UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
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Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the fiscal year ended
September 30, 2010
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Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the transition period from
to
Commission File No. 1-6651
HILL-ROM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Indiana
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35-1160484
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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1069 State Route 46 East
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Batesville, Indiana
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47006-8835
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code: (812) 934-7777
Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, without par value
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New York Stock Exchange
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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.
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or
15(d)
of the Securities Exchange Act of 1934.
Yes
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No
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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
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this
Form 10-K
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the
Exchange Act).
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes
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No
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The aggregate market value of the registrants voting common equity, held by non-affiliates of
the registrant, was approximately $1.7 billion, based on the closing sales price of $27.21 per
share as of March 31, 2010 (the last business day of the registrants most recently completed
second fiscal quarter). There is no non-voting common equity held by non-affiliates.
The registrant had 63,054,687 shares of its common stock, without par value, outstanding as of
November 9, 2010.
Documents incorporated by reference.
Certain portions of the registrants definitive Proxy Statement to be delivered to shareholders in
connection with the Annual Meeting of Shareholders to be held on March 8, 2011 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, 2010
TABLE OF CONTENTS
2
PART I
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K (Form 10-K) contain forward-looking
statements within the meanings of the Private Securities Litigation Reform Act of 1995 regarding
our future plans, objectives, beliefs, expectations, representations and projections. We have
tried, whenever possible, to identify these forward-looking statements by using words such as
intend, anticipate, believe, plan, encourage, expect, may, goal, become,
pursue, estimate, strategy, will, projection, forecast, continue, accelerate,
promise, increase, higher, lower, reduce, improve, expand, progress, potential or
the negative of those terms or other variations of them or by comparable terminology. The absence
of such terms, however, does not mean that the statement is not forward-looking.
Forward-looking statements are not guarantees of future performance, and our actual results could
differ materially from those set forth in any forward-looking statements. Factors that could cause
actual results to differ from forward-looking statements include but are not limited to the factors
discussed under the heading Risk Factors in this Annual Report on Form 10-K. We assume no
obligation to update or revise any forward-looking statements.
Item 1. BUSINESS
General
Hill-Rom Holdings, Inc. (the Company, Hill-Rom, we, us, or our) (formerly known as
Hillenbrand Industries, Inc.) was incorporated on August 7, 1969 in the State of Indiana and is
headquartered in Batesville, Indiana. We are a leading worldwide manufacturer and provider of
medical technologies and related services for the health care industry, including patient support
systems, safe mobility and handling solutions, non-invasive therapeutic products for a variety of
acute and chronic medical conditions, medical equipment rentals and information technology
solutions. Our comprehensive product and service offerings are used by health care providers across
the health care continuum in hospitals, extended care facilities and home care settings worldwide,
to enhance the safety and quality of patient care.
On March 31, 2008, we completed the spin-off to our shareholders of our funeral services business
operating under the Batesville Casket name, through a tax-free stock dividend. In connection with
the distribution, the Company (formerly known as Hillenbrand Industries, Inc.) changed its name to
Hill-Rom Holdings, Inc. and began trading under the symbol HRC on the New York Stock Exchange.
The results of operations of the funeral services business have been presented as a discontinued
operation for all periods presented in this Form 10-K.
Segment Information
We operate and manage our business within three reportable segments, each of which are generally
aligned by customer type. The segments are as follows:
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North America Acute Care-
sells and rents our hospital patient support and near-patient
technologies, as well as our health information technology solutions, to acute care
facilities in North America
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North America Post-Acute Care-
sells and rents a variety of products outside of the
hospital setting including long-term acute care, extended care and home care, offering
patient support systems and respiratory care products
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International and Surgical-
sells and rents similar products as our North America
businesses to Europe and the rest of the world, as well as sales of surgical accessories to
facilities worldwide.
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Net revenues, segment profitability and other measures of segment reporting for each reporting
segment are set forth in Note 14 of Notes to the Consolidated Financial Statements included under
Part II, Item 8 of this Form 10-K. No single customer accounts for more than 10 percent of our
revenue in any segment.
3
Products and Services
We have extensive distribution capabilities and broad reach across all health care settings. We
sell and rent primarily to acute and extended care health care facilities worldwide through both a
direct sales force and distributors. An emerging business involves the direct to consumer (DTC)
sales for patients and families desiring the same level of product while at home. Through our
network of approximately 190 North American and 20 international service centers, and approximately
1,240 North American and 300 international service professionals, we are able to provide technical
support and services and rapidly deliver our products to customers on an as-needed basis, providing
our customers flexibility to purchase or rent our products. This extensive network is critical to
securing contracts with Group Purchasing Organizations (GPOs) and serving our customers.
Our products and services are outlined below. Except where noted, we generally sell products and
services and rent from each of our product categories in all of our business segments.
Patient Support Systems
. Our innovative patient support systems include a variety of bed
systems, along with integrated and non-integrated therapeutic bed surfaces that we rent and sell
worldwide. These patient support systems can be designed for use in high, mid and low acuity
settings, depending on the specific design options. Our advanced patient support systems can also
provide patient data reporting (e.g., weight and therapy statistics), real time caregiver decision
support, patient safety alarms and caregiver alerts concerning such things as bed exit, bed height,
patient positioning, wound healing and prevention, pulmonary treatment, point of care controls, and
patient turn assist and upright positioning. Approximately 52 percent, 45 percent and 53 percent of
our revenues during fiscal 2010, 2009 and 2008, were derived from patient support systems.
Non-Invasive Therapeutic Products
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We rent and sell non-invasive therapeutic products and
surfaces designed for the prevention and treatment of a variety of acute and chronic medical
conditions, including pulmonary, wound and bariatric conditions. These products are rented and sold
across all of our segments, primarily in the U.S., Canada and Europe, with the exception of our
respiratory care products, which are provided solely by our North America Post-Acute Care segment.
Approximately 30 percent, 30 percent and 27 percent of our revenues were derived from these
therapeutic products in fiscal 2010, 2009 and 2008.
Medical Equipment Management and Contract Services
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We provide rentals and health care
provider asset management services for a wide variety of moveable medical equipment, also known as
MME, such as ventilators, defibrillators, intravenous pumps and patient monitoring equipment. In
addition, we also sell equipment service contracts for our capital equipment, primarily in the U.S.
Approximately 10 percent, 10 percent and 9 percent of our revenues were derived from these
products and services in fiscal 2010, 2009 and 2008.
Patient Environment and Mobilization Solutions
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These products include mobility solutions
(such as lifts and other devices used to safely move patients), architectural products (such as
headwalls and power columns) and health care furniture. We sell patient environment and mobility
solutions products across all of our segments, primarily to acute and extended care health care
facilities worldwide.
Health Information Technology Solutions.
We also develop and market a variety of
communications technologies and software solutions. These are designed to improve patient safety
and efficiency at the point of care by, among other things, enabling patient-to-staff and
staff-to-staff communications, and aggregating and delivering patient data. These products are
sold mainly to our North America Acute Care customers.
Raw Materials
Principal materials used in our products include carbon steel, aluminum, stainless steel, wood and
laminates, petroleum based products, such as foams and plastics, and other materials, substantially
all of which are available from several sources. Motors and electronic controls for electrically
operated beds and certain other components are purchased from one or more manufacturers.
Prices fluctuate for raw materials and sub-assemblies used in our products based on a number of
factors beyond our control. Specifically, over the past several years, the fluctuating prices of
certain raw materials, including metals, fuel, plastics and other petroleum based products in
particular, and fuel related delivery costs, had a direct effect on our profitability. Although we
generally have not engaged in hedging transactions with respect to raw material purchases, we have
entered into fixed price supply contracts at times.
Most of our extended 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 be able to
raise prices sufficiently to offset all raw material cost inflation.
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Competition
In all our business segments, we compete on the basis of clinical expertise and resulting product
clinical utility and ability to produce favorable outcomes, as well as value, quality, customer
service, innovation and breadth and depth of product offerings. As all of our business segments
generally sell products and services in all of our product categories, we evaluate our competition
based on our product categories, rather than our business segments.
The following table displays our significant global competitors with respect to each product
category:
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Product Categories
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Competitors
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Patient Support Systems
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Stryker Corporation
ArjoHuntleigh (Division of Getinge AB)
Linet/Wissner-Bosserhoff
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Non-Invasive Therapeutic Products
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Kinetic Concepts, Inc.
SIZEWise Rentals, LLC
RecoverCare, LLC
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Medical Equipment Management and Contract Services
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Universal Hospital Services, Inc.
Freedom Medical, Inc.
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Health Information Technology Solutions
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Rauland-Borg Corporation
GE Medical (owns Dukane)
West-Com Nurse Call Systems, Inc.
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Patient Environment and Mobility Solutions
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Arjo/Huntleigh (Division of Getinge AB)
Guldmann
Waverly Glen
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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 Food and Drug Administration (FDA) in the U.S. 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 FDAs
Quality System regulations and the regulatory equivalents under the Medical Device Directive in the
European Union 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; however, we currently have no outstanding so-called warning letters
which would indicate that any material remediation actions are required. In addition, there are
also certain state and local government requirements that must be complied with in the
manufacturing and marketing of our products.
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 for reserves in our financial
statements for environmental matters. Based on the nature and volume of materials involved
regarding onsite impacts and other currently known information, we do not expect the remediation
costs for any onsite environmental issues in which we are currently involved to exceed $2 million.
Health Care Regulations.
The Health Care industry is undergoing significant change. In
March 2010, comprehensive health care reform legislation was signed into law 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). 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 increasing pressure to both
control health care utilization and to limit reimbursement, either through competitive bidding
programs or otherwise. The potential impact of these changes to our business is discussed further
in Item 1A. Risk Factors and Part II, Item 7-Managements Discussion and Analysis of Financial
Condition and Results of Operations included in this Annual Report on Form 10-K.
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Product Development
Most of the Companys products and product improvements have been developed internally. The Company
maintains close working relationships with physicians and medical personnel in hospitals and
universities who assist in product research and development. New and improved products play a
critical role in the Companys sales growth. The Company continues to place emphasis on the
development of proprietary products and product improvements to complement and expand its existing
product lines. Our significant research and development activities are located in an Innovation
Center at our corporate headquarters in Batesville, Indiana, as well as our locations in Cary,
North Carolina, Lulea, Sweden, Montpelier and Pluvigner, France and in the Asia Pacific in
Singapore.
Research and development is expensed as incurred. Research and development expense included within
continuing operations for the fiscal years ended September 30, 2010, 2009 and 2008, was $58.3
million, $55.7 million and $57.3 million.
In addition, certain software development technology costs 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
amount spent during fiscal years 2010, 2009 and 2008 was approximately $4.8 million, $5.8 million
and $9.5 million.
Patents and Trademarks
We own, and from time-to-time license, 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 our business as a whole. We also own a number of trademarks and service marks
relating to our products and product services, but except for the mark Hill-Rom, we do not
believe any single trademark or service mark is of material significance to our business as a
whole.
Foreign Operations and Export Sales
Information about our foreign operations is set forth in tables relating to geographic information
in Note 14 of Notes to Consolidated Financial Statements, which statements are included herein
under Part II, Item 8 Financial Statements and Supplementary Data.
Employees
At September 30, 2010, we had approximately 6,350 employees worldwide. Approximately 550 of our
employees work in our logistics and manufacturing operations in the U.S., where there are
collective bargaining agreements. We are also subject to various collective bargaining arrangements
or national agreements outside the U.S. We have not experienced a work stoppage in the U.S. in
over 40 years, and we believe that our employee relations are satisfactory.
Executive Officers
The 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. 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.
John J. Greisch, 55, was elected President and Chief Executive Officer of Hill-Rom in January 2010.
Mr. Greisch was most recently President, International Operations for Baxter International, Inc., a
position he held since 2006. Prior to this, he held several other positions with Baxter, serving as
Baxters Chief Financial Officer and as President of Baxters BioScience division.
Gregory N. Miller, 47, was elected Senior Vice President and Chief Financial Officer of the Company
effective July 2005, and has agreed with the Company to step down from this position effective
December 13, 2010. He previously held the positions of Vice President Controller and Chief
Accounting Officer for the Company from May 2002 to July 2005 and Vice President Controller from
November 2001 to May 2002. Prior to joining the Company he held various leadership positions with
Newell Rubbermaid, Inc., a manufacturer and marketer of name-brand consumer products.
Mark Guinan, age 48, has agreed to become the Senior Vice President and Chief Financial Officer of
the Company effective December 13, 2010. Mr. Guinan previously held a variety of positions with
Johnson & Johnson, most recently as the Chief Procurement Officer since October 2009. Prior to
that, he served as their Vice President Finance, Global Pharmaceutical Group,
their Vice President Finance, Global R&D and Business Operations, and also held several positions
in their Ethicon Endo-Surgery business.
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Abel Ang, 37, has served as the Chief Technology Officer and Vice-President of Global Product
Platforms for Hill-Rom since May 2008. Prior to this, he held a variety of positions at Hill-Rom
from 2006 on, and formerly headed the global Medical Technology and Biotechnology industry groups
in the Singapore Economic Development Boards (EDB) Biomedical Division.
Martha Goldberg Aronson, 43, was elected Senior Vice President and President North America for
Hill-Rom in August 2010. Before joining Hill-Rom, she was most recently a Senior Vice President at
Medtronic where she held a variety of marketing and general management roles, including Vice
President and General Manager Gastroenterology/Urology, and Vice President and General Manager for
Medtronics Neurological and Diabetes business in Europe.
Kimberly K. Dennis, 43, was elected Senior Vice President, North America Post-Acute Care effective
October 2006. Prior to that, she served in various vice president roles at Hill-Rom leading its
Turnaround Program, shared services and information technology efforts from August 2005 to October
2006.
Alejandro Infante Saracho, 49, was elected Senior Vice President and President International for
Hill-Rom effective May 2010. Before joining the Company, he spent more than 25 years with Hospira
and Abbott serving in a number of executive positions, including President of the Americas, General
Manager International Operations and Regional Director Latin America for Hospira.
Scott Jeffers, 40, was elected Senior Vice President, Global Supply Chain for Hill-Rom in September
2010. Before joining Hill-Rom, he was General Manager for Global Lean Enterprise at GE Healthcare,
a company for which he held various leadership positions over the course of 11 years.
Richard G. Keller, 49, was elected Vice President, Controller and Chief Accounting Officer of the
Company effective August 2005. He had served as Executive Director Controller of Hill-Rom since
March 2004 and as Director, Financial Planning and Analysis of the Company from May 2002 to March
2004. Prior to joining the Company, Mr. Keller served as a Director in the Audit and Business
Advisory Services group of PricewaterhouseCoopers LLP.
Susan R. Lichtenstein, 53, was elected Senior Vice President, Corporate Affairs, Chief Legal
Officer and Secretary for Hill-Rom effective May 2010. Previously she was Corporate Vice President
and General Counsel at Baxter International, where she was responsible for global legal matters,
corporate communications and government affairs.
Blair A. (Andy) Rieth, Jr., 52, was hired as Vice President of Investor Relations of the Company
in June 2006. Prior to joining us, he was the Investor Relations Officer of Guidant Corporation
from 2000 to 2006.
Philip Settimi, 33, was elected Senior Vice President Global Marketing & Corporate Strategy and
Chief Marketing Officer for Hill-Rom effective May 2010. He joined Hill-Rom from Hospira, where he
was Vice President Global Marketing for Hospiras medical device business. Dr. Settimi previously
worked for General Electrics health care business, serving in a number of marketing and strategy
roles.
Perry Stuckey, 51, was elected Senior Vice President and Chief Human Resources Officer in August
2010. Before joining Hill-Rom, he was with Rockwell Automation, where he most recently was Vice
President, Human Resources for Rockwells Automation Control Products and Solutions Business
Segment.
Availability of Reports and Other Information
Our website is
www.Hill-Rom.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
Securities and Exchange Commission (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
Chairman, Vice Chairman, members of the Board of Directors and the Chief Executive Officer, our
Code of Ethical Business Conduct, the Corporate Governance Standards of our Board of Directors and
the charters of each of the standing committees of the Board of Directors. All of these documents
are also available to shareholders in print upon request.
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All reports filed with the SEC are also available via the SEC website,
www.sec.gov
, or may
be read and copied at the SEC Public Reference Room at 100 F Street, NE, Washington, DC 20549.
Information on the operation of the Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
Item 1A. RISK FACTORS
Our business involves risks. The following information about these risks should be considered
carefully together with the other information contained herein. The risks described below are not
the only risks we face. Additional risks not currently known or deemed immaterial also may result
in adverse effects on our business.
We face significant uncertainty in the industry due to government health care reform, and we cannot
predict how these 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). The new law is
expected to increase the number of Americans with health insurance coverage by approximately 32
million through individual/employer mandates and subsidies offered to lower income individuals with
smaller employers. The majority of the expected increase in the number of insured is expected to
occur after 2014, as the insurance exchanges open and Medicaid eligibility is broadened. The
increase in coverage could translate into increased utilization and associated use of our products
and services. However, among other initiatives, these bills impose a 2.3 percent excise tax on
medical devices beginning January 2013. We cannot predict with certainty what healthcare
initiatives, if any, will be implemented at the state level, or what the ultimate effect of federal
health care reform or any future legislation or regulation will have on us. However, the impact of
the tax, coupled with reform-associated payment reductions to Medicare and Medicaid reimbursement
(discussed below) could have a material adverse impact our business, results of operations and cash
flows.
Changes in Medicare, Medicaid and other governmental medical programs could reduce the
reimbursement we receive for our products and services.
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 increasing pressure to both control health care
utilization and to limit reimbursement. Changes in reimbursement programs or their regulation,
including retroactive and prospective rate and coverage criteria changes, competitive bidding for
certain products and services, and other changes, intended to reduce the program expenditures,
could adversely affect our third-party reimbursement business. Historical changes to Medicare
payment programs from traditional cost-plus reimbursement to a prospective payment system
resulted in a significant change in how our customers acquire and utilize our products. This
resulted in reduced utilization and downward pressure on prices. Similarly, future revenues and
profitability will be subject to the effect of possible changes in the mix of our customers
patients among Medicare, Medicaid, third-party and private payor categories, increases in case
management and the review of services or reductions in coverage or reimbursement rates by such
payors.
Failure by us or our suppliers to comply with the Food and Drug Administration (FDA) regulations
and similar foreign regulations applicable to the products we manufacture 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 in the
U.S. 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 revenues and profitability.
Additionally, certain of our suppliers are subject to FDA regulations, and the failure of these
suppliers to comply with regulations could adversely affect us. Moreover, our moveable medical
equipment rental business is subject to product modifications executed by us on behalf of original
medical equipment manufacturers that can result in unanticipated costs and temporary product
shortages. Additionally, regulatory actions taken by the FDA against those manufacturers can result
in product shortages, recalls or modifications.
We could be subject to substantial fines or damages and possible exclusion from participation in
federal 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. We
are subject to numerous legal requirements related to supplying our
products to patients, billing and claims submission processes, and our relationships to referral
sources.
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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 anticipate that the frequency and effectiveness of the government audits and review
processes will intensify 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.
Federal and state fraud and abuse laws are also complex and numerous. In the durable medical
equipment field, fraud and abuse risks arise most frequently in the claims submission process and
in dealings with potential referral sources. With respect to the former, we have been advised of a
qui tam
(whistleblower) action filed against us in 2005 under the federal False Claims Act. We are
not yet a party to that case, having not been served, and the government has not yet reached a
final decision as to whether or not to intervene in that matter. In the meantime, we are
cooperating with the government in its investigation. Because
qui tam
(whistleblower) cases are
filed under seal, there may be other whistleblower cases filed against us of which we are currently
unaware. There is also a risk that the government itself would in the future file a False Claims
Act case against us alleging improper claims activity.
Under federal (and many state) laws, it is a crime to offer or pay remuneration for the referral of
any federal health care program business. In addition, the Foreign Corrupt Practices Act (FCPA)
makes it a crime to offer bribes or kickbacks to foreign governmental officials. These activities
are prosecuted under the federal criminal anti-kickback statute, the FCPA and parallel civil
authorities. Durable medical equipment suppliers relationships with physicians, home health
agencies and other referral sources are subject to anti-kickback scrutiny. We are not aware of any
pending investigation or enforcement action against us relating to these statutes.
If we are deemed to have violated these laws and regulations, we could be subject to substantial
fines or damages and possible exclusion from participation in federal health care programs such as
Medicare and Medicaid. While we believe that our practices materially comply with applicable state
and federal requirements, the requirements may 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.
Our future financial performance will depend in part on the successful introduction of new products
into the marketplace on a cost-effective basis. The financial success of new products could be
adversely impacted by competitors products, lack of differentiation or willingness of customers to
pay for such differentiation, customer acceptance, difficulties in product development and
manufacturing, quality issues and warranty claims, certain regulatory approvals and other factors.
The introduction of new products may also cause customers to defer purchases of existing products,
which could have an adverse effect on sales.
Our future financial performance will depend in part on our ability to influence, anticipate,
identify and respond to changing consumer preferences and needs. We cannot assure that our new
products will achieve the same degree of success that has been achieved historically by our
products. We may not correctly anticipate or identify trends in consumer preferences or needs, or
may identify them later than competitors do. Any strategies we may implement to address these
trends may prove incorrect or ineffective. In addition, difficulties in manufacturing or in
obtaining regulatory approvals may delay or prohibit introduction of new products into the
marketplace. Further, we may not be able to develop and produce new products at a cost that allows
us to meet our goals for profitability, particularly since downward pressure on health care product
prices is expected to continue. Warranty claims and service costs relating to our products may be
greater than anticipated, and we may 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. For example, as part of the tradeoff between
clinical effectiveness and comfort, which is inherent in most clinical products, we have at times
dedicated research and development efforts to improving the comfort and customer acceptance of
certain of our products. These efforts, together with the foregoing focus on enhancing the
competitiveness of our core products, have sometimes resulted in the dedication of new product
development resources to sustaining development efforts.
Failure to successfully introduce new products on a cost-effective basis, 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, financial condition, results of operations and
cash flow.
9
Further adverse developments in general domestic and worldwide economic conditions and instability
and disruption of credit markets could have further adverse affects 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 credit markets. The credit
and capital markets experienced extreme volatility and disruption over the past two years, leading
to recessionary conditions and depressed levels of consumer and commercial spending. These
recessionary conditions caused customers to reduce, modify, delay or cancel plans to purchase our
products and services. 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.
Our pension plans invest in a variety of equity and debt securities, including securities that have
been adversely affected by the recent disruption in the credit and capital markets. Our pension
plans were underfunded at September 30, 2010 by approximately $51 million. Market volatility and
disruption could cause further declines in asset value or fluctuations in assumptions used to value our liability and expenses. If this occurs, we may need to make
additional pension plan contributions and our pension expense in future years may increase.
Our business is significantly dependent on major contracts with group purchasing organizations, or
GPOs, and integrated delivery networks, or IDNs. Our relationships with these organizations pose
several risks.
A majority of our North American 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 and
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 capital and rental
revenues.
The contracting practices of GPOs change frequently to meet the needs of their member hospitals.
An emerging trend is for GPOs to offer committed programs or standardization programs, where one
supplier may be chosen to serve designated members that elect to participate in the program.
Participation by us in such programs may require increased discounting, and failure to participate
or to be selected for participation in such programs may 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 represents influential members and owners of GPOs).
IDNs and health systems often make key purchasing decisions and have influence over the GPOs
contract decisions. This presents an opportunity to have more contracts directly with customers,
but customers may request additional discounts or other enhancements.
GPOs, IDNs, and large health care providers have communicated that their member hospitals are under
cost pressure, and they have increased their focus on pricing and on limiting price increases.
Some of our sales contracts contain restrictions on our ability to raise prices, therefore limiting
our ability, in the short-term, to respond to significant increases in raw material prices or other
factors.
Increased prices for, or unavailability of, raw materials or sub-assemblies used in our products
could adversely affect profitability or revenues. In particular, our results of operations in
recent years have been adversely affected by high prices for metals, fuel, plastics and other
petroleum based products. We also procure several raw materials and sub assemblies from single
suppliers.
Our profitability is affected by the prices of the raw materials and sub-assemblies used in the
manufacture of our products. These prices may fluctuate based on a number of factors beyond our
control, including changes in supply and demand, general economic conditions, labor costs, fuel
related delivery costs, competition, import duties, tariffs, currency exchange rates and, in some
cases, government regulation. Significant increases in the prices of raw materials or
sub-assemblies that cannot be recovered through increases in the prices of our products could
adversely affect our results of operations. Although we have to some extent historically been able
to offset such rising costs with increases in the prices of our products or other productivity
gains, there can be no assurance that the market place will support higher prices or that such
prices and productivity gains will fully offset any commodity price increases in the future.
Increases in prices resulting from a tightening supply of these or other commodities or fuel could
adversely affect our profitability. We generally have not 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 may result in
increased price volatility, with resulting adverse effects on profitability.
10
Our dependency upon regular deliveries of supplies from particular 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 in the manufacture of our products currently are procured only from a single
source. If any of these sole-source
suppliers were unable or unwilling to deliver these materials for an extended period of time as a
result of financial difficulties, catastrophic events affecting their facilities or other factors,
or if we were unable to negotiate acceptable terms for the supply of materials with these
sole-source or alternate suppliers, our business could suffer. We may not be able to find
acceptable alternatives, and any such alternatives could result in increased costs. Difficulties in
the credit markets could 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. Extended
unavailability of a necessary raw material or sub-assembly could cause us to cease manufacturing
one or more products for a period of time.
We face significant competition as a result of low cost competitors entering the market as well as
consolidation among competitors, which could reduce our share of the market and our net sales.
Competition could also cause us to increase expenditures or cause us to reduce our prices thereby
negatively impacting our margins.
Over the past several years, consolidation and the entrance of new low cost competitors has greatly
increased competition in the U.S. and abroad. These companies have competed in all areas, but most
effectively in our most price sensitive segments such as extended care. During the same time
period, they have grown in size and scale. If we are unable to effectively differentiate ourselves
from our competitors, our market share, sales and profitability, through increased expenditures or
decreased prices, could be adversely impacted.
The majority of our products are manufactured at a single facility or location, and the loss of one
or more of these facilities or locations could prevent us from manufacturing all the various
products we sell.
We manufacture the majority of our products in only a single facility or location. If an event
occurred that resulted in material damage to one or more of these manufacturing facilities or
otherwise prevented us from fully utilizing the manufacturing capabilities of such facilities, we
may be unable to transfer the manufacture 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 a number of 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 would materially negatively impact our financial
condition, results of operation and cash flows.
Our international sales and operations are subject to risks and uncertainties that vary by country
which could have a material adverse effect on our business and/or results of operations.
International sales accounted for approximately 30 percent of our net sales in fiscal 2010. We
anticipate that international sales will continue to represent a significant portion of our total
sales in the future. In addition, we have manufacturing facilities in Monterrey, Mexico and
Pluvigner, France, which produce products that are not produced inside the U.S., as well as other
facilities and third-party suppliers that are located outside of the U.S. As a result, our
international sales, as well as our sales inside the U.S. of products produced or sourced
internationally, are subject to risks and uncertainties that can vary by country. Such risks
include those related to 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.
Our Information Technology will require a material upgrade by 2013.
We utilize a company-wide information technology (IT) platform. This IT platform is integrated
into substantially all of our company wide operations, and materially impacts our manufacturing,
sales, accounting and other back-office functionality. We may not successfully complete the
rollout of an upgrade to that platform and related features or services without diverting internal
company resources from their current tasks, or hiring contractors. In addition, deployment of our
upgrade may also adversely affect the performance or reliability of our current IT platform during
the transition period. If we are unable to effectively manage the IT upgrade process, our future
operating performance or cost structure may be negatively impacted.
Our agreements with Hillenbrand, Inc. may not reflect terms that would have resulted from
arms-length negotiations among unaffiliated third parties.
The agreements related to the separation of Hillenbrand, Inc. from us, including the Distribution
Agreement, Judgment Sharing Agreement, Tax Sharing Agreement, Shared Services Agreements and
Transitional Services Agreements, were prepared in the context of the separation and, accordingly,
may not reflect terms that would have resulted from arms-length negotiations among unaffiliated
third parties. The terms of these agreements relate to, among other things, allocation of assets,
liabilities, rights, indemnifications and
other obligations between us and Hillenbrand, Inc. For descriptions of these agreements, see Note 3
of Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K.
11
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 IRS, state or foreign
tax authorities could disagree with our positions, resulting in a significant tax payment.
Our strategic initiatives may not produce the intended growth in revenue and operating income.
We have previously disclosed operational strategies and initiatives. These strategies include
making significant investments to achieve revenue growth and margin improvement targets both
organically and through strategic acquisitions. If we do not achieve the expected benefits from
these investments or otherwise fail to execute on our strategic initiatives, we may not achieve the
growth improvement we are targeting and our results of operations may be adversely affected.
We may not be successful in achieving expected operating efficiencies and sustaining or improving
operating expense reductions, and may experience business disruptions, associated with announced
restructuring, realignment and cost reduction activities.
Over the past few years we have announced several restructuring, realignment and cost reduction
initiatives, including significant realignments of our businesses, employee terminations and
product rationalizations in North America, continued restructuring, realignment and continuous
improvement initiatives at our manufacturing facilities shifting a portion of our manufacturing
capacity to a facility in Mexico, efforts to improve our medical equipment management services
business and other streamlining initiatives. While we have started to realize the efficiencies of
these actions, these activities may not produce the full efficiency and cost reduction benefits we
expect. Further, such benefits may be realized later than expected, and the ongoing costs of
implementing these measures may be greater than anticipated. If these measures are not successful
or sustainable, we may 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 may be adversely affected and we could experience business disruptions with customers and
elsewhere if our restructuring and realignment efforts prove ineffective.
Product liability or other liability claims could expose us to adverse judgments or could affect
the sales of our products. We are also involved on an ongoing basis in claims, lawsuits and
governmental proceedings relating to our operations, including environmental, antitrust, patent
infringement, business practices, commercial transactions, and other matters.
We are involved in the design, manufacture and sale of health care products, which face 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. Any such claims could negatively impact the
sales of products that are the subject of such claims or other products. We, from time-to-time, and
currently, are 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 do carry insurance with
respect to such matters, this insurance is subject to varying deductibles and self-insured
retentions and may not be adequate to cover the full amount of any particular claim.
In addition, we are currently involved in a number of claims, lawsuits and governmental
investigations more thoroughly described in Note 16 of Notes to Consolidated Financial Statements
included under Part II, Item 8 of this Form 10-K. In particular, we are a codefendant with
Batesville Casket Company, a subsidiary of Hillenbrand Inc., in a proposed class action lawsuit
that, if adversely decided, could have a material adverse effect on our results of operations,
financial condition and/or liquidity. The ultimate outcome of the various claims, lawsuits and
governmental investigations in which we are involved cannot be predicted with certainty but could
have a material adverse effect on our financial condition, results of operations and cash flow. We
are also involved in other possible claims, including workers compensation, employment-related
matters and auto liability. While we maintain insurance for certain of these exposures, the
policies in place are high-deductible policies resulting in our assuming exposure for a layer of
coverage with respect to such claims.
12
We may not be able to grow if we are unable to successfully acquire and integrate, or form business
relationships with, other companies.
Although we plan to continue to grow certain of our businesses by acquiring or forming
partnerships, joint ventures and alliances with other companies, we expect to compete against other
companies for acquisitions and may not be able to identify suitable acquisition candidates or
business relationships, negotiate acceptable terms for such acquisitions or relationships or
receive necessary financing for such acquisitions or relationships on acceptable terms. Moreover,
once an acquisition, partnership, alliance or joint venture agreement is signed, various events or
circumstances may either prevent the successful consummation of the contemplated acquisition or
transaction, or make it unadvisable. Additionally, we may 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. Therefore, if we are able to consummate acquisitions, such
acquisitions could be dilutive to earnings, and we could overpay for such acquisitions.
Additionally, we may not be successful in our integration efforts or fully realize expected
benefits from the integration, and our integration efforts may divert management and other
resources from other important matters, and we could experience delays or unusual expenses in the
integration process. Ineffective integration may also result in intangible asset impairments which
could result in significant charges in our Statements of Consolidated Income (Loss).
We may not be able to attract, retain and develop key personnel. In addition, we have recently
replaced a large number of 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. This effect could be exacerbated if any officers or other key
personnel left as a group. Our success also depends on our continuing ability to attract, retain
and develop highly qualified personnel. Competition for such personnel is intense, and there can be
no assurance that we can retain our key employees or attract, assimilate and retain other highly
qualified personnel in the future.
Additionally, in 2010, we replaced a large number of our senior executives, including our President
and CEO and many of his direct reports. Our continued success depends upon their ability to
successfully manage their departments, and to successfully integrate into the company. If they are
unable to effectively execute their assigned tasks, or if we are unable to successfully integrate
these key personnel into the company, our operating results may suffer.
