UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

Commission File No. 001-33794

HILLENBRAND, INC.

(Exact name of registrant as specified in its charter)

Indiana (State or other jurisdiction of incorporation or organization)		26-1342272 (I.R.S. Employer Identification No.)

One Batesville Boulevard
Batesville, Indiana		47006
(Address of principal executive offices)		(Zip Code)

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, without par value		New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ     No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o     No þ

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

Yes þ     No o

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

Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller Reporting Company o

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

Yes o     No þ

State the aggregate market value of the voting and nonvoting common equity held by non-affiliates of the registrant.

Aggregate market value of the voting stock (which consists solely of shares of common stock) held by non-affiliates of the registrant as of March 31, 2010: — $1,369,013,552.

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

Common Stock, without par value — 62,284,165 shares outstanding as of November 15, 2010.

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: Portions of our definitive proxy statement for the 2010 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. These will be filed no later than January 15, 2011.

 

 

TABLE OF CONTENTS

		Page
PART I
Disclosure Regarding Forward-looking Statements			2
Item 1. Business			2
Item 1A. Risk Factors			13
Item 1B. Unresolved Staff Comments			19
Item 2. Properties			19
Item 3. Legal Proceedings			20
Item 4. Removed and Reserved			22
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities			23
Item 6. Selected Financial Data			25
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			39
Item 8. Financial Statements and Supplementary Data			41
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			85
Item 9A. Controls and Procedures			85
Item 9B. Other Information			85
PART III
Item 10. Directors, Executive Officers, and Corporate Governance			86
Item 11. Executive Compensation			86
Item 12. Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters			86
Item 13. Certain Relationships and Related Transactions, and Director Independence			86
Item 14. Principal Accountant Fees and Services			86
PART IV
Item 15. Exhibits and Financial Statement Schedules			87
Signatures			88
Exhibit 10.29
Exhibit 10.30
Exhibit 10.31
Exhibit 10.32
Exhibit 10.33
Exhibit 10.34
Exhibit 14.1
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

Throughout this Form 10-K, we make a number of “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. As the words imply, forward-looking statements are statements about our future plans, objectives, beliefs, and expectations that might or might not happen in the future, as contrasted with historical information. Our forward-looking statements are based on assumptions that we believe are reasonable, but by their very nature they are subject to a wide range of risks.

Accordingly, in this Form 10-K, we may say something like,

“We anticipate that the burial rate will be flat to slightly declining in future years.”

That is a forward-looking statement, as indicated by the word “anticipate” and by the clear meaning of the sentence.

Other words that could indicate we’re making forward-looking statements include the following:

intend

believe

plan

expect

may

goal

would

become

pursue

estimate

will

forecast

continue

should

targeted

encourage

promise

improve

progress

potential

could

This isn’t an exhaustive list but is simply intended to give you an idea of how we try to identify forward-looking statements. The absence of any of these words, however, does not mean that the statement is not forward-looking.

Here’s the key point: 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. Any number of factors — many of which are beyond our control — could cause our performance to differ significantly from those described in the forward-looking statements.

For a discussion of factors that could cause actual results to differ from those contained in forward-looking statements, see the discussions under the heading “Risk Factors” in Item 1A of this Form 10-K. We assume no obligation to update or revise any forward-looking statements.

Item 1.		Business

In this section of the Form 10-K, entitled “Business,” we provide you a basic understanding of our company, our reportable segments, the products we manufacture and sell, how we distribute our products, with whom we compete, and the key inputs to production (in the form of raw materials, labor, and manufacturing locations). We also provide you background on industry trends, regulatory matters, and key patents and trademarks important to our business. We also provide an explanation of our business strategies. Finally, we provide you a brief background on our executive officers so that you can understand their experience and qualifications.

General Information

Hillenbrand, Inc. (“Hillenbrand”) was formed on November 1, 2007, and became a publicly traded company as the result of the separation of Hillenbrand Industries, Inc. (our “Former Parent”, “Hill-Rom Holdings, Inc.”, or “Hill-Rom”) into two separate publicly traded companies, Hillenbrand and Hill-Rom, through a tax-free distribution (the “Distribution”) of Hillenbrand shares to Hill-Rom’s shareholders. This distribution took place following the close of business on March 31, 2008. Unless the context otherwise requires, the terms “Hillenbrand,” the “Company,” “we,” “our,” or “us” refer to Hillenbrand, Inc. and one or all of its consolidated subsidiaries.

Hillenbrand, Inc. is an Indiana corporation with our principal executive offices located at One Batesville Boulevard, Batesville, Indiana, 47006. Our telephone number at this address is (812) 934-7500. Our website is www.hillenbrandinc.com. We make available on this website, free of charge, access to press releases; conference calls; our annual, quarterly, and current reports; and other documents filed with or furnished to the Securities and Exchange Commission (“SEC”) as soon as practicable after such reports are filed or furnished. We also make available through this website position specifications for the Chairman, Vice Chairman, members of the Board of Directors and the Chief Executive Officer; our Code of Ethical Business Conduct; the Corporate Governance Standards of our Board of Directors; and the charters of each of the standing committees of the Board of Directors. All of these documents are also available to shareholders in print upon request.

All reports and documents filed with the SEC are also available via the SEC website, www.sec.gov, or may be read and copied at the SEC Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Hillenbrand Corporate Operations

Background

Hillenbrand, Inc. is the parent holding company of our wholly owned subsidiaries, Batesville Services, Inc. (“Batesville”) and K-Tron International, Inc. (“K-Tron”), including their wholly owned subsidiaries. In addition to implementing our business strategy discussed below as a holding company, we generally oversee the operations of our subsidiaries, allocate resources among them, and manage their capital structures. Additionally, we provide our subsidiaries with certain centralized functions such as reporting, treasury, taxes, internal audit, and risk management. We also centrally coordinate our business acquisition and lean business strategy initiatives. As of September 30, 2010, we employed 43 people in our corporate operations, all of whom are located at our principal offices in Batesville, Indiana.

Strategy

We believe we can most effectively continue to increase shareholder value by building a diversified enterprise with strong positions in multiple industries. Our long-term value creation strategy consists of:

•

Growing revenue and Income Before Taxes via organic growth within our existing platforms and through targeted acquisitions. Each operating company has specific, targeted business plans to achieve organic growth, which may also include select “add-on” acquisitions that are complimentary to their growth strategies. The operating companies also plan to increase profit margins by employing Hillenbrand’s core competencies of:

	•		Lean business, continuously looking for ways to improve quality and customer satisfaction, increase effectiveness and operational efficiency, drive costs down, and develop lean leaders;
	•		Talent development, providing opportunities to successfully recruit, develop, and deploy talent; and
	•		Strategy management, which serves as the basis for annual and long-term business planning, while strengthening technical capabilities and product and service strategies.

•

Using our cash flow and debt capacity to invest in additional growth platforms. We will focus on companies that can take advantage of our core competencies and that meet our financial and cultural criteria. In support of this effort, we will continue to develop our public company capabilities to ensure that we remain compliant, efficient, well-controlled, and capable of supporting future acquisitions.

Batesville

Background

Batesville is the leader in the North American death care products industry, where it has been designing, manufacturing, distributing, and selling funeral service products to licensed funeral directors operating licensed funeral homes for more than 100 years. Batesville-branded products consist primarily of burial caskets, but also include cremation caskets, containers and urns, selection room display fixturing for funeral homes, and other personalization and memorialization products and services, including web-based applications and the creation and hosting of websites for licensed funeral homes.

Products and Services

Batesville designs, manufactures, and sells gasketed caskets made of carbon steel, stainless steel, copper, and bronze. It also produces and markets non-gasketed steel, hardwood, and veneer hardwood caskets. In addition, Batesville manufactures and sells cloth-covered caskets, all-wood construction caskets suitable for green burials, and a line of urns, containers, and other memorialization products used in cremations. To assist with displaying these products, Batesville supplies selection room fixturing through our System Solutions^® by Batesville. Batesville has recently been evaluating the possibility of expanding its product line into lightweight polyresin burial vaults, a line that would be complementary to its casket products.

Most Batesville^® brand metal caskets are gasketed caskets that are electronically welded and utilize rubber gaskets and a locking bar mechanism. Batesville premium steel caskets also employ an alloy bar to help protect the casket cathodically from rust and corrosion. We believe that this system of cathodic protection is a feature found only on Batesville-produced caskets.

Batesville solid and veneer hardwood caskets are made from a variety of woods, and are offered in more than eight different species. The Batesville veneer caskets are manufactured using a proprietary process for veneering that allows for rounded corners and a furniture-grade finished appearance. Batesville also manufactures and provides select lines of Marsellus^® premium solid wood caskets to its funeral home customers.

The Options^® by Batesville cremation line offers a complete cremation marketing system for funeral service professionals. In addition to a broad line of cremation caskets, containers, urns, jewelry, and keepsakes, the system includes training, merchandising support, and marketing support materials. Cremation caskets and containers are manufactured primarily of hardwoods and fiberboard. Batesville’s wide assortments of memorial urns are made from a variety of materials, including bronze, acrylic, wood, cloisonné, and marble.

Integrated online technology products and services are available through the Batesville Interactive suite of products. WebLink^TM funeral home websites, TributeLink^TM online videos, and ObitLink^TM online obituary content form an integrated solution that provides funeral directors additional ways to generate revenue streams and connect with consumers for information and education needs. Batesville’s alliance with Legacy.com^® gives funeral directors access to the largest networked obituary system in the nation. Batesville’s technology products help to improve the visibility of the local funeral home to the families they serve.

Sales, Distribution and Operations

Batesville offers several marketing and merchandising programs to funeral professionals for both casket and cremation products. Batesville-branded caskets are marketed by Batesville’s direct sales force only to licensed funeral professionals operating licensed funeral establishments (or, in the absence of state licensing requirements, to full-service funeral establishments offering both funeral goods and funeral services in conformance with state law) throughout the United States (“U.S.”), Puerto Rico, Canada, Mexico, the United Kingdom, and Australia. A significant portion of Batesville’s sales are made to large national funeral service providers under contracts. One customer, Service Corporation International, accounted for approximately 13% of Batesville’s consolidated net sales during the year ended September 30, 2010. In contrast to our large national accounts, we also serve more than 12,000 independent, privately-owned customers across North America.

Over the past decade, funeral home customers have sought to minimize their inventory costs by shifting the inventory burden to their suppliers. Today, many funeral homes maintain minimal casket inventory and expect their casket suppliers to provide same-day or next-day delivery to satisfy their funeral requirements. The Batesville distribution network maintains inventory at 85 company-operated Customer Service Centers (“CSCs”) and 6 Rapid Deployment Centers (“RDCs”) in North America. Batesville caskets are generally delivered in specially equipped vehicles owned by Batesville. This system enables Batesville to deliver the majority of its product, including uniquely personalized caskets, within 24 hours of receiving the customer’s order. Over the last three years, Batesville delivered the “right casket at the right time” in excess of 99% of the time. We believe this highly effective distribution network is aligned with the increasing time demands of families and the inventory reduction expectations of Batesville’s customers.

Batesville primarily manufactures and distributes its products in the U.S. It also has 2 manufacturing facilities in Mexico and distribution facilities in Puerto Rico, Canada, Mexico, the United Kingdom, and Australia. Its export revenues constituted less than 10% of its consolidated revenues in fiscal 2010 and prior years.

Batesville’s foreign operations are subject to risks inherent in doing business in foreign countries (which include political, social, and economic instability, expropriation, and changing government regulations), but are substantially limited to sales activities in Canada and manufacturing activities in Mexico.

Quantitative information about foreign operations is set forth in tables relating to geographic information in Note 15 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Demographics and Customer Preferences

The death of a family member or loved one causes most people to seek the services of a state-licensed funeral director to provide specific services regarding handling and preparing the deceased. Most consumers have only limited familiarity with funeral-related products and usually expect funeral directors to provide information on product and service alternatives. Although caskets and urns can be purchased from a variety of sources, including directly from internet sellers and casket stores, the overwhelming majority of those who arrange a funeral purchase these products directly from the funeral home as a matter of choice and convenience.

For the past several years, the total number of deaths in North America (where most of Batesville’s products are sold) has been decreasing. During the same period, the rate of cremation selection has been slowly but steadily increasing to the point where cremations as a percentage of total deaths now represent more than one-third in the U.S. and more than one-half in Canada. These factors have yielded a slow but steady decline in the total number of burials in North America. The current trends are expected to continue for the foreseeable future until the post-World War II spike in births causes an increase in deaths. While the primary drivers of market size are population and age, the actual number of deaths (and, therefore, the actual number of caskets sold) is affected by a variety of additional factors, including improving healthcare and the varying timing and severity of seasonal pneumonia and influenza outbreaks. The unpredictability of these factors can cause periodic fluctuations in industry demand patterns and revenue generated in any given fiscal period. While it is difficult to accurately predict the number of deaths on a month-to-month or even a year-to-year basis, we anticipate that the number of deaths in North America will remain relatively flat and the cremation rate will continue to gradually increase, resulting in a modest, but steady decline in the demand for burial caskets for the foreseeable future.

Along with the declining number of burials, the death care products industry has experienced a long-term gradual decline in the product mix of burial caskets sold, a trend that has also affected our financial results. One of the factors that has affected mix is the pricing practice of many funeral homes to place most of the margin expectation on the sale of products (principally caskets) instead of the services provided. We have observed changes in the pricing practices of many funeral homes, wherein they are recovering margin on their services and reducing the mark-up of products, primarily caskets, which now have more pricing visibility through online retailers. Additionally, more consumers are expecting higher levels of personalization, both in products and services.

Competition

We believe Batesville is the recognized North American industry leader in the sale of death care products. Competition in the death care products industry is based on product quality, design features, personalization, price, and delivery service. Batesville competes in the sale of burial and cremation containers with several national casket manufacturers/distributors, regional manufacturers/distributors, and more than 100 independent casket distributors, most of whom serve fairly narrow geographic segments. The industry also has seen a few foreign manufacturers, mostly from China, import caskets into the U.S., and Canada. Additionally, some retail stores and internet retailers sell caskets directly to consumers, although we believe that total sales among this latter group represent approximately 3% of annual burial casket volume.

The effect of gradually declining casket demand continues to result in economic pressures on casket manufacturers and distributors as they seek to maintain volume. Existing domestic over-capacity and the added burden from commodity price increases, which began increasing in early 2010, further increases these pressures, resulting in higher per unit costs.

Raw Materials

Batesville uses carbon and stainless steel, copper and bronze sheets, wood, fabrics, finishing materials, rubber gaskets, zinc, and magnesium alloy in the manufacture of its caskets. Although most of these raw materials are generally available from several sources, some are currently procured from a single source.

Volatility in the prices Batesville pays for raw materials used in its products, including steel, fuel, petroleum-based products, and fuel-related delivery costs, has a direct effect on profitability. Batesville generally does not engage in hedging transactions with respect to these purchases, but does enter into fixed-price supply contracts at times. Batesville regularly takes steps and actions to offset the impact of volatility in raw material and fuel prices, including lean business initiatives, various sourcing actions, and rebalancing of production capacity.

Most of Batesville’s sales are made pursuant to supply agreements with its customers, and historically it has instituted annual price adjustments to help offset some, but not necessarily all, raw material costs.

Patents and Trademarks

Batesville owns a number of patents on its products and manufacturing processes that are of importance, but we do not believe any single patent or related group of patents is of material significance to its business as a whole. It also owns a number of trademarks and service marks relating to products and product services which are of importance, but, except for the mark “Batesville^®,” we do not believe any single trademark or service mark is of material significance to its business as a whole.

Batesville’s ability to compete effectively depends, to an extent, on its ability to maintain the proprietary nature of its intellectual property. However, it may not be sufficiently protected by its various patents, trademarks, and service marks. Additionally, certain of its existing patents, trademarks or service marks may be challenged, invalidated, cancelled, narrowed, or circumvented. Beyond that, it may not receive the pending or contemplated patents, trademarks, or service marks for which it has applied or filed.

In the past, certain of its products have been copied and sold by others. Batesville vigorously seeks to enforce its intellectual property rights. However, we cannot ensure that the reproduction and sale of its products by others would not materially affect the sale of its products.

