-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, URCU1dzJM6PExfFRXuugY6BGTi4ogdzZqYprckORSUGzFH1lDJrqozOwjA+LjVU3 TyoFRnSJcS+o6oYlvU032Q== 0000912057-97-007163.txt : 19970228 0000912057-97-007163.hdr.sgml : 19970228 ACCESSION NUMBER: 0000912057-97-007163 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970227 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILLENBRAND INDUSTRIES INC CENTRAL INDEX KEY: 0000047518 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 351160484 STATE OF INCORPORATION: IN FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-06651 FILM NUMBER: 97545549 BUSINESS ADDRESS: STREET 1: 1069 STATE ROUTE 46E CITY: BATESVILLE STATE: IN ZIP: 47006-9166 BUSINESS PHONE: 8129347000 10-K 1 10-K COVER - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1996 COMMISSION FILE NO. 1-6651 HILLENBRAND INDUSTRIES, INC. (Exact name of registrant as specified in its charter) INDIANA 35-1160484 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 700 STATE ROUTE 46 EAST BATESVILLE, INDIANA 47006-8835 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (812) 934-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Each Class Name of Each Exchange on Which Registered - ----------------------------------- ----------------------------------------- COMMON STOCK, WITHOUT PAR VALUE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. Yes X No ------- ------- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT. Common Stock, without par value - $1,837,747,000 as of February 14, 1997 (excluding stock held by persons deemed affiliates). INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. Common Stock, without par value - 68,796,966 as of February 14, 1997. DOCUMENTS INCORPORATED BY REFERENCE. Portions of the 1997 Proxy Statement furnished to Shareholders - Parts I, III and IV. Portions of the 1992 Proxy Statement furnished to Shareholders - Part IV. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- HILLENBRAND INDUSTRIES, INC. ANNUAL REPORT ON FORM 10-K NOVEMBER 30, 1996 TABLE OF CONTENTS PAGE PART I Item 1. Business 1 Item 2. Properties 8 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 9 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 8. Financial Statements and Supplementary Data 19 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 40 PART III Item 10. Directors and Executive Officers of the Registrant 41 Item 11. Executive Compensation 41 Item 12. Security Ownership of Certain Beneficial Owners and Management 41 Item 13. Certain Relationships and Related Transactions 41 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 41 SIGNATURES 44 PART I 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 four 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 other products for the funeral industry, and Forecorp, Inc., a provider of funeral planning insurance products. The Health Care segment consists of Hill-Rom, Inc., a manufacturer of equipment for the health care market and provider of wound care and pulmonary/trauma management services; 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.) The assets of Block Medical, Inc., a provider of home infusion therapy products, were sold to I-Flow Corporation on July 22, 1996. Results for Block Medical, Inc. are included in the Company's financial statements through that date. 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, hardwood and cloth covered caskets, including caskets for the cremation market. In addition to caskets, Batesville manufactures and 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-Registered Trademark- 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, pecan and poplar. Except for a limited line of hardwood caskets with a protective copper liner, the majority of hardwood caskets are not protective. Batesville's Hercu-Lite-TM- cloth covered caskets are constructed with a patent pending process utilizing cellular fiberboard construction. The cremation line of caskets, containers, urns and memoralization items are marketed by Batesville under the name of Options-Registered Trademark-. The caskets and containers are manufactured primarily of hardwoods and fiberboard. The urns are made from bronze, hardwoods and marble. A line of cast bronze statuary art pieces used for memorialization are also marketed. Batesville caskets are marketed by Batesville's direct sales force to licensed funeral directors operating licensed funeral homes throughout the United States, Australia, Canada, Mexico and Puerto Rico. Batesville maintains an inventory of caskets at 70 company-operated Customer Service Centers in North America. Batesville caskets are delivered in specially equipped vehicles owned by Batesville. Batesville has small manufacturing and distribution facilities in Canada and Mexico. -1- Forecorp, Inc., which was founded in 1985, and its principal 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-Registered Trademark- 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. Forethought Life Insurance Company is licensed in forty-two (42) states, Alberta, Ontario, Manitoba, New Brunswick, Nova Scotia and Prince Edward Island, Canada, Puerto Rico and the District of Columbia. Forethought Life Insurance products are available through a network of over 4,000 independent funeral homes. Forecorp, Inc. will introduce a trust product in the first half of 1997. This product is not expected to have an immediate material effect on the financial statements of the Company. HEALTH CARE Hill-Rom, Inc., with its subsidiaries (collectively, "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, long-term care, home-care and perinatal providers. It has been in the hospital equipment business since 1929, and engaged in the manufacture of therapy beds and support surfaces and the rental and service of these products in the wound care, pulmonary/trauma and incontinence management markets since 1985. 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 nurse call systems, 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 also remanufactures hospital beds. Its process includes disassembly, washing, sanding, painting and reassembly with new components. Hill-Rom products are sold directly to acute and long-term health care facilities 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. Hill-Rom also sells its domestically produced products through distributorships throughout the world. Hill-Rom also operates hospital bed, therapy bed and patient room manufacturing facilities in Germany and France. Their products are sold and leased directly to hospitals and nursing homes throughout Europe. Clinical support for Hill-Rom's wound care, pulmonary/trauma and incontinence management 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 Hill-Rom Service Centers. Within the wound care market, CLINITRON-Registered Trademark- 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. The CLINITRON product line includes the AT-HOME, designed for delivery and use in the home, and ELEXIS, with in-bed weighing and simplified patient egress. -2- Hill-Rom also offers low airloss therapy through its EFICA CC-TM- and FLEXICAIR-Registered Trademark- units. 