A portion of our workforce is unionized, and we could face labor disruptions that would interfere
with our operations.
Approximately 9 percent of our employees as part of our logistics and manufacturing operations in
the U.S. work under collective bargaining agreements. We are also subject to various collective
bargaining arrangements or national agreements outside the U.S. covering approximately 14 percent
of our employees. 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.
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.
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.
13
Item 2. PROPERTIES
The principal properties used in our operations are listed below, and, except for our leased
facilities in Acton, Massachusetts; Cary, North Carolina, St. Paul, Minnesota and Singapore, are
owned by us subject to no material encumbrances. 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.
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Location
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Description
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Primary Use
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Acton, MA
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Light manufacturing and development facilities
Office facilities
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Manufacture and development of health care equipment
Administration
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Batesville, IN
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Manufacturing, development and distribution facilities
Office facilities
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Manufacture and development of health care equipment
Administration
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Cary, NC
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Manufacturing and development facilities
Office facilities
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Manufacture and development of health care equipment
Administration
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Charleston, SC
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Development and distribution facilities
Office facilities
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Development and distribution of therapy units Administration
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St. Paul, MN
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Office facilities
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Administration
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Pluvigner, France
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Manufacturing, development and distribution facilities
Office facilities
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Manufacture and development of health care equipment
Administration
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Montpellier, France
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Manufacturing and development facilities
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Manufacture and development of therapy units
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Sydney, Australia
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Manufacturing and development facilities
Office facilities
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Manufacture and development of health care equipment
Administration
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Monterrey, Mexico
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Manufacturing facility
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Manufacture of health care equipment
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Lulea, Sweden
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Manufacturing, development and distribution facilities
Office facilities
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Manufacture and development of safe mobility and handling solutions
Administration
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Singapore
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Manufacturing and development facilities
Office facilities
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Manufacture and development of health care equipment
Administration
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In addition to the foregoing, we lease or own a number of other facilities, warehouse distribution
centers, service centers and sales offices throughout the U.S., Canada, Western Europe, Mexico,
Australia, Middle East and the Far East.
Item 3. LEGAL PROCEEDINGS
See Note 16 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this
Form 10-K for information regarding legal proceedings in which we are involved.
Item 4. RESERVED
14
PART II
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Item 5.
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MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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Market Information
Our common stock is traded on the New York Stock Exchange under the ticker symbol HRC. The
closing price of our common stock on the New York Stock Exchange on November 9, 2010 was $40.47 per
share. The following table reflects the range of high and low selling prices of our common stock
and cash dividends declared by quarter for each of the last two fiscal years.
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Fiscal Years Ended September 30,
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2010
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2009
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Cash
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Cash
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Dividends
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Dividends
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Quarter Ended:
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High
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Low
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Declared
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High
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Low
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Declared
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December 31
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$
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24.18
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$
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19.59
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$
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0.1025
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$
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30.04
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$
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15.64
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$
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0.1025
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March 31
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$
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27.67
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$
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23.37
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$
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0.1025
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$
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16.95
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$
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8.89
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$
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0.1025
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June 30
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$
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32.76
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$
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27.43
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$
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0.1025
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$
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16.59
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$
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9.97
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$
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0.1025
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September 30
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$
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35.89
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$
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28.65
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$
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0.1025
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$
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23.35
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$
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14.59
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$
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0.1025
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Holders
As of November 9, 2010, there were approximately 21,000 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 deemed relevant by our Board. We have paid cash dividends on our common stock every quarter
since our initial public offering in 1971 (as Hillenbrand Industries, Inc.). We intend to continue
to pay quarterly cash dividends comparable to those paid since the spin-off of our funeral services
business on April 1, 2008. Our ability to pay cash dividends is limited by covenants contained in
the Distribution Agreement entered into in connection with the spin-off. Specifically, until the
antitrust litigation to which we are a party with Hillenbrand, Inc., is resolved in accordance with
the Distribution Agreement, we are prohibited from paying regular quarterly cash dividends in
excess of $0.1025 per share and from incurring indebtedness to finance the payment of any
extraordinary cash dividend. For a description of the Distribution Agreement, see Note 3 of Notes
to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K.
Issuer Purchases of Equity Securities
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Maximum
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Total Number
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Number of
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of Shares
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Shares That
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Total
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Purchased as
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May Yet Be
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Number
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Average
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Part of Publicly
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Purchased
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of Shares
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Price Paid
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Announced Plans or
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Under the Plans
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Period
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Purchased (1)
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per Share
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Programs (2)
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or Programs (2)
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July 1, 2010 July 31, 2010
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1,674
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$
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30.44
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3,000,000
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August 1, 2010 August 31, 2010
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1,000,000
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34.55
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1,000,000
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2,000,000
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September 1, 2010 September 30, 2010
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2,000,000
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Total
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1,001,674
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$
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34.54
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1,000,000
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2,000,000
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(1)
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All shares purchased during the quarter ended September 30, 2010 were in connection with
employee payroll tax withholding for restricted and deferred stock distributions and the share
repurchase program discussed below.
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(2)
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Effective October 2006, our Board approved the repurchase of a total of 25.7 million shares
of our common stock through purchases on the open market or in private transactions. There
were no repurchases under this approval during fiscal years 2008 and 2009 and through the
third quarter of fiscal 2010. During August 2010, we repurchased 1.0 million shares of our
common stock for $34.5 million, leaving 2.0 million shares still available for repurchase. The
Boards approval does not have an expiration date and currently there are no plans to
terminate this program in the future.
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15
Stock Performance Graph
The following graph compares the return on our common stock (as Hillenbrand Industries, Inc.
through March 31, 2008) with that of Standard & Poors 500 Stock Index (S&P 500 Index), and our
Peer Group* for the five years ended September 30, 2010. The graph assumes that the value of the
investment in our common stock, the S&P 500 Index, and our peer group was $100 on October 1, 2005
and that all dividends were reinvested. The spin-off of our funeral services business at March 31,
2008 was treated as a reinvestment of a special dividend effective April 1, 2008 pursuant to SEC
rules. The special dividend was based on the value of one share of Hillenbrand, Inc. (the holding
company for the funeral services business) which was distributed as part of the spin-off.
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2005
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2006
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2007
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2008
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2009
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2010
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HRC (HB through March 31, 2008)
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$
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100
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$
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124
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$
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122
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$
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127
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$
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94
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$
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157
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S & P 500
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100
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109
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124
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95
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86
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93
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Peer Group
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100
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101
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122
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115
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110
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131
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16
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April 1, 2008
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September 30, 2008
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March 31, 2009
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September 30, 2009
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March 31, 2010
|
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September 30, 2010
|
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HRC
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$
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100
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$
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115
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$
|
38
|
|
|
$
|
85
|
|
|
$
|
107
|
|
|
$
|
142
|
|
S & P 500
|
|
|
100
|
|
|
|
85
|
|
|
|
58
|
|
|
|
77
|
|
|
|
85
|
|
|
|
83
|
|
Peer Group
|
|
|
100
|
|
|
|
99
|
|
|
|
72
|
|
|
|
95
|
|
|
|
113
|
|
|
|
113
|
|
|
|
|
*
|
|
For purposes of the Stock Performance Graphs above, our Peer Group is comprised of: Alere
Inc. (formerly Inverness Medical Innovations, Inc.); C.R. Bard, Inc.; Beckman Coulter, Inc.;
Conmed Corporation; DENTSPLY International Inc.; Edwards Lifesciences Corporation; Getinge
Group; Hospira, Inc.; Invacare Corporation; Integra Lifesciences Holdings Corporation; Kinetic
Concepts, Inc.; Mettler-Toledo International Inc.; PerkinElmer, Inc.; ResMed Inc.; STERIS
Corporation; The Cooper Companies, Inc.; and Varian Medical Systems, Inc.
|
Certain 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 8, 2011, and such
information is incorporated herein by reference.
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. Statement of Consolidated Income (Loss) data reflects our
consolidated results on a continuing operations basis with the results of our former funeral
services business reflected as discontinued operations for all periods presented. Balance sheet and
cash flow data, for periods prior to consummation of the spin-off of the funeral services business
at the end of the second fiscal quarter of 2008, have not been adjusted. Also see Note 15 of Notes
to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K for selected
unaudited quarterly financial information for each of the last two fiscal years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
1,469.6
|
|
|
$
|
1,386.9
|
|
|
$
|
1,507.7
|
|
|
$
|
1,356.5
|
|
|
$
|
1,288.3
|
|
Income (loss) from continuing operations
|
|
$
|
126.0
|
|
|
$
|
(405.0
|
)
|
|
$
|
67.1
|
|
|
$
|
70.4
|
|
|
$
|
78.5
|
|
Income from discontinued operations
|
|
$
|
|
|
|
$
|
|
|
|
$
|
48.7
|
|
|
$
|
120.2
|
|
|
$
|
142.7
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
125.3
|
|
|
$
|
(405.0
|
)
|
|
$
|
115.8
|
|
|
$
|
190.6
|
|
|
$
|
221.2
|
|
Income (loss) attributable to common shareholders per share
from continuing operations Diluted
|
|
$
|
1.97
|
|
|
$
|
(6.47
|
)
|
|
$
|
1.07
|
|
|
$
|
1.13
|
|
|
$
|
1.28
|
|
Income per share from discontinued operations Diluted
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.78
|
|
|
$
|
1.94
|
|
|
$
|
2.32
|
|
Net income (loss) attributable to common shareholders per share Diluted
|
|
$
|
1.97
|
|
|
$
|
(6.47
|
)
|
|
$
|
1.85
|
|
|
$
|
3.07
|
|
|
$
|
3.59
|
|
Total assets
|
|
$
|
1,245.6
|
|
|
$
|
1,232.6
|
|
|
$
|
1,689.9
|
|
|
$
|
2,117.0
|
|
|
$
|
1,952.2
|
|
Long-term obligations
|
|
$
|
98.5
|
|
|
$
|
99.7
|
|
|
$
|
100.3
|
|
|
$
|
349.0
|
|
|
$
|
347.4
|
|
Cash flows from operating activities
|
|
$
|
139.8
|
|
|
$
|
225.7
|
|
|
$
|
270.5
|
|
|
$
|
285.3
|
|
|
$
|
29.1
|
|
Capital expenditures
|
|
$
|
64.7
|
|
|
$
|
63.9
|
|
|
$
|
102.6
|
|
|
$
|
135.2
|
|
|
$
|
92.6
|
|
Cash dividends per share
|
|
$
|
0.41
|
|
|
$
|
0.41
|
|
|
$
|
0.78
|
|
|
$
|
1.14
|
|
|
$
|
1.13
|
|
17
|
|
Item 7.
|
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Overview
Hill-Rom is a leading worldwide manufacturer and provider of medical technologies and related
services for the health care industry, including patient support systems, safe mobility and
handling solutions, non-invasive therapeutic products for a variety of acute and chronic medical
conditions, medical equipment rentals and information technology software and communications
solutions. Hill-Roms comprehensive product and service offerings are used by health care providers
across the health care continuum in hospitals, extended care facilities and home care settings
worldwide, to enhance the safety and quality of patient care.
Key Factors Impacting Our Business
Industry-wide Demand
.
We believe that over the long term, overall patient and provider
demand for health care products and services will continue to grow as a result of a number of
factors, including an aging population, longer life expectancies, greater access to medical
insurance through government regulation and an increasing number of sicker patients across all care
settings, including hospitals, extended care facilities and in the home. In contrast, however,
health care providers across the care continuum are under continued pressure to improve efficiency
and control costs, possibly reducing demand for our products and services. Although we believe that
demand for our products will increase over time, a lack of demand growth could impact our ability
to grow revenues.
Growing Desire Among Developed and Developing Countries to Invest in Health Care
.
While
industry growth rates in more mature geographic markets such as western and northern Europe and
Japan have moderated, in many other geographic markets, where the relative spending on health care
is increasing, we are experiencing increasing demand for medical technologies. New hospital
construction and hospital refurbishments have continued in regions such as Latin America, the
Middle East and many parts of Asia. These trends could increase overall demand for our products
and services.
Third-Party Payors.
Our customers include hospitals and other acute and extended care
facilities that receive reimbursement for certain products and services they provide from various
third-party payors including Medicare, Medicaid, and managed care organizations, such as health
maintenance organizations and preferred provider organizations, and traditional indemnity insurers.
In our home care business and a small portion of our extended care business, we are reimbursed
directly by such third-party payors. Accordingly, our home care business is significantly affected
by changes in reimbursement practices of such third-party payors. In addition, our customers are
significantly affected by changes that may result in reduced utilization and downward pressure on
prices across our health care businesses.
Health Care Reform
.
In March 2010, comprehensive health care reform legislation was signed
into law 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). These bills impose a 2.3 percent
excise tax on medical devices beginning January 2013. We cannot predict with certainty what
healthcare initiatives, if any, will be implemented at the state level, or what the ultimate effect
of federal health care reform or any future legislation or regulation will have on us. However,
the impact of the tax, coupled with reform-associated payment reductions to Medicare and Medicaid
reimbursement could have a materially adverse affect on our business, results of operations and
cash flows.
Rising Acuities and Technological Impact.
As a result of the growing population of the
elderly, health care systems are challenged to treat rising incidences of complex diseases and
conditions such as obesity, diabetes, congestive heart failure and respiratory disease. Patients
are being moved through the hospital faster and generally desire to rapidly move to lower acuity
settings. We believe that this increases the demand for more sophisticated means to care for these
patients, such as improved medical technologies, communication tools and information technologies.
The increasing utilization of these technologies and our ability to meet changing demand with new
differentiated products will impact our ability to increase revenue and improve margins in the
future.
Increasing Operational Efficiency.
Over the past few years we have undertaken several
initiatives to improve our operating efficiency, including significant realignments of our
businesses, employee terminations, product rationalizations and continuous improvement initiatives
in our manufacturing facilities. While we have started to realize the efficiencies of these actions
and we believe our operating expenses and margins will continue to be positively impacted, these
activities may not produce the full efficiency and cost reduction benefits we expect, in a timely
fashion or at all.
18
Patient and Caregiver Safety and Quality
.
An increasing emphasis is being placed within
hospitals to assure quality of care through increased accountability and public disclosure. At the
same time, caregiver shortages, worker related injuries, the aging workforce and other staffing
requirements have led to increasing emphasis on caregiver injury prevention. Several pieces of
legislation have been enacted over the past few years to address these areas including the pay for
performance initiative by the Centers for Medicare and Medicaid Services (CMS) which aims to
better align reimbursement with improved patient outcomes and the reduction of adverse events
including bedsores (or pressure ulcers), ventilator associated pneumonia, patient falls, deep vein
thrombosis and patient entrapment. During fiscal 2008, CMS issued and put into effect its Final
Rule for inpatient payment, a continuation in the agencys efforts to align reimbursement more
closely with cost of care and severity of illness. Within this measure, hospitals may experience
reduced reimbursement for hospital acquired adverse events, marking a stronger connection with
these adverse events and revenue levels. A number of the top adverse events and preventable medical
errors in U.S. hospitals, including those listed above can be mitigated in part by our
technologies, processes and services. We are well positioned to benefit from the emphasis being
placed on patient safety due to our strong clinical capabilities, products and technologies that
are designed to assist providers in materially improving outcomes associated with patients confined
to beds across all care settings.
Related to caregiver safety, certain countries in Europe have established legislation that has
mandated that patient lifts be available in hospitals. In the U.S. several states have enacted or
introduced legislation and, most recently, The Nurse and Health CareWorker Protection Act of 2009
was introduced in Congress aimed at eliminating manual patient lifts and transfers. We believe
that our products and services seek to address these concerns through novel application of
technology, clinical and ergonomic science, and customer feedback. Overall increasing emphasis on
patient and caregiver safely and quality could increase demand for our products and services.
GPO and IDN Contracts
.
A majority of our North American hospital sales and rentals are made
pursuant to contracts with GPOs and IDNs. These groups strive to achieve significant health care
savings for their members by aggregating buying volume and negotiating for the best value in their
purchase of medical devices and other supplies and services. At any given time, we are typically
at various stages of responding to bids and negotiating and renewing expiring agreements. These
contracts are competitive and are generally terminable on short notice. The loss of a sole-source
agreement or change of an agreement from sole or dual to multi-source agreement could have a
significant impact on our revenues. In addition, some of our sales contracts contain restrictions
on our ability to raise prices, therefore limiting our ability, in the short-term, to respond to
significant increases in raw material prices or other factors thereby potentially negatively
impacting our gross margins.
Use of Non-GAAP Financial Measures
These consolidated financial statements, including the related notes, are presented in accordance
with accounting principles generally accepted in the U.S. (GAAP). We provide adjusted income
before income taxes, income tax expense and diluted earnings per share results because we use these
measures internally for planning, forecasting and evaluating the performance of the business.
In addition, the Company analyzes net revenues on a constant currency basis to better measure the
comparability of results between periods. We believe that evaluating growth in net revenues on a
constant currency basis provides an additional and meaningful assessment to both management and
investors.
We believe the non-GAAP measures used contribute to an understanding of our financial performance
and provide an additional analytical tool to understand our results from core operations and to
reveal underlying trends. These measures should not, however, be considered in isolation, as a
substitute for, or as superior to measures of financial performance prepared in accordance with
GAAP.
19
RESULTS OF OPERATIONS
The following table presents comparative operating results for the years discussed within
Managements Discussion and Analysis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
% of Related
|
|
|
September 30,
|
|
|
% of Related
|
|
|
September 30,
|
|
|
% of Related
|
|
|
|
2010
|
|
|
Revenues
|
|
|
2009
|
|
|
Revenues
|
|
|
2008
|
|
|
Revenues
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital sales
|
|
$
|
996.6
|
|
|
|
67.8
|
%
|
|
$
|
921.5
|
|
|
|
66.4
|
%
|
|
$
|
1,044.0
|
|
|
|
69.2
|
%
|
Rental revenues
|
|
|
473.0
|
|
|
|
32.2
|
%
|
|
|
465.4
|
|
|
|
33.6
|
%
|
|
|
463.7
|
|
|
|
30.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
|
1,469.6
|
|
|
|
100.0
|
%
|
|
|
1,386.9
|
|
|
|
100.0
|
%
|
|
|
1,507.7
|
|
|
|
100.0
|
%
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital sales
|
|
|
448.0
|
|
|
|
45.0
|
%
|
|
|
365.8
|
|
|
|
39.7
|
%
|
|
|
425.4
|
|
|
|
40.7
|
%
|
Rental revenues
|
|
|
268.6
|
|
|
|
56.8
|
%
|
|
|
262.1
|
|
|
|
56.3
|
%
|
|
|
244.1
|
|
|
|
52.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit
|
|
|
716.6
|
|
|
|
48.8
|
%
|
|
|
627.9
|
|
|
|
45.3
|
%
|
|
|
669.5
|
|
|
|
44.4
|
%
|
Research and development expenses
|
|
|
58.3
|
|
|
|
4.0
|
%
|
|
|
55.7
|
|
|
|
4.0
|
%
|
|
|
57.3
|
|
|
|
3.8
|
%
|
Selling and administrative expenses
|
|
|
474.6
|
|
|
|
32.3
|
%
|
|
|
461.6
|
|
|
|
33.3
|
%
|
|
|
486.6
|
|
|
|
32.3
|
%
|
Litigation credit
|
|
|
(21.2
|
)
|
|
|
-1.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other intangibles
|
|
|
|
|
|
|
|
|
|
|
472.8
|
|
|
|
34.1
|
%
|
|
|
|
|
|
|
-
|
|
Special charges
|
|
|
13.2
|
|
|
|
0.9
|
%
|
|
|
20.5
|
|
|
|
1.5
|
%
|
|
|
22.8
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss)
|
|
|
191.7
|
|
|
|
13.0
|
%
|
|
|
(382.7
|
)
|
|
|
-27.6
|
%
|
|
|
102.8
|
|
|
|
6.8
|
%
|
Other income (expense), net
|
|
|
(8.8
|
)
|
|
|
-0.6
|
%
|
|
|
3.9
|
|
|
|
0.3
|
%
|
|
|
(10.5
|
)
|
|
|
-0.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
Before Income Taxes
|
|
|
182.9
|
|
|
|
12.4
|
%
|
|
|
(378.8
|
)
|
|
|
-27.3
|
%
|
|
|
92.3
|
|
|
|
6.1
|
%
|
Income tax expense
|
|
|
56.9
|
|
|
|
3.9
|
%
|
|
|
26.2
|
|
|
|
1.9
|
%
|
|
|
25.2
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
|
|
|
126.0
|
|
|
|
8.6
|
%
|
|
|
(405.0
|
)
|
|
|
-29.2
|
%
|
|
|
67.1
|
|
|
|
4.5
|
%
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48.7
|
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
126.0
|
|
|
|
8.6
|
%
|
|
|
(405.0
|
)
|
|
|
-29.2
|
%
|
|
|
115.8
|
|
|
|
7.7
|
%
|
Less: Net income attributable to
noncontrolling interest
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Common Shareholders
|
|
$
|
125.3
|
|
|
|
8.5
|
%
|
|
$
|
(405.0
|
)
|
|
|
-29.2
|
%
|
|
$
|
115.8
|
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common shareholders
per common share from continuing operations
Diluted
|
|
$
|
1.97
|
|
|
|
|
|
|
$
|
(6.47
|
)
|
|
|
|
|
|
$
|
1.07
|
|
|
|
|
|
Income attributable to common shareholder per common
share from discontinued operations Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Common Shareholders
per Common Share Diluted
|
|
$
|
1.97
|
|
|
|
|
|
|
$
|
(6.47
|
)
|
|
|
|
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
|
Certain percentage and per share amounts may not add due to rounding.
|
20
Fiscal Year Ended September 30, 2010 Compared to Fiscal Year Ended September 30, 2009
Consolidated Results of Operations
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Percentage Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
Constant
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
As Reported
|
|
|
Currency
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital sales
|
|
$
|
996.6
|
|
|
$
|
921.5
|
|
|
|
8.1
|
|
|
|
7.1
|
|
Rental revenues
|
|
|
473.0
|
|
|
|
465.4
|
|
|
|
1.6
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
1,469.6
|
|
|
$
|
1,386.9
|
|
|
|
6.0
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital sales increased as a result of volume increases in most major product categories within our
North America Acute Care segment led by patient support systems, as well as volume growth in the
Middle East, Latin America and Asia. These increases were offset in part by lower North America
revenues related to the prior year divestiture of certain non-strategic product lines.
Our pricing was also modestly favorable.
Rental revenues increased slightly due to increases in North America Acute Care therapy rentals and
our North America Post-Acute Care extended care rentals. The increase in therapy rental revenue
was due to continued growth of our Envision
®
and P500 therapy wound surfaces.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
Capital sales
|
|
$
|
448.0
|
|
|
$
|
365.8
|
|
Percent of Related
Revenues
|
|
|
45.0
|
%
|
|
|
39.7
|
%
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
268.6
|
|
|
$
|
262.1
|
|
Percent of Related
Revenues
|
|
|
56.8
|
%
|
|
|
56.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit
|
|
$
|
716.6
|
|
|
$
|
627.9
|
|
Percent of Related Revenues
|
|
|
48.8
|
%
|
|
|
45.3
|
%
|
Consolidated gross profit increased 14.1 percent and increased as a percentage of revenue 350 basis
points.
Capital sales gross profit increased 22.5 percent and gross margin (as a percentage of revenues)
for capital sales increased 530 basis points. The gross margin increase was primarily due to an
improved mix towards higher margin products, modestly improved pricing, favorable material costs
and several productivity initiatives executed over the past two years. In addition, the prior year
included a charge of $4.8 million for performance issues associated with a discontinued product and
a non-recurring charge of $2.9 million related to the acquisition accounting step-up of acquired
Liko inventories sold during fiscal 2009.
Rental revenue gross profit increased 2.5 percent while gross margin (as a percentage of revenues)
increased only slightly. The slight increase in gross margin is due mainly to continued leverage
and cost improvements within our field service network.
21
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Percentage
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
58.3
|
|
|
$
|
55.7
|
|
|
|
4.7
|
|
Percent of Total Revenues
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
$
|
474.6
|
|
|
$
|
461.6
|
|
|
|
2.8
|
|
Percent of Total Revenues
|
|
|
32.3
|
%
|
|
|
33.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation credit
|
|
$
|
(21.2
|
)
|
|
$
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other intangibles
|
|
$
|
|
|
|
$
|
472.8
|
|
|
|
n/a
|
|
Special charges
|
|
$
|
13.2
|
|
|
$
|
20.5
|
|
|
|
(35.6
|
)
|
Gain on sale of non-strategic assets
|
|
$
|
|
|
|
$
|
(10.2
|
)
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(8.7
|
)
|
|
$
|
(10.4
|
)
|
|
|
(16.3
|
)
|
Investment income
|
|
$
|
2.3
|
|
|
$
|
2.9
|
|
|
|
(20.7
|
)
|
Other
|
|
$
|
(2.4
|
)
|
|
$
|
1.2
|
|
|
|
(300.0
|
)
|
Research and development expense increased due to our continued investment in the development of
innovative new products. Selling and administrative expenses increased related primarily to
performance-based compensation expense. In addition, unfavorable foreign exchange rates of $4.0
million negatively impacted the expense. These increases were partially offset by savings from
prior period restructuring actions and our continuous improvement activities.
During 2010, we reversed a $21.2 million litigation accrual as the statute of limitations expired
for any additional claims to be filed from those plaintiffs that opted out of the Spartanburg
antitrust settlement. See Note 16 of Notes to Consolidated Financial Statements included in Part
II, Item 8 of this Form 10-K for additional discussion. Partially offsetting this reversal were
restructuring actions and an asset write down charge of $3.9 million related to our aviation
assets. Two separate restructuring actions resulted in the elimination of approximately 260
employees and cumulative special charges of $9.3 million primarily related to severance and other
benefits provided to affected employees. The majority of the cash expenditures associated with the
severance will be completed by the end of our 2011 fiscal year and we expect to realize benefits
related to all of these actions of approximately $22 million on an annual basis.
During fiscal 2009, we recognized a charge of $472.8 million related to the impairment of goodwill
and other intangibles, special charges of $20.5 million and a gain on sale of non-strategic assets
of $10.2 million. For explanations of these items see Fiscal Year Ended September 30, 2009
Compared to Fiscal Year Ended September 30, 2008 below. Also see Notes 4, 5 and 10 of Notes to
Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K.
The decline in interest expense resulted from lower interest rates and lower outstanding debt.
Investment income decreased as well despite a larger cash balance period over period, similarly due
to lower interest rates.
22
GAAP and Adjusted Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Income Tax
|
|
|
Diluted
|
|
|
Income
|
|
|
Income Tax
|
|
|
Diluted
|
|
(Dollars in millions, except for per share amounts)
|
|
Taxes
|
|
|
Expense
|
|
|
EPS*
|
|
|
Taxes
|
|
|
Expense
|
|
|
EPS*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Earnings (Loss)
|
|
$
|
182.9
|
|
|
$
|
56.9
|
|
|
$
|
1.97
|
|
|
$
|
(378.8
|
)
|
|
$
|
26.2
|
|
|
$
|
(6.47
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Litigation credit
|
|
|
(21.2
|
)
|
|
|
(8.3
|
)
|
|
|
(0.20
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax settlement
|
|
|
|
|
|
|
6.5
|
|
|
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of non-strategic assets
|
|
|
|
|
|
|
1.7
|
|
|
|
(0.03
|
)
|
|
|
(10.2
|
)
|
|
|
(2.0
|
)
|
|
|
(0.13
|
)
|
Special charges
|
|
|
13.2
|
|
|
|
5.0
|
|
|
|
0.13
|
|
|
|
20.5
|
|
|
|
7.7
|
|
|
|
0.20
|
|
Impairment of goodwill and other intangibles
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
472.8
|
|
|
|
2.2
|
|
|
|
7.52
|
|
Effect of Liko inventory valuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
|
|
0.8
|
|
|
|
0.03
|
|
Acquisition integration charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3
|
|
|
|
0.8
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Earnings
|
|
$
|
174.9
|
|
|
$
|
61.8
|
|
|
$
|
1.76
|
|
|
$
|
109.5
|
|
|
$
|
35.7
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
May not add due to rounding.
|
The tax rate for the fiscal year ended September 30, 2010 was 31.1 percent compared to a negative
6.9 percent in the prior year. The effective rates for fiscal 2010 and 2009 were favorably
impacted by the discrete tax benefits associated with the sale of non-strategic assets and the
utilization of previously unrecognized capital loss carry forwards. The effective tax rate for
2010 was also favorably impacted by the recognition of previously unrecognized tax benefits
associated with the resolution of an income tax matter with the Internal Revenue Service (IRS)
during the second quarter of $6.5 million and other items in the fourth quarter upon the expiration
of various statutes of limitations. The effective tax rate for fiscal 2009 was impacted by the
significant non-cash intangible impairment charge and the lack of deductibility of this charge for
income tax purposes, along with the catch up related to the retroactive reinstatement of the
research and development credit.
The adjusted effective tax rates were 35.3 and 32.6 percent for fiscal year 2010 and 2009. The
higher rate in 2010 is due primarily to the research and development tax credit and the timing of
its expiration in 2010 and its reinstatement in 2009. For fiscal 2009, we entered the year with no
allowable credit, but its reinstatement in the first quarter required a retroactive catch up of
previously unrecognized credits. For fiscal 2010, the credit expired at the end of our first
quarter.
Net income attributable to common shareholders was $125.3 million in fiscal 2010. On an adjusted
basis, net income attributable to common shareholders increased $38.6 million, representing an
increase of 52.3 percent. Diluted earnings per share increased from a loss per share of $6.47 to
earnings per share of $1.97. On an adjusted basis, diluted earnings per share increased 49.2
percent from $1.18 per share in 2009 to $1.76 per share in 2010.
23
Business Segment Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Percentage Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
Constant
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
As Reported
|
|
|
Currency
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Acute Care
|
|
$
|
840.3
|
|
|
$
|
791.6
|
|
|
|
6.2
|
|
|
|
5.5
|
|
North America Post-Acute Care
|
|
|
205.7
|
|
|
|
200.8
|
|
|
|
2.4
|
|
|
|
2.4
|
|
International and Surgical
|
|
|
432.2
|
|
|
|
398.8
|
|
|
|
8.4
|
|
|
|
6.9
|
|
Total eliminations
|
|
|
(8.6
|
)
|
|
|
(4.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,469.6
|
|
|
$
|
1,386.9
|
|
|
|
6.0
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divisional income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Acute Care
|
|
$
|
242.0
|
|
|
$
|
192.9
|
|
|
|
25.5
|
|
|
|
|
|
North America Post-Acute Care
|
|
|
61.2
|
|
|
|
58.0
|
|
|
|
5.5
|
|
|
|
|
|
International and Surgical
|
|
|
74.2
|
|
|
|
59.6
|
|
|
|
24.5
|
|
|
|
|
|
Functional costs
|
|
|
(193.7
|
)
|
|
|
(199.9
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total divisional income
|
|
$
|
183.7
|
|
|
$
|
110.6
|
|
|
|
66.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Acute Care
North America Acute Care capital sales increased 8.0 percent, while rental revenues increased 2.3
percent. The increase in capital sales was due mainly to higher volumes in most major product
categories, led by our patient support systems, including the launch of our Advanta 2 med-surg
bed, and modestly favorable pricing. Partially offsetting this favorability was the divestiture of
certain non-strategic health information technology product lines, which generated revenues of
$11.7 million during the prior year. Rental revenues reflect higher therapy rental revenues from
continued growth of our Envision
®
and P500 therapy wound care surfaces. In addition,
rentals of moveable medical equipment increased due to a stronger influenza season in fiscal 2010
and we also realized an increase in bariatric frame rentals.
North America Acute Care divisional income increased primarily due to increases in total gross
profit. The increase in total gross profit was driven by the increase in revenue and margin
improvements from modestly favorable pricing, product mix, favorable material costs and several
productivity initiatives. In addition, the prior year included a charge of $4.8 million related to
performance issues associated with a discontinued product and the acquisition accounting step-up of
acquired Liko inventories sold of $2.9 million. Selling and administrative costs decreased
slightly due to cost improvement initiatives, including previously announced headcount actions,
partially offset by increases in performance based compensation and administrative costs related to
the joint venture with Encompass.
North America Post-Acute Care
North America Post-Acute Care capital sales increased by 6.0 percent, led by volume growth in The
Vest
®
respiratory care system and home care direct to consumer business, partially offset by a
decline in our sales within the extended care environment due in part to the exit of the MedGas
product line during 2009. Rental revenues increased by 1.4 percent primarily related to increased
rentals in extended care. This was the fourth consecutive year of revenue growth for our North
America Post-Acute Care segment.
The increase in North America Post-Acute Care divisional income was driven by increased revenue and
gross margin improvements, partially offset by increased operating expenses. The improved gross
margin is the result of favorable product mix, improved field service costs and the exit of the
MedGas product line during 2009. The increase in operating expenses is related to investments in
sales channel and new product development.
