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 OctoberApril 4, 19971998
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 52761-7109
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 319-264-7400
Indicate by check mark whether the registrant (1) has filed all
required reports to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Class Outstanding at OctoberApril 4, 19971998
Common Shares, $1 Par Value 29,676,19061,667,683 shares
Exhibit Index is on page 17.16.
Page 1 of 17
HON INDUSTRIES Inc. and SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
OctoberApril 4, 1997,1998, and December 28, 1996January 3, 1998 3-4
Condensed Consolidated Statements of Income --
Three Months Ended OctoberApril 4, 1998, and March 29, 1997 and September 28, 1996 5
Condensed Consolidated Statements of Income --
Nine Months Ended October 4, 1997, and September 28, 19966
Condensed Consolidated Statements of Cash Flows --
NineThree Months Ended OctoberApril 4, 1998, and March 29, 1997 and September 28, 1996 76
Notes to Condensed Consolidated Financial Statements 8-107-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-1410-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 1514
SIGNATURES 1615
EXHIBIT INDEX 1716
(27) Financial Data Schedule 18
(99i) Press Release 1917
Page 2 of 17
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 4,
1997 December 28,
(Unaudited) 1996
ASSETS (In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 19,248 $ 31,196
Short-term investments 258 1,502
Receivables 166,496 109,095
Inventories (Note B) 65,011 43,550
Deferred income taxes 19,916 9,046
Prepaid expenses and
other current assets 15,713 11,138
Total Current Assets 286,642 205,527
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements 9,561 9,114
Buildings 104,005 92,509
Machinery and equipment 301,150 231,780
Construction in progress 54,326 42,507
469,042 375,910
Less accumulated depreciation 163,364 141,294
Net Property, Plant, and Equipment 305,678 234,616
GOODWILL 53,253 51,213
OTHER ASSETS 26,231 22,158
Total Assets $671,804 $513,514
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 4,
1998 January 3,
(Unaudited) 1998
ASSETS (In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 10,752 $ 46,080
Short-term investments 262 260
Receivables 178,351 158,408
Inventories (Note B) 62,461 60,182
Deferred income taxes 13,810 14,391
Prepaid expenses and other current
assets 13,983 15,829
Total Current Assets 279,619 295,150
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements 10,275 10,059
Buildings 113,389 111,387
Machinery and equipment 342,728 333,216
Construction in progress 84,628 60,832
551,020 515,494
Less accumulated depreciation 178,197 174,464
Net Property, Plant, and Equipment 372,823 341,030
GOODWILL 106,444 98,720
OTHER ASSETS 19,523 19,773
Total Assets $778,409 $754,673
See accompanying notes to condensed consolidated financial
statements. HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
October 4,
1997 December 28,
(Unaudited) 1996
LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands)
CURRENT LIABILITIES
Accounts payable and accrued expenses $173,899 $127,910
Income taxes 10,273 2,574
Note payable and current maturitiesPage 3 of long-term obligations 7,350 22,069
Total Current Liabilities 191,522 152,553
LONG-TERM DEBT AND OTHER LIABILITIES 156,280 91,468
CAPITAL LEASE OBLIGATIONS 5,484 6,320
DEFERRED INCOME TAXES 19,389 10,726
MINORITY INTEREST IN SUBSIDIARY - 50
SHAREHOLDERS' EQUITY
Capital Stock:
Preferred, $1 par value; authorized
1,000,000 shares; no shares outstanding - -
Common, $1 par value; authorized
100,000,000 shares; outstanding -- 29,676 29,713
1997 - 29,676,190 shares;
1996 - 29,713,265 shares
Paid-in capital 164 360
Retained earnings 274,330 227,365
Receivable from HON Members Company
Ownership Plan (5,041) (5,041)
Total Shareholders' Equity 299,129 252,397
Total Liabilities and Shareholders'
Equity $671,804 $513,51417
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 4,
1998 January 3,
(Unaudited) 1998
LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands)
CURRENT LIABILITIES
Accounts payable and accrued expenses $166,738 $183,738
Income taxes 16,156 8,133
Note payable and current maturities
of long-term debt 2,496 2,545
Current maturities of other long-term
obligations 1,255 6,343
