Hill-Rom Reports Fiscal Third Quarter Results; Updates 2011 Financial Outlook

BATESVILLE, Ind., July 27, 2011 /PRNewswire/ — Hill-Rom Holdings, Inc. (NYSE:
HRC), announced financial results for its fiscal third quarter ended June 30,
2011 and updated its outlook for 2011. Adjusted earnings per diluted share
increased 4 percent during the period, to $0.47 from $0.45. Reported earnings
per diluted share in the fiscal third quarter decreased to $0.02, compared to
$0.48 in the same period in the prior year, and net income declined to $2
million from $31 million over the same periods. Reported EPS and net income
reflect a $30 million after-tax charge for a potential legal settlement relating
to a matter covering the period from 1999 to 2007.

Hill-Rom’s quarterly revenue of $385 million increased 7 percent on a reported
basis and 4 percent on a constant currency basis compared to last year. Domestic
revenue increased 9 percent to $275 million while revenue outside the United
States increased 2 percent to $110 million in the same period. Excluding the
impact of foreign currency, Hill-Rom’s revenue outside the United States
declined 8 percent.

Management Comments

“Our third quarter performance was mixed, with continued strength in our North
America Acute Care business partially offset by weaker international results,”
stated John J. Greisch, President & CEO. “Despite lower results in several of
our business units and increased R&D spending, we delivered growth in adjusted
earnings per share and strong operating cash flow for the quarter, reflecting
our long term commitment to operational improvements and strong cash flow
growth. Our full year outlook demonstrates continued improvement for 2011 in
these key areas despite the challenges in the macro-environment.”

Third quarter revenue highlights include:

– North America Acute Care. North America Acute Care revenue grew 11 percent to
$239 million. Capital sales increased 16 percent due primarily to higher sales
of patient support systems, which grew 21 percent. Rental revenue was equivalent
to the prior year.

– International. International segment revenue, which excludes Canada, declined
2 percent to $94 million. On a constant currency basis, revenue decreased 12
percent, primarily due to declines in Europe partially offset by growth in Latin
America.

– North America Post-Acute Care. North America Post-Acute Care revenue
increased 3 percent to $52 million. Both capital sales and rental revenue
increased 3 percent versus the prior year. Strong growth in our respiratory
business was partially offset by declines in our extended care and home care
businesses.

Third Quarter Financial and Operational Highlights

– Adjusted operating margin decreased 150 basis points to 11.7 percent,
compared to 13.2 percent in the third quarter of last year. Lower capital gross
margins resulting from unfavorable product mix and higher commodity and fuel
costs, along with growth in R & D investment led to the operating margin
decline.

– Operating cash flow was $82 million, compared to $62 million in the third
quarter of the prior year. Year-to-date cash flow of $189 million compared to
$111 million in the same period of the prior year.

– The company reached an agreement in principle with the federal government on
the financial terms for a potential settlement of a previously disclosed qui tam
complaint filed in 2005. Accordingly, Hill-Rom recognized an after tax charge of
$30 million in the quarter. The settlement remains contingent on the final
negotiation of an acceptable Corporate Integrity Agreement with the Health and
Human Services Office of Inspector General.

– The Basis(TM) Headwall System was introduced during the quarter. The new
system provides clinical functionality for both intensive care unit and general
care settings with a design that is aesthetically pleasing, easy to install and
easy to maintain.

Please see the attached schedules for additional information, including
condensed financial information, summary balance sheet, cash flow statement and
segment sales summaries.

For a more complete review of Hill-Rom’s results, please refer to our Quarterly
Report on Form 10-Q for the quarter ended June 30, 2011, which will be filed
later this week.

Financial Guidance Summary for 2011

The Company updated 2011 financial guidance as follows: Hill-Rom now expects
full-year constant currency revenue growth of approximately 7 percent, compared
to the Company’s previous guidance of 7 to 8 percent. This excludes a currency
benefit of approximately 1 percent for the full year if exchange rates hold near
recent levels. The Company is updating adjusted earnings guidance to $2.26 to
$2.30 per diluted share, compared to the Company’s previous guidance of $2.26 to
$2.32. Guidance regarding cash flow from operations for the full year, excluding
special items, remains unchanged at $230 to $240 million.

Hill-Rom Holdings, Inc. routinely provides earnings per share results and
guidance on an adjusted basis because the Company’s management believes that the
presentation provides useful information to investors. These measures exclude
strategic developments, special charges and the impact of significant litigation
or other unusual events. Such items may be highly variable, difficult to predict
and of a size that sometimes have substantial impact on the Company’s reported
operations for a period. Often, prospective quantification of such items is not
feasible. Management uses these measures internally for planning, forecasting
and evaluating the performance of the business. Investors should consider
non-GAAP measures in addition to, not as a substitute for, or as superior to,
measures of financial performance prepared in accordance with GAAP.

Additional assumptions and discussion will be provided during the Company’s
conference call to be held tomorrow morning. Information to access the webcast
is provided below.

