<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 28, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NO. 0-2648
HON INDUSTRIES INC.
AN IOWA CORPORATION IRS EMPLOYER NO. 42-0617510
414 EAST THIRD STREET
P.O. BOX 1109
MUSCATINE, IA 52761-7109
319/264-7400
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, with Par Value of $1.00 Per Share.
Name of each exchange on which registered: The Nasdaq Stock Market.
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, as of March 14, 1997, was: $759,297,526, assuming all 5% holders
are affiliates.
The number of shares outstanding of the registrant's common stock, as of
March 14, 1997, was: 29,693,916.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement dated March 28, 1997, for the
May 13, 1997, Annual Meeting of Shareholders are incorporated by reference
into Part III.
Index of Exhibits is located on Page 43.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1
<PAGE>
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
Item 1. Business....................................................... 3
Item 2. Properties..................................................... 7
Item 3. Legal Proceedings.............................................. 8
Item 4. Submission of Matters to a Vote of Security Holders............ 9
Table I--Executive Officers of the Registrant.................. 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 9
Item 6. Selected Financial Data--Eleven-Year Summary................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 14
Item 8. Financial Statements and Supplementary Data.................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 17
PART III
Item 10. Directors of the Registrant.................................... 18
Item 11. Executive Compensation......................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and Management. 18
Compliance with Section 16(a) of the Securities Exchange Act of
1934........................................................... 18
Item 13. Certain Relationships and Related Transactions................. 18
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-
K.............................................................. 18
Signatures............................................................... 20
Financial Statements..................................................... 22
Financial Statement Schedules............................................ 41
Index of Exhibits........................................................ 43
</TABLE>
2
<PAGE>
ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS.
GENERAL.
HON INDUSTRIES Inc. is principally a national manufacturer and marketer of
office furniture. It also is a major manufacturer and marketer of metal
prefabricated fireplaces and related products for the hearth products
industry. The Company is ranked as a Fortune 1000 company.
The Company is organized into a corporate headquarters and operating units
with offices, manufacturing plants, distribution centers, and sales showrooms
in the United States and Canada. See Item 2. Properties for additional related
discussion.
Four operating units, marketing under various brand names, participate in
the office furniture industry. These operating units include: a division, The
HON Company, and three wholly owned subsidiaries, including The Gunlocke
Company, Holga Inc., and BPI Inc. Each of these operating units manufactures
and markets products which are sold through various channels of distribution
and segments of the industry. The combined sales of these units rank HON
INDUSTRIES Inc. as one of the larger manufacturers of office furniture in the
United States.
A fourth wholly owned subsidiary, Hearth Technologies Inc., was created in
October 1996 with the acquisition of Heat-N-Glo Fireplace Products, Inc. and
its subsequent integration with the Company's Heatilator operation. This
combination of two well-known and highly respected manufacturers of factory-
built wood- and gas-burning fireplaces, fireplace inserts, freestanding stoves
and accessories positions Hearth Technologies Inc. as the leading manufacturer
and marketer in the North American hearth industry.
A fifth wholly owned subsidiary, HON Export Limited, markets selected
products manufactured by the other various HON INDUSTRIES operating units
outside the United States and Canada.
In January 1996, the Company completed the sale of its wholly owned
subsidiary, Ring King Visibles, Inc., a manufacturer and marketer of a limited
line of personal computer accessories. The sale resulted in an after-tax gain
of $2.0 million.
During 1995, the Company began to gradually close down its Chandler Attwood
Limited subsidiary (six small leased manufacturing sites). The final site was
exited in April 1996. Chandler Attwood Limited was a start-up operation in
1992 as a first effort with distributed manufacturing of a limited line of
custom-made office furniture in select major metropolitan areas.
For further information with respect to the Company's business, including
operations information, the sale of Ring King Visibles, Inc., and the
acquisition of Heat-N-Glo Fireplace Products, Inc., refer to Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and the following captions included in the Notes to the
Consolidated Financial Statements, which are filed as part of this report:
"Nature of Operations," "Business Combinations," "Business Disposition," and
"Business Segment Information."
Statements in this report that are not strictly historical, including
statements as to plans, objectives, and future financial performance, are
"forward-looking" statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Forward-
looking statements involve known and unknown risks, which may cause the
Company's actual results in the future to differ materially from expected
results. These risks include, among others, competition within the office
furniture and hearth products industries; the relationship between supply and
demand for value-priced office furniture and direct vent gas and wood-burning
hearth products; the effects of economic conditions; issues associated with
the acquisition and
3
<PAGE>
integration of Heat-N-Glo; operating risks; the ability of the Company's
distributors to successfully market and sell the Company's products; and the
availability of capital to finance planned growth, as well as the risks,
uncertainties and other factors described in this report and from time to time
in the Company's other filings with the Securities and Exchange Commission.
EMPLOYEES.
The Company has 6,502 employees (members) and, of this total, 3858 are
production personnel. The Company employs 285 members who are a party to a
collective bargaining agreement.
PRODUCTS.
Office Furniture. A broad line of metal and wood commercial and home office
furniture is manufactured and marketed through The HON Company division and the
Company's wholly owned subsidiaries: BPI Inc., Holga Inc., and The Gunlocke
Company. Major products include: file cabinets, desks, freestanding office
partitions, panel systems, credenzas, chairs, storage cabinets, tables,
bookcases, machine stands, and reception area furniture. These products are
typically available in contemporary and conventional styles and are priced to
sell in different channels of distribution and at different price points.
Hearth Products. Hearth Technologies Inc., a wholly owned subsidiary,
manufactures and markets a broad line of manufactured fireplaces, principally
for the home, sold under the Heatilator and Heat-N-Glo brand names. Products
include wood- and gas-burning fireplaces and stoves, fireplace inserts, chimney
systems, masonry forms, and fireplace accessories.
MANUFACTURING.
The HON Company manufactures office furniture in California, Georgia, Iowa,
Kentucky, North Carolina, Pennsylvania, South Carolina, Texas, and Virginia.
BPI Inc. manufactures office furniture in North Carolina and Washington. Holga
Inc. manufactures office furniture in California. The Gunlocke Company
manufactures office furniture in New York. Hearth Technologies Inc.
manufactures hearth products in Iowa, Minnesota, and Alberta, Canada.
The Company purchases raw materials and components from a variety of vendors,
and generally most items are available from multiple sources. Major raw
materials and components include coil steel, bar stock, castings, lumber,
veneer, particle board, fabric, paint, lacquer, hardware, rubber products,
plastic products, and shipping cartons.
PRODUCT DEVELOPMENT.
The Company's product development investments are principally focused on new
product development, improvement of existing products, product line extension,
application of ergonomic research, improvement of manufacturing processes,
application of new materials, and providing engineering support and training to
its operating units. The Company's investment in product development during
1996, 1995, and 1994 totaled $10.4 million, $11.6 million, and $10.1 million,
respectively.
INTELLECTUAL PROPERTY.
The Company owns 77 U.S. and 28 foreign patents and has applications pending
for 40 U.S. and 62 foreign patents. In addition, the Company holds
registrations for 72 U.S. and 111 foreign trademarks and has applications
pending for 15 U.S. and 61 foreign trademarks.
The Company's primary products do not require frequent technical changes. The
majority of patents are design patents. They expire at various times depending
on when the particular patent was issued. No individual patent nor all the
Company's patents in the aggregate are material to its business.
4
<PAGE>
The Company actively protects trademarks which it believes have a
significant goodwill value. The Company applies for patent protection where it
believes the expense of doing so is justified. It believes that the duration
of its registered patents is adequate to protect these rights. The Company
also pays royalty fees in certain instances for the use of patents on products
and processes owned by others.
SALES AND DISTRIBUTION: CUSTOMERS.
Office furniture is distributed nationally through more than 5,000 office
product dealers, 30 wholesalers/distributors, over 50 national and regional
retailers, and various contract customers. Several of the Company's office
furniture operating units distribute products through common dealers,
wholesalers/distributors, and retailers. Several operating units also sell
products directly to state governments and to the United States government
through the General Services Administration. Government sales are for certain
products, for a certain price, and for a certain time period; thus, none are
subject to price renegotiation. One customer, United Stationers Inc.,
accounted for approximately 12%, 13%, and 13% of the Company's consolidated
net sales in 1996, 1995, 1994, respectively. The industry trend is toward
increased consolidation of distribution which implies larger and fewer
customers for the Company's office furniture and related products.
The office furniture field sales organization consists of 16 regional sales
managers supervising 70 salespersons, plus approximately 150 manufacturers'
representatives, providing nationwide coverage. Sales managers and
salespersons are compensated by a combination of salary and incentive bonus.
Limited quantities of select finished goods inventories are maintained at the
Company's principal manufacturing plants and at its various distribution
centers.
Hearth Technologies Inc. sells its fireplace and stove products through
approximately 1,700 dealers and 250 distributors. The company has a field
sales organization of 9 regional sales managers supervising 22 salespersons
and 15 manufacturers' representatives.
HON Export Limited sales are made through approximately 75 office furniture
dealers and wholesale distributors serving select foreign markets. They are
principally located in the U.S., Latin America, and the Caribbean. The company
has a field sales organization of 1 regional sales manager and 3 salespersons.
HON INDUSTRIES' office furniture business has a seasonality trend with the
third (July-September) and fourth (October-December) fiscal quarters
historically being the two highest sales quarters each year. Hearth products
sales tend to have an even larger concentration in third and fourth fiscal
quarters.
For related information regarding the Company's customers, refer to the
"Nature of Operations" note in the Notes to the Consolidated Financial
Statements, filed as part of this report.
As of December 28, 1996, the Company has an order backlog of approximately
$59.1 million which will be filled in the ordinary course of business within
the current fiscal year. This compares with $54.9 million as of December 30,
1995, and $52.3 million as of December 31, 1994. The dollar amount of the
ongoing backlog of orders at any point in time is not considered by management
to be a leading indicator of the Company's expected sales for any particular
fiscal period. Large dollar amounts of order backlogs are unusual since most
of the Company's products are manufactured and shipped within a few weeks
following receipt of order, and a low backlog is an indicator of responsive
customer service.
COMPETITION.
The principal competitive factors for both office furniture and hearth
products are product performance, product quality, complete and on-time
delivery to the customer, price, and customer service support. The Company
believes it is well positioned to compete in all of its served markets due to
its market share, engineering and manufacturing capability, broad product
offering, national field sales representation, and long-standing customer
relationships.
5
<PAGE>
Competitive conditions vary for HON INDUSTRIES Inc. based on the industry,
industry segment, channel of distribution, products involved, and the
prevailing U.S. general economic environment.
The U.S. office furniture industry for calendar year 1996 is estimated by
industry sources to be $10.0 billion, up approximately 6% from 1995. It
consists of several hundred domestic manufacturing companies plus foreign
companies who import products. The Company's primary strength in the office
furniture industry lies with its products for the "value market" segment. This
expanding segment of the industry typically serves the small- and medium-sized
businesses who tend to be more price/value sensitive consumers. However, the
Company's total office furniture sales makes it a significant player in the
broader U.S. office furniture industry.
Hearth products, consisting of prefabricated metal fireplaces and related
products, are manufactured by a number of national and regional competitors.
However, a limited number of manufacturers dominate the sales in this
relatively small industry. Hearth Technologies Inc. is the largest U.S.
manufacturer of prefabricated metal fireplaces.
For further discussion of the Company's competitive situation, refer to Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.
EFFECTS OF INFLATION.
Certain business costs may, from time to time, increase at a rate exceeding
the general rate of inflation. However, the Company does not consider the
current rate of inflation in the U.S. to be a significant business issue or
concern.
The Company adjusts the selling prices of its products to maintain profit
margins whenever possible. Investments are routinely made in modern plants,
equipment, support systems, and for rapid continuous improvement programs.
These investments collectively focus on increasing productivity which helps to
offset the effect of rising material and labor costs. Ongoing cost control
disciplines are also routinely employed. In addition, the last-in, first-out
(LIFO) valuation method is used for most of the Company's inventories, which
ensures the changing material and labor costs are recognized in reported
income; and more importantly, these costs are recognized in pricing decisions.
For further discussion of the effects of inflation on the Company's business,
refer to Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
ENVIRONMENTAL.
The Company is subject to a variety of environmental laws and regulations
governing discharges to air and water; the handling, storage, and disposal of
hazardous or solid waste materials; and the remediation of contamination
associated with releases of hazardous substances. Although the Company believes
it is in material compliance with all of the various regulations applicable to
its business, there can be no assurance that requirements will not change in
the future or that the Company will not incur material cost to comply with such
regulations. The Company has trained staff responsible for monitoring
compliance with environmental, health, and safety requirements. The Company's
environmental professionals work with responsible personnel at each
manufacturing facility, the Company's environmental legal counsel, and
consultants on the management of environmental, health, and safety issues. The
Company's ultimate goal is to reduce, and wherever practical, eliminate the
creation of hazardous waste in its manufacturing processes.
Compliance with federal, state, and local environmental regulations has not
had a material effect on the capital expenditures, earnings, or competitive
position of the Company to date. The Company does not anticipate that
financially material capital expenditures will be required during fiscal year
1997 for environmental control facilities. It is management's judgment that
compliance with current regulations should not have a material effect on the
Company's financial condition or results of operations. However, the
uncertainty of new environmental legislation and technology in this area makes
it impossible to know with confidence.
6
<PAGE>
For further information regarding the Company's environmental matters, refer
to Item 3. Legal Proceedings, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations, and the "Contingencies" note in
the Notes to the Consolidated Financial Statements.
BUSINESS DEVELOPMENT.
The development of the Company's business during the fiscal years ended
December 28, 1996; December 30, 1995; and December 31, 1994, is discussed in
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ITEM 2. PROPERTIES.
The Company maintains its corporate headquarters in Muscatine, Iowa, and
conducts its operations in 18 cities throughout the United States and Canada
which house manufacturing and distribution operations and offices. These total
an aggregate 6,029,955 square feet. Of this total, 976,987 square feet are
leased, including 283,040 square feet under a capital lease.
While the plants are of varying ages, the Company considers that they are
well maintained, are equipped with modern and efficient equipment, and are in
good operating condition and suitable for the purposes for which they are being
used. The Company has sufficient capacity to increase output at most locations
by increasing the use of overtime and/or number of production shifts employed.
The Company's principal manufacturing and distribution facilities (100,000
square feet in size or larger) are as follows:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FEET OWNED LEASED DESCRIPTION OF USE
-------- ----------- --------- ------- ------------------
<S> <C> <C> <C> <C>
Cedartown, GA 443,334 X Mfg. steel casegoods office furniture**
Lake City, MN 235,000 X Mfg. metal prefabricated fireplaces
Louisburg, NC 176,354 X Mfg. wood casegoods office furniture
Mt. Pleasant, IA 288,006 X Mfg. metal prefabricated fireplaces
Muscatine, IA 231,444 X Mfg. steel office seating
Muscatine, IA 612,713 X Mfg. steel casegoods office furniture**
Muscatine, IA 177,000 X Mfg. wood casegoods office furniture
Muscatine, IA 209,100 X Mfg. systems panels office furniture
Owensboro, KY 311,575 X Mfg. wood office seating
Richmond, VA 283,040 X* Mfg. metal casegoods office furniture**
Savage, MN 103,500 X Mfg. metal prefabricated fireplaces
South Gate, CA 520,270 X Mfg. steel casegoods & seating office furniture**
Sulphur Springs, TX 155,690 X Mfg. steel casegoods office furniture
Wayland, NY 692,226 X Mfg. wood casegoods & seating office furniture
Williamsport, PA 238,326 X Mfg. wood office seating
Winnsboro, SC 180,093 X Mfg. steel office seating
TOTAL SQUARE FEET 4,236,131 621,540
========= =======
</TABLE>
- --------
*A capital lease.
**Also includes a regional warehouse/distribution center.
The Company also owns a 223,680 square foot manufacturing facility located in
Muscatine, Iowa, which it leases to another company; and it owns a 164,667
square foot office and manufacturing facility located in Avon, New York, which
is listed for sale. Other manufacturing facilities are located in Savage, MN;
Dallas, TX; Kent, WA; Mt. Pleasant and Muscatine, IA; Salisbury, NC; Van Nuys,
CA; and Calgary, Alberta, Canada. These facilities total an aggregate of
783,937 square feet. Of this total, 355,447 square feet are leased. The Company
also leases sales showroom space in office furniture market centers in several
major metropolitan areas.
7
<PAGE>
There are no major encumbrances on Company-owned properties other than
outstanding mortgages on certain properties, the amount of which is disclosed
in the "Long-Term Debt and Other Liabilities" note in the Notes to
Consolidated Financial Statements, filed as a part of this report. Refer to
the "Property, Plant, and Equipment" note in the Notes to Consolidated
Financial Statements for related cost, accumulated depreciation, and net book
value data.
ITEM 3. LEGAL PROCEEDINGS.
Along with several other potentially responsible parties ("PRPs"), the
Company has been involved with site investigation and clean-up activities
imposed by the Federal Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") at one waste disposal site in Georgia which allegedly
received waste materials containing hazardous substances generated by the
Company or its subsidiaries. In general, under CERCLA, each PRP which actually
contributes hazardous substances to a Superfund site is jointly and severally
liable for the costs associated with investigating and cleaning up the site.
Customarily, the PRPs will work with the Environmental Protection Agency
("EPA") or equivalent state agency to agree upon and implement a plan for site
remediation. PRPs for the Georgia site have been required to institute a
monitoring program, a background groundwater study, and a possible remediation
work plan. The EPA has issued a Record of Decision for the site ("ROD")
following the completion of a Remedial Investigation/Feasibility Study. The
ROD identified manganese, a constituent not included in waste sent by the
Company to the site, as the sole constituent of concern. The Company also owns
a portion of the property which is part of the site. The original property
owner has agreed to repurchase the property from the Company and indemnify the
Company against environmental liabilities arising from the Company's ownership
of the property.
The Company also is involved in certain continuing clean-up activities under
the supervision of the Pennsylvania state environmental authorities at one
site formerly used by a Company subsidiary. The costs associated with this
site are comprised primarily of investigation and remediation efforts
associated with soil and groundwater contamination. In this matter, the
Company has worked with appropriate authorities to resolve the issues
involved.
The Company was named, along with three other PRPs, as a party to an
Imminent or Substantial Endangerment Order and Remedial Action Order dated
April 28, 1994 by the California Department of Toxic Substances Control
("DTSC") in connection with the former Firestone Tire & Rubber Company
facility in South Gate, California ("Firestone Site"). The DTSC is seeking to
cover the cost of investigating soil and groundwater contamination and
preparing a remedial action plan for the Firestone Site. From 1927 to 1981,
the site was owned by The Firestone Tire & Rubber Company (now known as
Bridgestone/Firestone, Inc.) and operated from 1928 to 1980 primarily as a
tire manufacturing facility. The Company purchased a portion of the Firestone
Site in 1981, and subsequently sold a portion of that property to a company
now in bankruptcy proceedings. The Company continues to own a part of the
Firestone Site. The Company believes its potential liability at the Firestone
Site arises from the Company's status as an owner of the property and not as a
waste generator. The Company has cooperated in the preparation of a Remedial
Investigation/Feasibility Study Work Plan ("RI/FS Work Plan") which was
approved by DTSC in June 1995. The investigation under the RI/FS Work Plan
began in August 1995 and is expected to be completed in 1997. The Company has,
however, denied liability and believes that substantially all investigation
and clean-up costs should be borne by Bridgestone/Firestone, Inc. The Company
also is reviewing available defenses and claims it may have against third
parties, including Bridgestone/Firestone, Inc.
Due to such factors as the wide discretion of regulatory authorities
regarding clean-up levels and uncertain allocation of liability at multiple
party sites, estimates made prior to the approval of a formal plan of action
represent management's best judgment as to estimates of reasonably foreseeable
expenses based upon average remediation costs at comparable sites. The
Company, therefore, has accrued liabilities reflecting management's best
estimate of the eventual future cost of the Company's anticipated share (based
upon estimated ranges of remediation costs, the existence of many other larger
PRPs to share in such costs who are financially viable, the
8
<PAGE>
Company's experience to date in relation to the determination of its allocable
share, the volume and type of waste the Company is believed to have
contributed to the sites, and the anticipated periods of time over which such
costs may be paid) of remediation costs. Potential insurance reimbursements
are not anticipated. While the final resolution of these contingencies could
result in expenses in excess of current accruals and, therefore, have an
impact on the Company's consolidated financial result in a future reporting
period, management believes that the ultimate outcome will not have a material
effect on the Company's financial position or operations.
For additional information on this item, refer to the "Contingencies" note
included in the Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART I, TABLE I
EXECUTIVE OFFICERS OF THE REGISTRANT.
(Information as of December 28, 1996)
<TABLE>
<CAPTION>
FAMILY POSITION OTHER BUSINESS EXPERIENCE
NAME AGE RELATIONSHIP POSITION HELD SINCE DURING PAST FIVE YEARS
---- --- ------------ -------- ---------- -------------------------
<C> <C> <C> <C> <C> <S>
Jack D. Michaels 59 None Chairman of the Board, 1996 Chairman, President and
President, Chief 1990 Chief Executive Officer
Executive Officer and 1991
Director 1990
R. Michael Derry 59 None Senior Vice President, 1996 Senior Vice President,
Human Resources Administration (1990-96)
A. Mosby Harvey, Jr. 53 None Vice President, 1993 Principal, Harvey and
General Counsel Associates (1991-93)
and Secretary
George J. Koenigsaecker III 51 None President, The HON 1995 Executive Vice
Company President, Operations,
The HON Company
(1992-95); Senior Vice
President, HON
INDUSTRIES Inc. (1995);
Group Executive, Danaher
Corporation (1990-92)
Melvin L. McMains 55 None Controller 1980
David C. Stuebe 56 None Vice President and 1994 President, CEO, and
Chief Financial Officer Director, Diversified
Industries, Inc.
(1990-94)
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol: HONI. As of year-end 1996, the Company
had 5,319 stockholders of record.
9
<PAGE>
The Company serves as its own stock transfer agent. Shareholders may report
a change of address or make inquiries by writing or telephoning:
Stock Transfer Department
HON INDUSTRIES Inc.
P.O. Box 1109
Muscatine, IA 52761-7109
Telephone: 319/264-7223
Common Stock Market Price and Price/Earnings Ratio and Quarterly Common
Stock Market Prices and Dividends are presented in the "Investor Information"
section which follows the "Notes to the Consolidated Financial Statements"
material filed as part of this report. The market price quotations were
published by the National Association of Securities Dealers, Inc. The
quotations represent prices between dealers; do not include retail markup,
markdown, or commissions; and do not necessarily represent actual
transactions.
The Company expects to continue its policy of paying regular cash dividends
on the first business day of March, June, September, and December.
Historically, the dividend payout percentage has ranged from approximately 22%
to 33% of the previous year's earnings. Future dividends are dependent on
future earnings, capital requirements, and the Company's financial condition.
