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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1998 COMMISSION FILE NO. 1-6651
HILLENBRAND INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1160484
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 STATE ROUTE 46 EAST
BATESVILLE, INDIANA 47006-8835
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (812) 934-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
- -------------------------------- ------------------------------------------
COMMON STOCK, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. / /
STATE THE AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.
Common Stock, without par value - $2,128,243,226 as of February 12, 1999
(excluding stock held by persons deemed affiliates).
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Common Stock, without par value - 66,403,448 as of February 12, 1999.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the 1999 Proxy Statement furnished to Shareholders - Parts I,
III and IV.
Portions of the 1997 Proxy Statement furnished to Shareholders - Part IV.
Portions of the 1994 Proxy Statement furnished to Shareholders - Part IV.
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<PAGE>
HILLENBRAND INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
NOVEMBER 28, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
PART I
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote
of Security Holders 8
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder
Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 19
Item 8. Financial Statements and Supplementary
Data 21
Item 9. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure 45
PART III
Item 10. Directors and Executive Officers
of the Registrant 46
Item 11. Executive Compensation 46
Item 12. Security Ownership of Certain
Beneficial Owners and Management 46
Item 13. Certain Relationships and Related
Transactions 46
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 46
SIGNATURES 49
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
Hillenbrand Industries, Inc., an Indiana corporation headquartered in
Batesville, Indiana, is a diversified, public holding company and the owner of
100% of the capital stock of its three major operating companies. Unless the
context otherwise requires, the terms "Hillenbrand" and the "Company" refer to
Hillenbrand Industries, Inc., and its consolidated subsidiaries. Hillenbrand is
organized into two business segments: the Health Care Group and the Funeral
Services Group. The Health Care Group consists of Hill-Rom, Inc., a manufacturer
of equipment for the health care market and provider of wound care and
pulmonary/trauma management services. The assets of Medeco Security Locks, Inc.,
a manufacturer of high security locks and access control products for commercial
and residential use, were sold to Assa Abloy AB on July 1, 1998. Results for
Medeco Security Locks, Inc. are included in the Company's financial statements
within the Health Care Group through that date. The Funeral Services Group
consists of Batesville Casket Company, Inc., a manufacturer of caskets and other
products for the funeral industry, and Forethought Financial Services, Inc., a
provider of funeral planning financial products.
HEALTH CARE
Hill-Rom, Inc., with its subsidiaries (collectively, "Hill-Rom"), is a
leading producer of mechanically, electrically and hydraulically controlled
adjustable hospital beds, infant incubators, radiant warmers, hospital
procedural stretchers, hospital patient room furniture, medical gas and
vacuum systems and architectural systems specifically designed to meet the
needs of medical-surgical, critical care, long-term care, home-care and
perinatal providers. It has been in the hospital equipment business since
1929. It has been engaged in the manufacture, rental and service of therapy
beds and support surfaces in the wound care, pulmonary/trauma and
incontinence management markets since 1985.
The Hill-Rom line of electrically and manually adjustable hospital beds
includes models which, through sideguard controls, can be raised and lowered,
retracted and adjusted to varied orthopedic and therapeutic contours and
positions. Hill-Rom also produces beds for special departments such as
intensive care, emergency, perinatal, recovery rooms, neonatal and labor and
delivery rooms. Other Hill-Rom products include nurse call systems, sideguard
communications, wood-finished bedside cabinets, adjustable-height overbed
tables, mattresses and wood upholstered chairs. Its architectural products
include customized, prefabricated modules, either wall-mounted or on
freestanding columns, enabling medical gases, communications and electrical
services to be distributed in patient rooms. Recently introduced and acquired
products include the TotalCare(R) bed, TransStar(R) stretcher, Procedural
Recliner, Isolette(R) infant incubator, Resuscitaire(R) radiant warmer and
MEDAES(R) medical gas and vacuum systems in the acute care market and the
Resident(R) LTC bed in the long-term care market. Hill-Rom also
remanufactures hospital beds. The remanufacturing process includes
disassembly, washing, sanding, painting and reassembly with new components.
Hill-Rom products are sold directly to acute and long-term health care
facilities throughout the United States and Canada by Hill-Rom account
executives. Most Hill-Rom(R) products sold in the United States are delivered
by trucks owned by Hill-Rom. Hill-Rom also operates a Canadian division which
distributes Hill-Rom(R) products, principally in Canada. Hill-Rom also sells
its domestically produced products through distributorships throughout the
world.
Hill-Rom operates hospital bed, therapy bed and patient room manufacturing
facilities in France. Their products are sold and leased directly to hospitals
and nursing homes throughout Europe.
-1-
<PAGE>
Within the wound care and trauma management market, CLINITRON(R) Air
Fluidized Therapy is provided as a therapeutic adjunct in the treatment of
advanced pressure sores, flaps, grafts and burns. The CLINITRON(R) unit
achieves its support characteristics from the fluid effect created by forcing
air up and through medical-grade ceramic microspheres contained in the unit's
fluidization chamber. Various CLINITRON(R) products are designed to meet the
specific requirements of acute care, long-term care and home-care settings.
Recent product introductions utilizing this technology include the
Clinitron(R) Rite-Hite(R) Air Fluidized Therapy unit, designed to meet the
requirements of long-term care facilities and the Clinitron At-Home(R) unit,
which was designed for delivery and use in the home.
Hill-Rom's other wound care and pulmonary/trauma management technology,
low airloss therapy, consists of a sleep surface with air-filled cushions
separated into integrated zones. Air pressure is automatically adjusted
whenever the patient changes position. Micro air vents on the cushions allow
for the controlled release of air. This technology is applied to either an
integrated unit or as an overlay to an existing bed. Recently introduced low
airloss products include the Flexicair Eclipse(R) mattress, a portable,
rental mattress replacement for the acute care market and the Silkair(R)
mattress, a low airloss overlay product for the home care market, and the
V-Cue(TM) mattress, a rotational mattress for the pulmonary market. Besides
these products, the European market rents and sells the Duo, a pressure
relieving and alternating pressure mattress.
Clinical support for Hill-Rom's wound care and pulmonary/trauma
management products is provided by a sales force composed of nurses and
physician assistants. Technical support is made available by technicians and
service personnel who provide maintenance and technical assistance from
Hill-Rom Service Centers.
Hill-Rom(R) therapy systems are made available to hospitals, long-term
care facilities and homes on a rental basis through more than 150 Service
Centers located in the United States, Canada and Western Europe.
On December 18, 1997, Hill-Rom acquired the stock of Air-Shields, Inc.,
a manufacturer and supplier of infant incubators and warmers, and certain
other businesses of Vickers PLC for $98 million, net of cash acquired,
including costs of acquisition. On February 9, 1998, Hill-Rom acquired the
stock of MEDAES Holdings, a manufacturer of medical architectural systems,
for a cash payment of $62 million including costs of acquisition. On October
19, 1998, Hill-Rom acquired the stock of Fisher-Berkeley Corporation, a
manufacturer of nurse call communication products, for a cash payment of $8
million.
Hill-Rom generates the predominant share of the Health Care segment's
revenues and operating profit. Medeco had an immaterial effect on the operating
results of this segment in 1996, 1997 and prior to its disposition in 1998.
FUNERAL SERVICES
Batesville Casket Company, Inc. ("Batesville"), an Indiana corporation
headquartered in Batesville, Indiana, was founded in 1884 and acquired by the
Hillenbrand family in 1906. Batesville manufactures and sells several types
of steel, copper, bronze, hardwood and cloth-covered caskets, including
caskets and containers for the cremation market. Batesville also markets a
line of all wood construction (orthodox) caskets and non-protective steel
caskets. In addition, Batesville manufactures and sells a line of urns and
other memorialization products used in cremations. Batesville also owns
Applied Retail Systems (ARS), a selection room display fixturing supplier.
All Batesville-produced metal caskets are protective caskets which are
electronically welded and resistant to the entry of air, water and gravesite
substances through the use of rubber gaskets and a locking bar mechanism.
Batesville's Monoseal(R) steel caskets also employ a magnesium alloy bar
to cathodically protect the casket from rust and corrosion. The Company
believes that this system of Cathodic Protection is featured only on
Batesville produced caskets.
-2-
<PAGE>
Batesville hardwood caskets are made from walnut, mahogany, cherry,
maple, pine, oak, pecan and poplar. Except for a limited line of hardwood
caskets with a protective copper liner, the majority of hardwood caskets are
not protective.
Batesville's cloth-covered caskets are constructed with a patented
process using cellular fiberboard construction.
The Options by Batesville cremation division offers a complete cremation
marketing system for Funeral Services professionals. In addition to a broad
line of cremation caskets and urns, the system includes training,
merchandising support and marketing support materials. Cremation caskets and
containers are manufactured primarily of hardwoods and fiberboard. Options'
wide assortment of memorial urns are made from a variety of materials,
including cast bronze, cast acrylic, wood, sheet bronze and marble.
Batesville offers several other marketing and merchandising programs to
funeral directors for both casket and cremation products. Batesville caskets
are marketed by Batesville's direct sales force to licensed funeral directors
operating licensed funeral homes throughout the United States, Australia,
Canada, Mexico and Puerto Rico. Batesville maintains inventory at 70
company-operated Customer Service Centers in North America. Batesville
caskets are delivered in specially equipped vehicles owned by Batesville.
Batesville mainly manufactures and distributes products in the U.S. It
also has small manufacturing and distribution facilities in Canada and Mexico.
Forethought Financial Services, Inc. ("Forethought," formerly Forecorp,
Inc.), was founded in 1985. It, along with its principal subsidiaries,
Forethought Life Insurance Company, Forethought National TrustBank,
Forethought Federal Savings Bank, Forethought Investment Management, Inc. and
The Forethought Group, Inc., are headquartered in Batesville, Indiana. These
companies serve a network of funeral planning professionals with marketing
support for Forethought(R) funeral plans funded by life insurance policies,
trust products and other financial vehicles. These specialized funeral
planning products are offered through funeral homes. Consumers choose the
funeral home, type of service and merchandise they want. The selected funeral
home contracts to provide the Funeral Services and merchandise when needed.
With funds made available by a Forethought(R) financial product, the funeral
home agrees to provide the planned funeral which will be available as
specified.
Forethought(R) life insurance policies are offered by over 4,000
independent funeral homes. Forethought Life Insurance Company is licensed in
48 states, Alberta, Ontario, Manitoba, New Brunswick, Newfoundland, Nova
Scotia and Prince Edward Island, Canada, Puerto Rico and the District of
Columbia. Forethought purchased Chrysler Life Insurance Company on June 4,
1998 and renamed it Forethought Life Assurance Company.
Forethought entered the trust business in 1997 and offers trust products
in sixteen states. Its trust products are offered through independent funeral
homes and national chains. Forethought received a federal savings bank
charter in July 1998.
The Company purchased International Funeral Associates (IFA) on
September 30, 1998. IFA is a membership-based association of independent
funeral homes that provides its customers with buying services for a wide
range of funeral service products, in addition to business resources such as
accounts receivables management, pre-need and property/casualty insurance.
BUSINESS SEGMENT INFORMATION
The amounts of net revenues, operating profit and identifiable assets
attributable to each of the industry segments of the Company are set forth in
tables relating to operations by business segment in Note 9 to the
Consolidated Financial Statements, which statements are included under Item 8.
-3-
<PAGE>
RAW MATERIALS
HEALTH CARE
Principal materials used in Hill-Rom(R) products include carbon steel,
aluminum, stainless steel, wood, high-pressure laminates, fabrics,
silicone-coated soda-lime glass beads and other materials, substantially all
of which are available from several sources. Motors for electrically operated
beds and certain other components are purchased from one or more
manufacturers.
FUNERAL SERVICES
Batesville employs carbon and stainless steel, copper and bronze sheet,
wood and wood by-products, fabrics, finishing materials, rubber gaskets, zinc
and magnesium alloy in the manufacture of its caskets. These materials are
available from several sources.
COMPETITION
HEALTH CARE
Hill-Rom believes it is the U.S. market share leader in the sale of
electrically operated hospital beds, competing with approximately ten (10)
other manufacturers. In Europe, Hill-Rom competes with several other
manufacturers and believes that it is a market leader. In both the United
States and Europe there are other companies which provide low airloss and
other methods of patient support and patient relief.
FUNERAL SERVICES
Batesville believes its dollar volume of sales of finished caskets is
the largest in the United States. Batesville competes on the basis of product
quality, service to its customers and price, and believes that there are
approximately two (2) other companies that also manufacture and/or sell
caskets over a wide geographic area. There are, however, throughout the
United States many enterprises that manufacture, assemble, or distribute
caskets for sale within a limited geographic area.
Forethought competes on the basis of service to its customers and
products offered. Forethought Life Insurance Company sells its products in
competition with other life insurance companies. Forethought Life believes it
is the leading provider of insurance-funded pre-arranged funerals in the
United States. Forethought National TrustBank and Forethought Federal Savings
Bank compete with local banks and master trusts offered through industry
trade or state funeral director associations.
-4-
<PAGE>
RESEARCH
Each of the Company's operating subsidiaries devotes research efforts to
develop and improve its products as well as its manufacturing and production
methods. All research and development expenses are Company sponsored.
Expenditures in the most recent three fiscal years were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
(millions)
New products and processes $26 $40 $31
Improvement of existing products and processes 16 9 11
</TABLE>
PATENTS AND TRADEMARKS
The Company owns a number of patents on its products and manufacturing
processes which are of importance to it, but it does not believe that any
single patent or related group of patents are of material significance to the
business of the Company as a whole.
The Company also owns a number of trademarks and service marks relating
to its products and product services which are of importance to it, but it
does not believe that any single trademark or service mark is of material
significance to the business of the Company as a whole.
EMPLOYEES
As of February 12, 1999, the Company employed approximately 10,400
persons in its operations in North America and Europe.
ENVIRONMENTAL PROTECTION
Hillenbrand Industries, Inc. is committed to operating all of its
businesses in a way that protects the environment. The Company has
voluntarily entered into remediation agreements with environmental
authorities, and has been issued Notices of Violation alleging violations of
certain permit conditions. Accordingly, the Company is in the process of
implementing plans of abatement in compliance with agreements and
regulations. The Company has also been notified as a potentially responsible
party in investigations of certain offsite disposal facilities. The cost of
all plans of abatement and waste-site cleanups in which the Company is
currently involved is not expected to exceed $5 million. The Company has
provided adequate reserves in its financial statements for these matters.
These reserves have been determined without consideration of possible loss
recoveries from third parties. Compliance with other current governmental
provisions relating to protection of the environment are not expected to
materially affect the Company's capital expenditures, earnings or competitive
position. Recent changes in environmental law might affect the Company's
future operations, capital expenditures and earnings. The cost of complying
with these provisions is not known.
FOREIGN OPERATIONS AND EXPORT SALES
Information about the Company's foreign operations is set forth in
tables relating to geographic information in Note 9 to the Consolidated
Financial Statements, which statements are included under Item 8.
The Company's export revenues constituted less than 10% of consolidated
revenues in 1998 and prior years.
-5-
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are elected each year by the Board
of Directors at its first meeting following the Annual Meeting of
Shareholders to serve during the ensuing year and until their respective
successors are elected and qualify. There are no family relationships between
any of the executive officers of the Company. Following are the executive
officers of the Company as of November 28, 1998.
W August Hillenbrand, 58, was elected Chief Executive Officer of the
Company on April 11, 1989, and has been President since October 21, 1981.
Prior to that he had been a Vice President of the Company since 1972 and has
been employed by the Company throughout his business career.
