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 July 1, 1995
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 -- 30,524,155 shares as of July 1, 1995
Exhibit Index is on page 13.
Page 1 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
July 1, 1995, and December 31, 1994 3-4
Condensed Consolidated Statements of Income --
Three Months Ended July 1, 1995, and July 2, 1994 5
Condensed Consolidated Statements of Income --
Six Months Ended July 1, 1995, and July 2, 1994 6
Condensed Consolidated Statements of Cash Flows --
Six Months Ended July 1, 1995, and July 2, 1994 7
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
EXHIBIT INDEX 13
(27) Financial Data Schedule 14
Page 2 of 14
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 1,
1995 December 31,
(Unaudited) 1994
ASSETS (In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 20,818 $ 27,659
Short-term investments 4,173 3,083
Receivables 89,486 94,269
Inventories (Note B) 42,242 43,259
Deferred income taxes 10,716 11,565
Prepaid expenses and other
current assets 10,455 8,975
Total Current Assets 177,890 188,810
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements 8,843 8,832
Buildings 85,304 84,801
Machinery and equipment 191,643 185,421
Construction in progress 32,606 17,915
318,396 296,969
Less accumulated depreciation 125,520 119,125
Net Property, Plant, and Equipment 192,876 177,844
OTHER ASSETS 5,593 5,914
Total Assets $376,359 $372,568
See accompanying notes to condensed consolidated financial statements.
Page 3 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 1,
1995 December 31,
(Unaudited) 1994
LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 98,115 $ 99,898
Income taxes 5,229 4,949
Note payable and current maturities
of long-term debt obligations 5,750 6,246
Total Current Liabilities 109,094 111,093
LONG-TERM DEBT AND OTHER LIABILITIES 44,630 46,080
CAPITAL LEASE OBLIGATIONS 8,240 8,661
DEFERRED INCOME TAXES 11,034 12,094
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 --
1995 - 30,524,155 shares;
1994 - 30,674,603 shares 30,524 30,675
Paid-in capital 483 434
Retained earnings 183,465 174,642
Receivable from HON Members Company
Ownership Plan (11,111) (11,111)
Total Shareholders' Equity 203,361 194,640
Total Liabilities and Shareholders'
Equity $376,359 $372,568
See accompanying notes to condensed consolidated financial statements.
Page 4 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
July 1, July 2,
1995 1994
(In thousands, except
per share data)
Net sales $206,604 $193,045
Cost of products sold 146,246 133,332
Gross Profit 60,358 59,713
Selling and administrative expenses 47,688 44,703
Operating Income 12,670 15,010
Interest income 587 402
Interest expense 891 775
Income Before Income Taxes 12,366 14,637
Income taxes 4,638 5,415
Net Income $ 7,728 $ 9,222
Net income per common share $ .25 $ .30
Average number of common shares
outstanding 30,542,565 31,327,160
Cash dividends per common share $ .12 $ .11
See accompanying notes to condensed consolidated financial statements.
Page 5 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended
July 1, July 2,
1995 1994
(In thousands, except
per share data)
Net sales $423,102 $393,738
Cost of products sold 293,802 270,651
Gross Profit 129,300 123,087
Selling and administrative expenses 96,253 89,523
Operating Income 33,047 33,564
Interest income 1,277 943
Interest expense 1,839 1,412
Income Before Income Taxes 32,485 33,095
Income taxes 12,182 12,245
Income Before Cumulative Effect of
Accounting Change 20,303 20,850
Cumulative effect of accounting
change (Note C) - (237)
Net Income $ 20,303 $ 20,613
Net income per common share:
Income before cumulative effect of
accounting change $ .66 $ .67
Cumulative effect of accounting
change (Note C) - (.01)
Net Income $ .66 $ .66
Average number of common shares
outstanding 30,593,396 31,422,081
Cash dividends per common share $ .24 $ .22
See accompanying notes to condensed consolidated financial statements.
Page 6 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
July 1, July 2,
1995 1994
(In thousands)
Net Cash Flows From (To) Operating Activities:
Net income $ 20,303 $ 20,613
Noncash items included in net income:
Depreciation and amortization 10,240 9,354
Other postretirement and postemployment
benefits 968 1,271
Deferred income taxes (210) 175
Cumulative effect of accounting
change (Note C) - 237
Other - net 21 23
Net increase (decrease) in noncash operating
assets and liabilities 2,814 (11,869)
Increase in other liabilities (1,607) (568)
Net cash flows from operating
activities 32,529 19,236
Net Cash Flows From (To) Investing Activities:
Capital expenditures - net (24,914) (16,643)
Short-term investments - net (1,090) 865
Long-term investments (1) (6)
Other - net (6) 21
Net cash flows (to) investing
activities (26,011) (15,763)
Net Cash Flows (To) Financing Activities:
Purchase of HON INDUSTRIES common stock (5,278) (12,705)
Payments of note and long-term debt (1,778) (1,832)
Proceeds from sales of HON INDUSTRIES
common stock to members 1,036 736
Dividends paid (7,339) (6,900)
Net cash flows (to) financing
activities (13,359) (20,701)
Net increase (decrease) in cash and
cash equivalents (6,841) (17,228)
Cash and cash equivalents at beginning
of period 27,659 32,778
Cash and cash equivalents at
end of period $ 20,818 $ 15,550
See accompanying notes to condensed consolidated financial statements.
Page 7 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
July 1, 1995
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 six-month
period ended July 1, 1995, are not necessarily indicative of the results that
may be expected for the year ending December 30, 1995. 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 31, 1994.
