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 March 30, 1996
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 -- 30,263,851 shares as of March 30, 1996
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 --
March 30, 1996, and December 30, 1995 3-4
Condensed Consolidated Statements of Income --
Three Months Ended March 30, 1996, and April 1, 1995 5
Condensed Consolidated Statements of Cash Flows --
Three Months Ended March 30, 1996, and April 1, 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
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
March 30,
1996 December 30,
(Unaudited) 1995
ASSETS (In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 42,468 $ 32,231
Short-term investments 12,396 14,694
Receivables 74,963 88,178
Inventories (Note B) 34,262 36,601
Deferred income taxes 14,430 14,180
Prepaid expenses and
other current assets 13,068 8,299
------- -------
Total Current Assets 191,587 194,183
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements 9,699 9,701
Buildings 95,458 95,310
Machinery and equipment 208,078 208,707
Construction in progress 27,820 30,036
------- -------
341,055 343,754
Less accumulated depreciation 133,144 133,721
------- -------
Net Property, Plant, and Equipment 207,911 210,033
OTHER ASSETS 5,059 5,302
------- -------
Total Assets $404,557 $409,518
======= =======
See accompanying notes to condensed consolidated financial statements.
Page 3 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 30,
1996 December 30,
(Unaudited) 1995
LIABILITIES AND SHAREHOLDERS' EQUITY (In thousands)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 96,542 $117,273
Income taxes 12,772 5,361
Note payable and current maturities
of long-term obligations 12,372 6,281
------- -------
Total Current Liabilities 121,686 128,915
LONG-TERM DEBT AND OTHER LIABILITIES 37,598 45,911
CAPITAL LEASE OBLIGATIONS 7,687 7,700
DEFERRED INCOME TAXES 11,007 10,757
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 --
1996 - 30,263,851 shares;
1995 - 30,394,337 shares 30,264 30,394
Paid-in capital 408 550
Retained earnings 204,121 193,505
Receivable from HON Members Company
Ownership Plan (8,214) (8,214)
------- -------
Total Shareholders' Equity 226,579 216,235
Total Liabilities and
Shareholders' Equity $404,557 $409,518
======= =======
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
March 30, April 1,
1996 1995
(In thousands, except
per share data)
Net sales $233,477 $216,498
Cost of products sold 160,006 147,556
------- -------
Gross Profit 73,471 68,942
Selling and administrative expenses 49,846 48,565
Gain on sale of subsidiary (Note C) 3,200 --
------- -------
Operating Income 26,825 20,377
Interest income 741 690
Interest expense 860 948
------- -------
Income Before Income Taxes 26,706 20,119
Income taxes 9,881 7,544
------- -------
Net Income $ 16,825 $ 12,575
======= =======
Net income per common share $ .55 $ .41
======= =======
Average number of common
shares outstanding 30,345,172 30,644,226
========== ==========
Cash dividends per common share $ .12 $ .12
======= =======
See accompanying notes to condensed consolidated financial statements.
Page 5 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 30, April 1,
1996 1995
(In thousands)
Net Cash Flows From (To) Operating Activities:
Net income $16,825 $ 12,575
Noncash items included in net income:
Depreciation and amortization 5,586 4,997
Gain on sale of subsidiary,
net of tax (Note C) (2,016) --
Other postretirement and postemployment
benefits 618 645
Other - net -- 14
Net increase (decrease) in noncash operating
assets and liabilities (2,006) 11,546
Increase in other liabilities (1,520) (1,858)
------ -------
Net cash flows from
operating activities 17,487 27,919
------ -------
Net Cash Flows From (To) Investing Activities:
Capital expenditures - net (8,190) (11,432)
Net proceeds from sale of
subsidiary (Note C) 7,336 --
Short-term investments - net 1,498 (29)
Long-term investments (64) (10)
Other - net -- 2
------ -------
Net cash flows from (to)
investing activities 580 (11,469)
------ -------
Net Cash Flows (To) Financing Activities:
Purchase of HON INDUSTRIES common stock (3,416) (1,129)
Payments of note and long-term debt (1,348) (276)
Proceeds from sales of HON INDUSTRIES
common stock to members and
stock-based compensation 576 553
Dividends paid (3,642) (3,677)
------ -------
Net cash flows (to)
financing activities (7,830) (4,529)
------ -------
Net increase in cash and
cash equivalents 10,237 11,921
------ -------
Cash and cash equivalents at beginning
of period 32,231 27,659
------ -------
Cash and cash equivalents
at end of period $42,468 $ 39,580
====== =======
See accompanying notes to condensed consolidated financial statements.
