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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 2, 1995NOVEMBER 30, 1996      COMMISSION FILE NO. 1-6651

                         HILLENBRAND INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

             INDIANA                                   35-1160484
     (State or other jurisdiction of                (I.R.S. Employer
     incorporation or organization)                Identification No.)

    700 STATE ROUTE 46 EAST
        BATESVILLE, INDIANA                            47006-8835
(Address of principal executive offices)               (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (812) 934-7000
           SECURITIES REGISTERED PURSUANT TO SECTION 12(B)12(b) OF THE ACT:

      Title of Each Class             Name of Each Exchange on Which Registered
- - ------------------------------  --------------------------------------------------------------------------------   -----------------------------------------
  COMMON STOCK, WITHOUT PAR VALUE             NEW YORK STOCK EXCHANGE

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G)12(g) OF THE ACT:  NONE

  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 TWELVE12 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./ /  

  STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.

     Common Stock, without par value - $1,633,278,000$1,837,747,000 as of February 9,
199614, 1997
(excluding stock held by persons deemed affiliates).

  INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

     Common Stock, without par value - 70,066,38068,796,966 as of February 9, 1996.14, 1997.

  DOCUMENTS INCORPORATED BY REFERENCE.

     Portions of the 19961997 Proxy Statement furnished to Shareholders - Parts I,
     III and III.IV.
     Portions of the 1992 Proxy Statement furnished to Shareholders - Part IV.

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                          HILLENBRAND INDUSTRIES, INC.
                           ANNUAL REPORT ON FORM 10-K
                               DECEMBER 2, 1995NOVEMBER 30, 1996
                               TABLE OF CONTENTS


                                                              PAGE
                                  PART I

       Item 1.      Business                                    1
       Item 2.      Properties                                  8
       Item 3.      Legal Proceedings                           8
       Item 4.      Submission of Matters to a Vote
                    of Security Holders                         9

                                 PART II

       Item 5.      Market for Registrant's Common
                    Equity and Related Stockholder
                    Matters                                     9
       Item 6.      Selected Financial Data                    10
       Item 7.      Management's Discussion and Analysis
                    of Financial Condition and Results
                    of Operations                              1011
       Item 8.      Financial Statements and Supplementary
                    Data                                       19
       Item 9.      Changes in and Disagreements With
                    Accountants on Accounting and
                    Financial Disclosure                       40

                                PART III

       Item 10.     Directors and Executive Officers
                    of the Registrant                          41
       Item 11.     Executive Compensation                     41
       Item 12.     Security Ownership of Certain
                    Beneficial Owners and Management           41
       Item 13.     Certain Relationships and Related
                    Transactions                               41

                                 PART IV

       Item 14.     Exhibits, Financial Statement Schedules,
                    and Reports on Form 8-K                    41

                             SIGNATURES                        44




                                    PART I


ITEM 1.  BUSINESS

  Hillenbrand Industries, Inc., an Indiana corporation headquartered in
Batesville, Indiana, is a diversified, public holding company and the owner of
100% of the capital stock of its fivefour major operating companies.  Unless the
context otherwise requires, the terms "Hillenbrand" and the "Company" refer to
Hillenbrand Industries, Inc., and its consolidated subsidiaries.  Hillenbrand is
organized into two business segments:  Funeral Services and Health Care.  The
Funeral Services segment consists of Batesville Casket Company, Inc., a
manufacturer of caskets and other products for the funeral industry, and
Forecorp, Inc., a provider of funeral planning insurance products.  The Health
Care segment consists of Hill-Rom, Inc., a manufacturer of equipment for the
health care market and provider of wound care and pulmonary/trauma and incontinence
management
services; Block Medical, Inc., a provider of home infusion therapy
products; and Medeco Security Locks, Inc., a manufacturer of high security locks
and access control products for commercial and residential use.  (Medeco does
not directly serve the health care industry but is included in the Health Care
segment due to its relative size.)  The assets of Block Medical, Inc., a
provider of home infusion therapy products, were sold to I-Flow Corporation on
July 22, 1996.  Results for Block Medical, Inc. are included in the Company's
financial statements through that date.

FUNERAL SERVICES

  Batesville Casket Company, Inc. ("Batesville"), an Indiana corporation
headquartered in Batesville, Indiana, was founded in 1884 and acquired by the
Hillenbrand family in 1906.  Batesville manufactures and sells several types of
steel, copper, bronze, hardwood and hardwoodcloth covered caskets, including caskets for
the cremation market.  In addition to caskets, Batesville manufactures and sells
a line of urns used in cremations.  All Batesville metal caskets are protective
caskets which are electrically welded and made resistant to the entry of air,
water and gravesite substances through the use of rubber gaskets and a locking
bar mechanism.

  Batesville Monoseal-Registered Trademark- steel caskets also employ a
magnesium alloy bar to cathodically protect the casket from rust and corrosion. 
The Company believes that this system of Cathodic Protection is featured only on
Batesville caskets.

  Batesville hardwood caskets are made from walnut, mahogany, cherry, maple,
pine, oak, pecan and poplar.  Except for a limited line of hardwood caskets with
a protective copper liner, the majority of hardwood caskets are not protective.

  Batesville's Hercu-Lite-TM- cloth covered caskets are constructed with a
patent pending process utilizing cellular fiberboard construction.  

  The cremation line of caskets, containers, urns and memoralization items are
marketed by Batesville under the name of Options-Registered Trademark-.  The
caskets and containers are manufactured primarily of hardwoods and fiberboard. 
The urns are made from bronze, hardwoods and marble.  A line of cast bronze
statuary art pieces used for memorialization are also marketed.

  Batesville caskets are marketed by Batesville's direct sales force to
licensed funeral directors operating licensed funeral homes throughout the
United States, Australia, Canada, Mexico and Puerto Rico.  Batesville maintains
an inventory of caskets at 6870 company-operated Customer Service Centers in North
America.  Batesville caskets are delivered in specially equipped vehicles owned
by Batesville.

  In December 1993, Batesville acquired Industrias Arga, S.A. de C.V., a
casket manufacturerhas small manufacturing and distribution facilities in Canada and
Mexico.


                                      -1-


  Forecorp, Inc., which was founded in 1985, and its principal subsidiaries, 
Forethought Life Insurance Company and The Forethought Group, Inc., are 
headquartered in Batesville, Indiana.  These companies serve the country's 
largest network of funeral planning professionals with marketing support for 
Forethought-Registered Trademark- funeral plans funded by life insurance 
policies.  This specialized funeral planning product is offered through 
licensed funeral homes.  Customers choose the funeral home, type of service 
and merchandise they want.  The selected funeral home contracts to provide 
the funeral services and merchandise when needed.  With funds provided by a 
life insurance policy from Forethought Life Insurance Company, the 
Forethought program offers inflation protection by enabling the funeral home 
to guarantee that the planned funeral will be available as specified.

  Certificates of authority to sell life insurance have been obtainedForethought Life Insurance Company is licensed in forty-eight (48)forty-two (42) states,
Alberta, Ontario, Manitoba, New Brunswick, Nova Scotia and Prince Edward Island,
Canada, Puerto Rico and the District of Columbia.  Forethought Life Insurance
products are available through a network of over 4,000 independent funeral
homeshomes.

  Forecorp, Inc. will introduce a trust product in forty-five (45)the first half of these
jurisdictions.


                                        -1-

1997. 
This product is not expected to have an immediate material effect on the
financial statements of the Company.

HEALTH CARE

  In fiscal 1994, Hill-Rom, Company, Inc., and SSI Medical Services, Inc.
("SSI"with its subsidiaries (collectively, "Hill-Rom"), were combined to form Hill-Rom, Inc. ("Hill-Rom"), an Indiana
corporation headquartered in Batesville, Indiana.  Hill-Rom is a 
leading producer of mechanically, electrically and hydraulically controlled 
adjustable hospital beds, hospital procedural stretchers, hospital patient 
room furniture and architectural systems specifically designed to meet the 
needs of medical-
surgical,medical-surgical, critical care, long-term care, home-care and 
perinatal providers.  It has been in the hospital equipment business since 
1929, and engaged in the manufacture of therapy beds and support surfaces and 
the rental and service of these products in the wound care, pulmonary/trauma 
and incontinence management markets since SSI was
acquired by Hillenbrand in 1985.

  The Hill-Rom line of electrically and manually adjustable hospital beds
includes models which, through sideguard controls, can be raised and lowered,
retracted and adjusted to varied orthopedic and therapeutic contours and
positions.  Hill-Rom also produces beds for special departments such as
intensive care, emergency, recovery rooms and labor and delivery rooms.  Other
Hill-Rom products include nurse call systems, sideguard communications, woodwood-
finished bedside cabinets, adjustable heightadjustable-height overbed tables, mattresses and wood
upholstered chairs.  Its architectural products include customized,
prefabricated modules, either wall-mounted or on freestanding columns, enabling
medical gases, communications and electrical services to be distributed in
patient rooms.  Hill-Rom also remanufactures hospital beds.  Its process
includes disassembly, washing, sanding, painting and reassembly with new
components.

  Hill-Rom products are sold directly to hospitalsacute and long-term health care
facilities throughout the United States and Canada by Hill-Rom account
executives.  Most Hill-Rom products sold in the United States are delivered by
trucks owned by Hill-Rom.  Hill-Rom also operates a Canadian division which
distributes Hill-Rom products, principally in Canada.  Hill-Rom also sells its
domestically produced products through distributorships throughout the world.

  In 1991, Hill-Rom acquired Le Couviour S.A., a French company which
manufactures a variety of mechanically, hydraulically and electrically
controlled bedsalso operates hospital bed, therapy bed and patient room
furniture.  Itsmanufacturing facilities in Germany and France. Their products are sold and
leased directly to hospitals and nursing homes throughout Europe.
     In February 1994, Hill-Rom completed the acquisition of L. & C. Arnold AG
(Arnold), of Schorndorf/Kempen in Germany.  Arnold is one of the oldest and
largest manufacturers of hospital beds in Germany.

  Clinical support for Hill-Rom's wound care, pulmonary/trauma and incontinence
management products is provided by a sales force composed of nurses and
physician assistants.  Technical support is made available by technicians and
service personnel who provide maintenance and technical assistance from Hill-Rom
Service Centers.

  Within the wound care market, CLINITRON-Registered Trademark- Air Fluidized 
Therapy is provided as a therapeutic adjunct in the treatment of advanced 
pressure sores, flaps, grafts and burns.  The CLINITRON unit achieves its 
support characteristics from the fluid effect created by forcing air up and 
through medical-grade ceramic microspheres contained in the unit's 
fluidization chamber. The CLINITRON product line includes the AT-HOME, 
designed for delivery and use in the home, and ELEXIS, with in-bed weighing 
and simplified patient egress.


                                      -2-

Hill-Rom also offers low airloss therapy through its EFICA CC-TM- and 
FLEXICAIR-Registered Trademark- units.  FLEXICAIR low airloss therapy is 
provided for pressure sore prevention and wound treatment when ambulation is 
a priority or continuous head elevation is desired.  The FLEXICAIR unit 
regulates air pressure in five zones corresponding to patient body areas.  In 
the pulmonary/trauma market, the EFICA CC-TM- Dynamic Air Therapy-Registered 
Trademark- offers several modes of operation, including continuous lateral 
rotation, percussion and vibration, while maintaining optimal low airloss 
pressure relief.  -2-



     The CLENSICAIR-Registered Trademark- Incontinence Management System
combines pressure-relieving low airloss therapy withIn 1996, the PULMONEX was introduced as a breakthrough designprevention 
product for managing incontinence.patients in medical/surgical or intensive care step down units 
who are at risk of developing pulmonary complications.

  Other wound care products include the ACUCAIR-Registered Trademark- 
Continuous Air Flow System , the MAGNUM-Registered Trademark- II bariatric 
patient care system and the CLINISERT-Registered Trademark- Pressure Relief 
System.  Both are offered as more effective alternatives to conventional
overlays and mattresses.System

  Hill-Rom therapy systems are made available to hospitals, long-term care
facilities and the home environment on a rental basis through over 150 Service
Centers located in the United States, Canada and Western Europe.

  Block Medical, Inc. ("Block"), a Delaware corporation, is headquartered in
San Diego, California, and was acquired by Hillenbrand in 1991.  Certain of its
manufacturing operations were moved to Mexico during fiscal 1994.  Block is a
manufacturer of home infusion products for antibiotic, nutritional, chemotherapy
and other drug therapies, including HOMEPUMP-TM-, a portable-disposable infusion
pump, and VERIFUSE-TM-, an ambulatory-electronic infusion pump.  HOMEPUMP, which
can be carried in a pocket or specially designed pouch, provides a simple and
convenient way for patients to administer their medication with minimum
disruption of their lives.  VERIFUSE is a computerized electronic infusion pump
that is designed to handle more complex infusion medications while enabling the
patient to be ambulatory.  It is programmed through the use of a built-in
bar-code scanner and is capable of delivering four infusion therapies.
     Block's products are sold to home care providers throughout the United
States and internationally by a direct sales force and through distributors.
     Medeco Security Locks, Inc. ("Medeco"), founded in 1968, was purchased by
Hillenbrand in 1984.  Medeco develops, manufactures and sells a wide variety of
deadbolts, padlocks, switch locks, camlocks, electro-mechanical and other
special purpose locks for the high security market.  Medeco's double locking
mechanism provides a higher level of security than is achievable by more common,
single-locking devices.  Medeco locks are primarily constructed of brass and
hardened steel and are manufactured in its Salem, Virginia plant.

  In 1991, Medeco enteredalso develops, manufactures and sells products for the electronic high
security market.  INSITE VLS-TM- replaces the thousands of mechanical keys used
in pay telephone collection.  The recently introduced DialGuard-TM- lock system
fills the same role in the automatic teller machine collection market, and the
DuraCam-TM- high security lock serves the gaming industry.  The INSITE SITEKEY-TM-SITEKEY-
TM- provides the state-of-the-art in electronic door security.

  Beginning in the first quarter of 1997, Medeco converted to direct
distribution of its door security products to retail locksmith customers. 
Medeco had previously sold through locksmith supply distributors.  Medeco
products are also sold domestically and internationally by its sales
organization to locksmith supply distributors, original equipment manufacturers and government agencies. 
Original equipment applications include vending machines, pay telephones, safe
and lock boxes, computer equipment, coin-operated laundry machines and
communications security devices.

  Hill-Rom generates the predominant share of the Health Care segment's 
revenues and operating profit.  Medeco and Block had an immaterial effect on 
the operating results of this segment in 1993, 1994, 1995 and 1995.1996.

BUSINESS SEGMENT INFORMATION

  The amounts of net revenues, operating profit and identifiable assets
attributable to each of the industry segments of the Company are set forth in
tables relating to operations by business segment in Note 67 to Consolidated
Financial Statements, which statements are included under Item 8.


                                      -3-



RAW MATERIALS

FUNERAL SERVICES

  Batesville employs carbon and stainless steel, copper and bronze sheet, 
wood, fabrics, finishing materials, rubber gaskets, zinc and magnesium alloy 
in the manufacture of its caskets.  These materials are available from 
several sources.

HEALTH CARE

  Principal materials used in Hill-Rom products include steel, aluminum,
stainless steel, wood, high pressure laminates, fabrics, silicone-coated soda-limesoda-
lime glass beads and other materials, substantially all of which are available
from several sources.  Motors for electrically operated beds and certain other
components are purchased from one or more manufacturers.  Block
uses thermo-plastic materials, elastomeric membranes, electronic components,
miniature electric motors, machined metal parts and other materials,
substantially all of which are available from multiple sources.

  Medeco uses brass, hardened steel, other metals and electronic components,
substantially all of which are available from several sources.

COMPETITION

FUNERAL SERVICES

  Batesville believes its dollar volume of sales of finished caskets is the 
largest in the United States.  Batesville competes on the basis of product 
quality, service to its customers and price, and believes that there are 
approximately two (2) other companies that also manufacture and/or sell 
caskets over a wide geographic area.  There are, however, throughout the 
United States many enterprises that manufacture, assemble, or distribute 
caskets for sale within a limited geographic area.

  Forecorp, Inc., competes on the basis of service to its customers and 
products offered.  Forethought Life sells its products in competition with 
local and state trusts for pre-need funeral planning as well as other life 
insurance companies.  Forethought Life believes it is the leading provider of 
insurance funded pre-arranged funerals in the United States.

HEALTH CARE

  Hill-Rom believes it is the U.S. market share leader in the sale of 
electrically operated hospital beds, competing with approximately ten (10) 
other manufacturers.  In Europe, Hill-Rom competes with several other 
manufacturers and believes that it is a market leader.  In both the U.S. and 
Europe there are other companies which provide low airloss and other methods 
of patient support and patient relief.

  Block competes on the basis of product innovation and quality coupled with
attention to customer service.  Block believes it is the market leader in
providing new innovations to the alternate care site health care market, even
though several competitors have larger financial resources.
     Medeco competes on the basis of product quality and performance, and 
service to its customers.  Medeco believes it is the market share leader in 
the mechanical high security lock market; however, other lock manufacturers 
produce a broader product line and have larger financial resources.  Medeco 
believes that its patents are important to its business.


                                      -4-



RESEARCH

  Each of the Company's operating subsidiaries devotes research efforts to
develop and improve its products as well as its manufacturing and production
methods.  All research and development expenses are Company sponsoredsponsored. 
Expenditures in the most recent three fiscal years were as follows:

                                                   1996      1995      1994
                                                   ----      ----      ----
                                                         (millions)
New products and for
new products, amounted to approximately $27,962,000 in 1995, $25,767,000 in
1994, and $22,270,000 in 1993.  Additionally, $10,956,000 was spent in 1995,
$9,245,000 in 1994, and $8,089,000 in 1993 on research and development
pertaining to the improvementprocesses                         $31       $28       $26
Improvement of existing products.  The above amounts exclude
expenditures relative to discontinued operations.products and processes      11        11         9

PATENTS AND TRADEMARKS

  The Company owns a number of patents on its products and manufacturing 
processes which are of importance to it, but it does not believe that any 
single patent or related group of patents are of material significance to the 
business of the Company as a whole.

  The Company also owns a number of trademarks and service marks relating to 
its products and product services which are of importance to it, but it does 
not believe that any single trademark or service mark is of material 
significance to the business of the Company as a whole.

EMPLOYEES

  As of January 19, 1996,February 14, 1997, the Company employed approximately 9,800 persons 
in its operations in North America and Europe.

ENVIRONMENTAL PROTECTION

  Hillenbrand Industries, Inc., is committed to operating all of its 
businesses in a way that protects the environment.  The Company has 
voluntarily entered into remediation agreements with environmental 
authorities, and has been issued Notices of Violation alleging violations of 
certain permit conditions. Accordingly, the Company is in the process of 
implementing plans of abatement in compliance with agreements and 
regulations.  The Company has also been notified as a potentially responsible 
party in investigations of certain offsite disposal facilities.  The cost of 
all plans of abatement and waste site cleanups in which the Company is 
currently involved is not expected to exceed $10.0$10 million.  The Company has 
provided adequate reserves in its financial statements for these matters.  
These reserves have been determined without consideration of possible loss 
recoveries from third parties.  Compliance with other current governmental 
provisions relating to protection of the environment also does not materially 
affect the Company's capital expenditures, earnings or competitive position. 
Recent changes in environmental law might affect the Company's future 
operations, capital expenditures and earnings.  The cost of complying with 
these provisions is not known.

