10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2014

OR

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ____ to ____

Commission File No. 1-6651

HILL-ROM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Indiana	35-1160484
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1069 State Route 46 East Batesville, Indiana	47006-8835
(Address of principal executive offices)	(Zip Code)

(812) 934-7777

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

            Large accelerated filer R       Accelerated filer £       Non-accelerated filer £       Smaller reporting company £

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

Yes o No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Common Stock, without par value – 56,506,661 shares as of January 26, 2015.

HILL-ROM HOLDINGS, INC.

INDEX TO FORM 10-Q

			Page
PART I - FINANCIAL INFORMATION
	Item 1 -	Financial Statements
		Condensed Consolidated Statements of Income	3
		(Unaudited) for the Quarterly Periods
		Ended December 31, 2014 and 2013
		Condensed Consolidated Statements of Comprehensive Income (Loss)	4
		(Unaudited) for the Quarterly Periods
		Ended December 31, 2014 and 2013
		Condensed Consolidated Balance Sheets (Unaudited) at	5
		December 31, 2014 and September 30, 2014
		Condensed Consolidated Statements of Cash Flows	6
		(Unaudited) for the Quarterly Periods
		Ended December 31, 2014 and 2013
		Notes to Condensed Consolidated Financial Statements (Unaudited)	7
	Item 2 -	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3 -	Quantitative and Qualitative Disclosures About Market Risks	24
	Item 4 -	Controls and Procedures	24
PART II - OTHER INFORMATION
	Item 1 -	Legal Proceedings	26
	Item 1A -	Risk Factors	26
	Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	26
	Item 6 -	Exhibits	27
SIGNATURES			28

2

PART I – FINANCIAL INFORMATION

Item 1.  FINANCIAL STATEMENTS

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(In millions, except per share data)

	Quarter Ended December 31
	2014			2013
Net Revenue
Capital sales	$	373.4		$	295.5
Rental revenue		91.6			97.9
Total revenue		465.0			393.4
Cost of Revenue
Cost of goods sold		220.5			171.2
Rental expenses		44.6			45.4
Total cost of revenue		265.1			216.6
Gross Profit		199.9			176.8
Research and development expenses		21.8			16.4
Selling and administrative expenses		155.1			138.0
Special charges (Note 8)		3.7			1.0
Operating Profit		19.3			21.4
Interest expense		(3.2	)		(2.0	)
Investment income and other, net		0.9			-
Income Before Income Taxes		17.0			19.4
Income tax expense (Note 9)		4.9			6.2
Net Income	$	12.1		$	13.2
Net Income per Common Share - Basic	$	0.21		$	0.23
Net Income per Common Share - Diluted	$	0.21		$	0.22
Dividends per Common Share	$	0.1525		$	0.1375
Average Common Shares Outstanding - Basic (thousands) (Note 10)		57,137			58,230
Average Common Shares Outstanding - Diluted (thousands) (Note 10)		58,154			59,142

See Notes to Condensed Consolidated Financial Statements

3

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In millions)

	Quarter Ended December 31
	2014			2013
Net Income	$	12.1		$	13.2
Other Comprehensive Income (Loss), net of tax (Note 7):
Available-for-sale securities and currency hedges		(0.4	)		0.1
Foreign currency translation adjustment		(22.6	)		5.8
Change in pension and postretirement defined benefit plans		0.9			0.6
Total Other Comprehensive Income (Loss), net of tax		(22.1	)		6.5
Total Comprehensive Income (Loss)	$	(10.0	)	$	19.7

See Notes to Condensed Consolidated Financial Statements

4

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(In millions, except share amounts)

	December 31, 2014			September 30, 2014
ASSETS
Current Assets
Cash and cash equivalents	$	113.7		$	99.3
Trade accounts receivable, net of allowances (Note 2)		374.9			411.0
Inventories (Note 2)		171.3			176.2
Deferred income taxes (Notes 1 and 9)		41.5			40.9
Other current assets		54.8			51.9
Total current assets		756.2			779.3
Property, plant and equipment, net (Note 2)		287.4			261.5
Goodwill (Note 4)		395.7			399.8
Software and other intangible assets, net (Note 2)		247.6			261.1
Deferred income taxes (Notes 1 and 9)		22.8			23.0
Other assets		26.5			27.4
Total Assets	$	1,736.2		$	1,752.1
LIABILITIES
Current Liabilities
Trade accounts payable	$	100.7		$	112.7
Short-term borrowings (Note 5)		127.5			126.9
Accrued compensation		62.2			89.2
Accrued product warranties (Note 12)		28.0			28.4
Other current liabilities		81.2			85.1
Total current liabilities		399.6			442.3
Long-term debt (Note 5)		454.8			364.9
Accrued pension and postretirement benefits (Note 6)		76.3			76.9
Deferred income taxes (Notes 1 and 9)		32.1			31.0
Other long-term liabilities		31.1			30.5
Total Liabilities		993.9			945.6
Commitments and Contingencies (Note 14)
SHAREHOLDERS' EQUITY
Common Stock (Note 2)		4.4			4.4
Additional paid-in-capital		135.4			134.1
Retained earnings		1,503.2			1,499.8
Accumulated other comprehensive loss (Note 7)		(96.2	)		(74.1	)
Treasury stock, at cost (Note 2)		(804.5	)		(757.7	)
Total Shareholders' Equity		742.3			806.5
Total Liabilities and Shareholders' Equity	$	1,736.2		$	1,752.1

See Notes to Condensed Consolidated Financial Statements

5

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In millions)

	Quarter Ended December 31
	2014			2013
Operating Activities
Net income	$	12.1		$	13.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation		17.3			16.9
Amortization		2.9			4.0
Acquisition-related intangible asset amortization		8.1			6.9
Provision for deferred income taxes		0.3			(6.6	)
Gain on disposal of property, equipment leased to others,
intangible assets and impairments		(0.3	)		(0.2	)
Stock compensation		4.7			3.6
Excess tax benefits from employee stock plans		(1.0	)		0.8
Change in working capital excluding cash, current investments,
current debt, acquisitions and dispositions:
Trade accounts receivable		36.1			35.5
Inventories		4.3			(2.3	)
Other current assets		(3.2	)		3.0
Trade accounts payable		(16.0	)		(9.6	)
Accrued expenses and other liabilities		(30.6	)		(26.6	)
Other, net		(3.7	)		3.7
Net cash provided by operating activities		31.0			42.3
Investing Activities
Capital expenditures and purchases of intangible assets		(44.9	)		(16.8	)
Proceeds on sale of property and equipment leased to others		0.5			0.5
Payment for acquisition of businesses, net of cash acquired		-			(1.3	)
Refund on acquisition of businesses		-			4.6
Net cash used in investing activities		(44.4	)		(13.0	)
Financing Activities
Net change in short-term debt		(0.7	)		(0.1	)
Borrowings on revolving credit facility		95.0			7.0
Proceeds from long-term debt		-			0.6
Payment of long-term debt		(3.8	)		(2.5	)
Purchase of noncontrolling interest		(1.0	)		(0.7	)
Payment of cash dividends		(8.6	)		(7.9	)
Proceeds on exercise of stock options		4.7			6.5
Proceeds from stock issuance		0.7			0.7
Excess tax benefits from employee stock plans		1.0			(0.8	)
Treasury stock acquired		(56.9	)		(42.1	)
Net cash provided by (used in) financing activities		30.4			(39.3	)
Effect of exchange rate changes on cash		(2.6	)		0.2
Net Cash Flows		14.4			(9.8	)
Cash and Cash Equivalents:
At beginning of period		99.3			127.4
At end of period	$	113.7		$	117.6

See Notes to Condensed Consolidated Financial Statements

6

Hill-Rom Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in millions except per share data)

1.  Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Unless the context otherwise requires, the terms “Hill-Rom,” “we,” “our” and “us” refer to Hill-Rom Holdings, Inc. and our wholly-owned subsidiaries.  The unaudited Condensed Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our latest Annual Report on Form 10-K for the fiscal year ended September 30, 2014 (“2014 Form 10-K”) as filed with the United States (“U.S.”) Securities and Exchange Commission.  The September 30, 2014 Condensed Consolidated Balance Sheet was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the U.S.  In the opinion of management, the Condensed Consolidated Financial Statements herein include all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows for the interim periods presented.  Quarterly results are not necessarily indicative of annual results.

The Condensed Consolidated Financial Statements include the accounts of Hill-Rom and its wholly-owned subsidiaries.  Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires our management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the period.  Actual results could differ from those estimates.  Examples of such estimates include our income taxes (Notes 1 and 9), accounts receivable reserves (Note 2), accrued warranties (Note 12), and commitments and contingencies (Note 14), among others.

Fair Value Measurements

Fair value measurements are classified and disclosed in one of the following three categories:

· Level 1:  Financial instruments with unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.

· Level 2:  Financial instruments with observable inputs other than those included in Level 1 such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

· Level 3:  Financial instruments with unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  Unobservable inputs reflect our own assumptions that market participants would use in pricing the asset or liability (including assumptions about risk).  Unobservable inputs shall be developed based on the best information available in the circumstances, which might include our own data.

We record cash and cash equivalents, as disclosed on our Condensed Consolidated Balance Sheets, as Level 1 instruments and certain other insignificant derivatives and investments as either Level 2 or 3 instruments.  Refer to Note 5 for disclosure of our debt instrument fair values.

Taxes Collected from Customers and Remitted to Governmental Units

Taxes assessed by a governmental authority that are directly imposed on a revenue producing transaction between us and our customers, including but not limited to sales taxes, use taxes and value added taxes, are accounted for on a net (excluded from revenue and costs) basis.

7

Income Taxes

We and our eligible domestic subsidiaries file a consolidated U.S. income tax return. Foreign operations file income tax returns in a number of jurisdictions.  Deferred income taxes are computed using an asset and liability approach to reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. We have a variety of deferred tax assets in numerous tax jurisdictions. These deferred tax assets are subject to periodic assessment as to recoverability.  If it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recognized. In evaluating whether it is more likely than not that we would recover these deferred tax assets, future taxable income, the reversal of existing temporary differences and tax planning strategies are considered.

As of December 31, 2014, we had $27.4 million of valuation allowances on deferred tax assets, on a tax-effected basis, primarily related to foreign operating loss carryforwards and other tax attributes. We believe that our estimates for the valuation allowances recorded against deferred tax assets are appropriate based on current facts and circumstances.

We account for uncertain income tax positions using a threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The difference between the tax benefit recognized in the financial statements for an uncertain income tax position and the tax benefit claimed in the tax return is referred to as an unrecognized tax benefit.

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance will be effective for us in the first quarter of fiscal 2018, ending December 31, 2017.  Early adoption is not permitted.  We are currently in the process of evaluating the impact of adoption of this ASU on our Consolidated Financial Statements.

There have been no significant changes to our assessment of the impact of recently issued accounting standards included in Note 1 of Notes to Consolidated Financial Statements in our 2014 Form 10-K.

2.  Supplementary Balance Sheet Information

	December 31, 2014		September 30, 2014
Allowance for possible losses and discounts on trade receivables	$	30.0	$	31.4
Inventories:
Finished products	$	88.8	$	93.5
Raw materials and work in process		82.5		82.7
Total inventory	$	171.3	$	176.2
Accumulated depreciation of property, plant and equipment	$	593.3	$	588.1
Accumulated amortization of software and other intangible assets	$	291.4	$	283.3
Preferred stock, without par value:
Shares authorized		1,000,000		1,000,000
Shares issued	None		None
Common stock, without par value:
Shares authorized		199,000,000		199,000,000
Shares issued		80,323,912		80,323,912
Shares outstanding		56,495,427		57,439,911
Treasury shares		23,828,485		22,884,001

8

3. Acquisitions

Trumpf Medical

On August 1, 2014, we completed the acquisition of Trumpf Medical (“Trumpf”) and funded the transaction with a combination of cash on hand and borrowings under the revolving credit facility.  Trumpf provides a portfolio of well-established operating room (OR) infrastructure products such as surgical tables, surgical lighting, and supply units and expands our product offerings in the surgical suite. 

The purchase price was $229.9 million ($223.6 million net of cash acquired).  The results of Trumpf are included in the Condensed Consolidated Financial Statements since the date of acquisition.

The following summarizes the fair value of assets acquired and liabilities assumed at the date of the acquisition.  During the first quarter of 2015, we made certain adjustments to the opening balance sheet as of the acquisition date. These results are preliminary and subject to normal true-up provisions in the purchase agreement and other fair value adjustments.

	Amount
Trade receivables	$	66.3
Inventory		63.9
Other current assets		24.3
Property, plant, and equipment		42.1
Goodwill		59.0
Trade name (5-year useful life)		6.7
Customer relationships (10-year weighted average useful life)		15.8
Developed technology (8-year weighted average useful life)		17.8
Other intangibles		4.8
Other noncurrent assets		0.7
Deferred tax asset		14.9
Current liabilities		(72.3	)
Long term debt		(6.0	)
Noncurrent liabilities		(8.1	)
Total purchase price	$	229.9

Goodwill was allocated entirely to our Surgical and Respiratory Care segment.  The goodwill related to the acquired German operations will be tax deductible while the remaining goodwill will not be deductible for tax purposes.

On an unaudited proforma basis, as if the Trumpf acquisition had been consummated prior to the earliest date of the financial results presented, our revenue would have been higher by approximately $60 million for the quarter ended December 31, 2013.  As previously disclosed, the impact to net income on an unaudited proforma basis would not have been significant to our financial results for fiscal 2014.  The unaudited pro forma results are based on the Company’s historical financial statements and those of the Trumpf business and do not necessarily indicate the results of operations that would have resulted had the acquisition been completed at the beginning of the comparable period presented and are not indicative of the results of operations in future periods.

9

4.  Goodwill and Indefinite-Lived Intangible Assets

The following summarizes goodwill activity by reportable segment:

	North America			Surgical and Respiratory Care			International			Total
Balances at September 30, 2014:
Goodwill	$	390.6		$	333.5		$	148.5		$	872.6
Accumulated impairment losses		(358.1	)		-			(114.7	)		(472.8	)
Goodwill, net at September 30, 2014		32.5			333.5			33.8			399.8
Changes in Goodwill during the period:
Goodwill related to acquisitions		-			1.7			-			1.7
Currency translation effect		-			(4.6	)		(1.2	)		(5.8	)
Balances at December 31, 2014:
Goodwill		390.6			330.6			147.3			868.5
Accumulated impairment losses		(358.1	)		-			(114.7	)		(472.8	)
Goodwill, net at December 31, 2014	$	32.5		$	330.6		$	32.6		$	395.7

As discussed in Note 3, we recorded an adjustment to goodwill during the first quarter of fiscal 2015 related to the Trumpf acquisition completed during the fourth quarter of fiscal 2014.  

5.  Financing Agreements

Total debt consists of the following:

	December 31, 2014		September 30, 2014
Revolving credit facility	$	360.0	$	265.0
Term loan current portion		17.5		16.2
Term loan long-term portion		155.0		160.0
Unsecured 7.00% debentures due on February 15, 2024		19.4		19.4
Unsecured 6.75% debentures due on December 15, 2027		29.8		29.8
Other		0.6		1.4
Total debt		582.3		491.8
Less current portion of debt		127.5		126.9
Total long-term debt	$	454.8	$	364.9

We have a credit facility that provides for revolving loans of up to $500.0 million, plus a term loan in the aggregate amount of $200.0 million.  The Company may request to increase the revolving loan commitment and the amount of the term loan by up to an additional $250.0 million.  All amounts due under the credit facility mature upon expiration on August 24, 2017.  The related term loan amortizes so that 37.5 percent of the principal will be repaid over the five year term, with the balance due at maturity.  Borrowings under the credit facility and term loan bear interest at variable rates specified therein, that are currently less than 2.0 percent, and the availability of borrowings is subject to our ability at the time of borrowing to meet certain specified conditions, including compliance with covenants contained in the credit agreement governing the facility.  The credit facility contains covenants that, among other matters, require us to maintain a ratio of consolidated indebtedness to consolidated EBITDA (each as defined in the credit agreement) of not more than 3.5:1.0 and a ratio of consolidated EBITDA to interest expense of not less than 3.5:1.0.  As of December 31, 2014, we had outstanding borrowings of $360.0 million and undrawn letters of credit of $5.3 million under the revolving credit facility, leaving $134.7 million of borrowing capacity available.  We are in compliance with all of our debt covenants as of December 31, 2014.

Unsecured debentures outstanding at December 31, 2014 have fixed rates of interest.  We have deferred gains included in the amounts above from the termination of previous interest rate swap agreements, and those deferred gains amounted to less than $1.0 million at both December 31, 2014 and September 30, 2014.  The deferred gains are being amortized and recognized as a reduction of interest expense over the remaining term of the related debt through 2024, and as a result, the effective interest rates on that debt have been and will continue to be lower than the stated interest rates.

10

We have trade finance credit lines and uncommitted letter of credit facilities.  These lines are associated with the normal course of business and we had $40.9 million and $42.4 million of outstanding standby letters of credit as of December 31, 2014 and September 30, 2014.  As of December 31, 2014, $38.3 million relates to one standby letter of credit issued in connection with the Trumpf acquisition to guarantee Trumpf’s outstanding debt, which we paid off during the fourth quarter of fiscal 2014.  The expiration date for this letter of credit is January 2015.

We are exposed to market risk from fluctuations in interest rates.  The Company sometimes manages its exposure to interest rate fluctuations through the use of interest rate swaps (cash flow hedges).  As of December 31, 2014, we had one interest rate swap agreement with a notional amount of $122.5 million to hedge the variability of cash flows associated with a portion of the term loan variable interest rate payments for the period of January 2014 to August 2017.   The interest rate swap has been designated as a cash flow hedge.  The interest rate swap fair value was a $0.1 million liability as of December 31, 2014 and an asset of $0.2 million as of September 30, 2014.  The fair value measurement for our interest rate swap is classified as Level 2, as described in Note 1.

The fair value of our debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. The book values of our short-term debt instruments approximate fair value.  The estimated fair values of our long-term unsecured debentures were $56.3 million at December 31, 2014 and $55.5 million at September 30, 2014, and were based on observable inputs such as quoted prices in markets that are not active.  The estimated fair value of our term loan was $171.7 million and $175.2 million based on quoted prices for similar liabilities at December 31, 2014 and September 30, 2014.  The fair value measurements for both our long-term unsecured debentures and our term loan were classified as Level 2, as described in Note 1.

6.  Retirement and Postretirement Plans

We sponsor five defined benefit retirement plans: a master defined benefit retirement plan, a nonqualified supplemental executive defined benefit retirement plan and three defined benefit retirement plans covering employees in Germany and France.  Benefits for such plans are based primarily on years of service and the employee’s level of compensation during specific periods of employment.  We contribute funds to trusts as necessary to provide for current service and for any unfunded projected future benefit obligation over a reasonable period of time for our funded plans.  All of our plans have an annual measurement date of September 30.  The following table includes the components of net pension expense for our defined benefit plans.

