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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
For the fiscal year ended December 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- ---------- SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-2648
HON INDUSTRIES INC.
An Iowa Corporation IRS Employer No. 42-0617510
414 East Third Street
P. O. Box 1109
Muscatine, IA 52761-0071
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.
Preferred Share Purchase Rights to purchase shares of Series A Junior
Participating Preferred Stock, with par value of $1.00 per share.
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. ____
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, as of March 1, 2001, was: $1,099,041,437, assuming all 5% holders
are affiliates.
The number of shares outstanding of the registrant's common stock, as of March
1, 2001, was: 59,426,775.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement dated March 27, 2001, for the May
7, 2001, Annual Meeting of Shareholders are incorporated by reference into Part
III.
Index of Exhibits is located on Page 57.
-1-
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business............................................................................. 3
Item 2. Properties........................................................................... 11
Item 3. Legal Proceedings.................................................................... 13
Item 4. Submission of Matters to a Vote of Security Holders.................................. 13
Table I - Executive Officers of the Registrant....................................... 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................ 16
Item 6. Selected Financial Data -- Eleven-Year Summary....................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition
And Results of Operations............................................................ 20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk........................... 25
Item 8. Financial Statements and Supplementary Data.......................................... 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................................. 25
PART III
Item 10. Directors and Executive Officers of the Registrant................................... 26
Item 11. Executive Compensation............................................................... 26
Item 12. Securities Ownership of Certain Beneficial Owners and Management..................... 26
Item 13. Certain Relationships and Related Transactions....................................... 26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 27
Signatures ..................................................................................... 30
Financial Statements............................................................................... 33
Financial Statement Schedules...................................................................... 56
Index of Exhibits.................................................................................. 57
-2-
ANNUAL REPORT ON FORM 10-K
PART I
ITEM 1. BUSINESS
GENERAL
HON INDUSTRIES Inc. ("HON" or the "Company") is an Iowa corporation
incorporated in 1944. The Company is a national manufacturer and marketer of
office furniture and hearth products. Approximately 81% of fiscal year 2000 net
sales were in office furniture and 19% in hearth products. A broad office
furniture product offering is sold through a national system of dealers,
wholesalers, warehouse clubs, retail superstores, and to end-user customers, and
federal and state governments. Dealer, wholesaler, and retail superstores are
the major channels based on sales. Hearth products include wood-, pellet-, and
gas-burning factory-built fireplaces, fireplace inserts, stoves, and gas logs.
These products are sold through a national system of dealers, wholesalers, large
regional contractors, and Company-owned retail outlets. In fiscal 2000, the
Company had net sales of $2.0 billion, of which approximately $1.6 billion was
attributable to office furniture products and $.4 billion was attributable to
hearth products. Please refer to Operating Segment Information in the Notes to
Consolidated Financial Statements for further information about operating
segments.
The Company is organized into a corporate headquarters and operating
units with offices, manufacturing plants, distribution centers, and sales
showrooms in the United States, Canada, and Mexico. See Item 2. Properties for
additional related discussion. Five operating units, marketing under various
brand names, participate in the office furniture industry. These operating units
include: The HON Company, Allsteel Inc., BPI Inc., The Gunlocke Company, and
Holga Inc. Each of these operating units manufactures and markets products which
are sold through various channels of distribution and segments of the industry.
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. On February 20, 1998, the Company acquired
Aladdin Steel Products, Inc., a manufacturer of wood-, pellet-, and gas-burning
stoves and inserts, for a purchase price of $10.2 million. This acquisition is
also being operated by Hearth Technologies Inc. On February 29, 2000, the
Company completed the acquisition of two leading hearth products distributors,
American Fireplace Company (AFC) and the Allied Group (Allied) for a total
purchase price of approximately $135 million. 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.
HON International Inc. markets select products manufactured by the other
various HON INDUSTRIES operating units outside the United States and Canada.
Since its inception, the Company has been committed to improvement in
manufacturing and in 1992 introduced its process improvement approach known as
Rapid Continuous Improvement ("RCI") which focuses on streamlining design,
manufacturing, and administrative processes. The Company's RCI program, in which
most members participate, has contributed to increased productivity, lower
manufacturing costs, and improved product quality and workplace safety. In
addition, the Company's RCI efforts enable it to offer short average lead times,
from receipt of order to shipment, for most of its products.
The Company distributes its products through an extensive network of
independent office furniture dealers, office products dealers, wholesalers and
retailers. The Company is a supplier of office furniture to each of the largest
nationwide chains of office products dealer, or "mega-dealers," which are Boise
Cascade Corporation; U.S. Office Products Company; Corporate Express Inc., A
Buhrmann Company; Office Depot Business Services Group; and Staples Commercial
Advantage, and to the Office Depot, Staples, and Office Max superstores.
-3-
The Company's product development efforts are focused on reducing the
cost to manufacture existing products, and on designing new products that
provide additional features and top quality. Over 40% of the Company's 2000 net
sales were from products introduced in the past three years.
An important element of the Company's success has been its ability to
attract, develop and retain skilled, experienced and efficient members. Each of
the Company's eligible members owns stock in the Company through a number of
stock-based plans, including a member stock purchase plan and a profit-sharing
plan. In addition, most production members are eligible for incentive bonuses.
For further financial-related information with respect to acquisitions,
dispositions, and Company operations in general, 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 Consolidated Financial
Statements, which are filed as part of this report: Nature of Operations,
Business Combinations, and Operating 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 fireplace industries; the relationship between supply and demand
for value-priced office products, as well as direct vent gas- and wood-burning
fireplaces; the effects of economic conditions; issues associated with the
acquisition and integration of acquisitions; operating risks; the ability of the
Company to realize cost savings and productivity improvements; the ability of
the Company's distributors to successfully market and sell the Company's
products; and the availability and cost of capital to finance planned growth; as
well as the other risks, uncertainties, and factors described from time to time
in the Company's filings with the Securities and Exchange Commission.
INDUSTRY
According to the Business and Institutional Furniture Manufacturer's
Association ("BIFMA"), U.S. office furniture industry shipments are estimated to
be approximately $13,285,000,000 in 2000, an increase of 8.5% over 1999. The
Company believes that the increase was due in part to pent-up demand resulting
from companies funneling capital resources into computer-related solutions
during 1999 in fear of potential Year 2000 problems.
The U.S. office furniture market consists of two primary segments--the
project segment and the transactional segment. The project segment has
traditionally been characterized by sales of large quantities of office
furniture to large corporations, such as for new office facilities, relocations,
or department or office redesigns, which are frequently customized to meet
specific client and designer preferences. Project furniture is generally
purchased through office furniture dealers who typically prepare a
custom-designed office layout emphasizing image and design. The process is often
lengthy and generally has several manufacturers competing for the same projects.
Overhead and support associated with the sales and customization efforts in this
segment are major reasons why the prices for project office furniture have
traditionally been relatively high.
The transactional segment of the market, in which the Company is a
leader, primarily represents smaller orders of office furniture purchased by
businesses and home office users on the basis of price, quality, selection and
quick delivery. Office products dealers, wholesalers and retailers, such as
office products superstores, are the primary distribution channels in this
market segment. Office products dealers (many of whom also participate in the
project segment of the market) publish periodic catalogs that display office
furniture and products from various manufacturers.
GROWTH STRATEGY
The Company's strategy is to build on its position as a leading
manufacturer of value-priced office furniture and hearth products in North
America. The components of this growth strategy are to introduce new
value-priced products, continually improve productivity, leverage the
distribution network, and pursue complementary strategic acquisitions.
-4-
EMPLOYEES/MEMBERS
As of December 30, 2000, the Company employed approximately 11,500
persons, 11,000 of whom were members and 500 of whom were temporary personnel.
Of the approximately 11,500 persons employed by the Company, 6,400 were in the
Company's manufacturing operations. The Company employed approximately 400
members who were members of unions. The Company believes that its labor
relations are good.
PRODUCTS
OFFICE FURNITURE
The Company designs, manufactures, and markets a broad range of office
furniture in four basic categories: (i) filing, including vertical files,
lateral files, pedestals, and high density filing; (ii) seating, including task
chairs, executive desk chairs, and side chairs; (iii) office systems (typically
modular and moveable workspaces with integrated work surfaces, space dividers,
and lighting); and (iv) desks and related products, including tables, bookcases,
and credenzas. The Company's products are sold through the Company's wholly
owned subsidiaries - The HON Company, Allsteel Inc., BPI Inc., The Gunlocke
Company, and Holga Inc.
The Company's office furniture products are generally available in
contemporary as well as traditional styles and are priced to sell in all
channels of distribution. The Company's products are offered in many models,
sizes, designs, and finishes and are constructed from both wood and nonwood
materials.
The following is a description of the Company's major product categories
and product lines:
FILING CABINETS
The Company offers a variety of filing options designed either to be
integrated into and support the Company's office systems products or to function
as freestanding furniture in commercial and home offices. The Company believes
it is the largest manufacturer and marketer of mid-priced steel filing cabinets
in the United States.
The Company sells most of its freestanding files through independent
office products and office furniture dealers, nationwide chains of office
products dealers, wholesalers, office products superstores, warehouse clubs, and
mail order distributors. Higher priced files are sold through project-oriented
office furniture dealers.
SEATING
The Company's seating line includes task chairs designed for different
kinds of office work, such as secretarial, computer, clerical, laboratory and
executive, guest chairs, conference and reception room seating, and stackable
chairs. The chairs are available in a variety of frame colors, a multitude of
fabrics, and a wide range of price points. Key customer criteria in seating
includes superior ergonomics, aesthetics, comfort and quality.
OFFICE SYSTEMS
The Company offers a complete line of office panel systems products in
order to meet the needs of a variety of organizations. Systems may be used for
team worksettings, private offices and open floor plans, and are typically
modular and movable workspaces composed of adjustable partitions, work surfaces,
desk extensions, storage cabinets and electrical lighting systems which can be
moved, reconfigured and reused within the office. Panel systems offer a
cost-effective and flexible alternative to traditional drywall office
construction. The Company has experienced increased demand for furniture systems
able to accommodate new work arrangements such as team workspaces and workspaces
shared by several employees who are frequently out of the office. A typical
installation of office panels often includes associated sales of seating,
casegoods, files, and accessories.
-5-
The Company offers whole office solutions, movable panels, storage units,
and work surfaces that can be installed easily and reconfigured to accommodate
growth and change in organizations. The Company also offers consultative selling
and design services for certain of its office system products. The compelling
value of the Company's systems lines is that these products are styled and
featured similar to those of premium-priced contract systems manufacturers but
are offered at competitive prices, with short lead times and superior service.
DESKS AND RELATED PRODUCTS
The Company's collection of desks and related products include
stand-alone steel and wood furniture items, such as desks, bookshelves and
credenzas, and are available in a range of designs and price points. The Company
offers these products in both contemporary and traditional styles. The Company's
desks and related products are sold to a wide variety of customers from those
designing large office configurations to small retail and home office
purchasers.
The Company offers a variety of contemporary and traditional tables
designed for use in conference rooms, private offices, training areas, team
worksettings and open floor plans. Tables are produced in wood veneer and
laminate and are available in numerous sizes, shapes and base styles.
HEARTH PRODUCTS
The Company is the largest U.S. manufacturer and marketer of metal
prefabricated fireplace and related products, primarily for the home, which it
sells under the widely recognized Heatilator, Heat-N-Glo, Dovre, and Quadra-Fire
brand names. Products bearing these brands are marketed by the Company's three
hearth products companies, Heatilator, Heat-N-Glo, and Aladdin.
The Company's line of hearth products includes wood- and gas-burning
fireplaces and stoves, fireplace inserts, chimney systems, and related
accessories. Heatilator and Heat-N-Glo are leaders in the two largest segments
of the home fireplace market: vented-gas and wood fireplaces. Heat-N-Glo is the
leader in "direct vent" fireplaces, which replace the chimney-venting system
used in traditional fireplaces with a less expensive vent through an outer wall.
See Business - Intellectual Property.
MANUFACTURING
The HON Company manufactures office furniture in Alabama, California,
Georgia, Iowa, Kentucky, North Carolina, Pennsylvania, Virginia, and Monterrey,
Mexico. Allsteel Inc. manufactures office furniture in Iowa, Mississippi,
Pennsylvania, and Tennessee. Holga Inc. manufactures office furniture in
California. The Gunlocke Company manufactures office furniture in New York. BPI
Inc. manufactures office furniture in California, North Carolina, and
Washington. Hearth Technologies Inc. manufactures hearth products in Iowa,
Maryland, Minnesota, Washington, and Calgary, 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.