Total Current Liabilities 186,645 200,759
LONG-TERM DEBT 143,266 123,487
CAPITAL LEASE OBLIGATIONS 10,399 11,024
OTHER LONG-TERM LIABILITIES 18,927 18,601
DEFERRED INCOME TAXES 19,683 19,140
SHAREHOLDERS' EQUITY (Note C)
Capital Stock:
Preferred, $1 par value; authorized
1,000,000 shares; no shares outstanding - -
Common, $1 par value; authorized
100,000,000 shares; outstanding -- 61,667 61,659
1998 - 61,667,683 shares;
1997 - 61,659,316 shares
Paid-in capital 56,180 55,906
Retained earnings 282,747 265,203
Receivable from HON Members Company
Ownership Plan (1,099) (1,099)
Equity adjustment from foreign currency
translation (6) (7)
Total Shareholders' Equity 399,489 381,662
Total Liabilities and
Shareholders' Equity $778,409 $754,673
See accompanying notes to condensed consolidated financial
statements. HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
OctoberPage 4 September 28,
1997 1996
(In thousands, except
per share data)
Net sales (Note G) $391,348 $255,254
Cost of products sold 268,147 176,403
Gross Profit 123,201 78,851
Selling and administrative expenses 80,641 53,605
Operating Income 42,560 25,246
Interest income 601 806
Interest expense 2,810 715
Income Before Income Taxes 40,351 25,337
Income taxes (Note E) 15,132 7,430
Net Income $ 25,219 $ 17,907
Net income per common share (Note F) $ 0.85 $ 0.60
Average number of common shares
outstanding 29,677,952 30,063,124
Cash dividends per common share $ 0.14 $ 0.1217
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
April 4, March 29,
1998 1997
(In thousands, except
per share data)
Net sales $418,263 $282,859
Cost of products sold 291,571 194,194
Gross Profit 126,692 88,665
Selling and administrative expenses 88,563 60,453
Operating Income 38,129 28,212
Interest income 435 411
Interest expense 2,607 1,553
Income Before Income Taxes 35,957 27,070
Income taxes 13,484 10,152
Net Income 22,473 16,918
Net income per common share (Note C) $.36 $.28
Average number of common shares
outstanding 61,647,784 59,399,822
Cash dividends per common share $.08 $.07
See accompanying notes to condensed consolidated financial
statements. HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Nine Months Ended
October 4, September 28,
1997 1996
(In thousands, except
per share data)
Net sales (Note G) $970,774 $707,991
CostPage 5 of products sold 663,310 486,636
Gross Profit 307,464 221,355
Selling and administrative expenses 205,397 152,958
Gain on sale of subsidiary (Note D) - 3,200
Operating Income 102,067 71,597
Interest income 1,453 2,306
Interest expense 5,945 2,342
Income Before Income Taxes 97,575 71,561
Income taxes (Note E) 36,591 24,533
Net Income $ 60,984 $ 47,028
Net income per common share (Note F) $ 2.05 $ 1.56
Average number of common shares
outstanding 29,689,679 30,192,770
Cash dividends per common share $ 0.42 $ 0.3617
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
April 4, March 29,
1998 1997
(In thousands)
Net Cash Flows From (To) Operating
Activities:
Net income $ 22,473 $ 16,918
Noncash items included in net income:
Depreciation and amortization 11,911 7,439
Other postretirement and postemployment
benefits 354 799
Deferred income taxes 1,125 617
Other - net (12) 256
Net increase (decrease) in noncash
operating assets and liabilities (32,712) (6,605)
Increase (decrease) in other liabilities (1,326) (3,307)
Net cash flows from operating activities 1,813 16,117
Net Cash Flows From (To) Investing
Activities:
Capital expenditures - net (40,067) (18,412)
Acquisition spending, net of cash acquired (11,523) (262)
Short-term investments - net (2) (802)
Long-term investments (1) 800
Other - net 1 (455)
Net cash flows (to) investing activities (51,592) (19,131)
Net Cash Flows From (To) Financing
Activities:
Purchase of HON INDUSTRIES common stock (940) (1,171)
Proceeds from long-term debt 35,050 -
Payments of note and long-term debt (15,952) (9,859)
Proceeds from sales of HON INDUSTRIES
common stock to members and stock-based
compensation 1,226 908
Dividends paid (4,933) (4,158)
Net cash flows from (to) financing
activities 14,451 (14,280)
Net increase (decrease) in cash and
cash equivalents (35,328) (17,294)
Cash and cash equivalents at beginning
of period 46,080 31,196
Cash and cash equivalents at end of period $ 10,752 $ 13,902
