CFOUNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ______________ Commission File Number 0-2648 HON INDUSTRIES Inc. (Exact name of Registrant as specified in its charter) Iowa 42-0617510 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) P.O. Box 1109, 414 East Third Street, Muscatine, Iowa 52761-0071 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 563/264-7400 Indicate by check mark whether the registrant (1) has filed all required reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO Indicate the number of share outstanding of each of the issuer's classes of common stock, as of the latest practical date. Class Outstanding at June 30, 2001 Common Shares, $1 Par Value 59,160,247 sharesHON INDUSTRIES Inc. and SUBSIDIARIES INDEX
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2001
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to ____________________
Commission File Number 0-2648
HON INDUSTRIES Inc.
(Exact name of Registrant as specified in its charter)
Iowa
42-0617510
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification Number)
P. O. Box 1109, 414 East Third Street, Muscatine, Iowa 52761-0071
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: 563/264-7400
Indicated by check mark whether the registrant (1) has filed all required reports to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES ____X_____ NO __________
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Class
Outstanding at September 29, 2001
Common Shares, $1 Par Value
58,636,933
HON INDUSTRIES Inc. and SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
September 29, 2001, and December 30, 2000
3-4
Condensed Consolidated Statements of Income
Three Months Ended September 29, 2001, and September 30, 2000
5
Condensed Consolidated Statements of Income
Nine Months Ended September 29, 2001, and September 30, 2000
6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 29, 2001, and September 30, 2000
7
Notes to Condensed Consolidated Financial Statements
8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
11-13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
14
SIGNATURES
15
PART I. FINANCIAL INFORMATION
PageItem 1. Financial Statements
(Unaudited) Condensed Consolidated Balance Sheets - June 30, 2001, and December 30, 2000 3-4 Condensed Consolidated Statements of Income - Three Months Ended June 30, 2001, and July 1, 2000 5 Condensed Consolidated Statements of Income - Six Months Ended June 30, 2001, and July 1, 2000 6 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2001, and July 1, 2000 7
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 29,
December 30,
2001
2000
(Unaudited)
ASSETS
(In thousands)
CURRENT ASSETS
Cash and cash equivalents
$ 40,918
$ 3,181
Receivables
198,262
211,243
Inventories (Note B)
71,185
84,360
Deferred income taxes
18,481
19,516
Prepaid expenses and other current assets
11,893
11,841
Total Current Assets
340,739
330,141
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements
21,790
18,808
Buildings
212,658
202,189
Machinery and equipment
497,703
514,293
Construction in progress
20,484
27,547
752,635
762,837
Less accumulated depreciation
335,978
308,525
Net Property, Plant, and Equipment
416,657
454,312
GOODWILL
216,666
216,371
OTHER ASSETS
22,357
21,646
Total Assets
$ 996,419
$ 1,022,470
See accompanying Notes to Condensed Consolidated Financial
Statements 7-10 Item 2. Management's Discussion and Analysis ofStatements.
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 29,
December 30,
2001
2000
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands)
CURRENT LIABILITIES
Accounts payable and accrued expenses
$ 216,288
$ 240,418
Accrued facilities closing and reorganization expense
4,751
122
Income taxes
21,283
12,067
Note payable and current maturities
of long-term debt
39,211
10,408
Current maturities of other long-term
obligations
745
1,853
Total Current Liabilities
282,278
264,868
LONG-TERM DEBT
79,611
126,093
CAPITAL LEASE OBLIGATIONS
1,699
2,192
OTHER LONG-TERM LIABILITIES
17,099
18,749
DEFERRED INCOME TAXES
40,430
37,226
SHAREHOLDERS' EQUITY
Capital Stock:
Preferred, $1 par value; authorized
2,000,000 shares; no shares outstanding
-
-
Common, $1 par value; authorized
200,000,000 shares; outstanding -
58,637
59,797
2001 - 58,636,933 shares;
2000 - 59,796,891 shares
Paid-in capital
-
17,339
Retained earnings
516,336
495,796
Accumulated other comprehensive income
329
410
Total Shareholders' Equity
575,302
573,342
Total Liabilities and Shareholders' Equity
$ 996,419
$ 1,022,470
See accompanying Notes to Condensed Consolidated Financial
Condition and Results of Operations 11-13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 15PART I. FINANCIAL INFORMATION Item 1.Statements.
