MUSCATINE, Iowa (October 22, 2003) - HON INDUSTRIES Inc. (NYSE: HNI) announced today sales of
$500.1 million and net income of $34.4 million for the third quarter ending October 4, 2003.
Consolidated net sales for the third quarter increased 12.1 percent to $500.1 million, compared to $446.3
million for the same quarter last year. The increase is due in part to third quarter 2003 being a 14-week period
rather than the normal 13 weeks, an event that occurs once every six years due to the Company's 52/53-week
fiscal year. The extra week contributes approximately 8 percent of the increase. The strong performance of
the hearth products segment also contributed to the increase. Net income was $34.4 million compared to $27.2
million in the same period in 2002. Net income was $0.59 per diluted share compared to $0.46 for the same
quarter last year.
During the third quarter, the Company continued the process of closing two office furniture facilities and
consolidating production into other U.S. manufacturing locations. In connection with the shutdowns, the
Company recorded $9.0 million of pre-tax charges or $0.10 per diluted share during the third quarter. These
charges included $5.1 million of accelerated depreciation of machinery and equipment, which was recorded in
cost of sales, and $0.7 million for severance and $3.2 million of facility exit, production relocation, and other
costs, which were recorded as restructuring costs. The closedowns and consolidation will be completed prior to
the end of the year. The additional costs related to the shutdowns are expected to total $2.5 to $4.0 million in
the fourth quarter. This operational realignment is expected to reduce costs $13.0 to $14.0 million on an
annualized basis beginning in 2004 and result in improved service to customers with faster and better-
coordinated delivery and lead-time performance.
As a percent of sales, gross margins for the third quarter increased to 36.7 percent from 35.9 percent for the
same quarter last year. Included in gross margin for the third quarter of 2003 is $5.1 million of accelerated
depreciation of machinery and equipment related to the shutdown of two facilities reducing margins by
percentage points. "Benefits from our business simplification and cost-saving initiatives and the hard work
of our dedicated member-owners enabled us to improve our gross margins," said Jack Michaels, HON
INDUSTRIES Chairman and CEO.
Total selling and administrative expenses, including restructuring charges, for the quarter totaled $131.4
million compared to $117.3 million for the same quarter last year. Included in third quarter 2003 were
restructuring charges of $3.9 million related to the shutdown and relocation of production from two office
furniture facilities. Excluding the restructuring charges, selling and administrative expenses were up 8.7%
from the year earlier period primarily due to the extra week included in the current quarter.
For the first nine months of 2003, consolidated net sales increased 4.3% to $1.3 billion compared to $1.2 billion
in 2002. Gross margins year-to-date increased to 36.1 percent compared to 35.6 percent last year.
Included in 2003 gross margins was $6.7 million of accelerated depreciation which reduced margins 0.5
percentage points. Net income was $70.5 million or $1.21 per diluted share compared to $63.2 million or
$1.07 per diluted share in 2002. Included in the year-to-date results were net pre-tax restructuring charges and
accelerated depreciation of $12.8 million or $0.14 per diluted share in 2003 and net pre-tax restructuring
charges of $3.0 million or $0.03 per diluted share in 2002.
Cash flow from operations for the first nine months was $94.7 million compared to $103.2 million last year.
Capital expenditures increased from $16.8 million in 2002 to $32.1 million in 2003 which included funding for
the purchase of a previously leased hearth products plant, information system improvements, and tooling and
equipment for new products. The Company's cash position remains strong and totaled $168.5 million,
including $94.9 million of short-term investments, as of October 4, 2003. The Company repurchased 762,300
shares of its common stock at a price of approximately $21.5 million during the first nine months of 2003.
Office Furniture
For the quarter, sales for HON INDUSTRIES' office furniture segment were up 9.8% to $378.4 million from $344.5 million for the same quarter last year. The increase is largely due to third quarter 2003 being a 14-week period versus a normal 13-week period. Operating profit was $45.2 million compared to $42.1 million in 2002. Operating profit as
a percent of net sales decreased to 12.0 percent versus 12.2 percent in 2002. Included in 2003 are $9.0 million of
charges related to the shutdown of two office furniture facilities reducing operating margins by 2.3 percentage points. "While current year earnings will be negatively impacted by these shutdowns, future results will be positively
impacted once these consolidations are complete," stated Mr. Michaels. Net sales on a year-to-date basis increased
3.1% to $977.2 from $947.8 million in 2002 mainly due to the additional week. Operating profit as a percent of sales decreased to 10.0 percent compared to 10.4 percent in 2002. Included in 2003 are $12.8 million of charges related to
the shutdown of two office furniture facilities reducing operating margins by 1.3 percentage points. The Business and Institutional Furniture Manufacturer's Association (BIFMA) reported shipments down 7 percent for the first eight
months of 2003.
Hearth Products
Net sales for the hearth products segment increased 19.6 percent in the third quarter of 2003 to $121.7 million
compared to $101.8 million for the same quarter last year. Excluding the effects of the extra week in third
quarter 2003, net sales for the hearth products segment showed double-digit growth. This increase is
attributable to strong emphasis on aggressive profitable growth through its aligned sales force, strengthening alliances with key distributors and dealers, as well as focused new product introductions. Operating profit was $17.5 million compared to $11.7 million in 2002. Operating profit as a percent of net sales increased to 14.3 percent versus
1.5 percent for 2002. Improved profitability was primarily the result of an increase in sales volume and leveraging
of fixed costs, and increased sales through owned distribution channels. Net sales on a year-to-date basis increased
.4 percent to $321.7 million from $296.9 million and operating profit as a percent of net sales increased to
10.5 percent compared to 9.1 percent in 2002. "We are very pleased with the results of the hearth products segment," stated Stan Askren, HON INDUSTRIES President.
2003 Outlook
"The office furniture segment of our business continues to be challenging," stated Mr. Michaels, "therefore,
we are still cautious about the near-term outlook for this segment. The final quarter of 2003 appears positive
for our hearth segment based on strong recent orders for our retail brands and the expected continued solid
demand for new residential construction." As a result of the Company's 52/53-week year, an additional two
days of holidays fall in fourth quarter 2003 reducing the number of working days compared to the same quarter
in 2002.
Conference Call
HON INDUSTRIES will host a conference call on Thursday October 23, 2003, at 10:00 a.m. CDT to discuss
the third quarter fiscal 2003 results. To participate, call the conference call line at 888-273-9885. A replay of
the conference call will be available until Thursday, October 30, 2003. To access this replay, dial
800-475-6701, access code 699319. A line to the simultaneous web cast can be found on the Company's
website at www.honi.com.
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HON INDUSTRIES Inc. provides products and solutions for the home and workplace environments and is the second largest office furniture manufacturer in the United States. HON INDUSTRIES is also the nation's leading
manufacturer and marketer of gas- and wood-burning fireplaces. The Company's strong brands, including HON®, Allsteel®, Gunlocke®, Heatilator® and Heat-N-Glo®, have leading positions in their markets. HON INDUSTRIES is committed to maintaining its long-standing corporate values of integrity, financial soundness and a culture of service
and responsiveness. By doing so, the Company was recognized for the third consecutive year as one of the 400 Best
Big Companies in America by Forbes magazine in 2003, and as America's Most Admired Company in the furniture industry by Fortune magazine in 2003. HON INDUSTRIES' common stock is traded on the New York Stock
Exchange under the symbol HNI. More information can be found on the Company's website at www.honi.com. |
