ITEM 1. BUSINESS
General
HON INDUSTRIES Inc. ("HON" or the "Company") is an Iowa corporation incorporated in 1944. The Company is a provider of office furniture and hearth products. Approximately 76% of fiscal year 2002 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-, gas-burning and electric 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 2002, the Company had net sales of $1.7 billion, of which approximately $1.3 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.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters in Muscatine, Iowa, and conducts its operations at locations throughout the United States, Canada, and Mexico which house manufacturing, distribution, and retail operations and offices totaling an aggregate of approximately 8.6 million square feet. Of this total, approximately 2.1 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:
(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 1,127,000 square feet with approximately 247,000 square feet used for the manufacture and distribution of office furniture and approximately 880,000 square feet for hearth products. Of this total, approximately 836,000 square feet are leased. In addition, the Company has two facilities that have been vacated. One is marketed for sale and the other is a leased facility. 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, and a 10,000 square foot leased plant in Wilmington, North Carolina, which are subleased.
There are no major encumbrances on Company-owned properties. Refer to the Property, Plant, and Equipment note in the Notes to Consolidated Financial Statements for related cost, accumulated depreciation, and net book value data.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various kinds of disputes and legal proceedings which have arisen in the course of its business, including pending litigation, preferential payment claims in customer bankruptcies, environmental remediation, taxes, and other claims. The Company currently has one preferential payment claim outstanding totaling approximately $7.6 million. The Company intends to vigorously contest this claim, however, the ultimate outcome or likelihood of this specific claim cannot be determined at this time. It is our opinion, after consultation with legal counsel, that additional liabilities, if any, resulting from these matters are not expected to have a material adverse effect on our financial condition, although such matters could have a material effect on our quarterly or annual operating results and cash flows when resolved in a future period.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART I, TABLE I
EXECUTIVE OFFICERS OF THE REGISTRANT
December 28, 2002
PART II
ITEM 5.
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 2002, the Company had 6,777 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 quarterly cash dividends. 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 31% of prior year earnings. Future dividends are dependent on future earnings, capital requirements, and the Company's financial condition.
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ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA-ELEVEN-YEAR SUMMARY
(a)Per SFAS No. 142 "Goodwill and Other Intangible Assets," the Company has ceased recording of goodwill and indefinite-lived Intangible amortization.
(b)Includes acquisitions completed during year.
ITEM 7.
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.
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 28, 2002, Compared to Fiscal Year Ended December 29, 2001
Net Sales
Net sales on a consolidated basis, decreased by 5.6% to $1.69 billion in 2002 from $1.79 billion in 2001. Office furniture net sales decreased 6.4% in 2002 to $1.28 billion from $1.37 billion in 2001. The decline in sales occurred in all sectors. The Business and Institutional Furniture Manufacturer's Association (BIFMA) reported a decrease in shipments of 19% in 2002 compared to 2001. The Company's share of the market based on reported office furniture shipments increased to 14.4% versus 12.4% in 2001. Net sales of hearth products decreased 2.9% to $.41 billion in 2002 from $.43 billion in 2001. The decrease was mainly due to the effect of pruning out less profitable product lines.
Gross Profit
Gross profit dollars decreased 2% to $599.9 million in 2002 from $611.3 million in the prior year. The gross margin percentage increased to 35.4% for 2002 from 34.1% in 2001 despite a negative impact from increased steel prices, due to steel tariffs, of approximately $5 million during the second half of the year. The improvement in gross margin was a direct result of the continued net benefits of rapid continuous improvement, business simplification, new product introductions, and restructuring initiatives. During 2002, the Company recognized a loss on asset disposals into cost of products sold in the amount of approximately $5.0 million in relation to its continued rapid continuous improvement initiatives.
Selling and Administrative Expenses
Selling and administrative expenses decreased by 2% to $454.2 million in 2002 from $464.2 million in 2001. Selling and administrative expenses, as a percent of net sales, increased to 26.8% in 2002 from 25.9% in the prior year. This increase was due to lower overall sales volume, increased investment in brand equity building and new product development, and increased incentive compensation of which a portion was for a debenture earn out related to a prior acquisition. Included in 2001 was $9 million of goodwill and certain other intangible amortization that is not included in 2002 due to a change in accounting standards effective December 30, 2001.
Selling and administrative expenses include freight expense for shipments to customers, product development costs, and amortization expense 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.
Restructuring Related Charges
During 2002, the Company recorded a pre-tax charge of approximately $5.4 million due to the shutdown of an office furniture facility in Jackson, Tennessee. A total of 125 members were terminated and received severance due to this shutdown. During the second quarter of 2002, a restructuring credit of approximately $2.4 million was taken back into income relating to a restructuring charge of $24.0 million that was recorded in second quarter 2001 for a restructuring plan that included consolidating physical facilities, discontinuing low volume product lines, and reducing the workforce. This credit was mainly due to the fact that the Company was able to exit a lease with a lessor at more favorable terms than originally estimated and the Company's ability to minimize the number of members terminated as compared to the original plan. The Restructuring Related Charges note included in the Notes to Consolidated Financial Statements provides further information.
