- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2011

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

For the transition period from ____ to ____

Commission File No. 1-6651

HILL-ROM HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Indiana	35-1160484
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1069 State Route 46 East Batesville, Indiana	47006-8835
(Address of principal executive offices)	(Zip Code)

(812) 934-7777

(Registrant's telephone number, including area code)

Not Applicable

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

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

Yes

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

Yes

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

Large accelerated filer R

Accelerated filer £

Non-accelerated filer £

Smaller reporting company £

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

Yes

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 – 63,155,226 shares as of July 21, 2011.

HILL-ROM HOLDINGS, INC.

INDEX TO FORM 10-Q

			Page
PART I - FINANCIAL INFORMATION

	Item 1 -	Financial Statements

		Condensed Consolidated Statements of Income	3
		(Unaudited) for the Quarterly and Year to Date Periods
		Ended June 30, 2011 and 2010

		Condensed Consolidated Balance Sheets (Unaudited) at	4
		June 30, 2011 and September 30, 2010

		Condensed Consolidated Statements of Cash Flows	5
		(Unaudited) for the Year to Date Periods
		Ended June 30, 2011 and 2010

		Notes to Condensed Consolidated Financial Statements (Unaudited)	6

	Item 2 -	Management's Discussion and Analysis of
		Financial Condition and Results of Operations	16

	Item 3 -	Quantitative and Qualitative Disclosures About Market Risks	23

	Item 4 -	Controls and Procedures	23

PART II - OTHER INFORMATION

	Item 1 -	Legal Proceedings	24

	Item 1A -	Risk Factors	24

	Item 2 -	Unregistered Sales of Equity Securities and Use of Proceeds	24

	Item 6 -	Exhibits	25

SIGNATURES			26

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PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

(Dollars in millions except per share data)

	Quarterly Period Ended June 30						Year To Date Period Ended June 30

	2011			2010			2011			2010
Net Revenues
Capital sales	$	267.2		$	246.2		$	802.7		$	714.0
Rental revenues		117.6			114.4			358.4			359.0
Total revenues		384.8			360.6			1,161.1			1,073.0

Cost of Revenues
Cost of goods sold		145.4			132.5			436.0			397.4
Rental expenses		51.8			50.1			154.4			155.0
Total cost of revenues		197.2			182.6			590.4			552.4

Gross Profit		187.6			178.0			570.7			520.6

Research and development expenses		17.3			14.1			48.3			43.4
Selling and administrative expenses		124.6			116.2			375.1			358.6
Litigation charge (Note 14)		42.3			-			42.3			-
Special charges (Note 8)		(1.2	)		-			1.4			5.0

Operating Profit		4.6			47.7			103.6			113.6

Interest expense		(2.1	)		(2.1	)		(6.3	)		(6.4	)
Investment income and other, net		1.1			0.7			1.8			1.5

Income Before Income Taxes		3.6			46.3			99.1			108.7

Income tax expense (Note 9)		2.1			15.5			29.1			33.5

Net Income		1.5			30.8			70.0			75.2
Less: Net income attributable to noncontrolling interest		-			0.2			0.2			0.6

Net Income Attributable to Common Shareholders	$	1.5		$	30.6		$	69.8		$	74.6


Net Income Attributable to Common Shareholders per Common Share - Basic	$	0.02		$	0.48		$	1.10		$	1.19


Net Income Attributable to Common Shareholders per Common Share - Diluted	$	0.02		$	0.48		$	1.09		$	1.17

Dividends per Common Share	$	0.1125		$	0.1025		$	0.3175		$	0.3075


Average Common Shares Outstanding - Basic (thousands) (Note 10)		63,584			63,193			63,367			62,889


Average Common Shares Outstanding - Diluted (thousands) (Note 10)		64,211			63,987			64,139			63,516

See Notes to Condensed Consolidated Financial Statements

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Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

(Dollars in millions)

	June 30, 2011			September 30, 2010
ASSETS
Current Assets
Cash and cash equivalents	$	282.5		$	184.5
Trade accounts receivable, net of allowances (Note 2)		341.4			353.1
Inventories (Note 2)		109.1			108.5
Deferred income taxes (Notes 1 and 9)		39.8			40.4
Other current assets		52.5			52.7
Total current assets		825.3			739.2

Property, plant and equipment, net (Note 2)		230.3			243.7
Investments and investment securities (Notes 1 and 6)		11.3			12.1
Goodwill		81.1			81.1
Software and other intangible assets, net (Note 2)		125.7			136.6
Other assets		28.1			32.9
Total Assets	$	1,301.8		$	1,245.6

LIABILITIES
Current Liabilities
Trade accounts payable	$	60.6		$	80.6
Short-term borrowings (Note 4)		102.8			53.1
Accrued compensation		81.4			88.9
Accrued product warranties (Note 12)		16.3			15.8
Litigation accrual (Note 14)		42.3			-
Other current liabilities		47.6			50.3
Total current liabilities		351.0			288.7

Long-term debt (Note 4)		49.9			98.5
Accrued pension and postretirement benefits (Note 5)		60.7			59.0
Deferred income taxes (Notes 1 and 9)		31.2			31.3
Other long-term liabilities		55.7			52.3
Total Liabilities		548.5			529.8

Noncontrolling interest (Note 3)		-			8.3

Commitments and Contingencies (Note 14)

SHAREHOLDERS' EQUITY
Common Stock		4.4			4.4
Additional paid-in-capital		111.2			119.3
Retained earnings		1,253.3			1,203.6
Accumulated other comprehensive loss (Note 7)		(51.2	)		(61.8	)
Treasury stock, at cost (Notes 2 and 11)		(564.4	)		(558.0	)
Total Shareholders' Equity		753.3			707.5
Total Liabilities, Non-Controlling Interest and Shareholders' Equity	$	1,301.8		$	1,245.6

See Notes to Condensed Consolidated Financial Statements.

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Hill-Rom Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Dollars in millions)

	Year To Date Period Ended June 30

	2011			2010
Operating Activities
Net income	$	70.0		$	75.2
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		78.1			73.7
Provision for deferred income taxes		1.8			(12.7	)
Loss on disposal of property, equipment leased to others,
intangible assets and impairments		1.7			2.0
Stock compensation		9.2			9.0
Tax settlement		-			(8.2	)
Litigation charge		42.3			-
Excess tax benefits from employee stock plans		(6.8	)		-
Change in working capital excluding cash, current investments,
current debt, acquisitions and dispositions:
Trade accounts receivable		12.6			19.2
Inventories		(0.6	)		(14.4	)
Other current assets		5.8			(12.4	)
Trade accounts payable		(20.0	)		(11.4	)
Accrued expenses and other liabilities		(10.6	)		0.6
Other, net		5.7			(9.4	)
Net cash provided by operating activities		189.2			111.2

Investing Activities
Capital expenditures and purchase of intangibles		(52.0	)		(43.9	)
Proceeds on sales of property and equipment leased to others		5.2			1.6
Acquisitions of businesses, net of cash acquired		-			(7.1	)
Proceeds on investment sales/maturities		0.4			19.2
Net cash used in investing activities		(46.4	)		(30.2	)

