UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)


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

For the fiscal year ended September 30, ~~2020~~2021


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

For the transition period from ____ to ____

Commission File No. 1-6651

HILL-ROM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Indiana

35-1160484

(State or other jurisdiction of incorporation)

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

130 E. Randolph St. Suite 1000

Chicago, IL

60601

(Address of principal executive offices)

(Zip Code)

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

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


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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☑

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The aggregate market value of the registrant’s voting common equity, held by non-affiliates of the registrant, was approximately $6.7.3 billion, based on the closing sales price of $~~100~~110.6048 per share as of March 31, ~~2020~~2021 (the last business day of the registrant’s most recently completed second fiscal quarter). There is no non-voting common equity held by non-affiliates. The registrant had 66,~~812~~050,~~909~~458 shares of its common stock, without par value, outstanding as of November 1110, ~~2020~~2021.

Documents incorporated by reference.

Certain portions of the registrant’s definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on March 1028, ~~2021~~2022 are incorporated by reference into Part III of this Annual Report on Form 10-K.

HILL-ROM HOLDINGS, INC.

Annual Report on Form 10-K

For the Fiscal Year Ended September 30, ~~2020~~2021

TABLE OF CONTENTS


		Page
PART I
	Disclosure Regarding Forward-Looking Statements	3
Item 1.	Business	3
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	22
Item 2.	Properties	23
Item 3.	Legal Proceedings	24
Item 4.	Mine Safety Disclosures	24

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	25
Item 6.	[Reserved]	26
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 8.	Financial Statements and Supplementary Data	42
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	96
Item 9A.	Controls and Procedures	96
Item 9B.	Other Information	96
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	96

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	97
Item 11.	Executive Compensation	97
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	97
Item 13.	Certain Relationships and Related Transactions, and Director Independence	97
Item 14.	Principal Accountant Fees and Services	97

PART IV
Item 15.	Exhibit and Financial Statement Schedules	98
Item 16.	Form 10-K Summary	104

	SIGNATURES	105

		Page
PART I
	Disclosure Regarding Forward-Looking Statements	3
Item 1.	Business	3
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	19
Item 2.	Properties	20
Item 3.	Legal Proceedings	21
Item 4.	Mine Safety Disclosures (not applicable)	21
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	21
Item 6.	Selected Financial Data	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 8.	Financial Statements and Supplementary Data	44
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	97
Item 9A.	Controls and Procedures	97
Item 9B.	Other Information	97
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	98
Item 11.	Executive Compensation	98
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	98
Item 13.	Certain Relationships and Related Transactions and Director Independence	98
Item 14.	Principal Accounting Fees and Services	98
PART IV
Item 15.	Exhibits and Financial Statement Schedules	99
	SIGNATURES	105

Table of Contents

PART I

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended, with respect to general economic conditions, our financial condition, results of operations, cash flows and business and our expectations or beliefs concerning future events, including the demand for our products, the ability to operate our manufacturing sites at full capacity, future supplies of raw materials for our operations, product launches, share repurchases, international market conditions, expectations regarding our liquidity, our capital spending, plans for future acquisitions and divestitures, ~~and~~ our operating plans., ~~These~~the ~~forward-looking~~occurrence ~~statements~~of ~~can~~any ~~generally~~event, bechange ~~identified~~or byother ~~phrases~~circumstances ~~such~~that ascould wegive orrise ~~our~~to ~~management~~the ~~“expects,”~~termination ~~“anticipates,”~~of ~~“believes,”~~the ~~“estimates,”~~Agreement ~~“intends,”~~and ~~“plans~~Plan ~~to,”~~of ~~“ought~~Merger,” ~~“could,”~~dated ~~“will,”~~as ~~“should,”~~of ~~“likely,”~~September ~~“appears~~1,” ~~“projects,”~~2021 ~~“forecasts,”~~(the “~~outlook~~Merger Agreement”) orby ~~other~~and ~~similar~~among ~~words~~Hill-Rom orHoldings, ~~phrases~~Inc., ~~There~~Baxter ~~are~~International ~~inherent risks and uncertainties in any forward-looking statements~~Inc., Wea ~~caution~~Delaware ~~readers~~corporation ~~not~~(“Baxter”), toand ~~place~~Bel ~~undue~~Air ~~reliance~~Subsidiary, ~~on any forward-looking statements~~Inc. ~~All~~(“Merger ~~statements~~Sub”), ~~that~~an ~~address~~Indiana ~~our~~corporation ~~future~~and ~~operating~~a ~~performance~~direct orwholly-owned ~~events~~subsidiary orof ~~developments~~Baxter ~~that~~(“Merger ~~we expect or anticipate will occur in the future are forward-looking statements~~Sub”).

~~Our~~Pursuant ~~forward-looking~~to ~~statements~~the ~~are~~Merger ~~based~~Agreement, on ~~management’s~~the ~~expectations~~terms and ~~beliefs~~subject asto of the ~~time~~conditions ~~this~~set ~~Form~~forth ~~10-K~~therein, isMerger ~~filed~~Sub ~~with~~will ~~the~~be ~~Securities~~merged with and ~~Exchange~~into ~~Commission~~Baxter in (the ~~United States (~~“~~SEC~~Merger”) or, ~~with~~the ~~respect~~failure to ~~any~~obtain ~~document~~certain ~~incorporated~~required byregulatory ~~reference,~~approvals asor of the ~~time~~failure ~~such~~to ~~document~~satisfy ~~was~~any ~~prepared.~~of ~~Although~~the weother ~~believe~~closing ~~that~~conditions ~~our~~to ~~expectations~~the ~~are~~completion ~~reasonable,~~of wethe ~~can~~Merger, ~~give~~risks norelated ~~assurance that these expectations will prove~~ to ~~have~~disruption ~~been~~of ~~correct,~~management’s ~~and~~attention ~~actual~~from ~~results~~Hillrom’s ~~may~~ongoing ~~vary~~business ~~materially~~operations due to ~~various~~the ~~factors. These factors include those described in Part I~~Merger, ~~Item~~the 1Aeffect ~~“Risk Factors”~~ of ~~this~~the ~~Form~~announcement ~~10-K.~~of ~~Our~~the ~~actual~~Merger ~~results~~on ~~also could be materially adversely impacted by~~ the ~~length~~ability ~~and severity~~ of ~~the~~Hillrom ~~on-going~~to ~~coronavirus~~retain ~~pandemic~~and ~~(“COVID-19,”~~hire ~~“the~~key ~~pandemic,”~~personnel ~~or “the virus”)~~ and ~~related~~maintain ~~impacts~~relationships onwith ~~our~~its ~~business~~customers, ~~results of operations~~suppliers, ~~financial~~distributors ~~condition,~~ and ~~prospects.~~others ~~Except~~with aswhom ~~required~~it bydoes ~~applicable~~business, ~~law~~ or ~~regulations,~~on weits ~~undertake~~operating noresults ~~obligation~~and tobusiness ~~update~~generally, ~~amend~~the orability ~~clarify any forward-looking statements~~ to ~~reflect~~meet ~~changed~~expectations ~~assumptions,~~regarding the ~~occurrence~~timing ofand ~~anticipated~~completion orof ~~unanticipated~~the ~~events~~Merger, ~~new~~and ~~information~~risks orassociated ~~circumstances~~with orMerger-related ~~any other developments or changes~~litigation.

These forward-looking statements can generally be identified by phrases such as we or our management “expects,” “anticipates,” “believes,” “estimates,” “intends,” “plans to,” “ought,” “could,” “will,” “should,” “likely,” “appears,” “projects,” “forecasts,” “outlook” or other similar words or phrases. There are inherent risks and uncertainties in any forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements. All statements that address our future operating performance or events or developments that we expect or anticipate will occur in the future are forward-looking statements.

Our forward-looking statements are based on management’s expectations and beliefs as of the time this Form 10-K is filed with the Securities and Exchange Commission in the United States (“SEC”) or, with respect to any document incorporated by reference, as of the time such document was prepared. Although we believe that our expectations are reasonable, we can give no assurance that these expectations will prove to have been correct, and actual results may vary materially due to various factors. These factors include those described in Part I, Item 1A “Risk Factors” of this Form 10-K. Our actual results also could be materially adversely impacted by the length and severity of the on-going coronavirus pandemic (“COVID-19,” “the pandemic,” or “the virus”), further resurgences and new variants of COVID-19, the availability, distribution, rate of public acceptance and efficacy of vaccines and therapeutics for COVID-19, and the long-term economic impacts as a result of the pandemic. Except as required by applicable law or regulations, we undertake no obligation to update, amend or clarify any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events, new information or circumstances or any other developments or changes.

Item 1.BUSINESS

General

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

Proposed Acquisition by Baxter International Inc.

On September 1, 2021, Hillrom, Baxter, and Merger Sub entered into the Merger Agreement, pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will be merged with and into Hillrom, with Hillrom surviving the Merger as a wholly owned subsidiary of Baxter. Under the terms of the Merger Agreement, which has been unanimously approved by Hillrom’s Board of Directors, Baxter will acquire all outstanding shares of Hillrom for $156.00 per share in cash, for a total equity value of approximately $10.5 billion. The Merger is expected to close by early fiscal year 2022, subject to receipt of specified regulatory approvals and other customary closing conditions.

Segment Information

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

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

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

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

Table of Contents

Net revenue, segment profitability and other measures of segment reporting for each reportable segment are set forth in Note 14. Segment Reporting of our Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K.

Products and Services

Patient Support Systems. Our Patient Support ~~systems~~Systems business include a variety of specialty frames and surfaces (such as medical surgical beds, intensive care unit beds, and bariatric patient beds), patient mobility solutions, non-invasive therapeutic products and surfaces, and our information technologies and software solutions in our Care Communications portfolio. These products are sold globally and are built to advance mobility, reduce patient falls and caregiver injuries, improve caregiver efficiency and prevent and care for pressure injuries. In addition, we also sell equipment service contracts for our capital equipment, primarily in the United States. Approximately 5352%, 5153%, and 5051% of our revenue induring fiscal ~~2020~~years ended September 30, ~~2019~~2021, 2020, and ~~2018~~2019 was derived from this segment.

Front Line Care. Our Front Line Care products include our patient monitoring and diagnostics products from Welch Allyn, ~~and our~~ respiratory health products, and ambulatory cardiology ECG patch monitors from the Bardy Diagnostics, Inc. acquisition. Our patient monitoring and diagnostics products from Welch Allyn include products in each of the following four categories: patient exam and diagnostics, patient monitoring, diagnostic cardiology and vision screening and diagnostics. Our respiratory health products include non-invasive devices that provide respiratory support and assist patients in the mobilization of retained blockages. Front Line Care products are sold globally within multiple care settings including primary care, acute care, extended care and home care (~~primarily~~ respiratory health and ambulatory cardiology products). Approximately 3637%, 3436%, and 34% of our revenue induring fiscal ~~2020~~years ended September 30, ~~2019~~2021, 2020, and ~~2018~~2019 was derived from products within this segment.

Surgical Solutions. Our Surgical Solutions products include tables, lights, pendants and operating room integration technology utilized within the surgical setting. We also offer a range of positioning devices for use in shoulder, hip, spinal and lithotomy surgeries as well as platform-neutral positioning accessories for nearly every model of operating room table. Approximately 11%, 1511%, and 1615% of our revenue induring fiscal ~~2020~~years ended September 30, ~~2019~~2021, 2020, and ~~2018~~2019 was derived from products within this segment.

We have extensive distribution capabilities and broad reach across all health care settings. We primarily operate in the following channels: (1) sales and rentals of products to acute and extended care facilities worldwide through both a direct sales force and distributors; (2) sales and rentals of products directly to patients in the home; and (3) sales into primary care facilities (primarily Welch Allyn products) through distributors. Through our network of 163 North American and 39 international service centers, and approximately 2,000 service professionals, we provide technical support and services and rapidly deliver our products to customers as-needed, providing our customers flexibility to purchase or rent select products. This extensive network is critical to serving our customers and securing contracts with Group Purchasing Organizations (“GPOs”) and Integrated Delivery Networks (“IDNs”).

No single customer represents more than 10% of our revenue.

~~Table~~force and distributors; (2) sales and rentals of ~~Contents~~products directly to patients in the home; and (3) sales into primary care facilities (primarily Welch Allyn products) through distributors. Through our network of 161 North American and 37 international service centers, and approximately 2,000 service professionals, we provide technical support and services and rapidly deliver our products to customers as-needed, providing our customers flexibility to purchase or rent select products. This extensive network is critical to serving our customers and securing contracts with Group Purchasing Organizations (“GPOs”) and Integrated Delivery Networks (“IDNs”).

No single customer represents more than 10% of our revenue.

Acquisitions and Dispositions

Business Acquisitions

During fiscal years ended September 30, 2021, 2020 and 2019, we acquired the following companies:

Fiscal Year	Company Name	Description of the Business	Description of the Acquisition
2021	Bardy Diagnostics, Inc. ("Bardy")	Developer and supplier of cardiac arrhythmia monitoring devices located in the United States.	Purchased all of the outstanding equity interest.
2020	Excel Medical Electronics (“Excel Medical”)	Clinical communications software company located in the United States	Purchased all of the outstanding equity interest.
2020	Connecta Soft, S.A. de C.V. (“Connecta”)	Clinical communications software company based in Mexico.	Purchased the multiplatform medical device integration and connectivity software programs, products, and solutions of the company.
2020	Videomed S.r.l. (“Videomed”)	Developer of integrated video solutions in operating rooms located in Italy.	Purchased all of the outstanding equity interest.
2019	Voalte, Inc. (“Voalte”)	Clinical communications software company located in the United States.	Purchased all of the outstanding equity interest.
2019	Breathe Technologies, Inc. (“Breathe”)	Developer and manufacturer of a patented wearable, non-invasive ventilation technology that supports improved patient mobility. Located in the United States.	Purchased all of the outstanding equity interest.

Asset Acquisition

During fiscal ~~2018~~year ended September 30, 2021, we acquired the ~~right to use patented technology~~ contact-free continuous monitoring intellectual property and ~~certain related assets~~ technology from ~~a supplier~~ EarlySense Ltd. ("EarlySense") to our ~~Front~~Patient ~~Line~~Support ~~Care~~Systems segment.

Dispositions

During fiscal ~~2019~~year ~~and~~ended ~~2018~~September 30, 2019, we disposed of ~~the~~our ~~following:~~surgical consumable products and related assets from our Surgical Solutions segment.

Fiscal Year	Segment	Description of the Disposition
2019	Surgical Solutions	Sold certain of our surgical consumable products and related assets.
2018	Patient Support Systems	Conveyed certain net assets related to our third-party rental business, comprised of purchased moveable medical equipment that could be rented to customers.

Refer to Note 3. Business Combinations for further information regarding acquisitions and dispositions.

Refer to Note 3. Business Combinations for additional information regarding acquisitions and dispositions.

Raw Materials

Principal materials used in our products for each business segment include electronic and electromechanical components, carbon steel, aluminum, stainless steel, wood and laminates, petroleum-based products, such as foams and plastics, and other materials, majority of our raw material components are available from multiple sources.

Prices fluctuate for raw materials and sub-assemblies used in our products based on a number of factors beyond our control. Specifically, the fluctuating prices of certain raw materials, including metals, fuel, plastics and electronic components as well as the impact from incremental China tariff had a direct effect on our profitability. Although we generally have not engaged in hedging transactions with respect to raw material purchases, we have effectively mitigated a portion of the cost pressure through improved operational efficiencies and enhanced supplier management.

Most of our contracts with hospital GPOs and other customers for the sale of products in North America permit us to institute annual list price increases, although we may not always be able to raise prices sufficiently to offset all raw material cost inflation.

~~Table~~Most of ~~Contents~~our contracts with hospital GPOs and other customers for the sale of products in North America permit us to institute annual list price increases, although we may not always be able to raise prices sufficiently to offset all raw material cost inflation.

Competition

Across our business, we compete on the basis of clinical expertise, resulting product clinical utility and ability to produce favorable patient outcomes, as well as value, quality, customer service, innovation and breadth of product offerings. We evaluate our competition based on our segments.

The following table displays our significant competitors with respect to each segment:

Segments Competitors Patient Support Systems ("PSS") ArjoLINET spol. s.r.o.ParamountRauland, a Division of AMETEK, Inc. Stryker CorporationVocera Front Line Care ("FLC") Electromed, Inc.Exergen CorporationGE HealthcareHeine ~~OptotechnikMidmark~~OptotechnikiRhythm Technologies, Inc.Midmark Corporation Mindray Medical InternationalOMRON Healthcare, Inc.PhilipsResmedRiesterSchiller AG Surgical Solutions ("GSS") DraegerMaquet, a Division of Getinge ABMizuhoOSI SkytronSterisStryker Corporation

Additionally, we compete with a large number of smaller and regional manufacturers.

Regulatory Matters

FDA Regulation

We design, manufacture, install and distribute medical devices that are regulated by the U.S. Food and Drug Administration (“FDA”) and similar agencies in other countries. The regulations and standards of these agencies evolve over time and require us to make changes in our manufacturing processes and quality systems to remain in compliance. The FDA’s Quality System regulations and the regulatory equivalents internationally set forth standards for our product design and manufacturing processes, require the maintenance of certain records and provide for inspections of our facilities. From time to time, the FDA performs routine inspections of our facilities and may inform us of certain deficiencies in our processes or facilities. In addition, there are certain state and local government requirements that must be complied with in the manufacturing and marketing of our products. See Item 1A. Risk Factors for ~~additional~~further information.

Environmental

We are subject to a variety of federal, state, local and foreign environmental laws and regulations relating to environmental and health and safety concerns, including the handling, storage, discharge and disposal of hazardous materials used in, or derived from our manufacturing processes. When necessary, we provide reserves in our financial statements for environmental matters. We do not expect the remediation costs for any environmental issues in which we are currently involved to exceed $1.0 million.

Health Care Regulations

In March 2010, comprehensive health care reform legislation in the United States was signed into law through the passage of the Patient Protection and Affordable Health Care Act and the Health Care and Education Reconciliation Act. The health care industry continues to undergo significant change, both in response to this law and in response to other legislative and regulatory actions. In addition to health care reform, Medicare, Medicaid and managed care organizations, such as health maintenance organizations and preferred provider organizations, traditional indemnity insurers and third-party administrators are under increasing pressure to control costs and limit utilization, while improving quality and health care outcomes. These objectives are being advanced through a variety of reform initiatives including, but not limited to, accountable care organizations, value-based purchasing, bundling initiatives and competitive bidding programs. We are also subject to a number of other regulations around the world related to the sale and distribution of health care products. The potential impact of these regulations to our

~~Table~~increasing pressure to control costs and limit utilization, while improving quality and health care outcomes. These objectives are being advanced through a variety of ~~Contents~~reform initiatives including, but not limited to, accountable care organizations, value-based purchasing, bundling initiatives and competitive bidding programs. We are also subject to a number of other regulations around the world related to the sale and distribution of health care products. The potential impact of these regulations to our business is discussed further in Item 1A. Risk Factors and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this Form 10-K.

business is discussed further in Item 1A. Risk Factors and Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this Form 10-K.

Product Development

We pursue development of new products and product improvements internally. We maintain professional working relationships with various medical professionals who assist in product research and development. New and improved products play a critical role in our sales growth. We continue to place emphasis on the development of proprietary products and product improvements to complement and expand our existing product lines. Our significant research and development activities are located in Acton, Massachusetts; Batesville, Indiana; Cary, North Carolina; ~~Irvine, California;~~ Milwaukee, Wisconsin; ~~Sarasota, Florida;~~ Skaneateles Falls, New York; Bologna, Italy; Pluvigner, France; Singapore; and Saalfeld and Puchheim, Germany.

Research and development is expensed as incurred. Research and development expense induring ~~the~~ fiscal years ended September 30, ~~2020~~2021, ~~2019~~2020 and ~~2018~~2019 was $~~136~~144.59 million, $~~139~~136.5 million and $~~135~~139.65 million.

In addition, certain software development technology costs for software to be sold or licensed to customers are capitalized as intangibles and are amortized over a period of three to five years once the software is ready for its intended use. The amounts capitalized induring ~~the~~ fiscal years ended September 30, ~~2020~~2021, ~~2019~~2020 and ~~2018~~2019 ~~was~~were approximately $1510.31 million, $815.03 million and $28.40 million.

Patents, Trademarks and Trade Names

We own, and may license from others, a number of patents on our products and manufacturing processes, but we do not believe any single patent or related group of patents is of material significance to any business segment or our business as a whole. We also own a number of trademarks, trade names and service marks relating to our products and services. Except for the marks “HillromTM”, “Hill-Rom®” and “Welch Allyn®”, we do not believe any single trademark, trade name or service mark is of material significance to any business segment or our business as a whole.

Foreign Operations

Information about our foreign operations is set forth in tables relating to geographic information in Note 14. Segment Reporting of our Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K.

Human Capital Resources

As of September 30, ~~2020~~2021, Hillrom had approximately 10,000 employees worldwide, with approximately 6,000 employees in the United States and approximately 4,000 employees outside of the United States. Hillrom’s global presence enables our strategic priority of expanding internationally and penetrating emerging markets with our differentiated solutions. Our employees are our most important assets and they set the foundation for our ability to achieve our strategic objectives. All of our employees contribute to Hillrom’s success and, in particular, the employees in our manufacturing, sales, research and development and quality assurance departments are instrumental in driving operational execution and strong financial performance, advancing innovation and maintaining a strong quality and compliance program.

The success and growth of Hillrom’s business depend in large part on our ability to attract, retain and develop a diverse population of talented and high-performing employees at all levels of our organization, including the individuals who comprise our global workforce as well as executive officers and other key personnel. To succeed in a competitive labor market, Hillrom has developed key recruitment and retention strategies, objectives and measures that we focus on as part of the overall management of our business. These strategies, objectives and measures form the pillars of our human capital management framework and are advanced through the following programs, policies and initiatives:

•Competitive Pay and Benefits. Hillrom’s compensation programs are designed to align the compensation of our employees with Hillrom’s performance and to provide the proper incentives to attract, retain and motivate employees to achieve superior results. The structure of our compensation programs balances incentive earnings for both short-term and long-term performance. Specifically:

◦We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.

~~Table~~◦We ofprovide ~~Contents~~employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location.

◦We engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our executive compensation and benefit programs and to provide benchmarking against our peers within the industry.

◦We align our executives’ long-term equity compensation with our shareholders’ interests by linking realizable pay with stock performance.

◦Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion.

◦All employees are eligible for health insurance, paid and unpaid leaves, a retirement plan and life and disability/accident coverage. We also offer a variety of voluntary benefits that allow employees to select the options that meet their needs, including flexible time-off, telemedicine, paid parental leave, adoption assistance, a travel solution for nursing moms, family building benefits, prescription savings solutions, Veterans' Health Administration coverage in U.S. medical plans, transgender medical coverage, a personalized wellness program, a financial wellness program and expanded coverage for diabetic employees.

•Advancing and Celebrating Diversity, Inclusion and Belonging (“DIB”). DIB is vital to Hillrom’s ability to grow the business and innovate in an ever-changing, fast-paced environment. Our diverse and inclusive workplace encourages different perspectives and ideas, which we believe enables better business decisions and rapid innovation. The following are highlights of Hillrom’s DIB program:

◦We have established a DIB Council that provides strategic direction, guidance and advocacy for Hillrom's DIB initiatives and advancements and is led by our Chief Executive Officer and Chief Human Resources Officer and includes high-performing leaders from around the world.

◦As of September 30, ~~2020~~2021, women leaders made up 36% of Hillrom’s Board of Directors and 3853% of Hillrom’s Executive Leadership Team.

◦We sponsor multiple Employee Resources Groups, which are employee-led and open to all employees, including: Pride Partnership; Individuals with Disabilities Empowered to Achieve; Veteran Employee Team; Embrace—A Black Professional Organization; Professional Women’s Group; ~~and~~ HOLA (Hillrom Organization for ~~Latinex~~Latino/a Advancement) and LOTUS (Leadership, Opportunity, Talent, Unity, Successes).

◦We recruit diverse talent through local partnerships with organizations such as RecruitMilitary, HACE (Hispanic Alliance for Career Enhancement), Diversity Best Practice, NSBE (National Society of Black Engineers) ~~and Getting Hired (~~focused on individuals with disabilities, NABA (National Association of Black Accountants), 100 Black Men of the Twin Cities and Syracuse, Inc., Chicago Urban League, Imentor and One Million Degrees. In addition, we have formed partnership with several Historically Black Colleges Universities ("HBCU").

~~•Health~~Our ~~and~~culture ~~Safety.~~is ~~Health and safety are firmly rooted across Hillrom's global footprint. In fiscal 2020~~dynamic, ~~Hillrom~~continually ~~completed~~evolving ~~the deployment across its manufacturing facilities of its new environmental health~~ and ~~safety~~advancing ~~management system, which is designed~~ to ~~streamline~~enable ~~data collection, ensure greater consistency and accuracy across global operations and improve health and safety performance. We prioritize, manage and carefully track safety performance at~~ all ~~locations~~of ~~globally~~our ~~and~~employees ~~integrate~~the ~~sound~~opportunities ~~safety practices~~ to ~~make~~realize atheir ~~meaningful~~best ~~difference~~professional ~~in every facet of our operations~~selves. ~~During fiscal 2020~~Fundamentally, ~~Hillrom~~our ~~reduced~~culture ~~its~~is ~~recordable~~rooted ~~injury~~in ~~rate~~a ~~compared~~commitment to ~~fiscal~~diversity, ~~2019~~inclusion ~~by 27% (0.38 recordable injuries per 100 workers per year) on a company-wide basis~~ and ~~by 56% (0~~belonging.~~32 recordable injuries per 100 workers per year) across its manufacturing operations.~~

~~In response to the COVID~~Non-19Executive ~~pandemic and related mitigation measures, we implemented changes in our business in March 2020 in an effort to protect our~~ employees and customers, and to support appropriate health and safety protocols. For example, we installed physical barriers between employees in production facilities, implemented extensive cleaning and sanitation processes for both production and office administration spaces and implemented broad worknon-~~from-home~~executive ~~initiatives~~directors ~~for~~by ~~employees~~gender inare ~~our~~shown administrative functions. While Hillrom’s essential workers (production and field service employees) have continued to work at our facilities and provide vital service to our customers, most employees in ~~our administrative functions have effectively worked remotely since mid-March. During~~ the ~~fiscal~~table ~~year ended September 30, 2020, incremental non-recurring special compensation costs of $3.7 million were paid to Hillrom’s essential workers.~~ below:

•Labor Relations/Fair Labor Practice. We are committed to equal opportunity employment and working effectively with existing unions. As of September 30, 2020, approximately 8% of our employees in the United States (including contingent workers) worked under collective bargaining agreements. We have not experienced a work stoppage in the United States in over 40 years, and we believe that our employee relations are satisfactory. The two collective bargaining agreements at our primary U.S. manufacturing facility expire in January 2021 and January 2022. We are also subject to various collective bargaining arrangements and/or national trade union agreements outside the United States. As of September 30, 2020, approximately 65% of our employees outside the United States (including contingent workers) worked under such arrangements.


	September 30, 2021
	Male	Female
Non-Executive Directors	329	129
Managers and Senior Managers	826	378
Other employees of the Company	5,026	3,155

~~Table~~Non-Executive ofUnited ~~Contents~~States employees and non-executive directors by ethnicity are shown in the table below:

•Recruitment, Training and Development. We use recruitment vehicles to attract diverse talent to our organization, including partnerships with local and national organizations, HBCUs (Historically Black Colleges and Universities) and various social media outlets. Hillrom invests in learning opportunities that foster a growth mindset. Our formal offerings include a tuition reimbursement program, an e-learning platform known as Hillrom University (“HRU”) and virtual workshops that support our culture, strategy and the development of crucial skills. To measure the impact of the investments we make in our people, and to help us continually improve our human resources programs, we regularly track a number of critical metrics, including the following:


	September 30, 2021
	White	Other
Non-Executive Directors	286	58
Managers and Senior Managers	646	164
Other employees of the Company	3,551	1,287

~~◦Internal~~•Health ~~Hires:~~and WeSafety. ~~track~~Health and safety are firmly rooted across Hillrom's global footprint. During fiscal year ended September 30, 2021, Hillrom completed the ~~percentage~~deployment across its manufacturing facilities of ~~open~~its ~~positions~~new ~~filled~~environmental ~~with~~health ~~internal~~and ~~candidates~~safety management system, which is designed to streamline data collection, ensure greater consistency and ~~use~~accuracy ~~this~~across ~~metric~~global asoperations and improve health and safety performance. We prioritize, manage and carefully track safety performance at all locations globally and integrate sound safety practices to make a ~~measure~~meaningful difference in every facet of ~~how~~our ~~successfully~~operations. weDuring ~~are~~fiscal ~~promoting~~year ~~talent~~ended ~~from~~September ~~within.~~30, ~~For~~2021, Hillrom's recordable injury rate increased compared to the fiscal year ended September 30, 2020, by 10.5% (0.42 recordable injuries per 100 workers per year) on a company-wide basis and reduced by 18.8% (0.26 recordable injuries per 100 workers per year) across its manufacturing operations. Hillrom reduced its overall recordable injury rate compared to the ~~data~~fiscal ~~was~~year asended ~~follows:~~September 30, 2019 by 19.2%.

~~▪Director~~In response to the COVID-19 pandemic and ~~above:~~related ~~34%~~mitigation measures, we implemented changes in our business in March 2020 in an effort to protect our employees and customers, and to support appropriate health and safety protocols. For example, we installed physical barriers between employees in production facilities, implemented extensive cleaning and sanitation processes for both production and office administration spaces and implemented broad work-from-home initiatives for employees in our administrative functions. While Hillrom’s essential workers (production and field service employees) have continued to work at our facilities and provide vital service to our customers, many employees in our administrative functions have effectively worked remotely since mid-March 2020. We have adapted our processes and used technology to continue to effectively execute on our strategic priorities as well as daily operating activities. A workforce reintegration plan has been established to facilitate a return to the office. The reintegration plan includes safety measures and procedures in compliance with local laws and regulations to ensure a safe work environment for employees that return to the office.

