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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 1, 1997 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 - 68,796,966 as of April 7, 1997.
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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
Ended 3/1/97 and 3/2/96
Consolidated Balance Sheet, 4
3/1/97 and 11/30/96
Consolidated Cash Flows for the Three Months 5
Ended 3/1/97 and 3/2/96
Notes to Consolidated Financial Statements 6-8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Income
Three Months Ended
-----------------------
03/01/97 03/02/96
-------- --------
(In Millions Except Per Share Data)
Net revenues:
Health Care sales . . . . . . . . . . . . $ 139 $ 149
Health Care rentals . . . . . . . . . . . 96 95
Funeral Services . . . . . . . . . . . . 147 137
Insurance . . . . . . . . . . . . . . . . 64 53
-------- --------
Total revenues. . . . . . . . . . . . . . 446 434
Cost of revenues:
Health Care cost of goods sold. . . . . . 78 91
Health Care rental expenses . . . . . . . 61 59
Funeral Services. . . . . . . . . . . . . 76 73
Insurance . . . . . . . . . . . . . . . . 47 41
-------- --------
Total cost of revenues. . . . . . . . . . 262 264
Other operating expenses. . . . . . . . . . 118 111
-------- --------
Operating profit. . . . . . . . . . . . . . 66 59
Interest expense. . . . . . . . . . . . . . (6) (6)
Other income, net . . . . . . . . . . . . . 4 3
-------- --------
Income before income taxes. . . . . . . . . 64 56
Income taxes. . . . . . . . . . . . . . . . 25 23
-------- --------
Net income. . . . . . . . . . . . . . . . . $ 39 $ 33
-------- --------
-------- --------
Net income per common share . . . . . . . . $ .56 $ .48
-------- --------
-------- --------
Dividends per common share . . . . . . . . $ .165 $ .155
-------- --------
-------- --------
Average shares outstanding (thousands). . . 68,793 70,131
-------- --------
-------- --------
See Notes to Consolidated Financial Statements
3
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Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Balance Sheet
03/01/97 11/30/96
-------- --------
(In Millions)
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . $ 300 $ 266
Trade receivables . . . . . . . . . . . . . . . 301 287
Inventories . . . . . . . . . . . . . . . . . . 92 96
Other . . . . . . . . . . . . . . . . . . . . . 56 45
-------- --------
Total current assets . . . . . . . . . . . . . 749 694
Equipment leased to others, net . . . . . . . . . 88 93
Property, net . . . . . . . . . . . . . . . . . . 243 253
Other assets:
Intangible assets, net. . . . . . . . . . . . . 138 149
Other assets . . . . . . . . . . . . . . . . . 51 50
-------- --------
Total other assets . . . . . . . . . . . . . . 189 199
Insurance assets:
Investments . . . . . . . . . . . . . . . . . . 1,693 1,663
Deferred policy acquisition costs . . . . . . . 425 406
Deferred income taxes . . . . . . . . . . . . . 60 44
Other . . . . . . . . . . . . . . . . . . . . . 44 44
-------- --------
Total insurance assets . . . . . . . . . . . . 2,222 2,157
-------- --------
Total assets. . . . . . . . . . . . . . . . . . . $3,491 $3,396
-------- --------
-------- --------
LIABILITIES
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . $ 64 $ 74
Current portion of long-term debt . . . . . . . 1 1
Trade accounts payable. . . . . . . . . . . . . 52 50
Other . . . . . . . . . . . . . . . . . . . . . 204 195
-------- --------
Total current liabilities. . . . . . . . . . . 321 320
Other liabilities:
Long-term debt. . . . . . . . . . . . . . . . . 204 204
Other long-term liabilities . . . . . . . . . . 78 74
Deferred income taxes . . . . . . . . . . . . . 12 13
-------- --------
Total other liabilities. . . . . . . . . . . . 294 291
Insurance liabilities:
Benefit reserves. . . . . . . . . . . . . . . . 1,512 1,449
Unearned revenue. . . . . . . . . . . . . . . . 554 528
General liabilities . . . . . . . . . . . . . . 26 21
-------- --------
Total insurance liabilities. . . . . . . . . . 2,092 1,998
-------- --------
Total liabilities . . . . . . . . . . . . . . . . 2,707 2,609
-------- --------
Commitments and contingencies (Note 4)
SHAREHOLDERS' EQUITY
Common stock. . . . . . . . . . . . . . . . . . 4 4
Additional paid-in capital. . . . . . . . . . . 14 14
Retained earnings . . . . . . . . . . . . . . . 1,001 973
Accumulated unrealized gain (loss) on
investments. . . . . . . . . . . . . . . . . . (2) 21
Foreign currency translation adjustment . . . . 2 10
Treasury stock. . . . . . . . . . . . . . . . . (235) (235)
-------- --------
Total shareholders' equity . . . . . . . . . . 784 787
-------- --------
Total liabilities and
shareholders' equity . . . . . . . . . . . . . . $3,491 $3,396
-------- --------
-------- --------
See Notes to Consolidated Financial Statements
4
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Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Cash Flows
Three Months Ended
-----------------------
03/01/97 03/02/96
-------- --------
(In Millions)
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . $ 39 $ 33
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization . . . . . . . . 26 27
Change in noncurrent deferred
income taxes . . . . . . . . . . . . . . . . (4) -
Change in net working capital
excluding cash, current debt,
acquisitions and dispositions . . . . . . . (10) 11
Change in insurance items:
Deferred policy acquisition costs. . . . . . (19) (12)