Since its inception, the Company has focused on making its manufacturing
facilities and processes more flexible while at the same time reducing costs and
improving product quality. In 1992, the Company adopted the principles of RCI,
which focus on developing flexible and efficient design, manufacturing and
administrative processes that remove excess cost. To achieve flexibility and
attain efficiency goals, the Company has adopted a variety of production
techniques including cell manufacturing, focused factories, just-in-time
inventory management and value engineering. The application of the RCI process
has increased productivity by reducing set-up and processing times, square
footage, inventory levels, product costs and delivery times, while improving
quality and enhancing member safety. The Company's RCI process involves
production and administrative employees, management, customers and suppliers.
The Company has facilitators, coaches and consultants dedicated to the RCI
process and strives to involve all members in the RCI process. In addition, the
Company has organized a group that designs, fabricates, tests and installs
proprietary manufacturing equipment. Manufacturing also plays a key role in the
Company's concurrent product development process that primarily seeks to design
new products for ease of manufacturability.
-6-
PRODUCT DEVELOPMENT
The Company's product development efforts are primarily focused on
reducing the cost to manufacture existing products and designing new products
that provide additional features and quality. The Company accomplishes this
through improving existing products, extending product lines, applying ergonomic
research, improving manufacturing processes, applying alternative materials and
providing engineering support and training to its operating units. The Company
conducts its product development efforts at both the corporate and operating
unit level. At the corporate level, the staff at the Company's Stanley M. Howe
Technical Center, working in conjunction with operating staff, seeks
breakthrough developments in product design, manufacturability and materials
usage. At the operating unit level, development efforts are focused on achieving
incremental improvements in product features and manufacturing processes. The
Company invested approximately $18.9 million, $17.1 million, and $15.7 million
in product development during fiscal 2000, 1999, and 1998, respectively, and has
budgeted in excess of $23 million for product development in fiscal 2001.
INTELLECTUAL PROPERTY
As of December 30, 2000, the Company owned 198 U.S. and 128 foreign
patents and had applications pending for 41 U.S. and 83 foreign patents. In
addition, the Company holds registrations for 113 U.S. and 179 foreign
trademarks and has applications pending for 64 U.S. and 70 foreign trademarks.
The Company's principal office furniture products do not require frequent
technical changes. The majority of the Company's patents are design patents
which expire at various times depending on the patent's date of issuance. The
Company believes that neither any individual patent nor the Company's patents in
the aggregate are material to the Company's business as a whole.
When Hearth Technologies Inc. acquired Heat-N-Glo in October 1996, it
also acquired its patent for the design of a zero-clearance direct vent gas
fireplace (the "direct vent patent"). The Company currently offers numerous
product designs that would not be possible without the direct vent technology.
Although the Company believes that the protection afforded by the direct vent
patent is not vital to sustaining Hearth Technologies' gross profit margins on
its direct vent gas fireplaces, the technology that underlies the patent is a
significant distinguishing feature for the Company's products.
The Company applies for patent protection when it believes the expense of
doing so is justified, and believes that the duration of its registered patents
is adequate to protect these rights. The Company also pays royalties in certain
instances for the use of patents on products and processes owned by others.
The Company actively protects its trademarks that it believes have
significant goodwill value.
SALES AND DISTRIBUTION: CUSTOMERS
Over the last ten years, the office products and office furniture
industries have experienced substantial consolidation as larger dealers have
acquired smaller local and regional dealers. Consolidation permits large dealers
to benefit from economies of scale, increased purchasing power, and the
elimination of redundant management and overhead expenses. Larger dealers have
also been able to take advantage of more sophisticated management techniques
designed to enhance customer service, lower costs and increase operating
efficiency. At the same time, office products superstores have emerged and
replaced local retail office supply stores. The Company believes that these
trends may continue to result in fewer, larger dealers and retailers as
customers for the Company's products.
In 2000, the Company's ten largest customers represented approximately
38% of its consolidated net sales. The substantial purchasing power exercised by
large customers may adversely affect the prices at which the Company can
successfully offer its products. As a result of this consolidation, changes in
the purchase patterns or the loss of a single customer may have a greater impact
on the Company's financial results than such events would have had prior to such
consolidation. In addition, there can be no assurance that the Company will be
able to maintain its customer relationships as consolidation of its customers
occur.
-7-
As a result of these trends, the Company today sells its products through
five principal distribution channels. The first channel, independent, local
office furniture and office products dealers, specialize in the sale of a broad
range of office furniture and office furniture systems, mostly to small- and
medium-sized businesses, branch offices of large corporations, and home office
owners. The second distribution channel comprises nationwide chains of office
products dealers, or "mega-dealers," including Boise Cascade Corporation; U.S.
Office Products Company; Corporate Express Inc., A Buhrmann Company; Office
Depot Business Services Group; and Staples Commercial Advantage. Many of the
independent dealers and mega-dealer locations assist their customers with the
evaluation of office space requirements, systems layout and product selection,
and design and office solution services provided by professional designers.
The third distribution channel, wholesalers, serve as distributors of the
Company's products to independent dealers, mega-dealers and superstores. The
Company sells to the nation's largest wholesalers, United Stationers and S.P.
Richards, as well as to regional wholesalers. Wholesalers maintain stocks of
standard product lines for resale to the various retailers. They also special
order products from the Company in customer-selected models and colors. The
Company's wholesalers maintain warehouse locations throughout the United States,
which enable the Company to make its products available for rapid delivery to
retailers anywhere in the country. One customer, United Stationers, accounted
for approximately 14%, 13%, and 12% of the Company's consolidated net sales in
2000, 1999, and 1998, respectively.
The fourth distribution channel is retail stores, which include office
products superstores such as Office Depot, Office Max, and Staples and warehouse
clubs like Costco.
The fifth distribution channel consists of government-focused dealers
that sell the Company's products to federal, state and local government offices.
As of December 30, 2000, the Company's office furniture sales force
consisted of 29 regional sales managers supervising 156 salespersons, plus
approximately 39 firms of independent manufacturers' representatives who
collectively provided national sales coverage. Sales managers and salespersons
are compensated by a combination of salary and incentive bonus.
Office products dealers, national wholesalers and retailers market their
products over the world-wide web and through catalogs published periodically and
distributed to existing and potential customers. The Company's marketing
objective is to gain share in its distributors' media. The Company believes that
the inclusion of the Company's product lines in customer catalogs offers strong
potential for increased sales of the listed product items due to the exposure
provided by these publications.
The Company also makes export sales through HON International Inc. to
approximately 150 office furniture dealers and wholesale distributors serving
select foreign markets. Distributors are principally located in Latin America
and the Caribbean. The Company has an international field sales organization
consisting of a Vice President of Sales and Marketing and four regional
managers. Sales outside of the United States and Canada represented
approximately 1% of net sales in fiscal 2000.
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 3,000 dealers and 520 distributors. The Company has a field sales
organization of 34 regional sales managers supervising 117 salespersons and 7
firms of independent manufacturers' representatives.
As of December 30, 2000, the Company has an order backlog of
approximately $111.2 million which will be filled in the ordinary course of
business within the current fiscal year. This compares with $131.2 million as of
January 1, 2000, and $97.8 million as of January 2, 1999. Backlog, in terms of
percentage of net sales, was 5.4%, 7.3%, and 5.8% for fiscal years 2000, 1999,
and 1998, respectively. The Company's products are manufactured and shipped
within a few weeks following receipt of order. The dollar amount of the
Company's order backlog is therefore not considered by management to be a
leading indicator of the Company's expected sales in any particular fiscal
period.
For a discussion of the seasonal nature of the Company's sales, see
Operating Segment Information in the Notes to Consolidated Financial Statements.
-8-
COMPETITION
The office furniture industry is highly competitive, with a significant
number of competitors offering similar products. The Company competes by
emphasizing its ability to deliver compelling value products. In executing this
strategy, the Company has two significant classes of competitors. First, the
Company competes with numerous small- and medium-sized office furniture
manufacturers that focus on more limited product lines and/or end-user segments
and include Global Furniture Inc.; National Office Furniture, a division of
Kimball Office Furniture Co.; Chromcraft; Paoli; and High Point Furniture
Industries, Inc. Second, the Company competes with a small number of large
office furniture manufacturers which control a substantial portion of the market
share in the project-oriented office furniture market, such as Steelcase Inc.;
Haworth, Inc.; Herman Miller, Inc.; and Knoll, Inc. Some of these large
competitors have substantially greater assets, resources and capabilities in the
traditional project market than the Company. Products and brands offered by
these project-oriented office furniture market participants have strong
acceptance in the market place and have developed, and may continue to develop,
value-priced product designs to compete with the Company. The Company also faces
significant price competition from its competitors and may encounter competition
from new market entrants. There can be no assurance that the Company will be
able to compete successfully in its markets in the future.
Hearth products, consisting of prefabricated metal fireplaces and related
products, are manufactured by a number of national and regional competitors. A
limited number of manufacturers, however, are predominant in this industry. The
Company competes primarily against the other large manufacturers which include
CFM Majestic Inc. (a Canadian company), Lennox Industries Inc. (Superior and
Marco brands), Martin Industries Inc., and Fireplace Manufacturers Inc. (FMI).
Both office furniture and hearth products compete on the basis of price,
product performance, product quality, complete and on-time delivery to the
customer, and customer service and support. The Company believes that it
competes principally by providing compelling value products designed to be among
the best in their price range for product quality and performance, superior
customer service, and short lead-times. This is made possible, in part, by the
Company's significant on-going investment in product development, highly
efficient and low cost manufacturing operations, and an extensive distribution
network.
The Company is one of the largest office furniture manufacturers in the
United States, and believes that it is the largest manufacturer of value-priced
furniture. The Company is also the largest manufacturer and marketer of
fireplaces in the United States.
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. The Company's objective is to offset
the effect of inflation on its costs primarily through productivity increases in
combination with certain adjustments to the selling price of its products as
competitive market and general economic conditions permit.
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.
-9-
ENVIRONMENTAL
The Company is subject to a variety of environmental laws and regulations
governing discharges of 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 costs 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, when 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
2001 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.
For additional information about the Company's environmental matters,
refer to Item 3. Legal Proceedings and the Contingencies note in the Notes to
Consolidated Financial Statements.
BUSINESS DEVELOPMENT
The development of the Company's business during the fiscal years ended
December 30, 2000, January 1, 2000, and January 2, 1999, is discussed in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
-10-
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Muscatine, Iowa, and
conducts its operations at locations throughout the United States, Canada, and
Mexico which house manufacturing, distribution, and retail operations and
offices totaling an aggregate of approximately 9.2 million square feet. Of this
total, approximately 2.3 million square feet are leased, including approximately
0.3 million square feet under a capital lease.
Although the plants are of varying ages, the Company believes 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:
Approximate Owned or Description
Location Square Feet Leased of Use
-------- ----------- ------ ------
Cedartown, Georgia 547,014 Owned Manufacturing wood/nonwood
casegoods office furniture (1)
Chester, Virginia 382,082 Owned/ Manufacturing nonwood casegoods
Leased(2) office furniture (1)
Colville, Washington 125,000 Owned Manufacturing stoves
Florence, Alabama 308,763 Owned Manufacturing wood
casegoods office furniture
Jackson, Tennessee 155,000 Leased Manufacturing nonwood office
seating
Kent, Washington 189,062 Leased Manufacturing systems
office furniture
Lake City, Minnesota 235,000 Leased Manufacturing metal prefabricated
fireplaces (1)
Louisburg, North Carolina 176,354 Owned Manufacturing wood casegoods
office furniture
Milan, Tennessee 358,000 Leased Manufacturing systems office
furniture
Monterrey, Mexico 105,000 Owned Manufacturing nonwood
office seating
Mt. Pleasant, Iowa 288,006 Owned Manufacturing metal prefabricated
fireplaces (1)
Muscatine, Iowa 286,000 Owned Manufacturing nonwood casegoods
office
furniture
Muscatine, Iowa 578,284 Owned Warehousing office
furniture (1)
Muscatine, Iowa 236,100 Owned Manufacturing wood casegoods
office furniture
Muscatine, Iowa 142,850 Owned Manufacturing systems office
furniture
Muscatine, Iowa 342,850 Owned Manufacturing systems office
furniture
Muscatine, Iowa 237,800 Owned Manufacturing nonwood office
seating
Muscatine, Iowa 210,000 Owned Warehousing office furniture
Muscatine, Iowa 127,400 Owned Manufacturing wood casegoods
office furniture
Owensboro, Kentucky 311,575 Owned Manufacturing wood office seating
Salisbury, North Carolina 129,000 Owned Manufacturing systems office
furniture
South Gate, California 520,270 Owned Manufacturing nonwood casegoods
and seating office furniture (1)
Wayland, New York 716,484 Owned Manufacturing wood casegoods and
seating office furniture (1)
West Hazleton, Pennsylvania 268,800 Owned Manufacturing nonwood casegoods
office furniture
Williamsport, Pennsylvania 147,265 Owned Manufacturing wood office seating
and casegoods
Verona, Mississippi 257,000 Owned Manufacturing systems office
furniture
- ----
(1) Also includes a regional warehouse/distribution center
(2) A capital lease
Other Company facilities, under 100,000 square feet in size, are
located in various communities throughout the United States and Canada. These
facilities total approximately 1,758,000 square feet with approximately 850,000
square feet used for the manufacture and distribution of office furniture and
approximately 908,000 square feet for hearth products. Of this total,
approximately 994,000 square feet are leased. One of these facilities has been
vacated and is in the process of being marketed for sale. The Company also
leases sales showroom space in office furniture market centers in several major
metropolitan areas.
