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

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 (Address of principal executive offices)		47006 (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 o		No þ

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 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 o		Accelerated filer o		Non-accelerated filer þ		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 April 1, 2008, the date our common stock began trading regularly on the New York Stock Exchange: — $1,295,174,179

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 —61,832,225 shares outstanding as of November 30, 2008.

DOCUMENTS INCORPORATED BY REFERENCE

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 2009 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. These will be filed no later than January 28, 2009.

 

 

HILLENBRAND, INC.
Annual Report on Form 10-K
for the fiscal year ended September 30, 2008
TABLE OF CONTENTS

		Page
PART I
Disclosure Regarding Forward Looking Statements			1
Item 1. Business			1
Item 1A. Risk Factors			6
Item 1B. Unresolved Staff Comments			11
Item 2. Properties			12
Item 3. Legal Proceedings			13
Item 4. Submission of Matters to a Vote of Security Holders			16
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities			17
Item 6. Selected Financial Data			19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			36
Item 8. Financial Statements and Supplementary Data			37
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			75
Item 9A. Controls and Procedures			75
Item 9B. Other Information			75
PART III
Item 10. Directors, Executive Officers, and Corporate Governance			75
Item 11. Executive Compensation			76
Item 12. Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters			76
Item 13. Certain Relationships and Related Transactions, and Director Independence			76
Item 14. Principal Accountant Fees and Services			76
PART IV
Item 15. Exhibits and Financial Statement Schedules			76
Signatures			77
Exhibit 21.1
Exhibit 23.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

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
become		pursue		estimate		will		forecast		continue
targeted		increase		higher/lower		improve		progress		potential

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, the products we manufacture and sell, how we distribute our products, who we compete with, and the key inputs to production (in the form of raw materials, labor, and manufacturing locations). We also provide you background on applicable regulatory matters, and key patents and trademarks important to our business. Finally we provide you a brief background on our executive officers so that you can understand their experience and qualifications.

General

As previously disclosed in our registration statement on Form 10 filed with the U.S. Securities and Exchange Commission (“SEC”), 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” or “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 on March 31, 2008 following the close of business. 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, and 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 and our annual, quarterly, and current reports and other documents filed or furnished with the 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, Inc. is the parent holding company of its wholly owned subsidiary, Batesville Services, Inc. (“Batesville Casket”). Through Batesville Casket, we are a leader in the North American death care industry where we manufacture, distribute and sell funeral service products to licensed funeral directors who operate licensed funeral homes. Our products consist primarily of burial and cremation caskets, but also include containers and urns, selection room display fixturing for funeral homes, and other personalization and memorialization products and services, including creating and hosting websites for funeral homes.

Products and Services

We manufacture and sell gasketed caskets made of carbon steel, stainless steel, copper and bronze. We also produce and market non-gasketed steel, hardwood and veneer hardwood caskets. In addition, we manufacture and sell cloth-covered caskets, all wood construction caskets and a line of urns, containers, and other memorialization products used in cremations. To assist with displaying these products, we supply selection room fixturing through our System Solutions by Batesville^® group.

Most Batesville brand metal caskets are gasketed caskets that are electronically welded to help resist the entrance of outside elements through the use of rubber gaskets and a locking bar mechanism. Our 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.

Our solid and veneer hardwood caskets are made from mahogany, cherry, walnut, maple, pine, oak, pecan, poplar and sycamore. Our veneer caskets are manufactured using a proprietary process for veneering that allows for rounded corners and a furniture-grade finished appearance. We also manufacture and provide select lines of Marsellus^® premium solid wood caskets to our funeral home customers.

Our 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, and urns, the system includes training, merchandising support, and marketing support materials. Cremation caskets and containers are manufactured primarily of hardwoods and fiberboard. Our wide assortment of memorial urns are made from a variety of materials, including cast bronze, cast acrylic, wood, sheet bronze, cloisonné, and marble.

We offer several other marketing and merchandising programs to funeral professionals for both casket and cremation products. Batesville caskets are marketed by our 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, Puerto Rico, Canada, Mexico, the United Kingdom, Australia and South Africa. A significant portion of our sales are made to large national funeral service providers under contracts we have entered into with these customers.

We maintain inventory at 87 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 us.

We primarily manufacture and distribute products in the United States. We also have 2 manufacturing facilities in Mexico and distribution facilities in Puerto Rico, Canada, Mexico, the United Kingdom, Australia, and South Africa.

Competition

We are a recognized North American industry leader in the sale of funeral service products. We compete on the basis of product quality, personalization, price, delivery, and customer service. Major competitors that manufacture and/or sell funeral service products over a wide geographic area include Aurora Casket Company and Matthew’s Casket Division, a subsidiary of Matthews International Corporation.

Throughout the United States, many other enterprises manufacture, assemble, and/or distribute funeral service products for sale, often focusing on particular regions or geographic areas. Additionally, we are facing increasing competition from a number of non-traditional sources, including casket manufacturers located abroad.

Regulatory Matters

We 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 the cost to us of the onsite remediation activities in which we are currently involved to exceed $0.5 million. 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 expenditures is not known.

Raw Materials

We use carbon and stainless steel, copper and bronze sheets, wood, fabrics, finishing materials, rubber gaskets, zinc, and magnesium alloy in the manufacture of our caskets. Although most of the raw materials used in our products are generally available from several sources, certain of these raw materials are currently procured only from a single source.

The rising prices of raw materials used in our products, including steel, fuel, petroleum based products, and fuel related delivery costs, have a direct and negative effect on our profitability. We generally do not engage in hedging transactions with respect to these purchases, but do enter into fixed price supply contracts at times. We have taken steps and have plans and actions in place to mitigate the impact of rising raw material and fuel prices, including continuous improvement initiatives, various sourcing actions, the completed consolidation of our United States wood manufacturing operations into a single facility, the continued and expanded roll-out of our veneer products from our Mexican manufacturing operations with overall lower material costs composition, and annual product price adjustments as contractually allowed. However, there can be no assurance that we will be able to anticipate and react quickly to all changing raw material prices in the future.

Most of our sales are made pursuant to supply agreements with our customers, and historically, we have instituted annual price increases to help offset the impact of inflation and other rising cost factors. While there are certain limitations in some of our agreements, their provisions generally allow us to raise prices to offset some, but not necessarily all, raw material cost inflation.

Distribution

We have extensive distribution capabilities that serve our customers’ increasing delivery expectations. Our high-velocity, hub and spoke distribution system, consisting of 6 Rapid Deployment Centers and 87 Customer Service Centers in North America, serves a majority of our customers each day and is critical to the rapid delivery requirements of funeral directors nationwide.

Patents and Trademarks

We own a number of patents on our 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 our business as a whole.

We also own a number of trademarks and service marks relating to our products and product services which are of importance to us, but, except for the mark “Batesville^®,” we do not believe any single trademark or service mark is of material significance to our business as a whole.

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

In the past, certain of our products have been copied and sold by others. We vigorously seek to enforce our intellectual property rights. However, we cannot ensure that the copying and sale of our products by others would not materially adversely affect the sale of our products.

Employees

As of September 30, 2008, we employed approximately 3,400 people in our operations. Approximately 1,200 of these individuals, as part of our logistics and manufacturing operations in the United States, Canada, and Mexico work under collective bargaining agreements. In the United States, Canada, and Mexico the collective bargaining agreements have expiration dates ranging from January 2009 to May 2012.

Although we have not experienced any significant work stoppages in more than 20 years as a result of labor relations, 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 our principle facilities could have a material adverse effect on our operations. However, we have no reason to suspect that we will have significant difficulties in negotiating new collective bargaining agreements to replace those that will expire in the future and we will continue to prepare contingency plans as part of routine preparation for negotiations in order to minimize the impact of any potential work stoppages.

Foreign Operations and Export Sales

Information about our 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.

Our export revenues constituted less than 10 percent of consolidated revenues in fiscal 2008 and
prior years.

Our foreign operations are subject to risks inherent in doing business in foreign countries. Risks associated with operating internationally include political, social, and economic instability, increased operating costs, expropriation, and complex and changing government regulations, all of which are beyond our control. Further, to the extent we receive revenue from U.S. export sales in currencies other than U.S. dollars, the value of assets and income could be, and have in the past been, adversely affected by fluctuations in the value of local currencies.

Executive Officers of the Registrant

Our Board of Directors is responsible for electing our 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 the members of the Board of Directors. The following is a list of our executive officers as of November 30, 2008.

Kenneth A. Camp, 63, 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 served as President and Chief Executive Officer of Batesville Casket since May 1, 2001; he continues to serve as Chief Executive Officer of Batesville Casket. 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 Casket, 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, 47, 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, 42, was elected President and Chief Operating Officer of Batesville Casket, effective June 16, 2008, and Senior Vice President of Hillenbrand on July 15, 2008. Most recently, 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 Casket and Hill-Rom, culminating in being named Vice President of Logistics at Batesville Casket in 2002.

John R. Zerkle, 54, was elected Senior Vice President, General Counsel and Secretary of Hillenbrand effective February 8, 2008. Most recently, Mr. Zerkle served as Vice President and General Counsel of Batesville Casket 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 twenty years, where he focused his practice on corporate, securities, regulatory, and banking law matters.

Paul Douglas Wilson, 56, 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, the chief human resources officer. 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, 40, 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.

Theodore S. Haddad, Jr., 44, was elected Vice President, Controller and Chief Accounting Officer of Hillenbrand on February 8, 2008. Prior to joining Hillenbrand, Mr. Haddad served as Senior Manager in the Audit and Business Advisory Services Group of PricewaterhouseCoopers, LLP since July 2002. Prior to this, 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. 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. Additional risks not currently known or considered immaterial by us at this time may result in adverse effects on our business.

Risks Related to Our Business

An adverse outcome in the ongoing antitrust litigation in which we are a defendant could materially adversely affect our results of operations, financial position and liquidity.

We are a defendant in several purported antitrust class action lawsuits. See “Item 3. Legal Proceedings” in this Form 10-K. The plaintiffs in one of these cases have served a report indicating that they are seeking damages ranging from approximately $947 million to approximately $1.46 billion before trebling on behalf of the purported class of consumers they seek to represent, and the plaintiffs in the other case have served a report indicating that they are seeking damages of approximately $99.2 million before trebling on behalf of the purported class of independent casket resellers they seek to represent. If these cases go to trial, the plaintiffs are likely to claim additional alleged damages for the period 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. A Magistrate Judge has recommended that neither class be certified; however, his recommendation is not binding on the District Judge and it is possible that the District Judge or an appellate court could order one or both classes certified. In the event a class is certified in any of these cases and the plaintiffs prevail at trial, any damages awarded would be trebled as a matter of law and the plaintiffs may elect to enforce any judgment against any or all of the codefendants, who have no statutory contribution rights against each other. Accordingly, if a class is certified in any of these cases and the plaintiffs prevail at trial, we could be subject to substantial liability. In such event, we may not be able to satisfy any such judgment or to post an appeal bond for the appeal of any such judgment. In that event, we could resort to bankruptcy proceedings. If we are able to satisfy a judgment or post an appeal bond, doing so may significantly impair our financial position and liquidity.