	Quarter Ended December 31
	2014			2013
Service cost	$	1.4		$	1.2
Interest cost		3.7			3.6
Expected return on plan assets		(4.3	)		(4.2	)
Amortization of unrecognized prior service cost, net		0.1			0.2
Amortization of net loss		1.4			0.8
Net pension expense	$	2.3		$	1.6

We also sponsor a domestic postretirement health care plan that provides health care benefits to qualified retirees and dependents until eligible for Medicare.  Annual costs related to the domestic postretirement health care plan are not significant.

We have defined contribution savings plans that cover substantially all U.S. employees and certain non-U.S. employees.  The general purpose of these plans is to provide additional financial security during retirement by providing employees with an incentive to make regular savings.  Company contributions to the plans are based on eligibility and employee contributions.  Expense under these plans was $4.2 million and $3.7 million in each of the quarterly periods ended December 31, 2014 and 2013.

11

7.  Other Comprehensive Income

The following table represents the changes in accumulated other comprehensive loss by component:

	Quarter Ended December 31, 2014
	Other comprehensive income (loss)														Accumulated other comprehensive loss
	Prior to reclassification			Reclassification from		Pre-tax			Tax effect			Net of tax			Beginning balance			Net activity			Ending balance
Available-for-sale securities     and currency hedges	$	(0.6	)	$	-	$	(0.6	)	$	0.2		$	(0.4	)	$	-		$	(0.4	)	$	(0.4	)
Foreign currency translation      adjustment		(22.6	)		-		(22.6	)		-			(22.6	)		(34.2	)		(22.6	)		(56.8	)
Change in pension and postretirement      defined benefit plans		0.1			1.3		1.4			(0.5	)		0.9			(39.9	)		0.9			(39.0	)
Total	$	(23.1	)	$	1.3	$	(21.8	)	$	(0.3	)	$	(22.1	)	$	(74.1	)	$	(22.1	)	$	(96.2	)

	Quarter Ended December 31, 2013
	Other comprehensive income											Accumulated other comprehensive loss
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect			Net of tax		Beginning balance			Net activity		Ending balance
Available-for-sale securities     and currency hedges	$	0.1	$	-	$	0.1	$	-		$	0.1	$	(0.3	)	$	0.1	$	(0.2	)
Foreign currency translation      adjustment		5.8		-		5.8		-			5.8		(4.6	)		5.8		1.2
Change in pension and postretirement      defined benefit plans		0.2		0.8		1.0		(0.4	)		0.6		(30.8	)		0.6		(30.2	)
Total	$	6.1	$	0.8	$	6.9	$	(0.4	)	$	6.5	$	(35.7	)	$	6.5	$	(29.2	)

The following table represents the items reclassified out of accumulated other comprehensive loss and the related tax effects:

	Quarter Ended December 31
	2014							2013
	Amount reclassified		Tax effect			Net of tax		Amount reclassified		Tax effect			Net of tax
Change in pension and postretirement      defined benefit plans (a)	$	1.3	$	(0.5	)	$	0.8	$	0.8	$	(0.3	)	$	0.5

(a) Reclassified from accumulated other comprehensive loss into cost of goods sold and selling and administrative expenses. These components are included in the computation of net periodic pension expense.

8.  Special Charges

During the second quarter of fiscal 2014, we announced a global restructuring program focused on improving our cost structure.  This action included early retirement and reduction in force programs that eliminated over 200 net positions primarily in the U.S., which was substantially completed in fiscal 2014 with cash expenditures continuing during fiscal 2015.  The program is also reducing our European manufacturing capacity and streamlining our global operations by, among other things, executing a back office process transformation program in Europe.  The restructuring in Europe is in process and, for the first quarter of fiscal 2015, has resulted in severance and benefit charges of $2.3 million and other costs of $1.4 million related to legal and professional fees, temporary labor, project management, and other administrative functions.  Since the inception of the global restructuring program through December 31, 2014, we have recognized aggregate special charges of $28.6 million, which are recorded in both fiscal 2014 and 2015.  We expect to incur $15 million to $20 million of additional European restructuring costs through the completion of the program.

During the first quarter of fiscal 2014, we initiated a plan to improve our cost structure and streamline our organization by offering an early retirement program to certain manufacturing employees in our Batesville, Indiana plant, meeting specific eligibility requirements, and other minor reduction in force actions.  These programs resulted in the elimination of approximately 35 positions and required recognition of a special charge of approximately $1 million for lump sum payments under the program and severance and other benefits provided to other affected employees.  This action was substantially complete by the end of the second quarter of fiscal 2014.

12

For all accrued severance and other benefit charges described above, we record restructuring reserves within other current liabilities. The reserve activity for severance and other benefits during fiscal 2015 was as follows:

Balance at September 30, 2014	$	11.7
Expenses		2.3
Cash Payments		(3.5	)
Reversals		-
Balance at December 31, 2014	$	10.5

9.  Income Taxes

On December 19, 2014, the President signed into law the Tax Increase Prevention Act of 2014 (the Tax Act). The Tax Act retroactively extended the research and development tax credit for one year beginning January 1, 2014 through December 31, 2014.  This credit had previously expired effective December 31, 2013.

The effective tax rate for the three-month period ended December 31, 2014 was 28.8 percent compared to 32.0 percent for the comparable period in the prior year.  The lower tax rate is due to the recognition of period tax benefits principally related to the retroactive reinstatement of the research and development tax credit in the current year.

We expect the reinstatement of the research and development tax credit to favorably impact the effective tax rate for fiscal 2015 by nearly $2 million through a combination of a one-time catch-up adjustment from the reinstatement of the credit recorded in our first quarter of fiscal 2015 and the inclusion of the limited current year research credit into the fiscal 2015 effective tax rate.

10.  Earnings per Common Share

Basic earnings per share is calculated based upon the weighted average number of outstanding common shares for the period, plus the effect of deferred vested shares.  Diluted earnings per share is calculated consistent with the basic earnings per share calculation plus the effect of dilutive unissued common shares related to stock-based employee compensation programs.  For all periods presented, anti-dilutive stock options were excluded from the calculation of diluted earnings per share.  Cumulative treasury stock acquired, less cumulative shares reissued, have been excluded in determining the average number of shares outstanding.

Earnings per share are calculated as follows (share information in thousands):

	Quarterly Period Ended December 31
	2014		2013
Net income	$	12.1	$	13.2
Average shares outstanding - Basic		57,137		58,230
Add potential effect of exercise of stock options
and other unvested equity awards		1,017		912
Average shares outstanding - Diluted		58,154		59,142
Net income per common share - Basic	$	0.21	$	0.23
Net income per common share - Diluted	$	0.21	$	0.22
Shares with anti-dilutive effect excluded from the computation of  Diluted EPS		461		375

13

11.  Common Stock

The stock-based compensation cost that was charged against income, net of tax, for all plans was $3.0 million for the quarterly period ended December 31, 2014 and $2.3 million for the comparable prior year period.

12.  Guarantees

We routinely grant limited warranties on our products with respect to defects in material and workmanship.  The terms of these warranties are generally one year, however, certain components and products have substantially longer warranty periods.  We recognize a reserve with respect to these obligations at the time of product sale, with subsequent warranty claims recorded directly against the reserve.  The amount of the warranty reserve is determined based on historical trend experience for the covered products.  For more significant warranty-related matters which might require a broad-based correction, separate reserves are established when such events are identified and the cost of correction can be reasonably estimated.  The existing broad-based corrections do not limit the manufacture, sale or ongoing use of these products.

A reconciliation of changes in the warranty reserve for the periods covered in this report is as follows:

	Quarter Ended December 31
	2014			2013
Balance at beginning of period	$	28.4		$	38.1
Provision for warranties during the period		2.9			4.6
Warranty reserves acquired		1.1			-
Warranty claims during the period		(4.4	)		(5.4	)
Balance at end of period	$	28.0		$	37.3

In the normal course of business we enter into various other guarantees and indemnities in our relationships with suppliers, service providers, customers, business partners and others.  Examples of these arrangements would include guarantees of product performance, indemnifications to service providers and indemnifications of our actions to business partners.  These guarantees and indemnifications have not historically had, nor do we expect them to have, a material impact on our financial condition or results of operations, although indemnifications associated with our actions generally have no dollar limitations.

In conjunction with our acquisition and divestiture activities, we have entered into select guarantees and indemnifications of performance with respect to the fulfillment of commitments under applicable purchase and sale agreements.  With respect to sale transactions, we also routinely enter into non-competition agreements for varying periods of time.  Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have a materially adverse impact on our financial condition and results of operations.

13.  Segment Reporting

We disclose segment information that is consistent with the way in which management operates and views the business.  Our operating structure contains the following reporting segments:

· North America - sells and rents our patient support and near-patient technologies and services, as well as our clinical workflow solutions, in the U.S. and Canada.

· Surgical and Respiratory Care - sells and rents our surgical and respiratory care products.

· International - sells and rents similar products as our North America segment in regions outside of the U.S. and Canada.

Our performance under each reportable segment is measured on a divisional income basis before non-allocated operating and administrative costs, acquisition-related intangible asset amortization, impairments, litigation, and special charges.  Divisional income generally represents the division’s gross profit less its direct operating costs along with an allocation of manufacturing and distribution costs, research and development and certain corporate functional expenses.

Non-allocated operating and administrative costs include functional expenses that support the entire organization such as administration, finance, legal and human resources, expenses associated with strategic developments, acquisition-related intangible asset amortization, and other events that are not indicative of operating trends.  We exclude such amounts from divisional income to allow management to evaluate and understand divisional operating trends without the effects of such items.

14

	Quarter Ended December 31
	2014			2013
Revenue:
North America	$	225.2		$	205.5
Surgical and Respiratory Care		126.3			63.3
International		113.5			124.6
Total revenue	$	465.0		$	393.4
Divisional income:
North America	$	38.5		$	28.0
Surgical and Respiratory Care		19.4			14.6
International		2.8			5.5
Other operating costs:
Non-allocated operating and administrative costs		37.7			25.7
Special charges		3.7			1.0
Operating profit		19.3			21.4
Interest expense		(3.2	)		(2.0	)
Investment income and other, net		0.9			-
Income before income taxes	$	17.0		$	19.4

14.  Commitments and Contingencies

General

We are subject to various claims and contingencies arising out of the normal course of business, including those relating to governmental investigations and proceedings, commercial transactions, product liability, employee related matters, antitrust, safety, health, taxes, environmental and other matters.  Litigation is subject to many uncertainties and the outcome of individual litigated matters is not predictable with assurance.  It is possible that some litigation matters for which reserves have not been established could be decided unfavorably to us, and that any such unfavorable decisions could have a material adverse effect on our financial condition, results of operations and cash flows.

We are also involved in other possible claims, including product and general liability, workers’ compensation, auto liability and employment related matters. Such claims in the United States have deductibles and self-insured retentions ranging from $25 thousand to $1.0 million per occurrence or per claim, depending upon the type of coverage and policy period. International deductibles and self-insured retentions are lower.  We are also generally self-insured up to certain stop-loss limits for certain employee health benefits, including medical, drug and dental.  Our policy is to estimate reserves based upon a number of factors including known claims, estimated incurred but not reported claims and outside actuarial analysis, which are based on historical information along with certain assumptions about future events. Such estimated reserves are classified as Other Current Liabilities and Other Long-Term Liabilities within the Condensed Consolidated Balance Sheets.

Universal Hospital Services, Inc. Litigation

On January 13, 2015, Universal Hospital Services, Inc. filed a complaint against us in the United States District Court for the Western District of Texas.  The plaintiff alleges, among other things, that we engaged in certain customer contracting practices in violation of state and federal antitrust laws.  The plaintiff also has asserted claims for tortuous interference with business relationships. The plaintiff seeks injunctive relief and money damages in an unspecified amount. We believe that the allegations are without merit and intend to defend this matter vigorously.

15

15.  Subsequent Events

During January 2015, we acquired access to two new technologies in our clinical focus areas of respiratory care and surgical safety and efficiency.  Total investment spending was $7.5 million, along with the potential for an additional investment of up to $2.5 million over time.  These investments were funded with available cash on hand.

16

Item 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF

               FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Factors That May Affect Future Results

Certain statements in this Quarterly Report on Form 10-Q contain forward-looking statements, within the meanings of the Private Securities Litigation Reform Act of 1995, regarding the Company’s future plans, objectives, beliefs, expectations, representations and projections.

Forward-looking statements are not guarantees of future performance, and the Company’s actual results could differ materially from those set forth in any forward-looking statements. For a more in depth discussion of factors that could cause actual results to differ from those contained in forward-looking statements, see the discussions under the heading “Risk Factors” in the Company’s previously filed most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2014 (“2014 Form 10-K”) as well as the discussions in this “Management’s Discussion and Analysis”. The Company assumes no obligation to update or revise any forward-looking statements.

Overview

The following discussion and analysis should be read in conjunction with the accompanying interim financial statements and our 2014 Form 10-K.

Hill-Rom Holdings, Inc. (“we,” “us,” or “our”) is a leading global medical technology company with more than 7,000 employees worldwide.  We partner with health care providers in more than 100 countries by focusing on patient care solutions that improve clinical and economic outcomes in five core areas: Advancing Mobility, Wound Care and Prevention, Clinical Workflow, Surgical Safety and Efficiency, and Respiratory Health. Around the world, Hill-Rom's people, products, and programs work towards one mission: Enhancing outcomes for patients and their caregivers.

Use of Non-GAAP Financial Measures

The accompanying Condensed Consolidated Financial Statements, including the related notes, are presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”).  We provide non-GAAP measures, including adjusted income before taxes, income tax expense and diluted earnings per share results, because we use these measures internally for planning, forecasting and evaluating the performance of the business.

In addition, we analyze net revenue on a constant currency basis to better measure the comparability of results between periods.  We believe that evaluating growth in net revenue on a constant currency basis provides an additional and meaningful assessment to both management and investors.

We use these measures internally for planning, forecasting and evaluating the performance of the business.  These measures should not, however, be considered in isolation, as a substitute for, or as superior to measures of financial performance prepared in accordance with GAAP.

Consolidated Results of Operations

In this section, we provide a high-level overview of our consolidated results of operations.  Immediately following this section is a discussion of our results of operations by reportable segment.  We disclose segment information that is consistent with the way in which management operates and views the business.

Our performance under each reportable segment is measured on a divisional income basis before non-allocated operating and administrative costs, acquisition-related intangible asset amortization, impairments, litigation, and special charges.  Divisional income generally represents the division’s gross profit less its direct operating costs along with an allocation of manufacturing and distribution costs, research and development and certain corporate functional expenses.

17

Net Revenue

	Quarter Ended December 31				Percentage Change
						Constant
	2014		2013		As Reported	Currency
Revenue:
Capital sales	$	373.4	$	295.5	26.4	30.4
Rental revenue		91.6		97.9	(6.4)	(5.4)
Total Revenue	$	465.0	$	393.4	18.2	21.5

Capital sales increased for the three-month period ended December 31, 2014 due to the Trumpf acquisition and higher patient support systems sales in our North America segment, partially offset by lower sales in our International segment.  Excluding Trumpf, organic sales increased 6.3 percent, or 8.9 percent on a constant currency basis, and orders in our North America segment improved year over year.  Our International segment sales declined due to order delays in Europe.

Rental revenue declined in the North America and International segments for the three-month period, which was partially offset by improved Surgical and Respiratory Care rental revenue.  The North America decline was driven primarily by the discontinuance of third-party payer therapy product rentals and continued pricing pressure.  In Surgical and Respiratory Care, revenue increased on higher respiratory care volumes and organic growth from recent product introductions.  International rental revenue decreased 11.8 percent on a reported basis and 5.9 percent on a constant currency basis due to continued volume and pricing pressure.

Gross Profit

	Quarter Ended December 31				Percentage Change
	2014		2013
Gross Profit
Capital	$	152.9	$	124.3	23.0
Percent of Related Revenue		40.9%		42.1%
Rental	$	47.0	$	52.5	(10.5)
Percent of Related Revenue		51.3%		53.6%
Total Gross Profit	$	199.9	$	176.8	13.1
Percent of Total Revenue		43.0%		44.9%

Capital gross profit increased 23.0 percent, while gross margin decreased 120 basis points for the three-month period ended December 31, 2014.  The margin rate decrease is due to the recognition of $4.8 million of inventory step-up during the first quarter of fiscal 2015 associated with purchase accounting for the Trumpf acquisition.  All inventory step-up related to the Trumpf acquisition has now been recognized.  We experienced improved margins in our North America and International segments and in our organic Surgical and Respiratory Care product lines, but these were offset by the lower Trumpf margins currently being experienced.

Rental gross profit decreased 10.5 percent and gross margin decreased 230 basis points for the three-month period ended December 31, 2014.  This margin decline is due to continued pricing pressure, along with reduced leverage of our fleet and field service infrastructure as we have invested in additional capacity in anticipation of higher volumes in fiscal 2015 from recent contract wins.

18

Other

	Quarter Ended December 31
	2014			2013
Research and development expenses	$	21.8		$	16.4
Percent of Total Revenue		4.7%			4.2%
Selling and administrative expenses	$	155.1		$	138.0
Percent of Total Revenue		33.4%	%		35.1%
Special charges	$	3.7		$	1.0
Interest expense	$	(3.2	)	$	(2.0	)
Investment income and other, net	$	0.9		$	-

Research and development expenses increased 32.9 percent for the three-month period ended December 31, 2014 primarily due to the addition of Trumpf spending and additional investment in new product development initiatives.  As a percentage of total revenue, selling and administrative expenses decreased for the period by 170 basis points due to higher revenue and ongoing cost control initiatives.  However, the $17.1 million increase in selling and administrative expenses is driven primarily by the acquisition of Trumpf, along with higher acquisition and integration, medical device tax, and variable compensation costs, all of which are partially offset by ongoing cost control initiatives.

During the second quarter of fiscal 2014, we announced a global restructuring program focused on improving our cost structure.  This action included early retirement and reduction in force programs that eliminated over 200 net positions primarily in the U.S., which was substantially completed in fiscal 2014 with cash expenditures continuing during fiscal 2015.  The program is also reducing our European manufacturing capacity and streamlining our global operations by, among other things, executing a back office process transformation program in Europe.  The restructuring in Europe is in process and, for the first quarter of fiscal 2015, has resulted in severance and benefit charges of $2.3 million and other costs of $1.4 million related to legal and professional fees, temporary labor, project management, and other administrative functions.  Since the inception of the global restructuring program through December 31, 2014, we have recognized aggregate special charges of $28.6 million, which are recorded in both fiscal 2014 and 2015.  We expect to incur $15 million to $20 million of additional European restructuring costs through the completion of the program.  All these actions are anticipated to yield annual cost savings of approximately $30 million, once all actions are fully implemented.

During the first quarter of fiscal 2014, we initiated a plan to improve our cost structure and streamline our organization by offering an early retirement program to certain manufacturing employees in our Batesville, Indiana plant, meeting specific eligibility requirements, and other minor reduction in force actions.  These programs resulted in the elimination of approximately 35 positions and required recognition of a special charge of approximately $1 million for lump sum payments under the program and severance and other benefits provided to other affected employees.  This action was substantially complete by the end of the second quarter of fiscal 2014.