See accompanying notes to condensed consolidated financial
statements. HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
October 4, September 28,
1997 1996
(In thousands)
Net Cash Flows From (To) Operating Activities:
Net income $ 60,984 $ 47,028
Noncash items included in net income:
Depreciation and amortization 25,334 17,460
Gain on salePage 6 of subsidiary,
net of tax (Note D) - (2,016)
Other postretirement and postemployment
benefits 1,041 1,828
Deferred income taxes 1,851 (226)
Other - net 20 247
Net increase (decrease) in noncash operating
assets and liabilities (15,651) (6,497)
Increase in other liabilities (571) 791
Net cash flows from operating
activities 73,008 58,615
Net Cash Flows From (To) Investing Activities:
Capital expenditures - net (56,898) (34,770)
Acquisition spending, net of cash
acquired (67,025) -
Net proceeds from sale of subsidiary
(Note D) - 7,336
Short-term investments - net 444 9,394
Long-term investments 1,045 148
Other - net (164) (189)
Net cash flows (to) investing
activities (122,598) (18,081)
Net Cash Flows From (To) Financing Activities:
Purchase of HON INDUSTRIES common stock (3,714) (9,991)
Proceeds from long-term debt 100,000 -
Payments of note and long-term debt (48,106) (2,857)
Proceeds from sales of HON INDUSTRIES common
stock to members and stock-based
compensation 1,930 1,368
Dividends paid (12,468) (10,865)
Net cash flows from (to) financing
activities 37,642 (22,345)
Net increase (decrease) in cash and
cash equivalents (11,948) 18,189
Cash and cash equivalents at beginning
of period 31,196 32,231
Cash and cash equivalents at end of period $ 19,248 $ 50,420
See accompanying notes to condensed consolidated financial statements.17
HON INDUSTRIES Inc. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
OctoberApril 4, 19971998
Note A. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine-monththree-month period
ended OctoberApril 4, 1997,1998, are not necessarily indicative of the
results that may be expected for the year ending January 3, 1998.2, 1999.
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 28, 1996.January 3, 1998.
Note B. Inventories
Inventories of the Company and its subsidiaries are summarized as
follows:
October 4, 1997 December 28,
($000) (Unaudited) 1996
Finished products $28,857 $15,793
Materials and work in process 36,154 27,757
$65,011 $43,550
April 4, 1998
($000) Unaudited) January 3,1998
Finished products $ 29,198 $ 26,352
Materials and work in process 54,542 48,186
LIFO Allowance (21,279) (14,356)
$ 62,461 $ 60,182
Note C. Fiscal CalendarShareholders' Equity
The fiscal quarter ended October 4, 1997, represents 14 weeksBoard of business
activity compared to 13 weeksDirectors approved a two-for-one common stock split
in the prior year. Nine months ended October 4,
1997, similarly represents 40 weeks comparedform of a 100 percent stock dividend, paid on March 27,
1998, to 39 weeks in the prior year.
Note D. Gainshareholders of record on Sale of Subsidiary
During the first quarter of 1996, the Company sold all outstanding shares of
its subsidiary, Ring King Visibles, Inc., for a sale price of $8,000,000 in
cash and the forgiveness of intercompany receivables of approximately
$2,000,000. The sale resulted in an approximate $3,200,000 pretax gain.
Note E. Tax Credits
During the third quarter of 1996, the Company recorded one-time federal
research and development and state new jobs tax credits totaling approximately
$2.1 million, or $0.07 per share. These tax credits were for eligible
business events occurring in fiscal years prior to 1996.
Note F. Net Income per Common Share
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 128, "Earnings per Share." The
Statement requires the current primary earnings6, 1998. All reported
net income per share calculationand share outstanding amounts have been
adjusted to be
replaced with a new basic earnings per share calculation. The Statement will
become effective for public companies for financial statements issued after
December 15, 1997, and early adoption is not permitted. Management estimatesretroactively reflect the impact of adopting FAS 128 will have no effect on the calculation of the
Company's reported year-end 1997 earnings per share given its current capital
structure of common stock and no potentially dilutive securities.split.