Tom E. Brewer, 60, has been employed by the Company since May 16, 1983,
and was elected Senior Vice President and Chief Financial Officer on May 23,
1983. He was elected Senior Vice President, Finance on March 16, 1998. He had
been employed by the Firestone Tire and Rubber Company for the prior 22
years, where he served as Corporate Vice President and Treasurer.
Donald G. Barger, Jr., 55, has been employed by the Company since March
16, 1998, and was elected Vice President and Chief Financial Officer on March
16, 1998. Prior to joining the Company, he was Vice President and Chief
Financial Officer for Worthington Industries for the previous five years. He
also served in various finance positions with the B.F. Goodrich Company and
Irwin Management.
George E. Brinkmoeller, 62, was elected Vice President, Corporate
Services on December 2, 1979, had been Director of Corporate Services since
January 1, 1975, and had been Manager of Affiliated Operations since January
1, 1971.
Michael L. Buettner, 41, has been employed by the Company since January
9, 1995, and was elected Vice President, Corporate Development on January 9,
1995. Prior to joining the Company, he was employed by Bausch & Lomb
Incorporated for 10 years in various corporate development and finance roles,
most recently as Staff Vice President, Corporate Development. He has also
served in various finance and marketing positions with Moog Automotive, Inc.
and Carboline Company.
Mark R. Lanning, 44, was elected Vice President and Treasurer on April
11, 1995. Prior to that he had been Assistant Treasurer since June 1991. He
joined the Company on May 16, 1988, as Manager, Corporate Audit. Prior to
joining the Company he served in various capacities with the public
accounting firm of Ernst & Whinney (now Ernst & Young LLP). He has been a
licensed Certified Public Accountant since 1979.
Mark R. Lindenmeyer, M.D., 51, was elected Vice President, General
Counsel and Secretary of the Company on October 7, 1991. He had been employed
by the Company since August 18, 1986, as Litigation Counsel. Prior to joining
the Company, Dr. Lindenmeyer served in the U.S. Army as a military trial
attorney and judge and was a partner in a Batesville, Indiana law firm. He
has been a licensed physician since 1986 and a practicing attorney since 1972.
J. Cameron Moss, 42, was elected Vice President, Corporate Planning on
January 2, 1996, and has been employed by the Company since January 2, 1996.
Prior to joining the Company, he was a senior manager with McKinsey & Company,
Inc., in its Cleveland, Ohio and Munich, Germany offices.
David L. Robertson, 53, has been employed by the Company since March 23,
1998, and was elected Vice President, Human Resources on March 23, 1998. Prior
to joining the Company, he was Senior Vice President, Human Resources for
Rubbermaid, Inc. in Wooster, Ohio. From 1982 to 1994 Mr. Robertson served as
Vice President, Human Resources for Hillenbrand Industries, Inc..
Robert J. Tennison, 52, has been employed by the Company since February 28,
1996, and was elected Vice President, Continuous Improvement on March 1, 1996.
Prior to joining the Company, he was Senior Vice President of Operations for
Donnelly Corporation, President of Hennessy Industries and Director of
Manufacturing for Sauer-Sundstrand. He began his career with General Motors.
James D. Van De Velde, 52, was elected Vice President and Controller on May
13, 1991. He joined the Company on September 1, 1980 as Director, Taxes. Prior
to that he was employed by the public accounting firm of Price Waterhouse (now
PricewaterhouseCoopers LLP).
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ITEM 2. PROPERTIES
The principal properties of the Company and its subsidiaries are listed
below, and are owned by the Company or its subsidiaries subject to no material
encumbrances except for those facilities (*) which were constructed with funds
obtained through government sponsored bonds (see Note 5 to the Consolidated
Financial Statements). All facilities are suitable for their intended purpose,
are being efficiently utilized and are believed to provide adequate capacity to
meet demand for the next several years.
<TABLE>
<CAPTION>
LOCATION DESCRIPTION PRIMARY USE
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<S> <C> <C>
HEALTH CARE:
Batesville, IN Manufacturing plant and Manufacture of health care
distribution facility equipment
Office facilities Administration
Charleston, SC Office facility and Administration and
assembly plant assembly of therapy units
Hatboro, PA Manufacturing plant and Administration and manufacture
office facility of infant-care equipment
Norcross, GA Office facility and Administration and assembly of
assembly plant medical architectural systems
Pluvigner, France Manufacturing plant and Manufacture of health care
office facility equipment
FUNERAL SERVICES:
Batesville, IN Manufacturing plants Manufacture of metal caskets
Office facilities Administration and Insurance
Operations
Manchester, TN Manufacturing plants Manufacture of metal caskets
Campbellsville, KY Manufacturing plant Manufacture of metal caskets
Vicksburg, MS Kiln drying and lumber Drying and dimensioning
cutting plant lumber
* Batesville, MS Manufacturing plant Manufacture of hardwood
caskets
Nashua, NH Manufacturing plant Manufacture of hardwood
caskets
</TABLE>
In addition to the foregoing, the Company leases or owns a number of
warehouse distribution centers, service centers and sales offices throughout
the United States, Canada and Western Europe.
ITEM 3. LEGAL PROCEEDINGS
On August 16, 1995, Kinetic Concepts, Inc., and Medical Retro Design,
Inc. (collectively, the "plaintiffs"), filed suit against Hillenbrand
Industries, Inc., and its subsidiary Hill-Rom Company, Inc., in the United
States District Court for the Western District of Texas, San Antonio
Division. The plaintiffs allege violation of various antitrust laws,
including illegal bundling of products, predatory pricing, refusal to deal
and attempting to monopolize the hospital bed industry. They seek monetary
damages totaling in excess of $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
defending itself aggressively against all allegations. Accordingly, it has
not recorded any loss provision relative to damages sought by the plaintiffs.
-7-
<PAGE>
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 urging them 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.
There is no other pending litigation of a material nature in which the
Company or its subsidiaries are involved.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended November 28, 1998.
PART II
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
From time to time, the Company makes oral and written statements that
may constitute "forward-looking statements" as defined in the PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 (the "Act") or by the SEC in its
rules, regulations and releases. The Company desires to take advantage of the
"safe harbor" provisions in the Act for forward-looking statements made from
time to time, including, but not limited to, the forward-looking statements
relating to the future performance of the Company contained in Management's
Discussion and Analysis (under Items 7 and 7A on Form 10-K), and the Notes to
Consolidated Financial Statements (under Item 8 on Form 10-K) and other
statements made in this Form 10-K and in other filings with the SEC.
The Company cautions readers that any such forward-looking statements
are based on assumptions that the Company believes are reasonable, but are
subject to a wide range of risks, and there is no assurance that actual
results may not differ materially. Important factors that could cause actual
results to differ include but are not limited to: differences in anticipated
and actual product introduction dates, the ultimate success of those products
in the marketplace, the success of cost control and restructuring efforts and
the integration of acquisitions, among other things. Realization of the
Company's objectives and expected performance can also be adversely affected
by the outcome of pending litigation and rulings by the Internal Revenue
Service on certain tax positions taken by the Company.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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<PAGE>
MARKET INFORMATION
Hillenbrand Industries' common stock is traded on the New York Stock
Exchange under the ticker symbol "HB". The following table reflects the range of
high and low selling prices of the Company's common stock by quarter for 1998
and 1997.
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter $57 $44 9/16 $39 5/8 $33 7/8
Second Quarter $64 11/16 $55 11/16 $47 1/2 $37 1/4
Third Quarter $62 15/16 $52 5/16 $48 5/8 $43 1/2
Fourth Quarter $61 $48 3/16 $46 9/16 $42 3/16
</TABLE>
HOLDERS
On February 12, 1999, there were approximately 24,500 shareholders of
record.
DIVIDENDS
The Company has paid cash dividends on its common stock every quarter
since its first public offering in 1971, and those dividends have increased
each year since 1972. Dividends are paid near the end of February, May,
August and November to shareholders of record near the end of January, April,
July and October. Cash dividends of $.72 ($.18 per quarter) in 1998 and $.66
($.165 per quarter) in 1997 were paid on each share of common stock
outstanding. Cash dividends will be $.78 ($.195 per quarter) in 1999.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data of
Hillenbrand Industries, Inc., for fiscal years 1994 through 1998.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994 (b)
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(IN MILLIONS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net revenues $ 2,001 $ 1,776 $ 1,684 $ 1,625 $ 1,577
Net income (a) $ 184 $ 157 $ 140 $ 90 $ 90
Basic and diluted
net income per share (a) $ 2.73 $ 2.28 $ 2.02 $ 1.27 $ 1.26
Total assets $ 4,280 $ 3,828 $ 3,396 $ 3,070 $ 2,714
Long-term debt $ 303 $ 203 $ 204 $ 206 $ 209
Cash dividends per share $ .72 $ .66 $ .62 $ .60 $ .57
</TABLE>
(a) RESULTS IN 1998 INCLUDE INCOME OF $47 MILLION, NET-OF-TAX, ($.70 PER SHARE)
RELATIVE TO THE SALE OF MEDECO SECURITY LOCKS, INC. THE COMPANY ALSO
RECORDED SEVERAL UNUSUAL CHARGES WHICH TOTAL $42 MILLION, NET-OF-TAX, ($.62
PER SHARE). THE CHARGES INCLUDE THE WRITE-OFF OF GOODWILL, OTHER ASSET
IMPAIRMENT CHARGES AND OTHER CLOSING COSTS RELATED TO THE DISCONTINUANCE OF
MANUFACTURING OPERATIONS AT HILL-ROM FACILITIES IN GERMANY AND AUSTRIA; TAX
BENEFITS RELATED TO THE WRITE-OFF OF THE COMPANY'S INVESTMENTS IN GERMANY
AND AUSTRIA; AND PROVISIONS FOR CERTAIN INCOME TAX EXPOSURES. RESULTS IN
1996 REFLECT INCOME OF $8 MILLION ($.12 PER SHARE) RELATIVE TO THE SALE OF
BLOCK MEDICAL. RESULTS IN 1995 REFLECT UNUSUAL CHARGES TOTALING $26 MILLION
($.37 PER SHARE) FOR THE WRITE-DOWN OF GOODWILL AND CERTAIN ASSETS OF A
MANUFACTURING FACILITY SOLD IN 1996. RESULTS IN 1994 REFLECT AN UNUSUAL
CHARGE OF $52 MILLION ($.74 PER SHARE), AFTER INCOME TAXES, FOR SETTLEMENT
OF A PATENT INFRINGEMENT SUIT.
(b) FISCAL 1994 WAS A 53 WEEK YEAR.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and accompanying notes.
Hillenbrand Industries is organized into two business segments. The Health
Care Group consists of Hill-Rom. Results for Block Medical, which was sold on
July 22, 1996, and Medeco Security Locks which was sold on July 1, 1998, are
included in this segment through these respective dates. The Funeral Services
Group consists of Batesville Casket Company and Forethought Financial
Services (Forethought).
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
SUMMARY
Consolidated net revenues of $2,001 million increased $225 million, or 13%,
in 1998. Operating profit of $228 million was down 14%. Net income increased
17% to $184 million, and earnings per share increased 20% to $2.73.
Third quarter 1998 results reflect income of $47 million, net-of-tax,
($.70 per share) relative to the sale of Medeco Security Locks, Inc. The
Company also recorded several unusual charges which total $42 million,
net-of-tax, ($.62 per share). The charges include the write-off of goodwill,
other asset impairment charges and other closing costs related to the
discontinuance of manufacturing operations at Hill-Rom facilities in Germany
and Austria; tax benefits related to the write-off of the Company's
investments in Germany and Austria; and provisions for certain income tax
exposures. Excluding these items, operating profit increased 13%, net income
increased 14% and earnings per share increased 16%.
NET REVENUES
Health Care sales of $748 million increased $160 million, or 27%, due to the
effect of acquisitions and good market acceptance of the TotalCare(R) bed
and increased unit volume of architectural, communications, procedural and
maternal/infant care products in Hill-Rom's U.S. acute care market. Shipments
of the Resident(R) LTC bed also increased as it continues to experience good
market acceptance. Unit volume and revenues increased slightly in Hill-Rom's
European market, partially offset by unfavorable currency adjustments.
Excluding the sales effect from the purchases of Air-Shields, Inc., and
MEDAES Holdings, Inc., and the sale of Medeco Security Locks, Inc., Health
Care sales increased 11%. Medeco (for which seven months and twelve months of
sales are reflected in 1998 and 1997 results) did not contribute
significantly to the overall sales of the Health Care Group.
Health Care rental revenue grew $25 million, or 7%. In the U.S.
long-term care market, rental revenues were down slightly year over year
mainly due to the effect of a change in Medicare Part A patient reimbursement
practices effective July 1, 1998. Overall, higher volume was offset by lower
rates and product mix in the long-term care market. The U.S. home care market
experienced slightly higher revenues as unit growth from new and higher end
products was partially offset by lower overall rates. In the U.S. acute care
market, rental revenues were up year over year due to higher volume from new
products which was partially offset by lower rates and product mix. Rental
revenues in Europe increased slightly in nearly all markets, but were largely
offset by unfavorable currency adjustments.
Funeral Services sales decreased $4 million, or 1% due to lower product
mix partially offset by increased shipments of hardwood and cremation
products. Unit volume growth was accomplished in a market that is currently
flat for casketed deaths.
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<PAGE>
Insurance revenues grew $44 million or 17%. Investment income accounted for
approximately $18 million of the increase while earned premium revenue accounted
for about $14 million. Investment income grew mainly because of the increased
size of the investment portfolio. Earned premium revenue increased due primarily
to increased policies in force year over year. Policy sales declined nearly 9%
in 1998 due to slowed growth as Forethought's entry into targeted jurisdictions
is nearly complete and due to increased competition. Since premium revenues are
earned over the life of the policyholder, current year sales will primarily
affect revenues and earnings in future years. Forethought's trust business did
not have a significant revenue impact in 1998.
GROSS PROFIT
Gross profit on Health Care sales increased $54 million, or 20%, to $320
million, due primarily to increased shipments in Hill-Rom's U.S. markets. As
a percentage of sales, gross profit declined from 45% in 1997 to 43% in 1998
primarily due to the integration of Air-Shields and MEDAES which have lower
margins compared to other Health Care sales products. Shipments of higher
value products, continued improvements in direct material, labor and overhead
costs, leveraging of fixed manufacturing expenses in the United States and
decreased shipments of lower margin European products helped to partially
offset the lower gross profit margins of Air-Shields and MEDAES.
Gross profit on Health Care rentals of $162 million was up $19 million,
or 13%. As a percentage of sales, gross profit improved to 40% in 1998
compared to 38% in 1997. This increase reflects the increased unit volume
experienced in all U.S. markets, continued process improvements and cost
control.
Gross profit on Funeral Services sales of $260 million decreased $4
million, or 2%, in 1998. As a percentage of sales, gross profit remained
essentially unchanged at 48%. This comparison reflects the mix change in
Funeral Services sales year to year discussed above. Even with increased unit
volume and lower overall pricing, gross profit as a percent of sales remained
unchanged due to process improvements and cost controls.
Profit before other operating expenses in insurance operations increased
$20 million, or 36%, in 1998 due to higher investment income (with minimal
corresponding direct cost), profits earned on the larger base of policies in
force, net gains on the sale of investments and continued control of direct
administrative expenses. These items were partially offset by an increase in
death benefits paid and reserved due to the larger base of policies in force.
OTHER OPERATING EXPENSES
These expenses, consisting of selling, marketing, distribution and general
administrative costs, increased $59 million, or 12% in 1998. As a percentage of
consolidated revenues, these expenses remained essentially unchanged at 27% in
1997 and 1998. This is a result of continued cost control and process
improvement throughout the Company.
