Summary of HILL-ROM HOLDINGS, INC.

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")

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. We caution readers that any such forward-looking statements are based on assumptions that we believe are reasonable, but are subject to a wide range of risks. It is important to note that 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. There are a number of factors - many of which are beyond our control - that could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. For a more in depth discussion of these factors that could cause actual results to differ from those contained in forward-looking statements, see the discussions under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007 ("2007 Form 10-K") and our Current Report on Form 8-K on the spin-off of the funeral services business as filed with the United States Securities and Exchange Commission ("SEC") on March 17, 2008. Risk factors, or portions thereof, included in the 2007 Form 10-K that related to the funeral services business are no longer applicable to the Company, except for the risk related to the purported Batesville Casket antitrust lawsuit discussed in Note 14 of Notes to Condensed Consolidated Financial Statements. We assume no obligation to update or revise any forward-looking statements. Readers should also refer to the various disclosures made by us in our periodic reports on Form 10-Q and Form 8-K filed with the SEC.
Overview
The following discussion and analysis should be read in conjunction with the accompanying interim financial statements and our 2007 Form 10-K. Hill-Rom is a leading worldwide manufacturer and provider of medical technologies and related services for the health care industry, including patient support systems, non-invasive therapeutic products for a variety of acute and chronic medical conditions, medical equipment rentals and health information technology ("IT") solutions. Hill-Rom's 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 and patient customers.
Spin-off of Funeral Services Business
On March 31, 2008, the Company completed the spin-off of the funeral services business operating under the Batesville Casket name, through a tax-free stock dividend to its shareholders. In connection with the distribution, the Company (formerly known as Hillenbrand Industries, Inc.) changed its name to Hill-Rom Holdings, Inc. and is now trading under the symbol "HRC" on the New York Stock Exchange ("NYSE").
Immediately prior to the effective time of the spin-off, the Company contributed all of the assets and liabilities of the funeral services business to Hillenbrand, Inc., the recently formed holding company for the funeral services business. The Company then distributed approximately 62 million shares of Hillenbrand, Inc. common stock to the Company's shareholders. As a result, Hillenbrand, Inc. is now an independent publicly traded company trading under the symbol "HI" on the NYSE.

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In accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS No. 144"), the results of operations of the funeral services business have been presented as a discontinued operation for all periods presented in this Form 10-Q. See Note 3 of our Notes to Condensed Consolidated Financial Statements for a further discussion of the spin-off of the funeral services business. Unless otherwise noted, this MD&A excludes information related to the funeral services business. For a detailed discussion of industry trends, strategy and other factors impacting our businesses, see "MD&A - Industry Trends, Strategy and Other Factors Impacting Hill-Rom's Business" in our 2007 Form 10-K. Current Progress against Strategic Plan
As referred to above, in our 2007 Form 10-K, we described our key strategic initiatives, designed to support our goal to grow organic revenue by an average of six to eight percent and operating income by an average of 12 to 15 percent over the 2007 to 2010 time frame. Our strategy, as more fully described in our 2007 Form 10-K, is designed to provide patients and those who care for them across all patient care settings around the world with affordable patient support and related therapy and information platforms that promote safer and more effective patient care. We have provided progress updates in our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2007 and March 31, 2008, remain committed to those initiatives and continue to make progress against them. The most significant developments with respect to our strategic imperatives since the filing of our last Form 10-Q include:
North America Acute Care: Differentiate the Core and Revitalize Rental Business:
We continued to increase our competitiveness by introducing a number of new products across the price/feature continuum, focusing on the optimal deployment of our sales and marketing resources in both our Acute Care's Capital and Rental businesses and developing more integration between our patient support and health IT platforms.
• We continue to accelerate our pace of new product research and development efforts and have introduced additional new and enhanced products for acute care customers. Our new TotalCare® Connect and TotalCare® Connect Bariatric bed platforms, released in March of this year, helped drive positive revenue growth within intensive care settings during our third fiscal quarter. Coming off the trend of slowed sales of our patient support systems in intensive care settings during the second half of fiscal 2007 and early 2008, we are optimistic that these and other related new products will continue to provide revenue growth within that portion of our business. We also launched several new surface offerings recently. One such new product introduced during the third quarter was our NP200 Wound Surface, a next generation surface with aerospace honeycomb memory foam and nanoAg+™ antimicrobial technology. During the third quarter, we also launched our VersaCare®Transition Care patient support system, an enhanced model with additional caregiver safety features and functionality. We expect the output from our increased focus on product development initiatives, which began in earnest in 2007, will continue into the foreseeable future, particularly with the October 1st start of initiatives by the Centers for Medicare and Medicaid Services to halt payment for certain adverse events that occur during a patient's hospital stay. Our technologies are frequently used to avoid and mitigate such adverse events potentially leading to favorable economic and clinical outcomes for patients and customers.

