ITEM 1. BUSINESS
General
HON INDUSTRIES Inc. (“HON” or the “Company”) is an Iowa corporation incorporated in 1944. The Company is a national manufacturer and marketer of office furniture and hearth products. Approximately 76% of fiscal year 2001 net sales were in office furniture and 24% in hearth products. A broad office furniture product offering is sold to dealers, wholesalers, warehouse clubs, retail superstores, end-user customers, and federal and state governments. Dealer, wholesaler, and retail superstores are the major channels based on sales. Hearth products include wood-, pellet-, and gas-burning factory-built fireplaces, fireplace inserts, stoves, and gas logs. These products are sold through a national system of dealers, wholesalers, large regional contractors, and Company-owned retail outlets. In fiscal 2001, the Company had net sales of $1.8 billion, of which approximately $1.4 billion was attributable to office furniture products and $0.4 billion was attributable to hearth products. Please refer to Operating Segment Information in the Notes to Consolidated Financial Statements for further information about operating segments.
The Company is organized into a corporate headquarters and operating units with offices, manufacturing plants, distribution centers, and sales showrooms in the United States, Canada, and Mexico. See Item 2.
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 8.9 million square feet. Of this total, approximately 1.8 million square feet are leased, including approximately 0.3 million square feet under a capital lease.
Although the plants are of varying ages, the Company believes they are well maintained, are equipped with modern and efficient equipment, and are in good operating condition and suitable for the purposes for which they are being used. The Company has sufficient capacity to increase output at most locations by increasing the use of overtime and/or number of production shifts employed.
The Company’s principal manufacturing and distribution facilities (100,000 square feet in size or larger) are as follows:
(1) Also includes a regional warehouse/distribution center
(2) A capital lease
Other Company facilities, under 100,000 square feet in size, are located in various communities throughout the United States and Canada. These facilities total approximately 1,371,000 square feet with approximately 456,000 square feet used for the manufacture and distribution of office furniture and approximately 915,000 square feet for hearth products. Of this total, approximately 964,000 square feet are leased. In addition, the Company has two facilities that have been vacated and are in the process of being marketed for sale. The Company also leases sales showroom space in office furniture market centers in several major metropolitan areas.
The Company has a 40,000 square foot leased plant in Savage, Minnesota, which is subleased.
There are no major encumbrances on Company-owned properties other than outstanding mortgages on certain properties, the amount of which is disclosed in the Long-Term Debt note in the Notes to Consolidated Financial Statements, filed as a part of this report. Refer to the Property, Plant, and Equipment note in the Notes to Consolidated Financial Statements for related cost, accumulated depreciation, and net book value data.
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. The Company believes the outcome of these disputes and proceedings will not have a material effect on the financial condition or results of operations of the Company, although any litigation or legal proceeding has an element of uncertainty.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART I, TABLE I
EXECUTIVE OFFICERS OF THE REGISTRANT
December 29, 2001
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 2001, the Company had 6,694 stockholders of record.
Computershare Investor Services, L.L.C., Chicago, Illinois, serves as the Company’s transfer agent and registrar of its common stock. Shareholders may report a change of address or make inquiries by writing or calling: Computershare Investor Services, L.L.C., P.O. Box 1689, Chicago, IL 60690-1689 or telephone 312/588-4991.
Common Stock Market Prices and Dividends (Unaudited) and Common Stock Market Price and Price/Earnings Ratio (Unaudited) are presented in the Investor Information section which follows the Notes to Consolidated Financial Statements filed as part of this report.
The Company expects to continue its policy of paying regular cash dividends on the first business day of March, June, September, and December. Dividends have been paid each quarter since the Company paid its first dividend in 1955. The average dividend payout percentage for the most recent three-year period has been 26% of prior year earnings. Future dividends are dependent on future earnings, capital requirements, and the Company’s financial condition.
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HON INDUSTRIES INC. AND SUBSIDIARIES
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - ELEVEN-YEAR SUMMARY
(a) Includes acquisitions completed during year.
(a) 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 29, 2001, Compared to Fiscal Year Ended December 30, 2000
Net Sales
Net sales, on a consolidated basis, decreased by 12% to $1.8 billion in 2001 from $2.0 billion in 2000. Office furniture net sales decreased 17% in 2001 to $1.37 billion from $1.65 billion in 2000. The decline in sales occurred in the retail, commercial and contract sectors. The office furniture industry reported a decrease in shipments of 17% in 2001 compared to 2000. Net sales of hearth products increased 8% to $426.1 million in 2001 from $396.3 million in 2000. The Company’s most recent five-year compounded annual growth rate in net sales is 12%.
Gross Profit
Gross profit dollars decreased 8% to $611.3 million in 2000 from $665.9 million in the prior year. The gross margin percentage increased to 34.1% for 2001 from 32.5% in 2000. The improvement in gross margin percentage is due to new product introductions, and rapid continuous improvement, cost containment and business simplification initiatives.
Selling and Administrative Expenses
Selling and administrative expenses decreased by 5% to $464.2 million in 2001 from $487.8 million in the prior year. Selling and administrative expenses, as a percent of net sales, increased to 25.9% in 2001 from 23.8% in 2000. This increase was due to lower overall sales volume, development of new products, and continued investment in sales and marketing expenses associated with the Company’s business simplification, end-user focus and branding strategies.
Selling and administrative expenses include freight expense for shipments to customers, product development costs, and amortization expenses of intangible assets. The Selling and Administrative Expenses note included in the Notes to Consolidated Financial Statements provides further information regarding the comparative expense levels for these major expense items.
