned for. So backlog was relatively flat to slightly down in the K-Tron and the Size Reduction Group business. And again, we expected that and planned for that, because of a number of large shipments. There was also a little bit of foreign exchange in there, which impacted backlog on the K-Tron side. And then most of the growth in backlog -- the growth in backlog was picked up when we acquired Rotex. So again, relatively flat to slightly down with K-Tron and Size Reduction Group and most of the growth came from Rotex on a sequential basis.

Okay, that's very helpful, I appreciate it, Joe. And that kind of leads into -- as we look out to some guidance for next year, I know you don't give quarterly guidance; but how should we think about the year kind of ramping up from a revenue and earnings perspective? Do you -- with backlog kind of flat, do you see things a little bit slower in the first half and picking up later? Or are you sort of confident that the trends are strong enough to generate that mid-teens revenue growth starting in Q1 into the first half of 2012?

Dan, it's Ken. I can talk to you a little bit about the seasonality effect, where it exists. The Batesville business has a seasonality element to it. It's not enormous, but it can range, it can affect gross margin up to 200 basis points, something like that typically. Our Q1 is the -- typically although not always, the second strongest of the year. Q2 the strongest, and then Q3 and Q4 are pretty much the same, a couple hundred basis points.

Although -- and the driver there is -- the nature of the casket business is that pneumonia and influenza are big factors in the timing of -- particularly when the elderly die. So it's something that we have learned to adapt to and prepare for, and have what we call a bracket of responsiveness in our -- in that business. There is less seasonality in the Process Equipment Group, although the nature of that business is such that sometimes customers are trying to, in some cases spend within their budget for year end. So they typically have a strong Q1 and Q2 as well. Looking at the visibility that we have in the Batesville casket business -- in the funeral products business, there is no future visibility.

Our work takes place every single day, and the phone rings to a more or lesser degree depending upon the season to some affect. In the Process Equipment Group, they have pretty good visibility. So right now, we've got very good visibility into Q1 and pretty good visibility into Q2, some signs in Q3 for next year. So the real -- we have a good look at it for the first half of the year. The second half is a little less certain, although the nature of the businesses we are quoting now on contracts that will come to fruition in some to late 2012 and some others in 2013.

That's great color, obviously there's not a hockey stick or a sort of a backend loading of the guidance. You have pretty good visibility in what you're seeing right now.

That's correct. For the first part of the year, we have good visibility in the Process Equipment Group. In the Batesville business, it's literally the -- wake up every morning and we have to respond.

Last question, Cindy, you did a great job of breaking out the impact from the Forethought note on 2011 earnings. It sounds like you add that and the LP income, you come up with somewhere around $0.12 a share that's embedded in that adjusted $1.84 earnings for this year. Is that math about right?

Yes, Dan, that is right. We had adjusted EPS of $1.84 in 2011, and then if you take $0.12 out, which would be for the LPs and the Forethought note, that would mean a comparable adjusted EPS. To think about how we are doing this year would be to compare it to $1.71.

Your guidance of growth for next year in that $1.82 to $1.92 range, kind of mid high single, to maybe a low double-digit growth off of 2011 apples to apples?

Absolutely.

Okay, that's great, appreciate it.

At this time we do have one question remaining in queue. (Operator Instructions) We'll take our next question from Steve O'Neil of Hilliard Lyons.

Yes, good morning.

Good morning, Steve.

Just a quick one. The -- and you answered it for the year. Your increase in sales for Batesville casket was $800,000 in the quarter, and I wonder if you could break that $800,000 down between price, volume, and currency?

For the quarter, I don't have that out handy; but let me see if I can grab that for you.

If you want to take it offline that's fine. I'm going to talk to you at 10.30, so we can do it then.

I will get that to you.

You want to do it offline?

Yes. Any other questions there Steve? And I'll get that to you offline.

There were a couple but they are better offline too. So I can just wait and talk to you later.

Okay, perfect.

I will talk to you later. Thank you.

Thank you.

It does appear that there are no further questions at this time. Mr. Gordon, I would like to turn the conference back to for any additional or closing remarks.

Thank you. Before we finish, let me take this opportunity to personally invite you to Hillenbrand's 2011 Investor Day on Monday, December 19, at the Century Center in Midtown Manhattan. Ken, Cindy, Joe Raver, and Kim Dennis will be hosting this event, which is designed to give you more insight into our businesses and strategies. If you haven't already registered and would like to attend, please visit our website at www.HillenbrandInc.com to sign up. If you have any questions about our Investor Day, please don't hesitate to call me at 812-931-5001. I hope to see all of you there. Thank you for joining us today, and have a great week.

Again, that does conclude today's conference. We would like to thank you for your participation.