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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 March 31, 2021
OR
 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)
Indiana35-1160484
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)
130 E. Randolph St. Suite 1000
Chicago, IL
60601
(Address of principal executive offices)(Zip Code)

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

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

Title of Each ClassTrading SymbolName of Each Exchange on Which Registered
Common Stock, without par valueHRCNew 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 ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). 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,” and "emerging growth company" in Rule 12b-2 of the Exchange 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
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 – 66,465,612 shares as of April 28, 2021.




Table of Contents
HILL-ROM HOLDINGS, INC.

INDEX TO FORM 10-Q
 
Page
PART I - FINANCIAL INFORMATION
PART II - OTHER INFORMATION

2

Table of Contents
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, 2020 (“2020 Form 10-K”) and subsequent filings with the United States (“U.S.”) Securities and Exchange Commission (“SEC”). Our business, results of operations, financial condition, and prospects 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 as a result of the pandemic. We assume no obligation to update or revise any forward-looking statements unless required by law.

3

Table of Contents
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 March 31Six Months Ended March 31
 2021202020212020
Net Revenue    
Product sales and service$668.5 $647.0 $1,321.0 $1,261.3 
Rental revenue93.5 76.2 182.1 146.9 
Total net revenue762.0 723.2 1,503.1 1,408.2 
Cost of Net Revenue    
Cost of goods sold318.1 317.2 642.3 623.5 
Rental expenses36.5 38.5 74.2 75.5 
Total cost of net revenue (excludes acquisition-related intangible asset amortization)354.6 355.7 716.5 699.0 
Research and development expenses34.5 34.4 69.3 65.9 
Selling and administrative expenses223.7 209.9 432.7 406.7 
Acquisition-related intangible asset amortization27.8 27.1 53.7 53.8 
Special charges7.1 8.8 34.2 16.6 
Operating Profit114.3 87.3 196.7 166.2 
Interest expense(17.1)(19.1)(34.9)(38.5)
Loss on extinguishment of debt   (15.6)
Investment income (expense) and other, net9.1 (11.4)16.1 (12.7)
Income Before Income Taxes106.3 56.8 177.9 99.4 
Income tax expense19.2 9.9 32.0 12.7 
Net Income$87.1 $46.9 $145.9 $86.7 
Net Income per Basic Common Share$1.31 $0.70 $2.20 $1.30 
Net Income per Diluted Common Share$1.30 $0.70 $2.18 $1.29 
Average Basic Common Shares Outstanding (in thousands)66,370 66,685 66,421 66,731 
Average Diluted Common Shares Outstanding (in thousands)66,862 67,218 66,893 67,309 
See Notes to Condensed Consolidated Financial Statements (Unaudited)
4

Table of Contents
Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In millions)
 Three Months Ended March 31Six Months Ended March 31
 2021202020212020
Net Income$87.1 $46.9 $145.9 $86.7 
Other Comprehensive Income (Loss), net of tax:    
Derivative instruments designated as hedges15.4 (23.1)10.5 (25.7)
Foreign currency translation adjustment(26.5)(31.6)14.8 (8.5)
Change in pension and postretirement defined benefit plans1.2 (7.6)1.7 (6.9)
Total Other Comprehensive Income (Loss), net of tax
(9.9)(62.3)27.0 (41.1)
Total Comprehensive Income (Loss)$77.2 $(15.4)$172.9 $45.6 
See Notes to Condensed Consolidated Financial Statements (Unaudited)
5

