-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EPEqye4+WJwb2P7PJcObvF4mcDrU+hUKiZcLhzw28QEWsGsNr1pgxG3jO6jL7bOq rrYDoYvdOwZ1eaFv/iDIkw== 0000950131-97-002056.txt : 19970327 0000950131-97-002056.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950131-97-002056 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970326 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-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-02648 FILM NUMBER: 97562976 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-K405 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 28, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) COMMISSION FILE NO. 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. X The aggregate market value of the voting stock held by nonaffiliates of the registrant, as of March 14, 1997, was: $759,297,526, assuming all 5% holders are affiliates. The number of shares outstanding of the registrant's common stock, as of March 14, 1997, was: 29,693,916. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's Proxy Statement dated March 28, 1997, for the May 13, 1997, Annual Meeting of Shareholders are incorporated by reference into Part III. Index of Exhibits is located on Page 43. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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............ 9 Table I--Executive Officers of the Registrant.................. 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........................................................ 9 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.................... 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................................... 17 PART III Item 10. Directors of the Registrant.................................... 18 Item 11. Executive Compensation......................................... 18 Item 12. Security Ownership of Certain Beneficial Owners and Management. 18 Compliance with Section 16(a) of the Securities Exchange Act of 1934........................................................... 18 Item 13. Certain Relationships and Related Transactions................. 18 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8- K.............................................................. 18 Signatures............................................................... 20 Financial Statements..................................................... 22 Financial Statement Schedules............................................ 41 Index of Exhibits........................................................ 43
2 ANNUAL REPORT ON FORM 10-K PART I ITEM 1. BUSINESS. GENERAL. HON INDUSTRIES Inc. is principally a national manufacturer and marketer of office furniture. It also is a major manufacturer and marketer of metal prefabricated fireplaces and related products for the hearth products industry. The Company is ranked as a Fortune 1000 company. The Company is organized into a corporate headquarters and operating units with offices, manufacturing plants, distribution centers, and sales showrooms in the United States and Canada. See Item 2. Properties for additional related discussion. Four operating units, marketing under various brand names, participate in the office furniture industry. These operating units include: a division, The HON Company, and three wholly owned subsidiaries, including The Gunlocke Company, Holga Inc., and BPI 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. A fourth wholly owned subsidiary, Hearth Technologies Inc., was created in October 1996 with the acquisition of Heat-N-Glo Fireplace Products, Inc. and its subsequent integration with the Company's Heatilator operation. This combination of two well-known and highly respected manufacturers of factory- built wood- and gas-burning fireplaces, fireplace inserts, freestanding stoves and accessories positions Hearth Technologies Inc. as the leading manufacturer and marketer in the North American hearth industry. A fifth 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 January 1996, the Company completed the sale of its wholly owned subsidiary, Ring King Visibles, Inc., a manufacturer and marketer of a limited line of personal computer accessories. The sale resulted in an after-tax gain of $2.0 million. During 1995, the Company began to gradually close down its Chandler Attwood Limited subsidiary (six small leased manufacturing sites). The final site was exited in April 1996. Chandler Attwood Limited was a start-up operation in 1992 as a first effort with distributed manufacturing of a limited line of custom-made office furniture in select major metropolitan areas. For further information with respect to the Company's business, including operations information, the sale of Ring King Visibles, Inc., and the acquisition of Heat-N-Glo Fireplace Products, Inc., refer to Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, and the following captions included in the Notes to the Consolidated Financial Statements, which are filed as part of this report: "Nature of Operations," "Business Combinations," "Business Disposition," and "Business Segment Information." Statements in this report that are not strictly historical, including statements as to plans, objectives, and future financial performance, are "forward-looking" statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward- looking statements involve known and unknown risks, which may cause the Company's actual results in the future to differ materially from expected results. These risks include, among others, competition within the office furniture and hearth products industries; the relationship between supply and demand for value-priced office furniture and direct vent gas and wood-burning hearth products; the effects of economic conditions; issues associated with the acquisition and 3 integration of Heat-N-Glo; operating risks; the ability of the Company's distributors to successfully market and sell the Company's products; and the availability of capital to finance planned growth, as well as the risks, uncertainties and other factors described in this report and from time to time in the Company's other filings with the Securities and Exchange Commission. EMPLOYEES. The Company has 6,502 employees (members) and, of this total, 3858 are production personnel. The Company employs 285 members who are a party to a collective bargaining agreement. PRODUCTS. Office Furniture. A broad line of metal and wood commercial and home office furniture is manufactured and marketed through The HON Company division and the Company's wholly owned subsidiaries: BPI Inc., Holga Inc., and The Gunlocke Company. Major products include: file cabinets, desks, freestanding office partitions, panel systems, credenzas, chairs, storage cabinets, tables, bookcases, machine stands, and reception area furniture. 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. Hearth Products. Hearth Technologies Inc., a wholly owned subsidiary, manufactures and markets a broad line of manufactured fireplaces, principally for the home, sold under the Heatilator and Heat-N-Glo brand names. 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, North Carolina, Pennsylvania, South Carolina, Texas, and Virginia. BPI Inc. manufactures office furniture in North Carolina and Washington. Holga Inc. manufactures office furniture in California. The Gunlocke Company manufactures office furniture in New York. Hearth Technologies Inc. manufactures hearth products in Iowa, Minnesota, and Alberta, Canada. 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 DEVELOPMENT. The Company's product 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 product development during 1996, 1995, and 1994 totaled $10.4 million, $11.6 million, and $10.1 million, respectively. INTELLECTUAL PROPERTY. The Company owns 77 U.S. and 28 foreign patents and has applications pending for 40 U.S. and 62 foreign patents. In addition, the Company holds registrations for 72 U.S. and 111 foreign trademarks and has applications pending for 15 U.S. and 61 foreign trademarks. The Company's primary products do not require frequent technical changes. The majority of patents are design patents. They expire at various times depending on when the particular patent was issued. No individual patent nor all the Company's patents in the aggregate are material to its business. 4 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. It believes that the duration of its registered patents 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 is distributed nationally through more than 5,000 office product dealers, 30 wholesalers/distributors, over 50 national and regional retailers, and various 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. Government sales are for certain products, for a certain price, and for a certain time period; thus, none are subject to price renegotiation. One customer, United Stationers Inc., accounted for approximately 12%, 13%, and 13% of the Company's consolidated net sales in 1996, 1995, 1994, 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 field sales organization consists of 16 regional sales managers supervising 70 salespersons, plus approximately 150 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. Hearth Technologies Inc. sells its fireplace and stove products through approximately 1,700 dealers and 250 distributors. The company has a field sales organization of 9 regional sales managers supervising 22 salespersons and 15 manufacturers' representatives. HON Export Limited sales are made through approximately 75 office furniture dealers and wholesale distributors serving select foreign markets. They are principally located in the U.S., Latin America, and the Caribbean. The company has a field sales organization of 1 regional sales manager and 3 salespersons. HON INDUSTRIES' office furniture 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. Hearth products sales tend to have an even larger concentration in third and fourth fiscal quarters. For related information regarding the Company's customers, refer to the "Nature of Operations" note in the Notes to the Consolidated Financial Statements, filed as part of this report. As of December 28, 1996, the Company has an order backlog of approximately $59.1 million which will be filled in the ordinary course of business within the current fiscal year. This compares with $54.9 million as of December 30, 1995, and $52.3 million as of December 31, 1994. 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 responsive customer service. COMPETITION. The principal competitive factors for both office furniture and hearth products are product performance, product quality, complete and 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. 5 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 1996 is estimated by industry sources to be $10.0 billion, up approximately 6% from 1995. It consists of several hundred domestic manufacturing companies plus foreign companies who import products. The Company's primary strength in the office furniture industry lies with its products for the "value 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 it a significant player in the broader U.S. office furniture industry. Hearth products, consisting of prefabricated metal fireplaces and related products, are manufactured by a number of national and regional competitors. However, a limited number of manufacturers dominate the sales in this relatively small industry. Hearth Technologies Inc. is the largest 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. Certain business costs may, from time to time, increase at a rate exceeding the general rate of inflation. However, the Company does not consider the current rate of inflation in the U.S. to be a significant business issue or concern. The Company adjusts the selling prices of its products to maintain profit margins whenever possible. Investments are routinely made in modern plants, equipment, 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 material 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, the Company's environmental legal counsel, and consultants on the management of environmental, health, and safety issues. The Company's ultimate goal is to reduce, and wherever practical, 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. The Company does not anticipate that financially material capital expenditures will be required during fiscal year 1997 for environmental control facilities. It is management's judgment that compliance with current regulations should not have a material effect on the Company's financial condition or results of operations. However, the uncertainty of new environmental legislation and technology in this area makes it impossible to know with confidence. 6 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 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 28, 1996; December 30, 1995; and December 31, 1994, 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 18 cities throughout the United States and Canada which house manufacturing and distribution operations and offices. These total an aggregate 6,029,955 square feet. Of this total, 976,987 square feet are leased, including 283,040 square feet under a capital lease. 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 and distribution facilities (100,000 square feet in size or larger) are as follows:
APPROXIMATE LOCATION SQUARE FEET OWNED LEASED DESCRIPTION OF USE -------- ----------- --------- ------- ------------------ Cedartown, GA 443,334 X Mfg. steel casegoods office furniture** Lake City, MN 235,000 X Mfg. metal prefabricated fireplaces Louisburg, NC 176,354 X Mfg. wood casegoods office furniture Mt. Pleasant, IA 288,006 X Mfg. metal prefabricated fireplaces Muscatine, IA 231,444 X Mfg. steel office seating Muscatine, IA 612,713 X Mfg. steel casegoods office furniture** Muscatine, IA 177,000 X Mfg. wood casegoods office furniture Muscatine, IA 209,100 X Mfg. systems panels office furniture Owensboro, KY 311,575 X Mfg. wood office seating Richmond, VA 283,040 X* Mfg. metal casegoods office furniture** Savage, MN 103,500 X Mfg. metal prefabricated fireplaces South Gate, CA 520,270 X Mfg. steel casegoods & seating office furniture** Sulphur Springs, TX 155,690 X Mfg. steel casegoods office furniture Wayland, NY 692,226 X Mfg. wood casegoods & seating office furniture Williamsport, PA 238,326 X Mfg. wood office seating Winnsboro, SC 180,093 X Mfg. steel office seating TOTAL SQUARE FEET 4,236,131 621,540 ========= =======
- -------- *A capital lease. **Also includes a regional warehouse/distribution center. The Company also owns a 223,680 square foot manufacturing facility located in Muscatine, Iowa, which it leases to another company; and it owns a 164,667 square foot office and manufacturing facility located in Avon, New York, which is listed for sale. Other manufacturing facilities are located in Savage, MN; Dallas, TX; Kent, WA; Mt. Pleasant and Muscatine, IA; Salisbury, NC; Van Nuys, CA; and Calgary, Alberta, Canada. These facilities total an aggregate of 783,937 square feet. Of this total, 355,447 square feet are leased. The Company also leases sales showroom space in office furniture market centers in several major metropolitan areas. 7 There are no major encumbrances on Company-owned properties other than outstanding mortgages on certain properties, the amount of which is disclosed in the "Long-Term Debt and Other Liabilities" note in the Notes to Consolidated Financial Statements, filed as a part of this report. Refer to the "Property, Plant, and Equipment" note in the Notes to Consolidated Financial Statements for related cost, accumulated depreciation, and net book value data. ITEM 3. LEGAL PROCEEDINGS. Along with several other potentially responsible parties ("PRPs"), the Company has been involved with site investigation and clean-up activities imposed by the Federal Comprehensive Environmental Response Compensation and Liability Act ("CERCLA") at one waste disposal site in Georgia which allegedly received waste materials containing hazardous substances generated by the Company or its subsidiaries. In general, under CERCLA, each PRP which actually contributes hazardous substances to a Superfund site is jointly and severally liable for the costs associated with investigating and cleaning up the site. Customarily, the PRPs will work with the Environmental Protection Agency ("EPA") or equivalent state agency to agree upon and implement a plan for site remediation. PRPs for the Georgia site have been required to institute a monitoring program, a background groundwater study, and a possible remediation work plan. The EPA has issued a Record of Decision for the site ("ROD") following the completion of a Remedial Investigation/Feasibility Study. The ROD identified manganese, a constituent not included in waste sent by the Company to the site, as the sole constituent of concern. The Company also owns a portion of the property which is part of the site. The original property owner has agreed to repurchase the property from the Company and indemnify the Company against environmental liabilities arising from the Company's ownership of the property. The Company also is involved in certain continuing clean-up activities under the supervision of the Pennsylvania state environmental authorities at one site formerly used by a Company subsidiary. The costs associated with this site are comprised primarily of investigation and remediation efforts associated with soil and groundwater contamination. In this matter, the Company has worked with appropriate authorities to resolve the issues involved. The Company was named, along with three other PRPs, 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 & Rubber Company facility in South Gate, California ("Firestone Site"). The DTSC is seeking to cover the cost of investigating soil and groundwater contamination and preparing a remedial action plan for the Firestone Site. From 1927 to 1981, the site was owned by The Firestone Tire & Rubber Company (now known as Bridgestone/Firestone, Inc.) and operated from 1928 to 1980 primarily as a tire manufacturing facility. The Company purchased a portion of the Firestone Site in 1981, and subsequently sold a portion of that property to a company now in bankruptcy proceedings. The Company continues to own a part of the Firestone Site. The Company believes its potential liability at the Firestone Site arises from the Company's status as an owner of the property and not as a waste generator. The Company has cooperated in the preparation of a Remedial Investigation/Feasibility Study Work Plan ("RI/FS Work Plan") which was approved by DTSC in June 1995. The investigation under the RI/FS Work Plan began in August 1995 and is expected to be completed in 1997. The Company has, however, denied liability and believes that substantially all investigation and clean-up costs should be borne by Bridgestone/Firestone, Inc. The Company also is reviewing available defenses and claims it may have against third parties, including Bridgestone/Firestone, Inc. Due to such factors as the wide discretion of regulatory authorities regarding clean-up levels and uncertain allocation of liability at multiple party sites, estimates made prior to the approval of a formal plan of action represent management's best judgment as to estimates of reasonably foreseeable expenses based upon average remediation costs at comparable sites. The Company, therefore, has accrued liabilities reflecting management's best estimate of the eventual future cost of the Company's anticipated share (based upon estimated ranges of remediation costs, the existence of many other larger PRPs to share in such costs who are financially viable, the 8 Company's experience to date in relation to the determination of its allocable share, the volume and type of waste the Company is believed to have contributed to the sites, and the anticipated periods of time over which such costs may be paid) of remediation costs. Potential insurance reimbursements are not anticipated. While the final resolution of these contingencies could result in expenses in excess of current accruals and, therefore, have an impact on the Company's consolidated financial result in a future reporting period, management believes that the ultimate outcome will not have a material effect on the Company's financial position or operations. 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. PART I, TABLE I EXECUTIVE OFFICERS OF THE REGISTRANT. (Information as of December 28, 1996)
FAMILY POSITION OTHER BUSINESS EXPERIENCE NAME AGE RELATIONSHIP POSITION HELD SINCE DURING PAST FIVE YEARS ---- --- ------------ -------- ---------- ------------------------- Jack D. Michaels 59 None Chairman of the Board, 1996 Chairman, President and President, Chief 1990 Chief Executive Officer Executive Officer and 1991 Director 1990 R. Michael Derry 59 None Senior Vice President, 1996 Senior Vice President, Human Resources Administration (1990-96) A. Mosby Harvey, Jr. 53 None Vice President, 1993 Principal, Harvey and General Counsel Associates (1991-93) and Secretary George J. Koenigsaecker III 51 None President, The HON 1995 Executive Vice Company President, Operations, The HON Company (1992-95); Senior Vice President, HON INDUSTRIES Inc. (1995); Group Executive, Danaher Corporation (1990-92) Melvin L. McMains 55 None Controller 1980 David C. Stuebe 56 None Vice President and 1994 President, CEO, and Chief Financial Officer Director, Diversified Industries, Inc. (1990-94)
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol: HONI. As of year-end 1996, the Company had 5,319 stockholders of record. 9 The Company serves as its own stock transfer agent. Shareholders may report a change of address or make inquiries by writing or telephoning: Stock Transfer Department HON INDUSTRIES Inc. P.O. Box 1109 Muscatine, IA 52761-7109 Telephone: 319/264-7223 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 22% 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, filed as part of this report. APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
APPROXIMATE NUMBER OF EQUITY TITLE OF CLASS SECURITY HOLDERS OF RECORD AS OF DECEMBER 28, 1996 - -------------- -------------------------------------------------- Common Stock, $1.00 Par Value...................... 5,319 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.
