UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~June 30,~~December 31, 2020

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

For the transition period from ____ to ____

Commission File No. 1-6651

HILL-ROM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Indiana

35-1160484

(State or other jurisdiction of ~~incorporation or organization)~~incorporation)

(I.R.S. Employer Identification No.)

130 E. Randolph St.

Suite 1000

~~Chicago~~

Chicago, IL

60601

(Address of principal executive offices)

(Zip Code)

~~(312) 819-7200~~

(Registrant’s telephone number, including area ~~code)~~code: (312) 819-7200

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
Common Stock, without par value	HRC	New York Stock Exchange

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


~~Yes~~			☑			No			☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).


~~Yes~~			☑			Yes ☑ No			☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, ~~(as defined~~” and "emerging growth company" in Rule12b-2 of the Exchange ~~Act)~~Act.

Large Accelerated Filer þ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


~~Yes~~			☐			No			Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, without par value – ~~66,605,984~~66,362,046 shares as of ~~July 29, 2020.~~February 3, 2021.

Table of ~~Conten~~t sContents

HILL-ROM HOLDINGS, INC.

INDEX TO FORM 10-Q


				Page
PART I - FINANCIAL INFORMATION


	Item 1 -	Financial Statements

		Condensed Consolidated Statements of Income (Unaudited)	4

		Condensed Consolidated Statements of Comprehensive Income (Unaudited)	5

		Condensed Consolidated Balance Sheets (Unaudited)	6

		Condensed Consolidated Statements of Cash Flows (Unaudited)	7

		Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)	8

		Note 1. Summary of Significant Accounting Policies	109

		Note 2. ~~Revenue from Contracts with Customers~~Supplementary Financial Statement Information	13

		Note 3. ~~Supplementary Financial Statement Information~~Business Combinations	1413

		Note 4. ~~Business Combinations~~Financing Agreements	1415

		Note 5. ~~Financing Agreements~~Derivative Instruments and Hedging Activity	15

		Note 6. Retirement and Postretirement Benefit Plans	17

		Note 7. Other Comprehensive Income (Loss)	18

		Note ~~6. Derivative Instruments and Hedging Activity~~	19

		~~Note 7. Leases~~8. Special Charges	20

		Note ~~8. Retirement and Postretirement Plans~~9. Income Taxes	22

		~~Note 9. Other Comprehensive Income (Loss)~~	2321

		Note 10. ~~Special Charges~~Earnings per Common Share	2621

		Note 11. ~~Income Taxes~~Segment Reporting	2721

		Note 12. ~~Earnings per Common Share~~	27

		~~Note 13. Warranties and Guarantees~~	28

		~~Note 14. Segment Reporting~~	29

		~~Note 15.~~ Commitments and Contingencies	3123

	Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3224

	Item 3 -	Quantitative and Qualitative Disclosures About Market Risks	4534

	Item 4 -	Controls and Procedures	4534

PART II - OTHER INFORMATION

	Item 1 -	Legal Proceedings	4635

	Item 1A -	Risk Factors	4635

	Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	4635

	Item 6 -	Exhibits	4736

SIGNATURES				4837

Table of ~~Conten~~t sContents

Forward-Looking Statements and Factors That May Affect Future Results

Certain statements in this Quarterly Report on Form 10-Q contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995, as amended, regarding our future plans, objectives, beliefs, expectations, representations, and projections.

Forward-looking statements are not guarantees of future performance, and our actual results could differ materially from those set forth in any forward-looking statements. For a more in-depth discussion of factors that could cause actual results to differ from forward-looking statements, see the discussions under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2019~~2020 (“~~2019~~2020 Form 10-K”) and subsequent filings with the United States (“U.S.”) Securities and Exchange Commission (“SEC”). Our actual results also could be materially adversely impacted by the length and severity of the on-going coronavirus pandemic (“COVID-19,” “the pandemic,” or “the virus”), the effectiveness and availability of the related vaccine, and the long-term economic impacts on our business, results of operations, financial condition, and prospects. We assume no obligation to update or revise any forward-looking statements unless required by law.

Table of ~~Conten~~t sContents

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)


		Three Months Ended June 30						Nine Months Ended June 30							Three Months Ended December 31
		2020		2019		2020		2019			2020		2019
Net Revenue	Net Revenue									Net Revenue
Product sales and service	Product sales and service	$	685.8	$	653.0	$	1,947.1	$	1,901.1	Product sales and service	$	652.5	$	614.3
Rental revenue	Rental revenue	81.7		73.8		228.6		223.4		Rental revenue	88.6		70.7
Total net revenue	Total net revenue	767.5		726.8		2,175.7		2,124.5		Total net revenue	741.1		685.0

Cost of Net Revenue	Cost of Net Revenue									Cost of Net Revenue
Cost of goods sold	Cost of goods sold	323.1		332.3		946.6		971.3		Cost of goods sold	324.2		306.3
Rental expenses	Rental expenses	35.4		37.9		110.9		114.0		Rental expenses	37.7		37.0
Total cost of net revenue (excludes acquisition-related intangible asset amortization)	Total cost of net revenue (excludes acquisition-related intangible asset amortization)	358.5		370.2		1,057.5		1,085.3		Total cost of net revenue (excludes acquisition-related intangible asset amortization)	361.9		343.3

Research and development expenses	Research and development expenses	34.4		34.1		100.3		103.9		Research and development expenses	34.8		31.5
Selling and administrative expenses	Selling and administrative expenses	202.3		217.1		609.0		613.3		Selling and administrative expenses	209.0		196.8
Acquisition-related intangible asset amortization	Acquisition-related intangible asset amortization	27.5		29.3		81.3		82.3		Acquisition-related intangible asset amortization	25.9		26.7
Special charges	Special charges	9.5		6.2		26.1		17.7		Special charges	27.1		7.8
Operating Profit	Operating Profit	135.3		69.9		301.5		222.0		Operating Profit	82.4		78.9

Interest expense	Interest expense	(17.3)		(23.1)		(55.8)		(66.2)		Interest expense	(17.8)		(19.4)
Loss on extinguishment of debt	Loss on extinguishment of debt	—		—		(15.6)		—		Loss on extinguishment of debt	0		(15.6)
Investment income (expense) and other, net	Investment income (expense) and other, net	2.2		(1.1)		(10.5)		0.2		Investment income (expense) and other, net	7.0		(1.3)

Income Before Income Taxes	Income Before Income Taxes	120.2		45.7		219.6		156.0		Income Before Income Taxes	71.6		42.6

Income tax expense	Income tax expense	26.3		13.1		39.0		31.7		Income tax expense	12.8		2.8

Net Income	Net Income	$	93.9	$	32.6	$	180.6	$	124.3	Net Income	$	58.8	$	39.8

Net Income per Basic Common Share	Net Income per Basic Common Share	$	1.41	$	0.49	$	2.71	$	1.86	Net Income per Basic Common Share	$	0.88	$	0.60

Net Income per Diluted Common Share	Net Income per Diluted Common Share	$	1.40	$	0.48	$	2.68	$	1.84	Net Income per Diluted Common Share	$	0.88	$	0.59

Average Basic Common Shares Outstanding (in thousands)	Average Basic Common Shares Outstanding (in thousands)	66,558		66,777		66,660		66,822		Average Basic Common Shares Outstanding (in thousands)	66,497		66,792

Average Diluted Common Shares Outstanding (in thousands)	Average Diluted Common Shares Outstanding (in thousands)	67,183		67,446		67,292		67,484		Average Diluted Common Shares Outstanding (in thousands)	66,925		67,329

See Notes to Condensed Consolidated Financial Statements (Unaudited)

Table of ~~Conten~~t sContents

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)


		Three Months Ended June 30						Nine Months Ended June 30							Three Months Ended December 31
		2020		2019		2020		2019			2020		2019
Net Income	Net Income	$	93.9	$	32.6	$	180.6	$	124.3	Net Income	$	58.8	$	39.8

Other Comprehensive Income (Loss), net of tax:	Other Comprehensive Income (Loss), net of tax:									Other Comprehensive Income (Loss), net of tax:

Derivative instruments designated as hedges	Derivative instruments designated as hedges	(6.7)		(9.4)		(32.4)		(15.0)		Derivative instruments designated as hedges	(4.9)		(2.6)
Foreign currency translation adjustment	Foreign currency translation adjustment	17.1		4.1		8.6		(13.1)		Foreign currency translation adjustment	41.3		23.1
Change in pension and postretirement defined benefit plans	Change in pension and postretirement defined benefit plans	1.0		0.4		(5.9)		1.3		Change in pension and postretirement defined benefit plans	0.5		0.7
Total Other Comprehensive Income (Loss), net of tax		11.4		(4.9)		(29.7)		(26.8)
Total Other Comprehensive Income, net of tax										Total Other Comprehensive Income, net of tax	36.9		21.2

Total Comprehensive Income (Loss)		$	105.3	$	27.7	$	150.9	$	97.5
Total Comprehensive Income										Total Comprehensive Income	$	95.7	$	61.0

See Notes to Condensed Consolidated Financial Statements (Unaudited)

Table of ~~Conten~~t sContents

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In ~~millions)~~millions, except share amounts)


		June 30, 2020		September 30, 2019			December 31, 2020		September 30, 2020
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	331.8	$	214.1	Cash and cash equivalents	$	294.6	$	296.5
Restricted cash		—		419.7
Trade accounts receivable, net of allowances of $23.0 and $20.6 as of June 30, 2020 and September 30, 2019		646.2		653.3

Trade accounts receivable, net of allowances of $27.7 and $25.9 as of December 31, 2020 and September 30, 2020						Trade accounts receivable, net of allowances of $27.7 and $25.9 as of December 31, 2020 and September 30, 2020	598.0		594.9
Inventories, net of reserves	Inventories, net of reserves	322.8		269.6		Inventories, net of reserves	335.9		352.0

Other current assets	Other current assets	114.6		106.7		Other current assets	111.5		121.5
Total current assets	Total current assets	1,415.4		1,663.4		Total current assets	1,340.0		1,364.9
Property, plant and equipment	Property, plant and equipment	852.1		829.6		Property, plant and equipment	878.1		858.2
Less accumulated depreciation	Less accumulated depreciation	(555.4)		(532.8)		Less accumulated depreciation	(569.6)		(552.1)
Property, plant and equipment, net	Property, plant and equipment, net	296.7		296.8		Property, plant and equipment, net	308.5		306.1
Goodwill	Goodwill	1,816.9		1,800.9		Goodwill	1,847.9		1,835.5
Other intangible assets and software, net	Other intangible assets and software, net	988.5		1,033.5		Other intangible assets and software, net	958.6		976.7
Deferred income taxes	Deferred income taxes	33.5		33.1		Deferred income taxes	34.7		32.9
Other assets	Other assets	170.2		91.3		Other assets	153.8		155.0
Total Assets	Total Assets	$	4,721.2	$	4,919.0	Total Assets	$	4,643.5	$	4,671.1
LIABILITIES	LIABILITIES					LIABILITIES
Current Liabilities	Current Liabilities					Current Liabilities
Trade accounts payable	Trade accounts payable	$	221.7	$	197.6	Trade accounts payable	$	202.9	$	236.5
Short-term borrowings	Short-term borrowings	250.1		660.4		Short-term borrowings	222.3		222.3
Accrued compensation	Accrued compensation	127.6		130.4		Accrued compensation	97.6		144.9
Accrued product warranties	Accrued product warranties	30.5		29.7		Accrued product warranties	30.0		30.8
Accrued rebates	Accrued rebates	39.8		47.7		Accrued rebates	54.4		44.8
Deferred revenue	Deferred revenue	106.7		107.3		Deferred revenue	112.3		110.1
Other current liabilities	Other current liabilities	164.7		95.2		Other current liabilities	180.7		162.8
Total current liabilities	Total current liabilities	941.1		1,268.3		Total current liabilities	900.2		952.2

Long-term debt	Long-term debt	1,782.6		1,783.1		Long-term debt	1,643.8		1,655.7
Accrued pension and postretirement benefits	Accrued pension and postretirement benefits	101.1		80.8		Accrued pension and postretirement benefits	94.7		89.3
Deferred income taxes	Deferred income taxes	117.0		143.0		Deferred income taxes	108.7		113.0
Other long-term liabilities	Other long-term liabilities	127.0		70.5		Other long-term liabilities	133.0		134.8
Total Liabilities	Total Liabilities	3,068.8		3,345.7		Total Liabilities	2,880.4		2,945.0
Commitments and Contingencies

SHAREHOLDERS' EQUITY	SHAREHOLDERS' EQUITY					SHAREHOLDERS' EQUITY
Capital Stock:	Capital Stock:					Capital Stock:
Preferred stock - without par value: Authorized - 1,000,000; none issued or outstanding
Common stock - without par value: Authorized - 199,000,000		4.4		4.4
Issued: 88,457,634 shares as of June 30, 2020 and September 30, 2019; Outstanding: 66,602,366 as of June 30, 2020 and 66,625,011 as of September 30, 2019
Preferred stock - without par value: Authorized - 1,000,000 shares; none issued or outstanding						Preferred stock - without par value: Authorized - 1,000,000 shares; none issued or outstanding
Common stock - without par value: Authorized - 199,000,000 shares						Common stock - without par value: Authorized - 199,000,000 shares	4.4		4.4
Issued: 88,457,634 shares as of December 31, 2020 and September 30, 2020; Outstanding: 66,354,008 shares as of December 31, 2020 and 66,640,832 shares as of September 30, 2020						Issued: 88,457,634 shares as of December 31, 2020 and September 30, 2020; Outstanding: 66,354,008 shares as of December 31, 2020 and 66,640,832 shares as of September 30, 2020
Additional paid-in capital	Additional paid-in capital	654.4		637.4		Additional paid-in capital	668.5		667.0
Retained earnings	Retained earnings	2,104.6		1,967.4		Retained earnings	2,174.1		2,132.2
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(212.2)		(182.5)		Accumulated other comprehensive income (loss)	(143.3)		(180.2)
Treasury stock, common shares at cost: 21,855,268 as of June 30, 2020 and 21,832,623 as of September 30, 2019		(898.8)		(853.4)
Treasury stock, common shares at cost: 22,103,626 as of December 31, 2020 and 21,816,802 as of September 30, 2020						Treasury stock, common shares at cost: 22,103,626 as of December 31, 2020 and 21,816,802 as of September 30, 2020	(940.6)		(897.3)
Total Shareholders’ Equity	Total Shareholders’ Equity	1,652.4		1,573.3		Total Shareholders’ Equity	1,763.1		1,726.1

Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	4,721.2	$	4,919.0	Total Liabilities and Shareholders' Equity	$	4,643.5	$	4,671.1

See Notes to Condensed Consolidated Financial Statements (Unaudited)

Table of ~~Conten~~t sContents

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)


		Nine Months Ended June 30							Three Months Ended December 31
		2020		2019			2020		2019
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	180.6	$	124.3	Net income	$	58.8	$	39.8
Adjustments to reconcile net income to net cash, cash equivalents and restricted cash provided by operating activities:	Adjustments to reconcile net income to net cash, cash equivalents and restricted cash provided by operating activities:					Adjustments to reconcile net income to net cash, cash equivalents and restricted cash provided by operating activities:
Depreciation and amortization of property, plant, equipment and software	Depreciation and amortization of property, plant, equipment and software	51.6		54.7		Depreciation and amortization of property, plant, equipment and software	18.4		16.6

Acquisition-related intangible asset amortization	Acquisition-related intangible asset amortization	81.3		82.3		Acquisition-related intangible asset amortization	25.9		26.7
Amortization of debt discounts and issuance costs	Amortization of debt discounts and issuance costs	3.0		4.8		Amortization of debt discounts and issuance costs	1.1		1.0
Loss on extinguishment of debt	Loss on extinguishment of debt	15.6		—		Loss on extinguishment of debt	0		15.6
Benefit for deferred income taxes	Benefit for deferred income taxes	(14.1)		(12.2)		Benefit for deferred income taxes	(3.3)		(3.9)
Loss on disposal of property, equipment, intangible assets, and impairments		1.5		3.3
Loss on disposal of property, equipment, intangible assets and impairments						Loss on disposal of property, equipment, intangible assets and impairments	0.1		1.1

Stock compensation	Stock compensation	27.2		26.9		Stock compensation	11.0		8.3
Other operating activities	Other operating activities	16.0		(2.9)		Other operating activities	4.5		(5.1)
Change in working capital excluding cash, current debt, acquisitions and dispositions:	Change in working capital excluding cash, current debt, acquisitions and dispositions:					Change in working capital excluding cash, current debt, acquisitions and dispositions:
Trade accounts receivable	Trade accounts receivable	12.3		15.3		Trade accounts receivable	6.2		74.8
Inventories	Inventories	(60.2)		(4.9)		Inventories	15.4		(9.8)
Other current assets	Other current assets	(10.4)		(3.5)		Other current assets	9.7		(15.8)
Trade accounts payable	Trade accounts payable	16.5		(9.0)		Trade accounts payable	(35.7)		(9.0)
Accrued expenses and other liabilities	Accrued expenses and other liabilities	(8.1)		14.3		Accrued expenses and other liabilities	(16.1)		(60.2)
Other assets and liabilities	Other assets and liabilities	2.0		7.7		Other assets and liabilities	4.2		(3.1)
Net cash, cash equivalents and restricted cash provided by operating activities	Net cash, cash equivalents and restricted cash provided by operating activities	314.8		301.1		Net cash, cash equivalents and restricted cash provided by operating activities	100.2		77.0
Investing Activities	Investing Activities					Investing Activities
Purchases of property, plant, equipment and software	Purchases of property, plant, equipment and software	(72.0)		(50.9)		Purchases of property, plant, equipment and software	(29.3)		(24.3)
Proceeds on sale of property and equipment	Proceeds on sale of property and equipment	1.6		2.5		Proceeds on sale of property and equipment	0.3		0.5
Payments for acquisition of businesses, net of cash acquired		(20.6)		(175.8)
Payment for acquisition of intangible assets		—		(17.1)
Payments for acquisition of investments		—		(26.6)

Other investing activities		0.6		—

Net cash, cash equivalents and restricted cash used in investing activities	Net cash, cash equivalents and restricted cash used in investing activities	(90.4)		(267.9)		Net cash, cash equivalents and restricted cash used in investing activities	(29.0)		(23.8)
Financing Activities	Financing Activities					Financing Activities

Payment of long-term debt		(37.6)		(0.1)
Payments of long-term debt						Payments of long-term debt	(12.5)		(12.6)
Borrowings on Revolving Credit Facility	Borrowings on Revolving Credit Facility	190.0		330.0		Borrowings on Revolving Credit Facility	0		50.0
Payments on Revolving Credit Facility	Payments on Revolving Credit Facility	(155.0)		(230.0)		Payments on Revolving Credit Facility	0		(55.0)
Borrowings on Securitization Facility		17.7		4.9

Payments on Securitization Facility	Payments on Securitization Facility	(17.7)		(5.5)		Payments on Securitization Facility	0		(7.5)
Borrowings on Note Securitization Facility	Borrowings on Note Securitization Facility	32.6		46.0		Borrowings on Note Securitization Facility	0		11.4
Payments on Note Securitization Facility	Payments on Note Securitization Facility	(21.2)		(51.3)		Payments on Note Securitization Facility	0		(12.6)

Prepayment premium on extinguishment of 5.75% Notes		(12.2)		—
Redemption of 5.75% Notes		(425.0)		—
Redemption and prepayment premium on 5.75% Notes						Redemption and prepayment premium on 5.75% Notes	0		(437.2)
Cash dividends	Cash dividends	(43.3)		(41.4)		Cash dividends	(14.6)		(14.1)
Proceeds on exercise of stock options	Proceeds on exercise of stock options	8.5		9.2		Proceeds on exercise of stock options	0.5		3.7

Stock repurchases for stock award withholding obligations	Stock repurchases for stock award withholding obligations	(16.4)		(4.2)		Stock repurchases for stock award withholding obligations	(8.3)		(15.1)
Stock repurchases in the open market	Stock repurchases in the open market	(54.1)		(75.0)		Stock repurchases in the open market	(47.4)		0
Other financing activities	Other financing activities	6.0		5.5		Other financing activities	2.3		1.7
Net cash, cash equivalents and restricted cash used in financing activities	Net cash, cash equivalents and restricted cash used in financing activities	(527.7)		(11.9)		Net cash, cash equivalents and restricted cash used in financing activities	(80.0)		(487.3)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	1.3		(1.7)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	6.9		4.7
Net Cash Flows	Net Cash Flows	(302.0)		19.6		Net Cash Flows	(1.9)		(429.4)
Cash, Cash Equivalents and Restricted Cash:	Cash, Cash Equivalents and Restricted Cash:					Cash, Cash Equivalents and Restricted Cash:
At beginning of period	At beginning of period	633.8		183.0		At beginning of period	296.5		633.8
At end of period	At end of period	$	331.8	$	202.6	At end of period	$	294.6	$	204.4

See Notes to Condensed Consolidated Financial Statements (Unaudited)

Table of ~~Conten~~t sContents

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(In millions, except share amounts)


