-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Jq6QRlujobJj0TTlPf5HhAvY3luYviSjbw54Yig6wUWBPE9CxiwHEh542ZLTs0GJ 5Q+9TBdAhZponZVk0eYDTw== 0000950131-95-000749.txt : 199507120000950131-95-000749.hdr.sgml : 19950711 ACCESSION NUMBER: 0000950131-95-000749 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950328 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02648 FILM NUMBER: 95524019 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-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - ------- SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1994 OR - ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission File Number 0-2648 HON INDUSTRIES INC. An Iowa Corporation IRS Employer No. 42-0617510 414 East Third Street P.O. Box 1109 Muscatine, IA 52761-7109 319/264-7400 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, with Par Value of $1.00 Per Share. Name of each exchange on which registered: The Nasdaq Stock Market. Indicate by check mark whether the registrant (1) has filed all reports required 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ----- The aggregate market value of the voting stock held by nonaffiliates of the registrant, as of March 14, 1995, was: $538,044,426, assuming all 5% holders are affiliates. The number of shares outstanding of the registrant's common stock, as of March 14, 1995, was: 30,635,301. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement dated March 24, 1995, for the May 9, 1995, Annual Meeting of Shareholders are incorporated by reference into Part III. Index of Exhibits is located on Page 39. -1-
ANNUAL REPORT ON FORM 10-K -------------------------- TABLE OF CONTENTS ----------------- PART I Page ---- Item 1. Business................................................................... 3 Item 2. Properties................................................................. 7 Item 3. Legal Proceedings.......................................................... 8 Item 4. Submission of Matters to a Vote of Security Holders........................ 8 Table I - Executive Officers of the Registrant............................. 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....... 10 Item 6. Selected Financial Data -- Eleven-Year Summary.............................. 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 14 Item 8. Financial Statements and Supplementary Data................................. 19 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................... 19 PART III Item 10. Directors of the Registrant................................................. 20 Item 11. Executive Compensation...................................................... 20 Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 20 Compliance with Section 16(a) of the Securities Exchange Act of 1934........ 20 Item 13. Certain Relationships and Related Transactions.............................. 20 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............ 22 Signatures................................................................................ 24 Financial Statements...................................................................... 27 Financial Statement Schedules............................................................. 38 Index of Exhibits......................................................................... 39
-2- ANNUAL REPORT ON FORM 10-K -------------------------- PART I ------ ITEM 1. BUSINESS. ------------------ GENERAL. HON INDUSTRIES Inc. is principally a manufacturer and marketer of office furniture. It also manufactures and markets a limited line of office workspace productivity accessories. In addition, it is a major manufacturer and marketer of metal prefabricated fireplaces and related products for the home buildings products industry. The Company is organized into a corporate headquarters and eight operating units with offices, manufacturing plants, distribution centers, and sales showrooms nationwide. See Item 2. Properties for additional related discussion. Six operating units, marketing under various brand names, participate in the office furniture and products industry. These operating units include: a division, The HON Company, and six wholly owned subsidiaries, including The Gunlocke Company, Holga Inc., BPI Inc., Chandler Attwood Limited, and Ring King Visibles, Inc. Each of these operating units manufactures and markets products which are sold through various channels of distribution and segments of the industry. The combined sales of these units rank HON INDUSTRIES Inc. as one of the larger manufacturers of office furniture in the United States. The Company is ranked in the Fortune 500 Largest Industrial Companies in the U.S. since first qualifying in 1985. A seventh wholly owned subsidiary, Heatilator Inc., is one of the nation's oldest and best known manufacturers of factory-built wood- and gas-burning fireplaces, fireplace inserts, freestanding stoves, and accessories serving the home building products industry. These products have contributed less than 10% of the consolidated net sales and revenues and less than 10% of consolidated net income during each of the last three years. An eighth wholly owned subsidiary, HON Export Limited, markets selected products manufactured by the other various HON INDUSTRIES operating units outside the United States and Canada. In 1993, the Company closed its wholly owned subsidiary, CorryHiebert Corporation. The company manufactured metal office furniture for the contract segment of the industry. The closure resulted in a pretax charge of $4.0 million in the third quarter of fiscal year 1993. For further information with respect to the Company's business, including industry segment information, refer to the captions "Principal Business and Significant Customer Information" and "Changes in Business" included in the Notes to the Consolidated Financial Statements, which are filed as part of this report. EMPLOYEES. The Company has 6,131 employees (members) and, of this total, 3,518 are production personnel. PRODUCTS. Office Furniture and Related Products. A broad line of metal and wood commercial and home office furniture is manufactured and marketed through The HON Company division and the -3- Company's wholly owned subsidiaries: BPI Inc., Chandler Attwood Limited, Holga Inc., and The Gunlocke Company. Major products include: file cabinets, desks, credenzas, chairs, storage cabinets, tables, bookcases, machine stands, reception area furniture, freestanding office partitions, and panel systems. These products are typically available in contemporary and conventional styles and are priced to sell in different channels of distribution and at different price points. Ring King Visibles, Inc., manufactures and markets personal computer-related workstation accessories and supplies, including ergonomic accessories, workspace productivity accessories, and micrographic storage products. Home Building Products. Heatilator Inc., a wholly owned subsidiary, manufactures and markets a broad line of manufactured fireplaces, principally for the home. Products include wood- and gas-burning fireplaces and stoves, fireplace inserts, chimney systems, masonry forms, and fireplace accessories. MANUFACTURING. The HON Company manufactures office furniture in California, Georgia, Iowa, Kentucky, New York, North Carolina, Pennsylvania, South Carolina, Texas, and Virginia. BPI Inc. manufactures office furniture in North Carolina and Washington. Chandler Attwood Limited manufactures office furniture in California, Colorado, Georgia, Texas, and Washington. Holga Inc. manufactures office furniture in California. The Gunlocke Company manufactures office furniture in New York. Ring King Visibles, Inc., manufactures office products in Iowa. Heatilator manufactures home building products in Iowa. The Company purchases raw materials and components from a variety of vendors, and generally most items are available from multiple sources. Major raw materials and components include coil steel, bar stock, castings, lumber, veneer, particle board, fabric, paint, lacquer, hardware, rubber products, plastic products, and shipping cartons. PRODUCT RESEARCH AND DEVELOPMENT. The Company's product research and development investments are principally focused on new product development, improvement of existing products, product line extension, application of ergonomic research, improvement of manufacturing processes, application of new materials, and providing engineering support and training to its operating units. The Company's investment in research and development during 1994, 1993, and 1992 totaled $10.1 million, $7.7 million, and $5.9 million, respectively. INTELLECTUAL PROPERTY. The Company owns 61 U.S. and 29 foreign patents and has applications pending for 58 U.S. and 32 foreign patents. In addition, the Company holds registrations for 63 U.S. and 52 foreign trademarks and has applications pending for 35 U.S. and 52 foreign trademarks. The Company actively protects trademarks which it believes have a significant goodwill value. The Company applies for patent protection where it believes the expense of doing so is justified. As the Company has recently taken broader steps to protect its intellectual property rights, it believes that the duration of its registered patents and patent applications is adequate to protect these rights. The Company also pays royalty fees in certain instances for the use of patents on products and processes owned by others. SALES AND DISTRIBUTION: CUSTOMERS. Office furniture and products are distributed nationally through more than 5,000 office product dealers, 30 wholesalers/distributors, over 50 national and regional retailers, and various -4- contract customers. Several of the Company's office furniture operating units distribute products through common dealers, wholesalers/distributors, and retailers. Several operating units also sell products directly to state governments and to the United States government through the General Services Administration. One customer, United Stationers Inc., accounted for approximately 10%, 13%, and 12% of the Company's consolidated net sales in 1994, 1993, 1992, respectively. The industry trend is toward increased consolidation of distribution which implies larger and fewer customers for the Company's office furniture and related products. The office furniture and products field sales organization consists of 21 regional sales managers supervising 122 salespersons, plus more than 200 manufacturers' representatives, providing nationwide coverage. Sales managers and salespersons are compensated by a combination of salary and incentive bonus. Limited quantities of select finished goods inventories are maintained at the Company's principal manufacturing plants and at its various distribution centers. Heatilator Inc. sells its fireplace and stove products through more than 1,600 dealers and 200 distributors. The company has a field sales organization or 3 regional sales managers supervising 14 salespersons and 4 manufacturers' representatives. HON Export Limited sales are made through more than 90 office furniture dealers and wholesale distributors serving select foreign markets. They are principally located in the U.S., Mexico, and the Caribbean. HON INDUSTRIES' office furniture and products business has a seasonality trend with the third (July - September) and fourth (October - December) fiscal quarters historically being the two highest sales quarters each year. Home building products sales tend to have an even larger concentration in third and fourth fiscal quarters. As of December 31, 1994, the Company has an order backlog of approximately $52.3 million which will be filled in the ordinary course of business. This compares with $57.0 million as of January 1, 1994, and $63.2 million as of January 2, 1993. The dollar amount of the ongoing backlog of orders at any point in time is not considered by management to be a leading indicator of the Company's expected sales for any particular fiscal period. Large dollar amounts of order backlogs are unusual since most of the Company's products are manufactured and shipped within a few weeks following receipt of order, and a low backlog is an indicator of good customer service. COMPETITION. The principal competitive factors for both office furniture and home building products are product performance, product quality, on-time delivery to the customer, price, and customer service support. The Company believes it is well positioned to compete in all of its served markets due to its market share, engineering and manufacturing capability, broad product offering, national field sales representation, and long-standing customer relationships. Competitive conditions vary for HON INDUSTRIES Inc. based on the industry, industry segment, channel of distribution, products involved, and the prevailing U.S. general economic environment. The U.S. office furniture industry for calendar year 1994 is estimated by industry sources to be $8.7 billion and is comprised of several hundred domestic manufacturing companies plus foreign companies who import products. The Company's primary strength in the office furniture and products industry lies with its products for the "middle market" segment. This expanding segment of the industry typically serves the small- and medium-sized businesses who tend to be more price/value sensitive consumers. However, the Company's total office furniture sales makes -5- it a significant player in the broader U.S. office furniture industry. The Company is a niche player in providing computer accessory products. The Company's primary focus is providing products which improve the productivity of personal computer users. There are many competitors producing similar products; some are much larger than the Company's operating unit. The Company's particular home building products, prefabricated metal fireplaces and related products, are manufactured by a number of national and regional competitors. However, Heatilator Inc. is probably the leading U.S. manufacturer of prefabricated metal fireplaces. For further discussion of the Company's competitive situation, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. EFFECTS OF INFLATION. The cost of certain raw materials is increasing at a rate exceeding the general rate of inflation. The Company adjusts the selling prices of its products to maintain profit margins whenever possible. Investments are routinely made in modern plants, equipment, and support systems and for rapid continuous improvement programs. These investments collectively focus on increasing productivity which helps to offset the effect of rising material and labor costs. Ongoing cost control disciplines are also routinely employed. In addition, the last-in, first-out (LIFO) valuation method is used for most of the Company's inventories, which ensures the changing material and labor costs are recognized in reported income; and more importantly, these costs are recognized in pricing decisions. For further discussion of the effects of inflation on the Company's business, refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. ENVIRONMENTAL. The Company is subject to a variety of environmental laws and regulations governing discharges to air and water; the handling, storage, and disposal of hazardous or solid waste materials; and the remediation of contamination associated with releases of hazardous substances. Although the Company believes it is in material compliance with all of the various regulations applicable to its business, there can be no assurance that requirements will not change in the future or that the Company will not incur significant cost to comply with such regulations. The Company has trained staff responsible for monitoring compliance with environmental, health, and safety requirements. The Company's environmental professionals work with responsible personnel at each manufacturing facility, with the Company's environmental legal counsel, and with environmental engineering consultants retained to assist with ongoing management of environmental, health, and safety issues. The Company's ultimate goal is to reduce and, wherever possible, eliminate the creation of hazardous waste in its manufacturing processes. Compliance with federal, state, and local environmental regulations has not had a material effect on the capital expenditures, earnings, or competitive position of the Company to date. There are no financially material capital expenditures for environmental control facilities anticipated during fiscal year 1995. It is management's judgment that compliance with current regulations should not have a financially material effect on future earnings. However, the uncertainty of new environmental legislation and technology in this area makes it impossible to know with confidence. For further information regarding the Company's environmental matters, refer to Item 3. Legal Proceedings, Item 7. Management's Discussion and Analysis of Financial Condition and -6- Results of Operations, and the "Contingencies" note in the Notes to the Consolidated Financial Statements. BUSINESS DEVELOPMENT. The development of the Company's business during the fiscal years ended December 31, 1994; January 1, 1994; and January 2, 1993, is discussed in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. ITEM 2. PROPERTIES. -------------------- The Company maintains its corporate headquarters in Muscatine, Iowa, and conducts its operations in 21 cities throughout the United States which house manufacturing and distribution operations and offices. These total an aggregate 5,269,718 square feet. Of this total, 595,710 square feet are leased, including 336,297 square feet under capital leases. For further information regarding the Company's lease obligations, refer to the "Leases" note included in the "Notes to Consolidated Financial Statements." While the plants are of varying ages, the Company considers that they are well maintained, are equipped with modern and efficient equipment, and are in good operating condition and suitable for the purposes for which they are being used. The Company has sufficient capacity to increase output at most locations by increasing the use of overtime and/or number of production shifts employed. The Company's principal manufacturing facilities (100,000 square feet in size or larger) are as follows:
Approximate Location Square Feet Owned Leased Description of Use ---------- ------------- ------- -------- ----------------------------------------- Avon, NY 151,795 X Mfg. steel casegoods office furniture Cedartown, GA 439,580 X Mfg. steel casegoods office furniture Louisburg, NC 169,223 X Mfg. wood casegoods office furniture Mt. Pleasant, IA 320,927 X Mfg. metal prefabricated fireplaces Muscatine, IA 223,040 X Mfg. steel office seating Muscatine, IA 490,940 X Mfg. steel casegoods office furniture Muscatine, IA 178,827 X Mfg. wood casegoods office furniture Muscatine, IA 154,560 X Mfg. systems panels office furniture Owensboro, KY 278,872 X Mfg. wood office seating Richmond, VA 276,017 X* Mfg. metal casegoods office furniture South Gate, CA 511,280 X Mfg. steel casegoods & seating office furniture Sulphur Springs, TX 150,640 X Mfg. steel casegoods office furniture Wayland, NY 683,008 X Mfg. wood casegoods & seating office furniture Williamsport, PA 238,170 X Mfg. wood casegoods office furniture Winnsboro, SC 180,093 X Mfg. steel office seating --------- ------- TOTAL SQUARE FEET 4,170,955 276,017 ========= ======= * A capital lease.