~~▪Manager~~•Labor Relations/Fair Labor Practice. We are committed to equal opportunity employment and ~~above:~~working 45effectively with existing unions. As of September 30, 2021, approximately 8% of our employees in the United States (including contingent workers) worked under collective bargaining agreements. We have not experienced a work stoppage in the United States in over 40 years, and we believe that our employee relations are satisfactory. The two collective bargaining agreements at our primary U.S. manufacturing facility expire in January 2022 and January 2024. We are also subject to various collective bargaining arrangements and/or national trade union agreements outside the United States. As of September 30, 2021, approximately 64% of our employees outside the United States (including contingent workers) worked under such arrangements.

~~▪All~~•Recruitment, ~~levels:~~Training ~~31%~~and Development. We use recruitment vehicles to attract diverse talent to our organization, including partnerships with local and national organizations, HBCUs and various social media outlets. Hillrom invests in learning opportunities that foster a growth mindset. Our formal offerings include a tuition reimbursement program, an e-learning platform known as Hillrom University (“HRU”) and virtual workshops that support our culture, strategy and the development of crucial skills. To measure the impact of the investments we make in our people, and to help us continually improve our human resources programs, we regularly track a number of critical metrics, including the following:

◦~~Employee~~Internal ~~Satisfaction~~Hires: We ~~conduct~~track anthe ~~anonymous~~percentage ~~bi-annual~~of ~~engagement~~open ~~survey~~positions offilled ~~our~~with ~~global~~internal ~~workforce.~~candidates ~~Administered~~ and ~~analyzed~~use bythis anmetric ~~independent~~as ~~third-party,~~a ~~the~~measure ~~survey results are reviewed by the executive officers. The results~~ of ~~this~~how ~~engagement~~successfully ~~survey~~we are ~~shared~~promoting ~~with~~talent ~~individual~~from ~~managers, who are then tasked with taking action based on their employees’ anonymous feedback (both quantitative and qualitative)~~within. ByFor ~~paying close attention to~~ the ~~results~~fiscal ~~both~~year atended anSeptember ~~aggregate enterprise level as well as at a department/business/work group level~~30, ~~Hillrom has been able to enhance its culture of respect~~2021, ~~help~~the ~~educate~~data ~~employees~~was ~~more effectively about our benefits offerings~~ as ~~well as our learning and development opportunities and further improve our communications content, mechanisms and frequency.~~ follows:

~~Executive~~▪Director ~~Officers~~and above: 61%

~~The~~▪Manager ~~following sets forth certain information regarding our executive officers. The term of office for each executive officer expires on the date his or her successor is chosen~~ and ~~qualified.~~above: No director or executive officer has a “family relationship” with any other director or executive officer of the Company, as that term is defined for purposes of this disclosure requirement. There is no understanding between any executive officer and any other person pursuant to which the executive officer was selected.49%

~~John~~▪All P.levels: Groetelaars, 54, was elected President and Chief Executive Officer of Hillrom, effective May 2018. Previously, Mr. Groetelaars was Executive Vice President and President of Becton, Dickinson and Company’s (“BD”) Interventional Segment. Prior to the BD acquisition of C.R. Bard, Mr. Groetelaars was Group President at Bard, which he had joined in 2008. He previously held positions of increasing responsibility with Boston Scientific Corporation, Guidant Corporation and Eli Lilly.33%

~~Barbara~~◦Employee W.Satisfaction: ~~Bodem,~~We ~~52,~~conduct ~~was~~an ~~elected~~anonymous ~~Senior~~bi-annual ~~Vice~~engagement ~~President~~survey ~~and~~of ~~Chief~~our ~~Financial~~global ~~Officer,~~workforce. ~~effective~~Administered ~~December~~and ~~2018.~~analyzed ~~Before~~by ~~joining~~an ~~Hillrom~~independent third-party, ~~she~~the ~~served~~survey asresults ~~Senior~~are ~~Vice~~reviewed ~~President,~~by ~~Finance~~the atexecutive ~~Mallinckrodt~~officers. ~~Previously,~~The ~~she~~results ~~served in a variety~~ of ~~senior~~this ~~finance~~engagement ~~roles~~survey ~~for~~are ~~Hospira,~~shared ~~Inc.~~with ~~and~~individual ~~Eli Lilly~~managers, ~~including~~who ~~serving~~are asthen ~~CFO~~tasked ofwith ~~Lilly~~taking ~~Oncology.~~action

Amy Dodrill, 47, was elected Senior Vice President and President, Surgical Solutions, effective June 2019. She had previously served as Vice President of our U.S. Surgical Solutions sales operations and prior to that, as an area vice president in our Patient Support Systems business since joining Hillrom in October 2011. Before joining Hillrom, she held several senior leadership roles at DynaVox Systems LLC and GE Healthcare.

Andreas G. Frank, 44, was elected Senior Vice President and President, Front Line Care, effective December 2018. He previously served as Chief Transformation Officer and Senior Vice President Corporate Development and Strategy, since joining Hillrom in October 2011. Before joining Hillrom, he was Director, Corporate Development at Danaher Corporation. Previously, he worked in the Corporate Finance and Strategy practice at the consulting firm McKinsey & Company.

Paul Johnson, 55, was elected as Senior Vice President and President of Patient Support Systems, effective November 2016. He had previously served as President, PSS North America, since joining Hillrom in February 2013. Before joining Hillrom, he held various commercial leadership positions at Life Technologies and GE Healthcare.

Mary Kay Ladone, 54, was elected Senior Vice President, Corporate Development, Strategy and Investor Relations, effective December 2018. She previously served as Vice President, Investor Relations, since joining Hill-Rom in July 2016. Before

~~Table~~based on their employees’ anonymous feedback (both quantitative and qualitative). By paying close attention to the results both at an aggregate enterprise level as well as at a department/business/work group level, Hillrom has been able to enhance its culture of ~~Contents~~respect, help educate employees more effectively about our benefits offerings as well as our learning and development opportunities and further improve our communications content, mechanisms and frequency.

~~joining~~Information ~~Hillrom,~~about ~~she~~our ~~served~~Executive as Senior Vice President, Investor Relations, of Baxalta Incorporated. Previously, she served in a variety of senior finance, business development and investor relations roles for Baxter International. Officers

~~Kenneth~~The ~~Meyers,~~following ~~58,~~sets ~~was~~forth ~~elected~~certain ~~Senior~~information ~~Vice~~regarding ~~President~~our ~~and~~executive ~~Chief~~officers. ~~Human~~The ~~Resources~~term ~~Officer,~~of ~~effective~~office ~~September~~for ~~2015.~~each ~~Before~~executive ~~joining~~officer ~~Hillrom,~~expires heon ~~was~~the ~~Senior~~date ~~Vice~~his ~~President~~or her successor is chosen and ~~Chief~~qualified. ~~Human~~No ~~Resources~~director ~~Officer~~or atexecutive ~~Hospira,~~officer ~~Inc.~~has ~~Previously~~a “family relationship” with any other director or executive officer of the Company, heas ~~was~~that aterm ~~partner~~is atdefined ~~Mercer~~for /purposes ~~Oliver~~of ~~Wyman~~this ~~Consulting~~disclosure requirement. ~~Prior~~There tois ~~Mercer~~no /understanding ~~Oliver~~between ~~Wyman,~~any heexecutive ~~served~~officer asand ~~Senior~~any ~~Vice~~other ~~President,~~person ~~Human~~pursuant ~~Resources,~~to ~~for~~which ~~Starbucks~~any ~~International~~executive officer was selected.

~~Deborah~~John MP. ~~Rasin~~Groetelaars, 5455, was elected ~~Senior Vice~~ President, and Chief ~~Legal~~Executive Officer ~~and~~of ~~Secretary~~Hillrom, effective ~~January~~May ~~2016~~2018. ~~Before~~ ~~joining Hillrom~~Previously, ~~she~~Mr. Groetelaars was ~~General~~Executive ~~Counsel~~Vice ~~for~~President ~~Dentsply~~and ~~International~~President ~~Inc~~of Becton, Dickinson and Company’s (“BD”) Interventional Segment. ~~Previously~~ Prior to the BD acquisition of C.R. Bard, ~~she~~Mr. ~~served~~Groetelaars aswas ~~General~~Group ~~Counsel~~President at ~~Samsonite~~Bard, ~~Corporation~~which ~~and~~he ashad ajoined ~~senior~~in ~~attorney~~2008. atHe ~~General~~previously ~~Motors~~held positions of increasing responsibility with Boston Scientific Corporation, Guidant Corporation and Eli Lilly.

~~Richard~~Barbara MW. ~~Wagner~~Bodem, 5253, was elected Senior Vice President, ~~Controller~~ and Chief ~~Accounting~~Financial Officer, effective ~~May~~December 2018. Before joining Hillrom, heshe ~~was~~served as Senior Vice President, Finance at ~~Cree~~Mallinckrodt. Previously, ~~Inc.~~she ~~and~~served ~~prior~~in toa ~~that~~variety ~~role,~~of hesenior ~~served~~finance asroles ~~Vice~~for ~~President~~Hospira, ~~Corporate~~Inc. ~~Controller~~and atEli ~~Dentsply Sirona~~Lilly, ~~Inc~~including serving as CFO of Lilly Oncology.

Amy Dodrill, 48, was elected Senior Vice President and President, Surgical Solutions, effective June 2019. She had previously served as Vice President of our U.S. Surgical Solutions sales operations and prior to that, as an area vice president in our Patient Support Systems business since joining Hillrom in October 2011. Before joining Hillrom, she held several senior leadership roles at DynaVox Systems LLC and GE Healthcare.

Andreas G. Frank, 45, was elected Senior Vice President and President, Front Line Care, effective December 2018. He previously served as Chief Transformation Officer and Senior Vice President Corporate Development and Strategy, since joining Hillrom in October 2011. Before joining Hillrom, he was Director, Corporate Development at Danaher Corporation. Previously, he worked in the Corporate Finance and Strategy practice at the consulting firm McKinsey & Company.

Paul Johnson, 56, was elected as Senior Vice President and President of Patient Support Systems, effective November 2016. He had previously served as President, PSS North America, since joining Hillrom in February 2013. Before joining Hillrom, he held various commercial leadership positions at Life Technologies and GE Healthcare.

Mary Kay Ladone, 55, was elected Senior Vice President, Corporate Development, Strategy and Investor Relations, effective December 2018. She previously served as Vice President, Investor Relations, since joining Hill-Rom in July 2016. Before joining Hillrom, she served as Senior Vice President, Investor Relations, of Baxalta Incorporated. Previously, she served in a variety of senior finance, business development and investor relations roles for Baxter International.

Deborah M. Rasin, 55, was elected Senior Vice President, Chief Legal Officer and Secretary, effective January 2016. Before joining Hillrom, she was General Counsel for Dentsply International Inc. Previously, she served as General Counsel at Samsonite Corporation and as a senior attorney at General Motors.

Richard M. Wagner, 53, was elected Vice President, Controller and Chief Accounting Officer, effective May 2018. Before joining Hillrom, he was Vice President, Finance at Cree, Inc. and prior to that role, he served as Vice President, Corporate Controller at Dentsply Sirona, Inc.

Availability of Reports and Other Information

Our website is www.hillrom.com. We make available on this website, free of charge, access to our annual, quarterly and current reports and other documents we file with, or furnish to, the SEC as soon as practicable after such reports or documents are filed or furnished. We also make available on our website position specifications for the Chairperson, members of the Board of Directors (“Board”) and the Chief Executive Officer, our Global Code of Conduct (and any amendments or waivers), the Corporate Governance Standards of our Board and the charters of each of the standing committees of the Board. All of these documents are also available to shareholders in print upon request.

Item 1A.RISK FACTORS

Our business involves risks related to economic, market, regulatory and legislative factors in the jurisdictions in which we operate. The following information about these risks should be considered carefully together with the other information contained herein. Although the risks are organized by headings and each risk is described separately, many of the risks are interrelated. The risks described below are not the only risks faced by Hillrom. Additional risks not currently known or considered immaterial also might result in adverse effects on our business. Any of these risks could have a material adverse impact on our business, financial condition, future results or cash flows. The order in which these factors appear should not be construed to indicate their relative importance or priority.

Risks Related to Proposed Acquisition by Baxter

The Merger is subject to receipt of approval from our shareholders and regulatory approvals and clearances, as well as the satisfaction of other closing conditions in the Merger Agreement, and we may not complete the Merger with Baxter within the time frame we anticipate or at all.

There can be no assurance that the Merger with Baxter will occur. The Merger Agreement contains a number of customary conditions to the completion of the Merger, including (i) the approval of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Hillrom common stock entitled to vote at a special meeting, (ii) the expiration or termination of the waiting period (and any extensions) applicable to the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which expired October 13, 2021, (iii) the receipt of specified regulatory approvals and clearances, (iv) the absence of any newly enacted law, injunction or order prohibiting the Merger, (v) the accuracy of the representations and warranties contained in the Merger Agreement (generally subject to a material adverse effect qualification), (vi) compliance in all material respects with the covenants and agreements in the Merger Agreement, and (vii) absence of a Material Adverse Effect (as defined in the Merger Agreement) on Hillrom since the date of the Merger Agreement. We can provide no assurance that all required approvals and clearances will be obtained or that all closing conditions will be satisfied, and, if all required approvals and clearances are obtained and the closing conditions are satisfied, we can provide no assurance as to the terms, conditions and timing of such approvals or the timing of the completion of the Merger. In addition, the Merger Agreement may be terminated under certain specified circumstances, including, but not limited to, a change in the recommendation of Hillrom’s Board of Directors or a termination of the Merger Agreement by us to enter into an agreement for a “Superior Proposal,” as defined in the Merger Agreement. If the Merger is not completed, in certain circumstances, we could be required to pay a termination fee of $367 million to Baxter. If the Merger Agreement is terminated, the termination fee we may be required to pay, if any, under the Merger Agreement may require us to use available cash that would have otherwise been available for general corporate purposes or other uses and/or may have an adverse impact on the terms a third party might propose in seeking to acquire or merge with us or deter such third party from making a competing acquisition proposal.

Failure to complete the Merger could materially adversely affect our business operations, financial results and stock price.

If the Merger is not completed, our shareholders will not receive any payment for their shares in connection with the Merger. Instead, Hillrom will remain an independent public company, and the shares will continue to be traded on the New York Stock Exchange. Our ongoing business may be materially adversely affected, and we would be subject to a number of risks, including the following:

•we may experience negative reactions from the financial markets, including negative impacts on our stock price, and it is uncertain when, if ever, the price of the shares would return to the prices at which the shares currently trade;

•we may experience negative publicity, which could have an adverse effect on our ongoing operations including, but not limited to, retaining and attracting employees, customers, suppliers and distributors;

•we will still be required to pay certain significant costs relating to the Merger, such as legal, accounting, financial advisor, printing and other professional services fees, which may relate to activities that we would not have undertaken other than to complete the Merger;

•we may be required to pay a termination fee as required under the Merger Agreement;

•the Merger Agreement places certain restrictions on the conduct of our business, which may have delayed or prevented us from undertaking business opportunities that, absent the Merger Agreement, we may have pursued;

•matters relating to the Merger require substantial commitments of time and resources by our management, which could result in the distraction of management from ongoing business operations and refraining from pursuing other opportunities that could have been beneficial to us; and

•we may be required to commit time and resources to defending against proceedings related to the Merger.

If the Merger is not consummated, the risks described above may materialize and they may have a material adverse effect on our business operations, financial results and stock price, especially to the extent that the current market price of our common stock reflects an assumption that the Merger will be completed.

We will be subject to various uncertainties while the Merger is pending that may cause disruption and may make it more difficult to maintain relationships with employees, customers, suppliers and distributors.

Uncertainty about the effect of the Merger on employees, customers, suppliers and distributors may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed, and could cause customers, suppliers, distributors and others that deal with us to attempt to change existing business relationships with us. Retention and motivation of certain employees may be challenging while the Merger is pending, as certain employees may experience uncertainty about their future roles. If key employees depart, our business could be harmed. In addition, there could be distractions to or disruptions for our employees and management associated with obtaining the required approvals to close the Merger. Our customers, suppliers and distributors may experience uncertainty regarding the Merger, including with respect to current or future business relationships following the Merger. Our business relationships may be subject to disruption as customers, suppliers, distributors and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than with us. These disruptions and changes to existing business relationships, including termination or modification, could negatively affect our business operations and financial results. Further, shareholder litigation challenging the Merger has been commenced against us and may delay or prevent the completion of the Merger or result in significant defense costs and serve as a distraction to our management and directors. The risks, and adverse effects, of such disruptions could be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement.

COVID-19 Risks

Our business, results of operations, financial condition and prospects have been and could becontinue ~~materially~~to ~~and~~be adversely affected by the ongoing COVID-19 pandemic and the related effects on public health.

InThe ~~December~~situation ~~2019~~surrounding the COVID-19 pandemic remains fluid, ~~there~~and ~~was~~given its inherent uncertainty, it could have an ~~outbreak~~adverse ofimpact aon ~~novel~~our ~~strain~~business in the future. The duration and extent of ~~coronavirus~~the (impact from the COVID-19) inpandemic ~~China~~depends on future developments that ~~has~~cannot ~~since~~be ~~spread~~accurately topredicted ~~nearly~~at ~~all~~this ~~regions~~time, such as the severity and transmission rate of the ~~world.~~virus, ~~The~~the ~~outbreak~~extent ~~was~~and ~~subsequently~~effectiveness ~~declared~~of acontainment ~~pandemic~~actions, bythe emergence and spread of variants, infection rates in the ~~World~~areas ~~Health~~where ~~Organization~~we operate, the effectiveness of vaccination efforts in ~~March~~the ~~2020.~~markets Towhere ~~date~~we do business, and the impact of these and other factors on our employees, customers, suppliers, service providers and business partners. If COVID-19 ~~outbreak~~or its variants continue to spread and ~~preventive~~escalate domestically or internationally, or if governments impose additional measures ~~taken~~intended to ~~contain~~mitigate orthe ~~mitigate~~spread and related effects of the ~~outbreak~~pandemic, ~~have~~the ~~caused~~risks described below, and ~~are~~many ~~continuing~~of tothe ~~cause,~~other ~~business~~risks ~~slowdowns~~and oruncertainties ~~shutdowns~~described in ~~affected~~this ~~areas~~Item ~~and~~1A. ~~significant~~Risk ~~disruption~~Factors, incould ~~global~~be ~~financial~~elevated ~~markets~~significantly.

InTo ~~response~~date, to the COVID-19 pandemic and ~~related~~preventive ~~mitigation~~ measures, wetaken ~~implemented changes in our business in March 2020~~ to ~~protect~~contain ~~our~~or ~~employees~~mitigate ~~and~~the ~~customers~~outbreak ~~through~~have ~~appropriate~~caused, ~~health~~ and ~~safety~~are ~~protocols.~~continuing ~~For~~to ~~example~~cause, webusiness ~~installed~~slowdowns ~~physical~~or ~~barriers~~shutdowns ~~between employees~~ in ~~production~~affected ~~facilities,~~areas ~~implemented extensive cleaning~~ and ~~sanitation~~significant ~~processes~~disruption ~~for both production and office administration spaces, and implemented broad work-from-home initiatives for employees~~ in ~~our~~global ~~administrative~~economic functions. Implementing these measures resulted in additional costs in fiscal 2020, which we expect will continue in fiscal 2021 as we work to address employee safety. These additional costs did not have a material impact on our Statements of Consolidated Income during fiscal 2020, and wefinancial ~~anticipate a similar impact for fiscal 2021~~markets.

Although we experienced ~~some~~and expect to continue to experience challenges in connection with the COVID-19 pandemic, ~~including~~as ~~declines~~set inforth ~~revenue related to project delays in our care communications business and reduced demand for certain of our patient exam and diagnostic products~~below, at this time, we have not experienced a negative impact on our liquidity or results of operations. While we ~~generally~~experienced ~~expect~~a recovery in the level of demand for our products negatively impacted by the COVID-19 pandemic, tothe ~~recover~~continued asspread weof ~~progress~~COVID-19 ~~through~~and ~~fiscal~~its ~~2021~~variants could negatively impact our business, weresults ~~are~~of ~~unable~~operations, tofinancial ~~predict~~condition ~~the~~and ~~ultimate~~prospects ~~impact~~in ofa ~~the~~number ~~COVID-19~~of ~~outbreak,~~ways ~~including~~in the ~~nature~~future. For ~~and~~example, ~~timing~~it ofcould, ~~when~~among other things:

Table of Contents

demand recovery may occur. The continued spread of COVID-19 could negatively impact our business, results of operations, financial condition and prospects in a number of ways in the future. For example, it 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, as amended, which 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 purchases of our products;

•diminish our ability to adequately predict customer demand for our products, which could adversely impact our ability to effectively manage inventory levels;

•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 that could 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 research and development (“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.

~~The~~Further ~~situation~~or ~~surrounding~~prolonged ~~the~~deterioration ~~COVID-19~~of ~~pandemic remains fluid, and given its inherent uncertainty, it could have an~~ adverse ~~impact~~conditions onrelating ~~our~~to ~~business in~~ the ~~future. The duration and extent of the impact from the~~ COVID-19 pandemic ~~depends on future developments that cannot be accurately predicted at this time~~, ~~such~~including asany ~~the severity and transmission rate~~ of the ~~virus,~~above ~~the~~factors ~~extent~~ and ~~effectiveness~~others ofthat ~~containment~~are ~~actions~~currently ~~and~~unknown, ~~the~~could ~~impact~~continue ofto ~~these~~have ~~and~~a ~~other~~negative ~~factors~~impact on our ~~employees~~business, ~~customers,~~results ~~suppliers~~of operations, ~~service~~financial ~~providers~~condition and ~~business~~prospects ~~partners. If COVID-19 continues to spread~~ and ~~escalate~~could ~~domestically~~heighten ormany ~~internationally,~~of orour ifknown ~~governments~~risks ~~impose~~described ~~additional~~in ~~measures~~this ~~intended~~Item to1A. ~~mitigate~~Risk ~~the~~Factors, ~~spread~~any ~~and related effects~~ of ~~the~~which ~~pandemic,~~could ~~the~~have ~~risks~~a ~~described~~material ~~above~~effect ~~could~~on ~~be elevated significantly~~us.

Should these conditions persist for a prolonged period, the COVID-19 pandemic, including any of the above factors and others that are currently unknown, 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 this Item 1A. Risk Factors, any of which could have a material effect on us.

Regulatory Risks

We face significant uncertainty in our industry due to government health care reform, healthcare reform laws, changes in Medicare, Medicaid and other governmental medical program reimbursements and for which we cannot predict how such reforms will impact our operating results.

In March 2010, the U.S. Congress adopted and President Obama signed into law comprehensive health care reform legislation through the passage of the Patient Protection and Affordable Health Care Act (H.R. 3590) and the Health Care and Education Reconciliation Act (H.R. 4872) (collectively, “the Healthcare Reform Act”). The provisions of the Healthcare Reform Act are intended to expand access to health insurance coverage and improve the quality of healthcare over time. However, other provisions of the legislation, including Medicare provisions, aim to decrease costs through comparative effectiveness research, and pilot programs to evaluate alternative payment methodologies could result in pricing pressure or negatively impact the demand for our products.

Table of Contents

We cannot predict with certainty what additional future health care initiatives, if any, will be implemented at the federal or state level, or what the ultimate effect of federal health care reform or any future legislation or regulation will have on us. Globally, managed care organizations, such as Medicare and Medicaid in the United States, are facing increasing pressure to both control health care utilization and to limit reimbursement. Changes in reimbursement programs or their regulations, including retroactive and prospective rate and coverage criteria changes, competitive bidding for certain products and services, and other changes intended to reduce expenditures (domestically or internationally), could adversely affect the portions of our businesses that are dependent on third-party reimbursement or direct governmental payments. Moreover, to the extent that our healthcare provider customers experience reimbursement pressure resulting in lower revenue for them, their demand for our products and services might decrease. The impact of the above-mentioned items could have a material adverse impact on our business, results of operations and cash flows.

Failure by us or our suppliers to comply with FDA regulations and similar foreign regulations applicable to the products we design, manufacture, install or distribute could expose us to enforcement actions or other adverse consequences.

We design, manufacture, install and distribute medical devices that are regulated by the FDA and similar agencies in other countries. Failure to comply with applicable regulations could result in future product recalls, injunctions preventing the shipment of products or other enforcement actions that could have a material adverse effect on our revenue and profitability. Additionally, certain of our suppliers are subject to FDA regulations. The failure of these suppliers to comply with regulations could adversely affect us as regulatory actions taken by the FDA against those manufacturers can result in product shortages, recalls or modifications. We are also subject to the European Medical Device Regulation, which was adopted by the European Union (“EU”) as a common legal framework for all EU member states. These regulations require companies that wish to manufacture and distribute medical devices in EU member states to meet certain quality system and safety requirements and ongoing product monitoring responsibilities, and obtain a “CE” marking (i.e., a mandatory conformity marking for certain products sold within the European Economic Area) for their products. Various penalties exist for non-compliance with the laws implementing the European Medical Device Regulations which if incurred, could have a material adverse impact on our business, results of operations and cash flows.

shipment of products or other enforcement actions that could have a material adverse effect on our revenue and profitability. Additionally, certain of our suppliers are subject to FDA regulations. The failure of these suppliers to comply with regulations could adversely affect us as regulatory actions taken by the FDA against those manufacturers can result in product shortages, recalls or modifications. We are also subject to the European Medical Device Regulation, which was adopted by the European Union (“EU”) as a common legal framework for all EU member states. These regulations require companies that wish to manufacture and distribute medical devices in EU member states to meet certain quality system and safety requirements and ongoing product monitoring responsibilities, and obtain a “CE” marking (i.e., a mandatory conformity marking for certain products sold within the European Economic Area) for their products. Various penalties exist for non-compliance with the laws implementing the European Medical Device Regulations which if incurred, could have a material adverse impact on our business, results of operations and cash flows.

We could be subject to substantial fines or damages and possible exclusion from participation in federal or state health care programs if we fail to comply with the laws and regulations applicable to our business.

We are subject to stringent laws and regulations at both the federal and state levels governing the participation of durable medical equipment suppliers in federal and state health care programs. From time to time, the government seeks additional information related to our claims submissions, and in some instances government contractors perform audits of payments made to us under Medicare, Medicaid, and other federal health care programs. On occasion, these reviews identify overpayments for which we submit refunds. At other times, our own internal audits identify the need to refund payments. We believe the frequency and intensity of government audits and review processes has grown and we expect this will continue in the future, due to increased resources allocated to these activities at both the federal and state Medicaid level, and greater sophistication in data review techniques.

If we are considered to have violated these laws and regulations, we could be subject to substantial fines, damages, possible exclusion from participation in federal health care programs such as Medicare and Medicaid and possible recoupment of any overpayments related to such violations. While we believe that our practices materially comply with applicable state and federal requirements, the requirements might be interpreted in a manner inconsistent with our interpretation. Failure to comply with applicable laws and regulations, even if inadvertent, could have a material adverse impact on our business.

Failure to comply with regulations due to our contracts with foreign and U.S. federal, state, and local government entities could adversely affect our business and results of operations.

Our business contracts with foreign and U.S. federal, state, and local government entities are subject to specific rules, regulations and approvals applicable to government contractors. Foreign and U.S. federal, state, and local government agencies often reserve the right to conduct audits and investigations of our business practices to assure our compliance with these requirements. Our failure to comply with these or other laws and regulations could result in contract terminations, suspension or debarment from contracting with ~~the~~these ~~U.S. federal government~~entities, civil fines and damages and criminal prosecution. In addition, changes in procurement policies, budget considerations, unexpected foreign or U.S. federal, state, or local developments, such as changes in the funding or structure of Department of Veterans Affairs or other government agencies to which we sell our products and services, might adversely affect sales to such foreign of U.S. federal, state, or local government entities.

Table of Contents

Capital and Credit Risks

We have a substantial amount of indebtedness. This level of indebtedness could adversely affect our ability to raise additional capital to fund operations, our flexibility in operating our business and our ability to react to changes in the economy or our industry.

As of September 30, ~~2020~~2021, we had $12,~~878~~060.09 million of indebtedness outstanding net of certain issuance costs. As a result of this debt, we have significant demands on our cash resources. The level of debt could, among other things:

•require us to dedicate a large portion of our cash flow from operations to the servicing and repayment of our debt, thereby reducing funds available for working capital, capital expenditures, research and development expenditures and other general corporate requirements;

•limit our ability to obtain additional financing to fund future working capital, capital expenditures, research and development expenditures and other general corporate requirements;

•limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate, including the continued impacts of COVID-19, which could require additional resources or a reallocation of capital to respond to changing priorities;

•restrict our ability to make strategic acquisitions or dispositions or to maximize business opportunities;

•adversely affect our credit rating, with the result that the cost of servicing our indebtedness might increase;

•adversely affect the market price of our common stock;

•limit our ability to apply proceeds from an offering or asset sale to purposes other than the servicing and repayment of debt; and

•cause us to fail to meet payment obligations or otherwise default under our debt, which will give our lenders the right to accelerate the indebtedness and exercise other rights and remedies against us.

In addition to the indebtedness we had outstanding as of the fiscal year ended September 30, ~~2020~~2021, we might incur substantial additional indebtedness in the future, which could cause the related risks to intensify. We may refinance all or a portion of our indebtedness on or before their respective maturities. We cannot provide assurances that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. The terms of any additional debt might give the holders rights, preferences, and privileges senior to those of holders of our common stock, particularly in the event of liquidation. The terms of any new debt might also impose additional and more stringent restrictions on our operations than are currently in place. If we are unable to refinance our debt, we might default under the terms of our indebtedness, which could lead to an acceleration of the required repayment of the outstanding balance. We do not expect that we could repay all of our outstanding indebtedness if the repayment of such indebtedness was accelerated.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Borrowings under the Senior Credit Agreement and Securitization Facilities will be at variable rates of interest and expose us to interest rate risk. If interest rates were to increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Assuming all loans under the Senior Credit Agreement and Securitization Facilities were fully drawn, each quarter point change in interest rates, excluding the effects of any interest rate swap agreements, would result in a $5.98 million change in annual interest expense on our indebtedness under the Senior Credit Agreement and Securitization Facilities. In the future, we may enter into additional interest rate swaps that involve the exchange of floating for fixed rate interest payments in order to reduce interest rate volatility. However, we may not maintain interest rate swaps with respect to all of our variable rate indebtedness, and any swaps we enter into may not fully mitigate our interest rate risk.

