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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 2, 1995 COMMISSION FILE NO. 1-6651
HILLENBRAND INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1160484
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 STATE ROUTE 46 EAST
BATESVILLE, INDIANA 47006-8835
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (812) 934-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
- - ------------------------------ ---------------------------------------------
COMMON STOCK, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING TWELVE 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
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INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K./ /
STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.
Common Stock, without par value - $1,633,278,000 as of February 9,
1996 (excluding stock held by persons deemed affiliates).
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Common Stock, without par value - 70,066,380 as of February 9, 1996.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the 1996 Proxy Statement furnished to Shareholders - Parts I
and III.
Portions of the 1992 Proxy Statement furnished to Shareholders - Part IV.
HILLENBRAND INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 2, 1995
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote
of Security Holders 9
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder
Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
Item 8. Financial Statements and Supplementary
Data 19
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 40
PART III
Item 10. Directors and Executive Officers
of the Registrant 41
Item 11. Executive Compensation 41
Item 12. Security Ownership of Certain
Beneficial Owners and Management 41
Item 13. Certain Relationships and Related
Transactions 41
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 41
SIGNATURES 44
PART I
ITEM 1. BUSINESS
Hillenbrand Industries, Inc., an Indiana corporation headquartered in
Batesville, Indiana, is a diversified, public holding company and the owner of
100% of the capital stock of its five major operating companies. Unless the
context otherwise requires, the terms "Hillenbrand" and the "Company" refer to
Hillenbrand Industries, Inc., and its consolidated subsidiaries. Hillenbrand is
organized into two business segments: Funeral Services and Health Care. The
Funeral Services segment consists of Batesville Casket Company, Inc., a
manufacturer of caskets and other products for the funeral industry, and
Forecorp, Inc., a provider of funeral planning insurance products. The Health
Care segment consists of Hill-Rom, Inc., a manufacturer of equipment for the
health care market and provider of wound care, pulmonary/trauma and incontinence
management services; Block Medical, Inc., a provider of home infusion therapy
products; and Medeco Security Locks, Inc., a manufacturer of high security locks
and access control products for commercial and residential use. (Medeco does
not directly serve the health care industry but is included in the Health Care
segment due to its relative size.)
FUNERAL SERVICES
Batesville Casket Company, Inc. ("Batesville"), an Indiana corporation
headquartered in Batesville, Indiana, was founded in 1884 and acquired by the
Hillenbrand family in 1906. Batesville manufactures and sells several types of
steel, copper, bronze and hardwood caskets, including caskets for the cremation
market. In addition to caskets, Batesville manufactures and sells a line of
urns used in cremations. All Batesville metal caskets are protective caskets
which are electrically welded and made resistant to the entry of air, water and
gravesite substances through the use of rubber gaskets and a locking bar
mechanism.
Batesville Monoseal-Registered Trademark- steel caskets also employ a
magnesium alloy bar to cathodically protect the casket from rust and corrosion.
The Company believes that this system of Cathodic Protection is featured only on
Batesville caskets.
Batesville hardwood caskets are made from walnut, mahogany, cherry, maple,
pine, oak, pecan and poplar. Except for a limited line of hardwood caskets with
a protective copper liner, the majority of hardwood caskets are not protective.
Batesville caskets are marketed by Batesville's direct sales force to
licensed funeral directors operating licensed funeral homes throughout the
United States, Australia, Canada and Puerto Rico. Batesville maintains an
inventory of caskets at 68 company-operated Customer Service Centers in North
America. Batesville caskets are delivered in specially equipped vehicles owned
by Batesville.
In December 1993, Batesville acquired Industrias Arga, S.A. de C.V., a
casket manufacturer in Mexico.
Forecorp, Inc., which was founded in 1985, and its subsidiaries,
Forethought Life Insurance Company and The Forethought Group, Inc., are
headquartered in Batesville, Indiana. These companies serve the country's
largest network of funeral planning professionals with marketing support for
Forethought-Registered Trademark- funeral plans funded by life insurance
policies. This specialized funeral planning product is offered through licensed
funeral homes. Customers choose the funeral home, type of service and
merchandise they want. The selected funeral home contracts to provide the
funeral services and merchandise when needed. With funds provided by a life
insurance policy from Forethought Life Insurance Company, the Forethought
program offers inflation protection by enabling the funeral home to guarantee
that the planned funeral will be available as specified.
Certificates of authority to sell life insurance have been obtained in
forty-eight (48) states, Ontario, Canada, Puerto Rico and the District of
Columbia. Forethought Life Insurance products are available through a network
of over 4,000 independent funeral homes in forty-five (45) of these
jurisdictions.
-1-
HEALTH CARE
In fiscal 1994, Hill-Rom Company, Inc., and SSI Medical Services, Inc.
("SSI"), were combined to form Hill-Rom, Inc. ("Hill-Rom"), an Indiana
corporation headquartered in Batesville, Indiana. Hill-Rom is a leading
producer of mechanically, electrically and hydraulically controlled adjustable
hospital beds, hospital procedural stretchers, hospital patient room furniture
and architectural systems specifically designed to meet the needs of medical-
surgical, critical care and perinatal providers. It has been in the hospital
equipment business since 1929, and engaged in the manufacture of therapy beds
and support surfaces and the rental and service of these products in the wound
care, pulmonary/trauma and incontinence management markets since SSI was
acquired by Hillenbrand in 1985.
The Hill-Rom line of electrically and manually adjustable hospital beds
includes models which, through sideguard controls, can be raised and lowered,
retracted and adjusted to varied orthopedic and therapeutic contours and
positions. Hill-Rom also produces beds for special departments such as
intensive care, emergency, recovery rooms and labor and delivery rooms. Other
Hill-Rom products include sideguard communications, wood finished bedside
cabinets, adjustable height overbed tables, mattresses and wood upholstered
chairs. Its architectural products include customized, prefabricated modules,
either wall-mounted or on freestanding columns, enabling medical gases,
communications and electrical services to be distributed in patient rooms.
Hill-Rom also remanufactures hospital beds. Its process includes disassembly,
washing, sanding, painting and reassembly with new components.
Hill-Rom products are sold directly to hospitals throughout the United
States and Canada by Hill-Rom account executives. Most Hill-Rom products sold
in the United States are delivered by trucks owned by Hill-Rom. Hill-Rom also
operates a Canadian division which distributes Hill-Rom products, principally in
Canada. Hill-Rom also sells its domestically produced products through
distributorships throughout the world.
In 1991, Hill-Rom acquired Le Couviour S.A., a French company which
manufactures a variety of mechanically, hydraulically and electrically
controlled beds and patient room furniture. Its products are sold directly to
hospitals and nursing homes throughout Europe.
In February 1994, Hill-Rom completed the acquisition of L. & C. Arnold AG
(Arnold), of Schorndorf/Kempen in Germany. Arnold is one of the oldest and
largest manufacturers of hospital beds in Germany.
Clinical support for Hill-Rom's wound care, pulmonary/trauma and
incontinence management products is provided by a sales force composed of nurses
and physician assistants. Technical support is made available by technicians
and service personnel who provide maintenance and technical assistance from
Hill-Rom Service Centers.
Within the wound care market, CLINITRON-Registered Trademark- Air Fluidized
Therapy is provided as a therapeutic adjunct in the treatment of advanced
pressure sores, flaps, grafts and burns. The CLINITRON unit achieves its
support characteristics from the fluid effect created by forcing air up and
through medical-grade ceramic microspheres contained in the unit's fluidization
chamber.
Hill-Rom also offers low airloss therapy through its EFICA CC-TM- and
FLEXICAIR-Registered Trademark- units. FLEXICAIR low airloss therapy is
provided for pressure sore prevention and wound treatment when ambulation is a
priority or continuous head elevation is desired. The FLEXICAIR unit regulates
air pressure in five zones corresponding to patient body areas. In the
pulmonary/trauma market, the EFICA CC-TM- Dynamic Air Therapy-Registered
Trademark- offers several modes of operation, including continuous lateral
rotation, percussion and vibration, while maintaining optimal low airloss
pressure relief.
-2-
The CLENSICAIR-Registered Trademark- Incontinence Management System
combines pressure-relieving low airloss therapy with a breakthrough design for
managing incontinence.
Other wound care products include the ACUCAIR-Registered Trademark-
Continuous Air Flow System and the CLINISERT-Registered Trademark- Pressure
Relief System. Both are offered as more effective alternatives to conventional
overlays and mattresses.
Hill-Rom therapy systems are made available to hospitals, long-term care
facilities and the home environment on a rental basis through over 150 Service
Centers located in the United States, Canada and Western Europe.
Block Medical, Inc. ("Block"), a Delaware corporation, is headquartered in
San Diego, California, and was acquired by Hillenbrand in 1991. Certain of its
manufacturing operations were moved to Mexico during fiscal 1994. Block is a
manufacturer of home infusion products for antibiotic, nutritional, chemotherapy
and other drug therapies, including HOMEPUMP-TM-, a portable-disposable infusion
pump, and VERIFUSE-TM-, an ambulatory-electronic infusion pump. HOMEPUMP, which
can be carried in a pocket or specially designed pouch, provides a simple and
convenient way for patients to administer their medication with minimum
disruption of their lives. VERIFUSE is a computerized electronic infusion pump
that is designed to handle more complex infusion medications while enabling the
patient to be ambulatory. It is programmed through the use of a built-in
bar-code scanner and is capable of delivering four infusion therapies.
Block's products are sold to home care providers throughout the United
States and internationally by a direct sales force and through distributors.
Medeco Security Locks, Inc. ("Medeco"), founded in 1968, was purchased by
Hillenbrand in 1984. Medeco manufactures and sells a wide variety of deadbolts,
padlocks, switch locks, camlocks, electro-mechanical and other special purpose
locks for the high security market. Medeco's double locking mechanism provides
a higher level of security than is achievable by more common, single-locking
devices. Medeco locks are primarily constructed of brass and hardened steel and
are manufactured in its Salem, Virginia plant.
In 1991, Medeco entered the electronic high security market. INSITE
VLS-TM- replaces the thousands of mechanical keys used in pay telephone
collection. The recently introduced DialGuard-TM- lock system fills the same
role in the automatic teller machine collection market, and the DuraCam-TM- high
security lock serves the gaming industry. The INSITE SITEKEY-TM- provides the
state-of-the-art in electronic door security.
Medeco products are sold domestically and internationally by its sales
organization to locksmith supply distributors, original equipment manufacturers
and government agencies. Original equipment applications include vending
machines, pay telephones, safe and lock boxes, computer equipment, coin-operated
laundry machines and communications security devices.
Hill-Rom generates the predominant share of the Health Care segment's
revenues and operating profit. Medeco and Block had an immaterial effect on the
operating results of this segment in 1993, 1994 and 1995.
BUSINESS SEGMENT INFORMATION
The amounts of net revenues, operating profit and identifiable assets
attributable to each of the industry segments of the Company are set forth in
tables relating to operations by business segment in Note 6 to Consolidated
Financial Statements, which statements are included under Item 8.
-3-
RAW MATERIALS
FUNERAL SERVICES
Batesville employs carbon and stainless steel, copper and bronze sheet,
wood, fabrics, finishing materials, rubber gaskets, zinc and magnesium alloy in
the manufacture of its caskets. These materials are available from several
sources.
HEALTH CARE
Principal materials used in Hill-Rom products include steel, aluminum,
stainless steel, wood, high pressure laminates, fabrics, silicone-coated
soda-lime glass beads and other materials, substantially all of which are
available from several sources. Motors for electrically operated beds and
certain other components are purchased from one or more manufacturers. Block
uses thermo-plastic materials, elastomeric membranes, electronic components,
miniature electric motors, machined metal parts and other materials,
substantially all of which are available from multiple sources.
Medeco uses brass, hardened steel, other metals and electronic components,
substantially all of which are available from several sources.
COMPETITION
FUNERAL SERVICES
Batesville believes its dollar volume of sales of finished caskets is the
largest in the United States. Batesville competes on the basis of product
quality, service to its customers and price, and believes that there are
approximately two (2) other companies that also manufacture and/or sell caskets
over a wide geographic area. There are, however, throughout the United States
many enterprises that manufacture, assemble, or distribute caskets for sale
within a limited geographic area.
Forecorp, Inc., competes on the basis of service to its customers and
products offered. Forethought Life sells its products in competition with local
and state trusts for pre-need funeral planning as well as other life insurance
companies. Forethought Life believes it is the leading provider of insurance
funded pre-arranged funerals in the United States.
HEALTH CARE
Hill-Rom believes it is the U.S. market share leader in the sale of
electrically operated hospital beds, competing with approximately ten (10) other
manufacturers. In Europe, Hill-Rom competes with several other manufacturers
and believes that it is a market leader. In both the U.S. and Europe there are
other companies which provide low airloss and other methods of patient support
and patient relief.
Block competes on the basis of product innovation and quality coupled with
attention to customer service. Block believes it is the market leader in
providing new innovations to the alternate care site health care market, even
though several competitors have larger financial resources.
Medeco competes on the basis of product quality and performance, and
service to its customers. Medeco believes it is the market share leader in the
mechanical high security lock market; however, other lock manufacturers produce
a broader product line and have larger financial resources. Medeco believes
that its patents are important to its business.
-4-
RESEARCH
Each of the Company's operating subsidiaries devotes research efforts to
develop and improve its products as well as its manufacturing and production
methods. All research and development expenses are Company sponsored and, for
new products, amounted to approximately $27,962,000 in 1995, $25,767,000 in
1994, and $22,270,000 in 1993. Additionally, $10,956,000 was spent in 1995,
$9,245,000 in 1994, and $8,089,000 in 1993 on research and development
pertaining to the improvement of existing products. The above amounts exclude
expenditures relative to discontinued operations.
PATENTS AND TRADEMARKS
The Company owns a number of patents on its products and manufacturing
processes which are of importance to it, but it does not believe that any single
patent or related group of patents are of material significance to the business
of the Company as a whole.
