ITEM 1. BUSINESS
Hillenbrand Industries, Inc., an Indiana corporation headquartered in Batesville, Indiana, is a diversified, public holding company and the owner of 100% of the capital stock of its six major operating companies. Unless the context otherwise requires, the terms "Hillenbrand" and the "Company" refer to Hillenbrand Industries, Inc. and its consolidated subsidiaries. Hillenbrand is organized into two business segments: Funeral Services and Health Care. The Funeral Services Segment consists of Batesville Casket Company, Inc., a manufacturer of caskets, and Forecorp, Inc., a provider of funeral planning insurance products. The Health Care Segment consists of Hill-Rom Company, Inc. a manufacturer of equipment for hospitals; SSI Medical Services, Inc., a provider of wound care, pulmonary/trauma and incontinence management services; Block Medical, Inc., a provider of home infusion therapy products; and Medeco Security Locks, Inc., a manufacturer of high security locks and access control products for commercial and residential use. (Medeco does not directly serve the health care industry but is included in the Health Care Segment due to its relative size.)
FUNERAL SERVICES
Batesville Casket Company, Inc. ("Batesville") an Indiana corporation headquartered in Batesville, Indiana, was founded in 1884 and acquired by the Hillenbrand family in 1906. Batesville manufactures and sells several types of steel, copper, bronze and hardwood caskets, including caskets for the cremation market. In addition to caskets, Batesville sells a line of urns used in cremations. All Batesville metal caskets are protective caskets which are electrically welded and made resistant to the entry of air, water and gravesite substances through the use of rubber gaskets and a locking bar mechanism. Batesville Monoseal-R- steel caskets also employ a magnesium alloy bar to cathodically protect the casket from rust and corrosion. The Company believes that this system of Cathodic Protection is featured only on Batesville caskets. Batesville hardwood caskets are made from walnut, mahogany, cherry, maple, pine, oak and poplar. Except for a limited line of hardwood caskets with a protective copper liner, the majority of hardwood caskets are not protective. Batesville caskets are marketed by Batesville's direct sales force to licensed funeral directors operating licensed funeral homes throughout the United States, Australia, Canada and Puerto Rico. Batesville maintains an inventory of caskets at 68 company-operated Customer Service Centers in North America. Batesville caskets are delivered in specially equipped vehicles owned by Batesville. In December 1993, Batesville acquired Industrias Arga, S.A. de C.V., a casket manufacturer in Mexico. Forecorp, Inc., which was founded in 1985, and its subsidiaries, Forethought Life Insurance Company and The Forethought Group, Inc., are headquartered in Batesville, Indiana. These companies serve the country's largest network of funeral planning professionals with marketing support for Forethought-R- funeral plans funded by life insurance policies. This specialized funeral planning product is offered through licensed funeral homes. Customers choose the funeral home, type of service and merchandise they want. The selected funeral home contracts to provide the funeral services and merchandise when needed. With funds provided by a life insurance policy from Forethought Life Insurance Company, the Forethought program offers inflation protection by enabling the funeral home to guarantee that the planned funeral will be available as specified. Certificates of authority to sell life insurance have been obtained in forty-eight (48) states, Puerto Rico and the District of Columbia. Forethought Life Insurance products are available through a network of over 5,000 independent funeral homes in forty-one (41) of these jurisdictions.
HEALTH CARE
Hill-Rom Company, Inc. ("Hill-Rom"), an Indiana corporation headquartered in Batesville, Indiana, has been in the hospital equipment business since its founding in 1929. Hill-Rom is a leading producer of mechanically, electrically and hydraulically controlled adjustable hospital beds,
hospital procedural stretchers, hospital patient room furniture and architectural systems specifically designed to meet the needs of medical-surgical, critical care and perinatal providers. The Hill-Rom line of electrically and manually adjustable hospital beds includes models which, through sideguard controls, can be raised and lowered, retracted and adjusted to varied orthopedic and therapeutic contours and positions. Hill-Rom also produces beds for special departments such as intensive care, emergency, recovery rooms and labor and delivery rooms. Other Hill-Rom products include sideguard communications, wood finished bedside cabinets, adjustable height overbed tables, mattresses and wood upholstered chairs. Its architectural products include customized, prefabricated modules, either wall-mounted or on freestanding columns, enabling medical gases, communications and electrical services to be distributed in patient rooms. Hill-Rom products are sold directly to hospitals throughout the United States and Canada by Hill-Rom account executives. Most Hill-Rom products sold in the United States are delivered by trucks owned by Hill-Rom. Hill-Rom also operates a Canadian division which distributes Hill-Rom products, principally in Canada, and a German subsidiary which distributes Hill-Rom products throughout Europe. Hill-Rom also sells its domestically produced products through distributorships throughout the world. In 1991, Hill-Rom acquired Le Couviour, a French company which manufactures a variety of mechanically, hydraulically and electrically controlled beds and patient room furniture. Its products are sold directly to hospitals and nursing homes throughout Europe. In February 1994, Hill-Rom completed the acquisition of L. & C. Arnold A.G., of Schorndorf/Kempen in western Germany. Arnold is one of the oldest and largest manufacturers of hospital beds in Germany. SSI Medical Services, Inc. ("SSI"), headquartered in Charleston, South Carolina, was acquired by Hillenbrand in 1985 and is known to the medical community as Support Systems International. SSI is engaged in the manufacture of therapy beds and support surfaces and the rental of these products in the wound care, pulmonary/trauma and incontinence management markets. Clinical support for SSI products is provided by a sales force composed of nurses and physician assistants. Technical support is made available by technicians and service personnel who provide maintenance and technical assistance from SSI Service Centers. Within the wound care market, CLINITRON-R- Air Fluidized Therapy is provided as a therapeutic adjunct in the treatment of advanced pressure sores, flaps, grafts and burns. The CLINITRON unit achieves its support characteristics from the fluid effect created by forcing air up and through medical-grade ceramic microspheres contained in the unit's fluidization chamber. SSI also offers low airloss therapy through its RESTCUE-R- and FLEXICAIR-R- units. Low airloss support is achieved by distributing air through cushions specially designed to allow some of the air to escape slowly. The advent of the RESTCUE bed in 1989 marked SSI's entry into the pulmonary/trauma market by incorporating three low airloss modes of operation into an integrated system. In 1992, SSI introduced the RESTCUE-R- CC-TM- therapy unit which provides two additional modes of operation. The RESTCUE-R- CC-TM- is the only unit on the market with five modes of operation on one self-contained hospital bed. FLEXICAIR low airloss therapy is provided for pressure sore prevention and wound treatment when ambulation is a priority or continuous head elevation is desired. The FLEXICAIR unit, which includes a Hill-Rom bed frame unit, regulates air pressure in five zones corresponding to patient body areas. Also in 1992, SSI introduced the CLENSICAIR-R- Incontinence Management System. This innovative unit combines SSI's pressure-relieving low airloss therapy with a breakthrough design for managing incontinence and patient cleansing needs. Other SSI wound care products include the ACUCAIR-R- Continuous Air Flow System and the CLINISERT-R- Pressure Relief System. Both are offered as more effective alternatives to conventional overlays and mattresses. SSI therapy systems are made available to hospitals, long-term care facilities and the home environment on a rental basis through over 150 Service Centers located in the United States, Canada and Western Europe. In May 1993, SSI purchased certain assets of The Mediscus Group, Inc. of Akron, Ohio, which was engaged in business similar to SSI.
