Attached files
file | filename |
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EX-31.2 - EXHIBIT 31.2 - Hill-Rom Holdings, Inc. | c96588exv31w2.htm |
EX-99 - EXHIBIT 99 - Hill-Rom Holdings, Inc. | c96588exv99.htm |
EX-10.7 - EXHIBIT 10.7 - Hill-Rom Holdings, Inc. | c96588exv10w7.htm |
EX-31.1 - EXHIBIT 31.1 - Hill-Rom Holdings, Inc. | c96588exv31w1.htm |
EX-10.9 - EXHIBIT 10.9 - Hill-Rom Holdings, Inc. | c96588exv10w9.htm |
EX-10.8 - EXHIBIT 10.8 - Hill-Rom Holdings, Inc. | c96588exv10w8.htm |
EX-32.1 - EXHIBIT 32.1 - Hill-Rom Holdings, Inc. | c96588exv32w1.htm |
EX-10.6 - EXHIBIT 10.6 - Hill-Rom Holdings, Inc. | c96588exv10w6.htm |
EX-10.5 - EXHIBIT 10.5 - Hill-Rom Holdings, Inc. | c96588exv10w5.htm |
EX-32.2 - EXHIBIT 32.2 - Hill-Rom Holdings, Inc. | c96588exv32w2.htm |
EX-10.10 - EXHIBIT 10.10 - Hill-Rom Holdings, Inc. | c96588exv10w10.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2010
OR
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File No. 1-6651
HILL-ROM HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Indiana | 35-1160484 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
1069 State Route 46 East | ||
Batesville, Indiana | 47006-8835 | |
(Address of principal executive offices) | (Zip Code) |
(812) 934-7777
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
(Former name, former address and former
fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, 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 o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definition of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
Common Stock, without par value 63,117,567 shares as of April 30, 2010.
HILL-ROM HOLDINGS, INC.
INDEX TO FORM 10-Q
Page | ||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6-20 | ||||||||
21-31 | ||||||||
31 | ||||||||
32 | ||||||||
33 | ||||||||
33 | ||||||||
33 | ||||||||
34 | ||||||||
35 | ||||||||
37 | ||||||||
Exhibit 10.5 | ||||||||
Exhibit 10.6 | ||||||||
Exhibit 10.7 | ||||||||
Exhibit 10.8 | ||||||||
Exhibit 10.9 | ||||||||
Exhibit 10.10 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 | ||||||||
Exhibit 99 |
2
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | FINANCIAL STATEMENTS |
Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Loss)
(Unaudited)
(Dollars in millions except per share data)
Quarterly Period Ended | Year-To-Date Period Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net Revenues |
||||||||||||||||
Capital sales |
$ | 236.2 | $ | 219.6 | $ | 467.8 | $ | 455.6 | ||||||||
Rental revenues |
120.9 | 117.7 | 244.6 | 233.3 | ||||||||||||
Total revenues |
357.1 | 337.3 | 712.4 | 688.9 | ||||||||||||
Cost of Revenues |
||||||||||||||||
Cost of goods sold |
134.4 | 133.2 | 264.9 | 279.7 | ||||||||||||
Rental expenses |
50.9 | 50.7 | 104.9 | 103.3 | ||||||||||||
Total cost of revenues |
185.3 | 183.9 | 369.8 | 383.0 | ||||||||||||
Gross Profit |
171.8 | 153.4 | 342.6 | 305.9 | ||||||||||||
Research and development expenses |
14.4 | 14.5 | 29.3 | 27.8 | ||||||||||||
Selling and administrative expenses |
120.8 | 113.6 | 242.4 | 229.8 | ||||||||||||
Impairment of goodwill and other intangibles (Note 4) |
| 470.0 | | 470.0 | ||||||||||||
Special charges (Note 9) |
5.0 | 17.8 | 5.0 | 17.8 | ||||||||||||
Operating Profit (Loss) |
31.6 | (462.5 | ) | 65.9 | (439.5 | ) | ||||||||||
Interest expense |
(2.2 | ) | (2.3 | ) | (4.3 | ) | (5.1 | ) | ||||||||
Investment income and other, net |
0.3 | 0.8 | 0.8 | 1.6 | ||||||||||||
Income (Loss) Before Income Taxes |
29.7 | (464.0 | ) | 62.4 | (443.0 | ) | ||||||||||
Income tax expense (Note 10) |
5.2 | 1.8 | 18.0 | 8.6 | ||||||||||||
Net Income (Loss) |
24.5 | (465.8 | ) | 44.4 | (451.6 | ) | ||||||||||
Less: Net income attributable to noncontrolling interest |
0.3 | | 0.4 | | ||||||||||||
Net Income (Loss) Attributable to Common Shareholders |
$ | 24.2 | $ | (465.8 | ) | $ | 44.0 | $ | (451.6 | ) | ||||||
Net Income (Loss) Attributable to Common Shareholders per Common Share Basic |
$ | 0.38 | $ | (7.44 | ) | $ | 0.70 | $ | (7.22 | ) | ||||||
Net Income (Loss) Attributable to Common Shareholders per Common Share Diluted |
$ | 0.38 | $ | (7.44 | ) | $ | 0.69 | $ | (7.22 | ) | ||||||
Dividends per Common Share |
$ | 0.1025 | $ | 0.1025 | $ | 0.2050 | $ | 0.2050 | ||||||||
Average Common Shares Outstanding Basic (thousands) (Note 11) |
62,887 | 62,578 | 62,768 | 62,559 | ||||||||||||
Average Common Shares Outstanding Diluted (thousands) (Note 11) |
63,500 | 62,578 | 63,324 | 62,559 | ||||||||||||
See Notes to Condensed Consolidated Financial Statements
3
Table of Contents
Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
(Dollars in millions)
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
Assets |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | 135.2 | $ | 170.6 | ||||
Short-term investments (Notes 1 and 7) |
26.1 | 26.4 | ||||||
Trade accounts receivable, net of allowances (Note 2) |
345.2 | 346.6 | ||||||
Inventories (Note 2) |
105.8 | 92.0 | ||||||
Deferred income taxes (Notes 1 and 10) |
47.7 | 46.0 | ||||||
Other current assets |
36.0 | 13.5 | ||||||
Total current assets |
696.0 | 695.1 | ||||||
Equipment leased to others, net (Note 2) |
144.6 | 154.8 | ||||||
Property, net (Note 2) |
112.0 | 117.6 | ||||||
Investments and investment securities (Notes 1 and 7) |
12.6 | 17.2 | ||||||
Goodwill (Notes 3 and 4) |
80.8 | 73.1 | ||||||
Software and other intangibles, net (Note 2) |
142.6 | 141.9 | ||||||
Notes receivable, net of discounts |
6.1 | 5.5 | ||||||
Other assets |
25.3 | 27.4 | ||||||
Total Assets |
$ | 1,220.0 | $ | 1,232.6 | ||||
Liabilities |
||||||||
Current Liabilities |
||||||||
Trade accounts payable |
$ | 78.3 | $ | 81.3 | ||||
Short-term borrowings (Note 5) |
57.1 | 102.2 | ||||||
Accrued compensation |
79.3 | 72.7 | ||||||
Accrued product warranties (Note 13) |
15.2 | 17.1 | ||||||
Accrued litigation (Note 15) |
21.2 | 21.2 | ||||||
Other current liabilities |
49.2 | 49.8 | ||||||
Total current liabilities |
300.3 | 344.3 | ||||||
Long-term debt (Note 5) |
99.0 | 99.7 | ||||||
Accrued pension and postretirement benefits (Note 6) |
99.1 | 100.7 | ||||||
Deferred income taxes (Notes 1 and 10) |
8.2 | 16.8 | ||||||
Other long-term liabilities |
56.4 | 61.8 | ||||||
Total Liabilities |
563.0 | 623.3 | ||||||
Noncontrolling Interest (Note 3) |
8.4 | | ||||||
Commitments and Contingencies (Note 15) |
||||||||
Shareholders Equity |
||||||||
Common stock (Note 2) |
4.4 | 4.4 | ||||||
Additional paid-in-capital |
122.3 | 119.0 | ||||||
Retained earnings |
1,135.5 | 1,105.2 | ||||||
Accumulated other comprehensive loss (Note 8) |
(63.9 | ) | (59.9 | ) | ||||
Treasury stock, at cost (Note 2) |
(549.7 | ) | (559.4 | ) | ||||
Total Shareholders Equity |
648.6 | 609.3 | ||||||
Total Liabilities, Noncontrolling Interest and Shareholders Equity |
$ | 1,220.0 | $ | 1,232.6 | ||||
See Notes to Condensed Consolidated Financial Statements
4
Table of Contents
Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in millions)
Year-to-Date Period Ended | ||||||||
March 31, | March 31, | |||||||
2010 | 2009 | |||||||
Operating Activities |
||||||||
Net income (loss) |
$ | 44.4 | $ | (451.6 | ) | |||
Adjustments to reconcile net income (loss) to net cash flows from
operating activities: |
||||||||
Depreciation and amortization |
49.5 | 50.9 | ||||||
Impairment of goodwill and other intangibles |
| 470.0 | ||||||
Investment income |
0.1 | 0.1 | ||||||
Provision for deferred income taxes |
(8.4 | ) | (2.5 | ) | ||||
Loss on disposal of property, equipment leased to others and
intangible assets |
1.8 | 2.0 | ||||||
Stock compensation |
7.2 | 5.3 | ||||||
Tax settlement |
(6.5 | ) | | |||||
Change in working capital excluding cash, current investments,
current debt and acquisitions: |
||||||||
Trade accounts receivable |
3.9 | 79.2 | ||||||
Inventories |
(13.4 | ) | (4.5 | ) | ||||
Other current assets |
(22.4 | ) | (8.6 | ) | ||||
Trade accounts payable |
(4.7 | ) | (32.5 | ) | ||||
Accrued expenses and other liabilities |
1.8 | (29.8 | ) | |||||
Other, net |
(4.2 | ) | 12.0 | |||||
Net cash provided by operating activities |
49.1 | 90.0 | ||||||
Investing Activities |
||||||||
Capital expenditures and purchase of intangibles |
(27.5 | ) | (29.6 | ) | ||||
Proceeds on sales of property and equipment leased to others |
1.0 | 1.4 | ||||||
Investment in/acquisitions of businesses, net of cash acquired |
(7.1 | ) | (187.2 | ) | ||||
Proceeds on investment sales/maturities |
5.0 | 1.3 | ||||||
Net cash used in investing activities |
(28.6 | ) | (214.1 | ) | ||||
Financing Activities |
||||||||
Change in short-term debt |
(0.2 | ) | 2.4 | |||||
Payment on revolver |
(45.0 | ) | | |||||
Payment of cash dividends |
(12.9 | ) | (12.8 | ) | ||||
Proceeds on exercise of options |
2.9 | | ||||||
Proceeds from stock issuance |
1.3 | | ||||||
Treasury stock acquired |
(1.0 | ) | (0.6 | ) | ||||
Net cash used in financing activities |
(54.9 | ) | (11.0 | ) | ||||
Effect of exchange rate changes on cash |
(1.0 | ) | (2.0 | ) | ||||
Total Cash Flows |
(35.4 | ) | (137.1 | ) | ||||
Cash and Cash Equivalents: |
||||||||
At beginning of period |
170.6 | 221.7 | ||||||
At end of period |
$ | 135.2 | $ | 84.6 | ||||
See Notes to Condensed Consolidated Financial Statements
5
Table of Contents
Hill-Rom Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
