-----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, VTHCKtX9mWqp/rjoEMcdG9L4MyGxCJmqpJGZ2pbx0TBLpRTySKCrK6y/yisgy8Fo kzCeuicZAioMCniMK+UF2g== 0000048287-99-000012.txt : 19991115 0000048287-99-000012.hdr.sgml : 19991115 ACCESSION NUMBER: 0000048287-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991112 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: 0102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14225 FILM NUMBER: 99748720 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 October 2, 1999 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 October 2,1999 Common Shares, $1 Par Value 60,355,398 shares Exhibit Index is on Page 17. HON INDUSTRIES Inc. and SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - October 2, 1999, and January 2, 1999 3-4 Condensed Consolidated Statements of Income - Three Months Ended October 2, 1999, and October 3, 1998 5 Condensed Consolidated Statements of Income - Nine Months Ended October 2, 1999, and October 3, 1998 6 Condensed Consolidated Statements of Cash Flows - Nine Months Ended October 2, 1999, and October 3, 1998 7 Notes to Condensed Consolidated Financial Statements 8-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 SIGNATURES 16 EXHIBIT INDEX 17 (27) Financial Data Schedule 18 PART I. FINANCIAL INFORMATION Item 1. Financial Statements HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS October 2, January 2, 1999 1999 (Unaudited) ASSETS (In thousands) CURRENT ASSETS Cash and cash equivalents $ 18,947 $ 17,500 Short-term investments - 169 Receivables 218,308 183,576 Inventories (Note B) 67,990 67,225 Deferred income taxes 18,253 12,477 Prepaid expenses and other current 9,430 9,382 assets Total Current Assets 332,928 290,329 PROPERTY, PLANT, AND EQUIPMENT, at cost Land and land improvements 16,697 12,156 Buildings 177,828 144,559 Machinery and equipment 464,703 411,238 Construction in progress 53,604 85,782 712,832 653,735 Less accumulated depreciation 250,024 209,558 Net Property, Plant, and Equipment 462,808 444,177 GOODWILL 114,920 108,586 OTHER ASSETS 22,413 21,377 Total Assets $933,069 $864,469 See accompanying notes to condensed consolidated financial statements. HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS October 2, January 2, 1999 1999 (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands) CURRENT LIABILITIES Accounts payable and accrued expenses $210,967 $193,859 Income taxes 11,963 1,921 Note payable and current maturities of long-term debt 8,843 15,769 Current maturities of other long-term obligations 5,808 5,889 Total Current Liabilities 237,581 217,438 LONG-TERM DEBT 152,586 128,069 CAPITAL LEASE OBLIGATIONS 4,686 7,494 OTHER LONG-TERM LIABILITIES 17,449 18,067 DEFERRED INCOME TAXES 34,228 31,379 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 - 60,355 61,290 1999 - 60,355,398 shares; 1998 - 61,289,618 shares Paid-in capital 28,788 48,348 Retained earnings 397,124 351,786 Accumulated other comprehensive income 272 598 Total Shareholders' Equity 486,539 462,022 Total Liabilities and Shareholders' $933,069 $864,469 Equity See accompanying notes to condensed consolidated financial statements. HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three Months Ended October 2, October 3, 1999 1998 (In thousands, except per share data) Net sales $475,738 $448,679 Cost of products sold 327,243 309,080 Gross Profit 148,495 139,599 Selling and administrative expenses 101,234 88,162 Operating Income 47,261 51,437 Interest income 233 585 Interest expense 2,393 2,610 Income Before Income Taxes 45,101 49,412 Income taxes 16,462 18,530 Net Income $ 28,639 $ 30,882 Net income per common share $ 0.47 $ 0.50 Average number of common shares 60,921,268 61,691,164 outstanding Cash dividends per common share $ 0.095 $ 0.08 See accompanying notes to condensed consolidated financial statements. HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Nine Months Ended October 2, October 3, 1999 1998 (In thousands, except per share data) Net sales $1,319,905 $1,268,359 Cost of products sold 914,542 878,758 Gross Profit 405,363 389,601 Selling and administrative expenses 280,283 259,938 Provision for closing facilities (Note C) 19,679 - Operating Income 105,401 129,663 Interest income 619 1,233 Interest expense 7,223 8,121 Income Before Income Taxes 98,797 122,775 Income taxes 36,061 46,041 Net Income $ 62,736 $ 76,734 Net income per common share $ 1.03 $ 1.24 Average number of common shares 61,081,451 61,667,458 outstanding Cash dividends per common share $ 0.285 $ 0.24 See accompanying notes to condensed consolidated financial statements. HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended October 2, October 3, 1999 