OPERATING PROFIT
Operating profit in the Health Care Group decreased $53 million, or 40%, to
$81 million. This decrease is mainly due to a $70 million charge for the
write-off of goodwill, other asset impairment charges and other closing
costs related to the discontinuance of manufacturing operations at Hill-Rom
facilities in Germany and Austria. Excluding this charge, operating profit
would have been $151 million in 1998, or a 13% increase, due to increased
sales of higher value products in the U.S. acute care market and an increase
in rental revenues partially offset by higher incentive compensation and
commission expenses.
Operating profit in the Funeral Services Group of $170 million increased
$10 million, or 6%, from 1997. At Batesville Casket, operating profit
decreased slightly in 1998 as increased casket and cremation volume was
offset by lower pricing on an unfavorable product mix. Operating expenses
remained essentially unchanged. At Forethought, higher investment income,
increased capital gains and cost control helped to increase operating profit.
Consolidated operating profit of $228 million decreased $36 million, or
14%. Excluding unusual charges discussed above, consolidated operating profit
would have been $298 million, a 13% increase. A decrease in corporate
expenses in 1998 contributed to the growth in operating profit.
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<PAGE>
OTHER INCOME AND EXPENSE
Interest expense increased due to additional long-term debt associated with
the addition of $100 million in debentures issued in December 1997.
Investment income grew slightly due to a higher earnings rate on investments
partially offset by lower levels of cash and equivalents. Excluding the gain
of $75 million on the sale of Medeco, other income and expense, net was
unchanged year-to-year.
INCOME TAXES
The effective income tax rate in 1998 was 37.0% compared to 39.4% in 1997.
Excluding one-time events affecting 1998 financial results, the effective
income tax rate was essentially unchanged compared to 1997.
1997 COMPARED WITH 1996
SUMMARY
Consolidated net revenues increased $92 million, or 5%, in 1997. Operating
profit of $264 million was up 12%, net income of $157 million was up 12% and
earnings per share of $2.28 increased 13%. Excluding the gain on the sale of
Block Medical ($8 million or $.12 per share) in the third quarter of 1996,
net income and earnings per share increased 19% and 20%, respectively, in
1997.
NET REVENUES
Health Care sales increased $20 million, or 4%, due to higher shipments of
Advance(R) series beds, stretchers, architectural equipment and
communications products in Hill-Rom's U.S. acute care market and good market
acceptance of the Resident(R) LTC bed in the long-term care market. In
Hill-Rom's European markets, lower shipments in Germany and unfavorable
currency adjustments were partially offset by increased shipments in France.
The German market continued to be negatively affected by health care reform
and general economic conditions. Sales at Medeco were up due to higher
shipments of door security products, partially offset by lower demand in
route management (primarily pay telephone business). Medeco and Block (for
which eight months of sales were reflected in 1996 results) did not
contribute significantly to the overall sales of the Health Care Group.
Health Care rental revenue grew $5 million, or 1%. In the U.S. long-term
care market, increased units in use and higher rates were partially offset by
a shift toward greater use of lower cost products. In the U.S. home care
market, unit growth and increased rates generated from higher-featured new
products were partially offset by lower Medicare reimbursement rates. Acute
care rental revenues were down year over year due to cost and competitive
pressures and lower product mix, largely offset by increased units in use.
Rental revenues in Europe were down due to softness in the German therapy
market and unfavorable currency adjustments.
Funeral Services sales increased $21 million, or 4%. Unit volume growth
of traditional caskets and cremation products in an essentially flat death
market was partially offset by lower casket product mix. The effect of price
increases was mostly offset by rebates and discounts.
Insurance revenues were up $46 million, or 21%. Earned premium revenue
increased $22 million due primarily to increased policies in force year over
year. Investment income grew $16 million, reflecting a larger investment
portfolio, partially offset by marginally lower yields. Policy sales were up
over 16% in 1997. Since premium revenues are earned over the life of the
policyholder, current year sales will primarily affect revenues and earnings
in future years. Realized net gains on the sale of investments were $8
million in 1997 compared with a net of zero in 1996. The trust business did
not have a significant effect on Forethought's operations in 1997 and prior
years.
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<PAGE>
GROSS PROFIT
Gross profit on Health Care sales of $266 million was up $32 million, or 14%,
reflecting the increased shipments in Hill-Rom's U.S. markets. As a
percentage of sales, gross profit improved from 41% in 1996 to 45% in 1997
due to increased shipments of higher margin products, continued improvements
in direct material, labor and overhead costs and leveraging of fixed
manufacturing expense in the United States. Decreased shipments of lower
margin European products also contributed to the overall improvement in
margins.
Gross profit on Health Care rentals increased $3 million, or 2%, to $143
million and, as a percentage of revenues, was essentially unchanged at 38%.
This comparison reflects the issues generating the year-to-year change in
rental revenues discussed above. Field service costs continued to improve.
Gross profit on Funeral Services sales of $264 million was up $18
million, or 7%, in 1997. As a percentage of sales, it increased from 47% in
1996 to 48% in 1997, reflecting productivity improvements and leveraging of
fixed manufacturing costs, partially offset by lower casket product mix.
Profit before other operating expenses in insurance operations increased
$19 million, or 51%, due to higher investment income (with minimal
corresponding direct cost), profits earned on the larger base of policies in
force, net gains on the sale of investments and continued control of direct
administrative expenses. These items were partially offset by an increase in
the crediting rate (the interest rate that Forethought uses to increase the
face amount on insurance policies to have the benefit grow).
OTHER OPERATING EXPENSES
These expenses, consisting of selling, marketing, distribution and general
administrative costs, increased $40 million, or 9%, in 1997. As a percentage
of consolidated revenues, they grew from 26% in 1996 to 27% in 1997. This
growth primarily reflected higher incentive compensation and commissions on
improved operating performance and costs associated with product and market
development efforts. Continued process improvements and cost control
throughout the Company mitigated the effect of these increases.
OPERATING PROFIT
Operating profit in the Health Care Group increased $23 million, or 21%, in
1997 due to higher shipments and profitability in Hill-Rom's U.S. markets,
reduced operating losses in Europe and marginal growth in rental revenue and
profits.
Operating profit in the Funeral Services Group of $160 million was up
$16 million, or 11%, from 1996. At Batesville Casket, growth in sales and
gross profit was partially offset by higher incentive compensation expense.
Forethought's operating profit growth was driven primarily by higher
investment income.
Consolidated operating profit of $264 million increased $28 million, or
12%. The growth in the Health Care and Funeral Services Groups was partially
offset by higher corporate expenses.
OTHER INCOME AND EXPENSE
Interest expense was down slightly due to lower debt associated with European
operations. Interest income increased due to higher levels of cash and
equivalents, partially offset by lower interest earned on other investments.
Other income, net, in 1996 included the $3 million pre-tax gain on the sale
of Block Medical.
INCOME TAXES
The effective income tax rate in 1997 declined marginally to 39.4% from 39.9%
in 1996. Excluding the tax benefit of $6 million on the book and tax
differences in the basis of Block, the effective rate was 42.5% in 1996. The
lower rate in 1997 was due primarily to reduced operating losses in Europe.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Net cash flows from operating activities and selected borrowings represent
the Company's primary sources of funds for growth of the business, including
capital expenditures and acquisitions. Cash and cash equivalents (excluding
investments of insurance operations) decreased $67 million to $297 million at
the end of 1998.
OPERATING ACTIVITIES
Net cash generated by operating activities of $173 million in 1998 decreased
compared to $246 million in 1997. Higher earnings and an increase in
depreciation, amortization and write-down of goodwill were offset by the gain
from the sale of Medeco, due to the sale being a non-operating activity, and
adverse changes in working capital.
The increase in depreciation, amortization and write-down of goodwill is
due to the unusual charge of $43 million to write-off the goodwill associated
with the discontinuance of manufacturing facilities in Germany and Austria.
The adverse changes in working capital are partially due to strong fourth
quarter shipments at Hill-Rom and slower collections from Medicare
intermediaries and insurance, which resulted in higher receivables. This also
caused days revenues outstanding to increase to 84 in 1998 compared to 80 in
1997. Hill-Rom believes this trend is endemic to the industry and is
aggressively managing these accounts. Excluding the effect of acquisitions,
current liabilities decreased mainly due to lower compensation accruals in
1998.
INVESTING ACTIVITIES
Net cash used in investing activities increased from $339 million to $446
million. This increase is primarily due to acquisitions made in 1998.
Forethought's insurance operation invests the cash proceeds from
insurance premiums predominantly in U.S. treasuries and agencies and
high-grade corporate bonds with fixed maturities. The Company's objective is
to purchase investment securities with maturities that match the expected
cash outflows of policy benefit payments. The investment portfolio is
periodically realigned to better meet this objective, as reflected in the
relatively large amount of sales prior to maturity. Sales prior to maturity
in 1998 and 1997 resulted in net gains with 1996 reflecting essentially a
breakeven position.
On December 31, 1998, subsequent to the end of fiscal year 1998,
Forethought Life Insurance Company acquired the stock of Arkansas National
Life Insurance Company for a cash payment of $31 million.
FINANCING ACTIVITIES
The Company's long-term debt-to-equity ratio was 32% at year end 1998
compared with 23% at year end 1997. This increase was primarily due to the
Company's issuance of $100 million in debentures in December 1997 partially
offset by the increase in equity during 1998. Payments on short-term debt
were relative to European operations.
Quarterly cash dividends per share were $.155 in 1996, $.165 in 1997 and
$.18 in 1998. An additional increase to $.195 per quarter was approved in
January 1999.
In 1998, the Company repurchased 1,768,100 shares of its common stock at a
cost of $85 million.
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<PAGE>
INSURANCE ASSETS AND LIABILITIES
Insurance assets of $2,833 million grew 13% over the past year. Cash and
invested assets of $2,204 million constitute 78% of the assets. The
investments are concentrated in U.S. treasuries and agencies and high-grade
corporate bonds. The invested assets are more than adequate to fund the
insurance reserves and other liabilities of $1,886 million. Statutory
reserves represent 61% of the face value of insurance in force. Forethought
Life Insurance Company declared a $14 million dividend to Hillenbrand
Industries in the fourth quarter of 1998, paid in December 1998, and made $12
million and $11 million dividend payments in 1997 and 1996, respectively. The
statutory capital and surplus as a percent of statutory liabilities of
Forethought Life Insurance Company was 8% at December 31, 1998 and 1997. The
non-current deferred tax benefit relative to insurance operations results
from differences in recognition of insurance policy revenues and expenses for
financial accounting and tax reporting purposes. Financial accounting rules
require ratable recognition of insurance product revenues over the lives of
the respective policyholder. These revenues are recognized in the year of
policy issue for tax purposes. This results in a deferred tax benefit.
Insurance policy acquisition expenses must be capitalized and amortized for
both financial accounting and tax purposes, although under different methods
and amounts. Financial accounting rules require a greater amount to be
capitalized and amortized than for tax reporting. This results in a deferred
tax cost, which partially offsets the deferred tax benefit. Excluding the tax
effect of adjusting the investment portfolio to fair value, the net deferred
tax benefit remained essentially unchanged in 1998, compared to a $6 million
increase in 1997.
SHAREHOLDERS' EQUITY
Cumulative treasury stock acquired in open market transactions increased to
15,067,167 shares in 1998, up from 13,299,067 shares in 1997. The Company
currently has Board of Directors' authorization to repurchase up to a total
of 19,289,067 shares. Repurchased shares are to be used for general business
purposes. From the cumulative shares acquired, 16,050 shares, net of shares
converted to cash to pay withholding taxes, were reissued in 1998 to
individuals under the provisions of the Company's various stock-based
compensation plans.
OTHER ISSUES
ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," was issued in June 1997. This standard requires that
the Company disclose, either in the income statement or in a separate
financial statement, net income as currently reported and other components of
comprehensive income. Comprehensive income is defined as the change in
shareholders' equity during a period resulting from transactions and other
events and circumstances from non-owner sources. The Company is required to
adopt this standard not later than the first quarter of 1999. Implementation
of this standard will not affect the Company's financial position or results
of operations.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997. This standard defines segments of an
enterprise as the components of the company whose operations are reviewed
regularly by the chief operating decision-maker in deciding how to allocate
resources and in assessing performance. It requires disclosures about
products and services, geographic areas and major customers. The Company is
required to adopt this standard not later than the issuance of its 1999
annual report. Implementation of this standard will not affect the Company's
financial position or results of operations.
In February 1998, SFAS No. 132, " Employers' Disclosures about Pensions
and Other Postretirement Benefits," was issued. This standard revises current
disclosure requirements for employers' pensions and other retiree benefits.
The Company is required to adopt this standard not later than the issuance of
its 1999 annual report. Implementation of this standard will not affect the
Company's financial position or results of operations.
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<PAGE>
The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June 1998.
This standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities and requires that all derivatives be
recognized on the balance sheet at fair value. Changes in fair values of
derivatives will be accounted for based upon their intended use and
designation. Since the Company's holdings in such instruments are minimal,
adoption of this standard is not expected to have a material effect on the
financial statements. The Company is required to adopt the standard not later
than the first quarter of fiscal 2000.
UNUSUAL CHARGES
On August 17, 1998, the Board of Directors of the Company approved a plan to
restructure Hill-Rom's direct and support operations in Germany and Austria
that will permit the Company to more efficiently meet the needs of its
customers and improve profitability. Market demand has not met expectations
and remains far below estimates established at the time the German and
Austrian businesses were acquired in 1994. Changes in local market
conditions, health care reform and increased competitive pressures have
greatly extended the time required for the Company to achieve profitability
and significantly reduced management's projections of future cash flows from
operations in these countries.
Under this plan, the Company will reduce its fixed costs and align
manufacturing, distribution, sales and administrative functions with
anticipated demand. This alignment will result in the closing of
manufacturing facilities in Germany and Austria and relocating certain
manufacturing and business processes to other European locations. The Company
will continue to serve and support the German and Austrian markets through a
direct sales and service organization with products manufactured specifically
for these markets by its other operations. Approximately 250 production and
administrative employees are affected by this plan.
The restructuring plan necessitated the provision of a $73 million asset
impairment and restructuring charge in the third quarter. The non-cash
component of this charge included a $43 million write-off of German
subsidiary goodwill, $7 million for the write-down of property, plant and
equipment held for sale and $3 million for obsolete inventory resulting from
the realignment of operations. Asset impairment charges were determined based
upon projected cash flows, independent appraisals and market assessments for
goodwill, land and buildings, and management estimates of losses to be
incurred upon the disposition of surplus equipment and inventories. Property,
plant and equipment to be disposed of have an adjusted fair market value of
approximately $4 million, not including costs of disposal, as of November 28,
1998. The restructuring plan also included additional charges for severance
and employee benefit costs of $11 million and other estimated plant closing
costs of $9 million which includes legal, lease and contract termination,
warranty, environmental, purchase commitment and related shutdown costs. None
of these individual cost categories are material relative to the total. In
addition to the costs accrued under the plan, additional costs of an
estimated $4 million will be incurred to relocate certain manufacturing and
business processes to other European locations. These costs will be expensed
as incurred as required by generally accepted accounting principles.