The Company also owns a number of trademarks and service marks relating to
its products and product services which are of importance to it, but it does not
believe that any single trademark or service mark is of material significance to
the business of the Company as a whole.
EMPLOYEES
As of January 19, 1996, the Company employed approximately 9,800 persons in
its operations in North America and Europe.
ENVIRONMENTAL PROTECTION
Hillenbrand Industries, Inc., is committed to operating all of its
businesses in a way that protects the environment. The Company has voluntarily
entered into remediation agreements with environmental authorities, and has been
issued Notices of Violation alleging violations of certain permit conditions.
Accordingly, the Company is in the process of implementing plans of abatement in
compliance with agreements and regulations. The Company has also been notified
as a potentially responsible party in investigations of certain offsite disposal
facilities. The cost of all plans of abatement and waste site cleanups in which
the Company is currently involved is not expected to exceed $10.0 million. The
Company has provided adequate reserves in its financial statements for these
matters. These reserves have been determined without consideration of possible
loss recoveries from third parties. Compliance with other current governmental
provisions relating to protection of the environment also does not materially
affect the Company's capital expenditures, earnings or competitive position.
Recent changes in environmental law might affect the Company's future
operations, capital expenditures and earnings. The cost of complying with these
provisions is not known.
FOREIGN OPERATIONS AND EXPORT SALES
Information about the Company's foreign operations is set forth in tables
relating to geographic information in Note 6 to Consolidated Financial
Statements, which statements are included under Item 8.
The Company's export revenues constituted less than 10% of consolidated
revenues in 1995 and prior years.
ORDER BACKLOG
Order backlogs are immaterial to the Company and there was no material
change in backlogs during 1995.
-5-
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are elected each year by the Board of
Directors at its first meeting following the Annual Meeting of Shareholders to
serve during the ensuing year and until their respective successors are elected
and qualify. There are no family relationships between any of the executive
officers of the Company.
W August Hillenbrand, 55, was elected Chief Executive Officer of the
Company on April 11, 1989, and has been President since October 21, 1981. Prior
to that he had been a Vice President of the Company since 1972 and has been
employed by the Company throughout his business career.
Lonnie M. Smith, 51, was elected Senior Executive Vice President, effective
January 1, 1982. From 1978 through 1981, he held the position of Executive Vice
President of American Tourister, Inc. From 1976 to 1978, he was Senior Vice
President of Strategic Planning for the Company. Prior to that he was employed
by the Boston Consulting Group, business consultants.
Tom E. Brewer, 57, has been employed by the Company since May 16, 1983, and
was elected Senior Vice President and Chief Financial Officer on May 23, 1983.
He had been employed by the Firestone Tire and Rubber Company for the prior 22
years, where he served as Corporate Vice President and Treasurer.
George E. Brinkmoeller, 60, was elected Vice President, Corporate Services
on December 2, 1979, had been Director of Corporate Services since January 1,
1975, and had been Manager of Affiliated Operations since January 1, 1971.
Michael L. Buettner, 38, has been employed by the Company since January 9,
1995, and was elected Vice President, Corporate Development on January 9, 1995.
Prior to joining the Company, he was employed by Bausch & Lomb Incorporated for
10 years in various corporate development and finance roles, most recently as
Staff Vice President, Corporate Development. He has also served in various
finance and marketing positions with Moog Automotive, Inc. and Carboline
Company.
Mark E. Craft, 41, has been employed by the Company since February 26,
1990, and was elected Vice President, Public Affairs on May 1, 1994. Prior to
that he was Director, Public Affairs. Prior to joining the Company, he was
Manager, Public Relations, for Melvin Simon & Associates, Inc., in Indianapolis,
Indiana.
Tim B. Johnson, 34, was elected Vice President, Continuous Improvement on
April 11, 1995. He has been employed by the company since March, 1993, as
Director, Continuous Improvement. Prior to joining the company, he was a Senior
Manager for the management consulting firm of Price Waterhouse.
Mark R. Lanning, 41, was elected Vice President and Treasurer on April 11,
1995. Prior to that he had been Assistant Treasurer since June, 1991. He
joined the Company on May 16, 1988, as Manager, Corporate Audit. Prior to
joining the Company he served in various capacities with the public accounting
firm of Ernst & Whinney (now Ernst & Young). He has been a licensed Certified
Public Accountant since 1979.
Mark R. Lindenmeyer, M.D., 49, was elected Vice President, General Counsel
and Secretary of the Company on October 7, 1991. He had been employed by the
Company since August 18, 1986, as Litigation Counsel. Prior to joining the
Company, Dr. Lindenmeyer served in the U.S. Army as a military trial attorney
and judge and was a partner in a Batesville, Indiana law firm. He has been a
licensed physician since 1986 and a practicing attorney since 1972.
J. Cameron Moss, 39, was elected Vice President, Corporate Planning on
January 2, 1996, and has been employed by the Company since January 2, 1996.
Prior to joining the Company, he was a senior manager with McKinsey & Company,
Inc., in its Cleveland, Ohio and Munich, Germany offices.
-6-
James G. Thorne, 54, has been employed by the Company since June 14, 1993,
and was elected Vice President, Human Resources on April 5, 1994. Prior to
joining the Company, he was employed by Monsanto Company for 27 years where he
served as Vice President, Human Resources for Fisher Controls International,
Inc.
James D. Van De Velde, 49, was elected Vice President and Controller on May
13, 1991. He joined the Company on September 1, 1980 as Director, Taxes. Prior
to that he was employed by the public accounting firm of Price Waterhouse.
-7-
ITEM 2. PROPERTIES
The principal properties of the Company and its subsidiaries are listed
below, and are owned by the Company or its subsidiaries subject to no material
encumbrances except for those facilities (*) which were constructed with funds
obtained through Government Issued Bonds (see Note 3 to the Consolidated
Financial Statements). The Company is in the process of improving the
efficiency of certain facilities in Germany. Otherwise, all facilities are
suitable for their intended purpose, are being efficiently utilized and are
believed to provide adequate capacity to meet demand for the next several years.
LOCATION DESCRIPTION PRIMARY USE
-------- ----------- ------------
HEALTH CARE AND OTHER:
Batesville, IN Manufacturing plant and Manufacture of health care
distribution facility equipment
Office facilities Administration
Charleston, SC Office facility and Administration and
assembly plant assembly of therapy units
Kempen and Schorndorf, Manufacturing plants and Manufacture of health care
Germany office facilities equipment
Pluvigner, France Manufacturing plant and Manufacture of health care
office facility equipment
Salem, VA Manufacturing plant and Manufacture of mechanical
office facility and electronic locks
FUNERAL SERVICES:
Batesville, IN Manufacturing plants Manufacture of metal caskets
Office facilities Administration
Manchester, TN Manufacturing plants Manufacture of metal caskets
Campbellsville, KY Manufacturing plant Manufacture of metal caskets
Vicksburg, MS Kiln drying and lumber Drying and dimensioning
cutting plant lumber
*Batesville, MS Manufacturing plant Manufacture of hardwood
caskets
Nashua, NH Manufacturing plant Manufacture of hardwood
caskets
In addition to the foregoing, the Company leases or owns a number of
warehouse distribution centers, service centers and sales offices throughout the
United States and Europe.
ITEM 3. LEGAL PROCEEDINGS
On August 16, 1995, Kinetic Concepts, Inc., and Medical Retro Design, Inc.
(collectively, the "plaintiffs"), filed suit against Hillenbrand Industries,
Inc., and its subsidiary Hill-Rom Company, Inc., in the United States District
Court for the Western District of Texas, San Antonio Division. The plaintiffs
allege violation of various antitrust laws, including illegal bundling of
products, predatory pricing, refusal to deal and attempting to monopolize the
hospital bed industry. They seek monetary damages totaling in excess of $268.5
million, trebling of any damages that may be allowed by the court, and
injunctions to prevent further alleged unlawful activities. The Company
believes that the claims are without merit and will defend itself aggressively
against all allegations.
There is no other pending litigation of a material nature in which the
Company or its subsidiaries are involved.
-8-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 2, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION
Hillenbrand Industries' common stock is traded on the New York Stock
Exchange under the ticker symbol "HB". The following table reflects the range
of high and low selling prices of the Company's common stock by quarter for 1995
and 1994.
1995 1994
------------- -------------
High Low High Low
---- --- ---- ---
First Quarter $29 3/4 $27 $43 5/8 $39 1/2
Second Quarter $30 1/8 $27 1/2 $42 1/4 $35 1/4
Third Quarter $33 1/8 $28 5/8 $36 1/2 $26 5/8
Fourth Quarter $33 $27 $35 7/8 $29 1/8
HOLDERS
On February 9, 1996, there were approximately 30,000 holders of the
Company's common stock.
DIVIDENDS
The Company has paid cash dividends on its common stock every quarter since
its first public offering in 1971, and those dividends have increased each year
since 1972. Dividends are paid near the end of February, May, August and
November to shareholders of record near the end of January, April, July and
October. Cash dividends of $.60 ($.15 per quarter) in 1995 and $.57 ($.1425 per
quarter) in 1994 were paid on each share of common stock outstanding. Cash
dividends will be $.62 ($.155 per quarter) in 1996.
-9-
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data of
Hillenbrand Industries, Inc., for fiscal years 1991 through 1995.
1995 1994(B) 1993 1992 1991
---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE DATA)
Net revenues $1,624,881 $1,557,034 $1,447,913 $1,303,062 $1,084,487
Income from continuing
operations (A) $ 89,860 $ 89,462 $ 132,486 $ 111,165 $ 89,985
Income from continuing
operations per share (A) $ 1.27 $ 1.26 $ 1.86 $ 1.55 $ 1.23
Total assets $3,070,256 $2,714,153 $2,291,388 $1,957,704 $1,545,216
Long-term debt $ 206,783 $ 208,729 $ 107,887 $ 185,081 $ 103,589
Cash dividends per share $ .60 $ .57 $ .45 $ .35 $ .29
(A) RESULTS IN 1995 REFLECT UNUSUAL CHARGES TOTALING $25,830 ($.37 PER SHARE)
FOR THE WRITEDOWN OF GOODWILL AND CERTAIN ASSETS OF A MANUFACTURING
FACILITY TO BE DISPOSED OF. RESULTS IN 1994 REFLECT AN UNUSUAL CHARGE OF
$52,545 ($.74 PER SHARE), AFTER INCOME TAXES, FOR SETTLEMENT OF A PATENT
INFRINGEMENT SUIT. RESULTS IN 1993 REFLECT AN UNUSUAL CHARGE OF $14,000
FOR THE WRITEDOWN OF GOODWILL.
(B) FISCAL 1994 WAS A 53 WEEK YEAR.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and accompanying notes. Hillenbrand
Industries' five major operating companies are organized into two business
segments. The Funeral Services segment consists of Batesville Casket Company
and The Forethought Group. The Health Care segment consists of Hill-Rom, Block
Medical and Medeco Security Locks (included in this segment due to Medeco's
relatively small size). Results for American Tourister, Inc., which was sold in
1993, have been reported separately as a discontinued operation in the income
statement.
RESULTS OF OPERATIONS
1995 COMPARED WITH 1994
SUMMARY
Consolidated net revenues increased $47.8 million, or 3.0%, in 1995. Fiscal
year 1994 contained 53 weeks of business compared with 52 in 1995. Adjusting
for the extra week in 1994, revenues increased approximately $77.8 million, or
5.0%. Operating profit of $179.5 million was up 15.0% and net income of $89.9
million was essentially equal to 1994.
In the fourth quarter of 1995, the Company recorded charges totaling $25.8
million (with no income tax benefit) to reduce the carrying value of goodwill
relative to the acquisition of Block Medical and certain manufacturing
facilities in Europe being held for disposal. Excluding these unusual charges
and the $84.8 million ($52.5 million after income taxes) charge for settlement
of a patent infringement suit in 1994, operating profit declined $35.5 million,
or 14.8%, and net income was down $26.3 million, or 18.5%.
-10-
NET REVENUES
Health Care sales declined $35.3 million, or 6.0%, due primarily to lower unit
volume in Hill-Rom's U.S. acute care bed and architectural products markets.
These declines were partially offset by growth in Europe (including the effect
of the acquisition of Arnold in the first quarter of 1994), favorable foreign
currency fluctuations and increased remanufactured equipment shipments in the
U.S. At Block Medical, portable-disposable infusion pump volume was up and
ambulatory-electronic pump shipments were down. Sales growth at Medeco was
driven by new product introductions in route management channels (pay telephone,
automated teller machines and the gaming industry). Door security business was
flat year over year. Block and Medeco did not contribute significantly to the
overall sales of the Health Care segment.
Health Care rentals grew $34.8 million, or 10.5%. Increased units in use
in the home care and long term care markets were partially offset by shifts to
lower priced products in all markets and lower usage in the acute care market.
Revenues in Europe were favorably affected by foreign currency fluctuations.
Funeral Services sales increased $16.7 million, or 3.4%, due to traditional
casket unit volume growth, higher sales of cremation products, price increases
and acquisitions.
Insurance revenues were up $31.6 million, or 20.5%. Interest income
accounted for $18.6 million of this increase, reflecting a larger investment
portfolio and higher yields. The growth in earned premium revenue was due
primarily to increased policies in force year over year. Policy sales were down
in 1995 due primarily to commission and product changes designed to enhance
Forethought's overall long-term profitability. Since premium revenues are
recognized, or earned, over the life of the policy holder, this decrease did not
have a significant effect on current year revenue.
GROSS PROFIT
Gross profit on Health Care sales of $208.6 million was down $45.5 million, or
17.9%, due primarily to lower U.S. acute care bed and architectural products
volume As a percentage of sales, gross profit declined from 43.0% to 37.5%,
reflecting the impact of lower U.S. acute care volume on the fixed manufacturing
expense base and increased sales of lower margin remanufactured equipment and
European products. These items were partially offset by sales growth at Medeco,
reduced losses at Block and improved manufacturing efficiencies in all U.S.
operations.