FOREIGN OPERATIONS AND EXPORT SALES

  Information about the Company's foreign operations is set forth in tables
relating to geographic information in Note 67 to Consolidated Financial
Statements, which statements are included under Item 8.

  The Company's export revenues constituted less than 10% of consolidated
revenues in 19951996 and prior years.

ORDER BACKLOG

  Order backlogs are immaterial to the Company and there was no material change
in backlogs during 1995.1996.


                                      -5-



EXECUTIVE OFFICERS OF THE REGISTRANT


  The executive officers of the Company are elected each year by the Board of 
Directors at its first meeting following the Annual Meeting of Shareholders 
to serve during the ensuing year and until their respective successors are 
elected and qualify.  There are no family relationships between any of the 
executive officers of the Company.  Following are the executive officers of 
the Company as of February 14, 1997.

  W August Hillenbrand, 55,56, was elected Chief Executive Officer of the 
Company on April 11, 1989, and has been President since October 21, 1981.  
Prior to that he had been a Vice President of the Company since 1972 and has 
been employed by the Company throughout his business career.

  Lonnie M. Smith, 51, was elected Senior Executive Vice President, effective
January 1, 1982.  From 1978 through 1981, he held the position of Executive Vice
President of American Tourister, Inc.  From 1976 to 1978, he was Senior Vice
President of Strategic Planning for the Company.  Prior to that he was employed
by the Boston Consulting Group, business consultants.

     Tom E. Brewer, 57,58, has been employed by the Company since May 16, 1983, and 
was elected Senior Vice President and Chief Financial Officer on May 23, 
1983. He had been employed by the Firestone Tire and Rubber Company for the 
prior 22 years, where he served as Corporate Vice President and Treasurer.

  George E. Brinkmoeller, 60,61, was elected Vice President, Corporate Services 
on December 2, 1979, had been Director of Corporate Services since January 1, 
1975, and had been Manager of Affiliated Operations since January 1, 1971.

  Michael L. Buettner, 38,39, has been employed by the Company since January 9, 
1995, and was elected Vice President, Corporate Development on January 9, 
1995. Prior to joining the Company, he was employed by Bausch & Lomb 
Incorporated for 10 years in various corporate development and finance roles, 
most recently as Staff Vice President, Corporate Development.  He has also 
served in various finance and marketing positions with Moog Automotive, Inc. 
and Carboline Company.

  Mark E. Craft, 41,42, has been employed by the Company since February 26, 
1990, and was elected Vice President, Public Affairs on May 1, 1994.  Prior 
to that he was Director, Public Affairs.  Prior to joining the Company, he 
was Manager, Public Relations, for Melvin Simon & Associates, Inc., in 
Indianapolis, Indiana.

  Tim B. Johnson, 34,Robert J. Tennison, 50, has been employed by the Company since February 28, 
1996, and was elected Vice President, Continuous Improvement on April 11, 1995.  He has been employed by the company since March 1993, as
Director, Continuous Improvement.1, 
1996. Prior to joining the company,Company, he was a Senior ManagerVice President of 
Operations for the management consulting firmDonnelly Corporation, President of Price Waterhouse.Hennessy Industries and 
Director of Manufacturing for Sauer-Sundstrand.  He began his career with 
General Motors.

  Mark R. Lanning, 41,42, was elected Vice President and Treasurer on April 11, 
1995.  Prior to that he had been Assistant Treasurer since June, 1991.  He 
joined the Company on May 16, 1988, as Manager, Corporate Audit.  Prior to 
joining the Company he served in various capacities with the public 
accounting firm of Ernst & Whinney (now Ernst & Young).  He has been a 
licensed Certified Public Accountant since 1979.

  Mark R. Lindenmeyer, M.D., 49,50, was elected Vice President, General Counsel 
and Secretary of the Company on October 7, 1991.  He had been employed by the 
Company since August 18, 1986, as Litigation Counsel.  Prior to joining the 
Company, Dr. Lindenmeyer served in the U.S. Army as a military trial attorney 
and judge and was a partner in a Batesville, Indiana law firm.  He has been a 
licensed physician since 1986 and a practicing attorney since 1972.

  J. Cameron Moss, 39,40, was elected Vice President, Corporate Planning on 
January 2, 1996, and has been employed by the Company since January 2, 1996. 
Prior to joining the Company, he was a senior manager with McKinsey & 
Company, Inc., in its Cleveland, Ohio and Munich, Germany offices.


                                      -6-



  James G. Thorne, 54,55, has been employed by the Company since June 14, 1993, 
and was elected Vice President, Human Resources on April 5, 1994.  Prior to 
joining the Company, he was employed by Monsanto Company for 27 years where 
he served as Vice President, Human Resources for Fisher Controls 
International, Inc.

  James D. Van De Velde, 49,50, was elected Vice President and Controller on May 
13, 1991.  He joined the Company on September 1, 1980 as Director, Taxes.  
Prior to that he was employed by the public accounting firm of Price 
Waterhouse.

Note:  Lonnie M. Smith resigned as Senior Executive Vice President and 
       from the Board of Directors effective February 14, 1997.  His resignation
       from the Board was voluntary and did not arise from any conflict with 
       Company personnel or policies.


                                      -7-



ITEM 2.  PROPERTIES

  The principal properties of the Company and its subsidiaries are listed 
below, and are owned by the Company or its subsidiaries subject to no 
material encumbrances except for those facilities (*) which were constructed 
with funds obtained through Government Issued Bonds (see Note 34 to the 
Consolidated Financial Statements).  The Company is in the process of improving the
efficiency of certain facilities in Germany.  Otherwise, allAll facilities are suitable for their 
intended purpose, are being efficiently utilized and are believed to provide 
adequate capacity to meet demand for the next several years.