In addition, the payment of dividends is subject to the restrictions described
in the "Long-Term Debt and Other Liabilities" note included in the Notes to
Consolidated Financial Statements, filed as part of this report.
APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS
<TABLE>
<CAPTION>
APPROXIMATE NUMBER OF EQUITY
TITLE OF CLASS SECURITY HOLDERS OF RECORD AS OF DECEMBER 28, 1996
- -------------- --------------------------------------------------
<S> <C>
Common Stock, $1.00 Par
Value...................... 5,319
Preferred Stock, $1.00 Par
Value...................... -0-
</TABLE>
10
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
11
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA--ELEVEN-YEAR SUMMARY.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
PER COMMON SHARE DATA:
Income from Continuing Operations...... $ 2.26 $ 1.35 $ 1.74
Income from Discontinued Operations.... -- -- --
Cumulative Effect of Accounting
Changes............................... -- -- (.01)
Gain on Sale of Discontinued
Operations............................ -- -- --
Net Income............................. 2.26 1.35 1.73
Cash Dividends......................... .50 .48 .44
Book Value............................. 8.49 7.11 6.35
Net Working Capital.................... 1.78 2.15 2.53
OPERATING RESULTS (Thousands of Dollars)
Net Sales.............................. $ 998,135 $ 893,119 $ 845,998
Cost of Products Sold.................. 679,496 624,700 573,392
Gross Profit........................... 318,639 268,419 272,606
Interest Expense....................... 4,173 3,569 3,248
Income from Continuing Operations
before Income Taxes................... 105,267 65,517 86,338
Income before Income Taxes as a % of
Net Sales............................. 10.55% 7.34% 10.21%
Federal and State Income Taxes......... $ 37,173 $ 24,419 $ 31,945
Effective Tax Rate for Continuing
Operations............................ 35.31% 37.27% 37.00%
Income from Continuing Operations...... $ 68,094 $ 41,098 $ 54,393
Income from Continuing Operations as a
% of Net Sales........................ 6.82% 4.60% 6.43%
Income before Cumulative Effect of
Accounting Changes.................... $ 68,094 $ 41,098 $ 54,393
Income from Discontinued Operations.... -- -- --
Net Income............................. 68,094 41,098 54,156
Cash Dividends and Share Purchase
Rights Redeemed....................... 14,970 14,536 13,601
Addition to (Reduction of) Retained
Earnings.............................. 33,860 18,863 13,563
Net Income Applicable to Common Stock.. 68,094 41,098 54,156
% Return on Average Shareholders'
Equity................................ 29.06% 20.00% 28.95%
Depreciation and Amortization.......... $ 25,252 $ 21,416 $ 19,042
DISTRIBUTION OF NET INCOME
% Paid to Shareholders................. 21.98% 35.37% 25.11%
% Reinvested in Business............... 78.02% 64.63% 74.89%
FINANCIAL POSITION (Thousands of
Dollars)
Current Assets......................... $ 205,527 $ 194,183 $ 188,810
Current Liabilities.................... 152,553 128,915 111,093
Working Capital........................ 52,974 65,268 77,717
Net Property, Plant, and Equipment..... 234,616 210,033 177,844
Total Assets of Continuing Operations.. 513,514 409,518 372,568
Total Assets of Discontinued
Operations--Net....................... -- -- --
Total Assets........................... 513,514 409,518 372,568
% Return on Beginning Assets Employed.. 25.93% 17.91% 24.72%
Long-Term Debt, Other Liabilities, and
Capital Lease Obligations............. $ 97,788 $ 53,611 $ 54,741
Shareholders' Equity................... 252,397 216,235 194,640
Retained Earnings...................... 227,365 193,505 174,642
Current Ratio.......................... 1.35 1.51 1.70
CURRENT SHARE DATA
Number of Shares Outstanding at Year-
End................................... 29,713,265 30,394,337 30,674,603
Weighted Average Shares Outstanding
During Year........................... 30,114,295 30,495,642 31,217,725
Number of Shareholders of Record at
Year-End.............................. 5,319 5,479 5,556
OTHER OPERATIONAL DATA
Capital Expenditures--Net (Thousands of
Dollars).............................. $ 44,684 $ 53,879 $ 35,005
Members (Employees) at Year-End........ 6,502* 5,933 6,131
</TABLE>
- --------
*Includes members resulting from an acquisition made on October 2, 1996.
12
<PAGE>
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989 1988 1987 1986
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 1.39 $ 1.18 $ 1.02 $ 1.30 $ .79 $ .69 $ .59 $ .68
-- -- -- -- -- .03 .03 .03
.02 -- -- -- -- -- -- --
-- -- -- -- -- .22 -- --
1.41 1.18 1.02 1.30 .79 .94 .62 .71
.40 .37 .36 .30 .24 .20 .20 .16
5.67 5.04 4.64 4.06 3.76 3.96 3.33 3.35
2.45 2.46 2.13 1.64 1.66 2.59 1.94 1.79
$ 780,326 $ 706,550 $ 607,710 $ 663,896 $ 602,009 $ 532,456 $ 516,262 $ 460,137
537,828 479,179 411,168 458,522 409,942 366,599 355,456 301,197
242,498 227,371 196,542 205,374 192,067 165,857 160,806 158,940
3,120 3,441 3,533 3,611 3,944 4,188 3,512 3,417
70,854 61,893 52,653 69,085 44,656 41,919 41,887 53,960
9.08% 8.76% 8.66% 10.41% 7.42% 7.87% 8.11% 11.73%
$ 26,216 $ 23,210 $ 19,745 $ 25,907 $ 17,193 $ 16,139 $ 18,431 $ 26,000
37.00% 37.50% 37.50% 37.50% 38.50% 38.50% 44.00% 48.18%
$ 44,638 $ 38,683 $ 32,908 $ 43,178 $ 27,463 $ 25,780 $ 23,456 $ 27,960
5.72% 5.47% 5.42% 6.50% 4.56% 4.84% 4.54% 6.08%
$ 44,638 $ 38,683 $ 32,908 $ 43,178 $ 27,463 $ 25,780 $ 23,456 $ 27,960
-- -- -- -- -- 9,515 1,310 1,294
45,127 38,683 32,908 43,178 27,463 35,295 24,766 29,254
12,587 12,114 11,656 9,931 8,298 7,956 7,957 6,569
17,338 26,569 18,182 (11,952) (17,444) 20,986 (18,750) 15,737
45,127 38,683 32,908 43,178 27,463 35,295 24,766 29,254
26.35% 24.75% 23.41% 33.24% 19.92% 25.77% 18.85% 22.74%
$ 16,631 $ 15,478 $ 14,084 $ 13,973 $ 12,866 $ 11,860 $ 10,227 $ 8,746
27.89% 31.32% 35.42% 23.00% 30.22% 22.54% 32.13% 22.46%
72.11% 68.68% 64.58% 77.00% 69.78% 77.46% 67.87% 77.54%
$ 188,419 $ 171,309 $ 150,901 $ 146,591 $ 162,576 $ 175,367 $ 139,679 $ 140,329
110,759 91,780 82,275 93,465 106,104 78,787 66,136 67,560
77,660 79,529 68,626 53,126 56,472 96,580 73,543 72,769
157,770 145,849 125,465 124,603 114,116 94,339 95,372 84,622
352,405 322,746 280,893 276,984 284,322 275,928 235,621 242,366
-- -- -- -- -- -- 9,734 11,841
352,405 322,746 280,893 276,984 284,322 275,928 245,355 254,207
22.14% 22.18% 19.66% 24.00% 16.32% 18.46% 17.71% 22.71%
$ 51,114 $ 54,240 $ 35,664 $ 39,575 $ 38,271 $ 38,712 $ 42,328 $ 38,542
179,553 163,009 149,575 131,612 128,203 147,549 126,388 136,336
161,079 143,741 117,172 98,990 110,942 128,386 107,400 126,150
1.70 1.87 1.83 1.57 1.53 2.23 2.11 2.08
31,675,846 32,368,956 32,208,685 32,384,897 34,097,088 37,323,582 37,976,636 40,724,192
32,090,544 32,758,995 32,371,488 33,110,405 34,816,050 37,426,836 39,794,062 41,083,028
4,653 4,534 4,466 4,331 4,124 4,134 3,218 3,179
$ 27,541 $ 26,626 $ 13,907 $ 20,709 $ 12,807 $ 10,299 $ 15,669 $ 16,953
6,257 5,926 5,599 6,073 6,385 5,423 5,840 5,492
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal year 1996 was a record financial year for HON INDUSTRIES. Net sales
for the year were only a breath away from reaching the $1 billion milestone.
Each fiscal quarter set a new quarterly record for net sales, net income, and
net income per share.
Overall Financial Results
For the year ended December 28, 1996, net sales were $998.1 million compared
to $893.1 million in 1995 and $846.0 million in 1994. The Company's sales
growth was 11.8% in 1996, 5.6% in 1995, and 8.4% in 1994; and net sales for
each of these years represented a record level. Net income for 1996 was $68.1
million, up 65.7%, compared to $41.1 million in 1995 and $54.2 million in
1994. Net income per share was up 67.4% reaching $2.26 compared to $1.35 in
1995 and $1.73 in 1994.
A brief summary of key operating results follows:
<TABLE>
<CAPTION>
(% OF NET SALES
FOR PERIOD)
-------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Net sales............................................ 100.0% 100.0% 100.0%
Cost of products sold................................ 68.1 69.9 67.8
Selling & administrative expenses.................... 21.6 22.6 21.9
Operating income..................................... 10.6 7.5 10.3
Interest expense..................................... .4 .4 .4
Income taxes......................................... 3.7 2.7 3.8
Net income........................................... 6.8 4.6 6.4
</TABLE>
Strategic Acquisition
One highlight of 1996 was the acquisition of Heat-N-Glo Fireplace Products,
Inc., a leading national fireplace manufacturer. The acquisition was completed
on October 2, 1996. Heat-N-Glo was integrated with the Company's Heatilator
operation to form a new subsidiary, Hearth Technologies Inc. This strategic
consolidation positions Hearth Technologies as the leading manufacturer and
marketer in the U.S. hearth industry and further strengthens this important
business segment for HON INDUSTRIES. For further details about this important
acquisition transaction, refer to the "Business Combination" and "Long-Term
Debt and Other Liabilities" notes in the accompanying Notes to Consolidated
Financial Statements.
Core Business
The Company participates in two core business segments: office furniture and
hearth products. It has a strong national leadership position in both. For
1996, office products comprised 89% of net sales, and hearth products was a
growing 11%, with Heat-N-Glo contributing to the results for only the fourth
quarter.
Industry Growth
The office furniture industry continues to be a healthy and growing
industry. The industry reported growth of 6% in 1996, 8% in 1995, and 8% in
1994.
The Company's experience suggests the hearth products industry is growing at
an even more accelerated rate than office furniture. Growth in this industry
is being fueled by a combination of new gas fireplace and stove products and
technologies, which are being demanded by the consumer-specified market and is
Heat-N-Glo's primary market focus; more stringent environmental regulations,
and retrofitting older wood-burning and gas fireplace and stove products with
the newer gas technologies.
14
<PAGE>
Net Sales
The growth of the Company's net sales in both core business segments during
fiscal year 1996 shows continuing gains in market share as customers search for
value products, which are a major product focus of HON INDUSTRIES. Management
is supporting this marketing focus for both segments with an ongoing stream of
innovative and quality new products and a commitment to manufacturing
excellence, which includes providing shorter and more reliable order lead
times, providing superior customer service, offering competitively priced
products, and making customer satisfaction the paramount objective.
Net sales in 1995 were impacted by a fiercely competitive market environment.
The Company focused on strengthening its core commercial and budget office
furniture business which serves small-and medium-sized businesses, including
offices in the home. Fiscal year 1994 net sales benefited from a rebound in
U.S. demand for office furniture.
Gross Profit
In general, the Company's sales growth over the past several years in both
business segments has come through unit sales growth as opposed to pricing
growth. The competitive marketplace has discouraged general price increases
during the past three years. Experience has shown the best opportunity to
improve gross profits is through the introduction of new products. As a result,
HON INDUSTRIES will continue to introduce a steady stream of new compelling-
value products to achieve its future sales and profitability growth objectives.
Another major factor influencing the gross profit equation is the Company's
commitment to being a low-cost producer of office furniture and hearth
products. Increased production costs have been offset to a significant extent
by productivity gains, partnering with vendors to find lower cost and higher
quality material solutions, efficiencies gained by virtue of increased unit
production volume, and improved production processes. Cost of products sold and
gross profit, as a percentage of net sales for the 1996 through 1994 time
period, have felt the competitive pressure of deeper discounting of net sales.
Gross profit margins for 1996, 1995, and 1994 were 31.9%, 30.1%, and 32.2%,
respectively.
Selling and Administrative Expenses
Leveraging selling and administrative expenses has been another emphasis of
management; that is, managing these costs so they represent a decreasing
percentage of net sales as net sales increase. This is a major ongoing
challenge. More aggressive marketing programs, greater use of cooperative
advertising programs, freight costs escalating at a more rapid rate than
product price increases, costs of financing an aggressive new product
development strategy, and costs to pursue a proactive acquisition strategy all
contribute to the challenge. For example, product development expense alone
represented $10.4 million, $11.6 million, and $10.1 million in 1996, 1995, and
1994, respectively. These expenditures relate directly to the Company's new
product commitment. Selling and administrative expenses as a percentage of net
sales were 21.6% in 1996, 22.6% in 1995, and 21.9% in 1994.
Income Taxes
The Company's effective tax rate was 35.3% for 1996, 37.3% for 1995, and
37.0% for 1994. The rate for 1996 was favorably impacted by one-time federal
research and development and state new jobs income tax credits of $2.1 million,
or $0.7 per share, recorded in the third quarter of 1996. The normal 1996
annual effective tax rate would have been 37.3%.
Enhanced Shareholder Value
HON INDUSTRIES' net income per share performance for 1996, 1995, and 1994
benefited from the Company's active common stock repurchase program activity
during this period. Reported earnings per share for 1996, 1995, and 1994 were
enhanced by $0.11, $0.05, and $0.03, respectively, as a result of the
repurchases. Similarly, share repurchases have increased the book value of
shares outstanding. The impact was $0.52, $0.28, and $0.21 per share for 1996,
1995, and 1994, respectively.
15
<PAGE>
Unusual Business Income and Charges
The Company closed, consolidated, and sold several operations over the past
two years in an effort to concentrate further its core strengths. In addition,
the Company resolved several litigation uncertainties, reduced its work force,
addressed several asset realization concerns, and benefited from special tax
credits. The net effect of these unusual business events was to reduce annual
net income by $3.3 million, or $0.11 per share, in 1996, and $4.8 million, or
$0.16 per share, in 1995.
FINANCIAL CONDITION
During 1996, cash from operations was $93.3 million, which provided the funds
necessary to meet working capital needs, help finance an acquisition, invest in
capital improvements, repay long-term debt, pay increased dividends, and
repurchase Company stock.
Cash Management
Cash, cash equivalents, and short-term investments totaled $32.7 million at
the end of 1996, compared to $46.9 million at the end of 1995, and $30.7
million at year-end 1994. These funds, coupled with future cash from operations
and additional long-term debt, if needed, are expected to be adequate to
finance operations, planned improvements, and growth.
Another major element in maintaining a strong balance sheet is managing the
investment in receivables and inventories. The Company's success in managing
receivables is in large part due to maintaining close communications with the
customers and utilizing prudent risk assessment techniques. Inventory levels
and turns continue to improve as a function of reducing production cycle times.
Trade receivables turns have hovered around 10 for the past several years,
including 1996; and inventory turns have been in the 14 to 16 range, with 1996
reaching 17 turns.
Capital Expenditure Investments
Capital expenditures, net of disposals, were $44.7 million in 1996, $53.9
million in 1995, and $35.0 million in 1994. Expenditures for 1996 were
principally for machinery, equipment, and process improvements. Approximately
$11.0 million of the expenditures in 1995 were for facility capacity expansion
and improvements, with the remainder invested in more productive machinery,
equipment, and process improvements. Expenditures for 1994 were also
principally for machinery, equipment, and process improvements. Looking
forward, the projected capital expenditure level for 1997 is at a slightly
higher level than in 1996 and will include some facility capacity expansion,
but the bulk of the investment will be for more productive and flexible
machinery, equipment, and processes as in the past.
Acquisition Strategy
A major objective of HON INDUSTRIES continues to be exploring potential
acquisitions as a key element of its growth strategy. As a result, considerable
executive management effort is devoted to this pursuit. An acquisition must
present profitable growth opportunities within the Company's core businesses,
must be well managed, and must be well respected by its customers.
Long-Term Debt
Long-term debt, including capital lease obligations, stood at 23.5% of total
capitalization at December 28, 1996, after recording the debt associated with
the Heat-N-Glo acquisition. The Company does not expect future capital
resources to be a concern. The Company has significant additional borrowing
capacity and treasury stock available in the event cash generated from
operations should be inadequate to meet future capital needs.
16
<PAGE>
Cash Dividends
Annualized cash dividends were $0.50 per common share for 1996, $0.48 for
1995, and $0.44 for 1994. The Board of Directors announced a 17% increase in
quarterly dividend rate, from $0.12 to $0.14 per common share, in November
1996, effective with the December 1, 1996, dividend payment. The last quarterly
dividend increase was from $0.11 to $0.12, effective with the March 1, 1995,
dividend payment. A cash dividend has been paid every quarter since April 15,
1955, and quarterly dividends are expected to continue. The dividend payout
percentage has ranged from approximately 22% to 33% of prior year earnings.
Common Share Repurchases
In August 1996, the Board of Directors authorized an additional $20.0 million
to acquire the Company's common stock. During 1996, 753,800 shares were
reacquired at a cost of approximately $21.9 million, or an average price of
$29.07. During 1995, 367,317 shares were reacquired at a cost of approximately
$9.8 million, and 1,078,835 shares were purchased in 1994 at a cost of
approximately $29.6 million. The Company purchases its own shares in open
market transactions. The stock repurchase strategy was initiated in 1985.
Approximately 15.9 million shares have been repurchased since program inception
at a cost of approximately $228.9 million. As of December 28, 1996,
approximately $8.7 million of the Board's last $20.0 million purchase
authorization remained unspent.
Litigation and Uncertainties
The Company is involved in various legal actions arising in the course of
business, including certain environmental matters. These uncertainties are
referenced in the "Contingencies" note included in the Notes to Consolidated
Financial Statements and more fully described in "Item 3. Legal Proceedings" in
the Company's Annual Report on Form 10-K for the fiscal year ended December 28,
1996.
Management believes that the Company's contingent liability for these
matters, including the various environmental issues, will not have a material
effect on the financial position or results of operations of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements listed under Item 14 (a)(1) and (2) are filed as
part of this report.
The Summary of Unaudited Quarterly Results of Operations is presented in the
"Investor Information" section which follows the "Notes to the Consolidated
Financial Statements" filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
HON INDUSTRIES Inc., (the "Company") dismissed Ernst & Young LLP, its
independent auditors, effective May 14, 1996.
In connection with the audits of the two most recent fiscal years, and during
the interim period prior to dismissal, there were no disagreements with the
former auditors on any matter or accounting principle or practice, financial
statement disclosure, or auditing scope or procedure.
The former auditor's report on the financial statements of the Company for
each of the past two fiscal years was unqualified.
The Company engaged Arthur Andersen LLP as its new independent public
accountants effective with the dismissal of its former accountants. During the
Company's two most recent fiscal years and during the interim period prior to
the engagement, there were no consultations with the newly engaged accountants
with regard to either the application of accounting principle as to any
specific transaction, either completed or proposed; the type of audit opinion
that would be rendered on the Company's financial statements; or any matter of
disagreements with the former accountants.
The Company's Board of Directors approved management's recommendation to
change accountants.
17
<PAGE>
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT.
The information under the caption "Election of Directors" of the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on May 13,
1997, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the caption "Executive Compensation" of the Company's
Proxy Statement for the Annual Meeting of Shareholders to be held on May 13,
1997, is incorporated herein by reference.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "Beneficial Owners of Common Stock" of the
Company's Proxy Statement for the Annual Meeting of Shareholders to be held on
May 13, 1997, is incorporated herein by reference.
The information under the caption "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" of the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on May 13, 1997, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Certain Relationships and Related
Transactions" of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 13, 1997, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) FINANCIAL STATEMENTS.
The following consolidated financial statements of HON INDUSTRIES Inc.
and Subsidiaries included in the Company's 1996 Annual Report to
Shareholders are filed as a part of this report pursuant to Item 8:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................. 22
Consolidated Statements of Income for the Years Ended December 28,
1996; December 30, 1995; and December 31, 1994....................... 24
Consolidated Balance Sheets--December 28, 1996;
December 30, 1995; and December 31, 1994.............................. 25
Consolidated Statements of Shareholders' Equity for the Years Ended
December 28, 1996; December 30, 1995; and December 31, 1994.......... 26
Consolidated Statements of Cash Flows for the Years Ended December 28,
1996; December 30, 1995; and December 31, 1994....................... 27
Notes to Consolidated Financial Statements............................ 28
Investor Information (including Summary of Unaudited Quarterly Results
of Operations)....................................................... 40
(2) FINANCIAL STATEMENT SCHEDULES.
The following consolidated financial statement schedule of the Company
and subsidiaries is attached pursuant to Item 14(d):
Schedule II Valuation and Qualifying Accounts for the Years Ended
December 28, 1996; December 30, 1995; and December 31, 1994... 42
</TABLE>
18
<PAGE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and,
therefore, have been omitted.
(b) REPORTS ON FORM 8-K.
A Report on Form 8-K, dated October 16, 1996, was filed to disclose the
acquisition by Heatilator Inc., a wholly owned subsidiary of HON INDUSTRIES
Inc., of Heat-N-Glo Fireplace Products, Inc. Simultaneous with the merger,
the name of Heatilator Inc. was changed to Hearth Technologies Inc. with
the former Heatilator and Heat-N-Glo businesses operating as divisions of
this subsidiary. Effective November 18, 1996, the Securities and Exchange
Commission revised the rules which required registrants to provide
financial statement and pro forma financial information for acquisitions
that do not meet the "significant subsidiary" test, thus, the Company
determined it was exempt from filing this information as a result of
complying with the new rule. Subsequently on November 21, 1996, a Report on
Form 8-K/A (an amendment) was filed to bring closure to the missing
financial statement and pro forma financial information that was not
available when the initial Report on Form 8-K was filed.
(c) EXHIBITS.
The following exhibits are filed pursuant to Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
PAGE(S) IN
EXHIBIT FORM 10-K
------- ----------
<S> <C>
(3ii)By-Laws of the Registrant................................. 44
(21)Subsidiaries of the Registrant............................. 81
(23A)Consent of Independent Public Accountants................. 82
(23B)Consent of Independent Auditors........................... 83
(27)Financial Data Schedule.................................... 84
(99A)Executive Bonus Plan of the Registrant.................... 85
(99B)Executive Deferred Compensation Plan...................... 89
</TABLE>
(d) FINANCIAL STATEMENT SCHEDULES.
