-----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, KgL+o6f8QUPcxSqxUaxdm85JD2SEK+5QeLfGoUa4LkhTh+JFWL6oUM64Dl59i3Ij bhH5CnR+EiS7j/4M7onftQ== /in/edgar/work/20000803/0000048287-00-000012/0000048287-00-000012.txt : 20000921 0000048287-00-000012.hdr.sgml : 20000921 ACCESSION NUMBER: 0000048287-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000701 FILED AS OF DATE: 20000803 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HON INDUSTRIES INC CENTRAL INDEX KEY: 0000048287 STANDARD INDUSTRIAL CLASSIFICATION: [2522 ] IRS NUMBER: 420617510 STATE OF INCORPORATION: IA FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14225 FILM NUMBER: 685085 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 0001.txt 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 July 1, 2000 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 52761-0071 (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 share outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding at July 1, 2000 Common Shares, $1 Par Value 60,164,436 shares Exhibit Index is on Page 16. HON INDUSTRIES Inc. and SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - July 1, 2000, and January 1, 2000 3-4 Condensed Consolidated Statements of Income - Three Months Ended July 1, 2000, and July 3, 1999 5 Condensed Consolidated Statements of Income - Six Months Ended July 1, 2000, and July 3, 1999 6 Condensed Consolidated Statements of Cash Flows - Six Months Ended July 1, 2000, and July 3, 1999 7 Notes to Condensed Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15 EXHIBIT INDEX 16 (27) Financial Data Schedule 17 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS July 1, January 1, (Unaudited) 2000 ASSETS (In thousands) CURRENT ASSETS Cash and cash equivalents $ 19,095 $ 22,168 Receivables 222,009 196,730 Inventories (Note B) 97,382 74,937 Deferred income taxes 13,787 13,471 Prepaid expenses and other current assets 10,486 9,250 Total Current Assets 362,759 316,556 PROPERTY, PLANT, AND EQUIPMENT, at cost Land and land improvements 19,113 17,114 Buildings 186,369 181,080 Machinery and equipment 495,698 469,268 Construction in progress 33,087 37,819 734,267 705,281 Less accumulated depreciation 276,719 249,690 Net Property, Plant, and Equipment 457,548 455,591 GOODWILL 222,954 113,116 OTHER ASSETS 20,999 21,460 Total Assets $1,064,260 $906,723 See accompanying notes to condensed consolidated financial statements. HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS July 1, January 1, 2000 2000 (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands) CURRENT LIABILITIES Accounts payable and accrued expenses $ 216,967 $213,072 Income taxes 10,401 - Note payable and current maturities of long-term debt 6,014 6,106 Current maturities of other long-term obligations 3,654 5,945 Total Current Liabilities 237,036 225,123 LONG-TERM DEBT 229,380 119,860 CAPITAL LEASE OBLIGATIONS 3,146 4,313 OTHER LONG-TERM LIABILITIES 18,152 18,015 DEFERRED INCOME TAXES 39,209 38,141 SHAREHOLDERS' EQUITY Capital Stock: Preferred, $1 par value; authorized 2,000,000 shares; no shares outstanding - - Common, $1 par value; authorized 200,000,000 shares; outstanding - 60,164 60,172 2000 - 60,164,436 shares; 1999 - 60,171,753 shares Paid-in capital 25,759 24,981 Retained earnings 450,760 416,034 Accumulated other comprehensive income 654 84 Total Shareholders' Equity 537,337 501,271 Total Liabilities and Shareholders' Equity $1,064,260 $906,723 See accompanying notes to condensed consolidated financial statements. HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended July 1, July 3, 2000 1999 (In thousands, except per share data) Net sales $506,552 $419,708 Cost of products sold 343,842 292,077 Gross Profit 162,710 127,631 Selling and administrative expenses 122,416 89,785 Operating Income 40,294 37,846 Interest income 434 202 Interest expense 4,122 2,601 Income Before Income Taxes 36,606 35,447 Income taxes 13,188 12,938 Net Income 23,418 22,509 Net income per common share $.39 $.37 Average number of common shares outstanding 60,144,502 61,169,059 Cash dividends per common share $.11 $.095 See accompanying notes to condensed consolidated financial statements. HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Six Months Ended July 1, July 3, 2000 1999 (In thousands, except per share data) Net sales $985,153 $844,167 Cost of products sold 673,258 587,299 Gross Profit 311,895 256,868 Selling and administrative expenses 230,708 179,049 Provision for closing facilities (Note C) - 19,679 Operating Income 81,187 58,140 Interest income 723 386 Interest expense 6,961 4,830 Income Before Income Taxes 74,949 53,696 Income taxes 26,991 19,599 Net Income 47,958 34,097 Net income per common share $.80 $.56 Average number of common shares outstanding 60,165,177 