Although we have entered into a judgment sharing agreement with Hill-Rom with respect to this litigation, there can be no assurance that Hill-Rom will be able to satisfy its potential obligations under this agreement. Moreover, negative covenants contained in the distribution agreement relating to our separation from Hill-Rom, intended to preserve the credit capacity of each of Hillenbrand and Hill-Rom to perform their obligations under the judgment sharing agreement, impose restrictions on us that, among other matters, may limit our ability to consummate acquisitions or pay dividends. For a more detailed discussion, see the sections entitled “Distribution Agreement” and “Judgment Sharing Agreement” within Note 6 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

In addition to the risks associated with an adverse outcome in this litigation, we continue to incur significant legal costs in the vigorous defense of this litigation and expect these costs to continue for the foreseeable future. We currently expect these costs to be approximately $19 million in fiscal 2009, although this could change significantly depending on further future developments. Under the judgment sharing agreement, we are responsible for all costs incurred by us and Hill-Rom in defense of this litigation.

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

As of September 30, 2008, we held a significant non-operating asset in the form of a note receivable and related interest receivable whose issuer is related to an industry severely impacted by recent global market and economic conditions. This asset was transferred to us at the time of separation from Hill-Rom. As of September 30, 2008, this note receivable has an aggregate carrying value of $130.4 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.

Commencing in 2007 and continuing throughout fiscal 2008, adverse financial developments have impacted the U.S. and global economies and financial markets and have particularly impacted companies in the financial services and insurance industries. Forethought’s ability to pay us under the terms of the note receivable may be adversely impacted by the deterioration being experienced in the credit markets, as they have material exposure to this market as an insurance company. Further, their ability to access credit or raise capital may be significantly restricted by current economic conditions, which in turn may limit their ability to execute their business plans or meet their obligation to pay us in the future. 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, our earnings could be negatively impacted resulting in a material adverse impact on our financial condition and results of operations.

Our business is significantly dependent on several major contracts with large national providers. Our relationships with these customers pose several risks.

We have contracts with a number of large, national funeral home customers which comprise a sizeable portion of our overall sales volume. Any decision by our large national funeral home customers to discontinue purchases from us could have a material adverse effect on our financial condition, results of operations and cash flows. Also, while our contracts with large funeral service providers give us important access to many of the largest purchasers of funeral service products, they may obligate us to sell our products at contracted prices for extended periods of time, therefore limiting our ability, in the short-term, to raise prices in response to significant increases in raw material prices or other factors.

Volatility in our investment portfolio could negatively impact earnings. Also, if we are unable to convert our portfolio of auction rate securities to cash on 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 $25.2 million as of September 30, 2008. Volatility in that investment portfolio could negatively or positively impact earnings. 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 on our financial condition.

At the time of the separation and in connection with the allocation of cash, cash equivalents and investments between us and Hill-Rom, we received a portfolio of auction rate securities (consisting of highly rated state and municipal bonds) that Hill-Rom was not able to liquidate prior to separation due to the recent market conditions and auction failures. The auction rate securities currently have a carrying value of $51.1 million as of September 30, 2008. If current market conditions do not improve, or if they worsen, we may not be able to convert these securities to cash for the foreseeable future, these assets could be impaired, and our earnings could be adversely affected.

In November 2008, we received an enforceable, non-transferable right (the “Put”) from UBS Financial Services that allows us to sell approximately $30.6 million of our existing auction rate securities (carrying value at September 30, 2008) at par value plus accrued interest. We may exercise the Put at anytime during the period of June 30, 2010, through July 2, 2012.

Recent global market and economic conditions, including those related to the credit markets, could have a material adverse effect on the Company’s business, financial condition and results of operations.

The recent worldwide financial and credit market disruptions and uncertainty have reduced the availability of credit generally necessary to fund a continuation and expansion of global economic activity. The shortage of credit combined with the recent substantial losses in equity markets and other economic developments could lead to an extended worldwide economic recession.

A general slowdown in economic activity caused by a 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 write-offs could increase. 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 financial disruption is having an adverse effect on the assets of the Company’s defined benefit plans. A continuation of the volatility of interest rates and negative equity returns under current market conditions could result in greater contributions to the defined benefit plans in the future.

Continued fluctuations in mortality rates and increased cremations may adversely affect, as they have in recent years, the volume of our sales of 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 United States continues to age, we anticipate the number of deaths in North America 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 U.S. cremations is gradually and steadily increasing, resulting in a contraction in the demand for burial caskets, which was a contributing factor to lower burial casket sales volumes for us in each of fiscal years 2008, 2007 and 2006. We expect these trends to continue into the foreseeable future and our 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 our sales of burial caskets to fluctuate from quarter to quarter and year to year.

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

Non-traditional funeral service providers could present more of a competitive threat to us and our sales channel than is currently anticipated. While some of these have competed against us for many years, large discount retailers, casket stores, and internet casket retailers represent more recent competitors. Also, there are several manufacturers located in China currently manufacturing caskets for sale into the United States. While sales from these providers are currently a minor percentage of total casket sales in the United States, it is not possible to quantify the financial impact that these competitors will have on our business. These competitors will continue to drive additional pricing and other competitive pressures in an industry that already has approximately double the necessary domestic production capacity. Such competitive actions could have a negative impact on our results of operations.

Increased prices for, or unavailability of, raw materials used in our products could adversely affect profitability or revenues. In particular, our results of operations continue to be adversely affected by high 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 may 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 prices of our products could adversely affect our results of operations. While we experienced some overall cost pressure in 2007 and 2006, we saw significantly higher prices in fiscal 2008 for commodities used in the manufacture of our products, including steel, red metals, and fuel. Although we have historically been able to offset such rising costs with increases in the prices of our products, there can be no assurance that the marketplace will continue to support the higher prices or that such prices will fully offset such commodity price increases in the future. Any further 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 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 only from 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.

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 complete description of our asserted claims, see Note 12 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

A substantial portion of our workforce is unionized, and we could face labor disruptions that would interfere with our operations.

Approximately 35% of our employees as part of our logistics and manufacturing operations work under collective bargaining agreements. Although we have 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 our principal facilities could have a material adverse effect on our operations.

Upon the termination of certain agreements with Hill-Rom, we may experience additional increased costs.

Hill-Rom is contractually obligated to provide to us only those services specified in the transition services and shared services agreements and the other agreements we entered into with Hill-Rom in preparation for the separation. Upon the expiration of these agreements, many of the services that are covered in these agreements will have to be provided internally or by unaffiliated third parties, and we expect that in some instances we may incur higher costs to obtain such services than we incurred under the terms of these agreements. In addition, if Hill-Rom does not continue to effectively perform the services that are called for under the transition services and shared services agreements and the other agreements, we may not be able to operate our business effectively and our profitability may decline.

We do not have a long operating history as a separate publicly traded company.

Prior to the consummation of our separation from Hill-Rom, we operated as part of Hill-Rom. Accordingly, until the separation, we had no direct experience complying with certain of the requirements of the Sarbanes-Oxley Act of 2002 or with the periodic reporting requirements of the Securities Exchange Act of 1934. Additionally, we had not been responsible for performing various corporate functions, including tax administration, treasury administration, compensation and benefits administration, investor relations, internal audit and risk management.

The historical financial information related to periods prior to the separation on March 31, 2008, included in this Form 10-K 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. Prior to our separation on March 31, 2008, our business was operated by Hill-Rom as part of its broader corporate organization, rather than as a separate, publicly traded company. As a result, we made certain modifications to certain business support and governance activities upon our separation from Hill-Rom. Our historical financial results reflect allocations of expenses for these and similar functions but these allocations are less than the expenses we would have incurred had we operated as a separate, publicly traded company.

Risk Arising From Our Separation Transaction with Hill-Rom

The distribution of our stock to Hill-Rom’s stockholders could result in a significant tax liability.

Hill-Rom has received a private letter ruling from the Internal Revenue Service (“IRS”) that the distribution qualified for tax-free treatment under Code Sections 355 and 368(a)(1)(D). The IRS ruling relies on certain representations, assumptions and undertakings, including those relating to the past and future conduct of our business. Although Hill-Rom believes that all of these representations, assumptions and undertakings were correct, the IRS ruling would not be valid if they were incorrect. Moreover, the IRS private letter ruling does not address all the issues that are relevant to determining whether the distribution qualified for tax-free treatment, although Hill-Rom received an opinion of counsel with respect to the legal and tax issues not addressed in the private letter ruling. Notwithstanding the IRS private letter ruling, the IRS could determine that the distribution should have been treated as a taxable transaction if it determines that any of the representations, assumptions or undertakings that were included in the request for the private letter ruling was false or had been violated.

If the distribution were to fail to qualify for tax-free treatment, Hill-Rom would be subject to tax as if it had sold the common stock of our company in a taxable sale for its fair market value and our initial public shareholders would be subject to tax as if they had received a taxable distribution equal to the fair market value of our common stock that was distributed to them. Under the tax sharing agreement between Hill-Rom and us, we would generally be required to indemnify Hill-Rom against any tax resulting from the distribution to the extent that such tax resulted from (1) an issuance of our equity securities, a redemption of our equity securities or our involvement in other acquisitions of our equity securities, (2) other actions or failures to act by us or (3) any of our representations or undertakings being incorrect or violated. For a more detailed discussion, see the section entitled “Tax Sharing Agreement” within Note 6 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K. Our indemnification obligations to Hill-Rom and its subsidiaries, officers and directors are not limited by any maximum amount. If we are required to indemnify Hill-Rom or such other persons under the circumstances set forth in the tax sharing agreement, we may be subject to substantial liabilities.

We may be unable to achieve some or all of the benefits that we expect to achieve from our separation from Hill-Rom, and any such benefits may be offset in part by certain negative consequences of the separation.

We may not be able to achieve the full strategic and financial benefits that we expected to result from our separation from Hill-Rom or such benefits may be delayed or may not occur at all. For example, there can be no assurance that analysts and investors will regard our corporate structure as clearer and simpler than the prior Hill-Rom corporate structure or place a greater value on our company as a stand-alone company than on our business as a part of Hill-Rom. As a result, the aggregate market price of Hill-Rom common stock and our common stock as separate companies may be less than the market price per share of Hill-Rom’s common stock had the separation and distribution not occurred.

Because we are a smaller company than Hill-Rom prior to the separation and may have credit ratings below Hill-Rom’s prior to the separation, we expect to have less borrowing capacity and greater borrowing costs than Hill-Rom currently had before the separation.

Our ability to engage in desirable strategic transactions and equity issuances is limited by the Tax Sharing Agreement we entered into with Hill-Rom.

To preserve the tax-free treatment to Hill-Rom and its shareholders of the distribution, under a tax sharing agreement that we entered into with Hill-Rom, for the two year period following the distribution, we are prohibited, except in specified circumstances, from:

•

issuing equity securities;

•

engaging in certain business combination or asset sale transactions; or

•

engaging in other actions or transactions that could jeopardize the tax-free status of the distribution.