Gross profit on Health Care rentals increased $8.0 million, or 7.0%, to
$121.6 million and, as a percentage of revenues, declined from 34.1% to 33.0%.
Increased units in use in the home care and long-term care markets was partially
offset by the shift in all markets to products with lower daily rates.
Gross profit on Funeral Services sales of $237.6 million was up $7.2
million, or 3.1%. As a percentage of sales, it was virtually unchanged at
46.1%.
Insurance gross profit increased $5.5 million, or 13.8%, in 1995. Higher
investment income (with minimal corresponding direct cost) was largely offset by
an increase in the crediting rate on policies in force, which was undertaken for
competitive reasons. The crediting rate is the interest rate that Forethought
uses to increase the face amount on insurance policies to have the benefit grow.
ADMINISTRATIVE, DISTRIBUTION AND SELLING EXPENSES
These operating expenses declined $48.3 million, or 10.0%, in 1995. Excluding
unusual charges of $25.8 million in 1995 and $84.8 million in 1994, they
increased $10.6 million, or 2.7%. As a percentage of consolidated revenues,
they were essentially unchanged at 25.1%. In the Health Care segment, increases
associated with European operations and new product development in the U.S. were
mostly offset by the avoidance of costs incurred in 1994 relative to the
integration of Hill-Rom and SSI and lower incentive compensation expense.
Expenses in the Funeral Services segment were virtually unchanged year over
year.
Unusual charges in 1995 included the $5.8 million writedown of certain
assets of a manufacturing facility in Europe to be disposed of and the $20.0
million writedown of goodwill associated with the acquisition of Block Medical
in 1991. Changes in market conditions, the performance of certain products and
increased competitive pressures resulted in a significant reduction in
management's expectations regarding Block's future cash flows. Management
believes that all writedowns pertaining to Block Medical and restructuring of
European operations have been made.
-11-
OPERATING PROFIT
Operating profit in the Health Care segment, excluding unusual charges, declined
$42.9 million, or 32.9%, to $87.8 million in 1995. Lower U.S. acute care sales,
a shift to lower priced rental products, and expenses associated with European
operations and new product development were partially offset by growth in the
home care and long-term care rental markets and the avoidance of integration
expenses.
Operating profit in the Funeral Services segment of $134.0 million was up
$11.1 million, or 9.0%, from 1994. Growth in casket unit volume, cremation
products, investment income, earned insurance premium revenues and improved
operating efficiencies were partially offset by the increase in the crediting
rate on insurance policies in force.
OTHER INCOME AND EXPENSE
Interest expense declined $3.2 million, or 13.5%, due to the full-year impact of
the retirement of a $75.0 million promissory note in May of 1994, which was
partially offset by the issuance of $100.0 million of debentures in February of
1994. Interest expense relative to European operations was favorably affected
by lower rates. Investment income was up $1.1 million due to higher yields,
partially offset by a lower average level of interest earning assets.
INCOME TAXES
The effective income tax rate in 1995 was 47.1%. Excluding the $25.8 million
unusual charge (consisting of the writedown of goodwill and other assets being
held for disposal) which is not tax deductible, the effective rate was 40.9% in
1995 compared with 38.2% in 1994. This increase reflects higher operating
losses in Europe, resulting in foreign loss carryforwards for which there is no
associated income tax benefit recognized in the current year.
1994 COMPARED WITH 1993
SUMMARY
Net revenues increased $129.1 million, or 8.9%, to $1.6 billion in 1994.
Approximately $30.0 million of this increase can be attributed to the 53rd week
in fiscal 1994. Fiscal 1993 and fiscal 1995 were 52 week years. Operating
profit of $156.1 million was down 32.8% and income from continuing operations
declined 32.5% to $89.5 million.
On September 19, 1994, subsequent to trial on the issues, the Company
settled a patent infringement suit brought by Kinetic Concepts, Inc., against
the Company, for a cash payment of $84.8 million. The settlement amount was
reflected in third quarter results as an unusual charge to operations of $84.8
million ($52.5 million, or $.74 per share, after tax) and payment was made in
the fourth quarter. From the date of the initial claim until the trial
commencing August 29, 1994, the Company believed that the outcome of the trial
or any settlement of the matter would not have a significant effect on the
Company's financial condition or results of operations. The settlement of the
patent infringement suit will not affect future operating results. In 1993, the
Company wrote down goodwill relative to the acquisition of Block Medical in the
amount of $14.0 million. Excluding these unusual items, operating profit
was down 2.2% and income from continuing operations fell 3.1%.
NET REVENUES
Heath Care sales increased 3.1% to $590.9 million due primarily to the
acquisition of Arnold by Hill-Rom in February 1994. Hill-Rom also reported
growth in the remanufactured bed market. Offsetting these gains was a drop in
electric bed shipments, especially in the U.S. acute care market. Shipments in
Europe, excluding the effect of the Arnold acquisition, were essentially flat
year over year. At Block Medical, shipments of both portable-disposable
infusion pumps and ambulatory electronic pumps were down. Shipments of
portable-disposable pumps were up in the fourth quarter compared with the fourth
quarter of 1993. Sales in Medeco's door security, gaming industry, electronic
pay telephone and automated teller machine channels were all higher in 1994.
Demand in these markets grew and Medeco's product offerings received strong
acceptance. Block and Medeco did not contribute significantly to the overall
sales of the Health Care segment.
-12-
Health Care rentals grew 10.2% to $333.1 million due to increased therapy
rental beds in use in the U.S. long-term care and home care markets, partially
offset by a shift toward lower priced products in the acute care market. Rental
revenue was up marginally in Europe.
Funeral Services sales of $498.8 million were up 9.3% from 1993. Despite
an essentially flat market for casketed deaths, casket unit volume was up at
Batesville Casket due to the additional week in fiscal 1994, acquisitions and
new product introductions. Revenues were also favorably impacted by price
increases, improved product mix and increased sales of products for the
cremation market.
Insurance revenues increased 33.0% to $154.2 million in 1994. Higher
investment income reflected a larger invested asset base, partially offset by
lower yields. Yields began falling in 1993 and continued to decline through
mid-1994, from which point they improved steadily. These trends, while
consistent with those of the financial markets overall during this time period,
generally lag the market by several months. Earned premium revenue was higher
due to increased policies in force year over year.
GROSS PROFIT
Gross profit on Health Care sales of $254.1 million was down 5.8% and, as a
percentage of sales, declined from 47.0% in 1993 to 43.0% in 1994. This drop
was due to higher costs associated with the manufacturing operations at Arnold
and lower acute care electric bed shipments in the U.S. These items were
partially offset by lower material costs and improved manufacturing efficiency
in U.S. operations.
Gross profit on Health Care rentals of $113.6 million was up 11.9% and, as
a percentage of revenues, improved from 33.6% to 34.1%. Lower depreciation
expense associated with the acquisition of SSI in 1985 and leveraging of fixed
costs were partially offset by the shift to lower priced products in the acute
care market.
Funeral Services gross profit increased 9.1% to $230.4 million in 1994. As
a percentage of sales, gross profit was virtually unchanged at 46.2% versus
46.3% in 1993.
Gross profit on insurance revenues of $39.8 million was up 3.6% and, as a
percentage of revenues, declined from 33.1% to 25.8%. An increase in the
crediting rate on policies in force for competitive reasons in the fourth
quarter was partially offset by higher investment income with minimal
corresponding direct cost.
ADMINISTRATIVE, DISTRIBUTION AND SELLING EXPENSES
These expenses increased 24.0% in 1994. Excluding unusual charges of $84.8
million in 1994 and $14.0 million in 1993, they increased 6.0%; as a percentage
of revenues they declined from 25.9% to 25.2%. The inclusion of expenses
associated with the operations of Arnold and other acquisitions and growth in
base businesses were offset by improved efficiency, economies of scale and lower
incentive compensation expenses reflecting the year to year decline in operating
performance.
OPERATING PROFIT
Operating profit in the Health Care segment, excluding the litigation settlement
in 1994 and write-down of Block goodwill in 1993, was down $16.2 million, or
11.1%. Softness in the U.S. acute care capital market, price pressure in the
U.S. acute care rental market, losses from certain European operations and
expenses associated with the integration of Hill-Rom and SSI were partially
offset by increased therapy rental beds in use and lower expenses associated
with the acquisition of SSI.
In the Funeral Services segment, operating profit was up $8.2 million, or
7.2%. Higher casket unit volume (including the effect of the extra week) and
improved price, mix and operating efficiencies generated growth at Batesville
Casket. Higher earned premium revenue and investment income were offset by the
discretionary increase in the crediting rate on policies in force at
Forethought.
-13-
OTHER INCOME AND EXPENSE
Interest expense increased $2.2 million, or 10.1%, due to increased lines of
credit and other debt associated with Hill-Rom's European operations and the
issuance of $100.0 million of debentures in February 1994, partially offset by
the retirement of a $75.0 million promissory note in May. Investment income was
up $4.4 million, or 49.7%, due to higher rates of return and a higher average
level of interest earning assets.
INCOME TAXES
The effective income tax rate on income from continuing operations decreased
from 40.2% in 1993 to 38.2% in 1994. The decrease was primarily attributable to
two items. The writedown of Block goodwill of $14.0 million in 1993 was not
deductible for tax purposes, resulting in an increase in the 1993 effective
rate. This item did not reoccur in 1994. Secondly, the state effective rate
was reduced in 1994 as a result of certain tax planning strategies. These
decreases were partially offset by an increase in the effective foreign income
tax rate. This increase was attributable to operating losses in certain
European countries, resulting in foreign loss carryforwards for which there is
no associated income tax benefit recognized in the current year.
INFLATION
Inflation and changing prices had a negligible effect on results of operations
in 1995, 1994 and 1993. Improvements in manufacturing and administrative
efficiencies continue to minimize the effect of price increases.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash flows from operating activities and selected borrowings represent the
Company's primary sources of funds for growth of the business, including capital
expenditures and acquisitions. Cash and cash equivalents (excluding the
investments of insurance operations) grew from $120.4 million at the end of 1994
to $171.3 million at the end of 1995.
The statement of consolidated cash flows reflects certain changes in the
reporting of cash flows for the company's insurance subsidiary. Cash flows
relative to investments have been reclassified from operating activities to
investing activities and expanded to disclose purchases, maturities and sales.
Premiums received and benefits paid on policies have been classified as
financing activities. Results for prior years have been restated to conform to
the current presentation.
OPERATING ACTIVITIES
Net cash flows from operating activities of $179.0 million were up significantly
compared with 1994. A smaller increase in accounts receivable, higher current
liabilities and avoidance of the $52.5 million litigation payment (net of income
taxes) that occurred in 1994, were partially offset by lower earnings (excluding
non-cash charges and the litigation payment).
The $13.2 million increase in accounts receivable was due primarily to
growth in Europe in the Health Care segment. Days sales outstanding (DSO) of 80
compares with 78 at year-end 1994. The $36.7 million increase in 1994 was due
to strong fourth quarter shipments and lower prepayments at Hill-Rom. Inventory
increases reflected a greater number of field sales evaluation units in the
Health Care segment. Accrued expenses increased in 1995 due to higher income
taxes payable reflecting the increase in taxable income. Current liabilities
declined significantly in 1994 due to lower income taxes payable and accrued
incentive compensation.
-14-
INVESTING ACTIVITIES
Cash outflows from investing activities declined from $406.4 million in 1994 to
$301.8 million in 1995.
Capital expenditures of $102.6 million compares with $99.5 million in 1994,
including an increase in therapy rental unit production at Hill-Rom from $43.1
million to $47.7 million.
Acquisitions in 1995 included two regional casket distributors by
Batesville Casket and the remaining interest in a subsidiary of Arnold (which
was initially acquired in 1994) by Hill-Rom. Payments in 1994 were for Arnold
by Hill-Rom and a Mexican casket manufacturer and U.S. casket distributor by
Batesville Casket.
The Company invested $15.7 million in limited partnerships in 1994.
Forethought invests the cash proceeds on insurance premiums predominantly
in U.S. treasuries and agencies and high-grade corporate bonds with fixed
maturities. The Company's objective is to purchase investment securities with
maturities that match the expected cash outflows of policy benefit payments.
During 1995, the investment portfolio was realigned to better meet this
objective, as reflected in the relatively large amount of sales prior to
maturity. Sales prior to maturity in 1995, 1994 and 1993 resulted in net gains.
FINANCING ACTIVITIES
The Company's long-term debt-to-equity ratio was 27.7% at year end 1995 compared
with 30.1% at year end 1994. This drop reflected scheduled debt payments of
$1.8 million and increased equity. Changes in short-term debt during 1995 were
for Hill-Rom's European operations. The Company has $100.0 million of
registered debentures available for issuance which, when combined with
additional debt capacity, existing cash and other working capital, affords
considerable flexibility in the funding of internal and external growth.
Quarterly cash dividends per share were 11.25CENTS in 1993, 14.25CENTS in
1994 and 15CENTS in 1995. An additional increase to 15.5CENTS per share was
approved in January 1996.
In 1995, Hillenbrand repurchased 760,000 shares of the Company's common
stock at a cost of $23.5 million, which compares with purchases of $19.8 million
in 1994 and $14.7 million in 1993.
INSURANCE ASSETS AND LIABILITIES
Insurance assets of $1,851.0 million grew 18.9% over the past year. Cash and
invested assets of $1,432.2 million constitute 77.4% of the assets. The
investments are concentrated in U.S. treasuries and agencies and high-grade
corporate bonds. The invested assets are more than adequate to fund the
insurance reserves and other liabilities of $1,267.9 million. Statutory
reserves represent 64% of the face value of insurance in force. Forethought
Life Insurance Company made a $10.4 million dividend payment to Hillenbrand
Industries in the fourth quarter of 1995 -- its first since Forethought's
inception. The statutory capital and surplus as a percent of statutory
liabilities of the life insurance subsidiary of Forethought was 8.5% at December
31, 1995, down from 9.1% on December 31, 1994. This drop reflects the dividend
payment discussed above. The long-term deferred tax benefit relative to
insurance operations results from differences in recognition of insurance policy
revenues and expenses for financial accounting and tax reporting purposes.