Operating Income
Operating income increased 16% to $142.7 million in 2002 from $123.1 million in 2001. This increase is due to a $24 million restructuring charge in 2001 compared to a $3 million restructuring charge in 2002 and goodwill and indefinite-lived intangibles amortization of $9 million that is not included in 2002 due to a change in accounting standards. Operating profit in the office furniture segment increased in 2002 as a percent of net sales to 10.2% compared to 8.2% in 2001. The increase is due to cost reduction, new product introductions, and restructuring initiatives. Operating profit in the hearth products segment as a percent of sales increased to 10.8% compared to 9.2% in 2001 due to discontinuance of goodwill and indefinite-lived intangible amortization of approximately $7 million.
Net Income
Net income increased by 23% to $91.4 million in 2002 from $74.4 million in the prior year. Included in 2001 was $5.8 million of goodwill and other intangible amortization expense that was not included in 2002 due to a change in accounting standards effective December 30, 2001. Also included in 2001 was an after tax restructuring charge of $15.4 million. Net income in 2002 was favorably impacted by a decrease in interest expense and a decrease in the effective tax rate in the fourth quarter to 35% from 36% in 2001 due to tax benefits associated with various federal and state tax credits. The Company currently expects the effective tax rate to remain at this level for 2003; however the resolution of certain federal and state tax credits could further affect the rate. Net income per common share increased by 23% to $1.55 in 2002 from $1.26 in 2001.
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 $.43 billion in 2001 from $.40 billion in 2000.
Gross Profit
Gross profit dollars decreased 8% to $611.3 million in 2001 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.
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.
Restructuring Related Charges
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. The Restructuring Related Charges note included in the Notes to Consolidated Financial Statements provides further information.
Operating Income
Operating income decreased almost 31% to $123.1 million in 2001 from $178.0 million in 2000. This decrease is due to lower overall sales volume, increased selling and administrative expenses, and a $24.0 million restructuring charge. Operating profit in the office furniture segment decreased in 2001 as a percent of net sales to 8.2% compared to 10.4% in 2000. The decrease is due to lower overall sales volume and a $22.5 million restructuring charge. Operating profit in the hearth products segment increased in 2001 as a percent of net sales to 9.2% compared to 7.6% in the prior year. This improvement is due to increased sales volume, simplification of the business structure and cost containment offset by a $1.5 million restructuring charge.
Net Income
Net income decreased by 30% to $74.4 million in 2001 from $106.2 million in the prior year. The decrease is due to lower overall sales volume, increased selling and administrative expenses, and an after-tax restructuring charge of $15.4 million offset by reduced interest expense.
Net income per common share decreased by 29% to $1.26 in 2001 from $1.77 for 2000. The Company's net income per share performance for 2001 benefited from the Company's common stock repurchase program.
Liquidity and Capital Resources
During 2002, cash flow from operations was $202.4 million, which provided the funds necessary to meet working capital needs, invest in capital improvements, repay long-term debt, repurchase common stock, and pay increased dividends.
Cash Management
Cash, cash equivalents, and short-term investments totaled $155.5 million in 2002 compared to $78.8 million at the end of 2001 and $3.2 million at the end of 2000. 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.
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 receivables decreased from year-end 2000 levels due to decreased sales volume. The increase at year-end 2002 is due to increased sales volume in the fourth quarter compared to fourth quarter 2001. Trade receivable days outstanding have averaged approximately 37 days over the past three years. Inventory levels also decreased from year-end 2000 levels due to decreased sales volume. However, the Company is able to continue to improve on
inventory levels and turns as a result of a more efficient supply chain. Inventory turns were 23, 18, and 17 for 2002, 2001, and 2000, respectively. The increase in accounts payable and accrued expenses is due to increased accruals for warranty, marketing programs, and incentive based compensation.
Investments
The Company acquired investments in 2002 that consist of investment grade equity and debt securities. Management classifies investments in marketable securities at the time of purchase and reevaluates such classification at each balance sheet date. Equity securities are classified as available-for-sale and are stated at current market value with unrealized gains and losses included as a separate component of equity, net of any related tax effect. Debt securities are classified as held-to-maturity and are stated at amortized cost. A table of holdings as of year end 2002 is included in the Cash, Cash Equivalents and Investments note included in the Notes to Consolidated Financial Statements.
Capital Expenditure Investments
Capital expenditures were $25.9 million in 2002, $36.9 million in 2001, and $59.8 million in 2000. Expenditures during 2002, 2001, and 2000 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 2% of total capitalization at December 28, 2002, 12% at December 29, 2001, and 18% at December 30, 2000. The reduction in long-term debt during 2002 was due to debentures from an acquisition now being classified as current liabilities based on current due date and the retirement of Industrial Revenue Bonds and Urban Development Action Grants. The Company does not expect future capital resources to be a constraint on planned growth. Additional borrowing capacity of $136 million, less amounts used for designated letters of credit, is available through a revolving bank credit agreement in the event cash generated from operations should be inadequate to meet future needs. 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:
Other long-term obligations include $14,537,000 of future minimum payments under a transportation service contract, $266,000 of financial guarantees with customers, $9,757,000 earn-out on convertible debentures included in current liabilities, and $7,796,000 of payments, included in long-term liabilities, due to members who are participants in the Company's salary deferral program.
Related Party Transactions
The Company has convertible debentures, with earn-out features, in the amount of $40.4 million that are payable to former owners of businesses that were acquired by the Company. These individuals remain as members of the Company following the acquisitions. The obligation associated with the earn-out provision is approximately $9.8 million at December 28, 2002.
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. One of these individuals continues as an officer of a subsidiary of the Company following the acquisition.