Conference Call Replay and Webcast

The Company will sponsor a conference call and webcast for the investing public
at 8:00 a.m. ET, on Thursday, July 28, 2011. The webcast is available at
http://ir.hill-rom.com/events.cfm or
http://ir.hill-rom.com/eventdetail.cfm?eventid=98935 and will be archived on the
Company’s website for those who are unable to listen live. A replay of the call
is also available through August 4, 2011 at 800-642-1687 (706-645-9291
International). Code 79686593 is needed to access the replay.

ABOUT HILL-ROM HOLDINGS, INC.

Hill-Rom 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. Hill-Rom’s
comprehensive product and service offerings are used by health care providers
across the health care continuum and around the world in hospitals, extended
care facilities and home care settings to enhance the safety and quality of
patient care.

Hill-Rom…enhancing outcomes for patients and their caregivers.

www.hill-rom.com

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this press release contain forward-looking statements,
within the meaning of the Private Securities Litigation Reform Act of 1995,
regarding the Company’s future plans, objectives, beliefs, expectations,
representations and projections. The Company has tried, wherever possible, to
identify these forward-looking statements 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. It is
important to note that 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. Factors that could cause actual
results to differ from forward-looking statements include but are not limited
to: the Company’s dependence on its relationships with several large group
purchasing organizations, whether the Company’s new products are successful in
the marketplace, impacts of healthcare reform, compliance with federal
healthcare programs, collections of accounts receivable, compliance with FDA
regulations, antitrust and other litigation, potential exposure to product
liability or other claims, failure of the Company’s announced or future
strategic initiatives and restructuring and realignment activities to achieve
expected growth, efficiencies or cost reductions, adverse consequences resulting
from the spin-off of the funeral services business, failure of the Company to
execute its acquisition and business alliance strategy through the consummation
and successful integration of acquisitions or entry into joint ventures or other
business alliances, increased costs or unavailability of raw materials, adverse
changes in global economic conditions or disruptions of credit markets, labor
disruptions, the ability to retain executive officers and other key personnel,
and certain tax-related matters. For a more in depth discussion of these and
other 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 and
subsequent Quarterly Reports on Form 10-Q. The Company assumes no obligation to
update or revise any forward-looking statements.

Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Dollars in millions except per share data)

Quarterly Period Ended June 30
——————————

2011 2010
—- —-
Net revenues
Capital sales $267.2 $246.2
Rental revenues 117.6 114.4
—– —–
Total revenues 384.8 360.6
Cost of revenues
Cost of goods sold 145.4 132.5
Rental expenses 51.8 50.1
—- —-
Total cost of revenues 197.2 182.6
Gross profit
Capital 121.8 113.7
Rental 65.8 64.3
—- —-
Total gross profit 187.6 178.0
As a percentage of sales 48.8% 49.4%

Research and development expenses 17.3 14.1
Selling and administrative expenses 124.6 116.2
Litigation charge 42.3 -
Special charges (1.2) -
—- —

Operating profit 4.6 47.7

Other income (expense), net (1.0) (1.4)

Income tax expense 2.1 15.5
— —-

Net income 1.5 30.8

Less: Net income attributable to
noncontrolling interest – 0.2
— —

Net income attributable to common
shareholders $1.5 $30.6
==== =====

Diluted earnings per share: $0.02 $0.48

Average common shares outstanding -
diluted (thousands) 64,211 63,987

Dividends per common share $0.1125 $0.1025

Year To Date Period Ended June
30
——————————-

2011 2010
—- —-
Net revenues
Capital sales $802.7 $714.0
Rental revenues 358.4 359.0
—– —–
Total revenues 1,161.1 1,073.0
Cost of revenues
Cost of goods sold 436.0 397.4
Rental expenses 154.4 155.0
—– —–
Total cost of revenues 590.4 552.4
Gross profit
Capital 366.7 316.6
Rental 204.0 204.0
—– —–
Total gross profit 570.7 520.6
As a percentage of sales 49.2% 48.5%

Research and development expenses 48.3 43.4
Selling and administrative expenses 375.1 358.6
Litigation charge 42.3 -
Special charges 1.4 5.0
— —

Operating profit 103.6 113.6

Other income (expense), net (4.5) (4.9)

Income tax expense 29.1 33.5
—- —-

Net income 70.0 75.2

Less: Net income attributable to
noncontrolling interest 0.2 0.6
— —

Net income attributable to common
shareholders $69.8 $74.6
===== =====

Diluted earnings per share: $1.09 $1.17

Average common shares outstanding -
diluted (thousands) 64,139 63,516

Dividends per common share $0.3175 $0.3075

Non-GAAP Financial Disclosures and Reconciliations

While Hill-Rom reports financial results in accordance with U.S. GAAP, this
press release includes non-GAAP measures. These non-GAAP measures are not in
accordance with, nor are they a substitute for, GAAP measures. Hill-Rom uses the
non-GAAP measures to evaluate and manage its operations and provides the
information to assist investors in performing financial analysis that is
consistent with financial models developed by research analysts. Investors
should consider non-GAAP measures in addition to, not as a substitute for, or as
superior to, measures of financial performance prepared in accordance with GAAP.