		Common Stock					Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock				Total Shareholders’ Equity				Common Stock							Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock				Total Shareholders’ Equity
		Shares Issued	Amount																										Shares Issued				Amount				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders’ Equity
									Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock							Total Shareholders’ Equity																							Accumulated Other Comprehensive Income (Loss)		Treasury Stock	Total Shareholders’ Equity
Balance as of March 31, 2020		88,457,634	$	4.4	$	644.4				$	2,025.2					$	(223.6)			$	(901.5)	$	1,548.9
Cumulative effect of accounting rule adoption, net of tax of $0.1		—	—		—		0.3						—			—				0.3
Balance as of September 30, 2020																		Balance as of September 30, 2020	88,457,634					$		4.4			$	667.0			$	2,132.2				$	(180.2)				$	(897.3)		$	1,726.1
Cumulative effect of ASC 2016-13 adoption, net of tax of $0.8																		Cumulative effect of ASC 2016-13 adoption, net of tax of $0.8	—					—			—				(2.2)				—			—			(2.2)
Net income	Net income	—	—		—		93.9			—			—			93.9		Net income	—					—			—				58.8				—			—			58.8
Other comprehensive income (loss), net of tax of $1.6		—	—		—		—			11.4			—			11.4
Other comprehensive income (loss), net of tax of ($1.3)																		Other comprehensive income (loss), net of tax of ($1.3)	—					—			—				—				36.9			—			36.9
Dividends ($0.22 per common share)	Dividends ($0.22 per common share)	—	—		0.2		(14.8)			—			—			(14.6)		Dividends ($0.22 per common share)	—					—			0.1				(14.7)				—			—			(14.6)
Stock repurchases for stock award withholding obligations	Stock repurchases for stock award withholding obligations	—	—		—		—			—			(0.6)			(0.6)		Stock repurchases for stock award withholding obligations	—					—			—				—				—			(8.3)			(8.3)

Stock repurchases in the open market																		Stock repurchases in the open market	—					—			—				—				—			(47.4)			(47.4)
Stock compensation on equity-classified awards	Stock compensation on equity-classified awards	—	—		7.9		—			—			—			7.9		Stock compensation on equity-classified awards	—					—			10.7				—				—			—			10.7
Stock option exercises	Stock option exercises	—	—		1.2		—			—			1.6			2.8		Stock option exercises	—					—			0.2				—				—			0.3			0.5
Vesting of stock awards		—	—		(0.8)		—			—			0.7			(0.1)
Distribution of stock awards																		Distribution of stock awards	—					—			(11.0)				—				—			11.0			0
Shares issued under employee stock purchase plan	Shares issued under employee stock purchase plan	—	—		1.5		—			—			1.0			2.5		Shares issued under employee stock purchase plan	—					—			1.5				—				—			1.1			2.6
Balance as of June 30, 2020		88,457,634	$	4.4	$	654.4	$	2,104.6		$	(212.2)		$	(898.8)		$	1,652.4
Balance as of December 31, 2020																		Balance as of December 31, 2020	88,457,634					$	4.4		$	668.5			$	2,174.1			$	(143.3)		$	(940.6)		$	1,763.1

Common Stock Additional
Paid-in Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Treasury Stock
Total Shareholders’ Equity
Shares
Issued Amount
Balance as of September 30, 2019 88,457,634 $ 4.4 $ 637.4 $ 1,967.4 $ (182.5) $ (853.4) $ 1,573.3
Cumulative effect of accounting rule adoption, net of tax of $0.1 — — — 0.3 — — 0.3
Net income — — — 180.6 — — 180.6
Other comprehensive income (loss), net of tax of $11.4 — — — — (29.7) — (29.7)
Dividends ($0.65 per common share) — — 0.4 (43.7) — — (43.3)
Stock repurchases for stock award withholding obligations — — — — — (16.4) (16.4)
Stock repurchases in the open market — — — — — (54.1) (54.1)
Stock compensation on equity-classified awards — — 26.4 — — — 26.4
Stock option exercises — — 2.9 — — 5.6 8.5
Vesting of stock awards — — (16.9) — — 16.9 —
Shares issued under employee stock purchase plan — — 4.2 — — 2.6 6.8
Balance as of June 30, 2020 88,457,634 $ 4.4 $ 654.4 $ 2,104.6 $ (212.2) $ (898.8) $ 1,652.4

~~Table of Conten~~t s

Common Stock Additional
Paid-in Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Treasury Stock Total Shareholders’ Equity
Shares
Issued Amount
Balance as of March 31, 2019 88,457,634 $ 4.4 $ 619.9 $ 1,935.2 $ (140.3) $ (820.4) $ 1,598.8
Net Income — — — 32.6 — — 32.6
Other comprehensive income (loss), net of tax of $2.5 — — — — (4.9) — (4.9)
Dividends ($0.21 per common share) — — 0.1 (14.1) — — (14.0)
Stock repurchases for stock award withholding obligations — — — — — (0.2) (0.2)
Stock compensation on equity-classified awards — — 9.8 — — — 9.8
Stock option exercises — — 0.1 — — 0.5 0.6
Vesting of stock awards — — (0.2) — — 0.2 —
Shares issued under employee stock purchase plan — — 1.3 — — 0.7 2.0
Balance as of June 30, 2019 88,457,634 $ 4.4 $ 631.0 $ 1,953.7 $ (145.2) $ (819.2) $ 1,624.7

Common Stock Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total Shareholders’ Equity
Shares Issued Amount
Balance as of September 30, 2018 88,457,634 $ 4.4 $ 602.9 $ 1,876.2 $ (113.0) $ (754.3) $ 1,616.2
Cumulative effect of ASC 606 adoption, net of tax of $4.8 million — — — (4.9) — — (4.9)
Cumulative effect of ASU 2016-16 adoption, net of tax of $0.2 million — — — (5.6) — (5.6)
Reclassification due to ASU 2018-02 adoption — — — 5.4 (5.4) — —
Net income — — — 124.3 — — 124.3
Other comprehensive income (loss), net of tax of $4.0 million — — — — (26.8) — (26.8)
Dividends ($0.62 per common share) — — 0.3 (41.7) — — (41.4)
Stock repurchases for stock award withholding obligations — — — — — (4.2) (4.2)
Stock repurchases in the open market — — — — — (75.0) (75.0)
Stock compensation on equity-classified awards — �� 26.7 — — — 26.7
Stock option exercises — — 2.1 — — 7.1 9.2
Vesting of stock awards — — (4.9) — — 4.9 —
Shares issued under employee stock purchase plan — — 3.9 — — 2.3 6.2
Balance as of June 30, 2019 88,457,634 $ 4.4 $ 631.0 $ 1,953.7 $ (145.2) $ (819.2) $ 1,624.7


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Treasury Stock		Total Shareholders’ Equity
	Shares Issued	Amount

Balance as of September 30, 2019	88,457,634	$	4.4	$	637.4	$	1,967.4	$	(182.5)	$	(853.4)	$	1,573.3
Net income	—	—		—		39.8		—		—		39.8
Other comprehensive income (loss), net of tax of $0.4	—	—		—		—		21.2		—		21.2
Dividends ($0.21 per common share)	—	—		—		(14.1)		—		—		(14.1)
Stock repurchases for stock award withholding obligations	—	—		—		—		—		(15.1)		(15.1)
Stock compensation on equity-classified awards	—	—		8.3		—		—		—		8.3
Stock option exercises	—	—		1.1		—		—		2.6		3.7
Distribution of stock awards	—	—		(15.4)		—		—		15.4		0
Shares issued under employee stock purchase plan	—	—		1.3		—		—		0.6		1.9
Balance as of December 31, 2019	88,457,634	$	4.4	$	632.7	$	1,993.1	$	(161.3)	$	(849.9)	$	1,619.0

See Notes to Condensed Consolidated Financial Statements (Unaudited)

Table of ~~Conten~~t sContents

Hill-Rom Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in millions, except per share data)

Note 1. Summary of Significant Accounting Policies

Nature of Operations

Hill-Rom Holdings, Inc. (the “Company,” “Hillrom,” “we,” “us,” or “our”) was incorporated on August 7, 1969, in the State of Indiana and is headquartered in Chicago, Illinois. We are a global medical technology leader whose approximately 10,000 employees have a single purpose: enhancing outcomes for patients and their caregivers by Advancing Connected Care™. Around the world, our innovations touch over 7 million patients each day. Our products and services help enable earlier diagnosis and treatment, optimize surgical efficiency and accelerate patient recovery while simplifying clinical communication and shifting care closer to home. We make these outcomes possible through digital and connected ~~smart beds, patient lifts, patient assessment~~care solutions and ~~monitoring technologies, caregiver~~ collaboration tools, including smart bed systems, patient monitoring and diagnostic technologies, respiratory health devices, advanced equipment for the surgical space and more, delivering actionable, real-time insights at the point of care.

Basis of Presentation and Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements and related notes have been prepared in accordance with the rules and regulations of the SEC for interim unaudited Condensed Consolidated Financial Statements. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete Condensed Consolidated Financial Statements. In the opinion of management, all necessary adjustments, which consisted only of normal recurring items, have been included in the accompanying Condensed Consolidated Financial Statements to present fairly the results of the interim periods presented. Quarterly results are not necessarily indicative of annual results.

The unaudited Condensed Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q should be read in conjunction with the audited Condensed Consolidated Financial Statements and notes thereto included in Hillrom’s ~~latest~~ fiscal ~~2019~~2020 Form 10-K as filed with the SEC. The September 30, 2019 Condensed Consolidated Balance Sheet was derived from audited Consolidated Financial Statements but does not include all disclosures required by accounting principles generally accepted in the United States. In the opinion of management, the Condensed Consolidated Financial Statements herein include all 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.

The Condensed Consolidated Financial Statements include the accounts of Hillrom and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

The Company makes a number of significant estimates, assumptions, and judgments in the preparation of its financial statements. Additionally, the Company measures and classifies fair value measurements in accordance with the level hierarchy in conformity with ~~accounting principles generally accepted in the United States (“GAAP”).~~GAAP. As of ~~June 30,~~December 31, 2020, the Company's significant accounting policies and estimates and valuation techniques used to measure fair value have not changed from September 30, ~~2019.~~2020. See Note 1. Summary of Significant Accounting Policies within the ~~2019~~2020 Form 10-K for the fiscal year ended September 30, ~~2019~~2020 for further information.

~~Prior Period Reclassification~~Revenue Recognition — Sales and Rentals

~~Beginning~~Disaggregation of Revenue

The Company disaggregates revenue recognized from contracts with customers by geography and reportable segments consistent with the way in ~~fiscal year 2020, we are presenting Acquisition-related intangible asset amortization~~which management operates and views the business. See Note 11. Segment Reporting for the presentation of the Company's revenue disaggregation.

Contract Balances

Contract liabilities represent deferred revenues that arise as a ~~separate line item~~result of cash received from customers at inception of contracts or where the timing of billing for services precedes satisfaction of our performance obligations. Such remaining performance obligations represent the portion of the contract price for which work has not been performed and are primarily related to our installation and service contracts. These contract liabilities are recorded in Deferred revenue and Other long-term liabilities. We expect to satisfy the majority of the remaining performance obligations and recognize revenue related to installation and service contracts within 12 to 24 months.

Table of Contents

The nature of our products and services does not give rise to contract assets as we typically do not have instances where a right to payment for goods and services already transferred to a customer exists that is conditional on ~~our Condensed Consolidated Statements~~something other than the passage of Income for all periods presented. Acquisition-related intangible asset amortization was previously included in Selling and administrative expenses. Additionally, we will no longer present Gross Profit as a subtotal on our Statements of Income.time.

The following table ~~presents Acquisition-related intangible asset amortization and Selling and administrative expenses, excluding the Acquisition-related intangible asset amortization,~~summarizes contract liability activity for the ~~years~~three months ended ~~September 30, 2019, 2018 and 2017, and for each quarterly period of fiscal 2019.~~December 31, 2020. The contract liability balance represents the transaction price allocated to the remaining performance obligations.

Quarter Ended Year Ended
December 31,
2018 March 31,
2019 June 30,
2019 September 30,
2019 September 30,
2019 September 30,
2018 September 30,
2017
Selling and administrative expense, previously reported $ 218.0 $ 231.2 $ 246.4 $ 245.4 $ 941.0 $ 891.6 $ 874.5
Less, Acquisition-related intangible asset amortization 25.7 27.3 29.3 40.1 122.4 106.9 108.4
Selling and administrative expense, currently reported $ 192.3 $ 203.9 $ 217.1 $ 205.3 $ 818.6 $ 784.7 $ 766.1


	Contract Liabilities
Balance as of October 1, 2020	$	138.1
New revenue deferrals	99.0
Revenue recognized upon satisfaction of performance obligations	(97.2)
Foreign currency translation adjustment	1.3
Balance as of December 31, 2020	$	141.2

Rental Revenue

We make certain products available to customers under short-term lease arrangements. Rental usage of these products is provided as an alternative to product sales and is short-term in nature. Products primarily include smart beds, including, but not limited to, bariatric, intensive care unit, maternity, and home care beds, as well as surfaces. These lease arrangements provide our customers with our products during periods of peak demand or often times for specialty purposes. Additionally, we provide wearable, non-invasive ventilation products to patients covered by monthly medical insurance reimbursements, which are considered month-to-month leasing arrangements. Income arising from these lease arrangements where we are the lessor is recognized within Rental revenue. We accounted for these lease arrangements as operating leases.

Warranties and 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 field corrective action, separate reserves are established when such events are identified and the cost of correction can be reasonably estimated.

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 have not historically had a material impact on our financial condition or results of operations, nor do we expect them to although indemnifications associated with our actions generally have no dollar limitations.

In conjunction with our acquisition and divestiture activities, we entered into select guarantees and indemnifications of performance with respect to the fulfillment of our 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. With respect to divestitures, 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 an adverse impact on our Condensed Consolidated Financial Statements.

Table of ~~Conten~~t sContents

The following summarizes accrued product warranty activity for the three months ended December 31, 2020:

~~Goodwill and Indefinite-Lived Intangible Assets~~

Testing for goodwill and indefinite-lived intangible asset impairment is performed annually, or on an interim basis upon the occurrence of a triggering event or change in circumstances that would more likely than not reduce the fair value of a reporting unit or indefinite-lived intangible asset below its carrying amount. The annual evaluations of goodwill and the indefinite-lived intangible asset for impairment were performed as of April 30, 2020 and did not result in any impairment.

For the Surgical Solutions segment, we continue to expect near-term lower demand for operating room infrastructure due to project delays as customers are currently focusing on the demands of the pandemic.

Slower recovery resulting from extended project delays, an increase in discount rates, unfavorable changes in earnings multiples, or a decline in future cash flow projections, among other factors, may cause a change in circumstances indicating that the carrying value of our goodwill may not be recoverable. If future financial assumptions significantly differ from those evaluated in the assessment noted above due to duration or magnitude of the impact of COVID-19, we can provide no assurance that a future goodwill impairment charge would not be incurred.


	Three Months Ended December 31
	2020
Balance as of beginning of period	$	30.8
Provision for warranties in the period	5.4
Warranty claims in the period	(6.4)
Foreign currency translation adjustment	0.2
Balance as of end of period	$	30.0

Government Programs Related to COVID-19

On March 25, 2020, the U.S. government approved the Coronavirus Aid, Relief and Economic Security (“CARES”) Act to provide economic stimulus to address the impact of the pandemic. The governments in certain other non-U.S. countries have also approved legislation in their jurisdictions to address the impact of the pandemic. We ~~have~~ evaluated our eligibility and assessed the conditions and requirements of participation in many programs. ~~For the programs in which~~As of December 31, 2020, we have elected to participate, we recognized $2.4 million in government grants and cost abatements associated with state aid within the Condensed Consolidated Statement of Income for the three and nine months ended June 30, 2020. In addition, we have deferred the payment of the employer share of the U.S. Federal Insurance Contributions Act (“FICA”) tax payments totaling ~~$6.9~~$21.2 million in accordance with the CARES Act within the ~~Condensed~~ Consolidated Balance ~~Sheet as of June 30, 2020.~~Sheet. We continue to evaluate what impact, if any, the CARES Act, or any similar legislation in other non-U.S. jurisdictions, may have on our results of operations.

Recently Adopted Accounting Standards

In ~~February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02,~~ ~~Leases (Topic 842)~~ and subsequently issued related amendments, collectively referred to as “ASC 842”. The objective of this guidance is to increase transparency and comparability among organizations through recognizing leased assets, called right-of-use assets (“ROU”), and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. As a lessee, the new standard requires us to recognize both the ROU assets and lease liabilities in the balance sheet for most leases, whereas under previous GAAP only finance lease liabilities (referred to as capital leases) were recognized in the balance sheet. In addition, for both lessees and lessors, the definition of a lease has been revised, which may result in changes to the classification of an arrangement as a lease. Under the new standard, an arrangement that conveys the right to control the use of an identified asset by obtaining substantially all of its economic benefits and directing how it is used is a lease, whereas the previous definition focused on the ability to control the use of the asset or to obtain its output. Quantitative and qualitative disclosures related to the amount, timing and judgments of an entity’s accounting for leases and the related cash flows are expanded under the new standard. Disclosure requirements apply to both lessees and lessors, whereas previous disclosures related only to lessees. The recognition, measurement, and presentation of revenues, expenses, and cash flows arising from a lease have not significantly changed from previous GAAP.

We adopted ASC 842 effective October 1, 2019 using the optional transition method approach. We elected the package of practical expedients, which applies to both lessees and lessors, to (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases.

As a lessee, the adoption of the guidance on October 1, 2019 resulted in the recognition of ROU assets of $82.5 million and lease liabilities of $85.8 million, which all related to operating leases. The ROU assets were lower than the lease liabilities due to the derecognition of deferred rent balances of $3.3 million. As a lessor, there was no impact as a result of the adoption. We did not recognize any adjustment to the comparative period presented in the financial statements in accordance with our adoption method. The guidance did not have a material impact on our Condensed Consolidated Statements of Income.

~~See Note 7. Leases for additional information on the impacts of ASC 842.~~

~~Table of Conten~~t s

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Intangibles~~ – ~~Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~. This standard eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. ASU 2017-04 is effective for our first quarter of fiscal 2021 and requires a prospective transition method. Early adoption is permitted. We early adopted this standard in the first quarter of fiscal 2020 and the guidance did not have a material impact on our Condensed Consolidated Financial Statements.

~~In October 2018, the FASB issued ASU 2018-16,~~ ~~Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes~~. The purpose of the standard is to allow the use of the OIS rate based on the SOFR for hedge accounting purposes, which allows entities to designate changes in the fair values of fixed-rate financial assets or liabilities attributable to the OIS rate as the hedged risk. The amendment recognizes the OIS rate based on the SOFR as likely London Interbank Offered Rate (“LIBOR”) replacements and supports the marketplace transition by adding the new reference rate as a benchmark rate. We adopted this standard in the first quarter of fiscal 2020. The adoption of this ASU did not impact our financial statements as we have not yet utilized the OIS rate based on the SOFR for borrowings under our lending arrangements or as a benchmark rate for hedge accounting purposes. In March 2020, the FASB issued ASU 2020-04, ~~Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.~~ The purpose of the standard is to provide guidance for the effects of the marketplace transition from LIBOR to a new reference rate as a benchmark rate. ASU 2020-04 is optional and is effective for a limited period of time from March 12, 2020 through December 31, 2022. We will continue to monitor, assess, and plan for the phase out of LIBOR.

~~Recently Issued Accounting Standards~~

In June 2016, the FASB issued ASU 2016-13, Financial ~~Instruments~~ – ~~Credit~~Instruments-Credit Losses (Topic 326): – Measurement of Credit Losses of Financial Instruments and has subsequently issued related amendments, collectively referred to as~~“Topic~~ “Topic 326”. Topic 326 requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses rather than incurred losses. ~~For available-for-sale debt securities with unrealized losses, entities will recognize~~This adoption primarily impacted our trade accounts receivables. Under the current expected credit ~~losses through~~loss model, we review receivables for collectability based on an ~~allowance~~assessment of various factors, including historical collection experience for ~~credit losses. Topic 326 is effective~~each receivable type and expectations of forward-looking loss estimates, and individual receivables are also reviewed for collectability based on unique circumstances. Any adjustments made to our historical loss experience reflect current differences in asset-specific risk characteristics, including, customer type (public or government entity versus private entity) and geographic location of the customer. We adopted ASU 2016-13 in the first quarter of fiscal 2021 using the modified retrospective transition method with a cumulative effect adjustment directly to retained earnings. The cumulative effect of applying Topic 326 were an increase to the allowance for credit losses of $3.0 million and ~~requires~~deferred tax assets of $0.8 million with a ~~prospective transition method. Early adoption is permitted. We are currently in~~corresponding decrease to the ~~process~~opening balance of ~~evaluating the impact~~Retained earnings of ~~adoption on our Condensed Consolidated Financial Statements.~~$2.2 million.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The purpose of the standard is to improve the overall usefulness of fair value disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. ASU 2018-13 ~~is effective for our first quarter of fiscal 2021 and~~ requires the application of the prospective method of transition (for only the most recent interim or annual period presented in the initial fiscal year of adoption) to the new disclosure requirements for (1) changes in unrealized gains and losses included in other comprehensive income and (2) the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU 2018-13 also requires prospective application to any modifications to disclosures made because of the change to the requirements for the narrative description of measurement uncertainty. The effects of all other amendments made by ASU 2018-13 must be applied retrospectively to all periods presented. ~~Early adoption is permitted.~~ We ~~are currently~~adopted ASU 2018-13 in the ~~process~~first quarter of ~~evaluating the~~fiscal 2021. The adoption of ASU 2018-13 had no impact ~~of adoption~~ on our Condensed Consolidated Financial Statements.