1996 1995 1994 ----------- ----------- ----------- PER COMMON SHARE DATA: Income from Continuing Operations...... $ 2.26 $ 1.35 $ 1.74 Income from Discontinued Operations.... -- -- -- Cumulative Effect of Accounting Changes............................... -- -- (.01) Gain on Sale of Discontinued Operations............................ -- -- -- Net Income............................. 2.26 1.35 1.73 Cash Dividends......................... .50 .48 .44 Book Value............................. 8.49 7.11 6.35 Net Working Capital.................... 1.78 2.15 2.53 OPERATING RESULTS (Thousands of Dollars) Net Sales.............................. $ 998,135 $ 893,119 $ 845,998 Cost of Products Sold.................. 679,496 624,700 573,392 Gross Profit........................... 318,639 268,419 272,606 Interest Expense....................... 4,173 3,569 3,248 Income from Continuing Operations before Income Taxes................... 105,267 65,517 86,338 Income before Income Taxes as a % of Net Sales............................. 10.55% 7.34% 10.21% Federal and State Income Taxes......... $ 37,173 $ 24,419 $ 31,945 Effective Tax Rate for Continuing Operations............................ 35.31% 37.27% 37.00% Income from Continuing Operations...... $ 68,094 $ 41,098 $ 54,393 Income from Continuing Operations as a % of Net Sales........................ 6.82% 4.60% 6.43% Income before Cumulative Effect of Accounting Changes.................... $ 68,094 $ 41,098 $ 54,393 Income from Discontinued Operations.... -- -- -- Net Income............................. 68,094 41,098 54,156 Cash Dividends and Share Purchase Rights Redeemed....................... 14,970 14,536 13,601 Addition to (Reduction of) Retained Earnings.............................. 33,860 18,863 13,563 Net Income Applicable to Common Stock.. 68,094 41,098 54,156 % Return on Average Shareholders' Equity................................ 29.06% 20.00% 28.95% Depreciation and Amortization.......... $ 25,252 $ 21,416 $ 19,042 DISTRIBUTION OF NET INCOME % Paid to Shareholders................. 21.98% 35.37% 25.11% % Reinvested in Business............... 78.02% 64.63% 74.89% FINANCIAL POSITION (Thousands of Dollars) Current Assets......................... $ 205,527 $ 194,183 $ 188,810 Current Liabilities.................... 152,553 128,915 111,093 Working Capital........................ 52,974 65,268 77,717 Net Property, Plant, and Equipment..... 234,616 210,033 177,844 Total Assets of Continuing Operations.. 513,514 409,518 372,568 Total Assets of Discontinued Operations--Net....................... -- -- -- Total Assets........................... 513,514 409,518 372,568 % Return on Beginning Assets Employed.. 25.93% 17.91% 24.72% Long-Term Debt, Other Liabilities, and Capital Lease Obligations............. $ 97,788 $ 53,611 $ 54,741 Shareholders' Equity................... 252,397 216,235 194,640 Retained Earnings...................... 227,365 193,505 174,642 Current Ratio.......................... 1.35 1.51 1.70 CURRENT SHARE DATA Number of Shares Outstanding at Year- End................................... 29,713,265 30,394,337 30,674,603 Weighted Average Shares Outstanding During Year........................... 30,114,295 30,495,642 31,217,725 Number of Shareholders of Record at Year-End.............................. 5,319 5,479 5,556 OTHER OPERATIONAL DATA Capital Expenditures--Net (Thousands of Dollars).............................. $ 44,684 $ 53,879 $ 35,005 Members (Employees) at Year-End........ 6,502* 5,933 6,131
- -------- *Includes members resulting from an acquisition made on October 2, 1996. 12
1993 1992 1991 1990 1989 1988 1987 1986 ---- ---- ---- ---- ---- ---- ---- ---- $ 1.39 $ 1.18 $ 1.02 $ 1.30 $ .79 $ .69 $ .59 $ .68 -- -- -- -- -- .03 .03 .03 .02 -- -- -- -- -- -- -- -- -- -- -- -- .22 -- -- 1.41 1.18 1.02 1.30 .79 .94 .62 .71 .40 .37 .36 .30 .24 .20 .20 .16 5.67 5.04 4.64 4.06 3.76 3.96 3.33 3.35 2.45 2.46 2.13 1.64 1.66 2.59 1.94 1.79 $ 780,326 $ 706,550 $ 607,710 $ 663,896 $ 602,009 $ 532,456 $ 516,262 $ 460,137 537,828 479,179 411,168 458,522 409,942 366,599 355,456 301,197 242,498 227,371 196,542 205,374 192,067 165,857 160,806 158,940 3,120 3,441 3,533 3,611 3,944 4,188 3,512 3,417 70,854 61,893 52,653 69,085 44,656 41,919 41,887 53,960 9.08% 8.76% 8.66% 10.41% 7.42% 7.87% 8.11% 11.73% $ 26,216 $ 23,210 $ 19,745 $ 25,907 $ 17,193 $ 16,139 $ 18,431 $ 26,000 37.00% 37.50% 37.50% 37.50% 38.50% 38.50% 44.00% 48.18% $ 44,638 $ 38,683 $ 32,908 $ 43,178 $ 27,463 $ 25,780 $ 23,456 $ 27,960 5.72% 5.47% 5.42% 6.50% 4.56% 4.84% 4.54% 6.08% $ 44,638 $ 38,683 $ 32,908 $ 43,178 $ 27,463 $ 25,780 $ 23,456 $ 27,960 -- -- -- -- -- 9,515 1,310 1,294 45,127 38,683 32,908 43,178 27,463 35,295 24,766 29,254 12,587 12,114 11,656 9,931 8,298 7,956 7,957 6,569 17,338 26,569 18,182 (11,952) (17,444) 20,986 (18,750) 15,737 45,127 38,683 32,908 43,178 27,463 35,295 24,766 29,254 26.35% 24.75% 23.41% 33.24% 19.92% 25.77% 18.85% 22.74% $ 16,631 $ 15,478 $ 14,084 $ 13,973 $ 12,866 $ 11,860 $ 10,227 $ 8,746 27.89% 31.32% 35.42% 23.00% 30.22% 22.54% 32.13% 22.46% 72.11% 68.68% 64.58% 77.00% 69.78% 77.46% 67.87% 77.54% $ 188,419 $ 171,309 $ 150,901 $ 146,591 $ 162,576 $ 175,367 $ 139,679 $ 140,329 110,759 91,780 82,275 93,465 106,104 78,787 66,136 67,560 77,660 79,529 68,626 53,126 56,472 96,580 73,543 72,769 157,770 145,849 125,465 124,603 114,116 94,339 95,372 84,622 352,405 322,746 280,893 276,984 284,322 275,928 235,621 242,366 -- -- -- -- -- -- 9,734 11,841 352,405 322,746 280,893 276,984 284,322 275,928 245,355 254,207 22.14% 22.18% 19.66% 24.00% 16.32% 18.46% 17.71% 22.71% $ 51,114 $ 54,240 $ 35,664 $ 39,575 $ 38,271 $ 38,712 $ 42,328 $ 38,542 179,553 163,009 149,575 131,612 128,203 147,549 126,388 136,336 161,079 143,741 117,172 98,990 110,942 128,386 107,400 126,150 1.70 1.87 1.83 1.57 1.53 2.23 2.11 2.08 31,675,846 32,368,956 32,208,685 32,384,897 34,097,088 37,323,582 37,976,636 40,724,192 32,090,544 32,758,995 32,371,488 33,110,405 34,816,050 37,426,836 39,794,062 41,083,028 4,653 4,534 4,466 4,331 4,124 4,134 3,218 3,179 $ 27,541 $ 26,626 $ 13,907 $ 20,709 $ 12,807 $ 10,299 $ 15,669 $ 16,953 6,257 5,926 5,599 6,073 6,385 5,423 5,840 5,492
13 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Fiscal year 1996 was a record financial year for HON INDUSTRIES. Net sales for the year were only a breath away from reaching the $1 billion milestone. Each fiscal quarter set a new quarterly record for net sales, net income, and net income per share. Overall Financial Results For the year ended December 28, 1996, net sales were $998.1 million compared to $893.1 million in 1995 and $846.0 million in 1994. The Company's sales growth was 11.8% in 1996, 5.6% in 1995, and 8.4% in 1994; and net sales for each of these years represented a record level. Net income for 1996 was $68.1 million, up 65.7%, compared to $41.1 million in 1995 and $54.2 million in 1994. Net income per share was up 67.4% reaching $2.26 compared to $1.35 in 1995 and $1.73 in 1994. A brief summary of key operating results follows:
(% OF NET SALES FOR PERIOD) ------------------- 1996 1995 1994 ----- ----- ----- Net sales............................................ 100.0% 100.0% 100.0% Cost of products sold................................ 68.1 69.9 67.8 Selling & administrative expenses.................... 21.6 22.6 21.9 Operating income..................................... 10.6 7.5 10.3 Interest expense..................................... .4 .4 .4 Income taxes......................................... 3.7 2.7 3.8 Net income........................................... 6.8 4.6 6.4
Strategic Acquisition One highlight of 1996 was the acquisition of Heat-N-Glo Fireplace Products, Inc., a leading national fireplace manufacturer. The acquisition was completed on October 2, 1996. Heat-N-Glo was integrated with the Company's Heatilator operation to form a new subsidiary, Hearth Technologies Inc. This strategic consolidation positions Hearth Technologies as the leading manufacturer and marketer in the U.S. hearth industry and further strengthens this important business segment for HON INDUSTRIES. For further details about this important acquisition transaction, refer to the "Business Combination" and "Long-Term Debt and Other Liabilities" notes in the accompanying Notes to Consolidated Financial Statements. Core Business The Company participates in two core business segments: office furniture and hearth products. It has a strong national leadership position in both. For 1996, office products comprised 89% of net sales, and hearth products was a growing 11%, with Heat-N-Glo contributing to the results for only the fourth quarter. Industry Growth The office furniture industry continues to be a healthy and growing industry. The industry reported growth of 6% in 1996, 8% in 1995, and 8% in 1994. The Company's experience suggests the hearth products industry is growing at an even more accelerated rate than office furniture. Growth in this industry is being fueled by a combination of new gas fireplace and stove products and technologies, which are being demanded by the consumer-specified market and is Heat-N-Glo's primary market focus; more stringent environmental regulations, and retrofitting older wood-burning and gas fireplace and stove products with the newer gas technologies. 14 Net Sales The growth of the Company's net sales in both core business segments during fiscal year 1996 shows continuing gains in market share as customers search for value products, which are a major product focus of HON INDUSTRIES. Management is supporting this marketing focus for both segments with an ongoing stream of innovative and quality new products and a commitment to manufacturing excellence, which includes providing shorter and more reliable order lead times, providing superior customer service, offering competitively priced products, and making customer satisfaction the paramount objective. Net sales in 1995 were impacted by a fiercely competitive market environment. The Company focused on strengthening its core commercial and budget office furniture business which serves small-and medium-sized businesses, including offices in the home. Fiscal year 1994 net sales benefited from a rebound in U.S. demand for office furniture. Gross Profit In general, the Company's sales growth over the past several years in both business segments has come through unit sales growth as opposed to pricing growth. The competitive marketplace has discouraged general price increases during the past three years. Experience has shown the best opportunity to improve gross profits is through the introduction of new products. As a result, HON INDUSTRIES will continue to introduce a steady stream of new compelling- value products to achieve its future sales and profitability growth objectives. Another major factor influencing the gross profit equation is the Company's commitment to being a low-cost producer of office furniture and hearth products. Increased production costs have been offset to a significant extent by productivity gains, partnering with vendors to find lower cost and higher quality material solutions, efficiencies gained by virtue of increased unit production volume, and improved production processes. Cost of products sold and gross profit, as a percentage of net sales for the 1996 through 1994 time period, have felt the competitive pressure of deeper discounting of net sales. Gross profit margins for 1996, 1995, and 1994 were 31.9%, 30.1%, and 32.2%, respectively. Selling and Administrative Expenses Leveraging selling and administrative expenses has been another emphasis of management; that is, managing these costs so they represent a decreasing percentage of net sales as net sales increase. This is a major ongoing challenge. More aggressive marketing programs, greater use of cooperative advertising programs, freight costs escalating at a more rapid rate than product price increases, costs of financing an aggressive new product development strategy, and costs to pursue a proactive acquisition strategy all contribute to the challenge. For example, product development expense alone represented $10.4 million, $11.6 million, and $10.1 million in 1996, 1995, and 1994, respectively. These expenditures relate directly to the Company's new product commitment. Selling and administrative expenses as a percentage of net sales were 21.6% in 1996, 22.6% in 1995, and 21.9% in 1994. Income Taxes The Company's effective tax rate was 35.3% for 1996, 37.3% for 1995, and 37.0% for 1994. The rate for 1996 was favorably impacted by one-time federal research and development and state new jobs income tax credits of $2.1 million, or $0.7 per share, recorded in the third quarter of 1996. The normal 1996 annual effective tax rate would have been 37.3%. Enhanced Shareholder Value HON INDUSTRIES' net income per share performance for 1996, 1995, and 1994 benefited from the Company's active common stock repurchase program activity during this period. Reported earnings per share for 1996, 1995, and 1994 were enhanced by $0.11, $0.05, and $0.03, respectively, as a result of the repurchases. Similarly, share repurchases have increased the book value of shares outstanding. The impact was $0.52, $0.28, and $0.21 per share for 1996, 1995, and 1994, respectively. 15 Unusual Business Income and Charges The Company closed, consolidated, and sold several operations over the past two years in an effort to concentrate further its core strengths. In addition, the Company resolved several litigation uncertainties, reduced its work force, addressed several asset realization concerns, and benefited from special tax credits. The net effect of these unusual business events was to reduce annual net income by $3.3 million, or $0.11 per share, in 1996, and $4.8 million, or $0.16 per share, in 1995. FINANCIAL CONDITION During 1996, cash from operations was $93.3 million, which provided the funds necessary to meet working capital needs, help finance an acquisition, invest in capital improvements, repay long-term debt, pay increased dividends, and repurchase Company stock. Cash Management Cash, cash equivalents, and short-term investments totaled $32.7 million at the end of 1996, compared to $46.9 million at the end of 1995, and $30.7 million at year-end 1994. These funds, coupled with future cash from operations and additional long-term debt, if needed, are expected to be adequate to finance operations, planned improvements, and growth. Another major element in maintaining a strong balance sheet is managing the investment in receivables and inventories. The Company's success in managing receivables is in large part due to maintaining close communications with the customers and utilizing prudent risk assessment techniques. Inventory levels and turns continue to improve as a function of reducing production cycle times. Trade receivables turns have hovered around 10 for the past several years, including 1996; and inventory turns have been in the 14 to 16 range, with 1996 reaching 17 turns. Capital Expenditure Investments Capital expenditures, net of disposals, were $44.7 million in 1996, $53.9 million in 1995, and $35.0 million in 1994. Expenditures for 1996 were principally for machinery, equipment, and process improvements. Approximately $11.0 million of the expenditures in 1995 were for facility capacity expansion and improvements, with the remainder invested in more productive machinery, equipment, and process improvements. Expenditures for 1994 were also principally for machinery, equipment, and process improvements. Looking forward, the projected capital expenditure level for 1997 is at a slightly higher level than in 1996 and will include some facility capacity expansion, but the bulk of the investment will be for more productive and flexible machinery, equipment, and processes as in the past. Acquisition Strategy A major objective of HON INDUSTRIES continues to be exploring potential acquisitions as a key element of its growth strategy. As a result, considerable executive management effort is devoted to this pursuit. An acquisition must present profitable growth opportunities within the Company's core businesses, must be well managed, and must be well respected by its customers. Long-Term Debt Long-term debt, including capital lease obligations, stood at 23.5% of total capitalization at December 28, 1996, after recording the debt associated with the Heat-N-Glo acquisition. The Company does not expect future capital resources to be a concern. The Company has significant additional borrowing capacity and treasury stock available in the event cash generated from operations should be inadequate to meet future capital needs. 16 Cash Dividends Annualized cash dividends were $0.50 per common share for 1996, $0.48 for 1995, and $0.44 for 1994. The Board of Directors announced a 17% increase in quarterly dividend rate, from $0.12 to $0.14 per common share, in November 1996, effective with the December 1, 1996, dividend payment. The last quarterly dividend increase was from $0.11 to $0.12, effective with the March 1, 1995, dividend payment. A cash dividend has been paid every quarter since April 15, 1955, and quarterly dividends are expected to continue. The dividend payout percentage has ranged from approximately 22% to 33% of prior year earnings. Common Share Repurchases In August 1996, the Board of Directors authorized an additional $20.0 million to acquire the Company's common stock. During 1996, 753,800 shares were reacquired at a cost of approximately $21.9 million, or an average price of $29.07. During 1995, 367,317 shares were reacquired at a cost of approximately $9.8 million, and 1,078,835 shares were purchased in 1994 at a cost of approximately $29.6 million. The Company purchases its own shares in open market transactions. The stock repurchase strategy was initiated in 1985. Approximately 15.9 million shares have been repurchased since program inception at a cost of approximately $228.9 million. As of December 28, 1996, approximately $8.7 million of the Board's last $20.0 million purchase authorization remained unspent. Litigation and Uncertainties The Company is involved in various legal actions arising in the course of business, including certain environmental matters. These uncertainties are referenced in the "Contingencies" note included in the Notes to Consolidated Financial Statements and more fully described in "Item 3. Legal Proceedings" in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996. Management believes that the Company's contingent liability for these matters, including the various environmental issues, will not have a material effect on the financial position or results of operations of the Company. 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" filed as part of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. HON INDUSTRIES Inc., (the "Company") dismissed Ernst & Young LLP, its independent auditors, effective May 14, 1996. In connection with the audits of the two most recent fiscal years, and during the interim period prior to dismissal, there were no disagreements with the former auditors on any matter or accounting principle or practice, financial statement disclosure, or auditing scope or procedure. The former auditor's report on the financial statements of the Company for each of the past two fiscal years was unqualified. The Company engaged Arthur Andersen LLP as its new independent public accountants effective with the dismissal of its former accountants. During the Company's two most recent fiscal years and during the interim period prior to the engagement, there were no consultations with the newly engaged accountants with regard to either the application of accounting principle as to any specific transaction, either completed or proposed; the type of audit opinion that would be rendered on the Company's financial statements; or any matter of disagreements with the former accountants. The Company's Board of Directors approved management's recommendation to change accountants. 17 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 13, 1997, 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 13, 1997, 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 13, 1997, 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 13, 1997, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information under the caption "Certain Relationships and Related Transactions" of the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 1997, is incorporated herein by reference. 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 1996 Annual Report to Shareholders are filed as a part of this report pursuant to Item 8:
PAGE ---- Report of Independent Public Accountants.............................. 22 Consolidated Statements of Income for the Years Ended December 28, 1996; December 30, 1995; and December 31, 1994....................... 24 Consolidated Balance Sheets--December 28, 1996; December 30, 1995; and December 31, 1994.............................. 25 Consolidated Statements of Shareholders' Equity for the Years Ended December 28, 1996; December 30, 1995; and December 31, 1994.......... 26 Consolidated Statements of Cash Flows for the Years Ended December 28, 1996; December 30, 1995; and December 31, 1994....................... 27 Notes to Consolidated Financial Statements............................ 28 Investor Information (including Summary of Unaudited Quarterly Results of Operations)....................................................... 40 (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 28, 1996; December 30, 1995; and December 31, 1994... 42
18 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. A Report on Form 8-K, dated October 16, 1996, was filed to disclose the acquisition by Heatilator Inc., a wholly owned subsidiary of HON INDUSTRIES Inc., of Heat-N-Glo Fireplace Products, Inc. Simultaneous with the merger, the name of Heatilator Inc. was changed to Hearth Technologies Inc. with the former Heatilator and Heat-N-Glo businesses operating as divisions of this subsidiary. Effective November 18, 1996, the Securities and Exchange Commission revised the rules which required registrants to provide financial statement and pro forma financial information for acquisitions that do not meet the "significant subsidiary" test, thus, the Company determined it was exempt from filing this information as a result of complying with the new rule. Subsequently on November 21, 1996, a Report on Form 8-K/A (an amendment) was filed to bring closure to the missing financial statement and pro forma financial information that was not available when the initial Report on Form 8-K was filed. (c) EXHIBITS. The following exhibits are filed pursuant to Item 601 of Regulation S-K:
