~~Supplemental information:~~

~~December~~Balance Sheet Classification

March 31, ~~2019~~2020

Right-of-use assets

Other assets

72.6

Current lease liabilities

Other current liabilities

22.0

Non-current lease liabilities

Other long-term liabilities

55.2


Supplemental information:	March 31, 2020
Weighted-average discount rate	3.3	%
Weighted-average remaining lease term in years	~~4.9~~		4.8

Table of Conte nts

The following table summarizes the maturities of our operating leases as of ~~December~~March 31, ~~2019:~~2020:

Fiscal Year Amount
Remaining 2020 $ 19.3
2021 22.0
2022 16.3
2023 11.3
2024 6.5
2025 4.4
Thereafter 10.4
Total lease payments 90.2
Less: imputed interest (7.5 )
Total lease liability $ 82.7


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

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


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

Note 8. 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 December 31 Condensed Consolidated Statements of Income Item
2019 2018
Service cost $ 0.4
$ 0.3
Cost of goods sold
Service cost 0.8
0.8
Selling and administrative expenses
Interest cost 2.5
3.1
Investment income (expense) and other, net
Expected return on plan assets (3.7 ) (3.7 ) Investment income (expense) and other, net
Amortization of unrecognized prior service cost, net 0.1
—
Investment income (expense) and other, net
Amortization of net loss 1.5
0.6
Investment income (expense) and other, net
Net pension expense $ 1.6
$ 1.1

Table of Conte nts


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

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 $8.5 million, 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 ~~$6.2~~$10.1 million ~~in both of~~and $16.3 million for the ~~quarterly periods~~three and six months ended ~~December~~March 31, ~~2019~~2020, and ~~2018.~~

$8.3 million and $14.5 million for the three and six months ended March 31, 2019.

Note 9. 9. Other Comprehensive Income (Loss)

The following tables represent the changes in Other comprehensive income (loss) and Accumulated other comprehensive income (loss) by component for the ~~quarters~~three months ended ~~December~~March 31, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended March 31, 2020
	Other comprehensive income (loss)																Accumulated other comprehensive income (loss)
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect		Net of tax		Beginning balance		Net activity		Ending balance ²
Derivative instruments designated as hedges ¹:
Foreign exchange forward contracts	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Interest rate swaps	(39.7)		(0.4)		(40.1)		9.2		(30.9)		(3.9)		(30.9)		(34.8)
Cross-currency swaps	10.2		—		10.2		(2.4)		7.8		8.5		7.8		16.3
Derivative instruments designated as hedges total	(29.5)		(0.4)		(29.9)		6.8		(23.1)		4.6		(23.1)		(18.5)
Foreign currency translation adjustment	(31.6)		—		(31.6)		—		(31.6)		(122.3)		(31.6)		(153.9)
Change in pension and postretirement defined benefit plans	0.1		(10.3)		(10.2)		2.6		(7.6)		(43.6)		(7.6)		(51.2)
Total	$	(61.0)	$	(10.7)	$	(71.7)	$	9.4	$	(62.3)	$	(161.3)	$	(62.3)	$	(223.6)

Table of Conte nts

Quarter Ended December 31, 2019
Other comprehensive income (loss) Accumulated other comprehensive income (loss)
Prior to
reclassification Reclassification
from Pre-tax Tax effect Net of tax Beginning
balance Net activity
Ending
balance ²
Derivative instruments designated as hedges ¹:

Foreign exchange forward contracts $ (0.3 ) $ 0.1
$ (0.2 ) $ —
$ (0.2 ) $ 0.2
$ (0.2 ) $ —
Interest rate swaps 0.9
0.8
1.7
(0.4 ) 1.3
(5.2 ) 1.3
(3.9 )
Cross-currency swaps (4.8 ) —
(4.8 ) 1.1
(3.7 ) 12.2
(3.7 ) 8.5
Derivative instruments designated as hedges total (4.2 ) 0.9
(3.3 ) 0.7
(2.6 ) 7.2
(2.6 ) 4.6
Foreign currency translation adjustment 23.1
—
23.1
—
23.1
(145.4 ) 23.1
(122.3 )
Change in pension and postretirement defined benefit plans (0.2 ) 1.2
1.0
(0.3 ) 0.7
(44.3 ) 0.7
(43.6 )
Total $ 18.7
$ 2.1
$ 20.8
$ 0.4
$ 21.2
$ (182.5 ) $ 21.2
$ (161.3 )


	Three Months Ended March 31, 2019
	Other comprehensive income (loss)																Accumulated other comprehensive income (loss)
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect		Net of tax		Beginning balance		Net activity		Ending balance
Derivative instruments designated as hedges ¹:
Foreign exchange forward contracts	$	(0.7)	$	(0.1)	$	(0.8)	$	0.3	$	(0.5)	$	0.9	$	(0.5)	$	0.4
Interest rate swaps	(9.1)		(1.7)		(10.8)		2.3		(8.5)		13.8		(8.5)		5.3
Cross-currency swaps	8.1		—		8.1		(1.0)		7.1		(0.8)		7.1		6.3
Derivative instruments designated as hedges total	(1.7)		(1.8)		(3.5)		1.6		(1.9)		13.9		(1.9)		12.0
Foreign currency translation adjustment	(3.6)		—		(3.6)		—		(3.6)		(118.9)		(3.6)		(122.5)
Change in pension and postretirement defined benefit plans	0.1		0.6		0.7		(0.2)		0.5		(30.3)		0.5		(29.8)
Total	$	(5.2)	$	(1.2)	$	(6.4)	$	1.4	$	(5.0)	$	(135.3)	$	(5.0)	$	(140.3)

The following tables represent the changes in Other comprehensive income (loss) and Accumulated other comprehensive income (loss) by component for the six months ended March 31, 2020 and 2019:


	Six Months Ended March 31, 2020
	Other comprehensive income (loss)																Accumulated other comprehensive income (loss)
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect		Net of tax		Beginning balance		Net activity		Ending balance ²
Derivative instruments designated as hedges ¹:
Foreign exchange forward contracts	$	(0.3)	$	0.1	$	(0.2)	$	—	$	(0.2)	$	0.2	$	(0.2)	$	—
Interest rate swaps	(38.8)		0.4		(38.4)		8.8		(29.6)		(5.2)		(29.6)		(34.8)
Cross-currency swaps	5.4		—		5.4		(1.3)		4.1		12.2		4.1		16.3
Derivative instruments designated as hedges total	(33.7)		0.5		(33.2)		7.5		(25.7)		7.2		(25.7)		(18.5)
Foreign currency translation adjustment	(8.5)		—		(8.5)		—		(8.5)		(145.4)		(8.5)		(153.9)
Change in pension and postretirement defined benefit plans	(0.1)		(9.1)		(9.2)		2.3		(6.9)		(44.3)		(6.9)		(51.2)
Total	$	(42.3)	$	(8.6)	$	(50.9)	$	9.8	$	(41.1)	$	(182.5)	$	(41.1)	$	(223.6)

Table of Conte nts

Quarter Ended December 31, 2018
Other comprehensive income (loss) Accumulated other comprehensive income (loss)
Prior to
reclassification Reclassification
from Pre-tax Tax effect Net of tax Beginning
balance Impacts of ASU 2018-02 Adoption as of October 1, 2018 Net activity Ending
balance
Derivative instruments designated as hedges ¹:

Foreign exchange forward contracts $ 1.2
$ (0.1 ) $ 1.1
$ (0.4 ) $ 0.7
$ 0.2
$ —
$ 0.7
$ 0.9
Interest rate swaps (5.1 ) (2.1 ) (7.2 ) 1.9
(5.3 ) 18.3
0.8
(5.3 ) 13.8
Cross-currency swaps 2.2
—
2.2
(1.3 ) 0.9
(1.7 ) —
0.9
(0.8 )
Derivative instruments designated as hedges total (1.7 ) (2.2 ) (3.9 ) 0.2
(3.7 ) 16.8
0.8
(3.7 ) 13.9
Foreign currency translation adjustment (13.6 ) —
(13.6 ) —
(13.6 ) (105.3 ) —
(13.6 ) (118.9 )
Change in pension and postretirement defined benefit plans —
0.5
0.5
(0.1 ) 0.4
(24.5 ) (6.2 ) 0.4
(30.3 )
Total $ (15.3 ) $ (1.7 ) $ (17.0 ) $ 0.1
$ (16.9 ) $ (113.0 ) $ (5.4 ) $ (16.9 ) $ (135.3 )


