HON INDUSTRIES Announces Results for Second Quarter - Fiscal 2003.Business Editors MUSCATINE Muscatine (mŭskətēn`), city (1990 pop. 22,881), seat of Muscatine co., SE Iowa, on the Mississippi River; inc. 1851. An early center of river traffic and lumbering, Muscatine is the shipping and processing center of a rich agricultural , Iowa--(BUSINESS WIRE)--July 21, 2003 HON INDUSTRIES Inc. (NYSE NYSE See: New York Stock Exchange :HNI HNI Heinz Nixdorf Institut (Germany) HNI HealthNet International HNI Hajime No Ippo (anime) HNI High Networth Individual HNI Home Network Identity HNI Havelock North Intermediate School ) announced today sales of $406.8 million and net income of $20.2 million for the second quarter ending June June: see month. 28, 2003. Consolidated net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight for the second quarter increased 1.9 percent to $406.8 million, compared to $399.3 million for the same quarter last year. Net income was $20.2 million compared to $20.1 million in the same period in 2002. Net income was $0.35 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share compared to $0.34 for the same quarter last year. The Company continues to implement its business simplification and cost reduction strategies. As a result, the Company has begun the shutdown shut·down n. A cessation of operations or activity, as at a factory. shutdown Noun the closing of a factory, shop, or other business Verb shut down of one office furniture facility and is in union negotiations regarding the closure of a second office furniture facility. The Company will close operations in Milan, Tennessee Milan (pronounced "MY-lunn") is a city in Gibson County, Tennessee, United States. The population was 7,664 at the 2000 census. The zip code assigned by the U.S. Postal Service is 38358. Residents of Milan are usually referred to as Milanites. , and Hazleton, Pennsylvania For other places with the same name, see Hazleton (disambiguation). Hazleton is a city in Luzerne County, Pennsylvania, United States. The population was 23,329 at the 2000 census. The city has gained national attention due to its struggles with illegal immigration. and consolidate production into other U.S. manufacturing locations. In connection with the shutdowns, the Company recorded $4.4 million of pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta charges or $0.05 per diluted share during the second quarter. These charges included $1.6 million of accelerated depreciation Accelerated Depreciation Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset. Notes: The straight-line depreciation method spreads the cost evenly over the life of an asset. of machinery and equipment which was recorded in cost of sales, and $2.5 million for severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and $0.3 million of other costs which were recorded as restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). costs. The Company expects that the closedowns and consolidation will be completed prior to the end of the year. Total costs related to the shutdown are estimated to total $16.0 to $18.0 million. This operation realignment re·a·lign tr.v. re·a·ligned, re·a·lign·ing, re·a·ligns 1. To put back into proper order or alignment. 2. To make new groupings of or working arrangements between. is expected to reduce costs $13.0 to $14.0 million on an annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. basis and result in improved service to customers with faster and better-coordinated delivery and lead-time performance. As a percent of sales, gross margins for the second quarter increased to 36.0 percent, a quarterly record, from 35.7 percent for the same quarter last year. Included in gross margin for the second quarter of 2003 is $1.6 million of accelerated depreciation of machinery and equipment related to the facility shutdown reducing margins by 0.4 percentage points. "We continue to see improvements in our gross margin due to restructuring initiatives implemented over the past few years and our rapid continuous improvement program," said Jack Michaels Jack Michael is a researcher, professor and author in the field of the experimental analysis of behavior best known for his elucidations of the motivating operation(MO), comprised of Establishing Operation (EO) and Abolishing Operations (AO). , HON INDUSTRIES Chairman and CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. . Selling and administrative expenses increased 1.5 percent or $1.7 million from the same quarter last year. This increase is due in part to investments in brand building and selling initiatives. The current year restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. of $2.8 million referred to above were offset by a $0.6 million reduction in a restructuring reserve established in 2002. The reduction was due to the fact that the Company was able to exit a lease with a lessor One who rents real property or Personal Property to another. A lessor of land is a landlord. Cross-references Landlord