Financial accounting rules require ratable recognition of insurance product
revenues over the lives of the respective policies. These revenues are
recognized in the year of policy issue for tax purposes. This results in a
deferred future tax benefit. Insurance policy acquisition expenses must be
capitalized and amortized for both financial accounting and tax purposes.
Financial accounting rules require a greater amount to be capitalized and
amortized than for tax reporting. This results in a deferred future tax cost,
which partially offsets the deferred future tax benefit. Excluding the tax
effect of adjusting the investment portfolio to fair value as discussed below,
the net deferred future tax benefit increased $8.8 million in 1995, compared to
a $9.4 million increase in 1994.
-15-
SHAREHOLDERS' EQUITY
Cumulative treasury stock acquired in open market transactions increased to
11,583,572 shares in 1995, up from 10,823,572 shares in 1994. The Company
currently has Board of Directors' authorization to repurchase up to a total of
14,000,000 shares. Repurchased shares are used for general business purposes.
From the cumulative shares acquired, 14,537 shares, net of shares converted to
cash to pay withholding taxes, were reissued in 1995 to individuals under the
provisions of the Company's various stock compensation plans.
Under the restricted stock plan approved by the shareholders of the Company
on April 14, 1987, 324,600 shares have been awarded; 268,132 shares have been
distributed and/or deferred; and 56,468 shares have been forfeited to date. No
additional awards are contemplated at this time.
Under the performance compensation plan approved by the shareholders of the
Company on April 7, 1992, 386,096 shares were earned in 1993 based on each
subsidiary's and the Company's performance in 1992 and 1993.
OTHER ISSUES
ACCOUNTING CHANGES
In 1995, the Company adopted the following Statement of Financial Accounting
Standards (SFAS).
In accordance with the provisions of SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," the Company has classified the
investments in debt and equity securities of its insurance subsidiary as
"available for sale," and reported them at fair value on the balance sheet with
unrealized gains and losses charged or credited to a separate component of
shareholders' equity. These investments were written up $35.2 million from
their amortized cost of $1,373.0 million to their fair value of $1,408.2 million
on December 2, 1995. The insurance deferred tax asset was decreased $12.3
million to record the income tax effect and shareholders' equity ("accumulated
unrealized gain on investments") was increased $22.9 million. Adoption of this
standard did not affect results of operations or cash flows.
Disclosures requred by SFAS No. 119, "Disclosure about Derivative Financial
Instruments and Fair Value of Financial Instruments," can be found in Note 5 to
the consolidated financial statements.
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the undiscounted
expected future cash flows from use of the asset is less than the carrying
amount of the asset, an impairment loss is recognized. Long-lived assets and
certain identifiable intangibles to be disposed of are to be reported at the
lower of carrying amount or fair value less cost to sell. Adoption of this
statement did not have a material affect on the Company's financial position or
results of operations.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
October 1995, and is effective for fiscal years beginning after December
15,1995 (not later than fiscal year 1997 for the Company). The new standard
encourages companies to adopt a fair value based method of accounting for
employee stock-based compensation plans, but allows companies to continue to
account for those plans using the accounting prescribed by APB Opinion 25,
"Accounting for Stock Issued to Employees." The Company has not decided
whether it will adopt the fair value based method or, alternatively, the
pro-forma disclosure requirements of the new standard.
-16-
ENVIRONMENTAL MATTERS
Hillenbrand Industries is committed to operating all of its businesses in a way
that protects the environment. The Company has voluntarily entered into
remediation agreements with environmental authorities, and has been issued
Notices of Violation alleging violations of certain permit conditions.
Accordingly, the Company is in the process of implementing plans of abatement in
compliance with agreements and regulations. The Company has also been notified
as a potentially responsible party in investigations of certain offsite disposal
facilities. The cost of all plans of abatement and waste site cleanups in which
the Company is currently involved is not expected to exceed $10.0 million. The
Company has provided adequate reserves in its financial statements for these
matters. Recent changes in environmental law might affect the Company's future
operations, capital expenditures and earnings. The cost of complying with these
provisions is not known.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Self-reform of the health care industry, both in the U.S. and in Europe, will
continue for the foreseeable future. The most significant impact on
Hillenbrand Industries has been, and will continue to be, the change in
demand for capital goods in the acute care market as evidenced by the decline
in revenues and operating profit at Hill-Rom in 1994 and 1995. Although it
is difficult to predict the ultimate outcome of this reform, the Company
believes that investments in innovative products and services will enable it
to compete effectively in the changing acute care market. The Company also
believes that significant growth opportunities exist in the subacute markets
of long-term care and home care, and that its future success in these markets
is promising. Changes in Medicare policy, which eliminated reimbursement for
certain of Hill-Rom's pressure ulcer prevention products, will negatively
affect rental revenues and profitability beginning in the first quarter of
1996. Hill-Rom will continue its aggressive restructuring efforts in Germany
and the rest of Europe through 1996.
Batesville Casket will continue to strive for growth in what is an
essentially flat market for casketed deaths by providing its customers with
innovative products and services. With its Options cremation program,
Batesville believes that it will compete effectively in the growing cremation
market.
Forethought's revenue growth has slowed over the past three years as entry
into targeted states and other jurisdictions winds down. Product and commission
changes implemented in 1995 had a negative impact on policy sales volume in the
current year but should enhance long-term profitability. Forethought addressed
the increased competition it faces from trusts by increasing the crediting rate
on its policies relative to the GNP or CPI deflator, as appropriate. This
competition is expected to continue.
The Company's investments in operations in Canada and Mexico are minimal.
While its presence in Europe is growing, exchange rate fluctuations are not
material to its financial position and results of operations.
-17-
- - ----------------------------------------------------------------------------------------------
KEY FINANCIAL DATA (A)
- - ----------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
- - ----------------------------------------------------------------------------------------------
INCOME STATEMENT
- - ----------------------------------------------------------------------------------------------
% Pretax, preinterest expense,
income to revenues 11.7 10.7 16.8 15.3 14.8
% Net income to revenues 5.5 5.7 10.1 8.9 8.2
% Income taxes to pretax income 47.1 38.2 40.2 37.5 38.7
- - ----------------------------------------------------------------------------------------------
BALANCE SHEET
- - ----------------------------------------------------------------------------------------------
% Long-term debt to total capital 21.7 23.1 14.4 25.3 17.4
% Total debt to total capital 26.2 26.1 26.5 31.9 25.0
Current assets/current liabilities (B) 2.1 2.2 1.9 2.0 1.7
Working capital turnover (B) 4.2 4.6 4.7 5.1 7.6
- - ----------------------------------------------------------------------------------------------
PROFITABILITY
- - ----------------------------------------------------------------------------------------------
% Return on total capital 9.4 9.9 19.5 15.9 15.0
% Return on average shareholders' equity 12.7 13.4 25.2 23.1 19.7
- - ----------------------------------------------------------------------------------------------
Revenues/inventories (B) 12.9 13.7 14.7 14.1 11.3
Revenues/receivables (B) 4.6 4.7 5.2 5.3 5.4
- - ----------------------------------------------------------------------------------------------
STOCK MARKET
- - ----------------------------------------------------------------------------------------------
Year-end price/earnings (P/E) 25.4 23.2 20.4 25.5 24.4
Year-end price/book value 3.1 3.0 4.6 5.4 4.4
- - ----------------------------------------------------------------------------------------------
(A) RESTATED, WHERE APPLICABLE, TO EXCLUDE THE RESULTS OF THE DISCONTINUED
OPERATION.
(B) EXCLUDES INSURANCE OPERATIONS.
- - ----------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENT COMPARISON
- - ----------------------------------------------------------------------------------------------
Fiscal Year Percent Change
- - ----------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1995 1994 1993 1995/94 1994/93 1993/92
- - ----------------------------------------------------------------------------------------------
Net revenues:
Health Care sales $ 555.7 $ 590.9 $ 573.3 (6.0%) 3.1% 13.0%
Health Care rentals 368.0 333.1 302.4 10.5% 10.2% 6.6%
Funeral Services 515.5 498.8 456.3 3.4% 9.3% 7.0%
Insurance 185.7 154.2 115.9 20.5% 33.0% 35.4%
- - ----------------------------------------------------------------------------------------------
Total revenues $1,624.9 $1,577.0 $1,447.9 3.0% 8.9% 11.1%
- - ----------------------------------------------------------------------------------------------
Gross profit:
Health Care sales $ 208.6 $ 254.1 $ 269.7 (17.9%) (5.8%) 10.4%
Health Care rentals 121.6 113.6 101.5 7.0% 11.9% 21.1%
Funeral Services 237.5 230.4 211.2 3.1% 9.1% 8.3%
Insurance 45.2 39.8 38.4 13.8% 3.6% 18.5%
- - ----------------------------------------------------------------------------------------------
Total gross profit 612.9 637.9 620.8 (3.9%) 2.7% 11.7%
Administrative, distribution and
selling expenses 407.6 397.0 374.6 2.7% 6.0% 3.5%
Unusual charges 25.8 84.8 14.0 N/A N/A N/A
- - ----------------------------------------------------------------------------------------------
Operating profit 179.5 156.1 232.2 15.0% (32.8%) 19.9%
Other expense, net (9.7) (11.3) (10.6) (14.5%) 6.7% (33.3%)
- - ----------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 169.8 144.8 221.6 17.3% (34.7%) 24.6%
Income taxes 79.9 55.3 89.1 44.5% (37.9%) 33.8%
- - ----------------------------------------------------------------------------------------------
Income from continuing operations 89.9 89.5 132.5 0.4% (32.5%) 19.2%
Income from discontinued
operation net of income taxes - - 1.8 N/A N/A 131.5%
Gain on disposal of discontinued
operation net of income taxes - - 11.5 N/A N/A N/A
- - ----------------------------------------------------------------------------------------------
Net income $ 89.9 $ 89.5 $ 145.8 0.4% (38.6%) 25.4%
- - ----------------------------------------------------------------------------------------------
-18-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Financial Statements:
Report of Independent Accountants 20
Statements of Consolidated Income for the three years ended
December 2, 1995 21
Statements of Consolidated Shareholders' Equity for the three years
ended December 2, 1995 22
Statements of Consolidated Cash Flows for the three years ended
December 2, 1995 23
Consolidated Balance Sheets at December 2, 1995 and December 3, 1994 24
Notes to Consolidated Financial Statements 26
Financial Statement Schedules for the three years ended
December 2, 1995:
Schedule II - Valuation and Qualifying Accounts 43
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or the
notes thereto.
-19-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Hillenbrand Industries, Inc.
