UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
|
|
FORM 10-Q
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(MARK ONE)
| |
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 29, 2003
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OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ____________________ to ____________________
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Commission File Number 0-2648 |
HON INDUSTRIES Inc.
(Exact name of Registrant as specified in its charter) |
Iowa
(State or other jurisdiction of
incorporation or organization)
|
42-0617510
(I.R.S. Employer
Identification Number)
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P. O. Box 1109, 414 East Third Street
Muscatine, Iowa 52761-0071
(Address of principal executive offices)
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52761-0071
(Zip Code)
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Registrant's telephone number, including area code: 563/264-7400
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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
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Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
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Class
Common Shares, $1 Par Value
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Outstanding at March 29, 2003
58,162,313
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<Page>
HON INDUSTRIES Inc. and SUBSIDIARIES |
INDEX
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PART I. FINANCIAL INFORMATION
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| Page |
Item 1. Financial Statements (Unaudited) | |
Condensed Consolidated Balance Sheets
March 29, 2003, and December 28, 2002
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3-4
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Condensed Consolidated Statements of Income
Three Months Ended March 29, 2003, and March 30, 2002
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5
|
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 29, 2003, and March 30, 2002
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6
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Notes to Condensed Consolidated Financial Statements
|
7-12
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
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13-16
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Item 4. Controls and Procedures
|
16
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|
PART II. OTHER INFORMATION |
Item 6. Exhibits and Reports on Form 8-K
|
17
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SIGNATURES
|
18
|
EXHIBIT INDEX
|
19
|
(99.1) Certification of CEO and CFO Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 |
20
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CERTIFICATIONS
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21-22
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<Page>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS |
| | |
| March 29,
2003
(Unaudited) | December 28,
2002
|
ASSETS | (In thousands) |
CURRENT ASSETS | | |
Cash and cash equivalents
Short-term investments
Receivables
Inventories (Note C)
Deferred income taxes
Prepaid expenses and other current assets | $ 99,542
14,473
148,449
46,306
11,129
8,514 | $ 139,165
16,378
181,096
46,823
10,101
11,491 |
Total Current Assets | 328,413 | 405,054 |
| | |
PROPERTY, PLANT, AND EQUIPMENT, at cost | |
Land and land improvements
Buildings
Machinery and equipment
Construction in progress | 22,183
212,118
494,986
17,854 | 21,566
208,124
494,354
10,227 |
Less accumulated depreciation
| 747,141
394,737 | 734,271
381,001 |
| | |
Net Property, Plant, and Equipment | 352,404 | 353,270 |
| | |
GOODWILL | 192,395 | 192,395 |
| | |
OTHER ASSETS | 68,930 | 69,833 |
| | |
Total Assets | $ 942,142 | $ 1,020,552 |
| | |
See accompanying Notes to Condensed Consolidated Financial Statements.
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HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS |
| | |
| March 29,
2003
(Unaudited) | December 28,
2002
|
LIABILITIES AND SHAREHOLDERS' EQUITY | (In thousands) |
| | |
CURRENT LIABILITIES | | |
Accounts payable and accrued expenses
Income taxes
Note payable and current maturities of long-term
debt
Current maturities of other long-term obligations | $ 169,152
12,578
37,193
116 | $ 252,145
3,740
41,298
1,497 |
Total Current Liabilities | 219,039 | 298,680 |
| | |
LONG-TERM DEBT | 2,894 | 8,553 |
| | |
CAPITAL LEASE OBLIGATIONS | 1,259 | 1,284 |
| | |
OTHER LONG-TERM LIABILITIES | 29,835 | 28,028 |
| | |
DEFERRED INCOME TAXES | 39,345 | 37,114 |
| | |
SHAREHOLDERS' EQUITY | | |
Capital Stock:
Preferred, $1 par value, authorized
1,000,000 shares, no shares outstanding |
- -
|
- -
|
Common, $1 par value; authorized
200,000,000 shares, outstanding -
2003- 58,162,313 shares;
2002- 58,373,607 shares |
58,162
|
58,374
|
Paid-in capital
Retained earnings
Accumulated other comprehensive income | 526
590,820
262 | 549
587,731
239 |
Total Shareholders' Equity | 649,770 | 646,893 |
Total Liabilities and Shareholders' Equity | $ 942,142 | $ 1,020,552 |
| | | |
See accompanying Notes to Condensed Consolidated Financial Statements.
