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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.

Condensed Notes to Consolidated Financial Statements (Unaudited)

(in millions, except share and per share data)

1.              Background and Basis of Presentation

Hillenbrand, Inc. (“Hillenbrand”) is a global diversified industrial company that makes and sells premium business-to-business products and services for a wide variety of industries.  Hillenbrand has two business platforms:  Batesville and the Process Equipment Group.  Batesville is a recognized leader in the North American funeral products industry,Group and theBatesville.  The Process Equipment Group is a recognized leader in the design and production of equipment and systems used in processing applications.applications and Batesville® is a recognized leader in the North American funeral products industry.  “Hillenbrand,” “the Company,” “we,” “us,” “our,” and similar words refer to Hillenbrand Inc. and its subsidiaries.

The accompanying unaudited consolidated financial statements include the accounts of Hillenbrand and its wholly owned subsidiaries.subsidiaries, including less than 100% ownership in certain Coperion Capital GmbH (“Coperion”) subsidiaries as a result of the acquisition of Coperion that closed December 1, 2012.  These unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC)(“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)(“GAAP”).  The unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the fiscal year ended September 30, 2011.2012.  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 flow 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, revenue recognition under the percentage-of-completion method, the establishment of reserves related to customer rebates, allowance for doubtful accounts, warranties, early-pay discounts, inventories, income taxes, accrued litigation, self-insurance, and progress toward achievement of performance criteria under the incentive compensation programs.

2.              Summary of Significant Accounting Policies

The significant accounting policies used in preparing these financial statements are consistent with the accounting policies described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2011, filed with the SEC on November 28, 2011.2012.  The following represent additions and changesrepresents an addition to significantour accounting policies due to the acquisition of Coperion.

Revenue Recognition

With the acquisition of Coperion, a portion of the Company’s revenue is derived from long-term manufacturing contracts.  This revenue is recognized based on the percentage-of-completion method.  Under this method, revenue is recognized based upon the costs incurred to date as compared to the total estimated cost of the project and are included in net revenues on the Form 10-K.consolidated income statement.  Revenues in excess of billings are presented as unbilled receivables from long-term manufacturing contracts and deposits in excess of billings are presented as liabilities from long-term manufacturing contracts on the consolidated balance sheet.  For the three months ended December 31, 2012, approximately 10% of the Company’s revenue related to revenue from these long-term manufacturing contracts.  Revenue for components, replacement parts, and service is recognized on a completed contract basis when title and risk of loss passes to the customer.

Recently Adopted and Issued Accounting Standards

In May 2011, the FASB issued Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (Topic 820, Fair Value Measurement).  The new standard provides updates to measurement guidance and enhanced disclosure requirements.  The most significant change is an expansion of the information required for Level 3 measurements based on unobservable inputs.  The new disclosure requirements were effective for Hillenbrand beginning January 1, 2012.  The adoption of this standard did not have a significant impact on our consolidated financial statements for the period presented.

In June 2011, the FASB issued an accounting standards update titled Presentation of Comprehensive Income.  This update eliminates the current option to report other comprehensive income and its components in the statement of changes in shareholders’ equity.  An entity can elect to present items of net income and other comprehensive income in one continuous statement or in two separate consecutive statements.  Each component of net income and other comprehensive income, together with totals for comprehensive income and its two parts, net income and other comprehensive income, must be displayed under either alternative. The new disclosure requirements will be effective for Hillenbrand in our fiscal year beginning October 1, 2012.  As the new standard relates to presentation only, we do not expect that the adoption of this standard will have a significant impact on our consolidated financial statements.became

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effective and were adopted as of October 1, 2012.  As the new standard relates to presentation only, the adoption of this standard did not have a significant impact on our consolidated financial statements.

6.3.Business Acquisitions

We completed the acquisition of Coperion on December 1, 2012, in a transaction valued at $540.7.  The aggregate purchase consideration consisted of $269.1 of cash, net of cash acquired, and the assumption of $146.0 of debt and $125.6 of pension liabilities.  We utilized $426.3 of borrowings under our revolving credit facility and cash on hand to finance the acquisition, including the repayment of the $146.0 of debt outstanding under Coperion’s prior financing arrangements.

Based in Stuttgart, Germany, Coperion is a global leader in the manufacture of compounding, extrusion, and bulk material handling equipment used in a broad range of industries, including plastics, chemicals, food processing, pharmaceutical, and aluminum.  Coperion has been in business since 1879, currently with nine manufacturing sites in Germany, the United States (“U.S.”), China, and India, and sales offices in approximately thirty locations in the Americas, Europe, and Asia.  Coperion had approximately two thousand employees worldwide as of December 31, 2012.  Approximately 30% of Coperion’s revenue is derived from replacement parts and service, generating a large portion of recurring business due to its well-positioned service network and active installed base of machines across the world.