The Company has a 40,000 square foot leased plant in Savage, Minnesota,
which is subleased.
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 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.
-12-
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in certain continuing activities in
Pennsylvania to clean-up environmental contamination at one site formerly owned
by a subsidiary of the Company. The Pennsylvania environmental authorities are
supervising this activity. The costs associated with this site are primarily
related to the operation of a groundwater remediation system. These costs have
not had a material effect on the financial condition or results of operations of
the Company.
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 current, best
estimate of the eventual future cost of the Company's anticipated share of
remediation costs.
For additional information on legal proceedings involving the Company,
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.
-13-
PART I, TABLE I
EXECUTIVE OFFICERS OF THE REGISTRANT
DECEMBER 30, 2000
Family Position Other Business Experience
Name Age Relationship Position Held Since During Past Five Years
---- --- ------------ -------- ---------- ----------------------
Jack D. Michaels 63 None Chairman of the Board 1996
President 1990
Chief Executive Officer 1991
Director 1990
Jerald K. Dittmer 43 None Vice President, Finance 2000 Group Vice President, Seating and Wood
(1999-00), Vice President, Strategic
Planning (1999), Vice President and General
Manager, Oak Steel and Mt. Pleasant Plants
(1998-99), Vice President, Information
Technology (1997-98), The HON Company; Vice
President and Controller (1995-97), The
Gunlocke Company
Jeffrey D. Fick 39 None Vice President, 1997 Secretary and Acting General Counsel (1997);
Member and Community Relations Senior Counsel (1994-97)
Malcolm C. Fields 39 None Vice President and Chief 2000 Vice President, Information Technology
Information Officer (1998-00), The HON Company; Manager,
Technical Support Services
(1997-98), Manager, Process Systems
(1996-97), Manager, Engineering Systems
(1995-96), HON INDUSTRIES Inc.
Robert D. Hayes 57 None Vice President, Internal Audit 1999 Vice President and Controller (1997-99), and
Controller (1991-97), The HON Company
James I. Johnson 52 None Vice President, General Counsel 1997 General Counsel and Secretary, Norand
and Secretary Corporation, a portable data computing
company (1990-97)
Gordon R. Marshall 56 None Vice President, Marketing 2000 Vice President, Marketing (1991-00), The HON
Company
Phillip M. Martineau 53 None Executive Vice President 2000 President and Chief Executive Officer
(1996-99), Arcsmith, Inc. (Illinois Tool
Works); President (1994-96), Ansell-Edmont
Industrial Inc. (Pacific Dunlop Ltd.)
John S. McGlinn 60 None Sr. Vice President, Operations 1997 Vice President and General Manager, LA-South
Improvement Gate Plant (1981-97), The HON Company
Melvin L. McMains 59 None Vice President and Controller 1998 Controller (1980-1998)
Thomas K. Miller 62 None Vice President, International 2000 Vice President, Marketing and International
+ President, HON International Inc. 1996 (1996-00), Vice President, Marketing and
Distribution (1996), Vice President,
Strategic Development-Office Depot
(1995-96), HON INDUSTRIES Inc.; President,
Ring King Visibles, Inc. (1991-96)
William F. Snydacker 55 None Treasurer 1980
David C. Stuebe 60 None Vice President and Chief Financial 1994
Officer
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed for trading on the New York Stock
Exchange (NYSE), trading symbol HNI. The Company moved to the NYSE, effective
July 2, 1998, from the Nasdaq National Market System where the stock had traded
under the symbol HONI. As of year-end 2000, the Company had 6,563 stockholders
of record.
Computershare Investor Services, L.L.C., Chicago, Illinois, serves as
the Company's transfer agent and registrar of its common stock. Shareholders may
report a change of address or make inquiries by writing or calling:
Computershare Investor Services, L.L.C., P.O. Box 1689, Chicago, IL 60690-1689
or telephone 312/588-4991.
Common Stock Market Prices and Dividends (Unaudited) and Common Stock
Market Price and Price/Earnings Ratio (Unaudited) are presented in the Investor
Information section which follows the Notes to Consolidated Financial Statements
filed as part of this report.
The Company expects to continue its policy of paying regular cash
dividends on the first business day of March, June, September, and December.
Dividends have been paid each quarter since the Company paid its first dividend
in 1955. The average dividend payout percentage for the most recent three-year
period has been 25% of prior year earnings. Future dividends are dependent on
future earnings, capital requirements, and the Company's financial condition.
-16-
HON INDUSTRIES INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA -- ELEVEN-YEAR SUMMARY
2000(a) 1999(a) 1998(a)
- ---------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Income before Cumulative Effect of Accounting Changes $ 1.77 $ 1.44 $ 1.72
Cumulative Effect of Accounting Changes - - -
Net Income 1.77 1.44 1.72
Cash Dividends . 44 .38 .32
Book Value 9.59 8.33 7.54
Net Working Capital 1.09 1.52 1.19
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS (THOUSANDS OF DOLLARS)
Net Sales $2,046,286 $1,800,931 $1,706,628
Cost of Products Sold 1,380,404 1,236,612 1,172,997
Gross Profit 665,882 564,319 533,631
Interest Expense 14,015 9,712 10,658
Income before Income Taxes 165,964 137,575 170,109
Income before Income Taxes
as a % of Net Sales 8.11% 7.64% 9.97%
Federal and State Income Taxes $ 59,747 $ 50,215 $ 63,796
Effective Tax Rate 36.0% 36.5% 37.50%
Income before Cumulative Effect
of Accounting Changes $ 106,217 $ 87,360 $ 106,313
Net Income 106,217 87,360 106,313
Net Income as a % of Net Sales 5.19% 4.85% 6.23%
Cash Dividends and Share
Purchase Rights Redeemed $ 26,455 $ 23,112 $ 19,730
Addition to (Reduction of) Retained Earnings 79,762 64,248 86,583
Net Income Applicable to Common Stock 106,217 87,360 106,313
% Return on Average Shareholders' Equity 19.77% 18.14% 25.20%
Depreciation and Amortization $ 79,046 $ 65,453 $ 52,999
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF NET INCOME
% Paid to Shareholders 24.91% 26.46% 18.56%
% Reinvested In Business 75.09% 73.54% 81.44%
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION (THOUSANDS OF DOLLARS)
Current Assets $ 330,141 $ 316,556 $ 290,329
Current Liabilities 264,868 225,123 217,438
Working Capital 65,273 91,433 72,891
Net Property, Plant, and Equipment 454,312 455,591 444,177
Total Assets 1,022,470 906,723 864,469
% Return on Beginning Assets Employed 19.63% 16.94% 23.74%
Long-Term Debt and Capital Lease Obligations $ 128,285 $ 124,173 $ 135,563
Shareholders' Equity 573,342 501,271 462,022
Retained Earnings 495,796 416,034 351,786
Current Ratio 1.25 1.41 1.34
- ---------------------------------------------------------------------------------------------------------------------------
CURRENT SHARE DATA
Number of Shares Outstanding at Year-End 59,796,891 60,171,753 61,289,618
Weighted-Average Shares
Outstanding During Year 60,140,302 60,854,579 61,649,531
Number of Shareholders of Record at Year-End 6,563 6,737 5,877
- ---------------------------------------------------------------------------------------------------------------------------
OTHER OPERATIONAL DATA
Capital Expenditures-- Net (Thousands of Dollars) $ 59,840 $ 71,474 $ 149,717
Members (Employees) at Year-End 11,543(b) 10,095 9,824(b)
- ---------------------------------------------------------------------------------------------------------------------------
-18-
1997 1996 1995 1994
PER COMMON SHARE DATA
Income before Cumulative Effect of Accounting Changes $ 1.45 $ 1.13 $ .67 $ .87
Cumulative Effect of Accounting Changes - - - -
Net Income 1.45 1.13 .67 .87
Cash Dividends .28 .25 .24 .22
Book Value 6.19 4.25 3.56 3.17
Net Working Capital 1.53 .89 1.07 1.27
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS (THOUSANDS OF DOLLARS)
Net Sales $1,362,713 $998,135 $893,119 $845,998
Cost of Products Sold 933,157 679,496 624,700 573,392
Gross Profit 429,556 318,639 268,419 272,606
Interest Expense 8,179 4,173 3,569 3,248
Income before Income Taxes 139,128 105,267 65,517 86,338
Income before Income Taxes
as a % of Net Sales 10.21% 10.55% 7.34% 10.21%
Federal and State Income Taxes $ 52,173 $ 37,173 $ 24,419 $ 31,945
Effective Tax Rate 37.50% 35.31% 37.27% 37.00%
Income before Cumulative Effect
of Accounting Changes $ 86,955 $ 68,094 $ 41,098 $ 54,393
Net Income 86,955 68,094 41,098 54,156
Net Income as a % of Net Sales 6.38% 6.82% 4.60% 6.43%
Cash Dividends and Share
Purchase Rights Redeemed $ 16,736 $ 14,970 $ 14,536 $ 13,601
Addition to (Reduction of) Retained Earnings 37,838 33,860 18,863 13,563
Net Income Applicable to Common Stock 86,955 68,094 41,098 54,156
% Return on Average Shareholders' Equity 27.43% 29.06% 20.00% 28.95%
Depreciation and Amortization $ 35,610 $ 25,252 $ 21,416 $ 19,042
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF NET INCOME
% Paid to Shareholders 19.25% 21.98% 35.37% 25.11%
% Reinvested In Business 80.75% 78.02% 64.63% 74.89%
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION (THOUSANDS OF DOLLARS)
Current Assets $ 295,150 $205,527 $194,183 $188,810
Current Liabilities 200,759 152,553 128,915 111,093
Working Capital 94,391 52,974 65,268 77,717
Net Property, Plant, and Equipment 341,030 234,616 210,033 177,844
Total Assets 754,673 513,514 409,518 372,568
% Return on Beginning Assets Employed 28.27% 25.93% 17.91% 24.72%
Long-Term Debt and Capital Lease Obligations $ 134,511 $ 77,605 $ 42,581 $ 45,877
Shareholders' Equity 381,662 252,397 216,235 194,640
Retained Earnings 265,203 227,365 193,505 174,642
Current Ratio 1.47 1.35 1.51 1.70
- ---------------------------------------------------------------------------------------------------------------------------
CURRENT SHARE DATA
Number of Shares Outstanding at Year-End 61,659,316 59,426,530 60,788,674 61,349,206
Weighted-Average Shares
Outstanding During Year 59,779,508 60,228,590 60,991,284 62,435,450
Number of Shareholders of Record at Year-End 5,399 5,319 5,479 5,556
- ---------------------------------------------------------------------------------------------------------------------------
OTHER OPERATIONAL DATA
Capital Expenditures-- Net (Thousands of Dollars) $ 85,491 $ 44,684 $ 53,879 $ 35,005
Members (Employees) at Year-End 9,390(b) 6,502(b) 5,933 6,131
- ---------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Income before Cumulative Effect of Accounting Changes $ .69 $ .59 $ .51 $ .65
Cumulative Effect of Accounting Changes .01 - - -
Net Income .70 .59 .51 .65
Cash Dividends .20 .19 .18 .15
Book Value 2.83 2.52 2.32 2.03
Net Working Capital 1.23 1.23 1.07 .82
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING RESULTS (THOUSANDS OF DOLLARS)
Net Sales $780,326 $706,550 $607,710 $663,896
Cost of Products Sold 537,828 479,179 411,168 458,522
Gross Profit 242,498 227,371 196,542 205,374
Interest Expense 3,120 3,441 3,533 3,611
Income before Income Taxes 70,854 61,893 52,653 69,085
Income before Income Taxes
as a % of Net Sales 9.08% 8.76% 8.66% 10.41%
Federal and State Income Taxes $ 26,216 $ 23,210 $ 19,745 $ 25,907
Effective Tax Rate 37.00% 37.50% 37.50% 37.50%
Income before Cumulative Effect
of Accounting Changes $ 44,638 $ 38,683 $ 32,908 $ 43,178
Net Income 45,127 38,683 32,908 43,178
Net Income as a % of Net Sales 5.78% 5.47% 5.42% 6.50%
Cash Dividends and Share
Purchase Rights Redeemed $ 12,587 $ 12,114 $ 11,656 $ 9,931
Addition to (Reduction of) Retained Earnings 17,338 26,569 18,182 (11,952)
Net Income Applicable to Common Stock 45,127 38,683 32,908 43,178
% Return on Average Shareholders' Equity 26.35% 24.75% 23.41% 33.24%
Depreciation and Amortization $ 16,631 $ 15,478 $ 14,084 $ 13,973
- ---------------------------------------------------------------------------------------------------------------------------
DISTRIBUTION OF NET INCOME
% Paid to Shareholders 27.89% 31.32% 35.42% 23.00%
% Reinvested In Business 72.11% 68.68% 64.58% 77.00%
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION (THOUSANDS OF DOLLARS)
Current Assets $188,419 $171,309 $150,901 $146,591
Current Liabilities 110,759 91,780 82,275 93,465
Working Capital 77,660 79,529 68,626 53,126
Net Property, Plant, and Equipment 157,770 145,849 125,465 124,603
Total Assets 352,405 322,746 280,893 276,984
% Return on Beginning Assets Employed 22.14% 22.18% 19.66% 24.00%
Long-Term Debt and Capital Lease Obligations $ 45,916 $ 50,961 $ 32,734 $ 37,250
Shareholders' Equity 179,553 163,009 149,575 131,612
Retained Earnings 161,079 143,741 117,172 98,990
Current Ratio 1.70 1.87 1.83 1.57
- ---------------------------------------------------------------------------------------------------------------------------
CURRENT SHARE DATA
Number of Shares Outstanding at Year-End 63,351,692 64,737,912 64,417,370 64,769,794
Weighted-Average Shares
Outstanding During Year 64,181,088 65,517,990 64,742,976 66,220,810
Number of Shareholders of Record at Year-End 4,653 4,534 4,466 4,331
- ---------------------------------------------------------------------------------------------------------------------------
OTHER OPERATIONAL DATA
Capital Expenditures-- Net (Thousands of Dollars) $ 27,541 $ 26,626 $ 13,907 $ 20,709
Members (Employees) at Year-End 6,257 5,926 5,599 6,073
- ---------------------------------------------------------------------------------------------------------------------------
(a) Data has been restated to include shipping and handling costs billed to
customers as revenue per EITF Issue No. 00-10. Restatement of prior years
are immaterial.