1998 (In thousands) Net Cash Flows From (To) Operating Activities: Net income $ 62,736 $ 76,734 Noncash items included in net income: Depreciation and amortization 48,136 38,039 Other postretirement and postemployment benefits 1,532 1,167 Deferred income taxes (2,775) 4,993 Other - net (115) 3 Net increase (decrease) in noncash operating assets and liabilities (8,757) (24,610) Increase (decrease) in other liabilities (1,866) (1,549) Net cash flows from operating activities 98,891 94,777 Net Cash Flows From (To) Investing Activities: Capital expenditures - net (62,828) (123,324) Capitalized software (3,059) - Acquisition spending, net of cash acquired (8,932) (11,310) Short-term investments - net 169 93 Long-term investments (519) (35) Other - net (226) 132 Net cash flows (to) investing activities (75,395) (134,444) Net Cash Flows From (To) Financing Activities: Purchase of HON INDUSTRIES common stock (26,360) (1,573) Proceeds from long-term debt 67,026 66,287 Payments of note and long-term debt (51,218) (27,635) Proceeds from sales of HON INDUSTRIES common stock to members and stock-based 5,901 2,723 compensation Dividends paid (17,398) (14,805) Net cash flows from (to) financing (22,049) 24,997 activities Net increase (decrease) in cash and cash equivalents 1,447 (14,670) Cash and cash equivalents at beginning of period 17,500 46,080 Cash and cash equivalents at end of period $ 18,947 $ 31,410 See accompanying notes to condensed consolidated financial statements. HON INDUSTRIES Inc. and SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) October 2, 1999 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 October 2, 1999, are not necessarily indicative of the results that may be expected for the year ending January 1, 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 2, 1999. Note B. Inventories of the Company and its subsidiaries are summarized as follows: October 2, January 2, ($000) 1999 1999 (Unaudited) Finished products $ 27,152 $ 24,955 Materials and work in process 52,023 53,320 LIFO Allowance (11,185) (11,050) $ 67,990 $ 67,225 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. The charge includes $12.5 million for write-offs of plant and equipment, $2.6 million for severance arising from the elimination of approximately 360 positions, $2.1 million for other employee- related costs, and $2.4 million for certain other expenses associated with the closing of the facility. During the nine-month period ended October 3, 1999, $6.8 million of pretax exit costs were paid and charged against the liability. It included $3.5 million for write-off of plant and equipment, $1.9 million for severance for 326 positions, $0.5 million for other employee-related expenses, and $0.9 million for certain other expenses associated with the closing of the facilities. Note D. New Accounting Standards In March 1998, the Accounting Standards Executive Committee of the AICPA issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP, which was adopted as of January 3, 1999, the beginning of the Company's 1999 fiscal year, requires the capitalization of certain costs incurred in connection with developing or obtaining internal use software. Prior to the adoption of SOP 98-1, the Company expensed all internal use software related costs as incurred. The Company capitalized approximately $3.1 million of computer software during the nine- month period ended October 3, 1999. Note E. Comprehensive Income The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," as of January 4, 1998, the beginning of its 1998 fiscal year. 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 The Company adopted Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and Related Information," effective with its 1998 fiscal year beginning January 4, 1998. 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 costs 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 nine-month period ended October 3, 1999, and October 4, 1998, is as follows: Three Months Ended Nine Months Ended Oct. 2, Oct. 3, Oct. 2, Oct. 3, 1999 1998 1999 1998 (In thousands) Net Sales: Office furniture $403,276 $383,409 $1,113,071 $1,093,738 Hearth products 72,462 65,270 206,834 174,621 $475,738 $448,679 $1,319,905 $1,268,359 Operation Profit: Office furniture Normal operations $ 45,281 $ 50,594 $ 114,367 $ 126,552 Facility closedown provision - - (19,679) - Office furniture - net 45,281 50,594 94,688 126,552 Hearth products 8,684 9,835 24,707 19,491 Total operating profit 53,965 60,429 119,395 146,043 Unallocated corporate expense (8,865) (11,017) (20,598) (23,268) Income before income taxes $ 45,100 $ 49,412 $ 98,797 $ 122,775 Identifiable Assets: Office furniture $ 695,825 $ 661,760 