Financing Activities
Change in short-term debt		1.8			(1.4	)
Payment on revolver		-			(45.0	)
Purchase of noncontrolling interest		(11.5	)		-
Payment of cash dividends		(20.0	)		(19.4	)
Proceeds on exercise of options		42.0			15.1
Proceeds from stock issuance		2.1			1.9
Excess tax benefits from employee stock plans		6.8			-
Treasury stock acquired		(70.0	)		(2.3	)
Net cash used in financing activities		(48.8	)		(51.1	)

Effect of exchange rate changes on cash		4.0			(4.4	)

Total Cash Flows		98.0			25.5

Cash and Cash Equivalents:
At beginning of period		184.5			170.6
At end of period	$	282.5		$	196.1

See Notes to Condensed Consolidated Financial Statements

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Hill-Rom Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

(Dollars in millions except per share data)

1. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

Unless the context otherwise requires, the terms “Hill-Rom,” “we,” “our” and “us” refer to Hill-Rom Holdings, Inc. and our wholly-owned subsidiaries. The unaudited Condensed Consolidated Financial Statements appearing in this Quarterly Report on Form 10-Q should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in our latest Annual Report on Form 10-K for the fiscal year ended September 30, 2010 (“2010 Form 10-K”) as filed with the United States (“U.S.”) Securities and Exchange Commission. The September 30, 2010 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 subsidiaries. All subsidiaries are wholly-owned as of June 30, 2011. During the first quarter of our fiscal 2011 we acquired the remaining 40 percent noncontrolling interest in a former joint venture (Note 3). Intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported in these Condensed Consolidated Financial Statements including the accompanying notes. Actual results could differ from those estimates. Examples of such estimates include our accounts receivable reserves (Note 2), investments (Note 6), income taxes (Note 9), accrued warranties (Note 12) and accrued litigation and self insurance reserves (Note 14), among others.

Investment Securities

At June 30, 2011, investment securities consisted primarily of AAA rated student loan auction rate securities (“ARS”). These securities are generally insured through the U.S. government’s Federal Family Education Loan Program, to the extent the borrowers meet certain prescribed criteria in their underlying lending practices. These securities are classified as available-for-sale and changes in their fair value are recorded in Accumulated Other Comprehensive Loss (“AOCL”).

We regularly evaluate all investments classified as available-for-sale for possible impairment based on current economic conditions, credit loss experience and other criteria. The evaluation of investments for impairment requires significant judgments to be made including (i) the identification of potentially impaired securities; (ii) the determination of their estimated fair value; (iii) the assessment of whether any decline in estimated fair value is other-than-temporary; and (iv) the likelihood of selling before recovery. If there is a decline in a security’s net realizable value that is other-than-temporary and we are not likely to sell before recovery, the decline is separated into the amount of impairment related to credit loss and the amount of impairment related to all other factors. The decline related to the credit loss is recognized in earnings, while the decline related to all other factors is recognized in AOCL.

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 revenues and costs) basis.

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Income Taxes

We and our eligible domestic subsidiaries file a consolidated U.S. income tax return. Foreign operations file income tax returns in a number of jurisdictions. Deferred income taxes are computed using an asset and liability approach to reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. We have a variety of deferred tax assets in numerous tax jurisdictions. These deferred tax assets are subject to periodic assessment as to recoverability and 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.

We believe that our estimates for the valuation allowances recorded against deferred tax assets are appropriate based on current facts and circumstances. Entering the fiscal year we had $28.5 million of valuation allowances on deferred tax assets, on a tax-effected basis, primarily related to foreign operating loss carryforwards and other tax attributes. It is possible that sustainable improvements in foreign earnings could result in a reconsideration of the need for these valuation allowances, resulting in the accelerated recognition of all or some portion of the previously unrecognized tax benefits.

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

Recently Issued Accounting Standards

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 2010 Form 10-K except as noted below:

On October 1, 2010, we adopted the Financial Accounting Standard Board’s (“FASB”) revised authoritative guidance requiring entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk with respect to the assets. Our adoption of this guidance was prospective and did not have a material impact on our Condensed Consolidated Financial Statements.

On October 1, 2010, we adopted the FASB’s revised authoritative guidance to improve financial reporting for companies involved with variable interest entities to provide more relevant and reliable information to users of financial statements. Our adoption of this guidance was prospective and did not have a material impact on our Condensed Consolidated Financial Statements.

In May 2011, the FASB issued an amendment to the authoritative guidance on fair value measurements. The amendment requires companies to include expanded disclosures for their recurring Level 3 fair value measurements. In addition, companies must report the level in the fair value hierarchy of assets and liabilities not recorded at fair value but where fair value is disclosed. The amendment will be applied prospectively and will be effective for our quarter ending March 31, 2012, with early adoption prohibited. Our adoption of this amendment is not expected to have a material effect, but may require additional disclosure on our available-for-sale marketable securities, which are classified and disclosed as Level 3 fair value measurements.

In June 2011, the FASB issued an amendment to the authoritative guidance on comprehensive income. The amendment eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity or include the components in the Notes to the Condensed Consolidated Financial Statements and instead requires the presentation of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The amendment will be effective for our quarter ending December 31, 2012. The adoption of this amendment is not expected to have a material effect on our Condensed Consolidated Financial Statements, but will require a change in the presentation of comprehensive income from the notes of our Condensed Consolidated Financial Statements, where it is currently disclosed, to the face of our Condensed Consolidated Financial Statements.

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2. Supplementary Balance Sheet Information

	June 30, 2011		September 30, 2010

Allowance for possible losses and discounts on trade receivables	$	27.3	$	29.0

Inventories:
Finished products	$	63.1	$	64.2
Raw materials and work in process		46.0		44.3
Total inventory	$	109.1	$	108.5

Accumulated depreciation of property, plant and equipment	$	599.4	$	561.3

Accumulated amortization of software and other intangible assets	$	157.2	$	137.8

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		63,122,931		62,786,883

Treasury shares		17,200,981		17,537,029

3. Acquisitions

On November 9, 2009, we entered into a joint venture with Encompass Group, LLC (“Encompass Group”), to form Encompass TSS, LLC (“Encompass”), of which we ultimately owned 60 percent. For our 60 percent ownership interest we paid $7.5 million to Encompass Group, contributed cash and entered into license and distribution agreements with Encompass. On November 30, 2010, we purchased the remaining 40 percent of Encompass for $10.6 million, plus a variable earn-out with a minimum of $1.2 million and a maximum of $1.6 million per year over five years. We have a total of $5.5 million accrued in other current liabilities and other long-term liabilities on our Condensed Consolidated Balance Sheet at June 30, 2011 related to the earn-out.

If the Encompass joint venture had been consummated at the beginning of our 2010 fiscal year or wholly-owned, the impact to revenues and net income on an unaudited pro forma basis would not have been material to our financial results in any of the periods presented.