During the second quarter of 2001, the Company recorded a pretax charge of $24.0 million, $15.4 million after tax or $0.26 per common share for a restructuring plan that involved consolidating physical facilities, discontinuing low volume product lines, and reduction of workforce. Included in this charge was the closedown of three of its office furniture facilities located in Williamsport, Pennsylvania, Tupelo, Mississippi, and Santa Ana, California. The charge included $16.2 million of asset impairments for manufacturing equipment that will be disposed of and $7.8 million of restructuring expenses. Included in the $7.8 million is $3.1 million for severance arising from the elimination of approximately 600 plant member positions, $0.8 million for other member-related costs, and $3.9 million for certain other expenses associated with the closing of facilities.
Operating Income
Operating income decreased almost 31% to $123.1 million in 2001 from $178.0 million in 2000. Excluding a pretax charge for restructuring and impairment of $24.0 million in second quarter 2001, operating income decreased 17% to $147.1 million. Operating profit in the office furniture segment decreased in 2001 as a percent of net sales to 8.2%, or 9.9% prior to the restructuring charge, compared to 10.4% in 2000. The decrease is due to lower overall sales volume. Operating profit in the hearth products segment increased in 2001 as a percent of net sales to 9.2%, or 9.6% prior to the restructuring charge, compared to 7.6% in the prior year. This improvement is due to increased sales volume, simplification of the business structure and cost containment.
Net Income
Net income decreased by 30% to $74.4 million in 2001 from $106.2 million in the prior year. Excluding the $15.4 million after-tax charge for the restructuring plan referred to above, net income decreased by 15% to $89.8 million. The decrease is due to lower overall sales volume and increased selling and administrative expenses offset by reduced interest expense.
Net income per common share decreased by 29% to $1.26 in 2001 from $1.77 for 2000. Excluding the after-tax charge of $0.26 per share for the restructuring plan, net income per common share decreased 14% to $1.52. The Company’s net income per share performance for 2001 benefited from the Company’s common stock repurchase program.
Fiscal Year Ended December 30, 2000, Compared to Fiscal Year Ended January 1, 2000
Net Sales
Net sales, on a consolidated basis, increased by 14% to $2.0 billion in 2000 from $1.8 billion in 1999. Office furniture net sales increased 9% in 2000 to $1.65 billion from $1.51 billion in 1999. Net sales of hearth products increased 39% to $396.3 million in 2000 from $285.9 million in 1999 due mainly to the Company’s acquisition of two leading hearth products distributors, American Fireplace Company (AFC) and the Allied Group (Allied). The office furniture industry reported an increase in shipments of 9% in 2000 compared to 1999. The Company’s most recent five-year compounded annual growth rate in net sales is 18%.
Gross Profit
Gross profit dollars increased 18% to $665.9 million in 2000 from $564.3 million in the prior year. Gross margin increased to 32.5% for 2000 from 31.3% in 1999. The improvement reflects the combination of improved price realization and productivity from rapid continuous improvement programs.
Selling and Administrative Expenses
Selling and administrative expenses increased by 23% to $487.8 million in 2000 from $398.2 million in the prior year. Selling and administrative expenses, as a percent of net sales, increased to 23.8% in 2000 from 22.1% in 1999. The largest contributor to this increase was the acquisition of Hearth Services Inc., which is a retail distributor. Retail distribution is a different business model that has proportionally higher selling and administrative costs than manufacturing. The Company is applying rapid continuous improvement philosophies to reduce these costs.
The Company also continued to experience increased investment in sales and marketing expenses associated with refocusing the Company and developing branding programs in the office furniture segment. The Company was able to reduce freight expense as a percent of net sales despite increased fuel and carrier costs.
Selling and administrative expenses include freight expense to the customer, product development costs, and amortization expenses of intangible assets. The “Selling and Administrative Expenses” note included in the Notes to Consolidated Financial Statements provides further information regarding the comparative expense levels for these major expense items.
Operating Income
Operating income increased by 22% to $178.0 million in 2000 from $146.4 million in 1999. Excluding the pretax charge for closing facilities and reorganization expense of $19.7 million in 1999, operating income increased by 7 percent. The increase is due mainly to increased sales and gross margins.
Net Income
Net income increased by 22% to $106.2 million in 2000 from $87.4 million in the prior year. Excluding the $12.5 million after-tax charge for the closing of facilities and reorganization expenses, net income increased 6 percent. This increase is attributable primarily to increased sales and gross margins. Net income was favorably impacted by a decrease in the Company’s effective tax rate from 36.5% in 1999 to 36.0% in 2000 resulting from favorable state income tax initiatives.
Net income per common share increased by 23% to $1.77 in 2000 from $1.44 in 1999. Excluding the after-tax charge of $0.20 per share in 1999 for the closing of facilities and reorganization expenses, net income per common share increased by 8%. The Company’s net income per share performance for 2000 also benefited from the Company’s common stock repurchase program.
Liquidity and Capital Resources
During 2001, cash flow from operations was $227.8 million, which provided the funds necessary to meet working capital needs, help finance acquisitions, invest in capital improvements, repay long-term debt, repurchase common stock, and pay increased dividends. The Company does not have any off balance sheet financing arrangements.
Cash Management
Cash, cash equivalents, and short-term investments totaled $78.8 million in 2001 compared to $3.2 million at the end of 2000 and $22.2 million at the end of 1999. These funds, coupled with cash from future operations and additional long-term debt, if needed, are expected to be adequate to finance operations, planned improvement, and internal growth. The Company is not aware of any known trends or demands, commitments, events or uncertainties that are reasonably likely to result in its liquidity increasing or decreasing in any material way.
The Company places special emphasis on the management and reduction of its working capital with a particular focus on trade receivables and inventory levels. The success achieved in managing receivables is in large part a result of doing business with quality customers and maintaining close communications with them. Trade receivable days outstanding have averaged approximately 37 days over the past three years. Inventory levels and turns continue to improve as a result of reducing production cycle times. Inventory turns have been in the 17 to 18 times range over the past three years.