See Item 14(a)(2).
19
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT ON
FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
HON Industries Inc.
/s/ Jack D. Michaels
By___________________________________
Jack D. Michaels
Chairman, President and CEO
Date: February 12, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT
AND IN THE CAPACITIES AND ON THE DATES INDICATED. EACH DIRECTOR WHOSE
SIGNATURE APPEARS BELOW AUTHORIZES AND APPOINTS JACK D. MICHAELS AS HIS OR HER
ATTORNEY-IN-FACT TO SIGN AND FILE ON HIS OR HER BEHALF ANY AND ALL AMENDMENTS
AND POST-EFFECTIVE AMENDMENTS TO THIS REPORT.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Jack D. Michaels Chairman, President and CEO, 2/12/97
____________________________________ Principal Executive
Jack D. Michaels Officer,
and Director
/s/ Melvin L. McMains Controller and Principal 2/12/97
____________________________________ Accounting Officer
Melvin L. McMains
/s/ David C. Stuebe Vice President and 2/12/97
____________________________________ Chief Financial Officer
David C. Stuebe
/s/ Robert W. Cox Director 2/12/97
____________________________________
Robert W. Cox
/s/ W. James Farrell Director 2/12/97
____________________________________
W. James Farrell
/s/ Stanley M. Howe Director 2/12/97
____________________________________
Stanley M. Howe
/s/ Robert L. Katz Director 2/12/97
____________________________________
Robert L. Katz
/s/ Lee Liu Director 2/12/97
____________________________________
Lee Liu
/s/ Celeste C. Michalski Director 2/12/97
____________________________________
Celeste C. Michalski
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Michael S. Plunkett Director 2/12/97
____________________________________
Michael S. Plunkett
/s/ Herman J. Schmidt Director 2/12/97
____________________________________
Herman J. Schmidt
/s/ Richard H. Stanley Director 2/12/97
____________________________________
Richard H. Stanley
/s/ Lorne R. Waxlax Director 2/12/97
____________________________________
Lorne R. Waxlax
</TABLE>
21
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
HON INDUSTRIES Inc.
We have audited the accompanying consolidated balance sheet of HON
INDUSTRIES Inc. and subsidiaries as of December 28, 1996, and the related
consolidated statement of income, shareholders' equity, and cash flows for the
fiscal year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of HON INDUSTRIES Inc. and subsidiaries as of December 28, 1996, and the
consolidated results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
January 30, 1997
22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
HON INDUSTRIES Inc.
We have audited the accompanying consolidated balance sheets of HON
INDUSTRIES Inc. and subsidiaries as of December 30, 1995, and December 31,
1994, and the related consolidated statements of income, shareholders' equity,
and cash flows for the years then ended. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of HON INDUSTRIES Inc. and subsidiaries as of December 30, 1995, and December
31, 1994, and the consolidated results of their operations and their cash flows
for the years then ended, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
As discussed in the Notes to Consolidated Financial Statements, the Company
changed its method of accounting for postemployment benefits in 1994.
Ernst & Young LLP
Chicago, Illinois
January 30, 1996
23
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS 1996 1995 1994
- ------------- ------------ ------------ ------------
<S> <C> <C> <C>
Net sales.............................. $998,135,000 $893,119,000 $845,998,000
Cost of products sold.................. 679,496,000 624,700,000 573,392,000
------------ ------------ ------------
Gross Profit....................... 318,639,000 268,419,000 272,606,000
Selling and administrative expenses.... 215,646,000 201,691,000 185,490,000
Gain on sale of subsidiary............. 3,200,000 -- --
------------ ------------ ------------
Operating Income....................... 106,193,000 66,728,000 87,116,000
------------ ------------ ------------
Interest income........................ 3,247,000 2,358,000 2,470,000
Interest expense....................... 4,173,000 3,569,000 3,248,000
------------ ------------ ------------
Income Before Income Taxes............. 105,267,000 65,517,000 86,338,000
Income taxes........................... 37,173,000 24,419,000 31,945,000
------------ ------------ ------------
Income Before Cumulative Effect of
Accounting Changes.................... 68,094,000 41,098,000 54,393,000
Cumulative effect of accounting
changes............................... -- -- (237,000)
Net Income......................... $ 68,094,000 $ 41,098,000 $ 54,156,000
============ ============ ============
Net Income Per Common Share:
Income before cumulative effect of
accounting changes.................... $ 2.26 $ 1.35 $ 1.74
Cumulative effect of accounting
changes............................... -- -- (.01)
Net Income......................... $ 2.26 $ 1.35 $ 1.73
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
24
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
BALANCE SHEET
<TABLE>
<CAPTION>
AS OF YEAR-END 1996 1995 1994
- -------------- ------------ ------------ ------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.......... $ 31,196,000 $ 32,231,000 $ 27,659,000
Short-term investments............. 1,502,000 14,694,000 3,083,000
Receivables........................ 109,095,000 88,178,000 94,269,000
Inventories........................ 43,550,000 36,601,000 43,259,000
Deferred income taxes.............. 9,046,000 14,180,000 11,565,000
Prepaid expenses and other current
assets............................ 11,138,000 8,299,000 8,975,000
------------ ------------ ------------
Total Current Assets............. 205,527,000 194,183,000 188,810,000
Property, Plant, and Equipment....... 234,616,000 210,033,000 177,844,000
Goodwill............................. 51,213,000 908,000 1,247,000
Other Assets......................... 22,158,000 4,394,000 4,667,000
------------ ------------ ------------
Total Assets..................... $513,514,000 $409,518,000 $372,568,000
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued
expenses.......................... $127,910,000 $117,273,000 $ 99,898,000
Income taxes....................... 2,574,000 5,361,000 4,949,000
Note payable and current maturities
of long-term obligations.......... 22,069,000 6,281,000 6,246,000
------------ ------------ ------------
Total Current Liabilities........ 152,553,000 128,915,000 111,093,000
Long-Term Debt and Other Liabilities. 91,468,000 45,911,000 46,080,000
Capital Lease Obligations............ 6,320,000 7,700,000 8,661,000
Deferred Income Taxes................ 10,726,000 10,757,000 12,094,000
Minority Interest in Subsidiary...... 50,000 -- --
Commitments and Contingencies
Shareholders' Equity
Common stock....................... 29,713,000 30,394,000 30,675,000
Paid-in capital.................... 360,000 550,000 434,000
Retained earnings.................. 227,365,000 193,505,000 174,642,000
Receivable from HON Members Company
Ownership Plan.................... (5,041,000) (8,214,000) (11,111,000)
------------ ------------ ------------
Total Shareholders' Equity....... 252,397,000 216,235,000 194,640,000
------------ ------------ ------------
Total Liabilities and
Shareholders' Equity............ $513,514,000 $409,518,000 $372,568,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
25
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS 1996 1995 1994
- ------------- ------------ ------------ ------------
<S> <C> <C> <C>
Common Stock
Balance, beginning of year......... $ 30,394,000 $ 30,675,000 $ 31,676,000
Purchase of shares................. (742,000) (367,000) (1,078,000)
Shares issued under Members Stock
Purchase Plan and restricted stock
awards............................ 61,000 86,000 77,000
------------ ------------ ------------
Balance, end of year............. $ 29,713,000 $ 30,394,000 $ 30,675,000
------------ ------------ ------------
Paid-In Capital
Balance, beginning of year......... $ 550,000 $ 434,000 $ 281,000
Purchase of shares................. (1,654,000) (1,725,000) (1,567,000)
Shares issued under Members Stock
Purchase Plan and restricted stock
awards............................ 1,464,000 1,841,000 1,720,000
------------ ------------ ------------
Balance, end of year............. $ 360,000 $ 550,000 $ 434,000
------------ ------------ ------------
Retained Earnings
Balance, beginning of year......... $193,505,000 $174,642,000 $161,079,000
Net income......................... 68,094,000 41,098,000 54,156,000
Purchase of shares................. (19,264,000) (7,699,000) (26,992,000)
Dividends paid..................... (14,970,000) (14,536,000) (13,601,000)
------------ ------------ ------------
Balance, end of year............. $227,365,000 $193,505,000 $174,642,000
------------ ------------ ------------
Receivable from HON Members Company
Ownership Plan
Balance, beginning of year......... $ (8,214,000) $(11,111,000) $(13,483,000)
Principal repaid by HON Members
Company Ownership Plan............ 3,173,000 2,897,000 2,372,000
------------ ------------ ------------
Balance, end of year............. $ (5,041,000) $ (8,214,000) $(11,111,000)
------------ ------------ ------------
Shareholders' Equity
Balance, end of year............. $252,397,000 $216,235,000 $194,640,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
26
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS 1996 1995 1994
------------- ------------- ------------ ------------
<S> <C> <C> <C>
NET CASH FLOWS FROM (TO) OPERATING
ACTIVITIES:
Net income......................... $ 68,094,000 $ 41,098,000 $ 54,156,000
Noncash items included in net
income:
Depreciation and amortization.... 25,252,000 21,416,000 19,042,000
Gain on sale of subsidiary, net
of tax.......................... (2,016,000) -- --
Other postretirement and
postemployment benefits......... 1,398,000 2,273,000 2,104,000
Deferred income taxes............ 5,103,000 (3,952,000) 854,000
Cumulative effect of accounting
changes......................... -- -- 237,000
Other--net....................... 252,000 1,185,000 54,000
Changes in working capital,
excluding acquisition and
disposition:
Receivables...................... (5,085,000) 6,091,000 (10,619,000)
Inventories...................... 184,000 6,658,000 (4,629,000)
Prepaid expenses and other
current assets.................. (2,613,000) 676,000 1,484,000
Accounts payable and accrued
expenses........................ 998,000 17,009,000 4,619,000
Accrued facilities closing and
reorganization expenses......... (1,147,000) 366,000 (1,885,000)
Income taxes..................... (3,971,000) 412,000 (1,847,000)
Increase in other liabilities...... 6,860,000 (216,000) 1,077,000
------------- ------------ ------------
Net cash flows from (to)
operating activities.......... 93,309,000 93,016,000 64,647,000
------------- ------------ ------------
NET CASH FLOWS FROM (TO) INVESTING
ACTIVITIES:
Capital expenditures--net.......... (44,684,000) (53,879,000) (35,005,000)
Acquisition spending, net of cash
acquired.......................... (79,136,000) -- --
Net proceeds from sale of
subsidiary........................ 7,336,000 -- --
Principal repaid by HON Members
Company Ownership Plan............ 3,173,000 2,897,000 2,372,000
Short-term investments--net........ 12,392,000 (11,611,000) 8,515,000
Other--net......................... (976,000) (205,000) (291,000)
------------- ------------ ------------
Net cash flows from (to)
investing activities.......... (101,895,000) (62,798,000) (24,409,000)
------------- ------------ ------------
NET CASH FLOWS FROM (TO) FINANCING
ACTIVITIES:
Purchase of HON INDUSTRIES common
stock............................. (21,912,000) (9,791,000) (29,637,000)
Proceeds from long-term debt....... 51,072,000 104,000 --
Payments of note and long-term
debt.............................. (8,416,000) (3,350,000) (3,916,000)
Proceeds from sale of HON
INDUSTRIES common stock to
members........................... 1,777,000 1,927,000 1,797,000
Dividends paid..................... (14,970,000) (14,536,000) (13,601,000)
------------- ------------ ------------
Net cash flows from (to)
financing activities.......... 7,551,000 (25,646,000) (45,357,000)
------------- ------------ ------------
Net increase (decrease) in cash and
cash equivalents.................. (1,035,000) 4,572,000 (5,119,000)
------------- ------------ ------------
Cash and cash equivalents at
beginning of year................. 32,231,000 27,659,000 32,778,000
------------- ------------ ------------
Cash and cash equivalents at end of
year.............................. $ 31,196,000 $ 32,231,000 $ 27,659,000
------------- ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest......................... $ 3,334,000 $ 3,401,000 $ 3,234,000
Income taxes..................... $ 36,318,000 $ 27,560,000 $ 32,534,000
============= ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
27
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF OPERATIONS
HON INDUSTRIES Inc. and subsidiaries (the Company) are a national
manufacturer and marketer of office furniture and hearth products. Both
industries are reportable segments; however, the Company's office furniture
business is its principal line of business. Refer to the "Business Segment
Information" note for further information. Office furniture products are sold
through a national system of dealers, wholesalers, mass merchandisers,
warehouse clubs, retail superstores, end-user customers, and to federal and
state governments. Dealer, wholesaler, and retail superstores are the major
channels based on sales. Hearth products include wood- and gas-burning
factory-built fireplaces, fireplace inserts, gas logs, and stoves. These
products are sold through a national system of dealers, wholesalers, and large
regional contractors. The Company's products are marketed predominately in the
United States and Canada. The Company exports select products to a limited
number of markets outside North America, principally Latin America and the
Caribbean, through its export subsidiary; however, based on sales, it is not
significant.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Fiscal Year-End
The consolidated financial statements include the accounts and transactions
of the Company and its subsidiaries. Intercompany accounts and transactions
have been eliminated in consolidation.
The Company's fiscal year ends on the Saturday nearest December 31. Fiscal
year 1996 ended on December 28, 1996; 1995 ended on December 30, 1995; and
1994 ended on December 31, 1994.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash and commercial paper.
These securities have original maturity dates not exceeding three months from
date of purchase.
Short-Term Investments
Short-term investments are classified as available-for-sale and are highly
liquid debt and equity securities. These investments are stated at cost which
approximates market value.
Receivables
Accounts receivable are presented net of an allowance for doubtful accounts
of $1,830,000; $1,867,000; and $1,654,000 for 1996, 1995, and 1994,
respectively.
Inventories
Inventories are valued at the lower of cost or market, determined
principally by the last-in, first-out (LIFO) method.
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost. Depreciation has been
computed by the straight-line method over estimated useful lives: land
improvements, 10-20 years; buildings, 10-40 years; and machinery and
equipment, 3-12 years. The Company capitalized interest costs of $95,000 and
$256,000 in 1996 and 1995, respectively.
28
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Goodwill and Patents
Goodwill represents the excess of cost over the fair value of net
identifiable assets of acquired companies. Goodwill is being amortized on a
straight-line basis predominately over 40 years. Patents are being amortized on
a straight-line basis over their estimated useful lives which range from 7 to
16 years. Patents are reported by the Company as "Other Assets."
The carrying value of goodwill and patents is reviewed by the Company
whenever significant events or changes occur which might impair recovery of
recorded costs. Based on its most recent analysis, the Company believes no
material impairment of these intangible assets exists at December 28, 1996.
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill........................................... $52,051 $2,865 $2,865
Patents............................................ 16,060 -- --
Less accumulated amortization...................... 838 1,957 1,618
------- ------ ------
$67,273 $ 908 $1,247
======= ====== ======
</TABLE>
Product Development Costs
Product development costs relating to the development of new products and
processes, including significant improvements and refinements to existing
products, are expensed as incurred. The amounts charged against income were
$10,423,000 in 1996, $11,591,000 in 1995, and $10,081,000 in 1994.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
New Accounting Policies
The Company adopted Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," in the first quarter of 1996. The adoption had no material
effect on results of operations.
BUSINESS COMBINATIONS
On October 2, 1996, the Company acquired all of the outstanding stock of
Heat-N-Glo Fireplace Products, Inc., located in Savage, Minnesota, for a
combination of cash and debt totaling approximately $79 million. The Company
merged Heat-N-Glo into Heatilator Inc., a wholly owned subsidiary, which
changed its name to Hearth Technologies Inc. Both Heatilator and Heat-N-Glo are
engaged in the manufacture and marketing of quality hearth products and operate
as divisions of Hearth Technologies Inc.
The Company paid approximately $62.0 million in cash, a $5.0 million long-
term note, and $12.0 million as a convertible debenture for Heat-N-Glo. In
connection with the merger, the Company entered into a $34.0 million five-year
term loan with LaSalle National Bank.
This transaction has been accounted for under the purchase method.
Accordingly, the accounts and transactions of the acquired company have been
included in the consolidated financial statements from the date of acquisition.
29
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Assuming the acquisition had occurred as of the beginning of fiscal year
1995, the Company's pro forma consolidated net sales would have been
approximately $1.07 billion and $971.6 million for 1996 and 1995, respectively.
Pro forma consolidated net income and net income per common share would not
have been materially different than reported amounts.
The net purchase price was preliminarily allocated as follows: (In thousands)
<TABLE>
<S> <C>
Working capital, other than cash................................. $10,702
Property, plant, and equipment................................... 6,441
Other assets..................................................... 548
Patents.......................................................... 16,060
Goodwill......................................................... 52,051
Other liabilities................................................ (6,666)
-------
Purchase price, net of cash received......................... $79,136
=======
</TABLE>
BUSINESS DISPOSITION
On January 24, 1996, the Company sold the outstanding stock of Ring King
Visibles, Inc., a wholly owned subsidiary, for $8.0 million in cash and the
forgiveness of intercompany receivables of approximately $2.0 million. The sale
resulted in an approximate $3.2 million pretax gain for the Company (an after-
tax gain of $2.0 million, or $0.07 per share) which was recorded in the first
quarter of fiscal year 1996.
INVENTORIES
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished products................................ $15,793 $11,265 $13,554
Materials and work in process.................... 27,757 25,336 29,705
------- ------- -------
$43,550 $36,601 $43,259
======= ======= =======
</TABLE>
Current replacement cost exceeded the amount stated for inventories valued by
the LIFO method by approximately $12,337,000; $13,594,000; and $12,983,000 as
of year-end 1996, 1995, and 1994, respectively.
PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and land improvements.................... $ 9,114 $ 9,701 $ 8,832
Buildings..................................... 92,509 95,310 84,801
Machinery and equipment....................... 231,780 208,707 185,421
Construction and equipment installation in
progress..................................... 42,507 30,036 17,915
-------- -------- --------
375,910 343,754 296,969
Less allowances for depreciation.............. 141,294 133,721 119,125
-------- -------- --------
$234,616 $210,033 $177,844
======== ======== ========
</TABLE>
30
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Trade accounts payable......................... $ 44,762 $ 47,617 $40,939
Compensation................................... 6,331 4,855 3,343
Profit sharing and retirement expense.......... 11,736 11,490 11,066
Vacation pay................................... 8,064 8,492 8,579
Marketing expenses............................. 36,550 23,930 17,443
Workers' compensation, general, and product
liability expenses............................ 3,787 4,032 4,700
Other accrued expenses......................... 16,680 16,857 13,828
-------- -------- -------
$127,910 $117,273 $99,898
======== ======== =======
</TABLE>
LONG-TERM DEBT AND OTHER LIABILITIES
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Industrial development revenue bonds, various
issues, payable through 2013 with interest at
4.50-8.50% per annum............................ $24,063 $24,542 $24,928
Note payable to bank, term loan payable in 2001
with interest at 7.11% per annum*............... 27,200 -- --
Note payable to bank, payable quarterly through
1997 with interest at a variable rate (6.03% at
year-end 1996).................................. -- 7,750 9,700
Convertible debenture payable to individuals, due
in 1999 with interest at 7.0% per annum......... 12,000 -- --
Accrued employee health care costs............... 7,901 6,503 4,230
Other notes and amounts.......................... 20,304 7,116 7,222
------- ------- -------
$91,468 $45,911 $46,080
======= ======= =======
</TABLE>
- --------
* The Company has entered into an interest rate swap agreement on a notional
amount of $34 million, which is equivalent to the amount of the term loan,
to obtain a fixed rate of interest in lieu of a floating rate. The interest
rate swap agreement matures at the time the related note matures. The
Company is exposed to credit loss in the event of nonperformance by the
bank making the loan who is the other party to the agreement. However, the
Company does not anticipate nonperformance by the counterparty.
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1997................................................ $15,107
1998................................................ 7,459
1999................................................ 19,486
2000................................................ 10,104
2001................................................ 10,026
Thereafter.......................................... 24,209
</TABLE>
The note and convertible debenture payable to individuals are payable to the
former owners of a business acquired by the Company in 1996. These individuals
continue as officers of a subsidiary of the business following the merger. The
convertible debenture is convertible into shares of common stock of Hearth
31
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Technologies Inc., a subsidiary of the Company, representing 10% of the current
issued and outstanding stock of Hearth Technologies Inc.
Certain of the above borrowing arrangements include covenants which require
the maintenance of a minimum level of working capital, place restrictions on
the payment of cash dividends, and limit the assumption of additional debt and
lease obligations. Approximately $198,176,000 of retained earnings were
unrestricted at the end of 1996.
The fair value of the Company's outstanding long-term debt obligations at
year-end 1996 approximates the recorded aggregate amount.
Property, plant, and equipment, with net carrying values of approximately
$33,451,000 at the end of 1996, are mortgaged.
INCOME TAXES
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal...................................... $27,958 $25,360 $27,504
State........................................ 3,932 3,011 3,587
------- ------- -------
31,890 28,371 31,091
Deferred....................................... 5,283 (3,952) 854
------- ------- -------
$37,173 $24,419 $31,945
======= ======= =======
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Federal statutory tax rate..................... 35.0% 35.0% 35.0%
State taxes, net of federal tax effect......... 2.7 2.6 2.8
Federal and state tax credits.................. (2.2) -- --
Other, net..................................... (.2) (.3) (.8)
------- ------- -------
Effective tax rate............................. 35.3% 37.3% 37.0%
======= ======= =======
</TABLE>
The Company recognized one-time federal and state research and development
and new jobs tax credits totaling $2.1 million, or $0.07 per share, in 1996
related to prior tax years.
32
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net long-term deferred tax liabilities:
Tax over book depreciation............... $(17,584) $(16,358) $(13,630)
OPEB obligations......................... 2,947 2,048 1,301
Other--net............................... 3,911 3,553 235
-------- -------- --------
Total net long-term deferred tax
liabilities........................... (10,726) (10,757) (12,094)
-------- -------- --------
Net current deferred tax assets:
Workers' compensation, general, and
product liability accruals.............. 1,548 1,670 2,029
Vacation accrual......................... 1,855 3,167 3,180
Other--net............................... 5,643 9,343 6,356
-------- -------- --------
Total net current deferred tax assets.. 9,046 14,180 11,565
-------- -------- --------
Net deferred tax (liabilities) assets.. $ (1,680) $ 3,423 $ (529)
======== ======== ========
</TABLE>
SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Common Stock, $1 Par Value
Authorized........................ 100,000,000 100,000,000 100,000,000
Issued and outstanding............ 29,713,265 30,394,337 30,674,603
Preferred Stock
Authorized........................ 1,000,000 1,000,000 1,000,000
Issued and outstanding............ -- -- --
</TABLE>
The Company purchased 753,800; 367,317; and 1,078,835 shares of its common
stock during 1996, 1995, and 1994, respectively.
Cash dividends declared and paid per share for each year are:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Common shares.............................................. $.50 $.48 $.44
</TABLE>
Net income per common share is based on the weighted average number of shares
of common stock outstanding during each year including allocated and
unallocated ESOP shares.