The Company also owns a 224,764 square foot manufacturing facility located in Muscatine, Iowa, which it leases to another company; and it owns a 468,788 square foot office and manufacturing facility located in Corry, Pennsylvania, which is listed for sale. -7- Other manufacturing facilities are located in Atlanta, GA; Dallas and Houston, TX; Denver, CO; Kent, WA; Mt. Pleasant and Muscatine, IA; Salisbury, NC; San Jose and Van Nuys, CA. These facilities total an aggregate of 822,746 square feet. Of this total, 319,693 square feet are leased, including 60,280 square feet under a capital lease. The Company also leases sales showroom space in office furniture market centers in several major metropolitan areas. ITEM 3. LEGAL PROCEEDINGS. --------------------------- The Company has been named along with various other "potentially responsible parties" as a party to an Imminent or Substantial Endangerment Order and Remedial Action Order dated April 28, 1994, by the California Department of Toxic Substances Control (DTSC) in connection with the former Firestone Tire and Rubber Company Facility in South Gate, California. The Company acquired part of the Facility in 1981. The Company is cooperating in the preparation of a Remedial Investigation/Feasibility Study Workplan which will be submitted to the DTSC in 1995. 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 has counterclaimed for back rent and other damages. The parties are conducting pre-trial discovery. For additional information on this item, refer to the "Contingencies" note included in the "Notes to Consolidated Financial Statements." ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. ------------------------------------------------------------- None. -8- PART I, TABLE I ---------------
EXECUTIVE OFFICERS OF THE REGISTRANT. (Information as of December 31, 1994) - ------------------------------------- Family Position Other Business Experience Name Age Relationship Position Held Since During Past Five Years ----- --- ------------ -------- ---------- ------------------------- Stanley M. Howe 70 None Chairman of the Board 1984 President (1964-90); Director 1958 Chief Executive Officer (1979-91) Jack D. Michaels 57 None President 1990 President and Chief Executive Officer Chief Executive Officer 1991 Hussmann Corporation (1987-90) Director 1990 R. Michael Derry 57 None Senior Vice President, 1990 Senior Vice President (1982-90) Administration A. Mosby Harvey, Jr. 52 None Vice President, General 1993 Principal (1991-93), Harvey and Associates; Counsel and Secretary Vice President, General Counsel and Secretary (1990-91), Vice President, Associate General Counsel and Assistant Secretary (1988-90), Bridgestone/Firestone Inc. David C. Stuebe 54 None Vice President and 1994 President, CEO, and Director, Diversified Chief Financial Officer Industries, Inc. (1990-94); President, CEO, and Director, Auto Specialties Manufacturing, Inc. (1988-90).
-9- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. ------------------------------------------------------------------------------ The Company's common stock trades on The Nasdaq Stock Market under the symbol: HONI. As of year-end 1994, the Company had 5,556 stockholders of record. Common Stock Market Price and Price/Earnings Ratio and Quarterly Common Stock Market Prices and Dividends are presented in the "Investor Information" section which follows the "Notes to the Consolidated Financial Statements" material filed as part of this report. The market price quotations were published by the National Association of Securities Dealers, Inc. The quotations represent prices between dealers; do not include retail markup, markdown, or commissions; and do not necessarily represent actual transactions. The Company expects to continue its policy of paying regular cash dividends on the first business day of March, June, September, and December. Historically, the dividend payout percentage has ranged from approximately 25% to 33% of the previous year's earnings. Future dividends are dependent on future earnings, capital requirements, and the Company's financial condition. In addition, the payment of dividends is subject to the restrictions described in the "Long-Term Debt and Other Liabilities" note included in the "Notes to Consolidated Financial Statements." APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS Approximate Number of Equity Title of Class Security Holders of Record as of December 31, 1994 -------------- --------------------------------------------------- Common Stock, $1.00 Par Value 5,556 Preferred Stock, $1.00 Par Value -0- -10- (THIS PAGE INTENTIONALLY LEFT BLANK) -11- HON INDUSTRIES Inc. and Subsidiaries ITEM 6. SELECTED FINANCIAL DATA -- ELEVEN-YEAR SUMMARY
PER COMMON SHARE DATA 1994 1993 1992 Income from Continuing Operations...................... $ 1.74 $ 1.39 $ 1.18 Income (Loss) from Discontinued Operations............. -- -- -- Cumulative Effect of Accounting Changes................ (.01) .02 -- Gain on Sale of Discontinued Operations................ -- -- -- Net Income............................................. 1.73 1.41 1.18 Cash Dividends......................................... .44 .40 .37 Book Value............................................. 6.35 5.67 5.04 Net Working Capital.................................... 2.53 2.45 2.46 OPERATING RESULTS (Thousands of Dollars) Net Sales.............................................. $ 845,998 $ 780,326 $ 706,550 Cost of Products Sold.................................. 573,392 537,828 479,179 Gross Profit........................................... 272,606 242,498 227,371 Interest Expense....................................... 3,248 3,120 3,441 Income from Continuing Operations before Income Taxes.. 86,338 70,854 61,893 Income before Income Taxes as a % of Net Sales......... 10.21% 9.08% 8.76% Federal and State Income Taxes......................... $ 31,945 $ 26,216 $ 23,210 Effective Tax Rate for Continuing Operations........... 37.00% 37.00% 37.50% Income from Continuing Operations...................... $ 54,393 $ 44,638 $ 38,683 Income from Continuing Operations as a % of Net Sales.. 6.43% 5.72% 5.47% Income before Cumulative Effect of Accounting Changes.. $ 54,393 $ 44,638 $ 38,683 Income (Loss) from Discontinued Operations............. -- -- -- Net Income............................................. 54,156 45,127 38,683 Cash Dividends and Share Purchase Rights Redeemed...... 13,601 12,587 12,114 Addition to (Reduction of) Retained Earnings........... 13,563 17,338 26,569 Net Income Applicable to Common Stock.................. 54,156 45,127 38,683 % Return on Average Shareholders' Equity............... 28.95% 26.35% 24.75% Depreciation and Amortization.......................... $ 19,042 $ 16,631 $ 15,478 DISTRIBUTION OF NET INCOME % Paid to Shareholders................................. 25.11% 27.89% 31.32% % Reinvested in Business............................... 74.89% 72.11% 68.68% FINANCIAL POSITION (Thousands of Dollars) Current Assets......................................... $ 188,810 $ 188,419 $ 171,309 Current Liabilities.................................... 111,093 110,759 91,780 Working Capital........................................ 77,717 77,660 79,529 Net Property, Plant, and Equipment..................... 177,844 157,770 145,849 Total Assets of Continuing Operations.................. 372,568 352,405 322,746 Total Assets of Discontinued Operations -- Net......... -- -- -- Total Assets........................................... 372,568 352,405 322,746 Long-Term Debt and Capital Lease Obligations........... 54,741 51,114 54,240 Shareholders' Equity................................... 194,640 179,553 163,009 Retained Earnings...................................... 174,642 161,079 143,741 Current Ratio.......................................... 1.70 1.70 1.87 CURRENT SHARE DATA Number of Shares Outstanding at Year-End............... 30,674,603 31,675,846 32,368,956 Average Shares Outstanding During Year................. 31,217,725 32,090,544 32,758,995 Number of Shareholders of Record at Year-End........... 5,556 4,653 4,534 OTHER OPERATIONAL DATA Capital Expenditures - Net (Thousands of Dollars)...... $ 35,005 $ 27,541 $ 26,626 Members at Year-End.................................... 6,131 6,257 5,926
-12-
1991 1990 1989 1988 1987 1986 1985 1984 $ 1.02 $ 1.30 $ .79 $ .69 $ .59 $ .68 $ .60 $ .37 -- -- -- .03 .03 .03 .01 .01 -- -- -- -- -- -- -- -- -- -- -- .22 -- -- -- -- 1.02 1.30 .79 .94 .62 .71 .61 .38 .36 .30 .24 .20 .20 .16 .15 .14 4.64 4.06 3.76 3.96 3.33 3.35 2.91 2.59 2.13 1.64 1.66 2.59 1.94 1.79 1.54 1.47 $ 607,710 $ 663,896 $ 602,009 $ 532,456 $ 516,262 $ 460,137 $ 445,068 $ 376,267 411,168 458,522 409,942 366,599 355,456 301,197 300,883 265,813 196,542 205,374 192,067 165,857 160,806 158,940 144,185 110,454 3,533 3,611 3,944 4,188 3,512 3,417 4,011 4,470 52,653 69,085 44,656 41,919 41,887 53,960 49,171 29,885 8.66% 10.41% 7.42% 7.87% 8.11% 11.73% 11.05% 7.94% $ 19,745 $ 25,907 $ 17,193 $ 16,139 $ 18,431 $ 26,000 $ 23,603 $ 13,598 37.50% 37.50% 38.50% 38.50% 44.00% 48.18% 48.00% 45.50% $ 32,908 $ 43,178 $ 27,463 $ 25,780 $ 23,456 $ 27,960 $ 25,568 $ 16,287 5.42% 6.50% 4.56% 4.84% 4.54% 6.08% 5.74% 4.33% $ 32,908 $ 43,178 $ 27,463 $ 25,780 $ 23,456 $ 27,960 $ 25,568 $ 16,287 -- -- -- 9,515 1,310 1,294 456 485 32,908 43,178 27,463 35,295 24,766 29,254 26,024 16,772 11,656 9,931 8,298 7,956 7,957 6,569 6,422 6,149 18,182 (11,952) (17,444) 20,986 (18,750) 15,737 13,871 10,623 32,908 43,178 27,463 35,295 24,766 29,254 26,012 16,760 23.41% 33.24% 19.92% 25.77% 18.85% 22.74% 22.29% 15.37% $ 14,084 $ 13,973 $ 12,866 $ 11,860 $ 10,227 $ 8,746 $ 8,442 $ 7,889 35.42% 23.00% 30.22% 22.54% 32.13% 22.46% 24.68% 36.66% 64.58% 77.00% 69.78% 77.46% 67.87% 77.54% 75.32% 63.34% $ 150,901 $ 146,591 $ 162,576 $ 175,367 $ 139,679 $ 140,329 $ 129,763 $ 117,332 82,275 93,465 106,104 78,787 66,136 67,560 65,826 53,430 68,626 53,126 56,472 96,580 73,543 72,769 63,937 63,902 125,465 124,603 114,116 94,339 95,372 84,622 70,486 69,213 280,893 276,984 284,322 275,928 235,621 242,366 222,976 203,755 -- -- -- -- 9,734 11,841 11,213 8,387 280,893 276,984 284,322 275,928 245,355 254,207 234,189 212,142 35,664 39,575 38,271 38,712 42,328 38,542 37,833 35,833 149,575 131,612 128,203 147,549 126,388 136,336 120,913 112,580 117,172 98,990 110,942 128,386 107,400 126,150 110,413 96,542 1.83 1.57 1.53 2.23 2.11 2.08 1.97 2.20 32,208,685 32,384,897 34,097,088 37,323,582 37,976,636 40,724,192 41,608,264 43,380,180 32,371,488 33,110,405 34,816,050 37,426,836 39,794,062 41,083,028 42,846,944 43,837,768 4,466 4,331 4,124 4,134 3,218 3,179 3,378 3,555 $ 13,907 $ 20,709 $ 12,807 $ 10,299 $ 15,669 $ 16,953 $ 9,037 $ 6,905 5,599 6,073 6,385 5,423 5,840 5,492 5,092 5,122
-13- HON INDUSTRIES Inc. and Subsidiaries Item 7. Management's Discussion and Analysis FINANCIAL OVERVIEW The 1994 U.S. business economy stimulated a year of solid growth for HON INDUSTRIES and its operating companies. It represents the second consecutive year of record performance by the Company.
- ----------------------------------------------------------------------------- FISCAL YEARS IN PERSPECTIVE 1994 1993 1992 VS. VS. VS. 1994 1993 1993 1992 1992 1991 - ----------------------------------------------------------------------------- (Dollars in millions, except per share amounts) Net sales............. $846.0 + 8.4% $780.3 +10.4% $706.6 +16.3% Operating income...... $ 87.1 +21.9% $ 71.5 +14.7% $ 62.3 +14.4% Net income............ $ 54.2 +20.0% $ 45.1 +16.7% $ 38.7 +17.5% Net income per share.. $ 1.73 +22.7% $ 1.41 +19.5% $ 1.18 +15.7% - -----------------------------------------------------------------------------
For 1994, net sales, operating income, net income, and net income per share were each the "best-ever" in the Company's history. This was the case for 1993 results as well.
- ----------------------------------------------------------------------------- LEVERAGING INCREASED SALES Percentage Relationships to Net Sales - ----------------------------------------------------------------------------- 1994 1993 1992 Cost of products sold................ 67.8% 68.9% 67.8% Gross profit......................... 32.2% 31.1% 32.2% Selling and administrative expenses.. 21.9% 21.9% 23.4% Operating income..................... 10.3% 9.2% 8.8% Net income........................... 6.4% 5.8% 5.5% - -----------------------------------------------------------------------------
The Company leveraged its increased sales by either reducing or holding the line on costs and expenses which added to bottom line performance.