(Dollars in millions except per share data)
1. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited, Condensed Consolidated Financial Statements appearing in this Quarterly Report on
Form 10-Q (Form 10-Q) should be read in conjunction with the audited consolidated financial
statements and notes thereto included in the Companys latest Annual Report on Form 10-K for the
fiscal year ended September 30, 2009 (2009 Form 10-K) as filed with the U.S. Securities and
Exchange Commission (SEC). Unless the context otherwise requires, the terms Hill-Rom, the
Company, we, our and us refer to Hill-Rom Holdings, Inc. and its majority-owned
subsidiaries. The September 30, 2009 Consolidated Balance Sheet data was derived from audited
consolidated financial statements, but does not include all disclosures required by accounting
principles generally accepted in the United States of America (U.S.). In the opinion of
management, the Condensed Consolidated Financial Statements herein include all adjustments,
consisting only of normal recurring adjustments, necessary to state fairly the financial position,
results of operations, and cash flows for the interim periods presented. Quarterly results are
not necessarily indicative of annual results.
Principles of Consolidation
The Condensed Consolidated Financial Statements include the accounts of the Company and its
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
3. 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 U.S. requires management to make estimates and assumptions that affect the
reported amounts of certain assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expense during the reporting period. Actual results could differ from those estimates. Examples
of such estimates include our accounts receivable reserves (Note 2), investments (Note 7), income
taxes (Note 10), accrued warranties (Note 13) and accrued litigation and self insurance reserves
(Note 15), among others.
Investment Securities
At March 31, 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. During the first quarter of 2009, we entered into an
enforceable, non-transferable right (the Put) with UBS Financial Services (UBS), which allows
the Company to put all or part of the ARS held with UBS at par value anytime during the period of
June 30, 2010 through July 2, 2012. Additionally, UBS may redeem these securities at par value plus
interest at any time prior to June 30, 2010 at their discretion.
We recorded the Put as an asset and made the election to report it at estimated fair value and
record the income from initial valuation and the related changes in fair value as a component of
Investment income and other within the Condensed Consolidated Statements of Income (Loss). Also,
because we intend to sell these securities to UBS at par value, the related ARS are classified as
trading. As trading securities, the changes in fair value corresponding to the UBS related ARS
are also recorded as a component of Investment income and other within our Condensed Consolidated
Statements of Income (Loss). We made these elections so that the
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effects of changes in the fair
value of the UBS related ARS and the Put would substantially offset within our Condensed
Consolidated Statements of Income (Loss), thereby reducing the volatility we might otherwise
experience. At March 31, 2010, the $12.2 million of our ARS not subject to the Put continue to be
classified as available-for-sale and changes in their fair value are recorded in Accumulated Other
Comprehensive Loss (AOCL).
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; and (iii) the assessment of whether any decline in estimated fair value is
other-than-temporary. 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 other
comprehensive income.
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 the Company and its 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.
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 statement for an
uncertain income tax position and the tax benefit claimed in the tax return is referred to as an
unrecognized tax benefit.
Recently Issued Accounting Standards
There have been no significant changes to recently issued accounting standards included in Note 1
of Notes to Consolidated Financial Statements in our 2009 Form 10-K and our assessment of those
standards impact, except as noted below:
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 is prospective and applies to business combinations
that occur on or after October 1, 2009. See Note 3 for further details.
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 is prospective and did not
7
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have
a material impact on our consolidated financial statements or the joint venture discussed in Note
3.
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 is prospective and did not have a material impact on our consolidated financial
statements.
2. Supplementary Balance Sheet Information
The following information pertains to assets and consolidated shareholders equity.
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
Allowance for possible losses and
discounts on trade receivables |
$ | 29.5 | $ | 27.5 | ||||
Inventories: |
||||||||
Finished products |
$ | 64.4 | $ | 57.4 | ||||
Raw materials and work in process |
41.4 | 34.6 | ||||||
Total inventory |
$ | 105.8 | $ | 92.0 | ||||
Accumulated depreciation of equipment
leased to others and property |
$ | 558.1 | $ | 548.8 | ||||
Accumulated amortization of intangible assets |
$ | 124.2 | $ | 111.5 | ||||
Preferred stock, without par value: |
||||||||
Shares authorized |
1,000,000 | 1,000,000 | ||||||
Shares issued |
None | None | ||||||
Common stock, without par value: |
||||||||
Shares authorized |
199,000,000 | 199,000,000 | ||||||
Shares issued |
80,323,912 | 80,323,912 | ||||||
Shares outstanding |
62,962,801 | 62,667,562 | ||||||
Treasury shares |
17,361,111 | 17,656,350 |
3. Acquisitions
Encompass
On November 9, 2009, the Company 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). This joint venture includes contributed former assets of
Encompass Therapeutic Support Systems (ETSS), a division of Encompass Group and is 60 percent
owned by Hill-Rom and 40 percent owned by Encompass Group. Encompass Group, through its ETSS
business unit, has traditionally focused on providing surface replacement systems. For our 60
percent ownership interest in Encompass, we paid $7.2 million to Encompass Group, contributed cash
to ETSS and entered into license and distribution agreements with ETSS.
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The following summarizes the fair value of the assets acquired and liabilities assumed at the date
of formation.
Goodwill |
$ | 7.7 | ||
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 |
$ | 7.2 | ||
The calculation of fair value of the assets and liabilities is preliminary and subject to
adjustment based on finalization of intangible valuations and working capital adjustments.
The joint venture agreements contain both a put option for Encompass Group and a call option for
the Company, requiring or allowing Hill-Rom 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 Condensed Consolidated Balance Sheet with the offset being recorded
as a component of retained earnings.
The goodwill of $7.7 million arising from the joint venture 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 joint venture are as follows:
Useful Life | ||||
Trade name |
7 | |||
Customer relationships |
7 | |||
Technology |
5 |
If the Encompass joint venture 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
On October 1, 2008, the Company acquired two affiliated companies: Liko Vårdlyft AB (Liko Sweden)
and Liko North America Corporation (Liko North America and, together with Liko Sweden, Liko).
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 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 our fiscal 2009.
4. 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.
During the second quarter of fiscal 2009, as a result of the decline in our market
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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.
The impairment test resulted in an impairment of goodwill and other intangibles in the second
quarter of fiscal 2009 in each of the Companys three reportable segments in the following amounts:
North America Acute Care $292.0 million, North America Post-Acute Care $62.0 million and
International and Surgical $116.0 million, which represented a full impairment of goodwill in the
applicable North America Acute Care and International and Surgical reporting segments.
5. Financing Agreements
Total debt consists of the following:
March 31, | September 30, | |||||||
2010 | 2009 | |||||||
Outstanding finance credit lines |
$ | 12.1 | $ | 12.2 | ||||
Revolving credit facility |
45.0 | 90.0 | ||||||
Unsecured 8.50% debentures due on December 1, 2011 |
48.8 | 49.3 | ||||||
Unsecured 7.00% debentures due on February 15, 2024 |
19.8 | 19.8 | ||||||
Unsecured 6.75% debentures due on December 15, 2027 |
29.8 | 29.8 | ||||||
Other |
0.6 | 0.8 | ||||||
Total debt |
156.1 | 201.9 | ||||||
Less current portion of debt |
57.1 | 102.2 | ||||||
Total long-term debt |
$ | 99.0 | $ | 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.