4. Financing Agreements

Total debt consists of the following:

	June 30, 2011		September 30, 2010

Outstanding finance credit lines	$	10.1	$	8.1
Revolving credit facility		45.0		45.0
Unsecured 8.50% debentures due on December 1, 2011		47.7		48.4
Unsecured 7.00% debentures due on February 15, 2024		19.7		19.7
Unsecured 6.75% debentures due on December 15, 2027		29.8		29.8
Other		0.4		0.6
Total debt		152.7		151.6
Less current portion of debt		102.8		53.1
Total long-term debt	$	49.9	$	98.5

We have trade finance credit lines and uncommitted letter of credit facilities. These lines are associated with the normal course of business and are not currently, nor have they historically, been of material size to the overall business.

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Unsecured debentures outstanding at June 30, 2011 have fixed rates of interest. We have deferred gains included in the preceding table from the termination of previous interest rate swap agreements, and those deferred gains amounted to $1.3 million at June 30, 2011 and $2.1 million at September 30, 2010. The deferred gains are being amortized and recognized as a reduction of interest expense over the remaining term of the related debt through 2011 and 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 a $500.0 million senior revolving credit facility, which expires on March 28, 2013 (subject to extension upon satisfaction of certain conditions set forth in the credit facility). Borrowings under the credit facility bear interest at variable rates, and the availability of borrowings is subject to our ability at the time of borrowing to meet certain specified conditions, including compliance with covenants contained in the credit agreement governing the facility. The credit agreement contains covenants that, among other matters, require us to maintain a ratio of consolidated indebtedness to consolidated EBITDA (each as defined in the credit agreement) of not more than 3.5:1.0 and a ratio of consolidated EBITDA to interest expense of not less than 3.5:1.0. The proceeds of the five-year facility shall be used, as needed: (i) for working capital, capital expenditures, and other lawful corporate purposes; and (ii) to finance acquisitions.

As of June 30, 2011, we had outstanding borrowings of $45.0 million and undrawn letters of credit of $5.8 million under the five-year facility, leaving $449.2 million of borrowing capacity available under the facility.

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 debt instruments were $51.2 and $95.7 million at June 30, 2011 and September 30, 2010.

5. Retirement and Postretirement Plans

We sponsor four defined benefit plans: a master defined benefit retirement plan, a nonqualified supplemental executive defined benefit retirement plan and two 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. All of our plans have a September 30th measurement date. The following table includes the components of net pension expense for our defined benefit plans.

	Quarterly Period Ended June 30						Year To Date Period Ended June 30

	2011			2010			2011			2010
Service cost	$	1.3		$	1.3		$	3.9		$	3.8
Interest cost		3.3			3.3			9.9			9.9
Expected return on plan assets		(4.1	)		(3.2	)		(12.5	)		(9.8	)
Amortization of unrecognized prior service cost, net		0.1			0.1			0.4			0.4
Amortization of net loss		1.0			0.7			3.0			2.0
Net pension expense	$	1.6		$	2.2		$	4.7		$	6.3

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.

6. 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.

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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 are developed based on the best information available in the circumstances, which might include our own data.

The following table summarizes our financial assets measured at fair value on a recurring basis included in our Condensed Consolidated Balance Sheet, as of June 30, 2011:

			Fair Value Measurements
			Quoted Prices in		Significant Other		Significant
			Active Markets for		Observable		Unobservable
			Identical Assets		Inputs		Inputs
	Total		(Level 1)		(Level 2)		(Level 3)
Assets:
Cash and cash equivalents	$	282.5	$	282.5	$	-	$	-
Available-for-sale marketable securities		11.3		-		-		11.3
Total assets at fair value	$	293.8	$	282.5	$	-	$	11.3

At June 30, 2011, we had $11.3 million of AAA rated student loan ARS. While we continue to earn interest on the ARS at the contractual rate, these investments are not currently being bought and sold in an active market and therefore do not have readily determinable market values. At June 30, 2011, our investment advisors provided a valuation based on unobservable inputs for the ARS. The investment advisors utilized a discounted cash flow approach (an “income approach”) to arrive at this valuation, which was corroborated by separate and comparable discounted cash flow analysis prepared by us. The assumptions used in preparing the discounted cash flow model include estimates of interest rates, timing and amount of cash flows, credit spread related yield and illiquidity premiums and expected holding periods of the ARS. These assumptions are volatile and subject to change as the underlying sources of these assumptions and market conditions change. Activity related to our ARS was not significant during the first nine months of fiscal 2011.

7. Comprehensive Income

The net-of-tax effect of unrealized gains or losses on: our available-for-sale securities, foreign currency translation adjustments, pension (or other defined benefit postretirement plans) actuarial gains or losses, prior service costs or credits are required to be included in comprehensive income.

The composition of comprehensive income is as follows:

	Quarterly Period Ended June 30					Year To Date Period Ended June 30

	2011		2010			2011			2010

Net income	$	1.5	$	30.8		$	70.0		$	75.2

Net gain (loss) on available-for-sale securities and other investments		-		-			(0.1	)		0.3

Foreign currency translation adjustment, net-of-tax		1.6		(9.0	)		11.0			(13.2	)

Items not yet recognized as a component of net periodic pension
or postretirement benefit cost, net-of-tax		-		-			(0.3	)		(0.1	)

Total comprehensive income		3.1		21.8			80.6			62.2

Comprehensive income attributable to the noncontrolling interest		-		(0.2	)		(0.2	)		(0.6	)

Total comprehensive income attributable to common shareholders	$	3.1	$	21.6		$	80.4		$	61.6

8. Special Charges

Over the past several years, we have placed a focus on improving our cost structure and business processes through various means including consolidation of certain manufacturing and select back office operations, customer rationalizations and various other organizational changes. Activity related to these actions during fiscal 2011 was as follows:

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	Beginning Balance								Ending Balance
	September 30, 2010		Expenses		Cash Payments		Reversals		June 30, 2011
Fiscal Year 2010 Actions
Q2 - Restructuring	$	1.5	$	-	$	1.0	$	-	$	0.5
Q4 - Restructuring		3.7		3.3		1.6		2.6		2.8
Total	$	5.2	$	3.3	$	2.6	$	2.6	$	3.3

During the second quarter of fiscal 2011, we recorded an additional special charge of $2.6 million related to our fiscal 2010 fourth quarter action. The majority of the charge related to additional severance and other benefits provided to affected employees of that action as well as a write-down of assets held for sale. During the third quarter of fiscal 2011, we recorded a benefit of $1.2 million primarily related to the net reversal of severance recorded in relation to our fourth quarter of fiscal 2010 restructuring action, partially offset by an additional write-down of assets held for sale. The above table excludes the write-down of our assets.

9. Income Taxes

The effective tax rate for the three- and nine-month periods ended June 30, 2011 was 58.3 and 29.4 percent compared to 33.5 and 30.8 percent for the comparable periods in the prior year.

The effective tax rate in the current quarter was higher than the prior year due to the effect of period tax items, including the tax benefit associated with the litigation charge, measured against a lower income base. In looking at the full year tax rate, the lower effective tax rate in fiscal 2011 reflects the benefits from increased earnings in lower-rate jurisdictions, including improved European income, some of which was not subject to tax as a result of the utilization of previously unrecognized operating loss carryforwards. We currently carry full valuation allowances on these loss carryforwards, thus the recognition of income and the release of valuation allowance results in no tax expense on these earnings. Should earnings continue and our outlook remain positive in these jurisdictions, we will be required to reassess the need and amount of our recorded valuation allowances which could result in the release of previously unrecognized tax benefits.

