10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________  

Commission file number 001-36440

AVANOS MEDICAL, INC.

(Exact name of registrant as specified in its charter)

Delaware				46-4987888
(State or other jurisdiction of incorporation)				(I.R.S. Employer Identification No.)
	5405 Windward Parkway
	Suite 100 South
	Alpharetta,	Georgia	30004
	(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (844) 428-2667

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

Title of each class	Trading Symbol	Name of exchange on which registered
Common Stock - $0.01 Par Value	AVNS	New York Stock Exchange

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

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

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Emerging growth company	☐
Smaller reporting company	☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐    No  ☒

As of July 31, 2019, there were 47,710,425 shares of the Corporation’s common stock outstanding.    

Table of Contents

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements	3
Unaudited Condensed Consolidated Income Statements for the Three and Six Months Ended June 30, 2019 and 2018	3
Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2019 and 2018	4
Unaudited Condensed Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018	5
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018	6
Unaudited Condensed Consolidated Cash Flow Statements for the Six Months Ended June 30, 2019 and 2018	7
Notes to the Unaudited Condensed Consolidated Financial Statements	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 4. Controls and Procedures	36
PART II – OTHER INFORMATION	37
Item 6. Exhibits	37
Signatures	38

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PART I – FINANCIAL INFORMATION

Item 1.     Financial Statements

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED INCOME STATEMENTS

(in millions, except per share amounts)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net Sales	$	172.2		$	160.9		$	336.4		$	317.3
Cost of products sold	73.5			66.2			138.9			131.5
Gross Profit	98.7			94.7			197.5			185.8
Research and development	9.5			10.8			19.7			20.7
Selling and general expenses	94.7			79.8			201.1			166.2
Other expense (income), net	4.3			(4.7		)	11.1			(2.9		)
Operating (Loss) Income	(9.8		)	8.8			(34.4		)	1.8
Interest income	2.0			2.2			4.4			3.2
Interest expense	(3.5		)	(9.9		)	(7.2		)	(18.7		)
(Loss) Income Before Income Taxes	(11.3		)	1.1			(37.2		)	(13.7		)
Income tax benefit	3.3			0.2			8.9			3.7
(Loss) Income from Continuing Operations	(8.0		)	1.3			(28.3		)	(10.0		)
Income from Discontinued Operations, net of tax	—			34.0			—			65.5
Net (Loss) Income	$	(8.0	)	$	35.3		$	(28.3	)	$	55.5
(Loss) Earnings Per Share
Basic:
Continuing Operations	$	(0.17	)	$	0.03		$	(0.60	)	$	(0.21	)
Discontinued Operations	—			0.72			—			1.39
Basic (Loss) Earnings Per Share	$	(0.17	)	$	0.75		$	(0.60	)	$	1.18
Diluted:
Continuing Operations	$	(0.17	)	$	0.03		$	(0.60	)	$	(0.21	)
Discontinued Operations	—			0.70			—			1.39
Diluted (Loss) Earnings Per Share	$	(0.17	)	$	0.73		$	(0.60	)	$	1.18

See Notes to the Condensed Consolidated Financial Statements.

3

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net (Loss) Income	$	(8.0	)	$	35.3		$	(28.3	)	$	55.5
Other Comprehensive Income (Loss), net of tax
Unrealized currency translation adjustments	1.9			(10.0		)	2.6			(0.7		)
Defined benefit plans	—			1.0			—			0.7
Cash flow hedges	—			(1.3		)	—			(0.8		)
Total Other Comprehensive Income (Loss), net of tax	1.9			(10.3		)	2.6			(0.8		)
Comprehensive (Loss) Income	$	(6.1	)	$	25.0		$	(25.7	)	$	54.7

See Notes to the Condensed Consolidated Financial Statements.

4

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share data)

(Unaudited)

	June 30, 2019			December 31, 2018
ASSETS
Current Assets
Cash and cash equivalents	$	288.1		$	384.5
Accounts receivable, net of allowances	124.3			150.5
Inventories	133.9			121.4
Prepaid expenses and other current assets	26.2			57.2
Total Current Assets	572.5			713.6
Property, Plant and Equipment, net	174.4			154.1
Operating Lease Right-of-Use Assets	67.2			—
Goodwill	782.3			783.6
Other Intangible Assets, net	158.5			168.2
Deferred Tax Assets	13.3			6.3
Other Assets	15.2			7.6
TOTAL ASSETS	$	1,783.4		$	1,833.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Current portion of operating lease liabilities	$	14.7		$	—
Trade accounts payable	99.4			169.9
Accrued expenses	72.9			94.4
Total Current Liabilities	187.0			264.3
Long-Term Debt	247.8			247.7
Operating Lease Liabilities	65.5			—
Deferred Tax Liabilities	0.6			4.4
Other Long-Term Liabilities	5.6			19.8
Total Liabilities	506.5			536.2
Commitments and Contingencies
Stockholders’ Equity
Preferred stock - $0.01 par value - authorized 20,000,000 shares, none issued	—			—
Common stock - $0.01 par value - authorized 300,000,000 shares, 47,653,527 outstanding as of June 30, 2019 and 47,444,340 outstanding as of December 31, 2018	0.5			0.5
Additional paid-in capital	1,586.8			1,578.1
Accumulated deficit	(270.7		)	(242.4		)
Treasury stock	(8.6		)	(5.3		)
Accumulated other comprehensive loss	(31.1		)	(33.7		)
Total Stockholders’ Equity	1,276.9			1,297.2
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,783.4		$	1,833.4

See Notes to the Condensed Consolidated Financial Statements.

5

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(in millions)

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Common Stock	$	0.5		$	0.5		$	0.5		$	0.5
Additional Paid-in Capital, beginning of period	1,582.5			1,557.3			1,578.1			1,550.5
Exercise or redemption of share-based awards	2.5			8.3			2.7			11.6
Stock-based compensation expense	1.8			2.1			6.0			5.6
Additional Paid-in Capital, end of period	1,586.8			1,567.7			1,586.8			1,567.7
Accumulated Deficit, beginning of period	(262.7		)	(279.7		)	(242.4		)	(299.9		)
Net (loss) income	(8.0		)	35.3			(28.3		)	55.5
Accumulated Deficit, end of period	(270.7		)	(244.4		)	(270.7		)	(244.4		)
Treasury Stock, beginning of period	(7.2		)	(4.5		)	(5.3		)	(4.4		)
Purchases of treasury stock	(1.4		)	(0.6		)	(3.3		)	(0.7		)
Treasury Stock, end of period	(8.6		)	(5.1		)	(8.6		)	(5.1		)
Accumulated Other Comprehensive Loss, beginning of period	(33.0		)	(21.8		)	(33.7		)	(31.3		)
Other comprehensive income (loss), net of tax	1.9			(10.3		)	2.6			(0.8		)
Accumulated Other Comprehensive Loss, end of period	(31.1		)	(32.1		)	(31.1		)	(32.1		)
Total Stockholders’ Equity, end of period	$	1,276.9		$	1,286.6		$	1,276.9		$	1,286.6

See Notes to the Condensed Consolidated Financial Statements.

6

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED CASH FLOW STATEMENTS

(in millions)

(Unaudited)

	Six Months Ended June 30,
	2019			2018
Operating Activities
Net (loss) income	$	(28.3	)	$	55.5
Depreciation and amortization	16.9			15.6
Stock-based compensation expense	6.0			5.6
Net non-cash gain on Divestiture	—			(98.4		)
Net loss on asset dispositions	0.5			0.6
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable	26.2			33.8
Inventories	(13.3		)	(24.2		)
Prepaid expenses and other assets	32.8			(32.7		)
Accounts payable	(64.6		)	(47.9		)
Accrued expenses	(29.3		)	33.2
Other	(1.9		)	(11.5		)
Cash Used in Operating Activities	(55.0		)	(70.4		)
Investing Activities
Capital expenditures	(35.4		)	(20.7		)
Acquisition of assets and investments in businesses	(7.0		)	—
Proceeds from the Divestiture	—			734.5
Cash (Used in) Provided by Investing Activities	(42.4		)	713.8
Financing Activities
Debt repayments	(0.2		)	(339.0		)
Purchases of treasury stock	(3.3		)	(0.6		)
Proceeds from the exercise of stock options	2.6			11.4
Cash Used in Financing Activities	(0.9		)	(328.2		)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	1.9			(3.8		)
(Decrease) Increase in Cash and Cash Equivalents	(96.4		)	311.4
Cash and Cash Equivalents - Beginning of Period	384.5			219.7
Cash and Cash Equivalents - End of Period	$	288.1		$	531.1

See Notes to the Condensed Consolidated Financial Statements.

7

AVANOS MEDICAL, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Accounting Policies

Background and Basis of Presentation

Avanos Medical, Inc. is a medical technology company focused on delivering clinically superior breakthrough medical device solutions to improve patients’ quality of life. Headquartered in Alpharetta, Georgia, Avanos is committed to addressing some of today’s most important healthcare needs, such as reducing the use of opioids while helping patients move from surgery to recovery. We develop, manufacture and market clinically superior solutions around the globe. References to “Avanos,” “Company,” “we,” “our” and “us” refer to Avanos Medical, Inc. and its consolidated subsidiaries.

On April 30, 2018, we closed the sale of our Surgical and Infection Prevention (“S&IP”) business, including the name “Halyard Health” (and all variations thereof and related intellectual property rights) (the “Divestiture”). Accordingly, the Company’s name was changed from “Halyard Health, Inc.” to “Avanos Medical, Inc.” effective June 30, 2018. The results of operations from our former S&IP business are reported in the accompanying condensed consolidated income statements as “Income from Discontinued Operations, net of tax” for the three and six months ended June 30, 2018.

Interim Financial Statements

We prepared the accompanying condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and the condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018. Our unaudited interim condensed consolidated financial statements contain all necessary material adjustments, which are of a normal and recurring nature, to fairly state our financial condition, results of operations and cash flows for the periods presented.

Use of Estimates

Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Estimates are used in accounting for, among other things, distributor rebate accruals, future cash flows associated with impairment testing for goodwill and long-lived assets, loss contingencies, and deferred tax assets and potential income tax assessments. Actual results could differ from these estimates, and the effect of the difference could be material to our financial statements. Changes in these estimates are recorded when known.

Recently Adopted Accounting Pronouncements

Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), using the transition method provided in ASU No. 2018-11, Leases (Topic 842) - Targeted Improvements, which allows for initial application on the date of adoption with recognition of a cumulative-effect adjustment, if applicable, to the opening balance of retained earnings. As of December 31, 2018, all our existing leases were operating leases, and accordingly, no adjustment to beginning retained earnings was required. In addition, we elected to use all available expedients allowed under ASU 2018-11. Other prior period amounts are not adjusted and continue to be reported under Topic 840, the previous lease guidance.

Topic 842 replaces the former guidance in Topic 840 and requires the recognition of right-of-use (“ROU”) assets and liabilities for leases with terms of more than twelve months. The recognition, measurement and presentation of expenses and cash flows arising from leases depend primarily on its classification as a finance or an operating lease, with the classification criteria for distinguishing between the two types being similar to the classification for distinguishing between capital and operating leases under Topic 840. In addition to recognition of ROU assets and liabilities, disclosures regarding lease obligations are required to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.

As a result of Topic 842 adoption, we have operating lease liabilities of $80.2 million and corresponding ROU assets of $67.2 million as of June 30, 2019. For other disclosures regarding our lease obligations, see “Leases” in Note 6 herein.

Effective January 1, 2019, we adopted ASU No. 2018-02, Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU is intended to help companies reclassify certain stranded income tax effects in accumulated other comprehensive income (“AOCI”) resulting from the Tax Cuts and Jobs Act of 2017 (the “Act”), which was enacted in December 2017. ASU 2018-02 provides for the elimination of stranded tax effects of the Act by allowing reclassification of stranded tax effects from AOCI to retained earnings. We elected not to reclassify

8

stranded tax effects from AOCI to retained earnings, and accordingly, adoption of this ASU did not have a material effect on our financial position, results of operations and cash flows.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU is intended to reduce complexity by aligning the requirements for capitalizing implementation costs incurred in cloud-based arrangements with the requirements for capitalization of costs incurred to develop internal-use software. Any implementation costs in cloud-based arrangements would then be amortized over the term of the service contract. This ASU is effective for annual periods, and interim periods within those annual periods beginning after December 15, 2019, with early adoption permitted. We do not expect adoption of this ASU to have a material effect on our financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes certain disclosure requirements regarding the amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of transfers between the levels. The ASU also adds disclosure requirements regarding unrealized gains and losses included in Other Comprehensive Income for recurring Level 3 fair value measurements and regarding the range and weighted average of unobservable inputs used in Level 3 fair value measurements. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The removal of certain disclosures is to be applied retrospectively for all periods presented, but the additional required disclosures are to be prospectively applied, and early application is permitted. We do not expect any transfers between Level 1 and Level 2 of the fair value hierarchy, and as of June 30, 2019, we have no assets or liabilities with fair value measurements in Level 3 of the fair value hierarchy. Accordingly, we do not expect adoption of this ASU to have a material effect on our financial position, results of operations or cash flows.

Note 2.    Business Acquisitions

Summit Medical Products, Inc.

On July 31, 2019, we entered into an agreement to acquire substantially all the assets of Summit Medical Products, Inc. (“Summit”) for $17.5 million, subject to certain adjustments as defined in the purchase agreement. We expect to close the purchase in August 2019, subject to certain closing conditions. Summit develops and markets the ambIT® family of ambulatory electronic infusion pumps, with annual net sales of approximately $7 million.

NeoMed, Inc.

On April 16, 2019, we acquired a minority interest in NeoMed, Inc. (“NeoMed”) for $7.0 million. NeoMed is a market-leading medical device company that is focused on specialized feeding and medication dosing for low birth weight, neonatal and pediatric patients. On July 8, 2019, we acquired all of the outstanding shares of NeoMed for a purchase price of $28.0 million, subject to adjustment for certain items as defined in the purchase agreement. NeoMed’s net sales were $36 million in 2018.

Cool Systems, Inc.

On July 1, 2018, we acquired Cool Systems, Inc. for $65.7 million, net of cash acquired, which was based on a purchase price of $65.0 million plus certain adjustments as provided in the purchase agreement. Cool Systems is marketed as Game Ready® and is hereinafter referred to as “Game Ready.” In the three months ended June 30, 2019, the purchase price allocation for Game Ready was finalized, resulting in a $1.9 million reduction of goodwill. The goodwill arising from the Game Ready acquisition is now $18.7 million.

We expect the integration of our acquisitions will be substantially complete by the end of 2020.

Note 3.     Restructuring Activities

Organizational Alignment

In December 2017, in conjunction with the Divestiture (see Note 4, “Discontinued Operations”), we initiated the first phase of a multi-year restructuring plan (the “Plan”). The initial phase of the Plan is intended to align our organizational and management structure with our remaining Medical Devices business.

We expect to incur up to $18.0 million of pre-tax costs, of which approximately $10.0 million is for employee retention, severance and benefits and the remainder for third-party services and other related costs. These are cash costs that will be incurred as we execute the Plan, which we expect to substantially complete by the end of 2019.

9

In the three and six months ended June 30, 2019, we incurred $0.5 million and $2.0 million, respectively, of costs that are included in “Selling and general expenses” in the accompanying condensed consolidated income statement, compared to $3.5 million and $4.5 million, respectively, in the three and six months ended June 30, 2018.

Plan-to-date, we have incurred $16.7 million of expenses, of which $9.6 million was for employee retention, severance and benefits and the remainder for third-party services and other costs.

We have a liability associated with employee severance and benefits related to the organizational alignment phase of the Plan. The following table summarizes the accrual and payment activity (in millions):

	Accrual
Balance, December 31, 2018	$	5.7
Charges and adjustments, net	0.4
Payments	(3.6		)
Balance, June 30, 2019	$	2.5

Information Technology Systems

The sale price the Company received upon closing the Divestiture included the sale of the Company’s IT systems. The sale of the IT systems enables the Company to migrate to an IT platform that is more appropriate for its business and size. Accordingly, in March 2018, we launched the phase of the Plan to restructure and enhance the Company’s IT systems (the “ITS Plan”).

Based on milestones achieved to date, the Company’s current expectation is to incur up to $75.0 million to complete the implementation of the ITS Plan, of which approximately $50.0 million qualifies for capitalization. The remainder, primarily consulting and other costs, are expensed as incurred. We incurred $4.1 million and $4.6 million, respectively, of costs related to the ITS Plan in the three and six months ended June 30, 2019 which are included in “Selling and general expenses” in the accompanying condensed consolidated income statements compared to $0.5 million and $2.3 million, respectively, in the three and six months ended June 30, 2018. Plan-to-date, we have incurred $11.0 million of costs that were expensed as incurred and $50.0 million of costs that were capitalized, including $5.0 million of capitalized internal labor costs. Most of the remaining expected costs will be incurred as the Company migrates to its new IT platform during the third quarter of 2019. Accordingly, the Company expects to substantially complete the ITS Plan by the end of 2019.

Cost Transformation

In June 2019, the third and final phase of the Plan was approved. This third phase relates to optimizing the Company’s procurement, manufacturing, and supply chain operations (the “Cost Transformation”). The Company expects to incur between $11.0 million and $13.0 million to execute the Cost Transformation, primarily consulting and other expenses that will be expensed as incurred. The Company also expects to spend between $8.0 million to $12.0 million of incremental capital through 2021 in support of the Cost Transformation. The Company expects to complete the Cost Transformation by the end of 2021. We have incurred $1.2 million of costs related to Cost Transformation in the three months ended June 30, 2019.

Note 4.     Discontinued Operations

The results of operations from our former S&IP business are reported in the accompanying condensed consolidated income statements as “Income from Discontinued Operations, net of tax” for the three and six months ended June 30, 2018.

The following table summarizes the financial results of our discontinued operations for the three and six months ended June 30, 2018 (in millions):

10

	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Net Sales	$	89.0		$	353.0
Cost of products sold	65.8			260.3
Research and development	0.2			1.1
Selling, general and other expenses	10.9			38.1
Gain on Divestiture	(89.9		)	(89.9		)
Other expense, net	0.1			0.4
Income from Discontinued Operations before income taxes	101.9			143.0
Tax provision from discontinued operations	(67.9		)	(77.5		)
Income from Discontinued Operations, net of tax	$	34.0		$	65.5

In accordance with GAAP, only expenses specifically identifiable and related to a business to be disposed may be allocated to discontinued operations. Accordingly, certain expenses that were historically presented as a component of the S&IP business were kept in continuing operations. These expenses, on a pre-tax basis, were $9.1 million and $37.0 million for the three and six months ended June 30, 2018.

The following table provides operating and investing cash flow information for our discontinued operations (in millions):

	Six Months Ended June 30, 2018
Operating Activities: Stock-based compensation expense	$	(1.5	)
Investing Activities: Capital expenditures	2.9

Note 5.    Supplemental Balance Sheet Information

Accounts Receivable

Accounts receivable consist of the following (in millions):

	June 30, 2019			December 31, 2018
Accounts receivable	$	127.1		$	152.2
Allowances and doubtful accounts:
Doubtful accounts	(2.4		)	(1.4		)
Sales discounts	(0.3		)	(0.2		)
Sales returns	(0.1		)	(0.1		)
Accounts receivable, net	$	124.3		$	150.5

Inventories

Inventories at the lower of cost (determined on the LIFO/FIFO or weighted-average cost methods) or market consist of the following (in millions):

	June 30, 2019								December 31, 2018
	LIFO			Non- LIFO		Total			LIFO			Non- LIFO		Total
Raw materials	$	41.1		$	1.3	$	42.4		$	39.6		$	1.5	$	41.1
Work in process	27.2			0.4		27.6			22.1			0.4		22.5
Finished goods	55.1			14.4		69.5			50.1			13.7		63.8
Supplies and other	—			6.0		6.0			—			5.8		5.8
	123.4			22.1		145.5			111.8			21.4		133.2
Excess of FIFO or weighted-average cost over LIFO cost	(11.6		)	—		(11.6		)	(11.8		)	—		(11.8		)
Total	$	111.8		$	22.1	$	133.9		$	100.0		$	21.4	$	121.4

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Property, Plant and Equipment

Property, plant and equipment consists of the following (in millions):

	June 30, 2019			December 31, 2018
Land	$	1.0		$	0.9
Buildings	46.2			43.5
Machinery and equipment	146.4			141.2
Construction in progress	70.9			52.7
	264.5			238.3
Less accumulated depreciation	(90.1		)	(84.2		)
Total	$	174.4		$	154.1

Construction in progress includes $50.0 million and $33.2 million of costs capitalized in connection with migration to a new IT platform and enhancements to our IT environment as of June 30, 2019 and December 31, 2018, respectively. See Note 3 for further discussion of our IT-related restructuring and enhancement activities.

Depreciation expense was $3.7 million and $7.3 million for the three and six months ended June 30, 2019 compared to $3.2 million and $6.4 million for the three and six months ended June 30, 2018, respectively.

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are as follows (in millions):

	Goodwill
Balance, December 31, 2018	$	783.6
Purchase accounting adjustment	(1.9		)
Currency translation adjustment	0.6
Balance, June 30, 2019	$	782.3

Intangible assets subject to amortization consist of the following (in millions):

	June 30, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trademarks	$	83.1	$	(54.4	)	$	28.7	$	83.1	$	(52.2	)	$	30.9
Patents and acquired technologies	259.5		(150.5		)	109.0		259.5		(144.4		)	115.1
Other	54.4		(33.6		)	20.8		54.4		(32.2		)	22.2
Total	$	397.0	$	(238.5	)	$	158.5	$	397.0	$	(228.8	)	$	168.2

Amortization expense for intangible assets was $4.8 million and $9.6 million for the three and six months ended June 30, 2019 compared to $4.7 million and $9.2 million for the three months and six months ended June 30, 2018, respectively. We estimate amortization expense for the remainder of 2019 and the following four years and beyond will be as follows (in millions):

For the years ending December 31,	Amount
2019	$	16.9
2020	24.6
2021	22.3
2022	22.1
2023	20.8
Thereafter	51.8
Total	$	158.5

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Accrued Expenses

Accrued expenses consist of the following (in millions):

	June 30, 2019		December 31, 2018
Accrued rebates	$	19.1	$	26.1
Accrued salaries and wages	21.9		27.0
Accrued taxes	4.2		6.5
Other	27.7		34.8
Total	$	72.9	$	94.4

Accrued rebates represent amounts accrued for estimated incentives earned by customers.

Other Long-Term Liabilities

Other long-term liabilities consist of the following (in millions):

	June 30, 2019		December 31, 2018
Taxes payable	$	0.4	$	0.4
Accrued compensation benefits	4.2		4.3
Other	1.0		15.1
Total	$	5.6	$	19.8

Note 6.    Leases

Our lease obligations relate primarily to our principal executive offices along with various manufacturing, warehouse and distribution facilities located throughout the world. For leases with terms greater than twelve months, we record an ROU asset and corresponding lease obligation. As of June 30, 2019, all our leasing arrangements were operating leases. Many of our leases include escalating rent payments, renewal options and termination options, which are considered in our determination of straight-line rent expense when appropriate. Many of our leases also include additional amounts for common area maintenance and taxes. We have elected not to separate lease and non-lease components in the determination of straight-line rent expense. For a majority of our leases, an implicit lease rate is not available. Accordingly, we use a rate that approximates our incremental secured borrowing rate.

The table below summarizes information related to ROU assets and lease liabilities that are included in the accompanying condensed consolidated balance sheet (dollars in millions):

	As of June 30, 2019
Assets
Operating lease right-of-use assets	$	67.2
Liabilities
Current portion of operating lease liabilities	14.7
Operating lease liabilities	65.5
Total Operating Lease Liabilities	$	80.2
Weighted average remaining lease term	7.6 years
Weighted average discount rate	4.6		%

The table below summarizes costs and cash flows arising from our lease arrangements in the three and six months ended June 30, 2019 (in millions):

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	Three Months ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	3.5	$	5.9
Short-term lease cost	0.5		1.1
Variable lease cost	0.5		0.8
Total lease cost	$	4.5	$	7.8
Cash paid for amounts included in the measurement of lease liabilities	$	5.6	$	9.0
Right-of-use assets obtained in exchange for new operating lease liabilities	$	14.7	$	21.2

The future minimum obligations under operating leases having non-cancelable terms in excess of one year are as follows for the remainder of 2019 and for the four following years and beyond (in millions):

For the years ending December 31,	Amount
2019	$	5.7
2020	14.5
2021	13.8
2022	13.4
2023	11.5
Thereafter	34.7
Future minimum obligations	$	93.6

Note 7.    Fair Value Information

The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:

Level 1: Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3: Prices or valuations that require inputs that are significant to the valuation and are unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

In the six months ended June 30, 2019, there were no transfers among Level 1, 2 or 3 fair value determinations.

The following table includes the fair value of our financial instruments for which disclosure of fair value is required (in millions):

		June 30, 2019				December 31, 2018
	Fair Value Hierarchy Level	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Cash and cash equivalents	1	$	288.1	$	288.1	$	384.5	$	384.5
Liabilities
Senior Unsecured Notes	1	247.8		254.9		247.7		250.9

Cash equivalents are recorded at cost, which approximates fair value due to their short-term nature. The fair value of the senior unsecured notes was based on observable market prices based on trading activity on a primary exchange.

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Note 8.     Debt

As of June 30, 2019 and December 31, 2018, our debt balances were as follows (in millions):

	Weighted-Average Interest Rate		Maturities	June 30, 2019			December 31, 2018
Senior Unsecured Notes	6.25	%	2022	$	249.8		$	250.0
Unamortized Debt Discounts and Issuance Costs				(2.0		)	(2.3		)
Total Debt, net				$	247.8		$	247.7

Senior Unsecured Notes

The Senior Unsecured Notes (the “Notes”) will mature on October 15, 2022 and interest accrues at a rate of 6.25% per annum and is payable semi-annually in arrears on April 15 and October 15 of each year. Unamortized debt discount and issuance costs are being amortized over the life of the Notes using the interest method, resulting in an effective interest rate of 6.52% as of June 30, 2019.

