Table of ~~Voalte on a pro forma basis would not be significant to any of the periods presented in our consolidated financial statements.~~Conten t s

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


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

Goodwill in connection with the Voalte acquisition of $98.5 million was recognized at the acquisition date related to the excess of the purchase price over the estimated fair value of the assets acquired and the liabilities assumed, ~~are still considered~~reflecting the value associated with enhancing synergies, accelerating our leadership in care communications platform and advancing our digital and mobile communications platform and capabilities. The goodwill was allocated entirely to ~~be preliminary, however we do~~our Patient Support Systems segment and is not ~~expect further adjustments to be significant.~~

Amount
Trade accounts receivable, net of allowances $ 5.8
Inventories 0.1
Other current assets 2.7
Property, plant and equipment 0.2
Goodwill 98.1
Non-competition agreements¹
2.7
Trade name¹
13.5
Customer relationships¹
29.5
Developed technology¹
56.0
Trade accounts payable (1.7 )
Deferred revenue (10.3 )
Other current liabilities (5.6 )
Deferred income taxes (10.0 )
Total purchase price, net of cash acquired $ 181.0
deductible for tax purposes in the United States.

The estimated useful lives of the acquired intangible assets are 5 years for non-competition agreements and between 8 and 1210 years for trade name, customer relationships and developed technology.

Videomed

~~Goodwill in connection with the Voalte acquisition was allocated entirely to our Patient Support Systems segment, which is not deductible for tax purposes in the United States.~~

T~~he excess of the purchase price over the estimated fair value of the assets acquired and the liabilities assumed totaled $98.1 million, which was recognized as goodwill at~~On July 21, 2020, we closed on the acquisition ~~date, reflecting the value associated with enhancing synergies, accelerating our leadership in care communications and advancing our digital and mobile communications platform and capabilities.~~

~~We recognized $8.8 million and $10.1 million~~ of ~~acquisition and integration costs, including $2.0 million related to contingent consideration, during the quarter and year to date periods ended June 30, 2019 in Selling and administrative expenses.~~

~~On August 1, 2019, we entered into a definitive agreement to acquire Breathe Technologies, Inc.~~Videomed S.r.l. (“Videomed”), a developer ~~and manufacturer~~ of ~~a patented wearable, non-invasive ventilation technology that supports improved patient mobility,~~integrated video solutions in operating rooms, for cash consideration of ~~$130.0 million. We expect the transaction to close during our fiscal fourth quarter of 2019,~~$9.4 million, subject to ~~customary closing conditions.~~certain post-closing adjustments. Additionally, contingent consideration is payable up to $3.7 million based upon the achievement of certain commercial milestones. The results of Videomed will be included in the Surgical Solutions segment from the date of acquisition. It is not practical to disclose the preliminary purchase price allocation for this transaction given the short period of time between the acquisition date and the filing of this report.

Asset Acquisition

On October 1, 2018, we acquired the right to use patented technology and certain related assets from a supplier to our Front Line Care segment. We paid $17.1 million of cash and committed to guaranteed minimum future royalty payments of $22.0 million, which are presented in Other intangible assets and software, net and are being amortized over the 7-year term of the agreement.

~~Dispositions~~Disposition

In fiscal 2017, we sold our Völker business. In the first quarter of fiscal 2018, we recorded a gain of $1.0 million attributable to the final working capital settlement associated with the Völker transaction.

During the second quarter of fiscal 2018, we entered into an agreement to convey certain net assets related to the Company’s third-party rental business, which is comprised of purchased moveable medical equipment that can be rented to customers, to Universal Hospital Services, Inc. (“UHS”) in exchange for UHS’s agreement to dismiss its previously disclosed litigation against the Company (“Settlement Agreement”). During the second quarter of fiscal 2018, we recorded a loss of $23.4 million in Special charges, which includes approximately $20.4 million related to the non-cash loss reserve for the assets that were conveyed, and other Settlement Agreement related costs of approximately $3.0 million. During the third quarter of fiscal 2018, we recorded an additional loss of $0.6 million in Special charges related to additional Settlement Agreement costs. The third-party rental business was part of our Patient Support Systems segment. The transaction closed during the third quarter of fiscal 2018.

InOn August 2, 2019, we completed a ~~divestiture~~disposition to sell certain of our surgical consumable products and related assets for a purchase price of ~~$170.0~~$166.6 million, inwhich is net of cash ~~subject to certain post-closing adjustments, pursuant to a stock purchase agreement dated July 9, 2019. We expect to record a~~and working capital adjustments. In fiscal 2019, we recorded pre-tax loss on this ~~divestiture~~disposition of ~~approximately $20.0~~$15.9 million, including transaction costs of ~~approximately~~ $4.0 ~~million. As of~~million, in Investment income (expense) and other, net. During the three and nine months ended June 30, ~~2019, the evaluation~~2020, we recorded additional losses of ~~the recoverability of the value of the asset group~~$3.9 million and $4.2 million related to this transaction primarily due to income taxes. See Note 11. Income Taxes for ~~this~~further information. This disposition did not ~~result in any impairment.~~ have a significant effect on our operations or financial results, and, therefore, has not been reported as a discontinued operation.

~~Note 5. Goodwill and Indefinite-Lived Intangible Assets~~

~~Goodwill~~

~~The following summarizes goodwill activity by reportable segment:~~

Patient Support Systems Front Line Care Surgical Solutions Total
Balances as of September 30, 2018
Goodwill $ 544.4
$ 1,370.6
$ 296.1
$ 2,211.1
Accumulated impairment losses (472.8 ) —
—
(472.8 )
Goodwill, net as of September 30, 2018 71.6
1,370.6
296.1
1,738.3

Changes in goodwill in the period:

Goodwill related to acquisition 98.1
—
—
98.1
Currency translation effect (1.0 ) (2.1 ) (2.5 ) (5.6 )

Balances as of June 30, 2019

Goodwill 641.5
1,368.5
293.6
2,303.6
Accumulated impairment losses (472.8 ) —
—
(472.8 )
Goodwill, net as of June 30, 2019 $ 168.7
$ 1,368.5
$ 293.6
$ 1,830.8

As discussed in Note 14, we operate in three reportable business segments. Goodwill impairment testing is performed at the reporting unit level. Goodwill is assigned to reporting units at the date the goodwill is initially recorded and is reallocated as necessary based on the restructuring

Table of reporting units over time. Once goodwill is assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill.Conten t s

Testing for goodwill impairment is performed annually, or on an interim basis upon the occurrence of a triggering event or change in circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The annual evaluation of goodwill performed during the third quarter of fiscal 2019 did not result in any impairment.

~~Indefinite-Lived Intangible Assets~~

We have various indefinite-lived intangible assets representing trade names with a carrying value of $466.4 million as of June 30, 2019 and $466.9 million as of September 30, 2018. Testing for indefinite-lived intangible asset impairment is performed annually, or on an interim basis upon the occurrence of a triggering event or change in circumstances that would more likely than not reduce the fair value of an indefinite-lived intangible asset below its carrying amount. The annual evaluation of indefinite-lived intangible assets performed during the third quarter of fiscal 2019 did not result in any impairment.

Note 6.5. Financing Agreements

~~Total debt consists of the following:~~

June 30,
2019 September 30,
2018
Current portion of long-term debt $ 69.7
$ 0.1
Securitization Program 109.4
110.0
Note Securitization Facility 67.1
72.4
Total Short-term borrowings $ 246.2
$ 182.5

Revolving credit facility, matures September 2021 $ 100.0
$ —
Senior secured Term Loan A, long-term portion, matures September 2021 962.4
1,029.7
Senior unsecured 5.75% notes due on September 1, 2023 421.4
420.8
Senior unsecured 5.00% notes due on February 15, 2025 296.8
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 $ 1,824.0
$ 1,790.4

Total debt $ 2,070.2
$ 1,972.9

Short-Term Borrowings

Securitization Facilities

In ~~May 2019,~~April 2020, we renewed our 364-day accounts receivable securitization program (the “Securitization ~~Program”~~Facility”) with certain financial institutions for borrowings up to $110.0 million. We also renewed our additional 364-day facility for borrowings up to $90.0 million (the “Note Securitization Facility”) in April 2020. The terms and conditions of the renewed April 2020 facilities are substantially similar to the May ~~2019.~~2019 facilities. Under the terms of each of the Securitization ~~Program~~Facility and Note Securitization Facility, certain of our accounts receivable secure the amounts borrowed and cannot be used to pay our other debts or liabilities. The amount of permissible borrowings outstanding is determined based on the amount of qualifying accounts receivable at any point in time. Borrowings outstanding under the Securitization ~~Program~~Facility and Note Securitization Facility bear interest at ~~the London Interbank Offered Rate (“LIBOR”)~~LIBOR plus the applicable margin of 0.8% and ~~1.0%~~0.9% and are included as a component of Short-term borrowings, while the accounts receivable securing these obligations remain as a component of Trade accounts receivable, net of allowances, in our Condensed Consolidated Balance Sheets. In addition, the agreements governing the Securitization Program and Note Securitization Facility contain various customary affirmative and negative covenants, and customary default and termination provisions. As of June 30, 2019, we were in compliance with these covenants and provisions.allowances.

We have outstanding senior unsecured notes of $300.0 million maturing February 2025 that bear interest at a fixed rate of 5.00% annually, and senior unsecured notes of $425.0 million maturing in September 2023 that bear interest at a fixed rate of 5.75% annually (collectively, the “Senior Notes”). These Senior Notes were issued at par in private placement offerings and are not registered securities on any public market. All of the notes were outstanding as of June 30, 2019. We are not required to make any mandatory redemption or sinking fund payments with respect to the Senior Notes, other than in certain circumstances such as a change in control or material sale of assets. We may redeem the 5.00% and 5.75% notes prior to maturity, but doing so would require payment of a premium on any amounts redeemed, the amount of which varies based on the timing of the redemption. The indentures governing the Senior Notes contain certain covenants which impose limitations on the amount of dividends we may pay and the amount of common shares we may repurchase in the open market, but we do not expect these covenants to affect our current dividend policy or open share repurchase program. The terms of these indentures also impose certain restrictions on the amount and type of additional indebtedness we may obtain in the future, as well as the types of liens and guarantees we may provide.Long-Term Debt

~~Our Senior Credit Agreement consists of two facilities as follows:~~


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


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

The TLA Facility and Revolving Credit Facility bear interest at variable rates which currently approximate 3.9%. These interest rates are based primarily on LIBOR, but under certain conditions could also be based on the U.S. Federal Funds Rate or the U.S. Prime Rate, at our option. We are able to voluntarily prepay outstanding loans under the TLA Facility at any time. In the quarter ended June 30, 2019, we did not make any payments on the TLA Facility.

As of June 30, ~~2019,~~2020, there were $115.0 million outstanding borrowings ~~of $100.0 million~~ on the Revolving Credit Facility and available borrowing capacity was ~~$592.0~~$1,077.8 million after giving effect to ~~$8.0~~the $7.2 million of outstanding standby letters of credit. ~~The availability~~As of September 30, 2019, there were $80.0 million outstanding borrowings ~~under our~~on the Revolving Credit Facility, ~~is subject~~and available borrowing capacity was $1,112.8 million after giving effect to ~~our ability~~$7.2 million of outstanding standby letters of credit.

Long-Term Debt Redemption

In September 2019, we issued senior unsecured notes of $425.0 million maturing September 2027 that bear interest at a fixed rate of 4.375% annually and capitalized debt issuance costs of $6.3 million. On October 7, 2019, we used the ~~time~~net proceeds from the offering of ~~borrowing~~these notes, together with funds borrowed from the Revolving Credit Facility maturing in August 2024, to ~~meet certain specified conditions, including compliance with covenants contained in the Senior Credit Agreement.~~

~~The facilities provided by the Senior Credit Agreement are held with a syndicate of banks, which includes over 30 institutions. Our general corporate assets, including those of certain~~redeem all of our ~~subsidiaries, collateralize these obligations. The credit agreement governing these facilities contains financial covenants~~previously outstanding senior unsecured 5.75% notes due September 2023 and to pay the prepayment premium of $12.2 million. We recorded a loss on extinguishment of debt of $15.6 million, which ~~specify a maximum secured net leverage ratio~~was comprised of the $12.2 million prepayment premium and ~~a minimum interest coverage ratio, which are defined in~~$3.4 million of debt issuance costs previously capitalized.

See Note 6. Financing Agreements within the ~~credit agreement. These financial covenants are measured at~~2019 Form 10-K for the ~~end of each quarter. For the quarter~~fiscal year ended ~~in December 31,~~September 30, 2019 and thereafter, the required maximum secured net leverage ratio is 3.00x and the required minimum interest coverage ratio is 4.00x. We were in compliance with all financial covenants under our financing agreements as of June 30, 2019.for further information.

Fair Value

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

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


	June 30, 2020		September 30, 2019
Senior unsecured 5.00% notes due on February 14, 2025	$	310.5	$	312.4
Senior unsecured 4.375% notes due on September 15, 2027	435.4		435.4
Unsecured debentures	47.0		48.1
Total	$	792.9	$	795.9

June 30,
2019 September 30,
2018
Senior secured Term Loan A $ 1,003.3
$ 991.9
Senior unsecured 5.75% notes due on September 1, 2023 439.6
437.3
Senior unsecured 5.00% notes due on February 14, 2025 309.7
294.0
Unsecured debentures 45.8
42.9
Total $ 1,798.4
$ 1,766.1

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

Table of Conten t s

Debt Covenants

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

Note 1.