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
Hillenbrand Industries, Inc. and its subsidiaries at December 2, 1995 and
December 3, 1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 2, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Indianapolis, Indiana
January 15, 1996
-20-
STATEMENT OF CONSOLIDATED INCOME
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
- - -----------------------------------------------------------------------------------------------
DECEMBER 2, December 3, November 27,
Year Ended 1995 1994(53 weeks) 1993
- - -----------------------------------------------------------------------------------------------
Net revenues:
Health Care sales $ 555,677 $ 590,961 $ 573,324
Health Care rentals 367,971 333,129 302,373
Funeral Services 515,504 498,766 456,280
Insurance 185,729 154,178 115,936
- - -----------------------------------------------------------------------------------------------
Total revenues 1,624,881 1,577,034 1,447,913
- - -----------------------------------------------------------------------------------------------
Cost of revenues:
Health Care cost of goods sold 347,081 336,820 303,600
Health Care rental expenses 246,406 219,566 200,869
Funeral Services 277,952 268,378 245,086
Insurance 140,509 114,425 77,547
- - -----------------------------------------------------------------------------------------------
Total cost of revenues 1,011,948 939,189 827,102
Administrative, distribution and selling expenses 407,640 397,012 374,647
Unusual charges 25,830 84,750 14,000
- - -----------------------------------------------------------------------------------------------
Operating profit 179,463 156,083 232,164
Other income (expense), net:
Interest expense (20,317) (23,489) (21,325)
Investment income, net 14,410 13,282 8,872
Other (3,772) (1,116) 1,838
- - -----------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 169,784 144,760 221,549
Income taxes 79,924 55,298 89,063
- - -----------------------------------------------------------------------------------------------
Income from continuing operations 89,860 89,462 132,486
Income from discontinued
operation net of income taxes - - 1,778
Gain on disposal of discontinued
operation net of income taxes - - 11,554
- - -----------------------------------------------------------------------------------------------
Net income $ 89,860 $ 89,462 $ 145,818
- - -----------------------------------------------------------------------------------------------
Earnings per common share:
Income from continuing operations $ 1.27 $ 1.26 $ 1.86
Income from discontinued operation
net of income taxes - - .02
Gain on disposal of discontinued
operation net of income taxes - - .16
- - -----------------------------------------------------------------------------------------------
Net income per common share $ 1.27 $ 1.26 $ 2.04
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
Dividends per common share $ .60 $ .57 $ .45
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
Average number of common shares outstanding 70,757,868 71,278,213 71,406,998
- - -----------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-21-
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
- - ----------------------------------------------------------------------------------------------------------------
DECEMBER 2, December 3, November 27,
Year Ended 1995 1994 (53 weeks) 1993
- - ----------------------------------------------------------------------------------------------------------------
Common stock $ 4,442 $ 4,442 $ 4,442
- - ----------------------------------------------------------------------------------------------------------------
Additional paid-in capital:
Beginning of year 11,587 3,900 3,228
Fair market value over (under) cost on
reissuance of treasury shares (1995 - 14,537;
1994 - 270,626; 1993 - 23,587) (61) 7,669 666
Other 1,712 18 6
- - ----------------------------------------------------------------------------------------------------------------
End of year 13,238 11,587 3,900
- - ----------------------------------------------------------------------------------------------------------------
Retained earnings:
Beginning of year 828,744 779,923 666,241
Net income 89,860 89,462 145,818
Dividends (42,471) (40,641) (32,136)
- - ----------------------------------------------------------------------------------------------------------------
End of year 876,133 828,744 779,923
- - ----------------------------------------------------------------------------------------------------------------
Accumulated unrealized gain on investments:
Beginning of year - - -
Net unrealized holding gain 22,861 - -
- - ----------------------------------------------------------------------------------------------------------------
End of year 22,861 - -
- - ----------------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment:
Beginning of year 10,478 (1,643) 6,462
Translation adjustment 3,621 12,121 (8,105)
- - ----------------------------------------------------------------------------------------------------------------
End of year 14,099 10,478 (1,643)
- - ----------------------------------------------------------------------------------------------------------------
Treasury stock:
Beginning of year (161,760) (146,690) (132,423)
Shares acquired (1995 - 760,000;
1994 - 610,300; 1993 - 340,826) (23,499) (19,803) (14,662)
Shares reissued 250 4,733 395
- - ----------------------------------------------------------------------------------------------------------------
End of year (185,009) (161,760) (146,690)
- - ----------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity $ 745,764 $ 693,491 $ 639,932
- - ----------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-22-
STATEMENT OF CONSOLIDATED CASH FLOWS
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
- - ---------------------------------------------------------------------------------------------------------
DECEMBER 2, December 3, November 27,
Year Ended 1995 1994 (53 weeks) 1993
- - ---------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $89,860 89,462 $145,818
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation, amortization and writedown of goodwill 127,612 97,506 112,743
Change in noncurrent deferred income taxes (13,301) (10,542) (15,780)
Gain on disposal of discontinued operation - - (16,306)
Current income taxes on gain - - 4,752
Change in working capital excluding cash, current
debt, acquisitions and dispositions:
Trade accounts receivable (13,230) (36,650) (19,617)
Inventories (6,070) (444) (2,698)
Other current assets (1,369) (1,734) 5,652
Trade accounts payable 18,316 1,181 2,368
Accrued expenses and other liabilities 7,462 (27,361) 520
Change in insurance deferred policy acquisition costs (58,141) (63,386) (52,313)
Change in other insurance items, net 34,051 17,922 28,719
Other, net (6,188) (3,227) 16,028
- - ---------------------------------------------------------------------------------------------------------
Net Cash Flows From Operating Activities 179,002 62,727 209,886
- - ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (102,595) (99,512) (112,735)
Proceeds on disposal of fixed assets and equipment
leased to others 1,857 1,535 925
Acquisitions of businesses, net of cash acquired (3,534) (39,868) (21,736)
Other investments - (15,664) -
Proceeds from disposal of discontinued operation - - 55,285
Insurance investments:
Purchases (551,711) (527,193) (571,011)
Proceeds on maturities 64,561 210,534 247,608
Proceeds on sales prior to maturity 289,650 63,775 92,035
- - ---------------------------------------------------------------------------------------------------------
Net Cash Flows From Investing Activities (301,772) (406,393) (309,629)
- - ---------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to short-term debt 22,829 4,287 7,052
Reductions to short-term debt (7,691) (2,760) (37,794)
Additions to long-term debt - 100,000 21
Reductions to long-term debt (1,805) (77,338) (7,931)
Payment of cash dividends (42,471) (40,641) (32,136)
Treasury stock acquired (23,499) (19,803) (14,662)
Insurance premiums received 427,409 459,000 372,629
Insurance benefits paid (201,018) (168,877) (127,268)
- - ---------------------------------------------------------------------------------------------------------
Net Cash Flows From Financing Activities 173,754 253,868 159,911
- - ---------------------------------------------------------------------------------------------------------
TOTAL CASH FLOWS 50,984 (89,798) 60,168
CASH AND CASH EQUIVALENTS:
At Beginning of Year 120,359 210,157 149,989
- - ---------------------------------------------------------------------------------------------------------
At End of Year $171,343 $120,359 $210,157
- - ---------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-23-
CONSOLIDATED BALANCE SHEET
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
- - --------------------------------------------------------------------------------
DECEMBER 2, December 3,
1995 1994
- - --------------------------------------------------------------------------------
ASSETS
- - --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 171,343 $ 120,359
Trade accounts receivable, less allowances of
$19,833 in 1995 and $13,982 in 1994 313,483 299,598
Inventories 111,679 104,229
Other current assets 43,660 42,275
- - --------------------------------------------------------------------------------
Total current assets 640,165 566,461
- - --------------------------------------------------------------------------------
EQUIPMENT LEASED TO OTHERS 261,562 222,470
Less accumulated depreciation 170,233 146,348
- - --------------------------------------------------------------------------------
Equipment leased to others, net 91,329 76,122
- - --------------------------------------------------------------------------------
PROPERTY 649,497 613,756
Less accumulated depreciation 373,767 331,286
- - --------------------------------------------------------------------------------
Property, net 275,730 282,470
- - --------------------------------------------------------------------------------
OTHER ASSETS:
Intangible assets at amortized cost:
Patents and trademarks 28,589 40,036
Excess of cost over net asset values of
acquired companies 125,851 138,038
Other 8,553 10,194
Deferred charges and other assets 49,076 44,254
- - --------------------------------------------------------------------------------
Total other assets 212,069 232,522
- - --------------------------------------------------------------------------------
INSURANCE ASSETS (NOTE 9):
Investments 1,432,222 1,198,539
Deferred acquisition costs 339,330 281,189
Deferred income taxes 39,518 43,051
Other 39,893 33,799
- - --------------------------------------------------------------------------------
TOTAL INSURANCE ASSETS 1,850,963 1,556,578
- - --------------------------------------------------------------------------------
TOTAL ASSETS $ 3,070,256 $ 2,714,153
- - --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-24-
- - --------------------------------------------------------------------------------
DECEMBER 2, December 3,
1995 1994
- - --------------------------------------------------------------------------------
LIABILITIES
- - --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Short-term debt (Note 3) $ 40,450 $ 25,206
Current portion of long-term debt (Note 3) 2,315 1,805
Trade accounts payable 70,743 52,427
Income taxes payable (Note 7) 12,440 7,872
Accrued compensation 62,253 60,874
Other liabilities (Note 12) 112,520 111,005
- - --------------------------------------------------------------------------------
Total current liabilities 300,721 259,189
- - --------------------------------------------------------------------------------
LONG-TERM DEBT (NOTE 3) 206,783 208,729
- - --------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES (NOTES 4 AND 12) 79,343 78,045
- - --------------------------------------------------------------------------------
DEFERRED INCOME TAXES (NOTES 1 AND 7) 14,945 19,470
- - --------------------------------------------------------------------------------
INSURANCE LIABILITIES (NOTE 9):
Benefit reserves 1,252,737 1,059,984
Unearned revenues 454,763 380,593
General liabilities 15,200 14,652
- - --------------------------------------------------------------------------------
TOTAL INSURANCE LIABILITIES 1,722,700 1,455,229
- - --------------------------------------------------------------------------------
TOTAL LIABILITIES 2,324,492 2,020,662
- - --------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 12)
- - --------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTE 4)
- - --------------------------------------------------------------------------------
COMMON STOCK - WITHOUT PAR VALUE:
AUTHORIZED - 199,000,000 SHARES
ISSUED - 80,323,912 SHARES IN 1995 AND 1994 4,442 4,442
Additional paid-in capital 13,238 11,587
Retained earnings (Note 3) 876,133 828,744
Accumulated unrealized gain on investments 22,861 -
Foreign currency translation adjustment 14,099 10,478
Treasury stock, at cost: 1995 - 10,146,528 shares;
1994 - 9,401,065 shares (185,009) (161,760)
- - --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 745,764 693,491
- - --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,070,256 $ 2,714,153
- - --------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-25-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies specific to insurance operations are summarized in Note 9.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, except for several small subsidiaries which
provide ancillary services to the Company and the public. These subsidiaries
are not consolidated because of their materiality and are accounted for by the
equity method. Their results of operations appear in the income statement, net
of income taxes, under the caption "Other income (expense), net." Operating
results for American Tourister, which was sold on August 30, 1993, are reported
separately as a discontinued operation, net of income taxes, in the income
statement. Material intercompany accounts and transactions have been eliminated
in consolidation.
The Company's fiscal year is the 52 or 53 week period ending the Saturday
nearest November 30.
CASH AND CASH EQUIVALENTS
The Company considers investments in marketable securities and other highly
liquid instruments with a maturity of three months or less to be cash
equivalents.
INVENTORIES
Inventories are valued at the lower of cost or market. The last-in, first-out
(LIFO) method was used for determining the cost of approximately 65% of total
inventories at December 2, 1995, 62% at December 3, 1994, and 66% at November
27, 1993. The cost for the remaining portion of the inventories was determined
using the first-in, first-out (FIFO) method. The LIFO reserve, which
approximates the excess of the current cost of inventories over the stated LIFO
values, increased from $8.2 million at year-end 1993 to $9.3 million at year-end
1994 and to $12.1 million at year-end 1995.
EQUIPMENT LEASED TO OTHERS
Equipment leased to others represents therapy rental units, which are recorded
at cost and depreciated on a straight-line basis over their average economic
life. These units are leased on a day-to-day basis.
PROPERTY
Property is recorded at cost and depreciated over the estimated useful life of
the assets using principally the straight-line method for financial reporting
purposes. Generally, when property is retired from service or otherwise
disposed of, the cost and related amount of depreciation or amortization are
eliminated from the asset and reserve accounts, respectively. The difference,
if any, between the net asset value and the proceeds is charged or credited to
income. The major components of property at the end of 1995 and 1994 were:
- - ---------------------------------------------------------------------------
1995 1994
- - ---------------------------------------------------------------------------
Land $ 27,505 $ 26,973
Buildings and building equipment 145,453 141,789
Machinery and equipment 476,539 444,994
- - ---------------------------------------------------------------------------
Total $ 649,497 $ 613,756
- - ---------------------------------------------------------------------------
-26-
INTANGIBLE AND OTHER NON-CURRENT ASSETS
Intangible assets are stated at cost and are amortized on a straight-line basis
over periods ranging from 3 to 40 years. The Company reviews goodwill and other
non-current assets for impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. If the undiscounted
expected future cash flows from use of the asset is less than its carrying
value, an impairment loss is recognized. The amount of the impairment loss is
determined by comparing the discounted expected future cash flows (including
terminal value) with the carrying value. Goodwill related to the acquisition of
Block Medical in 1991 was written down $20.0 million in the fourth quarter of
1995. Changes in market conditions, the performance of certain products and
increased competitive pressures resulted in a significant reduction in
management's expectations regarding Block's future cash flows. In the fourth
quarter of 1993, goodwill relative to Block was written down $14.0 million.
Certain assets relative to the acquisition of Arnold in 1994 that are being
held for disposal, were written down $5.8 million in the fourth quarter of 1995
to their estimated fair value less cost of disposition.
Accumulated amortization of intangible assets was $163,836 and $133,181 as
of December 2, 1995, and December 3, 1994, respectively.
ENVIRONMENTAL LIABILITIES
Expenditures that relate to an existing condition caused by past operations, and
which do not contribute to current or future revenue generation, are expensed.
A reserve is established when it is probable that a liability has been incurred
and the amount of the loss can be reasonably estimated. More specifically, each
quarter, financial management, in consultation with its environmental engineer,
estimates the range of liability based on current interpretation of
environmental laws and regulations. For each site in which a Company unit is
involved, a determination is made of the specific measures that are believed to
be required to remediate the site, the estimated total cost to carry out the
remediation plan and the periods in which the Company will make payments toward
the remediation plan. The Company does not make an estimate of general or
specific inflation for environmental matters since the number of sites is small,
the magnitude of costs to execute remediation plans are not significant and the
estimated time frames to remediate sites are not believed to be lengthy.
Specific costs included in environmental expense are site assessment,
development of a remediation plan, clean-up costs, post-remediation
expenditures, monitoring, fines, penalties and legal fees. The reserve
represents the expected undiscounted future cash outflows.
Expenditures that relate to current operations are charged to expense.
REVENUE RECOGNITION
Sales are recognized upon shipment of products to customers. Rental revenues
are recognized when services are rendered.
COST OF REVENUES
Health Care and Funeral Services cost of goods sold consist primarily of
purchased material costs, fixed manufacturing expense, and variable direct labor
and overhead costs. Health Care rental expenses are those costs associated
directly with rental revenue, including depreciation and service of the
Company's therapy rental units, service center facility and personnel costs, and
regional sales expenses.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the average
number of shares outstanding during each year, including restricted shares
issued to employees. Common equivalent shares arising from shares awarded under
the Senior Executive Compensation Program, which was initiated in fiscal year
1978, have been excluded from the computation because of their insignificant
dilutive effect.
-27-
RETIREMENT PLANS
The Company and its subsidiaries have several defined benefit retirement plans
covering the majority of employees, including certain employees in foreign
countries. The Company contributes funds to trusts as necessary to provide for
current service and for any unfunded projected future benefit obligation over a
reasonable period. The benefits for these plans are based primarily on years of
service and the employee's level of compensation during specific periods of
employment.
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.5% and 5.5%, respectively, for 1995, 8.0%
and 6.0%, respectively, for 1994, and 7.5% and 6.0%, respectively, for 1993.
The expected long-term rate of return on assets was 8.0% for 1995, 1994 and
1993.