As of November 28, 1998, the German and Austrian manufacturing
facilities were still in operation, with depreciation expense on assets to be
sold reflected for the full fiscal year. In the fourth quarter, changes in
the estimates of costs to be incurred under the plan reduced the overall
level of the asset impairment and restructuring charge recorded in the third
quarter by $3.5 million. With the exception of the write-down in inventory,
which is reflected as a component of Health Care cost of goods sold, the
remaining charge is classified within the separate Unusual charge line of the
Statement of Consolidated Income. As of the end of the year less than $1
million of the restructuring related costs had been paid. In December 1998,
manufacturing operations were discontinued in Germany. The Austrian
manufacturing operations are expected to be discontinued in the second
quarter of 1999. Substantially all employee related costs associated with the
restructuring are expected to be paid in fiscal 1999. The disposition of
property, plant and equipment, along with excess and discontinued
inventories, is targeted to be completed within the next twelve months, but
could take longer.
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<PAGE>
ENVIRONMENTAL MATTERS
Hillenbrand Industries is committed to operating all of its businesses in a
way that protects the environment. The Company has voluntarily entered into
remediation agreements with environmental authorities, and has been issued
Notices of Violation alleging violations of certain permit conditions.
Accordingly, the Company is in the process of implementing plans of abatement
in compliance with agreements and regulations. The Company has also been
notified as a potentially responsible party in investigations of certain
offsite disposal facilities. The cost of all plans of abatement and
waste-site cleanups in which the Company is currently involved is not
expected to exceed $5 million. The Company has provided adequate reserves in
its financial statements for these matters. These reserves have been
determined without consideration of possible loss recoveries from third
parties. Compliance with other current governmental provisions relating to
protection of the environment are not expected to materially affect the
Company's capital expenditures, earnings or competitive position. Recent
changes in environmental law might affect the Company's future operations,
capital expenditures and earnings. The cost of complying with these
provisions is not known.
FACTORS THAT MAY AFFECT FUTURE RESULTS
New legislation phased in beginning July 1, 1998 established Resource
Utilization Groups for Medicare Part A patients within long-term care
facilities. Reimbursement will now be on a prospective fee basis as opposed
to the previous cost plus basis. This change will have a dampening effect on
the Company's rental revenues in the long-term care market. Restructuring and
reform in the health care industry, including consolidation of providers and
payers, growth of managed care and expansion of the home care and long-term
care markets, continues. Growth in the Company's acute care capital markets
has improved dramatically over the past three years and the order pattern
entering the first quarter of 1999 remains strong. While continued growth is
not a certainty, the Company believes that its innovative products and
services designed to improve patient outcomes and reduce total delivery cost,
will enable it to maintain its leadership role in this and the other markets
it serves.
The market for casketed deaths is expected to remain flat for the
foreseeable future. Batesville Casket has been able to increase its share of
this market, as well as the growing cremation market, by providing innovative
products and marketing programs for its funeral director customers.
While Forethought's growth has slowed as its entry into targeted
jurisdictions winds down, it will work to maintain and strengthen its
leadership position in the life insurance-based funeral planning market
through on-going product enhancements. Its entry into the trust-based funeral
planning market is not expected to have a material effect on the Company's
financial results for the next several years.
YEAR 2000 DATE CONVERSION
Many existing computer programs use only two digits to identify years. These
programs were designed without consideration for the effect of the upcoming
change in century, and if not corrected, could fail or create erroneous
results by or at the year 2000. Essentially all of the Company's information
technology based systems, as well as many non-information technology based
systems, are potentially affected by the Year 2000 issue. Technology based
systems reside on mainframes, servers and personal computers in the U.S. and
in the foreign countries where the Company has operations. Specific systems
include accounting, payroll, financial reporting, product development,
inventory tracking and control, business planning, tax, accounts receivable,
accounts payable, purchasing, distribution, and numerous word processing and
spreadsheet applications. The Company's financial services business utilizes
life insurance, accounting and actuarial systems that are also affected.
Non-information technology based systems include equipment and services
containing imbedded microprocessors, such as building management systems,
manufacturing process control systems, clocks, security systems and products
sold or leased to customers. All of the Company's businesses have
relationships with numerous third parties, including material suppliers,
utility companies, transportation companies, insurance companies, banks and
brokerage firms, that may be affected by the Year 2000 issue.
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THE COMPANY'S STATE OF READINESS
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Remediation plans have been established for all major systems potentially
affected by the Year 2000 issue. The primary phases and current status of the
plans for information technology based systems are summarized as follows:
1. IDENTIFICATION OF ALL APPLICATIONS AND HARDWARE WITH POTENTIAL YEAR 2000
ISSUES. To the best of the Company's knowledge, this phase has been
completed.
2. FOR EACH ITEM IDENTIFIED, PERFORM AN ASSESSMENT TO DETERMINE AN APPROPRIATE
ACTION PLAN AND TIMETABLE FOR REMEDIATION OF EACH ITEM. A PLAN MAY CONSIST
OF REPLACEMENT, CODE REMEDIATION, UPGRADE OR ELIMINATION OF THE APPLICATION
AND INCLUDES RESOURCE REQUIREMENTS. This phase has been completed with the
exception of certain systems in Hill-Rom's recently acquired operations and
a small business unit within Hill-Rom, which should be complete in the
first quarter of 1999.
3. IMPLEMENTATION OF THE SPECIFIC ACTION PLAN. Specific action plans have been
started and should be completed for nearly all known mission-critical
systems as of the end of the first quarter of 1999. Action plans for
remaining systems should begin by the second quarter of 1999.
4. TEST EACH APPLICATION UPON COMPLETION. Testing is in process or has been
completed for all systems for which the remediation plan has been
completed. Testing of the remaining systems should be completed by the
third quarter of 1999.
5. PLACE THE NEW PROCESS INTO PRODUCTION. Many applications and systems have
been put into production. These include servers, personal computers and
various software programs. Applications and systems are being put into
production once they have been tested. All affected applications and
systems should be in production by the third quarter of 1999 with the
exception of certain systems in Hill-Rom's European operations which should
be placed into production by the fourth quarter of 1999.
The Company is in the process of identifying all non-information technology
based systems. Appropriate remediation plans are being developed, implemented
and tested when each affected system is identified. Identification should be
completed by the end of the first quarter of 1999, and plans should be
developed and implemented by the end of the third quarter of 1999.
The Company is in the process of identifying all products sold or leased to
customers which are affected by the Year 2000 issue. Once a Year 2000
affected product is identified, remediation plans are developed, implemented
and tested, if deemed appropriate. A product listing is available to
customers on the Company's Hill-Rom web page depicting Year 2000 compliance
(www.hill-rom.com). Assessment of all affected products should be completed
by the end of the first quarter of 1999, and corrective actions, if required,
should be completed by the end of the third quarter of 1999.
One small subsidiary, Narco Medical Services, Inc., distributes medical
devices manufactured by third parties. Each supplier has been surveyed to
determine its readiness. Customers have been referred to manufacturers for
Year 2000 readiness information. Contingency plans are being developed to
address any resulting issues.
Identification of areas of potential third party risk is nearly complete and,
for those areas identified to date, remediation plans are being developed.
Identification and assessment should be completed in the first quarter of
1999, and plans should be developed and implemented by the end of the third
quarter of 1999.
THE COSTS INVOLVED
- ------------------
The total cost to the Company of achieving Year 2000 compliance is not expected
to exceed $7 million and will consist primarily of the utilization of internal
resources. Spending to date totals approximately $3.5 million. Costs relating to
internal systems' Year 2000 compliance are included in the Information Systems
budget and are immaterial as a percentage of that budget. All costs related to
achieving Year 2000 compliance are based on management's best estimates. There
can be no guarantee that actual results will not differ from estimates.
-18-
<PAGE>
RISKS AND CONTINGENCY PLAN
- --------------------------
The Company is in the process of determining the risks it would face in the
event certain aspects of its Year 2000 remediation plan failed. It is also
developing contingency plans for all mission-critical processes. Under a
"worse case" scenario, the Company's manufacturing operations would be unable
to build and deliver product due to internal system failures and/or the
inability of vendors to deliver raw materials and components. Alternative
suppliers are being identified and inventory levels of certain key components
may be temporarily increased. While virtually all internal systems can be
replaced with manual systems on a temporary basis, the failure of any
mission-critical system will have at least a short-term negative effect on
operations. The failure of national and worldwide banking information systems
or the loss of essential utilities services due to the Year 2000 issue could
result in the inability of many businesses, including the Company, to conduct
business. Risk assessment should be completed by the end of the first quarter
and contingency plans should be completed in the third quarter.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks, including fluctuations in
interest rates, mismatches in funding obligations and receipts and variability
in currency exchange rates. The Company has established policies, procedures and
internal processes governing its management of market risks and the use of
financial instruments to manage its exposure to such risks.
The Company's insurance operation is subject to fluctuations in interest
rates on its investment portfolio and, to a lesser extent, prepayment and
equity pricing risks. The investment portfolio is concentrated in high-grade
corporate bonds and U.S. agencies and treasuries with predominantly fixed
interest rates. The portfolio is managed in accordance with the Company's
objective to substantially match investment durations with policy liability
durations and within applicable insurance industry regulations. Investments
may be liquidated prior to maturity in order to meet the matching objective
and manage fluctuations in interest rates and prepayments. They are,
accordingly, classified as "available for sale" and are not purchased for
trading purposes. The Company uses various techniques, including duration
analysis, to assess the sensitivity of the investment portfolio to interest
rate fluctuations, prepayment activity, equity price changes and other risks.
The insurance operation also performs and reports results for asset adequacy
analysis as required by the National Association of Insurance Commissioners.
Based on the duration of the investment portfolio at November 28, 1998, and
November 29, 1997, a hypothetical 10% increase in weighted average interest
rates could reduce the market value of the investment portfolio approximately
$77 and $76 million, respectively, over a twelve-month period. The Company
believes its investment policy minimizes the risk of adverse fluctuation in
surplus value. In addition, the long-term fixed nature of portfolio assets
reduces the effect of short-term interest rate fluctuations on earnings.
The Company is subject to variability in foreign currency exchange rates
primarily in its European operations. Exposure to this variability is managed
primarily through the use of natural hedges, whereby funding obligations and
assets are both managed in the local currency. The Company, from time to
time, enters into currency exchange agreements to manage its exposure arising
from fluctuating exchange rates related to specific transactions. The
sensitivity of earnings and cash flows to variability in exchange rates is
assessed by applying an appropriate range of potential rate fluctuations to
the Company's assets, obligations and projected results of operations
denominated in foreign currencies. Based on the Company's overall currency
rate exposure at November 28, 1998, movements in currency rates would not
materially affect the financial position of the Company.
-19-
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
KEY FINANCIAL DATA
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT
- -------------------------------------------------------------------------------------------------------------------
% Pretax, preinterest expense,
income to revenues 16 16 15 12 11
% Net income to revenues 9 9 8 6 6
% Income taxes to pretax income 37 39 40 47 38
- -------------------------------------------------------------------------------------------------------------------
BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------
% Long-term debt to total capital 24 19 21 22 23
% Total debt to total capital 29 24 28 26 26
Current assets/current liabilities (a) 2.3 2.3 2.2 2.1 2.2
Working capital turnover (a) 3.5 3.3 3.9 4.2 4.6
- -------------------------------------------------------------------------------------------------------------------
PROFITABILITY
- -------------------------------------------------------------------------------------------------------------------
% Return on total capital 15 14 14 9 10
% Return on average shareholders' equity 21 20 19 13 13
- -------------------------------------------------------------------------------------------------------------------
ASSET TURNOVER
- -------------------------------------------------------------------------------------------------------------------
Revenues/inventories (a) 16.1 19.1 15.3 12.9 13.7
Revenues/receivables (a) 4.3 4.5 5.1 4.6 4.7
- -------------------------------------------------------------------------------------------------------------------
STOCK MARKET
- -------------------------------------------------------------------------------------------------------------------
Year-end price/earnings (P/E) 21 20 18 25 23
Year-end price/book value 4.1 3.4 3.3 3.1 3.0
- -------------------------------------------------------------------------------------------------------------------
(a) EXCLUDES INSURANCE OPERATIONS.
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED INCOME STATEMENT COMPARISON
- -------------------------------------------------------------------------------------------------------------------
Fiscal Year Percent Change
- -------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1998 1997 1996 1998/97 1997/96 1996/95
- -------------------------------------------------------------------------------------------------------------------
Net revenues:
Health Care sales $ 748 $ 588 $ 568 27% 4% 2%
Health Care rentals 403 378 373 7% 1% 1%
Funeral Services sales 541 545 524 (1%) 4% 2%
Insurance revenues 309 265 219 17% 21% 18%
- -------------------------------------------------------------------------------------------------------------------
Total revenues $ 2,001 $ 1,776 $ 1,684 13% 5% 4%
- -------------------------------------------------------------------------------------------------------------------
Gross profit:
Health Care sales $ 320 $ 266 $ 234 20% 14% 12%
Health Care rentals 162 143 140 13% 2% 15%
Funeral Services sales 260 264 246 (2%) 7% 4%
Insurance revenues 92 72 57 28% 26% 27%
- -------------------------------------------------------------------------------------------------------------------
Total gross profit 834 745 677 12% 10% 10%
Other operating expenses 540 481 441 12% 9% 8%
Unusual charges (66) - - N/A N/A N/A
- -------------------------------------------------------------------------------------------------------------------
Operating profit 228 264 236 (14%) 12% 32%
Other income (expense), net 65 (5) (3) N/A (67%) 67%
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 293 259 233 13% 11% 37%
Income taxes 109 102 93 7% 10% 16%
- -------------------------------------------------------------------------------------------------------------------
Net income $ 184 $ 157 $ 140 17% 12% 56%
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-20-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Financial Statements:
Report of Independent Accountants 22
Statements of Consolidated Income for the three years ended
November 28, 1998 23
Consolidated Balance Sheets at November 28, 1998 and November 29, 1997 24
Statements of Consolidated Cash Flows for the three years ended
November 28, 1998 26
Statements of Consolidated Shareholders' Equity for the three years ended
November 28, 1998 27
Notes to Consolidated Financial Statements 28
Financial Statement Schedule for the three years ended November 28, 1998:
Schedule II - Valuation and Qualifying Accounts 48
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or the
notes thereto.