Block Medical, Inc. ("Block"), a Delaware corporation, is headquartered in Carlsbad, California and was acquired by Hillenbrand in 1991. Its manufacturing operations were moved to Mexico in December of 1993. Block is a manufacturer of home infusion products for antibiotic, nutritional, chemotherapy and other drug therapies, including HOMEPUMP-TM-, a disposable infusion pump, and VERIFUSE-TM-, an ambulatory electronic infusion pump. HOMEPUMP, which can be carried in a pocket or specially designed pouch, provides a simple and convenient way for patients to administer their medication with minimum disruption of their lives. VERIFUSE is a computerized electronic infusion pump that is designed to handle more complex infusion medications while enabling the patient to be ambulatory. It is programmed through the use of a built-in bar-code scanner and is capable of delivering four infusion therapies. Block's products are sold to homecare providers throughout the United States and internationally by a direct sales force and through distributors. Medeco Security Locks, Inc. ("Medeco"), founded in 1968, was purchased by Hillenbrand in 1984. Medeco manufactures and sells a wide variety of deadbolts, padlocks, switch locks, camlocks, electro-mechanical and other special purpose locks for the high security market. Medeco's double locking mechanism provides a higher level of security than is achievable by more common, single locking devices. Medeco locks are primarily constructed of brass and hardened steel and are manufactured in its Salem, Virginia plant. In 1991, Medeco created the Medeco Security Electronics (MSE) division and entered the electronic high security market with two innovative products. INSITE VLS-TM- replaces the thousands of mechanical keys used in pay telephone and vending machine collection. The INSITE SITEKEY-TM- provides the state-of-the-art in electronic door security. Medeco products are sold domestically and internationally by its sales organization to locksmith supply distributors, original equipment manufacturers and government agencies. Original equipment applications include vending machines, pay telephones, safe and lock boxes, computer equipment, coin-operated laundry machines and communications security devices. Hill-Rom and SSI generate the predominant share of the Health Care segment's revenues and operating profit. Hill-Rom is the larger of these two companies. Medeco and Block had an immaterial effect on the operating results of this segment in 1992 and 1993.
OTHER
On August 30, 1993, the Company sold its luggage business, American Tourister, Inc., to Astrum International Corp. The results of American Tourister, Inc., representing a substantial portion of the previously reported Durables Segment, have been reported separately as discontinued operations in the Statement of Consolidated Income, with prior periods restated to conform to the current presentation.
BUSINESS SEGMENT INFORMATION
The amounts of net revenues, operating profit and identifiable assets attributable to each of the industry segments of the Company are set forth in tables relating to operations by business segment in Note 6 to Consolidated Financial Statements, which statements are included under Item 8.
RAW MATERIALS
FUNERAL SERVICES
Batesville employs carbon and stainless steel, copper and bronze sheet, wood, fabrics, finishing materials, rubber gaskets, zinc and magnesium alloy in the manufacture of its caskets. These materials are available from several sources.
HEALTH CARE
Principal materials used in Hill-Rom and SSI products include steel, aluminum, stainless steel, wood, high pressure laminates, fabrics, silicone-coated soda-lime glass beads and other materials, substantially all of which are available from several sources. Motors for electrically operated beds and certain other components are purchased from one or more manufacturers. Block uses thermo-plastic materials, elastomeric membranes, electronic components, miniature electric motors, machined metal parts and other materials, substantially all of which are available from multiple sources. Medeco uses brass, hardened steel and other metals, substantially all of which are available from several sources.
COMPETITION
FUNERAL SERVICES
Batesville believes its dollar volume of sales of finished caskets is the largest in the United States. Batesville competes on the basis of product quality, service to its customers and price, and believes that there are approximately two (2) other companies that also manufacture and/or sell caskets over a wide geographic area. There are, however, throughout the United States many enterprises that manufacture, assemble, or distribute caskets for sale within a limited geographic area. Forecorp, Inc. competes on the basis of service to its customers and products offered. Forethought Life sells its products in competition with local and state trusts for pre-need funeral planning as well as other life insurance companies. Forethought Life believes it is the leading provider of insurance funded pre-arranged funerals in the United States.
HEALTH CARE
Hill-Rom competes on the basis of product quality and performance, service to its customers and price. Hill-Rom believes it is the market share leader of electrically operated hospital beds. Hill-Rom sells its products in competition with products of approximately ten (10) other manufacturers, some of which have larger financial resources and sell a broader line of products. SSI competes on the basis of service to its customers and product quality. There are other companies which provide low airloss and other methods of patient support and patient relief. Block competes on the basis of product innovation and quality coupled with attention to customer service. Block believes it is the market leader in providing new innovations to the alternative site health care market, even though several competitors have larger financial resources. Medeco competes on the basis of product quality and performance, and service to its customers. Medeco believes it is the market share leader in the mechanical high security lock market; however, other lock manufacturers produce a broader product line and have larger financial resources. Medeco believes that its patents and channels of distribution are important to its business.
RESEARCH
Each of the Company's operating subsidiaries devotes research efforts to develop and improve its products as well as its manufacturing and production methods. All research and development expenses are Company sponsored and, for new products, amounted to approximately $22,270,000 in 1993, $20,321,000 in 1992, and $14,634,000 in 1991. Additionally, $8,089,000 was spent in 1993, $7,689,000 in 1992, and $7,974,000 in 1991 on research and development pertaining to the improvement of existing products. The above amounts exclude expenditures relative to discontinued operations.
PATENTS AND TRADEMARKS
The Company owns a number of patents on its products and manufacturing processes which are of importance to it, but it does not believe that any single patent or related group of patents are of material significance to the business of the Company as a whole. The Company also owns a number of trademarks and service marks relating to its products and product services which are of importance to it, but it does not believe that any single trademark or service mark is of material significance to the business of the Company as a whole.
EMPLOYEES
As of January 18, 1994, the Company employed approximately 9,800 persons in its operations in the United States, Canada and Europe.
ENVIRONMENTAL PROTECTION
Hillenbrand Industries, Inc. is committed to operating all of its businesses in a way that protects the environment. The Company has voluntarily entered into remediation agreements with environmental authorities, and has been issued Notices of Violation alleging violations of certain permit conditions. Accordingly, the Company is in the process of implementing plans of abatement in compliance with agreements and regulations. The Company has also been notified as a potentially responsible party in investigations of certain offsite disposal facilities. The cost of all plans of abatement and waste site cleanups in which the Company is currently involved is not expected to exceed $5,000,000. The Company has provided adequate reserves in its financial statements for these matters. Compliance with other current governmental provisions relating to protection of the environment also does not materially affect the Company's capital expenditures, earnings or competitive position. Recent changes in environmental law might affect the Company's future operations, capital expenditures and earnings. The cost of complying with these provisions is not known.
FOREIGN OPERATIONS AND EXPORT SALES
Information about the Company's foreign operations is set forth in tables relating to geographic information in Note 6 to Consolidated Financial Statements, which statements are included under Item 8. The Company's export revenues constituted less than 10% of consolidated revenues in 1993 and prior years.
ORDER BACKLOG
Order backlogs are immaterial to the Company and there was no material change in backlogs during 1993.