19

Reported and Adjusted Earnings

	Quarter Ended December 31, 2014						Quarter Ended December 31, 2013
	Income Before Income Taxes		Income Tax Expense		Diluted EPS		Income Before Income Taxes		Income Tax Expense		Diluted EPS*
GAAP Earnings	$	17.0	$	4.9	$	0.21	$	19.4	$	6.2	$	0.22
Adjustments:
Acquisition and integration costs		8.9		2.8		0.10		1.9		0.6		0.02
Acquisition-related intangible asset amortization		8.1		2.2		0.10		6.9		2.2		0.08
FDA remediation expenses		0.5		0.2		0.01		0.9		0.4		0.01
Field corrective actions		1.1		0.5		0.01		1.2		0.4		0.01
Special charges		3.7		0.2		0.06		1.0		0.4		0.01
Adjusted Earnings	$	39.3	$	10.8	$	0.49	$	31.3	$	10.2	$	0.36
* Does not add due to rounding.

On December 19, 2014, the President signed into law the Tax Increase Prevention Act of 2014 (the Tax Act). The Tax Act retroactively extended the research and development tax credit for one year beginning January 1, 2014 through December 31, 2014.  This credit had previously expired effective December 31, 2013.

The effective tax rate for the three-month period ended December 31, 2014 was 28.8 percent compared to 32.0 percent for the comparable period in the prior year.  The lower tax rate is due to the recognition of period tax benefits principally related to the retroactive reinstatement of the research and development tax credit in the current year.

We expect the reinstatement of the research and development tax credit to favorably impact the effective tax rate for fiscal 2015 by nearly $2 million through a combination of a one-time catch-up adjustment from the reinstatement of the credit recorded in our first quarter of fiscal 2015 and the inclusion of the limited current year research credit into the fiscal 2015 effective tax rate.

The adjusted effective tax rate for the three-month period ended December 31, 2014 was 27.5 compared to 32.6 percent for the comparable period in the prior year.  The lower rate in fiscal 2015 is due primarily to the benefit of lower taxes on foreign earnings and the effect of the research and development tax credit as outlined above.

Net income was $12.1 million for the first quarter ended December 31, 2014 compared to $13.2 million in the prior year period.  On an adjusted basis, net income increased $7.4 million, or 35.1 percent.  Diluted earnings per share decreased 4.5 percent on a reported basis and increased 36.1 percent on an adjusted basis.

Business Segment Results of Operations

	Quarter Ended December 31				Percentage Change
						Constant
	2014		2013		As Reported	Currency
Revenue:
North America	$	225.2	$	205.5	9.6	9.9
Surgical and Respiratory Care		126.3		63.3	99.5	106.2
International		113.5		124.6	(8.9)	(2.5)
Total revenue	$	465.0	$	393.4	18.2	21.5
Divisional income:
North America	$	38.5	$	28.0	37.5
Surgical and Respiratory Care	$	19.4	$	14.6	32.9
International	$	2.8	$	5.5	(49.1)

20

North America

North America revenue increased 9.6 percent for the three-month period ended December 31, 2014.  Capital sales were up for the quarter by 19.0 percent primarily due to higher patient support system sales.  Rental revenue declined in the period by 8.9 percent, which is primarily due to our discontinuance of third-party payer therapy product rentals in the second half of fiscal 2014 and continued pricing pressure.  Excluding the effects of our discontinuance of third-party payer therapy product rentals, rental revenue would have declined 1 percent.

North America divisional income increased 37.5 percent for the three-month period due primarily to increased revenue,  slightly lower operating costs as a result of our restructuring programs, and lower research and development costs.  Capital margins improved for the three-month period due to higher volume and lower direct input costs.  Rental margins declined during the period as a result of continued pricing pressures along with decreased leverage of our fleet and field service infrastructure due to lower rental revenue.

Surgical and Respiratory Care

Surgical and Respiratory Care revenue doubled for the three-month period ended December 31, 2014.  Excluding the impact of Trumpf, organic revenue grew approximately 6 percent on a reported and constant currency basis.  Capital sales increased 127.1 percent related to the impact of the Trumpf acquisition and higher volumes in the organic business.  Rental revenue increased 10.1 percent for the three-month period on higher respiratory care volumes and organic growth from recent product introductions.

Surgical and Respiratory Care divisional income increased on the higher sales volumes and the resulting higher gross profit, despite the lower gross margins currently being experienced at Trumpf.  Divisional income was also favorably impacted by improved leverage of operating expenses as a percentage of revenue.

International

International revenue decreased 8.9 percent on a reported basis and 2.5 percent on a constant currency basis for the three-month period ended December 31, 2014.  Capital sales decreased 8.6 percent on a reported basis and 2.1 percent on a constant currency basis due to order delays in Europe.  Sales in our other international regions tend to fluctuate based on the timing of large tender deals, while Europe’s healthcare environment continues to face pressure on capital spending.  Rental revenue decreased 11.8 percent on a reported basis or 5.9 percent on a constant currency basis, due to continued volume and pricing pressure.

International divisional income decreased for the three-month period due primarily to lower revenue and the resulting decline in gross profit, partially offset by slightly lower operating costs.  Capital margins improved for the three-month period on favorable product mix, but rental margins decreased due to reduced leverage of our fleet and field service infrastructure as revenue has declined quicker than our field service costs, along with continued pricing pressure.  Overall, gross margins were nearly flat year over year.

Liquidity and Capital Resources

	Quarter Ended December 31
	2014			2013
Cash Flows Provided By (Used In):
Operating activities	$	31.0		$	42.3
Investing activities		(44.4	)		(13.0	)
Financing activities		30.4			(39.3	)
Effect of exchange rate changes on cash		(2.6	)		0.2
Increase (Decrease)  in Cash and Cash Equivalents	$	14.4		$	(9.8	)

Operating Activities

Cash provided by operating activities during the first quarter of fiscal 2015 was driven primarily by net income, adjusted for the non-cash effects of depreciation, amortization, and stock compensation expense, along with traditional collections of high year-end receivables.  These sources of cash were offset by the payout of our performance-based compensation related to our 2014 fiscal year and other working capital activities.  Cash provided by operating activities was down compared to the prior year primarily on higher payments of taxes, restructuring obligations, and high year-end accounts payable.

21

Investing Activities

Cash used for investing activities consists mainly of capital expenditures, which increased significantly from the prior year due to investments in our rental fleet to support expected future volume increases from recent contract wins, along with the additional capital expenditures from our Trumpf acquisition.

Financing Activities

Cash provided by financing activities during fiscal 2015 consisted mainly of borrowings on the revolving credit facility, partially offset by treasury stock acquired and dividend payments.  The financing proceeds support the higher rental fleet investment referenced earlier and treasury stock repurchases.  The net cash provided in fiscal 2015 compares to net cash used in fiscal 2014 to pay down debt, acquire treasury stock, and pay dividends.

Other Liquidity Matters

Net cash flows from operating activities and selected borrowings have represented our primary sources of funds for growth of the business, including capital expenditures and acquisitions.

We have a credit facility that provides for revolving loans of up to $500.0 million, plus a term loan in the aggregate amount of $200.0 million.  The Company may request to increase the revolving loan commitment and the amount of the term loan by up to an additional $250.0 million.  All amounts due under the credit facility mature upon expiration on August 24, 2017.  The related term loan amortizes so that 37.5 percent of the principal will be repaid over the five year term, with the balance due at maturity.  Borrowings under the credit facility and term loan bear interest at variable rates specified therein, that are currently less than 2.0 percent, and the availability of borrowings is subject to our ability at the time of borrowing to meet certain specified conditions, including compliance with covenants contained in the credit agreement governing the facility.  The credit facility contains covenants that, among other matters, require us to maintain a ratio of consolidated indebtedness to consolidated EBITDA (each as defined in the credit agreement) of not more than 3.5:1.0 and a ratio of consolidated EBITDA to interest expense of not less than 3.5:1.0.  As of December 31, 2014, we had outstanding borrowings of $360.0 million and undrawn letters of credit of $5.3 million under the revolving credit facility, leaving $134.7 million of borrowing capacity available.  We are in compliance with all of our debt covenants as of December 31, 2014.

We have trade finance credit lines and uncommitted letter of credit facilities.  These lines are associated with the normal course of business and we had $40.9 million and $42.4 million of outstanding standby letters of credit as of December 31, 2014 and September 30, 2014.  As of December 31, 2014, $38.3 million relates to one standby letter of credit issued in connection with the Trumpf acquisition to guarantee Trumpf’s outstanding debt, which we paid off during the fourth quarter of fiscal 2014.  The expiration date for this letter of credit is January 2015.

We are exposed to market risk from fluctuations in interest rates.  The Company sometimes manages its exposure to interest rate fluctuations through the use of interest rate swaps (cash flow hedges).  As of December 31, 2014, we had one interest rate swap agreement with a notional amount of $122.5 million to hedge the variability of cash flows associated with a portion of the term loan variable interest rate payments for the period of January 2014 to August 2017.   The interest rate swap has been designated as a cash flow hedge.  The interest rate swap fair value was a $0.1 million liability as of December 31, 2014 and an asset of $0.2 million as of September 30, 2014. 

We have $49.2 million of senior notes outstanding at various fixed interest rates as of December 31, 2014, classified as long-term in the Condensed Consolidated Balance Sheet.

Our primary pension plan invests in a variety of equity and debt securities.  At September 30, 2014, our latest measurement date, our pension plans were underfunded by approximately $67.7 million.  Given the current funded status, we currently do not anticipate any further contributions to our master pension plan in fiscal 2015.

We intend to continue to pay quarterly cash dividends comparable to those paid in the periods covered by these financial statements. However, the declaration and payment of dividends by us will be subject to the sole discretion of our Board and will depend upon many factors, including our financial condition, earnings, capital requirements, covenants associated with debt obligations, legal requirements and other factors deemed relevant by our Board.

22

We intend to continue to pursue selective acquisition candidates in certain areas of our business, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted.  We expect to fund future acquisitions primarily with cash on hand, cash flow from operations and borrowings.

During the first quarter of fiscal 2015, we purchased 1.2 million shares of our common stock for $54.8 million in the open market, leaving $64.7 million available for purchase.  The common stock was acquired under a $190 million share repurchase program approved by the Board of Directors in September 2013, which does not have an expiration date.  There are no plans to terminate this program in the future. Repurchases may be made on the open market or via private transactions, and are used for general business purposes.

We believe that cash on hand and generated from operations, along with amounts available under our credit facility, will be sufficient to fund operations, working capital needs, capital expenditure requirements and financing obligations.  However, disruption and volatility in the credit markets could impede our access to capital.  Our $500.0 million revolving credit facility is with a syndicate of banks.  The syndication group consists of 11 financial institutions, which we believe reduces our exposure to any one institution and would still leave us with significant borrowing capacity in the event that any one of the institutions within the group is unable to comply with the terms of our agreement.

As of December 31, 2014, $65.5 million of the Company’s cash and cash equivalents are held by our subsidiaries in foreign countries.  Portions of this may be subject to U.S. income taxation if repatriated to the U.S.  However, cash and cash equivalents held by foreign subsidiaries are largely used for operating needs outside the U.S.  Therefore, we have no need to repatriate this cash for other uses.  We believe that cash on hand and generated from operations, along with amounts available under our credit facility, will be sufficient to fund operations, working capital needs, capital expenditure requirements and financing obligations.

Contractual Obligations and Contingent Liabilities and Commitments

Other than the additional long-term borrowings on our revolving credit facility referenced in Note 5 of Notes to Condensed Consolidated Financial Statements in this Form 10-Q, there have not been any significant changes since September 30, 2014 impacting our contractual obligations and contingent liabilities and commitments.

Critical Accounting Policies

Our accounting policies require management to make significant estimates and assumptions using information available at the time the estimates are made.  Such estimates and assumptions significantly affect various reported amounts of assets, liabilities, revenue and expenses.  If future experience differs materially from these estimates and assumptions, our results of operations and financial condition could be affected.  A detailed description of our accounting policies is included in Note 1 of Notes to Consolidated Financial Statements and the Critical Accounting Policies Section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2014 Form 10-K.  There have been no material changes to such policies since September 30, 2014.

For a further summary of certain accounting policies and estimates and recently issued accounting pronouncements applicable to us, see Note 1 of Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

23

Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

We are exposed to various market risks, including fluctuations in interest rates, collection risk associated with our accounts and notes receivable portfolio and variability in currency exchange rates.  We have established policies, procedures and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks.

We are subject to variability in foreign currency exchange rates in our international operations.  Exposure to this variability is periodically managed primarily through the use of natural hedges, whereby funding obligations and assets are both managed in the local currency.  We, from time-to-time, enter into currency exchange agreements to manage our exposure arising from fluctuating exchange rates related to specific and forecasted transactions.  We operate this program pursuant to documented corporate risk management policies and do not enter into derivative transactions for speculative purposes.  The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an appropriate range of potential rate fluctuations to our assets, obligations and projected results of operations denominated in foreign currencies.

Our currency risk consists primarily of foreign currency denominated firm commitments and forecasted foreign currency denominated intercompany and third-party transactions.  At December 31, 2014, the notional amount of open foreign exchange contracts was $8.4 million.  The maximum length of time over which we hedge transaction exposures is 15 months.  Derivative gains/(losses), initially reported as a component of Accumulated Other Comprehensive Loss, are reclassified to earnings in the period when the transaction affects earnings.

We are exposed to market risk from fluctuations in interest rates.  The Company sometimes manages its exposure to interest rate fluctuations through the use of interest rate swaps (cash flow hedges).  As of December 31, 2014, we had one interest rate swap agreement with a notional amount of $122.5 million to hedge the variability of cash flows associated with a portion of the term loan variable interest rate payments for the period of January 2014 to August 2017.   The interest rate swap has been designated as a cash flow hedge.  The interest rate swap fair value was a $0.1 million liability as of December 31, 2014 and an asset of $0.2 million as of September 30, 2014. 

For additional information on market risks related to our pension plan assets, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our 2014 Form 10-K.

Item 4.    CONTROLS AND PROCEDURES

Our management, with the supervision and participation of our President and Chief Executive Officer and our Senior Vice President and Chief Financial Officer (the “Certifying Officers”), has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2014. Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to management, including our Certifying Officers and our Board of Directors, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective as of December 31, 2014.

We completed the acquisition of Trumpf during our fiscal year 2014.  Management considers this transaction to be material to our consolidated financial statements and believes that the internal controls and procedures of Trumpf have a material effect on our internal control over financial reporting.  We are currently in the process of incorporating the internal controls and procedures of Trumpf into our internal controls over financial reporting and extending our Section 404 compliance program under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations under such Act to include Trumpf.  We will report on our assessment of the consolidated operations within the time period provided by the Act and the applicable SEC rules and regulations concerning business combinations.

Additionally, during the first quarter of fiscal 2015, we transitioned certain Völker transaction processing functions to our primary enterprise resource planning (“ERP”) system.  In connection with this transition, the affected Völker transactions are now subject to the internal controls applicable to our primary ERP system. We are in the process of migrating additional Völker transaction processes to our primary ERP system, which is expected to be completed in our third fiscal quarter.

24

Other than the changes noted above, there have been no other changes to our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recent completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

25

PART II - OTHER INFORMATION

Item 1.    LEGAL PROCEEDINGS

Refer to Note 14 of Notes to Condensed Consolidated Financial Statements in this Form 10-Q for further information on our legal proceedings.

Item 1A. RISK FACTORS

For information regarding the risks we face, see the discussion under “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2014.  There have been no material changes to the risk factors described in that report.

Item 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

					Total Number		Approximate
					of Shares		Dollar Value
	Total				Purchased as		of Shares That
	Number		Average		Part of Publicly		May Yet Be
	of Shares		Price Paid		Announced Plans or		Purchased Under
Period	Purchased (1)		per Share		Programs (2)		the Programs (2)
October 1, 2014 - October 31, 2014		2,489	$	41.92		-	$	119.5
November 1, 2014 - November 30, 2014		643,440	$	45.00		600,000	$	92.4
December 1, 2014 - December 31, 2014		603,636	$	46.17		600,000	$	64.7
Total		1,249,565	$	45.56		1,200,000	$	64.7

(1) Shares purchased during the quarter ended December 31, 2014 were in connection with the share repurchase program discussed below as well as employee payroll tax withholding for restricted and deferred stock distributions.

(2) In September 2013, the Board approved an expansion of its previously announced share repurchase authorization to a total of $190.0 million.  As of December 31, 2014, a cumulative total of $125.3 million has been used under this existing authorization.  The plan does not have an expiration date and currently there are no plans to terminate this program in the future.

26

Item 6.    EXHIBITS

A.	Exhibits
	10.1	Employment Agreement between Hill-Rom Holdings, Inc. and Carlyn Solomon (Incorporated by reference to Exhibit 10.1 filed with the Company’s Form 8-K on October 9, 2014).
	10.2	Employment Agreement between Hill-Rom Holdings, Inc. and Steven J. Strobel (Incorporated by reference to Exhibit 10.1 filed with the Company’s Form 8-K on October 27, 2014).
	10.3	Employment Agreement between Hill-Rom Holdings, Inc. and Michiel de Zwaan, dated August 4, 2014
	31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Extension Labels Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		HILL-ROM HOLDINGS, INC.
		(Registrant)
DATE:  February 3, 2015	By:	/s/ Steven J. Strobel
	Name: Title:	Steven J. Strobel Senior Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)

28 

EX-10.3

Exhibit 10.3

EMPLOYMENT AGREEMENT

PREAMBLE

       This Employment Agreement defines the essential terms and conditions of our employment relationship with you. The subjects covered in this Agreement are vitally important to you and to the Company. Thus, you should read the document carefully and ask any questions before signing the Agreement. Given the importance of these matters to you and the Company, you are required to sign the Agreement as a condition of employment.

This EMPLOYMENT AGREEMENT, dated and effective this 4th day of August, 2014 is entered into by and between Hill-Rom Holdings, Inc. ("Company") and Michiel de Zwaan ("Employee").