International
International and Surgical capital sales increased 9.9 percent, 8.4 percent on a constant currency
basis. The increase was driven by volume growth in the Middle East, Latin America, Asia and our
surgical business. Rental revenues decreased 1.1 percent and 2.2 percent on a constant currency
basis. The decline in rental revenue was due to a rationalization of unprofitable business and
other volume decreases in Europe.
24
International and Surgical divisional income improved compared to prior year due to increases in
gross profit partially offset by increases in operating expenses. The increase in gross profit was
the result of the increased revenue, favorable product and geographic mix, favorable material costs
and several productivity initiatives. Operating expenses increased related to increased selling
and marketing efforts to support our long-term growth strategies. In addition, the increase was
impacted by $3.3 million related to the unfavorable impact of foreign exchange rates on costs.
Fiscal Year Ended September 30, 2009 Compared to Fiscal Year Ended September 30, 2008
Consolidated Results of Operations
Net Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Percentage Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
Constant
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
As Reported
|
|
|
Currency
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital sales
|
|
$
|
921.5
|
|
|
$
|
1,044.0
|
|
|
|
(11.7
|
)
|
|
|
(8.7
|
)
|
Rental revenues
|
|
|
465.4
|
|
|
|
463.7
|
|
|
|
0.4
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
1,386.9
|
|
|
$
|
1,507.7
|
|
|
|
(8.0
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital sales declined primarily due to North America Acute Care capital sales, where beginning in
the second half of our first fiscal quarter of 2009 we experienced unfavorable volumes resulting
from the tightening in provider capital spending budgets in the U.S. resulting from unprecedented
economic pressures and reduced access to capital. To a lesser extent, this trend extended to other
parts of the world during the second half of our fiscal year. These declines were partially offset
by incremental revenue from our acquisition of Liko in October 2008. We also realized strong growth
in the Middle East and Africa and Latin America, as well as within the Home Care portion of our
North America Post-Acute Care segment.
Rental revenues increased mainly due to North America Acute Care growth in therapy rental revenues,
despite a relatively weak influenza season, led by our Bariatric frames and Envision
®
wound
surface, accompanied by solid growth in our Respiratory Care business. The growth in rental
revenue was partially offset by lower rentals in both extended care, and in moveable medical
equipment, due mainly to the rationalization of unprofitable business and the loss of select
extended care contracts during our 2008 fiscal year.
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
Capital sales
|
|
$
|
365.8
|
|
|
$
|
425.4
|
|
Percent of Related
Revenues
|
|
|
39.7
|
%
|
|
|
40.7
|
%
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
262.1
|
|
|
$
|
244.1
|
|
Percent of Related
Revenues
|
|
|
56.3
|
%
|
|
|
52.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Profit
|
|
$
|
627.9
|
|
|
$
|
669.5
|
|
Percent of Related Revenues
|
|
|
45.3
|
%
|
|
|
44.4
|
%
|
25
Consolidated gross profit decreased $41.6 million, or 6.2 percent, but increased as a percentage of
revenues by 90 basis points.
Capital sales gross profit decreased 14.0 percent due to lower volumes within our North America
Acute Care segment. Offsetting this decrease was the effect of the Liko acquisition and the strong
performance of our International and Surgical segment. Gross margin (as a percentage of sales) for
capital sales also decreased during the year, dropping 100 basis points. The decline was largely
due to fixed cost components decreasing at a lower rate than sales volume, unfavorable geographic
and product mix, costs related to performance issues associated with a discontinued product of $4.8
million, as well as the $2.9 million impact from the step-up of acquired Liko inventories sold
during the year. Partially offsetting the decline were favorable fuel costs of $3.5 million in
2009.
Rental revenue gross profit increased 7.4 percent led by strong therapy rental revenues within our
North America Acute Care segment. Gross margin for rental revenues increased 370 basis points
related to the higher margins on recent product introductions, strong leverage and reduction of our
field service costs, lower fuel costs, cost improvement initiatives and the effects of lower
depreciation on our rental fleet.
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
Percentage
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
$
|
55.7
|
|
|
$
|
57.3
|
|
|
|
(2.8
|
)
|
Percent of Total Revenues
|
|
|
4.0
|
%
|
|
|
3.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative expenses
|
|
$
|
461.6
|
|
|
$
|
486.6
|
|
|
|
(5.1
|
)
|
Percent of Total Revenues
|
|
|
33.3
|
%
|
|
|
32.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other intangibles
|
|
$
|
472.8
|
|
|
$
|
|
|
|
|
n/a
|
|
Special charges
|
|
$
|
20.5
|
|
|
$
|
22.8
|
|
|
|
(10.1
|
)
|
Gain on sale of non-strategic assets
|
|
$
|
(10.2
|
)
|
|
$
|
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(10.4
|
)
|
|
$
|
(14.3
|
)
|
|
|
(27.3
|
)
|
Investment income
|
|
$
|
2.9
|
|
|
$
|
9.3
|
|
|
|
(68.8
|
)
|
Other, net
|
|
$
|
1.2
|
|
|
$
|
(5.5
|
)
|
|
|
(121.8
|
)
|
Research and development remained relatively consistent as a percentage of revenue year over year
as we have continued to make appropriate investments in product development. As a percentage of
revenues, selling and administrative expenses were slightly higher in fiscal 2009 than fiscal 2008
as selling and administrative expense decreased, but at a slightly slower rate compared to revenue.
The decline in the expense is a result of August 2008 and January 2009 workforce reduction actions,
performance-related compensation savings and other general and administrative continuous
improvement activities aimed at reducing core operating expenses. These declines were also due in
part to a favorable impact of foreign exchange rates of $7.8 million, offset by incremental
expenses related to Liko of $30.3 million.
During fiscal 2009, we recorded a charge of $472.8 million related to the impairment of goodwill
and other intangibles as a result of the decline in our market capitalization during the second
quarter related to the overall macro-economic climate and its resulting unfavorable impact on
hospital capital spending and our operating results. The significance of the charge was reflective
of the significant value in our unrecorded intangible assets such as the Hill-Rom trade name,
technology and know-how and customer lists which reduce the value of our implied goodwill when
calculating the impairment charge. There could be an additional adjustment of this charge upon the
finalization of the working capital and net debt adjustment associated with the Liko acquisition,
with any such adjustment expected to be favorable and not material. For further information
regarding the charge, refer to Note 5 of Notes to Consolidated Financial Statements included under
Part II, Item 8 of this Form 10-K.
26
Special charges of $20.5 million were recognized in fiscal 2009 related primarily to a
restructuring plan that we announced on January 14, 2009. In total, the plan resulted in a charge
of $11.9 million related to severance, early retirement packages and discontinued use of a building
under an operating lease. Additionally, postretirement health care costs, the waiver of an early
retirement pension penalty offered in conjunction with a voluntary early retirement incentive and
plan curtailments resulted in a charge of $4.2 million. Operating asset write-offs and other
charges associated with these actions were also taken in the amount of $4.4 million.
Special charges of $22.8 million were recorded in fiscal 2008. Of this amount, $2.3 million
resulted from a voluntary termination package offered to certain members of the Companys
manufacturing organization, which resulted in a special termination benefit charge for those
employees who accepted such offers. The other $20.5 million of special charges in fiscal 2008
related to a global streamlining of the organization ($6.0 million) and a management initiated plan
to restore growth and improve profitability of our medical equipment management services business
($14.5 million). See Note 10 of Notes to Consolidated Financial Statements, included under Part
II, Item 8 of this Form 10-K for more detail on these actions.
During the third quarter of fiscal 2009, we completed two separate sales of non-strategic assets
that resulted in a gain of $10.2 million, net of transaction related costs. A majority of the gain
resulted from the sale of patents and intellectual property related to our Negative Pressure Wound
Therapy technology. We also sold certain assets and liabilities related to our NaviCare
®
Patient
Flow product line in connection with a strategic development agreement with TeleTracking
Technologies, Inc.
Interest expense declined in fiscal 2009 compared to fiscal 2008 due to a reduction of debt of
$224.3 million in connection with the spin-off of the funeral services business. Investment income
decreased in fiscal 2009 due to lower interest rates and cash balances related to cash paid for the
Liko acquisition in 2009. Other income declined due primarily to favorable foreign currency
effects, as well as a $3.2 million loss on the early extinguishment of debt and the termination of
our previous credit facility in fiscal 2008.
GAAP and Adjusted Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30, 2009
|
|
|
September 30, 2008
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
Income Tax
|
|
|
Diluted
|
|
|
Income
|
|
|
Income Tax
|
|
|
Diluted
|
|
(Dollars in millions, except for per share amounts)
|
|
Taxes
|
|
|
Expense
|
|
|
EPS*
|
|
|
Taxes
|
|
|
Expense
|
|
|
EPS*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Earnings (Loss)
|
|
$
|
(378.8
|
)
|
|
$
|
26.2
|
|
|
$
|
(6.47
|
)
|
|
$
|
92.3
|
|
|
$
|
25.2
|
|
|
$
|
1.07
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other intangibles
|
|
|
472.8
|
|
|
|
2.2
|
|
|
|
7.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Liko inventory valuation
|
|
|
2.9
|
|
|
|
0.8
|
|
|
|
0.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liko acquisition integration charges
|
|
|
2.3
|
|
|
|
0.8
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on Sale of non-strategic assets
|
|
|
(10.2
|
)
|
|
|
(2.0
|
)
|
|
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Special charge
|
|
|
20.5
|
|
|
|
7.7
|
|
|
|
0.20
|
|
|
|
22.8
|
|
|
|
8.9
|
|
|
|
0.22
|
|
Stock modification charge
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.8
|
|
|
|
2.1
|
|
|
|
0.06
|
|
Loss on extinguishment of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2
|
|
|
|
1.2
|
|
|
|
0.03
|
|
Separation costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6
|
|
|
|
0.4
|
|
|
|
0.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Earnings
|
|
$
|
109.5
|
|
|
$
|
35.7
|
|
|
$
|
1.18
|
|
|
$
|
125.7
|
|
|
$
|
37.8
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
May not add due to rounding.
|
The effective tax rate for fiscal 2009 and 2008 was negative 6.9 percent and 27.3 percent. The
effective tax rate for fiscal 2009 is unusual in light of the significance of the non-cash
intangible impairment charge and the lack of deductibility of this charge for income tax purposes.
Both years were favorably affected by a number of discrete tax benefits. The fiscal 2009 rate
reflects favorable discrete period tax benefits of $6.4 million related to the release of valuation
allowance on capital loss carryforwards, a deferred tax benefit associated with the non-cash
intangible impairment charge and the catch-up related to the retroactive reinstatement of the
research and development tax credit which had previously expired.
27
The rate in fiscal 2008 was favorably impacted by favorable discrete period tax benefits of $8.3
million related to the net release of valuation allowances on our foreign tax credit carryforwards
and the net release of certain federal and state tax liabilities, including interest, associated
with the completion of the federal audit of the Companys fiscal years 2004 through 2006 and the
expiration of certain state statutes.
The adjusted effective tax rate was 32.6 percent and 30.1 percent in 2009 and 2008. The higher
rate in 2009 is due primarily to the slightly lower discrete tax benefits discussed above.
Income (loss) from continuing operations decreased $472.1 million to a loss of $405.0 million in
fiscal 2009 primarily due to the impairment charge of goodwill and other intangibles. On an
adjusted basis income from continuing operations decreased $14.1 million, or 16.0 percent. This
equated to a diluted loss per share from continuing operations of $6.47 and diluted earnings per
share of $1.18 on an adjusted basis.
As a result of the spin-off of Hillenbrand, Inc., the funeral services business and certain other
costs were classified within discontinued operations in our Consolidated Statements of Income
(Loss). The following table presents certain summary income statement information related to the
discontinued funeral service operations and the spin-off transaction for the fiscal year ended
September 30, 2008. Due to the timing of the spin-off, activities of the funeral services business
are only included through March 31, 2008.
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2008
|
|
|
|
|
|
|
Funeral services sales
|
|
$
|
354.3
|
|
Total expenses
|
|
|
275.5
|
|
|
|
|
|
Income from discontinued operations before income taxes
|
|
|
78.8
|
|
Income tax expense
|
|
|
30.1
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
48.7
|
|
|
|
|
|
Expenses classified within discontinued operations for fiscal 2008, as further discussed below,
primarily related to non-recurring legal and professional costs related to the completion of the
spin-off. For details of relative performance of the funeral services business during the first
two quarters, please see our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008.
Other costs included in discontinued operations were non-recurring costs directly related to the
spin-off transaction ($24.5 million), one-time, non-cash stock-based compensation charges ($4.5
million in the second quarter) and a charge recorded upon the renegotiation of notes receivable and
preferred stock distributed to Hillenbrand, Inc. in the spin-off ($6.4 million in the second
quarter). The non-recurring separation costs were primarily for investment banking fees, legal,
accounting and other professional and consulting fees. The one-time stock-based compensation
charges were the result of the modification of stock options and the accelerated vesting of certain
restricted stock awards held by employees of the funeral services business in connection with the
spin-off. Finally, we renegotiated the terms of seller financing instruments provided to
Forethought Financial Group, Inc. (FFG) in conjunction with the divestiture of our pre-need
funeral insurance business in 2004. As a result, we received cash payments during the second
quarter of fiscal 2008 of $39.0 million in exchange for the FFG Preferred Stock and the debt
service note receivable. In connection with the renegotiation and the early redemption of the
preferred stock and debt service note receivable, the estimate as to the timing of future expected
cash flows associated with the remaining seller note receivable was revised, which resulted in an
adjustment as to the timing of recognition of the unamortized discount on the seller note. This
adjustment was included as part of total expense above.
28
Business Segment Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
Percentage Change
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
|
|
|
Constant
|
|
(Dollars in millions)
|
|
2009
|
|
|
2008
|
|
|
As Reported
|
|
|
Currency
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Acute Care
|
|
$
|
791.6
|
|
|
$
|
934.7
|
|
|
|
(15.3
|
)
|
|
|
(14.4
|
)
|
North America Post-Acute
Care
|
|
|
200.8
|
|
|
|
197.0
|
|
|
|
1.9
|
|
|
|
1.9
|
|
International and Surgical
|
|
|
398.8
|
|
|
|
381.4
|
|
|
|
4.6
|
|
|
|
13.3
|
|
Total eliminations
|
|
|
(4.3
|
)
|
|
|
(5.4
|
)
|
|
|
(20.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,386.9
|
|
|
$
|
1,507.7
|
|
|
|
(8.0
|
)
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divisional income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Acute Care
|
|
$
|
192.9
|
|
|
$
|
247.8
|
|
|
|
(22.2
|
)
|
|
|
|
|
North America Post-Acute
Care
|
|
|
58.0
|
|
|
|
55.7
|
|
|
|
4.1
|
|
|
|
|
|
International and Surgical
|
|
|
59.6
|
|
|
|
49.7
|
|
|
|
19.9
|
|
|
|
|
|
Functional costs
|
|
|
(199.9
|
)
|
|
|
(227.6
|
)
|
|
|
(12.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total divisional income
|
|
$
|
110.6
|
|
|
$
|
125.6
|
|
|
|
(11.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Acute Care
North America Acute Care capital sales decreased 22.1 percent, while rental revenues were higher by
3.4 percent. The decline in capital sales during 2009 was the result of reductions in capital
spending by our U.S. hospital customers partially offset by incremental capital sales associated
with our Liko acquisition. Rental revenue increased due to growth in our therapy rental revenues,
despite a relatively weak influenza season compared to the prior year, led by new product offerings
in our rental fleet including our bariatric bed frames and wound surface products. Partially
offsetting favorability in therapy rentals were lower rentals of our moveable medical equipment due
mainly to our previously announced product rationalization.
Divisional income for North America Acute Care decreased primarily due to a decline in capital
sales gross profit. Capital sales gross profit was down on a percentage basis somewhat in excess
of revenues due to fixed cost components decreasing at a lower rate than sales volumes, unfavorable
product mix, the impact of $4.8 million of costs incurred related to performance issues associated
with a discontinued product and the impact of the step-up of acquired Liko inventories sold during
the first half of fiscal 2008 of $2.9 million. Rental gross profit improved due to higher margins
on new product offerings, increased leverage of our field services infrastructure, cost improvement
initiatives, lower fuel costs and lower rental depreciation. Operating expenses declined as
incremental expenses related to Liko and investments in our sales channels were more than offset by
cost improvement actions, favorability in variable compensation, including commissions, and other
cost controls.
North America Post-Acute Care
North America Post-Acute Care capital sales increased 18.1 percent primarily due to an increased
sales channel focus, improved frame and therapy sales to our home care customers, the acquisition
of Liko, and increased sales of The Vest
®
respiratory products. Rental revenues decreased by 2.0
percent. The rental revenue reflected lower extended care rentals due to a loss in business during
the second and third quarters of fiscal 2008 and rationalization of low profit offerings.
Increases in rental revenues in Respiratory Care partially offset the decreased rentals to our
extended care customers.
Divisional income for North America Post-Acute Care increased as a percentage of revenue in fiscal
2009 for the second year in a row. The increase was partly due to the higher revenues and the
resulting increase in gross profit. The growth of respiratory care and home care revenues also led
to a higher gross margin rate for fiscal 2009. Partially offsetting this increase were higher
operating expenses, primarily related to Liko.
29
International and Surgical
International and Surgical capital sales were up 6.5 percent due to the acquisition of Liko and
growth in the Middle East, Africa, Latin America and Allen Medical. These were partially offset by
a decline in Europe due to unfavorable foreign exchange rates and slightly lower volumes. Rental
revenues decreased 6.4 percent, due to the unfavorable foreign exchange rates more than offsetting
volume increases in Europe.
Divisional income as a percentage of revenue increased primarily due to gross profit improvements.
Gross profit increased due to the Liko acquisition and the fact that fiscal 2008 was negatively
impacted by unfavorable inventory adjustments and allowances for rental revenue reserves.
Operating expenses increased due primarily to the Liko acquisition, partially offset by the
favorable impact of exchange rates on cost.
LIQUIDITY AND CAPITAL RESOURCES
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|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
(Dollars in millions)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Cash Flows Provided By (Used In):
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
139.8
|
|
|
$
|
225.7
|
|
|
$
|
270.5
|
|
Investing activities
|
|
|
(38.2
|
)
|
|
|
(234.2
|
)
|
|
|
(56.3
|
)
|
Financing activities
|
|
|
(87.4
|
)
|
|
|
(45.3
|
)
|
|
|
(63.8
|
)
|
Effect of exchange rate changes on cash
|
|
|
(0.3
|
)
|
|
|
2.7
|
|
|
|
(10.2
|
)
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents
|
|
$
|
13.9
|
|
|
$
|
(51.1
|
)
|
|
$
|
140.2
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow information for the fiscal year ended September 30, 2008 is as reported and thus
includes cash flows from our former funeral services business through March 31, 2008.
Net cash flows from operating activities and selected borrowings have represented our primary
sources of funds for growth of the business, including capital expenditures and acquisitions. Our
financing agreements contain no restrictive provisions or conditions relating to dividend payments,
working capital or additional unsecured indebtedness (except to the extent that a dividend payment
or incurrence of additional unsecured indebtedness would result in a default under our financing
agreements), but there are limitations with respect to secured indebtedness. Our debt agreements
also contain no credit rating triggers. Credit rating changes can, however, impact the cost of
borrowings under our financing agreements. Additionally, we also have restrictive financial
covenants within the Distribution Agreement with Hillenbrand, Inc. This agreement has certain
limitations on our ability to incur indebtedness, increase dividend payments and make share
repurchases or acquisitions.
Operating Activities
Our cash flows from operations during fiscal 2010 were driven primarily by net income, further
adjusted by non-cash expenses related to depreciation and amortization, stock compensation,
deferred taxes and the release of a $21.2 million reserve related to a litigation credit. Uses of
cash included $52.3 million of pension funding, increased income tax payments on higher net income
and the settlement of prior year tax audits, and investments in inventory to meet our increasing
backlog position. In addition, while our receivables are up year-over-year, our days sales
outstanding is down six days from last year.
The reduction in fiscal 2010 operating cash flows from fiscal 2009 was largely driven by the higher
collection of year-end receivables in 2009 following record sales levels during the fourth quarter
of fiscal 2008, current year investments in inventories to support higher revenue trends, increased
pension contributions and the timing of tax payments related to both higher income levels in 2010
and settlements of prior year tax audits.
While our fiscal 2009 cash flows from operations and capital sales were unfavorably impacted by the
macro-economic climate and its resulting unfavorable impact on hospital capital spending, strong
expense controls and working capital improvement resulted in strong conversion to cash. Working
capital improvements were led by strong collections of receivables and a reduction in inventory,
offset by a decrease in trade payables related to lower production levels and the timing of
payments, the payout of prior year incentive compensation, the timing of tax payments and payments
made on our restructuring accruals. The recognition of the goodwill and intangible asset impairment
charge of $472.8 million, which resulted in the net loss in fiscal 2009, was non-cash in nature and
therefore had no impact on our cash flows from operations.
30
The reduction in fiscal 2009 operating cash flows from fiscal 2008 was driven by the impact of our
former funeral services business, which provided operating cash flows of $56.8 million in the first
half of fiscal 2008. Absent the cash flows from our former funeral services business, cash flows
from operations increased during fiscal 2009 as our strong expense controls and conversion to cash
more than offset the reductions in our capital sales and higher pension funding of $11.7 million.
Our cash flows from operations during fiscal 2008, which included cash flows of our former funeral
services business, were driven primarily by net income, further adjusted by non-cash expenses
related to depreciation and amortization. Also, impacting operating cash flows were nonrecurring
separation-related costs of $26.1 million, which provided little income tax benefit as such costs
were largely nondeductible. Working capital improvements were also achieved through higher
inventory turns and improved collections of accounts receivable.
Another item that positively impacted our operating cash flows in fiscal 2008 was the collection of
$11.2 million of interest on previously held seller financing instruments.
Investing Activities
Our use of investing cash flows during fiscal 2010 was driven primarily by capital expenditures and
an investment in a joint venture, partially offset by proceeds from the sale of a portion of our
auction rate securities.
The decrease in net cash used in investing activities from fiscal 2009 was driven by our fiscal
2009 acquisition of Liko. In addition, in 2010 we received $29.2 million more in proceeds from
auction rate securities than in the prior year.
The increased usage of cash for investing activities from fiscal 2008 to fiscal 2009 related
primarily to our acquisition of Liko, a decline in net distributions from our investment portfolio
and proceeds received in fiscal 2008 on seller financing provided on a previously disposed
business, offset by proceeds received on our sale of non-strategic assets in 2009. In addition, in
fiscal 2009, capital spending was down $38.7 million, $34.4 million associated with the timing of
new product introductions into our rental fleet and efforts to preserve cash and liquidity in
response to our then-decreasing capital sales and the remainder related to capital spending of the
former funeral services business included in 2008.
Net cash used in investing activities in fiscal 2008 was driven by additions to our rental fleet
and included six months of capital expenditures related to our former funeral services business.
Investment activity in fiscal 2008 included $325.6 million of purchases and capital calls, which
was more than offset by $343.5 million provided from sales and maturities. We historically
invested a portion of our excess cash into auction rate securities, but discontinued this practice
when liquidity issues with these securities surfaced. Investing cash flows in 2008 also benefited
from proceeds from the renegotiation and early settlement of seller financing related to a prior
business disposition.
Financing Activities
Our use of cash for financing activities during fiscal 2010 consisted mainly of a $45.0 million
payment on our revolving credit facility during the first quarter, $34.5 million related to our
share repurchases during the fourth quarter and $25.8 million in dividend payments to our
shareholders. These uses of cash were partially offset by cash proceeds from stock option
exercises. Our change in use of cash in 2010 compared to fiscal 2009 was due to higher debt
repayments on our revolving credit facility and share repurchases, offset partially by cash
provided from increased stock option exercises in 2010.
Net cash used for financing activities during fiscal 2009 consisted mainly of $25.7 million related
to the final payment of senior notes issued in 2004 and $25.6 million in cash dividend payments to
our shareholders.
The reductions in our use of cash for financing activities during fiscal 2009, compared to fiscal
2008, were primarily related to cash payments related to the spin-off of funeral services business
in 2008, lower dividend payments since the spin-off and lower cash proceeds from option exercises,
offset by borrowings in 2008 for our then pending acquisition of Liko.
Our debt-to-capital ratio was 17.6 percent, 24.9 percent and 17.1 percent at September 30, 2010,
2009 and 2008. The change from fiscal 2009 to fiscal 2010 was primarily due to the $45.0 million payment on
our revolver and higher net income, which improved shareholders equity. The increase from fiscal
2008 to fiscal 2009 was driven by the goodwill and other intangibles impairment charge, which
reduced shareholders equity, partially offset by the repayment of debt during fiscal 2009.
31
Other Liquidity Matters
Net cash flows from operating activities and selected borrowings have represented our primary
sources of funds for growth of the business, including capital expenditures and acquisitions.
As of September 30, 2010, we held investment securities with a fair value of $12.1 million, which
consisted primarily of AAA rated student loan auction rate securities. We have estimated the
current fair value of our portfolio of auction rate securities based upon guidance provided by our
investment advisors, including consideration of the credit quality of the underlying securities
and the provisions of the respective security agreements. At September 30, 2010, we have recorded
temporary unrealized losses totaling $1.1 million on these securities to reflect the estimated
decline in fair value associated with the current illiquidity in the auction rate market. See
Notes 1 and 7 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this
Form 10-K for more information pertaining to these securities and the fair value of our portfolio.
If current market conditions do not improve or worsen, the result could be further realized or
unrealized losses or impairments and liquidity and earnings could be adversely affected.
We have a $500.0 million five-year senior revolving credit facility. As of September 30, 2010, we
had outstanding borrowings of $45.0 million and $5.8 million of outstanding, undrawn letters of
credit under the facility, leaving $449.2 million of borrowing capacity available.
We also have trade finance credit lines and uncommitted letter of credit facilities. These lines
are associated with the normal course of business and do not currently, nor have they
historically, been of a material size to the overall business.
We have $95.8 million of senior notes outstanding at various fixed rates of interest as of
September 30, 2010, which are classified as long-term in the Consolidated Balance Sheets. See
Note 6 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form
10-K for more details on our financing agreements.
Our pension plans invest in a variety of equity and debt securities, including securities that
have been adversely affected by the disruption in the credit and capital markets. As mentioned
previously, during the fourth quarter of fiscal 2010, we contributed $50.0 million to our primary
pension plan. At September 30, 2010, our latest measurement date, our pension plans were
underfunded by approximately $51 million. We also repurchased approximately 134,000 shares of our
common stock from our primary pension plan, liquidating the pension plans entire investment in
our common stock. This share repurchase was part of the 1.0 million shares that we repurchased
during August 2010 under our Boards 2006 authorization. Given the significant funding
contribution made during fiscal 2010, we currently do not anticipate any further contributions to
our primary pension plan in fiscal 2011.
As previously disclosed, we intend to continue to pay quarterly cash dividends comparable to those
paid following the completion of the spin-off of the funeral services business. However, the
declaration and payment of dividends by us will be subject to the sole discretion of our Board and
will depend upon many factors, including our financial condition, earnings, capital requirements,
covenants associated with debt obligations, legal requirements and other factors deemed relevant
by our Board.
We intend to continue to pursue selective acquisition candidates in certain areas of our business,
but the timing, size or success of any acquisition effort and the related potential capital
commitments cannot be predicted. We expect to fund future acquisitions primarily with cash on
hand, cash flow from operations and borrowings, within our set limits. The Distribution Agreement
executed in conjunction with our spin-off of the funeral services business contains certain
restrictions with respect to additional indebtedness we may take on to make acquisitions. We do
not anticipate, however, such restrictions will limit our ability to execute our current growth
strategy.
During August 2010, we repurchased 1.0 million shares of our common stock for $34.5 million. As
of September 30, 2010, 2.0 million shares remain available for purchase under our existing board
authorization, which does not have an expiration date. Repurchases may be made on the open market
or via private transactions, and are used for general business purposes.
We believe that cash on hand and generated from operations, along with amounts available under our
credit facility, will be sufficient to fund operations, working capital needs, capital expenditure
requirements and financing obligations. However, disruption and volatility in the credit markets
could impede our access to capital. Our $500.0 million credit facility is with a syndicate of
banks. The syndication group consists of 11 financial institutions, which we believe reduces our
exposure to any one institution and would still leave us with significant borrowing capacity in
the event that any one of the institutions within the group is unable to comply with the terms of
our agreement.
32
Credit Ratings
For fiscal 2010, Standard and Poors Rating Services and Moodys Investor Service provided a credit
rating of BBB- and Baa3 with stable outlooks.
Other Uses of Cash
We expect capital spending in 2011 to be between $75 and $85 million. Capital spending will be
monitored and controlled as the year progresses.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
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, 2010:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
Less Than
|
|
|
1 - 3
|
|
|
4 - 5
|
|
|
After 5
|
|
(Dollars in millions)
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt Obligations
|
|
$
|
98.5
|
|
|
$
|
|
|
|
$
|
48.4
|
|
|
$
|
|
|
|
$
|
50.1
|
|
Interest Payments Relating to Long-Term Debt (1)
|
|
|
60.2
|
|
|
|
7.3
|
|
|
|
8.7
|
|
|
|
6.6
|
|
|
|
37.6
|
|
Information Technology Infrastructure (2)
|
|
|
40.7
|
|
|
|
10.9
|
|
|
|
20.0
|
|
|
|
9.8
|
|
|
|
|
|
Operating Lease Obligations
|
|
|
59.0
|
|
|
|
19.5
|
|
|
|
21.9
|
|
|
|
9.4
|
|
|
|
8.2
|
|
Pension and Postretirement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health Care Benefit Funding (3)
|
|
|
18.0
|
|
|
|
1.5
|
|
|
|
3.2
|
|
|
|
3.4
|
|
|
|
9.9
|
|
Purchase Obligations (4)
|
|
|
25.9
|
|
|
|
15.5
|
|
|
|
10.0
|
|
|
|
0.4
|
|
|
|
|
|
Other Long-Term Liabilities (5)
|
|
|
27.2
|
|
|
|
|
|
|
|
14.2
|
|
|
|
11.1
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Cash Obligations
|
|
$
|
329.5
|
|
|
$
|
54.7
|
|
|
$
|
126.4
|
|
|
$
|
40.7
|
|
|
$
|
107.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Interest payments on our long-term debt are projected based on the contractual rates of
remaining debt securities.
|
|
(2)
|
|
We have a long term agreement with IBM to manage our global information technology
environment that expires in September of 2014. The expected aggregate cost from September 30,
2010 through the duration of the contract is $40.7 million.
|
|
(3)
|
|
Given the significant funding contribution made during fiscal 2010, we currently do not
anticipate any further contributions to our master pension plan in fiscal 2011.
|
|
(4)
|
|
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.
|
|
(5)
|
|
Other long-term liabilities include deferred compensation arrangements, self-insurance
reserves, and other various liabilities.
|
We also had commercial commitments related to standby letters of credit at September 30, 2010 of
$6.3 million.
33
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. While many of these agreements are long-term supply agreements, some of which are
exclusive supply or complete requirements-based contracts, we are not committed under these
agreements to accept or pay for requirements which are not needed to meet production needs. Also,
we have an additional $26.1 million of other liabilities as of September 30, 2010, which represents
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 have 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 a materially adverse impact on our financial condition and results of
operations.
We are also subject to potential losses from adverse litigation results that are not accounted for
by a self-insurance or other reserve; however, 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, 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,
revenues and expenses. If future experience differs materially from these estimates and
assumptions, results of operations and financial condition could be affected. Our most critical
accounting policies are described below.
Revenue Recognition
Net revenues reflect gross revenues less sales discounts and allowances and customer returns for
product sales and rental revenue reserves. Revenue is evaluated under the following criteria and
recognized when each is met:
|
|
Evidence of an arrangement:
An agreement with the customer reflecting the terms and
conditions to deliver products or services serves as evidence of an arrangement.
|
|
|
|
Delivery:
For products, delivery is considered to occur upon receipt by the customer and the
transfer of title and risk of loss. For rental services, delivery is considered to occur when
the services are rendered.
|
|
|
|
Fixed or determinable price
: The sales price is considered fixed or determinable if it is not
subject to refund or adjustment.
|
|
|
|
Collection is deemed probable
: At or prior to the time of a transaction, credit reviews of
each customer are performed to determine the creditworthiness of the customer. Collection is
deemed probable if the customer is expected to be able to pay amounts under the arrangement as
those amounts become due. If collection is not probable, revenue is recognized when collection
becomes probable, generally upon cash collection.
|
As a general interpretation of the above guidelines, revenues for health care products in the
patient care environment are generally recognized upon delivery of the products to the customer and
their assumption of risk of loss and other risks and rewards of ownership. Local business customs
and non-standard sales terms can sometimes result in deviations to this normal practice in certain
instances; however, in no case is revenue recognized prior to the transfer of risk of loss and
rewards of ownership.
