Quarter Ended March 31
2019 2018
Amount
reclassified Tax effect Net of tax
Amount
reclassified
Tax effect Net of tax
Derivative instruments designated as hedges:
Foreign exchange forward contracts¹
$ (0.1 ) $ (0.1 ) $ (0.2 ) $ 0.4
$ —
$ 0.4
Interest rate swaps²
(1.7 ) 0.5
(1.2 ) (0.9 ) —
(0.9 )
Derivative instruments designated as hedges total (1.8 ) 0.4
(1.4 ) (0.5 ) —
(0.5 )
Change in pension and postretirement defined benefit plans³
0.6
(0.2 ) 0.4
1.0
(0.1 ) 0.9

The following table represents the items reclassified out of Accumulated other comprehensive income (loss) and the related tax effects for the ~~year to date periods~~six months ended March 31, ~~2019~~2020 and ~~2018:~~2019:


	Six Months Ended March 31
	2020										2019
	Amount reclassified		Tax effect		Net of tax		Amount reclassified		Tax effect ⁴		Net of tax
Derivative instruments designated as hedges:
Foreign exchange forward contracts ¹	$	0.1	$	(0.1)	$	—	$	(0.2)	$	—	$	(0.2)
Interest rate swaps ²	0.4		(0.1)		0.3		(3.8)		1.1		(2.7)
Derivative instruments designated as hedges total	0.5		(0.2)		0.3		(4.0)		1.1		(2.9)
Change in pension and postretirement defined benefit plans ³	(9.1)		2.3		(6.8)		1.1		(6.5)		(5.4)

Year to Date Ended March 31
2019 2018
Amount
reclassified
Tax effect⁴
Net of tax Amount
reclassified Tax effect Net of tax
Derivative instruments designated as hedges:
Foreign exchange forward contracts¹
$ (0.2 ) $ —
$ (0.2 ) $ 0.8
$ (0.1 ) $ 0.7
Interest rate swaps²
(3.8 ) 1.1
(2.7 ) (1.7 ) 0.3
(1.4 )
Derivative instruments designated as hedges total (4.0 ) 1.1
(2.9 ) (0.9 ) 0.2
(0.7 )
Change in pension and postretirement defined benefit plans³
1.1
(6.5 ) (5.4 ) 2.2
(0.4 ) 1.8

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 ~~Selling and administrative expenses~~ and Investment income (expense) and other, net. These components are included in the computation of net periodic pension expense.

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

Note 9.10. Special Charges

In connection with various organizational changes to improve our business alignment and cost structure, we recognized Special charges of $8.8 million and $16.6 million for the three and six months ended March 31, 2020 compared to $3.5 million and ~~$36.9~~$11.5 million for the ~~quarters~~three and six months ended March 31, ~~2019 and 2018 and $11.5 million and $50.4 million for the year to date periods ended March 31, 2019 and 2018. We continue to evaluate additional actions related to~~2019. Although these ~~programs and expect~~charges are non-recurring in nature, additional Special charges are expected to be ~~incurred. However, it~~incurred related to restructuring and transformative initiatives in future periods. It is not practicable to estimate the amount of these future expected costs until such time as the evaluations are complete.

These charges are summarized as follows:

~~Disposition~~

During the second quarter of fiscal 2018, we entered into an agreement to convey certain assets related to the Company's third-party rental business to UHS and recorded an after-tax loss of $23.4 million in Special charges.

Business Optimization and Realignment

Management pursues opportunities to align our operations to achieve synergies and position the business for growth. In fiscal 2018, ~~we initiated~~ 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, management launched an initiative related to a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems. For the ~~quarter and year to date periods~~three months ended March 31, 2020, the Company incurred $9.9 million related to this initiative, of which $5.4 million was capitalized and $4.5 million was expensed in Special charges. For the six months ended March 31, 2020, the Company incurred $19.3 million, of which $10.7 million was capitalized and $8.6 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.

We acquired several businesses in fiscal 2019 ~~this program resulted in~~and 2020 as disclosed within Note 4. Business Combinations for which we continue to incur integration-related costs and severance costs. These costs were recorded to Special charges for the three and six months ended March 31, 2020. We also incurred costs, including severance and benefit costs, associated with other business realignment and integration activities.

Table of Conte nts

For the three and six months ended March 31, 2020, we incurred total business optimization and realignment charges of $8.2 million and $15.5 million, of which $2.1 million and $3.9 million were severance and benefit costs with the remainder related to professional fees and project management costs. These amounts compare to charges of $2.5 million and $6.3 million for the three and six months ended March 31, 2019, of which $1.0 million and $3.8 million were severance and benefit costs with the remainder related to professional fees and project management costs. These amounts compare to charges of $9.6 million and $18.8 million in the quarter and year to date periods ended March 31, 2018, of which $4.8 million and $10.8 million were severance and benefit costs.

Site Consolidation

We continue to streamline our operations and simplify our supply chain by consolidating certain manufacturing and distribution operations (“Site Consolidation”). ~~Since~~For the ~~inception of this program, we have announced the closure of nine sites. In the quarter~~three and ~~year to date periods~~six months ended March 31, ~~2019,~~2020, we recorded charges of $0.7 million and $1.2 million related to these efforts, primarily comprised of site closure costs and severance and benefit costs. These amounts compare to charges of $1.0 million and $5.1 million related to these efforts for the three and six months ended March 31, 2019, primarily comprised of ~~which $0.7 million were~~ severance and benefit costs, ~~for the quarter and year to date periods ending March 31, 2019. The remaining costs primarily consisted of~~ lease termination and facility closure costs. These amounts compare to charges of $3.8 million and $7.8 million in the quarter and year to date periods ended March 31, 2018, of which $0.5 million and $0.7 million were severance and benefit costs.

~~Since the inception of the Site Consolidation program through March 31, 2019, we have recognized aggregate Special charges of $55.9 million.~~

~~Integration and Business Realignment~~

As we acquire businesses, we initiate integration activities and position our existing businesses to capitalize on opportunities for growth. We also incur costs, including severance and benefit costs, associated with other business realignment and integration activities. In the year to date period ended March 31, 2019, we incurred integration and business realignment charges of approximately $0.1 million. We incurred no integration and business realignment charges in the quarter ended March 31, 2019. These amounts compare to charges of $0.1 million and $0.4 million in the quarter and year to date periods ended March 31, 2018.

For all accrued severance and other benefit charges described above, we record restructuring reserves within Other current liabilities. The reserve activity for severance and other benefits infor the ~~year to date period~~six months ended March 31, ~~2019~~2020 was as follows:

Balance as of September 30, 2018 $ 8.5
Expenses 6.1
Cash Payments (8.1 )
Reversals (1.2 )
Balance as of March 31, 2019 $ 5.3


Balance as of September 30, 2019	$	8.5
Expenses	4.4
Cash Payments	(7.8)
Reversals	(0.3)
Balance as of March 31, 2020	$	4.8

Note ~~10.~~11. Income Taxes

The effective tax rate for the ~~quarter~~three months ended March 31, ~~2019~~2020 was ~~18.5%~~17.4% compared to ~~(32.6)%~~18.5% for the comparable period in the prior year due primarily to the difference in the discrete tax benefits realized in each period. The current period rate was favorably impacted by $1.4 million of discrete tax benefits primarily related to excess tax benefits on deductible stock compensation. This compares to $11.2 million of discrete tax benefits in the comparable prior year period which primarily related to a change in tax accounting method for historical currency losses.

year. The effective tax rate for the ~~year to date period~~three months ended March 31, ~~2019~~2020 was ~~16.9%~~favorably impacted primarily by an increased projected benefit for the deduction attributed to foreign derived intangible income (“FDII”).

The effective tax rate for the six months ended March 31, 2020 was 12.8% compared to ~~(123.3)%~~16.9% for the comparable period in the prior ~~year due primarily to~~year. The effective tax ~~benefits recorded in~~rate for the ~~prior period related to the Tax Act. The year to date period rate~~six months ended March 31, 2020 was favorably impacted primarily by ~~$4.5~~an increased projected benefit for the deduction attributed to FDII as well as a small benefit from current year discrete items. The effective tax rate for the six months ended March 31, 2020 was also favorably impacted by the reduction of the contingent consideration accrual of $8.4 million, ~~of discrete tax benefits primarily related~~that is not subject to $2.4 million of excess tax benefits on deductible stock compensation. This compares to $75.6 million of discrete tax benefits in the prior year to date period primarily related to the Tax Act and a change in tax accounting method for historical currency losses. tax.

On ~~December 22, 2017,~~March 25, 2020, the U.S. government ~~enacted comprehensive tax legislation commonly referred~~approved the Coronavirus Aid, Relief and Economic Security (“CARES”) Act to asprovide economic stimulus to address the ~~Tax Act. The Tax Act made broad and complex changes to the U.S. tax code which impacted the financial results of our fiscal year ended September 30, 2018, and continues to~~ impact ~~the financial results~~ of the quarter and year to date periods ended March 31, 2019, including, but not limited to (1) reducing the U.S. Federal corporate tax rate, (2) requiring a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries that may electively be paid over eight years, and (3) accelerated first year expensing of certain capital expenditures. The Tax Act reduced the U.S. Federal corporate tax rate from 35.0% to 21.0% effective January 1, 2018 for calendar year tax filers. In accordance with Internal Revenue Code Section 15, our fiscal year ended September 30, 2018 had a blended corporate tax rate of 24.5%, which was based on a proration of the applicable tax rates before and after the effective date of the Tax Act. The statutory tax rate of 21.0% applies to our current fiscal 2019.

The Tax Act also put in place new tax laws that will impact our taxable income in fiscal 2019, which include, but are not limited to (1) creating a Base Erosion Anti-abuse Tax (“BEAT”), which is a tax on certain related-party payments that reduce the U.S. tax base, (2) generally eliminating U.S. Federal income taxes on dividends from foreign subsidiaries, (3) a new provision designed to tax currently global intangible low-taxed income (“GILTI”), which allows for the possibility of utilizing foreign tax credits and a deduction equal to 50.0% to offset the income tax liability (subject to some limitations), (4) a provision that could limit the amount of deductible interest expense, (5) the repeal of the domestic production activity deduction replaced with an additional deduction for foreign-derived intangible income (“FDII”), (6) limitations on the deductibility of certain executive compensation, and (7) limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability.

~~Shortly after the Tax Act was enacted, the SEC staff issued Staff Accounting Bulletin No. 118,~~ ~~Income Tax Accounting Implications of the Tax Cuts and Jobs Act~~ (“SAB 118”) which provides guidance on accounting for the Tax Act’s impact. SAB 118 provided a measurement period, which in no case should extend beyond one year from the Tax Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Act under ASC Topic 740. In accordance with the expiration of the SAB 118 measurement period, we completed the assessment of the income tax effects of the Tax Act in the first quarter of fiscal 2019 and further reduced our Transition Tax liability by $1.0 million in the first quarter of fiscal 2019.

~~The U.S. Internal Revenue Service and Treasury Department continue to release proposed guidance with respect to the Tax Act.~~pandemic. We continue to evaluate what impact, if any, ~~each piece of guidance~~the CARES Act, or any similar legislation in other non-U.S. jurisdictions, may have on our related tax positions and our effective tax ~~rate if, and when, such guidance is finalized.~~rate.

Note ~~11.~~12. 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 Conte nts

Earnings per share are calculated as ~~follows (share information in thousands):~~follows:


	Three Months Ended March 31						Six Months Ended March 31
	2020		2019		2020		2019
Net Income	$	46.9	$	49.5	$	86.7	$	91.7

Net Income per Basic Common Share	$	0.70	$	0.74	$	1.30	$	1.37

Net Income per Diluted Common Share	$	0.70	$	0.74	$	1.29	$	1.36

Average Basic Common Shares Outstanding (in thousands)	66,685		66,696		66,731		66,866
Add potential effect of exercise of stock options and other unvested equity awards	533		648		578		659
Average Diluted Common Shares Outstanding (in thousands)	67,218		67,344		67,309		67,525

Shares with anti-dilutive effect excluded from the computation of diluted EPS	320		307		332		286

Quarter Ended March 31 Year to Date Ended March 31
2019 2018 2019 2018
Net income $ 49.5
$ 28.5
$ 91.7
$ 116.8

Average basic shares outstanding 66,696
66,192
66,866
66,040
Add potential effect of exercise of stock options and other unvested equity awards 648
1,405
659
1,468
Average diluted shares outstanding 67,344
67,597
67,525
67,508

Net income per basic common share $ 0.74
$ 0.43
$ 1.37
$ 1.77

Net income per diluted common share $ 0.74
$ 0.42
$ 1.36
$ 1.73

Shares with anti-dilutive effect excluded from the computation of diluted EPS 307
280
286
225


~~Item 2.~~	Table of Conte nts Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~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 previously filed most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2018 (“2018 Form 10-K”) as well as the discussions in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We assume no obligation to update or revise any forward-looking statements unless required by law.