Employees

As of September 30, 2010, Batesville employed approximately 3,200 people in its operations. Approximately 1,100 of these individuals within its logistics and manufacturing operations in the U.S. and Mexico work under collective bargaining agreements. In the U.S. and Mexico, the collective bargaining agreements have expiration dates ranging from January 2011 to June 2015.

Batesville strives to maintain satisfactory relationships with all its employees, including the unions representing those employees. As a result, Batesville has not experienced a significant work stoppage due to labor relations in more than 20 years. Although it cannot ensure that such a stoppage might not occur in the future, there is no reason to believe that this trend will not continue for the foreseeable future.

Strategy

While volume growth in the burial casket space continues to be limited, there are opportunities to generate additional business within a wider range of funeral services. Leadership of Batesville is focusing on three categories of strategic initiatives to drive growth:

Profitably grow the core burial business

•

The Batesville® brand is widely recognized as the premier brand in the industry among funeral professionals, offering the broadest range of metal and wood caskets. Its legacy of innovation and leadership in the funeral industry has allowed customers and the families they serve to commemorate the lives of those they love through quality construction and compelling designs that provide personal expressions of a life well-lived. To enhance its leadership position, Batesville will continue to invest in its marketing capabilities, specifically in research, new product development, and brand promotion. Batesville will utilize its capabilities to continue launching products with consumer-oriented features and expand its personalization platforms throughout the product line.

•

Batesville will continue to demonstrate the value its Batesville-branded products and services bring to the operations and families of funeral home customers of all sizes across North America. Batesville is focused on improving the quality of all of its customer interactions through better call management and compensation alignment. Its actions are focused on ensuring the success of funeral home customers, which in turn will position Batesville to be successful in the future.

•

Batesville’s ability to apply proven merchandising principles and proprietary database tools enables it to help customers increase their average mix and drive greater profitability, all while increasing the satisfaction of their clients. Batesville will continue to differentiate itself as a solutions provider. In 2011, it will continue to focus on moving customers up the merchandising ladder, emphasizing the value of using its full system. Fully merchandised accounts continue to have a higher rate of revenue growth, and a higher retention rate.

•

The number of casket manufacturers has dwindled over the years, but there are opportunities to capitalize on acquisitions and alliances in other parts of the death care products industry. Batesville will continue to remain alert to these opportunities and capitalize on them when it’s prudent to do so.

Grow profitable new revenue streams within the death care products industry

•

The Options® by Batesville brand has a long history of providing business solutions to our customers and assisting them with meeting the needs of the cremation consumer. In addition to these solutions, which include business analysis merchandising, and training, Options also has the broadest product line in the industry, consisting of cremation caskets, containers, urns, and other cremation memorialization products. We expect continued growth in these product lines as more consumers choose cremation over burial. In fiscal 2011, Batesville plans to implement key actions aimed at improving revenue performance by further implementation of its system, which is designed to improve the frequency of families selecting products and services over direct cremation, additional development of new products, and implementing after-market programs for our funeral home customers to market to consumers.

•

Batesville has expanded its position as the largest provider of funeral home websites in North America, a service we believe provides many small, family-owned funeral homes access to resources and capabilities they may not otherwise have or develop on their own. In 2011, Batesville will continue to provide funeral directors with additional ways to generate revenue and connect with consumers for information and education needs. Batesville Interactive offers integrated online products that include WebLink™, TributeLink™ online videos, and ObitLink™ through its alliance with Legacy.com that gives funeral directors access to the largest networked obituary system in North America. As additional consumers use the internet as their first point of contact when making a purchase decision, Batesville technology offerings help to improve the visibility of the local funeral home to the families they serve.

•

Fiscal 2010 was Batesville’s fourth full year offering the NorthStar® product line to independent casket distributors. These are private-label burial caskets and because these products do not contain any of the Batesville proprietary features, designs, or specifications, they are differentiated from the premium Batesville brand.

•

Batesville will leverage its strong brand and deep sales and service relationships to continue to expand new product and service offerings that complement its core product line. Additional product and service offerings within the death care products industry will enable Batesville to provide an integrated solution to funeral homes, helping them provide quality funerals to consumers and drive improved profitability for their businesses.

Utilize lean business principles as an integrated business system to deliver operational efficiencies

•

Batesville’s highly integrated manufacturing facilities in the U.S. and Mexico utilize “one-piece flow” to manufacture caskets and “pull production” from their stamping and wood processing facilities that feed its high-velocity distribution network with products quickly and efficiently. These processes allow Batesville to carry lower inventory in its distribution network while still meeting the growing demand of its customers. Batesville intends to continue to leverage its processes to allow it to carry lower inventory per sales dollar than its competitors, enabling customers to carry few or no products in their funeral homes, and on average over the past three years, still achieve on-time delivery more than 99% of the time.

•

Batesville’s effective execution of Hillenbrand Lean Business (derived from the Toyota Production System) improves product quality and customer satisfaction while enabling annual lead time and cost reductions in its operations, distribution and administrative functions.

•

Batesville’s leadership position as the largest manufacturer and distributor of caskets and containers in North America provides scale and scope that enables it to capitalize on efficiencies and compete with a low cost structure.

K-Tron

Background

K-Tron was acquired by us in April 2010. K-Tron designs, produces, markets, and services material handling equipment and systems for a wide variety of industrial markets, particularly in the plastics, food, chemical, pharmaceutical, power generation, coal mining, pulp and paper, wood and forest products, and biomass energy generation industries. K-Tron serves the bulk solids material handling market, which focuses primarily on feeding, size reduction, conveying, and screening equipment.

Products and Services

K-Tron’s products and services for the bulk solids material handling markets are generated within two main business lines: the Process Group and the Size Reduction Group.

Process Group (“PG”). PG designs, produces, markets, sells, and services feeders and pneumatic conveying equipment under two main brands: K-Tron Feeders^® and K-Tron Premier^®. These can be sold as stand-alone products or as part of engineered systems where one or more feeders are combined with pneumatic conveying and other complementary materials handling equipment. It also designs, produces, markets, and sells a separate line of volumetric and gravimetric feeders, pelletizers, screen changers, pneumatic conveying equipment, and other equipment under the K-Tron Colormax^® brand name, specifically targeted at domestic Chinese compounding and injection molding manufacturers.

Feeding equipment controls the flow of materials into a manufacturing process by weight (known as gravimetric feeding) or by volume (known as volumetric feeding) and is used in many different industries, including plastics compounding, base resin production, and food, chemical, and pharmaceutical production.

PG’s pneumatic conveying equipment and related systems are used in many of the same industries as the feeders to transport bulk solids from point to point using either negative pressure (known as vacuum conveying) or positive pressure (known as pressure conveying).

Size Reduction Group (“SRG”). SRG designs, manufactures, markets, and sells size reduction equipment that is used to reduce various materials to a smaller size. It has three primary brands that serve a variety of industries. The Pennsylvania Crusher^® and Gundlach^® brands are used in the power generation industry to crush coal before it is used as fuel in the steam furnaces of coal-fired power plants. These products also serve mining, quarrying, glass making, salt processing, fertilizer manufacturing facilities, and other industrial applications. The Jeffrey Rader^® brand includes equipment used in the pulp and paper, wood and forest, and biomass industries.

Several key products include hammer mills, which crush materials by impact from hammers and then scrub the materials against a screen for desired size; double roll crushers, which break material by compression; a variety of wood and bark hogs, chip sizers, screening equipment, pneumatic and mechanical conveying systems; and storage/reclaim systems. SRG also offers specialty crushers and other equipment, such as the Accu-Grind^®, a small crusher designed for sampling applications and the Nanosiz-R^®, which provides fine grinding for the mineral industry.

A significant portion of K-Tron’s revenue is derived from the sale of replacement parts. SRG has a large installed base of long-lived equipment, and every machine and part sold, including specifications and drawings, is registered in a digital database to provide customers with fast and efficient support.

We aggregate the financial results of PG and SRG into a single reportable segment due to the similarities of these business lines.

Sales, Distribution and Operations

K-Tron sells its material handling equipment and systems throughout the world to a wide variety of industrial and engineering customers using a combination of a direct sales force and a global network of independent sales representatives and distributors.

K-Tron has contracts with its independent sales representatives and distributors that provide for specific commissions or in situations where a representative is acting as a distributor, net transaction prices, depending on the type of product sold. Discounting below its target margins is uncommon, but when it occurs, K-Tron’s representative may be asked to share the cost and the distributor may receive a lower transaction price from K-Tron.

Due to the nature of K-Tron’s business, orders are often unique, built-to-order items. Therefore, K-Tron does not typically maintain significant amounts of raw material and component stock inventory on hand at any one time, except to cover replacement parts orders. Products are generally assembled and tested at K-Tron facilities and then shipped to a customer’s desired location.

K-Tron conducts its manufacturing operations in seven manufacturing facilities located in the U.S., Switzerland, and the People’s Republic of China (“China”) and also maintains foreign sales offices and service centers in the United Kingdom, Sweden, France, Germany, Canada, and Singapore. Over the past three years, K-Tron’s export revenues have accounted for approximately one-third of its net revenues.

Similar to Batesville, K-Tron foreign operations are subject to risks inherent in doing business in foreign countries. For K-Tron, its risks are primarily related to euro-denominated sales and manufacturing activities in Switzerland and manufacturing activities in China. To the extent it receives revenue from U.S. or Swiss export sales in currencies other than U.S. dollars or Swiss francs, the value of assets and income could be, and in the past have been, adversely affected by fluctuations in the value of local currencies.

Quantitative information about foreign operations is set forth in tables relating to geographic information in Note 15 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Demographics and Customer Preferences

K-Tron’s customers exist in multiple industries, including the plastics, food, chemical, pharmaceutical, power generation, coal mining, pulp and paper, wood and forest products, and biomass energy generation industries. These customers range from large, global companies to regional and local businesses, none of which accounted for more than 10% of K-Tron’s consolidated net revenues during the six months ended September 30, 2010.

As an industrial capital goods supplier, many of the markets for K-Tron’s products are cyclical, and for the past several years domestic capital equipment purchases have been in decline due in part to lower demand for power and a weak economy. However, capital equipment orders for export (particularly to China and Asia) have been strong due to demand for increased power production and economic growth. During periods of economic expansion, when capital spending normally increases, K-Tron generally benefits from greater demand for its products. During periods of economic contraction, such as the recent global recession, when capital spending normally decreases, K-Tron generally is adversely affected by declining demand for its products. More recently, we are seeing modest signs of increased economic activity.

Competition

We believe K-Tron has a superior reputation and holds leading positions in key industries because of the design and quality of its products, years of experience, and its commitment to serving the needs of its customers. In other areas of the business, such as digital control and digital weighing technologies, we believe K-Tron’s engineering capability and integration of technology allows it to maintain an advantage over the competition in these areas.

In the bulk solids market, strong competition exists in every market K-Tron serves, and its competitors range in size from small, privately held companies serving narrow markets or geographical areas to large, well-known companies, such as Schenck Process GmbH, serving national and international markets with multiple product lines. As a capital goods supplier, we believe K-Tron’s strong base of replacement parts business and K-Tron’s worldwide network of suppliers and dealers allows K-Tron to maintain strong margins even during economic downturns.

Raw and Component Materials

The manufacturing of K-Tron products involves the machining and welding of raw materials (primarily sheet metals and steel) and castings into machined parts. These parts are then combined and assembled with other component parts purchased from its third-party vendors into finished goods. Although most of these raw materials and components are generally available from several sources, some of these items are currently purchased from sole sources. K-Tron has not experienced any significant production delay that was primarily attributable to an outside supplier.

Patents and Trademarks

K-Tron, like Batesville, owns a number of patents on its products and manufacturing processes that are deemed to be important, but not materially significant to its business as a whole. In addition, K-Tron owns a number of trademarks that are important to its business, most notably the Pennsylvania Crusher^®, Gundlach^®, Jeffrey Rader^®, and the K-Tron Premier^®, Feeder^®, Electronics^®, and Colormax^® brands. Depending on the jurisdiction, trademarks are generally valid as long as they are in use and/or their registrations are properly maintained.

K-Tron’s patents, trademarks and intellectual property are subject to the same business risks as described earlier for Batesville.

Employees

At the end of fiscal 2010, K-Tron had approximately 650 employees, of which approximately 430 were located in the U.S., 150 in Europe, and 70 in China and other foreign locations. None of its employees are represented by labor unions, and we consider relations with these employees to be good.

Strategy

As the capital equipment markets are recovering from the global recession of the past two years, there continues to be significant opportunities for K-Tron’s products and services both domestically and internationally. Leadership of K-Tron is focusing on the following strategic initiatives to drive organic growth as well as growth through acquisitions:

Profitably grow top line revenues in our core K-Tron business lines

•

K-Tron is widely recognized as a leader for material handling equipment, systems, and services in a wide range of process industries. To enhance that leadership position K-Tron will continue to invest in key areas, particularly new product development, systems engineering, and human resources to maintain and extend its technological leadership. K-Tron plans to promote its capabilities as a total solutions provider to capture a larger share of existing customers’ capital investments in material handling systems.

	•		K-Tron provides niche products and services that have significant market presence in the North American coal-fired power, coal mining, fertilizer and mineral extraction, and biomass energy industries. These products have significant sales potential in other areas of the world, and as such, K-Tron will initiate more aggressive sales and marketing initiatives for these products and services in targeted markets outside its current base of business.
	•		K-Tron serves its existing customers through a well-established distribution and service organization that spans the globe. It will continue to expand its global leadership by dedicating resources to the expansion of its distribution network into new and developing high-growth potential geographic markets and industries that are less prone to cyclical swings.
	•		The strategy of increasing its worldwide capabilities requires K-Tron to evaluate its current branding strategy as part of a goal to present a unified and consistent message to global target markets in the new fiscal year. K-Tron’s commitment to efficient delivery of technological capabilities around the world will be supported by ongoing and new investment in strategically placed manufacturing, sales and service support capabilities, and testing facilities.
	•		K-Tron is dedicating human resources to the development of centralized market intelligence systems. Management believes that gathering, analyzing, and reporting market information and leading economic indicators will facilitate early detection of technology and market trends, which in turn will help K-Tron to maintain and expand its leadership position in the industries it serves across the globe.

Continue growth through acquisitions

	•		The material handling equipment manufacturing industry is very fragmented both in terms of product offering and geographic reach, whereas many customers operate on a global basis. K-Tron will continue to search for add-on acquisition opportunities that will allow it to expand its product offering with complementary products and to sell these products through its global distribution network. This will position K-Tron to offer its global customers standardized solutions for use in their worldwide facilities and will also position it as the local supplier of choice for national and regional customers.
	•		Consistent with the strategy of globalization, K-Tron will continue to look for acquisitions that either expand its international footprint outside the U.S. or accelerate the execution of its strategy to build a leadership position in material handling systems to targeted industries.

Utilize lean business principles to increase profit margins

	•		K-Tron has started to implement the Hillenbrand Lean Business Principles at select engineering and manufacturing facilities in order to improve efficiencies and reduce costs in operations, distributions, and administrative functions.
	•		K-Tron is dedicating financial and human resources to create a globally standardized and integrated business processes which maximize efficiencies in its product design, manufacturing, sales, and services functions.

Other

Regulatory Matters

Both Batesville and K-Tron are subject to a variety of federal, state, local, and foreign laws and regulations relating to environmental, health, and safety concerns, including the handling, storage, discharge, and disposal of hazardous materials used in or derived from our manufacturing processes. We are committed to operating all of our businesses in a manner that protects the environment. In the past, we have voluntarily entered into remediation agreements with various environmental authorities to address onsite and offsite environmental impacts. From time to time we provide for reserves in our financial statements for environmental matters. We believe we have appropriately satisfied the financial responsibilities for all currently known offsite issues. Based on the nature and volume of materials involved regarding onsite impacts, we do not expect our cost for the onsite remediation activities in which we are currently involved to exceed $0.5 million in the future. Future events or changes in existing laws and regulations or their interpretation may require us to make additional expenditures in the future. The cost or need for any such additional expenditure is not known.