61,161,543 Cash dividends per common share $.22 $.19 See accompanying notes to condensed consolidated financial statements. HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended July 1, July 3, 2000 1999 (In thousands) Net Cash Flows From (To) Operating Activities: Net income $ 47,958 $ 34,097 Noncash items included in net income: Depreciation and amortization 38,832 31,434 Other postretirement and postemployment benefits 914 997 Deferred income taxes 300 (1,272) Other - net (3) (91) Net increase (decrease) in noncash operating assets and liabilities (20,739) (12,357) Increase (decrease) in other liabilities (915) (1,344) Net cash flows from operating activities 66,347 51,464 Net Cash Flows From (To) Investing Activities: Capital expenditures - net (29,651) (49,722) Capitalized software (230) (179) Acquisition spending, net of cash acquired (134,648) (1,637) Short-term investments - net - 169 Long-term investments - (519) Net cash flows (to) investing activities (164,529) (51,888) Net Cash Flows From (To) Financing Activities: Purchase of HON INDUSTRIES common stock (7,239) (7,630) Proceeds from long-term debt 150,059 52,002 Payments of note and long-term debt (42,487) (33,368) Proceeds from sales of HON INDUSTRIES common stock to members and stock-based compensation 8,009 5,301 Dividends paid (13,233) (11,604) Net cash flows from (to) financing activities 95,109 4,701 Net increase (decrease) in cash and cash equivalents (3,073) 4,277 Cash and cash equivalents at beginning of period 22,168 17,500 Cash and cash equivalents at end of period $ 19,095 $ 21,777 See accompanying notes to condensed consolidated financial statements. HON INDUSTRIES Inc. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) July 1, 2000 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 July 1, 2000, are not necessarily indicative of the results that may be expected for the year ending December 30, 2000. 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 January 1, 2000. Note B. Inventories Inventories of the Company and its subsidiaries are summarized as follows: July 1, 2000 January 1, ($000) (Unaudited) 2000 Finished products $ 57,456 $ 29,663 Materials and work in process 50,419 55,737 LIFO allowance (10,493) (10,463) $ 97,382 $ 74,937 Note C. Provision for Closing Facilities On February 11, 1999, the Company adopted a plan to close three of its office furniture facilities located in Winnsboro, South Carolina; Sulphur Springs, Texas; and Mt. Pleasant, Iowa. A pretax charge of $19.7 million or $0.20 per diluted share was recorded during the quarter ended April 3, 1999. As of July 1, 2000, the primary costs not yet incurred relate to costs associated with the closed buildings and workers' compensation claims. Management believes the remaining reserve of approximately $4 million to be adequate to cover these obligations. Note D. Business Combinations On February 29, 2000, the Company completed the acquisition of its Hearth Services division which consists of two leading hearth products distributors, American Fireplace Company (AFC) and the Allied Group (Allied), establishing the Company as the leading manufacturer and distributor in the hearth products industry. The Company acquired AFC and Allied for approximately $135 million in cash and debt including acquisition costs. The acquisition has been accounted for using the purchase method and the results of AFC and Allied have been included in the Company's financial statements since the date of acquisition. The excess of the consideration paid over the fair value of the business of $21 million was recorded as goodwill and is being amortized on a straight-line basis over 20 years. This allocation of purchase price is preliminary and subject to change as additional information is obtained related to the resolution of the fair value of contracts acquired. Note E. Comprehensive Income The Company's comprehensive income consists of an unrealized holding gain or loss on equity securities available-for-sale under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and nominal foreign currency adjustments. Note F. Business Segment Information Management views the Company as being in two business segments: office furniture and hearth products with the former being the principal business segment. The office furniture segment manufactures and markets a broad line of metal and wood commercial and home office furniture which includes file cabinets, desks, credenzas, chairs, storage cabinets, tables, bookcases, freestanding office partitions and panel systems, and other related products. The hearth product segment manufactures and markets a broad line of manufactured gas- , pellet- and wood-burning fireplaces and stoves, fireplace inserts, and chimney systems principally for the