Shares of common stock were issued in 1996, 1995, and 1994 pursuant to a
members' stock purchase plan as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Shares issued........................................ 61,370 86,049 77,302
Average price per share.............................. $24.90 $22.39 $23.25
</TABLE>
The Company uses the par value method of accounting for common stock
repurchases. The excess of the cost of shares acquired over their par value is
allocated to Paid-In Capital to the extent appropriate, with the excess charged
to Retained Earnings.
33
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1994, shareholders approved the 1994 Members' Stock Purchase Plan.
Under the new plan, 500,000 shares of common stock were registered for issuance
to participating members. Beginning on July 3, 1994, rights to purchase stock
are granted on a quarterly basis to all members who have one year of employment
eligibility and work a minimum of 20 hours per week. The price of the stock
purchased under the plan is 85% of the closing price on the applicable purchase
date. No member may purchase stock under the plan in an amount which exceeds
the lesser of 20% of his or her gross earnings or 2,000 shares, with a maximum
fair market value of $25,000 in any calendar year. An additional 275,279 shares
were available for issuance under the plan at December 28, 1996. The effect of
the application of adopting Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation," was not material to the
Company.
The Company has granted restricted stock awards aggregating 75,500 shares of
common stock to officers. The officers were entitled to dividends and had
voting rights on all shares awarded. Unearned compensation expense,
representing the fair market value of the shares at the date of grant, was
charged to income over the vesting period. Approximately $37,000 were charged
to income as a result of the awards for the years 1995 and 1994. All of the
awarded shares were vested as of year-end 1995.
Pursuant to the Company's Shareholder Rights Plan, each share of common stock
carries with it one Right. Each Right entitles a shareholder to buy one two-
hundredth of a share of a new series of preferred stock at an exercise price of
$75.00. Each one two-hundredth of a share of the new preferred stock has terms
designed to make it the economic equivalent of one share of common stock.
Rights will be exercisable only if a person or group acquires 20% or more of
the Company's common stock or announces a tender offer, the consummation of
which would result in ownership by a person or group of 20% or more of the
common stock. If the Company is acquired in a merger or other business
combination transaction, each Right will entitle its holder to purchase, at the
then current exercise price of the Right, a number of the acquiring company's
common shares having a market value at that time of twice the exercise price of
the Right.
The Company has entered into change in control employment agreements with
corporate officers and certain other key employees. According to the
agreements, a change in control occurs when a third person or entity becomes
the beneficial owner of 20% or more of the Company's common stock or when more
than one-third of the Company's Board of Directors is composed of persons not
recommended by at least three-fourths of the incumbent Board of Directors. Upon
a change in control, a key employee is deemed to have a two-year employment
with the Company, and all his or her benefits are vested under Company plans.
If, at any time within two years of the change in control, his or her position,
salary, bonus, place of work, or Company-provided benefits are modified, or
employment is terminated by the Company for any reason other than cause or by
the key employee for good reason, as such terms are defined in the agreement,
then the key employee is entitled to receive a severance payment equal to two
times salary and the average of the prior two years' bonuses.
RETIREMENT BENEFITS
The Company has defined contribution profit-sharing plans covering
substantially all employees who are not participants in certain defined benefit
plans. The Company's annual contribution to the defined contribution plans is
based on employee eligible earnings and results of operations and amounted to
$11,118,000; $10,955,000; and $10,849,000 in 1996, 1995, and 1994,
respectively.
The Company sponsors defined benefit plans which include a limited number of
salaried and hourly employees at certain subsidiaries. The Company's funding
policy is generally to contribute annually the minimum actuarially computed
amount. Net pension costs relating to these plans were $146,000; $256,000; and
$228,000 for 1996, 1995, and 1994, respectively. The actuarial present value of
benefit obligations, less related plan assets at fair value, is not
significant.
34
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In 1992, the Company established a trust to administer a leveraged employee
stock ownership plan (ESOP), the HON Members Company Ownership Plan. Company
contributions based on employee eligible earnings and dividends on the shares
are used to make loan interest and principal payments. As the loan is repaid,
shares are distributed to the ESOP trust for allocation to participants.
Selected financial data pertaining to the ESOP is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C> <C>
Company contribution to ESOP........................... $ 3,348 $ 3,302 $ 2,977
Dividend income of ESOP................................ 446 436 403
Company interest expense on ESOP loan.................. 555 749 656
Shares of common stock allocated to ESOP participant
accounts.............................................. 152,733 149,749 133,945
Shares held in suspense (unallocated) by ESOP as of
year-end.............................................. 223,939 376,672 526,421
Fair value of shares held in suspense by ESOP as of
year-end.............................................. $ 7,264 $ 8,758 $14,082
Closing market price of common stock as of year-end.... $ 32.44 $ 23.25 $ 26.75
</TABLE>
In 1994, the Company adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits." The cumulative effect
of adoption was to reduce net income by $237,000 after tax, or $.01 a share.
POSTRETIREMENT HEALTH CARE
The Company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," as of
January 3, 1993, and recorded the cumulative effect of the accounting change on
the deferred recognition basis.
The following table sets forth the funded status of the plan, reconciled to
the accrued postretirement benefits cost recognized in the Company's balance
sheet at:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation
(APBO):
Retirees...................................... $ 6,535 $ 8,138 $ 6,947
Fully eligible active plan participants....... 3,916 5,612 3,816
Other active plan participants................ 4,808 7,809 6,397
Unrecognized net (loss)/gain.................... 6,919 (933) (713)
Unrecognized prior service cost................. (2,776) (2,922) --
Unrecognized transition obligation.............. (11,501) (12,214) (12,932)
-------- -------- --------
Accrued postretirement benefit cost............. $ 7,901 $ 5,490 $ 3,515
======== ======== ========
Net periodic postretirement benefits costs include:
Service cost.................................... $ 810 $ 685 $ 687
Interest cost................................... 1,629 1,344 1,242
Amortization of transition obligation over 20
years.......................................... 713 718 718
Amortization of prior service cost.............. 146 -- --
-------- -------- --------
Net periodic postretirement benefits cost....... $ 3,298 $ 2,747 $ 2,647
======== ======== ========
</TABLE>
The discount rates at fiscal year-end 1996, 1995, and 1994 were 7.5%, 7.75%,
and 8.0%, respectively. The pre-65 1997 gross trend rates begin at 11.0% for
the medical and prescription drug coverages and grade down to
35
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5.0% in 2006 and remain at this level for all future years. The post-64 gross
trend rates begin at 9.0% for the medical coverage and decrease until the
maximum Company subsidy (cap) is reached in 2003. For the prescription drug
coverage, the 1997 gross trend rates begin at 11.0% and decrease until the cap
is reached in 2003. If the health care cost trend rates were increased by 1.0%
for each year, the accumulated postretirement benefit obligation as of
December 28, 1996, would increase by $493,520; and, the sum of the service and
interest cost components of the net periodic postretirement benefit cost for
fiscal year 1996 would increase by $45,000. The Company's postretirement
health care plans are not funded.
LEASES
The Company leases certain warehouse and plant facilities and equipment.
Commitments for minimum rentals under noncancellable leases at the end of 1996
are as follows:
<TABLE>
<CAPTION>
CAPITALIZED OPERATING
LEASES LEASES
----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
1997.......................................... $ 2,024 $ 5,532
1998.......................................... 2,024 4,941
1999.......................................... 2,024 3,975
2000.......................................... 2,024 2,897
2001.......................................... 664 2,113
Thereafter.................................... 2,069 883
------- -------
Total minimum lease payments.................. 10,829 $20,341
=======
Less amount representing interest............. 3,377
-------
Present value of net minimum lease payments,
including current maturities of $1,133,000... $ 7,452
=======
</TABLE>
Property, plant, and equipment at year-end include the following amounts for
capitalized leases:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Buildings........................................... $3,299 $3,299 $3,709
Machinery and equipment............................. 8,419 8,419 8,419
------ ------ ------
11,718 11,718 12,128
Less allowances for depreciation.................... 4,854 3,569 2,507
------ ------ ------
$6,864 $8,149 $9,621
====== ====== ======
</TABLE>
Rent expense for the years 1996, 1995, and 1994 amounted to approximately
$6,788,000; $7,439,000; and $6,572,000, respectively. The Company has
operating leases for office and production facilities with annual rentals
totaling $578,000 with the former owners of a business acquired in 1996. These
individuals continue as officers of a subsidiary of the Company following the
merger. Contingent rent expense under both capitalized and operating leases
(generally based on mileage of transportation equipment) amounted to $353,000;
$608,000; and $525,000 for the years 1996, 1995, and 1994, respectively.
CONTINGENCIES
The Company is involved in various legal actions arising in the course of
business. Although management cannot predict the ultimate outcome of these
matters with certainty, it believes, after taking into consideration
36
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
legal counsel's evaluation of such actions, that the outcome of these matters
will not have a material effect on the financial position or results of
operations of the Company.
The Company and certain subsidiaries are party to three environmental actions
which have arisen in the ordinary course of business. These include possible
obligations to investigate and mitigate the effects on the environment of the
disposal or release of certain chemical substances at various sites, such as
Superfund sites and other operating or closed facilities. The effect of these
actions on the Company's financial position and operations to date has not been
significant. The Company is participating in environmental assessments and
monitoring, and liabilities have been accrued reflecting management's best
estimate of the eventual future cost of the Company's anticipated share (based
upon estimated ranges of remediation costs, the existence of many other larger
"potentially responsible parties" who are financially viable to share in such
costs, the Company's experience to date in relation to the determination of its
allocable share, the volume and type of waste the Company is believed to have
contributed to each site, and the anticipated periods of time over which such
costs may be paid) of remediation costs. Potential insurance reimbursements are
not anticipated. The Company is also reviewing available defenses and claims it
may have against third parties. Due to such factors as the wide discretion of
regulatory authorities regarding clean-up levels and uncertain allocation of
liability at multiple party sites, estimates made prior to the approval of a
formal plan of action represent management's best judgment as to estimates of
reasonably foreseeable expenses based upon average remediation costs at
comparable sites. While the final resolution of these contingencies could
result in expenses in excess of current accruals and therefore have an impact
on the Company's consolidated financial results in a future reporting period,
management believes that the ultimate outcome will not have a material effect
on the Company's financial position or results of operations.
BUSINESS SEGMENT INFORMATION
The Company has two reportable business segments: office furniture and hearth
products. However, the manufacture and marketing of office furniture is the
Company's principal business segment.
The office furniture segment manufactures and markets a broad line of metal
and wood commercial and home office furniture which includes file cabinets,
desks, credenzas, chairs, storage cabinets, tables, bookcases, freestanding
office partitions and panel systems, and other related products. The hearth
products segment manufactures and markets a broad line of manufactured gas- and
wood-burning fireplaces and stoves, fireplace inserts, and chimney systems
principally for the home.
The Company's October 2, 1996, acquisition of Heat-N-Glo Fireplace Products,
Inc., resulted in hearth products becoming a reportable segment. Prior to this
acquisition, the Company had only one reportable segment, office furniture.
Refer to the "Business Combinations" note for additional information regarding
this acquisition.
For purposes of segment reporting, intercompany sales transfers between
segments are not material, and operating profit is income before income taxes
exclusive of certain unallocated corporate expenses. Identifiable assets by
segment are those assets applicable to the respective industry segments.
Corporate assets consist principally of cash and cash equivalents, short-term
investments, and corporate office real estate and related equipment.
37
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Reportable segment data reconciled to the consolidated financial statements
for the years ended 1996, 1995, and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Office furniture.......................... $887,299 $818,907 $772,299
Hearth products........................... 110,836 74,212 73,699
-------- -------- --------
$998,135 $893,119 $845,998
======== ======== ========
Operating profit:
Office furniture.......................... $106,824 $ 79,085 $ 96,813
Hearth products........................... 14,155 6,395 6,373
-------- -------- --------
Total operating profit.................. 120,979 85,480 103,186
Unallocated corporate expenses.............. (15,712) (19,963) (16,848)
-------- -------- --------
Income before income taxes.............. $105,267 $ 65,517 $ 86,338
======== ======== ========
Identifiable assets:
Office furniture.......................... $330,575 $308,783 $288,436
Hearth products........................... 122,037 25,811 25,791
General corporate......................... 60,902 74,924 58,341
-------- -------- --------
$513,514 $409,518 $372,568
======== ======== ========
Depreciation and amortization expense:
Office furniture.......................... $ 21,140 $ 18,328 $ 16,264
Hearth products........................... 2,813 1,424 1,191
General corporate......................... 1,299 1,664 1,587
-------- -------- --------
$ 25,252 $ 21,416 $ 19,042
======== ======== ========
Capital expenditures, net:
Office furniture.......................... $ 41,186 $ 50,816 $ 29,987
Hearth products........................... 4,060 2,857 3,763
General corporate......................... (562) 206 1,255
-------- -------- --------
$ 44,684 $ 53,879 $ 35,005
======== ======== ========
</TABLE>
One office furniture customer accounted for approximately 12%, 13%, and 13%
of consolidated net sales in 1996, 1995, and 1994, respectively.
38
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Year-End 1996:*
Net sales..................... $233,477 $219,260 $255,254 $290,144 $998,135
Gross profit.................. 73,471 69,033 78,851 97,284 318,639
Income before income taxes.... 26,706 19,518 25,337 33,706 105,267
Income taxes.................. 9,881 7,222 7,430 12,640 37,173
Net income**.................. 16,825 12,296 17,907 21,066 68,094
Net income per common share**. .55 .41 .60 .70 2.26
Year-End 1995:
Net sales..................... $216,498 $206,604 $228,195 $241,822 $893,119
Gross profit.................. 68,942 60,358 67,876 71,243 268,419
Income before income taxes.... 20,119 12,366 19,448 13,584 65,517
Income taxes.................. 7,544 4,638 7,209 5,028 24,419
Net income***................. 12,575 7,728 12,239 8,556 41,098
Net income per common
share***..................... .41 .25 .41 .28 1.35
Year-End 1994:
Net sales..................... $200,693 $193,045 $222,112 $230,148 $845,998
Gross profit.................. 63,374 59,713 71,005 78,514 272,606
Income before income taxes.... 18,458 14,637 24,659 28,584 86,338
Income taxes.................. 6,830 5,415 9,124 10,576 31,945
Income before cumulative
effect of accounting change.. 11,628 9,222 15,535 18,008 54,393
Cumulative effect of
accounting change............ (237) -- -- -- (237)
Net income.................... 11,391 9,222 15,535 18,008 54,156
Net income per common share:
Income before cumulative
effect of accounting change.. .37 .30 .49 .58 1.74
Cumulative effect of
accounting change............ (.01) -- -- -- (.01)
Net income per common share... .36 .30 .49 .58 1.73
</TABLE>
- --------
* Includes the results of operation of Heat-N-Glo Fireplace Products, Inc.,
acquired October 2, 1996.
**First quarter 1996 includes a $3,200,000 pretax gain on the sale of Ring King
Visibles, Inc., a wholly owned subsidiary (after-tax gain of $2,000,000, or
$.07 per share), and third quarter includes one-time federal and state
income tax credits of $2,100,000, or $.07 per share.
***Fourth quarter 1995 includes various pretax charges totaling $5,575,000
(after-tax effect of $3,512,000, or $.12 per share) for nonrecurring costs
primarily associated with closing several leased facilities and severance
arrangements from eliminating certain administrative positions.
39
<PAGE>
HON INDUSTRIES INC. AND SUBSIDIARIES
INVESTOR INFORMATION
COMMON STOCK MARKET PRICES AND DIVIDENDS
(UNAUDITED)
QUARTERLY 1996-1995
<TABLE>
<CAPTION>
DIVIDENDS
1996 BY QUARTER HIGH LOW PER SHARE
--------------- ------- ------- ---------
<S> <C> <C> <C>
1st............................................. $24 1/4 $18 1/2 $.12
2nd............................................. 30 1/2 22 .12
3rd............................................. 40 3/4 27 3/4 .12
4th............................................. 42 3/4 30 1/2 .14
----
Total Dividends Paid........................ $.50
====
</TABLE>
<TABLE>
<CAPTION>
DIVIDENDS
1995 BY QUARTER HIGH LOW PER SHARE
--------------- ------- ------- ---------
<S> <C> <C> <C>
1st............................................. $30 1/2 $23 $.12
2nd............................................. 30 25 3/4 .12
3rd............................................. 31 1/4 25 1/2 .12
4th............................................. 29 3/4 23 1/4 .12
----
Total Dividends Paid........................ $.48
====
</TABLE>
COMMON STOCK MARKET PRICE AND PRICE/
EARNINGS RATIO (UNAUDITED)
FISCAL YEARS 1996-1986
<TABLE>
<CAPTION>
PRICE/EARNINGS
MARKET PRICE* EARNINGS RATIO
--------------- PER ----------------
YEAR HIGH LOW SHARE* HIGH LOW
---- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
1996........................... $42 3/4 $18 1/2 $2.26 19 8
1995........................... 31 1/4 23 1.35 23 17
1994........................... 34 24 1.73 20 14
1993........................... 29 1/4 21 1/2 1.41 21 15
1992........................... 23 1/2 16 1/2 1.18 20 14
1991........................... 20 1/2 13 1/4 1.02 20 13
1990........................... 23 13 1/2 1.30 18 10
1989........................... 19 7/8 8 3/4 .79 25 11
1988........................... 10 1/4 7 7/8 .94 11 8
1987........................... 11 1/2 8 1/8 .62 19 13
1986........................... 9 7/8 7 .71 14 10
------- -------
Eleven-Year Average............ 19 12
======= =======
</TABLE>
- --------
* Adjusted for the effect of stock splits
40
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
HON INDUSTRIES Inc.
Our audit was conducted for the purpose of forming an opinion on the
financial statements taken as a whole. The valuation and qualifying accounts
as of and for the fiscal year ended December 28, 1996, are presented for the
purpose of additional analysis and are not a required part of the consolidated
financial statements of HON INDUSTRIES Inc. Such information has been
subjected to the auditing procedures applied in our audit of the consolidated
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the consolidated financial statements taken as a
whole.
Arthur Andersen LLP
Chicago, Illinois
January 30, 1997
41
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
HON INDUSTRIES INC. AND SUBSIDIARIES
DECEMBER 28, 1996
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
------ ---------- --------------------------- ------------ ---------
ADDITIONS
---------------------------
(1) (2)
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER ACCOUNTS-- DEDUCTIONS-- AT END
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE OF PERIOD
----------- ---------- ---------- ---------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Reserves deducted in the
consolidated balance
sheet from the assets
to which they apply:
Year ended December
28, 1996:
Allowance for
doubtful accounts... $1,867 $1,222 $1,259(A) $1,830
====== ====== === ====== ======
Year ended December
30, 1995:
Allowance for
doubtful accounts... $1,654 $1,099 $ 886(A) $1,867
====== ====== === ====== ======
Year ended December
31, 1994:
Allowance for
doubtful accounts... $1,917 $ 594 $ 857(A) $1,654
====== ====== === ====== ======
</TABLE>
- --------
Note A--Excess of accounts written off over recoveries.
42
<PAGE>
ITEM 14(A)(3)--INDEX OF EXHIBITS.
<TABLE>
<CAPTION>
EXHIBITS PAGE
-------- ----
<C> <S> <C>
(3ii) By-Laws of the Registrant....................................... 44
(21) Subsidiaries of the Registrant.................................. 81
(23A) Consent of Independent Public Accountants....................... 82
(23B) Consent of Independent Auditors................................. 83
(27) Financial Data Schedule......................................... 84
(99A) Executive Bonus Plan of the Registrant.......................... 85
(99B) Executive Deferred Compensation Plan............................ 89
</TABLE>
43
<PAGE>
EXHIBIT 3ii
BY-LAWS
OF
HON INDUSTRIES Inc.
Adopted on September 7, 1960. Amended on
April 23, 1964, April 28, 1966, August 13, 1969,
April 15, 1970, February 12, 1976, July 23, 1976,
January 11, 1977, February 13, 1977, April 18, 1977,
July 28, 1977, July 29, 1977, October 27, 1977,
February 27, 1978, February 19, 1979, August 1, 1979,
March 3, 1980, April 30, 1980, October 29, 1980,
August 3, 1982, January 31, 1983, October 31, 1983,
October 30, 1984, February 5, 1985, May 6, 1985,
February 4, 1986, August 5, 1986, February 15, 1988,
July 7, 1988, March 13, 1990, February 11, 1991,
April 29, 1991, July 29, 1991, May 5, 1992, November 2,
1992, May 11, 1993, February 14, 1994, May 10, 1994,
November 13, 1995, and May 14, 1996.
ARTICLE 1. OFFICES AND PLACES OF BUSINESS
------------------------------------------
Section 1.01. Principal Place of Business. The prin- IBCA Sec.
cipal place of business of the Corporation shall be located 140(17),
in such place, within or without the State of Iowa, as 501, 1602
shall be fixed by or pursuant to authority granted by the
Board of Directors from time to time.
Section 1.02. Registered Office. The registered IBCA Sec.
office of the Corporation required by the Iowa Business 501, 502
Corporation Act to be maintained in the State of Iowa may
be, but need not be, the same as its principal place of Articles of
business. The registered office may be changed from time Incorporation
to time by the Board of Directors as provided by law. Art. 5.
Section 1.03. Other Places. The Corporation may IBCA Sec.
conduct its business, carry on its operations, have 302(10)
offices, carry out any or all of its purposes, and
exercise any or all of its powers anywhere in the world,
within or without the State of Iowa.
-44-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 2.01
ARTICLE 2. SHAREHOLDERS
------------------------
Section 2.01. Annual Meeting. The annual meeting IBCA Sec. 701
of the shareholders shall be held in each year at such
time and place as shall be fixed by the Board of Directors
or by the Chairman of the Board of Directors; provided,
however, that the annual meeting shall not be scheduled
on a legal holiday in the state where held. Any previously
scheduled annual meeting may be postponed by resolution of
the Board of Directors and on public notice given prior to
the date previously scheduled for such annual meeting. At
the annual meeting, the shareholders shall elect Directors
as provided in Section 3.02 and may conduct any other
business properly brought before the meeting. (As amended
4/23/64, 8/1/79, 10/31/83, and 4/29/91.)
Section 2.02. Special Meetings. Special meetings IBCA Sec.
of the shareholders, for any purpose or purposes, may 702
be called, and the time and place thereof fixed by the
Board of Directors or by the holders of not less than
one-tenth of the outstanding shares entitled to vote at
the meeting. Business conducted at any special meeting 2.04
of shareholders shall be limited to the purposes stated
in the notice of the meeting. Any previously scheduled
special meeting of shareholders may be postponed by
resolution of the Board of Directors and public notice
given prior to the date previously scheduled for such
special meeting of shareholders. (As amended 4/23/64,
8/1/79, and 4/29/91.)