     
LOCATION DESCRIPTION PRIMARY USE -------- ----------- ----------- ------------ HEALTH CARE AND OTHER: Batesville, IN Manufacturing plant and Manufacture of health care distribution facility equipment Office facilities Administration Charleston, SC Office facility and Administration and assembly plant assembly of therapy units Kempen, Germany Manufacturing plant and Manufacture of health care office facilities equipment Pluvigner, France Manufacturing plant and Manufacture of health care office facility equipment Salem, VA Manufacturing plant and Manufacture of mechanical office facility and electronic locks FUNERAL SERVICES: Batesville, IN Manufacturing plants Manufacture of metal caskets Office facilities Administration Manchester, TN Manufacturing plants Manufacture of metal caskets Campbellsville, KY Manufacturing plant Manufacture of metal caskets Vicksburg, MS Kiln drying and lumber Drying and dimensioning cutting plant lumber * Batesville, IN Manufacturing plant and Manufacture of health care distribution facility equipment Office facilities Administration Charleston, SC Office facility and Administration and assembly plant assembly of therapy units Kempen and Schorndorf, Manufacturing plants and Manufacture of health care Germany office facilities equipment Pluvigner, France Manufacturing plant and Manufacture of health care office facility equipment Salem, VA Manufacturing plant and Manufacture of mechanical office facility and electronic locks FUNERAL SERVICES: Batesville, IN Manufacturing plants Manufacture of metal caskets Office facilities Administration Manchester, TN Manufacturing plants Manufacture of metal caskets Campbellsville, KY Manufacturing plant Manufacture of metal caskets Vicksburg, MS Kiln drying and lumber Drying and dimensioning cutting plant lumber *Batesville, MS Manufacturing plant Manufacture of hardwood caskets Nashua, NH Manufacturing plant Manufacture of hardwood caskets
In addition to the foregoing, the Company leases or owns a number of warehouse distribution centers, service centers and sales offices throughout the United States, Canada and Europe. ITEM 3. LEGAL PROCEEDINGS On August 16, 1995, Kinetic Concepts, Inc., and Medical Retro Design, Inc. (collectively, the "plaintiffs"), filed suit against Hillenbrand Industries, Inc., and its subsidiary Hill-Rom Company, Inc., in the United States District Court for the Western District of Texas, San Antonio Division. The plaintiffs allege violation of various antitrust laws, including illegal bundling of products, predatory pricing, refusal to deal and attempting to monopolize the hospital bed industry. They seek monetary damages totaling in excess of $268.5$269 million, trebling of any damages that may be allowed by the court, and injunctions to prevent further alleged unlawful activities. The Company believes that the claims are without merit and will defendis defending itself aggressively against all allegations. Accordingly, it has not recorded any loss provision relative to damages sought by the plaintiffs. -8- On November 20, 1996, the Company filed a Counterclaim to the above action against Kinetic Concepts, Inc. (KCI) in the U.S. District Court in San Antonio, Texas. The Counterclaim alleges that KCI has attempted to monopolize the therapeutic bed market and to interfere with the Company's and Hill-Rom's business relationships by conducting a campaign of anticompetitive conduct. It further alleges that KCI abused the legal process for its own advantage, interfered with existing Hill-Rom contractual relationships, interfered with Hill-Rom's prospective contractual and business relationships, commercially disparaged the Company and Hill-Rom by uttering and publishing false statements to customers and prospective customers not to do business with the Company and Hill-Rom, and committed libel and slander in statements made both orally and published by KCI that the Company and Hill-Rom were providing illegal discounts. The Company alleges that KCI's intent is to eliminate legal competitive marketplace activity. On December 24, 1996, the Company filed a patent infringement action against KCI in the U.S. District Court in Charleston, South Carolina, for alleged infringement of its Effica-TM- therapeutic bed by KCI. Hill-Rom is seeking both monetary damages and injunctive relief in this action. There is no other pending litigation of a material nature in which the Company or its subsidiaries are involved. -8- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended December 2, 1995.November 30, 1996. PART II DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS From time to time, the Company makes oral and written statements that may constitute "forward-looking statements" as defined in the PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (the "Act") or by the SEC in its rules, regulations and releases. The Company desires to take advantage of the "safe harbor" provisions in the Act for forward-looking statements made from time to time, including, but not limited to, the forward-looking statements relating to the future performance of the Company contained in Management's Discussion and Analysis (under Item 7 on Form 10-K), and Notes to Consolidated Financial Statements (under Item 8 on Form 10-K) and other statements made in this Form 10-K and in other filings with the SEC. The Company cautions readers that any such forward-looking statements are based on assumptions that the Company believes are reasonable, but are subject to a wide rage of risks, and there is no assurance that actual results may not differ materially. Important factors that could cause actual results to differ include but are not limited to: differences in anticipated and actual product introduction dates, the ultimate success of those products in the marketplace, and the success of cost control and restructuring efforts, among other things. Realization of the Company's objectives and expected performance can also be adversely affected by the outcome of pending litigation and rulings by the Internal Revenue Service on certain tax positions taken by the Company. ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION Hillenbrand Industries' common stock is traded on the New York Stock Exchange under the ticker symbol "HB". The following table reflects the range of high and low selling prices of the Company's common stock by quarter for 19951996 and 1994.
1995. -9- 1996 1995 1994 ------------- ------------- High Low High Low ---- --- ---- --- First Quarter $34 1/8 $31 7/8 $29 3/4 $27 $43 5/8 $39 1/2 Second Quarter $40 1/4 $33 1/4 $30 1/8 $27 1/2 $42 1/4 $35 1/4 Third Quarter $39 $32 $33 1/8 $28 5/8 $36 1/2 $26 5/8 Fourth Quarter $38 5/8 $32 $33 $27 $35 7/8 $29 1/8
HOLDERS On February 9, 1996,14, 1997, there were approximately 30,00024,000 holders of the Company's common stock. DIVIDENDS The Company has paid cash dividends on its common stock every quarter since its first public offering in 1971, and those dividends have increased each year since 1972. Dividends are paid near the end of February, May, August and November to shareholders of record near the end of January, April, July and October. Cash dividends of $.62 ($.155 per quarter) in 1996 and $.60 ($.15 per quarter) in 1995 and $.57 ($.1425 per quarter) in 1994 were paid on each share of common stock outstanding. Cash dividends will be $.62$.66 ($.155.165 per quarter) in 1996. -9- 1997. ITEM 6. SELECTED FINANCIAL DATA The following table presents selected consolidated financial data of Hillenbrand Industries, Inc., for fiscal years 19911992 through 1995.
1995 1994(B) 1993 1992 1991 ---- ---- ---- ---- ---- (IN THOUSANDS EXCEPT PER SHARE DATA) Net revenues $1,624,881 $1,557,034 $1,447,913 $1,303,062 $1,084,487 Income from continuing operations (A) $ 89,860 $ 89,462 $ 132,486 $ 111,165 $ 89,985 Income from continuing operations per share (A) $ 1.27 $ 1.26 $ 1.86 $ 1.55 $ 1.23 Total assets $3,070,256 $2,714,153 $2,291,388 $1,957,704 $1,545,216 Long-term debt $ 206,783 $ 208,729 $ 107,887 $ 185,081 $ 103,589 Cash dividends per share $ .60 $ .57 $ .45 $ .35 $ .29
(A)1996. 1996 1995 1994 (b) 1993 1992 ---- ---- ---- ---- ---- (IN MILLIONS EXCEPT PER SHARE DATA) Net revenues $ 1,684 $ 1,625 $ 1,577 $ 1,448 $ 1,303 Income from continuing operations (a) $ 140 $ 90 $ 90 $ 132 $ 111 Income from continuing operations per share (a) $ 2.02 $ 1.27 $ 1.26 $ 1.86 $ 1.55 Total assets $ 3,396 $ 3,070 $ 2,714 $ 2,291 $ 1,958 Long-term debt $ 204 $ 206 $ 209 $ 108 $ 185 Cash dividends per share $ .62 $ .60 $ .57 $ .45 $ .35 (a) RESULTS IN 1996 REFLECT INCOME OF $8 MILLION ($.12 PER SHARE) RELATIVE TO THE SALE OF BLOCK MEDICAL. RESULTS IN 1995 REFLECT UNUSUAL CHARGES TOTALING $25,830$26 MILLION ($.37 PER SHARE) FOR THE WRITEDOWN OF GOODWILL AND CERTAIN ASSETS OF A MANUFACTURING FACILITY TO BE DISPOSED OF.SOLD IN 1996. RESULTS IN 1994 REFLECT AN UNUSUAL CHARGE OF $52,545$52 MILLION ($.74 PER SHARE), AFTER INCOME TAXES, FOR SETTLEMENT OF A PATENT INFRINGEMENT SUIT. RESULTS IN 1993 REFLECT AN UNUSUAL CHARGE OF $14,000$14 MILLION FOR THE WRITEDOWN OF GOODWILL. (B)(b) FISCAL 1994 WAS A 53 WEEK YEAR. -10- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and accompanying notes. Hillenbrand Industries' fivefour major operating companies are organized into two business segments. The Funeral Services segment consists of Batesville Casket Company and The Forethought Group. The Health Care segment consists of Hill-Rom Block Medical and Medeco Security Locks (included in this segment due to Medeco's relatively small size). Results for American Tourister, Inc.,Block Medical, which was sold on July 22, 1996, are included in 1993,the Health Care segment through that date. RESULTS OF OPERATIONS 1996 COMPARED WITH 1995 SUMMARY Consolidated net revenues increased $59 million, or 4%, in 1996. Operating profit of $236 million was up 32%, net income of $140 million was up 56% and earnings per share of $2.02 increased 59%. Third quarter 1996 results reflect income of $8 million, or $.12 per share, relative to the sale of Block Medical (see Note 3). In the fourth quarter of 1995, the Company recorded charges totaling $26 million, or $.37 per share, to reduce the carrying value of Block Medical goodwill and certain manufacturing facilities in Europe held for disposal. Excluding these items, operating profit increased 15%, net income increased 14% and earnings per share increased 16% in 1996. NET REVENUES Health Care sales increased $12 million, or 2%, due to higher unit volume of Advance series beds and architectural and communications products in Hill-Rom's U.S. acute care and long-term care markets. Order patterns for acute care capital goods returned to a more normal pattern following two years of health care provider restructuring and consolidation. These improvements were partially offset by lower volume in Europe (France and Germany). Government cost and price controls and general economic conditions have hampered growth in Europe. Sales at Medeco were down year over year. Route management (pay telephone, vending, gaming and automatic teller machines) shipments were negatively affected by the delay in obtaining contracts with other Bell operating companies. This was driven in part by passage of the comprehensive telecommunications act in Congress, which caused most telecommunications companies to "wait and see" what the economic and technological fallout of the new law would be. Door security shipments were up due to strong dealer demand and institutional business. Medeco and Block (for which eight months of sales were reflected in 1996 results) did not contribute significantly to the overall sales of the Health Care segment. Health Care rental revenue grew $5 million, or 1%. In the U.S. long-term care market, units in use were up on the strength of increased market penetration and higher average rental rates were generated from the introduction of new, higher-value products. In the U.S. home care market, unit growth continued, but at a slower rate due primarily to Medicare's 1996 elimination of reimbursement for low airloss therapy products used for the prevention of pressure ulcers. Average rental rates were up marginally. Growth in these two markets was largely offset by declining rental rates and units in use in the U.S. acute care market. Rates are being depressed by cost management in the acute care setting and competitive pressures. Rental units in use have been reported separatelynegatively affected by increased sales of Hill-Rom beds providing low airloss therapy. Rental revenues in Europe were unchanged year over year. Funeral Services sales increased $9 million, or 2%, due to price increases, growth in traditional casket unit volume and higher sales of Options cremation products. Unit volume growth was achieved despite an essentially flat market for casketed deaths in 1996. -11- Insurance revenues were up $33 million, or 18%. Interest income accounted for $12 million of this increase, reflecting a larger investment portfolio, partially offset by slightly lower yields. The growth in earned premium revenue was due primarily to increased policies in force year over year. Policy sales were up over 20% in 1996. Since premium revenues are earned over the life of the policy holder, this increase will primarily affect revenues and earnings in future years. GROSS PROFIT Gross profit on Health Care sales of $234 million was up $25 million, or 12%, due primarily to higher shipments in Hill-Rom's U.S. acute care market. As a percentage of sales, gross profit improved from 38% in 1995 to 41% in 1996. Increased shipments of higher-value products, improvements in direct material, labor and overhead costs and leveraging of fixed manufacturing expenses in the U.S. and decreased sales of lower margin European products were responsible for this improvement. Gross profit on Health Care rentals increased $18 million, or 15%, to $140 million and, as a discontinued operationpercentage of revenues, improved from 33% to 38%. Increased therapy unit utilization and the introduction of new, higher-value products in the long-term care and home care markets, improvements in field service costs and lower acquisition related expenses were partially offset by higher therapy unit depreciation and lower utilization and rental rates in the acute care market. Gross profit on Funeral Services sales of $246 million was up $9 million, or 4%, in 1996. As a percentage of sales, it increased from 46% in 1995 to 47% in 1996 due to improved material costs and leveraging of fixed manufacturing expenses, partially offset by increased sales of lower margin caskets. Insurance gross profit increased $12 million, or 27%, in 1996 due to higher investment income statement. RESULTS OF OPERATIONS(with minimal corresponding direct cost), profits earned on the larger base of policies in force and control of direct administrative expenses. The crediting rate (the interest rate that Forethought uses to increase the face amount on insurance policies to have the benefit grow) was essentially unchanged year over year. OTHER OPERATING EXPENSES These expenses, consisting of selling, marketing, distribution and general administrative costs, increased $7 million, or 2%, in 1996. Excluding unusual charges of $26 million in 1995, they increased $33 million, or 8%, in 1996. As a percentage of consolidated revenues, they were up slightly from 25% in 1995 (excluding unusual charges) to 26% in 1996. Higher incentive compensation and commission expenses associated with improved performance and expenditures on product and market development were partially offset by process improvements and cost control throughout the Company. OPERATING PROFIT Operating profit in the Health Care segment, excluding unusual charges in 1995, increased $23 million, or 26%, to $111 million in 1996. Increased sales of higher-value products in the U.S. acute care capital market, improved therapy unit utilization and reduced manufacturing and acquisition costs were partially offset by higher incentive compensation and commission expenses. Operating profit in the Funeral Services segment of $144 million was up $10 million, or 7%, from 1995. At Batesville Casket, operating profit was essentially flat year over year as increased casket and cremation unit volume and improved material and manufacturing cost performance were offset by increased sales of lower-margin caskets and higher product and market development expenses. At Forethought, higher gross profit and control of fixed administrative expenses combined to generate a 71% increase in operating profit. Excluding the unusual charges in 1995, consolidated operating profit of $236 million increased $31 million, or 15%, in 1996. The increases in the operating segments were partially offset by higher incentive compensation and legal expenses at corporate. OTHER INCOME AND EXPENSE Interest expense increased $2 million, or 10%, due to increased debt associated with Hill-Rom's European operations. Investment income was up $2 million, or 13%, due primarily to higher average levels of interest earning assets. -12- INCOME TAXES The effective income tax rate in 1996 was 40% compared with 47% in 1995. Excluding the tax benefit of approximately $6 million on the book and tax differences in the basis of Block Medical recorded in 1996 and the $26 million nondeductible unusual charge in 1995, the effective rate was 42% in 1996 and 41% in 1995. 1995 COMPARED WITH 1994 SUMMARY Consolidated net revenues increased $47.8$48 million, or 3.0%3%, in 1995. Fiscal year 1994 contained 53 weeks of business compared with 52 in 1995. Adjusting for the extra week in 1994, revenues increased approximately $77.8$78 million, or 5.0%5%. Operating profit of $179.5$179 million was up 15.0%15% and net income of $89.9$90 million was essentially equal to 1994. In the fourth quarter of 1995, the Company recorded charges totaling $25.8$26 million (with no income tax benefit) to reduce the carrying value of goodwill relative to the acquisition of Block Medical and certain manufacturing facilities in Europe being held for disposal. Excluding these unusual charges and the $84.8$85 million ($52.552 million after income taxes) charge for settlement of a patent infringement suit in 1994, operating profit declined $35.5$36 million, or 14.8%15%, and net income was down $26.3$26 million, or 18.5%18%. -10- NET REVENUES Health Care sales declined $35.3$35 million, or 6.0%6%, due primarily to lower unit volume in Hill-Rom's U.S. acute care bed and architectural products markets. These declines were partially offset by growth in Europe (including the effect of the acquisition of Arnold in the first quarter of 1994), favorable foreign currency fluctuations and increased remanufactured equipment shipments in the U.S. At Block Medical, portable-disposable infusion pump volume was up and ambulatory-electronic pump shipments were down. Sales growth at Medeco was driven by new product introductions in route management channels (pay telephone, automated teller machines and the gaming industry).channels. Door security business was flat year over year. Block and Medeco did not contribute significantly to the overall sales of the Health Care segment. Health Care rentals grew $34.8$35 million, or 10.5%11%. Increased units in use in the home care and long termlong-term care markets were partially offset by shifts to lowerlower- priced products in all markets and lower usage in the acute care market. Revenues in Europe were favorably affected by foreign currency fluctuations. Funeral Services sales increased $16.7$16 million, or 3.4%3%, due to traditional casket unit volume growth, higher sales of cremation products, price increases and acquisitions. Insurance revenues were up $31.6$32 million, or 20.5%21%. Interest income accounted for $18.6$19 million of this increase, reflecting a larger investment portfolio and higher yields. The growth in earned premium revenue was due primarily to increased policies in force year over year. Policy sales were down in 1995 due primarily to commission and product changes designed to enhance Forethought's overall long-term profitability. Since premium revenues are recognized, or earned, over the life of the policy holder, this decrease did not have a significant effect on current year revenue. GROSS PROFIT Gross profit on Health Care sales of $208.6$209 million was down $45.5$45 million, or 17.9%18%, due primarily to lower U.S. acute care bed and architectural products volumevolume. As a percentage of sales, gross profit declined from 43.0%43% to 37.5%38%, reflecting the impact of lower U.S. acute care volume on the fixed manufacturing expense base and increased sales of lower marginlower-margin remanufactured equipment and European products. These items were partially offset by sales growth at Medeco, reduced losses at Block and improved manufacturing efficiencies in all U.S. operations. Gross profit on Health Care rentals increased $8.0$9 million, or 7.0%8%, to $121.6$122 million and, as a percentage of revenues, declined from 34.1%34% to 33.0%33%. Increased units in use in the home care and long-term care markets was partially offset by the shift in all markets to products with lower daily rates. -13- Gross profit on Funeral Services sales of $237.6$237 million was up $7.2$6 million, or 3.1%3%. As a percentage of sales, it was virtually unchanged at 46.1%46%. Insurance gross profit increased $5.5$5 million, or 13.8%13%, in 1995. Higher investment income (with minimal corresponding direct cost) was largely offset by an increase in the crediting rate on policies in force, which was undertaken for competitive reasons. The crediting rate is the interest rate that Forethought uses to increase the face amount on insurance policies to have the benefit grow. ADMINISTRATIVE, DISTRIBUTION AND SELLINGOTHER OPERATING EXPENSES These operating expenses, consisting of selling, marketing, distribution and general administrative costs, declined $48.3$48 million, or 10.0%10%, in 1995. Excluding unusual charges of $25.8$26 million in 1995 and $84.8$85 million in 1994, they increased $10.6$11 million, or 2.7%3%. As a percentage of consolidated revenues, they were essentially unchanged at 25.1%25%. In the Health Care segment, increases associated with European operations and new product development in the U.S. were mostly offset by the avoidance of costs incurred in 1994 relative to the integration of Hill-Rom and SSI and lower incentive compensation expense. Expenses in the Funeral Services segment were virtually unchanged year over year. Unusual charges in 1995 included the $5.8$6 million writedown of certain assets of a manufacturing facility in Europe to be disposed of and the $20.0$20 million writedown of goodwill associated with the acquisition of Block Medical in 1991.goodwill. Changes in market conditions, the performance of certain products and increased competitive pressures resulted in a significant reduction in management's expectations regarding Block's future cash flows. Management believes that all writedowns pertaining to Block Medical and restructuring of European operations have been made. -11- OPERATING PROFIT Operating profit in the Health Care segment, excluding unusual charges, declined $42.9$43 million, or 32.9%33%, to $87.8$88 million in 1995. Lower U.S. acute care sales, a shift to lower pricedlower-priced rental products, and expenses associated with European operations and new product development were partially offset by growth in the home care and long-term care rental markets and the avoidance of integration expenses. Operating profit in the Funeral Services segment of $134.0$134 million was up $11.1$11 million, or 9.0%9%, from 1994. Growth in casket unit volume, cremation products, investment income, earned insurance premium revenues and improved operating efficiencies were partially offset by the increase in the crediting rate on insurance policies in force. OTHER INCOME AND EXPENSE Interest expense declined $3.2$3 million, or 13.5%13%, due to the full-year impact of the retirement of a $75.0$75 million promissory note in May of 1994, which was partially offset by the issuance of $100.0$100 million of debentures in February of 1994. Interest expense relative to European operations was favorably affected by lower rates. Investment income was up $1.1$2 million due to higher yields, partially offset by a lower average level of interest earning assets. INCOME TAXES The effective income tax rate in 1995 was 47.1%47%. Excluding the $25.8$26 million unusual charge (consisting of the writedown of goodwill and other assets being held for disposal), which is not tax deductible, the effective rate was 40.9%41% in 1995 compared with 38.2%38% in 1994. This increase reflectsreflected higher operating losses in Europe, resulting in foreign loss carryforwards for which there is no associated income tax benefit recognized in the current year. 1994 COMPARED WITH 1993 SUMMARY Net revenues increased $129.1 million, or 8.9%, to $1.6 billion in 1994. Approximately $30.0 million of this increase can be attributed to the 53rd week in fiscal 1994. Fiscal 1993 and fiscal 1995 were 52 week years. Operating profit of $156.1 million was down 32.8% and income from continuing operations declined 32.5% to $89.5 million. On September 19, 1994, subsequent to trial on the issues, the Company settled a patent infringement suit brought by Kinetic Concepts, Inc., against the Company, for a cash payment of $84.8 million. The settlement amount was