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 regulates air pressure in five zones corresponding to patient body areas. In the pulmonary/trauma market, the EFICA CC-TM- Dynamic Air Therapy-Registered Trademark- offers several modes of operation, including continuous lateral rotation, percussion and vibration, while maintaining optimal low airloss pressure relief. In 1996, the PULMONEX was introduced as a prevention product for patients in medical/surgical or intensive care step down units who are at risk of developing pulmonary complications. Other wound care products include the ACUCAIR-Registered Trademark- Continuous Air Flow System , the MAGNUM-Registered Trademark- II bariatric patient care system and the CLINISERT-Registered Trademark- Pressure Relief System Hill-Rom 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. Medeco Security Locks, Inc. ("Medeco"), founded in 1968, was purchased by Hillenbrand in 1984. Medeco develops, 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. Medeco also develops, manufactures and sells products for the electronic high security market. INSITE VLS-TM- replaces the thousands of mechanical keys used in pay telephone collection. The recently introduced DialGuard-TM- lock system fills the same role in the automatic teller machine collection market, and the DuraCam-TM- high security lock serves the gaming industry. The INSITE SITEKEY- TM- provides the state-of-the-art in electronic door security. Beginning in the first quarter of 1997, Medeco converted to direct distribution of its door security products to retail locksmith customers. Medeco had previously sold through locksmith supply distributors. Medeco products are also sold domestically and internationally by its sales organization to 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 generates the predominant share of the Health Care segment's revenues and operating profit. Medeco and Block had an immaterial effect on the operating results of this segment in 1994, 1995 and 1996. 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 7 to Consolidated Financial Statements, which statements are included under Item 8. -3- 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 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. Medeco uses brass, hardened steel, other metals and electronic components, 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 believes it is the U.S. market share leader in the sale of electrically operated hospital beds, competing with approximately ten (10) other manufacturers. In Europe, Hill-Rom competes with several other manufacturers and believes that it is a market leader. In both the U.S. and Europe there are other companies which provide low airloss and other methods of patient support and patient relief. 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 are important to its business. -4- 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. Expenditures in the most recent three fiscal years were as follows: 1996 1995 1994 ---- ---- ---- (millions) New products and processes $31 $28 $26 Improvement of existing products and processes 11 11 9 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 February 14, 1997, the Company employed approximately 9,800 persons in its operations in North America 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 $10 million. The Company has provided adequate reserves in its financial statements for these matters. These reserves have been determined without consideration of possible loss recoveries from third parties. 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 7 to Consolidated Financial Statements, which statements are included under Item 8. The Company's export revenues constituted less than 10% of consolidated revenues in 1996 and prior years. ORDER BACKLOG Order backlogs are immaterial to the Company and there was no material change in backlogs during 1996. -5- EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the Company are elected each year by the Board of Directors at its first meeting following the Annual Meeting of Shareholders to serve during the ensuing year and until their respective successors are elected and qualify. There are no family relationships between any of the executive officers of the Company. Following are the executive officers of the Company as of February 14, 1997. W August Hillenbrand, 56, 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. Tom E. Brewer, 58, has been employed by the Company since May 16, 1983, and was elected Senior Vice President and Chief Financial Officer on May 23, 1983. 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, 61, 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. Michael L. Buettner, 39, has been employed by the Company since January 9, 1995, and was elected Vice President, Corporate Development on January 9, 1995. Prior to joining the Company, he was employed by Bausch & Lomb Incorporated for 10 years in various corporate development and finance roles, most recently as Staff Vice President, Corporate Development. He has also served in various finance and marketing positions with Moog Automotive, Inc. and Carboline Company. Mark E. Craft, 42, has been employed by the Company since February 26, 1990, and was elected Vice President, Public Affairs on May 1, 1994. Prior to that he was Director, Public Affairs. Prior to joining the Company, he was Manager, Public Relations, for Melvin Simon & Associates, Inc., in Indianapolis, Indiana. Robert J. Tennison, 50, has been employed by the Company since February 28, 1996, and was elected Vice President, Continuous Improvement on March 1, 1996. Prior to joining the Company, he was Senior Vice President of Operations for Donnelly Corporation, President of Hennessy Industries and Director of Manufacturing for Sauer-Sundstrand. He began his career with General Motors. Mark R. Lanning, 42, was elected Vice President and Treasurer on April 11, 1995. Prior to that he had been Assistant Treasurer since June, 1991. He joined the Company on May 16, 1988, as Manager, Corporate Audit. Prior to joining the Company he served in various capacities with the public accounting firm of Ernst & Whinney (now Ernst & Young). He has been a licensed Certified Public Accountant since 1979. Mark R. Lindenmeyer, M.D., 50, was elected Vice President, General Counsel and Secretary of the Company on October 7, 1991. He had 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 licensed physician since 1986 and a practicing attorney since 1972. J. Cameron Moss, 40, was elected Vice President, Corporate Planning on January 2, 1996, and has been employed by the Company since January 2, 1996. Prior to joining the Company, he was a senior manager with McKinsey & Company, Inc., in its Cleveland, Ohio and Munich, Germany offices. -6- James G. Thorne, 55, has been employed by the Company since June 14, 1993, and was elected Vice President, Human Resources on April 5, 1994. Prior to joining the Company, he was employed by Monsanto Company for 27 years where he served as Vice President, Human Resources for Fisher Controls International, Inc. James D. Van De Velde, 50, was elected Vice President and 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. Note: Lonnie M. Smith resigned as Senior Executive Vice President and from the Board of Directors effective February 14, 1997. His resignation from the Board was voluntary and did not arise from any conflict with Company personnel or policies. -7- 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 4 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 