Capital Expenditure Investments
Capital expenditures, net of disposals, were $36.9 million in 2001, $59.8 million in 2000, and $71.5 million in 1999. Expenditures during 2001, 2000, and 1999 have been consistently focused on machinery and equipment that is needed to support new products, process improvements, cost-savings initiatives, and creating more efficient production and warehousing capacity.
Acquisitions
During 2001, the Company completed the acquisition of three small hearth product distributors for a total purchase price of approximately $7.6 million. The acquisitions were accounted for using the purchase method, and the results of the three distributors have been included in the Company’s financial statements since the date of acquisition.
On February 29, 2000, the Company completed the acquisition of two leading hearth products distributors, American Fireplace Company (AFC) and the Allied Group (Allied), establishing the Company as the leading manufacturer and distributor in the hearth products industry, for a purchase price of approximately $135 million.
Long-Term Debt
Long-term debt, including capital lease obligations, was 12% of total capitalization at December 29, 2001, 18% at December 30, 2000, and 20% at January 1, 2000. The Company does not expect future capital resources to be a constraint on planned growth. Additional borrowing capacity of $200 million is available through a revolving bank credit agreement in the event cash generated from operations should be inadequate to meet future needs. The current revolving bank credit agreement expires in June 2002; however, management is in the process of negotiating a new agreement. Certain of the Company’s credit agreements include covenants that limit the assumption of additional debt and lease obligations. The Company has been and currently is in compliance with the covenants related to the debt agreements.
Contractual Obligations
The following table discloses the Company’s obligations and commitments to make future payments under contracts:
Related Party Transactions
The Company has convertible debentures in the amount of $58.1 million that are payable to former owners of businesses that were acquired by the Company. These individuals remain as employees of the Company following the acquisitions.
The Company has operating leases for office and production facilities with annual rentals totaling $450,000 with the former owners of a business acquired in 1996. These individuals continue as officers of a subsidiary of the Company following the acquisition.
Cash Dividends
Cash dividends were $0.48 per common share for 2001, $0.44 for 2000, and $0.38 for 1999. Further, the Board of Directors announced a 4.2% increase in the quarterly dividend from $0.12 to $0.125 per common share effective with the March 1, 2002, dividend payment for shareholders of record at the close of business February 22, 2002. The previous quarterly dividend increase was from $0.11 to $0.12, effective with the March 1, 2001, dividend payment for shareholders of record at the close of business February 21, 2001. A cash dividend has been paid every quarter since April 15, 1955, and quarterly dividends are expected to continue. The average dividend payout percentage for the most recent three-year period has been 26% of prior year earnings.
Common Share Repurchases
During 2001, the Company repurchased 1,472,937 shares of its common stock at a cost of approximately $35.1 million, or an average price of $23.80. As of December 29, 2001, approximately $78.6 million of the $100.0 million authorized on February 14, 2001, by the Board of Directors for repurchases remained unspent. During 2000, the Company repurchased 837,552 shares at a cost of approximately $18.0 million, or an average price of $21.46. During 1999, the Company repurchased 1,408,624 shares at a cost of approximately $30.9 million, or an average price of $21.91.
Litigation and Uncertainties
The Company is involved in various legal actions arising in the course of business. These uncertainties are referenced in the Contingencies note included in the Notes to Consolidated Financial Statements.
Critical Accounting Policies
The Company’s critical accounting policies include:
Revenue recognition - The Company recognizes revenue upon the shipment of goods. Revenue includes freight charged to customers; related costs are included in selling and administrative expense.
Allowance for doubtful accounts - The allowance for receivables is developed based on several factors including overall customer credit quality, historical write-off experience and specific account analyses that project the ultimate collectibility of the account. As such, these factors may change over time causing the reserve level to adjust accordingly.
Inventory valuation - The Company values its inventory at the lower of cost or market by the last in, first out (LIFO) method. Additionally, the Company evaluates its inventory reserves in terms of excess and obsolete exposures. This evaluation includes such factors as anticipated usage, inventory turnover, inventory levels and ultimate product sales value. As such, these factors may change over time causing the reserve level to adjust accordingly.
Self-insurance reserves - The Company is partially self-insured for general liability, workers’ compensation, and certain employee health benefits. The general and workers’ compensation liabilities are managed through a wholly owned insurance captive; the related liabilities are included in the accompanying financial statements. The Company’s policy is to accrue amounts equal to the actuarially determined liabilities. The actuarial valuations are based on historical information along with certain assumptions about future events. Changes in assumptions for such matters as legal actions, medical costs, and changes in actual experience could cause these estimates to change in the near term.
Recent Accounting Pronouncements
During 2001, the Financial Accounting Standards Board finalized Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company implemented SFAS No. 141 on July 1, 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting. The Company intends to adopt SFAS No. 142 on December 30, 2001, the beginning of its 2002 fiscal year. With the adoption of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be assessed for impairment by applying a fair-value-based test. The Company does not anticipate recognizing any impairment of goodwill upon adoption. The Company will stop recording, on an annual basis, approximately $9.5 million of goodwill amortization upon adoption.
The Financial Accounting Standards Board also finalized SFAS No. 143, “Accounting for Asset Retirement Obligations,” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” during 2001. The Company intends to adopt Statement No. 143 on December 29, 2002, the beginning of its 2003 fiscal year and Statement No. 144 on December 30, 2001, the beginning of its 2002 fiscal year. The adoption of these Statements is not expected to have a material impact on the Company’s financial statements.
Looking Ahead
Due to the current economic environment, the Company anticipates that 2002 will be an extremely challenging year, especially during the first six months. DRI-WEFA, the Business and Institutional Furniture Manufacturer’s Association’s (BIFMA) forecasting consultant, is projecting the office furniture industry to be down 13 percent in 2002 over 2001. The Company continues to focus on new product development and streamlining processes and operations through simplification and rapid continuous improvement. An announcement was made of the closing of an office furniture facility in January 2002, in Jackson, Tennessee, to help reduce the Company’s permanent cost structure. The Company is also continuing its focus on long-term shareholder value by making investments for the future. These investments include innovative new products, technology, end user focus, brand building and increased distribution.