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)Three Months Ended
September 29,
September 30,
2001
2000
(In thousands, except
per share data)
Net Sales
$ 459,352
$ 535,322
Cost of products sold
298,427
354,367
Gross Profit
160,925
180,955
Selling and administrative expenses
114,759
124,197
Operating Income
46,166
56,758
Interest income
509
493
Interest expense
1,884
3,796
Income Before Income Taxes
44,791
53,455
Income taxes
16,125
19,234
Net Income
$ 28,666
$ 34,221
Net income per common share
$0.48
$0.57
Average number of common shares outstanding
59,047,587
60,162,183
Cash dividends per common share
$0.12
$0.11
See accompanying Notes to Condensed Consolidated Financial
StatementsStatements.
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)Nine Months Ended
September 29,
September 30,
2001
2000
(In thousands, except
per share data)
Net Sales
$ 1,365,545
$ 1,526,494
Cost of products sold
902,927
1,027,625
Gross Profit
462,618
498,869
Selling and administrative expenses
352,792
360,924
Restructuring and impairment charges
24,000
-
Operating Income
85,826
137,945
Interest income
1,217
1,216
Interest expense
7,124
10,757
Income Before Income Taxes
79,919
128,404
Income taxes
28,771
46,225
Net Income
$ 51,148
$ 82,179
Net income per common share
$0.86
$1.37
Average number of common shares outstanding
59,233,573
60,164,179
Cash dividends per common share
$0.36
$0.33
See accompanying Notes to Condensed Consolidated Financial Statements.
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)Nine Months Ended
September 29,
September 30,
2001
2000
(In thousands)
Net Cash Flows From (To) Operating Activities:
Net income
$ 51,148
$ 82,179
Noncash items included in net income:
Depreciation and amortization
61,777
58,953
Other postretirement and postemployment
benefits
1,249
1,109
Deferred income taxes
4,322
1,091
Asset impairment
16,200
-
Other - net
64
28
Net increase (decrease) in noncash operating
assets and liabilities
12,483
(25,866)
Increase (decrease) in other liabilities
(2,898)
(1,266)
Net cash flows from operating activities
144,345
116,228
Net Cash Flows From (To) Investing Activities:
Capital expenditures - net
(32,170)
(46,871)
Capitalized software
(109)
(261)
Acquisition spending
(8,632)
(134,688)
Long-term investments
-
(3)
Other - net
344
-
Net cash flows (to) investing activities
(40,567)
(181,823)
Net Cash Flows From (To) Financing Activities:
Purchase of HON INDUSTRIES common stock
(35,059)
(7,807)
Proceeds from long-term debt
36,218
155,059
Payments of note and long-term debt
(54,389)
(74,491)
Proceeds from sales of HON INDUSTRIES common
stock to members and stock-based compensation
8,525
9,068
Dividends paid
(21,336)
(19,851)
Net cash flows from financing activities
(66,041)
61,978
Net increase (decrease) in cash and
cash equivalents
37,737
(3,617)
Cash and cash equivalents at beginning
of period
3,181
22,168
Cash and cash equivalents at end of period
$ 40,918
$ 18,551
See accompanying Notes to Condensed Consolidated Financial Statements.