Note G.D. Business Combinations
The Company acquired AllsteelAladdin Steel Products Inc. on June 17, 1997.February 20,
1998. The transaction has been accounted for under the purchase
method. The cash purchase price of AllsteelAladdin was $66.0$10.4 million
which has been preliminarily allocated as follows:
(In thousands)millions)
Working capital, other than cash $29.4$1.8
Property, plant, and equipment 38.41.8
Goodwill 6.1
Other liabilities (7.9)
Further information regarding the transaction is set forth in the Company's
Form 8-K, filed June 30, 1997.6.8
Page 7 of 17
Assuming the acquisition of Heat-N-Glo FireplaceAllsteel Inc., Bevis Custom Furniture
Inc., Panel Concepts Inc., and Aladdin Steel Products Inc. and Allsteel Inc. had
occurred on December 31, 1995,29, 1996, the beginning of the Company's
19961997 fiscal year, instead of on October 2, 1996, and June 17, 1997, November 13, 1997,
December 1, 1997, and February 20, 1998, when they actually
occurred, the Company's pro forma consolidated net sales for the
thirdfirst quarter ended September 28, 1996,April 4, 1998, would have been approximately
$321.1$419.4 million instead of the reported $255.3 million. Pro forma consolidated net
sales for the nine months$418.3 million, and first
quarter ended October 4,March 29, 1997, and September 28, 1996, would have been approximately
$1,037.2 million and $883.1$341.5 million instead of the reported $970.8 million and $708.0 million respectively.$282.9 million. Pro forma
consolidated net income and net income per share for the third quarter and
first nine months of 1996 and 1997both
quarters would not have been materially different from the
reported amounts.
Note H.E. New Accounting Standards
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 130, Reporting Comprehensive Income, as of January 4,
1998, the beginning of its 1998 fiscal year; SFAS No. 128,
Earnings Per Share; and SFAS No. 129, Disclosure of Information
about Capital Structure, as of January 3, 1998, year-end 1997.
Their adoption had no material effect on financial condition or
results of operations.
Note F. Reclassifications
Certain prior year information has been reclassified to conform
to the current year presentation.
Note G. Business Segment Information
As a resultThe Company adopted Statement of Financial Accounting Standards
(SFAS) No. 131, Disclosures about Segments of an Enterprise and
Related Information, effective with its 1998 fiscal year
beginning January 4, 1998. Management views the Company's October 1996 acquisition of Heat-N-Glo Fireplace
Products, Inc., it hasCompany as being
in two reportable core business segments: office furniture and hearth products. However,products
with the manufacture and marketing of office
furniture continues to beformer being the Company's principal business segment.
The office furniture segment manufactures and markets a broad
line of metal and wood commercial and home office furniture which
includes file cabinets, desks, credenzas, chairs, storage
cabinets, tables, bookcases, freestanding office partitions and
panel systems, and other related products. The hearth products
segment manufactures and markets a broad line of manufactured
gas-, 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. IdentifiableThese unallocated corporate expenses include the net
Page 8 of 17
costs of the Company's corporate operations, interest income, and
interest expense. Management views interest income and expense
as corporate financing costs and not as a business segment cost.
In addition, management applies one effective income 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 by
segmentis disclosed inasmuch as the Company's
primary market and capital investments are those assets applicable toconcentrated in the
respective industry segments.
Corporate assets consist principally of cash and cash equivalents, short-term
investments, and corporate office real estate and related equipment.United States.
Reportable segment data reconciled to the consolidated financial
statements for the three month and nine month period ended OctoberApril 4, 1997,1998, and
September
28, 1996,March 29, 1997, is as follows:
Three Months Ended
Nine Months Ended
Oct.Apr. 4, 1998 Mar. 29, 1997 Sept. 28, 1996 Oct. 4, 1997 Sept. 28, 1996
Net Sales:sales:
Office furniture $334,159 $233,192 $818,522 $650,209$366,836 $239,638
Hearth products 57,189 22,062 152,252 57,782
$391,348 $255,254 $970,774 $707,99151,427 43,221
$418,263 $282,859
Operating profit:
Office furniture $ 43,02836,663 $ 26,771 $101,572 $ 71,71328,548
Hearth products 8,066 3,721 16,724 6,9462,931 2,054
Total operating profit 51,094 30,492 118,296 78,65939,594 30,602
Unallocated corporate expense (10,743) (5,155) (20,721) (7,098)expenses (3,637) (3,532)