Overview

The following discussion and analysis should be read in conjunction with the accompanying interim financial statements and our ~~2018~~2019 Form 10-K.

Hill-Rom Holdings, Inc. (the “Company,” ~~“Hill-Rom,~~“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 ~~leading~~ global medical technology ~~company with more than~~leader whose approximately 10,000 employees worldwide. We partner with health care providers in more than 100 countries, across multiple care settings, by focusing on patient care solutions that improve clinical and economic outcomes in five core areas: Advancing Mobility, Wound Care and Prevention, Patient Monitoring and Diagnostics, Surgical Safety and Efficiency and Respiratory Health. Our innovations ensure caregivers have ~~the products they need to help diagnose, treat and protect their patients; speed up recoveries; and manage conditions. Every day, around the world, we enhance~~a single purpose: enhancing outcomes for patients and their ~~caregivers.~~caregivers by Advancing Connected Care^TM. 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.

Use of Non-GAAP Financial Measures

The accompanying Condensed Consolidated Financial Statements ~~including the~~and related notes are presented in accordance with ~~accounting principles generally accepted in the United States (“GAAP”).~~GAAP. In addition to the results reported in accordance with GAAP, we routinely provide ~~gross margin,~~ operating margin, income tax expense and earnings per diluted share results on an adjusted basis ~~because~~as we believe these measures contribute to anthe 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 ~~9 of our Condensed Consolidated Financial Statements in this Form 10-Q,~~10. Special Charges, the transitional impacts of the U.S. Tax Cuts and Jobs Act (the “Tax Act”), ~~change~~changes in tax accounting methods, and other tax law changes as described in Note ~~10 of our Condensed Consolidated Financial Statements in this~~11. Income Taxes within the 2019 Form ~~10-Q,~~10-K, expenses associated with these tax items, the impacts of significant litigation matters, or 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.

Table of Conte nts

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 ~~reporting~~reportable segments:

•

•Patient Support Systems –globally provides our med-surg and specialty bed systems 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.

•Front Line Care – globally provides patient monitoring and diagnostic technologies, including a diversified portfolio of physical assessment tools that help diagnose, treat and manage a wide variety of illnesses and diseases, including a portfolio of vision care and respiratory health devices.

•Surgical Solutions – globally provides products that improve safety and efficiency in the surgical space, including tables, lights, pendants, precision positioning devices and other accessories.

globally provides our med-surg and specialty bed systems and surfaces, safe patient handling equipment and mobility solutions, as well as our clinical workflow solutions that deliver software and information technologies to improve care and deliver actionable insight to caregivers and patients.


•	~~Front Line Care –~~ globally provides patient monitoring and diagnostic technologies, including a diversified portfolio of physical assessment tools that help diagnose, treat and manage a wide variety of illnesses and diseases, as well as a portfolio of vision care and respiratory care devices.


•	~~Surgical Solutions –~~ globally provides products that improve surgical safety and efficiency in the operating room including tables, lights, pendants, positioning devices and various other surgical instruments and accessories.

Net Revenue


(In millions)									U.S.		OUS
	Three Months Ended March 31						Change As Reported		Constant Currency		Change As Reported		Change As Reported		Constant Currency
	2020		2019
Net Revenue:
Product sales and service	$	647.0	$	636.5	1.6	%	2.6	%	3.4	%	(1.9)	%	1.1	%
Rental revenue	76.2		77.7		(1.9)	%	(1.7)	%	(1.6)	%	(4.9)	%	(2.9)	%
Total net revenue	$	723.2	$	714.2	1.3	%	2.2	%	2.7	%	(2.0)	%	0.9	%

Net Revenue:
Patient Support Systems	$	382.1	$	359.6	6.3	%	7.2	%	8.3	%	0.4	%	4.1	%
Front Line Care	258.2		243.1		6.2	%	7.0	%	5.3	%	8.4	%	10.8	%
Surgical Solutions	82.9		111.5		(25.7)	%	(24.6)	%	(31.6)	%	(19.7)	%	(17.4)	%
Total net revenue	$	723.2	$	714.2	1.3	%	2.2	%	2.7	%	(2.0)	%	0.9	%

OUS - Outside of the United States

U.S. OUS
Quarter Ended
March 31
Change As
Reported

Constant
Currency

Change As
Reported

Change As
Reported

Constant
Currency
2019 2018
Net Revenue:
Product sales and service $ 636.5
$ 610.7
4.2 % 6.4 % 12.6 % (9.4 )% (3.6 )%
Rental revenue 77.7
99.8
(22.1 )% (21.2 )% (23.5 )% (11.2 )% (4.3 )%
Total net revenue $ 714.2
$ 710.5
0.5 % 2.5 % 5.8 % (9.5 )% (3.7 )%

Net Revenue:
Patient Support Systems $ 359.6
$ 355.0
1.3 % 3.0 % 7.4 % (13.1 )% (7.2 )%
Front Line Care 243.1
237.9
2.2 % 3.9 % 4.5 % (2.8 )% 2.7 %
Surgical Solutions 111.5
117.6
(5.2 )% (1.8 )% 2.2 % (11.6 )% (5.2 )%
Total net revenue $ 714.2
$ 710.5
0.5 % 2.5 % 5.8 % (9.5 )% (3.7 )%

OUS - Outside of the United States

~~The following table reflects sales growth data for the quarter ended~~Three Months Ended March 31, ~~2019 excluding~~2020 Compared to the impacts of the adoption of ASC 606 to supplement our discussion and analysis of net revenue by quantifying and excluding the impact of the adoption of this rule for revenue streams and reporting segments:

Quarter Ended
March 31 Change Constant
Currency U.S. OUS

Adjusted 2019¹
2018 Change Change Constant
Currency
Net Revenue:
Product sales and service $ 608.4
$ 610.7
(0.4 )% 1.9 % 5.2 % (9.5 )% (3.7 )%
Rental revenue 102.1
99.8
2.3 % 3.2 % 4.2 % (11.2 )% (4.3 )%
Total net revenue $ 710.5
$ 710.5
— % 2.1 % 5.0 % (9.6 )% (3.8 )%

Net Revenue:
Patient Support Systems $ 357.0
$ 355.0
0.6 % 2.6 % 6.5 % (13.3 )% (7.5 )%
Front Line Care 242.0
237.9
1.7 % 3.2 % 3.8 % (2.8 )% 2.8 %
Surgical Solutions 111.5
117.6
(5.2 )% (1.8 )% 2.2 % (11.6 )% (5.2 )%
Total net revenue $ 710.5
$ 710.5
— % 2.1 % 5.0 % (9.6 )% (3.8 )%

OUS - Outside of the United States
¹Adjusted to remove the impacts of ASC 606. See Note 1, Summary of Significant Accounting Policies, and Note 2, Revenue Recognition, of our Condensed Consolidated Financial Statements in this Form 10-Q for additional information on the impact of adopting ASC 606.

U.S. OUS
Year to Date Ended
March 31 Change As
Reported Constant
Currency Change As
Reported Change As
Reported Constant
Currency
2019 2018
Net Revenue:
Product sales and service $ 1,248.1
$ 1,185.9
5.2 % 6.9 % 11.4 % (5.2 )% (0.7 )%
Rental revenue 149.6
194.3
(23.0 )% (22.4 )% (24.5 )% (11.1 )% (6.2 )%
Total net revenue $ 1,397.7
$ 1,380.2
1.3 % 2.8 % 4.7 % (5.5 )% (1.0 )%

Net Revenue:
Patient Support Systems $ 700.6
$ 689.4
1.6 % 3.0 % 4.7 % (6.0 )% (1.3 )%
Front Line Care 476.5
462.5
3.0 % 4.3 % 4.9 % (1.1 )% 3.0 %
Surgical Solutions 220.6
228.3
(3.4 )% (0.9 )% 4.0 % (9.7 )% (5.1 )%
Total net revenue $ 1,397.7
$ 1,380.2
1.3 % 2.8 % 4.7 % (5.5 )% (1.0 )%

OUS - Outside of the United States

~~The following table reflects sales growth data for the year to date period ended~~Three Months Ended March 31, 2019 excluding the impacts of the adoption of ASC 606 to supplement our discussion and analysis of net revenue by quantifying and excluding the impact of the adoption of this rule for revenue streams and reporting segments:

Year to Date Ended
March 31 Change Constant
Currency U.S. OUS

Adjusted 2019¹
2018 Change Change Constant
Currency
Net Revenue:
Product sales and service $ 1,196.0
$ 1,185.9
0.9 % 2.6 % 4.4 % (5.3 )% (0.8 )%
Rental revenue 198.7
194.3
2.3 % 2.9 % 4.1 % (11.1 )% (6.2 )%
Total net revenue $ 1,394.7
$ 1,380.2
1.1 % 2.6 % 4.4 % (5.6 )% (1.0 )%

Net Revenue:
Patient Support Systems $ 699.2
$ 689.4
1.4 % 2.9 % 4.5 % (6.2 )% (1.3 )%
Front Line Care 474.9
462.5
2.7 % 3.8 % 4.4 % (1.1 )% 3.0 %
Surgical Solutions 220.6
228.3
(3.4 )% (0.9 )% 4.0 % (9.7 )% (5.1 )%
Total net revenue $ 1,394.7
$ 1,380.2
1.1 % 2.6 % 4.4 % (5.6 )% (1.0 )%

OUS - Outside of the United States
¹Adjusted to remove the impacts of ASC 606. See Note 1, Summary of Significant Accounting Policies, and Note 2, Revenue Recognition, of our Condensed Consolidated Financial Statements in this Form 10-Q for additional information on the impact of adopting ASC 606.

Consolidated Revenue

Product sales and service revenue increased ~~4.2% and 5.2%~~1.6% on a reported basis, or 6.4% and 6.9% on a constant currency basis, for the quarter and year to date periods ended March 31, 2019 primarily due to the reclassification of $23.3 million and $47.5 million of certain revenue streams to Product sales and services for the quarter and year to date periods ended March 31, 2019 as a result of adopting ASC 606, as well as strong new product growth in the United States. New product growth was partly offset by a second quarter decline in Canada and the Middle East due to large projects in the prior year.

Rental revenue decreased 22.1% and 23.0% on a reported basis, or 21.2% and 22.4% on a constant currency basis, for the quarter and year to date periods ended March 31, 2019 primarily due to the reclassification of $23.3 million and $47.5 million of certain revenue streams to Product sales and services for the quarter and year to date periods ended March 31, 2019 as a result of adopting ASC 606 as well as the divestiture of our third-party rental business in fiscal 2018.

~~Excluding the impact of adopting ASC 606, revenue was flat and increased 1.1% on a reported basis, or increased 2.1%~~ and 2.6% on a constant currency basis, for the ~~quarter~~three months ended March 31, 2020 compared to the three months ended March 31, 2019. The increases were driven by increased demand, partially attributable to the COVID-19 pandemic, for Patient Support Systems and ~~year~~Front Line Care products. New products and recent acquisitions also contributed to ~~date periods~~revenue growth. 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.

Rental revenue decreased 1.9% on a reported basis, and 1.7% on a constant currency basis, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The decreases were attributable to the exit of a rental arrangement remaining from the previously divested third-party rental business.

Table of Conte nts

Business Segment Revenue

Patient Support Systems revenue increased 6.3% on a reported basis, and 7.2% on a constant currency basis, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The increases were driven primarily by growth in the United States, with growth in new products, accelerated customer orders globally for our beds and surfaces, partially due to the COVID-19 pandemic, and contributions from recent acquisitions. The increases during the three months ended March 31, 2020 were partially offset by project delays for products that require installation or customization, such as our care communications products. Revenue for the three months ended March 31, 2020 does not reflect approximately $1.4 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred revenue related to recent acquisitions.

Front Line Care revenue increased 6.2% on a reported basis, and 7.0% on a constant currency basis, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. The increases were driven by higher demand globally for patient diagnostic and monitoring products and respiratory health products, including Breathe, which was acquired in September 2019.