- ----------------------------------------------------------------------------- KEY FINANCIAL GOALS 1994 GOAL ACTUAL - ----------------------------------------------------------------------------- Annual net income growth............... 15%* 20% Annual return on assets employed....... 25% 25% Annual productivity gain per employee.. 8% 11% *Double net income by year 2000 - -----------------------------------------------------------------------------
These represent the Company's key financial goals. Actual performance may exceed the goals in some years and fall short in others, but over the longer-term, management is committed to achieving or exceeding these goals on the average. Readers are encouraged to carefully review the Company's consolidated financial statements and related notes found elsewhere in the report for more comprehensive explanations of many of the issues discussed in this section. -14- RESULTS OF OPERATIONS Industry sources estimate total sales for the 1994 U.S. office furniture industry to be in the range of $8.7 billion. Industry shipments are reported to be up 7.7% for the year. These results, however, were significantly influenced by a few large office furniture manufacturers that compete in the higher-end contract segment of the market. This segment rebounded in 1994 after several years of pent-up demand. The Company primarily participates in this industry segment through its operating company, The Gunlocke Company. The Company's 1994 sales growth of 8.4% (9.9% year-over-year for continuing operations) exceeds the overall industry growth rate indicating market share gains. Management estimates approximately 5% of the sales growth resulted from unit growth and 3% from pricing increases. Heatilator Inc., the Company's gas and wood-burning prefabricated metal fireplace and stove company, also turned in a record performance year. While there is no reliable industry data to reference, management believes Heatilator Inc. has regained its industry leadership position which it had lost prior to being acquired by the Company in 1981. The Company's 1994 financial results were driven principally by three business factors: 1) Increases in market share in core markets; 2) Productivity improvements achieved through the Company's rapid continuous improvement program; and 3) Stringent cost containment and reduction actions. INCREASES IN MARKET SHARE A key business strategy has been and continues to be profitable sales growth, especially in core office furniture and prefabricated fireplace markets. Office furniture sales growth is being led by the growth of the retail superstores. This channel represents a key growth market for the Company's products. Accordingly, new products and branding strategies are being targeted to serve this channel better. The Company is simultaneously maintaining its high standards of support and service to its long-standing traditional channels of distribution which include dealers, wholesalers, and governmental accounts. Product development is a major strategic focus for the Company. Investments for new products, product line extensions, and improvements to existing products continue to increase. Consolidated expenses for product development for fiscal years 1994, 1993, and 1992 increased 31.4%, 31.0%, and 74.3%, respectively. Approximately 30% of the Company's 1994 net sales were from products introduced in the past three years. The product development emphasis for office furniture has been with seating, systems, desks, and lateral file products. For the fireplace business, the emphasis has been on applying new gas technologies to both fireplace and stove products. The demand for the Company's office furniture products is most influenced by the state of the general economy and the rate of growth of small- and medium-sized businesses. Management sees no clear correlation between demand for office furniture products in the U.S., as distinguished from home furnishings, and the rise and fall of the prime rate charged by leading banks. This seems to be a major point of difference between the two industries. Increased market share for prefabricated metal fireplaces and related products has been gained principally through the introduction of innovative new gas fireplace and stove products. These products have helped position Heatilator at the top of its industry. Demand for Heatilator's fireplace products is more closely tied to the growth rate of residential construction and remodeling that, in turn, are somewhat dependent on home mortgage interest rates. As noted previously, fiscal year 1993 also represented record operating results even though it included a $4.0 million pretax charge for discontinuing the operations of one of the Company's office furniture operating companies. The introduction of new products and product line extensions, responsive sales and marketing programs, reliable customer service and support, and reducing customer lead times stimulated 1993 sales growth by 10.4%. This performance was achieved against a backdrop of 5% reported sales growth for the broader U.S. office furniture industry. Fiscal year 1992 also represented a solid year of growth for the Company. Financial performance for the year reflected a gradually improving customer demand for the Company's products. Industry sales growth for 1992 was 6% while the Company's sales growth exceeded 16%. PRODUCTIVITY IMPROVEMENTS Management has successfully leveraged its increased sales to achieve bottom line growth. Cost of products sold and operating expenses, as a percent of net sales, have been reduced or stabilized by employing a diligent companywide rapid continuous improvement program (RCI). The program focuses on all aspects of the business ranging from product design, manufacturing processes, distribution activities, and administrative support processes. The program objective is to eliminate nonvalue-added activities and to simplify and streamline processes to make them more responsive and less costly. RCI results to date represent a wide range of successes. . Products have been redesigned to enhance their quality and make them easier to manufacture. - 15 - HON INDUSTRIES Inc. and Subsidiaries Item 7. Management's Discussion and Analysis . Production setup times have been reduced by 50% to 90%. . Production processes are being reengineered to be more efficient, reduce cost, and improve product quality. . Personnel are freed up to work full time on supporting RCI, which keeps the improvement momentum growing. . Factory space is being freed up as work-in-process inventories are reduced, allowing for increased production capacity. . Inventory turns are steadily improving as work-in-process inventories are eliminated from the processes. . Customer lead time is continuing to improve and is setting a new industry standard. . Administrative support processes are being challenged, streamlined, and simplified to be more responsive without adding personnel. Management expects productivity gains from the ongoing RCI program to largely offset 1995 material and member cost increases. These gains, coupled with cost reduction program savings and material substitution efforts, should minimize product price increases to the customer and preserve profit margins. STRINGENT COST CONTAINMENT AND REDUCTION Selling and administrative costs are also a major cost containment and reduction target. These expenses, as a percent of net sales, have been reduced or held stable over the past three years. This is especially noteworthy considering the intense competitive sales environment during the period. RCI also plays an important role in managing these costs. BUSINESS CONSOLIDATION During 1994, the Company consolidated the operations of its XLM Company with The HON Company. Using The HON Company's broader-based distribution channels for XLM products has increased market share and profitability in the rapidly growing retail and commercial dealer office furniture channels. Chandler Attwood Limited, the Company's "experimental laboratory" with local distributed manufacturing, has been a financial disappointment. The business was launched in 1993. To improve financial performance, the Company will close four of its sites, reposition its products and service at the remaining two sites, and concentrate resources on new product development. The knowledge gained from this experiment has been successfully implemented in other operating companies. In late 1993, HON INDUSTRIES closed its CorryHiebert Corporation office furniture plant located in Corry, Pennsylvania. The closure decision resulted in a charge of $4.0 million to 1993 earnings (after-tax effect of $2.5 million or $.08 per share). As of December 31, 1994, $0.9 million of the reserve remained unspent. In 1993, the Company acquired the DOVRE brand of cast iron fireplaces and woodstoves for North and South America from Dovre Industries, NV, a Belgian company, for approximately $1.2 million. These products are manufactured and marketed through Heatilator. Heatilator reengineered the product and added gas burning products to the line. This product is quite popular with domestic consumers because of its high-gloss enamel finish that gives it a unique appearance and its advanced flame technology. TAXES Management actively takes steps to manage its tax burden. The Company's effective tax rate was 37.0% for fiscal years 1994 and 1993, and 37.5% for 1992. COMPARATIVE FINANCIAL PERFORMANCE The Company's financial performance compares favorably to all U.S. industry. The Company was first recognized in Fortune magazine's list of the 500 Largest Industrial Corporations based on its 1985 results. Companies are included on the basis of annual net sales, but management suggests it is bottom line performance that really distinguishes HON INDUSTRIES Inc. For example, the Company ranked #414 in sales and #246 in profits based on its 1993 results. Below is a table showing the annual ranking of the Company for the past three years for various performance measures reported by Fortune:
1993 1992 1991 ------------------ Sales.......................... 414 436 462 Profits........................ 246 231 270 Market Value................... 304 283 312 Profits as % of Sales.......... 131 138 136 Profits as % of Assets......... 30 33 44 Profits as % of Shareholders' Equity...................... 33 40 54 Earnings per Share: 10-Year Annual Growth Rate.......... 58 45 129 Total Return to Investors for Year........................ 153 114 191 Total Return to Investors for 10 Years.................... 63 131 144
These rankings demonstrate the relative financial performance of the Company and its ability to sustain profitability and return to investors while increasing sales. - 16 -
FINANCIAL CONDITION Cash Management - --------------- 1994 1993 1992 ----------------------- (Dollars in Millions) Cash, Cash Equivalents, & Short-Term Investments at Year-End................... $ 30.7 $ 44.4 $ 45.9 Net Capital Expenditures..... $ 35.0 $ 27.5 $ 26.6 Current Ratio................ 1.70 1.70 1.87 Net Working Capital.......... $ 77.7 $ 77.7 $ 79.5 Net Cash from Operations..... $ 64.6 $ 64.0 $ 55.8 Receivables Turns per Year... 9.51 9.60 9.79 Inventory Turns per Year..... 14.00 15.61 14.51 Asset Turns per Year......... 2.33 2.31 2.34
During 1994, cash from operations of $64.6 million provided most of the funds necessary to meet working capital needs; acquire property, plant, and equipment; repay long-term debt; pay dividends; and repurchase Company stock. Inventory turnover demonstrates the Company's success in reducing its investment in inventories. Had the Company experienced the same inventory turns in 1994 as it had in 1991 (11.67), inventories would have been $8.2 million higher in 1994 than they actually were. Net capital expenditures (net of disposals) for all three years were principally for the acquisition of more efficient and productive machinery and equipment. Management anticipates 1995 fiscal year expenditures will be similar to the 1994 level. The largest capital expenditures planned for 1995 are for additional facility expansion for The HON Company at its Muscatine, Iowa, and Richmond, Virginia, operations. Future capital required to finance operations, improvements, and growth is expected to be met from cash generated by operations and additional long-term debt as circumstances dictate. Dividends - --------- The Company's dividend payout was $0.44, $0.40, and $0.37 per common share for years 1994, 1993, and 1992, respectively. - ------------------------------------------------------- INCREASED QUARTERLY DIVIDENDS
DIVIDEND AMOUNT PER COMMON SHARE % INCREASE DATE EFFECTIVE - ------------------------------------------------------- $0.12 9.1% March 1, 1995 $0.11 10.0% March 1, 1994 $0.10 11.1% December 1, 1992 - -------------------------------------------------------
Historically, the Company's dividend payout percentage has ranged from approximately 25% to 33% of prior year earnings. The Company expects to continue its policy of paying quarterly cash dividends. Through the March 1, 1995, dividend payment, the Company has paid 160 consecutive quarterly common stock dividends (40 years). COMMON STOCK TRANSACTIONS The HON INDUSTRIES Inc. 1994 Members' Stock Purchase Plan was approved at the May 1994 Annual Shareholders Meeting. Under the new plan, 500,000 shares of common stock were made available for issuance to members. The introduction of the new plan resulted in a 56% increase in member participation which contributed to the 19% increase in the number of Company shareholders during 1994. The Board of Directors first authorized the Company to repurchase its common stock in 1985 and has periodically renewed the authorization. At the February 1994 Board of Directors meeting, the Board authorized the Company to repurchase up to $20.0 million of its own shares. Over a ten-year time period, 14,806,397 shares of HON INDUSTRIES common stock have been purchased at a cost of $197.1 million or an average cost of $13.31 per share. COMMON STOCK REPURCHASED UNDER BOARD AUTHORIZATIONS
1994 1993 1992 1991-1985 TOTAL -------------------------------------------------------- (Dollars in millions, except cost per share amounts) Shares acquired.. 1,078,835 751,399 819,687 12,156,476 14,806,397 Cost of shares.... $ 29.6 $ 19.6 $ 16.1 $131.8 $197.1 Cost per share..... $27.48 $26.05 $19.63 $10.84 $13.31
By virtue of these repurchases, there has been a significant reduction in the number of shares outstanding, and earnings per share are higher. The Company will continue to acquire its stock in the open market and from members whenever management, acting under Board authority, believes such action is in the best interest of the shareholders and Company. During 1992, the Company established the HON Members Company Ownership Plan, an employee stock ownership plan (ESOP). A trust was established to administer the plan as a long-term retirement benefit for members. -17- HON INDUSTRIES Inc. and Subsidiaries ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS ================================================================================ OTHER MATTERS David C. Stuebe was named Vice President and Chief Financial Officer of the Company, effective October 4, 1994. He replaced John W. Axel, Senior Vice President, Finance and Development, who had resigned in January 1994. Mr. Stuebe is a Certified Public Accountant and has a diverse financial and operations background in various manufacturing businesses. The Company is in EDGAR phase-in Group CF-4, which required the Company to begin submitting SEC filings electronically as of December 6, 1993. All subsequent SEC filings, except the 1993 Annual Report on Form 10-K which was exempt, have been filed through EDGAR. Although the U.S. rate of inflation is not currently an issue, the possibility of it becoming a factor in the future has not been eliminated. The Company adjusts the selling prices of its products to maintain profit margins whenever possible. In addition, it employs a variety of other inflation defenses. For example, the LIFO method is used for valuing inventories; investments are routinely made to upgrade plants and equipment to increase worker productivity; RCI projects are continually being pursued to improve productivity; and ongoing cost control disciplines are routinely employed. In 1995, some select raw material prices are projected to increase more rapidly than the rate of general inflation, but this situation is not expected to have a significant impact on the level of profitability. The Company is a party to a few matters arising in connection with laws and regulations pertaining to the protection of the environment. It has been named along with various other "potentially responsible parties" as a party to an Imminent or Substantial Endangerment Order and Remedial Action Order dated April 28, 1994, by the California Department of Toxic Substances Control (DTSC) in connection with the former Firestone Tire and Rubber Company facility in South Gate, California. Firestone owned and operated the facility from 1927 until 1981. The Company acquired part of the facility in 1981. The Company is cooperating with Firestone in the preparation of a Remedial Investigation/Feasibility Study Workplan which will be submitted to the DTSC in 1995. Since the facility investigation has not begun, the Company is not able to reasonably estimate the cost of site investigation, the cost of potential remedial actions, or its final allocation share of those costs, if any. The Company periodically reviews these costs and will disclose each of the costs, if material, when they can be reasonably estimated. Nevertheless, management does not believe that the Company's potential liability for any of the environmental matters, including the former Firestone Tire and Rubber Company facility, will have a material effect on the Company's liquidity, financial position, or results of operations taken as a whole. Please refer to the "Contingencies" note in the "Notes to Consolidated Financial Statements" for additional discussion of the Company's environmental risks. Management has launched a program to improve the Company's investor relations effort. The ultimate improvements will take many forms. Early evidence of this effort is this Annual Report to Shareholders. There has been a focus on ease of readability and on report content believed to be most relevant to shareholders and potential new investors. -18- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ----------------------------------------------------- The financial statements listed under Item 14 (a)(1) and (2) are filed as part of this report. The Summary of Unaudited Quarterly Results of Operations is presented in the "Investor Information" section which follows the "Notes to the Consolidated Financial Statements" material filed as part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND ------------------------------------------------------------------------ FINANCIAL DISCLOSURE. - --------------------- None. -19- PART III ITEM 10. DIRECTORS OF THE REGISTRANT. -------------------------------------- The information under the caption "Election of Directors" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 9, 1995, is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. --------------------------------- The information under the caption "Executive Compensation" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 9, 1995, is incorporated herein by reference. ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND --------------------------------------------------------------- MANAGEMENT. - ----------- The information under the caption "Beneficial Owners of Common Stock" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 9, 1995, is incorporated herein by reference. The information under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 9, 1995, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. --------------------------------------------------------- None. -20- (THIS PAGE INTENTIONALLY LEFT BLANK) -21- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. -------------------------------------------------------------------------- (a) (1) Financial Statements. --------------------- The following consolidated financial statements of HON INDUSTRIES Inc. and Subsidiaries included in the Company's 1994 Annual Report to Shareholders are filed as a part of this report pursuant to Item 8: Page ---- Report of Independent Auditors............................. 27 Consolidated Statements of Income for the Years Ended December 31, 1994; January 1, 1994; and January 2, 1993.... 28 Consolidated Balance Sheets -- December 31, 1994; January 1, 1994; and January 2, 1993....................... 29 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1994; January 1, 1994; and January 2, 1993............................................ 30 Consolidated Statements of Cash Flows for the Years Ended December 31, 1994; January 1, 1994; and January 2, 1993.... 31 Notes to Consolidated Financial Statements................. 32 Investor Information (including Summary of Unaudited Quarterly Results of Operations)........................... 36 (2) Financial Statement Schedules. ------------------------------ The following consolidated financial statement schedule of the Company and subsidiaries is attached pursuant to Item 14(d): Schedule II Valuation and Qualifying Accounts for the Years Ended December 31, 1994; January 1, 1994; and January 2, 1993........................ 38 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted. (b) Reports on Form 8-K. -------------------- There were no reports on Form 8-K filed during the last quarter of the period covered by this report. -22- (c) Exhibits. --------- The following exhibits are filed pursuant to Item 601 of Regulation S-K: Page(s) in Exhibit Form 10-K ------- ---------- (10) Change in Control Agreement of the Registrant...... 40 (22) Subsidiaries of the Registrant..................... 52 (24) Consent of Independent Auditors.................... 53 (27) Financial Data Schedule............................ 54 (28A) Executive Bonus Plan of the Registrant............. 55 (28B) Executive Long-Term Incentive Compensation Plan of the Registrant.................................. 60 (d) Financial Statement Schedules. ------------------------------ See Item 14(a)(2). -23- SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this annual report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. HON INDUSTRIES Inc. Date: February 13, 1995 By /s/ Stanley M. Howe ----------------- ------------------------------ Stanley M. Howe Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each Director whose signature appears below authorizes and appoints Stanley M. Howe as his or her attorney-in- fact to sign and file on his or her behalf any and all amendments and post- effective amendments to this report. Signature Title Date --------- ----- ---- /s/ Stanley M. Howe Chairman of the Board and 2/13/95 - ------------------------- Director Stanley M. Howe /s/ Jack D. Michaels President and CEO, 2/13/95 - ------------------------- Principal Executive Officer, Jack D. Michaels and Director /s/ Melvin L. McMains Controller and 2/13/95 - ------------------------- Principal Accounting Officer Melvin L. McMains /s/ David C. Stuebe Vice President and 2/13/95 - ------------------------- Chief Financial Officer David C. Stuebe -24- Signature Title Date --------- ----- ---- /s/ Robert W. Cox Director 2/13/95 - ------------------------- Robert W. Cox /s/ W. James Farrell Director 2/13/95 - ------------------------- W. James Farrell /s/ Lee Liu Director 2/13/95 - ------------------------- Lee Liu /s/ Celeste C. Michalski Director 2/13/95 - ------------------------- Celeste C. Michalski /s/ Michael S. Plunkett Director 2/13/95 - ------------------------- Michael S. Plunkett /s/ Herman J. Schmidt Director 2/13/95 - ------------------------- Herman J. Schmidt /s/ Richard H. Stanley Director 2/13/95 - ------------------------- Richard H. Stanley /s/ Jan K. Ver Hagen Director 2/13/95 - ------------------------- Jan K. Ver Hagen /s/ Lorne R. Waxlax Director 2/13/95 - ------------------------- Lorne R. Waxlax -25- (THIS PAGE INTENTIONALLY LEFT BLANK) -26- REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders HON INDUSTRIES Inc. We have audited the accompanying balance sheets of HON INDUSTRIES Inc. and subsidiaries as of December 31, 1994, January 1, 1994, and January 2, 1993, and the related consolidated statements of income, shareholders' equity, and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of HON INDUSTRIES Inc. and subsidiaries as of December 31, 1994, January 1, 1994, and January 2, 1993, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in the Notes to Consolidated Financial Statements, the Company changed its method of accounting for postemployment benefits in 1994 and its method of accounting for income taxes and postretirement benefits other than pensions in 1993. Ernst & Young LLP February 1, 1995 -27- HON INDUSTRIES Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME
================================================================================================================================== FOR THE YEARS 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- Net sales.............................................................................. $845,998,000 $780,326,000 $706,550,000 Cost of products sold.................................................................. 573,392,000 537,828,000 479,179,000 - ---------------------------------------------------------------------------------------------------------------------------------- GROSS PROFIT 272,606,000 242,498,000 227,371,000 Selling and administrative expenses.................................................... 185,490,000 171,048,000 165,075,000 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATING INCOME 87,116,000 71,450,000 62,296,000 - ---------------------------------------------------------------------------------------------------------------------------------- Interest income........................................................................ 2,470,000 2,524,000 3,038,000 Interest expense....................................................................... 3,248,000 3,120,000 3,441,000 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES.......................................................... 86,338,000 70,854,000 61,893,000 Income taxes........................................................................... 31,945,000 26,216,000 23,210,000 - ---------------------------------------------------------------------------------------------------------------------------------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES............................... 54,393,000 44,638,000 38,683,000 Cumulative effect of accounting changes................................................ (237,000) 489,000 -- NET INCOME.......................................................................... $ 54,156,000 $ 45,127,000 $ 38,683,000 ================================================================================================================================== NET INCOME PER COMMON SHARE: Income before cumulative effect of accounting changes.................................. $ 1.74 $ 1.39 $1.18 Cumulative effect of accounting changes................................................ (.01) .02 -- NET INCOME.......................................................................... $ 1.73 $ 1.41 $1.18 ================================================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
-28- HON INDUSTRIES Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS - ------------------------------------------------------------------------------------------------------------------------------------ AS OF YEAR-END 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ ASSETS - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT ASSETS Cash and cash equivalents........................................................... $ 27,659,000 $ 32,778,000 $ 40,069,000 Short-term investments.............................................................. 3,083,000 11,598,000 5,872,000 Receivables......................................................................... 94,269,000 83,650,000 78,857,000 Inventories......................................................................... 43,259,000 38,630,000 30,262,000 Deferred income taxes............................................................... 11,565,000 11,304,000 11,439,000 Prepaid expenses and other current assets........................................... 8,975,000 10,459,000 4,810,000 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 188,810,000 188,419,000 171,309,000 PROPERTY, PLANT, AND EQUIPMENT......................................................... 177,844,000 157,770,000 145,849,000 OTHER ASSETS........................................................................... 5,914,000 6,216,000 5,588,000 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL ASSETS $372,568,000 $352,405,000 $322,746,000 ==================================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------------------ CURRENT LIABILITIES Accounts payable and accrued expenses............................................... $ 99,898,000 $ 97,205,000 $ 78,904,000 Income taxes........................................................................ 4,949,000 6,936,000 5,750,000 Note payable and current maturities of long-term obligations........................ 6,246,000 6,618,000 7,126,000 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 111,093,000 110,759,000 91,780,000 LONG-TERM DEBT AND OTHER LIABILITIES................................................... 46,080,000 45,260,000 46,519,000 CAPITAL LEASE OBLIGATIONS.............................................................. 8,661,000 5,854,000 7,721,000 DEFERRED INCOME TAXES.................................................................. 12,094,000 10,979,000 13,717,000 SHAREHOLDERS' EQUITY Common stock........................................................................ 30,675,000 31,676,000 32,369,000 Paid-in capital..................................................................... 434,000 281,000 2,580,000 Retained earnings................................................................... 174,642,000 161,079,000 143,741,000 Receivable from HON Members Company Ownership Plan.................................. (11,111,000) (13,483,000) (15,681,000) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL SHAREHOLDERS' EQUITY 194,640,000 179,553,000 163,009,000 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $372,568,000 $352,405,000 $322,746,000 ==================================================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
-29- HON INDUSTRIES Inc. and Subsidiaries Consolidated Statements of Shareholders' Equity
- ---------------------------------------------------------------------------------------------------- FOR THE YEARS 1994 1993 1992 - ---------------------------------------------------------------------------------------------------- COMMON STOCK Balance, beginning of year........................... $ 31,676,000 $ 32,369,000 $ 32,209,000 Purchase of shares................................... (1,078,000) (751,000) (818,000) Shares issued under Members Stock Purchase Plan and restricted stock awards......................... 77,000 58,000 62,000 Shares issued under HON Members Company Ownership Plan...................................... -- -- 916,000 - ---------------------------------------------------------------------------------------------------- Balance, end of year.............................. $ 30,675,000 $ 31,676,000 $ 32,369,000 - ---------------------------------------------------------------------------------------------------- PAID-IN CAPITAL Balance, beginning of year........................... $ 281,000 $ 2,580,000 $ 194,000 Purchase of shares................................... (1,567,000) (3,615,000) (15,229,000) Shares issued under Members Stock Purchase Plan and restricted stock awards......................... 1,720,000 1,316,000 1,031,000 Shares issued under HON Members Company Ownership Plan...................................... -- -- 16,584,000 - ---------------------------------------------------------------------------------------------------- Balance, end of year.............................. $ 434,000 $ 281,000 $ 2,580,000 - ---------------------------------------------------------------------------------------------------- RETAINED EARNINGS Balance, beginning of year........................... $161,079,000 $143,741,000 $117,172,000 Net income........................................... 54,156,000 45,127,000 38,683,000 Purchase of shares................................... (26,992,000) (15,202,000) -- Cash dividends declared, common...................... (13,601,000) (12,587,000) (12,114,000) - ---------------------------------------------------------------------------------------------------- Balance, end of year.............................. $174,642,000 $161,079,000 $143,741,000 - ---------------------------------------------------------------------------------------------------- RECEIVABLE FROM HON MEMBERS COMPANY OWNERSHIP PLAN Balance, beginning of year........................... $(13,483,000) $(15,681,000) $ -- Principal loaned to HON Members Company Ownership Plan...................................... -- -- (17,500,000) Principal repaid by HON Members Company Ownership Plan...................................... 2,372,000 2,198,000 1,819,000 - ---------------------------------------------------------------------------------------------------- Balance, end of year.............................. $(11,111,000) $(13,483,000) $(15,681,000) - ---------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Balance, end of year.............................. $194,640,000 $179,553,000 $163,009,000 ====================================================================================================
The accompanying notes are an integral part of the consolidated financial statements. -30- HON INDUSTRIES Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------------------ FOR THE YEARS 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ NET CASH FLOWS FROM (TO) OPERATING ACTIVITIES: Net income........................................................................ $ 54,156,000 $ 45,127,000 $ 38,683,000 Noncash items included in net income: Depreciation and amortization................................................... 19,042,000 16,631,000 15,478,000 Other postretirement and postemployment benefits................................ 2,104,000 1,750,000 -- Deferred income taxes........................................................... 854,000 (2,113,000) (175,000) Cumulative effect of accounting changes......................................... 237,000 (489,000) -- Other -- net.................................................................... 54,000 58,000 (109,000) Changes in working capital: Receivables..................................................................... (10,619,000) (4,468,000) (12,962,000) Inventories..................................................................... (4,629,000) (7,909,000) 6,567,000 Prepaid expenses................................................................ 1,484,000 (5,428,000) (677,000) Accounts payable and accrued expenses........................................... 4,619,000 16,434,000 8,847,000 Accrued facilities closing and reorganization expenses.......................... (1,885,000) 1,867,000 -- Income taxes payable............................................................ (1,847,000) 1,186,000 (350,000) Increase in other liabilities..................................................... 1,077,000 1,334,000 452,000 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash flows from (to) operating activities.................................. 64,647,000 63,980,000 55,754,000 - ------------------------------------------------------------------------------------------------------------------------------------ NET CASH FLOWS FROM (TO) INVESTING ACTIVITIES: Capital expenditures -- net....................................................... (35,005,000) (27,541,000) (26,626,000) Acquisition spending.............................................................. -- (1,265,000) (2,393,000) Receivable from HON Members Company Ownership Plan................................................................... 2,372,000 2,198,000 (15,681,000) Short-term investments -- net..................................................... 8,515,000 (5,726,000) (1,444,000) Other -- net...................................................................... (291,000) (1,901,000) (134,000) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash flows from (to) investing activities.................................. (24,409,000) (34,235,000) (46,278,000) - ------------------------------------------------------------------------------------------------------------------------------------ NET CASH FLOWS FROM (TO) FINANCING ACTIVITIES: Purchase of HON INDUSTRIES common stock........................................... (29,637,000) (19,568,000) (16,047,000) Proceeds from long-term debt...................................................... -- -- 17,500,000 Payments of note and long-term debt............................................... (3,916,000) (6,025,000) (7,375,000) Proceeds from sale of HON INDUSTRIES common stock to HON Members Company Ownership Plan............................................ -- -- 17,500,000 Proceeds from sale of HON INDUSTRIES common stock to members.......................................................... 1,797,000 1,144,000 944,000 Dividends paid.................................................................... (13,601,000) (12,587,000) (12,114,000) - ------------------------------------------------------------------------------------------------------------------------------------ Net cash flows from (to) financing activities.................................. (45,357,000) (37,036,000) 408,000 - ------------------------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. (5,119,000) (7,291,000) 9,884,000 - ------------------------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................................... 32,778,000 40,069,000 30,185,000 - ------------------------------------------------------------------------------------------------------------------------------------ CASH AND CASH EQUIVALENTS AT END OF YEAR............................................. $ 27,659,000 $ 32,778,000 $ 40,069,000 ==================================================================================================================================== The accompanying notes are an integral part of the consolidated financial statements.