Coperion revenues consist of large system sales, equipment, components, replacement parts, and service.  Large system sales are fulfilled over twelve to eighteen months on average, whereby customers generally pay a deposit and make progress payments in advance of delivery.  These progress payments allow Coperion to operate its business at attractive working capital levels.  System sales include many components, including those manufactured by Coperion as well as materials manufactured by third-parties.  The proportion of third-party-sourced materials (that yield lower margins than materials produced internally) in system sales is greater than that of our other Process Equipment Group businesses.  As a result, we expect gross profit margins in the Process Equipment Group to be lower following the Coperion acquisition.  However, we believe that providing complete system sales gives the Process Equipment Group a distinct competitive advantage, as many customers prefer doing business with one trusted vendor that can provide a complete system.

This acquisition is the largest in the Company’s history and is an important step in our strategic plans to further diversify Hillenbrand and accelerate the growth of the Process Equipment Group business platform.  The integration of Coperion with the Process Equipment Group will be a key initiative for the next 18 to 24 months.  Combining our product offerings to provide a more complete system solution is the highest priority from an integration perspective.  In addition, we believe leveraging Coperion’s global infrastructure will enable the existing businesses within the Process Equipment Group platform to enter new global markets more quickly.  Likewise, we expect the Process Equipment Group’s existing strong U.S. sales network will enhance Coperion’s expansion in North America.  Finally, the application of the Company’s lean tools and principles to Coperion’s operations is expected to contribute to improved margins and increased customer satisfaction.

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The following table summarizes preliminary estimates of fair values of the assets acquired and liabilities assumed for the Coperion acquisition:

The estimation of fair value of Coperion’s assets and liabilities is preliminary and subject to adjustment based on finalization of the closing balance sheet, including deferred tax balances.

Goodwill is not deductible for tax purposes and was allocated entirely to our Process Equipment Group.  The remaining change in goodwill during the period ended December 31, 2012, was related to the change in foreign currency.

Fair value amounts assigned to identifiable definite-lived intangible assets are being amortized on a straight-line basis over their estimated useful lives. The amounts assigned at the time of acquisition and their useful lives were:

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The unaudited pro forma information for the periods set forth below gives effect to the Coperion acquisition as if it had occurred at the beginning of the earliest period presented. It includes adjustments for additional interest expense, depreciation, and amortization. The unaudited pro forma information for the three months ended December 31, 2011, includes acquisition costs of $8.2 and backlog amortization and inventory step-up costs of $20.9; such amounts are excluded from the period ended December 31, 2012. The unaudited pro forma information is presented for informational purposes only and does not necessarily reflect the results of operations that would actually have been achieved had the acquisition been consummated as of that time.

We incurred $8.2 of net business acquisition costs associated with the acquisition during the three months ended December 31, 2012.  These costs consist of $9.0 of operating expenses partially offset by $0.8 of other income (see Note 11).

In connection with our Coperion acquisition, we acquired less than 100% ownership in certain Coperion subsidiaries.  Following the acquisition date, 100% of Coperion’s results was consolidated into our Process Equipment Group. The portion of the business that is not owned by the Company is presented as noncontrolling interests within equity in the Consolidated Balance Sheets. Income attributable to the noncontrolling interests is separately reported within the Consolidated Statements of Income, and is also excluded from total Hillenbrand Shareholder’s Equity.

4.Supplemental Balance Sheet Information

5.              Financing Agreements

In November 2012, we fully exercised the $300 accordion feature under our revolving credit facility to increase our financing capacity.  This increase consisted of a $200 term loan and a $100 increase in our borrowing capacity under

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our revolving credit facility, to $700.  The Company also has the potential, under certain circumstances and with the lenders’ approval, to increase the total borrowing capacity under the revolving credit facility by an additional $300.  Deferred financing costs of $3.5 are being amortized to interest expense over the term of the revolving credit facility.