Surgical Solutions revenue decreased 25.7% on a reported basis, and 24.6% on a constant currency basis, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 primarily due to ~~strong new product growth. New product growth was partly~~the disposition of the surgical consumable products business in August 2019.The decreases were partially offset by ~~a second quarter decline in Canada~~sales growth from integrated operating tables.

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

~~Business Segment~~Net Revenue


(In millions)									U.S.		OUS
	Six Months Ended March 31						Change As Reported		Constant Currency		Change As Reported		Change As Reported		Constant Currency
	2020		2019
Net Revenue:
Product sales and service	$	1,261.3	$	1,248.1	1.1	%	1.8	%	3.4	%	(3.7)	%	(1.4)	%
Rental revenue	146.9		149.6		(1.8)	%	(1.5)	%	(1.3)	%	(5.5)	%	(3.5)	%
Total net revenue	$	1,408.2	$	1,397.7	0.8	%	1.4	%	2.8	%	(3.7)	%	(1.5)	%

Net Revenue:
Patient Support Systems	$	726.3	$	700.6	3.7	%	4.4	%	7.9	%	(8.0)	%	(5.3)	%
Front Line Care	512.8		476.5		7.6	%	8.1	%	6.1	%	11.2	%	12.9	%
Surgical Solutions	169.1		220.6		(23.3)	%	(22.3)	%	(31.4)	%	(15.4)	%	(13.3)	%
Total net revenue	$	1,408.2	$	1,397.7	0.8	%	1.4	%	2.8	%	(3.7)	%	(1.5)	%

OUS - Outside of the United States

~~Patient Support Systems~~

Six Months Ended March 31, 2020 Compared to the Six Months Ended March 31, 2019

Consolidated Revenue

Product sales and service revenue increased ~~1.3% and 1.6%~~1.1% on a reported basis, ~~or 3.0%~~ and ~~3.0%~~1.8% on a constant currency basis, for the ~~quarter and year to date periods~~six months ended March 31, ~~2019~~2020 compared to the ~~prior year periods.~~six months ended March 31, 2019. The increases ~~in the quarter and year~~were primarily due to ~~date periods were driven by strong~~Patient Support Systems sales growth ~~in med-surg frames, clinical workflow solutions and safe patient handling equipment in the United States. Growth~~ in the United States ~~was partly offset~~driven by ~~OUS declines in Canada~~new products and the Middle East due to large projects in the prior year. Revenue was also higher by $2.6 million and $1.4 million for the quarter and year to date periods ended March 31, 2019 under ASC 606 in comparison to previous accounting guidance. Under ASC 606 the performance obligation for revenue related to certain products was determined to be a fully installed system whereas historically, this obligation was accounted forrecent acquisitions, as ~~a multiple element arrangement and revenue was recognized upon delivery of hardware and software and the remainder when installation was complete.~~

well as Front Line Care growth globally. The increases were partially offset by the decline in Surgical Solutions sales related to the disposition of the surgical consumable products business in August 2019. Increased demand for our products due to the COVID-19 pandemic also contributed to the sales growth for Patient Support Systems and Front Line Care.

Rental revenue ~~increased 2.2% and 3.0%~~decreased 1.8% on a reported basis, ~~or 3.9%~~ and ~~4.3%~~1.5% on a constant currency basis, for the ~~quarter and year to date periods~~six months ended March 31, ~~2019~~2020 compared to the prior year periods. These improvements were primarily due to strong growth in our respiratory care business due to the launch of new products. Revenue was also higher by $1.1 million and $1.6 million for the quarter and year to date periodssix months ended March 31, 2019 under ASC 606 in comparison to previous accounting guidance. Revenue related to certain products is required to be accelerated under ASC 606 compared to historical practice as we have no on-going performance obligation after delivery of the product2019. The decreases were attributable to the ~~customer, whereas~~exit of a rental arrangement remaining from the previously ~~this~~divested third-party rental business.

Table of Conte nts

Business Segment Revenue

Patient Support Systems revenue ~~was recognized over the period the Company was reimbursed by third parties.~~

~~Surgical Solutions revenue decreased 5.2% and 3.4%~~increased 3.7% on a reported basis, ~~or 1.8%~~ and ~~0.9%~~4.4% on a constant currency basis, for the ~~quarter~~six months ended March 31, 2020 compared to the six months ended March 31, 2019. The increases were driven primarily by growth in the United States from our care communications platform, which includes recent acquisitions, new product introductions and ~~year~~increased demand for beds and surfaces, partially due to ~~date periods~~the COVID-19 pandemic. The increases were partially offset by lower sales outside of the United States due to notable declines mainly in the Middle East due to the timing of large projects. Revenue for the six months ended March 31, 2020 does not reflect approximately $2.0 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred revenue related to recent acquisitions.

Front Line Care revenue increased 7.6% on a reported basis, and 8.1% on a constant currency basis, for the six months ended March 31, 2020 compared to the six months ended March 31, 2019. The increases were driven by global sales growth for patient diagnostic and monitoring products and incremental revenue from the acquisition of Breathe.

Surgical Solutions revenue decreased 23.3% on a reported basis, and 22.3% on a constant currency basis, for the six months ended March 31, 2020 compared to the six months ended March 31, 2019 ~~compared to the prior year periods. These decreases were mainly~~primarily due to the ~~exit~~disposition of ~~certain product lines~~the surgical consumable products business in August 2019. The decreases were partially offset by sales growth from integrated operating tables.

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

Gross Profit


(In millions)	Three Months Ended March 31									Six Months Ended March 31
	2020			2019			2020			2019
Gross Profit ¹
Product sales and service	$	329.8		$	313.8		$	637.8		$	609.1
Percent of Related Net Revenue	51.0		%	49.3		%	50.6		%	48.8		%

Rental	$	37.7		$	38.8		$	71.4		$	73.5
Percent of Related Net Revenue	49.5		%	49.9		%	48.6		%	49.1		%

Total Gross Profit	$	367.5		$	352.6		$	709.2		$	682.6
Percent of Total Net Revenue	50.8		%	49.4		%	50.4		%	48.8		%

Quarter Ended March 31 Year to Date Ended March 31
2019 2018 2019 2018
Gross Profit
Product sales and service $ 313.8
$ 297.0
$ 609.1
$ 568.1
Percent of Related Net Revenue 49.3 % 48.6 % 48.8 % 47.9 %

Rental 38.8
53.4
73.5
101.9
Percent of Related Net Revenue 49.9 % 53.5 % 49.1 % 52.4 %

Total Gross Profit $ 352.6
$ 350.4
$ 682.6
$ 670.0
Percent of Total Net Revenue 49.4 % 49.3 % 48.8 % 48.5 %
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 Six Months Ended March 31, 2020 Compared to the Three and Six Months Ended March 31, 2019

Product sales and service gross ~~margin~~profit increased 70by $16.0 million and ~~90 basis points~~$28.7 million, or 5.1% and 4.7%, for the ~~quarter~~three and ~~year~~six months ended March 31, 2020 compared to ~~date periods~~the three and six months ended March 31, 2019. The increases in gross profit were primarily driven by strategic changes in product sales mix across all segments, which included recent acquisitions and the disposition of the surgical consumable products business in August 2019. The increases were also attributable to product mix within Patient Support Systems and Front Line Care and improved operating efficiencies resulting in lower operating costs.

Rental gross profit decreased $1.1 million and $2.1 million, or 2.8% and 2.9%, for the three and six months ended March 31, 2020 compared to the three and six months ended March 31, 2019 ~~compared to the prior year periods primarily due to product mix and the reclassification of products previously classified as rental revenue due to the adoption of ASC 606.~~

~~Rental gross margin decreased 360 and 330 basis points for the quarter and year to date periods ended March 31, 2019 compared to the prior year periods~~ primarily due to the ~~reclassification~~exit of ~~products~~a rental arrangement remaining from the previously ~~classified as~~divested third-party rental ~~revenue due~~business.

Table of Conte nts

Operating Expenses


(In millions)	Three Months Ended March 31									Six Months Ended March 31
	2020			2019			2020			2019
Research and development expenses	$	34.4		$	36.6		$	65.9		$	69.8
Percent of Total Net Revenue	4.8		%	5.1		%	4.7		%	5.0		%

Selling and administrative expenses	$	209.9		$	203.9		$	406.7		$	396.2
Percent of Total Net Revenue	29.0		%	28.5		%	28.9		%	28.3		%

Acquisition-related intangible asset amortization	$	27.1		$	27.3		$	53.8		$	53.0
Percent of Total Net Revenue	3.7		%	3.8		%	3.8		%	3.8		%

Three and Six Months Ended March 31, 2020 Compared to the ~~adoption of ASC 606.~~

Three and Six Months Ended March 31, 2019

~~Operating Expenses~~

Quarter Ended March 31 Year to Date Ended March 31
2019 2018 2019 2018
Research and development expenses $ 36.6
$ 34.7
$ 69.8
$ 67.0
Percent of Total Net Revenue 5.1 % 4.9 % 5.0 % 4.9 %

Selling and administrative expenses $ 231.2
$ 232.7
$ 449.2
$ 454.4
Percent of Total Net Revenue 32.4 % 32.8 % 32.1 % 32.9 %

Research and development expenses ~~increased 5.5%~~decreased $2.2 million and ~~4.2%~~$3.9 million, or 6.0% and 5.6%, for the ~~quarter~~three and ~~year~~six months ended March 31, 2020 compared to ~~date periods~~the three and six months ended March 31, 2019 due to the timing of projects.

Selling and administrative expenses increased $6.0 million and $10.5 million, or 2.9% and 2.7%, for the three and six months ended March 31, 2020 compared to the ~~prior year periods due to continued investment in new products. As a percentage of revenue, research~~three and ~~development expenses remained relatively consistent.~~

~~As a percentage of total net revenue, selling and administrative expenses decreased in the quarter and year to date periods~~six months ended March 31, 2019 due to increased information technology costs and increased investment in emerging markets.

Acquisition-related intangible asset amortization remained relatively flat for the three months ended March 31, 2020 compared to the prior year periods. Selling and administrative expenses include acquisition-related intangible asset amortization, acquisition and integration costs and costs related to tax law changes totaling $32.2 million and $60.9 million for the quarter and year to date periodsthree months ended March 31, 2019. ~~Selling and administrative expenses include acquisition-related~~For the six months ended March 31, 2020, Acquisition-related intangible asset amortization ~~acquisition and integration costs and significant litigation related costs totaling $32.2~~increased $0.8 million, ~~and $65.3 million for~~or 1.5%, compared to the ~~quarter and year to date periods ended March 31, 2018. Excluding these items, as a percentage of total~~

~~revenue, selling and administrative expenses decreased 0.7% and 0.2% for the quarter and year to date periods~~six months ended March 31, 2019 ~~compared to the prior year periods due to cost reductions from ongoing business optimization initiatives.~~

~~Business Segment Divisional Income~~

Quarter Ended
March 31 Change Year to Date Ended March 31 Change
2019 2018 2019 2018
Divisional income:

Patient Support Systems $ 69.8
$ 67.2
3.9 % $ 126.6
$ 120.6
5.0 %
Front Line Care 67.1
60.5
10.9 % 127.0
115.9
9.6 %
Surgical Solutions 15.1
15.5
(2.6 )% 26.4
25.2
4.8 %

~~Refer to Note 14 of our Condensed Consolidated Financial Statements in this Form 10-Q for a description of how divisional income is determined.~~

Patient Support Systems divisional income increased 3.9% and 5.0% for the quarter and year to date periods ended March 31, 2019 compared to the prior year periods primarily due to revenue growth in the United States and lower operating expenses as a percentage of revenue.

Front Line Care divisional income increased 10.9% and 9.6% for the quarter and year to date periods ended March 31, 2019 compared to the prior year periods as a result of revenue growth and higher margins from new products.

~~Surgical Solutions divisional income decreased 2.6% for the quarter ended March 31, 2019 but increased 4.8% for the year to date period compared to the prior year period as revenue declines~~ due to the ~~exit~~acquisitions of ~~certain product lines~~Voalte and ~~the timing of large projects were offset by strong first quarter growth~~Breathe during fiscal 2019 and Excel Medical in ~~the United States and operating expense reductions.~~January 2020.