PAGE(S) IN EXHIBIT FORM 10-K ------- ---------- (3ii)By-Laws of the Registrant................................. 44 (21)Subsidiaries of the Registrant............................. 81 (23A)Consent of Independent Public Accountants................. 82 (23B)Consent of Independent Auditors........................... 83 (27)Financial Data Schedule.................................... 84 (99A)Executive Bonus Plan of the Registrant.................... 85 (99B)Executive Deferred Compensation Plan...................... 89
(d) FINANCIAL STATEMENT SCHEDULES. See Item 14(a)(2). 19 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. /s/ Jack D. Michaels By___________________________________ Jack D. Michaels Chairman, President and CEO Date: February 12, 1997 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 JACK D. MICHAELS 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/ Jack D. Michaels Chairman, President and CEO, 2/12/97 ____________________________________ Principal Executive Jack D. Michaels Officer, and Director /s/ Melvin L. McMains Controller and Principal 2/12/97 ____________________________________ Accounting Officer Melvin L. McMains /s/ David C. Stuebe Vice President and 2/12/97 ____________________________________ Chief Financial Officer David C. Stuebe /s/ Robert W. Cox Director 2/12/97 ____________________________________ Robert W. Cox /s/ W. James Farrell Director 2/12/97 ____________________________________ W. James Farrell /s/ Stanley M. Howe Director 2/12/97 ____________________________________ Stanley M. Howe /s/ Robert L. Katz Director 2/12/97 ____________________________________ Robert L. Katz /s/ Lee Liu Director 2/12/97 ____________________________________ Lee Liu /s/ Celeste C. Michalski Director 2/12/97 ____________________________________ Celeste C. Michalski
20
SIGNATURE TITLE DATE --------- ----- ---- /s/ Michael S. Plunkett Director 2/12/97 ____________________________________ Michael S. Plunkett /s/ Herman J. Schmidt Director 2/12/97 ____________________________________ Herman J. Schmidt /s/ Richard H. Stanley Director 2/12/97 ____________________________________ Richard H. Stanley /s/ Lorne R. Waxlax Director 2/12/97 ____________________________________ Lorne R. Waxlax
21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors and Shareholders HON INDUSTRIES Inc. We have audited the accompanying consolidated balance sheet of HON INDUSTRIES Inc. and subsidiaries as of December 28, 1996, and the related consolidated statement of income, shareholders' equity, and cash flows for the fiscal year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit 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 audit provides 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 28, 1996, and the consolidated results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. Arthur Andersen LLP Chicago, Illinois January 30, 1997 22 REPORT OF INDEPENDENT AUDITORS Board of Directors and Shareholders HON INDUSTRIES Inc. We have audited the accompanying consolidated balance sheets of HON INDUSTRIES Inc. and subsidiaries as of December 30, 1995, and December 31, 1994, 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 30, 1995, and December 31, 1994, 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. Ernst & Young LLP Chicago, Illinois January 30, 1996 23 HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS 1996 1995 1994 - ------------- ------------ ------------ ------------ Net sales.............................. $998,135,000 $893,119,000 $845,998,000 Cost of products sold.................. 679,496,000 624,700,000 573,392,000 ------------ ------------ ------------ Gross Profit....................... 318,639,000 268,419,000 272,606,000 Selling and administrative expenses.... 215,646,000 201,691,000 185,490,000 Gain on sale of subsidiary............. 3,200,000 -- -- ------------ ------------ ------------ Operating Income....................... 106,193,000 66,728,000 87,116,000 ------------ ------------ ------------ Interest income........................ 3,247,000 2,358,000 2,470,000 Interest expense....................... 4,173,000 3,569,000 3,248,000 ------------ ------------ ------------ Income Before Income Taxes............. 105,267,000 65,517,000 86,338,000 Income taxes........................... 37,173,000 24,419,000 31,945,000 ------------ ------------ ------------ Income Before Cumulative Effect of Accounting Changes.................... 68,094,000 41,098,000 54,393,000 Cumulative effect of accounting changes............................... -- -- (237,000) Net Income......................... $ 68,094,000 $ 41,098,000 $ 54,156,000 ============ ============ ============ Net Income Per Common Share: Income before cumulative effect of accounting changes.................... $ 2.26 $ 1.35 $ 1.74 Cumulative effect of accounting changes............................... -- -- (.01) Net Income......................... $ 2.26 $ 1.35 $ 1.73 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 24 HON INDUSTRIES INC. AND SUBSIDIARIES BALANCE SHEET
AS OF YEAR-END 1996 1995 1994 - -------------- ------------ ------------ ------------ ASSETS Current Assets Cash and cash equivalents.......... $ 31,196,000 $ 32,231,000 $ 27,659,000 Short-term investments............. 1,502,000 14,694,000 3,083,000 Receivables........................ 109,095,000 88,178,000 94,269,000 Inventories........................ 43,550,000 36,601,000 43,259,000 Deferred income taxes.............. 9,046,000 14,180,000 11,565,000 Prepaid expenses and other current assets............................ 11,138,000 8,299,000 8,975,000 ------------ ------------ ------------ Total Current Assets............. 205,527,000 194,183,000 188,810,000 Property, Plant, and Equipment....... 234,616,000 210,033,000 177,844,000 Goodwill............................. 51,213,000 908,000 1,247,000 Other Assets......................... 22,158,000 4,394,000 4,667,000 ------------ ------------ ------------ Total Assets..................... $513,514,000 $409,518,000 $372,568,000 ============ ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued expenses.......................... $127,910,000 $117,273,000 $ 99,898,000 Income taxes....................... 2,574,000 5,361,000 4,949,000 Note payable and current maturities of long-term obligations.......... 22,069,000 6,281,000 6,246,000 ------------ ------------ ------------ Total Current Liabilities........ 152,553,000 128,915,000 111,093,000 Long-Term Debt and Other Liabilities. 91,468,000 45,911,000 46,080,000 Capital Lease Obligations............ 6,320,000 7,700,000 8,661,000 Deferred Income Taxes................ 10,726,000 10,757,000 12,094,000 Minority Interest in Subsidiary...... 50,000 -- -- Commitments and Contingencies Shareholders' Equity Common stock....................... 29,713,000 30,394,000 30,675,000 Paid-in capital.................... 360,000 550,000 434,000 Retained earnings.................. 227,365,000 193,505,000 174,642,000 Receivable from HON Members Company Ownership Plan.................... (5,041,000) (8,214,000) (11,111,000) ------------ ------------ ------------ Total Shareholders' Equity....... 252,397,000 216,235,000 194,640,000 ------------ ------------ ------------ Total Liabilities and Shareholders' Equity............ $513,514,000 $409,518,000 $372,568,000 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 25 HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS 1996 1995 1994 - ------------- ------------ ------------ ------------ Common Stock Balance, beginning of year......... $ 30,394,000 $ 30,675,000 $ 31,676,000 Purchase of shares................. (742,000) (367,000) (1,078,000) Shares issued under Members Stock Purchase Plan and restricted stock awards............................ 61,000 86,000 77,000 ------------ ------------ ------------ Balance, end of year............. $ 29,713,000 $ 30,394,000 $ 30,675,000 ------------ ------------ ------------ Paid-In Capital Balance, beginning of year......... $ 550,000 $ 434,000 $ 281,000 Purchase of shares................. (1,654,000) (1,725,000) (1,567,000) Shares issued under Members Stock Purchase Plan and restricted stock awards............................ 1,464,000 1,841,000 1,720,000 ------------ ------------ ------------ Balance, end of year............. $ 360,000 $ 550,000 $ 434,000 ------------ ------------ ------------ Retained Earnings Balance, beginning of year......... $193,505,000 $174,642,000 $161,079,000 Net income......................... 68,094,000 41,098,000 54,156,000 Purchase of shares................. (19,264,000) (7,699,000) (26,992,000) Dividends paid..................... (14,970,000) (14,536,000) (13,601,000) ------------ ------------ ------------ Balance, end of year............. $227,365,000 $193,505,000 $174,642,000 ------------ ------------ ------------ Receivable from HON Members Company Ownership Plan Balance, beginning of year......... $ (8,214,000) $(11,111,000) $(13,483,000) Principal repaid by HON Members Company Ownership Plan............ 3,173,000 2,897,000 2,372,000 ------------ ------------ ------------ Balance, end of year............. $ (5,041,000) $ (8,214,000) $(11,111,000) ------------ ------------ ------------ Shareholders' Equity Balance, end of year............. $252,397,000 $216,235,000 $194,640,000 ============ ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 26 HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS 1996 1995 1994 ------------- ------------- ------------ ------------ NET CASH FLOWS FROM (TO) OPERATING ACTIVITIES: Net income......................... $ 68,094,000 $ 41,098,000 $ 54,156,000 Noncash items included in net income: Depreciation and amortization.... 25,252,000 21,416,000 19,042,000 Gain on sale of subsidiary, net of tax.......................... (2,016,000) -- -- Other postretirement and postemployment benefits......... 1,398,000 2,273,000 2,104,000 Deferred income taxes............ 5,103,000 (3,952,000) 854,000 Cumulative effect of accounting changes......................... -- -- 237,000 Other--net....................... 252,000 1,185,000 54,000 Changes in working capital, excluding acquisition and disposition: Receivables...................... (5,085,000) 6,091,000 (10,619,000) Inventories...................... 184,000 6,658,000 (4,629,000) Prepaid expenses and other current assets.................. (2,613,000) 676,000 1,484,000 Accounts payable and accrued expenses........................ 998,000 17,009,000 4,619,000 Accrued facilities closing and reorganization expenses......... (1,147,000) 366,000 (1,885,000) Income taxes..................... (3,971,000) 412,000 (1,847,000) Increase in other liabilities...... 6,860,000 (216,000) 1,077,000 ------------- ------------ ------------ Net cash flows from (to) operating activities.......... 93,309,000 93,016,000 64,647,000 ------------- ------------ ------------ NET CASH FLOWS FROM (TO) INVESTING ACTIVITIES: Capital expenditures--net.......... (44,684,000) (53,879,000) (35,005,000) Acquisition spending, net of cash acquired.......................... (79,136,000) -- -- Net proceeds from sale of subsidiary........................ 7,336,000 -- -- Principal repaid by HON Members Company Ownership Plan............ 3,173,000 2,897,000 2,372,000 Short-term investments--net........ 12,392,000 (11,611,000) 8,515,000 Other--net......................... (976,000) (205,000) (291,000) ------------- ------------ ------------ Net cash flows from (to) investing activities.......... (101,895,000) (62,798,000) (24,409,000) ------------- ------------ ------------ NET CASH FLOWS FROM (TO) FINANCING ACTIVITIES: Purchase of HON INDUSTRIES common stock............................. (21,912,000) (9,791,000) (29,637,000) Proceeds from long-term debt....... 51,072,000 104,000 -- Payments of note and long-term debt.............................. (8,416,000) (3,350,000) (3,916,000) Proceeds from sale of HON INDUSTRIES common stock to members........................... 1,777,000 1,927,000 1,797,000 Dividends paid..................... (14,970,000) (14,536,000) (13,601,000) ------------- ------------ ------------ Net cash flows from (to) financing activities.......... 7,551,000 (25,646,000) (45,357,000) ------------- ------------ ------------ Net increase (decrease) in cash and cash equivalents.................. (1,035,000) 4,572,000 (5,119,000) ------------- ------------ ------------ Cash and cash equivalents at beginning of year................. 32,231,000 27,659,000 32,778,000 ------------- ------------ ------------ Cash and cash equivalents at end of year.............................. $ 31,196,000 $ 32,231,000 $ 27,659,000 ------------- ------------ ------------ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest......................... $ 3,334,000 $ 3,401,000 $ 3,234,000 Income taxes..................... $ 36,318,000 $ 27,560,000 $ 32,534,000 ============= ============ ============
The accompanying notes are an integral part of the consolidated financial statements. 27 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NATURE OF OPERATIONS HON INDUSTRIES Inc. and subsidiaries (the Company) are a national manufacturer and marketer of office furniture and hearth products. Both industries are reportable segments; however, the Company's office furniture business is its principal line of business. Refer to the "Business Segment Information" note for further information. Office furniture products are sold through a national system of dealers, wholesalers, mass merchandisers, warehouse clubs, retail superstores, end-user customers, and to federal and state governments. Dealer, wholesaler, and retail superstores are the major channels based on sales. Hearth products include wood- and gas-burning factory-built fireplaces, fireplace inserts, gas logs, and stoves. These products are sold through a national system of dealers, wholesalers, and large regional contractors. The Company's products are marketed predominately in the United States and Canada. The Company exports select products to a limited number of markets outside North America, principally Latin America and the Caribbean, through its export subsidiary; however, based on sales, it is not significant. 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 1996 ended on December 28, 1996; 1995 ended on December 30, 1995; and 1994 ended on December 31, 1994. Cash and Cash Equivalents Cash and cash equivalents generally consist of cash and commercial paper. These securities have original maturity dates not exceeding three months from date of purchase. Short-Term Investments Short-term investments are classified as available-for-sale and are highly liquid debt and equity securities. These investments are stated at cost which approximates market value. Receivables Accounts receivable are presented net of an allowance for doubtful accounts of $1,830,000; $1,867,000; and $1,654,000 for 1996, 1995, and 1994, 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, 3-12 years. The Company capitalized interest costs of $95,000 and $256,000 in 1996 and 1995, respectively. 28 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Goodwill and Patents Goodwill represents the excess of cost over the fair value of net identifiable assets of acquired companies. Goodwill is being amortized on a straight-line basis predominately over 40 years. Patents are being amortized on a straight-line basis over their estimated useful lives which range from 7 to 16 years. Patents are reported by the Company as "Other Assets." The carrying value of goodwill and patents is reviewed by the Company whenever significant events or changes occur which might impair recovery of recorded costs. Based on its most recent analysis, the Company believes no material impairment of these intangible assets exists at December 28, 1996.
1996 1995 1994 ------- ------ ------ (IN THOUSANDS) Goodwill........................................... $52,051 $2,865 $2,865 Patents............................................ 16,060 -- -- Less accumulated amortization...................... 838 1,957 1,618 ------- ------ ------ $67,273 $ 908 $1,247 ======= ====== ======
Product Development Costs Product development costs relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. The amounts charged against income were $10,423,000 in 1996, $11,591,000 in 1995, and $10,081,000 in 1994. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. New Accounting Policies The Company adopted Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," in the first quarter of 1996. The adoption had no material effect on results of operations. BUSINESS COMBINATIONS On October 2, 1996, the Company acquired all of the outstanding stock of Heat-N-Glo Fireplace Products, Inc., located in Savage, Minnesota, for a combination of cash and debt totaling approximately $79 million. The Company merged Heat-N-Glo into Heatilator Inc., a wholly owned subsidiary, which changed its name to Hearth Technologies Inc. Both Heatilator and Heat-N-Glo are engaged in the manufacture and marketing of quality hearth products and operate as divisions of Hearth Technologies Inc. The Company paid approximately $62.0 million in cash, a $5.0 million long- term note, and $12.0 million as a convertible debenture for Heat-N-Glo. In connection with the merger, the Company entered into a $34.0 million five-year term loan with LaSalle National Bank. This transaction has been accounted for under the purchase method. Accordingly, the accounts and transactions of the acquired company have been included in the consolidated financial statements from the date of acquisition. 29 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Assuming the acquisition had occurred as of the beginning of fiscal year 1995, the Company's pro forma consolidated net sales would have been approximately $1.07 billion and $971.6 million for 1996 and 1995, respectively. Pro forma consolidated net income and net income per common share would not have been materially different than reported amounts. The net purchase price was preliminarily allocated as follows: (In thousands) Working capital, other than cash................................. $10,702 Property, plant, and equipment................................... 6,441 Other assets..................................................... 548 Patents.......................................................... 16,060 Goodwill......................................................... 52,051 Other liabilities................................................ (6,666) ------- Purchase price, net of cash received......................... $79,136 =======
BUSINESS DISPOSITION On January 24, 1996, the Company sold the outstanding stock of Ring King Visibles, Inc., a wholly owned subsidiary, for $8.0 million in cash and the forgiveness of intercompany receivables of approximately $2.0 million. The sale resulted in an approximate $3.2 million pretax gain for the Company (an after- tax gain of $2.0 million, or $0.07 per share) which was recorded in the first quarter of fiscal year 1996. INVENTORIES
1996 1995 1994 ------- ------- ------- (IN THOUSANDS) Finished products................................ $15,793 $11,265 $13,554 Materials and work in process.................... 27,757 25,336 29,705 ------- ------- ------- $43,550 $36,601 $43,259 ======= ======= =======
Current replacement cost exceeded the amount stated for inventories valued by the LIFO method by approximately $12,337,000; $13,594,000; and $12,983,000 as of year-end 1996, 1995, and 1994, respectively. PROPERTY, PLANT, AND EQUIPMENT
1996 1995 1994 -------- -------- -------- (IN THOUSANDS) Land and land improvements.................... $ 9,114 $ 9,701 $ 8,832 Buildings..................................... 92,509 95,310 84,801 Machinery and equipment....................... 231,780 208,707 185,421 Construction and equipment installation in progress..................................... 42,507 30,036 17,915 -------- -------- -------- 375,910 343,754 296,969 Less allowances for depreciation.............. 141,294 133,721 119,125 -------- -------- -------- $234,616 $210,033 $177,844 ======== ======== ========
30 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
1996 1995 1994 -------- -------- ------- (IN THOUSANDS) Trade accounts payable......................... $ 44,762 $ 47,617 $40,939 Compensation................................... 6,331 4,855 3,343 Profit sharing and retirement expense.......... 11,736 11,490 11,066 Vacation pay................................... 8,064 8,492 8,579 Marketing expenses............................. 36,550 23,930 17,443 Workers' compensation, general, and product liability expenses............................ 3,787 4,032 4,700 Other accrued expenses......................... 16,680 16,857 13,828 -------- -------- ------- $127,910 $117,273 $99,898 ======== ======== =======
LONG-TERM DEBT AND OTHER LIABILITIES
1996 1995 1994 ------- ------- ------- (IN THOUSANDS) Industrial development revenue bonds, various issues, payable through 2013 with interest at 4.50-8.50% per annum............................ $24,063 $24,542 $24,928 Note payable to bank, term loan payable in 2001 with interest at 7.11% per annum*............... 27,200 -- -- Note payable to bank, payable quarterly through 1997 with interest at a variable rate (6.03% at year-end 1996).................................. -- 7,750 9,700 Convertible debenture payable to individuals, due in 1999 with interest at 7.0% per annum......... 12,000 -- -- Accrued employee health care costs............... 7,901 6,503 4,230 Other notes and amounts.......................... 20,304 7,116 7,222 ------- ------- ------- $91,468 $45,911 $46,080 ======= ======= =======
