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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ------- SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
- ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-2648
HON INDUSTRIES INC.
An Iowa Corporation IRS Employer No. 42-0617510
414 East Third Street
P.O. Box 1109
Muscatine, IA 52761-7109
319/264-7400
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, with Par Value of $1.00 Per Share.
Name of each exchange on which registered: The Nasdaq Stock Market.
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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate 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.
-----
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, as of March 14, 1995, was: $538,044,426, assuming all 5% holders are
affiliates.
The number of shares outstanding of the registrant's common stock, as of March
14, 1995, was: 30,635,301.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement dated March 24, 1995, for the May
9, 1995, Annual Meeting of Shareholders are incorporated by reference into Part
III.
Index of Exhibits is located on Page 39.
-1-
ANNUAL REPORT ON FORM 10-K
--------------------------
TABLE OF CONTENTS
-----------------
PART I
Page
----
Item 1. Business................................................................... 3
Item 2. Properties................................................................. 7
Item 3. Legal Proceedings.......................................................... 8
Item 4. Submission of Matters to a Vote of Security Holders........................ 8
Table I - Executive Officers of the Registrant............................. 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....... 10
Item 6. Selected Financial Data -- Eleven-Year Summary.............................. 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................... 14
Item 8. Financial Statements and Supplementary Data................................. 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure......................................... 19
PART III
Item 10. Directors of the Registrant................................................. 20
Item 11. Executive Compensation...................................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and Management.............. 20
Compliance with Section 16(a) of the Securities Exchange Act of 1934........ 20
Item 13. Certain Relationships and Related Transactions.............................. 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............ 22
Signatures................................................................................ 24
Financial Statements...................................................................... 27
Financial Statement Schedules............................................................. 38
Index of Exhibits......................................................................... 39
-2-
ANNUAL REPORT ON FORM 10-K
--------------------------
PART I
------
ITEM 1. BUSINESS.
------------------
GENERAL.
HON INDUSTRIES Inc. is principally a manufacturer and marketer of office
furniture. It also manufactures and markets a limited line of office workspace
productivity accessories. In addition, it is a major manufacturer and marketer
of metal prefabricated fireplaces and related products for the home buildings
products industry.
The Company is organized into a corporate headquarters and eight operating
units with offices, manufacturing plants, distribution centers, and sales
showrooms nationwide. See Item 2. Properties for additional related discussion.
Six operating units, marketing under various brand names, participate in the
office furniture and products industry. These operating units include: a
division, The HON Company, and six wholly owned subsidiaries, including The
Gunlocke Company, Holga Inc., BPI Inc., Chandler Attwood Limited, and Ring King
Visibles, Inc. Each of these operating units manufactures and markets products
which are sold through various channels of distribution and segments of the
industry. The combined sales of these units rank HON INDUSTRIES Inc. as one of
the larger manufacturers of office furniture in the United States. The Company
is ranked in the Fortune 500 Largest Industrial Companies in the U.S. since
first qualifying in 1985.
A seventh wholly owned subsidiary, Heatilator Inc., is one of the nation's
oldest and best known manufacturers of factory-built wood- and gas-burning
fireplaces, fireplace inserts, freestanding stoves, and accessories serving the
home building products industry. These products have contributed less than 10%
of the consolidated net sales and revenues and less than 10% of consolidated net
income during each of the last three years.
An eighth wholly owned subsidiary, HON Export Limited, markets selected
products manufactured by the other various HON INDUSTRIES operating units
outside the United States and Canada.
In 1993, the Company closed its wholly owned subsidiary, CorryHiebert
Corporation. The company manufactured metal office furniture for the contract
segment of the industry. The closure resulted in a pretax charge of $4.0
million in the third quarter of fiscal year 1993.
For further information with respect to the Company's business, including
industry segment information, refer to the captions "Principal Business and
Significant Customer Information" and "Changes in Business" included in the
Notes to the Consolidated Financial Statements, which are filed as part of this
report.
EMPLOYEES.
The Company has 6,131 employees (members) and, of this total, 3,518 are
production personnel.
PRODUCTS.
Office Furniture and Related Products. A broad line of metal and wood
commercial and home office furniture is manufactured and marketed through The
HON Company division and the
-3-
Company's wholly owned subsidiaries: BPI Inc., Chandler Attwood Limited, Holga
Inc., and The Gunlocke Company. Major products include: file cabinets, desks,
credenzas, chairs, storage cabinets, tables, bookcases, machine stands,
reception area furniture, freestanding office partitions, and panel systems.
These products are typically available in contemporary and conventional styles
and are priced to sell in different channels of distribution and at different
price points. Ring King Visibles, Inc., manufactures and markets personal
computer-related workstation accessories and supplies, including ergonomic
accessories, workspace productivity accessories, and micrographic storage
products.
Home Building Products. Heatilator Inc., a wholly owned subsidiary,
manufactures and markets a broad line of manufactured fireplaces, principally
for the home. Products include wood- and gas-burning fireplaces and stoves,
fireplace inserts, chimney systems, masonry forms, and fireplace accessories.
MANUFACTURING.
The HON Company manufactures office furniture in California, Georgia, Iowa,
Kentucky, New York, North Carolina, Pennsylvania, South Carolina, Texas, and
Virginia. BPI Inc. manufactures office furniture in North Carolina and
Washington. Chandler Attwood Limited manufactures office furniture in
California, Colorado, Georgia, Texas, and Washington. Holga Inc. manufactures
office furniture in California. The Gunlocke Company manufactures office
furniture in New York. Ring King Visibles, Inc., manufactures office products
in Iowa. Heatilator manufactures home building products in Iowa.
The Company purchases raw materials and components from a variety of vendors,
and generally most items are available from multiple sources. Major raw
materials and components include coil steel, bar stock, castings, lumber,
veneer, particle board, fabric, paint, lacquer, hardware, rubber products,
plastic products, and shipping cartons.
PRODUCT RESEARCH AND DEVELOPMENT.
The Company's product research and development investments are principally
focused on new product development, improvement of existing products, product
line extension, application of ergonomic research, improvement of manufacturing
processes, application of new materials, and providing engineering support and
training to its operating units. The Company's investment in research and
development during 1994, 1993, and 1992 totaled $10.1 million, $7.7 million, and
$5.9 million, respectively.
INTELLECTUAL PROPERTY.
The Company owns 61 U.S. and 29 foreign patents and has applications pending
for 58 U.S. and 32 foreign patents. In addition, the Company holds
registrations for 63 U.S. and 52 foreign trademarks and has applications pending
for 35 U.S. and 52 foreign trademarks.
The Company actively protects trademarks which it believes have a significant
goodwill value. The Company applies for patent protection where it believes the
expense of doing so is justified. As the Company has recently taken broader
steps to protect its intellectual property rights, it believes that the duration
of its registered patents and patent applications is adequate to protect these
rights. The Company also pays royalty fees in certain instances for the use of
patents on products and processes owned by others.
SALES AND DISTRIBUTION: CUSTOMERS.
Office furniture and products are distributed nationally through more than
5,000 office product dealers, 30 wholesalers/distributors, over 50 national and
regional retailers, and various
-4-
contract customers. Several of the Company's office furniture operating units
distribute products through common dealers, wholesalers/distributors, and
retailers. Several operating units also sell products directly to state
governments and to the United States government through the General Services
Administration. One customer, United Stationers Inc., accounted for
approximately 10%, 13%, and 12% of the Company's consolidated net sales in 1994,
1993, 1992, respectively. The industry trend is toward increased consolidation
of distribution which implies larger and fewer customers for the Company's
office furniture and related products.
The office furniture and products field sales organization consists of 21
regional sales managers supervising 122 salespersons, plus more than 200
manufacturers' representatives, providing nationwide coverage. Sales managers
and salespersons are compensated by a combination of salary and incentive bonus.
Limited quantities of select finished goods inventories are maintained at the
Company's principal manufacturing plants and at its various distribution
centers.
Heatilator Inc. sells its fireplace and stove products through more than 1,600
dealers and 200 distributors. The company has a field sales organization or 3
regional sales managers supervising 14 salespersons and 4 manufacturers'
representatives.
HON Export Limited sales are made through more than 90 office furniture
dealers and wholesale distributors serving select foreign markets. They are
principally located in the U.S., Mexico, and the Caribbean.
HON INDUSTRIES' office furniture and products business has a seasonality trend
with the third (July - September) and fourth (October - December) fiscal
quarters historically being the two highest sales quarters each year. Home
building products sales tend to have an even larger concentration in third and
fourth fiscal quarters.
As of December 31, 1994, the Company has an order backlog of approximately
$52.3 million which will be filled in the ordinary course of business. This
compares with $57.0 million as of January 1, 1994, and $63.2 million as of
January 2, 1993. The dollar amount of the ongoing backlog of orders at any
point in time is not considered by management to be a leading indicator of the
Company's expected sales for any particular fiscal period. Large dollar amounts
of order backlogs are unusual since most of the Company's products are
manufactured and shipped within a few weeks following receipt of order, and a
low backlog is an indicator of good customer service.
COMPETITION.
The principal competitive factors for both office furniture and home building
products are product performance, product quality, on-time delivery to the
customer, price, and customer service support. The Company believes it is well
positioned to compete in all of its served markets due to its market share,
engineering and manufacturing capability, broad product offering, national field
sales representation, and long-standing customer relationships.
Competitive conditions vary for HON INDUSTRIES Inc. based on the industry,
industry segment, channel of distribution, products involved, and the prevailing
U.S. general economic environment.
The U.S. office furniture industry for calendar year 1994 is estimated by
industry sources to be $8.7 billion and is comprised of several hundred domestic
manufacturing companies plus foreign companies who import products. The
Company's primary strength in the office furniture and products industry lies
with its products for the "middle market" segment. This expanding segment of
the industry typically serves the small- and medium-sized businesses who tend to
be more price/value sensitive consumers. However, the Company's total office
furniture sales makes
-5-
it a significant player in the broader U.S. office furniture industry. The
Company is a niche player in providing computer accessory products. The
Company's primary focus is providing products which improve the productivity of
personal computer users. There are many competitors producing similar products;
some are much larger than the Company's operating unit.
The Company's particular home building products, prefabricated metal
fireplaces and related products, are manufactured by a number of national and
regional competitors. However, Heatilator Inc. is probably the leading U.S.
manufacturer of prefabricated metal fireplaces.
