UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

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

HILLENBRAND INDUSTRIES, INC.

(Exact name of registrant as specified in its charter)

Indiana (State or other jurisdiction of incorporation or organization)		35-1160484 (I.R.S. Employer Identification No.)

700 State Route 46 East Batesville, Indiana (Address of principal executive offices)		47006-8835 (Zip Code)

(812) 934-7000
(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 þ            No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes þ            No 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

     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 — 61,859,104 shares as of January 31, 2005.

 

 

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q (“Form 10-Q/A”) to our Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2004, initially filed with the Securities and Exchange Commission (“SEC”) on February 14, 2005 (“Original Filing”), reflects a restatement (“Restatement”) of the Condensed Consolidated Financial Statements of Hillenbrand Industries, Inc. as discussed in Note 13 to the Condensed Consolidated Financial Statements.

This Form 10-Q/A only amends and restates Items 1, 2 and 4 of Part I of the Original Filing and we have revised language in these Items from the Original Filing to reflect the Restatement. No other information in the Original Filing is amended hereby. The foregoing items have not been updated to reflect other events occurring after the Original Filing or to modify or update those disclosures affected by subsequent events. Other events occurring after the filing of the Original Filing or other disclosures necessary to reflect subsequent events have been addressed in our reports filed with the SEC subsequent to the filing of the Original Filing, including the Annual Report on Form 10-K for the fiscal year ended September 30, 2005, which was previously filed on December 23, 2005. In addition, the exhibit list in Item 6 of Part II has not been updated except that currently dated certifications from our Interim President and Chief Executive Officer and Chief Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, are filed with this Form 10-Q/A as Exhibits 31.1, 31.2, 32.1 and 32.2.

With this filing, we have amended the Original Filing. As such, the fiscal 2005 and 2004 financial information contained in our original quarterly reports on Form 10-Q for the periods ended December 31, 2004, March 31, 2005 and June 30, 2005, as previously filed, should no longer be relied upon.

HILLENBRAND INDUSTRIES, INC.

INDEX TO AMENDMENT NO. 1 ON FORM 10-Q

			Page
PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements (Unaudited)
Condensed Consolidated Statements of Income for the Quarterly Periods Ended 12/31/04 and 12/31/03			4
Condensed Consolidated Balance Sheets at 12/31/04 and 9/30/04			5
Condensed Consolidated Statements of Cash Flows for the Quarterly Periods Ended 12/31/04 and 12/31/03			6
Notes to Condensed Consolidated Financial Statements			7-24
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			25-36
Item 4 — Controls and Procedures			37-38
PART II — OTHER INFORMATION
Item 6 — Exhibits			39
SIGNATURES			40
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

Hillenbrand Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Income
(Dollars in millions except per share data)

		Quarterly
		Period Ended
						(As Restated,
						See Note 13)
		12/31/04				12/31/03
Net Revenues
Health Care sales		$	196			$	165
Health Care rentals			120				93
Funeral Services sales			159				164
Total revenues			475				422
Cost of Revenues
Health Care cost of goods sold			108				86
Health Care rental expenses			72				43
Funeral Services cost of goods sold			75				74
Total cost of revenues			255				203
Gross Profit			220				219
Other operating expenses			154				146
Operating Profit			66				73
Other income (expense), net:
Interest expense			(4	)			(3	)
Investment income			7				1
Other			—				(1	)
Income from Continuing Operations Before Income Taxes			69				70
Income tax expense (Note 11)			25				25
Income from Continuing Operations			44				45
Discontinued Operations (Note 4):
Income from discontinued operations before income taxes (including gain on divestiture of discontinued operations of $0 and $3)			—				22
Income tax expense			—				5
Income from discontinued operations			—				17
Net Income		$	44			$	62
Income per common share from continuing operations — Basic (Note 5)		$	0.70			$	0.72
Income per common share from discontinued operations — Basic (Note 5)			—				0.28
Net Income per Common Share — Basic		$	0.70			$	1.00
Income per common share from continuing operations — Diluted (Note 5)		$	0.69			$	0.72
Income per common share from discontinued operations — Diluted (Note 5)			—				0.28
Net Income per Common Share — Diluted		$	0.70			$	0.99
Dividends per Common Share		$	0.28			$	0.27
Average Common Shares Outstanding — Basic (thousands)			62,263				62,131
Average Common Shares Outstanding — Diluted (thousands)			62,689				62,432

Note: Certain per share amounts may not accurately add due to rounding.

See Notes to Condensed Consolidated Financial Statements

Hillenbrand Industries, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets
(Dollars in millions)

		(As Restated – See Note 13)
		12/31/04				9/30/04
ASSETS
Current Assets
Cash and cash equivalents		$	126			$	128
Current investments (Note 1)			82				52
Trade receivables, net			420				417
Inventories			116				122
Deferred income taxes			23				12
Other			14				16
Total current assets			781				747
Equipment Leased to Others, net			160				151
Property, net			216				221
Investments			80				79
Other Assets
Intangible assets:
Goodwill (Note 3)			427				429
Software and other			188				190
Notes receivable, net of discount			108				105
Deferred charges and other assets			43				49
Total other assets			766				773
Assets of Discontinued Operations (Note 4)			100				98
Total Assets		$	2,103			$	2,069
LIABILITIES
Current Liabilities
Trade accounts payable		$	84			$	93
Short-term borrowings			11				11
Accrued compensation			83				87
Accrued warranty			19				19
Other			100				98
Total current liabilities			297				308
Long-Term Debt			356				360
Other Long-Term Liabilities			124				124
Deferred Income Taxes			21				5
Liabilities of Discontinued Operations (Note 4)			93				92
Total Liabilities			891				889
Commitments and Contingencies (Note 9)
SHAREHOLDERS’ EQUITY
Common stock			4				4
Additional paid-in capital			63				62
Retained earnings			1,685				1,659
Accumulated other comprehensive income (Note 6)			10				6
Treasury stock			(550	)			(551	)
Total Shareholders’ Equity			1,212				1,180
Total Liabilities and Shareholders’ Equity		$	2,103			$	2,069

See Notes to Condensed Consolidated Financial Statements

Hillenbrand Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows
(Dollars in millions)