Absent the impact of the litigation charge, the full year 2011 effective tax rate benefited from the recognition of period tax benefits of $2.1 million relating principally to the retroactive reinstatement of the research and development tax credit. The comparable prior year period included favorable period tax benefits of $6.6 million relating primarily to the recognition of previously unrecognized tax benefits of $6.5 million associated with the resolution of an income tax matter with the IRS.

During the current quarter, the IRS completed its audit of the income tax return filed for fiscal 2009. In conjunction with the resolution of certain income tax matters with the IRS in the quarter and other activities, the total amount of gross unrecognized tax benefits has decreased from September 30, 2010. As of June 30, 2011 the total amount of gross unrecognized tax benefits was $21.6 million, which includes $12.7 million that, if recognized, would impact the effective tax rate in future periods. The remaining amount relates to items which, if recognized would not impact our effective tax rate.

It is reasonably possible that the Company will resolve other on-going audit issues with the IRS, state, local or foreign jurisdictions in the next twelve months. The resolution of these matters, in combination with the expiration of certain statutes of limitation in other jurisdictions, make it reasonably possible that our unrecognized tax benefits may decrease as a result of either payment or recognition by approximately $10 to $14 million in the next twelve months, excluding interest.

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10. Earnings per Common Share

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

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

	Quarterly Period Ended June 30				Year To Date Period Ended June 30

	2011		2010		2011		2010

Net income attributable to common shareholders	$	1.5	$	30.6	$	69.8	$	74.6

Average shares outstanding - Basic		63,584		63,193		63,367		62,889
Add potential effect of exercise of stock options
and other unvested equity awards		627		794		772		627
Average shares outstanding - Diluted		64,211		63,987		64,139		63,516

Net income attributable to common shareholders per common share - Basic	$	0.02	$	0.48	$	1.10	$	1.19

Net income attributable to common shareholders per common share - Diluted	$	0.02	$	0.48	$	1.09	$	1.17

Shares with anti-dilutive effect excluded from the computation of Diluted EPS		654		2,582		584		4,030

11. Common Stock

Share Repurchases

We repurchased 0.6 and 1.5 million shares of our common stock during the three- and nine-month periods ended June 30, 2011 for $27.3 and $64.7 million. In May 2011, our Board of Directors approved an expansion of our share repurchase authorization by 3.0 million shares. Share repurchases may be made through the open market or private transactions and as of June 30, 2011, a cumulative total of 25.2 million shares had been repurchased by us at market trading prices, leaving 3.5 million shares remaining for purchase under the Board’s authorization. The Board’s approval has no expiration date and currently there are no plans to terminate this program in the future.

Stock Based Compensation

The stock based compensation cost that was charged against income, net of tax, for all plans was $1.6 and $5.9 million for the three- and nine-month periods ended June 30, 2011, and $1.1 and $5.7 million for the comparable periods of fiscal 2010.

12. Guarantees

We routinely grant limited warranties on our products with respect to defects in material and workmanship. The terms of these warranties are generally one year, however, certain components and products have substantially longer warranty periods. We recognize a reserve with respect to these obligations at the time of product sale, with subsequent warranty claims recorded directly against the reserve. The amount of the warranty reserve is determined based on historical trend experience for the covered products. For more significant warranty-related matters which might require a broad-based correction, separate reserves are established when such events are identified and the cost of correction can be reasonably estimated.

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

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	Quarterly Period Ended June 30						Year To Date Period Ended June 30

	2011			2010			2011			2010

Balance at beginning of period	$	16.5		$	15.2		$	15.8		$	17.1
Provision for warranties during the period		3.8			3.3			12.0			10.5
Warranty claims during the period		(4.0	)		(3.6	)		(11.5	)		(12.7	)
Balance at end of period	$	16.3		$	14.9		$	16.3		$	14.9

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 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. The arrangements generally indemnify the buyer or seller for damages associated with breach of contract, inaccuracies in representations and warranties surviving the closing date and satisfaction of liabilities and commitments retained under the applicable contract. 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. During the first quarter of fiscal 2011, we changed our segment reporting to reflect changes in our organizational structure and management’s view of the business. We moved our surgical reporting unit from the International and Surgical segment (now referred to as the International segment) to the North America Acute Care segment. In addition, manufacturing and research and development costs were fully allocated to our three segments. We have also assigned additional direct functional costs to the segments as well as an allocation of certain corporate functional expenses that can be attributed to the segments. The prior year segment information included in this Note has been updated to reflect these changes. Our new operating structure contains the following reporting segments:

North America Acute Care - sells and rents our hospital patient support and near-patient technologies, as well as our health information technology solutions and surgical accessories, to acute care facilities .

North America Post-Acute Care - sells and rents a variety of products outside of the hospital setting including long-term acute care, extended care and home care and our respiratory care products in all settings .

International - sells and rents similar products as our North America businesses to Europe and the rest of the world.

Our performance under the new operating structure continues to be measured on a divisional income basis before litigation and special charges. Divisional income generally represents the division’s standard gross profit less its direct operating costs along with an allocation of manufacturing and distribution costs, research and development and corporate functional expenses.

Corporate expenses, while not considered a segment, are presented separately to aid in the reconciliation of segment information to consolidated financial information. These costs include corporate costs that support the entire organization such as administration, finance, legal and human resources.

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	Quarterly Period Ended June 30						Year To Date Period Ended June 30

	2011			2010			2011			2010
Revenues:
North America Acute Care	$	239.1		$	214.9		$	708.5		$	638.2
North America Post-Acute Care		51.6			49.9			156.1			153.6
International		94.1			95.8			296.5			281.2
Total revenues	$	384.8		$	360.6		$	1,161.1		$	1,073.0

Divisional income:
North America Acute Care	$	50.0		$	44.1		$	157.3		$	120.5
North America Post-Acute Care		9.6			9.9			31.9			33.7
International		5.1			9.3			19.8			13.3
Corporate expenses		(19.0	)		(15.6	)		(61.7	)		(48.9	)
Total divisional income		45.7			47.7			147.3			118.6

Litigation charge		42.3			-			42.3			-
Special charges		(1.2	)		-			1.4			5.0
Operating profit		4.6			47.7			103.6			113.6

Interest expense		(2.1	)		(2.1	)		(6.3	)		(6.4	)
Investment income and other, net		1.1			0.7			1.8			1.5
Income before income taxes	$	3.6		$	46.3		$	99.1		$	108.7

14. Commitments and Contingencies

Batesville Casket Antitrust Litigation

In 2005 the Funeral Consumers Alliance, Inc. and a number of individual consumer casket purchasers filed a purported class action antitrust lawsuit on behalf of certain consumer purchasers of Batesville® caskets against us and our former Batesville Casket Company, Inc. subsidiary (now wholly-owned by Hillenbrand, Inc.), and three national funeral home businesses.