EXECUTIVE OFFICERS OF THE REGISTRANT
W August Hillenbrand, 53, was elected Chief Executive Officer of the Company on April 11, 1989 and has been President since October 21, 1981. Prior to that he had been a Vice President of the Company since 1972 and has been employed by the Company throughout his business career.
Lonnie M. Smith, 49, was elected Senior Executive Vice President, effective January 1, 1982. From 1978 through 1981, he held the position of Executive Vice President of American Tourister, Inc. From 1976 to 1978, he was Senior Vice President of Strategic Planning for the Company. Prior to that he was employed by the Boston Consulting Group, business consultants.
Tom E. Brewer, 55, has been employed by the Company since May 16, 1983, and was elected Senior Vice President and Chief Financial Officer on May 23, 1983 and Treasurer on September 6, 1991. He had been employed by the Firestone Tire and Rubber Company for the prior 22 years, where he served as Corporate Vice President and Treasurer.
George E. Brinkmoeller, 58, was elected Vice President, Corporate Services on December 2, 1979, had been Director of Corporate Services since January 1, 1975, and had been Manager of Affiliated Operations since January 1, 1971.
Mark R. Lindenmeyer, M.D., 47, was elected Vice President, General Counsel and Secretary of the Company on October 7, 1991. He has been employed by the Company since August 18, 1986 as Litigation Counsel. Prior to joining the Company, Dr. Lindenmeyer served in the U.S. Army as a military trial attorney and judge and was a partner in a Batesville, Indiana law firm. He has been a practicing physician since 1986 and a licensed attorney since 1972.
Brian J. Leitten, 44, was elected Vice President, Corporate Development and Technology on November 4, 1991. He has been employed by the Company since September 1, 1983, serving as Intellectual Property Counsel and, since 1986, Director, Corporate Development and Technology. Prior to joining the Company he was a partner with the Washington, D.C. law firm of Burns, Doane, Swecker & Mathis.
David L. Robertson, 48, has been employed by the Company since November 15, 1982, and was elected Vice President of Human Resources on January 25, 1983. For the prior ten years, he was employed by the Olin Corporation, most recently as Corporate Director of Human Resources.
Bradley K. Reedstrom, 32, was elected Vice President, Corporate Planning on December 1, 1991. He has been employed by the Company since June 13, 1985, serving in various capacities in the Corporate Planning department, most recently as Director.
James D. Van De Velde, 47, was elected Vice President, Controller on May 13, 1991. He joined the Company on September 1, 1980 as Director, Taxes. Prior to that he was employed by the public accounting firm of Price Waterhouse.
Robyn P. Washburn, 38, was elected Vice President, Continuous Improvement on April 9, 1991. Prior to that, he served as Vice President, Corporate Planning, and has been employed by the Company since May 10, 1982.
ITEM 2.
ITEM 2. PROPERTIES
The principal properties of the Company and its subsidiaries are listed below, and are owned by the Company or its subsidiaries subject to no material encumbrances except for those facilities (*) which were constructed with funds obtained through Government Issued Bonds (see Note 3 to the Consolidated Financial Statements). All facilities are suitable for their intended purpose, are being efficiently utilized and are believed to provide adequate capacity to meet demand for the next several years.
LOCATION DESCRIPTION PRIMARY USE -------- ----------- -----------
HEALTH CARE AND OTHER:
* Batesville, IN Manufacturing plant and Manufacture of hospital distribution facility equipment Office facilities Administration Charleston, SC Office facility and Administration and assembly plant assembly of therapy units Kempen and Schorndorf, Manufacturing plants and Manufacture of hospital and Germany office facilities nursing home equipment Pluvigner, France Manufacturing plant and Manufacture of hospital office facility equipment Salem, VA Manufacturing plant and Manufacture of mechanical office facility and electronic locks
FUNERAL SERVICES:
Batesville, IN Manufacturing plants Manufacture of metal caskets Office facilities Administration Manchester, TN Manufacturing plants Manufacture of metal caskets Campbellsville, KY Manufacturing plant Manufacture of metal caskets Vicksburg, MS Kiln drying and lumber Drying and dimensioning cutting plant lumber * Batesville, MS Manufacturing plant Manufacture of hardwood caskets Nashua, NH Manufacturing plant Manufacture of hardwood caskets
In addition to the foregoing, the Company leases or owns a number of warehouse distribution centers and sales offices throughout the United States and Europe.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Hill-Rom was recently notified that it is part of an investigation into the hospital bed industry by the Antitrust Division of the Department of Justice (the "DOJ"). As a result, the Company was issued a Civil Investigation Demand by the DOJ and served with a subpoena to allow review of internal Hill-Rom files and business practices to determine any irregularities. The Company is cooperating with the DOJ in its investigation. Although the Company believes that it is not in violation of any antitrust law or statute and expects no material, adverse financial effect, it is impossible to predict with certainty when the investigation will be concluded, what the outcome of the investigation will be and what effect, if any, the outcome might have on the Company's financial condition or results of operations. There is no other pending litigation of a material nature in which the Company or its subsidiaries are involved.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders for the quarter ended November 27, 1993.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Hillenbrand Industries' common stock is traded on the New York Stock Exchange under the ticker symbol "HB". The following table reflects the range of high and low selling prices of the Company's common stock by quarter for 1993 and 1992.
HOLDERS
On January 18, 1994, there were approximately 27,000 holders of the Company's common stock.
DIVIDENDS
The Company has paid cash dividends on its common stock every quarter since its first public offering in 1971, and those dividends have increased each year since 1972. Dividends are paid near the end of February, May, August and November to shareholders of record near the end of January, April, July and October. Cash dividends of $.45 ($.1125 per quarter) in 1993 and $.35 ($.0875 per quarter) in 1992 were paid on each share of common stock outstanding. Cash dividends will be $.57 ($.1425 per quarter) in 1994.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data of Hillenbrand Industries, Inc. for fiscal years 1989 through 1993.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and notes thereto. The discussion of results of operations excludes the results of the Company's luggage business, American Tourister, Inc., which was sold on August 30, 1993. The results of American Tourister, previously combined with Medeco Security Locks to form the Durables segment, have been reported separately as discontinued operations in the Statement of Consolidated Income. Results for American Tourister represented a substantial portion of the Durables segment as previously reported. Results for Medeco are now included in the Health Care segment (which also includes Hill-Rom, SSI and Block) due to Medeco's relative size. The Funeral Services segment includes Batesville Casket and Forethought. Results for prior years have been restated to conform to the current presentation.