Table of Contents

~~In August 2018, the FASB issued ASU 2018-14,~~ ~~Compensation~~ – ~~Retirement Benefits~~ – ~~Defined Benefit Plans~~ – ~~General (Topic 715-20): Disclosure Framework~~ – ~~Changes to the Disclosure Requirements for Defined Benefit Plans.~~ The purpose of the standard is to improve the overall usefulness of defined benefit pension and other postretirement plan disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. ASU 2018-14 is effective for our annual disclosures for fiscal 2021 and requires a retrospective transition method. Early adoption is permitted. We are currently in the process of evaluating the impact of adoption on our Condensed Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40):: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement to be consistent with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). We adopted ASU 2018-15 ~~is effective for our~~in the first quarter of fiscal 2021 ~~and allows a retrospective or a~~using the prospective transition method ~~to all implementation costs incurred after~~approach. The Company’s cloud computing hosting arrangements are primarily information technology agreements that support the ~~date~~Company’s operations and infrastructure. The adoption of ~~adoption. Early adoption is permitted. We are currently in the process of evaluating the~~ASU 2018-15 did not have a significant impact ~~of adoption~~ on our Condensed Consolidated Financial Statements.

~~Table of Conten~~t s

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The purpose of the standard is to (1) clarify that transactions between participants in a collaborative agreement should be accounted for under Topic 606 and (2) add unit-of-account guidance in Topic 808 to align with Topic 606. We retrospectively adopted ASU 2018-18 ~~is effective for our first quarter of fiscal 2021 and must be applied retrospectively to~~in the first quarter of fiscal ~~2020.~~2021. The adoption of ASU 2018-18 had no impact on our Condensed Consolidated Financial Statements.

Recently Issued Accounting Standards

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Topic 715-20): Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans. The purpose of the standard is to improve the overall usefulness of defined benefit pension and other postretirement plan disclosures to financial statement users and reduce unnecessary costs to companies when preparing the disclosures. ASU 2018-14 is effective for our annual disclosures for fiscal 2021 and requires a retrospective transition method. Early adoption is permitted. We are currently in the process of evaluating the impact of adoption on our Condensed Consolidated Financial Statements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The purpose of the standard is to remove certain exceptions to the general principles of Topic 740: Income Taxes in order to reduce the cost and complexity of its application and to maintain or improve the usefulness of the information provided to users of financial statements. ASU 2019-12 is effective for our first quarter of fiscal 2022 and will be applied either retrospectively or prospectively depending on the specific Topic 740 exception affected. Early adoption is permitted. We are currently in the process of evaluating the impact of adoption on our Condensed Consolidated Financial Statements.

Except as noted above, there are no significant changes to our assessment of the impact of recently issued accounting standards included in Note 1. Summary of Significant Accounting Policies of our Condensed Consolidated Financial Statements in our ~~2019~~2020 Form 10-K.

~~Note 2. Revenue from Contracts with Customers~~

As of June 30, 2020, the Company's significant accounting policies for recognizing revenue have not changed from September 30, 2019. See Note 1. Summary of Significant Accounting Policies and Note 2. Revenue Recognition within our 2019 Form 10-K for the fiscal year ended September 30, 2019 for further information.

~~Disaggregation of Revenue~~

The Company disaggregates revenue recognized from contracts with customers by geography and reportable segments consistent with the way in which management operates and views the business. See Note 14. Segment Reporting for the presentation of the Company's revenue disaggregation.

~~Contract Balances~~

The following summarizes contract liability activity for the nine months ended June 30, 2020. The contract liability balance represents the transaction price allocated to the remaining performance obligations.


	~~Contract Liabilities~~
~~Balance as of September 30, 2019~~	~~125.8~~
~~Deferred revenue acquired~~	~~2.7~~
~~New revenue deferrals~~	~~220.4~~
~~Revenue recognized upon satisfaction of performance obligations~~	~~(214.1)~~
~~Balance as of June 30, 2020~~	$	~~134.8~~

These contract liabilities are recorded in Deferred revenue and Other long-term liabilities. We expect to satisfy the majority of the remaining performance obligations and recognize revenue related to installation and service contracts within 12 to 24 months.

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Note 3.2. Supplementary Financial Statement Information

June 30,
2020 September 30, 2019
Inventories, net of reserves:
Finished products $ 143.1 $ 120.5
Work in process 49.6 42.4
Raw materials 130.1 106.7
Total inventories, net of reserves $ 322.8 $ 269.6
Accumulated amortization of software and other intangible assets $ 635.7 $ 597.0
Investments included in Other assets $ 47.6 $ 51.1

~~Investments~~

~~In the first quarter of fiscal 2019, we acquired $26.6 million of non-marketable equity securities that are valued at cost.~~

During the nine months ended June 30, 2020, we sold an equity investment with a carrying value of $3.1 million and recognized a loss of $0.3 million and recognized an impairment loss of $1.7 million on a cost method investment. These losses were recorded as a component of Investment income (expense) and other, net.


	December 31, 2020		September 30, 2020
Inventories, net of reserves:
Finished products	$	156.1	$	167.6
Work in process	51.7		48.4
Raw materials	128.1		136.0
Total inventories, net of reserves	$	335.9	$	352.0

Accumulated amortization of software and other intangible assets	$	703.6	$	667.3

Investments included in Other assets	$	50.5	$	49.0

Supplemental Cash Flow Information


							Three Months Ended December 31
							2020		2019
Non-cash operating activities						Non-cash operating activities
Operating cash flows paid for amounts included in the measurement of lease liabilities						Operating cash flows paid for amounts included in the measurement of lease liabilities	$	7.0	$	7.1
		Nine Months Ended June 30
		2020		2019
Non-cash investing activities:	Non-cash investing activities:					Non-cash investing activities:
Change in capital expenditures not paid	Change in capital expenditures not paid	$	1.8	$	2.3	Change in capital expenditures not paid	$	(4.2)	$	(1.8)
Sale of equity method investment		2.1		—
Total non-cash investing activities:		$	3.9	$	2.3

Non-cash financing activities:	Non-cash financing activities:					Non-cash financing activities:
Distribution of shares issued under stock-based compensation plans	Distribution of shares issued under stock-based compensation plans	$	29.6	$	10.4	Distribution of shares issued under stock-based compensation plans	$	31.7	$	25.1

Non-cash investing and financing activities:						Non-cash investing and financing activities:
Right of use assets obtained in exchange for new lease liabilities						Right of use assets obtained in exchange for new lease liabilities	$	1.8	$	6.5

Note 4.3. Business Combinations

Acquisitions

~~Connecta Soft, S.A. de C.V.~~

~~On May 18, 2020, we~~Assets acquired ~~the multiplatform medical device integration~~ and ~~connectivity software programs, products, and solutions of Connecta Soft, S.A. de C.V. (“Connecta”),~~liabilities assumed in a ~~clinical communications software company based in Mexico, for total aggregate consideration of $7.7 million, comprised of $7.5 million cash and $0.2 million of contingent consideration measured~~business combination are recorded at their estimated fair value as of the acquisition date. Contingent consideration is payable up to $4.0 million based upon the achievement of certain commercial milestones over the next 3.5 years. The purchase price is subject to certain post-closing adjustments.

~~The results of Connecta are included in the Front Line Care segment since~~values on the date of acquisition. The ~~impact to reported revenue~~difference between the purchase price amount and ~~net income for~~ the ~~three and nine months ended June 30, 2020 was not significant.~~

~~Table of Conten~~t s

~~The following table summarizes the preliminary estimate of the~~net fair value of assets acquired atand liabilities assumed is recognized as goodwill on the ~~date of~~balance sheet if the ~~Connecta acquisition. The~~purchase price exceeds the estimated net fair value ~~of assets acquired~~or as a bargain purchase gain on the income statement if the purchase price is ~~still considered to be preliminary, however we do not expect further adjustments to be significant.~~


	~~Amount~~
~~Goodwill~~	$	~~4.8~~
~~Developed technology~~	~~2.9~~
~~Total purchase price~~	$	~~7.7~~

~~Goodwill in connection with~~less than the ~~Connecta acquisition of $4.8 million was recognized at the acquisition date related to the excess~~estimated net fair value. The allocation of the purchase price ~~over the estimated fair value of the assets acquired, reflecting the value associated with advancing connected care in Mexico as well as creating lower cost opportunities~~may be modified up to ~~expand to other emerging markets. The goodwill was allocated entirely to our Front Line Care segment and is deductible for tax purposes in the United States.~~

~~The estimated useful life of the acquired developed technology is 10 years.~~

~~For the three and nine months ended June 30, 2020, we recognized $0.3 million of acquisition and integration costs associated with this transaction in Selling and administrative expenses.~~

~~Excel Medical Electronics~~

On January 10, 2020, we acquired all of the outstanding equity interest of Excel Medical Electronics (“Excel Medical”), a clinical communications software company located in the United States, for total aggregate consideration of $19.2 million, comprised of $13.1 million cash and $6.1 million of contingent consideration measured at fair value as ofone year after the acquisition ~~date. The purchase price~~date as more information is subject to certain post-closing adjustments. Contingent consideration is comprised of $1.6 million, which was withheld at the close of the transaction and is payable upon completion of a supply contract modification, and estimated consideration measured at a fair value of $4.5 million, which is payable of up to $15.0 million based upon the achievement of certain commercial milestones over the next two years.

The results of Excel Medical are included in the Patient Support Systems segment since the date of acquisition. The impact to reported revenue and net income for the three and nine months ended June 30, 2020 was not significant.

~~The following table summarizes the preliminary estimate of~~obtained about the fair value of assets acquired and liabilities ~~assumed at~~assumed.

Table of Contents

During fiscal 2020 we acquired the date of the Excel Medical acquisition. The fair values of assets acquired and liabilities assumed are still considered to be preliminary, however we do not expect further adjustments to be significant.following companies:


	~~Amount~~
~~Trade accounts receivable~~		$	~~0.6~~
~~Inventories~~		~~0.9~~
~~Other current assets~~		~~0.1~~
~~Property, plant and equipment~~		~~0.1~~
~~Goodwill~~		~~9.8~~
~~Developed technology~~		~~10.9~~

~~Deferred revenue~~Company Name		~~(2.7)~~Description of the Business		Description of the Acquisition
~~Other current liabilities~~Excel Medical		~~(0.5)~~Clinical communications software company located in the United States		Purchased all of the outstanding equity interest.
~~Total purchase price, net of cash acquired~~Connecta		$Clinical communications software company based in Mexico.		~~19.2~~ Purchased the multiplatform medical device integration and connectivity software programs, products, and solutions of the company.
Videomed		Developer of integrated video solutions in operating rooms located in Italy.		Purchased all of the outstanding equity interest.

~~Goodwill in connection with the Excel Medical acquisition of $9.8 million was recognized at the acquisition date related to the excess of the~~The purchase price ~~over~~for the ~~estimated fair value of~~acquisitions listed above includes contingent consideration for which the assets acquired and the liabilities assumed, reflecting the value associated with enhancing synergies, accelerating our leadership in care communications platform, and advancing our digital and mobile communications platform and capabilities. The goodwill was allocated entirely to our Patient Support Systems segment and is deductible for tax purposes in the United States.

~~The estimated useful life of the acquired intangible assets is 5 years for developed technology.~~

~~Table of Conten~~t s

performance periods have not yet expired. For the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020, we ~~recognized $0.6 million and $1.4 million of acquisition and integration costs, including $0.5 million and $0.7 million related to~~recorded a reduction in the contingent consideration ~~associated with this transaction~~obligations of $1.7 million in Selling and administrative ~~expenses.~~

~~Breathe Technologies, Inc.~~

~~On September 3, 2019, we acquired all of the outstanding equity interests of Breathe Technologies, Inc. (“Breathe”),~~expenses primarily related to Excel Medical as a ~~developer and manufacturer of a patented wearable, non-invasive ventilation technology that supports improved patient mobility, for total aggregate cash~~certain commercial milestone was not met. The related contingent consideration ~~of $127.6 million.~~

~~The results of Breathe~~liabilities are included in ~~the Front Line Care segment since the date of acquisition.~~

~~The following table summarizes the preliminary estimate of the fair value of assets acquired~~Other current liabilities and liabilities assumed at the date of the Breathe acquisition. The fair value of assets acquired and liabilities assumed are still considered to be preliminary, however we do not expect further adjustments to be significant.


	~~Amount~~
~~Trade accounts receivable~~	$	~~0.3~~
~~Inventories~~	~~6.3~~
~~Other current assets~~	~~0.1~~
~~Property, plant and equipment~~	~~2.1~~
~~Goodwill~~	~~60.2~~
~~Trade name~~	~~4.0~~
~~Customer relationships~~	~~0.4~~
~~Developed technology~~	~~56.0~~
~~Other assets~~	~~0.2~~
~~Trade accounts payable~~	~~(0.5)~~
~~Other current liabilities~~	~~(1.6)~~
~~Deferred income taxes~~	~~0.9~~
~~Other long-term liabilities~~	~~(0.8)~~
~~Total purchase price, net of cash acquired~~	$	~~127.6~~

Goodwill in connection with the Breathe acquisition of $60.2 million was recognized at the acquisition date related to the excess of the purchase price over the estimated fair value of the assets acquired and the liabilities assumed, reflecting the value associated with enhancing synergies and accelerating our leadership in respiratory health products. The goodwill was allocated entirely to our Front Line Care segment and is not deductible for tax purposes in the United States.

~~The estimated useful lives of the acquired intangible assets are 2 years for trade name, 8 years for customer relationships and 11 years for developed technology.~~Other long-term liabilities.

For the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020, we ~~recognized $0.5 million and $2.0 million of acquisition and integration costs in Selling and administrative expenses and $0.4 million and $2.7 million in Special charges related to this acquisition.~~did not close on any new acquisitions. For additional information on Acquisitions, see Note 3. Business Combinations within the 2020 Form 10-K.

~~Voalte,~~Bardy Diagnostics, Inc.

On ~~April 1, 2019,~~January 15, 2021, we ~~acquired all of the outstanding equity interests of Voalte,~~entered into a definitive merger agreement with Bardy Diagnostics, Inc. (“~~Voalte”~~Bardy”), a ~~clinical communications software~~Delaware company ~~located in the United States,~~that develops and delivers cardiac arrhythmia monitoring devices, for total aggregate consideration of $181.0 million, comprised of $175.8 million cash and $5.2 million of contingent consideration measured at fair value as of the acquisition date. Contingent consideration was payable up to $15.0 million based upon achievement of certain commercial milestones by March 31, 2020. In the first quarter of fiscal 2020, we reduced the contingent consideration accrual by $8.4 million as the commercial milestones were not expected to be achieved, which was recorded as a component of Selling and administrative expenses. No contingent consideration was paid as the milestones were not achieved.

~~The results of Voalte are included in the Patient Support Systems segment since the date of acquisition.~~

~~Table of Conten~~t s

~~The following table summarizes the fair value of assets acquired and liabilities assumed at the date of the Voalte acquisition.~~


	~~Amount~~
~~Trade accounts receivable~~	$	~~5.8~~
~~Inventories~~	~~0.1~~
~~Other current assets~~	~~2.7~~
~~Property, plant and equipment~~	~~0.2~~
~~Goodwill~~	~~98.5~~
~~Non-competition agreements~~	~~2.7~~
~~Trade name~~	~~13.5~~
~~Customer relationships~~	~~29.0~~
~~Developed technology~~	~~55.0~~
~~Trade accounts payable~~	~~(1.7)~~
~~Deferred revenue~~	~~(10.7)~~
~~Other current liabilities~~	~~(4.3)~~
~~Deferred income taxes~~	~~(9.8)~~
~~Total purchase price, net of cash acquired~~	$	~~181.0~~

Goodwill in connection with the Voalte acquisition of $98.5 million was recognized at the acquisition date related to the excess of the purchase price over the estimated fair value of the assets acquired and the liabilities assumed, reflecting the value associated with enhancing synergies, accelerating our leadership in care communications platform and advancing our digital and mobile communications platform and capabilities. The goodwill was allocated entirely to our Patient Support Systems segment and is not deductible for tax purposes in the United States.

~~The estimated useful lives of the acquired intangible assets are 5 years for non-competition agreements and between 8 and 10 years for trade name, customer relationships and developed technology.~~

~~Videomed~~

~~On July 21, 2020, we closed on the acquisition of Videomed S.r.l. (“Videomed”), a developer of integrated video solutions in operating rooms, for~~initial cash consideration of ~~$9.4~~$375.0 million, subject to closing conditions and certain post-closing adjustments. Additionally, contingent consideration ~~is payable up to $3.7 million based upon the achievement of certain commercial milestones. The results of Videomed~~ will be ~~included in~~payable based on the ~~Surgical Solutions segment~~revenue generated from the ~~date~~acquired cardiac monitoring product during the first two calendar years starting with the calendar year in which the transaction is closed.

The contingent consideration payable for the first calendar year in which the transaction closes will equal 50% of ~~acquisition. It~~the revenue generated if less than $45.0 million, 100% of revenue generated if between $45.0 million and $57.0 million, and 150% of revenue generated if greater than $57.0 million during calendar year 2021.

The contingent consideration payable for the second calendar year will equal 50% of the revenue generated if less than $70.0 million, 100% of the revenue generated if between $70.0 million and $89.0 million, and 125% of the revenue generated if greater than $89.0 million during the calendar year 2022.

On January 29, 2021, the Medicare Administrative Contractor, Novitas Solutions, published newly established, Category 1 reimbursement rates applicable to the Current Procedural Terminology ("CPT") codes for the extended holter cardiac monitoring category, including CPT codes 93241, 93243, 93245 and 93247. Hillrom is ~~not practical to disclose~~currently assessing the ~~preliminary purchase price allocation for this transaction given the short period of time between the acquisition date~~recent reimbursement rate decision and the ~~filing~~potential impacts of ~~this report~~that decision on the Bardy busines.s.

Asset Acquisition

On ~~October 1, 2018,~~January 28, 2021, we acquired the ~~right~~contact-free continuous monitoring intellectual property and technology from EarlySense Ltd. in exchange for cash of $30.0 million, a portion of our non-marketable equity investment in EarlySense Ltd. of $25.5 million and forgiveness of a prepayment of approximately $2.0 million. The investment will be transferred to ~~use patented technology and~~EarlySense Ltd. at a future date upon the satisfaction of certain ~~related assets from a supplier~~conditions outlined in the purchase agreement. Additionally, contingent consideration of up to ~~our Front Line Care segment. We paid $17.1~~$10.0 million ~~of cash and committed to guaranteed minimum future royalty payments of $22.0 million, which~~will be payable if commercial milestones defined in the purchase agreement are achieved through September 2023. The intangible asset acquired will be presented in Other intangible assets and software, ~~net and are being amortized over the 7-year term of the agreement.~~

~~Disposition~~

On August 2, 2019, we completed a disposition to sell certain of our surgical consumable products and related assets for a purchase price of $166.6 million, which is net of cash and working capital adjustments. In fiscal 2019, we recorded pre-tax loss on this disposition of $15.9 million, including transaction costs of $4.0 million, in Investment income (expense) and other, net. During the three and nine months ended June 30, 2020, we recorded additional losses of $3.9 million and $4.2 million related to this transaction primarily due to income taxes. See Note 11. Income Taxes for further information. This disposition did not have a significant effect on our operations or financial results, and, therefore, has not been reported as a discontinued operation.

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Note 5.4. Financing Agreements

Short-Term Borrowings

Securitization Facilities

~~In April 2020, we renewed~~We have our 364-day accounts receivable securitization ~~program~~program (the ~~“Securitization Facility”)~~" Securitization Facility ") with certain financial institutions for borrowings up to $110.0 million. ~~We also renewed~~Additionally, we have our ~~additional~~ 364-day facility for borrowings up to $90.0 million (the ~~“Note~~" Note Securitization ~~Facility”~~Facility"). Both facilities mature in April ~~2020. The terms and conditions~~2021. As of ~~the renewed April~~December 31, 2020, ~~facilities are substantially similar to the May 2019 facilities. Under the terms of each~~outstanding borrowings were $82.2 million on the Securitization Facility and $90.0 million on the Note Securitization ~~Facility, certain of our accounts receivable secure~~Facility. See Note 5. Financing Agreements within the ~~amounts borrowed and cannot be used to pay our other debts or liabilities. The amount of permissible borrowings outstanding is determined based on~~2020 Form 10-K for the amount of qualifying accounts receivable at any point in time. Borrowings outstanding under the Securitization Facility and Note Securitization Facility bear interest at LIBOR plus the applicable margin of 0.8% and 0.9% and are included as a component of Short-term borrowings, while the accounts receivable securing these obligations remain as a component of Trade accounts receivable, net of allowances.fiscal year ended September 30, 2020 for further information.

