Leases, Codification Topic 842

12 Months Ended

Sep. 30, 2021

Leases [Abstract]

Lessee, Operating Leases

Leases

Hillrom as the Lessee

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

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

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

(In millions)	September 30, 2021		September 30, 2020
Operating lease expense	$	27.2	$	27.8
Short-term leases and variable lease payments	11.9		11.5
Total	$	39.1	$	39.3

The following table summarizes the balance sheet classification of our operating leases and amounts of the ROU asset and lease liability:

(In millions)	September 30, 2021		September 30, 2020		Consolidated Balance Sheet Classification
Right-of-use assets	$	68.5	$	72.3	Other assets
Current lease liabilities	22.7		22.8		Other current liabilities
Non-current lease liabilities	50.6		54.4		Other long-term liabilities

The following table summarizes our supplemental information related to operating leases:

	September 30, 2021			September 30, 2020
Supplemental information:
Weighted-average discount rate	3.14		%	3.30		%
Weighted-average remaining lease term in years	4.41			4.48
Cash Flow information (In millions):
Operating cash flows paid for amounts included in the measurement of lease liabilities	$	27.0		$	27.6
Right of use assets obtained in exchange for new lease liabilities	$	18.2		$	16.6

The following table summarizes the maturities of our operating leases as of September 30, 2021:

(In millions)	Amount
2022	$	24.6
2023	18.9
2024	12.5
2025	8.2
2026	6.3
Thereafter	8.7
Total lease payments	79.2
Less: imputed interest	(5.9)
Total lease liability	$	73.3

Disclosures Related to Periods Prior to Adopting the New Lease Guidance

Future minimum payments under non-cancellable operating leases (excluding executory costs) aggregating $47.8 million for manufacturing facilities, warehouse distribution centers, service centers, sales offices, automobiles, and other equipment consisted of the following as of the fiscal year ended September 30, 2021:

(In millions)	Amount
2022	$	15.7
2023	11.1
2024	6.4
2025 and beyond	14.6

Rental expense during fiscal year ended September 30, 2019 was $39.8 million.

Lessor, Operating Leases

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