reflected in third quarter results as an unusual charge to operations of $84.8 million ($52.5 million, or $.74 per share, after tax) and payment was made in the fourth quarter. From the date of the initial claim until the trial commencing August 29, 1994, the Company believed that the outcome of the trial or any settlement of the matter would not have a significant effect on the Company's financial condition or results of operations. The settlement of the patent infringement suit will not affect future operating results. In 1993, the Company wrote down goodwill relative to the acquisition of Block Medical in the amount of $14.0 million. Excluding these unusual items, operating profit was down 2.2% and income from continuing operations fell 3.1%. NET REVENUES Heath Care sales increased 3.1% to $590.9 million due primarily to the acquisition of Arnold by Hill-Rom in February 1994. Hill-Rom also reported growth in the remanufactured bed market. Offsetting these gains was a drop in electric bed shipments, especially in the U.S. acute care market. Shipments in Europe, excluding the effect of the Arnold acquisition, were essentially flat year over year. At Block Medical, shipments of both portable-disposable infusion pumps and ambulatory electronic pumps were down. Shipments of portable-disposable pumps were up in the fourth quarter compared with the fourth quarter of 1993. Sales in Medeco's door security, gaming industry, electronic pay telephone and automated teller machine channels were all higher in 1994. Demand in these markets grew and Medeco's product offerings received strong acceptance. Block and Medeco did not contribute significantly to the overall sales of the Health Care segment. -12- Health Care rentals grew 10.2% to $333.1 million due to increased therapy rental beds in use in the U.S. long-term care and home care markets, partially offset by a shift toward lower priced products in the acute care market. Rental revenue was up marginally in Europe. Funeral Services sales of $498.8 million were up 9.3% from 1993. Despite an essentially flat market for casketed deaths, casket unit volume was up at Batesville Casket due to the additional week in fiscal 1994, acquisitions and new product introductions. Revenues were also favorably impacted by price increases, improved product mix and increased sales of products for the cremation market. Insurance revenues increased 33.0% to $154.2 million in 1994. Higher investment income reflected a larger invested asset base, partially offset by lower yields. Yields began falling in 1993 and continued to decline through mid-1994, from which point they improved steadily. These trends, while consistent with those of the financial markets overall during this time period, generally lag the market by several months. Earned premium revenue was higher due to increased policies in force year over year. GROSS PROFIT Gross profit on Health Care sales of $254.1 million was down 5.8% and, as a percentage of sales, declined from 47.0% in 1993 to 43.0% in 1994. This drop was due to higher costs associated with the manufacturing operations at Arnold and lower acute care electric bed shipments in the U.S. These items were partially offset by lower material costs and improved manufacturing efficiency in U.S. operations. Gross profit on Health Care rentals of $113.6 million was up 11.9% and, as a percentage of revenues, improved from 33.6% to 34.1%. Lower depreciation expense associated with the acquisition of SSI in 1985 and leveraging of fixed costs were partially offset by the shift to lower priced products in the acute care market. Funeral Services gross profit increased 9.1% to $230.4 million in 1994. As a percentage of sales, gross profit was virtually unchanged at 46.2% versus 46.3% in 1993. Gross profit on insurance revenues of $39.8 million was up 3.6% and, as a percentage of revenues, declined from 33.1% to 25.8%. An increase in the crediting rate on policies in force for competitive reasons in the fourth quarter was partially offset by higher investment income with minimal corresponding direct cost. ADMINISTRATIVE, DISTRIBUTION AND SELLING EXPENSES These expenses increased 24.0% in 1994. Excluding unusual charges of $84.8 million in 1994 and $14.0 million in 1993, they increased 6.0%; as a percentage of revenues they declined from 25.9% to 25.2%. The inclusion of expenses associated with the operations of Arnold and other acquisitions and growth in base businesses were offset by improved efficiency, economies of scale and lower incentive compensation expenses reflecting the year to year decline in operating performance. OPERATING PROFIT Operating profit in the Health Care segment, excluding the litigation settlement in 1994 and write-down of Block goodwill in 1993, was down $16.2 million, or 11.1%. Softness in the U.S. acute care capital market, price pressure in the U.S. acute care rental market, losses from certain European operations and expenses associated with the integration of Hill-Rom and SSI were partially offset by increased therapy rental beds in use and lower expenses associated with the acquisition of SSI. In the Funeral Services segment, operating profit was up $8.2 million, or 7.2%. Higher casket unit volume (including the effect of the extra week) and improved price, mix and operating efficiencies generated growth at Batesville Casket. Higher earned premium revenue and investment income were offset by the discretionary increase in the crediting rate on policies in force at Forethought. -13- OTHER INCOME AND EXPENSE Interest expense increased $2.2 million, or 10.1%, due to increased lines of credit and other debt associated with Hill-Rom's European operations and the issuance of $100.0 million of debentures in February 1994, partially offset by the retirement of a $75.0 million promissory note in May. Investment income was up $4.4 million, or 49.7%, due to higher rates of return and a higher average level of interest earning assets. INCOME TAXES The effective income tax rate on income from continuing operations decreased from 40.2% in 1993 to 38.2% in 1994. The decrease was primarily attributable to two items. The writedown of Block goodwill of $14.0 million in 1993 was not deductible for tax purposes, resulting in an increase in the 1993 effective rate. This item did not reoccur in 1994. Secondly, the state effective rate was reduced in 1994 as a result of certain tax planning strategies. These decreases were partially offset by an increase in the effective foreign income tax rate. This increase was attributable to operating losses in certain European countries, resulting in foreign loss carryforwards for which there is no associated income tax benefit recognized in the current year. INFLATION Inflation and changing prices had a negligible effect on results of operations in 1995, 1994 and 1993. Improvements in manufacturing and administrative efficiencies continue to minimize the effect of price increases. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS Net cash flows from operating activities and selected borrowings represent the Company's primary sources of funds for growth of the business, including capital expenditures and acquisitions. Cash and cash equivalents (excluding the investments of insurance operations) grew from $120.4$171 million at the end of 19941995 to $171.3$266 million at the end of 1995. The statement of consolidated cash flows reflects certain changes in the reporting of cash flows for the company's insurance subsidiary. Cash flows relative to investments have been reclassified from operating activities to investing activities and expanded to disclose purchases, maturities and sales. Premiums received and benefits paid on policies have been classified as financing activities. Results for prior years have been restated to conform to the current presentation.1996. -14- OPERATING ACTIVITIES Net cash flows from operating activities of $179.0$239 million were up significantly compared with 1994. A smaller increase in1995. Higher net income and lower accounts receivable higher current liabilities and avoidance of the $52.5 million litigation payment (net of income taxes) that occurred in 1994,inventory were partially offset by lower earnings (excluding non-cash chargesaccounts payable. The $24 million decline in accounts receivable and improvement in days sales outstanding from 80 to 72 in 1996, were due primarily to lower shipments in Hill-Rom's European operations. In addition, Hill-Rom continues to make good progress in the litigation payment).management of third party collections and Batesville Casket has improved its accounts receivable management. In 1995, accounts receivable increased $13 million due to higher sales in Europe. Inventories declined $15 million in 1996 due to strong U.S. acute care shipments and lower production levels in Europe. The $13.2$6 million increase in accounts receivable was due primarily to growth in Europe in the Health Care segment. Days sales outstanding (DSO) of 80 compares with 78 at year-end 1994. The $36.7 million increase in 1994 was due to strong fourth quarter shipments and lower prepayments at Hill-Rom. Inventory increases1995 reflected a greater number of field sales evaluation units at Hill-Rom. Accounts payable declined $21 million in the Health Care segment.1996 and increased $18 million in 1995 due primarily to fourth quarter production levels at Hill-Rom. Accrued expenses increased in 1995 due to higher income taxes payable reflecting the increase in taxable income. Current liabilities declined significantly in 1994 due to lower income taxes payable and accrued incentive compensation. -14- INVESTING ACTIVITIES Cash outflows from investing activities declinedincreased from $406.4$302 million in 19941995 to $301.8$317 million in 1995.1996. Capital expenditures of $102.6$92 million compares with $99.5$103 million in 1994, including an increase in1995, as therapy rental unit production atdeclined from $48 million in 1995 to $41 million in 1996. Acquisitions in 1996 consisted of two small companies each by Hill-Rom from $43.1 million to $47.7 million.and Batesville Casket. Acquisitions in 1995 included two regional casket distributors by Batesville Casket and the remaining interest in a subsidiary of Arnold (which was initially acquired in 1994) by Hill-Rom. Payments in 1994 were for Arnold by Hill-Rom and a Mexicantwo regional casket manufacturer and U.S. casket distributordistributors by Batesville Casket. The Company invested $15.7received $15 million in limited partnershipscash and $2 million in 1994.stock from the sale of Block Medical in July 1996. Forethought invests the cash proceeds on insurance premiums predominantly in U.S. treasuries and agencies and high-grade corporate bonds with fixed maturities. The Company's objective is to purchase investment securities with maturities that match the expected cash outflows of policy benefit payments. During 1995, theThe investment portfolio wasis periodically realigned to better meet this objective, as reflected in the relatively large amount of sales prior to maturity. Sales prior to maturity in 1996, 1995 1994 and 19931994 resulted in net gains. FINANCING ACTIVITIES The Company's long-term debt-to-equity ratio was 27.7%26% at year end 19951996 compared with 30.1%28% at year end 1994.1995. This drop reflected scheduled debt payments of $1.8 million and increaseddecline was due primarily to higher equity. ChangesIncreases in short-term debt duringin 1996 and 1995 were for Hill-Rom'sto fund European operations.operations and restructuring. The Company has $100.0$100 million of registered debentures available for issuance which, when combined with additional debt capacity, existing cash and other working capital, affords the company considerable flexibility in the funding of internal and external growth. Quarterly cash dividends per share were 11.25CENTS in 1993, 14.25CENTS$.1425 in 1994, $.15 in 1995 and 15CENTS$.155 in 1995.1996. An additional increase to 15.5CENTS$.165 per sharequarter was approved in January 1996.1997. In 1995, Hillenbrand1996, the Company repurchased 760,0001,425,100 shares of the Company'sits common stock at a cost of $23.5$51 million, which compares with purchases of $19.8$23 million in 19941995 and $14.7$20 million in 1993.1994. -15- INSURANCE ASSETS AND LIABILITIES Insurance assets of $1,851.0$2,157 million grew 18.9%17% over the past year. Cash and invested assets of $1,432.2$1,663 million constitute 77.4%77% of the assets. The investments are concentrated in U.S. treasuries and agencies and high-grade corporate bonds. The invested assets are more than adequate to fund the insurance reserves and other liabilities of $1,267.9$1,470 million. Statutory reserves represent 64%62% of the face value of insurance in force. Forethought Life Insurance Company made a $10.4declared an $11 million dividend payment to Hillenbrand Industries in the fourth quarter of 1995 -- its first since Forethought's inception.1996, paid in December 1996, and made a $10 million dividend payment in the fourth quarter of 1995. The statutory capital and surplus as a percent of statutory liabilities of the life insurance subsidiary of Forethought was 8.5%8.3% at December 31, 1995,1996, down from 9.1%8.5% on December 31, 1994.1995. This drop reflects the dividend payment discussed above. The long-term deferred tax benefit relative to insurance operations results from differences in recognition of insurance policy revenues and expenses for financial accounting and tax reporting purposes. Financial accounting rules require ratable recognition of insurance product revenues over the lives of the respective policies.policy holder. These revenues are recognized in the year of policy issue for tax purposes. This results in a deferred future tax benefit. Insurance policy acquisition expenses must be capitalized and amortized for both financial accounting and tax purposes. Financial accounting rules require a greater amount to be capitalized and amortized than for tax reporting. This results in a deferred future tax cost, which partially offsets the deferred future tax benefit. Excluding the tax effect of adjusting the investment portfolio to fair value, as discussed below, the net deferred future tax benefit increased $8.8$4 million in 1995,1996, compared to a $9.4$9 million increase in 1995 and 1994. -15- SHAREHOLDERS' EQUITY Cumulative treasury stock acquired in open market transactions increased to 13,008,672 shares in 1996, up from 11,583,572 shares in 1995, up from 10,823,572 shares in 1994.1995. The Company currently has Board of Directors' authorization to repurchase up to a total of 14,000,000 shares. Repurchased shares are to be used for general business purposes. From the cumulative shares acquired, 14,53733,996 shares, net of shares converted to cash to pay withholding taxes, were reissued in 19951996 to individuals under the provisions of the Company's various stock compensation plans. Under the restricted stock plan approved by the shareholders of the Company on April 14, 1987, 324,600 shares have been awarded; 268,132 shares have been distributed and/or deferred; and 56,468 shares have been forfeited to date. No additional awards are contemplated at this time. Under the performance compensation plan approved by the shareholders of the Company on April 7, 1992, 386,096 shares were earned in 1993 based on each subsidiary's and the Company's performance in 1992 and 1993. OTHER ISSUES ACCOUNTING CHANGES In 1995, the Company adopted the following Statement of Financial Accounting Standards (SFAS). In accordance with the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company has classified the investments in debt and equity securities of its insurance subsidiary as "available for sale," and reported them at fair value on the balance sheet with unrealized gains and losses charged or credited to a separate component of shareholders' equity. These investments were written up $35.2 million from their amortized cost of $1,373.0 million to their fair value of $1,408.2 million on December 2, 1995. The insurance deferred tax asset was decreased $12.3 million to record the income tax effect and shareholders' equity ("accumulated unrealized gain on investments") was increased $22.9 million. Adoption of this standard did not affect results of operations or cash flows. Disclosures requred by SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," can be found in Note 5 to the consolidated financial statements. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the undiscounted expected future cash flows from use of the asset is less than the carrying amount of the asset, an impairment loss is recognized. Long-lived assets and certain identifiable intangibles to be disposed of are to be reported at the lower of carrying amount or fair value less cost to sell. Adoption of this statement did not have a material affect on the Company's financial position or results of operations.STANDARDS SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995, and is effective for fiscal years beginning after December 15,1995 (not later than fiscal year 1997 for the Company). The new standard encourages companies to adopt a fair value based method of accounting for employee stock-basedstock- based compensation plans, but allows companies to continue to account for those plans using the accounting prescribed by APB Opinion 25, "Accounting for Stock Issued to Employees." The Company will adopt this standard in 1997 and has not decided whether it will adopt the fair value based method or, alternatively, the pro-forma disclosure requirements of the new standard. -16- ENVIRONMENTAL MATTERS Hillenbrand Industries is committed to operating all of its businesses in a way that protects the environment. The Company has voluntarily entered into remediation agreements with environmental authorities, and has been issued Notices of Violation alleging violations of certain permit conditions. Accordingly, the Company is in the process of implementing plans of abatement in compliance with agreements and regulations. The Company has also been notified as a potentially responsible party in investigations of certain offsite disposal facilities. The cost of all plans of abatement and waste site cleanups in which the Company is currently involved is not expected to exceed $10.0$10 million. The Company has provided adequate reserves in its financial statements for these matters. Recent changes in environmental law might affect the Company's future operations, capital expenditures and earnings. The cost of complying with these provisions is not known. INFLATION Inflation and changing prices had a negligible effect on results of operations in 1996, 1995 and 1994. Improvements in manufacturing and administrative efficiencies continue to minimize the effect of price increases. FACTORS THAT MAY AFFECT FUTURE RESULTS Self-reform ofRestructuring in the health care industry both in the U.S. and in Europe, will continue for the foreseeable future. The most significant impact on Hillenbrand Industries has been,Reform measures to date have included consolidation of health care providers and payers, growth in managed care and rapid expansion of the home care and long-term care markets. Development of more cost effective ways of delivering successful patient outcomes will continue to be a major focus of providers in all markets. While acute care capital order patterns have improved during the changepast eighteen months, uninterrupted growth in demand over the long term is not a certainty. Medicare's 1996 elimination of reimbursement for capital goodslow airloss therapy products used for the prevention of pressure ulcers will continue to hamper growth in the acutehome care market as evidenced by the decline in revenues and operating profit at Hill-Rom in 1994 and 1995. Although it is difficult to predict the ultimate outcome of this reform, themarket. The Company believes that its investments in innovative products and services will enable itdesigned to improve patient outcomes and reduce total delivery cost provide a solid basis on which to compete effectively in the changing acute care market. The Company also believes that significant growth opportunities existall of these markets. Operating losses in the subacute markets of long-term care and home care, and that its future success in these markets is promising. Changes in Medicare policy, which eliminated reimbursement for certain of Hill-Rom's pressure ulcer prevention products, will negatively affect rental revenues and profitability beginning in the first quarter of 1996. Hill-RomEurope will continue its aggressive restructuringthrough at least 1997. Restructuring efforts, in Germanyincluding plant modernization and consolidation, process improvements and product innovation, are continuing. Although the rest of Europe through 1996. Batesville Casket will continue to strive for growth in what is an essentially flat market for casketed deaths by providing its customers with innovative productshas been essentially flat over the past several years, Batesville Casket has been able to achieve growth through product and services. With its Options cremation program, Batesville believes that it will compete effectively inservice innovation. Its successful entry into the rapidly growing cremation market.market was also due largely to customer acceptance of the innovative product offerings. Forethought's revenue growth has slowed over the past threefour years as entry into targeted states and other jurisdictions winds down. ProductThe product and commission changes implemented in 1995, which had a short term negative impact on policy sales volume, have enhanced the profitability of the policies sold since the change. Policy sales rebounded in the current year but should enhance long-term profitability.1996. Trust products to be introduced by Forethought addressed the increased competition it faces from trusts by increasing the crediting rate on its policies relative to the GNP or CPI deflator, as appropriate. This competition isin 1997 are not expected to continue.have an immediate material effect on the financial statements of the Company or its insurance subsidiary but will enhance future value. The Company's investments in operations in Canada and Mexico are minimal. While its presenceAlthough losses in Europe is growing,have had a significant impact on results of operations, exchange rate fluctuations are not material to its financial position and results of operations.statements. -17-