		Year-to-Date Period Ended
						(As Restated,
						See Note 13)
		12/31/04				12/31/03
Operating Activities
Net income		$	44			$	62
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Depreciation and amortization			29				20
Accretion and capitalized interest on financing provided on divestiture			(3	)			—
Net capital (gains) losses — Insurance			—				(10	)
Provision for deferred income taxes			9				32
Gain on divestiture of discontinued operations (net-of-tax)			—				(5	)
Loss on disposal of fixed assets			1				1
Change in working capital excluding cash, current investments, current debt, acquisitions and dispositions			(27	)			(144	)
Change in insurance items:
Increase in benefit reserves			—				19
Other insurance items, net			—				21
Other, net			25				(18	)
Net cash provided by (used in) operating activities			78				(22	)
Investing Activities
Capital expenditures and purchase of intangibles			(30	)			(20	)
Proceeds on sale of business			—				14
Acquisitions of businesses, net of cash acquired			(8	)			(68	)
Investment purchases and capital calls			(55	)			(26	)
Proceeds on investment sales/maturities			27				59
Insurance investments:
Purchases			—				(287	)
Proceeds on maturities			—				96
Proceeds on sales			—				183
Net cash used in investing activities			(66	)			(49	)
Financing Activities
Payment of cash dividends			(18	)			(17	)
Proceeds on exercise of options			3				3
Insurance deposits received			—				76
Insurance benefits paid			—				(71	)
Net cash used in financing activities			(15	)			(9	)
Effect of exchange rate changes on cash			1				1
Total Cash Flows			(2	)			(79	)
Cash and Cash Equivalents:
At beginning of period			128				155
At end of period		$	126			$	76

See Notes to Condensed Consolidated Financial Statements

Hillenbrand Industries, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements
(Dollars in millions except per share data)

1.		Summary of Significant Accounting Policies
		Basis of Presentation
		The unaudited, condensed consolidated financial statements appearing in this quarterly report on Form 10-Q/A should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2004 as amended and filed with the U.S. Securities and Exchange Commission. Unless the context otherwise requires, the terms “Hillenbrand”, the “Company”, “we”, “our” and “us” refer to Hillenbrand Industries, Inc. and its consolidated subsidiaries, and the terms “Hill-Rom Company”, “Batesville Casket Company”, and derivations thereof, refer to one or more of the subsidiary companies of Hillenbrand that comprise those respective business units. Prior to July 1, 2004, Forethought Financial Services (“Forethought”) was our third operating company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. In the opinion of management, the financial statements herein include all adjustments, consisting only of normal recurring adjustments, necessary to state fairly the financial position, results of operations, and cash flows for the interim periods presented. Quarterly results are not necessarily indicative of annual results.
		We completed the divestitures of the piped-medical gas and infant care businesses of Hill-Rom and of Forethought in the first, third and fourth quarters, respectively, of fiscal 2004, as further described in Note 4 below. These operations are presented as discontinued operations within our Condensed Consolidated Statements of Income for all periods presented. Under this presentation, the revenues and variable costs associated with the businesses have been removed from the individual line items comprising the Condensed Consolidated Statements of Income and are presented in a separate section entitled, “Discontinued Operations”. In addition, fixed costs related to the businesses eliminated with the divestitures have also been included as a component of discontinued operations. The results of discontinued operations are not necessarily indicative of the results of the businesses if they had been operated on a stand-alone basis. On the Condensed Consolidated Balance Sheets, the assets and liabilities of the discontinued operations are also presented separately beginning in the period in which the businesses were discontinued. On the Condensed Consolidated Statements of Cash Flows, proceeds from the sale of discontinued operations are classified as an investing cash inflow and any losses are presented as a reconciling item in the reconciliation of net income and net cash provided by (used in) operations. Year-to-date operating, investing and financing activities of the discontinued operations are reflected within the respective captions of the Condensed Consolidated Statements of Cash Flows up to the disposal date and consistent with previous periods.
		Principles of Consolidation
		The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Material intercompany accounts and transactions have been eliminated in consolidation.
		Reclassification
		Certain prior year amounts have been reclassified to conform to the current year’s presentation, including the reclassification of Forethought to results from discontinued operations in the prior year first quarter.

		Revision in the Classification of Certain Securities
		During the first quarter of fiscal 2005, we concluded that it was appropriate to classify our auction rate municipal bonds as current investments. Previously, such investments had been classified as cash and cash equivalents. Accordingly, we have revised the classification to report these securities as current investments in a separate line item on our Condensed Consolidated Balance Sheet as of September 30, 2004. We have also made corresponding adjustments to our Condensed Consolidated Statement of Cash Flows for the period ended December 31, 2003, to reflect the gross purchases and sales of these securities as investing activities rather than as a component of cash and cash equivalents. This change in classification does not affect previously reported cash flows from operations or from financing activities in our previously reported Consolidated Statements of Cash Flows, or our previously reported Consolidated Statements of Income for any period.
		As of September 30, 2003, $33.4 million of these current investments were classified as cash and cash equivalents on our Consolidated Balance Sheet.
		For the fiscal years ended September 30, 2004 and 2003 and for the ten months ended September 30, 2002, net cash provided by (used in) investing activities related to these current investments of ($19.1) million, $169.5 million and $1.8 million, respectively, were included in cash and cash equivalents in our Consolidated Statements of Cash Flows.
		Current Investments
		At December 31, 2004 and September 30, 2004, we held $82 million and $52 million, respectively, of current investments, which consist of auction rate municipal bonds classified as available-for-sale securities. Our investments in these securities are recorded at cost, which approximates fair market value due to their variable interest rates, which typically reset every 7 to 35 days, and, despite the long-term nature of their stated contractual maturities, we have the ability to quickly liquidate these securities. As a result, we had no cumulative gross unrealized holding gains (losses) or gross realized gains (losses) from our current investments. All income generated from these current investments was recorded as interest income.
		Investments
		We use the equity method of accounting for certain private equity limited partnership investments, with earnings or losses reported within Investment income in the Condensed Consolidated Statements of Income. Other minority investments are accounted for on either a cost or equity basis, dependent upon our level of influence over the investee.
		Stock-Based Compensation
		We apply the provisions of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees”, in accounting for stock-based compensation. As a result, no compensation expense is recognized for stock options granted with exercise prices equivalent to the fair market value of stock on date of grant. Compensation expense is recognized on other forms of stock-based compensation, including stock and performance-based awards and units.
		The following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation”, to all stock-based employee compensation for the periods covered in this report. The fair value of stock option grants are estimated on the date of grant. Prior to fiscal year 2005 we used the Black-Scholes option-pricing model, but all stock options granted in fiscal year 2005 are valued with the Binomial option-pricing model for pro forma expense purposes only. Our Binomial model incorporates the possibility of early exercise of options into the valuation, as well as our historical exercise and termination experience to determine the option value. For these reasons, we believe the

