The Corporate Governance Standards adopted by the board of directors require the board to make an annual determination regarding the independence of each of the company's directors and provide standards for making these determinations that are consistent with the listing standards of the New York Stock Exchange.

As set forth in the company's Corporate Governance Standards, a director will be independent only if the board of directors determines, based on a consideration of all relevant facts and circumstances, that the director has no material relationship with the company or any of its subsidiaries (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company or any of its subsidiaries). In assessing the materiality of a director's relationship with the company and each director's independence, the board must consider the issue of materiality not only from the standpoint of the director, but also from that of the persons or organizations with which the director has an affiliation. Material relationships can include, among others, commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships. In assessing a director's independence, the board must also consider the director's ownership, or affiliation with the owner, of less than a controlling amount of voting securities of the company. The board cannot conclude that a director is independent in the following circumstances:

• The director is, or has been within the last three years, an employee of the company or any of its subsidiaries, or an immediate family member of the director is, or has been within the last three years, an executive officer of the company (but employment as an interim executive officer will not disqualify a director from being considered independent following that employment).
  
  
• The director has received, or has an immediate family member who has received, during any 12-month period within the last three years, more than $100,000 per year in direct compensation from the company or its subsidiaries, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service). 
  
  
• (A) The director or an immediate family member of the director is a current partner of a firm that is the internal or external auditor of the company or any of its subsidiaries; (B) the director is a current employee of such a firm; (C) the director has an immediate family member who is a current employee of such a firm and who participates in the firm's audit, assurance or tax compliance (but not tax planning) practice; or (D) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the audit of the company or any of its subsidiaries within that time.
  
  
• The director or an immediate family member of the director is, or has been within the last three years, employed as an executive officer of another company where any of the company's present executives at the same time serves or served on that company's compensation committee.
  
  
• The director is a current employee, or an immediate family member of the director is a current executive officer, of a company that has made payments to, or received payments from, the company for property or services in an amount which, in any of the last three fiscal years, exceeded the greater of $1 million, or 2 percent of such other company's consolidated gross revenues.
  
  
• The director owns, or is affiliated with the owner of, a controlling amount of voting stock of the company.

To assist in the board's determinations, each director completed materials designed to identify any relationships that could affect the director's independence, and the general counsel and secretary of the company conducted follow-up interviews with certain directors. On the basis of these materials and the standards described above, the board determined that each of the directors, other than W August Hillenbrand and Kenneth A. Camp, is independent. Accordingly, neither W August Hillenbrand nor Kenneth A. Camp serves on the Audit, Compensation and Management Development or Nominating/Corporate Governance Committees of the board of directors.