- -------- * The Company has entered into an interest rate swap agreement on a notional amount of $34 million, which is equivalent to the amount of the term loan, to obtain a fixed rate of interest in lieu of a floating rate. The interest rate swap agreement matures at the time the related note matures. The Company is exposed to credit loss in the event of nonperformance by the bank making the loan who is the other party to the agreement. However, the Company does not anticipate nonperformance by the counterparty. Aggregate maturities of long-term debt are as follows (in thousands): 1997................................................ $15,107 1998................................................ 7,459 1999................................................ 19,486 2000................................................ 10,104 2001................................................ 10,026 Thereafter.......................................... 24,209
The note and convertible debenture payable to individuals are payable to the former owners of a business acquired by the Company in 1996. These individuals continue as officers of a subsidiary of the business following the merger. The convertible debenture is convertible into shares of common stock of Hearth 31 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Technologies Inc., a subsidiary of the Company, representing 10% of the current issued and outstanding stock of Hearth Technologies Inc. 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 $198,176,000 of retained earnings were unrestricted at the end of 1996. The fair value of the Company's outstanding long-term debt obligations at year-end 1996 approximates the recorded aggregate amount. Property, plant, and equipment, with net carrying values of approximately $33,451,000 at the end of 1996, are mortgaged. INCOME TAXES Significant components of the provision for income taxes are as follows:
1996 1995 1994 ------- ------- ------- (IN THOUSANDS) Current: Federal...................................... $27,958 $25,360 $27,504 State........................................ 3,932 3,011 3,587 ------- ------- ------- 31,890 28,371 31,091 Deferred....................................... 5,283 (3,952) 854 ------- ------- ------- $37,173 $24,419 $31,945 ======= ======= ======= A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows: 1996 1995 1994 ------- ------- ------- Federal statutory tax rate..................... 35.0% 35.0% 35.0% State taxes, net of federal tax effect......... 2.7 2.6 2.8 Federal and state tax credits.................. (2.2) -- -- Other, net..................................... (.2) (.3) (.8) ------- ------- ------- Effective tax rate............................. 35.3% 37.3% 37.0% ======= ======= =======
The Company recognized one-time federal and state research and development and new jobs tax credits totaling $2.1 million, or $0.07 per share, in 1996 related to prior tax years. 32 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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:
1996 1995 1994 -------- -------- -------- (IN THOUSANDS) Net long-term deferred tax liabilities: Tax over book depreciation............... $(17,584) $(16,358) $(13,630) OPEB obligations......................... 2,947 2,048 1,301 Other--net............................... 3,911 3,553 235 -------- -------- -------- Total net long-term deferred tax liabilities........................... (10,726) (10,757) (12,094) -------- -------- -------- Net current deferred tax assets: Workers' compensation, general, and product liability accruals.............. 1,548 1,670 2,029 Vacation accrual......................... 1,855 3,167 3,180 Other--net............................... 5,643 9,343 6,356 -------- -------- -------- Total net current deferred tax assets.. 9,046 14,180 11,565 -------- -------- -------- Net deferred tax (liabilities) assets.. $ (1,680) $ 3,423 $ (529) ======== ======== ========
SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
1996 1995 1994 ----------- ----------- ----------- Common Stock, $1 Par Value Authorized........................ 100,000,000 100,000,000 100,000,000 Issued and outstanding............ 29,713,265 30,394,337 30,674,603 Preferred Stock Authorized........................ 1,000,000 1,000,000 1,000,000 Issued and outstanding............ -- -- --
The Company purchased 753,800; 367,317; and 1,078,835 shares of its common stock during 1996, 1995, and 1994, respectively. Cash dividends declared and paid per share for each year are:
1996 1995 1994 ---- ---- ---- Common shares.............................................. $.50 $.48 $.44
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 1996, 1995, and 1994 pursuant to a members' stock purchase plan as follows:
1996 1995 1994 ------ ------ ------ Shares issued........................................ 61,370 86,049 77,302 Average price per share.............................. $24.90 $22.39 $23.25
The Company uses the par value method of accounting for common stock repurchases. The excess of the cost of shares acquired over their par value is allocated to Paid-In Capital to the extent appropriate, with the excess charged to Retained Earnings. 33 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. An additional 275,279 shares were available for issuance under the plan at December 28, 1996. The effect of the application of adopting Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation," was not material to the Company. The Company has granted restricted stock awards aggregating 75,500 shares of common stock to officers. The officers were entitled to dividends and had voting rights on all shares awarded. Unearned compensation expense, representing the fair market value of the shares at the date of grant, was charged to income over the vesting period. Approximately $37,000 were charged to income as a result of the awards for the years 1995 and 1994. All of the awarded shares were vested as of year-end 1995. 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 $11,118,000; $10,955,000; and $10,849,000 in 1996, 1995, and 1994, 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 $146,000; $256,000; and $228,000 for 1996, 1995, and 1994, respectively. The actuarial present value of benefit obligations, less related plan assets at fair value, is not significant. 34 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) In 1992, the Company established a trust to administer a 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 distributed to the ESOP trust for allocation to participants. Selected financial data pertaining to the ESOP is as follows:
1996 1995 1994 ------- ------- ------- (IN THOUSANDS, EXCEPT SHARE DATA) Company contribution to ESOP........................... $ 3,348 $ 3,302 $ 2,977 Dividend income of ESOP................................ 446 436 403 Company interest expense on ESOP loan.................. 555 749 656 Shares of common stock allocated to ESOP participant accounts.............................................. 152,733 149,749 133,945 Shares held in suspense (unallocated) by ESOP as of year-end.............................................. 223,939 376,672 526,421 Fair value of shares held in suspense by ESOP as of year-end.............................................. $ 7,264 $ 8,758 $14,082 Closing market price of common stock as of year-end.... $ 32.44 $ 23.25 $ 26.75
In 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for 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 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:
1996 1995 1994 -------- -------- -------- (IN THOUSANDS) Accumulated postretirement benefit obligation (APBO): Retirees...................................... $ 6,535 $ 8,138 $ 6,947 Fully eligible active plan participants....... 3,916 5,612 3,816 Other active plan participants................ 4,808 7,809 6,397 Unrecognized net (loss)/gain.................... 6,919 (933) (713) Unrecognized prior service cost................. (2,776) (2,922) -- Unrecognized transition obligation.............. (11,501) (12,214) (12,932) -------- -------- -------- Accrued postretirement benefit cost............. $ 7,901 $ 5,490 $ 3,515 ======== ======== ======== Net periodic postretirement benefits costs include: Service cost.................................... $ 810 $ 685 $ 687 Interest cost................................... 1,629 1,344 1,242 Amortization of transition obligation over 20 years.......................................... 713 718 718 Amortization of prior service cost.............. 146 -- -- -------- -------- -------- Net periodic postretirement benefits cost....... $ 3,298 $ 2,747 $ 2,647 ======== ======== ========
The discount rates at fiscal year-end 1996, 1995, and 1994 were 7.5%, 7.75%, and 8.0%, respectively. The pre-65 1997 gross trend rates begin at 11.0% for the medical and prescription drug coverages and grade down to 35 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 5.0% in 2006 and remain at this level for all future years. The post-64 gross trend rates begin at 9.0% for the medical coverage and decrease until the maximum Company subsidy (cap) is reached in 2003. For the prescription drug coverage, the 1997 gross trend rates begin at 11.0% and decrease until the cap is reached in 2003. If the health care cost trend rates were increased by 1.0% for each year, the accumulated postretirement benefit obligation as of December 28, 1996, would increase by $493,520; and, the sum of the service and interest cost components of the net periodic postretirement benefit cost for fiscal year 1996 would increase by $45,000. The Company's postretirement health care plans are not funded. LEASES The Company leases certain warehouse and plant facilities and equipment. Commitments for minimum rentals under noncancellable leases at the end of 1996 are as follows:
CAPITALIZED OPERATING LEASES LEASES ----------- --------- (IN THOUSANDS) 1997.......................................... $ 2,024 $ 5,532 1998.......................................... 2,024 4,941 1999.......................................... 2,024 3,975 2000.......................................... 2,024 2,897 2001.......................................... 664 2,113 Thereafter.................................... 2,069 883 ------- ------- Total minimum lease payments.................. 10,829 $20,341 ======= Less amount representing interest............. 3,377 ------- Present value of net minimum lease payments, including current maturities of $1,133,000... $ 7,452 =======
Property, plant, and equipment at year-end include the following amounts for capitalized leases:
1996 1995 1994 ------ ------ ------ (IN THOUSANDS) Buildings........................................... $3,299 $3,299 $3,709 Machinery and equipment............................. 8,419 8,419 8,419 ------ ------ ------ 11,718 11,718 12,128 Less allowances for depreciation.................... 4,854 3,569 2,507 ------ ------ ------ $6,864 $8,149 $9,621 ====== ====== ======
Rent expense for the years 1996, 1995, and 1994 amounted to approximately $6,788,000; $7,439,000; and $6,572,000, respectively. The Company has operating leases for office and production facilities with annual rentals totaling $578,000 with the former owners of a business acquired in 1996. These individuals continue as officers of a subsidiary of the Company following the merger. Contingent rent expense under both capitalized and operating leases (generally based on mileage of transportation equipment) amounted to $353,000; $608,000; and $525,000 for the years 1996, 1995, and 1994, respectively. CONTINGENCIES The Company is involved in various legal actions arising in the course of business. Although management cannot predict the ultimate outcome of these matters with certainty, it believes, after taking into consideration 36 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) legal counsel's evaluation of such actions, that the outcome of these matters will not have a material effect on the financial position or results of operations of the Company. The Company and certain subsidiaries are party to three environmental actions which have arisen in the ordinary course of business. These include possible obligations to investigate and mitigate the effects on the environment of the disposal or release of certain chemical substances at various sites, such as Superfund sites and other operating or closed facilities. The effect of these actions on the Company's financial position and operations to date has not been significant. The Company is participating in environmental assessments and monitoring, and liabilities have been accrued reflecting management's best estimate of the eventual future cost of the Company's anticipated share (based upon estimated ranges of remediation costs, the existence of many other larger "potentially responsible parties" who are financially viable to share in such costs, the Company's experience to date in relation to the determination of its allocable share, the volume and type of waste the Company is believed to have contributed to each site, and the anticipated periods of time over which such costs may be paid) of remediation costs. Potential insurance reimbursements are not anticipated. The Company is also reviewing available defenses and claims it may have against third parties. Due to such factors as the wide discretion of regulatory authorities regarding clean-up levels and uncertain allocation of liability at multiple party sites, estimates made prior to the approval of a formal plan of action represent management's best judgment as to estimates of reasonably foreseeable expenses based upon average remediation costs at comparable sites. While the final resolution of these contingencies could result in expenses in excess of current accruals and therefore have an impact on the Company's consolidated financial results in a future reporting period, management believes that the ultimate outcome will not have a material effect on the Company's financial position or results of operations. BUSINESS SEGMENT INFORMATION The Company has two reportable business segments: office furniture and hearth products. However, the manufacture and marketing of office furniture is the Company's principal business segment. The office furniture segment manufactures and markets a broad line of metal and wood commercial and home office furniture which includes file cabinets, desks, credenzas, chairs, storage cabinets, tables, bookcases, freestanding office partitions and panel systems, and other related products. The hearth products segment manufactures and markets a broad line of manufactured gas- and wood-burning fireplaces and stoves, fireplace inserts, and chimney systems principally for the home. The Company's October 2, 1996, acquisition of Heat-N-Glo Fireplace Products, Inc., resulted in hearth products becoming a reportable segment. Prior to this acquisition, the Company had only one reportable segment, office furniture. Refer to the "Business Combinations" note for additional information regarding this acquisition. For purposes of segment reporting, intercompany sales transfers between segments are not material, and operating profit is income before income taxes exclusive of certain unallocated corporate expenses. Identifiable assets by segment are those assets applicable to the respective industry segments. Corporate assets consist principally of cash and cash equivalents, short-term investments, and corporate office real estate and related equipment. 37 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Reportable segment data reconciled to the consolidated financial statements for the years ended 1996, 1995, and 1994 is as follows:
1996 1995 1994 -------- -------- -------- (IN THOUSANDS) Net sales: Office furniture.......................... $887,299 $818,907 $772,299 Hearth products........................... 110,836 74,212 73,699 -------- -------- -------- $998,135 $893,119 $845,998 ======== ======== ======== Operating profit: Office furniture.......................... $106,824 $ 79,085 $ 96,813 Hearth products........................... 14,155 6,395 6,373 -------- -------- -------- Total operating profit.................. 120,979 85,480 103,186 Unallocated corporate expenses.............. (15,712) (19,963) (16,848) -------- -------- -------- Income before income taxes.............. $105,267 $ 65,517 $ 86,338 ======== ======== ======== Identifiable assets: Office furniture.......................... $330,575 $308,783 $288,436 Hearth products........................... 122,037 25,811 25,791 General corporate......................... 60,902 74,924 58,341 -------- -------- -------- $513,514 $409,518 $372,568 ======== ======== ======== Depreciation and amortization expense: Office furniture.......................... $ 21,140 $ 18,328 $ 16,264 Hearth products........................... 2,813 1,424 1,191 General corporate......................... 1,299 1,664 1,587 -------- -------- -------- $ 25,252 $ 21,416 $ 19,042 ======== ======== ======== Capital expenditures, net: Office furniture.......................... $ 41,186 $ 50,816 $ 29,987 Hearth products........................... 4,060 2,857 3,763 General corporate......................... (562) 206 1,255 -------- -------- -------- $ 44,684 $ 53,879 $ 35,005 ======== ======== ========
One office furniture customer accounted for approximately 12%, 13%, and 13% of consolidated net sales in 1996, 1995, and 1994, respectively. 38 HON INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) 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 1996:* Net sales..................... $233,477 $219,260 $255,254 $290,144 $998,135 Gross profit.................. 73,471 69,033 78,851 97,284 318,639 Income before income taxes.... 26,706 19,518 25,337 33,706 105,267 Income taxes.................. 9,881 7,222 7,430 12,640 37,173 Net income**.................. 16,825 12,296 17,907 21,066 68,094 Net income per common share**. .55 .41 .60 .70 2.26 Year-End 1995: Net sales..................... $216,498 $206,604 $228,195 $241,822 $893,119 Gross profit.................. 68,942 60,358 67,876 71,243 268,419 Income before income taxes.... 20,119 12,366 19,448 13,584 65,517 Income taxes.................. 7,544 4,638 7,209 5,028 24,419 Net income***................. 12,575 7,728 12,239 8,556 41,098 Net income per common share***..................... .41 .25 .41 .28 1.35 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 change.. 11,628 9,222 15,535 18,008 54,393 Cumulative effect of accounting change............ (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 change.. .37 .30 .49 .58 1.74 Cumulative effect of accounting change............ (.01) -- -- -- (.01) Net income per common share... .36 .30 .49 .58 1.73
- -------- * Includes the results of operation of Heat-N-Glo Fireplace Products, Inc., acquired October 2, 1996. **First quarter 1996 includes a $3,200,000 pretax gain on the sale of Ring King Visibles, Inc., a wholly owned subsidiary (after-tax gain of $2,000,000, or $.07 per share), and third quarter includes one-time federal and state income tax credits of $2,100,000, or $.07 per share. ***Fourth quarter 1995 includes various pretax charges totaling $5,575,000 (after-tax effect of $3,512,000, or $.12 per share) for nonrecurring costs primarily associated with closing several leased facilities and severance arrangements from eliminating certain administrative positions. 39 HON INDUSTRIES INC. AND SUBSIDIARIES INVESTOR INFORMATION COMMON STOCK MARKET PRICES AND DIVIDENDS (UNAUDITED) QUARTERLY 1996-1995
DIVIDENDS 1996 BY QUARTER HIGH LOW PER SHARE --------------- ------- ------- --------- 1st............................................. $24 1/4 $18 1/2 $.12 2nd............................................. 30 1/2 22 .12 3rd............................................. 40 3/4 27 3/4 .12 4th............................................. 42 3/4 30 1/2 .14 ---- Total Dividends Paid........................ $.50 ====
DIVIDENDS 1995 BY QUARTER HIGH LOW PER SHARE --------------- ------- ------- --------- 1st............................................. $30 1/2 $23 $.12 2nd............................................. 30 25 3/4 .12 3rd............................................. 31 1/4 25 1/2 .12 4th............................................. 29 3/4 23 1/4 .12 ---- Total Dividends Paid........................ $.48 ====
COMMON STOCK MARKET PRICE AND PRICE/ EARNINGS RATIO (UNAUDITED) FISCAL YEARS 1996-1986
PRICE/EARNINGS MARKET PRICE* EARNINGS RATIO --------------- PER ---------------- YEAR HIGH LOW SHARE* HIGH LOW ---- ------- ------- -------- ------- ------- 1996........................... $42 3/4 $18 1/2 $2.26 19 8 1995........................... 31 1/4 23 1.35 23 17 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 ------- ------- Eleven-Year Average............ 19 12 ======= =======
- -------- * Adjusted for the effect of stock splits 40 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS Board of Directors and Shareholders HON INDUSTRIES Inc. Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The valuation and qualifying accounts as of and for the fiscal year ended December 28, 1996, are presented for the purpose of additional analysis and are not a required part of the consolidated financial statements of HON INDUSTRIES Inc. Such information has been subjected to the auditing procedures applied in our audit of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole. Arthur Andersen LLP Chicago, Illinois January 30, 1997 41 SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS HON INDUSTRIES INC. AND SUBSIDIARIES DECEMBER 28, 1996
COL. A COL. B COL. C COL. D COL. E ------ ---------- --------------------------- ------------ --------- ADDITIONS --------------------------- (1) (2) BALANCE AT CHARGED TO CHARGED TO BALANCE BEGINNING COSTS AND OTHER ACCOUNTS-- DEDUCTIONS-- AT END DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD ----------- ---------- ---------- ---------------- ------------ --------- (IN THOUSANDS) Reserves deducted in the consolidated balance sheet from the assets to which they apply: Year ended December 28, 1996: Allowance for doubtful accounts... $1,867 $1,222 $1,259(A) $1,830 ====== ====== === ====== ====== Year ended December 30, 1995: Allowance for doubtful accounts... $1,654 $1,099 $ 886(A) $1,867 ====== ====== === ====== ====== Year ended December 31, 1994: Allowance for doubtful accounts... $1,917 $ 594 $ 857(A) $1,654 ====== ====== === ====== ======
- -------- Note A--Excess of accounts written off over recoveries. 42 ITEM 14(A)(3)--INDEX OF EXHIBITS.