For non-invasive therapy products and medical equipment management services, the majority of
product offerings are rental products for which revenues are recognized consistent with the
rendering of the service and use of products. For The Vest
®
product, revenue is generally
recognized at the time of receipt of authorization for billing from the applicable paying entity as
this serves as evidence of the arrangement and sets a fixed or determinable price.
For health care products and services aimed at improving operational efficiency and asset
utilization, various revenue recognition techniques are used, depending on the offering.
Arrangements to provide services, routinely under separately sold service and maintenance
contracts, result in the deferral of revenues until specified services are performed. Service
contract revenue is generally recognized ratably over the contract period, if applicable, or as
services are rendered. Product-related goods are generally recognized upon delivery to the
customer, similar to products in the patient care environment.
34
Revenue and Accounts Receivable Reserves
Revenues are presented in the Statements of Consolidated Income (Loss) net of certain discounts and
sales adjustments. 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 revenues. Reserves for revenue are estimated based upon historical rates for revenue
adjustments.
Provisions for doubtful accounts are recorded as a component of operating expenses and represent
our best estimate of the amount of probable credit losses and collection risk in our existing
accounts receivable. We determine such reserves based on historical write-off experience by
industry. Receivables are generally reviewed on a pooled basis 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 claims denials, payment defaults, adverse
changes in general economic conditions, instability or disruption of credit markets, or an
unexpected material adverse change in a major customers or payors ability to meet its
obligations, our estimates of the realizability of trade receivables could be reduced by a material
amount.
Liabilities for Loss Contingencies Related to Lawsuits
We are involved on an ongoing basis in claims, investigations and lawsuits relating to our
operations, including environmental, antitrust, patent infringement, business practices, commercial
transactions and other matters. The ultimate outcome of these actions cannot be predicted with
certainty. An estimated loss from these contingencies is recognized when we believe it is probable
that a loss has been incurred and the amount of the loss can be reasonably estimated. However, it
is difficult to measure the actual loss that might be incurred related to claims, investigations
and lawsuits. The ultimate outcome of these actions could have a material adverse effect on our
financial condition, results of operations and cash flow.
We have entered into a Judgment Sharing Agreement with Hillenbrand, Inc. to allocate any potential
liability that may arise with respect to certain antitrust litigation matters. We apply the same
methodology as described in the immediate preceding paragraph in evaluating and accounting for the
Judgment Sharing Agreement. See Note 3 of Notes to Consolidated Financial Statements included under
Part II, Item 8 of this Form 10-K, for further details.
We are also involved in other possible claims, including product and general liability, workers
compensation, auto liability and employment related matters. Claims other than employment and
related matters have deductibles and self-insured retentions ranging from $150 thousand to $1.5
million per occurrence or per claim, depending upon the type of coverage and policy period. Outside
insurance companies and third-party claims administrators establish individual claim reserves and
an independent outside actuary provides estimates of ultimate projected losses, including incurred
but not reported claims, which are used to establish reserves for losses. Claim reserves for
employment related matters are established based upon advice from internal and external counsel and
historical settlement information for claims and related fees, when such amounts are considered
probable of payment.
The recorded amounts represent our best estimate of the costs we will incur in relation to such
exposures, but it is possible that actual costs could differ from those estimates. See Note 16 of
Notes to Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K for
further information related to our legal proceedings.
Goodwill and Intangible Assets
We perform an impairment assessment on goodwill annually during the third fiscal quarter, or
whenever events or changes in circumstances indicate that the carrying value of a reporting unit
may not be recoverable. 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.
The goodwill impairment test involves a two-step process. The first step, used to identify
potential impairment, is a comparison of each reporting units estimated fair value to its carrying
value, including goodwill. If the fair value of a reporting unit exceeds its carrying value,
applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value,
there is an indication of impairment and the second step is performed to measure the amount of the
impairment. The second step requires us to calculate an implied fair value of goodwill. The
implied fair value of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination, which is the excess of the fair value of the reporting unit,
as determined in the first step, over the aggregate fair values of the individual assets,
liabilities and identifiable intangibles as if the reporting unit was being acquired in a business
combination. If the goodwill assigned to a reporting unit exceeds the implied fair value of the
goodwill, an impairment charge is recorded for the excess.
35
The fair value of our reporting units in the first step of our impairment process requires
significant management judgment with respect to forecasted sales, gross margin and selling, general
and administrative rates, capital expenditures, the selection and use of an appropriate discount
rate, the selection of comparable public companies and the determination of an appropriate control
premium. In addition, the use of third-party appraisals of significant tangible and intangible
assets as part of the second step of the impairment test also requires management judgment related
to certain inputs and assumptions. There are inherent uncertainties related to each of the above
listed assumptions and inputs, and our judgment in applying them. The use of different
assumptions, estimates or judgments in either step of the process could materially increase or
decrease the related impairment charge.
During the second quarter of fiscal 2009, as a result of the decline in our market capitalization
related to the overall macro-economic climate and its resulting unfavorable impact on hospital
capital spending and our operating results, the Company recorded an impairment of its goodwill and
certain other intangibles. See Note 5 of Notes to Consolidated Financial Statements included under
Part II, Item 8 of this Form 10-K for further information related to the impairment charge.
Retirement Benefit Plans
We sponsor retirement and postretirement benefit plans covering select employees. Expense
recognized in relation to these defined benefit retirement plans and the postretirement health care
plan is based upon actuarial valuations and inherent in those valuations are key assumptions
including discount 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 of past wage
adjustments.
Changes in retirement and postretirement benefit expense and the recognized obligations may occur
in the future as a result of a number of factors, including changes to any of these assumptions.
Our expected rate of return on pension plan assets was 7.5 percent for fiscal 2010 and 2009 and 8.0
percent for fiscal 2008. At September 30, 2010, we had pension plan assets of $215.7 million. A 25
basis point increase in the expected rate of return on pension plan assets reduces annual pension
expense by approximately $0.6 million. Differences between actual and projected investment returns,
especially in periods of significant market volatility, can also impact estimates of required
pension contributions. The discount rate for our retirement obligation was 5.1 percent in 2010, 5.5
percent in 2009 and 7.5 percent in 2008. The discount rate for our postretirement obligation may
vary up to 100 basis points from that of our retirement obligations. For each 50 basis point change
in the discount rate, the impact to annual pension expense ranges from $1.7 million to $1.8
million, while the impact to our postretirement health care plan expense would be less than $0.1
million. Impacts from assumption changes could be positive or negative depending on the direction
of the change in rates.
See Note 8 of Notes to Consolidated Financial Statements included under Part II, Item 8 of this
Form 10-K for further information related to our retirement and postretirement plans.
Income Taxes
We compute our 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. We have recorded valuation allowances against certain of our
deferred tax assets, primarily those related to foreign tax attributes in countries with poor
operating results and certain other domestic tax attributes. 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.
36
We believe that our estimates for the valuation allowances recorded against deferred tax assets are
appropriate based on current facts and circumstances. We currently have $28.5 million of valuation
allowances on deferred tax assets, on a tax-effected basis, primarily related to foreign operating
loss carryforwards and other tax attributes.
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.
The Company also has 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, the
adjustment of certain deferred taxes and/or the recognition of 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 by approximately $5 to $13 million in the
next twelve months, excluding interest. See Note 11 of Notes to Consolidated Financial Statements
included under Part II, Item 8 of this Form 10-K for further information related to income taxes.
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
broad-based correction, separate reserves are established when such events are identified and the
cost of correction can be reasonably estimated.
Inventory
We review the net realizable value of inventory on an ongoing basis, considering factors such as
excess, obsolescence, and other items. We record an allowance for estimated losses 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. If future market conditions vary from those projected, and our estimates prove to be
inaccurate, we may be required to write-down inventory values and record an adjustment to cost of
revenues.
Recently Issued Accounting Guidance
For a summary of recently issued accounting guidance applicable to us, see Note 1 of Notes to
Consolidated Financial Statements included under Part II, Item 8 of this Form 10-K.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, including fluctuations in interest rates, impact of the
current economic downturn, collection risk associated with our accounts and notes receivable
portfolio and variability in currency exchange rates. We have established policies, procedures and
internal processes governing our management of market risks and the use of financial instruments to
manage our exposure to such risks.
We are subject to variability in foreign currency exchange rates in our international operations.
Exposure to this variability is periodically managed primarily through the use of natural hedges,
whereby funding obligations and assets are both managed in the local currency. We, from
time-to-time, enter into currency exchange agreements to manage our exposure 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.
37
Our currency risk consists primarily of foreign currency denominated firm commitments and
forecasted foreign currency denominated intercompany and third-party transactions. At September
30, 2010, we had outstanding foreign exchange derivative contracts in notional amounts of $3.8
million with the fair value of these contracts approximating original contract value. The maximum
length of time over which the Company is hedging transaction exposure is 15 months. Derivative
gains/(losses), initially reported as a component of Accumulated Other Comprehensive Income (Loss),
are reclassified to earnings in the period when the forecasted transaction affects earnings. A 10
percent fluctuation in the U.S. dollars value to the hedged currencies would have an immaterial
impact on our derivative instruments fair value.
We hold auction rate securities, for which the market continues to experience liquidity issues.
Due to the lack of liquidity, we have obtained guidance from our investment advisors as to the
current fair value of our portfolio. If current market conditions do not improve or worsen, the
result could be further temporary unrealized losses or impairments. During our first fiscal
quarter of 2009, we entered into a settlement agreement with UBS, one of the brokers we utilized
to purchase auction rate securities. The primary terms of the settlement stated that UBS would
repurchase the auction rate securities held by UBS at full par value on or after June 30, 2010.
On June 30, 2010, we successfully exercised our rights under the Put for all remaining auction
rate securities held with UBS and received cash proceeds of $12.0 million, including accrued
interest, in July 2010. At September 30, 2010, we had $11.8 million remaining in auction rate
securities.
Our pension plan assets, which were approximately $216 million at September 30, 2010, are also
subject to volatility that can be caused by fluctuations in general economic conditions. Our
pension plans were underfunded at September 30, 2010 by approximately $51 million. During the
fourth quarter of fiscal 2010, we contributed $50.0 million to our primary pension plan. Continued
market volatility and disruption could cause further declines in asset values and if this occurs,
we may need to make additional pension plan contributions and our pension expense in future years
may increase. Investment strategies and policies are set by the plans 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. Target allocation ranges are guidelines, not
limitations, and plan fiduciaries may occasionally approve allocations above or below a target
range or elect to rebalance the portfolio within the targeted range.
Trust assets are invested subject to the following policy restrictions: short-term securities must
be rated A2/P2 or higher; all fixed-income securities shall have a credit quality rating BBB or
higher; investments in equities in any one company may not exceed 10 percent of the equity
portfolio.
38
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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Page
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Financial Statements:
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40
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41
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42
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43
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44
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45
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46
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Financial Statement Schedule for the fiscal years ended September 30, 2010, 2009 and 2008:
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85
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All other schedules are omitted because they are not applicable or the required information is
shown in the financial statements or the notes thereto.
39
MANAGEMENTS 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 of America (U.S.
GAAP). Our internal control over financial reporting includes policies and procedures that:
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1)
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Pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of our assets;
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2)
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Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of our Consolidated Financial Statements in accordance with U.S. GAAP and that
our receipts and expenditures are being made only in accordance with authorizations of our
management and our Board of Directors; and
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3)
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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.
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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, 2010 using criteria established in the
Internal Control-Integrated
Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
that criteria, management concluded that we maintained effective internal control over financial
reporting as of September 30, 2010. There were no changes in our internal control over financial
reporting during the quarter ended September 30, 2010 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
The effectiveness of our internal control over financial reporting as of September 30, 2010 has
been audited by PricewaterhouseCoopers LLP, our independent registered public accounting firm, who
also audited our Consolidated Financial Statements, as stated in their report included herein.
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/s/ John J. Greisch
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John J. Greisch
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President and Chief Executive Officer
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/s/ Gregory N. Miller
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Gregory N. Miller
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Senior Vice President and Chief Financial Officer
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/s/ Richard G. Keller
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Richard G. Keller
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Vice President, Controller and Chief Accounting Officer
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40
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Hill-Rom Holdings, Inc.
In our opinion, the consolidated financial statements listed in the accompanying index present
fairly, in all material respects, the financial position of Hill-Rom Holdings, Inc. and its
subsidiaries at September 30, 2010, and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended September 30, 2010, in conformity with
accounting principles generally accepted in the United States of America. In addition, in our
opinion, the financial statement schedule listed in the accompanying index presents fairly, in all
material respects, the information set forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of September 30, 2010, based on
criteria established in
Internal Control Integrated Framework
issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible
for these financial statements and financial statement schedule, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in Managements Report on Internal Control over Financial
Reporting. Our responsibility is to express opinions on these financial statements, on the
financial statement schedule, and on the Companys internal control over financial reporting based
on our integrated audits. We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial statements are free
of material misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. 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.
A companys 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
companys 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 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 companys 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.
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/s/ PricewaterhouseCoopers LLP
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PricewaterhouseCoopers LLP
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Indianapolis, Indiana
November 17, 2010
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41
Hill-Rom Holdings, Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
(Dollars in millions except per share data)
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September 30,
|
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September 30,
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September 30,
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Fiscal Year Ended:
|
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2010
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2009
|
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2008
|
|
Net Revenues
|
|
|
|
|
|
|
|
|
|
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Capital sales
|
|
$
|
996.6
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|
|
$
|
921.5
|
|
|
$
|
1,044.0
|
|
Rental revenues
|
|
|
473.0
|
|
|
|
465.4
|
|
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|
463.7
|
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|
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|
|
|
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Total revenues
|
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|
1,469.6
|
|
|
|
1,386.9
|
|
|
|
1,507.7
|
|
|
|
|
|
|
|
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Cost of Revenues
|
|
|
|
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|
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|
|
|
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Cost of goods sold
|
|
|
548.6
|
|
|
|
555.7
|
|
|
|
618.6
|
|
Rental expenses
|
|
|
204.4
|
|
|
|
203.3
|
|
|
|
219.6
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues
|
|
|
753.0
|
|
|
|
759.0
|
|
|
|
838.2
|
|
|
|
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|
|
|
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|
|
|
|
|
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|
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Gross Profit
|
|
|
716.6
|
|
|
|
627.9
|
|
|
|
669.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses
|
|
|
58.3
|
|
|
|
55.7
|
|
|
|
57.3
|
|
Selling and administrative expenses
|
|
|
474.6
|
|
|
|
461.6
|
|
|
|
486.6
|
|
Litigation credit (Note 16)
|
|
|
(21.2
|
)
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other intangibles (Note 5)
|
|
|
|
|
|
|
472.8
|
|
|
|
|
|
Special charges (Note 10)
|
|
|
13.2
|
|
|
|
20.5
|
|
|
|
22.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Profit (Loss)
|
|
|
191.7
|
|
|
|
(382.7
|
)
|
|
|
102.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of non-strategic assets (Note 4)
|
|
|
|
|
|
|
10.2
|
|
|
|
|
|
Interest expense
|
|
|
(8.7
|
)
|
|
|
(10.4
|
)
|
|
|
(14.3
|
)
|
Investment income and other, net
|
|
|
(0.1
|
)
|
|
|
4.1
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations Before Income Taxes
|
|
|
182.9
|
|
|
|
(378.8
|
)
|
|
|
92.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (Note 11)
|
|
|
56.9
|
|
|
|
26.2
|
|
|
|
25.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from Continuing Operations
|
|
|
126.0
|
|
|
|
(405.0
|
)
|
|
|
67.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued Operations (Note 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations before income taxes
|
|
|
|
|
|
|
|
|
|
|
78.8
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
|
|
30.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
48.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
126.0
|
|
|
|
(405.0
|
)
|
|
|
115.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net income attributable to noncontrolling interest
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Common Shareholders
|
|
$
|
125.3
|
|
|
$
|
(405.0
|
)
|
|
$
|
115.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common shareholders per common share
from continuing operations Basic
|
|
$
|
1.99
|
|
|
$
|
(6.47
|
)
|
|
$
|
1.07
|
|
Income attributable to common shareholders per common share
from discontinued operations Basic
|
|
|
|
|
|
|
|
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Common Shareholders
per Common Share Basic
|
|
$
|
1.99
|
|
|
$
|
(6.47
|
)
|
|
$
|
1.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common shareholders per common share
from continuing operations Diluted
|
|
$
|
1.97
|
|
|
$
|
(6.47
|
)
|
|
$
|
1.07
|
|
Income attributable to common shareholders per common share
from discontinued operations Diluted
|
|
|
|
|
|
|
|
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Common Shareholders
per Common Share Diluted
|
|
$
|
1.97
|
|
|
$
|
(6.47
|
)
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per Common Share
|
|
$
|
0.41
|
|
|
$
|
0.41
|
|
|
$
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding Basic (thousands) (Note 12)
|
|
|
62,934
|
|
|
|
62,581
|
|
|
|
62,426
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding Diluted (thousands) (Note 12)
|
|
|
63,739
|
|
|
|
62,581
|
|
|
|
62,622
|
|
|
|
|
|
|
|
|
|
|
|
Note: Certain per share amounts may not accurately add due to rounding.
See Notes to Consolidated Financial Statements.
42
Hill-Rom Holdings, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in millions except share data)
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
184.5
|
|
|
$
|
170.6
|
|
Short term investments (Notes 1 and 7)
|
|
|
|
|
|
|
26.4
|
|
Trade accounts receivable, less allowances of $29.0 in 2010 and $27.5 in 2009 (Note 1)
|
|
|
353.1
|
|
|
|
346.6
|
|
Inventories (Note 1)
|
|
|
108.5
|
|
|
|
92.0
|
|
Deferred income taxes (Notes 1 and 11)
|
|
|
40.4
|
|
|
|
46.0
|
|
Other current assets
|
|
|
52.7
|
|
|
|
13.5
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
739.2
|
|
|
|
695.1
|
|
|
|
|
|
|
|
|
Property, plant and equipment (Note 1)
|
|
|
805.0
|
|
|
|
821.2
|
|
Less accumulated depreciation
|
|
|
(561.3
|
)
|
|
|
(548.8
|
)
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
243.7
|
|
|
|
272.4
|
|
|
|
|
|
|
|
|
Investments and investment securities (Notes 1 and 7)
|
|
|
12.1
|
|
|
|
17.2
|
|
Intangible assets:
|
|
|
|
|
|
|
|
|
Goodwill (Notes 1 and 5)
|
|
|
81.1
|
|
|
|
73.1
|
|
Software and other, net (Note 1)
|
|
|
136.6
|
|
|
|
141.9
|
|
Other assets
|
|
|
32.9
|
|
|
|
32.9
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,245.6
|
|
|
$
|
1,232.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Trade accounts payable
|
|
$
|
80.6
|
|
|
$
|
81.3
|
|
Short-term borrowings (Note 6)
|
|
|
53.1
|
|
|
|
102.2
|
|
Accrued compensation
|
|
|
88.9
|
|
|
|
72.7
|
|
Accrued litigation (Note 16)
|
|
|
|
|
|
|
21.2
|
|
Accrued product warranties (Note 1)
|
|
|
15.8
|
|
|
|
17.1
|
|
Other current liabilities
|
|
|
50.3
|
|
|
|
49.8
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
288.7
|
|
|
|
344.3
|
|
|
|
|
|
|
|
|
Long-term debt (Note 6)
|
|
|
98.5
|
|
|
|
99.7
|
|
Accrued pension and postretirement benefits (Note 8)
|
|
|
59.0
|
|
|
|
100.7
|
|
Deferred income taxes (Notes 1 and 11)
|
|
|
31.3
|
|
|
|
16.8
|
|
Other long-term liabilities
|
|
|
52.3
|
|
|
|
61.8
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
529.8
|
|
|
|
623.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest (Note 2)
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY (Notes 9 and 13)
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
Issued 80,323,912 shares in 2010 and 2009
|
|
|
4.4
|
|
|
|
4.4
|
|
Additional paid-in-capital
|
|
|
119.3
|
|
|
|
119.0
|
|
Retained earnings
|
|
|
1,203.6
|
|
|
|
1,105.2
|
|
Accumulated other comprehensive loss (Note 1)
|
|
|
(61.8
|
)
|
|
|
(59.9
|
)
|
Treasury stock, at cost: 2010 17,537,029 common shares, 2009 17,656,350 common shares
|
|
|
(558.0
|
)
|
|
|
(559.4
|
)
|
|
|
|
|
|
|
|
Total Shareholders Equity
|
|
|
707.5
|
|
|
|
609.3
|
|
|
|
|
|
|
|
|
Total Liabilities, Non-Controlling Interest and Shareholders Equity
|
|
$
|
1,245.6
|
|
|
$
|
1,232.6
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
43
Hill-Rom Holdings, Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
Fiscal Year Ended:
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
126.0
|
|
|
$
|
(405.0
|
)
|
|
$
|
115.8
|
|
Adjustments to reconcile net income (loss) to net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
99.7
|
|
|
|
100.2
|
|
|
|
112.8
|
|
Impairment of goodwill and other intangibles
|
|
|
|
|
|
|
472.8
|
|
|
|
-
|
|
Net realized capital losses (gains) and equity method investment (income) loss
|
|
|
0.2
|
|
|
|
0.1
|
|
|
|
(6.8
|
)
|
Litigation credit
|
|
|
(21.2
|
)
|
|
|
|
|
|
|
|
|
Provision for deferred income taxes
|
|
|
21.2
|
|
|
|
3.5
|
|
|
|
(22.9
|
)
|
Loss on disposal of property, equipment leased to others, intangible assets and impairments
|
|
|
7.3
|
|
|
|
5.8
|
|
|
|
18.6
|
|
Gain on sale of non-strategic assets
|
|
|
|
|
|
|
(10.2
|
)
|
|
|
|
|
Stock compensation
|
|
|
12.0
|
|
|
|
12.1
|
|
|
|
23.2
|
|
Tax settlement
|
|
|
(8.2
|
)
|
|
|
|
|
|
|
|
|
Defined benefit plan funding
|
|
|
(52.3
|
)
|
|
|
(13.5
|
)
|
|
|
(1.8
|
)
|
Change in working capital excluding cash, current investments, current debt, acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(7.0
|
)
|
|
|
61.2
|
|
|
|
(2.8
|
)
|
Inventories
|
|
|
(16.2
|
)
|
|
|
23.7
|
|
|
|
5.2
|
|
Other current assets
|
|
|
(37.5
|
)
|
|
|
1.1
|
|
|
|
8.2
|
|
Trade accounts payable
|
|
|
(2.4
|
)
|
|
|
(23.9
|
)
|
|
|
15.1
|
|
Accrued expenses and other liabilities
|
|
|
12.5
|
|
|
|
(20.2
|
)
|
|
|
(2.6
|
)
|
Interest proceeds on seller financing
|
|
|
|
|
|
|
|
|
|
|
11.2
|
|
Other, net
|
|
|
5.7
|
|
|
|
18.0
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
139.8
|
|
|
|
225.7
|
|
|
|
270.5
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures and purchase of intangibles
|
|
|
(64.7
|
)
|
|
|
(63.9
|
)
|
|
|
(102.6
|
)
|
Proceeds on disposal of property and equipment leased to others
|
|
|
2.5
|
|
|
|
2.9
|
|
|
|
0.6
|
|
Proceeds on sale of non-strategic assets
|
|
|
|
|
|
|
11.9
|
|
|
|
|
|
Payment for acquisition of businesses, net of cash acquired
|
|
|
(7.3
|
)
|
|
|
(187.2
|
)
|
|
|
|
|
Investment purchases and capital calls
|
|
|
|
|
|
|
|
|
|
|
(325.6
|
)
|
Proceeds on investment sales and maturities
|
|
|
31.3
|
|
|
|
2.1
|
|
|
|
343.5
|
|
Principal proceeds from liquidation of preferred stock investment and seller financing notes receivable
|
|
|
|
|
|
|
|
|
|
|
27.8
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(38.2
|
)
|
|
|
(234.2
|
)
|
|
|
(56.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in short-term debt, net of debt issuance costs
|
|
|
(4.1
|
)
|
|
|
5.2
|
|
|
|
85.9
|
|
Payment on revolver
|
|
|
(45.0
|
)
|
|
|
|
|
|
|
|
|
Borrowings on revolver
|
|
|
|
|
|
|
|
|
|
|
250.0
|
|
Payment of long-term debt, net of proceeds from settlement of interest rate swaps
|
|
|
|
|
|
|
(25.7
|
)
|
|
|
(225.3
|
)
|
Payment of cash dividends
|
|
|
(25.8
|
)
|
|
|
(25.6
|
)
|
|
|
(48.2
|
)
|
Distribution to noncontrolling interest partner
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
|
|
22.9
|
|
|
|
0.1
|
|
|
|
16.5
|
|
Proceeds from employee stock purchase plan
|
|
|
2.6
|
|
|
|
1.3
|
|
|
|
|
|
Treasury stock acquired
|
|
|
(36.9
|
)
|
|
|
(0.6
|
)
|
|
|
(1.4
|
)
|
Cash transferred to Hillenbrand, Inc. in spin-off
|
|
|
|
|
|
|
|
|
|
|
(141.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(87.4
|
)
|
|
|
(45.3
|
)
|
|
|
(63.8
|
)
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate changes on Cash
|
|
|
(0.3
|
)
|
|
|
2.7
|
|
|
|
(10.2
|
)
|
Net Cash Flows
|
|
|
13.9
|
|
|
|
(51.1
|
)
|
|
|
140.2
|
|
Cash and Cash Equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
At beginning of period
|
|
|
170.6
|
|
|
|
221.7
|
|
|
|
81.5
|
|
|
|
|
|
|
|
|
|
|
|
At end of period
|
|
$
|
184.5
|
|
|
$
|
170.6
|
|
|
$
|
221.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes
|
|
$
|
87.3
|
|
|
$
|
19.3
|
|
|
$
|
99.6
|
|
Cash paid for interest
|
|
$
|
7.7
|
|
|
$
|
9.9
|
|
|
$
|
18.8
|
|
Non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock issued under stock compensation plans
|
|
$
|
38.3
|
|
|
$
|
6.1
|
|
|
$
|
17.2
|
|
See Notes to Consolidated Financial Statements.
44
Hill-Rom Holdings, Inc. and Subsidiaries
STATEMENTS OF CONSOLIDATED SHAREHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Common Stock
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Additional
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
in Treasury
|
|
|
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Paid-in-Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2007
|
|
|
61,991,652
|
|
|
$
|
4.4
|
|
|
$
|
98.4
|
|
|
$
|
1,753.4
|
|
|
$
|
2.3
|
|
|
|
18,332,260
|
|
|
$
|
(580.7
|
)
|
|
$
|
1,277.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of uncertain tax position provisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10.3
|
)
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115.8
|
|
Foreign currency translation adjustment, net of tax
of $1.5 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(13.1
|
)
|
Net change in unrealized gain on available-for-sale
securities, net of tax of $1.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(2.6
|
)
|
Items not yet recognized as a component of net periodic
pension costs, net of tax of $4.7 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(4.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95.2
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
0.4
|
|
|
|
(48.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48.2
|
)
|
Treasury shares acquired
|
|
|
(27,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,554
|
|
|
|
(1.4
|
)
|
|
|
(1.4
|
)
|
Stock awards and option exercises
|
|
|
544,836
|
|
|
|
|
|
|
|
22.4
|
|
|
|
|
|
|
|
|
|
|
|
(544,836
|
)
|
|
|
17.2
|
|
|
|
39.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
62,508,934
|
|
|
|
4.4
|
|
|
|
121.2
|
|
|
|
1,810.3
|
|
|
|
(18.3
|
)
|
|
|
17,814,978
|
|
|
|
(564.9
|
)
|
|
|
1,352.7
|
|
Spin-off of funeral services business (Note 3)
|
|
|
|
|
|
|
|
|
|
|
(10.0
|
)
|
|
|
(274.2
|
)
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
|
|
(270.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2008
|
|
|
62,508,934
|
|
|
|
4.4
|
|
|
|
111.2
|
|
|
|
1,536.1
|
|
|
|
(4.2
|
)
|
|
|
17,814,978
|
|
|
|
(564.9
|
)
|
|
|
1,082.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(405.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(405.0
|
)
|
Foreign currency translation adjustment, net of tax
of $0.9 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(15.0
|
)
|
Net change in unrealized gain on available-for-sale
securities, net of tax of $0.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.3
|
)
|
Items not yet recognized as a component of net periodic
pension costs, net of tax of $25.0 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(40.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(40.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(460.7
|
)
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
(25.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.6
|
)
|
Treasury shares acquired
|
|
|
(32,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,481
|
|
|
|
(0.6
|
)
|
|
|
(0.6
|
)
|
Stock awards and option exercises
|
|
|
191,109
|
|
|
|
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
(191,109
|
)
|
|
|
6.1
|
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009
|
|
|
62,667,562
|
|
|
|
4.4
|
|
|
|
119.0
|
|
|
|
1,105.2
|
|
|
|
(59.9
|
)
|
|
|
17,656,350
|
|
|
|
(559.4
|
)
|
|
|
609.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126.0
|
|
Foreign currency translation adjustment, net of tax
of $1.3 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
0.7
|
|
Net change in unrealized gain on available-for-sale
securities, net of tax of $0.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
Items not yet recognized as a component of net periodic
pension costs, net of tax of $0.1 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124.1
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
(26.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25.8
|
)
|
Treasury shares acquired
|
|
|
(1,092,469
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,092,469
|
|
|
|
(36.9
|
)
|
|
|
(36.9
|
)
|
Stock awards and option exercises
|
|
|
1,211,790
|
|
|
|
|
|
|
|
(2.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,211,790
|
)
|
|
|
38.3
|
|
|
|
35.9
|
|
Impact of Joint Venture
|
|
|
|
|
|
|
|
|
|
|
2.4
|
|
|
|
(1.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
|
62,786,883
|
|
|
$
|
4.4
|
|
|
$
|
119.3
|
|
|
$
|
1,203.6
|
|
|
$
|
(61.8
|
)
|
|
|
17,537,029
|
|
|
$
|
(558.0
|
)
|
|
$
|
707.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Consolidated Financial Statements.
45
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
Hill-Rom Holdings, Inc. (the Company, Hill-Rom, we, us, or our) (formerly known as
Hillenbrand Industries, Inc.) was incorporated on August 7, 1969 in the State of Indiana and is
headquartered in Batesville, Indiana. We are a leading worldwide manufacturer and provider of
medical technologies and related services for the health care industry, including patient support
systems, safe mobility and handling solutions, non-invasive therapeutic products for a variety of
acute and chronic medical conditions, medical equipment rentals and information technology
solutions. Our comprehensive product and service offerings are used by health care providers across
the health care continuum in hospitals, extended care facilities and home care settings worldwide,
to enhance the safety and quality of patient care.
Basis of Presentation
On March 31, 2008, we completed the spin-off of our funeral services business operating under the
Batesville Casket name, through a tax-free stock dividend to our shareholders. In connection with
the distribution, we changed our name from Hillenbrand Industries, Inc. to Hill-Rom Holdings, Inc.
In accordance with our accounting for the impairment or disposal of long-lived assets, the results
of operations of the funeral services business have been presented as a discontinued operation for
the year ended September 30, 2008 in the Statement of Consolidated Income (Loss). The 2008
Statement of Consolidated Cash Flows is presented without separate classification of cash flows
from the funeral services business through March 31, 2008. Unless otherwise noted, the Notes to
Consolidated Financial Statements exclude information related to the funeral services business.
See Note 3 for a further discussion of the spin-off of the funeral services business.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of the Company and our majority-owned
subsidiaries. All subsidiaries are wholly-owned with the exception of the 60 percent owned joint
venture acquired during the first quarter of fiscal 2010 and discussed in Note 2. Intercompany
accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires our 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 during the reporting period. Actual results could differ from those estimates. Examples of
such estimates include our accounts receivable reserves (Note 1), accrued warranties (Note 1), the
impairment of intangibles (Note 5), investments (Note 7), income taxes (Note 11) and commitments
and contingencies (Note 16), among others.
Cash and Cash Equivalents
We consider investments in marketable securities and other highly liquid instruments with a
maturity of three months or less at date of purchase to be cash equivalents. Investments which have
no stated maturity are also considered cash equivalents. All of our marketable securities may be
freely traded.
Investment and Investment Securities
At September 30, 2010, investment securities consisted primarily of AAA rated student loan auction
rate securities (ARS). These securities are generally insured through the U.S. governments
Federal Family Education Loan Program, to the extent the borrowers meet certain prescribed criteria
in their underlying lending practices. As of September 30, 2010, we held $11.8 million of ARS that
were recorded at fair value and classified as available-for-sale with unrealized holding gains and
losses recorded in Accumulated Other Comprehensive Income (Loss) (AOCL).