health care distribution facility equipment Office facilities Administration Charleston, SC Office facility and Administration and assembly plant assembly of therapy units Kempen, Germany Manufacturing plant and Manufacture of health care office facilities equipment Pluvigner, France Manufacturing plant and Manufacture of health care 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, service centers and sales offices throughout the United States, Canada and Europe. ITEM 3. LEGAL PROCEEDINGS On August 16, 1995, Kinetic Concepts, Inc., and Medical Retro Design, Inc. (collectively, the "plaintiffs"), filed suit against Hillenbrand Industries, Inc., and its subsidiary Hill-Rom Company, Inc., in the United States District Court for the Western District of Texas, San Antonio Division. The plaintiffs allege violation of various antitrust laws, including illegal bundling of products, predatory pricing, refusal to deal and attempting to monopolize the hospital bed industry. They seek monetary damages totaling in excess of $269 million, trebling of any damages that may be allowed by the court, and injunctions to prevent further alleged unlawful activities. The Company believes that the claims are without merit and is defending itself aggressively against all allegations. Accordingly, it has not recorded any loss provision relative to damages sought by the plaintiffs. -8- On November 20, 1996, the Company filed a Counterclaim to the above action against Kinetic Concepts, Inc. (KCI) in the U.S. District Court in San Antonio, Texas. The Counterclaim alleges that KCI has attempted to monopolize the therapeutic bed market and to interfere with the Company's and Hill-Rom's business relationships by conducting a campaign of anticompetitive conduct. It further alleges that KCI abused the legal process for its own advantage, interfered with existing Hill-Rom contractual relationships, interfered with Hill-Rom's prospective contractual and business relationships, commercially disparaged the Company and Hill-Rom by uttering and publishing false statements to customers and prospective customers not to do business with the Company and Hill-Rom, and committed libel and slander in statements made both orally and published by KCI that the Company and Hill-Rom were providing illegal discounts. The Company alleges that KCI's intent is to eliminate legal competitive marketplace activity. On December 24, 1996, the Company filed a patent infringement action against KCI in the U.S. District Court in Charleston, South Carolina, for alleged infringement of its Effica-TM- therapeutic bed by KCI. Hill-Rom is seeking both monetary damages and injunctive relief in this action. There is no other pending litigation of a material nature in which the Company or its subsidiaries are involved. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended November 30, 1996. PART II DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS From time to time, the Company makes oral and written statements that may constitute "forward-looking statements" as defined in the PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 (the "Act") or by the SEC in its rules, regulations and releases. The Company desires to take advantage of the "safe harbor" provisions in the Act for forward-looking statements made from time to time, including, but not limited to, the forward-looking statements relating to the future performance of the Company contained in Management's Discussion and Analysis (under Item 7 on Form 10-K), and Notes to Consolidated Financial Statements (under Item 8 on Form 10-K) and other statements made in this Form 10-K and in other filings with the SEC. The Company cautions readers that any such forward-looking statements are based on assumptions that the Company believes are reasonable, but are subject to a wide rage of risks, and there is no assurance that actual results may not differ materially. Important factors that could cause actual results to differ include but are not limited to: differences in anticipated and actual product introduction dates, the ultimate success of those products in the marketplace, and the success of cost control and restructuring efforts, among other things. Realization of the Company's objectives and expected performance can also be adversely affected by the outcome of pending litigation and rulings by the Internal Revenue Service on certain tax positions taken by the Company. 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 1996 and 1995. -9- 1996 1995 ------------- ------------- High Low High Low ---- --- ---- --- First Quarter $34 1/8 $31 7/8 $29 3/4 $27 Second Quarter $40 1/4 $33 1/4 $30 1/8 $27 1/2 Third Quarter $39 $32 $33 1/8 $28 5/8 Fourth Quarter $38 5/8 $32 $33 $27 HOLDERS On February 14, 1997, there were approximately 24,000 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 $.62 ($.155 per quarter) in 1996 and $.60 ($.15 per quarter) in 1995 were paid on each share of common stock outstanding. Cash dividends will be $.66 ($.165 per quarter) in 1997. ITEM 6. SELECTED FINANCIAL DATA The following table presents selected consolidated financial data of Hillenbrand Industries, Inc., for fiscal years 1992 through 1996. 1996 1995 1994 (b) 1993 1992 ---- ---- ---- ---- ---- (IN MILLIONS EXCEPT PER SHARE DATA) Net revenues $ 1,684 $ 1,625 $ 1,577 $ 1,448 $ 1,303 Income from continuing operations (a) $ 140 $ 90 $ 90 $ 132 $ 111 Income from continuing operations per share (a) $ 2.02 $ 1.27 $ 1.26 $ 1.86 $ 1.55 Total assets $ 3,396 $ 3,070 $ 2,714 $ 2,291 $ 1,958 Long-term debt $ 204 $ 206 $ 209 $ 108 $ 185 Cash dividends per share $ .62 $ .60 $ .57 $ .45 $ .35 (a) RESULTS IN 1996 REFLECT INCOME OF $8 MILLION ($.12 PER SHARE) RELATIVE TO THE SALE OF BLOCK MEDICAL. RESULTS IN 1995 REFLECT UNUSUAL CHARGES TOTALING $26 MILLION ($.37 PER SHARE) FOR THE WRITEDOWN OF GOODWILL AND CERTAIN ASSETS OF A MANUFACTURING FACILITY SOLD IN 1996. RESULTS IN 1994 REFLECT AN UNUSUAL CHARGE OF $52 MILLION ($.74 PER SHARE), AFTER INCOME TAXES, FOR SETTLEMENT OF A PATENT INFRINGEMENT SUIT. RESULTS IN 1993 REFLECT AN UNUSUAL CHARGE OF $14 MILLION FOR THE WRITEDOWN OF GOODWILL. (b) FISCAL 1994 WAS A 53 WEEK YEAR. -10- 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 accompanying notes. Hillenbrand Industries' four major operating companies are organized into two business segments. The Funeral Services segment consists of Batesville Casket Company and The Forethought Group. The Health Care segment consists of Hill-Rom and Medeco Security Locks (included in this segment due to Medeco's relatively small size). Results for Block Medical, which was sold on July 22, 1996, are included in the Health Care segment through that date. RESULTS OF OPERATIONS 1996 COMPARED WITH 1995 SUMMARY Consolidated net revenues increased $59 million, or 4%, in 1996. Operating profit of $236 million was up 32%, net income of $140 million was up 56% and earnings per share of $2.02 increased 59%. Third quarter 1996 results reflect income of $8 million, or $.12 per share, relative to the sale of Block Medical (see Note 3). In the fourth quarter of 1995, the Company recorded charges totaling $26 million, or $.37 per share, to reduce the carrying value of Block Medical goodwill and certain manufacturing facilities in Europe held for disposal. Excluding these items, operating profit increased 15%, net