Net pension expense includes the following components:
- - --------------------------------------------------------------------------------
1995 1994 1993
- - --------------------------------------------------------------------------------
Service expense-benefits earned during the year $ 6,301 $ 5,310 $ 4,640
Interest expense on projected benefit obligation 7,371 6,952 6,447
Actual loss (return) on plan assets (11,838) 6,893 (6,717)
Net amortization and deferral 3,649 (13,555) 566
- - --------------------------------------------------------------------------------
Net pension expense $ 5,483 $ 5,600 $ 4,936
- - --------------------------------------------------------------------------------
The funded status of the plans is shown in the table below:
- - --------------------------------------------------------------------------------
DECEMBER 2, December 3,
1995 1994
- - --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $69,200 in 1995 and $57,805 in 1994 ($73,725) ($61,753)
- - --------------------------------------------------------------------------------
Projected benefit obligation for service
rendered to date ($109,673) ($94,817)
Plan assets at fair value, primarily U.S. Government
obligations, corporate bonds and notes, and common
stock issued by the Company. The value of this common
stock at date of acquisition by the plans was $2,613
and the current market value was $15,065 in 1995 and
$13,743 in 1994. 99,242 83,315
- - --------------------------------------------------------------------------------
Plan assets less than projected benefit obligation (10,431) (11,502)
Unrecognized net gain from past experience different
from that assumed (16,247) (16,405)
Unrecognized prior service cost 2,627 2,853
Unrecognized net asset at year-end being recognized
over 14 to 22 years from the initial compliance date
of December 1, 1985 (1,154) (1,290)
- - --------------------------------------------------------------------------------
Unfunded accrued expenses included in liabilities ($25,205) ($26,344)
- - --------------------------------------------------------------------------------
-28-
In addition to the above plans, the Company assumed the unfunded
liabilities of a defined benefit plan in the acquisition of Arnold in 1994. The
unfunded accumulated benefit obligation of this plan, included in accrued
expenses, was $13,725 on December 2, 1995, and $12,932 on December 3, 1994.
Pension expense was $989 in 1995 and $1,000 in 1994.
The Company also sponsors several defined contribution plans covering
certain of its employees. Employer contributions are made to these plans based
on a percentage of employee compensation. The cost of these defined
contribution plans was $5,082 in 1995, $7,170 in 1994, and $5,928 in 1993.
INCOME TAXES
The Company and its eligible subsidiaries file a consolidated income tax return.
Deferred income taxes are computed in accordance with SFAS No. 109, "Accounting
for Income Taxes." Deferred income taxes reflect the net tax effects of
temporary differences between the financial reporting carrying amounts of assets
and liabilities and the income tax amounts.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated into U.S. dollars at
year-end rates of exchange and the income statements are translated at the
average rates of exchange prevailing during the year. Adjustments resulting
from translation of the financial statements of foreign operations into U.S.
dollars are excluded from the determination of net income and included as a
separate caption in shareholders' equity. Foreign currency gains and losses
resulting from transactions are included in results of operations and are not
material.
2. ACQUISITIONS
The Company's subsidiary, Batesville Casket Company, purchased two regional
casket distributors in 1995 and Hill-Rom purchased the remaining minority
interest in a subsidiary of Arnold, which was initially acquired in 1994. The
total purchase price for these businesses in 1995 was $3.5 million.
In addition to the acquisition of Arnold by Hill-Rom, Batesville Casket
acquired Industrias Arga, S.A. de C.V., a Mexican casket manufacturer and
distributor, and a U.S. casket distributor, in 1994. The combined purchase
price of these companies (the predominant share of which related to Arnold)
consisted of cash in the amount of $39.9 million and the assumption of net
liabilities of $6.4 million. The resulting goodwill of $46.3 million is being
amortized on a straight-line basis, primarily over 40 years.
3. FINANCING AGREEMENTS
The Company's various financing agreements contain no provisions or conditions
relating to dividend payments, working capital and additional indebtedness.
-29-
Long-term debt consists of the following:
- - --------------------------------------------------------------------------------
DECEMBER 2, December 3,
1995 1994
- - --------------------------------------------------------------------------------
Unsecured 8 1/2% debentures due on December 1, 2011 $100,000 $ 100,000
Unsecured 7% debentures due on February 15, 2024 100,000 100,000
Government sponsored bond with an interest rate of 5.0%
and maturities to 2008 2,860 3,080
Other 6,238 7,454
- - --------------------------------------------------------------------------------
Total 209,098 210,534
Less current portion 2,315 1,805
- - --------------------------------------------------------------------------------
Total long-term debt $ 206,783 $ 208,729
- - --------------------------------------------------------------------------------
The scheduled payments on the long-term debt as of December 2, 1995 are:
$2,315 in 1996; $1,079 in 1997; $890 in 1998; $798 in 1999 and $798 in 2000.
Short-term debt consists of various lines of credit maintained for foreign
subsidiaries. The weighted average interest rate on all short-term borrowings
outstanding as of December 2, 1995, and December 3, 1994, was 6% and 7%,
respectively.
At December 2, 1995, the Company had a $45.0 million line of credit
available for its European operations. This agreement expired in March 1996 and
had no commitment fees or compensating balance requirements.
4. SHAREHOLDERS' EQUITY
One million shares of preferred stock, without par value, have been authorized
and none have been issued.
At December 2, 1995, the Company has three stock-based compensation
plans; the Senior Executive Compensation Program, the Performance
Compensation Plan, and the Restricted Stock Plan, which are described below.
All shares issued under these plans are valued at market trading prices. The
Company's Senior Executive Compensation Program, initiated in fiscal year
1978, provides long-term performance share compensation, which contemplates
annual payments of common stock of the Company to participants contingent on
their continued employment and upon achievement of pre-established financial
objectives of the Company over succeeding three-year periods. A total of
1,154,981 shares of common stock of the Company remain reserved for issuance
under the program. Total tentative performance shares payable through
December 2, 1995, were 45,070. In addition, the Senior Executive
Compensation Program provides for participants to defer payment of long-term
performance share and other compensation earned in prior years. A total of
208,898 deferred shares are payable as of December 2, 1995.
On April 7, 1992, the shareholders of the Company approved the adoption of
the Performance Compensation Plan whereby key employees will be awarded
tentative performance shares based upon achievement of performance targets. A
total of 1,296,899 shares of common stock remain reserved for issuance under
this plan as of December 2, 1995. In 1993, 386,096 shares were earned based on
the Company's performance. A total of 7,879 deferred shares are payable as of
December 2, 1995 under this plan. The plan will terminate on November 30, 2001.
On April 14, 1987, the shareholders of the Company approved the adoption of
a restricted stock plan whereby key employees may be granted restricted shares
of the Company's stock. The restrictions lapse after six years; or earlier if
certain financial goals are exceeded. 2,000,000 shares of common stock were
designated for this plan. Remaining authorized restricted shares may be awarded
up to April 15, 1997, and the vesting periods begin when the shares are awarded.
324,600 shares have been awarded, 268,132 shares have been distributed and/or
deferred, and 56,468 shares have been forfeited as of December 2, 1995. No
additional awards are contemplated at this time.
-30-
Members of the Board of Directors may elect to defer fees earned as
reinvested in common stock of the Company. A total of 5,974 deferred shares are
payable as of December 2, 1995, under this program.
The Board of Directors has authorized the repurchase, from time to time, of
up to 14,000,000 shares of the Company's stock in the open market. The
purchased shares will be used for general corporate purposes. As of December 2,
1995, a total of 11,583,572 shares had been purchased at market trading prices.
5. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments (other than Insurance investments which are
described in Note 9) for which it is practicable to estimate that value:
The carrying amounts of cash and cash equivalents, trade accounts
receivable, other current assets, trade accounts payable, and accrued expenses
approximate fair value because of the short maturity of those instruments.
The fair value of the Company's debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The estimated fair
values of the Company's debt instruments are as follows:
- - --------------------------------------------------------------------------------
DECEMBER 2, 1995
- - --------------------------------------------------------------------------------
CARRYING FAIR
AMOUNT VALUE
- - --------------------------------------------------------------------------------
Short-term debt $ 40,450 $ 40,450
Long-term debt $ 209,098 $ 230,068
- - --------------------------------------------------------------------------------
The carrying amount of derivative financial instruments held by the Company are
as follows:
- - --------------------------------------------------------------------------------
DECEMBER 2, 1995 December 3, 1994
- - --------------------------------------------------------------------------------
Cross-currency swap $ - $15,756
The cross-currency swap (held for less than one year) was part of a transaction
to hedge the U.S. dollar value of French franc advances by the Company to its
French subsidiary.
6. SEGMENT INFORMATION
INDUSTRY INFORMATION
The Health Care segment consists of Hill-Rom and Block Medical. Results for
Medeco Security Locks are included in this segment due to its relative size.
Hill-Rom produces and sells electric hospital beds, patient room furniture and
patient handling equipment designed to meet the needs of acute care and
perinatal providers. It also provides rental therapy units to health care
facilities and the home care market for wound therapy, the management of
pulmonary complications associated with critically ill patients and incontinence
management. Block manufactures and sells home infusion therapy products,
including portable-disposable infusion pumps and ambulatory-electronic infusion
pumps for antibiotic, nutritional, chemotherapy and other drug therapies.
Medeco produces and sells high-security mechanical locks and lock cylinders and
electronic security systems for commercial, residential and government
applications.
-31-
The Funeral Services segment consists of Batesville Casket Company and
Forecorp. Batesville manufactures and sells a variety of metal and hardwood
caskets and a line of urns and caskets used in cremation. Batesville's products
are sold to licensed funeral directors operating licensed funeral homes.
Forecorp's subsidiaries, Forethought Life Insurance Company and The Forethought
Group, Inc., provide funeral planning professionals with marketing support for
Forethought-Registered Trademark- funeral plans funded by life insurance
policies. Product transfers between industry segments are not material. Note 9
contains additional information regarding insurance operations.
Financial information regarding the Company's industry segments is presented
below:
- - --------------------------------------------------------------------------------
DECEMBER 2, December 3, November 27,
Year Ended 1995 1994 1993
(53 weeks)
- - --------------------------------------------------------------------------------
Net revenues:
Health Care $ 923,648 $ 924,090 $ 875,697
Funeral Services 701,233 652,944 572,216
- - --------------------------------------------------------------------------------
Consolidated $ 1,624,881 $ 1,577,034 $ 1,447,913
- - --------------------------------------------------------------------------------
Operating profit:
Health Care (a) (b) (c) $ 61,740 $ 45,739 $ 132,732
Funeral Services 133,991 122,873 114,641
Corporate and other (16,268) (12,529) (15,209)
- - --------------------------------------------------------------------------------
Consolidated 179,463 156,083 232,164
Interest expense (20,317) (23,489) (21,325)
Investment income 14,410 13,282 8,872
Other income (expense), net (3,772) (1,116) 1,838
- - --------------------------------------------------------------------------------
Income from continuing operations before
income taxes $ 169,784 $ 144,760 $ 221,549
- - --------------------------------------------------------------------------------
Identifiable assets:
Health Care (a) (b) $ 713,093 $ 701,292 $ 568,398
Funeral Services 2,120,585 1,825,928 1,468,111
Corporate and other 236,578 186,933 254,879
- - --------------------------------------------------------------------------------
Consolidated $ 3,070,256 $ 2,714,153 $ 2,291,388
- - --------------------------------------------------------------------------------
Capital expenditures:
Health Care $ 77,003 $ 74,748 $ 78,063
Funeral Services 23,516 22,803 31,758
Corporate and other (d) 2,076 1,961 2,914
- - --------------------------------------------------------------------------------
Consolidated $ 102,595 $ 99,512 $ 112,735
- - --------------------------------------------------------------------------------
Depreciation and amortization:
Health Care (a) $ 100,237 $ 69,300 $ 83,667
Funeral Services 23,832 24,078 22,549
Corporate and other (d) 3,543 4,128 6,527
- - --------------------------------------------------------------------------------
Consolidated $ 127,612 $ 97,506 $ 112,743
- - --------------------------------------------------------------------------------
(a) REFLECTS CHARGES OF $20,000 IN 1995 AND $14,000 IN 1993 FOR THE WRITEDOWN
OF GOODWILL.
(b) REFLECTS A $5,830 CHARGE IN 1995 FOR THE WRITEDOWN OF CERTAIN ASSETS OF A
MANUFACTURING FACILITY TO BE DIPOSED OF.
(c) REFLECTS AN $84,750 CHARGE IN 1994 FOR SETTLEMENT OF A PATENT INFRINGEMENT
SUIT.
(d) INCLUDES AMOUNTS RELATIVE TO THE DISCONTINUED OPERATION.
-32-
GEOGRAPHIC INFORMATION
Sales between geographic area are at transfer prices, which are equivalent to
market value.
- - ------------------------------------------------------------------------------------------------------------------------------
United Other Corporate
States (a) Europe (b) International and Other Eliminations Consolidated
- - ------------------------------------------------------------------------------------------------------------------------------
1995:
Net revenues:
To unaffiliated customers $ 1,354,826 $ 220,574 $ 49,481 $ - $ - $ 1,624,881
Transfers to other geographic areas 37,168 - 7 - (37,175) -
- - ------------------------------------------------------------------------------------------------------------------------------
Total net revenues $ 1,391,994 $ 220,574 $ 49,488 $ - $ (37,175) $ 1,624,881
- - ------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 224,502 $ (29,436) $ (65) $ (16,268) $ 730 $ 179,463
- - ------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 2,574,619 $ 376,738 $ 24,525 $ 236,578 $ (142,204) $ 3,070,256
- - ------------------------------------------------------------------------------------------------------------------------------
1994 (53 weeks):
Net revenues:
To unaffiliated customers $ 1,349,877 $ 176,408 $ 50,749 $ - $ - $ 1,577,034
Transfers to other geographic areas 39,157 - 4 - (39,161) -
- - ------------------------------------------------------------------------------------------------------------------------------
Total net revenues $ 1,389,034 $ 176,408 $ 50,753 $ - $ (39,161) $ 1,577,034
- - ------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 181,025 $ (9,034) $ (3,966) $ (12,529) $ 587 $ 156,083
- - ------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 2,363,726 $ 214,953 $ 25,510 $ 186,933 $ (76,969) $ 2,714,153
- - ------------------------------------------------------------------------------------------------------------------------------
1993:
Net revenues:
To unaffiliated customers $ 1,279,141 $ 121,798 $ 46,974 $ - $ - $ 1,447,913
Transfers to other geographic areas 38,108 - 17 - (38,125) -
- - ------------------------------------------------------------------------------------------------------------------------------
Total net revenues $ 1,317,249 $ 121,798 $ 46,991 $ - $ (38,125) $ 1,447,913
- - ------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 248,517 $ (1,270) $ 122 $ (15,209) $ 4 $ 232,164
- - ------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 1,968,689 $ 143,431 $ 19,492 $ 254,879 $ (95,103) $ 2,291,388
- - ------------------------------------------------------------------------------------------------------------------------------
(a) REFLECTS UNUSUAL CHARGES OF $20,000 IN 1995 AND $14,000 IN 1993 FOR THE
WRITEDOWN OF GOODWILL AND $84,750 IN 1994 FOR SETTLEMENT OF A PATENT
INFRINGEMENT SUIT.
