UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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(Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 29, 2001
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-2648
HON INDUSTRIES Inc.
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An Iowa Corporation |
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IRS Employer No. 42-0617510 |
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414 East Third Street |
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P. O. Box 1109 |
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Muscatine, IA 52761-0071 |
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563/264-7400 |
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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 ý No o
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. o
The aggregate market value of the voting stock held by nonaffiliates of the registrant, as of March 1, 2002, was: $1,215,982,786 assuming all 5% holders are affiliates.
The number of shares outstanding of the registrant’s common stock, as of March 1, 2002, was: 58,895,314.
Documents Incorporated by Reference
Portions of the registrant’s Proxy Statement dated March 22, 2001, for the May 6, 2002, Annual Meeting of Shareholders are incorporated by reference into Part III.
Index of Exhibits is located on Page 58.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
2
ANNUAL REPORT ON FORM 10-K
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 76% of fiscal year 2001 net sales were in office furniture and 24% in hearth products. A broad office furniture product offering is sold to dealers, wholesalers, warehouse clubs, retail superstores, 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 2001, the Company had net sales of $1.8 billion, of which approximately $1.4 billion was attributable to office furniture products and $0.4 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. On February 29, 2000, the Company completed the acquisition of two leading hearth products distributors, American Fireplace Company (AFC) and the Allied Group (Allied). AFC and Allied sell, install, and service a broad range of gas- and wood-burning fireplaces as well as fireplace mantels, surrounds, facings, and other accessories.
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, 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 dealers, or “mega-dealers,” which are Boise Cascade Corporation; Corporate Express Inc., A Buhrmann Company; Office Depot Business Services Group; and Staples Commercial Advantage. The Company is also a supplier 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 developing solutions that are sensitive to quality, aesthetics, style and purposeful design. Approximately 30% of the Company’s 2001 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 $10,975,000,000 in 2001, a decrease of 17.4% compared to 2000. The Company believes that the decrease was due to lower corporate profits and prevailing economic conditions.
The U.S. office furniture market consists of two primary segments-the project segment and the commercial 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 commercial 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 furniture and 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.
4
Growth Strategy
The Company’s strategy is to build on its position as a leading manufacturer of office furniture and hearth products in North America. The components of this growth strategy are to introduce new products, continually reduce costs, provide outstanding customer satisfaction, leverage the distribution network, and pursue complementary strategic acquisitions.
Employees/Members
As of December 29, 2001, the Company employed approximately 9,000 persons, 8,800 of whom were members and 200 of whom were temporary personnel. Of the approximately 9,000 persons employed by the Company, 4,700 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) storage, 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:
Storage
The Company offers a variety of storage 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 steel storage cabinets in the United States.
The Company sells most of its freestanding storage 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 storage is sold through project-oriented office furniture dealers.
Seating
The Company’s seating line includes 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, coverings, and a wide range of price points. Key customer criteria in seating includes superior design, ergonomics, aesthetics, comfort, and quality.
5
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, storage, and accessories.
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, laminate and wood furniture items, such as desks, bookshelves, credenzas and mobile desking, 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 fireplaces and related products, primarily for the home, which it sells under the widely recognized Heatilator, Heat-N-Glo, Dovre, and Quadra-Fire brand names.
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 brand leaders in the two largest segments of the home fireplace market: vented-gas and wood fireplaces. The Company 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 for additional details.
Manufacturing
The HON Company manufactures office furniture in Alabama, California, Georgia, Iowa, Kentucky, North Carolina, Virginia, and Monterrey, Mexico. Allsteel Inc. manufactures office furniture in Iowa, 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 North Carolina and Washington. Hearth Technologies Inc. manufactures hearth products in Iowa, Maryland, Minnesota, and Washington.
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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.
Product Development
The Company’s product development efforts are primarily focused on reducing the cost to manufacture existing products and developing solutions that are sensitive to quality, aesthetics, style and purposeful design. 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 $21.4 million, $18.9 million, and $17.1 million in product development during fiscal 2001, 2000, and 1999, respectively, and has budgeted in excess of $25 million for product development in fiscal 2002.
Intellectual Property
As of December 29, 2001, the Company owned 217 U.S. and 119 foreign patents and had applications pending for 58 U.S. and 73 foreign patents. In addition, the Company holds registrations for 136 U.S. and 184 foreign trademarks and has applications pending for 55 U.S. and 68 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.
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The Company applies for patent protection when it believes the expense of doing so is justified, and the Company 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 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 2001, the Company’s ten largest customers represented approximately 37% 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.
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; 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 inventory 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%, 14%, and 13% of the Company’s consolidated net sales in 2001, 2000, and 1999, 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.
8
As of December 29, 2001, the Company’s office furniture sales force consisted of 32 regional sales managers supervising 151 salespersons, plus approximately 38 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 internet and through catalogs published periodically. These catalogs are distributed to existing and potential customers. The Company believes that the inclusion of the Company’s product lines in customer catalogs and e-business offers strong potential for increased sales of the listed product items due to the exposure provided.
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 five regional managers. Sales outside of the United States and Canada represented approximately 1% of net sales in fiscal 2001.
Limited quantities of select finished goods inventories built to order awaiting shipment are at the Company’s principal manufacturing plants and at its various distribution centers.
Hearth Technologies Inc. sells its fireplace and stove products through approximately 4,000 dealers and 460 distributors. The Company has a field sales organization of 17 regional sales managers supervising 192 salespersons and 12 firms of independent manufacturers’ representatives.
As of December 29, 2001, the Company has an order backlog of approximately $93.9 million which will be filled in the ordinary course of business within the first few weeks of the current fiscal year. This compares with $111.2 million as of December 30, 2000, and $131.2 million as of January 1, 2000. Backlog, in terms of percentage of net sales, was 5.2%, 5.4%, and 7.3% for fiscal years 2001, 2000, and 1999, 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.
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 and unsurpassed customer service. 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. (a Canadian company); Kimball Office Furniture Co.; Chromcraft; Paoli; and Teknion (a Canadian company), as well as Asian imports. 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.
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Hearth products, consisting of prefabricated metal fireplaces and related products, are manufactured by a number of national and regional competitors. The Company competes primarily against the other large manufacturers which include CFM Majestic Inc. (a Canadian company) and Lennox Industries Inc. (Superior and Marco brands).
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 middle-market 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 modernizing plants, equipment, support systems, and for RCI programs. These investments collectively focus on business simplification and 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.
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 2002 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.
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Business Development
The development of the Company’s business during the fiscal years ended December 29, 2001, December 30, 2000, and January 1, 2000, is discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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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 8.9 million square feet. Of this total, approximately 1.8 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:
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Location |
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Approximate |
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Owned or |
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Description |
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Cedartown, Georgia |
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547,014 |
|
Owned |
|
Manufacturing wood/nonwood casegoods office furniture (1) |
|
|
|
|
|
|
|
|
|
Chester, Virginia |
|
382,082 |
|
Owned/Leased(2) |
|
Manufacturing nonwood casegoods 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 |
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358,000 |
|
Leased |
|
Manufacturing systems office furniture |
|
|
|
|
|
|
|
|
|
Monterrey, Mexico |
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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 |
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578,284 |
|
Owned |
|
Warehousing office furniture (1) |
|
|
|
|
|
|
|
|
|
Muscatine, Iowa |
|
236,100 |
|
Owned |
|
Manufacturing wood casegoods office furniture |
|
|
|
|
|
|
|
|
12
|
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 |
(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 1,371,000 square feet with approximately 456,000 square feet used for the manufacture and distribution of office furniture and approximately 915,000 square feet for hearth products. Of this total, approximately 964,000 square feet are leased. In addition, the Company has two facilities that have been vacated and are 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.
13
The Company is involved in various kinds of disputes and legal proceedings which have arisen in the course of its business. The Company believes the outcome of these disputes and proceedings will not have a material effect on the financial condition or results of operations of the Company, although any litigation or legal proceeding has an element of uncertainty.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
(THIS PAGE INTENTIONALLY LEFT BLANK)
15
PART I, TABLE I
EXECUTIVE OFFICERS OF THE REGISTRANT
December 29, 2001
|
Name |
|
Age |
|
Family |
|
Position |
|
Position |
|
Other
Business Experience |
|
Jack D. Michaels |
|
64 |
|
None |
|
Chairman of the Board |
|
1996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stanley A. Askren |
|
41 |
|
None |
|
Executive Vice President |
|
2001 |
|
President, Allsteel Group (1999), Group Vice President, Systems Furniture (1998-99), The HON Company; President, Heatilator Division (1996-98), Hearth Technologies Inc.; President (1996), Heatilator Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter R. Atherton |
|
49 |
|
None |
|
Vice President and Chief |
|
2001 |
|
Manager, Manufacturing and Business Process Lab (1996-01), General Electric |
|
|
|
|
|
|
|
|
|
|
|
|
|
David C. Burdakin |
|
46 |
|
None |
|
Executive Vice President |
|
2001 |
|
President, HON Group (1999), Group Vice President, Steel Casegoods (1998-99), Group Vice President, Seating (1996-98), The HON Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerald K. Dittmer |
|
44 |
|
None |
|
Vice President and |
|
2001 |
|
Vice President, Finance (2000-01); 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 |
|
40 |
|
None |
|
Vice President, |
|
1997 |
|
Secretary and Acting General Counsel (1997); Senior Counsel (1994-97) |
|
|
|
|
|
|
|
|
|
|
|
|
16
|
Malcolm C. Fields |
|
40 |
|
None |
|
Vice President and Chief Information Officer |
|
2000 |
|
Vice President, Information Technology (1998-00), The HON Company; Manager, Technical Support Services (1997-98), Manager, Process Systems (1996-97) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert D. Hayes |
|
58 |
|
None |
|
Vice President, Business Analysis and General Auditor |
|
2001 |
|
Vice President, Internal Audit (1999-01); Vice President and Controller (1997-99), and Controller (1991-97), The HON Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
James I. Johnson |
|
53 |
|
None |
|
Vice President, General Counsel and Secretary |
|
1997 |
|
General Counsel and Secretary, Norand Corporation, a portable data computing company (1990-97) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Phillip M. Martineau |
|
54 |
|
None |
|
Executive Vice President |
|
2000 |
|
President and Chief Executive Officer (1996-99), Arcsmith, Inc. (Illinois Tool Works) |
|
|
|
|
|
|
|
|
|
|
|
|
|
William F. Snydacker |
|
56 |
|
None |
|
Treasurer |
|
1980 |
|
|
17
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 2001, the Company had 6,694 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 26% of prior year earnings. Future dividends are dependent on future earnings, capital requirements, and the Company’s financial condition.