		Binomial model provides a fair value that is more representative of actual historical experience than the value calculated under the Black-Scholes model.
		The weighted average fair value of options granted in the first quarter of fiscal 2005 was $10.42 under the Binomial model using the following assumptions: (i) risk-free interest rates of 2.64-4.09 percent; (ii) expected dividend yields of 1.70-2.02 percent; (iii) expected volatility factors of 0.2023-0.2592; (iv) exercise factor of 39 percent; and (v) post-vesting termination rate of 30 percent.

		Quarterly Period Ended
		12/31/04				12/31/03
						(As Restated,
						See Note 13)
Net income, as reported		$	44			$	62
Add:
Total stock-based employee compensation, net of related tax effects, included in net income, as reported			1				1
Deduct:
Total stock-based employee compensation, net of related tax effects, assuming fair value based method of accounting			(2	)			(2	)
Pro forma net income		$	43			$	61
Earnings per share:
Basic — as reported		$	0.70			$	1.00
Basic — pro forma		$	0.69			$	0.98
Diluted — as reported		$	0.70			$	0.99
Diluted — pro forma		$	0.68			$	0.97

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), “Share-Based Payment.” 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) thereby eliminates the use of the intrinsic value method of accounting in APB No. 25, “Accounting for Stock Issued to Employees”, which was permitted under SFAS No. 123, as long as the footnotes to the financial statements disclosed pro forma net income as if the fair-value-based method had been used. SFAS No. 123(R) is effective for all interim periods beginning after June 15, 2005, and thus will become effective for us in the fourth quarter of fiscal 2005. We are currently evaluating the adoption methods available and the impact of this pronouncement to our consolidated financial statements and results of operations.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs”, to amend Accounting Research Bulletin (ARB) No. 43, Chapter 4, “Inventory Pricing”. SFAS No. 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material by requiring these items to be recognized as current-period charges. Additionally, the Statement requires that allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities. The adoption of SFAS No. 151 is required for fiscal years beginning after June 15, 2005, and thus will become effective for us in fiscal 2006. We are currently evaluating the impact to our consolidated financial statements and results of operations.

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Assets”. SFAS No. 153 requires that exchanges of nonmonetary assets be measured based on the fair value of the assets exchanged. Further, it expands the exception for nonmonetary exchanges of similar productive assets to nonmonetary assets that do not have commercial substance. The provisions of the Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of the provisions of SFAS No. 153 is not expected to have a material impact on our consolidated financial statements or results of operations.

At the November 2004 meeting, the FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) regarding Issue No. 03-13, “Applying the Conditions in Paragraph 42 of SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets, in Determining Whether to Report Discontinued Operations.” The Issue provides a model to assist in evaluating (a) which cash flows should be considered in the determination of whether cash of the discontinued operation have been, or will be, eliminated from ongoing operations and (b) the types of continuing involvement that constitute significant continuing involvement. The Issue should be applied to a component of an enterprise that is either disposed of or classified as held for sale in fiscal periods beginning after December 15, 2004. In analyzing the model included in this Issue, we determined that, although we receive continuing cash flows from a transition agreement with the previously disposed Forethought business, these cash flows are not significant, they are indirect cash flows and we do not have significant continuing involvement in the operations of their business. Therefore, the classification of Forethought as a discontinued operation under SFAS No. 144 is appropriate.

On October 22, 2004, the President signed the American Jobs Creation Act of 2004 (the “Act”). The Act provides a deduction for income from qualified domestic production activities, which will be phased in from 2005 — 2010. In return, the Act also provides for a two-year phase-out of the existing extra-territorial income exclusion (ETI) for foreign sales that was viewed to be inconsistent with international trade protocols by the European Union. We expect the net effect of the phase out of the ETI and the phase in of this new deduction to result in a minimal impact in the effective tax rate for 2005 based on current earnings levels. In the long-term, we expect the new deduction will result in a decrease in the annual effective tax rate by at least one percent based on current earnings levels.

Under the guidance in FASB Staff Position No. FAS 109-1, Application of FASB Statement No. 109, “Accounting for Income Taxes”, to the Tax Deduction on Qualified Production Activities Provided by The American Jobs Creation Act of 2004, the deduction will be treated as a “special deduction” as described in FASB Statement 109. As such, the special deduction has no effect on deferred tax assets and liabilities existing at the enactment date. Rather, the impact of this deduction will be reported in the period in which the deduction is claimed on our tax return.

The Act also created a temporary incentive for U.S. corporations to repatriate accumulated income earned abroad by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. It is not anticipated that we will benefit from this provision of the Act.

