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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 2, 1995 COMMISSION FILE NO. 1-6651
HILLENBRAND INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1160484
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 STATE ROUTE 46 EAST
BATESVILLE, INDIANA 47006-8835
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (812) 934-7000
NOT APPLICABLE
(Former name, former address and former
fiscal year, if changed since last report)
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
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INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Common Stock, without par value - 70,757,284 as of September 30, 1995.
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1
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HILLENBRAND INDUSTRIES, INC.
INDEX TO FORM 10-Q
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Income for the Three Months 3
and Nine Months Ended 9/02/95 and 8/27/94
Consolidated Cash Flows for the Nine Months 4
Ended 9/02/95 and 8/27/94
Consolidated Balance Sheet, 5
9/02/95 and 12/03/94
Notes to Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 12
Item 6 - Exhibits and Reports on Form 8-K 12
SIGNATURES 12
2
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (Unaudited)
Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Income
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------- -------------------------
09/02/95 08/27/94 09/02/95 08/27/94
-------- -------- -------- --------
(In Thousands Except Per Share Data)
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . . . . . . $398,716 $377,815 $1,199,852 $1,137,926
Cost of revenues . . . . . . . . . . . . . . . . . 226,865 207,197 672,266 610,193
Administrative, distribution
and selling expenses. . . . . . . . . . . . . . . 121,931 117,046 378,611 351,269
Unusual charge . . . . . . . . . . . . . . . . . . -- 84,750 -- 84,750
--------- --------- ---------- ---------
Operating profit (loss). . . . . . . . . . . . . . 49,920 (31,178) 148,975 91,714
Interest expense . . . . . . . . . . . . . . . . . (5,554) (5,555) (16,257) (17,045)
Other income, net. . . . . . . . . . . . . . . . . 1,235 1,514 2,299 4,108
--------- --------- ---------- ---------
Income (loss) before income taxes. . . . . . . . . 45,601 (35,219) 135,017 78,777
Income taxes . . . . . . . . . . . . . . . . . . . 19,715 (13,679) 53,872 29,868
--------- --------- ---------- ---------
Net income (loss). . . . . . . . . . . . . . . . . $ 25,886 $ (21,540) $ 81,145 $ 48,909
--------- --------- ---------- ---------
Net income (loss) per common share . . . . . . . . $ .37 $ (.30) $ 1.15 $ .69
--------- --------- ---------- ---------
Dividends per common share . . . . . . . . . . . . $ .15 $ .1425 $ .45 $ .4275
--------- --------- ---------- ---------
Average shares outstanding . . . . . . . . . . . . 70,788 71,229 70,824 71,340
--------- --------- ---------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
3
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Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
------------------
09/02/95 08/27/94
-------- --------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 81,145 $ 48,909
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 78,826 70,640
Change in noncurrent deferred
income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . (4,348) (9,442)
Change in net working capital
excluding cash, current debt, acquisitions
and accrued litigation settlement . . . . . . . . . . . . . . . . (14,368) (26,257)
Accrued litigation settlement net
of income taxes. . . . . . . . . . . . . . . . . . . . . . . . . -- 52,545
Change in insurance items:
Deferred policy acquisition costs . . . . . . . . . . . . . . . . (42,803) (47,228)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,304 17,571
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,602) (15,367)
--------- ---------
Net cash flows from operating activities . . . . . . . . . . . . . . . 126,154 91,371
--------- ---------
Cash flows from investing activities:
Capital expenditures, net. . . . . . . . . . . . . . . . . . . . . . (66,053) (83,654)
Acquisition of businesses. . . . . . . . . . . . . . . . . . . . . . (2,550) (37,589)
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . -- (13,000)
Insurance investments:
Purchases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (402,020) (413,696)
Proceeds on maturities . . . . . . . . . . . . . . . . . . . . . . 42,293 163,298
Proceeds on sales prior to maturity. . . . . . . . . . . . . . . . 196,060 62,842
--------- ---------
Net cash flows from investing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (232,270) (321,799)
--------- ---------
Cash flows from financing activities:
Additions to debt, net . . . . . . . . . . . . . . . . . . . . . . . 15,954 28,424
Payment of cash dividends. . . . . . . . . . . . . . . . . . . . . . (31,859) (30,507)
Treasury stock acquisitions. . . . . . . . . . . . . . . . . . . . . (5,003) (12,646)
Insurance premiums received. . . . . . . . . . . . . . . . . . . . . 321,784 342,301
Insurance benefits paid. . . . . . . . . . . . . . . . . . . . . . . (151,014) (126,176)
--------- ---------
Net cash flows from financing
activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,862 201,396
--------- ---------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . 43,746 (29,032)
Cash and cash equivalents:
At beginning of period. . . . . . . . . . . . . . . . . . . . . . . . 120,359 210,157
--------- ---------