Long-Term Debt

As of ~~June~~December 31, 2020 and September 30, 2020, there were ~~$115.0 million~~no outstanding borrowings on the Revolving Credit Facility, and available borrowing capacity was ~~$1,077.8~~$1,191.0 million after giving effect to the $7.2 million of outstanding standby letters of credit. As of September 30, 2019, there were $80.0 million outstanding borrowings on the Revolving Credit Facility, and available borrowing capacity was $1,112.8 million after giving effect to $7.2$9.0 million of outstanding standby letters of credit.

Long-Term Debt Redemption

~~In September~~On October 7, 2019, we ~~issued~~redeemed the senior unsecured 5.75% notes due September 2023 for $425.0 million and paid the prepayment premium of $12.2 million using the net proceeds from the senior unsecured 4.375% notes of $425.0 million maturing September 2027 that ~~bear interest at a fixed rate of 4.375% annually and capitalized debt issuance costs of $6.3 million. On October 7,~~were issued in September 2019, ~~we used the net proceeds from the offering of these notes, together~~along with funds borrowed from the Revolving Credit ~~Facility maturing in August 2024, to redeem all of our previously outstanding senior unsecured 5.75% notes due September 2023 and to pay~~Facility. For the ~~prepayment premium of $12.2 million. We~~three months ended December 31, 2019, we recorded a loss on extinguishment of debt of $15.6 million, which was comprised of ~~the~~a $12.2 million prepayment premium and $3.4 million of debt issuance costs previously capitalized.

See Note 6.5. Financing Agreements included within ~~the 2019~~our 2020 Form 10-K for the fiscal year ended September 30, ~~2019~~2020 for further information.

Fair Value

The fair value of our debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. The book values of our ~~variable rate short-term debt instruments, our variable rate senior secured~~Securitization Facility, Note Securitization Facility, Term Loan A facility (“TLA Facility”) maturing in August 2024, and ~~our variable rate~~ Revolving Credit Facility approximate fair ~~value.~~value.

The estimated fair values of our long-term debt instruments are described in the table below:


		June 30, 2020		September 30, 2019			December 31, 2020		September 30, 2020
Senior unsecured 5.00% notes due on February 14, 2025		$	310.5	$	312.4
Senior unsecured 5.00% notes due on February 15, 2025						Senior unsecured 5.00% notes due on February 15, 2025	$	309.3	$	310.1
Senior unsecured 4.375% notes due on September 15, 2027	Senior unsecured 4.375% notes due on September 15, 2027	435.4		435.4		Senior unsecured 4.375% notes due on September 15, 2027	450.0		441.2
Unsecured debentures	Unsecured debentures	47.0		48.1		Unsecured debentures	47.9		48.0
Total	Total	$	792.9	$	795.9	Total	$	807.2	$	799.3

The estimated fair values of our long-term unsecured debentures were based on observable inputs such as quoted prices in markets that are not active. The estimated fair values of the Senior Notes were based on quoted prices for similar liabilities. These fair value measurements were classified as Level 2.

~~Table of Conten~~t s

Debt Covenants

As of ~~June 30,~~December 31, 2020, we were in compliance with all debt covenants under our financing agreements.

Note 6.5. Derivative Instruments and Hedging Activity

We are exposed to various market risks, including fluctuations in interest rates and variability in foreign currency exchange rates. We have established policies, procedures, and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks. We employ cash flow hedges, net investment hedges, and other derivative instruments not designated for hedge accounting to manage these risks.

Table of Contents

Cash Flow Hedges

To manage our exposure to market risk from fluctuations in interest rates, we enter into interest rate swaps that are designated as cash flow hedges. As of ~~June~~December 31, 2020 and September 30, 2020, we had interest rate swap agreements with an aggregate notional amount of $750.0 million to hedge the variability of cash flows through August 2024 associated with a portion of the variable interest rate payments on outstanding borrowings under our Senior Credit Agreement. As of September 30, 2019, we had interest rate swap agreements, with an aggregate notional amount of $750.0 million to hedge the variability of cash flows associated with a portion of the variable interest rate payments on outstanding borrowings under our Senior Credit Agreement through September 2021.

We are subject to variability in foreign currency exchange rates due to our international operations. We enter into currency exchange contracts that are designated as cash flow hedges to manage our exposure arising from fluctuating exchange rates related to specific and projected transactions. We operate this program pursuant to documented corporate risk management policies and do not enter into derivative transactions for speculative purposes. The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an appropriate range of potential rate fluctuations to our assets, obligations, and projected results of operations denominated in foreign currencies. Our currency risk consists primarily of foreign currency denominated firm commitments and projected foreign currency denominated intercompany and third-party transactions. As of ~~June~~December 31, 2020 and September 30, 2020, the notional amount of outstanding currency exchange contracts was ~~$13.6 million. As of September 30, 2019, the notional amount of outstanding currency exchange contracts was $6.7 million.~~$42.2 million and $64.4 million, respectively. The maximum length of time over which we hedge transaction exposures is generally 1512 months. Derivative gains and losses, initially reported as a component of Accumulated other comprehensive income (loss), are reclassified to earnings in the period when the underlying transaction affects earnings.

~~Table of Conten~~t s

Net Investment Hedges

As of ~~June 30,~~December 31, 2020, we had cross-currency swap agreements, with an aggregate notional amount of $198.3 million, to hedge the variability of net assets due to changes in the U.S. dollar-Euro spot exchange rates through July 2023. These cross-currency swaps are designated as net investment hedges of subsidiaries using the Euro as their functional currency.

We assess hedge effectiveness under the spot-to-spot method and record changes in fair value attributable to the translation of foreign currencies through Accumulated other comprehensive income (loss). We amortize the impact of all other changes in fair value of the derivatives through Interest expense, which was an income of $1.3 ~~million and $3.9~~ million for both the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and 2019.

~~Fair Value~~

~~We classify fair value measurements on our derivative instruments as Level 2. The estimated fair values of our derivative instruments are described in the table below:~~

Derivative Instruments June 30, 2020 Condensed Consolidated Balance Sheet Position September 30, 2019 Condensed Consolidated Balance Sheet Position
Interest Rate Swaps $ — Other assets $ 0.9 Other assets
Interest Rate Swaps (49.8) Other current liabilities (7.7) Other current liabilities
Currency Exchange Contracts (0.7) Other current liabilities 0.2 Other current assets
Cross-Currency Swaps 20.1 Other assets 16.9 Other assets
Total $ (30.4) $ 10.3

Undesignated Derivative Instruments

We use forward contracts to mitigate the foreign exchange revaluation risk associated with recorded monetary assets and liabilities that are denominated in a non-functional currency. These derivative instruments are not formally designated as hedges and the terms of these instruments generally do not exceed one month. As of ~~June~~December 31, 2020 and September 30, 2020, we had forward contracts not designated as hedges with aggregate notional amounts of ~~$155.4 million. As of September 30, 2019, we had forward contracts not designated as hedges with aggregate notional amounts of $76.7 million.~~ $157.5 million and $169.9 million, respectively.

The following table summarizes unrealized and realized gains and losses for forward contracts not designated as hedges, which are recorded in Investment income (expense) and other, net.

Three Months Ended June 30 Nine Months Ended June 30
2020 2019 2020 2019
Unrealized gains (losses) $ 0.5 $ 0.5 $ 0.5 $ 0.5
Realized gains (losses) (0.1) (1.3) 1.1 (1.6)

~~Note 7. Leases~~

~~Hillrom as the Lessee~~

We determine if an arrangement is a lease or contains a lease at contract inception. We lease real estate, automobiles, and equipment under various operating leases. A lease liability and ROU asset is recognized for operating leases with terms greater than one year at the lease commencement date. The lease liability is measured as the present value of all remaining fixed payments calculated using our estimated secured incremental borrowing rate. The ROU asset is measured as the sum of the lease liability and any initial indirect costs incurred, less any lease incentives received. We use our estimated secured incremental borrowing rate as most lease agreements do not specify an interest rate. Our lease agreements include leases that have both lease and non-lease components. We have elected to account for lease components and the associated non-lease components as a single lease component.

2016

Table of ~~Conten~~t sContents

Our leases have remaining lease terms of approximately 1 year to 8 years. Many of our real estate and equipment leases include options to renew. Renewal periods are generally not included when calculating the remaining lease term unless we are reasonably certain to exercise a renewal option based on beneficial terms or significance of the leased asset to our operations.


	Three Months Ended December 31
	2020		2019
Unrealized gain	$	0.5	$	0.2
Realized gain	2.1		0.4

Expense for operating leases and leases with a term of one year or less is recognized on a straight-line basis over the lease term. Lease expense is recorded in Cost of goods sold or Selling and administrative expenses based on the purpose of the leased asset. The following table summarizes our lease expense.

Three Months Ended June 30, 2020 Nine Months Ended June 30, 2020
Operating lease expense $ 6.8 $ 20.6
Short-term leases and variable lease payments 3.1 8.7
Total $ 9.9 $ 29.3

~~The following table summarizes the balance sheet classification of our operating leases and amounts of the ROU asset and lease liability as of June 30, 2020:~~

~~Balance Sheet Classification~~

~~June 30, 2020~~

~~Right-of-use assets~~

~~Other assets~~

~~75.3~~

~~Current lease liabilities~~

~~Other current liabilities~~

~~23.1~~

~~Non-current lease liabilities~~

~~Other long-term liabilities~~

~~56.8~~


~~Supplemental information:~~	~~June 30, 2020~~
~~Weighted-average discount rate~~	~~3.3~~	%
~~Weighted-average remaining lease term in years~~	~~4.6~~

~~The following table summarizes the maturities of our operating leases as of June 30, 2020:~~

Fiscal Year Amount
Remaining 2020 $ 6.8
2021 24.0
2022 18.7
2023 13.4
2024 8.3
2025 5.1
Thereafter 10.1
Total lease payments 86.4
Less: imputed interest (6.5)
Total lease liability $ 79.9

~~Table of Conten~~t s

~~Disclosures Related to Periods Prior to Adopting the New Lease Guidance~~

As disclosed in the 2019 Form 10-K, future minimum payments under non-cancellable operating leases (excluding executory costs) aggregating $94.9 million for manufacturing facilities, warehouse distribution centers, service centers, sales offices, automobiles, and other equipment consisted of the following:

Fiscal Year Amount
2020 $ 25.7
2021 21.4
2022 15.7
2023 11.1
2024 6.4
2025 and beyond 14.6

~~Rental expense in fiscal 2019, 2018 and 2017 was $39.8 million, $41.3 million and $38.0 million.~~

~~Hillrom as the Lessor~~Fair Value

We ~~make certain products available to customers under short-term lease arrangements. Rental usage~~classify fair value measurements on our derivative instruments as Level 2. The estimated fair values of ~~these products is provided as an alternative to product sales and is short-term~~our derivative instruments are described in nature. Products primarily include smart beds, including, but not limited to, bariatric, critical care, maternal, and home care beds, as well as other surfaces. These lease arrangements provide our customers with our products during periods of peak demand or often times for specialty purposes. Additionally, we provide wearable, non-invasive ventilation products to patients covered by monthly medical insurance reimbursements, which are considered month-to-month leasing arrangements. Income arising from these lease arrangements where we are the ~~lessor is recognized within Rental revenue. We have accounted for these lease arrangements as operating leases.~~table below:


Derivative Instruments	December 31, 2020		Consolidated Balance Sheet Position	September 30, 2020		Consolidated Balance Sheet Position
Interest Rate Swaps	$	(41.0)	Other current liabilities	$	(46.3)	Other current liabilities
Currency Exchange Contracts	(2.6)		Other current liabilities	(0.4)		Other current liabilities
Cross-Currency Swaps	1.5		Other assets	9.7		Other assets
Undesignated Forward Contracts	0.5		Other assets	0.0		Other assets
Total	$	(41.6)		$	(37.0)

Note 8.6. Retirement and Postretirement Benefit Plans

We sponsor ~~six~~five defined benefit retirement plans. Those plans include a master defined benefit retirement plan in the United States, a nonqualified supplemental executive defined benefit retirement plan, and three defined benefit retirement plans covering employees in Germany and ~~France, and a defined benefit retirement plan of Excel Medical that was acquired on January 10, 2020.~~France. Benefits for such plans are based primarily on years of service and the employee’s level of compensation in specific periods of employment. We contribute funds to trusts as necessary to provide for current service and for any unfunded projected future benefit obligation over a reasonable period of time. All of our plans have a September 30 measurement date. The following table ~~details~~provides the components of net pension expense for our defined benefit retirement plans.


		Three Months Ended June 30						Nine Months Ended June 30								Condensed Consolidated Statements of Income Item		Three Months Ended December 31			Consolidated Statements of Income Item
		2020		2019		2020		2019			Condensed Consolidated Statements of Income Item			2020			2019		Consolidated Statements of Income Item
Service cost	Service cost	$	0.5	$	0.5	$	1.3	$	1.2	Cost of goods sold			0.5		$	0.4				Cost of goods sold
Service cost	Service cost	0.9		0.6		2.5		2.1		Selling and administrative expenses	Service cost	0.8			0.8					Selling and administrative expenses
Interest cost	Interest cost	1.9		3.1		6.8		9.4		Investment income (expense) and other, net	Interest cost	1.9			2.5					Investment income (expense) and other, net
Expected return on plan assets	Expected return on plan assets	(3.4)		(3.7)		(10.8)		(11.1)		Investment income (expense) and other, net	Expected return on plan assets	(3.0)			(3.7)					Investment income (expense) and other, net
Amortization of unrecognized prior service cost, net	Amortization of unrecognized prior service cost, net	—		0.1		0.1		0.1		Investment income (expense) and other, net	Amortization of unrecognized prior service cost, net	0			0.1					Investment income (expense) and other, net
Amortization of net loss	Amortization of net loss	1.9		0.7		5.0		1.8		Investment income (expense) and other, net	Amortization of net loss	1.5			1.5					Investment income (expense) and other, net
Settlement loss (gain)		(0.1)		—		8.4		—		Investment income (expense) and other, net
Net periodic benefit cost											Net periodic benefit cost	1.7			1.6
Special termination benefits1											Special termination benefits1	3.3			—					Special charges
Net pension expense	Net pension expense	$	1.7	$	1.3	$	13.3	$	3.5		Net pension expense	$	5.0		$	1.6
1 In September 2020, we offered certain employees in the United States the option to participate in a voluntary early retirement plan. The employees who accepted the offer received special termination benefits during the three months ended December 31, 2020, which were recorded as a component of Special charges in the Consolidated Statements of Income. See Note 8. Special Charges for further information.											1 In September 2020, we offered certain employees in the United States the option to participate in a voluntary early retirement plan. The employees who accepted the offer received special termination benefits during the three months ended December 31, 2020, which were recorded as a component of Special charges in the Consolidated Statements of Income. See Note 8. Special Charges for further information.

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In addition to defined benefit retirement plans, we also offer two postretirement health care plans in the United States that provide health care benefits to qualified retirees and their dependents. The plans are closed to new participants and include retiree cost sharing provisions and generally extend retiree coverage for medical and prescription benefits beyond the COBRA continuation period to the date of Medicare eligibility. Annual costs related to these plans are not significant.

~~On March 9,~~ In connection with the voluntary early retirement plan offered in September 2020, we ~~transferred pension assets totaling $40.6~~incurred $0.2 million of special termination benefits related to ~~purchase annuity contracts for~~our postretirement health care plan. The amount was recorded as a ~~certain population of retirees with a third-party insurance company. As a result, we recognized a non-cash settlement loss of $8.4 million for the nine months ended June 30, 2020, which is~~ recorded as a component of ~~Investment income (expense) and other, net~~Special charges in the ~~Condensed~~ Consolidated Statements of Income. See Note 8. Special Charges for further information.

We have defined contribution savings plans that cover substantially all U.S. employees and certain non-U.S. employees. The general purpose of these plans is to provide additional financial security in retirement by providing employees with an incentive to regularly save a portion of their earnings. Our contributions to the plans are based on eligibility and, in some cases, employee contributions. Expense under these plans was ~~$7.3~~$7.8 million and ~~$23.6~~$6.2 million for the ~~three and nine months~~quarterly periods ended ~~June 30,~~December 31, 2020 and ~~$6.9 million and $21.4 million for the three and nine months ended June 30,~~ 2019.

Note 9.7. Other Comprehensive Income (Loss)

The following tables represent the changes in Other comprehensive income (loss) and Accumulated other comprehensive income (loss) by component for the three months ended ~~June 30,~~December 31, 2020 and 2019:

Three Months Ended June 30, 2020
Other comprehensive income (loss) Accumulated other comprehensive income (loss)
Prior to
reclassification Reclassification
from Pre-tax Tax effect Net of tax Beginning
balance Net activity
Ending
balance ²
Derivative instruments designated as hedges ¹:
Currency exchange contracts $ 0.4 $ (1.2) $ (0.8) $ 0.2 $ (0.6) $ — $ (0.6) $ (0.6)
Interest rate swaps (2.9) (1.7) (4.6) 1.1 (3.5) (34.8) (3.5) (38.3)
Cross-currency swaps (3.5) — (3.5) 0.9 (2.6) 16.3 (2.6) 13.7
Derivative instruments designated as hedges total $ (6.0) $ (2.9) $ (8.9) $ 2.2 $ (6.7) $ (18.5) $ (6.7) $ (25.2)
Foreign currency translation adjustment 17.1 — 17.1 — 17.1 (153.9) 17.1 (136.8)
Change in pension and postretirement defined benefit plans 0.2 1.4 1.6 (0.6) 1.0 (51.2) 1.0 (50.2)
Total $ 11.3 $ (1.5) $ 9.8 $ 1.6 $ 11.4 $ (223.6) $ 11.4 $ (212.2)


	Three Months Ended December 31, 2020
	Other comprehensive income (loss)										Accumulated other comprehensive income (loss)
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect		Net of tax		Beginning balance		Net activity		Ending balance 2
Derivative instruments designated as hedges 1:
Currency exchange contracts	$	(1.4)	$	(0.8)	$	(2.2)	$	0.5	$	(1.7)	$	(0.3)	$	(1.7)	$	(2.0)
Interest rate swaps	8.0		(2.6)		5.4		(1.2)		4.2		(35.7)		4.2		(31.5)
Cross-currency swaps	(9.6)		0		(9.6)		2.2		(7.4)		6.7		(7.4)		(0.7)
Derivative instruments designated as hedges total	$	(3.0)	$	(3.4)	$	(6.4)	$	1.5	$	(4.9)	$	(29.3)	$	(4.9)	$	(34.2)
Foreign currency translation adjustment	41.3		0		41.3		0		41.3		(110.7)		41.3		(69.4)
Change in pension and postretirement defined benefit plans	(0.5)		1.2		0.7		(0.2)		0.5		(40.2)		0.5		(39.7)
Total	$	37.8	$	(2.2)	$	35.6	$	1.3	$	36.9	$	(180.2)	$	36.9	$	(143.3)

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Three Months Ended June 30, 2019
Other comprehensive income (loss) Accumulated other comprehensive income (loss)
Prior to
reclassification Reclassification
from Pre-tax Tax effect Net of tax Beginning
balance Net activity
Ending
balance
Derivative instruments designated as hedges ¹:
Currency exchange contracts $ (0.8) $ 0.4 $ (0.4) $ 0.1 $ (0.3) $ 0.4 $ (0.3) $ 0.1
Interest rate swaps (9.0) (1.8) (10.8) 2.5 (8.3) 5.3 (8.3) (3.0)
Cross-currency swaps (1.0) — (1.0) 0.2 (0.8) 6.3 (0.8) 5.5
Derivative instruments designated as hedges total $ (10.8) $ (1.4) $ (12.2) $ 2.8 $ (9.4) $ 12.0 $ (9.4) $ 2.6
Foreign currency translation adjustment 4.1 — 4.1 — 4.1 (122.5) 4.1 (118.4)
Change in pension and postretirement defined benefit plans — 0.7 0.7 (0.3) 0.4 (29.8) 0.4 (29.4)
Total $ (6.7) $ (0.7) $ (7.4) $ 2.5 $ (4.9) $ (140.3) $ (4.9) $ (145.2)

~~The following tables represent the changes in Other comprehensive income (loss) and Accumulated other comprehensive income (loss) by component for the nine months ended June 30, 2020 and 2019:~~


	Three Months Ended December 31, 2019
	Other comprehensive income (loss)										Accumulated other comprehensive income (loss)
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect		Net of tax		Beginning balance		Net activity		Ending balance
Derivative instruments designated as hedges 1:
Currency exchange contracts	$	(0.3)	$	0.1	$	(0.2)	$	0	$	(0.2)	$	0.2	$	(0.2)	$	0
Interest rate swaps	0.9		0.8		1.7		(0.4)		1.3		(5.2)		1.3		(3.9)
Cross-currency swaps	(4.8)		0		(4.8)		1.1		(3.7)		12.2		(3.7)		8.5
Derivative instruments designated as hedges total	$	(4.2)	$	0.9	$	(3.3)	$	0.7	$	(2.6)	$	7.2	$	(2.6)	$	4.6
Foreign currency translation adjustment	23.1		0		23.1		0		23.1		(145.4)		23.1		(122.3)
Change in pension and postretirement defined benefit plans	(0.2)		1.2		1.0		(0.3)		0.7		(44.3)		0.7		(43.6)
Total	$	18.7	$	2.1	$	20.8	$	0.4	$	21.2	$	(182.5)	$	21.2	$	(161.3)

Nine Months Ended June 30, 2020
Other comprehensive income (loss) Accumulated other comprehensive income (loss)
Prior to
reclassification Reclassification
from Pre-tax Tax effect Net of tax Beginning
balance Net activity
Ending
balance ²
Derivative instruments designated as hedges ¹:
Currency exchange contracts $ 0.1 $ (1.1) $ (1.0) $ 0.2 $ (0.8) $ 0.2 $ (0.8) $ (0.6)
Interest rate swaps (41.7) (1.3) (43.0) 9.9 (33.1) (5.2) (33.1) (38.3)
Cross-currency swaps 1.9 — 1.9 (0.4) 1.5 12.2 1.5 13.7
Derivative instruments designated as hedges total $ (39.7) $ (2.4) $ (42.1) $ 9.7 $ (32.4) $ 7.2 $ (32.4) $ (25.2)
Foreign currency translation adjustment 8.6 — 8.6 — 8.6 (145.4) 8.6 (136.8)
Change in pension and postretirement defined benefit plans 0.1 (7.7) (7.6) 1.7 (5.9) (44.3) (5.9) (50.2)
Total $ (31.0) $ (10.1) $ (41.1) $ 11.4 $ (29.7) $ (182.5) $ (29.7) $ (212.2)

~~Table of Conten~~t s

Nine Months Ended June 30, 2019
Other comprehensive income (loss) Accumulated other comprehensive income (loss)
Prior to
reclassification Reclassification
from Pre-tax Tax effect Net of tax Beginning
balance Impacts of ASU 2018-02 Adoption as of October 1, 2018 Net activity Ending
balance
Derivative instruments designated as hedges ¹:
Currency exchange contracts $ (0.3) $ 0.2 $ (0.1) $ — $ (0.1) $ 0.2 $ — $ (0.1) $ 0.1
Interest rate swaps (23.2) (5.6) (28.8) 6.7 (22.1) 18.3 0.8 (22.1) (3.0)
Cross-currency swaps 9.3 — 9.3 (2.1) 7.2 (1.7) — 7.2 5.5
Derivative instruments designated as hedges total $ (14.2) $ (5.4) $ (19.6) $ 4.6 $ (15.0) $ 16.8 $ 0.8 $ (15.0) $ 2.6
Foreign currency translation adjustment (13.1) — (13.1) — (13.1) (105.3) — (13.1) (118.4)
Change in pension and postretirement defined benefit plans 0.1 1.8 1.9 (0.6) 1.3 (24.5) (6.2) 1.3 (29.4)
Total $ (27.2) $ (3.6) $ (30.8) $ 4.0 $ (26.8) $ (113.0) $ (5.4) $ (26.8) $ (145.2)

¹See Note 6.5. Derivative Instruments and Hedging Activity for information regarding our hedging strategies.