Table of Contents
Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
(In millions, except share amounts)
 March 31,
2021
September 30, 2020
ASSETS
Current Assets
Cash and cash equivalents$269.7 $296.5 
Trade accounts receivable, net of allowances of $29.6 and $25.9 as of March 31, 2021 and September 30, 2020
578.5 594.9 
Inventories, net of reserves327.5 352.0 
Other current assets102.8 121.5 
Total current assets1,278.5 1,364.9 
Property, plant and equipment870.9 858.2 
Less accumulated depreciation(572.0)(552.1)
Property, plant and equipment, net298.9 306.1 
Goodwill1,842.4 1,835.5 
Other intangible assets and software, net988.4 976.7 
Deferred income taxes33.2 32.9 
Other assets156.3 155.0 
Total Assets$4,597.7 $4,671.1 
LIABILITIES  
Current Liabilities  
Trade accounts payable$210.0 $236.5 
Short-term borrowings102.3 222.3 
Accrued compensation129.6 144.9 
Accrued product warranties30.3 30.8 
Accrued rebates48.9 44.8 
Deferred revenue105.6 110.1 
Other current liabilities166.4 162.8 
Total current liabilities793.1 952.2 
Long-term debt1,632.0 1,655.7 
Accrued pension and postretirement benefits93.4 89.3 
Deferred income taxes110.2 113.0 
Other long-term liabilities129.3 134.8 
Total Liabilities2,758.0 2,945.0 
SHAREHOLDERS' EQUITY  
Capital Stock:
Preferred stock - without par value: Authorized - 1,000,000 shares; none issued or outstanding
Common stock - without par value: Authorized - 199,000,000 shares
4.4 4.4 
Issued: 88,457,634 shares as of March 31, 2021 and September 30, 2020; Outstanding: 66,409,302 shares as of March 31, 2021 and 66,640,832 shares as of September 30, 2020

Additional paid-in capital681.7 667.0 
Retained earnings2,245.1 2,132.2 
Accumulated other comprehensive (loss)(153.2)(180.2)
Treasury stock, common shares at cost: 22,048,332 as of March 31, 2021 and 21,816,802 as of September 30, 2020
(938.3)(897.3)
Total Shareholders’ Equity1,839.7 1,726.1 
Total Liabilities and Shareholders' Equity$4,597.7 $4,671.1 
See Notes to Condensed Consolidated Financial Statements (Unaudited)
6

Table of Contents
Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In millions)
Six Months Ended March 31
20212020
Operating Activities  
Net income$145.9 $86.7 
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 software37.5 34.1 
Acquisition-related intangible asset amortization53.7 53.8 
Amortization of debt discounts and issuance costs2.1 2.1 
Loss on extinguishment of debt 15.6 
Benefit for deferred income taxes(6.6)(8.4)
Loss on disposal of property, equipment, intangible assets and impairments0.3 1.2 
Stock compensation22.8 19.0 
Other operating activities16.5 12.4 
Change in working capital excluding cash, current debt, acquisitions and dispositions:  
Trade accounts receivable12.6 12.2 
Inventories16.7 (1.7)
Other current assets17.3 (23.6)
Trade accounts payable(15.2)6.3 
Accrued expenses and other liabilities(22.1)(55.2)
Other assets and liabilities(2.8)2.2 
Net cash, cash equivalents and restricted cash provided by operating activities278.7 156.7 
Investing Activities  
Purchases of property, plant, equipment and software(53.0)(46.1)
Proceeds on sale of property and equipment 0.5 1.4 
Payments for acquisition of businesses and assets acquisition, net of cash acquired(30.0)(13.1)
Other investing activities (0.1)
Net cash, cash equivalents and restricted cash used in investing activities(82.5)(57.9)
Financing Activities  
Payments of long-term debt(25.0)(25.1)
Borrowings on Revolving Credit Facility275.0 190.0 
Payments on Revolving Credit Facility(275.0)(85.0)
Borrowings on Securitization Facility 13.2 
Payments on Securitization Facility(30.0)(17.7)
Borrowings on Note Securitization Facility 32.6 
Payments on Note Securitization Facility(90.0)(21.2)
Redemption and prepayment premium on 5.75% Notes (437.2)
Cash dividends(30.5)(28.7)
Proceeds on exercise of stock options2.0 5.7 
Stock repurchases for stock award withholding obligations(8.5)(15.8)
Stock repurchases in the open market(47.4)(54.1)
Other financing activities4.4 3.9 
Net cash, cash equivalents and restricted cash used in financing activities(225.0)(439.4)
Effect of exchange rate changes on cash, cash equivalents and restricted cash2.0 (2.7)
Net Cash Flows(26.8)(343.3)
Cash, Cash Equivalents and Restricted Cash:  
At beginning of period296.5 633.8 
At end of period$269.7 $290.5 
See Notes to Condensed Consolidated Financial Statements (Unaudited)
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Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders Equity (Unaudited)
(In millions, except share amounts)
 Common StockAdditional
Paid-in Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury StockTotal Shareholders’ Equity
Shares
Issued
Amount
 
