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 September 30, 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 -- 30,383,158 shares as of September 30, 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 --
September 30, 1995, and December 31, 1994 3-4
Condensed Consolidated Statements of Income --
Three Months Ended September 30, 1995, and October 1, 1994 5
Condensed Consolidated Statements of Income --
Nine Months Ended September 30, 1995, and October 1, 1994 6
Condensed Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1995, and October 1, 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
September 30,
1995 December 31,
(Unaudited) 1994
-------------------------
ASSETS (In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 24,869 $ 27,659
Short-term investments 3,634 3,083
Receivables 91,291 94,269
Inventories (Note B) 38,209 43,259
Deferred income taxes 9,867 11,565
Prepaid expenses and
other current assets 11,743 8,975
------- -------
Total Current Assets 179,613 188,810
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements 8,853 8,832
Buildings 87,027 84,801
Machinery and equipment 200,583 185,421
Construction in progress 34,488 17,915
------- -------
330,951 296,969
Less accumulated depreciation 130,484 119,125
------- -------
Net Property, Plant, and Equipment 200,467 177,844
OTHER ASSETS 5,715 5,914
------- -------
Total Assets $385,795 $372,568
======= =======
See accompanying notes to condensed consolidated financial statements.
Page 3 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30,
1995 December 31,
(Unaudited) 1994
-------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands)
CURRENT LIABILITIES
Accounts payable and accrued expenses $103,092 $ 99,898
Income taxes 5,711 4,949
Note payable and current maturities
of long-term debt obligations 5,714 6,246
------- -------
Total Current Liabilities 114,517 111,093
LONG-TERM DEBT AND OTHER LIABILITIES 45,050 46,080
CAPITAL LEASE OBLIGATIONS 8,019 8,661
DEFERRED INCOME TAXES 9,975 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 - 30,383,158 shares;
1994 - 30,674,603 shares 30,383 30,675
Paid-in capital 462 434
Retained earnings 188,500 174,642
Receivable from HON Members Company
Ownership Plan (11,111) (11,111)
------- -------
Total Shareholders' Equity 208,234 194,640
Total Liabilities and
Shareholders' Equity $385,795 $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
-------------------------
September 30, October 1,
1995 1994
-------------------------
(In thousands, except
per share data)
Net sales $228,195 $222,112
Cost of products sold 160,319 151,107
------- -------
Gross Profit 67,876 71,005
Selling and administrative expenses 48,084 46,384
------- -------
Operating Income 19,792 24,621
Interest income 473 925
Interest expense 817 887
------- -------
Income Before Income Taxes 19,448 24,659
Income taxes 7,209 9,124
------- -------
Net Income 12,239 15,535
======= =======
Net income per common share $.41 $.49
======= =======
Average number of
common shares outstanding 30,416,469 31,169,155
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)
Nine Months Ended
-------------------------
September 30, October 1,
1995 1994
-------------------------
(In thousands, except
per share data)
Net sales $651,297 $615,850
Cost of products sold 454,121 421,758
------- -------
Gross Profit 197,176 194,092
Selling and administrative expenses 144,337 135,907
------- -------
Operating Income 52,839 58,185
Interest income 1,750 1,868
Interest expense 2,656 2,299
------- -------
Income Before Income Taxes 51,933 57,754
Income taxes 19,391 21,369
------- -------
Income Before Cumulative Effect of
Accounting Change 32,542 36,385
Cumulative effect of
accounting change (Note C) - (237)
------- -------
Net Income 32,542 36,148
======= =======
Net income per common share:
Income before cumulative effect of
accounting change $1.07 $1.16
Cumulative effect of
accounting change (Note C) - (.01)
------- -------
Net Income $1.07 $1.15
======= =======
Average number of
common shares outstanding 30,534,420 31,337,772
Cash dividends per common share $ .36 $ .33
======= =======
See accompanying notes to condensed consolidated financial statements.
Page 6 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
------------------------
September 30, October 1,
1995 1994
------------------------
(In thousands)
Net Cash Flows From (To) Operating Activities:
Net income $ 32,542 $ 36,148
Noncash items included in net income:
Depreciation and amortization 15,596 14,222
Other postretirement and postemployment
benefits 1,484 1,742
Deferred income taxes (421) (643)
Cumulative effect of accounting
change (Note C) - 237
Other - net 30 34
Net increase (decrease) in noncash operating
assets and liabilities 9,215 (14,280)
Increase (decrease) in other liabilities (1,452) 202
------- -------
Net cash flows from
operating activities 56,994 37,662
------- -------
Net Cash Flows From (To) Investing Activities:
Capital expenditures - net (37,704) (28,985)
Short-term investments - net (551) 5,431
Long-term investments (1) (7)
Other - net (273) (277)
------- -------
Net cash flows (to)
investing activities (38,529) (23,838)
------- -------
Net Cash Flows (To) Financing Activities:
Purchase of HON INDUSTRIES common stock (9,478) (19,411)
Payments of note and long-term debt (2,309) (2,575)
Proceeds from sales of HON INDUSTRIES
common stock to members 1,516 1,398
Dividends paid (10,984) (10,321)
------- -------
Net cash flows (to)
financing activities (21,255) (30,909)
------- -------
Net increase (decrease) in cash and
cash equivalents (2,790) (17,085)
------- -------
Cash and cash equivalents at beginning
of period 27,659 32,778
------- -------
Cash and cash equivalents
at end of period $ 24,869 $ 15,693
======= =======
See accompanying notes to condensed consolidated financial statements.