Executive Officers of the Registrant

Our Board of Directors is responsible for electing the Company’s executive officers annually and from time to time as necessary. Executive officers serve in the ensuing year and until their respective successors are elected and qualified. Except for Board members Gus Hillenbrand and Tom Johnson, who are first cousins to Ray Hillenbrand, there are no other family relationships between any of our executive officers or between any of them and any members of the Board of Directors. The following is a list of our executive officers as of November 15, 2010.

Kenneth A. Camp, 65, was elected President and Chief Executive Officer of Hillenbrand effective February 8, 2008. Mr. Camp was also elected as a board member on that same date. Prior to his appointment as President and Chief Executive Officer of Hillenbrand, Mr. Camp had served as President and Chief Executive Officer of Batesville since May 1, 2001. Mr. Camp currently serves as Chairman and Chief Executive Officer of K-Tron International following the acquisition on April 1, 2010. He was elected Senior Vice President of our Former Parent on October 1, 2006, having been a Vice President of that company since October 8, 2001. He was employed by our Former Parent from 1981 until the separation on March 31, 2008. Mr. Camp previously held the position of Vice President of Administration of our Former Parent from 2000 to 2001. Prior to that assignment, he held various positions at Batesville, including Vice President/General Manager of Operations from 1995 to 2000; Vice President, Sales and Service; Vice President, Marketing; and Vice President, Strategic Planning.

Cynthia L. Lucchese, 50, was elected Senior Vice President and Chief Financial Officer of Hillenbrand effective February 8, 2008. From 2005 to 2007, she served as Senior Vice President and Chief Financial Officer for Thoratec Corporation. Prior to that, she worked 10 years for Guidant Corporation, now a part of Boston Scientific Corporation, in a variety of senior finance roles, including Vice President and Treasurer, Corporate Controller and Chief Accounting Officer, and Vice President of Finance and Administration of the Guidant Sales Corporation. Ms. Lucchese was also previously employed by Eli Lilly and Company and Ernst & Young LLP.

Joe A. Raver, 44, was elected President and Chief Operating Officer of Batesville, effective June 16, 2008, and Senior Vice President of Hillenbrand on July 15, 2008. Prior to his appointment as an officer of Batesville and Hillenbrand, Mr. Raver served as Vice President and General Manager of the Respiratory Care Division of Hill-Rom, a leading global provider of medical equipment and services. He joined Hill-Rom in 2004 as Vice President of Strategy and Shared Services. Prior to joining Hill-Rom, Mr. Raver spent 10 years in a variety of leadership positions at Batesville and Hill-Rom, including being appointed Vice President of Strategy in 2001 and Vice President of Logistics at Batesville in 2002.

Kevin C. Bowen, 59, was appointed President of the K-Tron Process Group, following K-Tron’s acquisition on April 1, 2010. Prior to the acquisition of K-Tron, Mr. Bowen had served as Senior Vice President, Process Group, since July 2005 and as President and Chief Executive Officer of K-Tron America, Inc. (a subsidiary of K-Tron International, Inc.) since March 1995. Mr. Bowen began his career with K-Tron in 1979, and has held a variety of other senior leadership positions with the Company.

Donald W. Melchiorre, 62, was appointed President of the K-Tron Size Reduction Group, following K-Tron’s acquisition on April 1, 2010. Prior to the acquisition of K-Tron, Mr. Melchiorre had served as Senior Vice President, Size Reduction Group, since May 2006 and as President and Chief Executive Officer of Pennsylvania Crusher Corporation (a subsidiary of K-Tron International, Inc.) since October 2004. Mr. Melchiorre has approximately 24 years with K-Tron serving in a variety of senior management positions and roles.

John R. Zerkle, 56, was elected Senior Vice President, General Counsel, and Secretary of Hillenbrand effective February 8, 2008. Most recently, Mr. Zerkle had served as Vice President and General Counsel of Batesville since March 2004. From September 2002 to February 2004, Mr. Zerkle served as Vice President and General Counsel of Forethought Financial Services, Inc., then a subsidiary of Hill-Rom. He also served as Compliance Officer for Forethought Investment Management, Inc. Prior to joining Forethought, Mr. Zerkle was in private practice for 20 years, where he focused his practice on corporate, securities, regulatory, and banking law matters.

Paul Douglas Wilson, 58, was elected Senior Vice President, Human Resources, of Hillenbrand effective March 14, 2008. Most recently, Mr. Wilson served as Vice President, Worldwide Merger Integration, for Boston Scientific Corporation, following the close of the merger between Boston Scientific and Guidant Corporation in 2006. Mr. Wilson joined Guidant Corporation in 2002 and served as Vice President of Human Resources. Prior to Guidant, Mr. Wilson was President and a Principal of Ronald Blue & Co., a privately held firm providing financial planning, investment management, tax planning, and philanthropic counsel. Mr. Wilson began his career with Eli Lilly and Company, where he spent 20 years in a variety of increasingly senior executive human resource roles.

Hinesh B. Patel, 42, was elected Vice President, Strategy and Business Development, of Hillenbrand effective August 18, 2008. Prior to accepting his current position with Hillenbrand, Mr. Patel served as Director of Strategy and Business Development for Honeywell International Inc., a position he had held since April 2007. Prior to joining Honeywell International Inc., Mr. Patel held other management roles in business development, strategy, and operations with Milliken & Company, Caspian Networks Inc., Eaton Corporation, and Arthur D. Little.

Lukas Guenthardt, 52, was appointed Senior Vice President, Corporate Development and Secretary, of K-Tron International, Inc., following K-Tron’s acquisition on April 1, 2010. Prior to the acquisition of K-Tron, Mr. Guenthardt had served as Senior Vice President, Corporate Development, of K-Tron International, Inc. since July 2005. Prior to that, he was Senior Vice President, Pneumatic Conveying Group, and Chief Strategy Officer of K-Tron from February 2002 to July 2005; Senior Vice President, New Businesses, and Chief Strategy Officer from June 2000 to February 2002. Mr. Guenthardt has approximately 18 years with K-Tron serving in other management roles, including Director of International Research and Development.

Jan M. Santerre, 49, was elected Vice President, Lean Business, of Hillenbrand effective December 1, 2008. Prior to accepting her position with Hillenbrand, Ms. Santerre served as Vice President of Operations, Hydraulics Group, for Parker Hannifin Corporation, a position she had held since April 2005. From 2003 to 2005, Ms. Santerre served as Parker Hannifin’s Vice President of Lean Enterprise and Quality, where she developed and deployed the Parker Lean System. Prior to that, Ms. Santerre was with Delphi Automotive Systems and General Motors for 18 years with responsibilities in engineering, quality, and manufacturing, culminating in executive operations roles.

Theodore S. Haddad, Jr., 46, was elected Vice President, Controller and Chief Accounting Officer of Hillenbrand on February 8, 2008. Prior to joining Hillenbrand, Mr. Haddad had served as Senior Manager in the Audit and Business Advisory Services Group of PricewaterhouseCoopers LLP since July 2002. Prior to that, Mr. Haddad served as a Senior Manager in the audit group of Arthur Andersen LLP, having been with that firm since July 1991. Mr. Haddad is a Certified Public Accountant and Certified Management Accountant.

Item 1A.		Risk Factors

In this section of the Form 10-K, we describe the risks we believe are most important for you to think about when you consider investing in, selling, or owning our stock or publicly traded debt. This information should be assessed along with the other information we provide you in this Form 10-K. Like most companies, our business involves risks. The risks described below are not the only risks we face, but these are the ones we currently think have the potential to significantly affect stakeholders in our Company if they were to develop adversely (due to size, volatility, or both). We exclude risks that we believe are inherent in all businesses broadly as a function of simply being “in business.” Additional risks not currently known or considered immaterial by us at this time and thus not listed below could also result in adverse effects on our business. In the risk descriptions below, we have assigned the risks into categories to help you understand where they emanate from (e.g. the overall company or a specific segment).

Risk Related to Our Overall Company

Our growth strategy involves the potential for significant acquisitions, some of which may be outside our current industry. We may not be able to achieve some or all of the benefits that we expect to achieve from these acquisitions. If an acquisition were to perform unfavorably, it could have an adverse impact on our value.

One component of our strategy contemplates our making acquisitions. All acquisitions involve inherent uncertainties, some of which include, among other things, our ability to:

•		successfully identify targets for acquisition,
•		negotiate reasonable terms for any particular deal,
•		properly perform due diligence and determine all the significant risks associated with a particular acquisition,
•		properly evaluate target company management capabilities, and
•		successfully transition the acquired company into our business and achieve the desired performance.

We also may acquire businesses with unknown or contingent liabilities, including liabilities for failure to comply with potential industry or environmental regulations or tax contingencies. We have plans and procedures to conduct reviews of potential acquisition candidates for compliance with applicable regulations and laws prior to the acquisition and will also generally seek indemnification from sellers covering these matters. Despite these efforts, we may incur material liabilities for past activities of acquired businesses.

In the event that we acquire a business that operates outside of our current industries, we may not achieve the intended benefits of the acquisition and our business could be materially impacted. Under such circumstances, management could be required to spend significant amounts of time and resources in the transition of the business of the acquired entity due to the lack of experience in the industry of the acquired business. In addition, any benefits we anticipate from application of our lean manufacturing and lean business expertise may not be fully realized. Also, if we acquire a company that operates in an industry that is different from the ones in which we operate, our lack of experience with that company’s industry could have a material adverse impact on our ability to manage that business and realize the benefits of that acquisition.

Global market and economic conditions, including those related to the credit markets, could have a material adverse effect on our business, financial condition, and results of operations.

The severity of the recent economic recession caused by the ongoing worldwide financial and credit market disruptions have reduced the availability of credit generally necessary to fund economic growth and activity, and there is not yet clear evidence to suggest that efforts undertaken by the various government entities to mitigate this recession will be successful.

A prolonged or double-dip recession could adversely affect our business in several ways. A continuation or worsening of the current credit markets and economic conditions could adversely affect our customers’ ability to obtain sufficient credit or pay for our products within the terms of sale and, as a result, our reserves for doubtful accounts and receivable write-offs could increase. A prolonged recession could further intensify the competition among the manufacturers and distributors with whom we compete for volume and market share, resulting in lower net revenues due to steeper discounts and further product mix-down. If certain key or sole suppliers were to become capacity constrained or insolvent as a result of the global economic conditions, it could result in a reduction or interruption in supplies or a significant increase in the price of supplies. In addition, the substantial losses in the equity markets as a result of the recent recession can have an adverse effect on the assets of the Company’s pension plans. A continuation of the volatility of interest rates and negative equity returns under current market conditions could require greater contributions to the defined benefit plans in the future.

Our sales abroad subject us to the risk of adverse foreign currency fluctuations which could negatively impact our results of operations.

We derived approximately 11.6%, 6.6% and 7.2% of our revenues from outside the U.S. for the years ended September 30, 2010, 2009, and 2008, respectively. Historically, these revenues have primarily been in Canada. With our recent acquisition of K-Tron in April 2010, significant international sales are now coming from Europe, the Middle East, and Asia. As a result, we believe our exposure to fluctuations in exchanges rates will increase proportionately and can have an unfavorable effect on our operating results, depending on the extent of that volatility. This exposure is most acute where we enter into sales contracts in currencies different from the currency in which we incur our costs (particularly the euro, where our costs are incurred in Swiss francs). Also, since the results of operations of our foreign subsidiaries are translated into U.S. dollars, fluctuations in the exchange rate of the U.S. dollar versus each of the Swiss franc, the euro, the British pound sterling, the Canadian dollar, and the Swedish krona will affect the U.S. dollar amount of their operating results. Finally, we are exposed to foreign currency transactional gains and losses caused by the “marking to market” of balance sheet items of our foreign subsidiaries, which are measured in other currencies, particularly the euro on the balance sheet of our Swiss subsidiary.

Increased prices for, or unavailability of, raw materials used in our products could adversely affect profitability. In particular, our results of operations continue to be adversely affected by volatile prices for steel, red metals (i.e. copper and bronze), and fuel.

Our profitability is affected by the prices of the raw materials used in the manufacture of our products. These prices fluctuate based on a number of factors beyond our control, including changes in supply and demand, general economic conditions, labor costs, fuel-related delivery costs, competition, import duties, tariffs, currency exchange rates, and, in some cases, government regulation. Significant increases in the prices of raw materials that cannot be recovered through increases in the price of our products could adversely affect our results of operations and cash flows.

We cannot guarantee that the prices we are paying for commodities today will continue in the future or that the marketplace will continue to support current prices for our products or that such prices can be adjusted to fully offset such commodity price increases in the future. Any increases in prices resulting from a tightening supply of these or other commodities or fuel could adversely affect our profitability. We generally do not engage in hedging transactions with respect to raw material purchases, but we do enter into some fixed price supply contracts.

Our dependency upon regular deliveries of supplies from particular suppliers means that interruptions or stoppages in such deliveries could adversely affect our operations until arrangements with alternate suppliers could be made. Several of the raw materials used in the manufacture of our products currently are procured from only a single source. If any of these sole-source suppliers were unable to deliver these materials for an extended period of time as a result of financial difficulties, catastrophic events affecting their facilities, or other factors, or if we were unable to negotiate acceptable terms for the supply of materials with these sole-source suppliers, our business could suffer. We may not be able to find acceptable alternatives, and any such alternatives could result in increased costs. Extended unavailability of a necessary raw material could cause us to cease manufacturing one or more products for a period of time.

Collection risk associated with our note receivable from Forethought Financial Group, Inc. (“Forethought”) could have a material adverse impact on our earnings.

We hold a significant non-operating asset in the form of a note receivable (and related interest receivable) from Forethought. This asset was transferred to us at the time of separation of Hillenbrand Industries, Inc. into two separate publicly traded companies, Hillenbrand and Hill-Rom. As of September 30, 2010, this note receivable had an aggregate carrying value of $144.8 million. This note receivable primarily represents seller-provided financing to Forethought, the entity that purchased Hill-Rom’s former Forethought Financial Services, Inc. subsidiary. Forethought, through its subsidiaries, provides insurance and financial solutions for families managing retirement and end-of-life needs.

Should Forethought fail to perform consistently with the original expectations set forth by Forethought or underperform to an extent that it cannot meet its financial obligations, the note could become impaired, causing an impairment charge that could result in a material adverse impact on our financial condition and results of operations. Payments under the note are due in annual $10 million installments beginning on July 1, 2010, through July 1, 2014, at which time the balance of the note is due and payable (unless otherwise deferred in accordance with its terms).

Volatility in our investment portfolio could negatively impact earnings as their performance is tied to market swings. Also, if we are unable to convert our portfolio of auction rate securities to cash at reasonable terms, our earnings could be adversely affected.

In connection with our separation from Hill-Rom, ownership in certain investments in private partnerships were transferred to us that had an aggregate carrying value of $15.2 million as of September 30, 2010. Volatility in that investment portfolio negatively or positively impacts earnings. These investments could be adversely affected by general economic conditions, changes in interest rates, equity market swings, and other factors, resulting in an adverse impact on our results from operations.

In addition, we received a portfolio of auction rate securities (“ARS”) (consisting of highly rated tax-exempt state and municipal securities, the majority of which are collateralized by student loans guaranteed by the U.S. government under the Federal Family Education Loan Program) that Hill-Rom was not able to liquidate prior to the separation due to the market conditions and auction failures. The ARS had an aggregate carrying value of $11.9 million as of September 30, 2010. If conditions do not improve or worsen, we may not be able to convert these securities to cash for the foreseeable future and these assets could become impaired and could adversely affect our earnings.

We are involved on an ongoing basis in claims, lawsuits, and governmental proceedings relating to our operations, including environmental, antitrust, patent infringement, business practices, commercial transactions, and other matters.

The ultimate outcome of these claims, lawsuits, and governmental proceedings cannot be predicted with certainty, but could have a material adverse effect on our financial condition, results of operations, and cash flow. We are also involved in other possible claims, including product and general liability, workers compensation, auto liability, and employment-related matters. While we maintain insurance for certain of these exposures, the policies in place are high-deductible policies resulting in our assuming exposure for a layer of coverage with respect to such claims. For a more detailed discussion of our asserted claims, see Note 12 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Upon closing of the K-Tron acquisition, we increased our debt obligations significantly. This could adversely affect our Company and limit our ability to respond to changes in our businesses.