For further discussion of the Company's competitive situation, refer to Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.
EFFECTS OF INFLATION.
The cost of certain raw materials is increasing at a rate exceeding the
general rate of inflation.
The Company adjusts the selling prices of its products to maintain profit
margins whenever possible. Investments are routinely made in modern plants,
equipment, and support systems and for rapid continuous improvement programs.
These investments collectively focus on increasing productivity which helps to
offset the effect of rising material and labor costs. Ongoing cost control
disciplines are also routinely employed. In addition, the last-in, first-out
(LIFO) valuation method is used for most of the Company's inventories, which
ensures the changing material and labor costs are recognized in reported income;
and more importantly, these costs are recognized in pricing decisions.
For further discussion of the effects of inflation on the Company's business,
refer to Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
ENVIRONMENTAL.
The Company is subject to a variety of environmental laws and regulations
governing discharges to air and water; the handling, storage, and disposal of
hazardous or solid waste materials; and the remediation of contamination
associated with releases of hazardous substances. Although the Company believes
it is in material compliance with all of the various regulations applicable to
its business, there can be no assurance that requirements will not change in the
future or that the Company will not incur significant cost to comply with such
regulations. The Company has trained staff responsible for monitoring
compliance with environmental, health, and safety requirements. The Company's
environmental professionals work with responsible personnel at each
manufacturing facility, with the Company's environmental legal counsel, and with
environmental engineering consultants retained to assist with ongoing management
of environmental, health, and safety issues. The Company's ultimate goal is to
reduce and, wherever possible, eliminate the creation of hazardous waste in its
manufacturing processes.
Compliance with federal, state, and local environmental regulations has not
had a material effect on the capital expenditures, earnings, or competitive
position of the Company to date. There are no financially material capital
expenditures for environmental control facilities anticipated during fiscal year
1995. It is management's judgment that compliance with current regulations
should not have a financially material effect on future earnings. However, the
uncertainty of new environmental legislation and technology in this area makes
it impossible to know with confidence.
For further information regarding the Company's environmental matters, refer
to Item 3. Legal Proceedings, Item 7. Management's Discussion and Analysis of
Financial Condition and
-6-
Results of Operations, and the "Contingencies" note in the Notes to the
Consolidated Financial Statements.
BUSINESS DEVELOPMENT.
The development of the Company's business during the fiscal years ended
December 31, 1994; January 1, 1994; and January 2, 1993, is discussed in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
ITEM 2. PROPERTIES.
--------------------
The Company maintains its corporate headquarters in Muscatine, Iowa, and
conducts its operations in 21 cities throughout the United States which house
manufacturing and distribution operations and offices. These total an aggregate
5,269,718 square feet. Of this total, 595,710 square feet are leased, including
336,297 square feet under capital leases. For further information regarding the
Company's lease obligations, refer to the "Leases" note included in the "Notes
to Consolidated Financial Statements."
While the plants are of varying ages, the Company considers that they are well
maintained, are equipped with modern and efficient equipment, and are in good
operating condition and suitable for the purposes for which they are being used.
The Company has sufficient capacity to increase output at most locations by
increasing the use of overtime and/or number of production shifts employed.
The Company's principal manufacturing facilities (100,000 square feet in size
or larger) are as follows:
Approximate
Location Square Feet Owned Leased Description of Use
---------- ------------- ------- -------- -----------------------------------------
Avon, NY 151,795 X Mfg. steel casegoods office furniture
Cedartown, GA 439,580 X Mfg. steel casegoods office furniture
Louisburg, NC 169,223 X Mfg. wood casegoods office furniture
Mt. Pleasant, IA 320,927 X Mfg. metal prefabricated fireplaces
Muscatine, IA 223,040 X Mfg. steel office seating
Muscatine, IA 490,940 X Mfg. steel casegoods office furniture
Muscatine, IA 178,827 X Mfg. wood casegoods office furniture
Muscatine, IA 154,560 X Mfg. systems panels office furniture
Owensboro, KY 278,872 X Mfg. wood office seating
Richmond, VA 276,017 X* Mfg. metal casegoods office furniture
South Gate, CA 511,280 X Mfg. steel casegoods & seating office furniture
Sulphur Springs, TX 150,640 X Mfg. steel casegoods office furniture
Wayland, NY 683,008 X Mfg. wood casegoods & seating office furniture
Williamsport, PA 238,170 X Mfg. wood casegoods office furniture
Winnsboro, SC 180,093 X Mfg. steel office seating
--------- -------
TOTAL SQUARE FEET 4,170,955 276,017
========= =======
* A capital lease.
The Company also owns a 224,764 square foot manufacturing facility
located in Muscatine, Iowa, which it leases to another company; and it owns a
468,788 square foot office and manufacturing facility located in Corry,
Pennsylvania, which is listed for sale.
-7-
Other manufacturing facilities are located in Atlanta, GA; Dallas and
Houston, TX; Denver, CO; Kent, WA; Mt. Pleasant and Muscatine, IA; Salisbury,
NC; San Jose and Van Nuys, CA. These facilities total an aggregate of 822,746
square feet. Of this total, 319,693 square feet are leased, including 60,280
square feet under a capital lease.
The Company also leases sales showroom space in office
furniture market centers in several major metropolitan areas.
ITEM 3. LEGAL PROCEEDINGS.
---------------------------
The Company has been named along with various other "potentially
responsible parties" as a party to an Imminent or Substantial Endangerment Order
and Remedial Action Order dated April 28, 1994, by the California Department of
Toxic Substances Control (DTSC) in connection with the former Firestone Tire and
Rubber Company Facility in South Gate, California. The Company acquired part of
the Facility in 1981. The Company is cooperating in the preparation of a
Remedial Investigation/Feasibility Study Workplan which will be submitted to the
DTSC in 1995.
The Company is a guarantor of certain leases for showroom space at the
International Design Center (IDC) in Long Island City, New York. On June 26,
1992, the Company filed an action in the New York Supreme Court claiming
wrongful eviction and breach of representations and warranties that the IDC
would be maintained as a showroom facility. The IDC has counterclaimed for back
rent and other damages. The parties are conducting pre-trial discovery.
For additional information on this item, refer to the "Contingencies"
note included in the "Notes to Consolidated Financial Statements."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-------------------------------------------------------------
None.
-8-
PART I, TABLE I
---------------
EXECUTIVE OFFICERS OF THE REGISTRANT. (Information as of December 31, 1994)
- -------------------------------------
Family Position Other Business Experience
Name Age Relationship Position Held Since During Past Five Years
----- --- ------------ -------- ---------- -------------------------
Stanley M. Howe 70 None Chairman of the Board 1984 President (1964-90);
Director 1958 Chief Executive Officer (1979-91)
Jack D. Michaels 57 None President 1990 President and Chief Executive Officer
Chief Executive Officer 1991 Hussmann Corporation (1987-90)
Director 1990
R. Michael Derry 57 None Senior Vice President, 1990 Senior Vice President (1982-90)
Administration
A. Mosby Harvey, Jr. 52 None Vice President, General 1993 Principal (1991-93), Harvey and Associates;
Counsel and Secretary Vice President, General Counsel and Secretary
(1990-91), Vice President, Associate General
Counsel and Assistant Secretary (1988-90),
Bridgestone/Firestone Inc.
David C. Stuebe 54 None Vice President and 1994 President, CEO, and Director, Diversified
Chief Financial Officer Industries, Inc. (1990-94); President, CEO,
and Director, Auto Specialties Manufacturing,
Inc. (1988-90).
-9-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
------------------------------------------------------------------------------
The Company's common stock trades on The Nasdaq Stock Market under the
symbol: HONI. As of year-end 1994, the Company had 5,556 stockholders of
record.
Common Stock Market Price and Price/Earnings Ratio and Quarterly Common
Stock Market Prices and Dividends are presented in the "Investor Information"
section which follows the "Notes to the Consolidated Financial Statements"
material filed as part of this report. The market price quotations were
published by the National Association of Securities Dealers, Inc. The
quotations represent prices between dealers; do not include retail markup,
markdown, or commissions; and do not necessarily represent actual transactions.
The Company expects to continue its policy of paying regular cash
dividends on the first business day of March, June, September, and December.
Historically, the dividend payout percentage has ranged from approximately 25%
to 33% of the previous year's earnings. Future dividends are dependent on
future earnings, capital requirements, and the Company's financial condition.
In addition, the payment of dividends is subject to the restrictions described
in the "Long-Term Debt and Other Liabilities" note included in the "Notes to
Consolidated Financial Statements."
