<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED FEBRUARY 27, 1999 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)
(812) 934-7000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former
fiscal year, if changed since last report)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes x No
--- ---
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Common Stock, without par value - 66,368,190 as of April 1, 1999.
===============================================================================
1
<PAGE>
HILLENBRAND INDUSTRIES, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Income for the Three Months 3
Ended 2/27/99 and 2/28/98
Consolidated Balance Sheets at 4
2/27/99 and 11/28/98
Consolidated Cash Flows for the Three Months 5
Ended 2/27/99 and 2/28/98
Notes to Consolidated Financial Statements 6-10
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11-15
PART II - OTHER INFORMATION
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Income
<TABLE>
<CAPTION>
Three Months Ended
--------------------
02/27/99 02/28/98
-------- --------
(In Millions Except Per Share Data)
<S> <C> <C>
Net revenues:
Health Care sales ................................ $ 177 $ 146
Health Care rentals .............................. 93 108
Funeral Services sales ........................... 161 148
Insurance revenues ............................... 85 77
-------- --------
Total revenues ................................... 516 479
Cost of revenues:
Health Care cost of goods sold ................... 102 86
Health Care rental expenses ...................... 61 62
Funeral Services cost of goods sold .............. 83 77
Insurance cost of revenues ....................... 62 57
-------- --------
Total cost of revenues ........................... 308 282
Other operating expenses .................................. 133 125
-------- --------
Operating profit .......................................... 75 72
Interest expense .......................................... (7) (7)
Investment income ......................................... 4 5
Other income (expense), net ............................... (1) (1)
-------- --------
Income before income taxes ................................ 71 69
Income taxes .............................................. 26 26
-------- --------
Net income ................................................ $ 45 $ 43
-------- --------
-------- --------
Basic and diluted earnings
per common share (Note 3) ............................... $ .67 $ .64
-------- --------
-------- --------
Dividends per common share ................................ $ .195 $ .180
-------- --------
-------- --------
Average shares outstanding (thousands) .................... 66,878 67,535
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
Hillenbrand Industries, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS 02/27/99 11/28/98
-------- --------
(In Millions)
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................................... $ 296 $ 297
Trade receivables .............................................................. 405 392
Inventories .................................................................... 117 105
Other .......................................................................... 68 64
------- -------
Total current assets .......................................................... 886 858
Equipment leased to others, net .................................................. 80 81
Property, net .................................................................... 215 221
Other assets:
Intangible assets, net ......................................................... 189 198
Other .......................................................................... 95 89
------- -------
Total other assets ............................................................ 284 287
Insurance assets:
Investments .................................................................... 2,207 2,204
Deferred policy acquisition costs .............................................. 545 536
Deferred income taxes .......................................................... 53 34
Other .......................................................................... 69 59
------- -------
Total insurance assets ........................................................ 2,874 2,833
------- -------
Total assets ..................................................................... $ 4,339 $ 4,280
------- -------
------- -------
LIABILITIES
Current liabilities:
Short-term debt ................................................................ $ 60 $ 60
Current portion of long-term debt .............................................. 1 1
Trade accounts payable ......................................................... 69 69
Other .......................................................................... 225 245
------- -------
Total current liabilities ..................................................... 355 375
Other liabilities:
Long-term debt ................................................................. 303 303
Other long-term liabilities .................................................... 90 86
Deferred income taxes .......................................................... 2 4
------- -------
Total other liabilities ....................................................... 395 393
Insurance liabilities:
Benefit reserves ............................................................... 1,940 1,856
Unearned revenue ............................................................... 683 674
Other .......................................................................... 34 30
------- -------
Total insurance liabilities ................................................... 2,657 2,560
------- -------
Total liabilities ................................................................ 3,407 3,328
------- -------
Commitments and contingencies (Note 5)
SHAREHOLDERS' EQUITY
Common stock ................................................................... 4 4
Additional paid-in capital ..................................................... 17 15
Retained earnings .............................................................. 1,252 1,221
Accumulated other comprehensive income (Note 4) ................................ 11 45
Treasury stock ................................................................. (352) (333)
------- -------
Total shareholders' equity .................................................... $ 932 $ 952
------- -------
Total liabilities and
shareholders' equity ............................................................ $ 4,339 $ 4,280
------- -------
------- -------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
Hillenbrand Industries, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Consolidated Cash Flows Three Months Ended
------------------
02/27/99 02/28/98
-------- --------
(In Millions)
<S> <C> <C>
Operating activities:
Net income .................................. $ 45 $ 43
Adjustments to reconcile net income
to net cash flows from operating activities:
Depreciation and amortization ............. 22 25
Change in noncurrent deferred
income taxes ............................ (2) (6)
Change in net working capital,
excluding cash, current debt and
acquisitions ............................ (48) (58)
Change in insurance items:
Deferred policy acquisition costs ........ (9) (16)
Other insurance items, net ............... 14 21
Other, net ................................ 18 7
----- -----
Net cash provided by operating activities ..... 40 16
----- -----
Investing activities:
Capital expenditures, net ................... (21) (21)
Acquisitions of businesses, net of cash
acquired .................................. (31) (159)
Insurance investments:
Purchases ................................. (268) (154)
Proceeds on maturities .................... 113 32
Proceeds on sales ......................... 176 77
----- -----
Net cash used in investing activities.......... (31) (225)
----- -----
Financing activities:
Additions (reductions) to debt, net ......... -- 101
Payment of cash dividends ................... (13) (12)
Treasury stock acquisitions ................. (21) (42)
Insurance premiums received ................. 106 128
Insurance benefits paid ..................... (81) (78)
----- -----
Net cash (used) provided by financing
activities ................................... (9) 97
----- -----
Effect of exchange rate changes on cash ....... (1) (1)
----- -----
Total cash flows .............................. (1) (113)
Cash and cash equivalents:
At beginning of period ....................... 297 364
----- -----
At end of period ............................. $ 296 $ 251
----- -----
----- -----
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
Hillenbrand Industries, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in millions except per share data)
1. Basis of Presentation
The unaudited, condensed consolidated financial statements appearing in
this quarterly report on Form 10-Q should be read in conjunction with the
financial statements and notes thereto included in the Company's latest
annual report. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The
statements herein have been prepared in accordance with the Company's
understanding of the instructions to Form 10-Q. In the opinion of
management, such financial statements include all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the
financial position, results of operations, and cash flows, for the interim
periods.
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
2. Supplementary Balance Sheet Information
The following information pertains to non-insurance assets and consolidated
shareholders' equity:
<TABLE>
<CAPTION>
02/27/99 11/28/98
-------- --------
<S> <C> <C>
Allowance for possible losses and
discounts on trade receivables ...... $ 27 $ 27
Accumulated depreciation of equipment
leased to others and property ....... $ 619 $ 618
Accumulated amortization of intangible
assets .............................. $ 149 $ 150
Capital Stock:
Preferred stock, without par value:
Authorized 1,000,000 shares;
Shares issued ............... None None
Common stock, without par value:
Authorized 199,000,000 shares;
Shares issued ............... 80,323,912 80,323,912
</TABLE>
6
<PAGE>
3. Earnings per Common Share
Basic earnings per common share were computed by dividing net income by the
average number of common shares outstanding including the effect of
contingently issuable shares awarded under the Company's Senior Executive
Compensation Program. Diluted earnings per common share were computed
consistent with the basic earnings per share calculation including the
effect of dilutive potential common shares. Potential common shares
arising from shares awarded under the Company's various stock-based
compensation plans, including the 1996 Stock Option Plan, did not have a
material dilutive effect on basic and diluted earnings per common share in
the first quarter of 1999 and all prior periods. Cumulative treasury stock
acquired of 15,602,593 shares, less cumulative shares reissued of
1,644,729, have been excluded in determining the average number of shares
outstanding during each period.
Earnings per share is calculated as follows:
<TABLE>
<CAPTION>
Three Months Ended
02/27/99 02/28/98
-------- --------
<S> <C> <C>
Net income (in thousands) $ 44,742 $ 42,908
Average shares outstanding 66,877,713 67,535,131
Basic and diluted earnings per
common share $ .67 $ .64
</TABLE>
4. Comprehensive Income
As of November 29, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income". The
adoption of this standard did not affect the Company's financial position
or results of operations. SFAS No. 130 requires unrealized gains or losses
on the Company's available-for-sale securities and foreign currency
translation adjustments, which prior to adoption were reported separately
in shareholders' equity, to be included in other comprehensive income. Due
to this change, certain balance sheet reclassifications have been made in
order for previously reported amounts to conform to SFAS No. 130.