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HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) |
| Three Months Ended |
| March 29,
2003 | March 30,
2002 |
| (In thousands, except share
and per share data) |
Net Sales
Cost of products sold
Gross Profit
Selling and administrative expenses
Operating Income
Interest income
Interest expense
Income Before Income Taxes
Income taxes
Net Income | $ 391,971
252,841
139,130
114,426
24,704
821
1,086
24,439
8,554
$ 15,885 | $ 399,139
259,398
139,741
114,325
25,416
635
1,215
24,836
8,941
$ 15,895 |
Net income per common share | $0.27 | $0.27 |
Average number of common shares outstanding | 58,317,275 | 58,776,955 |
Cash dividends per common share | $0.13 | $0.125 |
| | |
See accompanying Notes to Condensed Consolidated Financial Statements.
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HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) |
| Three Months Ended |
| March 29,
2003 | March 30,
2002 |
| (In thousands) |
Net Cash Flows From (To) Operating Activities:
Net income
Noncash items included in net income:
Depreciation and amortization
Other postretirement and post employment
benefits
Deferred income taxes
Loss on sales, retirements and impairments of
property, plant and equipment
Stock issued to retirement plan
Other- net
Net increase (decrease) in noncash operating
assets and liabilities
Increase (decrease) in other liabilities
Net cash flows from (to) operating activities |
$ 15,885
16,282
545
1,203
1,331
4,679
202
(33,388)
1,171
7,910
|
$ 15,895
17,148
529
496
1,330
5,750
424
(40,437)
476
1,581
|
| | |
Net Cash Flows From (To) Investing Activities:
Capital expenditures
Proceeds from sale of property, plant and
equipment
Capitalized software
Additional purchase consideration
Short-term investments - net
Long-term investments - net
Other - net
Net cash flows form (to) investing activities |
(14,463)
96
(26)
(5,710)
1,905
(1,658)
-
(19,856)
|
(5,266)
- -
(22)
- -
- -
1,910
311
(3,067)
|
| | |
Net Cash Flows From (To) Financing Activities:
Purchase of HON INDUSTRIES common stock
Payments of note and long-term debt
Proceeds from sales of HON INDUSTRIES common stock to members
Dividends paid
Net cash flows from (to) financing activities |
(10,825)
(9,789)
549
(7,612)
(27,677)
|
- -
(903)
500
(7,360)
(7,763)
|
| | |
Net increase (decrease) in cash and
cash equivalents
Cash and cash equivalents at beginning of period |
(39,623)
139,165
|
(9,249)
78,838
|
Cash and cash equivalents at end of period | $ 99,542 | $ 69,589 |
See accompanying Notes to Condensed Consolidated Financial Statements.
<Page>
HON INDUSTRIES Inc. and SUBSIDIARIES
NOTES OF CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 29, 2003
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 three-month period ended March 29, 2003 are not necessarily indicative of the results that may be expected for the year ending January 3, 2004. 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, 2002.
Note B. Summary of Significant Accounting Policies
Stock based compensation - The Company accounts for its stock option plan using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which results in no charge to earnings when options are issued at fair market value. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," to stock-based employee compensation.
| Three Months Ended |
(in thousands) | Mar. 29,
2003 | Mar. 30,
2002 |
Net income, as reported | $ 15,885 | $ 15,895 |
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects |
(572)
|
(513)
|
Pro forma net income | $ 15,313 | $ 15,382 |
Earnings per share:
Basic - as reported
Basic - pro forma
Diluted - as reported
Diluted - pro forma |
$ 0.27
$ 0.26
$ 0.27
$ 0.26
|
$ 0.27
$ 0.26
$ 0.27
$ 0.26
|
Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation.