Balance as of December 31, 202088,457,634 $4.4 $668.5 $2,174.1 $(143.3)$(940.6)$1,763.1 
Net income   87.1   87.1 
Other comprehensive income (loss), net of tax of ($5.0)    (9.9) (9.9)
Dividends ($0.24 per common share)  0.2 (16.1)  (15.9)
Stock repurchases for stock award withholding obligations     (0.2)(0.2)
Stock compensation on equity-classified awards  11.6    11.6 
Stock option exercises  0.2   1.3 1.5 
Distribution of stock awards  (0.2)  0.2  
Shares issued under employee stock purchase plan  1.4   1.0 2.4 
Balance as of March 31, 2021
88,457,634 $4.4 $681.7 $2,245.1 $(153.2)$(938.3)$1,839.7 

 Common StockAdditional
Paid-in Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury StockTotal Shareholders’ Equity
Shares
Issued
Amount
 
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  — (2.2)  (2.2)
Net income  — 145.9   145.9 
Other comprehensive income (loss), net of tax of ($3.7)  —  27.0  27.0 
Dividends ($0.46 per common share)  0.3 (30.8)  (30.5)
Stock repurchases for stock award withholding obligations     (8.5)(8.5)
Stock repurchases in the open market      (47.4)(47.4)
Stock compensation on equity-classified awards  22.3    22.3 
Stock option exercises  0.4   1.6 2.0 
Distribution of stock awards  (11.2)  11.2  
Shares issued under employee stock purchase plan  2.9   2.1 5.0 
Balance as of March 31, 2021
88,457,634 $4.4 $681.7 $2,245.1 $(153.2)$(938.3)$1,839.7 





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Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Shareholders Equity (Continued) (Unaudited)
(In millions, except share amounts)

 Common StockAdditional
Paid-in Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Treasury StockTotal Shareholders’ Equity
Shares
Issued
Amount
 
Balance as of December 31, 201988,457,634 $4.4 $632.7 $1,993.1 $(161.3)$(849.9)$1,619.0 
Net income— — — 46.9 — — 46.9 
Other comprehensive income (loss), net of tax of tax of $9.4— — — — (62.3)— (62.3)
Dividends ($0.22 per common share)— — 0.2 (14.8)— — (14.6)
Stock repurchases for stock award withholding obligations— — — — — (0.7)(0.7)
Stock repurchases in the open market — — — — — (54.1)(54.1)
Stock compensation on equity-classified awards— — 10.2 — — — 10.2 
Stock option exercises— — 0.6 — — 1.4 2.0 
Distribution of stock awards— — (0.7)— — 0.8 0.1 
Shares issued under employee stock purchase plan— — 1.4 — — 1.0 2.4 
Balance as of March 31, 2020
88,457,634 $4.4 $644.4 $2,025.2 $(223.6)$(901.5)$1,548.9 


Common StockAdditional
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— — — 86.7 — — 86.7 
Other comprehensive income (loss), net of tax of $9.8— — — — (41.1)— (41.1)
Dividends ($0.43 per common share)— — 0.2 (28.9)— — (28.7)
Stock repurchases for stock award withholding obligations— — — — — (15.8)(15.8)
Stock repurchases in the open market— — — — — (54.1)(54.1)
Stock compensation on equity-classified awards— — 18.5 — — — 18.5 
Stock option exercises— — 1.7 — — 4.0 5.7 
Distribution of stock awards— — (16.1)— — 16.2 0.1 
Shares issued under employee stock purchase plan— — 2.7 — — 1.6 4.3 
Balance as of March 31, 2020
88,457,634 $4.4 $644.4 $2,025.2 $(223.6)$(901.5)$1,548.9 

See Notes to Condensed Consolidated Financial Statements (Unaudited)

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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 care solutions and 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 fiscal 2020 Form 10-K as filed with the SEC.