Our Senior Credit Agreement, Securitization Facilities and certain derivative instruments use the London Interbank Offered Rate (“LIBOR”) as a benchmark for establishing interest rates. On July 27, 2017, the United Kingdom’s Financial Conduct Authority announced that it intends to phase out LIBOR bybeginning ~~the end of~~ December 2021. We may have to negotiate new credit terms or potentially incur additional indebtedness that rely on an alternative interest rate method to LIBOR as a result of the LIBOR phase out. Any legal or regulatory changes made in response to LIBOR’s future discontinuance may result in, among other things, a sudden or prolonged increase or decrease in LIBOR, a delay in the publication of LIBOR, or changes in the rules or methodologies in LIBOR. In addition, ~~alternative~~we ~~methods~~have ~~to LIBOR may~~ not ~~yet~~adopted ~~have~~any ~~been~~of ~~established by~~ the ~~end~~current ofalternative ~~December~~methods ~~2021~~to LIBOR, ~~and~~therefore the impact of such alternative methods may be impossible or impracticable to determine. While we do not expect that the transition from LIBOR will have a material adverse effect on our results of operations and cash flows, it is still uncertain at this time.

Table of Contents

expect that the transition from LIBOR will have a material adverse effect on our results of operations and cash flows, it is still uncertain at this time.

Adverse developments in general domestic and worldwide economic conditions and instability and disruption of credit markets could have an adverse effect on our operating results, financial condition, or liquidity.

We are subject to risks arising from adverse changes in general domestic and global economic conditions, including recession or economic slowdown and disruption of domestic and international credit markets. The COVID-19 pandemic is currently causing disruptions to global economic conditions, and it is unknown how long such disruptions will continue and whether such disruptions will become more severe. The credit and capital markets have experienced and could continue to experience extreme volatility and disruption that could lead to periods of recessionary conditions and depressed levels of consumer and commercial spending. These recessionary conditions have caused and could continue to cause customers to reduce, modify, delay or cancel plans to purchase our products and services. If our customers reduce investments in capital expenditures or utilize their limited capital funds to invest in products that we do not offer, it could negatively impact our operating results. Even if our revenue remains constant, our profitability could decline if there is a shift to sales of product mix or geographic locations with less favorable margins. Moreover, volatility in the credit markets has in the past and could continue to adversely affect our suppliers’ access to capital and therefore their ability to continue to provide an adequate supply of the materials we use in our products and may result in higher supply costs.

If worldwide economic conditions worsen, we would expect our customers to scrutinize costs resulting from pressures on operating margin due to rising supply costs, reduced investment income and philanthropic giving, increased interest expense, reimbursement pressure, reduced elective health care spending and uncompensated care.

Operating and Product Risks

We operate in a highly competitive industry that is subject to the risk of declining demand and pricing pressures, which could adversely affect our operating results.

Demand for our products and services depends in large part on overall demand in the health care market. With the health care market’s increased focus on hospital asset and resource efficiency as well as reimbursement constraints, spending for some of our products could decline over time. Further, the competitive pressures in our industry could cause us to lose market share unless we increase our commercial investments or reduce our prices, which could adversely impact our operating results. The nature of this highly competitive marketplace demands that we successfully introduce new products into the market in a cost effective manner. These factors, along with possible legislative developments and others, might result in significant shifts in market share among the industry’s major participants, which includes us. Accordingly, if we are unable to effectively differentiate ourselves from our competitors in terms of new products and diversification of our product portfolio through business acquisitions, then our market share, sales and profitability could be adversely impacted through lower volume or decreased prices.

The nature of this highly competitive marketplace demands that we successfully introduce new products into the market in a cost-effective manner (more fully detailed below). These factors, along with possible legislative developments and others, might result in significant shifts in market share among the industry’s major participants, which includes us. Accordingly, if we are unable to effectively differentiate ourselves from our competitors in terms of new products and diversification of our product portfolio through business acquisitions, then our market share, sales and profitability could be adversely impacted through lower volume or decreased prices.

Our future financial performance will depend in part on the successful introduction of new products into the marketplace in a cost-effective manner.

Our future financial performance will depend in part on our ability to influence, anticipate, identify and respond to changing consumer preferences and needs, including those impacted by ~~COVID-19,~~the ~~or a possible resurgence of~~ COVID-19 pandemic. We can provide no assurances that our new products will achieve commercial acceptance in the marketplace. We might not correctly anticipate or identify trends in customer preferences or needs or might identify them later than competitors do. In addition, difficulties in manufacturing or in obtaining regulatory approvals, including as a result of the COVID-19 pandemic, might delay or prohibit introduction of new products into the marketplace. Further, we might not be able to develop and produce new products at a cost that allows us to meet our goals for profitability. We may not be able to obtain patent protection on our new products or be able to defend our intellectual property rights globally. Warranty claims and service costs relating to our new products might be greater than anticipated, and we might be required to devote significant resources to address any quality issues associated with our new products, which could reduce the resources available for further new product development and other matters. In addition, the introduction of new products might also cause customers to defer purchases of existing products.

Failure to successfully introduce new products in a cost-effective manner, or delays in customer purchasing decisions related to the evaluation of new products, could cause us to lose market share and could materially adversely affect our business.

Table of Contents

We might not be able to grow or achieve expected cost savings or profitability if we are unable to successfully acquire and integrate, or form business relationships with, other companies.

We have in the past, and expect in the future, to grow our business through mergers, acquisitions and other similar business arrangements. We might not be able to identify suitable acquisition candidates or business relationships, negotiate acceptable terms or receive necessary financing on acceptable terms for such acquisitions or relationships. Additionally, we might become responsible for liabilities associated with businesses that we acquire to the extent they are not covered by indemnification from the sellers or by insurance. Even if we can consummate acquisitions, such acquisitions could be dilutive to earnings and might not be successfully integrated to fully realize the expected benefits. Our integration efforts might also divert management and other resources from other important matters, and we could experience delays or unusual expenses in the integration process, including intangible asset impairments, which could result in significant charges in our Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K. Moreover, the margins for these companies might differ from our historical gross and operating margins resulting in a material adverse effect on our results of operations.

Financial Statements included under Part II, Item 8 of this Form 10-K. Moreover, the margins for these companies might differ from our historical gross and operating margins resulting in a material adverse effect on our results of operations.

Our business is significantly dependent on major contracts with GPOs, IDNs, and certain other distributors and purchasers.

A majority of our U.S. hospital sales and rentals are made pursuant to contracts with hospital GPOs. At any given time, we are typically at various stages of responding to bids, negotiating and renewing expiring GPO agreements. Failure to be included in certain of these agreements could have a material adverse effect on our business, including product sales and service and rental revenue.

Our participation in such programs often requires increased discounting or restrictions on our ability to raise prices, and failure to participate or to be selected for participation in such programs might result in a reduction of sales to the member hospitals. In addition, the industry is showing an increased focus on contracting directly with health systems or IDNs (which typically represent influential members and owners of GPOs). IDNs and health systems often make key purchasing decisions and have influence over the GPO’s contract decisions, and often request additional discounts or other enhancements. Further, certain other distributors and purchasers have similar processes to the GPOs and IDNs and failure to be included in agreements with these other purchasers could have a material adverse effect on our business.

Our international sales and operations are subject to risks and uncertainties that vary by country and which could have a material adverse effect on our business and/or results of operations. Compliance with international laws and regulations, import and export limitations, trade agreements, anti-corruption laws, and exchange controls may be difficult, burdensome and expensive.

International sales ~~represent~~represented approximately 3231% of our total sales induring fiscal ~~2020~~year ended September 30, 2021. We anticipate that international sales will continue to represent a significant portion of our total sales in the future. In addition, we have multiple manufacturing facilities and third-party suppliers that are located outside of the United States. As a result, our international sales, as well as our sales in the United States, of products produced or sourced internationally, are subject to risks and uncertainties that can vary by country, such as political instability, economic conditions, foreign currency exchange rate fluctuations, changes in tax laws, regulatory and reimbursement programs and policies, and the protection of intellectual property rights. The COVID-19 pandemic has contributed and could continue to contribute to these conditions or trigger legislative or regulatory responses that could directly or indirectly effect our business. In addition, our collections of international receivables are subject to economic pressures and the actions of some governmental authorities that have initiated various austerity measures to control health care and other governmental spending.

We are subject to compliance with various laws and regulations, including the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act, and similar anti-bribery laws in other jurisdictions, which generally prohibit companies and their intermediaries from making bribes or other improper payments to officials for the purpose of obtaining or retaining business. We are also subject to limitations on trade with persons in sanctioned countries. Our exposure to international markets increases the inherent risks of encountering such issues. While our employees, distributors and agents are required to comply with these laws and regulations, no assurance can be given that our training and internal policies and procedures will always protect us from violations of these laws, despite our commitment to legal compliance and corporate ethics. The failure to comply with these laws and regulations could subject us to severe fines and penalties that could have a material impact on our financial condition, results of operations and cash flows.

Table of Contents

We might not be successful in achieving expected operating efficiencies and sustaining or improving operating expense reductions, and might experience business disruptions and adverse tax consequences associated with restructuring, realignment and cost reduction activities.

Over the past few years, we have initiated several restructuring, realignment and cost reduction initiatives. While we expect to realize efficiencies from these actions, these activities might not produce the full efficiency and cost reduction benefits we expect. Further, such benefits might be realized later than expected, and the ongoing costs of implementing these measures might be greater than anticipated. If these measures are not successful or sustainable, we might undertake additional realignment and cost reduction efforts, which could result in future charges. Moreover, our ability to achieve our other strategic goals and business plans might be adversely affected and we could experience business disruptions with customers and elsewhere if our restructuring and realignment efforts and our cost reduction activities prove ineffective. These actions, the resulting costs, and potential delays or potential lower than anticipated benefits might also impact our foreign tax positions and might require us to record tax reserves against certain deferred tax assets in our international business.

We are involved on an ongoing basis in claims, lawsuits and governmental proceedings relating to our operations, as well as product liability or other liability claims that could expose us to adverse judgments or could adversely affect the sales of our products.

We are involved in the design, manufacture and sale of health care products, which ~~face~~creates an inherent risk of exposure to product liability claims if our products are alleged to have caused injury or are found to be unsuitable for their intended use. Amongst other claims, we are, from time to time, a party to claims and lawsuits alleging that our products have caused injury or death or are otherwise unsuitable. It is possible that we will receive adverse judgments in such lawsuits, and any such adverse judgments could be material. Although we carry insurance with respect to such matters, this insurance is subject to varying deductibles and self-insured retentions and might not be adequate to cover the full amount of any particular claim. In addition, any such claims could negatively impact the sales of products that are the subject of such claims or other products.

Materials and Manufacturing Risks

Increased prices for, or unavailability of, raw materials or sub-assemblies used in our products could adversely affect profitability or revenue. Specifically, our results of operations could be adversely affected by high prices for metals, fuel, plastics and other petroleum-based products, and the impact of U.S. and foreign legislation, regulations and trade agreements relating to the materials we import. We also rely on single suppliers for the procurement of several raw materials and sub-assemblies.

Our profitability is affected by the prices and availability of the raw materials and sub-assemblies used in the manufacture of our products. These prices might fluctuate based on many factors beyond our control, including, but not limited to, changes in supply and demand, general economic conditions, including the ongoing impact of COVID-19, ~~or a possible resurgence of COVID-19,~~ labor costs, fuel related delivery costs, competition, and currency exchange rates. Our business is also subject to risks associated with U.S. and foreign legislation, regulations and trade agreements relating to the materials we import, including quotas, duties, tariffs or taxes, and other charges or restrictions on imports, which could adversely affect our operations and our ability to import materials used in our products at current or increased levels. We cannot predict whether additional U.S. and foreign customs quotas, duties (including antidumping or countervailing duties), tariffs, taxes or other charges or restrictions, requirements as to where raw materials must be purchased, additional workplace regulations or other restrictions on our imports will be imposed in the future or adversely modified, or what effect such actions would have on our costs of operations. Future quotas, duties or tariffs may have a material adverse effect on our business, financial condition, results of operations or cash flows. Future trade agreements could also provide our competitors with an advantage over us, or increase our costs, either of which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

Significant increases in the cost of raw materials or sub-assemblies that cannot be recovered through increased prices of our products could adversely affect our results of operations. There can be no assurance that the marketplace will support higher prices or that such prices and productivity gains will fully offset any commodity cost increases in the future. We ~~generally~~may ~~have~~from ~~not~~time to time engaged in hedging transactions with respect to raw material purchases but do enter into fixed price supply contracts at times. Future decisions not to engage in hedging transactions or ineffective hedging transactions might result in increased cost volatility, potentially adversely impacting our profitability.

Our dependency upon regular deliveries of supplies from certain suppliers means that interruptions or stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made. Several of the raw materials and sub-assemblies used to manufacture our products currently are procured only from a single source. If any of these single-source suppliers were unable or unwilling to deliver these materials for an extended time, we might not be able to manufacture one or more products and our business could suffer. We might not be able to find acceptable alternatives, and any such alternatives could result in increased costs.

Table of Contents

single-source suppliers were unable or unwilling to deliver these materials for an extended time, we might not be able to manufacture one or more products and our business could suffer. We might not be able to find acceptable alternatives, and any such alternatives could result in increased costs.

The majority of our products are manufactured at a single facility or location, and the material damage or loss of, or partial or complete labor-related work stoppage at, one or more of these facilities or locations could prevent us from manufacturing some of the various products we sell.

We manufacture most of our products in a single facility or location. If an event (including any weather or natural disaster or disruptions in connection with the COVID-19 pandemic) occurred that resulted in material damage or loss of, or partial or complete labor-related work stoppage at, one or more of these manufacturing facilities or we lacked sufficient labor to fully operate the facility, we might be unable to transfer manufacturing of the relevant products to another facility or location in a cost-effective or timely manner, if at all. This potential inability to transfer production could occur for several reasons, including but not limited to a lack of necessary relevant manufacturing capability at another facility, or the regulatory ~~requirements of the FDA or other governmental regulatory bodies. Such an event could materially negatively impact our financial condition, results of operations and cash flows.~~

requirements of the FDA or other governmental regulatory bodies. Such an event could materially negatively impact our financial condition, results of operations and cash flows.

We might be adversely affected by regulations relating to conflict minerals.

The SEC has adopted rules regarding disclosure for public companies whose products contain conflict minerals (commonly referred to as tin, tantalum, tungsten and gold) that originate from the Democratic Republic of the Congo (“DRC”) and/or adjoining countries. The implementation of these requirements could adversely affect the sourcing, availability and pricing of materials used in the manufacturing of our products. In addition, we ~~will~~ incur additional costs to comply with the disclosure requirements, including costs related to determining the source of any of the relevant minerals used in our products. Since our supply chain is complex and multilayered, we might be unable to ascertain with sufficient certainty the origins for these minerals despite our due diligence procedures, which in turn might harm our reputation. We might also face difficulties in satisfying customers who might require that our products be certified as DRC conflict -free, which could harm our relationships with these customers and/or lead to a loss of revenue. These requirements also could have the effect of limiting the pool of suppliers from which we source these minerals, and we might be unable to obtain conflict-free minerals at prices similar to the past, which could increase our costs and adversely affect our manufacturing operations and our profitability.

Employee and Pension Plan Risks

The assets in our pension plans are subject to market disruptions. In addition, our pension plans are underfunded.

Our primary pension plan invests in a variety of equity and debt securities subject to market risks. In addition, our pension plans are underfunded by $8061.19 million based on our projected benefit obligation and fair value of plan assets as of September 30, ~~2020~~2021. Market volatility and disruption could cause declines in asset values or fluctuations in assumptions used to value our liability and expenses. If this occurs, we might need to make additional pension plan contributions and our pension expense in future years might increase.

A portion of our workforce is unionized, and we could face labor disruptions that would interfere with our operations.

Approximately 8% of our employees in the United States (including contingent workers) work under collective bargaining agreements. Approximately 6564% of our employees outside the United States (including contingent workers) work under various collective bargaining arrangements and/or national trade union agreements. Although we have not recently experienced any significant work stoppages as a result of labor disagreements, we cannot ensure that such a stoppage will not occur in the future. The two collective bargaining agreements at our primary U.S. manufacturing facility expire in January ~~2021~~2022 and January ~~2022~~2024, respectively. Our inability to negotiate satisfactory new agreements or a labor disturbance at one of our principal facilities could have a material adverse effect on our operations.

We might not be able to attract, retain and develop key personnel.

Our future performance depends in significant part upon the continued service of our executive officers and other key personnel. The loss of the services of one or more of our executive officers or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations. Our success also depends on our continuing ability to attract, retain and develop highly qualified personnel, and as competition for such personnel is intense, there can be no assurance that we can do so in the future.

Table of Contents

Cybersecurity and Information Technology Risks

The rationalization and transformation of our Enterprise Resource Planning (“ERP”) software solutions and other information technology systems could result in significant disruptions to our operations.

We are in the process of rationalizing and transforming our ERP software solutions and other complementary information technology systems, which is expected to be completed over the next several years. The implementation of these solutions and systems is highly dependent on the coordination of numerous software and system providers and internal business teams. We could experience changes in our operational processes and internal controls, which in turn could require significant capital investments and change management, including recruiting and training of qualified personnel. The interdependence of these solutions and systems is key to the successful completion of the initiatives. The failure of any one solution or system could have a significant impact on our business processes and information systems, including loss or corruption of data, delayed shipments, decreases in productivity as our personnel and third-party providers implement and become familiar with new systems, increased costs and lost revenues, which could have an adverse effect on our overall information technology infrastructure and as a result, could have an adverse impact on our business, results of operations and cash flows.

new systems, increased costs and lost revenues, which could have an adverse effect on our overall information technology infrastructure and as a result, could have an adverse impact on our business, results of operations and cash flows.

Difficulties in implementing new or upgraded information systems or system failures could also result in significant disruptions to our business, the incurrence of unanticipated expenses and the diversion of management’s attention from key strategic initiatives and could have a material adverse effect on our capital resources, financial condition, results of operations or cash flows.

We are increasingly dependent on the consistent functioning of our information technology and cybersecurity systems along with our information technology dependent product portfolios. If we are exposed to any intrusions, disruptions, corruption, or destruction, or if we fail to maintain the integrity of our systems or products, or the privacy of our data, our business and our reputation could be materially adversely affected.

We are increasingly dependent on consistent functioning of our information technology and cybersecurity systems for our infrastructure and software-based products. Our information technology and cybersecurity systems have been and may continue to be subjected to viruses or other malicious codes, unauthorized access attempts, cyber- or phishing-attacks, tampering, or other security breaches. Our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, regulatory standards, integration of acquisitions, and the increasing need to protect patient, customer and supplier information. ~~The~~In ~~new~~addition, the EU-wide General Data Protection Regulation (“GDPR”), ~~which became applicable on May 25, 2018,~~ imposes ~~more~~ stringent data protection requirements and provides for ~~greater~~significant penalties for noncompliance. Our products include technologies that support connectivity and decision support infrastructure, which could be subject to intrusion, disruption or corruption and could impact the quality of care patients receive or the confidentiality of patient information. In addition, third parties might attempt to hack into our products or systems, ~~and~~in ~~might~~an effort to obtain proprietary information. As a result of the COVID-19 pandemic, we have faced and may continue to face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. If we fail to maintain or protect our information technology and cybersecurity systems and information technology dependent products effectively, we could lose existing customers or suppliers, have difficulty attracting new customers or suppliers, have problems that adversely impact internal controls, have difficulty preventing, detecting and controlling fraud, have disputes with customers and suppliers, have regulatory sanctions or penalties imposed, have increases in operating expenses, incur expenses or lose revenues as a result of a data privacy breach, or cyber-based attack, or suffer other adverse consequences. Any significant breakdown, intrusion, interruption, corruption, or destruction of these systems, as well as any data breaches or cyber-based attacks, could have a material adverse effect on our business. We have experienced targeted and non-targeted cybersecurity attacks and incidents in the past that have resulted in unauthorized persons gaining access to our information and systems, and we could in the future experience similar attacks. We are continuously investing in our cybersecurity program to mature current capabilities, in addition to accelerating the implementation of new capabilities to keep pace with the changing threat landscape. To date, no cybersecurity incident or attack has had a material impact on our business or consolidated financial statements.

Climate Change Risks

Climate change, or legal, regulatory or market measures to address climate change, could adversely affect our business, results of operations and financial condition.

The long-term effects of climate change are difficult to predict and may be widespread. The impacts of climate change may include physical risks (such as rising sea levels or frequency and severity of extreme weather conditions), social and human effects (such as population dislocations or harm to health and well-being), compliance costs and transition risks (such as regulatory or technology changes), shifts in market trends (such as customers putting an increased priority on purchasing products that are sustainably made) and other adverse effects. Such impacts may disrupt our supply chain and operations by adversely affecting our ability to procure goods or services required for the operation of our business at the quantities and levels we require, due to impairment of the availability and cost of certain products, materials, commodities and energy.

In addition, the increasing concern over climate change has resulted and may continue to result in more regional, federal, and/or global legal and regulatory requirements relating to climate change, including regulating greenhouse gas emissions, alternative energy policies and sustainability initiatives. If legislation or regulations are enacted or promulgated in the United States or in any other jurisdictions in which we do business that impose more stringent restrictions and requirements than our current legal or regulatory obligations, we may experience disruptions in, or increases in the costs associated with, sourcing, manufacturing and distributing our products, which may adversely affect our business, results of operations and financial

condition. Any such regulatory changes could have a significant effect on our operating and financial decisions, including those involving capital expenditures to reduce emissions and comply with other regulatory requirements.

Tax Risks

Unfavorable outcomes related to uncertain tax positions could result in significant tax liabilities.

We have recorded tax benefits related to various uncertain tax positions taken or expected to be taken in a tax return. While we believe our positions are appropriate, the U.S. Internal Revenue Service (“IRS”), state or foreign tax authorities could disagree with our positions, which could result in a significant tax payment.

Table of Contents

General Risk Factors

Our stock price and trading volume has been, and may continue to be, volatile from time to time and we might experience continued fluctuations in the future that could negatively impact the value of our outstanding shares.

The market for our common stock has, from time to time, experienced significant price and volume fluctuations that might have been unrelated to our operating performance. We believe that a variety of factors could cause the price of our common stock to fluctuate, perhaps substantially, including:

•new, or changes in, analyst recommendations, guidelines or studies that could affect the use of our products;

•announcements and rumors of developments related to our business, including changes in reimbursement rates or regulatory requirements, proposed and completed acquisitions, or the industry in which we compete;

•published studies and reports relating to our products and markets in which we participate;

•quarterly fluctuations in our actual or anticipated operating results;

•general conditions in the U.S. or worldwide economy, including the impact of the COVID-19 ~~that has spread globally~~pandemic;

•our stock repurchase program;

•announcements of technological innovations;

•new products or product enhancements by us or our competitors;

•developments in patents or other intellectual property rights and litigation;

•developments in relationships with our customers and suppliers;

•the implementation of health care reform legislation and the adoption of additional reform legislation in the future; and

•the ability to or extent of integrating our acquisitions.

Any such fluctuations in the future could adversely affect the market price of our common stock.

Item 1B.UNRESOLVED STAFF COMMENTS

We have not received any comments from the staff of the SEC regarding our periodic or current reports that remain unresolved.

1922

Table of Contents

Item 2.PROPERTIES

The principal properties used in our operations are listed below. All facilities are suitable for their intended purpose, are being efficiently utilized and are believed to provide adequate capacity to meet demand for the next several years.

Location Description and Primary Use Segment Owned/Leased Acton, MA Light manufacturing, development and distribution of health care products; Office administration GSS Leased Batesville, IN Manufacturing, development and distribution of health care products; Office administration All Owned Bellevue, WA Development and distribution of health care products; Office administration FLC Leased Cary, NC Development of health care products; Office administration PSS Leased Charleston, SC Light manufacturing and distribution of health care products;Office administration GSS Leased Chicago, IL Corporate headquarters; Office administration ~~Leased~~Corporate ~~Irvine, CA Manufacturing, development and distribution of health care products;Office administration~~ Leased Milwaukee, WI Manufacturing, development and distribution of health care products; Office administration FLC Owned Sarasota, FL ~~Development and distribution of health care products;~~ Office administration All Leased St. Paul, MN Office administration and distribution of health care products; Service center FLC Leased Skaneateles Falls, NY Manufacturing, development and distribution of health care products; Office administration FLC Owned Suzhou, China Manufacturing of health care products PSS Leased Taicang, China Light manufacturing and distribution of health care products GSS Leased Pluvigner, France Manufacturing, development and distribution of health care products; Office administration PSS Owned Puchheim, Germany Development of health care products; Office administration ~~Owned/~~GSS Leased Saalfeld, Germany Manufacturing, development and distribution of health care products; Office administration GSS Owned Navan, County Meath, Ireland Office administration All Owned Bologna, Italy Development of heath care products; Office administration FLC Leased Tijuana, Mexico Manufacturing and distribution of health care products; Office administration FLC Leased Monterrey, Mexico Manufacturing of health care products; Office administration PSS Owned Amsterdam, Netherlands Office administration All Leased Singapore Development of health care products; Office administration FLC Leased Luleå, Sweden Manufacturing and distribution of health care products;Office administration PSS Owned

In addition to the foregoing, we lease a number of warehouse distribution centers, service centers, sales offices and other facilities throughout the United States, Australia, Canada, Western Europe, Mexico, Middle East, the Far East, and Latin America.

2023

Table of Contents

Item 3.LEGAL PROCEEDINGS

See Note 1615. Commitments and Contingencies of our Consolidated Financial Statements included under Part II, in Item 8 of this Form 10-K for information regarding legal proceedings in which we are involved.

Item 4.MINE SAFETY DISCLOSURES

Not applicable.

PART II

Item 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information and Shareholders

Our common stock is traded on the New York Stock Exchange under the ticker symbol HRC. ~~and~~As ~~there~~of ~~are~~November ~~approximately~~10, 802021,~~200~~ we had 62,100 shareholders of record.

Dividends

The declaration and payment of cash dividends is at the sole discretion of our Board and depends upon many factors, including our financial condition, earnings potential, capital requirements, alternative uses of cash, covenants associated with debt obligations, legal requirements, and other factors considered relevant by our Board. We have paid cash dividends on our common stock every quarter since our initial public offering in 1971. We intend to continue to pay quarterly cash dividends comparable to those paid in the periods covered by the Consolidated Financial Statements included within Item 8 of Part II of this Form 10-K, at the discretion and subject to the approval of our Board and subject to the terms of the Merger Agreement. The Merger Agreement limits our ability to increase the amount of our quarterly cash dividends while the Merger is pending; however, we may continue to pay regular quarterly dividends not exceeding $0.24 per share, declared and paid at such times as are consistent with the Company's historical practice over the twelve-month period prior to the date of the Merger Agreement.

Issuer Purchases of Equity Securities

Period	TotalNumberof SharesPurchased 1,2	AveragePrice Paidper Share		Total Numberof SharesPurchased asPart of PubliclyAnnounced Plans or Programs	ApproximateDollar Valueof Shares ThatMay Yet BePurchased Underthe Programs 2,3(in millions)
July 1, 2020 - July 31, 2020	714	$	111.80	—	$	163.4
July 1, 2021 - July 31, 2021	1,192	$	116.10	—	$	532.7
August 1, 2020 - August 31, 2020	50	$	95.39	—	$	163.4
August 1, 2021 - August 31, 2021	109	$	124.53	—	$	532.7
September 1, 2020 - September 30, 2020	132	$	82.49	—	$	163.4
September 1, 2021 - September 30, 2021	—	$	—	—	$	532.7
Total	~~896~~1,301			—

1 Shares purchased in the quarter ended September 30, ~~2020~~2021 were in connection with employee payroll tax withholding for restricted stock distributions.

2 InPurchases ~~September~~of ~~2019,~~common ~~the~~stock ~~Board~~may ~~approved~~be anmade ~~additional~~in ~~$170.0 million~~the ~~for~~open ~~share~~market ~~repurchases.~~or ~~The~~through ~~below~~private ~~table~~transactions ~~reflects~~at ~~the~~times ~~date~~and ofamounts ~~Board~~determined ~~approval,~~by the ~~authorized~~Company ~~dollar~~based ~~value~~on its evaluation of ~~the~~market ~~shares~~conditions toand beother ~~repurchased~~factors. ~~under~~The ~~each~~Merger ~~approval~~Agreement ~~and~~places ~~the~~restrictions ~~availability~~on our ability to repurchase asshares of ~~September~~our ~~30,~~common ~~2020~~stock. ~~There~~As isa noresult, ~~expiration~~we ~~date~~do ornot ~~plans~~expect to ~~terminate~~make ~~this~~repurchases under the common stock repurchase program inwhile the ~~future~~Merger Agreement is in effect. However, we may continue to repurchase shares of our common stock from employees in connection with employee payroll tax withholding for restricted stock distributions.

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 September 30, 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

3 In September 2019, the Board approved an additional $170.0 million for share repurchases. In July 2021, the Board approved an increase to the share repurchase program in an amount of $500.0 million. The below table reflects the date of Board approval, the authorized dollar value of the shares to be repurchased under the approved program and the availability to repurchase as of September 30, 2021. There is no expiration date for this program.


(In millions) Board Approval Date	Authorized Dollar Value		Dollar Value of Shares Purchased Prior to Fiscal 2021		Dollar Value of Shares Purchased in Fiscal 2021		Availability to Purchase as of September 30, 2021

September 2019	$	170.0	$	6.6	$	130.7	$	32.7
July 2021	500.0		—		—		500.0
Totals	$	670.0	$	6.6	$	130.7	$	532.7

~~Table of Contents~~25

Stock Performance Graph

The following graph compares the return on our common stock with that of Standard & Poor’s 500 Stock Index (“S&P 500”) and our peer groups* for each of the last five fiscal years ended September 30. The composition of our current peer group (the “~~2020~~2021 Peer Group”) has not changed since the date of our Annual Report on Form 10-K for fiscal ~~2019~~2020. The ~~2020~~2021 Peer Group is aligned with the peer group used in our most recent compensation study done for executive compensation purposes. The graph below assumes that the value of the investment in our common stock, the S&P 500 and our ~~2020~~2021 Peer Group was $100 on October 1, ~~2015~~2016 and that all dividends were reinvested.