As of September 30, 2010, our outstanding debt was $403.4 million. This level of debt could have important consequences to our businesses. For example:

•		we may be more vulnerable to general adverse economic and industry conditions because we have significantly lower borrowing capacity;
•		we will be required to dedicate a larger portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow for other purposes, including business development efforts and acquisitions;
•		we will continue to be exposed to the risk of increased interest rates because a portion of our borrowings is at variable rates of interest; and
•		our flexibility in planning for, or reacting to, changes in our businesses and the industries in which they operate may be more limited, thereby placing us at a competitive disadvantage compared to competitors that have less indebtedness.

Risk Related to Batesville

Continued fluctuations in mortality rates and increased cremations may adversely affect, as they have in recent years, the sales volume of our burial caskets.

The life expectancy of U.S. citizens has increased steadily since the 1950s and is expected to continue to do so for the foreseeable future. As the population of the U.S. continues to age, we anticipate the number of deaths in the U.S. will be relatively flat until the number of deaths increase due to aging baby boomers.

Cremations as a percentage of total U.S. deaths have increased steadily since the 1960s and are also expected to continue to increase for the foreseeable future. Therefore, the number of cremations in the U.S. is gradually and steadily increasing, resulting in a contraction in the demand for burial caskets. This was a contributing factor to lower burial casket sales volumes for Batesville in each of the last three fiscal years. We expect these trends to continue into the foreseeable future, and its burial casket volumes will likely continue to be negatively impacted by these market conditions.

Finally, the number of deaths can vary over short periods of time and among different geographical areas, due to a variety of other factors, including the timing and severity of seasonal outbreaks of illnesses such as pneumonia and influenza. Such variations could cause the sale of burial caskets to fluctuate from quarter to quarter and year to year.

Batesville’s business is significantly dependent on several major contracts with large national funeral providers. The relationships with these customers pose several risks.

Batesville has contracts with a number of large national funeral home customers that comprise a sizeable portion of its overall sales volume. The largest contract is with Service Corporation International, which accounted for approximately 13% of Batesville’s 2010 consolidated net revenues (and was their only customer over 10%). Any decision by large national funeral home customers to discontinue purchases from Batesville could have a material adverse effect on our financial condition, results of operations, and cash flows. Also, while contracts with large national funeral service providers give Batesville important access to many of the largest purchasers of funeral service products, they may obligate Batesville to sell products at contracted prices for extended periods of time, therefore limiting Batesville’s ability, in the short term, to raise prices in response to significant increases in raw material prices or other factors.

Batesville is facing competition from a number of non-traditional sources and caskets manufactured abroad and imported into North America.

Non-traditional funeral product providers could present more of a competitive threat to Batesville and its sales channel than is currently anticipated. Large discount retailers (such as Wal-Mart and Costco), casket stores, and internet casket retailers represent these types of competitors. Also, there are several manufacturers located in China producing caskets for sale into the U.S. While sales from these providers are currently a small percentage of total casket sales in the U.S. (we believe approximately 3%), it is not possible to quantify the financial impact that these competitors will have on Batesville in the future. These competitors and any new entrants into the market may drive pricing and other competitive actions in an industry that already has nearly twice the necessary domestic production capacity. Such competitive actions could have a negative impact on our results of operations and cash flows.

Despite our recent successes in court, the antitrust litigation in which we are a defendant has not yet been resolved, and an adverse outcome in that matter could have a material adverse effect on our results of operations, financial position, and liquidity.

As discussed in Note 12 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, we are a defendant in a purported antitrust class action lawsuit. The Federal District Court denied class certification in that matter, and the Fifth Circuit denied the plaintiffs’ appeal petition. Further requests for reconsideration by the plaintiffs have also been denied. Despite these favorable rulings, the plaintiffs pursued their individual injunctive and damage claims. The District Court issued a final judgment dismissing the case, but the plaintiffs have filed an appeal, which could include an appeal of the District Court’s order denying class certification. If they succeed in reversing the District Court order denying class certification and a class is certified in the action filed against Hill-Rom and Batesville and if the plaintiffs prevail at a trial of the class action, 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. In antitrust actions, the plaintiffs may elect to enforce any judgment against any or all of the codefendants, who have no statutory contribution rights against each other.

A substantial portion of Batesville’s workforce is unionized, and it could face labor disruptions that would interfere with operations.

Approximately 33% of Batesville’s employees as part of our logistics and manufacturing operations work under collective bargaining agreements. Although Batesville has not experienced any significant work stoppages in the past 20 years as a result of labor disagreements, we cannot ensure that such a stoppage will not occur in the future. Inability to negotiate satisfactory new agreements or a labor disturbance at one of the principal facilities could have a material adverse effect on our operations.

Risk Related to K-Tron

A significant portion of our investment in K-Tron includes goodwill and intangible assets that are subject to periodic impairment evaluations. An impairment loss on these could have a material adverse impact on our financial condition and results of operations.

We acquired $404.5 million of intangible assets with the acquisition of K-Tron, of which $236.4 million was identified as either goodwill or indefinite-lived assets. As required by current accounting standards, we review intangible assets for impairment either annually or whenever changes in circumstances indicate that the carrying value may not be recoverable.

During the early years of an acquisition, the risk of impairment to goodwill and non-amortizing intangible assets is naturally higher. This is because the fair values of these assets align very closely with what we recently paid to acquire the reporting units to which these assets are assigned. This means the difference between the carrying value of the reporting unit and its fair value (typically referred to as “headroom”) is naturally smaller at the time of acquisition. Until this headroom grows over time (due to business growth or lower carrying value of the reporting unit due to natural amortization, etc.), a relatively small decrease in reporting unit fair value can trigger an impairment. That fair value is affected by actual business performance but is also determined by the market (usually reflected in the value of our common stock). As a consequence, even with favorable business performance, the market alone can drive an impairment condition if general business valuations decline enough. When impairment charges are triggered, they tend to be material due to the sheer size of the assets involved. Our next annual test of these assets for K-Tron is scheduled for April 1, 2011.

K-Tron operates in cyclical industries.

As an industrial capital goods supplier, many of the markets for K-Tron’s products are cyclical. During periods of economic expansion, when capital spending normally increases, K-Tron generally benefits from greater demand for its products. During periods of economic contraction, when capital spending normally decreases, K-Tron generally is adversely affected by declining demand for its products, and it may be subject to uncollectible receivables from customers who become insolvent. Also, even when there is economic expansion or increased demand for our equipment, there can be no assurance that this economic expansion or increased demand will be sustained in the markets in which we sell its products.

K-Tron derives a substantial portion of its sales from the electric generating and coal mining industries. Any downturn in the demand for electricity or downturn in or disruption to the coal industry as a result of increased environmental laws and regulations could have a material adverse effect on our business, financial condition, and results of operations.

K-Tron sells size reduction equipment to the electric generating and coal mining industries, and consequently a significant portion of its sales are tied to the use of coal as a means of generating electricity. The demand by electric generating utilities for coal is dependent upon the availability and cost in any given location of alternative sources of energy, such as natural gas, oil, or nuclear power. As a result, any downturn in the demand for electricity, or downturn in or disruption to the coal industry (upon which electric utilities are dependent), could have a material adverse effect on our business, financial condition, and results of operation.

Federal, state, and local laws and regulations extensively regulate the amount of sulfur dioxide, particulate matter, nitrogen oxides, mercury, and other compounds emitted into the air from electric power plants, whose owners are principal customers of our size reduction business. These laws and regulations can require significant emission control expenditures for many coal-fired power plants, and various new and proposed laws and regulations may require further emission reductions and associated emission control expenditures. There is also continuing pressure on state and federal regulators to impose limits on carbon dioxide emissions from coal-fired power plants. As a result, the cost of compliance could cause electric utilities to abandon the process of using coal to generate electricity altogether due to commercial impracticability and decreasing the demand for our products.

Risk Related to Our Common Stock

Provisions in our Articles of Incorporation and By-laws and of Indiana law may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

Our Articles of Incorporation, By-laws, and Indiana law contain provisions that could delay or prevent changes in control if our Board of Directors determines that such changes in control are not in the best interests of our shareholders. While these provisions have the effect of encouraging persons seeking to acquire control of our company to negotiate with our Board of Directors, they could enable our Board of Directors to hinder or frustrate a transaction that some, or a majority, of our shareholders might believe to be in their best interests.

These provisions include, among others:

	•		the division of our Board of Directors into three classes with staggered terms;
	•		the inability of our shareholders to act by less than unanimous written consent;
	•		rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings;
	•		the right of our Board of Directors to issue preferred stock without shareholder approval; and
	•		limitations on the right of shareholders to remove directors.

Indiana law also imposes some restrictions on mergers and other business combinations between us and any holder of 10% or more of our outstanding common stock, as well as on certain “control share” acquisitions.

We believe these provisions are important for a public company and protect our shareholders from coercive or otherwise potentially unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make our company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some shareholders and could delay or prevent an acquisition that our Board of Directors determines is not in the best interests of our shareholders.

Item 1B.		UNRESOLVED STAFF COMMENTS

We have not received any comments from the staff of the SEC regarding our periodic or current reports that remain unresolved.

Item 2.		PROPERTIES

The principal properties used in our operations are listed below. All facilities are suitable for their intended purpose, are being efficiently utilized, and are believed to provide adequate capacity to meet demand for the next several years.

		Owned /
Location		Leased		Entity		Description		Primary Use
Batesville, Indiana		Owned		Hillenbrand and Batesville		Office facilities Manufacturing plants		Administration Manufacturing metal caskets
Manchester, Tennessee		Owned		Batesville		Manufacturing plant		Manufacturing metal caskets
Vicksburg, Mississippi		Owned		Batesville		Kiln drying and lumber cutting plant		Drying and dimensioning of lumber
Batesville, Mississippi		Owned		Batesville		Manufacturing plant		Manufacturing of hardwood caskets
Chihuahua, Mexico		Leased		Batesville		Manufacturing plant		Manufacturing of veneer hardwood and hardwood caskets
Mexico City, Mexico		Owned		Batesville		Manufacturing plant		Manufacturing of metal caskets, primarily for sale outside the U.S.

		Owned /
Location		Leased		Entity		Description		Primary Use
Pitman, New Jersey		Owned		K-Tron		Office facilities Manufacturing plant		Administration Manufacturing of material handling equipment
Salina, Kansas		Owned		K-Tron		Office facilities Manufacturing plant		Administration Manufacturing of material handling equipment
Niederlenz, Switzerland		Owned		K-Tron		Office facilities Manufacturing plant		Administration Manufacturing of material handling equipment
Wuxi, China		Leased		K-Tron		Manufacturing plant		Manufacturing of material handling equipment
Broomall, Pennsylvania		Leased		K-Tron		Office facilities Testing facility		Administration Testing facility
Cuyahoga Falls, Ohio		Leased		K-Tron		Manufacturing plant		Manufacturing of material handling equipment
Belleville, Illinois		Owned		K-Tron		Office facilities Manufacturing plant		Administration Manufacturing of material handling equipment
Woodruff, South Carolina		Owned		K-Tron		Office facilities Manufacturing plant		Administration Manufacturing of material handling equipment

In addition to the foregoing, we lease or own a number of other warehouse distribution centers, service centers, and sales offices throughout the U.S., United Kingdom, Mexico, Canada, Sweden, France, Germany, and Singapore.

Item 3.		LEGAL PROCEEDINGS

Antitrust Litigation

In 2005 the Funeral Consumers Alliance, Inc. (“FCA”) 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 the Company and our former parent company, Hillenbrand Industries, Inc., now Hill-Rom Holdings, Inc. (“Hill-Rom”), and three national funeral home businesses (the “FCA Action”). A similar purported antitrust class action lawsuit was later filed by Pioneer Valley Casket Co. and several so-called “independent casket distributors” on behalf of casket sellers who were unaffiliated with any licensed funeral home (the “Pioneer Valley Action”). Class certification hearings in the FCA Action and the Pioneer Valley Action were held before a Magistrate Judge in early December 2006. On November 24, 2008, the Magistrate Judge recommended that the plaintiffs’ motions for class certification in both cases be denied. On March 26, 2009, the District Judge adopted the memoranda and recommendations of the Magistrate Judge and denied class certification in both cases. On April 9, 2009, the plaintiffs in the FCA case filed a petition with the U.S. Court of Appeals for the Fifth Circuit for leave to file an appeal of the Court’s order denying class certification. On June 19, 2009, a three-judge panel of the Fifth Circuit denied the FCA plaintiffs’ petition. On July 9, 2009, the FCA plaintiffs filed a request for reconsideration of the denial of their petition. On July 29, 2009, a three-judge panel of the Fifth Circuit denied the FCA plaintiffs’ motion for reconsideration and their alternative motion for leave to file a petition for rehearing en banc (by all of the judges sitting on the Fifth Circuit Court of Appeals).

The Pioneer Valley plaintiffs did not appeal the District Court’s order denying class certification, and on April 29, 2009, pursuant to a stipulation among the parties, the District Court dismissed the Pioneer Valley Action with prejudice (i.e., Pioneer Valley cannot appeal or otherwise reinstitute the case). Neither the Company nor Hill-Rom provided any payment or consideration for the plaintiffs to dismiss this case, other than agreeing to bear their own costs, rather than pursuing plaintiffs for costs.

Plaintiffs in the FCA Action have generally sought monetary damages on behalf of a class, trebling of any such damages that may be awarded, recovery of attorneys’ fees and costs, and injunctive relief. The plaintiffs in the FCA Action filed a report indicating that they were 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, based on approximately one million casket purchases by the purported class members.

Because Batesville continues to adhere to its long-standing policy of selling Batesville caskets only to licensed funeral homes, a policy that it continues to believe is appropriate and lawful, if the case goes to trial the plaintiffs are likely to claim additional alleged damages for periods between their reports and the time of trial. At this point, it is not possible to estimate the amount of any additional alleged damage claims that they may make. The defendants are vigorously contesting both liability and the plaintiffs’ damages theories.

Despite the July 29, 2009 ruling denying class certification, the FCA plaintiffs continued to pursue their individual injunctive and damages claims. Their individual damages claims are limited to the alleged overcharges on the plaintiffs’ individual casket purchases (the complaint currently alleges a total of eight casket purchases by the individual plaintiffs), which would be trebled, plus reasonable attorneys fees and costs.

In June 2010, co-defendant Stewart Enterprises, Inc. announced a settlement with the plaintiffs. On July 16, 2010, the District Court granted the defendants’ remaining motion for leave to file a motion to dismiss for lack of subject matter jurisdiction. On August 2, 2010, the District Court heard argument on the defendants’ motion to dismiss for lack of subject matter jurisdiction. The Court ordered full dismissal of the lawsuit on September 24, 2010, concluding that “plaintiffs shall take nothing by their suit.” In light of this decision, defendants filed a motion requesting that the Court order plaintiffs to pay costs incurred by Batesville and SCI in the approximate amount of $0.7 million. The Court denied this motion on October 22, 2010.

Plaintiffs had 30 days to declare their intent to appeal the dismissal of their lawsuit, and they did so by way of a Notice of Appeal filed on October 19, 2010. Plaintiffs’ Notice indicates that they intend to appeal both the Court’s final judgment of dismissal entered on September 24, 2010 and the Court’s order denying class certification entered on March 26, 2009. The appeal will be to the U.S. Court of Appeals for the Fifth Circuit.

Over the next several months, the record will be compiled for appeal and extensive briefing will occur. Plaintiffs’ brief appealing the denial of the two orders must be filed within 40 days after the District Court record is certified. Although firm dates are not yet known, the plaintiffs’ brief will likely be due sometime in January 2011, with defendants’ brief due in February 2011, and a reply brief from plaintiffs due in March 2011. Once all briefs are submitted, the Court of Appeals may hear oral argument by the parties’ attorneys and then issue its ruling as to whether or not the District Court’s decisions should be reversed or affirmed. It should be noted, however, that the above appellate schedule is only approximate and is subject to change dependent upon a number of factors, including the granting of any extensions of time and the relative congestion of the docket of the Court of Appeals.