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 GAAP. As of March 31, 2021, the Company's significant accounting policies and estimates and valuation techniques used to measure fair value have not changed from September 30, 2020. See Note 1. Summary of Significant Accounting Policies within the 2020 Form 10-K for the fiscal year ended September 30, 2020 for further information.

Revenue Recognition — Sales and Rentals

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 11. Segment Reporting for the presentation of the Company's revenue disaggregation.

Contract Balances

Contract liabilities represent deferred revenues that arise as a 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.

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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 something other than the passage of time.

The following table summarizes contract liability activity for the six months ended March 31, 2021. The contract liability balance represents the transaction price allocated to the remaining performance obligations.

Contract Liabilities
Balance as of October 1, 2020$138.1 
New revenue deferrals232.5 
Revenue recognized upon satisfaction of performance obligations(238.9)
Foreign currency translation adjustment0.7 
Balance as of March 31, 2021$132.4 

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.

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The following summarizes accrued product warranty activity for the three and six months ended March 31, 2021.

  Three Months Ended March 31 Six Months Ended March 31
Balance as of beginning of period$30.0 $30.8 
Provision for warranties in the period5.9 11.1 
Warranty claims in the period(5.3)(11.7)
Foreign currency translation adjustment(0.3)0.1 
Balance as of end of period$30.3 $30.3 

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 evaluated our eligibility and assessed the conditions and requirements of participation in available programs. During the calendar year 2020, we deferred the payment of the employer share of the U.S. Federal Insurance Contributions Act (“FICA”) tax payments totaling $21.7 million in accordance with the CARES Act within the Condensed Consolidated Balance 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 June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of Credit Losses of Financial Instruments and has subsequently issued related amendments, collectively referred to as “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. This adoption primarily impacted our trade accounts receivables. Under the current expected credit loss model, we review receivables for collectability based on an assessment of various factors, including historical collection experience for 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 was an increase to the allowance for credit losses of $3.0 million and deferred tax assets of $0.8 million with a corresponding decrease to the opening balance of Retained earnings of $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 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. We adopted ASU 2018-13 in the first quarter of fiscal 2021. The adoption of ASU 2018-13 had no impact on our Condensed Consolidated Financial Statements.
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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 in the first quarter of fiscal 2021 using the prospective transition method approach. The Company’s cloud computing hosting arrangements are primarily information technology agreements that support the Company’s operations and infrastructure. The adoption of ASU 2018-15 did not have a significant impact on our Condensed Consolidated Financial Statements.

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 in the first quarter of fiscal 2021. The adoption of ASU 2018-18 had no impact on our Condensed Consolidated Financial Statements.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2021- 01 is an extension of ASU 2020-04 disclosed in our 2020 Form 10-K. ASU 2021-01 clarifies the scope and guidance of Topic 848 and allows derivatives impacted by the changing of interest rates used for margin payments, discounting, or contract price alignment to qualify for certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting. ASU 2021-01 is optional and is effective for a limited period of time through December 31, 2022. As of March 31, 2021, this standard has no impact on our Condensed Consolidated Financial Statements. We will continue to monitor, assess and plan for the phase out of LIBOR.

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 2020 Form 10-K.

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Note 2. Supplementary Financial Statement Information
 March 31,
2021
September 30, 2020
Inventories, net of reserves:  
Finished products$160.3 $167.6 
Work in process50.1 48.4 
Raw materials117.1 136.0 
Total inventories, net of reserves$327.5 $352.0 
Accumulated amortization of software and other intangible assets$730.2 $667.3 
Investments included in Other assets$49.6 $49.0 