Other, net . . . . . . . . . . . . . . . . . 15 14
Other, net . . . . . . . . . . . . . . . . . 3 (5)
-------- --------
Net cash flows from operating activities . . . . 50 68
-------- --------
Cash flows from investing activities:
Capital expenditures, net . . . . . . . . . . . (13) (21)
Insurance investments:
Purchases . . . . . . . . . . . . . . . . . . (327) (112)
Proceeds on maturities. . . . . . . . . . . . 40 16
Proceeds on sales prior to maturity . . . . . 222 53
-------- --------
Net cash flows from investing
activities . . . . . . . . . . . . . . . . . . . (78) (64)
-------- --------
Cash flows from financing activities:
Additions (reductions) to debt, net . . . . . . (4) 13
Payment of cash dividends . . . . . . . . . . . (11) (11)
Treasury stock acquisitions . . . . . . . . . . - (9)
Insurance premiums received . . . . . . . . . . 147 96
Insurance benefits paid . . . . . . . . . . . . (70) (61)
-------- --------
Net cash flows from financing
activities . . . . . . . . . . . . . . . . . . . 62 28
-------- --------
Net increase in cash and
cash equivalents . . . . . . . . . . . . . . . . 34 32
Cash and cash equivalents:
At beginning of period . . . . . . . . . . . . . 266 171
-------- --------
At end of period . . . . . . . . . . . . . . . . $ 300 $ 203
-------- --------
-------- --------
See Notes to Consolidated Financial Statements
5
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Hillenbrand Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions)
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 Balance Sheet Information
The following information pertains to non-insurance assets and
consolidated shareholders' equity:
03/01/97 11/30/96
---------- ----------
Allowance for possible losses and
discounts on trade receivables.......... $ 18 $ 19
Accumulated depreciation of equipment
leased to others and property........... $ 600 $ 588
Accumulated amortization of intangible
assets.................................. $ 147 $ 145
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
6
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3. Earnings per Common Share
Earnings per common share were computed by dividing net income ($38,504
thousand for the three months of 1997 and $33,338 thousand for the three
months of 1996) by the average number of common shares outstanding during
each period (68,792,649 for the three months of 1997 and 70,131,090 for
the three months of 1996). Under a program begun in 1983, the Company has
acquired to date 13,008,672 shares of common stock of which 1,561,675
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.
4. Contingencies
As discussed under Item 3 of the Company's Annual Report on Form 10-K for
the fiscal year ended November 30, 1996, 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 $269 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 1, 1997.
On November 20, 1996, the Company filed a Counterclaim to the above action
against Kinetic Concepts, Inc. (KCI) in the U.S. District Court in San
Antonio, Texas. The Counterclaim alleges that KCI has attempted to
monopolize the therapeutic bed market and to interfere with the Company's
and Hill-Rom's business relationships by conducting a campaign of
anticompetitive conduct. It further alleges that KCI abused the legal
process for its own advantage, interfered with existing Hill-Rom
contractual relationships, interfered with Hill-Rom's prospective
contractual and business relationships, commercially disparaged the Company
and Hill-Rom by uttering and publishing false statements to customers and
prospective customers not to do business with the Company and Hill-Rom, and
committed libel and slander in statements made both orally and published by
KCI that the Company and Hill-Rom were providing illegal discounts. The
Company alleges that KCI's intent is to eliminate legal competitive
marketplace activity.
On December 24, 1996, the Company filed a patent infringement action
against KCI in the U.S. District Court in Charleston, South Carolina, for
alleged infringement of its Effica-TM- therapeutic bed by KCI. Hill-Rom is
seeking both monetary damages and injunctive relief in this action.
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 facilities. The cost of all plans of abatement and waste site
cleanups in which the Company is currently involved is not expected to
exceed $10 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
FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996
Consolidated net revenues of $446 million were up $12 million or 3%. Health
Care sales declined $10 million or 7% due primarily to lower Hill-Rom sales
in Germany and France, reflecting government cost and price controls and
continued economic softness in those countries. First quarter 1996 also
included sales for Block Medical which was sold in the third quarter of last
year. These items were partially offset by growth in Hill-Rom's acute care
and long-term care markets. The growth in acute care was led by increased
sales of communications, architectural and operating room products, including
good acceptance of new product offerings. Sales at Medeco Security Locks were
essentially flat year over year. Health Care rental revenues were up
marginally in the first quarter. Growth in both the home care market (higher
units in use and higher rates) and long-term care market (higher units in use
partially offset by lower rates) were partially offset by lower revenues in
the acute care market (lower rates partially offset by higher units in use).