2.		Supplementary Balance Sheet Information
		The following information pertains to assets and consolidated shareholders’ equity:

		12/31/04				9/30/04
		(As Restated, See Note 13)
Allowance for possible losses and discounts on trade receivables		$	32			$	31
Inventories:
Finished products		$	82			$	88
Work in process			10				10
Raw materials			24				24
Total inventory		$	116			$	122
Accumulated depreciation of equipment leased to others and property		$	658			$	632
Accumulated amortization of intangible assets		$	161			$	156
Capital Stock:
Preferred stock, without par value:
Authorized 1,000,000 shares; shares issued			None				None
Common stock, without par value:
Authorized 199,000,000 shares; shares issued			80,323,912				80,323,912
Shares outstanding			62,028,330				61,960,392
Treasury shares outstanding			18,295,582				18,363,520

3.		Acquisitions
		During fiscal 2004, Hill-Rom completed the acquisitions of Advanced Respiratory, Inc. (“ARI”), Mediq, Incorporated (“Mediq”) and NaviCare Systems, Inc. (“NaviCare”). The results of these businesses have been included in the Condensed Consolidated Financial Statements since each acquisition’s date of close.
		On October 17, 2003, Hill-Rom acquired ARI, a manufacturer and distributor of non-invasive airway clearance products and systems, for approximately $103 million, plus an additional $2 million of acquisition costs incurred in relation to the transaction. This purchase price included a first quarter 2005 payment of $8 million resulting from net revenues achieved in fiscal 2004. An additional deferred payment of $5.7 million is outstanding and payable no later than the end of calendar 2005 and is accrued in the Condensed Consolidated Balance Sheets as of December 31, 2004 and September 30, 2004. An additional contingent payment, which could also be payable by the end of calendar 2005, is dependent upon ARI achieving certain net revenue targets over the next year. Any such contingent payment will increase goodwill associated with the acquisition.
		On January 30, 2004, Hill-Rom acquired Mediq, a company in the medical equipment outsourcing and asset management business, for approximately $329 million, plus an additional $6 million of acquisition costs incurred in relation to the transaction. This purchase price included $23 million deposited in an escrow account, of which $20 million remained at December 31, 2004, related to potential adjustments resulting primarily from the funded status of Mediq’s defined benefit pension plan as of the end of the first quarter of 2006, along with the occurrence of any issues associated with seller representations, warranties and other matters. The escrow amount has been included in the allocation of purchase price outlined below. Final resolution of the remaining amount in escrow is expected in fiscal 2006. If any adjustment differs in amount from the current escrow balance, the reported purchase price would be decreased by the amount of any valid claims against the escrow amounts, and the reported amount of goodwill associated with the Mediq acquisition would be adjusted accordingly.

		On January 30, 2004, we completed the acquisition of the remaining 84 percent of the equity of NaviCare that we did not already own for approximately $14 million, including deferred payments of approximately $2 million, all of which has been paid as of January 2005.
		The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at their dates of acquisition. During the first quarter of fiscal 2005, we reduced goodwill by approximately $2 million to reflect the true-up of deferred taxes for opening balance sheet adjustments on ARI and NaviCare and a reduction to the previously accrued contingent payment made to ARI in the first quarter of 2005. The purchase prices remain subject to adjustment for the contingent payments outlined above; thus, the allocation of the purchase prices is subject to refinement.

		ARI				Mediq				NaviCare
Current assets		$	25			$	44			$	2
Property, plant and equipment			6				99				—
Intangible assets			9				69				4
Goodwill			72				197				10
Other long-term assets			2				1				1
Total assets acquired			114				410				17
Current liabilities			(5	)			(37	)			(2	)
Long-term liabilities			(4	)			(38	)			(1	)
Total liabilities assumed			(9	)			(75	)			(3	)
Net assets acquired		$	105			$	335			$	14

4.		Discontinued Operations
		On July 1, 2004, we closed the sale of Forethought Financial Services, Inc. to FFS Holdings, Inc., an acquisition vehicle formed by the Devlin Group, LLC., which acquired all the common stock of Forethought and its subsidiaries for a combination of cash, seller financing, certain retained assets of Forethought and stock warrants. Total nominal consideration for the transaction was approximately $295 million, which included the value of the partnership assets transferred to us. This consideration excluded a dividend received by us in December 2003 from Forethought in the amount of approximately $29 million made in anticipation of the transaction. Hillenbrand received cash proceeds in the transaction of approximately $105 million. An additional cash payment of approximately $6 million is due upon the regulatory approval of the sale of Forethought Federal Savings Bank, which is expected to occur in the last half of fiscal 2005.
		In October 2003, Hill-Rom sold its piped-medical gas business to Beacon Medical Products LLC, for $13 million, after final purchase price adjustments.
		In August 2004, Hill-Rom completed the sale of its Air-Shields infant care business to a subsidiary of Dräger Medical AG & Co. KGaA for approximately $31 million.
		These businesses have been treated as discontinued operations for all periods presented within the Condensed Consolidated Statements of Income in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.

Operating results for the discontinued operations were as follows for the quarters ended December 31, 2004 and 2003:

		Quarterly Period Ended
		12/31/04				12/31/03
						(As Restated,
						See Note 13)
Investment income		$	1			$	43
Earned revenue			—				54
Net capital gains			—				9
Other revenues			—				20
Net revenues from discontinued operations		$	1			$	126
Benefits paid			—				22
Credited interest			—				44
Other costs of revenue			—				29
Other operating expenses			1				12
Gain on divestiture of discontinued operations			—				(3	)
Pre-tax income from discontinued operations			—				22
Income tax expense			—				5
Income from discontinued operations		$	—			$	17

The assets and liabilities of Forethought Federal Savings Bank are included in the assets and liabilities of discontinued operations, which are presented as separate line items within the Condensed Consolidated Balance Sheets as of December 31, 2004 and September 30, 2004. Components of assets and liabilities of discontinued operations were as follows:

		12/31/04				9/30/04
Investments		$	99			$	97
Other assets			1				1
Assets of discontinued operations		$	100				98
Liabilities			93				92
Net assets of discontinued operations		$	7			$	6

5.		Earnings per Common Share
		Basic earnings per share were calculated based upon the weighted-average number of outstanding common shares for the period, plus the effect of deferred vested shares. Diluted earnings per share were calculated consistent with the basic earnings per share calculation including the effect of dilutive unissued common shares related to stock-based employee compensation programs. For all periods presented, anti-dilutive stock options were excluded in the calculation of diluted earnings per share. Excluded shares were 902,444 for the three months ended December 31, 2004 and 404,433 for the three months ended December 31, 2003. Cumulative treasury stock acquired, less cumulative shares reissued, has been excluded in determining the average number of shares outstanding.