EXHIBITS PAGE -------- ---- (3ii) By-Laws of the Registrant....................................... 44 (21) Subsidiaries of the Registrant.................................. 81 (23A) Consent of Independent Public Accountants....................... 82 (23B) Consent of Independent Auditors................................. 83 (27) Financial Data Schedule......................................... 84 (99A) Executive Bonus Plan of the Registrant.......................... 85 (99B) Executive Deferred Compensation Plan............................ 89
43 EX-3.II 2 BY LAWS OF HON INDUSTRIES, INC. EXHIBIT 3ii BY-LAWS OF HON INDUSTRIES Inc. Adopted on September 7, 1960. Amended on April 23, 1964, April 28, 1966, August 13, 1969, April 15, 1970, February 12, 1976, July 23, 1976, January 11, 1977, February 13, 1977, April 18, 1977, July 28, 1977, July 29, 1977, October 27, 1977, February 27, 1978, February 19, 1979, August 1, 1979, March 3, 1980, April 30, 1980, October 29, 1980, August 3, 1982, January 31, 1983, October 31, 1983, October 30, 1984, February 5, 1985, May 6, 1985, February 4, 1986, August 5, 1986, February 15, 1988, July 7, 1988, March 13, 1990, February 11, 1991, April 29, 1991, July 29, 1991, May 5, 1992, November 2, 1992, May 11, 1993, February 14, 1994, May 10, 1994, November 13, 1995, and May 14, 1996. ARTICLE 1. OFFICES AND PLACES OF BUSINESS ------------------------------------------ Section 1.01. Principal Place of Business. The prin- IBCA Sec. cipal place of business of the Corporation shall be located 140(17), in such place, within or without the State of Iowa, as 501, 1602 shall be fixed by or pursuant to authority granted by the Board of Directors from time to time. Section 1.02. Registered Office. The registered IBCA Sec. office of the Corporation required by the Iowa Business 501, 502 Corporation Act to be maintained in the State of Iowa may be, but need not be, the same as its principal place of Articles of business. The registered office may be changed from time Incorporation to time by the Board of Directors as provided by law. Art. 5. Section 1.03. Other Places. The Corporation may IBCA Sec. conduct its business, carry on its operations, have 302(10) offices, carry out any or all of its purposes, and exercise any or all of its powers anywhere in the world, within or without the State of Iowa. -44- HON INDUSTRIES Inc. BY-LAWS 2.01 ARTICLE 2. SHAREHOLDERS ------------------------ Section 2.01. Annual Meeting. The annual meeting IBCA Sec. 701 of the shareholders shall be held in each year at such time and place as shall be fixed by the Board of Directors or by the Chairman of the Board of Directors; provided, however, that the annual meeting shall not be scheduled on a legal holiday in the state where held. Any previously scheduled annual meeting may be postponed by resolution of the Board of Directors and on public notice given prior to the date previously scheduled for such annual meeting. At the annual meeting, the shareholders shall elect Directors as provided in Section 3.02 and may conduct any other business properly brought before the meeting. (As amended 4/23/64, 8/1/79, 10/31/83, and 4/29/91.) Section 2.02. Special Meetings. Special meetings IBCA Sec. of the shareholders, for any purpose or purposes, may 702 be called, and the time and place thereof fixed by the Board of Directors or by the holders of not less than one-tenth of the outstanding shares entitled to vote at the meeting. Business conducted at any special meeting 2.04 of shareholders shall be limited to the purposes stated in the notice of the meeting. Any previously scheduled special meeting of shareholders may be postponed by resolution of the Board of Directors and public notice given prior to the date previously scheduled for such special meeting of shareholders. (As amended 4/23/64, 8/1/79, and 4/29/91.) Section 2.03. Place of Shareholders' Meetings. Any IBCA Sec. annual meeting or special meeting of shareholders may be 701, 702 held at any place, either within or without the State of Iowa. The place of each meeting of shareholders shall be fixed as provided in these By-laws, or by a waiver or 2.01, 2.02, waivers of notice fixing the place of such meeting and 2.08, 2.14 signed by all shareholders entitled to vote at such meeting. If no designation is made of the place of a meeting of shareholders, the place of meeting shall be the registered office of the Corporation in the State 1.02 of Iowa. -45- HON INDUSTRIES Inc. BY-LAWS 2.04 Section 2.04. Notice of Shareholders' Meetings. IBCA Sec. 705 Written or printed notice stating the place, day, and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten days (unless a longer period shall be required by law) nor more than sixty days before the date of the meeting, either personally or by mail, by or at the direction of the President, the Secre- tary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such 5.06 meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. (As amended 4/29/91.) Section 2.05. Closing of Transfer Books; Fixing of IBCA Sec. 707 Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of share- 5.06 holders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determi- nation of shareholders for any other proper purpose, the Board of Directors of the Corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, seventy days. If the stock transfer books shall be closed for the purpose of deter- mining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least fifteen days immediately preceding such meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy days and, in case of a meeting of shareholders, not less than fifteen days prior to the date on which the particular action, requiring such determination of shareholders, is to be taken. If the Board of Directors does not provide that the stock trans- fer books shall be closed and does not fix a record date for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or share- holders entitled to receive payment of a dividend, the record date for such determination of shareholders shall be seventy days prior to the date fixed for such meeting or -46- HON INDUSTRIES Inc. BY-LAWS 2.04 seventy days prior to the date of payment of such dividend, as the case may be. When any record date is fixed for any determination of shareholders such determination of share- holders shall be made as of the close of business on the record date. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof. (As amended 4/30/80, 8/3/82 and 2.08 4/29/91.) Section 2.06. Voting List. The officer or agent IBCA Sec. 720 having charge of the stock transfer books for shares of the Corporation shall make, at least ten days before each meeting of shareholders, a complete list of the share- holders entitled to vote at such meeting or any adjourn- ment thereof, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting shall be kept on file at the registered office of the 1.02 Corporation and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspec- tion of any shareholder during the whole time of the meet- ing. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to 5.06 examine such list or transfer books or to vote at any meeting of shareholders. Failure to comply with the re- quirements of this Section shall not affect the validity of any action taken at such meeting. (As amended 4/29/91.) Section 2.07. Quorum of Shareholders. Except as IBCA Sec. 725, otherwise expressly provided by the Articles of Incor- 726, 1001 poration or these By-laws, a majority of the outstanding 2.08, 2.09 common shares entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders. Section 2.08. Adjourned Meetings. Any meeting of shareholders may be adjourned from time to time and to any place, without further notice, by the chairman of the meeting or by the affirmative vote of the holders of a majority of the outstanding common shares entitled to vote and repre- IBCA Sec. -47- HON INDUSTRIES Inc. BY-LAWS 2.04 sented at the meeting, even if less than a quorum. At any 705, 707, adjourned meeting at which a quorum shall be present, any 725 business may be transacted which might have been transacted 2.02, 2.04 at the meeting as originally notified. (As amended 4/29/91.) 2.05 Section 2.09. Vote Required for Action. The vote Articles of required for the adoption of any motion or resolution or Incorporation the taking of any action at any meeting of shareholders Sec. 4.08-4.12 shall be as provided in the Articles of Incorporation. However, action may be taken on the following procedural matters by the affirmative vote of the holders of a IBCA Sec. majority of the outstanding common shares entitled to 725, 726, vote and represented at the meeting, even if less than a 727, 1021 quorum: election or appointment of a Chairman or 2.13 temporary Secretary of the meeting (if necessary), or adoption of any motion to adjourn or recess the meeting or any proper amendment of any such motion. Whenever the 2.08 minutes of any meeting of shareholders shall state that any motion or resolution was adopted or that any action was taken at such meeting of shareholders, such minutes shall be prima facie evidence that such motion or resolution was duly adopted or that such action was duly taken by the required vote, and such minutes need not state the number of shares voted for and against such motion, resolution, or action. Section 2.10. Proxies. At all meetings of share- IBCA Sec. holders, a shareholder entitled to vote may vote either in 721, 722, person or by proxy executed in writing by the shareholder 728 or by his duly authorized attorney in fact. Each such proxy shall be filed with the Secretary of the Corpo- ration or the person acting as Secretary of the meeting, before or during the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. Section 2.11. Shareholders' Voting Rights. Each IBCA Sec. 721, outstanding share entitled to vote shall be entitled to 722, 728 one vote on each matter submitted to a vote at a meeting Articles of of shareholders, except as otherwise provided in the Incorporation Articles of Incorporation. Voting rights for the election Sec. 4.08- of Directors shall be as provided in Section 3.02 and in 4.12 the Articles of Incorporation. (As amended 2/12/76.) 3.02, 3.03, -48- HON INDUSTRIES Inc. BY-LAWS 2.04 3.04 Section 2.12. Voting of Shares by Certain Holders. IBCA Sec. 721, Shares standing in the name of another corporation, 722, 728 domestic or foreign, may be voted by such officer, agent, or proxy as the By-laws of such corporation may prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares held by an administrator, executor, guardian, or IBCA Sec. 724 conservator may be voted by him, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to vote shares held by him without a transfer of such shares into his name. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority to do so be contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Treasury shares shall not be voted at any meeting or counted in determining the total number of outstanding shares at any given time. Section 2.13. Organization. The Chairman of the Board of Directors or the Vice-Chairman or the President or a Vice-President, as provided in these By-laws, shall 4.07, 4.08 preside at each meeting of shareholders; but if the Chair- man of the Board of Directors, the Vice-Chairman, the President, and each Vice-President shall be absent or refuse to act, the shareholders may elect or appoint a Chairman to preside at the meeting. The Secretary or an Assistant Secretary, as provided in these By-laws, shall act as Secretary of each meeting of shareholders; but if 4.09, 4.11 the Secretary and each Assistant Secretary shall be absent -49- HON INDUSTRIES Inc. BY-LAWS 2.04 or refuse to act, the shareholders may elect or appoint a temporary Secretary to act as Secretary of the meeting. (As amended 4/23/64 and 8/1/79.) Section 2.14. Waiver of Notice by Shareholders. IBCA Sec. Whenever any notice whatsoever is required to be given to 706, 823 any shareholder of the Corporation under any provision of law or the Articles of Incorporation or these By-laws, a waiver thereof in writing signed by the person or persons 2.04 entitled to such notice, whether signed before or after the time of the meeting or event of which notice is re- quired, shall be deemed equivalent to the giving of such notice. Neither the business to be conducted at, nor the purpose of, any annual or special meeting of shareholders need be specified in any waiver of notice of such meeting. The attendance of any shareholder, in person or by proxy, at any meeting of shareholders shall constitute a waiver by such shareholder of any notice of such meeting to which such shareholder would otherwise be entitled, and shall constitute consent by such shareholder to the place, day, and hour of such meeting and all business which may be conducted at such meeting, unless such shareholder attends such meeting and objects at such meeting to any business conducted because the meeting is not lawfully called or convened. (As amended 4/29/91.) Section 2.15. Postponement of Shareholders' Meetings. Any meeting of the shareholders may be postponed prior to the record date by the Board of Directors or by the Chairman. Written or printed notice of the postponement shall be delivered not less than 10 days nor more than 60 days before the date set for the meeting, either personally or by mail to each shareholder of record entitled to vote. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his or her address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid. (As adopted 2/11/91.) -50- HON INDUSTRIES Inc. BY-LAWS 2.04 Section 2.16. Notice of Shareholder Business and Nominations. (a) Annual Meeting of Shareholders. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Board of Directors, or (iii) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice provided for in this By-law, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this By-law. (2) For nominations or other business to be properly brought before an annual meeting by a share- holder pursuant to Subsection 2.15(a)(1)(iii), the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a shareholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not less than sixty days nor more than ninety days prior to the first anniversary of the preceding year's annual meeting of shareholders; provided, however, that, if the date of the annual meeting is advanced by more than thirty days or delayed by more than sixty days from such anniversary date, notice by the shareholder, to be timely, must be so delivered not earlier than ninety days prior to such annual meeting and not later than the close of business on the later of the sixtieth day prior to such annual meeting or the tenth day following the date on which public announcement of the date of such meeting is first made. Such shareholder's notice shall set forth: (i) as to each person whom the shareholder proposes to nominate for election or reelection as a Director, all information relating to such person that is required to be disclosed in -51- HON INDUSTRIES Inc. BY-LAWS 2.04 solicitations of proxies for election of Direc- tors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (including such person's written consent to being named in the proxy statement as a nominee and to serving as a Director if elected; (ii) as to any other business that the share- holder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting, and any material interest of such shareholder in such business and the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, the name and address of such shareholder and of such benefi- cial owner as they appear on the Corporation's books, and the class and number of shares of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of Subsection 2.15(a)(2) to the contrary, if the number of Directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all the nominees for Director or specifying the size of the increased Board of Directors at least seventy days prior to the first anniversary of the preceding year's annual meeting of shareholders, a shareholder's notice required by this By-law shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it is delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the date on which such public announcement is first made by the Corporation. -52- HON INDUSTRIES Inc. BY-LAWS 2.04 (b) Special Meetings of Shareholders. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which Directors are to be elected pursuant to the Corporation's notice of meeting (1) by or at the direction of the Board of Directors or (2) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice pro- vided for in this By-law, who is entitled to vote at the meeting, and who complies with the notice procedures set forth in this By-law. Nominations by shareholders of persons for election to the Board of Directors may be made at such a special meeting of shareholders if the shareholder's notice required by Subsection 2.15(a)(2) is delivered to the Secretary at the principal executive offices of the Corporation no earlier than ninety days prior to such special meeting and not later than the close of business on the later of the sixtieth day prior to such special meeting or the tenth day following the date on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (c) General. (1) Only persons who are nominated in accordance with the procedures set forth in this By-law shall be eligible to serve as Directors, and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in these By-laws. Except as otherwise provided by law, the Articles of Incorporation, or the By-laws of the Corporation, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in these By-laws and, if any proposed nomi- nation or business is not in compliance with these By-laws, to declare that such defective proposal or nomination shall be disregarded. -53- HON INDUSTRIES Inc. BY-LAWS 2.04 (2) For purposes of this By-law, "public announcement" means disclosure in a press release reported by the Dow Jones News Service, Associated Press, or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14, or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this By-law, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this By-law. Nothing in this By-law shall be deemed to affect any rights of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. (As adopted 4/19/91.) -54- HON INDUSTRIES Inc. BY-LAWS 3.01 ARTICLE 3. BOARD OF DIRECTORS ------------------------------ Section 3.01. General Powers. The business and IBCA Sec. 801, affairs of the Corporation shall be managed by its Board 830 of Directors. The Board of Directors may exercise all such powers of the Corporation and may do all such law- 4.07 ful acts and things as are not by law or the Articles Articles of of Incorporation or these By-laws expressly required to Incorporation be exercised or done by the shareholders. Art. 3 Section 3.02. Election of Directors. Subject to IBCA Sec. 803, the Articles of Incorporation, the common shareholders 804 shall elect one class of Directors at each annual meeting of shareholders. At each election of Directors, each common shareholder entitled to vote shall have the right to vote, in person or by proxy, the number of common shares owned by him and entitled to vote, for as many persons as the number of the class to be elected. Cum- 2.01, 2.11 ulative voting shall not be permitted. The election of Directors may be conducted by written ballot, but need not be conducted by written ballot unless required by a rule or motion adopted by the shareholders. (As amended 2/12/76.) Section 3.03. Number, Terms, Classification, and IBCA Sec. 802, Qualifications. Subject to the Articles of Incor- 803, 804, 805, poration: 806 (a) The number of Directors shall be eleven. (As amended 10/29/80, 1/31/83, 2/5/85, 8/5/86, 3/13/90, 5/5/92, 11/2/92, 5/11/93, 2/14/94, 5/10/94, 11/13/95, and 5/14/96.) (b) The Directors shall be divided into three Articles of classes, each of which shall be as nearly equal in number Incorporation as possible. The term of office of one class shall ex- 6.01, 6.03 pire in each year. At each annual meeting of the share- holders a number of Directors equal to the number of the class whose term expires at the annual meeting shall be elected for a term ending when Directors are elected at the third succeeding annual meeting. Section 6.03 of the Articles of Incorporation shall apply if there is a failure in any one or more years to elect one or more -55- HON INDUSTRIES Inc. BY-LAWS 3.01 Directors or to elect any class of Directors. (As Amended 2/4/86.) (c) The number of Directors may be increased Articles of or decreased from time to time by amendment of this Incorporation Section, but no decrease shall have the effect of short- 6.02 ening the term of any incumbent Director. Any new Direc- torships shall be assigned to classes, and any decrease in the number of Directors shall be scheduled, in such a manner that the three classes of Directors shall be as nearly equal in number as possible. (d) The term of each Director shall begin at the time of his election. Unless sooner removed as provided in the Articles of Incorporation or elected to fill a vacancy with a shorter unexpired term pursuant to Section 3.04, each Director shall serve for a term ending when Directors are elected at the third succeeding annual meeting of shareholders. However, any Director may resign at any time by delivering his written resignation to the Chairman, Vice-Chairman, President, or Secretary of the Corporation. The resignation shall take effect immediately upon delivery, unless it states a later effective date. (As amended 8/1/79.) (e) Directors need not be residents of the State of Iowa or shareholders of the Corporation. (As amended 4/23/64, 4/15/70, 2/12/76, 7/23/76, 1/11/77, 4/18/77, 7/28/77, 7/29/77, 2/27/78, and 2/4/86.) Section 3.04. Vacancies in Board. Any vacancy IBCA Sec. 810 occurring in the Board of Directors for any reason, and any Directorship to be filled by reason of an increase in Articles of the number of Directors, may be filled by the affirma- Incorporation tive vote of a majority of the Directors then in office Sec. 4.08 even if less than a quorum (notwithstanding Sections 3.09 6.02 and 3.11). Except as otherwise provided in Section 6.03 of the Articles of Incorporation, a Director elected as provided in this Section shall be elected for the unex- pired term of his predecessor in office or the unexpired term of the class of Directors to which his new Director- ship is assigned. However, if a Director is elected to -56- HON INDUSTRIES Inc. BY-LAWS 3.01 fill a vacancy caused by the resignation of a predecessor whose resignation has not yet become effective, the new 2.09 Director's term shall begin when his predecessor's resig- nation becomes effective. (As amended 4/23/64 and 3.03 2/12/76.) Section 3.05. Regular Meetings. A regular meeting IBCA Sec. 820 of the Board of Directors may be held without notice other than this Section, promptly after and at the same place 2.01, 2.02, as each annual meeting of shareholders. 2.08 Other regular meetings of the Board of Directors may be held at such time and at such places as shall be fixed by (or pursuant to authority granted by) resolution or motion adopted by the Board of Directors from time to time, with- out notice other than such resolution or motion. However, unless both the time and place of a regular meeting shall be fixed by the Board of Directors, notice of such meeting shall be given as provided in Section 3.08. Section 3.06. Special Meetings. Special meetings IBCA Sec. 820 of the Board of Directors may be called, and the time and place thereof fixed, by the Chairman of the Board of Directors or the Vice-Chairman or the President or the Secretary or by a majority of the Directors then in office. (As amended 4/23/64 and 8/1/79.) Section 3.07. Place of Meetings. Any regular meet- IBCA Sec. 820 ing or special meeting of the Board of Directors may be held at any place, either within or without the State of Iowa. The place of each meeting of the Board of Directors 3.05, 3.06, shall be fixed as provided in these By-laws, or by waiver 3.10, 3.16 or waivers of notice fixing the place of such meeting and signed by all Directors then in office. If no designation is made of the place of a meeting of the Board of Direct- ors, the place of meeting shall be the registered office of the Corporation in the State of Iowa. 1.02 Section 3.08. Notice of Special Meetings. Written IBCA Sec. or printed notice stating the place, day, and hour of a 822(2) special meeting of the Board of Directors shall be deliv- 3.16 ered to each Director not less than twenty-four hours be- fore the time of the meeting, either personally or by mail -57- HON INDUSTRIES Inc. BY-LAWS 3.01 or by telegram, by or at the direction of the President, the Secretary, or the officer or persons calling the meet- ing. If mailed, such notice shall be deemed to be deliv- ered when deposited in the United States mail addressed to the Director at his address as it appears on the records of the Corporation, with postage thereon prepaid. 5.06 If given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company, addressed to the Director at his address as it appears on the records of the Corporation. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in the notice of such meeting. (As amended 7/7/88.) Section 3.09. Quorum. Except as otherwise IBCA Sec. 824 expressly provided by the Articles of Incorporation or these By-laws, a majority of the number of Direc- tors fixed by these By-laws shall constitute a quorum 3.04, 3.10, at any meeting of the Board of Directors. 