The components of comprehensive income are as follows (in millions):
<TABLE>
<CAPTION>
Three Months Ended
02/27/99 02/28/98
-------- --------
<S> <C> <C>
Net income $ 45 $ 43
Net change in unrealized gain (loss)
on available-for-sale securities (37) 7
Foreign currency translation adjustment 3 (5)
---- ----
Comprehensive income $ 11 $ 45
---- ----
---- ----
</TABLE>
7
<PAGE>
The composition of accumulated other comprehensive income at February 27,
1999 and November 28, 1998 is the cumulative adjustment for unrealized
gains or losses on available-for-sale securities of $15 and $52 million,
respectively, slightly offset by the foreign currency translation
adjustment of $4 and $7 million, respectively.
5. Contingencies
As discussed under Item 3 of the Company's Annual Report on Form 10-K for
the fiscal year ended November 28, 1998, Hillenbrand Industries, Inc., and
its subsidiary Hill-Rom Company, Inc., are the subject of an antitrust suit
brought by Kinetic Concepts, Inc. (KCI) in the health care equipment
market. The plaintiff seeks monetary damages totaling in excess of $269
million, trebling of any damages that may be allowed by the court, and
injunctions to prevent further alleged unlawful activities. The Company
believes that the claims are without merit and is aggressively defending
itself against all allegations. Accordingly, it has not recorded any loss
provision relative to damages sought by the plaintiffs. There was no
material change in the status of this litigation during the quarter ended
February 27, 1999.
On November 20, 1996, the Company filed a Counterclaim to the above action
against KCI in the U.S. District Court in San Antonio, Texas. The
Counterclaim alleges that KCI has attempted to monopolize the therapeutic
bed market and to interfere with the Company's and Hill-Rom's business
relationships by conducting a campaign of anticompetitive conduct. It
further alleges that KCI abused the legal process for its own advantage,
interfered with existing Hill-Rom contractual relationships, interfered
with Hill-Rom's prospective contractual and business relationships,
commercially disparaged the Company and Hill-Rom by uttering and publishing
false statements to customers and prospective customers not to do business
with the Company and Hill-Rom, and committed libel and slander in
statements made both orally and published by KCI that the Company and
Hill-Rom were providing illegal discounts. The Company alleges that KCI's
intent is to eliminate legal competitive marketplace activity. There was
no material change in the status of this litigation during the quarter
ended February 27, 1999.
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.
8
<PAGE>
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.
6. Acquisitions
On December 31, 1998, the Company's subsidiary, Forethought Life
Insurance Company, a wholly-owned subsidiary of Forethought Financial
Services, Inc., acquired the stock of Arkansas National Life Insurance
Company for approximately $31 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
was approximately $3 million which is being amortized on a straight-line
basis over 20 years. Unaudited fiscal 1998 and year-to-date 1999 pro
forma revenue, net income and earnings per share would not have been
materially different from reported amounts.
7. Restructuring Charges and Impairment of Assets
In August 1998, the Board of Directors of the Company approved a plan to
restructure Hill-Rom's direct and support operations in Germany and Austria
to permit the Company to more efficiently meet the needs of its customers
and improve profitability. Under the plan, the Company will reduce fixed
costs and align manufacturing, distribution, sales and administrative
functions with anticipated demand. The alignment will result in the
closure of manufacturing facilities in Germany and Austria and the
relocation of certain manufacturing and business processes to other
European locations.
The restructuring plan necessitated the provision of a $70 million asset
impairment and restructuring charge in 1998. The non-cash component of the
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. The plan also included additional charges for severance and
employee benefit costs of $10 million and other estimated plant closing
costs of $7 million.
9
<PAGE>
As of February 27, 1999, manufacturing operations have been discontinued in
Germany. The Austrian manufacturing operations are expected to be
discontinued in the second quarter of 1999. Approximately $7 million in
severance and employee benefit costs and $1 million in other plant closing
costs were incurred in the first quarter of 1999. No adjustments were made
to reserves in the first quarter. The remaining reserve balances as of
February 27, 1999 are as follows:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
Inventory $3
Severance and Employee
Benefit Costs $3
Other Plant Closing
Costs $6
</TABLE>
The Company expects substantially all employee related costs associated
with the restructuring 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 nine months, but
could take longer.
8. Subsequent Events
On March 30, 1999, Batesville Casket Company, a wholly-owned subsidiary,
announced the planned closing of its Campbellsville, Kentucky casket
manufacturing plant. The closing, which should occur late in the second
quarter of 1999, is expected to result in a second quarter pre-tax charge
of approximately $8 to $11 million. Future Campbellsville production will
be transferred to existing manufacturing facilities located in Batesville,
Indiana and Manchester, Tennessee.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
Consolidated revenues of $516 million increased $37 million, or 8%, compared
to the first quarter of 1998. Health Care sales grew $31 million or 21%
primarily due to increased shipments of the TotalCare(R) bed combined with
increased unit shipments across nearly all business units and inclusion of
MEDAES Holdings, Inc., which was acquired late in the first quarter of 1998,
for a whole quarter. The impact of excluding the effect of Medeco Security
Locks, Inc., which was sold in the third quarter of 1998, and the sales
effect from MEDAES Holdings, Inc., had no material effect on the increase in
Health Care sales. European Health Care sales decreased marginally,
including currency adjustments, due primarily to the discontinuance of
certain products associated with the realignment and restructuring of
European manufacturing operations. Health Care rental revenue decreased $15
million or 14% due mainly to the change in Medicare Part A patient
reimbursement practices in the U.S. long-term care market. The U.S.
long-term care business unit experienced unfavorable changes in product mix
and volume. The acute care, home care and European markets showed growth
over the first quarter of 1998. Funeral Service sales were up $13 million,
or 9%, over 1998 to $161 million. This increase was due to increased unit
volume and market penetration of traditional caskets and cremation products.
The Company also introduced new metal and wood caskets. Funeral Service
insurance revenues increased 10%, or $8 million to $85 million. Earned
premium revenue increased due to increased policies in force year over year,
and higher investment income reflected the larger investment portfolio.
Capital gains were up marginally year over year.
Gross profit on Health Care sales increased to $75 million compared to $60
million in 1998, a 25% increase. As a percentage of sales, Health Care gross
profit was 42.4% compared to 41.1% in the first quarter of 1998. 1998 first
quarter gross profit was affected by start-up costs associated with early
shipments of the TotalCare(R) bed and the inclusion of lower margin
Air-Shields products among other things. Gross profit on rental revenues
decreased $14 million, or 30%, to $32 million and as a percentage of revenues
declined from 42.6% to 34.4% primarily due to the change in Medicare Part A
reimbursement practices as described above. Gross profit on Funeral Services
sales grew $7 million, or 10%, to $78 million. As a percentage of sales it
increased from 48.0% to 48.4% due to increased sales and good cost control.
Funeral Services insurance operating profit of $11 million increased $1 million
or 10% from the first quarter of 1998 due to the revenue factors discussed above
and continued cost control.
11
<PAGE>
Other operating expenses (including insurance operations) increased $8 million,
or 6%, to $133 million and as a percentage of revenues were 25.8% versus 26.1%
in the first quarter of 1998. Higher commissions on increased sales volume and
the inclusion of expenses related to acquired companies was somewhat offset by
continued cost control and process improvement throughout the Company.
The consolidated effective income tax rate was 37.0% in the first quarter of
1999 compared to 37.7% in the first quarter of 1998. The decrease is mainly due
to decreased state tax expense.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities and selected borrowings represent the
Company's primary sources of funds for growth of the business, including capital
expenditures and acquisitions. Cash and cash equivalents (excluding investments
of insurance operations) at February 27, 1999 of $296 million decreased $1
million from November 28, 1998. Net cash generated by operating activities of
$40 million in the first quarter was $24 million more than the first quarter of
1998. Working capital increased $48 million from year-end which is mainly due
to increases in inventory and accounts receivable and a decrease in other
current liabilities. The inventory increase of $12 million relates primarily to
the build-up of inventory to normal levels after a heavy shipping period near
the end of fiscal 1998, and the increase of $13 million in accounts receivable
is primarily due to increased sales volume. The $20 million decrease in other
current liabilities is due to payments made in the first quarter on various
items accrued at year end, including 1998 incentive compensation and other
operating expenses driven by high fourth quarter production and sales levels.