Supplemental Cash Flow Information
Six Months Ended
March 31
20212020
Non-cash operating activities:
Operating cash flows paid for amounts included in the measurement of lease liabilities$14.1$14.0 
Non-cash investing activities:
Change in capital expenditures not paid$(10.3)$4.0 
Sale of equity method investment 2.8 
Non-cash consideration in exchange for asset acquisition:
Preferred securities investment25.5 — 
     Forgiveness of a prepaid performance obligation 1.8 — 
Total non-cash investing activities:$17.0 $6.8 
Non-cash financing activities:  
Distribution of shares issued under stock-based compensation plans$32.8$27.1 
Non-cash investing and financing activities:
Right of use assets obtained in exchange for new lease liabilities$5.5$8.8 

Note 3. Business Combinations

Acquisitions

Assets acquired and liabilities assumed in a business combination are recorded at their estimated fair values on the date of acquisition. The difference between the purchase price amount and the net fair value of assets acquired and liabilities assumed is recognized as goodwill on the balance sheet if the purchase price exceeds the estimated net fair value or as a bargain purchase gain on the income statement if the purchase price is less than the estimated net fair value. The allocation of the purchase price may be modified up to one year after the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed.




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During fiscal 2020 we acquired the following companies:

Company NameDescription of the BusinessDescription of the Acquisition
Excel MedicalClinical communications software company located in the United StatesPurchased all of the outstanding equity interest.
ConnectaClinical communications software company based in Mexico.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.

The purchase price for the acquisitions listed above includes contingent consideration for which the performance periods have not yet expired. For the six months ended March 31, 2021, we recorded a reduction in the contingent consideration obligations of $1.8 million, in Selling and administrative expenses primarily related to Excel Medical as a certain commercial milestone was not met. As of March 31, 2021 and September 30, 2020, contingent consideration liabilities related to prior year acquisitions totaled $7.0 million and $8.9 million and are included in Other current liabilities and Other long-term liabilities.

For the six months ended March 31, 2021, we did not close on any new business acquisitions. For additional information on Acquisitions, see Note 3. Business Combinations within the 2020 Form 10-K.

Bardy Diagnostics, Inc.

On January 15, 2021, we entered into a definitive merger agreement with Bardy Diagnostics, Inc. (“Bardy”), a Delaware company that develops and delivers cardiac arrhythmia monitoring devices, for initial cash consideration of $375.0 million, subject to closing conditions and certain post-closing adjustments. Additionally, contingent consideration will be payable based on the revenue generated from the 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 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 ("Novitas"), published newly established, Category 1 reimbursement rates applicable to the Current Procedural Terminology ("CPT") codes 93241, 93243, 93245 and 93247 for the extended holter cardiac monitoring category.

As a result of the unexpected Novitas reimbursement rate reduction, Hillrom asserted that a "Company Material Adverse Effect" has occurred, and therefore the closing conditions have not been satisfied. In response, Bardy filed a complaint against Hillrom in the Court of Chancery of the State of Delaware seeking, among other things, specific performance to compel Hillrom to close the transaction.

On April 10, 2021, Novitas published updated reimbursement rates applicable to CPT codes 93241, 93243, 93245 and 93247 and Hillrom has reconfirmed its position that a “Company Material Adverse Effect” has occurred.
The litigation is pending in the Delaware Court of Chancery with trial scheduled to begin May 5, 2021. The ultimate resolution and outcome of the matter are unknown and uncertain.
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Asset Acquisition

On January 28, 2021, we acquired the 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 at cost and forgiveness of a prepayment of approximately $1.8 million. The investment was transferred to EarlySense Ltd. on April 27, 2021 after certain conditions outlined in the purchase agreement were satisfied. Additionally, contingent consideration of up to $10.0 million will be payable if commercial milestones defined in the purchase agreement are achieved through September 2023.

The value of the acquired intangible asset recorded upon close of the transaction was $59.4 million, which included estimated contingent consideration of $2.4 million. The intangible asset acquired is presented in Other intangible assets and software, net and is amortized over the expected useful life of the technology of 8 years. The liability for the contingent consideration is included in Other long-term liabilities. Revenues generated from this asset acquisition are recorded within the Patient Support Systems segment.