Income before income taxes $ 40,35135,957 $ 25,337 $ 97,575 $ 71,56127,070
Identifiable assets:
Office furniture $473,453 $328,759$591,18 $340,176
Hearth products 138,553 28,765145,917 124,440
General corporate 59,798 84,083
$671,804 $441,60741,374 42,871
$778,409 $507,487
Depreciation & amortization
expense:
Office furniture $ 8,0469,650 $ 5,263 $ 19,365 $ 15,2455,466
Hearth products 1,859 482 4,938 1,2181,942 1,632
General corporate 345 323 1,031 997319 341
$ 10,25011,911 $ 6,068 $ 25,334 $ 17,4607,439
Capital expenditures, net:
Office furniture $ 19,07635,694 $ 12,276 $ 45,742 $ 32,48914,036
Hearth products 3,232 1,267 10,491 2,7874,526 4,211
General corporate 368 299 665 (506)(153) 165
$ 22,67640,067 $ 13,842 $ 56,898 $ 34,77018,412
Page 9 of 17
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
A summary of the period-to-period changes in the principal items
included in the Condensed Consolidated Statements of Income is
shown below:
Comparison of
(Unaudited)
Increases (Decreases) Three Months Ended Nine Months Ended Three Months Ended
Dollars in Thousands OctoberApril 4, 1998 & April 4, 1998 &
March 29, 1997 & October 4, 1997 & October 4, 1997 &
September 28, 1996 September 28, 1996 June 28, 1997January 3, 1998
Net sales $136,094 53.3% $262,783 37.1% $94,781 32.0%$135,404 47.9% $26,324 6.7%
Cost of products sold 91,744 52.0 176,674 36.3 67,178 33.497,377 50.1 21,724 8.1
Selling & administrative
expenses 27,036 50.4 52,439 34.3 16,338 25.4
Gain on sale of
subsidiary - - (3,200) (100.0) - -28,110 46.5 9,563 12.1
Interest income (205) (25.4) (853) (37.0) 160 36.324 5.8 (260) (37.4)
Interest expense 2,095 293.0 3,603 153.8 1,228 77.61,054 67.9 373 16.7
Income taxes 7,702 103.7 12,058 49.2 3,825 33.83,332 32.8 (2,098) (13.5)
Net income 7,312 40.8 13,956 29.7 6,372 33.85,555 32.8 (3,498) (13.5)
All per share information in this report reflects a two-for-one
stock split effective March 27, 1998.
The Company reported record thirdfirst quarter sales and earnings for
its fiscal quarter ended OctoberApril 4, 1997.1998, representing the highest
net sales for any quarter in the company's history. This wasis the
seventhninth consecutive quarter of record results. These results coupled with record first and second quarter
results, makes January through September 1997 the best first nine-month period
in the Company's history.from operations.
Consolidated net sales for the thirdfirst quarter ending OctoberApril 4,
1997,1998, were $391.3$418.3 million, a 53%48% increase from the $255.3$282.9 million
in the thirdfirst quarter of 1996.1997. Net income was $25.2$22.5 million, or
$0.85$0.36 per share, an increase of 41%,29% for the thirdfirst quarter of
1997,1998, compared to $17.9$16.9 million, or $0.60$0.28 per share for the year-agoyear-
ago period. Net income for 1996 includes a one-time income tax
creditThis sales increase is the result of $2.1 million, or $0.07 per share. Adjusting for this 1996
nonoperating event, net incomeoffering
compelling value products, pursuing aggressive marketing
programs, and net income per share for the third quarter
1997 from operations, on a comparative basis, increased 60% over the prior
year quarter.offering new product features often at no
additional cost to customers, although at some sacrifice of gross
margin.
For the nine months ended October 4, 1997, consolidated net sales were $970.8
million, up 37% from $708.0 million for the year-ago period. Net income for
the nine months of 1997 was $61.0 million, or $2.05 per share, an increase of
30%, compared to $47.0 million, or $1.56 per share for the comparable period
in 1996. Last year's net income results were favorably impacted by a $2.0
million gain on the sale of a subsidiary as well as the income tax credit
previously mentioned. Disregarding these two nonoperating events, comparative
net income from operations for the current year increased 36% and net income
per share rose 38%.
Results of operations for both the quarter and the nine-
month periods include one extra week of business activity compared to the prior
year periods. This extra week occurs every five or six years as a result of
the leap year effect on the Company's fiscal year calendar. The additional
week in the quarter accounted for 8% of the increases. Although record results
would have been achieved without the extra week of business--the extra week
further enhanced the results.
For the thirdfirst quarter of 1997,1998, office furniture comprised 85%88% of
consolidated net sales and hearth products 15%12%. Net sales for
office furniture were up 43%53% for the quarter compared to the same
quarter a year ago. OnProforma first quarter 1998 net sales of
office furniture, excluding 1997-98 acquisitions of Allsteel,
Bevis, and Panel Concepts, increased 34% over first quarter 1997.