Capital expenditures remained unchanged compared to the first quarter of 1998.
In the first quarter, Forethought Life Insurance Company, a wholly-owned
subsidiary of Forethought Financial Services, Inc., acquired Arkansas National
Life Insurance Company (see Note 6 for more information). Included in the
acquisition of Arkansas National Life Insurance Company were investments of
approximately $80 million and approximately $54 million of benefit reserves.
The activity in Forethought's investment portfolio reflects the objective of
matching proceeds with expected policy benefit payments while maximizing yields
within statutory and management constraints.
In financing activities, treasury stock acquisitions of $21 million consisted of
purchases on the open market. Insurance premiums received were $22 million
below the first quarter of 1998 due to fewer trust rollovers and policy sales.
The decrease in policy sales is due to slowed growth as Forethought's entry into
targeted jurisdictions is nearly complete and due to increased competition.
FACTORS THAT MAY AFFECT FUTURE RESULTS
As discussed in the Company's latest annual report, legislative changes phased
in beginning July 1, 1998 will have a dampening effect on the Company's rental
revenue derived from Medicare patients in the long-term care market.
12
<PAGE>
RESTRUCTURING CHARGES AND IMPAIRMENT OF ASSETS
In August 1998, the Board of Directors of the Company approved a plan to
restructure Hill-Rom's direct and support operations in Germany and Austria
to permit the Company to more efficiently meet the needs of its customers and
improve profitability. Under the plan, the Company will reduce fixed costs
and align manufacturing, distribution, sales and administrative functions
with anticipated demand. The alignment will result in the closure of
manufacturing facilities in Germany and Austria and the relocation of certain
manufacturing and business processes to other European locations.
The restructuring plan necessitated the provision of a $70 million asset
impairment and restructuring charge in 1998. The non-cash component of the
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. The plan also included additional charges for severance and
employee benefit costs of $10 million and other estimated plant closing costs
of $7 million.
As of February 27, 1999, manufacturing operations have been discontinued in
Germany. The Austrian manufacturing operations are expected to be
discontinued in the second quarter of 1999. Approximately $7 million in
severance and employee benefit costs and $1 million in other plant closing
costs were incurred in the first quarter of 1999. No adjustments were made
to the reserves in the first quarter. The remaining reserve balances as of
February 27, 1999 are as follows:
<TABLE>
<CAPTION>
(In millions)
<S> <C>
Inventory $3
Severance and Employee
Benefit Costs $3
Other Plant Closing
Costs $6
</TABLE>
The Company expects substantially all employee related costs associated with
the restructuring 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 nine months, but could take longer.
13
<PAGE>
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 embedded 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.
THE COMPANY'S STATE OF READINESS
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. To the best of the Company's
knowledge, this phase has been completed.
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 second 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 end
of 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 end of 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.
14
<PAGE>
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. To the best of the
Company's knowledge, all affected non-information technology based systems have
been identified, 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 has been completed to
the best of the Company's knowledge, 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 and assessment of areas of potential third party risk is
nearly complete and, for those areas identified to date, remediation plans
are being developed. 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 $8 million and will consist primarily of the utilization
of internal resources. Spending to date totals approximately $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.
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 is nearly complete, and
contingency plans should be completed in the third quarter.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
This report contains certain forward-looking statements which are based on
management's current views and assumptions regarding future events and
financial performance. These statements are qualified by reference to
"Disclosure Regarding Forward-Looking Statements" in Part II of the Company's
Annual Report on Form 10-K for the fiscal year ended November 28, 1998 which
lists important factors that could cause actual results to differ materially
from those discussed in this report.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
A. Exhibits
<S><C> <C>
Exhibit 10.1 Hillenbrand Industries, Inc.
Senior Executive Compensation
Program as amended and restated on
January 18, 1999
Exhibit 10.2 Hillenbrand Industries, Inc.
1996 Stock Option Plan as amended
and restated on January 19, 1999
Exhibit 27 Financial Data Schedule
</TABLE>
B. Reports on Form 8-K
There were no reports filed on Form 8-K during the first quarter
ended February 27, 1999.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HILLENBRAND INDUSTRIES, INC.
DATE: April 5, 1999 BY: /S/ Donald G. Barger, Jr.
----------------------------------------
Donald G. Barger, Jr.
Vice President and
Chief Financial Officer
DATE: April 5, 1999 BY: /S/ James D. Van De Velde
----------------------------------------
James D. Van De Velde
Vice President and Contoller
17
<PAGE>
EXHIBIT 10.1
HILLENBRAND INDUSTRIES, INC.
SENIOR EXECUTIVE COMPENSATION PROGRAM
ARTICLE I
PURPOSE - The purpose of this Program is to reward the creation of long term
shareholder value by providing incentive compensation, perquisite and other
compensation to a limited number of senior, key executives of Hillenbrand
Industries, Inc., and its subsidiaries, who contribute by their imagination,
resourcefulness, skills and insight to the business objectives of the
Corporation.
ARTICLE II
DEFINITIONS:
1. "Program" means the Senior Executive Compensation Program which consists of
the following components:
- Short-term Incentive Compensation
- Performance Share Compensation
- Perquisite Compensation
- Deferred Compensation
- Supplemental Pension
<PAGE>
2. "Corporation" means Hillenbrand Industries, Inc., an Indiana corporation,
and its subsidiaries.
3. "Corporate" means Hillenbrand Industries, Inc., as a corporate holding
company and does not include subsidiaries.
4. "Subsidiary" means an operating company unit of which a majority equity
interest is owned directly or indirectly by the Corporation.
5. "Board of Directors" or "Board" means the Board of Directors of Hillenbrand
Industries, Inc.
6. "Committee" means the Performance Compensation Committee appointed to
administer the Program. "Sub-Committee" means the sub-committee of the
Performance Compensation Committee appointed to establish and administer
the Performance Base and Target (performance goals) for Incentive
Compensation and shareholder value goals (performance goals) for
Performance Share Compensation.
7. "Office of the President" means the Office of the President of Corporate.
8. "Participant" means a key employee selected for participation in the
Program pursuant to Article IV.
-2-
<PAGE>
9. "Incentive Compensation" means the short term Incentive Compensation as
provided in Article V.
10. "Performance Share Compensation" means the long term Performance Share
Compensation as provided in Article VI.
11. "Perquisite Compensation" means the Perquisite Compensation as provided in
Article VII.
12. "Deferred Compensation" means the Deferred Compensation arrangement as
provided in Article VIII.
13. "Supplemental Pension" means Supplemental Pension as provided in Article
IX.
14. "Base Salary" means the annual calendar earnings of a Participant including
salary as reported for federal income tax purposes, but excluding all bonus
payments of any kind, commissions, incentive compensation, long term
performance compensation, perquisites and other forms of additional
compensation.
15. "Disability" means a physical or mental disability by reason of which a
Participant is determined by the Office of the President or its delegate,
to be eligible (except for the waiting period) for permanent disability
benefits under Title II of the Federal Social Security Act.
-3-
<PAGE>
ARTICLE III
ADMINISTRATION - Full power and authority to construe, interpret, and administer
the Program, with the exception of establishing and administering performance
goals, is vested in the Committee. The Sub-Committee has full power to
establish, administer and certify performance goals related to Incentive
Compensation and Performance Share Compensation. Their decisions are final,
conclusive and binding upon all parties, including the Corporation, the
shareholders thereof, and the Participants. The Committee and the Sub-Committee
may rely upon recommendations of the Office of the President or the Chief
Executive Officer in approving financial and non-financial goals recommended to
it.
ARTICLE IV
PARTICIPATION - Selection of key employees for participation for each of the
components of compensation contemplated by the Program are set forth in Articles
V, VI, VII, and VIII.
ARTICLE V
INCENTIVE COMPENSATION - The purpose of Incentive Compensation is to provide
financial recognition to Participants, the amount of which is determined by the
attainment of annual financial and/or non-financial goals.
-4-
<PAGE>
1. PARTICIPANTS - Participation in Incentive Compensation by members of the
Office of the President and Corporate Vice Presidents shall be determined
by the Committee. Other Participants in Incentive Compensation shall be
determined by the Office of the President pursuant to recommendation from
the Chief Executive Officer of Corporate, or if an employee of a
Subsidiary, by the Chief Executive Officer thereof.