RESULTS OF OPERATIONS
1993 COMPARED WITH 1992
Net revenues increased $144.9 million, or 11.1%, to $1.4 billion in 1993. This represents the twenty-second consecutive annual increase in revenues since the Company's initial public offering in 1971. Operating profit of $234.3 million and income from continuing operations of $132.5 million were, respectively, 19.0% and 19.2% higher than in 1992. Fourth quarter 1993 results reflect the $11.6 million net gain on the sale of American Tourister and the $14.0 million write-down of goodwill relative to the acquisition of Block Medical in 1991. First quarter 1992 net income includes the $10.7 million favorable effect of the change in method of accounting for income taxes. Excluding these non-recurring items, total year net income (including the net income (loss) from discontinued operations in both years) increased 40.5% in 1993. Net revenues in the Health Care segment increased $84.7 million, or 10.7%, to $875.7 million in 1993. This growth was lead by Hill-Rom, which recorded increased sales of electric beds (primarily the Advance-R- series), the Affinity-TM- birthing bed and refurbished hospital equipment, as well as higher sales in Europe and Canada. Revenue growth at SSI was driven by increased units in use in its acute care, long-term care and home care markets. SSI's European revenues were down, despite growth in units in use, due to strong price competition in that market. The acquisition of certain assets of The Mediscus Group in May 1993 contributed marginally to SSI's overall revenue growth. Although Block Medical's sales continue to be disappointing, sales of the Verifuse-R- ambulatory electronic pump and its disposable administration sets increased in 1993. Sales of Homepump-R- disposable infusion pumps were down slightly in 1993, but improved steadily during the second half of the year. At Medeco, sales of telephone locks (mechanical and electric) and door security products increased due to strong market acceptance of new product offerings and positive consumer spending. Net revenues in the Funeral Services segment increased $60.2 million, or 11.8%, to $572.2 million in 1993. Net sales at Batesville Casket were higher due to increased unit shipments (including the marginal effect of acquired distributors), successful new product introductions (including a line of cremation products), improved product mix, and a moderate price increase. Forethought's revenue continued its strong growth pattern in 1993 although, as anticipated, at a rate slightly lower than in prior years. Investment income was up due to a larger invested asset base, partially offset by lower yields. Earned premium revenue was higher due to increased policies in force, year over year. The growth in consolidated operating profit of 19.0% compared with consolidated revenue growth of 11.1% reflects the improvement in cost of revenues as a percentage of revenues from 51.8% in 1992 to 51.6% in 1993, and the improvement in administrative, distribution and selling expenses as a percentage of revenues from 33.1% in 1992 to 32.2% in 1993. Operating profit in the Health Care segment of $132.7 million in 1993 was $16.3 million, or 14.0%, higher than in 1992. Hill-Rom's profit margins were negatively affected by continued growth in European operations (which generally realize lower margins), increased refurbished equipment sales and higher sales
discounts in the U.S. and Canada. These factors were largely offset by improved efficiency, productivity and cost control in all operations. Improved operating results at SSI reflected increased therapy unit utilization, the benefits of the field operations reorganization in 1991, and lower depreciation expense associated with the Company's acquisition of SSI in 1985. The results of SSI's international operations were negatively affected by a very strong competitive environment. While Block is not currently contributing to the profitability of the Health Care segment, it continues to improve its products and operations. In the fourth quarter of 1993 the Company reassessed its investment in Block, which was acquired at the end of fiscal year 1991. Based on Block's operating results in 1992 and 1993 and management's current expectations regarding Block's future earnings and cash flow, the Company recorded a charge of $14.0 million to reduce the carrying value of the goodwill related to the Block acquisition. This charge is reflected in administrative, distribution and selling expenses. Without this non-recurring charge, operating profit in the Health Care segment would have increased $30.3 million, or 26.0%, in 1993. Medeco's margins continue to improve due to increases in productivity and efficiency. Operating profit in the Funeral Services segment of $114.6 million was up $16.5 million, or 16.9%, from 1992. Batesville Casket's results were enhanced by improved manufacturing, distribution and administrative efficiencies. Increased sales of higher value products also contributed to Batesville's improved margins. Forethought's profitability was favorably affected by higher investment income, higher insurance in force and the leveraging of fixed administrative expenses. Unassigned corporate administrative expenses declined $4.6 million, or 26.1%, due primarily to lower incentive compensation accruals. Compensation earned under provisions of the performance compensation plan (approved by shareholders on April 7, 1992) in 1992 and 1993, based on the performance of certain subsidiaries and the Company in those years, was accrued primarily in 1992. This factor also positively affected the comparative operating results of both business segments. Other expense, net, of $276 thousand was $6.0 million less than in 1992. This change was due to favorable foreign currency transaction experience in 1993 relative to 1992 and lower net expenses associated with the Company's corporate-owned life insurance program. The effective income tax rate on income from continuing operations increased from 37.5% in 1992 to 40.2% in 1993 primarily as the result of a corporate income tax rate increase enacted retroactive to January 1, 1993 as part of the 1993 tax legislation and the write-down of Block goodwill, which cannot be deducted for tax purposes. This increase was partially offset by decreases in both the state and foreign effective income tax rates.
1992 COMPARED WITH 1991
Net revenues increased $218.6 million, or 20.2%, to $1.3 billion in 1992. Operating profit of $196.8 million and income from continuing operations of $111.2 million were, respectively, 23.7% and 23.5% higher than in 1991. Net income in 1992 of $116.3 million reflected the $10.7 million favorable effect of the change in method of accounting for income taxes. Excluding this non-recurring item, net income increased 18.3% in 1992. Net revenues in the Health Care segment increased $165.5 million, or 26.4%, to $791.0 million. Hill-Rom's sales growth was driven by increased shipments of new and enhanced products and expansion in Europe, including sales by Le Couviour which was acquired in the fourth quarter of 1991. In 1992, SSI achieved revenue growth in its acute care, long-term care, home care and European markets as an expanded product offering and increased service improved the Company's competitive position. The revenues of Block Medical (acquired on the last day of fiscal 1991) contributed only marginally to the year-to-year growth of the Health Care segment. Medeco's sales growth was due to successful new product introductions and improved economic conditions. Net revenues in the Funeral Services segment increased $53.1 million, or 11.6%, to $512.0 million in 1992. Batesville Casket's sales were up due to improved product mix, higher unit volume and a moderate price increase. Forethought's earned premium revenue grew primarily as a result of increased business in force, and investment income growth was driven by a higher invested asset base, partially offset by marginally lower yields. Consolidated operating profit increased 23.7% compared to the revenue growth of 20.2%. Cost of revenues as a percentage of revenues improved from 52.8% in 1991 to 51.8% in 1992. Administrative, distribution and selling expenses as a percentage of revenues increased from 32.6%
in 1991 to 33.1% in 1992. Operating profit in the Health Care segment of $116.4 million was $26.0 million, or 28.7%, higher than in 1991. This growth reflected higher revenues, improved profitability on new products, increased efficiency and European expansion. Additionally, depreciation and amortization expense relative to the SSI acquisition peaked in 1990 and has declined in each subsequent year. Hill-Rom's profit margins were negatively affected by the inclusion of results for Le Couviour. The benefits of a major manufacturing realignment and other efficiency improvements favorably affected fixed costs and productivity at Medeco. Operating profit in the Funeral Services segment of $98.1 million was $16.7 million, or 20.6%, higher than in 1991. Batesville Casket's profitability improved as a result of improved product mix and increased manufacturing efficiencies. Forethought's operating profit growth reflected increased insurance in force, higher investment income and economies of scale in fixed operating expenses. Unassigned corporate administrative expenses of $17.7 million were $5.0 million higher than in 1991. Incentive compensation was higher at corporate and both business segments due to compensation accrued relative to the performance compensation plan approved in 1992. Compensation relative to the performance of certain subsidiaries and the Company in 1992 and 1993 under provisions of this plan was accrued primarily in 1992. Interest expense of $21.2 million in 1992 was $8.0 million higher than in 1991 due to the issuance of debentures in December of 1991 and debt associated with the acquisition of Le Couviour, partially offset by lower imputed interest on the SSI earn-out payments and the retirement in January 1992 of the remaining balance on a 9-1/8% promissory note. Investment income of $8.4 million was $2.1 million lower than in 1991. Higher average levels of interest-earning assets were offset by significantly lower yields. Other expense, net, of $6.2 million was $3.3 million lower than in 1991 due primarily to the discontinuation of the sale of SSI accounts receivable. The effective income tax rate on income from continuing operations was 37.5% in 1992 compared with 38.7% in 1991. This decrease resulted from implementation of various Federal and state planning strategies.
