Hill-Rom Holdings, Inc. (Form: 10-Q, Received: 08/07/2015 13:10:49)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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

For the quarterly period ended June 30, 2015

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.)

Two Prudential Plaza, Suite 4100 Chicago, IL	60601
(Address of principal executive offices)	(Zip Code)

(Registrant's telephone number, including area code)

1069 State Route 46 East

Batesville, Indiana 47006-8835

(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.

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).

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).

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 – 56,719,589 shares as of July 30, 2015.

HILL-ROM HOLDINGS, INC.

PART I – FINANCIAL INFORMATION

Hill-Rom Holdings, Inc. and Subsidiaries

(In millions, except per share data)

	Quarter Ended June 30						Year to Date Ended June 30
	2015			2014			2015			2014
Net Revenue
Capital sales	$	376.8		$	302.8		$	1,125.9		$	911.9
Rental revenue		97.7			94.8			288.4			294.4
Total revenue		474.5			397.6			1,414.3			1,206.3

Cost of Revenue
Cost of goods sold		217.9			168.2			652.3			508.9
Rental expenses		47.1			42.3			138.4			130.8
Total cost of revenue		265.0			210.5			790.7			639.7

Gross Profit		209.5			187.1			623.6			566.6

Research and development expenses		23.3			17.5			67.3			50.3
Selling and administrative expenses		150.5			128.6			455.5			396.7
Special charges (Note 8)		4.4			3.0			11.9			32.4

Operating Profit		31.3			38.0			88.9			87.2

Interest expense		(3.3	)		(2.5	)		(9.5	)		(6.8	)
Investment income and other, net		-			0.8			2.2			0.6

Income Before Income Taxes		28.0			36.3			81.6			81.0

Income tax expense (Note 9)		9.3			10.2			24.7			45.0

Net Income		18.7			26.1			56.9			36.0

Less: Net loss attributable to noncontrolling interests		(0.4	)		-			(0.4	)		-

Net Income Attributable to Common Shareholders	$	19.1		$	26.1		$	57.3		$	36.0

Net Income Attributable to Common Shareholders per Common Share - Basic	$	0.34		$	0.46		$	1.01		$	0.62

Net Income Attributable to Common Shareholders per Common Share - Diluted	$	0.33		$	0.45		$	0.99		$	0.61

Dividends per Common Share	$	0.1600		$	0.1525		$	0.4725		$	0.4425

Average Common Shares Outstanding - Basic (thousands) (Note 10)		56,670			57,273			56,777			57,612

Average Common Shares Outstanding - Diluted (thousands) (Note 10)		57,899			58,160			57,943			58,499

See Notes to Condensed Consolidated Financial Statements

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

(In millions)

	Quarter Ended June 30						Year to Date Ended June 30
	2015			2014			2015			2014
Net Income	$	18.7		$	26.1		$	56.9		$	36.0

Other Comprehensive Income (Loss), net of tax (Note 7):
Available-for-sale securities and currency hedges		0.1			(0.5	)		(0.5	)		(0.3	)
Foreign currency translation adjustment		19.4			1.1			(51.2	)		6.7
Change in pension and postretirement defined benefit plans		0.8			0.6			2.6			1.7
Total Other Comprehensive Income (Loss), net of tax		20.3			1.2			(49.1	)		8.1

Total Comprehensive Income		39.0			27.3			7.8			44.1

Less: Comprehensive loss attributable to noncontrolling interests		(0.4	)		-			(0.4	)		-

Total Comprehensive Income Attributable to Common Shareholders	$	39.4		$	27.3		$	8.2		$	44.1

See Notes to Condensed Consolidated Financial Statements

Hill-Rom Holdings, Inc. and Subsidiaries

	June 30, 2015			September 30, 2014

ASSETS
Current Assets
Cash and cash equivalents	$	123.4		$	99.3
Trade accounts receivable, net of allowances (Note 2)		390.6			411.0
Inventories (Note 2)		169.9			176.2
Deferred income taxes (Notes 1 and 9)		43.1			40.9
Other current assets		54.4			51.9
Total current assets		781.4			779.3

Property, plant and equipment, net (Note 2)		287.5			261.5
Goodwill (Note 4)		406.3			399.8
Software and other intangible assets, net (Note 2)		235.0			261.1
Deferred income taxes (Notes 1 and 9)		22.9			23.0
Other assets		24.4			27.4
Total Assets	$	1,757.5		$	1,752.1

LIABILITIES
Current Liabilities
Trade accounts payable	$	85.2		$	112.7
Short-term borrowings (Note 5)		130.0			126.9
Accrued compensation		82.8			89.2
Accrued product warranties (Note 12)		29.4			28.4
Other current liabilities		81.1			85.1
Total current liabilities		408.5			442.3

Long-term debt (Note 5)		447.8			364.9
Accrued pension and postretirement benefits (Note 6)		75.7			76.9
Deferred income taxes (Notes 1 and 9)		23.9			31.0
Other long-term liabilities		32.4			30.5
Total Liabilities		988.3			945.6

Commitments and Contingencies (Note 14)

SHAREHOLDERS' EQUITY
Common stock (Note 2)		4.4			4.4
Additional paid-in-capital		144.6			134.1
Retained earnings		1,530.1			1,499.8
Accumulated other comprehensive loss (Note 7)		(123.2	)		(74.1	)
Treasury stock, at cost (Note 2)		(797.2	)		(757.7	)
Total Shareholders' Equity Attributable to Common Shareholders		758.7			806.5
Noncontrolling Interests		10.5			-
Total Shareholders' Equity		769.2			806.5
Total Liabilities and Shareholders' Equity	$	1,757.5		$	1,752.1

See Notes to Condensed Consolidated Financial Statements

Hill-Rom Holdings, Inc. and Subsidiaries

	Year to Date Ended June 30
	2015			2014
Operating Activities
Net income	$	56.9		$	36.0
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation		53.1			49.5
Amortization		8.3			9.6
Acquisition-related intangible asset amortization		23.4			20.9
Provision for deferred income taxes		(12.3	)		4.6
Loss on disposal of property, equipment leased to others,
intangible assets and impairments		-			7.3
Stock compensation		14.0			13.2
Excess tax benefits from employee stock plans		(1.7	)		0.5
Change in working capital excluding cash, current debt,
acquisitions and dispositions:
Trade accounts receivable		4.7			29.8
Inventories		(3.4	)		(1.2	)
Other current assets		(5.1	)		(4.2	)
Trade accounts payable		(18.1	)		(9.4	)
Accrued expenses and other liabilities		0.3			(23.1	)
Other, net		4.3			0.7
Net cash provided by operating activities		124.4			134.2

Investing Activities
Capital expenditures and purchases of intangible assets		(102.6	)		(44.4	)
Proceeds on sale of property and equipment leased to others		1.2			1.8
Payment for acquisition of businesses, net of cash acquired		(5.1	)		(15.5	)
Refund on acquisition of businesses		-			4.6
Other		2.1			3.2
Net cash used in investing activities		(104.4	)		(50.3	)

Financing Activities
Net change in short-term debt		(0.7	)		(0.2	)
Borrowings on revolving credit facility		95.0			35.0
Payments on revolving credit facility		-			(40.0	)
Proceeds from long-term debt		-			0.6
Payment of long-term debt		(11.5	)		(7.6	)
Debt issuance costs		(1.6	)		-
Purchase of noncontrolling interest of former joint venture		(1.6	)		(1.3	)
Payment of cash dividends		(26.7	)		(25.4	)
Proceeds on exercise of stock options		10.2			10.2
Proceeds from stock issuance		2.1			1.8
Excess tax benefits from employee stock plans		1.7			(0.5	)
Treasury stock acquired		(57.4	)		(71.6	)
Net cash provided by (used in) financing activities		9.5			(99.0	)

Effect of exchange rate changes on cash		(5.4	)		(0.4	)

Net Cash Flows		24.1			(15.5	)

Cash and Cash Equivalents:
At beginning of period		99.3			127.4
At end of period	$	123.4		$	111.9

See Notes to Condensed Consolidated Financial Statements

Hill-Rom Holdings, Inc. and Subsidiaries

(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 consolidated 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. In addition, we also consolidate variable interest entities (VIEs) where Hill-Rom is deemed to have a controlling financial interest. Intercompany accounts and transactions have been eliminated in consolidation, including the intercompany transactions with consolidated VIEs. Where our ownership interest is less than 100 percent, the noncontrolling interests are reported in our Condensed Consolidated Financial Statements.

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.

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 June 30, 2015, we had $23.8 million of valuation allowances on deferred tax assets, on a tax-effected basis, primarily related to foreign operating loss carryforwards and other tax attributes. The valuation allowance was decreased in the current year to date period by $1.9 million to reflect the expected realization of certain deferred assets in Australia. 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.

Employee Benefits Change

During the second quarter of fiscal 2014, we implemented a new paid time off policy as part of our employee benefits programs, replacing certain previously existing vacation and sick time policies. In conjunction with these changes in policies, the vesting provisions with respect to the accumulation of paid time off were delayed resulting in the recognition and utilization of paid time off in the same benefits year. As a result of this change, significant portions of our existing accrued vacation balance were no longer necessary and we reversed $12.2 million in the second quarter of fiscal 2014 and an additional $1.2 million in the third quarter of fiscal 2014 to reflect the change in vesting provisions.

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.

In July 2015, the FASB approved delaying the effective date of the new standard by one year. As a result, this guidance will be effective for us in the first quarter of fiscal 2019, ending December 31, 2018. Early adoption is permitted as of the original effective date, but not earlier. We are currently in the process of evaluating the impact of adoption of this ASU on our Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs.” The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This guidance is effective for us in the first quarter of fiscal 2017, ending December 31, 2016. Early adoption is permitted. We do not expect the adoption of this standard to materially impact our Consolidated Financial Statements.

Except as noted above, 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

	June 30, 2015		September 30, 2014

Allowance for possible losses and discounts on trade receivables	$	26.1	$	31.4

Inventories:
Finished products	$	88.8	$	93.5
Raw materials and work in process		81.1		82.7
Total inventory	$	169.9	$	176.2

Accumulated depreciation of property, plant and equipment	$	599.5	$	588.1

Accumulated amortization of software and other intangible assets	$	302.0	$	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		56,715,942		57,439,911

Treasury shares		23,607,970		22,884,001

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 our 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 $232.9 million ($226.6 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. In fiscal 2015, we made certain adjustments to the opening balance sheet as of the acquisition date to reflect certain fair value adjustments and, in the second quarter, recorded a $3.0 million liability to reflect the final settlement of certain purchase agreement provisions with the seller, which has subsequently been paid. These adjustments were not material to prior period financial statements and therefore, the 2014 comparative period presented has not been revised to reflect these adjustments. Fair values of assets and liabilities acquired are still considered preliminary and subject to further adjustments.

	Amount

Trade receivables	$	65.6
Inventory		63.6
Other current assets		24.2
Property, plant, and equipment		42.1
Goodwill		63.6
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		15.5
Current liabilities		(73.4	)
Long term debt		(6.0	)
Noncurrent liabilities		(8.1	)
Total purchase price	$	232.9

Goodwill was allocated entirely to our Surgical and Respiratory Care segment. The goodwill related to the acquired German operations will be tax deductible in Germany 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 $79 million and $202 million for the quarter and year to date periods ended June 30, 2014. 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.

We have used cash on hand for other business acquisitions and equity investments which we do not consider individually material to the Company’s financial position or results of operations. These included one equity investment in which the investee was determined to be a VIE and Hill-Rom was determined to have a controlling financial interest, resulting in consolidation of the investee. The portion of this investee’s assets, liabilities, and operating results which are not attributable to Hill-Rom’s equity investment are recognized in our Condensed Consolidated Financial Statements as attributable to noncontrolling interests.

In June 2015, we announced entry into a definitive agreement under which Hill-Rom will acquire Welch Allyn Holdings, Inc. (“Welch Allyn”) for $1.625 billion in cash and approximately 8.1 million newly-issued shares of Hill-Rom common stock, for a total combined purchase price of approximately $2.05 billion. The purchase price is subject to adjustment for changes in stock price and normal true-up provisions in the merger agreement. Welch Allyn is a leading manufacturer of medical diagnostic equipment and offers a diversified portfolio of devices that assess, diagnose, treat, and manage a wide variety of illnesses and diseases. The transaction is expected to close on or prior to October 1, 2015 and will be financed with a combination of new borrowings and Hill-Rom common stock. See the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details related to the funding of the acquisition.

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		-			18.4			-			18.4
Currency translation effect		-			(8.8	)		(3.1	)		(11.9	)

Balances at June 30, 2015:
Goodwill		390.6			343.1			145.4			879.1
Accumulated impairment losses		(358.1	)		-			(114.7	)		(472.8	)
Goodwill, net at June 30, 2015	$	32.5		$	343.1		$	30.7		$	406.3

As discussed in Note 3, we recorded adjustments to goodwill during fiscal 2015 related to the Trumpf acquisition completed during the fourth quarter of fiscal 2014. We also consolidated an investment made in fiscal 2015 that was determined to be a VIE in which we have a controlling financial interest. The consolidation resulted in $12.1 million of goodwill being recorded within our Surgical and Respiratory Care segment.

As discussed in Note 13, we operate in three reportable business segments. Goodwill impairment testing is performed at the reporting unit level, which is one level below a reportable business segment. We have determined that we have ten reporting units. Goodwill is assigned to reporting units at the date the goodwill is initially recorded and has been reallocated as necessary based on the restructuring of reporting units over time. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within a reporting unit, whether acquired or organically grown, are available to support the value of the goodwill.

Testing for impairment must be performed annually, or on an interim basis upon the occurrence of a triggering event or change in circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The annual evaluation of goodwill performed during the third quarter of fiscal 2015 and 2014 did not result in any impairments.