WITNESSETH:

WHEREAS, the Company and its affiliated entities are engaged in the healthcare industry throughout the United States and abroad including, but not limited to, the design, manufacture, sale, service and rental of hospital beds and stretchers, hospital furniture, medical related architectural products, specialty sleep surfaces (including therapeutic surfaces), air clearing devices, biomedical and asset management services, as well as other medical-related accessories, devices, products and services;

WHEREAS, the Company is willing to employ Employee in an executive or managerial position and Employee desires to be employed by the Company in such capacity based upon the terms and conditions set forth in this Agreement;

WHEREAS, in the course of the employment contemplated under this Agreement and as a continuation of Employee's past employment with the Company, if applicable, it will be necessary for Employee to acquire and maintain knowledge of certain trade secrets and other confidential and proprietary information regarding the Company as well as any of its parent, subsidiary and/or affiliated entities (hereinafter jointly referred to as the "Companies"); and

WHEREAS, the Company and Employee (collectively referred to as the "Parties") acknowledge and agree that the execution of this Agreement is necessary to memorialize the terms and conditions of their employment relationship as well as safeguard against the unauthorized disclosure or use of the Company's confidential information and to otherwise preserve the goodwill and ongoing business value of the Company;

NOW THEREFORE, in consideration of Employee's employment, the Company's willingness to disclose certain confidential and proprietary information to Employee and the mutual covenants contained herein as well as other good and valuable consideration, the receipt of which is hereby acknowledged, the Parties agree as follows:

1. Employment. As of the effective date of this Agreement, the Company agrees to employ Employee and Employee agrees to serve as Senior Vice President & Chief Human Resources Officer. Employee agrees to perform all duties and responsibilities traditionally assigned to, or falling within the normal responsibilities of, an individual employed in the above-referenced position. Employee also agrees to perform any and all additional duties or responsibilities as may be assigned by the Company in its sole discretion. The Parties acknowledge that both this title and the underlying duties may change.

2. Best Efforts and Duty of Loyalty. During the term of employment with the Company, Employee covenants and agrees to exercise reasonable efforts to perform all assigned duties in a diligent and professional manner and in the best interest of the Company. Employee agrees to devote Employee's full working time, attention, talents, skills and best efforts to further the Company's business and agrees not to take any action, or make any omission, that deprives the Company of any business opportunities or otherwise act in a manner that conflicts with the best interest of the Company or is otherwise detrimental to its business. Employee agrees not to engage in any outside business activity, whether or not pursued for gain, profit or other pecuniary advantage, without the express written consent of the Company. Employee shall act at all times in accordance with the Hill-Rom's Global Code of Conduct, and all other applicable policies which may exist or be adopted by the Company from time to time.

3. At-Will Employment. Subject to the terms and conditions set forth below, Employee specifically acknowledges and accepts such employment on an "at-will" basis and agrees that both Employee and the Company retain the right to terminate this relationship at any time, with or without cause, for any reason not prohibited by applicable law upon notice as required by this Agreement. Employee acknowledges that nothing in this Agreement is intended to create, nor should be interpreted to create, an employment contract for any specified length of time between the Company and Employee.

4. Compensation. For all services rendered by Employee on behalf of, or at the request of, the Company, Employee shall be paid as follows:

(a) A base salary at the bi-weekly rate of Eleven Thousand Three Hundred Forty Six Dollars and Sixteen Cents ($11,346.16), less usual and ordinary deductions;

(b) Incentive compensation, payable solely at the discretion of the Company, pursuant to the Company's existing Incentive Compensation Program or any other program as the Company may establish in its sole discretion; and

(c) Such additional compensation, benefits and perquisites as the Company may deem appropriate

5. Changes to Compensation. Notwithstanding anything contained herein to the contrary, Employee acknowledges that the Company specifically reserves the right to make changes to Employee's compensation in its sole discretion including, but not limited to, modifying or eliminating a compensation component. The Parties agree that such changes shall be deemed effective immediately and a modification of this Agreement unless, within seven (7) days after receiving notice of such change, Employee exercises Employee's right to terminate this Agreement without cause or for "Good Reason" as provided below in Paragraph No. 11. The Parties anticipate that Employee's compensation structure will be reviewed on an annual basis but acknowledge that the Company shall have no obligation to do so.

2

6. Direct Deposit. As a condition of employment, and within thirty (30) days of the effective date of this Agreement, Employee agrees to make all necessary arrangements to have all sums paid pursuant to this Agreement direct deposited into one or more bank accounts as designated by Employee.

7. Warranties and Indemnification. Employee warrants that Employee is not a party to any contract, restrictive covenant, or other agreement purporting to limit or otherwise adversely affecting Employee's ability to secure employment with any third party. Alternatively, should any such agreement exist, Employee warrants that the contemplated services to be performed hereunder will not violate the terms and conditions of any such agreement. In either event, Employee agrees to fully indemnify and hold the Company harmless from any and all claims arising from, or involving the enforcement of, any such restrictive covenants or other agreements.

8. Restricted Duties. Employee agrees not to disclose, or use for the benefit of the Company, any confidential or proprietary information belonging to any predecessor employer(s) that otherwise has not been made public and further acknowledges that the Company has specifically instructed Employee not to disclose or use such confidential or proprietary information. Based on Employee's understanding of the anticipated duties and responsibilities hereunder, Employee acknowledges that such duties and responsibilities will not compel the disclosure or use of any such confidential and proprietary information.

9. Termination Without Cause. The Parties agree that either party may terminate this employment relationship at any time, without cause, upon sixty (60) days' advance written notice or, if terminated by the Company, pay in lieu of notice (hereinafter referred to as "notice pay"). In such event, Employee shall only be entitled to such compensation, benefits and perquisites that have been paid or fully accrued as of the effective date of Employee's separation and as otherwise explicitly set forth in this Agreement. However, in no event shall Employee be entitled to notice pay if Employee is eligible for and accepts severance payments pursuant to the provisions of Paragraphs 16 and 17, below.

10. Termination With Cause. Employee's employment may be terminated by the Company at any time "for cause" without notice or prior warning. For purposes of this Agreement, "cause" shall mean the Company's good faith determination that Employee has:

(a) Acted with gross neglect or willful misconduct in the discharge of his/her duties and responsibilities or refused to follow or comply with the lawful direction of the Board of Directors of the Company or the terms and conditions of this Agreement providing such refusal is not based primarily on Employee's good faith compliance with applicable legal or ethical standards;

(b) Acquiesced or participated in any conduct that is dishonest, fraudulent, illegal (at the felony level), unethical, involves moral turpitude or is otherwise illegal and involves conduct that has the potential, in the Company's reasonable opinion, to cause the Company, its officers or its directors embarrassment or ridicule;

(c) Violated a material requirement of any Company policy or procedure, specifically including a violation of the Company's Code of Ethics or Associate Policy Manual;

(d) Disclosed without proper authorization any trade secrets or other Confidential Information (as defined herein);

3

(e) Engaged in any act that, in the reasonable opinion of the Company, is contrary to its best interests or would hold the Company, its officers or directors up to probable civil or criminal liability, provided that, if Executive acts in good faith in compliance with applicable legal or ethical standards, such actions shall not be grounds for termination for cause; or

(f) Engaged in such other conduct recognized at law as constituting cause.

Upon the occurrence or discovery of any event specified above, the Company shall have the right to terminate Employee's employment, effective immediately, by providing notice thereof to Employee without further obligation to Employee, other than accrued wages or other accrued wages, deferred compensation or other accrued benefits of employment (collectively referred to herein as "Accrued Obligations"), which shall be paid in accordance with the Company's past practice and applicable law. To the extent any violation of this Paragraph is capable of being promptly cured by Employee (or cured within a reasonable period to the Company's satisfaction), the Company agrees to provide Employee with a reasonable opportunity to so cure such defect. Absent written mutual agreement otherwise, the Parties agree in advance that it is not possible for Employee to cure any violations of subparagraph (b) or (d) and, therefore, no opportunity for cure need be provided in those circumstances.

11. Termination by Employee for Good Reason. Employee may terminate this Agreement and declare this Agreement to have been terminated "without cause" by the Company (and, therefore, for "Good Reason") upon the occurrence, without Employee's consent, of any of the following acts by the Company, or failures by the Company to act (each a "Good Reason Condition"), provided (i) the Employee provides written notice to the Company of the occurrence of the Good Reason Condition within ten (10) business days after the Employee has knowledge of the Good Reason Condition; (ii) the Company fails to notify the Employee of the Company's intended method of correction within thirty (30) business days after the Company receives Employee's notice, or the Company fails to correct the Good Reason Condition within thirty (30) business days after such Employee notice; and (iii) the Employee resigns within ten (10) business days after the end of the 30-business-day period specified in (ii):

(a) A material diminution in Employee's duties;

(b) The failure to elect or reelect Employee as Vice President or other officer of the Company (unless such failure is related in any way to the Company's decision to terminate Employee for cause);

(c) The failure of the Company to continue to provide Employee with office space, related facilities and support personnel (including, but not limited to, administrative and secretarial assistance) within the Company's principal executive offices commensurate with his responsibilities to, and position within, the Company;

(d) A material reduction by the Company in the amount of Employee's base salary or the discontinuation or material reduction by the Company of Employee's participation at the same level of eligibility as compared to other peer employees in any incentive compensation, additional compensation, benefits, policies or perquisites subject to Employee understanding that such reduction(s) shall be permissible if the change applies in a similar way to other peer level employees;

4

(e) The relocation of the Company's principal executive offices or Employee's place of work to a location requiring a change of more than fifty (50) miles in Employee's daily commute; or

(f) Any other action or inaction by the Company that constitutes a material breach of this Employment Agreement.

12. Termination Due to Death or Disability. In the event Employee dies or suffers a disability (as defined herein) during the term of employment, this Agreement shall automatically be terminated on the date of such death or disability without further obligation on the part of the Company other than the payment of Accrued Obligations. For purposes of this Agreement, Employee shall be considered to have suffered a "disability" upon a determination that Employee cannot perform the essential functions of Employee's position as a result of a such a disability and the occurrence of one or more of the following events:

(a) Employee becomes eligible for or receives any benefits pursuant to any disability insurance policy as a result of a determination under such policy that Employee is permanently disabled;

(b) Employee becomes eligible for or receives any disability benefits under the Social Security Act; or

(c) A good faith determination by the Company that Employee is and will likely remain unable to perform the essential functions of Employee's duties or responsibilities hereunder on a full-time basis, with or without reasonable accommodation, as a result of any mental or physical impairment.

Notwithstanding anything expressed or implied above to the contrary, the Company agrees to fully comply with its obligations under the Family and Medical Leave Act of 1993 and the Americans with Disabilities Act as well as any other applicable federal, state, or local law, regulation, or ordinance governing the provision of leave to individuals with serious health conditions or the protection of individuals with disabilities, as well as the Company's obligation to provide reasonable accommodation thereunder.

13. Exit Interview. Upon termination of Employee's employment for any reason, Employee agrees, if requested, to participate in an exit interview with the Company and reaffirm in writing Employee's post-employment obligations as set forth in this Agreement.

5

14. Section 409A Notification. Employee acknowledges that Employee has been advised of the American Jobs Creation Act of 2004, which added Section 409A to the Internal Revenue Code ("Section 409A"), and significantly changed the taxation of nonqualified deferred compensation plans and arrangements. Under proposed and final regulations as of the date of this Agreement, Employee has been advised that Employee's severance pay and other termination benefits may be treated by the Internal Revenue Service as providing "nonqualified deferred compensation," and therefore subject to Section 409A. In that event, several provisions in Section 409A may affect Employee's receipt of severance compensation, including the timing thereof. These include, but are not limited to, a provision which requires that distributions to "specified employees" of public companies on account of separation from service may not be made earlier than six (6) months after the effective date of such separation. If applicable, failure to comply with Section 409A can lead to immediate taxation of such deferrals, with interest calculated at a penalty rate and a 20% penalty. As a result of the requirements imposed by the American Jobs Creation Act of 2004, Employee agrees if Employee is a "specified employee" at the time of Employee's termination of employment and if payments in connection with such termination of employment are subject to Section 409A and not otherwise exempt, such payments (and other benefits to the extent applicable) due Employee at the time of termination of employment shall not be paid until a date at least six (6) months after the effective date of Employee's termination of employment ("Employee's Effective Termination Date"). Notwithstanding any provision of this Agreement to the contrary, to the extent that any payment under the terms of this Agreement would constitute an impermissible acceleration of payments under Section 409A or any regulations or Treasury guidance promulgated thereunder, such payments shall be made no earlier than at such times allowed under Section 409A. If any provision of this Agreement (or of any award of compensation) would cause Employee to incur any additional tax or interest under Section 409A or any regulations or Treasury guidance promulgated thereunder, the Company or its successor may reform such provision; provided that it will (i) maintain, to the maximum extent practicable, the original intent of the applicable provision without violating the provisions of Section 409A and (ii) notify and consult with Employee regarding such amendments or modifications prior to the effective date of any such change. Each amount to be paid or benefit to be provided to Employee pursuant to this Agreement, which constitutes deferred compensation subject to Section 409A, shall be construed as a separate identified payment for purposes of Section 409A. To the extent required to avoid an accelerated or additional tax under Section 409A, amounts reimbursed to Employee under this Agreement shall be paid to Employee on or before the last day of the year following the year in which the expense was incurred, the amount of expenses eligible for reimbursement (and in-kind benefits provided to Employee) during any one year may not affect amounts reimbursed or provided in any subsequent tax year, and the right to reimbursement (and in-kind benefits provided to Employee) under this Agreement shall not be subject to liquidation or exchange for another benefit.

15. Section 409A Acknowledgement. Employee acknowledges that, notwithstanding anything contained herein to the contrary, both Parties shall be independently responsible for accessing their own risks and liabilities under Section 409A that may be associated with any payment made under the terms of this Agreement or any other arrangement which may be deemed to trigger Section 409A. Further, the Parties agree that each shall independently bear responsibility for any and all taxes, penalties or other tax obligations as may be imposed upon them in their individual capacity as a matter of law. To the extent applicable, Employee understands and agrees that Employee shall have the responsibility for, and Employee agrees to pay, any and all appropriate income tax or other tax obligations for which Employee is individually responsible and/or related to receipt of any benefits provided in this Agreement. Employee agrees to fully indemnify and hold the Company harmless for any taxes, penalties, interest, cost or attorneys' fee assessed against or incurred by the Company on account of such benefits having been provided to Employee or based on any alleged failure to withhold taxes or satisfy any claimed obligation. Employee understands and acknowledges that neither the Company, nor any of its employees, attorneys, or other representatives has provided or will provide Employee with any legal or financial advice concerning taxes or any other matter, and that Employee has not relied on any such advice in deciding whether to enter into this Agreement.

6

16. Severance Payments. In the event Employee's employment is terminated by the Company without cause (including by Employee for Good Reason), and subject to the normal terms and conditions imposed by the Company as set forth herein and in the attached Separation and Release Agreement, Employee shall be eligible to receive severance pay based upon Employee's base salary at the time of termination for a period of twelve (12) months.

17. Severance Payment Terms and Conditions. No severance pay shall be paid if Employee voluntarily leaves the Company's employ without Good Reason, as defined above, or is terminated for cause. Any severance pay made payable under this Agreement shall be paid in lieu of, and not in addition to, any other contractual, notice or statutory pay or other accrued compensation obligation (excluding accrued wages and deferred compensation). Additionally, such severance pay is contingent upon Employee fully complying with the restrictive covenants contained herein and executing a Separation and Release Agreement. Further, the Company's obligation to provide severance hereunder shall be deemed null and void should Employee fail or refuse to execute and deliver to the Company the Company's then-standard Separation and Release Agreement (without modification) within any time period as may be prescribed by law or, in absence thereof, twenty-one (21) days after the Employee's Effective Termination Date. Conditioned upon the execution and delivery of the Separation and Release Agreement as set forth in the prior sentence, Severance pay benefits shall be paid as follows: (i) in one lump sum equivalent to six (6) months' salary on the day following the date which is six (6) months following Employee's Effective Termination Date with any remainder to be paid in bi-weekly installments equivalent to the Employee's salary commencing upon the next regularly scheduled payroll date, if both the severance pay benefit is subject to Section 409A and if Employee is a "specified employee" under Section 409A or (ii) for any severance pay benefits not subject to clause (i), begin upon the next regularly scheduled payroll following the earlier to occur of fifteen (15) days from the Company's receipt of an executed Separation and Release Agreement or the expiration of sixty (60) days after Employee's Effective Termination Date and shall be paid on the Company's regularly scheduled pay dates; provided, however, that if the before-stated sixty (60) day period ends in a calendar year following the calendar year in which the sixty (60) day period commenced, then any benefits not subject to clause (i) shall only begin on the next regularly scheduled payroll following the expiration of sixty (60) days after the Employee's Effective Termination Date. Excluding any lump sum payment due as a result of the application of Section 409A (which shall be paid regardless of reemployment), all other severance payments provided hereunder shall terminate upon reemployment.

18. Assignment of Rights.

(a) Copyrights. Employee agrees that all works of authorship fixed in any tangible medium of expression by Employee during the term of this Agreement relating to the Company's business ("Works"), either solely or jointly with others, shall be and remain exclusively the property of the Company. Each such Work created by Employee is a "work made for hire" under the copyright law and the Company may file applications to register copyright in such Works as author and copyright owner thereof. If, for any reason, a Work created by Employee is excluded from the definition of a "work made for hire" under the copyright law, then Employee does hereby assign, sell, and convey to the Company the entire rights, title, and interests in and to such Work, including the copyright therein, to the Company. Employee will execute any documents that the Company deems necessary in connection with the assignment of such Work and copyright therein. Employee will take whatever steps and do whatever acts the Company requests, including, but not limited to, placement of the Company's proper copyright notice on Works created by Employee to secure or aid in securing copyright protection in such Works and will assist the Company or its nominees in filing applications to register claims of copyright in such Works. The Company shall have free and unlimited access at all times to all Works and all copies thereof and shall have the right to claim and take possession on demand of such Works and copies.

7

(b) Inventions. Employee agrees that all discoveries, concepts, and ideas, whether patentable or not, including, but not limited to, apparatus, processes, methods, compositions of matter, techniques, and formulae, as well as improvements thereof or know-how related thereto, relating to any present or prospective product, process, or service of the Company ("Inventions") that Employee conceives or makes during the term of this Agreement relating to the Company's business, shall become and remain the exclusive property of the Company, whether patentable or not, and Employee will, without royalty or any other consideration:

(i) Inform the Company promptly and fully of such Inventions by written reports, setting forth in detail the procedures employed and the results achieved;

(ii) Assign to the Company all of Employee's rights, title, and interests in and to such Inventions, any applications for United States and foreign Letters Patent, any United States and foreign Letters Patent, and any renewals thereof granted upon such Inventions;

(iii) Assist the Company or its nominees, at the expense of the Company, to obtain such United States and foreign Letters Patent for such Inventions as the Company may elect; and

(iv) Execute, acknowledge, and deliver to the Company at the Company's expense such written documents and instruments, and do such other acts, such as giving testimony in support of Employee's inventorship, as may be necessary in the opinion of the Company, to obtain and maintain United States and foreign Letters Patent upon such Inventions and to vest the entire rights and title thereto in the Company and to confirm the complete ownership by the Company of such Inventions, patent applications, and patents.

19. Company Property. All records, files, drawings, documents, data in whatever form, business equipment (including computers, PDAs, cell phones, etc.), and the like relating to, or provided by, the Company shall be and remain the sole property of the Company. Upon termination of employment, Employee shall immediately return to the Company all such items without retention of any copies and without additional request by the Company. De minimis items such as pay stubs, 401(k) plan summaries, employee bulletins, and the like are excluded from this requirement.