INFLATION
Changing prices had a negligible effect on results of operations in 1993, 1992 and 1991. Improvements in manufacturing and administrative efficiency continue to minimize the effect of price increases.
LIQUIDITY AND CAPITAL RESOURCES
Net cash generated from operating activities and selected borrowings represent the Company's primary sources of funds for growth of the business, including capital expenditures and acquisitions. Cash and cash equivalents (excluding investments of the insurance operation) grew from $150.0 million at the end of 1992 to $210.2 million at the end of 1993, an increase of $60.2 million. Net cash flows from operating activities of $218.5 million compares with $200.4 million and $199.3 million generated in 1992 and 1991, respectively. The decline in depreciation and amortization expense in 1993 reflects lower expense associated with the SSI acquisition, partially offset by the write-down of goodwill relative to the Block acquisition. The $19.6 million increase in accounts receivable was largely a function of higher sales volume, especially in the Health Care segment in the fourth quarter. The $50.6 million increase in 1992, as well as the increase in days sales outstanding (DSO) from 64 to 68, was attributable to the unwinding of the SSI accounts receivable sales program ($37.0 million effect). Strong fourth quarter shipments at Hill-Rom also contributed to the higher receivables balance at year-end 1992. DSO increased from 68 at year-end 1992 to 70 at year-end 1993 due primarily to the sale of American Tourister, which had DSO considerably below that of the Company as a whole. This factor was mostly offset by the significant success realized by SSI over the past year in the improvement of third party collections. Accrued expenses were essentially unchanged between 1993 and 1992 as lower income taxes payable (due to higher payments) was offset by higher accrued compensation. The $48.7 million increase in accrued expenses in 1992 reflected higher compensation, including the effect of the performance compensation plan adopted in 1992, and interest expense. Capital spending in 1993 was $112.7 million compared to $98.3 million in 1992 and $59.0
million in 1991. The production of therapy units at SSI increased from $17.4 million in 1992 to $31.8 million in 1993 as new products and enhanced existing products were placed in service. The $39.3 million increase in 1992 was due to new products and expansion of facilities in the Health Care segment and upgrade of the aircraft fleet which is utilized primarily for the Company's customer visitation programs. There were no material commitments for capital spending at year-end 1993. Acquisition payments in 1993 were primarily for the purchase of certain assets of The Mediscus Group, a provider of specialized therapeutic beds and related services. Its operations have been fully integrated into SSI. Acquisition payments in 1992 were for Le Couviour, and payments in 1991 were for Le Couviour and Block. Proceeds (net of disposition costs) on the sale of American Tourister were $55.3 million in 1993. The Company's long-term debt-to-equity ratio decreased from 33.8% at year-end 1992 to 16.9% at year-end 1993. An unsecured promissory note in the amount of $75.0 million due in annual installments in 1994, 1995 and 1996 was reclassified to current liabilities. It is the Company's intent to prepay this note in full in 1994 without penalty. The Company's long-term debt agreement with an insurance company permits a debt-to-tangible net worth ratio of up to 90%. With that ratio at 36.7% at year-end 1993, this debt capacity, combined with existing cash and other working capital, affords the Company considerable flexibility in the funding of internal and external growth. In the fourth quarter of 1993, the Company filed a registration statement with the Securities and Exchange Commission for the future issuance of up to $200 million of debentures. The proceeds will be used for general corporate purposes, including working capital, capital expenditures, possible future acquisitions, refinancing of indebtedness and redemption of securities. Insurance assets of $1,212.4 million grew 32.9% over the past year. Cash and invested assets of $934.0 million constitute 77.0% of the assets. The investments are concentrated in the highest grade, Federal Government, Federal agency and corporate bond securities. The invested assets are more than adequate to fund the insurance reserves and other liabilities of $846.9 million. Statutory reserves represent 65% of the face value of insurance in force. This percentage is far greater than the 1992 national average of 6% for all U.S. life insurance companies. The statutory capital and surplus as a percent of statutory liabilities of the life insurance subsidiary of Forethought was 8.6% at December 31, 1993, up from 7.4% on December 31, 1992. The long-term deferred tax benefit relative to insurance operations results from differences in recognition of insurance policy revenues and expenses for financial accounting and tax reporting purposes. Financial accounting rules require ratable recognition of insurance product revenues over the lives of the respective policies. These revenues are recognized in the year of policy issue for tax purposes. This results in a deferred future tax benefit. Insurance policy acquisition expenses must be capitalized and amortized for both financial accounting and tax purposes. Financial accounting rules require a greater amount to be capitalized and amortized than for tax reporting. This results in a deferred future tax cost, which partially offsets the deferred future tax benefit. The net deferred future tax benefit increased $11.0 million in 1993, compared to $13.0 million in 1992. The reduction in the year to year net increase was attributable to favorable final regulations issued by the Department of the Treasury which reduced the amount of policy acquisition expenses required to be capitalized for tax purposes. The net effect of the temporary differences discussed above is expected to cause the net deferred tax benefit to increase in the future. Cumulative treasury stock acquired increased to 10,213,272 shares in 1993, up from 9,872,446 shares in 1992. The Company currently has Board of Directors' authorization to repurchase up to a total of 14,000,000 shares. Repurchased shares are used for general business purposes. From the cumulative shares acquired, 28,287 shares were reissued in 1993 to individuals under the provisions of the Senior Executive Compensation Program. A total of 4,700 restricted stock shares were forfeited in 1993. Under the restricted stock plan approved by the shareholders of the Company on April 14, 1987, 324,600 shares have been awarded, 268,132 shares have been distributed and/or deferred, and 56,468 shares have been forfeited to date. No additional awards are contemplated at this time. Under the performance compensation plan approved by the shareholders of the Company on April 7, 1992, 386,096 shares were earned in 1993 based on each subsidiary's and the Company's performance in 1992 and 1993. Quarterly cash dividends were raised 28.6% from 8.75 cents per share in 1992 to 11.25 cents in 1993. An additional increase of 26.7% to 14.25 cents per share was announced in January 1994. The Company expects to continue to share its growth with its shareholders.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Changes in the health care delivery system will continue to impact the Company's U.S. customers in the Health Care segment and, therefore, the products and services the Company provides. The uncertainty and extent of future health care reform legislation may also affect the purchasing patterns of these customers. Batesville Casket competes in an essentially flat market. Its future growth will depend in part on its ability to continue to gain market share by offering innovative products and services. The Company believes that the investments it has made in new products and services and process improvements, coupled with its leadership position in the markets it serves, will enable it to successfully compete in this changing environment.
