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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2011

Commission File No. 001-33794

HILLENBRAND, INC.

(Exact name of registrant as specified in its charter)

(812) 934-7500

(Registrant’s telephone number, including area code)

Not Applicable

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

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

Common Stock, without par value — 62,691,289 shares as of April 30, 2011.

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HILLENBRAND, INC.

INDEX TO FORM 10-Q

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PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

Hillenbrand, Inc.

Consolidated Statements of Income (Unaudited)

(in millions, except per share data)

See Condensed Notes to Consolidated Financial Statements

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Hillenbrand, Inc.

Consolidated Balance Sheets (Unaudited)

(in millions)

See Condensed Notes to Consolidated Financial Statements

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Hillenbrand, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in millions)

See Condensed Notes to Consolidated Financial Statements

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Hillenbrand, Inc.

Condensed Notes to Consolidated Financial Statements (Unaudited)

(in millions, except share and per share data)

1.               Background and Basis of Presentation

Hillenbrand, Inc. (Hillenbrand or the Company) is the parent holding company of its wholly owned subsidiaries, Batesville Services, Inc. (Batesville) and K-Tron International, Inc. (K-Tron).

Through Batesville, we are the leader in the North American death care products industry where we manufacture, distribute, and sell funeral service products to licensed funeral directors who operate licensed funeral homes.  Batesville-branded products consist primarily of burial caskets but also include cremation caskets, containers and urns, selection room display fixturing for funeral homes, and other personalization and memorialization products and services, including web-based applications and the creation and hosting of websites for licensed funeral homes.

Through K-Tron, we design, produce, market, and service bulk solids material handling equipment and systems for a wide variety of industrial markets, particularly in the plastics, food, chemical, pharmaceutical, power generation, coal mining, pulp and paper, wood and forest products, and biomass energy generation industries.

The accompanying unaudited consolidated financial statements include the accounts of Hillenbrand, Inc. and its wholly owned subsidiaries.  These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial statements and therefore do not include all information required in accordance with accounting principles generally accepted in the United States (GAAP).  The unaudited consolidated financial statements have been prepared on the same basis as the consolidated financial statements as of and for the fiscal year ended September 30, 2010.  Certain prior period balances have been reclassified to conform to the current presentation.  In the opinion of management, these financial statements reflect all normal and recurring adjustments considered necessary to present fairly the Company’s consolidated financial position and the consolidated results of operations and cash flows as of the dates and for the periods presented.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosures of contingent assets and liabilities as of the dates presented.  Actual results could differ from those estimates.  Examples of such estimates include, but are not limited to, the establishment of reserves related to customer rebates, allowance for doubtful accounts, warranties, early pay discounts, inventories, income taxes, accrued litigation, and self-insurance; and the estimation of progress toward performance criteria under the incentive compensation programs.

2.               Summary of Significant Accounting Policies

The accounting policies used in preparing these financial statements are consistent with the accounting policies as described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010.  The following represent additions and changes to significant accounting policies as described in the previously filed Form 10-K.

Recently Adopted Accounting Standards

On December 31, 2010, we adopted the Financial Accounting Standards Board’s accounting standard update 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.  The standard requires companies to provide additional disclosures about the credit quality of their financing receivables and the credit reserves held against them.  The disclosure requirements of this standard are included in Note 5.

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3.               K-Tron Acquisition

The unaudited financial information in the table below summarizes the combined results of operations for the Company, including K-Tron, for the three and six months ended March 31, 2010, on a pro forma basis, as though the companies were combined as of the beginning of the period presented.  The pro forma financial information is presented for informational purposes only and may not be indicative of the results of operations if the acquisition had actually taken place at the beginning of the period presented and should not be considered representative of future consolidated results of operations.  The pro forma financial information for the three and six months ended March 31, 2010, includes adjustments for additional interest expense (assuming we would have been able to borrow $375.0 at October 1, 2009) and additional depreciation and amortization expense (associated with fair value adjustments to property and intangible assets), and excludes business acquisition costs and the non-recurring effects of fair value adjustments to inventory and backlog, all net of estimated income tax effects.  See Note 17 for further information regarding K-Tron’s financial contribution to consolidated financial results.

4.               Supplemental Balance Sheet Information

5.               Financing Receivables and Allowances for Credit Losses

In accordance with accounting standard update 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses, Hillenbrand has two types of financing instruments that require quarterly disclosure: the Forethought note and notes receivable from customers.  See Note 18 regarding the collection of the Forethought note on April 20, 2011.