	Six Months Ended March 31, 2019
	Other comprehensive income (loss)																		Accumulated other comprehensive income (loss)
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect		Net of tax		Beginning balance		Impacts of ASU 2018-02 Adoption as of October 1, 2018		Net activity		Ending balance
Derivative instruments designated as hedges ¹:
Foreign exchange forward contracts	$	0.5	$	(0.2)	$	0.3	$	(0.1)	$	0.2	$	0.2	$	—	$	0.2	$	0.4
Interest rate swaps	(14.2)		(3.8)		(18.0)		4.2		(13.8)		18.3		0.8		(13.8)		5.3
Cross-currency swaps	10.3		—		10.3		(2.3)		8.0		(1.7)		—		8.0		6.3
Derivative instruments designated as hedges total	(3.4)		(4.0)		(7.4)		1.8		(5.6)		16.8		0.8		(5.6)		12.0
Foreign currency translation adjustment	(17.2)		—		(17.2)		—		(17.2)		(105.3)		—		(17.2)		(122.5)
Change in pension and postretirement defined benefit plans	0.1		1.1		1.2		(0.3)		0.9		(24.5)		(6.2)		0.9		(29.8)
Total	$	(20.5)	$	(2.9)	$	(23.4)	$	1.5	$	(21.9)	$	(113.0)	$	(5.4)	$	(21.9)	$	(140.3)

¹See Note 6 - 6. 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 ~~December~~March 31, ~~2019~~2020 that isare expected to be reclassified into earnings within the next 12 months is expense of ~~$0.1~~$4.8 million.

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 ~~December~~March 31, ~~2019~~2020 and ~~2018:~~2019:


	Three Months Ended March 31
	2020										2019
	Amount reclassified		Tax effect		Net of tax		Amount reclassified		Tax effect ⁴		Net of tax
Derivative instruments designated as hedges:
Foreign exchange forward contracts ¹	$	—	$	—	$	—	$	(0.1)	$	(0.1)	$	(0.2)
Interest rate swaps ²	(0.4)		0.1		(0.3)		(1.7)		0.5		(1.2)
Derivative instruments designated as hedges total	(0.4)		0.1		(0.3)		(1.8)		0.4		(1.4)
Change in pension and postretirement defined benefit plans ³	(10.3)		2.6		(7.7)		0.6		(0.2)		0.4

Table of Conte nts

Quarter Ended December 31
2019 2018
Amount
reclassified Tax effect Net of tax
Amount
reclassified

Tax effect ⁴
Net of tax
Derivative instruments designated as hedges:
Foreign exchange forward contracts ¹
$ 0.1
$ (0.1 ) $ —
$ (0.1 ) $ 0.1
$ —
Interest rate swaps ²
0.8
(0.2 ) 0.6
(2.1 ) 0.6
(1.5 )
Derivative instruments designated as hedges total 0.9
(0.3 ) 0.6
(2.2 ) 0.7
(1.5 )
Change in pension and postretirement defined benefit plans ³
1.2
(0.3 ) 0.9
0.5
(6.3 ) (5.8 )

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


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

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 10. Special Charges

~~Note 10~~
. ~~Special Charges~~

In connection with various organizational changes to improve our business alignment and cost structure, we recognized Special charges of ~~$7.8~~$8.8 million and ~~$8.0~~$16.6 million for the ~~quarters~~three and six months ended ~~December~~March 31, ~~2019~~2020 compared to $3.5 million and ~~2018.~~$11.5 million for the three and six months ended March 31, 2019. Although these charges are non-recurring in nature, additional Special charges are expected to be incurred related to restructuring and transformative initiatives in future periods. It is not practicable to estimate the amount of these future expected costs until such time as the evaluations are complete.

These charges are summarized as follows:

Business Optimization and Realignment

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. InFor the ~~quarter~~three months ended ~~December~~March 31, ~~2019,~~2020, the Company incurred ~~$9.4~~$9.9 million related to this initiative, of which ~~$5.3~~$5.4 million was capitalized and ~~$4.1~~$4.5 million was expensed in Special charges. For the six months ended March 31, 2020, the Company incurred $19.3 million, of which $10.7 million was capitalized and $8.6 million was expensed in Special charges. The objective of this initiative is to consolidate and streamline our key workstreams that interact with customers and vendors and support our financial reporting processes while maintaining the security of our data. The solutions designed under this initiative will be implemented over the next five to seven years.

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

~~During~~

Table of Conte nts

For the ~~quarter~~three and six months ended ~~December~~March 31, ~~2019,~~2020, we incurred total business optimization and realignment charges of ~~$7.3~~$8.2 million and $15.5 million, of which ~~$1.8~~$2.1 million and $3.9 million were severance and benefit costs with the remainder related to professional fees and project management costs. These amounts compare to charges of ~~$3.8~~$2.5 million inand $6.3 million for the ~~quarter~~three and six months ended ~~December~~March 31, ~~2018,~~2019, of which ~~$2.7~~$1.0 million and $3.8 million were severance and benefit costs with the remainder related to professional fees and project management costs.

Site Consolidation

We continue to streamline our operations and simplify our supply chain by consolidating certain manufacturing and distribution operations (“Site Consolidation”). ~~During~~For the ~~quarter~~three and six months ended ~~December~~March 31, ~~2019,~~2020, we recorded charges of ~~$0.5~~$0.7 million and $1.2 million related to these efforts, ~~all~~primarily comprised of ~~which were~~site closure costs and severance and benefit costs. These amounts compare to charges of ~~$4.1~~$1.0 million and $5.1 million related to these efforts infor the ~~quarter~~three and six months ended ~~December~~March 31, ~~2018,~~2019, primarily ~~comprising~~comprised of severance and benefit costs, lease termination and facility closure ~~costs related to three sites that were closed.~~costs.

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 ~~quarter~~six months ended ~~December~~March 31, ~~2019~~2020 was as follows:

Balance as of September 30, 2019 $ 8.5
Expenses 2.4
Cash Payments (2.9 )
Reversals (0.1 )
Balance as of December 31, 2019 $ 7.9


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

Note 11. 11. Income Taxes

The effective tax rate for the ~~quarter~~three months ended ~~December~~March 31, ~~2019~~2020 was ~~6.6%~~17.4% compared to ~~14.9%~~18.5% for the comparable period in the prior ~~year due primarily to~~year. The effective tax rate for the ~~difference in the discrete tax benefits realized in each period. The current period rate~~three months ended March 31, 2020 was favorably impacted primarily by ~~$4.1 million excess~~an increased projected benefit for the deduction attributed to foreign derived intangible income (“FDII”).

The effective tax ~~benefits on deductible stock compensation~~rate for the six months ended March 31, 2020 was 12.8% compared to ~~$1.7 million of benefit~~16.9% for the comparable period in the ~~comparable~~ prior ~~period.~~year. The ~~current period~~effective tax rate for the six months ended March 31, 2020 was favorably impacted primarily by an increased projected benefit for the deduction attributed to FDII as well as a small benefit from current year discrete items. The effective tax rate for the six months ended March 31, 2020 was also favorably impacted by the reduction of the contingent consideration accrual of $8.4 million, ~~in the quarter ended December 31, 2019,~~ that is not subject to tax.

On March 25, 2020, the U.S. government approved the Coronavirus Aid, Relief and Economic Security (“CARES”) Act to provide economic stimulus to address the impact of the pandemic. We continue to evaluate what impact, if any, the CARES Act, or any similar legislation in other non-U.S. jurisdictions, may have on our related tax positions and our effective tax rate.

Note 12. 12. Earnings per Common Share

Basic earnings per share (“EPS”) is calculated based upon the weighted average number of outstanding common shares for the period, plus the effect of deferred vested shares. Diluted earnings per share is calculated consistent with the basic earnings per share calculation plus the effect of dilutive unissued common shares related to stock-based employee compensation programs. For all periods presented, anti-dilutive stock options were excluded from the calculation of diluted earnings per share. Cumulative treasury stock acquired, less cumulative shares reissued, have been excluded in determining the average number of shares outstanding.