The district court has dismissed the claims and denied class certification, but in October 2010, the plaintiffs appealed these decisions to the United States Court of Appeals for the Fifth Circuit. If the plaintiffs were to succeed in reversing the district court’s dismissal of the claims, but not the denial of class certification, then the plaintiffs would be able to pursue individual damages claims: the alleged overcharges on the plaintiffs’ individual casket purchases, which would be trebled as a matter of law, plus reasonable attorneys fees and costs.

If the plaintiffs were to (1) succeed in reversing the district court’s dismissal of the claims, (2) succeed in reversing the district court order denying class certification and certify a class, and (3) prevail at trial, then the damages awarded to the plaintiffs, which would be trebled as a matter of law, could have a significant material adverse effect on our results of operations, financial condition and/or liquidity. The plaintiffs filed a report indicating that they are seeking damages ranging from approximately $947.0 million to approximately $1.46 billion before trebling on behalf of the purported class of consumers they seek to represent.

We and Hillenbrand, Inc. have entered into a judgment sharing agreement that apportions the costs and any potential liabilities associated with this litigation between us and Hillenbrand, Inc. We believe that we have committed no wrongdoing as alleged by the plaintiffs and that we have meritorious defenses to class certification and to plaintiffs’ underlying allegations and damage theories.

Office of Inspector General Investigation

On February 8, 2008, we were served with an Administrative Investigative Demand subpoena by the United States Attorney’s Office for the Eastern District of Tennessee pursuant to a Health and Human Services’ Office of Inspector General investigation. On September 18, 2008, we were informed that the investigation was precipitated by the 2005 filing of a qui tam complaint under the False Claims Act in the United States District Court for the Eastern District of Tennessee. Although the complaint has been only partially unsealed at this point and we have not been formally served, we know that the plaintiffs seek recovery of significant damages and civil penalties relating to the alleged submission of false and fraudulent claims to Medicare and/or Medicaid for the provision of durable medical equipment.

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We recently entered into mediation regarding these allegations and have reached agreement with respect to a tentative financial settlement in the amount of $42 million. This settlement remains contingent on our reaching an acceptable Corporate Integrity Agreement with the HHS Office of Inspector General. We can provide no assurances as to when, if ever, we would be able to successfully finalize a settlement. However, in conjunction with reaching agreement on the financial terms with respect to this matter, we have recognized a charge in the quarter of $42.3 million, including $0.3 million of estimated legal fees to finalize the terms of the arrangement. In the event that we are unable to finalize a settlement, the matter may proceed to litigation. In that event, if it were found that we had failed to comply with applicable laws and regulations, we could be subject to substantial fines or penalties and possible exclusion from participation in federal health care programs.

Freedom Medical Antitrust Litigation

On October 19, 2009, Freedom Medical, Inc. filed a complaint against us, another manufacturer and two group purchasing organizations in the United States District Court for the Eastern District of Texas. The plaintiff alleges that we and the other defendants conspired to exclude it from the biomedical equipment rental market and to maintain our market share by engaging in a variety of conduct in violation of state and federal antitrust laws. The plaintiff also has asserted claims for business disparagement, common law conspiracy and tortuous interference with business relationships. The plaintiff seeks injunctive relief and money damages in an unspecified amount. The parties have agreed to mediate this matter, but no date for such mediation has been set. At this time, we cannot assess the likelihood of an adverse outcome or determine an estimate, or a range of estimates, of potential damages, nor can we give any assurances that this matter will not have a material adverse impact on our financial condition, results of operations or cash flows.

Stryker Litigation

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. One suit was filed in the Southern District of Indiana and the other was filed in the Western District of Wisconsin. Both suits seek monetary damages and injunctions against Stryker for selling or distributing any beds, stretchers or ancillary products that infringe Hill-Rom’s patents. Stryker is seeking to transfer the Wisconsin litigation to the Southern District of Indiana, and has also responded with counterclaims seeking declaratory judgment for noninfringement and invalidity for the patents at issue. A trial date of October 1, 2012 has been set. In the Indiana litigation, Stryker has counterclaimed for non-infringement and invalidity for several of the patents at issue, and has filed counterclaims alleging infringement of three of their patents. A trial date for this lawsuit has not yet been set. Because the litigation is in a preliminary stage, we cannot assess the likelihood of a positive or negative outcome or determine an estimate, or a range of estimates, of potential damages, nor can we give any assurances that this matter will not have a material adverse impact on our financial condition, results of operations or cash flows.

General

We are subject to various other 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, product guarantees and warranties as well as 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 involved in possible claims and are generally self-insured up to certain limits for product/general liability, workers’ compensation, auto liability and professional liability insurance programs. These policies have deductibles and self-insured retentions ranging from $150 thousand to $1.5 million per occurrence, depending upon the type of coverage and policy period. 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.

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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 our future plans, objectives, beliefs, expectations, representations and projections. We have tried, whenever possible, to identify these forward-looking statements by using words such as “intend,” “anticipate,” “believe,” “plan,” “encourage,” “expect,” “may,” “goal,” “become,” “pursue,” “estimate,” “strategy,” “will,” “projection,” “forecast,” “continue,” “accelerate,” “promise,” “increase,” “higher,” “lower,” “reduce,” “improve,” “expand,” “progress,” “potential” or the negative of those terms or other variations of them or by comparable terminology. The absence of such terms, however, does not mean that the statement is not forward-looking.

Forward-looking statements are not guarantees of future performance, and our actual results could differ materially from those set forth in any forward-looking statements. Factors that could cause actual results to differ from forward-looking statements include but are not limited to the factors discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010 (“2010 Form 10-K”) as well as the discussions in this “Management’s Discussion and Analysis”. We assume 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 “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” included in our 2010 Form 10-K.

Hill-Rom Holdings, Inc. (“we,” “us,” or “our”) is a leading worldwide manufacturer and provider of medical technologies and related services for the health care industry, including patient support systems, safe mobility and handling solutions, non-invasive therapeutic products for a variety of acute and chronic medical conditions, medical equipment rentals and information technology solutions. Our comprehensive product and service offerings are used by health care providers across the health care continuum in hospitals, extended care facilities and home care settings worldwide, to enhance the safety and quality of patient care.

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

We believe use of these non-GAAP measures contribute to an understanding of our financial performance and provide an additional analytical tool to understand our results from core operations and to reveal underlying trends. 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.

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Net Revenues

	Quarterly Period Ended June 30				Percentage Change
								Constant
(Dollars in millions)	2011		2010		As Reported			Currency
Revenues:
Capital sales	$	267.2	$	246.2		8.5			5.2
Rental revenues		117.6		114.4		2.8			1.2
Total Revenues	$	384.8	$	360.6		6.7			3.9


	Year To Date Period Ended June 30				Percentage Change
								Constant
(Dollars in millions)		2011		2010	As Reported			Currency
Revenues:
Capital sales	$	802.7	$	714.0		12.4			11.2
Rental revenues		358.4		359.0		(0.2	)		(0.5	)
Total Revenues	$	1,161.1	$	1,073.0		8.2			7.3

Capital sales increased for both the three- and nine-month periods ended June 30, 2011 primarily as a result of North America Acute Care sales volume growth in nearly all product categories, led by patient support systems (increased 20.8 and 27.4 percent), and favorable product mix for the first half of the year. This favorability was partially offset by declines in volume in Europe, the Middle East, Asia and Australia, most notably in the third quarter. Latin America has shown volume growth in both the three- and nine-month periods and foreign exchange rates also benefited the capital sales comparison in both periods, primarily in the third quarter.