income increased 14% and earnings per share increased 16% in 1996. NET REVENUES Health Care sales increased $12 million, or 2%, due to higher unit volume of Advance series beds and architectural and communications products in Hill-Rom's U.S. acute care and long-term care markets. Order patterns for acute care capital goods returned to a more normal pattern following two years of health care provider restructuring and consolidation. These improvements were partially offset by lower volume in Europe (France and Germany). Government cost and price controls and general economic conditions have hampered growth in Europe. Sales at Medeco were down year over year. Route management (pay telephone, vending, gaming and automatic teller machines) shipments were negatively affected by the delay in obtaining contracts with other Bell operating companies. This was driven in part by passage of the comprehensive telecommunications act in Congress, which caused most telecommunications companies to "wait and see" what the economic and technological fallout of the new law would be. Door security shipments were up due to strong dealer demand and institutional business. Medeco and Block (for which eight months of sales were reflected in 1996 results) did not contribute significantly to the overall sales of the Health Care segment. Health Care rental revenue grew $5 million, or 1%. In the U.S. long-term care market, units in use were up on the strength of increased market penetration and higher average rental rates were generated from the introduction of new, higher-value products. In the U.S. home care market, unit growth continued, but at a slower rate due primarily to Medicare's 1996 elimination of reimbursement for low airloss therapy products used for the prevention of pressure ulcers. Average rental rates were up marginally. Growth in these two markets was largely offset by declining rental rates and units in use in the U.S. acute care market. Rates are being depressed by cost management in the acute care setting and competitive pressures. Rental units in use have been negatively affected by increased sales of Hill-Rom beds providing low airloss therapy. Rental revenues in Europe were unchanged year over year. Funeral Services sales increased $9 million, or 2%, due to price increases, growth in traditional casket unit volume and higher sales of Options cremation products. Unit volume growth was achieved despite an essentially flat market for casketed deaths in 1996. -11- Insurance revenues were up $33 million, or 18%. Interest income accounted for $12 million of this increase, reflecting a larger investment portfolio, partially offset by slightly lower yields. The growth in earned premium revenue was due primarily to increased policies in force year over year. Policy sales were up over 20% in 1996. Since premium revenues are earned over the life of the policy holder, this increase will primarily affect revenues and earnings in future years. GROSS PROFIT Gross profit on Health Care sales of $234 million was up $25 million, or 12%, due primarily to higher shipments in Hill-Rom's U.S. acute care market. As a percentage of sales, gross profit improved from 38% in 1995 to 41% in 1996. Increased shipments of higher-value products, improvements in direct material, labor and overhead costs and leveraging of fixed manufacturing expenses in the U.S. and decreased sales of lower margin European products were responsible for this improvement. Gross profit on Health Care rentals increased $18 million, or 15%, to $140 million and, as a percentage of revenues, improved from 33% to 38%. Increased therapy unit utilization and the introduction of new, higher-value products in the long-term care and home care markets, improvements in field service costs and lower acquisition related expenses were partially offset by higher therapy unit depreciation and lower utilization and rental rates in the acute care market. Gross profit on Funeral Services sales of $246 million was up $9 million, or 4%, in 1996. As a percentage of sales, it increased from 46% in 1995 to 47% in 1996 due to improved material costs and leveraging of fixed manufacturing expenses, partially offset by increased sales of lower margin caskets. Insurance gross profit increased $12 million, or 27%, in 1996 due to higher investment income (with minimal corresponding direct cost), profits earned on the larger base of policies in force and control of direct administrative expenses. The crediting rate (the interest rate that Forethought uses to increase the face amount on insurance policies to have the benefit grow) was essentially unchanged year over year. OTHER OPERATING EXPENSES These expenses, consisting of selling, marketing, distribution and general administrative costs, increased $7 million, or 2%, in 1996. Excluding unusual charges of $26 million in 1995, they increased $33 million, or 8%, in 1996. As a percentage of consolidated revenues, they were up slightly from 25% in 1995 (excluding unusual charges) to 26% in 1996. Higher incentive compensation and commission expenses associated with improved performance and expenditures on product and market development were partially offset by process improvements and cost control throughout the Company. OPERATING PROFIT Operating profit in the Health Care segment, excluding unusual charges in 1995, increased $23 million, or 26%, to $111 million in 1996. Increased sales of higher-value products in the U.S. acute care capital market, improved therapy unit utilization and reduced manufacturing and acquisition costs were partially offset by higher incentive compensation and commission expenses. Operating profit in the Funeral Services segment of $144 million was up $10 million, or 7%, from 1995. At Batesville Casket, operating profit was essentially flat year over year as increased casket and cremation unit volume and improved material and manufacturing cost performance were offset by increased sales of lower-margin caskets and higher product and market development expenses. At Forethought, higher gross profit and control of fixed administrative expenses combined to generate a 71% increase in operating profit. Excluding the unusual charges in 1995, consolidated operating profit of $236 million increased $31 million, or 15%, in 1996. The increases in the operating segments were partially offset by higher incentive compensation and legal expenses at corporate. OTHER INCOME AND EXPENSE Interest expense increased $2 million, or 10%, due to increased debt associated with Hill-Rom's European operations. Investment income was up $2 million, or 13%, due primarily to higher average levels of interest earning assets. -12- INCOME TAXES The effective income tax rate in 1996 was 40% compared with 47% in 1995. Excluding the tax benefit of approximately $6 million on the book and tax differences in the basis of Block Medical recorded in 1996 and the $26 million nondeductible unusual charge in 1995, the effective rate was 42% in 1996 and 41% in 1995. 