Table of Conte nts

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


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

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

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

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

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

Quarter Ended December 31
2019 2018
Net income $ 39.8
$ 42.2

Average basic shares outstanding 66,792
67,053
Add potential effect of exercise of stock options and other unvested equity awards 537
672
Average diluted shares outstanding 67,329
67,725

Net income per basic common share $ 0.60
$ 0.63

Net income per diluted common share $ 0.59
$ 0.62

Shares with anti-dilutive effect excluded from the computation of diluted EPS 291
486


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

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

The following discussion and analysis should be read in conjunction with the accompanying interim financial statements and our 2019 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^TM. Around the world, our innovations touch over 7 million patients each day. Our products and services help enable earlier diagnosis and treatment, optimize surgical efficiency and accelerate patient recovery while simplifying clinical communication and shifting care closer to home. We make these outcomes possible through connected smart beds, patient lifts, patient assessment and monitoring technologies, caregiver collaboration tools, respiratory health devices, advanced equipment for the surgical space and more, delivering actionable, real-time insights at the point of care.

Use of Non-GAAP Financial Measures

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

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

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

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

Table of Conte nts

Results of Operations

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

•

•Patient Support Systems –globally provides our med-surg and specialty bed systems and surfaces, safe patient handling equipment and mobility solutions, as well as our care communications platform that delivers software and information technologies to improve care and deliver actionable insight to caregivers and patients.

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

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

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


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


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

Net Revenue


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

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

OUS - Outside of the United States

(in millions) U.S. OUS
Quarter Ended
December 31
Change As
Reported

Constant
Currency

Change As
Reported

Change As
Reported

Constant
Currency
2019 2018
Net Revenue:
Product sales and service $ 614.3
$ 611.6
0.4 % 0.9 % 3.4 % (5.5 )% (4.0 )%
Rental revenue 70.7
71.9
(1.7 )% (1.4 )% (1.0 )% (6.1 )% (4.1 )%
Total net revenue $ 685.0
$ 683.5
0.2 % 0.7 % 2.8 % (5.5 )% (4.0 )%

Net Revenue:
Patient Support Systems $ 344.2
$ 341.0
0.9 % 1.4 % 7.5 % (16.5 )% (14.6 )%
Front Line Care 254.6
233.4
9.1 % 9.3 % 7.0 % 14.3 % 15.1 %
Surgical Solutions 86.2
109.1
(21.0 )% (20.0 )% (31.2 )% (11.1 )% (9.2 )%
Total net revenue $ 685.0
$ 683.5
0.2 % 0.7 % 2.8 % (5.5 )% (4.0 )%

OUS - Outside of the United States

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

Consolidated Revenue

Product sales and service revenue increased ~~0.4%~~1.6% on a reported basis, ~~or 0.9%~~and 2.6% on a constant currency basis, for the ~~quarter~~three months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three months ended ~~December~~March 31, ~~2018 primarily due~~2019. The increases were driven by increased demand, partially attributable to ~~Voalte, which was acquired in April 2019, as well as sales growth related to new products, our care communications platform~~the COVID-19 pandemic, for Patient Support Systems and ~~across our~~ Front Line Care products. New products ~~including significant growth internationally.~~and recent acquisitions also contributed to revenue growth. These ~~growth drivers~~increases were partially offset by ~~declines resulting from our~~the decline in Surgical Solutions primarily due to the disposition of the surgical consumable products business in August 2019.

Rental revenue decreased ~~1.7%~~1.9% on a reported basis, ~~or 1.4%~~and 1.7% on a constant currency basis, for the ~~quarter~~three months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three months ended ~~December~~March 31, ~~2018.~~2019. The decreases were attributable to the exit of a rental arrangement remaining from the previously divested third-party rental business.

Table of Conte nts

Business Segment Revenue

Patient Support Systems revenue increased ~~0.9%~~6.3% on a reported basis, ~~or 1.4%~~and 7.2% on a constant currency basis, for the ~~quarter~~three months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three months ended ~~December~~March 31, ~~2018.~~2019. The increases were driven primarily by growth in the United States, with growth in new products, accelerated customer orders globally for our beds and surfaces, partially due to the COVID-19 pandemic, and contributions from recent acquisitions. The increases during the three months ended March 31, 2020 were partially offset by project delays for products that require installation or customization, such as our care communications products. Revenue for the three months ended March 31, 2020 does not reflect approximately $1.4 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred revenue related to recent acquisitions.

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

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

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

Net Revenue


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

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

OUS - Outside of the United States

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

Consolidated Revenue

Product sales and service revenue increased 1.1% on a reported basis, and 1.8% on a constant currency basis, for the six months ended March 31, 2020 compared to the six months ended March 31, 2019. The increases were primarily due to Patient Support Systems sales growth in the United States driven by new products and recent acquisitions, as well as Front Line Care growth globally. The increases were partially offset by the decline in Surgical Solutions sales related to the disposition of the surgical consumable products business in August 2019. Increased demand for our products due to the COVID-19 pandemic also contributed to the sales growth for Patient Support Systems and Front Line Care.

Rental revenue decreased 1.8% on a reported basis, and 1.5% on a constant currency basis, for the six months ended March 31, 2020 compared to the six months ended March 31, 2019. The decreases were attributable to the exit of a rental arrangement remaining from the previously divested third-party rental business.

Table of Conte nts

Business Segment Revenue

Patient Support Systems revenue increased 3.7% on a reported basis, and 4.4% on a constant currency basis, for the six months ended March 31, 2020 compared to the six months ended March 31, 2019. The increases were driven primarily by growth in the United States from our care communications platform, which includes ~~Voalte that contributed approximately 4.0% of~~recent acquisitions, new product introductions and increased demand for beds and surfaces, partially due to the ~~total revenues, and new products.~~COVID-19 pandemic. The increases were partially offset by lower sales outside of the United ~~States.~~States due to notable declines mainly in the Middle East due to the timing of large projects. Revenue for the ~~quarter~~six months ended ~~December~~March 31, ~~2019~~2020 does not reflect approximately ~~$0.6~~$2.0 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 ~~9.1%~~7.6% on a reported basis, ~~or 9.3%~~and 8.1% on a constant currency basis, for the ~~quarter~~six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~six months ended ~~December~~March 31, ~~2018.~~2019. The increases were driven by global sales ofgrowth for patient diagnostic and monitoring products and incremental revenue from the acquisition of Breathe.

Surgical Solutions revenue decreased ~~21.0%~~23.3% on a reported basis, ~~or 20.0%~~and 22.3% on a constant currency basis, for the ~~quarter~~six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~six months ended ~~December~~March 31, ~~2018,~~2019 primarily due to the disposition of the surgical consumable products business in August 2019. The decreases were partially offset by ~~strong~~sales growth from integrated operating tables.

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

Gross Profit


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

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

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

(in millions) Quarter Ended December 31
2019 2018
Gross Profit ¹

Product sales and service $ 308.0
$ 295.3
Percent of Related Net Revenue 50.1 % 48.3 %

Rental $ 33.7
$ 34.7
Percent of Related Net Revenue 47.7 % 48.3 %

Total Gross Profit $ 341.7
$ 330.0
Percent of Total Net Revenue 49.9 % 48.3 %

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

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

Product sales and service gross profit increased by ~~$12.7~~$16.0 million and $28.7 million, or ~~4.3%~~5.1% and 4.7%, for the ~~quarter~~three and six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three and six months ended ~~December~~March 31, ~~2018.~~2019. The ~~growth~~increases in gross profit ~~was~~were primarily driven by strategic changes in ~~the~~ product sales mix across all segments, ~~that resulted in more sales derived from higher gross profit products, including Voalte, as well as improved operating efficiencies that resulted in lower operating costs. The~~which included recent acquisitions and the disposition of ~~our~~the surgical consumable products business in August ~~2019~~2019. The increases were also ~~contributed~~attributable to ~~the increase.~~product mix within Patient Support Systems and Front Line Care and improved operating efficiencies resulting in lower operating costs.

Rental gross profit decreased ~~$1.0~~$1.1 million and $2.1 million, or 2.8% and 2.9%, for the ~~quarter~~three and six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three and six months ended ~~December~~March 31, ~~2018~~2019 primarily due to ~~lower volumes.~~

the exit of a rental arrangement remaining from the previously divested third-party rental business.