~~Derivatives~~6. Derivative Instruments and Hedging ~~Activities~~Activity

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

Cash Flow Hedges

~~We are exposed~~To manage our exposure to market risk from fluctuations in interest ~~rates. We sometimes manage our exposure to~~rates, we enter into interest rate ~~fluctuations through the use of interest rate swaps.~~swaps that are designated as cash flow hedges. As of June 30, 2020, we had interest rate swap agreements with an aggregate notional amount of $750.0 million to hedge the variability of cash flows through August 2024 associated with a portion of the variable interest rate payments on outstanding borrowings under our Senior Credit Agreement. As of September 30, 2019, we had ~~five~~ interest rate swap agreements, with an aggregate notional amount of $750.0 million to hedge the variability of cash flows associated with a portion of the variable interest rate payments on outstanding borrowings under our Senior Credit Agreement through September 2021 on the Senior Credit Agreement. The interest rate swaps have effective start dates ranging between December 31, 2018 and September 8, 2020 and were designated as cash flow hedges. As of June 30, 2019, these swaps were in a net liability position with an aggregate fair value of $4.0 million which was classified as Other current liabilities. As of September 30, 2018, these swaps were in a net asset position with an aggregate fair value of $24.8 million, all of which were classified as Other assets. We classify fair value measurements on our interest rate swaps as Level 2, as described in Note 1.2021.

We are subject to variability in foreign currency exchange rates due to 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~~We enter into currency exchange ~~agreements~~contracts that are designated as cash flow hedges to manage our exposure arising from fluctuating exchange rates related to specific and projected transactions. We operate this program pursuant to documented corporate risk management policies and do not enter into derivative transactions for speculative purposes. The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an appropriate range of potential rate fluctuations to our assets, obligations, and projected results of operations denominated in foreign currencies. Our currency risk consists primarily of foreign currency denominated firm commitments and projected foreign currency denominated intercompany and third-party transactions. As of June 30, 2020, the notional amount of outstanding currency exchange contracts was $13.6 million. As of September 30, 2019, the notional amount of ~~open foreign~~outstanding currency exchange contracts was ~~$23.8 million. These contracts were in a net asset position reported in Other current assets with a fair value of $0.2~~$6.7 million. The maximum length of time over which we hedge transaction exposures is generally 15 months. Derivative gains and losses, initially reported as a component of Accumulated other comprehensive income (loss), are reclassified to earnings in the period when the transaction affects earnings.

Table of Conten t s

Net Investment Hedges

~~In July 2018,~~As of June 30, 2020, we ~~entered into two~~had cross-currency swap agreements, with an aggregate notional amount of $198.3 million, to hedge the variability of net assets due to changes in the U.S. dollar-Euro spot exchange rates through July 2023. These cross-currency swaps are designated as net investment hedges of subsidiaries using the Euro as their functional currency. We entered into these cross-currency swaps to mitigate changes in net assets due to changes in U.S. dollar-Euro spot exchange rates. As of June 30, 2019, these swaps were in a net asset position with an aggregate fair value of $9.4 million which was classified as Other assets. As of September 30, 2018, these swaps were in a net liability position with an aggregate fair value of $1.2 million which was classified as Other current liabilities.

~~We classify fair value measurements on our cross-currency swaps as Level 2, as described in Note 1.~~ We assess hedge effectiveness under the spot-to-spot method and record changes in fair value attributable to the translation of foreign currencies through Accumulated other comprehensive income (loss). We amortize the impact of all other changes in fair value of the ~~derivative~~derivatives through Interest expense, which was income of $1.3 million and $3.9 million for both the ~~quarter~~three and ~~year to date periods~~nine months ended June 30, 2020 and 2019.

Fair Value

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


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

Undesignated Derivative Instruments

We use forward contracts to mitigate the foreign exchange revaluation risk associated with recorded monetary assets and liabilities that are denominated in a non-functional currency. These derivative instruments are not formally designated as hedges and the terms of these instruments generally do not exceed one month. As of June 30, 2020, we had forward contracts not designated as hedges with aggregate notional amounts of $155.4 million. As of September 30, 2019, we had forward contracts not designated as hedges with an aggregate notional ~~amount~~amounts of ~~$95.7~~$76.7 million. ~~During the quarter~~The following table summarizes unrealized and ~~year to date periods ended June 30, 2019, we recognized unrealized~~realized gains ~~of $0.5 million~~ and losses ~~of $1.3 million~~for forward contracts not designated as hedges, which are recorded in Investment income (expense) and other, ~~net related~~net.


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

Note 7. Leases

Hillrom as the Lessee

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

Table of Conten t s

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

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


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

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

Balance Sheet Classification

June 30, 2020

Right-of-use assets

Other assets

75.3

Current lease liabilities

Other current liabilities

23.1

Non-current lease liabilities

Other long-term liabilities

56.8


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

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


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

Table of Conten t s

Disclosures Related to Periods Prior to Adopting the New Lease Guidance

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


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

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

Hillrom as the Lessor

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

Note 7.8. Retirement and Postretirement Plans

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

Quarter Ended June 30 Year to Date Ended June 30 Condensed Consolidated Statements of Income Item
2019 2018 2019 2018
Service cost $ 0.5
$ 0.4
$ 1.2
$ 1.1
Cost of goods sold
Service cost 0.6
0.8
2.1
2.5
Selling and administrative expenses
Interest cost 3.1
2.7
9.4
8.2
Investment income (expense) and other, net
Expected return on plan assets (3.7 ) (3.9 ) (11.1 ) (11.8 ) Investment income (expense) and other, net
Amortization of unrecognized prior service cost, net 0.1
0.1
0.1
0.1
Investment income (expense) and other, net
Amortization of net loss 0.7
1.1
1.8
3.3
Investment income (expense) and other, net
Net pension expense $ 1.3
$ 1.2
$ 3.5
$ 3.4


	Three Months Ended June 30						Nine Months Ended June 30			Condensed Consolidated Statements of Income Item
	2020		2019		2020		2019
Service cost	$	0.5	$	0.5	$	1.3	$	1.2	Cost of goods sold
Service cost	0.9		0.6		2.5		2.1		Selling and administrative expenses
Interest cost	1.9		3.1		6.8		9.4		Investment income (expense) and other, net
Expected return on plan assets	(3.4)		(3.7)		(10.8)		(11.1)		Investment income (expense) and other, net
Amortization of unrecognized prior service cost, net	—		0.1		0.1		0.1		Investment income (expense) and other, net
Amortization of net loss	1.9		0.7		5.0		1.8		Investment income (expense) and other, net
Settlement loss (gain)	(0.1)		—		8.4		—		Investment income (expense) and other, net
Net pension expense	$	1.7	$	1.3	$	13.3	$	3.5

Table of Conten t s

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

On March 9, 2020, we transferred pension assets totaling $40.6 million to purchase annuity contracts for a certain population of retirees with a third-party insurance company. As a result, we recognized a non-cash settlement loss of $8.4 million for the nine months ended June 30, 2020, which is recorded as a component of Investment income (expense) and other, net in the Condensed Consolidated Statements of Income.

We have defined contribution savings plans that cover substantially all U.S. employees and certain non-U.S. employees. The general purpose of these plans is to provide additional financial security in retirement by providing employees with an incentive to ~~make regular savings.~~regularly save a portion of their earnings. Our contributions to the plans are based on eligibility and, in some cases, employee contributions. Expense

under these plans was $7.3 million and $23.6 million for the three and nine months ended June 30, 2020, and $6.9 million and ~~$7.0~~$21.4 million ~~in each of~~for the ~~quarterly periods~~three and nine months ended June 30, ~~2019 and 2018. Expense under these plans was $21.4 million and $20.9 million in the year to date periods ended June 30, 2019 and 2018.~~2019.

Note 8.9. Other Comprehensive Income (Loss)

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


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

Table of Conten t s

Quarter Ended June 30, 2019
Other comprehensive income (loss) Accumulated other comprehensive income (loss)
Prior to
reclassification Reclassification
from Pre-tax Tax effect Net of tax Beginning
balance Net activity
Ending
balance²
Derivative instruments designated as hedges¹:

Foreign exchange forward contracts $ (0.8 ) $ 0.4
$ (0.4 ) $ 0.1
$ (0.3 ) $ 0.4
$ (0.3 ) $ 0.1
Interest rate swaps (9.0 ) (1.8 ) (10.8 ) 2.5
(8.3 ) 5.3
(8.3 ) (3.0 )
Cross-currency swaps (1.0 ) —
(1.0 ) 0.2
(0.8 ) 6.3
(0.8 ) 5.5
Derivative instruments designated as hedges total (10.8 ) (1.4 ) (12.2 ) 2.8
(9.4 ) 12.0
(9.4 ) 2.6
Foreign currency translation adjustment 4.1
—
4.1
—
4.1
(122.5 ) 4.1
(118.4 )
Change in pension and postretirement defined benefit plans —
0.7
0.7
(0.3 ) 0.4
(29.8 ) 0.4
(29.4 )
Total $ (6.7 ) $ (0.7 ) $ (7.4 ) $ 2.5
$ (4.9 ) $ (140.3 ) $ (4.9 ) $ (145.2 )


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

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


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

Table of Conten t s


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

¹See Note 66. Derivative Instruments and Hedging Activity for information regarding our hedging strategies.

²The estimated net amount of gains and losses ~~that are~~ reported in Accumulated other comprehensive income (loss) related to our derivative instruments designated as hedges as of June 30, ~~2019~~2020 that isare expected to be reclassified into earnings within the next 12 months is ~~$0.1~~expense of $7.7 million.

~~The following table represents the changes in Other comprehensive income (loss) and Accumulated other comprehensive income (loss) by component for the quarter ended June 30, 2018:~~

Quarter Ended June 30, 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 $ 1.1
$ (0.3 ) $ 0.8
$ (0.2 ) $ 0.6
$ (0.2 ) $ 0.6
$ 0.4
Interest rate swaps 3.7
(1.6 ) 2.1
(0.5 ) 1.6
15.8
1.6
17.4
Derivative instruments designated as hedges total 4.8
(1.9 ) 2.9
(0.7 ) 2.2
15.6
2.2
17.8
Foreign currency translation adjustment (43.9 ) —
(43.9 ) —
(43.9 ) (58.7 ) (43.9 ) (102.6 )
Change in pension and postretirement defined benefit plans 0.3
1.1
1.4
(0.4 ) 1.0
(31.4 ) 1.0
(30.4 )
Total $ (38.8 ) $ (0.8 ) $ (39.6 ) $ (1.1 ) $ (40.7 ) $ (74.5 ) $ (40.7 ) $ (115.2 )

~~The following table represents the changes in Other comprehensive income (loss) by component for the year to date period ended June 30, 2019:~~

Year to Date Ended June 30, 2019
Other comprehensive income (loss)

Prior to
reclassification

Reclassification
from
Pre-tax Tax effect Net of tax
Derivative instruments designated as hedges:
Foreign exchange forward contracts $ (0.3 ) $ 0.2
$ (0.1 ) $ —
$ (0.1 )
Interest rate swaps (23.2 ) (5.6 ) (28.8 ) 6.7
(22.1 )
Cross-currency swaps 9.3
—
9.3
(2.1 ) 7.2
Derivative instruments designated as hedges total (14.2 ) (5.4 ) (19.6 ) 4.6
(15.0 )
Foreign currency translation adjustment (13.1 ) —
(13.1 ) —
(13.1 )
Change in pension and postretirement defined benefit plans 0.1
1.8
1.9
(0.6 ) 1.3
Total $ (27.2 ) $ (3.6 ) $ (30.8 ) $ 4.0
$ (26.8 )

~~The following table represents the changes in Accumulated other comprehensive income (loss) by component for the year to date period ended June 30, 2019:~~

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 June 30, 2019 Balances as of June 30, 2019
Derivative instruments designated as hedges:
Foreign exchange forward contracts $ 0.2
$ —
$ (0.1 ) $ 0.1
Interest rate swaps 18.3
0.8
(22.1 ) (3.0 )
Cross-currency swaps (1.7 ) —
7.2
5.5
Derivative instruments designated as hedges total 16.8
0.8
(15.0 ) 2.6
Foreign currency translation adjustment (105.3 ) —
(13.1 ) (118.4 )
Change in pension and postretirement defined benefit plans (24.5 ) (6.2 ) 1.3
(29.4 )
Total $ (113.0 ) $ (5.4 ) $ (26.8 ) $ (145.2 )

~~The following table represents the changes in Other comprehensive income (loss) and Accumulated other comprehensive income (loss) by component for the year to date period ended June 30, 2018:~~

Year to Date Ended June 30, 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 $ 0.6
$ 0.5
$ 1.1
$ (0.3 ) $ 0.8
$ (0.4 ) $ 0.8
$ 0.4
Interest rate swaps 19.7
(3.3 ) 16.4
(3.7 ) 12.7
4.7
12.7
17.4
Derivative instruments designated as hedges total 20.3
(2.8 ) 17.5
(4.0 ) 13.5
4.3
13.5
17.8
Foreign currency translation adjustment (21.3 ) —
(21.3 ) —
(21.3 ) (81.3 ) (21.3 ) (102.6 )
Change in pension and postretirement defined benefit plans 0.1
3.3
3.4
(0.8 ) 2.6
(33.0 ) 2.6
(30.4 )
Total $ (0.9 ) $ 0.5
$ (0.4 ) $ (4.8 ) $ (5.2 ) $ (110.0 ) $ (5.2 ) $ (115.2 )