Hearth products 176,782 161,155 General corporate 60,462 61,600 $ 933,069 $ 884,515 Depreciation & Amortization Expense Office furniture $ 13,286 $ 10,757 $ 38,559 $ 30,500 Hearth products 2,817 2,296 8,136 6,556 General corporate 599 336 1,441 983 $ 16,702 $ 13,389 $ 48,136 $ 38,039 Capital Expenditure, Net: Office furniture $ 10,572 $ 37,817 $ 45,050 $ 107,569 Hearth products 3,240 4,246 12,203 13,187 General corporate (885) 1,245 5,575 2,568 $ 12,927 $ 43,308 $ 62,828 $ 123,324 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 Nine Months Three Months Ended Ended Ended Dollars in Thousand October 2, 1999 October 2, 1999 October 2, 1999 & & & October 3, 1998 October 3, 1998 July 3, 1999 Net sales $ 27,059 6.0% $ 51,546 4.1% $ 56,030 13.3% Cost of products sold 18,163 5.9 35,784 4.1 35,166 12.0 Selling & administrative expenses 13,072 14.8 20,345 7.8 11,449 12.8 Provision for closing facilities - - 19,679 - - - Interest income (352)(60.2) (614)(49.8) 31 15.3 Interest expense (217) (8.3) (898)(11.1) (208) (8.0) Income taxes (2,068)(11.2) (9,980)(21.7) 3,524 27.2 Net income (2,243) (7.3) (13,998)(18.2) 6,130 27.2 The Company reported its fifteenth consecutive quarterly record net sales. Consolidated net sales for the third quarter ended October 2, 1999, were $475.7 million, up 6.0%, compared to $448.7 million for the same quarter a year ago. Net income reached $28.6 million, compared to $30.9 million for third quarter 1998, a decrease of 7.3%. Net income per share for the quarter was $0.47 per diluted share, a decrease of 6.0% from $0.50 per diluted share earned in third quarter 1998. For the first nine months of 1999, consolidated net sales rose 4.1% to $1.32 billion from $1.27 billion last year. Accounting for a one-time charge for closing three plants announced in first quarter of $19.7 million against pre-tax earnings, net income for the first nine months was $62.7 million or $1.03 per share. Net income, before the charge, reached $75.2 million, a decrease of 2.0% from $76.7 million in the first nine months of 1998. Prior to the one-time charge, net income per share was $1.23 per diluted share compared to $1.24 per share in 1998. Please refer to Note C for additional information regarding the one-time plant closing charge. For the third quarter of 1999, office furniture comprised 85% of consolidated net sales and hearth products comprised 15%. Net sales for office furniture were up 5% and hearth products sales increased 11% for the quarter compared to the same quarter a year ago. Office furniture contributed 84% and hearth products contributed 16% of third quarter 1999 consolidated operating profit before unallocated corporate expenses. Consolidated gross profit margin for the third quarter of 1999 was 31.2% compared to 31.1% for the same period in 1998. The Company is continuing to focus on improving gross margins. A tight labor market has made it more difficult than anticipated to staff facilities causing an increase in backlog and additional overtime, training, and expenses associated with moving production to alternate plant locations. The Company is working to hire and train manpower necessary to fulfill increased order demand and reduce backlog. Selling and administrative expenses for the third quarter of 1999 were 21.3% of net sales compared to 19.6% in the comparable quarter of 1998. The Company has implemented a number of internal initiatives to better serve customers through providing complete, on-time and undamaged orders quickly and concentrating on the value-oriented contract segment of the office furniture industry. These initiatives collectively have resulted in increased selling and administrative expenses. Excluding freight, selling and administrative expenses for the third quarter of 1999 were 14.4% of net sales compared to 14.1% in third quarter 1998. The Company decreased its estimated annual effective tax rate to 36.5% for fiscal year 1999 from 37.5% a year earlier to reflect lower estimated state income taxes. Liquidity and Capital Resources As of October 2, 1999, cash and short-term investments increased to $18.9 million compared to a $17.7 million balance at year-end 1998. Net cash flows from operations contributed to the improvement. Cash flow and working capital management are major focuses of management to ensure the Company is poised for growth. Net capital expenditures for the first nine months of 1999 were $62.8 million compared to $123.3 million for the same nine-month period in 1998. These expenditures primarily represent investments in new, more efficient machinery and equipment and completion of capacity expansion projects started in 1998. These investments were funded by a