18
(THIS PAGE INTENTIONALLY LEFT BLANK)
19
HON INDUSTRIES INC. AND SUBSIDIARIES
ITEM 6. SELECTED FINANCIAL DATA — ELEVEN-YEAR SUMMARY
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
Per Common Share Data |
|
|
|
|
|
|
|
|||
|
Income before Cumulative Effect of Accounting Changes |
|
$ |
1.26 |
|
$ |
1.77 |
|
$ |
1.44 |
|
|
Cumulative Effect of Accounting Changes |
|
— |
|
— |
|
— |
|
|||
|
Net Income |
|
1.26 |
|
1.77 |
|
1.44 |
|
|||
|
Cash Dividends |
|
.48 |
|
.44 |
|
.38 |
|
|||
|
Book Value |
|
10.10 |
|
9.59 |
|
8.33 |
|
|||
|
Net Working Capital |
|
1.52 |
|
1.09 |
|
1.52 |
|
|||
|
Operating Results (Thousands of Dollars) |
|
|
|
|
|
|
|
|||
|
Net Sales |
|
$ |
1,792,438 |
|
$ |
2,046,286 |
|
$ |
1,800,931 |
|
|
Cost of Products Sold |
|
1,181,140 |
|
1,380,404 |
|
1,236,612 |
|
|||
|
Gross Profit |
|
611,298 |
|
665,882 |
|
564,319 |
|
|||
|
Interest Expense |
|
8,548 |
|
14,015 |
|
9,712 |
|
|||
|
Income Before Income Taxes |
|
116,261 |
|
165,964 |
|
137,575 |
|
|||
|
Income Before Income Taxes as a % of Net Sales |
|
6.49 |
% |
8.11 |
% |
7.64 |
% |
|||
|
Federal and State Income Taxes |
|
$ |
41,854 |
|
$ |
59,747 |
|
$ |
50,215 |
|
|
Effective Tax Rate |
|
36.0 |
% |
36.0 |
% |
36.5 |
% |
|||
|
Income before Cumulative Effect of Accounting Changes |
|
$ |
74,407 |
|
$ |
106,217 |
|
$ |
87,360 |
|
|
Net Income |
|
74,407 |
|
106,217 |
|
87,360 |
|
|||
|
Net Income as a % of Net Sales |
|
4.15 |
% |
5.19 |
% |
4.85 |
% |
|||
|
Cash Dividends and Share Purchase Rights Redeemed |
|
$ |
28,373 |
|
$ |
26,455 |
|
$ |
23,112 |
|
|
Addition to (Reduction of) Retained Earnings |
|
36,759 |
|
79,762 |
|
64,248 |
|
|||
|
Net Income Applicable to Common Stock |
|
74,407 |
|
106,217 |
|
87,360 |
|
|||
|
% Return on Average Shareholders’ Equity |
|
12.76 |
% |
19.77 |
% |
18.14 |
% |
|||
|
Depreciation and Amortization |
|
$ |
81,385 |
|
$ |
79,046 |
|
$ |
65,453 |
|
|
Distribution of Net Income |
|
|
|
|
|
|
|
|||
|
% Paid to Shareholders |
|
38.13 |
% |
24.91 |
% |
26.46 |
% |
|||
|
% Reinvested in Business |
|
61.87 |
% |
75.09 |
% |
73.54 |
% |
|||
|
Financial Position (Thousands of Dollars) |
|
|
|
|
|
|
|
|||
|
Current Assets |
|
$ |
319,657 |
|
$ |
330,141 |
|
$ |
316,556 |
|
|
Current Liabilities |
|
230,443 |
|
264,868 |
|
225,123 |
|
|||
|
Working Capital |
|
89,214 |
|
65,273 |
|
91,433 |
|
|||
|
Net Property, Plant, and Equipment |
|
404,971 |
|
454,312 |
|
455,591 |
|
|||
|
Total Assets |
|
961,891 |
|
1,022,470 |
|
906,723 |
|
|||
|
% Return on Beginning Assets Employed |
|
12.04 |
% |
19.63 |
% |
16.94 |
% |
|||
|
Long-Term Debt and Capital Lease Obligations |
|
$ |
80,830 |
|
$ |
128,285 |
|
$ |
124,173 |
|
|
Shareholders’ Equity |
|
592,680 |
|
573,342 |
|
501,271 |
|
|||
|
Retained Earnings |
|
532,555 |
|
495,796 |
|
416,034 |
|
|||
|
Current Ratio |
|
1.39 |
|
1.25 |
|
1.41 |
|
|||
|
Current Share Data |
|
|
|
|
|
|
|
|||
|
Number of Shares Outstanding at Year-End |
|
58,672,933 |
|
59,796,891 |
|
60,171,753 |
|
|||
|
Weighted-Average Shares Outstanding During Year |
|
59,087,963 |
|
60,140,302 |
|
60,854,579 |
|
|||
|
Number of Shareholders of Record at Year-End |
|
6,694 |
|
6,563 |
|
6,737 |
|
|||
|
Other Operational Data |
|
|
|
|
|
|
|
|||
|
Capital Expenditures — Net (Thousands of Dollars) |
|
$ |
36,851 |
|
$ |
59,840 |
|
$ |
71,474 |
|
|
Members (Employees) at Year-End |
|
9,029 |
(a) |
11,543 |
(a) |
10,095 |
|
|||
(a) Includes acquisitions completed during year.
20
|
|
|
1998 |
|
1997 |
|
1996 |
|
|||
|
Per Common Share Data |
|
$ |
1.72 |
|
$ |
1.45 |
|
$ |
1.13 |
|
|
Income before Cumulative Effect of Accounting Changes |
|
— |
|
— |
|
— |
|
|||
|
Cumulative Effect of Accounting Changes |
|
1.72 |
|
1.45 |
|
1.13 |
|
|||
|
Net Income |
|
.32 |
|
.28 |
|
.25 |
|
|||
|
Cash Dividends |
|
7.54 |
|
6.19 |
|
4.25 |
|
|||
|
Book Value |
|
1.19 |
|
1.53 |
|
.89 |
|
|||
|
Net Working Capital |
|
|
|
|
|
|
|
|||
|
Operating Results (Thousands of Dollars) |
|
|
|
|
|
|
|
|||
|
Net Sales |
|
$ |
1,706,628 |
|
$ |
1,362,713 |
|
$ |
998,135 |
|
|
Cost of Products Sold |
|
1,172,997 |
|
933,157 |
|
679,496 |
|
|||
|
Gross Profit |
|
533,632 |
|
429,556 |
|
318,639 |
|
|||
|
Interest Expense |
|
10,658 |
|
8,179 |
|
4,173 |
|
|||
|
Income Before Income Taxes |
|
170,109 |
|
139,128 |
|
105,267 |
|
|||
|
Income Before Income Taxes as a % of Net Sales |
|
9.97 |
% |
10.21 |
% |
10.55 |
% |
|||
|
Federal and State Income Taxes |
|
$ |
63,796 |
|
$ |
52,173 |
|
$ |
37,173 |
|
|
Effective Tax Rate |
|
37.50% |
|
37.50 |
% |
35.31 |
% |
|||
|
Income before Cumulative Effect of Accounting Changes |
|
$ |
106,313 |
|
$ |
86,955 |
|
$ |
68,094 |
|
|
Net Income |
|
106,313 |
|
86,955 |
|
68,094 |
|
|||
|
Net Income as a % of Net Sales |
|
6.23 |
% |
6.38 |
% |
6.82 |
% |
|||
|
Cash Dividends and Share Purchase Rights Redeemed |
|
$ |
19,730 |
|
$ |
16,736 |
|
$ |
14,970 |
|
|
Addition to (Reduction of) Retained Earnings |
|
86,583 |
|
37,838 |
|
33,860 |
|
|||
|
Net Income Applicable to Common Stock |
|
106,313 |
|
86,955 |
|
68,094 |
|
|||
|
% Return on Average Shareholders’ Equity |
|
25.20 |
% |
27.43 |
% |
29.06 |
% |
|||
|
Depreciation and Amortization |
|
$ |
52,999 |
|
$ |
35,610 |
|
$ |
25,252 |
|
|
Distribution of Net Income |
|
|
|
|
|
|
|
|||
|
% Paid to Shareholders |
|
18.56 |
% |
19.25 |
% |
21.98 |
% |
|||
|
% Reinvested in Business |
|
81.44 |
% |
80.75 |
% |
78.02 |
% |
|||
|
Financial Position (Thousands of Dollars) |
|
|
|
|
|
|
|
|||
|
Current Assets |
|
$ |
290,329 |
|
$ |
295,150 |
|
$ |
205,527 |
|
|
Current Liabilities |
|
217,438 |
|
200,759 |
|
152,553 |
|
|||
|
Working Capital |
|
72,891 |
|
94,391 |
|
52,974 |
|
|||
|
Net Property, Plant, and Equipment |
|
444,177 |
|
341,030 |
|
234,616 |
|
|||
|
Total Assets |
|
864,469 |
|
754,673 |
|
513,514 |
|
|||
|
% Return on Beginning Assets Employed |
|
23.74 |
% |
28.27 |
% |
25.93 |
% |
|||
|
Long-Term Debt and Capital Lease Obligations |
|
$ |
135,563 |
|
$ |
134,511 |
|
$ |
77,605 |
|
|
Shareholders’ Equity |
|
462,022 |
|
381,662 |
|
252,397 |
|
|||
|
Retained Earnings |
|
351,786 |
|
265,203 |
|
227,365 |
|
|||
|
Current Ratio |
|
1.34 |
|
1.47 |
|
1.35 |
|
|||
|
Current Share Data |
|
|
|
|
|
|
|
|||
|
Number of Shares Outstanding at Year-End |
|
61,289,618 |
|
61,659,316 |
|
59,426,530 |
|
|||
|
Weighted-Average Shares Outstanding During Year |
|
61,649,531 |
|
59,779,508 |
|
60,228,590 |
|
|||
|
Number of Shareholders of Record at Year-End |
|
5,877 |
|
5,399 |
|
5,319 |
|
|||
|
Other Operational Data |
|
|
|
|
|
|
|
|||
|
Capital Expenditures - Net (Thousands of Dollars) |
|
$ |
149,717 |
|
$ |
85,491 |
|
$ |
44,684 |
|
|
Members (Employees) at Year-End |
|
9,824 |
(a) |
9,390 |
(a) |
6,502 |
(a) |
|||
|
|
|
1995 |
|
1994 |
|
1993 |
|
|||
|
Per Common Share Data |
|
|
|
|
|
|
|
|||
|
Income before Cumulative Effect of Accounting Changes |
|
$ |
.67 |
|
$ |
.87 |
|
$ |
.69 |
|
|
Cumulative Effect of Accounting Changes |
|
— |
|
— |
|
.01 |
|
|||
|
Net Income |
|
.67 |
|
.87 |
|
.70 |
|
|||
|
Cash Dividends |
|
.24 |
|
.22 |
|
.20 |
|
|||
|
Book Value |
|
3.56 |
|
3.17 |
|
2.83 |
|
|||
|
Net Working Capital |
|
1.07 |
|
1.27 |
|
1.23 |
|
|||
|
Operating Results (Thousands of Dollars) |
|
|
|
|
|
|
|
|||
|
Net Sales |
|
$ |
893,119 |
|
$ |
845,998 |
|
$ |
780,326 |
|
|
Cost of Products Sold |
|
624,700 |
|
573,392 |
|
537,828 |
|
|||
|
Gross Profit |
|
268,419 |
|
272,606 |
|
242,498 |
|
|||
|
Interest Expense |
|
3,569 |
|
3,248 |
|
3,120 |
|
|||
|
Income Before Income Taxes |
|
65,517 |
|
86,338 |
|
70,854 |
|
|||
|
Income Before Income Taxes as a % of Net Sales |
|
7.34 |
% |
10.21 |
% |
9.08 |
% |
|||
|
Federal and State Income Taxes |
|
$ |
24,419 |
|
$ |
31,945 |
|
$ |
26,216 |
|
|
Effective Tax Rate |
|
37.27 |
% |
37.00 |
% |
37.00 |
% |
|||
|
Income before Cumulative Effect of Accounting Changes |
|
$ |
41,098 |
|
$ |
54,393 |
|
$ |
44,638 |
|
|
Net Income |
|
41,098 |
|
54,156 |
|
45,127 |
|
|||
|