1995 COMPARED WITH 1994 SUMMARY Consolidated net revenues increased $48 million, or 3%, in 1995. Fiscal year 1994 contained 53 weeks of business compared with 52 in 1995. Adjusting for the extra week in 1994, revenues increased approximately $78 million, or 5%. Operating profit of $179 million was up 15% and net income of $90 million was essentially equal to 1994. In the fourth quarter of 1995, the Company recorded charges totaling $26 million (with no income tax benefit) to reduce the carrying value of goodwill relative to the acquisition of Block Medical and certain manufacturing facilities in Europe being held for disposal. Excluding these unusual charges and the $85 million ($52 million after income taxes) charge for settlement of a patent infringement suit in 1994, operating profit declined $36 million, or 15%, and net income was down $26 million, or 18%. NET REVENUES Health Care sales declined $35 million, or 6%, due primarily to lower unit volume in Hill-Rom's U.S. acute care bed and architectural products markets. These declines were partially offset by growth in Europe (including the effect of the acquisition of Arnold in the first quarter of 1994), favorable foreign currency fluctuations and increased remanufactured equipment shipments in the U.S. At Block Medical, portable-disposable infusion pump volume was up and ambulatory-electronic pump shipments were down. Sales growth at Medeco was driven by new product introductions in route management channels. Door security business was flat year over year. Block and Medeco did not contribute significantly to the overall sales of the Health Care segment. Health Care rentals grew $35 million, or 11%. Increased units in use in the home care and long-term care markets were partially offset by shifts to lower- priced products in all markets and lower usage in the acute care market. Revenues in Europe were favorably affected by foreign currency fluctuations. Funeral Services sales increased $16 million, or 3%, due to traditional casket unit volume growth, higher sales of cremation products, price increases and acquisitions. Insurance revenues were up $32 million, or 21%. Interest income accounted for $19 million of this increase, reflecting a larger investment portfolio and higher yields. The growth in earned premium revenue was due primarily to increased policies in force year over year. Policy sales were down in 1995 due primarily to commission and product changes designed to enhance Forethought's overall long-term profitability. Since premium revenues are recognized, or earned, over the life of the policy holder, this decrease did not have a significant effect on current year revenue. GROSS PROFIT Gross profit on Health Care sales of $209 million was down $45 million, or 18%, due primarily to lower U.S. acute care bed and architectural products volume. As a percentage of sales, gross profit declined from 43% to 38%, reflecting the impact of lower U.S. acute care volume on the fixed manufacturing expense base and increased sales of lower-margin remanufactured equipment and European products. These items were partially offset by sales growth at Medeco, reduced losses at Block and improved manufacturing efficiencies in all U.S. operations. Gross profit on Health Care rentals increased $9 million, or 8%, to $122 million and, as a percentage of revenues, declined from 34% to 33%. Increased units in use in the home care and long-term care markets was partially offset by the shift in all markets to products with lower daily rates. -13- Gross profit on Funeral Services sales of $237 million was up $6 million, or 3%. As a percentage of sales, it was unchanged at 46%. Insurance gross profit increased $5 million, or 13%, in 1995. Higher investment income (with minimal corresponding direct cost) was largely offset by an increase in the crediting rate on policies in force, which was undertaken for competitive reasons. OTHER OPERATING EXPENSES These expenses, consisting of selling, marketing, distribution and general administrative costs, declined $48 million, or 10%, in 1995. Excluding unusual charges of $26 million in 1995 and $85 million in 1994, they increased $11 million, or 3%. As a percentage of consolidated revenues, they were unchanged at 25%. In the Health Care segment, increases associated with European operations and new product development in the U.S. were mostly offset by the avoidance of costs incurred in 1994 relative to the integration of Hill-Rom and SSI and lower incentive compensation expense. Expenses in the Funeral Services segment were virtually unchanged year over year. Unusual charges in 1995 included the $6 million writedown of certain assets of a manufacturing facility in Europe to be disposed of and the $20 million writedown of Block Medical goodwill. Changes in market conditions, the performance of certain products and increased competitive pressures resulted in a significant reduction in management's expectations regarding Block's future cash flows. OPERATING PROFIT Operating profit in the Health Care segment, excluding unusual charges, declined $43 million, or 33%, to $88 million in 1995. Lower U.S. acute care sales, a shift to lower-priced rental products, and expenses associated with European operations and new product development were partially offset by growth in the home care and long-term care rental markets and the avoidance of integration expenses. Operating profit in the Funeral Services segment of $134 million was up $11 million, or 9%, from 1994. Growth in casket unit volume, cremation products, investment income, earned insurance premium revenues and improved operating efficiencies were partially offset by the increase in the crediting rate on insurance policies in force. OTHER INCOME AND EXPENSE Interest expense declined $3 million, or 13%, due to the full-year impact of the retirement of a $75 million promissory note in May of 1994, which was partially offset by the issuance of $100 million of debentures in February of 1994. Interest expense relative to European operations was favorably affected by lower rates. Investment income was up $2 million due to higher yields, partially offset by a lower average level of interest earning assets. INCOME TAXES The effective income tax rate in 1995 was 47%. Excluding the $26 million unusual charge (consisting of the writedown of goodwill and other assets being held for disposal), which is not tax deductible, the effective rate was 41% in 1995 compared with 38% in 1994. This increase reflected higher operating losses in Europe, resulting in foreign loss carryforwards for which there is no associated income tax benefit recognized in the current year. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS Net cash flows 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 the investments of insurance operations) grew from $171 million at the end of 1995 to $266 million at the end of 1996. -14- OPERATING ACTIVITIES Net cash flows from operating activities of $239 million were up significantly compared with 1995. Higher net income and lower accounts receivable and inventory were partially offset by lower accounts payable. The $24 million decline in accounts receivable and improvement in days sales outstanding from 80 to 72 in 1996, were due primarily to lower shipments in Hill-Rom's European operations. In addition, Hill-Rom continues to make good progress in the management of third party collections and Batesville Casket has improved its accounts receivable management. In 1995, accounts receivable increased $13 million due to higher sales in Europe. Inventories declined $15 million in 1996 due to strong U.S. acute care shipments and lower production levels in Europe. The $6 million increase in 1995 reflected a greater number of field sales evaluation units at Hill-Rom. Accounts payable declined $21 million in 1996 and increased $18 million in 1995 due primarily to fourth quarter production levels at Hill-Rom. Accrued expenses increased in 1995 due to higher income taxes payable reflecting the increase in taxable income. INVESTING ACTIVITIES Cash outflows from investing activities increased from $302 million in 1995 to $317 million in 1996. Capital expenditures of $92 million compares with $103 million in 1995, as therapy rental unit production declined from $48 million in 1995 to $41 million in 1996. Acquisitions in 1996 consisted of two small companies each by Hill-Rom and Batesville Casket. Acquisitions in 1995 included the remaining interest in a subsidiary of Arnold by Hill-Rom and two regional casket distributors by Batesville Casket. The Company received $15 million in cash and $2 million in stock from the sale of Block Medical in July 1996. Forethought invests the cash proceeds on insurance premiums predominantly in U.S. treasuries and agencies and high-grade corporate bonds with fixed maturities. The Company's objective is to purchase investment securities with maturities that match the expected cash outflows of policy benefit payments. The investment portfolio is periodically realigned to better meet this objective, as reflected in the relatively large amount of sales prior to maturity. Sales prior to maturity in 1996, 1995 and 1994 resulted in net gains. FINANCING ACTIVITIES The Company's long-term debt-to-equity ratio was 26% at year end 1996 compared with 28% at year end 1995. This decline was due primarily to higher equity. Increases in short-term debt in 1996 and 1995 were to fund European operations and restructuring. The Company has $100 million of registered debentures available for issuance which, when combined with additional debt capacity, existing cash and other working capital, affords the company considerable flexibility in the funding of internal and external growth. Quarterly cash dividends per share were $.1425 in 1994, $.15 in 1995 and $.155 in 1996. An additional increase to $.165 per quarter was approved in January 1997. In 1996, the Company repurchased 1,425,100 shares of its common stock at a cost of $51 million, which compares with purchases of $23 million in 1995 and $20 million in 1994. -15- INSURANCE ASSETS AND LIABILITIES Insurance assets of $2,157 million grew 17% over the past year. Cash and invested assets of $1,663 million constitute 77% of the assets. The investments are concentrated in U.S. treasuries and agencies and high-grade corporate bonds. The invested assets are more than adequate to fund the insurance reserves and other liabilities of $1,470 million. Statutory reserves represent 62% of the face value of insurance in force. Forethought Life Insurance Company declared an $11 million dividend to Hillenbrand Industries in the fourth quarter of 1996, paid in December 1996, and made a $10 million dividend payment in the fourth quarter of 1995. The statutory capital and surplus as a percent of statutory liabilities of the life insurance subsidiary of Forethought was 8.3% at December 31, 1996, down from 8.5% on December 31, 1995. This drop reflects the dividend payment discussed above. 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 policy holder. 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. Excluding the tax effect of adjusting the investment portfolio to fair value, the net deferred future tax benefit increased $4 million in 1996, compared to a $9 million increase in 1995 and 1994. SHAREHOLDERS' EQUITY Cumulative treasury stock acquired in open market transactions increased to 13,008,672 shares in 1996, up from 11,583,572 shares in 1995. The Company currently has Board of Directors' authorization to repurchase up to a total of 14,000,000 shares. Repurchased shares are to be used for general business purposes. From the cumulative shares acquired, 33,996 shares, net of shares converted to cash to pay withholding taxes, were reissued in 1996 to individuals under the provisions of the Company's various stock compensation plans. 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. OTHER ISSUES ACCOUNTING STANDARDS SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995, and is effective for fiscal years beginning after December 15,1995 (not later than fiscal year 1997 for the Company). The new standard encourages companies to adopt a fair value based method of accounting for employee stock- based compensation plans, but allows companies to continue to account for those plans using the accounting prescribed by APB Opinion 25, "Accounting for Stock Issued to Employees." The Company will adopt this standard in 1997 and has not decided whether it will adopt the fair value based method or, alternatively, the pro-forma disclosure requirements of the new standard. -16- ENVIRONMENTAL MATTERS Hillenbrand Industries 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 $10 million. The Company has provided adequate reserves in its financial statements for these matters. 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. INFLATION Inflation and changing prices had a negligible effect on results of operations in 1996, 1995 and 1994. Improvements in manufacturing and administrative efficiencies continue to minimize the effect of price increases. FACTORS THAT MAY AFFECT FUTURE RESULTS Restructuring in the health care industry will continue for the foreseeable future. Reform measures to date have included consolidation of health care providers and payers, growth in managed care and rapid expansion of the home care and long-term care markets. Development of more cost effective ways of delivering successful patient outcomes will continue to be a major focus of providers in all markets. While acute care capital order patterns have improved during the past eighteen months, uninterrupted growth in demand over the long term is not a certainty. Medicare's 1996 elimination of reimbursement for low airloss therapy products used for the prevention of pressure ulcers will continue to hamper growth in the home care market. The Company believes that its investments in innovative products and services designed to improve patient outcomes and reduce total delivery cost provide a solid basis on which to compete effectively in all of these markets. Operating losses in Europe will continue through at least 1997. Restructuring efforts, including plant modernization and consolidation, process improvements and product innovation, are continuing. Although the market for casketed deaths has been essentially flat over the past several years, Batesville Casket has been able to achieve growth through product and service innovation. Its successful entry into the rapidly growing cremation market was also due largely to customer acceptance of the innovative product offerings. Forethought's revenue growth has slowed over the past four years as entry into targeted states and other jurisdictions winds down. The product and commission changes implemented in 1995, which had a short term negative impact on policy sales volume, have enhanced the profitability of the policies sold since the change. Policy sales rebounded in 1996. Trust products to be introduced by Forethought in 1997 are not expected to have an immediate