2. ESTABLISHMENT OF PERFORMANCE BASE AND TARGET - A Performance Base and
Target for members of the Office of the President and Corporate Vice
Presidents as a group shall be recommended by the Chief Executive Officer
of Corporate and approved by the Sub-Committee. The Performance Base and
Target for each Participant who is a Chief Executive Officer of a
Subsidiary shall be approved by the Office of the President. The
Performance Base and Target for other Corporate Participants and other
Subsidiary Participants shall be established and approved by the Office of
the President and the Chief Executive Officer of each Subsidiary,
respectively. The Performance Base and Target shall be established
annually for Corporate and each Subsidiary and will be communicated to each
Participant. The Performance Base and Target for members of the Office of
the President and Corporate Vice Presidents shall be directly related to
the return on shareholder equity of the Corporation or as otherwise
determined by the Sub-Committee. The Performance Base and Target for other
Participants shall include both financial and non-financial measures and
shall reflect accomplishment of tactical and strategic plans of each
Subsidiary.
-5-
<PAGE>
3. COMPUTATION OF INCENTIVE COMPENSATION - Incentive Compensation opportunity
is established as follows:
CLASS OF PARTICIPANT INCENTIVE COMPENSATION OPPORTUNITIES
Office of the President 60% of Base Salary
Chief Executive Officer of 50% of Base Salary
Subsidiary
Corporate or Subsidiary 40% of Base Salary
Senior Executive
Other Executive 30% of Base Salary
Attainment of the Performance Base shall result in Incentive Compensation
of a predetermined percentage from 0% to 50% of the above incentive
compensation opportunity. If the Performance Target is met or exceeded,
Incentive Compensation of a predetermined percentage from 150% to 300% of
the above incentive compensation opportunity will be paid. Achievement of
results between Performance Base and Target will generate incentive
compensation calculated according to a predetermined pro-rata method. The
various determinations are recommended by the Office of the President and
approved by the Sub-Committee.
-6-
<PAGE>
4. PAYMENT OF INCENTIVE COMPENSATION - At the end of each fiscal year,
Incentive Compensation for each Participant shall be calculated pursuant to
paragraph 3 above. Attainment of financial and non-financial goals for
those Participants shall be considered in calculation of Incentive
Compensation pertaining thereto. In no event shall Incentive Compensation
be more than the value established pursuant to paragraph 3 above.
Incentive Compensation shall be due and payable in cash after forty (40)
days but within seventy-five (75) days after the end of the fiscal year;
except that all or a portion thereof may be deferred pursuant to the
Deferred Compensation arrangement set forth in Article VIII. The Sub-
Committee will certify in writing that performance goals were attained
prior to payout.
5. TERMINATION - Termination of a Participant's employment for reasons other
than death, Disability or normal or early retirement shall terminate any
non-deferred Incentive Compensation. Termination because of death,
Disability or normal or early retirement shall result in a pro-ration of
Incentive Compensation based on the number of months employed out of the
fiscal year of termination.
ARTICLE VI
PERFORMANCE SHARE COMPENSATION - The purpose of Performance Share Compensation
is to reward Participants for the creation of value for the shareholders of
Corporate over continuing three year periods.
-7-
<PAGE>
1. PARTICIPANTS - Members of the Office of the President shall be Participants
in Performance Share Compensation as approved by the Committee. Other
Participants in Performance Share Compensation shall be determined by the
Committee, pursuant to the recommendation of the Chief Executive Officer of
Corporate, or if an employee of a Subsidiary other than the Chief Executive
Officer thereof, by the Chief Executive Officer thereof.
2. DETERMINATION OF TENTATIVE AWARD - On the first day of each fiscal year
tentative Performance Share Compensation (Tentative Award) shall be
determined for each Participant. The Tentative Award shall be the quotient
obtained by dividing (a) the product of the Participant's Base Salary and
the salary factor set forth in the following table by (b) the Average
Annual Share Price.
<TABLE>
<CAPTION>
<S> <C>
CLASS OF PARTICIPANT SALARY FACTORY
Office of the President .50
Subsidiary Chief Executive Officer .45
Corporate or Subsidiary .30
Senior Executive
Other Executive .20
</TABLE>
-8-
<PAGE>
The Average Annual Share Price shall be determined by averaging the closing
price of the common stock of Corporate on the last trading date of each
fiscal quarter of the preceding fiscal year. The Tentative Award thus
determined shall be expressed in terms of a number of shares of common
stock of Corporate rounded to the next highest whole share.
3. PERFORMANCE SHARE PERIOD - A performance share period ("Period") shall
begin on the first day of each fiscal year and shall include the next three
(3) consecutive fiscal years.
4. DETERMINATION OF PERFORMANCE SHARE COMPENSATION - Shareholder value created
by the Corporation shall be the basis for determining payout of Performance
Share Compensation for Corporate Participants. At the beginning of each
Period the Sub-Committee, based on recommendations from the Office of the
President, shall approve goals, including a base goal, a target goal and a
200% achievement goal for the creation of shareholder value to be achieved
during the Period for the Corporation. Such goals shall be communicated to
the Corporate Participants.
Shareholder value created by each Subsidiary or other goals shall be the
basis for determining Performance Share Compensation for Subsidiary
Participants. At the beginning of each Period the Sub-Committee, based on
recommendations from the Office of the President, shall approve goals,
including a base goal, a target goal and a 200% achievement goal
-9-
<PAGE>
for the shareholder value or other goals to be achieved during the Period
for each Subsidiary. Such goals shall be communicated to the Subsidiary
Participants.
5. CALCULATION OF PERFORMANCE SHARE COMPENSATION - At the end of each Period,
Performance Share Compensation shall be calculated for each Participant.
If the shareholder value created equals or is greater than the base goal,
Performance Share Compensation shall be calculated by multiplying the
Tentative Award by a fraction, the numerator of which is the actual
shareholder value created for the Corporation less the base goal and the
denominator of which is the target goal less the base goal. If the actual
shareholder value created is greater than the target goal, but less than
the 200% achievement goal, Performance Share Compensation shall be
calculated by multiplying the Tentative Award by the sum of: (a) one (1),
and (b) the product obtained by multiplying one (1) times a fraction the
numerator of which is the actual shareholder value created less the target
goal and the denominator of which is the 200% achievement goal less the
target goal. If the actual shareholder value equals or exceeds the 200%
achievement goal, the Award shall be calculated by multiplying the
Tentative Award by two (2).
6. PAYMENT OF THE PERFORMANCE SHARE COMPENSATION - Shares of common stock of
Corporate representing Performance Share Compensation shall be delivered to
the Participant within a reasonable time after Performance Share
Compensation is determined but not
-10-
<PAGE>
sooner than forty (40) days after the end of the Period and not later than
seventy-five (75) days thereafter; except that all or a portion thereof
may be deferred pursuant to the Deferred Compensation arrangement set
forth in Article VIII. The Sub-Committee will certify in writing that
performance goals were attained prior to payment.
7. TERMINATION - Termination of a Participant's employment for reasons other
than death, Disability or normal or early retirement shall terminate any
non-deferred Performance Share Compensation. Termination of a
Participant's employment by reason of death, Disability or normal or early
retirement shall result in a reduction of Performance Share Compensation by
multiplying Performance Share Compensation by a fraction the numerator of
which is the number of fiscal year full months occurring between the
establishment of a Tentative Award and such termination, and the
denominator of which is 36.
ARTICLE VII
PERQUISITE COMPENSATION - The purpose of Perquisite Compensation is to provide
Participants with certain benefits to aid such Participants in carrying out
their duties, to help provide for their well being, and to create the potential
for added long term financial security.
1. PARTICIPANTS - Office of the President, Chief Executive Officer of
Subsidiaries and Corporate and Subsidiary Senior Executives shall be
eligible for Perquisite Compensation.
-11-
<PAGE>
2. PERQUISITE COMPENSATION - Perquisite Compensation shall not exceed ten
percent (10%) of the Base Salary of a Participant subject to such other
limits as may be imposed on Participants who constitute the Office of the
President and Corporate Vice Presidents by the Committee or on other
Participants by the Chief Executive Officer. A variety of perquisite
options shall be determined by the Chief Executive Officer from time to
time and communicated to the Participants, except that any perquisite
option involving the purchase of common stock of Corporate subject to the
approval of the Committee.
3. CARRYOVERS - Perquisite Compensation is available during the fiscal year
during which it is earned. Balances from one fiscal year shall be carried
forward to the succeeding fiscal year only. Amounts carried forward to the
succeeding fiscal year and not spent shall be forfeited.