Following a divestiture of significant assets, such as the Divestiture, the credit agreement allows re-investment of the net proceeds into the business through acquisition of another business or through capital expenditures for a period of one year following the divestiture. We were required to offer to redeem a portion of the Notes at par value to the extent re-investments were not made by May 1, 2019. Accordingly, $130.5 million of the Notes were offered for redemption in the second quarter of 2019, of which $0.2 million were redeemed.

Revolving Credit Facility

We have a senior secured revolving credit facility (“Revolving Credit Facility”) that matures on October 30, 2023 which allows for borrowings up to $250.0 million, with a letter of credit sub-facility in an amount of $75 million and a swingline sub-facility in an amount of $25 million.

Borrowings under the Revolving Credit Facility bear interest, at our option, at either (i) a reserve-adjusted LIBOR rate, plus a margin ranging between 1.50% to 2.25% per annum, depending on our consolidated total leverage ratio, or (ii) the base rate plus a margin ranging between 0.50% to 1.25% per annum, depending on our consolidated total leverage ratio. The unused portion of the Revolving Credit Facility is subject to a commitment fee equal to (i) 0.25% per annum, when our consolidated total leverage ratio is less than 2.25 to 1.00 or (ii) 0.38% per annum, otherwise.

To the extent we remain in compliance with certain financial covenants in our credit agreement, we have the ability to access our Revolving Credit Facility. As of June 30, 2019, we had no borrowings and letters of credit of $0.7 million outstanding under the Revolving Credit Facility.

Note 9.    Accumulated Other Comprehensive Income

The changes in the components of AOCI, net of tax, are as follows (in millions):

	Unrealized Translation			Cash Flow Hedges		Defined Benefit Pension Plans		Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2018	$	(34.3	)	$	0.1	$	0.5	$	(33.7	)
Other comprehensive income	2.6			—		—		2.6
Balance, June 30, 2019	$	(31.7	)	$	0.1	$	0.5	$	(31.1	)

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The changes in the components of AOCI, including the tax effect, are as follows (in millions):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Unrealized translation	$	1.9	$	(10.0	)	$	2.6	$	(0.7	)
Defined benefit pension plans	—		1.2			—		0.9
Tax effect	—		(0.2		)	—		(0.2		)
Defined benefit pension plans, net of tax	—		1.0			—		0.7
Cash flow hedges	—		(1.6		)	—		(1.0		)
Tax effect	—		0.3			—		0.2
Cash flow hedges, net of tax	—		(1.3		)	—		(0.8		)
Change in AOCI	$	1.9	$	(10.3	)	$	2.6	$	(0.8	)

Note 10.     Stock-Based Compensation

Aggregate stock-based compensation expense was $1.8 million and $6.0 million for the three and six months ended June 30, 2019. For the three and six months ended June 30, 2018, stock-based compensation was $3.8 million and $7.0 million in continuing operations. In the prior year, there were net forfeitures of $1.7 million and $1.4 million included in discontinued operations.

Stock-based compensation expense related to stock options was $0.9 million and $1.7 million in the three and six months ended June 30, 2019 compared to $1.4 million and $1.8 million in the three and six months ended June 30, 2018, respectively.

Expense related to time-based restricted share units was $0.4 million and $2.6 million in the three and six months ended June 30, 2019 compared to $1.0 million and $2.8 million in the three months and six months ended June 30, 2018, respectively.

Stock-based compensation expense related to performance-based restricted share units was $0.5 million and $1.7 million in the three and six months ended June 30, 2019 compared to $1.4 million and $2.4 million in the three months and six months ended June 30, 2018, respectively.

Note 11.    Commitments and Contingencies

We are subject to various legal proceedings, claims and governmental inspections, audits or investigations pertaining to issues such as contract disputes, product liability, tax matters, patents and trademarks, advertising, governmental regulations, employment and other matters, including the matters described below. Under the terms of the distribution agreement we entered into with Kimberly-Clark Corporation (“Kimberly-Clark”) prior to the spin-off, legal proceedings, claims and other liabilities that are primarily related to our business are our responsibility and we are obligated to indemnify and hold Kimberly-Clark harmless for such matters (“Indemnification Obligation”). For the three and six months ended June 30, 2019, we incurred $4.7 million and $13.4 million, respectively, of expenses related to these matters compared to $1.2 million and $2.9 million in the three and six months ended June 30, 2018, respectively.

Surgical Gown Litigation and Related Matters

Bahamas Surgery Center

We have an Indemnification Obligation for the matter styled Bahamas Surgery Center, LLC v. Kimberly-Clark Corporation and Halyard Health, Inc., No. 2:14-cv-08390-DMG-SH (C.D. Cal.) (“Bahamas”), filed on October 29, 2014. In that case, the plaintiff brought a putative class action asserting claims for common law fraud (affirmative misrepresentation and fraudulent concealment) and violation of California’s Unfair Competition Law (“UCL”) in connection with our marketing and sale of MicroCool surgical gowns.

On April 7, 2017, a jury returned a verdict for the plaintiff, finding that Kimberly-Clark was liable for $3.9 million in compensatory damages (not including prejudgment interest) and $350.0 million in punitive damages, and that Avanos was liable for $0.3 million in compensatory damages (not including prejudgment interest) and $100.0 million in punitive damages. Subsequently, the court also ruled on the plaintiff’s UCL claim and request for injunctive relief. The court found in favor of the plaintiff on the UCL claim but denied the plaintiff’s request for restitution. The court also denied the plaintiff’s request for injunctive relief.

On May 25, 2017, we filed three post-trial motions: a renewed motion for judgment as a matter of law; a motion to decertify the class; and a motion for new trial, remittitur, or amendment of the judgment. On March 30, 2018, the court ruled on the post-

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trial motions. The court denied all three, except it granted in part the motion to reduce the award of punitive damages to a 5 to 1 ratio with compensatory damages.

On April 11, 2018, the court issued an Amended Judgment in favor of the plaintiff and against us and Kimberly-Clark. The judgment against us is $0.3 million in compensatory damages and pre-judgment interest and $1.3 million in punitive damages. The judgment against Kimberly-Clark is $3.9 million in compensatory damages, $1.3 million in pre-judgment interest, and $19.4 million in punitive damages.

On April 12, 2018, we filed a notice of appeal to the Ninth Circuit Court of Appeals. We intend to continue our vigorous defense of the Bahamas matter.

Kimberly-Clark Corporation

We have notified Kimberly-Clark that we have reserved our rights to challenge any purported obligation to indemnify Kimberly-Clark for the punitive damages awarded against them. In connection with our reservation of rights, on May 1, 2017, we filed a complaint in the matter styled Halyard Health, Inc. v. Kimberly-Clark Corporation, Case No. BC659662 (County of Los Angeles, Superior Court of California). In that case, we seek a declaratory judgment that we have no obligation, under the Distribution Agreement or otherwise, to indemnify, pay, reimburse, assume, or otherwise cover punitive damages assessed against Kimberly-Clark in the Bahamas matter, or any Expenses or Losses (as defined in the distribution agreement) associated with an award of punitive damages. On May 2, 2017, Kimberly-Clark filed a complaint in the matter styled Kimberly-Clark Corporation v. Halyard Health, Inc., Case No. 2017-0332-AGB (Court of Chancery of the State of Delaware). In that case, Kimberly-Clark seeks a declaratory judgment that (1) we must indemnify them for all damages, including punitive damages, assessed against them in the Bahamas matter, (2) we have anticipatorily and materially breached the Distribution Agreement by our failure to indemnify them, and (3) we are estopped from asserting, or have otherwise waived, any claim that we are not required to indemnify them for all damages, including punitive damages, that may be awarded in the Bahamas matter.

On May 26, 2017, we moved to dismiss or stay Kimberly-Clark’s Delaware complaint, and on June 16, 2017, Kimberly-Clark moved for summary judgment. On September 12, 2017, the Delaware court granted our motion to stay Kimberly-Clark’s complaint and therefore did not take any action on Kimberly-Clark’s motion for summary judgment. On May 30, 2018, Kimberly-Clark moved to quash service of summons we served on Kimberly-Clark in California for lack of personal jurisdiction. On December 12, 2018, the court granted Kimberly-Clark’s motion. On December 18, 2018, we filed a notice of appeal to the California Court of Appeal. On December 19, 2018, Kimberly-Clark sought to lift the stay of their complaint in Delaware, and on March 4, 2019, the court denied their motion. We intend to vigorously pursue our case against Kimberly-Clark in California and to vigorously defend against their case against us.

Government Investigation

In June 2015, we were served with a subpoena from the Department of Veterans Affairs Office of the Inspector General (“VA OIG”) seeking information related to the design, manufacture, testing, sale and promotion of MicroCool and other Company surgical gowns, and, in July 2015, we also became aware that the subpoena and an earlier VA OIG subpoena served on Kimberly-Clark requesting information about gown sales to the federal government are related to a United States Department of Justice (“DOJ”) investigation. In May 2016, April 2017 and September 2018, we received additional subpoenas from the DOJ seeking further information related to Company gowns. The Company is cooperating with the DOJ investigation.

Shahinian

On October 12, 2016, after the DOJ and various States declined to intervene, a qui tam matter was unsealed and a complaint was subsequently served on us in a matter styled U.S. ex rel. Shahinian, et al. v. Kimberly-Clark Corporation, No. 2:14-cv-08313-JAK-JPR (C.D. Cal.) (“Shahinian”), filed on October 27, 2014. The case alleges, among other things, violations of the federal and various state False Claims Acts in connection with the marketing and sale of certain surgical gowns. On March 8, 2017, Kimberly-Clark moved to dismiss the Shahinian complaint, and on July 14, 2017, the California court granted Kimberly-Clark’s motion. The plaintiff then filed a second amended complaint, and on August 11, 2017, Kimberly-Clark moved to dismiss that one as well. The plaintiff then filed a third amended complaint. On January 18, 2018, Kimberly-Clark moved to dismiss that one too. On September 30, 2018, the court granted Kimberly-Clark’s motion with prejudice. On November 13, 2018, Shahinian filed a notice of appeal to the Ninth Circuit Court of Appeals.

We may have an Indemnification Obligation for the Shahinian matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to continue our vigorous defense of the matter.

Kromenaker

On March 17, 2017, the DOJ submitted a filing declining to intervene in another qui tam matter, and the complaint was unsealed and subsequently served on Kimberly-Clark and Avanos. That matter is styled U.S. ex rel. Kromenaker v. Kimberly-

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Clark Corporation and Halyard Health, Inc., No. 1:15-cv-04413-SCJ (N.D. Ga.) (“Kromenaker”), filed on December 21, 2015. In that case, the plaintiff alleges, among other things, violations of the federal False Claims Act in connection with the marketing and sale of certain products, including feminine hygiene products, surgical gowns and endotracheal tubes. On June 12, 2017, Kimberly-Clark and Avanos moved to dismiss the complaint. On August 21, 2017, Kromenaker filed an amended complaint, and Kimberly-Clark and Avanos filed motions to dismiss it. On March 27, 2019, the court granted Kimberly-Clark’s and our motions to dismiss. On April 24, 2019, Kromenaker filed a Motion with the trial court seeking to have the court alter, amend, or vacate the dismissal.

We may have an Indemnification Obligation for certain parts of this matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to continue our vigorous defense of this matter.

Jackson

We were served with a complaint in a matter styled Jackson v. Halyard Health, Inc., Robert E. Abernathy, Steven E. Voskuil, et al., No. 1:16-cv-05093-LTS (S.D.N.Y.), filed on June 28, 2016. In that case, the plaintiff brings a putative class action against the Company, our former Chief Executive Officer, our former Chief Financial Officer and other defendants, asserting claims for violations of the Securities Exchange Act, Sections 10(b) and 20(a). The plaintiff alleges that the defendants made misrepresentations and failed to disclose certain information about the safety and effectiveness of our MicroCool gowns and thereby artificially inflated the Company’s stock prices during the respective class periods. The alleged class period for purchasers of Kimberly-Clark securities who subsequently received Avanos securities is February 25, 2013 to October 21, 2014, and the alleged class period for purchasers of Avanos securities is October 21, 2014 to April 29, 2016. On February 16, 2017, we moved to dismiss the case. On March 30, 2018, the court granted our motion to dismiss and entered judgment in our favor. On April 27, 2018, the plaintiff filed a Motion for Relief from the Judgment and for Leave to Amend. On April 1, 2019, the court denied the plaintiff’s motion. On May 1, 2019, Jackson appealed the dismissal of the action to the 2nd Circuit Court of Appeals. We intend to continue our vigorous defense of this matter.

Richardson, Chiu and Pick

We were also served with a complaint in a matter styled Margaret C. Richardson Trustee of the Survivors Trust Dated 6/12/84 for the Benefit of the H&M Richardson Revocable Trust v. Robert E. Abernathy, Steven E. Voskuil, et al., No. 1:16-cv-06296 (S.D.N.Y.) (“Richardson”), filed on August 9, 2016. In that case, the plaintiff sues derivatively on behalf of Avanos Medical, Inc., and alleges that the defendants breached their fiduciary duty, were unjustly enriched, and violated Section 14(A) of the Securities and Exchange Act in connection with our marketing and sale of MicroCool gowns. We were also served with a complaint in a matter styled Kai Chiu v. Robert E. Abernathy, Steven E. Voskuil, et al., No. 2:16-cv-08768 (C.D. Cal.), filed on November 23, 2016. In that case, the plaintiff sues derivatively on behalf of Avanos Medical, Inc., and makes allegations and brings causes of action similar to those in Richardson, but the plaintiff also adds causes of action for abuse of control, gross mismanagement, and waste of corporate assets. We were also served with a complaint in a matter styled Lukas Pick v. Robert E. Abernathy, Steven E. Voskuil, et al., No. e:18-cv-00295 (D. Del.) filed on February 21, 2018. In that case, the plaintiff sues derivatively on behalf of Avanos Medical, Inc. and makes allegations and brings causes of action similar to those in Richardson and Chiu. We intend to continue our vigorous defense of this matter.

Medline Industries

We were also served with a complaint in the matter styled Medline Industries, Inc. v. Kimberly-Clark Corporation, Halyard Health, Inc., et al., No. 2:16-cv-08571 (C.D. Cal.), filed on November 17, 2016. In that case, the plaintiff makes allegations similar to those in Bahamas and Shahinian and brings causes of action under federal and state false advertising laws and state unfair competition laws. On March 31, 2017 we moved to dismiss certain of Medline’s claims and to transfer any surviving claims from California to Georgia. On June 2, 2017, the court granted our motion to transfer the case to Georgia and denied without prejudice our motion to dismiss. On June 30, 2017, now before the court in Georgia and with the case re-styled as Medline Industries, Inc. v. Kimberly-Clark Corporation, Halyard Health, Inc., et al., No. 1:17-cv-02032 (N.D. Ga.), Kimberly-Clark and Avanos filed renewed motions to dismiss certain of Medline’s claims. On February 28, 2018, the court granted our motion to dismiss. On March 14, 2018, Medline filed a second amended complaint. On March 28, 2018, we filed our answer and counterclaims. The counterclaims allege violations of false advertising law and state unfair competition laws. On May 9, 2018, Medline filed its answer to our counterclaims.

We may have an Indemnification Obligation for this matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to continue our vigorous defense of this matter.

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Naeyaert

On April 13, 2017, Kimberly-Clark was served with a complaint in the matter styled Christopher Naeyaert v. Kimberly-Clark Corporation, et al., No. PSC 1603503 (County of Riverside, Superior Court of California), filed on July 21, 2016. In that case, the plaintiff makes allegations similar to those in Bahamas and brings causes of action similar to those in Bahamas, except the allegations and causes of action relate to the Ultra surgical gown. On June 5, 2017, Kimberly-Clark moved to dismiss the complaint. On August 21, 2017, Naeyaert filed an amended complaint and on September 18, 2017, Kimberly-Clark filed a motion to dismiss the amended complaint. On September 28, 2018, the court granted in part Kimberly-Clark’s motion but allowed Naeyaert leave to amend his complaint. On October 12, 2018, Naeyaert filed a Third Amended Complaint. On October 26, 2018, Kimberly-Clark answered the Third Amended Complaint.

We may have an Indemnification Obligation for this matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to continue our vigorous defense of this matter.

Patent Litigation

We operate in an industry characterized by extensive patent litigation and competitors may claim that our products infringe upon their intellectual property. Resolution of patent litigation or other intellectual property claims is typically time consuming and costly and can result in significant damage awards and injunctions that could prevent the manufacture and sale of the affected products or require us to make significant royalty payments in order to continue selling the affected products. At any given time we may be involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time.

General

While we maintain general and professional liability, product liability and other insurance, our insurance policies may not cover all of these matters and may not fully cover liabilities arising out of these matters. In addition, we may be obligated to indemnify our directors and officers against these matters.

Although the results of litigation and claims cannot be predicted with certainty, we believe that the ultimate resolution of these matters will not materially impact our liquidity, access to capital markets or ability to conduct our daily operations.

As of June 30, 2019, we have an accrued liability for the matters described herein. The accrued liability is included in “Accrued Expenses” in the accompanying condensed consolidated balance sheet. Our estimate of these liabilities is based on facts and circumstances existing at this time, along with other variables. Factors that may affect our estimate include, but are not limited to: (i) changes in the number of lawsuits filed against us, including the potential for similar, duplicate or “copycat” lawsuits filed in multiple jurisdictions, including lawsuits that bring causes or action or allege violations of law with regard to additional products; (ii) changes in the legal costs of defending such claims; (iii) changes in the nature of the lawsuits filed against us; (iv) changes in the applicable law governing any legal claims against us; (v) a determination that our assumptions used in estimating the liability are no longer reasonable; and (vi) the uncertainties associated with the judicial process, including adverse judgments rendered by courts or juries. Thus, the actual amount of these liabilities for existing and future claims could be materially different than the accrued amount. Additionally, the above matters, regardless of the outcome, could disrupt our business and result in substantial costs and diversion of management attention.

Environmental Compliance

We are subject to federal, state and local environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our business, financial condition, results of operations or liquidity.

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Note 12.    Earnings Per Share (“EPS”)

Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period, as determined using the treasury stock method.

The calculation of basic and diluted earnings per share for the three and six months ended June 30, 2019 and 2018 is set forth in the following table (in millions, except per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
(Loss) Income from continuing operations	$	(8.0	)	$	1.3	(28.3		)	(10.0		)
Income from discontinued operations, net of tax	—			34.0		—			65.5
Net (Loss) Income	$	(8.0	)	$	35.3	(28.3		)	55.5
Weighted Average Shares Outstanding:
Basic weighted average shares outstanding	47.6			47.1		47.5			47.0
Dilutive effect of stock options and restricted share unit awards	—			1.1		—			—
Diluted weighted average shares outstanding	47.6			48.2		47.5			47.0
(Loss) Earnings Per Share:
Basic:
Continuing operations	$	(0.17	)	$	0.03	$	(0.60	)	$	(0.21	)
Discontinued operations	$	—		$	0.72	$	—		$	1.39
Basic (Loss) Earnings Per Share	$	(0.17	)	$	0.75	$	(0.60	)	$	1.18
Diluted:
Continuing operations	$	(0.17	)	$	0.03	$	(0.60	)	$	(0.21	)
Discontinued operations	$	—		$	0.70	$	—		$	1.39
Diluted (Loss) Earnings Per Share	$	(0.17	)	$	0.73	$	(0.60	)	$	1.18

Restricted share units (“RSUs”) contain provisions allowing for the equivalent of any dividends paid on common stock during the restricted period to be reinvested into additional RSUs at the then fair market value of the common stock on the date the dividends are paid. Such awards are to be included in the EPS calculation under the two-class method. Currently, we do not anticipate any cash dividends for the foreseeable future and our outstanding RSU awards are not material in comparison to our weighted average shares outstanding. Accordingly, all EPS amounts reflect shares as if they were fully vested and the disclosures associated with the two-class method are not presented herein.

For each of the three and six months ended June 30, 2019, 1.6 million of potentially dilutive stock options and restricted share unit awards were excluded from the computation of earnings per share as their effect would have been anti-dilutive. In the prior year, the 1.1 million shares that were used in the diluted earnings per share calculation for the three months ended June 30, 2018 were excluded from the earnings per share calculation for the six months ended June 30, 2018 due to a year-to-date loss from continuing operations.

Note 13.    Business and Products Information

We conduct our business in one operating and reportable segment that provides our medical device products to healthcare providers and patients in more than 90 countries with manufacturing facilities in the United States, Mexico, France, Germany and Tunisia.

20

We provide a portfolio of innovative product offerings focused on pain management and chronic care, which includes respiratory and digestive health, to improve patient outcomes and reduce the cost of care. Our management evaluates net sales by product category within our single reportable segment as follows (in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Chronic care	$	102.3	$	97.1	$	202.3	$	194.2
Pain management	69.9		63.8		134.1		123.1
Total Net Sales	$	172.2	$	160.9	$	336.4	$	317.3

Chronic care is focused on (i) digestive health products such as our Mic-Key enteral feeding tubes and Corpak patient feeding solutions and (ii) respiratory health products such as our Ballard closed airway suction systems and oral care kits.

Pain management is focused on non-opioid solutions including (i) acute pain products such as On-Q surgical pain pumps and Game Ready cold and compression therapy systems and (ii) interventional pain solutions, which provides minimally invasive pain relieving therapies, such as our Coolief pain therapy.

Due to the nature of our business, we receive purchase orders for products under supply agreements which are normally fulfilled within three to four weeks. Our performance obligations under purchase orders are satisfied and revenue is recognized at a point in time, which is upon shipment or upon delivery of our products to unaffiliated customers, depending on shipping terms. Accordingly, we normally do not have transactions that give rise to material unfulfilled performance obligations.

Note 14.    Supplemental Guarantor Financial Information

In October 2014, Avanos Medical, Inc. (referred to below as “Parent”) issued the Notes (described in Note 8, “Debt”). The Notes are guaranteed, jointly and severally by each of our domestic subsidiaries that guarantees the Revolving Credit Facility (each, a “Guarantor Subsidiary” and collectively, the “Guarantor Subsidiaries”). The guarantees are full and unconditional, subject to certain customary release provisions as defined in the Indenture dated October 17, 2014. Each Guarantor Subsidiary is directly or indirectly 100%-owned by Avanos Medical, Inc. Each of the guarantees of the Notes is a general unsecured obligation of each Guarantor Subsidiary and ranks equally in right of payment with all existing and future indebtedness and all other obligations (except subordinated indebtedness) of each Guarantor Subsidiary.

The following condensed consolidating balance sheets as of June 30, 2019 and December 31, 2018, the condensed consolidating statements of income for the three and six months ended June 30, 2019 and 2018 and cash flows for the six months ended June 30, 2019 and 2018 provide condensed consolidating financial information for Parent, the Guarantor Subsidiaries on a combined basis, the non-guarantor subsidiaries on a combined basis and the Parent and its subsidiaries on a consolidated basis.

The Parent and the Guarantor Subsidiaries use the equity method of accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation. Eliminating entries in the following condensed consolidating financial information represent adjustments to (i) eliminate intercompany transactions between or among the Parent, the Guarantor Subsidiaries and the non-guarantor subsidiaries and (ii) eliminate the investments in subsidiaries.