31 HON INDUSTRIES Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PRINCIPAL BUSINESS AND SIGNIFICANT CUSTOMER INFORMATION The Company operates in one principal business segment, the manufacture of office furniture and accessories, including file cabinets, desks, chairs, credenzas, and panel systems. The Company also manufactures factory-built fireplaces, fireplace inserts, and stoves; however, this business is not of sufficient size to be a reportable segment. One customer accounted for approximately 10%, 13%, and 12% of consolidated net sales in 1994, 1993, and 1992, respectively. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Fiscal Year-End - ----------------------------------------------- The consolidated financial statements include the accounts and transactions of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The Company's fiscal year ends on the Saturday nearest December 31. Fiscal year 1994 ended on December 31, 1994; 1993 ended on January 1, 1994; and 1992 ended on January 2, 1993. Cash and Cash Equivalents - ------------------------- The Company considers all investments with a maturity of three months or less when purchased to be cash equivalents. Short-Term Investments - ---------------------- Short-term investments are stated at cost, which approximates market value. Receivables - ----------- Accounts receivable are presented net of an allowance for doubtful accounts of $1,654,000; $1,917,000; and $1,964,000 for 1994, 1993, and 1992, respectively. Inventories - ----------- Inventories are valued at the lower of cost or market, determined principally by the last-in, first-out (LIFO) method. Property, Plant, and Equipment - ------------------------------ Property, plant, and equipment are carried at cost. Depreciation has been computed by the straight-line method over estimated useful lives: land improvements, 10-20 years; buildings, 10-40 years; and machinery and equipment, 4-12 years. CHANGES IN BUSINESS On October 8, 1993, the Company announced the closing of its CorryHiebert Corporation furniture plant located in Corry, Pennsylvania, which closed on December 17, 1993. The closure resulted in a pretax charge of $3,980,000 (after- tax effect of $2,507,000, or $.08 per share) recorded in the fiscal quarter ended October 2, 1993.
SUPPLEMENTAL CASH FLOW INFORMATION 1994 1993 1992 ------------------------- (In thousands) Interest paid during the year...... $ 3,234 $ 3,219 $ 3,447 Income taxes paid during the year.. 32,534 27,144 23,734
The Company incurred capital lease obligations of $8,561,000 in 1992 in connection with lease agreements to acquire information technology equipment.
INVENTORIES 1994 1993 1992 ------------------------- (In thousands) Finished products................. $13,554 $10,731 $ 8,252 Materials and work in process..... 29,705 27,899 22,010 ------------------------- $43,259 $38,630 $30,262 =========================
Current replacement cost exceeded the amount stated for inventories valued by the LIFO method by approximately $12,983,000; $11,705,000; and $12,666,000 as of year-end 1994, 1993, and 1992, respectively.
PROPERTY, PLANT, AND EQUIPMENT 1994 1993 1992 ---------------------------- (In thousands) Land and land improvements......... $ 8,832 $ 8,779 $ 8,767 Buildings.......................... 84,801 81,409 79,819 Machinery and equipment............ 185,421 158,386 142,528 Construction and equipment installation in progress......... 17,915 18,085 17,048 ---------------------------- 296,969 266,659 248,162 Less allowances for depreciation... 119,125 108,889 102,313 ---------------------------- $177,844 $157,770 $145,849 ============================
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1994 1993 1992 ------------------------- (In thousands) Trade accounts payable............. $40,939 $36,873 $28,638 Compensation....................... 3,343 2,843 2,658 Profit sharing and retirement expense.......................... 11,066 10,913 10,009 Vacation pay....................... 8,579 8,083 7,957 Marketing expenses................. 17,443 20,995 12,370 Workers' compensation, general, and product liability expenses... 5,492 6,925 7,359 Other accrued expenses............. 13,036 10,573 9,913 ------------------------- $99,898 $97,205 $78,904 =========================
32 LONG-TERM DEBT AND OTHER LIABILITIES
1994 1993 1992 ------------------------- (In thousands) Industrial development revenue bonds, various issues, payable through 2013 with interest at 5.85 - 8.13% per annum............ $24,928 $25,396 $26,040 Note payable to bank, payable quarterly through 1996 with interest at a variable rate (6.69% at year-end 1994)............. 9,700 12,100 14,100 Other notes and amounts............... 11,452 7,764 6,379 ------------------------- $46,080 $45,260 $46,519 =========================
Aggregate maturities of long-term debt and other liabilities are as follows (in thousands): 1995 $ 5,468 1996 12,150 1997 1,391 1998 1,541 1999 976 Thereafter 30,022 Certain of the above borrowing arrangements include covenants which require the maintenance of a minimum level of working capital, place restrictions on the payment of cash dividends, and limit the assumption of additional debt and lease obligations. Approximately $146,489,000 of retained earnings were unrestricted at the end of 1994. The fair value of the Company's outstanding long-term debt obligations at year- end 1994 approximates the recorded aggregate amount. Property, plant and equipment, with net carrying values of approximately $28,406,000 at the end of 1994, are mortgaged. INCOME TAXES Effective January 3, 1993, the Company changed its method of accounting for income taxes as required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FAS No. 109). Financial statements for years prior to 1993 were not restated. The cumulative effect of adopting FAS No. 109 at January 3, 1993, was to increase net income by $489,000, or $.02 a share. Significant components of the provision for income taxes are as follows:
Deferred Liability Method Method 1994 1993 1992 ---------------------------- (In thousands) Current: Federal...................... $27,504 $26,084 $20,499 State........................ 3,587 2,734 2,886 ---------------------------- 31,091 28,818 23,385 Deferred...................... 854 (2,602) (175) ---------------------------- $31,945 $26,216 $23,210 ============================
The components of the provision for deferred income taxes for the year ended January 2, 1993, are as follows:
1992 -------------- (In thousands) Provision for closing facilities and reorganization expenses............ $(164) Other, net........................... (11) ----- $(175) =====
A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:
1994 1993 1992 -------------------------- Federal statutory tax rate......... 35.0% 35.0% 34.0% State taxes, net of federal tax effect........................ 2.8 2.4 3.1 Other, net......................... (.8) (.4) .4 Effective tax rate................. 37.0% 37.0% 37.5%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows:
Dec. 31, Jan. 1, 1994 1994 ------------------- (In thousands) Net long-term deferred tax liabilities: Tax over book depreciation.......................... $(13,630) $(11,620) Other, net.......................................... 1,536 641 ------------------- Total net long-term deferred tax liabilities...... (12,094) (10,979) ------------------- Net current deferred tax assets: Workers' compensation, general, and product liability accruals......................... 2,029 2,610 Vacation accrual.................................... 3,180 2,988 Other, net.......................................... 6,356 5,706 ------------------- Total net current deferred tax assets............. 11,565 11,304 ------------------- Net deferred tax (liabilities) assets............. $ (529) $ 325 ===================
-33- HON INDUSTRIES Inc. and Subsidiaries Notes to Consolidated Financial Statements SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
1994 1993 1992 ------------------------------------- Common Stock, $1 Par Value Authorized.................. 100,000,000 100,000,000 100,000,000 Issued and outstanding........ 30,674,603 31,675,846 32,368,956 Preferred Stock Authorized.................... 1,000,000 1,000,000 1,000,000 Issued and outstanding........ -- -- --
The Company purchased 1,078,835; 751,399; and 819,687 shares of its common stock during 1994, 1993, and 1992, respectively. Cash dividends declared and paid per share for each year are: 1994 1993 1992 ----------------------- Common shares................... $.44 $.40 $.37 Net income per common share is based on the weighted average number of shares of common stock outstanding during each year including allocated and unallocated ESOP shares. Shares of common stock were issued in 1994, 1993, and 1992 pursuant to a members' stock purchase plan as follows: 1994 1993 1992 ------------------------ Shares issued................ 77,302 49,816 54,207 Average price per share...... $23.25 $22.96 $17.42 During 1994, shareholders approved the 1994 Members' Stock Purchase Plan. Under the new plan, 500,000 shares of common stock were registered for issuance to participating members. Beginning on July 3, 1994, rights to purchase stock are granted on a quarterly basis to all members who have one year of employment eligibility and work a minimum of 20 hours per week. The price of the stock purchased under the plan is 85% of the closing price on the applicable purchase date. No member may purchase stock under the plan in an amount which exceeds the lesser of 20% of his or her gross earnings or 2,000 shares, with a maximum fair market value of $25,000 in any calendar year. During 1994, 77,302 shares of common stock were issued under the plan at an average price of $23.25. An additional 422,698 shares were available for issuance under the plan at December 31, 1994. The Company has granted restricted stock awards aggregating 75,500 shares of common stock to officers. Vesting of such shares, which is generally dependent on continued employment, occurs in 25% increments annually. The officers are entitled to dividends and have voting rights on all shares awarded. Unearned compensation expense, representing the fair market value of the shares at the date of grant, is charged to income over the vesting period. Approximately $37,000; $223,000; and $356,000 were charged to income as a result of the awards for the years 1994, 1993, and 1992, respectively. At year-end 1994, 1,875 of the awarded shares were not vested. Pursuant to the Company's Shareholder Rights Plan, each share of common stock carries with it one Right. Each Right entitles a shareholder to buy one two- hundredth of a share of a new series of preferred stock at an exercise price of $75.00. Each one two-hundredth of a share of the new preferred stock has terms designed to make it the economic equivalent of one share of common stock. Rights will be exercisable only if a person or group acquires 20% or more of the Company's common stock or announces a tender offer, the consummation of which would result in ownership by a person or group of 20% or more of the common stock. If the Company is acquired in a merger or other business combination transaction, each Right will entitle its holder to purchase, at the then current exercise price of the Right, a number of the acquiring company's common shares having a market value at that time of twice the exercise price of the Right. The Company has entered into change in control employment agreements with corporate officers and certain other key employees. According to the agreements, a change in control occurs when a third person or entity becomes the beneficial owner of 20% or more of the Company's common stock or when more than one-third of the Company's Board of Directors is composed of persons not recommended by at least three-fourths of the incumbent Board of Directors. Upon a change in control, a key employee is deemed to have a two-year employment with the Company, and all his or her benefits are vested under Company plans. If, at any time within two years of the change in control, his or her position, salary, bonus, place of work, or Company-provided benefits are modified, or employment is terminated by the Company for any reason other than cause or by the key employee for good reason, as such terms are defined in the agreement, then the key employee is entitled to receive a severance payment equal to two times salary and the average of the prior two years' bonuses. RETIREMENT BENEFITS The Company has defined contribution profit-sharing plans covering substantially all employees who are not participants in certain defined benefit plans. The Company's annual contribution to the defined contribution plans is based on employee eligible earnings and results of operations and amounted to $10,849,000; $10,092,000; and $9,472,000 in 1994, 1993, and 1992, respectively. The Company sponsors defined benefit plans which include a limited number of salaried and hourly employees at certain subsidiaries. The Company's funding policy is generally to contribute annually the minimum actuarially computed amount. Net pension costs relating to these plans were $228,000; $172,000; and $151,000 for 1994, 1993, and 1992, respectively. The actuarial present value of benefit obligations, less related plan assets at fair value, is not significant. In 1992, the Company established a trust to administer a newly adopted leveraged employee stock ownership plan (ESOP), the HON Members Company Ownership Plan. Company contributions based on employee eligible earnings and dividends on the shares are used to make loan interest and principal payments. As the loan is repaid, shares are -34- distributed to the ESOP trust for allocation to participants. Selected financial data pertaining to the ESOP is as follows:
1994 1993 1992 --------------------------------- (In thousands, except share data) Company contribution to ESOP........... $ 2,977 $ 2,962 $ 2,742 Dividend income of ESOP................ 403 366 339 Company interest expense on ESOP loan................................... 656 605 802 Shares of common stock allocated to ESOP participant accounts.............. 133,945 133,666 122,198 Shares held in suspense (unallocated) by ESOP as of year-end................. 526,421 660,366 794,032 Fair value of shares held in suspense by ESOP as of year-end................. $ 14,082 $ 18,490 $ 18,660 Closing market price of common stock as of year-end......................... $ 26.75 $ 28.00 $ 23.50
In 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which required accrual accounting for nonaccumulating postemployment benefits. The cumulative effect of adoption was to reduce net income by $237,000, after tax, or $.01 a share. POSTRETIREMENT HEALTH CARE The Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," as of January 3, 1993, and recorded the cumulative effect of the accounting change on the deferred recognition basis. The cost of providing these benefits was previously recognized in the period in which the benefits were paid. The following table sets forth the funded status of the plan, reconciled to the accrued postretirement benefits cost recognized in the Company's balance sheet at:
Dec. 31, Jan. 1, 1994 1994 -------------------- (In thousands) Accumulated postretirement benefit obligation (APBO): Retirees.............................................. $ 6,947 $ 7,192 Fully eligible active plan participants............... 3,816 3,374 Other active plan participants........................ 6,397 6,368 Unrecognized net loss (713) (1,659) Unrecognized transition obligation (12,932) (13,650) -------------------- Accrued postretirement benefit cost $ 3,515 $ 1,625 ==================== Net periodic postretirement benefit costs include: Service cost $ 687 $ 603 Interest cost 1,242 1,134 Amortization of transition obligation over 20 years 718 718 -------------------- Net periodic postretirement benefit cost $ 2,647 $ 2,455 ====================
The discount rates at December 31, 1994, and January 1, 1994, were 8.0% and 7.5%, respectively. The 1995 trend rates begin at 8.6% for the post-65 medical coverage and 12.2% for the prescription drug coverage. These rates decrease until their respective caps are reached in the year 2002 for post-65 medical coverage and 2001 for prescription drug coverage. Thereafter, the medical trend rates applicable to the Company subsidy are assumed to be zero percent. Since the pre-65 benefit is currently capped, medical trend rates are assumed to be zero percent for all years. If the medical trend rates were increased by 1.0% for each year, the APBO as of December 31, 1994, would increase by $98,000, and the sum of the service and interest cost components of the net periodic postretirement benefit cost for fiscal year 1994 would increase by $8,000. The 1992 cost for these postretirement benefits on a pay-as-you-go basis was $1,023,000. LEASES The Company leases certain warehouse and plant facilities and equipment. Commitments for minimum rentals under noncancellable leases at the end of 1994 are as follows:
Capitalized Operating Leases Leases ---------------------------- (In thousands) 1995............................................................ $ 1,696 $3,335 1996............................................................ 2,024 2,440 1997............................................................ 2,024 1,274 1998............................................................ 2,024 877 1999............................................................ 2,024 244 Thereafter...................................................... 5,210 511 ------- ------ Total minimum lease payments.................................... 15,002 $8,681 Less amount representing interest............................... 5,563 ====== ------- Present value of net minimum lease payments, including current maturities of $778,000........................................ $ 9,439 =======