</TABLE>
-21-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
Hillenbrand Industries, Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Hillenbrand Industries, Inc. and its subsidiaries at November 28,
1998 and November 29, 1997, and the results of their operations and their
cash flows for each of the three years in the period ended November 28, 1998,
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Indianapolis, Indiana
January 11, 1999
-22-
<PAGE>
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NOVEMBER 28, November 29, November 30,
Year Ended 1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET REVENUES
Health Care sales $ 748 $ 588 $ 568
Health Care rentals 403 378 373
Funeral Services sales 541 545 524
Insurance revenues 309 265 219
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues 2,001 1,776 1,684
- ---------------------------------------------------------------------------------------------------------------------------
COST OF REVENUES
Health Care cost of goods sold 428 322 334
Health Care rental expenses 241 235 233
Funeral Services cost of goods sold 281 281 278
Insurance cost of revenues 217 193 162
- ---------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 1,167 1,031 1,007
Other operating expenses 540 481 441
Unusual charges (Note 4) (66) - -
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT 228 264 236
Other income (expense), net:
Interest expense (27) (21) (22)
Investment income, net 19 18 17
Other (Note 3) 73 (2) 2
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 293 259 233
Income taxes 109 102 93
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 184 $ 157 $ 140
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED NET INCOME PER COMMON SHARE $ 2.73 $ 2.28 $ 2.02
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER COMMON SHARE $ .72 $ .66 $ .62
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 67,577,803 68,796,439 69,474,266
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-23-
<PAGE>
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NOVEMBER 28, November 29,
1998 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
- -----------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 297 $ 364
Trade accounts receivable, less allowances of
$27 in 1998 and $25 in 1997 392 333
Inventories 105 79
Other 64 45
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 858 821
- -----------------------------------------------------------------------------------------------------------------------
EQUIPMENT LEASED TO OTHERS 288 280
Less accumulated depreciation 207 189
- -----------------------------------------------------------------------------------------------------------------------
Equipment leased to others, net 81 91
- -----------------------------------------------------------------------------------------------------------------------
PROPERTY 632 651
Less accumulated depreciation 411 413
- -----------------------------------------------------------------------------------------------------------------------
Property, net 221 238
- -----------------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Intangible assets at amortized cost:
Patents and trademarks 20 19
Excess of cost over net asset values of
acquired companies (Note 2) 164 96
Other 14 11
Deferred charges and other assets 89 51
- -----------------------------------------------------------------------------------------------------------------------
Total other assets 287 177
- -----------------------------------------------------------------------------------------------------------------------
INSURANCE ASSETS (NOTE 12)
Investments 2,204 1,934
Deferred acquisition costs 536 473
Deferred income taxes 34 43
Other 59 51
- -----------------------------------------------------------------------------------------------------------------------
Total insurance assets 2,833 2,501
- -----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 4,280 $ 3,828
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NOVEMBER 28, November 29,
1998 1997
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES
- -----------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Short-term debt (Notes 5 and 8) $ 60 $ 60
Current portion of long-term debt (Notes 5 and 8) 1 1
Trade accounts payable 69 71
Income taxes payable (Note 10) 27 27
Accrued compensation 73 63
Other 145 137
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 375 359
- -----------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT (NOTES 5 AND 8) 303 203
- -----------------------------------------------------------------------------------------------------------------------
OTHER LONG-TERM LIABILITIES (NOTE 6) 86 75
- -----------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES (NOTES 1 AND 10) 4 7
- -----------------------------------------------------------------------------------------------------------------------
INSURANCE LIABILITIES (NOTE 12)
Benefit reserves 1,856 1,667
Unearned revenue 674 605
General liabilities 30 26
- -----------------------------------------------------------------------------------------------------------------------
Total insurance liabilities 2,560 2,298
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,328 2,942
- -----------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTE 14)
- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (NOTES 6 AND 7)
- -----------------------------------------------------------------------------------------------------------------------
Common stock - without par value:
Authorized - 199,000,000 shares
Issued - 80,323,912 shares in 1998 and 1997 4 4
Additional paid-in capital 15 14
Retained earnings (Note 5) 1,221 1,085
Accumulated unrealized gain on investments 52 34
Foreign currency translation adjustment (7) (3)
Treasury stock, at cost: 1998 - 13,564,793 shares;
1997 - 11,812,743 shares (333) (248)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 952 886
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,280 $ 3,828
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-25-
<PAGE>
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NOVEMBER 28, November 29, November 30,
Year Ended 1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 184 $ 157 $ 140
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation, amortization and write-down of goodwill 149 102 99
Change in noncurrent deferred income taxes (3) (12) (6)
Gain on sale of business (75) - (3)
Change in working capital excluding cash, current
debt, acquisitions and dispositions:
Trade accounts receivable (36) (46) 24
Inventories (2) 17 15
Other current assets 2 - (1)
Trade accounts payable (12) 21 (21)
Accrued expenses and other liabilities (14) 32 5
Change in insurance deferred policy acquisition costs (63) (67) (67)
Change in other insurance items, net 48 35 40
Other, net (5) 7 15
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 173 246 240
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (88) (85) (92)
Proceeds on disposal of fixed assets and equipment
leased to others 10 1 2
Acquisitions of businesses, net of cash acquired (188) - (6)
Other investments (11) (4) (3)
Proceeds on sale of business 64 - 15
Insurance investments:
Purchases (746) (721) (437)
Proceeds on maturities 168 112 78
Proceeds on sales 345 358 126
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (446) (339) (317)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Additions to short-term debt 39 10 119
Reductions to short-term debt (13) (15) (81)
Additions to long-term debt 101 - -
Reductions to long-term debt (1) (2) (3)
Payment of cash dividends (48) (45) (43)
Treasury stock acquired (85) (13) (51)
Insurance premiums received 495 514 459
Insurance benefits paid (282) (256) (227)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 206 193 173
- ---------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash - (2) (1)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL CASH FLOWS (67) 98 95
CASH AND CASH EQUIVALENTS
At beginning of year 364 266 171
- ---------------------------------------------------------------------------------------------------------------------------
At end of year $ 297 $ 364 $ 266
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-26-
<PAGE>
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
NOVEMBER 28, November 29, November 30,
Year Ended 1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
COMMON STOCK $ 4 $ 4 $ 4
- ---------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Beginning of year 14 14 14
Fair market value over cost on
reissuance of treasury shares (1998 - 16,050;
1997 - 15,284; 1996 - 33,996) 1 - -
Other - - -
- ---------------------------------------------------------------------------------------------------------------------------
End of year 15 14 14
- ---------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Beginning of year 1,085 973 876
Net income 184 157 140
Dividends (48) (45) (43)
- ---------------------------------------------------------------------------------------------------------------------------
End of year 1,221 1,085 973
- ---------------------------------------------------------------------------------------------------------------------------
ACCUMULATED UNREALIZED GAIN ON INVESTMENTS
Beginning of year 34 21 23
Net unrealized holding gain (loss) 18 13 (2)
- ---------------------------------------------------------------------------------------------------------------------------
End of year 52 34 21
- ---------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Beginning of year (3) 10 14
Translation adjustment (4) (13) (4)
- ---------------------------------------------------------------------------------------------------------------------------
End of year (7) (3) 10
- ---------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK
Beginning of year (248) (235) (185)
Shares acquired (1998 - 1,768,100;
1997 - 290,395; 1996 - 1,425,100) (85) (13) (51)
Shares reissued - - 1
- ---------------------------------------------------------------------------------------------------------------------------
End of year (333) (248) (235)
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 952 $ 886 $ 787
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-27-
<PAGE>
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies specific to insurance operations are summarized in
Note 12.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, except for several small subsidiaries which
provide ancillary services to the Company and the public. These subsidiaries
are not consolidated because of their materiality and are accounted for by
the equity method. Their results of operations appear in the income
statement, net of income taxes, under the caption "Other income (expense),
net." Material intercompany accounts and transactions have been eliminated in
consolidation.
The Company's fiscal year is the 52 or 53 week period ending the Saturday
nearest November 30.
NATURE OF OPERATIONS
Hillenbrand Industries is organized into two segments - the Health Care Group
and the Funeral Services Group. The Health Care Group consists of Hill-Rom.
Block Medical and Medeco Security Locks were included in this segment prior
to their sale in 1996 and 1998, respectively. Hill-Rom is a leading
manufacturer of patient care products and leading provider of specialized
rental therapy products designed to assist in managing the complications of
patient immobility. Its products and services are marketed to acute and
long-term health care facilities and home care patients primarily in North
America and Europe. The Health Care segment generated 58% of Hillenbrand's
revenues in 1998. The Funeral Services Group consists of Batesville Casket
Company and Forethought Financial Services (Forethought). Batesville Casket
Company is a leading producer of protective metal and hardwood burial
caskets, cremation urns and caskets and marketing support services. Its
products are marketed to licensed funeral directors operating licensed
funeral homes primarily in North America. Batesville generated 27% of
Hillenbrand's revenues in 1998. Forethought provides funeral homes in 42 U.S.
states, the District of Columbia, Puerto Rico and six Canadian provinces with
life insurance policies and marketing support for preneed,
inflation-protected funeral planning. It entered the preneed trust market in
1997. Forethought generated 15% of Hillenbrand's revenues in 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of certain assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers investments in marketable securities and other highly
liquid instruments with a maturity of three months or less at date of
purchase to be cash equivalents.
-28-
<PAGE>
INVENTORIES
Inventories are valued at the lower of cost or market. Inventory costs are
determined by the last-in, first-out (LIFO) method for approximately 56% and
71% of the Company's inventories at November 28, 1998 and November 29, 1997,
respectively. The decline in the percentage of inventories on LIFO is related
to the acquisitions completed in the current year (see Note 2). Costs for
other inventories have been determined principally by the first-in, first-out
(FIFO) method. Inventories at November 28 consist of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
1998 1997
<S> <C> <C>
- -----------------------------------------------------------------------------
Finished Products $ 58 $ 44
Work in Process 32 24
Raw Materials 15 11
- ------------------------------------------------------------------------------
Total $ 105 $ 79
- ------------------------------------------------------------------------------
</TABLE>
If the FIFO method of inventory accounting, which approximates current cost,
had been used for all inventories, they would have been approximately $9
million and $10 million higher than reported at November 28, 1998 and
November 29, 1997, respectively.
EQUIPMENT LEASED TO OTHERS
Equipment leased to others primarily represents therapy rental units, which
are recorded at cost and depreciated on a straight-line basis over their
estimated economic life. The majority of these units are leased on a
day-to-day basis.
PROPERTY
Property is recorded at cost and depreciated over the estimated useful life
of the assets using principally the straight-line method for financial
reporting purposes. Generally, when property is retired from service or
otherwise disposed of, the cost and related amount of depreciation or
amortization are eliminated from the asset and reserve accounts,
respectively. The difference, if any, between the net asset value and the
proceeds is charged or credited to income. The major components of property
at the end of 1998 and 1997 were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1998 1997
<S> <C> <C>
- ------------------------------------------------------------------------------
Land $ 18 $ 22
Buildings and building equipment 142 144
Machinery and equipment 472 485
- ------------------------------------------------------------------------------
Total $ 632 $ 651
- ------------------------------------------------------------------------------
</TABLE>
INTANGIBLE AND OTHER NON-CURRENT ASSETS
Intangible assets are stated at cost and amortized on a straight-line basis
over periods ranging from 3 to 40 years. The Company reviews goodwill and
other non-current assets for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. If the
undiscounted expected future cash flows from use of the asset are less than
the carrying value, an impairment loss is recognized. The amount of the
impairment loss is determined by comparing the discounted expected future
cash flows with the carrying value.
Goodwill related to Hill-Rom's German subsidiary was written off in the
third quarter of 1998 resulting in a $43 million charge. See Note 4 for
additional information.
Accumulated amortization of intangible assets was $150 million and $156
million as of November 28, 1998, and November 29, 1997, respectively.
-29-
<PAGE>
ENVIRONMENTAL LIABILITIES
Expenditures that relate to an existing condition caused by past operations,
and which do not contribute to current or future revenue generation, are
expensed. A reserve is established when it is probable that a liability has
been incurred and the amount of the loss can be reasonably estimated. These
reserves are determined without consideration of possible loss recoveries
from third parties. More specifically, each quarter, financial management, in
consultation with its environmental engineer, estimates the range of
liability based on current interpretation of environmental laws and
regulations. For each site in which a Company unit is involved, a
determination is made of the specific measures that are believed to be
required to remediate the site, the estimated total cost to carry out the
remediation plan and the periods in which the Company will make payments
toward the remediation plan. The Company does not make an estimate of general
or specific inflation for environmental matters since the number of sites is
small, the magnitude of costs to execute remediation plans are not
significant and the estimated time frames to remediate sites are not believed
to be lengthy.
Specific costs included in environmental expense are site assessment,
development of a remediation plan, clean-up costs, post-remediation
expenditures, monitoring, fines, penalties and legal fees. The reserve
represents the expected undiscounted future cash outflows.
Expenditures that relate to current operations are charged to expense.
REVENUE RECOGNITION
Sales are recognized upon shipment of products to customers. Rental revenues
are recognized when services are rendered.
COST OF REVENUES
Health Care and Funeral Services cost of goods sold consist primarily of
purchased material costs, fixed manufacturing expense, and variable direct
labor and overhead costs. Health Care rental expenses are those costs
associated directly with rental revenue, including depreciation and service
of the Company's therapy rental units, service center facility and personnel
costs, and regional sales expenses.
EARNINGS PER COMMON SHARE
The Company adopted SFAS No. 128, "Earnings per Share," in the first quarter
of 1998. SFAS No. 128 requires disclosure of basic and diluted earnings per
share in place of primary and fully diluted earnings per share as required by
APB No. 15. Basic earnings per share is calculated based upon
weighted-average number of outstanding common shares for the period. Diluted
earnings per share is calculated based upon weighted-average number of
outstanding common shares, plus the effect of dilutive stock options.
STOCK-BASED COMPENSATION
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation" in October 1995. SFAS No. 123 encourages companies
to adopt a fair value approach to valuing stock-based compensation that would
require compensation cost to be recognized based on the fair value of the
stock-based instrument granted. The Company has elected, as permitted by the
standard, to continue to follow its intrinsic value based method of
accounting for its stock-based compensation plans consistent with the
provisions of APB No. 25. Under the intrinsic method, compensation cost for
stock-based compensation is measured as the excess, if any, of the quoted
market price of the instrument at the measurement date over the exercise
price. The Company has provided the pro forma disclosure provisions of SFAS
No. 123 in Note 6.
-30-
<PAGE>
RETIREMENT PLANS
The Company and its subsidiaries have several defined benefit retirement
plans covering the majority of employees, including certain employees in
foreign countries. The Company contributes funds to trusts as necessary to
provide for current service and for any unfunded projected future benefit
obligation over a reasonable period. The benefits for these plans are based
primarily on years of service and the employee's level of compensation during
specific periods of employment.
The components of net pension expense in the United States are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service expense-benefits earned during the year $ 8 $ 8 $ 7
Interest expense on projected benefit obligation 10 9 8
Actual return on plan assets (16) (10) (7)
Net amortization and deferral 6 - (1)
- -------------------------------------------------------------------------------------------------------------------
Net pension expense $ 8 $ 7 $ 7
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The funded status of plans in the United States is shown in the table below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NOVEMBER 28, November 29,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $98 in 1998 and $85 in 1997 $ (104) $ (91)
- -------------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date $ (161) $ (135)
Plan assets at fair value, primarily U.S. Government obligations, corporate
bonds and notes, and common stock issued by the Company. The value of this
common stock at date of acquisition by the plans was $3 and the current
market value was $26 in 1998 and $20 in 1997. 144 124
- -------------------------------------------------------------------------------------------------------------------
Plan assets less than projected benefit obligation (17) (11)
Unrecognized net gain from past experience different
from that assumed (10) (15)
Unrecognized prior service cost 3 2
Unrecognized net asset at year-end being recognized over 14 to 22 years from the
initial compliance date of December 1, 1985 (1) (1)
- -------------------------------------------------------------------------------------------------------------------
Unfunded accrued expenses included in liabilities $ (25) $ (25)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-31-
<PAGE>
The assumptions used in accounting for the domestic plans are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate used to determine the
projected benefit obligation 7.25% 7.5% 7.5%
Rate of increase in future compensation
levels used to determine the projected
benefit obligation 5.5% 5.5% 5.5%
Expected long-term rate of return on
assets used to determine net periodic
pension cost 8.0% 8.0% 8.0%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to the above plans, the Company assumed the unfunded
liabilities of a defined benefit plan in the acquisition of Arnold in 1994.
The unfunded accumulated benefit obligation of this plan, included in accrued
expenses, was $11 million on November 28, 1998 and November 29, 1997 and $13
million on November 30, 1996. Pension expense was negligible in 1998 and was
$1 million in 1997 and 1996.
The Company also sponsors several defined contribution plans covering
certain of its employees. Employer contributions are made to these plans
based on a percentage of employee compensation. The cost of these defined
contribution plans was $6 million in 1998 and $5 million in 1997 and 1996.