ARTICLE VIII
DEFERRED COMPENSATION - The purpose of Deferred Compensation is to provide
voluntary and mandatory deferral of portions of compensation paid to a
Participant by the Corporation.
1. PARTICIPANTS - Participants deferring compensation shall execute a Deferred
Compensation Agreement (the "Agreement") with Corporate outlining their
various rights, duties and obligations thereunder.
-12-
<PAGE>
2. ELECTION TO DEFER COMPENSATION - DEFERRAL PERIOD - A Participant may elect
to defer all or any portion of Base Salary, Incentive Compensation,
Performance Share Compensation and Perquisite Compensation. A
Participant's written election to defer any compensation must be made
before the beginning of the period of service, ordinarily a fiscal year,
during which such compensation would otherwise be paid. The election must
state the duration of the deferral period, and shall be irrevocable.
3. DEFERRALS OF BASE SALARY, INCENTIVE COMPENSATION AND PERQUISITE
COMPENSATION - (a) When earned, amounts deferred from a Participant's Base
Salary, Incentive Compensation and Perquisite Compensation shall be
credited, but not paid, to an account in the name of the Participant and
shall accrue interest credited monthly at the end of each of the
Corporation's fiscal months at a rate which is equal to the monthly prime
interest rate (determined as of the first day of each month) charged by the
Corporation's principal bank, or, at the election of the Committee,
Participant's selected by the Committee may be credited at such other rate
or rates as may be determined by the Committee. At the end of the deferral
period payment shall be made in cash. (b) In the alternative, a
Participant may elect that Incentive Compensation amounts deferred, when
earned shall be credited, but not paid, to an account in the name of the
Participant which shall be assumed to be invested in the common stock of
Corporate, at the then current market price. Dividends, stock dividends,
stock splits and other rights inuring to the common stock of Corporate
which would be normally payable thereon shall be assumed to be reinvested
in the common stock of Corporate at the market value on
-13-
<PAGE>
the date of assumed payment. Such election shall be made prior to the
period during which the amount is earned and, once made, shall be
irrevocable. At the end of the deferral period payment shall be made in
shares of common stock of Corporate.
4. DEFERRALS OF PERFORMANCE SHARE COMPENSATION - (a) When due and payable,
amounts deferred from Performance Share Compensation will be credited, but
not paid, to an account in the name of the Participant which shall be
assumed to be invested in the common stock of Corporate. Dividends, stock
dividends, stock splits and other rights inuring to the common stock of
Corporate, which would be normally payable thereon shall be assumed to be
reinvested in the common stock of Corporate at the market value on the date
of the assumed payment. At the end of the deferral period payment shall be
made in shares of common stock of Corporate. (b) Beginning with the
1995/1997 Period, all Performance Share Compensation earned above the 100%
target goal will be deferred without election by the Participant until the
Participant's death or the latter of (i) reaching age 62 or (ii)
termination of employment. Mandatory deferred shares will be subject to
forfeiture in the event the Participant voluntarily terminates his
employment (except by reason of retirement after reaching age 62) during
the three years following the end of a Period according to the following
schedule: (i) termination during the first year following the end of a
Period will result in forfeiture of all of the mandatory deferred shares
relating to that Period; (ii) termination during the second year following
the end of a Period will result in forfeiture of two-thirds of the
mandatory deferred
-14-
<PAGE>
shares relating to that Period; and (iii) termination during the third
year following the end of a Period will result in forfeiture of one-
third of the mandatory deferred shares relating to that Period.
5. FINANCIAL HARDSHIP - A withdrawal of Deferred Compensation credited to a
Participant's account prior to the termination of the deferral period shall
be permitted in the event the Participant experiences serious financial
hardship which is beyond the Participant's control and which would cause
the Participant severe hardship if such withdrawal were not permitted.
Serious financial hardship may include a disability or unexpected and
unreimbursed major expenses resulting from illness or accident or impending
bankruptcy. Any Participant desiring such withdrawal by reason of serious
financial hardship must apply to the Committee and demonstrate that the
circumstances being experienced were not under the Participant's control
and constitute a real emergency which is likely to cause great financial
hardship. The Committee shall have the authority to require such medical
or other evidence as it may need to determine the necessity for
Participant's withdrawal request.
If such application for withdrawal is permitted, the amount of such
withdrawal shall be limited to an amount of the Participant's account
which would have been payable if the Participant's employment with the
Corporation was terminated. The allowed amount of withdrawal shall be
payable in lump sum or common stock certificate promptly after notice to
the Participant of approval by the Committee. If a Participant makes a
withdrawal, the amount of the Participant's account under the Program
-15-
<PAGE>
shall be proportionately reduced to reflect such withdrawal. The balance
of the Participant's account, if any, shall be payable according to
otherwise applicable provisions of the Program.
ARTICLE IX
SUPPLEMENTAL PENSION - The purpose of Supplemental Pension is to provide and
supplement the normal retirement benefit which may be reduced or limited due to
the deferral of compensation or statutory limitation.
1. PARTICIPANTS - Office of the President, Chief Executive Officer of
Subsidiary, and Corporate or Subsidiary Senior Executive shall be eligible
for supplemental pension benefits.
2. SUPPLEMENTAL PENSION BENEFITS - In the event a Participant's pension
benefit under any qualified pension plan of the Corporation in effect at
the time of the Participant's retirement (or other event requiring the
payment of a benefit thereunder) shall be less than said benefit would have
been as a result of the deferral of any compensation, then the Corporation
will pay the difference to the Participant at such time as the amount would
have been paid under the qualified pension plan. As and for an additional
supplemental pension benefit, the Corporation shall pay to the Participant
any difference between the Participant's pension benefits actually payable
under the pension plan and the amount that would have been payable but for
any statutory limitation incorporated into the pension plan language as a
requirement of law. Such
-16-
<PAGE>
supplemental pension benefit will be paid by the Corporation at such time
as the amount would have been paid under the qualified pension plan but for
the limitation.
ARTICLE X
FINALITY OF DETERMINATION - Each determination made by the Committee and the
Office of the President shall be final, binding and conclusive for all purposes
and upon all persons and the Committee may rely conclusively on the
determinations made by the Corporation's independent public accountants or by
the Corporation's employees with respect to action of the Committee.
ARTICLE XI
LIMITATIONS - No employee of the Corporation or any other persons shall have any
claim or right (legal, equitable or other) to be granted any award hereunder,
and no director, officer or employee of the Corporation, or any other person,
shall have the authority to enter into any agreement with any person for the
making or payment of any award or to make any representation or warranty with
respect thereto.
1. No Participant for whose benefit compensation has been deferred shall have
any right in compensation other than to receive compensation at the time
and in the form elected by the Participant subject to the fulfillment of
the conditions described herein, which right may not be
-17-
<PAGE>
assigned or transferred except by will or the laws of the descent and
distribution.
2. Neither the action of the Corporation in establishing this Program nor any
action taken by the Corporation, the Committee, the Board of Directors, or
the Office of the President, nor any provision of this Program, shall be
construed as giving to any Participant or employee of the Corporation the
right to be retained in the employ of the Corporation.
ARTICLE XII
AMENDMENTS, SUSPENSION OR TERMINATION - The Committee may discontinue this
Program in whole or in part at any time and may from time to time amend or
revise the terms as permitted by applicable statute; provided, however, that no
such discontinuance, amendment, or revision shall affect adversely any right or
obligation with respect to any award theretofor made and provided further that
any amendment increasing the number of shares of common stock of Corporate
available to the Program shall be subject to the approval of the Board of
Directors. No amendment shall require shareholder approval unless such approval
is otherwise required by law.
ARTICLE XIII
RESERVATION OF SHARES - As of December 4, 1994, an aggregate of 1,160,825 shares
of common stock of Corporate are authorized and remain reserved for issuance
under this Program.
-18-
<PAGE>
The number of shares of common stock of Corporate authorized for issuance under
this Program shall be subject to adjustment by the Committee, in its sole
discretion, to reflect any stock split, stock dividend, recapitalization,
merger, consolidation, reorganization, combination or exchange of shares or
other similar event.
ARTICLE XIV
EFFECTIVE DATE - This Program was approved by the Board of Directors on October
4, 1977, became effective December 1, 1977 for the fiscal year beginning on the
date and, as amended and restated, was approved by the Board of Directors on
January 22, 1991, effective April 1, 1991, and approved April 5, 1994, effective
December 4, 1994 respectively, and amended by the Committee on January 18, 1999.