home. For purposes of segment reporting, intercompany sales transfers between segments are not material and operating profit is income before income taxes exclusive of certain unallocated corporate expenses. These unallocated corporate expenses include the net cost of the Company's corporate operations, interest income, and interest expense. Management views interest income and expense as corporate financing costs and not as a business segment cost. In addition, management applies one effective tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis. No geographic information for revenues from external customers or for long-lived assets is disclosed inasmuch as the Company's primary market and capital investments are concentrated in the United States. Reportable segment data reconciled to the consolidated financial statements for the three-month and six-month period ended July 1, 2000, and July 3, 1999, is a follows: Three Months Ended Six Months Ended July 1, July 3, July 1, July 3 2000 1999 2000 1999 (In thousands) Net Sales: Office furniture $405,838 $349,814 $ 801,475 $709,795 Hearth products 100,714 69,894 183,678 134,372 $506,552 $419,708 $ 985,153 $844,167 Operation Profit: Office furniture Normal operations $ 40,840 $ 32,792 $ 79,412 $ 69,086 Facility closedown provision - - - (19,679) Office furniture - net 40,840 32,792 79,412 49,407 Hearth products 5,473 10,239 10,243 16,023 Total operating profit 46,313 43,031 89,655 65,430 Unallocated corporate expense (9,707) (7,584) (14,706) (11,734) Income before income taxes $ 36,606 $ 35,447 $ 74,949 $ 53,696 Identifiable Assets: Office furniture $ 660,339 $682,861 Hearth products 336,887 165,531 General corporate 67,034 59,948 $1,064,260 $908,340 Depreciation & Amortization Expense Office furniture $ 14,880 $ 12,815 $ 29,254 $ 25,273 Hearth products 4,962 2,712 8,561 5,319 General corporate 491 511 1,017 842 $ 20,333 $ 16,038 $ 38,832 $ 31,434 Capital Expenditure, Net: Office furniture $ 6,768 $ 14,184 $ 17,246 $ 34,475 Hearth products 5,704 4,622 10,258 8,787 General corporate 1,156 910 2,147 6,460 $ 13,628 $ 19,716 $ 29,651 $ 49,722 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 Six Months Three Months Ended Ended Ended Dollars in Thousand July 1, 2000 & July 1, 2000 & July 1, 2000 & July 3, 1999 July 3, 1999 April 1, 2000 Net sales $ 86,844 20.7% $140,986 16.7% $ 27,951 5.8% Cost of products sold 51,765 17.7 85,959 14.6 14,426 4.4 Selling & Administrative expenses 32,631 36.3 51,659 28.9 14,124 13.0 Provision for closing facilities - - (19,679) N/M - - Interest income 232 114.9 337 87.3 145 50.2 Interest expense 1,521 58.5 2,131 44.1 1,283 45.2 Income taxes 250 1.9 7,392 37.7 (615) (4.5) Net income 909 4.0 13,861 40.7 (1,122) (4.6) The Company reported its eighteenth consecutive quarterly record net sales. Consolidated net sales for the second quarter ending July 1, 2000, were $506.6 million, up 20.7%, compared to $419.7 million for the same quarter a year ago. Net income reached $23.4 million, compared to $22.5 million for second quarter 1999, an increase of 4.0%. Net income per common share for the quarter was $0.39 per diluted share, an increase of 5.4% from $0.37 per diluted share earned in second quarter 1999. For the first six months of 2000, consolidated net sales rose 16.7% to $985.2 million from $844.2 million last year. Net income was $48.0 million, compared to $46.6 million for the same period a year ago prior to a $12.5 million after-tax charge for plant closings in 1999. Net income per common share for the first six months of 2000 was $0.80 per diluted share, a 5.3% increase from $0.76 per share from ongoing operations for the same period in 1999. Results for 1999 included a $0.20 per share provision for the closing of three plants. After the charge, 1999 net income for the first six months was $34.1 million or $0.56 per share. For the second quarter of 2000, office furniture comprised 80.0% of consolidated net sales and hearth products comprised 20.0%. Net sales for office furniture were up 16.0%. Hearth products sales increased 44.1% for the quarter compared to the same quarter a year ago. Proforma second quarter 2000 hearth product sales, excluding the February 29, 2000, acquisition of American Fireplace Company and the Allied Group, decreased 0.3% for the quarter. Office furniture contributed 88.0% of second quarter 2000 consolidated operating profit before unallocated corporate expenses and hearth products contributed 12.0%. The consolidated gross profit margin for the second quarter of 2000 was 32.1% compared to 30.4% for the same period in 1999. The gross profit improvement reflects the combination of improved price realization and productivity from rapid continuous improvement programs. Selling and administrative expenses