Property, plant, and equipment at year-end include the following amounts for capitalized leases:
1994 1993 1992 ------------------------------------ (In thousands) Buildings.............................................. $ 3,709 $ 3,709 $ 3,709 Machinery and equipment................................ 8,419 8,286 8,286 ------------------------------------ 12,128 11,995 11,995 Less allowances for depreciation......................................... 2,507 4,376 2,682 ------------------------------------ $ 9,621 $ 7,619 $ 9,313 ====================================
Rent expense for the years 1994, 1993, and 1992 amounted to approximately $6,572,000; $4,854,000; and $5,031,000, respectively. Contingent rent expense under both operating and capitalized leases (generally based on mileage of transportation equipment) amounted to $525,000; $490,000; and $674,000 for the years 1994, 1993, and 1992, respectively. CONTINGENCIES In connection with laws and regulations pertaining to the protection of the environment, the Company is a party to a few remediation investigations and clean-ups and, along with other companies, has been named a "potentially responsible party" for certain waste disposal sites. Because each of these matters is subject to various uncertainties (such as the extent of contamination, the type of remediation, or other action that may be required), the Company cannot predict the actual costs it will ultimately incur with respect to these matters. However, based on the existence of other "potentially responsible parties" to share in such costs, the volume and type of waste the Company is believed to have contributed to each site and the period of time over which environmental costs may be paid, the Company does not believe that potential liability at these sites will have a material effect on the Company's liquidity, financial position, or results of operations taken as a whole. -35- HON INDUSTRIES Inc. and Subsidiaries Investor Information CORPORATE HEADQUARTERS HON INDUSTRIES Inc. P O Box 1109 414 East Third Street Muscatine IA 52761-7109 Telephone: 319-264-7400 INDEPENDENT AUDITORS Ernst & Young LLP Sears Tower 233 South Wacker Drive Chicago IL 60606-6301 FINANCIAL INFORMATION AND INQUIRIES Shareholders and other interested investors are welcome to call or write with questions or requests for additional information. Inquiries should be directed to: David C. Stuebe, Vice President and CFO HON INDUSTRIES Inc. P O Box 1109 Muscatine IA 52761-7109 Telephone: 319-264-7400 COMMON STOCK HON INDUSTRIES common stock trades on The Nasdaq Stock market under the symbol: HONI. Stock price quotations can be found in major daily newspapers and The Wall Street Journal. TRANSFER AGENT The Company serves as its own transfer agent. Share- holders may report a change of address or make inquiries by writing or calling: Stock Transfer Department HON INDUSTRIES Inc. P O Box 1109 Muscatine IA 52761-7109 Telephone: 319-264-7223 COMMON STOCK DIVIDENDS The Company has paid a cash dividend every quarter since April 15, 1955 -- for 40 years. The 1994 annual dividend was $0.44 per share, up 10% from the 1993 dividend and marked the sixth consecutive year of increases. The quarterly dividend increased another 9.1% from $0.11 to $0.12 per share for the March 1, 1995, payment. Dividends are expected to be paid on March 1, June 1, September 1, and December 1 in fiscal 1995. QUARTERLY CALENDAR The Company operates on a fiscal year ending on the Saturday nearest December 31. Quarterly results are typically announced within 20 days after the end of each quarter, and audited results are typically announced within 40 days after year-end.
Fiscal 1995 Quarter-End Dates - ----------- ----------------- First quarter Saturday, April 1 Second quarter Saturday, July 1 Third quarter Saturday, September 30 Fourth quarter Saturday, December 30
ANNUAL MEETING The Company's annual shareholders' meeting will be held at 10:30 a.m. on Tuesday, May 9, 1995, at the Holiday Inn, Highways 61 & 38 North, Muscatine, Iowa. For overnight lodging reservations, please call 319-264-5550. Shareholders and other interested investors are encouraged to attend the meeting. 10-K REPORT A copy of the Company's annual report filed with the Securities and Exchange Commission on Form 10-K is available, without charge, upon written request to David C. Stuebe, Vice President and CFO, at the address noted above. -36-
SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS First Second Third Fourth Total Quarter Quarter Quarter* Quarter Year -------------------------------------------------- (In thousands, except per share data) Year-End 1994: Net sales.................................. $200,693 $193,045 $222,112 $230,148 $845,998 Gross profit............................... 63,374 59,713 71,005 78,514 272,606 Income before income taxes................. 18,458 14,637 24,659 28,584 86,338 Income taxes............................... 6,830 5,415 9,124 10,576 31,945 Income before cumulative effect of accounting changes.................... 11,628 9,222 15,535 18,008 54,393 Cumulative effect of accounting changes.... (237) -- -- -- (237) Net income................................. 11,391 9,222 15,535 18,008 54,156 Net income per common share: Income before cumulative effect of accounting changes....................... .37 .30 .49 .58 1.74 Cumulative effect of accounting changes... (.01) -- -- -- (.01) Net income per common share................ .36 .30 .49 .58 1.73 Year-End 1993: Net sales.................................. $186,111 $177,537 $203,070 $213,608 $780,326 Gross profit............................... 55,457 53,643 64,024 69,374 242,498 Income before income taxes................. 12,807 12,946 18,628 26,473 70,854 Income taxes............................... 4,675 4,725 7,021 9,795 26,216 Income before cumulative effect of accounting changes.................... 8,132 8,221 11,607 16,678 44,638 Cumulative effect of accounting changes.... 489 -- -- -- 489 Net income................................. 8,621 8,221 11,607 16,678 45,127 Net income per common share: Income before cumulative effect of accounting changes....................... .25 .25 .36 .53 1.39 Cumulative effect of accounting changes.... .02 -- -- -- .02 Net income per common share................ .27 .25 .36 .53 1.41 Year-End 1992: Net sales.................................. $158,575 $163,806 $195,968 $188,201 $706,550 Gross profit............................... 50,100 53,243 65,043 58,985 227,371 Income before income taxes................. 11,470 14,025 19,632 16,766 61,893 Income taxes............................... 4,301 5,260 7,361 6,288 23,210 Net income................................. 7,169 8,765 12,271 10,478 38,683 Net income per common share................ .22 .26 .38 .32 1.18
*In 1993, includes a pretax charge of $3,980,000 (after-tax effect of $2,507,000, or $.08 per share) for discontinuing the operations of a subsidiary.
COMMON STOCK MARKET PRICE AND PRICE/ EARNINGS RATIO (UNAUDITED) ANNUAL 1994 -- 1984 Price/ Market Earnings Price* Ratio --------------- Earnings ------------- per Year High Low Share* High Low - ----------------------------------------------------------- 1994 $ 34 $ 24 $1.73 20 14 1993 29-1/4 21-1/2 1.41 21 15 1992 23-1/2 16-1/2 1.18 20 14 1991 20-1/2 13-1/4 1.02 20 13 1990 23 13-1/2 1.30 18 10 1989 19-7/8 8-3/4 .79 25 11 1988 10-1/4 7-7/8 .94 11 8 1987 11-1/2 8-1/8 .62 19 13 1986 9-7/8 7 .71 14 10 1985 7-3/4 4-1/8 .61 13 7 1984 5-3/4 3-3/4 .38 15 10 -------------- Eleven-Year Average 18 11 ============== *Adjusted for the effect of stock splits COMMON STOCK MARKET PRICES AND DIVEDENDS (UNAUDITED) QUARTERLY 1994 -- 1993 1994 by Divedends Quarters High Low per Share - ---------------------------------------------------- 1st $ 34 $ 24-1/2 $.11 2nd 34 26-1/4 .11 3rd 27-3/8 24 .11 4th 28-1/2 25-1/4 .11 ----- Total Dividends Paid $.44 ===== 1993 by Divedends Quarters High Low per Share - ---------------------------------------------------- 1st $ 29-1/4 $ 22-3/4 $.10 2nd 29-1/4 21-1/2 .10 3rd 28-1/2 25 .10 4th 29 26-1/2 .10 ----- Total Dividends Paid $.40 =====
- 37 - SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS HON INDUSTRIES Inc. AND SUBSIDIARIES December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------ COL.A COL. B COL. C COL. D COL. E - ------------------------------------------------------------------------------------------------------------------------------------ ADDITIONS ------------------------------------ DESCRIPTION Balance at Beginning (1) (2) Deductions--Describe Balance at End of Period Charged to Costs Charged to Other of Period and Expenses Accounts--Describe - ------------------------------------------------------------------------------------------------------------------------------------ (In thousands) Reserves deducted in the consolidated balance sheet from the assets to which they apply: Year ended December 31, 1994: $1,917 $ 594 $ 857 (A) $1,654 Allowance for doubtful accounts ====== ====== ====== ====== Year ended January 1, 1994: $1,964 $ 632 $ 679 (A) $1,917 Allowance for doubtful accounts ====== ====== ====== ====== Year ended January 2, 1993: $1,826 $1,325 $1,187 (A) $1,964 Allowance for doubtful accounts ====== ====== ====== ======
Note A--Excess of accounts written off over recoveries. -38- ITEM 14(a)(3) - INDEX OF EXHIBITS. ---------------------------------- Page ---- Exhibits -------- (10) Change in Control Agreement of the Registrant......... 40 (22) Subsidiaries of the Registrant........................ 52 (24) Consent of Independent Auditors....................... 53 (27) Financial Data Schedule............................... 54 (28A) Executive Bonus Plan of the Registrant................ 55 (28B) Executive Long-Term Incentive Compensation Plan of the Registrant................................ 60 -39- EX-10 2 CHANGE IN CONTROL AGREEM HON INDUSTRIES Inc. EXHIBIT (10) Change In Control Employment Agreement - -------------------------------------- THIS AMENDED AND RESTATED AGREEMENT is made between HON INDUSTRIES Inc., an Iowa corporation (the "Company"), and __________________ (the "Executive"), dated this _____ day of _________________________, 19____. 1. Purpose. The Company wishes to attract and retain well-qualified executive and key personnel. The Company and the Executive wish to assure continuity of management in the event of any actual or threatened Change in Control (as defined in Section 3) of the Company. The Agreement is entered into to accomplish these purposes and in consideration for the mutual covenants herein contained. 2. Operation of Agreement. The "effective date of this Agreement" shall be the first date during the "Change in Control Period" (as defined below) on which a Change in Control occurs. This Agreement shall terminate if the Board of Directors of the Company (the "Board") determines that the Executive is no longer a key executive who should be covered by this Agreement and so notifies the Executive; provided, however, that such a determination shall not be made, and if made shall have no effect, (i) within two years after the Change of Control or (ii) during any period of time when the Company has knowledge that any third person has taken steps reasonably calculated to effect a Change of Control until, in the opinion of the Board, the third person has abandoned or terminated his efforts to effect a Change in Control. Any decision by the Board that the third person has abandoned or terminated his efforts to effect a Change of Control shall be conclusive and binding on the Executive. The "Change in Control Period" shall mean the period commencing on the date hereof and ending on the second anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change in Control Period shall be automatically extended so as to terminate two years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change in Control Period shall not be so extended. 3. Change in Control. For the purposes of this Agreement, a "Change in Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of Directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or main- -40- tained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 3; or (b) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three- quarters of the Directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of Directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. 4. Employment. ---------- (a) The Company hereby agrees to continue the Executive in its employ and the Executive hereby agrees to remain in the employ of the Company, for the period -41- commencing on the effective date of this Agreement and ending on the earlier to occur of (i) the second anniversary of such date or (ii) the Executive's normal retirement date under the Company's applicable retirement plans or under such other agreement as the Company may have made with the Executive (the period commencing on the effective date of this Agreement and, subject to Section 6(c), ending on the earlier to occur of dates specified in clauses (i) and (ii) is referred to herein as the ("Employment Period"). (b) During the Employment Period the Executive's position (including titles), authority and responsibilities shall be at least commensurate with those held, exercised and assigned during the 90-day period immediately preceding the effective date of this Agreement. Such services shall be performed at the location where the Executive was employed immediately prior to the effective date of this Agreement. (c) The Executive agrees that during the Employment Period he shall devote such business time during normal business hours exclusively to the business and affairs of the Company and use his best efforts to perform faithfully and efficiently the responsibilities assigned to him hereunder, in each case, to the extent necessary to discharge the responsibilities assigned to him hereunder, except for (i) services on corporate, civic or charitable boards or committees not significantly interfering with the performance of such responsibilities and (ii) periods of vacation and sick leave to which he is entitled. It is expressly understood and agreed that the Executive's continuing to serve on any boards and committees with which he shall be connected, as a member or otherwise, at the effective date of this Agreement shall not be deemed to interfere with the performance of the Executive's services to the Company. 5. Compensation. ------------ (a) Base Salary. During the Employment Period, the Executive shall receive a base salary ("Base Salary") at a monthly rate at least equal to the highest monthly salary paid to the Executive by the Company or any of its affiliated companies within one year prior to the effective date of this Agreement. The Base Salary shall be reviewed at least once each year and shall be increased at any time and from time to time by action of the Board of the Company or any committee thereof or any individual having authority to take such action in accordance with the Company's regular practices. Any increase in the Base Salary shall not serve to limit or reduce any other obligation of the Company hereunder, and after any such increase the Base Salary shall not be reduced. As used in this Agreement, the term "affiliated companies" means any company controlling, controlled by, or under common control with the Company. (b) Annual Bonus. In addition to the Base Salary the Executive shall be awarded for each fiscal year during the Employment Period an annual bonus ("Annual Bonus") (either pursuant to the Executive Bonus Plan or any other bonus or incentive plan or program of the Company or otherwise) in cash at least equal to the highest bonus paid or payable to the Executive in respect of any of the fiscal years during the three fiscal years immediately prior to the effective date of this Agreement. Each such Annual Bonus shall be payable on the last day of February of the year next following the year -42- for which the Annual Bonus is awarded. (c) Incentive and Savings Plans. In addition to the Base Salary and Annual Bonus payable as hereinabove provided, during the Employment Period the Executive shall be entitled to participate in all applicable incentive and savings plans and programs, including, where applicable, the Executive Long-Term Incentive Compensation Plan and the Salary Deferral Plan, and in all applicable retirement and pension plans, including, where applicable, the HON INDUSTRIES Inc. Profit-Sharing Retirement Plan, on a basis providing him with the opportunity to receive compensation (without duplication of the Annual Bonus) and benefits equal to those provided by the Company and its affiliated companies for the Executive under such plans and programs as in effect at any time during the 90-day period immediately preceding the effective date of this Agreement or, if more favorable to the Executive, as in effect at any time thereafter with respect to executives with comparable responsibilities. (d) Benefit Plans. The Executive or his spouse, as the case may be, shall be entitled to receive employee benefits (including, without limitation, all amounts which he or his spouse is or would have been entitled to receive as benefits under all medical, dental, disability, group life, accidental death and travel accident insurance plans and programs of the Company and its affiliated companies) as in effect at any time during the 90-day period immediately preceding the effective date of the Agreement, or if more favorable to the Executive, as in effect at any time thereafter with respect to executives with comparable responsibilities. (e) Expenses. During the Employment Period the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the policies and procedures of the Company as in effect during the 90-day period immediately preceding the effective date of this Agreement or, if more favorable to the Executive, as in effect at any time thereafter with respect to executives with comparable responsibilities. (f) Vacation and Fringe Benefits. The Executive shall be entitled to paid vacation and fringe benefits in accordance with the policies of the Company as in effect during the 90-day period immediately preceding the effective date of this Agreement or, if more favorable to the Executive, as in effect at any time thereafter with respect to executives with comparable responsibilities. 