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
Approximate Number of Equity
Title of Class Security Holders of Record as of December 31, 1994
-------------- ---------------------------------------------------
Common Stock, $1.00 Par Value 5,556
Preferred Stock, $1.00 Par Value -0-
-10-
(THIS PAGE INTENTIONALLY LEFT BLANK)
-11-
HON INDUSTRIES Inc. and Subsidiaries
ITEM 6. SELECTED FINANCIAL DATA -- ELEVEN-YEAR SUMMARY
PER COMMON SHARE DATA 1994 1993 1992
Income from Continuing Operations...................... $ 1.74 $ 1.39 $ 1.18
Income (Loss) from Discontinued Operations............. -- -- --
Cumulative Effect of Accounting Changes................ (.01) .02 --
Gain on Sale of Discontinued Operations................ -- -- --
Net Income............................................. 1.73 1.41 1.18
Cash Dividends......................................... .44 .40 .37
Book Value............................................. 6.35 5.67 5.04
Net Working Capital.................................... 2.53 2.45 2.46
OPERATING RESULTS (Thousands of Dollars)
Net Sales.............................................. $ 845,998 $ 780,326 $ 706,550
Cost of Products Sold.................................. 573,392 537,828 479,179
Gross Profit........................................... 272,606 242,498 227,371
Interest Expense....................................... 3,248 3,120 3,441
Income from Continuing Operations before Income Taxes.. 86,338 70,854 61,893
Income before Income Taxes as a % of Net Sales......... 10.21% 9.08% 8.76%
Federal and State Income Taxes......................... $ 31,945 $ 26,216 $ 23,210
Effective Tax Rate for Continuing Operations........... 37.00% 37.00% 37.50%
Income from Continuing Operations...................... $ 54,393 $ 44,638 $ 38,683
Income from Continuing Operations as a % of Net Sales.. 6.43% 5.72% 5.47%
Income before Cumulative Effect of Accounting Changes.. $ 54,393 $ 44,638 $ 38,683
Income (Loss) from Discontinued Operations............. -- -- --
Net Income............................................. 54,156 45,127 38,683
Cash Dividends and Share Purchase Rights Redeemed...... 13,601 12,587 12,114
Addition to (Reduction of) Retained Earnings........... 13,563 17,338 26,569
Net Income Applicable to Common Stock.................. 54,156 45,127 38,683
% Return on Average Shareholders' Equity............... 28.95% 26.35% 24.75%
Depreciation and Amortization.......................... $ 19,042 $ 16,631 $ 15,478
DISTRIBUTION OF NET INCOME
% Paid to Shareholders................................. 25.11% 27.89% 31.32%
% Reinvested in Business............................... 74.89% 72.11% 68.68%
FINANCIAL POSITION (Thousands of Dollars)
Current Assets......................................... $ 188,810 $ 188,419 $ 171,309
Current Liabilities.................................... 111,093 110,759 91,780
Working Capital........................................ 77,717 77,660 79,529
Net Property, Plant, and Equipment..................... 177,844 157,770 145,849
Total Assets of Continuing Operations.................. 372,568 352,405 322,746
Total Assets of Discontinued Operations -- Net......... -- -- --
Total Assets........................................... 372,568 352,405 322,746
Long-Term Debt and Capital Lease Obligations........... 54,741 51,114 54,240
Shareholders' Equity................................... 194,640 179,553 163,009
Retained Earnings...................................... 174,642 161,079 143,741
Current Ratio.......................................... 1.70 1.70 1.87
CURRENT SHARE DATA
Number of Shares Outstanding at Year-End............... 30,674,603 31,675,846 32,368,956
Average Shares Outstanding During Year................. 31,217,725 32,090,544 32,758,995
Number of Shareholders of Record at Year-End........... 5,556 4,653 4,534
OTHER OPERATIONAL DATA
Capital Expenditures - Net (Thousands of Dollars)...... $ 35,005 $ 27,541 $ 26,626
Members at Year-End.................................... 6,131 6,257 5,926
-12-
1991 1990 1989 1988 1987 1986 1985 1984
$ 1.02 $ 1.30 $ .79 $ .69 $ .59 $ .68 $ .60 $ .37
-- -- -- .03 .03 .03 .01 .01
-- -- -- -- -- -- -- --
-- -- -- .22 -- -- -- --
1.02 1.30 .79 .94 .62 .71 .61 .38
.36 .30 .24 .20 .20 .16 .15 .14
4.64 4.06 3.76 3.96 3.33 3.35 2.91 2.59
2.13 1.64 1.66 2.59 1.94 1.79 1.54 1.47
$ 607,710 $ 663,896 $ 602,009 $ 532,456 $ 516,262 $ 460,137 $ 445,068 $ 376,267
411,168 458,522 409,942 366,599 355,456 301,197 300,883 265,813
196,542 205,374 192,067 165,857 160,806 158,940 144,185 110,454
3,533 3,611 3,944 4,188 3,512 3,417 4,011 4,470
52,653 69,085 44,656 41,919 41,887 53,960 49,171 29,885
8.66% 10.41% 7.42% 7.87% 8.11% 11.73% 11.05% 7.94%
$ 19,745 $ 25,907 $ 17,193 $ 16,139 $ 18,431 $ 26,000 $ 23,603 $ 13,598
37.50% 37.50% 38.50% 38.50% 44.00% 48.18% 48.00% 45.50%
$ 32,908 $ 43,178 $ 27,463 $ 25,780 $ 23,456 $ 27,960 $ 25,568 $ 16,287
5.42% 6.50% 4.56% 4.84% 4.54% 6.08% 5.74% 4.33%
$ 32,908 $ 43,178 $ 27,463 $ 25,780 $ 23,456 $ 27,960 $ 25,568 $ 16,287
-- -- -- 9,515 1,310 1,294 456 485
32,908 43,178 27,463 35,295 24,766 29,254 26,024 16,772
11,656 9,931 8,298 7,956 7,957 6,569 6,422 6,149
18,182 (11,952) (17,444) 20,986 (18,750) 15,737 13,871 10,623
32,908 43,178 27,463 35,295 24,766 29,254 26,012 16,760
23.41% 33.24% 19.92% 25.77% 18.85% 22.74% 22.29% 15.37%
$ 14,084 $ 13,973 $ 12,866 $ 11,860 $ 10,227 $ 8,746 $ 8,442 $ 7,889
35.42% 23.00% 30.22% 22.54% 32.13% 22.46% 24.68% 36.66%
64.58% 77.00% 69.78% 77.46% 67.87% 77.54% 75.32% 63.34%
$ 150,901 $ 146,591 $ 162,576 $ 175,367 $ 139,679 $ 140,329 $ 129,763 $ 117,332
82,275 93,465 106,104 78,787 66,136 67,560 65,826 53,430
68,626 53,126 56,472 96,580 73,543 72,769 63,937 63,902
125,465 124,603 114,116 94,339 95,372 84,622 70,486 69,213
280,893 276,984 284,322 275,928 235,621 242,366 222,976 203,755
-- -- -- -- 9,734 11,841 11,213 8,387
280,893 276,984 284,322 275,928 245,355 254,207 234,189 212,142
35,664 39,575 38,271 38,712 42,328 38,542 37,833 35,833
149,575 131,612 128,203 147,549 126,388 136,336 120,913 112,580
117,172 98,990 110,942 128,386 107,400 126,150 110,413 96,542
1.83 1.57 1.53 2.23 2.11 2.08 1.97 2.20
32,208,685 32,384,897 34,097,088 37,323,582 37,976,636 40,724,192 41,608,264 43,380,180
32,371,488 33,110,405 34,816,050 37,426,836 39,794,062 41,083,028 42,846,944 43,837,768
4,466 4,331 4,124 4,134 3,218 3,179 3,378 3,555
$ 13,907 $ 20,709 $ 12,807 $ 10,299 $ 15,669 $ 16,953 $ 9,037 $ 6,905
5,599 6,073 6,385 5,423 5,840 5,492 5,092 5,122
-13-
HON INDUSTRIES Inc. and Subsidiaries
Item 7. Management's Discussion and Analysis
FINANCIAL OVERVIEW
The 1994 U.S. business economy stimulated a year of solid growth for HON
INDUSTRIES and its operating companies. It represents the second consecutive
year of record performance by the Company.
- -----------------------------------------------------------------------------
FISCAL YEARS IN PERSPECTIVE
1994 1993 1992
VS. VS. VS.
1994 1993 1993 1992 1992 1991
- -----------------------------------------------------------------------------
(Dollars in millions, except per share amounts)
Net sales............. $846.0 + 8.4% $780.3 +10.4% $706.6 +16.3%
Operating income...... $ 87.1 +21.9% $ 71.5 +14.7% $ 62.3 +14.4%
Net income............ $ 54.2 +20.0% $ 45.1 +16.7% $ 38.7 +17.5%
Net income per share.. $ 1.73 +22.7% $ 1.41 +19.5% $ 1.18 +15.7%
- -----------------------------------------------------------------------------
For 1994, net sales, operating income, net income, and net income per share were
each the "best-ever" in the Company's history. This was the case for 1993
results as well.
- -----------------------------------------------------------------------------
LEVERAGING INCREASED SALES
Percentage Relationships to Net Sales
- -----------------------------------------------------------------------------
1994 1993 1992
Cost of products sold................ 67.8% 68.9% 67.8%
Gross profit......................... 32.2% 31.1% 32.2%
Selling and administrative expenses.. 21.9% 21.9% 23.4%
Operating income..................... 10.3% 9.2% 8.8%
Net income........................... 6.4% 5.8% 5.5%
- -----------------------------------------------------------------------------
The Company leveraged its increased sales by either reducing or holding the line
on costs and expenses which added to bottom line performance.
- -----------------------------------------------------------------------------
KEY FINANCIAL GOALS
1994
GOAL ACTUAL
- -----------------------------------------------------------------------------
Annual net income growth............... 15%* 20%
Annual return on assets employed....... 25% 25%
Annual productivity gain per employee.. 8% 11%
*Double net income by year 2000
- -----------------------------------------------------------------------------
These represent the Company's key financial goals. Actual performance may exceed
the goals in some years and fall short in others, but over the longer-term,
management is committed to achieving or exceeding these goals on the average.
Readers are encouraged to carefully review the Company's consolidated financial
statements and related notes found elsewhere in the report for more
comprehensive explanations of many of the issues discussed in this section.
-14-
RESULTS OF OPERATIONS
Industry sources estimate total sales for the 1994 U.S. office furniture
industry to be in the range of $8.7 billion. Industry shipments are reported to
be up 7.7% for the year. These results, however, were significantly influenced
by a few large office furniture manufacturers that compete in the higher-end
contract segment of the market. This segment rebounded in 1994 after several
years of pent-up demand. The Company primarily participates in this industry
segment through its operating company, The Gunlocke Company.
The Company's 1994 sales growth of 8.4% (9.9% year-over-year for continuing
operations) exceeds the overall industry growth rate indicating market share
gains. Management estimates approximately 5% of the sales growth resulted from
unit growth and 3% from pricing increases. Heatilator Inc., the Company's gas
and wood-burning prefabricated metal fireplace and stove company, also turned
in a record performance year. While there is no reliable industry data to
reference, management believes Heatilator Inc. has regained its industry
leadership position which it had lost prior to being acquired by the Company in
1981.
The Company's 1994 financial results were driven principally by three business
factors:
1) Increases in market share in core markets;
2) Productivity improvements achieved through the Company's rapid continuous
improvement program; and
3) Stringent cost containment and reduction actions.
INCREASES IN MARKET SHARE
A key business strategy has been and continues to be profitable sales growth,
especially in core office furniture and prefabricated fireplace markets. Office
furniture sales growth is being led by the growth of the retail superstores.
This channel represents a key growth market for the Company's products.
Accordingly, new products and branding strategies are being targeted to serve
this channel better. The Company is simultaneously maintaining its high
standards of support and service to its long-standing traditional channels of
distribution which include dealers, wholesalers, and governmental accounts.