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.
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
None.
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 6, 2002, is incorporated herein by reference. For information with respect to executive officers of the Company, see Part I, Table I “Executive Officers of the Registrant.”
The information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 6, 2002, is incorporated herein by reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions “Election of Directors” and “Executive Compensation” of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 6, 2002, is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions “Election of Directors” and “Beneficial Owners of Common Stock” of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 6, 2002, is incorporated herein by reference.
The information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 6, 2002, is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption “Certain Relationships and Related Transactions” of the Company’s Proxy Statement for the Annual Meeting of Shareholders to be held on May 6, 2002, is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of HON INDUSTRIES Inc. and Subsidiaries included in the Company’s 2001 Annual Report to Shareholders are filed as a part of this report pursuant to Item 8:
Report of Independent Public Accountants
Consolidated Statements of Income for the Years Ended December 29, 2001; December 30, 2000; and January 1, 2000
Consolidated Balance Sheets - December 29, 2001; December 30, 2000; and January 1, 2000
Consolidated Statements of Shareholders’ Equity for the Years Ended December 29, 2001; December 30, 2000; and January 1, 2000
Consolidated Statements of Cash Flows for the Years Ended December 29, 2001; December 30, 2000; and January 1, 2000
Notes to Consolidated Financial Statements
Investor Information
(2) Financial Statement Schedules
The following consolidated financial statement schedule of the Company and subsidiaries is attached pursuant to Item 14(d):
Schedule II Valuation and Qualifying Accounts for the Years Ended December 29, 2001; December 30, 2000; and January 1, 2000
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 58. The following exhibits are filed herewith:
Exhibit
(10vi)
1994 Member Stock Purchase Plan
(10xiv)
HON INDUSTRIES Inc. Profit-Sharing Retirement Plan
(21)
Subsidiaries of the Registrant
(23)
Consent of Independent Public Accountants
(99C)
Letter to Securities and Exchange Commission - Arthur Andersen LLP
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
Chairman, President and CEO,
3/22/02
Jack D. Michaels
Principal Executive Officer,
and Director
/s/ Jerald K. Dittmer
Vice President,
3/22/02
Jerald K. Dittmer
Chief Financial Officer, and
Principal Accounting Officer
/s/ Gary M. Christensen
Director
3/22/02
Gary M. Christensen
/s/ Robert W. Cox
Director
3/22/02
Robert W. Cox
/s/ Cheryl A. Francis
Director
3/22/02
Cheryl A. Francis
/s/ M. Farooq Kathwari
Director
3/22/02
M. Farooq Kathwari
/s/ Robert L. Katz
Director
3/22/02
Robert L. Katz
/s/ Dennis J. Martin
Director
3/22/02
Dennis J. Martin
Signature
Title
Date
/s/ Abbie J. Smith
Director
3/22/02
Abbie J. Smith
/s/ Richard H. Stanley
Director
3/22/02
Richard H. Stanley
/s/ Brian E. Stern
Director
3/22/02
Brian E. Stern
/s/ Lorne R. Waxlax
Director
3/22/02
Lorne R. Waxlax
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of HON INDUSTRIES Inc.
We have audited the accompanying consolidated balance sheets of HON INDUSTRIES Inc. and subsidiaries as of December 29, 2001, December 30, 2000, and January 1, 2000, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the fiscal years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HON INDUSTRIES Inc. and subsidiaries as of December 29, 2001, December 30, 2000, and January 1, 2000, and the results of its operations and its cash flows for each of the three fiscal years then ended in conformity with accounting principles generally accepted in the United States.
Arthur Andersen LLP
Chicago, Illinois
February 1, 2002
HON INDUSTRIES INC. ANDSUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The accompanying notes are an integral part of the consolidated financial statements.
HON INDUSTRIES INC. ANDSUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the consolidated financial statements.
HON INDUSTRIES INC. ANDSUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
The accompanying notes are an integral part of the consolidated financial statements.
HON INDUSTRIES INC. ANDSUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of the consolidated financial statements.
HON INDUSTRIES INC. ANDSUBSIDIARIES
Notes to Consolidated Financial Statements
Nature of Operations
HON INDUSTRIES Inc., with its subsidiaries (the Company), is a national manufacturer and marketer of office furniture and hearth products. Both industries are reportable segments; however, the Company’s office furniture business is its principal line of business. Refer to the Operating Segment Information note for further information. Office furniture products are sold through a national system of dealers, wholesalers, mass merchandisers, warehouse clubs, retail superstores, end-user customers, and to federal and state governments. Dealer, wholesaler, and retail superstores are the major channels based on sales. Hearth products include wood-, pellet-, and gas-burning factory-built fireplaces, fireplace inserts, stoves, and gas logs. These products are sold through a national system of dealers, wholesalers, large regional contractors, and Company-owned retail outlets. The Company’s products are marketed predominantly in the United States and Canada. The Company exports select products to a limited number of markets outside North America, principally Latin America and the Caribbean, through its export subsidiary; however, based on sales, these activities are not significant.
Summary of Significant Accounting Policies
Principles of Consolidation and Fiscal Year-End
The consolidated financial statements include the accounts and transactions of the Company and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.
The Company’s fiscal year ends on the Saturday nearest December 31. Fiscal year 2001 ended on December 29, 2001; 2000 ended on December 30, 2000; and 1999 ended on January 1, 2000.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash and commercial paper. These securities have original maturity dates not exceeding three months from date of purchase.