A 10 percent reduction in the fair value of any of our reporting units would not result in an impairment charge.

Indefinite-lived intangible assets

We have various indefinite-lived intangible assets representing trade names with a carrying value of $32.9 million at both June 30, 2015 and September 30, 2014. Testing for impairment must be performed annually, or on an interim basis upon the occurrence of a triggering event or change in circumstances that would more likely than not reduce the fair value of an indefinite-lived intangible asset below its carrying amount. The annual evaluation of indefinite-lived intangible assets performed during the third quarter of fiscal 2015 and 2014 did not result in impairment.

5. Financing Agreements

Total debt consists of the following:

	June 30, 2015		September 30, 2014
Revolving credit facility	$	360.0	$	265.0
Term loan current portion		20.0		16.2
Term loan long-term portion		145.0		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		3.6		1.4
Total debt		577.8		491.8
Less current portion of debt		130.0		126.9
Total long-term debt	$	447.8	$	364.9

Prior to May 1, 2015, we had a credit facility that provided for revolving loans of up to $500.0 million, plus a term loan in the aggregate amount of $200.0 million. Borrowings under the credit facility and term loan bore interest at variable rates specified therein, that were less than 2.0 percent.

On May 1, 2015, we entered into an Amended and Restated Credit Agreement (the “Current Credit Facility”) with the lenders named therein, JPMorgan Chase Bank, N.A., as Administrative agent, and each of Citizens Bank, N.A. Bank of America, N.A. and PNC Bank, National Association, as Co-Syndication Agents, which amended and restated our prior credit facility, entered into August 24, 2012. The Current Credit Facility provides for revolving loans outstanding of up to $900.0 million at any time, plus term loans in the current principal amount of $165.0 million. We currently have $360.0 million of outstanding borrowings and undrawn letters of credit of $5.1 million under the revolving loan portion of the Current Credit Facility, leaving $534.9 million of available borrowing capacity.

All revolving loans under the Current Credit Facility mature May 1, 2020. The term loans will continue to amortize so that $40.0 million of the remaining principal will be repaid through August 24, 2017, with the balance due at such date.

Borrowings under the Current Credit Facility bear interest based on a margin (which varies dependent upon the Company’s credit rating) over certain pre-defined index rates, selected at the Company’s option that are currently less than 2 percent. The Current Credit Facility is guaranteed by several fully owned subsidiaries of the Company. The Current Credit Facility contains terms and conditions, events of default, and customary covenants, including requiring that (1) the Company maintain a ratio of Consolidated Indebtedness to Consolidated EBITDA of not more than 3.50:1.0; and (2) a ratio of Consolidated EBITDA to interest expense of not less than 3.00:1.0. We are in compliance with all of our debt covenants as of June 30, 2015.

Unsecured debentures outstanding at June 30, 2015 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 June 30, 2015 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 $1.3 million of outstanding standby letters of credit as of June 30, 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 June 30, 2015, we had one interest rate swap agreement with a notional amount of $115.0 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 $0.4 million liability as of June 30, 2015 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 $55.5 million at both June 30, 2015 and 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 $164.4 million and $175.2 million at June 30, 2015 and September 30, 2014 based on quoted prices for similar liabilities as of those dates. 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.

In conjunction with the pending acquisition of Welch Allyn, as outlined in Note 3, we intend to refinance our debt. See the Liquidity and Capital Resources section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for further details.

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 June 30						Year to Date Ended June 30
	2015			2014			2015			2014
Service cost	$	1.4		$	1.2		$	4.1		$	3.7
Interest cost		3.7			3.6			11.1			10.8
Expected return on plan assets		(4.3	)		(4.2	)		(12.8	)		(12.6	)
Amortization of unrecognized prior service cost, net		0.2			0.2			0.5			0.5
Amortization of net loss		1.3			0.8			4.0			2.4
Net pension expense		2.3			1.6			6.9			4.8
Special termination benefits		-			-			-			2.4
Net pension expense	$	2.3		$	1.6		$	6.9		$	7.2

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.

In April, 2015, we offered all terminated vested participants of our domestic master defined benefit retirement plan an option to receive a lump sum cash payout in lieu of their right to future periodic benefit payments under the plan upon their retirement. The election window has closed, with initial participant elections received, and we anticipate the lump sum payments to be made in September 2015. Based on the voluntary elections of participants during the window, we expect to incur a non-cash settlement charge of $7 to $10 million in the fourth quarter of fiscal 2015 with respect to this action. The amount of the charge may vary due to possible changes in discount rates and asset returns before the measurement date, which will occur once the settlements are paid.

During the second quarter of fiscal 2014, we initiated a domestic early retirement program, which offered certain special termination benefits relating to our pension and postretirement health care plans. This program and the related special termination benefits resulted in a non-cash charge of $4.5 million, $2.4 million of which related to our master defined benefit retirement plan and $2.1 million for our postretirement health care plan. During the third and fourth quarters of fiscal 2014, we reversed a cumulative $1.3 million of the $2.1 million postretirement health care plan charge as certain participants elected alternative coverage separate from the postretirement health care plan. The employee elections were not known until the third and fourth quarters of fiscal 2014. Refer to Note 8 for more details.

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 $4.6 million and $4.1 million in each of the quarterly periods ended June 30, 2015 and 2014; and $12.6 million and $11.5 million in the year to date periods ended June 30, 2015 and 2014.

7. Other Comprehensive Income

The following tables describe the changes in accumulated other comprehensive loss by component:

	Quarter Ended June 30, 2015
	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	$	0.2		$	-	$	0.2		$	(0.1	)	$	0.1		$	(0.6	)	$	0.1		$	(0.5	)
Foreign currency translation adjustment		19.4			-		19.4			-			19.4			(104.8	)		19.4			(85.4	)
Change in pension and postretirement defined benefit plans		-			1.4		1.4			(0.6	)		0.8			(38.1	)		0.8			(37.3	)
Total	$	19.6		$	1.4	$	21.0		$	(0.7	)	$	20.3		$	(143.5	)	$	20.3		$	(123.2	)

	Quarter Ended June 30, 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	$	(0.7	)	$	-	$	(0.7	)	$	0.2		$	(0.5	)	$	(0.1	)	$	(0.5	)	$	(0.6	)
Foreign currency translation adjustment		1.1			-		1.1			-			1.1			1.0			1.1			2.1
Change in pension and postretirement defined benefit plans		-			1.0		1.0			(0.4	)		0.6			(29.7	)		0.6			(29.1	)
Total	$	0.4		$	1.0	$	1.4		$	(0.2	)	$	1.2		$	(28.8	)	$	1.2		$	(27.6	)

	Year to Date Ended June 30, 2015
	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	$	(0.8	)	$	-	$	(0.8	)	$	0.3		$	(0.5	)	$	-		$	(0.5	)	$	(0.5	)
Foreign currency translation adjustment		(51.2	)		-		(51.2	)		-			(51.2	)		(34.2	)		(51.2	)		(85.4	)
Change in pension and postretirement defined benefit plans		0.1			4.1		4.2			(1.6	)		2.6			(39.9	)		2.6			(37.3	)
Total	$	(51.9	)	$	4.1	$	(47.8	)	$	(1.3	)	$	(49.1	)	$	(74.1	)	$	(49.1	)	$	(123.2	)

	Year to Date Ended June 30, 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	)	$	0.1	$	(0.5	)	$	0.2		$	(0.3	)	$	(0.3	)	$	(0.3	)	$	(0.6	)
Foreign currency translation adjustment		6.7			-		6.7			-			6.7			(4.6	)		6.7			2.1
Change in pension and postretirement defined benefit plans		0.2			2.7		2.9			(1.2	)		1.7			(30.8	)		1.7			(29.1	)
Total	$	6.3		$	2.8	$	9.1		$	(1.0	)	$	8.1		$	(35.7	)	$	8.1		$	(27.6	)

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

	Quarter Ended June 30
	2015							2014
	Amount reclassified		Tax effect			Net of tax		Amount reclassified		Tax effect			Net of tax
Change in pension and postretirement defined benefit plans (a)	$	1.4	$	(0.6	)	$	0.8	$	1.0	$	(0.4	)	$	0.6

	Year to Date Ended June 30
	2015							2014
	Amount reclassified		Tax effect			Net of tax		Amount reclassified		Tax effect			Net of tax
Change in pension and postretirement defined benefit plans (a)	$	4.1	$	(1.6	)	$	2.5	$	2.7	$	(1.1	)	$	1.6
Available-for-sale securities and currency hedges (b)		-		-			-		0.1		-			0.1

(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.

(b) Reclassified from accumulated other comprehensive loss into other income (expense), net.

In the third quarter of fiscal 2015, we initiated a plan to streamline our operations and simplify our supply chain by consolidating certain manufacturing and distribution operations. As part of this action, we have announced the closure of sites in Redditch, England and Charleston, South Carolina. Upon closure, each site’s operations will either be relocated to other existing Company facilities or outsourced to third-party suppliers. For the quarter and year to date ended June 30, 2015, we recorded severance and benefit charges of $2.0 million for approximately 160 employees to be displaced by the closures, as well as $0.2 million of other related costs. We expect to incur approximately $4 million of additional charges over the next year for personnel costs and site closure expenses related to this action until the closures are complete.

Global Restructuring Program

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., where the action was substantially completed in fiscal 2014 with cash expenditures continuing during fiscal 2015. The program also included a reduction of our European manufacturing capacity and a streamlining of global operations by, among other things, executing a back office process transformation program in Europe. The restructuring in Europe is in process and has resulted in severance and benefit charges of $0.4 million and $5.0 million for the quarter and year to date ended June 30, 2015, as well as other costs of $1.8 and $5.2 million over the same periods related to legal and professional fees, temporary labor, project management, and other administrative functions. In the second quarter of fiscal 2015, we also reversed $0.5 million of previously recorded severance and benefit charges due to certain plan participants declining continuing healthcare coverage.

Discontinuance of Third-Party Payer Rentals

Also during the second quarter of fiscal 2014, we initiated a plan to discontinue third-party payer rentals of therapy products occurring primarily in home care settings. Special charges recorded for this action included a $7.7 million non-cash tangible asset impairment charge, a $2.0 million charge for severance and other benefits for approximately 70 eliminated positions, and $1.6 million in other related costs, net of a reversal of $0.2 million which was recorded in the third quarter of fiscal 2014. This action is substantially complete.

Batesville Manufacturing Early Retirement 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 and other long-term liabilities. The reserve activity for severance and other benefits during fiscal 2015 was as follows:

Balance at September 30, 2014	$	11.7
Expenses		7.0
Cash Payments		(8.5	)
Reversals		(0.5	)
Balance at June 30, 2015	$	9.7

The effective tax rate was 33.2 and 30.3 percent for the quarterly and year to date periods ended June 30, 2015 compared to 28.1 and 55.6 percent for the comparable prior year periods.

The effective rate for the current quarter is higher than the comparable period in fiscal 2014 due primarily to lower earnings in favorable rate jurisdictions. The effective tax rate for the first nine months of fiscal 2015 is lower than the comparable period in fiscal 2014 due primarily to the $19.6 million of tax expense recognized in the prior year to establish a valuation allowance on the net deferred tax assets in France. This compares to $3.5 million of tax benefits for the year to date period ended June 30, 2015 primarily related to the reversal of previously recorded valuation allowances in Australia, and the one-time catch-up tax benefit from the reinstatement of the research and development tax credit.

On December 19, 2014, the Tax Increase Prevention Act of 2014 (the Tax Act) was signed into law. 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.

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):

	Quarter Ended June 30				Year to Date Ended June 30
	2015		2014		2015		2014

Net income attributable to common shareholders	$	19.1	$	26.1	$	57.3	$	36.0

Average shares outstanding - Basic		56,670		57,273		56,777		57,612
Add potential effect of exercise of stock options
and other unvested equity awards		1,229		887		1,166		887
Average shares outstanding - Diluted		57,899		58,160		57,943		58,499

Net income attributable to common shareholders per common share - Basic	$	0.34	$	0.46	$	1.01	$	0.62

Net income attributable to common shareholders per common share - Diluted	$	0.33	$	0.45	$	0.99	$	0.61

Shares with anti-dilutive effect excluded from the computation of Diluted EPS		239		746		457		497

The stock-based compensation cost that was charged against income, net of tax, for all plans was $2.5 million and $8.9 million for the quarterly and year to date periods ended June 30, 2015 and $2.7 million and $8.4 million for the comparable prior year periods.

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 June 30						Year to Date Ended June 30
	2015			2014			2015			2014

Balance at beginning of period	$	27.2		$	34.1		$	28.4		$	38.1
Provision for warranties during the period		5.8			0.7			12.3			7.9
Warranty reserves acquired		1.1			-			2.2			-
Warranty claims during the period		(4.7	)		(5.8	)		(13.5	)		(17.0	)
Balance at end of period	$	29.4		$	29.0		$	29.4		$	29.0

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.

	Quarter Ended June 30						Year to Date Ended June 30
	2015			2014			2015			2014
Revenue:
North America	$	252.4		$	211.6		$	724.5		$	641.6
Surgical and Respiratory Care		119.7			66.2			366.0			195.1
International		102.4			119.8			323.8			369.6
Total revenue	$	474.5		$	397.6		$	1,414.3		$	1,206.3

Divisional income:
North America	$	51.3		$	40.0		$	142.1		$	115.5
Surgical and Respiratory Care		18.2			17.5			55.9			47.8
International		1.9			4.7			9.1			15.4

Other operating costs:
Non-allocated operating and administrative costs		35.7			21.2			106.3			59.1
Special charges		4.4			3.0			11.9			32.4
Operating profit		31.3			38.0			88.9			87.2

Interest expense		(3.3	)		(2.5	)		(9.5	)		(6.8	)
Investment income and other, net		-			0.8			2.2			0.6
Income before income taxes	$	28.0		$	36.3		$	81.6		$	81.0

14. Commitments and Contingencies

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 tortious interference with business relationships. The plaintiff seeks injunctive relief and money damages in an unspecified amount. On March 23, 2015, we filed a motion to dismiss the complaint, however no ruling has been yet made on such motion, and we can make no assurances as to the outcome of such ruling. We believe that the allegations are without merit and intend to defend this matter vigorously.