- - ---------------------------------------------------------------------------------------------- KEY FINANCIAL DATA (A) - - ---------------------------------------------------------------------------------------------- 1995 1994 1993 1992 1991 - - ---------------------------------------------------------------------------------------------- INCOME STATEMENT - - ---------------------------------------------------------------------------------------------- % Pretax, preinterest expense, income to revenues 11.7 10.7 16.8 15.3 14.8 % Net income to revenues 5.5 5.7 10.1 8.9 8.2 % Income taxes to pretax income 47.1 38.2 40.2 37.5 38.7 - - ---------------------------------------------------------------------------------------------- BALANCE SHEET - - ---------------------------------------------------------------------------------------------- % Long-term debt to total capital 21.7 23.1 14.4 25.3 17.4 % Total debt to total capital 26.2 26.1 26.5 31.9 25.0 Current assets/current liabilities (B) 2.1 2.2 1.9 2.0 1.7 Working capital turnover (B) 4.2 4.6 4.7 5.1 7.6 - - ---------------------------------------------------------------------------------------------- PROFITABILITY - - ---------------------------------------------------------------------------------------------- % Return on total capital 9.4 9.9 19.5 15.9 15.0 % Return on average shareholders' equity 12.7 13.4 25.2 23.1 19.7 - - ---------------------------------------------------------------------------------------------- Revenues/inventories (B) 12.9 13.7 14.7 14.1 11.3 Revenues/receivables (B) 4.6 4.7 5.2 5.3 5.4 - - ---------------------------------------------------------------------------------------------- STOCK MARKET - - ---------------------------------------------------------------------------------------------- Year-end price/earnings (P/E) 25.4 23.2 20.4 25.5 24.4 Year-end price/book value 3.1 3.0 4.6 5.4 4.4 - - ---------------------------------------------------------------------------------------------- (A) RESTATED, WHERE APPLICABLE, TO EXCLUDE THE RESULTS OF THE DISCONTINUED OPERATION. (B) EXCLUDES INSURANCE OPERATIONS. - - ---------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------- CONSOLIDATED INCOME STATEMENT COMPARISON - - ---------------------------------------------------------------------------------------------- Fiscal Year Percent Change - - ---------------------------------------------------------------------------------------------- (DOLLARS IN MILLIONS) 1995 1994 1993 1995/94 1994/93 1993/92 - - ---------------------------------------------------------------------------------------------- Net revenues: Health Care sales $ 555.7 $ 590.9 $ 573.3 (6.0%) 3.1% 13.0% Health Care rentals 368.0 333.1 302.4 10.5% 10.2% 6.6% Funeral Services 515.5 498.8 456.3 3.4% 9.3% 7.0% Insurance 185.7 154.2 115.9 20.5% 33.0% 35.4% - - ---------------------------------------------------------------------------------------------- Total revenues $1,624.9 $1,577.0 $1,447.9 3.0% 8.9% 11.1% - - ---------------------------------------------------------------------------------------------- Gross profit: Health Care sales $ 208.6 $ 254.1 $ 269.7 (17.9%) (5.8%) 10.4% Health Care rentals 121.6 113.6 101.5 7.0% 11.9% 21.1% Funeral Services 237.5 230.4 211.2 3.1% 9.1% 8.3% Insurance 45.2 39.8 38.4 13.8% 3.6% 18.5% - - ---------------------------------------------------------------------------------------------- Total gross profit 612.9 637.9 620.8 (3.9%) 2.7% 11.7% Administrative, distribution and selling expenses 407.6 397.0 374.6 2.7% 6.0% 3.5% Unusual charges 25.8 84.8 14.0 N/A N/A N/A - - ---------------------------------------------------------------------------------------------- Operating profit 179.5 156.1 232.2 15.0% (32.8%) 19.9% Other expense, net (9.7) (11.3) (10.6) (14.5%) 6.7% (33.3%) - - ---------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 169.8 144.8 221.6 17.3% (34.7%) 24.6% Income taxes 79.9 55.3 89.1 44.5% (37.9%) 33.8% - - ---------------------------------------------------------------------------------------------- Income from continuing operations 89.9 89.5 132.5 0.4% (32.5%) 19.2% Income from discontinued operation net of income taxes - - 1.8 N/A N/A 131.5% Gain on disposal of discontinued operation net of income taxes - - 11.5 N/A N/A N/A - - ---------------------------------------------------------------------------------------------- Net income $ 89.9 $ 89.5 $ 145.8 0.4% (38.6%) 25.4% - - ----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- KEY FINANCIAL DATA (a) - -------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------- INCOME STATEMENT - -------------------------------------------------------------------------------- % Pretax, preinterest expense, income to revenues 15 12 11 17 15 % Net income to revenues 8 6 6 10 9 % Income taxes to pretax income 40 47 38 40 38 - -------------------------------------------------------------------------------- BALANCE SHEET - -------------------------------------------------------------------------------- % Long-term debt to total capital 21 22 23 14 25 % Total debt to total capital 28 26 26 26 32 Current assets/current liabilities (b) 2.2 2.1 2.2 1.9 2.0 Working capital turnover (b) 3.9 4.2 4.6 4.7 5.1 - -------------------------------------------------------------------------------- PROFITABILITY - -------------------------------------------------------------------------------- % Return on total capital 14 9 10 20 16 % Return on average shareholders' equity 19 13 13 25 23 - -------------------------------------------------------------------------------- ASSET TURNOVER - -------------------------------------------------------------------------------- Revenues/inventories (b) 15.3 12.9 13.7 14.7 14.1 Revenues/receivables (b) 5.1 4.6 4.7 5.2 5.3 - -------------------------------------------------------------------------------- STOCK MARKET - -------------------------------------------------------------------------------- Year-end price/earnings (P/E) 18.3 25.4 23.2 20.4 25.5 Year-end price/book value 3.3 3.1 3.0 4.6 5.4 - -------------------------------------------------------------------------------- (a) RESTATED, WHERE APPLICABLE, TO EXCLUDE THE RESULTS OF THE DISCONTINUED OPERATION. (b) EXCLUDES INSURANCE OPERATIONS. - -------------------------------------------------------------------------------- CONSOLIDATED INCOME STATEMENT COMPARISON - -------------------------------------------------------------------------------- Fiscal Year Percent Change - -------------------------------------------------------------------------------- (DOLLARS IN MILLIONS) 1996 1995 1994 1996/95 1995/94 1994/93 - -------------------------------------------------------------------------------- Net revenues: - -------------------------------------------------------------------------------- Health Care sales $ 568 $ 556 $ 591 2% (6%) 3% Health Care rentals 373 368 333 1% 11% 10% Funeral Services 524 515 499 2% 3% 9% Insurance 219 186 154 18% 21% 33% - -------------------------------------------------------------------------------- Total revenues $1,684 $1,625 $1,577 4% 3% 9% - -------------------------------------------------------------------------------- Gross profit: Health Care sales $ 234 $ 209 $ 254 12% (18%) (6%) Health Care rentals 140 122 113 15% 8% 11% Funeral Services 246 237 231 4% 3% 9% Insurance 57 45 40 27% 13% 5% - -------------------------------------------------------------------------------- Total gross profit 677 613 638 10% (4%) 3% Other operating expenses 441 408 397 8% 3% 6% Unusual charges - 26 85 N/A N/A N/A - -------------------------------------------------------------------------------- Operating profit 236 179 156 32% 15% (33%) Other expense, net (3) (9) (11) (67%) (18%) - - -------------------------------------------------------------------------------- Income before income taxes 233 170 145 37% 17% (34%) Income taxes 93 80 55 16% 45% (38%) - -------------------------------------------------------------------------------- Net income $ 140 $ 90 $ 90 56% - (38%) - -------------------------------------------------------------------------------- -18- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Financial Statements: Report of Independent Accountants 20 Statements of Consolidated Income for the three years ended December 2, 1995November 30, 1996 21 Statements of Consolidated Shareholders' Equity for the three years endedBalance Sheets at November 30, 1996 and December 2, 1995 22 Statements of Consolidated Cash Flows for the three years ended December 2, 1995 23November 30, 1996 24 Statements of Consolidated Balance Sheets at December 2, 1995 and December 3, 1994 24Shareholders' Equity for the three years ended November 30, 1996 25 Notes to Consolidated Financial Statements 26 Financial Statement Schedules for the three years ended December 2, 1995:November 30, 1996: Schedule II -II- Valuation and Qualifying Accounts 43 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. -19- REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of Hillenbrand Industries, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Hillenbrand Industries, Inc. and its subsidiaries at November 30, 1996 and December 2, 1995, and December 3, 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 2, 1995,November 30, 1996, in conformity with generally accepted accounting principles. 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 audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Indianapolis, Indiana January 15, 199613, 1997 -20- STATEMENT OF CONSOLIDATED INCOME HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (DOLLARS IN THOUSANDSMILLIONS EXCEPT PER SHARE DATA)
- - ----------------------------------------------------------------------------------------------- DECEMBER 2, December 3, November 27, Year Ended 1995 1994(53 weeks) 1993 - - ----------------------------------------------------------------------------------------------- Net revenues: Health Care sales $ 555,677 $ 590,961 $ 573,324 Health Care rentals 367,971 333,129 302,373 Funeral Services 515,504 498,766 456,280 Insurance 185,729 154,178 115,936 - - ----------------------------------------------------------------------------------------------- Total revenues 1,624,881 1,577,034 1,447,913 - - ----------------------------------------------------------------------------------------------- Cost of revenues: Health Care cost of goods sold 347,081 336,820 303,600 Health Care rental expenses 246,406 219,566 200,869 Funeral Services 277,952 268,378 245,086 Insurance 140,509 114,425 77,547 - - ----------------------------------------------------------------------------------------------- Total cost of revenues 1,011,948 939,189 827,102 Administrative, distribution and selling expenses 407,640 397,012 374,647 Unusual charges 25,830 84,750 14,000 - - ----------------------------------------------------------------------------------------------- Operating profit 179,463 156,083 232,164 Other income (expense), net: Interest expense (20,317) (23,489) (21,325) Investment income, net 14,410 13,282 8,872 Other (3,772) (1,116) 1,838 - - ----------------------------------------------------------------------------------------------- Income from continuing operations before income taxes 169,784 144,760 221,549 Income taxes 79,924 55,298 89,063 - - ----------------------------------------------------------------------------------------------- Income from continuing operations 89,860 89,462 132,486 Income from discontinued operation net of income taxes - - 1,778 Gain on disposal of discontinued operation net of income taxes - - 11,554 - - ----------------------------------------------------------------------------------------------- Net income $ 89,860 $ 89,462 $ 145,818 - - ----------------------------------------------------------------------------------------------- Earnings per common share: Income from continuing operations $ 1.27 $ 1.26 $ 1.86 Income from discontinued operation net of income taxes - - .02 Gain on disposal of discontinued operation net of income taxes - - .16 - - ----------------------------------------------------------------------------------------------- Net income per common share $ 1.27 $ 1.26 $ 2.04 - - ----------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------- Dividends per common share $ .60 $ .57 $ .45 - - ----------------------------------------------------------------------------------------------- - - ----------------------------------------------------------------------------------------------- Average number of common shares outstanding 70,757,868 71,278,213 71,406,998 - - -----------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- NOVEMBER 30, December 2, December 3, Year Ended 1996 1995 1994 (53 weeks) - -------------------------------------------------------------------------------- NET REVENUES Health Care sales $ 568 $ 556 $ 591 Health Care rentals 373 368 333 Funeral Services 524 515 499 Insurance 219 186 154 - -------------------------------------------------------------------------------- Total revenues 1,684 1,625 1,577 - -------------------------------------------------------------------------------- COST OF REVENUES Health Care cost of goods sold 334 347 337 Health Care rental expenses 233 246 220 Funeral Services 278 278 268 Insurance 162 141 114 - -------------------------------------------------------------------------------- Total cost of revenues 1,007 1,012 939 Other operating expenses 441 408 397 Unusual charges - 26 85 - -------------------------------------------------------------------------------- OPERATING PROFIT 236 179 156 Other income (expense), net: Interest expense (22) (20) (23) Investment income, net 17 15 13 Other 2 (4) (1) - -------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 233 170 145 Income taxes 93 80 55 - -------------------------------------------------------------------------------- NET INCOME $ 140 $ 90 $ 90 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NET INCOME PER COMMON SHARE $ 2.02 $ 1.27 $ 1.26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ .62 $ .60 $ .57 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 69,474,266 70,757,868 71,278,213 - -------------------------------------------------------------------------------- SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -21- STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS)
- - ---------------------------------------------------------------------------------------------------------------- DECEMBER 2, December 3, November 27, Year Ended 1995 1994 (53 weeks) 1993 - - ---------------------------------------------------------------------------------------------------------------- Common stock $ 4,442 $ 4,442 $ 4,442 - - ---------------------------------------------------------------------------------------------------------------- Additional paid-in capital: Beginning of year 11,587 3,900 3,228 Fair market value over (under) cost on reissuance of treasury shares (1995 - 14,537; 1994 - 270,626; 1993 - 23,587) (61) 7,669 666 Other 1,712 18 6 - - ---------------------------------------------------------------------------------------------------------------- End of year 13,238 11,587 3,900 - - ---------------------------------------------------------------------------------------------------------------- Retained earnings: Beginning of year 828,744 779,923 666,241 Net income 89,860 89,462 145,818 Dividends (42,471) (40,641) (32,136) - - ---------------------------------------------------------------------------------------------------------------- End of year 876,133 828,744 779,923 - - ---------------------------------------------------------------------------------------------------------------- Accumulated unrealized gain on investments: Beginning of year - - - Net unrealized holding gain 22,861 - - - - ---------------------------------------------------------------------------------------------------------------- End of year 22,861 - - - - ---------------------------------------------------------------------------------------------------------------- Foreign currency translation adjustment: Beginning of year 10,478 (1,643) 6,462 Translation adjustment 3,621 12,121 (8,105) - - ---------------------------------------------------------------------------------------------------------------- End of year 14,099 10,478 (1,643) - - ---------------------------------------------------------------------------------------------------------------- Treasury stock: Beginning of year (161,760) (146,690) (132,423) Shares acquired (1995 - 760,000; 1994 - 610,300; 1993 - 340,826) (23,499) (19,803) (14,662) Shares reissued 250 4,733 395 - - ---------------------------------------------------------------------------------------------------------------- End of year (185,009) (161,760) (146,690) - - ---------------------------------------------------------------------------------------------------------------- Total Shareholders' Equity $ 745,764 $ 693,491 $ 639,932 - - ----------------------------------------------------------------------------------------------------------------
SEE NOTESMILLIONS) - -------------------------------------------------------------------------------- NOVEMBER 30, December 2, 1996 1995 - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 266 $ 171 Trade accounts receivable, less allowances of $19 in 1996 and $20 in 1995 287 313 Inventories 96 112 Other current assets 45 44 - -------------------------------------------------------------------------------- Total current assets 694 640 - -------------------------------------------------------------------------------- EQUIPMENT LEASED TO CONSOLIDATED FINANCIAL STATEMENTS.OTHERS 278 261 Less accumulated depreciation 185 170 - -------------------------------------------------------------------------------- Equipment leased to others, net 93 91 - -------------------------------------------------------------------------------- PROPERTY 656 650 Less accumulated depreciation 403 374 - -------------------------------------------------------------------------------- Property, net 253 276 - -------------------------------------------------------------------------------- OTHER ASSETS Intangible assets at amortized cost: Patents and trademarks 24 29 Excess of cost over net asset values of acquired companies 112 126 Other 13 8 Deferred charges and other assets 50 49 - -------------------------------------------------------------------------------- Total other assets 199 212 - -------------------------------------------------------------------------------- INSURANCE ASSETS (NOTE 10) Investments 1,663 1,432 Deferred acquisition costs 406 339 Deferred income taxes 44 40 Other 44 40 - -------------------------------------------------------------------------------- Total Insurance Assets 2,157 1,851 - -------------------------------------------------------------------------------- TOTAL ASSETS $ 3,396 $ 3,070 - -------------------------------------------------------------------------------- -22- STATEMENT OF CONSOLIDATED CASH FLOWS HILLENBRAND INDUSTRIES, INC.- -------------------------------------------------------------------------------- NOVEMBER 30, December 2, 1996 1995 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- CURRENT LIABILITIES Short-term debt (Note 4) $ 74 $ 40 Current portion of long-term debt (Note 4) 1 2 Trade accounts payable 50 71 Income taxes payable (Note 8) 21 13 Accrued compensation 58 62 Other liabilities (Note 12) 116 113 - -------------------------------------------------------------------------------- Total current liabilities 320 301 - -------------------------------------------------------------------------------- LONG-TERM DEBT (NOTE 4) 204 206 - -------------------------------------------------------------------------------- OTHER LONG-TERM LIABILITIES (NOTES 5 AND SUBSIDIARIES (DOLLARS IN THOUSANDS)
- - --------------------------------------------------------------------------------------------------------- DECEMBER 2, December 3, November 27, Year Ended 1995 1994 (53 weeks) 1993 - - --------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities: Net income $89,860 89,462 $145,818 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation, amortization and writedown of goodwill 127,612 97,506 112,743 Change in noncurrent deferred income taxes (13,301) (10,542) (15,780) Gain on disposal of discontinued operation - - (16,306) Current income taxes on gain - - 4,752 Change in working capital excluding cash, current debt, acquisitions and dispositions: Trade accounts receivable (13,230) (36,650) (19,617) Inventories (6,070) (444) (2,698) Other current assets (1,369) (1,734) 5,652 Trade accounts payable 18,316 1,181 2,368 Accrued expenses and other liabilities 7,462 (27,361) 520 Change in insurance deferred policy acquisition costs (58,141) (63,386) (52,313) Change in other insurance items, net 34,051 17,922 28,719 Other, net (6,188) (3,227) 16,028 - - --------------------------------------------------------------------------------------------------------- Net Cash Flows From Operating Activities 179,002 62,727 209,886 - - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (102,595) (99,512) (112,735) Proceeds on disposal of fixed assets and equipment leased to others 1,857 1,535 925 Acquisitions of businesses, net of cash acquired (3,534) (39,868) (21,736) Other investments - (15,664) - Proceeds from disposal of discontinued operation - - 55,285 Insurance investments: Purchases (551,711) (527,193) (571,011) Proceeds on maturities 64,561 210,534 247,608 Proceeds on sales prior to maturity 289,650 63,775 92,035 - - --------------------------------------------------------------------------------------------------------- Net Cash Flows From Investing Activities (301,772) (406,393) (309,629) - - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Additions to short-term debt 22,829 4,287 7,052 Reductions to short-term debt (7,691) (2,760) (37,794) Additions to long-term debt - 100,000 21 Reductions to long-term debt (1,805) (77,338) (7,931) Payment of cash dividends (42,471) (40,641) (32,136) Treasury stock acquired (23,499) (19,803) (14,662) Insurance premiums received 427,409 459,000 372,629 Insurance benefits paid (201,018) (168,877) (127,268) - - --------------------------------------------------------------------------------------------------------- Net Cash Flows From Financing Activities 173,754 253,868 159,911 - - --------------------------------------------------------------------------------------------------------- TOTAL CASH FLOWS 50,984 (89,798) 60,168 CASH AND CASH EQUIVALENTS: At Beginning of Year 120,359 210,157 149,989 - - --------------------------------------------------------------------------------------------------------- At End of Year $171,343 $120,359 $210,157 - - ---------------------------------------------------------------------------------------------------------
12) 74 79 - -------------------------------------------------------------------------------- DEFERRED INCOME TAXES (NOTES 1 AND 8) 13 15 - -------------------------------------------------------------------------------- INSURANCE LIABILITIES (NOTE 10) Benefit reserves 1,449 1,253 Unearned revenues 528 455 General liabilities 21 15 - -------------------------------------------------------------------------------- Total Insurance Liabilities 1,998 1,723 - -------------------------------------------------------------------------------- TOTAL LIABILITIES 2,609 2,324 - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTE 12) - -------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY (NOTE 5) - -------------------------------------------------------------------------------- Common stock - without par value: Authorized - 199,000,000 shares Issued - 80,323,912 shares in 1996 and 1995 4 4 Additional paid-in capital 14 14 Retained earnings (Note 4) 973 876 Accumulated unrealized gain on investments 21 23 Foreign currency translation adjustment 10 14 Treasury stock, at cost: 1996 - 11,537,632 shares; 1995 - 10,146,528 shares (235) (185) - -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 787 746 - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,396 $3,070 - -------------------------------------------------------------------------------- SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -23- CONSOLIDATED BALANCE SHEET HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (DOLLARS IN THOUSANDS)
MILLIONS) - -------------------------------------------------------------------------------- NOVEMBER 30, December 2, December 3, Year Ended 1996 1995 1994 (53 weeks) - -------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 140 $ 90 $ 90 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation, amortization and writedown of goodwill 99 127 97 Change in noncurrent deferred income taxes (6) (13) (11) Gain on sale of business (3) - - Change in working capital excluding cash, current debt, acquisitions and dispositions: Trade accounts receivable 24 (13) (37) Inventories 15 (6) (1) Other current assets (1) (1) (2) Trade accounts payable (21) 18 1 Accrued expenses and other liabilities 5 7 (27) Change in insurance deferred policy acquisition costs (67) (58) (63) Change in other insurance items, net 40 34 18 Other, net 14 (6) (3) - -------------------------------------------------------------------------------- Net cash provided by operating activities 239 179 62 - -------------------------------------------------------------------------------- INVESTING ACTIVITIES Capital expenditures (92) (103) (100) Proceeds on disposal of fixed assets and equipment leased to others 2 2 2 Acquisitions of businesses, net of cash acquired (6) (4) (40) Other investments (3) - (16) Proceeds on sale of business 15 - - Insurance investments: Purchases (437) (552) (527) Proceeds on maturities 78 65 211 Proceeds on sales prior to maturity 126 290 64 - -------------------------------------------------------------------------------- Net cash used in investing activities (317) (302) (406) - -------------------------------------------------------------------------------- FINANCING ACTIVITIES Additions to short-term debt 119 23 4 Reductions to short-term debt (81) (8) (2) Additions to long-term debt - - 100 Reductions to long-term debt (3) (2) (77) Payment of cash dividends (43) (43) (41) Treasury stock acquired (51) (23) (20) Insurance premiums received 459 428 459 Insurance benefits paid (227) (201) (169) - -------------------------------------------------------------------------------- Net cash provided by financing activities 173 174 254 - -------------------------------------------------------------------------------- TOTAL CASH FLOWS 95 51 (90) CASH AND CASH EQUIVALENTS At beginning of year 171 120 210 - -------------------------------------------------------------------------------- At end of year $ 266 $ 171 $ 120 - -------------------------------------------------------------------------------- DECEMBER 2, December 3, 1995 1994 - - -------------------------------------------------------------------------------- ASSETS - - -------------------------------------------------------------------------------- CURRENT ASSETS: Cash and cash equivalents $ 171,343 $ 120,359 Trade accounts receivable, less allowances of $19,833 in 1995 and $13,982 in 1994 313,483 299,598 Inventories 111,679 104,229 Other current assets 43,660 42,275 - - -------------------------------------------------------------------------------- Total current assets 640,165 566,461 - - -------------------------------------------------------------------------------- EQUIPMENT LEASED TO OTHERS 261,562 222,470 Less accumulated depreciation 170,233 146,348 - - -------------------------------------------------------------------------------- Equipment leased to others, net 91,329 76,122 - - -------------------------------------------------------------------------------- PROPERTY 649,497 613,756 Less accumulated depreciation 373,767 331,286 - - -------------------------------------------------------------------------------- Property, net 275,730 282,470 - - -------------------------------------------------------------------------------- OTHER ASSETS: Intangible assets at amortized cost: Patents and trademarks 28,589 40,036 Excess of cost over net asset values of acquired companies 125,851 138,038 Other 8,553 10,194 Deferred charges and other assets 49,076 44,254 - - -------------------------------------------------------------------------------- Total other assets 212,069 232,522 - - -------------------------------------------------------------------------------- INSURANCE ASSETS (NOTE 9): Investments 1,432,222 1,198,539 Deferred acquisition costs 339,330 281,189 Deferred income taxes 39,518 43,051 Other 39,893 33,799 - - -------------------------------------------------------------------------------- TOTAL INSURANCE ASSETS 1,850,963 1,556,578 - - -------------------------------------------------------------------------------- TOTAL ASSETS $ 3,070,256 $ 2,714,153 - - --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -24-