Unsecured debentures outstanding at March 31, 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 $2.6 million at March 31, 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.
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.
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As of March 31, 2010, we had outstanding borrowings of $45.0 million and undrawn letters of credit
of $6.2 million under the five-year facility, leaving $448.8 million of borrowing capacity. 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.
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 $104.4 million and $95.7 million at March 31, 2010 and September
30, 2009.
6. Retirement and Postretirement Plans
The Company sponsors five defined benefit pension plans. Those plans include a master defined
benefit retirement plan, a nonqualified supplemental executive defined benefit retirement plan, two
defined benefit retirement plans covering employees in Germany and France and a defined benefit
retirement plan related to our fiscal 2004 acquisition of Mediq, Inc. Benefits for such plans are
based primarily on years of service and the employees level of compensation during specific
periods of employment. We generally contribute funds to trusts as necessary to provide for current
service and for any unfunded projected future benefit obligation over a reasonable period of time.
All of our plans have a September 30 measurement date. The Company also sponsors a domestic
postretirement health care plan that provides health care benefits to qualified retirees and
dependents until eligible for Medicare. Annual costs related to the domestic postretirement health
care plan are not significant.
As discussed in Note 9, 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 plan and post retirement health care plan. The plan curtailment and special
termination benefits related to the post retirement health care plan were $1.4 million. The impact
of the remeasurement in the master defined benefit plan is included within the following table.
The components of net pension expense for our defined benefit pension plans were as follows:
Quarterly Period Ended | Year-To-Date Period Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost |
$ | 1.3 | $ | 1.0 | $ | 2.5 | $ | 2.0 | ||||||||
Interest cost |
3.3 | 3.3 | 6.6 | 6.6 | ||||||||||||
Expected return on plan assets |
(3.3 | ) | (3.4 | ) | (6.6 | ) | (6.7 | ) | ||||||||
Amortization of unrecognized prior service cost, net |
0.1 | 0.2 | 0.3 | 0.3 | ||||||||||||
Amortization of net (gain) loss |
0.7 | | 1.3 | | ||||||||||||
Net periodic benefit cost |
2.1 | 1.1 | 4.1 | 2.2 | ||||||||||||
Curtailment loss |
| 1.5 | | 1.5 | ||||||||||||
Special termination benefits |
| 1.3 | | 1.3 | ||||||||||||
Net pension expense |
$ | 2.1 | $ | 3.9 | $ | 4.1 | $ | 5.0 | ||||||||
7. Fair Value of Financial Assets and Liabilities
Fair value measurements are classified and disclosed in one of the following three categories:
| Level 1: Financial instruments with unadjusted quoted prices in active markets that
are accessible at the measurement date for identical, unrestricted assets and
liabilities. |
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| 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 measured at fair
value on a recurring basis included in its Condensed Consolidated Balance Sheets, as of March 31,
2010:
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||||||
Active Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
Total | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: |
||||||||||||||||
Cash equivalents |
$ | 73.9 | $ | 73.9 | $ | | $ | | ||||||||
Trading securities |
24.5 | | | 24.5 | ||||||||||||
Foreign exchange contracts |
(0.4 | ) | | (0.4 | ) | | ||||||||||
Available-for-sale marketable securities |
12.2 | | | 12.2 | ||||||||||||
Put rights |
1.6 | | | 1.6 | ||||||||||||
Total assets at fair value |
$ | 111.8 | $ | 73.9 | $ | (0.4 | ) | $ | 38.3 | |||||||
The investment securities identified in the above table consist primarily of AAA rated student
loan ARS. 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 March 31, 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. We valued the associated
Put right (see Note 1) as the difference between the par value and the fair value of ARS on a
present value basis, as adjusted for any bearer risk associated with UBSs financial ability to
repurchase its portion of ARS beginning June 30, 2010.
The following table presents the activity related to our ARS and the Put during the six month
period ended March 31, 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 |
0.1 | | 0.1 | (0.1 | ) | (0.1 | ) | |||||||||||||
Sales or redemptions |
(4.6 | ) | (0.4 | ) | | (0.2 | ) | 0.1 | ||||||||||||
Balance at March 31, 2010 |
$ | 12.2 | $ | 24.5 | $ | 1.6 | $ | 0.9 | $ | | ||||||||||
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8. Comprehensive Income
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, prior service costs or credits and transition obligations are required
to be included in comprehensive income.
The composition of comprehensive income (loss) is as follows:
Quarterly Period Ended | Year-To-Date Period Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) |
$ | 24.5 | $ | (465.8 | ) | $ | 44.4 | $ | (451.6 | ) | ||||||
Unrealized losses on available-for-sale securities: |
||||||||||||||||
Unrealized holding (losses) gains arising
during period, net-of-tax |
0.2 | 0.6 | 0.3 | (2.1 | ) | |||||||||||
Less: Reclassification adjustment for losses (gains)
realized in net income, net-of-tax |
| | | 2.7 | ||||||||||||
Net unrealized gain (loss) |
0.2 | 0.6 | 0.3 | 0.6 | ||||||||||||
Foreign currency translation adjustment, net-of-tax |
(1.2 | ) | 3.4 | (4.2 | ) | (26.8 | ) | |||||||||
Items not yet recognized as a component
of net periodic pension or postretirement
benefit cost, net-of-tax |
| (16.9 | ) | (0.1 | ) | (16.9 | ) | |||||||||
Total comprehensive income (loss) |
23.5 | $ | (478.7 | ) | 40.4 | $ | (494.7 | ) | ||||||||
Comprehensive income attributable
to the noncontrolling interest |
(0.3 | ) | | (0.4 | ) | | ||||||||||
Total comprehensive income (loss) attributable to common shareholders |
$ | 23.2 | $ | (478.7 | ) | $ | 40.0 | $ | (494.7 | ) | ||||||
9. Special Charges
During the second quarter of fiscal 2010, we announced organizational changes consistent with our
on-going efforts to improve our cost structure and business processes. These changes included the
elimination of approximately 160 employee positions. The result was a special charge of $5.0
million primarily related to severance and other benefits provided to affected associates. The
majority of the cash expenditures associated with the severance will be completed by the end of our
2010 fiscal year.
During the second quarter of fiscal 2009, we announced a plan to manage our cost structure through
consolidation of certain manufacturing and selected back office operations, redeployment of U.S.
sales and service resources to increase our customer presence and support; a further reduction in
non-sales, non-research and development discretionary spending; a voluntary early retirement
program and involuntary job eliminations to reflect lower capital equipment demand and productivity
improvements.
The plan impacted approximately 450 salaried, hourly and temporary employees, or 7 percent of our
U.S. based workforce. During the second quarter of fiscal 2009, the plan resulted in a charge of
$9.9 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
the 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 $3.7 million were also recorded in conjunction
with these actions. The charge related to severance and early retirement packages resulted in cash
expenditures that will primarily be paid by the end of fiscal 2010. Cash expenditures for the lease
will be paid over the remaining lease period.
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Activity related to these actions during fiscal 2010 was as follows:
Beginning | Ending | |||||||||||||||||||
Balance | Balance | |||||||||||||||||||
October 1, 2009 | Expenses | Cash Payments | Reversals | March 31, 2010 | ||||||||||||||||
Fiscal Year 2010 |
||||||||||||||||||||
Q2 Action Restructuring |
$ | | $ | 5.0 | $ | (0.1 | ) | $ | | $ | 4.9 | |||||||||
Fiscal Year 2009 |
||||||||||||||||||||
Q2 Action Restructuring |
$ | 4.5 | $ | | $ | (3.1 | ) | $ | | $ | 1.4 | |||||||||
The above table excludes the impact of asset impairments related to assets held for sale and the
impact of these actions on our pension and postretirement health care plans.
10. Income Taxes
The tax rates for the three- and six-month periods ended March 31, 2010 are 17.5 percent and 28.8
percent compared to negative 0.4 percent and negative 1.9 percent for the comparable periods in the
prior year. The effective tax rates for the three- and six-month periods ended March 31, 2009 are
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. The tax rates for all periods were also
impacted by certain discrete tax items.
The rate for the three- and six-month periods ended March 31, 2010 were favorably impacted by the
recognition of net discrete period tax benefits of $5.7 million and $5.2 million, relating
primarily to the recognition of previously unrecognized tax benefits associated with the resolution
of an income tax matter with the Internal Revenue Service (IRS) during the quarter of $6.5
million. This compares to $0.8 million of net discrete period expense items recognized in the
second quarter of fiscal 2009 and $0.5 million of net discrete tax benefits recorded during the
first six months of fiscal 2009 primarily due to the catch-up for the retroactive reinstatement
of the research and development tax credit.
The agreement reached with the IRS during the quarter related to the Companys previously disclosed
protest of the character of certain payments received to terminate interest rate swap contracts.
The resolution of this issued concluded the IRS audit for the fiscal years ended 2002 through 2006.
Primarily as a result of the agreement with the IRS, the total amount of gross unrecognized tax
benefits has decreased from September 30, 2009. As of March 31, 2010 the total amount of gross
unrecognized tax benefits was $28.1 million, which includes $10.7 million that, if recognized,
would impact the effective tax rate in future periods. The remaining amounts relates to items
which, if recognized would not impact our effective tax rate.