• Our health IT business continues to experience a steady turnaround in profit margins fueled by a higher mix of service related revenue streams and new product introductions. In February 2008 we released the enhanced NaviCare® Clinical Operations Platform and we launched an enhanced version of our NaviCare® WatchChild® solution during the third quarter. Subsequently, we announced two key agreements that will facilitate increased accessibility to our NaviCare® WatchChild® solution via mobile devices and impart an education component to further enhance its value to customers. In addition, we continue to develop new products, some in collaboration with industry partners, that are designed to enable connectivity and integration among patient support systems, health IT products, third party medical devices and clinical information systems. We expect additional new health IT product introductions over the next several quarters.

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• Our Therapy Rental business has grown significantly in recent quarters and was up 22 percent during the quarter, as a result of several new products, fleet investments we made in 2007, and the renewed channel focus we have placed on this business as a result of creating a separate dedicated moveable medical equipment ("MME") channel. Our new E700 Wound Surface, launched late in fiscal 2007, is an intelligent multi-zone wound prevention and treatment surface that has exceeded our expectations. In addition, our decision to reduce the focus of our Account Clinical Directors from MME products has enabled more selling time to be directed toward therapy rental and customer conversions.

• Although we remain disappointed by the performance of our MME business, we are encouraged by our recently completed training and initial deployment of over 30 new sales representatives dedicated to our MME products. Additionally, a new Group Vice President was brought in late in second quarter to oversee this and other related businesses and has embarked on a detailed review of our fundamental MME business processes in effort to drive improved profitability.

Develop North America Post-Acute Care: As Hill-Rom seeks to increase our presence across the North America care continuum, we have made investments in new products, new business models and improved business systems that we believe will enable us to profitably participate in large and growing home care and extended care segments.
• We are progressing towards significantly differentiating our patient support systems portfolio through the launch of a number of new products. Hill-Rom now has a full line of capital and rental patient support frames and surfaces at several price points addressing a variety of patient acuities. As we move forward on product platform development, we expect to be able to more effectively compete in this space.

• Our Home Care business unit has continued its trend with its fifth successive quarter of double-digit growth. The introduction of high quality standard and bariatric frames and surfaces into this otherwise primarily rental focused segment has been well received by customers and patients alike. As well, our wound care "gold standard" product, the Clinitron® fluidized bead bed offering continues its strong performance. Changes made last year in sales channel, product offering and account development has begun to deliver strong value.

• Despite the progress made with respect to the launch of several key new products, we are still making the transition from a selling organization that has been primarily focused on renting specialty items such as wound surfaces to one that is focused on selling capital products specifically in our Extended Care business unit that has performed below our expectations to date. We are currently evaluating a variety of new selling strategies to enable greater capital sales penetration.

• Our Hill-Rom Respiratory Care business unit continued its strong growth. This growth is a result of continued growth in our base rental home care business and from our prior year launch of a new version of The Vest® respiratory product designed specifically for acute care applications. Further, we recently announced a new distribution agreement with Tri-anim Health System, Inc., the nation's largest provider of respiratory specialty sales and distribution solutions for healthcare manufacturers across the healthcare continuum. Tri-anim's 200 sales and customer service professionals will help expand our sales channel and drive even further profitable revenue growth from these acute care settings.