Cash Dividends
Cash dividends were $0.50 per common share for 2002, $0.48 for 2001, and $0.44 for 2000. Further, the Board of Directors announced a 4.0% increase in the quarterly dividend from $0.125 to $0.13 per common share effective with the February 28, 2003, dividend payment for shareholders of record at the close of business February 21, 2003. The previous quarterly dividend increase was from $0.12 to $0.125, effective with the March 1, 2002, dividend payment for shareholders of record at the close of business February 22, 2002. 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 31% of prior year earnings.
Common Share Repurchases
During 2002, the Company repurchased 614,580 shares of its common stock at a cost of approximately $15.7 million, or an average price of $25.60. The Board of Directors authorized an additional $100.0 million on February 14, 2001, for repurchases of the Company's common stock. As of December 28, 2002, approximately $62.8 million remained unspent. During 2001, the Company repurchased 1,472,937 shares at a cost of approximately $35.1 million, or an average price of $23.80. During 2000, the Company repurchased 837,552 shares at a cost of approximately $18.0 million, or an average price of $21.46.
Litigation and Uncertainties
The Company has contingent liabilities that have arisen in the course of its business, including pending litigation, preferential payment claims in customer bankruptcies, environmental remediation, taxes, and other claims. The Company currently has one preferential payment claim outstanding totaling approximately $7.6 million. The Company intends to vigorously contest this claim, however, the ultimate outcome or likelihood of this specific claim cannot be determined at this time. It is our opinion, after consultation with legal counsel, that additional liabilities, if any, resulting from these matters are not expected to have a material adverse effect on our financial condition, although such matters could have a material effect on our quarterly or annual operating results and cash flows when resolved in a future period.
Critical Accounting Policies
The Company's critical accounting policies include:
Revenue recognition-The Company normally recognizes revenue upon the shipment of goods. In certain circumstances revenue is not recognized until the goods are received by the customer or upon installation and customer acceptance based on the terms of the sale agreement. Revenue includes freight charged to customers; related costs are included in selling and administrative expense. Rebates, discounts, and other marketing program expenses that are directly related to the sale are recorded as a deduction to net sales. Marketing program accruals require the use of management estimates and the consideration of contractual arrangements that are subject to interpretation. Customer sales that reach certain award levels can affect the amount of such estimates and actual results could differ from these estimates.
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. Additionally, in certain circumstances the Company may be subject to preferential payment claims that arise in customer bankruptcies, for which the ultimate outcome cannot be estimated and for which an estimated loss cannot be recorded until it is determined to be probable and reasonably estimable.
Inventory valuation-The Company values its inventory at the lower of cost or market primarily 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.
Long-lived assets-Long-lived assets are reviewed for impairment as events or changes in circumstances occur indicating that the amount of the asset reflected in the Company's balance sheet may not be recoverable. An estimate of undiscounted cash flows produced by the asset, or the appropriate group of assets, is compared to the carrying value to determine whether impairment exists. The estimates of future cash flows involve considerable management judgement and are based upon assumptions about expected future operating performance. The actual cash flows could differ from management's estimates due to changes in business conditions, operating performance, and economic conditions.
Goodwill and other intangibles-The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" on December 30, 2001, the beginning of its 2002 fiscal year. The Company has determined that the fair value of its reporting units exceeds the carrying values and therefore, no impairment of goodwill was recorded. The impairment tests performed require that the Company determine the fair market value of its trademarks and the fair market value of its reporting units for comparison to the carrying value of such net assets to assess whether an impairment exists. The methodologies used to estimate fair market value involve the use of estimates and assumptions, including projected cash flows, royalty rates and discount rates. Also pursuant to the standard, the Company has ceased recording goodwill and indefinite-lived intangibles amortization in 2002.
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, 2002 the Financial Accounting Standards Board finalized SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" for exit and disposal activities that are initiated after December 31, 2002. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred.
The Financial Accounting Standards Board also issued SFAS No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure" during 2002. This Statement amends SFAS No. 123 "Accounting for Stock-Based Compensation" to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the disclosure requirements of this statement as of December 28, 2002.
The Financial Accounting Standards Board also issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others". FIN 45 clarifies the requirements of SFAS No. 5 "Accounting for Contingencies" relating to the guarantor's accounting for and disclosure of the issuance of certain types of guarantees. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The disclosure provisions are effective for financial statements with years ending after December 15, 2002. The Company has included these disclosures in the Warranty and the Commitments and Contingencies notes.
During 2001, the Financial Accounting Standards Board finalized SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". The Company adopted Statement No. 144 on December 30, 2001, the beginning of its 2002 fiscal year. The Company intends to adopt Statement No. 143 on December 29, 2002, the beginning of its 2003 fiscal year. The adoption of SFAS No. 143 is not expected to have a material impact on the Company's financial statements.
Looking Ahead
Global Insight (formerly DRI-WEFA), the Business and Institutional Furniture Manufacturer's Association (BIFMA) forecasting consultant, is projecting the office furniture industry to be up over 5% in 2003 compared to 2002, with a 2% decline in the first quarter in its forecast dated January 15, 2003. The Company expects to continue to outperform the industry, however, management anticipates that the unstable political and economic conditions will continue to challenge growth and profitability during the first half of 2003.
The two primary channels for hearth products are the new home construction channel and the remodel/retail channel. Indications are that the housing market will remain at the current healthy level while the retail side, which is dependent on consumer confidence, is being hampered by the political instability. The Company feels that the first half of the year will be challenging for this segment as well. The Company is optimistic about the growth opportunities from new products and brand extensions into new markets. These markets include outdoor living products such as outdoor cooking systems and healthy home products such as a heat recovery system and a central vacuum system.