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 30, 2001 2000 (Unaudited) ASSETS (In thousands) CURRENT ASSETS Cash and cash equivalents $ 35,101 $ 3,181 Receivables 181,664 211,243 Inventories (Note B) 71,088 84,360 Deferred income taxes 18,538 19,516 Prepaid expenses and other current assets 11,063 11,841 Total Current Assets 317,454 330,141 PROPERTY, PLANT, AND EQUIPMENT, at cost Land and land improvements 21,833 18,808 Buildings 208,950 202,189 Machinery and equipment 510,972 514,293 Construction in progress 24,506 27,547 766,261 762,837 Less accumulated depreciation 340,396 308,525 Net Property, Plant, and Equipment 425,865 454,312 GOODWILL 219,048 216,371 OTHER ASSETS 21,904 21,646 Total Assets $984,271 $1,022,470 See accompanying notes to condensed consolidated financial statements.HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 30, 2001 2000 (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands) CURRENT LIABILITIES Accounts payable and accrued expenses $200,490 $ 240,418 Accrued facilities closing and reorganization expense 7,498 122 Income taxes 8,396 12,067 Note payable and current maturities of long-term debt 61,211 10,408 Current maturities of other long-term obligations 615 1,853 Total Current Liabilities 278,210 264,868 LONG-TERM DEBT 79,621 126,093 CAPITAL LEASE OBLIGATIONS 2,124 2,192 OTHER LONG-TERM LIABILITIES 20,103 18,749 DEFERRED INCOME TAXES 38,750 37,226 SHAREHOLDERS' EQUITY Capital Stock: Preferred, $1 par value; authorized 2,000,000 shares; no shares outstanding - - Common, $1 par value; authorized 200,000,000 shares; outstanding - 59,160 59,797 2001 - 59,160,247 shares; 2000 - 59,796,891 shares Paid-in capital 2,013 17,339 Retained earnings 504,030 495,796 Accumulated other comprehensive income 260 410 Total Shareholders' Equity 565,463 573,342 Total Liabilities and Shareholders' Equity $984,271 $1,022,470 See accompanying notes to condensed consolidated financial statements.HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTSNOTES OF
INCOME (Unaudited) Three Months Ended June 30, July 1, 2001 2000 (In thousands, except per share data) Net Sales $444,196 $509,649 Cost of products sold 292,789 343,842 Gross Profit 151,407 165,807 Selling and administrative expenses 118,983 125,513 Restructuring and impairment charges 24,000 - Operating Income 8,424 40,294 Interest income 486 434 Interest expense 2,318 4,122 Income Before Income Taxes 6,592 36,606 Income taxes 2,373 13,188 Net Income $ 4,219 $ 23,418 Net income per common share $0.07 $0.39 Average number of common shares outstanding 59,204,849 60,144,502 Cash dividends per common share $0.12 $0.11 See accompanying notes to condensed consolidated financial statements.HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Six Months Ended June 30, July 1, 2001 2000 (In thousands, except per share data) Net Sales $906,193 $991,172 Cost of products sold 604,500 673,258 Gross Profit 301,693 317,914 Selling and administrative expenses 238,033 236,727 Restructuring and impairment charges 24,000 - Operating Income 39,660 81,187 Interest income 708 723 Interest expense 5,240 6,961 Income Before Income Taxes 35,128 74,949 Income taxes 12,646 26,991 Net Income $ 22,482 $ 47,958 Net income per common share $0.38 $0.80 Average number of common shares outstanding 59,326,535 60,165,177 Cash dividends per common share $0.24 $0.22 See accompanying notes to condensed consolidated financial statements.HON INDUSTRIES Inc. and SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, July 1, 2001 2000 (In thousands) Net Cash Flows From (To) Operating Activities: Net income $ 22,482 $ 47,958 Noncash items included in net income: Depreciation and amortization 41,199 38,832 Other postretirement and postemployment benefits 742 914 Deferred income taxes 2,626 300 Asset impairment 16,200 - Other - net 64 (3) Net increase (decrease) in noncash operating assets and liabilities 3,758 (20,739) Increase (decrease) in other liabilities 613 (915) Net cash flows from operating activities 87,684 66,347 Net Cash Flows From (To) Investing Activities: Capital expenditures - net (23,921) (29,651) Capitalized software (89) (230) Acquisition spending (6,332) (134,648) Other - net (711) - Net cash flows (to) investing activities (31,053) (164,529) Net Cash Flows From (To) Financing Activities: Purchase of HON INDUSTRIES common stock (22,730) (7,239) Proceeds from long-term debt 36,000 150,059 Payments of note and long-term debt (31,736) (42,487) Proceeds from sales of HON INDUSTRIES common stock to members and stock-based compensation 8,004 8,009 Dividends paid (14,249) (13,233) Net cash flows from financing activities (24,711) 95,109 Net increase (decrease) in cash and cash equivalents 31,920 (3,073) Cash and cash equivalents at beginning of period 3,181 22,168 Cash and cash equivalents at end of period $ 35,101 $ 19,095 See accompanying notes to condensed consolidated financial statements.HON INDUSTRIES Inc. and SUBSIDIARIES NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited) June 30,(UNAUDITED)
September 29, 2001Note A. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the
six-monthnine-month period endedJune 30,September 29, 2001, are not necessarily indicative of the results that may be expected for the year ending December 29, 2001. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 30, 2000.Note B. Inventories Inventories of the Company and its subsidiaries are summarized as follows: June 30, December 30, 2001 2000 ($000) (Unaudited) Finished products $ 49,985 $ 48,990 Materials and work in process 32,011 46,497 LIFO allowance (10,908) (11,127) $ 71,088 $ 84,360
Note B. Inventories
Inventories of the Company and its subsidiaries are summarized as follows:
September 29, 2001
December 30,
($000)
(Unaudited)
2000
Finished products
$ 51,781
$ 48,990
Materials and work in process
30,306
46,497
LIFO allowance
(10,902)
(11,127)
$ 71,185
$ 84,360
Note C. Restructuring and Impairment Charge
During the quarter ended June 30, 2001, the Company recorded a pretax charge of $24.0 million or $0.26 per diluted share for a restructuring plan that involves consolidating physical facilities, discontinuing low volume product lines, and reductions of workforce.
