-----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, MkKQUNQXWS/iZoqccY9wsZ6w0my1aVwXKvp6wndA2OXsZa5LnC8G41tPOyC6uT4R JReDL/qtOp3lpWDNXY7MHg== 0000048287-97-000013.txt : 19970808 0000048287-97-000013.hdr.sgml : 19970808 ACCESSION NUMBER: 0000048287-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970807 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: 97653178 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 June 28, 1997 ------------- 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 June 28, 1997 - --------------------------- ------------------------------------- Common Shares, $1 Par Value 29,689,707 shares Exhibit Index is on page 15. Page 1 of 16 HON INDUSTRIES Inc. and SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements (Unaudited) - ----------------------------------------- Condensed Consolidated Balance Sheets -- June 28, 1997, and December 28, 1996 3-4 Condensed Consolidated Statements of Income -- Three Months Ended June 28, 1997, and June 29, 1996 5 Condensed Consolidated Statements of Income -- Six Months Ended June 28, 1997, and June 29, 19966 Condensed Consolidated Statements of Cash Flows -- Six Months Ended June 28, 1997, and June 29, 1996 7 Notes to Condensed Consolidated Financial Statements 8-9 Item 2. Management's Discussion and Analysis of - ------------------------------------------------ Financial Condition and Results of Operations 10-12 --------------------------------------------- PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 13 - ------------------------------------------------------------ Item 6. Exhibits and Reports on Form 8-K 13 - ----------------------------------------- SIGNATURES 14 EXHIBIT INDEX 15 (27) Financial Data Schedule 16 Page 2 of 16 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 28, 1997 December 28, (Unaudited) 1996 ----------- ------------ ASSETS (In thousands) CURRENT ASSETS Cash and cash equivalents $ 24,137 $ 31,196 Short-term investments 256 1,502 Receivables 142,019 109,095 Inventories (Note B) 61,156 43,550 Deferred income taxes 19,746 9,046 Prepaid expenses and other current assets 15,927 11,138 ------- ------- Total Current Assets 263,241 205,527 PROPERTY, PLANT, AND EQUIPMENT, at cost Land and land improvements 8,969 9,114 Buildings 132,154 92,509 Machinery and equipment 256,146 231,780 Construction in progress 45,903 42,507 ------- ------- 443,172 375,910 Less accumulated depreciation 149,661 141,294 ------- ------- Net Property, Plant, and Equipment 293,511 234,616 GOODWILL 58,020 51,213 ------- ------- OTHER ASSETS 20,620 22,158 Total Assets $635,392 $513,514 ======= ======= See accompanying notes to condensed consolidated financial statements. Page 3 of 16 HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 28, 1997 December 28, (Unaudited) 1996 ----------- ------------ LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands) CURRENT LIABILITIES Accounts payable and accrued expenses $160,432 $127,910 Income taxes 3,714 2,574 Note payable and current maturities of long-term obligations 4,844 22,069 ------- ------- Total Current Liabilities 168,990 152,553 LONG-TERM DEBT AND OTHER LIABILITIES 162,889 91,468 CAPITAL LEASE OBLIGATIONS 6,036 6,320 DEFERRED INCOME TAXES 18,602 10,726 MINORITY INTEREST IN SUBSIDIARY 56 50 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 -- 29,689 29,713 1996 - 29,689,707 shares; 1995 - 30,106,990 shares Paid-in capital 91 360 Retained earnings 254,080 227,365 Receivable from HON Members Company Ownership Plan (5,041) (5,041) ------- ------- Total Shareholders' Equity 278,819 252,397 Total Liabilities and Shareholders' Equity $635,392 $513,514 ======= ======= See accompanying notes to condensed consolidated financial statements. Page 4 of 16 HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended -------------------- June 28, June 29, 1997 1996 -------------------- (In thousands, except per share data) Net sales (Note E) $296,567 $219,260 Cost of products sold 200,969 150,227 ------- ------- Gross Profit 95,598 69,033 Selling and administrative expenses 64,303 49,507 ------- ------- Operating Income 31,295 19,526 Interest income 441 759 Interest expense 1,582 767 ------- ------- Income Before Income Taxes 30,154 19,518 Income taxes 11,307 7,222 ------- ------- Net Income $ 18,847 $ 12,296 ======= ======= Net income per common share (Note D) $ 0.63 $ 0.41 ======= ======= Average number of common shares outstanding 29,692,077 30,170,014 ========== ========== Cash dividends per common share $ 0.14 $ 0.12 ======= ======= See accompanying notes to condensed consolidated financial statements. Page 5 of 16 HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Six Months Ended -------------------------- June 28, June 29, 1997 1996 ------------ ----------- (In thousands, except per share data) Net sales (Note E) $579,426 $452,737 Cost of products sold 395,163 310,233 ------- ------- Gross Profit 184,263 142,504 Selling and administrative expenses 124,756 99,353 Gain on sale of subsidiary (Note C) - 3,200 ------- ------- Operating Income 59,507 46,351 Interest income 852 1,500 Interest expense 3,135 1,627 ------- ------- Income Before Income Taxes 57,224 46,224 Income taxes 21,459 17,103 ------- ------- Net Income $ 35,765 $ 29,121 ======= ======= Net income per common share (Note D) $ 1.20 $ 0.96 ======= ======= Average number of common shares outstanding 29,695,994 30,257,593 ========== ========== Cash dividends per common share $ 0.28 $ 0.24 ======= ======= See accompanying notes to condensed consolidated financial statements. Page 6 of 16 HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended -------------------- June 28, June 29, 1997 1996 -------- --------- (In thousands) Net Cash Flows From (To) Operating Activities: Net income $ 35,765 $ 29,121 Noncash items included in net income: Depreciation and amortization 15,084 11,392 Gain on sale of subsidiary, net of tax (Note C) - (2,016) Other postretirement and postemployment benefits 686 1,205 Deferred income taxes 1,234 (113) Other - net 12 248 Net increase (decrease) in noncash operating assets and liabilities (6,674) (6,281) Increase in other liabilities (2,356) (519) ------- ------- Net cash flows from operating activities 43,751 33,037 Net Cash Flows From (To) Investing Activities: Capital expenditures - net (34,222) (20,928) Acquisition spending, net of cash acquired (66,292) - Net proceeds from sale of subsidiary (Note C) - 7,336 Short-term investments - net 446 (604) Long-term investments 1,045 (95) Other - net (194) - ------- ------- Net cash flows (to) investing activities (99,217) (14,291) Net Cash Flows From (To) Financing Activities: Purchase of HON INDUSTRIES common stock (2,535) (7,971) Proceeds from long-term debt 100,000 - Payments of note and long-term debt (42,249) (1,883) Proceeds from sales of HON INDUSTRIES common stock to members and stock-based compensation 1,505 991 Dividends paid (8,314) (7,258) ------- ------- Net cash flows from (to) financing activities 48,407 (16,121) Net increase (decrease) in cash and cash equivalents (7,059) 2,625 Cash and cash equivalents at beginning of period 31,196 32,231 ------- ------- Cash and cash equivalents at end of period $ 24,137 $ 34,856 ======= ======= See accompanying notes to condensed consolidated financial statements. Page 7 of 16 HON INDUSTRIES Inc. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 28, 1997 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 six-month period ended June 28, 1997, are not necessarily indicative of the results that may be expected for the year ending January 3, 1998. 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 28, 1996. Note B. Inventories Inventories of the Company and its subsidiaries are summarized as follows: June 28, 1997 December 28, ($000) (Unaudited) 1996 -------------- ------------ Finished products $20,583 $15,793 Materials and work in process 40,573 27,757 ------ ------ $61,156 $43,550 ====== ====== 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. Net Income per Common Share In March 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (FAS) No. 128, Earnings per Share. The Statement requires the current primary earnings per share calculation to be replaced with a new basic earnings per share calculation. The Statement will become effective for public companies for financial statements issued after December 15, 1997, and early adoption is not permitted. Management estimates the impact of adopting FAS 128 will have no effect on the calculation of the Company's reported year-end 1997 earnings per share given its current capital structure of common stock and no potentially dilutive securities. Page 8 of 16 Note E. Business Combinations Assuming the acquisition of Heat-N-Glo Fireplace Products, Inc., had occurred on December 31, 1995, the beginning of the Company's 1996 fiscal year, instead of on October 2, 1996, when it actually occurred, the Company's pro forma consolidated net sales for the second quarter ended June 29, 1996, would have been approximately $242.5 million instead of the reported $219.3 million. Pro forma consolidated net sales for the six months ended June 29, 1996, would have been approximately $495.6 million instead of the reported $452.7 million. Pro forma consolidated net income and net income per share for the second quarter and first six months of 1996 would not have been materially different from the reported amounts. The Company acquired Allsteel Inc. on June 17, 1997. The transaction has been accounted for under the purchase method. Accordingly, Allsteel s opening balance has been included in the Company's consolidated balance sheet as of June 28, 1997, and its purchase in the Consolidated Statement of Cash Flows for the six months ended June 28, 1997. The purchase price of Allsteel was $66.0 million which has been preliminarily allocated as follows: (In thousands) Working capital, other than cash $29.4 Property, plant, and equipment 38.4 Goodwill 6.1 Other liabilities (7.9) Allsteel had no impact on the Company's reported consolidated statements of income for the second fiscal quarter and six months ended June 28, 1997. Further information regarding the transaction is set forth in the Company's Form 8-K, filed June 30, 1997. Page 9 of 16 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 Six Months Ended Three Months Ended Dollars in Thousands June 28, 1997 & June 28, 1997 & June 28, 1997 & June 29, 