These restrictions limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. For more information, see the section entitled “Tax Sharing Agreement” within Note 6 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Risks Relating 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 have the effect of delaying or preventing changes in control if our Board of Directors determines that such changes in control are not in the best interests of us and 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:

•

a Board of Directors that is divided into three classes with staggered terms;

•

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 company and our shareholders.

Item 1B. UNRESOLVED SEC 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, and, except for our leased facility in Chihuahua, Mexico, are owned by us and not subject to material encumbrances. 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.

Location		Description		Primary Use
Batesville, Indiana		Manufacturing plants Office Facilities		Manufacturing of metal caskets Administration
Manchester, Tennessee		Manufacturing plant		Manufacturing of metal caskets
Vicksburg, Mississippi		Kiln drying and lumber cutting plant		Drying and dimensioning of lumber
Batesville, Mississippi		Manufacturing plant		Manufacturing of hardwood caskets
Chihuahua, Mexico		Manufacturing plant		Manufacturing of veneer hardwood caskets
Mexico City, Mexico		Manufacturing plant		Manufacturing of metal caskets

In addition to the foregoing, we lease or own a number of warehouse distribution centers, service centers and sales offices throughout North America, the United Kingdom, Mexico, Australia and South Africa.

Item 3. LEGAL PROCEEDINGS

Antitrust Litigation

On May 2, 2005, a non-profit entity called Funeral Consumers Alliance, Inc. (“FCA”) and several individual consumers filed a purported class action antitrust lawsuit (“FCA Action”) against three national funeral home businesses, Service Corporation International (“SCI”), Alderwoods Group, Inc. (“Alderwoods”), and Stewart Enterprises, Inc. (“Stewart”), together with Hill-Rom and our subsidiary Batesville Casket Company, Inc. (“Batesville”), in the United States District Court for the Northern District of California. This lawsuit alleged a conspiracy to suppress competition in an alleged market for the sale of caskets through a group boycott of so-called “independent casket discounters,” that is, third-party casket sellers unaffiliated with licensed funeral homes; a campaign of disparagement against these independent casket discounters; and concerted efforts to restrict casket price competition and to coordinate and fix casket pricing, all in violation of federal antitrust law and California’s Unfair Competition Law. The lawsuit claimed, among other things, that Batesville’s maintenance and enforcement of, and alleged modifications to, its longstanding policy of selling caskets only to licensed funeral homes were the product of a conspiracy among Batesville, the other defendants and others to exclude “independent casket discounters” and that this alleged conspiracy, combined with other alleged matters, suppressed competition in the alleged market for caskets and led consumers to pay higher than competitive prices for caskets. The FCA Action alleged that two of Batesville’s competitors, York Group, Inc. and Aurora Casket Company, are co-conspirators, but did not name them as defendants. The FCA Action also alleged that SCI, Alderwoods, Stewart and other unnamed co-conspirators conspired to monopolize the alleged market for the sale of caskets in the United States.

After the FCA Action was filed, several more purported class action lawsuits on behalf of consumers were filed based on essentially the same factual allegations and alleging violations of federal antitrust law and/or related state law claims. All of these actions have either been dismissed or consolidated with the FCA Action.

Batesville, Hill-Rom and the other defendants filed motions to dismiss the FCA Action and a motion to transfer to a more convenient forum. In response, the court in California permitted the plaintiffs to replead the complaint and later granted defendants’ motion to transfer the action to the United States District Court for the Southern District of Texas (Houston, Texas) (“Court”).

On October 12, 2005, the FCA plaintiffs filed an amended complaint containing substantially the same basic allegations as the original FCA complaint. On October 18, 2006, the Court denied the defendants’ motions to dismiss the amended FCA complaint.

The FCA plaintiffs are seeking certification of a class that includes all United States consumers who purchased Batesville caskets from any of the funeral home co-defendants at any time during the fullest period permitted by the applicable statute of limitations.

In addition to the consumer lawsuits discussed above, on July 8, 2005, Pioneer Valley Casket Co. (“Pioneer Valley”), an alleged casket store and Internet retailer, also filed a purported class action lawsuit (“Pioneer Valley Action”) against Batesville, Hill-Rom, SCI, Alderwoods, and Stewart in California District Court on behalf of the class of “independent casket distributors,” alleging violations of state and federal antitrust law and state unfair and deceptive practices laws based on essentially the same factual allegations as in the consumer cases. Pioneer Valley claimed that it and other independent casket distributors were injured by the defendants’ alleged conspiracy to boycott and suppress competition in the alleged market for caskets, and by an alleged conspiracy among SCI, Alderwoods, Stewart and other unnamed co-conspirators to monopolize the alleged market for caskets.

The Pioneer Valley complaint was also transferred to the Southern District of Texas but was not consolidated with the FCA Action. On October 21, 2005, Pioneer Valley filed an amended complaint adding three new plaintiffs, each of whom purports to be a current or former “independent casket distributor.” Like Pioneer Valley’s original complaint, the amended complaint alleges violations of federal antitrust laws, but it has dropped the causes of actions for alleged price fixing, conspiracy to monopolize, and violations of state antitrust laws and state unfair and deceptive practices laws. On October 25, 2006, the district court denied the defendants’ motions to dismiss the amended Pioneer Valley complaint.

The Pioneer Valley plaintiffs are seeking certification of a class of all independent casket distributors in the United States who are or were in business at any time from July 8, 2001 to the present, excluding those that: (1) are affiliated in any way with any funeral home; (2) manufacture caskets; or (3) are defendants in the current action, their directors, officers, agents, employees, parents, subsidiaries or affiliates.

Class certification hearings in the FCA Action and the Pioneer Valley Action were held in early December 2006. While the decision was pending on the class certification motions, the Court stayed both cases pending resolution of class certification. On November 24, 2008, the Magistrate Judge who conducted the class certification hearings recommended that the plaintiffs’ motions for class certification in both cases be denied. The plantiffs have the right to file objections to the Magistrate Judge’s recommendation with the District Judge. If the District Judge accepts the Magistrate Judge’s recommendation and denies class certification, plaintiffs may petition the United States Court of Appeals for the Fifth Circuit for leave to appeal. It is anticipated that new deadlines, including a trial date, will not be set until sometime after the District Court has ruled on the motions for class certification.

Plaintiffs in the FCA and Pioneer Valley Actions generally seek monetary damages, 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 are seeking damages ranging from approximately $947.0 million to approximately $1.46 billion before trebling on behalf of the purported class of consumers they seek to represent. Additionally, the Pioneer Valley plaintiffs filed a report indicating that they are seeking damages of approximately $99.2 million before trebling on behalf of the purported class of independent casket resellers they seek to represent. 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.

If a class is certified in any of the antitrust cases filed against Hill-Rom and Batesville and if the plaintiffs in any such case prevail at trial, 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 and Pioneer Valley 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. 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 consolidated financial statements included in Part II, Item 8 of this Form 10-K for a description of the judgment sharing agreement.

We believe that we have committed no wrongdoing as alleged by the plaintiffs and that we have meritorious defenses to class certification and to plaintiffs’ underlying allegations and damage theories. In accordance with applicable accounting standards, we have not established a loss reserve for any of these cases.

After the FCA Action was filed, in the summer and fall of 2005, Batesville and Hill-Rom were served with Civil Investigative Demands by the Attorney General of Maryland and certain other state attorneys general who had begun an investigation of possible anticompetitive practices in the death care industry relating to a range of funeral services and products, including caskets. We have been informed that approximately 26 state attorneys general offices are participating in the joint investigation, although more could join. We are cooperating with the attorneys general. To date, no claims have been filed against Batesville or Hill-Rom. We are obligated to indemnify Hill-Rom against any costs, expenses, and liabilities resulting from this investigation.

Other Pending Litigation Matter

On August 17, 2007, a lawsuit styled Vertie Staples v. Batesville Casket Company, Inc. was filed against us in the United States District Court for the Eastern District of Arkansas. As amended, the case is a putative class action on behalf of the plaintiff and all others who purchased a Monoseal^® casket manufactured by Batesville from a licensed funeral home located in Arkansas from January 1, 1989 to August 31, 2002. The complaint alleges that the warranties on which the claims are predicated date from 1989 to 2002. The plaintiff claims that Monoseal^® caskets were marketed as completely resistant to the entrance of air and water when they allegedly were not completely resistant. The plaintiff asserts causes of action under the Arkansas Deceptive Trade Practices Act and for fraud, constructive fraud and breach of express and implied warranties. On January 9, 2008, the plaintiff filed an amended complaint that added another putative class plaintiff, restated the pending claims, and added a claim for unjust enrichment. The claims of the original plaintiff were subsequently dismissed by the Court and the case is now styled Garry Clayton v. Batesville Casket Company, Inc. In order to establish federal jurisdiction over the claims under the Class Action Fairness Act, the plaintiff alleges that the amount in controversy exceeds $5.0 million.

This action is in the very early stages of litigation, and as such, we are not yet able to assess the potential outcome of this matter. We believe the claims are without merit and will vigorously defend the case. It is not unusual to have multiple copycat class actions suits filed after an initial filing, and it is possible that additional suits based on the same or similar allegations could be brought against us.

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 possible that actual costs could differ from those estimates.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the quarter ended September 30, 2008.

PART II

Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER SALES AND 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 28, 2008, was $15.92. The following table reflects the range of high and low selling prices of our common stock by quarterly period since our common stock began trading on the New York Stock Exchange on March 20, 2008.

		Fiscal 2008
		High				Low
Second Quarter *		$	23.33			$	18.00
Third Quarter		$	24.29			$	18.01
Fourth Quarter		$	24.19			$	19.78

Holders

On November 30, 2008, we had approximately 16,000 shareholders of record.

Dividends

On April 30, 2008, our Board of Directors declared our first dividend payment of $0.1825 per share, which was paid on June 30, 2008. We also declared a dividend of $0.1825 on September 5, 2008, which was paid on September 30, 2008. Effective December 4, 2008, our Board of Directors declared a dividend of $0.185 per share payable on December 31, 2008 to the holders of record as of close of business on December 17, 2008. 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 $0.185 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. As previously disclosed, we currently expect that comparable quarterly cash dividends will continue to be paid in the future.

Issuer Purchases of Equity Securities

										Total Dollar				Maximum Dollar
										Amount of Shares				Amount of Shares
		Total								Purchased as Part				that May Yet Be
		Number of				Average				of Publicly				Purchased Under
		Shares				Price Paid				Announced Plan or				the Plans or
Period		Purchased				per Share				Program *				Programs
July 1, 2008 – July 31, 2008			—				—				—				—
August 1, 2008 – August 31, 2008			—				—				—				—
September 1, 2008 – September 30, 2008			288,509			$	21.62			$	6,238,459			$	93,761,541
Total			288,509			$	21.62			$	6,238,459			$	93,761,541

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 SmallCap 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 September 30, 2008. 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.