The Company continues to see pressure on gross margins due to increased steel prices as a result of steel tariffs that were enacted in 2002. The Company continues to work to mitigate the potential negative impact through various initiatives, including alternative materials and suppliers.
The Company continues to focus on long-term shareholder value by making investments for the future. These investments include new products, building brand equity, investigating new markets and expanding distribution.
ITEM 7A.
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.
We are subject to interest rate risk on our investment portfolio. In 2002, an interest rate movement of 10% from our actual 2002 weighted-average interest rate would not have had a significant effect on the value of our interest sensitive investments, financial position, results of operations and cash flows as 85% of the investment portfolio are investments with maturities of 90 days or less.
ITEM 8.
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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
HON INDUSTRIES Inc., (the "Company") dismissed Arthur Andersen LLP, its independent auditors, effective May 7, 2002.
In connection with the audits of the two most recent fiscal years, and during the interim period prior to dismissal, there were no disagreements with the former auditors on any matter or accounting principle or practice, financial statement disclosure, or auditing scope or procedure.
The former auditor's report on the financial statements of the Company for each of the past two fiscal years was unqualified.
The Company engaged PricewaterhouseCoopers LLP as its new independent auditor effective with the dismissal of its former auditors. During the Company's two most recent fiscal years and during the interim period prior to the engagement, there were no consultations with the newly engaged auditors with regard to either the application of accounting principle as to any specific transaction, either completed or proposed; the type of audit opinion that would be rendered on the Company's financial statements; or any matter of disagreements with the former auditors.
The Company's Board of Directors approved management's recommendation to change auditors.
PART III
ITEM 10.
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 5, 2003, 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 5, 2003, is incorporated herein by reference.
ITEM 11.
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 5, 2003, is incorporated herein by reference.
ITEM 12.
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 5, 2003, 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 5, 2003, is incorporated herein by reference.
ITEM 13.
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 5, 2003, is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. CONTROLS AND PROCEDURES
As of February 19, 2003, the Company's Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the Company's disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of December 28, 2002. Additionally, there has been no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to December 28, 2002, including any corrective actions with regard to significant deficiencies and material weaknesses.
ITEM 15.
ITEM 15. 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 2002 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.
(c)Exhibits
An exhibit index of all exhibits incorporated by reference into, or filed with, this Form 10-K appears on Page 63. The following exhibits are filed herewith:
Exhibit
(3ii)
By-Laws
(10xiii)
Indemnification Agreement of the Registrant
(10xiii)
Credit Agreement of the Registrant
(21)
Subsidiaries of the Registrant
(23)
Consent of Independent Public Accountants
(99B)
Executive Deferred Compensation Plan
(99C)
Forward Looking Statements
(99D)
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(THIS PAGE INTENTIONALLY LEFT BLANK)
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Each Director whose signature appears below authorizes and appoints Jack D. Michaels as his or her attorney-in-fact to sign and file on his or her behalf any and all amendments and post-effective amendments to this report.
Signature
Title
Date
/s/ JACK D. MICHAELS Jack D. Michaels
Chairman and CEO,
Principal Executive Officer,
and Director
3/24/03
/s/ STANLEY A. ASKREN Stanley A. Askren
President,
Chief Operating Officer and
Director
3/24/03
/s/ JERALD K. DITTMER Jerald K. Dittmer
Vice President,
Chief Financial Officer, and
Principal Accounting Officer
3/24/03
/s/ GARY M. CHRISTENSEN Gary M. Christensen
Director
3/24/03
/s/ ROBERT W. COX Robert W. Cox
Director
3/24/03
/s/ CHERYL A. FRANCIS Cheryl A. Francis
Director
3/24/03
/s/ M. FAROOQ KATHWARI M. Farooq Kathwari
Director
3/24/03
/s/ ROBERT L. KATZ Robert L. Katz
Director
3/24/03
/s/ DENNIS J. MARTIN Dennis J. Martin
Director
3/24/03
/s/ ABBIE J. SMITH Abbie J. Smith
Director
3/24/03
/s/ RICHARD H. STANLEY Richard H. Stanley
Director
3/24/03
/s/ BRIAN E. STERN Brian E. Stern
Director
3/24/03
/s/ RONALD V. WATERS, III Ronald V. Waters, III
Director
3/24/03
/s/ LORNE R. WAXLAX Lorne R. Waxlax
Director
3/24/03
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Sarbanes-Oxley Act Section 302
I, Jack D. Michaels, Chairman and Chief Executive Officer of HON INDUSTRIES Inc., certify that:
1. I have reviewed this annual report on Form 10-K of HON INDUSTRIES Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; and
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly, during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors:
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this annual report whether there are significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 24, 2003
/s/ Jack D. Michaels Name: Jack D. Michaels
Title: Chairman and Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Sarbanes-Oxley Act Section 302
I, Jerald K. Dittmer, Vice President and Chief Financial Officer of HON INDUSTRIES Inc., certify that:
1. I have reviewed this annual report on Form 10-K of HON INDUSTRIES Inc.;
2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; and
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly, during the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors:
a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this quarterly report whether there are significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Date: March 24, 2003
/s/ Jerald K. Dittmer Name: Jerald K. Dittmer
Title: Vice President and Chief Financial Officer
Report of Independent Accountants
To the Board of Directors and Shareholders,
HON INDUSTRIES Inc.:
In our opinion, the accompanying consolidated balance sheet as of December 28, 2002, and the related consolidated statements of income, shareholders' equity and cash flows for the year then ended present fairly, in all material respects, the financial position of HON INDUSTRIES Inc. and its subsidiaries as of December 28, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. 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 audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements of the Company as of December 29, 2001, and December 30, 2000, and for each of the periods ended December 29, 2001 and December 30, 2000, prior to the adjustments discussed in the Goodwill and Other Intangible Assets note, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements in their report dated February 1, 2002.
