UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission File Number 0-2648
HON INDUSTRIES Inc.
(Exact name of Registrant as specified in its charter)
Iowa 42-0617510
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P.O. Box 1109, 414 East Third Street, Muscatine, Iowa 52761-0071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 319/264-7400
Indicate by check mark whether the registrant (1) has filed all
required reports to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
Indicate the number of share outstanding of each of the issuer's
classes of commons tock, as of the latest practical date.
Class Outstanding at April 1, 2000
Common Shares, $1 Par Value 60,149,888 shares
Exhibit Index is on Page 15.
<PAGE>
HON INDUSTRIES Inc. and SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets -
April 1, 2000, and January 1, 2000 3-4
Condensed Consolidated Statements of Income -
Three Months Ended April 1, 2000, and April 3, 1999 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended April 1, 2000, and April 3, 1999 6
Notes to Condensed Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
EXHIBIT INDEX 15
(27) Financial Data Schedule
(99A) Executive Bonus Plan of Registrant,
as amended and restated on May 1, 2000,
effective as of January 1, 2000
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 1, January 1,
2000 2000
(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 23,433 $ 22,168
Short-term investments - -
Receivables 213,396 196,730
Inventories (Note B) 93,381 74,937
Deferred income taxes 13,805 13,471
Prepaid expenses and other current assets 11,213 9,250
Total Current Assets 355,228 316,556
PROPERTY, PLANT, AND EQUIPMENT, at cost
Land and land improvements 17,515 17,114
Buildings 187,153 181,080
Machinery and equipment 484,206 469,268
Construction in progress 37,802 37,819
726,676 705,281
Less accumulated depreciation 263,885 249,690
Net Property, Plant, and Equipment 462,791 455,591
GOODWILL 225,650 113,116
OTHER ASSETS 20,634 21,460
Total Assets $1,064,303 $906,723
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 1, January 1,
2000 2000
(Unaudited)
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $211,069 $213,072
Income taxes 15,525 -
Note payable and current maturities
of long-term debt 6,316 6,106
Current maturities of other long-term
obligations 2,402 5,945
Total Current Liabilities 235,312 225,123
LONG-TERM DEBT 250,011 119,860
CAPITAL LEASE OBLIGATIONS 3,931 4,313
OTHER LONG-TERM LIABILITIES 17,760 18,015
DEFERRED INCOME TAXES 37,605 38,141
SHAREHOLDERS' EQUITY
Capital Stock:
Preferred, $1 par value; authorized
2,000,000 shares; no shares outstanding - -
Common, $1 par value; authorized
200,000,000 shares; outstanding - 60,150 60,172
2000 - 60,149,888 shares;
1999 - 60,171,753 shares
Paid-in capital 25,518 24,981
Retained earnings 433,959 416,034
Accumulated other comprehensive income 57 84
Total Shareholders' Equity 519,684 501,271
Total Liabilities and Shareholders'
Equity $1,064,303 $906,723
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
April 1, April 3,
2000 1999
(In thousands, except
per share data)
Net sales $478,601 $424,459
Cost of products sold 329,416 295,222
Gross Profit 149,185 129,237
Selling and administrative expenses 108,292 89,264
Provision for closing facilities (Note C) - 19,679
Operating Income 40,893 20,294
Interest income 289 184
Interest expense 2,839 2,229
Income Before Income Taxes 38,343 18,249
Income taxes 13,803 6,661
Net Income 24,540 11,588
Net income per common share $.41 $.19
Average number of common shares 60,185,851 61,154,027
outstanding
Cash dividends per common share $.11 $.095
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
HON INDUSTRIES Inc. and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
April 1, April 3,
2000 1999
(In thousands)
Net Cash Flows From (To) Operating
Activities:
Net income $ 24,540 $ 11,588
Noncash items included in net income:
Depreciation and amortization 18,499 15,396
Other postretirement and postemployment
benefits 519 494
Deferred income taxes (1,002) (636)
Other - net (34) (44)
Net increase (decrease) in noncash
operating assets and liabilities (13,209) (13,425)
Increase (decrease) in other liabilities (492) (1,264)
Net cash flows from operating activities 28,821 12,109
Net Cash Flows From (To) Investing
Activities:
Capital expenditures - net (16,023) (30,006)
Capitalized software (72) (138)
Acquisition spending (134,473) (1,637)
Short-term investments - net - 169
Long-term investments - (9)
Other - net (115) -
Net cash flows (to) investing activities (150,683) (31,621)
Net Cash Flows From (To) Financing
Activities:
Purchase of HON INDUSTRIES common stock (6,897) (5,126)
Proceeds from long-term debt 149,999 41,651
Payments of note and long-term debt (20,772) (22,593)
Proceeds from sales of HON INDUSTRIES
common stock to members and stock-based
compensation 7,412 4,598
Dividends paid (6,615) (5,796)
Net cash flows from financing activities 123,127 12,734
Net increase (decrease) in cash and
cash equivalents 1,265 (6,778)
Cash and cash equivalents at beginning
of period 22,168 17,500
Cash and cash equivalents at end of period $ 23,433 $ 10,722
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
HON INDUSTRIES Inc. and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
April 1, 2000
Note A. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the three-month period
ended April 1, 2000, are not necessarily indicative of the
results that may be expected for the year ending December 30,
2000. For further information, refer to the consolidated
financial statements and footnotes included in the Company's
annual report on Form 10-K for the year ended January 1, 2000.