Product development is a major strategic focus for the Company. Investments for
new products, product line extensions, and improvements to existing products
continue to increase. Consolidated expenses for product development for fiscal
years 1994, 1993, and 1992 increased 31.4%, 31.0%, and 74.3%, respectively.
Approximately 30% of the Company's 1994 net sales were from products introduced
in the past three years. The product development emphasis for office furniture
has been with seating, systems, desks, and lateral file products. For the
fireplace business, the emphasis has been on applying new gas technologies to
both fireplace and stove products.
The demand for the Company's office furniture products is most influenced by the
state of the general economy and the rate of growth of small- and medium-sized
businesses. Management sees no clear correlation between demand for office
furniture products in the U.S., as distinguished from home furnishings, and the
rise and fall of the prime rate charged by leading banks. This seems to be a
major point of difference between the two industries.
Increased market share for prefabricated metal fireplaces and related products
has been gained principally through the introduction of innovative new gas
fireplace and stove products. These products have helped position Heatilator at
the top of its industry. Demand for Heatilator's fireplace products is more
closely tied to the growth rate of residential construction and remodeling that,
in turn, are somewhat dependent on home mortgage interest rates.
As noted previously, fiscal year 1993 also represented record operating results
even though it included a $4.0 million pretax charge for discontinuing the
operations of one of the Company's office furniture operating companies. The
introduction of new products and product line extensions, responsive sales and
marketing programs, reliable customer service and support, and reducing customer
lead times stimulated 1993 sales growth by 10.4%. This performance was achieved
against a backdrop of 5% reported sales growth for the broader U.S. office
furniture industry.
Fiscal year 1992 also represented a solid year of growth for the Company.
Financial performance for the year reflected a gradually improving customer
demand for the Company's products. Industry sales growth for 1992 was 6% while
the Company's sales growth exceeded 16%.
PRODUCTIVITY IMPROVEMENTS
Management has successfully leveraged its increased sales to achieve bottom line
growth. Cost of products sold and operating expenses, as a percent of net sales,
have been reduced or stabilized by employing a diligent companywide rapid
continuous improvement program (RCI). The program focuses on all aspects of the
business ranging from product design, manufacturing processes, distribution
activities, and administrative support processes. The program objective is to
eliminate nonvalue-added activities and to simplify and streamline processes to
make them more responsive and less costly. RCI results to date represent a wide
range of successes.
. Products have been redesigned to enhance their quality and make them easier to
manufacture.
- 15 -
HON INDUSTRIES Inc. and Subsidiaries
Item 7. Management's Discussion and Analysis
. Production setup times have been reduced by 50% to 90%.
. Production processes are being reengineered to be more efficient, reduce cost,
and improve product quality.
. Personnel are freed up to work full time on supporting RCI, which keeps the
improvement momentum growing.
. Factory space is being freed up as work-in-process inventories are reduced,
allowing for increased production capacity.
. Inventory turns are steadily improving as work-in-process inventories are
eliminated from the processes.
. Customer lead time is continuing to improve and is setting a new industry
standard.
. Administrative support processes are being challenged, streamlined, and
simplified to be more responsive without adding personnel.
Management expects productivity gains from the ongoing RCI program to largely
offset 1995 material and member cost increases. These gains, coupled with cost
reduction program savings and material substitution efforts, should minimize
product price increases to the customer and preserve profit margins.
STRINGENT COST CONTAINMENT AND REDUCTION
Selling and administrative costs are also a major cost containment and reduction
target. These expenses, as a percent of net sales, have been reduced or held
stable over the past three years. This is especially noteworthy considering the
intense competitive sales environment during the period. RCI also plays an
important role in managing these costs.
BUSINESS CONSOLIDATION
During 1994, the Company consolidated the operations of its XLM Company with The
HON Company. Using The HON Company's broader-based distribution channels for XLM
products has increased market share and profitability in the rapidly growing
retail and commercial dealer office furniture channels.
Chandler Attwood Limited, the Company's "experimental laboratory" with local
distributed manufacturing, has been a financial disappointment. The business was
launched in 1993. To improve financial performance, the Company will close four
of its sites, reposition its products and service at the remaining two sites,
and concentrate resources on new product development. The knowledge gained from
this experiment has been successfully implemented in other operating companies.
In late 1993, HON INDUSTRIES closed its CorryHiebert Corporation office
furniture plant located in Corry, Pennsylvania. The closure decision resulted in
a charge of $4.0 million to 1993 earnings (after-tax effect of $2.5 million or
$.08 per share). As of December 31, 1994, $0.9 million of the reserve remained
unspent.
In 1993, the Company acquired the DOVRE brand of cast iron fireplaces and
woodstoves for North and South America from Dovre Industries, NV, a Belgian
company, for approximately $1.2 million. These products are manufactured and
marketed through Heatilator. Heatilator reengineered the product and added gas
burning products to the line. This product is quite popular with domestic
consumers because of its high-gloss enamel finish that gives it a unique
appearance and its advanced flame technology.
TAXES
Management actively takes steps to manage its tax burden. The Company's
effective tax rate was 37.0% for fiscal years 1994 and 1993, and 37.5% for 1992.
COMPARATIVE FINANCIAL PERFORMANCE
The Company's financial performance compares favorably to all U.S. industry. The
Company was first recognized in Fortune magazine's list of the 500 Largest
Industrial Corporations based on its 1985 results. Companies are included on the
basis of annual net sales, but management suggests it is bottom line performance
that really distinguishes HON INDUSTRIES Inc. For example, the Company ranked
#414 in sales and #246 in profits based on its 1993 results. Below is a table
showing the annual ranking of the Company for the past three years for various
performance measures reported by Fortune:
1993 1992 1991
------------------
Sales.......................... 414 436 462
Profits........................ 246 231 270
Market Value................... 304 283 312
Profits as % of Sales.......... 131 138 136
Profits as % of Assets......... 30 33 44
Profits as % of Shareholders'
Equity...................... 33 40 54
Earnings per Share: 10-Year
Annual Growth Rate.......... 58 45 129
Total Return to Investors for
Year........................ 153 114 191
Total Return to Investors for
10 Years.................... 63 131 144
These rankings demonstrate the relative financial performance of the Company and
its ability to sustain profitability and return to investors while increasing
sales.
- 16 -
FINANCIAL CONDITION
Cash Management
- ---------------
1994 1993 1992
-----------------------
(Dollars in Millions)
Cash, Cash Equivalents, &
Short-Term Investments at
Year-End................... $ 30.7 $ 44.4 $ 45.9
Net Capital Expenditures..... $ 35.0 $ 27.5 $ 26.6
Current Ratio................ 1.70 1.70 1.87
Net Working Capital.......... $ 77.7 $ 77.7 $ 79.5
Net Cash from Operations..... $ 64.6 $ 64.0 $ 55.8
Receivables Turns per Year... 9.51 9.60 9.79
Inventory Turns per Year..... 14.00 15.61 14.51
Asset Turns per Year......... 2.33 2.31 2.34
During 1994, cash from operations of $64.6 million provided most of the funds
necessary to meet working capital needs; acquire property, plant, and equipment;
repay long-term debt; pay dividends; and repurchase Company stock.
Inventory turnover demonstrates the Company's success in reducing its investment
in inventories. Had the Company experienced the same inventory turns in 1994 as
it had in 1991 (11.67), inventories would have been $8.2 million higher in 1994
than they actually were.
Net capital expenditures (net of disposals) for all three years were principally
for the acquisition of more efficient and productive machinery and equipment.
Management anticipates 1995 fiscal year expenditures will be similar to the 1994
level. The largest capital expenditures planned for 1995 are for additional
facility expansion for The HON Company at its Muscatine, Iowa, and Richmond,
Virginia, operations.
Future capital required to finance operations, improvements, and growth is
expected to be met from cash generated by operations and additional long-term
debt as circumstances dictate.
Dividends
- ---------
The Company's dividend payout was $0.44, $0.40, and $0.37 per common share for
years 1994, 1993, and 1992, respectively.
- -------------------------------------------------------
INCREASED QUARTERLY DIVIDENDS
DIVIDEND AMOUNT
PER COMMON SHARE % INCREASE DATE EFFECTIVE
- -------------------------------------------------------
$0.12 9.1% March 1, 1995
$0.11 10.0% March 1, 1994
$0.10 11.1% December 1, 1992
- -------------------------------------------------------
Historically, the Company's dividend payout percentage has ranged from
approximately 25% to 33% of prior year earnings. The Company expects to continue
its policy of paying quarterly cash dividends. Through the March 1, 1995,
dividend payment, the Company has paid 160 consecutive quarterly common stock
dividends (40 years).
COMMON STOCK TRANSACTIONS
The HON INDUSTRIES Inc. 1994 Members' Stock Purchase Plan was approved at the
May 1994 Annual Shareholders Meeting. Under the new plan, 500,000 shares of
common stock were made available for issuance to members. The introduction of
the new plan resulted in a 56% increase in member participation which
contributed to the 19% increase in the number of Company shareholders during
1994.
The Board of Directors first authorized the Company to repurchase its common
stock in 1985 and has periodically renewed the authorization. At the February
1994 Board of Directors meeting, the Board authorized the Company to repurchase
up to $20.0 million of its own shares. Over a ten-year time period, 14,806,397
shares of HON INDUSTRIES common stock have been purchased at a cost of $197.1
million or an average cost of $13.31 per share.
COMMON STOCK REPURCHASED UNDER BOARD AUTHORIZATIONS
1994 1993 1992 1991-1985 TOTAL
--------------------------------------------------------
(Dollars in millions, except cost per share amounts)
Shares
acquired.. 1,078,835 751,399 819,687 12,156,476 14,806,397
Cost of
shares.... $ 29.6 $ 19.6 $ 16.1 $131.8 $197.1
Cost per
share..... $27.48 $26.05 $19.63 $10.84 $13.31
By virtue of these repurchases, there has been a significant reduction in the
number of shares outstanding, and earnings per share are higher. The Company
will continue to acquire its stock in the open market and from members whenever
management, acting under Board authority, believes such action is in the best
interest of the shareholders and Company.
During 1992, the Company established the HON Members Company Ownership Plan, an
employee stock ownership plan (ESOP). A trust was established to administer the
plan as a long-term retirement benefit for members.