The following table represents the items reclassified out of Accumulated other comprehensive income (loss) and the related tax effects for the ~~quarters~~three months ended June 30, ~~2019~~2020 and ~~2018:~~2019:


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

Quarter Ended June 30
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
$ 0.4
$ —
$ 0.4
$ (0.3 ) $ —
$ (0.3 )
Interest rate swaps²
(1.8 ) 0.2
(1.6 ) (1.6 ) 0.4
(1.2 )
Derivative instruments designated as hedges total (1.4 ) 0.2
(1.2 ) (1.9 ) 0.4
(1.5 )
Change in pension and postretirement defined benefit plans³
0.7
(0.3 ) 0.4
1.1
(0.4 ) 0.7

Table of Conten t s

The following table represents the items reclassified out of Accumulated other comprehensive income (loss) and the related tax effects for the ~~year to date periods~~nine months ended June 30, ~~2019~~2020 and ~~2018:~~2019:


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

Year to Date Ended June 30
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
$ 0.5
$ (0.1 ) $ 0.4
Interest rate swaps²
(5.6 ) 1.3
(4.3 ) (3.3 ) 0.7
(2.6 )
Derivative instruments designated as hedges total (5.4 ) 1.3
(4.1 ) (2.8 ) 0.6
(2.2 )
Change in pension and postretirement defined benefit plans³
1.8
(6.8 ) (5.0 ) 3.3
(0.8 ) 2.5

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

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

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

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

InSpecial charges are incurred in connection with various transformative initiatives, exit activities, and organizational changes to improve our business alignment and cost structure ~~we recognized~~and are non-recurring in nature. Additional Special charges of $6.2 million and $14.0 million for the quarters ended June 30, 2019 and 2018 and $17.7 million and $64.4 million for the year to date periods ended June 30, 2019 and 2018. We continue to evaluate additional actions related to these programs and expect additional Special chargesare expected to be incurred related to restructuring and transformative initiatives in future ~~fiscal quarters. However, it~~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:~~

~~Legal Claim Recovery~~

~~During~~ The following table summarizes the ~~third quarter of fiscal 2018, we received a settlement payment for a legal claim and recorded a gain of $1.2 million in Special charges.~~

~~Disposition~~

~~During the second quarter of fiscal 2018, we recorded a loss of $23.4 million in~~ Special charges ~~related to~~recognized for the ~~UHS Settlement Agreement (Note 4). During the third quarter of fiscal 2018, we recorded an additional loss of $0.6 million in Special charges related to additional Settlement Agreement costs.~~three and nine months ended June 30.

~~Business Optimization and Realignment~~


Special Charges	Three Months Ended June 30									Nine Months Ended June 30
			2020			2019			2020			2019
Global information technology transformation	$	6.7		$	—		$	15.3		$	—
Exit activity costs:
Integration-related activities	2.4			4.7			9.2			11.2
Site consolidation	0.4			1.5			1.6			6.5
Total Special Charges	$	9.5		$	6.2		$	26.1		$	17.7

Global Information Technology Transformation

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

As part of this program, 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 June 30, ~~2019,~~2020, we incurred $9.0 million related to this ~~program resulted in charges of $4.7 million and $11.2 million,~~initiative of which ~~$3.2~~$2.3 million was capitalized and ~~$6.9~~$6.7 million ~~were~~was expensed in Special charges. For the nine months ended June 30, 2020, we incurred $28.3 million related to this initiative of which $13.0 million was capitalized and $15.3 million was expensed in Special charges. The objective of this initiative is to consolidate and streamline our key workstreams that interact with customers and vendors and support our financial reporting processes while maintaining the security of our data. The solutions designed under this initiative will be implemented over the next five to seven years.

Table of Conten t s

Integration-Related Activities

We incurred costs, including severance and benefit costs, associated with ~~the remainder related~~other business realignment and integration activities. We acquired several businesses in fiscal 2019 and 2020 as disclosed within Note 4. Business Combinations for which we also continue to ~~professional fees~~incur integration-related costs and ~~project management~~severance costs. These amounts compare to charges of $7.1 million and $26.3 million in the quarter and year to date periods ended June 30, 2018, of which $1.9 million and $12.7 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 the inception of this program, we have announced the closure of nine sites. In the quarter and year to date periods ended June 30, 2019, we recorded charges of $1.5 million and $6.5 million related to these efforts, of

which $0.9 million and $1.6 million were severance and benefit costs for the quarter and year to date periods ending June 30, 2019. The remaining costs primarily consisted of lease termination and facility closure costs. These amounts compare to charges of $7.5 million and $15.3 million in the quarter and year to date periods ended June 30, 2018, of which $1.3 million and $2.0 million were severance and benefit costs.

~~Since the inception of the Site Consolidation program through June 30, 2019, we have recognized aggregate Special charges of $57.3 million.~~

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~~nine months ended June 30, ~~2019~~2020 was as follows:

Balance as of September 30, 2018 $ 8.5
Expenses 10.1
Cash Payments (10.9 )
Reversals (1.2 )
Balance as of June 30, 2019 $ 6.5


Balance as of September 30, 2019	$	8.5
Expenses	4.9
Cash payments	(9.6)
Reversals	(0.5)
Balance as of June 30, 2020	$	3.3

Note ~~10.~~11. Income Taxes

The effective tax rate for the ~~quarter~~three months ended June 30, ~~2019~~2020 was ~~28.7%~~21.9% compared to ~~18.6%~~28.7% 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 unfavorably impacted by $3.0 million of net discrete tax expense, including $5.2 million of unfavorable uncertain tax positions primarily associated with a domestic tax reserve for a position related to the Transition Tax, offset by $2.2 million of other favorable discrete benefits. This compares to $2.7 million of discrete tax benefits in the comparable prior year period which primarily included excess tax benefits on deductible stock compensation and differences between our prior year tax provisions and our filed returns.

year. The effective tax rate for the ~~year to date period~~three months ended June 30, ~~2019~~2020 was ~~20.3%~~favorably impacted primarily by an increased projected benefit for the deduction attributed to foreign derived intangible income (“FDII”) as well as larger unfavorable impacts from discrete items in the prior comparable period.

The effective tax rate for the nine months ended June 30, 2020 was 17.8% compared to ~~(50.3)%~~20.3% 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~~nine months ended June 30, 2020 was favorably impacted primarily by ~~$1.5~~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 nine months ended June 30, 2020 was also favorably impacted by the reduction of the contingent consideration accrual of $8.4 million, ~~of net discrete tax benefits primarily related~~that is not subject to $2.6 million of excess tax benefits on deductible stock compensation and $3.3 million of other favorable discrete items, offset by $4.4 million of unfavorable changes to uncertain tax positions. This compares to $78.3 million of discrete tax benefitstax.

Included in the ~~prior year to date period primarily related to the Tax Act and~~third quarter of fiscal 2020 tax provision is additional tax expense of $4.1 million as a result of a change in ~~tax accounting method for historical currency losses.~~

~~On December 22, 2017,~~ the ~~U.S. government enacted comprehensive tax legislation commonly referred to as~~taxable gain from the ~~Tax Act. The Tax Act made broad and complex changes to the U.S. tax code which impacted the financial results~~disposition of certain of our ~~fiscal year ended September 30, 2018,~~surgical consumable products and continues to impact the financial results of the quarter and year to date periods ended June 30, 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%,related assets, 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~~occurred in August 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. 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.

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 Conten t s

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


	Three Months Ended June 30						Nine Months Ended June 30
	2020		2019		2020		2019
Net Income	$	93.9	$	32.6	$	180.6	$	124.3

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

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

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

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

Quarter Ended June 30 Year to Date Ended June 30
2019 2018 2019 2018
Net income $ 32.6
$ 45.2
$ 124.3
$ 162.0

Average basic shares outstanding 66,777
66,299
66,822
66,121
Add potential effect of exercise of stock options and other unvested equity awards 669
1,347
662
1,429
Average diluted shares outstanding 67,446
67,646
67,484
67,550

Net income per basic common share $ 0.49
$ 0.68
$ 1.86
$ 2.45

Net income per diluted common share $ 0.48
$ 0.67
$ 1.84
$ 2.40

Shares with anti-dilutive effect excluded from the computation of diluted EPS 258
273
299
249

~~Note 12. Common Stock~~

The stock-based compensation cost that was charged against income for all plans was $10.0 million and $5.8 million in the quarterly periods ended June 30, 2019 and 2018. The stock-based compensation cost that was charged against income for all plans was $26.9 million and $21.6 million in the year to date periods ended June 30, 2019 and 2018.

In connection with employees satisfying payroll tax withholding obligations for restricted stock distributions, we purchased 44,647 shares of our common stock for $4.2 million in the year to date period ended June 30, 2019, and 87,749 shares for $7.4 million in the year to date period ended June 30, 2018.

As of June 30, 2019, a cumulative total of $250.3 million of our share repurchase program had been used, leaving us with the ability to repurchase shares with a value of $89.7 million. This program does not have an expiration date and there are no plans to terminate this program in the future.

Note 13. Warranties and Guarantees

We routinely grant limited warranties on our products with respect to defects in material and workmanship. The terms of these warranties are generally one year, however, certain components and products have substantially longer warranty periods. We recognize a reserve with respect to these obligations at the time of product sale, with subsequent warranty claims recorded directly against the reserve. The amount of the warranty reserve is determined based on historical trend experience for the covered products. For more significant warranty-related matters ~~which~~that might require a broad-based correction, separate reserves are established when such events are identified and the cost of correction can be reasonably estimated.

~~A rollforward of changes in the~~The following summarizes accrued product warranty ~~reserve~~activity for the ~~periods covered in this report is as follows:~~three and nine months ended June 30, 2020.

Quarter Ended June 30 Year to Date Ended June 30
2019 2018 2019 2018
Balance as of beginning of period $ 24.5
$ 25.0
$ 20.5
$ 25.5
Provision for warranties in the period 9.9
2.1
19.1
9.6
Warranty reserves assumed¹
—
—
2.8
—
Warranty claims in the period (4.5 ) (3.8 ) (12.5 ) (11.8 )
Balance as of end of period $ 29.9
$ 23.3
$ 29.9
$ 23.3

¹~~As a result of the asset acquisition in our Front Line Care segment discussed in Note 4.~~


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

In the normal course of business, we enter into various other guarantees and indemnities in our relationships with suppliers, service providers, customers, business partners, and others. Examples of these arrangements would include guarantees of product performance, indemnifications to service providers, and indemnifications of our actions to business partners. These guarantees and indemnifications have not historically had a material impact on our financial condition or results of operations, nor do we expect them to, although indemnifications associated with our actions generally have no dollar limitations.

In conjunction with our acquisition and divestiture activities, we have entered into select guarantees and indemnifications of performance with respect to the fulfillment of commitments under applicable purchase and sale agreements. The arrangements generally indemnify the buyer or seller for damages associated with breach of contract, inaccuracies in representations, and warranties surviving the closing date and satisfaction of liabilities and commitments retained under the applicable contract. With respect to sale transactions, we also routinely enter into non-competition agreements for varying periods of time. Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have a materially adverse impact on our financial condition and results of operations.

Table of Conten t s

Note 14. Segment Reporting

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

•

•Patient Support Systems –globally provides 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 respiratory and a portfolio of vision care 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.

Our performance within each reportable segment continues to be measured on a divisional income basis before non-allocated operating and administrative costs, litigation, special charges, acquisition and integration costs, acquisition-related intangible asset amortization, and other unusual events. Divisional income generally represents the division’s gross profit, excluding acquisition-related intangible asset amortization, less its direct operating costs along with an allocation of manufacturing and distribution costs, research and development, and certain corporate functional expenses.

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

Quarter Ended
June 30 Year to Date Ended
June 30
2019 2018 2019 2018
Net revenue:
Patient Support Systems $ 374.5
$ 359.7
$ 1,075.1
$ 1,049.1
Front Line Care 244.4
239.0
720.9
701.5
Surgical Solutions 107.9
109.9
328.5
338.2
Total net revenue $ 726.8
$ 708.6
$ 2,124.5
$ 2,088.8

Divisional income:

Patient Support Systems $ 81.9
$ 71.3
$ 208.5
$ 191.9
Front Line Care 70.2
62.2
197.2
178.1
Surgical Solutions 17.8
11.4
44.2
36.6

Other operating costs:

Non-allocated operating costs, administrative costs, and other 93.8
52.4
210.2
165.5
Special charges 6.2
14.0
17.7
64.4
Operating profit 69.9
78.5
222.0
176.7

Interest expense (23.1 ) (24.2 ) (66.2 ) (71.5 )
Investment income (expense) and other, net (1.1 ) 1.2
0.2
2.6
Income before income taxes $ 45.7
$ 55.5
$ 156.0
$ 107.8

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

Table of Conten t s


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

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

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

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

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

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

Table of Conten t s

Note 15. Commitments and Contingencies

General

We are subject to various claims and contingencies arising out of the normal course of business, including those relating to governmental investigations and proceedings, commercial transactions, product liability, employee related matters, antitrust, safety, health, taxes, environmental and other matters. Litigation is subject to many uncertainties and the outcome of individual litigated matters is not predictable with assurance. It is possible that some litigation matters for which reserves have not been established could be decided unfavorably to us, and that any such unfavorable decisions could have a ~~material~~materially adverse effect on our financial condition, results of operations and cash flows.