Rental revenues were favorably impacted during both periods due to strong respiratory care revenues as well as the effect of favorable foreign exchange rates. For the first nine months this strength was offset by first quarter volume declines in our rental business due to a weaker flu season compared to fiscal 2010.

Gross Profit

	Quarterly Period Ended June 30				Year To Date Period Ended June 30

(Dollars in millions)	2011		2010		2011		2010
Gross Profit
Capital	$	121.8	$	113.7	$	366.7	$	316.6
Percent of Related Revenues		45.6%		46.2 %		45.7%		44.3%

Rental		65.8		64.3		204.0		204.0
Percent of Related Revenues		56.0%		56.2 %		56.9%		56.8%

Total Gross Profit	$	187.6	$	178.0	$	570.7	$	520.6
Percent of Related Revenues		48.8%		49.4 %		49.2%		48.5%

Total gross profit increased 5.4 and 9.6 percent and gross margin (as a percentage of revenues) decreased by 60 basis points for the three-month period ended June 30, 2011 and increased 70 basis points for the nine-month period.

Capital gross profit increased 7.1 and 15.8 percent due to higher volumes for both the three- and nine-month periods. Gross margin decreased 60 basis points for the three-month period despite higher volumes and favorable geographic mix, as these favorable trends were offset by unfavorable product mix and the effects of higher commodity and fuel costs. Gross margin increased over the first nine-month period by 140 basis points primarily due to improved geographic and product mix, as well as favorable material costs.

Rental gross profit increased by 2.3 percent for the three-month period on higher volume and was flat for the nine-month period. Gross margins were relatively consistent for both periods. Fiscal 2011 included a gain of $0.6 and $1.4 million for the three- and nine-month periods recognized in connection with a vendor’s product recall. Absent such gains, the gross margins would have been down slightly in both periods due to reduced leverage of field service costs.

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Other

	Quarterly Period Ended June 30						Year To Date Period Ended June 30

(Dollars in millions)	2011			2010			2011			2010

Research and development expenses	$	17.3		$	14.1		$	48.3		$	43.4
Percent of Total Revenues		4.5%			3.9%			4.2%			4.0%

Selling and administrative expenses	$	124.6		$	116.2		$	375.1		$	358.6
Percent of Total Revenues		32.4%			32.2%			32.3%			33.4%

Litigation charge	$	42.3		$	-		$	42.3		$	-
Special charges	$	(1.2	)	$	-		$	1.4		$	5.0

Interest expense	$	(2.1	)	$	(2.1	)	$	(6.3	)	$	(6.4	)
Investment income	$	0.5		$	0.6		$	1.5		$	1.7
Other	$	0.6		$	0.1		$	0.3		$	(0.2	)

Research and development expenses increased 22.7 and 11.3 percent for the three- and nine-month periods ended June 30, 2011 due to increased investment in the development of new products. Selling and administrative expenses grew during both periods, staying relatively consistent as a percentage of sales for the three-month period and improving 110 basis points for the nine-month period. The increase in expense for both periods was the result of increases in legal costs for litigation and patent related matters, costs associated with the upgrade of our information technology platform, increases in sales and marketing expenses as well as the unfavorable impact of foreign exchange rates. The increase for the three-month period was partially offset by lower variable compensation costs. Selling and administrative expenses for the nine-month period also included approximately $3 million of costs related to community donations and severance that we do not expect to repeat.

During the third quarter of fiscal 2011, we recorded a litigation charge of $42.3 million in conjunction with reaching a tentative agreement on financial terms to settle a United States Office of Inspector General’s (“OIG”) investigation.

During the third quarter of fiscal 2011, we recorded a benefit of $1.2 million primarily related to the net reversal of severance recorded in relation to our fourth quarter of fiscal 2010 restructuring actions. The net charge of $1.4 million for the nine-month period relates mainly to write-downs associated with our assets held for sale during both our second and third quarters . The first nine months of fiscal 2010 included a charge of $5.0 million related to organizational changes that included the elimination of approximately 160 employee positions.

GAAP and Adjusted Earnings

	Quarterly Period Ended June 30, 2011									Quarterly Period Ended June 30, 2010

(Dollars in millions except per share data)	Income Before Income Taxes			Income Tax Expense			Diluted EPS			Income Before Income Taxes and NCI		Income Tax Expense		Diluted EPS

GAAP Earnings	$	3.6		$	2.1		$	0.02		$	46.3	$	15.5	$	0.48
Adjustments:
Litigation charge		42.3			12.3			0.47			-		-		-
Vendor product recall		(0.6	)		(0.2	)		(0.01	)		-		-		-
Special charges		(1.2	)		(0.3	)		(0.01	)		-		-		-
Gain on sale of non-strategic assets		-			-			-			-		1.7		(0.03	)
Adjusted Earnings	$	44.1		$	13.9		$	0.47		$	46.3	$	17.2	$	0.45

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	Year To Date Period Ended June 30, 2011									Year To Date Period Ended June 30, 2010

	Income Before Income Taxes and NCI			Income Tax Expense			Diluted EPS *			Income Before Income Taxes and NCI		Income Tax Expense		Diluted EPS*

GAAP Earnings	$	99.1		$	29.1		$	1.09		$	108.7	$	33.5	$	1.17
Adjustments:
Litigation charge		42.3			12.3			0.47			-		-		-
Vendor product recall		(1.4	)		(0.5	)		(0.01	)		-		-		-
Special charges		1.4			0.7			0.01			5.0		1.7		0.05
Gain on sale of non-strategic assets		-			-			-			-		1.7		(0.03	)
Tax settlement		-			-			-			-		6.5		(0.10	)
Adjusted Earnings	$	141.4		$	41.6		$	1.55		$	113.7	$	43.4	$	1.10

* May not add due to rounding.

The effective tax rate for the three- and nine-month periods ended June 30, 2011 was 58.3 and 29.4 percent compared to 33.5 and 30.8 percent for the comparable periods in the prior year.

The adjusted effective rate for the three- and nine-month periods ended June 30, 2011 was 31.5 and 29.4 percent compared to 37.1 and 38.2 percent for the comparable periods in the prior year. The lower adjusted effective rate for both periods in fiscal 2011 reflects the benefits from increased earnings in lower-rate jurisdictions, including improved European income, some of which was not subject to tax as a result of the utilization of previously unrecognized operating loss carryforwards. We currently carry full valuation allowances on these loss carryforwards, thus the recognition of income and the release of valuation allowance results in no tax expense on the earnings. Should earnings continue and our outlook remain positive in these jurisdictions, we will be required to reassess the need and amount of our recorded valuation allowances which could result in the release of previously unrecognized tax benefits.