Section 2.03. Place of Shareholders' Meetings. Any IBCA Sec.
annual meeting or special meeting of shareholders may be 701, 702
held at any place, either within or without the State of
Iowa. The place of each meeting of shareholders shall be
fixed as provided in these By-laws, or by a waiver or 2.01, 2.02,
waivers of notice fixing the place of such meeting and 2.08, 2.14
signed by all shareholders entitled to vote at such
meeting. If no designation is made of the place of a
meeting of shareholders, the place of meeting shall be
the registered office of the Corporation in the State 1.02
of Iowa.
-45-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 2.04
Section 2.04. Notice of Shareholders' Meetings. IBCA Sec. 705
Written or printed notice stating the place, day, and hour
of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall
be delivered not less than ten days (unless a longer
period shall be required by law) nor more than sixty days
before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secre-
tary, or the officer or persons calling the meeting,
to each shareholder of record entitled to vote at such 5.06
meeting. If mailed, such notice shall be deemed to be
delivered when deposited in the United States mail
addressed to the shareholder at his address as it appears
on the stock transfer books of the Corporation, with
postage thereon prepaid. (As amended 4/29/91.)
Section 2.05. Closing of Transfer Books; Fixing of IBCA Sec. 707
Record Date. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of share- 5.06
holders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determi-
nation of shareholders for any other proper purpose, the
Board of Directors of the Corporation may provide that the
stock transfer books shall be closed for a stated period
but not to exceed, in any case, seventy days. If the stock
transfer books shall be closed for the purpose of deter-
mining shareholders entitled to notice of or to vote at a
meeting of shareholders, such books shall be closed for at
least fifteen days immediately preceding such meeting. In
lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for
any such determination of shareholders, such date in any
case to be not more than seventy days and, in case of a
meeting of shareholders, not less than fifteen days prior
to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the
Board of Directors does not provide that the stock trans-
fer books shall be closed and does not fix a record date
for the determination of shareholders entitled to notice
of or to vote at a meeting of shareholders, or share-
holders entitled to receive payment of a dividend, the
record date for such determination of shareholders shall
be seventy days prior to the date fixed for such meeting or
-46-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 2.04
seventy days prior to the date of payment of such dividend,
as the case may be. When any record date is fixed for any
determination of shareholders such determination of share-
holders shall be made as of the close of business on the
record date. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as
provided in this Section, such determination shall apply to
any adjournment thereof. (As amended 4/30/80, 8/3/82 and 2.08
4/29/91.)
Section 2.06. Voting List. The officer or agent IBCA Sec. 720
having charge of the stock transfer books for shares of
the Corporation shall make, at least ten days before each
meeting of shareholders, a complete list of the share-
holders entitled to vote at such meeting or any adjourn-
ment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which
list, for a period of ten days prior to such meeting
shall be kept on file at the registered office of the 1.02
Corporation and shall be subject to inspection by any
shareholder at any time during usual business hours. Such
list shall also be produced and kept open at the time and
place of the meeting and shall be subject to the inspec-
tion of any shareholder during the whole time of the meet-
ing. The original stock transfer books shall be prima
facie evidence as to who are the shareholders entitled to 5.06
examine such list or transfer books or to vote at any
meeting of shareholders. Failure to comply with the re-
quirements of this Section shall not affect the validity
of any action taken at such meeting. (As amended 4/29/91.)
Section 2.07. Quorum of Shareholders. Except as IBCA Sec. 725,
otherwise expressly provided by the Articles of Incor- 726, 1001
poration or these By-laws, a majority of the outstanding 2.08, 2.09
common shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at any meeting of
shareholders.
Section 2.08. Adjourned Meetings. Any meeting of
shareholders may be adjourned from time to time and to any
place, without further notice, by the chairman of the meeting
or by the affirmative vote of the holders of a majority of
the outstanding common shares entitled to vote and repre- IBCA Sec.
-47-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 2.04
sented at the meeting, even if less than a quorum. At any 705, 707,
adjourned meeting at which a quorum shall be present, any 725
business may be transacted which might have been transacted 2.02, 2.04
at the meeting as originally notified. (As amended 4/29/91.) 2.05
Section 2.09. Vote Required for Action. The vote Articles of
required for the adoption of any motion or resolution or Incorporation
the taking of any action at any meeting of shareholders Sec. 4.08-4.12
shall be as provided in the Articles of Incorporation.
However, action may be taken on the following procedural
matters by the affirmative vote of the holders of a IBCA Sec.
majority of the outstanding common shares entitled to 725, 726,
vote and represented at the meeting, even if less than a 727, 1021
quorum: election or appointment of a Chairman or 2.13
temporary Secretary of the meeting (if necessary), or
adoption of any motion to adjourn or recess the meeting
or any proper amendment of any such motion. Whenever the 2.08
minutes of any meeting of shareholders shall state that
any motion or resolution was adopted or that any action
was taken at such meeting of shareholders, such minutes
shall be prima facie evidence that such motion or
resolution was duly adopted or that such action was duly
taken by the required vote, and such minutes need not
state the number of shares voted for and against such
motion, resolution, or action.
Section 2.10. Proxies. At all meetings of share- IBCA Sec.
holders, a shareholder entitled to vote may vote either in 721, 722,
person or by proxy executed in writing by the shareholder 728
or by his duly authorized attorney in fact. Each such
proxy shall be filed with the Secretary of the Corpo-
ration or the person acting as Secretary of the meeting,
before or during the meeting. No proxy shall be valid
after eleven months from the date of its execution, unless
otherwise provided in the proxy.
Section 2.11. Shareholders' Voting Rights. Each IBCA Sec. 721,
outstanding share entitled to vote shall be entitled to 722, 728
one vote on each matter submitted to a vote at a meeting Articles of
of shareholders, except as otherwise provided in the Incorporation
Articles of Incorporation. Voting rights for the election Sec. 4.08-
of Directors shall be as provided in Section 3.02 and in 4.12
the Articles of Incorporation. (As amended 2/12/76.) 3.02, 3.03,
-48-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 2.04
3.04
Section 2.12. Voting of Shares by Certain Holders. IBCA Sec. 721,
Shares standing in the name of another corporation, 722, 728
domestic or foreign, may be voted by such officer, agent,
or proxy as the By-laws of such corporation may prescribe,
or, in the absence of such provision, as the Board of
Directors of such corporation may determine.
Shares held by an administrator, executor, guardian, or IBCA Sec. 724
conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name.
Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but no trustee shall be
entitled to vote shares held by him without a transfer of
such shares into his name.
Shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of
a receiver may be voted by such receiver without the
transfer thereof into his name if authority to do so be
contained in an appropriate order of the court by which
such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to
vote such shares until the shares have been transferred
into the name of the pledgee, and thereafter the pledgee
shall be entitled to vote the shares so transferred.
Treasury shares shall not be voted at any meeting or
counted in determining the total number of outstanding
shares at any given time.
Section 2.13. Organization. The Chairman of the
Board of Directors or the Vice-Chairman or the President
or a Vice-President, as provided in these By-laws, shall 4.07, 4.08
preside at each meeting of shareholders; but if the Chair-
man of the Board of Directors, the Vice-Chairman, the
President, and each Vice-President shall be absent or
refuse to act, the shareholders may elect or appoint a
Chairman to preside at the meeting. The Secretary or an
Assistant Secretary, as provided in these By-laws, shall
act as Secretary of each meeting of shareholders; but if 4.09, 4.11
the Secretary and each Assistant Secretary shall be absent
-49-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 2.04
or refuse to act, the shareholders may elect or appoint a
temporary Secretary to act as Secretary of the meeting.
(As amended 4/23/64 and 8/1/79.)
Section 2.14. Waiver of Notice by Shareholders. IBCA Sec.
Whenever any notice whatsoever is required to be given to 706, 823
any shareholder of the Corporation under any provision of
law or the Articles of Incorporation or these By-laws, a
waiver thereof in writing signed by the person or persons 2.04
entitled to such notice, whether signed before or after
the time of the meeting or event of which notice is re-
quired, shall be deemed equivalent to the giving of such
notice. Neither the business to be conducted at, nor the
purpose of, any annual or special meeting of shareholders
need be specified in any waiver of notice of such meeting.
The attendance of any shareholder, in person or by proxy,
at any meeting of shareholders shall constitute a waiver
by such shareholder of any notice of such meeting to which
such shareholder would otherwise be entitled, and shall
constitute consent by such shareholder to the place, day,
and hour of such meeting and all business which may be
conducted at such meeting, unless such shareholder attends
such meeting and objects at such meeting to any business
conducted because the meeting is not lawfully called or
convened. (As amended 4/29/91.)
Section 2.15. Postponement of Shareholders' Meetings.
Any meeting of the shareholders may be postponed prior to
the record date by the Board of Directors or by the
Chairman. Written or printed notice of the postponement
shall be delivered not less than 10 days nor more than 60
days before the date set for the meeting, either personally
or by mail to each shareholder of record entitled to vote.
If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail, addressed to the
shareholder at his or her address as it appears on the
stock transfer books of the Corporation, with postage
thereon prepaid. (As adopted 2/11/91.)
-50-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 2.04
Section 2.16. Notice of Shareholder Business and
Nominations.
(a) Annual Meeting of Shareholders.
(1) Nominations of persons for election to the
Board of Directors of the Corporation and the proposal
of business to be considered by the shareholders may
be made at an annual meeting of shareholders (i)
pursuant to the Corporation's notice of meeting, (ii)
by or at the direction of the Board of Directors, or
(iii) by any shareholder of the Corporation who was a
shareholder of record at the time of giving of notice
provided for in this By-law, who is entitled to vote
at the meeting and who complies with the notice
procedures set forth in this By-law.
(2) For nominations or other business to be
properly brought before an annual meeting by a share-
holder pursuant to Subsection 2.15(a)(1)(iii), the
shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to
the Secretary at the principal executive offices of
the Corporation not less than sixty days nor more than
ninety days prior to the first anniversary of the
preceding year's annual meeting of shareholders;
provided, however, that, if the date of the annual
meeting is advanced by more than thirty days or
delayed by more than sixty days from such anniversary
date, notice by the shareholder, to be timely, must be
so delivered not earlier than ninety days prior to
such annual meeting and not later than the close of
business on the later of the sixtieth day prior to
such annual meeting or the tenth day following the
date on which public announcement of the date of such
meeting is first made. Such shareholder's notice
shall set forth:
(i) as to each person whom the shareholder
proposes to nominate for election or reelection
as a Director, all information relating to such
person that is required to be disclosed in
-51-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 2.04
solicitations of proxies for election of Direc-
tors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Exchange
Act") (including such person's written consent to
being named in the proxy statement as a nominee
and to serving as a Director if elected;
(ii) as to any other business that the share-
holder proposes to bring before the meeting, a
brief description of the business desired to be
brought before the meeting, the reasons for
conducting such business at the meeting, and any
material interest of such shareholder in such
business and the beneficial owner, if any, on
whose behalf the proposal is made; and
(iii) as to the shareholder giving the notice
and the beneficial owner, if any, on whose behalf
the nomination or proposal is made, the name and
address of such shareholder and of such benefi-
cial owner as they appear on the Corporation's
books, and the class and number of shares of the
Corporation which are owned beneficially and of
record by such shareholder and such beneficial
owner.
(3) Notwithstanding anything in the second
sentence of Subsection 2.15(a)(2) to the contrary, if
the number of Directors to be elected to the Board of
Directors of the Corporation is increased and there is
no public announcement by the Corporation naming all
the nominees for Director or specifying the size of the
increased Board of Directors at least seventy days
prior to the first anniversary of the preceding year's
annual meeting of shareholders, a shareholder's notice
required by this By-law shall also be considered
timely, but only with respect to nominees for any new
positions created by such increase, if it is delivered
to the Secretary at the principal executive offices of
the Corporation not later than the close of business on
the tenth day following the date on which such public
announcement is first made by the Corporation.
-52-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 2.04
(b) Special Meetings of Shareholders. Nominations of
persons for election to the Board of Directors may be made
at a special meeting of shareholders at which Directors are
to be elected pursuant to the Corporation's notice of
meeting (1) by or at the direction of the Board of Directors
or (2) by any shareholder of the Corporation who was a
shareholder of record at the time of giving of notice pro-
vided for in this By-law, who is entitled to vote at the
meeting, and who complies with the notice procedures set
forth in this By-law. Nominations by shareholders of persons
for election to the Board of Directors may be made at
such a special meeting of shareholders if the shareholder's
notice required by Subsection 2.15(a)(2) is delivered to
the Secretary at the principal executive offices of the
Corporation no earlier than ninety days prior to such
special meeting and not later than the close of business on
the later of the sixtieth day prior to such special meeting
or the tenth day following the date on which public
announcement is first made of the date of the special
meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
(c) General.
(1) Only persons who are nominated in accordance
with the procedures set forth in this By-law shall be
eligible to serve as Directors, and only such business
shall be conducted at a meeting of shareholders as
shall have been brought before the meeting in
accordance with the procedures set forth in these
By-laws. Except as otherwise provided by law, the
Articles of Incorporation, or the By-laws of the
Corporation, the Chairman of the meeting shall have
the power and duty to determine whether a nomination
or any business proposed to be brought before
the meeting was made in accordance with the procedures
set forth in these By-laws and, if any proposed nomi-
nation or business is not in compliance with these
By-laws, to declare that such defective proposal or
nomination shall be disregarded.
-53-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 2.04
(2) For purposes of this By-law, "public
announcement" means disclosure in a press release
reported by the Dow Jones News Service, Associated
Press, or comparable national news service or in a
document publicly filed by the Corporation with the
Securities and Exchange Commission pursuant to Section
13, 14, or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions
of this By-law, a shareholder shall also comply with all
applicable requirements of the Exchange Act and the
rules and regulations thereunder with respect to the
matters set forth in this By-law. Nothing in this
By-law shall be deemed to affect any rights of
shareholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule 14a-8
under the Exchange Act. (As adopted 4/19/91.)
-54-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 3.01
ARTICLE 3. BOARD OF DIRECTORS
------------------------------
Section 3.01. General Powers. The business and IBCA Sec. 801,
affairs of the Corporation shall be managed by its Board 830
of Directors. The Board of Directors may exercise all
such powers of the Corporation and may do all such law- 4.07
ful acts and things as are not by law or the Articles Articles of
of Incorporation or these By-laws expressly required to Incorporation
be exercised or done by the shareholders. Art. 3
Section 3.02. Election of Directors. Subject to IBCA Sec. 803,
the Articles of Incorporation, the common shareholders 804
shall elect one class of Directors at each annual meeting
of shareholders. At each election of Directors, each
common shareholder entitled to vote shall have the right
to vote, in person or by proxy, the number of common
shares owned by him and entitled to vote, for as many
persons as the number of the class to be elected. Cum- 2.01, 2.11
ulative voting shall not be permitted. The election of
Directors may be conducted by written ballot, but need
not be conducted by written ballot unless required by a
rule or motion adopted by the shareholders. (As amended
2/12/76.)
Section 3.03. Number, Terms, Classification, and IBCA Sec. 802,
Qualifications. Subject to the Articles of Incor- 803, 804, 805,
poration: 806
(a) The number of Directors shall be eleven.
(As amended 10/29/80, 1/31/83, 2/5/85, 8/5/86, 3/13/90,
5/5/92, 11/2/92, 5/11/93, 2/14/94, 5/10/94, 11/13/95,
and 5/14/96.)
(b) The Directors shall be divided into three Articles of
classes, each of which shall be as nearly equal in number Incorporation
as possible. The term of office of one class shall ex- 6.01, 6.03
pire in each year. At each annual meeting of the share-
holders a number of Directors equal to the number of the
class whose term expires at the annual meeting shall be
elected for a term ending when Directors are elected at
the third succeeding annual meeting. Section 6.03 of the
Articles of Incorporation shall apply if there is a
failure in any one or more years to elect one or more
-55-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 3.01
Directors or to elect any class of Directors. (As Amended
2/4/86.)
(c) The number of Directors may be increased Articles of
or decreased from time to time by amendment of this Incorporation
Section, but no decrease shall have the effect of short- 6.02
ening the term of any incumbent Director. Any new Direc-
torships shall be assigned to classes, and any decrease in
the number of Directors shall be scheduled, in such a
manner that the three classes of Directors shall be as
nearly equal in number as possible.
(d) The term of each Director shall begin at the
time of his election. Unless sooner removed as provided in the
Articles of Incorporation or elected to fill a vacancy with a
shorter unexpired term pursuant to Section 3.04, each Director
shall serve for a term ending when Directors are elected at the
third succeeding annual meeting of shareholders.
However, any Director may resign at any time by delivering
his written resignation to the Chairman, Vice-Chairman,
President, or Secretary of the Corporation. The resignation
shall take effect immediately upon delivery, unless it
states a later effective date. (As amended 8/1/79.)
(e) Directors need not be residents of the State
of Iowa or shareholders of the Corporation.
(As amended 4/23/64, 4/15/70, 2/12/76, 7/23/76, 1/11/77,
4/18/77, 7/28/77, 7/29/77, 2/27/78, and 2/4/86.)
Section 3.04. Vacancies in Board. Any vacancy IBCA Sec. 810
occurring in the Board of Directors for any reason, and
any Directorship to be filled by reason of an increase in Articles of
the number of Directors, may be filled by the affirma- Incorporation
tive vote of a majority of the Directors then in office Sec. 4.08
even if less than a quorum (notwithstanding Sections 3.09 6.02
and 3.11). Except as otherwise provided in Section 6.03
of the Articles of Incorporation, a Director elected as
provided in this Section shall be elected for the unex-
pired term of his predecessor in office or the unexpired
term of the class of Directors to which his new Director-
ship is assigned. However, if a Director is elected to
-56-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 3.01
fill a vacancy caused by the resignation of a predecessor
whose resignation has not yet become effective, the new 2.09
Director's term shall begin when his predecessor's resig-
nation becomes effective. (As amended 4/23/64 and 3.03
2/12/76.)
Section 3.05. Regular Meetings. A regular meeting IBCA Sec. 820
of the Board of Directors may be held without notice other
than this Section, promptly after and at the same place 2.01, 2.02,
as each annual meeting of shareholders. 2.08
Other regular meetings of the Board of Directors may be
held at such time and at such places as shall be fixed by
(or pursuant to authority granted by) resolution or motion
adopted by the Board of Directors from time to time, with-
out notice other than such resolution or motion. However,
unless both the time and place of a regular meeting shall
be fixed by the Board of Directors, notice of such meeting
shall be given as provided in Section 3.08.
Section 3.06. Special Meetings. Special meetings IBCA Sec. 820
of the Board of Directors may be called, and the time and
place thereof fixed, by the Chairman of the Board of
Directors or the Vice-Chairman or the President or the
Secretary or by a majority of the Directors then in
office. (As amended 4/23/64 and 8/1/79.)
Section 3.07. Place of Meetings. Any regular meet- IBCA Sec. 820
ing or special meeting of the Board of Directors may be
held at any place, either within or without the State of
Iowa. The place of each meeting of the Board of Directors 3.05, 3.06,
shall be fixed as provided in these By-laws, or by waiver 3.10, 3.16
or waivers of notice fixing the place of such meeting and
signed by all Directors then in office. If no designation
is made of the place of a meeting of the Board of Direct-
ors, the place of meeting shall be the registered office of
the Corporation in the State of Iowa. 1.02
Section 3.08. Notice of Special Meetings. Written IBCA Sec.
or printed notice stating the place, day, and hour of a 822(2)
special meeting of the Board of Directors shall be deliv- 3.16
ered to each Director not less than twenty-four hours be-
fore the time of the meeting, either personally or by mail
-57-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 3.01
or by telegram, by or at the direction of the President,
the Secretary, or the officer or persons calling the meet-
ing. If mailed, such notice shall be deemed to be deliv-
ered when deposited in the United States mail addressed
to the Director at his address as it appears on the
records of the Corporation, with postage thereon prepaid. 5.06
If given by telegram, such notice shall be deemed to be
delivered when the telegram is delivered to the telegraph
company, addressed to the Director at his address as it
appears on the records of the Corporation. Neither the
business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the
notice of such meeting. (As amended 7/7/88.)
Section 3.09. Quorum. Except as otherwise IBCA Sec. 824
expressly provided by the Articles of Incorporation
or these By-laws, a majority of the number of Direc-
tors fixed by these By-laws shall constitute a quorum 3.04, 3.10,
at any meeting of the Board of Directors. 3.11, 6.08,
6.09
Section 3.10. Adjourned Meetings. Any meeting of
the Board of Directors may be adjourned from time to time
and to any place, without further notice, by the affirma-
tive vote of a majority of the Directors present at the
meeting, even if less than a quorum. At any adjourned
meeting at which a quorum shall be present, any business
may be conducted which might have been transacted at the
meeting as originally notified. (As amended 4/29/91.)
Section 3.11. Vote Required for Action. Except as IBCA Sec. 824
otherwise provided in these By-laws, the affirmative vote
of a majority of the number of Directors fixed by these
By-laws shall be required for and shall be sufficient for 3.04, 3.10
the adoption of any motion or resolution or the taking 6.08, 6.09
of any action at any meeting of the Board of Directors.
However, the following actions may be taken by the affirm-
ative vote of a majority of the Directors present at the
meeting, even if less than a quorum: election or appoint-
ment of a Chairman or temporary Secretary of the meeting
(if necessary), or adoption of any motion to adjourn or 3.13
recess the meeting or any proper amendment of any such
motion. Whenever the minutes of any meeting of the 3.10
Board of Directors shall state that any motion or resolu-
-58-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 3.01
tion was adopted or that any action was taken at such
meeting of the Board of Directors, such minutes shall be
prima facie evidence that such motion or resolution was
duly adopted or that such action was duly taken by the
required vote, and such minutes need not state the number
of Directors voting for and against such motion, resolu-
tion, or action.
Section 3.12. Voting. Each Director (including, 6.08, 6.09
without limiting the generality of the foregoing, any
Director who is also an officer of the Corporation and any
Director presiding at a meeting) may vote on any question
at any meeting of the Board of Directors, except as other-
wise expressly provided in these By-laws. (As amended
4/23/64.)
Section 3.13. Organization. The Chairman of the
Board of Directors or the Vice-Chairman or the President
or a Vice-President, as provided in these By-laws, shall
preside at each meeting of the Board of Directors; but 4.07, 4.08
if the Chairman of the Board of Directors, the Vice-
Chairman, the President, and each Vice-President shall be
absent or refuse to act, the Board of Directors may elect
or appoint a Chairman to preside at the meeting. The
Secretary or an Assistant Secretary, as provided in these
By-laws, shall act as Secretary of each meeting of the 4.09, 4.11
Board of Directors; but if the Secretary and each Assist-
ant Secretary shall be absent or refuse to act, the Board
of Directors may elect or appoint a temporary Secretary to
act as Secretary of the meeting. (As amended 4/23/64 and
8/1/79.)