Earnings per share are calculated as follows:

		Quarterly
		Period Ended
		12/31/04				12/31/03
						(As Restated,
						See Note 13)
Net income (in thousands)		$	43,650			$	62,069
Average shares outstanding
— Basic (thousands)			62,263				62,131
Average shares outstanding
— Diluted (thousands)			62,689				62,432
Income per common share from continuing operations — Basic		$	0.70			$	0.72
Income per common share from discontinued operations — Basic			—				0.28
Net income per common share — Basic		$	0.70			$	1.00
Income per common share from continuing operations — Diluted		$	0.69			$	0.72
Income per common share from discontinued operations — Diluted			—				0.28
Net income per common share — Diluted		$	0.70			$	0.99

Note: Certain per share amounts may not accurately add due to rounding.

6.		Comprehensive Income
		SFAS No. 130, “Reporting Comprehensive Income”, requires unrealized gains or losses on available-for-sale securities, foreign currency translation adjustments and minimum pension liability adjustments to be included in accumulated other comprehensive income.
		The components of comprehensive income are as follows:

		Quarterly
		Period Ended
		12/31/04				12/31/03
						(As Restated,
						See Note 13)
Net income		$	44			$	62
Net change in unrealized loss on available-for-sale securities, net-of-tax			—				(17	)
Foreign currency translation adjustment			4				5
Comprehensive income		$	48			$	50

The composition of accumulated other comprehensive income at December 31, 2004 and September 30, 2004 was the cumulative adjustment for unrealized gains on available-for-sale securities of $10 million for each period, foreign currency translation adjustments of $2 and ($2) million, respectively, and a minimum pension liability adjustment of ($2) million for each period.

7.		Retirement Plans
		Hillenbrand and its subsidiaries have several defined benefit retirement plans covering the majority of employees, including certain employees in foreign countries. We contribute funds to trusts as necessary to provide for current service and for any unfunded projected future benefit obligation over a reasonable period. The benefits for these plans are based primarily on years of service and the employee’s level of compensation during specific periods of employment. We also sponsor nonqualified, unfunded defined benefit pension plans for certain members of management.
		The components of net pension expense for defined benefit retirement plans in the United States for the quarterly periods ended December 31, 2004 and 2003 were as follows:

		Quarterly
		Period Ended
		12/31/04				12/31/03
Service cost		$	3			$	3
Interest cost			5				4
Expected return on plan assets			(5	)			(4	)
Net periodic benefit cost		$	3			$	3

As of December 31, 2004 we have made contributions of approximately $1 million to our defined benefit pension plans during fiscal 2005. We presently anticipate contributing an additional $7 million during fiscal year 2005 to fund our pension plans, for a total contribution of $8 million.

We sponsor both qualified and nonqualified defined contribution retirement plans for all eligible employees, as defined in the plan documents. The qualified plans fall under Section 401(k) of the Internal Revenue Code. Contributions to the qualified plans are based on both employee and Company contributions. Our contributions to the plans were $4 million and $3 million for the three-month periods ended December 31, 2004 and 2003, respectively. We expect to contribute an additional $10 million to the plans during the remainder of fiscal year 2005 for a total of $14 million. The nonqualified plans are unfunded and carried a liability of less than $1 million at December 31, 2004 and September 30, 2004.

8.		Guarantees
		Limited warranties are routinely granted on our products with respect to defects in material and workmanship. The terms of these warranties are generally one year, however, certain components and products have substantially longer warranty periods. A reserve is recognized with respect to these obligations at the time of product sale, with subsequent warranty claims recorded directly against the reserve. The amount of the warranty reserve is determined based on historical trend experience for the covered products. For more significant warranty-related matters which might require a broad-based correction, separate reserves are established when such events are identified and the cost of correction can be reasonably estimated. A reconciliation of changes in the warranty reserve for the periods covered in this report is as follows:

		Quarterly
		Period Ended
		12/31/04				12/31/03
Balance at beginning of period		$	19			$	21
Provision for warranties during the period			4				3
Warranty reserves acquired			—				2
Warranty claims during the period			(4	)			(5	)
Balance at end of period		$	19			$	21

In the normal course of business we enter into various other guarantees and indemnities in our relationships with suppliers, service providers, customers, business partners and others. Examples of these arrangements would include guarantees of product performance, indemnifications to service providers and indemnifications of our actions to business partners. These guarantees and indemnifications would not materially impact our financial condition or results of operations, although indemnifications associated with our actions generally have no dollar limitations.

In conjunction with all other acquisition and divestiture activities, we have entered into select guarantees and indemnifications of performance with respect to the fulfillment of commitments under applicable purchase and sale agreements. The arrangements generally indemnify the buyer or 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. For those representations and warranties which survive closing, they generally survive for periods up to five years or the expiration of the applicable statutes of limitations. Potential losses under the indemnifications are generally limited to a portion of the original transaction price, or to other lesser specific dollar amounts for select provisions. With respect to sale transactions, we also routinely enter into non-competition agreements for varying periods of time. Guarantees and indemnifications with respect to acquisition and divestiture activities would not materially impact our financial condition or results of operations.

9.		Commitments and Contingencies
		On June 30, 2003, Spartanburg Regional Healthcare System (the “Plaintiff”) filed an antitrust suit against Hillenbrand and its Hill-Rom subsidiary, in the United States District Court for the District of South Carolina, as described in the Annual Report on Form 10-K for the period ended September 30, 2004. The trial is anticipated to occur on or after September 26, 2005. The hearing on class certification is anticipated to occur by mid to late March or April 2005.
		On December 30, 2004, Plaintiff filed its Motion for Leave to File a Second Amended Complaint, which has not yet been ruled on by the Court, seeking to extend the period for which it seeks damages, from 1990 through the present, and add a new allegation of monopoly maintenance of an alleged standard hospital bed market. Plaintiff is also seeking to broaden the proposed class definition to include all purchasers of Hill-RomÒ standard and/or specialty hospital beds and/or architectural and in-room products from 1990 to the present where there have been contracts between Hill-Rom and such purchasers, either on behalf of themselves or through purchasing organizations, where those contracts conditioned discounts on Hill-RomÒ hospital beds and other architectural and in-room products on commitments to rent or purchase a very high percentage of specialty beds from Hill-Rom. We are vigorously opposing Plaintiff’s motion on various grounds, including the significant passage of time since the deadline for amending pleadings.