	2015		2016		2017		2018		2019		2020
	2016		2017		2018		2019		2020		2021
HRC	$	100	$	119	$	~~142~~152	$	~~182~~170	$	~~202~~135	$	~~161~~242
S&P 500	100		~~113~~116		~~131~~134		~~152~~137		155		~~175~~199
2020 Peer Group	100		132		153		198		214		261
2021 Peer Group	100		117		150		163		197		277

*For purposes of the Stock Performance Graph above, our ~~2020~~2021 Peer Group is comprised of: Agilent Technologies, Inc., Avanos Medical, Inc. (formerly Halyard Health, Inc.), Bio-Rad Laboratories, Inc., Bruker Corporation, The Cooper Companies, Inc., Dentsply Sirona, Inc., Edwards Lifesciences Corporation, Hologic, Inc., Intuitive Surgical, Inc., Mednax, Inc., Patterson Companies, Inc., PerkinElmer, Inc., Quest Diagnostics Incorporated, ResMed, Inc., Steris plc, Teleflex Incorporated, Varian Medical Systems, Inc., Waters Corporation and West Pharmaceutical Services, Inc.

~~Certain~~Item other information required by this item will be contained under the caption “Equity Compensation Plan Information” in our definitive Proxy Statement to be delivered to shareholders in connection with the Annual Meeting of Shareholders to be held on March 10, 2021, and such information is incorporated herein by reference6.[Reserved]

Table of Contents

PART II

Item 6.SELECTED FINANCIAL DATA

The following table presents our selected consolidated financial data for each of the last five fiscal years ended September 30. The data included below should be read together with Item 7 of Part II of this Form 10-K, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8 of Part II of this Form 10-K, Financial Statements and Supplementary Data, and related notes to Consolidated Financial Statements.

(In millions, except per share data)	2020		2019		2018		2017		2016
Net revenue	$	2,881.0	$	2,907.3	$	2,848.0	$	2,743.7	$	2,655.2
Net income	223.0		152.2		252.4		132.3		122.8
Net income attributable to common shareholders	223.0		152.2		252.4		133.6		124.1
Net income attributable to common shareholders per basic share	3.35		2.28		3.81		2.04		1.90
Net income attributable to common shareholders per diluted share	3.32		2.25		3.73		1.99		1.86
Total assets	4,671.1		4,919.0		4,360.0		4,528.7		4,262.4
Long-term obligations	1,655.7		1,783.1		1,790.4		2,120.4		1,938.4
Cash flows from operating activities	481.7		401.4		395.2		311.1		281.2
Capital expenditures	105.9		73.4		89.5		97.5		83.3
Cash flows from investing activities	(131.2)		(249.0)		(82.4)		(389.4)		(97.7)
Cash flows from financing activities	(695.0)		304.7		(356.6)		70.6		(141.9)
Cash dividends per basic share	0.87		0.83		0.78		0.71		0.67

Table of Contents

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Hill-Rom Holdings, Inc. (“we,” “us,” or “our”) is a global medical technology leader whose approximately 10,000 employees have a single purpose: enhancing outcomes for patients and their caregivers by Advancing Connected Care™. Around the world, our innovations touch over 7 million patients each day. Our products and services help enable earlier diagnosis and treatment, optimize surgical efficiency and accelerate patient recovery while simplifying clinical communication and shifting care closer to home. We make these outcomes possible through 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.

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.

Industry Trends

~~The~~We ~~unprecedented~~believe ~~COVID-19 global pandemic placed significant pressure on health care providers globally. Not only did health systems manage~~ the ~~real~~following ~~and~~global ~~anticipated~~healthcare ~~influx~~trends ~~of infectious~~will ~~patients~~accelerate ~~through~~in ~~emergent response, they were required to address~~ a variety of factors including ensuring appropriate critical care capacity, facilitating supply chain needs for personal protective equipment (“PPE”) and high demand medical devices and addressing ongoing staffing challenges. The resulting focus on COVIDpost-19pandemic ~~patients resulted in mandates to reduce elective surgeries, effectively reducing a key health system revenue source, placing financial pressure on providers~~market. ~~We expect consumers to continue to be wary about visiting healthcare facilities, driving continued demand for telehealth and care in lower acuity settings.~~

Clinical Communications. COVID-19 accelerated the need and greater acceptance of virtual care. Although available for some time, the adoption of virtual visits has gained wide acceptance from patients, providers and more importantly payers. We see this trend continuing and the ~~pandemic~~environment ~~representing~~is aripe ~~force~~for ~~which~~continued ~~has~~growth, including within the walls of the hospitals. Additionally, with shortages of physician specialties and other healthcare staff, patient engagement tools, remote patient monitoring software, and use of digital communication technology designed to increase care team efficiencies will ~~continue~~also increase due to ~~accelerate~~the ~~several~~desire ~~global~~for ~~health~~lower cost care ~~trends:~~ (lower staff-to-patient ratios), and the opportunity to enhance patient outcomes.

~~Telehealth~~Intelligent Monitoring and ~~Remote Care~~Diagnostics. ~~COVID-19~~Connected ~~essentially~~care ~~accelerated~~cannot ~~the~~only ~~need~~take ~~and~~place ~~greater~~through ~~acceptance of~~ virtual ~~care.~~means, ~~Although~~but ~~available~~also ~~for~~through ~~some time,~~ the ~~adoption~~digital transformation of ~~telehealth~~connected ~~virtual~~devices ~~visits~~and ~~has~~decision ~~gained~~support ~~wide~~tools. ~~acceptance~~Providers ~~from~~will ~~patients~~utilize sensors, ~~providers~~wearables, ~~and~~artificial ~~more~~intelligence ~~importantly~~and ~~payers.~~predictive Weanalytics ~~see~~to ~~this~~generate ~~trend~~meaningful ~~continuing~~ and ~~the~~real-time ~~environment~~information isabout ~~ripe~~patients ~~for~~to ~~continued~~maximize ~~growth.~~clinical ~~Additionally~~insights, ~~with~~improve ~~shortages of physician specialties~~workflow, ~~telemedicine~~enable ~~(i.e.,~~earlier ~~eICU)~~intervention ~~within~~and ~~the~~enhance ~~walls of~~ the ~~hospitals~~patient’s ~~will~~experience, ~~also~~across ~~increase~~sites ~~due~~of ~~to the need for access and the desire for lower cost~~ care.

Digital Transformation. Connected care cannot only take place through virtual means, but also through the digital transformation of connected devices and decision support tools. Providers will utilize communication tools, sensors, wearables, artificial intelligence and predictive analytics to generate meaningful and real-time information about patients to maximize clinical insights, improve workflow, enable earlier intervention and enhance the patient’s experience.

Lower Cost Care Settings. Growing pressure on health care costs are resulting in a continued migration of care from the acute care hospital into lower cost care settings. We believe that this trend increases the demand for more solutions to care for these patients, many of whom are medically complex, in lower acuity settings such as ambulatory surgery centers, outpatient centers and the home. Opportunities include improved medical technologies, remote monitoring, communication solutions and information technologies.

Provider Consolidation. The financial pressures experienced via COVID-19 place an even greater chasm between providers that can weather hardship and those that cannot. We expect economic considerations, competition and other factors will lead to ongoing consolidation of customers.

Economic and Clinical Value. The overriding importance of improved quality of care metrics will maintain the focus on improving outcomes related to pressure injuries, patient falls, patient deterioration and sepsis. Hospitals may experience reduced reimbursement for hospital-acquired adverse events, creating a stronger connection between these adverse events and hospital revenue levels. Therefore, we believe that health care providers will seek to do business with partners that can demonstrate improved clinical, and consequently, economic outcomes.

Demand for Health Care Services. Patient and provider demand for health care products and services is expected to continue to grow over the long-term as a result of many factors, including an aging population and an increasing number of chronic patients across all care settings, including hospitals, extended care facilities, outpatient settings and in the home. At the same time, health care providers will also be under continued pressure to improve efficiency and control costs.

Table of Contents

Strategic Priorities

We believe we have aligned our strategic priorities to accommodate the evolving global health care landscape.

Advancing category leadership with differentiated solutions and innovation. Health care systems today are challenged to treat the rising incidence of complex diseases and conditions while reducing costs, increasing efficiency and improving patient outcomes. We are well positioned to meet demand for innovative, differentiated solutions that drive a clear value proposition for customers. We are executing on a strong pipeline of impactful medical technologies, communication tools and information technologies to build on our category leadership and provide caregivers the products and solutions needed to enhance patient care and outcomes.

Expanding internationally and penetrating emerging markets. International markets continue to expand access to health care for their growing populations, presenting significant opportunity to expand our presence with our differentiated solutions. By focusing on product categories and innovations with the highest growth potential, coupled with our ‘One Hillrom’ approach to enhance our strong global channel and footprint, we will continue to enhance our international presence, penetrate emerging markets, and drive accelerated growth.

Transforming the portfolio with select business development and optimization initiatives. Business development has played an important role in our transformation in the last several years, by strengthening and diversifying the portfolio. We will continue to deploy capital on opportunities that align with our strategy and meet our financial objectives. We enhanced our growth prospects by divesting non-strategic assets and redirecting resources to advance category leadership in higher-growth, higher-margin opportunities. We will continue to evaluate and pursue opportunities that further optimize our business portfolio.27

~~Driving~~Transforming ~~operational~~the ~~execution~~portfolio ~~and~~with ~~strong~~select ~~financial~~merger ~~performance.~~and ~~Investing~~acquisition toand ~~support~~optimization ~~future~~initiatives ~~growth~~as ispermitted ~~key~~under tothe ~~our~~terms ~~success,~~of ~~while~~the ~~maintaining~~merger ~~strong~~agreement. ~~financial~~Business ~~discipline~~development ~~and~~has ~~operational~~played ~~performance.~~an Weimportant ~~are~~role ~~executing~~in onour atransformation ~~variety~~in ofthe ~~initiatives~~last toseveral ~~drive~~years, ~~operating~~by ~~efficiencies,~~strengthening ~~including~~and ~~consolidation~~diversifying ofthe ~~our~~portfolio. ~~manufacturing~~We ~~footprint,~~will ~~lowering~~continue ~~sourcing~~to ~~costs,~~deploy ~~improving~~capital ~~productivity,~~on ~~and~~opportunities ~~optimizing~~that ~~business~~align ~~processes.~~with ~~Savings~~our ~~generated~~strategy ~~from~~and ~~these~~meet ~~actions~~our ~~will~~financial ~~provide~~objectives. ~~flexibility~~We toenhanced ~~reinvest~~our ingrowth ~~strategic~~prospects ~~priorities~~by todivesting ~~drive~~non-strategic ~~growth,~~assets ~~including~~and ~~continued~~redirecting ~~innovation~~resources to ~~drive~~advance category leadership ~~and~~in ~~investments~~higher-growth, higher-margin opportunities. We will continue to ~~further~~evaluate ~~our~~and ~~international~~pursue ~~presence,~~opportunities ~~particularly~~that infurther ~~emerging~~optimize ~~markets.~~our business portfolio.

Driving operational execution and strong financial performance. Investing to support future growth is key to our success, while maintaining strong financial discipline and operational performance. We are executing on a variety of initiatives to drive operating efficiencies, including consolidation of our manufacturing footprint, lowering sourcing costs, improving productivity and optimizing business processes. Savings generated from these actions will provide flexibility to reinvest in strategic priorities to drive growth, including continued innovation to drive category leadership and investments to further our international presence, particularly in emerging markets.

The Impacts of COVID-19 on Hillrom

COVID-19 has impacted global economies as travel, leisure and discretionary consumer spending has reduced significantly causing companies to make commensurate changes to their investments, human capital, and financial outlooks. The United States and countries around the world continue to take precautionary and preventive measures to reduce the spread of COVID-19. Prospects for an eventual path out of the crisis have improved as COVID-19 vaccines were authorized for use globally and governments began executing plans to distribute the vaccines to the public as supplies become available over the course of the fiscal year ended September 30, 2021. However, the timing of return to historical operating levels remains uncertain due to external factors such as policymaker decisions to remove certain restrictions, as they evaluate the continued infection rate and COVID-19 related deaths, the emergence of new variants of the virus, potential future outbreaks, the distribution of available vaccines, and people's willingness to take the vaccine.

Revenues and Customers

~~Hillrom~~For the fiscal year ended September 30, 2021, we experienced ~~significant~~increased ~~fluctuations~~revenue as hospital access and physician practice restrictions continue to moderate in ~~demand~~the ~~across~~primary ~~its~~markets ~~portfolio~~we ofserve ~~products~~and asreturn ~~health~~to ~~care~~more ~~customers~~normal ~~prioritized~~operating activities. This is partially offset by lower demand globally for products used in the treatment of patients diagnosed with COVID-19. We ~~experienced~~The alower ~~significant increase in~~ demand ~~for~~was ~~select~~due ~~products~~to ~~within~~declining ~~Patient~~COVID-19 ~~Support~~confirmed ~~Systems~~cases and ~~Front~~hospitalizations ~~Line~~and ~~Care~~a ~~used~~reduction in ~~the~~significant ~~treatment~~one-time of COVID-19 ~~patients.~~purchases ~~For~~made in comparison to the fiscal year ended September 30, 2020,. weFor ~~recognized~~the ~~revenue~~fiscal ofyears ~~approximately~~ended ~~$180~~September ~~million~~30, ~~related~~2021 toand ~~non-recurring demand for respiratory health ventilators~~2020, ~~intensive~~we ~~care~~estimated ~~unit~~that ~~and~~approximately ~~med-surg~~$100.0 ~~beds~~million and ~~specialty surfaces~~$180.0 Wemillion ~~also~~of ~~experienced lower~~ revenue inrecognized ~~our~~related ~~care~~to ~~communications~~one-time ~~business~~COVID-19 purchases and ~~Surgical~~rentals. ~~Solutions~~In ~~business~~addition, ~~due~~we torecognized ~~project~~revenue ~~delays~~of ~~resulting~~$11.5 ~~from~~million ~~hospital~~in ~~access~~the ~~restrictions~~fiscal ~~and~~year ~~delays~~ended inSeptember ~~elective~~30, ~~surgical~~2021 ~~procedures.~~related ~~Additionally,~~to a ~~decline~~retrospective increase in ~~doctor~~the ~~office~~third-party ~~visits~~reimbursement ~~due~~rate tofor ~~COVID-19~~certain ~~restrictions~~respiratory ~~and~~health ~~concerns~~devices. ~~resulted~~The inimpact ~~lower~~of ~~demand~~these ~~for~~sales ~~our~~are ~~products~~described ~~used~~ within ~~the~~our ~~physician~~Results ~~practice~~of ~~setting~~Operations.

For ~~fiscal 2021, we expect hospitals and physician practices to advance toward more normal operating activities over~~ the ~~course of our~~ fiscal year ~~with~~ending ~~intermittent~~September ~~and~~30, ~~localized~~2022, ~~impacts~~we ~~from~~expect ~~COVID-19.~~product ~~We anticipate lower~~ demand ~~for products used~~ to ~~treat~~reflect ~~COVID-19~~hospitals ~~as demand is less widespread than experienced early in the pandemic. We also anticipate a gradual recovery in the demand for other products, such as information technologies~~ and ~~software~~physician ~~solutions~~practices inreturn ~~Patient~~to ~~Support~~more ~~Systems,~~normal ~~patient diagnostic tools in Front Line Care and~~ operating ~~room~~activities ~~infrastructure~~as ineffective ~~Surgical Solutions. Our outlook for fiscal 2021 can be affected by~~ efforts ~~across the world~~ to control the spread of COVID-19 ~~through~~continue ~~improved~~across ~~testing and contact tracing and~~ the ~~development and availability of an effective vaccine~~world.

Table of Contents

Operations and Workforce

WeThe ~~experienced~~COVID-19 nopandemic ~~significant~~did not significantly impact Hillrom’s operations related to our workforce or supply chain. ~~constraints~~Our ~~nor~~productions ~~significant~~facilities ~~increases~~have remained open and employment levels have remained consistent. Many employees in ~~supply~~our ~~costs~~administrative functions have effectively worked remotely since mid-March 2020. In other areas of the business, we have adapted our processes and weused ~~were~~technology ~~able~~to continue to ~~secure~~effectively ~~raw~~execute ~~materials~~on ~~and~~our ~~components~~strategic ~~for~~priorities ~~manufacturing~~as ~~products~~well inas ~~high~~daily ~~demand~~operating ~~due~~activities. A workforce reintegration plan has been established to ~~COVID-19~~facilitate a return to the office. The reintegration plan includes safety measures and procedures in compliance with local laws and regulations to ensure a safe work environment for employees that return to the office.

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

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

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

For further discussion, see the risk factor within Item 1. ~~Business, Item 1.~~A Risk Factors, entitled “Our business, results of operations, financial condition and prospects have been and could becontinue ~~materially~~to ~~and~~be adversely affected by the ongoing COVID-19 pandemic and the related effects on public health.”

Use of Non-GAAP Financial Measures

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

Management uses these measures internally for planning, forecasting and evaluating the performance of the business. Investors should consider these non-GAAP measures in addition to, not as a substitute for, or as superior to, measures of financial performance prepared in accordance with GAAP.

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

Results of Operations

Fiscal Year Ended September 30, ~~2020~~2021 Compared to the Fiscal Year Ended September 30, ~~2019~~2020

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.

Net Revenue


									U.S.		OUS
(In millions)	Year Ended September 30				Change As Reported		Constant Currency		Change As Reported		Change As Reported		Constant Currency
	2021		2020
Revenue:
Product sales and service	$	2,669.6	$	2,571.2	3.8	%	1.9	%	5.4	%	0.8	%	(4.8)	%
Rental revenue	349.1		309.8		12.7	%	11.9	%	14.7	%	(1.6)	%	(8.1)	%
Total net revenue	$	3,018.7	$	2,881.0	4.8	%	3.0	%	6.7	%	0.7	%	(4.9)	%

Revenue:
Patient Support Systems	$	1,568.3	$	1,539.1	1.9	%	0.3	%	2.5	%	0.2	%	(5.8)	%
Front Line Care	1,117.0		1,025.0		9.0	%	7.3	%	11.1	%	4.3	%	(1.0)	%
Surgical Solutions	333.4		316.9		5.2	%	1.9	%	19.6	%	(4.2)	%	(9.7)	%
Total net revenue	$	3,018.7	$	2,881.0	4.8	%	3.0	%	6.7	%	0.7	%	(4.9)	%

OUS - Outside of the United States

~~Table of Contents~~29

Net Revenue

									U.S.		OUS
(In millions)	Year Ended September 30				Change AsReported		ConstantCurrency		Change AsReported		Change AsReported		ConstantCurrency
	2020		2019
Revenue:
Product sales and service	$	2,571.2	$	2,615.0	(1.7)	%	(1.3)	%	(6.0)	%	8.0	%	9.3	%
Rental revenue	309.8		292.3		6.0	%	6.1	%	7.4	%	(3.1)	%	(2.5)	%
Total net revenue	$	2,881.0	$	2,907.3	(0.9)	%	(0.5)	%	(4.4)	%	7.5	%	8.7	%
Revenue:
Patient Support Systems	$	1,539.1	$	1,490.5	3.3	%	3.6	%	(0.1)	%	14.1	%	15.6	%
Front Line Care	1,025.0		978.1		4.8	%	5.2	%	1.0	%	14.4	%	16.0	%
Surgical Solutions	316.9		438.7		(27.8)	%	(27.6)	%	(43.1)	%	(12.1)	%	(11.9)	%
Total net revenue	$	2,881.0	$	2,907.3	(0.9)	%	(0.5)	%	(4.4)	%	7.5	%	8.7	%
OUS - Outside of the United States

Consolidated Revenue

Product sales and service revenue ~~decreased~~increased 13.78% on a reported basis, and 1.39% on a constant currency basis for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020. The ~~decrease~~increase was ~~the~~primarily ~~result~~driven ofby ~~the~~higher ~~disposition~~demand ofin ~~the~~our ~~surgical~~care ~~consumable~~communications ~~products~~business, Surgical Solutions business and higher demand for products used within the physician practice setting as hospitals and physician offices restrictions continue to moderate in ~~August~~the ~~2019~~primary markets we serve and ~~lower~~return ~~revenues~~to asmore normal operating activities. The increase was further driven by the one-time revenue related to a ~~result~~retrospective ofincrease ~~COVID~~in the third-19party ~~within~~reimbursement ~~Surgical~~rate ~~Solutions~~for certain respiratory health devices as well as new product launches and revenue from recent acquisitions across all business segments. ~~This~~The ~~decrease~~increase was partially offset by ~~increased~~a ~~global~~reduction ~~revenue~~in ~~for~~significant ~~Patient~~one-time ~~Support~~COVID-19 ~~Systems~~purchases ~~and~~in ~~Front~~comparison ~~Line~~to ~~Care,~~the ~~which~~fiscal ~~primarily~~year ~~reflects~~ended September 30, 2020 and the ~~net~~global ~~impacts~~exit of ~~COVID-19~~the original equipment manufacturer business with Surgical Solutions.

Rental revenue increased 612.07% on a reported basis, and 611.19% on a constant currency basis for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020. The increase was ~~due~~primarily todriven by higher deployment of beds in the United States within Patient Support Systems ~~rental~~that ~~portfolio,~~related ~~which~~to ~~was~~hospital ~~primarily~~needs ~~driven~~for by COVID-19 ~~patient needs~~patients.

Business Segment Revenue

Patient Support Systems revenue increased 31.39% on a reported basis and 30.63% on a constant currency basis for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020. The increase was driven primarily by ~~global~~higher ~~sales~~demand ~~growth~~in ~~for~~our ~~intensive~~ care ~~unit~~communications ~~and~~business ~~med-surg beds and increased U.S. rental revenues primarily~~ due to ~~COVID-19,~~new asproduct ~~well~~launches, as recent acquisitions. ~~The~~and ~~increase~~hospital ~~was~~access ~~partially~~restrictions ~~offset~~continuing byto ~~lower~~moderate ~~revenue~~ in ~~our~~the ~~care~~primary ~~communications~~markets ~~business~~we ~~due~~serve toand ~~project~~return ~~delays~~to ~~resulting~~more ~~from~~normal ~~hospital~~operating ~~access restrictions~~activities. ~~Revenue~~The ~~for~~increase ~~the~~was ~~fiscal~~further ~~year~~driven ~~ended~~by ~~September~~higher ~~30,~~rental ~~2020~~of ~~does~~beds ~~not~~in ~~reflect~~response ~~approximately~~to $2COVID-19 hospitalizations.4 ~~million~~The ofincrease ~~revenue~~was ~~that~~partially ~~was~~offset ~~eliminated~~by a reduction in ~~fair~~significant ~~value~~one-time ~~purchase~~COVID-19 ~~accounting~~purchases ~~adjustments~~of tointensive ~~deferred~~care ~~revenue~~unit ~~related~~and tomed-surg ~~recent~~beds ~~acquisitions~~and specialty surfaces.

Front Line Care revenue increased 49.80% on a reported basis and 57.23% on a constant currency basis for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020. The increase was primarily driven by ~~non-invasive~~higher ~~ventilator~~global ~~sales~~demand ~~under~~for ~~U.S.~~patient ~~federal~~monitoring, physical assessment tools and ~~state~~diagnostic ~~government~~products, ~~contracts~~including asvision ~~well~~care asand ~~growth~~cardiology. ~~internationally~~The increase was further driven by the one-time revenue recognized in ~~patient~~the ~~monitoring~~fiscal ~~and~~year ~~physical~~ended ~~assessment~~September ~~tools~~30, ~~primarily~~2021 related to ~~COVID~~a retrospective increase in the third-19party reimbursement rate for certain respiratory health devices as well as new product launches and revenue from recent acquisitions. The ~~increases~~increase ~~were~~was partially offset by athe ~~decline~~absence inof ~~doctor~~significant ~~office~~one-time ~~visits due to~~ COVID-19 ~~restrictions~~purchases ~~that~~of ~~resulted~~respiratory inhealth ~~lower~~ventilators ~~demand~~during ~~for~~the ~~patient~~year ~~diagnostic~~ended ~~tools~~September 30, ~~such as vision screening and cardiology~~2020.

Surgical Solutions revenue ~~decreased~~increased 275.82% on a reported basis and 271.69% on a constant currency basis for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020, ~~predominantly~~primarily ~~due~~driven toby ~~the~~higher ~~disposition~~demand offor ~~the~~operating ~~surgical~~room ~~consumable~~tables ~~products business in August 2019. Additionally, global revenues declined~~ as ahospitals ~~result~~begin ofto ~~COVID-19-related~~return ~~hospital~~to ~~access~~more ~~restrictions~~normal ~~that~~operating ~~delayed~~activities ~~capital projects~~ and ~~installations,~~revenue asfrom ~~well~~recent ~~as deferred patient elective surgical procedures~~acquisitions. ~~These~~The ~~decreases~~increase ~~were~~is partially offset by ~~higher~~the ~~demand~~global ~~for~~exit ~~integrated~~of ~~operating tables during~~ the ~~first~~original ~~six~~equipment ~~months~~manufacturer ~~of fiscal 2020~~business.

Gross Profit


(In millions)	Year Ended September 30
		2021			2020
Gross Profit 1
Product sales and service		$	1,387.2		$	1,311.3
Percent of Related Net Revenue		52.0		%	51.0		%

Rental		$	200.9		$	163.8
Percent of Related Net Revenue		57.5		%	52.9		%

Total Gross Profit		$	1,588.1		$	1,475.1
Percent of Total Net Revenue		52.6		%	51.2		%
1 Gross 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 Statements of Consolidated Income.

~~Table~~Gross ofProfit ~~Contents~~from Product sales and service increased $75.9 million or 5.8% for the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020. The increase was primarily driven by the revenue from the retrospective

~~Gross Profit~~30

(In millions)	Year Ended September 30
		2020			2019
Gross Profit 1
Product sales and service		$	1,311.3		$	1,284.3
Percent of Related Net Revenue		51.0		%	49.1		%
Rental		163.8			140.7
Percent of Related Net Revenue		52.9		%	48.1		%
Total Gross Profit		$	1,475.1		$	1,425.0
Percent of Total Net Revenue		51.2		%	49.0		%
1 Gross 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 Statements of Consolidated Income.

increase in the third-party reimbursement rate for certain respiratory health devices for the fiscal year ended September 30, 2021. The increase in gross profit is also attributable to favorable product mix from new product launches and improved cost efficiencies within our supply chain operations.

~~Product~~Gross ~~sales~~Profit ~~and~~from ~~service~~Rental ~~gross profit~~ increased by $2737.01 million or 222.16% for the fiscal year ended September 30, ~~2020~~2021 compared to ~~the~~ fiscal year ended September 30, ~~2019~~2020. The increase in rental gross profit was ~~primarily~~ driven by ~~increased~~higher ~~sales~~volumes ~~volume~~and oflower ~~higher~~servicing ~~margin~~costs ~~products~~associated inwith the Patient Support Systems ~~and~~rental ~~Front~~portfolio ~~Line~~due ~~Care,~~to ~~which~~higher ~~primarily~~rental ~~reflects~~of ~~the~~beds ~~impact on demand~~ for ~~products used to treat~~ COVID-19 patients. The increase in gross profit can also be attributed to strategic changes including recent acquisitions and the disposition of the surgical consumable products business in August 2019, as well as reduced costs due to improved efficiency in manufacturing and service activities.

Operating Expenses

Rental gross profit increased by $23.1 million or 16.4% for the fiscal year ended September 30, 2020 compared to fiscal year ended September 30, 2019. The increase in rental gross profit was driven by higher volumes and lower servicing costs associated with the Patient Support Systems rental portfolio due to increased rental durations for COVID-19 patients.


(In millions)	Year Ended September 30
		2021			2020
Research and development expenses		$	144.9		$	136.5
Percent of Total Net Revenue		4.8		%	4.7		%

Selling and administrative expenses		$	887.0		$	820.4
Percent of Total Net Revenue		29.4		%	28.5		%

Acquisition-related intangible asset amortization		$	108.6		$	109.0
Percent of Total Net Revenue		3.6		%	3.8		%

~~Operating~~Research ~~Expenses~~and development expenses increased $8.4 million, or 6.2%, for the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020 due to the timing of projects. As a percentage of revenue, Research and development expenses remained relatively consistent.

(In millions)	Year Ended September 30
		2020			2019
Research and development expenses		$	136.5		$	139.5
Percent of Total Net Revenue		4.7		%	4.8		%
Selling and administrative expenses		$	820.4		$	818.6
Percent of Total Net Revenue		28.5		%	28.2		%
Acquisition-related intangible asset amortization		$	109.0		$	122.4
Percent of Total Net Revenue		3.8		%	4.2		%

Selling and administrative expenses increased $66.6 million, or 8.1% for the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020 primarily due to litigation expenses incurred related to the acquisition of Bardy, higher variable compensation linked to performance, acquisition-related expenses related to the proposed acquisition by Baxter, and increased headcount due to growth initiatives. The increase is partially offset by lower spending on business travel. See Note 3. Business Combinations and Note 15. Commitments and Contingencies for further information.

~~Research~~Acquisition-related ~~and~~intangible ~~development~~asset ~~expenses~~amortization decreased by $3.0.4 million, or 20.24%, for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020 ~~due~~and toremained ~~the~~consistent ~~timing~~as a percentage of ~~projects~~revenue. AsSee aNote ~~percentage~~3. ofBusiness ~~revenue,~~Combinations ~~Research~~for ~~and~~further ~~development~~information ~~expenses~~on ~~remained~~acquired ~~relatively~~intangible ~~consistent~~assets.

Special Charges and Other

Selling and administrative expenses remained relatively flat for the fiscal year ended September 30, 2020 compared to the fiscal year ended September 30, 2019. Selling and administrative expenses increased by $1.8 million, or 0.2%, predominantly due to increased information technology costs, investments in emerging markets and higher compensation costs related to annual merit increases. The increase is partially offset by lower travel expenses due to COVID-19 and lower acquisition and integration costs during fiscal 2020.


