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 April 2, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-2648
HON INDUSTRIES Inc.
An Iowa Corporation IRS Employer No. 42-0617510
414 East Third Street
P.O. Box 1109
Muscatine, Iowa 52761-7109
(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 and 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.
Common Stock, $1 Par Value -- 31,433,806 shares as of April 2, 1994
HON INDUSTRIES Inc. and SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Balance Sheets --
April 2, 1994, and January 1, 1994 3-4
Condensed Consolidated Statements of Income --
Three Months Ended April 2, 1994, and April 3, 1993 5
Condensed Consolidated Statements of Cash Flows --
Three Months Ended April 2, 1994, and April 3, 1993 6
Notes to Condensed Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 2,
1994 January 1,
ASSETS (Unaudited) 1994
(In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 20,582 $ 32,778
Short-term investments 15,682 11,598
Receivables 73,392 83,650
Inventories (Note B) 39,405 38,630
Deferred income taxes 11,304 11,304
Prepaid expenses and
other current assets 8,529 10,459
Total Current Assets 168,894 188,419
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements 8,645 8,779
Buildings 82,087 81,409
Machinery and equipment 166,292 158,386
Construction in progress 17,005 18,085
274,029 266,659
Less accumulated depreciation 113,129 108,889
Net Property, Plant, and Equipment 160,900 157,770
OTHER ASSETS 6,198 6,216
Total Assets $335,992 $352,405
See accompanying notes to condensed consolidated financial statements.
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 2,
1994 January 1,
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) 1994
(In thousands)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 74,876 $ 97,205
Income taxes 12,775 6,936
Note payable and current maturities
of long-term debt obligations 6,610 6,618
Total Current Liabilities 94,261 110,759
LONG-TERM DEBT AND OTHER LIABILITIES 44,658 45,260
CAPITAL LEASE OBLIGATIONS 5,386 5,854
DEFERRED INCOME TAXES 10,979 10,979
SHAREHOLDERS' EQUITY
Capital Stock:
Preferred, $1 par value; authorized
1,000,000 shares; outstanding --
1994 - 0 shares; 1993 - 0 shares - -
Common, $1 par value; authorized
100,000,000 shares; outstanding --
1994 - 31,433,806 shares;
1993 - 31,675,846 Shares 31,434 31,676
Paid-in capital 326 281
Retained earnings 162,431 161,079
Receivable from HON Members Company
Ownership Plan (13,483) (13,483)
Total Shareholders' Equity 180,708 179,553
Total Liabilities and
Shareholders' Equity $335,992 $352,405
See accompanying notes to condensed consolidated financial statements.
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
April 2, April 3,
1994 1993
(In thousands, except
per share data)
Net sales $200,693 $186,111
Cost of products sold 137,319 130,654
Gross Profit 63,374 55,457
Selling and administrative expenses 44,820 42,246
Operating Income 18,554 13,211
Interest income 541 677
Interest expense 637 1,081
Income Before Income Taxes 18,458 12,807
Income taxes 6,830 4,675
Income Before Cumulative Effect of
Accounting Change 11,628 8,132
Cumulative effect of accounting
change (Note C) (237) 489
Net Income $ 11,391 $ 8,621
Income per common share:
Income before cumulative effect of
accounting change $ .37 $.25
Cumulative effect of accounting
change (Note C) (.01) .02
Net Income $ .36 $.27
Average number of common shares
outstanding 31,517,001 32,356,506
Cash dividends per common share $.11 $.10
See accompanying notes to condensed consolidated financial statements.
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
April 2, April 3,
1994 1993
(In thousands)
Net Cash Flows From (To) Operating Activities:
Net income $ 11,391 $ 8,621
Noncash items included in net income:
Depreciation and amortization 4,599 4,067
Other postretirement and postemployment
benefits 701 -
Deferred income taxes - (1,662)
Cumulative effect of accounting
change (Note C) 237 (489)
Other - net 11 12
Net increase (decrease) in noncash operating
assets and liabilities (4,935) 10,836
(Decrease) in other liabilities (1,134) (336)
Net cash flows from operating activities 10,870 21,049
Net Cash Flows From (To) Investing Activities:
Capital expenditures - net (7,604) (7,645)
Short-term investments - net (4,084) (3,876)
Long-term investments - (1,900)
Other - net (91) (133)
Net cash flows (to) investing activities (11,779) (13,554)
Net Cash Flows From (To) Financing Activities:
Purchase of HON INDUSTRIES common stock (7,119) (1,283)
Payments of note and long-term debt (1,050) (1,016)
Proceeds from sale of HON INDUSTRIES common
stock to members 339 295
Dividends paid (3,457) (3,112)
Net cash flows (to) financing activities (11,287) (5,116)
Net increase (decrease) in cash and cash
equivalents (12,196) 2,379
Cash and cash equivalents at beginning
of period 32,778 40,069
Cash and cash equivalents at end of period $ 20,582 $ 42,448
See accompanying notes to condensed consolidated financial statements.