On April 4, 2011, we filed two separate actions against Stryker Corporation alleging infringement of certain Hill-Rom patents covering proprietary communications networks, status information systems and powered wheels used in our beds or stretchers. Both suits sought monetary damages and injunctions against Stryker for selling or distributing any beds, stretchers or ancillary products that infringe on Hill-Rom’s patents. On August 14, 2012, we entered into a confidential favorable settlement agreement with Stryker Corporation to resolve our claims about our powered wheel patents, and on March 26, 2015, we entered into a confidential favorable settlement agreement with Stryker Corporation to resolve our claims about our status information systems. No trial date for the remaining claims covering proprietary communications networks has been set, and accordingly we cannot, at this time, assess the likelihood of any potential outcome or damages or other relief.

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”). 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 approximately 8,000 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.

Net Revenue

	Quarter Ended June 30				Percentage Change
								Constant
	2015		2014		As Reported			Currency
Revenue:
Capital sales	$	376.8	$	302.8		24.4			32.7
Rental revenue		97.7		94.8		3.1			5.5
Total Revenue	$	474.5	$	397.6		19.3			26.2


	Year to Date Ended June 30				Percentage Change
								Constant
		2015		2014	As Reported			Currency
Revenue:
Capital sales	$	1,125.9	$	911.9		23.5			30.4
Rental revenue		288.4		294.4		(2.0	)		(0.1	)
Total Revenue	$	1,414.3	$	1,206.3		17.2			23.0

Capital sales increased for the three- and nine-month periods ended June 30, 2015 due to the Trumpf acquisition and higher patient support systems and clinical workflow solutions sales in our North America segment, partially offset by lower sales in our International segment on a reported basis, though they were flat on a constant currency basis. Additionally, somewhat higher organic sales in our Surgical and Respiratory segment favorably impacted both the three- and nine-month periods. Excluding Trumpf, organic sales increased 7.3 and 5.3 percent on a reported basis, or 12.8 and 9.9 percent on a constant currency basis, for the quarterly and year to date periods.

Rental revenue increased 3.1 percent for the quarter due to higher volumes resulting from recent contract wins in North America. For the year to date period, rental revenue decreased 2.0 percent due to lower revenue in both the International and North America segments, partially offset by an increase in the Surgical and Respiratory segment. On a constant currency basis, year to date rental revenue was essentially flat. Excluding the effects of our discontinuance of third-party payer therapy product rentals, rental revenue increased 6.8 and 2.9 percent for the three- and nine-month periods ended June 30, 2015. The North America decrease for the nine-month period was driven by the discontinuance of third-party payer therapy product rentals and continued pricing pressure, but was partially offset by improving volumes due to recent contract wins. International rental revenue was down sharply on a reported basis in both the three- and nine-month periods, but was down only approximately 2 percent on a constant currency basis. In Surgical and Respiratory Care, rental revenue has been relatively flat year over year.

Gross Profit

	Quarter Ended June 30						Percentage Change
	2015			2014
Gross Profit
Capital	$	158.9		$	134.6			18.1
Percent of Related Revenue		42.2	%		44.5	%

Rental		50.6			52.5			(3.6	)
Percent of Related Revenue		51.8	%		55.4	%

Total Gross Profit	$	209.5		$	187.1			12.0
Percent of Total Revenue		44.2	%		47.1	%

	Year to Date Ended June 30						Percentage Change
		2015			2014
Gross Profit
Capital	$	473.6		$	403.0			17.5
Percent of Related Revenue		42.1	%		44.2	%

Rental		150.0			163.6			(8.3	)
Percent of Related Revenue		52.0	%		55.6	%

Total Gross Profit	$	623.6		$	566.6			10.1
Percent of Total Revenue		44.1	%		47.0	%

Capital gross profit increased 18.1 percent for the quarter and 17.5 percent the year, while gross margin decreased 230 basis points and 210 basis points for the three- and nine-month periods ended June 30, 2015. The margin rate decrease for the three- and nine-month periods is primarily driven by the impact of dilutive Trumpf margins, incremental field corrective action charges of $3.6 million and $6.6 million for the three- and nine-months ended June 30, 2015, respectively, and the prior year recognition of a $0.3 million and $2.8 million benefit from a change in our employee benefits program . The nine-month period ended June 30, 2015 also includes recognition of $4.8 million of inventory step-up associated with purchase accounting for the Trumpf acquisition. Excluding the aforementioned items, organic capital margins decreased 60 basis points for the quarter and increased 40 basis points for the year to date. The margin changes for the quarter and year to date periods are primarily driven by pricing pressure, which has been more than offset by portfolio mix on a year to date basis.

Rental gross profit decreased 3.6 and 8.3 percent and gross margin decreased 360 basis points for both the three- and nine-month periods ended June 30, 2015. The margin declines for the three- and nine-month periods are partially driven by the prior year recognition of a $0.2 million and $2.9 million benefit from the employee benefit program change referenced earlier, in addition to continued pricing pressure and higher field service costs and depreciation on the incremental capital expenditures necessary to serve recent contract wins in North America.

Other

	Quarter Ended June 30						Year to Date Ended June 30
	2015			2014			2015			2014

Research and development expenses	$	23.3		$	17.5		$	67.3		$	50.3
Percent of Total Revenue		4.9	%		4.4	%		4.8	%		4.2	%

Selling and administrative expenses	$	150.5		$	128.6		$	455.5		$	396.7
Percent of Total Revenue		31.7	%		32.3	%		32.2	%		32.9	%

Special charges	$	4.4		$	3.0		$	11.9		$	32.4

Interest expense	$	(3.3	)	$	(2.5	)	$	(9.5	)	$	(6.8	)
Investment income and other, net	$	-		$	0.8		$	2.2		$	0.6

Research and development expenses increased 33.1 and 33.8 percent for the three- and nine-month periods ended June 30, 2015 primarily due to the addition of Trumpf spending and additional investment in organic product development initiatives. Selling and administrative expenses as a percent of total revenue decreased 60 basis points for the three-month period and 70 basis points for the nine-month period despite higher variable compensation costs due to an unusually low comparable in the prior year. The improvements were due to operating leverage associated with higher revenue and ongoing cost control initiatives. Selling and administrative expenses include acquisition and integration costs, acquisition-related intangible asset amortization, FDA remediation expenses, and litigation settlements and expenses that totaled $16.1 million and $40.5 million for the quarter and year to date ended June 30, 2015 and $10.6 million and $29.7 million in the prior year comparable periods. Excluding these items, as well as the favorable impact of an employee benefits change of $0.6 million and $6.6 million recorded in the comparable prior year periods, selling and administrative expenses decreased 150 and 170 basis points as a percentage of revenue for the three- and nine-month periods ended June 30, 2015, respectively.

Site Consolidation

Global Restructuring Program

Since the inception of the global restructuring program through June 30, 2015, we have recognized aggregate special charges of $34.6 million, which are recorded in both fiscal 2014 and 2015. Charges of $3.2 and $20.1 million were recorded in the quarter and year to date ended June 30, 2014, net of reversals. We expect to incur $8 to $13 million of additional European restructuring costs through the completion of the program. Upon completion and full implementation, we expect this program to yield annual cost savings of approximately $30 million. These amounts remain consistent with our initially disclosed estimates.

Discontinuance of Third-Party Payer Rentals

Batesville Manufacturing Early Retirement Program

Reported and Adjusted Earnings

	Quarter Ended June 30, 2015												Quarter Ended June 30, 2014
	Income Before Income Taxes			Income Tax Expense			NCI			Diluted EPS#			Income Before Income Taxes			Income Tax Expense			Diluted EPS

GAAP Earnings	$	28.0		$	9.3		$	(0.4	)	$	0.33		$	36.3		$	10.2		$	0.45
Adjustments:
Acquisition and integration costs		6.8			2.3			-			0.08			2.8			1.0			0.03
Acquisition-related intangible asset amortization		7.7			2.1			-			0.10			7.1			2.1			0.08
Employee benefits change		-			-			-			-			(1.2	)		(0.4	)		(0.01	)
FDA remediation expenses		1.3			0.4			-			0.02			1.1			0.5			0.01
Field corrective actions		2.6			0.8			-			0.03			(1.0	)		0.2			(0.02	)
Litigation settlements and expenses		0.3			0.1			-			-			-			-			-
Special charges		4.4			0.9			-			0.06			3.0			0.2			0.05
Adjusted Earnings	$	51.1		$	15.9		$	(0.4	)	$	0.62		$	48.1		$	13.8		$	0.59

	Year to Date Ended June 30, 2015												Year to Date Ended June 30, 2014
	Income Before Income Taxes			Income Tax Expense			NCI			Diluted EPS*#			Income Before Income Taxes			Income Tax Expense			Diluted EPS

GAAP Earnings	$	81.6		$	24.7		$	(0.4	)	$	0.99		$	81.0		$	45.0		$	0.61
Adjustments:
Acquisition and integration costs		19.5			6.3			-			0.23			6.4			2.2			0.07
Acquisition-related intangible asset amortization		23.4			6.5			-			0.29			20.9			6.3			0.25
Employee benefits change		-			-			-			-			(13.4	)		(5.1	)		(0.14	)
FDA remediation expenses		3.0			1.0			-			0.03			2.8			1.1			0.03
Field corrective actions		4.9			1.5			-			0.06			(1.7	)		(0.6	)		(0.02	)
Litigation settlements and expenses		(0.6	)		(0.2	)		-			(0.01	)		-			-			-
Special charges		11.9			1.2			-			0.18			32.4			10.5			0.37
Foreign valuation allowance		-			1.9			-			(0.03	)		-			(19.6	)		0.34
Adjusted Earnings	$	143.7		$	42.9		$	(0.4	)	$	1.75		$	128.4		$	39.8		$	1.51

* Does not add due to rounding.

# Diluted EPS column is shown on an attributable to common shareholders basis.

NCI = Net loss attributable to noncontrolling interests.

The effective tax rates for the three- and nine-month periods ended June 30, 2015 were 33.2 percent and 30.3 percent compared to 28.1 and 55.6 percent for the comparable periods in the prior year.

The adjusted effective tax rate for the three- and nine-month periods ended June 30, 2015 was 31.1 and 29.9 percent compared to 28.7 and 31.0 percent for the comparable periods in the prior year.

Net income attributable to common shareholders was $19.1 million for the quarter ended June 30, 2015 compared $26.1 million in the prior year period. On an adjusted basis, quarterly net income attributable to common shareholders increased $1.3 million, or 3.8 percent. Diluted earnings per share for the quarter decreased 26.7 percent from the prior year on a reported basis but increased 5.1 percent on an adjusted basis. Net income attributable to common shareholders for the year to date period was $57.3 million compared to $36.0 million in the prior year. On an adjusted basis, year to date net income attributable to common shareholders increased $12.6 million, or 14.2 percent. Diluted earnings per share for the year to date increased 62.3 percent on a reported basis and 15.9 percent on an adjusted basis.

Business Segment Results of Operations

	Quarter Ended June 30				Percentage Change
								Constant
	2015		2014		As Reported			Currency
Revenue:
North America	$	252.4	$	211.6		19.3			20.0
Surgical and Respiratory Care		119.7		66.2		80.8			94.0
International		102.4		119.8		(14.5	)		(0.3	)
Total revenue	$	474.5	$	397.6		19.3			26.2

Divisional income:
North America	$	51.3	$	40.0		28.3
Surgical and Respiratory Care	$	18.2	$	17.5		4.0
International	$	1.9	$	4.7		(59.6	)


	Year to Date Ended June 30				Percentage Change
								Constant
		2015		2014	As Reported			Currency
Revenue:
North America	$	724.5	$	641.6		12.9			13.5
Surgical and Respiratory Care		366.0		195.1		87.6			99.3
International		323.8		369.6		(12.4	)		(1.0	)
Total revenue	$	1,414.3	$	1,206.3		17.2			23.0

Divisional income:
North America	$	142.1	$	115.5		23.0
Surgical and Respiratory Care	$	55.9	$	47.8		16.9
International	$	9.1	$	15.4		(40.9	)

North America

North America revenue increased 19.3 and 12.9 percent on a reported basis for the three- and nine-month periods ended June 30, 2015. Capital sales were up 23.9 and 19.5 percent for the three- and nine-month periods primarily due to higher sales of patient support system and clinical workflow solution products. Rental revenue increased by 8.9 percent for the three-month period and decreased 0.8 percent for the nine-month period. The increase in the three-month period is the result of improved volumes from recent contract wins. Negatively impacting rental revenue in both the three- and nine-month periods is the discontinuance of third-party payer therapy product rentals in the second half of fiscal 2014, along with continued pricing pressure. Excluding the effects of our discontinuance of third-party payer therapy product rentals, rental revenue increased 14.7 and 6.3 percent for the three- and nine-month periods ended June 30, 2015.

North America divisional income increased 28.3 and 23.0 percent for the three- and nine-month periods ended June 30, 2015 due primarily to increased revenue and the resulting increase in gross profit. Capital margins decreased slightly for the three-month period due to pricing pressure and were essentially flat for the nine-month period. Rental margins declined during both periods as a result of continued pricing pressure, along with our increased investment in additional capacity to meet the higher volumes in fiscal 2015 from recent contract wins. Divisional income benefited from improved leverage of operating expenses on higher revenue for both the quarterly and year to date periods.