Costs related toIncluded in this charge is the closedown of three of its office furniture facilitiesincludinglocated in Williamsport, Pennsylvania,andTupelo, Mississippi,are included in this charge.and Santa Ana, California. The charge includes $16.2 million of asset impairments per Financial Accounting Standards Board Statement 121 "Accounting forwrite-offsthe Impairment ofmachineryLong-Lived Assets andequipment,for Long-Lived Assets to be Disposed Of." The remaining $7.8 million of the charge is classified as restructuring expenses in accordance with EITF 94-3 of the Financial Accounting Standards Board and Staff Accounting Bulleting (SAB 100) of the Securities and Exchange Commission. Included in the $7.8 million is $3.1 million for severance arising from the elimination of approximately 600 positions,$0.8$.8 million for other employee related costs,$2.2 million for idle facility costs,and$1.7$3.9 million for certain other expenses associated with the closing of facilities.During the
quarternine month period endedJune 30,September 29, 2001,$0.4$3.2 million of pretax exit costs were paid and charged against the liability.It included $1.8 million for severance for 324 positions, $.2 million for other employee related costs and $1.2 million for certain other expenses associated with the closing of facilities. Note D. Business Combinations
The Company completed the acquisitions of
twothree small hearth product distributors during thefirst quarter of 2001. On January 12,nine-month period ending September 29, 2001,the Company purchased the assets of M. H. Seifert Construction Inc.for a total purchase price of approximately$1.9$7.6 million.On February 9, 2001, the Company purchased the stock of Heating Alternatives, Ltd. for approximately $3.4 million. The excess of the consideration paid over the fair value of the businesses or approximately $4 million was recorded as goodwill and is being amortized on a straight-line basis over 20 years.During the first quarter of 2001, management finalized its integration plan related to the acquisition of its Hearth Services division. Costs related to severance and consolidation of facilities of approximately $2.4 million have been recorded and reflected as an adjustment to goodwill. Of this amount,
$1.1$1.3 million has been utilized as ofJune 30,September 29, 2001. Management expects these activities to be completed within the year. Final estimates did not have a material effect on the original liabilities established in connection with the purchase.Note E. Comprehensive Income
The Company's comprehensive income consists of an unrealized holding gain or loss on equity securities available-for-sale under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," and nominal foreign currency adjustments.
Note F. Business Segment Information
Management views the Company as being in two business segments: office furniture and hearth products with the former being the principal business segment.
The office furniture segment manufactures and markets a broad line of metal and wood commercial and home office furniture which includes file cabinets, desks, credenzas, chairs, storage cabinets, tables, bookcases, freestanding office partitions and panel systems, and other related products. The hearth product segment manufactures and markets a broad line of manufactured gas-, pellet- and wood-burning fireplaces and stoves, fireplace inserts, and chimney systems principally for the home.
For purposes of segment reporting, intercompany sales transfers between segments are not material and operating profit is income before income taxes exclusive of certain unallocated corporate expenses. These unallocated corporate expenses include the net cost of the Company's corporate operations, interest income, and interest expense. Management views interest income and expense as corporate financing costs and not as a business segment cost. In addition, management applies one effective tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis.
No geographic information for revenues from external customers or for long-lived assets is disclosed inasmuch as the Company's primary market and capital investments are concentrated in the United States.