Net Income as a % of Net Sales |
|
4.60 |
% |
6.43 |
% |
5.78 |
% |
|||
|
Cash Dividends and Share Purchase Rights Redeemed |
|
$ |
14,536 |
|
$ |
13,601 |
|
$ |
12,587 |
|
|
Addition to (Reduction of) Retained Earnings |
|
18,863 |
|
13,563 |
|
17,338 |
|
|||
|
Net Income Applicable to Common Stock |
|
41,098 |
|
54,156 |
|
45,127 |
|
|||
|
% Return on Average Shareholders’ Equity |
|
20.00 |
% |
28.95 |
% |
26.35 |
% |
|||
|
Depreciation and Amortization |
|
$ |
21,416 |
|
$ |
19,042 |
|
$ |
16,631 |
|
|
Distribution of Net Income |
|
|
|
|
|
|
|
|||
|
% Paid to Shareholders |
|
35.37 |
% |
25.11 |
% |
27.89 |
% |
|||
|
% Reinvested in Business |
|
64.63 |
% |
74.89 |
% |
72.11 |
% |
|||
|
Financial Position (Thousands of Dollars) |
|
|
|
|
|
|
|
|||
|
Current Assets |
|
$ |
194,183 |
|
$ |
188,810 |
|
$ |
188,419 |
|
|
Current Liabilities |
|
128,915 |
|
111,093 |
|
110,759 |
|
|||
|
Working Capital |
|
65,268 |
|
77,717 |
|
77,660 |
|
|||
|
Net Property, Plant, and Equipment |
|
210,033 |
|
177,844 |
|
157,770 |
|
|||
|
Total Assets |
|
409,518 |
|
372,568 |
|
352,405 |
|
|||
|
% Return on Beginning Assets Employed |
|
17.91 |
% |
24.72 |
% |
22.14 |
% |
|||
|
Long-Term Debt and Capital Lease Obligations |
|
$ |
42,581 |
|
$ |
45,877 |
|
$ |
45,916 |
|
|
Shareholders’ Equity |
|
216,235 |
|
194,640 |
|
179,553 |
|
|||
|
Retained Earnings |
|
193,505 |
|
174,642 |
|
161,079 |
|
|||
|
Current Ratio |
|
1.51 |
|
1.70 |
|
1.70 |
|
|||
|
Current Share Data |
|
|
|
|
|
|
|
|||
|
Number of Shares Outstanding at Year-End |
|
60,788,674 |
|
61,349,206 |
|
63,351,692 |
|
|||
|
Weighted-Average Shares Outstanding During Year |
|
60,991,284 |
|
62,435,450 |
|
64,181,088 |
|
|||
|
Number of Shareholders of Record at Year-End |
|
5,479 |
|
5,556 |
|
4,653 |
|
|||
|
Other Operational Data |
|
|
|
|
|
|
|
|||
|
Capital Expenditures — Net (Thousands of Dollars) |
|
$ |
53,879 |
|
$ |
35,005 |
|
$ |
27,541 |
|
|
Members (Employees) at Year-End |
|
5,933 |
|
6,131 |
|
6,257 |
|
|||
|
|
|
1992 |
|
1991 |
|
||
|
Per Common Share Data |
|
|
|
|
|
||
|
Income before Cumulative Effect of Accounting Changes |
|
$ |
.59 |
|
$ |
.51 |
|
|
Cumulative Effect of Accounting Changes |
|
— |
|
— |
|
||
|
Net Income |
|
.59 |
|
.51 |
|
||
|
Cash Dividends |
|
.19 |
|
.18 |
|
||
|
Book Value |
|
2.52 |
|
2.32 |
|
||
|
Net Working Capital |
|
1.23 |
|
1.07 |
|
||
|
Operating Results (Thousands of Dollars) |
|
|
|
|
|
||
|
Net Sales |
|
$ |
706,550 |
|
$ |
607,710 |
|
|
Cost of Products Sold |
|
479,179 |
|
411,168 |
|
||
|
Gross Profit |
|
227,371 |
|
196,542 |
|
||
|
Interest Expense |
|
3,441 |
|
3,533 |
|
||
|
Income Before Income Taxes |
|
61,893 |
|
52,653 |
|
||
|
Income Before Income Taxes as a % of Net Sales |
|
8.76 |
% |
8.66 |
% |
||
|
Federal and State Income Taxes |
|
$ |
23,210 |
|
$ |
19,745 |
|
|
Effective Tax Rate |
|
37.50 |
% |
37.50 |
% |
||
|
Income before Cumulative Effect of Accounting Changes |
|
$ |
38,683 |
|
$ |
32,908 |
|
|
Net Income |
|
38,683 |
|
32,908 |
|
||
|
Net Income as a % of Net Sales |
|
5.47 |
% |
5.42 |
% |
||
|
Cash Dividends and Share Purchase Rights Redeemed |
|
$ |
12,114 |
|
$ |
11,656 |
|
|
Addition to (Reduction of) Retained Earnings |
|
26,569 |
|
18,182 |
|
||
|
Net Income Applicable to Common Stock |
|
38,683 |
|
32,908 |
|
||
|
% Return on Average Shareholders’ Equity |
|
24.75 |
% |
23.41 |
% |
||
|
Depreciation and Amortization |
|
$ |
15,478 |
|
$ |
14,084 |
|
|
Distribution of Net Income |
|
|
|
|
|
||
|
% Paid to Shareholders |
|
31.32 |
% |
35.42 |
% |
||
|
% Reinvested in Business |
|
68.68 |
% |
64.58 |
% |
||
|
Financial Position (Thousands of Dollars) |
|
|
|
|
|
||
|
Current Assets |
|
$ |
171,309 |
|
$ |
150,901 |
|
|
Current Liabilities |
|
91,780 |
|
82,275 |
|
||
|
Working Capital |
|
79,529 |
|
68,626 |
|
||
|
Net Property, Plant, and Equipment |
|
145,849 |
|
125,465 |
|
||
|
Total Assets |
|
322,746 |
|
280,893 |
|
||
|
% Return on Beginning Assets Employed |
|
22.18 |
% |
19.66 |
% |
||
|
Long-Term Debt and Capital Lease Obligations |
|
$ |
50,961 |
|
$ |
32,734 |
|
|
Shareholders’ Equity |
|
163,009 |
|
149,575 |
|
||
|
Retained Earnings |
|
143,741 |
|
117,172 |
|
||
|
Current Ratio |
|
1.87 |
|
1.83 |
|
||
|
Current Share Data |
|
|
|
|
|
||
|
Number of Shares Outstanding at Year-End |
|
64,737,912 |
|
64,417,370 |
|
||
|
Weighted-Average Shares Outstanding During Year |
|
65,517,990 |
|
64,742,976 |
|
||
|
Number of Shareholders of Record at Year-End |
|
4,534 |
|
4,466 |
|
||
|
Other Operational Data |
|
|
|
|
|
||
|
Capital Expenditures — Net (Thousands of Dollars) |
|
$ |
26,626 |
|
$ |
13,907 |
|
|
Members (Employees) at Year-End |
|
5,926 |
|
5,599 |
|
||
(a) Includes acquisitions completed during year.
21
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 |
|
2001 |
|
2000 |
|
1999 |
|
|
Net sales |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
|
Cost of products sold |
|
65.9 |
|
67.5 |
|
68.7 |
|
|
Gross profit |
|
34.1 |
|
32.5 |
|
31.3 |
|
|
Selling and administrative expenses |
|
25.9 |
|
23.8 |
|
22.1 |
|
|
Provision for closing facilities and reorganization expense |
|
1.3 |
|
- |
|
1.1 |
|
|
Operating income |
|
6.9 |
|
8.7 |
|
8.1 |
|
|
Interest expense (net) |
|
0.4 |
|
0.6 |
|
0.5 |
|
|
Income before income taxes |
|
6.5 |
|
8.1 |
|
7.6 |
|
|
Income taxes |
|
2.3 |
|
2.9 |
|
2.8 |
|
|
Net income |
|
4.2 |
% |
5.2 |
% |
4.9 |
% |
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 29, 2001, Compared to Fiscal Year Ended December 30, 2000
Net Sales
Net sales, on a consolidated basis, decreased by 12% to $1.8 billion in 2001 from $2.0 billion in 2000. Office furniture net sales decreased 17% in 2001 to $1.37 billion from $1.65 billion in 2000. The decline in sales occurred in the retail, commercial and contract sectors. The office furniture industry reported a decrease in shipments of 17% in 2001 compared to 2000. Net sales of hearth products increased 8% to $426.1 million in 2001 from $396.3 million in 2000. The Company’s most recent five-year compounded annual growth rate in net sales is 12%.
Gross Profit
Gross profit dollars decreased 8% to $611.3 million in 2000 from $665.9 million in the prior year. The gross margin percentage increased to 34.1% for 2001 from 32.5% in 2000. The improvement in gross margin percentage is due to new product introductions, and rapid continuous improvement, cost containment and business simplification initiatives.
Selling and Administrative Expenses
Selling and administrative expenses decreased by 5% to $464.2 million in 2001 from $487.8 million in the prior year. Selling and administrative expenses, as a percent of net sales, increased to 25.9% in 2001 from 23.8% in 2000. This increase was due to lower overall sales volume, development of new products, and continued investment in sales and marketing expenses associated with the Company’s business simplification, end-user focus and branding strategies.
22
Selling and administrative expenses include freight expense for shipments to customers, 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.
During the second quarter of 2001, the Company recorded a pretax charge of $24.0 million, $15.4 million after tax or $0.26 per common share for a restructuring plan that involved consolidating physical facilities, discontinuing low volume product lines, and reduction of workforce. Included in this charge was the closedown of three of its office furniture facilities located in Williamsport, Pennsylvania, Tupelo, Mississippi, and Santa Ana, California. The charge included $16.2 million of asset impairments for manufacturing equipment that will be disposed of and $7.8 million of restructuring expenses. Included in the $7.8 million is $3.1 million for severance arising from the elimination of approximately 600 plant member positions, $0.8 million for other member-related costs, and $3.9 million for certain other expenses associated with the closing of facilities.