(b) Includes acquisitions completed during year.
-19-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the Company's historical results of operations and
of its liquidity and capital resources should be read in conjunction with the
Consolidated Financial Statements of the Company and related notes.
RESULTS OF OPERATIONS
The following table sets forth the percentage of consolidated net sales
represented by certain items reflected in the Company's statements of income for
the periods indicated.
Fiscal 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of products sold 67.5 68.7 68.7
- -------------------------------------------------------------------------------------------------------------------
Gross profit 32.5 31.3 31.3
Selling and
administrative expenses 23.8 22.1 20.8
Provision for closing facilities
and reorganization expense - 1.1 -
- -------------------------------------------------------------------------------------------------------------------
Operating income 8.7 8.1 10.5
Interest expense (net) .6 .5 .5
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 8.1 7.6 10.0
Income taxes 2.9 2.8 3.7
Net income 5.2% 4.9% 6.2%
- -------------------------------------------------------------------------------------------------------------------
The Company has two reportable core operating segments: office furniture and
hearth products. The "Operating Segment Information" note included in the notes
to consolidated financial statements provides more detailed financial data with
respect to these two segments.
FISCAL YEAR ENDED DECEMBER 30, 2000, COMPARED TO FISCAL YEAR ENDED JANUARY 1,
2000
NET SALES
Net sales, on a consolidated basis, increased by 14% to $2.0 billion in 2000
from $1.8 billion in 1999. Office furniture net sales increased 9% in 2000 to
$1.65 billion from $1.51 billion in 1999. Net sales of hearth products increased
39% to $396.3 million in 2000 from $285.9 million in 1999 due mainly to the
Company's acquisition of two leading hearth products distributors, American
Fireplace Company (AFC) and the Allied Group (Allied), which were joined to form
Hearth Services Inc., a subsidiary of Hearth Technologies Inc. The office
furniture industry reported an increase in shipments of 9% in 2000 compared to
1999. The Company's most recent five-year compounded annual growth rate in net
sales is 18%.
GROSS PROFIT
Gross profit dollars increased 18% to $665.9 million in 2000 from $564.3 million
in the prior year. Gross margin increased to 32.5% for 2000 from 31.3% in 1999.
The improvement reflects the combination of improved price realization and
productivity from rapid continuous improvement programs.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased by 23% to $487.8 million in 2000
from $398.2 million in the prior year. Selling and administrative expenses, as a
percent of net sales, increased to 23.8% in 2000 from 22.1% in 1999. The largest
contributor to this increase was the acquisition of Hearth Services Inc.,which
is a retail distributor. Retail distribution is a different business model that
has proportionally higher selling and administrative costs than manufacturing.
The Company is applying rapid continuous improvement philosophies to reduce
these costs.
-20-
The Company also continued to experience increased investment in sales and
marketing expenses associated with refocusing the Company and developing
branding programs in the office furniture segment. The Company was able to
reduce freight expense as a percent of net sales despite increased fuel and
carrier costs.
Selling and administrative expenses include freight expense to the customer,
product development costs, and amortization expenses of intangible assets. The
"Selling and Administrative Expenses" note included in the Notes to Consolidated
Financial Statements provides further information regarding the comparative
expense levels for these major expense items.
OPERATING INCOME
Operating income increased by 7% to $178.0 million in 2000 from $166.1 million
(excluding a one-time pre-tax charge for closing facilities and reorganization
expense of $19.7 million) in 1999. The increase is due mainly to increased sales
and gross margins.
NET INCOME
Net income increased by 6% to $106.2 million in 2000 from $99.9 million,
excluding the $12.5 million nonrecurring after-tax charge for the closing of
facilities and reorganization expenses in the prior year. This increase is
attributable primarily to increased sales and gross margins. Net income was
favorably impacted by a decrease in the Company's effective tax rate from 36.5%
in 1999 to 36.0% in 2000 resulting from favorable state income tax initiatives.
Net income per common share increased by 8% to $1.77 in 2000 from $1.64
(excluding a nonrecurring after-tax charge of $0.20 per share) in 1999. The
Company's net income per share performance for 2000 also benefited from the
Company's common stock repurchase program.
FISCAL YEAR ENDED JANUARY 1, 2000, COMPARED TO FISCAL YEAR ENDED JANUARY 2, 1999
NET SALES
Net sales, on a consolidated basis, increased by 6% to $1.8 billion in 1999 from
$1.7 billion in 1998. The Company increased sales in both core operating
segments due to the continued focus on superior customer service and rapid
introduction of new innovative and compelling value products. Office furniture
net sales increased 4% in 1999 to $1.51 billion from $1.46 billion in 1998. Net
sales of hearth products increased 16% to $285.9 million in 1999 from $246.0
million in 1998. The office furniture industry reported a decline in shipments
of 1% in 1999 compared to 1998. The hearth products industry annual growth rate
is estimated at 6% to 7%. The Company's most recent five-year compounded annual
growth rate in net sales is 16%.
GROSS PROFIT
Gross profit dollars increased 6% to $564.3 million in 1999 from $533.6 million
in the prior year. Gross margin held steady at 31.3% for 1999 and 1998. The
Company is continuing to focus on improving gross margins. A tight labor market
made it more difficult than anticipated to staff facilities, causing an increase
in backlog and additional overtime, training, and expenses associated with
moving production to alternate plant locations. The Company was able to fill
positions in the fourth quarter and implemented plans to ensure workers are in
place to meet order demands. Gross profit also included start-up costs
associated with the Monterrey, Mexico, production facility.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased by 12% to $398.2 million in 1999
from $354.5 million in the prior year. Selling and administrative expenses, as a
percentage of net sales, increased to 22.1% in 1999 from 20.8% in 1998. The
Company has implemented a number of internal initiatives to better serve
customers through providing complete, on-time, and undamaged orders quickly.
These initiatives have resulted in increased freight costs. The Company has
contracted with distribution experts and is currently implementing a new
logistical management system to lower freight costs while still providing
excellent service execution to customers.
-21-
The Company also launched a strategic initiative during the fourth quarter to
strengthen its office furniture market focus. Allsteel Inc, which was purchased
in 1997, and The HON Company had been operating as one business unit. During the
fourth quarter, the two operations were split into two separate business units.
The HON Company serves the open-line, middle-market segment, and Allsteel Inc.
serves the project-oriented contract market. The Company incurred additional
costs related to this initiative in the near-term, but these investments will be
leveraged as the companies increase sales and grow their market shares. Both
business units continue to be reported under the Company's office furniture
segment reported in the Operating Segment Information note included in the Notes
to Consolidated Financial Statements.
Selling and administrative expenses for 1999 were significantly influenced by
increased freight expense to the customer, product development costs, and
amortization expenses of intangible assets. The Selling and Administrative
Expenses note, included in the Notes to the Consolidated Financial Statements,
provides further information regarding the comparative expense levels for these
major expense items.
OPERATING INCOME
Operating income decreased by 7.3% to $166.1 million (excluding a one-time
pre-tax charge for closing facilities and reorganization expense of $19.7
million) in 1999 from $179.2 million in 1998. The decrease is due principally to
increased selling and administrative expenses.
NET INCOME
Net income, excluding the $12.5 million nonrecurring after-tax charge for the
closing of facilities and reorganization expenses, decreased by 6.1% to $99.9
million in 1999 from $106.3 million in the prior year. This decrease is
attributable primarily to increased selling and administrative expenses. Net
income was favorably impacted by a decrease in the Company's effective tax rate
from 37.5% in 1998 to 36.5% in 1999 resulting from favorable state income tax
initiatives.
Net income per common share decreased by 4.7% to $1.64 (excluding a nonrecurring
after-tax charge of $0.20 per share) in 1999 from $1.72 for 1998. The Company's
net income per share performance for 1999 also benefited from the Company's
common stock repurchase program.
FISCAL YEAR ENDED JANUARY 2, 1999, COMPARED TO FISCAL YEAR ENDED JANUARY 3, 1998
NET SALES
Net sales, on a consolidated basis, increased by 25% to $1.71 billion in 1998
from $1.36 billion in the prior year even though fiscal year 1998 was a normal
52-week year compared to 1997 being a 53-week year. The Company increased sales
in both core operating segments due to the continued focus on superior customer
service, rapid introduction of new innovative and compelling value products, and
acquisitions. Office furniture net sales increased 26% in 1998 to $1.5 billion
from $1.16 billion in 1997. Net sales of hearth products increased 20% to $246.0
million in 1998 from $204.5 million in 1997. Both core operating segments
experienced another year of strong growth during 1998. The office products
industry reported an annual growth rate of 7.8%, and hearth products an
estimated 10%. The Company's most recent five-year compounded annual growth rate
is 17% in net sales.
GROSS PROFIT
Gross profit increased 24% to $533.6 million in 1998 from $429.6 million in the
prior year. Gross margin decreased to 31.3% for 1998 compared to 31.5% for 1997.
This decrease was due to selling price reductions on select products to increase
sales volume, which were only partially offset by productivity gains, and the
adverse impact of the Allsteel acquisition not achieving the Company's margin
standards as rapidly as projected.
-22-
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses increased by 25% to $354.5 million from
$284.4 million in the prior year. Selling and administrative expenses, as a
percentage of net sales, decreased to 20.8% in 1998 from 20.9% in 1997.
Management places major emphasis on controlling and reducing selling and
administrative expenses. The Company expects to leverage these costs as sales
grow; however, increased costs to meet competitive conditions offset a portion
of the efficiency and leveraging gains. Selling and administrative expenses
include freight expense to the customer, product development costs, and
amortization expenses of intangible assets. The "Selling and Administrative
Expenses" note included in the Notes to Consolidated Financial Statements
provides further information regarding the comparative expense levels for these
major expense items.
OPERATING INCOME
Operating income increased by 23% to $179.2 million in 1998 from $145.2 million
in 1997. The increase is due to increased sales and lower selling and
administrative expenses as a percent of sales.
NET INCOME
Net income increased by 22% to $106.3 million in 1998 from $87.0 million in
1997. This increase is a result of the higher operating income being partially
offset by an increase in interest expense associated with acquisition and
capital expenditures.
Net income per common share increased by 19% to $1.72 in 1998 from $1.45 in
1997. Average shares outstanding increased to 61.6 million in 1998 from 59.8
million in 1997 as a result of the weighting of the October 1997 primary stock
offering.
LIQUIDITY AND CAPITAL RESOURCES
During 2000, cash from operations was $204.9 million, which provided the funds
necessary to meet working capital needs, help finance acquisitions, invest in
capital improvements, repay long-term debt, repurchase common stock, and pay
increased dividends.
CASH MANAGEMENT
Cash, cash equivalents, and short-term investments totaled $3.2 million compared
to $22.2 million at the end of 1999 and $17.7 million at the end of 1998. These
funds, coupled with cash from future operations and additional long-term debt,
if needed, are expected to be adequate to finance operations, planned
improvement, and internal growth.