10.		Special Charges
		2004 Actions
		During the fourth fiscal quarter of 2004, we announced a restructuring intended to better align Hill-Rom’s financial and personnel resources to fully support its growth initiatives, decrease overall costs, and improve performance in Europe. The plan included the expected elimination of approximately 130 salaried positions in the U.S. and approximately 100 positions in Europe and resulted in a fourth quarter charge of approximately $7 million, associated with severance and benefit-related costs. As of December 31, 2004, approximately 140 positions have been eliminated with a small number of the original list of terminees being transferred to other positions. As of this same date, there was approximately $5 million remaining in the reserve, after cash payments of $2 million during the quarter ended December 31, 2004. All obligations associated with this action, which is expected to be completed in fiscal 2005, will be settled in cash.
		2003 Actions
		During the third fiscal quarter of 2003, we announced a new business structure at Hill-Rom to accelerate the execution of its strategy and strengthen its businesses. As a result of this action, Hill-Rom announced it expected to eliminate approximately 300 salaried positions globally. Hill-Rom also announced it expected to hire approximately 100 new personnel with the skills and experience necessary to execute its business strategy. A fiscal 2003 third quarter charge of $9 million was recognized with respect to this action, essentially all related to severance and benefit-related costs. During fiscal 2004, approximately $1 million of the originally recorded reserve was reversed. As of December 31, 2004 this action was complete. In excess of 280 salaried positions were eliminated under the action, with over 60 of the original list of terminees being transferred to other positions in line with Hill-Rom’s strategy. In addition, approximately 90 new positions were hired under the new business structure.
11.		Income Taxes
		The effective income tax rate for the first quarter of 2005 was 37.0 percent compared to 35.7 percent for the first quarter of 2004. The higher rate in 2005 is due primarily to an increase in the valuation allowance for continued losses in France. Although these loss carryforwards have no expiration date, current operating results and economic conditions have made it difficult to predict full recoverability of these tax assets. Therefore a full valuation allowance has been established. We will continue to pursue opportunities to reduce our effective tax rate in future periods.
12.		Segment Reporting
		SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, requires reporting of segment information that is consistent with the way in which management operates and views the business.
		With the continued evolution of the prior year realignment of the Hill-Rom business structure, changes were adopted in fiscal 2004 and 2005 in terms of the way in which management views the business, including reporting to our executive management team. With these changes, in fiscal 2004 the prior Hill-Rom reporting segment was split into Americas/Asia Pacific and EMEA (Europe, Middle East and Africa) reporting segments, with performance measured on a divisional income basis before special items. Divisional income under this approach was defined as the division’s gross profit less their direct operating costs. This measure excluded a number of functional costs which were managed on an overall Hill-Rom basis, including finance, information technology, human resources, legal and regulatory and strategy. In fiscal 2005, a change was made to the definition of divisional income. Beginning in the first quarter of 2005, divisional income now includes functional costs previously excluded from the measure. Functional costs directly related to a specific division are now borne directly by such division based on the Hill-Rom annual

		plan. For functional costs not directly tied to a specific division, the costs have been allocated to the respective divisions on the basis of various allocation methodologies, also based on the Hill-Rom annual plan. Management now evaluates divisional performance on this new basis. Segment data for 2004 has been restated to conform with this new presentation.
		Intersegment sales between the Americas/Asia Pacific and EMEA are generally accounted for at current market value or cost plus markup. Eliminations, net of allocations, while not considered a segment, will be presented separately to aid in the reconciliation of segment information to consolidated Hill-Rom financial information.
		The reporting segment of Batesville Casket is measured on the basis of income from continuing operations before income taxes. Intersegment sales do not occur between Hill-Rom and Batesville Casket. Forethought results, which were previously considered a reporting segment, are now being presented in the results from discontinued operations as further discussed in Note 4 to the Condensed Consolidated Financial Statements. Corporate, while not a segment, is presented separately to aid in the reconciliation of segment information to that reported in the Condensed Consolidated Statements of Income.
		Financial information regarding our reportable segments is presented below:

										Eliminations,												Corporate
		Americas/								Net of				Total				Batesville				and Other
Asia Pacific						EMEA				Allocations				Hill-Rom				Casket				Expense				Consolidated
Quarterly Period Ended
December 31, 2004
Net revenues		$	268			$	48			$	—			$	316			$	159			$	—			$	475
Intersegment revenues		$	5			$	2			$	(7	)		$	—
Divisional income		$	41			$	(3	)		$	(3	)		$	35
Income (loss) from continuing operations before income taxes														$	36			$	40			$	(7	)		$	69
Income tax expense																										$	(25	)
Income from continuing operations																										$	44
Loss from discontinued operations (a)																										$	—
Net income																										$	44
Quarterly Period Ended
December 31, 2003 (As Restated – See Note 13)
Net revenues		$	207			$	51			$	—			$	258			$	164			$	—			$	422
Intersegment revenues		$	12			$	—			$	(12	)		$	—
Divisional income		$	50			$	(3	)		$	(5	)		$	42
Income (loss) from continuing operations before income taxes														$	41			$	46			$	(17	)		$	70
Income tax expense																										$	(25	)
Income from continuing operations																										$	45
Income from discontinued operations (a)																										$	17
Net income																										$	62

(a)

Reflects results of Forethought, including Forethought Federal Savings Bank, and the Hill-Rom piped-medical gas and infant care businesses classified as discontinued operations.