(In millions)	Year Ended September 30
		2021		2020
Special charges		$	47.4	$	41.5
Interest expense		(65.6)		(74.0)
Loss on extinguishment of debt		(9.8)		(15.6)
Investment income (expense) and other, net		(22.0)		(6.9)

~~Acquisition-related~~In ~~intangible~~connection ~~asset~~with ~~amortization~~various ~~decreased~~transformative byinitiatives, ~~$13.4~~exit ~~million~~activities, orand 10organizational changes to improve our business alignment and cost structure we recognized Special charges of $47.~~9%,~~4 million for the fiscal year ended September 30, ~~2020~~2021, compared to $41.5 million for the fiscal year ended September 30, ~~2019~~2020. ~~primarily~~During ~~due to~~ the ~~disposition~~year ofended ~~the~~September ~~surgical~~30, ~~consumable~~2021, ~~products~~we ~~business~~incurred in$25.6 ~~August~~million related ~~2019,~~to ~~offset~~the ~~partially~~Workforce byReduction ~~amortization~~Plan. ofThese ~~acquired~~charges ~~intangibles~~related asto athe ~~result~~initiatives ofdescribed ~~recent~~in ~~acquisitions. See~~ Note 410. ~~Goodwill~~Special ~~and Intangible Assets for additional information~~Charges.

28Interest expense decreased $8.4 million, or 11.4%, for the fiscal year ended September 30, 2021 compared to the fiscal year ended September 30, 2020 due to lower average borrowings outstanding and a decline in LIBOR impacting our variable rate debt under the Securitization and Revolving Credit Facilities. See Note 5. Financing Agreements for further information.

~~Table~~Loss on extinguishment of ~~Contents~~debt was $9.8 million for the fiscal year ended September 30, 2021 and related to the redemption of our senior unsecured 5.00% notes of $300 million in May 2021, which was comprised of a $7.5 million prepayment premium

~~Special Charges and Other~~31

(In millions)	Year Ended September 30
		2020		2019
Special charges		$	41.5	$	28.4
Interest expense		$	(74.0)	$	(89.6)
Loss on extinguishment of debt		(15.6)		(3.3)
Investment income (expense) and other, net		(6.9)		(14.6)

and $2.3 million of debt issuance costs previously capitalized. Loss on extinguishment of debt was $15.6 million for the fiscal year ended September 30, 2020 and related to the refinancing of senior unsecured notes of $425.0 million in September 2019, which was comprised of a $12.2 million prepayment premium and $3.4 million of debt issuance costs previously capitalized. See Note 5. Financing Agreements for further information.

InInvestment ~~connection~~income ~~with~~(expense) ~~various~~and ~~transformative initiatives~~other, ~~restructuring~~net ~~and~~for ~~exit~~the ~~activities~~fiscal year ended September 30, ~~and~~2021 ~~organizational~~was ~~changes~~expense of $22.0 million primarily related to ~~improve~~the ~~our~~litigation ~~business~~settlement ~~alignment~~of ~~and~~$32.5 ~~cost~~million ~~structure~~related weto ~~recognized~~the ~~Special~~acquisition ~~charges~~of Bardy, partially offset by the receipt of settlement awards of $418.8 million and an insurance settlement of $5.3 million related to covered losses in prior periods. Investment income (expense) and other, net for the fiscal year ended September 30, 2020, ~~compared~~was toexpense of $286.9 million comprised primarily of a non-cash pension plan settlement loss of $8.4 million, ~~for~~investment losses of $2.0 million which was partially offset by a $3.0 million gain that represented the step up to fair value of the historical investment of a company that was fully acquired during fiscal year ended September 30, ~~2019~~2020. ~~These~~See ~~charges~~Note ~~related~~3. toBusiness ~~the~~Combinations ~~initiatives~~and ~~described~~Note in8. Retirement and Postretirement Benefit Plans and Note 1015. ~~Special~~Commitments ~~Charges~~and Contingencies for further information.

Interest expense decreased $15.6 million, or 17.4%, for the fiscal year ended September 30, 2020 compared to the fiscal year ended September 30, 2019 due to lower borrowing rates from the refinancing of senior unsecured notes of $425.0 million in September 2019 and a lower interest rate environment that resulted in lower interest cost for our variable rate debt under the Note Securitization and Revolving Credit Facilities. See Note 5. Financing Agreements for additional information.

Loss on extinguishment of debt was $15.6 million and $3.3 million for the fiscal years ended September 30, 2020 and 2019 related to the refinancing of senior unsecured notes of $425.0 million in September 2019 and the refinancing of the then-existing senior secured credit facilities maturing in 2021 (the ‘‘Prior Senior Secured Credit Facilities’’) in August 2019. See Note 5. Financing Agreements for additional information.

Investment income (expense) and other, net for the fiscal year ended September 30, 2020 was expense of $6.9 million comprised primarily of the recognition of a non-cash pension plan settlement loss of $8.5 million and $2.0 million of losses related to our cost and equity method investments, which was partially offset by a $3.0 million gain that represented the step up to fair value of the historical investment of a company that was fully acquired during fiscal 2020. Investment income (expense) and other, net was expense of $14.6 million for the fiscal year ended September 30, 2019 comprised primarily of the loss recognized for the disposition of our surgical consumable products business in August 2019. See Note 2. Supplementary Financial Statement Information, Note 3. Business Combinations and Note 8. Retirement and Postretirement Benefit Plans for additional information.

Income Tax Expense

The effective tax rate was 17.89% for the fiscal year ended September 30, ~~2020~~2021 compared to 2717.08% for the fiscal year ended September 30, ~~2019~~2020. The effective tax rate ~~for~~remained ~~fiscal~~relatively ~~2020~~flat ~~was~~for ~~favorably impacted by~~ the ~~reduction~~fiscal ofyear ~~the~~ended ~~contingent~~September ~~consideration accrual of $8.4 million~~30, ~~that~~2021 iscompared ~~not subject~~ to ~~tax.~~the ~~The effective tax rate for~~ fiscal ~~2019~~year ~~was~~ended ~~higher~~September ~~primarily~~30, ~~due~~2020, toincreasing ~~unfavorable~~just ~~impacts from the disposition of a subsidiary and unfavorable impacts from changes in uncertain tax positions~~0.1%. See Note 11. Income Taxes for ~~additional~~further information.

The adjusted effective tax rate remained relatively flat for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020, decreasing just 0.35%, from 2019.18% to 19.83%.

Earnings per Share

Diluted earnings per share increased from $23.2532 to $3.3272 for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020 primarily ~~due~~driven toby higher gross profits due to higher revenues and ~~lower~~favorable ~~tax~~product ~~rates,~~mix. The increase was partially offset by ~~the~~higher ~~Loss~~operating onexpense ~~extinguishment~~levels, ofincluding ~~debt~~litigation ofexpenses ~~$15.6~~and ~~million~~settlement ~~and~~payments arelated ~~pension~~to ~~plan~~the ~~settlement~~acquisition of ~~$8.5~~Bardy, ~~million.~~acquisition-related ~~See~~expenses ~~Note~~related 5.to ~~Financing~~the ~~Agreements~~proposed ~~and~~acquisition ~~Note~~by 8.Baxter ~~Retirement~~ and ~~Postretirement~~higher ~~Benefit~~special ~~Plans for additional information~~charges.

Business Segment Divisional Income


(In millions)	Year Ended September 30				Change As Reported
	2021		2020
Divisional income:
Patient Support Systems	$	356.1	$	332.3	7.2	%
Front Line Care	348.8		301.8		15.6	%
Surgical Solutions	51.6		39.5		30.6	%

Table of Contents

Business Segment Divisional Income

(In millions)	Year Ended September 30				Change AsReported
	2020		2019
Divisional income:
Patient Support Systems	$	332.3	$	299.9	10.8	%
Front Line Care	301.8		266.4		13.3	%
Surgical Solutions	39.5		61.2		(35.5)	%

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

Patient Support Systems divisional income increased 107.82% for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020 primarily due to ~~global~~expanded ~~revenue~~gross ~~growth,~~profits ~~which~~from ~~was~~the ~~predominantly~~bed ~~related~~rental portfolio in the United States due to ~~COVID-19~~higher ~~demand,~~rental ~~which~~of ~~expanded~~beds ~~gross~~as ~~profit~~well as favorable product mix due to ~~improved~~new ~~efficiency~~product launches. The increase was partially offset by a reduction in ~~manufacturing~~the ~~and~~significant ~~service~~one-time ~~activities,~~COVID-19 aspurchases ~~well~~of asintensive ~~increased~~care ~~rental~~unit ~~durations~~and med-surg beds and specialty surfaces.

Front Line Care divisional income increased 1315.36% for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020. The increase was primarily ~~due~~driven toby higher global sales ~~growth,~~of ~~predominantly~~patient ~~driven~~diagnostic byproducts, ~~COVID-19~~including ~~related~~vision ~~demand~~care ~~for~~and ~~non-invasive~~cardiology, ~~ventilator~~partially ~~sales~~offset ~~under~~by ~~U.S.~~lower ~~federal~~sales ~~and~~of ~~state~~respiratory ~~government~~health ~~contracts~~ventilators ascompared ~~well~~to asthe ~~patient~~prior ~~monitoring~~year ~~and~~due ~~physical~~to ~~assessment~~declining ~~tools,~~demand ~~which~~for ~~produced~~products ~~higher~~used ~~gross~~in ~~profits,~~the ~~and~~treatment ~~improved~~of ~~efficiency~~COVID-19 ~~in manufacturing~~patients.

Surgical Solutions divisional income ~~decreased~~increased 3530.56% for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020 ~~predominantly~~primarily ~~due~~driven by increased demand for operating room tables as hospitals began to ~~the~~return ~~disposition~~to ofmore normal operating activities, offset by the ~~surgical~~global ~~consumable~~exit ~~products~~of ~~business~~the inoriginal ~~August~~equipment ~~2019.~~manufacturer business.

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 for the fiscal years ended September 30, 2020 and 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 Contents

	Year Ended September 30
(In millions)	2020								2019
	Operating Margin		IncomeBeforeIncomeTaxes		Income TaxExpense		Diluted EPS		OperatingMargin		IncomeBeforeIncomeTaxes		Income TaxExpense		Diluted EPS
GAAP Basis	12.8	%	$	271.2	$	48.2	$	3.32	10.9	%	$	208.6	$	56.4	$	2.25
Adjustments:
Acquisition and integration costs and related fair value adjustments 1	—	%	(0.6)		1.8		(0.04)		0.9	%	28.1		5.3		0.34
Acquisition-related intangible asset amortization 2	3.7	%	109.0		26.1		1.23		4.2	%	122.4		28.6		1.38
Field corrective actions 3	0.2	%	4.9		1.2		0.05		0.2	%	5.6		1.4		0.06
Regulatory compliance costs 4	0.5	%	15.6		3.7		0.18		0.5	%	15.3		3.6		0.17
Special charges 5	1.4	%	41.5		9.2		0.48		1.0	%	28.4		6.9		0.32
Tax law and method changes 6	—	%	—		—		—		—	%	—		(4.8)		0.07
Debt refinancing costs 7	—	%	16.1		3.7		0.18		—	%	4.0		0.9		0.05
(Gain) loss on business combinations 8	—	%	(2.8)		(4.4)		0.02		—	%	15.9		(12.4)		0.42
Pension settlement expense 9	—	%	8.4		1.9		0.10		—	%	—		—		—
Litigation expenses and awards 10	—	%	(1.2)		(0.3)		(0.01)		0.1	%	2.0		0.5		0.02
COVID-19 related cost and benefits, net 11	0.2	%	1.4		0.7		0.02		—	%	—		—		—
Adjusted Basis	18.8	%	$	463.5	$	91.8	$	5.53	17.8	%	$	430.3	$	86.4	$	5.08
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 fiscal 2020, a fair value adjustment of $4.6 million represents purchase accounting adjustments to reflect deferred revenue and to reduce contingent consideration liabilities associated with our business combinations. See Note 3. Business Combinations for further information.
2 Acquisition-related intangible asset amortization relates to the amortization of intangible assets associated with our business combinations. See Note 3. Business Combinations and Note 4. Goodwill and Intangible Assets for further information.
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.
5 Special charges represent a variety of costs associated with restructuring actions, including severance and related benefits, lease termination fees, asset write-downs and temporary labor on shutdown of operations. It also includes costs related to a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems. See Note 10. Special Charges for further information.
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 for further information.
7 Debt refinancing costs are expenses related to the costs incurred to refinance our previously outstanding debt obligations during fiscal 2020 and 2019. In addition, the costs include duplicative interest of $0.5 million and $0.7 million for fiscal 2020 and 2019 due the timing of our issuance and redemption of our Senior Notes. See Note 5. Financing Agreements for further information.
8 (Gain) loss on business combinations relates to gains and losses recorded in Investment income (expense) and other, net resulting from business combinations during fiscal 2020 and 2019. See Note 3. Business Combinations for further information.
9 Pension settlement expense represents an actuarial loss totaling $8.4 million recorded as a component of Investment income (expense) and other, net. See Note 8. Retirement and Postretirement Benefit Plans for additional information.
10 Litigation expenses and awards are the aggregate charges, costs or recoveries associated with litigation settlements. These costs are recorded as a component of Investment income (expense) and other, net for fiscal 2020 and Selling and administrative expenses for fiscal 2019.
11 COVID-19 related costs and benefits, net primarily represent incremental non-recurring special compensation costs paid to essential workers that continued to work in our production facilities and provide services to our customers, partially offset by funding received and costs abated under government programs created in response to COVID-19. See Note 1. Summary of Significant Accounting Policies for additional information.

Table of Contents

Fiscal Year Ended September 30, 2019 Compared to the Fiscal Year Ended September 30, 2018

Net Revenue

(In millions)									U.S.		OUS
	Year Ended September 30				Change AsReported		ConstantCurrency		Change AsReported		Change AsReported		ConstantCurrency
	2019		2018
Revenue:
Product sales and service	$	2,615.0	$	2,469.6	5.9	%	7.3	%	11.2	%	(4.4)	%	(0.3)	%
Rental revenue	292.3		378.4		(22.8)	%	(22.2)	%	(24.5)	%	(9.6)	%	(5.0)	%
Total net revenue	$	2,907.3	$	2,848.0	2.1	%	3.4	%	5.1	%	(4.6)	%	(0.5)	%
Revenue:
Patient Support Systems	$	1,490.5	$	1,429.5	4.3	%	5.4	%	7.6	%	(5.2)	%	(0.8)	%
Front Line Care	978.1		960.2		1.9	%	2.9	%	3.0	%	(0.9)	%	2.8	%
Surgical Solutions	438.7		458.3		(4.3)	%	(2.0)	%	(0.1)	%	(8.2)	%	(3.8)	%
Total net revenue	$	2,907.3	$	2,848.0	2.1	%	3.4	%	5.1	%	(4.6)	%	(0.5)	%

OUS - Outside of the United States

The following table reflects sales growth data for the fiscal year ended September 30, 2019, excluding the impacts of the adoption of ASC 606, compared to the fiscal year ended September 30, 2018 to supplement our discussion and analysis of net revenue for revenue streams and reportable segments:

(In millions)	Year Ended September 30				Change		ConstantCurrency		U.S.		OUS
	Adjusted 2019		2018						Change		Change		ConstantCurrency
Revenue:
Product sales and service	$	2,502.8	$	2,469.6	1.3	%	2.7	%	4.3	%	(4.4)	%	(0.3)	%
Rental revenue	389.3		378.4		2.9	%	3.4	%	4.5	%	(9.6)	%	5.0	%
Total net revenue	$	2,892.1	$	2,848.0	1.5	%	2.8	%	4.4	%	(4.7)	%	(0.5)	%
Revenue:
Patient Support Systems	$	1,477.0	$	1,429.5	3.3	%	4.5	%	6.4	%	(5.3)	%	(0.9)	%
Front Line Care	976.4		960.2		1.7	%	2.7	%	2.7	%	(0.9)	%	2.7	%
Surgical Solutions	438.7		458.3		(4.3)	%	(2.0)	%	(0.1)	%	(8.2)	%	(3.8)	%
Total net revenue	$	2,892.1	$	2,848.0	1.5	%	2.8	%	4.4	%	(4.7)	%	(0.5)	%

Impact of ASC 606

Product sales and service revenue increased under ASC 606 by $112.2 million. This increase was primarily due to the accelerated recognition and reclassification from Rental revenue of $95.3 million for Front Line Care where it was determined for respiratory health products, there were no on-going performance obligations after delivery of the product to the customer, whereas previously this revenue was recognized over the period the Company was reimbursed by third parties. It also reflects an additional $13.5 million for Patient Support Systems due to the changes in the timing of revenue recognition based on when the performance obligation related to certain products was determined to be satisfied.

~~Table~~As ofReported ~~Contents~~and Adjusted Earnings

~~Rental~~Operating ~~revenue~~margin, ~~decreased~~income ~~under~~before ~~ASC~~income ~~606~~taxes, byincome ~~$97.0~~tax ~~million~~expense and earnings attributable to common shareholders per diluted share are summarized in the table below for the fiscal years ended September 30, 2021 and 2020. ~~This~~As ~~decrease~~reported ~~was~~amounts ~~primarily~~are ~~due~~adjusted for certain items to aid management in evaluating the ~~reclassification~~performance of the business. Investors should consider these measures in addition to, ~~Product~~not ~~sales~~as ~~and~~a ~~service~~substitute ~~revenue~~for, or as superior to, measures of ~~$95~~financial performance prepared in accordance with GAAP.3 ~~million~~Income ~~for~~tax ~~Front~~expense ~~Line~~is ~~Care~~computed asby ~~described~~applying ~~above~~a blended statutory tax rate based on the jurisdictional mix of the respective before tax adjustment.

Business Segment Revenue

Excluding the impact of adopting ASC 606, revenue increased 1.5% on a reported basis, or 2.8% on a constant currency basis, for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018, primarily due to the following:

Patient Support Systems revenue increased 3.3% on a reported basis and 4.5% on a constant currency basis for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018. The increase was driven by strong growth in med-surg frames and care communications platform in the United States, as well as incremental revenue from recent acquisitions. Growth in the United States was partially offset by the divestiture of our third-party rental business in fiscal 2018 which contributed $12.2 million of Patient Support Systems revenue during the fiscal year ended September 30, 2018 and lower international revenue, specifically in Canada related to large capital projects that occurred in fiscal 2018. Revenue for the fiscal year ended September 30, 2019 does not reflect approximately $5.3 million of revenue that was eliminated in fair value purchase accounting adjustments to deferred revenue related to recent acquisitions.

Front Line Care revenue increased 1.7% on a reported basis and 2.7% on a constant currency basis for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018 primarily due to strong growth in our respiratory health from new product launches, partially offset primarily by declines in our diagnostic tools for cardiology patients.

Surgical Solutions revenue decreased 4.3% on a reported basis and 2.0% on a constant currency basis for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018, primarily due to the sale of the surgical consumable products business in August 2019 and lower revenue in our international original equipment manufacturer (“OEM”) product lines and due to larger projects in fiscal 2018 in the Middle East, partially offset by sales growth in integrated operating tables in the United States.

Gross Profit

(In millions)	Year Ended September 30
	2019			2018
Gross Profit 1
Product sales and service	$	1,284.3		$	1,195.5
Percent of Related Net Revenue	49.1		%	48.4		%
Rental	140.7			198.7
Percent of Related Net Revenue	48.1		%	52.5		%
Total Gross Profit	$	1,425.0		$	1,394.2
Percent of Total Net Revenue	49.0		%	49.0		%
1 Gross 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 Statements of Consolidated Income.

Product sales and service gross profit increased by $88.8 million or 7.4% for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018. Over half of the increase was the result of the adoption of ASC 606, which includes the reclassification of revenues and costs from Rental to Product sales and service for respiratory health and recognition timing changes for the care communication platform sales. The remaining increase is due to new product growth in respiratory health and Patient Support Systems, including recent acquisitions, and operational efficiencies, partially offset by voluntary field corrective action costs and the disposition of our surgical consumable products business in August 2019.

Rental gross profit decreased by $58.0 million or 29.2% for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018. A majority of the decrease was the result of the adoption of ASC 606, which includes reclassification of the respiratory health products as described above. The remaining decrease is primarily related to the disposition of our third-party rental business in fiscal 2018.

Table of Contents


	Year Ended September 30
(In millions)	2021								2020
	Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS		Operating Margin		Income Before Income Taxes		Income Tax Expense		Diluted EPS
As Reported	13.3	%	$	302.8	$	54.3	$	3.72	12.8	%	$	271.2	$	48.2	$	3.32
Adjustments:
Acquisition and integration costs and related fair value adjustments 1	0.9	%	62.7		6.9		0.84		—	%	(0.6)		1.8		(0.04)
Acquisition-related intangible asset amortization 2	3.6	%	108.6		26.3		1.23		3.7	%	109.0		26.1		1.23

Field corrective actions 3	0.1	%	1.6		0.4		0.02		0.2	%	4.9		1.2		0.05
Regulatory compliance costs 4	0.5	%	15.1		3.7		0.17		0.5	%	15.6		3.7		0.18
Special charges 5	1.6	%	47.4		11.0		0.54		1.4	%	41.5		9.2		0.48

Debt refinancing costs 6	—	%	9.8		2.3		0.11		—	%	16.1		3.7		0.18
Loss on disposition of business 7	—	%	—		—		—		—	%	(2.8)		(4.4)		0.02
Pension settlement expense 8	—	%	$	—	—		—		—	%	8.4		1.9		0.10
Litigation settlements 9	—	%	(6.8)		(1.6)		(0.08)		—	%	(1.2)		(0.3)		(0.01)


COVID-19 related cost and benefits, net 10	(0.4)	%	(11.6)		(0.7)		(0.16)		0.2	%	1.4		0.7		0.02
LIFO change11	(0.2)	%	(6.8)		(1.5)		(0.08)		—	%	—		—		—
Adjusted Earnings	19.4	%	522.8		$	101.1	$	6.31	18.8	%	$	463.5	$	91.8	$	5.53
1 Acquisition and integration costs and related fair value adjustments include legal and professional fees, temporary labor, consulting and other costs related to business development activities and the closing and integration of acquired businesses. For acquired businesses, this also includes fair value adjustments related to contingent considerations, and purchase accounting adjustments for deferred revenue and other items. See Note 3. Business Combinations for further information.
2 Acquisition-related intangible asset amortization relates to the amortization of intangible assets acquired through the transactions described in Note 3. Business Combinations and Note 4. Goodwill and Intangible Assets.
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 and the impacts of current period tax law changes.. These costs are included in Selling and administrative expenses.
5 Special charges represent a variety of costs associated with restructuring actions, including severance and related benefits, lease termination fees, asset write-downs and temporary labor on shutdown of operations. It also includes costs related to a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems. See Note 10. Special Charges for further information.

6 Debt refinancing costs are expenses related to the costs incurred between the issuance and redemption our of our senior unsecured notes due 2027 and 2023, and the redemption of our senior unsecured notes due 2025. For the fiscal year ended September 30, 2021, debt refinancing costs include a loss on extinguishment of debt of $9.8 million related to the redemption of all of our previously outstanding senior unsecured 5.00% notes due February 2025. For the fiscal year ended September 30, 2020, debt refinancing costs include a loss on extinguishment of debt of $15.6 million as well as $0.5 million duplicative interest costs related to the redemption of our previously outstanding senior unsecured 5.75% notes due September 2023. See Note 5. Financing Agreements for further information.
7 Loss on disposition of business relates to losses recorded in Investment income (expense) and other, net and additional tax expense of $4.1 million as a result of a change in the taxable gain resulting from business dispositions, which occurred in August 2019.
8 Pension settlement expense represents an actuarial loss totaling $8.4 million recorded as a component of Investment income (expense) and other, net. See Note 8. Retirement and Postretirement Benefit Plans for further information.
9 Litigation settlements represent the aggregate charges, costs or recoveries associated with litigation settlements, including related expenses. These costs are recorded as a component of Investment income (expense) and other, net.
10 COVID-19 related costs and benefits, net primarily represent incremental non-recurring costs incurred to prepare our facilities for workforce reintegration to ensure the safety of our employees, partially offset by the recognition of funding associated with government programs created in response to COVID-19. For the fiscal year ended September 30, 2021, COVID-19 related benefits include revenue of $11.5 million related to a retrospective increase in the third-party reimbursement rate for certain respiratory health devices. See Note 1. Summary of Significant Accounting Policies for further information.
11 LIFO change reflects the change in accounting principle related to the change in costing method of remaining inventory from LIFO to FIFO, which we adopted during the three months ended September 30, 2021. See Note 1. Summary of Significant Accounting Policies for further information.

Operating Expenses

(In millions)	Year Ended September 30
	2019			2018
Research and development expenses	$	139.5		$	135.6
Percent of Total Net Revenue	4.8		%	4.8		%
Selling and administrative expenses	$	818.6		$	784.7
Percent of Total Net Revenue	28.2		%	27.6		%
Acquisition-related intangible asset amortization	$	122.4		$	106.9
Percent of Total Net Revenue	4.2		%	3.8		%

Research and development expenses increased for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018 due to continued investment in new products. As a percentage of revenue, Research and development expenses remained consistent.

Selling and administrative expenses increased $33.9 million, or 4.3%, for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018 primarily due to higher acquisition and integration costs and regulatory compliance costs during fiscal 2019, partially offset by higher litigation settlement expenses during fiscal 2018.

Acquisition-related intangible asset amortization increased by $15.5 million, or 14.5%, for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018 primarily due to recent acquisitions during fiscal 2019, offset slightly by the disposition of the surgical consumable products business in August 2019.

Special Charges and Other

(In millions)	Year Ended September 30
	2019		2018
Special charges	$	28.4	$	77.6
Interest expense	$	(89.6)	$	(95.0)
Loss extinguishment of debt	(3.3)		—
Investment income (expense) and other, net	(14.6)		2.8

In connection with various organizational changes to improve our business alignment and cost structure, we recognized Special charges of $28.4 million and $77.6 million for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018. These charges relate to the initiatives described in Note 10. Special Charges.

Interest expense was lower for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018 mainly due to a decrease in long-term debt outstanding and the impact of our cross-currency swaps entered into in July 2018. See Note 6. Derivative Instruments and Hedging Activity for additional information.

Loss extinguishment of debt relates to refinancing of the then-existing senior secured credit facilities maturing in 2021 (the “Prior Senior Secured Credit Facilities”) in August 2019. See Note 5. Financing Agreements for additional information.

Investment income (expense) and other, net for the fiscal year ended September 30, 2019 primarily included the loss recorded related to the disposition of our surgical consumable products business in August 2019. See Note 3. Business Combinations for additional information.

Liquidity and Capital Resources

Table of Contents


(In millions)	Year Ended September 30
	2021		2020
Cash Flows Provided By (Used In):
Operating activities	$	476.1	$	481.7
Investing activities	(487.2)		(131.2)
Financing activities	(13.4)		(695.0)
Effect of exchange rate changes on cash	(0.2)		7.2
(Decrease) Increase in Cash, Cash Equivalents and Restricted Cash	$	(24.7)	$	(337.3)

Income Tax Expense

The effective tax rate was 27.0% for the fiscal year ended September 30, 2019 compared to (28.0)% for the fiscal year ended September 30, 2018. The increase was primarily due to tax benefits recorded in 2018 related to the Tax Act. See Note 11. Income Taxes for additional information.

The adjusted effective tax rate for the fiscal year ended September 30, 2019 was 20.1% compared to 19.5% for the fiscal year ended September 30, 2018. The higher adjusted tax rate in fiscal 2019 is primarily due to less excess tax benefits on deductible stock compensation and the 2018 impacts of the Tax Act, including unfavorable impacts of global intangible low-taxed income (“GILTI”), offset by favorable impacts of foreign-derived intangible income (“FDII”) and a reduction in the U.S. federal corporate tax rate.

Earnings per Share

Diluted earnings per share decreased from $3.73 for the fiscal year ended September 30, 2018 to $2.25 for the fiscal year ended September 30, 2019 primarily due to the one-time tax benefit recorded in fiscal 2018 related to the Tax Act, the loss on the disposition of our surgical consumable products business, and the related tax expense incurred from organizational changes executed to facilitate the disposition.

Business Segment Divisional Income

(In millions)	Year Ended September 30				Change AsReported
	2019		2018
Divisional income:
Patient Support Systems	$	299.9	$	285.0	5.2	%
Front Line Care	266.4		253.0		5.3	%
Surgical Solutions	61.2		53.1		15.3	%

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

Patient Support Systems divisional income increased 5.2% for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018 primarily due to revenue growth in the United States, and lower operating expenses as a percentage of revenue.

Front Line Care divisional income increased 5.3% for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018 as a result of revenue growth and higher margins from new products.

Surgical Solutions divisional income increased 15.3% for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018 as a result of revenue growth from operating tables, and lower operating expenses as a percentage of revenue.

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 for the fiscal years ended September 30, 2019 and 2018. 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 Contents

(In millions)	Year Ended September 30
	2019								2018
	OperatingMargin		IncomeBeforeIncomeTaxes		IncomeTaxExpense		DilutedEPS		OperatingMargin		IncomeBeforeIncomeTaxes		IncomeTaxExpense		DilutedEPS
GAAP Basis	10.9	%	$	208.6	$	56.4	$	2.25	10.2	%	$	197.2	$	(55.2)	$	3.73
Adjustments:
Acquisition and integration costs and related fair value adjustments 1	0.9	%	28.1		5.3		0.34		0.3	%	8.1		2.2		0.09
Acquisition-related intangible asset amortization 2	4.2	%	122.4		28.6		1.38		3.8	%	106.9		28.2		1.16
Field corrective actions 3	0.2	%	5.6		1.4		0.06		—	%	—		—		—
Regulatory compliance costs 4	0.5	%	15.3		3.6		0.17		0.1	%	4.5		1.2		0.04
Litigation expenses and awards 5	0.1	%	2.0		0.5		0.02		0.2	%	5.8		1.5		0.06
Special charges 6	1.0	%	28.4		6.9		0.32		2.7	%	77.6		21.1		0.84
Tax law and method changes 7	—	%	—		(4.8)		0.07		—	%	0.1		78.8		(1.16)
Debt refinancing costs 8	—	%	4.0		0.9		0.05		—	%	—		—		—
(Gain) loss on business combinations 9	—	%	15.9		(12.4)		0.42		—	%	(1.0)		—		(0.01)
Adjusted Basis	17.8	%	$	430.3	$	86.4	$	5.08	17.3	%	$	399.2	$	77.8	$	4.75
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 fiscal year ended September 30, 2019, related fair value adjustments of $8.5 million represent purchase accounting adjustments to reflect deferred revenue and to increase contingent consideration associated with our business combinations. See Note 3. Business Combinations for further information.
2 Acquisition-related intangible asset amortization relates to the amortization of intangible assets associated with our business combinations. See Note 3. Business Combinations and Note 4. Goodwill and Intangible Assets for further information.
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.
5 Litigation expenses and awards are the aggregate charges, costs or recoveries associated with litigation settlements. These costs are included in Selling and administrative expenses.
6 Special charges represent a variety of costs associated with restructuring actions, including severance and related benefits, lease termination fees, asset write-downs and temporary labor on shutdown of operations. It also includes costs related to a global information technology transformation, including rationalizing and transforming our enterprise resource planning software solutions and other complementary information technology systems. See Note 10. Special Charges for further information.
7 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 for further information.
8 Debt refinancing costs are expenses related to the costs incurred to refinance our previously outstanding debt obligations during fiscal 2019. See Note 5. Financing Agreements for further information.
9 (Gain) loss on business combinations relates to gains and losses recorded in Investment income (expense) and other, net resulting from business combinations during fiscal 2019 and 2018. See Note 3. Business Combinations for further information.