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (DOLLARS IN MILLIONS) - -------------------------------------------------------------------------------- NOVEMBER 30, December 2, December 3, Year Ended 1996 1995 1994 (53 weeks) - -------------------------------------------------------------------------------- COMMON STOCK $ 4 $ 4 $ 4 - -------------------------------------------------------------------------------- ADDITIONAL PAID-IN CAPITAL Beginning of year 14 12 4 Fair market value over cost on reissuance of treasury shares (1996 - 33,996; 1995 - 14,537; 1994 - 270,626) - - 8 Other - - -------------------------------------------------------------------------------- DECEMBER 2 December 3, 1995 1994 - - -------------------------------------------------------------------------------- LIABILITIES - - -------------------------------------------------------------------------------- CURRENT LIABILITIES: Short-term debt (Note 3) $ 40,450 $ 25,206 Current portion of long-term debt (Note 3) 2,315 1,805 Trade accounts payable 70,743 52,427 Income taxes payable (Note 7) 12,440 7,872 Accrued compensation 62,253 60,874 Other liabilities (Note 12) 112,520 111,005 - - -------------------------------------------------------------------------------- Total current liabilities 300,721 259,189 - - -------------------------------------------------------------------------------- LONG-TERM DEBT (NOTE 3) 206,783 208,729 - - -------------------------------------------------------------------------------- OTHER LONG-TERM LIABILITIES (NOTES 4 AND 12) 79,343 78,045 - - -------------------------------------------------------------------------------- DEFERRED INCOME TAXES (NOTES 1 AND 7) 14,945 19,470 - - -------------------------------------------------------------------------------- INSURANCE LIABILITIES (NOTE 9): Benefit reserves 1,252,737 1,059,984 Unearned revenues 454,763 380,593 General liabilities 15,200 14,652 - - -------------------------------------------------------------------------------- TOTAL INSURANCE LIABILITIES 1,722,700 1,455,229 - - -------------------------------------------------------------------------------- TOTAL LIABILITIES 2,324,492 2,020,662 - - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTE 12) - - -------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY (NOTE 4) - - -------------------------------------------------------------------------------- COMMON STOCK - WITHOUT PAR VALUE: AUTHORIZED - 199,000,000 SHARES ISSUED - 80,323,912 SHARES IN 1995 AND 1994 4,442 4,442 Additional paid-in capital 13,238 11,587 Retained earnings (Note 3) 876,133 828,744 Accumulated unrealized gain on investments 22,861 - Foreign currency translation adjustment 14,099 10,478 Treasury stock, at cost: 1995 - 10,146,528 shares; 1994 - 9,401,065 shares (185,009) (161,760) - - -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 745,764 693,491 - - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,070,256 $ 2,714,153 - - --------------------------------------------------------------------------------
End of year 14 14 12 - -------------------------------------------------------------------------------- RETAINED EARNINGS Beginning of year 876 829 780 Net income 140 90 90 Dividends (43) (43) (41) - -------------------------------------------------------------------------------- End of year 973 876 829 - -------------------------------------------------------------------------------- ACCUMULATED UNREALIZED GAIN ON INVESTMENTS Beginning of year 23 - - Net unrealized holding gain (loss) (2) 23 - - -------------------------------------------------------------------------------- End of year 21 23 - - -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION ADJUSTMENT Beginning of year 14 10 (2) Translation adjustment (4) 4 12 - -------------------------------------------------------------------------------- End of year 10 14 10 - -------------------------------------------------------------------------------- TREASURY STOCK Beginning of year (185) (162) (147) Shares acquired (1996 - 1,425, 100; 1995 - 760,000; 1994 - 610,300) (51) (23) (20) Shares reissued 1 - 5 - -------------------------------------------------------------------------------- End of year (235) (185) (162) - -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 787 $ 746 $ 693 - -------------------------------------------------------------------------------- SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -25- HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDSMILLIONS EXCEPT PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting policies specific to insurance operations are summarized in Note 9.10. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, except for several small subsidiaries which provide ancillary services to the Company and the public. These subsidiaries are not consolidated because of their materiality and are accounted for by the equity method. Their results of operations appear in the income statement, net of income taxes, under the caption "Other income (expense), net." Operating results for American Tourister, which was sold on August 30, 1993, are reported separately as a discontinued operation, net of income taxes, in the income statement. Material intercompany accounts and transactions have been eliminated in consolidation. The Company's fiscal year is the 52 or 53 week period ending the Saturday nearest November 30. ACCOUNTING STANDARDS SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995, and is effective for fiscal years beginning after December 15,1995 (not later than fiscal year 1997 for the Company). The new standard encourages companies to adopt a fair value based method of accounting for employee stock- based compensation plans, but allows companies to continue to account for those plans using the accounting prescribed by APB Opinion 25, "Accounting for Stock Issued to Employees." The Company will adopt this standard in 1997 and has not decided whether it will adopt the fair value based method or, alternatively, the pro-forma disclosure requirements of the new standard. NATURE OF OPERATIONS Hillenbrand Industries is organized into two segments - Health Care and Funeral Services. The Health Care segment consists of Hill-Rom Company, Medeco Security Locks (included in this segment for reporting purposes only) and Block Medical (sold in the third quarter of 1996). Hill-Rom generates the predominant share of this segment's revenue and operating profit and is a leading manufacturer of patient care products and leading provider of specialized rental therapy products designed to assist in managing the complications of patient immobility. Its products and services are marketed to acute and long-term health care facilities and home care patients primarily in North America and Europe. The Health Care segment generated 56% of Hillenbrand's revenues in 1996. The Funeral Services segment consists of Batesville Casket Company and The Forethought Group. Batesville Casket Company is a leading producer of protective metal and hardwood burial caskets and cremation urns, caskets and marketing support services. Its products are marketed to licensed funeral directors operating licensed funeral homes primarily in North America. Batesville generated 31% of Hillenbrand's revenues in 1996. The Forethought Group provides funeral homes in 42 U.S. states, the District of Columbia, Puerto Rico and Canada with life insurance policies and marketing support for pre-need, inflation-protected funeral planning. Forethought generated 13% of Hillenbrand's revenues in 1996. 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 reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Refer to Notes 8 and 12 for discussion of certain significant estimates. -26- CASH AND CASH EQUIVALENTS The Company considers investments in marketable securities and other highly liquid instruments with a maturity of three months or less to be cash equivalents. INVENTORIES Inventories are valued at the lower of cost or market. The last-in, first-out (LIFO) method was used for determining the cost of approximately 65%71% of total inventories at November 30, 1996, 65% at December 2, 1995 and 62% at December 3, 1994, and 66% at November 27, 1993.1994. The cost for the remaining portion of the inventories was determined using the first-in, first-out (FIFO) method. The LIFO reserve, which approximates the excess of the current cost of inventories over the stated LIFO values, increased from $8.2 million at year-end 1993 to $9.3$9 million at year-end 1994 and to $12.1$12 million at year-end 1995.1995 and declined to $11 million at year-end 1996. EQUIPMENT LEASED TO OTHERS Equipment leased to others represents therapy rental units, which are recorded at cost and depreciated on a straight-line basis over their averageestimated economic life. These units are leased on a day-to-day basis. PROPERTY Property is recorded at cost and depreciated over the estimated useful life of the assets using principally the straight-line method for financial reporting purposes. Generally, when property is retired from service or otherwise disposed of, the cost and related amount of depreciation or amortization are eliminated from the asset and reserve accounts, respectively. The difference, if any, between the net asset value and the proceeds is charged or credited to income. The major components of property at the end of 1996 and 1995 were: - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Land $ 25 $ 28 Buildings and 1994 were:
- - --------------------------------------------------------------------------- 1995 1994 - - --------------------------------------------------------------------------- Land $ 27,505 $ 26,973 Buildings and building equipment 145,453 141,789 Machinery and equipment 476,539 444,994 - - --------------------------------------------------------------------------- Total $ 649,497 $ 613,756 - - ---------------------------------------------------------------------------
-26- building equipment 146 145 Machinery and equipment 485 477 - -------------------------------------------------------------------------------- Total $ 656 $ 650 - -------------------------------------------------------------------------------- INTANGIBLE AND OTHER NON-CURRENT ASSETS Intangible assets are stated at cost and are amortized on a straight-line basis over periods ranging from 3 to 40 years. The Company reviews goodwill and other non-current assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the undiscounted expected future cash flows from use of the asset is less than its carrying value, an impairment loss is recognized. The amount of the impairment loss is determined by comparing the discounted expected future cash flows (including terminal value) with the carrying value. Goodwill related to the acquisition of Block Medical in 1991 was written down $20.0$20 million in the fourth quarter of 1995. Changes in market conditions, the performance of certain products and increased competitive pressures resulted in a significant reduction in management's expectations regarding Block's future cash flows. In the fourth quarter of 1993, goodwill relative to Block was written down $14.0 million. Certain assets relative to the acquisition of Arnold in 1994 that arewere being held for disposal, were written down $5.8$6 million in the fourth quarter of 1995 to their estimated fair value less cost of disposition. These assets were sold in 1996. Accumulated amortization of intangible assets was $163,836$145 million and $133,181$164 million as of November 30, 1996, and December 2, 1995, and December 3, 1994, respectively. -27- ENVIRONMENTAL LIABILITIES Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. A reserve is established when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. More specifically, each quarter, financial management, in consultation with its environmental engineer, estimates the range of liability based on current interpretation of environmental laws and regulations. For each site in which a Company unit is involved, a determination is made of the specific measures that are believed to be required to remediate the site, the estimated total cost to carry out the remediation plan and the periods in which the Company will make payments toward the remediation plan. The Company does not make an estimate of general or specific inflation for environmental matters since the number of sites is small, the magnitude of costs to execute remediation plans are not significant and the estimated time frames to remediate sites are not believed to be lengthy. Specific costs included in environmental expense are site assessment, development of a remediation plan, clean-up costs, post-remediation expenditures, monitoring, fines, penalties and legal fees. The reserve represents the expected undiscounted future cash outflows. Expenditures that relate to current operations are charged to expense. REVENUE RECOGNITION Sales are recognized upon shipment of products to customers. Rental revenues are recognized when services are rendered. COST OF REVENUES Health Care and Funeral Services cost of goods sold consist primarily of purchased material costs, fixed manufacturing expense, and variable direct labor and overhead costs. Health Care rental expenses are those costs associated directly with rental revenue, including depreciation and service of the Company's therapy rental units, service center facility and personnel costs, and regional sales expenses. EARNINGS PER COMMON SHARE Earnings per common share are computed by dividing net income by the average number of shares outstanding during each year, including restricted shares issued to employees. Common equivalent shares arising from shares awarded under the Senior Executive Compensation Program, which was initiated in fiscal year 1978, have been excluded from the computation because of their insignificant dilutive effect. -27- RETIREMENT PLANS The Company and its subsidiaries have several defined benefit retirement plans covering the majority of employees, including certain employees in foreign countries. The Company contributes funds to trusts as necessary to provide for current service and for any unfunded projected future benefit obligation over a reasonable period. The benefits for these plans are based primarily on years of service and the employee's level of compensation during specific periods of employment. The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.5% and 5.5%, respectively, for 1996, 7.5% and 5.5%, respectively, for 1995, and 8.0% and 6.0%, respectively, for 1994, and 7.5% and 6.0%, respectively, for 1993.1994. The expected long-term rate of return on assets was 8.0% for 1996, 1995 1994 and 1993.1994. -28- Net pension expense includes the following components:
- - -------------------------------------------------------------------------------- 1996 1995 1994 1993 - - -------------------------------------------------------------------------------- Service expense-benefits earned during the year $ 6,3017 $ 5,3106 $ 4,6405 Interest expense on projected benefit obligation 7,371 6,952 6,4478 7 7 Actual loss (return) on plan assets (11,838) 6,893 (6,717)(7) (12) 7 Net amortization and deferral 3,649 (13,555) 566 -(1) 4 (13) - -------------------------------------------------------------------------------- Net pension expense $ 5,4837 $ 5,6005 $ 4,936 -6 - --------------------------------------------------------------------------------
The funded status of the plans is shown in the table below:
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- NOVEMBER 30, DECEMBER 2, December 3,1996 1995 1994 - - -------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $69,200$79 in 1996 and $69 in 1995 and $57,805 in 1994 ($73,725)84) ($61,753)74) - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date ($109,673)122) ($94,817)110) Plan assets at fair value, primarily U.S. Government obligations, corporate bonds and notes, and common stock issued by the Company. The value of this common stock at date of acquisition by the plans was $2,613$3 and the current market value was $15,065$17 in 19951996 and $13,743$15 in 1994. 99,242 83,3151995. 110 99 - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Plan assets less than projected benefit obligation (10,431) (11,502)(12) (11) Unrecognized net gain from past experience different from that assumed (16,247) (16,405)(14) (16) Unrecognized prior service cost 2,627 2,8532 3 Unrecognized net asset at year-end being recognized over 14 to 22 years from the initial compliance date of December 1, 1985 (1,154) (1,290)(1) (1) - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Unfunded accrued expenses included in liabilities ($25,205)25) ($26,344)25) - - ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
-28- In addition to the above plans, the Company assumed the unfunded liabilities of a defined benefit plan in the acquisition of Arnold in 1994. The unfunded accumulated benefit obligation of this plan, included in accrued expenses, was $13,725$13 million on November 30, 1996, $14 million on December 2, 1995, and $12,932$13 million on December 3, 1994. Pension expense was $989approximately $1 million in 1996, 1995, and $1,000 in 1994. The Company also sponsors several defined contribution plans covering certain of its employees. Employer contributions are made to these plans based on a percentage of employee compensation. The cost of these defined contribution plans was $5,082$5 million in 1996 and 1995 $7,170and $7 million in 1994, and $5,928 in 1993.1994. -29- INCOME TAXES The Company and its eligible subsidiaries file a consolidated income tax return. Deferred income taxes are computed in accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the income tax amounts. FOREIGN CURRENCY TRANSLATION Assets and liabilities of foreign operations are translated into U.S. dollars at year-end rates of exchange and the income statements are translated at the average rates of exchange prevailing during the year. Adjustments resulting from translation of the financial statements of foreign operations into U.S. dollars are excluded from the determination of net income and included as a separate caption in shareholders' equity. Foreign currency gains and losses resulting from transactions are included in results of operations and are not material. 2. ACQUISITIONS TheIn 1996, the Company's subsidiary,subsidiaries, Batesville Casket Company,and Hill-Rom, each acquired two small companies. The combined purchase price was $6 million. Batesville Casket, purchased two regional casket distributors in 1995 and Hill-Rom purchased the remaining minority interest in a subsidiary of Arnold, which was initially acquired in 1994. The total purchase price for these businesses in 1995 was $3.5$4 million. In addition to the acquisition of Arnold by Hill-Rom, Batesville Casket acquired Industrias Arga, S.A. de C.V., a Mexican casket manufacturer and distributor, and a U.S. casket distributor, in 1994. The combined purchase price of these companies (the predominant share of which related to Arnold) consisted of cash in the amount of $39.9$40 million and the assumption of net liabilities of $6.4$6 million. The resulting goodwill of $46.3$46 million is being amortized on a straight-line basis, primarily over 40 years. 3. DISPOSITION On July 22, 1996, the Company sold the assets of Block Medical for cash and stock totaling $17 million. The Company recorded a gain on the sale of $3 million ($2 million after income taxes) and a related income tax benefit of approximately $6 million which will be realized from book and tax differences in the basis of the business. 4. FINANCING AGREEMENTS The Company's various financing agreements contain no provisions or conditions relating to dividend payments, working capital and additional indebtedness. -29--30- Long-term debt consists of the following:
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- NOVEMBER 30, DECEMBER 2, December 3,1996 1995 1994 - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Unsecured 8 1/2% debentures due on December 1, 2011 $100,000 $ 100,000100 100 Unsecured 7% debentures due on February 15, 2024 100,000 100,000100 100 Government sponsored bond with an interest rate of 5.0% and maturities to 2008 2,860 3,0802 2 Other 6,238 7,4543 6 - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total 209,098 210,534205 208 Less current portion 2,315 1,8051 2 - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total long-term debt $ 206,783204 $ 208,729206 - - ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
The scheduled payments on the long-term debt as of December 2, 1995 are: $2,315November 30, 1996 total less than $1 million in 1996; $1,079 in 1997; $890 in 1998; $798 in 1999 and $798 in 2000.each of the years 1997 through 2001. Short-term debt consists of various lines of credit maintained for foreign subsidiaries. The weighted average interest rate on all short-term borrowings outstanding as of November 30, 1996, and December 2, 1995, was 4% and December 3, 1994, was 6% and 7%, respectively. At December 2, 1995,November 30, 1996, the Company had a $45.0uncommitted credit lines totaling $159 million line of credit available for its European operations. This agreement expired in March 1996 and hadThese agreements have no commitment fees, or compensating balance requirements. 4.requirements or fixed expiration dates. 5. SHAREHOLDERS' EQUITY One million shares of preferred stock, without par value, have been authorized and none have been issued. At December 2, 1995,November 30, 1996, the Company has three stock-based compensation plans; the Senior Executive Compensation Program, the Performance Compensation Plan, and the Restricted Stock Plan, which are described below. All shares issued under these plans are valued at market trading prices. The Company's Senior Executive Compensation Program, initiated in fiscal year 1978, provides long-term performance share compensation, which contemplates annual payments of common stock of the Company to participants contingent on their continued employment and upon achievement of pre-established financial objectives of the Company over succeeding three-year periods. A total of 1,154,9811,115,730 shares of common stock of the Company remain reserved for issuance under the program. Total tentative performance shares payable through December 2, 1995,November 30, 1996, were 45,070.147,642. In addition, the Senior Executive Compensation Program provides for participants to defer payment of long-term performance share and other compensation earned in prior years. A total of 208,898177,149 deferred shares are payable as of December 2, 1995.November 30, 1996. On April 7, 1992, the shareholders of the Company approved the adoption of the Performance Compensation Plan whereby key employees will be awarded tentative performance shares based upon achievement of performance targets. A total of 1,296,8991,293,820 shares of common stock remain reserved for issuance under this plan as of December 2, 1995.November 30, 1996. In 1993, 386,096 shares were earned based on the Company's performance. A total of 7,8794,886 deferred shares are payable as of December 2, 1995November 30, 1996 under this plan. The plan will terminate on November 30, 2001. On April 14, 1987, the shareholders of the Company approved the adoption of a restricted stock plan whereby key employees may be granted restricted shares of the Company's stock. The restrictions lapse after six years; or earlier if certain financial goals are exceeded. 2,000,000 shares of common stock were designated for this plan. Remaining authorized restricted shares may be awarded up to April 15, 1997, and the vesting periods begin when the shares are awarded. 324,600 shares have been awarded, 268,132 shares have been distributed and/or deferred, and 56,468 shares have been forfeited as of December 2, 1995.November 30 1996. No additional awards are contemplated at this time. -30--31- Members of the Board of Directors may elect to defer fees earned as reinvested in common stock of the Company. A total of 5,9748,134 deferred shares are payable as of December 2, 1995,November 30, 1996, under this program. The Board of Directors has authorized the repurchase, from time to time, of up to 14,000,000 shares of the Company's stock in the open market. The purchased shares will be used for general corporate purposes. As of December 2, 1995,November 30, 1996, a total of 11,583,57213,008,672 shares had been purchased at market trading prices. 5.prices, of which 11,537,632 shares remain in treasury. 6. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments (other than Insurance investments which are described in Note 9)10) for which it is practicable to estimate that value: The carrying amounts of cash and cash equivalents, trade accounts receivable, other current assets, trade accounts payable, and accrued expenses approximate fair value because of the short maturity of those instruments. The fair value of the Company's debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair values of the Company's debt instruments are as follows:
- - -------------------------------------------------------------------------------- DECEMBER 2, 1995 - - -------------------------------------------------------------------------------- CARRYING FAIR AMOUNT VALUE -NOVEMBER 30, 1996 - -------------------------------------------------------------------------------- Carrying Fair Amount Value - -------------------------------------------------------------------------------- Short-term debt $ 40,45074 $ 40,45074 Long-term debt $ 209,098205 $ 230,068 -221 - --------------------------------------------------------------------------------
The carrying amount ofCompany has only limited involvement with derivative financial instruments held by theand does not use them for trading purposes. They are used to manage well-defined foreign currency risks. The Company are as follows:
- - -------------------------------------------------------------------------------- DECEMBER 2, 1995 December 3, 1994 - - -------------------------------------------------------------------------------- Cross-currency swap $ - $15,756
The cross-currency swap (held for less than one year) was part of a transactionoccasionally enters into foreign currency forward contracts to hedge exposure to adverse exchange risk related to certain assets and obligations denominated in foreign currencies. The gains or losses arising from these contracts offset foreign exchange gains or losses on the U.S. dollar value of French franc advances byunderlying assets or liabilities and are recognized as offsetting adjustments to the carrying amounts. The Company to its French subsidiary. 6.had no material derivative financial instruments on November 30, 1996 and December 2, 1995. 7. SEGMENT INFORMATION INDUSTRY INFORMATION The Health Care segment consists of Hill-Rom and Block Medical.Medical (sold in the third quarter of 1996). Results for Medeco Security Locks are included in this segment due to its relative size. Hill-Rom produces and sells electric hospital beds, patient room furniture and patient handling equipment designed to meet the needs of acute care, long-term care, home care and perinatal providers. It also provides rental therapy units to health care facilities and the home care market for wound therapy, the management of pulmonary complications associated with critically ill patients and incontinence management. Block manufactures and sells home infusion therapy products, including portable-disposable infusion pumps and ambulatory-electronic infusion pumps for antibiotic, nutritional, chemotherapy and other drug therapies. Medeco produces and sells high-security mechanical locks and lock cylinders and electronic security systems for commercial, residential and government applications. -31--32- The Funeral Services segment consists of Batesville Casket Company and Forecorp. Batesville manufactures and sells a variety of metal and hardwood caskets and a line of urns and caskets used in cremation. Batesville's products are sold to licensed funeral directors operating licensed funeral homes. Forecorp's subsidiaries, Forethought Life Insurance Company and The Forethought Group, Inc., provide funeral planning professionals with marketing support for Forethought-Registered Trademark- funeral plans funded by life insurance policies. Note 10 contains additional information regarding insurance operations. Product transfers between industry segments are not material. Note 9 contains additional information regarding insurance operations.material Financial information regarding the Company's industry segments is presented below:
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ NOVEMBER 30, DECEMBER 2, DecemberDECEMBER 3, November 27, Year Ended 1996 1995 1994 1993 (53 weeks) - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Net revenues: Health Care $ 923,648941 $ 924,090924 $ 875,697924 Funeral Services 701,233 652,944 572,216743 701 653 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Consolidated $ 1,624,8811,684 $ 1,577,0341,625 $ 1,447,9131,577 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Operating profit: Health Care (a) (b) (c) $ 61,740111 $ 45,73962 $ 132,73246 Funeral Services 133,991 122,873 114,641144 134 123 Corporate and other (16,268) (12,529) (15,209)(19) (17) (13) - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Consolidated 179,463 156,083 232,164236 179 156 Interest expense (20,317) (23,489) (21,325)(22) (20) (23) Investment income 14,410 13,282 8,87217 15 13 Other income (expense), net (3,772) (1,116) 1,838(d) 2 (4) (1) - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations before income taxes $ 169,784233 $ 144,760170 $ 221,549145 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Identifiable assets: Health Care (a) (b) $ 713,093647 $ 701,292713 $ 568,398701 Funeral Services 2,120,585 1,825,928 1,468,1112,421 2,120 1,826 Corporate and other 236,578 186,933 254,879328 237 187 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Consolidated $ 3,070,2563,396 $ 2,714,1533,070 $ 2,291,3882,714 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Capital expenditures: Health Care $ 77,00369 $ 74,74877 $ 78,06375 Funeral Services 23,516 22,803 31,75821 24 23 Corporate and other (d) 2,076 1,961 2,9142 2 2 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Consolidated $ 102,59592 $ 99,512103 $ 112,735100 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Depreciation and amortization: Health Care (a) $ 100,23772 $ 69,300100 $ 83,66769 Funeral Services 23,832 24,078 22,54924 24 24 Corporate and other (d) 3,543 4,128 6,5273 3 4 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Consolidated $ 127,61299 $ 97,506127 $ 112,74397 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(a) REFLECTS CHARGES OF $20,000$20 MILLION IN 1995 AND $14,000 IN 1993 FOR THE WRITEDOWN OF BLOCK MEDICAL GOODWILL. (b) REFLECTS A $5,830$6 MILLION CHARGE IN 1995 FOR THE WRITEDOWN OF CERTAIN ASSETS OF A MANUFACTURING FACILITY TO BE DIPOSED OF.SOLD IN 1996. (c) REFLECTS AN $84,750$85 MILLION CHARGE IN 1994 FOR SETTLEMENT OF A PATENT INFRINGEMENT SUIT. (d) INCLUDES AMOUNTS RELATIVE TOREFLECTS A GAIN OF $3 MILLION IN 1996 ON THE DISCONTINUED OPERATION. -32-SALE OF BLOCK MEDICAL. -33- GEOGRAPHIC INFORMATION Sales between geographic area are at transfer prices, which are equivalent to market value.
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- United Other Corporate States (a) Europe (b) International and Other Eliminations Consolidated - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1996: Net revenues: To unaffiliated customers $ 1,447 $ 188 $ 49 $ - $ - $ 1,684 Transfers to other geographic areas 37 - - - (37) - - ------------------------------------------------------------------------------------------------------------------------- Total net revenues $ 1,484 $ 188 $ 49 $ - $ (37) $ 1,684 - ------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) $ 284 $ (31) $ 2 $ (19) $ - $ 236 - ------------------------------------------------------------------------------------------------------------------------- Identifiable assets $ 2,869 $ 355 $ 24 $ 328 $ (180) $ 3,396 - ------------------------------------------------------------------------------------------------------------------------- 1995: Net revenues: To unaffiliated customers $ 1,354,8261,355 $ 220,574221 $ 49,48149 $ - $ - $ 1,624,8811,625 Transfers to other geographic areas 37,168 - 7 - (37,175)37 - - - ------------------------------------------------------------------------------------------------------------------------------(37) - - ------------------------------------------------------------------------------------------------------------------------- Total net revenues $ 1,391,9941,392 $ 220,574221 $ 49,48849 $ - $ (37,175)(37) $ 1,624,8811,625 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) $ 224,502225 $ (29,436)(30) $ (65)- $ (16,268)(17) $ 7301 $ 179,463179 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Identifiable assets $ 2,574,6192,575 $ 376,738377 $ 24,52524 $ 236,578237 $ (142,204)(143) $ 3,070,2563,070 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1994 (53 weeks): Net revenues: To unaffiliated customers $ 1,349,8771,350 $ 176,408176 $ 50,74951 $ - $ - $ 1,577,0341,577 Transfers to other geographic areas 39,157 - 4 - (39,161)39 - - - ------------------------------------------------------------------------------------------------------------------------------(39) - - ------------------------------------------------------------------------------------------------------------------------- Total net revenues $ 1,389,0341,389 $ 176,408176 $ 50,75351 $ - $ (39,161)(39) $ 1,577,0341,577 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) $ 181,025181 $ (9,034)(9) $ (3,966)(4) $ (12,529)(13) $ 5871 $ 156,083156 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Identifiable assets $ 2,363,7262,364 $ 214,953215 $ 25,51025 $ 186,933187 $ (76,969)(77) $ 2,714,1532,714 - - ------------------------------------------------------------------------------------------------------------------------------ 1993: Net revenues: To unaffiliated customers $ 1,279,141 $ 121,798 $ 46,974 $ - $ - $ 1,447,913 Transfers to other geographic areas 38,108 - 17 - (38,125) - - - ------------------------------------------------------------------------------------------------------------------------------ Total net revenues $ 1,317,249 $ 121,798 $ 46,991 $ - $ (38,125) $ 1,447,913 - - ------------------------------------------------------------------------------------------------------------------------------ Operating profit (loss) $ 248,517 $ (1,270) $ 122 $ (15,209) $ 4 $ 232,164 - - ------------------------------------------------------------------------------------------------------------------------------ Identifiable assets $ 1,968,689 $ 143,431 $ 19,492 $ 254,879 $ (95,103) $ 2,291,388 - - -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(a) REFLECTS UNUSUAL CHARGES OF $20,000$20 MILLION IN 1995 AND $14,000 IN 1993 FOR THE WRITEDOWN OF BLOCK MEDICAL GOODWILL AND $84,750$85 MILLION IN 1994 FOR SETTLEMENT OF A PATENT INFRINGEMENT SUIT. (b) REFLECTS AN UNUSUAL CHARGE OF $5,830$6 MILLION IN 1995 FOR THE WRITEDOWN OF CERTAIN ASSETS OF A MANUFACTURING FACILITY TO BE DISPOSED OF. 7.SOLD IN 1996. 8. INCOME TAXES Income taxes are computed in accordance with SFAS No. 109. The significant components of the income tax provision (benefit) are as follows.follows:
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 1993 (53 weeks) - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes: Domestic $206,981 $162,542 $227,073$ 267 $ 207 $ 163 Foreign (37,197) (17,782) (5,524)(34) (37) (18) - ------------------------------------------------------------------------------------------- Total $ 233 $ 170 $ 145 - -------------------------------------------------------------------------------- Total $169,784 $144,760 $221,549 - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Provision for income taxes: Current items: Federal $ 83,01985 $ 57,55283 $ 91,59058 State 11,935 8,452 14,07513 12 8 Foreign (912) (445) 1721 (1) (1) - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total current items 94,042 65,559 105,83799 94 65 - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Deferred items: Federal (11,535) (9,552) (16,549)(6) (11) (10) State (1,586) (325) (224)- (2) - Foreign (997) (384)- (1) - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total deferred items (14,118) (10,261) (16,774)(6) (14) (10) - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Provision for income taxes $ 79,92493 $ 55,29880 $ 89,06355 - - ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
-33--34- The fiscal year differences between the amounts recorded for income taxes on income from continuing operations for financial statement purposes and the amounts computed by applying the Federal statutory tax rate to income from continuing operations before taxes are explained as follows:
- - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1996 1995 1994 (53 weeks) 1993 - - -------------------------------------------------------------------------------- % OF % of % of PRETAX Pretax Pretax AMOUNT INCOME Amount Income Amount Income - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- % OF % OF % OF PRETAX PRETAX PRETAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME - ------------------------------------------------------------------------------------------- Federal income tax (A) $ 59,424(a) $81 35.0 $50,666$59 35.0 $77,321 34.9$51 35.0 State income tax (B) 6,727(b) 9 3.8 7 4.0 5,283 3.6 9,017 4.15 3.5 Foreign income tax (C) 11,110(c) 12 5.1 11 6.5 5,395 3.7 1,960 0.95 3.6 Goodwill write-down (a) 7,000- - 7 4.1 - - 4,886 2.2Sale of Block Medical (a) (6) (2.6) - - - - Other, net (4,337)(3) (1.4) (4) (2.5) (6,046) (4.1) (4,121) (1.9)(6) (4.2) - - --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Provision for income taxes $79,924$93 39.9 $80 47.1 $55,298 38.2 $89,063 40.2$55 37.9 - - ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(A)(a) AT STATUTORY RATE. (B)(b) NET OF FEDERAL BENEFIT. (C)(c) FEDERAL TAX RATE DIFFERENTIAL. The tax effect of temporary differences that give rise to significant portions of the deferred tax balance sheet accounts were as follows:
- - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ NOVEMBER 30, 1996 DECEMBER 2, 1995 December 3, 1994 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ NON-INSURANCE INSURANCE Non-insurance InsuranceNON-INSURANCE INSURANCE - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ Deferred tax assets: Current: Inventories $ 4,2074 $ - $ 3,3794 $ - Employee benefit accruals 3,8093 - 3,8774 - Self insurance accruals 8,95510 - 6,4179 - Litigation accruals 8541 - 1,8281 - Other, net 6,890 1,653 8,376 -7 3 7 2 Long-term: Employee benefit accruals 17,142 477 16,287 48318 - 17 1 Deferred policy revenues - 159,167185 - 133,208159 Foreign loss carryforwards 28,46766 - 16,40055 - Foreign acquisition reserves 4 - 10 - Other, net 4,586 29 8,019 636 - 5 - - -------------------------------------------------------------------------------- Subtotal 74,910 161,326 64,583 133,754---------------------------------------------------------------------------------------------- Total assets 119 188 112 162 - ---------------------------------------------------------------------------------------------- Deferred tax liabilities: Current: Inventories 2 - 2 - Other, net 2 - 2 - Long-term: Depreciation 35 - 35 - Amortization 2 - 2 - Unrealized gain on investments - 12 - 13 Benefit reserves - 9 - 8 Deferred acquisition costs - 119 - 98 Foreign asset step up 4 - 5 - Foreign investment writedown 16 - 17 - Other, net - 4 - 3 - ---------------------------------------------------------------------------------------------- Total liabilities 61 144 63 122 - ---------------------------------------------------------------------------------------------- Less valuation allowance for foreign loss carryforwards (27,972)(50) - (16,400)(43) - - ---------------------------------------------------------------------------------------------- Net asset $ 8 $ 44 $ 6 $ 40 - -------------------------------------------------------------------------------- Total assets $ 46,938 $ 161,326 $ 48,183 $ 133,754 - - -------------------------------------------------------------------------------- Deferred tax liabilities: Current: Inventories $ 2,011 $ - $ 1,937 $ - Other, net 1,550 - 1,604 - Long-term: Depreciation 35,247 207 36,938 - Amortization 1,689 - 2,505 - Unrealized gain on investments - 12,310 - - Benefit reserves - 8,317 - 7,685 Deferred acquisition costs - 97,604 - 79,779 Other, net 232 3,370 4,333 3,239 - - -------------------------------------------------------------------------------- Total liabilities $ 40,729 $ 121,808 $ 47,317 $ 90,703 - - ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
-34--35- Remaining unutilized foreign loss carryforwards were approximately $66.9$162 million and $39.0$136 million on November 30, 1996, and December 2, 1995, and December 3, 1994, respectively. There is not currently sufficient positive evidence as required by SFAS No. 109 to substantiate recognition of net deferred tax assets in the financial statements for those foreign subsidiaries in net operating loss carryforward positions. Accordingly, a valuation allowance of $27,972$50 million has been recorded. It is reasonably possible that sufficient positive evidence could be generated in the near term at one or more of these foreign subsidiaries to support a reduction in the valuation allowance and a resulting recognition of net deferred tax assets. 8.Included in the deferred tax valuation allowance is $7 million related to acquired German loss carryforward benefits and German acquisition purchase price allocation. The future reversal of this portion of the valuation allowance will not be recognized as an adjustment in the income statement. Income tax benefits recorded in years 1990 through 1996 relative to certain expenses associated with the Company's corporate-owned life insurance program have been reviewed by the Internal Revenue Service (IRS). At the date of this report, the Company and the IRS are requesting technical advice from the IRS' national office. The Company strongly believes such benefits were recorded in full compliance with existing and prior tax law. However, it is reasonably possible that the IRS may, in the near term, disallow the deductibility of some of these expenses. The Company believes that the ultimate amount of tax deductions disallowed, if any, will not have a material adverse effect on financial condition or cash flows. 9. SUPPLEMENTARY INFORMATION The following amounts were (charged) or credited to income in the year indicated:
- - -------------------------------------------------------------------------------- 1995 1994 (53 weeks) 1993 - - -------------------------------------------------------------------------------- Rental expense (A) ($17,282) ($20,040) ($19,037) Research and development costs (A) ($38,918) ($35,012) ($30,359) Investment income, net (A) (B) $14,410 $13,282 $ 8,872 - - --------------------------------------------------------------------------------
(A) FROM CONTINUING OPERATIONS ONLY. (B)1996 1995 1994 (53 weeks) - -------------------------------------------------------------------------------- Rental expense ($16) ($17) ($20) Research and development costs ($42) ($39) ($35) Investment income, net (a) $17 $15 $13 - -------------------------------------------------------------------------------- (a) EXCLUDES INSURANCE OPERATIONS. The table below indicates the minimum annual rental commitments (excluding renewable periods) aggregating $47,667,$45 million, primarily for warehouses, under noncancellable operating leases. - -------------------------------------------------------------------------------- 1997 $ 14 1998 $ 10 1999 $ 7 2000 $ 5 2001 $ 3 2002 and beyond $ 6 - --------------------------------------------------------------------------------
1996 $ 13,582 1997 $ 10,175 1998 $ 7,446 1999 $ 5,971 2000 $ 3,793 2001 and beyond $ 6,700 - - --------------------------------------------------------------------------------
-36- The table below provides supplemental information to the statement of consolidated cash flows.
- - -------------------------------------------------------------------------------- 1995 1994 (53 weeks) 1993 - - -------------------------------------------------------------------------------- Cash paid for: Income taxes $ 89,611 $ 84,605 $116,043 Interest $ 20,297 $ 26,099 $ 21,322- ------------------------------------------------------------------------------- 1996 1995 1994 (53 weeks) - ------------------------------------------------------------------------------- Cash paid for: Income taxes $ 92 $ 90 $ 85 Interest $ 16 $ 20 $ 26 Non-cash investing and financing activities: Liabilities assumed from/incurred for the acquisition of businesses $ 5,453 $ 50,422 $ 5,307 Treasury stock issued under stock compensation plans $ 189 $ 12,402 $ 1,061 - - --------------------------------------------------------------------------------
The statement of consolidated cash flows reflects certain changes in the reporting of cash flows for the Company's insurance subsidiary. Cash flows relative to investments have been reclassified from operating activities to investing activities and expanded to disclose purchases, maturities and sales. Premiums received and benefits paid on policies have been classified as financing activities. Results for prior years have been restated to conform to the current presentation. -35- 9.acquisition of businesses $ 1 $ 5 $ 50 Treasury stock issued under stock compensation plans $ 1 $ - $ 13 - ------------------------------------------------------------------------------- 10. INSURANCE OPERATIONS Forecorp, Inc., through its two subsidiaries, Forethought Life Insurance Company and The Forethought Group, Inc., serves funeral planning professionals with life insurance policies and marketing support for FORETHOUGHT-Registered Trademark- funeralForethought-Registered Trademark-funeral planning, a "pre-need" insurance program. The life insurance policies are limited to long-duration, whole-life policies, and, as such, are accounted for under SFAS No. 97. The benefits under these policies increase based on external inflationary indices. Premiums received are recorded as an increase to benefit reserves or as unearned revenue. Unearned revenues are recognized over the actuarial life of the contract. Policy acquisition costs, consisting of commissions, policy issue expense and premium taxes, are deferred and amortized consistently with unearned revenues. Liabilities equal to policy holder account balances and amounts assessed against these balances for future insurance charges are established on the insurance contracts issued by Forethought Life Insurance Company. Investments are predominantly U.S. treasuries and agencies and high-grade corporate bonds with fixed maturities and are carried on the balance sheet at fair value. The Company's objective is to purchase investment securities with maturities that match the expected cash outflows of policy benefit payments. During 1995, theThe investment portfolio wasis periodically realigned to better meet this objective. Securities are also sold in other carefully constrained circumstances such as a concern about the credit quality of the issuer. Otherwise, it is management's intent that these investments be held to maturity. Cash (unrestricted as to use) is held for future investment. In 1995,accordance with the Company adoptedprovisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." In accordance with the provisions of this statement,Securities", the Company has classified the investments in debt and equity securities of its insurance subsidiary as "available for sale" and reported them at fair value on the balance sheet with unrealized gains and losses charged or credited to a separate component of shareholders' equity.equity and the insurance deferred tax asset adjusted for the income tax effect. The fair value of each security is based on the market value provided by brokers/dealers. These investments were written up $35.2 million from their amortized cost of $1,373.0 million, to their fair value of $1,408.2 million on December 2, 1995. The insurance deferred tax asset was decreased $12.3 million to record the income tax effect and shareholders' equity ("accumulated unrealized gain on investments") was increased $22.9 million. Adoption of this standard did not affect results of operations or cash flows. The amortized cost and fair value of investments in debtinvestment securities available for sale at November 30, 1996 were as follows: - ------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ------------------------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 553 $ 8 $ 9 $ 552 Corporate securities 991 27 2 1,016 Mutual funds 56 9 - 65 - ------------------------------------------------------------------------------- Total (a) $1,600 $ 44 $ 11 $1,633 - ------------------------------------------------------------------------------- -37- The amortized cost and fair value of investment securities available for sale at December 2, 1995 were as follows:
- - -------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value - - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ------------------------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 499,767 $ 9,301 $ 5,842 $ 503,226 Obligations of states and political subdivisions 254 31 - 285 Corporate securities 873,005 33,272 1,592 904,685 - - -------------------------------------------------------------------------------- Total (A) $1,373,026 $ 42,604 $ 7,434 $1,408,196 - - --------------------------------------------------------------------------------
The amortized cost and fair valueobligations of investments in debtU.S. government corporations and agencies $ 500 $ 9 $ 6 $ 503 Corporate securities at December 3, 1994 were as follows:
- - -------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value - - -------------------------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 496,985 $ 1,607 $ 32,904 $ 465,688 Obligations of states and political subdivisions 255 14 - 269 Corporate securities 681,110 44 47,267 633,887 - - -------------------------------------------------------------------------------- Total (A) $1,178,350 $ 1,665 $ 80,171 $1,099,844 - - --------------------------------------------------------------------------------