Note B. Inventories
Inventories of the Company and its subsidiaries are summarized as
follows:
April 1, 2000 January 1,
($000) (Unaudited) 2000
Finished products $ 55,240 $ 29,663
Materials and work in process 48,672 55,737
LIFO Allowance (10,531) (10,463)
$ 93,381 $ 74,937
Note C. Provision for Closing Facilities
On February 11, 1999, the Company adopted a plan to close three
of its office furniture facilities located in Winnsboro, South
Carolina; Sulphur Springs, Texas; and Mt. Pleasant, Iowa. A
pretax charge of $19.7 million or $0.20 per diluted share was
recorded during the quarter ended April 3, 1999. As of April 1,
2000, the primary costs not yet incurred relate to costs
associated with the closed buildings and worker's compensation
claims. Management believes the remaining reserve of $3.8
million to be adequate to cover these obligations.
Note D. Business Combinations
On February 29, 2000, the Company completed the acquisition of
its Hearth Services division which consists of two leading hearth
products distributors, American Fireplace Company (AFC) and the
Allied Group (Allied). The Company acquired AFC and Allied for
approximately $134 million in cash and debt. The acquisition has
been accounted for using the purchase method, and the results of
AFC and Allied have been included in the Company's financial
statements since the date of acquisition. The excess of the
consideration paid over the fair value of the business of $21
million was recorded as goodwill and is being amortized on a
straight-line basis over 20 years. This allocation of purchase
price is preliminary and subject to change as additional
information is obtained related to the fair values of the
acquired net assets.
Note E. Comprehensive Income
The Company's comprehensive income consists of an unrealized
holding gain or loss on equity securities available-for-sale
under SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," and nominal foreign currency adjustments.
Note F. Business Segment Information
Management views the Company as being in two business segments:
office furniture and hearth products with the former being the
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 product
segment manufactures and markets a broad line of manufactured gas-
, pellet- and wood-burning fireplaces and stoves, fireplace
inserts, and chimney systems principally for the home.
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. These unallocated corporate expenses include the net
costs of the Company's corporate operations, interest income, and
interest expense. Management views interest income and expense
as corporate financing costs and not as a business segment cost.
In addition, management applies one effective tax rate to its
consolidated income before income taxes so income taxes are not
reported or viewed internally on a segment basis.
No geographic information for revenues from external customers or
for long-lived assets is disclosed inasmuch as the Company's
primary market and capital investments are concentrated in the
United States.