3.11, 6.08, 6.09 Section 3.10. Adjourned Meetings. Any meeting of the Board of Directors may be adjourned from time to time and to any place, without further notice, by the affirma- tive vote of a majority of the Directors present at the meeting, even if less than a quorum. At any adjourned meeting at which a quorum shall be present, any business may be conducted which might have been transacted at the meeting as originally notified. (As amended 4/29/91.) Section 3.11. Vote Required for Action. Except as IBCA Sec. 824 otherwise provided in these By-laws, the affirmative vote of a majority of the number of Directors fixed by these By-laws shall be required for and shall be sufficient for 3.04, 3.10 the adoption of any motion or resolution or the taking 6.08, 6.09 of any action at any meeting of the Board of Directors. However, the following actions may be taken by the affirm- ative vote of a majority of the Directors present at the meeting, even if less than a quorum: election or appoint- ment of a Chairman or temporary Secretary of the meeting (if necessary), or adoption of any motion to adjourn or 3.13 recess the meeting or any proper amendment of any such motion. Whenever the minutes of any meeting of the 3.10 Board of Directors shall state that any motion or resolu- -58- HON INDUSTRIES Inc. BY-LAWS 3.01 tion was adopted or that any action was taken at such meeting of the Board of Directors, such minutes shall be prima facie evidence that such motion or resolution was duly adopted or that such action was duly taken by the required vote, and such minutes need not state the number of Directors voting for and against such motion, resolu- tion, or action. Section 3.12. Voting. Each Director (including, 6.08, 6.09 without limiting the generality of the foregoing, any Director who is also an officer of the Corporation and any Director presiding at a meeting) may vote on any question at any meeting of the Board of Directors, except as other- wise expressly provided in these By-laws. (As amended 4/23/64.) Section 3.13. Organization. The Chairman of the Board of Directors or the Vice-Chairman or the President or a Vice-President, as provided in these By-laws, shall preside at each meeting of the Board of Directors; but 4.07, 4.08 if the Chairman of the Board of Directors, the Vice- Chairman, the President, and each Vice-President shall be absent or refuse to act, the Board of Directors may elect or appoint a Chairman to preside at the meeting. The Secretary or an Assistant Secretary, as provided in these By-laws, shall act as Secretary of each meeting of the 4.09, 4.11 Board of Directors; but if the Secretary and each Assist- ant Secretary shall be absent or refuse to act, the Board of Directors may elect or appoint a temporary Secretary to act as Secretary of the meeting. (As amended 4/23/64 and 8/1/79.) Section 3.14. Rules and Order of Business. The 4.02 Board of Directors may adopt such rules and regulations, not inconsistent with applicable law or the Articles of Incorporation or these By-laws, as the Board of Directors deems advisable for the conduct of its meetings. Except as otherwise expressly required by law or the Articles of Incorporation or these By-laws or such rules or regula- tions, meetings of the Board of Directors shall be con- ducted in accordance with Robert's Rules of Order, Revised (as further revised from time to time). Unless otherwise determined by the Board of Directors, the order of busi- -59- HON INDUSTRIES Inc. BY-LAWS 3.01 ness at the first meeting of the Board of Directors held after each annual meeting of shareholders, and at other meetings of the Board of Directors to the extent applica- ble, shall be as follows: (1) Roll call or other determination of attendance and quorum. (2) Proof of notice of meeting. (3) Reading and action upon minutes of preceding meeting and any other unapproved minutes. (4) Report of President. (5) Reports of other officers and committees. (6) Election of officers. (7) Unfinished business. (8) New business. (9) Adjournment. Failure to comply with the requirements of this Section shall not affect the validity of any action taken at any meeting unless (a) specific and timely objection is made at the meeting and (b) the person complaining thereto sustains direct and material damage by reason of such failure. Section 3.15. Presumption of Assent. A Director IBCA Sec. 824 of the Corporation who is present at a meeting of the Board of Directors or a committee thereof at which action on any corporate matter is taken, shall be presumed to 6.10, 6.11 have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the Secretary of the meeting before the adjournment thereof or shall forward such dissent by 3.16 registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the -60- HON INDUSTRIES Inc. BY-LAWS 3.01 meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. Section 3.16. Waiver of Notice by Directors. IBCA Sec. 823 Whenever any notice whatsoever is required to be given to any Director of the Corporation under any provision of law or the Articles of Incorporation or these By-laws, 3.05, 3.08 a waiver thereof in writing signed by the Director or Directors entitled to such notice, whether signed before or after the time of the meeting or event of which notice is required, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any meeting of the Board of Directors need be specified in any waiver of notice of such meeting. The attendance of any Director at any meeting of the Board of Directors shall constitute a waiver by such Director of any notice of such meeting to which such Director would otherwise be entitled, and shall constitute consent by such Director to the place, day, and hour of such meeting and all business which may be conducted at such meeting, unless such Director attends such meeting and objects at such meeting to any business conducted because the meeting is not lawfully called or convened. (As amended 4/29/91.) 3.15 Section 3.17. Informal Action by Directors. Any IBCA Sec. 821 action required by law or the Articles of Incorporation or these By-laws to be taken by vote of or at a meeting of the Board of Directors, or any action which may or could be taken at a meeting of the Board of Directors (or of a committee of Directors), may be taken without a meeting 3.18 if a consent in writing setting forth the action so taken shall be signed by all of the Directors then in office (or all of the members of such committee, as the case may be). Such consent shall have the same force and effect as unan- imous vote. The signing by each such Director (or by each member of such committee) of any one of several duplicate originals or copies of the instrument evidencing such con- sent shall be sufficient. The written instrument or in- struments evidencing such consent shall be filed with the Secretary, and shall be kept by the Secretary as part of the minutes of the Corporation. Such action shall be deemed taken on the date of such written instrument or instruments as stated therein, or on the date of such -61- HON INDUSTRIES Inc. BY-LAWS 3.01 filing with the Secretary, whichever of such two dates occurs first. (As amended 4/23/64.) Section 3.18. Committees. The Board of Directors, IBCA Sec. 825 by resolution adopted by the affirmative vote of a major- ity of the number of Directors fixed by Section 3.03, may designate one or more committees (including, without limiting the generality of the foregoing, an Executive Committee). Each committee shall consist of two or more Directors elected or appointed by the Board of Directors. To the extent provided in such resolution as initially adopted and as thereafter supplemented or amended by further resolution adopted by a like vote, any such committee shall have and may exercise, when the Board of Directors is not in session, all the authority and powers of the Board of Directors. However, no committee shall have or exercise any authority prohibited by law. No member of any committee shall continue to be a member thereof after he ceases to be a Director of the Corpo- ration. Unless otherwise ordered by the Board of Directors, the affirmative vote or consent in writing of all members of a committee shall be required for the adoption of any motion or resolution or the taking of any action by any such com- mittee, except that an alternate member may take the place of any absent member to the extent hereinafter provided. The Board of Directors may elect or appoint one or more Directors as alternate members of any such committee. Any such alternate member may take the place of any absent member, upon request by the Chairman of the Board of Directors or the Vice-Chairman or the President or the Chairman of such committee. The vote or consent in writ- ing of such alternate member in the absence of such member shall have the same effect as the vote or consent in writ- ing of such member. (As amended 8/1/79.) 3.17 The Board of Directors may at any time increase or decrease the number of members of any committee, fill vacancies therein, remove any member thereof, adopt rules and regula- tions therefor, or change the functions or terminate the -62- HON INDUSTRIES Inc. BY-LAWS 3.01 existence thereof. The designation of any committee and the delegation thereto of authority shall not operate to 6.10, 6.11 relieve the Board of Directors or any Director of any responsibility imposed by law. (As amended 4/23/64.) Section 3.19. Compensation. The Board of Direc- IBCA Sec. tors may fix or provide for reasonable compensation of 811 any or all Directors for services rendered to the Cor- poration as Directors, officers, or otherwise, including, 4.13, 6.08 without limiting the generality of the foregoing, payment of expenses of attendance at meetings of the Board of Directors or committees, payment of a fixed sum for atten- dance at each meeting of the Board of Directors or a com- mittee, salaries, bonuses, pensions, pension plans, pen- sion trusts, profit-sharing plans, stock bonus plans, stock option plans (subject to approval of the share- holders if required by law), and other incentive, insur- ance, and welfare plans, whether or not on account of prior services rendered to the Corporation. No such com- pensation shall preclude any Director from serving the Corporation in any other capacity and receiving compen- sation therefor. -63- HON INDUSTRIES Inc. BY-LAWS 4.01 ARTICLE 4. OFFICERS -------------------- Section 4.01. Number and Designation. The officers IBCA Sec. of the Corporation shall be a Chairman of the Board of 840 Directors, a Vice-Chairman, a President, one or more Vice- Presidents, a Secretary, a Treasurer, one or more Assist- ant Secretaries, one or more Assistant Treasurers, and 4.03 such other officers as the Board of Directors deems advis- able. (As amended 4/23/64 and 8/1/79.) Section 4.02. Election or Appointment of Officers. IBCA Sec. At the first meeting of the Board of Directors held after 840 each annual meeting of shareholders, the Board of Dir- ectors shall elect the officers specifically referred 3.11, 4.05 to in Section 4.01, shall appoint certified public accountants to perform the annual audit, and shall elect or appoint such other officers and agents as the Board deems advisable. If in any year the election of officers does not take place at such meeting, such election shall be held as soon thereafter as may be convenient. In addition, the Board of Directors may from time to time 4.06, 4.07 elect, appoint, or authorize any officer to appoint such other officers and agents as the Board deems advisable. Any election may be conducted by ballot, but need not be conducted by ballot unless required by a rule, regulation, or motion adopted by the Board of Directors. (As amended 3.14 3/3/80.) Section 4.03. Tenure and Qualifications. Each officer, unless sooner removed as provided in Section 4.04, shall hold office until his successor shall be elected or appointed and shall qualify. However, any officer may resign at any time by filing his written resignation with the President or Secretary of the Cor- poration; and such resignation shall take effect immedi- ately upon such filing, unless a later effective date is stated therein. Officers need not be residents of the State of Iowa or Directors or shareholders of the Cor- poration. Any two or more offices may be held by the same person. Section 4.04. Removal. Any officer or agent of the IBCA Sec. 843 Corporation may be removed by the Board of Directors when- -64- HON INDUSTRIES Inc. BY-LAWS 4.01 ever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights. Section 4.05. Vacancies. Any vacancy occurring in any office for any reason may be filled by the Board of 4.03 of Directors. Section 4.06. Duties and Powers of Officers. IBCA Sec. Except as otherwise expressly provided by law or the 841 Articles of Incorporation or these By-laws, the duties 45 and powers of all officers and agents of the Corporation shall be determined and defined from time to time by the Board of Directors. Unless otherwise determined by the Board of Directors, the officers referred to in the fol- lowing Sections shall have the duties and powers set forth in the following Sections, in addition to all duties and powers of such officers prescribed by law or by the Articles of Incorporation or other provisions of these By- laws. However, the Board of Directors may from time to time alter, add to, limit, transfer to another officer or agent, or abolish any or all of the duties and powers of any officer or agent of the Corporation (including, with- out limiting the generality of the foregoing, the duties and powers set forth in the following Sections and in other provisions of these By-laws). Any person who holds two or more offices at the same time may perform or exer- cise any or all of the duties and powers of either or both of such offices in either or both of such capacities. Section 4.07. Chairman of the Board of Directors; 4.06 Vice-Chairman; President. (a) The Chairman of the Board of Directors shall preside at all meetings of shareholders and of the Board of Directors. He shall be responsible for making recommenda- tions concerning Board policies and committees, shall main- tain Board liaison with the President, and, when required, because of the inability of the President to act or other- wise, shall have the same powers as the President on behalf -65- HON INDUSTRIES Inc. BY-LAWS 4.01 of the Corporation. He may from time to time, unless other- wise ordered by the Board, authorize or direct the Vice- Chairman or President to perform any of the duties or exercise any of the powers of the Chairman. (As amended 10/27/77, 10/30/84, 2/15/88, and 7/29/91.) (b) The Vice-Chairman shall preside at meetings of the shareholders or of the Board in the absence of the Chairman. He shall also perform such other duties as the Chairman may authorize or direct. (As amended 7/29/91.) (c) The President shall be the chief executive officer of the Corporation and, subject to the control of the Board, shall supervise, control, and manage all of the business affairs of the Corporation. He shall report to the Chairman when the Board is not in session. In the absence of the Chairman and Vice-Chairman, the President shall preside at meetings of shareholders and of the Board. Unless otherwise ordered by the Board, the President (1) may employ, appoint and discharge such employees, agents, attorneys and accountants (except the certified public accountants appointed by the Board pursuant to Section 4.02) for the Corporation as he deems necessary or advisable, and shall prescribe their authority, duties, powers, and compen- sation, including, if appropriate, the authority to perform some or all of the duties or exercise some or all of the powers of the President; (2) may make and enter into on behalf of the Corporation all deeds, conveyances, mortgages, leases, contracts, agreements, bonds, reports, releases, and other documents or instruments which may in his judgment be necessary or advisable in the ordinary course of the Corpo- ration's business or which shall be authorized by the Board; (3) shall see that all Corporation policies and all orders and resolutions of the Board are carried into effect; and (4) shall have all the usual duties and powers of the President of a corporation and such other duties and powers as may be prescribed from time to time by the Board. (As amended 7/29/91.) Section 4.08. Vice-Presidents. Each Vice-President 4.06, 4.07 shall have such duties and powers as may be prescribed from time to time by the President or the Board of Directors. (As amended 4/23/64 and 10/27/77.) -66- HON INDUSTRIES Inc. BY-LAWS 4.01 Section 4.09. Secretary. The Secretary: 4.06 (a) shall, when present, act as Secretary of each meeting of the shareholders and of the Board of 2.13, 3.13 Directors; (b) shall keep the minutes of the meetings of IBCA Sec. the shareholders and the Board of Directors in one or more 840(3) books provided for that purpose; (c) shall see that all notices are duly given 2.04, 2.06, and that lists of shareholders are made and filed as 3.05, 3.08, required by law or the Articles of Incorporation or 6.04 these By-laws; (d) shall be custodian of the corporate records 6.01, 6.04 and the seal of the Corporation and shall, when duly IBCA Sec. authorized, see that the seal is affixed to any instrument 840(3) requiring it; (e) shall keep a record of the Directors, giving the names and addresses of all Directors; and 5.06 (As amended 4/23/64 and 2/19/79.) (f) shall have all the usual duties and powers of the Secretary of a corporation and such duties and powers as may be prescribed from time to time by the President or the Board of Directors. (As amended 2/19/79.) Section 4.10. Treasurer. The Treasurer: 4.06 (a) shall have charge and custody of and be responsible for all funds, securities, and evidences of indebtedness belonging to the Corporation; (b) shall receive and give receipts for moneys due and payable to the Corporation from any source whatever; (c) shall see that all such moneys are depos- ited in the name of and to the credit of the Corporation in such depositories as shall be designated by or pursuant -67- HON INDUSTRIES Inc. BY-LAWS 4.01 to authority granted by the Board of Directors; (d) shall cause the funds of the Corporation 6.06 to be disbursed when and as duly authorized to do so; (e) shall see that correct and complete books of account and financial statements are kept and prepared in accordance with generally accepted accounting prin- 6.11 ciples except to the extent such duties are assigned by the President to other officers or employees of the Corporation; (As amended 2/13/77.) (f) shall have all the usual duties and powers of the Treasurer of a corporation and such duties and powers as may be prescribed from time to time by the President or the Board of Directors; (As amended 2/13/77.) (g) shall keep at the registered office or principal place of business of the Corporation a record of its shareholders (which shall be part of the stock trans- fer books of the Corporation), giving the names and 1.01., 1.02 addresses of all shareholders and the number and class of the shares held by each; and (As amended 2/19/79.) (h) shall have charge of the stock transfer Art. 5 books of the Corporation, and shall record the issuance and transfer of shares, except to the extent that such duties shall be delegated by the Board of Directors to a transfer agent or registrar. (As amended 2/19/79.) Section 4.11. Assistant Secretaries. In the absence 4.01, 4.06 of the Secretary or in the event of his death or inability or refusal to act, the Assistant Secretary (or, if there shall be more than one, the Assistant Secretaries in the order designated by the Board of Directors from time to time, or, in the absence of any such designation, in the order in which their names shall appear in the minutes showing their election) shall perform the duties and ex- ercise the powers of the Secretary. Each Assistant Secre- 4.09 tary shall also have such duties and powers as may be pre- scribed from time to time by the Secretary or the Presi- dent or the Board of Directors. (As amended 4/23/64.) -68- HON INDUSTRIES Inc. BY-LAWS 4.01 Section 4.12. Assistant Treasurers. In the absence 4.01, 4.06 of the Treasurer or in the event of his death or inability or refusal to act, the Assistant Treasurer (or, if there shall be more than one, the Assistant Treasurers in the order designated by the Board of Directors from time to time, or, in the absence of any such designation, in the order in which their names shall appear in the minutes showing their election) shall perform the duties and exercise the powers of the Treasurer. Each Assistant 4.10 Treasurer shall also have such duties and powers as may be prescribed from time to time by the Treasurer or the President or the Board of Directors. (As amended 4/23/64.) Section 4.13. Compensation. The Board of Directors may fix or provide for, or may authorize any officer to fix or provide for, reasonable compensation of any or all of the officers and agents of the Corporation, including, 3.19, 6.08 without limiting the generality of the foregoing, sala- ries, bonuses, payment of expenses, pensions, pension plans, pension trusts, profit-sharing plans, stock bonus plans, stock option plans (subject to approval of the shareholders if required by law), and other incentive, insurance, and welfare plans, whether or not on account of prior services rendered to the Corporation. (As amended 4/23/64.) Section 4.14. Bond. The Board of Directors may require an officer or agent to give a bond for the faith- ful performance of his duties, in such amount and with such surety or sureties as the Board of Directors deems advisable. -69- HON INDUSTRIES Inc. BY-LAWS 5.01 ARTICLE 5. SHARES AND CERTIFICATES ----------------------------------- Section 5.01. Issuance of and Consideration for IBCA Sec. 621 Shares. Shares and securities convertible into shares of the Corporation may be issued for such consideration expressed in dollars (not less than the par value thereof in the case of shares having a par value) as shall be fixed from time to time by the Board of Directors, and Articles of may be issued to such persons as may be designated from Incorporation time to time by or pursuant to authority granted by the Art. 4 Board of Directors, except as otherwise required by law or the Articles of Incorporation or these By-laws. 5.02 Section 5.02. Restrictions on Issuance of Shares IBCA Sec. 621 and Certificates. No share of the Corporation shall be issued until such share is fully paid as provided by law. Neither promissory notes of the subscriber nor future services shall constitute payment or part payment for shares of the Corporation. No fractional share or certificate representing any frac- IBCA Sec. 604 tional share shall be issued unless expressly authorized by the Board of Directors. No new certificate shall be issued in place of any certi- 5.05 ficate until the old certificate for a like number of shares shall have been surrendered and cancelled, except as otherwise provided in Section 5.04. Section 5.03. Certificates Representing Shares. IBCA Sec. 625 Each shareholder shall be entitled to a certificate or certificates representing the shares of the Corporation owned by him. Certificates representing shares of the Corporation shall be in such form as shall be determined by or pursuant to authority granted by the Board of Directors. Each certificate shall be signed by the President or a Vice-President and by the Secretary or an Assistant Secretary, and the corporate seal may be affixed 6.01 thereto. All certificates shall be consecutively numbered or otherwise identified. The name and address of the per- son to whom the shares represented thereby are issued, and the number and class of shares and date of issuance, shall -70- HON INDUSTRIES Inc. BY-LAWS 5.01 be entered on the stock transfer books of the Corporation. 5.05, 5.06 Section 5.04. Lost, Destroyed, Stolen, or Mutilated Certificates. The Board of Directors may authorize a new certificate to be issued in place of any certificate alleged to have been lost, destroyed, or stolen, or which shall have been mutilated, upon production of such evidence and upon compliance with such conditions as the Board of Directors may prescribe. Section 5.05. Transfer of Shares. Shares of the 2.05 Corporation shall be transferable only on the stock trans- fer books of the Corporation, by the holder of record thereof or by his duly authorized attorney or legal repre- sentative (who shall furnish such evidence of authority to transfer as the Corporation or its agent may reasonably require), upon surrender to the Corporation for cancel- lation of the certificate representing such shares, duly endorsed or with a proper written assignment or power of attorney duly executed and attached thereto, and with such proof of the authenticity of signatures as the Corporation or its agent may reasonably require. The Corporation shall cancel the old certificate, issue a new certificate to the person entitled thereto, and record the transaction on its stock transfer books. However, if the applicable law permits shares to be transferred in a different manner, then to the extent required to comply with such law all references in this Section to "shares" shall mean the rights against the Corporation inherent in or arising out of such shares. 5.06 Section 5.06. Shareholders of Record; Change of Name or Address. The Corporation shall be entitled to recog- nize the exclusive right of a person shown on its stock transfer books as the holder of shares to receive notices and dividends, to vote as such holder, and to have and 2.04, 2.06 exercise all other rights deriving from such shares, and shall not be bound to recognize any equitable or other claim to or interest in such shares on the part of any other person, whether or not it shall have actual or constructive notice thereof. Unless the context or another provision of these By-laws clearly indicates otherwise, all references in these By-laws to "share- -71- HON INDUSTRIES Inc. BY-LAWS 6.01 holders" and "holders" shall mean the shareholders of record as shown on the stock transfer books of the 5.03, 5.05 Corporation. Each shareholder and each Director shall promptly notify the Secretary in writing of his correct address and any change in his name or address from time to time. If any shareholder or Director fails to give such notice, neither the Corporation nor any of its Directors, officers, agents, or employees shall be liable or responsible to such shareholder or Director for any error or loss which might have been prevented if such notice had been given. (As amended 4/23/64.) Section 5.07. Regulations. The Board of Directors may adopt such rules and regulations, not inconsistent with applicable law or the Articles of Incorporation or these By-laws, as it deems advisable concerning the issuance, transfer, conversion, and registration of certificates representing shares of the Corporation. -72- HON INDUSTRIES Inc. BY-LAWS 6.01 ARTICLE 6. GENERAL PROVISIONS ------------------------------ Section 6.01. Seal. The corporate seal shall be IBCA circular in form and shall have inscribed thereon the Sec. 302(2) name of the Corporation and the words "Corporate Seal" and "Iowa". The seal may be affixed by causing it or a fac- simile thereof to be impressed or reproduced or otherwise. Section 6.02. Fiscal Year. The fiscal year of the Corporation shall be fixed by the Board of Directors from time to time. Section 6.03. Dividends. The Board of Directors IBCA Sec. 623 may from time to time declare, and the Corporation may pay, dividends on the outstanding shares in the manner and upon the terms and conditions provided by law and Articles of the Articles of Incorporation. Incorporation Art. 4 Section 6.04. Execution of Documents and Instru- ments. All deeds and conveyances of real estate, mort- gages of real estate, and leases of real estate (for an initial term of five years or more) to be executed by the Corporation shall be signed in the name of the Corporation by the Chairman of the Board of Directors or the Vice- Chairman or the President or a Vice-President and signed or attested by the Secretary or an Assistant Secretary, and the corporate seal shall be affixed thereto. 