6. Termination. ----------- (a) Death or Disability. This Agreement shall terminate automatically upon the Executive's death. The Company may terminate Executive's employment, after having established the Executive's Disability, by giving to the Executive written notice of its intention to terminate his employment, and his employment with the Company shall terminate effective on the 90th day after receipt of such notice (the "Disability Effective Date") if within 90 days after such receipt the Executive shall fail to return to full-time performance of his duties (and if the Executive's Disability has been established pursuant to the definition of "Disability" set forth below). For purposes of this -43- Agreement, "Disability" means disability which after the expiration of more than 26 weeks after its commencement is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Executive or his legal representative (such agreement to acceptability not to be withheld unreasonably). (b) Cause. The Company may terminate the Executive's employment for Cause. For purposes of this Agreement, "Cause" means (i) an act or acts of dishonesty on the Executive's part which are intended to result in his substantial personal enrichment at the expense of the Company or (ii) repeated violations by the Executive of his obligations under Section 4 of this Agreement which are demonstrably willful and deliberate on the Executive's part and which resulted in material injury to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered to constitute "Cause" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason. The Executive may terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" means: (i) without the express written consent of the Executive, (A) the assignment to the Executive of any duties inconsistent in any substantial respect with the Executive's position, authority or responsibilities as contemplated by Section 4(b) of this Agreement, or (B) any other substantial change in such position (including titles), authority or responsibilities; (ii) any failure by the Company to comply with any of the provisions of Section 5 of this Agreement, other than an insubstantial and inadvertent failure remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than that at which the Executive is based at the effective date of -44- this Agreement, except for travel reasonably required in the performance of the Executive's responsibilities; (iv) a purported termination by the Company of the Executive's employment otherwise than as permitted by this Agreement, it being understood that any such purported termination shall not be effective for any purpose of this Agreement; (v) any failure by the Company to obtain the assumption and agreement to perform this Agreement by a successor as contemplated by Section 16; or (vi) any good faith determination by the Executive that the Change in Control has resulted in a change of circumstances rendering the Executive substantially unable to carry out authorities or responsibilities attached to his position held prior to the Change in Control. (d) Notice of Termination. Any termination by the Company for Cause or by the Executive for Good Reason shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date of this Agreement (which date shall be not more than 15 days after the giving of such notice). (e) Date of Termination. "Date of Termination" means the date of receipt of the Notice of Termination or the date specified therein, as the case may be. 7. Obligation of the Company upon Termination. ------------------------------------------ (a) Death. If the Executive's employment is terminated by reason of the Executive's death, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement other than those obligations accrued or vested hereunder at the date of his death. (b) Disability. If the Executive's employment is terminated by reason of the Executive's Disability, the Executive shall be entitled to receive disability and other benefits after the Disability Effective Date at least equal to those provided in accordance with Section 5(d). (c) Cause. If the Executive's employment shall be terminated for Cause, the Company shall pay the Executive his full Base Salary through the Date of Termination -45- at the rate in effect at the time Notice of Termination is given, and the Company shall have no further obligations to the Executive under this Agreement, except that such termination shall not modify or affect in any way any accrued right of the Executive to any other compensation payable pursuant to Section 5 or to any vested or accrued benefits payable in accordance with such Section. (d) Good Reason; Other Than for Cause or Disability. ----------------------------------------------- (i) Termination Payments. Subject to clause (ii) hereof, if the Company shall terminate the Executive's employment other than for Cause or Disability, or if the Executive shall terminate his employment for Good Reason, the Company shall pay to the Executive the following amounts and provide him with the following benefits: (a) If not theretofore paid, the Executive shall be paid (x) his Base Salary through the Date of Termination at the rate in effect (or, if greater, the rate required by Section 5(a)) at the time the Notice of Termination was given, and (y) a lump-sum cash payment equal to product of (i) a fraction, the numerator of which equals the number of days elapsed since the beginning of the fiscal year in which the Executive's Date of Termination occurs through the Date of Termination and the denominator of which is 365, and (ii) the average of the Annual Bonus paid to the Executive for the two years prior to the year in which the Date of Termination occurs. (b) A lump-sum cash payment equal to two times the sum of (x) the Executive's annual base salary (at the rate in effect immediately prior to the Date of Termination, or, if greater, the rate required by Section 5(a)) and (y) the average of the Annual Bonuses paid to the Executive for the two years prior to the year in which the Date of Termination occurs. (c) For two years after the Date of Termination, the Executive shall continue to receive benefits under the Company's employee benefit plans described in Section 5(d) and 5(f) hereof as if he remained employed with the Company, provided that upon the Executive's employment with another employer providing benefits described in Section 5(d), the Company's coverage shall be secondary, and provided further that the Company shall continue to make available to the Executive beyond the two-year period and on the same basis as to other active members all medical plans and programs for so long as a reasonably comparable program is not made available to the Executive or his spouse and minor children through another employer's group plan or a government sponsored plan, such as Medicare. -46- (d) The Executive shall be considered fully vested in any compensation or benefit amounts accrued, accruable or payable by the Company to the Executive under any Company sponsored compensation or benefit plan, whether qualified or unqualified, including but not limited to Salary Deferral Plans, Executive Bonus Plans, Executive Long-Term Incentive Compensation Plans and such other plans as may have been in effect for the Executive immediately prior to the effective date of this Agreement and/or his Date of Termination. (e) If, despite the provisions of Sections 7(d)(i)(c) and 7(d)(i)(d) above, benefits or service credits under any such employee benefit plan shall not be payable or provided under any such plan to the Executive, or his dependents, beneficiaries and estate, because he is no longer an employee of the Company, the Company itself shall, to the extent necessary, pay or provide for payment of such benefits and service credits for such benefits to the Executive, his dependents, beneficiaries and estate. (ii) Limitation. Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (a "Payment") would be nondeductible by the Company for Federal income tax purposes because of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), then the aggregate present value of amounts payable or distributable to or for the benefit of Executive pursuant to this Agreement (such payments or distributions pursuant to this Agreement are hereinafter referred to as "Agreement Payments") shall be reduced (but not below zero) to the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present value which maximizes the aggregate present value of Agreement Payments without causing any Payment to be nondeductible by the Company because of Section 280G of the Code. Present value shall be determined in accordance with Section 280G(d)(4) of the Code. The determination of the Reduced Amount and the components thereof required to be made hereunder shall be made by Ernst & Young, or any other accounting firm which, immediately prior to the effective date of this Agreement, is the Company's independent auditor ("Accounting Firm") which shall provide detailed supporting calculations both to the Company and Executive within ten business days of the termination of employment of Executive or such earlier time as is requested by the Company. Such determination by Accounting Firm shall be binding upon the Company and Executive. Executive shall determine which and how much of the Agreement Payments (or, at the election of Executive, other Payments) shall be eliminated or reduced consistent with the determination of Reduced Amount by Accounting Firm, provided that, if Executive does not make such determination within five business days of the receipt of the calculations made -47- by Accounting Firm, the Company shall elect which and how much of the Agreement Payments shall be eliminated or reduced consistent with the calculation of the Reduced Amount and shall notify Executive promptly of such election. As promptly as practicable thereafter, the Company shall pay to or distribute to or for the benefit of Executive such amounts as are then due to Executive under this Agreement and shall promptly pay to or distribute for the benefit of Executive in the future such amounts as become due to Executive under this Agreement. As a result of the uncertainty in the application of Section 280G of the Code at the time of the initial determination by Accounting Firm hereunder, it is possible that Agreement Payments will have been made by the Company which should not have been made ("Overpayment") or that additional Agreement Payments which will have not been made by the Company could have been made ("Underpayment)", in each case, consistent with the calculation of the Reduced Amount hereunder. In the event that Accounting Firm determines that an Overpayment has been made, any such Overpayment shall be treated for all purposes as a loan to Executive which Executive shall repay to the Company together with interest at the applicable Federal rate provided for in Section 7872 (f)(2) of the Code; provided, however, that no amount shall be payable by Executive to the Company (or if paid by Executive to the Company shall be returned to Executive) if and to the extent such payment would not reduce the amount which is subject to taxation under Section 4999 of the Code. In the event that Accounting Firm determines that an Underpayment has occurred, any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive together with interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. 8. Confidentiality and Noncompetition. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during his employment by the Company or any of its affiliated companies and which shall not be public knowledge. After termination of the Executive's employment with the Company he shall not, without the prior written consent of the Company, communicate or divulge any such information, knowledge, or data to anyone other than the Company and those designated by it. The Executive agrees that, in the event of the Termination for Cause or a voluntary termination of his employment with the Company other than for Good Reason, he shall not for a period of one year following such termination enter into any relationship whatsoever, either directly or indirectly, alone or in partnership, or as an officer, Director, employee or stockholder (beneficially owning stock or options to acquire -48- stock totalling more than five percent of the outstanding shares) of any corporation (other than the Company), or otherwise acquire or agree to acquire a significant present or future equity or other proprietorship interest, whether as a stockholder, partner, proprietor or otherwise, with any enterprise, business or division thereof (other than the Company), which is engaged in the same business in those states within the United States in which the Company is at the time of such termination of employment conducting its business and which has annual sales of at least $10,000,000. In no event shall an asserted violation of the provisions of this Section 8 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 9. No Obligation to Mitigate Damages. In the event of the termination of the Executive's employment, the Executive shall not be under any obligation to mitigate damages by seeking other employment and no amounts shall be offset against payments due to the Executive hereunder unless specifically provided herein. 10. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any benefit, bonus, incentive or other plan or program provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under other agreements with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan or program of the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan or program. 11. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any circumstances, including without limitation any set- off, counterclaim, recoupment, defense or other right which the Company may have against the Executive or others. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof or as a result of any contest by the Executive against the amount of any deduction pursuant to Section 7(d)(ii) hereof, plus in each case interest, compounded quarterly, on the total unpaid amount determined to be payable under this Agreement, such interest to be calculated on the basis of the prime commercial lending rate announced by The Northern Trust Company, headquartered in Chicago, Illinois in effect from time to time during the period of such nonpayment. In the event that the Executive shall in good faith give a Notice of Termination for Good Reason and it shall thereafter be determined that Good Reason did not exist, the employment of the Executive shall, unless the Company and the Executive shall otherwise mutually agree, be deemed to have terminated, at the date of giving such purported Notice of Termination, by mutual consent of the Company and the Executive and, except as -49- provided in the last preceding sentence and except that such termination shall not modify or affect in any way any accrued right of the Executive to any compensation payable pursuant to Section 5 or to any vested or accrued benefits payable in accordance with such Section, the Executive shall be entitled to receive only those payments and benefits which he would have been entitled to receive at such date otherwise than under this Agreement. 12. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and if sent by registered or certified mail to the Executive at the last address he has filed in writing with the Company or, in the case of the Company, at its principal executive offices. Notice and communications shall be effective when actually received by the addressee. 13. Non-Alienation. The Executive shall not have any right to pledge, hypothecate, anticipate or in any way create a lien upon any amounts provided under this Agreement; and no benefits payable hereunder shall be assignable in anticipation of payment either by voluntary or involuntary acts, or by operation of law, except by will or the laws of descent and distribution. 14. Governing Law. The provisions of this Agreement shall be construed in accordance with the laws of the State of Iowa, without reference to principles of conflicts of laws. 15. Amendment. This Agreement may be amended or cancelled by mutual agreement of the parties in writing without the consent of any other person and, so long as the Executive lives, no person, other than parties hereto, shall have any rights under or interest in this Agreement or the subject matter hereof. 16. Successor to the Company. This Agreement shall inure to the benefit of and be binding upon the Company and its successors. The Company shall require any successor to all or substantially all of the business and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation, acquisition of stock, or otherwise, by an agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform if no such succession had taken place. 17. Miscellaneous. ------------- (a) In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall be unaffected thereby and shall remain in full force and effect. (b) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. -50- (c) This Agreement contains the entire understanding with the Executive with respect to the subject matter hereof and shall supersede any similar agreement previously entered into between HON INDUSTRIES and the Executive. (d) The Company hereby waives any and all conflicts of interest and attorney-client privilege that would prohibit counsel to the Company from representing the Executive in disputes relating to this Agreement. IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant to the authorization from its Board of Directors the Company has caused these presents to be executed in its name on its behalf, and its corporate seal to be hereunto affixed and attested by its Secretary, all as of the day and year first above written. ----------------------------- Executive HON INDUSTRIES Inc. By: ------------------------- (SEAL) Its: ------------------------- ATTEST: - ------------------------- Secretary -51- EX-22 3 SUBSIDIARIES OF THE REGI EXHIBIT (22) SUBSIDIARIES OF THE REGISTRANT. ------------------------------- State of Subsidiary Incorporation Doing Business As - ---------- ------------- ----------------- CorryHiebert Corporation Iowa CorryHiebert Corporation Heatilator Inc. Iowa Heatilator Inc. Hiebert East, Inc. Iowa The HON Company Holga Inc. Iowa Holga Inc. Murphy-Miller Co. Iowa The HON Company BPI Inc. Iowa BPI Inc. Ring King Visibles, Inc. Iowa Ring King Visibles, Inc. XLM Company Iowa XLM Company The Gunlocke Company Iowa The Gunlocke Company Chandler Attwood Limited Iowa Chandler Attwood Limited HON Financial Corporation III Iowa HON Financial Corporation III HON Export Limited Iowa HON Export Limited T. M. Export Inc. Barbados, T. M. Export Inc. West Indies -52- EX-24 4 AUDITORS CONSENT Exhibit (24) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-20759) pertaining to the members' stock purchase plan of HON INDUSTRIES Inc. of our report dated February 1, 1995, with respect to the consolidated financial statements and schedule of HON INDUSTRIES Inc. and subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 1994. Ernst & Young LLP Chicago, Illinois March 24, 1995 -53- EX-27 5 FINANCIAL DATA SCHEDULE