²The estimated net amount of gains and losses reported in Accumulated other comprehensive income (loss) related to our derivative instruments designated as hedges as of ~~June 30,~~December 31, 2020 that are expected to be reclassified into earnings within the next 12 months is expense of ~~$7.7~~$8.8 million.

The following table represents the items reclassified out of Accumulated other comprehensive income (loss) and the related tax effects for the three months ended ~~June 30,~~December 31, 2020 and 2019:


		Three Months Ended June 30																							Three Months Ended December 31
		2020										2019											2020				2019
		Amount reclassified		Tax effect		Net of tax		Amount reclassified		Tax effect ⁴		Net of tax			Amount reclassified		Tax effect		Net of tax		Amount reclassified		Tax effect		Net of tax
Derivative instruments designated as hedges:	Derivative instruments designated as hedges:													Derivative instruments designated as hedges:
Currency exchange contracts ¹	Currency exchange contracts ¹	$	(1.2)	$	0.4	$	(0.8)	$	0.4	$	—	$	0.4	Currency exchange contracts 1	$	(0.8)	$	0.2	$	(0.6)	$	0.1	$	(0.1)	$	0
Interest rate swaps ²	Interest rate swaps ²	(1.7)		0.4		(1.3)		(1.8)		0.2		(1.6)		Interest rate swaps 2	(2.6)		0.6		(2.0)		0.8		(0.2)		0.6
Derivative instruments designated as hedges total	Derivative instruments designated as hedges total	$	(2.9)	$	0.8	$	(2.1)	$	(1.4)	$	0.2	$	(1.2)	Derivative instruments designated as hedges total	$	(3.4)	$	0.8	$	(2.6)	$	0.9	$	(0.3)	$	0.6
Change in pension and postretirement defined benefit plans ³	Change in pension and postretirement defined benefit plans ³	1.4		(0.6)		0.8		0.7		(0.3)		0.4		Change in pension and postretirement defined benefit plans 3	$	1.2	$	(0.2)	$	1.0	$	1.2	$	(0.3)	$	0.9

~~Table of Conten~~t s

~~The following table represents the items reclassified out of Accumulated other comprehensive income (loss) and the related tax effects for the nine months ended June 30, 2020 and 2019:~~

Nine Months Ended June 30
2020 2019
Amount
reclassified Tax effect Net of tax Amount
reclassified
Tax effect ⁴
Net of tax
Derivative instruments designated as hedges:
Currency exchange contracts ¹
$ (1.1) $ 0.3 $ (0.8) $ 0.2 $ — $ 0.2
Interest rate swaps ²
(1.3) 0.3 (1.0) (5.6) 1.3 (4.3)
Derivative instruments designated as hedges total (2.4) 0.6 (1.8) (5.4) 1.3 (4.1)
Change in pension and postretirement defined benefit plans ³
(7.7) 1.7 (6.0) 1.8 (6.8) (5.0)

¹Reclassified from Accumulated other comprehensive income (loss) into Investment income (expense) and other, net.

²Reclassified from Accumulated other comprehensive income (loss) into Interest expense.

³Reclassified from Accumulated other comprehensive income (loss) into Cost of goods sold and Investment income (expense) and other, net. These components are included in the computation of net periodic pension expense.

⁴~~As a result of the adoption of ASU 2018-02, we reclassified $5.4 million from Accumulated other comprehensive income (loss) to Retained earnings.~~

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Note ~~10.~~8. Special Charges

Special charges are incurred in connection with various transformative initiatives, exit activities, and organizational changes to improve our business alignment and cost ~~structure~~structure. Although these charges are infrequent and ~~are non-recurring~~unusual in ~~nature. Additional~~nature, additional Special charges are expected to be ~~incurred related to restructuring and transformative initiatives in future periods.~~incurred. It is not practicable to estimate the amount of these future expected costs until such time as the evaluations are complete. The following table summarizes the Special charges recognized for the three ~~and nine~~ months ended ~~June 30.~~December 31, 2020 and 2019.


Special Charges	Special Charges	Three Months Ended June 30									Nine Months Ended June 30									Special Charges	Three Months Ended December 31
				2020			2019			2020			2019		Special Charges	2020			2019
Global information technology transformation	Global information technology transformation	$	6.7		$	—		$	15.3		$	—	Global information technology transformation	$			$	4.1
Exit activity costs:
Workforce reduction plan													Workforce reduction plan	22.7			—
Integration-related activities	Integration-related activities	2.4			4.7			9.2			11.2		Integration-related activities	3.1			3.2
Site consolidation		0.4			1.5			1.6			6.5
Site consolidation and other cost optimization activities, including related severance cost													Site consolidation and other cost optimization activities, including related severance cost	—			0.5
Total Special Charges	Total Special Charges	$	9.5		$	6.2		$	26.1		$	17.7	Total Special Charges	$	27.1		$	7.8

Global Information Technology Transformation

~~Management pursues opportunities to align our operations to achieve synergies and position the business for growth.~~ In fiscal 2018, a global transformation program was launched that was focused on reducing complexity, increasing efficiency, and improving our cost structure with targeted investments that align with our strategic priorities.

~~As part of this program,~~2019, management ~~launched an initiative related to~~initiated a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems. For the three months ended June 30, 2020, we incurred $9.0 million related to this initiative of which $2.3 million was capitalized and $6.7 million was expensed in Special charges. For the nine months ended June 30, 2020, we incurred $28.3 million related to this initiative of which $13.0 million was capitalized and $15.3 million was expensed in Special charges.

The objective of this initiative is to consolidate and streamline our key workstreams that interact with customers and vendors and support our financial reporting processes while maintaining the security of our data. The solutions designed under this initiative will be implemented over the next five to seven years.

26Workforce Reduction Plan

~~Table~~

On September 15, 2020, we committed to a workforce reduction plan as part of ~~Conten~~t s

the continued business optimization initiatives to advance our strategy and growth platforms and improve our operations and cost structure. The workforce reduction plan includes a voluntary retirement program and involuntary severance actions. For the three months ended December 31, 2020, we incurred $22.7 million related to this initiative within Special charges.

Integration-Related Activities

We incurred costs, including severance and benefit costs, associated with ~~other~~ business realignment and integration ~~activities.~~activities focused on reducing complexity, increasing efficiency, and improving our cost structure. We acquired several businesses ~~in fiscal 2019 and 2020~~ as disclosed within Note 4.3. Business Combinations within the 2020 Form 10-K for the fiscal year ended September 30, 2020 for which we also continue to incur integration-related costs and severance costs.

Site Consolidation and Other Cost Optimization Activities, Including Related Severance Cost

We continue to streamline our operations and simplify our supply chain by transforming and consolidating certain manufacturing and distribution ~~operations (“Site Consolidation”).~~operations.

For all accrued severance and other benefit charges described above, we record reserves within Other current liabilities. The following table summarizes the reserve activity for severance and other benefits for the ~~nine~~three months ended ~~June 30, 2020 was as follows:~~December 31, 2020.


Balance as of September 30, ~~2019~~2020	$	~~8.5~~11.3
Expenses	~~4.9~~20.0
Cash payments	~~(9.6)~~(9.7)
Reversals	~~(0.5)~~(0.1)
Balance as of ~~June 30,~~December 31, 2020	$	~~3.3~~21.5

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Note ~~11.~~9. Income Taxes

The effective tax rate for the three months ended ~~June 30,~~December 31, 2020 ~~was 21.9% compared~~was 17.9% compared to ~~28.7%~~6.6% for the comparable period in the prior year. The rate was lower in the prior year period primarily due to the favorable impact of excess tax benefits on deductible stock compensation compared to the current year period. The effective tax rate for the three months ended June 30, 2020 was favorably impacted primarily by an increased projected benefit for the deduction attributed to foreign derived intangible income (“FDII”) as well as larger unfavorable impacts from discrete items in the prior comparable period.

Included in the third quarter of fiscal 2020 tax provision is additional tax expense of $4.1 million as a result of a change in the taxable gain from the disposition of certain of our surgical consumable products and related assets, which occurred in August 2019.

Note ~~12.~~10. Earnings per Common Share

Basic earnings per share (“EPS”) 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. Cumulative treasury stock acquired, less cumulative shares reissued, have been excluded in determining the average number of shares outstanding.

~~Table of Conten~~t s

Earnings per share are calculated as follows:


		Three Months Ended June 30						Nine Months Ended June 30							Three Months Ended December 31
		2020		2019		2020		2019			2020		2019
Net Income	Net Income	$	93.9	$	32.6	$	180.6	$	124.3	Net Income	$	58.8	$	39.8

Net Income per Basic Common Share	Net Income per Basic Common Share	$	1.41	$	0.49	$	2.71	$	1.86	Net Income per Basic Common Share	$	0.88	$	0.60

Net Income per Diluted Common Share	Net Income per Diluted Common Share	$	1.40	$	0.48	$	2.68	$	1.84	Net Income per Diluted Common Share	$	0.88	$	0.59

Average Basic Common Shares Outstanding (in thousands)	Average Basic Common Shares Outstanding (in thousands)	66,558		66,777		66,660		66,822		Average Basic Common Shares Outstanding (in thousands)	66,497		66,792
Add potential effect of exercise of stock options and other unvested equity awards	Add potential effect of exercise of stock options and other unvested equity awards	625		669		632		662		Add potential effect of exercise of stock options and other unvested equity awards	428		537
Average Diluted Common Shares Outstanding (in thousands)	Average Diluted Common Shares Outstanding (in thousands)	67,183		67,446		67,292		67,484		Average Diluted Common Shares Outstanding (in thousands)	66,925		67,329

Shares with anti-dilutive effect excluded from the computation of diluted EPS	Shares with anti-dilutive effect excluded from the computation of diluted EPS	291		258		298		299		Shares with anti-dilutive effect excluded from the computation of diluted EPS	639		291

~~Note 13. Warranties and 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 that might require a broad-based correction, separate reserves are established when such events are identified and the cost of correction can be reasonably estimated.

~~The following summarizes accrued product warranty activity for the three and nine months ended June 30, 2020.~~

Three Months Ended June 30, 2020 Nine Months Ended June 30, 2020
Balance as of beginning of period $ 29.0 $ 29.7
Provision for warranties in the period 5.2 13.0
Warranty claims in the period (3.7) (12.2)
Balance as of end of period $ 30.5 $ 30.5

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 have not historically had a material impact on our financial condition or results of operations, nor do we expect them to, 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. 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.

~~Table of Conten~~t s

Note ~~14.~~11. Segment Reporting

We disclose segment information that is consistent with the way in which management operates and views the business. Our operating structure contains the following reportable segments:

•Patient Support Systems – globally provides an ecosystem of our digital and connected care solutions: devices, software, communications and integration technologies that improve care and deliver actionable insights to caregivers and patients in the acute care setting. Key products include care communications and mobility solutions, connected med-surg and ~~specialty~~ICU bed systems, sensors and surfaces, safe patient handling equipment and ~~mobility solutions, as well as our care communications platform that delivers software and information technologies to improve care and deliver actionable insight to caregivers and patients.~~services.

•Front Line Care – globally provides integrated patient monitoring and diagnostic technologies ~~including a diversified~~– from hospital to home – that enable and support Hillrom’s connected care strategy. Our diverse portfolio ~~of physical~~includes secure, connected, digital assessment ~~tools that~~technologies to help diagnose, treat and manage a wide variety of illnesses and diseases, including respiratory therapy, cardiology, vision screening and ~~a portfolio of vision care health devices.~~physical assessment.

•Surgical Solutions – globally ~~provides~~enables peak procedural performance, connectivity and video integration products that improve collaboration, workflow, safety and efficiency in the operating room, such as surgical ~~space, including~~video technologies, tables, lights, pendants, precision positioning devices and other accessories.

Our performance within each reportable segment continues to be measured on a divisional income basis before non-allocated operating and administrative costs, litigation, special charges, acquisition and integration costs, acquisition-related intangible

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asset amortization, and other unusual events. Divisional income generally represents the division’s gross profit, excluding acquisition-related intangible asset amortization, less its direct operating costs along with an allocation of manufacturing and distribution costs, research and development, and certain corporate functional expenses.

Non-allocated operating costs, administrative costs, and other includes functional expenses that support the entire organization such as administration, finance, legal and human resources, expenses associated with strategic developments, acquisition-related intangible asset amortization, and other events that are not indicative of operating trends. We exclude such amounts from divisional income to allow management to evaluate and understand divisional operating trends. The chief operating decision maker does not receive any asset information by reportable segment and, accordingly, we do not report asset information by reportable segment.

Effective for fiscal 2020, the allocation of operating costs to each segment was modified to improve the alignment to how management evaluates the performance of each segment. The fiscal 2019 segment information has been recast to conform to the current presentation. The reclassification did not impact our reported Consolidated Net Revenue or Income Before Income Taxes.

~~Table of Conten~~t s


		Three Months Ended June 30						Nine Months Ended June 30							Three Months Ended December 31
		2020		2019		2020		2019			2020		2019
Net Revenue - United States:	Net Revenue - United States:									Net Revenue - United States:
Patient Support Systems	Patient Support Systems	$	316.9	$	290.8	$	872.8	$	806.1	Patient Support Systems	$	268.9	$	266.6
Front Line Care	Front Line Care	167.8		178.4		525.2		515.1		Front Line Care	184.5		178.1
Surgical Solutions	Surgical Solutions	22.5		60.2		97.6		169.7		Surgical Solutions	34.2		37.1
Total net revenue - United States	Total net revenue - United States	$	507.2	$	529.4	$	1,495.6	$	1,490.9	Total net revenue - United States	$	487.6	$	481.8

Net Revenue - Outside of the United States (“OUS”):	Net Revenue - Outside of the United States (“OUS”):									Net Revenue - Outside of the United States (“OUS”):
Patient Support Systems	Patient Support Systems	$	130.9	$	83.7	$	301.2	$	269.0	Patient Support Systems	$	108.5	$	77.6
Front Line Care	Front Line Care	84.3		66.0		239.8		205.8		Front Line Care	85.4		76.5
Surgical Solutions	Surgical Solutions	45.1		47.7		139.1		158.8		Surgical Solutions	59.6		49.1
Total net revenue - OUS	Total net revenue - OUS	$	260.3	$	197.4	$	680.1	$	633.6	Total net revenue - OUS	$	253.5	$	203.2

Net Revenue:	Net Revenue:									Net Revenue:
Patient Support Systems	Patient Support Systems	$	447.8	$	374.5	$	1,174.0	$	1,075.1	Patient Support Systems	$	377.4	$	344.2
Front Line Care	Front Line Care	252.1		244.4		765.0		720.9		Front Line Care	269.9		254.6
Surgical Solutions	Surgical Solutions	67.6		107.9		236.7		328.5		Surgical Solutions	93.8		86.2
Total net revenue	Total net revenue	$	767.5	$	726.8	$	2,175.7	$	2,124.5	Total net revenue	$	741.1	$	685.0

Divisional Income:	Divisional Income:									Divisional Income:
Patient Support Systems	Patient Support Systems	$	129.2	$	83.5	$	262.4	$	215.4	Patient Support Systems	$	87.3	$	58.4
Front Line Care	Front Line Care	81.1		69.5		232.5		198.5		Front Line Care	81.9		73.5
Surgical Solutions	Surgical Solutions	4.7		17.8		31.0		44.2		Surgical Solutions	17.5		12.8

Other Operating Costs:	Other Operating Costs:									Other Operating Costs:
Non-allocated operating costs, administrative costs, and other	Non-allocated operating costs, administrative costs, and other	70.2		94.7		198.3		218.4		Non-allocated operating costs, administrative costs, and other	77.2		58.0
Special charges	Special charges	9.5		6.2		26.1		17.7		Special charges	27.1		7.8
Operating Profit	Operating Profit	135.3		69.9		301.5		222.0		Operating Profit	82.4		78.9

Interest expense	Interest expense	(17.3)		(23.1)		(55.8)		(66.2)		Interest expense	(17.8)		(19.4)
Loss on extinguishment of debt	Loss on extinguishment of debt	—		—		(15.6)		—		Loss on extinguishment of debt	0		(15.6)
Investment income (expense) and other, net	Investment income (expense) and other, net	2.2		(1.1)		(10.5)		0.2		Investment income (expense) and other, net	7.0		(1.3)
Income Before Income Taxes	Income Before Income Taxes	$	120.2	$	45.7	$	219.6	$	156.0	Income Before Income Taxes	$	71.6	$	42.6

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Note ~~15.~~12. Commitments and Contingencies

General

We are subject to various claims and contingencies arising out of the normal course of business, including those relating to governmental investigations and proceedings, 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 materially adverse effect on our financial condition, results of operations and cash flows.

Self-Insurance

We are involved in various claims, including product and general liability, workers’ compensation, auto liability and employment related matters. Such claims in the United States have deductibles and self-insured retentions at various limits up to $1.0 million per occurrence or per claim, depending upon the type of coverage and policy period. International deductibles and self-insured retentions are lower. We are also generally self-insured up to certain stop-loss limits for certain employee health benefits, including medical, drug, and dental. Our policy is to estimate reserves based upon a number of factors including known claims, estimated incurred but not reported claims and outside actuarial analysis, which are based on historical information along with certain assumptions about future events. Such estimated reserves are classified as Other current liabilities and Other long-term liabilities.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion and analysis should be read in conjunction with the accompanying interim financial statements and our ~~2019~~2020 Form 10-K.

Hill-Rom Holdings, Inc. ~~(the “Company,” “Hillrom,” “we,~~(“we,” “us,” or “our”) ~~was incorporated on August 7, 1969 in the State of Indiana and~~ is ~~headquartered in Chicago, Illinois. We are~~ a global medical technology leader whose approximately 10,000 employees have a single purpose: enhancing outcomes for patients and their caregivers by Advancing Connected ~~Care~~^TMCare™. Around the world, our innovations touch over 7 million patients each day. Our products and services help enable earlier diagnosis and treatment, optimize surgical efficiency and accelerate patient recovery while simplifying clinical communication and shifting care closer to home. We make these outcomes possible through connected smart beds, patient lifts, patient assessment and monitoring technologies, caregiver collaboration tools, respiratory health devices, advanced equipment for the surgical space and more, delivering actionable, real-time insights at the point of care.