1996 June 29, 1996 March 29, 1997 ------------------ ---------------- ------------------ Net sales $77,307 35.3% $126,689 28.0% $13,708 4.8% Cost of products sold 50,742 33.8 84,930 27.4 6,775 3.5 Selling & Administrative expenses 14,796 29.9 25,403 25.6 3,850 6.4 Gain on sale of subsidiary - - 3,200 100.0 - - Interest income (318) (41.9) (648) (43.2) 30 7.3 Interest expense 815 106.3 1,508 92.7 29 1.9 Income taxes 4,085 56.6 4,356 25.5 1,155 11.4 Net income 6,551 53.3 6,644 22.8 1,929 11.4 The Company reported record quarterly sales and earnings for its fiscal second quarter ended June 28, 1997. This is the sixth consecutive quarter of record results from operations. For the quarter ended June 28, 1997, consolidated net sales were $296.6 million compared to $219.3 million in 1996, an increase of 35.3%. Net income for the second quarter of 1997 was $18.8 million, a 53.3% increase over net income generated in the same quarter in 1996. Net income per share for the quarter increased to $0.63 per share, an increase of 53.7% over the same quarter last year. For the six months ended June 28, 1997, consolidated net sales were $579.4 million, up 28% from $452.7 million in the year ago period. Net income for the first half of 1997 was $35.8 million, a 32% increase over net income generated in 1996, excluding a nonrecurring gain. Net income per share increased to $1.20 per share, an increase of 35% when measured against $0.89 earned from ongoing operations last year. The reported results for the first six months of 1996 included a $2 million after-tax, nonrecurring gain on the sale of a subsidiary, Ring King Visibles, Inc., which contributed an additional $0.07 per share to 1996 net income which totaled $29.1 million, or $0.96 per share. As a result of the Company's October 1996 acquisition of Heat-N-Glo Fireplace Products, Inc., it now has two reportable core business segments: office furniture and hearth products. Hearth products include a broad line of manufactured gas- and wood-burning fireplaces and stoves, fireplace inserts, and chimney systems principally for the home. Page 10 of 16 For the second quarter of 1997, office furniture comprised 83% of consolidated net sales and hearth products 17%. Net sales for office furniture were up 22% for the quarter compared to the same quarter a year ago. Hearth product sales increased 176%, due primarily to contributions from the Heat-N-Glo division of Hearth Technologies Inc. On a pro forma basis, including Heat-N-Glo operations in the Company's quarterly prior year results, hearth product sales increased 25% for the quarter. Office furniture contributed 82% of consolidated operating profit before unallocated corporate expenses and hearth products 18% as defined by the prevailing Financial Accounting Standards Board Statements for segment reporting. For the six months ended June 28, 1997, office furniture comprised 84% of consolidated net sales and hearth products 16%. Office furniture contributed 87% of consolidated operating profit before unallocated corporate expenses and hearth products 13%. The U.S. office furniture and hearth products industries are showing impressive growth -- both are estimated to be up approximately 15% in the first half of 1997. The Company is participating in this industry growth and gaining market share in both segments. Management believes the Company's market share gain in the office furniture segment is being driven by its leading position in the faster growing medium-priced office furniture segment, expanding distribution, particularly as a result of gaining more page count in customer catalog merchandising, a steady stream of new product offerings. It is believed the market share gain in the hearth products segment can be contributed to the Company's leadership position in this expanding industry, by strong customer acceptance of its existing fireplace and stove products, especially gas burning fireplaces and stoves, and innovative new products. The consolidated gross profit margin for the second quarter of 1997 was 32.2% compared to 31.5% for the same quarter in 1996. On a six-month basis, the margin was 31.8% for 1997 versus 31.5% for 1996. Margin improvements are being primarily driven by increased production unit volume, productivity improvements, and effective cost control efforts. Selling and administrative expenses for the second quarter of 1997 were 21.7% of net sales compared to 22.6% in the comparable quarter of 1996. On a six- month basis, they were 21.5% in 1997 versus 21.9% in 1996. Management places major emphasis on controlling and reducing selling and administrative expenses as a percentage of net sales. A continuing commitment to developing more efficient business processes, which also improve member productivity, coupled with stringent control of expenses continue to yield positive results. However, these results are being partially offset by increasing freight costs due to the growth of unit volume, increasing distribution costs for new warehouse capacity and product handling technologies that facilitate providing higher level of service to customers, and the ongoing commitment to developing and marketing new products. Page 11 of 16 Liquidity