Table of Contents

Liquidity and Capital Resources

	Year Ended September 30
(In millions)	2020		2019		2018
Cash Flows Provided By (Used In):
Operating activities	$	481.7	$	401.4	$	395.2
Investing activities	(131.2)		(249.0)		(82.4)
Financing activities	(695.0)		304.7		(356.6)
Effect of exchange rate changes on cash	7.2		(6.3)		(5.0)
(Decrease) Increase in Cash, Cash Equivalents and Restricted Cash	$	(337.3)	$	450.8	$	(48.8)

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

Operating Activities

Cash provided by operating activities ~~increased~~decreased $805.36 million for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020 primarily due to ~~higher~~slightly ~~net income and~~ higher ~~collections~~working ~~of accounts receivable~~capital, partially offset by higher ~~inventory~~net ~~levels in anticipation of increased customer demand related to COVID-19~~income.

Cash provided by operating activities increased $6.2 million for the fiscal year ended September 30, 2019 compared to the fiscal year ended September 30, 2018 primarily due to higher operating profit and working capital improvements.

Investing Activities

Cash used in investing activities ~~decreased~~increased $~~117~~356.80 million for the fiscal year ended September 30, ~~2020~~2021 compared to the fiscal year ended September 30, ~~2019~~2020 primarily due to the ~~decrease~~increase in cash paid ~~for~~related ~~acquisitions~~to ofthe ~~$275.0~~acquisition ~~million.~~activity ~~Refer~~summarized toin the table below ~~and Note 3~~. ~~Business Combinations. The decrease is partially offset by the net proceeds of $166.6 million received from the disposition of the surgical consumable products business in August 2019.~~

~~Cash~~Also, ~~used~~included in ~~investing~~capital ~~activities~~spending ~~increased~~is ~~$166.6 million~~our ~~for~~global ~~the~~information ~~fiscal~~technology ~~year~~transformation. ~~ended~~During ~~September 30, 2019 compared to~~ the ~~fiscal~~years ~~year~~ ended September 30, ~~2018~~2021 ~~primarily~~and ~~due to cash paid for recent acquisitions during fiscal 2019~~2020, ~~the~~$17.4 ~~acquisition~~million ofand ~~non-marketable equity securities of~~ $2622.60 million was capitalized as ~~described~~software in ~~Note~~Other 2.intangible ~~Supplementary~~assets ~~Financial~~and ~~Statement Information~~software, asnet ~~well~~related asto the ~~acquisition~~global ofinformation ~~the right to use patented~~ technology ~~and~~transformation ~~certain related assets from a supplier in our Front Line Care segment of $17~~initiative.1 ~~million,~~See ~~as described in~~ Note 3. Business Combinations. ~~These~~and ~~uses~~Note ~~of cash were offset by net proceeds of $166~~10.~~6 million~~ ~~from~~Special ~~the~~Charges ~~sale~~for offurther ~~certain of our surgical consumable products and related assets, as described in Note 3~~information. ~~Business Combinations.~~

Company Name	Date of Acquisition	Cash Paid
Company or Assets Acquired	Date of Acquisition	Cash Paid (In millions)
Intellectual property and technology of EarlySense	January 28. 2021	$	30.0
Bardy	August 6, 2021	369.0
Fiscal 2021 Totals		$	399.0
Excel Medical	January 10, 2020	$	13.1
Connecta	May 18, 2020	7.5
Videomed	July 21, 2020	7.8
Fiscal 2020 Totals		$	28.4
Voalte	April 1, 2019	$	175.8
Breathe	September 3, 2019	127.6
Fiscal 2019 Totals		$	303.4

3735

Table of Contents

Financing Activities

Cash used in financing activities was $~~695~~13.04 million for the fiscal year ended September 30, ~~2020~~2021 primarily ~~driven~~due byto ~~the~~net ~~repayment~~borrowings ofon the ~~senior~~Revolving ~~unsecured~~Credit ~~5.75%~~Facility ~~notes~~ of $~~425~~515.0 ~~million~~ ~~and related prepayment penalty of $12.2~~ million onoffset ~~October~~by 7,cash ~~2019~~paid ~~with~~for the ~~net~~redemption ~~proceeds~~of all of ~~the~~our previously outstanding senior unsecured 45.~~375~~00% notes ~~issued~~due inFebruary ~~September~~2025 ~~2019,~~for as$300.0 ~~well~~million asand ~~repayments~~related prepayment penalty of $~~270~~7.05 million, ~~related~~stock torepurchases of $130.7 million in the ~~Revolving~~open ~~Credit~~market, ~~Facility~~as ~~during~~well ~~fiscal~~as ~~2020.~~cash ~~Refer~~dividends topaid ~~Note~~of 5$62.0 ~~Financing~~million. ~~Agreements~~We ~~for~~used ~~additional~~the ~~detail~~increased ~~regarding~~borrowings ~~the~~and ~~fiscal~~operating ~~2019~~cash ~~refinancing~~flows ~~and~~to redeem our ~~existing~~senior ~~financing~~unsecured ~~agreements~~5.00% notes.

~~Cash~~Our ~~provided~~debt-to-capital byratio ~~financing activities~~ was ~~$304~~52.73% ~~million~~and ~~for~~52.1% as ~~the~~of ~~fiscal year ended~~ September 30, ~~2019,~~2021 ~~primarily driven by the refinancing activities described in Note 5. Financing Agreements, including $419.7 million of net proceeds from the issuance of senior unsecured notes~~ and ~~additional other borrowings, offset by repurchases of our common stock of $117~~2020.2 ~~million executed under the ongoing program described in Note 13. Common Stock, and dividend payments of $55.4 million.~~

~~Our~~For ~~debt-to-capital~~further ~~ratio~~discussion ~~was~~on ~~52.1%,~~Results ~~60.8%~~of Operations and ~~55.0%~~Liquidity asand ofCapital Resources for the fiscal year ended September 30, 2020 compared to the fiscal year ended September 30, 2019, ~~and~~see ~~2018~~Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS in the fiscal year ended September 2020 Annual report on Form 10-K.

Other Liquidity Matters

Our cash balances and cash flows generated from operations may be used to fund strategic investments, business acquisitions, working capital needs, 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.

Our cash flows from operating activities for the fiscal year ended September 30, ~~2020~~2021 were not materially adversely impacted by COVID-19. There have been no changes to our cost of or access to our capital and funding sources. We have not identified instability with the financial institutions with whom we maintain our financing relationships. We believe we can continue to service our outstanding borrowings or other financial obligations.

As of September 30, ~~2020~~2021, there were no outstanding borrowings of $515.0 million on the Revolving Credit Facility and available borrowing capacity was $~~1,191~~675.0 million after giving effect to the $9.09 million of outstanding standby letters of credit. As of September 30, ~~2019~~2020, there were ~~$80.0~~no ~~million~~ outstanding borrowings on the Revolving Credit Facility, and available borrowing capacity was $1,~~112~~191.8 0 million after giving effect to $79.2 0 million of outstanding standby letters of credit.

Our long-term debt instruments require nominal repayments over the next 12 months, with our next significant maturity occurring in August 2024. Since the beginning of the global COVID-19 pandemic in December 2019, we have not experienced liquidity constraints through either the movement of cash or under our Revolving Credit Facility. Furthermore, we have successfully extended our 364-day accounts receivable securitization facilities asthat ofnow expires on April 2722, ~~2020~~2022. As ofOn ~~September~~May 3020, ~~2020~~2021, we ~~were~~redeemed inall ~~compliance~~of ~~with~~our ~~all~~outstanding ~~debt~~senior ~~covenants~~unsecured ~~under~~5.00% ~~our~~notes ~~financing~~due ~~agreements.~~February ~~See~~15, ~~Note~~2025 5of $300.0 ~~Financing~~million ~~Agreements~~using ~~for~~cash ~~additional~~on ~~information~~hand onand ~~our~~funds ~~financing~~borrowed ~~agreements~~from both Securitization Facilities and ~~outstanding~~the ~~debt~~Revolving ~~obligations~~Credit Facility.

WeAs doof ~~not~~September ~~anticipate~~30, ~~incurring~~2021, ~~significant~~we ~~incremental~~were ~~capital~~in ~~expenditures~~compliance ~~due~~with toall ~~the~~debt ~~pandemic.~~covenants Weunder ~~will continue to evaluate the allocation of~~ our ~~capital~~financing ~~spending~~agreements. ~~and~~See ~~may~~Note ~~delay~~5. ~~discretionary~~Financing ~~capital~~Agreements ~~spending or redirect capital spending to support the increased demand~~ for ~~certain~~further ~~products~~information ~~used~~on toour ~~treat~~financing ~~patients~~agreements ~~diagnosed~~and ~~with~~outstanding ~~COVID-19~~debt obligations.

~~Refer~~Over the long term, we intend to ~~the~~continue ~~section~~to ~~titled~~pursue ~~“The~~inorganic ~~Impacts~~growth in certain areas of ~~COVID-19~~our onbusiness, ~~Hillrom”~~but ~~within~~the ~~Management’s~~timing, ~~Discussion~~size &or ~~Analysis~~success of ~~Financial~~any ~~Condition~~acquisition effort and ~~Results~~the related potential capital commitments cannot be predicted. We have a liability of ~~Operations~~$70.1 million recorded in the Consolidated Balance Sheet related to fair value of the contingent consideration that may be payable related to recent acquisitions. Refer to Note 3. Business Combinations for further ~~information~~detail regarding the acquisitions completed during fiscal years ended September 30, 2021, 2020 and 2019.

~~Over~~On ~~the~~July ~~long term~~7, ~~we intend to continue to pursue inorganic growth in certain areas of our business~~2021, ~~but~~ the ~~timing,~~Board ~~size~~of orDirectors ~~success~~approved ofan ~~any~~increase ~~acquisition~~to ~~effort~~the ~~and~~share ~~the~~repurchase ~~related~~program ~~potential~~in ~~capital~~an ~~commitments~~amount ~~cannot~~of be$500.0 ~~predicted~~million. Refer to ~~Note~~Item 3.5 ~~Business~~of ~~Combinations~~Part ~~for~~I ~~additional~~of ~~detail~~this ~~regarding~~Form ~~the~~10-K ~~acquisitions~~for ~~completed~~further ~~during fiscal 2020 and 2019~~information.

InOur ~~September~~primary ~~2019,~~pension ~~the~~plan ~~Board~~invests ~~approved~~in ana ~~additional~~variety ~~$170.0 million~~of ~~for~~equity ~~share~~and ~~repurchases~~debt securities. Refer to ~~Item~~Note 58. ofRetirement ~~Part~~and IPostretirement ofBenefit ~~this~~Plans ~~Form~~for ~~10-K~~further ~~for~~detail ~~additional~~regarding ~~information~~our retirement plans, including our benefit obligations, plan assets funded status and estimated future benefit payments, among others.

~~Our~~We ~~primary~~intend ~~pension~~to ~~plan~~continue ~~invests~~to inpay aquarterly ~~variety~~cash ofdividends ~~equity~~comparable ~~and debt securities. Refer~~ to ~~Note~~those 8.paid ~~Retirement~~in ~~and~~the ~~Postretirement~~periods ~~Benefit~~covered ~~Plans~~by ~~for~~these ~~additional~~financial ~~detail~~statements. ~~regarding~~However, ~~our~~the ~~retirement~~declaration ~~plans,~~and ~~including~~payment ~~our~~of ~~benefit~~dividends ~~obligations,~~will ~~plan~~be ~~assets~~subject ~~funded~~to ~~status~~the ~~and~~sole ~~estimated~~discretion ~~future~~of ~~benefit~~our ~~payments,~~Board ~~among~~and ~~others.~~ will

3836

~~Table~~depend ofupon ~~Contents~~many factors, including our financial condition, earnings, capital requirements, covenants associated with debt obligations, legal requirements and other factors considered relevant by our Board.

WeOn ~~intend~~September to15, ~~continue~~2020, towe ~~pay~~committed ~~quarterly~~to ~~cash~~a ~~dividends~~workforce ~~comparable~~reduction toplan, ~~those~~which ~~paid~~includes ina ~~the~~voluntary ~~periods~~retirement ~~covered~~program byand ~~these~~involuntary ~~financial~~severance ~~statements~~actions. ~~However,~~The ~~the~~actions ~~declaration~~under ~~and~~this ~~payment~~plan ofresulted ~~dividends~~in ~~will~~cash beexpenditures ~~subject to the sole discretion~~ of ~~our~~approximately ~~Board~~$25.6 million and ~~will~~were ~~depend~~substantially ~~upon~~completed ~~many~~during ~~factors,~~fiscal ~~including~~year ~~our~~ended ~~financial~~September ~~condition~~30, ~~earnings, capital requirements, covenants associated with debt obligations, legal requirements and other factors considered relevant by our Board~~2021.

OnDuring fiscal year ended September 1530, ~~2020~~2021, we ~~committed~~repatriated to$2.2 million aof ~~workforce~~our ~~reduction~~cash ~~plan,~~and ~~which~~cash ~~includes~~equivalents afrom ~~voluntary~~outside ~~retirement~~the ~~program~~United States that was previously taxed, and ~~involuntary~~paid ~~severance~~no ~~actions~~related foreign withholding tax. ~~The~~ ~~actions~~During ~~under~~fiscal ~~this~~year ~~plan~~ended ~~will~~September ~~result~~30, in2020, we repatriated $12.2 million of our cash ~~expenditures~~and cash equivalents from outside the United States that was previously taxed and paid no related foreign withholding tax. These repatriated funds were used for working capital purposes or debt repayments. As of September 30, 2021, approximately ~~$35~~54.09% ~~million~~of our cash and ~~will~~cash beequivalents ~~substantially~~were ~~complete~~held inby ~~fiscal~~our ~~2021~~foreign subsidiaries.

InOur ~~fiscal~~practice ~~2019,~~and weintention ~~repatriated~~were ~~$10.2~~to ~~million~~reinvest ofthe ~~our~~earnings ~~cash~~in ~~and~~our ~~cash~~non-U.S. ~~equivalents~~subsidiaries ~~from~~ outside of the United States ~~that~~to ~~was~~fund ~~previously~~capital ~~taxed~~expenditures and ~~paid~~other operating cash needs. Because the undistributed earnings of non-U.S. subsidiaries are considered to be permanently reinvested, no ~~related~~U.S. deferred income taxes or foreign withholding ~~tax.~~taxes Inhave ~~fiscal~~been ~~2020,~~provided weon ~~repatriated~~earnings ~~$12.2~~subsequent ~~million~~to the enactment of ~~our~~the Tax Act. Future repatriations of cash and cash equivalents, ~~from~~if ~~outside~~any, ~~the~~held ~~United~~by ~~States~~our ~~that~~foreign ~~was~~subsidiaries ~~previously~~will ~~taxed,~~generally ~~and~~not ~~paid~~be nosubject ~~related~~to ~~foreign~~U.S. ~~withholding~~Federal tax if earned prior to the enactment of the Tax Act. ~~These~~As ~~repatriated~~we ~~funds~~evaluate ~~were~~the ~~used~~impact ~~for~~of ~~working~~the ~~capital~~Tax ~~purposes~~Act orand ~~debt~~the ~~repayments.~~future Ascash needs of ~~September 30,~~our ~~2020~~global operations, ~~approximately~~we ~~54.0%~~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 ~~equivalents,~~generated ~~excluding~~from ~~restricted~~U.S. ~~cash~~operations, ~~were~~along ~~held~~with byamounts available under our ~~foreign~~financing ~~subsidiaries~~agreements, will be sufficient to fund U.S. operations, working capital needs, capital expenditure requirements and financing obligations.

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. 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.

Credit Ratings

InDuring fiscal ~~2020~~year ended September 30, 2021, Standard and Poor’s Rating Services and Moody’s Investor Service issued credit ratings for Hillrom of BB+ and Ba2, ~~respectively,~~ with positive and stable outlooks.

Other Uses of Cash

We expect capital spending induring fiscal ~~2021~~year ending September 30, 2022 to be approximately $100.0 million. Capital spending will be monitored and controlled as the year progresses. We expect to use operating cash flows to satisfy capital spending.

~~Off-Balance~~To ~~Sheet~~give ~~Arrangements~~a clear picture of matters potentially impacting our liquidity position, the following table outlines our contractual obligations as of September 30, 2021:

We have no material off-balance sheet arrangements.


	Payments Due by Period
(In millions)	Total		1 Year or Less		More than 1 Year
Contractual Obligations
Debt obligations	$	2,068.9	$	235.7	$	1,833.2
Interest payments relating to long-term debt 1	162.0		39.5		122.5
Operating lease liabilities	79.3		24.6		54.7

Purchase obligations 2	304.6		259.9		44.7
Contingent consideration related to acquisitions 3	130.5		51.0		79.5
Other obligations, including Pension and postretirement health care benefit funding 4	66.4		5.4		61.0
Total contractual cash obligations	$	2,811.7	$	616.1	$	2,195.6

Contractual Obligations, Contingent Liabilities and Commitments

To give a clear picture of matters potentially impacting our liquidity position, the following table outlines our contractual obligations as of September 30, 2020:

	Payments Due by Period
(In millions)	Total		Less Than1 Year		1 - 3Years		3 - 5Years		More Than5 Years
Contractual Obligations
Long-term debt obligations	$	1,890.6	$	222.5	$	125.0	$	1,088.4	$	454.7
Interest payments relating to long-term debt 1	293.9		71.0		159.6		44.7		18.6
Operating lease liabilities	84.5		25.1		34.6		14.4		10.4
Pension and postretirementhealth care benefit funding 2	23.3		3.1		4.6		4.7		10.9
Purchase obligations 3	239.1		224.7		14.4		—		—
Other obligations 4	42.2		2.5		16.9		15.2		7.6
Total contractual cash obligations	$	2,573.6	$	548.9	$	355.1	$	1,167.4	$	502.2

Table of Contents

1 Interest payments on our long-term debt are projected based on the contractual rates of outstanding debt securities.

2 ~~Excludes~~Purchase ~~our~~obligations ~~master~~represent ~~defined~~contractual ~~benefit~~obligations ~~retirement~~under ~~plan~~various take-or-pay arrangements executed in the ~~United~~normal ~~States~~course ~~because~~of webusiness. ~~are~~These ~~not~~commitments ~~required~~represent tofuture ~~make~~purchases ~~any~~in ~~further~~line ~~contributions~~with inexpected ~~fiscal~~usage ~~2021~~to obtain favorable pricing. Also

3 Purchase obligations represent contractual obligations under various take-or-pay arrangements executed in the normal course of business. These commitments represent future purchases in line with expected usage to obtain favorable pricing. Also included are obligations arising from purchase orders for which we have made firm commitments. As a result, we believe that the purchase obligations portion of our contractual obligations is substantially those obligations for which we are certain to pay, regardless of future facts and circumstances. We expect to fund purchase obligations with operating cash flows and current cash balances.37

4included ~~Other~~are obligations ~~include~~arising ~~deferred~~from ~~compensation~~purchase ~~arrangements~~orders for which we have made firm commitments. As a result, ~~self-insurance~~we ~~reserves~~believe that the purchase obligations portion of our contractual obligations is substantially those obligations for which we are certain to pay, regardless of future facts and ~~other~~circumstances. ~~various~~We ~~liabilities~~expect to fund purchase obligations with operating cash flows and current cash balances.

We3 ~~also~~Contingent ~~had~~consideration ~~commercial commitments~~ related to ~~standby~~acquisitions ~~letters~~represent the maximum obligation of ~~credit~~commercial asmilestones for certain acquisitions and is based upon the mid-point of ~~September 30,~~commercial ~~2020~~milestones for the acquisition of $9Bardy.~~6 million.~~

In4 ~~addition~~Other ~~to the contractual~~ obligations ~~and commercial commitments disclosed above~~, weincluding ~~also~~Pension ~~have~~and apostretirement ~~variety~~health ofcare ~~other~~benefit ~~agreements~~funding ~~related~~include todeferred ~~the~~compensation ~~procurement~~arrangements, ofself-insurance ~~materials~~reserves and ~~services and~~ other ~~commitments~~various liabilities. ~~Many~~Pension ofand ~~these~~postretirement ~~agreements~~health ~~are~~care ~~long-term~~benefit ~~supply~~funding ~~agreements,~~excludes ~~some~~our ofmaster ~~which~~defined ~~are~~benefit ~~exclusive~~retirement ~~supply~~plan orin ~~complete~~the ~~requirements-based~~United ~~contracts.~~States ~~Also,~~because we ~~have~~are ~~an additional $3.9 million of Other long-term liabilities as of September 30, 2020, which represent uncertain tax positions for which it is~~ not ~~possible~~required to ~~determine~~make inany ~~which~~further ~~future~~contributions ~~period~~during ~~the~~fiscal ~~tax~~year ~~liability~~ending ~~might~~September be30, ~~settled~~2022.

We also had commercial commitments related to standby letters of credit as of September 30, 2021 of $11.1 million.

In addition to the contractual obligations and commercial commitments disclosed above, we also have a variety of other agreements related to the procurement of materials and services and other commitments. Many of these agreements are long-term supply agreements, some of which are exclusive supply or complete requirements-based contracts. Also, we have an additional $2.7 million of Other long-term liabilities as of September 30, 2021, which represent uncertain tax positions for which it is not possible to determine in which future period the tax liability might be settled.

In conjunction with our acquisition and divestiture activities, we entered into certain guarantees and indemnifications of performance, as well as, non-competition agreements for varying periods of time. Potential losses under the indemnifications are generally limited to a portion of the original transaction price, or to other lesser specific dollar amounts for certain provisions. Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have an adverse impact on our financial condition and results of operations.

We are also subject to potential losses from adverse litigation results that are not included in our self-insurance or other reserves, because such potential losses are not quantifiable at this time and may never occur.

Critical Accounting Policies and Estimates

Our accounting policies, including those described below, often 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. Our most critical accounting policies are described below.

Revenue Recognition

Revenue is recognized as performance obligations are satisfied, either at a point in time or over time, driven by the nature of the obligation that is contracted to be provided to our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the contract. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Certain of our contracts have multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

The majority of our capital equipment revenue is recognized at a point in time, primarily based on the transfer of title, except in circumstances where we are also required to install the equipment, for which revenue is recognized upon customer acceptance of the installation. Performance obligations involving the provision of services and revenue from rental usage of our products are recognized over the time period specified in the contractual arrangement with the customer. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation.

Revenue is presented net of several types of variable consideration including rebates, discounts and product returns, which are estimated at the time of sale generally using the expected value method, although the most likely amount method is also used for certain types of variable consideration. These estimates take into consideration historical experience, current contractual and

4038

~~Table~~statutory ofrequirements, ~~Contents~~specific known market events and trends, industry data, and forecasted customer buying and payment patterns.

for certain types of variable consideration. These estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns.

Certain costs associated with obtaining or fulfilling a contract are capitalized until such time as the related performance obligations are completed and the related revenue is recognized.

Taxes assessed by a governmental authority that are directly imposed on a revenue producing transaction between us and our customers, including but not limited to sales taxes, use taxes and value added taxes, are excluded from revenue and cost.

Revenue and Accounts Receivable Reserves

For product sales, we record reserves resulting in a reduction of revenue for contractual discounts, as well as price concessions and product returns. Likewise, rental revenue reserves, reflecting contractual and other routine billing adjustments, are recorded as a reduction of revenue. Reserves for revenue are estimated based upon historical rates for revenue adjustments.

Provisions for doubtful accounts are recorded as a component of operating expense and represent our best estimate of the amount of probable credit losses and collection risk in our existing accounts receivable. Receivables are generally reviewed for collectability based on historical collection experience for each receivable type and are also reviewed individually for collectability. Account balances are charged against the allowance when we believe it is probable the receivable will not be recovered. We do not have any off-balance sheet credit exposure related to our customers.

If circumstances change, such as higher than expected payment defaults, claims denials, changes in our business composition or processes, adverse changes in general economic conditions, instability or disruption of credit markets, or an unexpected material adverse change in a major customer’s or payer’s ability to meet its obligations, our estimates of the realizability of trade receivables could be reduced by a material amount.

Business Combinations, Goodwill and Intangible Assets

Due to our growth strategy, recent acquisitions and the significance of our goodwill on the Consolidated Balance Sheets, this is our most critical accounting estimate. Assets acquired and liabilities assumed in a business combination are recorded at their estimated fair values on the date of acquisition. The difference between the purchase price amount and the net fair value of assets acquired and liabilities assumed is recognized as goodwill on the balance sheet if the purchase price exceeds the estimated net fair value or as a bargain purchase gain on the income statement if the purchase price is less than the estimated net fair value. ~~Determining~~The identification and determination of the fair value of assets acquired and liabilities assumed requires significant management’s judgment, often utilizes independent valuation experts and involves the use of significant estimates and assumptions with respect to the timing and amounts of future cash inflows and outflows, discount rates, market prices and asset lives, among other items. The judgments made in the determination of the estimated fair value assigned to the assets acquired and liabilities assumed, as well as the estimated useful life of each asset and the duration of each liability, could significantly impact the financial statements in periods after acquisition, such as through depreciation and amortization expense. The allocation of the purchase price may be modified up to one year after the acquisition date as more information is obtained about the fair value of assets acquired and liabilities assumed. Fair values of ~~acquired~~contingent ~~developed~~consideration ~~technology~~ and ~~customer~~acquired ~~relationships~~intangibles are estimated using the income approach. Management applies significant judgment in estimating the fair value of contingent consideration and intangible assets acquired, which involved the use of significant estimates and assumptions with respect to the revenue growth rates, the obsolescence factors (specific to developed technology), the customer attrition rates (specific to customer relationships), and the discount rates. Changes in these judgments or estimates can have a material impact on the valuation of the respective assets and liabilities acquired and our results of operations.

We perform an impairment assessment on goodwill and other indefinite-lived intangibles annually in the third fiscal quarter, or whenever events or changes in circumstances indicate that the fair value of a reporting unit or indefinite-lived intangible may be below its carrying value. These events or conditions include, but are not limited to, a significant adverse change in the business environment; regulatory environment or legal factors; a current period operating or cash flow loss combined with a history of such losses or a projection of continuing losses; a substantial decline in market capitalization of our stock; or a sale or disposition of a significant portion of a reporting unit.

41The goodwill and indefinite-lived intangible asset impairment assessments require either evaluating qualitative factors or performing a quantitative assessment to determine if the carrying value is more likely than not in excess of its fair value.

~~Table of Contents~~39

The goodwill and indefinite-lived intangible asset impairment assessments require either evaluating qualitative factors or performing a quantitative assessment to determine if the carrying value is more likely than not in excess of its fair value. Examples of qualitative factors that are considered include the results and changes to assumptions used in the most recent quantitative impairment test, current and long-range projected financial results, changes in the strategic outlook or organizational structure of the reporting units or business unit for the indefinite-lived asset and industry macro-economic factors. The long-range financial forecasts of the reporting units, which are based upon management’s long-term view of our markets and are used by senior management and the Board to evaluate operating performance, are compared to the forecasts used in the prior year analysis to determine if management expectations for the business have changed. Management changes in strategic outlook or organizational structure represent internally driven strategic or organizational changes that could have a material impact on our results of operations or product offerings. Industry, market changes and macroeconomic indicators represent our view on changes outside of the Company that could have a material impact on our results of operations, product offerings or future cash flow forecasts. In the event we were to determine that a reporting unit’s or indefinite-lived intangible’s carrying value would more likely than not exceed its fair value, quantitative testing would be performed comparing carrying values to estimated fair values. Changes in management intentions, market conditions, operating performance and other similar circumstances could affect the assumptions used in this qualitative impairment test.

Quantitative testing of the reporting units consists of a comparison of the fair value of the reporting units to their carrying value.

In determining the estimated fair value of the reporting units when performing a quantitative analysis, we consider both the market approach and the income approach. Under the market approach, we utilize the guideline company method, which involves calculating valuation multiples based on operating data from comparable publicly traded companies. Under the income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows utilizing a market-based discount rate determined separately for each reporting unit. To determine the estimated fair values of our reporting units, the Company uses assumptions and estimates including the determination of guideline companies and market multiples, projected sales, projected gross margins and discount rates.

An impairment charge is recorded for the amount by which a reporting unit's carrying value exceeds the estimated fair value of the goodwill, not to exceed the carrying amount of its goodwill.

Quantitative testing of indefinite-lived intangibles consists of a comparison of the fair value of the indefinite-lived intangible asset to its carrying value. We estimate the fair value of indefinite-lived intangibles using the relief-from-royalty method. The fair value derived is measured as the discounted cash flow savings realized from owning such trade names and not being required to pay a royalty for their use. Assumptions utilized in the determination of fair value include projected sales, discount rates and royalty rates. An impairment charge is recorded for the amount the carrying value exceeds the estimated fair value of the indefinite-lived intangible.

There are inherent uncertainties related to each of the above listed assumptions and inputs, and our judgment in applying them. Changes in the assumptions used in our goodwill and indefinite-lived intangible assets could result in impairment charges that could be material to our Consolidated Financial Statements in any given period.