8

20. Confidential Information. Employee acknowledges that the Company and its affiliated entities (herein collectively referred to as "Companies") possess certain trade secrets as well as other confidential and proprietary information which they have acquired or will acquire at great effort and expense. Such information may include, without limitation, confidential information, whether in tangible or intangible form, regarding the Companies' products and services, marketing strategies, business plans, operations, costs, current or prospective customer information (including customer identities, contacts, requirements, creditworthiness, preferences, and like matters), product concepts, designs, prototypes or specifications, research and development efforts, technical data and know-how, sales information, including pricing and other terms and conditions of sale, financial information, internal procedures, techniques, forecasts, methods, trade information, trade secrets, software programs, project requirements, inventions, trademarks, trade names, and similar information regarding the Companies' business(es) (collectively referred to herein as "Confidential Information"). Employee further acknowledges that, as a result of Employee's employment with the Company, Employee will have access to, will become acquainted with, and/or may help develop, such Confidential Information. Confidential Information shall not include information readily available in the public so long as such information was not made available through fault of Employee or wrong doing by any other individual.

21. Restricted Use of Confidential Information. Employee agrees that all Confidential Information is and shall remain the sole and exclusive property of the Company and/or its affiliated entities. Except as may be expressly authorized by the Company in writing, Employee agrees not to disclose, or cause any other person or entity to disclose, any Confidential Information to any third party while employed by the Company and for as long thereafter as such information remains confidential (or as limited by applicable law). Further, Employee agrees to use such Confidential Information only in the course of Employee's duties in furtherance of the Company's business and agrees not to make use of any such Confidential Information for Employee's own purposes or for the benefit of any other entity or person.

22. Acknowledged Need for Limited Restrictive Covenants. Employee acknowledges that the Companies have spent and will continue to expend substantial amounts of time, money and effort to develop their business strategies, Confidential Information, customer identities and relationships, goodwill and employee relationships, and that Employee will benefit from these efforts. Further, Employee acknowledges the inevitable use of, or near-certain influence by Employee's knowledge of, the Confidential Information disclosed to Employee during the course of employment if allowed to compete against the Company in an unrestricted manner and that such use would be unfair and extremely detrimental to the Company. Accordingly, based on these legitimate business reasons, Employee acknowledges each of the Companies' need to protect their legitimate business interests by reasonably restricting Employee's ability to compete with the Company on a limited basis.

23. Non-Solicitation. During Employee's employment and for a period of eighteen (18) months thereafter, Employee agrees not to directly or indirectly engage in the following prohibited conduct:

(a) Solicit, offer products or services to, or accept orders for, any Competitive Products or otherwise transact any competitive business with, any customer or entity with whom Employee had contact or transacted any business on behalf of the Company (or any Affiliate thereof) during the eighteen (18) month period preceding Employee's date of separation or about whom Employee possessed, or had access to, confidential and proprietary information;

9

(b) Attempt to entice or otherwise cause any third party to withdraw, curtail or cease doing business with the Company (or any Affiliate thereof), specifically including customers, vendors, independent contractors and other third party entities;

(c) Disclose to any person or entity the identities, contacts or preferences of any customers of the Company (or any Affiliate thereof), or the identity of any other persons or entities having business dealings with the Company (or any Affiliate thereof);

(d) Induce any individual who has been employed by or had provided services to the Company (or any Affiliate thereof) within the six (6) month period immediately preceding the effective date of Employee's separation to terminate such relationship with the Company (or any Affiliate thereof);

(e) Assist, coordinate or otherwise offer employment to, accept employment inquiries from, or employ any individual who is or had been employed by the Company (or any Affiliate thereof) at any time within the six (6) month period immediately preceding such offer, or inquiry;

(f) Communicate or indicate in any way to any customer of the Company (or any Affiliate thereof), prior to formal separation from the Company, any interest, desire, plan, or decision to separate from the Company; or

(g) Otherwise attempt to directly or indirectly interfere with the Company's business, the business of any of the Companies or their relationship with their employees, consultants, independent contractors or customers.

24. Limited Non-Compete. For the above-stated reasons, and as a condition of employment to the fullest extent permitted by law, Employee agrees during the Relevant Non-Compete Period not to directly or indirectly engage in the following competitive activities:

(a) Employee shall not have any ownership interest in, work for, advise, consult, or have any business connection or business or employment relationship in any competitive capacity with any Competitor unless Employee provides written notice to the Company of such relationship prior to entering into such relationship and, further, provides sufficient written assurances to the Company's satisfaction that such relationship will not, jeopardize the Company's legitimate interests or otherwise violate the terms of this Agreement;

(b) Employee shall not engage in any research, development, production, sale or distribution of any Competitive Products, specifically including any products or services relating to those for which Employee had responsibility for the eighteen (18) month period preceding Employee's date of separation;

(c) Employee shall not market, sell, or otherwise offer or provide any Competitive Products within Employee's Geographic Territory (if applicable) or Assigned Customer Base, specifically including any products or services relating to those for which Employee had responsibility for the eighteen (18) month period preceding Employee's date of separation; and

10

(d) Employee shall not distribute, market, sell or otherwise offer or provide any Competitive Products to any customer of the Company with whom Employee had contact or for which Employee had responsibility at any time during the eighteen (18) month period preceding Employee's date of separation.

25. Non-Compete Definitions. For purposes of this Agreement, the Parties agree that the following terms shall apply:

(a) "Affiliate" includes any parent, subsidiary, joint venture, or other entity controlled, owned, managed or otherwise associated with the Company;

(b) "Assigned Customer Base" shall include all accounts or customers formally assigned to Employee within a given territory or geographical area or contacted by Employee at any time during the eighteen (18) month period preceding Employee's date of separation;

(c) "Competitive Products" shall include any product or service that directly or indirectly competes with, is substantially similar to, or serves as a reasonable substitute for, any product or service in research, development or design, or manufactured, produced, sold or distributed by the Company;

(d) "Competitor" shall include any person or entity that offers or is actively planning to offer any Competitive Products;

(e) "Geographic Territory" shall include any territory formally assigned to Employee as well as all territories in which Employee has provided any services, sold any products or otherwise had responsibility at any time during the eighteen (18) month period preceding Employee's date of separation;

(f) "Relevant Non-Compete Period" shall include the period of Employee's employment with the Company as well as a period of eighteen (18) months after such employment is terminated, regardless of the reason for such termination provided, however, that this period shall be reduced to the greater of (i) nine (9) months or (ii) the total length of Employee's employment with the Company, including employment with any parent, subsidiary or affiliated entity, if such employment is less than eighteen (18) months;

(g) "Directly or indirectly" shall be construed such that the foregoing restrictions shall apply equally to Employee whether performed individually or as a partner, shareholder, officer, director, manager, employee, salesman, independent contractor, broker, agent, or consultant for any other individual, partnership, firm, corporation, company, or other entity engaged in such conduct.

26. Consent to Reasonableness. In light of the above-referenced concerns, including Employee's knowledge of and access to the Companies' Confidential Information, Employee acknowledges that the terms of the foregoing restrictive covenants are reasonable and necessary to protect the Company's legitimate business interests and will not unreasonably interfere with Employee's ability to obtain alternate employment. As such, Employee hereby agrees that such restrictions are valid and enforceable, and affirmatively waives any argument or defense to the contrary. Employee acknowledges that this limited non-competition provision is not an attempt to prevent Employee from obtaining other employment in violation of IC §22-5-3-1 or any other similar statute. Employee further acknowledges that the Company may need to take action, including litigation, to enforce this limited non-competition provision, which efforts the Parties stipulate shall not be deemed an attempt to prevent Employee from obtaining other employment.

11

27. Survival of Restrictive Covenants. Employee acknowledges that the above restrictive covenants shall survive the termination of this Agreement and the termination of Employee's employment for any reason. Employee further acknowledges that any alleged breach by the Company of any contractual, statutory or other obligation shall not excuse or terminate the obligations hereunder or otherwise preclude the Company from seeking injunctive or other relief. Rather, Employee acknowledges that such obligations are independent and separate covenants undertaken by Employee for the benefit of the Company.

28. Effect of Transfer. Subject to the provisions of Paragraph 11 above, Employee agrees that this Agreement shall continue in full force and effect notwithstanding any change in job duties, job titles or reporting responsibilities. Employee further acknowledges that the above restrictive covenants shall survive, and be extended to cover, the transfer of Employee from the Company to its parent, subsidiary, or any other affiliated entity (hereinafter collectively referred to as an "Affiliate") or any subsequent transfer(s) among them. Specifically, in the event of Employee's temporary or permanent transfer to an Affiliate, Employee agrees that the foregoing restrictive covenants shall remain in force so as to continue to protect such company for the duration of the non-compete period, measured from Employee's effective date of transfer to an Affiliate. Additionally, Employee acknowledges that this Agreement shall be deemed to have been automatically assigned to the Affiliate as of Employee's effective date of transfer such that the above-referenced restrictive covenants (as well as all other terms and conditions contained herein) shall be construed thereafter to protect the legitimate business interests and goodwill of the Affiliate as if Employee and the Affiliate had independently entered into this Agreement. Employee's acceptance of Employee's transfer to, and subsequent employment by, the Affiliate shall serve as consideration for (as well as be deemed as evidence of Employee's consent to) the assignment of this Agreement to the Affiliate as well as the extension of such restrictive covenants to the Affiliate. Employee agrees that this provision shall apply with equal force to any subsequent transfers of Employee from one Affiliate to another Affiliate.

29. Post-Termination Notification. For the duration of Employee's Relevant Non-compete Period or other restrictive covenant period, whichever is longer, Employee agrees to promptly notify the Company no later than five (5) business days of Employee's acceptance of any employment or consulting engagement. Such notice shall include sufficient information to ensure Employee compliance with Employee's non-compete obligations and must include at a minimum the following information: (i) the name of the employer or entity for which Employee is providing any consulting services; (ii) a description of Employee's intended duties as well as (iii) the anticipated start date. Such information is required to ensure Employee's compliance with Employee's non-compete obligations as well as all other applicable restrictive covenants. Such notice shall be provided in writing to the Office of Vice President and General Counsel of the Company at 1069 State Road 46 E, Batesville, Indiana 47006. Failure to timely provide such notice shall be deemed a material breach of this Agreement and entitle the Company to return of any severance paid to Employee plus attorneys' fees. Employee further consents to the Company's notification to any new employer of Employee's rights and obligations under this Agreement.

12

30. Scope of Restrictions. If the scope of any restriction contained in any preceding paragraphs of this Agreement is deemed too broad to permit enforcement of such restriction to its fullest extent, then such restriction shall be enforced to the maximum extent permitted by law, and Employee hereby consents and agrees that such scope may be judicially modified accordingly in any proceeding brought to enforce such restriction.

31. Specific Enforcement/Injunctive Relief. Employee agrees that it would be difficult to measure any damages to the Company from a breach of the above-referenced restrictive covenants, but acknowledges that the potential for such damages would be great, incalculable and irremediable, and that monetary damages alone would be an inadequate remedy. Accordingly, Employee agrees that the Company shall be entitled to immediate injunctive relief against such breach, or threatened breach, in any court having jurisdiction. In addition, if Employee violates any such restrictive covenant, Employee agrees that the period of such violation shall be added to the term of the restriction. In determining the period of any violation, the Parties stipulate that in any calendar month in which Employee engages in any activity in violation of such provisions, Employee shall be deemed to have violated such provision for the entire month, and that month shall be added to the duration of the non-competition provision. Employee acknowledges that the remedies described above shall not be the exclusive remedies, and the Company may seek any other remedy available to it either in law or in equity, including, by way of example only, statutory remedies for misappropriation of trade secrets, and including the recovery of compensatory or punitive damages. Employee further agrees that the Company shall be entitled to an award of all costs and attorneys' fees incurred by it in any attempt to enforce the terms of this Agreement.

32. Publicly Traded Stock. The Parties agree that nothing contained in this Agreement shall be construed to prohibit Employee from investing Employee's personal assets in any stock or corporate security traded or quoted on a national securities exchange or national market system provided, however, such investments do not require any services on the part of Employee in the operation or the affairs of the business or otherwise violate the Company's Code of Ethics.

33. Notice of Claim and Contractual Limitations Period. Employee acknowledges the Company's need for prompt notice, investigation, and resolution of any claims that may be filed against it due to the number of relationships it has with employees and others (and due to the turnover among such individuals with knowledge relevant to any underlying claim). Accordingly, Employee agrees prior to initiating any litigation of any type (including, but not limited to, employment discrimination litigation, wage litigation, defamation, or any other claim) to notify the Company, within One Hundred and Eighty (180) days after the claim accrued, by sending a certified letter addressed to the Company's General Counsel setting forth: (i) claimant's name, address, and phone; (ii) the name of any attorney (if any) representing Employee; (iii) the nature of the claim; (iv) the date the claim arose; and (v) the relief requested. This provision is in addition to any other notice and exhaustion requirements that might apply. For any dispute or claim of any type against the Company (including but not limited to employment discrimination litigation, wage litigation, defamation, or any other claim), Employee must commence legal action within the shorter of one (1) year of accrual of the cause of action or such shorter period that may be specified by law.

34. Non-Jury Trials. Notwithstanding any right to a jury trial for any claims, Employee waives any such right to a jury trial, and agrees that any claim of any type (including but not limited to employment discrimination litigation, wage litigation, defamation, or any other claim) lodged in any court will be tried, if at all, without a jury.

13

35. Choice of Forum. Employee acknowledges that the Company is primarily based in Indiana, and Employee understands and acknowledges the Company's desire and need to defend any litigation against it in Indiana. Accordingly, the Parties agree that any claim of any type brought by Employee against the Company or any of its employees or agents must be maintained only in a court sitting in Marion County, Indiana, or Ripley County, Indiana, or, if a federal court, the Southern District of Indiana, Indianapolis Division. Employee further  understands and acknowledges that in the event the Company initiates litigation against Employee, the Company may need to prosecute such litigation in such state where the Employee is subject to personal jurisdiction. Accordingly, for purposes of enforcement of this Agreement, Employee specifically consents to personal jurisdiction in the State of Indiana as well as any state in which resides a customer assigned to the Employee. Furthermore, Employee consents to appear, upon Company's request and at Employee's own cost, for deposition, hearing, trial, or other court proceeding in Indiana or in any state in which resides a customer assigned to the Employee.

36. Choice of Law. This Agreement shall be deemed to have been made within the County of Ripley, State of Indiana and shall be interpreted and construed in accordance with the laws of the State of Indiana. Any and all matters of dispute of any nature whatsoever arising out of, or in any way connected with the interpretation of this Agreement, any disputes arising out of the Agreement or the employment relationship between the Parties hereto, shall be governed by, construed by and enforced in accordance with the laws of the State of Indiana without regard to any applicable state's choice of law provisions.

37. Titles. Titles are used for the purpose of convenience in this Agreement and shall be ignored in any construction of it.

38. Severability. The Parties agree that each and every paragraph, sentence, clause, term and provision of this Agreement is severable and that, in the event any portion of this Agreement is adjudged to be invalid or unenforceable, the remaining portions thereof shall remain in effect and be enforced to the fullest extent permitted by law. Further, should any particular clause, covenant, or provision of this Agreement be held unreasonable or contrary to public policy for any reason, the Parties acknowledge and agree that such covenant, provision or clause shall automatically be deemed modified such that the contested covenant, provision or clause will have the closest effect permitted by applicable law to the original form and shall be given effect and enforced as so modified to whatever extent would be reasonable and enforceable under applicable law.

39. Assignment-Notices. The rights and obligations of the Company under this Agreement shall inure to its benefit, as well as the benefit of its parent, subsidiary, successor and affiliated entities, and shall be binding upon the successors and assigns of the Company. This Agreement, being personal to Employee, cannot be assigned by Employee, but Employee's personal representative shall be bound by all its terms and conditions. Any notice required hereunder shall be sufficient if in writing and mailed to the last known residence of Employee or to the Company at its principal office with a copy mailed to the Office of the General Counsel.

14

40. Amendments and Modifications. Except as specifically provided herein, no modification, amendment, extension or waiver of this Agreement or any provision hereof shall be binding upon the Company or Employee unless in writing and signed by both Parties. The waiver by the Company or Employee of a breach of any provision of this Agreement shall not be construed as a waiver of any subsequent breach. Nothing in this Agreement shall be construed as a limitation upon the Company's right to modify or amend any of its manuals or policies in its sole discretion and any such modification or amendment which pertains to matters addressed herein shall be deemed to be incorporated herein and made a part of this Agreement.

41. Outside Representations. Employee represents and acknowledges that in signing this Agreement Employee does not rely, and has not relied, upon any representation or statement made by the Company or by any of the Company's employees, officers, agents, stockholders, directors or attorneys with regard to the subject matter, basis or effect of this Agreement other than those specifically contained herein.

42. Voluntary and Knowing Execution. Employee acknowledges that Employee has been offered a reasonable amount of time within which to consider and review this Agreement; that Employee has carefully read and fully understands all of the provisions of this Agreement; and that Employee has entered into this Agreement knowingly and voluntarily.

43. Entire Agreement. This Agreement constitutes the entire employment agreement between the Parties hereto concerning the subject matter hereof and shall supersede all prior and contemporaneous agreements between the Parties in connection with the subject matter of this Agreement. Any pre-existing Employment Agreements shall be deemed null and void. Nothing in this Agreement, however, shall affect any separately-executed written agreement addressing any other issues (e. g., the Inventions, Improvements, Copyrights and Trade Secrets Agreement, etc.).

15

IN WITNESS WHEREOF, the Parties have signed this Agreement effective as of the day and year first above written.