As of March 31, 2011, Batesville had $8.0 of customer notes receivable, primarily representing long-term payment plans that were negotiated to collect unpaid balances.  These notes generally carry repayment terms up to five years at a weighted average interest rate of 5.9%.  The current portion of these notes, $4.6, is included in trade receivables and the long-term portion, $3.4, is included in other assets in the consolidated balance sheets.  We evaluate the recoverability of each note receivable quarterly and record allowances thereon based upon the customer’s credit score, historical experience, and individual customer collection experience.  Of the $8.0 notes receivable, $5.8 was current and $2.2 was over 31 days past due as of March 31, 2011.  Accordingly, we established $1.0 of reserves to address potential collectability for notes with a gross balance of $3.0 as of March 31, 2011.   There has not been a significant change in the reserve during the periods presented.  Each quarter we perform a detailed review of all notes upon which a reserve was established to determine whether any amounts should be charged off.  Amounts are charged off when they are deemed to no longer be collectible.

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6.               Auction Rate Securities (ARS)

During the six months ended March 31, 2011, we sold the remaining ARS for proceeds of $12.4, resulting in a gain of $0.5.  We have now fully liquidated the original $56.9 (par value) portfolio of ARS transferred to us on March 31, 2008, in connection with the separation from Hill-Rom.  We recovered approximately 95.5% of the historical cost of these securities.

7.               Financing Agreements

Borrowings under the financing agreements included:

As of March 31, 2011, we (i) had $6.7 outstanding letters of credit under the facility, (ii) were in compliance with all covenants set forth in the credit agreement, and (iii) had $118.3 of remaining borrowing capacity available under the facility.  Under the Distribution Agreement with Hill-Rom, the ability to borrow against the facility for certain strategic transactions such as acquisitions may be limited.  The term of the revolving credit facility expires in March 2013.  During the three-month periods ended March 31, 2011 and 2010, the weighted average interest rates were 0.7% and 1.1%.  During both the six-month periods ended March 31, 2011 and 2010, the weighted average interest rates were 0.7%.

The Swiss location maintains additional availability of $19.6 through local credit facilities secured by cash or real property.  As of March 31, 2011, there were no borrowings under these facilities and availability was reduced by $3.3 for outstanding bank guarantees.  At that date, we had additional outstanding letters of credit and bank guarantees with other financial institutions totaling $4.3.

On July 9, 2010, we issued and sold $150.0 fixed-rate senior unsecured notes due July 15, 2020 (the Notes).  The Notes bear interest at a fixed rate of 5.5%, payable semi-annually in arrears commencing on January 15, 2011.  The Notes were issued at an original issue discount of $1.6, which is being amortized to interest expense over the term of the Notes using the effective interest rate method, resulting in an annual interest rate of 5.65%.  Deferred financing costs associated with the Notes of $2.1 are being amortized to interest expense on a straight-line basis over the term of the Notes.

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8.               Retirement Benefits

Defined Benefit Plans

Postretirement Healthcare Plans

The net postretirement healthcare costs for the three months ended March 31, 2011 and 2010, were $0.4 and $0.3.  The net postretirement healthcare costs for the six months ended March 31, 2011 and 2010, were $0.7 and $0.6.

Defined Contribution Plans

For the three months ended March 31, 2011 and 2010, expenses related to the defined contribution plans were $1.7 and $1.4.  For the six months ended March 31, 2011 and 2010, expenses related to the defined contribution plans were $3.3 and $2.6.

9.               Income Taxes

The effective tax rates for the three months ended March 31, 2011 and 2010, were 34.7% and 36.5%.  The 1.8% decrease in the quarterly effective tax rate was attributable to the increase in the domestic manufacturing deduction and greater foreign income in the first quarter of 2011, partially offset by higher state tax rates based on filed returns.  The effective tax rate was 35.2% for both six-month periods ended March 31, 2011 and 2010.  The rate was favorably impacted by a higher domestic manufacturing deduction and higher foreign income, offset by higher state tax rates based on filed returns and the favorable adjustment recorded in the quarter ended December 31, 2009, as a result of periodic reconciliation of the income tax accounts to filed income tax returns.

The activity within the reserve for unrecognized tax benefits was:

10.         Earnings per Share

At March 31, 2011 and 2010, potential dilutive effects of time-based restricted stock units and stock option awards, representing approximately 2.0 million and 1.7 million shares, were excluded from earnings per share as their effects were anti-dilutive.  The dilutive effects of performance-based stock awards will be included in diluted net earnings per share when the related performance criteria are met.  At March 31, 2011 and 2010, potential dilutive effects, representing approximately 1.6 million and 1.1 million shares, were excluded from the computation of diluted earnings per share as the related performance criteria were not met, although we expect to meet various levels of criteria in the future.  There was no significant difference in basic and diluted earnings per share and average shares outstanding as a result of dilutive equity awards for the three and six month periods ended March 31, 2011 and 2010.