Table of Conte nts

Operating Expenses


(in millions)	Quarter Ended December 31
(In millions)							(In millions)	Three Months Ended March 31									Six Months Ended March 31
	2019			2018				2020			2019			2020			2019
Research and development expenses	$	31.5		$	33.2		Research and development expenses	$	34.4		$	36.6		$	65.9		$	69.8
Percent of Total Net Revenue	4.6		%	4.9		%	Percent of Total Net Revenue	4.8		%	5.1		%	4.7		%	5.0		%

Selling and administrative expenses	$	196.8		$	192.3		Selling and administrative expenses	$	209.9		$	203.9		$	406.7		$	396.2
Percent of Total Net Revenue	28.7		%	28.1		%	Percent of Total Net Revenue	29.0		%	28.5		%	28.9		%	28.3		%

Acquisition-related intangible asset amortization	$	26.7		$	25.7		Acquisition-related intangible asset amortization	$	27.1		$	27.3		$	53.8		$	53.0
Percent of Total Net Revenue	3.9		%	3.8		%	Percent of Total Net Revenue	3.7		%	3.8		%	3.8		%	3.8		%

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

Research and development expenses decreased ~~by $1.7~~$2.2 million and $3.9 million, or ~~5.1%~~6.0% and 5.6%, for the ~~quarter~~three and six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three and six months ended ~~December~~March 31, ~~2018~~2019 due to the timing of projects.

~~As a percentage of total net revenue,~~ Selling and administrative expenses increased $6.0 million and $10.5 million, or 2.9% and 2.7%, for the ~~quarter~~three and six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three and six months ended December 31, 2018. Selling and administrative expenses is reduced by a net benefit of $2.7 million related to acquisition and integration costs and regulatory compliance costs for the quarter ended December 31, 2019. Selling and administrative expenses include acquisition and integration costs and regulatory compliance costs totaling $3.0 million for the

~~quarter ended December 31, 2018. Excluding these items, as a percentage of total revenue, Selling and administrative expenses increased 5.4% for the quarter ended December~~March 31, 2019 ~~compared to the quarter ended December 31, 2018~~ due to ~~increased compensation costs primarily related to stock based compensation,~~ increased information technology costs and increased investment in emerging markets.

Acquisition-related intangible asset amortization ~~increased by $1.0 million or 3.9%~~remained relatively flat for the ~~quarter~~three months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three months ended ~~December~~March 31, ~~2018~~2019. For the six months ended March 31, 2020, Acquisition-related intangible asset amortization increased $0.8 million, or 1.5%, compared to the six months ended March 31, 2019 due to the ~~acquisition~~acquisitions of Voalte and Breathe during ~~April~~fiscal 2019 and ~~September 2019, offset by the disposition of our surgical consumable products business~~Excel Medical in ~~August 2019.~~January 2020.

Special Charges and Other

(in millions) Quarter Ended December 31
2019 2018
Special charges $ 7.8
$ 8.0

Interest expense $ (19.4 ) $ (21.3 )
Loss on extinguishment of debt $ (15.6 ) $ —
Investment income (expense) and other, net $ (1.3 ) $ 0.1


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

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

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

Interest expense decreased $2.7 million and $4.6 million, or 12.4% and 10.7%, for the ~~quarter~~three and six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three and six months ended ~~December~~March 31, ~~2018~~2019 due to lower interest rates resulting from the refinancing of senior unsecured notes of $425.0 million in September 2019. See Note 5 - 5. Financing Agreements for ~~further~~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 - 5. Financing Agreements for further information.

Table of Conte nts

Investment income (expense) and other, net ~~decreased~~ for the ~~quarter~~three and six months ended ~~December~~March 31, 2020 was expense of $11.4 million and $12.7 million comprised primarily of $2.0 million of losses related to our cost and equity method investments, the recognition of a non-cash pension plan settlement loss of $8.5 million, and unfavorable movements in foreign exchange rates. These balances were partially offset by a $1.2 million litigation settlement award. See Note 3. Supplementary Financial Statement Information and Note 8. Retirement and Postretirement Plans for additional information. Investment income (expense) and other, net for the three and six months ended March 31, 2019 ~~compared to the quarter ended December 31, 2018~~was income of $1.2 million and $1.3 million driven primarily ~~due to incremental net pension expense related to the amortization of actuarial losses.~~by favorable movements in foreign exchange rates.

Income Tax Expense

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

The effective tax rate for the ~~quarter~~three months ended ~~December~~March 31, ~~2019~~2020 was ~~6.6%~~17.4% compared to ~~14.9%~~18.5% for the ~~quarter ended December 31, 2018 primarily due to the difference~~comparable period in the ~~discrete~~prior year. The effective tax ~~benefits realized in each period. The current period~~ rate for the three months ended March 31, 2020 was favorably impacted primarily by ~~$4.1 million of~~an increased projected benefit for the deduction attributed to foreign derived intangible income (“FDII”).

The adjusted effective tax rate for the three months ended March 31, 2020 was 20.9% compared to 20.4% for the comparable period in the prior year. The differences from the current year period and the prior year period primarily relate to discrete items, including the excess tax benefits on deductible stock ~~compensation~~compensation.

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

The effective tax rate for the six months ended March 31, 2020 was 12.8% compared to ~~$1.7 million of benefit~~16.9% for the comparable period in the ~~comparable~~ prior ~~period.~~year. The ~~current period~~effective tax rate for the six months ended March 31, 2020 was favorably impacted primarily by an increased projected benefit for the deduction attributed to FDII as well as a small benefit from current year discrete items. The effective tax rate for the six months ended March 31, 2020 was also favorably impacted by the reduction of the contingent consideration accrual of $8.4 million, ~~in the quarter ended December 31, 2019,~~ that is not subject to tax. See Note 4. Business Combinations for additional information.

The adjusted effective tax rate for the ~~quarter~~six months ended ~~December~~March 31, ~~2019~~2020 was ~~16.6%~~19.0% compared to ~~19.7%~~20.1% for the ~~quarter ended December 31, 2018.~~comparable period in the prior year. The ~~lower adjusted tax rate in~~differences from the current year isperiod and the prior year period primarily ~~due~~relate to ~~a larger amount of~~discrete items, including the excess tax benefits on deductible stock ~~compensation compared~~compensation.

On March 25, 2020, the U.S. government approved the Coronavirus Aid, Relief and Economic Security (“CARES”) Act to provide economic stimulus to address the ~~prior period.~~impact of the pandemic. We continue to evaluate what impact, if any, the CARES Act, or any similar legislation in other non-U.S. jurisdictions, may have on our related tax positions and our effective tax rate.

Earnings per Share

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

Diluted earnings per share decreased from ~~$0.62~~$0.74 to ~~$0.59~~$0.70 for the ~~quarter~~three months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three months ended ~~December~~March 31, ~~2018~~2019 due to a pension settlement loss of $8.5 million. See Note 8. Retirement and Postretirement Plansfor additional information.

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

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

Table of Conte nts

Business Segment Divisional Income

Quarter Ended
December 31 Change As Reported
2019 2018
Divisional income:

Patient Support Systems $ 58.4
$ 59.6
(2.0 )%
Front Line Care 73.5
61.9
18.7 %
Surgical Solutions 12.8
11.2
14.3 %


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

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

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

Patient Support Systems divisional income ~~decreased 2.0%~~increased $2.7 million and $1.4 million, or 3.7% and 1.1%, for the ~~quarter~~three and six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three and six months ended ~~December~~March 31, ~~2018~~2019 primarily due to revenue growth in the United States from our care communications platform, which includes recent acquisitions, and sales growth during the three months ended March 31, 2020.The increases in revenue were offset primarily by an increase in investments to support growth ~~initiatives, partially offset by revenue growth in the United States from the acquisition of Voalte, new products and care communications.~~initiatives.

Front Line Care divisional income increased ~~18.7%~~$10.5 million and $22.3 million, or 15.6% and 17.3% for the ~~quarter~~three and six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three and six months ended ~~December~~March 31, ~~2018~~2019 due to overall revenue growth in the United States and ~~improved product mix resulting in~~internationally driven by sales of respiratory health and patient monitoring products as well as higher gross ~~profits.~~margins.