Operating Income
Operating income decreased almost 31% to $123.1 million in 2001 from $178.0 million in 2000. Excluding a pretax charge for restructuring and impairment of $24.0 million in second quarter 2001, operating income decreased 17% to $147.1 million. Operating profit in the office furniture segment decreased in 2001 as a percent of net sales to 8.2%, or 9.9% prior to the restructuring charge, compared to 10.4% in 2000. The decrease is due to lower overall sales volume. Operating profit in the hearth products segment increased in 2001 as a percent of net sales to 9.2%, or 9.6% prior to the restructuring charge, compared to 7.6% in the prior year. This improvement is due to increased sales volume, simplification of the business structure and cost containment.
Net Income
Net income decreased by 30% to $74.4 million in 2001 from $106.2 million in the prior year. Excluding the $15.4 million after-tax charge for the restructuring plan referred to above, net income decreased by 15% to $89.8 million. The decrease is due to lower overall sales volume and increased selling and administrative expenses offset by reduced interest expense.
Net income per common share decreased by 29% to $1.26 in 2001 from $1.77 for 2000. Excluding the after-tax charge of $0.26 per share for the restructuring plan, net income per common share decreased 14% to $1.52. The Company’s net income per share performance for 2001 benefited from the Company’s common stock repurchase program.
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). 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.
23
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.
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 22% to $178.0 million in 2000 from $146.4 million in 1999. Excluding the pretax charge for closing facilities and reorganization expense of $19.7 million in 1999, operating income increased by 7 percent. The increase is due mainly to increased sales and gross margins.
Net Income
Net income increased by 22% to $106.2 million in 2000 from $87.4 million in the prior year. Excluding the $12.5 million after-tax charge for the closing of facilities and reorganization expenses, net income increased 6 percent. 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 23% to $1.77 in 2000 from $1.44 in 1999. Excluding the after-tax charge of $0.20 per share in 1999 for the closing of facilities and reorganization expenses, net income per common share increased by 8%. The Company’s net income per share performance for 2000 also benefited from the Company’s common stock repurchase program.
Liquidity and Capital Resources
During 2001, cash flow from operations was $227.8 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. The Company does not have any off balance sheet financing arrangements.
Cash Management
Cash, cash equivalents, and short-term investments totaled $78.8 million in 2001 compared to $3.2 million at the end of 2000 and $22.2 million at the end of 1999. 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 is not aware of any known trends or demands, commitments, events or uncertainties that are reasonably likely to result in its liquidity increasing or decreasing in any material way.
24
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 approximately 37 days over the past three years. Inventory levels and turns continue to improve as a result of reducing production cycle times. Inventory turns have been in the 17 to 18 times range over the past three years.
Capital Expenditure Investments
Capital expenditures, net of disposals, were $36.9 million in 2001, $59.8 million in 2000, and $71.5 million in 1999. Expenditures during 2001, 2000, and 1999 have been consistently focused on machinery and equipment that is needed to support new products, process improvements, cost-savings initiatives, and creating more efficient production and warehousing capacity.
Acquisitions
During 2001, the Company completed the acquisition of three small hearth product distributors for a total purchase price of approximately $7.6 million. The acquisitions were accounted for using the purchase method, and the results of the three distributors have been included in the Company’s financial statements since the date of acquisition.
On February 29, 2000, the Company completed the acquisition 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.
Long-Term Debt
Long-term debt, including capital lease obligations, was 12% of total capitalization at December 29, 2001, 18% at December 30, 2000, and 20% at January 1, 2000. The Company does not expect future capital resources to be a constraint on planned growth. Additional borrowing capacity of $200 million is available through a revolving bank credit agreement in the event cash generated from operations should be inadequate to meet future needs. The current revolving bank credit agreement expires in June 2002; however, management is in the process of negotiating a new agreement. Certain of the Company’s credit agreements include covenants that limit the assumption of additional debt and lease obligations. The Company has been and currently is in compliance with the covenants related to the debt agreements.
Contractual Obligations
The following table discloses the Company’s obligations and commitments to make future payments under contracts:
|
|
|
Payments Due by Period |
|||||||||||
|
Contractual Obligations |
|
Total |
|
Less |
|
1-3 |
|
4-5 |
|
After 5 |
|
||
|
Long-Term Debt |
|
85,354 |
|
5,784 |
|
60,162 |
|
1,185 |
|
18,223 |
|
||
|
Capital Lease Obligations |
|
2,935 |
|
1,078 |
|
422 |
|
422 |
|
1,013 |
|
||
|
Operating Leases |
|
45,874 |
|
12,373 |
|
18,470 |
|
10,028 |
|
5,003 |
|
||
|
Other Long-Term Obligations |
|
9,334 |
|
2,215 |
|
2,046 |
|
987 |
|
4,086 |
|
||
|
Total Contractual Cash |
|
143,497 |
|
21,450 |
|
81,100 |
|
12,622 |
|
28,325 |
|
||
25
Related Party Transactions
The Company has convertible debentures in the amount of $58.1 million that are payable to former owners of businesses that were acquired by the Company. These individuals remain as employees of the Company following the acquisitions.
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 acquisition.
Cash Dividends
Cash dividends were $0.48 per common share for 2001, $0.44 for 2000, and $0.38 for 1999. Further, the Board of Directors announced a 4.2% increase in the quarterly dividend from $0.12 to $0.125 per common share effective with the March 1, 2002, dividend payment for shareholders of record at the close of business February 22, 2002. The previous quarterly dividend increase was from $0.11 to $0.12, effective with the March 1, 2001, dividend payment for shareholders of record at the close of business February 21, 2001. 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 26% of prior year earnings.
Common Share Repurchases
During 2001, the Company repurchased 1,472,937 shares of its common stock at a cost of approximately $35.1 million, or an average price of $23.80. As of December 29, 2001, approximately $78.6 million of the $100.0 million authorized on February 14, 2001, by the Board of Directors for repurchases remained unspent. During 2000, the Company repurchased 837,552 shares at a cost of approximately $18.0 million, or an average price of $21.46. During 1999, the Company repurchased 1,408,624 shares at a cost of approximately $30.9 million, or an average price of $21.91.
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.
Critical Accounting Policies
The Company’s critical accounting policies include:
Revenue recognition - The Company recognizes revenue upon the shipment of goods. Revenue includes freight charged to customers; related costs are included in selling and administrative expense.
Allowance for doubtful accounts - The allowance for receivables is developed based on several factors including overall customer credit quality, historical write-off experience and specific account analyses that project the ultimate collectibility of the account. As such, these factors may change over time causing the reserve level to adjust accordingly.
Inventory valuation - The Company values its inventory at the lower of cost or market by the last in, first out (LIFO) method. Additionally, the Company evaluates its inventory reserves in terms of excess and obsolete exposures. This evaluation includes such factors as anticipated usage, inventory turnover, inventory levels and ultimate product sales value. As such, these factors may change over time causing the reserve level to adjust accordingly.
26
Self-insurance reserves - The Company is partially self-insured for general liability, workers’ compensation, and certain employee health benefits. The general and workers’ compensation liabilities are managed through a wholly owned insurance captive; the related liabilities are included in the accompanying financial statements. The Company’s policy is to accrue amounts equal to the actuarially determined liabilities. The actuarial valuations are based on historical information along with certain assumptions about future events. Changes in assumptions for such matters as legal actions, medical costs, and changes in actual experience could cause these estimates to change in the near term.
Recent Accounting Pronouncements
During 2001, the Financial Accounting Standards Board finalized Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company implemented SFAS No. 141 on July 1, 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting. The Company intends to adopt SFAS No. 142 on December 30, 2001, the beginning of its 2002 fiscal year. With the adoption of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be assessed for impairment by applying a fair-value-based test. The Company does not anticipate recognizing any impairment of goodwill upon adoption. The Company will stop recording, on an annual basis, approximately $9.5 million of goodwill amortization upon adoption.
The Financial Accounting Standards Board also finalized SFAS No. 143, “Accounting for Asset Retirement Obligations,” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” during 2001. The Company intends to adopt Statement No. 143 on December 29, 2002, the beginning of its 2003 fiscal year and Statement No. 144 on December 30, 2001, the beginning of its 2002 fiscal year. The adoption of these Statements is not expected to have a material impact on the Company’s financial statements.
Looking Ahead
Due to the current economic environment, the Company anticipates that 2002 will be an extremely challenging year, especially during the first six months. DRI-WEFA, the Business and Institutional Furniture Manufacturer’s Association’s (BIFMA) forecasting consultant, is projecting the office furniture industry to be down 13 percent in 2002 over 2001. The Company continues to focus on new product development and streamlining processes and operations through simplification and rapid continuous improvement. An announcement was made of the closing of an office furniture facility in January 2002, in Jackson, Tennessee, to help reduce the Company’s permanent cost structure. The Company is also continuing its focus on long-term shareholder value by making investments for the future. These investments include innovative new products, technology, end user focus, brand building and increased distribution.
27
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.
28
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 6, 2002, 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 6, 2002, 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 6, 2002, 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 6, 2002, 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 6, 2002, 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 6, 2002, is incorporated herein by reference.
29
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 2001 Annual Report to Shareholders are filed as a part of this report pursuant to Item 8:
(2) Financial Statement Schedules
The following consolidated financial statement schedule of the Company and subsidiaries is attached pursuant to Item 14(d):
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.
30
(c) Exhibits
An exhibit index of all exhibits incorporated by reference into, or filed with, this Form 10-K appears on Page 58. The following exhibits are filed herewith:
|
|
|
|
|
|
|
|
|
|
|
|
(10vi) |
|
1994 Member Stock Purchase Plan |
|
|
|
|
|
|
|
(10xiv) |
|
HON INDUSTRIES Inc. Profit-Sharing Retirement Plan |
|
|
|
|
|
|
|
(21) |
|
Subsidiaries of the Registrant |
|
|
|
|
|
|
|
(23) |
|
Consent of Independent Public Accountants |
|
|
|
|
|
|
|
(99C) |
|
Letter to Securities and Exchange Commission — Arthur Andersen LLP |
31
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.
|
|
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HON INDUSTRIES Inc. |
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Date: March 22, 2002 |
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By: |
/s/ Jack D. Michaels |
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Jack D. Michaels |
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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.
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/s/ Jack D. Michaels |
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Chairman, President and CEO, |
3/22/02 |
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Jack D. Michaels |
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Principal Executive Officer, |
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and Director |
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/s/ Jerald K. Dittmer |
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Vice President, |
3/22/02 |
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Jerald K. Dittmer |
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Chief Financial Officer, and |
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Principal Accounting Officer |
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/s/ Gary M. Christensen |
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Director |
3/22/02 |
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Gary M. Christensen |
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/s/ Robert W. Cox |
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Director |
3/22/02 |
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Robert W. Cox |
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/s/ Cheryl A. Francis |
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Director |
3/22/02 |
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Cheryl A. Francis |
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/s/ M. Farooq Kathwari |
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Director |
3/22/02 |
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M. Farooq Kathwari |
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/s/ Robert L. Katz |
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Director |
3/22/02 |
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Robert L. Katz |
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/s/ Dennis J. Martin |
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Director |
3/22/02 |
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Dennis J. Martin |
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Signature |
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Date |
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/s/ Abbie J. Smith |
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Director |
3/22/02 |
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Abbie J. Smith |
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/s/ Richard H. Stanley |
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Director |
3/22/02 |
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Richard H. Stanley |
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/s/ Brian E. Stern |
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Director |
3/22/02 |
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Brian E. Stern |
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/s/ Lorne R. Waxlax |
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Director |
3/22/02 |
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Lorne R. Waxlax |
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(THIS PAGE INTENTIONALLY LEFT BLANK)
34
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of HON INDUSTRIES Inc.