Page 6 of 14
HON INDUSTRIES Inc. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 30, 1996
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 30, 1996, are not necessarily indicative of the results
that may be expected for the year ending December 28, 1996. 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 30, 1995.
Note B. Inventories
Inventories of the Company and its subsidiaries are summarized as follows:
March 30, 1996
($000) (Unaudited) December 30, 1995
Finished products $11,520 $11,265
Materials and work in process 22,742 25,336
------ ------
$34,262 $36,601
====== ======
Note C. Gain on Sale of Subsidiary
During the first quarter of 1996, the Company sold all outstanding shares of
its subsidiary, Ring King Visibles, Inc., for a sale price of $8,000,000 in
cash and the forgiveness of intercompany receivables of approximately
$2,000,000. The sale resulted in an approximate $3,200,000 pretax gain.
Page 7 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 Three Months Ended
Dollars in Thousands March 30, 1996 & March 30, 1996 &
April 1, 1995 December 30, 1995
Net sales $16,979 7.8% $ (8,345) (3.5)%
Cost of products sold 12,450 8.4 (10,573) (6.2)
Selling & Administrative
expenses 1,281 2.6 (7,508)(13.1)
Gain on sale of
subsidiary 3,200 100.0 3,200 100.0
Interest income 51 7.4 133 21.9
Interest expense (88) (9.3) (53) (5.8)
Income taxes 2,337 31.0 4,853 96.5
Net income 4,250 33.8 8,269 96.7
The Company reported record first quarter sales and earnings for its first
fiscal quarter of 1996.
For the quarter ended March 30, 1996, consolidated net sales were $233.5
million compared to the record-breaking $216.5 million in 1995, an increase of
7.8%. Net income was $16.8 million, a 33.8% increase over 1995; and net
income per share increased to $0.55 per share, a 34.1% increase over the same
quarter a year ago.
First quarter results included a $3.2 million pretax gain on the sale of all
outstanding shares of Ring King Visibles, Inc., a subsidiary that manufactures
a variety of personal computer accessories. Net income before the gain, was
$14.8 million, a 17.8% increase over the first quarter of 1995; and net income
per share was $0.48 per share, a 17.1% increase over the prior year period.
The Company's increased net sales for the quarter exceeded the growth rate
reported by BIFMA, an industry trade association, for the broader office
furniture industry for the period indicating the Company increased its market
share. However, fierce price competition within the industry continues to
present a significant sales challenge and is driving increased discounting.
The office furniture industry is experiencing a period of accelerated
consolidation, especially in the traditional dealer channel.
The gross profit margin for the first quarter was 31.5% compared to 31.8% for
the same period in 1995 in spite of the pricing pressure on net sales.
Selling and administrative expenses have been reduced from 22.4% of net sales
Page 8 of 14
in the first quarter of 1995 to 21.3% for the comparable period in 1996.
First quarter 1996 selling and administrative expenses increased 2.6% over the
comparable quarter in 1995 while net sales increased 7.8%. This represents a
favorable leveraging of increased sales. This positive selling and
administrative result was achieved after increasing provisions for idle
machinery, equipment and tooling; plant rearrangements; litigation; lease
obligations on closed facilities; and other miscellaneous ongoing obligations.
The Company reduced its estimated annual effective tax rate to 37.0% for the
1996 quarter from 37.5% a year earlier to reflect favorable state income tax
experience.
On March 30, 1996, cash and short-term investments increased to $54.9 million,
which includes net proceeds from the sale of a subsidiary of $7.3 million.
This compares to a $46.9 million balance at year-end 1995.
A note payable was reclassified from long-term debt to a current liability
during the quarter in the amount of $6.5 million as a matter of course to
reflect its scheduled payment date.
Net capital expenditures for the 1996 quarter were $8.2 million and primarily
represented investment in new, more-efficient machinery and equipment.
In the first quarter, the Company repurchased 159,119 shares of its common
stock at a cost of approximately $3.4 million or an average price of $21.47
per share. As of March 30, 1996, approximately $7.2 million of the Board's
current purchase authorization remained unspent.
On March 1, 1996, the Company paid a $0.12-per-share quarterly dividend
payment on common stock to shareholders of record February 22, 1996.
Looking ahead, the Company sees continued intense competition. The Company
will continue its focus on cost control, product development and introduction,
quality, value, and customer service.