Surgical and Respiratory Care

Surgical and Respiratory Care revenue increased 80.8 and 87.6 percent for the three- and nine-month periods ended June 30, 2015. Excluding Trumpf, revenue for the three-month period increased 2.1 percent on a reported basis driven by surgical sales. Organic revenue for the nine-month period ended June 30, 2015 increased 2.5 percent on a reported basis due to both higher respiratory and surgical sales. Capital sales increased 107.8 and 113.2 percent for the three- and nine-month periods primarily due to the Trumpf acquisition. Rental revenue in respiratory care has been relatively flat over the year.

Surgical and Respiratory Care divisional income increased 4.0 and 16.9 percent for the three- and nine-month periods ended June 30, 2015 due to the incremental gross profit from the Trumpf acquisition, but at a lower rate given the lower Trumpf margins . Divisional income excluding Trumpf was impacted by increased investments in research and development and sales channel to support growth initiatives.

International

International revenue decreased 14.5 and 12.4 period on a reported basis, or 0.3 and 1.0 percent on a constant currency basis for the three- and nine-month periods ended June 30, 2015. Capital sales decreased 14.1 and 12.1 percent on a reported basis, and 0.2 and 0.9 percent on a constant currency basis due to lower volumes in Europe and Latin America . International rental revenue decreased 18.0 and 14.6 percent on a reported basis, and 1.5 and 2.0 percent on a constant currency basis for the three- and nine-month periods ended June 30, 2015 due to continued volume and pricing pressures.

International divisional income decreased for the three- and nine-month periods ended June 30, 2015 due primarily to lower revenue and the resulting decline in gross profit, partially offset by lower selling and administrative expenses, along with some unfavorable foreign currency impact. Capital margins decreased for the quarter, but were essentially flat for the year to date period. Rental margins decreased for the nine-month period ended June 30, 2015 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.

Liquidity and Capital Resources

	Year to Date Ended June 30
	2015			2014
Cash Flows Provided By (Used In):
Operating activities	$	124.4		$	134.2
Investing activities		(104.4	)		(50.3	)
Financing activities		9.5			(99.0	)
Effect of exchange rate changes on cash		(5.4	)		(0.4	)
Increase (Decrease) in Cash and Cash Equivalents	$	24.1		$	(15.5	)

Operating Activities

Cash provided by operating activities totaled $124.4 million year to date in fiscal 2015. Operating cash flows were driven by net income adjusted up for non-cash expenses, partially offset by changes in working capital. Cash provided by operating activities decreased 7 percent from the comparable period in fiscal 2014, primarily due to changes in working capital, most notably in accounts receivable and through higher payments of restructuring liabilities and income taxes during the current year.

Investing Activities

Cash used for investing activities was $104.4 million during fiscal 2015. The investing activities consist mainly of capital expenditures, which increased significantly from the prior year due to investments in our rental fleet to support volume increases from recent rental contract wins.

Financing Activities

Cash provided by financing activities was $9.5 million during fiscal 2015 and consisted mainly of borrowings on the revolving credit facility, 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 by financing activities in fiscal 2015 compares to a net use of cash in fiscal 2014, with the fluctuation primarily driven by increased borrowings, lower treasury stock purchases, and lower debt payments compared with the prior year.

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.

On May 1, 2015, we entered into an Amended and Restated Credit Agreement (the “Current Credit Facility”) with the lenders named therein, JPMorgan Chase Bank, N.A., as Administrative agent, and each of Citizens Bank, N.A. Bank of America, N.A. and PNC Bank, National Association, as Co-Syndication Agents, which amended and restated our prior credit facility, entered into August 24, 2012. The Current Credit Facility provides for revolving loans of up to $900.0 million at any time outstanding plus term loans in the current principal amount of $165.0 million. We currently have $360.0 million of outstanding borrowings and undrawn letters of credit of $5.1 million under the revolving loan portion of the Current Credit Facility, leaving $534.9 million of available borrowing capacity.

We believe that cash on hand and generated from operations, along with amounts available under the Current 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. As of May 1, 2015, our $900 million revolving credit facility is with a syndicate of banks. The syndication group consists of twelve 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

We have $49.2 million of senior notes outstanding at various fixed interest rates as of June 30, 2015, 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.

Over the long term, we intend to continue to pursue inorganic growth 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.

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, but with the pending acquisition of Welch Allyn as outlined in Note 3 of the Notes to Condensed Consolidated Financial Statements and the increased borrowings we intend to incur to finance the acquisition, we will suspend our share repurchase activity temporarily to focus on deleveraging. Repurchases may be made on the open market or via private transactions, and are used for general business purposes.

As of June 30, 2015, $55.0 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.

Financing of Welch Allyn Acquisition

In connection with the Welch Allyn acquisition, Hill-Rom intends to refinance its existing debt and fund the purchase price of the acquisition with a combination of new debt and the issuance of Hill-Rom common stock. With respect to the new debt structure, Hill-Rom expects to enter into (i) a $1.0 billion senior secured term loan A facility (the ‘‘TLA Facility’’), (ii) an $800 million senior secured term loan B facility (the ‘‘TLB Facility’’) and (iii) a $500 million senior secured revolving facility (collectively with the TLA Facility and the TLB Facility, the ‘‘Senior Secured Facilities’’). In addition, Hill-Rom may issue up to an additional $425 million in debt pursuant to an unsecured note offering or unsecured bridge facility (the ‘‘Additional Debt Financing’’). In connection with the execution of the merger agreement, Hill-Rom entered into a commitment letter with Goldman Sachs Bank USA and Goldman Sachs Lending Partners LLC and certain other financial institutions with respect to the above financing.

Proceeds from the Senior Secured Facilities and the Additional Debt Financing will be used to finance, in part, the cash consideration for the merger and to pay fees and expenses incurred in connection with the merger. Hill-Rom’s debt outstanding as of June 30, 2015 was approximately $578 million and, immediately after the completion of the merger, the combined company’s debt is anticipated to be approximately $2.3 billion. Based on assumed interest rates, leverage ratios and credit ratings, the combined company’s debt service obligations, comprised of principal and interest (excluding capital leases), during the 12 months following the completion of the merger is expected to be approximately $150 million.

Credit Ratings

In July 2015, following the announcement and proposed financing of the Welch Allyn acquisition, Standard and Poor’s Rating Services and Moody’s Investor Service provided a credit rating downgrade to BB+ and (P)Ba2 with stable outlooks.

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.

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 June 30, 2015, the notional amount of open foreign exchange contracts was $4.0 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.

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

Evaluation of Disclosure 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 defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2015. 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 June 30, 2015.

Changes in Internal Control Over Financial Reporting

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 and completed the migration in our third quarter of fiscal 2015. In connection with this transition, the affected Völker transactions are now subject to the internal controls applicable to our primary ERP system.

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.

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. Except as described in the following paragraphs, there have been no material changes to the risk factors described in that report.

On June 16, 2015, we entered into an agreement to acquire Welch Allyn Holdings, Inc. (“Welch Allyn”), via a plan of merger. Below are risk factors related to such transaction, which we expect to close on or before October 1, 2015. Such risk factors have been adopted from our previously filed registration statement on Form S-4. They may not necessarily be indicative of risks which shareholders of Hill-Rom as of the date of the filing of this Form 10-Q may face.

Risks Relating to the Merger

There is no assurance when or if the merger will be completed. Any delay in completing the merger may substantially reduce the benefits that Hill-Rom and Welch Allyn expect to obtain from the merger.

Completion of the merger is subject to the satisfaction or waiver of a number of conditions as set forth in the merger agreement. There can be no assurance that Hill-Rom and Welch Allyn will be able to satisfy the closing conditions or that closing conditions beyond their control will be satisfied or waived. If the merger and the integration of the companies’ respective businesses are not completed within the expected timeframe, such delay may materially and adversely affect the synergies and other benefits that Hill-Rom and Welch Allyn expect to achieve as a result of the merger and could result in additional transaction costs, loss of revenue or other effects associated with uncertainty about the merger.

Hill-Rom and Welch Allyn can agree at any time to terminate the merger agreement, even if Welch Allyn shareholders have already adopted the merger agreement and thereby approved the merger and the other transactions contemplated by the merger agreement. Hill-Rom and Welch Allyn can also terminate the merger agreement under other specified circumstances.

Hill-Rom is expected to incur substantial expenses related to the merger and the integration of Welch Allyn.

Hill-Rom is expected to incur substantial expenses in connection with the merger and the integration of Welch Allyn. Specifically, based on estimates as of July 9, 2015, Hill-Rom expects to incur approximately $30 million of transaction costs related to the merger. Additionally, there are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, billing, payroll, manufacturing, marketing and employee benefits. While Hill-Rom expects to incur integration and restructuring costs and other costs incurred to execute the transaction following completion of the merger in 2015 that are estimated to range between $35 million and $40 million, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses could, particularly in the near term, exceed the savings that Hill-Rom expects to achieve from elimination of duplicative expenses and the realization of economies of scale and cost savings. Although Hill-Rom and Welch Allyn expect that the realization of efficiencies related to the integration of the businesses will offset incremental transaction, merger-related and restructuring costs over time, Hill-Rom and Welch Allyn cannot give any assurance that this net benefit will be achieved in the near term, or at all.

Covenants in the merger agreement place certain restrictions on Welch Allyn’s conduct of business prior to the closing of the merger.

The merger agreement restricts Welch Allyn from taking certain specified actions without Hill-Rom’s consent while the merger is pending. These restrictions may prevent Welch Allyn from pursuing otherwise attractive business opportunities or other capital structure alternatives and making other changes to its business or executing certain of its business strategies prior to the completion of the merger.

The announcement and pendency of the merger could have an adverse effect on Hill-Rom’s and/or Welch Allyn’s business, financial condition, results of operations or business prospects.

The announcement and pendency of the merger could disrupt Hill-Rom’s and/or Welch Allyn’s businesses in the following ways, among others:

•

the attention of Hill-Rom’s and/or Welch Allyn’s management may be directed towards the completion of the merger and other transaction-related considerations and may be diverted from the day-to-day business operations of Hill-Rom and/or Welch Allyn, as applicable, and matters related to the merger may require commitments of time and resources that could otherwise have been devoted to other opportunities that might have been beneficial to Hill-Rom and/or Welch Allyn, as applicable;

•

Hill-Rom’s and/or Welch Allyn’s employees may experience uncertainty regarding their future roles in the combined company, which might adversely affect Hill-Rom’s and/or Welch Allyn’s ability to retain, recruit and motivate key personnel; and

•

customers, suppliers and other third parties with business relationships with Hill-Rom and/or Welch Allyn may decide not to renew or may decide to seek to terminate, change and/or renegotiate their relationships with Hill-Rom and/or Welch Allyn as a result of the merger, whether pursuant to the terms of their existing agreements with Hill-Rom and/or Welch Allyn or otherwise.

Any of these matters could adversely affect the businesses of, or harm the financial condition, results of operations or business prospects of, Hill-Rom and/or Welch Allyn.

The merger agreement contains provisions that limit Welch Allyn’s ability to pursue alternatives to the merger, which could discourage a potential acquirer of Welch Allyn from making an alternative transaction proposal.

The merger agreement contains provisions that make it more difficult for Welch Allyn to sell its business to a party other than Hill-Rom. These provisions include a general prohibition on Welch Allyn taking certain actions prior to the termination of the merger agreement that might lead to or otherwise facilitate a proposal by a third party for a competing transaction. These provisions might discourage a third party that might have an interest in acquiring all or a significant part of the stock, properties or assets of Welch Allyn from considering or proposing such acquisition. In addition, following the execution of the merger agreement, Hill-Rom entered into a voting agreement and irrevocable proxy with certain shareholders of Welch Allyn representing in aggregate at least the number of shares of Welch Allyn common stock sufficient to approve the merger.

Failure to complete the merger could negatively impact the future business and financial results of Hill-Rom and Welch Allyn.

If the merger is not completed, the ongoing businesses of Hill-Rom and Welch Allyn may be adversely affected. Hill-Rom and Welch Allyn will be subject to several risks, including the following:

•

having to pay certain costs relating to the merger, such as legal, accounting, financial advisory, filing and printing fees;

•

diversion of management focus and resources from operational matters and other strategic opportunities while working to complete the merger; and

•

reputational harm due to the adverse perception of any failure to successfully complete the merger.

Hill-Rom and Welch Allyn cannot assure their respective shareholders that, if the merger is not completed, these risks will not materialize and will not materially adversely affect the business and financial results of either company.

Hill-Rom’s share price may fluctuate prior to the completion of the merger, and the value of the merger consideration at the closing of the merger may not be the same as at the time of the signing of the merger agreement.

Upon completion of the merger, shares of Welch Allyn common stock will be converted into the merger consideration, which will consist of cash and shares of Hill-Rom common stock. Any change in the market price of Hill-Rom common stock prior to completion of the merger will affect the dollar value of the stock consideration that Welch Allyn shareholders receive upon completion of the merger. Changes in the market price of Hill-Rom common stock could result from a variety of factors, many of which are beyond Hill-Rom’s control, including:

•

general market and economic conditions, including market conditions in the medical product industry;

•

actual or expected variations in results of operations;

•

changes in recommendations by securities analysts;

•

operations and stock performance of industry participants;

•

significant acquisitions or strategic alliances by competitors;

•

sales of Hill-Rom common stock, including sales by Hill-Rom’s directors and officers or significant investors;

•

recruitment or departure of key personnel;

•

loss of customers or suppliers; and

•

failure to achieve the perceived benefits of the merger as rapidly as, or to the extent, expected.

The issuance of Hill-Rom common stock in connection with the merger could decrease the market price of Hill-Rom common stock.

In connection with the merger and as part of the merger consideration, Hill-Rom will issue shares of Hill-Rom common stock to Welch Allyn shareholders. The issuance of Hill-Rom common stock in the merger may result in fluctuations in the market price of Hill-Rom common stock, including a stock price decrease.