We have audited the accompanying consolidated balance sheets of HON INDUSTRIES Inc. and subsidiaries as of December 29, 2001, December 30, 2000, and January 1, 2000, 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 financial statements based on our audits.
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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HON INDUSTRIES Inc. and subsidiaries as of December 29, 2001, December 30, 2000, and January 1, 2000, 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 1, 2002
35
HON INDUSTRIES INC. ANDSUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
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For the Years |
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2001 |
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2000 |
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1999 |
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(Amounts in thousands, except for per share data) |
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Net sales |
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$ |
1,792,438 |
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$ |
2,046,286 |
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$ |
1,800,931 |
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Cost of products sold |
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1,181,140 |
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1,380,404 |
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1,236,612 |
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Gross Profit |
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611,298 |
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665,882 |
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564,319 |
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Selling and administrative expenses |
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464,206 |
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487,848 |
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398,197 |
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Provision for closing facilities and reorganization expenses |
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24,000 |
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— |
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19,679 |
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Operating Income |
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123,092 |
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178,034 |
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146,443 |
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Interest income |
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1,717 |
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1,945 |
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844 |
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Interest expense |
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8,548 |
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14,015 |
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9,712 |
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Income Before Income Taxes |
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116,261 |
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165,964 |
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137,575 |
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Income taxes |
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41,854 |
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59,747 |
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50,215 |
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Net Income |
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$ |
74,407 |
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$ |
106,217 |
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$ |
87,360 |
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Net Income Per Common Share - Basic & Diluted |
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$ |
1.26 |
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$ |
1.77 |
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$ |
1.44 |
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The accompanying notes are an integral part of the consolidated financial statements.
36
HON INDUSTRIES INC. ANDSUBSIDIARIES
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As of Year-End |
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2001 |
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2000 |
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1999 |
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(Amounts in thousands) |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
78,838 |
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$ |
3,181 |
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$ |
22,168 |
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Receivables |
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161,390 |
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211,243 |
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196,730 |
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Inventories |
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50,140 |
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84,360 |
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74,937 |
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Deferred income taxes |
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14,940 |
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19,516 |
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13,471 |
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Prepaid expenses and other current assets |
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14,349 |
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11,841 |
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9,250 |
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Total Current Assets |
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319,657 |
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330,141 |
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316,556 |
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Property, Plant, and Equipment |
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404,971 |
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454,312 |
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455,591 |
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Goodwill |
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214,337 |
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216,371 |
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113,116 |
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Other Assets |
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22,926 |
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21,646 |
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21,460 |
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Total Assets |
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$ |
961,891 |
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$ |
1,022,470 |
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$ |
906,723 |
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Liabilities and Shareholders’ Equity |
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Current Liabilities |
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Accounts payable and accrued expenses |
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$ |
216,184 |
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$ |
240,540 |
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$ |
217,110 |
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Income taxes |
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6,112 |
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12,067 |
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— |
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Note payable and current maturities of long-term debt |
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6,715 |
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10,408 |
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6,106 |
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Current maturities of other long-term obligations |
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1,432 |
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1,853 |
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1,907 |
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Total Current Liabilities |
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230,443 |
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264,868 |
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225,123 |
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Long-Term Debt |
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79,570 |
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126,093 |
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119,860 |
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Capital Lease Obligations |
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1,260 |
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2,192 |
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4,313 |
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Other Long-Term Liabilities |
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18,306 |
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18,749 |
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18,015 |
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Deferred Income Taxes |
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39,632 |
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37,226 |
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38,141 |
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Commitments and Contingencies |
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Shareholders’ Equity |
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Common stock |
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58,673 |
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59,797 |
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60,172 |
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Additional paid-in capital |
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891 |
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17,339 |
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24,981 |
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Retained earnings |
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532,555 |
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495,796 |
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416,034 |
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Accumulated other comprehensive income |
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561 |
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410 |
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84 |
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Total Shareholders’ Equity |
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592,680 |
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573,342 |
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501,271 |
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Total Liabilities and Shareholders’ Equity |
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$ |
961,891 |
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$ |
1,022,470 |
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$ |
906,723 |
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The accompanying notes are an integral part of the consolidated financial statements.
37
HON INDUSTRIES INC. ANDSUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
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Common |
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Additional |
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Retained |
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Accumulated |
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Total |
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(Amounts in thousands) |
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Balance, January 2, 1999 |
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$ |
61,290 |
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$ |
48,348 |
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$ |
351,786 |
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$ |
598 |
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$ |
462,022 |
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Comprehensive income: |
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Net income |
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87,360 |
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87,360 |
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Other comprehensive income |
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(514 |
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(514 |
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Comprehensive income |
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86,846 |
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Cash dividends |
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(23,112 |
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(23,112 |
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Common shares — treasury: |
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Shares purchased |
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(1,409 |
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(29,457 |
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(30,866 |
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Shares issued under Members Stock Purchase Plan and stock awards |
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291 |
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6,090 |
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6,381 |
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Balance, January 1, 2000 |
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60,172 |
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24,981 |
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416,034 |
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84 |
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501,271 |
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Comprehensive income: |
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Net income |
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106,217 |
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106,217 |
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Other comprehensive income |
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326 |
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326 |
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Comprehensive income |
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106,543 |
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Cash dividends |
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(26,455 |
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(26,455 |
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Common shares — treasury: |
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Shares purchased |
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(838 |
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(17,135 |
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(17,973 |
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Shares issued under Members Stock Purchase Plan and stock awards |
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463 |
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9,493 |
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9,956 |
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Balance, December 30, 2000 |
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59,797 |
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17,339 |
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495,796 |
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410 |
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573,342 |
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Comprehensive Income: |
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Net income |
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74,407 |
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74,407 |
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Other comprehensive income |
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151 |
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151 |
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Comprehensive income |
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74,558 |
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Cash dividends |
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(28,373 |
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(28,373 |
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Common shares — treasury: |
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Shares purchased |
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(1,473 |
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(24,311 |
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(9,275 |
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(35,059 |
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Shares issued under Members Stock Purchase Plan and stock awards |
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349 |
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7,863 |
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8,212 |
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Balance, December 29, 2001 |
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$ |
58,673 |
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$ |
891 |
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$ |
532,555 |
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$ |
561 |
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$ |
592,680 |
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The accompanying notes are an integral part of the consolidated financial statements.
38
HON INDUSTRIES INC. ANDSUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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For the Years |
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2001 |
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2000 |
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1999 |
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(Amounts in thousands) |
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Net Cash Flows From (To) Operating Activities: |
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Net income |
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$ |
74,407 |
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$ |
106,217 |
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$ |
87,360 |
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Noncash items included in net income: |
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Depreciation and amortization |
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81,385 |
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79,046 |
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65,453 |
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Other postretirement and postemployment benefits |
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1,757 |
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1,572 |
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2,329 |
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Deferred income taxes |
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6,962 |
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(7,213 |
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6,033 |
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Asset impairment |
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16,200 |
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— |
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— |
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Other — net |
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109 |
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90 |
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(121 |
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Changes in working capital, excluding acquisition and disposition: |
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Receivables |
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47,897 |
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3,961 |
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(13,154 |
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Inventories |
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35,048 |
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6,410 |
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(7,712 |
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Prepaid expenses and other current assets |
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(1,661 |
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(1,616 |
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391 |
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Accounts payable and accrued expenses |
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(26,149 |
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5,483 |
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19,838 |
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Income taxes |
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(5,957 |
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11,808 |
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(2,178 |
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Increase in other liabilities |
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(2,198 |
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(838 |
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(2,054 |
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Net cash flows from (to) operating activities |
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227,800 |
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204,920 |
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156,185 |
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Net Cash Flows From (To) Investing Activities: |
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Capital expenditures — net |
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(36,851 |
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(59,840 |
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(71,474 |
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Capitalized software |
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(1,757 |
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(2,192 |
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(3,530 |
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Acquisition spending, net of cash acquired |
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(8,748 |
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(134,696 |
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(8,932 |
) |
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Short-term investments — net |
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- |
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- |
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169 |
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Other — net |
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343 |
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(3 |
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(290 |
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Net cash flows from (to) investing activities |
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(47,013 |
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(196,731 |
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(84,057 |
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Net Cash Flows From (To) Financing Activities: |
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Purchase of HON INDUSTRIES common stock |
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(35,059 |
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(17,973 |
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(30,866 |
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Proceeds from long-term debt |
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36,218 |
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155,181 |
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147,055 |
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Payments of note and long-term debt |
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(87,365 |
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(147,458 |
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(167,052 |
) |
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Proceeds from sale of HON INDUSTRIES common stock to members |
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9,449 |
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9,529 |
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6,515 |
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Dividends paid |
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(28,373 |
) |
(26,455 |
) |
(23,112 |
) |
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Net cash flows from (to) financing activities |
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(105,130 |
) |
(27,176 |
) |
(67,460 |
) |
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Net increase (decrease) in cash and cash equivalents |
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75,657 |
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(18,987 |
) |
4,668 |
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Cash and cash equivalents at beginning of year |
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3,181 |
|
22,168 |
|
17,500 |
|
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Cash and cash equivalents at end of year |
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78,838 |
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3,181 |
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22,168 |
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Supplemental Disclosures of Cash Flow Information: |
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Cash paid during the year for: |
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|
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Interest |
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$ |
8,646 |
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$ |
13,395 |
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$ |
9,803 |
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Income taxes |
|
$ |
40,916 |
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$ |
54,634 |
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$ |
46,822 |
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The accompanying notes are an integral part of the consolidated financial statements.
39
HON INDUSTRIES INC. ANDSUBSIDIARIES
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, mass merchandisers, warehouse clubs, retail superstores, end-user customers, and to federal and state governments. Dealer, wholesaler, and retail superstores are the major channels based on sales. Hearth products include wood-, 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 2001 ended on December 29, 2001; 2000 ended on December 30, 2000; and 1999 ended on January 1, 2000.
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.
Receivables
Accounts receivables are presented net of an allowance for doubtful accounts of $16,576,000, $11,237,000, and $3,568,000 for 2001, 2000, and 1999, 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 using the straight-line method over estimated useful lives: land improvements, 10 - 20 years; buildings, 10 - 40 years; and machinery and equipment, 3 - 12 years.
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 in the accompanying balance sheet.
40
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, no material impairment of these intangible assets exists at December 29, 2001.