It is reasonably possible that the Company will resolve other on-going audit issues with the IRS,
state, local or foreign jurisdictions in the next twelve months. The resolution of these matters,
in combination with the expiration of certain statutes of limitation in other jurisdictions, make
it reasonably possible that our unrecognized tax benefits may decrease as a result of either
payment or recognition by approximately $8 to $12 million in the next twelve months, excluding
interest.
11. Earnings per Common Share
Basic earnings per share are 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 are calculated consistent with the basic earnings per share calculation plus the effect of
dilutive unissued common shares related to stock-based employee compensation programs. For all
periods presented, anti-dilutive stock options were excluded from the calculation of diluted
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earnings per share. Excluded shares were 5.4 million and 5.2 million for the three-and six-month
periods ended March 31, 2010, and 6.7 million and 5.2 million for the comparable periods of fiscal
year 2009. Cumulative treasury stock acquired, less cumulative shares reissued, have been
excluded in determining the average number of shares outstanding. For the three-and six-month
periods ended March 31, 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 (share information in thousands):
Quarterly Period Ended | Year-to-Date Period Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net income (loss) attributable to common shareholders |
$ | 24.2 | $ | (465.8 | ) | $ | 44.0 | $ | (451.6 | ) | ||||||
Average
shares outstanding Basic |
62,887 | 62,578 | 62,768 | 62,559 | ||||||||||||
Add potential effect of exercise of stock options
and other unvested equity awards |
613 | | 556 | | ||||||||||||
Average
shares outstanding Diluted |
63,500 | 62,578 | 63,324 | 62,559 | ||||||||||||
Net income (loss) attributable to common shareholders per common
share Basic |
$ | 0.38 | $ | (7.44 | ) | $ | 0.70 | $ | (7.22 | ) | ||||||
Net income (loss) attributable to common shareholders per common
share Diluted |
$ | 0.38 | $ | (7.44 | ) | $ | 0.69 | $ | (7.22 | ) | ||||||
12. Stock Based Compensation
The stock based compensation cost that was charged against income, net of tax, for all plans was
$2.3 million and $4.6 million for the three-and six-month periods ended March 31, 2010 and $1.8
million and $3.5 million for the comparable periods of fiscal year 2009.
13. 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 the warranty reserve for the periods covered in this report is as
follows:
Quarterly Period Ended | Year-To-Date Period Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Balance at beginning of period |
$ | 15.4 | $ | 20.8 | $ | 17.1 | $ | 16.9 | ||||||||
Provision for warranties during the period |
4.2 | 2.3 | 7.2 | 5.2 | ||||||||||||
Effect of acquisition |
| 1.1 | | 6.5 | ||||||||||||
Warranty claims during the period |
(4.4 | ) | (5.1 | ) | (9.1 | ) | (9.5 | ) | ||||||||
Balance at end of period |
$ | 15.2 | $ | 19.1 | $ | 15.2 | $ | 19.1 | ||||||||
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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 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
generally, they 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.
14. Segment Reporting
We disclose segment information that is consistent with the way in which management operates and
views the Company. Our operating structure contains the following reporting segments:
| North America Acute Care |
| North America Post-Acute Care |
| International and Surgical |
The Companys performance under each reportable segment is measured on a divisional income basis
before special items. 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.
Functional costs include costs such as administration, finance, information technology, legal and
human resource 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.
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Quarterly Period Ended | Year-To-Date Period Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenues: |
||||||||||||||||
North America Acute Care |
$ | 206.7 | $ | 188.6 | $ | 404.6 | $ | 392.1 | ||||||||
North America Post-Acute Care |
51.1 | 48.9 | 103.7 | 99.3 | ||||||||||||
International and Surgical |
100.2 | 100.8 | 207.6 | 199.7 | ||||||||||||
Total eliminations |
(0.9 | ) | (1.0 | ) | (3.5 | ) | (2.2 | ) | ||||||||
Total revenues |
$ | 357.1 | $ | 337.3 | $ | 712.4 | $ | 688.9 | ||||||||
Divisional income: |
||||||||||||||||
North America Acute Care |
$ | 53.6 | $ | 44.6 | $ | 107.6 | $ | 91.4 | ||||||||
North America Post-Acute Care |
14.8 | 13.5 | 31.6 | 28.3 | ||||||||||||
International and Surgical |
14.8 | 17.0 | 27.2 | 27.8 | ||||||||||||
Functional costs |
(46.6 | ) | (49.8 | ) | (95.5 | ) | (99.2 | ) | ||||||||
Total divisional income |
36.6 | 25.3 | 70.9 | 48.3 | ||||||||||||
Impairment of goodwill and other intangibles |
| (470.0 | ) | | (470.0 | ) | ||||||||||
Special charges |
(5.0 | ) | (17.8 | ) | (5.0 | ) | (17.8 | ) | ||||||||
Operating profit (loss) |
31.6 | (462.5 | ) | 65.9 | (439.5 | ) | ||||||||||
Interest expense |
(2.2 | ) | (2.3 | ) | (4.3 | ) | (5.1 | ) | ||||||||
Investment income and other, net |
0.3 | 0.8 | 0.8 | 1.6 | ||||||||||||
Income (loss) before income taxes |
$ | 29.7 | $ | (464.0 | ) | $ | 62.4 | $ | (443.0 | ) | ||||||
15. Commitments and Contingencies
Batesville Casket Antitrust Litigation
In 2005 the Funeral Consumers Alliance, Inc. (FCA) 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 (Batesville) (now wholly owned by Hillenbrand, Inc., an unaffiliated company),
and three national funeral home businesses (the FCA Action). The FCA plaintiffs sought
certification of a class including all United States consumers who purchased Batesville caskets
from any of the funeral home co-defendants at any time during the longest period permitted by the
applicable statute of limitations. A similar purported antitrust class action lawsuit was later
filed by Pioneer Valley Casket Co. and several so-called independent casket distributors on
behalf of casket sellers who were unaffiliated with any licensed funeral home (the Pioneer Valley
Action). On March 26, 2009, the District Judge denied class certification in both cases. On April
9, 2009, the plaintiffs in the FCA case filed a petition with the United States Court of Appeals
for the Fifth Circuit for leave to file an appeal of the Courts order denying class certification.
On June 19, 2009 a three-judge panel of the Fifth Circuit denied the FCA plaintiffs petition. On
July 9, 2009, the FCA plaintiffs filed a request for reconsideration of the denial of their
petition. On July 29, 2009, a three judge panel of the Fifth Circuit denied the FCA plaintiffs
motion for reconsideration and their alternative motion for leave to file a petition for rehearing
by all of the judges sitting on the Fifth Circuit Court of Appeals.
The Pioneer Valley plaintiffs did not appeal the District Courts order denying class
certification, and on April 29, 2009, pursuant to a stipulation among the parties, the District
Court dismissed the Pioneer Valley Action with prejudice (that is, Pioneer Valley cannot appeal or
otherwise reinstate the case). Neither the Company nor Batesville provided any payment of
consideration for the plaintiffs to dismiss this case, other than agreeing to bear their own costs,
rather than pursuing plaintiffs for costs.
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Plaintiffs in the FCA Action have generally sought monetary damages on behalf of a class, trebling
of any such damages that may be awarded, recovery of attorneys fees and costs, and injunctive
relief. Plaintiffs in the FCA Action filed a report indicating that they were 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.
Because Batesville continues to adhere to its long-standing policy of selling Batesville® caskets
only to licensed funeral homes, a policy that it continues to believe is appropriate and lawful, if
a class were ultimately certified and the case was to go to trial, Plaintiffs are likely to claim
additional alleged damages for the period between their report and the time of trial. At this
point, it is not possible to estimate the amount of any additional alleged damage claims that they
might make. We and Batesville will vigorously contest both liability and plaintiffs damages
theories.
Despite the July 29, 2009 ruling denying class certification, the FCA plaintiffs have indicated
that they intend to pursue their individual injunctive and damages claims. Their individual damages
claims are limited to the alleged overcharges on the plaintiffs individual casket purchases (the
complaint currently alleges a total of ten casket purchases by the individual plaintiffs), which
would be trebled, plus reasonable attorneys fees and costs. The District Court issued an order
stating that no summary judgment motions would be entertained. The trial of the FCA plaintiffs
remaining individual claims may begin as early as late summer 2010.
After the district court renders a final judgment as to the individual claims, the FCA plaintiffs
may file an appeal, which could include an appeal of the District Courts order denying class
certification. If they succeeded in reversing the district court order denying class certification
and a class is certified in the FCA Action filed against Hill-Rom and Batesville and if the
plaintiffs prevail at a trial of the class action, 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. In antitrust actions such as the FCA
Action the plaintiffs may elect to enforce any judgment against any or all of the co-defendants,
who have no statutory contribution rights against each other. 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 in our 2009 Form 10-K
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.
Related Civil Investigative Demands
After the FCA Action was filed, in the summer and fall of 2005, we and Batesville were served with
Civil Investigative Demands by the Attorney General of Maryland and certain other state attorneys
general who had begun an investigation of possible anticompetitive practices in the death care
industry relating to a range of funeral services and products, including caskets. We fully
cooperated with the attorneys general. We have been informed by the Maryland and Florida Attorneys
General offices, which were leading this investigation, that the investigation has been concluded.
No claims were filed against us or Batesville as a result of this investigation. The Maryland
Attorney General reserved the right to re-open the investigation and to take any further action in
the future as the public interest may require.