Reportable segment data reconciled to the consolidated financial statements for the three-month and
six-monthnine-month period endedJune 30,September 29, 2001, andJuly 1,September 30, 2000, is as follows:
Three Months Ended Six Months Ended June 30, July 1, June 30, July 1, 2001 2000 2001 2000 (In thousands)Net Sales: Office furniture $ 338,578 $ 408,681 $ 705,087 $ 806,969 Hearth products 105,618 100,968 201,106 184,203 $ 444,196 $ 509,649 $ 906,193 $ 991,172 Operating Profit: Office furniture Normal operations $ 32,366 $ 40,840 $ 64,890 $ 79,412 Restructuring and impairment charges (22,500) - (22,500) - Office Furniture - net 9,866 40,840 42,390 79,412 Hearth products Normal operations 9,519 5,473 12,757 10,243 Restructuring and impairment charges (1,500) (1,500) Hearth products - net 8,019 5,473 11,257 10,243 Total operating profit 17,885 46,313 53,647 89,655 Unallocated corporate expense (11,293) (9,707) (18,519) (14,706) Income before income taxes $ 6,592 $ 36,606 $ 35,128 $ 74,949 Identifiable Assets: Office furniture $ 575,470 $ 660,339 Hearth products 339,483 336,887 General corporate 69,318 67,034 $ 984,271 $1,064,260 Depreciation & Amortization Expense: Office furniture $ 14,877 $ 14,880 $ 29,754 $ 29,254 Hearth products 5,160 4,962 10,286 8,561 General corporate 579 491 1,159 1,017 $ 20,616 $ 20,333 $ 41,199 $ 38,832 Capital Expenditure, Net: Office furniture $ 9,260 $ 6,768 $ 18,976 $ 17,246 Hearth products 1,600 5,704 4,522 10,258 General corporate 341 1,156 423 2,147 $ 11,201 $ 13,628 $ 23,921 $ 29,651
Three Months Ended
Nine Months Ended
September 29,
September 30,
September 29,
September 30,
2001
2000
2001
2000
(In thousands)
Net Sales:
Office furniture
$ 353,138
$ 434,006
$ 1,058,225
$ 1,240,975
Hearth products
106,214
101,316
307,320
285,519
$ 459,352
$ 535,322
$ 1,365,545
$ 1,526,494
Operating Profit:
Office furniture
Normal operations
$ 41,223
$ 54,458
$ 106,113
$ 133,870
Restructuring and impairment charges
-
-
(22,500)
-
Office Furniture - net
41,223
54,458
83,613
133,870
Hearth products
Normal operations
12,277
9,128
25,034
19,371
Restructuring and impairment charges
-
-
(1,500)
-
Hearth products - net
12,277
9,128
23,534
19,371
Total operating profit
53,500
63,586
107,147
153,241
Unallocated corporate expense
(8,709)
(10,131)
(27,228)
(24,837)
Income before income taxes
$ 44,791
$ 53,455
$ 79,919
$ 128,404
Identifiable Assets:
Office furniture
$ 574,858
$ 661,477
Hearth products
340,921
341,008
General corporate
80,640
72,380
$ 996,419
$ 1,074,865
Depreciation & Amortization Expense:
Office furniture
$ 14,957
$ 14,960
$ 44,711
$ 44,214
Hearth products
5,028
4,665
15,314
13,226
General corporate
593
496
1,752
1,513
$ 20,578
$ 20,121
$ 61,777
$ 58,953
Capital Expenditure, Net:
Office furniture
$ 6,477
$ 11,565
$ 25,453
$ 28,811
Hearth products
1,161
4,236
5,683
14,494
General corporate
611
1,419
1,034
3,566
$ 8,249
$ 17,220
$ 32,170
$ 46,871
Note G. New Accounting Standards
The Financial Accounting Standards Board finalized Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations"Combinations," and No. 142, "Goodwill and Other IntangibleAssets"Assets," on June 30, 2001. The Company will be required to adopt both statements on December 30, 2001, the beginning of its 2002 fiscal year.SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting. With the adoption of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be assessed for impairment by applying a fair-value-based test. The Company does not anticipate recognizing any impairment of goodwill upon adoption. The Company will stop recording, on an annual basis, approximately $9 million of goodwill amortization upon adoption.