46
We also previously held ARS with UBS Financial Services (UBS). During the first quarter of 2009,
we entered into an enforceable, non-transferable right (the Put) with UBS, which allowed us to
exercise this Put at anytime during the period of June 30, 2010 through July 2, 2012. During the
quarter ended June 30, 2010, UBS redeemed $14.1 million of our ARS plus interest. On June 30, 2010,
we successfully exercised our rights under this Put for all remaining ARS held with UBS and
received cash proceeds of $12.0 million, including accrued interest, on July 1, 2010.
We regularly evaluate all investments classified as available-for-sale for possible impairment
based on current economic conditions, credit loss experience and other criteria. The evaluation of
investments for impairment requires significant judgments to be made including (i) the
identification of potentially impaired securities; (ii) the determination of their estimated fair
value; (iii) the assessment of whether any decline in estimated fair value is other-than-temporary;
and (iv) the likelihood of selling before recovery. If there is a decline in a securitys net
realizable value that is other-than-temporary, the decline is separated into the amount of
impairment related to credit loss and the amount of impairment related to all other factors. The
decline related to the credit loss is recognized in earnings, while the decline related to all
other factors is recognized in AOCL.
See Note 7 for further details on our fair value measurements.
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 payment terms exceeding one year. Reserves for
uncollectible accounts represent our best estimate of the amount of probable credit losses and
collection risk in our existing accounts receivable. We determine such reserves based on historical
write-off experience by industry and reimbursement platform. Receivables are generally reviewed on
a pooled basis based on historical collection experience for each reimbursement and receivable
type. Receivables for capital sales transactions 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 claims denials, payment defaults,
adverse changes in general economic conditions, instability or disruption of credit markets, or an
unexpected material adverse change in a major customers or payors ability to meet its
obligations, our estimates of the realizability of trade receivables could be reduced by a material
amount.
Within
rental revenues, the domestic third-party payors 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
payor 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 are valued at the lower of cost or market. Inventory costs are determined by the
last-in, first-out (LIFO) method for approximately 65 percent and 55 percent of our inventories
at September 30, 2010 and 2009. Costs for other inventories have been determined principally by the
first-in, first-out (FIFO) method. During 2009, we made a change in cost method for certain
domestic production inventory from the FIFO method to the LIFO method. The change impacted
approximately 17 percent of our inventory and the effect on our Consolidated Financial Statements
was not significant. Inventories at September 30 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Finished products
|
|
$
|
64.2
|
|
|
$
|
57.4
|
|
Work in process
|
|
|
4.7
|
|
|
|
2.0
|
|
Raw materials
|
|
|
39.6
|
|
|
|
32.6
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
108.5
|
|
|
$
|
92.0
|
|
|
|
|
|
|
|
|
47
If the FIFO method of inventory accounting, which approximates current cost, had been used for all
inventories, they would have been approximately $1.2 million and $3.6 million higher than reported
at September 30, 2010 and 2009.
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 25 years
|
Buildings and building equipment
|
|
20 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 or amortization are 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 included within continuing operations
on the Statements of Consolidated Income (Loss) for fiscal years 2010, 2009 and 2008 was $72.8
million, $74.3 million and $81.0 million. The major components of property and the related
accumulated depreciation at September 30, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Accumulated
|
|
|
|
Cost
|
|
|
Depreciation
|
|
|
Cost
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and land improvements
|
|
$
|
12.5
|
|
|
$
|
3.7
|
|
|
$
|
12.0
|
|
|
$
|
3.5
|
|
Buildings and building equipment
|
|
|
112.8
|
|
|
|
75.7
|
|
|
|
112.7
|
|
|
|
74.5
|
|
Machinery and equipment
|
|
|
257.1
|
|
|
|
192.2
|
|
|
|
269.9
|
|
|
|
199.0
|
|
Equipment leased to others
|
|
|
422.6
|
|
|
|
289.7
|
|
|
|
426.6
|
|
|
|
271.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
805.0
|
|
|
$
|
561.3
|
|
|
$
|
821.2
|
|
|
$
|
548.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible Assets
Intangible assets are stated at cost and consist predominantly of goodwill, software, patents and
trademarks. With the exception of goodwill and certain trademarks, our intangible assets are
amortized on a straight-line basis over periods generally ranging from 3 to 20 years.
We assess the carrying value of goodwill and non-amortizable intangibles annually, during the third
quarter of each fiscal year, or more often if events or changes in circumstances indicate there may
be impairment. Goodwill is allocated among the reporting units based on the relative fair value of
those units.
Our goodwill and many of our intangible assets are not deductible for income tax purposes. A
summary of intangible assets and the related accumulated amortization
and impairment losses as of September 30 was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
Amortization
|
|
|
|
Cost
|
|
|
and Impairment
|
|
|
Cost
|
|
|
and Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
553.9
|
|
|
$
|
472.8
|
|
|
$
|
545.9
|
|
|
$
|
472.8
|
|
Software
|
|
|
150.5
|
|
|
|
91.7
|
|
|
|
141.7
|
|
|
|
75.7
|
|
Other
|
|
|
123.9
|
|
|
|
46.1
|
|
|
|
111.7
|
|
|
|
35.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
828.3
|
|
|
$
|
610.6
|
|
|
$
|
799.3
|
|
|
$
|
584.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48
Amortization expense included within continuing operations in the Statements of Consolidated Income
(Loss) for fiscal years 2010, 2009 and 2008 was $26.9 million, $25.9 million and $22.5 million.
Amortization expense for all intangibles is expected to approximate the following for each of the
next five fiscal years and thereafter: $29.7 million in 2011, $28.7 million in 2012, $23.8 million
in 2013, $15.8 million in 2014, $10.1 million in 2015 and $9.3 million thereafter.
Software consists mainly of capitalized costs associated with internal use software, including
applicable costs associated with the implementation/upgrade of our Enterprise Resource Planning
system. In addition, software includes capitalized development costs for software products to be
sold. The net book value of computer software costs, included within Intangible assets, was $58.8
million and $66.0 million at September 30, 2010 and 2009. Capitalized software costs are amortized
on a straight-line basis over periods ranging from three to ten years. Amortization expense
included within continuing operations in the Statements of Consolidated Income (Loss) approximated
$17.5 million, $16.6 million and $14.8 million for fiscal years 2010, 2009 and 2008.
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
broad-based correction, separate reserves are established when such events are identified and the
cost of correction can be reasonably estimated.
A reconciliation of changes in our warranty reserve for fiscal years 2010, 2009 and 2008 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 1
|
|
$
|
17.1
|
|
|
$
|
16.9
|
|
|
$
|
19.8
|
|
Provision for warranties during the period
|
|
|
16.0
|
|
|
|
16.9
|
|
|
|
17.4
|
|
Warranty reserves acquired
|
|
|
|
|
|
|
3.6
|
|
|
|
|
|
Warranty claims incurred during the period
|
|
|
(17.3
|
)
|
|
|
(20.3
|
)
|
|
|
(20.3
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30
|
|
$
|
15.8
|
|
|
$
|
17.1
|
|
|
$
|
16.9
|
|
|
|
|
|
|
|
|
|
|
|
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 would not materially impact our financial condition or results of operations,
although indemnifications associated with our actions generally have no dollar limitations.
In conjunction with our acquisition and divestiture activities, we have entered into select
guarantees and indemnifications of performance with respect to the fulfillment of 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. For those representations and warranties that survive closing, they
generally survive for periods up to five years or the expiration of the applicable statutes of
limitations. Potential losses under the indemnifications are generally limited to a portion of the
original transaction price, or to other lesser specific dollar amounts for select provisions. With
respect to sale transactions, we also routinely enter into non-competition agreements for varying
periods of time. Guarantees and indemnifications with respect to acquisition and divestiture
activities, if triggered, could have a materially adverse impact on our financial condition and
results of operations.
Retirement Plans
We sponsor retirement and postretirement plans covering select employees. Expense recognized in
relation to these defined benefit retirement plans and the postretirement health care plan is based
upon actuarial valuations and inherent in those valuations are key assumptions including discount
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 of wage adjustments.
49
We account for our defined benefit pension and other postretirement plans by recognizing the funded
status of a benefit plan in the statement of financial position. We also recognize in Accumulated
Other Comprehensive Income (Loss) certain gains and losses that arose during the period. See Note 8
for key assumptions and further discussion related to our pension and postretirement plans.
Environmental Liabilities
Expenditures that relate to an existing 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 limits for product/general liability, workers
compensation, auto liability and professional liability insurance programs. These policies have
deductibles and self-insured retentions ranging from $150 thousand to $1.5 million per occurrence,
depending upon the type of coverage and policy period. We are also generally self-insured up to
certain stop-limits for certain employee health benefits, including medical, drug and dental. Our
policy is to estimate reserves based upon a number of factors including known claims, estimated
incurred but not reported claims and outside actuarial analysis, which are based on historical
information along with certain assumptions about future events. Such estimated reserves are
classified as Other Current Liabilities and Other Long-Term Liabilities within the Consolidated
Balance Sheets.
Revenue Recognition Sales and Rentals
Net revenues reflect gross revenues less sales discounts and allowances and customer returns for
product sales and a provision for uncollectible receivables for rentals. Revenue is evaluated under
the following criteria and recognized when each is met:
|
|
|
Evidence of an arrangement:
An agreement with the customer reflecting the terms and
conditions to deliver products or services serves as evidence of an arrangement.
|
|
|
|
Delivery:
For products, delivery is considered to occur upon receipt by the customer and
the transfer of title and risk of loss. For rental services, delivery is considered to occur
when the services are rendered.
|
|
|
|
Fixed or determinable price:
The sales price is considered fixed or determinable if it is
not subject to refund or adjustment.
|
|
|
|
Collection is deemed probable:
At or prior to the time of a transaction, credit reviews
of each customer are performed to determine the creditworthiness of the customer. Collection
is deemed probable if the customer is expected to be able to pay amounts under the
arrangement as those amounts become due. If collection is not probable, revenue is
recognized when collection becomes probable, generally upon cash collection.
|
As a general interpretation of the above guidelines, revenues for health care products in the
patient care environment are generally recognized upon delivery of the products to the customer and
their assumption of risk of loss and other risks and rewards of ownership. Local business customs
and non-standard sales terms can sometimes result in deviations to this normal practice in certain
instances; however, in no case is revenue recognized prior to the transfer of risk of loss and
rewards of ownership.
For non-invasive therapy products and medical equipment management services, the majority of
product offerings are rental products for which revenues are recognized consistent with the
rendering of the service and use of products. For The Vest
®
product, revenue is generally
recognized at the time of receipt of authorization for billing from the applicable paying entity as
this serves as evidence of the arrangement and sets a fixed or determinable price.
50
For health care products and services aimed at improving operational efficiency and asset
utilization, various revenue recognition techniques are used, depending on the offering.
Arrangements to provide services, routinely under separately sold service and maintenance
contracts, result in the deferral of revenues until specified services are performed. Service
contract revenue is generally
recognized ratably over the contract period, if applicable, or as services are rendered.
Product-related goods are generally recognized upon delivery to the customer, similar to products
in the patient care environment.
Revenues are presented in the Statements of Consolidated Income (Loss) net of certain discounts and
sales adjustments. 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 revenues. Reserves for revenue are estimated based upon historical rates for revenue
adjustments.
Taxes Collected from Customers and Remitted to Governmental Units
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 accounted for on a net (excluded from revenues and costs) basis.
Cost of Revenues
Cost of goods sold for capital 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 are expensed as incurred. Costs included within continuing
operations in the Statements of Consolidated Income (Loss) were $58.3 million, $55.7 million and
$57.3 million for fiscal years 2010, 2009 and 2008.
In addition, certain software development technology costs 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
amount spent during fiscal years 2010, 2009 and 2008 was approximately $4.8 million, $5.8 million
and $9.5 million.
Advertising Costs
Advertising costs are expensed as incurred. Costs included within continuing operations in the
Statements of Consolidated Income (Loss) were $4.3 million, $4.0 million and $7.0 million for
fiscal years 2010, 2009 and 2008.
Comprehensive Income
We include the net-of-tax effect of unrealized gains or losses on our available-for-sale
securities, foreign currency translation adjustments and pension or other defined benefit
postretirement plans actuarial gains or losses and prior service costs or credits in comprehensive
income.
The
composition of Accumulated Other Comprehensive Income (Loss) at September 30 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities and currency hedges
|
|
$
|
(0.7
|
)
|
|
$
|
(0.9
|
)
|
|
$
|
(0.6
|
)
|
Foreign currency translation adjustment
|
|
|
(11.9
|
)
|
|
|
(12.6
|
)
|
|
|
2.4
|
|
Items not yet recognized as a component of net periodic pension and
postretirement healthcare costs
|
|
|
(49.2
|
)
|
|
|
(46.4
|
)
|
|
|
(6.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(61.8
|
)
|
|
$
|
(59.9
|
)
|
|
$
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
51
Foreign Currency Translation
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 during 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.
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. In order to determine the fair value of stock options on the date of grant, we
utilize a Binomial model. Inherent in this model 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. Deferred stock (also known as 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 for further details.
Income Taxes
The Company and its eligible domestic subsidiaries file a consolidated U.S. income tax return.
Foreign operations file income tax returns in a number of jurisdictions. Deferred income taxes 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. 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 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. See Note 11 for further details.
Derivative Instruments and Hedging Activity
We use derivative financial instruments to manage the economic impact of fluctuations in currency
exchange rates. Derivative financial instruments related to currency exchange rates include forward
purchase and sale agreements which generally have terms no greater than 15 months. Additionally,
interest rate swaps have sometimes been used to convert a portion of our long-term debt from fixed
to variable interest rates.
Derivative financial instruments are recognized on 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 (Loss) or Accumulated Other
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. Gains and
losses on derivative instruments reported in Accumulated Other Comprehensive Income (Loss) are
subsequently included in the Statement of Consolidated Income (Loss) in the periods in which
earnings are affected by the hedged item. These activities have not had a material effect on our
financial position or results of operations for the periods presented herein.
Recently Issued Accounting Guidance
On October 1, 2009, we adopted the Financial Accounting Standard Boards (FASB) authoritative
guidance related to business combinations, noncontrolling interests in consolidated financial
statements and assets acquired and liabilities assumed in a business combination that arise from
contingencies. Our adoption of this guidance was prospective and applies to business combinations
that occurred on or after October 1, 2009. See Note 2 for application of this guidance to the joint
venture entered into during our first fiscal quarter of 2010.
52
On October 1, 2009, we adopted the FASBs authoritative guidance related to the determination of
the useful life of intangible assets. Our adoption of this guidance was prospective and did not
have a material impact on our consolidated financial statements or the joint venture discussed in
Note 2.
On October 1, 2009, we early adopted the FASBs authoritative guidance for arrangements with
multiple deliverables and arrangements that include software elements. Our adoption of this
guidance was prospective and did not have a material impact on our consolidated financial
statements.
In December 2008, the FASB issued new authoritative guidance related to employers disclosures
about postretirement benefit plan assets. This guidance requires detailed annual disclosures
regarding the investment strategies, fair value measurements, and concentration of risk of plan
assets of our defined benefit pension plans. Our adoption of this guidance is prospective and
became effective beginning September 30, 2010. See Note 8 for further details.
In June 2009, the FASB revised the authoritative guidance to require entities to provide more
information about sales of securitized financial assets and similar transactions, particularly if
the seller retains some risk with respect to the assets. This revised guidance will become
effective beginning October 1, 2010. We have evaluated the potential impact this guidance may have
on our consolidated financial statements and have concluded that it is not material to our existing
activity. When appropriate, we will consider and apply this guidance in connection with future
business transactions.
In June 2009, the FASB revised the authoritative guidance to improve financial reporting by
companies involved with variable interest entities and to provide more relevant and reliable
information to users of financial statements. This revised guidance will become effective beginning
October 1, 2010. We have evaluated the potential impact this guidance may have on our consolidated
financial statements and have concluded that it is currently not applicable to us. When
appropriate, we will consider and apply this guidance in connection with future business
transactions.
NOTE 2. ACQUISITIONS
Encompass Joint Venture
On November 9, 2009, we entered into a joint venture with Encompass Group, LLC (Encompass Group),
a leader in health care textiles and therapeutic and prevention surfaces, to form Encompass TSS,
LLC (Encompass JV). This joint venture includes contributed former assets of Encompass
Therapeutic Support Systems (ETSS), a division of Encompass Group and is 60 percent owned by us
and 40 percent owned by Encompass Group. Encompass Group, through its ETSS business unit,
traditionally focused on providing surface replacement systems. For our 60 percent ownership
interest in the Encompass JV we paid $7.5 million to Encompass Group, contributed cash and entered
into license and distribution agreements with Encompass JV.
The following summarizes the fair value of the assets acquired and liabilities assumed at the date
of formation.
|
|
|
|
|
|
|
Amount
|
|
Goodwill
|
|
$
|
8.0
|
|
Trade Name
|
|
|
1.5
|
|
Customer relationships
|
|
|
7.7
|
|
Technology
|
|
|
2.4
|
|
Net liabilities assumed
|
|
|
(0.7
|
)
|
Noncontrolling interest
|
|
|
(7.5
|
)
|
Additional paid-in-capital
|
|
|
(3.9
|
)
|
|
|
|
|
Total purchase price
|
|
$
|
7.5
|
|
|
|
|
|
53
The Encompass JV agreements contain both a put option for Encompass Group and a call option for us,
requiring or allowing us to purchase the remaining 40 percent interest, which are based on
predetermined earnings multiples. Changes to the value of the put are accreted to noncontrolling
interest in our Consolidated Balance Sheet with the offset being recorded as a component of
retained earnings.
The goodwill of $8.0 million arising from the Encompass JV consists largely of the synergies
created from combining ETSSs focus on customer replacement surfaces with our platform brands. The
goodwill is deductible for tax purposes and will be allocated entirely to our North America Acute
Care segment.
The useful lives assigned to intangibles identified as part of the Encompass JV are as follows:
|
|
|
|
|
|
|
Useful Life
|
|
Trade name
|
|
|
7
|
|
Customer relationships
|
|
|
7
|
|
Technology
|
|
|
5
|
|
If the Encompass JV had been consummated at the beginning of our 2009 fiscal year, the impact to
revenues and net income on an unaudited pro forma basis would not have been significant to our
financial results in any of the periods presented.
Liko Acquisition
On October 1, 2008, we acquired two affiliated companies: Liko Vårdlyft AB (Liko Sweden) and Liko
North America Corporation (Liko North America and, together with Liko Sweden, Liko). Liko,
headquartered in Lulea, Sweden, is a leading supplier and developer of patient lifts, slings and
other patient transfer technology. The acquisition of Liko represents a direct connection to our
mission of enhancing outcomes for patients and their caregivers and is in line with our strategy to
add complementary technologies that leverage our global business and presence across the continuum
of care. The purchase price for Liko was $190.4 million, including direct acquisition costs of
$3.6 million and the payment of outstanding Liko debt of $9.8 million ($187.2 million net of cash
acquired). The results of Liko are included in the Consolidated Financial Statements since the
date of acquisition.
The following table summarizes the allocation of the purchase price of Liko based on estimated fair
values as of the acquisition date:
|
|
|
|
|
|
|
Amount
|
|
Goodwill
|
|
$
|
139.5
|
|
Trade name
|
|
|
15.8
|
|
Customer relationships
|
|
|
15.1
|
|
Developed technology
|
|
|
7.3
|
|
Non-compete agreements
|
|
|
1.7
|
|
Net assets acquired
|
|
|
18.9
|
|
Deferred tax liabilities
|
|
|
(7.9
|
)
|
|
|
|
|
Total purchase price
|
|
$
|
190.4
|
|
|
|
|
|
The purchase price remains subject to adjustment based on finalization of working capital and net
debt adjustment provisions contained in the purchase agreements. Any such adjustment is expected to
be favorable and not material and would be recorded in our Consolidated Statement of Income (Loss)
as a reduction of the goodwill impairment charge that we recorded during fiscal 2009.
Goodwill is not deductible for tax purposes and has been allocated to reporting units included in
all three of our reportable segments based on projected cash flows. The useful lives assigned to
intangibles identified as part of the acquisition are as follows:
|
|
|
|
|
|
|
Useful Life
|
|
Trade name
|
|
Indefinite
|
|
Developed technology
|
|
|
7
|
|
Customer relationships
|
|
|
7
|
|
Non-compete agreements
|
|
|
5
|
|
Total revenues for 2008 on an unaudited pro forma basis, as if the Liko acquisition had been
consummated at the beginning of our 2008 fiscal year, would have been higher by approximately $74
million. The impact to net income on an unaudited pro forma basis would not have been significant
to our financial results.
54
NOTE 3. DISCONTINUED OPERATIONS
As discussed in Note 1, on March 31, 2008, we completed the spin-off of our funeral services
business through a tax-free stock dividend to our shareholders. Pursuant to the Distribution
Agreement (Distribution Agreement) between us and Hillenbrand, Inc., the holding company for the
funeral services business, we contributed net assets in the amount of $270.1 million to
Hillenbrand, Inc. The following table presents summary information related to the net assets
contributed to Hillenbrand, Inc. at the close of business on March 31, 2008:
|
|
|
|
|
Assets
|
|
|
|
|
Current Assets
|
|
|
|
|
Cash
|
|
$
|
125.9
|
|
Investment securities
|
|
|
55.3
|
|
Trade accounts receivable, net of allowances
|
|
|
101.8
|
|
Inventories
|
|
|
49.7
|
|
Deferred income taxes
|
|
|
19.6
|
|
Other current assets
|
|
|
37.2
|
|
|
|
|
|
Total current assets
|
|
|
389.5
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
93.7
|
|
Intangible assets, net
|
|
|
21.3
|
|
Investments
|
|
|
27.9
|
|
Notes receivable
|
|
|
124.6
|
|
Deferred income taxes
|
|
|
19.5
|
|
Other assets
|
|
|
22.7
|
|
|
|
|
|
Total assets contributed
|
|
$
|
699.2
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Current liabilities
|
|
|
|
|
Trade accounts payable
|
|
$
|
19.8
|
|
Accrued compensation
|
|
|
23.1
|
|
Short-term borrowings
|
|
|
250.0
|
|
Accrued customer rebates
|
|
|
18.8
|
|
Other current liabilities
|
|
|
40.5
|
|
|
|
|
|
Total current liabilities
|
|
|
352.2
|
|
|
|
|
|
|
Accrued pension and postretirement benefits
|
|
|
38.4
|
|
Other liabilities
|
|
|
38.5
|
|
|
|
|
|
Total liabilities contributed
|
|
$
|
429.1
|
|
|
|
|
|
|
|
|
|
|
Total net assets contributed
|
|
$
|
270.1
|
|
|
|
|
|
Included in the net assets contributed and discussed above were payables of $15.4 million related
to the final cash distribution to Hillenbrand, Inc., which was paid in full in April 2008.
Additionally, at March 31, 2008, Hillenbrand, Inc. owed the Company $20.0 million related
primarily to income taxes payable on income generated by the funeral services business through the
date of separation. As of the end of fiscal 2008, this amount had been fully settled.
55
As a result of the spin-off transaction, the funeral services business and certain other costs
have been classified within discontinued operations in the Companys 2008 Consolidated Statement
of Income. The following table and accompanying notes present certain summary income statement
information related to the discontinued funeral services business and the spin-off transaction for
the fiscal year ended September 30, 2008:
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
September 30,
|
|
|
|
2008
|
|
|
|
|
|
|
Funeral services sales
|
|
$
|
354.3
|
|
Total expenses (a) (b) (c) (d)
|
|
|
275.5
|
|
|
|
|
|
Income from discontinued operations before income taxes
|
|
|
78.8
|
|
Income tax expense (e)
|
|
|
30.1
|
|
|
|
|
|
Income from discontinued operations
|
|
$
|
48.7
|
|
|
|
|
|
|
|
|
(a)
|
|
Total expenses include all costs of discontinued operations, including costs of goods sold,
operating expenses (research and development expenses and selling, general and administrative
expenses) and other income and expense items.
|
|
(b)
|
|
We incurred certain non-recurring costs directly related to the spin-off transaction of $26.1
million for fiscal year 2008. Of these amounts, which were primarily for investment banking
fees, legal, accounting, other professional and consulting fees, $24.5 million have been
allocated to discontinued operations in the 2008 Consolidated Statement of Income. All
remaining amounts are recorded within income from continuing operations.
|
|
(c)
|
|
Total one-time stock-based compensation charges of $10.3 million were recognized in the
second quarter of fiscal 2008 due to the modification of stock options and accelerated vesting
of certain restricted stock awards in connection with the spin-off. The portion of the
stock-based compensation charge related to outstanding awards held by employees of the funeral
services business, which was $4.5 million, were allocated to discontinued operations, while
the remaining $5.8 million was recorded within income from continuing operations. See Note 13
for more details of stock-based compensation activity related to the spin-off transaction.
|
|
(d)
|
|
On July 1, 2004, we closed on the sale of Forethought Financial Services, Inc., a previously
wholly-owned insurance business, to Forethought Financial Group, Inc. (FFG), for a
combination of consideration, including cash, seller financing and warrants. During our
second fiscal quarter of 2008, we renegotiated the terms of the seller financing provided to
FFG, resulting in the recognition of a cumulative charge in our second quarter of fiscal 2008
of $6.4 million. The remaining outstanding portion of the seller note and warrants were
contributed to a subsidiary of Hillenbrand, Inc. in conjunction with our spin-off of the
funeral services business, and accordingly, the $6.4 million charge was classified as a
component of income from discontinued operations in the 2008 Consolidated Statement of Income.
|
|
(e)
|
|
Includes the income tax effects of the adjustments described above.
|
The Company entered into the Distribution Agreement, a Judgment Sharing Agreement and a Tax Sharing
Agreement as well as a number of other agreements with Hillenbrand, Inc. for the purpose of
accomplishing the separation of the funeral services business from the Company and the distribution
of Hillenbrand, Inc. common stock to the Companys shareholders. These agreements govern the
relationship between the Company and Hillenbrand, Inc. subsequent to the distribution and provide
for the allocation of the assets, investments and property of the Company as well as of
investments, property, tax and other liabilities and obligations attributable to periods prior to
the distribution. They also limit our ability to incur indebtedness, pay dividends in excess of a
pre-determined amount, and make acquisitions.
Distribution Agreement
The Distribution Agreement sets forth the agreements between the Company and Hillenbrand, Inc. with
respect to the principal corporate transactions that were required to effect the separation of
Hillenbrand, Inc. from the Company, the allocation of certain corporate assets and liabilities of
the Company and Hillenbrand, Inc., and the framework of the other agreements governing the
relationship between the two companies, including indemnifications between the parties.
56
Additionally, in order to preserve the credit capacity of each of the Company and Hillenbrand, Inc.
to perform its obligations under the Judgment Sharing Agreement described below, the Distribution
Agreement imposes certain restrictive covenants on the Company and Hillenbrand, Inc. Specifically,
the Distribution Agreement provides that the Company and its subsidiaries will not:
|
|
|
incur indebtedness to finance the payment of any extraordinary cash dividend on
its outstanding capital stock or the repurchase of any outstanding shares of its
capital stock;
|
|
|
|
declare and pay regular quarterly cash dividends on the shares of the Companys
common stock in excess of $0.1025 per share;
|
|
|
|
make any acquisition outside its core area of business;
|
|
|
|
incur indebtedness in excess of $100 million to finance any acquisition in its
core area of business without the receipt of an opinion from a qualified investment
banker that the transaction is fair to the Companys shareholders from a financial
point of view; or
|
|
|
|
incur indebtedness to make an acquisition in its core area of business that
either (1) causes the Companys ratio, calculated as provided in the Distribution
Agreement, of Pro Forma Consolidated Total Debt to Consolidated EBITDA (each as
defined in the Distribution Agreement) to exceed 1.8x or (2) causes the Companys
credit rating by either Standard & Poors Ratings Services or Moodys Investor
Services to fall more than one category below its initial rating after giving effect
to the spin-off.
|
These restrictive covenants will terminate in the event that either the Companys or Hillenbrand,
Inc.s funding obligations under the Judgment Sharing Agreement terminate in accordance with the
terms of that agreement. The Distribution Agreement imposes similar restrictions on Hillenbrand,
Inc. and its subsidiaries.
Judgment Sharing Agreement
The Company and Hillenbrand, Inc.s Batesville Casket Company subsidiary have been named in an
antitrust lawsuit described in Note 16. The Company believes that it has committed no wrongdoing
as alleged by the plaintiffs and that it has meritorious defenses to plaintiffs underlying
allegations and damage theories.
The Judgment Sharing Agreement is intended to allocate any potential liability that may arise from
certain anti-trust litigation and any other case that is consolidated with the litigation. We
apply the same methodology in recording liabilities for loss contingencies related to lawsuits in
evaluating and accounting for the Judgment Sharing Agreement.
The Judgment Sharing Agreement provides that Hillenbrand, Inc. is responsible for bearing all fees
and costs incurred in the defense of the antitrust litigation matters on behalf of itself and the
Company. The Distribution Agreement contains provisions governing the joint defense of the
antitrust litigation and other claims. In the event that the Company or Hillenbrand, Inc. is
dismissed as a defendant in the antitrust litigation matters (except where the dismissal results
from a settlement agreement that does not include both the Company and Hillenbrand, Inc.) or is
found upon conclusion of trial not to be liable for payment of any damages to the plaintiffs, any
funding obligations under the Judgment Sharing Agreement of the party so dismissed or found not
liable will terminate once such dismissal or finding of no liability is finally judicially
determined. See Note 16 for additional
information on the litigation in question.
Tax Sharing Agreement
The Company entered into a Tax Sharing Agreement with Hillenbrand, Inc. that generally governs each
partys respective rights, responsibilities and obligations after the spin-off with respect to
taxes, including ordinary course of business taxes and taxes, if any, incurred as a result of any
failure of the distribution to qualify as a tax-free distribution and the preparation and filing of
tax returns and the handling of tax audits. Under the Tax Sharing Agreement, Hillenbrand, Inc. is
responsible, with certain exceptions, for the payment of all income and non-income taxes
attributable to its operations, and the operations of its direct and indirect subsidiaries, whether
or not such tax liability is reflected on a consolidated or combined tax return filed by the
Company. The Company is responsible for the payment of all income and non-income taxes that are
not specifically the obligation of Hillenbrand, Inc.
The Tax Sharing Agreement also imposes restrictions on the Companys and Hillenbrand, Inc.s
ability to engage in certain actions following the separation and sets forth the respective
obligations among the Company and Hillenbrand, Inc. with respect to the filing of tax returns, the
administration of tax contests, assistance and cooperation and other matters.
57
Other
The Company entered into shared services and transition services agreements regarding certain
services to be provided by each company and its subsidiaries to the other and its subsidiaries
following the separation, as well as leases and subleases with Hillenbrand, Inc. for shared
locations. Subleases for space in commercially leased locations have varying terms generally
matching the terms of the underlying leases, which approximate fair market value. Also, the
Company entered into agreements providing for the joint ownership by it and Hillenbrand, Inc. of
certain assets, including certain aircraft and corporate conference facilities used by both
companies. We also entered into a limited, mutual right of first offer or right of first refusal
agreement with Hillenbrand, Inc. with respect to various real estate and improvements thereon owned
by us or Hillenbrand, Inc. in the Batesville, Indiana area. As a result of these agreements and
resulting services provided by and for Hillenbrand, Inc. since the spin-off, we had a payable and
receivable with Hillenbrand, Inc. of $0.7 million and $5.0 million, as of September 30, 2008, a
payable and receivable of $0.3 million and $2.3 million, as of September 30, 2009 and a payable and
receivable of $0.2 million and $0.4 million as of September 30, 2010.
Additional details on all these agreements may be found in the Companys Current Report on Form 8-K
filed with the U.S. Securities and Exchange Commission (the SEC) on March 17, 2008.
NOTE 4. SALE OF NON-STRATEGIC ASSETS
In June 2009, we completed the sale of patents and intellectual property related to our Negative
Pressure Wound Therapy technology for which there were no capitalized costs reflected on our
consolidated balance sheet. In May 2009, we finalized a strategic development agreement with
Teletracking Technologies, Inc. (TeleTracking) that resulted in the purchase by TeleTracking of
certain assets and obligations related to the NaviCare
®
Patient Flow product line. These combined
transactions resulted in a gain of $10.2 million, net of related transaction costs.
NOTE 5. IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLES
The Company tests goodwill and other intangible assets for impairment on an annual basis during its
third fiscal quarter, or more often if events or circumstances indicate there may be impairment.
The assessment during the third quarter of 2010 and 2008 indicated that there was no impairment
with respect to goodwill or other recorded intangible assets. During the second quarter of fiscal
2009, as a result of the decline in our market capitalization related to the overall macro-economic
climate and its resulting unfavorable impact on hospital capital spending and our operating
results, the Company determined it was required to perform an interim impairment test with respect
to goodwill and certain other intangibles outside of its normal third fiscal quarter test period.