Special Charges and Other


(In millions)	Three Months Ended March 31						Six Months Ended March 31
	2020		2019		2020		2019
Special charges	$	8.8	$	3.5	$	16.6	$	11.5

Interest expense	$	(19.1)	$	(21.8)	$	(38.5)	$	(43.1)
Loss on extinguishment of debt	$	—	$	—	$	(15.6)	$	—
Investment income (expense) and other, net	$	(11.4)	$	1.2	$	(12.7)	$	1.3

Quarter Ended March 31 Year to Date Ended March 31
2019 2018 2019 2018
Special charges $ 3.5
$ 36.9
$ 11.5
$ 50.4

Interest expense $ (21.8 ) $ (24.2 ) $ (43.1 ) $ (47.3 )
Investment income and other, net $ 1.2
$ (0.4 ) $ 1.3
$ 1.4

Three and Six Months Ended March 31, 2020 Compared to the Three and Six Months Ended March 31, 2019

In connection with various organizational changes to improve our business alignment and cost structure, we recognized Special charges of $8.8 million and $16.6 million for the three and six months ended March 31, 2020 compared to $3.5 million and ~~$36.9~~$11.5 million for the ~~quarters~~three and six months ended March 31, ~~2019 and 2018, and $11.5 million and $50.4 million for the year to date periods ended March 31, 2019 and 2018.~~2019. These charges ~~relate~~related to the initiatives described in Note ~~9 of our Condensed Consolidated Financial Statements in this Form 10-Q.~~10. Special Charges.

Interest expense ~~was lower in~~decreased $2.7 million and $4.6 million, or 12.4% and 10.7%, for the ~~quarter~~three and ~~year~~six months ended March 31, 2020 compared to ~~date periods~~the three and six months ended March 31, 2019 due to ~~a decrease~~lower interest rates resulting from the refinancing of senior unsecured notes of $425.0 million in ~~long-term debt compared to the prior year periods and the impact of our cross-currency swaps entered into in July 2018.~~September 2019. See Note ~~6 of our Condensed Consolidated Financial Statements in this Form 10-Q~~5. Financing Agreements for additional information.

Loss on extinguishment of debt related to the refinancing of senior unsecured notes of $425.0 million in September 2019. See Note 5. Financing Agreementsfor further information.

Table of Conte nts

Investment income (expense) and other, net ~~increased~~for the three and six months ended March 31, 2020 was expense of $11.4 million and $12.7 million comprised primarily of $2.0 million of losses related to our cost and equity method investments, the recognition of a non-cash pension plan settlement loss of $8.5 million, and unfavorable movements in foreign exchange rates. These balances were partially offset by a $1.2 million litigation settlement award. See Note 3. Supplementary Financial Statement Information and Note 8. Retirement and Postretirement Plans for additional information. Investment income (expense) and other, net for the ~~quarter~~three and six months ended March 31, 2019 was income of $1.2 million and $1.3 million driven primarily ~~due to~~by favorable movements in foreign exchange rates. ~~Investment income and other, net remained relatively flat in the year to date period ended March 31, 2019.~~

Income Tax Expense

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

year. The effective tax rate for the ~~year to date period~~three months ended March 31, ~~2019 was 16.9% compared to (123.3)% for the comparable period in the prior year due primarily to tax benefits recorded in the prior period related to the Tax Act. The year to date period rate~~2020 was favorably impacted primarily by ~~$4.5 million of discrete tax benefits primarily related~~an increased projected benefit for the deduction attributed to $2.4 million of excess tax benefits on deductible stock compensation. This compares to $75.6 million of discrete tax benefits in the prior year to date period primarily related to the Tax Act and a change in tax accounting method for historical currency losses. foreign derived intangible income (“FDII”).

The adjusted effective tax rate for the ~~quarter and year to date periods~~three months ended March 31, ~~2019~~2020 was ~~20.4% and 20.1%~~20.9% compared to ~~21.4% and~~ 20.4% for the comparable period in the prior ~~year periods.~~year. The ~~lower adjusted tax rate in~~differences from the current year isperiod and the prior year period primarily ~~due~~relate to ~~the reduction in the U.S. federal corporate tax rate from Tax Act legislation partially offset by lower current year~~ discrete ~~tax~~ items, ~~primarily related to~~including the excess tax benefits on deductible stock compensation.

Six Months Ended March 31, 2020 Compared to the Six Months Ended March 31, 2019

The effective tax rate for the six months ended March 31, 2020 was 12.8% compared to 16.9% for the comparable period in the prior year. The effective tax rate for the six months ended March 31, 2020 was favorably impacted primarily by an increased projected benefit for the deduction attributed to FDII as well as a small benefit from current year discrete items. The effective tax rate for the six months ended March 31, 2020 was also favorably impacted by the reduction of the contingent consideration accrual of $8.4 million, that is not subject to tax. See Note 4. Business Combinations for additional information.

The adjusted effective tax rate for the six months ended March 31, 2020 was 19.0% compared to 20.1% for the comparable period in the prior year. The differences from the current year period and the prior year period primarily relate to discrete items, including the excess tax benefits on deductible stock compensation.

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. 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 related tax positions and our effective tax rate.

Earnings per Share

Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019

Diluted earnings per share ~~increased~~decreased from ~~$0.42~~$0.74 to ~~$0.74~~$0.70 for the ~~quarter~~three months ended March 31, 2020 compared to the three months ended March 31, 2019 due to a pension settlement loss of $8.5 million. See Note 8. Retirement and Postretirement Plansfor additional information.

Six Months Ended March 31, 2020 Compared to the Six Months Ended March 31, 2019

Diluted earnings per share decreased from $1.36 to $1.29 for the six months ended March 31, 2020 compared to the six months ended March 31, 2019 due to a loss on the extinguishment of debt of $15.6 million and a pension plan settlement loss of $8.5 million. The losses were partially offset by higher gross profits and lower tax rates. See Note 5. Financing Agreements and Note 8. Retirement and Postretirement Plansfor additional information.

Table of Conte nts

Business Segment Divisional Income


(In millions)	Three Months Ended March 31						Change As Reported			Six Months Ended March 31					Change As Reported
	2020		2019						2020			2019
Divisional Income:
Patient Support Systems	$	74.9	$	72.2	3.7	%	$	133.3		$	131.9		1.1	%
Front Line Care	77.7		67.2		15.6	%	151.2			128.9			17.3	%
Surgical Solutions	13.7		15.1		(9.3)	%	26.5			26.4			0.4	%

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

Three and Six Months Ended March 31, 2020 Compared to the Three and Six Months Ended March 31, 2019

Patient Support Systems divisional income increased $2.7 million and $1.4 million, or 3.7% and 1.1%, for the three and six months ended March 31, 2020 compared to the three and six months ended March 31, 2019 primarily due to ~~a reduction in Special charges~~revenue growth in the ~~current quarter as~~United States from our care communications platform, which includes recent acquisitions, and sales growth during the three months ended March 31, 2020.The increases in revenue were offset primarily by an increase in investments to support growth initiatives.

Front Line Care divisional income increased $10.5 million and $22.3 million, or 15.6% and 17.3% for the three and six months ended March 31, 2020 compared to the ~~prior year period. Our diluted earnings per share was higher by $0.04~~three and six months ended March 31, 2019 due to overall revenue growth in the ~~quarter~~United States and internationally driven by sales of respiratory health and patient monitoring products as well as higher gross margins.

Surgical Solutions divisional income decreased $1.4 million, or 9.3% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 as a result of the ~~adoption~~disposition of ~~ASC 606. Diluted earnings per share decreased from $1.73 to $1.36~~the surgical consumable products business in August 2019, partially offset by higher gross margins and reductions in operating costs. Divisional income remained relatively flat for the ~~year~~six months ended March 31, 2020 compared to ~~date period~~the six months ended March 31, 2019 ~~primarily~~ due to sales growth from integrated operating tables and other equipment installed as part of new construction, which was offset by the recognition of incremental tax benefits in the year to date period ended March 31, 2018 primarily due to the Tax Act as disclosed in Note 10 of our Condensed Consolidated Financial Statements in this Form 10-Q. Our diluted earnings per share was higher by $0.03 in the year to date period ended March 31, 2019 as a resultdisposition of the ~~adoption of ASC 606.~~surgical consumable products business in August 2019.

GAAP and Adjusted Earnings

Operating margin, income before income taxes, income tax expense, and earnings attributable to common shareholders per diluted share are summarized in the ~~table below.~~tables below for the three and six months ended March 31, 2020 and the three and six months ended March 31, 2019. GAAP 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.

Table of Conte nts

Quarter Ended March 31, 2019 Quarter Ended March 31, 2018
Operating
Margin Income
Before
Income
Taxes Income Tax
Expense
Diluted EPS¹

Operating
Margin¹
Income
Before
Income
Taxes Income Tax
Expense
Diluted EPS¹
GAAP Basis 11.4 % $ 60.7
$ 11.2
$ 0.74
6.5 % $ 21.5
$ (7.0 ) $ 0.42
Adjustments:

Acquisition and integration costs 0.2 % 1.6
0.3
0.02
0.4 % 2.6
0.7
0.03
Acquisition-related intangible asset amortization 3.8 % 27.3
6.4
0.31
3.8 % 27.0
6.9
0.30
Regulatory compliance costs 0.5 % 3.3
0.9
0.04
0.1 % 0.8
0.2
0.01
Litigation expenses — % —
—
—
0.3 % 1.8
0.4
0.02
Special charges 0.5 % 3.5
0.9
0.04
5.2 % 36.9
9.7
0.40
Tax law and method changes — % —
—
—
— % —
8.5
(0.12 )
Adjusted Basis 16.4 % $ 96.4
$ 19.7
$ 1.14
16.2 % $ 90.6
$ 19.4
$ 1.05
¹ Total does not add due to rounding.
Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019


	Three Months Ended March 31, 2020														Three Months Ended March 31, 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	12.1	%	$	56.8	$	9.9	$	0.70	11.4	%	$	60.7	$	11.2	$	0.74
Adjustments:
Acquisition and integration costs and related fair value adjustments¹	0.4	%	2.7		0.7		0.03		0.2	%	1.6		0.3		0.02
Acquisition-related intangible asset amortization ²	3.7	%	27.1		6.6		0.31		3.8	%	27.3		6.4		0.30

Field corrective actions ³	0.2	%	1.4		0.4		0.01		—	%	—		—		—
Regulatory compliance costs ⁴	0.7	%	4.8		1.2		0.05		0.5	%	3.3		0.9		0.04
Special charges⁵	1.2	%	8.8		2.3		0.10		0.5	%	3.5		0.9		0.04




Pension Settlement Expense ⁶	—	%	8.5		2.0		0.09		—	%	—		—		—
Litigation Settlement ⁷	—	%	(1.2)		(0.3)		(0.01)		—	%	—		—		—
Adjusted Basis	18.3	%	$	108.9	$	22.8	$	1.28	16.4	%	$	96.4	$	19.7	$	1.14
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 March 31, 2020, a fair value adjustment of $1.7 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 Pension settlement expense represents an actuarial loss totaling $8.5 million recorded as a component of Investment income (expense) and other, net. See Note 8. Retirement and Postretirement Plans for additional information.

⁷ Litigation settlements and expenses are the aggregate charges, costs or recoveries associated with litigation settlements. For the three months ended March 31, 2020, we received a litigation settlement award totaling $1.2 million, which was recorded as a component of Investment income (expense) and other, net.