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11.         Shareholders’ Equity

During the six months ended March 31, 2011, we paid $23.5 of cash dividends and issued 0.4 million shares of stock pursuant to stock incentive plans.

12.         Stock-Based Compensation

During the six months ended March 31, 2011, we made the following grants:

Stock options granted had a weighted average exercise price of $19.49, and RSUs and PBUs had a weighted average grant date fair value of $21.60 and $19.50 for the six-month period ended March 31, 2011.

13.         Comprehensive Income and Accumulated Other Comprehensive Loss

The components of comprehensive income, each net of tax (corresponding to income tax rates between 35.4% and 37.3%, excluding foreign currency translation adjustment), were:

The components of accumulated other comprehensive loss, each net of tax (corresponding to income tax rates between 35.4% and 37.3%, excluding cumulative foreign currency translation adjustment), were:

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14.         Investment Income and Other

15.         Commitments and Contingencies

Antitrust Litigation

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

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

Plaintiffs in the FCA Action have generally sought monetary damages on behalf of a class, trebling of any such damages that may be awarded, recovery of attorneys’ fees and costs, and injunctive relief.  The plaintiffs in the FCA Action filed a report indicating that they were seeking damages ranging from approximately $947.0 million to approximately $1.46 billion before trebling on behalf of the purported class of consumers they seek to represent, based on approximately one million casket purchases by the purported class members.

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

In June 2010, co-defendant Stewart Enterprises, Inc. announced a settlement with the plaintiffs.  Shortly thereafter, the remaining defendants filed a motion to dismiss for lack of subject matter jurisdiction.  On September 24, 2010, the District Court granted the motion and ordered full dismissal of the lawsuit, concluding that “plaintiffs shall take nothing by their suit.”

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Plaintiffs have appealed both the Court’s final judgment of dismissal entered on September 24, 2010, and the Court’s order denying class certification entered on March 26, 2009 to the United States Court of Appeals for the Fifth Circuit.

On February 23, 2011, the plaintiffs filed their appellate brief with the Fifth Circuit.  The defendants’ opposition brief was filed with the Court of Appeals on April 27, 2011.  Plaintiffs will then have an opportunity to file a reply brief.  Once all briefs are submitted, the Court of Appeals may hear oral argument by the parties’ attorneys and will then issue its ruling as to whether or not the District Court’s decisions should be reversed or affirmed.  It should be noted, however, that the above appellate schedule is only approximate and is subject to change dependent upon a number of factors, including the granting of any extensions of time and the relative congestion of the docket of the Court of Appeals.

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

Because Batesville continues to adhere to its long-standing policy of selling Batesville caskets only to licensed funeral directors operating 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 the period between the time they served their expert reports and the time of trial.  At this point, it is not possible to estimate the amount of any additional alleged damage claims they may make.  The defendants are vigorously contesting both liability and the plaintiffs’ damages theories.

As of March 31, 2011, we had incurred approximately $28.1 million in cumulative legal and related costs associated with the FCA matter since its inception.

General

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

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

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

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

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16.         Fair Value Measurements

The fair value measurements for financial assets and liabilities were classified into one of three categories as defined in Note 14 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2010.

The following table reconciles the change in Level 3 financial assets:

The methods and assumptions used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value are described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010.  The increase in the fair value of the Forethought Note at March 31, 2011, was attributable to the natural accrual of interest over time under the note, which was partially offset by a 1.6% increase in the required yield to maturity (discount rate) observed in the market place on comparable debt instruments.  See Note 18 regarding the collection of the Forethought note on April 20, 2011.  Assets excluded from the tables above are described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010.

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17.         Segment and Geographical Information

(1)          Batesville operating profit includes sales tax recoveries of $0.1 for the three months ended March 31, 2011, offset in by antitrust litigation expense of $0.3 for both of the three months ended March 31, 2011 and 2010.  Batesville operating profit includes sales tax recoveries of $0.7 and $4.1 offset in part by antitrust litigation expense of $0.6 and $0.5 for the six months ended March 31, 2011 and 2010.

(2)          K-Tron operating profit includes $2.7 and $5.4 of amortization expense related to the intangible assets that were acquired for the three and six months ended March 31, 2011, and $0.1 for business acquisition costs during the six months ended March 31, 2011.

(3)          Corporate operating loss includes $1.0 for business acquisition costs for both of the three months ended March 31, 2011 and 2010.  Corporate operating loss includes $1.2 and $3.8 for business acquisition costs for the six months ended March 31, 2011 and 2010.

(4)          Revenue is attributed to a geography based upon the location of the business unit that consummated the external sale.

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