The Financial Accounting Standards Board finalized SFAS No. 143, "Accounting for Asset Retirement Obligations," on August 15, 2001, and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," on October 3, 2001. The Company will be required to adopt Statement No. 143 on December 29, 2002, the beginning of its 2003 fiscal year and Statement No. 144 on December 30, 2001, the beginning of its 2002 fiscal year. The adoption of SFAS No. 143 and SFAS No. 144 is not expected to have a material impact on the Company's financial statements.
Item 2.Management's Discussion and Analysis of Financial Condition and Results of
Operations Results of OperationsA summary of the period-to-period changes in the principal items included in the Condensed Consolidated Statements of Income is shown below:
Comparison of Increases (Decreases) Three Months Ended Six Months Ended Three Months Ended Dollars in Thousands June 30, 2001 & June 30, 2001 & June 30, 2001 & July 1, 2000 July 1, 2000 March 31, 2001Net Sales $(65,453) (12.8)% $(84,979) (8.6)% $(17,801) (3.9)% Cost of products sold (51,053) (14.8) (68,758) (10.2) (18,922) (6.1) Selling & administrative expenses (6,530) (5.2) 1,306 0.6 (67) (0.1) Restructuring and impairment charges 24,000 24,000 24,000 Interest income 52 12.0 (15) (2.1) 264 118.9 Interest expense (1,804) (43.8) (1,721) (24.7) (604) (20.7) Income taxes (10,815) (82.0) (14,345) (53.1) (7,900) (76.9) Net Income (19,199) (82.0) (25,476) (53.1) (14,044) (76.9)
Comparison of
Increases (Decreases)
Three Months Ended
Nine Months Ended
Three Months Ended
Dollars in Thousands
September 29, 2001 &
September 29, 2001
&
September 29, 2001 &
September 30, 2000
September 30, 2000
June 30, 2001
Net Sales
$ (75,970)
(14.2)
%
$(160,949)
(10.5)
%
$ 15,156
3.4
%
Cost of products sold
(55,940)
(15.8)
(124,698)
(12.1)
5,638
1.9
Selling & administrative
expenses
(9,438)
(7.6)
(8,132)
(2.3)
(4,224)
(3.6)
Restructuring and impairment charges
-
24,000
(24,000)
Interest income
16
3.2
1
0.1
23
4.7
Interest expense
(1,912)
(50.4)
(3,633)
(33.8)
(434)
(18.7)
Income taxes
(3,109)
(16.2)
(17,454)
(37.8)
13,752
579.5
Net Income
(5,555)
(16.2)
(31,031)
(37.8)
24,447
579.5
Consolidated net sales for the
secondthird quarter endingJune 30,September 29, 2001, were$444.2$459.4 million, a12.8%14.2% decrease from the$509.6$535.3 million in thesecondthird quarter of 2000.The Company recordedNet income was $28.7 million, arestructuring and impairment chargedecrease of 16.2% from $34.2 million over the same period inthe second quarter. Accounting for the one-time charge of $24.0 million against pretax earnings, net2000. Net income per share for the quarter was$4.2 million or $0.07$0.48 pershare. Net income, before the charge, was $19.6 million,diluted share, a decrease of16.4%15.8% from$23.4 million for the same period a year ago. Prior to the one-time charge, net income per share was $0.33$0.57 per diluted sharecompared to $0.39 per shareearned insecondthird quarter 2000.For the first
sixnine months of 2001, consolidated net sales decreased8.6%10.5% to$906.2 million$1.4 billion from$991.2 million$1.5 billion last year. Net income was$37.8$66.5 million or$0.64$1.12 per share, excludingthean after-tax restructuring charge of $15.4 million or $0.26 pershare.share, taken in second quarter 2001 to better align the Company's permanent cost structure. Earnings per share before the one-time charge were down20.0%18.2% from$0.80$1.37 for the same period a year ago. Net income after the restructuringreservecharge was$22.5$51.1 million or$0.38$0.86 per share.For the
secondthird quarter of 2001, office furniture comprised76%77% of consolidated net sales and hearth products comprised24%23%. Net sales for office furniture were down17.2%18.6%. Hearth products sales increased4.6%4.8% for the quarter compared to the same quarter a year ago. Office furniture contributed 77% ofsecondthird quarter 2001 consolidated operating profit before unallocated corporate expenses andthe one-time charge andhearth products contributed 23%.The consolidated gross profit margin for the
secondthird quarter of 2001 increased to a newsecond quarterquarterly record of34.1%35.0% compared to32.5%33.8% for the same period in 2000. This increase in margin was due to improvedprice realization,cost containment, and business simplification.Selling and administrative expenses for the
secondthird quarter of 2001excluding the one-time charge,were26.8%25.0% of net sales compared to24.6%23.2% in the comparable quarter of 2000. This increase was due to lower overall sales volume. Actual selling and administrative dollars for the quarterprior to the one-time charge,decreased5.2%7.6% or$6.5 million from the same quarter a year ago.$9.4 million.During the quarter ended June 30, 2001, the Company recorded a pretax