21

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Three Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	161.8		$	30.8		$	(20.4	)	$	172.2
Cost of products sold	—			71.1			22.8			(20.4		)	73.5
Gross Profit	—			90.7			8.0			—			98.7
Research and development	—			9.5			—			—			9.5
Selling and general expenses	3.9			80.8			10.0			—			94.7
Other expense (income), net	0.1			8.5			(4.3		)	—			4.3
Operating (Loss) Income	(4.0		)	(8.1		)	2.3			—			(9.8		)
Interest income	1.5			—			1.4			(0.9		)	2.0
Interest expense	(4.3		)	(0.1		)	—			0.9			(3.5		)
(Loss) Income Before Income Taxes	(6.8		)	(8.2		)	3.7			—			(11.3		)
Income tax benefit (provision)	1.6			2.9			(1.2		)	—			3.3
Equity in earnings of consolidated subsidiaries	(2.8		)	3.0			—			(0.2		)	—
Net (Loss) Income	(8.0		)	(2.3		)	2.5			(0.2		)	(8.0		)
Total other comprehensive income, net of tax	1.9			1.5			1.0			(2.5		)	1.9
Comprehensive (Loss) Income	$	(6.1	)	$	(0.8	)	$	3.5		$	(2.7	)	$	(6.1	)

22

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Three Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	169.7		$	37.1		$	(45.9	)	$	160.9
Cost of products sold	(0.8		)	89.4			23.5			(45.9		)	66.2
Gross Profit	0.8			80.3			13.6			—			94.7
Research and development	—			10.8			—			—			10.8
Selling and general expenses	8.7			59.6			11.5			—			79.8
Other income, net	(2.5		)	(3.0		)	(3.2		)	4.0			(4.7		)
Operating (Loss) Income	(5.4		)	12.9			5.3			(4.0		)	8.8
Interest income	1.4			0.1			1.8			(1.1		)	2.2
Interest expense	(10.0		)	(0.9		)	(0.1		)	1.1			(9.9		)
(Loss) Income Before Income Taxes	(14.0		)	12.1			7.0			(4.0		)	1.1
Income tax benefit (provision)	1.0			1.9			(2.7		)	—			0.2
Equity in earnings of consolidated subsidiaries	54.8			132.1			—			(186.9		)	—
Net Income from Continuing Operations	41.8			146.1			4.3			(190.9		)	1.3
(Loss) Income from discontinued operations, net of tax	(6.5		)	(66.8		)	107.3			—			34.0
Net Income	35.3			79.3			111.6			(190.9		)	35.3
Total other comprehensive loss, net of tax	(10.3		)	(5.7		)	(8.8		)	14.5			(10.3		)
Comprehensive Income	$	25.0		$	73.6		$	102.8		$	(176.4	)	$	25.0

23

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Six Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	316.5		$	59.8		$	(39.9	)	$	336.4
Cost of products sold	—			134.5			44.3			(39.9		)	138.9
Gross Profit	—			182.0			15.5			—			197.5
Research & development	—			19.7			—			—			19.7
Selling and general expenses	15.3			166.1			19.7			—			201.1
Other expense (income), net	—			16.7			(5.6		)	—			11.1
Operating (Loss) Income	(15.3		)	(20.5		)	1.4			—			(34.4		)
Interest income	3.3			0.1			2.9			(1.9		)	4.4
Interest expense	(8.6		)	(0.4		)	(0.1		)	1.9			(7.2		)
(Loss) Income Before Income Taxes	(20.6		)	(20.8		)	4.2			—			(37.2		)
Income tax benefit (provision)	5.0			5.1			(1.2		)	—			8.9
Equity in earnings of consolidated subsidiaries	(12.7		)	4.7			—			8.0			—
Net (Loss) Income	(28.3		)	(11.0		)	3.0			8.0			(28.3		)
Total other comprehensive income, net of tax	2.6			2.4			1.9			(4.3		)	2.6
Comprehensive (Loss) Income	$	(25.7	)	$	(8.6	)	$	4.9		$	3.7		$	(25.7	)

24

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Six Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	343.0		$	112.0		$	(137.7	)	$	317.3
Cost of products sold	(0.8		)	173.9			96.1			(137.7		)	131.5
Gross Profit	0.8			169.1			15.9			—			185.8
Research and development	—			20.7			—			—			20.7
Selling and general expenses	20.6			122.0			23.6			—			166.2
Other (income) expense, net	(2.2		)	1.2			(5.9		)	4.0			(2.9		)
Operating (Loss) Income	(17.6		)	25.2			(1.8		)	(4.0		)	1.8
Interest income	1.8			0.1			3.2			(1.9		)	3.2
Interest expense	(18.9		)	(1.6		)	(0.1		)	1.9			(18.7		)
(Loss) Income before Income Taxes	(34.7		)	23.7			1.3			(4.0		)	(13.7		)
Income tax benefit (provision)	8.9			(1.3		)	(3.9		)	—			3.7
Equity in earnings of consolidated subsidiaries	87.8			140.6			—			(228.4		)	—
Net Income (Loss) from Continuing Operations	62.0			163.0			(2.6		)	(232.4		)	(10.0		)
(Loss) Income from discontinued operations, net of tax	(6.5		)	(49.9		)	121.9			—			65.5
Net Income	55.5			113.1			119.3			(232.4		)	55.5
Total other comprehensive (loss) income, net of tax	(0.8		)	2.8			(0.7		)	(2.1		)	(0.8		)
Comprehensive Income	$	54.7		$	115.9		$	118.6		$	(234.5	)	$	54.7

25

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(in millions)

	As of June 30, 2019
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	199.2	$	27.3	$	61.6	$	—		$	288.1
Accounts receivable, net of allowances	2.2		1,188.8		194.5		(1,261.2		)	124.3
Inventories	—		117.7		16.2		—			133.9
Prepaid expenses and other current assets	3.2		20.9		2.1		—			26.2
Total Current Assets	204.6		1,354.7		274.4		(1,261.2		)	572.5
Property, Plant and Equipment, net	—		150.2		24.2		—			174.4
Operating Lease Right-of-Use Assets	—		58.6		8.6		—			67.2
Investment in Consolidated Subsidiaries	2,408.3		290.4		—		(2,698.7		)	—
Goodwill	—		756.9		25.4		—			782.3
Other Intangible Assets, net	—		150.4		8.1		—			158.5
Other Assets	8.4		18.5		1.6		—			28.5
TOTAL ASSETS	$	2,621.3	$	2,779.7	$	342.3	$	(3,959.9	)	$	1,783.4
LIABILITIES AND EQUITY
Current Liabilities
Current portion of operating lease liabilities	$	—	$	12.3	$	2.4	$	—		$	14.7
Trade accounts payable	1,086.0		237.2		23.6		(1,247.4		)	99.4
Accrued expenses	9.1		65.1		12.5		(13.8		)	72.9
Total Current Liabilities	1,095.1		314.6		38.5		(1,261.2		)	187.0
Long-Term Debt	247.8		—		—		—			247.8
Operating Lease Liabilities	—		59.0		6.5		—			65.5
Other Long-Term Liabilities	1.5		1.8		2.9		—			6.2
Total Liabilities	1,344.4		375.4		47.9		(1,261.2		)	506.5
Total Equity	1,276.9		2,404.3		294.4		(2,698.7		)	1,276.9
TOTAL LIABILITIES AND EQUITY	$	2,621.3	$	2,779.7	$	342.3	$	(3,959.9	)	$	1,783.4

26

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(in millions)

	As of December 31, 2018
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	303.9	$	29.3	$	51.3	$	—		$	384.5
Accounts receivable, net of allowances	4.5		1,257.3		212.1		(1,323.4		)	150.5
Inventories	—		106.2		15.2		—			121.4
Prepaid expenses and other current assets	1.1		23.8		34.2		(1.9		)	57.2
Total Current Assets	309.5		1,416.6		312.8		(1,325.3		)	713.6
Property, Plant and Equipment, net	—		132.6		21.5		—			154.1
Investment in Consolidated Subsidiaries	2,404.2		234.7		—		(2,638.9		)	—
Goodwill	—		758.7		24.9		—			783.6
Other Intangible Assets, net	—		159.8		8.4		—			168.2
Other Assets	1.6		10.8		1.5		—			13.9
TOTAL ASSETS	$	2,715.3	$	2,713.2	$	369.1	$	(3,964.2	)	$	1,833.4
LIABILITIES AND EQUITY
Current Liabilities
Trade accounts payable	$	1,160.7	$	268.2	$	52.4	$	(1,311.4	)	$	169.9
Accrued expenses	8.2		77.3		22.8		(13.9		)	94.4
Total Current Liabilities	1,168.9		345.5		75.2		(1,325.3		)	264.3
Long-Term Debt	247.7		—		—		—			247.7
Other Long-Term Liabilities	1.5		20.0		2.7		—			24.2
Total Liabilities	1,418.1		365.5		77.9		(1,325.3		)	536.2
Total Equity	1,297.2		2,347.7		291.2		(2,638.9		)	1,297.2
TOTAL LIABILITIES AND EQUITY	$	2,715.3	$	2,713.2	$	369.1	$	(3,964.2	)	$	1,833.4

27

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in millions)

	Six Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating Activities
Cash (Used in) Provided by Operating Activities	$	(27.7	)	$	(39.2	)	$	11.9		$	—		$	(55.0	)
Investing Activities
Capital expenditures	—			(32.4		)	(3.0		)	—			(35.4		)
Acquisition of business, net of cash acquired	(7.0		)	—			—			—			(7.0		)
Intercompany contributions	—			69.0			0.1			(69.1		)	—
Cash (Used in) Provided by Investing Activities	(7.0		)	36.6			(2.9		)	(69.1		)	(42.4		)
Financing Activities
Intercompany contributions	(69.1		)	—			—			69.1			—
Debt repayments	(0.2		)	—			—			—			(0.2		)
Purchases of treasury stock	(3.3		)	—			—			—			(3.3		)
Proceeds from the exercise of stock options	2.6			—			—			—			2.6
Cash (Used in) Provided by Financing Activities	(70.0		)	—			—			69.1			(0.9		)
Effect of Exchange Rate on Cash and Cash Equivalents	—			0.6			1.3			—			1.9
(Decrease) Increase in Cash and Cash Equivalents	(104.7		)	(2.0		)	10.3			—			(96.4		)
Cash and Cash Equivalents, Beginning of Period	303.9			29.3			51.3			—			384.5
Cash and Cash Equivalents, End of Period	$	199.2		$	27.3		$	61.6		$	—		$	288.1

28

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in millions)

	Six Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating Activities
Cash (Used in) Provided by Operating Activities	$	(114.2	)	$	31.3		$	12.5		$	—		$	(70.4	)
Investing Activities
Capital expenditures	—			(15.0		)	(5.7		)	—			(20.7		)
Proceeds from the Divestiture	521.6			9.0			203.9			—			734.5
Intercompany contributions	—			36.3			—			(36.3		)	—
Cash Provided by Investing Activities	521.6			30.3			198.2			(36.3		)	713.8
Financing Activities
Intercompany contributions	(32.3		)	—			(4.0		)	36.3			—
Debt repayments	(339.0		)	—			—			—			(339.0		)
Purchases of treasury stock	(0.6		)	—			—			—			(0.6		)
Proceeds from the exercise of stock options	11.4			—			—			—			11.4
Cash Used in Financing Activities	(360.5		)	—			(4.0		)	36.3			(328.2		)
Effect of Exchange Rate on Cash and Cash Equivalents	—			0.1			(3.9		)	—			(3.8		)
Increase in Cash and Cash Equivalents	46.9			61.7			202.8			—			311.4
Cash and Cash Equivalents, Beginning of Period	114.5			16.0			89.2			—			219.7
Cash and Cash Equivalents, End of Period	$	161.4		$	77.7		$	292.0		$	—		$	531.1

29

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

Introduction

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide investors with an understanding of our recent performance, and should be read in conjunction with the condensed consolidated financial statements contained in Item 1, “Financial Statements” in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018.

The following will be discussed and analyzed:

• Business Acquisitions

• Post-Divestiture Transition

• Discontinued Operations

• Restructuring Activities

• Results of Operations and Related Information

• Liquidity and Capital Resources

• Legal Matters

• Critical Accounting Policies

• Information Concerning Forward-Looking Statements

Business Acquisitions

Summit Medical Products, Inc.

On July 31, 2019, we entered into an agreement to acquire substantially all the assets of Summit Medical Products, Inc. (“Summit”) for $17.5 million, subject to certain adjustments as defined in the purchase agreement. We expect to close the purchase in August 2019, subject to certain closing conditions. Summit is the developer and manufacturer of the ambIT® ambulatory electronic infusion pumps, with annual sales of approximately $7 million.

NeoMed, Inc.

On April 16, 2019, we acquired a minority interest in NeoMed, Inc. (“NeoMed”) for $7.0 million. NeoMed is a market-leading medical device company that is focused on specialized feeding and medication dosing for low birth weight, neonatal and pediatric patients. On July 8, 2019, we acquired all of the outstanding shares of NeoMed for a purchase price of $28.0 million, subject to adjustment for certain items as defined in the purchase agreement. NeoMed’s net sales were $36 million in 2018.

Cool Systems, Inc.

On July 1, 2018, we acquired Cool Systems, Inc. for $65.7 million, net of cash acquired, which was based on a purchase price of $65.0 million plus certain adjustments as provided in the purchase agreement. Cool Systems is marketed as Game Ready® and is hereinafter referred to as “Game Ready.” In the three months ended June 30, 2019, the goodwill arising from our acquisition of Game Ready was reduced by $1.9 million to $18.7 million.

We expect the integration of our acquisitions will be substantially complete by the end of December 2020.

Partnership Agreement

In addition to the acquisitions described above, in July 2019, we signed a partnership and supply agreement with BioQ Pharma, which designs read-to-use delivery systems for infusible drugs.

Post-Divestiture Transition

Following last year’s divestiture of the Surgical and Infection Prevention (“S&IP”) business (the “Divestiture”), we remain engaged in certain commercial agreements, including transition services agreements (“TSA”), which will terminate by April 2020.

In the three and six months ended June 30, 2019, we have incurred $13.5 million and $32.2 million, respectively, of Divestiture-related costs, consisting primarily of IT consulting and other separation costs. In the three and six months ended June 30, 2018, we incurred $5.2 million and $17.4 million, respectively, of costs which are included in “Income from discontinued operations, net of tax” in the condensed consolidated income statement in Item 1 of this report.

30

Discontinued Operations

As a result of the Divestiture, the results of operations from our former S&IP business are reported as “Income from discontinued operations, net of tax” for the three and six months ended June 30, 2018. See “Discontinued Operations” in Note 4 to the condensed consolidated financial statements in Item 1 of this report.

Restructuring Activities

Organizational Alignment

In December 2017, in conjunction with the Divestiture, we initiated the first phase of a multi-year restructuring plan (the “Plan”). The initial phase of the Plan is intended to align our organizational and management structure with our remaining Medical Devices business.

We expect to incur up to $18 million of pre-tax costs, of which approximately $10 million is for employee retention, severance and benefits and the remainder for third-party services and other related costs. These are cash costs that will be incurred as we execute the Plan, which we expect to substantially complete by the end of 2019.

In the three months and six months ended June 30, 2019, we incurred $0.5 million and $2.0 million, respectively, of costs that are included in “Selling and general expenses” in the condensed consolidated income statement. Plan-to-date, we have incurred $16.7 million of expenses, of which $9.6 million was for employee retention, severance and benefits and the remainder for third-party services and other costs. In the six months ended June 30, 2019, $3.6 million of employee retention, severance and benefits payments were made and the remaining liability for employee retention, severance and benefits and other services was $2.5 million and is included in “Accrued expenses” and “Other long-term liabilities” in the accompanying condensed consolidated balance sheet as of June 30, 2019.

Information Technology Systems

The sale price the Company received upon closing the Divestiture included the sale of the Company’s IT systems. The sale of the IT systems enables the Company to migrate to an IT platform that is more appropriate for its business and size. Accordingly, the phase of the Plan to restructure and enhance the Company’s IT systems (the “ITS Plan”) was approved in March 2018.

Based on milestones achieved to date, the Company’s current expectation is to incur up to $75.0 million of costs to complete the implementation of the ITS Plan, of which approximately $50.0 million qualifies for capitalization. The remainder, primarily consulting and other costs, are expensed as incurred. We incurred $4.1 million and $4.6 million of costs related to the ITS Plan in the three and six months ended June 30, 2019 which are included in “Selling and general expenses” in the accompanying condensed consolidated income statement. Plan-to-date, we have incurred $11.0 million of expenses and, as of June 30, 2019, we have $50.0 million of capitalized costs, including $5.0 million of capitalized internal labor costs. Most of the remaining expected costs will be incurred as the Company migrates to its new IT platform during the third quarter of 2019. Accordingly, the Company expects to substantially complete the ITS Plan by the end of 2019.

Cost Transformation

In June 2019, the third and final phase of the Plan was approved. This third phase relates to optimizing the Company’s procurement, manufacturing, and supply chain operations (the “Cost Transformation”). The Company expects to incur between $11.0 million and $13.0 million to execute the Cost Transformation, primarily consulting and other expenses that will be expensed as incurred. The Company also expects to spend between $8.0 million to $12.0 million of incremental capital through 2021 in support of the Cost Transformation. The Company expects to complete the Cost Transformation by the end of 2021. We have incurred $1.2 million of costs related to Cost Transformation in the three months ended June 30, 2019.

Results of Operations and Related Information

Use of Non-GAAP Measures

In this section, we present “Adjusted Operating Profit (Loss)” which is a profitability measure that is not calculated in accordance with accounting principles generally accepted in the United States (“GAAP”) and is therefore referred to as a non-GAAP measure. We provide this non-GAAP measure because we use it to measure our operational performance and provide greater insight into our ongoing business operations. This measure is not intended to be, and should not be, considered separately from, or an alternative to, the most directly comparable GAAP financial measure. A reconciliation of “Adjusted Operating Profit (Loss)” to the most directly comparable GAAP financial measure is provided in the “Adjusted Operating Profit” table below.

31

Net Sales

Our net sales are summarized in the following tables for the three and six months ended June 30, 2019 and 2018 (in millions):

	Three Months ended June 30,							Six Months ended June 30,
	2019		2018			Change		2019			2018			Change
Chronic care	$	102.3	$	97.1		5.4	%	$	202.3		$	194.2		4.2	%
Pain management	69.9		63.8			9.6		134.1			123.1			8.9
Net Sales	$	172.2	$	160.9		7.0	%	$	336.4		$	317.3		6.0	%
			Total			Volume		Pricing/Mix			Currency			Other
Net Sales - percentage change	QTD		7		%	10	%	(3		)%	(1		)%	1	%
	YTD		6		%	8	%	(2		)%	(1		)%	1	%

Product Category Descriptions

Chronic care is focused on (i) digestive health products such as our Mic-Key enteral feeding tubes and Corpak patient feeding solutions and (ii) respiratory health products such as our Ballard closed airway suction systems and oral care kits.

Pain management is focused on non-opioid solutions including (i) acute pain products, such as On-Q surgical pain pumps and Game Ready cold and compression therapy systems and (ii) interventional pain solutions, which provides minimally invasive pain relieving therapies, such as our Coolief pain therapy.

Second Quarter 2019 Compared to Second Quarter 2018

Net sales increased by 7% compared to prior year, primarily due to volume growth. Volume growth includes Game Ready, which contributed 6%. Game Ready, along with continued demand in interventional pain’s Coolief therapy and favorable sales performance in chronic care was partially offset by lower volume in acute pain due to an industry-wide supply chain disruption.

First Six Months of 2019 Compared to the First Six Months of 2018

Year-to-date volume growth of 8% was also driven by Game Ready, continued solid demand for our Coolief therapy and favorable performance in chronic care, partially offset by lower volume in our acute pain business.

Net Sales By Geographic Region

The factors causing volume growth were consistent throughout our geographic regions. Net sales by region is presented in the table below (in millions):

	Three Months ended June 30,						Six Months ended June 30,
	2019		2018		Change		2019		2018		Change
Net Sales
North America	$	133.5	$	121.7	9.7	%	$	261.1	$	244.1	7.0	%
Europe, Middle East and Africa	22.9		23.0		(0.4	)	45.3		43.5		4.1
Asia Pacific and Latin America	15.8		16.2		(2.5	)	30.0		29.7		1.0
Total Net Sales	$	172.2	$	160.9	7.0	%	$	336.4	$	317.3	6.0	%

32

Adjusted Operating (Loss) Profit

A reconciliation of adjusted operating profit, a non-GAAP measure, to operating loss is provided in the table below (in millions):

	Three Months ended June 30,						Six Months ended June 30,
	2019			2018			2019			2018
Operating (Loss) Profit, as reported	$	(9.8	)	$	8.8		(34.4		)	1.8
Restructuring and IT charges	5.8			3.9			7.8			6.8
Post Divestiture transition charges	13.5			(3.3		)	32.2			(3.3		)
Acquisition-related charges	0.7			0.3			1.4			0.3
Litigation and legal	4.7			1.2			13.4			2.9
Intangibles amortization	4.6			4.7			9.5			9.2
Adjusted Operating Profit (non-GAAP)	$	19.5		$	15.6		$	29.9		$	17.7

The as-reported operating profit in the prior year comparable periods exclude the S&IP business, which is reported in “Income from discontinued operations, net of tax” in the condensed consolidated income statement for the three and six months ended June 30, 2018. In accordance with GAAP, only costs specifically identifiable and attributable to a business to be disposed may be allocated to discontinued operations. Accordingly, certain expenses that were historically presented as a component of the S&IP business were kept in continuing operations. These expenses, on a pre-tax basis, were $9.1 million and $37.0 million, respectively, for three and six months ended June 30, 2018.

Other items impacting operating results include:

Restructuring Activities: As previously described under “Restructuring Activities”, in the three months ended June 30, 2019, we incurred $5.8 million of costs related to the Plan, including $4.1 million for the ITS Plan, $1.2 million for cost transformation and $0.5 million for organizational alignment. In the six months ended June 30, 2019, we incurred $7.8 million of costs including $4.6 million for the ITS Plan, $2.0 million for organizational alignment and $1.2 million for cost transformation.

Post Divestiture Transition Charges: Costs related to the separation of the S&IP business were $13.5 million and $32.2 million in the three and six months ended June 30, 2019, respectively. Costs incurred are net of amounts realized from TSA arrangements. In the prior year, which covers the period from the Divestiture on April 30, 2018 to June 30, 2018, we realized $3.3 million, net from our TSA arrangements.

Acquisition-related Charges: In the three and six months ended June 30, 2019, we incurred $0.7 million and $1.4 million, respectively, of acquisition related costs.

Legal Costs: We incurred $4.7 million and $13.4 million of expenses for certain litigation matters in the three and six months ended June 30, 2019, respectively, compared to $1.2 million and $2.9 million in the comparable periods last year. See “Commitments and Contingencies” in Note 11 to the condensed consolidated financial statements in Item 1 of this report.

Intangibles Amortization: Intangibles amortization related to intangibles acquired in prior business acquisitions was $4.6 million and $9.5 million in the three and six months ended June 30, 2019, respectively, compared to $4.7 million and $9.2 million in the comparable periods last year.

Interest Income and Expense

Interest expense was $3.5 million and $7.2 million in the three and six months ended June 30, 2019, respectively, compared to $9.9 million and $18.7 million in the comparable periods last year. Following the Divestiture, we repaid the remaining amount owed on our Term Loan Facility, resulting in lower interest expense this year.

Income Taxes

The income tax benefit was $3.3 million and $8.9 million in the three and six months ended June 30, 2019, respectively, compared to income tax benefits of $0.2 million and $3.7 million in the comparable periods last year. The corresponding effective tax rates were 29.2% and 23.9% in the three and six months ended June 30, 2019, respectively, compared to (18.2)% and 27.0% in the comparable periods last year.

33

Liquidity and Capital Resources

General

Our primary sources of liquidity are cash on hand provided by operating activities and amounts available under our revolving credit facility. While we have recently experienced negative operating cash flow, our operating cash flow has historically been sufficient to meet our working capital requirements and fund capital expenditures. We expect to return to positive operating cash flow after we complete the migration to our IT platform and the separation of the S&IP business. Afterwards, operating cash flow is expected to be a primary source of funds. The cash used in operations is primarily driven by Divestiture and IT-related activities. As of June 30, 2019, $84.9 million of our $288.1 million of cash and cash equivalents was held by foreign subsidiaries. We consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested overseas and currently do not have plans to repatriate such earnings. We do not expect restrictions on repatriation of cash held outside of the United States to have a material effect on our overall liquidity, financial condition or result of operations for the foreseeable future. We believe that our ability to generate cash from domestic and international operations and the borrowing capacity under our available credit facilities are adequate to fund our requirements for working capital, capital expenditures and other investments necessary to grow our business for the foreseeable future for both our domestic and international operations.

Cash and cash equivalents decreased by $96.4 million to $288.1 million as of June 30, 2019 compared to $384.5 million as of December 31, 2018. The decrease was driven by $55.0 million used in operations and $35.4 million of capital expenditures.

In the prior year, cash and cash equivalents increased by $311.4 million to $531.1 million as of June 30, 2018 primarily due to $734.5 million of Divestiture proceeds partially offset by $339.0 million of debt repayments, $70.4 million used in operations and $20.7 million of capital expenditures.

Operating Activities

Operating activities used $55.0 million in the six months ended June 30, 2019 primarily driven by our net loss and changes in operating assets and liabilities. Operating activities used $70.4 million in the same period last year, including $98.0 million used to settle Divestiture-related liabilities.

Investing Activities

Capital expenditures were $35.4 million in the six months ended June 30, 2019 compared to $20.7 million in the same period last year.

Financing Activities

Financing activities used $0.9 million in the six months ended June 30, 2019, and was primarily $3.3 million for purchases of treasury stock partially offset by $2.6 million of proceeds from the exercise of stock options. In the comparable period last year, financing activities used $328.2 million driven by $339.0 million to retire our senior secured term loan.

Long Term Debt

As of June 30, 2019, debt was $247.8 million, net of unamortized discount, on our Senior Unsecured Notes (the “Notes”) that mature on October 15, 2022.

Following a divestiture of significant assets, such as the Divestiture, the credit agreement allows re-investment of the net proceeds into the business through acquisition of another business or through capital expenditures for a period of one year following the divestiture. We were required to offer to redeem a portion of the Notes at par value to the extent re-investments were not made by May 1, 2019. Accordingly, $130.5 million of the Notes were offered for redemption in the second quarter of 2019, of which $0.2 million were redeemed.

We retired our senior secured term loan following the Divestiture last year. Notwithstanding the retirement of our senior secured term loan, the senior secured revolving credit facility (“Revolving Credit Facility”) remains and is secured by substantially all of our assets located in the United States and a certain percentage of our foreign subsidiaries’ capital stock. The Revolving Credit Facility matures on October 30, 2023.

To the extent we remain in compliance with certain financial covenants in our credit agreement, funds under the Revolving Credit Facility are available for our working capital and other liquidity requirements. As of June 30, 2019, we had no borrowings and letters of credit of $0.7 million outstanding under the Revolving Credit Facility.

See “Debt” in Note 8 to the accompanying condensed consolidated financial statements for further details regarding our debt agreements.

Legal Matters

See Item 1, Note 11, “Commitments and Contingencies,” to the condensed consolidated financial statements for a discussion of current legal matters.

34

Critical Accounting Policies

See Item 1, Note 1, “Accounting Policies,” to the condensed consolidated financial statements for updates to our critical accounting policies and a discussion of recent accounting pronouncements.

Information Concerning Forward-Looking Statements

The preceding discussion and analysis summarizes the factors that had a material effect on our results of operations during the three and six months ended June 30, 2019 and 2018 and our financial position as of June 30, 2019 and December 31, 2018. You should read this discussion in conjunction with our historical condensed consolidated financial statements and the notes to those historical condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. This MD&A contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that do not relate solely to historical or current facts, and can generally be identified by the use of words such as “may,” “believe,” “will,” “expect,” “project,” “estimate,” “anticipate,” “plan,” or “continue” and similar expressions, among others. The matters discussed in these forward-looking statements are based on the current plans and expectations of our management and are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied in the forward-looking statements. These factors include, but are not limited to:

• general economic conditions particularly in the United States,

• fluctuations in global equity and fixed-income markets,

• the competitive environment,

• the loss of current customers or the inability to obtain new customers,

• litigation and enforcement actions,

• disruption in supply of raw materials or the distribution of finished goods,

• price fluctuations in key commodities,

• fluctuations in currency exchange rates,

• changes in governmental regulations that are applicable to our business,

• changes in asset valuations including write-downs of assets such as inventory, accounts receivable or other assets for impairment or other reasons, and

• any other matters described elsewhere in this MD&A or in the Risk Factors section of this Form 10-Q or our Annual Report on Form 10-K for the year ended December 31, 2018.