6.01 All other documents or instruments to be executed by the Corporation (including, without limiting the generality of the foregoing, contracts, agreements, bonds, reports, notices, releases, promissory notes, and evidences of indebtedness; and deeds, conveyances, mortgages, and leases other than those referred to in the preceding sentence) shall be signed in the name of the Corporation by any one or more of the officers of the Corporation, with or without the corporate seal. 5.03 However, from time to time the Board of Directors or 4.06, 4.07, the Chairman of the Board of Directors or the Vice- 4.08 Chairman or the President may alter, add to, limit, transfer to another officer or agent, or abolish the authority of any officer or officers to sign any or all -73- HON INDUSTRIES Inc. BY-LAWS 6.01 documents or instruments, or may authorize the execution of any document or instrument by any person or persons, with or without the corporate seal, and such action may be either general or confined to specific instances. (As amended 4/23/64 and 8/1/79.) Section 6.05. Loans. No loans shall be contracted on behalf of the Corporation and no evidences of indebt- edness shall be issued in its name unless authorized by or pursuant to authority granted by the Board of Directors. Such authorization may be either general or confined to 6.04 specific instances. Section 6.06. Checks and Drafts. All checks and 4.10 drafts issued in the name of the Corporation shall be signed by such person or persons and in such manner as shall be authorized by or pursuant to authority granted by the Board of Directors. Section 6.07. Voting of Shares Owned by Corpora- tion. Any shares or securities of any other corporation or company owned by this Corporation may be voted at any meeting of shareholders or security holders of such other corporation or company by the Chairman of the Board of Directors of this Corporation. Whenever in the judgment of the Chairman of the Board of Directors it shall be ad- visable for the Corporation to execute a proxy or waiver of notice or to give a consent with respect to any shares or securities of any other corporation or company owned by this Corporation, such proxy, waiver, or consent shall be executed in the name of this Corporation, as directed by the Chairman of the Board of Directors, without necessity 6.04 of any authorization by the Board of Directors. Any per- son or persons so designated as the proxy or proxies of this Corporation shall have full right, power, and authority to vote such shares or securities on behalf of this Corporation. In the absence of the Chairman of the Board of Directors or in the event of his death or inabil- 4.07 ity to act, the Vice-Chairman may perform the duties and exercise the powers of the Chairman of the Board of Directors under this Section. The provisions of this Section shall be subject to any specific directions by the Board of Directors. (As amended 4/23/64 and 8/1/79.) 4.06 -74- HON INDUSTRIES Inc. BY-LAWS 6.01 Section 6.08. Interest of Directors in Transactions. 3.12 In the absence of fraud, any contract or other transaction IBCA Sec. between the Corporation and any or all of its Directors 831 (including, without limiting the generality of the fore- going, any authorization of or payment of compensation to 3.19, 4.13 any Director or officer of the Corporation), or between the Corporation and any person or party in which any or all of the Directors of the Corporation are interested or with which they are connected (whether as shareholders, direct- ors, officers, owners, partners, members, employees, or otherwise) shall be valid for all purposes, notwithstanding the presence of such Director or Directors at the meeting of the Board of Directors which shall act upon or with respect to such contract or transaction, and notwith- standing his or their participation in and vote upon such action, if the fact of such interest shall be disclosed or otherwise known to the Board of Directors prior to or at the time of the taking of such action. Such interested Director or Directors are hereby expressly authorized to vote upon any action of the Board of Directors upon or with respect to such contract or transaction; may be counted in determining whether a quorum is present; and may be in- cluded in the majority necessary to take such action. Each Director of the Corporation is hereby expressly relieved, in the absence of fraud, from any liability which might otherwise exist or arise from contracting with the Corpo- ration for the benefit of himself or any person or party in which he may be in any way interested or with which he may be in any way connected. Any contract, transaction, or action of the Corporation or of the Board of Directors which shall be ratified at any meeting of shareholders by the affirmative vote of the holders of a majority of the outstanding common shares entitled to vote, shall be as valid and as binding as though expressly authorized in writing by every shareholder of the Corporation. However, any failure of the share- holders to approve or ratify such contract, transaction, or action, when and if submitted, shall not be deemed in any way to render the same invalid or to deprive the Directors or officers of authority to proceed with such contract, transaction, or action. -75- HON INDUSTRIES Inc. BY-LAWS 6.01 This Section shall not be construed to invalidate any con- tract or transaction which would otherwise be valid, nor as a limitation upon the powers of the Directors or officers, nor as a requirement that any contract or transaction of the Corporation be approved or ratified by the share- holders. Section 6.09. Indemnification. The Corporation may IBCA Sec. indemnify any Qualified Person. For purposes of this 856 Section, "Qualified Person" means any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding (whether civil, criminal, administrative, or investigative including, without limitation, an action or suit by or in the right of the Corporation) (collectively, "Action") by reason of the fact that he or she is or was a Director, officer, employee, member, if any, volunteer, or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, officer, partner, trustee, employee, member, if any, volunteer, or agent of another foreign or domestic corporation, partnership, joint venture, trust, other enterprise, or employee benefit plan. The indemnification may be against expenses (including attorneys' fees), judgments, fines, and amounts paid or incurred in settlement which the Qualified Person actually and reasonably incurred in connection with the Action, in the manner and to the extent provided in this Section. (a) Indemnification may be made in the following independent and alternative methods: (1) In the manner and to the extent provided by Iowa law; (2) If and to the extent that the Board of IBCA Sec. Directors determines that the person acted in good faith 855(b) and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation. This determination may be made (notwithstanding Sections 3.09 and 3.11) either by: (i) a majority vote of a quorum consisting of Directors who were not parties to the Action; or (ii) a unanimous vote of all Directors who were not parties to the Action (whether or not -76- HON INDUSTRIES Inc. BY-LAWS 6.01 constituting a quorum), if there are at least two such Directors; (3) In accordance with any agreement authorized by the Board of Directors before the commencement of the Action; (4) If and to the extent authorized by action of the shareholders; or (5) In any other manner not prohibited by Iowa law. (b) Restrictions and presumptions required by law with regard to indemnification referred to in Sub- section (a)(1) shall not apply to indemnification under Subsections (a)(2), (3), or (4); provided, however, indemnification shall not be provided in any case for: (1) A breach of a person's duty of loyalty to the Corporation; (2) Acts or omissions not in good faith or which involve intentional misconduct or knowing viola- tion of the law; (3) A transaction from which the person derives an improper personal benefit; or (4) Proceedings by or in the right of the IBCA Sec. Corporation unless permitted in Iowa Code Section 858 496A.4A(2) as amended from time to time. (5) Proceedings by or in the right of the Corporation unless permitted in Iowa Code Section 496A.4A(2), as amended from time to time. (c) To the extent that a Qualified Person has been successful on the merits or otherwise in defense of any Action or in defense of any claim, issue, or matter therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in connection with such Action. -77- HON INDUSTRIES Inc. BY-LAWS 6.01 (d) Any indemnification of a Qualified Person may be both as to action in his or her official capacity and as to action in another capacity while holding such official capacity; shall continue as to a Qualified Person who has ceased to be a Director, officer, employee, member, if any, volunteer, or agent; and shall inure to the benefit of the heirs, beneficiaries, and personal representatives of the Qualified Person. (e) Indemnification may be made either by direct payment by the Corporation or by reimbursement to the Qualified Person. (As amended 2/15/88.) Section 6.10. Duty of Care. Directors and officers of the Corporation shall not be liable for losses of the Corporation incurred under their management which are not the result of misconduct in the performance of duty or negligence in failing to exercise that diligence, care, and skill which an ordinarily prudent man would exercise under similar circumstances. Section 6.11. Reliance on Documents. Each Director and officer shall, in the performance of his duties, be fully protected in relying and acting in good faith upon the books of account or other records of the Corporation, 4.10 or reports made or financial statements presented by any officer of the Corporation or by an independent public or certified public accountant or firm of such accountants or by an appraiser selected with reasonable care by the Board of Directors or by any committee thereof; and each Director and officer is hereby expressly relieved from any liability which might otherwise exist or arise from or in connection with any such action. Section 6.12. Effect of Partial Invalidity. If a court of competent jurisdiction shall adjudge to be invalid any clause, sentence, paragraph, section, or part of the Articles of Incorporation or these By-laws, such judgment or decree shall not affect, impair, invalidate, or nullify the remainder of the Articles of Incorporation or these By- laws, but the effect thereof shall be confined to the clause, sentence, paragraph, section, or part so adjudged to be invalid. -78- HON INDUSTRIES Inc. BY-LAWS 6.01 Section 6.13. Definitions. Any word or term which IBCA Sec. is defined in the Iowa Business Corporation Act shall have 140 the same meaning wherever used in the Articles of Incorpo- ration or in these By-laws, unless the context or another provision of the Articles of Incorporation or these By- laws clearly indicates otherwise. Wherever used in the Articles of Incorporation or in these By-laws, unless the context or another provision of the Articles of Incorpo- ration or these By-laws clearly indicates otherwise, the use of the singular shall include the plural, and vice versa; and the use of any gender shall be applicable to any other gender. Wherever used in the Articles of Incor- poration or in these By-laws, the word "written" shall mean written, typed, printed, duplicated, or reproduced by any process. (As amended 4/23/64.) Section 6.14. Authority to Carry Out Resolutions and Motions. Each resolution or motion adopted by the share- holders or by the Board of Directors shall be deemed to include the following provision, unless the resolution or motion expressly negates this provision: The officers of the Corporation are severally authorized on behalf of the Corporation to do all acts and things which may be neces- sary or convenient to carry out this resolution (motion), including, without limitation, the authority to make, execute, seal, deliver, file, and perform all appropriate contracts, agreements, certificates, documents, and instruments. The foregoing provision shall automatically be a part of the resolution or motion even though not stated in the minutes; and any officer may state or certify that the foregoing provision is included in the resolution or motion. (Added entire section 8/3/82.) -79- HON INDUSTRIES Inc. BY-LAWS 7.01 ARTICLE 7. AMENDMENTS ---------------------- Section 7.01. Reservation of Right to Amend. The Articles of Corporation expressly reserves the right from time to Incorporation, time to amend these By-laws, in the manner now or here- Art. 4, after permitted by the provisions of the Articles of Art. 8 Incorporation and these By-laws, whether or not such amendment shall constitute or result in a fundamental change in the purposes or structures of the Corporation 7.02 or in the rights or privileges of shareholders or others or in any or all of the foregoing. All rights and privileges of shareholders or others shall be subject to this reservation. Wherever used in these By-laws with respect to the By-laws, the word "amend," "amended," or "amendment" includes and applies to the amendment, altera- tion, or repeal of any or all provisions of the By-laws or the adoption of new By-laws. (As amended 4/28/66.) Section 7.02. Procedure to Amend. Any amendment IBCA Sec. 206, to these By-laws may be adopted at any meeting of the 1020, 1022 Board of Directors by the affirmative vote of a Articles of majority of the number of Directors fixed by Section Incorporation, 3.03. No notice of any proposed amendment to the Art. 8 By-laws shall be required. (As amended 4/28/66.) 3.08, 3.17 -80- EX-21 3 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT ------------------------------ State of Subsidiary Incorporation Doing Business As - ---------- ------------- ----------------- Hearth Technologies Inc. Iowa Hearth Technologies Inc. Holga Inc. Iowa Holga Inc. BPI Inc. Iowa BPI Inc. The Gunlocke Company Iowa The Gunlocke Company HON Export Limited Iowa HON Export Limited T. M. Export Inc. Barbados T. M. Export Inc. -81- EX-23.A 4 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 23A CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report included in this Form 10-K, into HON INDUSTRIES Inc.'s previously filed Registration Statement Files Nos. 33-20759 and 33-61305 on Form S-8. Arthur Andersen LLP Chicago, Illinois March 24, 1997 -82- EX-23.B 5 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23B 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 and incorporation by reference in the Registration Statement (Form S-8 No. 33-61305) pertaining to the 1995 stock-based compensation plan of HON INDUSTRIES Inc. of our report dated January 30, 1996, 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 28, 1996. Ernst & Young LLP Chicago, Illinois March 24, 1997 -83- EX-27 6 FINANCIAL DATA SCHEDULE
5 0000048287 HON INDUSTRIES INC. 1,000 YEAR DEC-28-1996 DEC-31-1995 DEC-28-1996 31,196 1,502 110,925 1,830 43,550 205,527 375,910 141,294 513,514 152,553 91,468 0 0 29,713 222,684 513,514 998,135 998,135 679,496 679,496 212,446 0 926 105,267 37,173 68,094 0 0 0 68,094 2.26 2.26
EX-99.A 7 EXECUTIVE BONUS PLAN OF HON INDUSTRIES, INC. EXHIBIT 99A 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, November 14, 1994, May 8, 1995, and November 11, 1996 1. Purpose. The purpose of the Executive Bonus Plan (the "Plan") 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 participate in the Plan (an "electing Subsidiary"). The Plan shall be operated at all times in conformance with applicable government regulations. (As amended January 31, 1983, May 4, 1992, and November 11, 1996.) 2. Participants. For any fiscal year, each person who is an officer as of the end of such fiscal year of HON INDUSTRIES Inc. (the "Corporation") or any electing Subsidiary, and each other executive of the Corporation or any electing Subsidiary as is selected by the Board of Directors of the Corporation ("Board") as of the end of such fiscal year, shall be eligible to be Participants in the Plan. (As amended April 20, 1976, April 19, 1977 and November 11, 1996.) 3. Payment. Upon final determination of bonus awards by the Board or, to the extent delegated by the Board for a fiscal year, the Human Resources and Compensation Committee of the Board ("Committee"), the bonus awards shall be paid in full in cash, subject to Section 3(c), as follows: a. Any bonus award for a fiscal year ending prior to December 28, 1996, to the extent not already paid to the Participant, shall be paid to the Participant (or, as applicable, the Participant's estate) in a single sum payment not later than March 14, 1997, provided that (A) the Participant is employed by the Corporation or an electing Subsidiary on the date of payment or (B) the Participant's employment with the Corporation and each electing Subsidiary terminated due to death, disability, retirement after age 55 pursuant to established retirement policies of the Corporation (a "Retirement"), or for any other reason (except a termination for cause, as determined by the Committee) after a Change in Control (as defined below). b. Effective for each fiscal year ending on or after December 28, 1996, each bonus award for such fiscal year shall be paid not later than the last day of the Corporation's February fiscal month following the end of the Corporation's fiscal year for -85- which the bonus award is made, provided, subject to Section 4, that the Participant is employed by the Corporation or an electing Subsidiary on such date. c. At the Participant's request, the Committee may approve payment of all or a portion of any bonus award for a fiscal year under Section 3(a) or 3(b) in the form of shares of Bonus Stock issued pursuant to (and as defined in) the Corporation's Stock-Based Compensation Plan. The number of shares of Bonus Stock to be paid shall be determined by dividing the cash amount of the bonus award under the Plan (or, portion thereof, as elected by the Participant) for a fiscal year by the average closing prices of a share of the Corporation's common stock for the 20 trading days immediately preceding the date of such payment, with cash paid in lieu of any fractional share. All Federal, state and local income tax and other employment tax withholding shall be made pursuant to Section 5.5 of the Stock-Based Compensation Plan. (As amended January 31, 1983, May 8, 1995, and November 11, 1996.) d. As used in the Plan, "Change in 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 Corporation (the "Outstanding Corporation Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Corporation, (B) any acquisition by the Corporation, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation 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 3(d); 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 Corporation'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 Corporation (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 Corporation Common Stock and Outstanding Corporation 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 -86- 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 Corporation or all or substantially all of the Corporation'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 Corporation Common Stock and Outstanding Corporation 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 Corporation 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 (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Corporation 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 Corporation of a complete liquidation or dissolution of the Corporation. (As amended November 4, 1986, July 7, 1988, November 14, 1994 and November 11, 1996.) 4. Termination of Employment. The following provisions shall apply for any fiscal year commencing after December 28, 1996: a. If a Participant's employment with the Corporation and each electing Subsidiary is terminated during a fiscal year by reason of death, disability or Retirement, the Participant, or the Participant's estate, shall receive a bonus award for such fiscal year, determined as if the Participant had remained employed for such entire fiscal year, prorated for the number of days during such fiscal year that have elapsed as of the Participant's termination, and subject to the first sentence of Section 4(b). b. If a Participant's employment with the Corporation and each electing Subsidiary is terminated during a fiscal year for any reason other than death, disability or Retirement, the Participant's rights to any bonus award for such fiscal year will be forfeited. However, the Committee may, in its discretion, determine to pay a prorated bonus award for the portion of such fiscal year during which the Participant was employed by the Corporation or an electing Subsidiary, except that in no event shall any such prorated bonus award be paid in the event of termination for cause, as determined by the Committee. (As amended November 11, 1996.) 5. Change in Control. For fiscal years commencing after December 28, 1996, in the event of a Change in Control (as defined above), the maximum bonus award for the fiscal year then in progress, prorated for the number of days in such fiscal year that have elapsed as of the date of the Change in Control, shall be paid immediately in cash, without regard to Section 3(c). Any adjustment or termination of a Participant's participation in the Plan that occurs at any time -87- on or after the 90th day preceding a Change in Control shall be of no effect. (As amended November 11, 1996.) 6. Administration. The Board 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 provided in the Corporation's Stock-Based Compensation Plan or to the extent that the Board may have delegated its powers to the Committee. Decisions of the Board or the Committee shall be final, conclusive and binding upon all parties. The Committee shall consist of two or more "non-employee directors" within the meaning of Rule 16b-3 as promulgated pursuant to Section 16 of the Securities Exchange Act of 1934. (As amended May 8, 1995, and November 11, 1996.) 7. Cost. Each electing Subsidiary shall reimburse the Corporation for the amount of such bonus awards which shall be awarded and paid to Participants for services to such electing Subsidiary, as determined by the Board. 8. Amount of Individual Bonus. For fiscal years beginning after December 28, 1996, the bonus award for each fiscal year for any Participant shall be determined by the Board, or, to the extent delegated by the Board for a fiscal year, by the Committee, no later than the first meeting of the Board that occurs during the fiscal year following the year for which the bonus award is made. (As amended April 20, 1976 and November 11, 1996.) 9. General Provisions. a. The Company shall have the right to deduct any Federal, state or local taxes applicable to payments under the Plan. The Committee may permit Participants to satisfy withholding obligations by electing to have shares of Bonus Stock withheld. b. Except as otherwise determined by the Committee, no right or interest of any Participant in this Plan shall be assignable or transferable except by will or the laws of descent and distribution, nor shall any such right or interest, be subject to any lien, directly, by operation of law or otherwise, including execution, levy, garnishment, attachment, pledge or bankruptcy. c. Except as provided in Sections 4 and 5, the Board may terminate or amend the Plan at any time. -88- EX-99.B 8 EXECUTIVE DEFERRED COMPENSATION PLAN EXHIBIT 99B EXECUTIVE DEFERRED COMPENSATION PLAN HON INDUSTRIES Inc. As Adopted on November 11, 1996 -89- TABLE OF CONTENTS ----------------- Page ---- AMENDMENT AND RESTATEMENT . . . . . . . . . . . . . . . . . 1 Amendment and Restatement . . . . . . . . . . . . . . 1 Purposes . . . . . . . . . . . . . . . . . . . . . . 1 Application of the Plan . . . . . . . . . . . . . . . 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1 Definitions . . . . . . . . . . . . . . . . . . . . . 1 Gender and Number . . . . . . . . . . . . . 3 ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . 3 Eligibility . . . . . . . . . . . . . . . . . . . . . 3 Participation . . . . . . . . . . . . . . . . . . . . 3 Partial Year Participation . . . . . . . . . . . . . 4 DEFERRAL OPPORTUNITY . . . . . . . . . . . . . . . . . . . 4 Deferral Election . . . . . . . . . . . . . . . . . . 4 Deferral Amount . . . . . . . . . . . . . . . . . . . 5 Adjustment in Deferral Amount . . . . . . . . . . . . 5 Length of Deferral . . . . . . . . . . . . . . . . . 5 Form of Payment . . . . . . . . . . . . . . . . . . . 5 Termination from Service Other Than Retirement . . . 6 Death Benefit . . . . . . . . . . . . . . . . . . . . 6 Financial Hardship . . . . . . . . . . . . . . . . . 7 Vesting . . . . . . . . . . . . . . . . . . . . . . 7 Funding . . . . . . . . . . . . . . . . . . . . . . 7 Deduction Issues . . . . . . . . . . . . . . . . . . 8 INDIVIDUAL ACCOUNTS . . . . . . . . . . . . . . . . . . . . 8 Participants' Accounts . . . . . . . . . . . . . . . 8 Charges Against Accounts . . . . . . . . . . . . . . 8 Participant Statements . . . . . . . . . . . . . . . 9 ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . 9 Administration . . . . . . . . . . . . . . . . . . . 9 Decisions Binding . . . . . . . . . . . . . . . . . . 9 Expenses . . . . . . . . . . . . . . . . . . . . . . 9 Indemnification and Exculpation . . . . . . . . . . . 