Income Taxes

We compute our deferred income taxes using an asset and liability approach to reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. We have a variety of deferred tax assets in numerous tax jurisdictions. These deferred tax assets are subject to periodic assessment as to recoverability and if it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recognized. In evaluating whether it is more likely than not that we would recover these deferred tax assets, future taxable income, the reversal of existing temporary differences and tax planning strategies are considered.

We believe that our estimates for the valuation allowances recorded against deferred tax assets are appropriate based on current facts and circumstances. As of September 30, ~~2020~~2021, we had $5053.80 million of valuation allowances on deferred tax assets, on a tax-effected basis, primarily related to certain foreign deferred tax attributes and state tax credit carryforwards as it is more likely than not that some portion or all of these tax attributes will not be realized.

We account for uncertain income tax positions using a threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The difference between the tax benefit recognized in the financial statements for an uncertain income tax position and the tax benefit claimed in the tax return is referred to as an unrecognized tax benefit.

42We also have on-going audits in various stages of completion in several state and foreign jurisdictions, one or more of which may conclude within the next 12 months. Such settlements could involve some or all of the following: the payment of

~~Table of Contents~~40

We also have on-going audits in various stages of completion with the IRS and several state and foreign jurisdictions, one or more of which may conclude within the next 12 months. Such settlements could involve some or all of the following: the payment of additional taxes and related penalties, the adjustment of certain deferred taxes and/or the recognition of ~~previously~~ unrecognized tax benefits. The resolution of these matters, in combination with the expiration of certain statutes of limitations in various jurisdictions, make it reasonably possible that our unrecognized tax benefits may decrease as a result of either payment or recognition ofby up to $12.80 million in the next 12 months, excluding interest.

Recently Issued Accounting Guidance

For a summary of recently issued accounting guidance applicable to us, see Note 1. Summary of Significant Accounting Policies.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Refer to Note 6. Derivative Instruments and Hedging Activity and Note 8. Retirement and Postretirement Benefit Plans for ~~additional~~further discussions about our derivative agreements and our pension plan assets. We may need to make additional pension plan contributions and our pension expense in future years may increase if market volatility and disruption causes declines in asset values and low interest rates result in a high pension obligation. Investment strategies and policies are set by the plan’s fiduciaries. Long-term strategic investment objectives utilize a diversified mix of equity and fixed income securities to preserve the funded status of the trusts and balance risk and return. The plan fiduciaries oversee the investment allocation process, which includes selecting investment managers, setting long-term strategic targets and monitoring asset allocations.

4341

Table of Contents

Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

			Page
Financial Statements:
Management’s Report on Internal Control Over Financial Reporting			4543
Report of Independent Registered Public Accounting Firm			4644
Statements of Consolidated Income			4846
Statements of Consolidated Comprehensive Income (Loss)			4947
Consolidated Balance Sheets			5048
Statements of Consolidated Cash Flows			5149
Statements of Consolidated Shareholders’ Equity			5250
Notes to Consolidated Financial Statements:			5351
Note 1. Summary of Significant Accounting Policies			5351
Note 2. Supplementary Financial Statement Information			6461
Note 3. Business Combinations			6562
Note 4. Goodwill and Intangible Assets			6968
Note 5. Financing Agreements			7170
Note 6. Derivative Instruments and Hedging Activity			7372
Note 7. Leases			7473
Note 8. Retirement and Postretirement Benefit Plans			7775
Note 9. Other Comprehensive Income			8281
Note 10. Special Charges			8483
Note 11. Income Taxes			8584
Note 12. Earnings per Common Share			8887
Note 13. Common Stock			8988
Note 14. Segment Reporting			9291
Note 15. Quarterly Financial Information (Unaudited)			94
Note 15. Commitments and Contingencies			93
Note 16. Commitments and Contingencies			95
Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts			9695
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.

4442

Table of Contents

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting for Hill-Rom Holdings, Inc. (“we” or “our”). Our internal control over financial reporting is a process designed, under the supervision of our principal executive, principal financial and principal accounting officers, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our Consolidated Financial Statements for external purposes in accordance with accounting principles generally accepted in the United States. Our internal control over financial reporting includes policies and procedures that:

1)Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

2)Provide reasonable assurance that transactions are recorded as necessary to permit preparation of our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States and that our receipts and expenditures are being made only in accordance with authorizations of our management and our Board of Directors; and

3)Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our Consolidated Financial Statements.

Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

Management performed an assessment of the effectiveness of our internal control over financial reporting as of September 30, ~~2020~~2021 using criteria established in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on these criteria, management concluded that we maintained effective internal control over financial reporting as of September 30, ~~2020~~2021.

The effectiveness of our internal control over financial reporting as of September 30, ~~2020~~2021 has been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, who also audited our Consolidated Financial Statements, asand ~~stated~~has inissued ~~their~~an attestation report, which is included herein.

/s/ John P. Groetelaars

John P. Groetelaars

President and Chief Executive Officer

/s/ Barbara W. Bodem

Barbara W. Bodem

Senior Vice President and Chief Financial Officer

/s/ Richard M. Wagner

Richard M. Wagner

Vice President, Controller and Chief Accounting Officer

4543

Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Hill-Rom Holdings, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Hill-Rom Holdings, Inc. and its subsidiaries (the “Company”) as of September 30, ~~2020~~2021 and ~~2019~~2020, and the related consolidated statements of income, of comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period ended September 30, ~~2020~~2021, including the related notes and schedule of valuation and qualifying accounts for each of the three years in the period ended September 30, ~~2020~~2021 listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 30, ~~2020~~2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, ~~2020~~2021 and ~~2019~~2020, and the results of its operations and its cash flows for each of the three years in the period ended September 30, ~~2020~~2021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, ~~2020~~2021, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

~~Changes~~Change in Accounting ~~Principles~~Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in fiscal 2020 and the manner in which it accounts for revenues from contracts with customers in fiscal 2019.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control ~~Over~~over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit

4644

Table of Contents

preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

~~Goodwill~~Acquisition ~~Impairment~~of ~~Assessment~~Bardy -Diagnostics, ~~Reporting~~Inc. ~~Unit Which Comprises the Surgical Solutions Reportable Segment~~

As described in ~~Notes~~Note 13 ~~and 4~~ to the consolidated financial statements, on August 6, 2021, the Company’s ~~consolidated~~purchased ~~goodwill~~all ~~balance~~of asthe outstanding equity interest of ~~September~~Bardy 30Diagnostics, ~~2020~~Inc. ~~was~~(“Bardy”), for total consideration of $~~1,836~~434.2 million. ~~The~~Management recorded $383.8 million of goodwill ~~associated~~and $65.2 million of contingent consideration in connection with the ~~Surgical~~business ~~Solutions~~combination. ~~reportable~~The ~~segment~~difference asbetween ofthe ~~September~~purchase ~~30,~~price ~~2020~~amount ~~was~~and ~~$222~~the ~~million.~~net Asfair ~~disclosed~~value byof ~~management,~~assets anacquired ~~impairment~~and ~~assessment~~liabilities assumed is ~~performed~~recognized onas goodwill ~~annually~~on inthe balance sheet if the ~~third~~purchase ~~fiscal~~price ~~quarter,~~exceeds orthe ~~whenever~~estimated ~~events~~net orfair ~~changes~~value. inAs ~~circumstances~~disclosed ~~indicate~~by ~~that~~management, the ~~fair~~identification ~~value~~and determination of athe ~~reporting~~net ~~unit~~fair ~~may~~value beof ~~below~~assets ~~its~~acquired ~~carrying~~and ~~value.~~liabilities Toassumed ~~determine~~requires ~~the~~significant ~~estimated~~judgment by management. The fair ~~values~~value of ~~the~~contingent ~~Company’s~~consideration ~~reporting~~is ~~units,~~estimated by management ~~considers~~using ~~both~~ the ~~market~~Monte ~~and~~Carlo ~~income~~model. ~~approach,~~Management ~~which~~applied ~~require~~significant ~~management~~judgment toin ~~develop~~estimating ~~assumptions~~the ~~and~~fair ~~estimates~~value ~~including~~of contingent consideration which involved the ~~determination~~use of ~~guideline~~a ~~companies~~significant ~~and~~assumption ~~market~~with ~~multiples,~~respect ~~projected~~to ~~sales,~~the ~~projected~~revenue ~~gross~~growth ~~margins,~~rate ~~and~~used ~~discount~~in ~~rates~~the model.

The principal considerations for our determination that performing procedures relating to the ~~goodwill~~acquisition ~~impairment assessment~~ of ~~the~~Bardy ~~reporting~~Diagnostics, ~~unit~~Inc. ~~which comprises the Surgical Solutions reportable segment~~ is a critical audit matter are ~~the~~(i) ~~significant~~a high degree of auditor judgment byand ~~management~~subjectivity ~~when~~in ~~developing~~performing procedures relating to the ~~fair~~identification ~~value~~and ~~measurement~~determination of the ~~reporting~~net ~~unit;~~fair ~~this~~value inof ~~turn~~assets ~~led~~acquired toand aliabilities ~~high~~assumed ~~degree~~and the fair value of ~~auditor~~contingent ~~judgment,~~consideration ~~subjectivity~~related ~~and~~to ~~effort~~the inacquisition ~~performing~~due ~~procedures~~to ~~and~~the ~~evaluating~~significant judgment by management’s ~~significant~~when ~~assumptions~~identifying ~~related~~and todetermining the ~~determination~~net offair ~~guideline~~value ~~companies~~estimates; ~~and~~(ii) ~~market~~the ~~multiples,~~significant ~~projected~~audit ~~sales,~~effort in ~~projected~~evaluating ~~gross~~the ~~margins,~~significant ~~and~~assumption related to the ~~discount~~revenue growth rate. Inrelated ~~addition,~~to contingent consideration; and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to ~~management’s~~acquisition ~~goodwill impairment assessment~~accounting, including controls over ~~the valuation of the Company~~management’s ~~reporting~~identification ~~unit~~ and ~~controls~~determination ~~over~~of the ~~development~~net offair ~~the~~value ~~assumptions~~of ~~related~~assets toacquired ~~the~~and ~~guideline~~liabilities ~~companies~~assumed and ~~market~~controls ~~multiples,~~over ~~projected~~the ~~sales,~~development ~~projected~~of ~~gross~~the ~~margins,~~significant ~~and~~assumption ~~the~~related ~~discount~~to revenue growth rate. These procedures also included, among others, (i) reading the purchase agreement, (ii) testing management’s process for ~~developing~~identifying and determining the fair value ~~estimate; evaluating the appropriateness~~ of ~~both~~assets ~~the~~acquired ~~market~~ and ~~income~~liabilities ~~approach;~~assumed, ~~testing~~and the ~~completeness,~~total ~~accuracy,~~consideration ~~and~~estimated ~~relevance~~to ofbe ~~underlying~~transferred. ~~data~~Testing ~~used;~~management’s ~~and~~process included evaluating the ~~significant~~appropriateness ~~assumptions~~of ~~used~~the byvaluation ~~management~~models, ~~related~~testing tocompleteness ~~the~~and ~~determination~~accuracy of ~~guideline~~data ~~companies~~provided by management, and ~~market~~evaluating ~~multiples,~~the ~~projected~~reasonableness ~~sales,~~of ~~projected~~the ~~gross~~significant ~~margins,~~assumption ~~and~~related ~~the~~to ~~discount~~revenue growth rate. Evaluating the reasonableness of management’s ~~assumptions~~significant assumption related to ~~projected~~the ~~sales~~revenue ~~and~~growth ~~projected~~rate ~~gross margins~~ involved ~~evaluating whether the assumptions utilized were reasonable~~ considering ~~(i)~~ the current and past performance of the business, ~~(ii)~~ the consistency with external market and industry data, and ~~(iii)~~ whether ~~these~~this ~~assumptions~~assumption ~~were~~was consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in ~~evaluating~~the evaluation of the Company’s ~~market~~Monte ~~and~~Carlo ~~income approaches, the determination of guideline companies and market multiples, and the discount rate~~model.

/s/ PricewaterhouseCoopers LLP

Chicago, Illinois

November 1312, ~~2020~~2021

We have served as the Company’s auditor since 1985.

4745

Table of Contents

Hill-Rom Holdings, Inc. and Subsidiaries

STATEMENTS OF CONSOLIDATED INCOME

(In millions, except per share data)

Year Ended September 30

2020

2019

2018

2021

2020

2019

Net Revenue

Product sales and service

2,~~571~~669.26

2,~~615~~571.02

2,~~469~~615.60

Rental revenue

~~309~~349.81

~~292~~309.38

~~378~~292.43

Total net revenue

23,~~881~~018.07

2,~~907~~881.30

2,~~848~~907.03

Cost of Net Revenue

Cost of goods sold

1,~~259~~282.94

1,~~330~~259.79

1,~~274~~330.17

Rental expenses

~~146~~148.02

~~151~~146.60

~~179~~151.76

Total cost of net revenue (excludes acquisition-related intangible asset amortization)

1,~~405~~430.96

1,~~482~~405.39

1,~~453~~482.83

Research and development expenses

~~136~~144.59

~~139~~136.5

~~135~~139.65

Selling and administrative expenses

~~820~~887.40

~~818~~820.64

~~784~~818.76

Acquisition-related intangible asset amortization

~~109~~108.06

~~122~~109.40

~~106~~122.94

Special charges

4147.54

2841.45

7728.64

Operating Profit

~~367~~400.72

~~316~~367.17

~~289~~316.41

Interest expense

(7465.06)

(8974.60)

(9589.06)

Loss on extinguishment of debt

(159.68)

(315.36)

—(3.3)

Investment income (expense) and other, net

(622.90)

(~~14.~~6.9)

2(14.86)

Income Before Income Taxes

~~271~~302.28

~~208~~271.62

~~197~~208.26

Income tax expense (benefit)

48.2

56.4

(55.2)

Income tax expense

54.3

48.2

56.4

Net Income

~~223~~248.05

~~152~~223.20

~~252~~152.42

Net Income per Basic Common Share

3.3575

23.2835

32.8128

Net Income per Diluted Common Share

3.3272

23.2532

32.7325

Average Basic Common Shares Outstanding (in thousands)

66,~~631~~204

66,~~772~~631

66,~~234~~772

Average Diluted Common Shares Outstanding (in thousands)

6766,~~212~~847

67,~~660~~212

67,~~612~~660

See Notes to Consolidated Financial Statements

~~See Notes to Consolidated Financial Statements~~46

Table of Contents

Hill-Rom Holdings, Inc. and Subsidiaries

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

(In millions)

	Year Ended September 30
	2020		2019		2018
	2021		2020		2019
Net Income	$	~~223~~248.05	$	~~152~~223.20	$	~~252~~152.42
Other Comprehensive Income (Loss), net of tax:
Derivative instruments designated as hedges	~~(36~~17.5)9		(1036.45)		12(10.54)
Foreign currency translation adjustment	349.70		~~(40~~34.1)7		(2440.01)
Change in pension and postretirement defined benefit plans	417.13		~~(13~~4.6)1		8(13.56)
Total Other Comprehensive Income (Loss), net of tax	244.32		~~(64~~2.1)3		(364.01)
Total Comprehensive Income	$	~~225~~292.37	$	88225.13	$	~~249~~88.41
See Notes to Consolidated Financial Statements

~~See Notes to Consolidated Financial Statements~~47

Table of Contents

Hill-Rom Holdings, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(In millions, except share amounts)


	September 30, 2021		September 30, 2020
ASSETS
Current Assets
Cash and cash equivalents	$	271.8	$	296.5

Trade accounts receivable, net of allowances of $25.4 and $25.9 as of September 30, 2021 and 2020	671.2		594.9
Inventories, net of reserves	319.4		352.0

Other current assets	101.4		121.5
Total current assets	1,363.8		1,364.9
Property, plant and equipment	875.8		858.2
Less accumulated depreciation	(587.7)		(552.1)
Property, plant and equipment, net	288.1		306.1

Goodwill	2,221.7		1,835.5
Other intangible assets and software, net	955.3		976.7
Deferred income taxes	32.4		32.9
Other assets	137.8		155.0
Total Assets	$	4,999.1	$	4,671.1
LIABILITIES
Current Liabilities
Trade accounts payable	$	229.9	$	236.5
Short-term borrowings	235.7		222.3
Accrued compensation	182.3		144.9
Accrued product warranties	29.6		30.8
Accrued rebates	50.7		44.8
Deferred revenue	112.7		110.1
Other current liabilities	150.3		162.8
Total current liabilities	991.2		952.2

Long-term debt	1,825.2		1,655.7
Accrued pension and postretirement benefits	73.8		89.3
Deferred income taxes	65.4		113.0
Other long-term liabilities	163.8		134.8
Total Liabilities	3,119.4		2,945.0
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Capital Stock:
Preferred stock - without par value: Authorized - 1,000,000 shares; none issued or outstanding

Common stock - without par value: Authorized - 199,000,000	4.4		4.4

Issued - 88,457,634 shares as of September 30, 2021 and September 30, 2020; Outstanding: 65,893,802 shares as of September 30, 2021 and 66,640,832 shares as of September 30, 2020
Additional paid-in capital	707.6		667.0
Retained earnings	2,315.9		2,132.2
Accumulated other comprehensive (loss)	(136.0)		(180.2)
Treasury stock, common shares at cost: 22,563,832 as of September 30, 2021 and 21,816,802 as of September 30, 2020	(1,012.2)		(897.3)
Total Shareholders’ Equity	1,879.7		1,726.1
Total Liabilities and Shareholders' Equity	$	4,999.1	$	4,671.1
See Notes to Consolidated Financial Statements

	September 30,2020		September 30, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	296.5	$	214.1
Restricted cash	—		419.7
Trade accounts receivable, net of allowances of $25.9 and $20.6 in fiscal 2020 and 2019	594.9		653.3
Inventories, net of reserves of $73.0 and $57.3 in fiscal 2020 and 2019	352.0		269.6
Other current assets	121.5		106.7
Total current assets	1,364.9		1,663.4
Property, plant and equipment	858.2		829.6
Less accumulated depreciation	(552.1)		(532.8)
Property, plant and equipment, net	306.1		296.8
Goodwill	1,835.5		1,800.9
Other intangible assets and software, net	976.7		1,033.5
Deferred income taxes	32.9		33.1
Other assets	155.0		91.3
Total Assets	$	4,671.1	$	4,919.0
LIABILITIES
Current Liabilities
Trade accounts payable	$	236.5	$	197.6
Short-term borrowings	222.3		660.4
Accrued compensation	144.9		130.4
Accrued product warranties	30.8		29.7
Accrued rebates	44.8		47.7
Deferred revenue	110.1		107.3
Other current liabilities	162.8		95.2
Total current liabilities	952.2		1,268.3
Long-term debt	1,655.7		1,783.1
Accrued pension and postretirement benefits	89.3		80.8
Deferred income taxes	113.0		143.0
Other long-term liabilities	134.8		70.5
Total Liabilities	2,945.0		3,345.7
Commitments and Contingencies
SHAREHOLDERS' EQUITY
Capital Stock:
Preferred stock - without par value: Authorized - 1,000,000 shares; none issued or outstanding
Common stock - without par value: Authorized - 199,000,000	4.4		4.4
Issued - 88,457,634 shares as of September 30, 2020 and September 30, 2019; Outstanding: 66,640,832 shares as of September 30, 2020 and 66,625,011 shares as of September 30, 2019
Additional paid-in capital	667.0		637.4
Retained earnings	2,132.2		1,967.4
Accumulated other comprehensive income (loss)	(180.2)		(182.5)
Treasury stock, common shares at cost: 21,816,802 as of September 30, 2020 and 21,832,623 as of September 30, 2019	(897.3)		(853.4)
Total Shareholders’ Equity	1,726.1		1,573.3
Total Liabilities and Shareholders' Equity	$	4,671.1	$	4,919.0

See Notes to Consolidated Financial Statements

Table of Contents

Hill-Rom Holdings, Inc. and Subsidiaries

STATEMENTS OF CONSOLIDATED CASH FLOWS

(In millions)


(In millions)	Year Ended September 30
	2021		2020		2019
Operating Activities
Net income	$	248.5	$	223.0	$	152.2
Adjustments to reconcile net income to net cash, cash equivalents and restricted cash provided by operating activities:
Depreciation and amortization of property, plant, equipment and software	77.2		69.8		72.4
Acquisition-related intangible asset amortization	108.6		109.0		122.4
Amortization of debt discounts and issuance costs	3.7		4.0		7.1
Loss on extinguishment of debt	9.8		15.6		3.0
Benefit for deferred income taxes	(32.0)		(19.0)		(18.8)
Loss on disposal of property, equipment, intangible assets and impairments	0.4		2.7		3.4
Stock compensation	45.6		38.4		34.4

Other operating activities	24.3		27.1		28.3
Change in working capital excluding cash, current debt, acquisitions and dispositions:
Trade accounts receivable	(67.6)		71.3		(62.3)
Inventories	17.1		(91.8)		(0.9)
Other current assets	24.4		(14.8)		15.7
Trade accounts payable	1.9		24.0		13.2
Accrued expenses and other liabilities	37.6		15.4		28.8
Other assets and liabilities	(23.4)		7.0		2.5
Net cash, cash equivalents and restricted cash provided by operating activities	476.1		481.7		401.4
Investing Activities
Purchases of property, plant, equipment and software	(92.1)		(105.9)		(73.4)
Proceeds on sale of property and equipment	2.4		2.5		2.9
Payment for acquisition of businesses, net of cash acquired	(369.0)		(28.4)		(303.4)
Payments for acquisition of intangible assets	(30.0)		—		(17.1)
Payments for acquisition of investments	—		—		(26.6)
Proceeds on sale of businesses	—		0.8		166.6
Other investing activities	1.5		(0.2)		2.0
Net cash, cash equivalents and restricted cash used in investing activities	(487.2)		(131.2)		(249.0)
Financing Activities
Proceeds from borrowing on long-term debt	—		—		1,000.0
Payments of long-term debt	(50.1)		(50.1)		(1,038.5)
Borrowings on Revolving Credit Facility	870.0		190.0		420.0
Payments on Revolving Credit Facility	(355.0)		(270.0)		(340.0)
Borrowings on Securitization Facility	60.6		17.7		5.5
Payments on Securitization Facility	(47.2)		(45.5)		(5.5)
Borrowings on Note Securitization Facility	91.3		32.6		68.9
Payments on Note Securitization Facility	(91.3)		(21.2)		(62.7)
Proceeds from issuance of senior unsecured notes	—		—		425.0
Payment of debt issuance costs	—		—		(12.7)
Prepayment premium on redemption of 5.00% Notes and 5.75% Notes	(7.5)		(12.2)		—
Redemption of 5.00% Notes and 5.75% Notes	(300.0)		(425.0)		—
Cash dividends	(62.0)		(58.0)		(55.4)
Proceeds on exercise of stock options	10.5		8.6		14.5

Stock repurchases for stock award withholding obligations	(9.5)		(16.5)		(4.7)
Stock repurchases in the open market	(130.7)		(54.1)		(117.2)
Other financing activities	7.5		8.7		7.5
Net cash, cash equivalents and restricted cash (used in) provided by financing activities	(13.4)		(695.0)		304.7
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(0.2)		7.2		(6.3)
Net Cash Flows	(24.7)		(337.3)		450.8
Cash, Cash Equivalents and Restricted Cash:
At beginning of period	296.5		633.8		183.0
At end of period	$	271.8	$	296.5	$	633.8
See Notes to Consolidated Financial Statements

	Year Ended September 30
	2020		2019		2018
Operating Activities
Net income	$	223.0	$	152.2	$	252.4
Adjustments to reconcile net income to net cash, cash equivalents and restricted cash provided by operating activities:
Depreciation and amortization of property, plant, equipment and software	69.8		72.4		89.6
Acquisition-related intangible asset amortization	109.0		122.4		106.9
Amortization of debt discounts and issuance costs	4.0		7.1		7.4
Loss on extinguishment of debt	15.6		3.0		—
Benefit for deferred income taxes	(19.0)		(18.8)		(84.8)
Loss on disposal of property, equipment, intangible assets, and impairments	2.7		3.4		2.7
Stock compensation	38.4		34.4		28.1
Other operating activities	27.1		28.3		34.1
Change in working capital excluding cash, current debt, acquisitions and dispositions:
Trade accounts receivable	71.3		(62.3)		(7.7)
Inventories	(91.8)		(0.9)		(18.7)
Other current assets	(14.8)		15.7		(29.4)
Trade accounts payable	24.0		13.2		12.5
Accrued expenses and other liabilities	15.4		28.8		(1.6)
Other assets and liabilities	7.0		2.5		3.7
Net cash, cash equivalents and restricted cash provided by operating activities	481.7		401.4		395.2
Investing Activities
Purchases of property, plant, equipment and software	(105.9)		(73.4)		(89.5)
Proceeds on sale of property and equipment	2.5		2.9		4.2
Payment for acquisition of businesses, net of cash acquired	(28.4)		(303.4)		—
Payments for acquisition of intangible assets	—		(17.1)		—
Payments for acquisition of investments	—		(26.6)		—
Proceeds on sale of businesses	0.8		166.6		1.0
Other investing activities	(0.2)		2.0		1.9
Net cash, cash equivalents and restricted cash used in investing activities	(131.2)		(249.0)		(82.4)
Financing Activities
Proceeds from borrowing on long-term debt	—		1,000.0		1.0
Payments of long-term debt	(50.1)		(1,038.5)		(351.0)
Borrowings on Revolving Credit Facility	190.0		420.0		75.0
Payments on Revolving Credit Facility	(270.0)		(340.0)		(165.0)
Borrowings on Securitization Facility	17.7		5.5		71.6
Payments on Securitization Facility	(45.5)		(5.5)		(40.7)
Borrowings on Note Securitization Facility	32.6		68.9		122.4
Payments on Note Securitization Facility	(21.2)		(62.7)		(50.0)
Proceeds from issuance of senior unsecured notes	—		425.0		—
Payment of debt issuance costs	—		(12.7)		(0.4)
Prepayment premium on extinguishment of 5.75% Notes	(12.2)		—		—
Redemption of 5.75% Notes	(425.0)		—		—
Cash dividends	(58.0)		(55.4)		(51.8)
Proceeds on exercise of stock options	8.6		14.5		40.0
Stock repurchases for stock award withholding obligations	(16.5)		(4.7)		(14.1)
Stock repurchases in the open market	(54.1)		(117.2)		—
Other financing activities	8.7		7.5		6.4
Net cash, cash equivalents and restricted cash (used in) provided by financing activities	(695.0)		304.7		(356.6)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	7.2		(6.3)		(5.0)
Net Cash Flows	(337.3)		450.8		(48.8)
Cash, Cash Equivalents and Restricted Cash:
At beginning of period	633.8		183.0		231.8
At end of period	$	296.5	$	633.8	$	183.0

See Notes to Consolidated Financial Statements

Table of Contents

Hill-Rom Holdings, Inc. and Subsidiaries

STATEMENTS OF CONSOLIDATED SHAREHOLDERS’ EQUITY

(In millions, except share amounts)

	Common Stock				AdditionalPaid-in Capital		RetainedEarnings		AccumulatedOtherComprehensiveIncome (Loss)		Treasury Stock		~~Treasury Stock~~		~~NoncontrollingInterests~~
	SharesIssued		Amount
													Total				~~Total~~
Balance as of September 30, 2017	88,457,634		$	4.4	$	584.4	$	1,676.2	$	(110.0)			$	(796.8)	$	7.4	$	1,365.6
Balance as of September 30, 2018	$	88,457,634	$	4.4	$	602.9	$	1,876.2	$	(113.0)	$	(754.3)	$	1,616.2
Net income	—		—		—		252.4		—				—		—		252.4
Cumulative effect of ASC 606 adoption, net of tax of $4.8	—		—		—		(4.9)		—		—		(4.9)
VIE activity	—		—		—		—		—				—		(7.4)		(7.4)
Cumulative effect of ASU 2016-16 adoption, net of tax of $0.2	—		—		—		(5.6)		—		—		(5.6)
Other comprehensive income (loss), net of tax of ($5.9)	—		—		—		—		(3.0)				—		—		(3.0)
Reclassification due to ASU 2018-02 adoption	—		—		—		5.4		(5.4)		—		—
Dividends ($0.78 per common share)	—		—		0.6		(52.4)		—				—		—		(51.8)
Net Income	—		—		—		152.2		—		—		152.2
Stock repurchases for stock award withholding obligations	—		—		—		—		—				(14.1)		—		(14.1)
Other comprehensive income (loss), net of tax of $7.0	—		—		—		—		(64.1)		—		(64.1)
Stock compensation on equity-classified awards	—		—		27.4		—		—				—		—		27.4
Dividends ($0.83 per common share)	—		—		0.5		(55.9)		—		—		(55.4)
Stock option exercises	—		—		3.6		—		—				36.4		—		40.0
Stock repurchases for stock award withholding obligations	—		—		—		—		—		(4.7)		(4.7)
Distribution of stock awards	—		—		(17.3)		—		—				17.3		—		—
Stock repurchases in the open market	—		—		—		—		—		(117.2)		(117.2)
Shares issued under employee stock purchase plan	—		—		4.2		—		—				2.9		—		7.1
Stock compensation on equity-classified awards	—		—		33.9		—		—		—		33.9
Balance as of September 30, 2018	88,457,634		4.4		602.9		1,876.2		(113.0)				(754.3)		—		1,616.2
Stock option exercises	—		—		2.6		—		—		11.9		14.5
Cumulative effect of ASC 606 adoption, net of tax of $4.8	—		—		—		(4.9)		—				—		—		(4.9)
Distribution of stock awards	—		—		(7.7)		—		—		7.7		—
Cumulative effect of ASU 2016-16 adoption, net of tax of $0.2	—		—		—		(5.6)		—				—		—		(5.6)
Shares issued under employee stock purchase plan	—		—		5.2		—		—		3.2		8.4
Reclassification due to ASU 2018-02 adoption	—		—		—		5.4		(5.4)				—		—		—
Balance as of September 30, 2019	88,457,634		4.4		637.4		1,967.4		(182.5)		(853.4)		1,573.3
Net income	—		—		—		152.2		—				—		—		152.2
Net Income	—		—		—		223.0		—		—		223.0
Other comprehensive income (loss), net of tax of $7.0	—		—		—		—		(64.1)				—		—		(64.1)
Other comprehensive income (loss), net of tax of $9.6	—		—		—		—		2.3		—		2.3
Dividends ($0.83 per common share)	—		—		0.5		(55.9)		—				—		—		(55.4)
Dividends ($0.87 per common share)	—		—		0.5		(58.5)		—		—		(58.0)
Stock repurchases for stock award withholding obligations	—		—		—		—		—		(16.5)		(416.75)		—		~~(4.7)~~
Stock repurchases in the open market	—		—		—		—		—		(54.1)		(~~117~~54.21)		—		~~(117.2)~~
Stock compensation on equity-classified awards	—		—		3337.98		—		—		—		—37.8		—		~~33.9~~
Stock option exercises	—		—		2.69		—		—		5.7		118.96		—		~~14.5~~
Distribution of stock awards	—		—		(717.71)		—		—		17.1		~~7.7~~—		—		—
Shares issued under employee stock purchase plan	—		—		5.25		—		—		3.9		39.24		—		~~8.4~~
Balance as of September 30, 2019	88,457,634		4.4		637.4		1,967.4		(182.5)				(853.4)		—		1,573.3
Other	—		—		—		0.3		—		—		0.3
Net income	—		—		—		223.0		—				—		—		223.0
Balance as of September 30, 2020	88,457,634		4.4		667.0		2,132.2		(180.2)		(897.3)		1,726.1
Other comprehensive income (loss), net of tax benefit of $9.6	—		—		—		—		2.3				—		—		2.3
Cumulative effect of ASU 2016-13 adoption, net of tax of $0.8	—		—		—		(2.2)		—		—		(2.2)
Dividends ($0.87 per common share)	—		—		0.5		(58.5)		—				—		—		(58.0)
Net Income	—		—		—		248.5		—		—		248.5
Stock repurchases for stock award withholding obligations	—		—		—		—		—				(16.5)		—		(16.5)
Other comprehensive income (loss), net of tax of $ (10.7)	—		—		—		—		44.2		—		44.2
Stock repurchases in the open market	—		—		—		—		—				(54.1)		—		(54.1)
Dividends ($0.94 per common share)	—		—		0.6		(62.6)		—		—		(62.0)
Stock compensation on equity-classified awards	—		—		37.8		—		—				—		—		37.8
Stock repurchases for stock award withholding obligations	—		—		—		—		—		(9.5)		(9.5)
Stock option exercises	—		—		2.9		—		—				5.7		—		8.6
Stock repurchases in the open market	—		—		—		—		—		(130.7)		(130.7)
Distribution of stock awards	—		—		(17.1)		—		—				17.1		—		—
Stock compensation on equity-classified awards	—		—		44.5		—		—		—		44.5
Shares issued under employee stock purchase plan	—		—		5.5		—		—				3.9		—		9.4
Stock option exercises	—		—		3.5		—		—		7.0		10.5
Other	—		—		—		0.3		—				—		—		0.3
Distribution of stock awards	—		—		(14.5)		—		—		14.5		—
Balance as of September 30, 2020	88,457,634		$	4.4	$	667.0	$	2,132.2	$	(180.2)			$	(897.3)	$	—	$	1,726.1
Shares issued under employee stock purchase plan	—		—		6.5		—		—		3.8		10.3
Balance as of September 30, 2021	88,457,634		$	4.4	$	707.6	$	2,315.9	$	(136.0)	$	(1,012.2)	$	1,879.7
See Notes to Consolidated Financial Statements

~~See Notes to Consolidated Financial Statements~~50

Table of Contents

Hill-Rom Holdings, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in millions, except per share data)

Note 1. Summary of Significant Accounting Policies

Nature of Operations

Basis of Presentation and Principles of Consolidation

The Consolidated Financial Statements include the accounts of Hillrom and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Where our ownership interest is less than 100%, the noncontrolling interests are reported in our Consolidated Financial Statements. Certain prior year amounts have been reclassified to conform to the current year presentation.