Hearth products sales increased 19% for the quarter compared to
the same quarter a proforma basis,year ago. Proforma first quarter 1998 hearth
products sales, excluding sales from the February 1998 acquisition of
Allsteel from 1997 quarterly results,
office furniture sales increased 25% for the quarter. Hearth product sales
increased 159%Aladdin Steel Products Inc., due primarily to contributions from the Heat-N-Glo division of
Hearth Technologies Inc. acquired in October 1996. On a proforma basis,
including Heat-N-Glo operations in the Company's quarterly prior year results,
hearth product sales increased 16% for the quarter.
Office furniture contributed 84%93% of first quarter 1998
Page 10 of 17
consolidated operating profit before unallocated corporate
expenses and hearth products 16% as defined by7%. The first quarter of the prevailing Financial
Accounting Standards Board Statements for segment reporting.
Forfiscal
year is historically the nine months ended October 4, 1997, office furniture comprised 84% of
consolidated netweakest sales and earnings quarter for
the hearth products 16%. Office furniture contributed
86% of consolidated operating profit before unallocated corporate expenses and
hearth products 14%. Please refer to Note G. Business Combinations and Note
H. Business Segment Information in the "Notes to Condensed Consolidated
Financial Statements" for further related information.
The value-priced segment of the office furniture industry, where the Company
is the strongest, is showing strong growth. This provides the Company with a
solid foundation to continue growth. The hearth products industry, which is
linked to both home sales and home remodeling, is thriving. The Company with
its leadership position in this industry through its Heatilator and Heat-N-Glo
brand product is participating in this growth.segment.
The consolidated gross profit margin for the thirdfirst quarter of
19971998 was 31.5%30.3% compared to 30.9%31.3% for the same quarterperiod in 1996. On a nine-month basis,1997
which reflects several business factors. The Company continues
to improve margin levels of recently acquired businesses and
expects that margins will be in line with other core businesses
when integration is complete. The Company believes that its Rapid
Continuous Improvement Program will improve gross margins from
current levels by the margin was 31.7% for 1997 versus 31.3% for 1996. Margin improvements are
being primarily driven by improved productivity and effective cost control
efforts.end of 1998.
Selling and administrative expenses for the thirdfirst quarter of 19971998
were 20.6%21.2% of net sales compared to 21.0%21.4% in the comparable
quarter of 1996. On a
nine-month basis, they were 21.2% in 1997 versus 21.6% in 1996.1997. Management places major emphasis on controlling
and reducing selling and administrative expenses as a percent of
net sales. Selling and administrative expenses also include
freight and distribution expenses incurred to get the product to
the customer.
Liquidity and Capital Resources
As of OctoberApril 4, 1997,1998, cash and short-term investments decreased to
$19.5$11.0 million compared to a $32.7$46.3 million balance at year-end
1996.1997. The decrease is principally due to a note payable paymentmarketing program payments, capital
expenditures, and capital expenditures.
The October 4, 1997, balances for receivables and accounts payable and accrued
expenses reflect the Company's increased level of business and the inclusion
of Allsteel. During fiscal year 1997 to date, the Company has borrowed $100.0
million against its long-term revolving bank credit agreement, used $66.0
million for the purchase of Allsteel, and applied the balance against long-term
debt incurred to pay for an earlier acquisition.acquisition spending.
Net capital expenditures for the first nine monthsquarter of 19971998 were $56.9$40.1
million and primarily represent investment for new machinery and
equipment and warehouse and production facility expansion to
increase capacity and to facilitate more efficient and productive
operations. Approximately 700,000 square feet of facility
expansion is currently in various stages of construction. These
investments were funded by a combination of cash reserves, and cash
from operations.operations and a revolving credit agreement.
As referenced earlier, on February 20, 1998, the Company
completed an acquisition of the assets of Aladdin Steel Products
Inc., located in Colville, Washington. Aladdin is a manufacturer
of wood-, pellet- and gas-burning stoves and inserts under the
Quadra-Fire brand name with annual sales of approximately $16
million. A $0.14new division, Aladdin Hearth Products, has been
formed under the Hearth Technologies operating company to
manufacture and distribute the Company's Quadra-Fire, Arrow and
Dovre brand stoves.
Page 11 of 17
The Board of Directors approved a 14.3% increase in the common
stock quarterly dividend from $.07 per share quarterlyto $.08 per share.
The dividend on common stock was paid on August 29,
1997,February 28, 1998 to shareholders of
record on August 21, 1997.February 23, 1998. This was the 170th172nd consecutive
quarterly dividend paid by the Company.
The Company has been using cashBoard of Directors also declared a two-for-one stock split in
the form of a 100 percent stock dividend paid on March 27, 1998,
to repurchase itsshareholders of record on March 6, 1998. Shareholders
received one share of common stock.stock for each share held on the
record date.