Based on the results of goodwill and other intangible asset impairment testing as of March 31,
2009, the Company recorded an estimated impairment charge of $470 million in the second fiscal
quarter of 2009. During the third quarter of 2009, the Company refined its impairment assessment
for the second quarter and recorded an additional charge of $3.8 million. A further adjustment of
$1.0 million was required in the fourth quarter as a result of purchase accounting adjustments in
connection with the Liko acquisition. An additional adjustment is likely upon finalization of the
working capital and net debt adjustments associated with the Liko acquisition, with any such
adjustment expected to be favorable and not material.
As discussed in Note 14, the Company operates in three reportable business segments. Goodwill and
other intangible impairment testing are performed at the reporting unit level, which is one level
below a reportable business segment. The Company has determined that it has six reporting units.
Goodwill is assigned to reporting units at the date the goodwill is initially recorded and has been
reallocated as necessary based on the restructuring of reporting units over time. Once goodwill
has been assigned to reporting units, it no longer retains its association with a particular
acquisition, and all of the activities within a reporting unit, whether acquired or organically
grown, are available to support the value of the goodwill.
The goodwill impairment test involves a two-step process. The first step, used to identify
potential impairment, is a comparison of each reporting units estimated fair value to its carrying
value, including goodwill. If the fair value of a reporting unit exceeds its carrying value,
applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value,
there is an indication of impairment and the second step is performed to measure the amount of the
impairment. The second step requires the Company to calculate an implied fair value of goodwill.
The implied fair value of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination, which is the excess of the fair value of the reporting unit,
as determined in the first step, over the aggregate fair values of the individual assets,
liabilities and identifiable intangibles as if the reporting unit was being
acquired in a business combination. If the goodwill assigned to a reporting unit exceeds the
implied fair value of the goodwill, an impairment charge is recorded for the excess.
58
For our second quarter of 2009 analysis, the Company estimated the fair value of each reporting
unit in step one based on discounted cash flows as well as a market approach that compared each
reporting units earnings and revenue multiples to those of comparable public companies. The
reporting units discounted cash flows required significant management judgment with respect to
forecasted sales, gross margin and selling, general and administrative expenses, capital
expenditures and the selection and use of an appropriate discount rate. Utilizing the Companys
weighted average cost of capital as the discount rate for the discounted cash flows and median
revenue and earnings multiples of comparable public companies under the market approach resulted in
an implied fair value substantially in excess of the Companys market capitalization. In order to
reconcile the discounted cash flows and market approach fair values to the trading value of the
Companys common stock, the Company applied higher discount rates than its weighted average cost of
capital to its discounted cash flows and utilized earnings and revenue multiples below the median
of comparable public companies, reflecting the equity risk premiums expected by a market
participant. The reconciled fair values under both the discounted cash flows and market approach
were substantially the same and resulted in three of the Companys reporting units having a
carrying value in excess of their fair value.
The second step required the Company to allocate the fair value of each reporting unit that failed
the first step test to the fair value of each reporting units net assets. The Company calculated
the fair values of each reporting units net assets, with assistance from a third party valuation
firm in the determination of fair values for significant tangible and intangible assets. All
Company-specific data and analytics, including estimates and assumptions, used in the valuations
prepared by the third party valuation firm were either prepared or validated by the Company.
Management takes full responsibility for this data and the ultimate results of the valuation work
including the final fair values assigned to each reporting unit. Due to the fact that the Company
was required to allocate a significant portion of fair value to unrecorded intangible assets such
as the Hill-Rom trade name, technology and know-how and customer lists, but were not permitted to
record these assets on the Companys balance sheet, the resulting fair value allocated to implied
goodwill was significantly lower than recorded goodwill resulting in the impairment charge.
In fiscal 2009, the Company incurred the impairment charge for goodwill and other intangibles in
each of its three reportable segments in the following amounts North America Acute Care $289.5
million, North America Post-Acute Care $68.6 million and International and Surgical $114.7 million,
which represented a full impairment of goodwill at that time in the applicable North America Acute
Care and International reporting units.
The following is a summary of the activity in goodwill by segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
North America
|
|
|
International and
|
|
|
|
|
|
|
Acute Care
|
|
|
Post-Acute Care
|
|
|
Surgical
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at October 1, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
240.1
|
|
|
$
|
87.6
|
|
|
$
|
94.8
|
|
|
$
|
422.5
|
|
Accumulated impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net at October 1, 2008
|
|
|
240.1
|
|
|
|
87.6
|
|
|
|
94.8
|
|
|
|
422.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Goodwill during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill related to acquisitions
|
|
|
49.4
|
|
|
|
26.6
|
|
|
|
63.5
|
|
|
|
139.5
|
|
Impairment losses
|
|
|
(289.5
|
)
|
|
|
(68.6
|
)
|
|
|
(114.7
|
)
|
|
|
(472.8
|
)
|
Currency translation effect
|
|
|
|
|
|
|
|
|
|
|
(16.1
|
)
|
|
|
(16.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
289.5
|
|
|
|
114.2
|
|
|
|
142.2
|
|
|
|
545.9
|
|
Accumulated impairment losses
|
|
|
(289.5
|
)
|
|
|
(68.6
|
)
|
|
|
(114.7
|
)
|
|
|
(472.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net at September 30, 2009
|
|
|
|
|
|
|
45.6
|
|
|
|
27.5
|
|
|
|
73.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Goodwill during the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill related to acquisitions
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
297.5
|
|
|
|
114.2
|
|
|
|
142.2
|
|
|
|
553.9
|
|
Accumulated impairment losses
|
|
|
(289.5
|
)
|
|
|
(68.6
|
)
|
|
|
(114.7
|
)
|
|
|
(472.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net at September 30, 2010
|
|
$
|
8.0
|
|
|
$
|
45.6
|
|
|
$
|
27.5
|
|
|
$
|
81.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59
NOTE 6. FINANCING AGREEMENTS
Total debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Outstanding finance credit lines
|
|
$
|
8.1
|
|
|
$
|
12.2
|
|
Revolving credit facility
|
|
|
45.0
|
|
|
|
90.0
|
|
Unsecured 8.50% debentures due on December 1, 2011
|
|
|
48.4
|
|
|
|
49.3
|
|
Unsecured 7.00% debentures due on February 15, 2024
|
|
|
19.7
|
|
|
|
19.8
|
|
Unsecured 6.75% debentures due on December 15, 2027
|
|
|
29.8
|
|
|
|
29.8
|
|
Other
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
151.6
|
|
|
|
201.9
|
|
Less current portion of debt
|
|
|
53.1
|
|
|
|
102.2
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
$
|
98.5
|
|
|
$
|
99.7
|
|
|
|
|
|
|
|
|
We have trade finance credit lines and uncommitted letter of credit facilities. These lines are
associated with the normal course of business and are not currently, nor have they historically,
been of material size to the overall business.
In 2004, we issued $250.0 million of 4.5 percent senior notes due in 2009. In conjunction with and
in preparation for the spin-off of the funeral services business, the Company made a cash tender
offer to purchase any and all of these notes. As a result of that tender offer, $224.3 million of
long-term debt was retired effective March 31, 2008. Upon completion of the tender offer, the
related interest rate swaps were also terminated resulting in a gain of $4.4 million. A portion of
this gain was being amortized over the remaining life of the notes. A charge of $2.9 million was
recognized by the Company during our second fiscal quarter of 2008 for early extinguishment of such
debt. During our third fiscal quarter of 2009, we repaid the remaining $25.7 million of outstanding
senior notes related to the 2004 issuance at the scheduled maturity date.
The retirement of debt discussed above was financed by $250.0 million of proceeds from borrowings
under a Hillenbrand, Inc. revolving credit facility, which was put in place just prior to the
spin-off of the funeral services business on March 31, 2008. Subsequent to its borrowing under its
new credit facility, Hillenbrand, Inc. made a distribution of $250.0 million to the Company. The
Company has no obligations under the Hillenbrand, Inc. credit facility.
Other unsecured debentures outstanding at September 30, 2010 have fixed rates of interest. We have
deferred gains included in the amounts above from the termination of previous interest rate swap
agreements, and those deferred gains amounted to $2.1 million at September 30, 2010 and $3.1
million at September 30, 2009. The deferred gains on the termination of the swaps are being
amortized and recognized as a reduction of interest expense over the remaining term of the related
debt through 2011 and 2024, and as a result, the effective interest rates on that debt have been
and will continue to be lower than the stated interest rates on the debt.
The Company has a $500.0 million five-year senior revolving credit facility. The term of the
five-year facility expires on March 28, 2013 (subject to extension upon satisfaction of certain
conditions set forth in the credit facility). Borrowings under the credit facility bear interest
at variable rates specified therein, and the availability of borrowings is subject to our ability
at the time of borrowing to meet certain specified conditions, including compliance with covenants
contained in the credit agreement governing the facility. The credit agreement contains covenants
that, among other matters, require the Company to maintain a ratio of consolidated indebtedness to
consolidated EBITDA (each as defined in the credit agreement) of not more than 3.5:1.0 and a ratio
of consolidated EBITDA to
interest expense of not less than 3.5:1.0. The proceeds of the five-year facility shall be used,
as needed: (i) for working capital, capital expenditures, and other lawful corporate purposes; and
(ii) to finance acquisitions.
As of September 30, 2010, we had outstanding borrowings of $45.0 million and undrawn letters of
credit of $5.8 million under the five-year facility, leaving $449.2 million of borrowing capacity
available under the facility. During the first quarter of fiscal 2010, we made a payment of $45.0
million on our credit facility to reduce a portion of the short-term debt originally borrowed in
conjunction with the Liko acquisition.
60
The fair value of our debt is estimated based on the quoted market prices for the same or similar
issues or on the current rates offered to us for debt of the same remaining maturities. The book
values of our short-term debt instruments approximate fair value. The estimated fair values of our
long-term debt instruments were $95.7 million at September 30, 2010 which was unchanged from
September 30, 2009.
NOTE 7. FAIR VALUE MEASUREMENTS
Fair value measurements are classified and disclosed in one of the following three categories:
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|
|
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 the Companys 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 the Companys own data.
|
The following table summarizes the Companys financial assets and liabilities included in its
Consolidated Balance Sheets, measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Balance at
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
September 30, 2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
184.5
|
|
|
$
|
184.5
|
|
|
$
|
|
|
|
$
|
|
|
Available-for-sale marketable securities
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
11.8
|
|
Other investments
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
196.6
|
|
|
$
|
184.5
|
|
|
$
|
|
|
|
$
|
12.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Balance at
|
|
|
Identical Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
September 30, 2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
170.6
|
|
|
$
|
170.6
|
|
|
$
|
|
|
|
$
|
|
|
Trading securities
|
|
|
24.9
|
|
|
|
|
|
|
|
|
|
|
|
24.9
|
|
Available-for-sale marketable securities
|
|
|
16.7
|
|
|
|
|
|
|
|
|
|
|
|
16.7
|
|
Put rights
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
Other investments
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
214.2
|
|
|
$
|
170.6
|
|
|
$
|
|
|
|
$
|
43.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate that value.
At September 30, 2010, we had $11.8 million of AAA rated student loan auction rate securities.
While we continue to earn interest on the ARS at the contractual rate, these investments are not
currently being bought and sold in an active market and therefore do not have readily determinable
market values. At September 30, 2010, the Companys investment advisors provided a valuation based
on unobservable inputs for the ARS. The investment advisors utilized a discounted cash flow
approach (an Income approach) to arrive at this valuation, which was corroborated by separate and
comparable discounted cash flow analysis prepared by us. The assumptions used in preparing the
discounted cash flow model include estimates of interest rates, timing and amount of cash flows,
credit spread related yield and illiquidity premiums, and expected holding periods of the ARS.
These assumptions are volatile and subject to change as the underlying sources of these assumptions
and market conditions change. See below for a reconciliation of the beginning to ending balances
of these assets and the related change in the fair value of these assets during fiscal 2010.
61
Currently, we intend, and believe we have the ability to hold these assets until market conditions
are more favorable. If current market conditions do not improve or worsen, the result could be
further realized or unrealized losses.
The following table presents the activity related to our ARS and the Put (see Note 1) during the
year ended September 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain)/
|
|
|
|
For-Sale
|
|
|
Trading
|
|
|
Put
|
|
|
AOCL
|
|
|
Loss
|
|
Balance at October 1, 2009
|
|
$
|
16.7
|
|
|
$
|
24.9
|
|
|
$
|
1.5
|
|
|
$
|
1.2
|
|
|
$
|
|
|
Change in fair value
|
|
|
|
|
|
|
1.5
|
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
(1.6
|
)
|
Sales or redemptions
|
|
|
(4.9
|
)
|
|
|
(26.4
|
)
|
|
|
(1.2
|
)
|
|
|
(0.1
|
)
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2010
|
|
$
|
11.8
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1.1
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the change in our unrealized gains during fiscal years 2010, 2009 and 2008 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for sale securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during period, net-of-tax
|
|
$
|
0.2
|
|
|
$
|
(3.0
|
)
|
|
$
|
2.0
|
|
Less: Reclassification adjustment for losses (gains) realized in
net income, net-of-tax
|
|
|
(0.1
|
)
|
|
|
2.7
|
|
|
|
(4.6
|
)
|
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses), net-of-tax
|
|
$
|
0.1
|
|
|
$
|
(0.3
|
)
|
|
$
|
(2.6
|
)
|
|
|
|
|
|
|
|
|
|
|
For the fiscal years ended September 30, 2010, 2009 and 2008, we recognized income on our
investments of $2.3 million, $2.9 million and $9.3 million, which did not include any impairments.
The carrying amounts of current assets and liabilities approximate fair value because of the short
maturity of those instruments.
NOTE 8. RETIREMENT AND POSTRETIREMENT BENEFIT PLANS
The Companys retirement plans consist of defined benefit plans, a post-retirement healthcare plan,
and defined contribution savings plans. Plans cover certain employees both in and outside of the
U.S.
Retirement Plans
The company sponsors four defined benefit plans. Those plans include a master defined benefit
retirement plan, a nonqualified supplemental executive defined benefit retirement plan, and two
defined benefit retirement plans covering employees in Germany and France. During 2010, the
Company merged the defined benefit plan related to our fiscal 2004 acquisition of Mediq, Inc.
(Mediq) into the master defined benefit plan. For comparable periods, the Mediq plan has been
combined with the Master plan. Benefits for such plans are based primarily on years of service and
the employees level of compensation during specific periods of employment. We contribute funds to
trusts as necessary to provide for current service and for any unfunded projected future benefit
obligation over a reasonable period of time. All of our plans have a September 30th measurement
date.
As discussed in Note 10, the Company announced a restructuring plan during its second quarter of
fiscal 2009. The restructuring resulted in a curtailment and remeasurement of both the master
defined benefit retirement plan and the postretirement health care plan. The impact of the
remeasurement in each plan is included within the following tables as curtailment and special
termination benefits.
62
Effect on Operations
The components of net pension expense for our defined benefit retirement plans for fiscal years
2010, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
5.1
|
|
|
$
|
4.0
|
|
|
$
|
4.7
|
|
Interest cost
|
|
|
13.2
|
|
|
|
13.3
|
|
|
|
12.3
|
|
Expected return on plan assets
|
|
|
(13.1
|
)
|
|
|
(12.9
|
)
|
|
|
(13.2
|
)
|
Amortization of unrecognized prior service cost, net
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
0.6
|
|
Amortization of net (gain) loss
|
|
|
2.6
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
8.4
|
|
|
|
4.9
|
|
|
|
4.4
|
|
Curtailment and special termination benefits
|
|
|
|
|
|
|
2.8
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
Net pension expense
|
|
$
|
8.4
|
|
|
$
|
7.7
|
|
|
$
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
Obligations and Funded Status
The change in benefit obligations, plan assets and funded status, along with amounts recognized in
the Consolidated Balance Sheets for our defined benefit retirement plans at September 30 were as
follows:
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
246.2
|
|
|
$
|
180.5
|
|
Service cost
|
|
|
5.1
|
|
|
|
4.0
|
|
Interest cost
|
|
|
13.2
|
|
|
|
13.3
|
|
Curtailment
|
|
|
|
|
|
|
1.1
|
|
Special termination benefits
|
|
|
|
|
|
|
1.3
|
|
Actuarial loss
|
|
|
11.0
|
|
|
|
52.8
|
|
Benefits paid
|
|
|
(8.1
|
)
|
|
|
(7.2
|
)
|
Exchange rate (gain) loss
|
|
|
(0.9
|
)
|
|
|
0.4
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
266.5
|
|
|
|
246.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
152.8
|
|
|
|
145.1
|
|
Actual return on plan assets
|
|
|
19.7
|
|
|
|
1.5
|
|
Employer contributions
|
|
|
51.3
|
|
|
|
13.4
|
|
Benefits paid
|
|
|
(8.1
|
)
|
|
|
(7.2
|
)
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
215.7
|
|
|
|
152.8
|
|
|
|
|
|
|
|
|
Funded status and net amounts recognized
|
|
$
|
(50.8
|
)
|
|
$
|
(93.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recorded in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
Accrued pension benefits, current portion
|
|
$
|
(1.0
|
)
|
|
$
|
(1.1
|
)
|
Accrued pension benefits, long-term
|
|
|
(49.8
|
)
|
|
|
(92.3
|
)
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(50.8
|
)
|
|
$
|
(93.4
|
)
|
|
|
|
|
|
|
|
63
In addition to the amounts above, net actuarial losses of $81.4 million and prior service costs of
$3.5 million, less an applicable aggregate tax effect of $31.5 million are included as components
of Accumulated Other Comprehensive Income (Loss) at September 30, 2010. At September 30, 2009, net
actuarial losses of $79.9 million and prior service costs of $4.0 million, less an applicable
aggregate tax effect of $32.4 million, were included as components of Accumulated Other
Comprehensive Income (Loss).
The estimated net actuarial loss and prior service cost for our defined benefit retirement plans
that will be amortized from Accumulated Other Comprehensive Income (Loss) into net periodic benefit
cost over the next fiscal year are $3.8 million and $0.6 million.
Accumulated Benefit Obligation
The accumulated benefit obligation for all defined benefit pension plans was $243.6 million and
$222.0 million at September 30, 2010 and 2009. Selected information for our plans, including plans
with accumulated benefit obligations exceeding plan assets at September 30, 2010 and 2009, was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
|
|
PBO
|
|
|
ABO
|
|
|
Plan Assets
|
|
|
PBO
|
|
|
ABO
|
|
|
Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental executive plan
|
|
$
|
4.2
|
|
|
$
|
3.2
|
|
|
$
|
|
|
|
$
|
3.7
|
|
|
$
|
2.7
|
|
|
$
|
|
|
Master plan
|
|
|
248.3
|
|
|
|
227.2
|
|
|
|
215.3
|
|
|
|
229.1
|
|
|
|
206.5
|
|
|
|
152.4
|
|
German plan
|
|
|
11.5
|
|
|
|
11.5
|
|
|
|
|
|
|
|
11.5
|
|
|
|
11.5
|
|
|
|
|
|
French plan
|
|
|
2.5
|
|
|
|
1.7
|
|
|
|
0.4
|
|
|
|
1.9
|
|
|
|
1.3
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
266.5
|
|
|
$
|
243.6
|
|
|
$
|
215.7
|
|
|
$
|
246.2
|
|
|
$
|
222.0
|
|
|
$
|
152.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial Assumptions
The weighted average assumptions used in accounting for our domestic pension plans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Weighted average assumptions to determined benefit
obligations at the measurement date:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate for obligation
|
|
|
5.1
|
%
|
|
|
5.5
|
%
|
|
|
7.5
|
%
|
Rate of compensation increase
|
|
|
3.5
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Weighted average assumptions to determined benefit
cost for the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate for expense
|
|
|
5.5
|
%
|
|
|
7.5
|
%
|
|
|
6.5
|
%
|
Expected rate of return on plan assets
|
|
|
7.5
|
%
|
|
|
7.5
|
%
|
|
|
8.0
|
%
|
Rate of compensation increase
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
The discount rates used in the valuation of our defined benefit pension 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 pension obligations. The overall
expected long-term rate of return 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, as well as taking into consideration economic and capital market conditions. The rate of
assumed compensation increase is also based on our specific historical trends of past wage
adjustments.
64
Plan Assets
The weighted average asset allocations of our master defined benefit retirement plan at September
30, 2010 and 2009, by asset category, along with target allocations, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Target
|
|
|
Target
|
|
|
Actual
|
|
|
Actual
|
|
|
|
Allocation
|
|
|
Allocation
|
|
|
Allocation
|
|
|
Allocation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
50
|
%
|
|
|
58
|
%
|
|
|
50
|
%
|
|
|
57
|
%
|
Fixed income securities
|
|
|
50
|
%
|
|
|
40
|
%
|
|
|
50
|
%
|
|
|
41
|
%
|
Real estate
|
|
|
0
|
%
|
|
|
2
|
%
|
|
|
0
|
%
|
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has a Plan Committee that sets investment guidelines with the assistance of an external
consultant. These guidelines are established based on market conditions, risk tolerance, funding
requirements and expected benefit payments. The Plan Committee also oversees the investment
allocation process, selects the investment managers and monitors asset performance. As pension
liabilities are long-term in nature, the Company employs a long-term total return approach to
maximize the long-term rate of return on plan assets for a prudent level of risk. Target
allocations are guidelines, not limitations, and plan fiduciaries may occasionally approve
allocations above or below a target range or elect to rebalance the portfolio within the targeted
range.
The investment portfolio contains a diversified portfolio of primarily equities and fixed income
securities. Securities are also diversified in terms of domestic and international securities,
short- and long-term securities, growth and value styles, large cap and small cap stocks. The Plan
Committee believes with prudent risk tolerance and asset diversification, the account should be
able to meet its pension and other post-retirement obligations in the future.
Trust assets are invested subject to the following policy restrictions: short-term securities must
be rated A2/P2 or higher; all fixed-income securities shall have a credit quality rating BBB or
higher; investments in equities in any one company may not exceed 10 percent of the equity
portfolio. Hill-Rom common stock represented 0 percent and 2 percent of master trust assets at
September 30, 2010 and 2009 and is subject to a statutory limit when it reaches 10 percent of total
trust assets. All Hill-Rom common stock previously held in the master defined benefit retirement
plan was sold in fiscal 2010.
Fair Value Measurements of Plan Assets
The following table summarizes the valuation of the Companys pension plan assets by pricing
categories at September 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
|
For Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
Cash
|
|
$
|
3.6
|
|
|
$
|
3.6
|
|
|
$
|
|
|
|
$
|
|
|
Equities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US companies
|
|
|
72.9
|
|
|
|
72.9
|
|
|
|
|
|
|
|
|
|
International companies
|
|
|
33.4
|
|
|
|
33.4
|
|
|
|
|
|
|
|
|
|
Fixed income securities
|
|
|
105.4
|
|
|
|
53.4
|
|
|
|
52.0
|
|
|
|
|
|
Other
|
|
|
0.4
|
|
|
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total plan assets at fair value
|
|
$
|
215.7
|
|
|
$
|
163.7
|
|
|
$
|
52.0
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Level 2 fixed income securities are commingled funds valued using the net asset value (NAV)
unit price provided by the fund administrator. The NAV is based on the value of the underlying
assets owned by the fund, all of which are publicly traded securities. For further descriptions of
the asset Levels used in the above chart, refer to Note 7.
65
Cash Flows
In August 2006, the Pension Protection Act was signed into law in the U.S. The Pension Protection
Act replaces the funding requirements for defined benefit pension plans by subjecting defined
benefit plans to 100 percent of the current liability funding target. Defined benefit plans with a
funding status of less than 80 percent of the current liability are defined as being at risk. The
Companys U.S. qualified defined benefit plan is funded in excess of 80 percent, and therefore the
Company expects that the plans will not be subject to the at risk funding requirements of the
Pension Protection Act and that the law will not have a material impact on future contributions.
During 2010 and 2009, we contributed cash of $51.3 million and $13.4 million to our defined benefit
retirement plans. We do not expect to contribute to our master defined benefit retirement plan in
fiscal year 2011, due to the significant contribution made during 2010, however, minimal
contributions will be required for our unfunded plans.
Estimated Future Benefit Payments
The benefit payments, which are expected to be funded through plan assets and company contributions
and reflect expected future service, are expected to be paid as follows:
|
|
|
|
|
|
|
Pension Benefits
|
|
2011
|
|
$
|
8.8
|
|
2012
|
|
$
|
9.4
|
|
2013
|
|
$
|
10.0
|
|
2014
|
|
$
|
10.6
|
|
2015
|
|
$
|
11.5
|
|
2016-2020
|
|
$
|
71.8
|
|
Defined Contribution Savings Plans
The Company has defined contribution savings plans that cover substantially all U.S. employees and
certain non-U.S. employees. The general purpose of these plans is to provide additional financial
security during retirement by providing employees with an incentive to make regular savings.
Company contributions to the plans are based on eligibility and employee contributions. Expense
under these plans was $12.6 million, $13.0 million and $13.2 million in fiscal years 2010, 2009 and
2008.
Postretirement Health Care Plan
In addition to defined benefit retirement plans, Hill-Rom also offers a domestic postretirement
health care plan that provides health care benefits to qualified retirees and their dependents. The
plan includes retiree cost sharing provisions and generally extends retiree coverage for medical,
prescription and dental benefits beyond the COBRA continuation period to the date of Medicare
eligibility. We use a measurement date of September 30 for this plan. In fiscal 2008, the plan was
amended to change eligibility and future benefits, which resulted in a negative plan amendment and
a curtailment. The postretirement health care plan was remeasured at March 31, 2009 in connection
with the restructuring mentioned previously.
66
The postretirement health care benefit included within continuing operations in the Statements of
Consolidated Income (Loss) during fiscal 2010 was $0.1 million. The postretirement health care
cost included within continuing operations in the Statements of Consolidated Income (Loss) during
fiscal 2009 and 2008 was $1.0 million and $2.1 million. The change in the accumulated
postretirement benefit obligation during 2010 and 2009 was as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
9.7
|
|
|
$
|
6.9
|
|
Service cost
|
|
|
0.4
|
|
|
|
0.3
|
|
Interest cost
|
|
|
0.5
|
|
|
|
0.5
|
|
Curtailment
|
|
|
|
|
|
|
(0.3
|
)
|
Special termination benefits
|
|
|
|
|
|
|
1.6
|
|
Actuarial loss
|
|
|
0.1
|
|
|
|
0.8
|
|
Benefits paid
|
|
|
(1.3
|
)
|
|
|
(0.4
|
)
|
Retiree contributions
|
|
|
0.3
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
9.7
|
|
|
$
|
9.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recorded in the Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
Accrued benefits obligation, current portion
|
|
$
|
0.5
|
|
|
$
|
1.3
|
|
Accrued benefits obligation, long-term
|
|
|
9.2
|
|
|
|
8.4
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
9.7
|
|
|
$
|
9.7
|
|
|
|
|
|
|
|
|
During fiscal 2010 and 2009, the Company contributed $1.0 million and $0.1 million to the plan.
In addition to the amounts above, net actuarial gains of $1.2 million and prior service credits of
$5.7 million, less an applicable aggregate tax effect of $2.7 million are included as components of
Accumulated Other Comprehensive Income (Loss) at September 30, 2010. At September 30, 2009, net
actuarial gains of $1.8 million and prior service credits of $6.6 million, less an applicable
aggregate tax effect of $3.3 million, were included as components of Accumulated Other
Comprehensive Income (Loss).
The discount rate used to determine the net periodic benefit cost for the postretirement health
care plan during the fiscal year ended September 30, 2010, 2009 and 2008 was 5.5 percent, 7.5
percent and 6.5 percent. The discount rate used to determine the benefit obligation as of September
30, 2010, 2009 and 2008 was 4.4 percent, 5.5 percent and 7.5 percent. As of September 30, 2010 the
health care-cost trend rates were assumed to decrease as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year 1
|
|
|
7.75
|
%
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
Year 2
|
|
|
7.25
|
%
|
|
|
7.75
|
%
|
|
|
7.75
|
%
|
Year 3
|
|
|
6.75
|
%
|
|
|
7.25
|
%
|
|
|
7.25
|
%
|
Year 4
|
|
|
6.25
|
%
|
|
|
6.75
|
%
|
|
|
6.75
|
%
|
Year 5
|
|
|
5.75
|
%
|
|
|
6.25
|
%
|
|
|
6.25
|
%
|
A one-percentage-point increase/decrease in the assumed health care cost trend rates as of
September 30, 2010 would cause an increase/decrease in service and interest costs of less than $0.1
million, along with an increase/decrease in the benefit obligation of $0.9 million and $0.8
million.
We fund the postretirement health care plan as benefits are paid, and current plan benefits are
expected to require net company contributions of approximately $0.5 million in fiscal 2011 and less
than $1.0 million per year thereafter.
NOTE 9. SHAREHOLDERS EQUITY
In October 2006, our Board of Directors approved the repurchase of a total of 25.7 million shares
of our common stock through the open market or private transactions. There were no repurchases
under this approval during fiscal years 2008 and 2009 and through the third quarter of fiscal 2010.
However, during August 2010, we repurchased 1.0 million shares of our common stock for $34.5
million. As of September 30, 2010, a cumulative total of 23.7 million shares had been repurchased
by us at market trading prices, leaving 2.0 million shares still available for repurchase. The
Boards approval has no expiration date and currently there are no plans to terminate this program
in the future.
67
NOTE 10. SPECIAL CHARGES
Over the past several years, the Company has placed a focus on improving our cost structure and
business processes through various means including consolidation of certain manufacturing and
select back office operations, customer rationalizations and various other organizational changes.
The charges associated with these actions are summarized below.