restructuringcharge of $24.0 million or $0.26 per dilutedshare. Theshare for a restructuring plan that involves consolidating physical facilities, discontinuing low volume product lines, and reductions of workforce.Costs related toIncluded in this charge is the closedown of three of its office furniture facilitiesincludinglocated in Williamsport, Pennsylvania,andTupelo, Mississippi,are included in this charge.and Santa Ana, California. The chargeincludesincluded $16.2 millionofrelated to asset impairmentsper Financial Accounting Standards Board Statement No. 121 "Accounting for the Impairment of Long-Lived Assetsandfor Long-Lived Assets to be Disposed Of." The remaining$7.8 millionofwas provided to cover restructuring expenses. Restructuring spending during thecharge is classified as restructuring expenses in accordance with EITF 94-3 of the Financial Accounting Standards Board and Staff Accounting Bulletin (SAB 100) of the Securities and Exchange Commission. The charge includes $3.1nine-month period included $1.8 million for severancearising from the elimination of approximately 600for 324 positions,$0.8$.2 million for other employee related costs$2.2and $1.2 millionfor idle facility costs, and $1.7for certain other expenses associated with the closing of facilities.During the quarter ended June 30, 2001, $0.4 million of pretax exit costs were paid and charged against the liability. The restructuring is expected to save approximately $12 million annually.Liquidity and Capital Resources
As of
June 30,September 29, 2001, cash and short-term investments increased to$35.1$40.9 million compared to a $3.2 million balance at year-end 2000. Net cash flows from operations contributed to the improvement. Cash flow and working capital management are major focuses of management to ensure the Company is poised for growth.Net capital expenditures for the first
sixnine months of 2001 were$23.9$32.2 million and primarily represent investment in new, more efficient machinery and equipment. These investments were funded by a combination of cash reserves, cash from operations and a revolving credit agreement.During the first quarter of 2001, the Company completed the acquisition of
twothree small hearth products distributors for a total purchase price of approximately$5.3$7.6 million.The Board of Directors declared a regular quarterly cash dividend of $0.12 per share on its common stock on
May 7,August 6, 2001, to shareholders of record at the close of business onMay 17,August 16, 2001. It was paid onJune 1,August 31, 2001, and represented the185th186th consecutive quarterly dividend paid by the Company.For the first
sixnine months endedJune 30,September 29, 2001, the Company repurchased922,8371,472,937 shares of its common stock at a cost of approximately$22.7$35.1 million or an average price of$24.63$23.80 per share. As ofJune 30,September 29, 2001, approximately$90.9$78.6 million of the Board's current repurchase authorization remained unspent.On August 6, 2001, the Board of Directors declared a $0.12 per common share cash dividend to shareholders of record on August 16, 2001, to be paid on August 31, 2001.Looking Ahead
The Company anticipates that the remainder of 2001 will be challenging in both sales and profits due to the current economic and political environment. The Company is focused on optimizing their 2001 performance, while continuing to follow their long-term value creation strategies.
Statements in this report that are not strictly historical, including statements as to plans, objectives, and future financial performance, are "forward-looking" statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, which may cause the Company's actual results in the future to differ materially from expected results. These risks include, among others: the Company's ability to realize financial benefits from simplifying its business and reducing its cost structure, to introduce and obtain sales from new products; and other factors described in the Company's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a)
- Exhibits. None
(b)- Reports on Form 8-K. No reports on Form 8-K were filed during the
quarter for which this report is filed.SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated:
August 9,November 8, 2001 HON INDUSTRIES Inc.By /s/By: /s/ Jerald K. Dittmer
Jerald K. Dittmer
Vice PresidentFinanceandController