The Impacts of COVID-19 on Hillrom

COVID-19 has impacted global economies as travel, leisure and discretionary consumer spending has reduced significantly causing companies to make commensurate changes to their investments, human capital, and financial outlooks. The United States and countries around the world continue to take precautionary and preventive measures to reduce the spread of COVID-19. Recently, prospects for an eventual path out of the crisis have improved as COVID-19 vaccines were authorized for use globally and governments began executing plans to distribute the vaccines to the public as supplies become available over the course of fiscal 2021. However, near-term outlook remains uncertain due to external factors such as policymaker decisions to remove certain restrictions, availability and distribution of vaccines and people's willingness to take the vaccine.

Revenues and Customers

Hillrom continues to experience fluctuations in demand across its portfolio of products as health care customers manage the treatment of patients diagnosed with COVID-19. Due to an increase in COVID-19 confirmed cases and hospitalizations that were attributed to holiday travel, we experienced higher demand for select products within Patient Support Systems such as intensive care unit and med-surg beds and specialty surfaces, including our rental portfolio.

We also experienced higher than expected recovery in portions of our remaining portfolio that had previously been limited due to hospital access and doctor office restrictions.

For the remainder of fiscal 2021, we expect hospitals and physician practices to advance toward more normal operating activities as efforts continue across the world to control the spread of COVID-19 through improved testing and contact tracing and the availability and distribution of an effective vaccine.

Operations and Workforce

We have experienced no significant supply chain constraints nor significant increases in supply costs, and we were able to secure raw materials and components for manufacturing products in high demand due to COVID-19.

Our production facilities have remained open and employment levels have remained consistent. Many employees in our administrative functions have effectively continued to work remotely since mid-March 2020. We have implemented the necessary precautions to allow our employees to work safely and effectively in our manufacturing and service facilities. In other areas of the business, we have adapted our processes and used technology to continue to effectively execute on our strategic priorities as well as daily operating activities.

We will continue to assess our workforce requirements in response to evolving customer demand related to COVID-19.

As disclosed in Note 1. Summary of Significant Accounting Policies, we have benefited from government programs within the various jurisdictions in which we operate in the form of subsidies, incentives, cost relief and payment deferrals. Management will continue to evaluate these opportunities as well as the related requirements or restrictions to support our operations and workforce in a manner that allows us to continue to operate efficiently and effectively.

Table of Contents

For further discussion, see the risk factor within PART I, Item 1.A Risk Factors, entitled “Our business, results of operations, financial condition and prospects could be materially and adversely affected by the ongoing COVID-19 pandemic and the related effects on public health.” within the 2020 Form 10-K.

Use of Non-GAAP Financial Measures

The accompanying Condensed Consolidated Financial Statements and related notes are presented in accordance with GAAP. In addition to the results reported in accordance with GAAP, we routinely provide operating margin, income before taxes, income tax expense and earnings per diluted share results on an adjusted basis as we believe these measures contribute to the understanding of our financial performance, provide additional analytical tools to understand our results from core operations and reveal underlying operating trends. These measures exclude strategic developments, acquisition and integration costs and related fair value adjustments, gains and losses associated with disposals of businesses or significant product lines, regulatory costs related to updating existing product registrations to comply with the European Medical Device Regulations, Special charges as described in Note ~~10.~~8. Special Charges ~~the transitional impacts~~ of this Form 10-Q, the ~~U.S. Tax Cuts and Jobs Act (the “Tax Act”),~~ changes in tax accounting methods, and other tax law changes as described in Note 11. Income Taxes within the ~~2019~~2020 Form 10-K, expenses associated with these tax items, the impacts of significant litigation matters, certain impacts of the COVID-19 pandemic and other unusual events. We also exclude expenses associated with the amortization of purchased intangible assets. These adjustments are made to allow investors to evaluate and understand operating trends excluding their impact on operating income and earnings per diluted share.

Management uses these measures internally for planning, forecasting and evaluating the performance of the business. Investors

should consider these non-GAAP measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.

In addition, we present certain results on a constant currency basis, which compares results between periods as if foreign currency exchange rates had remained consistent period-over-period. We monitor sales performance on an adjusted basis that eliminates the positive or negative effects that result from translating international sales into U.S. dollars. We calculate constant currency by applying the foreign currency exchange rate for the prior period to the local currency results for the current period. We believe that evaluating growth in net revenue on a constant currency basis provides an additional and meaningful assessment to both management and investors.

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Results of Operations

In this section, we provide an overview of our results of operations. We disclose segment information that is consistent with the way in which management operates and views the business. Our operating structure contains the following reportable segments:

Net Revenue


(In millions)	(In millions)									U.S.		OUS							(In millions)												U.S.				OUS
		Three Months Ended June 30						Change As Reported		Constant Currency		Change As Reported		Change As Reported				Constant Currency		Three Months Ended December 31					Change As Reported			Constant Currency			Change As Reported				Change As Reported					Constant Currency
		2020		2019																				2020			2019			Change As Reported			Constant Currency					Change As Reported			Constant Currency
Net Revenue:	Net Revenue:															Net Revenue:
Product sales and service	Product sales and service	$	685.8	$	653.0	5.0	%	6.2	%	(6.5)	%	33.5	%	37.3	%	Product sales and service	$	652.5		$	614.3	6.2	%		4.4	%		(2.8)	%				25.7	%				19.9	%
Rental revenue	Rental revenue	81.7		73.8		10.6	%	10.9	%	12.2	%	0.3	%	2.5	%	Rental revenue	88.6			70.7		25.3	%		24.3	%		28.1	%		6.5	%			(1.1)		%
Total net revenue	Total net revenue	$	767.5	$	726.8	5.6	%	6.6	%	(4.2)	%	31.9	%	35.6	%	Total net revenue	$	741.1		$	685.0	8.2	%		6.5	%		1.2	%		24.8	%			18.9		%

Net Revenue:	Net Revenue:															Net Revenue:
Patient Support Systems	Patient Support Systems	$	447.8	$	374.5	19.6	%	20.6	%	9.0	%	56.4	%	60.8	%	Patient Support Systems	$	377.4		$	344.2	9.6	%		8.0	%		0.9	%		39.8	%			32.7		%
Front Line Care	Front Line Care	252.1		244.4		3.2	%	4.4	%	(5.9)	%	27.7	%	32.2	%	Front Line Care	269.9			254.6		6.0	%		5.0	%		3.6	%		11.6	%			8.2		%
Surgical Solutions	Surgical Solutions	67.6		107.9		(37.4)	%	(36.7)	%	(62.7)	%	(5.4)	%	(3.8)	%	Surgical Solutions	93.8			86.2		8.8	%		4.4	%		(7.8)	%		21.4	%			13.6		%
Total net revenue	Total net revenue	$	767.5	$	726.8	5.6	%	6.6	%	(4.2)	%	31.9	%	35.6	%	Total net revenue	$	741.1		$	685.0	8.2	%		6.5	%		1.2	%		24.8	%			18.9		%

OUS - Outside of the United States	OUS - Outside of the United States																																			OUS - Outside of the United States

Three Months Ended ~~June 30,~~December 31, 2020 Compared to the Three Months Ended ~~June 30,~~December 31, 2019

Consolidated Revenue

Product sales and service revenue increased ~~5.0%~~6.2% on a reported basis, and ~~6.2%~~4.4% on a constant currency basis, for the three months ended ~~June 30,~~December 31, 2020 compared to the three months ended ~~June 30, 2019. The increases were predominately driven by~~December 31, 2019 due to higher demand globally for Patient Support Systems and Front Line Care products, including those used to treat patients diagnosed with COVID-19, such as non-invasive ventilators sold under U.S. federal and state government contracts, and intensive care unit and med-surg beds, and vital sign monitoring products. These increases were partially offset by the decline in Surgical Solutions primarily due to the disposition of the surgical consumable products business in August 2019 and lower U.S. demand for products across all reportable segments ~~due to challenges with hospital access for installation~~outside the United States including market expansion of med-surg and ~~lower physician-office visits.~~ICU bed systems across Europe and other International markets.

Rental revenue increased ~~10.6%~~25.3% on a reported basis, and ~~10.9%~~24.3% on a constant currency basis, for the three months ended ~~June 30,~~December 31, 2020 compared to the three months ended ~~June 30,~~December 31, 2019. The ~~increases were~~increase was primarily due to increased deployment of beds within the Patient Support Systems rental portfolio for COVID-19 ~~patients.~~

patients in the United States.

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Business Segment Revenue

Patient Support Systems revenue increased ~~19.6%~~9.6% on a reported basis, and ~~20.6%~~8.0% on a constant currency basis, for the three months ended ~~June 30,~~December 31, 2020 compared to the three months ended ~~June 30,~~December 31, 2019. The ~~increases were~~increase was driven primarily by ~~global~~ sales growth outside the United States due to ~~accelerated~~ customer demand for intensive care unit and med-surg beds ~~and~~as well as higher U.S. rental revenues ~~due~~related to ~~COVID-19.~~COVID-19 demand. The ~~increases during the three months ended June 30, 2020 were~~increase was partially offset by lower U.S. demand and project delays for care communications offering that require hospital access for installation. Revenue for the three months ended June 30, 2020 does not reflect approximately $0.2 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred revenue related to recent acquisitions.products.

Front Line Care revenue increased ~~3.2%~~6.0% on a reported basis, and 5.0% on a constant currency basis, for the three months ended December 31, 2020 compared to the three months ended December 31, 2019. The increase was driven by global sales of patient monitoring and thermometry products to hospitals.

Surgical Solutions revenue increased 8.8% on a reported basis, and 4.4% on a constant currency basis, for the three months ended ~~June 30,~~December 31, 2020 compared to the three months ended June 30, 2019. The increases were driven by non-invasive ventilator sales under U.S. federal and state government contracts related to COVID-19, and strong international demand for vital signs monitoring products, and physical assessment and diagnostic tools. These increases were primarily offset by declines in the United States due to lower demand of products used in hospitals and physician offices.

Surgical Solutions revenue decreased 37.4% on a reported basis, and 36.7% on a constant currency basis, for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily related to the disposition of the surgical consumable products business in August 2019 and delays of capital projects and installations globally.

~~Net Revenue~~

(In millions) U.S. OUS
Nine Months Ended June 30 Change As
Reported Constant
Currency Change As
Reported Change As
Reported Constant
Currency
2020 2019
Net Revenue:
Product sales and service $ 1,947.1 $ 1,901.1 2.4 % 3.3 % (0.1) % 7.9 % 10.6 %
Rental revenue 228.6 223.4 2.3 % 2.6 % 3.2 % (3.6) % (1.4) %
Total net revenue $ 2,175.7 $ 2,124.5 2.4 % 3.2 % 0.3 % 7.3 % 10.1 %
Net Revenue:
Patient Support Systems $ 1,174.0 $ 1,075.1 9.2 % 10.0 % 8.3 % 12.0 % 15.3 %
Front Line Care 765.0 720.9 6.1 % 6.8 % 2.0 % 16.5 % 19.1 %
Surgical Solutions 236.7 328.5 (27.9) % (27.0) % (42.5) % (12.4) % (10.5) %
Total net revenue $ 2,175.7 $ 2,124.5 2.4 % 3.2 % 0.3 % 7.3 % 10.1 %

~~Nine Months Ended June 30, 2020 Compared to the Nine Months Ended June 30, 2019~~

~~Consolidated Revenue~~

Product sales and service revenue increased 2.4% on a reported basis, and 3.3% on a constant currency basis, for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019. The increases were predominately driven by higher demand globally for Patient Support Systems and Front Line Care products, including those used to treat patients diagnosed with COVID-19, such as non-invasive ventilators sold under U.S. federal and state government contracts, and intensive care unit and med-surg beds, and vital sign monitoring products, as well as new product launches and recent acquisitions. The increases were partially offset by the decline in Surgical Solutions due to the disposition of the surgical consumable products business in August 2019 and lower U.S. demand for products across all reportable segments, due to challenges with hospital access for installation and lower physician-office visits.

Rental revenue increased 2.3% on a reported basis, and 2.6% on a constant currency basis, for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019. The increases were primarily due to the increased deployment of beds

~~Table of Conten~~t s

~~within the Patient Support Systems rental portfolio for COVID-19 patients, partially offset by the exit of a rental arrangement remaining from the previously divested third-party rental business.~~

~~Business Segment Revenue~~

Patient Support Systems revenue increased 9.2% on a reported basis, and 10.0% on a constant currency basis, for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019. The increases were driven by global sales growth for intensive care unit and med-surg beds and increased U.S. rental revenues due to COVID-19, recent acquisitions and new product launches. The increases were partially offset by lower demand and project delays for care communications offering that require hospital access for installation. Revenue for the nine months ended June 30, 2020 does not reflect approximately $2.2 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred revenue related to recent acquisitions.

Front Line Care revenue increased 6.1% on a reported basis, and 6.8% on a constant currency basis, for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019. The increases were primarily driven by non-invasive ventilator sales under U.S. federal and state government contracts related to COVID-19, vital signs monitoring products, and physical assessment and diagnostic tools outside the United States. These increases were partially offset by declines in the United States of physical assessment and diagnostic tools used in hospitals and physician offices.

~~Surgical Solutions revenue decreased 27.9% on a reported basis, and 27.0% on a constant currency basis, for the nine months ended June 30, 2020 compared to the nine months ended June 30,~~December 31, 2019 primarily due to higher revenues in Europe, including the disposition of the surgical consumable products business in August 2019 and delays of capital projects and installations globally. The decreases were partially offset by higher demand for integrated operating tables during the first six months of the fiscal year.new acquisition.

Gross Profit


(In millions)	(In millions)	Three Months Ended June 30									Nine Months Ended June 30										(In millions)	Three Months Ended December 31
		2020			2019			2020			2019				2020			2019
Gross Profit ¹	Gross Profit ¹													Gross Profit 1
Product sales and service	Product sales and service	$	362.7		$	320.7		$	1,000.5		$	929.8		Product sales and service	$	328.3		$	308.0
Percent of Related Net Revenue	Percent of Related Net Revenue	52.9		%	49.1		%	51.4		%	48.9		%	Percent of Related Net Revenue	50.3		%	50.1		%

Rental	Rental	$	46.3		$	35.9		$	117.7		$	109.4		Rental	50.9			33.7
Percent of Related Net Revenue	Percent of Related Net Revenue	56.7		%	48.6		%	51.5		%	49.0		%	Percent of Related Net Revenue	57.4		%	47.7		%

Total Gross Profit	Total Gross Profit	$	409.0		$	356.6		$	1,118.2		$	1,039.2		Total Gross Profit	$	379.2		$	341.7
Percent of Total Net Revenue	Percent of Total Net Revenue	53.3		%	49.1		%	51.4		%	48.9		%	Percent of Total Net Revenue	51.2		%	49.9		%

¹Gross Profit is calculated as net product sales and service revenue and rental revenue less the related cost of goods sold or rental expenses as disclosed on the face of the Condensed Consolidated Statements of Income.

~~Three and Nine Months Ended June 30, 2020 Compared to the Three and Nine Months Ended June 30, 2019~~

Product sales and service gross profit increased by ~~$42.0 million and $70.7~~$20.3 million or ~~13.1% and 7.6%,~~6.6% for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 compared to the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019. The ~~increases~~increase in gross profit ~~were~~was primarily driven by increased sales volume ~~which reflects~~outside the ~~impact of COVID-19 on~~United States and favorable product ~~demand and strategic changes including recent acquisitions and the disposition of the surgical consumable products business in August 2019.~~mix. The increase in gross profit ~~can~~is also be attributed to ~~lower costs due to improved efficiency in manufacturing and service activities during~~cost efficiencies within our supply chain operations.

Rental gross profit increased by $17.2 million or 51.0% for the three months ended ~~June 30, 2020.~~

~~Rental gross profit increased $10.4 million and $8.3 million, or 29.0% and 7.6%, for the three and nine months ended June 30,~~December 31, 2020 compared to the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019, primarily ~~due to~~driven by higher volumes and lower costs associated with servicing the Patient Support Systems rental portfolio due to increased rental durations ~~due~~related to hospital needs for COVID-19 patients.

~~Refer to the section titled “The Impacts of COVID-19 on Hillrom” within Management’s Discussion & Analysis of Financial Condition and Results of Operations for further information.~~

Operating Expenses


(In millions)	Three Months Ended December 31
	2020			2019
Research and development expenses	$	34.8		$	31.5
Percent of Total Net Revenue	4.7		%	4.6		%

Selling and administrative expenses	$	209.0		$	196.8
Percent of Total Net Revenue	28.2		%	28.7		%

Acquisition-related intangible asset amortization	$	25.9		$	26.7
Percent of Total Net Revenue	3.5		%	3.9		%

Table of ~~Conten~~t sContents

~~Operating Expenses~~

(In millions) Three Months Ended June 30 Nine Months Ended June 30
2020 2019 2020 2019
Research and development expenses $ 34.4 $ 34.1 $ 100.3 $ 103.9
Percent of Total Net Revenue 4.5 % 4.7 % 4.6 % 4.9 %
Selling and administrative expenses $ 202.3 $ 217.1 $ 609.0 $ 613.3
Percent of Total Net Revenue 26.4 % 29.9 % 28.0 % 28.9 %
Acquisition-related intangible asset amortization $ 27.5 $ 29.3 $ 81.3 $ 82.3
Percent of Total Net Revenue 3.6 % 4.0 % 3.7 % 3.9 %

~~Three and Nine Months Ended June 30, 2020 Compared to the Three and Nine Months Ended June 30, 2019~~

Research and development expenses ~~remained relatively flat~~increased by $3.3 million or 10.5% for the three months ended ~~June 30,~~December 31, 2020 compared to the three months ended ~~June 30, 2019. Research~~December 31, 2019 and ~~development expenses decreased $3.6 million, or 3.5%, for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019 due to the timing~~remained consistent as a percentage of ~~projects.~~revenue.

Selling and administrative expenses ~~decreased $14.8 million and $4.3~~increased $12.2 million or ~~6.8% and 0.7%,~~6.2% for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 compared to the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 primarily due to ~~lower acquisition~~increased variable compensation linked to performance, increased marketing spend and ~~integration~~an increase in costs ~~in the fiscal year 2020, as well as~~related to our IT transformation efforts. These increases were partially offset by lower travel expenses ~~due to COVID-19, partially offset by increased information technology~~and decreased compensation costs ~~and investments in emerging markets.~~resulting from the Workforce Reduction Plan.

Acquisition-related intangible asset amortization decreased ~~$1.8 million and $1.0~~$0.8 million or ~~6.1% and 1.2%,~~3.0% for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 compared to the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 primarily due to ~~the disposition~~a scheduled decrease in asset amortization of ~~the surgical consumable products business in August 2019,~~customer relationships, which was partially offset by amortization of ~~purchased intangibles as a result of recent acquisitions.~~intangible assets acquired in business combinations executed in fiscal 2020.See Note 3. Business Combinations within the 2020 Form 10-K for further information.

Special Charges and Other

(In millions) Three Months Ended June 30 Nine Months Ended June 30
2020 2019 2020 2019
Special charges $ 9.5 $ 6.2 $ 26.1 $ 17.7
Interest expense $ (17.3) $ (23.1) $ (55.8) $ (66.2)
Loss on extinguishment of debt $ — $ — $ (15.6) $ —
Investment income (expense) and other, net $ 2.2 $ (1.1) $ (10.5) $ 0.2

~~Three and Nine Months Ended June 30, 2020 Compared to the Three and Nine Months Ended June 30, 2019~~


(In millions)	Three Months Ended December 31
	2020		2019
Special charges	$	27.1	$	7.8

Interest expense	$	(17.8)	$	(19.4)
Loss on extinguishment of debt	$	—	$	(15.6)
Investment income (expense) and other, net	$	7.0	$	(1.3)

In connection with various transformative initiatives, exit activities, and organizational changes to improve our business alignment and cost ~~structure,~~structure., we recognized Special charges of ~~$9.5 million and $26.1~~$27.1 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 compared to ~~$6.2 million and $17.7~~$7.8 million for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019. These charges related to the initiatives described in Note ~~10.~~8. Special Charges.

Interest expense decreased ~~$5.8 million and $10.4~~$1.6 million or ~~25.1% and 15.7%,~~8.2% for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 compared to the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 due to lower borrowings outstanding, lower borrowing rates from the refinancing of senior unsecured notes of $425.0 million in September 2019, ~~and~~ declines in LIBOR impacting our variable rate debt under the Securitization and Revolving Credit ~~Facilities.~~Facilities and a reduction of $0.5 million in fiscal 2020 as we did not incur duplicative interest costs with respect to the refinancing. See Note 5.4. Financing Agreements for ~~additional~~further information.

Loss on extinguishment of debt for the three months ended December 31, 2019 related to the refinancing of senior unsecured notes of $425.0 million in September 2019. See Note 5.4. Financing Agreements for further information.