<Page>
Note C. Inventories |
|
Inventories of the Company and its subsidiaries are summarized as follows: |
|
($000)
| March 29, 2003
(Unaudited) | | December 28,
2002 |
Finished products
Materials and work in process
LIFO allowance | $ 31,646
24,915
(10,255) | | $ 30,747
26,266
(10,190) |
| | | $ 46,306 | | $ 46,823 |
Note D. Comprehensive Income
The Company's comprehensive income in 2003 consisted of unrealized holding gains or losses 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 E. Earnings Per Share
The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share (EPS): |
| | Three Months Ended |
| | March 29,
2003 | March 30,
2002 |
Numerators:
Numerators for both basic and diluted EPS net income
(in millions) |
$ 15,885
|
$ 15,895
|
Denominators:
Denominator for basic EPS
weighted-average common
shares outstanding |
58,317,275
|
58,776,955
|
Potentially dilutive shares from stock option plans |
264,256
|
247,208
|
Denominator for diluted EPS | 58,581,531 | 59,024,163 |
<Page>
Certain exercisable and non-exercisable stock options were not included in the computation of diluted EPS at March 29, 2003 and March 30, 2002, because the option prices were greater than the average market prices for the applicable periods. The number of stock options outstanding, which met this criterion for the three months ended March 29, 2003, was 30,000 with a range of per share exercise prices of $28.25 - $32.22. The number of stock options outstanding, which met this criterion for the three months ended March 28, 2002, was 20,000 with a per share exercise price of $32.22. There was no difference between EPS on a basic and diluted basis for the periods presented. |
Note F. Restructuring Reserve
The Company has a balance in a restructuring reserve of $2.0 million primarily for facility termination costs related to the shutdown of an office furniture facility in Jackson, Tennessee, which occurred in 2002. Cash payments of approximately $190,000 were made during the quarter ending March 29, 2003.
Note G. Asset Impairment
The Company recorded an asset impairment on a facility held-for-sale of $1.1 million during the quarter ended March 29, 2003. The Company entered into a purchase agreement on this facility in March of 2003 and the closing is planned for the second quarter of 2003.
Note H. Goodwill and Other Intangible Assets
The table below summarizes amortizable definite-lived intangible assets as of March 29, 2003 and December 28, 2002, which are reflected in Other Assets in the Company's condensed consolidated balance sheets:
(in thousands)
| March 29,
2003 | December 28,
2002 |
Patents
License agreements and other
Less: accumulated amortization | $ 16,450
26,076
(14,653) | $ 16,450
26,076
(13,980) |
| $ 27,873 | $ 28,546 |
<Page>
Aggregate amortization expense for the three-months ended March 29, 2003 and March 30, 2002 was $673,000 and $673,000, respectively.
The Company also owns a trademark with a net carrying amount of $8.1 million. The trademark is deemed to have an indefinite useful life because it is expected to generate cash flows indefinitely.
The following table shows the carrying amount of goodwill by reporting segment:
| Office
Furniture | Hearth
Products |
Total
|
Goodwill balance | $43,611 | $148,784 | $192,395 |
There was no change in goodwill during the current quarter.
Note I. Product Warranties
The company issues certain warranty policies on its furniture and hearth products that provide for repair or replacement of any covered product or component that fails during normal use because of a defect in design, or workmanship.
A warranty reserve is determined by recording a specific reserve for known warranty issues and an additional reserve for unknown claims that are expected to be incurred based on historical claims experience. Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. Activity associated with warranty obligations was as follows during the period:
(in thousands) | |
Balance, December 29, 2002
Accruals for warranties issued during the period
Accrual related to pre-existing warranties
Settlements made during the period | $ 8,405
1,210
108
(1,317) |
Balance, March 29, 2003 | $ 8,406 |
Note J. Commitments & Contingencies
The Company utilizes letters of credit in the amount of $21 million to back certain financing instruments, insurance policies and payment obligations. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined.
