-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NERzUnAZKIIQHbcYNKc+qIhMAxGX+WU4MBtc6ddd6pyYe4i8IZmLXno6s0rC1dta A9JdlvfPhnhINKHJCui7zA== 0000048287-96-000009.txt : 19961113 0000048287-96-000009.hdr.sgml : 19961113 ACCESSION NUMBER: 0000048287-96-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960928 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HON INDUSTRIES INC CENTRAL INDEX KEY: 0000048287 STANDARD INDUSTRIAL CLASSIFICATION: OFFICE FURNITURE (NO WOOD) [2522] IRS NUMBER: 420617510 STATE OF INCORPORATION: IA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-02648 FILM NUMBER: 96658114 BUSINESS ADDRESS: STREET 1: 414 EAST THIRD STREET - PO BOX 1109 CITY: MUSCATINE STATE: IA ZIP: 52761-7109 BUSINESS PHONE: 3192647400 MAIL ADDRESS: STREET 1: 414 EAST THIRD STREET STREET 2: P O BOX 1109 CITY: MUSCATINE STATE: IA ZIP: 52761 FORMER COMPANY: FORMER CONFORMED NAME: HOME O NIZE CO DATE OF NAME CHANGE: 19681001 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 28, 1996 ------------------ OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________________ to ______________________ Commission File Number 0-2648 ------ HON INDUSTRIES Inc. - ------------------------------------------------------------------------------ (Exact name of Registrant as specified in its charter) Iowa 42-0617510 - ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) P.O. Box 1109, 414 East Third Street, Muscatine, Iowa 52761-7109 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code 319-264-7400 ----------------- Indicate by check mark whether the registrant (1) has filed all required reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding at September 28, 1996 - --------------------------- --------------------------------------- Common Shares, $1 Par Value 30,052,624 shares Exhibit Index is on page 14. Page 1 of 15 HON INDUSTRIES Inc. and SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) - ----------------------------- Condensed Consolidated Balance Sheets -- September 28, 1996, and December 30, 1995 3-4 Condensed Consolidated Statements of Income -- Three Months Ended September 28, 1996, and September 30, 1995 5 Condensed Consolidated Statements of Income -- Nine Months Ended September 28, 1996, and September 30, 19956 Condensed Consolidated Statements of Cash Flows -- Nine Months Ended September 28, 1996, and September 30, 1995 7 Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of - ------------------------------------------------ Financial Condition and Results of Operations 9-11 --------------------------------------------- PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 - -------------------------- Item 6. Exhibits and Reports on Form 8-K 12 - ----------------------------------------- SIGNATURES 13 EXHIBIT INDEX 14 (27) Financial Data Schedule 15 Page 2 of 15 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 28, 1996 December 30, (Unaudited) 1995 ------------- ------------ ASSETS (In thousands) CURRENT ASSETS Cash and cash equivalents $ 50,420 $ 32,231 Short-term investments 4,501 14,694 Receivables 99,161 88,178 Inventories (Note B) 34,066 36,601 Deferred income taxes 15,393 14,180 Prepaid expenses and other current assets 8,235 8,299 ------- ------- Total Current Assets 211,776 194,183 PROPERTY, PLANT, AND EQUIPMENT, at cost Land and land improvements 9,335 9,701 Buildings 94,415 95,310 Machinery and equipment 219,218 208,707 Construction in progress 40,613 30,036 ------- ------- 363,581 343,754 Less accumulated depreciation 138,745 133,721 ------- ------- Net Property, Plant, and Equipment 224,836 210,033 OTHER ASSETS 4,995 5,302 ------- ------- Total Assets $441,607 $409,518 ======= ======= See accompanying notes to condensed consolidated financial statements. Page 3 of 15 HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS September 28, 1996 December 30, (Unaudited) 1995 ------------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands) CURRENT LIABILITIES Accounts payable and accrued expenses $122,843 $117,273 Income taxes 3,548 5,361 Note payable and current maturities of long-term obligations 12,732 6,281 ------- ------- Total Current Liabilities 139,123 128,915 LONG-TERM DEBT AND OTHER LIABILITIES 39,758 45,911 CAPITAL LEASE OBLIGATIONS 7,207 7,700 DEFERRED INCOME TAXES 11,744 10,757 SHAREHOLDERS' EQUITY Capital Stock: Preferred, $1 par value; authorized 1,000,000 shares; no shares outstanding -- -- Common, $1 par value; authorized 100,000,000 shares; outstanding -- 1996 - 30,052,624 shares; 1995 - 30,394,337 shares 30,053 30,394 Paid-in capital 333 550 Retained earnings 221,603 193,505 Receivable from HON Members Company Ownership Plan (8,214) (8,214) ------- ------- Total Shareholders' Equity 243,775 216,235 Total Liabilities and Shareholders' Equity $441,607 $409,518 ======= ======= See accompanying notes to condensed consolidated financial statements. Page 4 of 15 HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended --------------------------- September 28, September 30, 1996 1995 ------------- ------------- (In