2010 Actions
|
|
|
During the fourth quarter of fiscal 2010, we announced plans to eliminate approximately
100 employees which resulted in a special charge of $4.3 million primarily related to
severance and other benefits provided to affected employees. The majority of the cash
expenditures associated with the severance will be completed by the end of our 2011 fiscal
year. We also recorded a charge of $3.9 million related to write-downs associated with the
planned disposal of two aircraft from our corporate aviation assets, which are jointly
owned with Hillenbrand, Inc. The loss was recognized net of managements estimate of
amounts to be recovered. The assets held for sale of $1.5 million are recorded in other
current assets in the Consolidated Balance Sheet.
|
|
|
|
During the second quarter of fiscal 2010, we announced organizational changes including
the elimination of approximately 160 employees across the Company. The result was a special
charge of $5.0 million primarily related to severance and other benefits provided to
affected employees. The majority of the cash expenditures associated with the severance
will be completed by the end of our 2011 fiscal year.
|
2009 Actions
|
|
|
During the second quarter of fiscal 2009, we announced a plan which impacted
approximately 450 salaried, hourly and temporary employees. In total, the plan resulted in
a charge of $11.9 million related to severance and early retirement packages. Additionally,
postretirement health care costs and the waiver of an early retirement pension penalty
offered in conjunction with a voluntary early retirement incentive and the associated
curtailment charges resulted in additional charges of $4.2 million. Asset impairment,
discontinued use of a building under an operating lease and other charges of approximately
$4.4 million were also recorded in conjunction with these actions. The charge related to
severance and early retirement packages will result in cash expenditures that have been
substantially completed as of September 30, 2010. Cash expenditures for the lease will be
paid over the remaining lease period.
|
2008 Actions
|
|
|
During the fourth quarter of fiscal 2008, we eliminated approximately 160 professional,
salaried and non-exempt employee positions, including the elimination of management
positions. Positions affected were distributed similarly to our employee locations. About
one-third of the positions affected involved associates based at our global headquarters in
Batesville, Indiana. The remaining affected positions were based in other North American
locations and international sites throughout our global organization. Affected associates
were offered severance and other enhanced benefits. The result was a one-time charge of
approximately $6.0 million in the fourth quarter of fiscal 2008. The implementation of this
restructuring plan was substantially completed as of September 30, 2008, and all cash
expenditures associated with the severance have been completed.
|
|
|
|
During the fourth quarter of fiscal 2008, management initiated a plan which resulted in
a limited rationalization in the current service center footprint and the disposal of
select assets and asset groups. As a result of the plan, the Company recorded a charge of
$14.5 million during the fourth quarter of fiscal 2008. This charge mainly related to the
impairment of equipment with a net book value of $16.0 million that was held for sale. The
remainder of the charge related to lease termination and employee severance costs. This
action is complete.
|
|
|
|
During the first quarter of fiscal 2008, voluntary termination packages were offered to
certain members of Hill-Roms Batesville manufacturing organization, which resulted in a
special termination charge to cover benefits offered to those employees who accepted the
termination offers. Additionally, approximately 15 other Hill-Rom manufacturing support
positions were eliminated resulting in an aggregate special charge of $2.3 million in the
first quarter of 2008, of which $0.3 million related to pension benefits. This action is
now complete.
|
68
Activity related to these actions during fiscal 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
|
|
|
|
Balance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
September 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2009
|
|
|
Expenses
|
|
|
Cash Payments
|
|
|
Reversals
|
|
|
2010
|
|
Fiscal Year 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2 Action Restructuring
|
|
$
|
|
|
|
$
|
5.0
|
|
|
$
|
(3.5
|
)
|
|
$
|
|
|
|
$
|
1.5
|
|
Q4 Action Restructuring
|
|
|
|
|
|
|
4.3
|
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal Year 2010
|
|
$
|
|
|
|
$
|
9.3
|
|
|
$
|
(4.1
|
)
|
|
$
|
|
|
|
$
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q2 Action Restructuring
|
|
$
|
4.5
|
|
|
$
|
|
|
|
$
|
(4.1
|
)
|
|
$
|
|
|
|
$
|
0.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q1 Action Line Relocation
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Q4 Action Worldwide
Streamlining
|
|
|
0.1
|
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
Q4 Action MEMS Restructuring
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fiscal Year 2008
|
|
$
|
0.1
|
|
|
$
|
|
|
|
$
|
(0.1
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4.6
|
|
|
$
|
9.3
|
|
|
$
|
(8.3
|
)
|
|
$
|
|
|
|
$
|
5.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 11. INCOME TAXES
The significant components of income from continuing operations before income taxes and the
consolidated income tax provision from continuing operations for fiscal years 2010, 2009 and 2008
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Income from continuing operations before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
169.4
|
|
|
$
|
(221.4
|
)
|
|
$
|
90.0
|
|
Foreign
|
|
|
13.5
|
|
|
|
(157.4
|
)
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
182.9
|
|
|
$
|
(378.8
|
)
|
|
$
|
92.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current provision
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
35.9
|
|
|
$
|
23.3
|
|
|
$
|
38.9
|
|
State
|
|
|
(5.3
|
)
|
|
|
(0.3
|
)
|
|
|
(1.1
|
)
|
Foreign
|
|
|
7.0
|
|
|
|
1.4
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
37.6
|
|
|
|
24.4
|
|
|
|
43.2
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
15.2
|
|
|
|
(3.2
|
)
|
|
|
(17.3
|
)
|
State
|
|
|
4.4
|
|
|
|
5.3
|
|
|
|
2.2
|
|
Foreign
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
|
|
(2.9
|
)
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision
|
|
|
19.3
|
|
|
|
1.8
|
|
|
|
(18.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from continuing operations
|
|
$
|
56.9
|
|
|
$
|
26.2
|
|
|
$
|
25.2
|
|
|
|
|
|
|
|
|
|
|
|
69
Differences between income tax expense from continuing operations reported for financial reporting
purposes and that computed based upon the application of the statutory U.S. Federal tax rate to the
reported income from continuing operations before income taxes for fiscal years 2010, 2009 and 2008
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
% of
|
|
|
|
|
|
|
|
Pretax
|
|
|
|
|
|
|
Pretax
|
|
|
|
|
|
|
Pretax
|
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax
(a)
|
|
$
|
64.0
|
|
|
|
35.0
|
|
|
$
|
(132.6
|
)
|
|
|
35.0
|
|
|
$
|
32.3
|
|
|
|
35.0
|
|
State income tax
(b)
|
|
|
4.8
|
|
|
|
2.6
|
|
|
|
3.6
|
|
|
|
(0.9
|
)
|
|
|
2.6
|
|
|
|
2.8
|
|
Foreign income tax
(c)
|
|
|
(0.6
|
)
|
|
|
(0.3
|
)
|
|
|
(2.1
|
)
|
|
|
0.5
|
|
|
|
1.7
|
|
|
|
1.8
|
|
Impairment of goodwill & other intangibles
|
|
|
|
|
|
|
|
|
|
|
163.3
|
|
|
|
(43.1
|
)
|
|
|
|
|
|
|
|
|
Application of federal tax credits
|
|
|
(0.6
|
)
|
|
|
(0.3
|
)
|
|
|
(3.6
|
)
|
|
|
0.9
|
|
|
|
(0.7
|
)
|
|
|
(0.8
|
)
|
Adjustment of estimated income tax accruals
|
|
|
(9.7
|
)
|
|
|
(5.4
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
(4.5
|
)
|
|
|
(4.8
|
)
|
Valuation of tax attributes
|
|
|
|
|
|
|
|
|
|
|
(1.9
|
)
|
|
|
0.5
|
|
|
|
(3.4
|
)
|
|
|
(3.7
|
)
|
Other, net
|
|
|
(1.0
|
)
|
|
|
(0.5
|
)
|
|
|
(0.7
|
)
|
|
|
0.2
|
|
|
|
(2.8
|
)
|
|
|
(3.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense from continuing operations
|
|
$
|
56.9
|
|
|
|
31.1
|
|
|
$
|
26.2
|
|
|
|
(6.9
|
)
|
|
$
|
25.2
|
|
|
|
27.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
At statutory rate.
|
|
(b)
|
|
Net of Federal benefit.
|
|
(c)
|
|
Federal tax rate differential.
|
The tax effect of temporary differences that gave rise to the deferred tax balance sheet
accounts were as follows:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
|
September 30, 2009
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Employee benefit accruals
|
|
$
|
45.4
|
|
|
$
|
54.8
|
|
Reserve for bad debts
|
|
|
10.4
|
|
|
|
10.1
|
|
Litigation and legal accruals
|
|
|
|
|
|
|
8.6
|
|
Net operating loss carryforwards state
|
|
|
2.1
|
|
|
|
4.2
|
|
Tax credit carryforwards
|
|
|
2.4
|
|
|
|
2.4
|
|
Foreign (loss carryforwards and other
tax attributes)
|
|
|
21.7
|
|
|
|
30.8
|
|
Other, net
|
|
|
34.3
|
|
|
|
39.6
|
|
|
|
|
|
|
|
|
|
|
|
116.3
|
|
|
|
150.5
|
|
Less: valuation allowance
|
|
|
(28.5
|
)
|
|
|
(37.5
|
)
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
87.8
|
|
|
|
113.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(41.2
|
)
|
|
|
(45.8
|
)
|
Amortization
|
|
|
(31.1
|
)
|
|
|
(31.6
|
)
|
Other, net
|
|
|
(6.4
|
)
|
|
|
(6.4
|
)
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(78.7
|
)
|
|
|
(83.8
|
)
|
|
|
|
|
|
|
|
Deferred tax asset net
|
|
$
|
9.1
|
|
|
$
|
29.2
|
|
|
|
|
|
|
|
|
At September 30, 2010, we had $21.7 million of deferred tax assets related to operating loss
carryforwards and other tax attributes in foreign jurisdictions. These tax attributes are subject
to various carryforward periods ranging from 1 year to an unlimited period. We also had $2.1
million of deferred tax assets related to state net operating loss carryforwards, which expire
between 2011 and 2027.
We also had $1.2 million of deferred tax assets related to foreign tax credit carryforwards, which
expire between 2011 and 2019 and $1.2 million of deferred tax assets related to state credits,
which expire between 2014 and 2026.
The gross deferred tax assets as of September 30, 2010 were reduced by valuation allowances of
$28.5 million, relating primarily to foreign operating loss carryforwards and other tax attributes,
as it is more likely than not that some portion or all of these tax attributes will not be
realized. It is possible that improvements in foreign earnings could result in a reconsideration
of the need for these valuation allowances. The valuation allowance was reduced by $9.0 million
during fiscal 2010 due to releases of valuation allowances on deferred tax assets realized or
expected to be utilized as well as adjustments in value of related deferred tax assets.
In evaluating whether it is more likely than not that we would recover our deferred tax assets,
future taxable income, the reversal of existing temporary differences and tax planning strategies
were considered. We believe that our estimates for the valuation allowances recorded against
deferred tax assets are appropriate based on current facts and circumstances.
70
The Company files a consolidated federal income tax return as well as multiple state, local and
foreign jurisdiction tax returns. In the normal course of business, the Company is subject to
examination by the taxing authorities in each of the jurisdictions where we file tax returns.
During fiscal 2010, the Company reached a resolution with the Internal Revenue Service (IRS) on
two tax matters previously disclosed. The first related to the character of certain payments
received to terminate interest rate swap contracts. The resolution of this issue concluded the IRS
audit for the fiscal years ended 2002 through 2006. The second related to the timing of deductions
for insured losses. The resolution of this issue resolved all open tax matters for fiscal years
ended 2007 and 2008. Also during fiscal 2010, the IRS initiated and is still conducting its
post-filing examination of the fiscal 2009 consolidated federal return. The Company also continued
to participate in the IRS Compliance Assurance Program (CAP) for fiscal year 2010 and has issued
its application to remain in the CAP for fiscal 2011. The CAP provides the opportunity for the IRS
to review certain tax matters prior to the Company filing its tax returns for the year, thereby
reducing the time it takes to complete the post-filing examination. The Company is also subject to
state and local or foreign income tax examinations by taxing authorities for years back to fiscal
2003.
The Company also has 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 additional taxes, the adjustment of certain
deferred taxes and/or the recognition of unrecognized tax benefits. The resolution of these
matters, in combination with the expiration of certain statues of limitations in various
jurisdictions, make it reasonably possible that our unrecognized tax benefits may decrease as a
result of either payment or recognition by approximately $5 to $13 million in the next twelve
months, excluding interest.
The total amount of gross unrecognized tax benefits as of September 30, 2010, 2009 and 2008 was
$24.0 million, $35.5 million and $29.6 million which includes $8.0 million, $17.3 million and $15.4
million, that, if recognized, would impact the effective tax rate in future periods. The remaining
amount relates to items which, if recognized, would not impact our effective tax rate.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Balance at October 1
|
|
$
|
35.5
|
|
|
$
|
29.6
|
|
|
$
|
44.6
|
|
Increases in tax position of prior years
|
|
|
3.9
|
|
|
|
2.6
|
|
|
|
6.3
|
|
Decreases in tax position of prior years
|
|
|
(6.8
|
)
|
|
|
(3.1
|
)
|
|
|
(18.4
|
)
|
Increases in tax positions related to the current year
|
|
|
1.4
|
|
|
|
8.0
|
|
|
|
1.5
|
|
Settlements with taxing authorities
|
|
|
(6.0
|
)
|
|
|
(1.0
|
)
|
|
|
(2.0
|
)
|
Lapse of applicable statute of limitations
|
|
|
(4.0
|
)
|
|
|
(1.2
|
)
|
|
|
(1.6
|
)
|
Change in positions due to acquisitions or dispositions
|
|
|
|
|
|
|
0.7
|
|
|
|
(0.8
|
)
|
Foreign currency adjustments
|
|
|
|
|
|
|
(0.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total change
|
|
|
(11.5
|
)
|
|
|
5.9
|
|
|
|
(15.0
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30
|
|
$
|
24.0
|
|
|
$
|
35.5
|
|
|
$
|
29.6
|
|
|
|
|
|
|
|
|
|
|
|
We recognize accrued interest and penalties related to unrecognized tax benefits as a component of
income tax expense. Accrued interest and penalties, which are not presented in the reconciliation
table above, was $2.1 million, $6.8 million and $5.8 million at September 30, 2010, 2009 and 2008.
During fiscal 2010 and 2008, we recognized $3.0 million and $1.2 million of income tax benefit for
interest and penalties, while in fiscal 2009 we recognized $0.8 million of income tax expense for
interest and penalties.
The amount of gross unrecognized tax benefits reflected in our financial statements includes
amounts related to our former funeral services business for taxing jurisdictions where we filed
consolidated tax returns. Pursuant to the Tax Sharing Agreement entered into as part of the
spin-off (and described in Note 3), Hillenbrand, Inc. is responsible for the portion of the
unrecognized tax benefits attributable to the funeral services business. As of September 30, 2010,
such gross unrecognized tax benefits were $3.0 million, excluding interest.
71
NOTE 12. EARNINGS PER COMMON SHARE
Basic earnings per share is calculated based upon the weighted average number of outstanding common
shares for the period, plus the effect of deferred vested shares. Diluted earnings per share is
calculated consistent with the basic earnings per share calculation plus the effect of dilutive
unissued common shares related to stock-based employee compensation programs. For all years
presented, anti-dilutive stock options were excluded from the calculation of dilutive earnings per
share. Excluded shares were 3.4 million, 5.8 million and 2.2 million for fiscal years 2010, 2009
and 2008. Cumulative treasury stock acquired, less cumulative shares reissued, have been excluded
in determining the average number of shares outstanding. For the year ended September 30, 2009, as
a result of our net loss and to avoid dilution of the net loss, our basic and diluted earnings per
share were identical.
Earnings per share is calculated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
125.3
|
|
|
$
|
(405.0
|
)
|
|
$
|
115.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding Basic
|
|
|
62,934
|
|
|
|
62,581
|
|
|
|
62,426
|
|
Add potential effect of exercise of stock options and other unvested equity awards
|
|
|
805
|
|
|
|
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
Average shares outstanding Diluted
|
|
|
63,739
|
|
|
|
62,581
|
|
|
|
62,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common shareholders per common share
from continuing operations Basic
|
|
$
|
1.99
|
|
|
$
|
(6.47
|
)
|
|
$
|
1.07
|
|
Income attributable to common shareholders per common share
from discontinued operations Basic
|
|
|
|
|
|
|
|
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Common Shareholders
per Common Share Basic
|
|
$
|
1.99
|
|
|
$
|
(6.47
|
)
|
|
$
|
1.86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common shareholders per common share
from continuing operations Diluted
|
|
$
|
1.97
|
|
|
$
|
(6.47
|
)
|
|
$
|
1.07
|
|
Income attributable to common shareholders per common share
from discontinued operations Diluted
|
|
|
|
|
|
|
|
|
|
|
0.78
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) Attributable to Common Shareholders
per Common Share Diluted
|
|
$
|
1.97
|
|
|
$
|
(6.47
|
)
|
|
$
|
1.85
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13. STOCK-BASED COMPENSATION
We have stock-based compensation plans under which employees and non-employee directors may be
granted options to purchase shares of Company common stock at the fair market value at the time of
grant. In addition to stock options, the Company grants performance-based stock options,
performance share units (PSUs) and deferred stock share awards otherwise known as restricted
stock units (RSUs) to certain management level employees and vested deferred stock to
non-employee directors. We also offer eligible employees the opportunity to buy shares of our
common stock at a discount via an Employee Stock Purchase Plan (ESPP). The ESPP was approved by
our shareholders in February 2009 and did not have a significant impact on our financial statements
in fiscal years 2010 and 2009.
Our primary stock-based compensation program is the Stock Incentive Plan, which has been approved
by our shareholders. In February 2009, our shareholders approved an amendment to the Stock
Incentive Plan to reserve an additional 5.5 million shares for issuance increasing the total number
of shares authorized to 15.3 million shares. At September 30, 2010, 6.7 million shares were
available for future grants under our stock-based compensation plans. We generally settle our
stock-based awards with treasury shares. As of September 30, 2010, we had 17.5 million treasury
shares available for use to settle stock-based awards.
72
The following table sets forth a summary of the annual stock-based compensation cost that was
charged against income for all types of awards for fiscal years 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation cost (pre-tax)
|
|
$
|
12.0
|
|
|
$
|
12.1
|
|
|
$
|
23.2
|
|
Total income tax benefit
|
|
|
(4.4
|
)
|
|
|
(4.5
|
)
|
|
|
(8.6
|
)
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation cost, net of tax
|
|
|
7.6
|
|
|
|
7.6
|
|
|
|
14.6
|
|
Allocated to discontinued operations
|
|
|
|
|
|
|
|
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
|
Included in continuing operations
|
|
$
|
7.6
|
|
|
$
|
7.6
|
|
|
$
|
10.9
|
|
|
|
|
|
|
|
|
|
|
|
Modification Due to the Spin-off
As mentioned previously, on March 31, 2008, we completed the spin-off of Hillenbrand, Inc., our
former funeral services business operating under the Batesville Casket name. In March 2008, in
contemplation of the spin-off, the Board of Directors Compensation and Management Development
Committee (Compensation Committee) modified the terms of our Stock Incentive Plan to require the
equitable conversion and/or adjustment of outstanding stock-based awards in the event of the
spin-off. With that modification, the fair values of all outstanding stock option awards were
remeasured. As a result, the modification related to certain stock options resulted in incremental
compensation cost of $9.8 million. Of this amount, $7.1 million was recorded in our second fiscal
quarter of 2008 for vested stock options ($1.3 million in discontinued operations) and $2.7
million, reduced for forfeitures, have been subject to amortization over the remaining vesting
periods of the affected stock options ending in 2010 (all in continuing operations). Additionally,
the vesting of certain RSUs held by employees of the funeral services business was accelerated
according to provisions triggered by the spin-off. As a result of the accelerated vesting of these
RSUs, a $3.2 million charge was recorded in our second fiscal quarter of 2008, all of which was
reflected within discontinued operations.
Pursuant to the modification described above, stock options and RSUs outstanding and held by
current employees and current board members of either of the separated companies on the date of the
spin-off were generally converted to stock options and RSUs in the post-spin company for whom they
were employed or served. As such, stock options and RSUs held by Hill-Rom employees, as well as
stock options and RSUs held by directors who serve on only the Hill-Rom Board, remained as Hill-Rom
stock options and RSUs and were adjusted. The outstanding stock options and related exercise prices
and RSUs were converted and/or adjusted using a ratio based on our closing stock price ($25.99)
divided by the sum of our closing stock price and Hillenbrand, Inc.s closing stock price ($22.10)
on March 31, 2008, as reported by the New York Stock Exchange. Thus, immediately after the
spin-off, the awards maintained the same intrinsic value that existed immediately before the
spin-off.
Performance-based stock awards were generally converted or adjusted in a similar manner to
outstanding stock options and RSUs. Vested deferred stock, which are stock awards which have been
vested and elected by current or former employees or directors to be distributed in the future, as
well as stock awards of retirees of either company, common directors of both companies, and former
Hill-Rom directors, were converted to stock awards in both companies using the conversion ratio
outlined above.
The following sets forth further details on our stock options, performance-based stock options,
RSUs, PSUs and vested deferred stock.
Stock Options
Stock options granted by our Compensation Committee under the Stock Incentive Plan are
non-qualified stock options. These awards are generally granted with exercise prices equal to the
average of the high and low prices of our common stock on the date of grant. They vest in equal
annual installments over a three or four year period and the maximum contractual term is ten years.
We use a Binomial option-pricing model to estimate the fair value of stock options, and
compensation cost is recognized on a straight-line basis over the requisite service period.
73
The following table sets forth the weighted average fair value per share of stock options and the
related valuation assumptions used in the determination of those fair values for fiscal years 2010,
2009 and 2008, excluding performance-based stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
2010
|
|
|
2009
|
|
|
After March 31
|
|
|
Before March 31
|
|
Weighted average fair value per share
|
|
$
|
7.86
|
|
|
$
|
5.63
|
|
|
$
|
8.52
|
|
|
$
|
12.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
2.4
|
%
|
|
|
0.8 2.7
|
%
|
|
|
1.6 3.5
|
%
|
|
|
2.9 3.9
|
%
|
Expected dividend yield
|
|
|
1.7
|
%
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
|
|
1.8 2.1
|
%
|
Expected volatility
|
|
|
37.2
|
%
|
|
|
30.4
|
%
|
|
|
28.0
|
%
|
|
|
21.0
|
%
|
Weighted average expected life
|
|
|
5.6
|
years
|
|
|
6.2
|
years
|
|
|
7.2
|
years
|
|
|
8.2
|
years
|
The risk-free interest rate is based upon observed U.S. Treasury interest rates appropriate for the
term of our employee stock options. Expected dividend yield is based on the history and our
expectation of dividend payouts. Expected volatility for options granted after the spin-off and
during fiscal years 2010 and 2009 was based on the median volatility of our Peer Group. For options
granted prior to the spin-off, expected volatility was based on historical experience. Expected
life represents the weighted average period the stock options are expected to remain outstanding
and is a derived output of the Binomial model. The expected life of employee stock options is
impacted by the above assumptions as well as the post-vesting forfeiture rate and the exercise
factor used in the Binomial model. These two variables are based on the history of exercises and
forfeitures for previous stock options granted by Hillenbrand Industries, Inc., predecessor to the
Company.
The following table summarizes transactions under our stock option plans, excluding
performance-based stock options, for fiscal year 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value (1)
|
|
|
|
(in thousands)
|
|
|
Price
|
|
|
Term
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Outstanding at October 1, 2009
|
|
|
3,370
|
|
|
$
|
26.46
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
736
|
|
|
|
24.29
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(821
|
)
|
|
|
26.50
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
(365
|
)
|
|
|
25.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Outstanding at September 30, 2010
|
|
|
2,920
|
|
|
$
|
26.02
|
|
|
|
7.0
|
years
|
|
$
|
28.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2010
|
|
|
1,482
|
|
|
$
|
28.95
|
|
|
|
5.5
|
years
|
|
$
|
10.3
|
|
Options Expected to Vest
|
|
|
1,250
|
|
|
$
|
22.99
|
|
|
|
8.5
|
years
|
|
$
|
16.1
|
|
|
|
|
(1)
|
|
The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our
closing stock price of $35.89, as reported by the New York Stock Exchange on September 30, 2010.
This amount, which changes continuously based on the fair value of our common stock, would have
been received by the option holders had all option holders exercised their options as of the
balance sheet date.
|
The total intrinsic value of options exercised during fiscal years 2010, 2009 and 2008 was $3.9
million, $15 thousand and $1.6 million. Amounts related to periods prior to March 31, 2008, include
options exercised by employees of our former funeral services business.
As of September 30, 2010, there was $6.3 million of unrecognized compensation expense related to
stock options granted under the Plan. This unrecognized compensation expense does not reflect a
reduction for our estimate of potential forfeitures, and is expected to be recognized over a
weighted average period of 2.7 years.
74
Performance-Based Stock Options
Our Compensation Committee sometimes grants performance-based stock options to a limited number of
our executives. These awards are consistent with our compensation programs guiding principles and
are designed to align managements interests with those of shareholders. Option prices and the term
of such awards are similar to our stock options; however, vesting of the performance grants is
contingent upon the achievement of performance targets and corresponding service requirements.
Performance targets are set at the date of grant with a threshold, target and maximum level. The
number of options that ultimately vests increases at each level of performance attained. Expense
recognized to date related to performance-based stock options has not been significant.
The fair values of the performance options are estimated on the date of the grant using the
Binomial option-pricing model and related valuation assumptions for stock options, as previously
discussed. For certain performance awards with a market condition such as total shareholder return,
as described below, a Monte-Carlo simulation method is used to determine fair value. The
Monte-Carlo simulation is a generally accepted statistical technique used to generate a defined
number of stock price paths in order to develop a reasonable estimate of the range of future
expected stock prices of the Company and the Peer Group and minimizes standard error.
As of September 30, 2010, the total number of performance-based stock options granted and
outstanding ranged from approximately 0.3 million shares at the threshold performance level of
achievement to approximately 0.9 million shares at maximum achievement. There was $2.3 million of
unrecognized compensation expense as of September 30, 2010 related to performance-based stock
options. This unrecognized compensation expense does not reflect a reduction for our estimate of
potential forfeitures, and will be recognized by the end of fiscal 2011 if performance targets are
met. The amount of unrecognized compensation expense for performance-based stock options that we
ultimately realize is subject to change based on the probable achievement of the established
performance targets, which are assessed each quarter.
There were no performance-based stock options granted during fiscal year 2010. The following table
sets forth the weighted average fair value per share for performance-based stock options and the
related valuation assumptions used in the determination of those fair values for fiscal years 2009
and 2008.
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Weighted average fair value per share
|
|
$
|
4.88
|
|
|
$
|
7.20
|
|
|
|
|
|
|
|
|
|
|
Valuation assumptions:
|
|
|
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.8 2.7
|
%
|
|
|
1.6 3.5
|
%
|
Expected dividend yield
|
|
|
1.5
|
%
|
|
|
1.6
|
%
|
Expected volatility
|
|
|
30.4
|
%
|
|
|
28.0
|
%
|
Weighted average expected life
|
|
|
6.2
|
years
|
|
|
7.6
|
years
|
The basis for the assumptions listed above is similar to the valuation assumptions used for
non-performance-based stock options, as discussed previously.
75
The following table summarizes our stock option activity related to performance-based stock options
for fiscal year 2010. None of the performance-based stock options were exercisable as of September
30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value (1)
|
|
|
|
(in thousands)
|
|
|
Price
|
|
|
Term
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Outstanding at October 1, 2009
|
|
|
2,343
|
|
|
$
|
22.10
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled/Forfeited
|
|
|
(1,446
|
)
|
|
|
23.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Outstanding at September 30, 2010
|
|
|
897
|
|
|
$
|
19.39
|
|
|
|
8.2
|
years
|
|
$
|
14.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The aggregate intrinsic value represents the total pre-tax intrinsic value, based on our
closing stock price of $35.89, as reported by the New York Stock Exchange on September 30, 2010.
This amount, which changes continuously based on the fair value of our common stock, would have
been received by the option holders had the maximum performance targets been achieved and all
option holders met the maximum performance targets and exercised their options as of the balance
sheet date.
|
Restricted Stock Units
RSUs are granted to certain employees with fair values equal to the average of the high and low
prices of our common stock on the date of grant, multiplied by the number of units granted. RSU
grants are contingent upon continued employment and vest over periods ranging from one to five
years. Dividends, payable in common stock equivalents, accrue on the grants and are subject to the
same specified terms as the original grants, including the risk of forfeiture.
The following table summarizes transactions for our nonvested RSUs for fiscal year 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Share Units
|
|
|
Grant Date
|
|
Restricted Stock Units
|
|
(in thousands)
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
Nonvested RSUs at October 1, 2009
|
|
|
799
|
|
|
$
|
25.15
|
|
Granted
|
|
|
415
|
|
|
|
25.15
|
|
Vested
|
|
|
(283
|
)
|
|
|
27.24
|
|
Forfeited
|
|
|
(138
|
)
|
|
|
24.07
|
|
|
|
|
|
|
|
|
Nonvested RSUs at September 30, 2010
|
|
|
793
|
|
|
$
|
24.66
|
|
|
|
|
|
|
|
|
As of September 30, 2010, there was $10.9 million of total unrecognized compensation expense
related to nonvested RSUs granted under the Stock Incentive Plan. This unrecognized compensation
expense does not reflect a reduction for our estimate of potential forfeitures, and is expected to
be recognized over a weighted average period of 2.4 years. The total vest date fair value of shares
that vested during fiscal years 2010, 2009 and 2008 was $7.3 million, $1.9 million and $8.7
million. Amounts related to periods prior to March 31, 2008, include vesting of RSUs held by
employees of our former funeral services business.
76
Performance Share Units
Our Compensation Committee grants PSUs to a limited number of our senior executives. These awards
are subject to any stock dividends, stock splits, and other similar rights inuring to common stock,
but unlike our RSUs are not entitled to cash dividend reinvestment or common stock equivalents.
Vesting of the grants is contingent upon achievement of performance targets and corresponding
service requirements. Expense recognized to date related to PSU grants has not been significant.
As of September 30, 2010, there was $0.9 million of unrecognized compensation expense related to
PSUs granted under the Stock Incentive plan based on the expected achievement of certain
performance targets. This unrecognized compensation expense does not reflect a reduction for our
estimate of potential forfeitures, and is expected to be recognized by the end of fiscal 2012, if
the performance targets are met. The amount of unrecognized compensation expense for the PSUs that
we ultimately realize is subject to change based on the probable achievement of the established
performance targets, which are assessed each quarter.
NOTE 14. SEGMENT REPORTING
We disclose segment information that is consistent with the way in which management operates and
views the business. Our operating structure consists of the following three reporting segments:
|
|
|
North America Acute Care-
sells and rents our hospital patient support and near-patient
technologies, as well as our health information technology solutions, to acute care
facilities in North America
.
|
|
|
|
|
North America Post-Acute Care-
sells and rents a variety of products outside of the
hospital setting including long-term acute care, extended care and home care, offering
patient support systems and respiratory care products
.
|
|
|
|
|
International and Surgical-
sells and rents similar products as our North America
businesses to Europe and the rest of the world, as well as sales of surgical accessories to
facilities worldwide.
|
Our performance under each reportable segment is measured on a divisional income basis before
special items. Inter-segment sales between the segments, while not significant, are generally
accounted for at current market value or cost plus markup. Divisional income generally represents
the divisions standard gross profit less its direct operating costs, excluding functional costs,
along with an allocation of fixed manufacturing overhead, research and development, and
distribution costs.
77
Functional costs include common costs, such as administration, finance, information technology,
legal, human resource costs, along with unallocated manufacturing variances and research and
development costs. Eliminations represent the elimination of inter-segment sales. Functional
costs and eliminations, while not considered segments, are presented separately to aid in the
reconciliation of segment information to consolidated financial information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Acute Care
|
|
$
|
840.3
|
|
|
$
|
791.6
|
|
|
$
|
934.7
|
|
North America Post-Acute Care
|
|
|
205.7
|
|
|
|
200.8
|
|
|
|
197.0
|
|
International and Surgical
|
|
|
432.2
|
|
|
|
398.8
|
|
|
|
381.4
|
|
Total eliminations
|
|
|
(8.6
|
)
|
|
|
(4.3
|
)
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,469.6
|
|
|
$
|
1,386.9
|
|
|
$
|
1,507.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Divisional income:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Acute Care
|
|
$
|
242.0
|
|
|
$
|
192.9
|
|
|
$
|
247.8
|
|
North America Post-Acute Care
|
|
|
61.2
|
|
|
|
58.0
|
|
|
|
55.7
|
|
International and Surgical
|
|
|
74.2
|
|
|
|
59.6
|
|
|
|
49.7
|
|
Functional costs
|
|
|
(193.7
|
)
|
|
|
(199.9
|
)
|
|
|
(227.6
|
)
|
|
|
|
|
|
|
|
|
|
|
Total divisional income
|
|
|
183.7
|
|
|
|
110.6
|
|
|
|
125.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and other intangibles
|
|
|
|
|
|
|
472.8
|
|
|
|
|
|
Litigation credit
|
|
|
(21.2
|
)
|
|
|
|
|
|
|
|
|
Special charges
|
|
|
13.2
|
|
|
|
20.5
|
|
|
|
22.8
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
191.7
|
|
|
|
(382.7
|
)
|
|
|
102.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of non-strategic assets
|
|
|
|
|
|
|
10.2
|
|
|
|
|
|
Interest expense
|
|
|
(8.7
|
)
|
|
|
(10.4
|
)
|
|
|
(14.3
|
)
|
Investment income and other, net
|
|
|
(0.1
|
)
|
|
|
4.1
|
|
|
|
3.8
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes
|
|
$
|
182.9
|
|
|
$
|
(378.8
|
)
|
|
$
|
92.3
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Information
Geographic data for net revenues and long-lived assets (which consist mainly of property and
equipment leased to others) for fiscal years 2010, 2009 and 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
Net revenues to unaffiliated customers:
(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
1,027.1
|
|
|
$
|
985.5
|
|
|
$
|
1,107.9
|
|
Foreign
|
|
|
442.5
|
|
|
|
401.4
|
|
|
|
399.8
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
1,469.6
|
|
|
$
|
1,386.9
|
|
|
$
|
1,507.7
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets:
(b)
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
200.3
|
|
|
$
|
230.5
|
|
|
$
|
254.5
|
|
Foreign
|
|
|
43.4
|
|
|
|
41.9
|
|
|
|
42.3
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
243.7
|
|
|
$
|
272.4
|
|
|
$
|
296.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Net revenues are attributed to geographic areas based on the location of the customer.
|
|
(b)
|
|
Includes property and equipment leased to others.
|
78
NOTE 15. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table presents selected consolidated financial data by quarter for each of the last
two fiscal years.