You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information in this Quarterly Report on Form 10-Q. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result, or be achieved or accomplished.

35

Item 4. Controls and Procedures

With the participation of management, our Chief Executive Officer (principal executive officer) and our Senior Vice President, Business Strategy and Interim Chief Financial Officer (principal financial officer) carried out an evaluation, pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and our Senior Vice President, Business Strategy and Interim Chief Financial Officer concluded that our disclosure controls and procedures were operating effectively as of June 30, 2019.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

The Company is in the process of migrating to an information technology (“IT”) platform that is more appropriate for its business and size. As with any change in the Company’s IT environment, the IT platform and related applications, along with potential changes in internal control over financial reporting, are being appropriately considered within testing for effectiveness with respect to the migration. During the three months ended June 30, 2019, we completed the migration with respect to our businesses in the Europe, Middle East and Africa region (“EMEA”). In the third quarter of 2019, we expect to complete the migration globally.

Transition Services Agreements

In connection with the divestiture of the S&IP business, the Company entered into a series of reciprocal transition services agreements with the buyer pursuant to which the two organizations will provide each other information technology and other back office services to allow both companies to establish their own infrastructure and capabilities. Management has established controls to mitigate risks that personnel of either company may obtain unauthorized access to the other company’s data and will continue to monitor and evaluate the sufficiency of controls. We expect all transition service agreements to terminate no later than two years following the divestiture.

36

PART II – OTHER INFORMATION

Item 6.     Exhibits

(a) Exhibits

Exhibit Number	Description
31(a)	Section 302 CEO Certification
31(b)	Section 302 CFO Certification
32(a)	Section 906 CEO Certification
32(b)	Section 906 CFO Certification
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

37

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.

	AVANOS MEDICAL, INC.
	(Registrant)
August 6, 2019	By:	/s/ Warren J. Machan
		Warren J. Machan
		Senior Vice President, Business Strategy
		and Interim Chief Financial Officer
		(Principal Financial Officer)
August 6, 2019	By:	/s/ Renato Negro
		Renato Negro
		Vice President and Controller
		(Principal Accounting Officer)

38

EX-31.A

Exhibit 31(a)

CERTIFICATIONS

I, Joseph F. Woody, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Avanos Medical, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2019	/s/ Joseph F. Woody
	Joseph F. Woody Chief Executive Officer

EX-31.B

Exhibit 31(b)

CERTIFICATIONS

I, Warren J. Machan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Avanos Medical, Inc. (the “registrant”);

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 6, 2019	/s/ Warren J. Machan
	Warren J. Machan Interim Chief Financial Officer

EX-32.A

Exhibit 32(a)

Certification of Chief Executive Officer

Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

I, Joseph F. Woody, Chief Executive Officer of Avanos Medical, Inc., certify that, to my knowledge:

(1) the Form 10-Q, filed with the Securities and Exchange Commission on August 6, 2019 (“accompanied report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the accompanied report fairly presents, in all material respects, the financial condition and results of operations of Avanos Medical, Inc.

Date: August 6, 2019	/s/ Joseph F. Woody
	Joseph F. Woody Chief Executive Officer

EX-32.B

Exhibit 32(b)

Certification of Chief Financial Officer

Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code

I, Warren J. Machan, Interim Chief Financial Officer of Avanos Medical, Inc., certify that, to my knowledge:

(1) the Form 10-Q, filed with the Securities and Exchange Commission on August 6, 2019 (“accompanied report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the accompanied report fairly presents, in all material respects, the financial condition and results of operations ofAvanos Medical, Inc.

Date: August 6, 2019	/s/ Warren J. Machan
	Warren J. Machan Interim Chief Financial Officer

XML

Cover Page - shares	6 Months Ended
	Jun. 30, 2019	Jul. 31, 2019
Cover page.
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q2
Entity Registrant Name	AVANOS MEDICAL, INC.
Entity Central Index Key	0001606498
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		47,710,425
Entity Shell Company	false
Entity Small Business	false
Entity Emerging Growth Company	false
Title of 12(b) Security	Common Stock - $0.01 Par Value
Trading Symbol	AVNS
Security Exchange Name	NYSE
Entity File Number	001-36440
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	46-4987888
Entity Address, Address Line One	5405 Windward Parkway
Entity Address, Address Line Two	Suite 100 South
Entity Address, City or Town	Alpharetta,
Entity Address, State or Province	GA
Entity Address, Postal Zip Code	30004
City Area Code	(844)
Local Phone Number	428-2667
Document Quarterly Report	true
Document Transition Report	false

XML

CONDENSED CONSOLIDATED INCOME STATEMENTS - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement [Abstract]
Net Sales	$ 172.2	$ 160.9	$ 336.4	$ 317.3
Cost of products sold	73.5	66.2	138.9	131.5
Gross Profit	98.7	94.7	197.5	185.8
Research and development	9.5	10.8	19.7	20.7
Selling and general expenses	94.7	79.8	201.1	166.2
Other expense (income), net	4.3	(4.7)	11.1	(2.9)
Operating (Loss) Income	(9.8)	8.8	(34.4)	1.8
Interest income	2.0	2.2	4.4	3.2
Interest expense	(3.5)	(9.9)	(7.2)	(18.7)
(Loss) Income Before Income Taxes	(11.3)	1.1	(37.2)	(13.7)
Income tax benefit	3.3	0.2	8.9	3.7
(Loss) Income from Continuing Operations	(8.0)	1.3	(28.3)	(10.0)
Income from Discontinued Operations, net of tax	0.0	34.0	0.0	65.5
Net (Loss) Income	$ (8.0)	$ 35.3	$ (28.3)	$ 55.5
Basic:
Continuing Operations (in dollars per share)	$ (0.17)	$ 0.03	$ (0.60)	$ (0.21)
Discontinued Operations (in dollars per share)	0	0.72	0	1.39
Basic (Loss) Earnings Per Share (in dollars per share)	(0.17)	0.75	(0.60)	1.18
Diluted:
Continuing Operations (in dollars per share)	(0.17)	0.03	(0.60)	(0.21)
Discontinued Operations (in dollars per share)	0	0.70	0	1.39
Diluted (Loss) Earnings Per Share (in dollars per share)	$ (0.17)	$ 0.73	$ (0.60)	$ 1.18

XML

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Statement of Comprehensive Income [Abstract]
Net (Loss) Income	$ (8.0)	$ 35.3	$ (28.3)	$ 55.5
Other Comprehensive Income (Loss), net of tax
Unrealized currency translation adjustments	1.9	(10.0)	2.6	(0.7)
Defined benefit plans	0.0	1.0	0.0	0.7
Cash flow hedges	0.0	(1.3)	0.0	(0.8)
Total Other Comprehensive Income (Loss), net of tax	1.9	(10.3)	2.6	(0.8)
Comprehensive (Loss) Income	$ (6.1)	$ 25.0	$ (25.7)	$ 54.7

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Current Assets
Cash and cash equivalents	$ 288.1	$ 384.5
Accounts receivable, net of allowances	124.3	150.5
Inventories	133.9	121.4
Prepaid expenses and other current assets	26.2	57.2
Total Current Assets	572.5	713.6
Property, Plant and Equipment, net	174.4	154.1
Operating Lease Right-of-Use Assets	67.2
Goodwill	782.3	783.6
Other Intangible Assets, net	158.5	168.2
Deferred Tax Assets	13.3	6.3
Other Assets	15.2	7.6
TOTAL ASSETS	1,783.4	1,833.4
Current Liabilities
Current portion of operating lease liabilities	14.7
Trade accounts payable	99.4	169.9
Accrued expenses	72.9	94.4
Total Current Liabilities	187.0	264.3
Long-Term Debt	247.8	247.7
Operating Lease Liabilities	65.5
Deferred Tax Liabilities	0.6	4.4
Other Long-Term Liabilities	5.6	19.8
Total Liabilities	506.5	536.2
Commitments and Contingencies
Stockholders’ Equity
Preferred stock - $0.01 par value - authorized 20,000,000 shares, none issued	0.0	0.0
Common stock - $0.01 par value - authorized 300,000,000 shares, 47,653,527 outstanding as of June 30, 2019 and 47,444,340 outstanding as of December 31, 2018	0.5	0.5
Additional paid-in capital	1,586.8	1,578.1
Accumulated deficit	(270.7)	(242.4)
Treasury stock	(8.6)	(5.3)
Accumulated other comprehensive loss	(31.1)	(33.7)
Total Stockholders’ Equity	1,276.9	1,297.2
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 1,783.4	$ 1,833.4

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	20,000,000	20,000,000
Preferred stock, shares issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	300,000,000	300,000,000
Common stock, shares outstanding (in shares)	47,653,527	47,444,340

XML

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - USD ($) $ in Millions	Total	Common Stock Issued	Additional Paid-in Capital	Accumulated Deficit	Treasury Stock	Accumulated Other Comprehensive Loss
Balance at Dec. 31, 2017			$ 1,550.5	$ (299.9)	$ (4.4)	$ (31.3)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net (loss) income	$ 55.5			55.5
Issuance of common stock upon the exercise or redemption of share-based awards			11.6
Stock-based compensation expense			5.6
Purchases of treasury stock					(0.7)
Other comprehensive income (loss), net of tax						(0.8)
Balance at Jun. 30, 2018	1,286.6	$ 0.5	1,567.7	(244.4)	(5.1)	(32.1)
Balance at Mar. 31, 2018			1,557.3	(279.7)	(4.5)	(21.8)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net (loss) income	35.3			35.3
Issuance of common stock upon the exercise or redemption of share-based awards			8.3
Stock-based compensation expense			2.1
Purchases of treasury stock					(0.6)
Other comprehensive income (loss), net of tax						(10.3)
Balance at Jun. 30, 2018	1,286.6	0.5	1,567.7	(244.4)	(5.1)	(32.1)
Balance at Dec. 31, 2018	1,297.2		1,578.1	(242.4)	(5.3)	(33.7)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net (loss) income	(28.3)			(28.3)
Issuance of common stock upon the exercise or redemption of share-based awards			2.7
Stock-based compensation expense			6.0
Purchases of treasury stock					(3.3)
Other comprehensive income (loss), net of tax						2.6
Balance at Jun. 30, 2019	1,276.9	0.5	1,586.8	(270.7)	(8.6)	(31.1)
Balance at Mar. 31, 2019			1,582.5	(262.7)	(7.2)	(33.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net (loss) income	(8.0)			(8.0)
Issuance of common stock upon the exercise or redemption of share-based awards			2.5
Stock-based compensation expense			1.8
Purchases of treasury stock					(1.4)
Other comprehensive income (loss), net of tax						1.9
Balance at Jun. 30, 2019	$ 1,276.9	$ 0.5	$ 1,586.8	$ (270.7)	$ (8.6)	$ (31.1)

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CONDENSED CONSOLIDATED CASH FLOW STATEMENTS - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Operating Activities
Net (loss) income	$ (28.3)	$ 55.5
Depreciation and amortization	16.9	15.6
Stock-based compensation expense	6.0	5.6
Net non-cash gain on Divestiture	0.0	(98.4)
Net loss on asset dispositions	0.5	0.6
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable	26.2	33.8
Inventories	(13.3)	(24.2)
Prepaid expenses and other assets	32.8	(32.7)
Accounts payable	(64.6)	(47.9)
Accrued expenses	(29.3)	33.2
Other	(1.9)	(11.5)
Cash Used in Operating Activities	(55.0)	(70.4)
Investing Activities
Capital expenditures	(35.4)	(20.7)
Acquisition of assets and investments in businesses	(7.0)	0.0
Proceeds from the Divestiture	0.0	734.5
Cash (Used in) Provided by Investing Activities	(42.4)	713.8
Financing Activities
Debt repayments	(0.2)	(339.0)
Purchases of treasury stock	(3.3)	(0.6)
Proceeds from the exercise of stock options	2.6	11.4
Cash Used in Financing Activities	(0.9)	(328.2)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	1.9	(3.8)
(Decrease) Increase in Cash and Cash Equivalents	(96.4)	311.4
Cash and Cash Equivalents - Beginning of Period	384.5	219.7
Cash and Cash Equivalents - End of Period	$ 288.1	$ 531.1

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Accounting Policies

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Accounting Policies

Accounting Policies

Background and Basis of Presentation

Avanos Medical, Inc. is a medical technology company focused on delivering clinically superior breakthrough medical device solutions to improve patients’ quality of life. Headquartered in Alpharetta, Georgia, Avanos is committed to addressing some of today’s most important healthcare needs, such as reducing the use of opioids while helping patients move from surgery to recovery. We develop, manufacture and market clinically superior solutions around the globe. References to “Avanos,” “Company,” “we,” “our” and “us” refer to Avanos Medical, Inc. and its consolidated subsidiaries.

On April 30, 2018, we closed the sale of our Surgical and Infection Prevention (“S&IP”) business, including the name “Halyard Health” (and all variations thereof and related intellectual property rights) (the “Divestiture”). Accordingly, the Company’s name was changed from “Halyard Health, Inc.” to “Avanos Medical, Inc.” effective June 30, 2018. The results of operations from our former S&IP business are reported in the accompanying condensed consolidated income statements as “Income from Discontinued Operations, net of tax” for the three and six months ended June 30, 2018.

Interim Financial Statements

We prepared the accompanying condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and the condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018. Our unaudited interim condensed consolidated financial statements contain all necessary material adjustments, which are of a normal and recurring nature, to fairly state our financial condition, results of operations and cash flows for the periods presented.

Use of Estimates

Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Estimates are used in accounting for, among other things, distributor rebate accruals, future cash flows associated with impairment testing for goodwill and long-lived assets, loss contingencies, and deferred tax assets and potential income tax assessments. Actual results could differ from these estimates, and the effect of the difference could be material to our financial statements. Changes in these estimates are recorded when known.

Recently Adopted Accounting Pronouncements

Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), using the transition method provided in ASU No. 2018-11, Leases (Topic 842) - Targeted Improvements, which allows for initial application on the date of adoption with recognition of a cumulative-effect adjustment, if applicable, to the opening balance of retained earnings. As of December 31, 2018, all our existing leases were operating leases, and accordingly, no adjustment to beginning retained earnings was required. In addition, we elected to use all available expedients allowed under ASU 2018-11. Other prior period amounts are not adjusted and continue to be reported under Topic 840, the previous lease guidance.

Topic 842 replaces the former guidance in Topic 840 and requires the recognition of right-of-use (“ROU”) assets and liabilities for leases with terms of more than twelve months. The recognition, measurement and presentation of expenses and cash flows arising from leases depend primarily on its classification as a finance or an operating lease, with the classification criteria for distinguishing between the two types being similar to the classification for distinguishing between capital and operating leases under Topic 840. In addition to recognition of ROU assets and liabilities, disclosures regarding lease obligations are required to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.

As a result of Topic 842 adoption, we have operating lease liabilities of $80.2 million and corresponding ROU assets of $67.2 million as of June 30, 2019. For other disclosures regarding our lease obligations, see “Leases” in Note 6 herein.

Effective January 1, 2019, we adopted ASU No. 2018-02, Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU is intended to help companies reclassify certain stranded income tax effects in accumulated other comprehensive income (“AOCI”) resulting from the Tax Cuts and Jobs Act of 2017 (the “Act”), which was enacted in December 2017. ASU 2018-02 provides for the elimination of stranded tax effects of the Act by allowing reclassification of stranded tax effects from AOCI to retained earnings. We elected not to reclassify

stranded tax effects from AOCI to retained earnings, and accordingly, adoption of this ASU did not have a material effect on our financial position, results of operations and cash flows.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU is intended to reduce complexity by aligning the requirements for capitalizing implementation costs incurred in cloud-based arrangements with the requirements for capitalization of costs incurred to develop internal-use software. Any implementation costs in cloud-based arrangements would then be amortized over the term of the service contract. This ASU is effective for annual periods, and interim periods within those annual periods beginning after December 15, 2019, with early adoption permitted. We do not expect adoption of this ASU to have a material effect on our financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes certain disclosure requirements regarding the amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of transfers between the levels. The ASU also adds disclosure requirements regarding unrealized gains and losses included in Other Comprehensive Income for recurring Level 3 fair value measurements and regarding the range and weighted average of unobservable inputs used in Level 3 fair value measurements. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The removal of certain disclosures is to be applied retrospectively for all periods presented, but the additional required disclosures are to be prospectively applied, and early application is permitted. We do not expect any transfers between Level 1 and Level 2 of the fair value hierarchy, and as of June 30, 2019, we have no assets or liabilities with fair value measurements in Level 3 of the fair value hierarchy. Accordingly, we do not expect adoption of this ASU to have a material effect on our financial position, results of operations or cash flows.

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Business Acquisitions

6 Months Ended

Jun. 30, 2019

Business Combinations [Abstract]

Business Acquisitions

Business Acquisitions

Summit Medical Products, Inc.

On July 31, 2019, we entered into an agreement to acquire substantially all the assets of Summit Medical Products, Inc. (“Summit”) for $17.5 million, subject to certain adjustments as defined in the purchase agreement. We expect to close the purchase in August 2019, subject to certain closing conditions. Summit develops and markets the ambIT® family of ambulatory electronic infusion pumps, with annual net sales of approximately $7 million.

NeoMed, Inc.

On April 16, 2019, we acquired a minority interest in NeoMed, Inc. (“NeoMed”) for $7.0 million. NeoMed is a market-leading medical device company that is focused on specialized feeding and medication dosing for low birth weight, neonatal and pediatric patients. On July 8, 2019, we acquired all of the outstanding shares of NeoMed for a purchase price of $28.0 million, subject to adjustment for certain items as defined in the purchase agreement. NeoMed’s net sales were $36 million in 2018.

Cool Systems, Inc.

On July 1, 2018, we acquired Cool Systems, Inc. for $65.7 million, net of cash acquired, which was based on a purchase price of $65.0 million plus certain adjustments as provided in the purchase agreement. Cool Systems is marketed as Game Ready® and is hereinafter referred to as “Game Ready.” In the three months ended June 30, 2019, the purchase price allocation for Game Ready was finalized, resulting in a $1.9 million reduction of goodwill. The goodwill arising from the Game Ready acquisition is now $18.7 million.

We expect the integration of our acquisitions will be substantially complete by the end of 2020.

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Restructuring Activities

6 Months Ended

Jun. 30, 2019

Restructuring and Related Activities [Abstract]

Restructuring Activities

Restructuring Activities

Organizational Alignment

In December 2017, in conjunction with the Divestiture (see Note 4, “Discontinued Operations”), we initiated the first phase of a multi-year restructuring plan (the “Plan”). The initial phase of the Plan is intended to align our organizational and management structure with our remaining Medical Devices business.

We expect to incur up to $18.0 million of pre-tax costs, of which approximately $10.0 million is for employee retention, severance and benefits and the remainder for third-party services and other related costs. These are cash costs that will be incurred as we execute the Plan, which we expect to substantially complete by the end of 2019.

In the three and six months ended June 30, 2019, we incurred $0.5 million and $2.0 million, respectively, of costs that are included in “Selling and general expenses” in the accompanying condensed consolidated income statement, compared to $3.5 million and $4.5 million, respectively, in the three and six months ended June 30, 2018.

Plan-to-date, we have incurred $16.7 million of expenses, of which $9.6 million was for employee retention, severance and benefits and the remainder for third-party services and other costs.

We have a liability associated with employee severance and benefits related to the organizational alignment phase of the Plan. The following table summarizes the accrual and payment activity (in millions):

	Accrual
Balance, December 31, 2018	$	5.7
Charges and adjustments, net	0.4
Payments	(3.6		)
Balance, June 30, 2019	$	2.5

Information Technology Systems

The sale price the Company received upon closing the Divestiture included the sale of the Company’s IT systems. The sale of the IT systems enables the Company to migrate to an IT platform that is more appropriate for its business and size. Accordingly, in March 2018, we launched the phase of the Plan to restructure and enhance the Company’s IT systems (the “ITS Plan”).

Based on milestones achieved to date, the Company’s current expectation is to incur up to $75.0 million to complete the implementation of the ITS Plan, of which approximately $50.0 million qualifies for capitalization. The remainder, primarily consulting and other costs, are expensed as incurred. We incurred $4.1 million and $4.6 million, respectively, of costs related to the ITS Plan in the three and six months ended June 30, 2019 which are included in “Selling and general expenses” in the accompanying condensed consolidated income statements compared to $0.5 million and $2.3 million, respectively, in the three and six months ended June 30, 2018. Plan-to-date, we have incurred $11.0 million of costs that were expensed as incurred and $50.0 million of costs that were capitalized, including $5.0 million of capitalized internal labor costs. Most of the remaining expected costs will be incurred as the Company migrates to its new IT platform during the third quarter of 2019. Accordingly, the Company expects to substantially complete the ITS Plan by the end of 2019.

Cost Transformation

In June 2019, the third and final phase of the Plan was approved. This third phase relates to optimizing the Company’s procurement, manufacturing, and supply chain operations (the “Cost Transformation”). The Company expects to incur between $11.0 million and $13.0 million to execute the Cost Transformation, primarily consulting and other expenses that will be expensed as incurred. The Company also expects to spend between $8.0 million to $12.0 million of incremental capital through 2021 in support of the Cost Transformation. The Company expects to complete the Cost Transformation by the end of 2021. We have incurred $1.2 million of costs related to Cost Transformation in the three months ended June 30, 2019.

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Discontinued Operations

6 Months Ended

Jun. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued Operations

The results of operations from our former S&IP business are reported in the accompanying condensed consolidated income statements as “Income from Discontinued Operations, net of tax” for the three and six months ended June 30, 2018.

The following table summarizes the financial results of our discontinued operations for the three and six months ended June 30, 2018 (in millions):

	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Net Sales	$	89.0		$	353.0
Cost of products sold	65.8			260.3
Research and development	0.2			1.1
Selling, general and other expenses	10.9			38.1
Gain on Divestiture	(89.9		)	(89.9		)
Other expense, net	0.1			0.4
Income from Discontinued Operations before income taxes	101.9			143.0
Tax provision from discontinued operations	(67.9		)	(77.5		)
Income from Discontinued Operations, net of tax	$	34.0		$	65.5

In accordance with GAAP, only expenses specifically identifiable and related to a business to be disposed may be allocated to discontinued operations. Accordingly, certain expenses that were historically presented as a component of the S&IP business were kept in continuing operations. These expenses, on a pre-tax basis, were $9.1 million and $37.0 million for the three and six months ended June 30, 2018.

The following table provides operating and investing cash flow information for our discontinued operations (in millions):

	Six Months Ended June 30, 2018
Operating Activities: Stock-based compensation expense	$	(1.5	)
Investing Activities: Capital expenditures	2.9

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Supplemental Balance Sheet Information

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Supplemental Balance Sheet Information

Supplemental Balance Sheet Information

Accounts Receivable

Accounts receivable consist of the following (in millions):

	June 30, 2019			December 31, 2018
Accounts receivable	$	127.1		$	152.2
Allowances and doubtful accounts:
Doubtful accounts	(2.4		)	(1.4		)
Sales discounts	(0.3		)	(0.2		)
Sales returns	(0.1		)	(0.1		)
Accounts receivable, net	$	124.3		$	150.5

Inventories

Inventories at the lower of cost (determined on the LIFO/FIFO or weighted-average cost methods) or market consist of the following (in millions):

	June 30, 2019								December 31, 2018
	LIFO			Non- LIFO		Total			LIFO			Non- LIFO		Total
Raw materials	$	41.1		$	1.3	$	42.4		$	39.6		$	1.5	$	41.1
Work in process	27.2			0.4		27.6			22.1			0.4		22.5
Finished goods	55.1			14.4		69.5			50.1			13.7		63.8
Supplies and other	—			6.0		6.0			—			5.8		5.8
	123.4			22.1		145.5			111.8			21.4		133.2
Excess of FIFO or weighted-average cost over LIFO cost	(11.6		)	—		(11.6		)	(11.8		)	—		(11.8		)
Total	$	111.8		$	22.1	$	133.9		$	100.0		$	21.4	$	121.4

Property, Plant and Equipment

Property, plant and equipment consists of the following (in millions):

	June 30, 2019			December 31, 2018
Land	$	1.0		$	0.9
Buildings	46.2			43.5
Machinery and equipment	146.4			141.2
Construction in progress	70.9			52.7
	264.5			238.3
Less accumulated depreciation	(90.1		)	(84.2		)
Total	$	174.4		$	154.1

Construction in progress includes $50.0 million and $33.2 million of costs capitalized in connection with migration to a new IT platform and enhancements to our IT environment as of June 30, 2019 and December 31, 2018, respectively. See Note 3 for further discussion of our IT-related restructuring and enhancement activities.

Depreciation expense was $3.7 million and $7.3 million for the three and six months ended June 30, 2019 compared to $3.2 million and $6.4 million for the three and six months ended June 30, 2018, respectively.

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill are as follows (in millions):

	Goodwill
Balance, December 31, 2018	$	783.6
Purchase accounting adjustment	(1.9		)
Currency translation adjustment	0.6
Balance, June 30, 2019	$	782.3

Intangible assets subject to amortization consist of the following (in millions):

	June 30, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trademarks	$	83.1	$	(54.4	)	$	28.7	$	83.1	$	(52.2	)	$	30.9
Patents and acquired technologies	259.5		(150.5		)	109.0		259.5		(144.4		)	115.1
Other	54.4		(33.6		)	20.8		54.4		(32.2		)	22.2
Total	$	397.0	$	(238.5	)	$	158.5	$	397.0	$	(228.8	)	$	168.2

Amortization expense for intangible assets was $4.8 million and $9.6 million for the three and six months ended June 30, 2019 compared to $4.7 million and $9.2 million for the three months and six months ended June 30, 2018, respectively. We estimate amortization expense for the remainder of 2019 and the following four years and beyond will be as follows (in millions):

For the years ending December 31,	Amount
2019	$	16.9
2020	24.6
2021	22.3
2022	22.1
2023	20.8
Thereafter	51.8
Total	$	158.5

Accrued Expenses

Accrued expenses consist of the following (in millions):

	June 30, 2019		December 31, 2018
Accrued rebates	$	19.1	$	26.1
Accrued salaries and wages	21.9		27.0
Accrued taxes	4.2		6.5
Other	27.7		34.8
Total	$	72.9	$	94.4

Accrued rebates represent amounts accrued for estimated incentives earned by customers.