• In late 2007 we began selling products directly to consumers and have made modest investments to investigate this opportunity further. We are encouraged by our progress to date and will continue to evolve our direct to consumer strategy over the next fiscal year.

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International and Surgical: Expand Across Continuum: Hill-Rom's International and Surgical division continues to experience very strong growth across most major segments. In addition to the generally favorable impact of currency exchange rates compared to the prior year, we are benefiting from a strong line up of new products, a strong European direct channel, and investments we made in several new segments, including European medicalized long term care, and geographies, such as Asia and the Middle East.
• We continue to experience strong top-line growth from our product launches over the past two and a half years and we expect that trend to continue. Supporting our confidence, in the third quarter we launched another version of our highly successful AvantGuard™ patient support system, the AvantGuard™ 1600, for use in mid- to high-acuity acute care settings throughout Europe.

• Additionally, we continue to make substantial progress in our initiatives to grow our presence within medicalized long-term care in Europe. Recently introduced patient support and furniture products have continued to drive significant revenue growth. Specifically, derivatives of our AvantGuard™ patient support system (our AvantGuard™ 801 and AvantGuard™ 802) have been particularly well-received by medicalized long-term care customers. And similar to what we described last quarter, we have continued to successfully leverage our existing sales channel capacity to increase volume without adding significant overhead or cost.

• Our early fiscal 2007 acquisition of Medicraft, a frame manufacturer based in Australia, has enabled Hill-Rom to obtain a leadership position in Australia. We completed the integration of Medicraft in late fiscal 2007 and are now focused on realizing a number of new growth opportunities available to Hill-Rom in Australia.

Improve Gross Margins: We continue to face higher than expected inflationary pressures in key commodity markets, primarily from fuel and commodities, including steel and plastics. For example, since 2007 oil is up 142 percent, steel up 66 percent and plastics up 47 percent. While we have been able to date to mitigate some of these cost pressures through contracts with our suppliers, because supply for these materials and commodities remains constrained, it is expected these pressures will be even more influential in the near term. During the third quarter, the impact of higher fuel and commodity costs on our gross margins, compared to the prior year quarter, was 70 basis points. We continue to execute strategies to mitigate inflationary cost pressure and global competition to drive profitability and to be in a position to achieve the necessary cost structure to offer more affordable products to price sensitive customers, particularly in post-acute care and emerging geographic regions. These actions include; Increasing prices on certain products and to customers, where possible continuous improvement initiatives in our Batesville, Indiana and Pluvigner, France manufacturing facilities; the continued centralization of our global supply chain; and increased utilization of low cost region manufacturing and sourcing. Specifically, we are in the process of executing the following initiatives:
• As discussed above, we remain focused on developing and bringing to market more innovative products and features that provide an unmatched value proposition to caregivers while providing the opportunity to further expand our gross margin.

• We continue to expand production of our CareAssist® patient support system and stretcher lines in our Monterrey, Mexico facility. Transition of our stretcher line, while slightly behind our targeted timeline, is nearly complete, and we are beginning to eliminate redundant production in our Batesville facility, which will position us to more fully realize cost savings as we enter fiscal 2009.

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• Expansion of our low-cost region sourcing, which we have increased to nearly 25 percent of our total direct material spend, has helped to partially offset inflationary pressures on plastics, steel and other commodities.

• We continue to accelerate the pace of platforming efforts to provide even further efficiencies and reduce product costs for fiscal 2009 and 2010. With the development and recent launch of new patient support platforms, we have continued to implement our initial platforming efforts designed to increase the use of common subassemblies and modules across multiple platforms which will enable us to meet customer needs faster, provide consistent styling in our products and improve our overall gross margin rates.

In addition to the initiative outlined above to improve gross margins, actions are also underway to streamline our organization, which if approved by the Board, would result in a fourth quarter special charge.
For additional details regarding the current year financial impact of these strategic initiatives, see "Consolidated Results of Operations" which follows in this Form 10-Q.
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.