Rental revenues in Europe were down marginally. Sales at Batesville Casket
were up $10 million or 7%. Traditional
8
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casket unit volume increased due to higher deaths and growth in market share.
Sales of Options-TM-cremation products also increased. Insurance revenues
grew $11 million or 21%. Investment income was up due to the larger
investment portfolio as yields were essentially unchanged. Earned premium
revenue increased due to a greater number policies in force year over year.
Gross profit on Health Care sales of $61 million increased $3 million or 5%
and as a percentage of sales improved from 39% to 44%. This improvement was
due to reduced sales of lower-margin European products, the favorable impact
of higher U.S. volume on the fixed manufacturing expense base and the effect
of ongoing cost and process improvements. Gross profit on rental revenues
declined $1 million or 3% and as a percentage of revenue was 36% compared
with 38% in the first quarter of 1996. The lower margins were due to
slightly higher service costs and therapy unit depreciation expense. Gross
profit on Funeral Services sales increased $7 million or 11% and as a
percentage of sales improved from 47% to 48%. These increases were due to
higher sales volume and productivity improvements.
Profit on insurance operations (net of other operating expenses) increased
from $3 million in the first quarter of 1996 to $7 million in 1997 due to
higher investment income, increased levels of insurance in force and control
of operating expenses.
Other operating expenses increased $7 million or 6% and as a percentage of
revenues were unchanged at 26%. Costs associated with Medeco's direct
distribution system (implemented in the fourth quarter of 1996) and higher
compensation and investment costs were offset by reduced fixed costs in
Europe and cost control and process improvements throughout all operations.
The Company's consolidated effective income tax rate was 39% versus 41% in
the first quarter of 1996. This decline was due primarily to lower losses in
Hill-Rom's European operations. The Company does not currently derive any
tax benefit from these 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) increased from $266 million at the
end of 1996 to $300 million at the end of the first quarter. Cash flows from
operating activities of $50 million were down $18 million from the first
quarter of 1996 due to an increase in working capital from year end,
partially offset by higher earnings. While net working capital is up from
year end 1996 (primarily reflecting higher accounts receivable at Hill-Rom
due to lower prepayments), it is down compared with the first quarter of
1996. Inventories declined $8 million in last year's first quarter due to
shipment of a relatively large back log of electric bed orders. Accounts
receivable days sales outstanding were 72 at both the end of the first
quarter and the end of 1996. Annualized inventory turns improved to 12.4
from 11.4 in fiscal 1996 due to strong first quarter shipments at Batesville
Casket. Working capital management is a key component of the Company's
continuous improvement efforts.
9
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Capital spending of $13 million was down $8 million due to lower therapy
rental unit production and avoidance of expenditures on improvement of
European operations in the first quarter of 1996. The Forethought Group
continues to liquidate and redeploy portions of its investment portfolio in
order to match maturities with expected benefit payments and maximize yields
within statutory and management constraints.
FACTORS THAT MAY AFFECT FUTURE RESULTS
While the Company has managed to reduce the losses on its operations in
Europe year over year through consolidation of operations and other process
improvements, there has not yet been a measurable improvement in the European
health care capital sales or therapy rental markets.
10
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit No. Description
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27 Financial Data Schedule
B. Reports on Form 8-K
There were no reports filed on Form 8-K during the first quarter
ended March 1, 1997.
11
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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 14, 1997 BY: /S/ Tom E. Brewer
----------------------------------
Tom E. Brewer
Chief Financial Officer
DATE: April 14, 1997 BY: /S/ James D. Van De Velde
----------------------------------
James D. Van De Velde
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
QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 1, 1997, AND IS
QUALIFIED IN ITS ENITRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-29-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> MAR-01-1997
<CASH> 300
<SECURITIES> 0
<RECEIVABLES> 319
<ALLOWANCES> 18
<INVENTORY> 92
<CURRENT-ASSETS> 749
<PP&E> 931
<DEPRECIATION> 600
<TOTAL-ASSETS> 3,491
<CURRENT-LIABILITIES> 321
<BONDS> 204
0
0
<COMMON> 4
<OTHER-SE> 780
<TOTAL-LIABILITY-AND-EQUITY> 3,491
<SALES> 286
<TOTAL-REVENUES> 446
<CGS> 154
<TOTAL-COSTS> 262
<OTHER-EXPENSES> 118
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 64
<INCOME-TAX> 25
<INCOME-CONTINUING> 39
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