and Tenant. lessor n. the owner of real property who rents it to a lessee pursuant to a written lease. at more favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. terms than previously estimated. For the first six months of 2003, consolidated net sales were flat compared to the first six months of last year at $798.8 million. Gross margins year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. increased to 35.7 percent compared to 35.4 percent last year. Included in 2003 gross margins was $1.6 million of accelerated depreciation which reduced margins 0.2 percentage points. Net income was $36.1 million or $0.62 per diluted share compared to $36.0 million or $0.61 per diluted share in 2002. Included in the year-to-date results were net pre-tax restructuring charges and accelerated depreciation of $3.8 million or $0.04 per diluted share in 2003 and net pre-tax restructuring charges of $3.0 million or $0.03 per diluted share in 2002. Cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses for the first six months was $54.5 million compared to $45.1 million last year. Capital expenditures increased from $9.3 million in 2002 to $23.7 million in 2003 which included funding for the purchase of a previously leased hearth hearth symbol of home life. [Folklore: Jobes, 738] See : Domesticity products plant, information system improvements, and tooling and equipment for new products. The Company's cash position remains strong and totaled $136.6 million, including $8.3 million of short-term Short-term Any investments with a maturity of one year or less. short-term 1. Of or relating to a gain or loss on the value of an asset that has been held less than a specified period of time. investments, as of June 28, 2003. The Company repurchased 762,300 shares of its common stock at a price of approximately $21.5 million during the first six months of 2003. Office Furniture For the quarter, sales for HON INDUSTRIES' office furniture segment were up slightly to $304.0 million from $303.1 million for the same quarter last year. Operating profit Operating profit (or loss) Revenue from a firm's regular activities less costs and expenses and before income deductions. operating profit See operating income. was $27.3 million compared to $31.8 million in 2002. Operating profit as a percent of net sales decreased to 9.0 percent versus 10.5 percent in 2002. Included in 2003 are $4.4 million of charges related to the shutdown of two office furniture facilities offset by the $0.6 million reduction in a prior year restructuring reserve reducing operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: by 1.3 percentage points. Net sales on a year-to-date basis declined slightly to $598.8 million from $603.4 million. Operating profit as a percent of sales decreased to 8.8 percent compared to 9.3 percent in 2002. The Business and Institutional Furniture Manufacturer's Association (BIFMA BIFMA Business and Institutional Furniture Manufacturer's Association ) reported shipments down 9 percent for the first five months of 2003. "We continue to strengthen our position in the office furniture market as evidenced by the recently announced Office Furniture Dealers Alliance The Office Furniture Dealers Alliance (OFDA) is a division of the Independent Office Products and Furniture Dealers Association (IOPFDA), a trade association for resellers of office furniture and office products. It is based in Arlington, Virginia. (OFDA OFDA Office of Foreign Disaster Assistance (USAID) OFDA Office Furniture Dealers Alliance OFDA Oklahoma Funeral Directors Association OFDA Operational Flying Duty Accumulator ) awards," stated Mr. Michaels. "We received five of the eleven awards, including The HON Company winning the top award, Manufacturer of the Year." Hearth Products Net sales for the hearth products segment increased 6.9 percent in the second quarter of 2003 to $102.8 million compared to $96.2 million for the same quarter last year due to strong shipments in both the builder and dealer channels and growth in product line extensions Product line Extensions and Patient safety In a world of product line extensions, there are many different products with similar names. Examples of these include oxycodone versus oxycontin (oycodone CR), buproprion vs buprion SR vs bruproprion XL, codeine versus codeine contin . Operating profit was $10.6 million compared to $8.8 million in 2002. Operating profit as a percent of net sales increased to 10.3 percent versus 9.2 percent for 2002. Improved profitability was primarily the result of an increase in sales volume and leveraging of fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). . Net sales on a year-to-date basis increased 2.5 percent to $199.9 million and operating profit as a percent of net sales increased to 8.2 percent compared to 7.9 percent in 2002. 