Other Long-Term Liabilities

Other long-term liabilities consist of the following (in millions):

	June 30, 2019		December 31, 2018
Taxes payable	$	0.4	$	0.4
Accrued compensation benefits	4.2		4.3
Other	1.0		15.1
Total	$	5.6	$	19.8

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Leases

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

Leases

Leases

Our lease obligations relate primarily to our principal executive offices along with various manufacturing, warehouse and distribution facilities located throughout the world. For leases with terms greater than twelve months, we record an ROU asset and corresponding lease obligation. As of June 30, 2019, all our leasing arrangements were operating leases. Many of our leases include escalating rent payments, renewal options and termination options, which are considered in our determination of straight-line rent expense when appropriate. Many of our leases also include additional amounts for common area maintenance and taxes. We have elected not to separate lease and non-lease components in the determination of straight-line rent expense. For a majority of our leases, an implicit lease rate is not available. Accordingly, we use a rate that approximates our incremental secured borrowing rate.

The table below summarizes information related to ROU assets and lease liabilities that are included in the accompanying condensed consolidated balance sheet (dollars in millions):

	As of June 30, 2019
Assets
Operating lease right-of-use assets	$	67.2
Liabilities
Current portion of operating lease liabilities	14.7
Operating lease liabilities	65.5
Total Operating Lease Liabilities	$	80.2
Weighted average remaining lease term	7.6 years
Weighted average discount rate	4.6		%

The table below summarizes costs and cash flows arising from our lease arrangements in the three and six months ended June 30, 2019 (in millions):

	Three Months ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	3.5	$	5.9
Short-term lease cost	0.5		1.1
Variable lease cost	0.5		0.8
Total lease cost	$	4.5	$	7.8
Cash paid for amounts included in the measurement of lease liabilities	$	5.6	$	9.0
Right-of-use assets obtained in exchange for new operating lease liabilities	$	14.7	$	21.2

The future minimum obligations under operating leases having non-cancelable terms in excess of one year are as follows for the remainder of 2019 and for the four following years and beyond (in millions):

For the years ending December 31,	Amount
2019	$	5.7
2020	14.5
2021	13.8
2022	13.4
2023	11.5
Thereafter	34.7
Future minimum obligations	$	93.6

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Fair Value Information

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value Information

Fair Value Information

The following fair value information is based on a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels in the hierarchy used to measure fair value are:

Level 1: Unadjusted quoted prices in active markets accessible at the reporting date for identical assets and liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets. Quoted prices for identical or similar assets and liabilities in markets that are not considered active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3: Prices or valuations that require inputs that are significant to the valuation and are unobservable.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

In the six months ended June 30, 2019, there were no transfers among Level 1, 2 or 3 fair value determinations.

The following table includes the fair value of our financial instruments for which disclosure of fair value is required (in millions):

		June 30, 2019				December 31, 2018
	Fair Value Hierarchy Level	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Cash and cash equivalents	1	$	288.1	$	288.1	$	384.5	$	384.5
Liabilities
Senior Unsecured Notes	1	247.8		254.9		247.7		250.9

Cash equivalents are recorded at cost, which approximates fair value due to their short-term nature. The fair value of the senior unsecured notes was based on observable market prices based on trading activity on a primary exchange.

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Debt

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Debt

Debt

As of June 30, 2019 and December 31, 2018, our debt balances were as follows (in millions):

	Weighted-Average Interest Rate		Maturities	June 30, 2019			December 31, 2018
Senior Unsecured Notes	6.25	%	2022	$	249.8		$	250.0
Unamortized Debt Discounts and Issuance Costs				(2.0		)	(2.3		)
Total Debt, net				$	247.8		$	247.7

Senior Unsecured Notes

The Senior Unsecured Notes (the “Notes”) will mature on October 15, 2022 and interest accrues at a rate of 6.25% per annum and is payable semi-annually in arrears on April 15 and October 15 of each year. Unamortized debt discount and issuance costs are being amortized over the life of the Notes using the interest method, resulting in an effective interest rate of 6.52% as of June 30, 2019.

Following a divestiture of significant assets, such as the Divestiture, the credit agreement allows re-investment of the net proceeds into the business through acquisition of another business or through capital expenditures for a period of one year following the divestiture. We were required to offer to redeem a portion of the Notes at par value to the extent re-investments were not made by May 1, 2019. Accordingly, $130.5 million of the Notes were offered for redemption in the second quarter of 2019, of which $0.2 million were redeemed.

Revolving Credit Facility

We have a senior secured revolving credit facility (“Revolving Credit Facility”) that matures on October 30, 2023 which allows for borrowings up to $250.0 million, with a letter of credit sub-facility in an amount of $75 million and a swingline sub-facility in an amount of $25 million.

Borrowings under the Revolving Credit Facility bear interest, at our option, at either (i) a reserve-adjusted LIBOR rate, plus a margin ranging between 1.50% to 2.25% per annum, depending on our consolidated total leverage ratio, or (ii) the base rate plus a margin ranging between 0.50% to 1.25% per annum, depending on our consolidated total leverage ratio. The unused portion of the Revolving Credit Facility is subject to a commitment fee equal to (i) 0.25% per annum, when our consolidated total leverage ratio is less than 2.25 to 1.00 or (ii) 0.38% per annum, otherwise.

To the extent we remain in compliance with certain financial covenants in our credit agreement, we have the ability to access our Revolving Credit Facility. As of June 30, 2019, we had no borrowings and letters of credit of $0.7 million outstanding under the Revolving Credit Facility.

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Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income

The changes in the components of AOCI, net of tax, are as follows (in millions):

	Unrealized Translation			Cash Flow Hedges		Defined Benefit Pension Plans		Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2018	$	(34.3	)	$	0.1	$	0.5	$	(33.7	)
Other comprehensive income	2.6			—		—		2.6
Balance, June 30, 2019	$	(31.7	)	$	0.1	$	0.5	$	(31.1	)

The changes in the components of AOCI, including the tax effect, are as follows (in millions):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Unrealized translation	$	1.9	$	(10.0	)	$	2.6	$	(0.7	)
Defined benefit pension plans	—		1.2			—		0.9
Tax effect	—		(0.2		)	—		(0.2		)
Defined benefit pension plans, net of tax	—		1.0			—		0.7
Cash flow hedges	—		(1.6		)	—		(1.0		)
Tax effect	—		0.3			—		0.2
Cash flow hedges, net of tax	—		(1.3		)	—		(0.8		)
Change in AOCI	$	1.9	$	(10.3	)	$	2.6	$	(0.8	)

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2019

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

Stock-Based Compensation

Aggregate stock-based compensation expense was $1.8 million and $6.0 million for the three and six months ended June 30, 2019. For the three and six months ended June 30, 2018, stock-based compensation was $3.8 million and $7.0 million in continuing operations. In the prior year, there were net forfeitures of $1.7 million and $1.4 million included in discontinued operations.

Stock-based compensation expense related to stock options was $0.9 million and $1.7 million in the three and six months ended June 30, 2019 compared to $1.4 million and $1.8 million in the three and six months ended June 30, 2018, respectively.

Expense related to time-based restricted share units was $0.4 million and $2.6 million in the three and six months ended June 30, 2019 compared to $1.0 million and $2.8 million in the three months and six months ended June 30, 2018, respectively.

Stock-based compensation expense related to performance-based restricted share units was $0.5 million and $1.7 million in the three and six months ended June 30, 2019 compared to $1.4 million and $2.4 million in the three months and six months ended June 30, 2018, respectively.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

We are subject to various legal proceedings, claims and governmental inspections, audits or investigations pertaining to issues such as contract disputes, product liability, tax matters, patents and trademarks, advertising, governmental regulations, employment and other matters, including the matters described below. Under the terms of the distribution agreement we entered into with Kimberly-Clark Corporation (“Kimberly-Clark”) prior to the spin-off, legal proceedings, claims and other liabilities that are primarily related to our business are our responsibility and we are obligated to indemnify and hold Kimberly-Clark harmless for such matters (“Indemnification Obligation”). For the three and six months ended June 30, 2019, we incurred $4.7 million and $13.4 million, respectively, of expenses related to these matters compared to $1.2 million and $2.9 million in the three and six months ended June 30, 2018, respectively.

Surgical Gown Litigation and Related Matters

Bahamas Surgery Center

We have an Indemnification Obligation for the matter styled Bahamas Surgery Center, LLC v. Kimberly-Clark Corporation and Halyard Health, Inc., No. 2:14-cv-08390-DMG-SH (C.D. Cal.) (“Bahamas”), filed on October 29, 2014. In that case, the plaintiff brought a putative class action asserting claims for common law fraud (affirmative misrepresentation and fraudulent concealment) and violation of California’s Unfair Competition Law (“UCL”) in connection with our marketing and sale of MicroCool surgical gowns.

On April 7, 2017, a jury returned a verdict for the plaintiff, finding that Kimberly-Clark was liable for $3.9 million in compensatory damages (not including prejudgment interest) and $350.0 million in punitive damages, and that Avanos was liable for $0.3 million in compensatory damages (not including prejudgment interest) and $100.0 million in punitive damages. Subsequently, the court also ruled on the plaintiff’s UCL claim and request for injunctive relief. The court found in favor of the plaintiff on the UCL claim but denied the plaintiff’s request for restitution. The court also denied the plaintiff’s request for injunctive relief.

On May 25, 2017, we filed three post-trial motions: a renewed motion for judgment as a matter of law; a motion to decertify the class; and a motion for new trial, remittitur, or amendment of the judgment. On March 30, 2018, the court ruled on the post-

trial motions. The court denied all three, except it granted in part the motion to reduce the award of punitive damages to a 5 to 1 ratio with compensatory damages.

On April 11, 2018, the court issued an Amended Judgment in favor of the plaintiff and against us and Kimberly-Clark. The judgment against us is $0.3 million in compensatory damages and pre-judgment interest and $1.3 million in punitive damages. The judgment against Kimberly-Clark is $3.9 million in compensatory damages, $1.3 million in pre-judgment interest, and $19.4 million in punitive damages.

On April 12, 2018, we filed a notice of appeal to the Ninth Circuit Court of Appeals. We intend to continue our vigorous defense of the Bahamas matter.

Kimberly-Clark Corporation

We have notified Kimberly-Clark that we have reserved our rights to challenge any purported obligation to indemnify Kimberly-Clark for the punitive damages awarded against them. In connection with our reservation of rights, on May 1, 2017, we filed a complaint in the matter styled Halyard Health, Inc. v. Kimberly-Clark Corporation, Case No. BC659662 (County of Los Angeles, Superior Court of California). In that case, we seek a declaratory judgment that we have no obligation, under the Distribution Agreement or otherwise, to indemnify, pay, reimburse, assume, or otherwise cover punitive damages assessed against Kimberly-Clark in the Bahamas matter, or any Expenses or Losses (as defined in the distribution agreement) associated with an award of punitive damages. On May 2, 2017, Kimberly-Clark filed a complaint in the matter styled Kimberly-Clark Corporation v. Halyard Health, Inc., Case No. 2017-0332-AGB (Court of Chancery of the State of Delaware). In that case, Kimberly-Clark seeks a declaratory judgment that (1) we must indemnify them for all damages, including punitive damages, assessed against them in the Bahamas matter, (2) we have anticipatorily and materially breached the Distribution Agreement by our failure to indemnify them, and (3) we are estopped from asserting, or have otherwise waived, any claim that we are not required to indemnify them for all damages, including punitive damages, that may be awarded in the Bahamas matter.

On May 26, 2017, we moved to dismiss or stay Kimberly-Clark’s Delaware complaint, and on June 16, 2017, Kimberly-Clark moved for summary judgment. On September 12, 2017, the Delaware court granted our motion to stay Kimberly-Clark’s complaint and therefore did not take any action on Kimberly-Clark’s motion for summary judgment. On May 30, 2018, Kimberly-Clark moved to quash service of summons we served on Kimberly-Clark in California for lack of personal jurisdiction. On December 12, 2018, the court granted Kimberly-Clark’s motion. On December 18, 2018, we filed a notice of appeal to the California Court of Appeal. On December 19, 2018, Kimberly-Clark sought to lift the stay of their complaint in Delaware, and on March 4, 2019, the court denied their motion. We intend to vigorously pursue our case against Kimberly-Clark in California and to vigorously defend against their case against us.

Government Investigation

In June 2015, we were served with a subpoena from the Department of Veterans Affairs Office of the Inspector General (“VA OIG”) seeking information related to the design, manufacture, testing, sale and promotion of MicroCool and other Company surgical gowns, and, in July 2015, we also became aware that the subpoena and an earlier VA OIG subpoena served on Kimberly-Clark requesting information about gown sales to the federal government are related to a United States Department of Justice (“DOJ”) investigation. In May 2016, April 2017 and September 2018, we received additional subpoenas from the DOJ seeking further information related to Company gowns. The Company is cooperating with the DOJ investigation.

Shahinian

On October 12, 2016, after the DOJ and various States declined to intervene, a qui tam matter was unsealed and a complaint was subsequently served on us in a matter styled U.S. ex rel. Shahinian, et al. v. Kimberly-Clark Corporation, No. 2:14-cv-08313-JAK-JPR (C.D. Cal.) (“Shahinian”), filed on October 27, 2014. The case alleges, among other things, violations of the federal and various state False Claims Acts in connection with the marketing and sale of certain surgical gowns. On March 8, 2017, Kimberly-Clark moved to dismiss the Shahinian complaint, and on July 14, 2017, the California court granted Kimberly-Clark’s motion. The plaintiff then filed a second amended complaint, and on August 11, 2017, Kimberly-Clark moved to dismiss that one as well. The plaintiff then filed a third amended complaint. On January 18, 2018, Kimberly-Clark moved to dismiss that one too. On September 30, 2018, the court granted Kimberly-Clark’s motion with prejudice. On November 13, 2018, Shahinian filed a notice of appeal to the Ninth Circuit Court of Appeals.

We may have an Indemnification Obligation for the Shahinian matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to continue our vigorous defense of the matter.

Kromenaker

On March 17, 2017, the DOJ submitted a filing declining to intervene in another qui tam matter, and the complaint was unsealed and subsequently served on Kimberly-Clark and Avanos. That matter is styled U.S. ex rel. Kromenaker v. Kimberly-

Clark Corporation and Halyard Health, Inc., No. 1:15-cv-04413-SCJ (N.D. Ga.) (“Kromenaker”), filed on December 21, 2015. In that case, the plaintiff alleges, among other things, violations of the federal False Claims Act in connection with the marketing and sale of certain products, including feminine hygiene products, surgical gowns and endotracheal tubes. On June 12, 2017, Kimberly-Clark and Avanos moved to dismiss the complaint. On August 21, 2017, Kromenaker filed an amended complaint, and Kimberly-Clark and Avanos filed motions to dismiss it. On March 27, 2019, the court granted Kimberly-Clark’s and our motions to dismiss. On April 24, 2019, Kromenaker filed a Motion with the trial court seeking to have the court alter, amend, or vacate the dismissal.

We may have an Indemnification Obligation for certain parts of this matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to continue our vigorous defense of this matter.

Jackson

We were served with a complaint in a matter styled Jackson v. Halyard Health, Inc., Robert E. Abernathy, Steven E. Voskuil, et al., No. 1:16-cv-05093-LTS (S.D.N.Y.), filed on June 28, 2016. In that case, the plaintiff brings a putative class action against the Company, our former Chief Executive Officer, our former Chief Financial Officer and other defendants, asserting claims for violations of the Securities Exchange Act, Sections 10(b) and 20(a). The plaintiff alleges that the defendants made misrepresentations and failed to disclose certain information about the safety and effectiveness of our MicroCool gowns and thereby artificially inflated the Company’s stock prices during the respective class periods. The alleged class period for purchasers of Kimberly-Clark securities who subsequently received Avanos securities is February 25, 2013 to October 21, 2014, and the alleged class period for purchasers of Avanos securities is October 21, 2014 to April 29, 2016. On February 16, 2017, we moved to dismiss the case. On March 30, 2018, the court granted our motion to dismiss and entered judgment in our favor. On April 27, 2018, the plaintiff filed a Motion for Relief from the Judgment and for Leave to Amend. On April 1, 2019, the court denied the plaintiff’s motion. On May 1, 2019, Jackson appealed the dismissal of the action to the 2nd Circuit Court of Appeals. We intend to continue our vigorous defense of this matter.

Richardson, Chiu and Pick

We were also served with a complaint in a matter styled Margaret C. Richardson Trustee of the Survivors Trust Dated 6/12/84 for the Benefit of the H&M Richardson Revocable Trust v. Robert E. Abernathy, Steven E. Voskuil, et al., No. 1:16-cv-06296 (S.D.N.Y.) (“Richardson”), filed on August 9, 2016. In that case, the plaintiff sues derivatively on behalf of Avanos Medical, Inc., and alleges that the defendants breached their fiduciary duty, were unjustly enriched, and violated Section 14(A) of the Securities and Exchange Act in connection with our marketing and sale of MicroCool gowns. We were also served with a complaint in a matter styled Kai Chiu v. Robert E. Abernathy, Steven E. Voskuil, et al., No. 2:16-cv-08768 (C.D. Cal.), filed on November 23, 2016. In that case, the plaintiff sues derivatively on behalf of Avanos Medical, Inc., and makes allegations and brings causes of action similar to those in Richardson, but the plaintiff also adds causes of action for abuse of control, gross mismanagement, and waste of corporate assets. We were also served with a complaint in a matter styled Lukas Pick v. Robert E. Abernathy, Steven E. Voskuil, et al., No. e:18-cv-00295 (D. Del.) filed on February 21, 2018. In that case, the plaintiff sues derivatively on behalf of Avanos Medical, Inc. and makes allegations and brings causes of action similar to those in Richardson and Chiu. We intend to continue our vigorous defense of this matter.

Medline Industries

We were also served with a complaint in the matter styled Medline Industries, Inc. v. Kimberly-Clark Corporation, Halyard Health, Inc., et al., No. 2:16-cv-08571 (C.D. Cal.), filed on November 17, 2016. In that case, the plaintiff makes allegations similar to those in Bahamas and Shahinian and brings causes of action under federal and state false advertising laws and state unfair competition laws. On March 31, 2017 we moved to dismiss certain of Medline’s claims and to transfer any surviving claims from California to Georgia. On June 2, 2017, the court granted our motion to transfer the case to Georgia and denied without prejudice our motion to dismiss. On June 30, 2017, now before the court in Georgia and with the case re-styled as Medline Industries, Inc. v. Kimberly-Clark Corporation, Halyard Health, Inc., et al., No. 1:17-cv-02032 (N.D. Ga.), Kimberly-Clark and Avanos filed renewed motions to dismiss certain of Medline’s claims. On February 28, 2018, the court granted our motion to dismiss. On March 14, 2018, Medline filed a second amended complaint. On March 28, 2018, we filed our answer and counterclaims. The counterclaims allege violations of false advertising law and state unfair competition laws. On May 9, 2018, Medline filed its answer to our counterclaims.

We may have an Indemnification Obligation for this matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to continue our vigorous defense of this matter.

Naeyaert

On April 13, 2017, Kimberly-Clark was served with a complaint in the matter styled Christopher Naeyaert v. Kimberly-Clark Corporation, et al., No. PSC 1603503 (County of Riverside, Superior Court of California), filed on July 21, 2016. In that case, the plaintiff makes allegations similar to those in Bahamas and brings causes of action similar to those in Bahamas, except the allegations and causes of action relate to the Ultra surgical gown. On June 5, 2017, Kimberly-Clark moved to dismiss the complaint. On August 21, 2017, Naeyaert filed an amended complaint and on September 18, 2017, Kimberly-Clark filed a motion to dismiss the amended complaint. On September 28, 2018, the court granted in part Kimberly-Clark’s motion but allowed Naeyaert leave to amend his complaint. On October 12, 2018, Naeyaert filed a Third Amended Complaint. On October 26, 2018, Kimberly-Clark answered the Third Amended Complaint.

We may have an Indemnification Obligation for this matter under the distribution agreement with Kimberly-Clark and have notified Kimberly-Clark that we reserve our rights to challenge the obligation to indemnify Kimberly-Clark for any damages or penalties which are not indemnifiable under applicable law or public policy. We intend to continue our vigorous defense of this matter.

Patent Litigation

We operate in an industry characterized by extensive patent litigation and competitors may claim that our products infringe upon their intellectual property. Resolution of patent litigation or other intellectual property claims is typically time consuming and costly and can result in significant damage awards and injunctions that could prevent the manufacture and sale of the affected products or require us to make significant royalty payments in order to continue selling the affected products. At any given time we may be involved as either a plaintiff or a defendant in a number of patent infringement actions, the outcomes of which may not be known for prolonged periods of time.

General

While we maintain general and professional liability, product liability and other insurance, our insurance policies may not cover all of these matters and may not fully cover liabilities arising out of these matters. In addition, we may be obligated to indemnify our directors and officers against these matters.

Although the results of litigation and claims cannot be predicted with certainty, we believe that the ultimate resolution of these matters will not materially impact our liquidity, access to capital markets or ability to conduct our daily operations.

As of June 30, 2019, we have an accrued liability for the matters described herein. The accrued liability is included in “Accrued Expenses” in the accompanying condensed consolidated balance sheet. Our estimate of these liabilities is based on facts and circumstances existing at this time, along with other variables. Factors that may affect our estimate include, but are not limited to: (i) changes in the number of lawsuits filed against us, including the potential for similar, duplicate or “copycat” lawsuits filed in multiple jurisdictions, including lawsuits that bring causes or action or allege violations of law with regard to additional products; (ii) changes in the legal costs of defending such claims; (iii) changes in the nature of the lawsuits filed against us; (iv) changes in the applicable law governing any legal claims against us; (v) a determination that our assumptions used in estimating the liability are no longer reasonable; and (vi) the uncertainties associated with the judicial process, including adverse judgments rendered by courts or juries. Thus, the actual amount of these liabilities for existing and future claims could be materially different than the accrued amount. Additionally, the above matters, regardless of the outcome, could disrupt our business and result in substantial costs and diversion of management attention.

Environmental Compliance

We are subject to federal, state and local environmental protection laws and regulations with respect to our business operations and are operating in compliance with, or taking action aimed at ensuring compliance with, these laws and regulations. None of our compliance obligations with environmental protection laws and regulations, individually or in the aggregate, is expected to have a material adverse effect on our business, financial condition, results of operations or liquidity.

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Earnings Per Share ("EPS")

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Earnings Per Share (“EPS”)

Earnings Per Share (“EPS”)

Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during each period. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding and the effect of all dilutive common stock equivalents outstanding during each period, as determined using the treasury stock method.

The calculation of basic and diluted earnings per share for the three and six months ended June 30, 2019 and 2018 is set forth in the following table (in millions, except per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
(Loss) Income from continuing operations	$	(8.0	)	$	1.3	(28.3		)	(10.0		)
Income from discontinued operations, net of tax	—			34.0		—			65.5
Net (Loss) Income	$	(8.0	)	$	35.3	(28.3		)	55.5
Weighted Average Shares Outstanding:
Basic weighted average shares outstanding	47.6			47.1		47.5			47.0
Dilutive effect of stock options and restricted share unit awards	—			1.1		—			—
Diluted weighted average shares outstanding	47.6			48.2		47.5			47.0
(Loss) Earnings Per Share:
Basic:
Continuing operations	$	(0.17	)	$	0.03	$	(0.60	)	$	(0.21	)
Discontinued operations	$	—		$	0.72	$	—		$	1.39
Basic (Loss) Earnings Per Share	$	(0.17	)	$	0.75	$	(0.60	)	$	1.18
Diluted:
Continuing operations	$	(0.17	)	$	0.03	$	(0.60	)	$	(0.21	)
Discontinued operations	$	—		$	0.70	$	—		$	1.39
Diluted (Loss) Earnings Per Share	$	(0.17	)	$	0.73	$	(0.60	)	$	1.18

Restricted share units (“RSUs”) contain provisions allowing for the equivalent of any dividends paid on common stock during the restricted period to be reinvested into additional RSUs at the then fair market value of the common stock on the date the dividends are paid. Such awards are to be included in the EPS calculation under the two-class method. Currently, we do not anticipate any cash dividends for the foreseeable future and our outstanding RSU awards are not material in comparison to our weighted average shares outstanding. Accordingly, all EPS amounts reflect shares as if they were fully vested and the disclosures associated with the two-class method are not presented herein.

For each of the three and six months ended June 30, 2019, 1.6 million of potentially dilutive stock options and restricted share unit awards were excluded from the computation of earnings per share as their effect would have been anti-dilutive. In the prior year, the 1.1 million shares that were used in the diluted earnings per share calculation for the three months ended June 30, 2018 were excluded from the earnings per share calculation for the six months ended June 30, 2018 due to a year-to-date loss from continuing operations.

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Business and Products Information

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

Business and Products Information

Business and Products Information

We conduct our business in one operating and reportable segment that provides our medical device products to healthcare providers and patients in more than 90 countries with manufacturing facilities in the United States, Mexico, France, Germany and Tunisia.

We provide a portfolio of innovative product offerings focused on pain management and chronic care, which includes respiratory and digestive health, to improve patient outcomes and reduce the cost of care. Our management evaluates net sales by product category within our single reportable segment as follows (in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Chronic care	$	102.3	$	97.1	$	202.3	$	194.2
Pain management	69.9		63.8		134.1		123.1
Total Net Sales	$	172.2	$	160.9	$	336.4	$	317.3

Chronic care is focused on (i) digestive health products such as our Mic-Key enteral feeding tubes and Corpak patient feeding solutions and (ii) respiratory health products such as our Ballard closed airway suction systems and oral care kits.