If plaintiffs succeed in overturning the judgment, reversing the District Court order denying class certification, and a class is subsequently certified in the FCA Action filed against Hill-Rom and Batesville, and if the plaintiffs prevail at a trial of the class action, 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. In antitrust actions such as the FCA Action the plaintiffs may elect to enforce any judgment against any or all of the codefendants, who have no statutory contribution rights against each other. We and Hill-Rom have entered into a judgment sharing agreement that apportions the costs and any potential liabilities associated with this litigation between us and Hill-Rom. See Note 6 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2010.

As of October, 2010, we have incurred approximately $27.5 million in cumulative legal and related costs associated with the FCA matter, since its inception.

General

We are involved on an ongoing basis in claims and lawsuits relating to our operations, including environmental, antitrust, patent infringement, business practices, commercial transactions, and other matters. The ultimate outcome of these lawsuits cannot be predicted with certainty. An estimated loss from these contingencies is recognized when we believe it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. However, it is difficult to measure the actual loss that might be incurred related to litigation. The ultimate outcome of these lawsuits could have a material adverse effect on our financial condition, results of operations, and cash flow.

Legal fees associated with claims and lawsuits are generally expensed as incurred. Upon recognition of an estimated loss resulting from a settlement, an estimate of legal fees to complete the settlement is also included in the amount of the loss recognized.

We are also involved in other possible claims, including product and general liability, workers compensation, auto liability, and employment related matters. Claims other than employment and related matters have deductibles and self-insured retentions ranging from $0.5 million to $1.0 million per occurrence or per claim, depending upon the type of coverage and policy period. Outside insurance companies and third-party claims administrators establish individual claim reserves, and an independent outside actuary provides estimates of ultimate projected losses, including incurred but not reported claims, which are used to establish reserves for losses. Claim reserves for employment related matters are established based upon advice from internal and external counsel and historical settlement information for claims and related fees, when such amounts are considered probable of payment.

The recorded amounts represent our best estimate of the costs we will incur in relation to such exposures, but it is virtually certain that actual costs will differ from those estimates.

Item 4.		[REMOVED AND RESERVED]

PART II

Item 5.		MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Hillenbrand, Inc.’s common stock is traded on the New York Stock Exchange under the ticker symbol “HI.” The closing price of our common stock on the New York Stock Exchange on November 15, 2010, was $20.00 The following table reflects the quarterly range of high and low selling prices of our commons stock for fiscal 2010 and 2009.

		2010								2009
		High				Low				High				Low
First quarter		$	21.04			$	18.25			$	20.88			$	13.96
Second quarter		$	22.27			$	17.85			$	19.39			$	14.68
Third quarter		$	25.77			$	20.85			$	18.18			$	15.24
Fourth quarter		$	22.57			$	19.03			$	20.97			$	16.70

Holders

On November 15, 2010, we had approximately 2,900 shareholders of record.

Dividends

The following table reflects historical dividend information for the periods presented.

		2010				2009				2008
First quarter		$	0.1875			$	0.1850			$	N/A	*
Second quarter		$	0.1875			$	0.1850			$	N/A	*
Third quarter		$	0.1875			$	0.1850			$	0.1825
Fourth quarter		$	0.1875			$	0.1850			$	0.1825

Although we have paid cash dividends since our inception on April 1, 2008, the declaration and payment of cash dividends is at the sole discretion of our Board of Directors and depends upon many factors, including our financial condition, earnings potential, capital requirements, alternative uses of cash, covenants associated with debt obligations, legal requirements, and other factors deemed relevant by the Board of Directors.

In accordance with the covenants contained in our Distribution Agreement with Hill-Rom, as amended, we are restricted from paying regular quarterly dividends in excess of $0.1875 per share or from incurring indebtedness to pay an extraordinary cash dividend without prior written approval of Hill-Rom until the occurrence of an Agreed Termination Event (as defined in the Distribution Agreement) with Hill-Rom has occurred. For a more detailed discussion, see the section entitled “Distribution Agreement” within Note 6 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K. We currently expect that comparable quarterly cash dividends will continue to be paid in the future.

Issuer Purchases of Equity Securities

On July 24, 2008, our Board of Directors approved the repurchase of up to $100 million of common stock. The program has no expiration date, but may be terminated by the Board of Directors at any time. As of September 30, 2010, we had repurchased approximately 1.0 million shares for $18.7 million, which are being held as treasury stock until reissued. There were no repurchases of shares in fiscal 2010. During fiscal 2010, 0.1 million shares were issued from treasury under our various stock compensation programs. At September 30, 2010, $81.3 million are available for repurchase under this plan. Additional information related to our equity compensation programs is included in Note 11 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Stock Performance Graph

The following graph compares the return on Hillenbrand common stock with that of Standard & Poor’s 500 Stock Index (“S&P 500 Index”) and the Standard & Poor’s 600 Small Cap Stock Index (“S&P 600 Index”) for the period from March 20, 2008, the date our common stock began trading on the New York Stock Exchange, to November 15, 2010. The graph assumes that the value of the investment in our common stock, the S&P 500 Index, and S&P 600 Index was $100 on March 20, 2008 and that all dividends were reinvested.

																		November 15,
Company Name/Index		Base				2008				2009				2010				2010
Hillenbrand, Inc.		$	100			$	112			$	114			$	122			$	113
S&P 500 Index		$	100			$	88			$	80			$	86			$	90
S&P 600 Small Cap Index*		$	100			$	100			$	88			$	99			$	106

Item 6.		SELECTED FINANCIAL DATA

Selected historical financial data as of and for the fiscal year ended September 30, 2006 to 2010, is derived from our audited consolidated financial statements for Hillenbrand, Inc. and its subsidiaries and is not necessarily indicative of results to be expected in the future. The historical financial information related to the periods prior to the separation on March 31, 2008, included herein, does not necessarily reflect the financial condition, results of operations, or cash flows that we would have achieved as a separate, publicly traded company during the periods presented or those that we will achieve in the future.

The selected financial data should be read together with Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Part II, Item 8, Financial Statements and Supplemental Data included in this Form 10-K.

The following table presents comparative consolidated financial data of Hillenbrand, Inc. for each of the last five years ended September 30 (amounts in millions, except per share data):

		2010				2009				2008				2007				2006
Net revenues		$	749.2			$	649.1			$	678.1			$	667.2			$	674.6
Gross profit		$	313.3			$	274.4			$	280.5			$	278.6			$	282.7
Operating profit		$	137.9			$	155.0			$	149.6			$	155.6			$	177.4
Net income		$	92.3			$	102.3			$	93.2			$	99.5			$	113.2
Net income per common share		$	1.49			$	1.66			$	1.49			$	1.59			$	1.81
Cash dividends declared per share *		$	0.75			$	0.74			$	0.365			$	—			$	—
Total assets		$	1,052.1			$	561.1			$	545.3			$	316.6			$	329.4
Long-term obligations		$	562.2			$	122.2			$	70.9			$	59.9			$	59.9
Cash flow provided by operating activities		$	118.2			$	123.2			$	101.8			$	127.3			$	124.6
Cash flow used in investing activities		$	(348.7	)		$	(5.3	)		$	(4.2	)		$	(20.1	)		$	(15.3	)
Cash flow provided by (used in) financing activities		$	289.8			$	(97.4	)		$	(94.4	)		$	(103.5	)		$	(107.0	)
Capital expenditures		$	16.3			$	10.0			$	10.0			$	15.6			$	18.8
Depreciation and amortization		$	28.2			$	18.5			$	19.0			$	18.5			$	17.7

Item 7.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

In this section of the Form 10-K, entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we attempt to give you a look at our Company “through the eyes of management” so that you can assess the financial condition and results of operations of our Company. The discussion that follows should give you information that will help you understand our business and its performance. We intend for the discussion to be clear and to explain the drivers of our results so that you can assess the quality of our earnings and the predictability of our future results. Discussion and analysis of our financial condition and operating results includes Hillenbrand, Inc. (“Hillenbrand”) and those of its operating segments, Batesville Services, Inc. (“Batesville”) and K-Tron International, Inc. (“K-Tron”), together with their wholly owned subsidiaries.

Results of Operations

The consolidated operating results of our Company are included in the selected financial data in Part II, Item 6 of this Form 10-K. We have disaggregated the relevant operating information into our two reporting segments, Batesville and K-Tron, along with our corporate operations. See Note 15 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for a reconciliation of the financial information below to our consolidated financial results.

The sections that follow present comparative operating results for Batesville, K-Tron, and our corporate operations. We also discuss changes in non-operating expenses and income, along with our income tax provision, in further detail below.

Batesville Results		Fiscal Year Ended September 30,
		2010								2009								2008
						% of								% of								% of
(amounts in millions)		Amount				Revenue				Amount				Revenue				Amount				Revenue
Revenue		$	640.3				100.0			$	649.1				100.0			$	678.1				100.0
Gross profit			277.7				43.4				274.4				42.3				280.5				41.4
Operating expenses			102.6				16.0				95.9				14.8				96.7				14.3
Operating income			175.1				27.3				178.5				27.5				183.8				27.1
Depreciation and amortization			17.6				2.7				17.6				2.7				18.6				2.7

Batesville — Fiscal Year Ended September 30, 2010, Compared to Fiscal Year Ended September 30, 2009

Revenue — Batesville’s net revenues for the year were down from the same period last year, decreasing $8.8 million or 1.4%. Burial unit volume decreased 2.5% or $15.0 million compared to the same period last year and was the primary contributor to the reduction in net revenue, although improved volume on non-burial products helped limit the impact. We believe the volume decrease is attributable to a lower number of reported deaths year-over-year and increased cremation rates. Offsetting this impact was a modest increase in average selling price that contributed $1.1 million to revenue. We believe that Batesville’s merchandising initiatives and new product launches helped improve average selling prices and slow the downward trend in product mix, especially in customer locations that used the Batesville merchandising system. Finally, Batesville also experienced the favorable impact of currency fluctuations during the year as it benefited from a strengthening Canadian dollar. This resulted in increased revenue of $5.1 million over the prior year. We can’t predict how currency rates will move and they may either help or hurt our results in the future.

Gross profit — Batesville’s gross profit for the year was up from the same period last year, increasing $3.3 million or 1.2%. In addition to the impacts noted above, cost of goods sold decreased $12.1 million. In Batesville’s manufacturing operations, costs decreased $9.2 million, driven by a $4.1 million decrease due to lower volume and an $8.9 million decrease due to lower commodity costs. Although full year commodity prices have been favorable overall, more recently Batesville has been paying more for commodities as compared to levels at September 30, 2009. These favorable effects were partially offset by $3.8 million of cost increases attributable to a number of other categories across manufacturing operations. Within its distribution operations, Batesville generated $2.9 million in cost efficiencies associated with lower personnel, benefit costs, and outside carrier costs. The effects of higher fuel rates were evenly offset by $1.4 million of lower costs across Batesville’s remaining distribution related cost categories. We are continuing to optimize our cost structure utilizing lean business principles.

Operating expenses — Batesville operating expenses increased $6.7 million or 7.0% for the year as compared to the same period in the prior year. The primary drivers of the cost increases were $5.5 million related to variable compensation and pension, $2.8 million due to higher legal fees related to antitrust litigation, $2.4 million of additional spending on new business initiatives, and $0.7 million spread over to a number of other components of Batesville’s operating expenses.

During the three months ended December 31, 2009, it was discovered that Batesville over-remitted sales tax in certain jurisdictions and, as a result, recorded a $4.1 million sales tax receivable related to these overpayments. In the quarter ended September 30, 2010, Batesville recognized an additional recovery of $0.6 million related to these over payments, the effect of which lowered operating expenses compared to the same three month period in the prior year.

Batesville — Fiscal Year Ended September 30, 2009, Compared to Fiscal Year Ended September 30, 2008

Revenue — Batesville’s net revenues for fiscal 2009 were down from the same period in fiscal 2008, decreasing $29.0 million or 4.3%. Burial unit volume decreased 6.5% or $45.8 million compared to the same period in fiscal 2008 and was the primary contributor to the reduction in net revenue. We believe this volume decrease was attributable to a lower number of reported deaths year-over-year, increased cremation rates, and aggressive price competition. We suspect that higher cremation rates were fueled by the onset of the economic recession which in turn caused the aggressive price competition for the remaining volume. Offsetting this impact was an increase in average selling price that contributed $24.5 million to revenue. Finally, during fiscal 2009, the unfavorable impact of currency fluctuations from a stronger U.S. dollar, mainly compared to the Canadian dollar resulted in decreased revenue of $7.7 million from the prior year.

Gross profit — Batesville’s gross profit for the year was down from the same period last year, decreasing $6.1 million or 2.2%. In addition to the revenue impacts noted above, cost of goods sold decreased $22.9 million. In Batesville’s manufacturing operations, $14.5 million of lower costs were due to the unfavorable impact of lower volume. Additionally, higher commodity costs of $1.2 million for steel and red metals offset cost savings of $1.0 million attributable to a number of other categories across manufacturing operations. During fiscal 2009, Batesville’s distribution operations benefited from a $5.9 million reduction in fuel cost as compared to the prior year. It also experienced a $2.7 million decrease in other distribution cost categories which were mainly related to lower employee benefit costs in similar fashion to its manufacturing operations.

Operating expenses — Batesville’s operating expenses decreased $0.8 million or 0.8% for fiscal year 2009 as compared to the same period in the prior year. In fiscal 2008, Batesville realized a $2.6 million decrease in its bad debt expense as a result of collecting a customer balance that had previously been nearly fully reserved (causing fiscal 2009 expense to be relatively higher). This increased expense was offset by a decrease in variable compensation of $1.7 million (tied to lower fiscal 2009 revenues) and a decrease of $1.1 million in legal fees related to antitrust litigation. The remaining decrease in core operating expenses of $0.6 million was attributable to other components of Batesville’s operating expense categories.

K-Tron Results		Fiscal Year Ended
		September 30, 2010
		(representing six months of operations since
		date of acquisition on April 1, 2010)
(amounts in millions)		Amount				% of Revenue
Revenue		$	108.9				100.0
Gross profit			35.6				32.7
Operating expenses			33.4				30.7
Operating income			2.2				2.0
Depreciation and amortization			9.7				8.9

Results for K-Tron — Since we have only recently acquired K-Tron, we do not present comparative period results for variance analysis. K-Tron’s results for the last six months of fiscal 2010 were significantly impacted by the non-recurring effects of the “step ups” in value to inventories and backlog (e.g. the value of firm orders which are not yet complete for our customers) required by acquisition accounting. These “step ups” are being charged against income over the turnover period of the related inventories and acquired backlog. These “step ups” reduced gross profit and operating income by $11.6 million and $13.3 million, respectively, and increased operating expenses and amortization by $1.7 million.

The future revenue associated with K-Tron’s business lines is influenced by order backlog. This is typical for these business lines because of the lead time involved in manufacturing specialized equipment and parts for customers. Backlog can be an indicator of future revenue. However, it may not include many projects and parts orders that are booked and shipped within a quarter (e.g. it is substantially new equipment orders). The timing of order placement, size, and customer delivery dates can create unusual fluctuations in backlog. Backlog is also affected by foreign exchange fluctuations since a portion of the orders are denominated in currencies other than U.S. dollars.

When we acquired K-Tron, backlog was approximately $60.8 million. Based upon new orders accepted, less orders completed and shipped during the last six months of fiscal 2010, K-Tron’s backlog was approximately $57.1 million as of September 30, 2010. Revenues in the last six months of fiscal 2010 exceeded the orders placed for future delivery, causing the reduction in backlog as of the end of the year. The backlog decrease was largely driven by the completion of a multi-million dollar order during the fourth quarter of fiscal 2010.

Corporate Results		Fiscal Year Ended September 30,
(amounts in millions)		2010				2009				2008
Operating expenses *		$	26.2			$	23.4			$	18.6
Business acquisition costs			10.2				—				—
Restructuring costs			3.0				—				—
Separation costs			—				0.1				15.6
Depreciation and amortization			0.9				0.9				0.4

Corporate — Fiscal Year Ended September 30, 2010, Compared to Fiscal Year Ended September 30, 2009

Operating expenses* — We have excluded business acquisition, restructuring and separation costs because we believe this provides a clearer picture for analyzing our operating cost structure without the effects of these activities due to the significant and infrequent nature of these costs. Operating expenses increased $2.8 million or 12.0% for the year as compared to the same period in the prior year. The increases were primarily related to employee compensation and benefits costs of $2.6 million and variable compensation costs of $0.9 million which were offset by aggregate cost decreases of $0.7 million across other components of our corporate operations.