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Goodwill |
|
$ |
240,916 |
|
$ |
233,348 |
|
$ |
121,846 |
|
|
Patents |
|
16,450 |
|
16,450 |
|
16,450 |
|
|||
|
Less accumulated amortization |
|
34,455 |
|
23,342 |
|
13,585 |
|
|||
|
|
|
$ |
222,911 |
|
$ |
226,456 |
|
$ |
124,711 |
|
Revenue Recognition
Revenue is recognized upon shipment of goods to customers. Revenue includes freight charged to customers; related costs are in selling and administrative expense.
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 $21,415,000 in 2001, $18,911,000 in 2000, and $17,117,000 in 1999.
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.”
Income Taxes
The Company accounts for income taxes under SFAS No. 109, “Accounting for Income Taxes.” This Statement uses an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred income taxes are provided to reflect the differences between the tax bases of assets and liabilities and their reported amounts in the financial statements.
Earnings Per Share
Basic earnings per share are based on the weighted-average number of common shares outstanding during the year. Shares potentially issuable under options have been considered outstanding for purposes of the diluted earnings per share calculation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 doubtful accounts, inventory reserves, accruals for self-insured medical claims, workers’ compensation, general liability and auto insurance claims, and useful lives for depreciation and amortization. Actual results could differ from those estimates.
41
Self-Insurance
The Company is partially self-insured for general liability, workers’ compensation, and certain employee health benefits. The general and workers’ compensation liabilities are managed through a wholly owned insurance captive; the related liabilities are included in the accompanying consolidated financial statements. The Company’s policy is to accrue amounts equal to the actuarially determined liabilities. The actuarial valuations are based on historical information along with certain assumptions about future events. Changes in assumptions for such matters as legal actions, medical costs, and changes in actual experience could cause these estimates to change in the near term.
Recent Accounting Pronouncements
During 2001, the Financial Accounting Standards Board finalized SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company implemented SFAS No. 141 on July 1, 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting. The Company intends to adopt SFAS No. 142 on December 30, 2001, the beginning of its 2002 fiscal year. With the adoption of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be assessed for impairment by applying a fair-value-based test. The Company does not anticipate recognizing any impairment of goodwill upon adoption. The Company will stop recording, on an annual basis, approximately $9.5 million of goodwill amortization upon adoption.
The Financial Accounting Standards Board also finalized SFAS No. 143, “Accounting for Asset Retirement Obligations,” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” during 2001. The Company intends to adopt Statement No. 143 on December 29, 2002, the beginning of its 2003 fiscal year and Statement No. 144 on December 30, 2001, the beginning of its 2002 fiscal year. The adoption of these Statements is not expected to have a material impact on the Company’s financial statements.
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 SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which was amended in June 2000 by SFAS No. 138. The Company adopted this Statement in January 2001 as required by the Statement. The adoption of this Statement did not have any impact on the Company’s financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Provision for Facilities Closing and Reorganization Expenses
During the second quarter of 2001, the Company recorded a pretax charge of $24.0 million or $0.26 per diluted share for a restructuring plan that involved consolidating physical facilities, discontinuing low-volume product lines, and reductions of workforce. Included in the charge was the closedown of three of its office furniture facilities located in Williamsport, Pennsylvania, Tupelo, Mississippi, and Santa Ana, California. The charge included $16.2 million of asset impairments for manufacturing equipment that will be disposed of and $7.8 million of restructuring expenses. Included in the $7.8 million is $3.1 million for severance arising from the elimination of approximately 600 plant member positions, $0.8 million for other member-related costs, and $3.9 million for certain other expenses associated with the closing of facilities.
42
During 2001, $5.1 million of pretax exit costs were paid and charged against the liability. It included $2.4 million for severance for 469 plant member positions, $0.4 million for other member-related costs and $2.3 million for certain other expenses associated with the closing of facilities. The primary costs not yet incurred relate to costs associated with the closed buildings. Management believes the remaining reserve for restructuring expenses to be adequate to cover these obligations.
On February 11, 1999, the Company adopted a plan to close three of its office furniture facilities located in Winnsboro, South Carolina; Sulphur Springs, Texas; and Mt. Pleasant, Iowa. A pretax charge of $19.7 million or $0.20 per diluted share was recorded during the first quarter of 1999. The charge includes $12.6 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 member-related costs, and $2.4 million for certain other expenses associated with the closing of the facilities. All significant activities with respect to this reorganization have been completed except for the pending disposition of the Winnsboro, South Carolina, property.
Business Combinations
During 2001, the Company completed the acquisition of three small hearth product distributors for a total purchase price of approximately $7.6 million. The acquisitions were accounted for using the purchase method, and the results of the three distributors have been included in the Company’s financial statements since the date of acquisition.
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. Management finalized its integration plan related to the acquisition during the first quarter of 2001. The excess of the consideration paid over the fair value of the business of $21 million was recorded as goodwill and was being amortized on a straight-line basis over 20 years.
Assuming the acquisition of American Fireplace Company and Allied Group had occurred on January 3, 1999, the beginning of the Company’s 1999 fiscal year, instead of the actual dates reported above, the Company’s pro forma consolidated net sales would have been approximately $2.1 billion and $1.9 billion for 2000 and 1999, respectively. Pro forma consolidated net income and net income per share for 2000 and 1999 would not have been materially different than the reported amounts.
Inventories
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Finished products |
|
$ |
33,280 |
|
$ |
48,990 |
|
$ |
29,663 |
|
|
Materials and work in process |
|
26,469 |
|
46,497 |
|
55,737 |
|
|||
|
LIFO reserve |
|
(9,609 |
) |
(11,127 |
) |
(10,463 |
) |
|||
|
|
|
$ |
50,140 |
|
$ |
84,360 |
|
$ |
74,937 |
|
43
Property, Plant, and Equipment
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Land and land improvements |
|
$ |
21,678 |
|
$ |
18,808 |
|
$ |
17,114 |
|
|
Buildings |
|
212,352 |
|
202,189 |
|
181,080 |
|
|||
|
Machinery and equipment |
|
494,458 |
|
514,293 |
|
469,268 |
|
|||
|
Construction and equipment installation in progress |
|
14,247 |
|
27,547 |
|
37,819 |
|
|||
|
|
|
742,735 |
|
762,837 |
|
705,281 |
|
|||
|
Less allowances for depreciation |
|
337,764 |
|
308,525 |
|
249,690 |
|
|||
|
|
|
$ |
404,971 |
|
$ |
454,312 |
|
$ |
455,591 |
|
Accounts Payable and Accrued Expenses
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Trade accounts payable |
|
$ |
53,660 |
|
$ |
67,540 |
|
$ |
77,907 |
|
|
Compensation |
|
13,663 |
|
15,781 |
|
10,820 |
|
|||
|
Profit sharing and retirement expense |
|
26,020 |
|
25,041 |
|
22,705 |
|
|||
|
Vacation pay |
|
13,881 |
|
14,560 |
|
12,093 |
|
|||
|
Marketing expenses |
|
54,861 |
|
65,931 |
|
58,832 |
|
|||
|
Casualty self-insurance expense |
|
17,189 |
|
12,216 |
|
7,428 |
|
|||
|
Other accrued expenses |
|
36,910 |
|
39,471 |
|
27,325 |
|
|||
|
|
|
$ |
216,184 |
|
$ |
240,540 |
|
$ |
217,110 |
|
Long-Term Debt
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Industrial development revenue bonds, various issues, payable through 2018 with interest at 1.42-8.125% per annum |
|
$ |
23,995 |
|
$ |
24,633 |
|
$ |
25,319 |
|
|
Note payable to bank, revolving credit agreement with interest at a variable rate* |
|
— |
|
46,000 |
|
85,000 |
|
|||
|
Convertible debentures payable to individuals, due in 2003 with interest at 5.5% per annum |
|
58,074 |
|
58,074 |
|
5,074 |
|
|||
|
Other notes and amounts |
|
3,285 |
|
5,673 |
|
5,275 |
|
|||
|
Total debt |
|
85,354 |
|
134,380 |
|
120,668 |
|
|||
|
Less: current portion |
|
5,784 |
|
8,287 |
|
808 |
|
|||
|
Long-term debt |
|
$ |
79,570 |
|
$ |
126,093 |
|
$ |
119,860 |
|
* The revolving bank credit agreement was paid off in 2001 but is available until June 2002 with a maximum borrowing limit of $200,000,000. Management is in the process of negotiating a new agreement.
Aggregate maturities of long-term debt are as follows (in thousands):
|
|
|
|
|
|
|
2002 |
|
$ |
5,784 |
|
|
2003 |
|
53,986 |
|
|
|
2004 |
|
6,176 |
|
|
|
2005 |
|
602 |
|
|
|
2006 |
|
583 |
|
|
|
Thereafter |
|
18,223 |
|
|
44
The convertible debentures are payable to the former owners of businesses that were acquired by the Company. These individuals continue as employees of the Company following the acquisitions. The convertible debentures are 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 2001 approximates the recorded aggregate amount.
Property, plant, and equipment, with net carrying values of approximately $53,471,000 at the end of 2001, are mortgaged with maturities through 2021.