Page 7 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 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 nine-month
period ended September 30, 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:
September 30, 1995
($000) (Unaudited) December 31, 1994
-----------------------------------
Finished products $12,317 $13,554
Materials and work in process 25,892 29,705
------ ------
$38,209 $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 Nine Months Ended Three Months Ended
Dollars in Thousands Sept. 30, 1995 & Sept. 30, 1995 & Sept. 30, 1995 &
Oct. 1, 1994 Oct. 1, 1994 July 1, 1995
------------------ ----------------- ------------------
Net sales $6,083 2.7% $35,447 5.8% $21,591 10.5%
Cost of products sold 9,212 6.1 32,363 7.7 14,073 9.6
Selling & Administrative
expenses 1,700 3.7 8,430 6.2 396 .8
Interest income (452) (48.9) (118) (6.3) (114) (19.4)
Interest expense (70) (7.9) 357 15.5 (74) (8.3)
Income taxes (1,915) (21.0) (1,978) (9.3) 2,571 55.4
Income before cumulative
effect of accounting
change - - (3,843) (10.6) - -
Cumulative effect of
accounting change - - 237 200.0 - -
Net income (3,296) (21.2) (3,606) (10.0) 4,511 58.4
For the third quarter ended September 30, 1995, consolidated net sales were
$228.2 million, a 2.7% increase from $222.1 million in the third quarter of
1994. Net income was $12.2 million, a decrease of 21.2%, or $0.41 per share,
in the third quarter of 1995 compared to $15.5 million, or $0.49 per share, in
the year-ago period.
For the nine months ended September 30, 1995, consolidated net sales were
$651.3 million, up 5.8% from $615.9 million in the year-ago period. Net
income for the nine months of 1995 was $32.5 million, down 10.0%, or $1.07 per
share, compared to $36.1 million, or $1.15 per share last year.
Lower sales to, and inventory adjustments by, certain customers in the office
furniture budget market as well as aggressive pricing to Company dealers
contributed to lower net income for both the third-quarter and nine-month
periods of 1995. Management believes that some customers have adjusted
inventory levels and reduced order quantities to the Company in response to
the Company s ability to deliver product within shortened lead times.
Competition has also been intense in the budget market, leading retail
customers to resist price increases and demand larger discounts. Sales to the
Company s dealers generally remained strong during the same period.
Page 9 of 14
The Company is continuing its Rapid Continuous Improvement, or RCI, program to
simplify its processes, to reduce costs, and thereby offset the erosive effect
of price competition on the Company s earnings. One example of this effort is
an evolving customer information system which is providing management with
customer order patterns and is resulting in better production planning and
shorter lead times.
The Company's ability to build and ship product efficiently, especially during
peak business periods, will also be enhanced with the completion of the new
warehouse and distribution center in Muscatine. In September, the Company
also announced plans for construction of a new, more efficient wood laminate
facility in Muscatine to be completed in late spring 1996.
Cost of products sold and gross margin, which were 70.3% and 29.7%,
respectively, of net sales for the third quarter of 1995 as compared to 68.0%
and 32.0% for the comparable period of 1994, were adversely impacted by
aggressive price discounting. Selling and administrative expenses, on a nine-
month basis, were 22.2% of net sales for 1995 compared to 21.1% for 1994. The
Company has begun a program of administrative RCIs as a way of further
reducing these expenses.
Cash, cash equivalents, and short-term investments increased from $25.0
million as of July 1, 1995, to $28.5 million as of September 30, 1995. The
primary use of cash during the third quarter and for the year-to-date was for
new capital expenditures ($12.8 million and $37.7 million, respectively) and
the repurchase of the Company's common stock ($4.2 million and $9.5 million,
respectively).
During the third quarter, 158,697 shares of the Company's common stock were
acquired at a cost of approximately $4.2 million, or an average price of
$26.47 per share. For the nine months of fiscal year 1995, 355,007 shares
were acquired at a cost of approximately $9.5 million, or an average price of
$26.72. As of September 30, 1995, approximately $11.0 million remain of the
$20.0 million authorized for stock repurchases by the Board of Directors in
February 1995.
On September 1, 1995, the Company paid a $0.12 per share quarterly dividend
payment on common stock to shareholders of record August 24, 1995.
The estimated annual effective income tax rate for the remainder of fiscal
year 1995 was decreased in August from 37.5% to 37.0% based on the latest
analysis of the Company's projected income tax liability for the fiscal year.
The Company is a participant in a remedial investigation ("RI") begun in the
third quarter of a site in South Gate, California, including property owned by
The Firestone Tire & Rubber Company ("Firestone") a part of which was acquired
in 1981 by the Company from Firestone. The current work has been undertaken
by the parties pursuant to a Remedial Investigation/Feasibility Study Workplan
Page 10 of 14
("RIFS") approved on June 15, 1995, by the California Department of Toxic
Substances Control ("DTSC"). The Company is cooperating with Firestone and
the DTSC in the RI and has entered into an interim funding agreement with
Firestone pending the ultimate determination of the Company's responsibilities
and its allocation share of site costs, if any. The Company is not able
reasonably at this time to estimate cost of the site investigation, remedial
actions, or its final allocation share of those costs, if any. The Company
periodically reviews these costs and will disclose them, if material, when
they can be reasonably estimated. Nevertheless, management does not believe
that the Company s potential liability for the Firestone site will have a
material effect on the Company s liquidity, financial position, or results of
operations taken as a whole.
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: November 1, 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