INCOME TAXES
The Company and its eligible domestic subsidiaries file a consolidated U.S.
income tax return. Foreign operations file income tax returns in a number of
jurisdictions. Deferred income taxes are computed in accordance with SFAS No.
109, "Accounting for Income Taxes." Deferred income taxes reflect the net tax
effects of temporary differences between the financial reporting carrying
amounts of assets and liabilities and the income tax amounts.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are primarily translated into
U.S. dollars at year-end rates of exchange and the income statements are
translated at the average rates of exchange prevailing during the year.
Adjustments resulting from translation of the financial statements of foreign
operations into U.S. dollars are excluded from the determination of net
income and included as a separate caption in shareholders' equity. Foreign
currency gains and losses resulting from foreign currency transactions are
included in results of operations and are not material.
ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," was issued in June 1997. This standard requires that
the Company disclose, either in the income statement or in a separate
financial statement, net income as currently reported and other components of
comprehensive income. Comprehensive income is defined as the change in
shareholders' equity during a period resulting from transactions and other
events and circumstances from non-owner sources. The Company is required to
adopt this standard not later than the first quarter of 1999. Implementation
of this standard will not affect the Company's financial position or results
of operations.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued in June 1997. This standard defines segments of an
enterprise as the components of the company whose operations are reviewed
regularly by the chief operating decision-maker in deciding how to allocate
resources and in assessing performance. It requires disclosures about
products and services, geographic areas and major customers. The Company is
required to adopt this standard not later than the issuance of its 1999
annual report. Implementation of this standard will not affect the Company's
financial position or results of operations.
-32-
<PAGE>
In February 1998, SFAS No. 132, " Employers' Disclosures about Pensions
and Other Postretirement Benefits," was issued. This standard revises current
disclosure requirements for employers' pensions and other retiree benefits.
The Company is required to adopt this standard not later than the issuance of
its 1999 annual report. Implementation of this standard will not affect the
Company's financial position or results of operations.
The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", in June 1998.
This standard establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities and requires that all derivatives be
recognized on the balance sheet at fair value. Changes in fair values of
derivatives will be accounted for based upon their intended use and
designation. Since the Company's holdings in such instruments are minimal,
adoption of this standard is not expected to have a material effect on the
financial statements. The Company is required to adopt the standard not later
than the first quarter of fiscal 2000.
2. ACQUISITIONS
On December 18, 1997, Hill-Rom acquired the stock of Air-Shields, Inc., a
manufacturer and supplier of infant incubators and warmers, and certain other
businesses of Vickers PLC for $98 million, net of cash acquired and including
costs of acquisition, and the assumption of certain liabilities totaling $29
million. This acquisition has been accounted for as a purchase, and the
results of the operations of the acquired business have been included in the
consolidated financial statements since the date of acquisition. The excess
of the purchase price over the fair value of net assets acquired was
approximately $68 million and has been recorded as goodwill which is being
amortized on a straight-line basis over 20 years. Hill-Rom is continuing to
negotiate the final purchase price for this acquisition with the seller,
which when resolved, is expected to result in a reduction of goodwill.
On February 9, 1998, Hill-Rom acquired the stock of MEDAES Holdings,
Inc., a manufacturer of medical architectural systems for $62 million
including costs of acquisition and the assumption of certain liabilities
totaling $17 million. This acquisition was accounted for as a purchase, and
the results of operations have been included in the consolidated financial
statements since the date of acquisition. The excess of the purchase price
over the fair value of net assets acquired was approximately $51 million and
has been recorded as goodwill which is being amortized on a straight-line
basis over 20 years.
On June 4, 1998, Forethought Financial Services purchased Chrysler Life
Insurance Company, for approximately $14 million, including costs of
acquisition. This acquisition has been accounted for as a purchase, and the
results of operations of the acquired business have been included in the
consolidated financial statements since the acquisition date. The excess of
the purchase price over the fair value of net assets acquired, which were
primarily state insurance licenses, was approximately $4 million which is
being amortized on a straight-line basis over 40 years.
Hill-Rom, Batesville Casket and the Company each acquired one small
company during 1998 in addition to those outlined above. The combined
purchase price of these companies was approximately $14 million, net of cash
acquired.
Assuming all fiscal 1998 acquisitions had occurred December 1, 1996,
unaudited fiscal 1997 pro forma consolidated net revenue would have increased
by approximately $150 million, and net income and earnings per share would
have decreased by less than 5%. Unaudited fiscal 1998 pro forma revenue, net
income and earnings per share would not have been materially different from
reported amounts. Such unaudited consolidated pro forma information is not
necessarily indicative of the combined results that would have occurred had
the acquisitions taken place on those dates, nor is it indicative of the
results that may occur in the future.
In 1996, the Company's subsidiaries, Batesville Casket and Hill-Rom,
each acquired two small companies. The combined purchase price was $6 million.
Acquisitions occurring subsequent to November 28, 1998 are discussed in
Note 15.
3. DISPOSITION
On July 1, 1998, the Company sold its high security and access control
business, Medeco Security Locks, Incorporated, to Assa Abloy AB. The Company
recorded an after tax gain of approximately
-33-
<PAGE>
$47 million in the third quarter. Results for Medeco were included in the
Health Care Group through the date of disposition and did not have a material
effect on the results of that group or the Company's consolidated earnings,
cash flows and financial position. The gain on the sale of Medeco is
classified within the Other line under Other income (expense), net in the
Statement of Consolidated Income.
On July 22, 1996, the Company sold the assets of Block Medical for cash
and stock totaling $17 million. The Company recorded a gain on the sale of $3
million ($2 million after income taxes) and a related income tax benefit of
approximately $6 million realized from book and tax differences in the basis
of the business.
4. UNUSUAL CHARGES
On August 17, 1998, the Board of Directors of the Company approved a plan to
restructure Hill-Rom's direct and support operations in Germany and Austria
that will permit the Company to more efficiently meet the needs of its
customers and improve profitability. Market demand has not met expectations
and remains far below estimates established at the time the German and
Austrian businesses were acquired in 1994. Changes in local market
conditions, health care reform and increased competitive pressures have
greatly extended the time required for the Company to achieve profitability
and significantly reduced management's projections of future cash flows from
operations in these countries.
Under this plan, the Company will reduce its fixed costs and align
manufacturing, distribution, sales and administrative functions with
anticipated demand. This alignment will result in the closing of
manufacturing facilities in Germany and Austria and relocating certain
manufacturing and business processes to other European locations. The Company
will continue to serve and support the German and Austrian markets through a
direct sales and service organization with products manufactured specifically
for these markets by its other operations. Approximately 250 production and
administrative employees are affected by this plan.
The restructuring plan necessitated the provision of a $73 million asset
impairment and restructuring charge in the third quarter. The non-cash
component of this charge included a $43 million write-off of German
subsidiary goodwill, $7 million for the write-down of property, plant and
equipment held for sale and $3 million for obsolete inventory resulting from
the realignment of operations. Asset impairment charges were determined based
upon projected cash flows, independent appraisals and market assessments for
goodwill, land and buildings, and management estimates of losses to be
incurred upon the disposition of surplus equipment and inventories. Property,
plant and equipment to be disposed of have an adjusted fair market value of
approximately $4 million, not including costs of disposal, as of November 28,
1998. The restructuring plan also included additional charges for severance
and employee benefit costs of $11 million and other estimated plant closing
costs of $9 million which includes legal, lease and contract termination,
warranty, environmental, purchase commitment and related shutdown costs. None
of these individual cost categories are material relative to the total. In
addition to the costs accrued under the plan, additional costs of an
estimated $4 million will be incurred to relocate certain manufacturing and
business processes to other European locations. These costs will be expensed
as incurred as required by generally accepted accounting principles.
As of November 28, 1998, the German and Austrian manufacturing
facilities were still in operation, with depreciation expense on assets to be
sold reflected for the full fiscal year. In the fourth quarter, changes in
the estimates of costs to be incurred under the plan reduced the overall
level of the asset impairment and restructuring charge recorded in the third
quarter by $3.5 million. With the exception of the write-down in inventory,
which is reflected as a component of Health Care cost of goods sold, the
remaining charge is classified within the separate Unusual charge line of the
Statement of Consolidated Income. As of the end of the year less than $1
million of the restructuring related costs had been paid. In December 1998,
manufacturing operations were discontinued in Germany. The Austrian
manufacturing operations are expected to be discontinued in the second
quarter of 1999. Substantially all employee related costs associated with the
restructuring are expected to be paid in fiscal 1999. The disposition of
property, plant and equipment, along with excess and discontinued
inventories, is targeted to be completed within the next twelve months, but
could take longer.
-34-
<PAGE>
5. FINANCING AGREEMENTS
The Company's various financing agreements contain no restrictive provisions
or conditions relating to dividend payments, working capital or additional
indebtedness.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NOVEMBER 28, November 29,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Unsecured 8 1/2% debentures due on December 1, 2011 $ 100 $ 100
Unsecured 7% debentures due on February 15, 2024 100 100
Unsecured 6 3/4% debentures due on December 15, 2027 100 -
Government sponsored bond with an interest rate of 5.0%
and maturities to 2008 2 2
Other 2 2
- -------------------------------------------------------------------------------------------------------------------
Total 304 204
Less current portion 1 1
- -------------------------------------------------------------------------------------------------------------------
Total long-term debt $ 303 $ 203
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Scheduled payments on long-term debt as of November 28, 1998 total less
than $1 million in each of the years 1999 through 2003.
Short-term debt consists of borrowings under various lines of credit
maintained for foreign subsidiaries. The weighted average interest rate on
all short-term borrowings outstanding as of November 28, 1998 and November 29,
1997 was approximately 4.0%.
At November 28, 1998, the Company had uncommitted credit lines totaling $93
million available for its operations. These agreements have no commitment fees,
compensating balance requirements or fixed expiration dates.
6. STOCK-BASED COMPENSATION
At November 28, 1998, the Company has three active stock-based compensation
plans; the Senior Executive Compensation Program, the Performance
Compensation Plan, and the 1996 Stock Option Plan, which are described below.
These three plans are administered by the Compensation Committee of the Board
of Directors. All shares issued under these plans are valued at market
trading prices.
The Company's Senior Executive Compensation Program, initiated in fiscal
year 1978, provides long-term performance share compensation, which
contemplates annual payments of common stock of the Company to participants
contingent on their continued employment and upon achievement of
pre-established financial objectives of the Company over succeeding
three-year periods. A total of 1,097,205 shares of common stock of the
Company remain reserved for issuance under the program. Total tentative
performance shares payable through November 28, 1998, were 360,132. In
addition, the Senior Executive Compensation Program mandates and or provides
for participants to defer payment of long-term performance shares earned in
prior years. A total of 183,900 shares are deferred of which 177,741 are
vested and payable as of November 28, 1998.
Under the Performance Compensation Plan key employees are awarded
tentative performance shares based upon achievement of performance targets. A
total of 1,290,028 shares of common stock remain reserved for issuance under
this plan as of November 28, 1998. In 1993, 386,096 shares were earned based
on the Company's performance. A total of 1,125 deferred shares are payable as
of November 28, 1998 under this plan. The plan will terminate on November 30,
2001.
-35-
<PAGE>
Under the 1996 Stock Option Plan key employees and directors are granted
the opportunity to acquire the Company's common stock. Under the terms of the
plan, options may be either incentive or non-qualified. Stock appreciation
rights may be awarded in conjunction with either an incentive stock option or
non-qualified stock option. The exercise price per share shall be the average
fair market price of the common stock on the date of the grant. Options
granted to employees vest one-third on each of the first three anniversaries
of the date of grant. Options granted to directors vest entirely on the first
anniversary of the date of grant. All options have a maximum term of ten
years. Three million shares of common stock have been reserved for issuance
under this plan and options were initially granted in 1997. As of November 28,
1998 there were 2,253,663 shares of common stock available for future grants.
The fair value for each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model. The weighted average fair value
of options granted was $14.19 and $13.22 per share in 1998 and 1997,
respectively. The following weighted average assumptions were used:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Risk-free interest rate 5.63% 6.83%
Dividend yield 1.49% 1.44%
Volatility factor .1926 .1903
Weighted average expected life 5.98 years 5.97 years
</TABLE>
The following table summarizes the transactions of the Company's stock option
plan:
<TABLE>
<CAPTION>
1998 1997
- ---------------------------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Unexercised options outstanding -
beginning of year 283,500 $44.3125 N/A N/A
Options granted 499,000 $52.9793 290,500 $44.3125
Options exercised (10,339) $44.3125 N/A N/A
Options cancelled (36,163) $47.4575 (7,000) $44.3125
- ---------------------------------------------------------------------------------------------------------------------
Unexercised options outstanding -
end of year 735,998 $50.0340 283,500 $44.3125
- ---------------------------------------------------------------------------------------------------------------------
Exercisable options - end of year 96,535 $44.3125 None N/A
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about stock options outstanding at
November 28, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -----------------------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$44.3125 - $44.3125 251,498 8.36 $44.3125 96,535 $44.3125
$52.1563 - $52.1563 430,500 9.14 $52.1563 0 $ -
$57.0938 - $57.0938 20,000 9.66 $57.0938 0 $ -
$59.1250 - $59.2188 16,000 9.31 $59.1719 0 $ -
$63.2500 - $63.2500 18,000 9.36 $63.2500 0 $ -
- ---------------------------------------------------------------------------------------------------------------------
$44.3125 - $63.2500 735,998 8.90 $50.0340 96,535 $44.3125
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
-36-
<PAGE>
Under the restricted stock plan key employees were granted restricted
shares of the Company's stock. As of November 28, 1998 there were 17,371
shares which remain deferred under this program. No awards were made in
fiscal 1998 and the plan has been terminated.
The amount charged to expense for all stock-based compensation plans was
$8 million, $4 million and $2 million in 1998, 1997 and 1996, respectively.
The pro forma effect on net income for all stock-based compensation
plans if accounted for under SFAS No. 123 is less than $1 million of
additional compensation expense in 1998, 1997, and 1996, respectively.
Members of the Board of Directors may elect to defer fees earned and
invest them in common stock of the Company. A total of 10,064 deferred shares
are payable as of November 28, 1998 under this program.
7. SHAREHOLDERS' EQUITY
One million shares of preferred stock, without par value, have been
authorized and none have been issued.
The Board of Directors has authorized the repurchase, from time to time,
of up to 19,289,067 shares of the Company's stock in the open market. The
purchased shares will be used for general corporate purposes. As of
November 28, 1998, a total of 15,067,167 shares had been purchased at market
trading prices, of which 13,564,793 shares remain in treasury.
On December 1, 1997, the Company purchased 990,000 shares of its common
stock from a trust established by a founder of the Company to facilitate the
payment of the trust's federal and state taxes upon the death of the
founder's widow. The purchase, totaling $42 million, was a private
transaction at a discount from market determined by an investment bank to be
fair to the Company.
8. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments (other than Insurance investments which
are described in Note 12) for which it is practicable to estimate that value:
The carrying amounts of cash and cash equivalents, trade accounts
receivable, other current assets, trade accounts payable, and accrued
expenses approximate fair value because of the short maturity of those
instruments.