ARTICLE XV
GOVERNING LAW - This Program shall be governed and construed in accordance with
the laws of the State of Indiana.
-19-
<PAGE>
EXHIBIT 10.2
HILLENBRAND INDUSTRIES, INC.
1996 STOCK OPTION PLAN
1. PURPOSE. The purpose of the Hillenbrand Industries, Inc. 1996
Stock Option Plan (the "Plan"), as amended and restated on January 20, 1997
and January 19, 1999, is to provide to officers (including officers who are
members of the Board of Directors), other key employees and non-employee
directors of Hillenbrand Industries, Inc. (the "Corporation") and other key
employees of any of the eighty percent (80%) or greater owned, direct or
indirect, subsidiaries of the Corporation (individually a "Subsidiary" and
collectively the "Subsidiaries") who are materially responsible for the
management or operation of the business of the Corporation or a Subsidiary, a
favorable opportunity to acquire Common Stock, without par value, of the
Corporation ("Common Stock"), thereby providing them with an increased
incentive to work for the success of the Corporation and the Subsidiaries and
to enable the Corporation and the Subsidiaries to attract and retain capable
executive personnel. The two means by which an individual may acquire an
option to purchase Common Stock are: (a) the grant to a key employee of an
option to acquire shares of Common Stock (an "Option") in accordance with
Section 5 hereof, and (b) the grant to a member of the Board of Directors of
the Corporation who is not employed by the Corporation or a Subsidiary (an
"Outside Director") of an option to acquire shares of Common Stock (a
"Director Option") in accordance with Section 7 hereof.
2. ADMINISTRATION OF THE PLAN. Except with respect to grants to an
Outside Director of a Director Option in accordance with Section 7 hereof,
the Plan shall be administered, construed and interpreted by the Subcommittee
of the Performance Compensation Committee of the Corporation's Board of
Directors (the "Committee"). The Committee must be composed of two or more
persons who qualify as "Non-Employee Directors" within the meaning of Rule
16b-3(b)(3) promulgated under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and as "outside directors" as defined in Treasury Reg.
Section 1.162-27(e)(3). The decision of a majority of the members of the
Committee shall constitute the decision of the Committee, and the Committee
may act either at a meeting at which a majority of the members of the
Committee is present or by a written consent signed by all members of the
Committee. The Committee shall have the sole, final and conclusive authority
to determine, consistent with and subject to the provisions of the Plan:
(a) the individuals (the "Optionees") to whom Options are granted
under the Plan;
(b) the time when Options shall be granted hereunder;
(c) the number of shares of Common Stock of the Corporation to be
covered under each Option;
<PAGE>
(d) the price to be paid upon the exercise of each Option;
(e) the period within which each Option may be exercised;
(f) the extent to which an Option is an incentive stock option or a
non-qualified stock option;
(g) the extent to which stock appreciation rights shall be awarded in
conjunction with an Option; and
(h) the terms and conditions of the respective agreements by which
Options and stock appreciation rights shall be evidenced.
The Committee shall also have authority to prescribe, amend and rescind rules
and regulations relating to the Plan, and to make all other determinations
necessary or advisable in the administration of the Plan.
Those provisions of the Plan (including, but not limited to, Section 7)
that are applicable to the administration, construction or interpretation of
Director Options (the "Director Option Provisions") shall be administered,
construed and interpreted by those members of the Board of Directors of the
Corporation who are not Outside Directors (the "Inside Directors"). If at
any time there are no Inside Directors, the chief executive officer and the
treasurer of the Corporation shall be deemed to be the Inside Directors for
all purposes of the Plan. The decision of a majority of the Inside Directors
shall constitute the decision of the Inside Directors, and the Inside
Directors may act either at a meeting at which a majority of the Inside
Directors is present or by a written consent signed by all of the Inside
Directors. The Inside Directors shall have the sole, final and conclusive
authority to interpret and construe the Director Option Provisions and to
prescribe, amend and rescind rules and regulations relating to the Director
Option Provisions.
3. ELIGIBILITY FOR OPTIONS. The Committee may, consistent with the
purposes of the Plan, grant Options (and/or related stock appreciation
rights) to officers and other key employees of the Corporation or of a
Subsidiary who in the opinion of the Committee are from time to time
materially responsible for the management or operation of the business of the
Corporation or of a Subsidiary; provided, however, that in no event may any
employee who owns (after application of the ownership rules in Section
424(d) of the Internal Revenue Code of 1986, as amended (the "Code")) shares
of Common Stock possessing more than 10% of the total combined voting power
of all classes of Common Stock of the Corporation be granted an incentive
stock option hereunder unless at the time such option is granted the option
price is at least 110% of the fair market value of the Common Stock subject
to the Option and such incentive stock option by its terms is not exercisable
after the expiration of five (5)
-2-
<PAGE>
years from the date such Option is granted. Subject to the provisions of
Section 4 hereof, an individual who has been granted an Option under the
Plan, if he is otherwise eligible, may be granted an additional Option or
Options if the Committee shall so determine. The maximum number of shares of
Common Stock with respect to which Options or stock appreciation rights may
be granted in any calendar year to any individual shall not exceed two
hundred thousand (200,000).
4. STOCK SUBJECT TO THE PLAN. There shall be reserved for issuance
upon the exercise of Options (or stock appreciation rights awarded in
conjunction with Options) and Director Options granted under the Plan three
million (3,000,000) shares of Common Stock which may be authorized but
unissued shares of the Corporation. Subject to Section 8 hereof, the shares
for which Options and/or Director Options may be granted under the Plan shall
not exceed that number. If any Option (including any stock appreciation
right awarded in conjunction with the Option) or any Director Option shall
expire or terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall (unless the Plan shall have
terminated) become available for other Options or Director Options under the
Plan. The number of shares of Common Stock available for Options or Director
Options under the Plan shall not be increased by the fact that Options are
exercised by the tendering of additional shares of Common Stock or by the
fact that an Optionee elects to have shares of Common Stock withheld in
accordance with Section 9 hereof.
5. TERMS OF OPTION. Each Option granted under the Plan shall be
subject to the following terms and conditions and to such other terms and
conditions not inconsistent therewith as the Committee may deem appropriate:
(a) OPTION PRICE. The price to be paid for shares of Common Stock
upon the exercise of an Option shall be the average between the high and
the low of the Common Stock on the date of grant (or, if the date of grant
is not a trading date, then on the last previous trading day), but such
price in the case of an incentive stock option in no event shall be less
than the fair market value, as determined by the Committee consistent with
the requirements of Section 422 of the Code, of Common Stock on the date
on which the Option is granted.
(b) PERIOD FOR EXERCISE OF OPTION. An Option shall not be
exercisable after the expiration of such period as shall be fixed by the
Committee at the time such Option is granted, but such period in no event
shall exceed ten (10) years and one (1) day from the date on which such
Option is granted; provided, however, that incentive stock options shall
have terms not in excess of ten (10) years; provided, further, that no
Option shall be exercisable prior to the date on which the Plan is approved
by the shareholders of the Corporation as required by Section 422 of the
Code.
-3-
<PAGE>
(c) EXERCISE OF OPTIONS. The option price of each share of Common
Stock purchased upon exercise of an Option shall be paid in full (1) in
cash at the time of such exercise, or (2) if the Optionee may do so in
conformity with Regulation T (12 C.F.R. Section 220.3(e)(4)) and without
violating Section 16(b) or (c) of the 1934 Act (to the extent applicable)
and if permitted under the agreement entered into by the Corporation and
the Optionee relating to the Option, by delivering a properly executed
exercise note together with irrevocable instructions to a broker to deliver
promptly to the Corporation the total option price in cash and, if desired,
the amount of any taxes to be withheld from the Optionee's compensation as
a result of any withholding tax obligation of the Corporation or any of its
Subsidiaries, as specified in such notice, or (3) subject to the approval
of the Committee, by tendering to the Corporation whole shares of Common
Stock owned by him for at least six (6) months having a fair market value
equal to the cash exercise price of the shares with respect to which the
Option is being exercised, or (4) subject to the approval of the Committee,
any combination of such shares and cash. For this purpose, the fair market
value of the shares tendered by the Optionee shall be computed as of the
exercise date in such manner as determined by the Committee, consistent
with the requirements of Section 422 of the Code. The Committee shall
have the authority to grant Options exercisable in full at any time during
their term, or exercisable in such installments, equal or non-equal, as the
Committee shall determine. An Option may be exercised at any time or from
time to time during the term of the Option as to any or all whole shares
which have become subject to purchase pursuant to the terms of the Option
(including, without limitation, any quotas with respect to option exercise)
or the Plan.