The Company is contingently liable for future minimum payments totaling $13.3 million under a transportation service contract. The Company is also contingently liable for $200,000 of financing arrangements with certain customers, which are deemed to be immaterial.
<Page>
The Company has contingent liabilities which have arisen in the course of its business, including pending litigation, preferential payment claims in customer bankruptcies, environmental remediation, taxes and other claims. The Company currently has one preferential payment claim outstanding totaling approximately $7.6 million. The Company intends to vigorously contest this claim and has recorded its best estimate within the range of the likely exposure. It is management's opinion, after consultation with legal counsel, that additional liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Company's financial condition, although such matters could have a material effect on its quarterly or annual operating results and cash flows when resolved in a future period.
Note K. Related Party Transaction
During the current period the Company purchased a hearth products office and production facility located in Lake City, Minnesota, for $3.6 million from R & D Properties of Savage L.L.P. ("R & D Properties"). A significant portion of R & D Properties was owned by trusts for the benefit of members of the family of Daniel Shimek. Mr. Shimek is an officer of the Company. The property was previously leased from R & D Properties and disclosed in the Company's previous filings. The purchase price of the property was determined by soliciting appraisals from independent commercial real estate appraisers.
Note L. New Accounting Standards
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement Obligations," on December 29, 2002, the beginning of its 2003 fiscal year. The adoption did not have an impact on the Company's financial statements.
The Company adopted the interim disclosure requirements of SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," for the first quarter of 2003.
The Company adopted the accounting requirements of Financial Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others," for guarantees issued or modified after December 31, 2002. The adoption did not have an impact on the Company's financial statements.
Note M. 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.
<Page>
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 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 period ended March 29, 2003, and March 30, 2002, is as follows:
| Three Months Ended |
(in thousands)
| March 29,
2003 | | March 30,
2002 |
Net Sales:
Office furniture
Hearth products |
$ 294,867
97,104
| |
$ 300,221
98,918
|
| $ 391,971 | | $ 399,139 |
Operating Profit:
Office furniture
Hearth products
Total operating profit
Unallocated corporate expense
Income before income taxes |
$ 25,193
5,814
31,007
(6,568)
$ 24,439
| |
$ 24,248
6,505
30,753
(5,917)
$ 24,836
|
| | | |
Depreciation & Amortization Expense:
Office furniture
Hearth products
General corporate |
$ 11,493
3,646
1,143
$ 16,282
| |
$ 12,291
3,309
1,548
$ 17,148
|
| | | |
Capital Expenditures:
Office furniture
Hearth products
General corporate |
$ 4,553
6,521
3,389
$ 14,463
| |
$ 4,152
920
194
$ 5,266
|
| | | |
| As of
March 29, 2003 | | As of
March 30, 2002 |
Identifiable Assets:
Office furniture
Hearth products
General corporate |
$ 456,321
302,741
183,080
$ 942,142
| |
$ 512,194
308,734
114,381
$ 935,309
|
<Page>
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 |
Increases (Decreases)
Dollars in Thousands | Three Months Ended
March 29, 2003 &
March 30, 2002 | Three Months Ended
March 29, 2003 &
December 28, 2002 |
Net Sales | $ (7,168) | (1.8) | % | $ (55,939) | (12.5) | % |
Cost of products sold | (6,557) | (2.5) | | (37,812) | (13.0) | |
Selling & administrative expenses | 101 | 0.1 | | (744) | (0.6) | |
Interest income | 186 | 29.3 | | 128 | 18.5 | |
Interest expense | (129) | (10.6) | | 124 | 12.9 | |
Income taxes | (387) | (4.3) | | (5,095) | (37.3) | |
Net Income | (10) | (0.1) | | (12,284) | (43.6) | |
| | | | | | | |
Consolidated net sales for the first quarter ending March 29, 2003, were $392.0 million, a 1.8 percent decrease from the $399.1 million in the first quarter of 2002. Compared to the fourth quarter of 2002, net sales for the first quarter declined 12.5 percent. The decline from the fourth quarter is a reflection of our normal seasonality. Net income was $15.9 million and net income per share was $0.27 per diluted share, which was the same as first quarter 2002. The economy and markets continue to experience softness due to economic and political uncertainty.