2003 Outlook "We have recently begun to experience some stability in incoming order rates for our commercial and transactional office furniture business, in line with some of the positive trends in the general economy," stated Mr. Michaels, "However we are still cautious about the near-term outlook. The remainder of 2003 appears positive for our hearth segment considering the expected continued solid demand for new residential construction coupled with low and stable interest rates. We continue our focus on increasing long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. shareholder value by streamlining our processes and operations, reducing our cost structure, understanding and responding to end-users, and building brand power." Conference Call HON INDUSTRIES will host a conference call on Tuesday, July 22, 2003, at 10:00 a.m. CDT CDT abbr. Central Daylight Time CDT Central Daylight Time CDT n abbr (US) (= Central Daylight Time) → hora de verano del centro; (BRIT to discuss the second quarter fiscal 2003 results. To participate, call the conference call line at 888-273-9885. A replay of the conference call will be available until Tuesday, July 29, 2003. To access this replay, dial 800-475-6701, access code 688396. A line to the simultaneous web cast can be found on the Company's website at www.honi.com. HON INDUSTRIES Inc. provides products and solutions for the home and workplace environments and is the second largest office furniture manufacturer in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . HON INDUSTRIES is also the nation's leading manufacturer and marketer of gas- and wood-burning fireplaces. The Company's strong brands, including HON, Allsteel, Gunlocke, Heatilator and Heat-N-Glo, have leading positions in their markets. HON INDUSTRIES is committed to maintaining its long-standing corporate values of integrity, financial soundness and a culture of service and responsiveness. By doing so, the Company was recognized for the third consecutive year as one of the 400 Best Big Companies in America by Forbes magazine in 2003, and as America's Most Admired ad·mire v. ad·mired, ad·mir·ing, ad·mires v.tr. 1. To regard with pleasure, wonder, and approval. 2. To have a high opinion of; esteem or respect. 3. Company in the furniture industry by Fortune magazine in 2003. HON INDUSTRIES' common stock is traded on the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. under the symbol HNI. More information can be found on the Company's website at www.honi.com. Forward-looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Statements in this news release that are not strictly historical, including statements as to plans, objectives, and future financial performance, are "forward-looking" statements that are made pursuant to the safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. provisions of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Forward-looking statements involve known and unknown risks, which may cause the Company's actual results in the future to differ materially from expected results, particularly those with respect to expected earnings for the remainder of the fiscal year. These risks include, among others: the Company's ability (a) to realize financial benefits from its cost containment cost containment, n the features of a dental benefits program or of the administration of the program designed to reduce or eliminate certain charges to the plan. and business simplification initiatives, (b) to realize financial benefits from investments in new products, and (c) to mitigate mit·i·gate v. To moderate in force or intensity. mit  i·ga tion n. the effects of
uncertain steel prices and supplies; lower than expected demand for the
Company's products due to uncertain political and economic
conditions; competitive pricing pressure from foreign and domestic
competitors; and other factors described in the Company's annual
and quarterly reports filed with the Securities and Exchange Commission
on Forms 10-K and 10-Q.
HON INDUSTRIES
Unaudited Condensed Consolidated Statement of Operations
(Dollars in thousands, Three Months Ended Six Months Ended
except per share Jun. 28, Jun. 29, Jun. 28, Jun. 29,
data) 2003 2002 2003 2002
----------------------------------------------------------------------
Net sales $406,793 $399,299 $798,764 $798,438
Cost of products sold 260,367 256,696 513,208 516,094
----------------------------------------------------------------------
Gross profit 146,426 142,603 285,556 282,344
Selling and
administrative
expenses 112,979 111,320 227,405 221,745
Restructuring and
impairment charges 2,265 (900) 2,265 3,000
----------------------------------------------------------------------
Operating income 31,182 32,183 55,886 57,599
Interest income 563 549 1,384 1,184
Interest expense 712 1,259 1,798 2,474
----------------------------------------------------------------------
Income before income
taxes 31,033 31,473 55,472 56,309
Income taxes 10,861 11,330 19,415 20,271
----------------------------------------------------------------------
Net income $20,172 $20,143 $36,057 $36,038
----------------------------------------------------------------------
Net income per common