Note B. Inventories
Inventories of the Company and its subsidiaries are summarized as follows:
July 1, 1995
($000) (Unaudited) December 31, 1994
Finished products $13,098 $13,554
Materials and work in process 29,144 29,705
$42,242 $43,259
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.
Page 8 of 14
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
consolidated 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 Six Months Ended Three Months Ended
Dollars in Thousands July 1, 1995 & July 1, 1995 & July 1, 1995 &
July 2, 1994 July 2, 1994 April 1, 1995
Net sales $13,559 7.0% $29,364 7.5% $(9,894) (4.6)%
Cost of products sold 12,914 9.7 23,151 8.6 (1,310) (.9)
Selling & Administrative
expenses 2,985 6.7 6,730 7.5 (877) (1.8)
Interest income 185 46.0 334 35.4 (103) (14.9)
Interest expense 116 15.0 427 30.2 (57) (6.0)
Income taxes (777) (14.3) (63) (.5) (2,906) (38.5)
Income before cumulative
effect of accounting
change - - (547) (2.6) - -
Cumulative effect of
accounting change - - 237 200.0 - -
Net income (1,494) (16.2) (310) (1.5) (4,847) (38.5)
For the second quarter ended July 1, 1995, consolidated net sales were $206.6
million, a 7.0% increase from $193.0 million in the second quarter of 1994.
Net income was $7.7 million, or $0.25 per share, in the second quarter of 1995
compared to $9.2 million, or $0.30 per share, in the year-ago period. The
second quarter tends to be the Company's lowest sales quarter of the year due
to the seasonal trends of office products and fireplaces.
For the six months ended July 1, 1995, consolidated net sales were $423.1
million, up 7.5% from $393.7 million in the year-ago period. Net income for
the first half of 1995 was $20.3 million, or $0.66 per share, compared to
$20.6 million, or $0.66 per share last year.
Second quarter sales were directly impacted by unfavorable one-time inventory
adjustments by a few major customers in April and May and favorably by an
aggressive marketing strategy.
Inventory adjustments are believed to be a part of a widespread trend among
retailers this spring, as reported in the national media. While HON
INDUSTRIES management believes its customers, including office supply
superstores, had normal sales levels during the quarter, they reduced their
Page 9 of 14
orders from manufacturers on a one-time basis in order to permanently lower
inventory levels. The Company's close partnering relationship with customers
and its short production lead times not only allows but encourages customers
to operate with relatively lower inventory levels.
Management believes the inventory adjustment impact on the Company is a short-
term phenomenon, as evidenced by its strong performance in June. June 1995
was the best June in the history of HON INDUSTRIES in terms of sales and
profitability.
The Company also accelerated its rapid continuous improvement (RCI) program
and reduced discretionary expenditures during the quarter. The cost savings
from these initiatives are being passed on to customers in the form of lower
prices. In general terms, the Company chose to implement only selective
product price increases during the second quarter of 1995 and to either
maintain or lower 1994 prices for other products.
Cost of products sold and gross profit, as a percentage of net sales, were
adversely impacted in the second quarter compared to the prior year quarter.
The impact of less than expected net sales, the aggressive marketing strategy,
and unused production capacity all contributed to the decline. As sales
levels begin to increase for the balance of the year, management expects to
see a percentage improvement in both cost of products sold and gross profit
back to levels experienced in 1994.
Management's goal of leveraging its selling and administrative expenses was
also interrupted by the lower than planned sales level in the second quarter.
These expenses were held, on a six-month basis, to 22.7% of net sales for both
1995 and 1994 periods. This result was accomplished through the RCI program
and cost reduction actions.
Interest income and expense are both up for the quarter and the year to date
compared to a year ago because of higher interest rates.
The estimated annual effective income tax rate for fiscal year 1995 has
increased from 37.0% in 1994 to 37.5%, primarily as a result of the Company
being subjected to increased state income taxes.
Cash, cash equivalents, and short-term investments decreased by approximately
$17.7 million for the second quarter. Most of the cash was used for capital
expenditures ($13.5 million) and the repurchase of the Company's common stock
($4.1 million). The major capital expenditures are for approximately 250,000
square feet of new manufacturing, warehousing, and distribution space under
construction at various locations. Construction progress remains on schedule.
During the second quarter, 154,897 shares of the Company's common stock were
acquired at a cost of approximately $4.1 million, or at an average price of
$26.84 per share. For the first six months of fiscal year 1995, 196,310
shares were acquired at a cost of approximately $5.3 million, or an average
price of $26.93. As of July 1, 1995, approximately $15.2 million were
available for further repurchases of the Board of Directors' stock repurchase
authorization amount.
Page 10 of 14
Management is committed to achieving the Company's strategic goals of growing
the business through increased profitable sales to new and existing customers,
expanding market share in several segments of core markets through
acquisitions, and increasing penetration of international markets.
On June 1, 1995, the Company paid a $0.12 per share quarterly dividend payment
on common stock to shareholders of record May 18, 1995.
Page 11 of 14
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. See Exhibit Index.
(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.
Dated: July 27, 1995 By /s/ David C. Stuebe
David C. Stuebe
Vice President and
Chief Financial Officer
By /s/ Melvin L. McMains
Melvin L. McMains
Controller
Page 12 of 14
PART II. EXHIBITS
EXHIBIT INDEX Page
(27) Financial Data Schedule 14
Page 13 of 14