Business acquisition costs — During fiscal 2010, we incurred $10.5 million of business acquisition related costs, of which $10.2 million are included in our corporate costs for the fiscal year ended September 30, 2010. These non-recurring acquisition costs include advisory, legal, accounting, valuation, and other professional and consulting fees that are directly attributable to our acquisition of K-Tron.

Restructuring costs — During fiscal 2010, we incurred restructuring charges of $3.0 million related to our joint ownership interests in corporate aircraft that were distributed to us in connection with our separation from Hill-Rom. These restructuring charges resulted from our collective plans with Hill-Rom to sell or dispose of two (of four) of our jointly owned aircraft, and modifications to our aviation access and use agreements. The charges consist of $2.9 million in asset impairments related to two aircraft and approximately $0.1 million related to severance. This restructuring will optimize our future cost structure with our intended use of these aviation assets.

Corporate — Fiscal Year Ended September 30, 2009, Compared to Fiscal Year Ended September 30, 2008

Operating expenses* — During fiscal 2009, we substantially completed building teams and processes to support ourselves as a stand-alone public company. We also initiated our acquisition strategy and put in place people, processes, and resources to enable successful execution of that strategy. As a result of these activities, we incurred an increase in corporate operating costs of $12.2 million in fiscal 2009 as compared to the previous year. This increase was partially offset by the fact that we were no longer allocated corporate costs from Hill-Rom effective April 1, 2008. These allocated costs decreased by $7.4 in fiscal 2009 compared to the prior year.

Separation Costs — In fiscal year 2008, we incurred or were allocated $15.6 million in separation costs associated with the separation of the Company from Hill-Rom. Included in these non-recurring costs were $3.2 million tied to the acceleration of previously unvested stock grants, $1.1 million in stock option modification charges, and $4.4 million of investment banking and advisory fees. The balance of the costs were primarily legal and professional fees.

Other Income and Expense		Fiscal Year Ended September 30,
(amounts in millions)		2010				2009				2008
Interest expense		$	4.2			$	2.1			$	2.2
Investment income and other			12.7				7.9				5.9

Interest expense — Interest expense increased $2.1 million for the year ended September 30, 2010, as compared to the same period in the prior year, due to increased borrowings on our revolving credit facilities (resulting from the acquisition of K-Tron) and issuance of 10 year, 5.5% fixed rate senior unsecured notes in the fourth quarter of fiscal 2010. Our revolving credit facility had an average weighted interest rate for fiscal 2010 of 0.8% as compared to 1.5% for fiscal 2009.

Fiscal 2009 marked our first full year as a stand-alone public company and our first full year of financing costs under our credit facility. Since our separation from Hill-Rom and generally throughout fiscal 2009, we had been paying down the credit facility. As a result of the lower average daily balances and the fact that we had lower weighted average interest rates, our costs decreased in fiscal 2009 over the same period in the prior year. The weighted average interest rate of the credit facility was 1.5% and 3.0% during the fiscal years 2009 and 2008, respectively.

Investment income and other — Investment income and other increased $4.8 million for the year ended September 30, 2010 as compared to the same period in the prior year. The primary driver of the increase was higher earnings from investments in limited partnerships in the current year, as compared to losses in the prior year (which resulted primarily from decreased values on investments held by the limited partnerships). This increase in investment income was partially offset by decreased interest income and realized losses and impairments on the sale of auction rate securities and lower interest income on our note receivable from Forethought (“Forethought Note”). See Note 13 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K for more detailed information.

As was the case with interest expense described above, in fiscal 2009 we incurred our first full year of investment earnings or losses from assets that were transferred to us by Hill-Rom at the time of the separation. During fiscal year 2009, net losses from investments in affiliates (limited partnership investments) were $5.4 million due to decreased values within the affiliates’ investment portfolios. In comparison, we had no net earnings or losses from these investments in fiscal 2008. However, in the last quarter of fiscal year 2008, we recorded a $0.8 million other-than-temporary impairment loss on an investment in common stock. We earned higher interest income of $6.5 million, in aggregate, on the ARS and Forethought Note as compared to the prior year due to the fact that we held them for only six months in the previous year. We also received a right (the “Put”) from UBS Financial Services that allowed us to sell a portion of our existing ARS in the future. Since that time, we have been recording changes in the fair value of the Put and applicable ARS through our income statement and as expected, they essentially offset. (See the information within the notes to our consolidated financial statements in Part II, Item 8 of this Form 10-K and “Other Liquidity Matters” included within Liquidity and Capital Resources discussed below.)

Income Tax Expense		Fiscal Year Ended September 30,
(amounts in millions)		2010				2009				2008
Income tax expense		$	54.1			$	58.5			$	60.1
Effective tax rate			37.0	%			36.4	%			39.2	%

Income taxes — Our income tax rate was 37.0% for the year ended September 30, 2010, an increase of 0.6% over the same period in the prior year. The increase in the effective tax rate was primarily attributable to non-deductible business acquisition costs, higher state income tax rates, and adjustments resulting from periodic reconciliation of our tax accounts to subsequent tax filings. These effects were somewhat offset by favorable changes in our income tax reserves.

Our income tax rate for fiscal 2009 was 36.4%, which was 2.8% lower than the prior year. This reduction was primarily due to separation costs we incurred in fiscal 2008 that were not deductible for income tax purposes and a partial disallowance of the domestic production activities deduction in fiscal 2008 due to the separation.

Liquidity and Capital Resources

We believe the ability to generate cash is critical to the value of the Company. In this section, we tell you about our ability to generate and access cash to meet our business needs.

First, we will describe our actual results in generating and utilizing cash by comparing the last three years. We will also talk about any significant trends we are seeing to help you understand how this could impact us going forward.

Second, we will tell you about how we see operating, investing, and financing cash flows being impacted for the next 12 months. While it’s not a certainty, we will tell you where we think cash will come from and how we intend to use it. We will also talk about significant risks or possible changes to our thinking that could change our expectations.

Third, we will tell you about other significant matters that could affect our liquidity on an ongoing basis.

A summary of our cash flows for the last three years is as follows:

		Fiscal Year Ended September 30,
(amounts in millions)		2010				2009				2008
Cash flows provided by (used-in)
Operating activities		$	118.2			$	123.2			$	101.8
Investing activities			(348.7	)			(5.3	)			(4.2	)
Financing activities*			289.8				(97.4	)			(94.4	)
Effect of exchange rate changes on cash and cash equivalents			3.9				—				(0.4	)
Increase in cash and cash equivalents		$	63.2			$	20.5			$	2.8

Operating Activities

Our operating cash flow was $5.0 million lower in fiscal year 2010 as compared to fiscal year 2009. The noteworthy changes in its components were as follows:

	•		We incurred $10.5 million in business acquisition related costs in fiscal 2010, substantially all of which were paid by the end of the period. These costs reduced both our profitability and our operating cash flow in fiscal 2010.
	•		Cash payments for income taxes increased $21.0 million from fiscal year 2009. This change was primarily related to a significant change in the cash (current) and non-cash (deferred) components of our income tax expense. With the acquisition of K-Tron, a higher portion of our tax expense was current (meaning higher cash payments) offset by non-cash deferred income tax benefits.
	•		We paid $3.0 million less in defined benefit plan contributions in fiscal year 2010 as compared to the prior year primarily resulting from lower discretionary payments made in the current year as compared to the fiscal 2009.
	•		We made cash payments of $5.5 million to fund a rabbi trust associated with our deferred compensation program in fiscal 2010.
	•		K-Tron’s core pre-tax operating cash flows contributed approximately $16.9 million to our consolidated operating cash flows for the last 6 months of fiscal 2010.
	•		In July 2010, we received from Forethought our first $10.0 million interest payment on the Forethought Note.

Our operating cash flow was $21.4 million higher in fiscal year 2009 as compared to fiscal year 2008. The noteworthy changes in its components were as follows:

	•		We incurred $15.5 million more in separation costs in fiscal year 2008 compared to fiscal year 2009, substantially all of which were paid by the end of the period. This reduced both our profitability and our operating cash flow in fiscal 2008.
	•		Cash payments for income tax payments decreased $8.7 million from fiscal year 2008, including amounts paid to or received from Hill-Rom to settle our pre-separation income tax obligations. This change was the result of the timing between when we had made these payments to Hill-Rom (prior to separation) and the timing of when we now make them directly to tax authorities as a separate company.
	•		We paid $3.2 million more in defined benefit plan contributions in fiscal year 2009 as compared to fiscal 2008 resulting from a discretionary payment of $7.8 million made this year. We made this payment in order to improve the funding level of our plans.

Investing Activities

The significant increase in our net investing activities in fiscal 2010 over fiscal 2009 was driven by a $369.0 million net cash payout to acquire K-Tron and higher capital project spending of $6.3 million, all of which was offset by the $37.2 million liquidation of a portion of our ARS and investments.

Our net investing activities in fiscal year 2009 were essentially flat from fiscal 2008. The modest change was due to cash invested in and returned from investment assets we received in connection with the separation.

Financing Activities

Net cash receipts from financing activities for fiscal 2010 increased $387.2 million, primarily related to $375.0 million of borrowings under our revolving credit facilities to fund the acquisition of K-Tron, and $148.4 million of proceeds from the issuance of 5.5% senior unsecured notes (the “Notes”). The proceeds from the Notes were subsequently used to pay-down $100 million owed on our revolving credit facility and the remaining amount was used to fund working capital needs.

On July 24, 2008, our Board of Directors authorized the Company to repurchase up to $100 million of our outstanding common stock. The amount of repurchase activity will depend on a variety of factors including the level of cash generated from operations, the market price of our stock, repayments we elect to make on the credit facility, and the use of cash from operations in support of other business growth opportunities. During fiscal year 2008, we elected to purchase 0.3 million shares of our common stock for $6.2 million. In fiscal year 2009, we purchased an additional 0.7 million shares for $12.5 million. There were no purchases of stock in fiscal 2010.

12 Month Outlook

At the present time, we expect the future profitability of Batesville, K-Tron and the cost structure of our corporate operations to drive our net operating cash flow. The specifics that follow are known factors that can introduce volatility to that general premise over the next twelve months.

Operating activities

We made a $4.0 million discretionary contribution to one of our pension plans in June 2010. Although we are not required to do so, we may decide to make a contribution to our defined retirement plan in 2011. Any amount will be based on the performance of the assets within the plan, business developments, and overall economic activity. We expect the maximum amount of any contribution to be $30 million. We will continue to monitor plan funding levels in order to optimize our capital deployment and determine the final discretionary amount during fiscal 2011. Any contributions we make will reduce our net cash flow from operations.

As discussed in Note 5 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, in July 2010, we issued $150.0 million in principal amount 5.5% fixed rate senior unsecured notes, due July 2020. These Notes will require annual interest payments of approximately $8.2 million which will reduce our operating cash flow.

Investing activities

In addition to our traditional level of capital expenditures, we are now including the annual sustaining capital expenditures of K-Tron. Over the past three calendar years, those expenditures have been between $1.8 million to $3.7 million annually.

We can be called upon by our private equity limited partnership investments to provide additional investment funds, the maximum amount being $3.1 million in the aggregate.

We expect to continue moving forward with our acquisition strategy in order to increase our growth rate for revenues and earnings. However, any additional acquisitions will depend on whether suitable opportunities are available. We expect to fund future acquisitions primarily with cash on hand and cash flows from operations.

Financing activities

We currently expect that comparable quarterly cash dividends will continue to be paid in the future and will require approximately $11.8 million each quarter based on our outstanding common stock at September 30, 2010. We may use additional cash generated by the business to pay down our revolving credit facility, depending on our working capital needs or as discussed under investing activities, we may utilize availability under the revolving credit facility to finance acquisitions. We may also resume purchasing additional shares of our common stock, depending on market conditions.

Summary of 12 Month Outlook

We believe that cash on hand, cash generated from operations, and cash available under our credit facility will be sufficient to fund operations, working capital needs, capital expenditure requirements, and financing obligations.

Other Liquidity Matters

At September 30, 2010, we held $11.9 million in a portfolio of ARS (consisting of highly rated tax exempt state and municipal securities, the majority of which are collateralized by student loans guaranteed by the U.S. government under the Federal Family Education Loan Program) recorded at fair value. We have estimated the current fair value of the portfolio based upon observed pricing on similar assets as of September 30, 2010. Although the underlying securities in the portfolio consist of creditworthy borrowers with AAA or A3 debt ratings, market conditions and auction failures have adversely impacted the liquidity of these securities. If current market conditions do not improve, or worsen, we may not be able to readily convert these securities to cash, and our earnings could suffer as a result.

Although we are not dependent on any cash flows from the Forethought Note to fund our operating activities, we regularly evaluate the Forethought Note for impairment based upon collectability. If, based upon these evaluations, it is probable that the Forethought Note will not be paid in accordance with its terms, it will be deemed impaired. Based upon information available to us regarding conditions existing on or prior to September 30, 2010, the Forethought Note is not impaired. We estimate the fair value of the Forethought Note based upon a comparison to debt securities currently trading in an active market with similar characteristics of yield, duration, and credit risk, adjusted for liquidity considerations. We estimate that the fair value of the Forethought Note (and related interest receivable) has increased from $109.0 million at September 30, 2009, to $127.0 million at September 30, 2010. This increase in estimated fair value was caused by the natural decline in the period to maturity (closer to the collection date), offset by an increase in the required yield to maturity (discount rate) observed in the marketplace on comparable debt instruments (adjusted for a liquidity premium). The model used in estimating the fair value of the Forethought Note primarily utilizes market data and is not intended to imply that some or all of the future payments due under the Forethought Note will not be collected when due from Forethought.

In March 2008, we established a $400 million five-year revolving credit facility (the “Facility”) with a syndicate of banks. The term of the Facility expires in March 2013. Borrowings under the Facility bear interest at variable rates, as defined therein. The availability of borrowings under the Facility is subject to our ability at the time of borrowing to meet certain specified conditions. These conditions include compliance with covenants contained in the credit agreement governing the Facility, absence of default under the Facility, and continued accuracy of certain representations and warranties contained in the credit agreement. The credit agreement contains covenants that, among other matters, require the Company 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 Facility may be used: (i) for working capital and other lawful corporate purposes and (ii) to finance acquisitions.

As of September 30, 2010, we: (i) had $6.7 million outstanding, undrawn letters of credit under the Facility, (ii) were in compliance with all covenants set forth in the credit agreement, and (iii) had complete access to the remaining $138.3 million of borrowing capacity available under the Facility. In addition to the amounts above, we had $6.0 million in outstanding letters of credit and bank guarantees to other financial institutions as of September 30, 2010. A portion of these arrangements is secured by our operating facility in Switzerland and $0.3 million of restricted cash at September 30, 2010.

The covenants under the Distribution Agreement with Hill-Rom effectively prevent us from incurring any additional debt to finance an acquisition based upon our financial position as of September 30, 2010. However, we may utilize existing cash on hand and cash generated from future operations to fund future acquisitions. Our capacity to borrow for acquisitions may increase as cash on hand and our earnings (as defined under the Distribution Agreement) increase over time.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements.

Contractual Obligations and Contingent Liabilities and Commitments

In this section we will tell you about the things we have committed to pay. This will help give you an understanding of the significance of cash outlays that are fixed (beyond the normal accounts payable we have already incurred and have on our books), unless we took some action to delay or cancel the need to pay.