Section 3.14. Rules and Order of Business. The 4.02
Board of Directors may adopt such rules and regulations,
not inconsistent with applicable law or the Articles of
Incorporation or these By-laws, as the Board of Directors
deems advisable for the conduct of its meetings. Except
as otherwise expressly required by law or the Articles of
Incorporation or these By-laws or such rules or regula-
tions, meetings of the Board of Directors shall be con-
ducted in accordance with Robert's Rules of Order, Revised
(as further revised from time to time). Unless otherwise
determined by the Board of Directors, the order of busi-
-59-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 3.01
ness at the first meeting of the Board of Directors held
after each annual meeting of shareholders, and at other
meetings of the Board of Directors to the extent applica-
ble, shall be as follows:
(1) Roll call or other determination of
attendance and quorum.
(2) Proof of notice of meeting.
(3) Reading and action upon minutes of
preceding meeting and any other unapproved minutes.
(4) Report of President.
(5) Reports of other officers and committees.
(6) Election of officers.
(7) Unfinished business.
(8) New business.
(9) Adjournment.
Failure to comply with the requirements of this Section
shall not affect the validity of any action taken at any
meeting unless (a) specific and timely objection is made
at the meeting and (b) the person complaining thereto
sustains direct and material damage by reason of such
failure.
Section 3.15. Presumption of Assent. A Director IBCA Sec. 824
of the Corporation who is present at a meeting of the
Board of Directors or a committee thereof at which action
on any corporate matter is taken, shall be presumed to 6.10, 6.11
have assented to the action taken unless his dissent shall
be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the
person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by 3.16
registered or certified mail to the Secretary of the
Corporation immediately after the adjournment of the
-60-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 3.01
meeting. Such right to dissent shall not apply to a
Director who voted in favor of such action.
Section 3.16. Waiver of Notice by Directors. IBCA Sec. 823
Whenever any notice whatsoever is required to be given
to any Director of the Corporation under any provision
of law or the Articles of Incorporation or these By-laws, 3.05, 3.08
a waiver thereof in writing signed by the Director or
Directors entitled to such notice, whether signed before
or after the time of the meeting or event of which notice
is required, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at,
nor the purpose of, any meeting of the Board of Directors
need be specified in any waiver of notice of such meeting.
The attendance of any Director at any meeting of the Board
of Directors shall constitute a waiver by such Director of
any notice of such meeting to which such Director would
otherwise be entitled, and shall constitute consent by
such Director to the place, day, and hour of such meeting
and all business which may be conducted at such meeting,
unless such Director attends such meeting and objects at
such meeting to any business conducted because the meeting
is not lawfully called or convened. (As amended 4/29/91.) 3.15
Section 3.17. Informal Action by Directors. Any IBCA Sec. 821
action required by law or the Articles of Incorporation or
these By-laws to be taken by vote of or at a meeting of
the Board of Directors, or any action which may or could
be taken at a meeting of the Board of Directors (or of a
committee of Directors), may be taken without a meeting 3.18
if a consent in writing setting forth the action so taken
shall be signed by all of the Directors then in office (or
all of the members of such committee, as the case may be).
Such consent shall have the same force and effect as unan-
imous vote. The signing by each such Director (or by each
member of such committee) of any one of several duplicate
originals or copies of the instrument evidencing such con-
sent shall be sufficient. The written instrument or in-
struments evidencing such consent shall be filed with the
Secretary, and shall be kept by the Secretary as part of
the minutes of the Corporation. Such action shall be
deemed taken on the date of such written instrument or
instruments as stated therein, or on the date of such
-61-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 3.01
filing with the Secretary, whichever of such two dates
occurs first. (As amended 4/23/64.)
Section 3.18. Committees. The Board of Directors, IBCA Sec. 825
by resolution adopted by the affirmative vote of a major-
ity of the number of Directors fixed by Section 3.03, may
designate one or more committees (including, without
limiting the generality of the foregoing, an Executive
Committee). Each committee shall consist of two or more
Directors elected or appointed by the Board of Directors.
To the extent provided in such resolution as initially
adopted and as thereafter supplemented or amended by
further resolution adopted by a like vote, any such
committee shall have and may exercise, when the Board of
Directors is not in session, all the authority and powers
of the Board of Directors. However, no committee shall
have or exercise any authority prohibited by law.
No member of any committee shall continue to be a member
thereof after he ceases to be a Director of the Corpo-
ration.
Unless otherwise ordered by the Board of Directors, the
affirmative vote or consent in writing of all members of a
committee shall be required for the adoption of any motion
or resolution or the taking of any action by any such com-
mittee, except that an alternate member may take the place
of any absent member to the extent hereinafter provided.
The Board of Directors may elect or appoint one or more
Directors as alternate members of any such committee. Any
such alternate member may take the place of any absent
member, upon request by the Chairman of the Board of
Directors or the Vice-Chairman or the President or the
Chairman of such committee. The vote or consent in writ-
ing of such alternate member in the absence of such member
shall have the same effect as the vote or consent in writ-
ing of such member. (As amended 8/1/79.) 3.17
The Board of Directors may at any time increase or decrease
the number of members of any committee, fill vacancies
therein, remove any member thereof, adopt rules and regula-
tions therefor, or change the functions or terminate the
-62-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 3.01
existence thereof. The designation of any committee and
the delegation thereto of authority shall not operate to 6.10, 6.11
relieve the Board of Directors or any Director of any
responsibility imposed by law. (As amended 4/23/64.)
Section 3.19. Compensation. The Board of Direc- IBCA Sec.
tors may fix or provide for reasonable compensation of 811
any or all Directors for services rendered to the Cor-
poration as Directors, officers, or otherwise, including, 4.13, 6.08
without limiting the generality of the foregoing, payment
of expenses of attendance at meetings of the Board of
Directors or committees, payment of a fixed sum for atten-
dance at each meeting of the Board of Directors or a com-
mittee, salaries, bonuses, pensions, pension plans, pen-
sion trusts, profit-sharing plans, stock bonus plans,
stock option plans (subject to approval of the share-
holders if required by law), and other incentive, insur-
ance, and welfare plans, whether or not on account of
prior services rendered to the Corporation. No such com-
pensation shall preclude any Director from serving the
Corporation in any other capacity and receiving compen-
sation therefor.
-63-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 4.01
ARTICLE 4. OFFICERS
--------------------
Section 4.01. Number and Designation. The officers IBCA Sec.
of the Corporation shall be a Chairman of the Board of 840
Directors, a Vice-Chairman, a President, one or more Vice-
Presidents, a Secretary, a Treasurer, one or more Assist-
ant Secretaries, one or more Assistant Treasurers, and 4.03
such other officers as the Board of Directors deems advis-
able. (As amended 4/23/64 and 8/1/79.)
Section 4.02. Election or Appointment of Officers. IBCA Sec.
At the first meeting of the Board of Directors held after 840
each annual meeting of shareholders, the Board of Dir-
ectors shall elect the officers specifically referred 3.11, 4.05
to in Section 4.01, shall appoint certified public
accountants to perform the annual audit, and shall elect
or appoint such other officers and agents as the Board
deems advisable. If in any year the election of officers
does not take place at such meeting, such election shall
be held as soon thereafter as may be convenient. In
addition, the Board of Directors may from time to time 4.06, 4.07
elect, appoint, or authorize any officer to appoint such
other officers and agents as the Board deems advisable.
Any election may be conducted by ballot, but need not be
conducted by ballot unless required by a rule, regulation,
or motion adopted by the Board of Directors. (As amended 3.14
3/3/80.)
Section 4.03. Tenure and Qualifications. Each
officer, unless sooner removed as provided in Section
4.04, shall hold office until his successor shall be
elected or appointed and shall qualify. However, any
officer may resign at any time by filing his written
resignation with the President or Secretary of the Cor-
poration; and such resignation shall take effect immedi-
ately upon such filing, unless a later effective date is
stated therein. Officers need not be residents of the
State of Iowa or Directors or shareholders of the Cor-
poration. Any two or more offices may be held by the same
person.
Section 4.04. Removal. Any officer or agent of the IBCA Sec. 843
Corporation may be removed by the Board of Directors when-
-64-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 4.01
ever in its judgment the best interests of the Corporation
will be served thereby, but such removal shall be without
prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
Section 4.05. Vacancies. Any vacancy occurring in
any office for any reason may be filled by the Board of 4.03
of Directors.
Section 4.06. Duties and Powers of Officers. IBCA Sec.
Except as otherwise expressly provided by law or the 841
Articles of Incorporation or these By-laws, the duties 45
and powers of all officers and agents of the Corporation
shall be determined and defined from time to time by the
Board of Directors. Unless otherwise determined by the
Board of Directors, the officers referred to in the fol-
lowing Sections shall have the duties and powers set forth
in the following Sections, in addition to all duties and
powers of such officers prescribed by law or by the
Articles of Incorporation or other provisions of these By-
laws. However, the Board of Directors may from time to
time alter, add to, limit, transfer to another officer or
agent, or abolish any or all of the duties and powers of
any officer or agent of the Corporation (including, with-
out limiting the generality of the foregoing, the duties
and powers set forth in the following Sections and in
other provisions of these By-laws). Any person who holds
two or more offices at the same time may perform or exer-
cise any or all of the duties and powers of either or both
of such offices in either or both of such capacities.
Section 4.07. Chairman of the Board of Directors; 4.06
Vice-Chairman; President.
(a) The Chairman of the Board of Directors shall
preside at all meetings of shareholders and of the Board of
Directors. He shall be responsible for making recommenda-
tions concerning Board policies and committees, shall main-
tain Board liaison with the President, and, when required,
because of the inability of the President to act or other-
wise, shall have the same powers as the President on behalf
-65-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 4.01
of the Corporation. He may from time to time, unless other-
wise ordered by the Board, authorize or direct the Vice-
Chairman or President to perform any of the duties or
exercise any of the powers of the Chairman. (As amended
10/27/77, 10/30/84, 2/15/88, and 7/29/91.)
(b) The Vice-Chairman shall preside at meetings
of the shareholders or of the Board in the absence of the
Chairman. He shall also perform such other duties as the
Chairman may authorize or direct. (As amended 7/29/91.)
(c) The President shall be the chief executive
officer of the Corporation and, subject to the control of
the Board, shall supervise, control, and manage all of the
business affairs of the Corporation. He shall report to
the Chairman when the Board is not in session. In the
absence of the Chairman and Vice-Chairman, the President
shall preside at meetings of shareholders and of the Board.
Unless otherwise ordered by the Board, the President (1) may
employ, appoint and discharge such employees, agents,
attorneys and accountants (except the certified public
accountants appointed by the Board pursuant to Section 4.02)
for the Corporation as he deems necessary or advisable, and
shall prescribe their authority, duties, powers, and compen-
sation, including, if appropriate, the authority to perform
some or all of the duties or exercise some or all of the
powers of the President; (2) may make and enter into on
behalf of the Corporation all deeds, conveyances, mortgages,
leases, contracts, agreements, bonds, reports, releases, and
other documents or instruments which may in his judgment be
necessary or advisable in the ordinary course of the Corpo-
ration's business or which shall be authorized by the Board;
(3) shall see that all Corporation policies and all orders
and resolutions of the Board are carried into effect; and
(4) shall have all the usual duties and powers of the
President of a corporation and such other duties and powers
as may be prescribed from time to time by the Board. (As
amended 7/29/91.)
Section 4.08. Vice-Presidents. Each Vice-President 4.06, 4.07
shall have such duties and powers as may be prescribed
from time to time by the President or the Board of
Directors. (As amended 4/23/64 and 10/27/77.)
-66-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 4.01
Section 4.09. Secretary. The Secretary: 4.06
(a) shall, when present, act as Secretary of
each meeting of the shareholders and of the Board of 2.13, 3.13
Directors;
(b) shall keep the minutes of the meetings of IBCA Sec.
the shareholders and the Board of Directors in one or more 840(3)
books provided for that purpose;
(c) shall see that all notices are duly given 2.04, 2.06,
and that lists of shareholders are made and filed as 3.05, 3.08,
required by law or the Articles of Incorporation or 6.04
these By-laws;
(d) shall be custodian of the corporate records 6.01, 6.04
and the seal of the Corporation and shall, when duly IBCA Sec.
authorized, see that the seal is affixed to any instrument 840(3)
requiring it;
(e) shall keep a record of the Directors,
giving the names and addresses of all Directors; and 5.06
(As amended 4/23/64 and 2/19/79.)
(f) shall have all the usual duties and powers
of the Secretary of a corporation and such duties and
powers as may be prescribed from time to time by the
President or the Board of Directors. (As amended
2/19/79.)
Section 4.10. Treasurer. The Treasurer: 4.06
(a) shall have charge and custody of and be
responsible for all funds, securities, and evidences of
indebtedness belonging to the Corporation;
(b) shall receive and give receipts for moneys
due and payable to the Corporation from any source
whatever;
(c) shall see that all such moneys are depos-
ited in the name of and to the credit of the Corporation
in such depositories as shall be designated by or pursuant
-67-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 4.01
to authority granted by the Board of Directors;
(d) shall cause the funds of the Corporation 6.06
to be disbursed when and as duly authorized to do so;
(e) shall see that correct and complete books
of account and financial statements are kept and prepared
in accordance with generally accepted accounting prin- 6.11
ciples except to the extent such duties are assigned by
the President to other officers or employees of the
Corporation; (As amended 2/13/77.)
(f) shall have all the usual duties and
powers of the Treasurer of a corporation and such duties
and powers as may be prescribed from time to time by the
President or the Board of Directors; (As amended
2/13/77.)
(g) shall keep at the registered office or
principal place of business of the Corporation a record of
its shareholders (which shall be part of the stock trans-
fer books of the Corporation), giving the names and 1.01., 1.02
addresses of all shareholders and the number and class of
the shares held by each; and (As amended 2/19/79.)
(h) shall have charge of the stock transfer Art. 5
books of the Corporation, and shall record the issuance
and transfer of shares, except to the extent that such
duties shall be delegated by the Board of Directors to a
transfer agent or registrar. (As amended 2/19/79.)
Section 4.11. Assistant Secretaries. In the absence 4.01, 4.06
of the Secretary or in the event of his death or inability
or refusal to act, the Assistant Secretary (or, if there
shall be more than one, the Assistant Secretaries in the
order designated by the Board of Directors from time to
time, or, in the absence of any such designation, in the
order in which their names shall appear in the minutes
showing their election) shall perform the duties and ex-
ercise the powers of the Secretary. Each Assistant Secre- 4.09
tary shall also have such duties and powers as may be pre-
scribed from time to time by the Secretary or the Presi-
dent or the Board of Directors. (As amended 4/23/64.)
-68-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 4.01
Section 4.12. Assistant Treasurers. In the absence 4.01, 4.06
of the Treasurer or in the event of his death or inability
or refusal to act, the Assistant Treasurer (or, if there
shall be more than one, the Assistant Treasurers in the
order designated by the Board of Directors from time to
time, or, in the absence of any such designation, in the
order in which their names shall appear in the minutes
showing their election) shall perform the duties and
exercise the powers of the Treasurer. Each Assistant 4.10
Treasurer shall also have such duties and powers as may be
prescribed from time to time by the Treasurer or the
President or the Board of Directors. (As amended
4/23/64.)
Section 4.13. Compensation. The Board of Directors
may fix or provide for, or may authorize any officer to
fix or provide for, reasonable compensation of any or all
of the officers and agents of the Corporation, including, 3.19, 6.08
without limiting the generality of the foregoing, sala-
ries, bonuses, payment of expenses, pensions, pension
plans, pension trusts, profit-sharing plans, stock bonus
plans, stock option plans (subject to approval of the
shareholders if required by law), and other incentive,
insurance, and welfare plans, whether or not on account of
prior services rendered to the Corporation. (As amended
4/23/64.)
Section 4.14. Bond. The Board of Directors may
require an officer or agent to give a bond for the faith-
ful performance of his duties, in such amount and with
such surety or sureties as the Board of Directors deems
advisable.
-69-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 5.01
ARTICLE 5. SHARES AND CERTIFICATES
-----------------------------------
Section 5.01. Issuance of and Consideration for IBCA Sec. 621
Shares. Shares and securities convertible into shares
of the Corporation may be issued for such consideration
expressed in dollars (not less than the par value thereof
in the case of shares having a par value) as shall be
fixed from time to time by the Board of Directors, and Articles of
may be issued to such persons as may be designated from Incorporation
time to time by or pursuant to authority granted by the Art. 4
Board of Directors, except as otherwise required by law
or the Articles of Incorporation or these By-laws. 5.02
Section 5.02. Restrictions on Issuance of Shares IBCA Sec. 621
and Certificates. No share of the Corporation shall be
issued until such share is fully paid as provided by law.
Neither promissory notes of the subscriber nor future
services shall constitute payment or part payment for
shares of the Corporation.
No fractional share or certificate representing any frac- IBCA Sec. 604
tional share shall be issued unless expressly authorized
by the Board of Directors.
No new certificate shall be issued in place of any certi- 5.05
ficate until the old certificate for a like number of
shares shall have been surrendered and cancelled, except
as otherwise provided in Section 5.04.
Section 5.03. Certificates Representing Shares. IBCA Sec. 625
Each shareholder shall be entitled to a certificate or
certificates representing the shares of the Corporation
owned by him. Certificates representing shares of the
Corporation shall be in such form as shall be determined
by or pursuant to authority granted by the Board of
Directors. Each certificate shall be signed by the
President or a Vice-President and by the Secretary or an
Assistant Secretary, and the corporate seal may be affixed 6.01
thereto. All certificates shall be consecutively numbered
or otherwise identified. The name and address of the per-
son to whom the shares represented thereby are issued, and
the number and class of shares and date of issuance, shall
-70-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 5.01
be entered on the stock transfer books of the Corporation. 5.05, 5.06
Section 5.04. Lost, Destroyed, Stolen, or Mutilated
Certificates. The Board of Directors may authorize a new
certificate to be issued in place of any certificate
alleged to have been lost, destroyed, or stolen, or which
shall have been mutilated, upon production of such evidence
and upon compliance with such conditions as the Board of
Directors may prescribe.
Section 5.05. Transfer of Shares. Shares of the 2.05
Corporation shall be transferable only on the stock trans-
fer books of the Corporation, by the holder of record
thereof or by his duly authorized attorney or legal repre-
sentative (who shall furnish such evidence of authority to
transfer as the Corporation or its agent may reasonably
require), upon surrender to the Corporation for cancel-
lation of the certificate representing such shares, duly
endorsed or with a proper written assignment or power of
attorney duly executed and attached thereto, and with such
proof of the authenticity of signatures as the Corporation
or its agent may reasonably require. The Corporation
shall cancel the old certificate, issue a new certificate
to the person entitled thereto, and record the transaction
on its stock transfer books. However, if the applicable
law permits shares to be transferred in a different
manner, then to the extent required to comply with such
law all references in this Section to "shares" shall mean
the rights against the Corporation inherent in or arising
out of such shares. 5.06
Section 5.06. Shareholders of Record; Change of Name
or Address. The Corporation shall be entitled to recog-
nize the exclusive right of a person shown on its stock
transfer books as the holder of shares to receive notices
and dividends, to vote as such holder, and to have and 2.04, 2.06
exercise all other rights deriving from such shares, and
shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any
other person, whether or not it shall have actual or
constructive notice thereof. Unless the context or
another provision of these By-laws clearly indicates
otherwise, all references in these By-laws to "share-
-71-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 6.01
holders" and "holders" shall mean the shareholders
of record as shown on the stock transfer books of the 5.03, 5.05
Corporation.
Each shareholder and each Director shall promptly notify
the Secretary in writing of his correct address and any
change in his name or address from time to time. If any
shareholder or Director fails to give such notice, neither
the Corporation nor any of its Directors, officers,
agents, or employees shall be liable or responsible to
such shareholder or Director for any error or loss which
might have been prevented if such notice had been given.
(As amended 4/23/64.)
Section 5.07. Regulations. The Board of Directors
may adopt such rules and regulations, not inconsistent with
applicable law or the Articles of Incorporation or these
By-laws, as it deems advisable concerning the issuance,
transfer, conversion, and registration of certificates
representing shares of the Corporation.
-72-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 6.01
ARTICLE 6. GENERAL PROVISIONS
------------------------------
Section 6.01. Seal. The corporate seal shall be IBCA
circular in form and shall have inscribed thereon the Sec. 302(2)
name of the Corporation and the words "Corporate Seal" and
"Iowa". The seal may be affixed by causing it or a fac-
simile thereof to be impressed or reproduced or otherwise.
Section 6.02. Fiscal Year. The fiscal year of the
Corporation shall be fixed by the Board of Directors from
time to time.
Section 6.03. Dividends. The Board of Directors IBCA Sec. 623
may from time to time declare, and the Corporation may
pay, dividends on the outstanding shares in the manner
and upon the terms and conditions provided by law and Articles of
the Articles of Incorporation. Incorporation
Art. 4
Section 6.04. Execution of Documents and Instru-
ments. All deeds and conveyances of real estate, mort-
gages of real estate, and leases of real estate (for an
initial term of five years or more) to be executed by the
Corporation shall be signed in the name of the Corporation
by the Chairman of the Board of Directors or the Vice-
Chairman or the President or a Vice-President and signed
or attested by the Secretary or an Assistant Secretary,
and the corporate seal shall be affixed thereto. 6.01
All other documents or instruments to be executed by the
Corporation (including, without limiting the generality of
the foregoing, contracts, agreements, bonds, reports,
notices, releases, promissory notes, and evidences of
indebtedness; and deeds, conveyances, mortgages, and
leases other than those referred to in the preceding
sentence) shall be signed in the name of the Corporation
by any one or more of the officers of the Corporation,
with or without the corporate seal. 5.03
However, from time to time the Board of Directors or 4.06, 4.07,
the Chairman of the Board of Directors or the Vice- 4.08
Chairman or the President may alter, add to, limit,
transfer to another officer or agent, or abolish the
authority of any officer or officers to sign any or all
-73-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 6.01
documents or instruments, or may authorize the execution
of any document or instrument by any person or persons,
with or without the corporate seal, and such action may be
either general or confined to specific instances. (As
amended 4/23/64 and 8/1/79.)
Section 6.05. Loans. No loans shall be contracted
on behalf of the Corporation and no evidences of indebt-
edness shall be issued in its name unless authorized by or
pursuant to authority granted by the Board of Directors.
Such authorization may be either general or confined to 6.04
specific instances.
Section 6.06. Checks and Drafts. All checks and 4.10
drafts issued in the name of the Corporation shall be
signed by such person or persons and in such manner as
shall be authorized by or pursuant to authority granted by
the Board of Directors.
