UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-2648
HON INDUSTRIES Inc.
An Iowa Corporation IRS Employer No. 42-0617510
414 East Third Street
P.O. Box 1109
Muscatine, Iowa 52761-7109
(319) 264-7400
Indicate by check mark whether the registrant (1) has filed all required
reports to be filed by Section 13 or 15(d) of the Securities and 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 practical date.
Common Stock, $1 Par Value -- 31,272,671 shares as of July 2, 1994
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HON INDUSTRIES Inc. and SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
Condensed Consolidated Balance Sheets --
July 2, 1994, and January 1, 1994 3-4
Condensed Consolidated Statements of Income --
Three Months Ended July 2, 1994, and July 3, 1993 5
Condensed Consolidated Statements of Income --
Six Months Ended July 2, 1994, and July 3, 1993 6
Condensed Consolidated Statements of Cash Flows --
Six Months Ended July 2, 1994, and July 3, 1993 7
Notes to Condensed Consolidated Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 2,
1994 January 1,
ASSETS (Unaudited) 1994
(In thousands)
CURRENT ASSETS
Cash and cash equivalents $ 15,550 $ 32,778
Short-term investments 10,733 11,598
Receivables 80,274 83,650
Inventories (Note B) 40,849 38,630
Deferred income taxes 11,304 11,304
Prepaid expenses and
other current assets 7,296 10,459
Total Current Assets 166,006 188,419
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements 8,806 8,779
Buildings 83,574 81,409
Machinery and equipment 176,561 158,386
Construction in progress 13,446 18,085
282,387 266,659
Less accumulated depreciation 113,617 108,889
Net Property, Plant, and Equipment 168,770 157,770
OTHER ASSETS 5,985 6,216
Total Assets $340,761 $352,405
See accompanying notes to condensed consolidated financial statements.
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HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 2,
1994 January 1,
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) 1994
(In thousands)
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 82,775 $97,205
Income taxes 4,998 6,936
Note payable and current maturities
of long-term debt obligations 6,073 6,618
Total Current Liabilities 93,846 110,759
LONG-TERM DEBT AND OTHER LIABILITIES 45,301 45,260
CAPITAL LEASE OBLIGATIONS 9,163 5,854
DEFERRED INCOME TAXES 11,154 10,979
SHAREHOLDERS' EQUITY
Capital Stock:
Preferred, $1 par value; authorized
1,000,000 shares; outstanding --
1994 - 0 shares; 1993 - 0 shares - -
Common, $1 par value; authorized
100,000,000 shares; outstanding --
1994 - 31,272,671 shares;
1993 - 31,675,846 Shares 31,273 31,676
Paid-in capital 361 281
Retained earnings 163,146 161,079
Receivable from HON Members Company
Ownership Plan (13,483) (13,483)
Total Shareholders' Equity 181,297 179,553
Total Liabilities and
Shareholders' Equity $340,761 $352,405
See accompanying notes to condensed consolidated financial statements.
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HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
July 2, July 3,
1994 1993
(In thousands, except
per share data)
Net sales $193,045 $177,537
Cost of products sold 133,332 123,894
Gross Profit 59,713 53,643
Selling and administrative expenses 44,703 40,594
Operating Income 15,010 13,049
Interest income 402 608
Interest expense 775 711
Income Before Income Taxes 14,637 12,946
Income taxes 5,415 4,725
Net Income $ 9,222 $ 8,221
Net income per common share $.30 $.25
Average number of common shares
outstanding 31,327,160 32,165,165
Cash dividends per common share $.11 $.10
See accompanying notes to condensed consolidated financial statements.
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HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended
July 2, July 3,
1994 1993
(In thousands, except
per share data)
Net sales $393,738 $363,648
Cost of products sold 270,651 254,548
Gross Profit 123,087 109,100
Selling and administrative expenses 89,523 82,840
Operating Income 33,564 26,260
Interest income 943 1,285
Interest expense 1,412 1,792
Income Before Income Taxes 33,095 25,753
Income taxes 12,245 9,400
Income Before Cumulative Effect of
Accounting Change 20,850 16,353
Cumulative effect of accounting
change (Note C) (237) 489
Net Income $ 20,613 $ 16,842
Income per common share:
Income before cumulative effect of
accounting change $ .67 $.50
Cumulative effect of accounting
change (Note C) (.01) .02
Net Income $ .66 $.52
Average number of common shares
outstanding 31,422,081 32,260,836
Cash dividends per common share $.22 $.20
See accompanying notes to condensed consolidated financial statements.