The fair value of the Company's debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered
to the Company for debt of the same remaining maturities. The estimated fair
values of the Company's debt instruments are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
NOVEMBER 28, 1998
- ----------------------------------------------------------------------------
Carrying Fair
Amount Value
- ----------------------------------------------------------------------------
<S> <C> <C>
Short-term debt $ 60 $ 60
Long-term debt $ 304 $ 340
- ----------------------------------------------------------------------------
</TABLE>
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to
manage well-defined foreign currency risks. The Company occasionally enters
into foreign currency forward contracts to hedge exposure to adverse exchange
risk related to certain assets and obligations denominated in foreign
currencies. The gains or losses arising from these contracts offset foreign
exchange gains or losses on the underlying assets or liabilities and are
recognized as offsetting adjustments to the carrying amounts. The Company had
no material derivative financial instruments on November 28, 1998 and
November 29, 1997.
-37-
<PAGE>
9. SEGMENT INFORMATION
INDUSTRY INFORMATION
The Health Care Group consists of Hill-Rom. Block Medical and Medeco Security
Locks were in this segment prior to their sale in 1996 and 1998,
respectively. Hill-Rom produces and sells electric hospital beds, patient
room furniture, patient handling equipment and medical architectural products
designed to meet the needs of acute care, long-term care, home care and
perinatal providers. It also provides rental therapy units to health care
facilities and the home care market for wound therapy, the management of
pulmonary complications associated with critically ill patients and
incontinence management.
The Funeral Services Group consists of Batesville Casket Company and
Forethought Financial Services. Batesville manufactures and sells a variety
of metal and hardwood caskets and a line of urns and caskets used in
cremation. Batesville's products are sold to licensed funeral directors
operating licensed funeral homes. Forethought Financial Services'
subsidiaries, Forethought Life Insurance Company, Forethought National
TrustBank, Forethought Federal Savings Bank, Forethought Life Assurance
Company and The Forethought Group, Inc., provide funeral planning
professionals with marketing support for Forethought(R) funeral plans funded
by life insurance policies and trust products. Note 12 contains additional
information regarding financial services.
Product transfers between industry segments are not material.
Financial information regarding the Company's industry segments is
presented below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
NOVEMBER 28, November 29, November 30,
Year Ended 1998 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net revenues:
Health Care $ 1,151 $ 966 $ 941
Funeral Services 850 810 743
- ---------------------------------------------------------------------------------------------------
Consolidated $ 2,001 $ 1,776 $ 1,684
- ---------------------------------------------------------------------------------------------------
Operating profit:
Health Care (a) $ 81 $ 134 $ 111
Funeral Services 170 160 144
Corporate and other (23) (30) (19)
- ---------------------------------------------------------------------------------------------------
Consolidated 228 264 236
Interest expense (27) (21) (22)
Investment income 19 18 17
Other income (expense), net (b) (c) 73 (2) 2
- ---------------------------------------------------------------------------------------------------
Income before income taxes $ 293 $ 259 $ 233
- ---------------------------------------------------------------------------------------------------
Identifiable assets:
Health Care $ 801 $ 679 $ 647
Funeral Services 3,087 2,750 2,421
Corporate and other 392 399 328
- ---------------------------------------------------------------------------------------------------
Consolidated $ 4,280 $ 3,828 $ 3,396
- ---------------------------------------------------------------------------------------------------
Capital expenditures:
Health Care $ 53 $ 68 $ 69
Funeral Services 29 15 21
Corporate and other 6 2 2
- ---------------------------------------------------------------------------------------------------
Consolidated $ 88 $ 85 $ 92
- ---------------------------------------------------------------------------------------------------
Depreciation and amortization:
Health Care $ 125 $ 76 $ 72
Funeral Services 22 23 24
Corporate and other 2 3 3
- ---------------------------------------------------------------------------------------------------
Consolidated $ 149 $ 102 $ 99
- ---------------------------------------------------------------------------------------------------
</TABLE>
(a) REFLECTS A $70 MILLION CHARGE IN 1998 FOR THE WRITE-OFF OF GOODWILL, OTHER
ASSET IMPAIRMENT CHARGES AND OTHER CLOSING COSTS RELATED TO THE
DISCONTINUANCE OF MANUFACTURING OPERATIONS AT HILL-ROM FACILITIES IN
GERMANY AND AUSTRIA.
(b) REFLECTS A GAIN OF $75 MILLION IN 1998 ON THE SALE OF MEDECO SECURITY LOCKS.
(c) REFLECTS A GAIN OF $3 MILLION IN 1996 ON THE SALE OF BLOCK MEDICAL.
-38-
<PAGE>
GEOGRAPHIC INFORMATION
Sales between geographic areas are at transfer prices which approximate market
value.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
United Other Corporate
States Europe (a) International and Other Eliminations Consolidated
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
1998:
Net revenues:
To unaffiliated customers $ 1,758 $ 178 $ 65 $ - $ - $ 2,001
Transfers to other geographic areas 36 - - - (36) -
- ----------------------------------------------------------------------------------------------------------------------------
Total net revenues $ 1,794 $ 178 $ 65 $ - $ (36) $ 2,001
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 322 $ (79) $ 8 $ (23) $ - $ 228
- ----------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 3,779 $ 211 $ 41 $ 392 $ (143) $ 4,280
- ----------------------------------------------------------------------------------------------------------------------------
1997:
Net revenues:
To unaffiliated customers $ 1,560 $ 157 $ 59 $ - $ - $ 1,776
Transfers to other geographic areas 37 - - - (37) -
- ----------------------------------------------------------------------------------------------------------------------------
Total net revenues $ 1,597 $ 157 $ 59 $ - $ (37) $ 1,776
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 305 $ (14) $ 3 $ (30) $ - $ 264
- ----------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 3,261 $ 298 $ 30 $ 399 $ (160) $ 3,828
- ----------------------------------------------------------------------------------------------------------------------------
1996:
Net revenues:
To unaffiliated customers $ 1,447 $ 188 $ 49 $ - $ - $ 1,684
Transfers to other geographic areas 37 - - - (37) -
- ----------------------------------------------------------------------------------------------------------------------------
Total net revenues $ 1,484 $ 188 $ 49 $ - $ (37) $ 1,684
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 284 $ (31) $ 2 $ (19) $ - $ 236
- ----------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 2,869 $ 355 $ 24 $ 328 $ (180) $ 3,396
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) REFLECTS A $70 MILLION CHARGE IN 1998 FOR THE WRITE-OFF OF GOODWILL, OTHER
ASSET IMPAIRMENT CHARGES AND OTHER CLOSING COSTS RELATED TO THE
DISCONTINUANCE OF MANUFACTURING OPERATIONS AT HILL-ROM FACILITIES IN
GERMANY AND AUSTRIA.
10. INCOME TAXES
Income taxes are computed in accordance with SFAS No. 109. The significant
components of the consolidated income tax provision are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes:
Domestic $ 370 $ 272 $ 267
Foreign (77) (13) (34)
- -------------------------------------------------------------------------------------------------------------------
Total $ 293 $ 259 $ 233
- -------------------------------------------------------------------------------------------------------------------
Provision for income taxes:
Current items:
Federal $ 90 $ 99 $ 85
State 19 13 13
Foreign 4 3 1
- -------------------------------------------------------------------------------------------------------------------
Total current items 113 115 99
- -------------------------------------------------------------------------------------------------------------------
Deferred items:
Federal (4) (11) (6)
State - - -
Foreign - (2) -
- -------------------------------------------------------------------------------------------------------------------
Total deferred items (4) (13) (6)
- -------------------------------------------------------------------------------------------------------------------
Provision for income taxes $ 109 $ 102 $ 93
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-39-
<PAGE>
The differences between the amounts recorded for income taxes for financial
statement purposes and the amounts computed by applying the Federal statutory
tax rate to income before taxes are explained as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
% OF % of % of
PRETAX Pretax Pretax
AMOUNT INCOME Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Federal income tax (a) $103 35.0 $ 90 35.0 $81 35.0
State income tax (b) 12 4.1 9 3.5 9 3.8
Foreign income tax (c) 30 10.3 6 2.3 12 5.1
Adjustment of estimated
income tax accruals 19 6.5 - - - -
Utilization of foreign net
operating losses (47) (16.1) - - - -
Sale of Block Medical - - - - (6) (2.6)
Other, net (8) (2.8) (3) (1.4) (3) (1.4)
- -----------------------------------------------------------------------------------------------------------------------
Provision for income taxes $109 37.0 $102 39.4 $93 39.9
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) AT STATUTORY RATE.
(b) NET OF FEDERAL BENEFIT.
(c) FEDERAL TAX RATE DIFFERENTIAL.
The tax effect of temporary differences that give rise to significant
portions of the deferred tax balance sheet accounts were as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NOVEMBER 28, 1998 November 29, 1997
- -----------------------------------------------------------------------------------------------------------------------
NON-INSURANCE INSURANCE Non-insurance Insurance
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Current:
Inventories $ 3 $ - $ 2 $ -
Employee benefit accruals 3 - 3 -
Self insurance accruals 10 - 10 -
Litigation accruals 2 - 3 -
Other, net 20 5 7 4
Long-term:
Employee benefit accruals 23 1 21 1
Deferred policy revenues - 236 - 212
Foreign loss carryforwards 9 - 67 -
Foreign acquisition reserves - - 2 -
Other, net 9 - 7 -
- -----------------------------------------------------------------------------------------------------------------------
Total assets 79 242 122 217
- -----------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Current:
Inventories 2 - 2 -
Other, net 2 - 2 -
Long-term:
Depreciation 34 3 34 -
Amortization 2 - - -
Unrealized gain on investments - 28 - 18
Benefit reserves - 12 - 11
Deferred acquisition costs - 160 - 140
Foreign asset step up - - 4 -
Other, net - 5 1 5
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities 40 208 43 174
- -----------------------------------------------------------------------------------------------------------------------
Less valuation allowance for
foreign loss carryforwards (9) - (65) -
- -----------------------------------------------------------------------------------------------------------------------
Net asset $ 30 $ 34 $ 14 $ 43
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
-40-
<PAGE>
Foreign loss carryforwards approximated $161 million at November 29, 1997,
the majority of which related to operations in Germany, Austria and France.
With the announced discontinuance of manufacturing operations in Germany and
Austria during 1998, the Company was able to recognize a tax benefit of
approximately $47 million for substantially all of the German and Austrian
operating losses. In regards to the Company's remaining foreign operations,
unutilized loss carryforwards of approximately $25 million exist as of
November 28, 1998. There is not currently sufficient positive evidence as
required by SFAS No. 109 to support recognition of the tax benefit associated
with these operating losses. Accordingly, a full valuation allowance of $9
million has been recorded. It is reasonably possible that the Company's
operating results could improve in the future thereby allowing recognition of
the tax benefits associated with the operating losses.
Certain expenses associated with the Company's corporate-owned life
insurance program have been questioned by the Internal Revenue Service (IRS).
At the end of 1997, the Company and the IRS had pending with the IRS'
national office a request for technical advice with respect to the tax
benefits of this program. During 1998, an unfavorable response to the request
for technical advice was received. The Company continues to believe all tax
benefits relative to this program were taken in full compliance with existing
and prior tax law. However, it is likely that the IRS will disallow some
portion of the tax benefits associated with this program.
The Company does not believe that the ultimate outcome of tax positions
taken by the Company, including those related to the corporate-owned life
insurance program, will have a material adverse effect on its financial
condition, results of operations or cash flows.
11. SUPPLEMENTARY INFORMATION
The following amounts were (charged) or credited to income in the year
indicated:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
Rental expense $ (21) $ (16) $ (16)
Research and
development costs $ (42) $ (49) $ (42)
Investment income, net (a) $ 19 $ 18 $ 17
- ------------------------------------------------------------------------------
</TABLE>
(a) EXCLUDES INSURANCE OPERATIONS.
The table below indicates the minimum annual rental commitments (excluding
renewable periods) aggregating $37 million, used for warehouses and office
space, under noncancellable operating leases.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
<S> <C>
1999 $ 14
2000 $ 10
2001 $ 6
2002 $ 4
2003 $ 2
2004 and beyond $ 1
- ------------------------------------------------------------------------------
</TABLE>
-41-
<PAGE>
The table below provides supplemental information to the statements of
consolidated cash flows.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Cash paid for:
Income taxes $ 113 $ 109 $ 92
Interest $ 24 $ 23 $ 16
Non-cash investing and financing activities:
Liabilities assumed from/incurred
for the acquisition of businesses $ 47 $ - $ 1
Treasury stock issued under
stock compensation plans $ - $ - $ 1
Accrued treasury stock acquisition $ - $ 13 $ -
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
12. FINANCIAL SERVICES
Forethought Financial Services, through its subsidiaries, Forethought Life
Insurance Company, Forethought National TrustBank, Forethought Federal
Savings Bank, Forethought Life Assurance Company and The Forethought Group,
Inc., serves funeral planning professionals with life insurance policies,
trust products and marketing support for Forethought(R) funeral planning.
Forethought entered the preneed trust market in 1997. This business did not
materially affect the financial results of Forethought or Hillenbrand
Industries in 1998. The life insurance policies sold by Forethought Life
Insurance Company are limited to long-duration, whole-life policies, and, as
such, are accounted for under SFAS No. 97. The benefits under these policies
increase based on external inflationary indices and management's discretion.
Premiums received are allocated to benefit reserves and unearned revenue.
Unearned revenues are recognized over the actuarially determined life of the
contract. Policy acquisition costs, consisting of commissions, policy issue
expense and premium taxes, are deferred and amortized consistently with
unearned revenues. Liabilities equal to policyholder account balances and
amounts assessed against these balances for future insurance charges are
established on the insurance contracts issued by Forethought Life Insurance
Company.
Investments are predominantly U.S. treasuries and agencies and
high-grade corporate bonds with fixed maturities and are carried on the
balance sheet at fair value. The Company's objective is to purchase
investment securities with maturities that match the expected cash outflows
of policy benefit payments. The investment portfolio is constantly monitored
to insure assets match the expected payment of the liabilities. Securities
are also sold in other carefully constrained circumstances such as concern
about the credit quality of the issuer. Otherwise, it is management's intent
that these investments be held to maturity. Cash (unrestricted as to use) is
held for future investment.
In accordance with the provisions of SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," the Company has
classified the investments in debt and equity securities of its insurance
subsidiary as "available for sale" and reported them at fair value on the
balance sheet. Unrealized gains and losses are charged or credited to a
separate component of shareholders' equity and the insurance deferred tax
asset adjusted for the income tax effect. The fair value of each security is
based on the market value provided by brokers/dealers.
The amortized cost and fair value of investment securities available for
sale at November 28, 1998 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 639 $ 17 $ 5 $ 651
Corporate securities 1,274 69 13 1,330
Mutual funds 37 13 - 50
Preferred stocks 3 - - 3
- -------------------------------------------------------------------------------------------------------------------
Total (a) $ 1,953 $ 99 $ 18 $ 2,034
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-42-
<PAGE>
The amortized cost and fair value of investment securities available for
sale at November 29, 1997 were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 645 $ 11 $ 6 $ 650
Corporate securities 1,129 40 5 1,164
Mutual funds 40 13 - 53
Preferred stocks 4 - - 4
- -------------------------------------------------------------------------------------------------------------------
Total (a) $ 1,818 $ 64 $ 11 $ 1,871
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) DOES NOT INCLUDE THE AMORTIZED COST OF OTHER INVESTMENTS CARRIED ON THE
BALANCE SHEET IN THE AMOUNT OF $170 MILLION AT NOVEMBER 28, 1998, AND $63
MILLION AT NOVEMBER 29, 1997, THE CARRYING VALUE OF WHICH APPROXIMATES FAIR
VALUE.