Pain management is focused on non-opioid solutions including (i) acute pain products such as On-Q surgical pain pumps and Game Ready cold and compression therapy systems and (ii) interventional pain solutions, which provides minimally invasive pain relieving therapies, such as our Coolief pain therapy.

Due to the nature of our business, we receive purchase orders for products under supply agreements which are normally fulfilled within three to four weeks. Our performance obligations under purchase orders are satisfied and revenue is recognized at a point in time, which is upon shipment or upon delivery of our products to unaffiliated customers, depending on shipping terms. Accordingly, we normally do not have transactions that give rise to material unfulfilled performance obligations.

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Supplemental Guarantor Financial Information

6 Months Ended

Jun. 30, 2019

Condensed Financial Information Disclosure [Abstract]

Supplemental Guarantor Financial Information

Supplemental Guarantor Financial Information

In October 2014, Avanos Medical, Inc. (referred to below as “Parent”) issued the Notes (described in Note 8, “Debt”). The Notes are guaranteed, jointly and severally by each of our domestic subsidiaries that guarantees the Revolving Credit Facility (each, a “Guarantor Subsidiary” and collectively, the “Guarantor Subsidiaries”). The guarantees are full and unconditional, subject to certain customary release provisions as defined in the Indenture dated October 17, 2014. Each Guarantor Subsidiary is directly or indirectly 100%-owned by Avanos Medical, Inc. Each of the guarantees of the Notes is a general unsecured obligation of each Guarantor Subsidiary and ranks equally in right of payment with all existing and future indebtedness and all other obligations (except subordinated indebtedness) of each Guarantor Subsidiary.

The following condensed consolidating balance sheets as of June 30, 2019 and December 31, 2018, the condensed consolidating statements of income for the three and six months ended June 30, 2019 and 2018 and cash flows for the six months ended June 30, 2019 and 2018 provide condensed consolidating financial information for Parent, the Guarantor Subsidiaries on a combined basis, the non-guarantor subsidiaries on a combined basis and the Parent and its subsidiaries on a consolidated basis.

The Parent and the Guarantor Subsidiaries use the equity method of accounting to reflect ownership interests in subsidiaries that are eliminated upon consolidation. Eliminating entries in the following condensed consolidating financial information represent adjustments to (i) eliminate intercompany transactions between or among the Parent, the Guarantor Subsidiaries and the non-guarantor subsidiaries and (ii) eliminate the investments in subsidiaries.

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Three Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	161.8		$	30.8		$	(20.4	)	$	172.2
Cost of products sold	—			71.1			22.8			(20.4		)	73.5
Gross Profit	—			90.7			8.0			—			98.7
Research and development	—			9.5			—			—			9.5
Selling and general expenses	3.9			80.8			10.0			—			94.7
Other expense (income), net	0.1			8.5			(4.3		)	—			4.3
Operating (Loss) Income	(4.0		)	(8.1		)	2.3			—			(9.8		)
Interest income	1.5			—			1.4			(0.9		)	2.0
Interest expense	(4.3		)	(0.1		)	—			0.9			(3.5		)
(Loss) Income Before Income Taxes	(6.8		)	(8.2		)	3.7			—			(11.3		)
Income tax benefit (provision)	1.6			2.9			(1.2		)	—			3.3
Equity in earnings of consolidated subsidiaries	(2.8		)	3.0			—			(0.2		)	—
Net (Loss) Income	(8.0		)	(2.3		)	2.5			(0.2		)	(8.0		)
Total other comprehensive income, net of tax	1.9			1.5			1.0			(2.5		)	1.9
Comprehensive (Loss) Income	$	(6.1	)	$	(0.8	)	$	3.5		$	(2.7	)	$	(6.1	)

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Three Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	169.7		$	37.1		$	(45.9	)	$	160.9
Cost of products sold	(0.8		)	89.4			23.5			(45.9		)	66.2
Gross Profit	0.8			80.3			13.6			—			94.7
Research and development	—			10.8			—			—			10.8
Selling and general expenses	8.7			59.6			11.5			—			79.8
Other income, net	(2.5		)	(3.0		)	(3.2		)	4.0			(4.7		)
Operating (Loss) Income	(5.4		)	12.9			5.3			(4.0		)	8.8
Interest income	1.4			0.1			1.8			(1.1		)	2.2
Interest expense	(10.0		)	(0.9		)	(0.1		)	1.1			(9.9		)
(Loss) Income Before Income Taxes	(14.0		)	12.1			7.0			(4.0		)	1.1
Income tax benefit (provision)	1.0			1.9			(2.7		)	—			0.2
Equity in earnings of consolidated subsidiaries	54.8			132.1			—			(186.9		)	—
Net Income from Continuing Operations	41.8			146.1			4.3			(190.9		)	1.3
(Loss) Income from discontinued operations, net of tax	(6.5		)	(66.8		)	107.3			—			34.0
Net Income	35.3			79.3			111.6			(190.9		)	35.3
Total other comprehensive loss, net of tax	(10.3		)	(5.7		)	(8.8		)	14.5			(10.3		)
Comprehensive Income	$	25.0		$	73.6		$	102.8		$	(176.4	)	$	25.0

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Six Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	316.5		$	59.8		$	(39.9	)	$	336.4
Cost of products sold	—			134.5			44.3			(39.9		)	138.9
Gross Profit	—			182.0			15.5			—			197.5
Research & development	—			19.7			—			—			19.7
Selling and general expenses	15.3			166.1			19.7			—			201.1
Other expense (income), net	—			16.7			(5.6		)	—			11.1
Operating (Loss) Income	(15.3		)	(20.5		)	1.4			—			(34.4		)
Interest income	3.3			0.1			2.9			(1.9		)	4.4
Interest expense	(8.6		)	(0.4		)	(0.1		)	1.9			(7.2		)
(Loss) Income Before Income Taxes	(20.6		)	(20.8		)	4.2			—			(37.2		)
Income tax benefit (provision)	5.0			5.1			(1.2		)	—			8.9
Equity in earnings of consolidated subsidiaries	(12.7		)	4.7			—			8.0			—
Net (Loss) Income	(28.3		)	(11.0		)	3.0			8.0			(28.3		)
Total other comprehensive income, net of tax	2.6			2.4			1.9			(4.3		)	2.6
Comprehensive (Loss) Income	$	(25.7	)	$	(8.6	)	$	4.9		$	3.7		$	(25.7	)

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Six Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	343.0		$	112.0		$	(137.7	)	$	317.3
Cost of products sold	(0.8		)	173.9			96.1			(137.7		)	131.5
Gross Profit	0.8			169.1			15.9			—			185.8
Research and development	—			20.7			—			—			20.7
Selling and general expenses	20.6			122.0			23.6			—			166.2
Other (income) expense, net	(2.2		)	1.2			(5.9		)	4.0			(2.9		)
Operating (Loss) Income	(17.6		)	25.2			(1.8		)	(4.0		)	1.8
Interest income	1.8			0.1			3.2			(1.9		)	3.2
Interest expense	(18.9		)	(1.6		)	(0.1		)	1.9			(18.7		)
(Loss) Income before Income Taxes	(34.7		)	23.7			1.3			(4.0		)	(13.7		)
Income tax benefit (provision)	8.9			(1.3		)	(3.9		)	—			3.7
Equity in earnings of consolidated subsidiaries	87.8			140.6			—			(228.4		)	—
Net Income (Loss) from Continuing Operations	62.0			163.0			(2.6		)	(232.4		)	(10.0		)
(Loss) Income from discontinued operations, net of tax	(6.5		)	(49.9		)	121.9			—			65.5
Net Income	55.5			113.1			119.3			(232.4		)	55.5
Total other comprehensive (loss) income, net of tax	(0.8		)	2.8			(0.7		)	(2.1		)	(0.8		)
Comprehensive Income	$	54.7		$	115.9		$	118.6		$	(234.5	)	$	54.7

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(in millions)

	As of June 30, 2019
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	199.2	$	27.3	$	61.6	$	—		$	288.1
Accounts receivable, net of allowances	2.2		1,188.8		194.5		(1,261.2		)	124.3
Inventories	—		117.7		16.2		—			133.9
Prepaid expenses and other current assets	3.2		20.9		2.1		—			26.2
Total Current Assets	204.6		1,354.7		274.4		(1,261.2		)	572.5
Property, Plant and Equipment, net	—		150.2		24.2		—			174.4
Operating Lease Right-of-Use Assets	—		58.6		8.6		—			67.2
Investment in Consolidated Subsidiaries	2,408.3		290.4		—		(2,698.7		)	—
Goodwill	—		756.9		25.4		—			782.3
Other Intangible Assets, net	—		150.4		8.1		—			158.5
Other Assets	8.4		18.5		1.6		—			28.5
TOTAL ASSETS	$	2,621.3	$	2,779.7	$	342.3	$	(3,959.9	)	$	1,783.4
LIABILITIES AND EQUITY
Current Liabilities
Current portion of operating lease liabilities	$	—	$	12.3	$	2.4	$	—		$	14.7
Trade accounts payable	1,086.0		237.2		23.6		(1,247.4		)	99.4
Accrued expenses	9.1		65.1		12.5		(13.8		)	72.9
Total Current Liabilities	1,095.1		314.6		38.5		(1,261.2		)	187.0
Long-Term Debt	247.8		—		—		—			247.8
Operating Lease Liabilities	—		59.0		6.5		—			65.5
Other Long-Term Liabilities	1.5		1.8		2.9		—			6.2
Total Liabilities	1,344.4		375.4		47.9		(1,261.2		)	506.5
Total Equity	1,276.9		2,404.3		294.4		(2,698.7		)	1,276.9
TOTAL LIABILITIES AND EQUITY	$	2,621.3	$	2,779.7	$	342.3	$	(3,959.9	)	$	1,783.4

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(in millions)

	As of December 31, 2018
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	303.9	$	29.3	$	51.3	$	—		$	384.5
Accounts receivable, net of allowances	4.5		1,257.3		212.1		(1,323.4		)	150.5
Inventories	—		106.2		15.2		—			121.4
Prepaid expenses and other current assets	1.1		23.8		34.2		(1.9		)	57.2
Total Current Assets	309.5		1,416.6		312.8		(1,325.3		)	713.6
Property, Plant and Equipment, net	—		132.6		21.5		—			154.1
Investment in Consolidated Subsidiaries	2,404.2		234.7		—		(2,638.9		)	—
Goodwill	—		758.7		24.9		—			783.6
Other Intangible Assets, net	—		159.8		8.4		—			168.2
Other Assets	1.6		10.8		1.5		—			13.9
TOTAL ASSETS	$	2,715.3	$	2,713.2	$	369.1	$	(3,964.2	)	$	1,833.4
LIABILITIES AND EQUITY
Current Liabilities
Trade accounts payable	$	1,160.7	$	268.2	$	52.4	$	(1,311.4	)	$	169.9
Accrued expenses	8.2		77.3		22.8		(13.9		)	94.4
Total Current Liabilities	1,168.9		345.5		75.2		(1,325.3		)	264.3
Long-Term Debt	247.7		—		—		—			247.7
Other Long-Term Liabilities	1.5		20.0		2.7		—			24.2
Total Liabilities	1,418.1		365.5		77.9		(1,325.3		)	536.2
Total Equity	1,297.2		2,347.7		291.2		(2,638.9		)	1,297.2
TOTAL LIABILITIES AND EQUITY	$	2,715.3	$	2,713.2	$	369.1	$	(3,964.2	)	$	1,833.4

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in millions)

	Six Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating Activities
Cash (Used in) Provided by Operating Activities	$	(27.7	)	$	(39.2	)	$	11.9		$	—		$	(55.0	)
Investing Activities
Capital expenditures	—			(32.4		)	(3.0		)	—			(35.4		)
Acquisition of business, net of cash acquired	(7.0		)	—			—			—			(7.0		)
Intercompany contributions	—			69.0			0.1			(69.1		)	—
Cash (Used in) Provided by Investing Activities	(7.0		)	36.6			(2.9		)	(69.1		)	(42.4		)
Financing Activities
Intercompany contributions	(69.1		)	—			—			69.1			—
Debt repayments	(0.2		)	—			—			—			(0.2		)
Purchases of treasury stock	(3.3		)	—			—			—			(3.3		)
Proceeds from the exercise of stock options	2.6			—			—			—			2.6
Cash (Used in) Provided by Financing Activities	(70.0		)	—			—			69.1			(0.9		)
Effect of Exchange Rate on Cash and Cash Equivalents	—			0.6			1.3			—			1.9
(Decrease) Increase in Cash and Cash Equivalents	(104.7		)	(2.0		)	10.3			—			(96.4		)
Cash and Cash Equivalents, Beginning of Period	303.9			29.3			51.3			—			384.5
Cash and Cash Equivalents, End of Period	$	199.2		$	27.3		$	61.6		$	—		$	288.1

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in millions)

	Six Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating Activities
Cash (Used in) Provided by Operating Activities	$	(114.2	)	$	31.3		$	12.5		$	—		$	(70.4	)
Investing Activities
Capital expenditures	—			(15.0		)	(5.7		)	—			(20.7		)
Proceeds from the Divestiture	521.6			9.0			203.9			—			734.5
Intercompany contributions	—			36.3			—			(36.3		)	—
Cash Provided by Investing Activities	521.6			30.3			198.2			(36.3		)	713.8
Financing Activities
Intercompany contributions	(32.3		)	—			(4.0		)	36.3			—
Debt repayments	(339.0		)	—			—			—			(339.0		)
Purchases of treasury stock	(0.6		)	—			—			—			(0.6		)
Proceeds from the exercise of stock options	11.4			—			—			—			11.4
Cash Used in Financing Activities	(360.5		)	—			(4.0		)	36.3			(328.2		)
Effect of Exchange Rate on Cash and Cash Equivalents	—			0.1			(3.9		)	—			(3.8		)
Increase in Cash and Cash Equivalents	46.9			61.7			202.8			—			311.4
Cash and Cash Equivalents, Beginning of Period	114.5			16.0			89.2			—			219.7
Cash and Cash Equivalents, End of Period	$	161.4		$	77.7		$	292.0		$	—		$	531.1

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Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2019

Accounting Policies [Abstract]

Background and Basis of Presentation and Interim Financial Statements

Background and Basis of Presentation

Avanos Medical, Inc. is a medical technology company focused on delivering clinically superior breakthrough medical device solutions to improve patients’ quality of life. Headquartered in Alpharetta, Georgia, Avanos is committed to addressing some of today’s most important healthcare needs, such as reducing the use of opioids while helping patients move from surgery to recovery. We develop, manufacture and market clinically superior solutions around the globe. References to “Avanos,” “Company,” “we,” “our” and “us” refer to Avanos Medical, Inc. and its consolidated subsidiaries.

On April 30, 2018, we closed the sale of our Surgical and Infection Prevention (“S&IP”) business, including the name “Halyard Health” (and all variations thereof and related intellectual property rights) (the “Divestiture”). Accordingly, the Company’s name was changed from “Halyard Health, Inc.” to “Avanos Medical, Inc.” effective June 30, 2018. The results of operations from our former S&IP business are reported in the accompanying condensed consolidated income statements as “Income from Discontinued Operations, net of tax” for the three and six months ended June 30, 2018.

Interim Financial Statements

We prepared the accompanying condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions to the Quarterly Report on Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements, and the condensed consolidated financial statements in this Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018. Our unaudited interim condensed consolidated financial statements contain all necessary material adjustments, which are of a normal and recurring nature, to fairly state our financial condition, results of operations and cash flows for the periods presented.

Use of Estimates

Use of Estimates

Preparation of our condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Estimates are used in accounting for, among other things, distributor rebate accruals, future cash flows associated with impairment testing for goodwill and long-lived assets, loss contingencies, and deferred tax assets and potential income tax assessments. Actual results could differ from these estimates, and the effect of the difference could be material to our financial statements. Changes in these estimates are recorded when known.

Recently Adopted Accounting Pronouncements and Recently Issued Accounting Pronouncements

Recently Adopted Accounting Pronouncements

Effective January 1, 2019, we adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (“Topic 842”), using the transition method provided in ASU No. 2018-11, Leases (Topic 842) - Targeted Improvements, which allows for initial application on the date of adoption with recognition of a cumulative-effect adjustment, if applicable, to the opening balance of retained earnings. As of December 31, 2018, all our existing leases were operating leases, and accordingly, no adjustment to beginning retained earnings was required. In addition, we elected to use all available expedients allowed under ASU 2018-11. Other prior period amounts are not adjusted and continue to be reported under Topic 840, the previous lease guidance.

Topic 842 replaces the former guidance in Topic 840 and requires the recognition of right-of-use (“ROU”) assets and liabilities for leases with terms of more than twelve months. The recognition, measurement and presentation of expenses and cash flows arising from leases depend primarily on its classification as a finance or an operating lease, with the classification criteria for distinguishing between the two types being similar to the classification for distinguishing between capital and operating leases under Topic 840. In addition to recognition of ROU assets and liabilities, disclosures regarding lease obligations are required to help financial statement users better understand the amount, timing and uncertainty of cash flows arising from leases.

As a result of Topic 842 adoption, we have operating lease liabilities of $80.2 million and corresponding ROU assets of $67.2 million as of June 30, 2019. For other disclosures regarding our lease obligations, see “Leases” in Note 6 herein.

Effective January 1, 2019, we adopted ASU No. 2018-02, Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU is intended to help companies reclassify certain stranded income tax effects in accumulated other comprehensive income (“AOCI”) resulting from the Tax Cuts and Jobs Act of 2017 (the “Act”), which was enacted in December 2017. ASU 2018-02 provides for the elimination of stranded tax effects of the Act by allowing reclassification of stranded tax effects from AOCI to retained earnings. We elected not to reclassify

stranded tax effects from AOCI to retained earnings, and accordingly, adoption of this ASU did not have a material effect on our financial position, results of operations and cash flows.

Recently Issued Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. This ASU is intended to reduce complexity by aligning the requirements for capitalizing implementation costs incurred in cloud-based arrangements with the requirements for capitalization of costs incurred to develop internal-use software. Any implementation costs in cloud-based arrangements would then be amortized over the term of the service contract. This ASU is effective for annual periods, and interim periods within those annual periods beginning after December 15, 2019, with early adoption permitted. We do not expect adoption of this ASU to have a material effect on our financial position, results of operations or cash flows.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU removes certain disclosure requirements regarding the amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of transfers between the levels. The ASU also adds disclosure requirements regarding unrealized gains and losses included in Other Comprehensive Income for recurring Level 3 fair value measurements and regarding the range and weighted average of unobservable inputs used in Level 3 fair value measurements. This ASU is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019. The removal of certain disclosures is to be applied retrospectively for all periods presented, but the additional required disclosures are to be prospectively applied, and early application is permitted. We do not expect any transfers between Level 1 and Level 2 of the fair value hierarchy, and as of June 30, 2019, we have no assets or liabilities with fair value measurements in Level 3 of the fair value hierarchy. Accordingly, we do not expect adoption of this ASU to have a material effect on our financial position, results of operations or cash flows.

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Restructuring Activities (Tables)

6 Months Ended

Jun. 30, 2019

Restructuring and Related Activities [Abstract]

Summary of Accrual and Payment Activity

The following table summarizes the accrual and payment activity (in millions):

	Accrual
Balance, December 31, 2018	$	5.7
Charges and adjustments, net	0.4
Payments	(3.6		)
Balance, June 30, 2019	$	2.5

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Discontinued Operations (Tables)

6 Months Ended

Jun. 30, 2019

Discontinued Operations and Disposal Groups [Abstract]

Financial results of discontinued operations

The following table provides operating and investing cash flow information for our discontinued operations (in millions):

	Six Months Ended June 30, 2018
Operating Activities: Stock-based compensation expense	$	(1.5	)
Investing Activities: Capital expenditures	2.9

The following table summarizes the financial results of our discontinued operations for the three and six months ended June 30, 2018 (in millions):

	Three Months Ended June 30, 2018			Six Months Ended June 30, 2018
Net Sales	$	89.0		$	353.0
Cost of products sold	65.8			260.3
Research and development	0.2			1.1
Selling, general and other expenses	10.9			38.1
Gain on Divestiture	(89.9		)	(89.9		)
Other expense, net	0.1			0.4
Income from Discontinued Operations before income taxes	101.9			143.0
Tax provision from discontinued operations	(67.9		)	(77.5		)
Income from Discontinued Operations, net of tax	$	34.0		$	65.5

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Supplemental Balance Sheet Information (Tables)

6 Months Ended

Jun. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Schedule of accounts receivable

Accounts receivable consist of the following (in millions):

	June 30, 2019			December 31, 2018
Accounts receivable	$	127.1		$	152.2
Allowances and doubtful accounts:
Doubtful accounts	(2.4		)	(1.4		)
Sales discounts	(0.3		)	(0.2		)
Sales returns	(0.1		)	(0.1		)
Accounts receivable, net	$	124.3		$	150.5

Schedule of inventories

Inventories at the lower of cost (determined on the LIFO/FIFO or weighted-average cost methods) or market consist of the following (in millions):

	June 30, 2019								December 31, 2018
	LIFO			Non- LIFO		Total			LIFO			Non- LIFO		Total
Raw materials	$	41.1		$	1.3	$	42.4		$	39.6		$	1.5	$	41.1
Work in process	27.2			0.4		27.6			22.1			0.4		22.5
Finished goods	55.1			14.4		69.5			50.1			13.7		63.8
Supplies and other	—			6.0		6.0			—			5.8		5.8
	123.4			22.1		145.5			111.8			21.4		133.2
Excess of FIFO or weighted-average cost over LIFO cost	(11.6		)	—		(11.6		)	(11.8		)	—		(11.8		)
Total	$	111.8		$	22.1	$	133.9		$	100.0		$	21.4	$	121.4

Schedule of property, plant and equipment

Property, plant and equipment consists of the following (in millions):

	June 30, 2019			December 31, 2018
Land	$	1.0		$	0.9
Buildings	46.2			43.5
Machinery and equipment	146.4			141.2
Construction in progress	70.9			52.7
	264.5			238.3
Less accumulated depreciation	(90.1		)	(84.2		)
Total	$	174.4		$	154.1

Changes in the carrying amount of goodwill by business segment

The changes in the carrying amount of goodwill are as follows (in millions):

	Goodwill
Balance, December 31, 2018	$	783.6
Purchase accounting adjustment	(1.9		)
Currency translation adjustment	0.6
Balance, June 30, 2019	$	782.3

Schedule of intangible assets subject to amortization

Intangible assets subject to amortization consist of the following (in millions):

	June 30, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Trademarks	$	83.1	$	(54.4	)	$	28.7	$	83.1	$	(52.2	)	$	30.9
Patents and acquired technologies	259.5		(150.5		)	109.0		259.5		(144.4		)	115.1
Other	54.4		(33.6		)	20.8		54.4		(32.2		)	22.2
Total	$	397.0	$	(238.5	)	$	158.5	$	397.0	$	(228.8	)	$	168.2

Schedule of estimated amortization expense

We estimate amortization expense for the remainder of 2019 and the following four years and beyond will be as follows (in millions):

For the years ending December 31,	Amount
2019	$	16.9
2020	24.6
2021	22.3
2022	22.1
2023	20.8
Thereafter	51.8
Total	$	158.5

Schedule of accrued expenses

Accrued expenses consist of the following (in millions):

	June 30, 2019		December 31, 2018
Accrued rebates	$	19.1	$	26.1
Accrued salaries and wages	21.9		27.0
Accrued taxes	4.2		6.5
Other	27.7		34.8
Total	$	72.9	$	94.4

Schedule of other long-term liabilities

Other long-term liabilities consist of the following (in millions):

	June 30, 2019		December 31, 2018
Taxes payable	$	0.4	$	0.4
Accrued compensation benefits	4.2		4.3
Other	1.0		15.1
Total	$	5.6	$	19.8

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Leases (Tables)

6 Months Ended

Jun. 30, 2019

Leases [Abstract]

ROU asset and liabilities presented on the balance sheet

The table below summarizes information related to ROU assets and lease liabilities that are included in the accompanying condensed consolidated balance sheet (dollars in millions):

	As of June 30, 2019
Assets
Operating lease right-of-use assets	$	67.2
Liabilities
Current portion of operating lease liabilities	14.7
Operating lease liabilities	65.5
Total Operating Lease Liabilities	$	80.2
Weighted average remaining lease term	7.6 years
Weighted average discount rate	4.6		%

Costs and cash flows arising from lease arrangements

The table below summarizes costs and cash flows arising from our lease arrangements in the three and six months ended June 30, 2019 (in millions):

	Three Months ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost	$	3.5	$	5.9
Short-term lease cost	0.5		1.1
Variable lease cost	0.5		0.8
Total lease cost	$	4.5	$	7.8
Cash paid for amounts included in the measurement of lease liabilities	$	5.6	$	9.0
Right-of-use assets obtained in exchange for new operating lease liabilities	$	14.7	$	21.2

Future minimum obligations under operating leases

The future minimum obligations under operating leases having non-cancelable terms in excess of one year are as follows for the remainder of 2019 and for the four following years and beyond (in millions):

For the years ending December 31,	Amount
2019	$	5.7
2020	14.5
2021	13.8
2022	13.4
2023	11.5
Thereafter	34.7
Future minimum obligations	$	93.6

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Fair Value Information (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

Schedule of fair value of financial instruments

The following table includes the fair value of our financial instruments for which disclosure of fair value is required (in millions):

		June 30, 2019				December 31, 2018
	Fair Value Hierarchy Level	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Assets
Cash and cash equivalents	1	$	288.1	$	288.1	$	384.5	$	384.5
Liabilities
Senior Unsecured Notes	1	247.8		254.9		247.7		250.9

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Debt (Tables)

6 Months Ended

Jun. 30, 2019

Debt Disclosure [Abstract]

Schedule of debt balances

As of June 30, 2019 and December 31, 2018, our debt balances were as follows (in millions):