MICHIEL DE ZWAAN		HILL-ROM HOLDINGS, INC.
Signed:	/s/  Michiel de Zwaan	By:	/s/  John J. Greisch
Printed:	Michiel de Zwaan	Title:	President and Chief Executive Officer
Dated:	May 27, 2014	Dated:	August 4, 2014

CAUTION: READ BEFORE SIGNING

16

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John J. Greisch, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Hill-Rom Holdings, Inc.;

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 periods 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)) for the registrant 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 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: February 3, 2015

/s/  John J. Greisch

John J. Greisch

President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Steven J. Strobel, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Hill-Rom Holdings, Inc.;

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 periods 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)) for the registrant 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 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:  February 3, 2015

/s/  Steven J. Strobel

Steven J. Strobel

Senior Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Hill-Rom Holdings, Inc. (the “Corporation”) on Form 10-Q for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John J. Greisch, President and Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The 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 Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ John J. Greisch

John J. Greisch

President and Chief Executive Officer

February 3, 2015

A signed original of this written statement required by Section 906 has been provided to Hill-Rom Holdings, Inc. and will be retained by Hill-Rom Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Hill-Rom Holdings, Inc. (the “Corporation”) on Form 10-Q for the period ending December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven J. Strobel, Senior Vice President and Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)   The 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 Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Steven J. Strobel

Steven J. Strobel

Senior Vice President and Chief Financial Officer

February 3, 2015

A signed original of this written statement required by Section 906 has been provided to Hill-Rom Holdings, Inc. and will be retained by Hill-Rom Holdings, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Other Comprehensive Income (Schedule of Changes in AOCL by Component) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Sep. 30, 2014	Sep. 30, 2013
Other comprehensive income (loss)
Prior to reclassification	$ (23.1)	$ 6.1
Reclassification from	1.3	0.8
Pre-tax	(21.8)	6.9
Tax effect	(0.3)	(0.4)
Net of tax	(22.1)	6.5
Accumulated other comprehensive loss
Beginning balance	806.5
Net activity	(22.1)	6.5
Ending balance	742.3
Available-for-Sale Securities and Currency Hedges [Member]
Other comprehensive income (loss)
Prior to reclassification	(0.6)	0.1
Reclassification from
Pre-tax	(0.6)	0.1
Tax effect	0.2
Net of tax	(0.4)	0.1
Accumulated other comprehensive loss
Beginning balance		(0.3)
Net activity	(0.4)	0.1
Ending balance	(0.4)	(0.2)
Foreign Currency Translation Adjustment [Member]
Other comprehensive income (loss)
Prior to reclassification	(22.6)	5.8
Reclassification from
Pre-tax	(22.6)	5.8
Tax effect
Net of tax	(22.6)	5.8
Accumulated other comprehensive loss
Beginning balance	(34.2)	(4.6)
Net activity	(22.6)	5.8
Ending balance	(56.8)	1.2
Pension and Postretirement Defined Benefit Plan Items [Member]
Other comprehensive income (loss)
Prior to reclassification	0.1	0.2
Reclassification from	1.3	0.8
Pre-tax	1.4	1.0
Tax effect	(0.5)	(0.4)
Net of tax	0.9	0.6
Accumulated other comprehensive loss
Beginning balance	(39.9)	(30.8)
Net activity	0.9	0.6
Ending balance	(39.0)	(30.2)
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated other comprehensive loss
Beginning balance			(74.1)	(35.7)
Ending balance	$ (96.2)	$ (29.2)	$ (74.1)	$ (35.7)

XML

Commitments and Contingencies (Details) (Uninsured Risk [Member], USD $)	Dec. 31, 2014
Uninsured Risk [Member]
Loss Contingencies [Line Items]
Deductibles and self-insured retentions, minimum	$ 25,000
Deductibles and self-insured retentions, maximum	$ 1,000,000

XML

Guarantees (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Movement in Standard Product Warranty Accrual [Roll Forward]
Balance at beginning of period	$ 28.4	$ 38.1
Provision for warranties during the period	2.9	4.6
Warranty reserves acquired	1.1
Warranty claims during the period	(4.4)	(5.4)
Balance at end of period	$ 28.0	$ 37.3

XML

Supplementary Balance Sheet Information (Details) (USD $) In Millions, except Share data, unless otherwise specified	Dec. 31, 2014	Sep. 30, 2014
Supplementary Balance Sheet Information [Abstract]
Allowance for possible losses and discounts on trade receivables	$ 30.0	$ 31.4
Inventories:
Finished products	88.8	93.5
Raw materials and work in process	82.5	82.7
Total inventory	171.3	176.2
Accumulated depreciation of property, plant and equipment	593.3	588.1
Accumulated amortization of software and other intangible assets	$ 291.4	$ 283.3
Preferred stock, without par value:
Par value
Shares authorized	1,000,000	1,000,000
Shares issued	0	0
Common stock, without par value:
Par value
Shares authorized	199,000,000	199,000,000
Shares issued	80,323,912	80,323,912
Shares outstanding	56,495,427	57,439,911
Treasury shares	23,828,485	22,884,001

XML

Financing Agreements (Tables)

3 Months Ended

Dec. 31, 2014

Financing Agreements [Abstract]

Schedule of Total Debt

	December 31, 2014		September 30, 2014
Revolving credit facility	$	360.0	$	265.0
Term loan, current portion		17.5		16.2
Term loan, long-term portion		155.0		160.0
Unsecured 7.00% debentures due on February 15, 2024		19.4		19.4
Unsecured 6.75% debentures due on December 15, 2027		29.8		29.8
Other		0.6		1.4
Total debt		582.3		491.8
Less current portion of debt		127.5		126.9
Total long-term debt	$	454.8	$	364.9

XML

Special Charges (Schedule of Restructuring Activity) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014
Restructuring Reserve [Roll Forward]
Beginning Balance	$ 11.7
Expenses	2.3
Cash Payments	(3.5)
Reversals
Ending Balance	$ 10.5

XML

Financing Agreements (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Sep. 30, 2014
Debt Instrument [Line Items]
Outstanding letters of credit	$ 40.9	$ 42.4
Deferred gains from the termination of previous interest rate swap agreements	1.0	1.0
Fair value of unsecured debentures	56.3	55.5
Fair value of term loan	171.7	175.2
Interest Rate Swap [Member]
Debt Instrument [Line Items]
Interest rate swap agreement, notional amount	122.5
Interest rate swap, fair value	(0.1)	0.2
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Outstanding letters of credit	5.3
Senior revolving credit facility, maximum borrowing amount	500.0
Credit facility expiration date	Aug. 24, 2017
Percent of principal to be repaid over term	37.50%
Number of years under revolving credit facility	5 years
Maximum interest rate during period	2.00%
Outstanding borrowings	360.0
Current borrowing capacity under the facility	134.7
Guarantee of Trumpf Outstanding Debt [Member]
Debt Instrument [Line Items]
Outstanding letters of credit	38.3
Term Loan [Member]
Debt Instrument [Line Items]
Aggregate value of debt	200.0
Potential Increase to Credit Facility [Member]
Debt Instrument [Line Items]
Senior revolving credit facility, maximum borrowing amount	$ 250.0
Maximum [Member]
Debt Instrument [Line Items]
Ratio of consolidated indebtedness to consolidated EBITDA	3.5
Minimum [Member]
Debt Instrument [Line Items]
Interest coverage ratio	3.5

XML

Segment Reporting (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Segment Reporting Information [Line Items]
Revenue	$ 465.0	$ 393.4
Special charge	3.7	1.0
Operating profit	19.3	21.4
Interest expense	(3.2)	(2.0)
Investment income and other, net	0.9
Income Before Income Taxes	17.0	19.4
Corporate and Other [Member]
Segment Reporting Information [Line Items]
Operating profit	(37.7)	(25.7)
Segment Reconciling Items [Member]
Segment Reporting Information [Line Items]
Special charge	3.7	1.0
North America Segment [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenue	225.2	205.5
Operating profit	38.5	28.0
Surgical and Respiratory Care Segment [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenue	126.3	63.3
Operating profit	19.4	14.6
International [Member] | Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenue	113.5	124.6
Operating profit	$ 2.8	$ 5.5

XML

Goodwill and Indefinite-Lived Intangible Assets

3 Months Ended

Dec. 31, 2014

Goodwill and Indefinite-Lived Intangible Assets [Abstract]

Goodwill and Indefinite-Lived Intangible Assets

4.  Goodwill and Indefinite-Lived Intangible Assets

The following summarizes goodwill activity by reportable segment:

	North America			Surgical and Respiratory Care			International			Total
Balances at September 30, 2014:
Goodwill	$	390.6		$	333.5		$	148.5		$	872.6
Accumulated impairment losses		(358.1	)		-			(114.7	)		(472.8	)
Goodwill, net at September 30, 2014		32.5			333.5			33.8			399.8
Changes in Goodwill during the period:
Goodwill related to acquisitions		-			1.7			-			1.7
Currency translation effect		-			(4.6	)		(1.2	)		(5.8	)
Balances at December 31, 2014:
Goodwill		390.6			330.6			147.3			868.5
Accumulated impairment losses		(358.1	)		-			(114.7	)		(472.8	)
Goodwill, net at December 31, 2014	$	32.5		$	330.6		$	32.6		$	395.7

As discussed in Note 3, we recorded an adjustment to goodwill during the first quarter of fiscal 2015 related to the Trumpf acquisition completed during the fourth quarter of fiscal 2014.

XML

Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		12 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Sep. 30, 2015
Effective tax rate	28.80%	32.00%
Scenario, Forecast [Member]
Favorable impact of tax credit			$ 2

XML

Earnings per Common Share (Tables)

3 Months Ended

Dec. 31, 2014

Earnings per Common Share [Abstract]

Calculated Earnings per Share

	Quarterly Period Ended December 31
	2014		2013
Net income	$	12.1	$	13.2
Average shares outstanding - Basic		57,137		58,230
Add potential effect of exercise of stock options
and other unvested equity awards		1,017		912
Average shares outstanding - Diluted		58,154		59,142
Net income per common share - Basic	$	0.21	$	0.23
Net income per common share - Diluted	$	0.21	$	0.22
Shares with anti-dilutive effect excluded from the computation of  Diluted EPS		461		375

XML

Special Charges (Tables)

3 Months Ended

Dec. 31, 2014

Special Charges [Abstract]

Restructuring Activity

Balance at September 30, 2014	$	11.7
Expenses		2.3
Cash Payments		(3.5	)
Reversals		-
Balance at December 31, 2014	$	10.5

XML

Earnings per Common Share (Details) (USD $) In Millions, except Share data in Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Earnings per Common Share [Abstract]
Net income	$ 12.1	$ 13.2
Average shares outstanding - Basic	57,137	58,230
Add potential effect of exercise of stock options and other unvested equity awards	1,017	912
Average shares outstanding - Diluted	58,154	59,142
Net income per common share - Basic	$ 0.21	$ 0.23
Net income per common share - Diluted	$ 0.21	$ 0.22
Shares with anti-dilutive effect excluded from the computation of Diluted EPS	461	375

XML

Guarantees (Tables)

3 Months Ended

Dec. 31, 2014

Guarantees [Abstract]

Reconciliation of Changes in the Warranty Reserve

	Quarter Ended December 31
	2014			2013
Balance at beginning of period	$	28.4		$	38.1
Provision for warranties during the period		2.9			4.6
Warranty reserves acquired		1.1			-
Warranty claims during the period		(4.4	)		(5.4	)
Balance at end of period	$	28.0		$	37.3

XML

Segment Reporting (Tables)

3 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Reconciliation of Segment Information to Consolidated Financial Information

	Quarter Ended December 31
	2014			2013
Revenue:
North America	$	225.2		$	205.5
Surgical and Respiratory Care		126.3			63.3
International		113.5			124.6
Total revenue	$	465.0		$	393.4
Divisional income:
North America	$	38.5		$	28.0
Surgical and Respiratory Care		19.4			14.6
International		2.8			5.5
Other operating costs:
Non-allocated operating and administrative costs		37.7			25.7
Special charges		3.7			1.0
Operating profit		19.3			21.4
Interest expense		(3.2	)		(2.0	)
Investment income and other, net		0.9			-
Income before income taxes	$	17.0		$	19.4

XML

Acquisitions

3 Months Ended

Dec. 31, 2014

Acquisitions [Abstract]

Acquisitions

3. Acquisitions

Trumpf Medical

On August 1, 2014, we completed the acquisition of Trumpf Medical (“Trumpf”) and funded the transaction with a combination of cash on hand and borrowings under the revolving credit facility.  Trumpf provides a portfolio of well-established operating room (OR) infrastructure products such as surgical tables, surgical lighting, and supply units and expands our product offerings in the surgical suite. 

The purchase price was $229.9 million ($223.6 million net of cash acquired).  The results of Trumpf are included in the Condensed Consolidated Financial Statements since the date of acquisition.

The following summarizes the fair value of assets acquired and liabilities assumed at the date of the acquisition.  During the first quarter of 2015, we made certain adjustments to the opening balance sheet as of the acquisition date. These results are preliminary and subject to normal true-up provisions in the purchase agreement and other fair value adjustments.

		Amount
Trade receivables	$	66.3
Inventory		63.9
Other current assets		24.3
Property, plant, and equipment		42.1
Goodwill		59.0
Trade name (5-year useful life)		6.7
Customer relationships (10-year weighted average useful life)		15.8
Developed technology (8-year weighted average useful life)		17.8
Other intangibles		4.8
Other noncurrent assets		0.7
Deferred tax asset		14.9
Current liabilities		(72.3	)
Long term debt		(6.0	)
Noncurrent liabilities		(8.1	)
Total purchase price	$	229.9

Goodwill was allocated entirely to our Surgical and Respiratory Care segment.  The goodwill related to the acquired German operations will be tax deductible while the remaining goodwill will not be deductible for tax purposes.

On an unaudited proforma basis, as if the Trumpf acquisition had been consummated prior to the earliest date of the financial results presented, our revenue would have been higher by approximately $60 million for the quarter ended December 31, 2013.  As previously disclosed, the impact to net income on an unaudited proforma basis would not have been significant to our financial results for fiscal 2014.  The unaudited pro forma results are based on the Company's historical financial statements and those of the Trumpf business and do not necessarily indicate the results of operations that would have resulted had the acquisition been completed at the beginning of the comparable period presented and are not indicative of the results of operations in future periods.

XML

Summary of Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	Dec. 31, 2014
Summary of Significant Accounting Policies [Abstract]
Valuation allowance on deferred tax assets	$ 27.4

XML

Other Comprehensive Income (Schedule of Items Reclassified out of AOCL) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014		Dec. 31, 2013
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Amount reclassified	$ (17.0)		$ (19.4)
Tax effect	4.9		6.2
Net of tax	(12.1)		(13.2)
Pension and Postretirement Defined Benefit Plan Items [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Amount reclassified	1.3	[1]	0.8	[1]
Tax effect	(0.5)	[1]	(0.3)	[1]
Net of tax	$ 0.8	[1]	$ 0.5	[1]

[1] Reclassified from accumulated other comprehensive loss into cost of goods sold and selling and administrative expenses. These components are included in the computation of net periodic pension expense.

XML

Condensed Consolidated Statements of Income (USD $) In Millions, except Share data in Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Net Revenue
Capital sales	$ 373.4	$ 295.5
Rental revenue	91.6	97.9
Total revenue	465.0	393.4
Cost of Revenue
Cost of goods sold	220.5	171.2
Rental expenses	44.6	45.4
Total cost of revenue	265.1	216.6
Gross Profit	199.9	176.8
Research and development expenses	21.8	16.4
Selling and administrative expenses	155.1	138.0
Special charges (Note 8)	3.7	1.0
Operating Profit	19.3	21.4
Interest expense	(3.2)	(2.0)
Investment income and other, net	0.9
Income Before Income Taxes	17.0	19.4
Income tax expense (Note 9)	4.9	6.2
Net Income	$ 12.1	$ 13.2
Net income per Common Share - Basic	$ 0.21	$ 0.23
Net income per Common Share - Diluted	$ 0.21	$ 0.22
Dividends per Common Share	$ 0.1525	$ 0.1375
Average Common Shares Outstanding - Basic (thousands) (Note 10)	57,137	58,230
Average Common Shares Outstanding - Diluted (thousands) (Note 10)	58,154	59,142

XML

Common Stock (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Common Stock [Abstract]
Stock based compensation cost charged against income, net of tax	$ 3.0	$ 2.3

XML

Summary of Significant Accounting Policies

3 Months Ended

Dec. 31, 2014

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

1.  Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Unless the context otherwise requires, the terms “Hill-Rom,” “we,” “our” and “us” refer to Hill-Rom Holdings, Inc. and our wholly-owned subsidiaries.  The unaudited Condensed Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our latest Annual Report on Form 10-K for the fiscal year ended September 30, 2014 (“2014 Form 10-K”) as filed with the United States (“U.S.”) Securities and Exchange Commission.  The September 30, 2014 Condensed Consolidated Balance Sheet was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the U.S.  In the opinion of management, the Condensed Consolidated Financial Statements herein include all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows for the interim periods presented.  Quarterly results are not necessarily indicative of annual results.

The Condensed Consolidated Financial Statements include the accounts of Hill-Rom and its wholly-owned subsidiaries.  Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires our management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the period.  Actual results could differ from those estimates.  Examples of such estimates include our income taxes (Notes 1 and 9), accounts receivable reserves (Note 2), accrued warranties (Note 12), and commitments and contingencies (Note 14), among others.

Fair Value Measurements

Fair value measurements are classified and disclosed in one of the following three categories:

• Level 1:  Financial instruments with unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.

• Level 2:  Financial instruments with observable inputs other than those included in Level 1 such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3:  Financial instruments with unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Unobservable inputs reflect our own assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs shall be developed based on the best information available in the circumstances, which might include our own data.

We record cash and cash equivalents, as disclosed on our Condensed Consolidated Balance Sheets, as Level 1 instruments and certain other insignificant derivatives and investments as either Level 2 or 3 instruments.  Refer to Note 5 for disclosure of our debt instrument fair values.

Taxes Collected from Customers and Remitted to Governmental Units

Taxes assessed by a governmental authority that are directly imposed on a revenue producing transaction between us and our customers, including but not limited to sales taxes, use taxes and value added taxes, are accounted for on a net (excluded from revenue and costs) basis.

Income Taxes

We and our eligible domestic subsidiaries file a consolidated U.S. income tax return. Foreign operations file income tax returns in a number of jurisdictions.  Deferred income taxes are computed using an asset and liability approach to reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. We have a variety of deferred tax assets in numerous tax jurisdictions. These deferred tax assets are subject to periodic assessment as to recoverability.  If it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recognized. In evaluating whether it is more likely than not that we would recover these deferred tax assets, future taxable income, the reversal of existing temporary differences and tax planning strategies are considered.

As of December 31, 2014, we had $27.4 million of valuation allowances on deferred tax assets, on a tax-effected basis, primarily related to foreign operating loss carryforwards and other tax attributes. We believe that our estimates for the valuation allowances recorded against deferred tax assets are appropriate based on current facts and circumstances.

We account for uncertain income tax positions using a threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The difference between the tax benefit recognized in the financial statements for an uncertain income tax position and the tax benefit claimed in the tax return is referred to as an unrecognized tax benefit.

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance will be effective for us in the first quarter of fiscal 2018, ending December 31, 2017.  Early adoption is not permitted.  We are currently in the process of evaluating the impact of adoption of this ASU on our Consolidated Financial Statements.

There have been no significant changes to our assessment of the impact of recently issued accounting standards included in Note 1 of Notes to Consolidated Financial Statements in our 2014 Form 10-K.