Section 6.07. Voting of Shares Owned by Corpora-
tion. Any shares or securities of any other corporation
or company owned by this Corporation may be voted at any
meeting of shareholders or security holders of such other
corporation or company by the Chairman of the Board of
Directors of this Corporation. Whenever in the judgment
of the Chairman of the Board of Directors it shall be ad-
visable for the Corporation to execute a proxy or waiver
of notice or to give a consent with respect to any shares
or securities of any other corporation or company owned by
this Corporation, such proxy, waiver, or consent shall be
executed in the name of this Corporation, as directed by
the Chairman of the Board of Directors, without necessity 6.04
of any authorization by the Board of Directors. Any per-
son or persons so designated as the proxy or proxies of
this Corporation shall have full right, power, and
authority to vote such shares or securities on behalf of
this Corporation. In the absence of the Chairman of the
Board of Directors or in the event of his death or inabil- 4.07
ity to act, the Vice-Chairman may perform the duties and
exercise the powers of the Chairman of the Board of
Directors under this Section. The provisions of this
Section shall be subject to any specific directions by
the Board of Directors. (As amended 4/23/64 and 8/1/79.) 4.06
-74-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 6.01
Section 6.08. Interest of Directors in Transactions. 3.12
In the absence of fraud, any contract or other transaction IBCA Sec.
between the Corporation and any or all of its Directors 831
(including, without limiting the generality of the fore-
going, any authorization of or payment of compensation to 3.19, 4.13
any Director or officer of the Corporation), or between the
Corporation and any person or party in which any or all of
the Directors of the Corporation are interested or with
which they are connected (whether as shareholders, direct-
ors, officers, owners, partners, members, employees, or
otherwise) shall be valid for all purposes, notwithstanding
the presence of such Director or Directors at the meeting
of the Board of Directors which shall act upon or with
respect to such contract or transaction, and notwith-
standing his or their participation in and vote upon such
action, if the fact of such interest shall be disclosed or
otherwise known to the Board of Directors prior to or at
the time of the taking of such action. Such interested
Director or Directors are hereby expressly authorized to
vote upon any action of the Board of Directors upon or with
respect to such contract or transaction; may be counted in
determining whether a quorum is present; and may be in-
cluded in the majority necessary to take such action. Each
Director of the Corporation is hereby expressly relieved,
in the absence of fraud, from any liability which might
otherwise exist or arise from contracting with the Corpo-
ration for the benefit of himself or any person or party in
which he may be in any way interested or with which he may
be in any way connected.
Any contract, transaction, or action of the Corporation or
of the Board of Directors which shall be ratified at any
meeting of shareholders by the affirmative vote of the
holders of a majority of the outstanding common shares
entitled to vote, shall be as valid and as binding as
though expressly authorized in writing by every shareholder
of the Corporation. However, any failure of the share-
holders to approve or ratify such contract, transaction, or
action, when and if submitted, shall not be deemed in any
way to render the same invalid or to deprive the Directors
or officers of authority to proceed with such contract,
transaction, or action.
-75-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 6.01
This Section shall not be construed to invalidate any con-
tract or transaction which would otherwise be valid, nor as
a limitation upon the powers of the Directors or officers,
nor as a requirement that any contract or transaction of
the Corporation be approved or ratified by the share-
holders.
Section 6.09. Indemnification. The Corporation may IBCA Sec.
indemnify any Qualified Person. For purposes of this 856
Section, "Qualified Person" means any person who was or is
a party or is threatened to be made a party to any
threatened, pending, or completed action, suit, or
proceeding (whether civil, criminal, administrative, or
investigative including, without limitation, an action or
suit by or in the right of the Corporation) (collectively,
"Action") by reason of the fact that he or she is or was a
Director, officer, employee, member, if any, volunteer, or
agent of the Corporation, or is or was serving at the
request of the Corporation as a Director, officer, partner,
trustee, employee, member, if any, volunteer, or agent of
another foreign or domestic corporation, partnership, joint
venture, trust, other enterprise, or employee benefit plan.
The indemnification may be against expenses (including
attorneys' fees), judgments, fines, and amounts paid or
incurred in settlement which the Qualified Person actually
and reasonably incurred in connection with the Action, in
the manner and to the extent provided in this Section.
(a) Indemnification may be made in the following
independent and alternative methods:
(1) In the manner and to the extent provided
by Iowa law;
(2) If and to the extent that the Board of IBCA Sec.
Directors determines that the person acted in good faith 855(b)
and in a manner he or she reasonably believed to be in
or not opposed to the best interests of the Corporation.
This determination may be made (notwithstanding Sections
3.09 and 3.11) either by: (i) a majority vote of a
quorum consisting of Directors who were not parties to
the Action; or (ii) a unanimous vote of all Directors
who were not parties to the Action (whether or not
-76-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 6.01
constituting a quorum), if there are at least two such
Directors;
(3) In accordance with any agreement
authorized by the Board of Directors before the
commencement of the Action;
(4) If and to the extent authorized by action
of the shareholders; or
(5) In any other manner not prohibited by
Iowa law.
(b) Restrictions and presumptions required by
law with regard to indemnification referred to in Sub-
section (a)(1) shall not apply to indemnification under
Subsections (a)(2), (3), or (4); provided, however,
indemnification shall not be provided in any case for:
(1) A breach of a person's duty of loyalty to
the Corporation;
(2) Acts or omissions not in good faith or
which involve intentional misconduct or knowing viola-
tion of the law;
(3) A transaction from which the person
derives an improper personal benefit; or
(4) Proceedings by or in the right of the IBCA Sec.
Corporation unless permitted in Iowa Code Section 858
496A.4A(2) as amended from time to time.
(5) Proceedings by or in the right of the
Corporation unless permitted in Iowa Code Section
496A.4A(2), as amended from time to time.
(c) To the extent that a Qualified Person has been
successful on the merits or otherwise in defense of any
Action or in defense of any claim, issue, or matter therein,
he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or
her in connection with such Action.
-77-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 6.01
(d) Any indemnification of a Qualified Person may
be both as to action in his or her official capacity and as
to action in another capacity while holding such official
capacity; shall continue as to a Qualified Person who has
ceased to be a Director, officer, employee, member, if any,
volunteer, or agent; and shall inure to the benefit of the
heirs, beneficiaries, and personal representatives of the
Qualified Person.
(e) Indemnification may be made either by direct
payment by the Corporation or by reimbursement to the
Qualified Person. (As amended 2/15/88.)
Section 6.10. Duty of Care. Directors and officers
of the Corporation shall not be liable for losses of the
Corporation incurred under their management which are not
the result of misconduct in the performance of duty or
negligence in failing to exercise that diligence, care, and
skill which an ordinarily prudent man would exercise under
similar circumstances.
Section 6.11. Reliance on Documents. Each Director
and officer shall, in the performance of his duties, be
fully protected in relying and acting in good faith upon
the books of account or other records of the Corporation, 4.10
or reports made or financial statements presented by any
officer of the Corporation or by an independent public or
certified public accountant or firm of such accountants or
by an appraiser selected with reasonable care by the Board
of Directors or by any committee thereof; and each Director
and officer is hereby expressly relieved from any liability
which might otherwise exist or arise from or in connection
with any such action.
Section 6.12. Effect of Partial Invalidity. If a
court of competent jurisdiction shall adjudge to be invalid
any clause, sentence, paragraph, section, or part of the
Articles of Incorporation or these By-laws, such judgment
or decree shall not affect, impair, invalidate, or nullify
the remainder of the Articles of Incorporation or these By-
laws, but the effect thereof shall be confined to the
clause, sentence, paragraph, section, or part so adjudged
to be invalid.
-78-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 6.01
Section 6.13. Definitions. Any word or term which IBCA Sec.
is defined in the Iowa Business Corporation Act shall have 140
the same meaning wherever used in the Articles of Incorpo-
ration or in these By-laws, unless the context or another
provision of the Articles of Incorporation or these By-
laws clearly indicates otherwise. Wherever used in the
Articles of Incorporation or in these By-laws, unless the
context or another provision of the Articles of Incorpo-
ration or these By-laws clearly indicates otherwise, the
use of the singular shall include the plural, and vice
versa; and the use of any gender shall be applicable to
any other gender. Wherever used in the Articles of Incor-
poration or in these By-laws, the word "written" shall
mean written, typed, printed, duplicated, or reproduced by
any process. (As amended 4/23/64.)
Section 6.14. Authority to Carry Out Resolutions and
Motions. Each resolution or motion adopted by the share-
holders or by the Board of Directors shall be deemed to
include the following provision, unless the resolution or
motion expressly negates this provision: The officers of
the Corporation are severally authorized on behalf of the
Corporation to do all acts and things which may be neces-
sary or convenient to carry out this resolution (motion),
including, without limitation, the authority to make,
execute, seal, deliver, file, and perform all appropriate
contracts, agreements, certificates, documents, and
instruments.
The foregoing provision shall automatically be a part of
the resolution or motion even though not stated in the
minutes; and any officer may state or certify that the
foregoing provision is included in the resolution or
motion. (Added entire section 8/3/82.)
-79-
<PAGE>
HON INDUSTRIES Inc. BY-LAWS 7.01
ARTICLE 7. AMENDMENTS
----------------------
Section 7.01. Reservation of Right to Amend. The Articles of
Corporation expressly reserves the right from time to Incorporation,
time to amend these By-laws, in the manner now or here- Art. 4,
after permitted by the provisions of the Articles of Art. 8
Incorporation and these By-laws, whether or not such
amendment shall constitute or result in a fundamental
change in the purposes or structures of the Corporation 7.02
or in the rights or privileges of shareholders or others
or in any or all of the foregoing. All rights and
privileges of shareholders or others shall be subject to
this reservation. Wherever used in these By-laws with
respect to the By-laws, the word "amend," "amended," or
"amendment" includes and applies to the amendment, altera-
tion, or repeal of any or all provisions of the By-laws or
the adoption of new By-laws. (As amended 4/28/66.)
Section 7.02. Procedure to Amend. Any amendment IBCA Sec. 206,
to these By-laws may be adopted at any meeting of the 1020, 1022
Board of Directors by the affirmative vote of a Articles of
majority of the number of Directors fixed by Section Incorporation,
3.03. No notice of any proposed amendment to the Art. 8
By-laws shall be required. (As amended 4/28/66.) 3.08, 3.17
-80-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
------------------------------
State of
Subsidiary Incorporation Doing Business As
- ---------- ------------- -----------------
Hearth Technologies Inc. Iowa Hearth Technologies Inc.
Holga Inc. Iowa Holga Inc.
BPI Inc. Iowa BPI Inc.
The Gunlocke Company Iowa The Gunlocke Company
HON Export Limited Iowa HON Export Limited
T. M. Export Inc. Barbados T. M. Export Inc.
-81-
<PAGE>
EXHIBIT 23A
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report included in this Form 10-K,
into HON INDUSTRIES Inc.'s previously filed Registration Statement Files
Nos. 33-20759 and 33-61305 on Form S-8.
Arthur Andersen LLP
Chicago, Illinois
March 24, 1997
-82-
<PAGE>
EXHIBIT 23B
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-20759) pertaining to the members' stock
purchase plan and incorporation by reference in the Registration
Statement (Form S-8 No. 33-61305) pertaining to the 1995 stock-based
compensation plan of HON INDUSTRIES Inc. of our report dated January 30,
1996, with respect to the consolidated financial statements and schedule
of HON INDUSTRIES Inc. and subsidiaries included in the Annual Report
(Form 10-K) for the year ended December 28, 1996.
Ernst & Young LLP
Chicago, Illinois
March 24, 1997
-83-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000048287
<NAME> HON INDUSTRIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 31,196
<SECURITIES> 1,502
<RECEIVABLES> 110,925
<ALLOWANCES> 1,830
<INVENTORY> 43,550
<CURRENT-ASSETS> 205,527
<PP&E> 375,910
<DEPRECIATION> 141,294
<TOTAL-ASSETS> 513,514
<CURRENT-LIABILITIES> 152,553
<BONDS> 91,468
0
0
<COMMON> 29,713
<OTHER-SE> 222,684
<TOTAL-LIABILITY-AND-EQUITY> 513,514
<SALES> 998,135
<TOTAL-REVENUES> 998,135
<CGS> 679,496
<TOTAL-COSTS> 679,496
<OTHER-EXPENSES> 212,446
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 926
<INCOME-PRETAX> 105,267
<INCOME-TAX> 37,173
<INCOME-CONTINUING> 68,094
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,094
<EPS-PRIMARY> 2.26
<EPS-DILUTED> 2.26
</TABLE>
<PAGE>
EXHIBIT 99A
EXECUTIVE BONUS PLAN
HON INDUSTRIES Inc.
As adopted on May 1, 1974, and amended on
April 20, 1976, April 19, 1977, January 31, 1983,
February 5, 1985, November 4, 1986, July 7, 1988
May 4, 1992, November 2, 1992, February 8, 1993,
February 14, 1994, November 14, 1994,
May 8, 1995, and November 11, 1996
1. Purpose. The purpose of the Executive Bonus Plan (the
"Plan") is to encourage a consistently high standard of excellence and
continued employment by officers and selected other executives of the
Corporation and any subsidiary which elects to participate in the Plan
(an "electing Subsidiary"). The Plan shall be operated at all times in
conformance with applicable government regulations. (As amended January
31, 1983, May 4, 1992, and November 11, 1996.)
2. Participants. For any fiscal year, each person who is
an officer as of the end of such fiscal year of HON INDUSTRIES Inc. (the
"Corporation") or any electing Subsidiary, and each other executive of
the Corporation or any electing Subsidiary as is selected by the Board
of Directors of the Corporation ("Board") as of the end of such fiscal
year, shall be eligible to be Participants in the Plan. (As amended
April 20, 1976, April 19, 1977 and November 11, 1996.)
3. Payment. Upon final determination of bonus awards by
the Board or, to the extent delegated by the Board for a fiscal year,
the Human Resources and Compensation Committee of the Board
("Committee"), the bonus awards shall be paid in full in cash, subject
to Section 3(c), as follows:
a. Any bonus award for a fiscal year ending prior
to December 28, 1996, to the extent not already paid to the
Participant, shall be paid to the Participant (or, as
applicable, the Participant's estate) in a single sum payment
not later than March 14, 1997, provided that (A) the
Participant is employed by the Corporation or an electing
Subsidiary on the date of payment or (B) the Participant's
employment with the Corporation and each electing Subsidiary
terminated due to death, disability, retirement after age 55
pursuant to established retirement policies of the Corporation
(a "Retirement"), or for any other reason (except a termination
for cause, as determined by the Committee) after a Change in
Control (as defined below).
b. Effective for each fiscal year ending on or
after December 28, 1996, each bonus award for such fiscal year
shall be paid not later than the last day of the Corporation's
February fiscal month following the end of the Corporation's
fiscal year for
-85-
<PAGE>
which the bonus award is made, provided, subject to Section 4,
that the Participant is employed by the Corporation or an
electing Subsidiary on such date.
c. At the Participant's request, the Committee
may approve payment of all or a portion of any bonus award for
a fiscal year under Section 3(a) or 3(b) in the form of shares
of Bonus Stock issued pursuant to (and as defined in) the
Corporation's Stock-Based Compensation Plan. The number of
shares of Bonus Stock to be paid shall be determined by
dividing the cash amount of the bonus award under the Plan (or,
portion thereof, as elected by the Participant) for a fiscal
year by the average closing prices of a share of the
Corporation's common stock for the 20 trading days immediately
preceding the date of such payment, with cash paid in lieu of
any fractional share. All Federal, state and local income tax
and other employment tax withholding shall be made pursuant to
Section 5.5 of the Stock-Based Compensation Plan.
(As amended January 31, 1983, May 8, 1995, and November 11, 1996.)
d. As used in the Plan, "Change in Control" means
(i) the acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (a) the then outstanding shares of common stock of the
Corporation (the "Outstanding Corporation Common Stock") or (b)
the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in the
election of directors (the "Outstanding Corporation Voting
Securities"); provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute
a Change in Control: (A) any acquisition directly from the
Corporation, (B) any acquisition by the Corporation, (C) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Corporation or any corporation
controlled by the Corporation or (D) any acquisition by any
corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of subsection (iii) of this Section
3(d); or (ii) individuals who, as of the date hereof,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least two-thirds of the Board;
provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by a
vote of at least three-quarters of the directors then
comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than
the Board; or (iii) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or
substantially all of the assets of the Corporation (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Corporation Common Stock and Outstanding
Corporation Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly,
more than 50% of, respectively, the then outstanding shares of
common stock and the combined
-86-
<PAGE>
voting power of the then outstanding voting securities entitled
to vote generally in the election of directors, as the case may
be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result
of such transaction owns the Corporation or all or
substantially all of the Corporation's assets either directly
or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Corporation Common
Stock and Outstanding Corporation Voting Securities, as the
case may be, (B) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or
related trust) of the Corporation or such corporation resulting
from such Business Combination) beneficially owns, directly or
indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to the
extent that such ownership existed prior to the Business
Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such
Business Corporation were members of the Incumbent Board at the
time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination;
or (iv) approval by the shareholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
(As amended November 4, 1986, July 7, 1988, November 14, 1994 and
November 11, 1996.)
4. Termination of Employment. The following provisions
shall apply for any fiscal year commencing after December 28, 1996:
a. If a Participant's employment with the
Corporation and each electing Subsidiary is terminated during a
fiscal year by reason of death, disability or Retirement, the
Participant, or the Participant's estate, shall receive a bonus
award for such fiscal year, determined as if the Participant
had remained employed for such entire fiscal year, prorated for
the number of days during such fiscal year that have elapsed as
of the Participant's termination, and subject to the first
sentence of Section 4(b).
b. If a Participant's employment with the
Corporation and each electing Subsidiary is terminated during a
fiscal year for any reason other than death, disability or
Retirement, the Participant's rights to any bonus award for
such fiscal year will be forfeited. However, the Committee
may, in its discretion, determine to pay a prorated bonus award
for the portion of such fiscal year during which the
Participant was employed by the Corporation or an electing
Subsidiary, except that in no event shall any such prorated
bonus award be paid in the event of termination for cause, as
determined by the Committee. (As amended November 11, 1996.)
5. Change in Control. For fiscal years commencing after
December 28, 1996, in the event of a Change in Control (as defined
above), the maximum bonus award for the fiscal year then in progress,
prorated for the number of days in such fiscal year that have elapsed as
of the date of the Change in Control, shall be paid immediately in cash,
without regard to Section 3(c). Any adjustment or termination of a
Participant's participation in the Plan that occurs at any time
-87-
<PAGE>
on or after the 90th day preceding a Change in Control shall be of no
effect. (As amended November 11, 1996.)
6. Administration. The Board shall have full power to
interpret and administer this Plan from time to time in accordance with
the By-laws of the Corporation, except to the extent provided in the
Corporation's Stock-Based Compensation Plan or to the extent that the
Board may have delegated its powers to the Committee. Decisions of the
Board or the Committee shall be final, conclusive and binding upon all
parties. The Committee shall consist of two or more "non-employee
directors" within the meaning of Rule 16b-3 as promulgated pursuant to
Section 16 of the Securities Exchange Act of 1934. (As amended May 8,
1995, and November 11, 1996.)
7. Cost. Each electing Subsidiary shall reimburse the
Corporation for the amount of such bonus awards which shall be awarded
and paid to Participants for services to such electing Subsidiary, as
determined by the Board.
8. Amount of Individual Bonus. For fiscal years beginning
after December 28, 1996, the bonus award for each fiscal year for any
Participant shall be determined by the Board, or, to the extent
delegated by the Board for a fiscal year, by the Committee, no later
than the first meeting of the Board that occurs during the fiscal year
following the year for which the bonus award is made. (As amended April
20, 1976 and November 11, 1996.)
9. General Provisions.
a. The Company shall have the right to deduct any
Federal, state or local taxes applicable to payments under the
Plan. The Committee may permit Participants to satisfy
withholding obligations by electing to have shares of Bonus
Stock withheld.
b. Except as otherwise determined by the
Committee, no right or interest of any Participant in this Plan
shall be assignable or transferable except by will or the laws
of descent and distribution, nor shall any such right or
interest, be subject to any lien, directly, by operation of law
or otherwise, including execution, levy, garnishment,
attachment, pledge or bankruptcy.
c. Except as provided in Sections 4 and 5, the
Board may terminate or amend the Plan at any time.
-88-
<PAGE>
EXHIBIT 99B
EXECUTIVE DEFERRED COMPENSATION PLAN
HON INDUSTRIES Inc.
As Adopted on November 11, 1996
-89-
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
AMENDMENT AND RESTATEMENT . . . . . . . . . . . . . . . . . 1
Amendment and Restatement . . . . . . . . . . . . . . 1
Purposes . . . . . . . . . . . . . . . . . . . . . . 1
Application of the Plan . . . . . . . . . . . . . . . 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . 1
Definitions . . . . . . . . . . . . . . . . . . . . . 1
Gender and Number . . . . . . . . . . . . . 3
ELIGIBILITY AND PARTICIPATION . . . . . . . . . . . . . . . 3
Eligibility . . . . . . . . . . . . . . . . . . . . . 3
Participation . . . . . . . . . . . . . . . . . . . . 3
Partial Year Participation . . . . . . . . . . . . . 4
DEFERRAL OPPORTUNITY . . . . . . . . . . . . . . . . . . . 4
Deferral Election . . . . . . . . . . . . . . . . . . 4
Deferral Amount . . . . . . . . . . . . . . . . . . . 5
Adjustment in Deferral Amount . . . . . . . . . . . . 5
Length of Deferral . . . . . . . . . . . . . . . . . 5
Form of Payment . . . . . . . . . . . . . . . . . . . 5
Termination from Service Other Than Retirement . . . 6
Death Benefit . . . . . . . . . . . . . . . . . . . . 6
Financial Hardship . . . . . . . . . . . . . . . . . 7
Vesting . . . . . . . . . . . . . . . . . . . . . . 7
Funding . . . . . . . . . . . . . . . . . . . . . . 7
Deduction Issues . . . . . . . . . . . . . . . . . . 8
INDIVIDUAL ACCOUNTS . . . . . . . . . . . . . . . . . . . . 8
Participants' Accounts . . . . . . . . . . . . . . . 8
Charges Against Accounts . . . . . . . . . . . . . . 8
Participant Statements . . . . . . . . . . . . . . . 9
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . 9
Administration . . . . . . . . . . . . . . . . . . . 9
Decisions Binding . . . . . . . . . . . . . . . . . . 9
Expenses . . . . . . . . . . . . . . . . . . . . . . 9
Indemnification and Exculpation . . . . . . . . . . . 9
BENEFICIARY DESIGNATION . . . . . . . . . . . . . . . . . . 9
Designation of Beneficiary . . . . . . . . . . . . . 9
Death of Beneficiary . . . . . . . . . . . . . . . . 10
Ineffective Designation . . . . . . . . . . . . . . . 10
-90-
<PAGE>
Withholding of Taxes . . . . . . . . . . . . . . . . . . . 10
CHANGE IN CONTROL, AMENDMENT, AND TERMINATION . . . . . . . 10
Change in Control . . . . . . . . . . . . . . . . . . 10
Plan Amendment and Termination . . . . . . . . . . . 11
CLAIMS PROCEDURE . . . . . . . . . . . . . . . . . . . . . 12
Initial Claim . . . . . . . . . . . . . . . . . . . . 12
Denial of Claim . . . . . . . . . . . . . . . . . . . 12
Review of Claim Denial . . . . . . . . . . . . . . . 12
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 12
Unfunded Plan . . . . . . . . . . . . . . . . . . . . 12
Nontransferability . . . . . . . . . . . . . . . . . 13
Successors . . . . . . . . . . . . . . . . . . . . . 13
Severability . . . . . . . . . . . . . . . . . . . . 13
Applicable Law . . . . . . . . . . . . . . . . . . . 13
-91-
<PAGE>
HON INDUSTRIES INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
1. AMENDMENT AND RESTATEMENT
-------------------------
1.1. Amendment and Restatement. HON INDUSTRIES Inc., an
Iowa corporation (the "Company"), hereby amends and restates, effective
as of January 1, 1997(the "Effective Date"), the HON INDUSTRIES Inc.