~~Table of Conten~~t s

Investment income (expense) and other, net for the three months ended June 30, 2020 was income of $2.2 million comprised primarily of government aid received under programs related to COVID-19 and a litigation settlement award. Investment income (expense) and other, net for the three months ended June 30, 2019 was expense of $1.1 million driven primarily by unfavorable movements in foreign exchange rates.

Investment income (expense) and other, net for the ~~nine~~three months ended ~~June 30,~~December 31, 2020 ~~was expense~~increased by $8.3 million primarily due to the receipt of ~~$10.5~~an insurance settlement of $5.3 million ~~comprised primarily of the recognition of a non-cash pension plan settlement loss of $8.4 million, $2.0 million of losses~~ related to ~~our cost~~covered losses in prior periods and equity method investments, and unfavorable movements in foreign exchange rates. These balances were partially offset by litigation settlement award and government aid received under programs related to COVID-19. See Note 3. Supplementary Financial Statement Information and Note 8. Retirement and Postretirement Plans for additional information.higher investment income of $1.8 million.

Income Tax Expense

~~Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019~~

The effective tax rate for the three months ended ~~June 30,~~December 31, 2020 was ~~21.9%~~17.9% compared to ~~28.7%~~6.6% for the comparable period in the prior year. The rate was lower in the prior year period primarily due to the favorable impact of excess tax benefits on deductible stock compensation compared to the current year period. The effective tax rate for the three months ended June 30, 2020 was favorably impacted primarily by increased projected benefits from the deduction attributed to foreign derived intangible income (“FDII”) as well as larger unfavorable impacts from discrete items in the prior comparable period. Included in the third quarter of fiscal 2020 tax provision is additional tax expense of $4.1 million as a result of a change in the taxable gain from the disposition of certain of our surgical consumable products and related assets, which occurred in August 2019.

The adjusted effective tax rate for the three months ended June 30, 2020 was 20.5% compared to 20.8% for the comparable period in the prior year. The lower rate in the current fiscal year is primarily due to higher favorable discrete items, including differences between our prior year tax provision and our filed returns.

~~Nine Months Ended June 30, 2020 Compared to the Nine Months Ended June 30,~~December 31, 2019

The effective tax rate for the nine months ended June 30, 2020 was 17.8% compared to 20.3% for the comparable period in the prior year. The effective tax rate for the nine months ended June 30, 2020 was favorably impacted primarily by an increased projected benefit for the deduction attributed to FDII as well as greater favorable discrete items in the current year. The effective tax rate for the nine months ended June 30, 2020 was also favorably impacted by the reduction of the contingent consideration accrual of $8.4 million, that iswas not subject to tax. ~~See Note 4. Business Combinations for additional information.~~ Included in the third quarter of fiscal 2020 tax provision is additional tax expense of $4.1 million as a result of a change in the taxable gain from the disposition of certain of our surgical consumable products and related assets, which occurred in August 2019.

The adjusted effective tax rate for the ~~nine~~three months ended ~~June 30,~~December 31, 2020 was ~~19.7%~~20.5% compared to ~~20.3%~~16.6% for the comparable period in the prior year. The adjusted rate was lower ~~rate~~ in the ~~current fiscal~~prior year isperiod primarily due ~~relate~~ to ~~higher~~the favorable ~~discrete items, including the~~impact of excess tax benefits on deductible stock ~~compensation.~~compensation compared to the current year period.

Table of Contents

Earnings per Share

~~Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019~~

Diluted earnings per share increased from ~~$0.48~~$0.59 to ~~$1.40~~$0.88 for the three months ended ~~June 30,~~December 31, 2020 compared to the three months ended ~~June 30,~~December 31, 2019 primarily due to higher ~~volumes, expanded margins, lower tax rates~~operating profits, the loss on extinguishment of debt recognized in fiscal 2020 and ~~lower operating expenses.~~

~~Nine Months Ended June 30, 2020 Compared to~~ the ~~Nine Months Ended June 30, 2019~~

~~Diluted earnings per share increased from $1.84 to $2.68 for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019 primarily due to higher gross profit~~increase in Investment income (expense) and ~~lower tax rates,~~other, net, which was partially offset by ~~Loss on the extinguishment of debt of $15.6 million and a pension plan settlement of $8.4 million. See Note 5. Financing Agreementsand Note 8. Retirement and Postretirement Plans for additional information.~~

~~Table of Conten~~t s

higher income tax expense.

Business Segment Divisional Income


(In millions)	(In millions)	Three Months Ended June 30						Change As Reported			Nine Months Ended June 30									Change As Reported	(In millions)	Three Months Ended December 31			Change As Reported
		2020		2019						2020			2019					Change As Reported	2020			2019		Change As Reported
Divisional Income:	Divisional Income:															Divisional Income:
Patient Support Systems	Patient Support Systems	$	129.2	$	83.5	54.7	%	$	262.4		$	215.4		21.8	%	Patient Support Systems	$	87.3	$	58.4		49.5	%
Front Line Care	Front Line Care	81.1		69.5		16.7	%	232.5			198.5			17.1	%	Front Line Care	81.9		73.5			11.4	%
Surgical Solutions	Surgical Solutions	4.7		17.8		(73.6)	%	31.0			44.2			(29.9)	%	Surgical Solutions	17.5		12.8			36.7	%

Refer to Note ~~14.~~11. Segment Reporting for a description of how divisional income is determined.

~~Three and Nine Months Ended June 30, 2020 Compared to the Three and Nine Months Ended June 30, 2019~~

Patient Support Systems divisional income increased ~~$45.7 million and $47.0~~$28.9 million or ~~54.7% and 21.8%,~~49.5% for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 compared to the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 primarily due to ~~global~~increased revenue ~~growth, which is primarily driven by COVID-19 demand for~~related to intensive care unit and med-surg beds ~~which~~sales outside the United States as well as bed rentals in the United States as a result of higher demand due to COVID-19, and expanded gross ~~profit~~profits due to ~~improved efficiency in manufacturing~~longer rental durations and ~~service activities during the three months ended June 30, 2020. Recent acquisitions also contributed to revenues for the nine months ended June 30, 2020.The~~operational efficiencies. These increases ~~in divisional income~~ were partially offset by an increase in investments to support growth initiatives.

Front Line Care divisional income increased ~~$11.6 million and $34.0~~$8.4 million or ~~16.7% and 17.1%~~11.4% for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 compared to the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 primarily driven by global sales growth for patient ~~diagnostic~~monitoring and ~~monitoring~~thermometry products ~~and our low acuity-vitals products, partially driven by COVID-19, and respiratory health sales under U.S. federal and state government contracts related~~ to ~~COVID-19, which produced higher gross profits.~~hospitals.

Surgical Solutions divisional income ~~decreased $13.1 million and $13.2~~increased $4.7 million or ~~73.6% and 29.9%~~36.7% for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 compared to the three ~~and nine~~ months ended ~~June 30,~~December 31, 2019 primarily asdue to increased revenues in Europe, including a result of the disposition of the surgical consumable products business in August 2019 and lower customer demand primarily in the United States as health care customers prioritize the treatment of patients diagnosed with COVID-19,recent acquisition, which iswas partially offset by ~~higher gross margins and reductions in operating costs.~~inventory reserves for discontinued products.

~~GAAP~~As Reporting and Adjusted Earnings

Operating ~~margin,~~margin, income before income taxes, income tax expense and earnings attributable to common shareholders per diluted share are summarized in the tables below for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2020 and ~~the three and nine months ended June 30,~~ 2019. ~~GAAP~~As Reported amounts are adjusted for certain items to aid management in evaluating the performance of the business. Investors should consider these measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP. Income tax expense is computed by applying a blended statutory tax rate based on the jurisdictional mix of the respective before tax adjustment.

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~~Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019~~

Three Months Ended June 30, 2020 Three Months Ended June 30, 2019
Operating
Margin Income
Before
Income
Taxes Income Tax
Expense Diluted EPS Operating
Margin Income
Before
Income
Taxes Income Tax
Expense Diluted EPS
GAAP Basis 17.6 % $ 120.2 $ 26.3 $ 1.40 9.6 % $ 45.7 $ 13.1 $ 0.48
Adjustments:
Acquisition and integration costs and related fair value adjustments¹
0.2 % 1.2 0.5 0.01 1.9 % 13.9 2.8 0.16
Acquisition-related intangible asset amortization ²
3.6 % 27.5 6.6 0.31 4.0 % 29.3 7.4 0.33
Field corrective actions ³
0.1 % 0.8 0.2 0.01 0.8 % 5.6 1.4 0.06
Regulatory compliance costs ⁴
0.5 % 4.1 1.1 0.04 0.6 % 4.6 1.1 0.05
Special charges⁵
1.2 % 9.5 2.5 0.10 0.9 % 6.2 1.5 0.07
Tax law and method changes ⁶
— % — — — — % — (5.4) 0.08
Gain on disposition of business ⁷
— % (0.3) (4.2) 0.06 — % — — —
Pension settlement expense⁸
— % (0.1) — — — % — — —
COVID-19 related costs and benefits, net ⁹
0.5 % 1.9 0.8 0.02 — % — — —
Adjusted Basis 23.7 % $ 164.8 $ 33.8 $ 1.95 17.8 % $ 105.3 $ 21.9 $ 1.23
¹ Acquisition and integration costs and related fair value adjustments include legal and professional fees, temporary labor, consulting and other costs related to the closing and integration of acquired businesses, including purchase accounting adjustments for deferred revenue and other items, and contingent consideration. For the three months ended June 30, 2020, a fair value adjustment of $0.7 million represents purchase accounting adjustments for deferred revenue and contingent consideration associated with our business combinations in Note 4. Business Combinations.
² Acquisition-related intangible asset amortization relates to the amortization of intangible assets associated with our business combinations.
³ Field corrective action costs relate to costs incurred to address broad-based product performance matters outside of normal warranty provisions. These costs are included in Cost of goods sold.
⁴ Regulatory compliance costs relate to updating existing product registrations to comply with the European Medical Device Regulations. These costs are included in Selling and administrative expenses.
⁵Special charges represent a variety of costs associated with restructuring actions, including severance and related benefits, lease termination fees, asset write-downs and temporary labor on shutdown of operations. It also includes costs related to a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems.
⁶ Tax law and method changes relate to tax expenses and related unrecognized tax benefits due to the Tax Cuts and Jobs Act enacted in the United States in December 2017. See Note 11. Income Taxes within the 2019 Form 10-K for the fiscal year ended September 30, 2019 for further information
⁷ Gain on disposition of business relates to net gains recorded in Investment income and other, net and additional tax expense of $4.1 million as a result of a change in the taxable gain resulting from business dispositions, which occurred in August 2019.
⁸ Pension settlement expense represents an actuarial adjustment of $0.1 million recorded as a component of Investment income (expense) and other, net. See Note 8. Retirement and Postretirement Plans for additional information.
⁹ COVID-19 related costs and benefits, net primarily represent incremental non-recurring special compensation costs paid to essential workers that continued to work in our production facilities and provide services to our customers, partially offset by the recognition of funding associated with government programs created in response to COVID-19. See Note 1. Summary of Significant Accounting Policies for additional information.


	Three Months Ended December 31, 2020								Three Months Ended December 31, 2019
	Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS		Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS
As Reported	11.1	%	$	71.6	$	12.8	$	0.88	11.5	%	$	42.6	$	2.8	$	0.59
Adjustments:
Acquisition and integration costs and related fair value adjustments 1	—	%	(0.1)		—		—		(1.0)	%	(6.6)		0.3		(0.10)
Acquisition-related intangible asset amortization 2	3.5	%	25.9		6.3		0.29		4.0	%	26.7		6.4		0.30


Regulatory compliance costs 3	0.5	%	4.1		1.0		0.05		0.6	%	3.9		0.6		0.05
Special charges 4	3.7	%	27.1		6.2		0.31		1.1	%	7.8		1.2		0.10


Debt refinancing costs 5	—	%	—		—		—		—	%	16.1		3.7		0.18
Loss on business combinations 6	—	%	—		—		—		—	%	0.5		0.1		0.01


COVID-19 related costs and benefits, net 7	—	%	(0.1)		—		—		—	%	—		—		—
Adjusted Basis	18.8	%	$	128.5	$	26.3	$	1.53	16.2	%	$	91.0	$	15.1	$	1.13
1 Acquisition and integration costs and related fair value adjustments include legal and professional fees, temporary labor, consulting and other costs related to the closing and integration of acquired businesses, including purchase accounting adjustments for deferred revenue and other items, and contingent consideration. For the three months ended December 31, 2020 and 2019, a net benefit from fair value adjustments of $1.6 million and $7.5 million, respectively, represents purchase accounting adjustments for deferred revenue and contingent consideration associated with our business combinations in Note 3. Business Combinations.
2 Acquisition-related intangible asset amortization relates to the amortization of intangible assets associated with our business combinations.

3 Regulatory compliance costs relate to updating existing product registrations to comply with the European Medical Device Regulations and the impacts of current period tax law changes. These costs are included in Selling and administrative expenses.
4 Special charges represent a variety of costs associated with restructuring actions, including severance and related benefits, lease termination fees, asset write-downs and temporary labor on shutdown of operations. It also includes costs related to a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems. See Note 8. Special Charges for further information.

5 Debt refinancing costs are expenses related to the costs incurred between the issuance and redemption of our senior unsecured notes due 2027 and 2023, respectively, as discussed within Note 4. Financing Agreements as well as duplicative interest costs.
6 Loss on business combinations relates to the sale of our surgical consumable products business in August 2019 recorded in Investment income (expense) and other, net.
7 COVID-19 related costs and benefits, net primarily represent incremental non-recurring costs incurred to prepare our facilities for workforce reintegration to ensure the safety of our employees, partially offset by the recognition of funding associated with government programs created in response to COVID-19. See Note 1. Summary of Significant Accounting Policies for further information.

~~Table of Conten~~t s

~~Nine Months Ended June~~ 30 ~~2020 Compared to the Nine Months Ended June 30, 2019~~

Nine Months Ended June 30, 2020 Nine Months Ended June 30, 2019
Operating
Margin Income
Before
Income
Taxes Income Tax
Expense Diluted EPS Operating
Margin Income
Before
Income
Taxes Income Tax
Expense Diluted EPS
GAAP Basis 13.9 % $ 219.6 $ 39.0 $ 2.68 10.5 % $ 156.0 $ 31.7 $ 1.84
Adjustments:
Acquisition and integration costs and related fair value adjustments¹
(0.1) % (2.6) 1.4 (0.06) 0.7 % 15.7 3.2 0.19
Acquisition-related intangible asset amortization ²
3.7 % 81.3 19.6 0.92 3.9 % 82.3 19.7 0.93
Field corrective actions ³
0.1 % 2.1 0.6 0.02 0.3 % 5.6 1.4 0.06
Regulatory compliance costs ⁴
0.5 % 12.9 3.1 0.15 0.5 % 10.7 2.7 0.12
Special charges⁵
1.2 % 26.1 6.1 0.30 0.8 % 17.7 4.3 0.20
Tax law and method changes ⁶
— % — — — — % — (4.4) 0.06
Debt refinancing costs ⁷
— % 16.1 3.7 0.18 — % — — —
Loss on disposition of business ⁸
— % 0.2 (4.1) 0.06 — % — — —
Pension settlement expense ⁹
— % 8.4 1.9 0.10 — % — — —
Litigation settlement ¹⁰
— % (1.2) (0.3) (0.01) — % — — —
COVID-19 related costs and benefits, net ¹¹
0.2 % 1.9 0.8 0.02 — % — — —
Adjusted Basis 19.5 % $ 364.8 $ 71.8 $ 4.36 16.7 % $ 288.0 $ 58.6 $ 3.40
¹ Acquisition and integration costs and related fair value adjustments include legal and professional fees, temporary labor, consulting and other costs related to the closing and integration of acquired businesses, including purchase accounting adjustments for deferred revenue and other items, and contingent consideration. For the nine months ended June 30, 2020, a fair value adjustment of $6.9 million represents purchase accounting adjustments for deferred revenue and contingent consideration associated with our business combinations in Note 4. Business Combinations.
² Acquisition-related intangible asset amortization relates to the amortization of intangible assets associated with our business combinations.
³ Field corrective action costs relate to costs incurred to address broad-based product performance matters outside of normal warranty provisions. These costs are included in Cost of goods sold.
⁴ Regulatory compliance costs relate to updating existing product registrations to comply with the European Medical Device Regulations. These costs are included in Selling and administrative expenses.
⁵Special charges represent a variety of costs associated with restructuring actions, including severance and related benefits, lease termination fees, asset write-downs and temporary labor on shutdown of operations. It also includes costs related to a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems.
⁶ Tax law and method changes relate to tax expenses and related unrecognized tax benefits due to the Tax Cuts and Jobs Act enacted in the United States in December 2017. See Note 11. Income Taxes within the 2019 Form 10-K for the fiscal year ended September 30, 2019 for further information
⁷ Debt refinancing costs are expenses related to the costs incurred between the issuance and redemption of our senior unsecured notes due 2027 and 2023. For the nine months ended June 30, 2020, debt refinancing costs include a loss on extinguishment of debt of $15.6 million related to the redemption of all of our previously outstanding senior unsecured 5.75% notes due September 2023 as discussed within Note 5. Financing Agreements, as well as $0.5 million of duplicative interest costs.
⁸ Loss on disposition of business relates to losses recorded in Investment income (expense) and other, net and additional tax expense of $4.1 million as a result of a change in the taxable gain resulting from business dispositions, which occurred in August 2019.
⁹ Pension settlement expense represents an actuarial loss totaling $8.4 million recorded as a component of Investment income (expense) and other, net. See Note 8. Retirement and Postretirement Plans for additional information.
¹⁰ Litigation settlements and expenses are the aggregate charges, costs or recoveries associated with litigation settlements. For the nine months ended June 30, 2020, we received a litigation settlement award totaling $1.2 million, which was recorded as a component of Investment income (expense) and other, net.
¹¹COVID-19 related costs and benefits, net primarily represent incremental non-recurring special compensation costs paid to essential workers that continued to work in our production facilities and provide services to our customers, partially offset by the recognition of funding associated with government programs created in response to COVID-19. See Note 1. Summary of Significant Accounting Policies for additional information.

Table of ~~Conten~~t sContents

Liquidity and Capital Resources


		Nine Months Ended June 30							Three Months Ended December 31
		2020		2019			2020		2019
Cash Flows Provided By (Used In):
Cash Flows (Used In) Provided By:						Cash Flows (Used In) Provided By:
Operating activities	Operating activities	$	314.8	$	301.1	Operating activities	$	100.2	$	77.0
Investing activities	Investing activities	(90.4)		(267.9)		Investing activities	(29.0)		(23.8)
Financing activities	Financing activities	(527.7)		(11.9)		Financing activities	(80.0)		(487.3)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	1.3		(1.7)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	6.9		4.7
(Decrease) Increase in Cash and cash equivalents		$	(302.0)	$	19.6
Decrease in Cash, Cash Equivalents and Restricted Cash						Decrease in Cash, Cash Equivalents and Restricted Cash	$	(1.9)	$	(429.4)

Net cash flows from operating activities and selected borrowings ~~represented~~represent our primary sources of funds for growth of the business, including capital expenditures and acquisitions. Our financing agreements contain certain restrictions relating to dividend payments, the making of restricted payments and the ~~incurrence~~occurrence of additional secured and unsecured indebtedness. None of our financing agreements contain any credit rating triggers that would increase or decrease our cost of borrowings. Credit rating changes can, however, impact the cost of borrowings and any potential future borrowings under any new financing agreements.

Operating Activities

Cash provided by operating activities increased ~~$13.7~~$23.2 million for the ~~nine~~three months ended ~~June 30,~~December 31, 2020 compared to the ~~nine~~three months ended ~~June 30,~~December 31, 2019 primarily due to higher net income ~~which is~~and lower inventory levels, partially offset by a reduction in liabilities due to the ~~buildup~~timing of ~~inventory~~vendor payments and higher incentive compensation payments as compared to ~~meet customer demand.~~the prior year.

Investing Activities

Cash used in investing activities ~~decreased~~increased by ~~$177.5~~$5.2 million for the ~~nine~~three months ended ~~June 30,~~December 31, 2020 compared to the ~~nine~~three months ended ~~June 30,~~December 31, 2019 primarily due to an increase in capital expenditures predominantly related to our global information technology transformation. For the ~~acquisition of Voalte of $175.8 million during the nine~~three months ended ~~June 30, 2019. See Note 3. Supplementary Financial Statement Information~~December 31, 2020 and ~~Note 4. Business Combinations for additional information.~~2019, we capitalized internally generated costs of $7.0 million and $5.3 million as software in Other intangible assets and software, net related to this initiative.

Financing Activities

Cash used in financing activities ~~increased $515.8~~decreased $407.3 million for the ~~nine~~three months ended ~~June 30,~~December 31, 2020 compared to the ~~nine~~three months ended ~~June 30,~~December 31, 2019 primarily due to the prior year redemption of our previously outstanding senior unsecured 5.75% notes due September 2023 offor $425.0 million ~~lower net borrowings~~and the related $12.2 million prepayment penalty, which was partially offset by stock repurchases of ~~$65.0~~$47.4 million ~~under~~in the ~~Revolving Credit Facility,~~open market during the three months ended December 31, 2020.