~~Self Insurance~~Self-Insurance

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


~~Item 2.~~	Table of Conten t s 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 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,” “Hillrom,” “we,” “us,” or “our”) was incorporated on August 7, 1969 in the State of Indiana and is headquartered in Chicago, Illinois. We are a global medical technology leader whose approximately 10,000 employees have a single purpose: enhancing outcomes for patients and their caregivers by ~~advancing connected care.~~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 ~~care~~health devices, advanced ~~operating room~~ 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~~operating margin, ~~operating margin,~~income before taxes, 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, orcertain impacts of the COVID-19 pandemic, and other unusual events. We also exclude expenses associated with the amortization of purchased intangible assets. These adjustments are made to allow investors to evaluate and understand operating trends excluding their impact on operating income and earnings per diluted share.

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

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

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

Table of Conten t s

Results of Operations

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

•


•	~~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 June 30						Change As Reported		Constant Currency		Change As Reported		Change As Reported		Constant Currency
	2020		2019
Net Revenue:
Product sales and service	$	685.8	$	653.0	5.0	%	6.2	%	(6.5)	%	33.5	%	37.3	%
Rental revenue	81.7		73.8		10.6	%	10.9	%	12.2	%	0.3	%	2.5	%
Total net revenue	$	767.5	$	726.8	5.6	%	6.6	%	(4.2)	%	31.9	%	35.6	%

Net Revenue:
Patient Support Systems	$	447.8	$	374.5	19.6	%	20.6	%	9.0	%	56.4	%	60.8	%
Front Line Care	252.1		244.4		3.2	%	4.4	%	(5.9)	%	27.7	%	32.2	%
Surgical Solutions	67.6		107.9		(37.4)	%	(36.7)	%	(62.7)	%	(5.4)	%	(3.8)	%
Total net revenue	$	767.5	$	726.8	5.6	%	6.6	%	(4.2)	%	31.9	%	35.6	%

OUS - Outside of the United States

U.S. OUS
Quarter Ended
June 30
Change As
Reported

Constant
Currency

Change As
Reported

Change As
Reported

Constant
Currency
2019 2018
Net Revenue:
Product sales and service $ 653.0
$ 617.6
5.7 % 7.0 % 12.6 % (8.2 )% (4.3 )%
Rental revenue 73.8
91.0
(18.9 )% (18.5 )% (20.4 )% (7.2 )% (2.9 )%
Total net revenue $ 726.8
$ 708.6
2.6 % 3.8 % 7.2 % (8.1 )% (4.2 )%

Net Revenue:
Patient Support Systems $ 374.5
$ 359.7
4.1 % 5.2 % 8.3 % (8.1 )% (4.0 )%
Front Line Care 244.4
239.0
2.3 % 3.3 % 5.3 % (5.0 )% (1.4 )%
Surgical Solutions 107.9
109.9
(1.8 )% 0.2 % 8.3 % (12.2 )% (8.1 )%
Total net revenue $ 726.8
$ 708.6
2.6 % 3.8 % 7.2 % (8.1 )% (4.2 )%

OUS - Outside of the United States

~~The following table reflects sales growth data for the quarter ended~~Three Months Ended June 30, ~~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 reportable segments:

Quarter Ended
June 30 Change Constant
Currency U.S. OUS

Adjusted 2019¹
2018 Change Change Constant
Currency
Net Revenue:
Product sales and service $ 625.8
$ 617.6
1.3 % 2.6 % 6.0 % (8.2 )% (4.2 )%
Rental revenue 97.5
91.0
7.1 % 7.6 % 9.1 % (8.2 )% (3.5 )%
Total net revenue $ 723.3
$ 708.6
2.1 % 3.3 % 6.5 % (8.2 )% (4.2 )%

Net Revenue:
Patient Support Systems $ 371.2
$ 359.7
3.2 % 4.3 % 7.1 % (8.2 )% (4.0 )%
Front Line Care 244.2
239.0
2.2 % 3.2 % 5.1 % (5.0 )% (1.4 )%
Surgical Solutions 107.9
109.9
(1.8 )% 0.2 % 8.3 % (12.2 )% (8.1 )%
Total net revenue $ 723.3
$ 708.6
2.1 % 3.3 % 6.5 % (8.2 )% (4.2 )%

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
June 30 Change As
Reported Constant
Currency Change As
Reported Change As
Reported Constant
Currency
2019 2018
Net Revenue:
Product sales and service $ 1,901.1
$ 1,803.5
5.4 % 6.9 % 11.8 % (6.1 )% (1.8 )%
Rental revenue 223.4
285.3
(21.7 )% (21.1 )% (23.2 )% (10.1 )% (5.1 )%
Total net revenue $ 2,124.5
$ 2,088.8
1.7 % 3.1 % 5.6 % (6.3 )% (2.0 )%

Net Revenue:
Patient Support Systems $ 1,075.1
$ 1,049.1
2.5 % 3.7 % 5.9 % (6.7 )% (2.1 )%
Front Line Care 720.9
701.5
2.8 % 3.9 % 5.0 % (2.4 )% 1.5 %
Surgical Solutions 328.5
338.2
(2.9 )% (0.6 )% 5.5 % (10.4 )% (6.0 )%
Total net revenue $ 2,124.5
$ 2,088.8
1.7 % 3.1 % 5.6 % (6.3 )% (2.0 )%

OUS - Outside of the United States

~~The following table reflects sales growth data for the year to date period ended~~Three Months Ended June 30, 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 reportable segments:

Year to Date Ended
June 30 Change Constant
Currency U.S. OUS

Adjusted 2019¹
2018 Change Change Constant
Currency
Net Revenue:
Product sales and service $ 1,821.8
$ 1,803.5
1.0 % 2.6 % 5.0 % (6.2 )% (1.8 )%
Rental revenue 296.2
285.3
3.8 % 4.4 % 5.7 % (10.3 )% (5.3 )%
Total net revenue $ 2,118.0
$ 2,088.8
1.4 % 2.8 % 5.1 % (6.4 )% (2.0 )%

Net Revenue:
Patient Support Systems $ 1,070.4
$ 1,049.1
�� 2.0 % 3.4 % 5.4 % (6.8 )% (1.9 )%
Front Line Care 719.1
701.5
2.5 % 3.6 % 4.6 % (2.4 )% 1.3 %
Surgical Solutions 328.5
338.2
(2.9 )% (0.6 )% 5.5 % (10.4 )% (6.0 )%
Total net revenue $ 2,118.0
$ 2,088.8
1.4 % 2.8 % 5.1 % (6.4 )% (2.0 )%

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 ~~5.7% and 5.4%~~5.0% on a reported basis, ~~or 7.0%~~ and ~~6.9%~~6.2% on a constant currency basis, for the ~~quarter and year to date periods~~three months ended June 30, ~~2019~~2020 compared to the three months ended June 30, 2019. The increases were predominately driven by higher demand globally for Patient Support Systems and Front Line Care products, including those used to treat patients diagnosed with COVID-19, such as non-invasive ventilators sold under U.S. federal and state government contracts, and intensive care unit and med-surg beds, and vital sign monitoring products. These increases were partially offset by the decline in Surgical Solutions primarily due to the ~~reclassification~~disposition of ~~$23.5 million~~the surgical consumable products business in August 2019 and ~~$71.0 million of certain revenue streams~~lower U.S. demand for products across all reportable segments due to ~~Product sales~~challenges with hospital access for installation and services for the quarter and year to date periods ended June 30, 2019 as a result of adopting ASC 606, as well as strong new product growth in the United States and incremental revenue from our Voalte, Inc. (“Voalte”) acquisition. These growth drivers were partly offset by declines in our surgical original equipment manufacturer (“OEM”) business and recently divested third-party surface business.lower physician-office visits.

Rental revenue ~~decreased 18.9% and 21.7%~~increased 10.6% on a reported basis, ~~or 18.5%~~ and ~~21.1%~~10.9% on a constant currency basis, for the ~~quarter and year to date periods~~three months ended June 30, ~~2019~~2020 compared to the three months ended June 30, 2019. The increases were primarily due to increased deployment of beds within the ~~reclassification~~Patient Support Systems rental portfolio for COVID-19 patients.

Table of $23.5 million and $71.0 million of certain revenue streams to Product sales and services for the quarter and year to date periods ended June 30, 2019 as a result of adopting ASC 606 as well as the divestiture of our third-party rental business in fiscal 2018.Conten t s

Business Segment Revenue

~~Excluding the impact of adopting ASC 606,~~

Patient Support Systems revenue increased ~~2.1% and 1.4%~~19.6% on a reported basis, ~~or 3.3%~~ and ~~2.8%~~20.6% on a constant currency basis, for the ~~quarter and year to date periods~~three months ended June 30, ~~2019,~~2020 compared to the three months ended June 30, 2019. The increases were driven primarily by global sales growth due to ~~strong new product growth~~accelerated customer demand for intensive care unit and med-surg beds and higher U.S. rental revenues due to COVID-19. The increases during the ~~incremental revenue from our Voalte acquisition. These growth drivers~~three months ended June 30, 2020 were ~~partly~~partially offset by ~~declines in our surgical OEM business~~lower U.S. demand and ~~recently divested businesses.~~project delays for care communications offering that require hospital access for installation. Revenue for the ~~quarter and year to date periods~~three months ended June 30, ~~2019~~2020 does not reflect approximately ~~$3.3~~$0.2 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred revenue related to ~~the Voalte acquisition.~~recent acquisitions.

~~Business Segment Revenue~~

~~Patient Support Systems~~Front Line Care revenue increased ~~4.1% and 2.5%~~3.2% on a reported basis, ~~or 5.2%~~ and ~~3.7%~~4.4% on a constant currency basis, for the ~~quarter~~three months ended June 30, 2020 compared to the three months ended June 30, 2019. The increases were driven by non-invasive ventilator sales under U.S. federal and ~~year~~state government contracts related to ~~date periods~~COVID-19, and strong international demand for vital signs monitoring products, and physical assessment and diagnostic tools. These increases were primarily offset by declines in the United States due to lower demand of products used in hospitals and physician offices.

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

Net Revenue


(In millions)									U.S.		OUS
	Nine Months Ended June 30						Change As Reported		Constant Currency		Change As Reported		Change As Reported		Constant Currency
	2020		2019
Net Revenue:
Product sales and service	$	1,947.1	$	1,901.1	2.4	%	3.3	%	(0.1)	%	7.9	%	10.6	%
Rental revenue	228.6		223.4		2.3	%	2.6	%	3.2	%	(3.6)	%	(1.4)	%
Total net revenue	$	2,175.7	$	2,124.5	2.4	%	3.2	%	0.3	%	7.3	%	10.1	%

Net Revenue:
Patient Support Systems	$	1,174.0	$	1,075.1	9.2	%	10.0	%	8.3	%	12.0	%	15.3	%
Front Line Care	765.0		720.9		6.1	%	6.8	%	2.0	%	16.5	%	19.1	%
Surgical Solutions	236.7		328.5		(27.9)	%	(27.0)	%	(42.5)	%	(12.4)	%	(10.5)	%
Total net revenue	$	2,175.7	$	2,124.5	2.4	%	3.2	%	0.3	%	7.3	%	10.1	%

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

Consolidated Revenue

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

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

Table of Conten t s

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

Business Segment Revenue

Patient Support Systems revenue increased 9.2% on a reported basis, and 10.0% on a constant currency basis, for the nine months ended June 30, 2020 compared to the nine months ended June 30, 2019. The increases were driven by ~~strong~~global sales growth infor intensive care unit and med-surg ~~frames, clinical workflow solutions~~beds and ~~safe patient handling equipment in the United States, as well as incremental revenue from our Voalte acquisition. Growth in the United States was partly~~increased U.S. rental revenues due to COVID-19, recent acquisitions and new product launches. The increases were partially offset by lower ~~sales OUS due to large projects in the prior year.~~demand and project delays for care communications offering that require hospital access for installation. Revenue ~~was also higher by $3.3 million and $4.7 million~~ for the ~~quarter and year to date periods~~nine months ended June 30, 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 for as a multiple element arrangement and revenue was recognized upon delivery of hardware and software and the remainder when installation was complete. Revenue for the quarter and year to date periods ended June 30, 20192020 does not reflect approximately ~~$3.3~~$2.2 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred revenue related to ~~the Voalte acquisition.~~recent acquisitions.

Front Line Care revenue increased ~~2.3% and 2.8%~~6.1% on a reported basis, ~~or 3.3%~~ and ~~3.9%~~6.8% on a constant currency basis, for the ~~quarter and year to date periods~~nine months ended June 30, ~~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 $0.2 million and $1.8 million for the quarter and year to date periodsnine months ended June 30, ~~2019~~2019. The increases were primarily driven by non-invasive ventilator sales under ~~ASC 606 in comparison to previous accounting guidance. Revenue~~U.S. federal and state government contracts related to ~~certain~~COVID-19, vital signs monitoring products, ~~is required to be accelerated under ASC 606 compared to historical practice as we have no on-going performance obligation after delivery~~and physical assessment and diagnostic tools outside the United States. These increases were partially offset by declines in the United States of ~~the product to the customer, whereas previously this revenue was recognized over the period the Company was reimbursed by third parties.~~physical assessment and diagnostic tools used in hospitals and physician offices.

Surgical Solutions revenue decreased ~~1.8% and 2.9%~~27.9% on a reported basis, ~~or increased 0.2%~~ and ~~decreased 0.6%~~27.0% on a constant currency basis, for the ~~quarter and year~~nine months ended June 30, 2020 compared to ~~date periods~~the nine months ended June 30, 2019 ~~compared~~primarily due to the ~~prior year periods. These~~disposition of the surgical consumable products business in August 2019 and delays of capital projects and installations globally. The decreases were ~~mainly due to declines in our international OEM business.~~partially offset by higher demand for integrated operating tables during the first six months of the fiscal year.