The Company places special emphasis on the management and reduction of its
working capital with a particular focus on trade receivables and inventory
levels. The success achieved in managing receivables is in large part a result
of doing business with quality customers and maintaining close communications
with them. Trade receivable days outstanding have averaged about 37 days over
the past three years. Inventory levels and turns continue to improve as a
function of reducing production cycle times. Inventory turns have been in the 17
to 18 range over the past three years.
CAPITAL EXPENDITURE INVESTMENTS
Capital expenditures, net of disposals, were $59.8 million in 2000, $71.5
million in 1999, and $149.7 million in 1998. Expenditures during 2000, 1999, and
1998 have been consistently focused on machinery and equipment and facility
expansion needed to support new products, process improvements, cost-savings
initiatives, and creating additional and more efficient production and
warehousing capacity.
ACQUISITIONS
On February 29, 2000, the Company completed the acquisition of its Hearth
Services Inc. division, which consists of two leading hearth products
distributors, American Fireplace Company (AFC) and the Allied Group (Allied),
establishing the Company as the leading manufacturer and distributor in the
hearth products industry, for a purchase price of approximately $135 million.
-23-
In February 1998, the Company completed the acquisition of Aladdin Steel
Products, Inc., a manufacturer of decorative gas- and wood-burning stoves, for a
purchase price of approximately $10.2 million. This acquisition allowed the
Company to strengthen its position in the hearth products market.
LONG-TERM DEBT
Long-term debt, including capital lease obligations, was 18% of total
capitalization at December 30, 2000, 20% at January 1, 2000, and 23% at January
2, 1999. The Company does not expect future capital resources to be a constraint
on planned growth. Significant additional borrowing capacity is available
through a revolving bank credit agreement in the event cash generated from
operations should be inadequate to meet future needs.
CASH DIVIDENDS
Cash dividends were $0.44 per common share for 2000, $0.38 for 1999, and $0.32
for 1998. Further, the Board of Directors announced a 9.1% increase in the
quarterly dividend from $0.11 to $0.12 per common share effective with the March
1, 2001, dividend payment. The previous quarterly dividend increase was from
$0.095 to $0.11, effective with the March 1, 2000, dividend payment. A cash
dividend has been paid every quarter since April 15, 1955, and quarterly
dividends are expected to continue. The average dividend payout percentage for
the most recent three-year period has been 25% of prior year earnings.
STOCK SPLIT
On February 11, 1998, the Board of Directors announced a two-for-one stock split
in the form of a 100 percent stock dividend that was paid on March 27, 1998, to
shareholders of record on March 6, 1998. Shareholders received one share of
common stock for each share held on record date.
COMMON SHARE REPURCHASES
During 2000, the Company repurchased 837,552 shares of its common stock at a
cost of approximately $18.0 million, or an average price of $21.46. As of
December 30, 2000, approximately $13.6 million of the $70.0 million authorized
by the Board of Directors for repurchases remained unspent. On February 14,
2001, the Board authorized an additional $100 million for the Company's share
repurchase program. During 1999, the Company repurchased 1,408,624 shares at a
cost of approximately $30.9 million, or an average price of $21.91. During 1998,
the Company repurchased 529,284 shares at a cost of approximately $12.2 million,
or an average price of $23.04.
LITIGATION AND UNCERTAINTIES
The Company is involved in various legal actions arising in the course of
business. These uncertainties are referenced in the Contingencies note included
in the Notes to Consolidated Financial Statements.
LOOKING AHEAD
The Company believes the softness in the economy may have an adverse effect on
net sales and operating income in the first half of 2001. However, the Company
is cautiously optimistic about the results for the second half of the year based
on economic improvement, new product introductions, and improved price
realization.
-24-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material financial exposure to the various financial
instrument market risks covered under this rule. Currently, the Company has no
derivative financial instruments or off-balance sheet financing arrangements.
For information related to the Company's long-term debt, refer to the Long-Term
Debt disclosure in the Notes to Consolidated Financial Statements filed as part
of this report.
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 follows the Notes
to Consolidated Financial Statements filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-25-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS 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 7, 2001, is incorporated herein by reference. For information with respect
to executive officers of the Company, see Part I, Table I "Executive Officers of
the Registrant."
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 7, 2001, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions "Election of Directors" and "Executive
Compensation" of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 7, 2001, is incorporated herein by reference.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Election of Directors" and
"Beneficial Owners of Common Stock" of the Company's Proxy Statement for the
Annual Meeting of Shareholders to be held on May 7, 2001, is incorporated herein
by reference.
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 7, 2001, 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 7, 2001, is incorporated herein by reference.
-26-
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 2000
Annual Report to Shareholders are filed as a part of this report
pursuant to Item 8:
Page
----
Report of Independent Public Accountants ........................................ 33
Consolidated Statements of Income for the Years Ended
December 30, 2000; January 1, 2000; and January 2, 1999 ......................... 34
Consolidated Balance Sheets -- December 30, 2000; January 1, 2000;
and January 2, 1999 ............................................................. 35
Consolidated Statements of Shareholders' Equity for the Years Ended
December 30, 2000; January 1, 2000; and January 2, 1999 ......................... 36
Consolidated Statements of Cash Flows for the Years Ended
December 30, 2000; January 1, 2000; and January 2, 1999 ......................... 37
Notes to Consolidated Financial Statements ...................................... 38
Investor Information ............................................................ 54
(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 30, 2000; January 1, 2000; and January 2, 1999 ......... 56
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
There are no reports on Form 8-K filed during the last
quarter of the period covered by this report.
-27-
(c) EXHIBITS
An exhibit index of all exhibits incorporated by reference
into, or filed with, this Form 10-K appears on Page 57. The following
exhibits are filed herewith:
Exhibit
-------
(3ii) By-Laws
(10i) 1995 Stock-Based Compensation Plan
(10xv) HON INDUSTRIES Inc. Long-Term Performance Plan
(21) Subsidiaries of the Registrant
(23) Consent of Independent Public Accountants
(99B) Executive Deferred Compensation Plan
(d) Financial Statement Schedules
See Item 14(a)(2).
-28-
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.
Date: March 27, 2001 By: /s/ Jack D. Michaels
-----------------------------
Jack D. Michaels
Chairman, President and CEO
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.
Signature Title Date
--------- ----- ----
/s/ Jack D. Michaels Chairman, President and CEO, 3/27/01
- -------------------------------------------- Principal Executive Officer,
Jack D. Michaels and Director
/s/ Jerald K. Dittmer Vice President, Finance and 3/27/01
- -------------------------------------------- Controller, and Principal
Jerald K. Dittmer Accounting Officer
/s/ David C. Stuebe Vice President and 3/27/01
- -------------------------------------------- Chief Financial Officer
David C. Stuebe
/s/ Gary M. Christensen Director 3/27/01
- --------------------------------------------
Gary M. Christensen
/s/ Robert W. Cox Director 3/27/01
- --------------------------------------------
Robert W. Cox
/s/ Cheryl A. Francis Director 3/27/01
- --------------------------------------------
Cheryl A. Francis
/s/ W August Hillenbrand Director 3/27/01
- --------------------------------------------
W August Hillenbrand
/s/ Robert L. Katz Director 3/27/01
- --------------------------------------------
Robert L. Katz
/s/ Dennis J. Martin Director 3/27/01
- --------------------------------------------
Dennis J. Martin
/s/ Abbie J. Smith Director 3/27/01
- --------------------------------------------
Abbie J. Smith
/s/ Richard H. Stanley
- --------------------------------------------
Richard H. Stanley Director 3/27/01
/s/ Brian E. Stern Director 3/27/01
- --------------------------------------------
Brian E. Stern
/s/ Lorne R. Waxlax Director 3/27/01
- --------------------------------------------
Lorne R. Waxlax
-31-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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, 2000, January 1, 2000, and January 2,
1999, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the fiscal years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated 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 financial position of HON INDUSTRIES Inc.
and subsidiaries as of December 30, 2000, January 1, 2000, and January 2, 1999,
and the results of its operations and its cash flows for each of the three
fiscal years then ended, in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
Chicago, Illinois
February 5, 2001
-33-
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except for per share data)
FOR THE YEARS 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Net sales $2,046,286 $1,800,931 $1,706,628
Cost of products sold 1,380,404 1,236,612 1,172,997
- -------------------------------------------------------------------------------------------------------------------
Gross Profit 665,882 564,319 533,631
Selling and administrative expenses 487,848 398,197 354,454
Provision for closing facilities and reorganization expenses - 19,679 -
- -------------------------------------------------------------------------------------------------------------------
Operating Income 178,034 146,443 179,177
- -------------------------------------------------------------------------------------------------------------------
Interest income 1,945 844 1,590
Interest expense 14,015 9,712 10,658
- -------------------------------------------------------------------------------------------------------------------
Income Before Income Taxes 165,964 137,575 170,109
Income taxes 59,747 50,215 63,796
- -------------------------------------------------------------------------------------------------------------------
Net Income $ 106,217 $ 87,360 $ 106,313
- -------------------------------------------------------------------------------------------------------------------
Net Income Per Common Share - Basic & Diluted $1.77 $1.44 $1.72
- -------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-34-
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands)
AS OF YEAR-END 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 3,181 $ 22,168 $17,500
Short-term investments - - 169
Receivables 211,243 196,730 183,576
Inventories 84,360 74,937 67,225
Deferred income taxes 19,516 13,471 12,477
Prepaid expenses and
other current assets 11,841 9,250 9,382
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 330,141 316,556 290,329
Property, Plant, and Equipment 454,312 455,591 444,177
Goodwill 216,371 113,116 108,586
Other Assets 21,646 21,460 21,377
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,022,470 $906,723 $864,469
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Accounts payable and
accrued expenses $ 240,540 $217,110 $198,520
Income taxes 12,067 - 1,921
Note payable and current
maturities of long-term debt 10,408 6,106 15,769
Current maturities of
other long-term obligations 1,853 1,907 1,228
- -------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 264,868 225,123 217,438
LONG-TERM DEBT 126,093 119,860 128,069
CAPITAL LEASE OBLIGATIONS 2,192 4,313 7,494
OTHER LONG-TERM LIABILITIES 18,749 18,015 18,067
DEFERRED INCOME TAXES 37,226 38,141 31,379
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock 59,797 60,172 61,290
Paid-in capital 17,339 24,981 48,348
Retained earnings 495,796 416,034 351,786
Accumulated other
comprehensive income 410 84 598
- -------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 573,342 501,271 462,022
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,022,470 $906,723 $864,469
- -------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-35-
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
ACCUMULATED
ADDITIONAL RECEIVABLE OTHER TOTAL
COMMON PAID-IN FROM CO. RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK CAPITAL ESOP EARNINGS INCOME EQUITY
- ----------------------------------------------------------------------------------------------------------------------
Balance, January 3, 1998 $61,659 $55,906 $(1,099) $265,203 $(7) $381,662
Comprehensive Income:
Net income 106,313 106,313
Other comprehensive income 605 605
Comprehensive income 106,918
Cash dividends (19,730) (19,730)
Common shares -- treasury:
Shares purchased (529) (11,672) (12,201)
Shares issued under Members
Stock Purchase Plan and
stock awards 160 4,114 4,274
Principal repaid by HON Members
Company Ownership 1,099 1,099
- ----------------------------------------------------------------------------------------------------------------------
Balance, January 2, 1999 61,290 48,348 - 351,786 598 462,022
Comprehensive income:
Net income 87,360 87,360
Other comprehensive income (514) (514)
Comprehensive income 86,846
Cash dividends (23,112) (23,112)
Common shares -- treasury:
Shares purchased (1,409) (29,457) (30,866)
Shares issued under Members
Stock Purchase Plan and
stock awards 291 6,090 6,381
- ----------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2000 60,172 24,981 - 416,034 84 501,271
Comprehensive income:
Net income 106,217 106,217
Other comprehensive income 326 326
Comprehensive income 106,543
Cash dividends (26,455) (26,455)
Common shares -- treasury:
Shares purchased (838) (17,135) (17,973)
Shares issued under Members
Stock Purchase Plan and
stock awards 463 9,493 9,956
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 30, 2000 $59,797 $17,339 - $495,796 $410 $573,342
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-36-
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
FOR THE YEARS 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM (TO) OPERATING ACTIVITIES:
Net income $ 106,217 $ 87,360 $106,313
Noncash items included in net income:
Depreciation and amortization 79,046 65,453 52,999
Other postretirement and
postemployment benefits 1,572 2,329 1,529
Deferred income taxes (7,213) 6,033 13,816
Other -- net 90 (121) 8
Changes in working capital,
excluding acquisition and disposition:
Receivables 3,961 (13,154) (24,238)
Inventories 6,410 (7,712) (4,286)
Prepaid expenses and other current assets (1,616) 391 6,517
Accounts payable and accrued expenses 5,483 19,838 3,959
Income taxes 11,808 (2,178) (7,419)
Increase in other liabilities (838) (2,054) (2,406)
- -------------------------------------------------------------------------------------------------------------------
Net cash flows from (to)
operating activities 204,920 156,185 146,792
- -------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM (TO) INVESTING ACTIVITIES:
Capital expenditures -- net (59,840) (71,474) (149,717)
Capitalized software (2,192) (3,530) -
Acquisition spending, net of cash acquired (134,696) (8,932) (11,470)
Principal repaid by HON Members
Company Ownership Plan - - 1,099
Short-term investments -- net - 169 91
Other -- net (3) (290) 80
- -------------------------------------------------------------------------------------------------------------------
Net cash flows from (to)
investing activities (196,731) (84,057) (159,917)
- -------------------------------------------------------------------------------------------------------------------
NET CASH FLOWS FROM (TO) FINANCING ACTIVITIES:
Purchase of HON INDUSTRIES common stock (17,973) (30,866) (12,206)
Proceeds from long-term debt 155,181 147,055 73,237
Payments of note and long-term debt (147,458) (167,052) (60,079)
Proceeds from sale of HON INDUSTRIES
common stock to members 9,529 6,515 3,323
Dividends paid (26,455) (23,112) (19,730)
- -------------------------------------------------------------------------------------------------------------------
Net cash flows from (to)
financing activities (27,176) (67,460) (15,455)
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (18,987) 4,668 (28,580)
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 22,168 17,500 46,080
- -------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $3,181 $22,168 $17,500
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $13,395 $9,803 $10,867
Income taxes $54,634 $46,822 $56,787
- -------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED FINANCIAL
STATEMENTS.