Note 4. Financing Agreements

Short-Term Borrowings

Securitization Facilities

We have our 364-day accounts receivable securitization program (the " Securitization Facility ") with certain financial institutions for borrowings up to $110.0 million. Additionally, we have our 364-day facility for borrowings up to $90.0 million (the "Note Securitization Facility"). As of March 31, 2021, there were $52.2 million outstanding borrowings on the Securitization Facility and there were no outstanding borrowings under the Note Securitization Facility. As of September 30, 2020, outstanding borrowings were $82.2 million on the Securitization Facility and $90.0 million on the Note Securitization Facility.

As of March 31, 2021, these facilities had an expiration date of April 26, 2021, but were renewed on April 23, 2021 through April 22, 2022. The terms and conditions of the renewed facilities are substantially similar to the expired facilities. Borrowings outstanding under the renewed Securitization Facility and renewed Note Securitization Facility bear interest at LIBOR plus the applicable margin of 0.78% and 0.85%.

Long-Term Debt

As of March 31, 2021 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 outstanding standby letters of credit $9.3 million and $9.0 million.

Long-Term Debt Redemptions

On April 20, 2021, we notified our lender that we plan to redeem all of our outstanding senior unsecured 5.00% notes due February 15, 2025 of $300.0 million on May 20, 2021 with cash on hand, together with funds borrowed from both Securitization Facilities and the Revolving Credit Facility. The redemption will require a prepayment premium of $7.5 million, which, along with $2.2 million of debt issuance costs previously capitalized, will be recorded as loss on extinguishment of debt on the redemption date.

On October 7, 2019, we 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 were issued in September 2019, along with funds borrowed from the Revolving Credit Facility. For the six months ended March 31, 2020, we recorded a loss on extinguishment of debt of $15.6 million, which was comprised of a $12.2 million prepayment premium and $3.4 million of debt issuance costs previously capitalized. See Note 5. Financing Agreements included within our 2020 Form 10-K for the fiscal year ended September 30, 2020 for further information.





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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 Securitization Facility, Note Securitization Facility, Term Loan A facility maturing in August 2024, and Revolving Credit Facility approximate fair value.

The estimated fair values of our long-term debt instruments are described in the table below:
 March 31,
2021
September 30, 2020
Senior unsecured 5.00% notes due on February 15, 2025
$309.1 $310.1 
Senior unsecured 4.375% notes due on September 15, 2027
438.5 441.2 
Unsecured debentures47.1 48.0 
Total$794.7 $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.

Debt Covenants

As of March 31, 2021, we were in compliance with all debt covenants under our financing agreements.

Note 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.

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 March 31, 2021 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.

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 March 31, 2021 and September 30, 2020, the notional amount of outstanding currency exchange contracts was $24.9 million and $64.4 million, respectively. The maximum length of time over which we hedge transaction exposures is generally 12 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.

Net Investment Hedges

As of March 31, 2021 and September 30, 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. 

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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 income of $1.3 million and $2.6 million for both the three and six months ended March 31, 2021 and 2020.

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 March 31, 2021 and September 30, 2020, we had forward contracts not designated as hedges with aggregate notional amounts of $169.0 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
March 31
Six Months Ended
March 31
2021202020212020
Unrealized gain (loss)$(0.9)$0.1 $(0.9)$0.1 
Realized gain (loss)(2.8)0.6 (0.3)1.1 

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 InstrumentsMarch 31, 2021September 30, 2020Condensed Consolidated Balance Sheet Position
Interest Rate Swaps$(29.2)$(46.3)Other current liabilities
Currency Exchange Contracts(1.7)(0.4)Other current liabilities
Cross-Currency Swaps7.4 9.7 Other assets
Undesignated Forward Contracts(1.5) Other current liabilities
Undesignated Forward Contracts0.6 — Other assets
Total$(24.4)$(37.0)
Note 6. Retirement and Postretirement Benefit Plans

We sponsor 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. 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 provides the components of net pension expense for our defined benefit retirement plans.

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 Three Months Ended
March 31
Six Months Ended
March 31
Condensed Consolidated Statements of Income Item
 2021202020212020
Service cost$0.5 $0.4 $1.0 $