HON INDUSTRIES Inc. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
April 2, 1994
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 adjust-
ments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month
period ended April 2, 1994, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1994. For further informa-
tion, refer to the consolidated financial statements and footnotes included in
the Company's annual report on Form 10-K for the year ended January 1, 1994.
Note B. Inventories
Inventories of the Company and its subsidiaries are summarized as follows:
April 2, 1994
($000) (Unaudited) January 1, 1994
Finished products $12,495 $10,731
Materials and work in process 26,910 27,899
$39,405 $38,630
Note C. Employers' Accounting for Postemployment Benefits
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," in the first quarter of
1994. This Statement requires an accrual method of recognizing postemployment
benefits such as disability-related benefits. The cumulative effect at
January 2, 1994, of adopting Statement No. 112 reduced net income by $237,000,
net of tax, or $.01 per share. As a result of the accounting change, first
quarter postemployment benefit expense increased by $439,000. The ongoing
financial effect of the change is not expected to be material.
Note D. Accounting for Certain Investments in Debt and Equity Securities
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," in the
first quarter of 1994. This Statement requires that, except for debt
securities classified as "held-to-maturity securities," investments in debt
and equity securities should be reported at fair value. The effect of
adopting the new rules was not material to the Company's financial position or
results of operations.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and results of
operations during the periods included in the accompanying condensed consoli-
dated financial statements.
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) Three Months Ended Three Months Ended
Dollars in Thousands April 2, 1994 & April 2, 1994 &
April 3, 1993 January 1, 1994
Net sales $14,582 7.8% $(12,915) (6.0)%
Cost of products sold 6,665 5.1 (6,915) (4.8)
Selling & Administrative
expenses 2,574 6.1 1,943 4.5
Interest income (136) (20.1) (95) (14.9)
Interest expense (444) (41.1) (23) (3.5)
Income taxes 2,155 46.1 (2,965) (30.3)
Income before cumulative
effect of accounting
change 3,496 43.0 (5,050) (30.3)
Cumulative effect of
accounting change (726)(148.5) (237) (100.0)
Net income 2,770 32.1 (5,287) (31.7)
For the quarter ended April 2, 1994, consolidated net sales were $200.7 million
compared to $186.1 million in 1993, an increase of 7.8%. Net income, after
taking into account the cumulative effect of a new accounting standard for
postemployment benefits, was $11.4 million, a 32.1% increase over 1993, and net
income per share increased to $.36 per share, a 33.3% increase over the same
quarter a year ago.
Quarterly results were influenced by comparatively strong sales for most
Company products. Net sales were a record first quarter; however, they were
not as high as the previous third and fourth quarters. Quarterly profitabil-
ity benefited from continuing improvements in productivity and cost reductions,
new product introductions, and past organizational restructuring. Net income
and net income per share were both first quarter records as well.
The Company was required to adopt Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (FAS 112), and No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (FAS 115),
by January 2, 1994, the beginning of fiscal year 1994. The cumulative effect
of adoption of FAS 112 decreased net income by $237,000 ($.01 per share). The
impact of its adoption on future earnings or financial condition is not
significant. The financial effect of adopting FAS 115 was nominal.
The 8% increase in net sales for the quarter compared favorably with an
industrywide increase of 5% for January and February reported by office
furniture industry sources. Sales performance for Heatilator Inc., which
serves the home building products industry, also showed significant improvement
during the quarter.
The ongoing improvement in the Company's financial performance reflects the
progress achieved through a program of rapid continuous improvement in all
areas of activity. These first quarter results are encouraging and set the
stage for a good year. The office furniture industry is once again a growing
industry and this factor, coupled with continuing moderate inflation, is
expected to stimulate continued Company growth.
An operational change is in process that is expected to enhance the Company's
overall market leverage and penetration in the rapidly growing retail office
furniture channel. The Company s operating company, XLM Company, has become
part of The HON Company. It has operations in Mt. Pleasant, Iowa, and Avon,
New York. XLM Company was the Company's initial entry into the mass retail
market for filing products for the home and office. Subsequently, XLM Company
developed a family of commercial filing products to enhance its product
offering. Combining the retail and commercial products of XLM Company and The
HON Company and using The HON Company's broader-based distribution channels for
these products will provide an opportunity to increase market share and overall
company profitability.