-17-
HON INDUSTRIES Inc. and Subsidiaries
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
================================================================================
OTHER MATTERS
David C. Stuebe was named Vice President and Chief Financial Officer of the
Company, effective October 4, 1994. He replaced John W. Axel, Senior Vice
President, Finance and Development, who had resigned in January 1994. Mr. Stuebe
is a Certified Public Accountant and has a diverse financial and operations
background in various manufacturing businesses.
The Company is in EDGAR phase-in Group CF-4, which required the Company to begin
submitting SEC filings electronically as of December 6, 1993. All subsequent SEC
filings, except the 1993 Annual Report on Form 10-K which was exempt, have been
filed through EDGAR.
Although the U.S. rate of inflation is not currently an issue, the possibility
of it becoming a factor in the future has not been eliminated. The Company
adjusts the selling prices of its products to maintain profit margins whenever
possible. In addition, it employs a variety of other inflation defenses. For
example, the LIFO method is used for valuing inventories; investments are
routinely made to upgrade plants and equipment to increase worker productivity;
RCI projects are continually being pursued to improve productivity; and ongoing
cost control disciplines are routinely employed. In 1995, some select raw
material prices are projected to increase more rapidly than the rate of general
inflation, but this situation is not expected to have a significant impact on
the level of profitability.
The Company is a party to a few matters arising in connection with laws and
regulations pertaining to the protection of the environment. It has been named
along with various other "potentially responsible parties" as a party to an
Imminent or Substantial Endangerment Order and Remedial Action Order dated April
28, 1994, by the California Department of Toxic Substances Control (DTSC) in
connection with the former Firestone Tire and Rubber Company facility in South
Gate, California. Firestone owned and operated the facility from 1927 until
1981. The Company acquired part of the facility in 1981. The Company is
cooperating with Firestone in the preparation of a Remedial
Investigation/Feasibility Study Workplan which will be submitted to the DTSC in
1995. Since the facility investigation has not begun, the Company is not able to
reasonably estimate the cost of site investigation, the cost of potential
remedial actions, or its final allocation share of those costs, if any. The
Company periodically reviews these costs and will disclose each of the costs, if
material, when they can be reasonably estimated. Nevertheless, management does
not believe that the Company's potential liability for any of the environmental
matters, including the former Firestone Tire and Rubber Company facility, will
have a material effect on the Company's liquidity, financial position, or
results of operations taken as a whole. Please refer to the "Contingencies" note
in the "Notes to Consolidated Financial Statements" for additional discussion of
the Company's environmental risks.
Management has launched a program to improve the Company's investor relations
effort. The ultimate improvements will take many forms. Early evidence of this
effort is this Annual Report to Shareholders. There has been a focus on ease of
readability and on report content believed to be most relevant to shareholders
and potential new investors.
-18-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-----------------------------------------------------
The financial statements listed under Item 14 (a)(1) and (2) are filed as
part of this report.
The Summary of Unaudited Quarterly Results of Operations is presented in
the "Investor Information" section which follows the "Notes to the Consolidated
Financial Statements" material filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- ---------------------
None.
-19-
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT.
--------------------------------------
The information under the caption "Election of Directors" of the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on May 9,
1995, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
---------------------------------
The information under the caption "Executive Compensation" of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 9, 1995, is incorporated herein by reference.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------------------
MANAGEMENT.
- -----------
The information under the caption "Beneficial Owners of Common Stock" of
the Company's Proxy Statement for the Annual Meeting of Shareholders to be held
on May 9, 1995, is incorporated herein by reference.
The information under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" of the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held on May 9, 1995, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
---------------------------------------------------------
None.
-20-
(THIS PAGE INTENTIONALLY LEFT BLANK)
-21-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
--------------------------------------------------------------------------
(a) (1) Financial Statements.
---------------------
The following consolidated financial statements of HON INDUSTRIES
Inc. and Subsidiaries included in the Company's 1994 Annual Report to
Shareholders are filed as a part of this report pursuant to Item 8:
Page
----
Report of Independent Auditors............................. 27
Consolidated Statements of Income for the Years Ended
December 31, 1994; January 1, 1994; and January 2, 1993.... 28
Consolidated Balance Sheets -- December 31, 1994;
January 1, 1994; and January 2, 1993....................... 29
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1994; January 1, 1994; and
January 2, 1993............................................ 30
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994; January 1, 1994; and January 2, 1993.... 31
Notes to Consolidated Financial Statements................. 32
Investor Information (including Summary of Unaudited
Quarterly Results of Operations)........................... 36
(2) Financial Statement Schedules.
------------------------------
The following consolidated financial statement schedule of the
Company and subsidiaries is attached pursuant to Item 14(d):
Schedule II Valuation and Qualifying Accounts for the
Years Ended December 31, 1994; January 1,
1994; and January 2, 1993........................ 38
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
(b) Reports on Form 8-K.
--------------------
There were no reports on Form 8-K filed during the last quarter of the
period covered by this report.
-22-
(c) Exhibits.
---------
The following exhibits are filed pursuant to Item 601 of
Regulation S-K:
Page(s) in
Exhibit Form 10-K
------- ----------
(10) Change in Control Agreement of the Registrant...... 40
(22) Subsidiaries of the Registrant..................... 52
(24) Consent of Independent Auditors.................... 53
(27) Financial Data Schedule............................ 54
(28A) Executive Bonus Plan of the Registrant............. 55
(28B) Executive Long-Term Incentive Compensation Plan
of the Registrant.................................. 60
(d) Financial Statement Schedules.
------------------------------
See Item 14(a)(2).
-23-
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
HON INDUSTRIES Inc.
Date: February 13, 1995 By /s/ Stanley M. Howe
----------------- ------------------------------
Stanley M. Howe
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated. Each Director whose signature
appears below authorizes and appoints Stanley M. Howe as his or her attorney-in-
fact to sign and file on his or her behalf any and all amendments and post-
effective amendments to this report.
Signature Title Date
--------- ----- ----
/s/ Stanley M. Howe Chairman of the Board and 2/13/95
- ------------------------- Director
Stanley M. Howe
/s/ Jack D. Michaels President and CEO, 2/13/95
- ------------------------- Principal Executive Officer,
Jack D. Michaels and Director
/s/ Melvin L. McMains Controller and 2/13/95
- ------------------------- Principal Accounting Officer
Melvin L. McMains
/s/ David C. Stuebe Vice President and 2/13/95
- ------------------------- Chief Financial Officer
David C. Stuebe
-24-
Signature Title Date
--------- ----- ----
/s/ Robert W. Cox Director 2/13/95
- -------------------------
Robert W. Cox
/s/ W. James Farrell Director 2/13/95
- -------------------------
W. James Farrell
/s/ Lee Liu Director 2/13/95
- -------------------------
Lee Liu
/s/ Celeste C. Michalski Director 2/13/95
- -------------------------
Celeste C. Michalski
/s/ Michael S. Plunkett Director 2/13/95
- -------------------------
Michael S. Plunkett
/s/ Herman J. Schmidt Director 2/13/95
- -------------------------
Herman J. Schmidt
/s/ Richard H. Stanley Director 2/13/95
- -------------------------
Richard H. Stanley
/s/ Jan K. Ver Hagen Director 2/13/95
- -------------------------
Jan K. Ver Hagen
/s/ Lorne R. Waxlax Director 2/13/95
- -------------------------
Lorne R. Waxlax
-25-
(THIS PAGE INTENTIONALLY LEFT BLANK)
-26-
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
HON INDUSTRIES Inc.
We have audited the accompanying balance sheets of HON INDUSTRIES Inc. and
subsidiaries as of December 31, 1994, January 1, 1994, and January 2, 1993, and
the related consolidated statements of income, shareholders' equity, and cash
flows for the years then ended. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of HON
INDUSTRIES Inc. and subsidiaries as of December 31, 1994, January 1, 1994, and
January 2, 1993, and the consolidated results of their operations and their cash
flows for the years then ended, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for postemployment benefits in 1994 and its
method of accounting for income taxes and postretirement benefits other than
pensions in 1993.