As disclosed in the Goodwill and Other Intangible Assets note, the Company changed the manner in which it accounts for goodwill and other intangible assets upon adoption of the accounting guidance of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, on December 30, 2001.
As discussed above, the financial statements of HON INDUSTRIES Inc., as of December 29, 2001, and December 30, 2000, and for each of the periods ended December 29, 2001, and December 30, 2000, were audited by other independent accountants who have ceased operations. As described in the Goodwill and Other Intangible Assets note, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards (Statement) No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of December 30, 2001. We audited the transitional disclosures described in the Goodwill and Other Intangible Assets note. In our opinion, the transitional disclosures for 2001 and 2000 in the Goodwill and Other Intangible Assets note are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 financial statements taken as a whole.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 31, 2003
Predecessor Auditor (Arthur Andersen LLP) Opinion
The following report is a copy of a report previously issued by Arthur Andersen LLP and has not been reissued by Arthur Andersen LLP. In 2002, the corporation adopted the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS No. 142). As discussed in the Goodwill and Other Intangible Assets note, the company has presented the transitional disclosures for 2001 and 2000 required by SFAS No. 142. The Arthur Andersen LLP report does not extend to these changes to the 2001 and 2000 consolidated financial statements. The adjustments to the 2001 and 2000 consolidated financial statements were reported on by PricewaterhouseCoopers LLP as stated in their report appearing herein.
Report of Independent 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 statement 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
*The January 1, 2000 consolidated financial statements are not required to be presented in the 2002 Annual Report.
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The accompanying notes are an integral part of the consolidated financial statements.
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the consolidated financial statements.
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
The accompanying notes are an integral part of the consolidated financial statements.
HON INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the consolidated financial statements.
HON INDUSTRIES INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Nature of Operations
HON INDUSTRIES Inc., with its subsidiaries (the Company), is a provider 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 electric, 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 2002 ended on December 28, 2002; 2001 ended on December 29, 2001; and 2000 ended on December 30, 2000.
Cash, Cash Equivalents and Investments
Cash and cash equivalents generally consist of cash, money market accounts, and debt securities. These securities have original maturity dates not exceeding three months from date of purchase. The Company has short-term investments with maturities of less than one year and also has investments with maturities greater than one year that are included in Other Assets on the consolidated balance sheet. Management classifies investments in marketable securities at the time of purchase and reevaluates such classification at each balance sheet date. Equity securities are classified as available-for-sale and are stated at current market value with unrealized gains and losses included as a separate component of equity, net of any related tax effect. Debt securities are classified as held-to-maturity and are stated at amortized cost. The specific identification method is used to determine realized gains and losses on the trade date. Short-term investments include municipal bonds, money market preferred stock and U.S. treasury notes. Long-term investments include U.S. government securities, municipal bonds, certificates of deposit and asset-and mortgage-backed securities.
At December 28, 2002, cash, cash equivalents and investments consisted of the following (cost approximates market value):
The 2001 and 2000 cash and cash equivalents generally consisted of cash and commercial paper.
Receivables
Accounts receivables are presented net of an allowance for doubtful accounts of $9,570,000, $16,576,000, and $11,237,000 for 2002, 2001, and 2000, 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.
Long-Lived Assets
Long-lived assets are reviewed for impairment as events or changes in circumstances occur indicating that the amount of the asset reflected in the Company's balance sheet may not be recoverable. An estimate of undiscounted cash flows produced by the asset, or the appropriate group of assets, is compared to the carrying value to determine whether impairment exists. The estimates of future cash flows involve considerable management judgement and are based upon assumptions about expected future operating performance. The actual cash flows could differ from management's estimates due to changes in business conditions, operating performance, and economic conditions. Asset impairment charges connected with the Company's restructuring activities are discussed in the Restructuring Related Charges note. These assets included real estate, manufacturing equipment and certain other fixed assets. The Company's continuous focus on improving the manufacturing process tends to increase the likelihood of assets being replaced; therefore, the Company is constantly evaluating the expected lives of its equipment. The Company recorded losses on the disposal of assets in the amount of approximately $5 million during 2002 as a result of its continuous rapid improvement initiatives.
Goodwill and Other Intangible Assets
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" on December 30, 2001, the beginning of its 2002 fiscal year. The Company has determined that the fair value of its reporting units exceeds the carrying values and therefore, no impairment of goodwill was recorded. The impairment tests performed require that the Company determine the fair market value of its trademarks and the fair market value of its reporting units for comparison to the carrying value of such net assets to assess whether an impairment exists. The methodologies used to estimate fair market value involve the use of estimates and assumptions, including projected cash flows, royalty rates and discount rates. Also pursuant to the standard, the Company has ceased recording goodwill and indefinite-lived intangibles amortization in 2002.