13.		Restatement and Revised Classification of Condensed Consolidated Financial Statements
		Restatement
		During the fourth quarter of fiscal 2003, we entered into definitive agreements to sell Hill-Rom’s piped-medical gas and infant care businesses and in the second quarter of fiscal 2004, we entered into a definitive agreement to sell Forethought Financial Services, Inc. and its subsidiaries (“Forethought”). The divestitures of these businesses were all finalized in fiscal 2004 and all were accounted for as discontinued operations in our Condensed Consolidated Financial Statements for all periods presented herein. While finalizing the fiscal 2004 U.S. federal and state income tax returns, and during preparation of the subsequent tax provision to income tax return reconciliations, management identified errors which understated the income tax benefits associated with these discontinued operations. Further, while assessing the implications of these errors, management

		determined that it had also made errors with respect to the allocation of goodwill to Hill-Rom’s piped-medical gas and infant care businesses for purposes of determining both the impairment loss recognized in the fourth fiscal quarter of 2003 and the effect of the dispositions recognized upon the closure of the transactions in fiscal 2004. As a result of the identification of these errors, the Audit Committee of the Board of Directors concluded, after consultation with management and a review of the pertinent facts, that it was necessary to restate (the “Restatement”) the previously issued financial statements for the fiscal years ended September 30, 2003 and 2004 and for all interim periods in 2004 and the Condensed Consolidated Balance Sheets for the interim periods of 2005.
		As part of this Restatement, income from discontinued operations and net income in fiscal 2003 increased $51 million, or $0.82 per fully diluted share, and income from discontinued operations and net income in fiscal 2004 increased $33 million, or $0.53 per fully diluted share. The effects of this Restatement on the income statement impacted only discontinued operations and had no impact on income from continuing operations or cash flows. Hillenbrand’s balance sheets as of September 30, 2003 and all succeeding periods were also adjusted to reflect $69 million of additional goodwill as a result of the Restatement.
		Specifics related to the errors identified for fiscal 2003 and 2004 are further outlined below:
		Impairment Loss and Gain Recognition on Disposal of Piped-Medical Gas and Infant Care Businesses
		Statement of Financial Accounting Standards No. 142 (“SFAS 142”), Goodwill and Other Intangible Assets, requires that all goodwill acquired in a business combination be assigned to one or more reporting units. Upon adopting SFAS 142 in fiscal 2002, the net assets of Hill-Rom’s piped-medical gas and infant care businesses were included in the Hill-Rom reporting unit. When a portion of a reporting unit that constitutes a business is sold, SFAS 142 requires that the amount of goodwill associated with that business be determined based on the relative fair values of the business to be sold versus the portion of the reporting unit to be retained. SFAS 142 further provides, however, that if a business to be disposed of was never integrated into the reporting unit after its acquisition, the current carrying amount of acquired goodwill should be included in the carrying amount of the business to be disposed of.
		When we reached definitive agreements in the fourth quarter of fiscal 2003 to sell Hill-Rom’s piped-medical gas and infant care businesses, we incorrectly conducted a SFAS 142 impairment assessment for these businesses as if they were non-integrated, separate, stand-alone entities for which it was concluded that the benefits of the acquired goodwill associated with these businesses had not been realized, and would not be realized in the future. This impairment assessment included all the original non-amortized goodwill associated with the acquisition of the businesses, other than a portion pertaining to a retained business, which led to the recognition of an impairment loss of $50 million ($51 million, net-of-tax) in the fourth quarter of fiscal 2003. No impairment loss should have been recorded based on the fair value of the entire reporting unit that included the disposed businesses.
		Had we appropriately applied the provisions of SFAS 142 and allocated goodwill to the disposed businesses based on their relative fair values compared to the fair value of the reporting unit, the carrying amounts of the disposed businesses would have been lower and no impairment loss would have been recorded. Further, we would have recognized a gain on the divestiture of the piped-medical gas business in the first quarter of fiscal 2004 of $5 million (net-of-tax).
		Accounting for Income Taxes
		With respect to the accounting for income taxes related to discontinued operations, including the dispositions of Hill-Rom’s piped-medical gas and infant care businesses and

the pre-need insurance business of Forethought, we made certain errors with respect to the recognition of income tax benefits associated with these discontinued operations in each of the first three quarters of fiscal 2004. These errors related to the following:

	•		Improper recognition of book and tax differences associated with discounts applied to the seller financing provided by the Company in the disposition of Forethought. The errors also impacted the ordinary and capital loss components of the taxable gain/loss calculation as well as the amount of the valuation allowance required for capital loss carryforwards. The combined effect of these items in the second quarter of fiscal 2004 was an understatement of net deferred tax assets and the tax benefit associated with the disposition of the business by approximately $8 million.
	•		Failure to identify necessary corrections to the recorded deferred tax balances of Forethought. Such adjustments should have been fully recorded with the disposition of Forethought, therefore resulting in an understatement in the second quarter of fiscal 2004 of net deferred tax assets and the recorded income tax benefit by approximately $1 million.
	•		Failure to fully consider the effects of certain K-1 partnership returns on investments held by Forethought in the determination of the income tax benefit associated with discontinued operations in the second quarter of fiscal 2004. This omission overstated income taxes payable by $2 million and understated the recorded income tax benefit related to discontinued operations by approximately $2 million.
	•		Improper calculation of the respective tax gain/loss associated with our dispositions of the piped-medical gas, infant care and Forethought businesses primarily associated with the improper treatment of certain disposition-related costs.
			The effect of these errors by quarter is as follows:

		Overstatement/(Understatement)
		Income Tax Benefit				Deferred Tax Assets				Income Taxes Payable
First quarter		$	(2	)		$	—			$	2
Second quarter			(2	)			(2	)			—
Annual impact		$	(4	)		$	(2	)		$	2

The impact of all the above noted errors resulted in an overstatement of the recorded loss from discontinued operations of $51 million in the fourth quarter of fiscal 2003 and an overstatement of the recorded loss from discontinued operations in the first, second and third quarters of fiscal 2004 of $5 million, $13 million and $15 million, respectively. Further, in terms of a breakdown between divestiture transactions, $13 million of the errors related to the disposal of Forethought, while $5 million and $15 million related to the disposal of the Hill-Rom piped-medical gas and infant care businesses, respectively.

The Condensed Consolidated Financial Statements included herein have been adjusted to give effect to these errors, thus resulting in a restatement of our previously issued quarterly financial statements.

Other Items

We have also made certain other limited changes to the previously issued financial statements to correct typographical errors made in the prior year.

The impacts of the Restatement and Other Items on our Condensed Consolidated Balance Sheets as of December 31, 2004 and September 30, 2004, and our Condensed Consolidated Statements of Income and Cash Flows for the quarterly period ended December 31, 2003, are shown in the accompanying tables below. We have also updated the disclosures in Notes 1, 2, 4, 5, 6, 9 and 12 within these Condensed Consolidated Financial Statements to give effect to the Restatement and Other Items, as required. As the errors outlined above also impacted the second and third quarters of fiscal 2004, we will be filing amended Forms 10-Q/A for these quarters as well.