Ernst & Young LLP
February 1, 1995
-27-
HON INDUSTRIES Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
==================================================================================================================================
FOR THE YEARS 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
Net sales.............................................................................. $845,998,000 $780,326,000 $706,550,000
Cost of products sold.................................................................. 573,392,000 537,828,000 479,179,000
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 272,606,000 242,498,000 227,371,000
Selling and administrative expenses.................................................... 185,490,000 171,048,000 165,075,000
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 87,116,000 71,450,000 62,296,000
- ----------------------------------------------------------------------------------------------------------------------------------
Interest income........................................................................ 2,470,000 2,524,000 3,038,000
Interest expense....................................................................... 3,248,000 3,120,000 3,441,000
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES.......................................................... 86,338,000 70,854,000 61,893,000
Income taxes........................................................................... 31,945,000 26,216,000 23,210,000
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES............................... 54,393,000 44,638,000 38,683,000
Cumulative effect of accounting changes................................................ (237,000) 489,000 --
NET INCOME.......................................................................... $ 54,156,000 $ 45,127,000 $ 38,683,000
==================================================================================================================================
NET INCOME PER COMMON SHARE:
Income before cumulative effect of accounting changes.................................. $ 1.74 $ 1.39 $1.18
Cumulative effect of accounting changes................................................ (.01) .02 --
NET INCOME.......................................................................... $ 1.73 $ 1.41 $1.18
==================================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
-28-
HON INDUSTRIES Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------
AS OF YEAR-END 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents........................................................... $ 27,659,000 $ 32,778,000 $ 40,069,000
Short-term investments.............................................................. 3,083,000 11,598,000 5,872,000
Receivables......................................................................... 94,269,000 83,650,000 78,857,000
Inventories......................................................................... 43,259,000 38,630,000 30,262,000
Deferred income taxes............................................................... 11,565,000 11,304,000 11,439,000
Prepaid expenses and other current assets........................................... 8,975,000 10,459,000 4,810,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 188,810,000 188,419,000 171,309,000
PROPERTY, PLANT, AND EQUIPMENT......................................................... 177,844,000 157,770,000 145,849,000
OTHER ASSETS........................................................................... 5,914,000 6,216,000 5,588,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $372,568,000 $352,405,000 $322,746,000
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and accrued expenses............................................... $ 99,898,000 $ 97,205,000 $ 78,904,000
Income taxes........................................................................ 4,949,000 6,936,000 5,750,000
Note payable and current maturities of long-term obligations........................ 6,246,000 6,618,000 7,126,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 111,093,000 110,759,000 91,780,000
LONG-TERM DEBT AND OTHER LIABILITIES................................................... 46,080,000 45,260,000 46,519,000
CAPITAL LEASE OBLIGATIONS.............................................................. 8,661,000 5,854,000 7,721,000
DEFERRED INCOME TAXES.................................................................. 12,094,000 10,979,000 13,717,000
SHAREHOLDERS' EQUITY
Common stock........................................................................ 30,675,000 31,676,000 32,369,000
Paid-in capital..................................................................... 434,000 281,000 2,580,000
Retained earnings................................................................... 174,642,000 161,079,000 143,741,000
Receivable from HON Members Company Ownership Plan.................................. (11,111,000) (13,483,000) (15,681,000)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 194,640,000 179,553,000 163,009,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $372,568,000 $352,405,000 $322,746,000
====================================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
-29-
HON INDUSTRIES Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
- ----------------------------------------------------------------------------------------------------
FOR THE YEARS 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
COMMON STOCK
Balance, beginning of year........................... $ 31,676,000 $ 32,369,000 $ 32,209,000
Purchase of shares................................... (1,078,000) (751,000) (818,000)
Shares issued under Members Stock Purchase Plan
and restricted stock awards......................... 77,000 58,000 62,000
Shares issued under HON Members Company
Ownership Plan...................................... -- -- 916,000
- ----------------------------------------------------------------------------------------------------
Balance, end of year.............................. $ 30,675,000 $ 31,676,000 $ 32,369,000
- ----------------------------------------------------------------------------------------------------
PAID-IN CAPITAL
Balance, beginning of year........................... $ 281,000 $ 2,580,000 $ 194,000
Purchase of shares................................... (1,567,000) (3,615,000) (15,229,000)
Shares issued under Members Stock Purchase Plan
and restricted stock awards......................... 1,720,000 1,316,000 1,031,000
Shares issued under HON Members Company
Ownership Plan...................................... -- -- 16,584,000
- ----------------------------------------------------------------------------------------------------
Balance, end of year.............................. $ 434,000 $ 281,000 $ 2,580,000
- ----------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, beginning of year........................... $161,079,000 $143,741,000 $117,172,000
Net income........................................... 54,156,000 45,127,000 38,683,000
Purchase of shares................................... (26,992,000) (15,202,000) --
Cash dividends declared, common...................... (13,601,000) (12,587,000) (12,114,000)
- ----------------------------------------------------------------------------------------------------
Balance, end of year.............................. $174,642,000 $161,079,000 $143,741,000
- ----------------------------------------------------------------------------------------------------
RECEIVABLE FROM HON MEMBERS COMPANY OWNERSHIP PLAN
Balance, beginning of year........................... $(13,483,000) $(15,681,000) $ --
Principal loaned to HON Members Company
Ownership Plan...................................... -- -- (17,500,000)
Principal repaid by HON Members Company
Ownership Plan...................................... 2,372,000 2,198,000 1,819,000
- ----------------------------------------------------------------------------------------------------
Balance, end of year.............................. $(11,111,000) $(13,483,000) $(15,681,000)
- ----------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Balance, end of year.............................. $194,640,000 $179,553,000 $163,009,000
====================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
-30-
HON INDUSTRIES Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income........................................................................ $ 54,156,000 $ 45,127,000 $ 38,683,000
Noncash items included in net income:
Depreciation and amortization................................................... 19,042,000 16,631,000 15,478,000
Other postretirement and postemployment benefits................................ 2,104,000 1,750,000 --
Deferred income taxes........................................................... 854,000 (2,113,000) (175,000)
Cumulative effect of accounting changes......................................... 237,000 (489,000) --
Other -- net.................................................................... 54,000 58,000 (109,000)
Changes in working capital:
Receivables..................................................................... (10,619,000) (4,468,000) (12,962,000)
Inventories..................................................................... (4,629,000) (7,909,000) 6,567,000
Prepaid expenses................................................................ 1,484,000 (5,428,000) (677,000)
Accounts payable and accrued expenses........................................... 4,619,000 16,434,000 8,847,000
Accrued facilities closing and reorganization expenses.......................... (1,885,000) 1,867,000 --
Income taxes payable............................................................ (1,847,000) 1,186,000 (350,000)
Increase in other liabilities..................................................... 1,077,000 1,334,000 452,000
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from (to) operating activities.................................. 64,647,000 63,980,000 55,754,000
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Capital expenditures -- net....................................................... (35,005,000) (27,541,000) (26,626,000)
Acquisition spending.............................................................. -- (1,265,000) (2,393,000)
Receivable from HON Members Company
Ownership Plan................................................................... 2,372,000 2,198,000 (15,681,000)
Short-term investments -- net..................................................... 8,515,000 (5,726,000) (1,444,000)
Other -- net...................................................................... (291,000) (1,901,000) (134,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from (to) investing activities.................................. (24,409,000) (34,235,000) (46,278,000)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Purchase of HON INDUSTRIES common stock........................................... (29,637,000) (19,568,000) (16,047,000)
Proceeds from long-term debt...................................................... -- -- 17,500,000
Payments of note and long-term debt............................................... (3,916,000) (6,025,000) (7,375,000)
Proceeds from sale of HON INDUSTRIES common stock
to HON Members Company Ownership Plan............................................ -- -- 17,500,000
Proceeds from sale of HON INDUSTRIES
common stock to members.......................................................... 1,797,000 1,144,000 944,000
Dividends paid.................................................................... (13,601,000) (12,587,000) (12,114,000)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash flows from (to) financing activities.................................. (45,357,000) (37,036,000) 408,000
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................. (5,119,000) (7,291,000) 9,884,000
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR....................................... 32,778,000 40,069,000 30,185,000
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................................. $ 27,659,000 $ 32,778,000 $ 40,069,000
====================================================================================================================================
The accompanying notes are an integral part of the consolidated financial statements.
31
HON INDUSTRIES Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRINCIPAL BUSINESS AND SIGNIFICANT CUSTOMER INFORMATION
The Company operates in one principal business segment, the manufacture of
office furniture and accessories, including file cabinets, desks, chairs,
credenzas, and panel systems. The Company also manufactures factory-built
fireplaces, fireplace inserts, and stoves; however, this business is not of
sufficient size to be a reportable segment.
One customer accounted for approximately 10%, 13%, and 12% of consolidated net
sales in 1994, 1993, and 1992, respectively.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Fiscal Year-End
- -----------------------------------------------
The consolidated financial statements include the accounts and transactions of
the Company and its subsidiaries. Intercompany accounts and transactions have
been eliminated in consolidation.
The Company's fiscal year ends on the Saturday nearest December 31. Fiscal year
1994 ended on December 31, 1994; 1993 ended on January 1, 1994; and 1992 ended
on January 2, 1993.
Cash and Cash Equivalents
- -------------------------
The Company considers all investments with a maturity of three months or less
when purchased to be cash equivalents.
Short-Term Investments
- ----------------------
Short-term investments are stated at cost, which approximates market value.
Receivables
- -----------
Accounts receivable are presented net of an allowance for doubtful accounts of
$1,654,000; $1,917,000; and $1,964,000 for 1994, 1993, and 1992, respectively.
Inventories
- -----------
Inventories are valued at the lower of cost or market, determined principally by
the last-in, first-out (LIFO) method.
Property, Plant, and Equipment
- ------------------------------
Property, plant, and equipment are carried at cost. Depreciation has been
computed by the straight-line method over estimated useful lives: land
improvements, 10-20 years; buildings, 10-40 years; and machinery and equipment,
4-12 years.
CHANGES IN BUSINESS
On October 8, 1993, the Company announced the closing of its CorryHiebert
Corporation furniture plant located in Corry, Pennsylvania, which closed on
December 17, 1993. The closure resulted in a pretax charge of $3,980,000 (after-
tax effect of $2,507,000, or $.08 per share) recorded in the fiscal quarter
ended October 2, 1993.
SUPPLEMENTAL CASH FLOW INFORMATION
1994 1993 1992
-------------------------
(In thousands)
Interest paid during the year...... $ 3,234 $ 3,219 $ 3,447
Income taxes paid during the year.. 32,534 27,144 23,734
The Company incurred capital lease obligations of $8,561,000 in 1992 in
connection with lease agreements to acquire information technology equipment.
INVENTORIES
1994 1993 1992
-------------------------
(In thousands)
Finished products................. $13,554 $10,731 $ 8,252
Materials and work in process..... 29,705 27,899 22,010
-------------------------
$43,259 $38,630 $30,262
=========================
Current replacement cost exceeded the amount stated for inventories valued by
the LIFO method by approximately $12,983,000; $11,705,000; and $12,666,000 as of
year-end 1994, 1993, and 1992, respectively.
PROPERTY, PLANT, AND EQUIPMENT
1994 1993 1992
----------------------------
(In thousands)
Land and land improvements......... $ 8,832 $ 8,779 $ 8,767
Buildings.......................... 84,801 81,409 79,819
Machinery and equipment............ 185,421 158,386 142,528
Construction and equipment
installation in progress......... 17,915 18,085 17,048
----------------------------
296,969 266,659 248,162
Less allowances for depreciation... 119,125 108,889 102,313
----------------------------
$177,844 $157,770 $145,849
============================
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
1994 1993 1992
-------------------------
(In thousands)
Trade accounts payable............. $40,939 $36,873 $28,638
Compensation....................... 3,343 2,843 2,658
Profit sharing and retirement
expense.......................... 11,066 10,913 10,009
Vacation pay....................... 8,579 8,083 7,957
Marketing expenses................. 17,443 20,995 12,370
Workers' compensation, general,
and product liability expenses... 5,492 6,925 7,359
Other accrued expenses............. 13,036 10,573 9,913
-------------------------
$99,898 $97,205 $78,904
=========================
32
LONG-TERM DEBT AND OTHER LIABILITIES
1994 1993 1992
-------------------------
(In thousands)
Industrial development revenue
bonds, various issues, payable
through 2013 with interest
at 5.85 - 8.13% per annum............ $24,928 $25,396 $26,040
Note payable to bank, payable
quarterly through 1996 with
interest at a variable rate
(6.69% at year-end 1994)............. 9,700 12,100 14,100
Other notes and amounts............... 11,452 7,764 6,379
-------------------------
$46,080 $45,260 $46,519
=========================
Aggregate maturities of long-term debt and other liabilities are as follows (in
thousands):
1995 $ 5,468
1996 12,150
1997 1,391
1998 1,541
1999 976
Thereafter 30,022
Certain of the above borrowing arrangements include covenants which require the
maintenance of a minimum level of working capital, place restrictions on the
payment of cash dividends, and limit the assumption of additional debt and lease
obligations. Approximately $146,489,000 of retained earnings were unrestricted
at the end of 1994.