Table of Conte nts

Year to Date Ended March 31, 2019 Year to Date Ended March 31, 2018

Operating
Margin¹
Income
Before
Income
Taxes Income Tax
Expense Diluted EPS Operating
Margin Income
Before
Income
Taxes Income Tax
Expense
Diluted EPS¹
GAAP Basis 10.9 % $ 110.3
$ 18.6
$ 1.36
7.1 % $ 52.3
$ (64.5 ) $ 1.73
Adjustments:

Acquisition and integration costs 0.1 % 1.8
0.4
0.02
0.3 % 4.6
1.2
0.05
Acquisition-related intangible asset amortization 3.8 % 53.0
12.3
0.60
3.9 % 53.7
13.5
0.60
Regulatory compliance costs 0.4 % 6.1
1.6
0.07
0.1 % 1.2
0.3
0.01
Litigation expenses — % —
—
—
0.4 % 5.8
1.5
0.06
Special charges 0.8 % 11.5
2.8
0.13
3.7 % 50.4
13.2
0.55
Tax law and method changes — % —
1.0
(0.02 ) — % —
68.8
(1.01 )
Gain on disposition — % —
—
—
— % (1.0 ) —
(0.01 )
Adjusted Basis 16.1 % $ 182.7
$ 36.7
$ 2.16
15.5 % $ 167.0
$ 34.0
$ 1.97
¹ Total does not add due to rounding.
Six Months Ended March 31, 2020 Compared to the Six Months Ended March 31, 2019


	Six Months Ended March 31, 2020														Six Months Ended March 31, 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	11.8	%	$	99.4	$	12.7	$	1.29	10.9	%	$	110.3	$	18.6	$	1.36
Adjustments:
Acquisition and integration costs and related fair value adjustments¹	(0.3)	%	(3.8)		1.0		(0.07)		0.1	%	1.8		0.4		0.02
Acquisition-related intangible asset amortization ²	3.8	%	53.8		13.0		0.61		3.8	%	53.0		12.3		0.60

Field corrective actions ³	0.1	%	1.4		0.4		0.01		—	%	—		—		—
Regulatory compliance costs ⁴	0.6	%	8.7		1.8		0.10		0.5	%	6.1		1.6		0.07
Special charges⁵	1.2	%	16.6		3.5		0.19		0.8	%	11.5		2.8		0.13
Tax law and method changes ⁶	—	%	—		—		—		—	%	—		1.0		(0.02)

Debt refinancing costs ⁷	—	%	16.1		3.7		0.18		—	%	—		—		—
Loss on disposition of business ⁸	—	%	0.4		0.1		0.01		—	%	—		—		—
Pension settlement expense ⁹	—	%	8.5		2.0		0.10		—	%	—		—		—
Litigation settlement ¹⁰	—	%	(1.2)		(0.3)		(0.01)		—	%	—		—		—
Adjusted Basis	17.2	%	$	199.9	$	37.9	$	2.41	16.1	%	$	182.7	$	36.7	$	2.16
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 six months ended March 31, 2020, a fair value adjustment of $6.2 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 six months ended March 31, 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 resulting from business dispositions.
⁹ Pension settlement expense represents an actuarial loss totaling $8.5 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 six months ended March 31, 2020, we received a litigation settlement award totaling $1.2 million, which was recorded as a component of Investment income (expense) and other, net.

Table of Conte nts

Liquidity and Capital Resources


	Six Months Ended March 31
	2020		2019
Cash Flows Provided By (Used In):
Operating activities	$	156.7	$	158.2
Investing activities	(57.9)		(71.8)
Financing activities	(439.4)		(80.1)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2.7)		(2.3)
(Decrease) Increase in Cash and cash equivalents	$	(343.3)	$	4.0

Year to Date Ended March 31
2019 2018
Cash Flows Provided By (Used In):
Operating activities $ 158.2
$ 125.6
Investing activities (71.8 ) (47.7 )
Financing activities (80.1 ) (75.8 )
Effect of exchange rate changes on cash (2.3 ) 5.1
Increase in Cash and cash equivalents $ 4.0
$ 7.2

Net cash flows from operating activities and selected borrowings represented 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 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 $32.6~~decreased $1.5 million for the six months ended March 31, 2020 compared to the ~~prior year due to higher~~six months ended March 31, 2019. The primary drivers include an increase in incentive compensation payments, partially offset by improved operating profit and working capital improvements. Net income in the prior year period was impacted by the non-cash incremental tax benefits recorded related to the Tax Act, offset by a net loss on disposition of businesses of $22.4 million. See Note 10 and Note 9 of our Condensed Consolidated Financial Statements in this Form 10-Q for information on the Tax Act and the net loss on disposition.margins.

Investing Activities

Cash used in investing activities ~~increased $24.1~~decreased by $13.9 million for the six months ended March 31, 2020 compared to the ~~prior year,~~six months ended March 31, 2019 primarily due to our ~~acquisition~~acquisitions of non-marketable ~~equity~~ securities of $26.6 million ~~as well as our acquisition of~~and the right to use patented technology and certain related assets ~~from a supplier in our Front Line Care segment~~ of $17.1 million ~~as described in Note 3 and Note 4 of our Condensed Consolidated Financial Statements in this Form 10-Q. This increase~~during the six months ended March 31, 2019. The decrease was partially offset by ~~lower capital expenditures~~the payment of ~~$20.0~~$13.1 million for the acquisition of Excel Medical in ~~the year to date period ended March 31, 2019 compared to the prior year.~~January 2020. See Note 3. Supplementary Financial Statement Information and Note 4. Business Combinations for additional information.

Financing Activities

Cash used in financing activities ~~was $80.1~~increased $359.3 million infor the ~~year~~six months ended March 31, 2020 compared to ~~date period~~the six months ended March 31, 2019 primarily ~~driven by purchases~~due to the redemption of our ~~common stock under our share repurchase program~~previously outstanding senior unsecured 5.75% notes due September 2023 of ~~$75.0~~$425.0 million and the related prepayment premium of $12.2 million as described inwithin Note 125. Financing Agreements.

Table of our Condensed Consolidated Financial Statements in this Form 10-Q as well as dividend payments. These cash uses were partly offset by net borrowings on our various borrowing facilities of $14.0 million. For the year to date period ended March 31, 2018, cash used in financing activities was $75.8 million, primarily driven by net payments on our various borrowing facilities of $60.8 million and dividend payments. See Note 6 of our Condensed Consolidated Financial Statements in this Form 10-Q for information on our financing agreements.Conte nts

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 ~~on hand~~balances and cash flows generated from operations, along with amounts available under our ~~Revolving Credit Facility and Securitization Program,~~financing agreements, will be sufficient to fund operations, working capital needs, capital expenditure requirements, and financing obligations for at least the next ~~twelve months. Our $700.0~~12 months from the date of this filing.

As of March 31, 2020, there were $185.0 million outstanding borrowings on the 2024 Revolving Credit Facility, ~~is with a syndicate of banks, which we believe reduces our exposure to any one institution~~ and ~~would still leave us with significant~~available borrowing capacity in the event that any one of the institutions within the group is unable to comply with the terms of our amended and restated credit agreement. However, disruption and volatility in the credit markets could impede our access to capital.

~~On April 1, 2019, we completed the acquisition of Voalte, Inc. (“Voalte”), a clinical communications software company, for consideration of $180.0~~was $1,007.8 million ~~subject to certain post-closing adjustments that may change the purchase price, and committed to up to an additional $15.0 million in~~ ~~earnout payments related~~after giving effect to the ~~achievement~~$7.2 million of ~~certain commercial milestones. We paid $178.1 million on April 1, 2019, which consisted~~outstanding standby letters of ~~the consideration of $180.0 million plus cash acquired of $9.6 million, less debt assumed of $9.0 million and lower working capital of $2.5 million.~~

In addition to the discussion of our financing agreements and share repurchases detailed in Note 6 and Note 12 of our Condensed Consolidated Financial Statements in this Form 10-Q, our primary pension plan invests in a variety of equity and debt securities.credit. As of September 30, ~~2018,~~2019, there were $80.0 million outstanding borrowings on the 2024 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.

Hillrom’s cash flows from operating activities for the six months ended March 31, 2020 were not materially impacted by the outbreak of a respiratory illness caused by the coronavirus. There have been no changes to our ~~latest measurement date,~~cost of or access to our ~~pension plans~~capital and funding sources. We have not currently identified instability of the financial institutions with whom we maintain our financing relationships. Hillrom believes it will continue to service our outstanding borrowings or other financial obligations.

Hillrom’s 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 2024 Revolving Credit Facility. Furthermore, Hillrom has successfully extended its 364-day accounts receivable securitization facilities as of April 27, 2020. As of March 31, 2020, we were ~~underfunded by approximately $54.8 million. Based~~in compliance with all debt covenants under our financing agreements. See Note 5. Financing Agreements for additional information on our ~~current funded status,~~financing agreements.

Hillrom does not anticipate incurring significant incremental capital expenditures due to the pandemic. We 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 ~~are not required~~intend to ~~make~~continue to pursue inorganic growth in certain areas of our business, but the timing, size or success of any ~~contributions to our primary pension plan in fiscal 2019.~~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 ~~by us~~ 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.

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.

As of March 31, ~~2019,~~2020, approximately ~~76.7%~~53.0% of our cash and cash equivalents were held by our foreign subsidiaries. As of March 31, ~~2019,~~2020, our practice and intention ~~was~~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 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 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.

Table of Conte nts

Contractual Obligations and Contingent Liabilities and Commitments

There have not been any significant changes since September 30, ~~2018~~2019 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 ~~materially~~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 11. Summary of ~~our Consolidated Financial Statements~~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 ~~2018~~2019 Form 10-K. ~~With the exception of our new revenue recognition policy disclosed in Note 1 of our Condensed Consolidated Financial Statements in this Form 10-Q, there~~There have been no ~~material~~significant changes to such policies since September 30, ~~2018.~~2019.

For a further summary of certain accounting policies and estimates and recently issued accounting pronouncements applicable to us, see Note 11. 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 extreme 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 drastic 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 ~~Condensed Consolidated Financial Statements~~products as health care customers prioritize the treatment of patients diagnosed with COVID-19. For the three and six months ended March 31, 2020, we experienced an increase in demand for select products including ICU and med-surg beds, specialty surfaces and patient mobility solutions 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. The combined impact to total net revenues in the second quarter of fiscal 2020 was a net increase of approximately $15 million due to higher demand for products used to treat patients diagnosed with COVID-19.

In the second half of 2020, the Company expects near-term increases in demand for products used to treat patients diagnosed with COVID-19. This demand is expected to be partially offset by near-term lower demand for information technologies and software solutions in Patient Support Systems due to limited access to hospitals and the near term reprioritization of customer demand for products used to treat patients diagnosed with COVID-19. In addition, we expect near-term lower demand for operating room infrastructure in Surgical Solutions due to project delays as customers are focusing on the demands of the pandemic. The ultimate impact of the COVID-19 pandemic or a similar public health event is highly uncertain and subject to change. In this ~~Form 10-Q.~~regard, the extent of potential impacts on our business, healthcare systems and other customers and the U.S. and global economies as a whole is evolving, 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 immediate demands relating to the COVID-19 pandemic.

Operations and Workforce

We are actively managing our supply chain to ensure we are securing 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 are adjusting resource allocation as needed to meet customer demand.

Table of Conte nts

Hillrom continues to operate our production facilities as our products are essential to healthcare providers. 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, the Company has maintained employment levels and has prudently augmented staffing as needed to meet near-term incremental demand as a result of the pandemic. Management does not believe that the pandemic will have a long-term impact on Hillrom’s organizational structure or number of employees.

Hillrom is currently evaluating governmental subsidies and incentives available within the various jurisdictions in which we operate. Management will 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 the financial impact on Hillrom has not been significant to date, given the rapid and 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 if these impacts persist or exacerbate over an extended period of time. Any of these impacts could have a material adverse effect on our business, financial condition and results of operations. 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.”

Table of Conte nts


~~Item 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS~~

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 agreements ~~including forward contracts and cross-currency swaps,~~ 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 15 months. Derivative gains and losses, ~~when~~ 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 of our Condensed Consolidated Financial Statements in this Form 10-Q~~6. 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,~~7A. Quantitative and Qualitative Disclosures About Market Risk, in our ~~2018~~2019 Form 10-K.


~~Item 4.~~	~~CONTROLS AND PROCEDURES~~

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 March 31, ~~2019.~~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 March 31, ~~2019.~~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.

Table of Conte nts

PART II – OTHER INFORMATION


~~Item 1.~~	~~LEGAL PROCEEDINGS~~

Item 1. LEGAL PROCEEDINGS

Refer to Note ~~15 of our Condensed Consolidated Financial Statements in this Form 10-Q~~15. Commitments and Contingencies for further information on our legal proceedings.


~~Item 1A.~~	Item 1A. RISK FACTORS

~~There~~

Our business involves risks. With the exception of the below risk, there have been no material changes to our risk factors as disclosed in ~~“Item~~Item 1A. Risk ~~Factors”~~Factors in our ~~2018~~2019 Form 10-K for the year ended September 30, ~~2018.~~2019. The following information about the risk should be considered carefully together with the other information contained herein.

Our business, results of operations, financial condition andprospects could be materially and adversely affected by the recent COVID-19 pandemic and the related effects on public health.