The following table presents the effect of the Restatement on the Condensed Consolidated Statements of Income for the quarterly period ended December 31, 2003:

Condensed Consolidated Statement of Income (Unaudited)
(Dollars in millions except per share data)

		Quarterly
		Period Ended
						(As Originally
		(As Restated)				Reported)
		12/31/03				12/31/03
Net Revenues
Health Care sales		$	165			$	165
Health Care rentals			93				93
Funeral Services sales			164				164
Total revenues			422				422
Cost of Revenues
Health Care cost of goods sold			86				86
Health Care rental expenses			43				43
Funeral Services cost of goods sold			74				74
Total cost of revenues			203				203
Gross Profit			219				219
Other operating expenses			146				146
Operating Profit			73				73
Other income (expense), net:
Interest expense			(3	)			(3	)
Investment income			1				1
Other			(1	)			(1	)
Income from Continuing Operations Before Income Taxes			70				70
Income tax expense			25				25
Income from Continuing Operations			45				45
Discontinued Operations:
Income from discontinued operations before income taxes (including gain on divestiture of discontinued operations of $0 and $3)			22				19
Income tax expense			5				7
Income from discontinued operations			17				12
Net Income		$	62			$	57
Income per common share from continuing operations — Basic		$	0.72			$	0.72
Income per common share from discontinued operations — Basic			0.28				0.19
Net Income per Common Share — Basic		$	1.00			$	0.91
Income per common share from continuing operations — Diluted		$	0.72			$	0.72
Income per common share from discontinued operations — Diluted			0.28				0.19
Net Income per Common Share — Diluted		$	0.99			$	0.91
Dividends per Common Share		$	0.27			$	0.27
Average Common Shares Outstanding — Basic (thousands)			62,131				62,131
Average Common Shares Outstanding — Diluted (thousands)			62,432				62,432

Note: Certain per share amounts may not accurately add due to rounding.

The following table presents the effect of the Restatement on the Condensed Consolidated Balance Sheets as of December 31 and September 30, 2004:

Condensed Consolidated Balance Sheets (Unaudited)
(Dollars in millions)

		12/31/04								9/30/04
						(As Originally								(As Originally
		(As Restated)				Reported)				(As Restated)				Reported)
ASSETS
Current Assets
Cash and cash equivalents		$	126			$	126			$	128			$	128
Current investments			82				82				52				52
Trade receivables, net			420				420				417				417
Inventories			116				116				122				122
Deferred income taxes			23				23				12				4
Other			14				14				16				16
Total current assets			781				781				747				739
Equipment Leased to Others, net			160				160				151				151
Property, net			216				216				221				221
Investments			80				80				79				79
Other Assets
Intangible assets:
Goodwill			427				358				429				360
Software and other			188				188				190				190
Notes receivable, net of discount			108				108				105				105
Deferred charges and other assets			43				43				49				49
Total other assets			766				697				773				704
Assets of Discontinued Operations			100				100				98				98
Total Assets		$	2,103			$	2,034			$	2,069			$	1,992
LIABILITIES
Current Liabilities
Trade accounts payable		$	84			$	84			$	93			$	93
Short-term borrowings			11				11				11				11
Accrued compensation			83				83				87				87
Accrued warranty			19				19				19				19
Other			100				105				98				103
Total current liabilities			297				302				308				313
Long-Term Debt			356				356				360				360
Other Long-Term Liabilities			124				124				124				124
Deferred Income Taxes			21				31				5				7
Liabilities of Discontinued Operations			93				93				92				92
Total Liabilities			891				906				889				896
Commitments and Contingencies
SHAREHOLDERS’ EQUITY
Common stock			4				4				4				4
Additional paid-in capital			63				63				62				62
Retained earnings			1,685				1,601				1,659				1,575
Accumulated other comprehensive income			10				10				6				6
Treasury stock			(550	)			(550	)			(551	)			(551	)
Total Shareholders’ Equity			1,212				1,128				1,180				1,096
Total Liabilities and Shareholders’ Equity		$	2,103			$	2,034			$	2,069			$	1,992

The following table presents the effect of the Restatement on the Condensed Consolidated Statements of Cash Flows for the year-to-date period ended December 31, 2003:

Condensed Consolidated Statements of Cash Flows (Unaudited)
(Dollars in millions)

		12/31/03
		(As				(As Originally
		Restated)				Reported)
Operating Activities
Net income		$	62			$	57
Adjustments to reconcile net income to net cash flows provided by (used in) operating activities:
Depreciation and amortization			20				20
Accretion and capitalized interest on financing provided on divestiture			—				—
Net capital (gains) losses — Insurance			(10	)			(10	)
Provision for deferred income taxes			32				32
Gain on divestiture of discontinued operations (net-of-tax)			(5	)			—
Loss on disposal of fixed assets			1				1
Change in working capital excluding cash, current investments, current debt, acquisitions and dispositions			(144	)			(144	)
Change in insurance items:
Increase in benefit reserves			19				19
Other insurance items, net			21				21
Other, net			(18	)			(18	)
Net cash provided by (used in) operating activities			(22	)			(22	)
Investing Activities
Capital expenditures and purchase of intangibles			(20	)			(20	)
Proceeds on sale of business			14				14
Acquisitions of businesses, net of cash acquired			(68	)			(68	)
Investment purchases and capital calls			(26	)			(26	)
Proceeds on investment sales/maturities			59				59
Insurance investments:
Purchases			(287	)			(287	)
Proceeds on maturities			96				96
Proceeds on sales			183				183
Net cash used in investing activities			(49	)			(49	)
Financing Activities
Payment of cash dividends			(17	)			(17	)
Proceeds on exercise of options			3				3
Insurance deposits received			76				76
Insurance benefits paid			(71	)			(71	)
Net cash used in financing activities			(9	)			(9	)
Effect of exchange rate changes on cash			1				1
Total Cash Flows			(79	)			(79	)
Cash and Cash Equivalents:
At beginning of period			155				155
At end of period		$	76			$	76