Receivables
Accounts receivables are presented net of an allowance for doubtful accounts of $16,576,000, $11,237,000, and $3,568,000 for 2001, 2000, and 1999, respectively.
Inventories
Inventories are valued at the lower of cost or market, determined principally by the last-in, first-out (LIFO) method.
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost. Depreciation has been computed using the straight-line method over estimated useful lives: land improvements, 10 - 20 years; buildings, 10 - 40 years; and machinery and equipment, 3 - 12 years.
Goodwill and Patents
Goodwill represents the excess of cost over the fair value of net identifiable assets of acquired companies. Goodwill is being amortized on a straight-line basis over 20-40 years. Patents are being amortized on a straight-line basis over their estimated useful lives, which range from 7 to 16 years. Patents are reported by the Company as Other Assets in the accompanying balance sheet.
The carrying value of goodwill and patents is reviewed by the Company whenever significant events or changes occur which might impair recovery of recorded costs. Based on its most recent analysis, no material impairment of these intangible assets exists at December 29, 2001.
Revenue Recognition
Revenue is recognized upon shipment of goods to customers. Revenue includes freight charged to customers; related costs are in selling and administrative expense.
Product Development Costs
Product development costs relating to the development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. The amounts charged against income were $21,415,000 in 2001, $18,911,000 in 2000, and $17,117,000 in 1999.
Stock-Based Compensation
The Company accounts for its stock option plan using Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” which results in no charge to earnings when options are issued at fair market value. The Company has adopted the disclosure requirements of Statement of Financial Accounting Standards (SFAS) No. 123, “Accounting for Stock-Based Compensation.”
Income Taxes
The Company accounts for income taxes under SFAS No. 109, “Accounting for Income Taxes.” This Statement uses an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Deferred income taxes are provided to reflect the differences between the tax bases of assets and liabilities and their reported amounts in the financial statements.
Earnings Per Share
Basic earnings per share are based on the weighted-average number of common shares outstanding during the year. Shares potentially issuable under options have been considered outstanding for purposes of the diluted earnings per share calculation.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The more significant areas requiring the use of management estimates relate to allowance for doubtful accounts, inventory reserves, accruals for self-insured medical claims, workers’ compensation, general liability and auto insurance claims, and useful lives for depreciation and amortization. Actual results could differ from those estimates.
Self-Insurance
The Company is partially self-insured for general liability, workers’ compensation, and certain employee health benefits. The general and workers’ compensation liabilities are managed through a wholly owned insurance captive; the related liabilities are included in the accompanying consolidated financial statements. The Company’s policy is to accrue amounts equal to the actuarially determined liabilities. The actuarial valuations are based on historical information along with certain assumptions about future events. Changes in assumptions for such matters as legal actions, medical costs, and changes in actual experience could cause these estimates to change in the near term.
Recent Accounting Pronouncements
During 2001, the Financial Accounting Standards Board finalized SFAS No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” The Company implemented SFAS No. 141 on July 1, 2001. SFAS No. 141 requires all business combinations initiated after June 30, 2001, to be accounted for using the purchase method of accounting. The Company intends to adopt SFAS No. 142 on December 30, 2001, the beginning of its 2002 fiscal year. With the adoption of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life. Rather, goodwill will be assessed for impairment by applying a fair-value-based test. The Company does not anticipate recognizing any impairment of goodwill upon adoption. The Company will stop recording, on an annual basis, approximately $9.5 million of goodwill amortization upon adoption.
The Financial Accounting Standards Board also finalized SFAS No. 143, “Accounting for Asset Retirement Obligations,” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” during 2001. The Company intends to adopt Statement No. 143 on December 29, 2002, the beginning of its 2003 fiscal year and Statement No. 144 on December 30, 2001, the beginning of its 2002 fiscal year. The adoption of these Statements is not expected to have a material impact on the Company’s financial statements.
In 2000, the Emerging Issues Task Force (EITF) reached a consensus on Issue No. 00-10, “Accounting for Shipping and Handling Fees and Costs,” that all amounts billed to a customer in a sale transaction related to shipping and handling, if any, represent revenues earned for the goods provided and should be classified as revenue. The Company implemented the above EITF consensus effective with the fourth quarter 2000 and has restated prior periods to reflect the change. The adoption of this consensus did not have a material impact on the Company’s financial statements. In 1998, the Financial Accounting Standards Board issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” which was amended in June 2000 by SFAS No. 138. The Company adopted this Statement in January 2001 as required by the Statement. The adoption of this Statement did not have any impact on the Company’s financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current year presentation.
Provision for Facilities Closing and Reorganization Expenses
During the second quarter of 2001, the Company recorded a pretax charge of $24.0 million or $0.26 per diluted share for a restructuring plan that involved consolidating physical facilities, discontinuing low-volume product lines, and reductions of workforce. Included in the charge was the closedown of three of its office furniture facilities located in Williamsport, Pennsylvania, Tupelo, Mississippi, and Santa Ana, California. The charge included $16.2 million of asset impairments for manufacturing equipment that will be disposed of and $7.8 million of restructuring expenses. Included in the $7.8 million is $3.1 million for severance arising from the elimination of approximately 600 plant member positions, $0.8 million for other member-related costs, and $3.9 million for certain other expenses associated with the closing of facilities.
During 2001, $5.1 million of pretax exit costs were paid and charged against the liability. It included $2.4 million for severance for 469 plant member positions, $0.4 million for other member-related costs and $2.3 million for certain other expenses associated with the closing of facilities. The primary costs not yet incurred relate to costs associated with the closed buildings. Management believes the remaining reserve for restructuring expenses to be adequate to cover these obligations.