Surgical Solutions divisional income ~~increased 14.3%~~decreased $1.4 million, or 9.3% for the ~~quarter~~three months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~three months ended ~~December~~March 31, ~~2018~~2019 as a result of the disposition of the surgical consumable products business in August 2019, partially offset by higher gross margins and reductions in operating ~~costs, partially~~costs. Divisional income remained relatively flat for the six months ended March 31, 2020 compared to the six months ended March 31, 2019 due to sales growth from integrated operating tables and other equipment installed as part of new construction, which was offset by ~~declines from~~ the disposition of the surgical consumable products business in August 2019.

GAAP and Adjusted Earnings

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

Table of Conte nts

Quarter Ended December 31, 2019 Quarter Ended December 31, 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 11.5 % $ 42.6
$ 2.8
$ 0.59
10.4 % $ 49.6
$ 7.4
$ 0.62
Adjustments:

Acquisition and integration costs and related fair value adjustments¹
(1.0 )% (6.6 ) 0.3
(0.10 ) — % 0.2
0.1
—
Acquisition-related intangible asset amortization ²
4.0 % 26.7
6.4
0.30
3.8 % 25.7
5.9
0.29
Regulatory compliance costs ³
0.6 % 3.9
0.6
0.05
0.3 % 2.8
0.7
0.03
Special charges⁴
1.1 % 7.8
1.2
0.10
1.2 % 8.0
1.9
0.09
Tax law and method changes ⁵
— % —
—
—
— % —
1.0
(0.01 )
Debt financing costs ⁶
— % 16.1
3.7
0.18
— % —
—
—
Loss on disposition of business ⁷
— % 0.5
0.1
0.01
— % —
—
—
Adjusted Basis 16.2 % $ 91.0
$ 15.1
$ 1.13
15.7 % $ 86.3
$ 17.0
$ 1.02
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 quarter ended December 31, 2019, a net benefit from fair value adjustments of $7.5 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 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.
⁴Special 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.
⁵ 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
⁶ Debt refinancing costs are expenses related to the costs incurred between the issuance and redemption of our senior unsecured notes due 2027 and 2023, respectively. In the quarter ended December 31, 2019, 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.
⁷ Loss on disposition of business relates to losses recorded in Investment income and other, net resulting from business dispositions.
Three Months Ended March 31, 2020 Compared to the Three Months Ended March 31, 2019


	Three Months Ended March 31, 2020														Three Months Ended March 31, 2019
	Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS		Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS
GAAP Basis	12.1	%	$	56.8	$	9.9	$	0.70	11.4	%	$	60.7	$	11.2	$	0.74
Adjustments:
Acquisition and integration costs and related fair value adjustments¹	0.4	%	2.7		0.7		0.03		0.2	%	1.6		0.3		0.02
Acquisition-related intangible asset amortization ²	3.7	%	27.1		6.6		0.31		3.8	%	27.3		6.4		0.30

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




Pension Settlement Expense ⁶	—	%	8.5		2.0		0.09		—	%	—		—		—
Litigation Settlement ⁷	—	%	(1.2)		(0.3)		(0.01)		—	%	—		—		—
Adjusted Basis	18.3	%	$	108.9	$	22.8	$	1.28	16.4	%	$	96.4	$	19.7	$	1.14
¹ Acquisition and integration costs and related fair value adjustments include legal and professional fees, temporary labor, consulting and other costs related to the closing and integration of acquired businesses, including purchase accounting adjustments for deferred revenue and other items, and contingent consideration. For the three months ended March 31, 2020, a fair value adjustment of $1.7 million represents purchase accounting adjustments for deferred revenue and contingent consideration associated with our business combinations in Note 4. Business Combinations.
² Acquisition-related intangible asset amortization relates to the amortization of intangible assets associated with our business combinations.
³ Field corrective action costs relate to costs incurred to address broad-based product performance matters outside of normal warranty provisions. These costs are included in Cost of goods sold.
⁴ Regulatory compliance costs relate to updating existing product registrations to comply with the European Medical Device Regulations. These costs are included in Selling and administrative expenses.
⁵Special charges represent a variety of costs associated with restructuring actions, including severance and related benefits, lease termination fees, asset write-downs and temporary labor on shutdown of operations. It also includes costs related to a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems.

⁶ Pension settlement expense represents an actuarial loss totaling $8.5 million recorded as a component of Investment income (expense) and other, net. See Note 8. Retirement and Postretirement Plans for additional information.

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

Table of Conte nts

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


	Six Months Ended March 31, 2020														Six Months Ended March 31, 2019
	Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS		Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS
GAAP Basis	11.8	%	$	99.4	$	12.7	$	1.29	10.9	%	$	110.3	$	18.6	$	1.36
Adjustments:
Acquisition and integration costs and related fair value adjustments¹	(0.3)	%	(3.8)		1.0		(0.07)		0.1	%	1.8		0.4		0.02
Acquisition-related intangible asset amortization ²	3.8	%	53.8		13.0		0.61		3.8	%	53.0		12.3		0.60

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

Debt refinancing costs ⁷	—	%	16.1		3.7		0.18		—	%	—		—		—
Loss on disposition of business ⁸	—	%	0.4		0.1		0.01		—	%	—		—		—
Pension settlement expense ⁹	—	%	8.5		2.0		0.10		—	%	—		—		—
Litigation settlement ¹⁰	—	%	(1.2)		(0.3)		(0.01)		—	%	—		—		—
Adjusted Basis	17.2	%	$	199.9	$	37.9	$	2.41	16.1	%	$	182.7	$	36.7	$	2.16
¹ Acquisition and integration costs and related fair value adjustments include legal and professional fees, temporary labor, consulting and other costs related to the closing and integration of acquired businesses, including purchase accounting adjustments for deferred revenue and other items, and contingent consideration. For the six months ended March 31, 2020, a fair value adjustment of $6.2 million represents purchase accounting adjustments for deferred revenue and contingent consideration associated with our business combinations in Note 4. Business Combinations.
² Acquisition-related intangible asset amortization relates to the amortization of intangible assets associated with our business combinations.
³ Field corrective action costs relate to costs incurred to address broad-based product performance matters outside of normal warranty provisions. These costs are included in Cost of goods sold.
⁴ Regulatory compliance costs relate to updating existing product registrations to comply with the European Medical Device Regulations. These costs are included in Selling and administrative expenses.
⁵Special charges represent a variety of costs associated with restructuring actions, including severance and related benefits, lease termination fees, asset write-downs and temporary labor on shutdown of operations. It also includes costs related to a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems.
⁶ Tax law and method changes relate to tax expenses and related unrecognized tax benefits due to the Tax Cuts and Jobs Act enacted in the United States in December 2017. See Note 11. Income Taxes within the 2019 Form 10-K for the fiscal year ended September 30, 2019 for further information
⁷ Debt refinancing costs are expenses related to the costs incurred between the issuance and redemption of our senior unsecured notes due 2027 and 2023. For the six months ended March 31, 2020, debt refinancing costs include a loss on extinguishment of debt of $15.6 million related to the redemption of all of our previously outstanding senior unsecured 5.75% notes due September 2023 as discussed within Note 5. Financing Agreements, as well as $0.5 million of duplicative interest costs.
⁸ Loss on disposition of business relates to losses recorded in Investment income (expense) and other, net resulting from business dispositions.
⁹ Pension settlement expense represents an actuarial loss totaling $8.5 million recorded as a component of Investment income (expense) and other, net. See Note 8. Retirement and Postretirement Plans for additional information.
¹⁰ Litigation settlements and expenses are the aggregate charges, costs or recoveries associated with litigation settlements. For the six months ended March 31, 2020, we received a litigation settlement award totaling $1.2 million, which was recorded as a component of Investment income (expense) and other, net.

