2.2.0.7falseImpairment of Goodwill and Other Intangibles0205 - Disclosure - Impairment of Goodwill and Other Intangiblestruefalsefalsefalse1USDfalsefalseUSDStandardhttp://www.xbrl.org/2003/iso4217USDiso42170USDEPSDividehttp://www.xbrl.org/2003/iso4217USDiso4217http://www.xbrl.org/2003/instancesharesxbrli0SharesStandardhttp://www.xbrl.org/2003/instancesharesxbrli0$20hrc_ImpairmentOfGoodwillAndOtherIntangiblesAbstracthrcfalsenadurationImpairment of Goodwill and Other Intangibles.falsefalsefalsefalsefalsetruefalsefalsefalsefalsefalsefalse1falsefalsefalsefalse00falsefalsefalsexbrli:stringItemTypestringImpairment of Goodwill and Other Intangibles.false31hrc_ImpairmentOfGoodwillAndOtherIntangiblesTextBlockhrcfalsenadurationCombination of disclsoures about impairment of goodwill and other intangibles.falsefalsefalsefalsefalsefalsefalsefalsefalsefalsefalseverboselabelfalse1falsefalsefalsefalse00<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>NOTE 5. IMPAIRMENT OF GOODWILL AND OTHER INTANGIBLES</b>
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The Company tests goodwill and other intangible assets for impairment on an annual basis during its
third fiscal quarter, or more often if events or circumstances indicate there may be impairment.
The assessment during the third quarter of 2010 and 2008 indicated that there was no impairment
with respect to goodwill or other recorded intangible assets. During the second quarter of fiscal
2009, as a result of the decline in our market capitalization related to the overall macro-economic
climate and its resulting unfavorable impact on hospital capital spending and our operating
results, the Company determined it was required to perform an interim impairment test with respect
to goodwill and certain other intangibles outside of its normal third fiscal quarter test period.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">Based on the results of goodwill and other intangible asset impairment testing as of March 31,
2009, the Company recorded an estimated impairment charge of $470 million in the second fiscal
quarter of 2009. During the third quarter of 2009, the Company refined its impairment assessment
for the second quarter and recorded an additional charge of $3.8 million. A further adjustment of
$1.0 million was required in the fourth quarter as a result of purchase accounting adjustments in
connection with the Liko acquisition. An additional adjustment is likely upon finalization of the
working capital and net debt adjustments associated with the Liko acquisition, with any such
adjustment expected to be favorable and not material.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">As discussed in Note 14, the Company operates in three reportable business segments. Goodwill and
other intangible impairment testing are performed at the reporting unit level, which is one level
below a reportable business segment. The Company has determined that it has six reporting units.
Goodwill is assigned to reporting units at the date the goodwill is initially recorded and has been
reallocated as necessary based on the restructuring of reporting units over time. Once goodwill
has been assigned to reporting units, it no longer retains its association with a particular
acquisition, and all of the activities within a reporting unit, whether acquired or organically
grown, are available to support the value of the goodwill.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The goodwill impairment test involves a two-step process. The first step, used to identify
potential impairment, is a comparison of each reporting unit’s estimated fair value to its carrying
value, including goodwill. If the fair value of a reporting unit exceeds its carrying value,
applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value,
there is an indication of impairment and the second step is performed to measure the amount of the
impairment. The second step requires the Company to calculate an implied fair value of goodwill.
The implied fair value of goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination, which is the excess of the fair value of the reporting unit,
as determined in the first step, over the aggregate fair values of the individual assets,
liabilities and identifiable intangibles as if the reporting unit was being
acquired in a business combination. If the goodwill assigned to a reporting unit exceeds the
implied fair value of the goodwill, an impairment charge is recorded for the excess.