For the first quarter of 2003 and 2002, office furniture comprised 75 percent of consolidated net sales and hearth products comprised 25 percent. Office furniture and hearth products sales were both down 1.8 percent. Office furniture contributed 81 percent of first quarter 2003 consolidated operating profit before unallocated corporate expenses.
The consolidated gross profit margin for the first quarter of 2003 increased to 35.5 percent compared to 35.0 percent for the same period in 2002. This increase is due to benefits from restructuring initiatives implemented over the past few years plus the Company's rapid continuous improvement program and the increased productivity from its member-owners.
Selling and administrative expenses for the quarter as a percent of net sales increased to 29.2 percent, compared with 28.6 percent in first quarter 2002. The increase is due to lower overall sales volume and charges totaling $4.0 million that consisted of increased freight surcharges, a reserve for a preferential payment claim and an additional impairment charge related to a facility that was closed in 2001. The Company entered into a purchase agreement on this facility in late March and the closing is planned for second quarter 2003. Included in 2002 selling and administrative expenses were $3.9 million of costs due to the shutdown of an office furniture facility in Jackson, Tennessee.
The Company's current effective tax rate is 35 percent compared to 36 percent in first quarter 2002 due to tax benefits associated with various federal and state tax credits. The Company currently expects the effective tax rate to remain at this level in 2003; however, the resolution of certain federal and state tax credits could further affect the rate.
<Page>
Liquidity and Capital Resources
As of March 29, 2003, cash and short-term investments decreased to $114.0 million compared to a $155.5 million at year-end 2002. As is typical, a large outflow of cash was required in the first quarter for the annual payment of marketing programs and the funding of the defined contribution retirement plan. The Company's trade receivables decreased from year-end due to decreased sales volume. Annualized inventory turns increased to 27.1 turns from 20.1 in the same quarter last year. 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 three months of 2003 were $14.5 million compared to $5.3 million in 2002 and included funding for the purchase of a previously leased hearth products plant, information system improvements, tooling and equipment for new products and productivity improvements. The Company's long-term debt decreased from year-end due to the retirement of $5.6 million of Industrial Development Revenue bonds. The Company paid off debentures including appreciation related to a previous acquisition, which represented additional purchase consideration.
On February 12, 2003, the Board approved a 4 percent increase in the common stock quarterly cash dividend from $0.125 per share to $0.13 per share. The dividend was paid on February 28, 2003, to shareholders of record on February 21, 2003. This was the 192nd consecutive quarterly dividend paid by the Company.
For the three months ended March 29, 2003, the Company repurchased 406,000 shares of its common stock at a cost of approximately $10.8 million. As of March 29, 2003, $52.0 million of the Board's current repurchase authorization remained unspent.
On May 5, 2003, the Board of Directors declared a $0.13 per common share cash dividend to shareholders of record on May 15, 2003, to be paid on May 30, 2003.
Critical Accounting Policies
The Company's critical accounting policies are outlined in its Form 10-K for fiscal year ended December 28, 2002. The following policies are also relevant to 2003.
The Company accounts for its stock option plan using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which results in no charge to earnings when options are issued at fair market value. The Company adopted the interim disclosure requirements of SFAS No. 148, "Accounting for Stock Based Compensation - Transition and Disclosure," for the quarter ended March 29, 2003.
The Company adopted the accounting requirements of Financial Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others," for guarantees issued or modified after December 31, 2002. The adoption did not have an impact on the Company's financial statements.
<Page>
Commitments and Contingencies
The Company utilizes letters of credit in the amount of $21 million to back certain financing instruments, insurance policies and payment obligations. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined.
The Company is contingently liable for future minimum payments totaling $13.3 million under a transportation service contract. The Company is also contingently liable for $200,000 of financing arrangements with certain customers, which are deemed to be immaterial.