Salary Deferral Plan (the "Plan"), a deferred compensation plan for its
eligible members, to be known as of the Effective Date as the "HON
INDUSTRIES Inc. Executive Deferred Compensation Plan".
1.2. Purposes. The purpose of the Plan is to give eligible
executives the opportunity to defer the receipt of compensation to
supplement their retirement savings and to achieve their personal
financial planning goals.
1.3. Application of the Plan. The terms of the Plan, as
amended and restated, shall apply only to eligible executives who are in
the active employ of the Company or its Subsidiaries on and after the
Effective Date.
2. DEFINITIONS
-----------
2.1. Definitions. Whenever used in the Plan, the following
terms shall have the meaning set forth below and, when the defined
meaning is intended, the term is capitalized:
(a) "Account" shall mean the individual bookkeeping account
established for each Participant, including any subaccounts
established under the Plan, for the purpose of crediting a
Participant's deferrals and earnings hereunder, as further
described in Section 5.1.
(b) "Annual Bonus" means bonus awards awarded by the Company to
a Participant as provided in the HON INDUSTRIES Inc.
Executive Bonus Plan.
(c) "Base Salary" means the annualized salary as of the close of
each Plan Year, including all regular basic wages before
reduction for any amounts deferred on a tax-qualified or
nonqualified basis, payable in cash to a Participant for
services rendered during the Plan Year. For certain
employees, Base Salary shall include commissions. Base
Salary shall exclude bonuses, incentive compensation,
special fees or awards, allowances, or any other form of
premium or incentive pay, or amounts designated by the
Company as payment toward or reimbursement of expenses.
-92-
<PAGE>
(d) "Board of Directors" means the board of directors of the Company.
(e) "Cash Profit Sharing" means amounts paid by the Company under the
Cash Profit Sharing Plan.
(f) "Cash Profit Sharing Plan" means the HON INDUSTRIES Inc. Cash
Profit Sharing Plan, or any successor Plan thereto.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the Human Resources and Compensation
Committee of the Board of Directors.
(i) "Compensation" means the remuneration paid or awarded to the
Participant by the Company or an Employer as Base Salary,
Annual Bonus, Cash Profit Sharing or as an LTIP Award.
(j) "Company" means HON Industries Inc., an Iowa corporation.
(k) "Deferred Amount" means, with respect to a Participant, the
Compensation deferred for a Plan Year under the Plan
pursuant to the Participant's election in accordance with
Section 4.1 for such Plan Year.
(l) "Employer" means the Company, and any Subsidiary which
adopts the Plan or which continues the Plan as a successor
under Section 11.3.
(m) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, or any successor
thereto.
(n) "LTIP Award" means any payment made pursuant to the HON
INDUSTRIES Inc. Executive Long-Term Incentive Compensation
Plan.
(o) "Participant" means an individual who satisfies the
requirements of Section 3.1.
(p) "Plan Year" means the consecutive 12-month period beginning
each January 1 and ending December 31.
-93-
<PAGE>
(q) "Prime Rate" means the interest rate charged by the Northern
Trust Company, Chicago, Illinois on corporate loans made to
their best customers as of the first business day coincident
with or immediately following the January 1 of each Plan
Year.
(r) "Retirement" means the discontinuance of employment with the
Company and its Subsidiaries after the attainment of age 65,
or age 55 with ten years of service with an Employer.
(s) "Subsidiary" means a corporation which is wholly owned by
the Company.
(t) "Termination from Service" means the discontinuance of
employment with the Company and its Subsidiaries by reason
of resignation, discharge, Retirement, disability, or death.
A transfer of employment from the Company or a Subsidiary to
another Subsidiary shall not constitute a Termination from
Service.
2.2. Gender and Number. Except when otherwise indicated by
the context, any masculine term used in the Plan also shall include the
feminine gender; and the definition of any plural shall include the
singular and the singular shall include the plural.
3. ELIGIBILITY AND PARTICIPATION
-----------------------------
3.1. Eligibility. Subject to Section 9.1, participation in
the Plan shall be limited to those executive employees of the Company
and its Subsidiaries who are eligible to participate in the HON
INDUSTRIES Inc. Executive Bonus Plan.
3.2. Participation. Eligible executive employees shall be
notified of their ability to participate prior to the beginning of each
Plan Year in which they are eligible, or as soon as administratively
possible thereafter.
No employee shall have the right to be selected to participate in
the Plan or, having been so selected, to be selected to participate in
any future Plan Year. Further, nothing in the Plan shall interfere with
or limit in any way the right of the Company to terminate any
Participant's employment at any time, nor confer upon any Participant a
right to continue in the employ of the Company, and all Participants
shall remain subject to change of salary and other terms of employment,
transfer, change of job, discipline, layoff, discharge, or any other
change of status.
-94-
<PAGE>
In the event a Participant ceases to be eligible for continued
participation in the Plan for any reason, such individual shall become
an inactive Participant, retaining all the rights relating to previous
deferrals as described under the Plan, except the right to make any
further deferrals, until such time that such individual again is
determined by the Committee to be an active Participant.
3.3. Partial Year Participation. In the event that an
individual becomes eligible to participate in the Plan after the
beginning of a Plan Year, the Company may allow such individual to elect
a deferral amount pursuant to Section 4.1 for such Plan Year within
thirty (30) calendar days after the individual becomes eligible to so
participate (but before the end of such Plan Year and subject to Section
4.1's six month requirement for LTIP Awards). An election submitted
pursuant to this Section 3.3 shall apply only to Compensation earned or
awarded for the Plan Year during the period subsequent to the date on
which a valid election to defer is received by the Company from that
Participant.
4. DEFERRAL OPPORTUNITY
--------------------
4.1. Deferral Election. For each Plan Year, each
Participant may elect to defer the payment of one or more components of
Compensation earned or awarded for a Plan Year as set forth in Section
4.1(a) by filing a form prescribed by the Company prior to the beginning
of such Plan Year. The election for any Plan Year shall be made at any
time before the commencement of such Plan Year and shall be effective as
of the beginning of such Plan Year, except that any election to defer an
LTIP Award pursuant to Section 4.1(a)(4) shall be made not less than six
months prior to the commencement of such Plan Year. An election under
this Section 4.1 shall be irrevocable with respect to the Deferred
Amount for the Plan Year for which the election is in effect. Each
Participant's election shall specify:
(a) The Deferred Amount, expressed as percentage or a flat
dollar amount of each of:
(1) The Participant's Base Salary earned during the Plan
Year (or such shorter period commencing on the date of
the Participant's election under this Section);
(2) The Participant's Annual Bonus awarded for the Plan
Year;
(3) The Participant's Cash Profit Sharing payable during
the Plan Year;
-95-
<PAGE>
(4) The Participant's LTIP Award which vests during the
Plan Year with respect to the award period which ended
as of the end of the immediately preceding Plan Year;
and
(5) Any other amounts designated by the Company from time
to time.
(b) Subject to Section 4.4, the future Plan Year in which, as of
January 31 of such Plan Year, each Deferred Amount
designated in subsections (a)(1) through (5) and earnings
credited thereon is payable; and
(c) The form of payment of each Deferred Amount designated in
subsections (a)(1) through (5), and earnings credited
thereon.
4.2. Deferral Amount. A Participant may elect to defer all
or a portion of his Compensation earned or awarded for a Plan Year, as
set forth in Section 4.1(a).
4.3. Adjustment in Deferral Amount. The Deferred Amounts
credited to the Participant's Account shall be credited as of the last
day of each month with earnings, computed on a monthly basis and
compounded monthly, in an amount equal to the product of the ending
monthly balance credited to the Participant's Account, multiplied by a
rate equal to one (1) percentage point above the current Prime Rate.
Notwithstanding the foregoing, no earnings shall be credited to a
Participant's Account after the Participant incurs a Termination from
Service, with or without cause, for reasons other than Retirement,
disability, or death.
4.4. Length of Deferral. Each Participant must elect the
subsequent Plan Year in which a Deferred Amount, and earnings credited
thereon, is payable. Such amounts shall be payable as of January 31 of
such subsequent Plan Year. The length of each period commencing on the
date of the Participant's election and ending on the date of payment
with respect to a Deferred Amount and earnings thereon, as elected by a
Participant, for a Plan Year shall be not less than one (1) year
following the end of the Plan Year for which the election is made.
4.5. Form of Payment. Subject to Section 4.6, each
Deferred Amount, and earnings thereon, shall be payable in cash, and in
the form, pursuant to the Participant's election under Section 4.1, of
either:
(a) a single sum payment, or
-96-
<PAGE>
(b) up to fifteen annual installment payments. If the
Participant elects payment in the form of installment
payments, the initial installment payment shall be made in
January of the Plan Year selected by the Participant. The
remaining installment payments shall be made in January each
year thereafter until the Participant's entire Account has
been paid. During the installment payment period, earnings
shall be credited with respect to the Participant's Account
in the manner provided in Section 4.3. The amount of each
installment payment shall be equal to the balance remaining
in the Participant's Account (or, if the election is with
respect to a subaccount, such subaccount) immediately prior
to each such payment, multiplied by a fraction, the
numerator of which is one (1), and the denominator of which
is the number of installment payments remaining, with the
last installment consisting of the balance of the
Participant's Account (or, as applicable, subaccount).
A Participant's election of a form of payment with respect to a
Deferred Amount shall be irrevocable. A Participant may, however,
petition the Committee to allow payment of a Deferred Amount and
earnings thereon to be made in any form otherwise available under the
Plan, provided that such petition is made more than one year prior to
the earlier of his Retirement or the date for payment commencement
elected by the Participant with respect to such Deferral Amount and
earnings thereon. The Committee, at its sole discretion, shall make a
binding determination as to whether such alternative form of payment
will be allowed.
4.6. Termination from Service Other Than Retirement.
Notwithstanding any election by a Participant pursuant to Section 4.1,
in the case of any Participant who incurs a Termination from Service
during a Plan Year for any reason other than Retirement, payment of the
Participant's Account shall be made in a single sum payment, regardless
of the form otherwise elected by the Participant, on or before January
31 of the calendar year following the effective date of such Termination
from Service.
4.7. Death Benefit. If a Participant dies with all or a
portion of his Account unpaid, the remaining amount shall be paid to
his beneficiary, as designated in accordance with Article 7, in the same
form and manner as paid while the Participant was living. Upon the
death of a Participant all rights and privileges of the Participant
contained in this Article 4 of the Plan shall inure to the benefit of
such Participant's designated beneficiary in accordance with Article 7.
-97-
<PAGE>
4.8. Financial Hardship. The Committee shall have the sole
authority to alter the timing or manner of payment of a Participant's
Account in the event that the Participant establishes, to the
satisfaction of the Committee, severe
financial and/or medical hardship at the time of distribution. In such
event, the Committee may:
(a) Provide that all or a portion of any Deferred Amount and
earnings thereon be paid immediately in a single sum
payment, or
(b) Provide that all or a portion of the installments payable
over a period of time shall be paid immediately in a single
sum payment; or
(c) Provide for such other installment payment schedule as
deemed appropriate by the Committee under the circumstances.
However, the amount distributed pursuant to this Section shall not
exceed that amount which is reasonably necessary, as determined by the
Committee, for the Participant to meet the financial and/or medical
hardship at the time of distribution. A Participant's request for a
payment for hardship reasons must be accompanied or supplemented by such
evidence of hardship as the Committee may reasonably require.
The severity of the financial and/or medical hardship shall be
judged by the Committee. Severe financial and/or medical hardship will
be deemed to exist in the event of the Participant's long and serious
illness, impending bankruptcy, or other similar unforeseeable and
extraordinary circumstances arising as a result of events beyond the
control of the Participant. The Committee's decision with respect to
the severity of financial and/or medical hardship and the manner in
which, if at all, the payment of deferred amounts shall be altered or
modified, shall be final, conclusive, and not subject to appeal.
4.9. Vesting. A Participant shall have a full and
immediate nonforfeitable interest in his Account at all times.
4.10. Funding. The Company's obligations under the Plan shall in
every case be an unfunded and unsecured promise to pay. Each
Participant's or beneficiary's rights under the Plan shall be no greater
than those of general, unsecured creditors of the Company. The amount
of each Participant's Account shall be reflected on the accounting
records of the Employer but shall not be construed to create, or require
the creation of, a trust, custodial or escrow account. No Participant
shall have any right, title, or interest whatever in or to any
investment
-98-
<PAGE>
reserves, accounts, or funds that the Employer may purchase, establish,
or accumulate, and, except as provided in the next sentence, no Plan
provision or action taken pursuant to the Plan shall create or be
construed to create a trust or a fiduciary relationship of any kind
between the Employer or the Company and a Participant or any other
person. All amounts paid under the Plan shall be paid in cash from the
general assets of the Employer, and the Company shall not be obligated
under any circumstances to fund its financial obligations under the
Plan, except that, notwithstanding the foregoing, the Company shall be
obligated not later than upon the occurrence of a Change in Control (as
defined in Section 9.1(b)), to transfer assets to one or more
irrevocable grantor trusts established by the Company in an amount at
least sufficient to provide for the obligations of the Company under the
Plan as of the date of such transfer. The assets of any such trust shall
at all times be subject to the claims of the general unsecured creditors
of the Company and not be subject to the prior claim of any Participant
or beneficiary under the Plan. Any such trust so established and the
rights and obligations of any individual, the Company, and the trustee
in such trust shall be governed exclusively by such trust; provided that
the provisions of the Plan shall govern exclusively the rights of a
Participant or beneficiary to benefits under the Plan.
4.11. Deduction Issues. Notwithstanding the foregoing provisions
of this Article 4, if the deduction of all or any portion of any payment
otherwise due to be made by the Company under the Plan would be
disallowed solely by reason of Section 162(m) of the Code, but for the
operation of this Section, then such payment (or portion thereof) shall
be deferred and made at the earliest time that Section 162(m) would not
apply to disallow the corresponding deduction by the Company.
5. INDIVIDUAL ACCOUNTS
-------------------
5.1. Participants' Accounts. The Company shall establish
and maintain an Account for each Participant under the Plan for the
benefit of such Participant, consisting of separate subaccounts for each
Deferred Amount. Each subaccount shall be credited with a Participant's
Deferred Amount at the time such amounts otherwise would have been paid
to the Participant had such amounts not been deferred, and shall be
credited with earnings in accordance with Section 4.3.
5.2. Charges Against Accounts. There shall be charged
against each Participant's Account any payments made to the Participant
or to a Participant's beneficiary.
5.3. Participant Statements. Statements that identify the
Participant's Account balance shall be provided to Participants on a
monthly basis.
-99-
<PAGE>
6. ADMINISTRATION
--------------
6.1. Administration. This Plan shall be administered by
the Committee. The Committee shall have full power to construe and
interpret the Plan, to decide questions arising under the Plan, and to
take such other action as may be appropriate to carry out the purposes
of the Plan.
6.2. Decisions Binding. All determinations and decisions
made by the Committee, pursuant to the provisions of the Plan shall be
final, conclusive, and binding on all persons, including the Company,
its owners, employees, Participants and their estates and beneficiaries.
6.3. Expenses. The expenses of administering the Plan
shall be borne by the Company.
6.4. Indemnification and Exculpation. The agents,
officers, directors, and members of the Company and its Subsidiaries and
the Committee shall be indemnified and held harmless by the Company
against and from any and all loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by them in connection with or
resulting from any claim, action, suit, or proceeding to which they may
be a party or in which they may be involved by reason of any action
taken or failure to act under this Plan and against and from any and all
amounts paid by them in settlement (with the Company's written approval)
or paid by them in satisfaction of a judgment in any such action, suit,
or proceeding. The foregoing provision shall not be applicable to any
person if the loss, cost, liability, or expense is due to such person's
gross negligence or willful misconduct.
7. BENEFICIARY DESIGNATION
-----------------------
7.1. Designation of Beneficiary. Each Participant shall be
entitled to designate a beneficiary or beneficiaries who, upon the
Participant's death, will receive the amounts that otherwise would have
been paid to the Participant under the Plan. All designations shall be
signed by the Participant, and shall be in a form prescribed by the
Committee. The Participant may change his or her designation of
beneficiary at any time, on a form prescribed by the Committee. The
filing of a new beneficiary designation form by a Participant shall
automatically revoke all prior designations by that Participant.
-100-
<PAGE>
7.2. Death of Beneficiary. In the event that all the
beneficiaries named by a Participant, pursuant to Section 7.1 herein,
predecease the Participant, the deferred amounts that would have been
paid to the Participant shall be paid to the Participant's estate.
7.3. Ineffective Designation. In the event the Participant
does not designate a beneficiary, or for any reason such designation is
ineffective in whole or in part, the ineffectively designated amounts
shall be paid to the Participant's estate.
8. WITHHOLDING OF TAXES
--------------------
The Company shall have the right to deduct from all payments made
pursuant to the Plan such amounts as it may reasonably estimate as
sufficient to satisfy federal, state and local tax withholding
requirements.
9. CHANGE IN CONTROL, AMENDMENT, AND TERMINATION
---------------------------------------------
9.1. Change in Control.
(a) A Participant shall retain rights to payment of all Deferred
Amounts, including earnings credited in accordance with this Plan, in
the event of a Change in Control.
(b) For purposes of the Plan, a "Change in Control" means (i)
the acquisition by any individual, entity or group (with the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act) of
20% or more of either (a) the then outstanding shares of common stock of
the Company (the "Outstanding Company Common Stock") or (b) the combined
voting power of the then outstanding voting securities of the Company
entitled to vote generally in the election of Directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall not
constitute a Change in Control: (a) any acquisition directly from the
Company, (b) any acquisition by the Company, (c) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company or (d) any
acquisition by any corporation pursuant to a transaction which complies
with clauses (a), (b) and (c) of subsection (iii) of this paragraph; or
(ii) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least
two-thirds of the Board; provided, however, that any individual becoming
a Director subsequent to the date hereof whose election, or nomination
for election by the
-101-
<PAGE>
Company's shareholders, was approved by a vote of at least
three-quarters of the Directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the
Incumbent Board, but excluding, for this purpose, any such individual
whose initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
Directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or (iii)
consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (a) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than 50% of, respectively, the then
out standing shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the
election of Directors, as the case may be, of the corporation resulting
from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or
all or substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same proportions
as their ownership, immediately prior to such Business Combination of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (b) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan
(or related trust) of the Company or such corporation resulting from
such Business Combination) beneficially owns, directly or indirectly,
20% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to
the Business Combination and (c) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or (iv) approval by the
shareholders of the Company of a complete liquidation or dissolution of
the Company.
9.2. Plan Amendment and Termination. The Board of Directors
hereby reserves the right to amend, modify, and/or terminate the Plan at
any time. However, no such amendment or termination shall in any manner
adversely affect any Participant's interest in his Account, without the
consent of the Participant. Without limiting the foregoing, the Company
may, in its sole discretion,
-102-
<PAGE>
terminate the Plan in its entirety, in which case the value of each
Participant's Account shall be paid in full to such Participant and/or
such Participants' beneficiary as promptly as practicable, or the
Company may preclude any further deferral elections and/or other
credits, but otherwise maintain the balance of the provisions of the
Plan.
10. CLAIMS PROCEDURE
----------------
10.1. Initial Claim. Payments under the Plan shall be paid in
accordance with the provisions of the Plan. The Participant, or a
beneficiary designated pursuant to Article 7 or any other person
claiming through the Participant, shall mail or deliver to the Committee
a written request for benefits under this Plan. Such claim shall be
reviewed by the Committee or its delegate.
10.2. Denial of Claim. If the claim is denied, in full or in
part, the Committee or its delegate shall provide a written notice
within ninety (90) days setting forth the specific reasons for denial,
and any additional material or information necessary to perfect the
claim, and an explanation of why such material or information is
necessary, all appropriate information and an explanation of the steps
to be taken if a review of the denial is desired.
10.3. Review of Claim Denial. If the claim is denied and a review
by the Board of Directors is desired, the Participant (or beneficiary)
shall notify the Board of Directors or its delegate in writing within
sixty (60) days (a claim shall be deemed denied if the Board of
Directors does not take any action within the aforesaid ninety (90) day
period) after receipt of the written notice of denial. In requesting a
review, the Participant or his beneficiary may request a review of the
Plan document or other pertinent documents, may submit any written
issues and comments, may request an extension of time for such written
submission of issues and comments, and may request that a hearing be
held, but the decision to hold a hearing shall be within the sole
discretion of the Board of Directors.
11. MISCELLANEOUS
-------------
11.1. Unfunded Plan. This Plan is intended to be an unfunded plan
maintained primarily to provide deferred compensation benefits for "a
select group of management or highly compensated employees" within the
meaning of Sections 201, 301, and 401 of ERISA, and therefore is further
intended to be exempt from the provisions of Parts 2, 3, and 4 of Title
I of ERISA. Accordingly, the Plan shall terminate and no further
benefits shall accrue hereunder in the event it is determined by a court
of competent jurisdiction or by an opinion of counsel to the
-103-
<PAGE>
Company that such balance of the Plan constitutes an employee pension
benefit plan within the meaning of Section 3(2) of ERISA, which is not
so exempt. In addition, in the absolute discretion of the Committee,
the vested benefit of each Participant accrued under such balance of the
Plan on the date of termination shall be paid immediately to such
Participant in a lump sum.
11.2. Nontransferability. A Participant's rights or interests in
the Plan may not be sold, transferred, assigned, or otherwise alienated
or hypothecated, other than by will or by the laws of descent and
distribution. In no event shall the Company make any payment under the
Plan to any assignee or creditor of a Participant or to any assignee or
creditor of a Participant's beneficiary.
11.3. Successors. All obligations of the Company under the Plan
shall be binding upon and inure to the benefit of any successor to the
Company, whether the existence of such successor is the result of a
direct or indirect purchase, merger, consolidation, or otherwise, of all
or substantially all of the business and/or assets of the Company.
11.4. Severability. In the event any provision of the Plan shall
be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Plan, and the Plan shall be
construed and enforced as if the illegal or invalid provision had not
been included.
11.5. Applicable Law. To the extent not preempted by federal law,
the Plan shall be governed and construed in accordance with the laws of
the state of Iowa.
-104-