		Quarterly Period Ended
		June 30, 2008				September 30, 2008
Hillenbrand			119				112
S&P 500 Index			96				88
S&P 600 SmallCap Index *			101				100

Item 6. SELECTED FINANCIAL DATA

Selected historical financial data as of and for the fiscal year ended September 30, 2004 to 2008 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 III, Item 8, Financial Statements and Supplemental Data included in this Report on 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)		2008				2007				2006				2005				2004
Net revenues		$	678.1			$	667.2			$	674.6			$	659.4			$	640.3
Income from operations		$	149.6			$	155.6			$	177.4			$	161.3			$	178.8
Net income		$	93.2			$	99.5			$	113.2			$	102.8			$	113.8
Net income per share		$	1.49			$	1.59			$	1.81			$	1.64			$	1.82
Cash dividends declared per share*		$	.365			$	—			$	—			$	—			$	—
Total assets		$	545.3			$	316.6			$	329.4			$	337.1			$	320.5
Long-term obligations		$	70.9			$	59.9			$	59.9			$	69.8			$	83.4
Cash flow from operating activities		$	101.8			$	127.3			$	124.6			$	88.9			$	132.0
Capital expenditures		$	10.0			$	15.6			$	18.8			$	16.3			$	16.3

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 provide a discussion of trends in our industry related to customers, competition, and product costs, among others. We also explain our current strategy and the qualitative results we have experienced, as well as recent factors impacting our business. Finally, 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 in a quantitative fashion. 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 will include Hillenbrand, Inc. (“Hillenbrand”) and Batesville Casket Company (“Batesville”), currently Hillenbrand’s only operating business.

Background

We are the leader in the North American death care industry through the manufacture, distribution, and sale of funeral service products to licensed funeral directors who operate licensed funeral homes. We sell primarily burial caskets, but also provide cremation caskets, containers, urns, and product merchandising systems that include selection room display fixturing for funeral establishments. Our mission is to provide funeral directors with the highest quality products and services; in a phrase, “helping families honor the lives of those they love^®.” In line with our mission, we provide personalization and memorialization products and services, as well as creating and hosting websites for funeral establishments.

After the close of business on March 31, 2008, we became a separate publicly traded company as the result of the distribution of our shares to the stockholders of Hill-Rom, our former parent company. We have retained the Hillenbrand name because of its heritage as a family-built business and the close affiliation with Batesville and its customers.

The consolidated financial statements included elsewhere in this Form 10-K do not include all expenses that would have been incurred had we been a separate, stand-alone entity prior to April 1, 2008, and do not reflect our results of operations, financial position and cash flows had we been a stand-alone company during the periods prior to April 1, 2008. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with our consolidated financial statements, and the notes thereto included elsewhere in this Form 10-K.

Death Care Industry Trends

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 directly from the funeral home as a matter of choice and convenience.

Demographics and Consumer Preferences. For the past several years the total number of deaths in North America (where most of our products are sold) has been relatively flat. 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 approximately one-third in the United States and one-half in Canada. These consolidated factors have yielded a slow but steady decline in the total number of casketed deaths in North America. The current trends are expected to continue for the foreseeable future until the post-WWII spike in births causes an increase in deaths. While the primary driver of market size is 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 predict precisely 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 be 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 casketed deaths, the casket industry has experienced a long-term gradual decline in the average price (normally referred to as product mix) of burial caskets sold, a trend that has also affected us. One of the factors which has affected mix is the pricing practice of many funeral homes, which places most of the margin expectation on the sale of products instead of the services provided. We have observed a recent change 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. Additionally, more consumers are expecting higher levels of personalization, both in products and services. Our response to this changing consumer preference is described below.

Competition. Competition in the casket industry is based on product quality, design features, personalization, price and delivery service. We compete 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. Also, the industry has seen a few foreign manufacturers, mostly from China, who import caskets into the U.S. and Canada. Additionally, some retail stores, and internet sellers sell caskets directly to consumers, although we estimate that total sales among this latter group are a minor portion of annual burial casket volume.

The effect of gradually declining casket demand has also resulted in economic pressures on casket manufacturers and distributors as they seek to maintain volume by increasing market share. The industry has approximately double the necessary domestic production capacity which further increases these pressures. Additionally, the costs of delivery have increased as well with higher fuel prices resulting in increased per unit costs. Established manufacturers and distributors have responded to these competitive pressures by increasing discounts. Over the past decade, funeral homes 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. Our high velocity, “hub and spoke” distribution system enables us to meet these customer expectations with lower inventory investment per dollar of sales. This system enables us to deliver the majority of our volume, including uniquely personalized caskets, within 24 hours of receiving the customer’s order. In both 2007 and 2008, we delivered the “right casket at the right time” in excess of 99.2% of the time. We believe this highly effective distribution system is aligned with the increasing time demands of families and the inventory reduction expectations of our customers. We also believe this represents an important competitive advantage, although some competitors are able to offer comparable delivery capability in certain geographic areas.

Industry Consolidation. The underlying industry trends are leading to consolidations, acquisitions, and partnerships among casket manufacturers and distributors. In the past few years, two of the larger casket manufacturers have merged and several independent distributors have been acquired. In the past three years, we acquired two small regional distributors. We continue to be interested in the possibility of acquiring high-quality distributors and will remain selective in this process.

The demographic and economic pressures that are driving consolidation among casket manufacturers and distributors are also driving consolidation among funeral homes. More recently, we have seen an increased number of regional funeral home operators expanding through selected acquisitions. Earlier in 2007, we established a dedicated sales team to focus on this regional consolidator customer segment and we believe we have been successful thus far. We plan to increase our market share by continuing to invest to meet the needs of this growing customer group.

Costs of Raw Material and Energy. The primary raw materials used in our products include steel, wood, and red metals (i.e., copper and bronze). Although the key materials have fluctuated in price from time-to-time, current economic conditions are such that we expect all casket manufacturers to continue to be affected by the volatility in costs of raw materials over the next few years. Higher fuel costs in the past few years have resulted in fuel surcharges on many raw materials and services, along with an unfavorable impact on manufacturing and distribution costs.

We believe that we are affected by raw material and energy cost increases to a lesser degree than many of our competitors because of the scale and scope of our operations. Additionally, our wide use of continuous improvement methodologies has enabled us to reduce waste in many areas of our business. We intend to continue our focus on operational improvement, using practices based on the Toyota Production System, to better serve our customers, increase efficiencies, and reduce costs.

Strategy and Results

We believe that we have a number of capabilities that yield significant competitive advantage. Among them are:

	•		Our leadership position as the largest manufacturer and distributor of caskets and containers in North America provides scale and scope that enables us to capitalize on our efficiencies and compete with a low cost structure.
	•		Our highly integrated manufacturing facilities in the United States and Mexico employ “pull production” and “one-piece flow” to feed our high velocity replenishment system with products quickly and efficiently to meet the growing time demands of our customers and their client families. We are able to carry less inventory than our competitors, enable customers to carry little or no products in their funeral homes, and achieve on-time delivery more than 99% of the time.
	•		Our effective execution of the Batesville Business System focused on continuous improvement (based on the Toyota Production System) and effective execution enables us to reduce waste in administrative processes as well as manufacturing and distribution.
	•		Our strong Batesville® brand is well known for quality, reliability, exceptional service, commands a premium, and is widely recognized among funeral professionals. We offer the broadest range of metal and wood caskets, spanning the value range, which enables us to support our customers as they seek to serve client families of varying preferences and means.
	•		Our ability to apply proven merchandising principles and proprietary database tools enables us to help our customers increase their average mix and drive greater profitability for them and for us, all while increasing the satisfaction of their clients.
	•		Our talent management process helps us to identify and develop our people through exposure to lean business principles, participation in strategic projects, and planned multifunctional assignments. We have a track record of developing and retaining multi-disciplined leaders.

By building on these core competencies we seek to grow organic revenue by an average compounded growth rate of 2% to 3% over the fiscal 2009-2011 time frame. We plan to invest selectively to maintain and further develop our current leadership position with funeral directors while exploring new opportunities in less penetrated areas. Our strategy is centered on the following core elements:

•

Grow sales to our funeral home customers. We seek to profitably grow revenue by selling Batesville branded products to licensed funeral homes through a combination of growth in volume, improved mix of products sold and strategic acquisitions within the funeral services industry. In order to do this, we are focused on the following primary objectives:

Grow our burial casket revenue. We have responded to the consolidation trend in our industry and the growth of regional funeral home consolidators by creating a sales team that differentially serves those customers whose business spans multiple sales territories. We have been successful in developing new customer relationships with several of these regional customers by demonstrating the value our Batesville branded products and services can bring to their operations and the families they serve.

Batesville’s legacy of innovation and leadership in the funeral industry has provided our customers and the families they serve with quality products to commemorate the lives of those they love. Families continue to value products that are manufactured from quality materials with compelling designs that contain features allowing for personal expressions of a life well lived. To continue enhancing our leadership position, we will make further investments in our marketing capabilities, specifically in research, new product development, and brand promotion.

We believe that our investment in several innovative new products launched this fall will allow us to continue being the industry leader. The new products contain several industry firsts, including many consumer-tested feature and design elements. In our metal product line, we introduced several new carbon steel products, which contain new finish colors, contemporary hardware designs, and consumer driven features like our patented LifeSymbols^tm Corner designs and our Charpente^tm interior system. Additionally, our new Prominence product is the industry’s first hardwood casket manufactured from premium Sycamore and features an elegant design and a contemporary round profile.

Improve the mix of burial caskets. Using our proprietary funeral product merchandising analytical and predictive tools enables our customers to improve their profitability while increasing the satisfaction of their client families. Product and service merchandising, along with consumer friendly display and information systems, enables a funeral home to present a broad array of products to serve all of their client families and to articulate the value of the product in an environment that makes families more comfortable with the selection process. We intend to continue to invest in these tools and to make them available to more funeral homes.

Grow our Options^® by Batesville cremation product sales. Our Options^® by Batesville product line consists of cremation caskets, containers, urns and other cremation products. Continued growth in these products is expected as more consumers choose cremation over burial. To further accelerate growth we have dedicated a sales and marketing team to focus on developing new products and services for these consumers.

•

Grow sales of private labeled caskets. Fiscal 2008 is our second full year offering the NorthStar® product line to independent casket distributors, and we continue to be very pleased with our progress. The NorthStar products are private-label burial caskets manufactured in our existing facilities using unique tooling. Because these products do not contain any of the Batesville proprietary features or designs, they are differentiated from the premium Batesville brand. In fiscal 2008, we launched the Tailor-Madetm system, which allows independent distributors to easily order the NorthStar products needed for their specific business. Based on our success in this small business, we have recently expanded our sales coverage to continue our growth with casket distributors.