(d) TERMINATION OF OPTION. If an Optionee ceases to be an employee
of the Corporation or one of the Subsidiaries or if there is a disposition
of the Subsidiary for which the Optionee performed the majority of his
services, any Option granted to him shall forthwith terminate unless the
Option provides otherwise or the Committee otherwise agrees. Leave of
absence approved by the Committee shall not constitute cessation of
employment. Notwithstanding the foregoing provisions of this subsection
(d), no Option shall be exercisable after the expiration of the period
fixed by the Committee in accordance with subsection (b) above. All
Options shall terminate if the Plan is not approved by the shareholders of
the Corporation within the time period set forth in Section 15.
(e) TRANSFERABILITY OF OPTION. An incentive stock option may not be
transferred by the Optionee otherwise than by will or the laws of descent
and distribution, and during the lifetime of the Optionee shall be
exercisable only by the Optionee. The Committee shall have the discretion
to determine the extent to which non-qualified stock options may be
transferred by Optionees.
-4-
<PAGE>
(f) INVESTMENT REPRESENTATIONS. Unless the transfer of shares of
Common Stock subject to an Option are registered under applicable federal
and state securities laws, each Optionee by accepting an Option shall be
deemed to agree for himself and his legal representatives that any Option
granted to him and any and all shares of Common Stock purchased upon the
exercise of the Option shall be acquired for investment and not with a view
to, or for the sale in connection with, any distribution thereof, and each
notice of the exercise of any portion of an Option shall be accompanied by
a representation in writing, signed by the Optionee or his legal
representatives, as the case may be, that the shares of Common Stock are
being acquired in good faith for investment and not with a view to, or for
sale in connection with, any distribution thereof (except in case of the
Optionee's legal representatives for distribution, but not for sale, to his
legal heirs, legatees and other testamentary beneficiaries). Any shares
issued pursuant to an exercise of an option may, but need not, bear a
legend evidencing such representations and restrictions.
(g) MAXIMUM INCENTIVE STOCK OPTIONS. The aggregate fair market value
(determined as of the time the Option is granted) of Common Stock subject
to incentive stock options that are exercisable for the first time by an
employee during any calendar year under the Plan or any other plan of the
Corporation or any Subsidiary shall not exceed $100,000. For this purpose,
the fair market value of such shares shall be determined as of the date the
Option is granted and shall be computed in such manner as shall be
determined by the Committee, consistent with the requirements of Section
422 of the Code. If the immediate exercisability of incentive stock
options arising from the retirement, death or permanent and total
disability of an Optionee consistent with the terms of the applicable
option agreement or arising from any change of control of the Corporation
in accordance with the applicable option agreement would cause this
$100,000 limitation to be exceeded for an Optionee, such incentive stock
options shall automatically be converted into non-qualified stock options
as of the date on which such incentive stock options become exercisable but
only to the extent necessary to comply with the $100,000 limitation.
(h) AGREEMENT. Each Option shall be evidenced by an agreement
between the Optionee and the Corporation which shall provide, among other
things, that, with respect to incentive stock options, the Optionee shall
advise the Corporation immediately upon any sale or transfer of the shares
of Common Stock received upon exercise of the Option to the extent such
sale or transfer takes place prior to the later of (a) two (2) years from
the date of grant or (b) one (1) year from the date of exercise. The
agreement shall include the Option term and exercise conditions.
-5-
<PAGE>
(i) CERTIFICATES. The certificate or certificates for the shares of
Common Stock issuable upon an exercise of an Option shall be issued as
promptly as practicable after such exercise. An Optionee shall not have
any rights of a shareholder in respect to the shares of Common Stock
subject to an Option until the date of issuance of a stock certificate to
him for such shares. In no case may a fraction of a share be purchased or
issued under the Plan, but if, upon the exercise of an Option, a fractional
share would otherwise be issuable, the Corporation shall pay cash in lieu
thereof.
(j) NO RIGHT TO CONTINUED SERVICE. Nothing in the Plan or in any
agreement entered into pursuant hereto shall confer on any person any right
to continue in the employ of the Corporation or the Subsidiaries or affect
any rights of the Corporation, a Subsidiary, or the shareholders of the
Corporation may have to terminate his service at any time.
(k) INCENTIVE STOCK OPTIONS AND NON-QUALIFIED STOCK OPTIONS.
Options granted under the Plan may be incentive stock options under Section
422 of the Code or non-qualified stock options. All Options granted
hereunder shall be clearly identified as either incentive stock options or
non-qualified stock options. In no event shall the exercise of an
incentive stock option affect the right to exercise any non-qualified stock
option, nor shall the exercise of any non-qualified stock option affect the
right to exercise any incentive stock option. Nothing in the Plan shall be
construed to prohibit the grant of incentive stock options and
non-qualified stock options to the same person; provided, however, that
incentive stock options and non-qualified stock options shall not be
granted in a manner whereby the exercise of one non-qualified stock option
or incentive stock option affects the exercisability of the other. No
incentive stock option may be granted after the conclusion of a ten (10)
year period commencing on the date the Plan is adopted.
6. STOCK APPRECIATION RIGHTS. The Committee may award a stock
appreciation right in conjunction with either an incentive stock option or a
non-qualified stock option. Under a stock appreciation right, the Optionee may
surrender all or a part of an Option and receive in exchange payment of no more
than 100% of the excess of the fair market value of the Common Stock subject to
the Option on the date of exercise over the exercise price of the Option. The
award of a stock appreciation right shall be evidenced by an agreement between
the Corporation and the Optionee, the provisions of which shall be determined by
the Committee in accordance with the provisions of the Plan.
A stock appreciation right may be exercisable at any date with respect to
no more than the number of shares of Common Stock for which the related Option
is exercisable. A stock appreciation right may be exercisable only when the per
share
-6-
<PAGE>
fair market value (as determined in accordance with Section 5(a) hereof) of
the Common Stock subject to the Option exceeds the per share exercise price
of the Option. Each stock appreciation right shall terminate no later than
the termination date of the related Option, and is transferable only with and
to the extent that the related Option is transferable.
The Committee may limit the payment on exercise of a stock appreciation
right to less than 100% of the increase in value, as aforesaid, or it may set
a maximum dollar amount of payment not to exceed 100% of the increase in
value. Payment may be made in cash, in shares of Common Stock, or in a
combination of cash and shares of Common Stock. Notwithstanding any other
provision in the Plan to the contrary, the Committee shall have the sole
discretion either to (a) determine the form in which payment for the stock
appreciation right will be made (i.e., cash, shares of Common Stock or a
combination thereof), or (b) to consent to or disapprove the election of the
Optionee to receive cash in full or partial settlement of the stock
appreciation right. Such consent or disapproval must be given within seven
(7) calendar days after the date on which the Optionee initially elects the
form of payment. Upon exercise of a stock appreciation right respecting a
given number of shares subject to the Option, the right to exercise the
related Option respecting such shares shall automatically terminate.
7. DIRECTOR OPTIONS. Director Options shall be granted as of the
first day following each annual meeting of the Corporation's shareholders (a
"Grant Date"). As of each Grant Date, each Outside Director serving as a
director of the Corporation on that Grant Date shall automatically be granted
a Director Option to purchase four thousand (4,000) shares of Common Stock,
provided, however, that if on a Grant Date the number of remaining shares
available for Director Option grants is not large enough to grant each
Outside Director with a Director Option of four thousand (4,000) shares, the
number of shares covered by the final Director Option for each Outside
Director shall be reduced proportionately to the nearest whole share so that
the number of shares granted under the Plan does not exceed the number of
shares reserved under Section 4 hereof. Each Director Option granted under
the Plan shall be a non-qualified stock option and shall be evidenced by a
Director Stock Option Agreement between the Corporation and the Outside
Director. The Director Stock Option Agreement shall specify the number of
shares of Common Stock subject to the Director Option and shall also be
subject to the following terms and conditions:
(a) DIRECTOR OPTION PRICE. The price to be paid for shares of Common
Stock upon the exercise of each Director Option shall be the average of the
high and low prices of the Common Stock as traded on the New York Stock
Exchange on the Grant Date; provided, however, that if the Grant Date falls
on a day when shares of Common Stock are not traded, the option price of
the Director Option
-7-
<PAGE>
shall be determined as of the first day following the Grant Date on which
such shares are traded on the New York Stock Exchange.