Welch Allyn shareholders will have a reduced ownership and voting interest in Hill-Rom after the merger relative to their current ownership and voting interest in Welch Allyn and, as a result, will be able to exert less influence over management.

In the merger, each Welch Allyn shareholder will receive shares of Hill-Rom common stock as a portion of the merger consideration, which will result in such Welch Allyn shareholder becoming a shareholder of Hill-Rom with a percentage ownership of Hill-Rom after the merger that is significantly smaller than such shareholder’s current percentage ownership of Welch Allyn. It is expected that Welch Allyn shareholders immediately prior to the merger will own, in the aggregate, approximately 13% of the outstanding shares of Hill-Rom common stock immediately after the completion of the merger. Accordingly, Welch Allyn shareholders will have substantially less influence on the management and policies of Hill-Rom after the merger than they now have with respect to the management and policies of Welch Allyn.

There has been no public market for Welch Allyn common stock and the lack of a public market makes it difficult to determine the fair market value of Welch Allyn.

The outstanding capital stock of Welch Allyn is privately held and is not traded on any public market. The lack of a public market may make it more difficult to determine the fair market value of Welch Allyn than if Welch Allyn common stock were traded publicly. The value ascribed to Welch Allyn’s securities in other contexts may not be indicative of the price at which Welch Allyn common stock may have traded if it were traded on a public market. The merger consideration to be paid to Welch Allyn shareholders was determined based on negotiations between the parties and likewise may not be indicative of the price at which Welch Allyn common stock may have traded if it were traded on a public market.

Some of Welch Allyn’s directors and executive officers have interests in seeing the merger completed that are different from, or in addition to, those of other Welch Allyn stockholders. Therefore, some of Welch Allyn’s directors and executive officers may have a conflict of interest in recommending the proposals being voted on at Welch Allyn’s special meeting.

In considering the recommendation of the Welch Allyn board of directors that the Welch Allyn shareholders vote to approve the merger proposal at the special meeting of Welch Allyn shareholders, you should be aware that certain of Welch Allyn’s directors and executive officers have financial interests in the merger that are different from, or are in addition to, the interests of the Welch Allyn shareholders generally, as more fully described below. The members of the Welch Allyn board of directors were aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement, and in evaluating the merger and in recommending to the Welch Allyn shareholders that they approve the merger proposal at the special meeting of Welch Allyn shareholders.

The interests of the members of Welch Allyn’s board of directors generally include the right to receive, at the effective time of the merger (1) the cancellation of each outstanding PHASAR and PSU Award immediately prior to the effective time of the merger in exchange for the right to receive the Phantom Merger Consideration with respect to such PHASAR and each PSU Award (less the grant price in the case of PHASARs) and (2) accelerated cash payment of previously earned and vested amounts deferred under the Directors Deferred Compensation Plan.

The interests of Welch Allyn’s executive officers include the rights to:

•

at the effective time of the merger, cancellation of each outstanding PHASAR and PSU Awards immediately prior to the effective time of the merger in exchange for the right to receive the Phantom Merger Consideration (divided by 20 in the case of any PHASAR or PSU Awards granted prior to January 1, 2012) with respect to such PHASAR and each PSU Award (less the grant price in the case of PHASARs);

•

at the effective time of the merger, cancellation of each outstanding LTIP Cash Award in exchange for the total cash amount subject to such LTIP Cash Incentive Award (assuming satisfaction of performance goals at target levels);

•

at the effective time of the merger, accelerated cash payment of previously earned and vested amounts deferred under the Executive Deferred Compensation Plan;

•

at or following the effective time of the merger, special bonus payments to certain executive officers;

•

in the event of a qualifying termination of employment following the effective time of the merger, certain severance payments and benefits; and

•

certain continuing employee benefits following the effective time of the merger pursuant to the merger agreement.

Welch Allyn’s directors and executive officers also have the right to indemnification and insurance coverage following the effective time of the merger.

The merger may be completed even though material adverse changes may result from the announcement of the merger, industry-wide changes or other causes.

In general, Hill-Rom can refuse to complete the merger if there is a material adverse effect (as defined in the merger agreement) affecting Welch Allyn prior to the closing of the merger. However, some types of changes do not permit Hill-Rom to refuse to complete the merger, even if such changes would have a material adverse effect on Welch Allyn. If adverse changes occur but Hill-Rom must still complete the merger, the market price of Hill-Rom common stock may suffer.

Risks Relating to the Combined Company Following the Merger

Successful integration of Welch Allyn with Hill-Rom and successful operation of the combined company are not assured. Also, integrating Hill-Rom’s business with that of Welch Allyn may divert the attention of management away from operations.

If the merger is completed, Welch Allyn will become a wholly owned subsidiary of Hill-Rom but will, at least initially, continue its operations on a basis that is separate from Hill-Rom’s operations. There can be no assurance that after the merger Welch Allyn will be able to maintain and grow its business and operations. In addition, the market segments in which Welch Allyn operates may experience declines in demand and/or new competitors. Integrating and coordinating certain aspects of the operations and personnel of Welch Allyn with Hill-Rom will involve complex operational, technological and personnel-related challenges. This process will be time-consuming and expensive, may disrupt the businesses of either or both of the companies and may not result in the full benefits expected by Hill-Rom and Welch Allyn, including cost synergies expected to arise from supply chain efficiencies and overlapping general and administrative functions. The potential difficulties, and resulting costs and delays, include:

•

managing a larger combined company;

•

consolidating corporate and administrative infrastructures;

•

issues in integrating manufacturing, warehouse and distribution facilities, research and development and sales forces;

•

difficulties attracting and retaining key personnel;

•

loss of customers and suppliers and inability to attract new customers and suppliers;

•

unanticipated issues in integrating information technology, communications and other systems;

•

incompatibility of purchasing, logistics, marketing, administration and other systems and processes; and

•

unforeseen and unexpected liabilities related to the merger or Welch Allyn’s business.

Additionally, the integration of Hill-Rom’s and Welch Allyn’s operations, products and personnel may place a significant burden on management and other internal resources. The diversion of management’s attention, and any difficulties encountered in the transition and integration process, could harm the combined company’s business, financial condition and operating results.

The pro forma financial statements are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the completion of the merger.

The pro forma financial statements contained in the 8-K filed on July 14, 2015 are presented for illustrative purposes only and may not be an indication of the combined company’s financial condition or results of operations following the completion of the merger for several reasons. The pro forma financial statements have been derived from the historical financial statements of Hill-Rom and Welch Allyn and adjustments and assumptions have been made regarding the combined company after giving effect to the merger. The information upon which these adjustments and assumptions have been made is preliminary, and these kinds of adjustments and assumptions are difficult to make with accuracy. Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the merger. For example, the impact of any incremental costs incurred in integrating Hill-Rom and Welch Allyn are not reflected in the pro forma financial statements. As a result, the actual financial condition and results of operations of the combined company following the completion of the merger may not be consistent with, or evident from, these pro forma financial statements. The assumptions used in preparing the pro forma financial information may not prove to be accurate, and other factors may affect the combined company’s financial condition or results of operations following the merger. Any decline or potential decline in the combined company’s financial condition or results of operations may cause significant variations in the market price of Hill-Rom common stock.

The combined company’s business may suffer if it does not retain its senior management.

The combined company’s future success requires it to continue to attract and retain competent personnel. In particular, the combined company’s future success will depend on its senior management. As a result of the merger, Hill-Rom’s and Welch Allyn’s current and prospective employees could experience uncertainty about their future roles and the integration process. The loss of services of members of the combined company’s senior management team could adversely affect its business until suitable replacements can be found. There may be a limited number of persons with the requisite skills to serve in these positions, and the combined company may be unable to locate or employ qualified personnel on acceptable terms.

Hill-Rom will incur substantial additional indebtedness in connection with the merger, may not be able to refinance the bridge credit agreement on favorable terms, if drawn upon, and may not be able to meet all of its debt obligations.

In connection with the merger, Hill-Rom expects to enter into (i) a $1.0 billion senior secured term loan A facility (the ‘‘TLA Facility’’), (ii) a $800 million senior secured term loan B facility (the ‘‘TLB Facility’’) and (iii) a $500 million senior secured revolving facility (collectively with the TLA Facility and the TLB Facility, the ‘‘Senior Secured Facilities’’). In addition, Hill-Rom may issue up to an additional $425 million in debt pursuant to an unsecured note offering or unsecured bridge facility (the ‘‘Additional Debt Financing’’). Proceeds from the Senior Secured Facilities and the Additional Debt Financing will be used to finance, in part, the cash consideration for the merger and to pay fees and expenses incurred in connection with the merger. Hill-Rom’s debt outstanding as of June 30, 2015 was approximately $578 million and, immediately after the completion of the merger, the combined company’s debt is anticipated to be approximately $2.3 billion. As of June 30, 2015, Hill-Rom’s debt service obligations, comprised of principal and interest (excluding capital leases), during the next 12 months would, in the absence of the merger, have been approximately $30 million.

Based on assumed interest rates, leverage ratios and credit ratings, the combined company’s debt service obligations, comprised of principal and interest (excluding capital leases), during the 12 months following the completion of the merger is expected to be approximately $150 million. As a result of this increase in debt, demands on the combined company’s cash resources will increase after the completion of the merger. The increased level of debt could, among other things:

•

require the combined company to dedicate a large portion of its cash flow from operations to the servicing and repayment of its debt, thereby reducing funds available for working capital, capital expenditures, research and development expenditures and other general corporate requirements;

•

limit the combined company’s ability to obtain additional financing to fund future working capital, capital expenditures, research and development expenditures and other general corporate requirements;

•

limit the combined company’s flexibility in planning for, or reacting to, changes in its business and the industry in which Hill-Rom operates;

•

restrict the combined company’s ability to make strategic acquisitions or dispositions or to exploit business opportunities;

•

place the combined company at a competitive disadvantage compared to its competitors that have less debt;

•

adversely affect the combined company’s credit rating, with the result that the cost of servicing the combined company’s indebtedness might increase;

•

adversely affect the market price of Hill-Rom common stock; and

•

limit the combined company’s ability to apply proceeds from an offering or asset sale to purposes other than the servicing and repayment of debt.

The market price of Hill-Rom common stock after the merger may be subject to significant fluctuations and may be affected by factors different from those currently affecting the market price of Hill-Rom common stock.

Upon completion of the merger, each Welch Allyn shareholder will become a Hill-Rom shareholder. While Hill-Rom common stock has an observable trading history, Hill-Rom common stock on a post-merger basis may trade differently than its pre-merger trading history, and the market price of Hill-Rom common stock could be subject to significant fluctuations following the merger. In addition, the businesses of Hill-Rom differ from those of Welch Allyn in important respects and, accordingly, the results of operations of the combined company and the market price of Hill-Rom common stock following the merger may be affected by factors different from those currently affecting the independent results of operations of Hill-Rom and Welch Allyn.

The merger may cause dilution to Hill-Rom’s earnings per share, which may negatively affect the market price of Hill-Rom common stock.

Although Hill-Rom anticipates that the merger will have an immediate accretive impact on the adjusted earnings per share of Hill-Rom common stock, Hill-Rom’s current expectation is based on preliminary estimates as of the date of the public announcement of the merger, which may materially change. Hill-Rom could also encounter additional transaction-related costs or other factors, such as the failure to realize all of the benefits anticipated to result from the merger. In addition, Hill-Rom expects that Welch Allyn shareholders immediately prior to the merger will own, in the aggregate, approximately 13% of the then outstanding shares of Hill-Rom common stock following the merger, based on the number of outstanding shares of Hill-Rom common stock on June 16, 2015. Once its shares are issued in the merger, Hill-Rom’s earnings per share may be lower than it would have been in the absence of the merger. All of these factors could cause dilution to Hill-Rom’s earnings per share or decrease or delay the expected accretive effect of the merger, and cause a decrease in the market price of Hill-Rom common stock. There can be no assurance that any increase in Hill-Rom’s earnings per share will occur, even over the long term. Any increase in Hill-Rom’s earnings per share as a result of the merger is likely to require, among other things, Hill-Rom to successfully manage the operations of Welch Allyn and increase the consolidated earnings of Hill-Rom after the merger.

The rights of Welch Allyn shareholders who become Hill-Rom shareholders in the merger will be governed by the Hill-Rom articles of incorporation and the Hill-Rom by-laws.

Welch Allyn shareholders who receive shares of Hill-Rom common stock in the merger will become Hill-Rom shareholders and will be governed by the Hill-Rom articles of incorporation and the Hill-Rom by-laws, rather than the Welch Allyn certificate of incorporation and the Welch Allyn by-laws. There may be material differences between the current rights of Welch Allyn shareholders, as compared to the rights they will have as Hill-Rom shareholders.

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)

April 1, 2015 - April 30, 2015	1,198	$	50.62	-	$	64.7
May 1, 2015 - May 31, 2015	-	$	-	-	$	64.7
June 1, 2015 - June 30, 2015	2,830	$	52.76	-	$	64.7
Total	4,028	$	52.12	-	$	64.7

(1)	Shares purchased during the quarter ended June 30, 2015 were in connection with the 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 June 30, 2015, 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.

Item 5. OTHER INFORMATION

On August 4, 2015, Susan Lichtenstein, Senior Vice President, Chief Legal Officer and Secretary, informed the Company that she would leave the Company by the end of calendar year 2015.

Item 6. EXHIBITS

A.	Exhibits

	2.1	Merger Agreement, dated June 16, 2015, by and among Hill-Rom Holdings, Inc., Empire Merger Sub Corp. and Welch Allyn Holdings, Inc. (Incorporated by reference as Exhibit 2.1 filed with the Company’s Form 8-K on June 17, 2015).