-37-
HON INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF OPERATIONS
HON INDUSTRIES Inc., with its subsidiaries (the Company), is 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 "Operating Segment
Information" note for further information. Office furniture products are sold
through a national system of dealers, wholesalers, warehouse clubs, retail
superstores, and to end-user customers, and federal and state governments.
Dealer, wholesaler, and retail superstores are the major channels based on
sales. Hearth products include wood-, pellet-, and gas-burning factory-built
fireplaces, fireplace inserts, stoves, and gas logs. These products are sold
through a national system of dealers, wholesalers, large regional contractors,
and Company-owned retail outlets. The Company's products are marketed
predominantly 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, these activities are 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
2000 ended on December 30, 2000; 1999 ended on January 1, 2000; and 1998 ended
on January 2, 1999.
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.
RECEIVABLES
Accounts receivables are presented net of an allowance for doubtful accounts of
$11,237,000, $3,568,000, and $2,816,000 for 2000, 1999, and 1998, 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.
-38-
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 over 20-40 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 30, 2000.
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Goodwill $233,348 $121,846 $113,812
Patents 16,450 16,450 16,450
Less accumulated
amortization 23,342 13,585 8,570
---------------------------------------------
$226,456 $124,711 $121,692
- -------------------------------------------------------------------------------------------------------------------
REVENUE RECOGNITION
Revenue is recognized upon shipment of goods to customers.
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
$18,911,000 in 2000, $17,117,000 in 1999, and $15,707,000 in 1998.
STOCK-BASED COMPENSATION
The Company accounts for its stock option plan using Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," which results in no
charge to earnings when options are issued at fair market value. The Company has
adopted the disclosure requirements of Statement of Financial Accounting
Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation."
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.
The more significant areas requiring the use of management estimates relate to
allowance for receivables, accruals for self-insured medical, workers
compensation, and general liability insurance, and useful lives for depreciation
and amortization. Actual results could differ from those estimates.
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
In 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs," that all amounts
billed to a customer in a sale transaction related to shipping and handling, if
any, represent revenues earned for the goods provided and should be classified
as revenue. The Company implemented the above EITF consensus effective with the
fourth quarter 2000 and has restated prior periods to reflect the change. The
adoption of this consensus did not have a material impact on the Company's
financial statements. In 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Company intends to adopt this Statement
in January 2001 as required by the Statement. Adoption of this Statement is not
expected to have a material impact on the Company's financial statements.
-39-
RECLASSIFICATIONS
Certain prior year information has been reclassified to conform to the current
year presentation.
PROVISION FOR FACILITIES CLOSING AND REORGANIZATION EXPENSES
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 pre-tax charge of $19.7 million or $0.20 per
diluted share was recorded during the first quarter of 1999. The charge includes
$12.5 million for write-offs of plant and equipment, $2.6 million for severance
arising from the elimination of approximately 360 positions, $2.1 million for
other employee-related costs, and $2.4 million for certain other expenses
associated with the closing of the facilities.
The primary costs not yet incurred relate to costs associated with the closed
buildings. Management believes the remaining reserve for facilities closing and
reorganization expenses to be adequate to cover these obligations.
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), establishing the
Company as the leading manufacturer and distributor in the hearth products
industry. The Company acquired AFC and Allied for approximately $135 million in
cash and debt including acquisition costs. 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 $23
million was recorded as goodwill and is being amortized on a straight-line basis
over 20 years.
As a result of the acquisition, the Company is in the process of finalizing its
integration plan related to incremental exit costs and consolidation activities
for acquired locations and activities. These costs which are not associated with
the generation of future revenues and have no future economic benefits will be
reflected as assumed liabilities in the allocation of purchase price to the net
assets acquired. Management expects these amounts to be finalized in the first
quarter of 2001.
The Company acquired Aladdin Steel Products, Inc. on February 20, 1998, for
approximately $10.2 million. Aladdin is a manufacturer of wood-, pellet-, and
gas-burning stoves and inserts. Aladdin is being operated by Hearth Technologies
Inc., the Company's hearth products subsidiary. The transaction was accounted
for under the purchase method.
Assuming the acquisition of American Fireplace Company, Allied Group, and
Aladdin Steel Products, Inc. had occurred on January 4, 1998, the beginning of
the Company's 1998 fiscal year, instead of the actual dates reported above, the
Company's pro forma consolidated net sales would have been approximately $2.1
billion, $1.9 billion, and $1.8 billion for 2000, 1999, and 1998, respectively.
Pro forma consolidated net income and net income per share for 2000, 1999, and
1998 would not have been materially different than the reported amounts.
INVENTORIES
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Finished products $48,990 $29,663 $24,955
Materials and work in process 46,497 55,737 53,320
LIFO allowance (11,127) (10,463) (11,050)
-------------------------------------------
$84,360 $74,937 $67,225
- -------------------------------------------------------------------------------------------------------------------
-40-
PROPERTY, PLANT, AND EQUIPMENT
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Land and land improvements $18,808 $17,114 $12,156
Buildings 202,189 181,080 144,559
Machinery and equipment 514,293 469,268 411,238
Construction and equipment
installation in progress 27,547 37,819 85,782
-------------------------------------------
762,837 705,281 653,735
Less allowances for depreciation 308,525 249,690 209,558
------------------------------------------
$454,312 $455,591 $444,177
- -------------------------------------------------------------------------------------------------------------------
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Trade accounts payable $67,540 $77,907 $75,895
Compensation 15,781 10,820 11,450
Profit sharing and
retirement expense 25,041 22,705 20,355
Vacation pay 14,560 12,093 11,751
Marketing expenses 65,931 58,832 45,833
Casualty
self-insurance expense 12,216 7,428 6,271
Other accrued expenses 39,471 27,325 26,965
--------------------------------------------
$240,540 $217,110 $198,520
- -------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Industrial development revenue
bonds, various issues, payable
through 2018 with interest
at 3.96-8.125% per annum $23,977 $24,608 $25,293
Note payable to bank,
revolving credit agreement
with interest at a variable
rate (6.6875-6.9625% at
year-end 2000)* 46,000 85,000 95,000
Convertible debenture
payable to individuals,
due in 2003 with interest
at 5.5% per annum 53,000 5,074 --
Other notes and amounts 3,116 5,178 7,776
--------------------------------------------
$126,093 $119,860 $128,069
- -------------------------------------------------------------------------------------------------------------------
* THE REVOLVING BANK CREDIT AGREEMENT IS PAYABLE IN THE YEAR 2002 WITH A MAXIMUM
BORROWING LIMIT OF $200,000,000.
-41-
Aggregate maturities of long-term debt are as follows (in thousands):
- -------------------------------------------------------------------------------------------------------------------
2001 $8,287
2002 46,773
2003 53,866
2004 553
2005 558
Thereafter 24,343
- -------------------------------------------------------------------------------------------------------------------
The convertible debenture payable to individuals at the end of 2000 is payable
to the former owners of businesses acquired by the Company in 2000. These
individuals continue as employees of a subsidiary of the business following the
merger. The convertible debenture is convertible into cash.
Certain of the above borrowing arrangements include covenants which limit the
assumption of additional debt and lease obligations. The Company has been and
currently is in compliance with the covenants related to these debt agreements.
The fair value of the Company's outstanding long-term debt obligations at
year-end 2000 approximates the recorded aggregate amount.
Property, plant, and equipment, with net carrying values of approximately
$58,940,000 at the end of 2000, are mortgaged.
SELLING AND ADMINISTRATIVE EXPENSES
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Freight expense to customer* $137,197 $131,085 $106,453
Amortization of
intangible assets 10,679 5,362 4,789
Product development costs 18,911 17,117 15,707
General selling and
administrative expense 321,061 244,633 227,505
-------------------------------------------
$487,848 $398,197 $354,454
- -------------------------------------------------------------------------------------------------------------------
* FREIGHT EXPENSE HAS BEEN RESTATED PER EITF ISSUE NO. 00-10.
INCOME TAXES
Significant components of the provision for income taxes are as follows:
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Current:
Federal $62,172 $40,744 $44,525
State 3,931 3,046 5,363
------------------------------------------
66,103 43,790 49,888
Deferred (6,356) 6,425 13,908
------------------------------------------
$59,747 $50,215 $63,796
- -------------------------------------------------------------------------------------------------------------------
-42-
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate is as follows:
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Federal statutory tax rate 35.0% 35.0% 35.0%
State taxes, net of federal
tax effect 1.5 1.7 2.6
Federal tax credits - - (.1)
Other-- net (.5) (.2) -
-------------------------------------------
Effective tax rate 36.0% 36.5% 37.5%
- -------------------------------------------------------------------------------------------------------------------
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:
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Net long-term deferred tax liabilities:
Tax over book depreciation $(37,509) $(38,133) $(33,118)
OPEB obligations 3,157 3,430 3,305
Goodwill (4,183) (2,959) (1,805)
Other-- net 1,309 (479) (239)
---------------------------------------------
Total net long-term
deferred tax liabilities (37,226) (38,141) (31,379)
- -------------------------------------------------------------------------------------------------------------------
Net current deferred tax assets:
Workers' compensation,
general, and product
liability accruals 4,183 2,984 2,315
Vacation accrual 4,632 3,492 2,531
Integration accruals (3,205) (3,263) (2,235)
Inventory
obsolescence reserve 2,404 1,287 1,026
Other-- net 11,502 8,971 8,840
-----------------------------------------
Total net current
deferred tax assets 19,516 13,471 12,477
-------------------------------------------
Net deferred tax
(liabilities) assets $(17,710) $(24,671) $(18,902)
- -------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Common Stock, $1 Par Value
Authorized 200,000,000 200,000,000 200,000,000
Issued and outstanding 59,796,891 60,171,753 61,289,618
Preferred Stock, $1 Par Value
Authorized 1,000,000 1,000,000 1,000,000
Issued and outstanding - - -
- -------------------------------------------------------------------------------------------------------------------
-43-
On February 11, 1998, the Company's Board of Directors declared a two-for-one
stock split in the form of a 100% stock dividend paid on March 27, 1998, to
shareholders of record on the close of business on March 6, 1998. In May 1998,
shareholders authorized an increase of capital stock of the Company from
101,000,000 shares to 201,000,000 shares, consisting of 200,000,000 shares of
common stock, $1.00 par value, and 1,000,000 shares of preferred stock, $1.00
par value.
The Company purchased 837,552, 1,408,624, and 529,284 shares of its common stock
during 2000, 1999, and 1998, respectively. The par value method of accounting is
used for common stock repurchases. The excess of the cost of shares acquired
over their par value is allocated to Paid-In Capital with the excess charged to
Retained Earnings.
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 130,
"Reporting Comprehensive Income," as of January 4, 1998, the beginning of its
1998 fiscal year. The Company has changed the format of its consolidated
statements of shareholders' equity to present comprehensive income.