We are susceptible to a widespread outbreak of an illness or other public health issue, such as the recent COVID-19 pandemic that has resulted in confirmed cases in regions and countries in which we conduct our business. Such outbreaks, including the COVID-19 pandemic, could, among other things:

•interrupt, slow, or render our supply chains inoperable, resulting in more expensive alternative sources of labor and materials or an inability to find such alternative sources of labor and materials for our products;

•subject us to governmental mandates and quarantines that may require forced shutdowns of our facilities for extended or indefinite periods due to public health measures;

•increase regulation of our industry, up to and including the exercise of war powers under The Defense Production Act of 1950 that could require us to turn over our production capabilities to the U.S. Government;

•substantially interfere with general commercial activity related to our customer base if our customers’ businesses are affected by the outbreak, including through delays or reductions of our customers’ purchases from us;

•cause health care providers to limit or restrict access to their facilities to only essential personnel for a material amount of time, adversely impacting our ability to complete installations of our care communications offerings and operating room equipment, and limiting contact with our sales personnel;

•reduce the number of ambulatory care or office visits if health care providers prioritize pandemic-related treatment and governmental and industry associations recommend the deferral of elective surgeries;

•cause our employees, including key executives, our production and service workforce and functional team members to become ill, quarantined or otherwise unable to work or travel due to health reasons or governmental restrictions;

•increase absenteeism or cause workplace disruption related to employees working from home or remotely;

•contribute to adverse changes in general domestic and global economic conditions, including recession or economic slowdown and disruption of domestic and international credit markets, which could negatively impact our customers’ ability to pay us as well as our ability to access capital thatcould in the future negatively affect our liquidity;

•result in the establishment of trade barriers that disrupt the flow of goods and increase costs associated with logistics and transportation;

•decrease our ability to grow our business through mergers, acquisitions and other similar business arrangements during any such pandemic or other outbreak as targets focus on operating their respective businesses;

•negatively impact innovation and development of new products as our R&D teams may be required to work from home and resources and energy may be redirected during any such outbreak; or

•contribute to a recession or market correction that could adversely affect the value of our common stock.

If the COVID-19 pandemic continues to spread and escalate domestically or internationally, or if governments impose additional measures intended to mitigate the spread and related effects of the pandemic, the risks described above could be elevated significantly.

There are no comparable recent events that provide guidance as to the effect the spread of COVID-19 as a global pandemic may have, and, as a result, the ultimate impact of the outbreak is highly uncertain and subject to change. We do not yet know the full extent of the impacts on our business, our operations or the global economy as a whole. However, the effects could have a material adverse impact on our business, results of operations, financial condition and prospects and could heighten many of our known risks described in Item 1A. Risk Factors of our 2019 Form 10-K.

Table of Conte nts


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

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⁾
January 1, 2020 - January 31, 2020	95,415	$	108.96	91,600	$	207.5
February 1, 2020 - February 29, 2020	408,538	$	108.04	408,400	$	163.4
March 1, 2020 - March 31, 2020	2,864	$	95.69	—	$	163.4
Total	506,817			500,000

(1)Shares purchased in the three months ended March 31, 2020 were in connection with employee payroll tax withholding for restricted stock 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 March 31, 2020. As of March 31, 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 this program in the future.


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 March 31, 2020
November 2017	$	150.0	$	102.5	$	47.5	$	—
September 2019	170.0		—		6.6		163.4
Totals	$	320.0	$	102.5	$	54.1	$	163.4

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⁾
January 1, 2019 - January 31, 2019 1,981
$ 89.39
—
$ 89.7
February 1, 2019 - February 28, 2019 487
$ 94.64
—
$ 89.7
March 1, 2019 - March 31, 2019 3,222
$ 104.67
—
$ 89.7
Total 5,690
—

Table of Conte nts


~~(1)~~	~~Shares purchased in the quarter ended March 31, 2019 were in connection with employee payroll tax withholding for restricted stock distributions.~~

~~(2)~~

In September 2013, the Board approved an expansion of its previously announced share repurchase authorization to a total of $190.0 million. In November 2017, the Board approved an increase to the share repurchase program in an amount of $150.0 million. As of March 31, 2019, a cumulative total of $250.3 million had been used, leaving us with availability of $89.7 million under the share repurchase programs. The program does not have an expiration date and currently there are no plans to terminate this program in the future.

Item 6. EXHIBITS

A. Exhibits


~~Item 6.~~	~~EXHIBITS~~


A.	~~Exhibits~~



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

Table of Conte nts

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: April 26, 2019~~			~~By:~~HILL-ROM HOLDINGS, INC.
			(Registrant)

Date: May 1, 2020

By:

/s/ Barbara W. Bodem

Name:

Title:

Barbara W. Bodem

Senior Vice President and Chief Financial Officer

(duly authorized officer and principal financial officer)


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



Yesþ	☑	No	o☐



Yes	~~Yes~~ þ☑	No	o☐



Yeso	☐	No	þ☑


							Page
PART I - FINANCIAL INFORMATION

			~~Page~~
~~PART I - FINANCIAL INFORMATION~~


	Item 1 -			Financial Statements

					Condensed Consolidated Statements of Income (Unaudited)	34

					Condensed Consolidated Statements of Comprehensive Income (Unaudited)	45

					Condensed Consolidated Balance Sheets (Unaudited)	56

					Condensed Consolidated Statements of Cash Flows (Unaudited)	67

					Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)	78

					Note 1. Summary of Significant Accounting Policies	910

					Note 2. Revenue ~~Recognition~~from Contracts with Customers	13

					Note 3. Supplementary ~~Balance Sheet~~Financial Statement Information	1714

					Note 4. Business Combinations	1714

					Note 5. ~~Goodwill~~Financing Agreements	18

					Note 6. ~~Financing Agreements~~Derivative Instruments and Hedging Activity	1819

					Note 7. Leases	20

					Note 8. Retirement and Postretirement Plans	21

					Note 8.9. Other Comprehensive Income (Loss)	22

					Note 9.10. Special Charges	25

					Note ~~10.~~11. Income Taxes	26

					Note ~~11.~~12. Earnings per Common Share	2726

					Note ~~12. Common Stock~~13. Warranties and Guarantees	27

					~~Note 13. Guarantees~~	27

		Note 14. Segment Reporting	28

					Note 15. Commitments and Contingencies	2930

			Item 2 -		Management’s Discussion and Analysis of Financial Condition and Results of Operations	3031

			Item 3 -		Quantitative and Qualitative Disclosures About Market Risks	4044

			Item 4 -		Controls and Procedures	4044

PART II - OTHER INFORMATION

			Item 1 -		Legal Proceedings	4145

			Item 1A -		Risk Factors	4145

			Item 2 -		Unregistered Sales of Equity Securities and Use of Proceeds	4146

			Item 6 -		Exhibits	4247

SIGNATURES							4348



	Quarter Ended March 31						Year to Date Ended March 31
	2019			2018			2019			2018
Net Revenue
Product sales and service	$	636.5		$	610.7		$	1,248.1		$	1,185.9
Rental revenue	77.7			99.8			149.6			194.3
Total net revenue	714.2			710.5			1,397.7			1,380.2

Cost of Net Revenue
Cost of goods sold	322.7			313.7			639.0			617.8
Rental expenses	38.9			46.4			76.1			92.4
Total cost of net revenue	361.6			360.1			715.1			710.2

Gross Profit	352.6			350.4			682.6			670.0

Research and development expenses	36.6			34.7			69.8			67.0
Selling and administrative expenses	231.2			232.7			449.2			454.4
Special charges	3.5			36.9			11.5			50.4
Operating Profit	81.3			46.1			152.1			98.2

Interest expense	(21.8		)	(24.2		)	(43.1		)	(47.3		)
Investment income and other, net	1.2			(0.4		)	1.3			1.4

Income Before Income Taxes	60.7			21.5			110.3			52.3

Income tax expense (benefit)	11.2			(7.0		)	18.6			(64.5		)

Net Income	$	49.5		$	28.5		$	91.7		$	116.8

Net Income per Basic Common Share	$	0.74		$	0.43		$	1.37		$	1.77

Net Income per Diluted Common Share	$	0.74		$	0.42		$	1.36		$	1.73

Average Basic Common Shares Outstanding (in thousands)	66,696			66,192			66,866			66,040

Average Diluted Common Shares Outstanding (in thousands)	67,344			67,597			67,525			67,508


	March 31, 2019			September 30, 2018				March 31, 2020		September 30, 2019
ASSETS							ASSETS
Current Assets							Current Assets
Cash and cash equivalents	$	187.0		$	183.0		Cash and cash equivalents	$	290.5	$	214.1
Trade accounts receivable, net of allowances (Note 3)	581.8			580.7
Inventories, net of reserves (Note 3)	293.8			291.7
Restricted cash							Restricted cash	—		419.7
Trade accounts receivable, net of allowances of $20.8 and $20.6 as of March 31, 2020 and September 30, 2019							Trade accounts receivable, net of allowances of $20.8 and $20.6 as of March 31, 2020 and September 30, 2019	655.4		653.3
Inventories, net of reserves							Inventories, net of reserves	265.5		269.6

Other current assets	118.4			100.2			Other current assets	130.3		106.7
Total current assets	1,181.0			1,155.6			Total current assets	1,341.7		1,663.4

Property, plant and equipment, net (Note 3)	313.3			328.3
Goodwill (Note 5)	1,732.9			1,738.3
Other intangible assets and software, net (Note 3)	1,012.0			1,027.7
Deferred income taxes (Notes 1 and 10)	34.0			35.0
Property, plant and equipment							Property, plant and equipment	841.2		829.6
Less accumulated depreciation							Less accumulated depreciation	(546.8)		(532.8)
Property, plant and equipment, net							Property, plant and equipment, net	294.4		296.8
Goodwill							Goodwill	1,805.7		1,800.9
Other intangible assets and software, net							Other intangible assets and software, net	1,006.5		1,033.5
Deferred income taxes							Deferred income taxes	32.6		33.1
Other assets	94.4			75.1			Other assets	166.2		91.3
Total Assets	$	4,367.6		$	4,360.0		Total Assets	$	4,647.1	$	4,919.0

LIABILITIES							LIABILITIES
Current Liabilities							Current Liabilities
Trade accounts payable	$	169.9		$	177.3		Trade accounts payable	$	224.7	$	197.6
Short-term borrowings (Note 6)	224.7			182.5
Short-term borrowings							Short-term borrowings	245.6		660.4
Accrued compensation	88.8			132.5			Accrued compensation	98.5		130.4
Accrued product warranties (Note 13)	24.5			20.5
Accrued product warranties							Accrued product warranties	29.0		29.7
Accrued rebates	42.3			42.5			Accrued rebates	47.5		47.7
Deferred revenue (Note 2)	81.7			40.0
Deferred revenue							Deferred revenue	105.7		107.3
Other current liabilities	65.4			67.1			Other current liabilities	134.4		95.2
Total current liabilities	697.3			662.4			Total current liabilities	885.4		1,268.3

Long-term debt (Note 6)	1,764.4			1,790.4
Accrued pension and postretirement benefits (Note 7)	68.2			69.3
Deferred income taxes (Notes 1 and 10)	165.7			181.3
Long-term debt							Long-term debt	1,864.4		1,783.1
Accrued pension and postretirement benefits							Accrued pension and postretirement benefits	100.8		80.8
Deferred income taxes							Deferred income taxes	123.7		143.0
Other long-term liabilities	73.2			40.4			Other long-term liabilities	123.9		70.5
Total Liabilities	2,768.8			2,743.8			Total Liabilities	3,098.2		3,345.7

Commitments and Contingencies (Note 15)

SHAREHOLDERS’ EQUITY
Common stock (Notes 3 and 12)	4.4			4.4
Commitments and Contingencies							Commitments and Contingencies
SHAREHOLDERS' EQUITY							SHAREHOLDERS' EQUITY
Capital Stock:							Capital Stock:
Preferred stock - without par value: Authorized - 1,000,000; none issued or outstanding							Preferred stock - without par value: Authorized - 1,000,000; none issued or outstanding
Common stock - without par value: Authorized - 199,000,000							Common stock - without par value: Authorized - 199,000,000	4.4		4.4
Issued: 88,457,634 shares as of March 31, 2020 and September 30, 2019; Outstanding: 66,527,730 as of March 31, 2020 and 66,625,011 as of September 30, 2019							Issued: 88,457,634 shares as of March 31, 2020 and September 30, 2019; Outstanding: 66,527,730 as of March 31, 2020 and 66,625,011 as of September 30, 2019
Additional paid-in capital	619.9			602.9			Additional paid-in capital	644.4		637.4
Retained earnings	1,935.2			1,876.2			Retained earnings	2,025.2		1,967.4
Accumulated other comprehensive loss (Note 8)	(140.3		)	(113.0		)
Treasury stock, at cost (Note 3)	(820.4		)	(754.3		)
Total Shareholders’ Equity	1,598.8			1,616.2
Total Liabilities and Shareholders’ Equity	$	4,367.6		$	4,360.0
Accumulated other comprehensive loss							Accumulated other comprehensive loss	(223.6)		(182.5)
Treasury stock, common shares at cost: 21,929,904 as of March 31, 2020 and 21,832,623 as of September 30, 2019							Treasury stock, common shares at cost: 21,929,904 as of March 31, 2020 and 21,832,623 as of September 30, 2019	(901.5)		(853.4)
Total Shareholders’ Equity							Total Shareholders’ Equity	1,548.9		1,573.3