	10.1	Voting Agreement, dated June 16, 2015, by and among Hill-Rom Holdings, Inc., Empire Merger Sub Corp. and certain shareholders of Welch Allyn. (Incorporated by reference as Exhibit 10.1 filed with the Company’s Form 8-K on June 17, 2015).

	10.2	Employment Agreement between Hill-Rom Holdings, Inc. and Carlos Alonso dated March 19, 2015

	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

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: August 7, 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)

EXHIBIT 10.2

EMPLOYMENT AGREEMENT

P R E A M B L E

This Employment Agreement defines the essential terms and conditions of our employment relationship with you. The subjects covered in the 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.

This EMPLOYMENT AGREEMENT between Carlos Alonso (“ Executive ”) and Hill-Rom Holdings, Inc. (“Company”) is dated this 19th day of March, 2015.

W I T N E S S E T H:

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 Executive in an executive or managerial position and Executive 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, it will be necessary for Executive 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 Executive (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 Executive’s employment, the Company’s willingness to disclose certain confidential and proprietary information to Executive 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:

Employment . As of Executive’s first date of employment with the Company (“ Start Date ”), as mutually agreed upon by the Company and Executive, the Executive agrees to serve as President, International of the Company, reporting to the Chief Operating Officer of the Company. Executive agrees to perform all duties and responsibilities traditionally assigned to, or falling within the normal responsibilities of, an individual employed as President, International of the Company. Executive also agrees to perform any and all additional duties or responsibilities consistent with such position as may be assigned by the Board of Directors or the Chief Operating Officer of the Company in its or his sole discretion.

Efforts and Duty of Loyalty . During the term of employment with the Company, Executive 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. Executive agrees to devote his full working time, attention, talents, skills and efforts to further the Company’s business interests. Executive 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. Executive shall act at all times in accordance with the Company’s Code of Ethical Business Conduct, and all other applicable policies which may exist or be adopted by the Company from time to time. The Executive may serve on other boards of directors as shall not interfere with the proper performance of his duties and obligations hereunder consistent with the Company’s Corporate Governance Standards for Board of Directors and applicable laws, with the prior consent of the Company.

At-Will Employment . Subject to the terms and conditions set forth below, Executive specifically acknowledges and accepts such employment on an “at-will” basis and agrees that both Executive 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. Executive 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 Executive.

Compensation . For all services rendered by Executive on behalf of, or at the request of, the Company, in his capacity as President, International of the Company, Executive shall be compensated as follows from and after the Start Date, subject to withholding for payment of any and all applicable federal, state and local payroll and withholding taxes.

(a)

Base Salary . For the services performed by him under this Agreement, the Company shall pay Executive a base salary of Four Hundred Forty Thousand Dollars ($440,000) per year, pro-rated for the period which Executive serves (“Base Salary”). The Base Salary shall be paid in the same increments as the Company’s normal payroll, but no less frequently than monthly and prorated for any period less than a full month. Executive’s Base Salary shall be reviewed at least annually, with the initial review taking place during the third quarter of 2015.

(b)

STIC Bonus . Incentive compensation, payable solely at the discretion of the Board of Directors of the Company, pursuant to the Company’s existing Incentive Compensation Program or any other program as the Company may establish from time to time in its sole discretion. For each fiscal year, the annual performance bonus target will be not less than 70% of base salary earned during such fiscal year. Bonus will be based upon the performance measure and objectives established by the Board from time to time, but ultimately subject to the Compensation and Management Development Committee’s (“CMDC”) discretion. Minimum bonus will be 0% of target and maximum bonus will be 200% of target.

(c)

Long-Term Incentive Plan . The Executive will be eligible to participate in the long-term incentive plan in place at the time and as authorized by the CMDC, at the time of the normal equity grant, with the first year’s target value of 175% of base salary. The Award is expected to be comprised of stock options, restricted stock units and performance shares, in combination or exclusively, realizing the proportional mix may change over time in consultation with the Executive and the Board.

(d)

Sign On Equity Grant . Executive shall receive a one-time award in the amount of Two Hundred Eight Five Thousand Dollars ($285,000.00), comprised of a combination of Performance Shares, Restricted Stock Units and Stock Options and will be awarded in the same proportion and under the same vesting schedules as the LTI Program. Following the Start Date, Executive will be provided with a Hill-Rom Holdings, Inc. award agreement providing the terms and additional details regarding Executive’s one time award.

(e)

Sign On Cash Award . Executive shall receive a one-time cash award in the amount of One Hundred Thousand Dollars ($100,000.00). This award shall be paid following the first sixty days of employment and will be subject to all applicable local, state and federal withholding requirements. In the event Executive voluntarily resigns prior to completing eighteen (18) full months of employment, Executive will be required to repay the full amount of the sign on cash award.

(f)

Retirement Plans . Commencing on the Start Date, Executive will be entitled to participate in Company retirement plans (e.g., 401(k) Savings Plan and Supplemental Executive Retirement Plan) consistent with plans, programs or policies available to other senior executive officers of the Company and subject to satisfaction of any applicable eligibility requirements.

(g)

Other Benefits . Commencing on the Start Date, Executive will be entitled to participate in and receive such additional benefits and perquisites, including health and welfare benefits (such as a Company-paid Executive physical examination) as are available to other senior executives of the Company and as the Board of Directors of Company may deem appropriate and as pre-approved by the Compensation and Management Development Committee of the Board. Executive will be entitled to 21 days of paid time off.

Changes to Compensation . Notwithstanding anything contained herein to the contrary, Executive acknowledges that the Company specifically reserves the right to make changes to Executive’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 thirty (30) days after receiving notice of such change, Executive exercises his right to terminate this Agreement without cause or for “Good Reason,” in the event Executive is not treated in a manner that is commensurate with the treatment of other senior executives of the Company, if applicable, as provided below in Paragraphs Nos. 9 and 11.

6.	Direct Deposit . As a condition of employment, and within thirty (30) days of the Start Date of this Agreement, Executive 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 Executive.

Predecessor Employers . Except as otherwise disclosed in writing to the Compensation Committee of the Board prior to the date hereof Executive warrants that he is not a party to any contract, restrictive covenant, or other agreement purporting to limit or otherwise adversely affecting his ability to secure employment with any third party. Alternatively, should any such agreement exist, Executive warrants that the contemplated services to be performed hereunder will not violate the terms and conditions of any such agreement.

Restricted Duties . Executive 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 him not to disclose or use such confidential or proprietary information. Based on his understanding of the anticipated duties and responsibilities hereunder, Executive acknowledges that such duties and responsibilities will not compel the disclosure or use of any such confidential and proprietary information.

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, Executive shall only be entitled to such compensation, benefits and perquisites that have been paid or fully accrued as of the effective date of his separation and as otherwise explicitly set forth in this Agreement. However, in no event shall Executive be entitled to notice pay if Executive is eligible for and accepts severance payments pursuant to the provisions of Paragraphs 16 and 17, below. Notice pay shall be paid as if the Executive remained on payroll, subject to Paragraph 14 hereof.

10.	Termination With Cause . Executive’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 Executive has:

(a)

Acted with gross neglect or willful misconduct in the discharge of his duties and responsibilities, or refused to follow or comply with the lawful direction of the Board of Directors of the Company, the Chief Operating Officer or the terms and conditions of this Agreement providing such refusal is not based primarily on Executive’s good faith compliance with applicable legal or ethical standards.

(b)

Acquiesced or participated in any conduct that is dishonest, fraudulent, illegal, unethical, involves moral turpitude or is otherwise illegal and involves conduct that has the potential, in the Board of Directors’ reasonable opinion, to cause the Company, its officers or its directors significant 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);

(e)

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

(f)

Breached the warranties of Executive set forth in Paragraph 7 herein; or

(g)

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 Executive’s employment, effective immediately, by providing notice thereof to Executive without further obligation to him 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 Executive (or cured within a reasonable period to the Company’s satisfaction), the Company agrees to provide Executive 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 Executive to cure any violations of sub-paragraphs (b), (d) or (f) and, therefore, no opportunity for cure need be provided in those circumstances. Notwithstanding the foregoing, the Company may not terminate the Executive’s employment for cause unless (A) a determination that cause exists is made and approved by a majority of the Company’s Board, (B) if the circumstance giving rise to the issue are capable of being cured the Executive is given at least ten (10) days’ written notice of the Board meeting called to make such determination, and (C) the Executive is given the opportunity to address such meeting.

11.	Termination by Executive for Good Reason . Executive may terminate his employment and declare this Agreement to have been terminated “without cause” by the Company (and, therefore, for “Good Reason”) upon the occurrence, without Executive’s consent, of any of the following circumstances:

(a)

The assignment to Executives of duties that are materially inconsistent with Executive’s position as President, International;

(b)

The failure to elect or reelect Executive as President, International of the Company (unless such failure is related in any way to the Company’s decision to terminate Executive for cause);

(c)

A reduction by the Company in the amount of Executive’s base salary or the discontinuation or reduction by the Company of Executive’s participation at previously existing levels of eligibility in any incentive compensation, additional compensation or equity programs, benefits, policies or perquisites; provided, however, that the Company may make such changes and/or reductions without implicating the provisions of this subsection (c) so long as Executive is treated in a manner that is commensurate with the treatment of other senior executives of the Company;

(d)

A failure by the Company to perform its obligations under this Employment Agreement,

which, in each of subsections (a) through (d) above, is not remedied by the Company within thirty (30) days of receipt of written notice of such event or breach delivered by Executive to the Company within ninety (90) days of the occurrence of the event. Any termination of employment by the Executive shall be within sixty (60) days of the end of the cure period.

12.

Termination Due to Death or Disability . In the event Executive 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 Accrued Obligations (as defined in Section 10) except that Executive will be immediately vested in the Supplemental Executive Retirement Plan, which shall be paid in accordance with the award agreements, benefits plans, past practice and applicable law. For purposes of this Agreement, Executive shall be considered to have suffered a “disability”: (i) upon a good faith determination by Company that, as a result of any mental or physical impairment, Executive is and will likely remain unable to perform the essential functions of his duties or responsibilities hereunder on a full-time basis for one hundred eighty (180) days, with or without reasonable accommodation, or (ii) Executive becomes eligible for or receives any benefits pursuant to the Company’s long-term disability policy. 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.	Reaffirmation . Upon termination of Executive’s employment for any reason, Executive agrees, if requested to reaffirm in writing his post-employment obligation as set forth in this Agreement.

14.

Code Section 409A Notification . Executive acknowledges that he has been advised of the American Jobs Creation Act of 2004, which includes Internal Revenue Code Section 409A, and the regulations and guidance promulgated thereunder (collectively “Code Section 409A”), and which also significantly changed the taxation of nonqualified deferred compensation plans and arrangements.

(a)

The intent of the parties is that payments and benefits under this Agreement comply with, or be exempt from, Code Section 409A and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be in accordance therewith. If any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause the Executive to incur any additional tax or interest under Code Section 409A, the Company shall, after consulting with the Executive, reform such provision to try to comply with Code Section 409A through good faith modifications to the minimum extent reasonably appropriate to conform with Code Section 409A. To the extent that any provision hereof is modified in order to comply with Code Section 409A, such modification shall be made in good faith and shall, to the maximum extent reasonably possible, maintain the original intent and economic benefit to the Executive and the Company of the applicable provision without violating the provisions of Code Section 409A.

(b)

A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for the payment of any amounts or benefits upon or following a termination of employment that are considered “nonqualified deferred compensation” under Code Section 409A unless such termination is also a “separation from service” within the meaning of Code Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of employment” or like terms shall mean “separation from service.” If the Executive is deemed on the date of termination to be a “specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment that is considered non-qualified deferred compensation under Code Section 409A payable on account of a “separation from service,” and with regard to which an exemption from such section does not apply, such payment or benefit shall be made or provided at the date which is the earlier of (A) the expiration of the six (6)-month period measured from the date of such “separation from service” of the Executive, and (B) the date of the Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 14 (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to the Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

(c)

With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted by Code Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated without regard to expenses reimbursed under any arrangement covered by Internal Revenue Code Section 105(b) solely because such expenses are subject to a limit related to the period the arrangement is in effect and (iii) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year in which the expense occurred.

(d)

For purposes of Code Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments. In no event may the Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement that is considered nonqualified deferred compensation. In no event shall the timing of Executive’s execution of the Separation and Release Agreement, directly or indirectly, result in the Executive designating the calendar year of payment, and if a payment that is subject to execution of the Separation and Release Agreement could be made in more than one taxable year, payment shall be made in the later taxable year.

15.

Code Section 409A Acknowledgement . Executive acknowledges that, notwithstanding anything contained herein to the contrary, both Parties shall be independently responsible for assessing their own risks and liabilities under Code 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 Code 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 or law.

16.

Severance Payments . In the event Executive’s employment is terminated by the Company without cause (including by Executive 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 (Exhibit A), Executive shall be eligible to receive severance pay based upon his base salary at the time of termination for a period of twelve (12) months. Executive will be immediately vested in the Supplemental Executive Retirement Plan. Additionally, the Company shall arrange for the Executive to continue to participate (through COBRA or otherwise), on substantially the same terms and conditions as in effect for the Executive (including any required active employee contribution) immediately prior to such termination, in the health and similar welfare benefits provided to the Executive until the earlier of (i) the end of the 12 month period beginning on the effective date of the termination of Executive’s employment hereunder, or (ii) such time as the Executive is eligible to be covered by comparable benefits of a subsequent employer. The Executive agrees to notify the Company promptly if and when he begins employment with another employer and if and when he becomes eligible to participate in any health or welfare plans of another employer. The foregoing severance rights and obligations shall not exist if Executive voluntarily leaves the Company’s employ without “Good Reason” (as defined above) or is terminated for “cause” (as defined above) .

17.