Product Warranties
The Company issues certain warranty policies on its furniture and hearth products that provides for repair or replacement of any covered product or component that fails during normal use because of a defect in design, materials or workmanship. A warranty reserve is determined by recording a specific reserve for known warranty issues and an additional reserve for unknown claims that are expected to be incurred based on historical claims
experience. Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve. Activity associated with warranty obligations was as follows in 2002:
Revenue Recognition
Revenue is normally recognized upon shipment of goods to customers. In certain circumstances revenue is not recognized until the goods are received by the customer or upon installation and customer acceptance based on the terms of the sales agreement. Revenue includes freight charged to customers; related costs are in selling and administrative expense. Rebates, discounts, and other marketing program expenses that are directly related to the sale are recorded as a deduction to net sales. Marketing program accruals require the use of management estimates and the consideration of contractual arrangements that are subject to interpretation. Customer sales that reach certain award levels can affect the amount of such estimates and actual results could differ from these estimates.
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. These costs include salaries, contractor fees, building costs, utilities and administrative fees. The amounts charged against income were $25,849,000 in 2002, $21,415,000 in 2001, and $18,911,000 in 2000.
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" as amended by SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure."
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, marketing program accruals, warranty
accruals, 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.
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 2002, the Financial Accounting Standards Board finalized SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" for exit and disposal activities that are initiated after December 31, 2002. This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred.
The Financial Accounting Standards Board also issued SFAS No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure" during 2002. This Statement amends SFAS No. 123 "Accounting for Stock-Based Compensation" to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the disclosure requirements to require prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company adopted the disclosure requirements of this statement as of December 28, 2002.
The Financial Accounting Standards Board also issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Other". FIN 45 clarifies the requirements of SFAS No. 5 "Accounting for Contingencies" relating to the guarantor's accounting for and disclosure of the issuance of certain types of guarantees. The provisions for initial recognition and measurement are effective on a prospective basis for guarantees that are issued or modified after December 31, 2002. The disclosure provisions are effective for financial statements with years ending after December 15, 2002. The Company has included these disclosures in the Warranty and the Commitments and Contingencies notes.
During 2001, the Financial Accounting Standards Board finalized SFAS No. 143, "Accounting for Asset Retirement Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The Company adopted Statement No. 144 on December 30, 2001, the beginning of its 2002 fiscal year. The Company intends to adopt Statement No. 143 on December 29, 2002, the beginning of its 2003 fiscal year. The adoption of SFAS No. 143 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 amounts in 2000 have been reclassified to conform to the 2001 presentation.
Restructuring Related Charges
During 2002, the Company recorded a pretax charge of approximately $5.4 million due to the shutdown of an office furniture facility in Jackson, Tennessee. A total of 125 members were terminated and received severance due to this shutdown.
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. During the second quarter of 2002, a restructuring credit of approximately $2.4 million was taken back into income relating to this charge. This was mainly due to the fact that the Company was able to exit a lease with a lessor at more favorable terms than originally estimated and the Company's ability to minimize the number of members terminated as compared to the original plan.
The following table details the change in restructuring reserve for the last two years:
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 through December 29, 2001.
Assuming the acquisition of American Fireplace Company and Allied Group had occurred on January 2, 2000, the beginning of the Company's 2000 fiscal year, instead of the actual dates reported above, the Company's pro forma consolidated net sales would have been approximately $2.1 billion for 2000. Pro forma consolidated net income and net income per share for 2000 would not have been materially different than the reported amounts.
Inventories
Property, Plant, and Equipment
Goodwill and Other Intangible Assets
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets" on December 30, 2001, the beginning of its 2002 fiscal year. Pursuant to this standard, the Company has completed an assessment of the categorization of its existing intangible assets and goodwill. In addition, the Company completed an analysis of the fair value of its reporting units using both a discounted cash flow analysis and market multiple approach and has determined that the fair value of its reporting units exceeds the carrying values and therefore, no impairment of goodwill was recorded. Also pursuant to the standard, the Company has ceased recording of goodwill and indefinite-lived intangibles amortization in 2002.
The Company also owns a trademark having a net value of $8.1 million as of December 28, 2002 and December 29, 2001. The trademark had a net carrying amount of $8.3 million as of December 30, 2000. The fair value of the trademark exceeds the carrying value of the trademark and thus, no impairment was recorded. The trademark is deemed to have an indefinite useful life because it is expected to generate cash flows indefinitely. The Company ceased amortizing the trademark in 2002.
The table below summarizes amortizable definite-lived intangible assets, which are reflected in Other Assets in the Company's consolidated balance sheets:
Amortization expense for definite-lived intangibles for 2002, 2001, and 2000 was $2,690,100, $2,200,200, and $2,124,700, respectively. Amortization expense is estimated to be approximately $2.7 million per year for each of the next five years.
The goodwill at December 29, 2001, included other intangible assets that are required to be accounted for as assets apart from goodwill under SFAS No. 142. The following table summarizes the reclassification:
The changes in the carrying amount of goodwill since December 29, 2001, are as follows by reporting segment:
The goodwill increase in 2002 relates to additional purchase consideration associated with debentures issued in connection with a prior acquisition.
The following schedule reports the adjusted net income for the goodwill and indefinite-lived trademark amortization effect:
Accounts Payable and Accrued Expenses
Long-Term Debt
*Borrowings under the Company's $200,000,000 revolving bank credit agreement were repaid in full in 2001, however, the credit line remained available until June 2002. In May 2002, the Company entered into a new $136,000,000, four year revolving bank credit agreement. Aggregate maturities of long-term debt are as follows:
The convertible debentures are payable to the former owners of businesses that were acquired by the Company. These individuals continue as members of the Company following the acquisitions. The convertible debentures are convertible into cash. The debentures contain certain conversion features that are recorded as earned.