Total Liabilities and Shareholders' Equity							Total Liabilities and Shareholders' Equity	$	4,647.1	$	4,919.0


	Year to Date March 31							Six Months Ended March 31
	2019			2018				2020		2019
Operating Activities							Operating Activities
Net income	$	91.7		$	116.8		Net income	$	86.7	$	91.7
Adjustments to reconcile net income to net 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	36.4			45.1			Depreciation and amortization of property, plant, equipment and software	34.1		36.4

Acquisition-related intangible asset amortization	53.0			53.7			Acquisition-related intangible asset amortization	53.8		53.0
Amortization of debt discounts and issuance costs	3.2			3.7			Amortization of debt discounts and issuance costs	2.1		3.2
Loss on extinguishment of debt							Loss on extinguishment of debt	15.6		—
Benefit for deferred income taxes	(8.2		)	(89.2		)	Benefit for deferred income taxes	(8.4)		(8.2)
(Gain) loss on disposal of property, equipment leased to others, intangible assets, and impairments	(0.2		)	(0.6		)
Loss on disposition of businesses	—			22.4
Loss (Gain) on disposal of property, equipment, intangible assets, and impairments							Loss (Gain) on disposal of property, equipment, intangible assets, and impairments	1.2		(0.2)

Stock compensation	16.9			15.8			Stock compensation	19.0		16.9
Other operating activities							Other operating activities	12.4		(4.1)
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	24.0			45.7			Trade accounts receivable	12.2		24.0
Inventories	(1.5		)	(29.0		)	Inventories	(1.7)		(1.5)
Other current assets	3.7			(37.9		)	Other current assets	(23.6)		3.7
Trade accounts payable	(6.6		)	(8.7		)	Trade accounts payable	6.3		(6.6)
Accrued expenses and other liabilities	(53.9		)	(35.8		)	Accrued expenses and other liabilities	(55.2)		(54.3)
Other, net	(0.3		)	23.6
Net cash provided by operating activities	158.2			125.6
Other assets and liabilities							Other assets and liabilities	2.2		4.2
Net cash, cash equivalents and restricted cash provided by operating activities							Net cash, cash equivalents and restricted cash provided by operating activities	156.7		158.2
Investing Activities							Investing Activities
Purchases of property, plant, equipment and software	(31.4		)	(51.4		)	Purchases of property, plant, equipment and software	(46.1)		(31.4)
Proceeds on sale of property and equipment leased to others	3.1			3.7
Proceeds on sale of property and equipment							Proceeds on sale of property and equipment	1.4		3.1
Payment for acquisition of business, net of cash acquired							Payment for acquisition of business, net of cash acquired	(13.1)		—
Payment for acquisition of intangible assets	(17.1		)	—			Payment for acquisition of intangible assets	—		(17.1)
Payments for acquisitions of investments	(26.6		)	—
Proceeds on sale of business	—			1.0
Other, net	0.2			(1.0		)
Net cash used in investing activities	(71.8		)	(47.7		)
Payments for acquisition of investments							Payments for acquisition of investments	—		(26.6)

Other investing activities							Other investing activities	(0.1)		0.2
Net cash, cash equivalents and restricted cash used in investing activities							Net cash, cash equivalents and restricted cash used in investing activities	(57.9)		(71.8)
Financing Activities							Financing Activities
Payments of long-term debt	(0.1		)	(54.9		)

Payment of long-term debt							Payment of long-term debt	(25.1)		(0.1)
Borrowings on Revolving Credit Facility	110.0			75.0			Borrowings on Revolving Credit Facility	190.0		110.0
Payments on Revolving Credit Facility	(105.0		)	(95.0		)	Payments on Revolving Credit Facility	(85.0)		(105.0)
Borrowings on Securitization Program	4.9			51.4
Payments on Securitization Program	(4.9		)	(37.3		)
Borrowings on Securitization Facility							Borrowings on Securitization Facility	13.2		4.9
Payments on Securitization Facility							Payments on Securitization Facility	(17.7)		(4.9)
Borrowings on Note Securitization Facility	37.5			—			Borrowings on Note Securitization Facility	32.6		37.5
Payments on Note Securitization Facility	(28.4		)	—			Payments on Note Securitization Facility	(21.2)		(28.4)
Payments of cash dividends	(27.4		)	(25.1		)

Prepayment premium on extinguishment of 5.75% Notes							Prepayment premium on extinguishment of 5.75% Notes	(12.2)		—
Redemption of 5.75% Notes							Redemption of 5.75% Notes	(425.0)		—
Cash dividends							Cash dividends	(28.7)		(27.4)
Proceeds on exercise of stock options	8.6			10.5			Proceeds on exercise of stock options	5.7		8.6

Stock repurchases for stock award withholding obligations	(4.0		)	(4.4		)	Stock repurchases for stock award withholding obligations	(15.8)		(4.0)
Stock repurchases in the open market	(75.0		)	—			Stock repurchases in the open market	(54.1)		(75.0)
Other, net	3.7			4.0
Net cash used in financing activities	(80.1		)	(75.8		)
Effect of exchange rate changes on cash and cash equivalents	(2.3		)	5.1
Other financing activities							Other financing activities	3.9		3.7
Net cash, cash equivalents and restricted cash used in financing activities							Net cash, cash equivalents and restricted cash used in financing activities	(439.4)		(80.1)
Effect of exchange rate changes on cash, cash equivalents and restricted cash							Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2.7)		(2.3)
Net Cash Flows	4.0			7.2			Net Cash Flows	(343.3)		4.0
Cash and Cash Equivalents:
Cash, Cash Equivalents and Restricted Cash:							Cash, Cash Equivalents and Restricted Cash:
At beginning of period	183.0			231.8			At beginning of period	633.8		183.0
At end of period	$	187.0		$	239.0		At end of period	$	290.5	$	187.0


																													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)				Common Stock in Treasury							Total Shareholders’ Equity					Shares Issued						Amount
	Shares Outstanding		Amount																									Additional Paid-in Capital										Retained Earnings	Accumulated Other Comprehensive Income (Loss)			Treasury Stock									Total Shareholders’ Equity
								Shares				Additional Paid-in Capital				Retained Earnings							Amount				Accumulated Other Comprehensive Income (Loss)				Amount
Balance as of December 31, 2018	66,657,887		$	4.4				$	606.9					$	1,899.9				$	(135.3	)		)									$	1,551.5
Balance as of December 31, 2019																					Balance as of December 31, 2019		88,457,634							$	4.4					$	632.7									$	1,993.1					$	(161.3)			$	(849.9)			$	1,619.0
Net income	—		—		—				49.5					—						—			—						49.5			Net income		—									—					—							46.9				—			—	46.9
Other comprehensive income (loss), net of tax of $1.4 million	—		—		—				—				(5.0		)		—			—				(5.0		)
Dividends ($0.21 per common share)	—		—		0.1				(14.2		)		—				—			—				(14.1		)
Other comprehensive income (loss), net of tax of $9.4																											Other comprehensive income (loss), net of tax of $9.4		—						—						—				—					(62.3)				—				(62.3)
Dividends ($0.22 per common share)																											Dividends ($0.22 per common share)		—						—				0.2				(14.8)					—					—				(14.6)
Stock repurchases for stock award withholding obligations	(5,690	)	—		—				—				—				5,690			(0.5		)		(0.5		)	Stock repurchases for stock award withholding obligations		—						—				—				—					—				(0.7)				(0.7)
Stock repurchases in open market																											Stock repurchases in open market		—						—				—				—					—				(54.1)				(54.1)
Stock compensation on equity-classified awards	—		—		11.1				—				—				—			—				11.1			Stock compensation on equity-classified awards		—						—				10.2				—					—				—				10.2
Stock option exercises	80,628		—		1.0				—				—				(80,628	)		3.0				4.0			Stock option exercises		—						—				0.6				—					—				1.4				2.0
Vesting of stock awards	18,103		—		(0.7		)		—				—				(18,103	)		0.7				—			Vesting of stock awards		—						—				(0.7)				—					—				0.8				0.1
Shares issued under employee stock purchase plan	20,799		—		1.5				—				—				(20,799	)		0.8				2.3			Shares issued under employee stock purchase plan		—						—				1.4				—					—				1.0				2.4
Balance as of March 31, 2019	66,771,727		$	4.4	$	619.9			$	1,935.2			$	(140.3	)		21,685,907			$	(820.4	)		$	1,598.8
Balance as of March 31, 2020																											Balance as of March 31, 2020		88,457,634						$	4.4			$	644.4			$	2,025.2				$	(223.6)			$	(901.5)			$	1,548.9


	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



Impacted Condensed Consolidated Balance Sheet Items	September 30, 2018 As Reported		Impacts of ASC 606 Adoption			October 1, 2018 After 606 Adoption
ASSETS
Trade accounts receivable, net of allowances	$	580.7	$	29.1		$	609.8
Other current assets	100.2		21.8			122.0
Property, plant and equipment, net	328.3		(5.6		)	322.7
Deferred income taxes	35.0		5.6			40.6
Other assets	75.1		3.4			78.5
LIABILITIES
Deferred revenue	40.0		47.5			87.5
Other current liabilities	67.1		0.8			67.9
Other long-term liabilities	40.4		10.9			51.3
SHAREHOLDERS’ EQUITY
Retained earnings	1,876.2		(4.9		)	1,871.3



	Quarter Ended March 31, 2019							Year to Date Ended March 31, 2019
Impacted Condensed Consolidated Statement of Income Items	As Reported		Impacts of ASC 606			Balances without ASC 606		As Reported		Impacts of ASC 606			Balances without ASC 606
Product sales and service net revenue¹	$	636.5	$	28.1		$	608.4	$	1,248.1	$	52.1		$	1,196.0
Rental net revenue¹	77.7		(24.4		)	102.1		149.6		(49.1		)	198.7
Cost of goods sold²	322.7		5.8			316.9		639.0		11.2			627.8
Rental expenses²	38.9		(5.3		)	44.2		76.1		(10.9		)	87.0
Income tax expense (benefit)	11.2		0.5			10.7		18.6		0.4			18.2
Net income	49.5		2.7			46.8		91.7		2.3			89.4



	March 31, 2019
Impacted Condensed Consolidated Balance Sheet Items	As Reported		Impacts of ASC 606			Balances without ASC 606
ASSETS
Trade accounts receivable, net of allowances	$	581.8	$	30.7		$	551.1
Other current assets	118.4		17.2			101.2
Property, plant and equipment, net	313.3		(6.1		)	319.4
Deferred income taxes	34.0		5.6			28.4
Other assets	94.4		3.4			91.0
LIABILITIES
Deferred revenue	81.7		41.6			40.1
Other current liabilities	65.4		0.7			64.7
Other long-term liabilities	73.2		10.8			62.4
SHAREHOLDERS’ EQUITY
Retained earnings	1,935.2		(4.9		)	1,940.1


	Contract Liabilities
Balance as of October 1, 2018	$	47.8
Revenue deferred due to ASC 606 initial adoption	58.4
Deferred revenue acquired	10.7
New revenue deferrals	282.1
Revenue recognized upon satisfaction of performance obligations	(273.2)
Balance as of September 30, 2019	125.8
Deferred revenue acquired	2.7
New revenue deferrals	168.4
Revenue recognized upon satisfaction of performance obligations	(166.2)
Balance as of March 31, 2020	$	130.7



	Contract Liabilities
Balance as of September 30, 2018	$	47.8
Revenue deferred due to ASC 606 initial adoption	58.4
New revenue deferrals	114.3
Revenue recognized upon satisfaction of performance obligations	(117.8		)
Balance as of March 31, 2019	$	102.7