Table of Conte nts

Liquidity and Capital Resources


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

Quarter Ended December 31
2019 2018
Cash Flows Provided By (Used In):
Operating activities $ 77.0
$ 116.0
Investing activities (23.8 ) (58.5 )
Financing activities (487.3 ) (54.6 )
Effect of exchange rate changes on cash 4.7
(1.7 )
(Decrease) Increase in Cash and cash equivalents $ (429.4 ) $ 1.2

Net cash flows from operating activities and selected borrowings represented our primary sources of funds for growth of the

business, including capital expenditures and acquisitions. Our financing agreements contain certain restrictions relating to dividend payments, the making of restricted payments, and the incurrence of additional secured and unsecured indebtedness. None of our financing agreements contain any credit rating triggers ~~which~~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 decreased ~~$39.0~~$1.5 million for the ~~quarter~~six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~six months ended ~~December~~March 31, ~~2018.~~2019. The primary drivers include an increase in incentive compensation payments, ~~as well as timing of payments related to funding an additional payroll period and other receivables.~~partially offset by improved operating profit margins.

Investing Activities

Cash used in investing activities ~~was $23.8~~decreased by $13.9 million for the ~~quarter~~six months ended ~~December~~March 31, ~~2019, primarily driven by capital expenditures of $24.3 million, offset by proceeds on the disposal of property, plant and equipment and equipment leased to others of $0.5 million.~~

~~Cash used in investing activities decreased $34.7 million for the quarter ended December 31, 2019~~2020 compared to the ~~quarter~~six months ended ~~December~~March 31, ~~2018~~2019 primarily due to our acquisitions of non-marketable securities of $26.6 million and the right to use patented technology and certain related assets of $17.1 million ~~and non-marketable securities of $26.6 million~~ during the ~~quarter~~six months ended ~~December~~March 31, ~~2018 as discussed within~~ 2019. The decrease was partially offset by the payment of $13.1 million for the acquisition of Excel Medical in January 2020. See Note 3 - 3. Supplementary Financial Statement Information and Note 4 - 4. Business Combinations~~, respectively.~~ for additional information.

Financing Activities

Cash used in financing activities increased ~~$432.7~~$359.3 million for the ~~quarter~~six months ended ~~December~~March 31, ~~2019~~2020 compared to the ~~quarter~~six months ended ~~December~~March 31, ~~2018~~2019 primarily due to the redemption of our previously outstanding senior unsecured 5.75% notes due September 2023 of $425.0 million and the related prepayment premium of $12.2 million as described within Note 5 - 5. Financing ~~Agreements~~Agreements.

, as well as the purchase of $15.1 million of Treasury Stock in connection with employee payroll tax withholding for restricted stock distributions. Cash used in financing activities was partially offset by borrowings against our Note Securitization Facility and 2024 Revolving Credit Facility as described within ~~Note 5~~ - ~~Financing Agreements~~.

~~Treasury stock repurchases may be made on the open market or via private transactions, and are used to manage our capital structure, offset the dilutive impact~~

Table of ~~stock-based compensation and return cash to shareholders.~~Conte nts

Other Liquidity Matters

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

As of March 31, 2020, there were $185.0 million outstanding borrowings on the ~~credit markets could impede our access to capital. Our~~ 2024 Revolving Credit Facility, ~~is with a syndicate of banks, which we believe reduces our exposure to any one institution~~ and ~~would still leave us with significant~~available borrowing capacity inwas $1,007.8 million after giving effect to the ~~event that any one~~$7.2 million of outstanding standby letters of credit. As of September 30, 2019, there were $80.0 million outstanding borrowings on the 2024 Revolving Credit Facility, and available borrowing capacity was $1,112.8 million after giving effect to $7.2 million of outstanding standby letters of credit.

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

Hillrom’s long-term debt instruments require nominal repayments over the ~~group is unable to comply~~next 12 months, with our next significant maturity occurring in August 2024. Since the ~~terms~~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 ~~agreement.~~2024 Revolving Credit Facility. Furthermore, Hillrom has successfully extended its 364-day accounts receivable securitization facilities as of April 27, 2020. As of March 31, 2020, we were in compliance with all debt covenants under our financing agreements. See Note 5 - 5. Financing Agreements for additional information on our financing agreements.

Hillrom does not anticipate incurring significant incremental capital expenditures due to the pandemic. We may delay discretionary capital spending or redirect capital spending to support the increased demand for certain products used to treat patients diagnosed with COVID-19.

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

Over the long term, we 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. ~~See~~ ~~Note 4~~ - ~~Business Combinations~~ ~~for information on our acquisitions and dispositions completed during fiscal 2019 and 2018.~~

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

As of ~~December~~March 31, ~~2019,~~2020, approximately ~~75.1%~~53.0% of our cash and cash equivalents were held by our foreign subsidiaries. As of ~~December~~March 31, ~~2019,~~2020, our practice and intention ~~was~~were to reinvest the earnings in our non-U.S. subsidiaries outside of the United States.

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

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

Table of Conte nts

Contractual Obligations and Contingent Liabilities and Commitments

There have not been any significant changes since September 30, 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 significantly from these estimates and assumptions, our results of operations and financial condition could be affected. A detailed description of our accounting policies is included in Note 1 - 1. Summary of Significant Accounting Policies and the Critical Accounting Policies Section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2019 Form 10-K. There have been no significant changes to such policies since September 30, 2019.

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

The Impacts of COVID-19 on Hillrom

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

Revenues and Customers

As a result of preventive and cautionary measures taken by Hillrom, other businesses and governments, we may experience changes in demand for certain of our products as health care customers prioritize the treatment of patients diagnosed with COVID-19. For the three and six months ended March 31, 2020, we experienced an increase in demand for select products including ICU and med-surg beds, specialty surfaces and patient mobility solutions within Patient Support Systems, and respiratory health ventilators, thermometry and patient monitoring products within Front Line Care. We also experienced declines in revenue related to project delays in our care communications business. The combined impact to total net revenues in the second quarter of fiscal 2020 was a net increase of approximately $15 million due to higher demand for products used to treat patients diagnosed with COVID-19.

In the second half of 2020, the Company expects near-term increases in demand for products used to treat patients diagnosed with COVID-19. This demand is expected to be partially offset by near-term lower demand for information technologies and software solutions in Patient Support Systems due to limited access to hospitals and the near term reprioritization of customer demand for products used to treat patients diagnosed with COVID-19. In addition, we expect near-term lower demand for operating room infrastructure in Surgical Solutions due to project delays as customers are focusing on the demands of the pandemic. The ultimate impact of the COVID-19 pandemic or a similar public health event is highly uncertain and subject to change. In this regard, the extent of potential impacts on our business, healthcare systems and other customers and the U.S. and global economies as a whole is evolving, and the development of customer demand described above and other factors could materially and adversely affect our business, results of operations, financial condition and prospects. Management intends to continue focusing on the Company's strategic growth objectives, while also working to meet the immediate demands relating to the COVID-19 pandemic.

Operations and Workforce

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

Table of Conte nts

Hillrom continues to operate our production facilities as our products are essential to healthcare providers. Some of our products are specifically being used to treat patients diagnosed with COVID-19. Many employees in our administrative functions have effectively worked remotely since mid-March. Due to the importance of Hillrom’s products relative to treating the virus, the Company has maintained employment levels and has prudently augmented staffing as needed to meet near-term incremental demand as a result of the pandemic. Management does not believe that the pandemic will have a long-term impact on Hillrom’s organizational structure or number of employees.

Hillrom is currently evaluating governmental subsidies and incentives available within the various jurisdictions in which we operate. Management will evaluate these opportunities as well as the related requirements or restrictions to support our operations and workforce in a manner that allow us to continue to operate efficiently and effectively.

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

Table of Conte nts


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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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

We are subject to variability in foreign currency exchange rates in our international operations. Exposure to this variability is periodically managed primarily through the use of natural hedges, whereby funding obligations and assets are both managed in the local currency. From time-to-time, we enter into currency exchange agreements 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, 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 - 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 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 ~~December~~March 31, ~~2019.~~2020. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to management, including our Certifying Officers and our Board of Directors, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective as of ~~December~~March 31, ~~2019.~~2020.

Beginning October 1, 2019, we adopted ASC 842, which resulted in the recognition of right-of-use assets and lease liabilities in the Condensed Consolidated Balance Sheet. We performed implementation controls, including reviews of lease contracts, to adopt the new standard, and implemented certain changes in our ongoing lease processes and control activities, which included enhancements to lease review and valuation processes, and gathering of information for disclosures.