In the thirdfirst quarter, the Company repurchased 21,22630,795 post-split
shares of its common stock at a cost of approximately $1.2$.9 million
or an average price of $54.75 per share. For
the nine months of fiscal year 1997, 84,874 shares were acquired at a cost of
approximately $3.7 million or an average price of $43.76$30.24 per share. As of OctoberApril 4, 1997,1998,
approximately $5.0$3.7 million of the Board's current repurchase
authorization remained unspent.
On June 17, 1997,The Company is continuing to assess and address its various Year
2000 information technology compliance issues. Based on the
assessment effort to date, the Company acquired Allsteel Inc. from BTR plc. Allsteelcontinues to believe that
any required maintenance or modification costs will be expensed
as incurred and will not be material to its business, operations,
or financial condition. Any replacement software required will
be capitalized and amortized over the software's useful life.
On May 11, 1998, the Board of Directors declared an $.08 per
common share cash dividend to shareholders of record on May 21,
1998, to be paid on June 1, 1998. The Board also passed a
resolution to appoint Harris Trust and Savings Bank, Chicago,
Illinois, as the Company's transfer agent and registrar of its
common stock. The transition to Harris will occur over the next
six to eight weeks. This function previously had been performed
in-house by the Company. In addition, the Company announced it
has completed the clearance process and is a manufacturer and marketer of mid-priced office furniture, which operates
modern manufacturing facilities located in West Hazelton, Pennsylvania,
Jackson and Milan, Tennessee, and Tupelo, Mississippi. It had 1996 sales of
approximately $150 million. This acquisition operates as part offiling an application
to list its common stock on the New York Stock Exchange (NYSE).
The HON
Company, and itCompany's shares will continue to manufacturebe traded on the NASDAQ
National Market System until it becomes listed on the NYSE under
the symbol HNI, which is anticipated to be in early July 1998.
Looking Ahead
Management's goal is to achieve double-digit growth in sales and
sell a separate line of
Allsteel office furniture products.
On September 26, 1997,earnings for 1998. This will be achieved by continually
improving the Company filed withcost structure, introducing new value-priced
products, and providing the Securities and Exchange
Commission a Registration Statement for a primary offering of 1,000,000 shares
of its common stock and a secondary offering by Bandag, Incorporated of
2,395,000 shares of the Company's stock. On October 23, 1997, the public
offering was priced at $52.00 per share. The offering closed on October 29,
1997. The Company granted the underwriters an option to purchase 509,250
additional shares at the same price to cover over-allotments, if any, of which
150,000 shares have been purchased to-date.
The Company expects to use the net proceeds of approximately $57.4 million
from the 1,150,000 shares for general corporate purposes, including the
repayment of indebtedness incurred to finance recent acquisitions. The
Company did not receive any of the proceeds of shares sold by the selling
shareholder. The secondary offering by Bandag, Incorporated, eliminated its
ownership interestbest customer service in the Company.
Looking Aheadtwo
industries.
Page 12 of 17
Except for the historical information contained herein, the
matters discussed in this Form 10-Q are forward-looking
statements. Such forward-looking statements involve risks and
uncertainties which could cause actual results or outcomes to
differ materially from those discussed in the forward-looking
statements. The following are some of the important factors that could cause
actual results or outcomes to differ materially from those discussed in the
forward-looking statements:statements including: competitive conditions, pricing trends in
the office furniture and hearth products markets, acceptance of
the Company's new product introductions, the overall growth rate
of the office furniture and hearth products industries, the
achievement of cost reductions and productivity in the Company's
operations, the Company's ability to improve margins of acquired
businesses, impact of future acquisitions, as well as the risks,
uncertainties, and other factors described from time to time in
the Company's SEC filings and reports.
Subsequent Events
On October 7, 1997, Page 13 of 17
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of HON INDUSTRIES Inc. was
held on May 12 1998, for purposes of electing four Directors to
the Company announced it had signed a purchase agreementBoard of Directors, and to acquire substantially allamend the Articles of
Incorporation to increase the assets and operations of BEVIS Custom
Furniture, Inc., a wholly owned subsidiary of Hunt Manufacturing Co. located
in Florence, Alabama. BEVIS designs, manufactures and markets a broad line of
commercial, high-quality, mid-priced office furniture, panels, conference and
training room tables, computer furniture, folding tables, utility and
reception area tables, bookcases and seating. BEVIS had 1996 sales of
approximately $62 million. The transaction closed on November 13, 1997, for a
cash purchase price of approximately $46 million. Please refer to attached
Exhibit (99i) for a copyauthorized shares of the Company's
press release, dated Novembercommon stock from 100,000,000 to 200,000,000. As of March 13,
1997, announcing1998, the closingrecord date for the meeting, there were 30,826,307
shares of this acquisition.