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. The investigation was described as
focusing on claims for payment for certain durable medical equipment, including specialized
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support beds. On September 18, 2008, we were informed by the United States Attorneys Office that
the investigation was precipitated by the filing in 2005 of a qui tam whistleblower complaint. A
qui tam action is a civil lawsuit brought by an individual on behalf of the government under the
False Claims Act. 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. This particular complaint was filed in the
United States District Court for the Eastern District of Tennessee. Although the complaint has been
only partially unsealed at this point, we know that the plaintiffs seek recovery of unspecified
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. At this point, the
government has not yet reached an intervention decision and is continuing its investigation. We
have not yet been formally served in this case, nor has the entire complaint been unsealed. 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. We are continuing to
cooperate with the governments investigation.
Freedom Medical Antitrust Litigation
On October 19, 2009, Freedom Medical, Inc. filed a complaint alleging federal antitrust claims and
claims under Texas antitrust and common law against the Company, another supplier and two group
purchasing organizations (GPOs) under the caption Freedom Medical, Inc. v. Hill-Rom Company, Inc.
et al (Civil Action No. 5:09cv152, United States District Court, Eastern District of Texas).
Freedom Medical alleges that the GPOs contracts with the Company and the other supplier excluded
Freedom Medical from the biomedical equipment rental market and maintained the Companys market
share in violation of state and federal antitrust laws. Freedom Medical, in fact, has a contract
with one of the GPOs. Since the filing of the complaint, Freedom Medical has dismissed that GPO as
a defendant, pursuant to a settlement agreement. 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. We cannot 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. The
settlement resolved all of the claims of class members that did not opt out of the settlement,
including the claims of all United States and Canadian purchasers or renters of Hill-Rom® products
from 1990 through February 2, 2006 related to or arising out of the subject matter of the lawsuit,
and the claims that may have resulted from the current or future effects of conduct or events
occurring through February 2, 2006. The original settlement amount of $337.5 million was reduced by
almost $21.2 million, to $316.3 million, reflecting the portion attributable to customers who opted
out of the settlement. Opt-outs from the settlement account for roughly six percent of the total
United States and Canadian revenue during the class period, and over 99 percent of that figure is
attributable to the United States governments decision to opt out of the settlement. We believe we
have meritorious defenses against any claims the United States government may choose to make, due
to, among other reasons, pricing practices of government purchases that are different than the
pricing practices primarily at issue in the lawsuit.
In connection with our assessment that it was probable that a settlement would be reached and
finally approved by the Court during fiscal 2006, we recorded a litigation charge and established a
litigation accrual in the amount of $358.6 million in the fourth quarter of fiscal 2005, which
included certain legal and other costs associated with the proposed settlement. The Court entered
the Order and Final Judgment in the third quarter of fiscal 2006, and we paid a total
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$316.3
million of the settlement amounts into escrow during that year. As of March 31, 2010 we have
retained a $21.2 million litigation accrual associated with the opt-outs.
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.
We are also involved in other 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.
16. Subsequent Events
We have performed an evaluation of subsequent events and concluded there were no subsequent events
that required recognition or disclosure in these condensed consolidated financial statements.
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Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements and Factors That May Affect Future Results
Certain statements in this Quarterly Report on Form 10-Q (Form 10-Q) contain forward-looking
statements within the meaning 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. We caution readers
that any such forward-looking statements are based on assumptions that we believe are reasonable,
but are subject to a wide range of risks.
It is important to note that 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. There are a number of factors many of which are beyond our control that could
cause actual conditions, events or results to differ significantly from those described in the
forward-looking statements. For a more in depth discussion of the factors that could cause actual
results to differ from those contained in forward-looking statements, see the discussions under
the heading Risk Factors in this Form 10-Q and in our Annual Report on Form 10-K for the fiscal
year ended September 30, 2009 (2009 Form 10-K) as filed with the United States Securities and
Exchange Commission (SEC), as well as the discussions in this Managements Discussion and
Analysis. We assume no obligation to update or revise any forward-looking statements. Readers
should also refer to the various disclosures made by us in our periodic reports on Form 8-K filed
with the SEC.
Overview
The following discussion and analysis should be read in conjunction with the accompanying interim
financial statements and our 2009 Form 10-K.
Hill-Rom Holdings, Inc. (the Company, we, us, or our) 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 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.
In March 2010, the U.S. Congress adopted and President Obama signed into law comprehensive health
care reform legislation. The new law is expected to increase health coverage, which could translate
into increased utilization and associated use of our products and services. However, these bills
impose a 2.3 percent excise tax on medical devices beginning January 2013. The impact of the tax,
coupled with reform-associated payment reductions to Medicare and Medicaid reimbursement and a
variety of provider quality initiatives could have a materially adverse affect on our business,
results of operations and cash flows. For additional information regarding health care reform see
Part II Item 1A. Risk Factors.
For a detailed discussion of industry trends, strategy and other factors impacting our businesses,
see Managements Discussion and Analysis of Financial Conditions and Results of Operations
Industry Trends, Strategy and Other Factors Impacting Hill-Roms Business in our 2009 Form 10-K.
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Use of Non-GAAP Financial Measures
These condensed 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, we provide net revenues on a constant currency basis. 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.
Consolidated Results of Operations
In this section, we provide a high-level overview of our consolidated results of operations.
Immediately following this section is a discussion of our results of operations by reportable
segment.
Consolidated Revenues
Quarterly Period Ended | Percentage Change | |||||||||||||||
March 31, | March 31, | Constant | ||||||||||||||
(Dollars in millions) | 2010 | 2009 | Reported | Currency | ||||||||||||
Revenues: |
||||||||||||||||
Capital sales |
$ | 236.2 | $ | 219.6 | 7.6 | 4.5 | ||||||||||
Rental revenues |
120.9 | 117.7 | 2.7 | 1.6 | ||||||||||||
Total Revenues |
$ | 357.1 | $ | 337.3 | 5.9 | 3.5 | ||||||||||
Year-To-Date Period Ended | Percentage Change | |||||||||||||||
March 31, | March 31, | Constant | ||||||||||||||
(Dollars in millions) | 2010 | 2009 | Reported | Currency | ||||||||||||
Revenues: |
||||||||||||||||
Capital sales |
$ | 467.8 | $ | 455.6 | 2.7 | (0.5 | ) | |||||||||
Rental revenues |
244.6 | 233.3 | 4.8 | 3.5 | ||||||||||||
Total Revenues |
$ | 712.4 | $ | 688.9 | 3.4 | 0.8 | ||||||||||
Consolidated revenues increased 5.9 and 3.4 percent for the three- and six-month periods ended
March 31, 2010. For the same periods, revenues increased 3.5 and 0.8 percent on a constant
currency basis.
| Capital sales increased 7.6 and 2.7 percent for the three- and six-month periods ended
March 31, 2010. On a constant currency basis, capital sales increased 4.5 percent for the
second quarter and decreased 0.5 percent for the first six months. Capital sales |
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increased
for both periods as a result of second quarter North America Acute Care sales volume
increases in patient support systems due to a modest recovery and stabilization from prior
year. These increases were offset in both periods by second quarter volume declines in
Europe and our divestiture of certain non-strategic health information technology product
lines in the prior year. Our pricing was also modestly favorable for both the three- and
six-month periods. |
| Rental revenues increased 2.7 and 4.8 percent for the three- and six-month periods ended
March 31, 2010. On a constant currency basis, rental revenues increased 1.6 and 3.5
percent for the same periods. The increase in rental revenues for both periods was mainly
due to North America Acute Care growth in therapy rental revenue due to continued growth of
our Envision® wound surface and our recently introduced VersaCare® P500 wound surface. For
the first six months we also had improvements in our moveable medical equipment fleet
rentals associated with a stronger flu season in fiscal 2010, along with increased rental
revenues in our bariatric products and respiratory care business. |
Consolidated Gross Profit
Quarterly Period Ended | Year-To-Date Period Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
(Dollars in millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Gross Profit |
||||||||||||||||
Capital sales |
$ | 101.8 | $ | 86.4 | $ | 202.9 | $ | 175.9 | ||||||||
% of Related Revenues |
43.1 | % | 39.3 | % | 43.4 | % | 38.6 | % | ||||||||
Rental revenues |
$ | 70.0 | $ | 67.0 | $ | 139.7 | $ | 130.0 | ||||||||
% of Related Revenues |
57.9 | % | 56.9 | % | 57.1 | % | 55.7 | % | ||||||||
Total Gross Profit |
$ | 171.8 | $ | 153.4 | $ | 342.6 | $ | 305.9 | ||||||||
% of Related Revenues |
48.1 | % | 45.5 | % | 48.1 | % | 44.4 | % | ||||||||
Consolidated gross profit increased 12.0 percent for both the three- and six-month periods ending
March 31, 2010, and increased as percentages of revenues 260 and 370 basis points for the same
periods.