Reportable segment data reconciled to the consolidated financial
statements for the three month period ended April 1, 2000, and
April 3, 1999, is as follows:
Three Months Ended
April 1, April 3,
2000 1999
Net Sales:
Office furniture $ 395,637 $359,981
Hearth products 82,964 64,478
$ 478,601 $424,459
Operation Profit:
Office furniture
Normal operations $ 38,572 $ 36,294
Facility closedown provision - (19,679)
Office furniture - net 38,572 16,615
Hearth products 4,770 5,784
Total operating profit 43,342 22,399
Unallocated corporate expense (4,999) (4,150)
Income before income taxes $ 38,343 $ 18,249
Identifiable Assets:
Office furniture $ 671,284 $666,632
Hearth products 336,274 159,143
General corporate 56,745 46,763
$1,064,303 $872,538
Depreciation & Amortization
Expense:
Office furniture $ 14,374 $ 12,458
Hearth products 3,599 2,607
General corporate 526 331
$ 18,499 $ 15,396
Capital Expenditure, Net:
Office furniture $ 10,478 $ 20,291
Hearth products 4,554 4,165
General corporate 991 5,550
$ 16,023 $ 30,006
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operations
A summary of the period-to-period changes in the principal items
included in the Condensed Consolidated Statements of Income is
shown below:
Comparison of
Increases (Decreases) Three Months Three Months
Ended Ended
Dollars in Thousands April 1, 2000 & April 1, 2000 &
April 3, 1999 January 1, 2000
Net sales $54,142 12.8% $9,225 2.0%
Cost of products sold 34,194 11.6 7,346 2.3
Selling & administrative
expenses 19,028 21.3 2,028 1.9
Provision for closing
facilities (19,679) N/M - -
Interest income 105 57.1 64 28.4
Interest expense 610 27.4 350 14.1
Income taxes 7,142 107.2 (351) (2.5)
Net income 12,952 111.8 (84) (0.3)
The Company reported record first quarter sales and earnings for
its fiscal quarter ended April 1, 2000. This sales increase
marks the 17th consecutive quarter of record sales growth.
Consolidated net sales for the first quarter ending April 1,
2000, were $478.6 million, a 12.8% increase from the $424.5
million in the first quarter of 1999. Net income was $24.5
million, compared to $24.1 million for the same period a year ago
prior to a $12.5 million after-tax charge for plant closings.
Net income per common share for first quarter 2000 was $0.41 per
diluted share, a 5.1% increase from $0.39 per share from ongoing
operations in first quarter 1999. Results for first quarter 1999
included a $0.20 per share provision for the closing of three
plants. After the charge, first quarter 1999 net income was $11.6
million or $0.19 per share.
For the first quarter of 2000, office furniture comprised 83% of
consolidated net sales and hearth products comprised 17%. Net
sales for office furniture were up 9.9%. Hearth products sales
increased 28.7% for the quarter compared to the same quarter a
year ago. Proforma first quarter 2000 hearth products sales,
excluding the February 29, 2000, acquisition of American
Fireplace Company and the Allied Group, increased 7.3% for the
quarter. Office furniture contributed 89% of first quarter 2000
consolidated operating profit before unallocated corporate expenses
and hearth products contributed 11%.
The consolidated gross profit margin for the first quarter of
2000 was 31.2% compared to 30.4% for the same period in 1999.
The Company is continuing to focus on improving gross margins by
improving the net selling price of products and reducing
production costs.
Selling and administrative expenses for the first quarter of 2000
were 22.6% of net sales compared to 21.0% in the comparable
quarter of 1999, excluding the one-time charge. The Company
experienced increased costs to establish and promote the HON and
Allsteel brands in their respective market segments including
increased sales and administrative support and new literature.
Rising fuel and carrier costs during the first quarter of 2000
offset efforts to reduce freight expense. These factors combined
with the amortization expense associated with the acquisition of
Hearth Services led to increased selling and administrative
expenses. Management continues to focus on controlling and
reducing selling and administrative expenses as a percent of net
sales.
The Company decreased its estimated annual effective tax rate to
36% for the first quarter of 2000 from 36.5% a year earlier to
reflect lower estimated state income taxes.
Liquidity and Capital Resources
As of April 1, 2000, cash and short-term investments increased to
$23.4 million compared to a $22.2 million balance at year-end
1999. Net cash flows from operations contributed to the
improvement. Cash flow and working capital management are major
focuses of management to ensure the Company is poised for growth.
Net capital expenditures for the first quarter of 2000 were $16.0
million and primarily represent investment in new, more-efficient
machinery and equipment. These investments were funded by a
combination of cash reserves, cash from operations and a
revolving credit agreement.
As referenced earlier, on February 29, 2000, the Company
completed the acquisition of two leading hearth products
distributors, American Fireplace Company (AFC) and the Allied
Group (Allied). AFC and Allied sell, install, and service a
broad range of gas- and wood-burning fireplaces as well as
fireplace mantels, surrounds, facings and other accessories. AFC
and Allied, with combined 1999 sales of nearly $200 million, will
be joined to form Hearth Services Inc., a subsidiary of Hearth
Technologies Inc.
On February 16, 2000, the Board approved a 15.8% increase in the
common stock quarterly cash dividend from $0.095 per share to $0.11
per share. The dividend was paid on March 1, 2000, to
shareholders of record on February 23, 2000. This was the 180th
consecutive quarterly dividend paid by the Company.