•	~~$1,462.5 million senior secured Term Loan A facility (“TLA Facility”), maturing in September 2021~~


	March 31, 2020		September 30, 2019
Inventories, net of reserves:
Finished products	$	114.3	$	120.5
Work in process	42.7		42.4
Raw materials	108.5		106.7
Total inventories, net of reserves	$	265.5	$	269.6

Accumulated amortization of software and other intangible assets	$	602.2	$	597.0

Investments included in Other assets	$	47.7	$	51.1



	March 31, 2019		September 30, 2018
Allowance for possible losses and discounts on trade receivables	$	22.1	$	21.8

Inventories, net of reserves:
Finished products	$	142.7	$	139.7
Raw materials and work in process	151.1		152.0
Total inventories, net of reserves	$	293.8	$	291.7

Accumulated depreciation of property, plant and equipment	$	578.2	$	586.7

Accumulated amortization of software and other intangible assets	$	587.3	$	532.8

Investments included in Other assets	$	50.8	$	24.6

Preferred stock, without par value:
Shares authorized	1,000,000		1,000,000
Shares issued	None		None

Common stock, without par value:
Shares authorized	199,000,000		199,000,000
Shares issued	88,457,634		88,457,634
Shares outstanding	66,771,727		67,256,112

Treasury shares	21,685,907		21,201,522



	March 31, 2019		September 30, 2018
Current portion of long-term debt	$	33.2	$	0.1
Securitization Program	110.0		110.0
Note Securitization Facility	81.5		72.4
Total Short-term borrowings	$	224.7	$	182.5

Revolving credit facility, matures September 2021	$	5.0	$	—
Senior secured Term Loan A, long-term portion, matures September 2021	998.1		1,029.7
Senior unsecured 5.75% notes due on September 1, 2023	421.2		420.8
Senior unsecured 5.00% notes due on February 15, 2025	296.7		296.4
Unsecured 7.00% debentures due on February 15, 2024	13.5		13.6
Unsecured 6.75% debentures due on December 15, 2027	29.6		29.5
Other	0.3		0.4
Total Long-term debt	$	1,764.4	$	1,790.4

Total debt	$	1,989.1	$	1,972.9


•	~~Revolving Credit Facility providing borrowing capacity of up to $700.0 million, maturing in September 2021~~



	March 31, 2019		September 30, 2018
Senior secured Term Loan A	$	999.5	$	991.9
Senior unsecured 5.75% notes due on September 1, 2023	438.6		437.3
Senior unsecured 5.00% notes due on February 14, 2025	305.3		294.0
Unsecured debentures	44.1		42.9
Total	$	1,787.5	$	1,766.1


Supplemental information:	March 31, 2020
Weighted-average discount rate	3.3	%
Weighted-average remaining lease term in years	4.8


Fiscal Year	Amount
Remaining 2020	$	12.7
2021	22.5
2022	17.2
2023	12.1
2024	7.3
2025	4.8
Thereafter	10.2
Total lease payments	86.8
Less: imputed interest	(9.6)
Total lease liability	$	77.2


	Three Months Ended March 31						Six Months Ended March 31			Condensed Consolidated Statements of Income Item
	2020		2019		2020		2019
Service cost	$	0.4	$	0.4	$	0.8	$	0.7	Cost of goods sold
Service cost	0.8		0.7		1.6		1.5		Selling and administrative expenses
Interest cost	2.4		3.2		4.9		6.3		Investment income (expense) and other, net
Expected return on plan assets	(3.7)		(3.7)		(7.4)		(7.4)		Investment income (expense) and other, net
Amortization of unrecognized prior service cost, net	—		—		0.1		—		Investment income (expense) and other, net
Amortization of net loss	1.6		0.6		3.1		1.2		Investment income (expense) and other, net
Settlement charge	8.5		—		8.5		—		Investment income (expense) and other, net
Net pension expense	$	10.0	$	1.2	$	11.6	$	2.3


	Three Months Ended March 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:
Foreign exchange forward contracts	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest rate swaps	(39.7)		(0.4)		(40.1)		9.2		(30.9)		(3.9)		(30.9)		(34.8)
Cross-currency swaps	10.2		—		10.2		(2.4)		7.8		8.5		7.8		16.3
Derivative instruments designated as hedges total	(29.5)		(0.4)		(29.9)		6.8		(23.1)		4.6		(23.1)		(18.5)
Foreign currency translation adjustment	(31.6)		—		(31.6)		—		(31.6)		(122.3)		(31.6)		(153.9)
Change in pension and postretirement defined benefit plans	0.1		(10.3)		(10.2)		2.6		(7.6)		(43.6)		(7.6)		(51.2)
Total	$	(61.0)	$	(10.7)	$	(71.7)	$	9.4	$	(62.3)	$	(161.3)	$	(62.3)	$	(223.6)



	Quarter Ended March 31, 2018
	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:
Foreign exchange forward contracts	$	0.4		$	0.4		$	0.8	$	(0.2	)	$	0.6	$	(0.8	)	$	0.6	$	(0.2	)
Interest rate swaps	9.3			(0.9		)	8.4		(1.1		)	7.3		8.5			7.3		15.8
Derivative instruments designated as hedges total	9.7			(0.5		)	9.2		(1.3		)	7.9		7.7			7.9		15.6
Foreign currency translation adjustment	16.5			—			16.5		—			16.5		(75.2		)	16.5		(58.7		)
Change in pension and postretirement defined benefit plans	(0.1		)	1.0			0.9		(0.1		)	0.8		(32.2		)	0.8		(31.4		)
Total	$	26.1		$	0.5		$	26.6	$	(1.4	)	$	25.2	$	(99.7	)	$	25.2	$	(74.5	)



	Accumulated other comprehensive income (loss)
	Balances as of September 30, 2018			Impacts of ASU 2018-02 Adoption as of October 1, 2018			Net activity for Year to Date Ended March 31, 2019			Balances as of March 31, 2019
Derivative instruments designated as hedges:
Foreign exchange forward contracts	$	0.2		$	—		$	0.2		$	0.4
Interest rate swaps	18.3			0.8			(13.8		)	5.3
Cross-currency swaps	(1.7		)	—			8.0			6.3
Derivative instruments designated as hedges total	16.8			0.8			(5.6		)	12.0
Foreign currency translation adjustment	(105.3		)	—			(17.2		)	(122.5		)
Change in pension and postretirement defined benefit plans	(24.5		)	(6.2		)	0.9			(29.8		)
Total	$	(113.0	)	$	(5.4	)	$	(21.9	)	$	(140.3	)



	Year to Date Ended March 31, 2018
	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:
Foreign exchange forward contracts	$	(0.5	)	$	0.8		$	0.3	$	(0.1	)	$	0.2	$	(0.4	)	$	0.2	$	(0.2	)
Interest rate swaps	16.0			(1.7		)	14.3		(3.2		)	11.1		4.7			11.1		15.8
Derivative instruments designated as hedges total	15.5			(0.9		)	14.6		(3.3		)	11.3		4.3			11.3		15.6
Foreign currency translation adjustment	22.6			—			22.6		—			22.6		(81.3		)	22.6		(58.7		)
Change in pension and postretirement defined benefit plans	(0.2		)	2.2			2.0		(0.4		)	1.6		(33.0		)	1.6		(31.4		)
Total	$	37.9		$	1.3		$	39.2	$	(3.7	)	$	35.5	$	(110.0	)	$	35.5	$	(74.5	)



	Quarter Ended March 31						Year to Date Ended March 31
	2019			2018			2019			2018
Net revenue:
Patient Support Systems	$	359.6		$	355.0		$	700.6		$	689.4
Front Line Care	243.1			237.9			476.5			462.5
Surgical Solutions	111.5			117.6			220.6			228.3
Total net revenue	$	714.2		$	710.5		$	1,397.7		$	1,380.2

Divisional income:
Patient Support Systems	$	69.8		$	67.2		$	126.6		$	120.6
Front Line Care	67.1			60.5			127.0			115.9
Surgical Solutions	15.1			15.5			26.4			25.2

Other operating costs:
Non-allocated operating costs, administrative costs, and other	67.2			60.2			116.4			113.1
Special charges	3.5			36.9			11.5			50.4
Operating profit	81.3			46.1			152.1			98.2

Interest expense	(21.8		)	(24.2		)	(43.1		)	(47.3		)
Investment income and other, net	1.2			(0.4		)	1.3			1.4
Income before income taxes	$	60.7		$	21.5		$	110.3		$	52.3



	Quarter Ended March 31				Change		Constant Currency		U.S.		OUS
	Adjusted 2019¹		2018		Change		Constant Currency		Change		Change		Constant Currency
Net Revenue:
Product sales and service	$	608.4	$	610.7	(0.4	)%	1.9	%	5.2	%	(9.5	)%	(3.7	)%
Rental revenue	102.1		99.8		2.3	%	3.2	%	4.2	%	(11.2	)%	(4.3	)%
Total net revenue	$	710.5	$	710.5	—	%	2.1	%	5.0	%	(9.6	)%	(3.8	)%

Net Revenue:
Patient Support Systems	$	357.0	$	355.0	0.6	%	2.6	%	6.5	%	(13.3	)%	(7.5	)%
Front Line Care	242.0		237.9		1.7	%	3.2	%	3.8	%	(2.8	)%	2.8	%
Surgical Solutions	111.5		117.6		(5.2	)%	(1.8	)%	2.2	%	(11.6	)%	(5.2	)%
Total net revenue	$	710.5	$	710.5	—	%	2.1	%	5.0	%	(9.6	)%	(3.8	)%

OUS - Outside of the United States
¹Adjusted to remove the impacts of ASC 606. See Note 1, Summary of Significant Accounting Policies, and Note 2, Revenue Recognition, of our Condensed Consolidated Financial Statements in this Form 10-Q for additional information on the impact of adopting ASC 606.



									U.S.		OUS
	Year to Date Ended March 31				Change As Reported		Constant Currency		Change As Reported		Change As Reported		Constant Currency
	2019		2018		Change As Reported		Constant Currency		Change As Reported		Change As Reported		Constant Currency
Net Revenue:
Product sales and service	$	1,248.1	$	1,185.9	5.2	%	6.9	%	11.4	%	(5.2	)%	(0.7	)%
Rental revenue	149.6		194.3		(23.0	)%	(22.4	)%	(24.5	)%	(11.1	)%	(6.2	)%
Total net revenue	$	1,397.7	$	1,380.2	1.3	%	2.8	%	4.7	%	(5.5	)%	(1.0	)%

Net Revenue:
Patient Support Systems	$	700.6	$	689.4	1.6	%	3.0	%	4.7	%	(6.0	)%	(1.3	)%
Front Line Care	476.5		462.5		3.0	%	4.3	%	4.9	%	(1.1	)%	3.0	%
Surgical Solutions	220.6		228.3		(3.4	)%	(0.9	)%	4.0	%	(9.7	)%	(5.1	)%
Total net revenue	$	1,397.7	$	1,380.2	1.3	%	2.8	%	4.7	%	(5.5	)%	(1.0	)%

OUS - Outside of the United States



	Year to Date Ended March 31, 2019									Year to Date Ended March 31, 2018
	Operating Margin¹		Income Before Income Taxes		Income Tax Expense		Diluted EPS			Operating Margin		Income Before Income Taxes			Income Tax Expense			Diluted EPS¹
GAAP Basis	10.9	%	$	110.3	$	18.6	$	1.36		7.1	%	$	52.3		$	(64.5	)	$	1.73
Adjustments:
Acquisition and integration costs	0.1	%	1.8		0.4		0.02			0.3	%	4.6			1.2			0.05
Acquisition-related intangible asset amortization	3.8	%	53.0		12.3		0.60			3.9	%	53.7			13.5			0.60
Regulatory compliance costs	0.4	%	6.1		1.6		0.07			0.1	%	1.2			0.3			0.01
Litigation expenses	—	%	—		—		—			0.4	%	5.8			1.5			0.06
Special charges	0.8	%	11.5		2.8		0.13			3.7	%	50.4			13.2			0.55
Tax law and method changes	—	%	—		1.0		(0.02		)	—	%	—			68.8			(1.01		)
Gain on disposition	—	%	—		—		—			—	%	(1.0		)	—			(0.01		)
Adjusted Basis	16.1	%	$	182.7	$	36.7	$	2.16		15.5	%	$	167.0		$	34.0		$	1.97
¹ Total does not add due to rounding.