Gross Profit


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

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

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

Quarter Ended June 30 Year to Date Ended June 30
2019 2018 2019 2018
Gross Profit
Product sales and service $ 320.7
$ 300.1
$ 929.8
$ 868.2
Percent of Related Net Revenue 49.1 % 48.6 % 48.9 % 48.1 %

Rental 35.9
47.9
109.4
149.8
Percent of Related Net Revenue 48.6 % 52.6 % 49.0 % 52.5 %

Total Gross Profit $ 356.6
$ 348.0
$ 1,039.2
$ 1,018.0
Percent of Total Net Revenue 49.1 % 49.1 % 48.9 % 48.7 %
¹Gross Profit is calculated as net product sales and service revenue and rental revenue less the related cost of goods sold or rental expenses as disclosed on the face of the Condensed Consolidated Statements of Income.

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

Product sales and service gross ~~margin~~profit increased 50by $42.0 million and ~~80 basis points~~$70.7 million, or 13.1% and 7.6%, for the ~~quarter~~three and ~~year~~nine months ended June 30, 2020 compared to ~~date periods~~the three and nine months ended June 30, 2019. The increases in gross profit were primarily driven by increased sales volume, which reflects the impact of COVID-19 on product demand and strategic changes including recent acquisitions and the disposition of the surgical consumable products business in August 2019. The increase in gross profit can also be attributed to lower costs due to improved efficiency in manufacturing and service activities during the three months ended June 30, 2020.

Rental gross profit increased $10.4 million and $8.3 million, or 29.0% and 7.6%, for the three and nine months ended June 30, 2020 compared to the three and nine months ended June 30, 2019 ~~compared to the prior year periods~~ primarily due to ~~product mix, cost reductions~~higher volumes and lower costs associated with servicing the ~~reclassification of products previously classified as~~Patient Support Systems rental ~~revenue~~portfolio due to increased rental durations due to hospital needs for COVID-19 patients.

Refer to the ~~adoption~~section titled “The Impacts of ~~ASC 606, offset by voluntary field corrective action costs~~COVID-19 on Hillrom” within Management’s Discussion & Analysis of ~~$5.6 million incurred to address two product performance matters outside~~Financial Condition and Results of ~~normal warranty provisions.~~Operations for further information.

~~Rental gross margin decreased 400~~

Table of Conten t s

Operating Expenses


(In millions)	Three Months Ended June 30									Nine Months Ended June 30
	2020			2019			2020			2019
Research and development expenses	$	34.4		$	34.1		$	100.3		$	103.9
Percent of Total Net Revenue	4.5		%	4.7		%	4.6		%	4.9		%

Selling and administrative expenses	$	202.3		$	217.1		$	609.0		$	613.3
Percent of Total Net Revenue	26.4		%	29.9		%	28.0		%	28.9		%

Acquisition-related intangible asset amortization	$	27.5		$	29.3		$	81.3		$	82.3
Percent of Total Net Revenue	3.6		%	4.0		%	3.7		%	3.9		%

Three and ~~350 basis points for the quarter and year to date periods ended~~Nine Months Ended June 30, ~~2019 compared~~2020 Compared to the ~~prior year periods primarily due to the reclassification of products previously classified as rental revenue due to the adoption of ASC 606.~~

Three and Nine Months Ended June 30, 2019

~~Operating Expenses~~

Quarter Ended June 30 Year to Date Ended June 30
2019 2018 2019 2018
Research and development expenses $ 34.1
$ 33.6
$ 103.9
$ 100.6
Percent of Total Net Revenue 4.7 % 4.7 % 4.9 % 4.8 %

Selling and administrative expenses $ 246.4
$ 221.9
$ 695.6
$ 676.3
Percent of Total Net Revenue 33.9 % 31.3 % 32.7 % 32.4 %

Research and development expenses ~~increased 1.5% and 3.3%~~remained relatively flat for the ~~quarter~~three months ended June 30, 2020 compared to the three months ended June 30, 2019. Research and ~~year~~development expenses decreased $3.6 million, or 3.5%, for the nine months ended June 30, 2020 compared to ~~date periods~~the nine months ended June 30, 2019 due to the timing of projects.

Selling and administrative expenses decreased $14.8 million and $4.3 million, or 6.8% and 0.7%, for the three and nine months ended June 30, 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 increased in the quarter and year to date periods~~nine months ended June 30, 2019 ~~compared~~primarily due to ~~the prior year periods. Selling and administrative expenses include acquisition-related intangible asset amortization,~~lower acquisition and integration costs in the fiscal year 2020, as well as lower travel expenses due to COVID-19, partially offset by increased information technology costs and ~~costs related to tax law changes totaling $44.5~~investments in emerging markets.

Acquisition-related intangible asset amortization decreased $1.8 million and ~~$105.4~~$1.0 million, or 6.1% and 1.2%, for the ~~quarter~~three and ~~year to date periods~~nine months ended June 30, ~~2019. Selling~~2020 compared to the three and ~~administrative expenses include acquisition-related intangible asset amortization, acquisition and integration costs and significant litigation related costs totaling $30.2 million and $95.5 million~~

for the quarter and year to date periods ended June 30, 2018. Excluding these items, as a percentage of total revenue, selling and administrative expenses increased 5.3% and 1.6% for the quarter and year to date periodsnine months ended June 30, 2019 ~~compared to the prior year periods due to our recent acquisition of Voalte and investments in our sales and marketing activities.~~

~~Business Segment Divisional Income~~

Quarter Ended
June 30 Change Year to Date Ended June 30 Change
2019 2018 2019 2018
Divisional income:

Patient Support Systems $ 81.9
$ 71.3
14.9 % $ 208.5
$ 191.9
8.7 %
Front Line Care 70.2
62.2
12.9 % 197.2
178.1
10.7 %
Surgical Solutions 17.8
11.4
56.1 % 44.2
36.6
20.8 %

~~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 14.9% and 8.7% for the quarter and year to date periods ended June 30, 2019 compared to the prior year periods~~ primarily due to ~~revenue growth~~the disposition of the surgical consumable products business in ~~the United States, and lower operating expenses as a percentage~~August 2019, offset by amortization of ~~revenue.~~

~~Front Line Care divisional income increased 12.9% and 10.7% for the quarter and year to date periods ended June 30, 2019 compared to the prior year periods~~purchased intangibles as a result of ~~revenue growth and higher margins from new products.~~recent acquisitions.

Surgical Solutions divisional income increased 56.1% and 20.8% for the quarter and year to date periods June 30, 2019 compared to the prior year period as a result of cost and operating expense reductions.

Special Charges and Other


(In millions)	Three Months Ended June 30						Nine Months Ended June 30
	2020		2019		2020		2019
Special charges	$	9.5	$	6.2	$	26.1	$	17.7

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

Quarter Ended June 30 Year to Date Ended June 30
2019 2018 2019 2018
Special charges $ 6.2
$ 14.0
$ 17.7
$ 64.4

Interest expense $ (23.1 ) $ (24.2 ) $ (66.2 ) $ (71.5 )
Investment income (expense) and other, net $ (1.1 ) $ 1.2
$ 0.2
$ 2.6

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

In connection with various transformative initiatives, exit activities, and organizational changes to improve our business alignment and cost structure, we recognized Special charges of $9.5 million and $26.1 million for the three and nine months ended June 30, 2020 compared to $6.2 million and ~~$14.0~~$17.7 million for the ~~quarters~~three and nine months ended June 30, ~~2019 and 2018, and $17.7 million and $64.4 million for the year to date periods ended June 30, 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 $5.8 million and $10.4 million, or 25.1% and 15.7%, for the ~~quarter~~three and ~~year~~nine months ended June 30, 2020 compared to ~~date periods~~the three and nine months ended June 30, 2019 due to ~~a decrease~~lower borrowing rates from the refinancing of senior unsecured notes of $425.0 million in ~~long-term~~September 2019 and declines in LIBOR impacting our variable rate debt ~~compared to~~under the ~~prior year periods~~Securitization and ~~the impact of our cross-currency swaps entered into in July 2018.~~Revolving Credit Facilities. 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 Conten t s

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

Investment income (expense) and other, net ~~decreased in~~for the ~~quarter and year to date periods~~nine months ended June 30, ~~2019~~2020 was expense of $10.5 million comprised primarily ~~due~~of the recognition of a non-cash pension plan settlement loss of $8.4 million, $2.0 million of losses related to our cost and equity method investments, and unfavorable movements in foreign exchange ~~rates~~rates. These balances were partially offset by litigation settlement award and ~~the gain we recorded~~government aid received under programs related to ~~the working capital settlement of the Völker disposition in the prior year period.~~COVID-19. See Note 3. Supplementary Financial Statement Information and Note 8. Retirement and Postretirement Plans for additional information.

Income Tax Expense

~~The effective tax rate for the quarter ended~~Three Months Ended June 30, ~~2019 was 28.7% compared to 18.6% for the comparable period in the prior year due primarily~~2020 Compared to the difference in the discrete tax benefits realized in each period. The current period rate was unfavorably impacted by $3.0 million of net discrete tax expense, including $5.2 million of unfavorable uncertain tax positions primarily associated with a domestic tax reserve for a position related to the Transition Tax, offset by $2.2 million of other favorable discrete

benefits. This compares to $2.7 million of discrete tax benefits in the comparable prior year period which primarily included excess tax benefits on deductible stock compensation and differences between our prior year tax provisions and our filed returns.Three Months Ended June 30, 2019

The effective tax rate for the ~~year to date period~~three months ended June 30, ~~2019~~2020 was ~~20.3%~~21.9% compared to ~~(50.3)%~~28.7% for the comparable period in the prior ~~year due~~year. The effective tax rate for the three months ended June 30, 2020 was favorably impacted primarily by increased projected benefits from the deduction attributed to ~~tax benefits recorded~~foreign derived intangible income (“FDII”) as well as larger unfavorable impacts from discrete items in the prior period related to the Tax Act. The year to date period rate was favorably impacted by $1.5 million of net discrete tax benefits primarily related to $2.6 million of excess tax benefits on deductible stock compensation and $3.3 million of other favorable discrete items, offset by $4.4 million of unfavorable changes to uncertain tax positions. This compares to $78.3 million of discrete tax benefitscomparable period. Included in the ~~prior year to date period primarily related to the Tax Act and~~third quarter of fiscal 2020 tax provision is additional tax expense of $4.1 million as a result of a change in ~~tax accounting method for historical currency losses.~~the taxable gain from the disposition of certain of our surgical consumable products and related assets, which occurred in August 2019.

The adjusted effective tax rate for the ~~quarter and year to date periods~~three months ended June 30, ~~2019~~2020 was ~~20.8% and 20.3%~~20.5% compared to ~~21.7% and~~ 20.8% for the comparable period in the prior ~~year periods.~~year. The lower ~~adjusted tax~~ rate in the current fiscal year is primarily due to higher favorable discrete items, including differences between our prior year tax provision and our filed returns.

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

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

The adjusted effective tax rate ~~from Tax Act legislation partially offset by~~for the nine months ended June 30, 2020 was 19.7% compared to 20.3% for the comparable period in the prior year. The lower rate in the current fiscal year is primarily due relate to higher favorable discrete items, including the excess tax benefits on deductible stock compensation.

Earnings per Share

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

Diluted earnings per share ~~decreased~~increased from ~~$0.67~~$0.48 to ~~$0.48~~$1.40 for the ~~quarter~~three months ended June 30, 2020 compared to the three months ended June 30, 2019 primarily due to higher volumes, expanded margins, lower tax rates and lower operating expenses.

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

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

Table of Conten t s

Business Segment Divisional Income


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

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

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

Patient Support Systems divisional income increased $45.7 million and $47.0 million, or 54.7% and 21.8%, for the three and nine months ended June 30, 2020 compared to the three and nine months ended June 30, 2019 primarily due to global revenue growth, which is primarily driven by COVID-19 demand for intensive care unit and med-surg beds, which expanded gross profit due to improved efficiency in manufacturing and service activities during the three months ended June 30, 2020. Recent acquisitions also contributed to revenues for the nine months ended June 30, 2020.The increases in divisional income were partially offset by an increase in ~~Selling~~investments to support growth initiatives.

Front Line Care divisional income increased $11.6 million and ~~administrative expenses in~~$34.0 million, or 16.7% and 17.1% for the ~~current quarter as~~three and nine months ended June 30, 2020 compared to the ~~prior year period. Selling~~three and ~~administrative expenses include acquisition-related intangible asset amortization, acquisition~~nine months ended June 30, 2019 primarily driven by global sales growth for patient diagnostic and ~~integration costs~~monitoring products and ~~costs~~our low acuity-vitals products, partially driven by COVID-19, and respiratory health sales under U.S. federal and state government contracts related to ~~tax law changes.~~COVID-19, which produced higher gross profits.

Surgical Solutions divisional income decreased $13.1 million and $13.2 million, or 73.6% and 29.9% for the three and nine months ended June 30, 2020 compared to the three and nine months ended June 30, 2019 primarily as a result of the disposition of the surgical consumable products business in August 2019 and lower customer demand primarily in the United States as health care customers prioritize the treatment of patients diagnosed with COVID-19, which is partially offset by higher gross margins and reductions in operating costs.