To provide visibility to matters potentially impacting our liquidity position, the following table outlines our contractual obligations as of September 30, 2010:

Contractual Obligations		Payment Due by Period
						Less
						Than 1				1-3				4-5				After 5
(amounts in millions)		Total				Year				Years				Years				Years
Operating lease obligations		$	15.9			$	7.1			$	8.0			$	0.8			$	—
Purchase obligations (1)			45.5				40.0				5.3				0.2				—
Defined benefit plan funding (2)			87.8				7.1				28.7				31.4				20.6
Other long-term liabilities (3)			25.2				3.5				4.2				1.6				15.9
Capital call arrangements (4)			3.1				3.1				—				—				—
Revolving credit facility (5)			255.0				—				255.0				—				—
10 year, 5.5% fixed rate senior unsecured notes (6)			150.0				—				—				—				150.0
Total contractual obligations		$	582.5			$	60.8			$	301.2			$	34.0			$	186.5

In addition to the contractual obligations disclosed above, we also have a variety of other agreements related to the procurement of materials and services and other commitments. We are not subject to any contracts that obligate us to material non-cancelable commitments. While many of these agreements are long-term supply agreements, some of which are exclusive supply or complete requirements-based contracts, we are not committed under these agreements to accept or pay for requirements which are not needed to meet near term production requirements.

In connection with past acquisition activities, we have entered into certain guarantees and indemnifications of performance with respect to the fulfillment of our commitments under the respective purchase agreements. The arrangements generally indemnify the 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. Those representations and warranties which survive closing generally survive for periods up to the maximum period allowed by the applicable statutes of limitations. Guarantees and indemnifications with respect to acquisition activities, if triggered, would not have a materially adverse impact on our financial condition and results of operations.

Critical Accounting Estimates

In this section we tell you about accounting estimates that inherently involve significant judgment on our part.

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 the notes to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Revenue Recognition

Revenue for our products is most often recognized upon delivery of the products to the customer, but in no case prior to when the risk of loss and other risks and rewards of ownership are transferred. Net revenues reflect gross revenues less sales discounts, customer rebates, sales incentives, and product returns, all of which require us to make estimates for the portion of these allowances that have yet to be credited or paid to our customers. We estimate these allowances based both upon historical rates and projections of customer purchases toward contractual rebate thresholds.

Some of our revenues associated with K-Tron involve multiple elements (i.e. various components to an overall larger order being manufactured for the customer.) Periodically these elements are transferred to the customer at different times pursuant to the customer’s requirements. In these circumstances we may estimate the sales value of the individual elements in order to determine the appropriate amount of revenue to recognize on the transferred elements.

Allowance for Doubtful Accounts

The accounting for our trade receivables requires us to estimate the net realizable value of these assets. Our allowance for doubtful accounts is our best estimate of the amount of probable credit losses and collection risk in our existing trade accounts receivable portfolio. Performing our evaluation of the allowance for doubtful accounts requires us to exercise significant judgment based on historical write-off and individual customer collection experience. As a result, our historical experience and current trends we are using in our estimates at any point in time may not be indicative of the collectability of these balances in the future.

Auction Rate Securities

The accounting for our auction rate securities requires us to estimate the fair value of these assets in a current environment where there is not an active market to easily establish that value. Prior to July 1, 2010, we utilized a valuation model based upon a discounted cash flow approach. The assumptions used in preparing the discounted cash flow model included estimates of, based on available data, interest rates, timing and amount of cash flows, credit spread related yield and illiquidity premiums, and expected holding periods of the ARS. In the fourth quarter of fiscal 2010, we began to value the ARS based upon secondary market pricing on observed transactions. We moved to this approach as we believe the pricing now occurring in the secondary market represents the “highest and best use” valuation of the ARS. The risk exists that the volatile nature of secondary market pricing may not be reflective of actual realizable value in the future.

Note Receivable from Forethought

We evaluate the note receivable from Forethought for impairment based upon collectability. If, based upon this evaluation, it is probable that the note will not be paid in accordance with its terms, the note will be deemed impaired. Performing an impairment evaluation of the note requires us to exercise significant judgments as to whether Forethought has the financial wherewithal to make the scheduled payments based upon events or conditions that we are aware of existing on or prior to the balance sheet date. The note agreement provides us access to various kinds of financial information from Forethought including:

	•		Available capital and surplus within Forethought’s primary insurance operations, an indicator of liquidity of the entity;
	•		Embedded Value, an indicator of enterprise value and an indicator of the ability of the entity to raise capital;
	•		Forethought’s recent investment portfolio results and the quality of the related investments;
	•		GAAP equity, an indicator of financial strength; and
	•		Recent GAAP and Statutory financial results (income, loss and related cash flow effects).

We utilize this information to assess the financial strength of Forethought and our prospects for getting paid. The principal under the note is not scheduled to be repaid until 2014.

As a result, the indicators or trends we consider at any point in time when making an impairment assessment may not be indicative of Forethought’s ultimate financial strength at the time of scheduled payment.

If we determine an impairment exists, an impairment reserve would be established based upon the then carrying value of the note and the estimated discounted cash flows we would expect to receive on an impaired basis. Making such an estimate would require us to exercise significant judgment about the expected timing and size of the payments under the note in what could be distressed financial conditions at Forethought. Even though we might be legally entitled, we would likely cease recording interest income under the note, due to the uncertainty of being paid under these types of conditions.

Liabilities for Loss Contingencies Related to Claims and Lawsuits

The ultimate outcome of claims and lawsuits cannot be predicted with certainty. An estimated loss from these contingencies is recognized when we believe it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Making such an estimate requires us to exercise significant judgment. However, it is difficult to measure the actual loss that might be incurred related to litigation. The ultimate outcome of these lawsuits could have a material adverse effect on our financial condition, results of operations and cash flow. For a more complete description of loss contingencies related to lawsuits, see Note 12 to our consolidated financial statements included in Part II, Item 8, of this Form 10-K.

Legal fees associated with claims and lawsuits are generally expensed as incurred. Upon recognition of an estimated loss resulting from a settlement, an estimate of legal fees to complete the settlement is also included in the amount of the loss recognized.

We are also involved in other possible claims, including product and general liability, workers compensation, auto liability and employment related matters. Outside insurance companies and third-party claims administrators establish individual claim reserves and an independent outside actuary provides estimates of ultimate projected losses, including incurred but not reported claims, which are used to establish reserves for losses. As our actuaries periodically provide us updated ultimate loss projections, we must “true up” (increasing or reducing) previously recorded claim reserves. Thus, any one period’s financial results could be significantly affected by the effect of the “true up.”

The recorded amounts represent our best estimate of the costs we will incur in relation to such exposures, but it is possible that actual costs could differ from those estimates.

Performance Stock-Based Compensation

The vesting of our performance-based restricted stock and units (collectively “PBUs”) is contingent upon the creation of shareholder value as measured by the cumulative cash returns and final period income in excess of our weighted average cost of capital over a three-year period and a corresponding service requirement. The value of an award is based upon the fair value of our common stock at the date of grant. Based on the extent to which the performance criteria are achieved, it is possible for none of the awards to vest or for a range up to the maximum to vest, which is reflected in the PBU table in Note 11 to our consolidated financial statements included in Part II, Item 8, of this Form 10-K. We record expense associated with the awards on a straight-line basis over the vesting period based upon an estimate of projected performance. The actual performance of the Company is evaluated quarterly, and the expense is adjusted according to the new projection if it has changed significantly. As a result, depending on the degree to which we achieve the performance criteria or our projection changes, our expenses related to the PBUs may become more volatile as we approach the final performance measurement date at the end of the three years. This increase in volatility is due to the fact that we must “true up” (increasing or reducing) previously recorded compensation expense as the projection of performance changes. Thus any one period’s financial results could be significantly affected by the cumulative effect of the “true up.” Preparing the projection of performance requires us to exercise significant judgments as to the expected outcome of final performance up to three years in the future. In making the projection, we consider both actual results and probable business plans for the future. At September 30, 2010, we have recorded cumulative compensation expense associated with unvested PBUs of $5.9 million, which continues to be subject to periodic “true ups” as the related PBUs approach the final performance measurement date.

Retirement and Postretirement Plans

We sponsor retirement and postretirement benefit plans covering a majority of our employees. Expense recognized in relation to such plans is based upon actuarial valuations. Inherent in those valuations are key assumptions including discount rates, expected returns on assets, and projected future salary rates. The discount rates used in the valuation of our defined benefit pension and postretirement benefit plans are evaluated annually based on current market conditions. In setting the discount rate, we use a yield curve approach to discount each expected cash flow of the liability stream at an interest rate applicable to the timing of each cash flow based on corporate bond rates. These present values are then converted into an equivalent weighted-average discount rate. Our overall expected long-term rate of return on pension assets is based on historical and expected future returns, which are inflation adjusted and weighted for the expected return for each component of the investment portfolio. Our rate of assumed compensation increase for pension benefits is also based on our specific historical trends of past wage adjustments in recent years and expectations for the future.

Changes in retirement and postretirement benefit expense and the recognized obligations may occur in the future as a result of a number of factors, including changes to any of these assumptions. Our weighted average expected rate of return on pension assets is 7.6%, 7.75%, and 8.0% at the end of fiscal 2010, 2009 and 2008 respectively. A 25 basis point increase in the expected rate of return on domestic pension assets of $169.2 million reduces annual pension expense by approximately $0.5 million. The weighted average discount rate decreased to 4.8% and 4.5% at the end of fiscal 2010 for the pension and postretirement healthcare plan expense, respectively. A 50 basis point decrease in the discount rate increases the annual domestic pension expense by approximately $1.4 million. The impact of this decrease to our postretirement healthcare plan expense would be less than $0.1 million. Impacts from assumption changes could be positive or negative depending on the direction of the change in rates. Based upon the new rates and assumptions, we expect the aggregate expense associated with our defined benefit plans to decrease from $9.5 million in fiscal 2010 to $9.0 million in fiscal 2011. See Note 7 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, for key assumptions and other information regarding our retirement and postretirement benefit plans.

Uncertain Income Tax Positions

On October 1, 2007, we adopted the accounting standard that prescribes a recognition 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. In assessing the need for reserves for uncertain tax positions, we have to make judgments regarding the technical merit of a tax position, and when necessary, an estimate of the settlement amount based upon what we think is the probability of the outcome. At September 30, 2010, we had reserves of $7.2 million established for uncertain tax positions based upon our estimates. Our ability to make and update these estimates is limited to the information we have at any given point in time. This information can include how taxing authorities have treated the position in the past, how similar cases have settled, or where we are in discussions or negotiations with taxing authorities on a particular issue, among others. As information available to us evolves, we update our reserves quarterly. These updates can result in volatility to our income tax rate (particularly to a given quarter) if new information or developments result in a significant change in our estimate.

Business Combinations

On October 1, 2009, we adopted a new accounting standard that governs how to account for and disclose business combinations (e.g., when we buy a business). With a few exceptions, the standard requires that we record the assets and liabilities of the acquired business at estimated fair value at the date of acquisition. Estimating fair value for acquired assets and liabilities as part of a business combination typically requires us to exercise judgment, particularly for those assets and liabilities that may be unique or not easily determined by reference to market data. Often estimates for these types of acquired assets and liabilities will be developed using valuation models that require both historical and forecasted inputs, as well as “market participant” expectations. Thus the valuation is directly affected by the inputs we judge as best under the given circumstances. When material, we expect to seek assistance of competent valuation professionals when the underlying valuation is more complex or unique.

We anticipate that in most cases, we will exercise significant judgment in estimating the fair value of intangible assets (customer lists or relationships, trademarks, etc., for example), contingent liabilities (loss reserves, for example), and contingent consideration (“earn-outs,” for example). This list is not exhaustive, but is designed to give you a better understanding of where we think a larger degree of judgment will be required due to the nature of the item and the way it is typically valued.

Depreciable and Amortizable Lives of Long-Lived Assets

The recording of depreciation and amortization expense requires management to exercise significant judgment in estimating the economic useful lives of long-lived assets, particularly intangible assets. With the acquisition of K-Tron, the amortization associated with these estimates is much more significant to our financial statements than in the past.

Management’s assumptions regarding the following factors, among others, affect the determination of estimated economic useful life: management’s experience with similar assets; changes in technology, utilization, wear and tear; estimated cash flows expected to be generated by the asset; and changes in market demand. As our assessment is performed on a periodic basis, changes in any management assumptions may result in a shorter or longer estimated useful life for an asset than originally anticipated. In such a case, we would depreciate or amortize the remaining net book value of the asset over the new estimated remaining life, thereby increasing or decreasing depreciation or amortization expense per year on a prospective basis. As a result, our estimates at any point in time may not be indicative of future circumstances.

Asset Impairment Determinations

Accounting standards require that goodwill and indefinite-lived intangible assets be tested for impairment at least annually or when circumstances would suggest that an impairment may have occurred. Testing of either goodwill or indefinite-lived assets requires that we estimate the fair value of the asset in question.

Estimating fair value for these assets typically requires us to exercise significant judgment, particularly for asset values that are not easily determined by reference to market data. Often estimates for these types of assets are developed using valuation models that require both historical and forecasted inputs, as well as “market participant” expectations. Thus the valuation is directly affected by the inputs we judge as best under the given circumstances. In analyzing the future cash flows of various assets, critical assumptions we make may include some of the following:

	•		The intended use of assets and the expected cash flows resulting directly from such use;
	•		Industry-specific economic conditions;
	•		Customer preferences and behavior patterns; and
	•		The impact of applicable regulatory initiatives, if any.

Our assumptions are sometimes subjective and can be affected by a variety of factors, including external factors such as industry and economic trends, and internal factors such as changes in our business strategy and our internal forecasts. Although we believe the assumptions and estimates we make are reasonable and appropriate, different assumptions and estimates could result in an impairment charge which could materially impact our reported financial results by decreasing operating income and lowering asset values on our consolidated balance sheet. When material, we expect to seek assistance of competent valuation professionals when the underlying valuation is more complex or unique.

Tangible and other intangible assets that are subject to depreciation and amortization are also evaluated when circumstances would suggest that an impairment may have occurred. Testing of these assets require that we estimate future cash flows associated with the asset(s) in question.

Recently Issued and Adopted Accounting Standards

For a summary of recently issued and adopted accounting standards applicable to us, see Note 2 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Item 7A.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In this section, we tell you about “market risks” we think could have a significant impact on our bottom line or the financial strength of our company. “Market risks” here generally mean how results of operations and the value of assets and liabilities could be affected by market factors such as interest rates, currency exchange rates, the value of commodities, and debt and equity price risks. If those factors change significantly, it could help or hurt our bottom line, depending on how we react to them.

We are exposed to various market risks. 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. Our primary exposures are to: collection risk (customer receivables and our Forethought note); fluctuations in market prices for certain purchases of commodities; variability in exchange rates in foreign locations; and volatility in the fair value of our investments. We also have some interest rate exposure. What follows are the specifics.

We have an outstanding note receivable (the “Forethought Note”) and related interest receivable from Forethought with an aggregate carrying value of $144.8 million as of September 30, 2010. The primary risk with the Forethought Note is collection. Should Forethought underperform to an extent that it cannot meet its financial obligations, our earnings could be negatively impacted, resulting in a material adverse impact on our financial condition and results of operations. We currently do not expect this to be the case. We estimate the fair value of the note receivable from Forethought based upon comparison to debt securities currently trading in an active market with similar characteristics of yield, duration, and credit risk adjusted for liquidity considerations. Based upon market data available to us, we estimate that the fair value of the note and accrued interest is approximately $127.0 million, based upon an estimated yield to maturity of approximately 14% as of September 30, 2010. This is approximately $17.8 million below its carrying value at September 30, 2010. An increase or decrease of 1% in the discount rate utilized to estimate the fair value of the note (including interest receivable) would indicate a change in fair value of approximately $4.0 million.

We are subject to market risk from fluctuating market prices of certain purchased commodity raw materials including steel, wood, red metals, and fuel. While these materials are typically available from multiple suppliers, commodity raw materials are subject to market price fluctuations. We generally buy these commodities based upon market prices that are established with the supplier as part of the purchasing process. We generally attempt to obtain firm pricing from our larger suppliers for volumes consistent with planned production. To the extent that commodity prices increase and we do not have firm pricing from our suppliers, or if our suppliers are not able to honor such prices, we may experience a decline in our gross margins to the extent we are not able to increase selling prices of our products or obtain supply chain efficiencies to offset increases in commodity costs.