The amortized cost and fair value of investment securities available for
sale at November 28, 1998, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or repay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Amortized Fair
Cost Value
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Due in one year or less $ 38 $ 38
Due after 1 year through 5 years 234 241
Due after 5 years through 10 years 303 310
Due after 10 years 726 770
Mortgage-backed securities 612 622
Mutual funds 37 50
Preferred stocks 3 3
- -------------------------------------------------------------------------------------------------------------------
Total $ 1,953 $ 2,034
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The cost used to compute realized gains and losses is determined by
specific identification. Proceeds and realized gains and losses from the sale of
investment securities available for sale were as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Proceeds $ 345 $ 358 $ 126
Realized gross gains $ 24 $ 12 $ 1
Realized gross losses $ 4 $ 4 $ 1
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Summarized financial information of insurance operations included in the
statement of consolidated income is as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Investment income $ 138 $ 120 $ 104
Earned premium revenue 151 137 115
Net gain on sale of investments 20 8 -
- -------------------------------------------------------------------------------------------------------------------
Total net revenues 309 265 219
Benefits paid 71 63 56
Credited interest 123 111 97
Deferred acquisition costs amortized 39 35 29
Other operating expenses 23 21 13
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 53 $ 35 $ 24
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
-43-
<PAGE>
Statutory data at December 31 includes:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1998 (unaudited) 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Net income $ 35 $ 32 $ 29
Capital and surplus $ 153 $ 144 $ 129
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
13. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TOTAL
1998 QUARTER ENDED 2/28/98 5/30/98 8/29/98 11/28/98 YEAR
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Net revenues $479 $508 $483 $531 $2,001
Gross profit 197 212 193 232 834
Net income 43 45 42 54 184
Basic and diluted
net income per common share .64 .66 .63 .80 2.73
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Total
1997 Quarter Ended 3/01/97 5/31/97 8/30/97 11/29/97 Year
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Net revenues $446 $426 $429 $475 $1,776
Gross profit 184 177 179 205 745
Net income 39 37 35 46 157
Basic and diluted
net income per common share .56 .54 .51 .67 2.28
</TABLE>
14. 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 $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. Accordingly, it has not recorded
any loss provision relative to damages sought by the plaintiffs. 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, among other things, that KCI has attempted
to monopolize the therapeutic bed market, interfere with the Company's and
Hill-Rom's business relationships by conducting a campaign of anticompetitive
conduct, and abused the legal process for its own advantage.
-44-
<PAGE>
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 $5 million. The Company has
provided adequate reserves in its financial statements for these matters.
These reserves have been determined without consideration of possible loss
recoveries from third parties. 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.
15. SUBSEQUENT EVENTS
On December 31, 1998, Forethought Life Insurance Company, a wholly-owned
subsidiary of Forethought Financial Services, Inc., acquired the stock of
Arkansas National Life Insurance Company for a cash payment of $31 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in or disagreements with the independent accountants.
-45-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to executive officers is included in this report as
the last section of Item 1 under the caption "Executive Officers of the
Registrant." Information relating to the directors will appear in the section
entitled "Election of Directors" in the definitive Proxy Statement to be
dated March 5, 1999, and to be filed with the Commission relating to the
Company's 1999 Annual Meeting of Shareholders, which section is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" in the definitive Proxy
Statement dated March 5, 1999, and to be filed with the Commission relating
to the Company's 1999 Annual Meeting of Shareholders, is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Election of Directors" in the definitive Proxy
Statement to be dated March 5, 1999, and to be filed with the Commission
relating to the Company's 1999 Annual Meeting of Shareholders, is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections entitled "About the Board of Directors" and "Compensation
Committee Interlocks and Insider Participation" in the definitive Proxy
Statement to be dated March 5, 1999, and to be filed with the Commission
relating to the Company's 1999 Annual Meeting of Shareholders, are
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) The following documents have been filed as a part of this report
or, where noted, incorporated by reference:
(1) Financial Statements
The financial statements of the Company and its consolidated
subsidiaries listed on the index to Consolidated Financial
Statements on page 21.
(2) Financial Statement Schedules
The financial statement schedule filed in response to Item 8
and Item 14(d) of Form 10-K is listed on the index to
Consolidated Financial Statements on page 21.
-46-
<PAGE>
(3) Exhibits
The following exhibits have been filed as part of this report in
response to Item 14(c) of Form 10-K:
3.1 Form of Restated Certificate of Incorporation of the
Registrant (Incorporated herein by reference to Exhibit 3
filed with Form 10-K for the year ended November 28, 1992)
3.2 Form of Amended Bylaws of the Registrant (Incorporated
herein by reference to Exhibit 3 filed with Form 10-K for
the year ended November 30, 1996)
The following management contracts or compensatory plans or
arrangements are required to be filed as exhibits to this form
pursuant to Item 14 (c) of this report:
10.1 Hillenbrand Industries, Inc. Senior Executive Compensation
Program (Incorporated herein by reference to Exhibit 10
filed with Form 10-K for the year ended December 3, 1994)
10.2 Hillenbrand Industries, Inc. 1996 Stock Option Plan
(Incorporated herein by reference to the definitive Proxy
Statement dated February 28, 1997, and filed with the
Commission relative to the Company's 1997 Annual Meeting of
Shareholders)
10.3 Hillenbrand Industries, Inc. Split Dollar Life Insurance
Plan (Incorporated herein by reference to the definitive
Proxy Statement dated March 5, 1999, and to be filed with
the Commission relative to the Company's 1999 Annual
Meeting of Shareholders)
Other Exhibits
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
(b) There were no reports on Form 8-K filed during the quarter
ended November 28, 1998.
-47-
<PAGE>
SCHEDULE II
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED NOVEMBER 28, 1998, NOVEMBER 29, 1997 AND NOVEMBER 30, 1996
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
ADDITIONS
------------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND OTHER NET OF AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (a) RECOVERIES (b) OF PERIOD
- ---------------------------------- --------- -------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
Reserves deducted from assets
to which they apply:
Allowance for possible losses
and discounts
- accounts receivable:
Year Ended:
November 28, 1998 $ 25 $ 1 $ 13 $ 12 $ 27
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
November 29, 1997 $ 19 $ 1 $ 8 $ 3 $ 25
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
November 30, 1996 $ 20 $ 1 $ - $ 2 $ 19
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
</TABLE>
(a) REDUCTION OF GROSS REVENUES FOR CASH DISCOUNTS AND OTHER ADJUSTMENTS IN
DETERMINING NET REVENUE. ALSO INCLUDES THE EFFECT OF ACQUISITION OF
BUSINESSES.
(b) INCLUDES THE SALE OF BLOCK MEDICAL OPERATION IN 1996.
<TABLE>
<CAPTION>
ADDITIONS
----------------------------
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE
BEGINNING COSTS AND OTHER NET OF AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES OF PERIOD
- ---------------------------------- --------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Allowances for unusual charges:
Year Ended:
November 28, 1998
Inventory $ - $ 3 $ - $ - $ 3
Severance and
Employee Benefit
Costs $ - $ 11 $ - $ 1 $ 10
Other Plant
Closing Costs $ - $ 9 $ - $ 2 $ 7
----------- ----------- ---------- ----------- -----------
$ - $ 23 $ - $ 3 $ 20
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
</TABLE>
-48-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HILLENBRAND INDUSTRIES, INC.
By: /S/ W August Hillenbrand
----------------------------------
W August Hillenbrand
Dated: January 18, 1999 President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
/S/ Daniel A. Hillenbrand /S/ Leonard Granoff
- ----------------------------------------------- ---------------------------
Daniel A. Hillenbrand Leonard Granoff
Chairman of the Board Director
/S/ Donald G. Barger /S/ John C. Hancock
- ----------------------------------------------- ---------------------------
Donald G. Barger John C. Hancock
Vice President and Chief Financial Officer Director
/S/ James D. Van De Velde /S/ W August Hillenbrand
- ------------------------------------------------ ----------------------------
James D. Van De Velde W August Hillenbrand
Vice President and Controller Director
/S/ Lawrence R. Burtschy /S/ George M. Hillenbrand II
- ------------------------------------------------ ----------------------------
Lawrence R. Burtschy George M. Hillenbrand II
Director Director
/S/ Peter F. Coffaro /S/ John A. Hillenbrand II
- ------------------------------------------------ ----------------------------
Peter F. Coffaro John A. Hillenbrand II
Director Director
/S/ Edward S. Davis /S/ Ray J. Hillenbrand
- ------------------------------------------------ ----------------------------
Edward S. Davis Ray J. Hillenbrand
Director Director
Dated: January 18, 1999
-49-
<PAGE>
HILLENBRAND INDUSTRIES, INC.
INDEX TO EXHIBITS
3.1 Form of Restated Certificate of Incorporation of the
Registrant (Incorporated herein by reference to
Exhibit 3 filed with Form 10-K for the year ended
November 28, 1992)
3.2 Form of Amended Bylaws of the Registrant
(Incorporated herein by reference to Exhibit 3 filed
with Form 10-K for the year ended November 30, 1996)
10.1 Hillenbrand Industries, Inc. Senior Executive
Compensation Program (Incorporated herein by
reference to Exhibit 10 filed with Form 10-K for the
year ended December 3, 1994)
10.2 Hillenbrand Industries, Inc. 1996 Stock Option Plan
(Incorporated herein by reference to the definitive
Proxy Statement dated February 28, 1997, and filed
with the Commission relative to the Company's 1997
Annual Meeting of Shareholders)
10.3 Hillenbrand Industries, Inc. Split Dollar Life
Insurance Plan (Incorporated herein by reference to
the definitive Proxy Statement dated March 5, 1999,
and to be filed with the Commission relative to the
Company's 1999 Annual Meeting of Shareholders)
21 Subsidiaries of the Registrant
23 Consent of Independent Accountants
27 Financial Data Schedule
-50-
<PAGE>
EXHIBIT 21
HILLENBRAND INDUSTRIES, INC.
SUBSIDIARIES OF THE REGISTRANT
All subsidiaries of the Company are wholly-owned Indiana corporations, unless
otherwise noted.
Hillenbrand Funeral Services Group, Inc.
Hill-Rom, Inc.
Forethought Financial Services, Inc.
Hillenbrand Industries FSC (Barbados), Inc.,
a Barbados corporation
Hillenbrand Investment Advisory Corporation,
a Delaware corporation
Hillenbrand Properties, Inc.
Sherman House Corporation
Tudor Travel, Inc.
Memory Showcase, Inc.
Sleep Options, Inc.
The Acorn Development Group, Inc.
Subsidiaries of Hillenbrand Funeral Services Group, Inc.
Hillenbrand Funeral Services International, Inc., a Delaware Corporation
Batesville Services, Inc.
I.F.A., Inc.
Subsidiaries of Batesville Services, Inc.
Batesville Casket Company, Inc.
Batesville International Corporation
Batesville Casket de Mexico, S.A. de C.V., a Mexican corporation
Batesville Logistics, Inc.
Batesville Manufacturing, Inc.
Subsidiary of Batesville Casket de Mexico, S.A. de C.V.
Industrias Arga, S.A. de C.V., a Mexican corporation
Subsidiaries of Hill-Rom, Inc.
Hill-Rom Company, Inc.
Air-Shields Holdings, Inc., a Delaware corporation
MEDAES Holdings, Inc., a Georgia corporation
Subsidiaries of Hill-Rom Company, Inc.
PaTMark Company, Inc., a Delaware corporation
Support Systems International, Inc.
Tron Business Systems, Inc., a Nevada corporation
APEX Information Services, Inc.
Hill-Rom NetLinx, Inc.
Jointly owned subsidiary of Hill-Rom, Inc. and Hill-Rom Company, Inc.
Hill-Rom International, Inc., a Delaware corporation
Subsidiaries of Hill-Rom International, Inc.
Support Systems International B.V., a Netherlands corporation
Hill-Rom SARL, a French corporation
MIE Holdings Limited, a United Kingdom corporation
Subsidiary of MIE Holdings Limited
Medical Industrial Equipment Limited, a United Kingdom corporation
(1)
<PAGE>
Subsidiaries of Air-Shields Holdings, Inc.
Hill-Rom Air-Shields Inc., a Delaware corporation
Narco Medical Services, Inc., a Georgia corporation
Subsidiaries of MDEAES Holdings, Inc.
Hill-Rom MDEAES, Inc., a Georgia corporation
MDEAES Limited, a United Kingdom corporation
Subsidiaries of Support Systems International B.V.
SSI Medical Services B.V., a Netherlands corporation
Support Systems International Finance, Ltd., a United Kingdom corporation
Hill-Rom, Spa, an Italian corporation
Hill-Rom A.G., an Austrian corporation
Hillrom S.A., a Switzerland corporation
SSI Leasing and Investments B.V., a Netherland corporation
Systems Investments B.V., a Netherlands corporation
Subsidiary of Support Systems International Finance, Ltd.
SSI Medical Services, Ltd., a United Kingdom corporation
Support Systems International Services, Ltd., a United Kingdom corporation
Jointly owned subsidiary of Support Systems International B.V. and Hill-Rom
International, Inc.
Hill-Rom Holdings GmbH, a German corporation
Subsidiaries of Hill-Rom Holdings GmbH
Hill-Rom Therapy GmbH, a German corporation
Hill-Rom GmbH, a German corporation
Subsidiary of Hill-Rom NetLinx, Inc.
Fisher-Berkeley Corporation, a California corporation
Subsidiaries of Hill-Rom SARL
SSI Industries SARL, a French corporation
Le Couviour, S.A., a French corporation
Hill-Rom B.V., a Netherlands corporation
SCI Le Couviour Immoblier, a French corporation
SCI Port Mirabeau, a French corporation
Subsidiaries of Forethought Financial Services, Inc.
Forethought Life Insurance Company
The Forethought Group, Inc.
Forethought Florida, Inc.
ForeLife Agency, Inc.
Forethought National TrustBank, federally chartered
Forethought Federal Savings Bank, federally chartered
Forethought Investment Management, Inc.
Foresight Association, Inc.
Forethought Life Assurance Company
Subsidiary of Forethought Life Insurance Company
Forethought Properties, Inc.
Arkansas National Life Insurance Company, an Arkansas company
Jointly owned subsidiary of Batesville International Corporation,
Hill-Rom Company, Inc., Hill-Rom, Inc., and Hill-Rom Air-Shields, Inc.
Hillenbrand Industries Canada, Ltd., an Ontario (Canada) corporation
Subsidiaries of Hillenbrand Properties, Inc.
Cutler Property, Inc.
Old Brick Property, Inc.
(2)
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-49669) of Hillenbrand Industries, Inc. of our
report dated January 11, 1999 appearing on page 22 of this Form 10-K.
PricewaterhouseCoopers LLP
Indianapolis, Indiana
February 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED UNDER ITEM 8 OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 28, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-28-1998
<PERIOD-START> NOV-30-1997
<PERIOD-END> NOV-28-1998
<CASH> 297
<SECURITIES> 0
<RECEIVABLES> 392
<ALLOWANCES> 27
<INVENTORY> 105
<CURRENT-ASSETS> 858
<PP&E> 920
<DEPRECIATION> 618
<TOTAL-ASSETS> 4,280
<CURRENT-LIABILITIES> 375
<BONDS> 303
0
0
<COMMON> 4
<OTHER-SE> 948
<TOTAL-LIABILITY-AND-EQUITY> 4,280
<SALES> 1,289
<TOTAL-REVENUES> 2,001
<CGS> 709
<TOTAL-COSTS> 1,167
<OTHER-EXPENSES> 606
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 293
<INCOME-TAX> 109
<INCOME-CONTINUING> 184
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 184
<EPS-PRIMARY> 2.73
<EPS-DILUTED> 2.73
</TABLE>