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HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
July 2, July 3,
1994 1993
(In thousands)
Net Cash Flows From (To) Operating Activities:
Net income $ 20,613 $ 16,842
Noncash items included in net income:
Depreciation and amortization 9,354 8,271
Other postretirement and postemployment
benefits 1,271 758
Deferred income taxes 175 (1,805)
Cumulative effect of accounting
change (Note C) 237 (489)
Other - net 23 226
Net increase (decrease) in noncash operating
assets and liabilities (11,869) (2,829)
(Decrease) in other liabilities (568) (115)
Net cash flows from operating activities 19,236 20,859
Net Cash Flows From (To) Investing Activities:
Capital expenditures - net (16,643) (13,558)
Short-term investments - net 865 (101)
Long-term investments (6) (1,900)
Other - net 21 (140)
Net cash flows (to) investing activities (15,763) (15,699)
Net Cash Flows From (To) Financing Activities:
Purchase of HON INDUSTRIES common stock (12,705) (7,932)
Payments of note and long-term debt (1,832) (2,637)
Proceeds from sale of HON INDUSTRIES common
stock to members 736 567
Dividends paid (6,900) (6,321)
Net cash flows (to) financing activities (20,701) (16,323)
Net increase (decrease) in cash and cash
equivalents (17,228) (11,163)
Cash and cash equivalents at
beginning of period 32,778 40,069
Cash and cash equivalents at end of period $ 15,550 $ 28,906
See accompanying notes to condensed consolidated financial statements.
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HON INDUSTRIES Inc. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
July 2, 1994
Note A. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjust-
ments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six-month
period ended July 2, 1994, are not necessarily indicative of the results that
may be expected for the year ending December 31, 1994. For further informa
tion, refer to the consolidated financial statements and footnotes included in
the Company's annual report on Form 10-K for the year ended January 1, 1994.
Note B. Inventories
Inventories of the Company and its subsidiaries are summarized as follows:
July 2, 1994
($000) (Unaudited) January 1, 1994
Finished products $14,519 $10,731
Materials and work in process 26,330 27,899
$40,849 $38,630
Note C. Employers' Accounting for Postemployment Benefits and Accounting for
Income Taxes
The Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits," in the first quarter of
1994. This Statement requires an accrual method of recognizing postemployment
benefits such as disability-related benefits. The cumulative effect at
January 2, 1994, of adopting Statement No. 112 reduced net income by $237,000,
net of tax, or $.01 per share.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," in the first quarter of 1993. Management chose
to record the cumulative effect of the accounting change from the deferred
method to the liability method on an immediate recognition basis with no
restatement of prior years' financial statements. The accounting change
increased net income by $489,000, or $.02 per share.
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Note D. Accounting for Certain Investments in Debt and Equity Securities
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," in the
first quarter of 1994. This Statement requires that, except for debt securi
ties classified as "held-to-maturity securities," investments in debt and
equity securities should be reported at fair value. The effect of adopting
the new rules was not material to the Company's financial position or results
of operations.
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Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and results of
operations during the periods included in the accompanying condensed consoli-
dated financial statements.
A summary of the period-to-period changes in the principal items included in
the Condensed Consolidated Statements of Income is shown below:
Comparison of
Increases (Decreases) Three Months Ended Six Months Ended Three Months Ended
Dollars in Thousands July 2, 1994 & July 2, 1994 & July 2, 1994 &
July 3, 1993 July 3, 1993 April 2, 1994
Net sales $15,508 8.7% $30,090 8.3% $(7,648) (3.8)%
Cost of products sold 9,438 7.6 16,103 6.3 (3,987) (2.9)
Selling & Administrative
expenses 4,109 10.1 6,683 8.1 (117) (.3)
Interest income (206)(33.9) (342) (26.6) (139) (25.7)
Interest expense 64 9.0 (380) (21.2) 138 21.7
Income taxes 690 14.6 2,845 30.3 (1,415) (20.7)
Income before cumulative
effect of accounting
change 1,001 12.2 4,497 27.5 (2,406) (20.7)
Cumulative effect of
accounting change - - (726)(148.5) 237 100.0
Net income 1,001 12.2 3,771 22.4 (2,169) (19.0)
For the quarter ended July 2, 1994, consolidated net sales were $193.0 million
compared to $177.5 million in 1993, up 8.7%. Net income was $9.2 million, a
12.2% increase over the second quarter of 1993. Net income per share
increased to $.30 per share, a 20.0% increase over the same quarter a year
ago.