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 2002 approximates the recorded aggregate amount.
Selling and Administrative Expenses
Income Taxes
Significant components of the provision for income taxes are as follows:
A reconciliation of the statutory federal income tax rate to the Company's effective income tax rate is as follows:
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:
Shareholders' Equity and Earnings Per Share
The Company purchased 614,580; 1,472,937; and 837,552 shares of its common stock during 2002, 2001, and 2000, 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.
In 2002 the denominator for the basic earnings per share calculation was 58,789,851. There were 250,769 potentially dilutive shares from stock options plans, making the denominator for diluted earnings per share 59,040,620. Certain exercisable and non-exercisable stock options were not included in the computation of diluted EPS for fiscal year 2002, because the option prices were greater than the average market prices for the periods. The number of stock options outstanding, which met this criterion for 2002 was 30,000 with a range of per share exercise prices of $28.25-$32.22.
Components of other comprehensive income (loss) consist of the following:
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 2002, 2001, and 2000, 6,358; 7,446; and 6,948 shares of Company common stock were issued under the plan, respectively.
Cash dividends declared and paid per share for each year are:
Shares of common stock were issued in 2002, 2001, and 2000 pursuant to a members' stock purchase plan as follows:
During 2002, shareholders approved the 2002 Members' Stock Purchase Plan. Under the new plan, 800,000 shares of common stock were registered for issuance to participating members. Beginning on June 30, 2002, rights to purchase stock are granted on a quarterly basis to all members who have one year of employment eligibility and work a minimum of 20 hours a week. The price of the stock purchased under the plan is 85% of the closing price on the applicable purchase date. No member may purchase stock under the plan in an amount which exceeds the lesser of 20% of his/her gross earnings or a maximum fair value of $25,000 in any calendar year. During 2002, 47,419 shares of common stock were issued under the plan at an average price of $22.58. An additional 752,581 shares were available for issuance under the plan at December 28, 2002.
The Company has a shareholders rights plan which will expire August 20, 2008. The plan becomes operative if certain events occur involving the acquisition of 20% or more of the Company's common stock by any person or group in a transaction not approved by the Company's Board of Directors. Upon the occurrence of such an event, each right entitles its holder to purchase an amount of common stock of the Company with a market value of $400 for $200, unless the Board authorizes the rights be redeemed. The rights may be redeemed for $0.01 per right at any time before the rights become exercisable. In certain instances, the right to purchase applies to the capital stock of the acquirer instead of the common stock of the Company. The Company has reserved preferred shares necessary for issuance should the rights be exercised.
The Company has entered into change in control employment agreements with corporate officers and certain other key employees. According to the agreements, a change in control occurs when a third person or entity becomes the beneficial owner of 20% or more of the Company's common stock or when more than one-third of the Company's Board of Directors is composed of persons not recommended by at least three-fourths of the incumbent Board of Directors. Upon a change in control, a key employee is deemed to have a two-year employment with the Company, and all his or her benefits are vested under Company plans. If, at any time within two years of the change in control, his or her position, salary, bonus, place of work, or Company-provided benefits are modified, or employment is terminated by the Company for any reason other than cause or by the key employee for good reason, as such terms are defined in the agreement, then the key employee is entitled to receive a severance payment equal to two times annual salary and the average of the prior two years' bonuses.
Stock-Based Compensation
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. Restricted stock awarded under the plan is expensed ratably over the vesting period of the awards. Stock options awarded to employees under the Plan must be at exercise
prices equal to or exceeding the fair market value of the Company's common stock on the date of grant. Stock options are generally subject to four-year cliff vesting and must be exercised within 10 years from the date of grant.
The Company accounts for this plan under the recognition and measurement principles of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FASB Statement No. 123, "Accounting for Stock-Based Compensation," as amended by FASB Statement No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure",to stock-based employee compensation.
The weighted-average fair value of options granted during 2002, 2001, and 2000 estimated on the date of grant using the Black-Scholes option-pricing model was $11.74, $9.70, and $9.25, respectively. The fair value of 2002, 2001, and 2000 options granted is estimated on the date of grant using the following assumptions: dividend yield of 1.65% to 2.06%, expected volatility of 34.32% to 38.37%, risk-free interest rate of 5.13% 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:
The following table summarizes information about fixed stock options outstanding at December 28, 2002:
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 $23,524,000, $24,826,000, and $24,400,000 in 2002, 2001, and 2000, respectively.
The Company sponsors defined benefit plans which include a limited number of salaried and hourly employees at certain subsidiaries. The Company's funding policy is generally to contribute annually the minimum actuarially computed amount. Net pension costs relating to these plans were $0 for 2002, 2001, and 2000. 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 $309,000, $310,000, and $308,500 in 2002, 2001, and 2000, 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:
The discount rates at fiscal year-end 2002, 2001, and 2000 were 6.5%, 6.5%, and 8.0%, respectively. The Company payment for these benefits has reached the maximum amounts per the plan; therefore, healthcare trend rates have no impact on company cost.