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 nine months ended June 30, 2020 and the three and nine months ended June 30, 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 Conten t s

Quarter Ended June 30, 2019 Quarter Ended June 30, 2018
Operating
Margin Income
Before
Income
Taxes Income Tax
Expense Diluted EPS Operating
Margin Income
Before
Income
Taxes Income Tax
Expense Diluted EPS
GAAP Basis 9.6 % $ 45.7
$ 13.1
$ 0.48
11.1 % $ 55.5
$ 10.3
$ 0.67
Adjustments:

Acquisition and integration costs and related fair value adjustments 1.9 % 13.9
2.8
0.16
0.4 % 2.7
0.7
0.03
Acquisition-related intangible asset amortization 4.0 % 29.3
7.4
0.33
3.7 % 26.8
7.4
0.28
Field corrective actions 0.8 % 5.6
1.4
0.06
— % —
—
—
Regulatory compliance costs 0.6 % 4.6
1.1
0.05
0.1 % 0.6
0.2
0.01
Special charges 0.9 % 6.2
1.5
0.07
2.0 % 14.0
4.1
0.14
Tax law and method changes — % —
(5.4 ) 0.08
— % 0.1
(1.1 ) 0.02
Adjusted Basis 17.8 % $ 105.3
$ 21.9
$ 1.23
17.3 % $ 99.7
$ 21.6
$ 1.15
Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019


	Three Months Ended June 30, 2020														Three Months Ended June 30, 2019
	Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS		Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS
GAAP Basis	17.6	%	$	120.2	$	26.3	$	1.40	9.6	%	$	45.7	$	13.1	$	0.48
Adjustments:
Acquisition and integration costs and related fair value adjustments¹	0.2	%	1.2		0.5		0.01		1.9	%	13.9		2.8		0.16
Acquisition-related intangible asset amortization ²	3.6	%	27.5		6.6		0.31		4.0	%	29.3		7.4		0.33

Field corrective actions ³	0.1	%	0.8		0.2		0.01		0.8	%	5.6		1.4		0.06
Regulatory compliance costs ⁴	0.5	%	4.1		1.1		0.04		0.6	%	4.6		1.1		0.05
Special charges⁵	1.2	%	9.5		2.5		0.10		0.9	%	6.2		1.5		0.07
Tax law and method changes ⁶	—	%	—		—		—		—	%	—		(5.4)		0.08


Gain on disposition of business ⁷	—	%	(0.3)		(4.2)		0.06		—	%	—		—		—
Pension settlement expense⁸	—	%	(0.1)		—		—		—	%	—		—		—

COVID-19 related costs and benefits, net ⁹	0.5	%	1.9		0.8		0.02		—	%	—		—		—
Adjusted Basis	23.7	%	$	164.8	$	33.8	$	1.95	17.8	%	$	105.3	$	21.9	$	1.23
¹ Acquisition and integration costs and related fair value adjustments include legal and professional fees, temporary labor, consulting and other costs related to the closing and integration of acquired businesses, including purchase accounting adjustments for deferred revenue and other items, and contingent consideration. For the three months ended June 30, 2020, a fair value adjustment of $0.7 million represents purchase accounting adjustments for deferred revenue and contingent consideration associated with our business combinations in Note 4. Business Combinations.
² Acquisition-related intangible asset amortization relates to the amortization of intangible assets associated with our business combinations.
³ Field corrective action costs relate to costs incurred to address broad-based product performance matters outside of normal warranty provisions. These costs are included in Cost of goods sold.
⁴ Regulatory compliance costs relate to updating existing product registrations to comply with the European Medical Device Regulations. These costs are included in Selling and administrative expenses.
⁵Special charges represent a variety of costs associated with restructuring actions, including severance and related benefits, lease termination fees, asset write-downs and temporary labor on shutdown of operations. It also includes costs related to a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems.
⁶ Tax law and method changes relate to tax expenses and related unrecognized tax benefits due to the Tax Cuts and Jobs Act enacted in the United States in December 2017. See Note 11. Income Taxes within the 2019 Form 10-K for the fiscal year ended September 30, 2019 for further information
⁷ Gain on disposition of business relates to net gains recorded in Investment income and other, net and additional tax expense of $4.1 million as a result of a change in the taxable gain resulting from business dispositions, which occurred in August 2019.
⁸ Pension settlement expense represents an actuarial adjustment of $0.1 million recorded as a component of Investment income (expense) and other, net. See Note 8. Retirement and Postretirement Plans for additional information.

⁹ COVID-19 related costs and benefits, net primarily represent incremental non-recurring special compensation costs paid to essential workers that continued to work in our production facilities and provide services to our customers, partially offset by the recognition of funding associated with government programs created in response to COVID-19. See Note 1. Summary of Significant Accounting Policies for additional information.

Related fair value adjustments of $5.3 million represent purchase accounting adjustments for deferred revenue and contingent consideration associated with our business combinations in Note 4 of our Condensed Consolidated Financial Statements in this Form 10-Q.

Table of Conten t s

Year to Date Ended June 30, 2019 Year to Date Ended June 30, 2018
Operating
Margin Income
Before
Income
Taxes Income Tax
Expense Diluted EPS Operating
Margin Income
Before
Income
Taxes Income Tax
Expense Diluted EPS
GAAP Basis 10.5 % $ 156.0
$ 31.7
$ 1.84
8.5 % $ 107.8
$ (54.2 ) $ 2.40
Adjustments:

Acquisition and integration costs and related fair value adjustments 0.7 % 15.7
3.2
0.19
0.3 % 7.3
1.9
0.08
Acquisition-related intangible asset amortization 3.9 % 82.3
19.7
0.93
3.8 % 80.5
20.9
0.88
Field corrective actions 0.3 % 5.6
1.4
0.06
— % —
—
—
Regulatory compliance costs 0.5 % 10.7
2.7
0.12
0.1 % 1.8
0.5
0.02
Litigation expenses — % —
—
—
0.3 % 5.8
1.5
0.06
Special charges 0.8 % 17.7
4.3
0.20
3.1 % 64.4
17.3
0.70
Tax law and method changes — % —
(4.4 ) 0.06
— % 0.1
67.7
(1.00 )
Gain on disposition — % —
—
—
— % (1.0 ) —
(0.01 )
Adjusted Basis 16.7 % $ 288.0
$ 58.6
$ 3.40
16.1 % $ 266.7
$ 55.6
$ 3.13

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

~~Related fair value adjustments~~


	Nine Months Ended June 30, 2020														Nine Months Ended June 30, 2019
	Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS		Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS
GAAP Basis	13.9	%	$	219.6	$	39.0	$	2.68	10.5	%	$	156.0	$	31.7	$	1.84
Adjustments:
Acquisition and integration costs and related fair value adjustments¹	(0.1)	%	(2.6)		1.4		(0.06)		0.7	%	15.7		3.2		0.19
Acquisition-related intangible asset amortization ²	3.7	%	81.3		19.6		0.92		3.9	%	82.3		19.7		0.93

Field corrective actions ³	0.1	%	2.1		0.6		0.02		0.3	%	5.6		1.4		0.06
Regulatory compliance costs ⁴	0.5	%	12.9		3.1		0.15		0.5	%	10.7		2.7		0.12
Special charges⁵	1.2	%	26.1		6.1		0.30		0.8	%	17.7		4.3		0.20
Tax law and method changes ⁶	—	%	—		—		—		—	%	—		(4.4)		0.06

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

Table of $5.3 million represent purchase accounting adjustments for deferred revenue and contingent consideration associated with our business combinations in Note 4 of our Condensed Consolidated Financial Statements in this Form 10-Q.Conten t s

Liquidity and Capital Resources


	Nine Months Ended June 30
	2020		2019
Cash Flows Provided By (Used In):
Operating activities	$	314.8	$	301.1
Investing activities	(90.4)		(267.9)
Financing activities	(527.7)		(11.9)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	1.3		(1.7)
(Decrease) Increase in Cash and cash equivalents	$	(302.0)	$	19.6

Year to Date Ended June 30
2019 2018
Cash Flows Provided By (Used In):
Operating activities $ 301.1
$ 249.8
Investing activities (267.9 ) (64.7 )
Financing activities (11.9 ) (166.0 )
Effect of exchange rate changes on cash (1.7 ) (4.4 )
Increase in Cash and cash equivalents $ 19.6
$ 14.7

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 ~~$51.3~~$13.7 million for the nine months ended June 30, 2020 compared to the ~~prior year~~nine months ended June 30, 2019 primarily due to higher ~~operating profit and working capital improvements. Net~~net income, ~~in the prior year period was impacted~~which is partially offset by the ~~non-cash incremental tax benefits recorded related~~buildup of inventory to the Tax Act, offset by a net loss on disposition of businesses of $22.4 million. See Note 10 and Note 4 of our Condensed Consolidated Financial Statements in this Form 10-Q for information on the Tax Act and the net loss on disposition of businesses.meet customer demand.

Investing Activities

Cash used in investing activities ~~was $267.9~~decreased by $177.5 million infor the ~~year~~nine months ended June 30, 2020 compared to ~~date period~~the nine months ended June 30, 2019 primarily ~~driven by our~~due to the acquisition of Voalte ~~for consideration~~ of $175.8 million net of cash acquired, as described in Note 4 of our Condensed Consolidated Financial Statements in this Form 10-Q. We also acquired non-marketable equity securities of $26.6 million as described in Note 3, as well asduring 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 4. For the year to date period~~nine months ended June 30, ~~2018, cash used in investing activities was $64.7 million, primarily consisting of capital expenditures of $71.9 million.~~2019. See Note 3. Supplementary Financial Statement Information and Note 4. Business Combinations for additional information.

Financing Activities

Cash used in financing activities ~~was $11.9~~increased $515.8 million infor the ~~year~~nine months ended June 30, 2020 compared to ~~date period~~the nine months ended June 30, 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, ~~as described in Note 12 of our Condensed Consolidated Financial Statements in this Form 10-Q as well as dividend payments of $41.4 million. These cash uses were partly offset by additional~~lower net borrowings ~~on our various borrowing facilities~~ of ~~$94.0 million. For~~$65.0 million under the ~~year to date period ended June 30, 2018, cash used in financing activities was $166.0~~Revolving Credit Facility, and repayments of $37.6 million ~~primarily driven by net payments on our various borrowing facilities~~ of ~~$138.9 million and dividend payments~~long-term debt.

Table of ~~$38.4 million. See Note 6 of our Condensed Consolidated Financial Statements in this Form 10-Q for information on our financing agreements.~~Conten t s

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 June 30, 2020, there were $115.0 million outstanding borrowings on the 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 inwas $1,077.8 million after giving effect to 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 for total aggregate consideration of $181.0 million, comprised of $175.8 million cash and $5.2~~$7.2 million of ~~contingent consideration measured at fair value as~~outstanding standby letters of ~~the acquisition date. The purchase price is subject to certain post-closing adjustments. Contingent consideration is payable of up~~ ~~to $15.0 million based upon~~ ~~the achievement of certain commercial milestones.~~

In August 2019, we completed a divestiture to sell certain of our surgical consumable products and related assets for a purchase price of $170.0 million in cash, subject to certain post-closing adjustments, pursuant to a stock purchase agreement dated July 9, 2019. We expect to record a loss on this divestiture of approximately $20.0 million, including transaction costs of approximately $4.0 million.

On August 1, 2019, we entered into a definitive agreement to acquire Breathe Technologies, Inc., a developer and manufacturer of a patented wearable, non-invasive ventilation technology that supports improved patient mobility, for cash consideration of $130.0 million. We expect the transaction to close during our fiscal fourth quarter of 2019, subject to customary closing conditions.

We purchased 792,264 shares of our common stock in the open market under our share repurchase program for $75.0 million in the year to date period ended June 30, 2019. We did not repurchase shares in the quarter ended June 30, 2019 in the open market. The timing and amount of share repurchases, if any, will be determined based on market conditions, limitations under our financing agreements, share price and other factors.

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 Revolving Credit Facility, and available borrowing capacity was $1,112.8 million after giving effect to $7.2 million of outstanding standby letters of credit.

Our cash flows from operating activities for the nine months ended June 30, 2020 were not materially adversely impacted by COVID-19. 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 identified instability with the financial institutions with whom we maintain our financing relationships. We believe we should be able to continue to service our outstanding borrowings or other financial obligations.

Our long-term debt instruments require nominal repayments over the next 12 months, with our next significant maturity occurring in August 2024. Since the beginning of the global COVID-19 pandemic in December 2019, we have not experienced liquidity constraints through either the movement of cash or under our Revolving Credit Facility. Furthermore, we have successfully extended our 364-day accounts receivable securitization facilities as of April 27, 2020. As of June 30, 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, we are not required to make any contributions to our primary pension plan in fiscal 2019.~~financing agreements.

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

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

Over the long term, we intend to continue to pursue inorganic growth in ~~fiscal 2019 to~~certain areas of our business, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be ~~approximately $80.0 million.~~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 June 30, ~~2019,~~2020, approximately ~~76.4%~~52.5% of our cash and cash equivalents were held by our foreign subsidiaries. As of June 30, ~~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.

Table of Conten t s

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 precautionary and preventive measures to reduce the spread of COVID-19. COVID-19 has impacted global economies as travel, leisure and discretionary consumer spending has reduced significantly causing companies to make commensurate changes to their investments, human capital, and financial outlooks.

Revenues and Customers

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

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

Operations and Workforce

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

Table of Conten t s

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

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

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

Table of Conten t s


~~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 June 30, ~~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 June 30, ~~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 Conten t s

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.~~	~~RISK FACTORS~~

Item 1A. RISK FACTORS

There have been no material changes to our risk factors as disclosed in ~~“Item 1A.~~Item 1A - Risk ~~Factors”~~Factors in ~~our 2018~~the Form 10-K for the fiscal year ended September 30, ~~2018.~~2019 and in the Form 10-Q for the quarterly period ended March 31, 2020.