For the six months ended July 2, 1994, consolidated net sales were $393.7
million compared to $363.6 million in 1993, up 8.3%. Net income for the
period was $20.6 million, a 22.4% improvement over the $16.8 million earned in
1993. Earnings per share for the six months were $.66 compared to $.52 in
1993, a 26.9% increase.
Second quarter 1994 results set new net sales, income, and income per share
records in terms of being the best second quarter in the Company's history.
The second quarter of the fiscal year is typically the Company's weakest
quarter because of the seasonal trend of sales. Office furniture industry
sales are reported to be growing at a 7% annual rate, so the Company is
continuing to grow at a faster pace than the industry in general.
Operating results for the second quarter continue to reflect a favorable trend
that the Company established in the first quarter. Increased sales from new
products and continued efforts to control and reduce costs have been the
impetus for improved profitability. The Company continues to be optimistic
about its 1994 financial prospects.
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Although the competitive environment continues to affect margins, the
Company's ongoing improvements in productivity and cost control have enabled
it to press on with investments in machinery and equipment, tooling, and new
product development. Net capital expenditures for property, plant, and
equipment were $16,643,000 for the first six months of 1994 compared to
$13,558,000 in 1993.
The business consolidation of the XLM Company into The HON Company announced
during the first quarter of 1994 is progressing as planned. This operational
change is expected to enhance the Company's overall market leverage and
penetration in the rapidly growing retail office furniture market.
During the second quarter of 1994, the Company assigned the production of
systems components that retrofit all major competitive lines of new and used
panels to Chandler Attwood Limited. Components include work surfaces, storage
units, hardware, and related items previously marketed as "Plan A" and
produced by BPI Inc. Now marketed under the brand name Archer Bond, the
products will be manufactured at Chandler Attwood locations across the
country. This action is intended to further reduce cost of production and
shipping related to this product line. At the same time, it will increase the
utilization of Chandler Attwood manufacturing capacity.
State of California environmental authorities notified the Company that it was
part of an action relating to a clean-up of hazardous substances at the former
Firestone Tire and Rubber Company site in South Gate, California. Several
other parties are included in this action. Based on information available to
the Company, it is not believed that HON INDUSTRIES operations at this site
have generated any of the alleged hazardous wastes or that this event will
have a material impact on the Company's financial position or results of
operations.
Cash and short-term investments as of July 2, 1994, were $26.3 million. The
second quarter is typically the Company's lowest seasonal cash position.
Capital lease obligations increased during the second quarter of 1994 as a
result of extending the term of The HON Company mainframe computer lease.
The Company acquired 176,327 shares of its common stock on the open market
during the quarter under its ongoing stock repurchase program at a cost of
approximately $5.6 million. As of July 2, 1994, approximately $17.4 million
remained available for repurchase of common stock under the program as
authorized by the Company's Board of Directors.
The Company's 157th consecutive quarterly common stock dividend of $.11 per
share was paid on June 1, 1994, to shareholders of record on May 20, 1994.
The new HON INDUSTRIES Inc. Members' Stock Purchase Plan, which was approved
at the May 10, 1994, Annual Meeting, was introduced to Company members during
the month of June. Under the new plan, 500,000 shares of common stock are
available for issuance to members. The introduction of the new plan resulted
in a 56% increase in enrollment.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed during
the quarter for which this report is filed.
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.
HON INDUSTRIES Inc.
Date: July 28, 1994 By R. Michael Derry
R. Michael Derry
Senior Vice President,
Administration
By Melvin L. McMains
Melvin L. McMains
Controller
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