We have a portfolio of ARS (with an estimated fair value of $11.9 million as of September 30, 2010). The primary risk here is the lack of a liquid market to sell these investments. If current market conditions do not improve, we may not be able to readily convert the ARS to cash, exposing us to a longer-term risk of impairment, and our earnings could be adversely affected.

We are subject to volatility in our investment portfolio. The investment portfolio includes private equity limited partnerships (“LPs”) and common stock with an aggregate carrying value of $18.2 million at September 30, 2010. These investments could be adversely affected by general economic conditions, changes in interest rates, default on debt instruments, and other factors, resulting in an adverse impact. The changes in the fair value of the LPs’ underlying investment portfolios can impact us significantly because we record our share of the change in our income statement under the equity method of accounting.

Our pension plans’ assets are also subject to volatility that can be caused by fluctuation in general economic conditions. Plan assets are invested by the plans’ fiduciaries, which direct investments according to specific policies. Those policies subject investments to the following restrictions in our domestic plan: short-term securities must be rated A2/P2 or higher, fixed income securities must have a quality credit rating of “BBB” or higher, and investments in equities in any one company may not exceed 10% of the equity portfolio. Our income statement is currently shielded from volatility in plan assets due to the way accounting standards are applied for pension plans, although favorable or unfavorable investment performance over the long term will impact our pension expense if it deviates from our assumption related to future rate of return.

With the addition of K-Tron, our exposure to exchange rates are primarily (i) the U.S. dollar versus each of the Swiss franc, the euro, the British pound sterling, the Canadian dollar, and the Swedish krona: and (ii) the Swiss franc versus the euro and the British pound sterling. From time to time we may enter into currency exchange agreements to manage our exposure arising from fluctuating exchange rates related to specific transactions, primarily forecasted intercompany purchasing. Foreign cash balances in currencies other than the Swiss franc are limited in order to manage the transaction exposure caused by the marking to market of non-Swiss franc balances to Swiss franc values on the balance sheet of our Swiss operations. As of September 30, 2010, a 10% change in the foreign exchange rates affecting balance sheet transactional exposures would have resulted in a change in pre-tax earnings of approximately $0.6 million. This hypothetical change on transactional exposures is based on the difference between the September 30, 2010, actual foreign exchange rates and hypothetical rates assuming a 10% change in foreign exchange rates on that date. We expect to expand our hedging program in fiscal 2011 to help reduce earnings volatility that could occur associated with the non-Swiss franc balances of our Swiss operations.

The translation of the balance sheets of our non-U.S. operations from local currencies into U.S. dollars is also sensitive to changes in foreign exchange rates. These translation gains or losses are recorded as cumulative translation adjustments (“CTA”) within accumulated other comprehensive loss on our balance sheet. Using the example above, the hypothetical change in CTA would be calculated by multiplying the net assets of our non-U.S. operations by a 10% change in the applicable foreign exchange rates. The result of this calculation would be to change shareholders’ equity by approximately $21.1 million as of September 30, 2010.

At September 30, 2010, we had $255.0 million outstanding under our $400 million revolving credit facility. We are subject to interest rate risk associated with our revolving credit facility which bears a variable rate of interest that is based upon the lender’s base rate or the LIBOR rate. The interest we pay on our borrowings is dependent on interest rate conditions and the timing of our financing needs. Assuming our borrowings were to remain at $255.0 million for 12 months; a 1% move in the related interest rates would increase or decrease our annual interest expense by approximately $2.6 million.

Item 8.		Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Management’s Report on Internal Control Over Financial Reporting			42
Report of Independent Registered Public Accounting Firm			43
Financial Statements:
Consolidated Statements of Income for fiscal years ended September 30, 2010, 2009 and 2008			44
Consolidated Balance Sheets at September 30, 2010 and 2009			45
Consolidated Statements of Cash Flows for fiscal years ended September 30, 2010, 2009 and 2008			46
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended September 30, 2010, 2009 and 2008			47
Notes to Consolidated Financial Statements			48 - 83
Financial Statement Schedule for the fiscal years ended September 30, 2010, 2009 and 2008:
Schedule II — Valuation and Qualifying Accounts			84

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, management has conducted an assessment, including testing, using the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s internal control over financial reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934 (“Exchange Act”), is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

We have excluded K-Tron International, Inc. (“K-Tron”) from our assessment of the effectiveness of our internal controls over financial reporting as of September 30, 2010 because it was acquired by us in a purchase business combination on April 1, 2010. The total assets and total revenues acquired in the acquisition of K-Tron represent approximately 14.8% and 14.5%, respectively, of the related consolidated financial statement amounts as of and for the fiscal year ended September 30, 2010.

Based on our assessment, under the criteria established in Internal Control — Integrated Framework, issued by the COSO, management has concluded that the company maintained effective internal control over financial reporting as of September 30, 2010.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of September 30, 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report included herein.

By:		/s/ Kenneth A. Camp
		Kenneth A. Camp
		President and Chief Executive Officer
By:		/s/ Cynthia L. Lucchese
		Cynthia L. Lucchese
		Senior Vice President and Chief Financial Officer
By:		/s/ Theodore S. Haddad, Jr.
		Theodore S. Haddad, Jr.
		Vice President, Controller and Chief Accounting Officer

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Hillenbrand, Inc.:

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Hillenbrand, Inc. and its subsidiaries (the “Company”) at September 30, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2010, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Report on Internal Control Over Financial Reporting, management has excluded K-Tron from its assessment of internal control over financial reporting as of September 30, 2010 because it was acquired by the Company in a purchase business combination during 2010. We have also excluded K-Tron from our audit of internal control over financial reporting. K-Tron is a wholly-owned subsidiary whose total assets and total revenues represent 14.8% and 14.5%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2010.

/s/ PricewaterhouseCoopers LLP   Indianapolis, Indiana
November 23, 2010

HILLENBRAND, INC.

		Fiscal Year Ended September 30,
		2010				2009				2008
Net revenue		$	749.2			$	649.1			$	678.1
Cost of goods sold			435.9				374.7				397.6
Gross profit			313.3				274.4				280.5
Operating expenses (including business acquisition, restructuring, and separation costs)			175.4				119.4				130.9
Operating profit			137.9				155.0				149.6
Interest expense			(4.2	)			(2.1	)			(2.2	)
Investment income and other			12.7				7.9				5.9
Income before income taxes			146.4				160.8				153.3
Income tax expense			54.1				58.5				60.1
Net income		$	92.3			$	102.3			$	93.2
Income per common share — basic and diluted		$	1.49			$	1.66			$	1.49
Weighted average common shares outstanding — basic and diluted			61.9				61.7				62.5
Cash dividends per common share *		$	0.75			$	0.74			$	0.365

See Notes to Consolidated Financial Statements.

HILLENBRAND, INC.

		September 30,
		2010				2009
ASSETS
Current Assets
Cash and cash equivalents		$	98.4			$	35.2
Trade receivables, net			109.0				85.2
Inventories, net			64.9				42.5
Auction rate securities and related Put right			—				30.1
Interest receivable from Forethought Financial Group, Inc.			10.0				10.0
Deferred income taxes			25.1				21.5
Other current assets			15.4				8.4
Total current assets			322.8				232.9
Property, net			109.6				85.3
Intangible assets, net			423.0				16.3
Auction rate securities			11.9				18.8
Note and interest receivable from Forethought Financial Group, Inc., long-term portion			134.8				132.8
Investments			18.2				18.8
Deferred income taxes			—				35.0
Other assets			31.8				21.2
Total Assets		$	1,052.1			$	561.1
LIABILITIES
Current Liabilities
Revolving credit facility, current portion		$	—			$	60.0
Trade accounts payable			26.9				13.1
Accrued compensation			35.7				25.6
Accrued customer rebates and advances			27.1				18.8
Other current liabilities			28.3				17.4
Total current liabilities			118.0				134.9
Long-term debt, less current portion above			403.4				—
Accrued pension and postretirement healthcare, long-term portion			88.7				84.5
Deferred income taxes			35.7				—
Other long-term liabilities			34.4				37.7
Total Liabilities			680.2				257.1
Commitments and contingencies (Note 12)
SHAREHOLDERS’ EQUITY
Common stock, no par value, 199.0 shares authorized; 63.1 and 62.8 shares issued, 62.3 and 61.9 shares outstanding, of which 0.6 and 0.3 are restricted at September 30, 2010 and 2009, respectively			—				—
Additional paid-in-capital			304.9				297.6
Retained earnings			124.8				79.3
Treasury stock, at cost; 0.8 and 0.9 shares at September 30, 2010 and 2009, respectively			(14.8	)			(17.5	)
Accumulated other comprehensive loss			(43.0	)			(55.4	)
Total Shareholders’ Equity			371.9				304.0
Total Liabilities and Shareholders’ Equity		$	1,052.1			$	561.1

See Notes to Consolidated Financial Statements

HILLENBRAND, INC.

		Fiscal Year Ended September 30,
		2010				2009				2008
Operating Activities:
Net income		$	92.3			$	102.3			$	93.2
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization			28.5				18.6				19.1
Provision (benefit) for deferred income taxes			(18.5	)			3.2				(3.1	)
Net loss (gain) on disposal or impairment of property			3.0				0.2				(0.1	)
Net loss (gain) on auction rate securities, related Put right, and investments			2.4				—				0.8
Interest income on Forethought note receivable, net of cash received			(2.0	)			(12.4	)			(5.8	)
Equity in net (income) loss from affiliates			(3.1	)			5.4				—
Distribution of earnings from affiliates			0.3				0.3				—
Stock-based compensation			7.6				6.7				1.6
Trade accounts receivable			(4.9	)			3.0				2.0
Inventories			20.9				6.1				(1.7	)
Other current assets			(3.1	)			2.4				(3.6	)
Trade accounts payable			0.9				(2.6	)			(2.5	)
Accrued expenses and other current liabilities			2.7				(3.6	)			(1.8	)
Income taxes prepaid or payable			(3.4	)			—				7.7
Defined benefit plan funding			(6.5	)			(9.5	)			(6.3	)
Defined benefit plan expense			9.5				4.7				4.9
Other, net			(8.4	)			(1.6	)			(2.6	)
Net cash provided by operating activities			118.2				123.2				101.8
Investing Activities:
Capital expenditures, both tangible and intangible			(16.3	)			(10.0	)			(10.0	)
Acquisitions of businesses, net of cash acquired			(371.5	)			—				(0.4	)
Proceeds on disposal of property			0.3				0.2				0.5
Proceeds from redemption and sales of auction rate securities and investments			37.2				2.3				4.3
Capital contributions to affiliates			(0.3	)			(0.6	)			—
Return of investment capital from affiliates			1.9				2.8				1.4
Net cash used in investing activities			(348.7	)			(5.3	)			(4.2	)
Financing Activities:
Proceeds from revolving credit facilities			464.7				40.0				265.0
Repayments on revolving credit facilities			(276.8	)			(80.0	)			(165.0	)
Proceeds from issuance of senior unsecured notes			148.4				—				—
Payment of dividends on common stock			(46.2	)			(45.6	)			(22.8	)
Purchase of common stock			—				(12.5	)			(6.2	)
Proceeds from issuance of common stock			1.8				0.7				0.4
Cash received from parent in connection with separation			—				—				125.4
Net change in advances to former parent			—				—				(290.3	)
Financing costs and other			(2.1	)			—				(0.9	)
Net cash provided by (used in) financing activities			289.8				(97.4	)			(94.4	)
Effect of exchange rate changes on cash and cash equivalents			3.9				—				(0.4	)
Net cash flows			63.2				20.5				2.8
Cash and cash equivalents:
At beginning of period			35.2				14.7				11.9
At end of period		$	98.4			$	35.2			$	14.7
Cash paid during the period for interest		$	1.8			$	2.1			$	2.0
Cash paid during the period (net of refunds) for income taxes (including amounts paid to our former parent)		$	75.7			$	54.7			$	63.4

See Notes to Consolidated Financial Statements

HILLENBRAND, INC.

										Additional																Accumulated				Parent
		Common Stock								Paid-in				Retained				Treasury Stock								Other				Company
		Shares				Amount				Capital				Earnings				Shares				Amount				Comprehensive Loss				Investment				Total
Balance at September 30, 2007			—			$	—			$	—			$	—							$	—			$	(12.6	)		$	193.5			$	180.9
Adoption of accounting standard for uncertain income tax positions			—				—				—				—				—				—				—				(1.8	)			(1.8	)
Change in parent company investment			—				—				—				—				—				—				—				(290.3	)			(290.3	)
Comprehensive income:
Change in items not recognized as a component of net pension and postretirement healthcare costs (net of taxes of $3.5)			—				—				—				—				—				—				(5.7	)			—				(5.7	)
Change in foreign currency translation adjustment			—				—				—				—				—				—				—				—				—
Change in unrealized gain on derivative instruments (net of taxes of $0.2)			—				—				—				—				—				—				0.3				—				0.3
Change in net unrealized gain on available for sale securities (net of taxes of $0.2)			—				—				—				—				—				—				(0.3	)			—				(0.3	)
Net income generated prior to separation			—				—				—				—				—				—				—				47.3				47.3
Net income generated subsequent to separation			—				—				—				45.9				—				—				—				—				45.9
Total comprehensive income																																			87.5
Issuance of common stock related to stock awards or options			—				—				0.4				—				—				—				—				—				0.4
Stock-based compensation			—				—				1.6				—				—				—				—				—				1.6
Contribution of net assets from Hill- Rom			—				—				1.0				—				—				—				3.5				334.6				339.1
Issuance of common stock to Shareholders of Hill-Rom			62.4				—				283.3				—				—				—				—				(283.3	)			—
Purchases of common stock			—				—				—				—				0.3				(6.2	)			—				—				(6.2	)
Dividends on common stock			—				—				0.1				(22.9	)			—				—				—				—				(22.8	)
Balance at September 30, 2008			62.4				—				286.4				23.0				0.3				(6.2	)			(14.8	)			—				288.4
Comprehensive income:
Change in items not recognized as a component of net pension and postretirement healthcare costs (net of taxes of $20.5)			—				—				—				—				—				—				(35.5	)			—				(35.5	)
Change in foreign currency translation adjustment			—				—				—				—				—				—				(0.5	)			—				(0.5	)
Change in unrealized gain on Derivative instruments (net of taxes of $0.6)			—				—				—				—				—				—				(1.1	)			—				(1.1	)
Change in net unrealized gain on available for sale securities (net of taxes of $0.6)			—				—				—				—				—				—				1.1				—				1.1
Net income			—				—				—				102.3				—				—				—				—				102.3
Total comprehensive income																																			66.3
Issuance of common stock related to stock awards or options			0.4				—				(0.5	)			—				(0.1	)			1.2				—				—				0.7
Stock-based compensation			—				—				6.7				—				—				—				—				—				6.7
Adjustment to net assets from Hill- Rom			—				—				4.6				—				—				—				(4.6	)			—				—
Purchases of common stock			—				—				—				—				0.7				(12.5	)			—				—				(12.5	)
Dividends on common stock			—				—				0.4				(46.0	)			—				—				—				—				(45.6	)
Balance at September 30, 2009			62.8				—				297.6				79.3				0.9				(17.5	)			(55.4	)			—				304.0
Comprehensive income:
Change in items not recognized as a component of net pension and postretirement healthcare costs (net of taxes of $0.5)			—				—				—				—				—				—				(1.0	)			—				(1.0	)
Change in foreign currency translation adjustment			—				—				—				—				—				—				12.2				—				12.2
Change in unrealized gain on derivative instruments (net of taxes of $0.4)			—				—				—				—				—				—				0.7				—				0.7
Change in net unrealized gain on available for sale securities (net of taxes of $0.3)			—				—				—				—				—				—				0.5				—				0.5
Net income			—				—				—				92.3				—				—				—				—				92.3
Total comprehensive income																																			104.7
Issuance of common stock related to stock awards or options			0.3				—				(0.9	)			—				(0.1	)			2.7				—				—				1.8
Stock-based compensation			—				—				7.6				—				—				—				—				—				7.6
Dividends on common stock			—				—				0.6				(46.8	)			—				—				—				—				(46.2	)
Balance at September 30, 2010			63.1			$	—			$	304.9			$	124.8				0.8			$	(14.8	)		$	(43.0	)		$	—			$	371.9