Hill-Rom Holdings, Inc. and Subsidiaries
Revenues – Constant Currency
(Dollars in millions)

Quarterly Period Ended June 30
——————————
2011 Foreign Exchange
As Reported Impact
———– ——

Capital sales $267.2 $8.3
Rental
revenues 117.6 1.8
—– —
Total $384.8 $10.1
====== =====

Acute Care $239.1 $0.8
Post-Acute
Care 51.6 -
International 94.1 9.3
—- —
Total $384.8 $10.1
====== =====

Year To Date Period Ended June 30
———————————
2011 Foreign Exchange
As Reported Impact
———– ——

Capital sales $802.7 $8.7
Rental
revenues 358.4 1.2
—– —
Total $1,161.1 $9.9
======== ====

Acute Care $708.5 $3.0
Post-Acute
Care 156.1 -
International 296.5 6.9
—– —
Total $1,161.1 $9.9
======== ====

Quarterly Period Ended June 30
——————————
Constant
2011 2010 Currency
Adjusted As Reported Change
——– ———– ——

Capital sales $258.9 $246.2 5.2%
Rental
revenues 115.8 114.4 1.2%
—– —– —
Total $374.7 $360.6 3.9%
====== ====== ===

Acute Care $238.3 $214.9 10.9%
Post-Acute
Care 51.6 49.9 3.4%
International 84.8 95.8 -11.5%
—- —- —–
Total $374.7 $360.6 3.9%
====== ====== ===

Year To Date Period Ended June 30
———————————
Constant
2011 2010 Currency
Adjusted As Reported Change
——– ———– ——

Capital sales $794.0 $714.0 11.2%
Rental
revenues 357.2 359.0 -0.5%
—– —– —-
Total $1,151.2 $1,073.0 7.3%
======== ======== ===

Acute Care $705.5 $638.2 10.5%
Post-Acute
Care 156.1 153.6 1.6%
International 289.6 281.2 3.0%
—– —– —
Total $1,151.2 $1,073.0 7.3%
======== ======== ===

Hill-Rom Holdings, Inc. and Subsidiaries
Reconciliation: Earnings Per Share
(Dollars in millions except per share data)

Quarterly Period Ended June 30, 2011
————————————
Income Before Income Tax Diluted EPS
Income Taxes Expense ———–
———— ——-

GAAP Earnings $3.6 $2.1 $0.02
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 – – -
Adjusted Earnings $44.1 $13.9 $0.47
===== ===== =====

Year To Date Period Ended June 30, 2011
—————————————
Income Before Income Tax Diluted EPS*
Income Taxes Expense ————
and NCI ——-
——-

GAAP Earnings $99.1 $29.1 $1.09
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
Gain on sale of non-
strategic assets – – -
Tax settlement – – -
Adjusted Earnings $141.4 $41.6 $1.55
====== ===== =====

Quarterly Period Ended June 30, 2010
————————————
Income Before Income Tax Diluted EPS
Income Taxes Expense ———–
and NCI ——-
——-

GAAP Earnings $46.3 $15.5 $0.48
Adjustments:
Litigation charge – – -
Vendor product recall – – -
Special charges – – -
Gain on sale of non-
strategic assets – 1.7 (0.03)
Adjusted Earnings $46.3 $17.2 $0.45
===== ===== =====

Year To Date Period Ended June 30, 2010
—————————————
Income Before Income Tax Diluted EPS*
Income Taxes Expense ————
and NCI ——-
——-

GAAP Earnings $108.7 $33.5 $1.17
Adjustments:
Litigation charge – – -
Vendor product recall – – -
Special charges 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 $113.7 $43.4 $1.10
====== ===== =====

* May not add due to rounding.

Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(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 341.4 353.1
Inventories 109.1 108.5
Other current assets 92.3 93.1
—- —-
Total current assets 825.3 739.2

Property, plant and equipment, net 230.3 243.7
Goodwill 81.1 81.1
Other assets 165.1 181.6
—– —–

Total Assets $1,301.8 $1,245.6
======== ========

Liabilities
Current Liabilities
Trade accounts payable $60.6 $80.6
Short-term borrowings 102.8 53.1
Other current liabilities 187.6 155.0
—– —–
Total current liabilities 351.0 288.7

Long-term debt 49.9 98.5
Other long-term liabilities 147.6 142.6
—– —–

Total Liabilities 548.5 529.8
—– —–

Noncontrolling interest – 8.3

Shareholders’ Equity 753.3 707.5
—– —–

Total Liabilities, Noncontrolling
Interest $1,301.8 $1,245.6
and Shareholders’ Equity ======== ========

Hill-Rom Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(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 and
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
====== ======

SOURCE Hill-Rom Holdings, Inc.