On November 10, 1997,common stock issued and outstanding and entitled to
vote at the Company announced it has entered into an agreement
to acquire Panel Concepts, Inc.,meeting. The first proposal voted upon was the
election of four Directors for a subsidiaryterm of Standard Pacific Corp. Panel
Concepts, Inc., is a manufacturer of panel-based office systems, with 1997
sales estimated at approximately $21 million. It operates a manufacturing
facility in Santa Ana, California.three years and until
their successors are elected and shall qualify. The acquisition is expected to close in
early December 1997. The Company plans to finance the purchase with cash.
On November 11, 1997,four persons
nominated by the Company's Board of Directors declared a regular
quarterly dividendreceived the
following votes and were elected:
For Withheld Against
W. August Hillenbrand 26,895,244 216,034 1,806
or 87% or 1% or 0%
Jack D. Michaels 26,888,931 219,054 2,949
or 87% or 1% or 0%
Moe S. Nozari 26,894,408 216,084 1,972
or 87% or 1% or 0%
Frank S. Ptak 26,894,408 215,229 1,550
or 87% or 1% or 0%
The second proposal voted upon was the approval of $0.14 per share on its common stock.the Amendment
of the Articles of Incorporation. The dividend will
be payable on November 28, 1997,proposal was approved with
26,645,291 votes, or 86%, voting for; 418,512 votes, or 1%,
voting against; and 49,770 votes, or 0%, voting withheld.
As to shareholders of record at the close of
business on November 20, 1997.
PART II. OTHER INFORMATIONboth proposals, there were 1,635,533 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are incorporated herein by reference:
Exhibits
(3i) Articles of Incorporation, as amended, incorporated by reference
toSee Exhibit (3)(a) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1988.
(3ii) By-Laws, as amended, incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form S-8 filed May 14,
1997.
(4i) Rights Agreement dated as of July 7, 1988, between the Company and
First Chicago Trust Company of New York, incorporated by reference
to Exhibit 1 to Registration Statement on Form 8-A filed July 12,
1988, as amended by amendment dated as of May 1, 1990,
incorporated by reference to Exhibit 1 to Amendment No. 1 to
Registration Statement on Form 8 filed May 29, 1990.
The following exhibits are filed pursuant to Item 601 of Regulation S-K:
Exhibit Page
(27) Financial Data Schedule 18
(99i) Press Release dated November 13, 1997 19Index.
(b) Reports on Form 8-K. The Company filed a current reportNo reports on Form 8-K dated June 30, 1997, tohave been
filed during the quarter for which this report the acquisitionis filed.
Page 14 of Allsteel Inc. on June 17 1997.
The Company filed a current report on Form 8-K dated October 8, 1997, to
report the signing of a purchase agreement to acquire BEVIS Custom
Furniture, Inc.
The Company filed a current report on Form 8-K dated October 22, 1997, to
report its third quarter 1997 earnings.
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.
HON INDUSTRIES Inc.
Dated: November 14, 1997May 19, 1998 By /s/ David C. Stuebe
___________________
David C. Stuebe
Vice President and
Chief Financial Officer
By /s/ Melvin L. McMains
_____________________
Melvin L. McMains
Controller Page 15 of 17
PART II. EXHIBITS
EXHIBIT INDEX
Exhibits Page
(3i) Articles of Incorporation, as amended, incorporated
by reference to Exhibit (3)(a) to the Company's
Annual Report
on Form 10-K for the fiscal year ended December 31, 1988. -
(3ii)By-Laws, as amended, incorporated by reference to Exhibit 4.2
to the Company's Registration Statement on Form S-8 filed
May 14, 1997. -
(4i) Rights Agreement dated as of July 7, 1988, between the
Company and First Chicago Trust Company of New York,
incorporated by reference to Exhibit 1 to Registration
Statement on Form 8-A filed July 12, 1988, as amended by
amendment dated as of May 1, 1990, incorporated by reference
to Exhibit 1 to Amendment No. 1 to Registration Statement on
Form 8 filed May 29, 1990. -
(27) Financial Data Schedule 18
(99i)Press Release 1917
Page 16 of 17