At end of period. . . . . . . . . . . . . . . . . . . . . . . . . . . $164,105 $181,125
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS 09/02/95 12/03/94
-------- --------
<S> <C> <C>
(In Thousands)
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . $ 164,105 $ 120,359
Trade receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277,513 299,598
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,560 104,229
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,008 42,275
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 605,186 566,461
Equipment leased to others, net. . . . . . . . . . . . . . . . . . . . . . . 86,954 76,122
Property, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277,459 282,470
Other assets:
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . 188,806 188,268
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,374 44,254
---------- ----------
Total other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 238,180 232,522
Insurance assets:
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,362,872 1,198,539
Deferred policy acquisition costs. . . . . . . . . . . . . . . . . . . . . 323,992 281,189
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 48,046 43,051
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,004 33,799
---------- ----------
Total insurance assets. . . . . . . . . . . . . . . . . . . . . . . . . . 1,770,914 1,556,578
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,978,693 $2,714,153
---------- ----------
---------- ----------
LIABILITIES 09/02/95 12/03/94
-------- --------
(In Thousands)
Current liabilities:
Short-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 42,362 $ 25,206
Current portion of long-term debt. . . . . . . . . . . . . . . . . . . . . 805 1,805
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 60,111 52,427
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156,389 179,751
---------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 259,667 259,189
Other liabilities:
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 208,527 208,729
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . 89,824 78,045
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 20,350 19,470
---------- ----------
Total other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 318,701 306,244
Insurance liabilities:
Benefit reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,204,720 1,059,984
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 436,860 380,593
General liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,950 14,652
---------- ----------
Total insurance liabilities . . . . . . . . . . . . . . . . . . . . . . . 1,660,530 1,455,229
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,238,898 2,020,662
---------- ----------
Commitments and contingencies (Note 6)
SHAREHOLDERS' EQUITY
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,442 4,442
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . 13,238 11,587
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878,030 828,744
Accumulated unrealized gain on
investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433 -
Foreign currency translation adjustment. . . . . . . . . . . . . . . . . . 10,165 10,478
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (166,513) (161,760)
---------- ----------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . . 739,795 693,491
---------- ----------
Total liabilities and
shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,978,693 $2,714,153
---------- ----------
---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
Hillenbrand Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands)
1. Basis of Presentation
The unaudited, condensed consolidated financial statements appearing in
this quarterly report on Form 10-Q should be read in conjunction with the
financial statements and notes thereto included in the Company's latest
annual report. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The
statements herein have been prepared in accordance with the Company's
understanding of the instructions to Form 10-Q. In the opinion of
management, such financial statements include all adjustments necessary to
present fairly the financial position, results of operations, and cash
flows, for the interim periods.
2. Supplementary Income Statement Information
Investment income (non-insurance) in the third quarter of 1995 and 1994 was
$3,661 and $4,217, respectively. Investment income in the first nine
months of 1995 and 1994 was $9,820 and $9,268, respectively.
3. Supplementary Balance Sheet Information
The following information pertains to non-insurance assets and consolidated
shareholders' equity:
<TABLE>
<CAPTION>
09/02/95 12/03/94
---------- ----------
<S> <C> <C>
Allowance for possible losses and
discounts on trade receivables . . . . . . $ 14,699 $ 13,982
Accumulated depreciation of equipment
leased to others and property. . . . . . . $531,866 $477,634
Accumulated amortization of intangible
assets . . . . . . . . . . . . . . . . . . $144,525 $133,181
Capital Stock:
Preferred stock, without par value:
Authorized 1,000,000 shares;
Shares issued. . . . . . . . . . . None None
Common stock, without par value:
Authorized 199,000,000 shares; . . .
Shares issued. . . . . . . . . . . 80,323,912 80,323,912
</TABLE>
The Company reclassified the current deferred income tax asset from "other
current liabilities" to "other current assets". The balance sheet at
December 3, 1994 was restated to reflect this change. This asset was $20.3
million at December 3, 1994 and $24.3 million at September 2, 1995.