As of June 30,December 31, 2012, we (i) had $6.5$180.0 in outstanding letters of credit issued under our $400$700 revolving credit facility, (ii) were in compliance with all covenants set forth in the credit agreement for the revolving credit facility, and (iii) had $268.5$98.5 of remaining borrowing capacity available.available under the revolving credit facility.  The weighted-average interest rate was 0.7% for the three- and nine-month periods ended June 30, 2012 and 2011.  We entered into a new $600 five-year senior unsecured revolving credit facilityrates on July 27, 2012, which replaced our $400 revolving credit facility.  See Note 18 for further details.  Under the Distribution Agreement with Hill-Rom Holdings, Inc., our ability to borrow usingborrowings under the revolving credit facility for certain strategic transactions such as acquisitions may be limited.  The Distribution Agreement is described fully in our Annual Report on Form 10-Kwere 1.35% and 0.7% for the yearthree-month periods ended September 30,December 31, 2012 and 2011.  The weighted average interest rate on the term loan was 1.81% for the three-month period ended December 31, 2012.  In the normal course of business, the Process Equipment Group is required to provide customers bank guarantees in support of performance, warranty, advance payment, and other contract obligations.  This form of trade finance is customary in the industry and, as a result, we are required to maintain adequate capacity to provide the guarantee.

As of June 30,December 31, 2012, our Swiss subsidiary maintained additional availability of $18.3$16.2 through local credit facilities collateralizedsecured by cash or real property.  There were no borrowings under these facilities as of June 30,December 31, 2012, and availability was reduced by $4.9$4.8 for outstanding bank guarantees.  Coperion has a $66.0 guaranty facility under which availability was reduced for outstanding bank guarantees totaling $13.9.  We had $9.9$11.7 additional outstanding letters of credit and bank guarantees with other financial institutions and restricted cash of $1.6 at June 30,December 31, 2012.

On July 9, 2010, we issued $150 fixed-rate senior unsecured notes due July 15, 2020 (the Notes)“Notes”).  The Notes bear interest at a fixed rate of 5.5%, payable semi-annually in arrears.  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 of $2.1 are being amortized to interest expense over the term of the Notes.

7.6.              Retirement Benefits

In connection with the Coperion acquisition, we acquired the Coperion defined benefit pension plans based in Germany and the U.S., which were recorded at fair value on the acquisition date.  The aggregate fair value of the total projected benefit obligations acquired was $141.6 and the plan assets at fair value totaled $16.0, resulting in an assumed liability of $125.6 at December 1, 2012.  We estimate we will be required to make minimum contributions of $7.7 during the remainder of fiscal year 2013 related to these Coperion defined benefit pension plans, although we may make additional discretionary contributions.

Defined Benefit Plans

Postretirement Healthcare Plans — Net postretirement healthcare costs were $0.3$0.1 and $0.2 for both of the three months ended June 30, 2012 and 2011, and $0.7 and $1.0 for the nine months ended June 30,December 31, 2012 and 2011.

Defined Contribution Plans — Expenses related to our defined contribution plans were $2.2$2.0 and $1.7$1.8 for the three months ended June 30, 2012 and 2011, and $6.1 and $5.0 for the nine months ended June 30,December 31, 2012 and 2011.

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8.7.              Income Taxes

The following is a reconciliationeffective tax rates for the three months ended December 31, 2012 and 2011 were 28.8% and (4.3)%. The year-over-year change in the effective tax rate was largely due to the $10.4 reduction of the U.S. federal statutory income tax rateexpense for the three months ended December 31, 2011, attributable to the effectivepermanent reinvestment assertion on historical earnings of certain Swiss operations.  For the three months ended December 31, 2012, we recognized a discrete income tax rate:

Inbenefit of $0.8 related to changes in California tax law, and we recognized a discrete income tax charge of $1.1 related to non-deductible transaction costs in connection with the acquisition of K-Tron in April 2010, we recorded a deferred tax liability related to the historical earnings of its Swiss operations that would be subject to U.S. income taxes upon earnings repatriation.  With the acquisition of Rotex, we identified the need to retain cash overseas to support the continued growth of the Process Equipment Group and began developing a plan to integrate Rotex into our existing international structure.  As a result, during the first quarter of fiscal 2012, we asserted the K-Tron historical earnings to be permanently reinvested.  Accordingly, a tax benefit of $10.4 was recognized, representing the full release of the deferred tax liability.  During the period ended March 31, 2012, we completed the plan of integrating Rotex into our existing international structure.  As of June 30, 2012, U.S. federal and state income taxes have not been provided on accumulated undistributed earnings of substantially all our foreign subsidiaries, as these earnings are considered permanently reinvested.Coperion acquisition.

The activity within our reserve for unrecognized tax benefits was:

9.8.              Earnings Per Share

At June 30,December 31, 2012 and 2011, potential dilutive effects of 2.02.4 million and 2.2 million shares relating to unvested time-based restricted stock units and stock options were excluded from the computation of earnings per share as their effects were anti-dilutive. At June 30,December 31, 2012 and 2011, potential dilutive effects of 1.82.0 million and 1.71.8 million shares relating to unvested performance-based stock awards were excluded from the computation of diluted earnings per share as the related performance period is not yet complete. The effects of these performance-based shares will be dilutive in the future to the extent various levels of performance criteria are met.