material effect on the financial statements of the Company or its insurance subsidiary but will enhance future value. The Company's investments in operations in Canada and Mexico are minimal. Although losses in Europe have had a significant impact on results of operations, exchange rate fluctuations are not material to its financial statements. -17- - -------------------------------------------------------------------------------- KEY FINANCIAL DATA (a) - -------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------- INCOME STATEMENT - -------------------------------------------------------------------------------- % Pretax, preinterest expense, income to revenues 15 12 11 17 15 % Net income to revenues 8 6 6 10 9 % Income taxes to pretax income 40 47 38 40 38 - -------------------------------------------------------------------------------- BALANCE SHEET - -------------------------------------------------------------------------------- % Long-term debt to total capital 21 22 23 14 25 % Total debt to total capital 28 26 26 26 32 Current assets/current liabilities (b) 2.2 2.1 2.2 1.9 2.0 Working capital turnover (b) 3.9 4.2 4.6 4.7 5.1 - -------------------------------------------------------------------------------- PROFITABILITY - -------------------------------------------------------------------------------- % Return on total capital 14 9 10 20 16 % Return on average shareholders' equity 19 13 13 25 23 - -------------------------------------------------------------------------------- ASSET TURNOVER - -------------------------------------------------------------------------------- Revenues/inventories (b) 15.3 12.9 13.7 14.7 14.1 Revenues/receivables (b) 5.1 4.6 4.7 5.2 5.3 - -------------------------------------------------------------------------------- STOCK MARKET - -------------------------------------------------------------------------------- Year-end price/earnings (P/E) 18.3 25.4 23.2 20.4 25.5 Year-end price/book value 3.3 3.1 3.0 4.6 5.4 - -------------------------------------------------------------------------------- (a) RESTATED, WHERE APPLICABLE, TO EXCLUDE THE RESULTS OF THE DISCONTINUED OPERATION. (b) EXCLUDES INSURANCE OPERATIONS. - -------------------------------------------------------------------------------- CONSOLIDATED INCOME STATEMENT COMPARISON - -------------------------------------------------------------------------------- Fiscal Year Percent Change - -------------------------------------------------------------------------------- (DOLLARS IN MILLIONS) 1996 1995 1994 1996/95 1995/94 1994/93 - -------------------------------------------------------------------------------- Net revenues: - -------------------------------------------------------------------------------- Health Care sales $ 568 $ 556 $ 591 2% (6%) 3% Health Care rentals 373 368 333 1% 11% 10% Funeral Services 524 515 499 2% 3% 9% Insurance 219 186 154 18% 21% 33% - -------------------------------------------------------------------------------- Total revenues $1,684 $1,625 $1,577 4% 3% 9% - -------------------------------------------------------------------------------- Gross profit: Health Care sales $ 234 $ 209 $ 254 12% (18%) (6%) Health Care rentals 140 122 113 15% 8% 11% Funeral Services 246 237 231 4% 3% 9% Insurance 57 45 40 27% 13% 5% - -------------------------------------------------------------------------------- Total gross profit 677 613 638 10% (4%) 3% Other operating expenses 441 408 397 8% 3% 6% Unusual charges - 26 85 N/A N/A N/A - -------------------------------------------------------------------------------- Operating profit 236 179 156 32% 15% (33%) Other expense, net (3) (9) (11) (67%) (18%) - - -------------------------------------------------------------------------------- Income before income taxes 233 170 145 37% 17% (34%) Income taxes 93 80 55 16% 45% (38%) - -------------------------------------------------------------------------------- Net income $ 140 $ 90 $ 90 56% - (38%) - -------------------------------------------------------------------------------- -18- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE Financial Statements: Report of Independent Accountants 20 Statements of Consolidated Income for the three years ended November 30, 1996 21 Consolidated Balance Sheets at November 30, 1996 and December 2, 1995 22 Statements of Consolidated Cash Flows for the three years ended November 30, 1996 24 Statements of Consolidated Shareholders' Equity for the three years ended November 30, 1996 25 Notes to Consolidated Financial Statements 26 Financial Statement Schedules for the three years ended November 30, 1996: Schedule II- Valuation and Qualifying Accounts 43 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. -19- 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 30, 1996 and December 2, 1995, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 1996, 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. PRICE WATERHOUSE LLP Indianapolis, Indiana January 13, 1997 -20- HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) - -------------------------------------------------------------------------------- NOVEMBER 30, December 2, December 3, Year Ended 1996 1995 1994 (53 weeks) - -------------------------------------------------------------------------------- NET REVENUES Health Care sales $ 568 $ 556 $ 591 Health Care rentals 373 368 333 Funeral Services 524 515 499 Insurance 219 186 154 - -------------------------------------------------------------------------------- Total revenues 1,684 1,625 1,577 - -------------------------------------------------------------------------------- COST OF REVENUES Health Care cost of goods sold 334 347 337 Health Care rental expenses 233 246 220 Funeral Services 278 278 268 Insurance 162 141 114 - -------------------------------------------------------------------------------- Total cost of revenues 1,007 1,012 939 Other operating expenses 441 408 397 Unusual charges - 26 85 - -------------------------------------------------------------------------------- OPERATING PROFIT 236 179 156 Other income (expense), net: Interest expense (22) (20) (23) Investment income, net 17 15 13 Other 2 (4) (1) - -------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 233 170 145 Income taxes 93 80 55 - -------------------------------------------------------------------------------- NET INCOME $ 140 $ 90 $ 90 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NET INCOME PER COMMON SHARE $ 2.02 $ 1.27 $ 1.26 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DIVIDENDS PER COMMON SHARE $ .62 $ .60 $ .57 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 69,474,266 70,757,868 71,278,213 - -------------------------------------------------------------------------------- SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -21- HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (DOLLARS IN MILLIONS) - -------------------------------------------------------------------------------- NOVEMBER 30, December 2, 1996 1995 - -------------------------------------------------------------------------------- ASSETS - -------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 266 $ 171 Trade accounts receivable, less allowances of $19 in 1996 and $20 in 1995 287 313 Inventories 96 112 Other current assets 45 44 - -------------------------------------------------------------------------------- Total