<PAGE>
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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 MARCH 2, 1996 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 - 69,951,280 as of March 30, 1996.
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1
<PAGE>
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
Ended 3/02/96 and 3/04/95
Consolidated Cash Flows for the Three Months 4
Ended 3/02/96 and 3/04/95
Consolidated Balance Sheet, 5
3/02/96 and 12/02/95
Notes to Consolidated Financial Statements 6-7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-9
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 10
SIGNATURES 10
2
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Income
<TABLE>
<CAPTION>
Three Months Ended
03/02/96 03/04/95
-------- --------
(In Thousands Except
Per Share Data)
<S> <C> <C>
Net revenues:
Health Care sales . . . . . . . . . . . . . . . . $149,150 $130,972
Health Care rentals . . . . . . . . . . . . . . . 95,247 90,254
Funeral Services . . . . . . . . . . . . . . . . 136,785 130,412
Insurance . . . . . . . . . . . . . . . . . . . . 52,674 44,639
------- -------
Total revenues . . . . . . . . . . . . . . . . . 433,856 396,277
Cost of revenues:
Health Care cost of goods sold . . . . . . . . . . 91,017 78,052
Health Care rental expenses . . . . . .. . . . . . 59,168 60,617
Funeral Services . . . . . . . . . . . . . . . . . 73,179 70,524
Insurance . . . . . . . . . . . . . . . . . . . . 40,788 34,602
------- -------
Total cost of revenues . . . . . . . . . . . . . . 264,152 243,795
Other operating expenses . . . . . . . . . . . . . . 111,201 103,628
------- -------
Operating profit . . . . . . . . . . . . . . . . . . 58,503 48,854
Interest expense . . . . . . . . . . . . . . . . . . (6,239) (5,267)
Other income, net . . . . . . . . . . . . . . . . . 3,486 919
------- -------
Income before income taxes . . . . . . . . . . . . . 55,750 44,506
Income taxes . . . . . . . . . . . . . . . . . . . . 22,412 17,001
------- -------
Net income . . . . . . . . . . . . . . . . . . . . . $ 33,338 $ 27,505
------- -------
------- -------
Net income per common share . . . . . . . . . . . . $ .48 $ .39
------- -------
------- -------
Dividends per common share . . . . . . . . .. . . . $ .155 $ .15
------- -------
------- -------
Average shares outstanding . . . . . . . . . . . . . 70,131 70,885
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
------------------
03/02/96 03/04/95
-------- --------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . $ 33,338 $ 27,505
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization . . . . . . . . . 26,591 23,841
Change in noncurrent deferred
income taxes . . . . . . . . . . . . . . . . . 188 (2,554)
Change in net working capital
excluding cash and current debt . . . . . . . 10,920 (10,996)
Change in insurance items:
Deferred policy acquisition costs . . . . . . (12,164) (12,923)
Other, net . . . . . . . . . . . . . . . . . . 14,326 11,856
Other, net . . . . . . . . . . . . . . . . . . (5,276) 11,597
------ ------
Net cash flows from operating activities . . . . 67,923 48,326
------ ------
Cash flows from investing activities:
Capital expenditures, net . . . . . . . . . . . (21,125) (16,314)
Insurance investments:
Purchases . . . . . . . . . . . . . . . . . . . (111,419) (65,291)
Proceeds on maturities . . . . . . . . . . . . 15,536 12,638
Proceeds on sales prior to maturity . . . . . . 52,674 -
------ ------
Net cash flows from investing
activities . . . . . . . . . . . . . . . . . . . (64,334) (68,967)
------ ------
Cash flows from financing activities:
Additions (reductions) to debt, net . . . . . . . 13,052 (2,625)
Payment of cash dividends . . . . . . . . . . . . (10,863) (10,621)
Treasury stock acquisitions . . . . . . . . . . . (8,647) (3,539)
Insurance premiums received . . . . . . . . . . 95,965 109,925