On February 11, 1999, the Company adopted a plan to close three of its office furniture facilities located in Winnsboro, South Carolina; Sulphur Springs, Texas; and Mt. Pleasant, Iowa. A pretax charge of $19.7 million or $0.20 per diluted share was recorded during the first quarter of 1999. The charge includes $12.6 million for write-offs of plant and equipment, $2.6 million for severance arising from the elimination of approximately 360 positions, $2.1 million for other member-related costs, and $2.4 million for certain other expenses associated with the closing of the facilities. All significant activities with respect to this reorganization have been completed except for the pending disposition of the Winnsboro, South Carolina, property.
Business Combinations
During 2001, the Company completed the acquisition of three small hearth product distributors for a total purchase price of approximately $7.6 million. The acquisitions were accounted for using the purchase method, and the results of the three distributors have been included in the Company’s financial statements since the date of acquisition.
On February 29, 2000, the Company completed the acquisition of its Hearth Services division, which consists of two leading hearth products distributors, American Fireplace Company (AFC) and the Allied Group (Allied), establishing the Company as the leading manufacturer and distributor in the hearth products industry. The Company acquired AFC and Allied for approximately $135 million in cash and debt including acquisition costs. The acquisition has been accounted for using the purchase method, and the results of AFC and Allied have been included in the Company’s financial statements since the date of acquisition. Management finalized its integration plan related to the acquisition during the first quarter of 2001. The excess of the consideration paid over the fair value of the business of $21 million was recorded as goodwill and was being amortized on a straight-line basis over 20 years.
Assuming the acquisition of American Fireplace Company and Allied Group had occurred on January 3, 1999, the beginning of the Company’s 1999 fiscal year, instead of the actual dates reported above, the Company’s pro forma consolidated net sales would have been approximately $2.1 billion and $1.9 billion for 2000 and 1999, respectively. Pro forma consolidated net income and net income per share for 2000 and 1999 would not have been materially different than the reported amounts.
Inventories
Property, Plant, and Equipment
Accounts Payable and Accrued Expenses
Long-Term Debt
* The revolving bank credit agreement was paid off in 2001 but is available until June 2002 with a maximum borrowing limit of $200,000,000. Management is in the process of negotiating a new agreement.
Aggregate maturities of long-term debt are as follows (in thousands):
The convertible debentures are payable to the former owners of businesses that were acquired by the Company. These individuals continue as employees of the Company following the acquisitions. The convertible debentures are convertible into cash.
Certain of the above borrowing arrangements include covenants which limit the assumption of additional debt and lease obligations. The Company has been and currently is in compliance with the covenants related to these debt agreements. The fair value of the Company’s outstanding long-term debt obligations at year-end 2001 approximates the recorded aggregate amount.
Property, plant, and equipment, with net carrying values of approximately $53,471,000 at the end of 2001, are mortgaged with maturities through 2021.
Selling and Administrative Expenses
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 1,472,937; 837,552; and 1,408,624 shares of its common stock during 2001, 2000, and 1999, respectively. The par value method of accounting is used for common stock repurchases. The excess of the cost of shares acquired over their par value is allocated to Additional Paid-In Capital with the excess charged to Retained Earnings.
Components of other comprehensive income (loss) consist of the following:
In May 1997, the Company registered 400,000 shares of its common stock under its 1997 Equity Plan for Non-Employee Directors. This plan permits the Company to issue to its non-employee directors options to purchase shares of Company common stock, restricted stock of the Company, and awards of Company stock. The plan also permits non-employee directors to elect to receive all or a portion of their annual retainers and other compensation in the form of shares of Company common stock. During 2001, 2000, and 1999, 7,446; 6,948; and 12,758 shares of Company common stock were issued under the plan, respectively.
Cash dividends declared and paid per share for each year are:
Pursuant to the 1994 Members Stock Purchase Plan, 1,000,000 shares of the Company’s common stock were registered for issuance to participating members. Members who have one year of employment eligibility and work a minimum of 20 hours per week have rights to purchase stock on a quarterly basis. The price of the stock purchased under the plan is 85% of the closing price on the applicable purchase date. No member may purchase stock under the plan in an amount which exceeds the lesser of 20% of his or her gross earnings or 4,000 shares, with a maximum fair market value of $25,000 in any calendar year. An additional 128,662 shares were available for issuance under the plan at December 29, 2001. Shares of common stock were issued in 2001, 2000, and 1999 pursuant to a members stock purchase plan as follows:
The Company has a shareholders rights plan which will expire August 20, 2008. The plan becomes operative if certain events occur involving the acquisition of 20% or more of the Company’s common stock by any person or group in a transaction not approved by the Company’s Board of Directors. Upon the occurrence of such an event, each right entitles its holder to purchase an amount of common stock of the Company with a market value of $400 for $200, unless the Board authorizes the rights be redeemed. The rights may be redeemed for $0.01 per right at any time before the rights become exercisable. In certain instances, the right to purchase applies to the capital stock of the acquirer instead of the common stock of the Company. The Company has reserved preferred shares necessary for issuance should the rights be exercised.
The Company has entered into change in control employment agreements with corporate officers and certain other key employees. According to the agreements, a change in control occurs when a third person or entity becomes the beneficial owner of 20% or more of the Company’s common stock or when more than one-third of the Company’s Board of Directors is composed of persons not recommended by at least three-fourths of the incumbent Board of Directors. Upon a change in control, a key employee is deemed to have a two-year employment with the Company, and all his or her benefits are vested under Company plans. If, at any time within two years of the change in control, his or her position, salary, bonus, place of work, or Company-provided benefits are modified, or employment is terminated by the Company for any reason other than cause or by the key employee for good reason, as such terms are defined in the agreement, then the key employee is entitled to receive a severance payment equal to two times annual salary and the average of the prior two years’ bonuses.