Components of other comprehensive income (loss) consist of the following:
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Foreign currency translation
adjustments - net of tax $118 $(79) $42
Change in unrealized gains
on marketable securities -
net of tax 208 (435) 563
Other comprehensive
income (loss) $326 $(514) $605
- -------------------------------------------------------------------------------------------------------------------
In May 1997, the Company registered 400,000 shares of its common stock under its
1997 Equity Plan for Non-Employee Directors, which was approved by shareholders
at the May 1997 annual shareholders' meeting. This plan permits the Company to
issue to its non-employee directors options to purchase shares of Company common
stock, restricted stock of the Company, and awards of Company stock. The plan
also permits non-employee directors to elect to receive all or a portion of
their annual retainers and other compensation in the form of shares of Company
common stock. During 2000, 1999, and 1998, 6,948, 12,758, and 10,664 shares of
Company common stock were issued under the plan, respectively.
Cash dividends declared and paid per share for each year are:
(In dollars) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Common shares $.44 $.38 $.32
- -------------------------------------------------------------------------------------------------------------------
Pursuant to the 1994 Members Stock Purchase Plan, 1,000,000 shares of the
Company's common stock were registered for issuance to participating members.
Members who have one year of employment eligibility and work a minimum of 20
hours per week have rights to purchase stock on a quarterly basis. 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 4,000 shares, with a
maximum fair market value of $25,000 in any calendar year. An additional 214,047
shares were available for issuance under the plan at December 30, 2000. 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. Shares of common stock were issued in 2000, 1999, and 1998
pursuant to a members stock purchase plan as follows:
2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Shares issued 90,059 115,354 101,108
Average price per share $21.10 $19.16 $23.58
- -------------------------------------------------------------------------------------------------------------------
-44-
The Company has a shareholders rights plan which will expire August 20, 2008.
The plan becomes operative if certain events occur involving the acquisition of
20% or more of the Company's common stock by any person or group in a
transaction not approved by the Company's Board of Directors. Upon the
occurrence of such an event, each right entitles its holder to purchase an
amount of common stock of the Company with a market value of $400 for $200,
unless the Board authorizes the rights be redeemed. The rights may be redeemed
for $0.01 per right at any time before the rights become exercisable. In certain
instances, the right to purchase applies to the capital stock of the acquirer
instead of the common stock of the Company. The Company has reserved preferred
shares necessary for issuance should the rights be exercised.
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
annual salary and the average of the prior two years' bonuses.
STOCK OPTIONS
Under the Company's 1995 Stock-Based Compensation Plan, as amended and restated
effective November 10, 2000, the Company may award options to purchase shares of
the Company's common stock and grant other stock awards to executives, managers,
and key personnel. The Plan is administered by the Human Resources and
Compensation Committee of the Board of Directors. Stock options awarded under
the Plan must be at exercise prices equal to or exceeding the fair market value
of the Company's common stock on the date of grant. Stock options are generally
subject to four-year cliff vesting and must be exercised within 10 years from
the date of grant.
The Company accounts for executive stock options issued under this Plan using
Accounting Principles Board Opinion No. 25, which results in no charge to
earnings when options are issued at fair market value. The Company has elected
the disclosure requirements of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation."
If compensation costs had been determined based on the fair value at the grant
dates for awards under this Plan, consistent with SFAS No.123, the impact on net
earnings and earnings per share would be less than one cent per share. The
weighted-average fair value of options granted during 2000, 1999, and 1998
estimated on the date of grant using the Black-Scholes option-pricing model was
$9.25, $10.01, and $15.51, respectively. The fair value of 2000, 1999, and 1998
options granted is estimated on the date of grant using the following
assumptions: dividend yield of 0.90% to 1.97%, expected volatility of 31.04% to
35.89%, risk-free interest rate of 4.90% to 6.56%, and an expected life of 10 to
12 years depending on grant date.
-45-
The status of the Company's stock option plans is summarized below:
Number of Weighted-Average
Shares Exercise Price
- -------------------------------------------------------------------------------------------------------------------
Outstanding at
January 3, 1998 156,000 $24.74
Granted 20,000 32.50
Exercised - -
Forfeited - -
- -------------------------------------------------------------------------------------------------------------------
Outstanding at
January 2, 1999 176,000 $25.62
Granted 328,750 23.47
Exercised - -
Forfeited (97,000) 23.86
- -------------------------------------------------------------------------------------------------------------------
Outstanding at
January 1, 2000 407,750 $24.30
Granted 532,500 20.13
Exercised (22,000) 23.80
Forfeited - -
- -------------------------------------------------------------------------------------------------------------------
Outstanding at
December 30, 2000 918,250 $21.90
Options exercisable at:
December 30, 2000 - -
January 1, 2000 - -
January 2, 1999 - -
- -------------------------------------------------------------------------------------------------------------------
The following table summarizes information about fixed stock options outstanding
at December 30, 2000:
Options
Options Outstanding Exercisable
------------------- ------------
Weighted- Number
Average Weighted- Exercisable
Range of Number Remaining Average at December 30,
Exercise Prices Outstanding Contractual Life Exercise Price 2000
- -------------------------------------------------------------------------------------------------------------------
$24.50-$28.25 112,000 6.5 years $24.83 0
$32.50 20,000 7.1 years $32.50 0
$23.31-$23.47 253,750 8.1 years $23.47 0
$18.31-$26.69 532,500 9.6 years $20.13 0
- -------------------------------------------------------------------------------------------------------------------
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
$24,400,000, $21,297,000, and $20,101,000 in 2000, 1999, and 1998, respectively.
-46-
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. The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 132, "Employer's Disclosures about Pensions and
Other Postretirement Benefits," as of January 4, 1998, the beginning of its 1998
fiscal year. Net pension costs relating to these plans were $-0-, $-0-, and $-0-
for 2000, 1999, and 1998, respectively. The actuarial present value of
obligations, less related plan assets at fair value, is not significant.
The Company also participates in a multiemployer plan, which provides defined
benefits to certain of the Company's union employees. Pension expense for this
plan amounted to $308,500, $329,000, and $306,000 in 2000, 1999, and 1998,
respectively.
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. During
1998, the final shares in the Plan were allocated to participants, and the Plan
was subsequently merged into the Company's defined contribution profit-sharing
plan. Selected financial data pertaining to the ESOP is as follows:
(In thousands, except share data) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Company contribution to ESOP - - $656
Dividend income of ESOP - - 533
Shares of common stock
allocated to ESOP
participant accounts - - 96,304
Closing market price of
common stock
as of year-end - - $23.94
- -------------------------------------------------------------------------------------------------------------------
POSTRETIREMENT HEALTH CARE
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," as of
January 4, 1998. The Company adopted SFAS 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.
-47-
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:
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Reconciliation of
benefit obligation
Obligation at beginning of year $20,237 $17,341 $15,409
Service cost 182 529 419
Interest cost 882 1,137 1,045
Benefit payments (981) (1,013) (974)
Actuarial (gains) losses (5,888) 2,243 1,442
Current year prior service cost (2,203) - -
Obligation at end of year $12,229 $20,237 $17,341
- -------------------------------------------------------------------------------------------------------------------
Funded status
Funded status at end of year $12,229 $20,237 $17,341
Unrecognized transition
obligation (7,103) (9,362) (10,075)
Unrecognized prior-service cost (1,813) (2,338) (2,484)
Unrecognized gain (loss) 5,457 862 4,031
Net amount recognized $8,770 $9,399 $8,813
- -------------------------------------------------------------------------------------------------------------------
Net periodic postretirement
benefit cost include:
Service cost $182 $529 $419
Interest cost 882 1,137 1,045
Amortization of transition
obligation over 20 years 581 713 713
Amortization of prior
service cost - 146 146
Amortization of
(gains) and losses (539) (629) (767)
Net periodic postretirement
benefit cost $1,106 $1,896 $1,556
- -------------------------------------------------------------------------------------------------------------------
The discount rates at fiscal year-end 2000, 1999, and 1998 were 8.0%, 7.5%, and
6.75%, respectively. The pre-65 2001 gross trend rates begin at 8.0% for the
medical and prescription drug coverages and grade down to 5.0% in six years and
remain at this level for all future years. The post-64 gross trend rates begin
at 7.25% for the medical coverage and decrease until the maximum Company subsidy
(cap) is reached in 2006. For the prescription drug coverage, the 2001 gross
trend rates begin at 8.0% and decrease until the cap is reached in 2006. Assumed
health care cost trend rates have a significant effect on the amounts reported
for the health care plans. A 1% change in assumed health care cost trend rates
would have the following effects:
(In thousands) 1% Increase 1% Decrease
- -------------------------------------------------------------------------------------------------------------------
Effect on total of service and interest
cost components of net periodic
postretirement health care benefit cost $54 $(22)
Effect on the health care component
of the accumulated postretirement
benefit obligation $519 $(325)
- -------------------------------------------------------------------------------------------------------------------
-48-
LEASES
The Company leases certain warehouse, plant facilities and equipment.
Commitments for minimum rentals under noncancelable leases at the end of 2000
are as follows:
Capitalized Operating
(In thousands) Leases Leases
- ------------------------------------------------------------------------------------
2001 $2,398 $13,318
2002 1,078 11,316
2003 211 9,509
2004 211 7,818
2005 211 4,893
Thereafter 1,224 10,584
----------------------
Total minimum lease payments 5,333 $57,438
=======
Less amount representing interest 1,020
-----
Present value of net minimum
lease payments, including
current maturities of $2,121,000 $4,313
- --------------------------------------------------------------------------------------
Property, plant, and equipment at year-end include the following amounts for
capitalized leases:
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Buildings $3,299 $3,299 $3,299
Machinery and equipment 15,805 15,805 15,805
-----------------------------------------
19,104 19,104 19,104
Less allowances for
depreciation 14,655 11,816 8,978
-----------------------------------------
$4,449 $7,288 $10,126
- -------------------------------------------------------------------------------------------------------------------
Rent expense for the years 2000, 1999, and 1998 amounted to approximately
$15,428,000, $10,403,000, and $10,150,000, respectively. The Company has
operating leases for office and production facilities with annual rentals
totaling $450,000 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 $941,000,
$755,000, and $596,000 for the years 2000, 1999, and 1998, respectively.
CONTINGENCIES
The Company is involved in various legal actions which have arisen in the course
of business. Management believes the outcome of these matters will not have a
material effect on the financial condition or results of operations of the
Company.
OPERATING SEGMENT INFORMATION
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 131,
"Disclosures about Segments of an Enterprise and Related Information," effective
with its 1998 fiscal year beginning January 4, 1998. This segment disclosure is
essentially unchanged from the format used by the Company historically in
complying with SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise," and SFAS No. 30, "Disclosures of Information about Major
Customers." That is, management views the Company as being in two operating
segments: office furniture and hearth products, with the former being the
principal segment.
-49-
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-, pellet-, and
wood-burning fireplaces and stoves, fireplace inserts, gas logs, and chimney
systems principally for the home.
The Company's two operating segments are somewhat seasonal with the third
(July-September) and fourth (October-December) fiscal quarters historically
having higher sales than the prior quarters. In fiscal 2000, 51% of the
Company's consolidated net sales of office furniture were generated in the third
and fourth quarters and 54% of consolidated net sales of hearth products were
generated in the third and fourth quarters.
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 an operating segment cost. In addition, management
applies an effective income tax rate to its consolidated income before income
taxes so income taxes are not reported or viewed internally on a segment basis.
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.
No geographic information for revenues from external customers or for long-lived
assets is disclosed since 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 years ended 2000, 1999, and 1998 is as follows:
(In thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Net sales:
Office furniture $1,649,937 $1,514,991 $1,460,668
Hearth products 396,349 285,940 245,960
----------------------------------------------
$2,046,286 $1,800,931 $1,706,628
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
Office furniture* $171,647 $131,607 $165,314
Hearth products 30,232 34,588 31,478
--------------------------------------------
Total operating profit 201,879 166,195 196,792
Unallocated
corporate expenses (35,915) (28,620) (26,683)
-------------------------------------------
Income before income taxes $165,964 $137,575 $170,109
- -------------------------------------------------------------------------------------------------------------------
Identifiable assets:
Office furniture $638,075 $678,503 $660,626
Hearth products 327,528 174,386 154,817
General corporate 56,867 53,834 49,026
----------------------------------------------
$1,022,470 $906,723 $864,469
- -------------------------------------------------------------------------------------------------------------------
Depreciation and
amortization expense:
Office furniture $58,926 $52,483 $42,562
Hearth products 18,109 11,065 9,120
General corporate 2,011 1,905 1,317
-------------------------------------------
$79,046 $65,453 $52,999
- -------------------------------------------------------------------------------------------------------------------
-50-
Capital expenditures -- net:
Office furniture $39,361 $48,565 $128,482
Hearth products 17,643 16,489 18,162
General corporate 2,836 6,420 3,073
------------------------------------------
$59,840 $71,474 $149,717
- -------------------------------------------------------------------------------------------------------------------
*1999 INCLUDES A ONE-TIME PRE-TAX CHARGE OF $19.7 MILLION FOR THE CLOSING OF
FACILITIES AND REORGANIZATION EXPENSES.