Severance Payment Terms and Conditions . No severance pay shall be paid if Executive 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 Executive materially complying with the restrictive covenants contained herein and executing a Separation and Release Agreement in a form not substantially different from that attached as Exhibit A. Further, the Company’s obligation to provide severance hereunder shall be deemed null and void should Executive fail or refuse to execute and deliver to the Company the Company’s then-standard Separation and Release Agreement (without modification, and which shall not include any restrictive covenants not contained herein and shall not change the Company’s indemnification/liability insurance obligations set forth herein or elsewhere) within any time period as may be prescribed by law or, in absence thereof, twenty-one (21) days after the Executive’s Effective Termination Date. Except as required by Code Section 409A, the above severance pay shall be paid in accordance with the Company’s standard payroll practices (e.g. bi-weekly), except no payment shall be made until after the Separation and Release Agreement becomes effective and the first payment thereafter shall include any missed payment. Notwithstanding the foregoing, if any execution and revocation period overlap two calendar years, payments will be paid in the second (2 nd ) calendar year. Amounts that are nonqualified deferred compensation under Code Section 409A that would otherwise be payable during the six (6) month period immediately following termination shall be paid, with interest, settled, made, or provided, on the expiration of the Delay Period. Notwithstanding, the foregoing Section is subject to the provisions of Code Section 409A.

18.	Assignment of Rights .

(a)

Copyrights . Executive agrees that all works of authorship fixed in any tangible medium of expression by him 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 Executive 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 Executive is excluded from the definition of a “work made for hire” under the copyright law, then Executive 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. Executive will execute any documents that the Company deems necessary in connection with the assignment of such Work and copyright therein. Executive 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 Executive 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.

(b)

Inventions . Executive 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 Executive 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 Executive 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 his 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 his 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, Executive 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. Executive may retain his address books to the extent they only contain contact information.

20.

Confidential Information . Executive 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”). Executive further acknowledges that, as a result of his employment with the Company, Executive 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 Executive or wrong doing by any other individual.

21.

Restricted Use of Confidential Information . Executive 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, or other than in the course of the Executive’s employment and for the benefit of the Company, Executive 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, Executive agrees to use such Confidential Information only in the course of Executive’s duties in furtherance of the Company’s business and agrees not to make use of any such Confidential Information for Executive’s own purposes or for the benefit of any other entity or person. The foregoing shall not apply to information that (a) was known to the public prior to its disclosure to the Executive; (b) becomes generally known to the public subsequent to disclosure to the Executive through no wrongful act of the Executive or any representative of the Executive; or (c) the Executive is required to disclose by applicable law, regulation or legal process (provided that the Executive provides the Company with prior notice of the contemplated disclosure and cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information).

22.

Acknowledged Need for Limited Restrictive Covenants . Executive 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 Executive relationships, and that Executive will benefit from these efforts. Further, Executive acknowledges the inevitable use of, or near-certain influence by his knowledge of, the Confidential Information disclosed to Executive 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, Executive acknowledges each of the Companies’ need to protect their legitimate business interests by reasonably restricting Executive’s ability to compete with the Company on a limited basis.

23.	Non-Solicitation . During Executive’s employment and for a period of twenty-four (24) months thereafter, Executive 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 on behalf of any Competitor ;

(b)

Attempt on behalf of any Competitor 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)

Except in the course of the Executive’s employment and for the benefit of the Company, 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 Executive’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; other than by way of long term retirement plans; or

(g)

Otherwise attempt on behalf of any Competitor 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, Executive agrees during the Relevant Non-Compete Period not to directly or indirectly engage in the following competitive activities:

(a)

Executive 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 Executive 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)

Executive shall not engage in any research, development, production, sale or distribution of any Competitive Products on behalf of a Competitor;

(c)

Executive shall not market, sell, or otherwise offer or provide any Competitive Products within any Geographic Territory on behalf of a Competitor;

(d)

Executive shall not distribute, market, sell or otherwise offer or provide any Competitive Products to any customer of the Company on behalf of a Competitor.

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, sister company, 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 Executive within a given territory or geographical area or contacted by him at any time during the eighteen (18) month period preceding Executive’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 mean the list of companies on Exhibit B, which can be changed at any time prior to 90 days before termination of employment by or of Executive by written notice to Executive, so long as the list does not exceed fifteen (15) companies and each of which is a material competitor of the Company.

(e)

“Geographic Territory” shall include any territory in which the Company has provided any services or sold any products at any time during the twenty-four (24) month period preceding Executive’s date of separation;

(f)

“Relevant Non-Compete Period” shall include the period of Executive’s employment with the Company as well as a period of twenty-four (24) 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) twelve (12) months or (ii) the total length of Executive’s employment with the Company, including employment with any parent, subsidiary or affiliated entity, if such employment is less than twenty-four (24) months;

(g)

“Directly or indirectly” shall be construed such that the foregoing restrictions shall apply equally to Executive whether performed individually or as a partner, shareholder, officer, director, manager, Executive, salesperson, 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 Executive’s knowledge of and access to the Companies’ Confidential Information, Executive 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 Executive’s ability to obtain alternate employment. As such, Executive hereby agrees that such restrictions are valid and enforceable, and affirmatively waives any argument or defense to the contrary. Executive acknowledges that this limited noncompetition provision is not an attempt to prevent Executive from obtaining other employment in violation of IC § 22-5-3-1 or any other similar statute. Executive 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 Executive from obtaining other employment.

27.

Survival of Restrictive Covenants . Executive acknowledges that the above restrictive covenants shall survive the termination of this Agreement and the termination of Executive’s employment for any reason. Executive 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, Executive acknowledges that such obligations are independent and separate covenants undertaken by Executive for the benefit of the Company.

28.	[Intentionally Omitted]

29.

Post-Termination Notification . For the duration of his Relevant Non-compete Period or other restrictive covenant period, which ever is longer, Executive agrees to promptly notify the Company no later than five (5) business days of his acceptance of any employment or consulting engagement. Such notice shall include sufficient information to ensure Executive compliance with his non-compete obligations and must include at a minimum the following information: (i) the name of the employer or entity for which he is providing any consulting services; (ii) a description of his intended duties as well as (iii) the anticipated start date. Such information is required to ensure Executive’s compliance with his 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 Executive plus attorneys’ fees. Executive further consents to the Company’s notification to any new employer of Executive’s rights and obligations under this Agreement.

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 Executive 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 . Executive 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, Executive 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 Executive violates any such restrictive covenant, Executive 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 Executive engages in any activity in violation of such provisions, Executive 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. Executive 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. Executive 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 if the Company prevails.

32.

Publicly Traded Stock . The Parties agree that nothing contained in this Agreement shall be construed to prohibit Executive from investing his 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 Executive 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 . Executive 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, Executive 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 representing Executive; (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), Executive 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, Executive 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.

35.

Choice of Forum . Executive acknowledges that the Company is primarily based in Indiana, and Executive understands and acknowledges the Company’s desire and need to defend any litigation against it in Illinois. Accordingly, the Parties agree that any claim of any type brought by Executive against the Company or any of its employees or agents must be maintained only in a court sitting in Cook County, Illinois, or, if a federal court, the Northern District of Illinois. Executive further understands and acknowledges that in the event the Company initiates litigation against Executive, the Company may need to prosecute such litigation in such state where the Executive is subject to personal jurisdiction. Accordingly, for purposes of enforcement of this Agreement, Executive specifically consents to personal jurisdiction in the State of Illinois.

36.

Choice of Law . This Agreement shall be deemed to have been made within the County of Cook, State of Illinois and shall be interpreted and construed in accordance with the laws of the State of Illinois. 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 Executive, cannot be assigned by Executive, but his 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 Executive or to the Company at its principal office with a copy mailed to the Office of the General Counsel.

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 Executive unless in writing and signed by both Parties. The waiver by the Company or Executive 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 . Executive represents and acknowledges that in signing this Agreement he 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.	Other Remedies . The Executive agrees to execute and be bound by the terms and conditions of the Company’s Limited Recapture Agreement, and any applicable laws, rules and regulations.

43.

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

44.

Liability Insurance . The Company shall cover the Executive under directors and officers liability insurance both during and, while potential liability exists, after the term of this Agreement in the same amount and to the same extent as the Company covers its other officers and non independent director.

45.

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.

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

EXECUTIVE		HILL-ROM HOLDINGS, INC.


Signed:	/s/ Carlos Alonso	By:	/s/ Carlyn Solomon

Printed:	Carlos Alonso	Title:	Chief Operating Officer

Dated:	March 24, 2015	Dated:	March 19, 2015

CAUTION: READ BEFORE SIGNING

Exhibit A

SAMPLE SEPARATION AND RELEASE AGREEMENT

THIS SEPARATION and RELEASE AGREEMENT (“Agreement”) is entered into by and between EMPLOYEE’S FULL NAME (“Executive”) and Hill-Rom Holdings, Inc. (together with its subsidiaries and affiliates, the “Company”). To wit, the Parties agree as follows:

Executive’s active employment by the Company shall terminate effective [date of termination](Executive’s “Effective Termination Date”). Except as specifically provided by this Agreement, or in any other non-employment agreement that may exist between the Company and Executive, Executive agrees that the Company shall have no other obligations or liabilities to him/her following his/her Effective Termination Date and that his/her receipt of the Severance Benefits provided herein shall constitute a complete settlement, satisfaction and waiver of any and all claims he/she may have against the Company.

Executive further submits, and the Company hereby accepts, his resignation as an Executive, officer and director, as of his Effective Termination Date for any position he may hold. The Parties agree that this resignation shall apply to all such positions Executive may hold with the Company or any parent, subsidiary or affiliated entity thereof. Executive agrees to execute any documents needed to effectuate such resignation. Executive further agrees to take whatever steps are necessary to facilitate and ensure the smooth transition of his duties and responsibilities to others.

3.	The Company agrees to provide Executive severance pay on the termination of his employment, as provided for in his Employment Agreement.

The Company further agrees to provide Executive with limited out-placement counseling with a company of its choice provided that Executive participates in such counseling immediately following termination of employment. Notwithstanding anything in this Section 4 to the contrary, the out-placement counseling shall not be provided after the last day of the second calendar year following the calendar year in which termination of employment occurs.

As of his/her Effective Termination Date, Executive will become ineligible to participate in the Company’s health insurance program and continuation of coverage requirements under COBRA (if any) will be triggered at that time. The medical insurance provided herein does not include any disability coverage.

6.	Intentionally omitted

In exchange for the foregoing Severance Benefits, EMPLOYEE FULL NAME on behalf of himself/herself, his/her heirs, representatives, agents and assigns hereby RELEASES, INDEMNIFIES, HOLDS HARMLESS, and FOREVER DISCHARGES (i) Company Name. (ii) its parent, subsidiary or affiliated entities, (iii) in such capacity, all of their present or former directors, officers, Executives, shareholders, and agents, as well as, (iv) all predecessors, successors and assigns thereof from any and all actions, charges, claims, demands, damages or liabilities of any kind or character whatsoever, known or unknown, which Executive now has or may have had through the effective date of this Agreement.

Without limiting the generality of the foregoing release, it shall include: (i) all claims or potential claims arising under any federal, state or local laws relating to the Parties’ employment relationship, including any claims Executive may have under the Civil Rights Acts of 1866 and 1964, as amended, 42 U.S.C. §§ 1981 and 2000(e) et seq .; the Civil Rights Act of 1991; the Age Discrimination in Employment Act, as amended, 29 U.S.C. §§ 621 et seq .; the Americans with Disabilities Act of 1990, as amended, 42 U.S.C §§ 12,101 et seq .; the Fair Labor Standards Act 29 U.S.C. §§ 201 et seq .; the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§ 2101, et seq .; the Sarbanes-Oxley Act of 2002, specifically including the Corporate and Criminal Fraud Accountability Act, 18 U.S.C. §1514,A et seq .; and any other federal, state or local law governing the Parties’ employment relationship; (ii) any claims on account of, arising out of or in any way connected with Executive’s employment with the Company or leaving of that employment; (iii) any claims alleged or which could have been alleged in any charge or complaint against the Company; (iv) any claims relating to the conduct of any Executive, officer, director, agent or other representative of the Company; (v) any claims of discrimination, harassment or retaliation on any basis; (vi) any claims arising from any legal restrictions on an employer’s right to separate its Executives; (vii) any claims for personal injury, compensatory or punitive damages or other forms of relief; and (viii) all other causes of action sounding in contract, tort or other common law basis, including (a) the breach of any alleged oral or written contract, (b) negligent or intentional misrepresentations, (c) wrongful discharge, (d) just cause dismissal, (e) defamation, (f) interference with contract or business relationship or (g) negligent or intentional infliction of emotional distress.

9.	Executive further agrees and covenants not to sue the Company or any entity or individual subject to the foregoing General Release with respect to any claims, demands, liabilities or obligations release by this Agreement provided, however, that nothing contained in this Agreement shall:

(a)

prevent Executive from filing an administrative charge with the Equal Employment Opportunity Commission or any other federal state or local agency; or

(b)

prevent employee from challenging, under the Older Worker’s Benefit Protection Act (29 U.S.C. § 626), the knowing and voluntary nature of his/her release of any age claims in this Agreement in court or before the Equal Employment Opportunity Commission.

10.

Notwithstanding his/her right to file an administrative charge with the EEOC or any other federal, state, or local agency, Executive agrees that with his/her release of claims in this Agreement, he/she has waived any right he/she may have to recover monetary or other personal relief in any proceeding based in whole or in part on claims released by him/her in this Agreement. For example, Executive waives any right to monetary damages or reinstatement if an administrative charge is brought against the Company whether by Executive, the EEOC, or any other person or entity, including but not limited to any federal, state, or local agency. Further, with his/her release of claims in this Agreement, Executive specifically assigns to the Company his/her right to any recovery arising from any such proceeding.