for the second quarter of 2000 were 24.2% of net sales compared to 22.6% in the comparable quarter of 1999. The Company continued to experience increased costs to establish and promote the HON and Allsteel brands in their respective market segments including increased sales and administrative support and new sales literature. The acquisition of Hearth Services and new strategic growth initiatives in Hearth Technologies' outdoor and international businesses also contributed to the increase in selling and administrative expenses. Freight expenses, which is included in selling and administrative expenses, remained relatively unchanged from second quarter 1999 at 6.2% of net sales in spite of increased fuel costs. The Company decreased its estimated annual effective tax rate to 36.0% for fiscal year 2000 from 36.5% in 1999 to reflect lower estimated state income taxes. Liquidity and Capital Resources As of July 1, 2000, cash and short-term investments decreased to $19.1 million from $22.2 million balance at year-end 1999. The decrease is principally due to capital expenditures and payments made on the revolving credit agreement. Net cash flows from operation were strong at $66.3 million for the first six months, an improvement of 28.9% for the same period a year ago. Cash flow and working capital management are major focuses of management to ensure the Company is poised for continued future growth. Net capital expenditures for the first six months of 2000 were $29.7 million compared to $49.9 million for the same six-month period in 1999. These expenditures primarily represent investment in new, more efficient machinery and equipment. These investments were funded by a combination of cash reserves, cash from operations and a revolving credit agreement. As referenced earlier, on February 29, 2000, the Company completed the acquisition of two leading hearth products distributors, American Fireplace Company (AFC) and the Allied Group (Allied). AFC and Allied sell, install, and service a broad range of gas- and wood-burning fireplaces as well as fireplace mantels, surrounds, facings and other accessories. AFC and Allied, with combined 1999 sales of approximately $200 million, have been joined to form Hearth Services Inc., a subsidiary of Hearth Technologies Inc. The Board of Directors declared a regular quarterly cash dividend of $0.11 per share on its common stock on May 2, 2000, to shareholders of record at the close of business on May 12, 2000. It was paid on June 1, 2000, and represented the 181st consecutive quarterly dividend paid by the Company. For the six months ended July 1, 2000, the Company repurchased 388,381 shares of its common stock at a cost of approximately $7.2 million or an average price of $18.64 per share. As of July 1, 2000, approximately $24.3 million of the Board's current repurchase authorization remained unspent. Based on operations since January 1, 2000, the Company has not experienced any adverse operational impact to its ongoing business as a result of the "Year 2000" issue. Looking Ahead The Company is encouraged by customer reaction to the Company's new products and continued focus on service. Management's goal is to achieve improved profitability and record results for 2000. 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 including but not limited to: competitive conditions, pricing trends in the office furniture and hearth products markets, acceptance of the Company's new products, the overall growth rate of the office furniture and hearth products industries, the achievement of cost reductions and productivity in the Company's operations, the Company's ability to realize financial benefits of operating The HON Company and Allsteel Inc. as separate businesses, the Company's ability to obtain expected profits from acquired businesses, as well as the risks, uncertainties, and other factors described from time to time in the Company's SEC filings and reports. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. See Exhibit Index. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter for which this report is filed. 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. Dated: August 3, 2000 HON INDUSTRIES Inc. By /s/ David C. Stuebe David C. Stuebe Vice President and Chief Financial Officer By /s/ Melvin L. McMains Melvin L. McMains Vice President and Controller PART II. EXHIBITS EXHIBIT INDEX Page (27) Financial Data Schedule 17 EX-27 2 0002.txt
5 0000048287 HON INDUSTRIES INC. 1,000 6-MOS DEC-30-2000 JAN-1-2000 JUL-1-2000 19,095 0 229,259 7,250 97,382 362,759 734,267 276,719 1,064,260 237,036 229,380 0 0 60,164 477,173 1,064,260 985,153 985,153 673,258 673,258 230,708 0 6,961 74,949 26,991 47,958 0 0 0 47,958 0.80 0.80
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