Prior Period Reclassification

~~Beginning~~During in fiscal year ended September 30, 2020, we ~~are presenting~~ presented Acquisition-related intangible asset amortization as a separate line item on our Statements of Consolidated Income for all periods presented. Acquisition-related intangible asset amortization was previously included in Selling and administrative expenses. Additionally, we ~~will~~ no longer present Gross Profit as a subtotal on our Statements of Consolidated Income.

The following table presents Acquisition-related intangible asset amortization and Selling and administrative expenses, excluding the Acquisition-related intangible asset amortization, for the fiscal ~~years~~year ended September 30, 2019 ~~and 2018~~.

	Year Ended September 30
(In millions)	Year Ended September 30, 2019
	2019		2018
Selling and administrative expense, previously reported	$	941.0
Selling and administrative expense, previously reported	$	941.0	$	891.6
Less: Acquisition-related intangible asset amortization	(122.4)
Less: Acquisition-related intangible asset amortization	(122.4)		(106.9)
Selling and administrative expense, currently reported	$	818.6
Selling and administrative expense, currently reported	$	818.6	$	784.7

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense in the period. Actual results could differ from those estimates. Examples of such estimates include, but are not limited to, our allowance for doubtful accounts receivable, inventory reserves, accrued warranties, the impairment of intangible assets and goodwill, use of the spot yield curve approach for pension expense, income taxes and commitments and contingencies. See below for more information.

5351

~~Table~~Proposed ofAcquisition ~~Contents~~by Baxter

On September 1, 2021, Hillrom, Baxter, and Merger Sub entered into the Merger Agreement, pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will be merged with and into Hillrom, with Hillrom surviving the Merger as a wholly owned subsidiary of Baxter. Under the terms of the Merger Agreement, which has been unanimously approved by Hillrom’s Board of Directors, Baxter will acquire all outstanding shares of Hillrom for $156.00 per share in cash, for a total equity value of approximately $10.5 billion. The Merger is expected to close by early 2022, subject to receipt of specified regulatory approvals and other customary closing conditions.

Government Programs Related to COVID-19

On March 25, 2020, the U.S. government approved the Coronavirus Aid, Relief and Economic Security (“CARES”) Act to provide economic stimulus to address the impact of the pandemic. The governments in certain other non-U.S. countries have also approved legislation in their jurisdictions to address the impact of the pandemic. We evaluated our eligibility and assessed the conditions and requirements of participation in many programs. For the programs in which we elected to participate, we recognized $0.5 million and $3.2 million in government grants and cost abatements associated with state aid within the Statement of Consolidated Income for the fiscal ~~year~~years ended September 30, 2021 and 2020. In addition, we deferred the payment of the employer share of the U.S. Federal Insurance Contributions Act (“FICA”) tax ~~payments~~ totaling $1321.87 million within the Consolidated Balance Sheet, of which $10.8 million must be repaid in both December 31, 2021 and December 31, 2022, respectively, in accordance with the CARES Act within the Consolidated Balance Sheet ~~as of September 30, 2020~~. We continue to evaluate what impact, if any, the CARES Act, or any similar legislation in other non-U.S. jurisdictions, may have on our results of operations.

Cash and Cash Equivalents

We consider ~~investments~~deposits inwith ~~marketable~~banks ~~securities~~as ~~and~~well ~~other~~as ~~highly~~investments ~~liquid~~in ~~instruments~~marketable securities with aoriginal maturity of three months or less at date of purchase to be cash equivalents. ~~All of our marketable securities may be freely traded.~~

Restricted Cash

Restricted cash represents funds that are restricted to satisfy designated current liabilities. As of September 30, 2019, restricted cash consisted of amounts held in a trust account to redeem all of our previously outstanding senior unsecured 5.75% notes due September 2023. The restricted cash was used to redeem these senior notes on October 7, 2019. See Note 5. Financing Agreements for additional information.

Trade Accounts Receivable

Trade accounts receivable are recorded at the invoiced amount and do not bear interest, unless the transaction is an installment sale with extended payment terms. Allowances for doubtful accounts are recorded as a component of Selling and administrative expenses and represent our best estimate of the amount of probable credit losses and collection risk in our existing accounts receivable. Receivables are generally reviewed for collectability based on historical collection experience for each receivable type and are also reviewed individually for collectability. Account balances are charged against the allowance when we believe it is probable the receivable will not be recovered. We do not have any off-balance sheet credit exposure related to our customers.

Within rental revenue, domestic third-party payers’ reimbursement process requires extensive documentation, which has had the effect of slowing both the billing and cash collection cycles relative to the rest of the business, and therefore, increasing total accounts receivable. Because of the extensive documentation required and the requirement to settle a claim with the primary payer prior to billing the secondary and/or patient portion of the claim, the collection period for a claim in a portion of our business may, in some cases, be extended.

We generally hold our trade accounts receivable until they are paid. Certain long-term receivables are occasionally sold to third parties; however, any recognized gain or loss on such sales has historically not been material.

Inventories

~~Inventories~~During ~~are~~the ~~valued~~fourth atquarter ~~lower~~ of ~~cost~~2021, orwe ~~market.~~changed ~~Inventory~~our ~~costs~~method ~~are~~of ~~determined~~accounting byfor inventories from the last-in, first-out (“LIFO”) method ~~for~~to ~~approximately~~the ~~16%~~first-in, ~~and~~first-out ~~30%~~(“FIFO”) ofmethod ~~our~~for ~~inventories~~the asremaining of ~~September 30,~~our ~~2020~~inventory ~~and~~that ~~September 30,~~was ~~2019~~valued using LIFO. ~~Costs~~We ~~for~~believe ~~other~~that ~~inventories~~this ~~have~~change ~~been~~in ~~determined~~accounting ~~principally~~is bypreferable ~~the~~as ~~first-in,~~it ~~first-out~~will ~~(“FIFO”)~~provide ~~method.~~a Ifconsistent, ~~the~~uniform, ~~FIFO~~costing method offor ~~inventory~~all ~~accounting~~inventories ~~had~~across ~~been~~the ~~used~~Company, ~~for~~improves ~~all~~comparability ~~inventories~~with peers, ~~they~~and ~~would~~better ~~have~~reflects ~~been~~the ~~approximately~~current ~~$5.5~~value ~~million~~of ~~and~~inventories $0at the balance sheet date.3 ~~million~~Prior ~~higher~~consolidated ~~than~~financial ~~reported~~statements ashave ofnot ~~September 30,~~been ~~2020~~retrospectively ~~and~~adjusted ~~September 30,~~due ~~2019~~to immateriality. ~~Inventories~~The ~~consist~~cumulative ofpre-tax ~~the~~effect ~~following:~~of

	Year Ended September 30
	2020		2019
Inventories, net of reserves:
Finished products	$	167.6	$	120.5
Work in process	48.4		42.4
Raw materials	136.0		106.7
Total inventories, net of reserves	$	352.0	$	269.6

54this change in accounting principle of approximately $6.8 million was recorded as an increase in Inventories, net of reserves and a decrease to Cost of goods sold for the fiscal year ended September 30, 2021.

Inventories consist of the following:

Table of Contents


(In millions)	Year Ended September 30
	2021		2020
Inventories, net of reserves:
Finished products	$	153.7	$	167.6
Work in process	53.3		48.4
Raw materials	112.4		136.0
Total Inventories, net of reserves	$	319.4	$	352.0

We record reserves when the facts and circumstances indicate that particular inventories will not be sold at prices in excess of current carrying costs. These estimates are based on historical experience and expected future trends.

Property, Plant and Equipment

Property, plant and equipment is recorded at cost and depreciated over the estimated useful life of the assets using principally the straight-line method. Ranges of estimated useful lives are as follows:


			Useful Life
Land improvements			6 - 15 years
Buildings and building equipment			10 - 40 years
Machinery and equipment			3 - 10 years
Equipment leased to others			2 - 10 years

When property, plant and equipment is retired from service or otherwise disposed of, the cost and related amount of depreciation is eliminated from the asset and accumulated depreciation accounts. The difference, if any, between the net asset value and the proceeds on sale are charged or credited to income.

Total depreciation expense during fiscal years ended September 30, 2021, 2020 and 2019 was $62.8 million, $60.6 million and $62.1 million. The major components of property, plant and equipment and the related accumulated depreciation were as follows:

Total depreciation expense in fiscal years ended September 30, 2020, 2019 and 2018 was $60.6 million, $62.1 million and $78.6 million. The major components of property, plant and equipment and the related accumulated depreciation were as follows:


(In millions)	Year Ended September 30
	2021				2020
	Cost		Accumulated Depreciation		Cost		Accumulated Depreciation
Land and land improvements	$	15.9	$	4.8	$	16.9	$	4.4
Buildings and building equipment	210.4		105.0		208.2		95.4
Machinery and equipment	437.2		325.5		416.3		303.4
Equipment leased to others	212.3		152.4		216.8		148.9
Total	$	875.8	$	587.7	$	858.2	$	552.1

	Year Ended September 30
	2020				2019
	Cost		AccumulatedDepreciation		Cost		AccumulatedDepreciation
Land and land improvements	$	16.9	$	4.4	$	16.7	$	3.9
Buildings and building equipment	208.2		95.4		199.7		91.1
Machinery and equipment	416.3		303.4		397.0		285.2
Equipment leased to others	216.8		148.9		216.2		152.6
Total	$	858.2	$	552.1	$	829.6	$	532.8

Goodwill

Goodwill represents the excess of the purchase price paid over the estimated fair value of the net assets acquired and liabilities assumed in the acquisition of a business. Goodwill is not amortized, but is tested for impairment at least annually or on an interim basis if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. See Note 4. Goodwill and Intangible Assets for ~~additional~~further information.

Fair Value Measurements

Fair value measurements are classified and disclosed in one of the following three categories:

•Level 1: Financial instruments with unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.

•Level 2: Financial instruments with observable inputs other than those included in Level 1 such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3: Financial instruments with unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Unobservable inputs reflect our own assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs shall be developed based on the best information available in the circumstances, which might include our own data.

55We record cash and cash equivalents, as disclosed on our Consolidated Balance Sheets, as Level 1 instruments and certain other investments and derivatives as Level 2 instruments as they are not actively quoted. Refer to Note 5. Financing Agreements for disclosure of our debt instrument fair values.

Table of Contents

We record cash and cash equivalents, as disclosed on our Consolidated Balance Sheets, as Level 1 instruments and certain other investments and derivatives as Level 2 instruments as they are not actively quoted. Except for the adoption of revised disclosure guidance related to investments held by our pension plan as discussed in Note 8. Retirement and Postretirement Benefit Plans, there have been no significant changes in our classification among assets and liabilities. Refer to Note 5. Financing Agreements for disclosure of our debt instrument fair values.

Warranties and Guarantees

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

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

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

AThe ~~rollforward~~following ofsummarizes ~~changes~~accrued inproduct ~~our~~ warranty ~~reserve~~activity isfor asthe ~~follows~~fiscal years ended September 30, 2021 and 2020:

	Year Ended September 30
(In millions)	Year Ended September 30
	2020		2019
	2021		2020
Balance at the beginning of the period	$	2930.78	$	2029.57
Provision for warranties in the period	1822.65		2318.03
Warranty reserves acquired	—		0.2
Warranty claims incurred in the period	(23.8)		(17.5)
Warranty reserves assumed 1	—		2.8
Foreign currency translation adjustment	0.1		0.3
Warranty claims incurred in the period	(17.5)		(16.8)
Balance at the end of the period	$	29.6	$	30.8
Balance at the end of the period	$	30.8	$	29.7

1 As a result of the asset acquisition in our Front Line Care segment discussed in Note 3. Business Combinations.

Accrued Rebates

We provide rebates and sales incentives to certain customer groups and distributors. We also have arrangements where we provide rebates to certain distributors that sell to end-user customers at prices determined under a contract between us and the end-user customer. Provisions for rebates are recorded as a reduction in net revenue when revenue is recognized.

Retirement Plans

We sponsor retirement and postretirement benefit plans covering certain employees. Expense recognized in relation to these defined benefit retirement and postretirement health care plans is based upon actuarial valuations and inherent in those valuations are key assumptions including discount and mortality rates, and where applicable, expected returns on assets, projected future salary rates and projected health care cost trends. The discount rates used in the valuation of our defined benefit pension and postretirement plans are evaluated annually based on current market conditions. In setting these rates we utilize long-term bond indices and yield curves as a preliminary indication of interest rate movements, and then make adjustments to the respective indices to reflect differences in the terms of the bonds covered under the indices in comparison to the projected outflow of our obligations. Our overall expected long-term rate of return on pension assets is based on historical and expected future returns, which are inflation adjusted and weighted for the expected return for each component of the investment portfolio. Our rate of assumed compensation increase is also based on our specific historical trends wage adjustments.

Table of Contents

future returns, which are inflation adjusted and weighted for the expected return for each component of the investment portfolio. Our rate of assumed compensation increase is also based on our specific historical trends wage adjustments.

We account for our defined benefit pension and other postretirement plans by recognizing the funded status of a benefit plan in the balance sheet. We also recognize in Accumulated other comprehensive income (loss) certain gains and losses that arose in the period. See Note 8. Retirement and Postretirement Benefit Plans for key assumptions and further discussion related to our pension and postretirement plans.

Environmental Liabilities

Expenditures that relate to an existing environmental condition caused by past operations, and which do not contribute to future revenue generation, are expensed. A reserve is established when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These reserves are determined without consideration of possible loss recoveries from third parties.

Specific costs included in environmental expense and reserves include site assessment, development of a remediation plan, clean-up costs, post-remediation expenditures, monitoring, fines, penalties and legal fees. Reserve amounts represent the expected undiscounted future cash outflows associated with such plans and actions.

Self -Insurance

We are generally self-insured up to certain stop-loss limits for certain employee health benefits, including medical, drug and dental. Our policy is to estimate reserves based upon several factors including known claims, estimated incurred but not reported claims and outside actuarial analysis, which are based on historical information along with certain assumptions about future events. Such estimated reserves are classified as Other current liabilities and Other long-term liabilities in the Consolidated Balance Sheets. Refer to Note 1615. Commitments and Contingencies for ~~additional~~further information.

Treasury Stock

Treasury stock consists of our common shares that have been issued, but subsequently reacquired. We account for treasury stock purchases under the cost method. When these shares are reissued, we use an average-cost method to determine cost. The difference between proceeds and the cost basis of the treasury stock is recorded to Additional paid-in capital.

Revenue Recognition — Sales and Rentals

Revenue is presented in the Consolidated Statements of Income net of sales discounts and allowances, GPO fees, price concessions, rebates and customer returns for products sales and rental revenue services.

Disaggregation of Revenue

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

Performance Obligations & Transaction Price Determination

Revenue is recognized as performance obligations are satisfied, either at a point in time or over time, driven by the nature of the performance obligation that is contracted to be provided to our customers. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the contract. Revenue is measured as the amount of consideration we expect to receive in exchange for satisfying the performance obligations. Certain of our contracts have multiple performance obligations. A contract’s transaction price is allocated to the distinct performance obligations and recognized as revenue when, or as, each performance obligation is satisfied. We allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

amount of consideration we expect to receive in exchange for satisfying the performance obligations. Certain of our contracts have multiple performance obligations. A contract’s transaction price is allocated to the distinct performance obligations and recognized as revenue when, or as, each performance obligation is satisfied. We allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

The majority of our product sales revenue is recognized at a point in time, primarily based on the transfer of title, except in circumstances where we are also required to install the equipment, for which revenue is recognized upon customer acceptance of the installation. Performance obligations involving the provision of services and revenue from rental usage of our products are recognized over the time period specified in the contractual arrangement with the customer.

Table of Contents

Deferred Contract Costs

Certain costs associated with obtaining or fulfilling a contract with a customer (collectively referred to as “deferred contract costs”) are capitalized until such time as the related performance obligations are completed and the related revenue is recognized. Deferred contract costs are recorded as Other current assets and Other assets.

Costs to obtain a contract are primarily comprised of sales commissions paid upon receipt of a purchase order for certain products, primarily care communications. Commissions are expensed commensurate with the timing of revenue recognition, which is generally 121 to 36 months.

Costs to fulfill a contract includes equipment, installation and other costs directly related to certain performance obligations not completed. These costs primarily relate to our care communications products and other construction projects that require installation or ongoing service maintenance. These costs are expensed commensurate with the timing of revenue recognition, which is generally 126 to 24 months.

The following table summarizes deferred contract cost ~~activity~~balances for the fiscal year ended September 30, ~~2020~~2021:

	September 30, 2020
(In millions)	September 30, 2021
	Ending Balance		Amortization		Statement of Consolidated Income Classification
Costs to obtain a contract
Other current assets	$	69.78	$	(176.5)	Selling and administrative expenses
Other assets	12.85		—
Costs to fulfill a contract
Other current assets	$	2622.90	$	(7576.24)	Cost of goods sold
Other assets	36.40		—

Contract Balances

Contract liabilities represent deferred revenues that arise as a result of cash received from customers at inception of contracts or where the timing of billing for services precedes satisfaction of our performance obligations. Such remaining performance obligations represent the portion of the contract price for which work has not been performed and are primarily related to our installation and service contracts. These contract liabilities are recorded in Deferred revenue and Other long-term liabilities. We expect to satisfy the majority of the remaining performance obligations and recognize revenue related to installation and service contracts within 126 to 24 months.

The nature of our products and services does not give rise to contract assets as we typically do not have instances where a right to payment for goods and services already transferred to a customer exists that is conditional on something other than the passage of time.

5856

~~Table~~The ofcontract ~~Contents~~liability balance represents the transaction price allocated to the remaining performance obligations. The following table summarizes contract liability activity for the fiscal year ended September 30, 2021.

The following table summarizes contract liability activity for the fiscal year ended September 30, 2020. The contract liability balance represents the transaction price allocated to the remaining performance obligations.


(In millions)	Contract Liabilities
Balance at the beginning of the period	$	138.1
Deferred revenue acquired	1.1
New revenue deferrals	543.4
Revenue recognized upon satisfaction of performance obligations	(546.5)
Foreign currency translation adjustment	2.4
Balance at the end of the period	$	138.5

	Contract Liabilities
Balance as of September 30, 2019	$	125.8
Deferred revenue acquired	2.9
New revenue deferrals	300.7
Revenue recognized upon satisfaction of performance obligations	(291.3)
Balance as of September 30, 2020	$	138.1

Accounting & Practical Expedient Elections

We account for shipping and handling activities as fulfillment costs within Cost of goods sold. These activities are not considered to be a separate performance obligation. Taxes assessed by a governmental authority that are directly imposed on a revenue producing transaction between us and our customers, including but not limited to sales taxes, use taxes and value added taxes, are excluded from revenue and cost.

We adopted the significant financing practical expedient under which the impacts of financing are considered immaterial if the duration of the financing is one year or less. Customer payments are due at various times up to 90 days from the date of invoice, though in some countries and for certain customer types, credit terms are longer based on local industry standard.

Cost of Net Revenue

Cost of goods sold for product sales consists primarily of purchased material costs, fixed manufacturing expense, variable direct labor, overhead costs and costs associated with the distribution and delivery of products to our customers. Rental expenses consist of costs associated directly with rental revenue, including depreciation, maintenance, logistics and service center facility and personnel costs.

Research and Development Costs

Research and development costs relate primarily to internal costs for salaries and direct overhead expenses as well as the cost of outside vendors to conduct R&D activities. These costs are expensed as incurred. In addition, certain costs for software development technology held for sale are capitalized as intangibles when technological feasibility in the software is established and are amortized over a period of three years to five years once the software is ready for its intended use. The amounts capitalized induring fiscal ~~2020~~years ended September 30, ~~2019~~2021, 2020 and ~~2018~~2019 were approximately $1510.31 million, $815.03 million and $28.40 million.

Comprehensive Income

We include the after-tax effect of unrealized gains or losses on interest and foreign currency hedges, foreign currency translation adjustments and pension or other defined benefit postretirement plans’ actuarial gains or losses and prior service costs or credits in Accumulated other comprehensive income (loss). See Note 9. Other Comprehensive Income of our Consolidated Financial Statements for further details.

Foreign Currency

The functional currency of foreign operations is generally the local currency in the country of domicile. Assets and liabilities of foreign operations are primarily translated into U.S. dollars at year-end rates of exchange and the income statements are translated at the average rates of exchange prevailing in the year. Adjustments resulting from translation of the financial statements of foreign operations into U.S. dollars are excluded from the determination of net income, but included as a component of Accumulated other comprehensive income (loss). Foreign currency gains and losses resulting from foreign currency transactions are included in our results of operations and are not material. Foreign currency movements on items designated as net investment hedges were recorded in Accumulated other comprehensive income (loss).

5957

Table of Contents

Stock-Based Compensation

We account for stock-based compensation under fair value provisions. Stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. We estimate forfeitures on stock-based compensation, which are based on historical and expected forfeiture rates. In order to determine the fair value of stock options on the date of grant, we utilize a Binomial model. In order to determine the fair value of other performance-based stock awards on the date of grant, we utilize a Monte Carlo model. Inherent in these models are assumptions related to a volatility factor, expected life, risk-free interest rate, dividend yield and expected forfeitures. The risk-free interest rate is based on factual data derived from public sources. The volatility factor, expected life, dividend yield and expected forfeiture assumptions require judgment utilizing historical information, peer data and future expectations. Restricted stock units (“RSUs”) are measured based on the fair market price of our common stock on the date of grant, as reported by the New York Stock Exchange, multiplied by the number of units granted. See Note 13. Common Stock for further details.

Income Taxes

Hillrom and its eligible subsidiaries file a consolidated U.S. income tax return. Foreign operations file income tax returns in a number of jurisdictions. We have a variety of deferred tax assets in numerous tax jurisdictions which are computed using an asset and liability approach to reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. These deferred tax assets are subject to periodic assessment as to recoverability. If it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recognized. In evaluating whether it is more likely than not that we would recover these deferred tax assets, future taxable income, the reversal of existing temporary differences and tax planning strategies are considered.

As of fiscal year ended September 30, ~~2020~~2021, we had valuation allowances on deferred tax assets, on a tax-effected basis, primarily related to certain foreign deferred tax attributes that are not expected to be utilized. We believe that our estimates for the valuation allowances recorded against deferred tax assets are appropriate based on current facts and circumstances.

Derivative Instruments and Hedging Activity

We use derivative financial instruments to manage the economic impact of fluctuations in currency exchange and interest rates. Derivative financial instruments related to currency exchange rates include forward purchase and sale agreements that generally have terms no greater than 1512 months. Additionally, interest rate swaps and cross-currency interest rate swaps are sometimes used to convert some or all of our long-term debt to either a fixed or variable rate.

Derivative financial instruments are recognized in the Consolidated Balance Sheets as either assets or liabilities and are measured at fair value. Changes in the fair value of derivatives are recorded each period in the Statement of Consolidated Income or the Statement of Consolidated Comprehensive Income (Loss), depending on whether a derivative is designated and considered effective as part of a hedge transaction, and if it is, the type of hedge transaction. The Company's derivatives are considered to be highly effective under hedge accounting principles. The Company does not hold or issue derivative financial instruments for speculative purposes. As a result of being effective, gains and losses on derivative instruments reported in Accumulated other comprehensive income (loss) are subsequently included in the Statement of Consolidated Income in the periods in which earnings are affected by the hedged item. These activities have not had a material effect on our Consolidated Financial Statements for the periods presented herein.

6058

Table of Contents

Recently Adopted Accounting Guidance

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

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

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

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

In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This standard eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill. ASU 2017-04 is effective for our first quarter of fiscal 2021 and requires a prospective transition method. Early adoption is permitted. We early adopted this standard in the first quarter of fiscal year ended September 30, 2020 and the guidance did not have a material impact on our Consolidated Financial Statements.

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes. The purpose of the standard is to allow the use of the OIS rate based on the SOFR for hedge accounting purposes, which allows entities to designate changes in the fair values of fixed-rate financial assets or liabilities attributable to the OIS rate as the hedged risk. The amendment recognizes the OIS rate based on the SOFR as likely London Interbank Offered Rate (“LIBOR”) replacements and supports the marketplace transition by adding the new reference rate as a benchmark rate. We adopted this standard in the first quarter of fiscal year ended September 30, 2020. The adoption of this ASU did not impact our financial statements as we have not yet utilized the OIS rate based on the SOFR for borrowings under our lending arrangements or as a benchmark rate for hedge accounting purposes. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The purpose of the standard is to provide guidance for the effects of the marketplace transition from LIBOR to a new reference rate as a benchmark rate. ASU 2020-04 is optional and is effective for a limited period of time from March 12, 2020 through December 31, 2022. We will continue to monitor, assess, and plan for the phase out of LIBOR.

In May 2014, the ~~Financial Accounting Standards Board (“~~FASB”) issued ~~Accounting Standards Update (“~~ASU”) 2014-09, Revenue from Contracts with Customers (“ASC 606”), which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We adopted the new standard in the first quarter of fiscal year ended September 30, 2019 using the modified retrospective approach. The cumulative effect of initially applying ASC 606 was an adjustment to decrease the opening Retained earnings by $4.9 million, which is net of a $4.8 million tax effect, as of October 1, 2018.

6159

~~Table~~In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) – Measurement of ~~Contents~~Credit Losses of Financial Instruments and has subsequently issued related amendments, collectively referred to as “Topic 326”. Topic 326 requires entities to measure credit losses for financial assets measured at amortized cost based on expected losses rather than incurred losses. This adoption primarily impacted our trade accounts receivables. Under the current expected credit loss model, we review receivables for collectability based on an assessment of various factors, including historical collection experience for each receivable type and expectations of forward-looking loss estimates, and individual receivables are also reviewed for collectability based on unique circumstances. Any adjustments made to our historical loss experience reflect current differences in asset-specific risk characteristics, including, customer type (public or government entity versus private entity) and geographic location of the customer. We adopted ASU 2016-13 in the first quarter of fiscal year ended September 30, 2021 using the modified retrospective transition method with a cumulative effect adjustment directly to retained earnings. The cumulative effect of applying Topic 326 was an increase to the allowance for credit losses of $3.0 million and deferred tax assets of $0.8 million with a corresponding decrease to the opening balance of Retained earnings of $2.2 million

In January 2016, the FASB issued ASU 2016-01, Financial Instruments (Topic 825

Filing Compare · Hill-Rom Holdings, Inc.