share (basic and
diluted) $0.35 $0.34 $0.62 $0.61
----------------------------------------------------------------------
Average number of
common shares
outstanding 58,142,937 58,918,130 58,230,106 58,847,543
----------------------------------------------------------------------
Unaudited Condensed Consolidated Balance Sheet
Assets
As of
Jun. 28, Dec. 28,
(Dollars in thousands) 2003 2002
----------------------------------------------------------------------
Cash and cash equivalents $128,292 $139,165
Short-term investments 8,322 16,378
Receivables 169,169 181,096
Inventories 50,957 46,823
Deferred income taxes 12,426 10,101
Prepaid expenses and other
current assets 7,001 11,491
----------------------------------------------------------------------
Current assets $376,167 $405,054
Property and equipment -
net 343,853 353,270
Goodwill 192,086 192,395
Other assets 56,890 69,833
----------------------------------------------------------------------
Total assets $968,996 $1,020,552
----------------------------------------------------------------------
Unaudited Condensed Consolidated Balance Sheet
Liabilities and Shareholders' Equity
As of
Jun. 28, Dec. 28,
(Dollars in thousands) 2003 2002
----------------------------------------------------------------------
Accounts payable and accrued expenses $194,288 $252,145
Income taxes 18,376 3,740
Note payable and current maturities of long-term
debt 28,395 41,298
Current maturities of other long-term
obligations 211 1,497
----------------------------------------------------------------------
Current liabilities $241,270 $298,680
Long-term debt 2,865 8,553
Capital lease obligations 1,234 1,284
Other long-term liabilities 31,972 28,028
Deferred income taxes 39,890 37,114
Shareholders' equity 651,765 646,893
----------------------------------------------------------------------
Total liabilities and
shareholders' equity $968,996 $1,020,552
----------------------------------------------------------------------
HON INDUSTRIES
Unaudited Condensed Consolidated Statement of Cash Flows
Six Months Ended
(Dollars in thousands) Jun. 28, 2003 Jun. 29, 2002
----------------------------------------------------------------------
Net cash flows from (to) operating
activities $54,485 $45,135
Net cash flows from (to) investing
activities:
Capital expenditures (23,694) (9,329)
Other 12,533 (11,336)
Net cash flows from (to) financing
activities (54,197) (15,095)
----------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents (10,873) 9,375
Cash and cash equivalents at beginning of
period 139,165 78,838
----------------------------------------------------------------------
Cash and cash equivalents at end of period $128,292 $88,213
----------------------------------------------------------------------
Unaudited Business Segment Data
Three Months Ended Six Months Ended
Jun. 28, Jun. 29, Jun. 28, Jun. 29,
(Dollars in thousands) 2003 2002 2003 2002
----------------------------------------------------------------------
Net sales:
Office furniture $303,959 $303,144 $598,826 $603,365
Hearth products 102,834 96,155 199,938 195,073
----------------------------------------------------------------------
$406,793 $399,299 $798,764 $798,438
----------------------------------------------------------------------
Operating profit:
Office furniture
Operations before
restructuring charges $29,581 $30,948 $54,774 $59,096
Restructuring and
impairment charges (2,265) 900 (2,265) (3,000)
----------------------------------------------------------------------
Office furniture - net 27,316 31,848 52,509 56,096
Hearth products 10,554 8,819 16,368 15,324
----------------------------------------------------------------------
Total operating profit 37,870 40,667 68,877 71,420
Unallocated corporate
expense (6,837) (9,194) (13,405) (15,111)
----------------------------------------------------------------------
Income before income
taxes $31,033 $31,473 $55,472 $56,309
----------------------------------------------------------------------
Depreciation and amortization
expense:
Office furniture $12,994 $12,110 $24,487 $24,401
Hearth products 3,311 3,681 6,957 6,990
General corporate 1,142 1,629 2,285 3,177
----------------------------------------------------------------------
$17,447 $17,420 $33,729 $34,568
----------------------------------------------------------------------
Capital expenditures - net:
Office furniture $5,373 $2,127 $9,926 $6,279
Hearth products 3,021 1,552 9,542 2,472
General corporate 837 384 4,226 578
----------------------------------------------------------------------
$9,231 $4,063 $23,694 $9,329
----------------------------------------------------------------------
As of As of
Jun. 28, 2003 Jun. 29, 2002
------------- -------------
Identifiable assets:
Office furniture $468,411 $527,132
Hearth products 309,882 311,008
General corporate 190,703 145,624
------------- -------------
$968,996 $983,764
----------------------------------------------------------------------
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