~~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⁾
April 1, 2020 - April 30, 2020	4,486	$	108.18	—	$	163.4
May 1, 2020 - May 31, 2020	608	$	103.49	—	$	163.4
June 1, 2020 - June 31, 2020	530	$	105.00	—	$	163.4
Total	5,624			—

(1)Shares purchased in the three months ended June 30, 2020 were in connection with employee payroll tax withholding for restricted stock distributions.

(2)In September 2019, the Board approved an additional $170.0 million for share repurchases. The below table reflects the date of Board approval, the authorized dollar value of the shares to be repurchased under each approval and the availability to repurchase as of June 30, 2020. As of June 30, 2020, a cumulative total of $346.6 million had been used, leaving us with availability of $163.4 million under the share repurchase program. There is no expiration date or plans to terminate 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 June 30, 2020
September 2013	$	190.0	$	190.0	$	—	$	—
November 2017	$	150.0	$	102.5	$	47.5	$	—
September 2019	170.0		—		6.6		163.4
Totals	$	510.0	$	292.5	$	54.1	$	163.4

Period
Total
Number
of Shares
Purchased ⁽¹⁾

Average
Price Paid
per Share

Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans or Programs ⁽²⁾

Approximate
Dollar Value
of Shares That
May Yet Be
Purchased Under
the Programs ⁽²⁾
April 1, 2019 - April 30, 2019 778
$ 101.56
—
$ 89.7
May 1, 2019 - May 31, 2019 734
$ 100.17
—
$ 89.7
June 1, 2019 - June 30, 2019 —
$ —
—
$ 89.7
Total 1,512
—

Table of Conten t s


~~(1)~~	~~Shares purchased in the quarter ended June 30, 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 June 30, 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.~~ 10.1			~~EXHIBITS~~ Amendment No. 4 to Loan and Security Agreement, dated as of April 27, 2020, among Hill-Rom Company, Inc., as initial servicer, Hill-Rom Finance Company LLC, as borrower, and MUFG Bank, Ltd., (f/k/a The Bank of Tokyo-Mitsubishi UFJ, Ltd.), as Group Agent, as Committed Lender and as Administrative Agent (Incorporated herein by reference to Exhibit 10.1 to the Company’s Form 8-K dated April 27, 2020)


A.	~~Exhibits~~

~~10.1~~

10.2

~~Residential Lease Agreement between Hill-Rom Holdings, Inc. and Andreas Frank dated May 1, 2019~~

~~10.2~~

~~Third~~ Amendment No. 2 to ~~the Credit~~Master Framework Agreement, dated as of ~~June 28, 2019,~~April 27, 2020, by and among ~~the~~MUFG Bank, Ltd., as buyer, Hill-Rom Company, Inc., Hill-Rom Manufacturing, Inc., and each additional seller from time to time party thereto, as sellers, and Hill-Rom Company, as ~~borrower, guarantors party hereto,~~agent for the ~~consenting lenders~~sellers (Incorporated herein by reference to Exhibit 10.2 to the Company’s Form 8-K dated April 27, 2020)

10.3

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

~~31.1~~

10.4

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

31.1

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

31.2

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

32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Extension Labels Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

Table of Conten t s

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: August 2, 2019~~			~~By:~~HILL-ROM HOLDINGS, INC.
			(Registrant)

Date: July 31, 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



Yes	☑	No	☐



Yes	☑	No	☐



Yes	☐	No	☑


							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 and Indefinite-Lived Intangible Assets~~Financing Agreements	1918

					Note 6. ~~Financing Agreements~~Derivative Instruments and Hedging Activity	2019

					Note 7. Leases	20

					Note 8. Retirement and Postretirement Plans	22

					Note 8.9. Other Comprehensive Income (Loss)	23

					Note 9.10. Special Charges	26

					Note ~~10.~~11. Income Taxes	27

					Note ~~11.~~12. Earnings per Common Share	2827

					~~Note 12. Common Stock~~	28

		Note 13. Warranties and Guarantees	28

					Note 14. Segment Reporting	29

					Note 15. Commitments and Contingencies	3031

			Item 2 -		Management’s Discussion and Analysis of Financial Condition and Results of Operations	3132

			Item 3 -		Quantitative and Qualitative Disclosures About Market Risks	4145

			Item 4 -		Controls and Procedures	4145

PART II - OTHER INFORMATION

			Item 1 -		Legal Proceedings	4246

			Item 1A -		Risk Factors	4246

			Item 2 -		Unregistered Sales of Equity Securities and Use of Proceeds	4246

			Item 6 -		Exhibits	4347

SIGNATURES							4448



	Quarter Ended June 30						Year to Date Ended June 30
	2019			2018			2019			2018
Net Revenue
Product sales and service	$	653.0		$	617.6		$	1,901.1		$	1,803.5
Rental revenue	73.8			91.0			223.4			285.3
Total net revenue	726.8			708.6			2,124.5			2,088.8

Cost of Net Revenue
Cost of goods sold	332.3			317.5			971.3			935.3
Rental expenses	37.9			43.1			114.0			135.5
Total cost of net revenue	370.2			360.6			1,085.3			1,070.8

Gross Profit	356.6			348.0			1,039.2			1,018.0

Research and development expenses	34.1			33.6			103.9			100.6
Selling and administrative expenses	246.4			221.9			695.6			676.3
Special charges	6.2			14.0			17.7			64.4
Operating Profit	69.9			78.5			222.0			176.7

Interest expense	(23.1		)	(24.2		)	(66.2		)	(71.5		)
Investment income (expense) and other, net	(1.1		)	1.2			0.2			2.6

Income Before Income Taxes	45.7			55.5			156.0			107.8

Income tax expense (benefit)	13.1			10.3			31.7			(54.2		)

Net Income	$	32.6		$	45.2		$	124.3		$	162.0

Net Income per Basic Common Share	$	0.49		$	0.68		$	1.86		$	2.45

Net Income per Diluted Common Share	$	0.48		$	0.67		$	1.84		$	2.40

Average Basic Common Shares Outstanding (in thousands)	66,777			66,299			66,822			66,121

Average Diluted Common Shares Outstanding (in thousands)	67,446			67,646			67,484			67,550


	Quarter Ended June 30						Year to Date Ended June 30							Three Months Ended June 30						Nine Months Ended June 30
	2019			2018			2019			2018				2020		2019		2020		2019
Net Income	$	32.6		$	45.2		$	124.3		$	162.0		Net Income	$	93.9	$	32.6	$	180.6	$	124.3

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

Derivative instruments designated as hedges	(9.4		)	2.2			(15.0		)	13.5			Derivative instruments designated as hedges	(6.7)		(9.4)		(32.4)		(15.0)
Foreign currency translation adjustment	4.1			(43.9		)	(13.1		)	(21.3		)	Foreign currency translation adjustment	17.1		4.1		8.6		(13.1)
Change in pension and postretirement defined benefit plans	0.4			1.0			1.3			2.6			Change in pension and postretirement defined benefit plans	1.0		0.4		(5.9)		1.3
Total Other Comprehensive Loss, net of tax	(4.9		)	(40.7		)	(26.8		)	(5.2		)
Total Other Comprehensive Income (Loss), net of tax													Total Other Comprehensive Income (Loss), net of tax	11.4		(4.9)		(29.7)		(26.8)

Total Comprehensive Income	$	27.7		$	4.5		$	97.5		$	156.8

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


	June 30, 2019			September 30, 2018				June 30, 2020		September 30, 2019
ASSETS							ASSETS
Current Assets							Current Assets
Cash and cash equivalents	$	202.6		$	183.0		Cash and cash equivalents	$	331.8	$	214.1
Trade accounts receivable, net of allowances	597.9			580.7
Restricted cash							Restricted cash	—		419.7
Trade accounts receivable, net of allowances of $23.0 and $20.6 as of June 30, 2020 and September 30, 2019							Trade accounts receivable, net of allowances of $23.0 and $20.6 as of June 30, 2020 and September 30, 2019	646.2		653.3
Inventories, net of reserves	297.8			291.7			Inventories, net of reserves	322.8		269.6

Other current assets	128.0			100.2			Other current assets	114.6		106.7
Total current assets	1,226.3			1,155.6			Total current assets	1,415.4		1,663.4

Property, plant and equipment							Property, plant and equipment	852.1		829.6
Less accumulated depreciation							Less accumulated depreciation	(555.4)		(532.8)
Property, plant and equipment, net	311.1			328.3			Property, plant and equipment, net	296.7		296.8
Goodwill	1,830.8			1,738.3			Goodwill	1,816.9		1,800.9
Other intangible assets and software, net	1,083.7			1,027.7			Other intangible assets and software, net	988.5		1,033.5
Deferred income taxes	35.5			35.0			Deferred income taxes	33.5		33.1
Other assets	87.9			75.1			Other assets	170.2		91.3
Total Assets	$	4,575.3		$	4,360.0		Total Assets	$	4,721.2	$	4,919.0

LIABILITIES							LIABILITIES
Current Liabilities							Current Liabilities
Trade accounts payable	$	171.5		$	177.3		Trade accounts payable	$	221.7	$	197.6
Short-term borrowings	246.2			182.5			Short-term borrowings	250.1		660.4
Accrued compensation	123.6			132.5			Accrued compensation	127.6		130.4
Accrued product warranties	29.9			20.5			Accrued product warranties	30.5		29.7
Accrued rebates	45.6			42.5			Accrued rebates	39.8		47.7
Deferred revenue	101.8			40.0			Deferred revenue	106.7		107.3
Other current liabilities	95.6			67.1			Other current liabilities	164.7		95.2
Total current liabilities	814.2			662.4			Total current liabilities	941.1		1,268.3

Long-term debt	1,824.0			1,790.4			Long-term debt	1,782.6		1,783.1
Accrued pension and postretirement benefits	68.4			69.3			Accrued pension and postretirement benefits	101.1		80.8
Deferred income taxes	169.3			181.3			Deferred income taxes	117.0		143.0
Other long-term liabilities	74.7			40.4			Other long-term liabilities	127.0		70.5
Total Liabilities	2,950.6			2,743.8			Total Liabilities	3,068.8		3,345.7

Commitments and Contingencies							Commitments and Contingencies

SHAREHOLDERS’ EQUITY
Common stock	4.4			4.4
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 June 30, 2020 and September 30, 2019; Outstanding: 66,602,366 as of June 30, 2020 and 66,625,011 as of September 30, 2019							Issued: 88,457,634 shares as of June 30, 2020 and September 30, 2019; Outstanding: 66,602,366 as of June 30, 2020 and 66,625,011 as of September 30, 2019
Additional paid-in capital	631.0			602.9			Additional paid-in capital	654.4		637.4
Retained earnings	1,953.7			1,876.2			Retained earnings	2,104.6		1,967.4
Accumulated other comprehensive loss	(145.2		)	(113.0		)
Treasury stock, at cost	(819.2		)	(754.3		)
Total Shareholders’ Equity	1,624.7			1,616.2
Total Liabilities and Shareholders’ Equity	$	4,575.3		$	4,360.0
Accumulated other comprehensive income (loss)							Accumulated other comprehensive income (loss)	(212.2)		(182.5)
Treasury stock, common shares at cost: 21,855,268 as of June 30, 2020 and 21,832,623 as of September 30, 2019							Treasury stock, common shares at cost: 21,855,268 as of June 30, 2020 and 21,832,623 as of September 30, 2019	(898.8)		(853.4)
Total Shareholders’ Equity							Total Shareholders’ Equity	1,652.4		1,573.3

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


	Year to Date June 30							Nine Months Ended June 30
	2019			2018				2020		2019
Operating Activities							Operating Activities
Net income	$	124.3		$	162.0		Net income	$	180.6	$	124.3
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	54.7			67.0			Depreciation and amortization of property, plant, equipment and software	51.6		54.7

Acquisition-related intangible asset amortization	82.3			80.5			Acquisition-related intangible asset amortization	81.3		82.3
Amortization of debt discounts and issuance costs	4.8			5.2			Amortization of debt discounts and issuance costs	3.0		4.8
Loss on extinguishment of debt							Loss on extinguishment of debt	15.6		—
Benefit for deferred income taxes	(12.2		)	(89.4		)	Benefit for deferred income taxes	(14.1)		(12.2)
Loss on disposal of property, equipment leased to others, intangible assets, and impairments	3.3			1.1
Loss on disposition of businesses	—			22.4
Loss on disposal of property, equipment, intangible assets, and impairments							Loss on disposal of property, equipment, intangible assets, and impairments	1.5		3.3

Stock compensation	26.9			21.6			Stock compensation	27.2		26.9
Other operating activities							Other operating activities	16.0		(2.9)
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	15.3			20.5			Trade accounts receivable	12.3		15.3
Inventories	(4.9		)	(27.4		)	Inventories	(60.2)		(4.9)
Other current assets	(3.4		)	(38.5		)	Other current assets	(10.4)		(3.5)
Trade accounts payable	(9.0		)	(2.6		)	Trade accounts payable	16.5		(9.0)
Accrued expenses and other liabilities	14.6			1.0			Accrued expenses and other liabilities	(8.1)		14.3
Other, net	4.4			26.4
Net cash provided by operating activities	301.1			249.8
Other assets and liabilities							Other assets and liabilities	2.0		7.7
Net cash, cash equivalents and restricted cash provided by operating activities							Net cash, cash equivalents and restricted cash provided by operating activities	314.8		301.1
Investing Activities							Investing Activities
Purchases of property, plant, equipment and software	(50.9		)	(71.9		)	Purchases of property, plant, equipment and software	(72.0)		(50.9)
Proceeds on sale of property and equipment leased to others	2.5			4.0
Payment for acquisition of business, net of cash acquired	(175.8		)	—
Proceeds on sale of property and equipment							Proceeds on sale of property and equipment	1.6		2.5
Payments for acquisition of businesses, net of cash acquired							Payments for acquisition of businesses, net of cash acquired	(20.6)		(175.8)
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	—			2.2
Net cash used in investing activities	(267.9		)	(64.7		)
Payments for acquisition of investments							Payments for acquisition of investments	—		(26.6)