REPORTING
The Financial Accounting Standards Board has recently issued two Statements of Financial Accounting Standards (SFAS) which apply to the Company. SFAS No. 112, "Employers' Accounting for Post Employment Benefits," was issued in November 1992, and establishes standards of financial accounting and reporting for the estimated cost of benefits which will be provided by an employer to former or inactive employees after employment but before retirement. Adoption of this standard, which will occur no later than fiscal year 1995, is not expected to have a material effect on the financial condition or results of operations of the Company. SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," was issued in May 1993. SFAS 115 requires that investments in debt and equity securities be accounted for and classified as follows: debt securities that the Company has the positive intent and ability to hold to maturity are classified as "held-to-maturity" and reported at amortized cost; debt and equity securities that are bought and held principally for resale in the near term are classified as "trading securities" and reported at fair value, with unrealized gains and losses included in earnings; and debt and equity securities not classified as either of the above are classified as "available-for-sale" and reported at fair value, with unrealized gains and losses charged or credited directly to a separate component of shareholders' equity. This Statement will primarily affect the carrying value and presentation of Forethought's investment assets and will be adopted by the Company no later than fiscal year 1995.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
FINANCIAL STATEMENTS:
Report of Independent Accountants 16 Statements of Consolidated Income for the three years ended November 27, 1993 17 Statements of Consolidated Shareholders' Equity for the three years ended November 27, 1993 18 Statements of Consolidated Cash Flows for the three years ended November 27, 1993 19 Consolidated Balance Sheets at November 27, 1993 and November 28, 1992 20 Notes to Consolidated Financial Statements 22 Financial Statement Schedules for the three years ended November 27, 1993: Schedule V - Equipment Leased to Others and Property 37 Schedule VI - Accumulated Depreciation of Equipment Leased to Others and Property 38 Schedule VIII - Valuation and Qualifying Accounts 39 Schedule IX - Short-Term Borrowings 40 Schedule X - Supplementary Income Statement Information 41
All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors of Hillenbrand Industries, Inc.
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Hillenbrand Industries, Inc. and its subsidiaries at November 27, 1993 and November 28, 1992, and the results of their operations and their cash flows for each of the three years in the period ended November 27, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards 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 audits provide a reasonable basis for the opinion expressed above. As discussed in Note 1 to the financial statements, the Company changed its method of accounting for income taxes in 1992.
PRICE WATERHOUSE
Indianapolis, Indiana January 10, 1994
STATEMENT OF CONSOLIDATED INCOME
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES (DOLLARS IN THOUSANDS)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENT OF CONSOLIDATED CASH FLOWS
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES (DOLLARS IN THOUSANDS)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES (DOLLARS IN THOUSANDS)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies specific to insurance operations are summarized in Note 9.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, except for several small subsidiaries which provide ancillary services to the Company and the public. These subsidiaries are not consolidated because of their materiality and are accounted for by the equity method. Their results of operations appear in the income statement, net of income taxes, under the caption "Other income (expense), net." Operating results for American Tourister, which was sold on August 30, 1993, are reported separately as discontinued operations, net of income taxes, in the income statement. Material intercompany accounts and transactions have been eliminated in consolidation. The Company's fiscal year is the 52 or 53 week period ending the Saturday nearest November 30.
CASH AND CASH EQUIVALENTS
The Company considers investments in marketable securities and other highly liquid instruments with a maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are valued at the lower of cost, principally on a last-in, first-out (LIFO) basis, or market. The LIFO reserve, which approximates the excess of the current cost of inventories over the stated LIFO values, increased from $8.3 million at year-end 1991 to $9.3 million at year-end 1992. The LIFO reserve fell to $8.2 million at year-end 1993 due to the sale of American Tourister in the fourth quarter. Excluding the effect of the sale, the LIFO reserve increased $1.6 million in 1993. Separate accounts for raw materials, work-in-process and finished goods are not maintained.
EQUIPMENT LEASED TO OTHERS
Equipment leased to others represents the cost of remaining CLINITRON-r- therapy units acquired on November 29, 1985 in the acquisition of Support Systems International, Inc. and substantially all other therapy units manufactured and acquired since that date. All units are effectively depreciated on a straight-line basis over their average economic life. These units are leased on a day-to-day basis.
PROPERTY
Property is recorded at cost and depreciated over the estimated useful life of the assets using principally the straight-line method for financial reporting purposes. Generally, when property is retired from service or otherwise disposed of, the cost and related amount of depreciation or amortization are eliminated from the asset and reserve accounts, respectively. The difference, if any, between the net asset value and the proceeds is charged or credited to income. The major components of property at the end of 1993 and 1992 were:
INTANGIBLE ASSETS
Intangible assets are stated at cost and are amortized on a straight-line basis over periods ranging from 3 to 40 years. In the fourth quarter of 1993, the Company recorded a $14.0 million charge to reduce the carrying value of the goodwill related to the Block acquisition based on management's expectations for Block's future earnings and cash flow. Accumulated amortization of intangible assets was $119,258 and $106,034 as of November 27, 1993 and November 28, 1992, respectively.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the average number of shares outstanding during each year, including restricted shares issued to employees. Common equivalent shares arising from shares awarded under the Senior Executive Compensation Program, which was initiated in fiscal year 1978, have been excluded from the computation because of their insignificant dilutive effect.
RETIREMENT PLANS
The Company and its subsidiaries have several defined benefit retirement plans covering the majority of employees, including certain employees in foreign countries. The Company contributes funds to trusts as necessary to provide for current service and for any unfunded projected future benefit obligation over a reasonable period. The benefits for these plans are based primarily on years of service and the employee's level of compensation during specific periods of employment. The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7.5% and 6.0%, respectively, for 1993, 8.0% and 6.5%, respectively, for 1992, and 8.5% and 8.0%, respectively, for 1991. The expected long-term rate of return on assets was 8.0% for 1993 and 1992 and 8.5% for 1991.
Net pension expense includes the following components:
The funded status of the plans is shown in the table below:
The Company also sponsors several defined contribution plans covering certain of its employees. Employer contributions are made to these plans based on a percentage of employee compensation. The cost of these defined contribution plans was $5,928 in 1993, $5,388 in 1992, and $4,313 in 1991.
INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109), in 1992. SFAS 109 is an asset and liability method of accounting for income taxes. The asset and liability method requires the recognition of deferred tax assets and liabilities based upon expected future tax consequences of temporary differences between tax bases and financial reporting bases of assets and liabilities.
Net assets as of December 1, 1991 were increased by $10,747 as a result of adopting SFAS 109. For years prior to 1992, income taxes were computed based on Accounting Principles Board Opinion No. 11.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated at year-end rates of exchange and the income statements are translated at the average rates of exchange prevailing during the year. Adjustments resulting from translation of the financial statements of foreign operations are excluded from the determination of net income and included as a separate caption in shareholders' equity. Foreign currency gains and losses resulting from transactions are included in results of operations.
2. ACQUISITIONS
In May 1993, SSI purchased certain assets of The Mediscus Group, Inc. Batesville Casket acquired several regional casket distributors during fiscal 1993. Two acquisitions occurred subsequent to the end of fiscal year 1993. In December 1993, Batesville acquired Industrias Arga, S.A. de C.V., a casket manufacturer in Mexico. In February 1994, Hill-Rom completed the acquisition of L. & C. Arnold A.G., of Schorndorf/Kempen in western Germany. Amounts paid for these acquisitions were not significant to the Company's financial position.