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

Table of Conte nts

PART II – OTHER INFORMATION


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

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


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

~~There~~

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Table of Conte nts


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

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


Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs ⁽²⁾	Approximate Dollar Value of Shares That May Yet Be Purchased Under the Programs ⁽²⁾
January 1, 2020 - January 31, 2020	95,415	$	108.96	91,600	$	207.5
February 1, 2020 - February 29, 2020	408,538	$	108.04	408,400	$	163.4
March 1, 2020 - March 31, 2020	2,864	$	95.69	—	$	163.4
Total	506,817			500,000

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

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


Board Approval Date	Authorized Dollar Value		Dollar Value of Shares Purchased Prior to Fiscal 2020		Dollar Value of Shares Purchased in Fiscal 2020		Availability to Purchase as of March 31, 2020
November 2017	$	150.0	$	102.5	$	47.5	$	—
September 2019	170.0		—		6.6		163.4
Totals	$	320.0	$	102.5	$	54.1	$	163.4

Period
Total
Number
of Shares
Purchased ⁽¹⁾

Average
Price Paid
per Share

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

Approximate
Dollar Value
of Shares That
May Yet Be
Purchased Under
the Programs ⁽²⁾
October 1, 2019 - October 31, 2019 867
$ 101.60
—
$ 217.5
November 1, 2019 - November 30, 2019 142,160
$ 104.08
—
$ 217.5
December 1, 2019 - December 31, 2019 2,157
$ 101.92
—
$ 217.5
Total 145,184
—


~~(1)~~	~~Shares purchased in the quarter ended December 31, 2019 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 December 31, 2019. There were no shares repurchased in the open market in the quarter ended December 31, 2019 under these plans. There is no expiration date or plans to terminate this program in the future.

Table of Conte nts

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 December 31, 2019
November 2017 $ 150.0
$ 102.5
$ —
$ 47.5
September 2019 170.0
—
—
170.0
Totals $ 320.0
$ 102.5
$ —
$ 217.5

Item 6. EXHIBITS

A. Exhibits


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


A.	~~Exhibits~~



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

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

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

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

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB	XBRL Extension Labels Linkbase Document

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

Table of Conte nts

SIGNATURES

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



	~~HILL-ROM HOLDINGS, INC.~~
	~~(Registrant)~~



			HILL-ROM HOLDINGS, INC.
			(Registrant)

Date: ~~January 29,~~May 1, 2020

By:

/s/ Barbara W. Bodem

Name:

Title:

Barbara W. Bodem

Senior Vice President and Chief Financial Officer

(duly authorized officer and principal financial officer)



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



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)	4

				Condensed Consolidated Statements of Comprehensive Income (Unaudited)	5

				Condensed Consolidated Balance Sheets (Unaudited)	6

				Condensed Consolidated Statements of Cash Flows (Unaudited)	7

				Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)	8

				Note 1. Summary of Significant Accounting Policies	910

				Note 2. Revenue from Contracts with Customers	1113

				Note 3. Supplementary Financial Statement Information	1214

				Note 4. Business Combinations	1314

				Note 5. Financing Agreements	1518

				Note 6. Derivative Instruments and Hedging Activity	1619

				Note 7. Leases	1720

				Note 8. Retirement and Postretirement Plans	1821

				Note 9. Other Comprehensive Income (Loss)	1922

				Note 10. Special Charges	2125

				Note 11. Income Taxes	2126

				Note 12. Earnings per Common Share	2226

				Note 13. Warranties and Guarantees	2227

				Note 14. Segment Reporting	2328

				Note 15. Commitments and Contingencies	2530

		Item 2 -		Management’s Discussion and Analysis of Financial Condition and Results of Operations	2631

		Item 3 -		Quantitative and Qualitative Disclosures About Market Risks	3444

		Item 4 -		Controls and Procedures	3444

PART II - OTHER INFORMATION

		Item 1 -		Legal Proceedings	3545

		Item 1A -		Risk Factors	3545

		Item 2 -		Unregistered Sales of Equity Securities and Use of Proceeds	3546

		Item 6 -		Exhibits	3647

SIGNATURES						3748


	December 31, 2019			September 30, 2019				March 31, 2020		September 30, 2019
ASSETS							ASSETS
Current Assets							Current Assets
Cash and cash equivalents	$	204.4		$	214.1		Cash and cash equivalents	$	290.5	$	214.1
Restricted cash	—			419.7			Restricted cash	—		419.7
Trade accounts receivable, net of allowances of $20.6 as of December 31, 2019 and September 30, 2019	593.7			653.3
Trade accounts receivable, net of allowances of $20.8 and $20.6 as of March 31, 2020 and September 30, 2019							Trade accounts receivable, net of allowances of $20.8 and $20.6 as of March 31, 2020 and September 30, 2019	655.4		653.3
Inventories, net of reserves	277.7			269.6			Inventories, net of reserves	265.5		269.6

Other current assets	120.3			106.7			Other current assets	130.3		106.7
Total current assets	1,196.1			1,663.4			Total current assets	1,341.7		1,663.4
Property, plant and equipment	840.6			829.6			Property, plant and equipment	841.2		829.6
Less accumulated depreciation	(542.5		)	(532.8		)	Less accumulated depreciation	(546.8)		(532.8)
Property, plant and equipment, net	298.1			296.8			Property, plant and equipment, net	294.4		296.8
Goodwill	1,808.6			1,800.9			Goodwill	1,805.7		1,800.9
Other intangible assets and software, net	1,016.7			1,033.5			Other intangible assets and software, net	1,006.5		1,033.5
Deferred income taxes	33.7			33.1			Deferred income taxes	32.6		33.1
Other assets	165.5			91.3			Other assets	166.2		91.3
Total Assets	$	4,518.7		$	4,919.0		Total Assets	$	4,647.1	$	4,919.0
LIABILITIES							LIABILITIES
Current Liabilities							Current Liabilities
Trade accounts payable	$	196.4		$	197.6		Trade accounts payable	$	224.7	$	197.6
Short-term borrowings	230.0			660.4			Short-term borrowings	245.6		660.4
Accrued compensation	78.4			130.4			Accrued compensation	98.5		130.4
Accrued product warranties	28.8			29.7			Accrued product warranties	29.0		29.7
Accrued rebates	48.9			47.7			Accrued rebates	47.5		47.7
Deferred revenue	101.4			107.3			Deferred revenue	105.7		107.3
Other current liabilities	104.4			95.2			Other current liabilities	134.4		95.2
Total current liabilities	788.3			1,268.3			Total current liabilities	885.4		1,268.3

Long-term debt	1,766.3			1,783.1			Long-term debt	1,864.4		1,783.1
Accrued pension and postretirement benefits	81.3			80.8			Accrued pension and postretirement benefits	100.8		80.8
Deferred income taxes	138.5			143.0			Deferred income taxes	123.7		143.0
Other long-term liabilities	125.3			70.5			Other long-term liabilities	123.9		70.5
Total Liabilities	2,899.7			3,345.7			Total Liabilities	3,098.2		3,345.7
Commitments and Contingencies							Commitments and Contingencies
SHAREHOLDERS’ EQUITY
SHAREHOLDERS' EQUITY							SHAREHOLDERS' EQUITY
Capital Stock:							Capital Stock:
Preferred stock - without par value:
Authorized - 1,000,000 shares; none issued or outstanding
Common stock - without par value	4.4			4.4
Authorized: 199,000,000
Issued: 88,457,634 shares as of December 31, 2019 and September 30, 2019; Outstanding: 66,956,366 as of December 31, 2019 and 66,625,011 as of September 30, 2019
Preferred stock - without par value: Authorized - 1,000,000; none issued or outstanding							Preferred stock - without par value: Authorized - 1,000,000; none issued or outstanding
Common stock - without par value: Authorized - 199,000,000							Common stock - without par value: Authorized - 199,000,000	4.4		4.4
Issued: 88,457,634 shares as of March 31, 2020 and September 30, 2019; Outstanding: 66,527,730 as of March 31, 2020 and 66,625,011 as of September 30, 2019							Issued: 88,457,634 shares as of March 31, 2020 and September 30, 2019; Outstanding: 66,527,730 as of March 31, 2020 and 66,625,011 as of September 30, 2019
Additional paid-in capital	632.7			637.4			Additional paid-in capital	644.4		637.4
Retained earnings	1,993.1			1,967.4			Retained earnings	2,025.2		1,967.4
Accumulated other comprehensive loss	(161.3		)	(182.5		)	Accumulated other comprehensive loss	(223.6)		(182.5)
Treasury stock, common shares at cost: 21,501,268 as of December 31, 2019 and 21,832,623 as of September 30, 2019	(849.9		)	(853.4		)
Total Shareholders’ Equity	1,619.0			1,573.3
Total Liabilities and Shareholders’ Equity	$	4,518.7		$	4,919.0
Treasury stock, common shares at cost: 21,929,904 as of March 31, 2020 and 21,832,623 as of September 30, 2019							Treasury stock, common shares at cost: 21,929,904 as of March 31, 2020 and 21,832,623 as of September 30, 2019	(901.5)		(853.4)
Total Shareholders’ Equity							Total Shareholders’ Equity	1,548.9		1,573.3