•

Continue pursuit of strategic acquisitions. We evaluate potential acquisitions when opportunities develop and terms are commercially attractive. Over the next three years, we intend to evaluate business acquisitions both within and outside the death care industry as a way to increase the annual growth rate of our revenues. We intend to pursue prudent acquisitions with other businesses where we believe we can leverage the scale and scope of operations, deploy our core competencies, increase shareholder value, and reduce the Company’s reliance on the number of casketed deaths as its primary source of revenues. We are targeting approximately $100 million to $200 million in acquisitions over the next three years.

Recent Factors Impacting our Business

•

We continue to experience cost increases, surcharges, and increased distribution costs on a variety of raw material purchases, contributing approximately $7.3 million in increased costs for the year ended September 30, 2008, of which $2.6 million occurred in fourth quarter of 2008 when compared to the same time last year. We experienced significantly increased prices for the diesel fuel that we use to move our caskets from the manufacturing facilities to customers’ funeral homes. Fuel prices have increased our distribution costs approximately $4.1 million for the year ended September 30, 2008, when compared to the same period last year. While the prices for steel and fuel have come down recently from their highs in 2008, it is difficult to predict where these prices will be in fiscal 2009. If they do begin to rise again, the impact to our business could be significant. While we did experience a full year impact of cost increases for our fuel purchases, we purchase certain of our commodities, such as steel, under contract. As these contracts are renegotiated, we could experience increases or decreases in our pricing depending upon market prices at the time. We will continue to execute Continuous Improvement initiatives in an attempt to offset the effects of these and other cost pressures.

•

We successfully completed the separation from Hill-Rom. As part of this transaction, we incurred or were allocated $15.6 million of non-recurring separation costs during the year ended September 30, 2008. We expect the remaining separation costs that we will incur in fiscal year 2009 to be less than $0.5 million. In connection with the separation, we were also transferred net assets of approximately $340 million (primarily cash, investments, securities, and a note receivable). These assets are providing us significantly higher investment income in aggregate.

•

For the year ended September 30, 2008, we were allocated $7.4 million of corporate costs from Hill-Rom. We also incurred directly incremental costs of approximately $11.1 million during the year ended September 30, 2008, largely our own corporate costs. These costs relate primarily to establishing functions such as tax, accounting, legal, internal audit, human resources, risk management, shared information technology systems, procurement, and necessary statutory functions, including a board of directors. They also include additional costs associated with retirement-related obligations of certain former Hill-Rom employees we assumed in connection with the separation on March 31, 2008.

•

We are a defendant, along with Hill-Rom and several other companies in the death care industry, in two purported antitrust class action lawsuits in which the plaintiffs have alleged substantial damages, prior to trebling. In addition to the risks associated with an adverse outcome in this litigation, we will likely incur significant legal costs in the defense of this litigation and expect these costs to continue for the foreseeable future. Under the judgment sharing agreement with Hill-Rom, we are responsible for all costs incurred by us and Hill-Rom in defense of this litigation. All fees and costs incurred in defense of the antitrust litigation matters are included in our historical consolidated financial statements. To date, we have incurred approximately $20.2 million in legal and related costs associated with this matter, of which $3.3 million was incurred in the year ended September 30, 2008. As discussed within Note 12 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, there were recent developments in November 2008 regarding these actions.

Results of Operations

The following table presents comparative operating results for the fiscal years discussed in detail below:

		Year Ended								Year Ended								Year Ended
		September 30,				% of				September 30,				% of				September 30,				% of
(amounts in millions)		2008				Revenues				2007				Revenues				2006				Revenues
Net revenues		$	678.1				100.0			$	667.2				100.0			$	674.6				100.0
Cost of goods sold			397.6				58.6				388.6				58.2				391.9				58.1
Gross profit			280.5				41.4				278.6				41.8				282.7				41.9
Operating expenses (excluding separation costs)			115.3				17.0				117.9				17.7				105.3				15.6
Separation costs			15.6				2.3				5.1				0.8				—				—
Operating profit			149.6				22.1				155.6				23.3				177.4				26.3
Interest expense			(2.2	)			(0.3	)			—				—				—				—
Investment income and other			5.9				0.8				1.4				0.2				1.4				0.2
Income before income taxes			153.3				22.6				157.0				23.5				178.8				26.5
Income tax expense			60.1				8.9				57.5				8.6				65.6				9.7
Net income		$	93.2				13.7			$	99.5				14.9			$	113.2				16.8

Fiscal Year Ended September 30, 2008 Compared to Fiscal Year Ended September 30, 2007

Revenue — Our net revenues for the year were up slightly, increasing $10.9 million, or 1.6%, from the same period last year. The Batesville brand continues to drive the favorable effects of price realization, which increased revenue by $22.8 million over the same period last year. Partially offsetting this was the continued unfavorable effect of downward product mix, which reduced revenues from the prior year by $10.4 million. While we believe that our merchandising initiative is helping to slow this trend, our focus on capitalizing on growth opportunities in the lower end of the product spectrum will continue to put downward pressure on product mix. Additionally, burial unit volume decreased 1.6% compared to the same period last year, which was the primary contributor to a reduction in revenue of $5.5 million, although improved volume on non-burial products limited the impact. Market conditions continue to be challenging as a consistent number of deaths in North America coupled with rising cremations reduce the annual number of casketed deaths. While our second quarter demand had been favorable due in part to a more typical flu season, this was more than offset by the lost volume in the third quarter that resulted when the Yorktowne acquisition attempt was discontinued late in the third quarter of fiscal year 2007 and Yorktowne subsequently ceased purchasing our products. This was followed by weaker fourth quarter sales compared to the same period last year due primarily to reduced sales initiatives.

We expect the trends in both product mix and price realization will continue to contribute offsetting effects during fiscal 2009, although we can’t be certain of the magnitude of those effects. We anticipate favorable price realization will continue into fiscal 2009 in connection with our annual pricing adjustments that went into effect in October 2008. Finally, we also experienced the favorable impact of currency fluctuations during the year from a weaker U.S. dollar, mainly compared to the Canadian dollar. This resulted in increased revenue of $4.0 million over the prior year. We can’t predict how currency rates will move either to help or hurt our results in the future.

Cost of Goods Sold — Our cost of goods sold increased $9.0 million, or 2.3%, net of a $2.0 million decrease largely attributable to lower burial unit volume. In our manufacturing operations, we experienced cost increases over the same period in the prior year of $7.3 million related primarily to higher commodity costs. These cost increases were offset by productivity cost improvements and improved material recovery aggregating to $6.3 million. In our distribution operations, we experienced increased fuel costs of $4.1 million. An aggregate increase of $5.9 million in costs was attributable to other categories across our manufacturing and distribution activities.

Operating Expenses — Our core operating expenses decreased $2.6 million, or 2.2%, excluding one time separation costs. By excluding separation costs, we are able to better analyze our operating cost structure without the non-recurring effects of the separation. This was primarily attributable to an aggregate decrease of $8.4 million related to acquisition costs, legal costs, and certain receivables that we expensed when we discontinued our attempt to acquire Yorktowne last fiscal year. We also experienced a decrease in legal fees related to the outstanding antitrust lawsuits. These legal costs decreased by $4.5 million from last year as we continue to await the Court’s ruling on class certification. During fiscal 2008 we recorded a $2.6 million benefit from the collection of a customer receivable that had been previously fully reserved. These favorable effects were offset by increased incentive compensation, sales compensation and benefits, and healthcare and self-insurance costs, all aggregating to $5.0 million. An aggregate increase of $2.0 million was attributable to other components of our operating expense categories.

Over the past three quarters we have been building our own teams and processes to support ourselves as a new, stand-alone public company. In addition, we began to incur incremental costs associated with retirement-related obligations to certain former Hill-Rom employees we assumed in connection with the separation. These activities resulted in $11.1 million of additional operating expenses primarily related to adding staff to support our separate company operations. The effect of these new costs was offset by the effect that, beginning with the third quarter of fiscal 2008, we are no longer being allocated corporate costs by Hill-Rom. As a result, these allocated costs were lower by $5.2 million compared to last year.

Separation Costs — In the last year 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 investment banking and advisory fees of $4.4 million. The balance of the costs represented primarily legal and professional fees.

Interest Expense and Investment Income & Other — We began to incur interest expense when we borrowed $250 million on our credit facility (and paid the proceeds to Hill-Rom as part of the separation) at the end of the second quarter. We have been paying the balance down since that time. “Investment income and other” is up over last year as we began to realize returns from investments that were transferred to us on March 31, 2008, in connection with the separation. We earned interest income of $7.5 million primarily on cash, auction rate securities, and the note receivable from Forethought. We also recorded a $0.8 million other-than-temporary impairment loss on an investment in common stock in the last quarter of fiscal 2008.

Income taxes — Our income tax rate for the year was 39.2%, which was 2.6% higher than last year. This was primarily due to separation costs we incurred in the second quarter that are not deductible for income tax purposes and an increase in the valuation allowance on state credit carryforwards.

Fiscal Year Ended September 30, 2007 Compared to Fiscal Year Ended September 30, 2006

Revenue — Our net revenues for fiscal year 2007 were down slightly, decreasing $7.4 million, or 1.1% from the same period prior year. Burial unit volume decreased 1.9% compared to the same period prior year, which was the primary contributor to a reduction in revenue of $20.7 million, along with reduced volume on non-burial products. This volume decrease was largely due to the continuing decline in the number of casketed deaths. We continued to experience the unfavorable impact of downward product mix, which further reduced revenues from the same period in the prior year by $8.0 million. While this mix trend has been consistent for several years, product launches in under penetrated areas focused on lower price points with high eye-appeal and low feature content offerings, contributing to the unfavorable mix. We also continued to experience the favorable effects of price realization, which increased revenue by $19.9 million over the same period in the prior year. Finally, we experienced the favorable impact of currency fluctuations in the year from a weaker U.S. dollar, mainly compared to the Canadian dollar. This resulted in increased revenue of $1.4 million over the same period prior year.

Cost of Goods Sold — Our cost of goods sold decreased $3.3 million, or 0.9%, net of a $6.2 million decrease largely attributable to lower burial unit volume. In our manufacturing operations, we experienced cost reductions over the same period prior year of $2.0 million related to lower material and conversion costs. Various process improvements within the plants have generated productivity improvements that more than offset compensation inflation for the year. Fixed manufacturing costs were lower by $1.4 million driven primarily by savings from the plant consolidation completed in the prior year, offset by higher benefit costs and other fixed costs. Distribution expenses were $1.8 million higher than prior year resulting primarily from increased costs realized in connection with a distributor acquisition during the fiscal 2007, while depreciation and personnel costs also increased. In fiscal 2006, we also recognized $1.9 million in increased gains from asset sales as well as a $0.9 million favorable insurance settlement, all as components of cost of goods sold. An aggregate increase of $1.7 million in costs was attributable to other categories across our manufacturing and distribution activities.