5 0000048287 HON INDUSTRIES INC. 1,000 YEAR DEC-31-1994 DEC-31-1994 27,659 3,083 95,923 1,654 43,259 188,811 296,969 119,125 372,568 111,094 46,080 30,675 0 0 163,965 372,568 845,998 845,998 573,392 573,392 185,490 0 778 86,338 32,182 54,156 0 0 0 54,156 $1.73 $1.73
EX-28.A 6 EXECUTIVE BONUS PLAN EXHIBIT (28A) EXECUTIVE BONUS PLAN HON INDUSTRIES INC. As adopted on May 1, 1974, and amended on April 20, 1976, April 19, 1977, January 31, 1983, February 5, 1985, November 4, 1986, July 7, 1988, May 4, 1992, November 2, 1992, February 8, 1993, February 14, 1994, and November 14, 1994 1. Purpose. The Executive Bonus Plan purpose is to encourage a consistently high standard of excellence and continued employment by officers and selected other executives of the Corporation and any subsidiary which elects to become a part of the Plan (electing Subsidiary). The Plan shall be operated at all times in conformance with applicable government regulations. (As amended January 31, 1983 and May 4, 1992). 2. Participants. All of the officers of HON INDUSTRIES Inc. and electing Subsidiaries as of the end of each fiscal year and such other executives of HON INDUSTRIES Inc. and electing Subsidiaries as are selected by the Board of Directors each year shall be eligible to be Participants. (As amended April 20, 1976 and April 19, 1977.) 3. Payment. Upon final determination of bonus awards by the Board of Directors, the bonuses shall be paid as follows: a. Each award for the 1972 fiscal year shall be paid in two installments: (1) the first, equal to two-thirds of the award, shall be paid on the first day of the Corporation's March fiscal month following the end of the 1972 fiscal year; (2) the second, equal to one-third of the award, shall be paid on the first day of the Corporation's March fiscal month following the end of the 1973 fiscal year, if earned by the Participant by continuing service with the Corporation through the date of payment of the award. b. Each award for the 1973 fiscal year and each fiscal year thereafter shall be paid in three annual installments: (1) the first, equal to one-half of the award, shall be paid on the last day of the Corporation's February fiscal month following the end of the Corporation's fiscal year for which the award is made; (2) the second and third, each equal to one-fourth of the award, shall be paid on the last day of the Corporation's February fiscal month following the end of each following fiscal year (until the full amount of the -55- award is paid) if earned by the Participant by continuing service with the Corporation through the date of payment of each installment or if earned as described in Paragraph 4. (As amended January 31, 1983.) 4. Earn Out. Participants' rights to installments shall vest and be earned as follows: a. A Participant's right to all unpaid and undelivered bonus awards shall vest immediately upon his death or disability, upon termination of his employment for any reason within 27 months after a change in corporate control, or upon his retirement after age 55 pursuant to established retirement policies of the Corporation. Payments to a living Participant shall be made according to Paragraph 5 as though he continued in service with the Corporation unless Participant's employment has been terminated within 27 months after a change in control, in which case payments shall be made to the Participant no later than 30 days following such termination. Payments to a deceased Participant shall be made in full to his legal representatives at such time as determined by the Board of Directors, but in no event later than the time at which he would have received such payments had he remained living and employed by the Corporation. The Board of Directors' decisions concerning disability shall be final. (As amended February 5, 1985, and November 14, 1994.) b. A Participant whose employment terminates for any reason other than death, disability, retirement after age 55 pursuant to established retirement policies of the Corporation, or a change in corporate control may retain his rights to earn out unearned bonus awards only to such extent as the Board of Directors may decide. No installment or amount paid or delivered prior to the date of the decision of the Board of Directors shall be required to be returned. (As amended January 31, 1983.) c. As used above, "change in corporate control" means (i) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (a) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of Directors (the "Outstand ing Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following -56- acquisitions shall not constitute a Change of Control: (a) any acquisition directly from the Company, (b) any acquisition by the Company, (c) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (d) any acquisition by any corporation pursuant to a transaction which complies with clauses (a), (b) and (c) of subsection (iii) of this Section 4; or (ii) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least two- thirds of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three-quarters of the Directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then out standing shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of Directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such -57- Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (c) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (As amended November 4, 1986, July 7, 1988, and November 14, 1994.) 5. Cash. Each such bonus shall be paid in cash. (As amended May 4, 1992 and February 14, 1994.) 6. Administration. The Board of Directors shall have full power to interpret and administer this Plan from time to time in accordance with the By- laws of the Corporation except to the extent that the Board of Directors may have delegated its powers to the Committee on Compensation. Decisions of the Board of Directors shall be final, conclusive, and binding upon all parties. 7. Forfeitures. A Participant who loses his right to earn out unearned bonus awards shall receive all earned out portions of bonus awards, if any. The balance of unearned bonus awards shall not be paid in any form and shall accrue to the benefit of the Corporation. (As amended February 14, 1994.) 8. Cost. Electing Subsidiaries shall reimburse HON INDUSTRIES Inc. for the amount of such bonuses which shall be awarded and paid to Participants for services to such Subsidiaries as determined by the Board of Directors. 9. Limitation on Amount of Individual Bonus. Beginning with the bonus payable for the 1976 fiscal year and continuing thereafter, the amount of an individual Participant's award shall not exceed the following: a. One hundred percent of base salary for the Chairman of the Board or the President of the Corporation. b. Seventy-five percent of base salary for the operating head of any Division or Subsidiary of the Corporation. c. Fifty percent of base salary for any other officer of the Corporation or a Subsidiary. -58- d. Twenty-five percent of base salary for any other Participant. (As amended April 20, 1976.) -59- EX-28.B 7 INCENTIVE COMP PLAN EXHIBIT 28(B) EXECUTIVE LONG-TERM INCENTIVE COMPENSATION PLAN HON INDUSTRIES INC. AS ADOPTED ON APRIL 30, 1984, AMENDED ON NOVEMBER 4, 1986, RESTATED ON FEBRUARY 5, 1987, AND AMENDED ON JULY 7, 1988, OCTOBER 29, 1991, FEBRUARY 14, 1994, MAY 9, 1994, NOVEMBER 14, 1994, AND FEBRUARY 13, 1995 1. Purpose of Plan. The purpose of the Plan is to provide reward for performance and incentive for future endeavor to selected executives who have major influence on profitability and contribute to the long-term success of the Company by making them participants in that success, to focus the attention of executives on the long-range interests of the shareholders rather than just quarterly or annual profits, and to base the reward on the performance of the Company rather than the performance of the stock market. 2. Administration of Plan. The Board of Directors shall have full power to interpret and administer the Plan in accordance with its terms. Decisions of the Board of Directors shall be conclusive and binding upon all parties. The Plan shall be administered in conformance with applicable government regulations. 3. Participants. Any executive of HON INDUSTRIES Inc., or its subsidiaries, may be selected by the Board of Directors to participate in the Plan, but the intent is to involve only the few key executives who have major influence on long-range success and profitability. 4. Form of Awards. Awards under the Plan will be in the form of rights to the appreciation in value of units of permanent capital assigned to participants. Awards may be in units of permanent capital applicable to HON INDUSTRIES Inc., or of any HON INDUSTRIES' division or subsidiary. For purposes of calculating appreciation hereunder, an award period measured in calendar years shall be deemed to mean and be the equivalent of the corresponding Company fiscal year. For purposes of calculating appreciation hereunder, an award period measured in calendar years shall be deemed to mean and be the equivalent of the corresponding Company fiscal year. (As amended February 13, 1995.) For purposes of the Plan, permanent capital is determined by the Board of Directors and is generally defined as total assets less current liabilities (excluding current portions of long-term debt and capital lease obligations from current liabilities). The appreciation in value of units of permanent capital assigned to participants shall be limited in all respects to appreciation resulting from the earnings of HON INDUSTRIES Inc., or of an applicable HON INDUSTRIES' division or subsidiary. Appreciation will exclude non-operating items such as gains and losses from sales of assets and sales, transfers, or redemptions of permanent capital. -60- In determining annual appreciation, no allocations of parent company expense to operating companies will be made, but parent company charges for services requested and performed, and parent company costs directly attributable to operating companies will be made. Local, state, and federal income taxes; sales taxes; investment tax credits; and other adjustments are computed and allocated to operating companies on as near an actual basis as possible. Interest on long-term debt and capital lease obligations is not deducted from earnings in the determination of appreciation in value of awards. Calculation of the appreciation and value of a participant's award following a change in corporate control shall be made in a manner consistent with that made by the Corporation prior to the change in corporate control. (As adopted November 14, 1994.) 5. Grant of Awards. Awards may be made at any time at the discretion of the Board of Directors. 6. Duration of Awards. Awards may be granted for a period of any length up to five years, from the designated start of a calendar year. (As amended October 29, 1991, and February 13, 1995.) In the event a participant transfers employment (to or from) within HON INDUSTRIES Inc., or any related division or subsidiary during the term of an award, such award may be terminated by the Board of Directors and such award will be paid out in accordance with Section 7 herein, or as otherwise determined by the Board of Directors. (As amended October 29, 1991.) 7. Payment. Upon final determination at the end of the award period of the appreciation and value of an award by the Board of Directors, the appreciation on such award will be paid in cash to the participant in three annual installments unless (a) the participant requests and the Board approves a different payout schedule, (b) the payment will result in the Corporation not being eligible to deduct compensation in excess of $1 million, in which case the Human Resources and Compensation Committee of the Board of Directors or its successor committee will determine the deferred payment schedule, or, not withstanding the foregoing, (c) the participant is receiving payment following termination of employment following a change in corporate control, in which case payment shall be made no later than 90 days following the end of the year in which such termination takes place. (As amended May 9, 1994 and November 14, 1994.) If payment is made in installments, interest will accrue on any unpaid balance at the annual interest rate (compounded quarterly) equal to one- half percentage point below the current prime rate charged by The Northern Trust Company, Chicago, Illinois, on each interest calculation date. -61- 8. Vesting. An award shall vest on January 1 and shall be payable, together with interest, on or before February 28 of the calendar year following the end of the award period. A participant whose employment terminates for any reason after the end of the award period shall retain rights to payment under Section 7 of the Plan. (As amended February 13, 1995.) A participant whose employment terminates before the end of the award period for any reason other than as specified in the immediately following paragraph will not retain rights to payment under the Plan. (As amended May 9, 1994 and November 14, 1994.) A participant whose employment terminates before the end of the award period for reasons of death, disability, or retirement after age 62, or for any reason following a change in corporate control, shall retain rights to payment under Section 7 of the Plan. Payment will be made to such participant based upon the appreciation and value of such participant's award through the end of the year in which such termination takes place. For purposes of this Plan, "change in corporate control" means (a) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of Directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section 8; or (b) individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least two-thirds of the Board; provided, however, that any individual becoming a Director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least three-quarters of the Directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, -62- respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of Directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the cor- poration resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the Board of Directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (As amended November 14, 1994.) 9. Cost. Costs application to the Plan will be allocated between HON INDUSTRIES Inc. and its divisions and subsidiaries as determined by the Board of Directors. 10. Participant Rights. A participant shall have no rights under the Plan unless expressly provided for in Sections 1 through 10. The Plan does not constitute nor shall it be construed to extend any right of employment whatsoever to any participant. 11. Duration of Plan. The Plan may be terminated or amended by the Board of Directors at its sole discretion at any time. Termination will not cancel or otherwise affect awards made prior to the termination of the Plan. -63- -----END PRIVACY-ENHANCED MESSAGE-----