The fair value of the Company's outstanding long-term debt obligations at year-
end 1994 approximates the recorded aggregate amount.
Property, plant and equipment, with net carrying values of approximately
$28,406,000 at the end of 1994, are mortgaged.
INCOME TAXES
Effective January 3, 1993, the Company changed its method of accounting for
income taxes as required by Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS No. 109). Financial statements for years
prior to 1993 were not restated. The cumulative effect of adopting FAS No. 109
at January 3, 1993, was to increase net income by $489,000, or $.02 a share.
Significant components of the provision for income taxes are as follows:
Deferred
Liability Method Method
1994 1993 1992
----------------------------
(In thousands)
Current:
Federal...................... $27,504 $26,084 $20,499
State........................ 3,587 2,734 2,886
----------------------------
31,091 28,818 23,385
Deferred...................... 854 (2,602) (175)
----------------------------
$31,945 $26,216 $23,210
============================
The components of the provision for deferred income taxes for the year ended
January 2, 1993, are as follows:
1992
--------------
(In thousands)
Provision for closing facilities and
reorganization expenses............ $(164)
Other, net........................... (11)
-----
$(175)
=====
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
1994 1993 1992
--------------------------
Federal statutory tax rate......... 35.0% 35.0% 34.0%
State taxes, net of federal
tax effect........................ 2.8 2.4 3.1
Other, net......................... (.8) (.4) .4
Effective tax rate................. 37.0% 37.0% 37.5%
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
Dec. 31, Jan. 1,
1994 1994
-------------------
(In thousands)
Net long-term deferred tax liabilities:
Tax over book depreciation.......................... $(13,630) $(11,620)
Other, net.......................................... 1,536 641
-------------------
Total net long-term deferred tax liabilities...... (12,094) (10,979)
-------------------
Net current deferred tax assets:
Workers' compensation, general, and
product liability accruals......................... 2,029 2,610
Vacation accrual.................................... 3,180 2,988
Other, net.......................................... 6,356 5,706
-------------------
Total net current deferred tax assets............. 11,565 11,304
-------------------
Net deferred tax (liabilities) assets............. $ (529) $ 325
===================
-33-
HON INDUSTRIES Inc. and Subsidiaries
Notes to Consolidated Financial Statements
SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
1994 1993 1992
-------------------------------------
Common Stock, $1 Par Value
Authorized.................. 100,000,000 100,000,000 100,000,000
Issued and outstanding........ 30,674,603 31,675,846 32,368,956
Preferred Stock
Authorized.................... 1,000,000 1,000,000 1,000,000
Issued and outstanding........ -- -- --
The Company purchased 1,078,835; 751,399; and 819,687 shares of its common stock
during 1994, 1993, and 1992, respectively.
Cash dividends declared and paid per share for each year are:
1994 1993 1992
-----------------------
Common shares................... $.44 $.40 $.37
Net income per common share is based on the weighted average number of shares of
common stock outstanding during each year including allocated and unallocated
ESOP shares.
Shares of common stock were issued in 1994, 1993, and 1992 pursuant to a
members' stock purchase plan as follows:
1994 1993 1992
------------------------
Shares issued................ 77,302 49,816 54,207
Average price per share...... $23.25 $22.96 $17.42
During 1994, shareholders approved the 1994 Members' Stock Purchase Plan. Under
the new plan, 500,000 shares of common stock were registered for issuance to
participating members. Beginning on July 3, 1994, rights to purchase stock are
granted on a quarterly basis to all members who have one year of employment
eligibility and work a minimum of 20 hours per week. The price of the stock
purchased under the plan is 85% of the closing price on the applicable purchase
date. No member may purchase stock under the plan in an amount which exceeds the
lesser of 20% of his or her gross earnings or 2,000 shares, with a maximum fair
market value of $25,000 in any calendar year. During 1994, 77,302 shares of
common stock were issued under the plan at an average price of $23.25. An
additional 422,698 shares were available for issuance under the plan at December
31, 1994.
The Company has granted restricted stock awards aggregating 75,500 shares of
common stock to officers. Vesting of such shares, which is generally dependent
on continued employment, occurs in 25% increments annually. The officers are
entitled to dividends and have voting rights on all shares awarded. Unearned
compensation expense, representing the fair market value of the shares at the
date of grant, is charged to income over the vesting period. Approximately
$37,000; $223,000; and $356,000 were charged to income as a result of the awards
for the years 1994, 1993, and 1992, respectively. At year-end 1994, 1,875 of the
awarded shares were not vested.
Pursuant to the Company's Shareholder Rights Plan, each share of common stock
carries with it one Right. Each Right entitles a shareholder to buy one two-
hundredth of a share of a new series of preferred stock at an exercise price of
$75.00. Each one two-hundredth of a share of the new preferred stock has terms
designed to make it the economic equivalent of one share of common stock. Rights
will be exercisable only if a person or group acquires 20% or more of the
Company's common stock or announces a tender offer, the consummation of which
would result in ownership by a person or group of 20% or more of the common
stock. If the Company is acquired in a merger or other business combination
transaction, each Right will entitle its holder to purchase, at the then current
exercise price of the Right, a number of the acquiring company's common shares
having a market value at that time of twice the exercise price of the Right.
The Company has entered into change in control employment agreements with
corporate officers and certain other key employees. According to the agreements,
a change in control occurs when a third person or entity becomes the beneficial
owner of 20% or more of the Company's common stock or when more than one-third
of the Company's Board of Directors is composed of persons not recommended by at
least three-fourths of the incumbent Board of Directors. Upon a change in
control, a key employee is deemed to have a two-year employment with the
Company, and all his or her benefits are vested under Company plans. If, at any
time within two years of the change in control, his or her position, salary,
bonus, place of work, or Company-provided benefits are modified, or employment
is terminated by the Company for any reason other than cause or by the key
employee for good reason, as such terms are defined in the agreement, then the
key employee is entitled to receive a severance payment equal to two times
salary and the average of the prior two years' bonuses.
RETIREMENT BENEFITS
The Company has defined contribution profit-sharing plans covering substantially
all employees who are not participants in certain defined benefit plans. The
Company's annual contribution to the defined contribution plans is based on
employee eligible earnings and results of operations and amounted to
$10,849,000; $10,092,000; and $9,472,000 in 1994, 1993, and 1992, respectively.
The Company sponsors defined benefit plans which include a limited number of
salaried and hourly employees at certain subsidiaries. The Company's funding
policy is generally to contribute annually the minimum actuarially computed
amount. Net pension costs relating to these plans were $228,000; $172,000; and
$151,000 for 1994, 1993, and 1992, respectively. The actuarial present value of
benefit obligations, less related plan assets at fair value, is not significant.
In 1992, the Company established a trust to administer a newly adopted leveraged
employee stock ownership plan (ESOP), the HON Members Company Ownership Plan.
Company contributions based on employee eligible earnings and dividends on the
shares are used to make loan interest and principal payments. As the loan is
repaid, shares are
-34-
distributed to the ESOP trust for allocation to participants. Selected financial
data pertaining to the ESOP is as follows:
1994 1993 1992
---------------------------------
(In thousands, except share data)
Company contribution to ESOP........... $ 2,977 $ 2,962 $ 2,742
Dividend income of ESOP................ 403 366 339
Company interest expense on ESOP
loan................................... 656 605 802
Shares of common stock allocated to
ESOP participant accounts.............. 133,945 133,666 122,198
Shares held in suspense (unallocated)
by ESOP as of year-end................. 526,421 660,366 794,032
Fair value of shares held in suspense
by ESOP as of year-end................. $ 14,082 $ 18,490 $ 18,660
Closing market price of common stock
as of year-end......................... $ 26.75 $ 28.00 $ 23.50
In 1994, the Company adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits," which required accrual
accounting for nonaccumulating postemployment benefits. The cumulative effect of
adoption was to reduce net income by $237,000, after tax, or $.01 a share.
POSTRETIREMENT HEALTH CARE
The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," as of
January 3, 1993, and recorded the cumulative effect of the accounting change on
the deferred recognition basis. The cost of providing these benefits was
previously recognized in the period in which the benefits were paid.
The following table sets forth the funded status of the plan, reconciled to the
accrued postretirement benefits cost recognized in the Company's balance sheet
at:
Dec. 31, Jan. 1,
1994 1994
--------------------
(In thousands)
Accumulated postretirement benefit obligation (APBO):
Retirees.............................................. $ 6,947 $ 7,192
Fully eligible active plan participants............... 3,816 3,374
Other active plan participants........................ 6,397 6,368
Unrecognized net loss (713) (1,659)
Unrecognized transition obligation (12,932) (13,650)
--------------------
Accrued postretirement benefit cost $ 3,515 $ 1,625
====================
Net periodic postretirement benefit costs include:
Service cost $ 687 $ 603
Interest cost 1,242 1,134
Amortization of transition obligation over 20 years 718 718
--------------------
Net periodic postretirement benefit cost $ 2,647 $ 2,455
====================
The discount rates at December 31, 1994, and January 1, 1994, were 8.0% and
7.5%, respectively. The 1995 trend rates begin at 8.6% for the post-65 medical
coverage and 12.2% for the prescription drug coverage. These rates decrease
until their respective caps are reached in the year 2002 for post-65 medical
coverage and 2001 for prescription drug coverage. Thereafter, the medical trend
rates applicable to the Company subsidy are assumed to be zero percent. Since
the pre-65 benefit is currently capped, medical trend rates are assumed to be
zero percent for all years. If the medical trend rates were increased by 1.0%
for each year, the APBO as of December 31, 1994, would increase by $98,000, and
the sum of the service and interest cost components of the net periodic
postretirement benefit cost for fiscal year 1994 would increase by $8,000. The
1992 cost for these postretirement benefits on a pay-as-you-go basis was
$1,023,000.