6
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4. Earnings per Common Share
Earnings per common share were computed by dividing net income by the
average number of common shares outstanding during each period (70,788,053
for the three months of 1995; 70,823,838 for the nine months of 1995;
71,229,334 for the three months of 1994; and 71,339,643 for the nine months
of 1994). Under a program begun in 1983, the Company has acquired to date
11,003,672 shares of common stock of which 1,497,889 shares have been
reissued for general corporate purposes. The remaining treasury stock has
been excluded in determining the average number of shares outstanding
during each period. Common share equivalents arising from shares awarded
under the Senior Executive Compensation Program which was initiated in
fiscal year 1978 and various deferred share equivalents have also been
excluded from the computation because of their insignificant dilutive
effect.
5. Accounting Changes
Effective December 4, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." In accordance with the provisions of this
standard, investment assets of the Company's insurance subsidiary
(Forethought) classified as "available-for-sale" were written up $666
thousand from their amortized cost of $1,362.2 million to their fair value
of $1,362.9 million on September 2, 1995. The insurance deferred tax asset
was decreased $233 thousand to record the income tax effect and
shareholders' equity ("accumulated unrealized gain on investments") was
increased $433 thousand. Adoption of this standard did not affect results
of operations or cash flows.
Effective with the second quarter of 1995, the Company's statement of
consolidated cash flows reflects certain changes in the reporting of the
cash flows of its insurance subsidiary. Cash flows relative to investments
have been reclassified from operating activities to investing activities
and expanded to disclose purchases, maturities and sales. Premiums
received and benefits paid on policies (long duration whole life policies)
have been classified as financing activities. Prior year results have been
restated to conform to the current presentation.
6. Contingencies
On August 16, 1995, Kinetic Concepts, Inc., and Medical Retro Design, Inc.
(collectively, the "plaintiffs"), filed suit against Hillenbrand
Industries, Inc., and its subsidiary Hill-Rom Company, Inc., in the United
States District Court for the Western District of Texas, San Antonio
Division. The plaintiffs allege violation of various antitrust laws,
including illegal bundling of products, predatory pricing, refusal to
deal and attempting to monopolize the hospital bed industry. They seek
monetary damages totaling in excess of $268.5 million, trebling of any
damages that may be allowed by the court, and injunctions to prevent
further alleged unlawful activities. The Company believes that the claims
are without merit and will defend itself aggressively against all
allegations.
7
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The Company has voluntarily entered into remediation agreements with
environmental authorities, and has been issued Notices of Violation
alleging violations of certain permit conditions. Accordingly, the Company
is in the process of implementing plans of abatement in compliance with
agreements and regulations. The Company has also been notified as a
potentially responsible party in investigations of certain offsite disposal
facilties. The cost of all plans of abatement and waste site cleanups in
which the Company is currently involved is not expected to exceed $10.0
million. The Company has provided adequate reserves in its financial
statements for these matters. Changes in environmental law might affect
the Company's future operations, capital expenditures and earnings. The
cost of complying with these provisions is not known.
The Company is subject to various other claims and contingencies arising
out of the normal course of business, including those relating to
commercial transactions, product liability, safety, health, taxes,
environmental and other matters. Management believes that the ultimate
liability, if any, in excess of amounts already provided or covered by
insurance, is not likely to have a material adverse effect on the Company's
financial condition, results of operations or cash flows.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRD QUARTER 1995 COMPARED WITH THIRD QUARTER 1994
Net revenues of $398.7 million were up $20.9 million, or 5.5%, with growth
reported in both segments. In the Funeral Services segment, Batesville
Casket Company revenues were higher due to growth in traditional burial
casket unit volume, a first quarter price increase and increased sales of
Options-TM- cremation products (cremation caskets and urns). At Forethought,
investment income grew significantly due to a larger investment portfolio and
higher yields. Earned premium revenue was higher due to increased insurance
in force. However, policy sales in the third quarter were below the
comparable period in 1994 due primarily to product changes designed to
enhance Forethought's overall long term profitability. Since premium
revenues are recognized over the life of the policy holder, the decrease in
policy sales in 1995 have not had a significant effect on current year
revenue. Revenues in the Health Care segment increased only modestly. Net
revenues of Hill-Rom's combined operations were up marginally in the third
quarter, year over year. Orders for capital products in the U.S. acute care
market remain soft and shipments in the third quarter were below the prior
year. Therapy rental revenues in the long-term care and home care markets
continued to grow year over year as increased units in use were partially
offset by lower average rental rates reflecting a shift in product mix.