Along with several other potentially responsible parties ("PRPs"), the Company
has been involved with site investigation and clean-up activities imposed by
the Federal Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA") at one waste disposal site in Georgia which allegedly received
waste materials containing hazardous substances generated by the Company or
its subsidiaries. In general, under CERCLA, each PRP which actually
contributes hazardous substances to a Superfund site is jointly and severally
liable for the costs associated with investigating and cleaning up the site.
Customarily, the PRPs will work with the Environmental Protection Agency
("EPA") or equivalent state agency to agree upon and implement a plan for site
remediation. PRPs for the Georgia site have been required to institute a
monitoring program, a background groundwater study, and a possible remediation
work plan. The EPA has issued a Record of Decision for the site ("ROD")
following the completion of a Remedial Investigation/Feasibility Study. The
ROD identified manganese, a constituent not included in waste sent by the
Company to the site, as the sole constituent of concern. The Company also
Page 9 of 14
owns a portion of the property which is part of the site. The original
property owner has agreed to repurchase the property from the Company and
indemnify the Company against environmental liabilities arising from the
Company's ownership of the property.
The Company also is involved in certain continuing clean-up activities under
the supervision of the Pennsylvania state environmental authorities at one
site formerly used by a Company subsidiary. The costs associated with this
site are comprised primarily of investigation and remediation efforts
associated with soil and groundwater contamination. In this matter, the
Company has worked with appropriate authorities to resolve the issues
involved.
The Company was named, along with three other PRPs, as a party to an Imminent
or Substantial Endangerment Order and Remedial Action Order dated April 28,
1994 by the California Department of Toxic Substances Control ("DTSC") in
connection with the former Firestone Tire & Rubber Company facility in South
Gate, California ("Firestone Site"). The DTSC is seeking to cover the cost of
investigating soil and groundwater contamination and preparing a remedial
action plan for the Firestone Site. From 1927 to 1981, the site was owned by
The Firestone Tire & Rubber Company (now known as Bridgestone/Firestone, Inc.)
and operated from 1928 to 1980 primarily as a tire manufacturing facility.
The Company purchased a portion of the Firestone Site in 1981, and
subsequently sold a portion of that property to a company now in bankruptcy
proceedings. The Company continues to own a part of the Firestone Site. The
Company believes its potential liability at the Firestone Site arises from the
Company's status as an owner of the property and not as a waste generator.
The Company has cooperated in the preparation of a Remedial
Investigation/Feasibility Study Work Plan ("RI/FS Work Plan") which was
approved by DTSC in June 1995. The investigation under the RI/FS Work Plan
began in August 1995 and is expected to be completed early in 1997. The
Company has, however, denied liability and believes that substantially all
investigation and clean-up costs should be borne by Bridgestone/Firestone,
Inc.
The Company has accrued liabilities reflecting management's best estimate of
the eventual future cost of the Company's anticipated share (based upon
estimated ranges of remediation costs, the existence of many other larger PRPs
to share in such costs who are financially viable, the Company's experience to
date in relation to the determination of its allocable share, the volume and
type of waste the Company is believed to have contributed to the sites, and
the anticipated periods of time over which such costs may be paid) of
remediation costs. Potential insurance reimbursements are not anticipated.
The Company also is reviewing available defenses and claims it may have
against third parties, including Bridgestone/Firestone, Inc. Due to such
factors as the wide discretion of regulatory authorities regarding clean-up
levels and uncertain allocation of liability at multiple party sites,
estimates made prior to the approval of a formal plan of action represent
management's best judgment as to estimates of reasonably foreseeable expenses
based upon average remediation costs at comparable sites. While the final
resolution of these contingencies could result in expenses in excess of
current accruals and, therefore, have an impact on the Company's consolidated
Page 10 of 14
financial result in a future reporting period, management believes that the
ultimate outcome will not have a material effect on the Company's financial
position or operations.
The Company is a guarantor of certain leases for showroom space at the
International Design Center (IDC) in Long Island City, New York. On June 26,
1992, the Company filed an action in the New York Supreme Court claiming
wrongful eviction and breach of representations and warranties that the IDC
would be maintained as a showroom facility. The IDC has counterclaimed for
back rent and other damages. The parties have filed cross-motions for summary
judgment which are currently pending before the court.
On December 28, 1995, Haworth, Inc., filed a complaint in Federal District
Court in Kalamazoo, Michigan, alleging that certain products sold by the
Company and its subsidiaries infringed its patents covering electrified panel
systems and asking for damages in an unspecified amount. These patents
expired November 29, 1994, and no claim has been made with respect to Company
products sold after that date. The Company believes it has meritorious
defenses and will vigorously defend its rights.
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: May 14, 1996 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