Operating Expenses — Our operating expenses increased $12.6 million, or 12.0%, excluding separation costs. As discussed earlier, this increase was primarily attributable to acquisition costs, legal costs, and certain receivables that we expensed totaling $8.7 million when we discontinued our attempt to acquire Yorktowne in fiscal year 2007. In connection with our fiscal 2007 strategic initiatives, we spent $3.8 million targeted at generating revenue growth and focused primarily on sales force expansion and support of our merchandising initiative. Increased costs associated with healthcare, pension, and stock based awards totaled $2.8 million. These unfavorable effects were offset by reduced incentive compensation of $3.0 million and lower legal costs of $0.3 million related to the outstanding antitrust lawsuits from the same period prior year. Similarly, increased recruiting expenses and additional bad debt expenses also impacted our year over year spending but were countered by savings within our information technology group as a result of insourcing certain functions. An aggregate increase of $0.6 million was attributable to other components of our operating expense categories.

Separation Costs — We were allocated $5.1 million of expenses from Hill-Rom, primarily legal and professional fees, in preparing for the separation of the Company.

Income taxes — Our income tax rate of 36.6% for fiscal year 2007 did not change significantly from the same period prior year.

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 affected for the next 12 months. While it’s not a certainty, we will tell you where we think the 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 expectation.

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)		2008				2007				2006
Cash flows provided by (used in):
Operating activities		$	101.8			$	127.3			$	124.6
Investing activities			(4.2	)			(20.1	)			(15.3	)
Financing activities*			(94.4	)			(103.5	)			(107.0	)
Effect of exchange rate changes on cash and cash equivalents			(0.4	)			0.3				0.3
Increase in cash and cash equivalents		$	2.8			$	4.0			$	2.6

Operating Activities

Historically, net cash flows from operating activities have represented our primary source of funds for the growth of our business. Prior to our separation from Hill-Rom, cash flows from operating activities were fairly stable, generally following the pattern of our overall net income. This pattern is now less correlated going forward as we incur non-cash related expenses (such as non-cash stock based compensation), non-cash earnings (such as interest income on our note receivable from Forethought), and make our own income tax payments now that we are a separate public company. Interim periods can also be more volatile individually as they are affected to a greater degree by the seasonality of our revenues.

The significant items that help explain the change in our operating cash flows from fiscal year 2007 to fiscal year 2008 in the table above are as follows:

•

We incurred or were allocated an additional $10.5 million of separation costs in fiscal 2008 over fiscal 2007, substantially all of which were paid by the end of the period. This unfavorability affected both our profitability and our cash flow.

•

We paid approximately $8.8 million primarily related to establishing our own corporate infrastructure in fiscal 2008. This was somewhat offset by the $5.2 million reduction of corporate costs we paid Hill-Rom in fiscal 2008 compared to prior year.

•

We made a $4.0 million discretionary payment to fund one of our pension plans in the second half of fiscal 2008.

Operating cash flows for the year ended September 30, 2007 were not significantly different from the same period prior year.

Investing Activities

Historically, net cash flows used in investing activities consisted of purchases of plant, property and equipment we use to run the business or to pay for a business acquisition. Our net investing activities in fiscal 2008 decreased from the prior year comparable period due to lower capital spending of $5.6 million, along with the fact that some of our investments transferred to us at the time of separation returned capital of $5.7 million in the last six months. In addition, $5.2 million of the reduction to our 2008 investing activities resulted from the cash outlay related to a business acquisition in fiscal 2007.

Net cash used in investing activities in fiscal year 2007 increased over the prior fiscal year as result of the reduction in proceeds we received from the disposal of property, primarily related to the sale of our former Nashua, New Hampshire wood manufacturing facility sold in fiscal 2006. Additionally, our spending for business acquisitions increased in fiscal year 2007 by $2.9 million over the prior fiscal year.

Financing Activities

Until the time of our separation into a stand-alone company, our only financing activity was to provide the excess cash we generated to Hill-Rom as part of a centralized treasury management process. As a separate company, we now have our own treasury management system and have a $400 million revolving credit facility in place to finance business operations. In connection with the separation, we borrowed $250.0 million on the credit facility and used these funds to settle and distribute amounts to Hill-Rom. This distribution, along with other advances earlier in the year, resulted in net distributions to Hill-Rom of $290.3 million. Just prior to the separation, Hill-Rom transferred $110.0 million in cash to us. A final payment of $15.4 million was received from Hill-Rom in the third quarter. During our initial six months as a stand-alone company (third and fourth quarters of fiscal 2008), we utilized available cash on hand and operating cash flows to repay $150.0 million of the credit facility borrowings and pay cash dividends of $22.8 million.

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. Since the time of this authorization through September 30, 2008, we have elected to purchase 0.3 million shares of our common stock for $6.2 million.

In fiscal year 2007 and 2006, cash flows from financing were comprised of changes in our parent company investments account, which represents net cash withdrawn by Hill-Rom.

12 Month Outlook

Operating activities

During fiscal 2008, we incurred $11.1 million of incremental costs associated with establishing our stand-alone company infrastructure and expenses associated with obligations we assumed at separation related to former employees of Hill-Rom. This was not a full year cost, and accordingly, will increase in fiscal 2009. The increase in costs associated with stand-alone company infrastructure is somewhat offset by the fact that we are no longer paying for corporate costs previously allocated to us by Hill-Rom, which were $7.4 million for fiscal 2008, none of which were allocated to us in the last six months. We also estimate there is less than $0.5 million of final separation costs to be incurred in fiscal year 2009.

Although we have not incurred interest expense historically, we borrowed $250.0 million under our revolving credit facility in March 2008 and are now paying interest expense related to this borrowing, the amount of which is dependent upon our actual financing needs and interest rates. Although we paid down $150.0 million during fiscal 2008, interest payments will continue to reduce our operating cash flows and net income as compared to prior periods. On March 31, 2008, we received a combination of cash, auction rate securities, and an investment portfolio as part of the separation. While our “investment income and other” had not historically been significant, we are now earning interest income from greater cash on hand, auction rate securities, and the note receivable from Forethought. We are also recording interest income on the note receivable in the form of additional interest receivable, so we won’t realize any cash flow from this investment over the next 12 months. Additionally, the investment income we earn on our private equity limited partnerships comes back to us in cash in an unpredictable manner, depending on when the partnerships make cash distributions.

During the last fiscal year our pension plan assets have seen a drop in fair value of $21.2 million (or 12.4% of the fair value of the assets at September 30, 2007). While we currently expect to provide required funding of approximately $1.4 million in fiscal 2009, market results can change this over time. We may make additional discretionary contributions to take advantage of market conditions and tax deductions, depending on the cash needs of current business activities.

Investing activities

At September 30, 2008, we held $51.1 million in a portfolio of auction rate securities (consisting of highly rated state and municipal bonds), classified as available-for-sale securities recorded at fair value. We have estimated the current fair value of the portfolio using information provided by banks with expertise in valuing these securities, considering current liquidity limitations, interest rate risk, and the credit worthiness of the borrower, among other factors. The risk exists that the various valuation models utilized by the banks will not reasonably predict the actual price necessary to attract interested buyers for these securities. As of September 30, 2008, the underlying securities in the portfolio consist of credit worthy borrowers with AAA debt ratings. Recent market conditions and auction failures have adversely impacted the liquidity of these securities. The continuing effect of these conditions has led us to conclude that an orderly conversion of the portfolio into cash will likely take more than 12 months. Accordingly, we are classifying these securities as non-current. 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. In November 2008, we received an enforceable, non-transferable right (the “Put”) from UBS Financial Services that allows us to sell approximately $30.6 million of our existing auction rate securities (carrying value at September 30, 2008) at par value plus accrued interest. We may exercise the Put at anytime during the period of June 30, 2010, through July 2, 2012. We will continue to closely monitor the value of the portfolio and look for opportunities to liquidate at reasonable terms.

We are investing in our acquisition capabilities and strategy. Over the next three years, we intend to utilize business acquisitions in order to increase the annual growth rate of our revenues. As indicated in our business strategy, we are targeting approximately $100 million to $200 million in acquisitions over the next three years, although any acquisition timetable depends on whether actual opportunities are available at commercially attractive prices.

Although we may pursue selective acquisition candidates, the timing, size or success of any acquisition effort and the related potential capital commitments cannot be predicted. We expect to fund future acquisitions primarily with cash on hand, cash flows from operations, and borrowings under our revolving credit facility.

We could also be called upon by our private equity limited partnership investments to provide additional investment funds, the maximum amount being $4.6 million in the aggregate.

Financing activities

In December 2008, we announced an increase to our quarterly dividend. We plan on paying a cash dividend that will require about $11.5 million each quarter based on our outstanding common stock at September 30, 2008. We used cash on hand during fiscal 2008 and cash generated from operations to pay down the amount outstanding under our credit facility to $100.0 million as of September 30, 2008. We may pay this balance down further depending on our working capital needs and the availability of additional cash generated from operations. As discussed under investing activities, we may utilize availability under the revolving credit facility to finance acquisitions and other cash needs of the business.

We may also continue repurchasing additional shares of our common stock, depending on market conditions. The approval from our Board of Directors to do this has no expiration.

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. However, it is important to understand that if a class is certified in any of the purported class action antitrust lawsuits filed against us, as described in Note 12 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, and if the plaintiffs prevail at trial, potential damages awarded the plaintiffs could have a material adverse effect thereafter on our results of operations, financial condition, and liquidity, and could exceed our capacity to raise sufficient cash to fund or post a bond to appeal such a judgment.

Other Liquidity Matters

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) to consummate the separation from Hill-Rom; (ii) for working capital and other lawful corporate purposes; and (iii) to finance acquisitions.

As of September 30, 2008, we: (i) had $6.4 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 $293.6 million of borrowing capacity available under the Facility.

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, 2008:

		Payments Due by Period
(amounts in millions)						Less
						Than 1				1–3				4–5				After 5
Contractual Obligations		Total				Year				Years				Years				Years
Operating lease obligations		$	14.7			$	5.5			$	6.8			$	2.4			$	—
Purchase obligations (1)			14.2				14.0				0.1				0.1				—
Deferred compensation arrangements (2)			8.1				0.9				2.4				1.7				3.1
Pension funding (3)			15.9				1.4				3.0				3.2				8.3
Other long-term liabilities (4)			25.5				4.9				6.6				4.4				9.6
Capital call arrangements (5)			4.6				4.6				—				—				—
Revolving credit facility (6)			100.0				—				—				100.0				—
Total contractual cash obligations		$	183.0			$	31.3			$	18.9			$	111.8			$	21.0

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 commit 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 production needs.

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.

As discussed in Note 6 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, in connection with the separation we entered into a distribution agreement and judgment sharing agreement with Hill-Rom. If we are required to make any payments to Hill-Rom under the provisions of these agreements, those payments could be substantial and could have a material adverse impact on our financial condition and liquidity.

Critical Accounting Policies

In this section we tell you about accounting policies 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

We recognize revenue in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition.” Revenue for our products is generally 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. In accordance with Emerging Issue Task Force (“EITF”) 01-09, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products),” we record reserves for customer rebates, typically based upon projected customer volumes. In addition, in connection with obtaining long-term supply agreements from our customers, we may offer sales incentives in the form of custom showrooms and fixtures. Costs associated with these sales incentives are amortized over the term of the related agreement, typically 3 to 5 years. Our sales terms generally offer customers various rights of return. We record reserves for estimated product returns in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 48, “Revenue Recognition When Right of Return Exists.”