thousands, except per share data) Net sales $255,254 $228,195 Cost of products sold 176,403 160,319 ------- ------- Gross Profit 78,851 67,876 Selling and administrative expenses 53,605 48,084 ------- ------- Operating Income 25,246 19,792 Interest income 806 473 Interest expense 715 817 ------- ------- Income Before Income Taxes 25,337 19,448 Income taxes (Note D) 7,430 7,209 ------- ------- Net Income (Note D) $ 17,907 $ 12,239 ======= ======= Net income per common share (Note D) $0.60 $0.41 ======= ======= Average number of common shares outstanding 30,063,124 30,416,469 ========== ========== Cash dividends per common share $0.12 $0.12 ======= ======= See accompanying notes to condensed consolidated financial statements. Page 5 of 15 HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Nine Months Ended ---------------------------- September 28, September 30, 1996 1995 ------------- ------------- (In thousands, except per share data) Net sales $707,991 $651,297 Cost of products sold 486,636 454,121 ------- ------- Gross Profit 221,355 197,176 Selling and administrative expenses 152,958 144,337 Gain on sale of subsidiary (Note C) 3,200 - ------- ------- Operating Income 71,597 52,839 Interest income 2,306 1,750 Interest expense 2,342 2,656 ------- ------- Income Before Income Taxes 71,561 51,933 Income taxes (Note D) 24,533 19,391 ------- ------- Net Income (Note D) $ 47,028 $ 32,542 ======= ======= Net income per common share (Note D) $1.56 $1.07 ======= ======= Average number of common shares outstanding 30,192,770 30,534,420 ========== ========== Cash dividends per common share $0.36 $0.36 ======= ======= See accompanying notes to condensed consolidated financial statements. Page 6 of 15 HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended ---------------------------- September 28, September 30, 1996 1995 ------------- ------------- (In thousands) Net Cash Flows From (To) Operating Activities: Net income $ 47,028 $ 32,542 Noncash items included in net income: Depreciation and amortization 17,460 15,596 Gain on sale of subsidiary, net of tax (Note C) (2,016) - Other postretirement and postemployment benefits 1,828 1,484 Deferred income taxes (226) (421) Other - net 247 30 Net increase (decrease) in noncash operating assets and liabilities (6,497) 9,215 Increase (decrease) in other liabilities 791 (1,452) ------- ------- Net cash flows from operating activities 58,615 56,994 ------- ------- Net Cash Flows From (To) Investing Activities: Capital expenditures - net (34,770) (37,704) Net proceeds from sale of subsidiary (Note C) 7,336 - Short-term investments - net 9,394 (551) Long-term investments 148 (1) Other - net (189) (273) ------- ------- Net cash flows (to) investing activities (18,081) (38,529) ------- ------- Net Cash Flows (To) Financing Activities: Purchase of HON INDUSTRIES common stock (9,991) (9,478) Payments of note and long-term debt (2,857) (2,309) Proceeds from sales of HON INDUSTRIES common stock to members and stock-based compensation 1,368 1,516 Dividends paid (10,865) (10,984) ------- ------- Net cash flows (to) financing activities (22,345) (21,255) ------- ------- Net increase (decrease) in cash and cash equivalents 18,189 (2,790) Cash and cash equivalents at beginning of period 32,231 27,659 ------- ------- Cash and cash equivalents at end of period $ 50,420 $ 24,869 ======= ======= See accompanying notes to condensed consolidated financial statements. Page 7 of 15 HON INDUSTRIES Inc. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) September 28, 1996 Note A. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 28, 1996, are not necessarily indicative of the results that may be expected for the year ending December 28, 1996. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 30, 1995. Note B. Inventories Inventories of the Company and its subsidiaries are summarized as follows: September 28, 1996 ($000) (Unaudited) December 30, 1995 ------------------ ----------------- Finished products $12,806 $11,265 Materials and work in process 21,260 25,336 ------ ------ $34,066 $36,601 Note C. Gain on Sale of Subsidiary During the first quarter of 1996, the Company sold all outstanding shares of its subsidiary, Ring King Visibles, Inc., for a sale price of $8,000,000 in cash and the forgiveness of intercompany receivables of approximately $2,000,000. The sale resulted in an approximate $3,200,000 pretax gain. Note D. Tax Credits During the third quarter of 1996, the Company recorded one-time federal research and development and state new jobs tax credits totaling approximately $2.1 million, or $0.07 per share. These tax credits were for eligible business events occurring in fiscal years prior to 1996. Page 8 of 15 Item 2. Management's Discussion and Analysis of - ------------------------------------------------ Financial Condition and Results of Operations --------------------------------------------- Results of Operations - --------------------- A summary of the period-to-period changes in the principal items included in the Condensed Consolidated