(b) PERIOD FOR EXERCISE OF DIRECTOR OPTION. A Director Option shall
be exercisable any time during the period that begins twelve (12) months
after the Grant Date on which such Director Option is granted and that ends
on the ten (10) year anniversary of that Grant Date.
(c) EXERCISE OF DIRECTOR OPTIONS. The option price of each share of
Common Stock purchased upon exercise of a Director Option shall be paid in
full (1) in cash at the time of such exercise, or (2) if the Outside
Director may do so in conformity with Regulation T (12 C.F.R. Section
220.3(e)(4)) and without violating Section 16(b) or (c) of the 1934 Act (to
the extent applicable) and if permitted under the agreement entered into by
the Corporation and the Outside Director relating to the Director Option,
by delivering a properly executed exercise note together with irrevocable
instructions to a broker to deliver promptly to the Corporation the total
option price in cash, or (3) by tendering to the Corporation whole shares
of Common Stock owned by him for at least six (6) months having a fair
market value equal to the cash exercise price of the shares with respect to
which the Director Option is being exercised, or (4) any combination of
such shares of Common Stock and cash. For this purpose, the fair market
value of the shares tendered by the Outside Director shall be the average
of the high and low prices of the Common Stock as traded on the New York
Stock Exchange on the exercise date (or, if the Common Stock is not traded
on that date, the first preceding date on which the Common Stock was traded
on the New York Stock Exchange). A Director Option may be exercised at any
time or from time to time during the term of the Director Option as to any
or all whole shares which have become subject to purchase pursuant to the
terms of the Director Option and the Plan.
(d) TERMINATION OF DIRECTOR OPTION. If an Outside Director ceases to
be a director of the Corporation for any reason other than death, any
Director Option granted to that Outside Director may be exercised in whole
or in part at any time within the three (3) year period immediately
following the date on which his or her status as a director terminated.
Leave of absence approved by the Inside Directors shall not constitute
termination of status as a director. In the event of the death of an
Outside Director while serving as a director of the Corporation, any
Director Option granted to that Outside Director may be exercised in whole
or in part by the executor or administrator of the Outside Director's
estate or by the person or persons entitled to the Director Option by will
or by applicable laws of descent and distribution within one (1) year after
the date of the Outside Director's death, whether or not the Director
Option was otherwise exercisable at such date of death. Notwithstanding
the foregoing
-8-
<PAGE>
provisions of this subsection (d), no option shall be exercisable after the
expiration of the period set forth in Section 7(b) above.
(e) TRANSFERABILITY OF DIRECTOR OPTION. A Director Option may not be
transferred by the Outside Director otherwise than by will or the laws of
descent and distribution or as otherwise permitted by the applicable option
agreement; provided, however, that a Director Option may be transferred by
an Outside Director to a revocable trust, or any other trust qualifying as
a "grantor trust" under Section 671-677 of the Internal Revenue Code of
1986, as amended, to be held during the lifetime of an Outside Director for
his or her benefit and an Outside Director may transfer a Director Option
to members of his or her immediate family, i.e., children, grandchildren
and spouse, or to one or more trusts for the benefit of such family members
or to partnerships in which such family members are the only partners or to
such other persons or entities as may be determined by the Inside
Directors.
(f) CERTIFICATES. The certificate or certificates representing the
shares of Common Stock issuable upon an exercise of a Director Option shall
be issued as promptly as practicable after such exercise. An Outside
Director shall not have any rights of a shareholder in respect to the
shares of Common Stock subject to a Director Option until the date of
issuance of a stock certificate representing such shares. In no case may a
fraction of a share be purchased or issued under the Plan, but if, upon the
exercise of a Director Option, a fractional share would otherwise be
issuable, then the Corporation shall pay cash in lieu thereof.
(g) NO RIGHT TO CONTINUED SERVICE. Nothing in this Plan or in any
agreement entered into pursuant hereto shall confer on any person any right
to continue as a director of the Corporation or affect any rights the
Corporation or the shareholders of the Corporation may have to terminate
that person's status as a director at any time.
8. ADJUSTMENT OF SHARES. In the event of any change after the effective
date of the Plan in the outstanding shares of Common Stock of the Corporation by
reason of any reorganization, recapitalization, stock split, stock dividend,
combination of shares, exchange of shares, merger or consolidation, liquidation,
or any other change after the effective date of the Plan in the nature of the
shares of Common Stock of the Corporation, the Committee (or, in the case of
shares to be reserved for issuance pursuant to Director Options, the Inside
Directors) shall determine what changes, if any, are appropriate in the number
and kind of shares of Common Stock reserved under the Plan, in the number of
shares which may be issued to any individual in any calendar year and in the
option price under and the number and kind of shares of Common Stock covered by
outstanding Options or Director Options granted under the
-9-
<PAGE>
Plan. Any determination of the Committee or the Inside Directors hereunder
shall be conclusive.
9. TAX WITHHOLDING. Whenever the Corporation proposes or is required to
issue or transfer shares of Common Stock under the Plan, the Corporation shall
have the right to require the Optionee or his legal representative to remit to
the Corporation an amount sufficient to satisfy any federal, state and/or local
tax withholding requirements prior to the delivery of any certificate or
certificates for such shares, and whenever under the Plan payments are to be
made in cash, such payments shall be net of an amount sufficient to satisfy any
federal, state and/or local tax withholding requirements; provided, however,
that notwithstanding the above and to the extent permitted by the Committee, an
Optionee may make a written election to have shares having an aggregate fair
market value sufficient to satisfy the applicable withholding taxes withheld
from the shares otherwise to be received upon the exercise of the Option.
10. AMENDMENT. The Board of Directors of the Corporation may amend the
Plan from time to time, except that without the approval of the Corporation's
shareholders:
(a) the number of shares of Common Stock which may be reserved for
issuance under the Plan may not be increased except as provided in Section
8 hereof;
(b) the period during which an Option or Director Option may be
exercised may not be extended beyond ten (10) years and one (1) day from
the date on which such Option or Director Option was granted;
(c) the class of employees to whom Options may be granted under the
Plan may not be modified materially; and
(d) no other amendment to the Plan may be made which requires the
approval of the Corporation's shareholders under applicable law or under
the rules and regulations of the New York Stock Exchange.
No amendment of the Plan may, without the consent of the Optionee or
Outside Director, make any changes in any outstanding Option or Director Option
theretofore granted under the Plan which would adversely affect the rights of
such Optionee or Outside Director.
11. TERMINATION. The Board of Directors of the Corporation may terminate
the Plan at any time and no Option or Director Option shall be granted
thereafter.
-10-
<PAGE>
Such termination, however, shall not affect the validity of any Option or
Director Option theretofore granted under the Plan.
12. SUCCESSORS. The Plan shall be binding upon the successors and assigns
of the Corporation.
13. GOVERNING LAW. The terms of Options and Director Options granted
hereunder and the rights and obligations hereunder of the Corporation, the
Optionees and Outside Directors and their successors in interest shall, except
to the extent governed by federal law, be governed by Indiana law without regard
to conflict of law rules.
14. GOVERNMENT AND OTHER REGULATIONS. The obligations of the Corporation
to issue or transfer and deliver shares of Common Stock under Options or
Director Options granted under the Plan shall be subject to compliance with all
applicable laws, governmental rules and regulations, and administrative action.
15. EFFECTIVE DATE. The Plan became effective on July 9, 1996 and was
amended and restated on January 20, 1997 and January 19, 1999.
-11-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED UNDER ITEM 1 OF THE
COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED FEBRUARY 27, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-27-1999
<PERIOD-START> NOV-29-1998
<PERIOD-END> FEB-27-1999
<CASH> 296
<SECURITIES> 0
<RECEIVABLES> 405
<ALLOWANCES> 27
<INVENTORY> 117
<CURRENT-ASSETS> 68
<PP&E> 914
<DEPRECIATION> 619
<TOTAL-ASSETS> 4,339
<CURRENT-LIABILITIES> 355
<BONDS> 303
0
0
<COMMON> 4
<OTHER-SE> 928
<TOTAL-LIABILITY-AND-EQUITY> 4,339
<SALES> 338
<TOTAL-REVENUES> 516
<CGS> 185
<TOTAL-COSTS> 308
<OTHER-EXPENSES> 133
<LOSS-PROVISION> 1
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> 71
<INCOME-TAX> 26
<INCOME-CONTINUING> 45
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
</TABLE>