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11.       Other Income and Expense

The acquisition of Coperion was transacted in euros.  Business acquisition costs within other income and expense represent the foreign exchange gain recognized on euro-denominated cash required to fund the acquisition, offset by the costs of derivative contracts that hedged currency exposure on the funds required to close the transaction.

14.12.       Commitments and Contingencies

Lease Commitments — We lease certain manufacturing facilities, warehouse distribution centers, service centers, and sales offices under operating leases. The aggregate future minimum lease payments for operating leases, including those lease obligations assumed through our Coperion acquisition, as of December 31, 2012, were as follows:

Litigation

General

Like most companies, we are involved on an ongoing basis in claims, lawsuits, and government proceedings relating to our operations, including environmental, antitrust, patent infringement, business practices, commercial transactions, product and general liability, workers’ compensation, auto liability, employment, and other matters.  The ultimate outcome of these matters 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.  If a loss is not considered probable and/or cannot be reasonably estimated, we are required to make a disclosure if there is at least a reasonable possibility that a material loss may have been incurred.  Legal fees associated with claims and lawsuits are generally expensed as incurred.

Claims other than employment and related matters have deductibles and self-insured retentions ranging from $0.5 to $1.0 per occurrence or per claim, depending upon the type of coverage and policy period.  Outside insurance companies and third-party claims administrators assist in establishing 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 will differ from those estimates.

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),

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and three national funeral home businesses (the FCA Action).  A more detailed history of the litigation has been disclosed in our previous filings.

The lawsuit claimed, among other things, that the Company’s maintenance and enforcement of, and alleged modifications to, its long-standing policy of selling caskets only to licensed funeral homes were the product of a conspiracy among the Company, the other defendants, and others to exclude “independent casket discounters,” resulting in suppressed competition in the alleged market for caskets and allegedly leading consumers to pay higher than competitive prices for caskets.

Plaintiffs in the FCA Action have generally sought monetary damages on behalf of a class of purchasers of Batesville caskets, 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 to approximately $1,460 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.

The Federal District Court for the Southern District of Texas denied class certification on March 26, 2009, and ultimately dismissed the lawsuit on September 24, 2010, concluding that “plaintiffs shall take nothing by their suit.”  Currently, the FCA Action is on appeal to the Fifth Circuit Court of Appeals.  Plaintiffs have appealed both the District Court’s order of dismissal and the order denying class certification.  The parties have submitted all appellate briefs, and the Court of Appeals heard oral argument from the parties on December 5, 2011.  The Court of Appeals has not yet issued its ruling affirming or reversing the District Court.

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 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.

The defendants are vigorously contesting both liability and the plaintiffs’ damages theories.

As of June 30, 2012, we had incurred approximately $29.2 in cumulative legal and related costs associated with the FCA Action since its inception.  Costs incurred in 2012 were $0.5.

Matthews Litigation

In August 2010, the York Group, Inc., Milso Industries Corporation, and Matthews International Corporation (collectively the plaintiffs)“Matthews”) filed a lawsuit against Scott Pontone and Batesville Casket Company, Inc. in the United States District Court, Western District of Pennsylvania, which was subsequently amended by the plaintiffsMatthews in February 2011 to include two additional defendants, Harry Pontone and Pontone Casket Company, LLC (the Litigation)“Matthews Litigation”).  The Matthews Litigation arises, in part, as a result of a Marketing Consulting Agreement entered into between Batesville and Pontone Casket Company effective June 24, 2010, and Batesville’s hiring of two former employees of certain plaintiffMatthews entities in June 2010.  Scott Pontone provides consulting services to Batesville pursuant to the Marketing Consulting Agreement.  The plaintiffs allegeAgreement entered into between Batesville and Pontone Casket Company.  Matthews alleges that Scott Pontone and Harry Pontone breached contractual and business obligations with the plaintiffsMatthews and that Batesville induced certain of those breaches as part of its sales initiatives in the New York metropolitan area.

The plaintiffs claimMatthews claims that they haveit has lost revenue and will lose future revenue in the New York metropolitan area, although the amount of those alleged damages is unspecified.  The plaintiffs seekMatthews seeks to: (i) recover compensatory damages, punitive damages, attorneys’ fees and costs; and (ii) enjoin certain activities by Harry Pontone, Scott Pontone, Pontone Casket Company, and Batesville and its employees in the New York metropolitan area.  The plaintiffs had alsoAlthough Matthews originally requestedmoved for a preliminary injunction, but withdrew that request after expedited discovery.

was withdrawn.  No trial date has been set, and the parties are engaged in ongoing motions practice andnearing completion of discovery.

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