(A)873 34 2 905 Mutual funds - - - - - ------------------------------------------------------------------------------- Total (a) $1,373 $ 43 $ 8 $1,408 - ------------------------------------------------------------------------------- (a) DOES NOT INCLUDE THE AMORTIZED COST OF OTHER INVESTMENTS CARRIED ON THE BALANCE SHEET IN THE AMOUNT OF $24,026$30 MILLION AT NOVEMBER 30, 1996, AND $24 MILLION AT DECEMBER 2, 1995, AND $20,189 AT DECEMBER 3, 1994, THE CARRYING VALUE OF WHICH APPROXIMATES FAIR VALUE. -36- The amortized cost and fair value of debtinvestment securities available for sale at December 2, 1995,November 30, 1996, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
- - -------------------------------------------------------------------------------- Amortized Fair Cost Value - - -------------------------------------------------------------------------------- Due in one year or less $ 10,114 $ 10,177 Due after 1 year through 5 years 332,610 339,231 Due after 5 years through 10 years 271,000 276,260 Due after ten years 369,245 390,320 Mortgage-backed securities 390,057 392,208 - - -------------------------------------------------------------------------------- Total $ 1,373,026 $ 1,408,196 - - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- Amortized Fair Cost Value - ------------------------------------------------------------------------------- Due in one year or less $ 49 $ 49 Due after 1 year through 5 years 303 309 Due after 5 years through 10 years 249 252 Due after ten years 494 510 Mortgage-backed securities 449 448 Mutual funds 56 65 - ------------------------------------------------------------------------------- Total $1,600 $ 1,633 - ------------------------------------------------------------------------------- The cost used to compute realized gains and losses is determined by specific identification. Proceeds and realized gains and losses from the sale of investments in debtinvestment securities available for sale were as follows:
- - -------------------------------------------------------------------------------- 1995 1994 1993 - - -------------------------------------------------------------------------------- Proceeds $289,650 $ 63,775 $ 92,035 Realized gross gains $ 4,662 $ 1,076 $ 1,809 Realized gross losses $ 3,649 $ 936 $ 212 - - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- Proceeds $ 126 $ 290 $ 64 Realized gross gains $ 1 $ 5 $ 1 Realized gross losses $ 1 $ 4 $ 1 - ------------------------------------------------------------------------------- Summarized financial information of insurance operations included in the statement of consolidated income is as follows:
- - -------------------------------------------------------------------------------- 1995 1994 1993 - - -------------------------------------------------------------------------------- Investment income $ 91,634 $ 72,998 $ 62,538 Earned premium revenue 93,279 81,340 51,856 Net gain on sale of investments 1,013 140 1,597 Other, net (197) (300) (55) - - -------------------------------------------------------------------------------- Total net revenues 185,729 154,178 115,936 Benefits paid 48,305 41,977 31,065 Credited interest 85,922 70,037 48,985 Deferred acquisition costs amortized 23,722 20,222 14,358 Other operating expenses 13,948 13,404 11,421 - - -------------------------------------------------------------------------------- Income before income taxes $ 13,832 $ 8,538 $ 10,107 - - --------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- Investment income $ 104 $ 92 $ 73 Earned premium revenue 115 93 81 Net gain on sale of investments - 1 - - ------------------------------------------------------------------------------- Total net revenues 219 186 154 Benefits paid 56 48 42 Credited interest 97 86 70 Deferred acquisition costs amortized 29 24 20 Other operating expenses 13 14 13 - ------------------------------------------------------------------------------- Income before income taxes $ 24 $ 14 $ 9 - ------------------------------------------------------------------------------- -38- Statutory data at December 31 includes:
- - --------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 1996 (unaudited) 1995 (unaudited) 1994 1993 - - -------------------------------------------------------------------------------- Net income $ 22,487 $ 27,946 $29,752 Capital and surplus $114,572 $104,378 $78,208 - - --------------------------------------------------------------------------------
-37-
10.UNAUDITED QUARTERLY FINANCIAL INFORMATION - - ---------------------------------------------------------------------------------------------------------------------------------- Total 1995 QUARTER ENDED 3/04/95 6/03/95 9/02/95 12/02/95 Year - - ---------------------------------------------------------------------------------------------------------------------------------- Net revenues: Health Care sales $ 130,972 $ 137,751 $ 138,725 $ 148,229 $ 555,677 Health Care rentals 90,254 92,368 91,270 94,079 367,971 Funeral Services 130,412 131,157 121,069 132,866 515,504 Insurance 44,639 43,583 47,652 49,855 185,729 - - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues 396,277 404,859 398,716 425,029 1,624,881 - - ---------------------------------------------------------------------------------------------------------------------------------- Cost of revenues: Health Care cost of goods sold 78,052 87,210 87,531 94,288 347,081 Health Care rental expenses 60,617 63,075 61,862 60,852 246,406 Funeral Services 70,524 69,256 67,088 71,084 277,952 Insurance 34,602 32,729 35,492 37,686 140,509 - - ---------------------------------------------------------------------------------------------------------------------------------- Total cost of revenues 243,795 252,270 251,973 263,910 1,011,948 - - ---------------------------------------------------------------------------------------------------------------------------------- Gross profit 152,482 152,589 146,743 161,119 612,933 Administrative, distribution and selling expenses 103,628 104,499 97,955 101,558 407,640 Unusual items - - - 25,830 25,830 - - ---------------------------------------------------------------------------------------------------------------------------------- Operating profit 48,854 48,090 48,788 33,731 179,463 Other income (expense), net (4,348) (3,180) (3,187) 1,036 (9,679) - - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 44,506 44,910 45,601 34,767 169,784 Income taxes 17,001 17,156 19,715 26,052 79,924 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income $ 27,505 $ 27,754 $ 25,886 $ 8,715 $ 89,860 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income per common share $ 0.39 $ 0.39 $ 0.37 $ 0.12 $ 1.27 - - ----------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------- Total 1994 Quarter Ended 2/26/94 5/28/94 8/27/94 12/03/94 Year - - ---------------------------------------------------------------------------------------------------------------------------------- Net revenues: Health Care sales $ 129,846 $ 139,728 $ 142,160 $ 179,227 $ 590,961 Health Care rentals 82,847 84,702 82,770 82,810 333,129 Funeral Services 129,262 121,938 113,574 133,992 498,766 Insurance 35,451 36,337 39,311 43,079 154,178 - - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues 377,406 382,705 377,815 439,108 1,577,034 - - ---------------------------------------------------------------------------------------------------------------------------------- Cost of revenues: Health Care cost of goods sold 70,365 81,884 85,222 99,349 336,820 Health Care rental expenses 53,226 55,304 53,651 57,385 219,566 Funeral Services 69,221 64,544 63,021 71,592 268,378 Insurance 27,942 25,424 28,931 32,128 114,425 - - ---------------------------------------------------------------------------------------------------------------------------------- Total cost of revenues 220,754 227,156 230,825 260,454 939,189 - - ---------------------------------------------------------------------------------------------------------------------------------- Gross profit 156,652 155,549 146,990 178,654 637,845 Administrative, distribution and selling expenses 92,509 98,563 93,823 112,117 397,012 Unusual items - - 84,750 - 84,750 - - ---------------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) 64,143 56,986 (31,583) 66,537 156,083 Other expense, net (3,155) (3,978) (3,636) (554) (11,323) - - ---------------------------------------------------------------------------------------------------------------------------------- Income (loss) before income taxes 60,988 53,008 (35,219) 65,983 144,760 Income taxes 23,297 20,250 (13,679) 25,430 55,298 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 37,691 $ 32,758 $ (21,540) $ 40,553 $ 89,462 - - ---------------------------------------------------------------------------------------------------------------------------------- Net income (loss) per common share $ 0.53 $ 0.46 $ (0.30) $ 0.57 $ 1.26 - - ----------------------------------------------------------------------------------------------------------------------------------
Unusual items consist of a patent litigation settlement in the third quarter of 1994 - ------------------------------------------------------------------------------- Net income $ 29 $ 22 $ 28 Capital and in the fourth quarter ofsurplus $ 129 $ 115 $ 104 - ------------------------------------------------------------------------------- 11. UNAUDITED QUARTERLY FINANCIAL INFORMATION - ------------------------------------------------------------------------------- TOTAL 1996 QUARTER ENDED 3/02/96 6/01/96 8/31/96 11/30/96 YEAR - ------------------------------------------------------------------------------- Net revenues $ 434 $ 424 $ 404 $ 422 $1,684 Gross profit 170 169 163 175 677 Net income (a) 33 34 34 39 140 Net income per common share (a) .48 .48 .50 .56 2.02 - ------------------------------------------------------------------------------- Total 1995 the writedown of goodwill and certain assets of a manufacturing facility to be disposed of. -38- Cost ofQUARTER ENDED 3/04/95 6/03/95 9/02/95 12/02/95 Year - ------------------------------------------------------------------------------- Net revenues gross$ 396 $ 405 $ 399 $ 425 $1,625 Gross profit and administrative, distribution and selling expenses have been reclassified to reflect the segregation of revenues and costs as discussed in Note 1 -- Cost of Revenues.152 153 147 161 613 Net expenses associated with the Company's corporate-owned life insurance program were reclassified from other expense to administrative expense. As compared with amounts previously reported on Forms 10-Q and 10-K, the income statement was affected as follows:
- - ------------------------------------------------------------------------------------------------------------------------------- Total 1995 Quarter Ended 3/04/95 6/03/95 9/02/95 12/02/95 Year - - ------------------------------------------------------------------------------------------------------------------------------- Cost of revenues $ 23,106 $ 27,558 $ 25,108 N/A N/A Gross profit (23,106) (27,558) (25,108) N/A N/A Administrative, distribution and selling expenses (22,088) (26,465) (23,976) N/A N/A Operating profit (1,018) (1,093) (1,132) N/A N/A Other income (expense), net 1,018 1,093 1,132 N/A N/A Income before income taxes - - - N/A N/(b) 27 28 26 9 90 Net income per common share (b) .39 .39 .37 .12 1.27 - ------------------------------------------------------------------------------- (a) REFLECTS INCOME OF $8 MILLION, OR $.12 PER SHARE, RELATIVE TO THE SALE OF BLOCK MEDICAL IN THE THIRD QUARTER. (b) REFLECTS THE WRITEDOWN OF BLOCK MEDICAL GOODWILL AND CERTAIN ASSETS OF A
- - --------------------------------------------------------------------------------------------------------------------------------- Total 1994 Quarter Ended 2/26/94 5/28/94 8/27/94 12/03/94 Year - - --------------------------------------------------------------------------------------------------------------------------------- Cost of revenues $ 21,532 $ 23,382 $ 23,628 $ 22,777 $ 91,319 Gross profit (21,532) (23,382) (23,628) (22,777) (91,319) Administrative, distribution and selling expenses (20,583) (22,568) (23,223) (21,983) (88,357) Operating profit (loss) (949) (814) (405) (794) (2,962) Other expense, net 949 814 405 794 2,962 Income (loss) before income taxes - - - - -
11. DISCONTINUED OPERATION On August 30, 1993, the Company sold its luggage business, American Tourister, Inc., for a cash payment of $63.8 million. Net proceeds (after disposition costs) were $55.3 million. The gain on the sale of $11.6 million was net of income taxes of $4.7 million. The results of American Tourister, Inc., have been reported separately as a discontinued operation in the Statement of Consolidated Income for the year ended November 27, 1993. Income from discontinued operations of $1.8 million was net of the income tax provision of $1.1 million.MANUFACTURING FACILITY SOLD IN 1996 TOTALING $26 MILLION, OR $.37 PER SHARE, IN THE FOURTH QUARTER. 12. CONTINGENCIES On August 16, 1995, Kinetic Concepts, Inc., and Medical Retro Design, Inc. (collectively, the "plaintiffs"), filed suit against Hillenbrand Industries, Inc., and its subsidiary Hill-Rom Company, Inc., in the United States District Court for the Western District of Texas, San Antonio Division. The plaintiffs allege violation of various antitrust laws, including illegal bundling of products, predatory pricing, refusal to deal and attempting to monopolize the hospital bed industry. They seek monetary damages totaling in excess of $268.5$269 million, trebling of any damages that may be allowed by the court, and injunctions to prevent further alleged unlawful activities. The Company believes that the claims are without merit and will defendis aggressively defending itself aggressively against all allegations. In 1993,Accordingly, it has not recorded any loss provision relative to damages sought by the plaintiffs. On November 20, 1996, the Company filed a Counterclaim to the above action against Kinetic Concepts, Inc. (KCI) in the U.S. District Court in San Antonio, Texas. The Counterclaim alleges, among other things, that KCI has attempted to monopolize the therapeutic bed market, interfere with the Company's subsidiary, Hill-Rom, was notified that it was partand Hill-Rom's business relationships by conducting a campaign of an investigation intoanticompetitive conduct, and abused the hospital bed industry by the Antitrust Division of the U.S. Department of Justice (the "DOJ"). As a result, the Company was issued a Civil Investigative Demand by the DOJ and served with a subpoena to allow review of internal Hill-Rom files and business practices to determine any irregularities. On June 13, 1995, the Company was notified by the DOJ that the Department had officially closed this civil investigation with no action being taken. This investigation did not have a significant effect on the Company's financial condition, results of operations or cash flows.legal process for its own advantage. -39- The Company has voluntarily entered into remediation agreements with environmental authorities, and has been issued Notices of Violation alleging violations of certain permit conditions. Accordingly, the Company is in the process of implementing plans of abatement in compliance with agreements and regulations. The Company has also been notified as a potentially responsible party in investigations of certain offsite disposal facilities. The cost of all plans of abatement and waste site cleanups in which the Company is currently involved is not expected to exceed $10.0$10 million. The Company has provided adequate reserves in its financial statements for these matters. Changes in environmental law might affect the Company's future operations, capital expenditures and earnings. The cost of complying with these provisions is not known. The Company is subject to various other claims and contingencies arising out of the normal course of business, including those relating to commercial transactions, product liability, safety, health, taxes, environmental and other matters. Management believes that the ultimate liability, if any, in excess of amounts already provided or covered by insurance, is not likely to have a material adverse effect on the Company's financial condition, results of operations or cash flows. ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with the independent accountants. -40- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information relating to executive officers is included in this report as the last section of Item 1 under the caption "Executive Officers of the Registrant." Information relating to the directors will appear in the section entitled "Election of Directors" in the definitive Proxy Statement to be dated March 1, 1996,February 28, 1997, and to be filed with the Commission relating to the Company's 19961997 Annual Meeting of Shareholders, which section is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" in the definitive Proxy Statement dated March 1, 1996,February 28, 1997, and to be filed with the Commission relating to the Company's 19961997 Annual Meeting of Shareholders, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The section entitled "Election of Directors" in the definitive Proxy Statement to be dated March 1, 1996,February 28, 1997, and to be filed with the Commission relating to the Company's 19961997 Annual Meeting of Shareholders, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The sections entitled "About the Board of Directors" and "Compensation Committee Interlocks and Insider Participation" in the definitive Proxy Statement to be dated March 1, 1996,February 28, 1997, and to be filed with the Commission relating to the Company's 19961997 Annual Meeting of Shareholders, are incorporated herein by reference. PART IV ITEM 14. EXHIBITS,14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents have been filed as a part of this report or, where noted, incorporated by reference: (1) Financial Statements The financial statements of the Company and its consolidated subsidiaries listed on the index to Consolidated Financial Statements on page 19. (2) Financial Statement Schedules The financial statement schedules filed in response to Item 8 and Item 14(d) of Form 10-K are listed on the index to Consolidated Financial Statements on page 19. -41- (3) Exhibits The following exhibits have been filed as part of this report in response to Item 14(c) of Form 10-K. 3 (i)3(i) Form of Restated Certificate of Incorporation of the Registrant (Incorporated herein by reference to Exhibit 3 filed with Form 10-K for the year ended November 28, 1992) 3 (ii)3(ii) Form of Amended Bylaws of the Registrant (Incorporated herein by reference to Exhibit 3 filed with Form 10-K for the year ended December 3, 1994) The following management contracts or compensatory plans or arrangements are required to be filed as exhibits to this form pursuant to Item 14 (c) of this report: 10 (i)10.1 Hillenbrand Industries, Inc. Senior Executive Compensation Program (Incorporated herein by reference to Exhibit 10 filed with Form 10-K for the year ended December 3, 1994) 10 (ii)10.2 Hillenbrand Industries, Inc. Performance Compensation Plan (Incorporated herein by reference to the definitive Proxy Statement dated February 28, 1992, and filed with the Commission relative to the Company's 1992 Annual Meeting of Shareholders) 10.3 Hillenbrand Industries, Inc. 1996 Stock Option Plan (Incorporated herein by reference to the definitive Proxy Statement dated February 28, 1997, and filed with the Commission relative to the Company's 1997 Annual Meeting of Shareholders) 21 Subsidiaries of the Registrant 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedule -- 12 Months, 19949 months, 1996 27.3 Restated Financial Data Schedule -- 3 Months, 19956 months, 1996 27.4 Restated Financial Data Schedule -- 6 Months, 19953 months, 1996 27.5 Restated Financial Data Schedule -- 12 months, 1995 27.6 Restated Financial Data Schedule -- 3 months, 1995 27.7 Restated Financial Data Schedule -- 6 months, 1995 27.8 Restated Financial Data Schedule -- 9 Months,months, 1995 27.9 Restated Financial Data Schedule -- 12 months, 1994 (b) There were no reports on Form 8-K filed during the quarter ended December 2, 1995.November 30, 1996. -42- SCHEDULE II HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED NOVEMBER 30, 1996, DECEMBER 2, 1995 AND DECEMBER 3, 1994 AND NOVEMBER 27, 1993 (DOLLARS IN THOUSANDS)MILLIONS)
ADDITIONS ----------------------------------------------- BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE BEGINNING COSTS AND OTHER NET OF AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (A)(a) RECOVERIES (B)(b) OF PERIOD - - ----------------------------------- ---------- ---------- --------------------- ----------- -------------- ---------- Reserves deducted from assets to which they apply: Allowance for possible losses and discounts - accounts receivable: Year Ended: November 30, 1996 $ 20 $ 1 $ - $ 2 $ 19 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ December 2, 1995 $ 13,98214 $ 3,4514 $ 5,3665 $ 2,9663 $ 19,833 --------- -------- -------- -------- -------- --------- -------- -------- -------- --------20 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ December 3, 1994 $ 11,27111 $ 2,7413 $ 3,2263 $ 3,2563 $ 13,982 --------- -------- -------- -------- -------- --------- -------- -------- -------- -------- November 27, 1993 $ 15,574 $ 3,761 $ 3,392 $ 11,456 $ 11,271 --------- -------- -------- -------- -------- --------- -------- -------- -------- --------14 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(A)(a) REDUCTION OF GROSS REVENUES FOR CASH DISCOUNTS CO-OPERATIVE ADVERTISING ALLOWANCES AND OTHER ADJUSTMENTS IN DETERMINING NET REVENUE. ALSO INCLUDES THE EFFECT OF ACQUISITION OF BUSINESSES. (B)(b) INCLUDES THE SALE OF DISCONTINUEDBLOCK MEDICAL OPERATION IN 1993.1996. -43- SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HILLENBRAND INDUSTRIES, INC. By: /S/ /s/W August Hillenbrand -------------------------------------------------------- W August Hillenbrand Dated: January 23, 199620, 1997 Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /S/ /s/Daniel A. Hillenbrand /S/ /s/John C. Hancock - - ------------------------------- -------------------------------------------------------- --------------------------- Daniel A. Hillenbrand John C. Hancock Chairman of the Board Director /S/ /s/Tom E. Brewer /S/ /s/W August Hillenbrand - - ------------------------------- -------------------------------------------------------- --------------------------- Tom E. Brewer W August Hillenbrand Chief Financial Officer Director /S/ /s/James D. Van De Velde /S/ /s/George M. Hillenbrand II - - ------------------------------- -------------------------------------------------------- --------------------------- James D. Van De Velde George M. Hillenbrand II Controller Director /S/ /s/Lawrence R. Burtschy /S/ /s/John A. Hillenbrand II - - ------------------------------- -------------------------------------------------------- --------------------------- Lawrence R. Burtschy John A. Hillenbrand II Director Director /S/ /s/Peter F. Coffaro /S/ /s/Ray J. Hillenbrand - - ------------------------------- -------------------------------------------------------- --------------------------- Peter F. Coffaro Ray J. Hillenbrand Director Director /S/ /s/Edward S. Davis /S/ /s/Lonnie M. Smith - - ------------------------------- -------------------------------------------------------- --------------------------- Edward S. Davis Lonnie M. Smith Director Director /S/ /s/Leonard Granoff - - ---------------------------------------------------------- Leonard Granoff Director Dated: January 23, 199620, 1997 -44- HILLENBRAND INDUSTRIES, INC. INDEX TO EXHIBITS 3 (i) Form of Restated Certificate of Incorporation of the Registrant (Incorporated herein by reference to Exhibit 3 filed with Form 10-K for the year ended November 28, 1992) 3 (ii) Form of Amended Bylaws of the Registrant (Incorporated herein by reference to Exhibit 3 filed with Form 10-K for the year ended December 3, 1994) 10 (i)10.1 Hillenbrand Industries, Inc. Senior Executive Compensation Program (Incorporated herein by reference to Exhibit 10 filed with Form 10-K for the year ended December 3, 1994) 10 (ii)10.2 Hillenbrand Industries, Inc. Performance Compensation Plan (Incorporated herein by reference to the definitive Proxy Statement dated February 28, 1992, and filed with the Commission relative to the Company's 1992 Annual Meeting of Shareholders) 10.3 Hillenbrand Industries, Inc. 1996 Stock Option Plan (Incorporated herein by reference to the definitive Proxy Statement dated February 28, 1997, and filed with the Commission relative to the Company's 1997 Annual Meeting of Shareholders) 21 Subsidiaries of the Registrant 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedule -- 12 Months, 19949 months, 1996 27.3 Restated Financial Data Schedule -- 3 Months, 19956 months, 1996 27.4 Restated Financial Data Schedule -- 6 Months, 19953 months, 1996 27.5 Restated Financial Data Schedule -- 12 months, 1995 27.6 Restated Financial Data Schedule -- 3 months, 1995 27.7 Restated Financial Data Schedule -- 6 months, 1995 27.8 Restated Financial Data Schedule -- 9 Months,months, 1995 27.9 Restated Financial Data Schedule -- 12 months, 1994 -45-