and Capital Resources - ------------------------------- As of June 28, 1997, cash and short-term investments decreased to $24.1 million compared to a $32.7 million balance at year-end 1996. The decrease is principally due to a note payable payment and capital expenditures. Net capital expenditures for the first six months of 1997 were $34.2 million and primarily represent investment for more efficient and productive machinery and equipment and increased production capacity. These investments were funded by cash reserves and cash from operations. A $0.14 per share quarterly dividend on common stock was paid on May 30, 1997, to shareholders of record on May 22, 1997. This was the 169th consecutive quarterly dividend paid by the Company. The Company has been using cash to repurchase its common stock over an extended period of time because of management s continuing belief the stock has been undervalued. In the second quarter, the Company repurchased 31,075 shares of its common stock at a cost of approximately $1.4 million or an average price of $44.46 per share. For the six months of fiscal year 1997, 63,648 shares were acquired at a cost of approximately $2.6 million, or an average price of $40.10 per share. As of June 28, 1997, approximately $6.2 million of the Board's current repurchase authorization remained unspent. At the end of the second quarter, the Company acquired Allsteel Inc. from BTR plc. Allsteel is a manufacturer and marketer of mid-priced office furniture, which operates modern manufacturing facilities located in West Hazelton, Pennsylvania, Jackson and Milan, Tennessee, and Tupelo, Mississippi. Looking Ahead - ------------- Management s goal is to achieve double-digit growth in sales and earnings for 1997. The Company's growth is being driven by the introduction and acceptance of new products, which expand the appeal to existing customers and allow the Company to enter new market segments. The strategy is to increase market share, while broadening the product line and developing additional value-added services. Management is optimistic about the remainder of 1997 and the ability to achieve the Company's financial goals. Except for the historical information contained herein, the matters discussed in this Form 10-Q are forward-looking statements. Such forward-looking statements involve risks and uncertainties which could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements. The following are some of the important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements: competitive conditions, pricing trends in the office furniture and hearth products markets, acceptance of the Company's new product introductions, the overall growth rate of the office furniture and hearth products industries, the achievement of cost reductions and productivity improvements in the Company's operations, impact of future acquisitions, as well as the risks, uncertainties, and other factors described from time to time in the Company's SEC filings and reports. Page 12 of 16 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- The Annual Meeting of Shareholders of HON INDUSTRIES Inc. was held on May 13, 1997, for purposes of electing four Directors to the Board of Directors, approval of the 1995 Stock-Based Compensation Plan, as amended and restated, and approval of the 1997 Equity Plan for Non-Employee Directors. The first proposal voted upon was the election of four Directors for terms expiring at the annual meeting in 2000. The four persons nominated by the Company's Board of Directors received the following votes and were elected: For Withheld --- -------- Robert W. Cox 26,469,228 73,501 or 89% or 0% Stanley M. Howe 26,468,101 74,628 or 89% or 0% Lee Liu 26,456,603 86,126 or 89% or 0% Lorne R. Waxlax 26,471,288 71,441 or 89% or 0% The second proposal voted upon was the approval of the 1995 Stock-Based Compensation Plan, as amended and restated. The Plan was approved with 17,053,860 votes, or 57%, voting for and 8,352,315, or 28%, votes withheld. The third proposal voted upon was the approval of the 1997 Equity Plan for Non- Employee Directors. The Plan was approved with 21,845,268 votes, or 74%, voting for and 3,560,901, or 12%, votes withheld. As to all three proposals, there were no broker non-votes. Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- (a) Exhibits. See Exhibit Index. (b) Reports on Form 8-K. The Company filed a current report on Form 8-K dated June 30, 1997, to report the acquisition of Allsteel Inc. on June 17, 1997. Page 13 of 16 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: August 7, 1997 By /s/ David C. Stuebe ------------------- David C. Stuebe Vice President and Chief Financial Officer By /s/ Melvin L. McMains --------------------- Melvin L. McMains Controller Page 14 of 16 PART II. EXHIBITS EXHIBIT INDEX Page (27) Financial Data Schedule 16 Page 15 of 16 EX-27 2
5 0000048287 HON INDUSTRIES INC. 1,000 6-MOS JAN-3-1998 DEC-29-1996 JUN-28-1997 24,137 256 144,854 (2,835) 61,156 263,241 443,172 149,661 635,392 168,990 162,889 0 0 29,689 249,130 635,392 579,426 579,426 395,163 395,163 124,756 0 3,135 57,224 21,459 35,765 0 0 0 35,765 1.20 1.20
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