The adjusted effective tax rate for the nine months ended June 30, 2011 also benefited from the recognition of period tax benefits of $2.1 million principally relating to the impact of the retroactive reinstatement of the research and development tax credit back to January 1, 2010.

The comparable prior year period included favorable period tax benefits of $6.6 million relating primarily to the recognition of previously unrecognized tax benefits of $6.5 million associated with the resolution of an income tax matter with the IRS. This amount was excluded from the adjusted effective tax rate for fiscal 2010.

Net income attributable to common shareholders was $1.5 million for the third quarter and $69.8 million for the first nine months ended June 30, 2011. On an adjusted basis, net income attributable to common shareholders increased $1.3 and $29.9 million, representing increases of 4.5 and 42.9 percent for the three- and nine-month periods. Diluted earnings per share decreased 95.8 percent for the third quarter, however increased 4.4 percent on an adjusted basis. For the first nine months, diluted earnings per share fell 6.8 percent, however increased 40.9 percent on an as adjusted basis.

Business Segment Results of Operations

During the first quarter of fiscal 2011, we changed our segment reporting to reflect changes in our organizational structure and management’s view of the business. We moved our surgical reporting unit from the International and Surgical segment (now referred to as the International segment) to the North America Acute Care segment. In addition, manufacturing and research and development costs were fully allocated to our three segments. We have also assigned additional direct functional costs to the segments as well as an allocation of certain corporate functional expenses that can be attributed to the segments. The prior year segment information below has been updated to reflect these changes.

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	Quarterly Period Ended June 30						Percentage Change
										Constant
(Dollars in millions)	2011			2010			As Reported			Currency
Revenues:
North America Acute Care	$	239.1		$	214.9			11.3			10.9
North America Post-Acute Care		51.6			49.9			3.4			3.4
International		94.1			95.8			(1.8	)		(11.5	)
Total revenues	$	384.8		$	360.6			6.7			3.9

Divisional income:
North America Acute Care	$	50.0		$	44.1			13.4
North America Post-Acute Care		9.6			9.9			(3.0	)
International		5.1			9.3			(45.2	)
Corporate Expenses		(19.0	)		(15.6	)		(21.8	)
Total divisional income	$	45.7		$	47.7			(4.2	)

	Year To Date Period Ended June 30						Percentage Change
										Constant
(Dollars in millions)	2011			2010			As Reported			Currency
Revenues:
North America Acute Care	$	708.5		$	638.2			11.0			10.5
North America Post-Acute Care		156.1			153.6			1.6			1.6
International		296.5			281.2			5.4			3.0
Total revenues	$	1,161.1		$	1,073.0			8.2			7.3

Divisional income:
North America Acute Care	$	157.3		$	120.5			30.5
North America Post-Acute Care		31.9			33.7			(5.3	)
International		19.8			13.3			48.9
Corporate Expenses		(61.7	)		(48.9	)		(26.2	)
Total divisional income	$	147.3		$	118.6			24.2

North America Acute Care

North America Acute Care capital sales increased 16.1 and 17.0 percent for the three- and nine-month periods ended June 30, 2011 mainly due to higher volumes in nearly all product categories led by our patient support systems, which increased 20.8 and 27.4 percent. In addition, product mix was modestly favorable for the first half of the year. Rental revenues were essentially flat for the third quarter and decreased by 2.1 percent for the nine-month period. The decline in the first nine months was due primarily to a decline in therapy rentals in the first quarter driven by a weaker flu season compared to fiscal 2010, and year long pressure from our moveable medical equipment business.

North America Acute Care divisional income increased significantly for the three- and nine-month periods ended June 30, 2011 primarily due to an increase in capital gross profit driven by higher volumes in each period. Favorable product mix also contributed to the higher capital gross profit in the first half of the year, but was somewhat unfavorable for the three-month period. Our rental margins, although lower in each period on reduced leverage of field services costs, benefited from a gain recognized in connection with a vendor’s product recall of $0.6 and $1.4 million for the three- and nine-month periods. Operating expenses were slightly higher during both periods as a result of new product investments and increased variable compensation.

North America Post-Acute Care

North America Post-Acute Care capital sales increased 3.4 percent for the three-month period ended June 30, 2011 and were essentially flat for the nine-month period. Capital sales for both periods benefited by double-digit growth in our respiratory care business offset by a decline in sales within our extended care business for the nine-month period. Rental revenues increased 3.4 and 2.0 percent as a result of a double-digit increase in rental volumes of The Vest® respiratory care system for both periods, including the effect of a third party payor refund in the prior year. This favorability was partially offset by lower rentals in our extended care and home care businesses in both periods.

North America Post-Acute Care divisional income declined for both the three- and nine-month periods due to higher operating expenses related to investments in our sales channels and new products. Total gross profit was essentially flat year over year for both periods.

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International

International capital sales decreased 4.4 percent for the three-month period ended June 30, 2011, and 13.7 percent on a constant currency basis. For the nine-month period capital revenue increased by 5.9 percent and 3.3 percent on a constant currency basis. On a constant currency basis, the decrease during the third quarter was driven primarily by lower volumes in Europe as well as the Middle East, Asia and Australia, while growth for the first nine months was attributed to volume increases in Latin America. Rental revenues increased 16.3 and 2.7 percent for the three- and nine-month periods ended June 30, 2011. On a constant currency basis rental revenues increased 3.3 and 1.0 percent for both periods. The increase for both periods in rental revenues was a result of growth from a recent bariatric product introduction in Europe, which was offset during the first nine months by the rationalization of an unprofitable rental business.

International divisional income decreased for the three-month period ended June 30, 2011, however, increased for the first nine months. During the three-month period gross profit was down slightly on lower volumes, while for the nine months gross profit was up on overall higher volumes and improved gross margin rates in both capital and rental. During both periods, operating expenses increased related to investments in new product development and the effects of unfavorable foreign exchange rates. For the nine-month period operating expenses were also impacted by severance costs incurred in the first half of the year.

Liquidity and Capital Resources

	Year To Date Period Ended June 30

(Dollars in millions)	2011			2010
Cash Flows Provided By (Used In):
Operating activities	$	189.2		$	111.2
Investing activities		(46.4	)		(30.2	)
Financing activities		(48.8	)		(51.1	)
Effect of exchange rate changes on cash		4.0			(4.4	)
Increase in Cash and Cash Equivalents	$	98.0		$	25.5

Operating Activities

Cash provided by operating activities was driven primarily by net income, adjusted by non-cash expenses related to depreciation and amortization and a third quarter litigation charge. We also realized improvements in our days sales outstanding over our first nine months. These sources of cash were offset by the payout of our performance-based compensation and restructuring accruals related to our 2010 fiscal year and the timing of payments on our trade payables. The increase over the first nine months of fiscal 2010 was due to improved financial performance and the timing of tax payments, offset by higher payouts of performance-based compensation in fiscal 2011 related to fiscal 2010 performance.