In the first quarter, the Company repurchased 374,255 of its
common stock at a cost of approximately $6.9 million or an
average price of $18.43 per share. As of April 1, 2000,
approximately $24.7 million of the Board's current repurchase
authorization remained unspent.
On February 29, 2000, the Company filed a Form S-8 Registration
Statement. This filing registered 3,000,000 shares of HON
INDUSTRIES common stock to be issued over time under the HON
INDUSTRIES Inc. Profit-Sharing Retirement Plan.
On May 2, 2000, the Board of Directors declared an $0.11 per
common share cash dividend to shareholders of record on May 12,
2000, to be paid on June 1, 2000.
Based on operations since January 1, 2000, the Company has not
experienced any adverse operational impact to its ongoing business
as a result of the "Year 2000" issue.
Looking Ahead
The Company is optimistic about its business outlook for fiscal
year 2000. Management's goal is to achieve improved
profitability and record results for 2000. This will be achieved
by continually improving the cost structure, providing the best
customer service in the two industries, and introducing new
products.
Except for the historical information contained herein, the
matters discussed in this Form 10-Q are forward-looking
statements. Such forward-looking statements involve risks and
uncertainties which could cause actual results or outcomes to
differ materially from those discussed in the forward-looking
statements including but not limited to: competitive conditions,
pricing trends in the office furniture and hearth products
markets, acceptance of the Company's new products, the overall
growth rate of the office furniture and hearth products
industries, the achievement of cost reductions and productivity
in the Company's operations, the Company's ability to realize
financial benefits of operating The HON Company and Allsteel Inc.
as separate businesses, the Company's ability to obtain expected
profits from acquired businesses, as well as the risks,
uncertainties, and other factors described from time to time in
the Company's SEC filings and reports.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of HON INDUSTRIES Inc. was
held on May 1, 2000, for purposes of electing three Directors to
the Board of Directors, and to adopt the First Amendment to the
HON INDUSTRIES Inc. Executive Bonus Plan to permit certain awards
granted under the Plan to be exempt from the $1 million deduction
limit set forth in Section 162(m) of the Internal Revenue Code.
As of March 1, 2000, the record date for the meeting, there were
60,164,262 shares of common stock issued and outstanding and
entitled to vote at the meeting. The first proposal voted upon
was the election of three Directors for a term of three years and
until their successors are elected and shall qualify. The three
persons nominated by the Company's Board of Directors received
the following votes and were elected:
For Withheld Against
Gary M. Christensen 49,929,006 483,794 -0-
or 83.0% or 0.8% or 0.0%
Robert W. Cox 49,947,821 465,038 -0-
or 83.0% or 0.8% or 0.0%
Lorne R. Waxlax 49,935,773 477,087 -0-
or 83.0% or 0.8% or 0.0%
The second proposal voted upon was the adoption of the First
Amendment to the HON INDUSTRIES Inc. Executive Bonus Plan. The
proposal was approved with 46,142,431 votes, or 76.7% voting for;
3,049,997 votes, or 5.1% voting against; and 1,220,428 votes, or
2.0% voting withheld.
As to the second proposal, there were 3 or 0% broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Exhibit Index.
(b) Reports on Form 8-K.
The Company filed a periodic report on Form 8-K dated
February 2, 2000, to report the Company had signed a
purchase agreement to acquire American Fireplace
Company and the Allied group on January 31, 2000.
The Company filed a periodic report on Form 8-K dated
March 15, 2000, to report the acquisition of American
Fireplace Company and the Allied Group on February 29,
2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: May 11, 2000 HON INDUSTRIES Inc.