Insurance benefits paid . . . . . . . . . . . . (61,613) (50,726)
------ ------
Net cash flows from financing
activities . . . . . . . . . . . . . . . . . . . 27,894 42,414
------- -------
Net increase in cash and
cash equivalents. . . . . . . . . . . . . . . . . 31,483 21,773
Cash and cash equivalents:
At beginning of period . . . . . . . . . . . . . 171,343 120,359
------- -------
At end of period . . . . . . . . . . . . . . . . $202,826 $142,132
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Balance Sheet
<TABLE>
<CAPTION>
ASSETS 03/02/96 12/02/95
-------- --------
(In Thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . .$ 202,826 $ 171,343
Trade receivables . . . . . . . . . . . . . . . . . . 315,025 313,483
Inventories . . . . . . . . . . . . . . . . . . . . . 104,107 111,679
Other . . . . . . . . . . . . . . . . . . . . . . . . 46,721 43,660
--------- ---------
Total current assets . . . . . . . . . . . . . . . . 668,679 640,165
Equipment leased to others, net. . . . . . . . . . . . 94,085 91,329
Property, net. . . . . . . . . . . . . . . . . . . . . 266,644 275,730
Other assets:
Intangible assets, net. . . . . . . . . . . . . . . . 154,430 162,993
Other assets. . . . . . . . . . . . . . . . . . . . . 53,086 49,076
--------- ---------
Total other assets . . . . . . . . . . . . . . . . . 207,516 212,069
Insurance assets:
Investments . . . . . . . . . . . . . . . . . . . . . 1,455,848 1,432,222
Deferred policy acquisition costs. . . . . . . . . . 351,494 339,330
Deferred income taxes . . . . . . . . . . . . . . . . 46,776 39,518
Other . . . . . . . . . . . . . . . . . . . . . . . . 38,574 39,893
--------- ---------
Total insurance assets . . . . . . . . . . . . . . . 1,892,692 1,850,963
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . .$3,129,616 $3,070,256
--------- ---------
--------- ---------
LIABILITIES
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . . . .$ 54,264 $ 40,450
Current portion of long-term debt . . . . . . . . . . 1,935 2,315
Trade accounts payable. . . . . . . . . . . . . . . . 63,239 70,743
Other . . . . . . . . . . . . . . . . . . . . . . . . 202,668 187,213
--------- ---------
Total current liabilities. . . . . . . . . . . . . . 322,106 300,721
Other liabilities:
Long-term debt. . . . . . . . . . . . . . . . . . . . 206,401 206,783
Other long-term liabilities . . . . . . . . . . . . . 75,114 79,343
Deferred income taxes . . . . . . . . . . . . . . . . 15,346 14,945
--------- ---------
Total other liabilities. . . . . . . . . . . . . . . 296,861 301,071
Insurance liabilities:
Benefit reserves. . . . . . . . . . . . . . . . . . . 1,283,412 1,252,737
Unearned revenue. . . . . . . . . . . . . . . . . . . 468,544 454,763
General liabilities . . . . . . . . . . . . . . . . . 18,488 15,200
--------- ---------
Total insurance liabilities. . . . . . . . . . . . . 1,770,444 1,722,700
--------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . 2,389,411 2,324,492
--------- ---------
Commitments and contingencies (Note 5)
SHAREHOLDERS' EQUITY
Common stock. . . . . . . . . . . . . . . . . . . . . 4,442 4,442
Additional paid-in capital. . . . . . . . . . . . . . 13,745 13,238
Retained earnings . . . . . . . . . . . . . . . . . . 898,608 876,133
Accumulated unrealized gain on
investments. . . . . . . . . . . . . . . . . . . . . 9,779 22,861
Foreign currency translation adjustment . . . . . . . 6,866 14,099
Treasury stock. . . . . . . . . . . . . . . . . . . . (193,235) (185,009)
--------- ---------
Total shareholders' equity . . . . . . . . . . . . . 740,205 745,764
--------- ---------
Total liabilities and
shareholders' equity. . . . . . . . . . . . . . . . .$3,129,616 $3,070,256
--------- ---------
--------- ---------
</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 first quarter of 1996 and 1995 was
$3,954 and $2,852, respectively.