Other investing activities							Other investing activities	0.6		—
Net cash, cash equivalents and restricted cash used in investing activities							Net cash, cash equivalents and restricted cash used in investing activities	(90.4)		(267.9)
Financing Activities							Financing Activities
Payments of long-term debt	(0.1		)	(137.4		)

Payment of long-term debt							Payment of long-term debt	(37.6)		(0.1)
Borrowings on Revolving Credit Facility	330.0			75.0			Borrowings on Revolving Credit Facility	190.0		330.0
Payments on Revolving Credit Facility	(230.0		)	(165.0		)	Payments on Revolving Credit Facility	(155.0)		(230.0)
Borrowings on Securitization Program	4.9			68.2
Payments on Securitization Program	(5.5		)	(40.7		)
Borrowings on Securitization Facility							Borrowings on Securitization Facility	17.7		4.9
Payments on Securitization Facility							Payments on Securitization Facility	(17.7)		(5.5)
Borrowings on Note Securitization Facility	46.0			61.0			Borrowings on Note Securitization Facility	32.6		46.0
Payments on Note Securitization Facility	(51.3		)	—			Payments on Note Securitization Facility	(21.2)		(51.3)
Payments of cash dividends	(41.4		)	(38.4		)

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	(43.3)		(41.4)
Proceeds on exercise of stock options	9.2			13.6			Proceeds on exercise of stock options	8.5		9.2

Stock repurchases for stock award withholding obligations	(4.2		)	(7.4		)	Stock repurchases for stock award withholding obligations	(16.4)		(4.2)
Stock repurchases in the open market	(75.0		)	—			Stock repurchases in the open market	(54.1)		(75.0)
Other, net	5.5			5.1
Net cash used in financing activities	(11.9		)	(166.0		)
Effect of exchange rate changes on cash and cash equivalents	(1.7		)	(4.4		)
Other financing activities							Other financing activities	6.0		5.5
Net cash, cash equivalents and restricted cash used in financing activities							Net cash, cash equivalents and restricted cash used in financing activities	(527.7)		(11.9)
Effect of exchange rate changes on cash, cash equivalents and restricted cash							Effect of exchange rate changes on cash, cash equivalents and restricted cash	1.3		(1.7)
Net Cash Flows	19.6			14.7			Net Cash Flows	(302.0)		19.6
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	$	202.6		$	246.5		At end of period	$	331.8	$	202.6


																													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
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
Cumulative effect of accounting rule adoption, net of tax of $0.1																											Cumulative effect of accounting rule adoption, net of tax of $0.1				—				—									—					0.3					—			—		0.3
Net income																											Net income		—				—						—				93.9				—				—					93.9
Other comprehensive income (loss), net of tax of $1.6																											Other comprehensive income (loss), net of tax of $1.6		—				—					—				—				11.4					—					11.4
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																											Stock repurchases for stock award withholding obligations		—				—				—				—				—				(0.6)					(0.6)
	Shares Outstanding		Amount					Shares							Additional Paid-in Capital			Amount	Retained Earnings			Amount	Accumulated Other Comprehensive Income (Loss)				Amount			Total Shareholders’ Equity
Balance as of March 31, 2019								$		619.9				$				1,935.2				(140.3					)
Net income	—		—					—				32.6		—
Other comprehensive income (loss), net of tax of $2.5 million	—		—		—				—				(4.9		)		—				—				(4.9		)
Dividends ($0.21 per common share)	—		—		0.1				(14.1		)		—				—			—				(14.0		)
Stock repurchases for stock award withholding obligations	(1,512	)	—		—				—				—				1,512			(0.2		)		(0.2		)
Stock compensation on equity-classified awards	—		—		9.8				—				—				—			—				9.8			Stock compensation on equity-classified awards		—						—				7.9				—				—				—					7.9
Stock option exercises	12,007		—		0.1				—				—				(12,007	)		0.5				0.6			Stock option exercises		—						—				1.2				—				—				1.6					2.8
Vesting of stock awards	4,982		—		(0.2		)		—				—				(4,982	)		0.2				—			Vesting of stock awards		—				—				(0.8)				—				—				0.7					(0.1)
Shares issued under employee stock purchase plan	19,245		—		1.3				—				—				(19,245	)		0.7				2.0			Shares issued under employee stock purchase plan		—				—				1.5				—				—				1.0					2.5
Balance as of June 30, 2019	66,806,449		$	4.4	$	631.0			$	1,953.7			$	(145.2	)		21,651,185			$	(819.2	)		$	1,624.7
Balance as of June 30, 2020																											Balance as of June 30, 2020		88,457,634				$	4.4			$	654.4			$	2,104.6			$	(212.2)			$	(898.8)				$	1,652.4


	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 June 30, 2019							Year to Date Ended June 30, 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	$	653.0	$	27.2		$	625.8	$	1,901.1	$	79.3		$	1,821.8
Rental net revenue¹	73.8		(23.7		)	97.5		223.4		(72.8		)	296.2
Cost of goods sold²	332.3		7.0			325.3		971.3		18.1			953.2
Rental expenses²	37.9		(5.4		)	43.3		114.0		(16.3		)	130.3
Income tax expense (benefit)	13.1		0.4			12.7		31.7		0.8			30.9
Net income	32.6		1.5			31.1		124.3		3.8			120.5



	June 30, 2019
Impacted Condensed Consolidated Balance Sheet Items	As Reported		Impacts of ASC 606			Balances without ASC 606
ASSETS
Trade accounts receivable, net of allowances	$	597.9	$	30.9		$	567.0
Other current assets¹	128.0		15.9			112.1
Property, plant and equipment, net	311.1		(6.1		)	317.2
Deferred income taxes	35.5		5.6			29.9
Other assets¹	87.9		3.1			84.8
LIABILITIES
Deferred revenue	101.8		38.9			62.9
Other current liabilities	95.6		0.7			94.9
Other long-term liabilities	74.7		10.2			64.5
SHAREHOLDERS’ EQUITY
Retained earnings	1,953.7		(1.1		)	1,954.8


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



	Contract Liabilities
Balance as of September 30, 2018	$	47.8
Revenue deferred due to ASC 606 initial adoption	58.4
Deferred revenue acquired	10.3
New revenue deferrals	194.4
Revenue recognized upon satisfaction of performance obligations	(189.4		)
Balance as of June 30, 2019	$	121.5


	June 30, 2020		September 30, 2019
Inventories, net of reserves:
Finished products	$	143.1	$	120.5
Work in process	49.6		42.4
Raw materials	130.1		106.7
Total inventories, net of reserves	$	322.8	$	269.6

Accumulated amortization of software and other intangible assets	$	635.7	$	597.0

Investments included in Other assets	$	47.6	$	51.1



	June 30, 2019		September 30, 2018
Allowance for possible losses and discounts on trade receivables	$	21.9	$	21.8

Inventories, net of reserves:
Finished products	$	136.7	$	139.7
Raw materials and work in process	161.1		152.0
Total inventories, net of reserves	$	297.8	$	291.7

Accumulated depreciation of property, plant and equipment	$	561.4	$	586.7

Accumulated amortization of software and other intangible assets	$	618.7	$	532.8

Investments included in Other assets	$	50.6	$	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	66,806,449		67,256,112

Treasury shares	21,651,185		21,201,522



	June 30, 2019		September 30, 2018
Current portion of long-term debt	$	69.7	$	0.1
Securitization Program	109.4		110.0
Note Securitization Facility	67.1		72.4
Total Short-term borrowings	$	246.2	$	182.5

Revolving credit facility, matures September 2021	$	100.0	$	—
Senior secured Term Loan A, long-term portion, matures September 2021	962.4		1,029.7
Senior unsecured 5.75% notes due on September 1, 2023	421.4		420.8
Senior unsecured 5.00% notes due on February 15, 2025	296.8		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	$	1,824.0	$	1,790.4

Total debt	$	2,070.2	$	1,972.9



	June 30, 2019		September 30, 2018
Senior secured Term Loan A	$	1,003.3	$	991.9
Senior unsecured 5.75% notes due on September 1, 2023	439.6		437.3
Senior unsecured 5.00% notes due on February 14, 2025	309.7		294.0
Unsecured debentures	45.8		42.9
Total	$	1,798.4	$	1,766.1



	Quarter Ended June 30, 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	$	1.1		$	(0.3	)	$	0.8		$	(0.2	)	$	0.6		$	(0.2	)	$	0.6		$	0.4
Interest rate swaps	3.7			(1.6		)	2.1			(0.5		)	1.6			15.8			1.6			17.4
Derivative instruments designated as hedges total	4.8			(1.9		)	2.9			(0.7		)	2.2			15.6			2.2			17.8
Foreign currency translation adjustment	(43.9		)	—			(43.9		)	—			(43.9		)	(58.7		)	(43.9		)	(102.6		)
Change in pension and postretirement defined benefit plans	0.3			1.1			1.4			(0.4		)	1.0			(31.4		)	1.0			(30.4		)
Total	$	(38.8	)	$	(0.8	)	$	(39.6	)	$	(1.1	)	$	(40.7	)	$	(74.5	)	$	(40.7	)	$	(115.2	)



	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 June 30, 2019			Balances as of June 30, 2019
Derivative instruments designated as hedges:
Foreign exchange forward contracts	$	0.2		$	—		$	(0.1	)	$	0.1
Interest rate swaps	18.3			0.8			(22.1		)	(3.0		)
Cross-currency swaps	(1.7		)	—			7.2			5.5
Derivative instruments designated as hedges total	16.8			0.8			(15.0		)	2.6
Foreign currency translation adjustment	(105.3		)	—			(13.1		)	(118.4		)
Change in pension and postretirement defined benefit plans	(24.5		)	(6.2		)	1.3			(29.4		)
Total	$	(113.0	)	$	(5.4	)	$	(26.8	)	$	(145.2	)



	Year to Date Ended June 30, 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	$	0.6		$	0.5		$	1.1		$	(0.3	)	$	0.8		$	(0.4	)	$	0.8		$	0.4
Interest rate swaps	19.7			(3.3		)	16.4			(3.7		)	12.7			4.7			12.7			17.4
Derivative instruments designated as hedges total	20.3			(2.8		)	17.5			(4.0		)	13.5			4.3			13.5			17.8
Foreign currency translation adjustment	(21.3		)	—			(21.3		)	—			(21.3		)	(81.3		)	(21.3		)	(102.6		)
Change in pension and postretirement defined benefit plans	0.1			3.3			3.4			(0.8		)	2.6			(33.0		)	2.6			(30.4		)
Total	$	(0.9	)	$	0.5		$	(0.4	)	$	(4.8	)	$	(5.2	)	$	(110.0	)	$	(5.2	)	$	(115.2	)



	Quarter Ended June 30						Year to Date Ended June 30
	2019			2018			2019			2018
Net revenue:
Patient Support Systems	$	374.5		$	359.7		$	1,075.1		$	1,049.1
Front Line Care	244.4			239.0			720.9			701.5
Surgical Solutions	107.9			109.9			328.5			338.2
Total net revenue	$	726.8		$	708.6		$	2,124.5		$	2,088.8

Divisional income:
Patient Support Systems	$	81.9		$	71.3		$	208.5		$	191.9
Front Line Care	70.2			62.2			197.2			178.1
Surgical Solutions	17.8			11.4			44.2			36.6

Other operating costs:
Non-allocated operating costs, administrative costs, and other	93.8			52.4			210.2			165.5
Special charges	6.2			14.0			17.7			64.4
Operating profit	69.9			78.5			222.0			176.7

Interest expense	(23.1		)	(24.2		)	(66.2		)	(71.5		)
Investment income (expense) and other, net	(1.1		)	1.2			0.2			2.6
Income before income taxes	$	45.7		$	55.5		$	156.0		$	107.8



	Quarter Ended June 30				Change		Constant Currency		U.S.		OUS
	Adjusted 2019¹		2018		Change		Constant Currency		Change		Change		Constant Currency
Net Revenue:
Product sales and service	$	625.8	$	617.6	1.3	%	2.6	%	6.0	%	(8.2	)%	(4.2	)%
Rental revenue	97.5		91.0		7.1	%	7.6	%	9.1	%	(8.2	)%	(3.5	)%
Total net revenue	$	723.3	$	708.6	2.1	%	3.3	%	6.5	%	(8.2	)%	(4.2	)%

Net Revenue:
Patient Support Systems	$	371.2	$	359.7	3.2	%	4.3	%	7.1	%	(8.2	)%	(4.0	)%
Front Line Care	244.2		239.0		2.2	%	3.2	%	5.1	%	(5.0	)%	(1.4	)%
Surgical Solutions	107.9		109.9		(1.8	)%	0.2	%	8.3	%	(12.2	)%	(8.1	)%
Total net revenue	$	723.3	$	708.6	2.1	%	3.3	%	6.5	%	(8.2	)%	(4.2	)%

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.