Auction Rate Securities

At September 30, 2008, we held $51.1 million in a portfolio of auction rate securities (consisting of highly rated state and municipal bonds) classified as available-for-sale securities and recorded at fair value in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The historical cost basis of this portfolio has been reduced by net unrealized losses (net of tax) on these available-for-sale securities of $1.0 million, which has been included as a component of accumulated other comprehensive loss. We have estimated the current fair value of the portfolio with information provided by banks with expertise in valuing these securities, considering current liquidity limitations, interest rate risk, and the credit worthiness of the borrower, among other factors. The risk exists that the various valuation models utilized by the banks will not reasonably predict the actual price necessary to attract interested buyers for these securities. As of September 30, 2008, the underlying securities in the portfolio consisted of credit worthy borrowers with AAA debt ratings. Recent 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, these assets could be impaired, and our earnings could be adversely affected. When an investment is sold, we report the difference between the sales proceeds and its carrying value (determined based on specific identification) as a capital gain or loss.

Investments and Note Receivable from Forethought.

Our noncurrent investment portfolio consists of investments in private equity limited partnerships and common stock. We also have a note receivable from Forethought. These assets were transferred to us in connection with the Distribution.

We use the equity method of accounting for substantially all of our private equity limited partnership investments, with earnings or losses reported within the line item “investment income and other” in our consolidated statements of income. Our portion of any unrealized gains or losses related to our investments in the private equity limited partnerships and common stock is charged or credited to “accumulated other comprehensive loss” in shareholders’ equity, and deferred taxes are recognized for the income tax effect of any such unrealized gains or losses.

Earnings and carrying values for investments accounted for under the equity method are determined based on financial statements provided by the investment companies.

When an investment is sold, we report the difference between the sales proceeds and carrying value (determined based on specific identification) as a capital gain or loss.

We regularly evaluate all investments for possible impairment based on current economic conditions, credit loss experience and other criteria. If there is a decline in an investment’s net realizable value that is other-than-temporary, the decline is recognized as a realized loss and the cost basis of the investment is reduced to its estimated fair value. The evaluation of investments for impairment requires significant judgments to be made, including (i) the identification of potentially impaired investments; (ii) the determination of their estimated fair value; and (iii) the assessment of whether any decline in estimated fair value is other-than-temporary.

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 is deemed impaired. Upon the determination of impairment, if any, an impairment reserve is established based upon the then carrying value of the note and the estimated discounted cash flows we expect to receive on an impaired basis. The evaluation of the note for impairment requires significant judgments to be made by management based upon our assessment of events or conditions existing on or prior to the balance sheet date.

Judgment Sharing Agreement (“JSA”)

In March 2008, we entered into a JSA with Hill-Rom related to antitrust litigation matters. We apply SFAS No. 5, “Accounting for Contingencies” in evaluating and accounting for this JSA. The JSA apportions responsibility between us and Hill-Rom for any potential liabilities associated with that litigation. See Note 6 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K.

Liabilities for Loss Contingencies Related to Lawsuits

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. 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. 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 possible that actual costs could differ from those estimates.

Stock Based Compensation

Effective October 1, 2005, we adopted SFAS No. 123(R), “Share-Based Payment” using the modified prospective application method. This Statement requires companies to measure and recognize compensation expense for all stock options and share-based compensation transactions using a fair-value-based method. SFAS No. 123(R) eliminated the use of the intrinsic value method of accounting in APB Opinion No. 25. See Note 11 to our consolidated financial statements included in Part II, Item 8 of the Form 10-K.

Retirement and Postretirement Plans

We sponsor retirement and postretirement benefit plans covering a majority of employees. Expense recognized in relation to such plans is based upon actuarial valuations and inherent in those valuations can be 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 these rates we utilize long-term bond indices and yield curves as a preliminary indication of interest rate movements, and then make adjustments to the respective indices to reflect differences in the terms of the bonds covered under the indices in comparison to the projected outflow of our pension obligations. 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 expected rate of return on pension assets was 8.00% for fiscal 2008, 2007 and 2006. A 25 basis point increase in the expected rate of return on pension assets reduces annual pension expense by approximately $0.4 million. The discount rate was increased to 7.5% in 2008. A 50 basis point increase in the discount rate reduces the annual pension expense by approximately $0.2 million. The impact of this increase to our post retirement 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. 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.

In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R).” This Statement requires recognition of the funded status of a benefit plan in the statement of financial position. SFAS No. 158 also requires recognition in other comprehensive income of certain gains and losses that arise during the period but are deferred under pension accounting rules, as well as modifies the timing of reporting and adds certain disclosures. The statement provides recognition and disclosure elements to be effective as of the end of the fiscal year after December 15, 2006, our fiscal year 2007. As such, we adopted the recognition and disclosure elements at the end of the 2007 fiscal year. See Note 7 to our consolidated financial statements included in Part II, Item 8 of this Form 10-K, for the impact of adopting SFAS No. 158.

Environmental Matters

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 the cost to us of the onsite remediation activities in which we are currently involved to exceed $0.5 million dollars. 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 expenditures is not known.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements. SFAS No. 157 is effective as of the beginning of a company’s first fiscal year after November 15, 2007, which will be our first fiscal year 2009. In February 2008, the FASB released FASB Staff Position (FSP FAS 157-2 — Effective Date of FASB Statement No. 157), which delays the effective date of aspects of SFAS No. 157 to fiscal years beginning after November 15, 2008, our fiscal year 2010 and for interim periods within those years. This delay applies to all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on at least an annual basis. As this pronouncement does not require new fair value measurements, the adoption of this new standard, beginning with the periods commencing October 1, 2009, will require only additional disclosure regarding our fair value measurements and did not have a material impact on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” which gives entities the option to measure eligible financial assets, and financial liabilities at fair value. Its objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. If opted, the difference between carrying value and fair value at the election date is recorded as a transition adjustment to opening retained earnings. SFAS No. 159 is effective as of the beginning of a company’s first fiscal year after November 15, 2007, our fiscal year 2009. The Company did not elect the fair value option under SFAS No. 159 for any of its existing financial instruments at the date of adoption on October 1, 2008. Accordingly, the initial adoption SFAS No. 159, did not have a material impact on our consolidated financial statements. In accordance with SFAS No. 159, we may elect the fair value measurement option on an instrument by instrument basis on new financial instruments in future periods.

On December 4, 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” and SFAS No. 160, “Noncontrolling interests in Consolidated Financial Statements — an amendment of ARB No. 51.” SFAS No. 141(R) changes the accounting for acquisition transaction costs by requiring them to be expensed in the period incurred, and also changes the accounting for contingent consideration, acquired contingencies and restructuring costs related to an acquisition. SFAS No. 160 requires that a noncontrolling (minority) interest in a consolidated subsidiary be displayed in the consolidated balance sheets as a separate component of equity. It also indicates that gains and losses should not be recognized on sales of noncontrolling interests in subsidiaries, but that differences between sale proceeds and the consolidated basis of accounting should be accounted for as charges or credits to consolidated additional paid-in-capital. However, in a sale of a subsidiary’s shares that results in the deconsolidation of the subsidiary, a gain or loss would be recognized for the difference between proceeds of that sale and the carrying amount of the interest sold. Also, a new fair value in any remaining noncontrolling ownership interest would be established. Both of these statements are effective for the first annual reporting period beginning on or after December 15, 2008, and early adoption is prohibited. As such, we will adopt the provisions of SFAS No. 141(R) and SFAS No. 160 beginning in our fiscal year 2010.

On March 19, 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133.” The objective of SFAS No. 161 is to have entities provide qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk related contingent features in their hedge positions. The statement also requires entities to disclose more information about the location and amounts of derivative instruments in financial statements. SFAS No. 161 is effective as of the beginning of a company’s first fiscal year after November 15, 2008, our fiscal year 2010. As SFAS No. 161 amends only the disclosure requirements for derivative instruments and hedged items, and the Company currently has limited derivative related activities, the Company does not anticipate that our adoption of this new standard on October 1, 2009 will have a material impact on our consolidated financial statements.

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, and the value of commodities. 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, collection risk associated with our accounts and notes receivable portfolio and variability in currency exchange rates. We have established policies, procedures and internal processes governing our management of market risks and the use of financial instruments to manage our exposure to such risks.

We are subject to variability in foreign currency exchange rates primarily in our Canadian operations. Exposure to this variability is periodically managed primarily through the use of natural hedges, whereby funding obligations and assets are both managed in the local currency. We, from time-to-time, enter into currency exchange agreements to manage our exposure arising from fluctuating exchange rates related to specific transactions. The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an appropriate range of potential rate fluctuations to our assets, obligations and projected results of operations denominated in foreign currencies. We operate the program pursuant to documented corporate risk management policies and do not enter into derivative transactions for speculative purposes. At September 30, 2008, we held $51.1 million in a portfolio of auction rate securities (consisting of highly rated state and municipal bonds), classified as available-for-sale securities and recorded at fair value. The historical cost basis of this portfolio has been reduced net unrealized losses (net of tax) on these available-for-sale securities of $1.0 million, which have been included as a component of accumulated other comprehensive loss. Recent market conditions and auction failures have adversely impacted the immediate 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, these assets could be impaired, and our earnings could be adversely affected. Subsequent to September 30, 2008, and through November 2008, the auction rate securities experienced a further decline in fair value due to the deterioration of market conditions. This decline was primarily caused by an increase in the discount rate utilized to value the securities based upon market conditions developing after September 30, 2008. As of November 2008, we have reduced the historic cost basis of this portfolio by additional unrealized losses (net of tax) of approximately $3 million. This adjustment has been included as a component of accumulated other comprehensive loss as of November 30, 2008. In November 2008, we received an enforceable, non-transferable right (the “Put”) from UBS Financial Services that allows us to sell approximately $30.6 million of our existing auction rate securities (carrying value at September 30, 2008) at par value plus accrued interest. We may exercise the Put at anytime during the period of June 30, 2010, through July 2, 2012.

We are also subject to volatility in our noncurrent investment portfolio. A portion of the noncurrent investment portfolio includes private equity limited partnerships and common stock with a carrying value of $25.2 million at September 30, 2008. 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.

We have an outstanding note receivable and related interest receivable from Forethought Financial Group, Inc. (“Forethought”) with an aggregate carrying value of $130.4 million as of September 30, 2008, which was transferred to us in connection with the separation. 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.

At September 30, 2008, we had $100.0 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. Accordingly, 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 $100.0 million for twelve months, a 1% move in the related interest rates would increase or decrease our annual interest expense by approximately $1.0 million.