LEASES
The Company leases certain warehouse and plant facilities and equipment.
Commitments for minimum rentals under noncancellable leases at the end of 1994
are as follows:
Capitalized Operating
Leases Leases
----------------------------
(In thousands)
1995............................................................ $ 1,696 $3,335
1996............................................................ 2,024 2,440
1997............................................................ 2,024 1,274
1998............................................................ 2,024 877
1999............................................................ 2,024 244
Thereafter...................................................... 5,210 511
------- ------
Total minimum lease payments.................................... 15,002 $8,681
Less amount representing interest............................... 5,563 ======
-------
Present value of net minimum
lease payments, including current
maturities of $778,000........................................ $ 9,439
=======
Property, plant, and equipment at year-end include the following amounts for
capitalized leases:
1994 1993 1992
------------------------------------
(In thousands)
Buildings.............................................. $ 3,709 $ 3,709 $ 3,709
Machinery and equipment................................ 8,419 8,286 8,286
------------------------------------
12,128 11,995 11,995
Less allowances for
depreciation......................................... 2,507 4,376 2,682
------------------------------------
$ 9,621 $ 7,619 $ 9,313
====================================
Rent expense for the years 1994, 1993, and 1992 amounted to approximately
$6,572,000; $4,854,000; and $5,031,000, respectively. Contingent rent expense
under both operating and capitalized leases (generally based on mileage of
transportation equipment) amounted to $525,000; $490,000; and $674,000 for the
years 1994, 1993, and 1992, respectively.
CONTINGENCIES
In connection with laws and regulations pertaining to the protection of the
environment, the Company is a party to a few remediation investigations and
clean-ups and, along with other companies, has been named a "potentially
responsible party" for certain waste disposal sites. Because each of these
matters is subject to various uncertainties (such as the extent of
contamination, the type of remediation, or other action that may be required),
the Company cannot predict the actual costs it will ultimately incur with
respect to these matters. However, based on the existence of other "potentially
responsible parties" to share in such costs, the volume and type of waste the
Company is believed to have contributed to each site and the period of time over
which environmental costs may be paid, the Company does not believe that
potential liability at these sites will have a material effect on the Company's
liquidity, financial position, or results of operations taken as a whole.
-35-
HON INDUSTRIES Inc. and Subsidiaries
Investor Information
CORPORATE HEADQUARTERS
HON INDUSTRIES Inc.
P O Box 1109
414 East Third Street
Muscatine IA 52761-7109
Telephone: 319-264-7400
INDEPENDENT AUDITORS
Ernst & Young LLP
Sears Tower
233 South Wacker Drive
Chicago IL 60606-6301
FINANCIAL INFORMATION AND INQUIRIES
Shareholders and other interested investors are welcome to call or write with
questions or requests for additional information.
Inquiries should be directed to:
David C. Stuebe, Vice President and CFO
HON INDUSTRIES Inc.
P O Box 1109
Muscatine IA 52761-7109
Telephone: 319-264-7400
COMMON STOCK
HON INDUSTRIES common stock trades on The Nasdaq Stock market under the symbol:
HONI. Stock price quotations can be found in major daily newspapers and The Wall
Street Journal.
TRANSFER AGENT
The Company serves as its own transfer agent. Share-
holders may report a change of address or make inquiries by writing or calling:
Stock Transfer Department
HON INDUSTRIES Inc.
P O Box 1109
Muscatine IA 52761-7109
Telephone: 319-264-7223
COMMON STOCK DIVIDENDS
The Company has paid a cash dividend every quarter since April 15, 1955 -- for
40 years. The 1994 annual dividend was $0.44 per share, up 10% from the 1993
dividend and marked the sixth consecutive year of increases. The quarterly
dividend increased another 9.1% from $0.11 to $0.12 per share for the March 1,
1995, payment. Dividends are expected to be paid on March 1, June 1, September
1, and December 1 in fiscal 1995.
QUARTERLY CALENDAR
The Company operates on a fiscal year ending on the Saturday nearest December
31. Quarterly results are typically announced within 20 days after the end of
each quarter, and audited results are typically announced within 40 days after
year-end.
Fiscal 1995 Quarter-End Dates
- ----------- -----------------
First quarter Saturday, April 1
Second quarter Saturday, July 1
Third quarter Saturday, September 30
Fourth quarter Saturday, December 30
ANNUAL MEETING
The Company's annual shareholders' meeting will be held at 10:30 a.m. on
Tuesday, May 9, 1995, at the Holiday Inn, Highways 61 & 38 North, Muscatine,
Iowa. For overnight lodging reservations, please call 319-264-5550.
Shareholders and other interested investors are encouraged to attend the
meeting.
10-K REPORT
A copy of the Company's annual report filed with the Securities and Exchange
Commission on Form 10-K is available, without charge, upon written request to
David C. Stuebe, Vice President and CFO, at the address noted above.
-36-
SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
First Second Third Fourth Total
Quarter Quarter Quarter* Quarter Year
--------------------------------------------------
(In thousands, except per share data)
Year-End 1994:
Net sales.................................. $200,693 $193,045 $222,112 $230,148 $845,998
Gross profit............................... 63,374 59,713 71,005 78,514 272,606
Income before income taxes................. 18,458 14,637 24,659 28,584 86,338
Income taxes............................... 6,830 5,415 9,124 10,576 31,945
Income before cumulative effect
of accounting changes.................... 11,628 9,222 15,535 18,008 54,393
Cumulative effect of accounting changes.... (237) -- -- -- (237)
Net income................................. 11,391 9,222 15,535 18,008 54,156
Net income per common share:
Income before cumulative effect of
accounting changes....................... .37 .30 .49 .58 1.74
Cumulative effect of accounting changes... (.01) -- -- -- (.01)
Net income per common share................ .36 .30 .49 .58 1.73
Year-End 1993:
Net sales.................................. $186,111 $177,537 $203,070 $213,608 $780,326
Gross profit............................... 55,457 53,643 64,024 69,374 242,498
Income before income taxes................. 12,807 12,946 18,628 26,473 70,854
Income taxes............................... 4,675 4,725 7,021 9,795 26,216
Income before cumulative effect
of accounting changes.................... 8,132 8,221 11,607 16,678 44,638
Cumulative effect of accounting changes.... 489 -- -- -- 489
Net income................................. 8,621 8,221 11,607 16,678 45,127
Net income per common share:
Income before cumulative effect of
accounting changes....................... .25 .25 .36 .53 1.39
Cumulative effect of accounting changes.... .02 -- -- -- .02
Net income per common share................ .27 .25 .36 .53 1.41
Year-End 1992:
Net sales.................................. $158,575 $163,806 $195,968 $188,201 $706,550
Gross profit............................... 50,100 53,243 65,043 58,985 227,371
Income before income taxes................. 11,470 14,025 19,632 16,766 61,893
Income taxes............................... 4,301 5,260 7,361 6,288 23,210
Net income................................. 7,169 8,765 12,271 10,478 38,683
Net income per common share................ .22 .26 .38 .32 1.18
*In 1993, includes a pretax charge of $3,980,000 (after-tax effect of
$2,507,000, or $.08 per share) for discontinuing the operations of a subsidiary.
COMMON STOCK MARKET PRICE AND PRICE/
EARNINGS RATIO (UNAUDITED)
ANNUAL 1994 -- 1984
Price/
Market Earnings
Price* Ratio
--------------- Earnings -------------
per
Year High Low Share* High Low
- -----------------------------------------------------------
1994 $ 34 $ 24 $1.73 20 14
1993 29-1/4 21-1/2 1.41 21 15
1992 23-1/2 16-1/2 1.18 20 14
1991 20-1/2 13-1/4 1.02 20 13
1990 23 13-1/2 1.30 18 10
1989 19-7/8 8-3/4 .79 25 11
1988 10-1/4 7-7/8 .94 11 8
1987 11-1/2 8-1/8 .62 19 13
1986 9-7/8 7 .71 14 10
1985 7-3/4 4-1/8 .61 13 7
1984 5-3/4 3-3/4 .38 15 10
--------------
Eleven-Year Average 18 11
==============
*Adjusted for the effect of stock splits
COMMON STOCK MARKET PRICES AND DIVEDENDS
(UNAUDITED)
QUARTERLY 1994 -- 1993
1994 by Divedends
Quarters High Low per Share
- ----------------------------------------------------
1st $ 34 $ 24-1/2 $.11
2nd 34 26-1/4 .11
3rd 27-3/8 24 .11
4th 28-1/2 25-1/4 .11
-----
Total Dividends Paid $.44
=====
1993 by Divedends
Quarters High Low per Share
- ----------------------------------------------------
1st $ 29-1/4 $ 22-3/4 $.10
2nd 29-1/4 21-1/2 .10
3rd 28-1/2 25 .10
4th 29 26-1/2 .10
-----
Total Dividends Paid $.40
=====
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SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
HON INDUSTRIES Inc. AND SUBSIDIARIES
December 31, 1994
- ------------------------------------------------------------------------------------------------------------------------------------
COL.A COL. B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------------
DESCRIPTION Balance at Beginning (1) (2) Deductions--Describe Balance at End
of Period Charged to Costs Charged to Other of Period
and Expenses Accounts--Describe
- ------------------------------------------------------------------------------------------------------------------------------------
(In thousands)
Reserves deducted in the
consolidated balance sheet
from the assets to which
they apply:
Year ended December 31, 1994: $1,917 $ 594 $ 857 (A) $1,654
Allowance for doubtful accounts ====== ====== ====== ======
Year ended January 1, 1994: $1,964 $ 632 $ 679 (A) $1,917
Allowance for doubtful accounts ====== ====== ====== ======
Year ended January 2, 1993: $1,826 $1,325 $1,187 (A) $1,964
Allowance for doubtful accounts ====== ====== ====== ======
Note A--Excess of accounts written off over recoveries.
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ITEM 14(a)(3) - INDEX OF EXHIBITS.
----------------------------------
Page
----
Exhibits
--------
(10) Change in Control Agreement of the Registrant......... 40
(22) Subsidiaries of the Registrant........................ 52
(24) Consent of Independent Auditors....................... 53
(27) Financial Data Schedule............................... 54
(28A) Executive Bonus Plan of the Registrant................ 55
(28B) Executive Long-Term Incentive Compensation
Plan of the Registrant................................ 60
-39-