| Capital sales gross profit increased 17.8 and 15.3 percent for the three- and six-month
periods ended March 31, 2010. Gross margin (as a percentage of revenues) for capital sales
increased 380 and 480 basis points for the same periods. These increases for both periods
were primarily due to favorable material costs, several productivity initiatives in fiscal
2009 and an improved mix towards higher margin products and geographic regions. In
addition, the prior year included non-recurring charges of $1.0 and $2.9 million related to
the acquisition accounting step-up of acquired Liko inventories sold during the three- and
six-month periods ended March 31, 2010. |
| Rental revenue gross profit increased 4.5 and 7.5 percent for the three- and six-month
periods ended March 31, 2010. Strong therapy rental revenues within our North America
Acute Care segment were the primary reason for the increases in both periods. Gross margin
(as a percentage of revenues) for rental revenues increased 100 and 140 basis points for
the same periods related to the higher margins on recent product introductions and
continued strong leverage and profitability improvements of our field service network. |
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Other
Quarterly Period Ended | Year-To-Date Period Ended | |||||||||||||||
March 31, | March 31, | March 31, | March 31, | |||||||||||||
(Dollars in millions) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
Research and development expenses |
$ | 14.4 | $ | 14.5 | $ | 29.3 | $ | 27.8 | ||||||||
Percent of Total Revenues |
4.0 | % | 4.3 | % | 4.1 | % | 4.0 | % | ||||||||
Selling and administrative expenses |
$ | 120.8 | $ | 113.6 | $ | 242.4 | $ | 229.8 | ||||||||
Percent of Total Revenues |
33.8 | % | 33.7 | % | 34.0 | % | 33.4 | % | ||||||||
Impairment of goodwill and other intangibles |
$ | | $ | 470.0 | $ | | $ | 470.0 | ||||||||
Special charges |
$ | 5.0 | $ | 17.8 | $ | 5.0 | $ | 17.8 | ||||||||
Interest expense |
$ | (2.2 | ) | $ | (2.3 | ) | $ | (4.3 | ) | $ | (5.1 | ) | ||||
Investment income |
$ | 0.5 | $ | 0.7 | $ | 1.1 | $ | 1.6 | ||||||||
Other |
$ | (0.2 | ) | $ | 0.1 | $ | (0.3 | ) | $ | |
Research and development expense remained relatively unchanged for the second quarter and increased
5.4 percent for the first six months of fiscal 2010. The increase for the six-month period ended
March 31, 2010 was due to our continued investment in the development of innovative new products,
with the flat expenditures in the second quarter primarily related to the timing of such projects.
Selling and administrative expenses increased 6.3 and 5.5 percent for the three- and six-month
periods ended March 31, 2010, primarily due to the unfavorable impact of foreign exchange rates of
$2.3 and $5.3 million, accompanied by increases for both periods in performance-based compensation
expense, investments in our sales channels and stock based compensation. These increases were
partially offset by savings from prior periods eliminated positions and our continuous improvement
activities.
During our second quarter of 2009, we recorded a $470 million impairment of goodwill and other
intangibles as a result of the decline in our market capitalization during the quarter related to
the overall macro-economic climate and the resulting unfavorable impact on hospital capital
spending and our operating results during that period. 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 were used to reduce the implied value of our
goodwill when calculating the impairment charge. For further information regarding the charge,
refer to Note 4 to the Condensed Consolidated Financial Statements.
During the second quarter of fiscal 2010, we announced organizational changes that included the
elimination of approximately 160 employee positions across the Company resulting in a special
charge of $5.0 million primarily related to severance and other benefits provided to affected
associates. The foregoing job eliminations are anticipated to yield annualized savings of
approximately 16 million.
During the second quarter of 2009, special charges of $17.8 million were recognized in connection
with a plan to aggressively manage our cost structure, which included the elimination of
approximately 450 salaried, hourly and temporary employees. The plan resulted in a charge of
approximately $9.9 million during the quarter related to severance and early retirement packages.
Additionally, post retirement 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 associated with
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the actions were also taken
in the amount of $3.7 million. For further information regarding special charges, refer to Note 9
to the Condensed Consolidated Financial Statements.
The decline in interest expense for both the three- and six-month periods ended March 31, 2010,
resulted from lower interest rates and lower outstanding debt during both periods. Investment
income decreased for both periods, despite a larger cash balance period over period, due to the
drop in interest rates.
GAAP Earnings and Adjusted Earnings
Quarterly Period Ended | ||||||||||||||||||||||||
March 31, 2010 | March 31, 2009 | |||||||||||||||||||||||
Income | Loss | |||||||||||||||||||||||
Before | Income | Before | Income | |||||||||||||||||||||
Income | Tax | Diluted | Income | Tax | Diluted | |||||||||||||||||||
(Dollars in millions except per share data) | Taxes | Expense | EPS | Taxes | Expense | EPS | ||||||||||||||||||
GAAP Earnings (Loss) |
$ | 29.7 | $ | 5.2 | $ | 0.38 | $ | (464.0 | ) | $ | 1.8 | $ | (7.44 | ) | ||||||||||
Adjustments: |
||||||||||||||||||||||||
Impairment of goodwill and other intangibles |
| | | 470.0 | | 7.51 | ||||||||||||||||||
Effect of Liko inventory valuation |
| | | 1.0 | 0.3 | 0.01 | ||||||||||||||||||
Liko acquisition integration charges |
| | | 0.8 | 0.3 | 0.01 | ||||||||||||||||||
Special charges |
5.0 | 1.7 | 0.05 | 17.8 | 6.6 | 0.18 | ||||||||||||||||||
Tax settlement |
| 6.5 | (0.10 | ) | | | | |||||||||||||||||
Adjusted Earnings |
$ | 34.7 | $ | 13.4 | $ | 0.33 | $ | 25.6 | $ | 9.0 | $ | 0.27 | ||||||||||||
Year-To-Date Period Ended | ||||||||||||||||||||||||
March 31, 2010 | March 31, 2009 | |||||||||||||||||||||||
Income | Loss | |||||||||||||||||||||||
Before | Income | Before | Income | |||||||||||||||||||||
Income | Tax | Diluted | Income | Tax | Diluted | |||||||||||||||||||
Taxes | Expense | EPS | Taxes | Expense | EPS | |||||||||||||||||||
GAAP Earnings (Loss) |
$ | 62.4 | $ | 18.0 | $ | 0.69 | $ | (443.0 | ) | $ | 8.6 | $ | (7.22 | ) | ||||||||||
Adjustments: |
||||||||||||||||||||||||
Impairment of goodwill and other intangibles |
| | | 470.0 | | 7.51 | ||||||||||||||||||
Effect of Liko inventory valuation |
| | | 2.9 | 0.8 | 0.03 | ||||||||||||||||||
Liko acquisition integration charges |
| | | 1.1 | 0.4 | 0.01 | ||||||||||||||||||
Special charges |
5.0 | 1.7 | 0.05 | 17.8 | 6.6 | 0.18 | ||||||||||||||||||
Tax settlement |
| 6.5 | (0.10 | ) | | | | |||||||||||||||||
Adjusted Earnings |
$ | 67.4 | $ | 26.2 | $ | 0.64 | $ | 48.8 | $ | 16.4 | $ | 0.52 | ||||||||||||
The tax rates for the three- and six-month periods ended March 31, 2010 are 17.5 percent and 28.8
percent compared to negative 0.4 percent and negative 1.9 percent for the comparable periods in the
prior year. The rates for the three- and six-month periods ended March 31, 2010 were favorably
impacted by the recognition of net discrete period tax benefits relating primarily to 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. The
effective tax rates for the three- and six-month periods ended March 31, 2009 are 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. For further information regarding our unrecognized tax
benefits, refer to Note 10 to the Condensed Consolidated Financial Statements.
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The adjusted effective tax rates were 38.9 percent and 33.6 percent for the six months ending March
31, 2010 and 2009. The higher rate in the first half of fiscal 2010 is due primarily to the
research and development tax credit and the timing of its expiration and reinstatement. 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 $24.2 million for the second quarter and $44.0
million for the first six months ended March 31, 2010. On an adjusted basis, net income
attributable to common shareholders increased $4.4 and $8.4 million, 26.5 percent and 25.9 percent,
for the three- and six-month periods ended March 31, 2010. Diluted earnings per share were $0.38
for the second quarter and $0.33 on an adjusted basis, compared to a diluted loss per
share of $7.44 in the prior year and $0.27 on an adjusted basis. For the first six months, diluted
earnings per share were $0.69 and $0.64 on an adjusted basis compared to a diluted loss per share
of $7.22 in the prior fiscal year, or an adjusted diluted earnings per share of $0.52.