3. FINANCING AGREEMENTS
Financing agreements with promissory note holders contain various provisions and conditions relating to dividend payments, working capital and additional indebtedness. At November 27, 1993, retained earnings available for dividends were $305,494. The minimum working capital and long-term debt-to-tangible net worth limits afford the Company considerable flexibility in its financing alternatives.
Long-term debt consists of the following:
The scheduled payments of the remaining long-term debt as of November 27, 1993 are: $77,318 in 1994; $2,911 in 1995; $946 in 1996; $679 in 1997 and $490 in 1998. It is the Company's intent to prepay the $75,000 promissory note in full in 1994 without penalty. Short-term debt consists of a non-interest bearing promissory note in the amount of $1,750 payable in 1994 and use of various lines of credit maintained for foreign subsidiaries totaling $10,958.
4. SHAREHOLDERS' EQUITY
One million shares of preferred stock, without par value, have been authorized and none have been issued. The Company's Senior Executive Compensation Program, initiated in fiscal year 1978, provides long-term performance share compensation which contemplates annual payments of common stock of the Company to participants contingent on their continued employment and upon achievement of pre-established financial objectives of the Company over succeeding three-year periods. A total of 1,206,593 shares of common stock of the Company remain reserved for issuance under the program. Total tentative performance shares payable through November 27, 1993, were 99,588. In addition, the Senior Executive Compensation Program provides for participants to defer payment of long-term performance share and other compensation earned in prior years. A total of 202,445 deferred shares are payable as of November 27, 1993. Accruals for payments under these programs are included in "Other Long-Term Liabilities." Members of the Board of Directors may elect to defer fees earned as reinvested in common stock of the Company. A total of 2,692 deferred shares are payable as of November 27, 1993 under this program. On April 7, 1992, the shareholders of the Company approved the adoption of a performance compensation plan whereby key employees will be awarded tentative performance shares based upon achievement of performance targets. An aggregate of 1,675,400 shares of common stock have been authorized and reserved for issuance under this plan. In 1993, 386,096 shares were earned based on the Company's performance. The Board of Directors has authorized the repurchase, from time to time, of up to 14,000,000 shares of the Company's stock in the open market. The purchased shares will be used for general corporate purposes. As of November 27, 1993, a total of 10,213,272 shares had been purchased. On April 14, 1987, the shareholders of the Company approved the adoption of a restricted stock plan whereby key employees may be granted restricted shares of the Company's stock. The restrictions lapse after six years; or earlier if certain financial goals are exceeded. 2,000,000 shares of common stock were designated for this plan. These restricted shares may be awarded during the next four years and the vesting periods begin when the shares are awarded. 324,600 shares have been awarded, 268,132 shares have been distributed and/or deferred, and 56,468 shares have been forfeited as of November 27, 1993. No additional awards are contemplated at this time.
5. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each class of financial instruments (other than Insurance investments which are described in Note 9) for which it is practicable to estimate that value: The carrying amounts of cash and cash equivalents, trade accounts receivable, other current assets, trade accounts payable, and accrued expenses approximate fair value because of the short maturity of those instruments. The fair value of the Company's debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The estimated fair values of the Company's debt instruments are as follows:
6. SEGMENT INFORMATION
INDUSTRY INFORMATION
The Company has restated its segment presentation to give effect to the sale of American Tourister and the regrouping of Batesville Casket and Forethought into the Funeral Services segment.
The Health Care segment consists of Hill-Rom Company, SSI Medical Services and Block Medical. Results for Medeco Security Locks are included in this segment due to its relative size. Hill-Rom produces and sells electric hospital beds, patient room furniture and patient handling equipment designed to meet the needs of acute care and perinatal providers. SSI provides rental therapy units to health care facilities for wound therapy, the management of pulmonary complications associated with critically ill patients, and incontinence management. Block manufactures and sells home infusion therapy products including disposable infusion pumps and ambulatory electronic infusion pumps for antibiotic, nutritional, chemotherapy and other drug therapies. Medeco produces and sells high-security mechanical locks and lock cylinders and electronic security systems for commercial, residential and government applications.
The Funeral Services segment consists of Batesville Casket Company and Forecorp. Batesville manufactures and sells a variety of metal and hardwood caskets and sells a line of urns used in cremation. Batesville's products are sold to licensed funeral directors operating licensed funeral homes. Forecorp's subsidiaries, Forethought Life Insurance Company and The Forethought Group, provide funeral planning professionals with marketing support for Forethought-r- funeral plans funded by life insurance policies. Note 9 contains additional information regarding insurance operations.
Financial information regarding the Company's industry segments is presented below:
GEOGRAPHIC INFORMATION
The net revenues, operating profit, and identifiable assets of the Company's foreign operations each constituted less than 10% of the corresponding consolidated items in 1991 and prior years and are therefore not reported separately.
Sales between geographic area are at transfer prices, which are equivalent to market value.
7. INCOME TAXES
In 1992, the Company adopted SFAS 109 "Accounting for Income Taxes." Under SFAS 109, the deferred tax provision is determined using the liability method. This method recognizes deferred tax assets and liabilities measured on differences between financial statement and tax bases of assets and liabilities using presently enacted tax rates.
The fiscal year differences between the amounts recorded for income taxes on income from continuing operations for financial statement purposes and the amounts computed by applying the Federal statutory tax rate to income from continuing operations before taxes are explained as follows:
Items that gave rise to significant portions of the net deferred tax balance sheet accounts are as follows:
Items that gave rise to significant portions of the deferred provision for income taxes for 1991 are as follows:
8. SUPPLEMENTARY INFORMATION
The following amounts were (charged) or credited to income in the year indicated:
The table below indicates the minimum annual rental commitments (excluding renewable periods) aggregating $49,552, primarily for warehouses, under noncancellable operating leases.
The table below provides supplemental cash flow information.
9. INSURANCE OPERATIONS
Forecorp, Inc., through its two subsidiaries, The Forethought Life Insurance Company and The Forethought Group, Inc., serves funeral planning professionals with life insurance policies and marketing support for FORETHOUGHT-R- funeral planning, a pre-need insurance program. Investments are predominantly U.S. Government, Federal agency and corporate debt securities with fixed maturities and are carried on the balance sheet at amortized cost. It is management's intent that these investments be held to maturity. Cash (unrestricted as to use) is held for future investment.
The amortized cost and fair values of investments in debt securities at November 27, 1993 are as follows:
The amortized cost and fair value of debt securities at November 27, 1993, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.
Proceeds and realized gains and losses from the sale of investments in debt securities were as follows:
Premiums received are recorded as an increase to benefit reserves or as unearned revenue. Unearned revenues are recognized over the actuarial life of the contract. Policy acquisition costs, consisting of commissions, policy issue expense and premium taxes, are deferred and amortized consistently with unearned revenues. Benefit reserves are equal to the net cash surrender value available to policyholders. Cash surrender values are determined using Commissioner's Standard Ordinary tables with interest rates from 4.0% to 5.5%.