The Company has contingent liabilities which have arisen in the course of its business, including pending litigation, preferential payment claims in customer bankruptcies, environmental remediation, taxes and other claims. The Company currently has one preferential payment claim outstanding totaling approximately $7.6 million. The Company intends to vigorously contest this claim and has recorded its best estimate within the range of the likely exposure. It is management's opinion, after consultation with legal counsel, that additional liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Company's financial condition, although such matters could have a material effect on its quarterly or annual operating results and cash flows when resolved in a future period.
Related Party Transactions
During the current period the Company purchased a hearth products office and production facility located in Lake City, Minnesota, for $3.6 million from R & D Properties of Savage L.L.P. (R & D Properties). A significant portion of R & D Properties was owned by trusts for the benefit of members of the family of Daniel Shimek. Mr. Shimek is an officer of the Company. The property was previously leased from R & D properties and disclosed in the Company's previous filings. The purchase price of the property was determined by soliciting appraisals from independent commercial real estate appraisers.
Looking Ahead
Management feels that the current economic and geopolitical uncertainty will continue to challenge growth and profitability during the second quarter. However, management believes that the Company will continue to outperform the industries in which it competes. The Company continues to implement its plan to increase long-term shareholder value by streamlining processes and operations, understanding and responding to end-users, building brand power, and reducing its cost structure.
Forward-Looking Statements
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 its cost containment and business simplification initiatives, to realize financial benefits from investments in new products, and to mitigate the effects of uncertain steel prices and supplies; lower than expected demand for the Company's products due to uncertain political and economic conditions; competitive pricing pressure from foreign and domestic competitors; and other factors described in the Company's annual and quarterly reports filed with the Securities and Exchange Comm ission on Forms 10-K and 10-Q.
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Item 4. Controls and Procedures
Under the supervision and with the participation of management, the chief executive officer and chief financial officer of the Company have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures within 90 days of the filing date of this quarterly report, and, based on their evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures are effective. There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Exhibits. See Exhibit Index.
(a) | Reports on Form 8-K. The Company filed a periodic report on Form 8-K dated February 13, 2003, to report that Stanley A. Askren had been elected by the Company's Board of Directors as President and appointed as a member of the Board of Directors of HON INDUSTRIES Inc. Reports |
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SIGNATURES
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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.
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Dated: May 8, 2003
| HON INDUSTRIES Inc.
By: /s/ Jerald K. Dittmer
Jerald K. Dittmer
Vice President and Chief Financial
Officer |
| |
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PART II. EXHIBITS
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EXHIBIT INDEX
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(99.1) | Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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(EXHIBIT 99.1)
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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In connection with the Quarterly Report on Form 10-Q of HON INDUSTRIES Inc. (the "Company") for the quarterly period ended March 29, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Jack D. Michaels, as Chairman and Chief Executive Officer of the Company, and Jerald K. Dittmer, as Vice President and Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Jack D. Michaels
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| Name: Jack D. Michaels
Title: Chairman and Chief
Executive Officer
Date: May 8, 2003
|
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/s/ Jerald K. Dittmer
|
| Name: Jerald K. Dittmer
Title: Vice President and Chief Financial
Officer
Date: May 8, 2003 |
|
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This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
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CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Sarbanes-Oxley Act Section 302
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I, Jack D. Michaels, Chairman and Chief Executive Officer of HON INDUSTRIES Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of HON INDUSTRIES Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; and
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly, during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors:
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this quarterly report whether there are significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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Date: May 8, 2003
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/s/ Jack D. Michaels
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| Name: Jack D. Michaels
Title: Chairman and Chief Executive Officer |
<Page>
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Sarbanes-Oxley Act Section 302
|
I, Jerald K. Dittmer, Vice President and Chief Financial Officer of HON INDUSTRIES Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of HON INDUSTRIES Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; and
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly, during the period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors:
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this quarterly report whether there are significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
|
Date: May 8, 2003
|
/s/ Jerald K. Dittmer
|
| Name: Jerald K. Dittmer
Title: Vice President and Chief Financial
Officer |