Business Segment Results of Operations
Quarterly Period Ended | Percentage Change | |||||||||||||||
March 31, | March 31, | Constant | ||||||||||||||
(Dollars in millions) | 2010 | 2009 | % Change | Currency | ||||||||||||
Revenues: |
||||||||||||||||
North America Acute Care |
$ | 206.7 | $ | 188.6 | 9.6 | 8.5 | ||||||||||
North America Post-Acute Care |
51.1 | 48.9 | 4.5 | 4.5 | ||||||||||||
International and Surgical |
100.2 | 100.8 | (0.6 | ) | (6.3 | ) | ||||||||||
Total eliminations |
(0.9 | ) | (1.0 | ) | (10.0 | ) | (20.0 | ) | ||||||||
Total revenues |
$ | 357.1 | $ | 337.3 | 5.9 | 3.5 | ||||||||||
Divisional income: |
||||||||||||||||
North America Acute Care |
$ | 53.6 | $ | 44.6 | 20.2 | |||||||||||
North America Post-Acute Care |
14.8 | 13.5 | 9.6 | |||||||||||||
International and Surgical |
14.8 | 17.0 | (12.9 | ) | ||||||||||||
Functional costs |
(46.6 | ) | (49.8 | ) | (6.4 | ) | ||||||||||
Total divisional income |
$ | 36.6 | $ | 25.3 | 44.7 | |||||||||||
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Year-To-Date Period Ended | Percentage Change | |||||||||||||||
March 31, | March 31, | Constant | ||||||||||||||
2010 | 2009 | % change | Currency | |||||||||||||
Revenues: |
||||||||||||||||
North America Acute Care |
$ | 404.6 | $ | 392.1 | 3.2 | 2.3 | ||||||||||
North America Post-Acute Care |
103.7 | 99.3 | 4.4 | 4.4 | ||||||||||||
International and Surgical |
207.6 | 199.7 | 4.0 | (3.1 | ) | |||||||||||
Total eliminations |
(3.5 | ) | (2.2 | ) | 59.1 | 72.7 | ||||||||||
Total revenues |
$ | 712.4 | $ | 688.9 | 3.4 | 0.8 | ||||||||||
Divisional income: |
||||||||||||||||
North America Acute Care |
$ | 107.6 | $ | 91.4 | 17.7 | |||||||||||
North America Post-Acute Care |
31.6 | 28.3 | 11.7 | |||||||||||||
International and Surgical |
27.2 | 27.8 | (2.2 | ) | ||||||||||||
Functional costs |
(95.5 | ) | (99.2 | ) | (3.7 | ) | ||||||||||
Total divisional income |
$ | 70.9 | $ | 48.3 | 46.8 | |||||||||||
North America Acute Care
North America Acute Care revenues increased 9.6 and 3.2 percent for the three-and six-month
periods ended March 31, 2010. For the same periods, revenues increased by 8.5 and 2.3 percent on a
constant currency basis. Capital sales increased 13.5 and 2.4 percent for the three-and six-month
periods ended March 31, 2010. For the second quarter this increase was due mainly to higher
volumes in our patient support systems and therapy products due to a modest recovery and
stabilization of revenues from prior year and our joint venture with Encompass on the sale of
surfaces. In addition to these increases, the first six months were also impacted by increased
volumes related to our architectural products as well as modestly favorable pricing. Partially
offsetting these increases in revenue was the divestiture of certain non-strategic health
information technology product lines, which totaled $4.4 and $8.5 million for the three-and
six-month periods ended March 31, 2009. Rental revenues increased by 2.5 and 4.8 percent, for the
three-and six-month periods ended March 31, 2010. Rental revenues for both periods reflected
higher therapy rental revenues from continued growth of our Envision® wound surface and our new
VersaCare® P500 wound care
surface launched in the second quarter of fiscal 2009. In addition to these increases, the
six-month period was also impacted by an increase in bariatric frame rentals and volume increases
in rentals of moveable medical equipment due to a stronger flu season in fiscal 2010.
Divisional income for North America Acute Care increased 20.2 and 17.7 percent, for the three-and
six-month periods ended March 31, 2010. Total gross profit increased driven primarily by the
increase in revenue and margin improvements from continued strong leverage and profitability
improvements of our field service network, favorable material costs, several productivity
initiatives in fiscal 2009 and an improved mix towards higher margin products. In addition, the
prior year included charges related to the acquisition accounting step-up of acquired Liko
inventories sold during the first six-months. Selling and administrative costs increased during
the second quarter primarily due to performance based compensation, while remaining relatively flat
with the first six months of fiscal 2009 due to cost improvement initiatives.
North America Post-Acute Care
North America Post-Acute Care revenues increased 4.5 and 4.4 percent for the three-and six-month
periods ended March 31, 2010. Capital sales increased by 9.8 and 8.1 percent, related to
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volume
growth in both periods of The Vest® respiratory care system and home care direct to consumer
business, offset by a decline in our sales within the extended care environment due to the exit of
the MedGas product line during 2009. Rental revenues increased by 2.9 and 3.4 percent for the
three-and six-month periods ended March 31, 2010. Both periods were impacted by increased
extended care rentals while the six-month period was also impacted by strong first quarter rentals
of The Vest®. The increased respiratory care revenue year over year was driven by increased
referrals in neuromuscular disease states (Medicare expanded coverage from 2009) and international
growth.
North America Post-Acute Care divisional income increased 9.6 and 11.7 percent for the three-and
six-month periods ended March 31, 2010. Increases for both periods were driven by increased
revenue and gross margin improvements, partially offset by increased operating expenses. The
improved gross margins for both periods are the result of favorable product mix, improved service
costs and the exit of the MedGas product line during 2009. The increased operating expense is
related to an increase in selling and marketing efforts and investments in new product development.
International and Surgical
International and Surgical revenues decreased 0.6 percent and increased 4.0 percent for the three-
and six-month periods ended March 31, 2010. On a constant currency basis, revenues declined 6.3
and 3.1 percent. Capital sales decreased 1.1 percent and increased 3.2 percent for the three-and
six-month periods ended March 31, 2010. For the same period, capital sales decreased 6.7 and 3.6
percent on a constant currency basis. On a constant currency basis, the decline for both the
three-and six-month periods was largely driven by a reduction in capital sales in Europe during
our second quarter. This decline was partially offset in both periods by strong growth of our
surgical products as well as growth in Asia and the Middle East and Africa. Rental revenues
increased 3.0 and 9.2 percent for the three-and six-month periods ended March 31, 2010. On a
constant currency basis, rental revenues were relatively constant with the prior year for both the
three-and six-month periods.
Divisional income for International and Surgical decreased 12.9 and 2.2 percent for the three-and
six-month periods ended March 31, 2010. Gross profits for the same periods were consistent for the
second quarter and up year-to-date. The increase in the first six-month period was primarily due
to the favorable exchange rates. Operating expenses increased by $2.1 and $5.5 million for the
three-and six-month periods ended March 31, 2010 due primarily to the unfavorable impact of
exchange rates on costs and increased selling and marketing efforts to support our long-term growth
strategies.
Liquidity and Capital Resources
Year-To-Date Period Ended | ||||||||
March 31, | March 31, | |||||||
(Dollars in millions) | 2010 | 2009 | ||||||
Cash Flows Provided By (Used In): |
||||||||
Operating activities |
$ | 49.1 | $ | 90.0 | ||||
Investing activities |
(28.6 | ) | (214.1 | ) | ||||
Financing activities |
(54.9 | ) | (11.0 | ) | ||||
Effect of exchange rate changes on cash |
(1.0 | ) | (2.0 | ) | ||||
Decrease in Cash and Cash Equivalents |
$ | (35.4 | ) | $ | (137.1 | ) | ||
Operating Activities
For the first half of fiscal 2010, net cash provided by operating activities totaled $49.1 million,
compared to $90.0 million in the first half of fiscal 2009. Operating cash flows during the first
six months were driven primarily by net income of $44.4 million, further adjusted by $49.5
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million
in non-cash expenses related to depreciation and amortization. These sources of cash were offset
by changes in our working capital primarily driven by the timing of payments for income taxes
including a $8.5 million payment related to the settlement of a historical IRS item, higher
inventory levels in connection with increased volume and the payout of our incentive compensation
and restructuring accruals related to our 2009 fiscal year.
The reduction in operating cash flows for the first half of fiscal 2010 was largely driven by the
higher collection of year-end receivables in 2009 following record sales levels during the fourth
quarter in fiscal 2008, current year investments in inventories and the timing of tax payments
related to both higher income levels in 2010 and settlements of prior year tax audits. These
decreases were offset by the increase in net income in 2010.
Investing Activities
Net cash used in investing activities totaled $28.6 million in the first half of fiscal 2010 and
$214.1 million in the first half of fiscal 2009. Use of investing cash flows during the first half
of 2010 was driven primarily by capital expenditures and our investment in the previously discussed
joint venture with Encompass Group, offset by proceeds from the sale of a portion of auction rate
securities. The decrease in net cash used in investing activities was driven by our fiscal 2009
purchase of Liko for $187.2 million, net of cash acquired, offset by a slight decline in capital
spending.
Financing Activities
Net cash used in financing activities totaled $54.9 million in the first half of fiscal 2010 and
$11.0 million in the first half of fiscal 2009. Cash used for financing activities during fiscal
2010 consisted mainly of our $45.0 million payment on our revolving credit facility during the
first quarter, representing a portion of the short-term debt taken out in conjunction with the Liko
acquisition. In addition, cash dividend payments during the first half of fiscal 2010 totaled $12.9
million, which were consistent with cash dividend payments made in fiscal 2009. These uses of cash
were partially offset by cash proceeds from stock option exercises.
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 March 31, 2010, we held investment securities with a fair value of $38.7 million, which
consisted primarily of AAA rated student loan auction rate securities (ARS). The market for
ARS, of which a key characteristic has historically been a high degree of liquidity, began to
experience auction failures in fiscal 2008 as the supply of securities exceeded demand. As a
result, our ARS portfolio has experienced auction failures and a lower level of liquidity. During
our first quarter of fiscal 2009, we entered into a settlement agreement requiring UBS Financial
Services (UBS) to repurchase $26.1 million ($24.5 million at fair value) of these securities at
par value (Put), which we can exercise beginning in June 2010.