By /s/ David C. Stuebe
David C. Stuebe
Vice President and
Chief Financial Officer
By /s/ Melvin L. McMains
Melvin L. McMains
Vice President and
Controller
<PAGE>
PART II. EXHIBITS
EXHIBIT INDEX
(27) Financial Data Schedule
(99A) Executive Bonus Plan of the Registrant, as amended and
restated on May 1, 2000, effective as of January 1, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000048287
<NAME> HON INDUSTRIES INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-2000
<PERIOD-START> JAN-2-2000
<PERIOD-END> APR-1-2000
<CASH> 23,433
<SECURITIES> 0
<RECEIVABLES> 219,015
<ALLOWANCES> 5,619
<INVENTORY> 93,381
<CURRENT-ASSETS> 355,228
<PP&E> 726,676
<DEPRECIATION> 263,885
<TOTAL-ASSETS> 1,064,303
<CURRENT-LIABILITIES> 235,312
<BONDS> 250,011
0
0
<COMMON> 60,150
<OTHER-SE> 459,534
<TOTAL-LIABILITY-AND-EQUITY> 1,064,303
<SALES> 478,601
<TOTAL-REVENUES> 478,601
<CGS> 329,416
<TOTAL-COSTS> 329,416
<OTHER-EXPENSES> 108,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,839
<INCOME-PRETAX> 38,343
<INCOME-TAX> 13,803
<INCOME-CONTINUING> 24,540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,540
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.41
</TABLE>
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, November 11, 1996, and
amended and restated as of January 1, 2000
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.
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.
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 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. The Committee may require payment of any
bonus award (or portion thereof) 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 (1) at the
Participant's request, in the amount indicated by such
Participant, subject to the Committee's approval, or
(2) in the amount of up to 50% of such bonus award in
the event that the Committee determines, in its sole
discretion, that the Participant's respective stock
ownership level under the Executive Stock Ownership
Policy does not reflect appropriate progress toward
such Participant's five-year goal thereunder. 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.
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 benefi
cial ownership (within the meaning of Rule 13d-3 pro
mulgated 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
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.
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.
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 on or after the 90th day preceding a
Change in Control shall be of no effect.
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.
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.
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.
10. Special Provision for Qualifying Participants.
a. This Section 10 shall apply with respect to any
bonus award made under the Plan with respect to the Chief
Executive Officer of the Corporation and any other
Participant designated by the Board from time to time (each
a "Qualifying Participant"). Not later than the 90th day
after the commencement of the fiscal year for which the
bonus award is made, in addition to any other performance
criteria established by the Committee, the Committee shall
establish in writing Profit Achievement Factors and Personal
Objective Achievement Factors (collectively, "Qualifying
Factors") for each Qualifying Participant. The maximum
bonus award payable to a Qualifying Participant for such
fiscal year based on the degree of attainment of such
Qualifying Factors shall not exceed $2 million. Subject to
Sections 4 and 5, the Committee may adjust any Qualifying
Factor that has been established for any fiscal year,
provided that no such adjustment shall be permitted if it
would cause the Award based on such Qualifying Factor to
fail to satisfy the requirements for performance-based
compensation under Code Section 162(m). Subject to Sections
4 and 5, the Committee may adjust any other performance
criteria established for any fiscal year, provided that no
such adjustment may be based upon the failure, or the
expected failure, to attain or exceed a Qualifying Factor.
In no event shall any bonus award relating to performance
criteria other than Qualifying Factors be dependent upon the
attainment of, or failure to obtain, a bonus award based on
Qualifying Factors.
b. The administration of all aspects of the Plan
applicable to bonus awards relating to Qualifying Factors is
intended to comply with the exception from Section 162(m) of
the Internal Revenue Code of 1986, as amended, for qualified
performance-based compensation and shall be construed,
applied and administered accordingly.
c. For purposes of this Section, (1) "Profit
Achievement Factors" shall mean an objective performance
goal based on one or more of the following: operating
expense ratios, total stockholder return, return on sales,
operating income, operating profit, return on equity, return
on capital, return on assets, return on investment, net
income, operating income, earnings per share, improved asset
management, improved gross margins, generation of free cash,
revenues, market share, stock price, cash flow, retained
earnings, aggregate product price and other product price
measures, and (2) "Personal Objective Achievement Factors"
shall mean an objective performance goal based on one or
more of the following: results of customer satisfaction
surveys, results of employee surveys, employee turnover,
safety record, management of acquisitions, increased
inventory turns, product development and liability, research
and development integration, proprietary protections, legal
effectiveness, handling Federal securities law or
environmental issues, manufacturing efficiencies,
distribution efficiencies, member productivity, system
review and improvement, service reliability, cost
management.
d. This Section 10 shall become effective as of
January 1, 2000, provided, however, that no bonus award
relating to Qualifying Factors shall be paid under the Plan
to any Qualifying Participant unless, prior to such payment,
the provisions of this Section 10 are approved by the
holders of a majority of the securities of the Company
present, or represented, and entitled to vote at a meeting
of stockholders duly held in accordance with the laws of the
State of Iowa.