Stock Options
Under the Company’s 1995 Stock-Based Compensation Plan, as amended and restated effective November 10, 2000, the Company may award options to purchase shares of the Company’s common stock and grant other stock awards to executives, managers, and key personnel. The Plan is administered by the Human Resources and Compensation Committee of the Board of Directors. Stock options awarded under the Plan must be at exercise prices equal to or exceeding the fair market value of the Company’s common stock on the date of grant. Stock options are generally subject to four-year cliff vesting and must be exercised within 10 years from the date of grant.
If compensation costs had been determined based on the fair value at the grant dates for awards under this Plan, consistent with SFAS No.123, the Company’s pro-forma net earnings and both basic and diluted earnings per share would have been reduced by $1,369,000 or $0.02 per share for 2001, $1,122,000 or $0.02 per share for 2000, and $531,000 or $0.01 per share for 1999. The weighted-average fair value of options granted during 2001, 2000, and 1999 estimated on the date of grant using the Black-Scholes option-pricing model was $9.70, $9.25, and $10.01, respectively. The fair value of 2001, 2000, and 1999 options granted is estimated on the date of grant using the following assumptions: dividend yield of 1.46% to 2.06%, expected volatility of 34.09% to 35.89%, risk-free interest rate of 4.90% to 6.56%, and an expected life of 10 to 12 years depending on grant date.
The status of the Company’s stock option plans is summarized below:
The following table summarizes information about fixed stock options outstanding at December 29, 2001:
Retirement Benefits
The Company has defined contribution profit-sharing plans covering substantially all employees who are not participants in certain defined benefit plans. The Company’s annual contribution to the defined contribution plans is based on employee eligible earnings and results of operations and amounted to $24,826,000, $24,400,000, and $21,297,000 in 2001, 2000, and 1999, respectively.
The Company sponsors defined benefit plans which include a limited number of salaried and hourly employees at certain subsidiaries.
The Company’s funding policy is generally to contribute annually the minimum actuarially computed amount. The Company adopted SFAS No. 132, “Employer’s Disclosures about Pensions and Other Postretirement Benefits,” as of January 4, 1998, the beginning of its 1998 fiscal year. Net pension costs relating to these plans were $0 for 2001, 2000, and 1999. The actuarial present value of obligations, less related plan assets at fair value, is not significant.
The Company also participates in a multiemployer plan, which provides defined benefits to certain of the Company’s union employees. Pension expense for this plan amounted to $310,000, $308,500, and $329,000 in 2001, 2000, and 1999, respectively.
Postretirement Health Care
In accordance with the guidelines of SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” the following table sets forth the funded status of the plan, reconciled to the accrued postretirement benefits cost recognized in the Company’s balance sheet at:
The discount rates at fiscal year-end 2001, 2000, and 1999 were 6.5%, 8.0%, and 7.5%, respectively. The pre-65 2001 gross trend rates begin at 9.0% for the medical and prescription drug coverages and grade down to 5.0% in eight years and remain at this level for all future years. The post-64 gross trend rates begin at 7.25% for the medical coverage and decrease until the maximum Company subsidy (cap) is reached in 2006. For the prescription drug coverage, the 2002 gross trend rates begin at 9.0% and decrease until the cap is reached in 2006. Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates would have the following effects:
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 2001, 2000, and 1999 amounted to approximately $13,387,000, $15,428,000, and $10,403,000, respectively. The Company has operating leases for office and production facilities with annual rentals totaling $450,000 with the former owners of a business acquired in 1996. These individuals continue as officers of a subsidiary of the Company following the acquisition. Contingent rent expense under both capitalized and operating leases (generally based on mileage of transportation equipment) amounted to $869,000, $941,000, and $755,000 for the years 2001, 2000, and 1999, respectively.
Contingencies
The Company has contingent liabilities which have arisen in the course of its business, including pending litigation, environmental remediation, taxes, and other claims. The Company believes the outcome of these matters will not have a material adverse effect on its consolidated financial position, results of operations, or cash flows.
Significant Customer
One office furniture customer accounted for approximately 14%, 14%, and 13% of consolidated net sales in 2001, 2000, and 1999, respectively.
Operating Segment Information
In accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” management views the Company as being in two operating segments: office furniture and hearth products, with the former being the principal segment. The office furniture segment manufactures and markets a broad line of metal and wood commercial and home office furniture which includes storage products, desks, credenzas, chairs, tables, bookcases, freestanding office partitions and panel systems, and other related products. The hearth products segment manufactures and markets a broad line of manufactured gas-, pellet-, and wood-burning fireplaces and stoves, fireplace inserts, gas logs, and chimney systems principally for the home.
The Company’s hearth products segment is somewhat seasonal with the third (July-September) and fourth (October-December) fiscal quarters historically having higher sales than the prior quarters. In fiscal 2001, 53% of consolidated net sales of hearth products were generated in the third and fourth quarters.
For purposes of segment reporting, intercompany sales transfers between segments are not material, and operating profit is income before income taxes exclusive of certain unallocated corporate expenses. These unallocated corporate expenses include the net costs of the Company’s corporate operations, interest income, and interest expense. Management views interest income and expense as corporate financing costs and not as an operating segment cost. In addition, management applies an effective income tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis. Identifiable assets by segment are those assets applicable to the respective industry segments. Corporate assets consist principally of cash and cash equivalents, short-term investments, and corporate office real estate and related equipment.
No geographic information for revenues from external customers or for long-lived assets is disclosed since the Company’s primary market and capital investments are concentrated in the United States.
Reportable segment data reconciled to the consolidated financial statements for the years ended 2001, 2000, and 1999 is as follows:
*Included in operating profit for the office furniture segment are a pretax charge of $22.5 million for closing of facilities and impairment charges in 2001 and a pretax charge of $19.7 million for the closing of facilities and reorganization expense in 1999. Included in operating profit for the hearth products segment is a pretax charge of $1.5 million for closing of facilities and impairment charges in 2001.