	Weighted-Average Interest Rate		Maturities	June 30, 2019			December 31, 2018
Senior Unsecured Notes	6.25	%	2022	$	249.8		$	250.0
Unamortized Debt Discounts and Issuance Costs				(2.0		)	(2.3		)
Total Debt, net				$	247.8		$	247.7

XML

Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2019

Equity [Abstract]

Schedule of changes in the components of accumulated other comprehensive income

The changes in the components of AOCI, net of tax, are as follows (in millions):

	Unrealized Translation			Cash Flow Hedges		Defined Benefit Pension Plans		Accumulated Other Comprehensive (Loss) Income
Balance, December 31, 2018	$	(34.3	)	$	0.1	$	0.5	$	(33.7	)
Other comprehensive income	2.6			—		—		2.6
Balance, June 30, 2019	$	(31.7	)	$	0.1	$	0.5	$	(31.1	)

The changes in the components of AOCI, including the tax effect, are as follows (in millions):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
Unrealized translation	$	1.9	$	(10.0	)	$	2.6	$	(0.7	)
Defined benefit pension plans	—		1.2			—		0.9
Tax effect	—		(0.2		)	—		(0.2		)
Defined benefit pension plans, net of tax	—		1.0			—		0.7
Cash flow hedges	—		(1.6		)	—		(1.0		)
Tax effect	—		0.3			—		0.2
Cash flow hedges, net of tax	—		(1.3		)	—		(0.8		)
Change in AOCI	$	1.9	$	(10.3	)	$	2.6	$	(0.8	)

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Earnings Per Share ("EPS") (Tables)

6 Months Ended

Jun. 30, 2019

Earnings Per Share [Abstract]

Calculation of basic and diluted earnings per share

The calculation of basic and diluted earnings per share for the three and six months ended June 30, 2019 and 2018 is set forth in the following table (in millions, except per share amounts):

	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
(Loss) Income from continuing operations	$	(8.0	)	$	1.3	(28.3		)	(10.0		)
Income from discontinued operations, net of tax	—			34.0		—			65.5
Net (Loss) Income	$	(8.0	)	$	35.3	(28.3		)	55.5
Weighted Average Shares Outstanding:
Basic weighted average shares outstanding	47.6			47.1		47.5			47.0
Dilutive effect of stock options and restricted share unit awards	—			1.1		—			—
Diluted weighted average shares outstanding	47.6			48.2		47.5			47.0
(Loss) Earnings Per Share:
Basic:
Continuing operations	$	(0.17	)	$	0.03	$	(0.60	)	$	(0.21	)
Discontinued operations	$	—		$	0.72	$	—		$	1.39
Basic (Loss) Earnings Per Share	$	(0.17	)	$	0.75	$	(0.60	)	$	1.18
Diluted:
Continuing operations	$	(0.17	)	$	0.03	$	(0.60	)	$	(0.21	)
Discontinued operations	$	—		$	0.70	$	—		$	1.39
Diluted (Loss) Earnings Per Share	$	(0.17	)	$	0.73	$	(0.60	)	$	1.18

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Business and Products Information (Tables)

6 Months Ended

Jun. 30, 2019

Segment Reporting [Abstract]

Net sales by product category

Our management evaluates net sales by product category within our single reportable segment as follows (in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Chronic care	$	102.3	$	97.1	$	202.3	$	194.2
Pain management	69.9		63.8		134.1		123.1
Total Net Sales	$	172.2	$	160.9	$	336.4	$	317.3

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Supplemental Guarantor Financial Information (Tables)

6 Months Ended

Jun. 30, 2019

Condensed Financial Information Disclosure [Abstract]

Condensed Consolidating Income and Comprehensive Income Statements

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Three Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	161.8		$	30.8		$	(20.4	)	$	172.2
Cost of products sold	—			71.1			22.8			(20.4		)	73.5
Gross Profit	—			90.7			8.0			—			98.7
Research and development	—			9.5			—			—			9.5
Selling and general expenses	3.9			80.8			10.0			—			94.7
Other expense (income), net	0.1			8.5			(4.3		)	—			4.3
Operating (Loss) Income	(4.0		)	(8.1		)	2.3			—			(9.8		)
Interest income	1.5			—			1.4			(0.9		)	2.0
Interest expense	(4.3		)	(0.1		)	—			0.9			(3.5		)
(Loss) Income Before Income Taxes	(6.8		)	(8.2		)	3.7			—			(11.3		)
Income tax benefit (provision)	1.6			2.9			(1.2		)	—			3.3
Equity in earnings of consolidated subsidiaries	(2.8		)	3.0			—			(0.2		)	—
Net (Loss) Income	(8.0		)	(2.3		)	2.5			(0.2		)	(8.0		)
Total other comprehensive income, net of tax	1.9			1.5			1.0			(2.5		)	1.9
Comprehensive (Loss) Income	$	(6.1	)	$	(0.8	)	$	3.5		$	(2.7	)	$	(6.1	)

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Three Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	169.7		$	37.1		$	(45.9	)	$	160.9
Cost of products sold	(0.8		)	89.4			23.5			(45.9		)	66.2
Gross Profit	0.8			80.3			13.6			—			94.7
Research and development	—			10.8			—			—			10.8
Selling and general expenses	8.7			59.6			11.5			—			79.8
Other income, net	(2.5		)	(3.0		)	(3.2		)	4.0			(4.7		)
Operating (Loss) Income	(5.4		)	12.9			5.3			(4.0		)	8.8
Interest income	1.4			0.1			1.8			(1.1		)	2.2
Interest expense	(10.0		)	(0.9		)	(0.1		)	1.1			(9.9		)
(Loss) Income Before Income Taxes	(14.0		)	12.1			7.0			(4.0		)	1.1
Income tax benefit (provision)	1.0			1.9			(2.7		)	—			0.2
Equity in earnings of consolidated subsidiaries	54.8			132.1			—			(186.9		)	—
Net Income from Continuing Operations	41.8			146.1			4.3			(190.9		)	1.3
(Loss) Income from discontinued operations, net of tax	(6.5		)	(66.8		)	107.3			—			34.0
Net Income	35.3			79.3			111.6			(190.9		)	35.3
Total other comprehensive loss, net of tax	(10.3		)	(5.7		)	(8.8		)	14.5			(10.3		)
Comprehensive Income	$	25.0		$	73.6		$	102.8		$	(176.4	)	$	25.0

Condensed Consolidating Balance Sheet

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Six Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	316.5		$	59.8		$	(39.9	)	$	336.4
Cost of products sold	—			134.5			44.3			(39.9		)	138.9
Gross Profit	—			182.0			15.5			—			197.5
Research & development	—			19.7			—			—			19.7
Selling and general expenses	15.3			166.1			19.7			—			201.1
Other expense (income), net	—			16.7			(5.6		)	—			11.1
Operating (Loss) Income	(15.3		)	(20.5		)	1.4			—			(34.4		)
Interest income	3.3			0.1			2.9			(1.9		)	4.4
Interest expense	(8.6		)	(0.4		)	(0.1		)	1.9			(7.2		)
(Loss) Income Before Income Taxes	(20.6		)	(20.8		)	4.2			—			(37.2		)
Income tax benefit (provision)	5.0			5.1			(1.2		)	—			8.9
Equity in earnings of consolidated subsidiaries	(12.7		)	4.7			—			8.0			—
Net (Loss) Income	(28.3		)	(11.0		)	3.0			8.0			(28.3		)
Total other comprehensive income, net of tax	2.6			2.4			1.9			(4.3		)	2.6
Comprehensive (Loss) Income	$	(25.7	)	$	(8.6	)	$	4.9		$	3.7		$	(25.7	)

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING INCOME AND COMPREHENSIVE INCOME STATEMENTS

(in millions)

	Six Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net Sales	$	—		$	343.0		$	112.0		$	(137.7	)	$	317.3
Cost of products sold	(0.8		)	173.9			96.1			(137.7		)	131.5
Gross Profit	0.8			169.1			15.9			—			185.8
Research and development	—			20.7			—			—			20.7
Selling and general expenses	20.6			122.0			23.6			—			166.2
Other (income) expense, net	(2.2		)	1.2			(5.9		)	4.0			(2.9		)
Operating (Loss) Income	(17.6		)	25.2			(1.8		)	(4.0		)	1.8
Interest income	1.8			0.1			3.2			(1.9		)	3.2
Interest expense	(18.9		)	(1.6		)	(0.1		)	1.9			(18.7		)
(Loss) Income before Income Taxes	(34.7		)	23.7			1.3			(4.0		)	(13.7		)
Income tax benefit (provision)	8.9			(1.3		)	(3.9		)	—			3.7
Equity in earnings of consolidated subsidiaries	87.8			140.6			—			(228.4		)	—
Net Income (Loss) from Continuing Operations	62.0			163.0			(2.6		)	(232.4		)	(10.0		)
(Loss) Income from discontinued operations, net of tax	(6.5		)	(49.9		)	121.9			—			65.5
Net Income	55.5			113.1			119.3			(232.4		)	55.5
Total other comprehensive (loss) income, net of tax	(0.8		)	2.8			(0.7		)	(2.1		)	(0.8		)
Comprehensive Income	$	54.7		$	115.9		$	118.6		$	(234.5	)	$	54.7

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(in millions)

	As of June 30, 2019
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	199.2	$	27.3	$	61.6	$	—		$	288.1
Accounts receivable, net of allowances	2.2		1,188.8		194.5		(1,261.2		)	124.3
Inventories	—		117.7		16.2		—			133.9
Prepaid expenses and other current assets	3.2		20.9		2.1		—			26.2
Total Current Assets	204.6		1,354.7		274.4		(1,261.2		)	572.5
Property, Plant and Equipment, net	—		150.2		24.2		—			174.4
Operating Lease Right-of-Use Assets	—		58.6		8.6		—			67.2
Investment in Consolidated Subsidiaries	2,408.3		290.4		—		(2,698.7		)	—
Goodwill	—		756.9		25.4		—			782.3
Other Intangible Assets, net	—		150.4		8.1		—			158.5
Other Assets	8.4		18.5		1.6		—			28.5
TOTAL ASSETS	$	2,621.3	$	2,779.7	$	342.3	$	(3,959.9	)	$	1,783.4
LIABILITIES AND EQUITY
Current Liabilities
Current portion of operating lease liabilities	$	—	$	12.3	$	2.4	$	—		$	14.7
Trade accounts payable	1,086.0		237.2		23.6		(1,247.4		)	99.4
Accrued expenses	9.1		65.1		12.5		(13.8		)	72.9
Total Current Liabilities	1,095.1		314.6		38.5		(1,261.2		)	187.0
Long-Term Debt	247.8		—		—		—			247.8
Operating Lease Liabilities	—		59.0		6.5		—			65.5
Other Long-Term Liabilities	1.5		1.8		2.9		—			6.2
Total Liabilities	1,344.4		375.4		47.9		(1,261.2		)	506.5
Total Equity	1,276.9		2,404.3		294.4		(2,698.7		)	1,276.9
TOTAL LIABILITIES AND EQUITY	$	2,621.3	$	2,779.7	$	342.3	$	(3,959.9	)	$	1,783.4

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEETS

(in millions)

	As of December 31, 2018
	Parent		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
ASSETS
Current Assets
Cash and cash equivalents	$	303.9	$	29.3	$	51.3	$	—		$	384.5
Accounts receivable, net of allowances	4.5		1,257.3		212.1		(1,323.4		)	150.5
Inventories	—		106.2		15.2		—			121.4
Prepaid expenses and other current assets	1.1		23.8		34.2		(1.9		)	57.2
Total Current Assets	309.5		1,416.6		312.8		(1,325.3		)	713.6
Property, Plant and Equipment, net	—		132.6		21.5		—			154.1
Investment in Consolidated Subsidiaries	2,404.2		234.7		—		(2,638.9		)	—
Goodwill	—		758.7		24.9		—			783.6
Other Intangible Assets, net	—		159.8		8.4		—			168.2
Other Assets	1.6		10.8		1.5		—			13.9
TOTAL ASSETS	$	2,715.3	$	2,713.2	$	369.1	$	(3,964.2	)	$	1,833.4
LIABILITIES AND EQUITY
Current Liabilities
Trade accounts payable	$	1,160.7	$	268.2	$	52.4	$	(1,311.4	)	$	169.9
Accrued expenses	8.2		77.3		22.8		(13.9		)	94.4
Total Current Liabilities	1,168.9		345.5		75.2		(1,325.3		)	264.3
Long-Term Debt	247.7		—		—		—			247.7
Other Long-Term Liabilities	1.5		20.0		2.7		—			24.2
Total Liabilities	1,418.1		365.5		77.9		(1,325.3		)	536.2
Total Equity	1,297.2		2,347.7		291.2		(2,638.9		)	1,297.2
TOTAL LIABILITIES AND EQUITY	$	2,715.3	$	2,713.2	$	369.1	$	(3,964.2	)	$	1,833.4

Condensed Consolidating Statements of Cash Flows

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in millions)

	Six Months Ended June 30, 2019
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating Activities
Cash (Used in) Provided by Operating Activities	$	(27.7	)	$	(39.2	)	$	11.9		$	—		$	(55.0	)
Investing Activities
Capital expenditures	—			(32.4		)	(3.0		)	—			(35.4		)
Acquisition of business, net of cash acquired	(7.0		)	—			—			—			(7.0		)
Intercompany contributions	—			69.0			0.1			(69.1		)	—
Cash (Used in) Provided by Investing Activities	(7.0		)	36.6			(2.9		)	(69.1		)	(42.4		)
Financing Activities
Intercompany contributions	(69.1		)	—			—			69.1			—
Debt repayments	(0.2		)	—			—			—			(0.2		)
Purchases of treasury stock	(3.3		)	—			—			—			(3.3		)
Proceeds from the exercise of stock options	2.6			—			—			—			2.6
Cash (Used in) Provided by Financing Activities	(70.0		)	—			—			69.1			(0.9		)
Effect of Exchange Rate on Cash and Cash Equivalents	—			0.6			1.3			—			1.9
(Decrease) Increase in Cash and Cash Equivalents	(104.7		)	(2.0		)	10.3			—			(96.4		)
Cash and Cash Equivalents, Beginning of Period	303.9			29.3			51.3			—			384.5
Cash and Cash Equivalents, End of Period	$	199.2		$	27.3		$	61.6		$	—		$	288.1

AVANOS MEDICAL, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(in millions)

	Six Months Ended June 30, 2018
	Parent			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating Activities
Cash (Used in) Provided by Operating Activities	$	(114.2	)	$	31.3		$	12.5		$	—		$	(70.4	)
Investing Activities
Capital expenditures	—			(15.0		)	(5.7		)	—			(20.7		)
Proceeds from the Divestiture	521.6			9.0			203.9			—			734.5
Intercompany contributions	—			36.3			—			(36.3		)	—
Cash Provided by Investing Activities	521.6			30.3			198.2			(36.3		)	713.8
Financing Activities
Intercompany contributions	(32.3		)	—			(4.0		)	36.3			—
Debt repayments	(339.0		)	—			—			—			(339.0		)
Purchases of treasury stock	(0.6		)	—			—			—			(0.6		)
Proceeds from the exercise of stock options	11.4			—			—			—			11.4
Cash Used in Financing Activities	(360.5		)	—			(4.0		)	36.3			(328.2		)
Effect of Exchange Rate on Cash and Cash Equivalents	—			0.1			(3.9		)	—			(3.8		)
Increase in Cash and Cash Equivalents	46.9			61.7			202.8			—			311.4
Cash and Cash Equivalents, Beginning of Period	114.5			16.0			89.2			—			219.7
Cash and Cash Equivalents, End of Period	$	161.4		$	77.7		$	292.0		$	—		$	531.1

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Accounting Policies (Details) $ in Millions	Jun. 30, 2019 USD ($)
Accounting Policies [Abstract]
Operating lease liabilities	$ 80.2
Operating lease ROU assets	$ 67.2

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Business Acquisitions - Narrative (Details) - USD ($) $ in Millions					3 Months Ended	6 Months Ended		12 Months Ended
	Jul. 31, 2019	Jul. 08, 2019	Apr. 16, 2019	Jul. 01, 2018	Jun. 30, 2019	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Business Acquisition [Line Items]
Minority interest acquired						$ 7.0	$ 0.0
Reduction of goodwill						(1.9)
Goodwill					$ 782.3	782.3		$ 783.6
NeoMed, Inc.
Business Acquisition [Line Items]
Minority interest acquired			$ 7.0
Summit Medical Products, Inc.
Business Acquisition [Line Items]
Net sales reported by entity for last annual period						7.0
Summit Medical Products, Inc. | Subsequent Event
Business Acquisition [Line Items]
Consideration transferred	$ 17.5
NeoMed, Inc.
Business Acquisition [Line Items]
Net sales reported by entity for last annual period								$ 36.0
NeoMed, Inc. | Subsequent Event
Business Acquisition [Line Items]
Consideration transferred		$ 28.0
Cool Systems, Inc.
Business Acquisition [Line Items]
Consideration transferred				$ 65.7
Purchase price				$ 65.0
Reduction of goodwill					(1.9)
Goodwill					$ 18.7	$ 18.7

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Restructuring Activities - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended		16 Months Ended	19 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2019
Initial Phase
Restructuring Cost and Reserve [Line Items]
Costs expected to incur	$ 18.0		$ 18.0		$ 18.0	$ 18.0
Costs incurred	0.5	$ 3.5	2.0	$ 4.5		16.7
Initial Phase | Employee severance and benefits
Restructuring Cost and Reserve [Line Items]
Costs expected to incur	10.0		10.0		10.0	10.0
Costs incurred						9.6
ITS Plan
Restructuring Cost and Reserve [Line Items]
Costs expected to incur	75.0		75.0		75.0	75.0
Costs incurred	4.1	$ 0.5	4.6	$ 2.3	11.0
Restructuring, amounts capitalized					50.0
Internal labor costs capitalized					5.0
ITS Plan | Qualify for capitalization
Restructuring Cost and Reserve [Line Items]
Costs expected to incur	50.0		50.0		50.0	50.0
Third Phase
Restructuring Cost and Reserve [Line Items]
Costs incurred					1.2
Third Phase | Minimum
Restructuring Cost and Reserve [Line Items]
Costs expected to incur	11.0		11.0		11.0	11.0
Incremental capital cost	8.0		8.0		8.0	8.0
Third Phase | Maximum
Restructuring Cost and Reserve [Line Items]
Costs expected to incur	13.0		13.0		13.0	13.0
Incremental capital cost	$ 12.0		$ 12.0		$ 12.0	$ 12.0

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Restructuring Activities - Accrual and Payment Activity (Details) - Employee severance and benefits - Initial Phase $ in Millions	6 Months Ended
	Jun. 30, 2019 USD ($)
Restructuring Cost and Reserve [Line Items]
Balance, December 31, 2018	$ 5.7
Charges and adjustments, net	0.4
Payments	(3.6)
Balance, June 30, 2019	$ 2.5

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Discontinued Operations - Narrative (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Expenses presented as component of S&IP kept in continuing operations	$ 9.8	$ (8.8)	$ 34.4	$ (1.8)
Continuing Operations | S&IP Business
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Expenses presented as component of S&IP kept in continuing operations		$ 9.1		$ 37.0

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Discontinued Operations - Financial Results of Discontinued Operations (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Net non-cash gain on Divestiture			$ 0.0	$ (98.4)
Income from Discontinued Operations, net of tax	$ 0.0	$ 34.0	$ 0.0	65.5
S&IP Business | Discontinued operations, held for sale
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items]
Net Sales		89.0		353.0
Cost of products sold		65.8		260.3
Research and development		0.2		1.1
Selling, general and other expenses		10.9		38.1
Net non-cash gain on Divestiture		(89.9)		(89.9)
Other expense, net		0.1		0.4
Income from Discontinued Operations before income taxes		101.9		143.0
Tax provision from discontinued operations		(67.9)		(77.5)
Income from Discontinued Operations, net of tax		$ 34.0		$ 65.5

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Discontinued Operations - Operating and Investing Cash Flow Information of Discontinued Operations (Details) - S&IP Business - Discontinued operations, held for sale $ in Millions	6 Months Ended
	Jun. 30, 2018 USD ($)
Operating Activities:
Stock-based compensation expense	$ (1.5)
Investing Activities:
Capital expenditures	$ 2.9

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Supplemental Balance Sheet Information - Accounts Receivable (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items]
Accounts receivable	$ 127.1	$ 152.2
Accounts receivable, net	124.3	150.5
Doubtful accounts
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items]
Sales returns	(2.4)	(1.4)
Sales discounts
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items]
Sales returns	(0.3)	(0.2)
Sales returns
SEC Schedule, 12-09, Valuation and Qualifying Accounts Disclosure [Line Items]
Sales returns	$ (0.1)	$ (0.1)

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Supplemental Balance Sheet Information - Inventories (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Inventory, LIFO, Net [Abstract]
Raw materials	$ 41.1	$ 39.6
Work in process	27.2	22.1
Finished goods	55.1	50.1
Supplies and other	0.0	0.0
Inventory, gross	123.4	111.8
Excess of FIFO or weighted-average cost over LIFO cost	(11.6)	(11.8)
Inventories, net	111.8	100.0
Inventory, Non-LIFO, Net [Abstract]
Raw materials	1.3	1.5
Work in process	0.4	0.4
Finished goods	14.4	13.7
Supplies and other	6.0	5.8
Inventory, gross	22.1	21.4
Inventories, net	22.1	21.4
Inventory, Net [Abstract]
Raw materials	42.4	41.1
Work in process	27.6	22.5
Finished goods	69.5	63.8
Supplies and other	6.0	5.8
Inventory, gross	145.5	133.2
Excess of FIFO or weighted-average cost over LIFO cost	(11.6)	(11.8)
Inventories	$ 133.9	$ 121.4

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Supplemental Balance Sheet Information - Property, Plant and Equipment (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 264.5		$ 264.5		$ 238.3
Less accumulated depreciation	(90.1)		(90.1)		(84.2)
Total	174.4		174.4		154.1
Depreciation expense	3.7	$ 3.2	7.3	$ 6.4
Land
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	1.0		1.0		0.9
Buildings
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	46.2		46.2		43.5
Machinery and equipment
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	146.4		146.4		141.2
Construction in progress
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	70.9		70.9		52.7
Construction in progress | ITS Plan
Property, Plant and Equipment [Line Items]
Property, plant and equipment, gross	$ 50.0		$ 50.0		$ 33.2

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Supplemental Balance Sheet Information - Schedule of Goodwill (Details) $ in Millions	6 Months Ended
	Jun. 30, 2019 USD ($)
Goodwill [Roll Forward]
Balance at December 31, 2018	$ 783.6
Purchase accounting adjustment	(1.9)
Currency translation adjustment	0.6
Balance at June 30, 2019	$ 782.3

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Supplemental Balance Sheet Information - Schedule of Intangible Assets (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 397.0		$ 397.0		$ 397.0
Accumulated Amortization	(238.5)		(238.5)		(228.8)
Net Carrying Amount	158.5		158.5		168.2
Amortization expense for intangible assets	4.8	$ 4.7	9.6	$ 9.2
Trademarks
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	83.1		83.1		83.1
Accumulated Amortization	(54.4)		(54.4)		(52.2)
Net Carrying Amount	28.7		28.7		30.9
Patents and acquired technologies
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	259.5		259.5		259.5
Accumulated Amortization	(150.5)		(150.5)		(144.4)
Net Carrying Amount	109.0		109.0		115.1
Other
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	54.4		54.4		54.4
Accumulated Amortization	(33.6)		(33.6)		(32.2)
Net Carrying Amount	$ 20.8		$ 20.8		$ 22.2

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Supplemental Balance Sheet Information - Schedule of Estimated Amortization Expense (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Estimated Amortization Expense
2019	$ 16.9
2020	24.6
2021	22.3
2022	22.1
2023	20.8
Thereafter	51.8
Net Carrying Amount	$ 158.5	$ 168.2

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Supplemental Balance Sheet Information - Accrued Expenses (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Accrued rebates	$ 19.1	$ 26.1
Accrued salaries and wages	21.9	27.0
Accrued taxes	4.2	6.5
Other	27.7	34.8
Total	$ 72.9	$ 94.4

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Supplemental Balance Sheet Information - Other Long-Term Liabilities (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Taxes payable	$ 0.4	$ 0.4
Accrued compensation benefits	4.2	4.3
Other	1.0	15.1
Total	$ 5.6	$ 19.8

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Leases - Summary of Right-of-use Assets and Lease Liabilities (Details) $ in Millions	Jun. 30, 2019 USD ($)
Leases [Abstract]
Operating Lease Right-of-Use Assets	$ 67.2
Current portion of operating lease liabilities	14.7
Operating lease liabilities	65.5
Future minimum obligations	$ 80.2
Weighted average remaining lease term	7 years 7 months 6 days
Weighted average discount rate	4.60%

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Leases - Costs and Cash Flows Arising from Lease Arrangements (Details) - USD ($) $ in Millions	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019
Leases [Abstract]
Operating lease cost	$ 3.5	$ 5.9
Short-term lease cost	0.5	1.1
Variable lease cost	0.5	0.8
Lease, Cost	4.5	7.8
Cash paid for amounts included in the measurement of lease liabilities	5.6	9.0
Right-of-use assets obtained in exchange for new operating lease liabilities	$ 14.7	$ 21.2

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Leases - Future Minimum Obligations under Operating Leases (Details) $ in Millions	Jun. 30, 2019 USD ($)
Leases [Abstract]
2019	$ 5.7
2020	14.5
2021	13.8
2022	13.4
2023	11.5
Thereafter	34.7
Future minimum obligations	$ 93.6

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Fair Value Information (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018	Dec. 31, 2017
Assets
Cash and cash equivalents	$ 288.1	$ 384.5	$ 531.1	$ 219.7
Liabilities
Senior Unsecured Notes	247.8	247.7
Level 1 | Carrying Amount
Assets
Cash and cash equivalents	288.1	384.5
Liabilities
Senior Unsecured Notes	247.8	247.7
Level 1 | Estimated Fair Value
Assets
Cash and cash equivalents	288.1	384.5
Liabilities
Senior Unsecured Notes	$ 254.9	$ 250.9