Treasury stock repurchases may be made on the open market or via private transactions, and ~~repayments~~are used to manage our capital structure, offset the dilutive impact of ~~$37.6 million of long-term debt.~~stock-based compensation and return cash to shareholders.

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Other Liquidity Matters

Our cash balances and cash flows generated from operations may be used to fund strategic investments, business acquisitions, working capital needs, capital expenditures, investments in technology and marketing, share repurchases and payments of dividends to our shareholders. We believe that our cash balances and cash flows generated from operations, along with amounts available under our financing agreements, will be sufficient to fund operations, working capital needs, capital expenditure requirements, and financing obligations for at least the next 12 months from the date of this filing.

As of June 30, 2020, there were $115.0 million outstanding borrowings on the Revolving Credit Facility, and available borrowing capacity was $1,077.8 million after giving effect to the $7.2 million of outstanding standby letters of credit. As of September 30, 2019, there were $80.0 million outstanding borrowings on the Revolving Credit Facility, and available borrowing capacity was $1,112.8 million after giving effect to $7.2 million of outstanding standby letters of credit.

Our cash flows from operating activities for the ~~nine~~three months ended ~~June 30,~~December 31, 2020 were not ~~materially~~ adversely impacted by COVID-19. There have been no changes to our cost of or access to our capital and funding sources. We have not identified instability with the financial institutions with whom we maintain our financing relationships. We believe we ~~should be able to~~can continue to service our outstanding borrowings or other financial obligations.

We intend to continue to pursue inorganic growth in certain areas of our business. On January 15, 2021, we entered into a definitive merger agreement with Bardy Diagnostics, Inc. (“Bardy”). The Bardy business develops and delivers cardiac arrhythmia monitoring devices. The purchase price for the Bardy acquisition consists of initial cash consideration of $375.0 million, subject to closing conditions and certain post-closing adjustments, and we expect to fund the initial cash consideration through a combination of cash on hand and borrowings under our existing revolving credit facility. As noted inNote 3 to the Condensed Consolidated Financial Statements, we currently are assessing the recent reimbursement rate decision and the potential impacts of that decision on the Bardy business.

On January 28, 2021, we acquired the contact-free continuous monitoring intellectual property and technology from EarlySense Ltd. in exchange for consideration consisting of a cash payment of $30.0 million, a portion of our non-marketable equity investment in EarlySense Ltd. of $25.5 million and forgiveness of a prepayment of approximately $2.0 million.

See "Note 3. Business Combinations" in the notes to the accompanying Condensed Consolidated Financial Statements for additional information on our recent business combination activity.

As of December 31, 2020 and September 30, 2020, there were no outstanding borrowings on the Revolving Credit Facility, and available borrowing capacity was $1,191.0 million after giving effect to the $9.0 million of outstanding standby letters of credit.

Our long-term debt instruments require nominal repayments over the next 12 months, with our next significant maturity occurring in August 2024. Since the beginning of the global COVID-19 pandemic in December 2019, we have not experienced liquidity constraints through either the movement of cash or under our Revolving Credit Facility. Furthermore, we have successfully extended our 364-day accounts receivable securitization facilities as of April 27, 2020. As of ~~June 30,~~December 31, 2020, we were in compliance with all debt covenants under our financing agreements. See Note 5.4. Financing Agreements for additional information on our financing agreements.

We do not anticipate incurring significant incremental capital expenditures due to the pandemic. We will continue to evaluate the allocation of our capital spending and may delay discretionary capital spending or redirect capital spending to support the increased demand for certain products used to treat patients diagnosed with COVID-19.

~~Refer to the section titled “The Impacts of COVID-19 on Hillrom” within Management’s Discussion & Analysis of Financial Condition and Results of Operations for further information.~~

Over the long term, we intend to continue to pursue inorganic growth in certain areas of our business, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted.

We intend to continue to pay quarterly cash dividends comparable to those paid in the periods covered by these financial statements. However, the declaration and payment of dividends will be subject to the sole discretion of our Board and will depend upon many factors, including our financial condition, earnings, capital requirements, covenants associated with debt obligations, legal requirements and other factors considered relevant by our Board.

As of ~~June 30,~~December 31, 2020, approximately ~~52.5%~~52.8% of our cash and cash equivalents were held by our foreign subsidiaries. As of ~~June 30,~~December 31, 2020, our practice and intention were to reinvest the earnings in our non-U.S. subsidiaries outside of the United ~~States.~~

~~With regard to our non-U.S. subsidiaries, it is our practice and intention to reinvest the earnings in those businesses~~States to fund capital expenditures and other operating cash needs. Because the undistributed earnings of non-U.S. subsidiaries are considered to be permanently reinvested, no U.S. deferred income taxes or foreign withholding taxes have been provided on earnings subsequent to the enactment of the U.S. Tax ~~Act.~~Cuts and Jobs Act (the "Tax Act"). Future repatriations of cash and cash equivalents, if any, held by our foreign subsidiaries will generally not be subject to U.S. Federal tax if earned prior to the enactment of the Tax Act. As we evaluate the impact of the Tax Act and the future cash needs of our global operations, we may revise the amount of foreign earnings generated prior to the enactment of the Tax Act considered to be permanently reinvested in our foreign subsidiaries. We believe that cash on hand and cash generated from U.S. operations, along with amounts available under our financing agreements, will be sufficient to fund U.S. operations, working capital needs, capital expenditure requirements and financing obligations.

The U.S. Internal Revenue Service and Treasury Department continue to release proposed guidance with respect to the Tax Act. We continue to evaluate what impact, if any, each piece of guidance may have on our related tax positions and our effective tax rate if, and when, such guidance is finalized.

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Contractual Obligations and Contingent Liabilities and Commitments

There have not been any significant changes since September 30, ~~2019~~2020 impacting our contractual obligations and contingent liabilities and commitments.

Critical Accounting Policies

Our accounting policies require management to make significant estimates and assumptions using information available at the time the estimates are made. Such estimates and assumptions significantly affect various reported amounts of assets, liabilities, revenue, and expenses. If future experience differs significantly from these estimates and assumptions, our results of operations and financial condition could be affected. A detailed description of our accounting policies is included in Note 1. Summary of Significant Accounting Policies and the Critical Accounting Policies Section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our ~~2019~~2020 Form 10-K. There have been no significant changes to such policies since September 30, ~~2019.~~2020.

For a further summary of certain accounting policies and estimates and recently issued accounting pronouncements applicable to us, see Note 1. Summary of Significant Accounting Policies.

~~The Impacts of COVID-19 on Hillrom~~

During December 2019, an outbreak of COVID-19 was reported in Wuhan, China. Since that time, the virus spread globally and has resulted in confirmed cases in regions and countries in which we conduct our business. Subsequent to December 31, 2019, the World Health Organization declared COVID-19 a “Public Health Emergency of International Concern.” The United States and countries around the world are taking precautionary and preventive measures to reduce the spread of COVID-19. COVID-19 has impacted global economies as travel, leisure and discretionary consumer spending has reduced significantly causing companies to make commensurate changes to their investments, human capital, and financial outlooks.

~~Revenues and Customers~~

As a result of preventive and cautionary measures taken by Hillrom, other businesses and governments, we may experience changes in demand for certain of our products as health care customers prioritize the treatment of patients diagnosed with COVID-19. For the three and nine months ended June 30, 2020, we experienced an increase in demand for select products including intensive care unit and med-surg beds and specialty surfaces within Patient Support Systems, and respiratory health ventilators, thermometry and patient monitoring products within Front Line Care. We also experienced declines in revenue related to project delays in our care communications business. For the three months ended March 31, 2020, management estimated a net revenue impact of approximately $15 million. For the three months ended June 30, 2020, the net increase in total revenues is predominately due to the impact of COVID-19 on product demand.

For the remainder of fiscal 2020, we expect the demand for our product portfolio used to treat COVID-19 patients to decline overall, specifically for med-surg beds and respiratory health ventilators, while the demand for the remaining products may experience a modest recovery as hospitals and physician offices resume normal activities. These products include information technologies and software solutions in Patient Support Systems, operating room infrastructure in Surgical Solutions, and patient diagnostic tools in Front Line Care. The ultimate impact of the COVID-19 pandemic or a similar public health event remains highly uncertain and subject to change. In this regard, the extent of potential impacts on our business, healthcare systems and other customers and the U.S. and global economies as a whole continues to evolve, and the development of customer demand described above and other factors could materially and adversely affect our business, results of operations, financial condition and prospects. Management intends to continue focusing on the Company's strategic growth objectives, while also working to meet the demands resulting from the COVID-19 pandemic.

~~Operations and Workforce~~

We continue to actively manage our supply chain to ensure we secure raw materials and components for manufacturing products in high demand due to COVID-19. We have not experienced significant supply chain constraints nor significant increases in supply costs as a result of the pandemic and we continue to adjust resource allocation as needed to meet customer demand.

~~Table of Conten~~t s

We continue to operate our production facilities as our products are essential to healthcare providers. During the three months ended June 30, 2020, incremental non-recurring special compensation costs of $3.7 million were paid to essential workers that continued to work in our production facilities and provide services to our customers. Some of our products are specifically being used to treat patients diagnosed with COVID-19. Many employees in our administrative functions have effectively worked remotely since mid-March. Due to the importance of Hillrom’s products relative to treating the virus, we have maintained employment levels and have prudently augmented staffing as needed to meet near-term incremental demand as a result of the pandemic.

As disclosed in Note 1. Summary of Significant Accounting Policies, we have benefited from government programs within the various jurisdictions in which we operate in the form of subsidies, incentives, cost relief and payment deferrals. Management will continue to evaluate these opportunities as well as the related requirements or restrictions to support our operations and workforce in a manner that allow us to continue to operate efficiently and effectively.

While Hillrom has not experienced significant adverse financial impacts to date, given the evolving nature of the pandemic, COVID-19 could negatively affect our sales, and it is uncertain how COVID-19 will affect our global operations generally should these impacts persist or exacerbate over an extended period of time. Any of these impacts could have a material adverse effect on our business, results of operations, financial condition and prospects. For further discussion, see the risk factor within ~~PART II – OTHER INFORMATION, Item 1.A Risk Factors, entitled “Our business, results of operations, financial condition and prospects could be materially and adversely affected by the recent COVID-19 pandemic and the related effects on public health.” in our Form 10-Q for the quarterly period ended March 31, 2020.~~

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are exposed to various market risks, including fluctuations in interest rates, collection risk associated with our accounts and notes receivable portfolio and variability in currency exchange rates. We have established policies, procedures, and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks.

We are subject to variability in foreign currency exchange rates in our international operations. Exposure to this variability is periodically managed primarily through the use of natural hedges, whereby funding obligations and assets are both managed in the local currency. From time-to-time, we enter into currency exchange contracts to manage exposures arising from fluctuating exchange rates related to specific and forecasted transactions. We operate this program pursuant to documented corporate risk management policies and do not enter into derivative transactions for speculative purposes. The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an appropriate range of potential rate fluctuations to our assets, obligations and projected results of operations denominated in foreign currencies. The maximum length of time over which we hedge transaction exposures is generally 1512 months. Derivative gains and losses, initially reported as a component of Accumulated other comprehensive income (loss), are reclassified to earnings in the period when the transaction affects earnings.

Refer to Note 6.5. Derivative Instruments and Hedging Activity for discussions and quantitative disclosures about our derivative agreements.

For additional information on market risks related to our pension plan assets, see Item 7A. Quantitative and Qualitative Disclosures About Market Risk in our ~~2019~~2020 Form 10-K.

Item 4. CONTROLS AND PROCEDURES

Our management, with the supervision and participation of our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer (the “Certifying Officers”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of ~~June 30,~~December 31, 2020. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to management, including our Certifying Officers and our Board of Directors, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective as of ~~June 30,~~December 31, 2020.

There have been no changes to our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred in our most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

Refer to Note ~~15.~~12. Commitments and Contingencies for further information on our legal proceedings.

Item 1A. RISK FACTORS

There have been no material changes to our risk factors as disclosed in Item 1A - Risk Factors in ~~the~~our 2020 Form ~~10-K for the fiscal year ended September 30, 2019 and in the Form 10-Q for the quarterly period ended March 31, 2020.~~10-K.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Period
Total
Number
of Shares
Purchased ⁽¹⁾
Average
Price Paid
per Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans or Programs ⁽²⁾
Approximate
Dollar Value
of Shares That
May Yet Be
Purchased Under
the Programs ⁽²⁾
April 1, 2020 - April 30, 2020 4,486 $ 108.18 — $ 163.4
May 1, 2020 - May 31, 2020 608 $ 103.49 — $ 163.4
June 1, 2020 - June 31, 2020 530 $ 105.00 — $ 163.4
Total 5,624 —


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Programs (2)
October 1, 2020 - October 31, 2020	2,512	$	82.42	—	$	163.4
November 1, 2020 - November 30, 2020	583,673	$	94.79	500,000	$	116.0
December 1, 2020 - December 31, 2020	2,052	$	95.89	—	$	116.0
Total	588,237			500,000

(1)Shares purchased induring the three months ended ~~June 30,~~December 31, 2020 were in connection with employee payroll tax withholding for restricted stock ~~distributions.~~distributions and shares purchased of our common stock in the open market under our share repurchase program.

(2)In September 2019, the Board approved an additional $170.0 million for share repurchases. The below table reflects the date of Board approval, the authorized dollar value of the shares to be repurchased under each approval and the availability to repurchase as of ~~June 30,~~December 31, 2020. ~~As of June 30, 2020, a cumulative total of $346.6 million had been used, leaving us with availability of $163.4 million under the share repurchase program.~~ There is no expiration date ~~or plans to terminate~~for this ~~program in the future.~~program.

Board Approval Date Authorized Dollar Value Dollar Value of Shares Purchased Prior to Fiscal 2020 Dollar Value of Shares Purchased in Fiscal 2020 Availability to Purchase as of June 30, 2020
September 2013 $ 190.0 $ 190.0 $ — $ —
November 2017 $ 150.0 $ 102.5 $ 47.5 $ —
September 2019 170.0 — 6.6 163.4
Totals $ 510.0 $ 292.5 $ 54.1 $ 163.4


Board Approval Date	Authorized Dollar Value		Dollar Value of Shares Purchased Prior to Fiscal 2021		Dollar Value of Shares Purchased in Fiscal 2021		Availability to Purchase as of December 31, 2020
September 2019	$	170.0	$	6.6	$	47.4	$	116.0

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Item 6. EXHIBITS

A. Exhibits

Management contracts and compensatory plans or arrangements are designated with “*”.


*10.1			~~Amendment No. 4~~Addendum to ~~Loan~~the Amended and ~~Security~~Restated Employment Agreement between Kenneth F. Meyers and Hill‑Rom Holdings, Inc. dated as of April 27, 2020, among Hill-Rom Company, Inc., as initial servicer, Hill-Rom Finance Company LLC, as borrower, and MUFG Bank, Ltd., (f/k/a The Bank of Tokyo-Mitsubishi UFJ, Ltd.), as Group Agent, as Committed Lender and as Administrative Agent (Incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated April 27, 2020)November 30, 2020.

~~10.2~~			Amendment No. 2 to Master Framework Agreement, dated as of April 27, 2020, by and among MUFG Bank, Ltd., as buyer, Hill-Rom Company, Inc., Hill-Rom Manufacturing, Inc., and each additional seller from time to time party thereto, as sellers, and Hill-Rom Company, as agent for the sellers ~~(Incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K dated April 27, 2020)~~

~~10.3~~			~~Amendment No. 1 to Hill-Rom Company Master Repurchase Agreement, dated as of April 27, 2020, by and among MUFG Bank, Ltd., as buyer, and Hill-Rom Company, Inc., as seller~~ ~~(Incorporated herein by reference to Exhibit 10.3 to the Company’s Form 8-K dated April 27, 2020)~~

~~10.4~~			Amendment No. 1 to Hill-Rom Manufacturing Master Repurchase Agreement, dated as of April 27, 2020, by and among MUFG Bank, Ltd., as buyer, and Hill-Rom Manufacturing, Inc., as seller (Incorporated herein by reference to Exhibit 10.4 to the Company’s Form 8-K dated April 27, 2020)

31.1			Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

101.INS			XBRL Instance Document

101.SCH			XBRL Taxonomy Extension Schema Document

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB			XBRL Extension Labels Linkbase Document

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			HILL-ROM HOLDINGS, INC.
			(Registrant)

Date: ~~July 31, 2020~~February 5, 2021

By:

/s/ Barbara W. Bodem

Name:
Title:

Barbara W. Bodem
Senior Vice President and Chief Financial Officer
(duly authorized officer and principal financial officer)

4837


	Quarter Ended														Year Ended
	December 31, 2018		March 31, 2019		June 30, 2019		September 30, 2019		September 30, 2019		September 30, 2018		September 30, 2017
Selling and administrative expense, previously reported	$	218.0	$	231.2	$	246.4	$	245.4	$	941.0	$	891.6	$	874.5
Less, Acquisition-related intangible asset amortization	25.7		27.3		29.3		40.1		122.4		106.9		108.4
Selling and administrative expense, currently reported	$	192.3	$	203.9	$	217.1	$	205.3	$	818.6	$	784.7	$	766.1


Derivative Instruments	June 30, 2020		Condensed Consolidated Balance Sheet Position	September 30, 2019		Condensed Consolidated Balance Sheet Position
Interest Rate Swaps	$	—	Other assets	$	0.9	Other assets
Interest Rate Swaps	(49.8)		Other current liabilities	(7.7)		Other current liabilities
Currency Exchange Contracts	(0.7)		Other current liabilities	0.2		Other current assets
Cross-Currency Swaps	20.1		Other assets	16.9		Other assets
Total	$	(30.4)		$	10.3


	Three Months Ended June 30, 2020		Nine Months Ended June 30, 2020
Operating lease expense	$	6.8	$	20.6
Short-term leases and variable lease payments	3.1		8.7
Total	$	9.9	$	29.3


Fiscal Year	Amount
Remaining 2020	$	6.8
2021	24.0
2022	18.7
2023	13.4
2024	8.3
2025	5.1
Thereafter	10.1
Total lease payments	86.4
Less: imputed interest	(6.5)
Total lease liability	$	79.9


	Three Months Ended June 30, 2019
	Other comprehensive income (loss)																Accumulated other comprehensive income (loss)
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect		Net of tax		Beginning balance		Net activity		Ending balance
Derivative instruments designated as hedges ¹:
Currency exchange contracts	$	(0.8)	$	0.4	$	(0.4)	$	0.1	$	(0.3)	$	0.4	$	(0.3)	$	0.1
Interest rate swaps	(9.0)		(1.8)		(10.8)		2.5		(8.3)		5.3		(8.3)		(3.0)
Cross-currency swaps	(1.0)		—		(1.0)		0.2		(0.8)		6.3		(0.8)		5.5
Derivative instruments designated as hedges total	$	(10.8)	$	(1.4)	$	(12.2)	$	2.8	$	(9.4)	$	12.0	$	(9.4)	$	2.6
Foreign currency translation adjustment	4.1		—		4.1		—		4.1		(122.5)		4.1		(118.4)
Change in pension and postretirement defined benefit plans	—		0.7		0.7		(0.3)		0.4		(29.8)		0.4		(29.4)
Total	$	(6.7)	$	(0.7)	$	(7.4)	$	2.5	$	(4.9)	$	(140.3)	$	(4.9)	$	(145.2)


	Nine Months Ended June 30, 2019
	Other comprehensive income (loss)																		Accumulated other comprehensive income (loss)
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect		Net of tax		Beginning balance		Impacts of ASU 2018-02 Adoption as of October 1, 2018		Net activity		Ending balance
Derivative instruments designated as hedges ¹:
Currency exchange contracts	$	(0.3)	$	0.2	$	(0.1)	$	—	$	(0.1)	$	0.2	$	—	$	(0.1)	$	0.1
Interest rate swaps	(23.2)		(5.6)		(28.8)		6.7		(22.1)		18.3		0.8		(22.1)		(3.0)
Cross-currency swaps	9.3		—		9.3		(2.1)		7.2		(1.7)		—		7.2		5.5
Derivative instruments designated as hedges total	$	(14.2)	$	(5.4)	$	(19.6)	$	4.6	$	(15.0)	$	16.8	$	0.8	$	(15.0)	$	2.6
Foreign currency translation adjustment	(13.1)		—		(13.1)		—		(13.1)		(105.3)		—		(13.1)		(118.4)
Change in pension and postretirement defined benefit plans	0.1		1.8		1.9		(0.6)		1.3		(24.5)		(6.2)		1.3		(29.4)
Total	$	(27.2)	$	(3.6)	$	(30.8)	$	4.0	$	(26.8)	$	(113.0)	$	(5.4)	$	(26.8)	$	(145.2)


Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Programs ⁽²⁾
April 1, 2020 - April 30, 2020	4,486	$	108.18	—	$	163.4
May 1, 2020 - May 31, 2020	608	$	103.49	—	$	163.4
June 1, 2020 - June 31, 2020	530	$	105.00	—	$	163.4
Total	5,624			—