Selling and Administrative Expenses
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Freight expense for shipments to customers |
|
$ |
103,489 |
|
$ |
137,197 |
|
$ |
131,085 |
|
|
Amortization of intangible assets |
|
12,646 |
|
10,679 |
|
5,362 |
|
|||
|
Product development costs |
|
21,415 |
|
18,911 |
|
17,117 |
|
|||
|
Other selling and administrative expenses |
|
326,656 |
|
321,061 |
|
244,633 |
|
|||
|
|
|
$ |
464,206 |
|
$ |
487,848 |
|
$ |
398,197 |
|
Income Taxes
Significant components of the provision for income taxes are as follows:
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Current: |
|
|
|
|
|
|
|
|||
|
Federal |
|
$ |
32,393 |
|
$ |
62,172 |
|
$ |
40,744 |
|
|
State |
|
2,442 |
|
3,931 |
|
3,046 |
|
|||
|
|
|
34,835 |
|
66,103 |
|
43,790 |
|
|||
|
Deferred |
|
7,019 |
|
(6,356 |
) |
6,425 |
|
|||
|
|
|
$ |
41,854 |
|
$ |
59,747 |
|
$ |
50,215 |
|
A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate is as follows:
|
|
|
2001 |
|
2000 |
|
1999 |
|
|
Federal statutory tax rate |
|
35.0 |
% |
35.0 |
% |
35.0 |
% |
|
State taxes, net of federal tax effect |
|
1.6 |
|
1.5 |
|
1.7 |
|
|
Other — net |
|
(0.6 |
) |
(0.5 |
) |
(0.2 |
) |
|
Effective tax rate |
|
36.0 |
% |
36.0 |
% |
36.5 |
% |
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:
45
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Net long-term |
|
|
|
|
|
|
|
|||
|
deferred tax liabilities: |
|
|
|
|
|
|
|
|||
|
Tax over book depreciation |
|
$ |
(38,759 |
) |
$ |
(37,509 |
) |
$ |
(38,133 |
) |
|
OPEB obligations |
|
3,197 |
|
3,157 |
|
3,430 |
|
|||
|
Compensation |
|
2,519 |
|
2,079 |
|
1,681 |
|
|||
|
Goodwill |
|
(5,550 |
) |
(4,183 |
) |
(2,959 |
) |
|||
|
Other — net |
|
(1,039 |
) |
(770 |
) |
(2,160 |
) |
|||
|
Total net long-term deferred tax liabilities |
|
(39,632 |
) |
(37,226 |
) |
(38,141 |
) |
|||
|
Net current deferred tax assets: |
|
|
|
|
|
|
|
|||
|
Workers’ compensation, general, and product liability accruals |
|
1,119 |
|
4,183 |
|
2,984 |
|
|||
|
Vacation accrual |
|
4,002 |
|
4,632 |
|
3,492 |
|
|||
|
Integration accruals |
|
(3,766 |
) |
(3,205 |
) |
(3,263 |
) |
|||
|
Inventory obsolescence reserve |
|
1,969 |
|
2,404 |
|
1,287 |
|
|||
|
Plant closing accruals |
|
3,302 |
|
— |
|
— |
|
|||
|
Other — net |
|
8,314 |
|
11,502 |
|
8,971 |
|
|||
|
Total net current deferred tax assets |
|
14,940 |
|
19,516 |
|
13,471 |
|
|||
|
Net deferred tax (liabilities) assets |
|
$ |
(24,692 |
) |
$ |
(17,710 |
) |
$ |
(24,671 |
) |
Shareholders’ Equity and Earnings Per Share
|
|
|
2001 |
|
2000 |
|
1999 |
|
|
Common Stock, $1 Par Value |
|
|
|
|
|
|
|
|
Authorized |
|
200,000,000 |
|
200,000,000 |
|
200,000,000 |
|
|
Issued and outstanding |
|
58,672,933 |
|
59,796,891 |
|
60,171,753 |
|
|
Preferred Stock, $1 Par Value |
|
|
|
|
|
|
|
|
Authorized |
|
1,000,000 |
|
1,000,000 |
|
1,000,000 |
|
|
Issued and outstanding |
|
— |
|
— |
|
— |
|
The Company purchased 1,472,937; 837,552; and 1,408,624 shares of its common stock during 2001, 2000, and 1999, 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 Additional Paid-In Capital with the excess charged to Retained Earnings.
Components of other comprehensive income (loss) consist of the following:
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Foreign currency translation adjustments - net of tax |
|
$ |
109 |
|
$ |
118 |
|
$ |
(79 |
) |
|
Change in unrealized gains on marketable securities - net of tax |
|
42 |
|
208 |
|
(435 |
) |
|||
|
Other comprehensive income (loss) |
|
$ |
151 |
|
$ |
326 |
|
$ |
(514 |
) |
46
In May 1997, the Company registered 400,000 shares of its common stock under its 1997 Equity Plan for Non-Employee Directors. 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 2001, 2000, and 1999, 7,446; 6,948; and 12,758 shares of Company common stock were issued under the plan, respectively.
Cash dividends declared and paid per share for each year are:
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In dollars) |
|
|||||||
|
Common shares |
|
$ |
.48 |
|
$ |
.44 |
|
$ |
.38 |
|
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 128,662 shares were available for issuance under the plan at December 29, 2001. Shares of common stock were issued in 2001, 2000, and 1999 pursuant to a members stock purchase plan as follows:
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
Shares issued |
|
85,385 |
|
90,059 |
|
115,354 |
|
|||
|
Average price per share |
|
$ |
20.51 |
|
$ |
21.10 |
|
$ |
19.16 |
|
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.
47
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.
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 Company’s pro-forma net earnings and both basic and diluted earnings per share would have been reduced by $1,369,000 or $0.02 per share for 2001, $1,122,000 or $0.02 per share for 2000, and $531,000 or $0.01 per share for 1999. The weighted-average fair value of options granted during 2001, 2000, and 1999 estimated on the date of grant using the Black-Scholes option-pricing model was $9.70, $9.25, and $10.01, respectively. The fair value of 2001, 2000, and 1999 options granted is estimated on the date of grant using the following assumptions: dividend yield of 1.46% to 2.06%, expected volatility of 34.09% 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.
The status of the Company’s stock option plans is summarized below:
|
|
|
Number of |
|
Weighted-Average |
|
|
|
|
|
|
||
|
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 |
|
|
Granted |
|
266,500 |
|
23.39 |
|
|
Exercised |
|
(17,500 |
) |
18.31 |
|
|
Forfeited |
|
(37,000 |
) |
21.57 |
|
|
Outstanding at December 29, 2001 |
|
1,130,250 |
|
22.32 |
|
|
Options exercisable at: |
|
|
|
|
|
|
December 29, 2001 |
|
105,000 |
|
24.86 |
|
|
December 30, 2000 |
|
— |
|
— |
|
|
January 1, 2000 |
|
— |
|
— |
|
48
The following table summarizes information about fixed stock options outstanding at December 29, 2001:
|
|
|
Options Outstanding |
|
|
|
|
|
Options |
|
|
|
Range of |
|
Number |
|
Weighted- |
|
Weighted- |
|
Number |
|
|
|
$ 24.50-$28.25 |
|
105,000 |
|
5.5 years |
|
$ |
24.86 |
|
105,000 |
|
|
$ 32.50 |
|
20,000 |
|
6.1 years |
|
$ |
32.50 |
|
0 |
|
|
$ 23.31-$23.47 |
|
238,750 |
|
7.1 years |
|
$ |
23.47 |
|
0 |
|
|
$ 18.31-$26.69 |
|
500,000 |
|
8.6 years |
|
$ |
20.25 |
|
0 |
|
|
$ 23.32-$25.27 |
|
266,500 |
|
9.1 years |
|
$ |
23.39 |
|
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 $24,826,000, $24,400,000, and $21,297,000 in 2001, 2000, and 1999, respectively.
The Company sponsors defined benefit plans which include a limited number of salaried and hourly employees at certain subsidiaries.
The Company’s funding policy is generally to contribute annually the minimum actuarially computed amount. The Company adopted 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 for 2001, 2000, and 1999. 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 $310,000, $308,500, and $329,000 in 2001, 2000, and 1999, respectively.
Postretirement Health Care
In accordance with the guidelines of SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” 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:
49
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Reconciliation of benefit obligation |
|
|
|
|
|
|
|
|||
|
Obligation at beginning of year |
|
$ |
12,229 |
|
$ |
20,237 |
|
$ |
17,341 |
|
|
Service cost |
|
278 |
|
182 |
|
529 |
|
|||
|
Interest cost |
|
941 |
|
882 |
|
1,137 |
|
|||
|
Benefit payments |
|
(952 |
) |
(981 |
) |
(1,013 |
) |
|||
|
Actuarial (gains) losses |
|
3,042 |
|
(5,888 |
) |
2,243 |
|
|||
|
Current year prior service cost |
|
1,813 |
|
(2,203 |
) |
— |
|
|||
|
Obligation at end of year |
|
$ |
17,351 |
|
$ |
12,229 |
|
$ |
20,237 |
|
|
Funded status |
|
|
|
|
|
|
|
|||
|
Funded status at end of year |
|
$ |
17,351 |
|
$ |
12,229 |
|
$ |
20,237 |
|
|
Unrecognized transition obligation |
|
(6,523 |
) |
(7,103 |
) |
(9,362 |
) |
|||
|
Unrecognized prior-service cost |
|
(1,582 |
) |
(1,813 |
) |
(2,338 |
) |
|||
|
Unrecognized gain (loss) |
|
(364 |
) |
5,457 |
|
862 |
|
|||
|
Net amount recognized |
|
$ |
8,882 |
|
$ |
8,770 |
|
$ |
9,399 |
|
|
Net periodic postretirement benefit cost include: |
|
|
|
|
|
|
|
|||
|
Service cost |
|
$ |
278 |
|
$ |
182 |
|
$ |
529 |
|
|
Interest cost |
|
941 |
|
882 |
|
1,137 |
|
|||
|
Amortization of transition obligation over 20 years |
|
581 |
|
581 |
|
713 |
|
|||
|
Amortization of prior service cost |
|
230 |
|
— |
|
146 |
|
|||
|
Amortization of (gains) and losses |
|
(474 |
) |
(539 |
) |
(629 |
) |
|||
|
Net periodic postretirement benefit cost |
|
$ |
1,556 |
|
$ |
1,106 |
|
$ |
1,896 |
|
The discount rates at fiscal year-end 2001, 2000, and 1999 were 6.5%, 8.0%, and 7.5%, respectively. The pre-65 2001 gross trend rates begin at 9.0% for the medical and prescription drug coverages and grade down to 5.0% in eight 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 2002 gross trend rates begin at 9.0% 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:
|
|
|
1% Increase |
|
1% Decrease |
|
||
|
|
|
(In thousands) |
|
||||
|
Effect on total
of service and interest cost components |
|
$ |
84 |
|
$ |
(49 |
) |
|
Effect on the
health care component of the accumulated |
|
$ |
8,099 |
|
$ |
(6,182 |
) |
50
Leases
The Company leases certain warehouse, plant facilities and equipment. Commitments for minimum rentals under noncancelable leases at the end of 2001 are as follows:
|
|
|
Capitalized |
|
Operating |
|
||
|
|
|
Leases |
|
Leases |
|
||
|
|
|
(In thousands) |
|
||||
|
2002 |
|
$ |
1,078 |
|
$ |
12,373 |
|
|
2003 |
|
211 |
|
10,128 |
|
||
|
2004 |
|
211 |
|
8,342 |
|
||
|
2005 |
|
211 |
|
5,848 |
|
||
|
2006 |
|
211 |
|
4,180 |
|
||
|
Thereafter |
|
1,013 |
|
5,003 |
|
||
|
Total minimum lease payments |
|
2,935 |
|
$ |
45,874 |
|
|
|
Less amount representing interest |
|
743 |
|
|
|
||
|
Present value of
net minimum lease payments, |
|
$ |
2,192 |
|
|
|
|
Property, plant, and equipment at year-end include the following amounts for capitalized leases:
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
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 |
|
17,052 |
|
14,655 |
|
11,816 |
|
|||
|
|
|
$ |
2,052 |
|
$ |
4,449 |
|
$ |
7,288 |
|
Rent expense for the years 2001, 2000, and 1999 amounted to approximately $13,387,000, $15,428,000, and $10,403,000, 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 acquisition. Contingent rent expense under both capitalized and operating leases (generally based on mileage of transportation equipment) amounted to $869,000, $941,000, and $755,000 for the years 2001, 2000, and 1999, respectively.
Contingencies
The Company has contingent liabilities which have arisen in the course of its business, including pending litigation, environmental remediation, taxes, and other claims. The Company believes the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows.
Significant Customer
One office furniture customer accounted for approximately 14%, 14%, and 13% of consolidated net sales in 2001, 2000, and 1999, respectively.