Summarized financial information of insurance operations included in the consolidated financial statements is as follows:
10. UNAUDITED QUARTERLY FINANCIAL INFORMATION
11. DISCONTINUED OPERATION
On August 30, 1993, the Company sold its luggage business, American Tourister, Inc., for a cash payment of $63.8 million. Net proceeds (after disposition costs) were $55.3 million. The gain on the sale of $11.6 million is net of income taxes of $4.7 million. The results of American Tourister, Inc., representing a substantial portion of the previously-reported Durables segment, have been reported separately as discontinued operations in the Statement of Consolidated Income for the three year period ended November 27, 1993. The income (loss) from discontinued operations is net of income tax provisions (benefits) of $1,091, ($782) and ($426) in 1993, 1992 and 1991, respectively.
ITEM 9.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements with the independent accountants.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to executive officers is included in this report as the last section of Item 1 under the caption "Executive Officers of the Registrant." Information relating to the directors will appear in the section entitled "Election of Directors" in the definitive Proxy Statement to be dated February 25, 1994, and to be filed with the Commission relating to the Company's 1994 Annual Meeting of Shareholders, which section is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" in the definitive Proxy Statement dated February 25, 1994, and to be filed with the Commission relating to the Company's 1994 Annual Meeting of Shareholders, is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The section entitled "Election of Directors" in the definitive Proxy Statement to be dated February 25, 1994, and to be filed with the Commission relating to the Company's 1994 Annual Meeting of Shareholders, is incorporated herein by reference.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The sections entitled "About the Board of Directors" and "Compensation Committee Interlocks and Insider Participation" in the definitive Proxy Statement to be dated February 25, 1994, and to be filed with the Commission relating to the Company's 1994 Annual Meeting of Shareholders, are incorporated herein by reference.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents have been filed as a part of this report or, where noted, incorporated by reference:
(1) Financial Statements
The financial statements of the Company and its consolidated subsidiaries listed on the index to Consolidated Financial Statements on page 15.
(2) Financial Statement Schedules
The financial statement schedules filed in response to Item 8 and Item 14(d) of Form 10-K are listed on the index to Consolidated Financial Statements on page 15.
(3) Exhibits
The following exhibits have been filed as part of this report in response to Item 14(c) of Form 10-K.
3 (i) Form of Restated Certificate of Incorporation of the Registrant (Incorporated herein by reference to Exhibit 3 filed with Form 10-K for the year ended November 28, 1992)
3 (ii) Form of Amended Bylaws of the Registrant
10 (i) Purchase Agreement dated April 30, 1986, between Registrant and Metropolitan Life Insurance Company (Incorporated herein by reference to Exhibit 4 filed with Form 10-K for the year ended November 29, 1986)
The following management contracts or compensatory plans or arrangements are required to be filed as exhibits to this form pursuant to Item 14 (c) of this report:
10 (ii) Hillenbrand Industries, Inc. Senior Executive Compensation Program (Incorporated herein by reference to Exhibit 10 filed with Form 10-K for the year ended November 30, 1991)
10 (iii) Hillenbrand Industries, Inc. Performance Compensation Plan (Incorporated herein by reference to the definitive Proxy Statement dated February 28, 1992, and filed with the Commission relative to the Company's 1992 Annual Meeting of Shareholders)
21 Subsidiaries of the Registrant
23 Consents of Experts and Counsel
(b) Reports on Form 8-K for the Quarter Ended November 27, 1993.
A report on Form 8-K under Item 5 was filed on August 30, 1993, relative to the sale of the Company's luggage business, American Tourister, Inc. The sale did not represent the disposition of a significant amount of assets as would be required to be reported under Item 2 of Form 8-K; however, American Tourister represented a substantial portion of the Company's previously-reported Durables segment. The report included the Company's consolidated balance sheet at November 28, 1992 and November 30, 1991, and consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended November 28, 1992, restated to give effect to the discontinued operations of American Tourister from November 29, 1987.
SCHEDULE V HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES EQUIPMENT LEASED TO OTHERS AND PROPERTY FOR THE YEARS ENDED NOVEMBER 27, 1993, NOVEMBER 28, 1992, AND NOVEMBER 30, 1991 (DOLLARS IN THOUSANDS)
SCHEDULE VI
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES ACCUMULATED DEPRECIATION OF EQUIPMENT LEASED TO OTHERS AND PROPERTY FOR THE YEARS ENDED NOVEMBER 27, 1993, NOVEMBER 28, 1992, AND NOVEMBER 30, 1991 (DOLLARS IN THOUSANDS)
SCHEDULE VIII
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED NOVEMBER 27, 1993, NOVEMBER 28, 1992, AND NOVEMBER 30, 1991 (DOLLARS IN THOUSANDS)
SCHEDULE IX
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES SHORT-TERM BORROWINGS FOR THE YEARS ENDED NOVEMBER 27, 1993, NOVEMBER 28, 1992, AND NOVEMBER 30, 1991 (DOLLARS IN THOUSANDS)
SCHEDULE X
HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION FOR THE YEARS ENDED NOVEMBER 27, 1993, NOVEMBER 28, 1992, AND NOVEMBER 30, 1991 (DOLLARS IN THOUSANDS)
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HILLENBRAND INDUSTRIES, INC.
By: /S/ W August Hillenbrand ------------------------------------- W August Hillenbrand Dated: January 19, 1994 President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
/S/ Daniel A. Hillenbrand /S/ Leonard Granoff --------------------------- --------------------------- Daniel A. Hillenbrand Leonard Granoff Chairman of the Board Director
/S/ Tom E. Brewer /S/ John C. Hancock --------------------------- --------------------------- Tom E. Brewer John C. Hancock Senior Vice President and Director Chief Financial Officer
/S/ James D. Van De Velde /S/ W August Hillenbrand --------------------------- --------------------------- James D. Van De Velde W August Hillenbrand Vice President, Controller Director
/S/ Robert K. Bellamy /S/ George M. Hillenbrand II --------------------------- --------------------------- Robert K. Bellamy George M. Hillenbrand II Director Director
/S/ Lawrence R. Burtschy /S/ John A. Hillenbrand II --------------------------- --------------------------- Lawrence R. Burtschy John A. Hillenbrand II Director Director
/S/ Peter F. Coffaro /S/ Ray J. Hillenbrand --------------------------- --------------------------- Peter F. Coffaro Ray J. Hillenbrand Director Director
/S/ Edward S. Davis /S/ Lonnie M. Smith --------------------------- --------------------------- Edward S. Davis Lonnie M. Smith Director Director
Dated: January 19, 1994
HILLENBRAND INDUSTRIES, INC. INDEX TO EXHIBITS
3 (i) Form of Restated Certificate of Incorporation of the Registrant (Incorporated herein by reference to Exhibit 3 filed with Form 10-K for the year ended November 28, 1992)
3 (ii) Form of Amended Bylaws of the Registrant
10 (i) Purchase Agreement dated April 30, 1986, between Registrant and Metropolitan Life Insurance Company (Incorporated herein by reference to Exhibit 4 filed with Form 10-K for the year ended November 29, 1986)
10 (ii) Hillenbrand Industries, Inc. Senior Executive Compensation Program (Incorporated herein by reference to Exhibit 10 filed with Form 10-K for the year ended November 30, 1991)
10 (iii) Hillenbrand Industries, Inc. Performance Compensation Plan (Incorporated herein by reference to the definitive Proxy Statement dated February 28, 1992, and filed with the Commission relative to the Company's 1992 Annual Meeting of Shareholders)
21 Subsidiaries of the Registrant
23 Consents of Experts and Counsel