11.	The Parties acknowledge that it is their mutual and specific intent that the above waiver fully complies with the requirements of the Older Workers Benefit Protection Act (29 U.S.C. § 626) and any similar law governing release of claims. Accordingly, Executive hereby acknowledges that:

(a)

He/she has carefully read and fully understands all of the provisions of this Agreement and that He/she has entered into this Agreement knowingly and voluntarily;

(b)

The Severance Benefits offered in exchange for Executive’s release of claims exceed in kind and scope that to which he/she would have otherwise been legally entitled absent the execution of this Agreement;

(c)

Prior to signing this Agreement, Executive had been advised, and is being advised by this Agreement, to consult with an attorney of his/her choice concerning its terms and conditions; and

(d)

He/she has been offered at least [twenty-one (21)/forty-five (45)] days within which to review and consider this Agreement.

12.

The Parties agree that this Agreement shall not become effective and enforceable until the date this Agreement is signed by both Parties or seven (7) calendar days after its execution by Executive, whichever is later. Executive may revoke this Agreement for any reason by providing written notice of such intent to the Company within seven (7) days after he/she has signed this Agreement, thereby forfeiting Executive’s right to receive any Severance Benefits provided hereunder and rendering this Agreement null and void in its entirety.

13.

The Parties agree that nothing contained herein shall purport to waive or otherwise affect any of Executive’s rights or claims that may arise after he/she signs this Agreement. It is further understood by the Parties that nothing in this Agreement shall affect any rights Executive may have under any Company sponsored Deferred Compensation Program, Executive Life Insurance Bonus Plan, Stock Grant Award, Stock Option Grant, Restricted Stock Unit Award, Pension Plan and/or Savings Plan ( i.e. , 401(k) plan) provided by the Company as of the date of his/her termination, such items to be governed exclusively by the terms of the applicable agreements or plan documents.

14.

Similarly, notwithstanding any provision contained herein to the contrary, this Agreement shall not constitute a waiver or release or otherwise affect Executive’s rights with respect to any vested benefits, any rights he/she has to benefits which cannot be waived by law, any coverage provided under any Directors and Officers (“D&O”) policy, any rights Executive may have under any indemnification agreement he/she has with the Company prior to the date hereof, any rights he/she has as a shareholder, or any claim for breach of this Agreement, including, but not limited to the benefits promised by the terms of this Agreement.

15.	[ Option A ] Executive acknowledges that his/her termination and the Severance Benefits offered hereunder were based on an individual determination and were not offered in conjunction with any group termination or group severance program and waives any claim to the contrary.

[ Option B ] Executive represents and agrees that he/she has been provided relevant cohort information based on the information available to the Company as of the date this Agreement was tendered to Executive. This information is attached hereto as Exhibit A. The Parties acknowledge that simply providing such information does not mean and should not be interpreted to mean that the Company was obligated to comply with 29 C.F.R. § 1625.22(f).

16.

Executive hereby affirms and acknowledges his/her continued obligations to comply with the post-termination covenants contained in his/her Employment Agreement, including but not limited to, the non-compete, trade secret and confidentiality provisions. Executive acknowledges that a copy of the Employment Agreement has been attached to this Agreement as Exhibit A [B] or has otherwise been provided to him/her and, to the extent not inconsistent with the terms of this Agreement or applicable law, the terms thereof shall be incorporated herein by reference. Executive acknowledges that the restrictions contained therein are valid and reasonable in every respect and are necessary to protect the Company’s legitimate business interests. Executive hereby affirmatively waives any claim or defense to the contrary.

17.

Executive acknowledges that the Company as well as its parent, subsidiary and affiliated companies (“Companies” herein) possess, and he/she has been granted access to, certain trade secrets as well as other confidential and proprietary information that they have acquired at great effort and expense. Such information includes, without limitation, confidential information regarding products and services, marketing strategies, business plans, operations, costs, current or, prospective customer information (including customer contacts, requirements, creditworthiness and like matters), product concepts, designs, prototypes or specifications, regulatory compliance issues, 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 (collectively referred to herein as “Confidential Information”).

18.

Executive agrees that all such Confidential Information is and shall remain the sole and exclusive property of the Company. Except as may be expressly authorized by the Company in writing, or as may be required by law after providing due notice thereof to the Company, Executive agrees not to disclose, or cause any other person or entity to disclose, any Confidential Information to any third party for as long thereafter as such information remains confidential (or as limited by applicable law) and agrees not to make use of any such Confidential Information for Executive’s own purposes or for the benefit of any other entity or person. The Parties acknowledge that Confidential Information shall not include any information that is otherwise made public through no fault of Executive or other wrong doing. The foregoing shall not apply to information that the Executive is required to disclose by applicable law, regulation or legal process (provided that the Executive provides the Company with prior notice of the contemplated disclosure and cooperates with the Company at its expense in seeking a protective order or other appropriate protection of such information).

19.

On or before Executive’s Effective Termination Date or per the Company’s request, Executive agrees to return the original and all copies of all things in his/her possession or control relating to the Company or its business, including but not limited to any and all contracts, reports, memoranda, correspondence, manuals, forms, records, designs, budgets, contact information or lists (including customer, vendor or supplier lists), ledger sheets or other financial information, drawings, plans (including, but not limited to, business, marketing and strategic plans), personnel or other business files, computer hardware, software, or access codes, door and file keys, identification, credit cards, pager, phone, and any and all other physical, intellectual, or personal property of any nature that he/she received, prepared, helped prepare, or directed preparation of in connection with his/her employment with the Company. Nothing contained herein shall be construed to require the return of any non-confidential and de minimis items regarding Executive’s pay, benefits or other rights of employment such as pay stubs, W-2 forms, 401(k) plan summaries, benefit statements, etc. Additionally, Executive may retain his address books to the extent they only contain contact information.

20.

Executive hereby consents and authorizes the Company to deduct as an offset from the above-referenced severance payments, so long as the deduction is not taken from nonqualified deferred compensation under the definition of Code Section 409A, the value of any Company property not returned or returned in a damaged condition as well as any monies paid by the Company on Executive’s behalf (e.g., payment of any outstanding American Express bill).

21.

Executive agrees to cooperate with the Company in connection with any pending or future litigation, proceeding or other matter which has been or may be brought against or by the Company before any agency, court, or other tribunal and concerning or relating in any way to any matter falling within Executive’s knowledge or former area of responsibility. Executive agrees to immediately notify the Company, through the Office of the General Counsel, in the event he/she is contacted by any outside attorney (including paralegals or other affiliated parties) with regard to matters related to his employment with the Company unless (i) the Company is represented by the attorney, (ii) Executive is represented by the attorney for the purpose of protecting his/her personal interests or (iii) the Company has been advised of and has approved such contact. Executive agrees to provide reasonable assistance and completely truthful testimony in such matters including, without limitation, facilitating and assisting in the preparation of any underlying defense, responding to discovery requests, preparing for and attending deposition(s) as well as appearing in court to provide truthful testimony. The Company agrees to reimburse Executive for all reasonable out of pocket expenses incurred at the request of the Company associated with such assistance and testimony.

22.

Executive agrees not to make any written or oral statement that may defame, disparage or cast in a negative light so as to do harm to the personal or professional reputation of (a) the Company, (b) its Executives, officers, directors or trustees or (c) the services and/or products provided by the Company and its subsidiaries or affiliate entities. Similarly, in response to any written inquiry from any prospective employer or in connection with a written inquiry in connection with any future business relationship involving Executive, the Company agrees not to provide any information, and the senior officers shall not make any written or oral statement, that may defame, disparage or cast in a negative light so as to do harm to the personal or professional reputation of Executive. The Parties acknowledge, however, that nothing contained herein shall be construed to prevent or prohibit the Company or the Executive from providing truthful information in response to any court order, discovery request, subpoena or other lawful request, rebutting statements by others or making normal competitive-type statements.

23.

EXECUTIVE SPECIFICALLY AGREES AND UNDERSTANDS THAT THE EXISTENCE AND TERMS OF THIS AGREEMENT ARE STRICTLY CONFIDENTIAL AND THAT SUCH CONFIDENTIALITY IS A MATERIAL TERM OF THIS AGREEMENT . Accordingly, except as required by law or unless authorized to do so by the Company in writing, Executive agrees that he/she shall not communicate, display or otherwise reveal any of the contents of this Agreement to anyone other than his/her spouse, legal counsel or financial advisor provided, however, that they are first advised of the confidential nature of this Agreement and Executive obtains their agreement to be bound by the same. The Company agrees that Executive may respond to legitimate inquiries regarding the termination of his/her employment by stating that the Parties have terminated their relationship on an amicable basis and that the Parties have entered into a Confidential Separation and Release Agreement that prohibits him/her from further discussing the specifics of his/her separation. Nothing contained herein shall be construed to prevent Executive from discussing or otherwise advising subsequent employers of the existence of any obligations as set forth in his/her Employment Agreement. Further, nothing contained herein shall be construed to limit or otherwise restrict the Company’s ability to disclose the terms and conditions of this Agreement as may be required by business necessity.

24.

In the event that Executive breaches or threatens to breach any provision of this Agreement, he/she agrees that the Company shall be entitled to seek any and all equitable and legal relief provided by law, specifically including immediate and permanent injunctive relief. Executive hereby waives any claim that the Company has an adequate remedy at law. In addition, and to the extent not prohibited by law, Executive agrees that the Company shall be entitled to discontinue providing any additional Severance Benefits upon such breach. Executive agrees that the foregoing relief shall not be construed to limit or otherwise restrict the Company’s ability to pursue any other remedy provided by law, including the recovery of any actual, compensatory or punitive damages. Moreover, if Executive pursues any claims against the Company subject to the foregoing General Release, Executive agrees to immediately reimburse the Company for the value of all benefits received under this Agreement to the fullest extent permitted by law.

25.

Similarly, in the event that the Company breaches or threatens to breach any provision of this Agreement, Executive shall be entitled to seek any and all equitable or other available relief provided by law, specifically including immediate and permanent injunctive relief. In the event Executive is wholly unsuccessful, the Company shall be entitled to an award of its costs and attorneys’ fees.

26.

Both Parties acknowledge that this Agreement is entered into solely for the purpose of terminating Executive’s employment relationship with the Company on an amicable basis and shall not be construed as an admission of liability or wrongdoing by the Company or Executive, both Parties having expressly denied any such liability or wrongdoing.

27.	Each of the promises and obligations shall be binding upon and shall inure to the benefit of the heirs, executors, administrators, assigns and successors in interest of each of the Parties.

28.

The Parties agree that each and every paragraph, sentence, clause, term and provision of this Agreement is severable and that, if any portion of this Agreement should be deemed not enforceable for any reason, such portion shall be stricken and the remaining portion or portions thereof should continue to be enforced to the fullest extent permitted by applicable law.

29.	This Agreement shall be governed by and interpreted in accordance with the laws of the State of Illinois without regard to any applicable state’s choice of law provisions.

30.

Executive represents and acknowledges that in signing this Agreement he/she does not rely, and has not relied, upon any representation or statement made by the Company or by any of the Company’s Executives, officers, agents, stockholders, directors or attorneys with regard to the subject matter, basis or effect of this Agreement other than those specifically contained herein.

31.

This Agreement represents the entire agreement between the Parties concerning the subject matter hereof, shall supersede any and all prior agreements which may otherwise exist between them concerning the subject matter hereof (specifically excluding, however, the post-termination obligations contained in an Executive’s Employment Agreement, any obligations contained in an existing and valid Indemnity Agreement of Change in Control or any obligation contained in any other legally-binding document), and shall not be altered, amended, modified or otherwise changed except by a writing executed by both Parties.

PLEASE READ CAREFULLY. THIS SEPARATION AND RELEASE

AGREEMENT INCLUDES A COMPLETE RELEASE OF ALL

KNOWN AND UNKNOWN CLAIMS.

IN WITNESS WHEREOF, the Parties have themselves signed, or caused a duly authorized agent thereof to sign, this Agreement on their behalf and thereby acknowledge their intent to be bound by its terms and conditions.

[EXECUTIVE]			COMPANY NAME


Signed:			By:

Printed:			Title:

Dated:			Dated:

Exhibit B

List of Competitors

Stryker Corporation, Integra LifeSciences, Steris Corporation, CONMED Corporation, Gettinge AB, CareFusion Corp., Hospira, Inc., ResMed, Phillips Healthcare, Smith & Nephew plc, Arthrex Inc., including, for the avoidance of doubt and in each case, parents, subsidiaries and affiliates

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 period covered by this report;

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

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) 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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

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

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

Date: August 7, 2015

/s/ John J. Greisch

John J. Greisch

President and Chief Executive Officer

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.;

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

Date: August 7, 2015

/s/ Steven J. Strobel

Steven J. Strobel

Senior Vice President and Chief Financial Officer

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 June 30, 2015 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

August 7, 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.

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 June 30, 2015 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

Senior Vice President and Chief Financial Officer

			Page
PART I - FINANCIAL INFORMATION


	Item 1 -	Financial Statements

		Condensed Consolidated Statements of Income (Unaudited)	3

		Condensed Consolidated Statements of Comprehensive Income (Unaudited)	4

		Condensed Consolidated Balance Sheets (Unaudited)	5

		Condensed Consolidated Statements of Cash Flows (Unaudited)	6

		Notes to Condensed Consolidated Financial Statements (Unaudited)	7

	Item 2 -	Management's Discussion and Analysis of
		Financial Condition and Results of Operations	20

	Item 3 -	Quantitative and Qualitative Disclosures About Market Risks	30

	Item 4 -	Controls and Procedures	31

PART II - OTHER INFORMATION

	Item 1 -	Legal Proceedings	32

	Item 1A -	Risk Factors	32

	Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	38

	Item 5 -	Other Information	38

	Item 6 -	Exhibits	39

SIGNATURES			40