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:
Property, plant, and equipment at year-end include the following amounts for capitalized leases:
Rent expense for the years 2002, 2001, and 2000 amounted to approximately $13,683,000, $13,387,000, and $15,428,000, 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. One of the individuals continues as an officer of a subsidiary of the Company. Contingent rent expense under both capitalized and operating leases (generally based on mileage of transportation equipment) amounted to $787,000, $869,000, and $941,000 for the years 2002, 2001, and 2000, respectively.
Commitments and Contingencies
The Company utilizes letters of credit in the amount of $27 million to back certain financing instruments, insurance policies and payment obligations. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined.
The Company entered into a three year transportation service contract with a contract carrier in May, 2002. The Company is contingently liable for future minimum payments totaling $14,537,000 under this contract. The Company is also contingently liable for $266,000 of financing arrangements with certain customers.
The Company has contingent liabilities which have arisen in the course of its business, including pending litigation, preferential payment claims in customer bankruptcies, environmental remediation, taxes, and other claims. The Company currently has one preferential payment claim outstanding totaling approximately $7.6 million. The Company intends to vigorously contest this claim, however, the ultimate outcome or likelihood of this specific claim cannot be determined at this time. It is our opinion, after consultation with legal counsel, that additional liabilities, if any, resulting from these matters are not expected to have a material adverse effect on
our financial condition, although such matters could have a material effect on our quarterly or annual operating results and cash flows when resolved in a future period.
Significant Customer
One office furniture customer accounted for approximately 14% of consolidated net sales in each year.
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 2002, 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 2002, 2001, and 2000 is as follows:
(a)Included in operating profit for the office furniture segment are pretax charges of $3.0 million and $22.5 million for closing of facilities and impairment charges in 2002 and 2001, respectively. 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.
(b)In 2002 the Company's information technologies departments became a shared service at the corporate level. The costs continue to be charged out to the segments, however the assets and related deprecation are now classified as general corporate.
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.
(a)First quarter 2000 includes partial quarterly results of operation of American Fireplace Company and the Allied Group acquisitions acquired February 29, 2000. INVESTOR INFORMATION
Common Stock Market Prices and Dividends (Unaudited)
Quarterly 2002-2001
Common Stock Market Price and Price/Earnings Ratio (Unaudited)
Fiscal Years 2002-1992
*Adjusted for the effect of stock splits
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of HON INDUSTRIES Inc.
Our audits of the consolidated financial statements referred to in our report dates January 31, 2003, appearing in this Annual Report on Form 10-K also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K (Schedule II). In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
The financial statement schedule of HON INDUSTRIES Inc. for the years ended December 29, 2001 and December 30, 2000, were audited by other independent accountants who have ceased operations. Those independent accounts expressed an unqualified opinion on the financial statement scheduled in their report dated February 1, 2002.
/s/PricewaterhouseCoopers LLP
Chicago, Illinois
January 31, 2003
Report of Predecessor Auditor (Arthur Andersen LLP) on Financial Statement Schedule
The following report is a copy of a report previously issued by Arthur Andersen LLP and has not been reissued by Arthur Andersen LLP. This report applies to supplemental Schedule II Valuation and Qualifying Accounts for the years ended December 29, 2001, and December 30, 2000.
REPORT OF INDEPENDENT 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.
/s/Arthur Andersen LLP
Chicago, Illinois
February 1, 2002
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
HON INDUSTRIES INC. AND SUBSIDIARIES
December 28, 2002
Note A: Excess of accounts written off over recoveries
ITEM 14(a)(3)-INDEX OF EXHIBITS
Exhibit Number
Description of Document
Page Number
(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, as amended
-
(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)
2002 Members Stock Purchase Plan of the Registrant, incorporated by reference to Exhibit B to the Registrant's proxy statement dated March 22, 2002, related to the Registrant's Annual Meeting of Shareholders held on May 6, 2002
-
(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
-
(10ix)
Form of Common Stock Grant Agreement of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 28, 1996
-
(10x)
Form of HON INDUSTRIES Inc. Stock-Based Compensation Plan Stock Option Award Agreement of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant's Annual Report on Form 10-K/A for the fiscal year ended December 28, 1996
-
(10xi)
Stock Purchase Agreement of the Registrant, dated September 18, 1985, as amended by amendment dated February 11, 1991, between the Registrant and Stanley M. Howe, incorporated by reference to Exhibit 10(xi) to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998
-
(10xii)
Real Estate Contract of the Registrant, dated November 15, 1997, between the Registrant and Terrence L. and Loretta B. Mealy, incorporated by reference to Exhibit 10(xii) to the Registrant's Annual Report on Form 10-K for the year ended January 3, 1998
-
(10xiii)
$136,000,000 Credit Agreement, dated May 10, 2002; Deutsche Bank Trust Company Americas, as Administrative Agent, The Northern Trust Company, as Syndication Agent, National City Bank of Michigan/Illinois as Documentation Agent, and various lending institutions
-
(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,
-
(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 7, 2002
-
(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 7, 2002
-
(99C)
Forward-Looking Statements
-
(99D)
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-
PART I
ITEM 1. BUSINESS
ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA-ELEVEN-YEAR SUMMARY
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PART IV
ITEM 14. CONTROLS AND PROCEDURES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
SIGNATURES
CERTIFICATION OF CHIEF EXECUTIVE OFFICER Sarbanes-Oxley Act Section 302
CERTIFICATION OF CHIEF FINANCIAL OFFICER Sarbanes-Oxley Act Section 302
HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
HON INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
HON INDUSTRIES INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS HON INDUSTRIES INC. AND SUBSIDIARIES December 28, 2002