9 BENEFICIARY DESIGNATION . . . . . . . . . . . . . . . . . . 9 Designation of Beneficiary . . . . . . . . . . . . . 9 Death of Beneficiary . . . . . . . . . . . . . . . . 10 Ineffective Designation . . . . . . . . . . . . . . . 10 -90- Withholding of Taxes . . . . . . . . . . . . . . . . . . . 10 CHANGE IN CONTROL, AMENDMENT, AND TERMINATION . . . . . . . 10 Change in Control . . . . . . . . . . . . . . . . . . 10 Plan Amendment and Termination . . . . . . . . . . . 11 CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . 12 Initial Claim . . . . . . . . . . . . . . . . . . . . 12 Denial of Claim . . . . . . . . . . . . . . . . . . . 12 Review of Claim Denial . . . . . . . . . . . . . . . 12 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 12 Unfunded Plan . . . . . . . . . . . . . . . . . . . . 12 Nontransferability . . . . . . . . . . . . . . . . . 13 Successors . . . . . . . . . . . . . . . . . . . . . 13 Severability . . . . . . . . . . . . . . . . . . . . 13 Applicable Law . . . . . . . . . . . . . . . . . . . 13 -91- HON INDUSTRIES INC. EXECUTIVE DEFERRED COMPENSATION PLAN 1. AMENDMENT AND RESTATEMENT ------------------------- 1.1. Amendment and Restatement. HON INDUSTRIES Inc., an Iowa corporation (the "Company"), hereby amends and restates, effective as of January 1, 1997(the "Effective Date"), the HON INDUSTRIES Inc. Salary Deferral Plan (the "Plan"), a deferred compensation plan for its eligible members, to be known as of the Effective Date as the "HON INDUSTRIES Inc. Executive Deferred Compensation Plan". 1.2. Purposes. The purpose of the Plan is to give eligible executives the opportunity to defer the receipt of compensation to supplement their retirement savings and to achieve their personal financial planning goals. 1.3. Application of the Plan. The terms of the Plan, as amended and restated, shall apply only to eligible executives who are in the active employ of the Company or its Subsidiaries on and after the Effective Date. 2. DEFINITIONS ----------- 2.1. Definitions. Whenever used in the Plan, the following terms shall have the meaning set forth below and, when the defined meaning is intended, the term is capitalized: (a) "Account" shall mean the individual bookkeeping account established for each Participant, including any subaccounts established under the Plan, for the purpose of crediting a Participant's deferrals and earnings hereunder, as further described in Section 5.1. (b) "Annual Bonus" means bonus awards awarded by the Company to a Participant as provided in the HON INDUSTRIES Inc. Executive Bonus Plan. (c) "Base Salary" means the annualized salary as of the close of each Plan Year, including all regular basic wages before reduction for any amounts deferred on a tax-qualified or nonqualified basis, payable in cash to a Participant for services rendered during the Plan Year. For certain employees, Base Salary shall include commissions. Base Salary shall exclude bonuses, incentive compensation, special fees or awards, allowances, or any other form of premium or incentive pay, or amounts designated by the Company as payment toward or reimbursement of expenses. -92- (d) "Board of Directors" means the board of directors of the Company. (e) "Cash Profit Sharing" means amounts paid by the Company under the Cash Profit Sharing Plan. (f) "Cash Profit Sharing Plan" means the HON INDUSTRIES Inc. Cash Profit Sharing Plan, or any successor Plan thereto. (g) "Code" means the Internal Revenue Code of 1986, as amended. (h) "Committee" means the Human Resources and Compensation Committee of the Board of Directors. (i) "Compensation" means the remuneration paid or awarded to the Participant by the Company or an Employer as Base Salary, Annual Bonus, Cash Profit Sharing or as an LTIP Award. (j) "Company" means HON Industries Inc., an Iowa corporation. (k) "Deferred Amount" means, with respect to a Participant, the Compensation deferred for a Plan Year under the Plan pursuant to the Participant's election in accordance with Section 4.1 for such Plan Year. (l) "Employer" means the Company, and any Subsidiary which adopts the Plan or which continues the Plan as a successor under Section 11.3. (m) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, or any successor thereto. (n) "LTIP Award" means any payment made pursuant to the HON INDUSTRIES Inc. Executive Long-Term Incentive Compensation Plan. (o) "Participant" means an individual who satisfies the requirements of Section 3.1. (p) "Plan Year" means the consecutive 12-month period beginning each January 1 and ending December 31. -93- (q) "Prime Rate" means the interest rate charged by the Northern Trust Company, Chicago, Illinois on corporate loans made to their best customers as of the first business day coincident with or immediately following the January 1 of each Plan Year. (r) "Retirement" means the discontinuance of employment with the Company and its Subsidiaries after the attainment of age 65, or age 55 with ten years of service with an Employer. (s) "Subsidiary" means a corporation which is wholly owned by the Company. (t) "Termination from Service" means the discontinuance of employment with the Company and its Subsidiaries by reason of resignation, discharge, Retirement, disability, or death. A transfer of employment from the Company or a Subsidiary to another Subsidiary shall not constitute a Termination from Service. 2.2. Gender and Number. Except when otherwise indicated by the context, any masculine term used in the Plan also shall include the feminine gender; and the definition of any plural shall include the singular and the singular shall include the plural. 3. ELIGIBILITY AND PARTICIPATION ----------------------------- 3.1. Eligibility. Subject to Section 9.1, participation in the Plan shall be limited to those executive employees of the Company and its Subsidiaries who are eligible to participate in the HON INDUSTRIES Inc. Executive Bonus Plan. 3.2. Participation. Eligible executive employees shall be notified of their ability to participate prior to the beginning of each Plan Year in which they are eligible, or as soon as administratively possible thereafter. No employee shall have the right to be selected to participate in the Plan or, having been so selected, to be selected to participate in any future Plan Year. Further, nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant's employment at any time, nor confer upon any Participant a right to continue in the employ of the Company, and all Participants shall remain subject to change of salary and other terms of employment, transfer, change of job, discipline, layoff, discharge, or any other change of status. -94- In the event a Participant ceases to be eligible for continued participation in the Plan for any reason, such individual shall become an inactive Participant, retaining all the rights relating to previous deferrals as described under the Plan, except the right to make any further deferrals, until such time that such individual again is determined by the Committee to be an active Participant. 3.3. Partial Year Participation. In the event that an individual becomes eligible to participate in the Plan after the beginning of a Plan Year, the Company may allow such individual to elect a deferral amount pursuant to Section 4.1 for such Plan Year within thirty (30) calendar days after the individual becomes eligible to so participate (but before the end of such Plan Year and subject to Section 4.1's six month requirement for LTIP Awards). An election submitted pursuant to this Section 3.3 shall apply only to Compensation earned or awarded for the Plan Year during the period subsequent to the date on which a valid election to defer is received by the Company from that Participant. 4. DEFERRAL OPPORTUNITY -------------------- 4.1. Deferral Election. For each Plan Year, each Participant may elect to defer the payment of one or more components of Compensation earned or awarded for a Plan Year as set forth in Section 4.1(a) by filing a form prescribed by the Company prior to the beginning of such Plan Year. The election for any Plan Year shall be made at any time before the commencement of such Plan Year and shall be effective as of the beginning of such Plan Year, except that any election to defer an LTIP Award pursuant to Section 4.1(a)(4) shall be made not less than six months prior to the commencement of such Plan Year. An election under this Section 4.1 shall be irrevocable with respect to the Deferred Amount for the Plan Year for which the election is in effect. Each Participant's election shall specify: (a) The Deferred Amount, expressed as percentage or a flat dollar amount of each of: (1) The Participant's Base Salary earned during the Plan Year (or such shorter period commencing on the date of the Participant's election under this Section); (2) The Participant's Annual Bonus awarded for the Plan Year; (3) The Participant's Cash Profit Sharing payable during the Plan Year; -95- (4) The Participant's LTIP Award which vests during the Plan Year with respect to the award period which ended as of the end of the immediately preceding Plan Year; and (5) Any other amounts designated by the Company from time to time. (b) Subject to Section 4.4, the future Plan Year in which, as of January 31 of such Plan Year, each Deferred Amount designated in subsections (a)(1) through (5) and earnings credited thereon is payable; and (c) The form of payment of each Deferred Amount designated in subsections (a)(1) through (5), and earnings credited thereon. 4.2. Deferral Amount. A Participant may elect to defer all or a portion of his Compensation earned or awarded for a Plan Year, as set forth in Section 4.1(a). 4.3. Adjustment in Deferral Amount. The Deferred Amounts credited to the Participant's Account shall be credited as of the last day of each month with earnings, computed on a monthly basis and compounded monthly, in an amount equal to the product of the ending monthly balance credited to the Participant's Account, multiplied by a rate equal to one (1) percentage point above the current Prime Rate. Notwithstanding the foregoing, no earnings shall be credited to a Participant's Account after the Participant incurs a Termination from Service, with or without cause, for reasons other than Retirement, disability, or death. 4.4. Length of Deferral. Each Participant must elect the subsequent Plan Year in which a Deferred Amount, and earnings credited thereon, is payable. Such amounts shall be payable as of January 31 of such subsequent Plan Year. The length of each period commencing on the date of the Participant's election and ending on the date of payment with respect to a Deferred Amount and earnings thereon, as elected by a Participant, for a Plan Year shall be not less than one (1) year following the end of the Plan Year for which the election is made. 4.5. Form of Payment. Subject to Section 4.6, each Deferred Amount, and earnings thereon, shall be payable in cash, and in the form, pursuant to the Participant's election under Section 4.1, of either: (a) a single sum payment, or -96- (b) up to fifteen annual installment payments. If the Participant elects payment in the form of installment payments, the initial installment payment shall be made in January of the Plan Year selected by the Participant. The remaining installment payments shall be made in January each year thereafter until the Participant's entire Account has been paid. During the installment payment period, earnings shall be credited with respect to the Participant's Account in the manner provided in Section 4.3. The amount of each installment payment shall be equal to the balance remaining in the Participant's Account (or, if the election is with respect to a subaccount, such subaccount) immediately prior to each such payment, multiplied by a fraction, the numerator of which is one (1), and the denominator of which is the number of installment payments remaining, with the last installment consisting of the balance of the Participant's Account (or, as applicable, subaccount). A Participant's election of a form of payment with respect to a Deferred Amount shall be irrevocable. A Participant may, however, petition the Committee to allow payment of a Deferred Amount and earnings thereon to be made in any form otherwise available under the Plan, provided that such petition is made more than one year prior to the earlier of his Retirement or the date for payment commencement elected by the Participant with respect to such Deferral Amount and earnings thereon. The Committee, at its sole discretion, shall make a binding determination as to whether such alternative form of payment will be allowed. 4.6. Termination from Service Other Than Retirement. Notwithstanding any election by a Participant pursuant to Section 4.1, in the case of any Participant who incurs a Termination from Service during a Plan Year for any reason other than Retirement, payment of the Participant's Account shall be made in a single sum payment, regardless of the form otherwise elected by the Participant, on or before January 31 of the calendar year following the effective date of such Termination from Service. 4.7. Death Benefit. If a Participant dies with all or a portion of his Account unpaid, the remaining amount shall be paid to his beneficiary, as designated in accordance with Article 7, in the same form and manner as paid while the Participant was living. Upon the death of a Participant all rights and privileges of the Participant contained in this Article 4 of the Plan shall inure to the benefit of such Participant's designated beneficiary in accordance with Article 7. -97- 4.8. Financial Hardship. The Committee shall have the sole authority to alter the timing or manner of payment of a Participant's Account in the event that the Participant establishes, to the satisfaction of the Committee, severe financial and/or medical hardship at the time of distribution. In such event, the Committee may: (a) Provide that all or a portion of any Deferred Amount and earnings thereon be paid immediately in a single sum payment, or (b) Provide that all or a portion of the installments payable over a period of time shall be paid immediately in a single sum payment; or (c) Provide for such other installment payment schedule as deemed appropriate by the Committee under the circumstances. However, the amount distributed pursuant to this Section shall not exceed that amount which is reasonably necessary, as determined by the Committee, for the Participant to meet the financial and/or medical hardship at the time of distribution. A Participant's request for a payment for hardship reasons must be accompanied or supplemented by such evidence of hardship as the Committee may reasonably require. The severity of the financial and/or medical hardship shall be judged by the Committee. Severe financial and/or medical hardship will be deemed to exist in the event of the Participant's long and serious illness, impending bankruptcy, or other similar unforeseeable and extraordinary circumstances arising as a result of events beyond the control of the Participant. The Committee's decision with respect to the severity of financial and/or medical hardship and the manner in which, if at all, the payment of deferred amounts shall be altered or modified, shall be final, conclusive, and not subject to appeal. 4.9. Vesting. A Participant shall have a full and immediate nonforfeitable interest in his Account at all times. 4.10. Funding. The Company's obligations under the Plan shall in every case be an unfunded and unsecured promise to pay. Each Participant's or beneficiary's rights under the Plan shall be no greater than those of general, unsecured creditors of the Company. The amount of each Participant's Account shall be reflected on the accounting records of the Employer but shall not be construed to create, or require the creation of, a trust, custodial or escrow account. No Participant shall have any right, title, or interest whatever in or to any investment -98- reserves, accounts, or funds that the Employer may purchase, establish, or accumulate, and, except as provided in the next sentence, no Plan provision or action taken pursuant to the Plan shall create or be construed to create a trust or a fiduciary relationship of any kind between the Employer or the Company and a Participant or any other person. All amounts paid under the Plan shall be paid in cash from the general assets of the Employer, and the Company shall not be obligated under any circumstances to fund its financial obligations under the Plan, except that, notwithstanding the foregoing, the Company shall be obligated not later than upon the occurrence of a Change in Control (as defined in Section 9.1(b)), to transfer assets to one or more irrevocable grantor trusts established by the Company in an amount at least sufficient to provide for the obligations of the Company under the Plan as of the date of such transfer. The assets of any such trust shall at all times be subject to the claims of the general unsecured creditors of the Company and not be subject to the prior claim of any Participant or beneficiary under the Plan. Any such trust so established and the rights and obligations of any individual, the Company, and the trustee in such trust shall be governed exclusively by such trust; provided that the provisions of the Plan shall govern exclusively the rights of a Participant or beneficiary to benefits under the Plan. 4.11. Deduction Issues. Notwithstanding the foregoing provisions of this Article 4, if the deduction of all or any portion of any payment otherwise due to be made by the Company under the Plan would be disallowed solely by reason of Section 162(m) of the Code, but for the operation of this Section, then such payment (or portion thereof) shall be deferred and made at the earliest time that Section 162(m) would not apply to disallow the corresponding deduction by the Company. 5. INDIVIDUAL ACCOUNTS ------------------- 5.1. Participants' Accounts. The Company shall establish and maintain an Account for each Participant under the Plan for the benefit of such Participant, consisting of separate subaccounts for each Deferred Amount. Each subaccount shall be credited with a Participant's Deferred Amount at the time such amounts otherwise would have been paid to the Participant had such amounts not been deferred, and shall be credited with earnings in accordance with Section 4.3. 5.2. Charges Against Accounts. There shall be charged against each Participant's Account any payments made to the Participant or to a Participant's beneficiary. 5.3. Participant Statements. Statements that identify the Participant's Account balance shall be provided to Participants on a monthly basis. -99- 6. ADMINISTRATION -------------- 6.1. Administration. This Plan shall be administered by the Committee. The Committee shall have full power to construe and interpret the Plan, to decide questions arising under the Plan, and to take such other action as may be appropriate to carry out the purposes of the Plan. 6.2. Decisions Binding. All determinations and decisions made by the Committee, pursuant to the provisions of the Plan shall be final, conclusive, and binding on all persons, including the Company, its owners, employees, Participants and their estates and beneficiaries. 6.3. Expenses. The expenses of administering the Plan shall be borne by the Company. 6.4. Indemnification and Exculpation. The agents, officers, directors, and members of the Company and its Subsidiaries and the Committee shall be indemnified and held harmless by the Company against and from any and all loss, cost, liability, or expense that may be imposed upon or reasonably incurred by them in connection with or resulting from any claim, action, suit, or proceeding to which they may be a party or in which they may be involved by reason of any action taken or failure to act under this Plan and against and from any and all amounts paid by them in settlement (with the Company's written approval) or paid by them in satisfaction of a judgment in any such action, suit, or proceeding. The foregoing provision shall not be applicable to any person if the loss, cost, liability, or expense is due to such person's gross negligence or willful misconduct. 7. BENEFICIARY DESIGNATION ----------------------- 7.1. Designation of Beneficiary. Each Participant shall be entitled to designate a beneficiary or beneficiaries who, upon the Participant's death, will receive the amounts that otherwise would have been paid to the Participant under the Plan. All designations shall be signed by the Participant, and shall be in a form prescribed by the Committee. The Participant may change his or her designation of beneficiary at any time, on a form prescribed by the Committee. The filing of a new beneficiary designation form by a Participant shall automatically revoke all prior designations by that Participant. -100- 7.2. Death of Beneficiary. In the event that all the beneficiaries named by a Participant, pursuant to Section 7.1 herein, predecease the Participant, the deferred amounts that would have been paid to the Participant shall be paid to the Participant's estate. 7.3. Ineffective Designation. In the event the Participant does not designate a beneficiary, or for any reason such designation is ineffective in whole or in part, the ineffectively designated amounts shall be paid to the Participant's estate. 8. WITHHOLDING OF TAXES -------------------- The Company shall have the right to deduct from all payments made pursuant to the Plan such amounts as it may reasonably estimate as sufficient to satisfy federal, state and local tax withholding requirements. 9. CHANGE IN CONTROL, AMENDMENT, AND TERMINATION --------------------------------------------- 9.1. Change in Control. (a) A Participant shall retain rights to payment of all Deferred Amounts, including earnings credited in accordance with this Plan, in the event of a Change in Control. (b) For purposes of the Plan, a "Change in Control" means (i) the acquisition by any individual, entity or group (with 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 "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change in 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 paragraph; 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 -101- 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 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. 9.2. Plan Amendment and Termination. The Board of Directors hereby reserves the right to amend, modify, and/or terminate the Plan at any time. However, no such amendment or termination shall in any manner adversely affect any Participant's interest in his Account, without the consent of the Participant. Without limiting the foregoing, the Company may, in its sole discretion, -102- terminate the Plan in its entirety, in which case the value of each Participant's Account shall be paid in full to such Participant and/or such Participants' beneficiary as promptly as practicable, or the Company may preclude any further deferral elections and/or other credits, but otherwise maintain the balance of the provisions of the Plan. 10. CLAIMS PROCEDURE ---------------- 10.1. Initial Claim. Payments under the Plan shall be paid in accordance with the provisions of the Plan. The Participant, or a beneficiary designated pursuant to Article 7 or any other person claiming through the Participant, shall mail or deliver to the Committee a written request for benefits under this Plan. Such claim shall be reviewed by the Committee or its delegate. 10.2. Denial of Claim. If the claim is denied, in full or in part, the Committee or its delegate shall provide a written notice within ninety (90) days setting forth the specific reasons for denial, and any additional material or information necessary to perfect the claim, and an explanation of why such material or information is necessary, all appropriate information and an explanation of the steps to be taken if a review of the denial is desired. 10.3. Review of Claim Denial. If the claim is denied and a review by the Board of Directors is desired, the Participant (or beneficiary) shall notify the Board of Directors or its delegate in writing within sixty (60) days (a claim shall be deemed denied if the Board of Directors does not take any action within the aforesaid ninety (90) day period) after receipt of the written notice of denial. In requesting a review, the Participant or his beneficiary may request a review of the Plan document or other pertinent documents, may submit any written issues and comments, may request an extension of time for such written submission of issues and comments, and may request that a hearing be held, but the decision to hold a hearing shall be within the sole discretion of the Board of Directors. 11. MISCELLANEOUS ------------- 11.1. Unfunded Plan. This Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for "a select group of management or highly compensated employees" within the meaning of Sections 201, 301, and 401 of ERISA, and therefore is further intended to be exempt from the provisions of Parts 2, 3, and 4 of Title I of ERISA. Accordingly, the Plan shall terminate and no further benefits shall accrue hereunder in the event it is determined by a court of competent jurisdiction or by an opinion of counsel to the -103- Company that such balance of the Plan constitutes an employee pension benefit plan within the meaning of Section 3(2) of ERISA, which is not so exempt. In addition, in the absolute discretion of the Committee, the vested benefit of each Participant accrued under such balance of the Plan on the date of termination shall be paid immediately to such Participant in a lump sum. 11.2. Nontransferability. A Participant's rights or interests in the Plan may not be sold, transferred, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. In no event shall the Company make any payment under the Plan to any assignee or creditor of a Participant or to any assignee or creditor of a Participant's beneficiary. 11.3. Successors. All obligations of the Company under the Plan shall be binding upon and inure to the benefit of any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 11.4. Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. 11.5. Applicable Law. To the extent not preempted by federal law, the Plan shall be governed and construed in accordance with the laws of the state of Iowa. -104- -----END PRIVACY-ENHANCED MESSAGE-----