Statements of Income is shown below: Comparison of -------------------------------------------------------- Increases (Decreases) Three Months Ended Nine Months Ended Three Months Ended Dollars in Thousands Sept. 28, 1996 & Sept. 28, 1996 & Sept. 28, 1996 & Sept. 30, 1995 Sept. 30, 1995 June 29, 1996 ------------------ ----------------- ------------------ Net sales $27,059 11.9% $56,694 8.7% $35,994 16.4% Cost of products sold 16,084 10.0 32,515 7.2 26,176 17.4 Selling & Administrative expenses 5,521 11.5 8,621 6.0 4,098 8.3 Gain on sale of subsidiary - - 3,200 100.0 - - Interest income 333 70.4 556 31.8 47 6.2 Interest expense (102) (12.5) (314) (11.8) (52) (6.8) Income taxes 221 3.1 5,142 26.5 208 2.9 Net income 5,668 46.3 14,486 44.5 5,611 45.6 The Company reported record third quarter sales and earnings for its fiscal quarter ended September 28, 1996. These results, coupled with record first and second quarter results, make January through September 1996 the best first nine-month period in the Company's history. Consolidated net sales for the third quarter ending September 28, 1996, were $255.3 million, an 11.9% increase from the $228.2 million in the third quarter of 1995. Net income was $17.9 million, or $0.60 per share, an increase of 46.3%, for the third quarter of 1996, compared to $12.2 million, or $0.41 per share for the year-ago period. For the nine months ended September 28, 1996, consolidated net sales were $708.0 million, up 8.7% from $651.3 million for the year-ago period. Net income for the nine months of 1996 was $47.0 million, or $1.56 per share, an increase of 45.8%, compared to $32.5 million, or $1.07 per share for the comparable period in 1995. The gross profit margin for the third quarter was 30.9% compared to 29.7% for the same quarter in 1995. On a nine-month basis, the margin was 31.3% for 1996 versus 30.3% for 1995. Selling and administrative expenses for the third quarter of 1996 were 21.0% of net sales compared to 21.1% in the comparable quarter of 1995. On a nine-month basis, they were 21.6% in 1996 versus 22.2% in 1995. Page 9 of 15 Office furniture industry growth is continuing to outpace the general U.S. economy. However, the favorable influence of this growth is being partially offset by the competitive pricing pressures of rapidly consolidating distribution. Management believes the Company s strong 1996 sales performance indicates a gain in market share as customers search for compelling value products. The improved gross margin is being driven by increased production volume and productivity improvements but being adversely impacted by the aforementioned pricing pressures on net sales. Operating costs are being managed through aggressive cost control measures, a focus on the continuous improvement of productivity and product quality, and a steady stream of new products. The Company increased its estimated annual effective tax rate to 37.5% for the third quarter of 1996 from 37.0% a year earlier. The Company recognized one- time federal and state income tax credits of $2.1 million, or $0.07 per share, in the third quarter of 1996. In the first quarter of 1996, the Company recorded a $3.2 million pretax gain on the sale of its subsidiary, Ring King Visibles, Inc., a manufacturer of a variety of personal computer accessories. The after-tax effect of this sale was $2.0 million, or $0.07 per share. Liquidity - --------- As of September 28, 1996, cash, cash equivalents, and short-term investments increased to $54.9 million compared to a $46.9 million balance at year-end 1995. Net capital expenditures for the first nine months of 1996 were $34.8 million and primarily represent investment in new, more efficient machinery and equipment. A $0.12 per share quarterly dividend on common stock was paid on August 30, 1996, to shareholders of record on August 22, 1996. This was the 166th consecutive quarterly dividend paid by the Company. In the third quarter, the Company repurchased 65,665 shares of its common stock at a cost of approximately $2.0 million or an average price of $30.75 per share. For the nine months of fiscal year 1996, 398,631 shares were acquired at a cost of approximately $10.0 million, or an average price of $25.06. The Board of Directors authorized the Company to spend up to an additional $20.0 million to acquire common stock of the Company at its August 12, 1996, meeting. Prior to the additional authorization, the Company had spent all but $1.3 million of the $20.0 million which the Board authorized on February 13, 1995. Looking Ahead - ------------- Management believes that, while the Company had record earnings for its first nine months, consolidation of sales distribution within the office furniture industry is and will continue to result in pricing pressures, which the Company plans to offset through productivity increases, aggressive marketing programs, and strategic new product introductions. Page 10 of 15 Certain statements by management may include forward-looking information that is based on current expectations and subject