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: 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 percent of the equity portfolio.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Financial Statements:
Report of Independent Registered Public Accounting Firm			38
Consolidated Statements of Income for fiscal years ended September 30, 2008, 2007 and 2006			39
Consolidated Balance Sheets at September 30, 2008 and 2007			40
Consolidated Statements of Cash Flows for fiscal years ended September 30, 2008, 2007 and 2006			41
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended September 30, 2008, 2007, and 2006			42
Notes to Consolidated Financial Statements			43
Financial Statement Schedule for the fiscal years ended September 30, 2008, 2007, and 2006:
Schedule II — Valuation and Qualifying Accounts			74

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”, formerly the funeral service business of Hillenbrand Industries, Inc.) at September 30, 2008 and 2007, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2008 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. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for uncertain tax positions effective October 1, 2007, and the manner in which it accounts for defined benefit pension and other post-retirement plans effective September 30, 2007.

/s/ PricewaterhouseCoopers LLP   PricewaterhouseCoopers LLP

Indianapolis, Indiana
December 9, 2008

HILLENBRAND, INC.

CONSOLIDATED STATEMENTS OF INCOME

		Fiscal Year Ended September 30,
(amounts in millions, except per share amounts)		2008				2007				2006
Net revenues		$	678.1			$	667.2			$	674.6
Cost of goods sold			397.6				388.6				391.9
Gross profit			280.5				278.6				282.7
Operating expenses (including separation costs of $15.6 and $5.1 in the years ending September 30, 2008 and 2007, respectively. See Note 6)			130.9				123.0				105.3
Operating profit			149.6				155.6				177.4
Interest expense			(2.2	)			—				—
Investment income and other			5.9				1.4				1.4
Income before income taxes			153.3				157.0				178.8
Income tax expense			60.1				57.5				65.6
Net income		$	93.2			$	99.5			$	113.2
Income per common share-basic and diluted (Note 10)		$	1.49			$	1.59			$	1.81
Dividends per common share*		$	.365			$	—			$	—
Average common shares outstanding — basic and diluted (Note 10)			62.5				62.5				62.5

See Notes to Consolidated Financial Statements.

HILLENBRAND, INC.

		September 30,				September 30,
(amounts in millions)		2008				2007
ASSETS
Current Assets
Cash and cash equivalents		$	14.7			$	11.9
Trade receivables, net			88.4				90.9
Inventories			48.6				47.5
Deferred income taxes			22.4				16.0
Other current assets			7.5				3.9
Total current assets			181.6				170.2
Property, net			90.8				88.9
Intangible assets, net			19.7				23.0
Auction rate securities (Note 2)			51.1				—
Note receivable from Forethought Financial Group, Inc. (Note 2)			130.4				—
Investments (Note 2)			25.2				—
Deferred income taxes			19.7				16.2
Other assets			26.8				18.3
Total Assets		$	545.3			$	316.6
LIABILITIES
Current Liabilities
Revolving credit facility (Note 5)		$	100.0			$	—
Trade accounts payable			15.8				18.3
Accrued compensation			24.6				20.6
Accrued customer rebates			20.4				20.3
Other current liabilities			20.8				16.6
Due to Hill-Rom Holdings, Inc. (Note 1)			4.4				—
Total current liabilities			186.0				75.8
Deferred compensation, long-term portion			7.0				8.6
Accrued pension and postretirement healthcare, long-term portion			33.5				28.1
Other long-term liabilities, long term portion			30.4				23.2
Total Liabilities			256.9				135.7
Commitments and Contingencies (Note 12)
SHAREHOLDERS’ EQUITY
Common stock, no par value, 199.0 shares authorized; 62.4 shares issued, and 62.1 shares outstanding at September 30, 2008			—				—
Additional paid-in-capital			286.4				—
Retained earnings			23.0				—
Treasury stock, at cost; 0.3 shares at September 30, 2008			(6.2	)			—
Accumulated other comprehensive loss (Note 2)			(14.8	)			(12.6	)
Parent company investment			—				193.5
Total Shareholders’ Equity			288.4				180.9
Total Liabilities and Shareholders’ Equity		$	545.3			$	316.6

See Notes to Consolidated Financial Statements

HILLENBRAND, INC.

		Fiscal Year Ended September 30,
(amounts in millions)		2008				2007				2006
Operating Activities:
Net income		$	93.2			$	99.5			$	113.2
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization			19.1				18.5				17.7
Provision/(benefit) for deferred income taxes			(3.1	)			(7.1	)			0.8
Net loss/(gain) on disposal of property and impairment of investment			0.7				(0.2	)			(3.8	)
Interest income on Forethought Financial Group, Inc. note receivable			(5.8	)			—				—
Stock based compensation			1.6				—				—
Trade accounts receivable			2.0				5.9				(3.2	)
Inventories			(1.7	)			1.8				5.0
Other current assets			(3.6	)			3.1				0.3
Trade accounts payable			(2.5	)			(0.3	)			(1.0	)
Accrued expenses and other current liabilities			6.6				(1.5	)			(1.5	)
Income taxes prepaid or payable			7.7				(0.9	)			(3.1	)
Amounts due to/from Hill-Rom Holdings, Inc.			(8.4	)			—				—
Defined benefit plan funding			(6.3	)			(2.0	)			(1.5	)
Change in deferred compensation			(0.6	)			0.7				(5.6	)
Other, net			2.9				9.8				7.3
Net cash provided by operating activities			101.8				127.3				124.6
Investing Activities:
Capital expenditures			(10.0	)			(15.6	)			(18.8	)
Proceeds on disposal of property			0.5				1.1				6.2
Payment for acquisitions of businesses, net of cash acquired			(0.4	)			(5.6	)			(2.7	)
Proceeds from sale of auction rate securities			4.3				—				—
Return of investment capital from affiliates			1.4				—				—
Net cash used in investing activities			(4.2	)			(20.1	)			(15.3	)
Financing Activities:
Proceeds from revolving credit facility			265.0				—				—
Repayments on revolving credit facility			(165.0	)			—				—
Deferred financing costs			(0.9	)			—				—
Payment of dividends on common stock			(22.8	)			—				—
Proceeds on issuance of common stock			0.4				—				—
Purchase of common stock			(6.2	)			—				—
Cash received from parent in connection with separation			125.4				—				—
Net change in advances to parent			(290.3	)			(103.5	)			(107.0	)
Net cash used in financing activities			(94.4	)			(103.5	)			(107.0	)
Effect of exchange rate changes on cash and cash equivalents			(0.4	)			0.3				0.3
Net cash flows			2.8				4.0				2.6
Cash and cash equivalents:
At beginning of period			11.9				7.9				5.3
At end of period		$	14.7			$	11.9			$	7.9
Cash paid during the period for interest		$	1.8			$	—			$	—
Cash paid during the period for income taxes (including amounts remitted to our former parent)		$	63.4			$	65.5			$	67.9

See Notes to Consolidated Financial Statements

HILLENBRAND, INC.

																										Accumulated
										Additional																Other				Parent
		Common Stock								Paid-in				Retained				Treasury Stock								Comprehensive				Company
(amounts in millions)		Shares				Amount				Capital				Earnings				Shares				Amount				Loss				Investment				Total
Balance at September 30, 2005			—			$	—			$	—			$	—				—			$	—			$	(5.8	)		$	191.3			$	185.5
Change in parent company investment			—				—				—				—				—				—				—				(107.0	)			(107.0	)
Comprehensive Income:
Net income			—				—				—				—				—				—				—				113.2				113.2
Foreign currency translation adjustment			—				—				—				—				—				—				0.3				—				0.3
Change in minimum pension liability (net of taxes of $0.1 million)			—				—				—				—				—				—				0.5				—				0.5
Total comprehensive income																																			114.0
Balance as of September 30, 2006			—				—				—				—				—				—				(5.0	)			197.5				192.5
Change in parent company investment			—				—				—				—				—				—				—				(103.5	)			(103.5	)
Comprehensive Income:
Net income			—				—				—				—				—				—				—				99.5				99.5
Foreign currency translation adjustment			—				—				—				—				—				—				1.2				—				1.2
Change in minimum pension liability (net of taxes of $0.2 million)			—				—				—				—				—				—				0.2				—				0.2
Total comprehensive income																																			100.9
Adoption of SFAS No. 158 (Note 2)			—				—				—				—				—				—				(9.0	)			—				(9.0	)
Balance at September 30, 2007			—				—				—				—				—				—				(12.6	)			193.5				180.9
Adoption of FIN 48 (Note 2)			—				—				—				—				—				—				—				(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 million)			—				—				—				—				—				—				(5.7	)			—				(5.7	)
Change in foreign currency translation adjustment			—				—				—				—				—				—				—				—				—
Change in unrealized gain on derivative instruments (net of taxes of $0.2 million)			—				—				—				—				—				—				0.3				—				0.3
Change in net unrealized gain on available for sale securities (net of taxes of $0.2 million)			—				—				—				—				—				—				(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
Contributions 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

See Notes to Consolidated Financial Statements

HILLENBRAND, INC.

1. Distribution and Description of the Business

Until the close of business on March 31, 2008, Hillenbrand, Inc. (“Hillenbrand”), formerly known as Batesville Holdings, Inc., was a wholly owned subsidiary of Hillenbrand Industries, Inc. After the close of business on March 31, 2008, Hillenbrand Industries, Inc., at the approval of its Board of Directors, completed a tax free pro-rata distribution to its shareholders of 100% of the common shares of Hillenbrand (the “Distribution”). Effective April 1, 2008, Hillenbrand began trading on the New York Stock Exchange (“NYSE”) under the symbol “HI” as an independent public company. Contemporaneously, Hillenbrand Industries, Inc., changed its name to Hill-Rom Holdings, Inc. (“Hill-Rom”). The Distribution is described in detail in our information statement dated March 17, 2008, filed as Exhibit 99.1 to our Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 18, 2008. Unless the context otherwise requires, the terms “the Company,” “we,” “our” and “us” refers to Hillenbrand. The term “Hill-Rom” or “parent” refers to Hill-Rom Holdings, Inc. as well as its predecessor, Hillenbrand Industries, Inc.

Significant Components of the Distribution

In connection with the Distribution, we executed the following transactions:

•

Hill-Rom transferred to us at March 31, 2008:

	•		Investments in private equity limited partnerships and common stock (carrying value of $27.9 million) and a note receivable from Forethought Financial Group, Inc. (carrying value of $124.6 million).
	•		Auction rate securities (carrying value of $55.3 million plus interest receivable of $0.8 million).
	•		Net unrealized gains on available for sale securities (net of taxes), of $3.3 million as a component of accumulated other comprehensive loss.
	•		A joint ownership interest in the corporate conference center facilities (carrying value of $1.2 million) and the corporate aircraft (carrying value of $6.3 million), in addition to other fixed assets (carrying value of $0.6 million).
	•		Various deferred tax assets and liabilities associated with the assets described above (net asset carrying value of $0.4 million), our share of prepaid income taxes (carrying value of $14.6 million), and income taxes payable to Hill-Rom generated by our operations through the date of separation (carrying value of $19.2 million).
	•		Cash of $110.0 million and a $15.4 million receivable, which we collected from Hill-Rom in April 2008.