XML

Goodwill and Indefinite-Lived Intangible Assets (Schedule of Goodwill Activity) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Sep. 30, 2014
Goodwill [Line Items]
Goodwill	$ 868.5	$ 872.6
Accumulated impairment losses	(472.8)	(472.8)
Goodwill, net	395.7	399.8
Goodwill related to acquisitions	1.7
Currency translation effect	(5.8)
North America Segment [Member]
Goodwill [Line Items]
Goodwill	390.6	390.6
Accumulated impairment losses	(358.1)	(358.1)
Goodwill, net	32.5	32.5
Goodwill related to acquisitions
Currency translation effect
Surgical and Respiratory Care Segment [Member]
Goodwill [Line Items]
Goodwill	330.6	333.5
Accumulated impairment losses
Goodwill, net	330.6	333.5
Goodwill related to acquisitions	1.7
Currency translation effect	(4.6)
International [Member]
Goodwill [Line Items]
Goodwill	147.3	148.5
Accumulated impairment losses	(114.7)	(114.7)
Goodwill, net	32.6	33.8
Goodwill related to acquisitions
Currency translation effect	$ (1.2)

XML

Supplementary Balance Sheet Information (Tables)

3 Months Ended

Dec. 31, 2014

Supplementary Balance Sheet Information [Abstract]

Supplementary Balance Sheet Information

	December 31, 2014		September 30, 2014
Allowance for possible losses and discounts on trade receivables	$	30.0	$	31.4
Inventories:
Finished products	$	88.8	$	93.5
Raw materials and work in process		82.5		82.7
Total inventory	$	171.3	$	176.2
Accumulated depreciation of property, plant and equipment	$	593.3	$	588.1
Accumulated amortization of software and other intangible assets	$	291.4	$	283.3
Preferred stock, without par value:
Shares authorized		1,000,000		1,000,000
Shares issued	None		None
Common stock, without par value:
Shares authorized		199,000,000		199,000,000
Shares issued		80,323,912		80,323,912
Shares outstanding		56,495,427		57,439,911
Treasury shares		23,828,485		22,884,001

XML

Financing Agreements (Schedule of Total Debt) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Sep. 30, 2014
Long-term Debt, by Current and Noncurrent [Abstract]
Total debt	$ 582.3	$ 491.8
Less current portion of debt	127.5	126.9
Total long-term debt	454.8	364.9
Revolving Credit Facility [Member]
Long-term Debt, by Current and Noncurrent [Abstract]
Total debt	360.0	265.0
Term Loan [Member]
Long-term Debt, by Current and Noncurrent [Abstract]
Less current portion of debt	17.5	16.2
Total long-term debt	155.0	160.0
Unsecured 7.00% Debentures due on February 15, 2024 [Member]
Long-term Debt, by Current and Noncurrent [Abstract]
Total debt	19.4	19.4
Unsecured debenture interest rate	7.00%
Debt instrument, maturity date	Feb. 15, 2024
Unsecured 6.75% Debentures due on December 15, 2027 [Member]
Long-term Debt, by Current and Noncurrent [Abstract]
Total debt	29.8	29.8
Unsecured debenture interest rate	6.75%
Debt instrument, maturity date	Dec. 15, 2027
Other [Member]
Long-term Debt, by Current and Noncurrent [Abstract]
Total debt	$ 0.6	$ 1.4

XML

Goodwill and Indefinite-Lived Intangible Assets (Tables)

3 Months Ended

Dec. 31, 2014

Goodwill and Indefinite-Lived Intangible Assets [Abstract]

Schedule of Goodwill Activity

The following summarizes goodwill activity by reportable segment:

	North America			Surgical and Respiratory Care			International			Total
Balances at September 30, 2014:
Goodwill	$	390.6		$	333.5		$	148.5		$	872.6
Accumulated impairment losses		(358.1	)		-			(114.7	)		(472.8	)
Goodwill, net at September 30, 2014		32.5			333.5			33.8			399.8
Changes in Goodwill during the period:
Goodwill related to acquisitions		-			1.7			-			1.7
Currency translation effect		-			(4.6	)		(1.2	)		(5.8	)
Balances at December 31, 2014:
Goodwill		390.6			330.6			147.3			868.5
Accumulated impairment losses		(358.1	)		-			(114.7	)		(472.8	)
Goodwill, net at December 31, 2014	$	32.5		$	330.6		$	32.6		$	395.7

XML

Supplementary Balance Sheet Information

3 Months Ended

Dec. 31, 2014

Supplementary Balance Sheet Information [Abstract]

Supplementary Balance Sheet Information

2.  Supplementary Balance Sheet Information

	December 31, 2014		September 30, 2014
Allowance for possible losses and discounts on trade receivables	$	30.0	$	31.4
Inventories:
Finished products	$	88.8	$	93.5
Raw materials and work in process		82.5		82.7
Total inventory	$	171.3	$	176.2
Accumulated depreciation of property, plant and equipment	$	593.3	$	588.1
Accumulated amortization of software and other intangible assets	$	291.4	$	283.3
Preferred stock, without par value:
Shares authorized		1,000,000		1,000,000
Shares issued	None		None
Common stock, without par value:
Shares authorized		199,000,000		199,000,000
Shares issued		80,323,912		80,323,912
Shares outstanding		56,495,427		57,439,911
Treasury shares		23,828,485		22,884,001

XML

Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Condensed Consolidated Statements of Comprehensive Income (Loss) [Abstract]
Net Income	$ 12.1	$ 13.2
Other Comprehensive Income (Loss), net of tax (Note 7):
Available-for-sale securities and currency hedges	(0.4)	0.1
Foreign currency translation adjustment	(22.6)	5.8
Change in pension and postretirement defined benefit plans	0.9	0.6
Total Other Comprehensive Income (Loss), net of tax	(22.1)	6.5
Total Comprehensive Income (Loss)	$ (10.0)	$ 19.7

XML

Guarantees

3 Months Ended

Dec. 31, 2014

Guarantees [Abstract]

Guarantees

12.  Guarantees

We routinely grant limited warranties on our products with respect to defects in material and workmanship.  The terms of these warranties are generally one year, however, certain components and products have substantially longer warranty periods.  We recognize a reserve with respect to these obligations at the time of product sale, with subsequent warranty claims recorded directly against the reserve.  The amount of the warranty reserve is determined based on historical trend experience for the covered products.  For more significant warranty-related matters which might require a broad-based correction, separate reserves are established when such events are identified and the cost of correction can be reasonably estimated.  The existing broad-based corrections do not limit the manufacture, sale or ongoing use of these products.

A reconciliation of changes in the warranty reserve for the periods covered in this report is as follows:

	Quarter Ended December 31
	2014			2013
Balance at beginning of period	$	28.4		$	38.1
Provision for warranties during the period		2.9			4.6
Warranty reserves acquired		1.1			-
Warranty claims during the period		(4.4	)		(5.4	)
Balance at end of period	$	28.0		$	37.3

In the normal course of business we enter into various other guarantees and indemnities in our relationships with suppliers, service providers, customers, business partners and others.  Examples of these arrangements would include guarantees of product performance, indemnifications to service providers and indemnifications of our actions to business partners.  These guarantees and indemnifications have not historically had, nor do we expect them to have, a material impact on our financial condition or results of operations, although indemnifications associated with our actions generally have no dollar limitations.

In conjunction with our acquisition and divestiture activities, we have entered into select guarantees and indemnifications of performance with respect to the fulfillment of commitments under applicable purchase and sale agreements.  With respect to sale transactions, we also routinely enter into non-competition agreements for varying periods of time.  Guarantees and indemnifications with respect to acquisition and divestiture activities, if triggered, could have a materially adverse impact on our financial condition and results of operations.

XML

Document and Entity Information	3 Months Ended
	Dec. 31, 2014	Jan. 26, 2015
Document And Entity Information Abstract
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Dec. 31, 2014
Entity Registrant Name	Hill-Rom Holdings, Inc.
Entity Central Index Key	0000047518
Current Fiscal Year End Date	--09-30
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		56,506,661

XML

Segment Reporting

3 Months Ended

Dec. 31, 2014

Segment Reporting [Abstract]

Segment Reporting

13.  Segment Reporting

We disclose segment information that is consistent with the way in which management operates and views the business.  Our operating structure contains the following reporting segments:

• North America - sells and rents our patient support and near-patient technologies and services, as well as our clinical workflow solutions, in the U.S. and Canada.
• Surgical and Respiratory Care - sells and rents our surgical and respiratory care products.
• International - sells and rents similar products as our North America segment in regions outside of the U.S. and Canada.

Our performance under each reportable segment is measured on a divisional income basis before non-allocated operating and administrative costs, acquisition-related intangible asset amortization, impairments, litigation, and special charges.  Divisional income generally represents the division's gross profit less its direct operating costs along with an allocation of manufacturing and distribution costs, research and development and certain corporate functional expenses.

Non-allocated operating and administrative costs include functional expenses that support the entire organization such as administration, finance, legal and human resources, expenses associated with strategic developments, acquisition-related intangible asset amortization, and other events that are not indicative of operating trends.  We exclude such amounts from divisional income to allow management to evaluate and understand divisional operating trends without the effects of such items.

	Quarter Ended December 31
	2014			2013
Revenue:
North America	$	225.2		$	205.5
Surgical and Respiratory Care		126.3			63.3
International		113.5			124.6
Total revenue	$	465.0		$	393.4
Divisional income:
North America	$	38.5		$	28.0
Surgical and Respiratory Care		19.4			14.6
International		2.8			5.5
Other operating costs:
Non-allocated operating and administrative costs		37.7			25.7
Special charges		3.7			1.0
Operating profit		19.3			21.4
Interest expense		(3.2	)		(2.0	)
Investment income and other, net		0.9			-
Income before income taxes	$	17.0		$	19.4

XML

Condensed Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Dec. 31, 2014	Sep. 30, 2014
Current Assets
Cash and cash equivalents	$ 113.7	$ 99.3
Trade accounts receivable, net of allowances (Note 2)	374.9	411.0
Inventories (Note 2)	171.3	176.2
Deferred income taxes (Notes 1 and 9)	41.5	40.9
Other current assets	54.8	51.9
Total current assets	756.2	779.3
Property, plant and equipment, net (Note 2)	287.4	261.5
Goodwill (Note 4)	395.7	399.8
Software and other intangible assets, net (Note 2)	247.6	261.1
Deferred income taxes (Notes 1 and 9)	22.8	23.0
Other assets	26.5	27.4
Total Assets	1,736.2	1,752.1
Current Liabilities
Trade accounts payable	100.7	112.7
Short-term borrowings (Note 5)	127.5	126.9
Accrued compensation	62.2	89.2
Accrued product warranties (Note 12)	28.0	28.4
Other current liabilities	81.2	85.1
Total current liabilities	399.6	442.3
Long-term debt (Note 5)	454.8	364.9
Accrued pension and postretirement benefits (Note 6)	76.3	76.9
Deferred income taxes (Notes 1 and 9)	32.1	31.0
Other long-term liabilities	31.1	30.5
Total Liabilities	993.9	945.6
Commitments and Contingencies (Note 14)
SHAREHOLDERS' EQUITY
Common Stock (Note 2)	4.4	4.4
Additional paid-in-capital	135.4	134.1
Retained earnings	1,503.2	1,499.8
Accumulated other comprehensive loss (Note 7)	(96.2)	(74.1)
Treasury stock, at cost (Note 2)	(804.5)	(757.7)
Total Shareholders' Equity	742.3	806.5
Total Liabilities and Shareholders' Equity	$ 1,736.2	$ 1,752.1

XML

Other Comprehensive Income

3 Months Ended

Dec. 31, 2014

Other Comprehensive Income [Abstract]

Other Comprehensive Income

7.  Other Comprehensive Income

The following table represents the changes in accumulated other comprehensive loss by component:

	Quarter Ended December 31, 2014
	Other comprehensive income (loss)														Accumulated other comprehensive loss
	Prior to reclassification			Reclassification from		Pre-tax			Tax effect			Net of tax			Beginning balance			Net activity			Ending balance
Available-for-sale securities     and currency hedges	$	(0.6	)	$	-	$	(0.6	)	$	0.2		$	(0.4	)	$	-		$	(0.4	)	$	(0.4	)
Foreign currency translation      adjustment		(22.6	)		-		(22.6	)		-			(22.6	)		(34.2	)		(22.6	)		(56.8	)
Change in pension and postretirement      defined benefit plans		0.1			1.3		1.4			(0.5	)		0.9			(39.9	)		0.9			(39.0	)
Total	$	(23.1	)	$	1.3	$	(21.8	)	$	(0.3	)	$	(22.1	)	$	(74.1	)	$	(22.1	)	$	(96.2	)

	Quarter Ended December 31, 2013
	Other comprehensive income											Accumulated other comprehensive loss
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect			Net of tax		Beginning balance			Net activity		Ending balance
Available-for-sale securities     and currency hedges	$	0.1	$	-	$	0.1	$	-		$	0.1	$	(0.3	)	$	0.1	$	(0.2	)
Foreign currency translation      adjustment		5.8		-		5.8		-			5.8		(4.6	)		5.8		1.2
Change in pension and postretirement      defined benefit plans		0.2		0.8		1.0		(0.4	)		0.6		(30.8	)		0.6		(30.2	)
Total	$	6.1	$	0.8	$	6.9	$	(0.4	)	$	6.5	$	(35.7	)	$	6.5	$	(29.2	)

The following table represents the items reclassified out of accumulated other comprehensive loss and the related tax effects:

	Quarter Ended December 31
	2014							2013
	Amount reclassified		Tax effect			Net of tax		Amount reclassified		Tax effect			Net of tax
Change in pension and postretirement      defined benefit plans (a)	$	1.3	$	(0.5	)	$	0.8	$	0.8	$	(0.3	)	$	0.5

(a)

Reclassified from accumulated other comprehensive loss into cost of goods sold and selling and administrative expenses. These components are included in the computation of net periodic pension expense.

XML

Retirement and Postretirement Plans

3 Months Ended

Dec. 31, 2014

Retirement and Postretirement Plans [Abstract]

Retirement and Postretirement Plans

6.   Retirement and Postretirement Plans

We sponsor five defined benefit retirement plans: a master defined benefit retirement plan, a nonqualified supplemental executive defined benefit retirement plan and three defined benefit retirement plans covering employees in Germany and France.  Benefits for such plans are based primarily on years of service and the employee's level of compensation during specific periods of employment.  We contribute funds to trusts as necessary to provide for current service and for any unfunded projected future benefit obligation over a reasonable period of time for our funded plans.  All of our plans have an annual measurement date of September 30.  The following table includes the components of net pension expense for our defined benefit plans.

	Quarter Ended December 31
	2014			2013
Service cost	$	1.4		$	1.2
Interest cost		3.7			3.6
Expected return on plan assets		(4.3	)		(4.2	)
Amortization of unrecognized prior service cost, net		0.1			0.2
Amortization of net loss		1.4			0.8
Net pension expense	$	2.3		$	1.6

We also sponsor a domestic postretirement health care plan that provides health care benefits to qualified retirees and dependents until eligible for Medicare.  Annual costs related to the domestic postretirement health care plan are not significant.

We have defined contribution savings plans that cover substantially all U.S. employees and certain non-U.S. employees.  The general purpose of these plans is to provide additional financial security during retirement by providing employees with an incentive to make regular savings.  Company contributions to the plans are based on eligibility and employee contributions.  Expense under these plans was $4.2 million and $3.7 million in each of the quarterly periods ended December 31, 2014 and 2013.

XML

Acquisitions (Tables) (Trumpf Medical [Member])

3 Months Ended

Dec. 31, 2014

Trumpf Medical [Member]

Business Acquisition [Line Items]

Schedule of Fair Value of the Assets Acquired and Liabilities Assumed

The following summarizes the fair value of assets acquired and liabilities assumed at the date of the acquisition.  During the first quarter of 2015, we made certain adjustments to the opening balance sheet as of the acquisition date. These results are preliminary and subject to normal true-up provisions in the purchase agreement and other fair value adjustments.

		Amount
Trade receivables	$	66.3
Inventory		63.9
Other current assets		24.3
Property, plant, and equipment		42.1
Goodwill		59.0
Trade name (5-year useful life)		6.7
Customer relationships (10-year weighted average useful life)		15.8
Developed technology (8-year weighted average useful life)		17.8
Other intangibles		4.8
Other noncurrent assets		0.7
Deferred tax asset		14.9
Current liabilities		(72.3	)
Long term debt		(6.0	)
Noncurrent liabilities		(8.1	)
Total purchase price	$	229.9

XML

Commitments and Contingencies

3 Months Ended

Dec. 31, 2014

Commitments and Contingencies [Abstract]

Commitments and Contingencies

14.  Commitments and Contingencies

General

We are subject to various claims and contingencies arising out of the normal course of business, including those relating to governmental investigations and proceedings, commercial transactions, product liability, employee related matters, antitrust, safety, health, taxes, environmental and other matters.  Litigation is subject to many uncertainties and the outcome of individual litigated matters is not predictable with assurance.  It is possible that some litigation matters for which reserves have not been established could be decided unfavorably to us, and that any such unfavorable decisions could have a material adverse effect on our financial condition, results of operations and cash flows.

We are also involved in other possible claims, including product and general liability, workers' compensation, auto liability and employment related matters. Such claims in the United States have deductibles and self-insured retentions ranging from $25 thousand to $1.0 million per occurrence or per claim, depending upon the type of coverage and policy period. International deductibles and self-insured retentions are lower.  We are also generally self-insured up to certain stop-loss limits for certain employee health benefits, including medical, drug and dental.  Our policy is to estimate reserves based upon a number of factors including known claims, estimated incurred but not reported claims and outside actuarial analysis, which are based on historical information along with certain assumptions about future events. Such estimated reserves are classified as Other Current Liabilities and Other Long-Term Liabilities within the Condensed Consolidated Balance Sheets.

Universal Hospital Services, Inc. Litigation

On January 13, 2015, Universal Hospital Services, Inc. filed a complaint against us in the United States District Court for the Western District of Texas.  The plaintiff alleges, among other things, that we engaged in certain customer contracting practices in violation of state and federal antitrust laws.  The plaintiff also has asserted claims for tortuous interference with business relationships. The plaintiff seeks injunctive relief and money damages in an unspecified amount. We believe that the allegations are without merit and intend to defend this matter vigorously.

XML

Earnings per Common Share

3 Months Ended

Dec. 31, 2014

Earnings per Common Share [Abstract]

Earnings per Common Share

10.  Earnings per Common Share

Basic earnings per share is calculated based upon the weighted average number of outstanding common shares for the period, plus the effect of deferred vested shares.  Diluted earnings per share is calculated consistent with the basic earnings per share calculation plus the effect of dilutive unissued common shares related to stock-based employee compensation programs.  For all periods presented, anti-dilutive stock options were excluded from the calculation of diluted earnings per share.  Cumulative treasury stock acquired, less cumulative shares reissued, have been excluded in determining the average number of shares outstanding.

Earnings per share are calculated as follows (share information in thousands):

	Quarterly Period Ended December 31
	2014		2013
Net income	$	12.1	$	13.2
Average shares outstanding - Basic		57,137		58,230
Add potential effect of exercise of stock options
and other unvested equity awards		1,017		912
Average shares outstanding - Diluted		58,154		59,142
Net income per common share - Basic	$	0.21	$	0.23
Net income per common share - Diluted	$	0.21	$	0.22
Shares with anti-dilutive effect excluded from the computation of  Diluted EPS		461		375

XML

Special Charges

3 Months Ended

Dec. 31, 2014

Special Charges [Abstract]

Special Charges

8.  Special Charges

During the second quarter of fiscal 2014, we announced a global restructuring program focused on improving our cost structure.  This action included early retirement and reduction in force programs that eliminated over 200 net positions primarily in the U.S., which was substantially completed in fiscal 2014 with cash expenditures continuing during fiscal 2015.  The program is also reducing our European manufacturing capacity and streamlining our global operations by, among other things, executing a back office process transformation program in Europe.  The restructuring in Europe is in process and, for the first quarter of fiscal 2015, has resulted in severance and benefit charges of $2.3 million and other costs of $1.4 million related to legal and professional fees, temporary labor, project management, and other administrative functions.  Since the inception of the global restructuring program through December 31, 2014, we have recognized aggregate special charges of $28.6 million, which are recorded in both fiscal 2014 and 2015.  We expect to incur $15 million to $20 million of additional European restructuring costs through the completion of the program. 