2010 Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
355.3
|
|
|
$
|
357.1
|
|
|
$
|
360.6
|
|
|
$
|
396.6
|
|
Gross profit
|
|
$
|
170.8
|
|
|
$
|
171.8
|
|
|
$
|
178.0
|
|
|
$
|
196.0
|
|
Net income attributable to common shareholders
|
|
$
|
19.8
|
|
|
$
|
24.2
|
|
|
$
|
30.6
|
|
|
$
|
50.7
|
|
Basic net income attributable to common
shareholders per common share
|
|
$
|
0.32
|
|
|
$
|
0.38
|
|
|
$
|
0.48
|
|
|
$
|
0.80
|
|
Diluted net income attributable to common
shareholders per common share
|
|
$
|
0.31
|
|
|
$
|
0.38
|
|
|
$
|
0.48
|
|
|
$
|
0.79
|
|
2009 Quarter Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$
|
351.6
|
|
|
$
|
337.3
|
|
|
$
|
334.7
|
|
|
$
|
363.3
|
|
Gross profit
|
|
$
|
152.5
|
|
|
$
|
153.4
|
|
|
$
|
150.7
|
|
|
$
|
171.3
|
|
Net income (loss) attributable to common shareholders
|
|
$
|
14.2
|
|
|
$
|
(465.8
|
)
|
|
$
|
20.2
|
|
|
$
|
26.4
|
|
Basic net income (loss) attributable to common
shareholders per common share
|
|
$
|
0.23
|
|
|
$
|
(7.44
|
)
|
|
$
|
0.32
|
|
|
$
|
0.42
|
|
Diluted net income (loss) attributable to common
shareholders per common share
|
|
$
|
0.23
|
|
|
$
|
(7.44
|
)
|
|
$
|
0.32
|
|
|
$
|
0.42
|
|
NOTE 16. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Rental expense charged to continuing operations for fiscal years 2010, 2009 and 2008 was $19.5
million, $19.4 million and $19.9 million. The table below indicates the minimum annual rental
commitments (excluding renewable periods) aggregating $59.0 million, for manufacturing facilities,
warehouse distribution centers, service centers and sales offices, under noncancelable operating
leases.
|
|
|
|
|
|
|
Amount
|
|
2011
|
|
$
|
19.5
|
|
2012
|
|
$
|
12.7
|
|
2013
|
|
$
|
9.2
|
|
2014
|
|
$
|
6.1
|
|
2015
|
|
$
|
3.3
|
|
2016 and beyond
|
|
$
|
8.2
|
|
We have a long-term agreement with IBM to manage our global information structure environment that
expires in September 2014. The expected aggregate cost from September 30, 2010 through the
duration of the contract is $40.7 million.
79
Self Insurance
We are involved in possible claims and are generally self-insured up to certain limits for
product/general liability, workers compensation, auto liability and professional liability
insurance programs. These policies have deductibles and self-insured retentions ranging from $150
thousand to $1.5 million per occurrence, depending upon the type of coverage and policy period. We
are also generally self-insured up to certain stop-loss limits for certain employee health
benefits, including medical, drug and dental. Our policy is to estimate reserves based upon a
number of factors including known claims, estimated incurred but not reported claims and outside
actuarial analysis, which are based on historical information along with certain assumptions about
future events.
Legal Proceedings
Batesville Casket Antitrust Litigation
In 2005 the Funeral Consumers Alliance, Inc. and a number of individual consumer casket purchasers
filed a purported class action antitrust lawsuit on behalf of certain consumer purchasers of
Batesville
®
caskets against the Company and its former Batesville Casket Company, Inc. subsidiary
(now wholly owned by Hillenbrand, Inc.), and three national funeral home businesses.
The district court has dismissed the claims and denied class certification, but in October 2010,
these decisions were appealed to the United States Court of Appeals for the Fifth Circuit. If the
plaintiffs were to succeed in reversing the district courts dismissal of the claims, but not the
denial of class certification, then the plaintiffs would be able to pursue individual damages
claims: the alleged overcharges on the plaintiffs individual casket purchases, which would be
trebled as a matter of law, plus reasonable attorneys fees and costs.
If the plaintiffs were to (1) succeed in reversing the district courts dismissal of the claims,
(2) succeed in reversing the district court order denying class certification and certify a class,
and (3) prevail at trial, then the damages awarded to the plaintiffs, which would be trebled as a
matter of law, could have a significant material adverse effect on our results of operations,
financial condition and/or liquidity. The plaintiffs in the FCA Action filed a report indicating
that they are seeking damages ranging from approximately $947.0 million to approximately $1.46
billion before trebling on behalf of the purported class of consumers they seek to represent, based
on claims of approximately one million casket purchases by the purported class members.
We and Hillenbrand, Inc. have entered into a Judgment Sharing Agreement that apportions the costs
and any potential liabilities associated with this litigation between us and Hillenbrand, Inc. See
Note 3 for more information regarding the Judgment Sharing Agreement.
We believe that we have committed no wrongdoing as alleged by the plaintiffs and that we have
meritorious defenses to class certification and to plaintiffs underlying allegations and damage
theories. In accordance with applicable authoritative guidance, we have not established a loss
reserve in connection with this litigation.
Office of Inspector General Investigation
On February 8, 2008, we were served with an Administrative Investigative Demand subpoena by the
United States Attorneys Office for the Eastern District of Tennessee pursuant to a Health and
Human Services Office of Inspector General investigation. On September 18, 2008, we were informed
that the investigation was precipitated by the filing in 2005 of a
qui tam
(whistleblower)
complaint under the False Claims Act in the United States District Court for the Eastern District
of Tennessee. Once the complaint is filed with the court under seal, the Department of Justice
investigates the allegations and has the right to intervene and in effect take over the prosecution
of the lawsuit if it believes the allegations warrant. At this point, the government has not yet
reached a final intervention decision and is continuing its investigation.
Although the complaint has been only partially unsealed at this point and we have not been formally
served, we know that the plaintiffs seek recovery of significant damages and civil penalties
relating to the alleged submission of false and fraudulent claims to Medicare and/or Medicaid for
the provision of durable medical equipment. In the event that this matter were to proceed to
litigation, if it were found that we had failed to comply with applicable laws and regulations, we
could be subject to substantial fines or penalties and possible exclusion from participation in
federal health care programs. At this time, we are continuing to cooperate with the governments
investigation. We cannot provide any assurances as to when the government will finish its
investigation, or when, if ever, it will determine to formally intervene.
80
Freedom Medical Antitrust Litigation
On October 19, 2009, Freedom Medical, Inc. filed a complaint against the Company, another
manufacturer and two group purchasing organizations in the United States District Court for the
Eastern District of Texas. The plaintiff alleges that the Company and the other defendants
conspired to exclude it from the biomedical equipment rental market and to maintain the Companys
market share by engaging in a variety of conduct in violation of state and federal antitrust laws.
The plaintiff also has asserted claims for business disparagement, common law conspiracy and
tortuous interference with business relationships. The plaintiff seeks injunctive relief and money
damages in an unspecified amount. We intend to defend this matter vigorously. Because the
litigation is in a preliminary stage, we cannot assess the likelihood of an adverse outcome or
determine an estimate, or a range of estimates, of potential damages, nor can we give any
assurances that this matter will not have a material adverse impact on the Companys financial
condition, results of operations or cash flows.
Antitrust Settlement
In fiscal 2005, we entered into a definitive, court approved agreement with Spartanburg Regional
Healthcare Systems and its attorneys to settle a purported antitrust class action lawsuit. A number
of potential plaintiffs, including the United States government, opted out of the settlement, and
we retained a reserve of $21.2 million against these potential claims. However, no individual
claims were filed prior to the August 2010 statute of limitations deadline, and we therefore
reversed this reserve into income as of September 30, 2010.
General
We are subject to various other claims and contingencies arising out of the normal course of
business, including those relating to governmental investigations and proceedings, commercial
transactions, product liability, employee related matters, antitrust, safety, health, taxes,
environmental and other matters. Litigation is subject to many uncertainties and the outcome of
individual litigated matters is not predictable with assurance. It is possible that some
litigation matters for which reserves have not been established could be decided unfavorably to us,
and that any such unfavorable decisions could have a material adverse effect on our financial
condition, results of operations and cash flows.
NOTE 17. SUBSEQUENT EVENTS
We have performed an evaluation of subsequent events and concluded there were no subsequent events
that required recognition or disclosure in these Consolidated Financial Statements.
81
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the supervision and participation of our President and Chief Executive Officer
and our Senior Vice President and Chief Financial Officer (the Certifying Officers), has
evaluated the effectiveness of the design and operation of our disclosure controls and procedures
as of September 30, 2010. Our disclosure controls and procedures are designed to ensure that
information required to be disclosed in the reports we file or submit under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods
specified in the SECs rules and forms and such information is accumulated and communicated to
management, including our Certifying Officers and our Board of Directors, as appropriate to allow
timely decisions regarding required disclosure.
Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and
procedures were effective as of September 30, 2010.
Managements Report on Internal Control Over Financial Reporting
The report of managements assessment of the effectiveness of our internal control over financial
reporting as of September 30, 2010 and the related attestation report of our independent registered
public accounting firm, are included under Part II, Item 8 of this Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended
September 30, 2010 that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Item 9B. OTHER INFORMATION
None.
82
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated herein by reference to our Proxy Statement to
be filed with the SEC in January 2011 relating to our 2011 Annual Meeting of Shareholders (the
2011 Proxy Statement), under the headings Election of Directors, Section 16(a) Beneficial
Ownership Reporting Compliance, and Corporate Governance. Information relating to our executive
officers is included in this report in Part I, Item 1 under the caption Executive Officers of the
Registrant.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the 2011 Proxy
Statement, under the heading Executive Compensation.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated herein by reference to the 2011 Proxy
Statement, under the headings Security Ownership of Certain Beneficial Owners and Management and
Equity Compensation Plan Information.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference to the 2011 Proxy
Statement, where such information is included under the heading Corporate Governance.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference to the 2011 Proxy
Statement, where such information is included under the heading Proposals Requiring Your Vote -
Ratification of Appointment of Independent Registered Public Accounting Firm.
83
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
|
|
The following documents have been filed as a part of this Form 10-K or, where noted,
incorporated by reference:
|
|
(1)
|
|
Financial Statements
|
|
|
|
|
The financial statements of the Company and its consolidated subsidiaries are listed under
Part II, Item 8 on the Index to Consolidated Financial Statements on page 39.
|
|
|
(2)
|
|
Financial Statement Schedules
|
|
|
|
|
The financial statement schedule filed in response to Part II, Item 8 and Part IV, Item 15(c)
of Form 10-K is listed under Part II, Item 8 on the Index to Consolidated Financial Statements
on page 39.
|
|
|
(3)
|
|
Exhibits (See changes to Exhibit Index below):
|
|
|
|
|
The Exhibit Index, which follows the signature page to this Form 10-K and is hereby
incorporated herein by reference, sets forth a list of those exhibits filed herewith, and
includes and identifies management contracts or compensatory plans or arrangements required
to be filed as exhibits to this Form 10-K by Item 601 (b)(10)(iii) of Regulation S-K.
|
|
|
|
|
The agreements included as exhibits to this Form 10-K are intended to provide information
regarding their terms and not to provide any other factual or disclosure information about
us or the other parties to the agreements. The agreements may contain representations and
warranties by the parties to the agreements, including us, solely for the benefit of the
other parties to the applicable agreement. Such representation and warranties:
|
|
|
|
should not in all instances be treated as categorical statements of fact, but
rather as a way of allocating the risk to one of the parties if those statements
prove to be inaccurate;
|
|
|
|
|
may have been qualified by disclosures that were made to the other party in
connection with the negotiation of the applicable agreement, which disclosures are
not necessarily reflected in the agreement;
|
|
|
|
|
may apply standards of materiality in a way that is different from what may be
viewed as material to certain investors; and
|
|
|
|
|
were made only as of the date of the applicable agreement or such other date or
dates as may be specified in the agreement and are subject to more recent
developments.
|
Accordingly, these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time.
84
Valuation and Qualifying Accounts
SCHEDULE II
HILL-ROM HOLDINGS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
For The Fiscal Years Ended September 30, 2010, 2009 and 2008
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADDITIONS
|
|
|
|
|
|
|
|
|
|
BALANCE AT
|
|
|
CHARGED TO
|
|
|
CHARGED TO
|
|
|
DEDUCTIONS
|
|
|
BALANCE
|
|
|
|
BEGINNING
|
|
|
COSTS AND
|
|
|
OTHER
|
|
|
NET OF
|
|
|
AT END
|
|
DESCRIPTION
|
|
OF PERIOD
|
|
|
EXPENSES
|
|
|
ACCOUNTS
|
|
|
RECOVERIES
|
|
|
OF PERIOD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from assets to which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for possible losses and sales returns
accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
$
|
27.5
|
|
|
$
|
0.8
|
|
|
$
|
7.2
|
(a)
|
|
$
|
(6.5
|
)
(b)
|
|
$
|
29.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
$
|
25.9
|
|
|
$
|
4.1
|
|
|
$
|
8.0
|
(a)
|
|
$
|
(10.5
|
)
(b)
|
|
$
|
27.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
$
|
51.5
|
|
|
$
|
3.0
|
|
|
$
|
6.6
|
(a)
|
|
$
|
(35.2
|
)
(b) (f)
|
|
$
|
25.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for inventory valuation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
$
|
28.3
|
|
|
$
|
0.2
|
|
|
$
|
|
|
|
$
|
(3.8
|
)
(c)
|
|
|
24.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
$
|
21.2
|
|
|
$
|
10.5
|
|
|
$
|
|
|
|
$
|
(3.4
|
)
(c)
|
|
|
28.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
$
|
32.7
|
|
|
$
|
5.3
|
|
|
$
|
|
|
|
$
|
(16.8
|
)
(c) (f)
|
|
|
21.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance against deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2010
|
|
$
|
37.5
|
|
|
$
|
(0.8
|
)
|
|
$
|
|
|
|
$
|
(8.2
|
)
(d)
|
|
|
28.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009
|
|
$
|
85.7
|
|
|
$
|
2.4
|
|
|
$
|
|
|
|
$
|
(50.6
|
)
(d)
|
|
|
37.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
$
|
88.3
|
|
|
$
|
(8.8
|
)
|
|
$
|
|
|
|
$
|
6.2
|
(e)
|
|
|
85.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Reduction of gross revenues for uncollectible health care rental reimbursements, cash
discounts and other adjustments in determining net revenue. Also includes the effect of acquired
businesses, if any.
|
|
(b)
|
|
Generally reflects the write-off of specific receivables against recorded reserves.
|
|
(c)
|
|
Generally reflects the write-off of specific inventory against recorded reserves.
|
|
(d)
|
|
Primarily reflects write-offs of deferred tax assets against the valuation allowance and other
movement of the valuation allowance offset by an opposing change in deferred tax assets.
|
|
(e)
|
|
Primarily reflects the adoption of uncertain tax position provisions and the transfer of the
valuation allowance to Hillenbrand, Inc. in conjunction with the spin-off of the funeral services
business.
|
|
(f)
|
|
Includes reserve transfers to Hillenbrand, Inc. in conjunction with the spin-off of the
funeral services business.
|
85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
HILL-ROM HOLDINGS, INC.
|
|
|
By:
|
/s/ John J. Greisch
|
|
|
|
John J. Greisch
|
|
|
|
President and Chief Executive Officer
|
|
Date: November 17, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
|
|
|
/s/ Rolf A. Classon
|
|
/s/ James R. Giertz
|
|
|
|
Rolf A. Classon
|
|
James R. Giertz
|
Chairman of the Board
|
|
Director
|
|
|
|
/s/ John J. Greisch
|
|
/s/ Charles E. Golden
|
|
|
|
John J. Greisch
|
|
Charles E. Golden
|
President and Chief Executive Officer and Director
|
|
Director
|
(Principal Executive Officer)
|
|
|
|
|
|
/s/ Joanne C. Smith, M.D.
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/s/ W August Hillenbrand
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Joanne C. Smith, M.D.
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W August Hillenbrand
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Director
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Director
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Vice Chairperson of the Board
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/s/ Gregory N. Miller
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/s/ Ronald A. Malone
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Gregory N. Miller
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Ronald A. Malone
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Senior Vice President and Chief Financial Officer
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Director
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(Principal Financial Officer)
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/s/ Richard G. Keller
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/s/ Eduardo R. Menascé
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Richard G. Keller
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Eduardo R. Menascé
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Vice President Controller and
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Director
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Chief Accounting Officer
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(Principal Accounting Officer)
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/s/
Katherine S. Napier
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Katherine S. Napier
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Director
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Date: November 17, 2010
86
HILL-ROM HOLDINGS, INC.
INDEX TO EXHIBITS
Management contracts and compensatory plans or arrangements are designated with*.
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2.1
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Distribution Agreement dated as of March 14, 2008 by and between Hill-Rom Holdings, Inc.
(formerly Hillenbrand Industries, Inc.) and Hillenbrand, Inc. (formerly Batesville Holdings,
Inc.) (Incorporated herein by reference to Exhibit 2.1 filed with Form 8-K dated April 1,
2008)
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2.2
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Letter Agreement dated as of March 31, 2008 between Hill-Rom Holdings, Inc. and Hillenbrand,
Inc. regarding interpretation of Distribution Agreement (Incorporated herein by reference to
Exhibit 2.2 filed with Form 10-Q for the quarter ended March 31, 2008.)
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2.3
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Share Sale and Purchase Agreement dated as of September 30, 2008 between Family Holding I
Alvik AB and Hill-Rom AB regarding the sale of Liko Vårdlyft AB (Incorporated herein by
reference to Exhibit 2.1 filed with Form 8-K dated September 30, 2008)
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2.4
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Share Sale and Purchase Agreement dated as of September 30, 2008 between AM Holding AB and
Hill-Rom Company, Inc. regarding the sale of Liko North America Corporation (Incorporated
herein by reference to Exhibit 2.2 filed with Form 8-K dated September 30, 2008)
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3.1
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Restated and Amended Articles of Incorporation of Hill-Rom Holdings, Inc., as currently in
effect (Incorporated herein by reference to Exhibit 3.1 filed with Form 8-K dated March 10,
2010)
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3.2
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Amended and Restated Code of By-Laws of Hill-Rom Holdings, Inc., as currently in effect
(Incorporated herein by reference to Exhibit 3.2 filed with Form 8-K dated March 10, 2010)
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4.1
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Indenture dated as of December 1, 1991, between Hill-Rom Holdings, Inc. and Union Bank, N.A.
(as successor to LaSalle Bank National Association and Harris Trust and Savings Bank) as
Trustee (Incorporated herein by reference to Exhibit (4) (a) to Registration Statement on Form
S-3, Registration No. 33-44086)
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*10.1
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Hill-Rom Holdings, Inc. Amended and Restated Short Term Incentive Compensation Program
(Incorporated herein by reference to Exhibit 10.1 filed with Form 10-K for the year ended
September 30, 2009)
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*10.3
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Hill-Rom Holdings, Inc. 1996 Stock Option Plan (Incorporated herein by reference to Exhibit
10.2 filed with Form 10-Q for the quarter ended February 27, 1999)
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*10.4
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Form of Stock Award granted to certain executive officers (Incorporated herein by reference
to Exhibit 10.4 filed with Form 10-K for the year ended November 27, 1999)
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*10.5
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Form of Stock Award granted to certain executive officers under the Stock Incentive Plan.
(Incorporated herein by reference to Exhibit 10.4 filed with Form 10-K for the year ended
September 30, 2003)
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*10.7
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Form of Director Indemnity Agreement (Incorporated herein by reference to Exhibit 10.6 filed
with Form 10-K for the year ended September 30, 2003)
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*10.8
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Form of Indemnity Agreement between Hill-Rom Holdings, Inc. and certain executive officers
(Incorporated herein by reference to Exhibit 10.9 filed with Form 10-K for the year ended
September 30, 2003)
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*10.9
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Hill-Rom Holdings, Inc. Board of Directors Deferred Compensation Plan (Incorporated herein
by reference to Exhibit 10.10 filed with Form 10-Q for the quarter ended June 2, 2001)
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87
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*10.10
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Hill-Rom Holdings, Inc. Director Phantom Stock Plan and form of award (Incorporated herein
by reference to Exhibit 10.11 filed with Form 10-Q for the quarter ended June 2, 2001)
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*10.11
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Hill-Rom Holdings, Inc. Supplemental Executive Retirement Plan (Incorporated herein by
reference to Exhibit 10.14 filed with Form 10-K for the year ended September 30, 2003)
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*10.12
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Hill-Rom Holdings, Inc. Senior Executive Deferred Compensation Program (Incorporated herein
by reference to Exhibit 10.15 filed with Form 10-K for the year ended September 30, 2003)
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*10.13
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Reserved
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*10.15
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Form of Director Stock Award (Incorporated herein by reference to Exhibit 10.1 filed with
Form 10-Q for the quarter ended December 31, 2004)
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*10.16
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CEO Cash Award Policy (Incorporated herein by reference to Exhibit 10.28 filed with Form
10-K for the year ended September 30, 2005)
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*10.18
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Form of Performance Based Stock Award granted December 3, 2009 to certain executive
officers, including the named executive officers, under the Stock Incentive Plan
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10.19
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Settlement Agreement relating to Spartanburg antitrust litigation (Incorporated herein by
reference to Exhibit 10.1 filed with Form 8-K dated February 3, 2006)
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10.20
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Credit Agreement dated as of March 28, 2008 among Hill-Rom Holdings, Inc., the lenders named
therein, and Citibank, N.A. as agent for the lenders (Incorporated herein by reference to
Exhibit 10.1 to the Form 8-K dated April 1, 2008)
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*10.21
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Employment Agreement dated as of March 31, 2008 between Hill-Rom Holdings, Inc. and Peter
H. Soderberg (Incorporated herein by reference to Exhibit 10.2 filed with Form 8-K dated April
1, 2008)
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*10.22
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Employment Agreement dated as of March 31, 2008 between Hill-Rom Holdings, Inc. and Gregory
N. Miller (Incorporated herein by reference to Exhibit 10.3 filed with Form 8-K dated April 1,
2008)
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*10.23
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Employment Agreement dated as of March 31, 2008 between Hill-Rom Holdings, Inc. and Patrick
D. de Maynadier (Incorporated herein by reference to Exhibit 10.4 filed with Form 8-K dated
April 1, 2008)
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*10.24
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Employment Agreement dated as of March 31, 2008 between Hill-Rom Holdings, Inc. and John H.
Dickey (Incorporated herein by reference to Exhibit 10.5 filed with Form 8-K dated April 1,
2008)
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*10.25
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Form of Change in Control Agreement between Hill-Rom Holdings, Inc. and Peter H. Soderberg
(Incorporated herein by reference to Exhibit 10.6 filed with Form 8-K dated April 1, 2008)
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*10.26
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Form of Change in Control Agreement between Hill-Rom Holdings, Inc. and certain of its
officers, including the Named Executive Officers (other than the CEO) (Incorporated herein by
reference to Exhibit 10.7 filed with Form 8-K dated April 1, 2008)
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10.27
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Judgment Sharing Agreement dated as of March 14, 2008 among Hill-Rom Holdings, Inc.,
Hillenbrand, Inc. and Batesville Casket Company, Inc. (Incorporated herein by reference to
Exhibit 10.8 filed with Form 8-K dated April 1, 2008)
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10.28
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Employee Matters Agreement dated as of March 14, 2008 between Hill-Rom Holdings, Inc. and
Hillenbrand, Inc. (Incorporated herein by reference to Exhibit 10.9 filed with Form 8-K dated
April 1, 2008)
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10.29
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Tax Sharing Agreement dated as of March 31, 2008 between Hill-Rom Holdings, Inc. and
Hillenbrand, Inc. (Incorporated herein by reference to Exhibit 10.10 filed with Form 8-K dated
April 1, 2008)
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*10.30
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Amended and Restated Hill-Rom Holdings, Inc. Stock Incentive Plan, as currently in effect
(Incorporated herein by reference to Exhibit 10.30 filed with Form 10-K for the year ended
September 30, 2009)
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88
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*10.31
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Employment Agreement dated as of March 31, 2008 between Hill-Rom Company, Inc. and Richard
G. Keller (Incorporated herein by reference to Exhibit 10.12 filed with Form 10-Q for the
quarter ended March 31, 2008)
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*10.32
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Employment Agreement dated as of March 31, 2008 between Hill-Rom Holdings, Inc. and C.
Jeffery Kao (Incorporated herein by reference to Exhibit 10.14 filed with Form 10-Q for the
quarter ended March 31, 2008)
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*10.33
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Employment Agreement dated as of March 31, 2008 between Hill-Rom Holdings, Inc. and Mark D.
Baron (Incorporated herein by reference to Exhibit 10.15 filed with Form 10-Q for the quarter
ended March 31, 2008)
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*10.34
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Employment Agreement dated as of March 31, 2008 between Hill-Rom
Holdings, Inc. and Kimberly K. Dennis (Incorporated herein by
reference to Exhibit 10.16 filed with Form 10-Q for the quarter
ended March 31, 2008)
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*10.35
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Employment Agreement dated as of July 31, 2008 between Hill-Rom
Holdings, Inc. and Earl V. DeCarli (Incorporated herein by
reference to Exhibit 10.18 filed with Form 10-Q for the quarter
ended June 30, 2008)
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*10.36
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Letter Agreement dated September 27, 2009 between Hill-Rom
Holdings, Inc. and Peter H. Soderberg (Incorporated herein by
reference to Exhibit 10.1 filed with Form 8-K dated September 27,
2009)
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*10.37
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Hill-Rom Holdings, Inc. Employee Stock Purchase Plan (Incorporated
by reference to Appendix I to the Companys definitive Proxy
Statement on Schedule 14A dated January 7, 2009)
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*10.38
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Letter Agreement effective October 1, 2009 between Hill-Rom
Holdings, Inc. and Earl V. DeCarli (Incorporated herein by
reference to Exhibit 10.40 filed with Form 10-K for the year ended
September 30, 2009)
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*10.39
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Employment Agreement dated January 6, 2010 between Hill-Rom Holdings, Inc. and John J.
Greisch (Incorporated herein by reference to Exhibit 10.1 filed with Form 8-K dated January 7,
2010)
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*10.40
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Change in Control Agreement between Hill-Rom Holdings, Inc. and John J. Greisch dated
January 6, 2010 (Incorporated herein by reference to Exhibit 10.2 filed with Form 8-K dated
January 7, 2010)
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*10.41
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Limited Recapture Agreement between Hill-Rom Holdings, Inc. and John J. Greisch dated
January 6, 2010 (Incorporated herein by reference to Exhibit 10.4 filed with Form 8-K dated
January 7, 2010)
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*10.42
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Separation and Release Agreement between Hill-Rom Holdings, Inc. and C. Jeffrey Kao dated
March 1, 2010 (Incorporated herein by reference to Exhibit 10.1 filed with Form 8-K dated
March 3, 2010)
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*10.43
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Separation and Release Agreement between Hill-Rom Holdings, Inc. and Gregory J. Tucholski dated April 23, 2010
(Incorporated herein by reference to Exhibit 10.1 filed with Form 10-Q for the quarter ended June 30, 2010)
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*10.44
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Employment Agreement between Hill-Rom Holdings, Inc. and Alejandro Infante-Saracho dated May 6, 2010 (Incorporated
herein by reference to Exhibit 10.5 filed with Form 10-Q for the quarter ended March 31, 2010)
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*10.45
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Limited Recapture Agreement between Hill-Rom Holdings, Inc. and Alejandro Infante-Saracho dated May 6, 2010
(Incorporated herein by reference to Exhibit 10.6 filed with Form 10-Q for the quarter ended March 31, 2010)
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*10.46
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Employment Agreement between Hill-Rom Holdings, Inc. and Susan R. Lichtenstein dated May 10, 2010 (Incorporated herein
by reference to Exhibit 10.7 filed with Form 10-Q for the quarter ended March 31, 2010)
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*10.47
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Limited Recapture Agreement between Hill-Rom Holdings, Inc. and Susan R. Lichtenstein dated May 10, 2010 (Incorporated
herein by reference to Exhibit 10.8 filed with Form 10-Q for the quarter ended March 31, 2010)
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*10.48
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Employment Agreement between Hill-Rom Holdings, Inc. and Philip D. Settimi dated May 6, 2010 (Incorporated herein by
reference to Exhibit 10.9 filed with Form 10-Q for the quarter ended March 31, 2010)
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89
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*10.49
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Limited Recapture Agreement between Hill-Rom Holdings, Inc. and Philip D. Settimi dated May 6, 2010 (Incorporated herein
by reference to Exhibit 10.10 filed with Form 10-Q for the quarter ended March 31, 2010)
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*10.50
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Employment Agreement between Hill-Rom Holdings, Inc. and Martha G. Aronson dated August 1, 2010
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*10.51
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Limited Recapture Agreement between Hill-Rom Holdings, Inc. and Martha G. Aronson dated August 1, 2010
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*10.52
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Employment Agreement between Hill-Rom Holdings, Inc. and Perry Stuckey III dated August 1, 2010
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*10.53
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Limited Recapture Agreement between Hill-Rom Holdings, Inc. and Perry Stuckey III dated August 1, 2010
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*10.54
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Employment Agreement between Hill-Rom Holdings, Inc. and Scott R. Jeffers dated September 13, 2010
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*10.55
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Limited Recapture Agreement between Hill-Rom Holdings, Inc. and Scott R. Jeffers dated September 13, 2010
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*10.56
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Amended Employment Agreement dated as of July 28, 2010 between Hill-Rom Holdings, Inc. and Patrick D. de Maynadier
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*10.57
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Amended Employment Agreement dated as of August 26, 2010 between Hill-Rom Holdings, Inc. and Mark D. Baron
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*10.58
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Form of Change in Control Agreement between Hill-Rom Holdings, Inc. and certain of its officers, including Named
Executive Officers (other than the CEO)
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*10.59
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Amended Change in Control Agreement between Hill-Rom Holdings, Inc. and John J. Greisch dated September 30, 2010
|
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*10.60
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Change in Control Agreement between Hill-Rom Holdings, Inc. and Kimberly K. Dennis dated September 30, 2010
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*10.61
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|
2011 Non-Employee Director Compensation Policy
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*10.62
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Form of Non-Qualified Stock Option Agreement under Amended and Restated Hill-Rom Holdings, Inc. Stock Incentive Plan
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*10.63
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Form of Restricted Stock Unit Agreement under Amended and Restated Hill-Rom Holdings, Inc. Stock Incentive Plan
|
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*10.64
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Form of Non-Qualified Stock Option Agreement (CEO version) under Amended and Restated Hill-Rom Holdings, Inc. Stock
Incentive Plan
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|
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|
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*10.65
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|
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Form of Restricted Stock Unit Agreement (CEO version) under Amended and Restated Hill-Rom Holdings, Inc. Stock Incentive
Plan
|
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*10.66
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Employment Agreement between Hill-Rom Holdings, Inc. and Mark Guinan, dated November 1, 2010 (Incorporated by reference
to Exhibit 10.1 filed with the Companys Form 8-K on November 1, 2010)
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*10.67
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Limited Recapture Agreement between Hill-Rom Holdings, Inc. and Mark Guinan, dated November 1, 2010 (Incorporated by
reference to Exhibit 10.4 filed with the Companys Form 8-K on November 1, 2010)
|
|
|
|
|
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*10.68
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Letter Agreement between Hill-Rom Holdings, Inc. and Greg Miller, dated November 1, 2010 (Incorporated by reference to
Exhibit 10.4 filed with the Companys Form 8-K on November 1, 2010)
|
90
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21
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Subsidiaries of the Registrant
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23
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Consent of Independent Registered Public Accounting Firm
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31.1
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Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2
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Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
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32.1
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Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
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|
99.1
|
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Corporate Governance Standards for the Board of Directors of Hill-Rom Holdings, Inc.
(Incorporated by reference to Exhibit 99 filed with Form 10-Q for the quarter ended March 31,
2010)
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99.2
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Charter of Audit Committee of Board of Directors of Hill-Rom Holdings, Inc. (Incorporated by
reference to Exhibit 99.1 filed with Form 10-Q for the quarter ended December 31, 2008)
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99.4
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Charter of Nominating/Corporate Governance Committee of Board of Directors of Hill-Rom
Holdings, Inc. (Incorporated by reference to Exhibit 99.3 filed with Form 10-Q for the quarter
ended March 31, 2007)
|
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99.5
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Charter of Compensation and Management Development Committee of Board of Directors
(Incorporated by reference to Exhibit 99.3 filed with Form 10-K for the year ended September
30, 2006)
|
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|
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|
99.6
|
|
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Position Specification for Chairperson of Board of Directors of Hill-Rom Holdings, Inc.
(Incorporated herein by reference to Exhibit 99.5 filed with Form 10-K for the year ended
September 30, 2004)
|
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|
99.7
|
|
|
Position Specification for Vice Chairperson of Board of Directors of Hill-Rom Holdings, Inc.
(Incorporated herein by reference to Exhibit 99.7 filed with Form 10-K for the year ended
September 30, 2003)
|
|
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|
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|
99.8
|
|
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Position Specification for Member of Board of Directors of Hill-Rom Holdings, Inc.
(Incorporated by reference to Exhibit 99.8 filed with Form 10-K for the year ended September
30, 2008)
|
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|
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|
99.9
|
|
|
Position Specification for President and Chief Executive Officer (Incorporated herein by
reference to Exhibit 99.11 to the Form 10-K for the Transition Period ended September 30,
2002)
|
|
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|
|
|
101.INS
|
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|
XBRL Instance Document
|
|
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|
|
|
101.SCH
|
|
|
XBRL Taxonomy Extension Schema Document
|
|
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|
101.CAL
|
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
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|
101.LAB
|
|
|
XBRL Extension Labels Linkbase Document
|
|
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|
|
101.PRE
|
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
91
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