(b) REFLECTS AN UNUSUAL CHARGE OF $5,830 IN 1995 FOR THE WRITEDOWN OF CERTAIN
ASSETS OF A MANUFACTURING FACILITY TO BE DISPOSED OF.
7. INCOME TAXES
Income taxes are computed in accordance with SFAS No. 109. The significant
components of the income tax provision (benefit) are as follows.
- - --------------------------------------------------------------------------------
1995 1994 1993
(53 weeks)
- - --------------------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes:
Domestic $206,981 $162,542 $227,073
Foreign (37,197) (17,782) (5,524)
- - --------------------------------------------------------------------------------
Total $169,784 $144,760 $221,549
- - --------------------------------------------------------------------------------
Provision for income taxes:
Current items:
Federal $ 83,019 $ 57,552 $ 91,590
State 11,935 8,452 14,075
Foreign (912) (445) 172
- - --------------------------------------------------------------------------------
Total current items 94,042 65,559 105,837
- - --------------------------------------------------------------------------------
Deferred items:
Federal (11,535) (9,552) (16,549)
State (1,586) (325) (224)
Foreign (997) (384) (1)
- - --------------------------------------------------------------------------------
Total deferred items (14,118) (10,261) (16,774)
- - --------------------------------------------------------------------------------
Provision for income taxes $ 79,924 $ 55,298 $ 89,063
- - --------------------------------------------------------------------------------
-33-
The fiscal year differences between the amounts recorded for income taxes
on income from continuing operations for financial statement purposes and the
amounts computed by applying the Federal statutory tax rate to income from
continuing operations before taxes are explained as follows:
- - --------------------------------------------------------------------------------
1995 1994 (53 weeks) 1993
- - --------------------------------------------------------------------------------
% OF % of % of
PRETAX Pretax Pretax
AMOUNT INCOME Amount Income Amount Income
- - --------------------------------------------------------------------------------
Federal income
tax (A) $ 59,424 35.0 $50,666 35.0 $77,321 34.9
State income
tax (B) 6,727 4.0 5,283 3.6 9,017 4.1
Foreign income
tax (C) 11,110 6.5 5,395 3.7 1,960 0.9
Goodwill write-down (a) 7,000 4.1 - - 4,886 2.2
Other, net (4,337) (2.5) (6,046) (4.1) (4,121) (1.9)
- - --------------------------------------------------------------------------------
Provision for
income taxes $79,924 47.1 $55,298 38.2 $89,063 40.2
- - --------------------------------------------------------------------------------
(A) AT STATUTORY RATE.
(B) NET OF FEDERAL BENEFIT.
(C) FEDERAL TAX RATE DIFFERENTIAL.
The tax effect of temporary differences that give rise to significant
portions of the deferred tax balance sheet accounts were as follows:
- - --------------------------------------------------------------------------------
DECEMBER 2, 1995 December 3, 1994
- - --------------------------------------------------------------------------------
NON-INSURANCE INSURANCE Non-insurance Insurance
- - --------------------------------------------------------------------------------
Deferred tax assets:
Current:
Inventories $ 4,207 $ - $ 3,379 $ -
Employee benefit accruals 3,809 - 3,877 -
Self insurance accruals 8,955 - 6,417 -
Litigation accruals 854 - 1,828 -
Other, net 6,890 1,653 8,376 -
Long-term:
Employee benefit accruals 17,142 477 16,287 483
Deferred policy revenues - 159,167 - 133,208
Foreign loss carryforwards 28,467 - 16,400 -
Other, net 4,586 29 8,019 63
- - --------------------------------------------------------------------------------
Subtotal 74,910 161,326 64,583 133,754
Less valuation allowance for
foreign loss carryforwards (27,972) - (16,400) -
- - --------------------------------------------------------------------------------
Total assets $ 46,938 $ 161,326 $ 48,183 $ 133,754
- - --------------------------------------------------------------------------------
Deferred tax liabilities:
Current:
Inventories $ 2,011 $ - $ 1,937 $ -
Other, net 1,550 - 1,604 -
Long-term:
Depreciation 35,247 207 36,938 -
Amortization 1,689 - 2,505 -
Unrealized gain on
investments - 12,310 - -
Benefit reserves - 8,317 - 7,685
Deferred acquisition costs - 97,604 - 79,779
Other, net 232 3,370 4,333 3,239
- - --------------------------------------------------------------------------------
Total liabilities $ 40,729 $ 121,808 $ 47,317 $ 90,703
- - --------------------------------------------------------------------------------
-34-
Remaining unutilized foreign loss carryforwards were approximately $66.9
million and $39.0 million on December 2, 1995, and December 3, 1994,
respectively. There is not currently sufficient positive evidence as required
by SFAS No. 109 to substantiate recognition of net deferred tax assets in the
financial statements for those foreign subsidiaries in net operating loss
carryforward positions. Accordingly, a valuation allowance of $27,972 has been
recorded. It is reasonably possible that sufficient positive evidence could be
generated in the near term at one or more of these foreign subsidiaries to
support a reduction in the valuation allowance and a resulting recognition of
net deferred tax assets.
8. SUPPLEMENTARY INFORMATION
The following amounts were (charged) or credited to income in the year
indicated:
- - --------------------------------------------------------------------------------
1995 1994 (53 weeks) 1993
- - --------------------------------------------------------------------------------
Rental expense (A) ($17,282) ($20,040) ($19,037)
Research and
development costs (A) ($38,918) ($35,012) ($30,359)
Investment income, net (A) (B) $14,410 $13,282 $ 8,872
- - --------------------------------------------------------------------------------
(A) FROM CONTINUING OPERATIONS ONLY.
(B) EXCLUDES INSURANCE OPERATIONS.
The table below indicates the minimum annual rental commitments (excluding
renewable periods) aggregating $47,667, primarily for warehouses, under
noncancellable operating leases.
- - --------------------------------------------------------------------------------
1996 $ 13,582
1997 $ 10,175
1998 $ 7,446
1999 $ 5,971
2000 $ 3,793
2001 and beyond $ 6,700
- - --------------------------------------------------------------------------------
The table below provides supplemental information to the statement of
consolidated cash flows.
- - --------------------------------------------------------------------------------
1995 1994 (53 weeks) 1993
- - --------------------------------------------------------------------------------
Cash paid for:
Income taxes $ 89,611 $ 84,605 $116,043
Interest $ 20,297 $ 26,099 $ 21,322
Non-cash investing and
financing activities:
Liabilities assumed from/incurred
for the acquisition of businesses $ 5,453 $ 50,422 $ 5,307
Treasury stock issued under
stock compensation plans $ 189 $ 12,402 $ 1,061
- - --------------------------------------------------------------------------------
The statement of consolidated cash flows reflects certain changes in the
reporting of cash flows for the Company's insurance subsidiary. Cash flows
relative to investments have been reclassified from operating activities to
investing activities and expanded to disclose purchases, maturities and
sales. Premiums received and benefits paid on policies have been classified
as financing activities. Results for prior years have been restated to
conform to the current presentation.
-35-
9. INSURANCE OPERATIONS
Forecorp, Inc., through its two subsidiaries, Forethought Life Insurance Company
and The Forethought Group, Inc., serves funeral planning professionals with life
insurance policies and marketing support for FORETHOUGHT-Registered Trademark-
funeral planning, a "pre-need" insurance program. The life insurance policies
are limited to long-duration, whole-life policies and, as such, are accounted
for under SFAS No. 97. The benefits under these policies increase based on
external inflationary indices. Premiums received are recorded as an increase to
benefit reserves or as unearned revenue. Unearned revenues are recognized over
the actuarial life of the contract. Policy acquisition costs, consisting of
commissions, policy issue expense and premium taxes, are deferred and amortized
consistently with unearned revenues. Liabilities equal to policy holder account
balances and amounts assessed against these balances for future insurance
charges are established on the insurance contracts issued by Forethought Life
Insurance Company.
Investments are predominantly U.S. treasuries and agencies and high-grade
corporate bonds with fixed maturities and are carried on the balance sheet at
fair value. The Company's objective is to purchase investment securities with
maturities that match the expected cash outflows of policy benefit payments.
During 1995, the investment portfolio was realigned to better meet this
objective. Securities are also sold in other carefully constrained
circumstances such as a concern about the credit quality of the issuer.
Otherwise, it is management's intent that these investments be held to maturity.
Cash (unrestricted as to use) is held for future investment.
In 1995, the Company adopted SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." In accordance with the provisions
of this statement, the Company has classified the investments in debt and equity
securities of its insurance subsidiary as "available for sale" and reported them
at fair value on the balance sheet with unrealized gains and losses charged or
credited to a separate component of shareholders' equity. The fair value of
each security is based on the market value provided by brokers/dealers. These
investments were written up $35.2 million from their amortized cost of $1,373.0
million, to their fair value of $1,408.2 million on December 2, 1995. The
insurance deferred tax asset was decreased $12.3 million to record the income
tax effect and shareholders' equity ("accumulated unrealized gain on
investments") was increased $22.9 million. Adoption of this standard did not
affect results of operations or cash flows.
The amortized cost and fair value of investments in debt securities at
December 2, 1995 were as follows:
- - --------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- - --------------------------------------------------------------------------------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 499,767 $ 9,301 $ 5,842 $ 503,226
Obligations of states and
political subdivisions 254 31 - 285
Corporate securities 873,005 33,272 1,592 904,685
- - --------------------------------------------------------------------------------
Total (A) $1,373,026 $ 42,604 $ 7,434 $1,408,196
- - --------------------------------------------------------------------------------
The amortized cost and fair value of investments in debt securities at December
3, 1994 were as follows:
- - --------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
- - --------------------------------------------------------------------------------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 496,985 $ 1,607 $ 32,904 $ 465,688
Obligations of states and
political subdivisions 255 14 - 269
Corporate securities 681,110 44 47,267 633,887
- - --------------------------------------------------------------------------------
Total (A) $1,178,350 $ 1,665 $ 80,171 $1,099,844
- - --------------------------------------------------------------------------------
(A) DOES NOT INCLUDE THE AMORTIZED COST OF OTHER INVESTMENTS CARRIED ON THE
BALANCE SHEET IN THE AMOUNT OF $24,026 AT DECEMBER 2, 1995, AND $20,189 AT
DECEMBER 3, 1994, THE CARRYING VALUE OF WHICH APPROXIMATES FAIR VALUE.
-36-
The amortized cost and fair value of debt securities at December 2, 1995,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or repay
obligations with or without call or prepayment penalties.