During the first quarter of fiscal 2014, we initiated a plan to improve our cost structure and streamline our organization by offering an early retirement program to certain manufacturing employees in our Batesville, Indiana plant, meeting specific eligibility requirements, and other minor reduction in force actions.  These programs resulted in the elimination of approximately 35 positions and required recognition of a special charge of approximately $1 million for lump sum payments under the program and severance and other benefits provided to other affected employees.  This action was substantially complete by the end of the second quarter of fiscal 2014.

For all accrued severance and other benefit charges described above, we record restructuring reserves within other current liabilities. The reserve activity for severance and other benefits during fiscal 2015 was as follows:

Balance at September 30, 2014	$	11.7
Expenses		2.3
Cash Payments		(3.5	)
Reversals		-
Balance at December 31, 2014	$	10.5

XML

Income Taxes

3 Months Ended

Dec. 31, 2014

Income Taxes [Abstract]

Income Taxes

9.  Income Taxes

On December 19, 2014, the President signed into law the Tax Increase Prevention Act of 2014 (the Tax Act). The Tax Act retroactively extended the research and development tax credit for one year beginning January 1, 2014 through December 31, 2014.  This credit had previously expired effective December 31, 2013.

The effective tax rate for the three-month period ended December 31, 2014 was 28.8 percent compared to 32.0 percent for the comparable period in the prior year.  The lower tax rate is due to the recognition of period tax benefits principally related to the retroactive reinstatement of the research and development tax credit in the current year.

We expect the reinstatement of the research and development tax credit to favorably impact the effective tax rate for fiscal 2015 by nearly $2 million through a combination of a one-time catch-up adjustment from the reinstatement of the credit recorded in our first quarter of fiscal 2015 and the inclusion of the limited current year research credit into the fiscal 2015 effective tax rate.

XML

Common Stock

3 Months Ended

Dec. 31, 2014

Common Stock [Abstract]

Common Stock

11.  Common Stock

The stock-based compensation cost that was charged against income, net of tax, for all plans was $3.0 million for the quarterly period ended December 31, 2014 and $2.3 million for the comparable prior year period.

XML

Acquisitions (Acquisition of Trumpf Medical) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		0 Months Ended
	Dec. 31, 2014	Dec. 31, 2013	Aug. 01, 2014	Sep. 30, 2014
Business Acquisition [Line Items]
Purchase price of entity, net of cash acquired		$ 1.3
Fair value of the assets acquired and liabilities assumed:
Goodwill	395.7			399.8
Trumpf Medical [Member]
Business Acquisition [Line Items]
Purchase price of entity			229.9
Purchase price of entity, net of cash acquired			223.6
Fair value of the assets acquired and liabilities assumed:
Trade receivables			66.3
Inventory			63.9
Other current assets			24.3
Property, plant, and equipment			42.1
Goodwill			59.0
Other intangibles			4.8
Other noncurrent assets			0.7
Deferred tax asset			14.9
Current liabilities			(72.3)
Long term debt			(6.0)
Noncurrent liabilities			(8.1)
Total purchase price			229.9
Pro Forma Information:
Total revenues		60
Trumpf Medical [Member] | Trade Name [Member]
Fair value of the assets acquired and liabilities assumed:
Intangible assets (Finite Lived)			6.7
Useful lives assigned to intangibles:
Weighted-average useful life	5 years
Trumpf Medical [Member] | Customer Relationships [Member]
Fair value of the assets acquired and liabilities assumed:
Intangible assets (Finite Lived)			15.8
Useful lives assigned to intangibles:
Weighted-average useful life	10 years
Trumpf Medical [Member] | Technology [Member]
Fair value of the assets acquired and liabilities assumed:
Intangible assets (Finite Lived)			$ 17.8
Useful lives assigned to intangibles:
Weighted-average useful life	8 years

XML

Summary of Significant Accounting Policies (Policies)

3 Months Ended

Dec. 31, 2014

Summary of Significant Accounting Policies [Abstract]

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

Unless the context otherwise requires, the terms “Hill-Rom,” “we,” “our” and “us” refer to Hill-Rom Holdings, Inc. and our wholly-owned subsidiaries.  The unaudited Condensed Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our latest Annual Report on Form 10-K for the fiscal year ended September 30, 2014 (“2014 Form 10-K”) as filed with the United States (“U.S.”) Securities and Exchange Commission.  The September 30, 2014 Condensed Consolidated Balance Sheet was derived from audited Consolidated Financial Statements, but does not include all disclosures required by accounting principles generally accepted in the U.S.  In the opinion of management, the Condensed Consolidated Financial Statements herein include all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position, results of operations and cash flows for the interim periods presented.  Quarterly results are not necessarily indicative of annual results.

The Condensed Consolidated Financial Statements include the accounts of Hill-Rom and its wholly-owned subsidiaries.  Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires our management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the period.  Actual results could differ from those estimates.  Examples of such estimates include our income taxes (Notes 1 and 9), accounts receivable reserves (Note 2), accrued warranties (Note 12), and commitments and contingencies (Note 14), among others.

Fair Value Measurements

Fair Value Measurements

Fair value measurements are classified and disclosed in one of the following three categories:

• Level 1:  Financial instruments with unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets and liabilities.

• Level 2:  Financial instruments with observable inputs other than those included in Level 1 such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3:  Financial instruments with unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Unobservable inputs reflect our own assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs shall be developed based on the best information available in the circumstances, which might include our own data.

We record cash and cash equivalents, as disclosed on our Condensed Consolidated Balance Sheets, as Level 1 instruments and certain other insignificant derivatives and investments as either Level 2 or 3 instruments.  Refer to Note 5 for disclosure of our debt instrument fair values.

Taxes Collected from Customers and Remitted to Governmental Units

Taxes Collected from Customers and Remitted to Governmental Units

Taxes assessed by a governmental authority that are directly imposed on a revenue producing transaction between us and our customers, including but not limited to sales taxes, use taxes and value added taxes, are accounted for on a net (excluded from revenue and costs) basis.

Income Taxes

Income Taxes

We and our eligible domestic subsidiaries file a consolidated U.S. income tax return. Foreign operations file income tax returns in a number of jurisdictions.  Deferred income taxes are computed using an asset and liability approach to reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. We have a variety of deferred tax assets in numerous tax jurisdictions. These deferred tax assets are subject to periodic assessment as to recoverability.  If it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recognized. In evaluating whether it is more likely than not that we would recover these deferred tax assets, future taxable income, the reversal of existing temporary differences and tax planning strategies are considered.

As of December 31, 2014, we had $27.4 million of valuation allowances on deferred tax assets, on a tax-effected basis, primarily related to foreign operating loss carryforwards and other tax attributes. We believe that our estimates for the valuation allowances recorded against deferred tax assets are appropriate based on current facts and circumstances.

We account for uncertain income tax positions using a threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The difference between the tax benefit recognized in the financial statements for an uncertain income tax position and the tax benefit claimed in the tax return is referred to as an unrecognized tax benefit.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers”, which provides guidance for revenue recognition. The standard's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This guidance will be effective for us in the first quarter of fiscal 2018, ending December 31, 2017.  Early adoption is not permitted.  We are currently in the process of evaluating the impact of adoption of this ASU on our Consolidated Financial Statements.

There have been no significant changes to our assessment of the impact of recently issued accounting standards included in Note 1 of Notes to Consolidated Financial Statements in our 2014 Form 10-K.

XML

Retirement and Postretirement Plans (Tables)

3 Months Ended

Dec. 31, 2014

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Schedule of Components of Net Pension Expense

	Quarter Ended December 31
	2014			2013
Service cost	$	1.4		$	1.2
Interest cost		3.7			3.6
Expected return on plan assets		(4.3	)		(4.2	)
Amortization of unrecognized prior service cost, net		0.1			0.2
Amortization of net loss		1.4			0.8
Net pension expense	$	2.3		$	1.6

XML

Subsequent Events (Details) (Subsequent Event [Member], USD $) In Millions, unless otherwise specified	1 Months Ended
	Jan. 31, 2015
Subsequent Event [Member]
Subsequent Event [Line Items]
Investment in technology	$ 7.5
Amount of potential payments to acquire technology	$ 2.5

XML

Special Charges (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Restructuring Cost and Reserve [Line Items]
Special charge	$ 3.7	$ 1.0
Global Restructuring Program [Member]
Restructuring Cost and Reserve [Line Items]
Number of positions planned to be eliminated		200
Aggregate special charges recognized	28.6
Global Restructuring Program [Member] | Employee Termination and Severance [Member]
Restructuring Cost and Reserve [Line Items]
Special charge	2.3
Global Restructuring Program [Member] | Other Restructuring [Member]
Restructuring Cost and Reserve [Line Items]
Special charge	1.4
Global Restructuring Program [Member] | Minimum [Member] | Europe [Member]
Restructuring Cost and Reserve [Line Items]
Expected additional costs	15
Global Restructuring Program [Member] | Maximum [Member] | Europe [Member]
Restructuring Cost and Reserve [Line Items]
Expected additional costs	20
Batesville, Indiana Plant Restructuring [Member]
Restructuring Cost and Reserve [Line Items]
Special charge		$ 1.0
Number of positions eliminated		35

XML

Condensed Consolidated Statements of Cash Flows (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Operating Activities
Net income	$ 12.1	$ 13.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	17.3	16.9
Amortization	2.9	4.0
Acquisition-related intangible asset amortization	8.1	6.9
Provision for deferred income taxes	0.3	(6.6)
Gain on disposal of property, equipment leased to others, intangible assets and impairments	(0.3)	(0.2)
Stock compensation	4.7	3.6
Excess tax benefits from employee stock plans	(1.0)	0.8
Change in working capital excluding cash, current investments, current debt, acquisitions and dispositions:
Trade accounts receivable	36.1	35.5
Inventories	4.3	(2.3)
Other current assets	(3.2)	3.0
Trade accounts payable	(16.0)	(9.6)
Accrued expenses and other liabilities	(30.6)	(26.6)
Other, net	(3.7)	3.7
Net cash provided by operating activities	31.0	42.3
Investing Activities
Capital expenditures and purchases of intangible assets	(44.9)	(16.8)
Proceeds on sale of property and equipment leased to others	0.5	0.5
Payment for acquisition of businesses, net of cash acquired		(1.3)
Refund on acquisition of businesses		4.6
Net cash used in investing activities	(44.4)	(13.0)
Financing Activities
Net change in short-term debt	(0.7)	(0.1)
Borrowings on revolving credit facility	95.0	7.0
Proceeds from long-term debt		0.6
Payment of long-term debt	(3.8)	(2.5)
Purchase of noncontrolling interest	(1.0)	(0.7)
Payment of cash dividends	(8.6)	(7.9)
Proceeds from exercise of stock options	4.7	6.5
Proceeds from stock issuance	0.7	0.7
Excess tax benefits from employee stock plans	1.0	(0.8)
Treasury stock acquired	(56.9)	(42.1)
Net cash provided by (used in) financing activities	30.4	(39.3)
Effect of exchange rate changes on cash	(2.6)	0.2
Net Cash Flows	14.4	(9.8)
Cash and Cash Equivalents
At beginning of period	99.3	127.4
At end of period	$ 113.7	$ 117.6

XML

Financing Agreements

3 Months Ended

Dec. 31, 2014

Financing Agreements [Abstract]

Financing Agreements

5.  Financing Agreements

Total debt consists of the following:

	December 31, 2014		September 30, 2014
Revolving credit facility	$	360.0	$	265.0
Term loan, current portion		17.5		16.2
Term loan, long-term portion		155.0		160.0
Unsecured 7.00% debentures due on February 15, 2024		19.4		19.4
Unsecured 6.75% debentures due on December 15, 2027		29.8		29.8
Other		0.6		1.4
Total debt		582.3		491.8
Less current portion of debt		127.5		126.9
Total long-term debt	$	454.8	$	364.9

We have a credit facility that provides for revolving loans of up to $500.0 million, plus a term loan in the aggregate amount of $200.0 million.  The Company may request to increase the revolving loan commitment and the amount of the term loan by up to an additional $250.0 million.  All amounts due under the credit facility mature upon expiration on August 24, 2017.  The related term loan amortizes so that 37.5 percent of the principal will be repaid over the five year term, with the balance due at maturity.  Borrowings under the credit facility and term loan bear interest at variable rates specified therein, that are currently less than 2.0 percent, and the availability of borrowings is subject to our ability at the time of borrowing to meet certain specified conditions, including compliance with covenants contained in the credit agreement governing the facility.  The credit facility contains covenants that, among other matters, require us to maintain a ratio of consolidated indebtedness to consolidated EBITDA (each as defined in the credit agreement) of not more than 3.5:1.0 and a ratio of consolidated EBITDA to interest expense of not less than 3.5:1.0.  As of December 31, 2014, we had outstanding borrowings of $360.0 million and undrawn letters of credit of $5.3 million under the revolving credit facility, leaving $134.7 million of borrowing capacity available.  We are in compliance with all of our debt covenants as of December 31, 2014.

Unsecured debentures outstanding at December 31, 2014 have fixed rates of interest.  We have deferred gains included in the amounts above from the termination of previous interest rate swap agreements, and those deferred gains amounted to less than $1.0 million at both December 31, 2014 and September 30, 2014.  The deferred gains are being amortized and recognized as a reduction of interest expense over the remaining term of the related debt through 2024, and as a result, the effective interest rates on that debt have been and will continue to be lower than the stated interest rates.

We have trade finance credit lines and uncommitted letter of credit facilities.  These lines are associated with the normal course of business and we had $40.9 million and $42.4 million of outstanding standby letters of credit as of December 31, 2014 and September 30, 2014.  As of December 31, 2014, $38.3 million relates to one standby letter of credit issued in connection with the Trumpf acquisition to guarantee Trumpf's outstanding debt, which we paid off during the fourth quarter of fiscal 2014.  The expiration date for this letter of credit is January 2015.

We are exposed to market risk from fluctuations in interest rates.  The Company sometimes manages its exposure to interest rate fluctuations through the use of interest rate swaps (cash flow hedges).  As of December 31, 2014, we had one interest rate swap agreement with a notional amount of $122.5 million to hedge the variability of cash flows associated with a portion of the term loan variable interest rate payments for the period of January 2014 to August 2017.  The interest rate swap has been designated as a cash flow hedge.  The interest rate swap fair value was a $0.1 million liability as of December 31, 2014 and an asset of $0.2 million as of September 30, 2014.  The fair value measurement for our interest rate swap is classified as Level 2, as described in Note 1.

The fair value of our debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to us for debt of the same remaining maturities. The book values of our short-term debt instruments approximate fair value.  The estimated fair values of our long-term unsecured debentures were $56.3 million at December 31, 2014 and $55.5 million at September 30, 2014, and were based on observable inputs such as quoted prices in markets that are not active.  The estimated fair value of our term loan was $171.7 million and $175.2 million based on quoted prices for similar liabilities at December 31, 2014 and September 30, 2014.  The fair value measurements for both our long-term unsecured debentures and our term loan were classified as Level 2, as described in Note 1.

XML

Other Comprehensive Income (Tables)

3 Months Ended

Dec. 31, 2014

Other Comprehensive Income [Abstract]

Schedule of Changes in AOCL by Component

	Quarter Ended December 31, 2014
	Other comprehensive income (loss)														Accumulated other comprehensive loss
	Prior to reclassification			Reclassification from		Pre-tax			Tax effect			Net of tax			Beginning balance			Net activity			Ending balance
Available-for-sale securities     and currency hedges	$	(0.6	)	$	-	$	(0.6	)	$	0.2		$	(0.4	)	$	-		$	(0.4	)	$	(0.4	)
Foreign currency translation      adjustment		(22.6	)		-		(22.6	)		-			(22.6	)		(34.2	)		(22.6	)		(56.8	)
Change in pension and postretirement      defined benefit plans		0.1			1.3		1.4			(0.5	)		0.9			(39.9	)		0.9			(39.0	)
Total	$	(23.1	)	$	1.3	$	(21.8	)	$	(0.3	)	$	(22.1	)	$	(74.1	)	$	(22.1	)	$	(96.2	)

	Quarter Ended December 31, 2013
	Other comprehensive income											Accumulated other comprehensive loss
	Prior to reclassification		Reclassification from		Pre-tax		Tax effect			Net of tax		Beginning balance			Net activity		Ending balance
Available-for-sale securities     and currency hedges	$	0.1	$	-	$	0.1	$	-		$	0.1	$	(0.3	)	$	0.1	$	(0.2	)
Foreign currency translation      adjustment		5.8		-		5.8		-			5.8		(4.6	)		5.8		1.2
Change in pension and postretirement      defined benefit plans		0.2		0.8		1.0		(0.4	)		0.6		(30.8	)		0.6		(30.2	)
Total	$	6.1	$	0.8	$	6.9	$	(0.4	)	$	6.5	$	(35.7	)	$	6.5	$	(29.2	)

Schedule of Items Reclassified out of AOCL

	Quarter Ended December 31
	2014							2013
	Amount reclassified		Tax effect			Net of tax		Amount reclassified		Tax effect			Net of tax
Change in pension and postretirement      defined benefit plans (a)	$	1.3	$	(0.5	)	$	0.8	$	0.8	$	(0.3	)	$	0.5

(a)

Reclassified from accumulated other comprehensive loss into cost of goods sold and selling and administrative expenses. These components are included in the computation of net periodic pension expense.

XML

Retirement and Postretirement Plans (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Dec. 31, 2014	Dec. 31, 2013
Defined Benefit Plan Disclosure [Line Items]
Defined contribution savings plans expense	$ 4.2	$ 3.7
Master Defined Benefit Retirement Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	1.4	1.2
Interest cost	3.7	3.6
Expected return on plan assets	(4.3)	(4.2)
Amortization of unrecognized prior service cost, net	0.1	0.2
Amortization of net loss	1.4	0.8
Net pension expense	$ 2.3	$ 1.6

XML

Subsequent Events

3 Months Ended

Dec. 31, 2014

Subsequent Events [Abstract]

Subsequent Events

15.  Subsequent Events

During January 2015, we acquired access to two new technologies in our clinical focus areas of respiratory care and surgical safety and efficiency.  Total investment spending was $7.5 million, along with the potential for an additional investment of up to $2.5 million over time.  These investments were funded with available cash on hand.