Hill-Rom's European operations
8
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reported net revenue growth in the third quarter due to increased capital
shipments, higher therapy rental revenue and the effect of changes in foreign
currency exchange rates. Sales at Block Medical increased due to higher
ambulatory electronic pump shipments, partially offset by lower disposable
infusion pump volume. Medeco Security Locks reported revenue growth as
increased sales in its route management business were partially offset by lower
door security shipments.
Gross profit of $171.9 million was up $1.2 million, or 0.7%, compared with
the third quarter of 1994. As a percentage of net revenues, gross profit
declined from 45.2% in 1994 to 43.1% in 1995. In the Funeral Services
segment, Batesville Casket's margins were favorably affected by unit volume
growth of traditional caskets, partially offset by increased sales of lower
margin cremation products. Forethought's profitability was negatively
affected by an increase in the crediting rate on policies in force which was
done for competitive reasons. The crediting rate is the interest rate that
Forethought uses to grow the face amount on insurance policies to have the
benefit grow. Margins in the Health Care segment continue to run below 1994
levels. Hill-Rom's gross profit margin was negatively affected by European
operations (lower margin products combined with operating inefficiencies,
especially in Germany), the decline in U.S. acute care capital shipments,
increased used furniture sales (lower margin products), increased discount
levels, and lower average therapy rental rates. Block and Medeco both
realized improved gross profit due to increased operating efficiency and
higher sales.
Administrative, distribution and selling expenses increased $4.9 million, or
4.2%. As a percentage of revenues they decreased from 31.0% to 30.6%. The
Funeral Services segment continues to benefit from improved efficiency and
economies of scale at both Batesville Casket and Forethought as growth in these
expenses was well below the growth in revenues. In the Health Care segment,
these expenses and their relationship to revenues were, although to a lesser
extent than in the first and second quarters, negatively affected by European
operations (especially Germany), lower capital shipments in the U.S. acute
care market and increased new product development costs, partially offset by
lower expenses related to the integration of Hill-Rom and SSI and improved
efficiency at Block and Medeco.
The unusual charge of $84.8 million ($52.5 million, or $.74 per share, after
tax) in the third quarter of 1994 reflected the settlement of a patent
infringement suit.
In summary, consolidated operating profit of $49.9 million declined $3.7
million, or 6.8%, excluding the effect of the unusual charge in 1994. The
Funeral Services segment was up with growth at both Batesville Casket and
Forethought. Health Care segment operating profit was down significantly due to
Hill-Rom's performance, with both Block and Medeco reporting improvement.
In the third quarter, the Company increased its effective income tax rate
from 38.2% to 43.2% due to higher than anticipated operating losses in Europe
and lower than expected U.S. earnings before tax. The effective income tax
rate for fiscal 1995 will be approximately 40.9%.
9
<PAGE>
NINE MONTHS ENDED SEPTEMBER 2, 1995 COMPARED WITH NINE MONTHS
ENDED AUGUST 27, 1994
Net revenues of $1.2 billion were up $61.9 million, or 5.4%. Revenues in the
Funeral Services segment grew due to increased burial casket unit volume, the
first quarter price increase and growth in cremation product sales at
Batesville Casket. At Forethought, higher investment income and earned
premium revenue (reflecting increased insurance in force) offset the minimal
effect on current year revenues of lower policy sales in the second and third
quarters of 1995. Year to date revenues in the Health Care segment were up
marginally for essentially the same reasons discussed under third quarter
results, although growth was slightly higher than for the third quarter due
to the acquisition of L. & C. Arnold AG by Hill-Rom in February of 1994.
Gross profit of $527.6 million was essentially even with 1994. As a percentage
of revenues, gross profit declined from 46.4% to 44.0%. In addition to the
issues discussed under third quarter results, the Funeral Services segment was
negatively affected by casket unit volume shortfalls at Batesville Casket in the
first quarter. Margin declines in the Health Care segment were consistent with
the third quarter.
Administrative, distribution and selling expenses increased $27.3 million, or
7.8%. As a percentage of revenues they increased from 30.9% to 31.6%. The
improving trends discussed in third quarter results largely offset
unfavorability in the first two quarters.
Consolidated operating profit of $149.0 million declined $27.5 million, or
15.6%, excluding the effect of the $84.8 million litigation settlement on
1994 results. Both Batesville Casket and Forethought reported growth in the
Funeral Services segment. In the Health Care segment, the significant
decline in operating profit at Hill-Rom was partially offset by improvement
at Block and Medeco.