combination of cash reserves, cash from operations, and a revolving credit agreement. The Board of Directors declared a regular quarterly cash dividend of $0.095 per share on its common stock on August 9, 1999, to shareholders of record at the close of business on August 19, 1999. It was paid on September 1, 1999, and represented the 178th consecutive quarterly dividend paid by the Company. For the nine months ended October 2, 1999, the Company repurchased 1,195,925 shares of its common stock at a cost of approximately $26.4 million or an average price of $22.04 per share. As of October 2, 1999, approximately $36.1 million of the Board's current repurchase authorization remained unspent. On November 8, 1999, the Board of Directors declared a $.095 per common share cash dividend to shareholders of record on November 18, 1999, to be paid on December 1, 1999. Year 2000 The Company is in the final stages of completing its Year 2000 (Y2K) Readiness and Contingency Plans. The primary mission of these Plans is to maintain business continuity by giving priority remediation and resolution to Year 2000 issues that could compromise normal business operations. The Year 2000 project is focused on three business fronts: (1) information technology, which encompasses traditional computer hardware, software and related networks; (2) operations, which encompasses material suppliers, equipment vendors, freight carriers, and embedded chips used by facility, production, and distribution machinery, equipment, and support processes; and (3) customers and other nonoperational service providers. The Company's Year 2000 readiness and contingency plans are nearing completion with the current minor unfinished work scheduled for completion by November 30, 1999. The remediation and testing costs associated with this project remain on target at approximately $1.0 million, including some costs which, because of their nature, will be capitalized. All internal and external costs associated with this project are being expensed or capitalized in the period incurred. Through the fiscal quarter ended October 2, 1999, the Company has incurred and recorded project related costs of approximately $600,000. The Year 2000 issues identified and addressed by the Company through its Year 2000 program can be characterized as a normal array of issues including the need to roll clocks forward, remediate hardware and software, and selectively replace problem hardware and software. While the Company does not anticipate any material business interruptions due to Year 2000 issues that are within its control, this outcome is also dependent on many other business and service partners having their Year 2000 house in order. These partners include among others: utility service providers; key suppliers, including a few foreign suppliers; key customers; banking system; equipment vendors; and software and other related system and service providers. In these cases, the Company is relying principally on individual Y2K readiness statements. So, given the unusual nature of the Year 2000 challenge, even with a comprehensive and responsive due diligence effort, business risk can not be totally avoided. Management views the Company's business risks to include, but not necessarily limited to the following: higher than expected remediation costs, exclusion of coverage by insurers for losses/damages attributable to Year 2000 issues, loss of production, loss of sales, and litigation risk. Looking Ahead Management expects to continue to exceed industry sales growth for the balance of the year in both segments in which it participates. Management is encouraged by strong customer demand for its products and customer reaction to the Company's continued focus on service. Except for the historic 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 product introductions, the overall growth rate of the office furniture and hearth product industries, the achievement of cost reductions and productivity in the Company's operations, the Company's ability to attract and retain qualified workers, the impact of future acquisitions, the Company's ability to identify and correct or implement contingency plans to deal with the Year 2000 issues, 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: November 12, 1999 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 18 EX-27 2
5 0000048287 HON INDUSTRIES INC. 1,000 9-MOS JAN-1-2000 JAN-3-1999 OCT-2-1999 18,947 0 221,593 3,285 67,990 332,928 712,832 250,024 933,069 237,581 152,586 0 0 60,355 426,184 933,069 1,319,905 1,319,905 914,542 914,542 299,962 0 7,223 98,797 36,061 62,736 0 0 0 62,736 1.03 1.03
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