We have estimated the current fair value of our ARS portfolio 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 March 31, 2010, we have recorded to
date both temporary unrealized losses and realized losses totaling $2.6 million on these
securities to reflect the estimated decline in fair value associated with the current illiquidity
in the auction rate market. These losses have been partially offset by the fair value of the Put
agreement with UBS. See Notes 1 and 7 of Notes to Condensed Consolidated Financial Statements in
this Form 10-Q for more information pertaining to these securities and the fair value of our
portfolio. If current market conditions do not improve or worsen, however, or UBS
does not follow
through on its repurchase commitment, the result could be further realized or unrealized losses or
impairments and liquidity and earnings could be adversely affected.
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We have a $500.0 million five-year senior revolving credit facility. The syndication group
consists of 11 financial institutions, which we believe reduces our exposure to any one institution
and should 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. As of March 31,
2010, we had outstanding borrowings of $45.0 million and $6.2 million of outstanding, undrawn
letters of credit under the facility, leaving $448.8 million of borrowing capacity available. See
Note 5 of Notes to Condensed Consolidated Financial Statements in this Form 10-Q for more details
on the credit facility.
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 interest rates as of March 31,
2010, which are classified as long-term in the Condensed Consolidated Balance Sheets.
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 have restrictive
covenants within the Distribution Agreement with Hillenbrand, Inc. This agreement has certain
limitations on indebtedness, dividends and share repurchases, and acquisitions. See Note 3 of
Notes to Consolidated Financial Statements in our 2009 Form 10-K for more details on the
Distribution Agreement.
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. At September
30, 2009, our latest measurement date, our pension plans were underfunded by approximately $93
million. Given the adverse performance of our plan assets, we expect increased contributions to
fund the plan over the next several years. Our minimum funding requirement for 2010 is less than
$10 million and we are currently assessing several incremental funding alternatives up to $40
million for 2010. Future contributions will also be impacted based on these decisions.
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 of
Directors and will depend upon many factors, including financial condition, earnings, capital
requirements, covenants associated with debt obligations, legal requirements and other factors
deemed relevant by the Board of Directors.
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.
We have not repurchased any shares of our common stock in the open market in recent years. As of
March 31, 2010, we had Board of Directors approval to repurchase 3.0 million additional shares of
our common stock. Repurchased shares 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
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expenditure
requirements and financing obligations. However, disruption and volatility in the credit markets
could impede our access to capital. If credit markets do not improve and we need additional
sources of capital, whether as a result of reduced cash generated by operations, unavailability of
borrowings under our credit facility, adverse results in litigation matters or increased cash
requirements to fund acquisitions or pension obligations, such sources of capital may not be
available to us on acceptable terms if at all.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Contractual Obligations and Contingent Liabilities and Commitments
There have not been any significant changes since September 30, 2009 impacting our contractual
obligations and contingent liabilities and commitments.
Critical Accounting Policies
Our accounting policies require management to make significant estimates and assumptions using
information available at the time the estimates are made. Such estimates and assumptions
significantly affect various reported amounts of assets, liabilities, revenues and expenses. If
future experience differs materially from these estimates and assumptions, our results of
operations and financial condition could be affected. A detailed description of our accounting
policies is included in Note 1 of Notes to Consolidated Financial Statements and the Critical
Accounting Policies Section of Managements Discussion and Analysis of Financial Condition and
Results of Operations included in our 2009 Form 10-K. There have been no material changes to such
policies since September 30, 2009.
For a further summary of certain accounting policies and estimates and recently issued accounting
pronouncements applicable to us, see Note 1 of Notes to Condensed Consolidated Financial
Statements in this Form 10-Q.
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS |
We are exposed to various market risks, including fluctuations in interest rates, credit
availability and the current economic downturn, liquidity issues with respect to auction rate
securities, 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.
Our currency risk consists primarily of foreign currency denominated firm commitments and
forecasted foreign currency denominated intercompany and third-party transactions. At March 31,
2010, the notional amounts of foreign exchange contracts were $16.5 million. The maximum length of
time over which the Company is hedging transaction exposures is 15 months.
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Derivative
gains/(losses), initially reported as a component of Accumulated Other Comprehensive Loss, are
reclassified to earnings in the period when the forecasted transaction affects earnings.
For additional information on market risks related to our auction rate securities, debt instruments
and pension plan assets, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk,
in our 2009 Form 10-K and Item 2, Managements Discussion and Analysis of Financial Condition and
Results of Operations in this Form 10-Q.
Item 4. | CONTROLS AND PROCEDURES |
Our management, with the 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 defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange
Act) as of the end of the period covered by this report. Based upon that evaluation, the
Certifying Officers concluded that our disclosure controls and procedures were effective as of the
end of the period covered by this report for the information required to be disclosed in the
reports we file or submit under the Exchange Act to be 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 as appropriate to allow timely decisions regarding
required disclosure. There were no changes in our internal control over financial reporting
during the quarter ended March 31, 2010 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. | LEGAL PROCEEDINGS |
See Note 15 of Notes to Condensed Consolidated Financial Statements in this Form 10-Q for
information concerning lawsuits and legal proceedings.
Item 1A. | RISK FACTORS |
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. Outside of the excise tax, 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 and a variety of provider quality initiatives could have a materially
adverse affect on our business, results of operations and cash flows. For additional information
regarding health care reform as well as the other risks we face, see the discussion under Item 1A.
Risk Factors in our 2009 Form 10-K.
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Total Number | Maximum | |||||||||||||||
of Shares | Number of | |||||||||||||||
Purchased as | Shares that | |||||||||||||||
Total | Part of Publicly | May Yet Be | ||||||||||||||
Number | Announced | Purchased | ||||||||||||||
of Shares | Average Price | Plans or | Under the Plans | |||||||||||||
Period | Purchased 1 | Paid per Share | Programs 2 | or Programs | ||||||||||||
January 1, 2010 January 31, 2010 |
4,458 | $ | 24.26 | | 3,000,000 | |||||||||||
February 1, 2010 February 28, 2010 |
458 | $ | 23.42 | | 3,000,000 | |||||||||||
March 1, 2010 March 31, 2010 |
2,940 | $ | 27.31 | | 3,000,000 | |||||||||||
Total |
7,856 | $ | 25.35 | | 3,000,000 | |||||||||||
1 | All shares purchased in the three months ended March 31, 2010 were in connection with
employee payroll tax withholding for restricted and deferred stock distributions. |
|
2 | The Board of Directors has approved the repurchase of a total of 25.7 million shares of
common stock, of which 3.0 million are still available for repurchase. There were no
purchases under this approval in the three months ended March 31, 2010. The approval has no
expiration, and there were no terminations or expirations of plans in the current quarter. |
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Item 5. | OTHER INFORMATION |
William A. Hillenbrand II, the son of W August Hillenbrand, a director of the Company, was hired
as Hill-Roms Director of Sales Effectiveness on November 2, 2009, with a $125,000 base annual
salary and participation in all other employee incentive and benefit plans commensurate with other
employees at his level. The Companys Corporate Governance Standards for the Board of Directors
require that any related party transactions between the Company or any of its subsidiaries and any
director or executive officer of the Company shall be reviewed and preapproved by the
Nominating/Corporate Governance Committee. William A. Hillenbrand IIs employment was ratified by
the Committee on May 6, 2010.
Effective May 6, 2010, Susan R. Lichtenstein has been elected Senior Vice President Corporate
Affairs and Chief Legal Officer and, therefore, Patrick D. de Maynadier, formerly the Companys
principal legal officer, will no longer be an executive officer of the Company for purposes of
SEC disclosure rules.
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Item 6. | EXHIBITS |
A. Exhibits
Exhibit 3.1 | 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) |
|
Exhibit 3.2 | 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) |
|
Exhibit 10.1 | Employment Agreement between Hill-Rom Holdings, Inc. and John J. Greisch dated
January 6, 2010 (Incorporated herein by reference to Exhibit 10.1 filed with Form 8-K
dated January 7, 2010) |
|
Exhibit 10.2 | 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) |
|
Exhibit 10.3 | 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) |
|
Exhibit 10.4 | 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) |
|
Exhibit 10.5 | Employment
Agreement between Hill-Rom Holdings, Inc. and Alejandro
Infante-Saracho dated May 6, 2010 |
|
Exhibit 10.6 | Limited Recapture Agreement between Hill-Rom Holdings, Inc. and Alejandro Infante-Saracho dated May 6, 2010 |
|
Exhibit 10.7 | Form
of Employment Agreement between Hill-Rom Holdings, Inc. and Susan R. Lichtenstein dated May 10, 2010 |
|
Exhibit 10.8 | Form
of Limited Recapture Agreement between Hill-Rom Holdings, Inc. and Susan R. Lichtenstein dated May 10, 2010 |
|
Exhibit 10.9 | Employment
Agreement between Hill-Rom Holdings, Inc. and Philip D. Settimi dated May 6, 2010 |
|
Exhibit 10.10 | Limited
Recapture Agreement between Hill-Rom Holdings, Inc. and Philip D. Settimi dated May 6, 2010 |
|
Exhibit 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
Exhibit 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
Exhibit 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
Exhibit 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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Exhibit 99 | Hill-Rom Holdings, Inc. Corporate Governance Standards for Board of Directors,
as currently in effect |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
HILL-ROM HOLDINGS, INC. |
||||
DATE: May 6, 2010 | BY: | /S/ Gregory N. Miller | ||
Gregory N. Miller | ||||
Senior Vice President and Chief Financial Officer |
||||
DATE: May 6, 2010 | BY: | /S/ Richard G. Keller | ||
Richard G. Keller | ||||
Vice President, Controller
and Chief Accounting Officer |
37