Investing Activities

Cash used for investing activities consists mainly of capital expenditures. The increase in cash used for investing during our first nine months was due to investments in our rental fleet offset by proceeds received in the third quarter of fiscal 2010 from the sale of a portion of our auction rate securities.

Financing Activities

Cash used for financing activities consisted mainly of repurchasing shares of our common stock, cash dividend payments and the purchase of the remaining 40 percent noncontrolling interest in our former Encompass joint venture, partially offset by cash received from stock option exercises. The slight decline in the use of cash compared to the first nine months of fiscal 2010 was due to debt payments, including the $45 million payment on our revolving credit facility in the first quarter of fiscal 2010 exceeding the net impact of higher stock option exercises and share repurchases and the purchase of the noncontrolling interest in our former Encompass joint venture in the current year.

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Other Liquidity Matters

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

We have a $500.0 million five-year senior revolving credit facility with a syndicate of banks, which expires on March 25, 2013 (subject to extension upon satisfaction of certain conditions set forth in the credit facility). The syndication group consists of 11 financial institutions, which we believe reduces our exposure to any one institution and should leave us with significant borrowing capacity in the event that any one of the institutions within the group is unable to comply with the terms of our agreement. As of June 30, 2011, we had outstanding borrowings of $45.0 and $5.8 million of outstanding, undrawn letters of credit under the facility, leaving $449.2 million of borrowing capacity available.

We have $97.2 million of senior notes outstanding at various fixed interest rates as of June 30, 2011. Of the total amount, $49.5 million are classified as long-term and $47.7 million as short-term in the Condensed Consolidated Balance Sheet.

Our most recent credit ratings from Standard and Poor’s Rating Services and Moody’s Investor Service were credit ratings of BBB- and Baa3 with stable outlook.

Our financing agreements contain no restrictive provisions or conditions relating to dividend payments, working capital or additional unsecured indebtedness (except to the extent that a dividend payment or incurrence of additional unsecured indebtedness would result in a default under our financing agreements), but there are limitations with respect to secured indebtedness. Our debt agreements also contain no credit rating triggers. Credit rating changes can, however, impact the cost of borrowings under our financing agreements. Additionally, there are restrictive covenants in the Distribution Agreement (the “Distribution Agreement”) between us and Hillenbrand, Inc. This agreement has certain limitations on indebtedness, dividends and share repurchases and acquisitions.

Our pension plans invest in a variety of equity and debt securities. At September 30, 2010, our latest measurement date, our pension plans were underfunded by approximately $50.8 million. Given the significant funding contribution made during fiscal 2010, we currently do not anticipate any further contributions to our master pension plan in fiscal 2011.

We intend to continue to pay quarterly cash dividends comparable to those paid over the past two years. However, the declaration and payment of dividends by us will be subject to the discretion of our Board of Directors and will depend upon many factors, including financial condition, earnings, capital requirements, covenants associated with debt obligations, legal requirements and other factors deemed relevant by the Board of Directors. We are not currently permitted to increase our dividend, absent a waiver from Hillenbrand, Inc. pursuant to the Distribution Agreement. During the third quarter of fiscal 2011, we received a waiver in accordance with the Distribution Agreement and our Board of Directors approved a third quarter dividend of $0.1125 per share, $0.01 higher than the prior quarter.

We intend to continue to pursue selective acquisition candidates in certain areas of our business, but the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We expect to fund future acquisitions primarily with cash on hand, cash flow from operations and borrowings. We do not expect the Distribution Agreement limitations described above will limit our ability to execute our current growth strategy.

As of June 30, 2011, we had authorization to repurchase 3.5 million shares of our common stock. Repurchased shares are used for general business purposes.

We believe that cash on hand and generated from operations, along with amounts available under our credit facility, will be sufficient to fund operations, working capital needs, our tentative settlement related to the OIG matter should it be finalized, capital expenditure requirements and financing obligations. However, disruption and volatility in the credit markets could impede our access to capital. If we need additional sources of capital, whether as a result of reduced cash generated by operations, unavailability of borrowings under our credit facility, adverse results in litigation matters or increased cash requirements to fund acquisitions, such sources of capital may not be available to us on acceptable terms, if at all.

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Contractual Obligations and Contingent Liabilities and Commitments

There have not been any significant changes since September 30, 2010 impacting our contractual obligations and contingent liabilities and commitments except as discussed in Note 14 of Notes to Condensed Consolidated Financial Statements in this Form 10-Q.

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, revenues 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 2010 Form 10-K. There have been no material changes to such policies since September 30, 2010.

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, liquidity issues with respect to auction rate securities, 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, 2011, the notional amount of open foreign exchange contracts was $10.2 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 auction rate securities and pension plan assets, see Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our 2010 Form 10-K.

Item 4. CONTROLS AND PROCEDURES

Our management, with the 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 Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based upon that evaluation, the Certifying Officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report for the information required to be disclosed in the reports we file or submit under the Exchange Act to be 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 as appropriate to allow timely decisions regarding required disclosure. Except as described in the following paragraph, there have been no changes in our internal control over financial reporting during the three-month period ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

We utilize a company-wide information technology (“IT”) platform. This IT platform is integrated into substantially all of our company-wide operations and materially impacts our manufacturing, sales, accounting and other back-office functionality. In the second quarter of fiscal 2011, we completed the first phase of a multi-year initiative to upgrade this platform, with the second phase of the initiative scheduled to begin in the fourth quarter. This upgrade includes changes to the design and operation of controls over financial reporting as well as monitoring controls surrounding the implementation of these changes. We are testing controls for design effectiveness prior to implementation of each phase, and operating effectiveness during and after implementation.

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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, 2010. There have been no material changes to the risk factors described in that report.

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

Period	Total Number of Shares Purchased (1)		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet Be Purchased Under Plans or Programs (2)
April 1, 2011 - April 30, 2011		1,875	$	38.19		-		1,080,000
May 1, 2011 - May 31, 2011		23,083		45.35		-		4,080,000
June 1, 2011 - June 30, 2011		600,455		45.52		600,000		3,480,000
Total		625,413	$	45.49		600,000		3,480,000

(1)	All shares purchased during the three-month period ended June 30, 2011 were in connection with employee payroll tax withholding for restricted and deferred stock distributions and the share repurchase program discussed below.

(2)

In May 2011, the Board approved an expansion of its previously announced share repurchase authorization by 3 million shares, bringing the total number of shares available for repurchase to 28.7 million shares. As of June 30, 2011, a cumulative total of 25.2 million shares have been repurchased under this existing authorization, which does not have an expiration date and currently there are no plans to terminate this program in the future.

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Item 6. EXHIBITS

Exhibits

10.1*	Hill-Rom Holdings, Inc. Amended and Restated Supplemental Executive Retirement Plan

10.2*	Employment Agreement between Hill-Rom Holdings, Inc. and Alton Shader, dated July 11, 2011

10.3*	Limited Recapture Agreement between Hill-Rom Holdings, Inc. and Alton Shader, dated July 11, 2011

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

Management contract or compensatory plan or arrangement

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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: July 28, 2011	By:	/s/ Mark J. Guinan
	Name:	Mark J. Guinan
	Title:	Senior Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)