3. Supplementary Balance Sheet Information
The following information pertains to non-insurance assets and consolidated
shareholders' equity:
<TABLE>
<CAPTION>
03/02/96 12/02/95
-------- --------
<S> <C> <C>
Allowance for possible losses and
discounts on trade receivables. . . . . . $ 17,857 $ 19,833
Accumulated depreciation of equipment
leased to others and property . . . . . . $554,205 $544,000
Accumulated amortization of intangible
assets. . . . . . . . . . . . . . . . . . $165,011 $163,836
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>
6
<PAGE>
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 (70,131,090
for the three months of 1996 and 70,884,748 for the three months of 1995).
Under a program begun in 1983, the Company has acquired to date 11,843,672
shares of common stock of which 1,544,835 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. Contingencies
As discussed under Item 3 of the Company's Annual Report on Form 10-K for
the fiscal year ended December 2, 1995, Hillenbrand Industries, Inc., and
its subsidiary Hill-Rom Company, Inc., are the subject of an antitrust
suit brought by a competitor in the health care equipment market. The
plaintiff seeks 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 is aggressively defending itself against
all allegations. There was no material change in the status of this
litigation during the quarter ended March 2, 1996.
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.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 1996 COMPARED WITH FIRST QUARTER 1995
Consolidated net revenues of $433.9 million were up $37.6 million, or 9.5%.
Health Care sales increased $18.2 million, or 13.9%, due primarily to higher
unit sales of the Advance -R- series beds at Hill-Rom. In Europe, increased
sales in Germany and favorable exchange rates were partially offset by lower
sales in France. Sales at Medeco Security Locks were up marginally due to
increased shipments in door security business, partially offset by decreases in
route management. Block Medical reported marginally lower sales. Health Care
rental revenues increased $5.0 million, or 5.5%. In the long-term care
market, units in use and average rental rates were higher than in the first
quarter of 1995. In the home care market, increased units in use were partially
offset by lower rates. Acute care unit placements and rates were down
marginally. Rental revenue growth in Europe was due primarily to increased
units in use. Funeral Services sales were up $6.4 million, or 4.9%, due to
casket unit volume growth on increased deaths, a first quarter price increase
and higher sales of Options-TM- cremation caskets and urns. Insurance revenues
grew $8.0 million, or 18.0%, to $52.7 million in the first quarter. Earned
premium revenue was up due to a greater number of policies in force year over
year. Investment income was up due primarily to a larger investment portfolio
as yields were essentially unchanged.
Gross profit on Health Care sales of $58.1 million increased $5.2 million, or
9.9%, due to higher sales of Advance series beds. As a percentage of
revenues, gross profit was 39.0% compared with 40.4% in 1995 due primarily to
increased sales of lower margin European products. Profitability at Medeco
improved on the strength of volume growth and control of manufacturing costs.
Gross profit on rental revenues of $36.1 million grew $6.4 million, or 21.7%,
and as a percentage of revenues improved from 32.8% to 37.9%. This improvement
reflected lower therapy unit service costs, partially offset by higher
depreciation expense. Funeral services gross profit of $63.6 million increased
$3.7 million, or 6.2%, and as a percentage of sales increased from 45.9% to
46.5% due primarily to higher unit sales volume. Insurance gross profit of
$11.9 million was up $1.8 million , or 18.4%. Improvements in the commission
and product structure offset growth in benefits and credited interest on the
larger base of insurance in force.
Other operating expenses increased $7.6 million, or 7.3%, and as a percentage of
revenues declined from 26.2% to 25.6%. Cost control throughout all operations
offset increased incentive compensation expense (reflecting improved
performance) and higher legal fees.