In addition, several key organizational changes were announced. Robert J.
Kroon, Group Vice President, HON INDUSTRIES, will shift his total effort to
developing new office furniture products. Mr. Kroon previously served as
President of BPI Inc., Chandler Attwood Limited, and Holga Inc. in addition to
his HON INDUSTRIES executive role. Robert M. Ginn, formerly Vice President,
Marketing, HON INDUSTRIES, was appointed President, BPI Inc. Richard E.
Parker, formerly President of XLM Company, was appointed Vice President,
Marketing, HON INDUSTRIES. These operational and organizational changes
collectively mirror the Company's efforts to capitalize on ever-changing
marketing conditions to improve consolidated profitability and develop new
business growth opportunities for the future.
Cash and short-term investments as of April 2, 1994, were $36.3 million.
Capital investment in more productive assets continues on the same accelerated
pace as last year.
The Company is using a 37.0% estimated annual effective income tax rate for
fiscal year 1994, the same rate used for fiscal year 1993.
At its February meeting, the HON INDUSTRIES Board of Directors announced the
election of two new Directors to the Company's Board: Robert W. Cox and Lorne
R. Waxlax. Mr. Cox is a Partner with Baker & McKenzie, the world's largest
multinational law firm, headquartered in Chicago, Illinois. He started his
career with the firm in 1957. Currently he serves as Chairman of the Policy
Committee. Mr. Waxlax, until recently, served as Executive Vice President,
Diversified Group, of the Gillette Company. Gillette is a global manufacturer
and marketer of shaving and personal care products. He began his career with
Gillette in 1958. Both new Directors will stand for reelection at the
Company's May 10, 1994, Annual Shareholders' Meeting.
The Board also voted to increase the Company's quarterly dividend from $.10 to
$.11 per share of common stock. This dividend change was reflected in the
quarterly dividend paid on March 1, 1994, to shareholders of record on February
24, 1994.
Further, the Board voted to increase the authorized amount for repurchase of
HON INDUSTRIES common stock by another $20.0 million. The stock repurchase
program was initially authorized by the Board in 1985. The Company acquired
254,840 shares of its common stock on the open market during the quarter under
the program, at a cost of approximately $7.1 million. As of April 2, 1994,
approximately $23.0 million remained available of the authorized amount for
future repurchase of common stock.
On April 29, 1994, the Company received an Imminent or Substantial Endangerment
Order and Remedial Action Order ("Order") from the State of California
environmental authorities relating to a clean-up of hazardous substances at the
former Firestone Tire and Rubber Company ("Firestone") site in South Gate,
California (the "Site"). The order applies to the Company's plant property and
names the Company along with Firestone and other present and past owners of
properties contained within the Site. The Order specifically refers to the
former Firestone tire plant property (now owned and operated by Indian Wells
Inc.) as the primary source of the alleged hazardous wastes. Based on
information available to the Company, it is not believed that the Company
operations at the Site or its current plant site has generated any of the
alleged hazardous wastes or that this event will have a material impact on the
Company's financial position or results of operation.
At its May 9 meeting, the Board of Directors declared a common stock dividend
of $.11 per share, payable June 1 to shareholders of record on May 20, 1994.
At the Annual Shareholders' Meeting on May 10, Herman J. Schmidt was elected to
a one-year term on the Board; and Robert W. Cox, Stanley M. Howe, Lee Liu, and
Lorne R. Waxlax were elected to three-year terms. Shareholders also approved
the HON INDUSTRIES Inc. 1994 Members' Stock Purchase Plan proposal.
For 1993, the Company once again achieved the distinction of being listed as a
member of the Fortune 500 Largest U.S. Industrial Corporations. On the basis
of sales, which is the sole criteria for being listed, the Company ranked 414
compared to 436 for 1992. More importantly, on the basis of profits, it ranked
246; profits as a percent of sales, 131; profits as a percent of assets, 30;
profits as a percent of shareholders' equity, 33; and earnings per share annual
growth rate, 1983-93, 58. The Company was also listed on Fortune magazine's
list of "Most Admired Companies."
HON INDUSTRIES was in EDGAR phase-in Group CF-04, which was required to begin
submitting SEC filings electronically as of December 6, 1993. The Company's
first EDGAR filing was its 1994 definitive proxy statement and proxy form on
April 1, 1994. All subsequent SEC filings, including the filing of this
quarterly report on Form 10-Q, will be through the EDGAR system.
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 have been 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.
HON INDUSTRIES Inc.
Date: May 13, 1994 By R. Michael Derry
R. Michael Derry
Senior Vice President,
Administration
By Melvin L. McMains
Melvin L. McMains
Controller