to a number of risks and uncertainties. Actual results could differ materially from current expectations due to a number of factors, including competitive conditions, pricing trends in the office furniture market, acceptance of the Company's new product introductions, the overall growth rate of the office furniture industry, and the achievement of cost reductions in the Company's manufacturing and distribution operations, as well as the risks, uncertainties and other factors described from time to time in the Company's SEC filings and reports. Subsequent Events - ----------------- On October 2, 1996, the Company acquired Heat-N-Glo Fireplace Products, Inc., located in Savage, Minnesota, through a merger with its wholly owned Heatilator Inc. subsidiary, which has been renamed Hearth Technologies Inc. The Heat-N-Glo and Heatilator businesses will operate as divisions of Hearth Technologies Inc. The Company paid approximately $76 million, in a combination of cash and debt, for the acquisition. This transaction will be accounted for under the purchase method. Hearth Technologies manufactures and markets broad lines of manufactured gas- and wood-burning fireplaces and stoves, fireplace inserts, and chimney systems principally for the home. It is not expected that the merger of Heatilator and Heat-N-Glo will change the business relationships with their respective dealers and customers. During November, the Company settled two previously disclosed contingent liability matters which totaled $4.8 million. The financial resolution of both litigation issues was as anticipated by management. Consequently, their settlement amounts have been fully reserved. Please refer to Item 1. Legal Proceedings on page 12 for further information regarding these matters. Page 11 of 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings - -------------------------- The Company is a guarantor of certain leases for showroom space at the International Design Center (IDC) in Long Island City, New York. On June 26, 1992, the Company filed an action in the New York Supreme Court claiming wrongful eviction and breach of representations and warranties that the IDC would be maintained as a showroom facility. The IDC counterclaimed for back rent and other damages. The parties then filed cross-motions for summary judgment. On June 7, 1996, the court denied the Company's motion for summary judgment and held the Company is liable for back rent, subject to possible reductions in amounts to be determined at trial for landlord's asserted breaches of certain restrictive covenants in the leases. Following an appeal of the decision on August 28, 1996, the parties engaged in negotiations and on November 8, 1996, settled this matter for $1.8 million, which has already been fully reserved on the Company's books. On December 28, 1995, Haworth Inc. filed a complaint in Federal District Court in Kalamazoo, Michigan, alleging that certain products sold by the Company and its subsidiaries infringed its patents covering electrified panel systems and asking for damages in an unspecified amount. These patents expired November 29, 1994, and no claim has been made with respect to Company products sold after that date. On July 19, 1996, the parties entered into a tolling agreement pursuant to which the lawsuit was dismissed on July 25, 1996. Subsequently, on November 7, 1996, the Company settled this matter for $3 million, which has already been fully reserved on the Company's books. The Company is undertaking certain legal actions to obtain contribution from electrical wiring contractors who supplied wiring sets to the Company that were the subject of the Haworth complaint. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits. See Exhibit Index. (b) Reports on Form 8-K. After third quarter-end, but before filing the Form 10-Q for the period, HON INDUSTRIES Inc. filed a current report on Form 8-K on October 17, 1996, to disclose the merger of Heat-N-Glo Fireplace Products, Inc., into Heatilator Inc., a wholly owned subsidiary, which changed its name to Hearth Technologies Inc. Both the Heatilator and Heat-N-Glo businesses will continue as divisions of Hearth Technologies Inc. and will manufacture and market hearth and heating products. The transaction will be accounted for under the purchase method. Page 12 of 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HON INDUSTRIES Inc. Dated: November 11, 1996 By /s/ David C. Stuebe -------------------------- David C. Stuebe Vice President and Chief Financial Officer By /s/ Melvin L. McMains -------------------------- Melvin L. McMains Controller Page 13 of 15 PART II. EXHIBITS EXHIBIT INDEX Page (27) Financial Data Schedule 15 Page 14 of 15 EX-27 2
5 0000048287 HON INDUSTRIES INC. 1,000 9-MOS DEC-28-1996 DEC-31-1995 SEP-28-1996 50,420 4,501 101,018 (1,857) 34,066 211,776 363,581 138,745 441,607 139,123 39,758 0 0 30,053 213,722 441,607 707,991 707,991 486,636 486,636 152,958 0 2,342 71,561 24,533 47,028 0 0 0 47,028 1.56 1.56
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