8
<PAGE>
Interest expense increased $972 thousand, or 18.5%, due to higher debt
associated with European operations.
Other income, net, of $3.5 million was up $2.6 million due primarily to
investment income on higher average levels of interest earning assets.
The Company's consolidated effective income tax rate of 40.2% compares with
38.2% in the first quarter of 1995. This increase was largely due to increased
operating losses in Europe - a trend which began to develop in the second
quarter of 1995. The Company is not currently deriving any tax benefit from
European losses.
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) grew from $171.3 million at the end of 1995
to $202.8 million at the end of the first quarter. Net cash flows from
operating activities of $67.9 million were up $19.6 million due primarily to
higher earnings and a decrease in net working capital. Inventories declined
$7.6 million versus a $6.4 million increase in the first quarter of 1995. The
1995 increase reflected additional product evaluation inventory at Hill-Rom.
The decline in 1996 was due to higher first quarter shipments at Hill-Rom.
Annualized inventory turns on sales improved from 9.6 at year end to 11.0 at
quarter end. Accounts receivable days sales outstanding were 75 at the end of
the first quarter versus 80 at year end 1995. The change in other items
primarily reflects the reclassification of certain accrued expenses from
noncurrent to current and is mostly offset in the change in working capital.
Capital spending of $21.1 million was higher than in the first quarter of 1995
due to increased production of therapy rental units and expenditures relative to
improving operations in Europe. Investment purchases in insurance operations
reflected funds available from the sale of investments prior to maturity as
Forethought continues to realign its portfolio to better match maturities with
expected policy benefit payments.
In the first quarter, the Company utilized short-term borrowings at a favorable
interest rate to pay down certain debt in Europe. Additional debt capacity
allows the Company considerable flexibility in the funding of future growth in
all operations. Insurance premiums received were down compared with the first
quarter of 1995. The policy and commission changes (and resulting decline in
policy sales) previously discussed were implemented in the second quarter of
1995. The increase in benefits paid primarily reflects increased insurance in
force year over year.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Although U.S. acute care capital shipments have improved over the past two
fiscal quarters, the strength of future order patterns remains uncertain.
Recent changes in Medicare policy, which eliminated reimbursement for certain
of Hill-Rom's pressure ulcer prevention products, will negatively affect future
rental revenues and profitability. Capital shipments in France are expected to
remain at lower than 1995 levels for the near term. Operating losses in other
European markets will continue as operations are restructured.
9
<PAGE>
PART II - OTHER INFORMATION
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 first quarter
ended March 2, 1996.
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: April 15, 1996 BY: /S/ Tom E. Brewer
--------------------------
Tom E. Brewer
Chief Financial Officer
DATE: April 15, 1996 BY: /S/ James D. Van De Velde
--------------------------
James D. Van De Velde
Controller
10
<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
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 2, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-START> DEC-03-1995
<PERIOD-END> MAR-02-1996
<CASH> 202,826
<SECURITIES> 0
<RECEIVABLES> 332,882
<ALLOWANCES> 17,857
<INVENTORY> 104,107
<CURRENT-ASSETS> 668,679
<PP&E> 914,934
<DEPRECIATION> 554,205
<TOTAL-ASSETS> 3,129,616
<CURRENT-LIABILITIES> 322,106
<BONDS> 206,401
0
0
<COMMON> 4,442
<OTHER-SE> 735,763
<TOTAL-LIABILITY-AND-EQUITY> 3,129,616
<SALES> 285,935
<TOTAL-REVENUES> 433,856
<CGS> 164,196
<TOTAL-COSTS> 264,152
<OTHER-EXPENSES> 111,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,239
<INCOME-PRETAX> 55,750
<INCOME-TAX> 22,412
<INCOME-CONTINUING> 33,338
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,338
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