Interest expense was down on a year to date basis due to the pay-off in the
second quarter of 1994 of a $75.0 million note relative to the acquisition of
SSI Medical Services, partially offset by higher levels of debt in Europe.
Other income, net, includes interest income and other miscellaneous income
and expense. Compared with 1994, lower death benefits associated with the
Company's corporate-owned life insurance program and nonoperating expenses in
Europe were partially offset by higher interest income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities and selected borrowings represent the
Company's primary sources of funds for growth of the business, including capital
expenditures and acquisitions. Cash and cash equivalents (excluding the
investments of insurance operations) increased from $120.4 million at the end of
1994 to $164.1 million at the end of the third quarter of 1995.
10
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Net cash flows from operating activities of $126.2 million were $34.8 million
higher than in the first nine months of 1994. Lower net income (excluding the
effect of the litigation settlement which was paid in the fourth quarter of
1994) was offset by a smaller increase in net working capital. Accounts
receivable have declined $22.1 million from year end 1994 due primarily to lower
capital shipments at Hill-Rom. Days sales outstanding was 71 at quarter-end
compared with 78 at year-end 1994. Inventories were up $10.3 million reflecting
increased field evaluation units at Hill-Rom. Annualized inventory turns on
revenues of 12.4 fell from 13.7 at year-end 1994.
Capital expenditures of $66.1 million were $17.6 million lower than in 1994 due
to reduced production of therapy rental units at Hill-Rom, vehicle replacements
and other items. In the third quarter, Batesville Casket acquired a burial
casket distributor in Florida. Acquisitions in 1994 consisted primarily of
Arnold and Industrias Arga, a Mexican casket manufacturer and distributor.
Forethought's investment strategy is to purchase high grade investment
securities with maturities that match the expected cash outflows of policy
benefit payments. For this reason, securities in excess of $190.0 million were
sold in the second and third quarters of 1995 with the proceeds reinvested in
securities with longer durations to better match the expected future benefit
payments.
Additions to debt in the first three quarters of 1995 were related to European
operations. In the first quarter of 1994, the Company issued $100.0 million of
its 7% Debentures and, in the second quarter, prepaid a $75.0 million note
relative to the acquisition of SSI. The long-term debt-to-equity ratio was
28.2% on September 2, 1995 compared with 30.1% at year-end. Additional debt
capacity affords the Company considerable flexibility in the funding of future
growth. The decline in insurance premiums received reflects the lower policy
unit sales as discussed in "results of operations". The increase in benefits
paid was due primarily to increased insurance in force.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company expects that shipments to U.S. acute care hospitals will remain soft
for the near future. There is a growing trend to minimize hospital stays in the
U.S. which is driving the growth in sub-acute markets, including long-term care
and home care. Operating losses in certain European markets will continue until
after restructuring efforts are completed
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 16, 1995, Kinetic Concepts, Inc., and Medical Retro Design, Inc.
(collectively, the "plaintiffs"), filed suit against Hillenbrand Industries,
Inc., and its subsidiary Hill-Rom Company, Inc., in the United States
District Court for the Western District of Texas, San Antonio Division. The
plaintiffs allege violation of various antitrust laws, including illegal
bundling of products, predatory pricing, refusal to deal and attempting to
monopolize the hospital bed industry. They seek monetary damages totaling in
excess of $268.5 million, trebling of any damages that may be allowed by the
court, and injunctions to prevent further alleged unlawful activities. The
Company believes that the claims are without merit and will defend itself
aggressively against all allegations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
B. Reports on Form 8-K
There were no reports filed on Form 8-K during the third quarter
ended September 2, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILLENBRAND INDUSTRIES, INC.
DATE: October 16, 1995 BY: /S/ TOM E. BREWER
------------------------------------
Tom E. Brewer
Senior Vice President
and Chief Financial Officer
DATE: October 16, 1995 BY: /S/ James D. Van De Velde
------------------------------------
James D. Van De Velde
Vice President - Controller
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 1 OF THE COMPANY'S FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 2, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-02-1995
<PERIOD-START> DEC-04-1994
<PERIOD-END> SEP-02-1995
<CASH> 164,105
<SECURITIES> 0
<RECEIVABLES> 292,212
<ALLOWANCES> (14,699)
<INVENTORY> 114,560
<CURRENT-ASSETS> 605,186
<PP&E> 896,279
<DEPRECIATION> (531,866)
<TOTAL-ASSETS> 2,978,693
<CURRENT-LIABILITIES> 259,667
<BONDS> 208,527
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0
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