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
Subsequent Event
In January 2002, the Company announced the closing of one office furniture manufacturing operation in Jackson, Tennessee. The operation will close following an orderly transition of production to other facilities which is expected to be completed during the second quarter of 2002. The Company expects to realize savings equal to the costs incurred in closing the facility during 2002.
INVESTOR INFORMATION
Common Stock Market Prices and Dividends
Quarterly 2001 - 2000
Common Stock Market Price and Price/Earnings Ratio
Fiscal Years 2001 - 1991
* Adjusted for the effect of stock splits
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of HON INDUSTRIES Inc.
We have audited in accordance with auditing standards generally accepted in the United States, the financial statements of HON INDUSTRIES Inc. included in this registration statement and have issued our report thereon dated February 1, 2002. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The amounts included in Schedule II in this Form 10-K are the responsibility of the Company’s management and are presented for purposes of complying with the Securities and Exchange Commission’s rules and are not part of the consolidated financial statements. These supporting schedules have been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the consolidated financial statements taken as a whole.
Arthur Andersen LLP
Chicago, Illinois
February 1, 2002
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
HON INDUSTRIES INC. AND SUBSIDIARIES
December 29, 2001
Note A: Excess of accounts written off over recoveries
ITEM 14(a)(3) - INDEX OF EXHIBITS
Exhibit Number
Description of Document
(3i)
Articles of Incorporation of the Registrant, incorporated by reference to Exhibit 3(i) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 3, 1999
(3ii)
By-Laws of the Registrant, incorporated by reference to Exhibit 3(ii) to the Registrant’s Annual Report on Form 10-K for the year ended December 30, 2000
(4i)
Rights Agreement dated as of August 13, 1998, by and between the Registrant and Harris Trust and Savings Bank, as Rights Agent, incorporated by reference to Exhibit 4.1 to Registration Statement on Form 8-A filed August 14, 1998, as amended by Form 8-A/A filed September 14, 1998, incorporated by reference to Exhibit 4.1 on Form 8-K filed August 10, 1998
(10i)
1995 Stock-Based Compensation Plan, as amended effective November 10, 2000, incorporated by reference to Exhibit 10(i) to the Registrant’s Annual Report on Form 10-K for the year ended December 30,
(10ii)
1997 Equity Plan for Non-Employee Directors, incorporated by reference to Exhibit B to the Registrant’s proxy statement dated March 28, 1997, related to the Registrant’s Annual Meeting of Shareholders held on May 13, 1997
(10iii)
Form of Registrant’s Change in Control Agreement, incorporated by reference to Exhibit 10 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 1994
(10iv)
Executive Long-Term Incentive Compensation Plan of the Registrant, incorporated by reference to Exhibit 99B to the Registrant’s Annual Report on Form 10-K for the year ended December 30, 1995
(10v)
ERISA Supplemental Retirement Plan of the Registrant, incorporated by reference to Exhibit 99C to the Registrant’s Annual Report on Form 10-K for the year ended December 30, 1995
(10vi)
1994 Members Stock Purchase Plan of the Registrant, as amended effective July 1, 2001, incorporated by reference to Exhibit 10(vi) to the Registrant’s Annual Report on 10-K filed for the year ended December 29, 2001
(10vii)
Agreement as Consultant and Director, dated November 15, 1995, between the Registrant and Robert L. Katz, incorporated by reference to the same numbered exhibit filed with the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended December 28, 1996
(10viii)
Form of Director and Officer Indemnification Agreement of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended December 28, 1996
(10ix)
Form of Common Stock Grant Agreement of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended December 28, 1996
(10x)
Form of HON INDUSTRIES Inc. Stock-Based Compensation Plan Stock Option Award Agreement of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended December 28, 1996
(10xi)
Stock Purchase Agreement of the Registrant, dated September 18, 1985, as amended by amendment dated February 11, 1991, between the Registrant and Stanley M. Howe, incorporated by reference to Exhibit 10(xi) to the Registrant’s Annual Report on Form 10-K for the year ended January 3, 1998
(10xii)
Real Estate Contract of the Registrant, dated November 15, 1997, between the Registrant and Terrence L. and Loretta B. Mealy, incorporated by reference to Exhibit 10(xii) to the Registrant’s Annual Report on Form 10-K for the year ended January 3, 1998
(10xiii)
$200,000,000 Credit Agreement, dated June 11, 1997; First Amendment to Credit Agreement and Waiver, dated October 20, 1997; and Second Amendment to Credit Agreement, dated January 18, 2000, by and between the Registrant and Bankers Trust Company, as Syndication Agent and Administrative Agent, and various lending institutions, incorporated by reference to Exhibit 10(xiii) to the Registrant’s Annual Report on Form 10-K for the year ended January 1, 2000
(10xiv)
HON INDUSTRIES Inc. Profit-Sharing Retirement Plan of the Registrant as amended effective January 1, 2001, incorporated by reference to Exhibit 10(xiv) to the Registrant’s Annual Report on 10-K for the year ended December 29, 2001
(10xv)
HON INDUSTRIES Inc. Long-Term Performance Plan of the Registrant, incorporated by reference to the same numbered exhibit filed with the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000
(16)
Letter of Former Accountant, incorporated by reference to the Registrant’s Report on Form 8-K dated May 14, 1996
(21)
Subsidiaries of the Registrant
(23)
Consent of Independent Public Accountants
(99A)
Executive Bonus Plan of the Registrant as amended and restated on May 1, 2000, incorporated by reference to the same numbered exhibit filed with the Registrant’s Quarterly Report on Form 10-Q for the quarter ended April 1, 2000
(99B)
Executive Deferred Compensation Plan of the Registrant as amended and restated on November 10, 2000, incorporated by reference to the same numbered exhibit filed with the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000
(99C)
Letter to Securities and Exchange Commission - Arthur Andersen LLP