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


																									Common Stock													Additional Paid-in Capital				Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Treasury Stock				Total Shareholders’ Equity
	Common Stock			Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Treasury Stock				Total Shareholders’ Equity					Shares Issued					Amount
	Shares Issued	Amount																															Additional Paid-in Capital	Retained Earnings			Accumulated Other Comprehensive Income (Loss)				Treasury Stock						Total Shareholders’ Equity
							Retained Earnings				Accumulated Other Comprehensive Income (Loss)				Treasury Stock
Balance as of September 30, 2019	88,457,634	$	4.4					$	637.4					$					1,967.4					$		(182.5	)	$	(853.4	)	$	1,573.3
Balance as of December 31, 2019																							Balance as of December 31, 2019		88,457,634					$	4.4											$	632.7		$	1,993.1					$	(161.3)		$	(849.9)	$	1,619.0
Net income	—	—			—					39.8				—				—				39.8			Net income	—						—				—				46.9				—				—				46.9
Other comprehensive income (loss), net of tax of $0.4	—	—		—				—					21.2					—				21.2
Dividends ($0.21 per common share)	—	—		—				(14.1		)		—				—				(14.1		)
Other comprehensive income (loss), net of tax of $9.4																							Other comprehensive income (loss), net of tax of $9.4		—					—				—				—					(62.3)			—				(62.3)
Dividends ($0.22 per common share)																							Dividends ($0.22 per common share)		—					—				0.2				(14.8)				—			—				(14.6)
Stock repurchases for stock award withholding obligations	—	—		—				—				—				(15.1		)		(15.1		)	Stock repurchases for stock award withholding obligations		—					—				—				—				—			(0.7)				(0.7)
Stock repurchases in open market																							Stock repurchases in open market		—					—				—				—				—			(54.1)				(54.1)
Stock compensation on equity-classified awards	—	—		8.3				—				—				—				8.3			Stock compensation on equity-classified awards		—					—				10.2				—				—			—				10.2
Stock option exercises	—	—		1.1				—				—				2.6				3.7			Stock option exercises		—					—				0.6				—				—			1.4				2.0
Vesting of stock awards	—	—		(15.4		)		—				—				15.4				—			Vesting of stock awards		—					—				(0.7)				—				—			0.8				0.1
Shares issued under employee stock purchase plan	—	—		1.3				—				—				0.6				1.9			Shares issued under employee stock purchase plan		—					—				1.4				—				—			1.0				2.4
Balance as of December 31, 2019	88,457,634	$	4.4	$	632.7			$	1,993.1			$	(161.3	)		$	(849.9	)		$	1,619.0
Balance as of March 31, 2020																							Balance as of March 31, 2020		88,457,634					$	4.4			$	644.4			$	2,025.2			$	(223.6)		$	(901.5)			$	1,548.9


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


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


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

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

Investments included in Other assets	$	47.7	$	51.1


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

Deferred revenue	(2.7)
Other current liabilities	(0.5)
Total purchase price, net of cash acquired	$	19.2


	March 31, 2020		September 30, 2019
Senior unsecured 5.00% notes due on February 14, 2025	$	303.1	$	312.4
Senior unsecured 4.375% notes due on September 15, 2027	419.1		435.4
Unsecured debentures	44.8		48.1
Total	$	767.0	$	795.9



	Quarter Ended December 31, 2019
	Other comprehensive income (loss)														Accumulated other comprehensive income (loss)
	Prior to reclassification			Reclassification from		Pre-tax			Tax effect			Net of tax			Beginning balance			Net activity			Ending balance ²
Derivative instruments designated as hedges ¹:
Foreign exchange forward contracts	$	(0.3	)	$	0.1	$	(0.2	)	$	—		$	(0.2	)	$	0.2		$	(0.2	)	$	—
Interest rate swaps	0.9			0.8		1.7			(0.4		)	1.3			(5.2		)	1.3			(3.9		)
Cross-currency swaps	(4.8		)	—		(4.8		)	1.1			(3.7		)	12.2			(3.7		)	8.5
Derivative instruments designated as hedges total	(4.2		)	0.9		(3.3		)	0.7			(2.6		)	7.2			(2.6		)	4.6
Foreign currency translation adjustment	23.1			—		23.1			—			23.1			(145.4		)	23.1			(122.3		)
Change in pension and postretirement defined benefit plans	(0.2		)	1.2		1.0			(0.3		)	0.7			(44.3		)	0.7			(43.6		)
Total	$	18.7		$	2.1	$	20.8		$	0.4		$	21.2		$	(182.5	)	$	21.2		$	(161.3	)



	Quarter Ended December 31, 2018
	Other comprehensive income (loss)															Accumulated other comprehensive income (loss)
	Prior to reclassification			Reclassification from			Pre-tax			Tax effect			Net of tax			Beginning balance			Impacts of ASU 2018-02 Adoption as of October 1, 2018			Net activity			Ending balance
Derivative instruments designated as hedges ¹:
Foreign exchange forward contracts	$	1.2		$	(0.1	)	$	1.1		$	(0.4	)	$	0.7		$	0.2		$	—		$	0.7		$	0.9
Interest rate swaps	(5.1		)	(2.1		)	(7.2		)	1.9			(5.3		)	18.3			0.8			(5.3		)	13.8
Cross-currency swaps	2.2			—			2.2			(1.3		)	0.9			(1.7		)	—			0.9			(0.8		)
Derivative instruments designated as hedges total	(1.7		)	(2.2		)	(3.9		)	0.2			(3.7		)	16.8			0.8			(3.7		)	13.9
Foreign currency translation adjustment	(13.6		)	—			(13.6		)	—			(13.6		)	(105.3		)	—			(13.6		)	(118.9		)
Change in pension and postretirement defined benefit plans	—			0.5			0.5			(0.1		)	0.4			(24.5		)	(6.2		)	0.4			(30.3		)
Total	$	(15.3	)	$	(1.7	)	$	(17.0	)	$	0.1		$	(16.9	)	$	(113.0	)	$	(5.4	)	$	(16.9	)	$	(135.3	)



	Quarter Ended December 31
	2019			2018
Net revenue - United States:
Patient Support Systems	$	266.6		$	248.1
Front Line Care	178.1			166.5
Surgical Solutions	37.1			53.9
Total net revenue - United States	$	481.8		$	468.5

Net revenue - Outside of the United States (“OUS”):
Patient Support Systems	$	77.6		$	92.9
Front Line Care	76.5			66.9
Surgical Solutions	49.1			55.2
Total net revenue - OUS	$	203.2		$	215.0

Net revenue:
Patient Support Systems	$	344.2		$	341.0
Front Line Care	254.6			233.4
Surgical Solutions	86.2			109.1
Total net revenue	$	685.0		$	683.5

Divisional income:
Patient Support Systems	$	58.4		$	59.6
Front Line Care	73.5			61.9
Surgical Solutions	12.8			11.2

Other operating costs:
Non-allocated operating costs, administrative costs, and other	$	58.0		$	53.9
Special charges	7.8			8.0
Operating profit	$	78.9		$	70.8

Interest expense	$	(19.4	)	$	(21.3	)
Loss on extinguishment of debt	(15.6		)	—
Investment income (expense) and other, net	(1.3		)	0.1
Income before income taxes	$	42.6		$	49.6

Balance Sheet Classification

December 31, 2019

Right-of-use assets

Other assets

Current lease liabilities

Other current liabilities

Non-current lease liabilities

Other long-term liabilities