- - --------------------------------------------------------------------------------
Amortized Fair
Cost Value
- - --------------------------------------------------------------------------------
Due in one year or less $ 10,114 $ 10,177
Due after 1 year through 5 years 332,610 339,231
Due after 5 years through 10 years 271,000 276,260
Due after ten years 369,245 390,320
Mortgage-backed securities 390,057 392,208
- - --------------------------------------------------------------------------------
Total $ 1,373,026 $ 1,408,196
- - --------------------------------------------------------------------------------
The cost used to compute realized gains and losses is determined by
specific identification. Proceeds and realized gains and losses from the sale
of investments in debt securities were as follows:
- - --------------------------------------------------------------------------------
1995 1994 1993
- - --------------------------------------------------------------------------------
Proceeds $289,650 $ 63,775 $ 92,035
Realized gross gains $ 4,662 $ 1,076 $ 1,809
Realized gross losses $ 3,649 $ 936 $ 212
- - --------------------------------------------------------------------------------
Summarized financial information of insurance operations included in the
statement of consolidated income is as follows:
- - --------------------------------------------------------------------------------
1995 1994 1993
- - --------------------------------------------------------------------------------
Investment income $ 91,634 $ 72,998 $ 62,538
Earned premium revenue 93,279 81,340 51,856
Net gain on sale of investments 1,013 140 1,597
Other, net (197) (300) (55)
- - --------------------------------------------------------------------------------
Total net revenues 185,729 154,178 115,936
Benefits paid 48,305 41,977 31,065
Credited interest 85,922 70,037 48,985
Deferred acquisition costs amortized 23,722 20,222 14,358
Other operating expenses 13,948 13,404 11,421
- - --------------------------------------------------------------------------------
Income before income taxes $ 13,832 $ 8,538 $ 10,107
- - --------------------------------------------------------------------------------
Statutory data at December 31 includes:
- - --------------------------------------------------------------------------------
1995 (unaudited) 1994 1993
- - --------------------------------------------------------------------------------
Net income $ 22,487 $ 27,946 $29,752
Capital and surplus $114,572 $104,378 $78,208
- - --------------------------------------------------------------------------------
-37-
10.UNAUDITED QUARTERLY FINANCIAL INFORMATION
- - ----------------------------------------------------------------------------------------------------------------------------------
Total
1995 QUARTER ENDED 3/04/95 6/03/95 9/02/95 12/02/95 Year
- - ----------------------------------------------------------------------------------------------------------------------------------
Net revenues:
Health Care sales $ 130,972 $ 137,751 $ 138,725 $ 148,229 $ 555,677
Health Care rentals 90,254 92,368 91,270 94,079 367,971
Funeral Services 130,412 131,157 121,069 132,866 515,504
Insurance 44,639 43,583 47,652 49,855 185,729
- - ----------------------------------------------------------------------------------------------------------------------------------
Total revenues 396,277 404,859 398,716 425,029 1,624,881
- - ----------------------------------------------------------------------------------------------------------------------------------
Cost of revenues:
Health Care cost of goods sold 78,052 87,210 87,531 94,288 347,081
Health Care rental expenses 60,617 63,075 61,862 60,852 246,406
Funeral Services 70,524 69,256 67,088 71,084 277,952
Insurance 34,602 32,729 35,492 37,686 140,509
- - ----------------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 243,795 252,270 251,973 263,910 1,011,948
- - ----------------------------------------------------------------------------------------------------------------------------------
Gross profit 152,482 152,589 146,743 161,119 612,933
Administrative, distribution and selling expenses 103,628 104,499 97,955 101,558 407,640
Unusual items - - - 25,830 25,830
- - ----------------------------------------------------------------------------------------------------------------------------------
Operating profit 48,854 48,090 48,788 33,731 179,463
Other income (expense), net (4,348) (3,180) (3,187) 1,036 (9,679)
- - ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 44,506 44,910 45,601 34,767 169,784
Income taxes 17,001 17,156 19,715 26,052 79,924
- - ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 27,505 $ 27,754 $ 25,886 $ 8,715 $ 89,860
- - ----------------------------------------------------------------------------------------------------------------------------------
Net income per common share $ 0.39 $ 0.39 $ 0.37 $ 0.12 $ 1.27
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
Total
1994 Quarter Ended 2/26/94 5/28/94 8/27/94 12/03/94 Year
- - ----------------------------------------------------------------------------------------------------------------------------------
Net revenues:
Health Care sales $ 129,846 $ 139,728 $ 142,160 $ 179,227 $ 590,961
Health Care rentals 82,847 84,702 82,770 82,810 333,129
Funeral Services 129,262 121,938 113,574 133,992 498,766
Insurance 35,451 36,337 39,311 43,079 154,178
- - ----------------------------------------------------------------------------------------------------------------------------------
Total revenues 377,406 382,705 377,815 439,108 1,577,034
- - ----------------------------------------------------------------------------------------------------------------------------------
Cost of revenues:
Health Care cost of goods sold 70,365 81,884 85,222 99,349 336,820
Health Care rental expenses 53,226 55,304 53,651 57,385 219,566
Funeral Services 69,221 64,544 63,021 71,592 268,378
Insurance 27,942 25,424 28,931 32,128 114,425
- - ----------------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 220,754 227,156 230,825 260,454 939,189
- - ----------------------------------------------------------------------------------------------------------------------------------
Gross profit 156,652 155,549 146,990 178,654 637,845
Administrative, distribution and selling expenses 92,509 98,563 93,823 112,117 397,012
Unusual items - - 84,750 - 84,750
- - ----------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 64,143 56,986 (31,583) 66,537 156,083
Other expense, net (3,155) (3,978) (3,636) (554) (11,323)
- - ----------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 60,988 53,008 (35,219) 65,983 144,760
Income taxes 23,297 20,250 (13,679) 25,430 55,298
- - ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 37,691 $ 32,758 $ (21,540) $ 40,553 $ 89,462
- - ----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ 0.53 $ 0.46 $ (0.30) $ 0.57 $ 1.26
- - ----------------------------------------------------------------------------------------------------------------------------------
Unusual items consist of a patent litigation settlement in the third
quarter of 1994 and, in the fourth quarter of 1995, the writedown of goodwill
and certain assets of a manufacturing facility to be disposed of.
-38-
Cost of revenues, gross profit and administrative, distribution and selling
expenses have been reclassified to reflect the segregation of revenues and costs
as discussed in Note 1 -- Cost of Revenues. Net expenses associated with the
Company's corporate-owned life insurance program were reclassified from other
expense to administrative expense.
As compared with amounts previously reported on Forms 10-Q and 10-K, the
income statement was affected as follows:
- - -------------------------------------------------------------------------------------------------------------------------------
Total
1995 Quarter Ended 3/04/95 6/03/95 9/02/95 12/02/95 Year
- - -------------------------------------------------------------------------------------------------------------------------------
Cost of revenues $ 23,106 $ 27,558 $ 25,108 N/A N/A
Gross profit (23,106) (27,558) (25,108) N/A N/A
Administrative, distribution and selling expenses (22,088) (26,465) (23,976) N/A N/A
Operating profit (1,018) (1,093) (1,132) N/A N/A
Other income (expense), net 1,018 1,093 1,132 N/A N/A
Income before income taxes - - - N/A N/A
- - ---------------------------------------------------------------------------------------------------------------------------------
Total
1994 Quarter Ended 2/26/94 5/28/94 8/27/94 12/03/94 Year
- - ---------------------------------------------------------------------------------------------------------------------------------
Cost of revenues $ 21,532 $ 23,382 $ 23,628 $ 22,777 $ 91,319
Gross profit (21,532) (23,382) (23,628) (22,777) (91,319)
Administrative, distribution and selling expenses (20,583) (22,568) (23,223) (21,983) (88,357)
Operating profit (loss) (949) (814) (405) (794) (2,962)
Other expense, net 949 814 405 794 2,962
Income (loss) before income taxes - - - - -
11. DISCONTINUED OPERATION
On August 30, 1993, the Company sold its luggage business, American Tourister,
Inc., for a cash payment of $63.8 million. Net proceeds (after disposition
costs) were $55.3 million. The gain on the sale of $11.6 million was net of
income taxes of $4.7 million. The results of American Tourister, Inc., have
been reported separately as a discontinued operation in the Statement of
Consolidated Income for the year ended November 27, 1993. Income from
discontinued operations of $1.8 million was net of the income tax provision of
$1.1 million.
12. CONTINGENCIES
On August 16, 1995, Kinetic Concepts, Inc., and Medical Retro Design, Inc.
(collectively, the "plaintiffs"), filed suit against Hillenbrand Industries,
Inc., and its subsidiary Hill-Rom Company, Inc., in the United States District
Court for the Western District of Texas, San Antonio Division. The plaintiffs
allege violation of various antitrust laws, including illegal bundling of
products, predatory pricing, refusal to deal and attempting to monopolize the
hospital bed industry. They seek monetary damages totaling in excess of $268.5
million, trebling of any damages that may be allowed by the court, and
injunctions to prevent further alleged unlawful activities. The Company
believes that the claims are without merit and will defend itself aggressively
against all allegations.
In 1993, the Company's subsidiary, Hill-Rom, was notified that it was part
of an investigation into the hospital bed industry by the Antitrust Division of
the U.S. Department of Justice (the "DOJ"). As a result, the Company was issued
a Civil Investigative Demand by the DOJ and served with a subpoena to allow
review of internal Hill-Rom files and business practices to determine any
irregularities. On June 13, 1995, the Company was notified by the DOJ that the
Department had officially closed this civil investigation with no action being
taken. This investigation did not have a significant effect on the Company's
financial condition, results of operations or cash flows.
-39-
The Company has voluntarily entered into remediation agreements with
environmental authorities, and has been issued Notices of Violation alleging
violations of certain permit conditions. Accordingly, the Company is in the
process of implementing plans of abatement in compliance with agreements and
regulations. The Company has also been notified as a potentially responsible
party in investigations of certain offsite disposal facilities. The cost of all
plans of abatement and waste site cleanups in which the Company is currently
involved is not expected to exceed $10.0 million. The Company has provided
adequate reserves in its financial statements for these matters. Changes in
environmental law might affect the Company's future operations, capital
expenditures and earnings. The cost of complying with these provisions is not
known.
The Company is subject to various other claims and contingencies arising
out of the normal course of business, including those relating to commercial
transactions, product liability, safety, health, taxes, environmental and other
matters. Management believes that the ultimate liability, if any, in excess of
amounts already provided or covered by insurance, is not likely to have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no disagreements with the independent accountants.
-40-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to executive officers is included in this report as
the last section of Item 1 under the caption "Executive Officers of the
Registrant." Information relating to the directors will appear in the section
entitled "Election of Directors" in the definitive Proxy Statement to be dated
March 1, 1996, and to be filed with the Commission relating to the Company's
1996 Annual Meeting of Shareholders, which section is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" in the definitive Proxy
Statement dated March 1, 1996, and to be filed with the Commission relating to
the Company's 1996 Annual Meeting of Shareholders, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The section entitled "Election of Directors" in the definitive Proxy
Statement to be dated March 1, 1996, and to be filed with the Commission
relating to the Company's 1996 Annual Meeting of Shareholders, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections entitled "About the Board of Directors" and "Compensation
Committee Interlocks and Insider Participation" in the definitive Proxy
Statement to be dated March 1, 1996, and to be filed with the Commission
relating to the Company's 1996 Annual Meeting of Shareholders, are incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents have been filed as a part of this report or, where
noted, incorporated by reference:
(1) Financial Statements
The financial statements of the Company and its consolidated
subsidiaries listed on the index to Consolidated Financial Statements
on page 19.
(2) Financial Statement Schedules
The financial statement schedules filed in response to Item 8 and Item
14(d) of Form 10-K are listed on the index to Consolidated Financial
Statements on page 19.
-41-
(3) Exhibits
The following exhibits have been filed as part of this report in
response to Item 14(c) of Form 10-K.
3 (i) Form of Restated Certificate of Incorporation of the
Registrant (Incorporated herein by reference to Exhibit 3
filed with Form 10-K for the year ended November 28, 1992)
3 (ii) Form of Amended Bylaws of the Registrant (Incorporated
herein by reference to Exhibit 3 filed with Form 10-K for
the year ended December 3, 1994)
The following management contracts or compensatory plans or
arrangements are required to be filed as exhibits to this form
pursuant to Item 14 (c) of this report:
10 (i) Hillenbrand Industries, Inc. Senior Executive Compensation
Program (Incorporated herein by reference to Exhibit 10
filed with Form 10-K for the year ended December 3, 1994)
10 (ii) Hillenbrand Industries, Inc. Performance Compensation Plan
(Incorporated herein by reference to the definitive Proxy
Statement dated February 28, 1992, and filed with the
Commission relative to the Company's 1992 Annual Meeting of
Shareholders)
21 Subsidiaries of the Registrant
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule -- 12 Months, 1994
27.3 Restated Financial Data Schedule -- 3 Months, 1995
27.4 Restated Financial Data Schedule -- 6 Months, 1995
27.5 Restated Financial Data Schedule -- 9 Months, 1995
(b) There were no reports on Form 8-K filed during the quarter ended
December 2, 1995.
-42-
SCHEDULE II
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 2, 1995, DECEMBER 3, 1994, AND NOVEMBER 27, 1993
(DOLLARS IN THOUSANDS)
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND OTHER NET OF AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (A) RECOVERIES (B) OF PERIOD
- - -------------- ---------- ---------- ------------ -------------- ----------
Reserves deducted from assets
to which they apply:
Allowance for possible losses
and discounts
- accounts receivable:
Year Ended:
December 2, 1995 $ 13,982 $ 3,451 $ 5,366 $ 2,966 $ 19,833
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--------- -------- -------- -------- --------
December 3, 1994 $ 11,271 $ 2,741 $ 3,226 $ 3,256 $ 13,982
--------- -------- -------- -------- --------
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November 27, 1993 $ 15,574 $ 3,761 $ 3,392 $ 11,456 $ 11,271
--------- -------- -------- -------- --------
--------- -------- -------- -------- --------
(A) REDUCTION OF GROSS REVENUES FOR CASH DISCOUNTS, CO-OPERATIVE
ADVERTISING ALLOWANCES AND OTHER ADJUSTMENTS IN DETERMINING NET
REVENUE. ALSO INCLUDES THE EFFECT OF ACQUISITION OF BUSINESSES.
(B) INCLUDES THE SALE OF DISCONTINUED OPERATION IN 1993.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
HILLENBRAND INDUSTRIES, INC.
By: /S/ W August Hillenbrand
--------------------------------
W August Hillenbrand
Dated: January 23, 1996 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/S/ Daniel A. Hillenbrand /S/ John C. Hancock
- - ------------------------------- -----------------------------
Daniel A. Hillenbrand John C. Hancock
Chairman of the Board Director
/S/ Tom E. Brewer /S/ W August Hillenbrand
- - ------------------------------- -----------------------------
Tom E. Brewer W August Hillenbrand
Chief Financial Officer Director
/S/ James D. Van De Velde /S/ George M. Hillenbrand II
- - ------------------------------- -----------------------------
James D. Van De Velde George M. Hillenbrand II
Controller Director
/S/ Lawrence R. Burtschy /S/ John A. Hillenbrand II
- - ------------------------------- -----------------------------
Lawrence R. Burtschy John A. Hillenbrand II
Director Director
/S/ Peter F. Coffaro /S/ Ray J. Hillenbrand
- - ------------------------------- -----------------------------
Peter F. Coffaro Ray J. Hillenbrand
Director Director
/S/ Edward S. Davis /S/ Lonnie M. Smith
- - ------------------------------- -----------------------------
Edward S. Davis Lonnie M. Smith
Director Director
/S/ Leonard Granoff
- - -------------------------------
Leonard Granoff
Director
Dated: January 23, 1996
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HILLENBRAND INDUSTRIES, INC.
INDEX TO EXHIBITS
3 (i) Form of Restated Certificate of Incorporation of the
Registrant (Incorporated herein by reference to Exhibit 3
filed with Form 10-K for the year ended November 28, 1992)
3 (ii) Form of Amended Bylaws of the Registrant (Incorporated herein by
reference to Exhibit 3 filed with Form 10-K for the year ended
December 3, 1994)
10 (i) Hillenbrand Industries, Inc. Senior Executive Compensation
Program (Incorporated herein by reference to Exhibit 10 filed
with Form 10-K for the year ended December 3, 1994)
10 (ii) Hillenbrand Industries, Inc. Performance Compensation Plan
(Incorporated herein by reference to the definitive Proxy
Statement dated February 28, 1992, and filed with the Commission
relative to the Company's 1992 Annual Meeting of Shareholders)
21 Subsidiaries of the Registrant
27.1 Financial Data Schedule
27.2 Restated Financial Data Schedule -- 12 Months, 1994
27.3 Restated Financial Data Schedule -- 3 Months, 1995
27.4 Restated Financial Data Schedule -- 6 Months, 1995
27.5 Restated Financial Data Schedule -- 9 Months, 1995
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