One office furniture customer accounted for approximately 14%, 13%, and 12% of
consolidated net sales in 2000, 1999, and 1998, respectively.
-51-
SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly financial information
for each of the past 12 quarters. In the opinion of the Company's management,
this information has been prepared on the same basis as the consolidated
financial statements appearing elsewhere in this report and includes all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial results set forth herein. Results of operations for any
previous quarter are not necessarily indicative of results for any future
period.
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
YEAR-END 2000 (a)(b):
Net sales $481,523 $509,649 $535,322 $519,792
Cost of products sold 329,416 343,842 354,367 352,779
---------------------------------------------------
Gross profit 152,107 165,807 180,955 167,013
Selling and administrative expenses 111,214 125,513 124,197 126,924
---------------------------------------------------
Operating income 40,893 40,294 56,758 40,089
Interest income (expense)-- net (2,550) (3,688) (3,303) (2,529)
----------------------------------------------------
Income before income taxes 38,343 36,606 53,455 37,560
Income taxes 13,803 13,188 19,234 13,522
---------------------------------------------------
Net income $24,540 $23,418 $34,221 $24,038
==================================================
Net income per common share $.41 $.39 $.57 $.40
Weighted-average common shares outstanding 60,186 60,145 60,162 60,069
AS A PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 31.6 32.5 33.8 32.1
Selling and administrative expenses 23.1 24.6 23.2 24.4
Operating income 8.5 7.9 10.6 7.7
Income taxes 2.9 2.6 3.6 2.6
Net income 5.1 4.6 6.4 4.6
YEAR-END 1999 (a):
Net sales $427,660 $422,377 $478,609 $472,285
Cost of products sold 295,222 292,077 327,243 322,070
---------------------------------------------------
Gross profit 132,438 130,300 151,366 150,215
Selling and administrative expenses 92,465 92,454 104,105 109,173
Provision for closing facilities and reorganization
expenses 19,679 - - -
----------------------------------------------------
Operating income 20,294 37,846 47,261 41,042
Interest income (expense)-- net (2,045) (2,399) (2,160) (2,264)
---------------------------------------------------
Income before income taxes 18,249 35,447 45,101 38,778
Income taxes 6,661 12,938 16,462 14,154
---------------------------------------------------
Net income $11,588 $22,509 $28,639 $24,624
==================================================
Net income per common share $.19 $.37 $.47 $.41
Weighted-average common shares outstanding 61,154 61,169 60,921 60,159
AS A PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 31.0 30.8 31.6 31.8
Selling and administrative expenses 21.6 21.9 21.8 23.1
Provision for closing facilities and reorganization
expenses 4.6 - - -
Operating income 4.7 9.0 9.9 8.7
Income taxes 1.6 3.1 3.5 3.0
Net income 2.7 5.3 6.0 5.2
-52-
YEAR-END 1998 (a)(c):
Net sales $420,791 $403,809 $451,320 $430,708
Cost of products sold 291,571 278,107 309,080 294,239
---------------------------------------------------
Gross profit 129,220 125,702 142,240 136,469
Selling and administrative expenses 91,091 85,605 90,803 86,955
----------------------------------------------------
Operating income 38,129 40,097 51,437 49,514
Interest income (expense)-- net (2,172) (2,691) (2,025) (2,180)
----------------------------------------------------
Income before income taxes 35,957 37,406 49,412 47,334
Income taxes 13,484 14,027 18,530 17,755
---------------------------------------------------
Net income $22,473 $23,379 $30,882 $29,579
==================================================
Net income per common share $.36 $.38 $.50 $.48
Weighted-average common shares outstanding 61,648 61,663 61,691 61,596
AS A PERCENTAGE OF NET SALES
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 30.7 31.1 31.5 31.7
Selling and administrative expenses 21.6 21.2 20.1 20.2
Operating income 9.1 9.9 11.4 11.5
Income taxes 3.2 3.5 4.1 4.1
Net income 5.4 5.8 6.8 6.9
(a) DATA HAS BEEN RESTATED TO INCLUDE SHIPPING AND HANDLING COSTS BILLED TO
CUSTOMERS AS REVENUE PER EITF ISSUE NO. 00-10.
(b) FIRST QUARTER 2000 INCLUDES PARTIAL QUARTERLY RESULTS OF OPERATION OF
AMERICAN FIREPLACE COMPANY AND THE ALLIED GROUP ACQUISITIONS ACQUIRED FEBRUARY
29, 2000.
(c) FIRST QUARTER 1998 INCLUDES PARTIAL QUARTERLY RESULTS OF OPERATION OF
ALADDIN STEEL PRODUCTS, INC. ACQUISITION ACQUIRED FEBRUARY 20, 1998.
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INVESTOR INFORMATION
COMMON STOCK MARKET PRICES AND DIVIDENDS (UNAUDITED)
QUARTERLY 2000 - 1999
2000 by Dividends
Quarter High Low per Share
- -------------------------------------------------------------------------------------------------------------------
1st $25 3/4 $15 9/16 $.11
2nd 27 7/8 23 .11
3rd 27 7/8 23 3/16 .11
4th 27 1/8 21 .11
---
Total Dividends Paid $.44
===
1999 by Dividends
Quarter High Low per Share
- -------------------------------------------------------------------------------------------------------------------
1st $24 1/2 $19 3/4 $.095
2nd 29 7/8 21 5/8 .095
3rd 28 1/8 19 1/16 .095
4th 23 3/4 18 3/4 .095
----
Total Dividends Paid $ .38
=====
COMMON STOCK MARKET PRICE AND PRICE/EARNINGS RATIO (UNAUDITED)
FISCAL YEARS 2000 - 1990
Market Price* Price/earnings Ratio
------------------------- --------------------------
Earnings
per
Year High Low Share* High Low
- ---- ---- --- ------ ---- ---
2000 27 7/8 15 9/16 1.77 16 9
1999 29 7/8 18 3/4 1.44 21 13
1998 37 3/16 20 1.72 22 12
1997 32 1/8 15 7/8 1.45 22 11
1996 21 3/8 9 1/4 1.13 19 8
1995 15 5/8 11 1/2 .67 23 17
1994 17 12 .87 20 14
1993 14 5/8 10 3/4 .70 21 15
1992 11 3/4 8 1/4 .59 20 14
1991 10 1/4 6 5/8 .51 20 13
1990 11 1/2 6 3/4 .65 18 10
-- --
Eleven-Year Average 20 12
- -------------------------------------------------------------------------------------------------------------------
*ADJUSTED FOR THE EFFECT OF STOCK SPLITS
-54-
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
consolidated financial statements taken as a whole. The valuation and qualifying
accounts as of and for the three fiscal years ended December 30, 2000; January
1, 2000; and January 2, 1999, 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 audits 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
February 5, 2001
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SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
HON INDUSTRIES INC. AND SUBSIDIARIES
DECEMBER 30, 2000
- ---------------------------------------------------------------- -------------------------------------------- ----------------------
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------------------- -------------------------------------------- ----------------------
ADDITIONS
- ---------------------------------------------------------------- ---------------------- --------------------- ----------------------
DESCRIPTION BALANCE AT (1) (2) DEDUCTIONS BALANCE AT
BEGINNING OF CHARGED TO CHARGED TO (DESCRIBE) END OF PERIOD
PERIOD COSTS AND OTHER
EXPENSES ACCOUNTS
(DESCRIBE)
- ---------------------------------------------------------------- ---------------------- --------------------------------- --------
(In thousands)
Reserves deducted in the consolidated balance
sheet from the assets to which
they apply:
Year ended December 30, 2000:
Allowance for doubtful accounts $3,568 $8,726 $1,057 (A) $11,237
====== ====== ====== =======
Year ended January 1, 2000:
Allowance for doubtful accounts $2,816 $2,114 $1,362 (A) $3,568
====== ====== ====== ======
Year ended January 2, 1999:
Allowance for doubtful accounts $3,277 $1,288 $1,749 (A) $2,816
====== ====== ====== ======
Note A: Excess of accounts written off over recoveries
ITEM 14(a)(3) - INDEX OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
(3i) Articles of Incorporation of the Registrant,
incorporated by reference to Exhibit 3(i) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended April 3, 1999
(3ii) By-Laws of the Registrant, incorporated by reference to
Exhibit 3(ii) to the Registrant's Annual Report on Form
10-K for the year ended December 30, 2000
(4i) Rights Agreement dated as of August 13, 1998, by and
between the Registrant and Harris Trust and Savings
Bank, as Rights Agent, incorporated by reference to
Exhibit 4.1 to Registration Statement on Form 8-A filed
August 14, 1998, as amended by Form 8-A/A filed
September 14, 1998, incorporated by reference to
Exhibit 4.1 on Form 8-K filed August 10, 1998
(10i) 1995 Stock-Based Compensation Plan, as amended
effective November 10, 2000, incorporated by reference
to Exhibit 10(i) to the Registrant's Annual Report on
Form 10-K for the year ended December 30, 2000
(10ii) 1997 Equity Plan for Non-Employee Directors,
incorporated by reference to Exhibit B to the
Registrant's proxy statement dated March 28, 1997,
related to the Registrant's Annual Meeting of
Shareholders held on May 13, 1997
(10iii) Form of Registrant's Change in Control Agreement,
incorporated by reference to Exhibit 10 to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994
(10iv) Executive Long-Term Incentive Compensation Plan of the
Registrant, incorporated by reference to Exhibit 99B to
the Registrant's Annual Report on Form 10-K for the
year ended December 30, 1995
(10v) ERISA Supplemental Retirement Plan of the Registrant,
incorporated by reference to Exhibit 99C to the
Registrant's Annual Report on Form 10-K for the year
ended December 30, 1995
(10vi) 1994 Members Stock Purchase Plan of the Registrant,
incorporated by reference to Exhibit 4.3 to the
Registrant's Registration Statement No.
33-54163 on Form S-8 filed June 16, 1994
(10vii) Agreement as Consultant and Director, dated November
15, 1995, between the Registrant and Robert L. Katz,
incorporated by reference to the same numbered exhibit
filed with the Registrant's Annual Report on Form
10-K/A for the fiscal year ended December 28, 1996
(10viii) Form of Director and Officer Indemnification Agreement
of the Registrant, incorporated by reference to the
same numbered exhibit filed with the Registrant's
Annual Report on Form 10-K/A for the fiscal year ended
December 28, 1996
(10ix) Form of Common Stock Grant Agreement of the Registrant,
incorporated by reference to the same numbered exhibit
filed with
the Registrant's Annual Report on Form 10-K/A for the
fiscal year ended December 28, 1996
(10x) Form of HON INDUSTRIES Inc. Stock-Based Compensation
Plan Stock Option Award Agreement of the Registrant,
incorporated by reference to the same numbered exhibit
filed with the Registrant's Annual Report on Form
10-K/A for the fiscal year ended December 28, 1996
(10xi) Stock Purchase Agreement of the Registrant, dated
September 18, 1985, as amended by amendment dated
February 11, 1991, between the Registrant and Stanley
M. Howe, incorporated by reference to Exhibit 10(xi) to
the Registrant's Annual Report on Form 10-K for the
year ended January 3, 1998
(10xii) Real Estate Contract of the Registrant, dated November
15, 1997, between the Registrant and Terrence L. and
Loretta B. Mealy, incorporated by reference to Exhibit
10(xii) to the Registrant's Annual Report on Form 10-K
for the year ended January 3, 1998
(10xiii) $200,000,000 Credit Agreement, dated June 11, 1997;
First Amendment to Credit Agreement and Waiver, dated
October 20, 1997; and Second Amendment to Credit
Agreement, dated January 18, 2000, by and between the
Registrant and Bankers Trust Company, as Syndication
Agent and Administrative Agent, and various lending
institutions, incorporated by reference to Exhibit
10(xiii) to the Registrant's Annual Report on Form
10-K for the year ended January 1, 2000
(10xiv) HON INDUSTRIES Inc. Profit-Sharing Retirement Plan of
the Registrant incorporated by reference to Exhibit
4.4 to the Registrant's Registration Statement No.
333-31366 on Form S-8 filed February 29, 2000
(10xv) HON INDUSTRIES Inc. Long-Term Performance Plan of the
Registrant, incorporated by reference to the same
numbered exhibit filed with the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
30, 2000
(16) Letter of Former Accountant, incorporated by reference
to the Registrant's Report on Form 8-K dated May 14,
1996
(21) Subsidiaries of the Registrant
(23) Consent of Independent Public Accountants
(99A) Executive Bonus Plan of the Registrant as amended and
restated on May 1, 2000, incorporated by reference to
the same numbered exhibit filed with the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
April 1, 2000
(99B) Executive Deferred Compensation Plan of the Registrant
as amended and restated on November 10, 2000,
incorporated by reference to the same numbered exhibit
filed with the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 30, 2000
-58-