51
Operating Segment Information
In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” management views the Company as being in two operating segments: office furniture and hearth products, with the former being the principal segment. The office furniture segment manufactures and markets a broad line of metal and wood commercial and home office furniture which includes storage products, desks, credenzas, chairs, 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 hearth products segment is somewhat seasonal with the third (July-September) and fourth (October-December) fiscal quarters historically having higher sales than the prior quarters. In fiscal 2001, 53% 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 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 2001, 2000, and 1999 is as follows:
|
|
|
2001 |
|
2000 |
|
1999 |
|
|||
|
|
|
(In thousands) |
|
|||||||
|
Net sales: |
|
|
|
|
|
|
|
|||
|
Office furniture |
|
$ |
1,366,312 |
|
$ |
1,649,937 |
|
$ |
1,514,991 |
|
|
Hearth products |
|
426,126 |
|
396,349 |
|
285,940 |
|
|||
|
|
|
$ |
1,792,438 |
|
$ |
2,046,286 |
|
$ |
1,800,931 |
|
|
Operating profit: |
|
|
|
|
|
|
|
|||
|
Office furniture* |
|
$ |
112,405 |
|
$ |
171,647 |
|
$ |
131,607 |
|
|
Hearth products* |
|
39,282 |
|
30,232 |
|
34,588 |
|
|||
|
Total operating profit |
|
151,687 |
|
201,879 |
|
166,195 |
|
|||
|
Unallocated corporate expenses |
|
(35,426 |
) |
(35,915 |
) |
(28,620 |
) |
|||
|
Income before income taxes |
|
$ |
116,261 |
|
$ |
165,964 |
|
$ |
137,575 |
|
|
Identifiable assets: |
|
|
|
|
|
|
|
|||
|
Office furniture |
|
$ |
526,712 |
|
$ |
638,075 |
|
$ |
678,503 |
|
|
Hearth products |
|
320,199 |
|
327,528 |
|
174,386 |
|
|||
|
General corporate |
|
114,980 |
|
56,867 |
|
53,834 |
|
|||
|
|
|
$ |
961,891 |
|
$ |
1,022,470 |
|
$ |
906,723 |
|
|
Depreciation and amortization expense: |
|
|
|
|
|
|
|
|||
|
Office furniture |
|
$ |
58,658 |
|
$ |
58,926 |
|
$ |
52,483 |
|
|
Hearth products |
|
20,389 |
|
18,109 |
|
11,065 |
|
|||
|
General corporate |
|
2,338 |
|
2,011 |
|
1,905 |
|
|||
|
|
|
$ |
81,385 |
|
$ |
79,046 |
|
$ |
65,453 |
|
|
Capital expenditures — net: |
|
|
|
|
|
|
|
|||
|
Office furniture |
|
$ |
29,785 |
|
$ |
39,361 |
|
$ |
48,565 |
|
|
Hearth products |
|
7,149 |
|
17,643 |
|
16,489 |
|
|||
|
General corporate |
|
(83 |
) |
2,836 |
|
6,420 |
|
|||
|
|
|
$ |
36,851 |
|
$ |
59,840 |
|
$ |
71,474 |
|
*Included in operating profit for the office furniture segment are a pretax charge of $22.5 million for closing of facilities and impairment charges in 2001 and a pretax charge of $19.7 million for the closing of facilities and reorganization expense in 1999. Included in operating profit for the hearth products segment is a pretax charge of $1.5 million for closing of facilities and impairment charges in 2001.
52
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) |
|
||||||||||
|
Year-End 2001: |
|
|
|
|
|
|
|
|
|
||||
|
Net sales |
|
$ |
461,997 |
|
$ |
444,196 |
|
$ |
459,352 |
|
$ |
426,893 |
|
|
Cost of products sold |
|
311,711 |
|
292,789 |
|
298,427 |
|
278,213 |
|
||||
|
Gross profit |
|
150,286 |
|
151,407 |
|
160,925 |
|
148,680 |
|
||||
|
Selling and administrative expenses |
|
119,050 |
|
118,983 |
|
114,759 |
|
111,414 |
|
||||
|
Restructuring and impairment charges |
|
— |
|
24,000 |
|
— |
|
— |
|
||||
|
Operating income |
|
31,236 |
|
8,424 |
|
46,166 |
|
37,266 |
|
||||
|
Interest income (expense) – net |
|
(2,700 |
) |
(1,832 |
) |
(1,375 |
) |
(924 |
) |
||||
|
Income before income taxes |
|
28,536 |
|
6,592 |
|
44,791 |
|
36,342 |
|
||||
|
Income taxes |
|
10,273 |
|
2,373 |
|
16,125 |
|
13,083 |
|
||||
|
Net income |
|
$ |
18,263 |
|
$ |
4,219 |
|
$ |
28,666 |
|
$ |
23,259 |
|
|
Net income per common share |
|
$ |
.31 |
|
$ |
.07 |
|
$ |
.48 |
|
$ |
.40 |
|
|
Weighted-average common shares outstanding |
|
59,448 |
|
59,205 |
|
59,048 |
|
58,651 |
|
||||
|
As a Percentage of Net Sales |
|
|
|
|
|
|
|
|
|
||||
|
Net sales |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
||||
|
Gross profit |
|
32.5 |
|
34.1 |
|
35.0 |
|
34.8 |
|
||||
|
Selling and administrative expenses |
|
25.8 |
|
26.8 |
|
25.0 |
|
26.1 |
|
||||
|
Provision for closing facilities and reorganization expenses |
|
— |
|
5.4 |
|
— |
|
— |
|
||||
|
Operating income |
|
6.8 |
|
1.9 |
|
10.1 |
|
8.7 |
|
||||
|
Income taxes |
|
2.2 |
|
0.5 |
|
3.5 |
|
3.1 |
|
||||
|
Net income |
|
4.0 |
|
0.9 |
|
6.2 |
|
5.4 |
|
||||
|
Year-End 2000 (a): |
|
|
|
|
|
|
|
|
|
||||
|
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: |
|
|
|
|
|
|
|
|
|
||||
|
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 |
|
||||
(a) First quarter 2000 includes partial quarterly results of operation of American Fireplace Company and the Allied Group acquisitions acquired February 29, 2000
Subsequent Event
In January 2002, the Company announced the closing of one office furniture manufacturing operation in Jackson, Tennessee. The operation will close following an orderly transition of production to other facilities which is expected to be completed during the second quarter of 2002. The Company expects to realize savings equal to the costs incurred in closing the facility during 2002.
54
Common Stock Market Prices and Dividends
Quarterly 2001 – 2000
|
2001 by |
|
High |
|
Low |
|
Dividends |
|
|||
|
|
|
|
|
|||||||
|
|
|
(Unaudited) |
|
|||||||
|
1st |
|
$ |
26.50 |
|
$ |
22.00 |
|
$ |
.12 |
|
|
2nd |
|
26.45 |
|
22.44 |
|
.12 |
|
|||
|
3rd |
|
26.15 |
|
19.96 |
|
.12 |
|
|||
|
4th |
|
28.85 |
|
20.00 |
|
.12 |
|
|||
|
Total Dividends Paid |
|
|
|
|
|
$ |
.48 |
|
||
|
2001 by |
|
High |
|
Low |
|
Dividends |
|
|||
|
|
|
|
|
|||||||
|
1st |
|
$ |
25.75 |
|
$ |
15.56 |
|
$ |
.11 |
|
|
2nd |
|
27.88 |
|
23.00 |
|
.11 |
|
|||
|
3rd |
|
27.88 |
|
23.19 |
|
.11 |
|
|||
|
4th |
|
27.13 |
|
21.00 |
|
.11 |
|
|||
|
Total Dividends Paid |
|
|
|
|
|
$ |
.44 |
|
||
Common Stock Market Price and Price/Earnings Ratio
Fiscal Years 2001 – 1991
|
|
|
Market Price* |
|
|
|
Price/Earnings Ratio |
|
||||
|
Year |
|
High |
|
Low |
|
Earnings |
|
|
|
||
|
|
|
|
|
High |
|
Low |
|
||||
|
|
|
|
|
|
|||||||
|
|
|
(Unaudited) |
|
||||||||
|
2001 |
|
28.85 |
|
19.96 |
|
1.26 |
|
23 |
|
16 |
|
|
2000 |
|
27.88 |
|
15.56 |
|
1.77 |
|
16 |
|
9 |
|
|
1999 |
|
29.88 |
|
18.75 |
|
1.44 |
|
21 |
|
13 |
|
|
1998 |
|
37.19 |
|
20.00 |
|
1.72 |
|
22 |
|
12 |
|
|
1997 |
|
32.13 |
|
15.88 |
|
1.45 |
|
22 |
|
11 |
|
|
1996 |
|
21.38 |
|
9.25 |
|
1.13 |
|
19 |
|
8 |
|
|
1995 |
|
15.63 |
|
11.50 |
|
.67 |
|
23 |
|
17 |
|
|
1994 |
|
17.00 |
|
12.00 |
|
.87 |
|
20 |
|
14 |
|
|
1993 |
|
14.63 |
|
10.75 |
|
.70 |
|
21 |
|
15 |
|
|
1992 |
|
11.75 |
|
8.25 |
|
.59 |
|
20 |
|
14 |
|
|
1991 |
|
10.25 |
|
6.63 |
|
.51 |
|
20 |
|
13 |
|
|
Eleven-Year Average |
|
|
|
|
|
|
|
21 |
|
13 |
|
* Adjusted for the effect of stock splits
55
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of HON INDUSTRIES Inc.
We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of HON INDUSTRIES Inc. included in this registration statement and have issued our report thereon dated February 1, 2002. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The amounts included in Schedule II in this Form 10-K are the responsibility of the Company’s management and are presented for purposes of complying with the Securities and Exchange Commission’s rules and are not part of the consolidated financial statements. These supporting schedules have been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the consolidated financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
February 1, 2002
56
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
HON INDUSTRIES INC. AND SUBSIDIARIES
December 29, 2001
|
COL. A |
|
COL. B |
|
COL. C |
|
COL. D |
|
COL. E |
|
||||||
|
|
|
|
|
ADDITIONS |
|
|
|
|
|
||||||
|
DESCRIPTION |
|
BALANCE AT |
|
(1) CHARGED TO |
|
(2) CHARGED TO |
|
DEDUCTIONS |
|
BALANCE AT |
|
||||
|
|
|
(In thousands) |
|
||||||||||||
|
Reserves deducted in the consolidated balance sheet from the assets to which they apply: |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Year ended December 29, 2001: Allowance for doubtful accounts |
|
$ |
11,237 |
|
$ |
7,287 |
|
|
|
$ |
1,948 (A |
) |
$ |
16,576 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
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 |
|
Note A: Excess of accounts written off over recoveries
57
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, as amended effective July 1, 2001, incorporated by reference to Exhibit 10(vi) to the Registrant’s Annual Report on 10-K filed for the year ended December 29, 2001 |
|
|
|
|
|
(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 |
58
|
(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 as amended effective January 1, 2001, incorporated by reference to Exhibit 10(xiv) to the Registrant’s Annual Report on 10-K for the year ended December 29, 2001 |
|
|
|
|
|
(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 |
|
|
|
|
|
(99C) |
|
Letter to Securities and Exchange Commission — Arthur Andersen LLP |
59