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Debt - Schedule of Debt (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
Unamortized Debt Discounts and Issuance Costs	$ (2.0)	$ (2.3)
Total Debt, net	$ 247.8	247.7
Senior Unsecured Notes | 6.25% Senior Notes
Debt Instrument [Line Items]
Weighted-Average Interest Rate	6.25%
Senior Unsecured Notes	$ 249.8	$ 250.0

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Debt - Additional Information (Details) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2019	Jun. 30, 2018
Debt Instrument [Line Items]
Debt redeemed		$ 200,000	$ 339,000,000.0
6.25% Senior Notes | Senior Unsecured Notes
Debt Instrument [Line Items]
Weighted-average interest rate	6.25%	6.25%
Effective interest rate	6.52%	6.52%
Amount of offer to redeem Notes in second quarter of 2019	$ 130,500,000
Debt redeemed	200,000
Term loan facility | Secured line of credit | Revolving credit facility
Debt Instrument [Line Items]
Borrowing capacity	$ 250,000,000.0	$ 250,000,000.0
Unused capacity, commitment fee percentage		0.38%
Consolidated total leverage ratio	2.25	2.25
Term loan facility | Secured line of credit | Revolving credit facility | Leverage Ratio, Less than 2.25
Debt Instrument [Line Items]
Unused capacity, commitment fee percentage		0.25%
Term loan facility | Secured line of credit | Revolving credit facility | Minimum | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate		1.50%
Term loan facility | Secured line of credit | Revolving credit facility | Minimum | Base rate
Debt Instrument [Line Items]
Basis spread on variable rate		0.50%
Term loan facility | Secured line of credit | Revolving credit facility | Maximum | LIBOR
Debt Instrument [Line Items]
Basis spread on variable rate		2.25%
Term loan facility | Secured line of credit | Revolving credit facility | Maximum | Base rate
Debt Instrument [Line Items]
Basis spread on variable rate		1.25%
Term loan facility | Secured line of credit | Letter of credit
Debt Instrument [Line Items]
Borrowing capacity	$ 75,000,000	$ 75,000,000
Term loan facility | Secured line of credit | Swingline sub-facility
Debt Instrument [Line Items]
Borrowing capacity	25,000,000	25,000,000
Term loan facility | Senior Secured Term Loan | Revolving credit facility
Debt Instrument [Line Items]
Amount outstanding	0	0
Term loan facility | Senior Secured Term Loan | Letter of credit
Debt Instrument [Line Items]
Letters of credit outstanding	$ 700,000	$ 700,000

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Accumulated Other Comprehensive Income (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Accumulated Other Comprehensive Income
Balance			$ 1,297.2
Other comprehensive income	$ 1.9	$ (10.3)	2.6	$ (0.8)
Balance	1,276.9	1,286.6	1,276.9	1,286.6
Unrealized Translation
Accumulated Other Comprehensive Income
Balance			(34.3)
Other comprehensive income			2.6
Balance	(31.7)		(31.7)
Cash Flow Hedges
Accumulated Other Comprehensive Income
Balance			0.5
Other comprehensive income			0.0
Balance	0.5		0.5
Defined Benefit Pension Plans
Accumulated Other Comprehensive Income
Balance			0.1
Other comprehensive income			0.0
Balance	0.1		0.1
Accumulated Other Comprehensive (Loss) Income
Accumulated Other Comprehensive Income
Balance	(33.0)	(21.8)	(33.7)	(31.3)
Balance	$ (31.1)	$ (32.1)	$ (31.1)	$ (32.1)

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Accumulated Other Comprehensive Income - Net Changes in Components of AOCI, Including Tax Effect (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Equity [Abstract]
Unrealized translation	$ 1.9	$ (10.0)	$ 2.6	$ (0.7)
Defined benefit pension plans	0.0	1.2	0.0	0.9
Tax effect	0.0	(0.2)	0.0	(0.2)
Defined benefit pension plans, net of tax	0.0	1.0	0.0	0.7
Cash flow hedges	0.0	(1.6)	0.0	(1.0)
Tax effect	0.0	0.3	0.0	0.2
Cash flow hedges, net of tax	0.0	(1.3)	0.0	(0.8)
Total Other Comprehensive Income (Loss), net of tax	$ 1.9	$ (10.3)	$ 2.6	$ (0.8)

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Stock-Based Compensation - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 1.8		$ 6.0
Continuing Operations
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense		$ 3.8		$ 7.0
Discontinued Operations
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation, net forfeitures		(1.7)		(1.4)
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	0.9	1.4	1.7	1.8
Time-Based Restricted Share Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	0.4	1.0	2.6	2.8
Performance-based Restricted Share Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based compensation expense	$ 0.5	$ 1.4	$ 1.7	$ 2.4

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Commitments and Contingencies - Additional Information (Details) $ in Millions					3 Months Ended		6 Months Ended
	Apr. 11, 2018 USD ($)	Mar. 30, 2018 motion	May 25, 2017 motion	Apr. 07, 2017 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2019 USD ($)	Jun. 30, 2018 USD ($)
Loss Contingencies [Line Items]
Legal expense and settlement accrual					$ 4.7	$ 1.2	$ 13.4	$ 2.9
Bahamas Surgery Center
Loss Contingencies [Line Items]
Number of post-file motions filed | motion			3
Number of post-file motions denied | motion		3
Supreme Court, punitive damages and compensatory damages, ratio		5
Judicial ruling | Class action, compensatory damages | Bahamas Surgery Center
Loss Contingencies [Line Items]
Compensatory damages awarded to plaintiff				$ 0.3
Judicial ruling | Class action, punitive damages | Bahamas Surgery Center
Loss Contingencies [Line Items]
Compensatory damages awarded to plaintiff				100.0
Judicial ruling | Class action, compensatory damages, amended | Bahamas Surgery Center
Loss Contingencies [Line Items]
Compensatory damages awarded to plaintiff	$ 0.3
Judicial ruling | Class action, punitive damages, amended | Bahamas Surgery Center
Loss Contingencies [Line Items]
Compensatory damages awarded to plaintiff	1.3
Kimberly-Clark Corporation | Judicial ruling | Class action, compensatory damages | Bahamas Surgery Center
Loss Contingencies [Line Items]
Compensatory damages awarded to plaintiff				3.9
Kimberly-Clark Corporation | Judicial ruling | Class action, punitive damages | Bahamas Surgery Center
Loss Contingencies [Line Items]
Compensatory damages awarded to plaintiff				$ 350.0
Kimberly-Clark Corporation | Judicial ruling | Class action, compensatory damages, amended | Bahamas Surgery Center
Loss Contingencies [Line Items]
Compensatory damages awarded to plaintiff	3.9
Kimberly-Clark Corporation | Judicial ruling | Class action, punitive damages, amended | Bahamas Surgery Center
Loss Contingencies [Line Items]
Compensatory damages awarded to plaintiff	19.4
Pre-judgment interest	$ 1.3

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Earnings Per Share ("EPS") (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Earnings Per Share [Abstract]
(Loss) Income from continuing operations	$ (8.0)	$ 1.3	$ (28.3)	$ (10.0)
Income from discontinued operations, net of tax	0.0	34.0	0.0	65.5
Net (Loss) Income	$ (8.0)	$ 35.3	$ (28.3)	$ 55.5
Weighted Average Shares Outstanding:
Basic weighted average shares outstanding (in shares)	47.6	47.1	47.5	47.0
Dilutive effect of stock options and restricted share unit awards (in shares)	0.0	1.1	0.0	0.0
Diluted weighted average shares outstanding (in shares)	47.6	48.2	47.5	47.0
Basic:
Continuing operations (in dollars per share)	$ (0.17)	$ 0.03	$ (0.60)	$ (0.21)
Discontinued operations (in dollars per share)	0	0.72	0	1.39
Basic (Loss) Earnings Per Share (in dollars per share)	(0.17)	0.75	(0.60)	1.18
Diluted:
Continuing operations (in dollars per share)	(0.17)	0.03	(0.60)	(0.21)
Discontinued operations (in dollars per share)	0	0.70	0	1.39
Diluted (Loss) Earnings Per Share (in dollars per share)	$ (0.17)	$ 0.73	$ (0.60)	$ 1.18
Dilutive securities excluded from computation of earnings per share (in shares)	1.6	1.1	1.6

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Business and Products Information - Narrative (Details)	6 Months Ended
	Jun. 30, 2019 country segment
Segment Reporting [Abstract]
Number of operating segments	1
Number of reportable segments	1
Number of countries entity provides goods to | country	90

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Business and Products Information - Net Sales by Product Category (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Disaggregation of Revenue [Line Items]
Net Sales	$ 172.2	$ 160.9	$ 336.4	$ 317.3
Chronic care
Disaggregation of Revenue [Line Items]
Net Sales	102.3	97.1	202.3	194.2
Pain management
Disaggregation of Revenue [Line Items]
Net Sales	$ 69.9	$ 63.8	$ 134.1	$ 123.1

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Supplemental Guarantor Financial Information - Additional Information (Details)	6 Months Ended
	Jun. 30, 2019
Condensed Financial Information Disclosure [Abstract]
Cumulative percentage ownership, after all transactions	100.00%

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Supplemental Guarantor Financial Information - Condensed Consolidating Income and Comprehensive Income Statements (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018	Jun. 30, 2019	Jun. 30, 2018
Condensed Income Statements, Captions [Line Items]
Net Sales	$ 172.2	$ 160.9	$ 336.4	$ 317.3
Cost of products sold	73.5	66.2	138.9	131.5
Gross Profit	98.7	94.7	197.5	185.8
Research and development	9.5	10.8	19.7	20.7
Selling and general expenses	94.7	79.8	201.1	166.2
Other expense (income), net	4.3	(4.7)	11.1	(2.9)
Operating (Loss) Income	(9.8)	8.8	(34.4)	1.8
Interest income	2.0	2.2	4.4	3.2
Interest expense	(3.5)	(9.9)	(7.2)	(18.7)
(Loss) Income Before Income Taxes	(11.3)	1.1	(37.2)	(13.7)
Income tax benefit (provision)	3.3	0.2	8.9	3.7
Equity in earnings of consolidated subsidiaries	0.0	0.0	0.0	0.0
(Loss) Income from Continuing Operations	(8.0)	1.3	(28.3)	(10.0)
(Loss) Income from discontinued operations, net of tax	0.0	34.0	0.0	65.5
Net Income	(8.0)	35.3	(28.3)	55.5
Total other comprehensive income (loss), net of tax	1.9	(10.3)	2.6	(0.8)
Comprehensive (Loss) Income	(6.1)	25.0	(25.7)	54.7
Eliminations
Condensed Income Statements, Captions [Line Items]
Net Sales	(20.4)	(45.9)	(39.9)	(137.7)
Cost of products sold	(20.4)	(45.9)	(39.9)	(137.7)
Gross Profit	0.0	0.0	0.0	0.0
Research and development	0.0	0.0	0.0	0.0
Selling and general expenses	0.0	0.0	0.0	0.0
Other expense (income), net	0.0	4.0	0.0	4.0
Operating (Loss) Income	0.0	(4.0)	0.0	(4.0)
Interest income	(0.9)	(1.1)	(1.9)	(1.9)
Interest expense	0.9	1.1	1.9	1.9
(Loss) Income Before Income Taxes	0.0	(4.0)	0.0	(4.0)
Income tax benefit (provision)	0.0	0.0	0.0	0.0
Equity in earnings of consolidated subsidiaries	(0.2)	(186.9)	8.0	(228.4)
(Loss) Income from Continuing Operations		(190.9)		(232.4)
(Loss) Income from discontinued operations, net of tax		0.0		0.0
Net Income	(0.2)	(190.9)	8.0	(232.4)
Total other comprehensive income (loss), net of tax	(2.5)	14.5	(4.3)	(2.1)
Comprehensive (Loss) Income	(2.7)	(176.4)	3.7	(234.5)
Parent | Reportable legal entities
Condensed Income Statements, Captions [Line Items]
Net Sales	0.0	0.0	0.0	0.0
Cost of products sold	0.0	(0.8)	0.0	(0.8)
Gross Profit	0.0	0.8	0.0	0.8
Research and development	0.0	0.0	0.0	0.0
Selling and general expenses	3.9	8.7	15.3	20.6
Other expense (income), net	0.1	(2.5)	0.0	(2.2)
Operating (Loss) Income	(4.0)	(5.4)	(15.3)	(17.6)
Interest income	1.5	1.4	3.3	1.8
Interest expense	(4.3)	(10.0)	(8.6)	(18.9)
(Loss) Income Before Income Taxes	(6.8)	(14.0)	(20.6)	(34.7)
Income tax benefit (provision)	1.6	1.0	5.0	8.9
Equity in earnings of consolidated subsidiaries	(2.8)	54.8	(12.7)	87.8
(Loss) Income from Continuing Operations		41.8		62.0
(Loss) Income from discontinued operations, net of tax		(6.5)		(6.5)
Net Income	(8.0)	35.3	(28.3)	55.5
Total other comprehensive income (loss), net of tax	1.9	(10.3)	2.6	(0.8)
Comprehensive (Loss) Income	(6.1)	25.0	(25.7)	54.7
Guarantor Subsidiaries | Reportable legal entities
Condensed Income Statements, Captions [Line Items]
Net Sales	161.8	169.7	316.5	343.0
Cost of products sold	71.1	89.4	134.5	173.9
Gross Profit	90.7	80.3	182.0	169.1
Research and development	9.5	10.8	19.7	20.7
Selling and general expenses	80.8	59.6	166.1	122.0
Other expense (income), net	8.5	(3.0)	16.7	1.2
Operating (Loss) Income	(8.1)	12.9	(20.5)	25.2
Interest income	0.0	0.1	0.1	0.1
Interest expense	(0.1)	(0.9)	(0.4)	(1.6)
(Loss) Income Before Income Taxes	(8.2)	12.1	(20.8)	23.7
Income tax benefit (provision)	2.9	1.9	5.1	(1.3)
Equity in earnings of consolidated subsidiaries	3.0	132.1	4.7	140.6
(Loss) Income from Continuing Operations		146.1		163.0
(Loss) Income from discontinued operations, net of tax		(66.8)		(49.9)
Net Income	(2.3)	79.3	(11.0)	113.1
Total other comprehensive income (loss), net of tax	1.5	(5.7)	2.4	2.8
Comprehensive (Loss) Income	(0.8)	73.6	(8.6)	115.9
Non-Guarantor Subsidiaries | Reportable legal entities
Condensed Income Statements, Captions [Line Items]
Net Sales	30.8	37.1	59.8	112.0
Cost of products sold	22.8	23.5	44.3	96.1
Gross Profit	8.0	13.6	15.5	15.9
Research and development	0.0	0.0	0.0	0.0
Selling and general expenses	10.0	11.5	19.7	23.6
Other expense (income), net	(4.3)	(3.2)	(5.6)	(5.9)
Operating (Loss) Income	2.3	5.3	1.4	(1.8)
Interest income	1.4	1.8	2.9	3.2
Interest expense	0.0	(0.1)	(0.1)	(0.1)
(Loss) Income Before Income Taxes	3.7	7.0	4.2	1.3
Income tax benefit (provision)	(1.2)	(2.7)	(1.2)	(3.9)
Equity in earnings of consolidated subsidiaries	0.0	0.0	0.0	0.0
(Loss) Income from Continuing Operations		4.3		(2.6)
(Loss) Income from discontinued operations, net of tax		107.3		121.9
Net Income	2.5	111.6	3.0	119.3
Total other comprehensive income (loss), net of tax	1.0	(8.8)	1.9	(0.7)
Comprehensive (Loss) Income	$ 3.5	$ 102.8	$ 4.9	$ 118.6

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Supplemental Guarantor Financial Information - Condensed Consolidating Balance Sheets (Details) - USD ($) $ in Millions	Jun. 30, 2019	Dec. 31, 2018	Jun. 30, 2018
Current Assets
Cash and cash equivalents	$ 288.1	$ 384.5
Accounts receivable, net of allowances	124.3	150.5
Inventories	133.9	121.4
Prepaid expenses and other current assets	26.2	57.2
Total Current Assets	572.5	713.6
Property, Plant and Equipment, net	174.4	154.1
Operating Lease Right-of-Use Assets	67.2
Investment in Consolidated Subsidiaries	0.0	0.0
Goodwill	782.3	783.6
Other Intangible Assets, net	158.5	168.2
Other Assets	28.5	13.9
TOTAL ASSETS	1,783.4	1,833.4
Current Liabilities
Current portion of operating lease liabilities	14.7
Trade accounts payable	99.4	169.9
Accrued expenses	72.9	94.4
Total Current Liabilities	187.0	264.3
Long-Term Debt	247.8	247.7
Operating Lease Liabilities	65.5
Other Long-Term Liabilities	6.2	24.2
Total Liabilities	506.5	536.2
Total Equity	1,276.9	1,297.2	$ 1,286.6
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	1,783.4	1,833.4
Eliminations
Current Assets
Cash and cash equivalents	0.0	0.0
Accounts receivable, net of allowances	(1,261.2)	(1,323.4)
Inventories	0.0	0.0
Prepaid expenses and other current assets	0.0	(1.9)
Total Current Assets	(1,261.2)	(1,325.3)
Property, Plant and Equipment, net	0.0	0.0
Operating Lease Right-of-Use Assets	0.0
Investment in Consolidated Subsidiaries	(2,698.7)	(2,638.9)
Goodwill	0.0	0.0
Other Intangible Assets, net	0.0	0.0
Other Assets	0.0	0.0
TOTAL ASSETS	(3,959.9)	(3,964.2)
Current Liabilities
Current portion of operating lease liabilities	0.0
Trade accounts payable	(1,247.4)	(1,311.4)
Accrued expenses	(13.8)	(13.9)
Total Current Liabilities	(1,261.2)	(1,325.3)
Long-Term Debt	0.0	0.0
Operating Lease Liabilities	0.0
Other Long-Term Liabilities	0.0	0.0
Total Liabilities	(1,261.2)	(1,325.3)
Total Equity	(2,698.7)	(2,638.9)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	(3,959.9)	(3,964.2)
Parent | Reportable legal entities
Current Assets
Cash and cash equivalents	199.2	303.9
Accounts receivable, net of allowances	2.2	4.5
Inventories	0.0	0.0
Prepaid expenses and other current assets	3.2	1.1
Total Current Assets	204.6	309.5
Property, Plant and Equipment, net	0.0	0.0
Operating Lease Right-of-Use Assets	0.0
Investment in Consolidated Subsidiaries	2,408.3	2,404.2
Goodwill	0.0	0.0
Other Intangible Assets, net	0.0	0.0
Other Assets	8.4	1.6
TOTAL ASSETS	2,621.3	2,715.3
Current Liabilities
Current portion of operating lease liabilities	0.0
Trade accounts payable	1,086.0	1,160.7
Accrued expenses	9.1	8.2
Total Current Liabilities	1,095.1	1,168.9
Long-Term Debt	247.8	247.7
Operating Lease Liabilities	0.0
Other Long-Term Liabilities	1.5	1.5
Total Liabilities	1,344.4	1,418.1
Total Equity	1,276.9	1,297.2
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	2,621.3	2,715.3
Guarantor Subsidiaries | Reportable legal entities
Current Assets
Cash and cash equivalents	27.3	29.3
Accounts receivable, net of allowances	1,188.8	1,257.3
Inventories	117.7	106.2
Prepaid expenses and other current assets	20.9	23.8
Total Current Assets	1,354.7	1,416.6
Property, Plant and Equipment, net	150.2	132.6
Operating Lease Right-of-Use Assets	58.6
Investment in Consolidated Subsidiaries	290.4	234.7
Goodwill	756.9	758.7
Other Intangible Assets, net	150.4	159.8
Other Assets	18.5	10.8
TOTAL ASSETS	2,779.7	2,713.2
Current Liabilities
Current portion of operating lease liabilities	12.3
Trade accounts payable	237.2	268.2
Accrued expenses	65.1	77.3
Total Current Liabilities	314.6	345.5
Long-Term Debt	0.0	0.0
Operating Lease Liabilities	59.0
Other Long-Term Liabilities	1.8	20.0
Total Liabilities	375.4	365.5
Total Equity	2,404.3	2,347.7
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	2,779.7	2,713.2
Non-Guarantor Subsidiaries | Reportable legal entities
Current Assets
Cash and cash equivalents	61.6	51.3
Accounts receivable, net of allowances	194.5	212.1
Inventories	16.2	15.2
Prepaid expenses and other current assets	2.1	34.2
Total Current Assets	274.4	312.8
Property, Plant and Equipment, net	24.2	21.5
Operating Lease Right-of-Use Assets	8.6
Investment in Consolidated Subsidiaries	0.0	0.0
Goodwill	25.4	24.9
Other Intangible Assets, net	8.1	8.4
Other Assets	1.6	1.5
TOTAL ASSETS	342.3	369.1
Current Liabilities
Current portion of operating lease liabilities	2.4
Trade accounts payable	23.6	52.4
Accrued expenses	12.5	22.8
Total Current Liabilities	38.5	75.2
Long-Term Debt	0.0	0.0
Operating Lease Liabilities	6.5
Other Long-Term Liabilities	2.9	2.7
Total Liabilities	47.9	77.9
Total Equity	294.4	291.2
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 342.3	$ 369.1

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Supplemental Guarantor Financial Information - Condensed Consolidating Statements of Cash Flows (Details) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2019	Jun. 30, 2018
Operating Activities
Cash (Used in) Provided by Operating Activities	$ (55.0)	$ (70.4)
Investing Activities
Capital expenditures	(35.4)	(20.7)
Acquisition of business, net of cash acquired	(7.0)
Proceeds from the Divestiture	0.0	734.5
Intercompany contributions	0.0	0.0
Cash (Used in) Provided by Investing Activities	(42.4)	713.8
Financing Activities
Intercompany contributions	0.0	0.0
Debt repayments	(0.2)	(339.0)
Purchases of treasury stock	(3.3)	(0.6)
Proceeds from the exercise of stock options	2.6	11.4
Cash Used in Financing Activities	(0.9)	(328.2)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	1.9	(3.8)
(Decrease) Increase in Cash and Cash Equivalents	(96.4)	311.4
Cash and Cash Equivalents - Beginning of Period	384.5	219.7
Cash and Cash Equivalents - End of Period	288.1	531.1
Eliminations
Operating Activities
Cash (Used in) Provided by Operating Activities	0.0	0.0
Investing Activities
Capital expenditures	0.0	0.0
Acquisition of business, net of cash acquired	0.0
Proceeds from the Divestiture		0.0
Intercompany contributions	(69.1)	(36.3)
Cash (Used in) Provided by Investing Activities	(69.1)	(36.3)
Financing Activities
Intercompany contributions	69.1	36.3
Debt repayments	0.0	0.0
Purchases of treasury stock	0.0	0.0
Proceeds from the exercise of stock options	0.0	0.0
Cash Used in Financing Activities	69.1	36.3
Effect of Exchange Rate Changes on Cash and Cash Equivalents	0.0	0.0
(Decrease) Increase in Cash and Cash Equivalents	0.0	0.0
Cash and Cash Equivalents - Beginning of Period	0.0	0.0
Cash and Cash Equivalents - End of Period	0.0	0.0
Parent | Reportable legal entities
Operating Activities
Cash (Used in) Provided by Operating Activities	(27.7)	(114.2)
Investing Activities
Capital expenditures	0.0	0.0
Acquisition of business, net of cash acquired	(7.0)
Proceeds from the Divestiture		521.6
Intercompany contributions	0.0	0.0
Cash (Used in) Provided by Investing Activities	(7.0)	521.6
Financing Activities
Intercompany contributions	(69.1)	(32.3)
Debt repayments	(0.2)	(339.0)
Purchases of treasury stock	(3.3)	(0.6)
Proceeds from the exercise of stock options	2.6	11.4
Cash Used in Financing Activities	(70.0)	(360.5)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	0.0	0.0
(Decrease) Increase in Cash and Cash Equivalents	(104.7)	46.9
Cash and Cash Equivalents - Beginning of Period	303.9	114.5
Cash and Cash Equivalents - End of Period	199.2	161.4
Guarantor Subsidiaries | Reportable legal entities
Operating Activities
Cash (Used in) Provided by Operating Activities	(39.2)	31.3
Investing Activities
Capital expenditures	(32.4)	(15.0)
Acquisition of business, net of cash acquired	0.0
Proceeds from the Divestiture		9.0
Intercompany contributions	69.0	36.3
Cash (Used in) Provided by Investing Activities	36.6	30.3
Financing Activities
Intercompany contributions	0.0	0.0
Debt repayments	0.0	0.0
Purchases of treasury stock	0.0	0.0
Proceeds from the exercise of stock options	0.0	0.0
Cash Used in Financing Activities	0.0	0.0
Effect of Exchange Rate Changes on Cash and Cash Equivalents	0.6	0.1
(Decrease) Increase in Cash and Cash Equivalents	(2.0)	61.7
Cash and Cash Equivalents - Beginning of Period	29.3	16.0
Cash and Cash Equivalents - End of Period	27.3	77.7
Non-Guarantor Subsidiaries | Reportable legal entities
Operating Activities
Cash (Used in) Provided by Operating Activities	11.9	12.5
Investing Activities
Capital expenditures	(3.0)	(5.7)
Acquisition of business, net of cash acquired	0.0
Proceeds from the Divestiture		203.9
Intercompany contributions	0.1	0.0
Cash (Used in) Provided by Investing Activities	(2.9)	198.2
Financing Activities
Intercompany contributions	0.0	(4.0)
Debt repayments	0.0	0.0
Purchases of treasury stock	0.0	0.0
Proceeds from the exercise of stock options	0.0	0.0
Cash Used in Financing Activities	0.0	(4.0)
Effect of Exchange Rate Changes on Cash and Cash Equivalents	1.3	(3.9)
(Decrease) Increase in Cash and Cash Equivalents	10.3	202.8
Cash and Cash Equivalents - Beginning of Period	51.3	89.2
Cash and Cash Equivalents - End of Period	$ 61.6	$ 292.0