</div>
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</div>
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<div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; ">
<div align="justify" style="font-size: 10pt; margin-top: 10pt">For our second quarter of 2009 analysis, the Company estimated the fair value of each reporting
unit in step one based on discounted cash flows as well as a market approach that compared each
reporting unit’s earnings and revenue multiples to those of comparable public companies. The
reporting unit’s discounted cash flows required significant management judgment with respect to
forecasted sales, gross margin and selling, general and administrative expenses, capital
expenditures and the selection and use of an appropriate discount rate. Utilizing the Company’s
weighted average cost of capital as the discount rate for the discounted cash flows and median
revenue and earnings multiples of comparable public companies under the market approach resulted in
an implied fair value substantially in excess of the Company’s market capitalization. In order to
reconcile the discounted cash flows and market approach fair values to the trading value of the
Company’s common stock, the Company applied higher discount rates than its weighted average cost of
capital to its discounted cash flows and utilized earnings and revenue multiples below the median
of comparable public companies, reflecting the equity risk premiums expected by a market
participant. The reconciled fair values under both the discounted cash flows and market approach
were substantially the same and resulted in three of the Company’s reporting units having a
carrying value in excess of their fair value.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The second step required the Company to allocate the fair value of each reporting unit that failed
the first step test to the fair value of each reporting unit’s net assets. The Company calculated
the fair values of each reporting unit’s net assets, with assistance from a third party valuation
firm in the determination of fair values for significant tangible and intangible assets. All
Company-specific data and analytics, including estimates and assumptions, used in the valuations
prepared by the third party valuation firm were either prepared or validated by the Company.
Management takes full responsibility for this data and the ultimate results of the valuation work
including the final fair values assigned to each reporting unit. Due to the fact that the Company
was required to allocate a significant portion of fair value to unrecorded intangible assets such
as the Hill-Rom trade name, technology and know-how and customer lists, but were not permitted to
record these assets on the Company’s balance sheet, the resulting fair value allocated to implied
goodwill was significantly lower than recorded goodwill resulting in the impairment charge.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">In fiscal 2009, the Company incurred the impairment charge for goodwill and other intangibles in
each of its three reportable segments in the following amounts — North America Acute Care $289.5
million, North America Post-Acute Care $68.6 million and International and Surgical $114.7 million,
which represented a full impairment of goodwill at that time in the applicable North America Acute
Care and International reporting units.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt">The following is a summary of the activity in goodwill by segment.
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="44%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>North America</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>North America</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"><b>International and</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2"> </td>
<td> </td>
</tr>
<tr style="font-size: 10pt" valign="bottom">
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Acute Care</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Post-Acute Care</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Surgical</b></td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>Total</b></td>
<td> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balances at October 1, 2008:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Goodwill
</div></td>
<td> </td>
<td align="left">$</td>
<td align="right">240.1</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">87.6</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">94.8</td>
<td> </td>
<td> </td>
<td align="left">$</td>
<td align="right">422.5</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Accumulated impairment losses
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Goodwill, net at October 1, 2008
</div></td>
<td> </td>
<td> </td>
<td align="right">240.1</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">87.6</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">94.8</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">422.5</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Changes in Goodwill during the period:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Goodwill related to acquisitions
</div></td>
<td> </td>
<td> </td>
<td align="right">49.4</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">26.6</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">63.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">139.5</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Impairment losses
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(289.5</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(68.6</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(114.7</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(472.8</td>
<td nowrap="nowrap">)</td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Currency translation effect
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(16.1</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(16.1</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balances at September 30, 2009:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Goodwill
</div></td>
<td> </td>
<td> </td>
<td align="right">289.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">114.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">142.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">545.9</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Accumulated impairment losses
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(289.5</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(68.6</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(114.7</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(472.8</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px">Goodwill, net at September 30, 2009
</div></td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">45.6</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">27.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">73.1</td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Changes in Goodwill during the period:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Goodwill related to acquisitions
</div></td>
<td> </td>
<td> </td>
<td align="right">8.0</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">—</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">8.0</td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom"><!-- Blank Space -->
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Balances at September 30, 2010:
</div></td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:30px; text-indent:-15px">Goodwill
</div></td>
<td> </td>
<td> </td>
<td align="right">297.5</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">114.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">142.2</td>
<td> </td>
<td> </td>
<td> </td>
<td align="right">553.9</td>
<td> </td>
</tr>
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:30px; text-indent:-15px">Accumulated impairment losses
</div></td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(289.5</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(68.6</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(114.7</td>
<td nowrap="nowrap">)</td>
<td> </td>
<td nowrap="nowrap" align="left"> </td>
<td align="right">(472.8</td>
<td nowrap="nowrap">)</td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td>
<td> </td>
</tr>
<tr valign="bottom">
<td>
<div style="margin-left:15px; text-indent:-15px"><b>Goodwill, net at September 30, 2010</b>
</div></td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>8.0</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>45.6</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>27.5</b></td>
<td> </td>
<td> </td>
<td align="left"><b>$</b></td>
<td align="right"><b>81.1</b></td>
<td> </td>
</tr>
<tr style="font-size: 1px">
<td>
<div style="margin-left:15px; text-indent:-15px"> 
</div></td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
<td> </td>
<td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td>
<td> </td>
</tr>
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