current assets 694 640 - -------------------------------------------------------------------------------- EQUIPMENT LEASED TO OTHERS 278 261 Less accumulated depreciation 185 170 - -------------------------------------------------------------------------------- Equipment leased to others, net 93 91 - -------------------------------------------------------------------------------- PROPERTY 656 650 Less accumulated depreciation 403 374 - -------------------------------------------------------------------------------- Property, net 253 276 - -------------------------------------------------------------------------------- OTHER ASSETS Intangible assets at amortized cost: Patents and trademarks 24 29 Excess of cost over net asset values of acquired companies 112 126 Other 13 8 Deferred charges and other assets 50 49 - -------------------------------------------------------------------------------- Total other assets 199 212 - -------------------------------------------------------------------------------- INSURANCE ASSETS (NOTE 10) Investments 1,663 1,432 Deferred acquisition costs 406 339 Deferred income taxes 44 40 Other 44 40 - -------------------------------------------------------------------------------- Total Insurance Assets 2,157 1,851 - -------------------------------------------------------------------------------- TOTAL ASSETS $ 3,396 $ 3,070 - -------------------------------------------------------------------------------- -22- - -------------------------------------------------------------------------------- NOVEMBER 30, December 2, 1996 1995 - -------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------- CURRENT LIABILITIES Short-term debt (Note 4) $ 74 $ 40 Current portion of long-term debt (Note 4) 1 2 Trade accounts payable 50 71 Income taxes payable (Note 8) 21 13 Accrued compensation 58 62 Other liabilities (Note 12) 116 113 - -------------------------------------------------------------------------------- Total current liabilities 320 301 - -------------------------------------------------------------------------------- LONG-TERM DEBT (NOTE 4) 204 206 - -------------------------------------------------------------------------------- OTHER LONG-TERM LIABILITIES (NOTES 5 AND 12) 74 79 - -------------------------------------------------------------------------------- DEFERRED INCOME TAXES (NOTES 1 AND 8) 13 15 - -------------------------------------------------------------------------------- INSURANCE LIABILITIES (NOTE 10) Benefit reserves 1,449 1,253 Unearned revenues 528 455 General liabilities 21 15 - -------------------------------------------------------------------------------- Total Insurance Liabilities 1,998 1,723 - -------------------------------------------------------------------------------- TOTAL LIABILITIES 2,609 2,324 - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTE 12) - -------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY (NOTE 5) - -------------------------------------------------------------------------------- Common stock - without par value: Authorized - 199,000,000 shares Issued - 80,323,912 shares in 1996 and 1995 4 4 Additional paid-in capital 14 14 Retained earnings (Note 4) 973 876 Accumulated unrealized gain on investments 21 23 Foreign currency translation adjustment 10 14 Treasury stock, at cost: 1996 - 11,537,632 shares; 1995 - 10,146,528 shares (235) (185) - -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 787 746 - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $3,396 $3,070 - -------------------------------------------------------------------------------- SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -23- HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS (DOLLARS IN MILLIONS) - -------------------------------------------------------------------------------- NOVEMBER 30, December 2, December 3, Year Ended 1996 1995 1994 (53 weeks) - -------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 140 $ 90 $ 90 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation, amortization and writedown of goodwill 99 127 97 Change in noncurrent deferred income taxes (6) (13) (11) Gain on sale of business (3) - - Change in working capital excluding cash, current debt, acquisitions and dispositions: Trade accounts receivable 24 (13) (37) Inventories 15 (6) (1) Other current assets (1) (1) (2) Trade accounts payable (21) 18 1 Accrued expenses and other liabilities 5 7 (27) Change in insurance deferred policy acquisition costs (67) (58) (63) Change in other insurance items, net 40 34 18 Other, net 14 (6) (3) - -------------------------------------------------------------------------------- Net cash provided by operating activities 239 179 62 - -------------------------------------------------------------------------------- INVESTING ACTIVITIES Capital expenditures (92) (103) (100) Proceeds on disposal of fixed assets and equipment leased to others 2 2 2 Acquisitions of businesses, net of cash acquired (6) (4) (40) Other investments (3) - (16) Proceeds on sale of business 15 - - Insurance investments: Purchases (437) (552) (527) Proceeds on maturities 78 65 211 Proceeds on sales prior to maturity 126 290 64 - -------------------------------------------------------------------------------- Net cash used in investing activities (317) (302) (406) - -------------------------------------------------------------------------------- FINANCING ACTIVITIES Additions to short-term debt 119 23 4 Reductions to short-term debt (81) (8) (2) Additions to long-term debt - - 100 Reductions to long-term debt (3) (2) (77) Payment of cash dividends (43) (43) (41) Treasury stock acquired (51) (23) (20) Insurance premiums received 459 428 459 Insurance benefits paid (227) (201) (169) - -------------------------------------------------------------------------------- Net cash provided by financing activities 173 174 254 - -------------------------------------------------------------------------------- TOTAL CASH FLOWS 95 51 (90) CASH AND CASH EQUIVALENTS At beginning of year 171 120 210 - -------------------------------------------------------------------------------- At end of year $ 266 $ 171 $ 120 - -------------------------------------------------------------------------------- SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -24- HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (DOLLARS IN MILLIONS) - -------------------------------------------------------------------------------- NOVEMBER 30, December 2, December 3, Year Ended 1996 1995 1994 (53 weeks) - -------------------------------------------------------------------------------- COMMON STOCK $ 4 $ 4 $ 4 - -------------------------------------------------------------------------------- ADDITIONAL PAID-IN CAPITAL Beginning of year 14 12 4 Fair market value over cost on reissuance of treasury shares (1996 - 33,996; 1995 - 14,537; 1994 - 270,626) - - 8 Other - 2 - - -------------------------------------------------------------------------------- End of year 14 14 12 - -------------------------------------------------------------------------------- RETAINED EARNINGS Beginning of year 876 829 780 Net income 140 90 90 Dividends (43) (43) (41) - -------------------------------------------------------------------------------- End of year 973 876 829 - -------------------------------------------------------------------------------- ACCUMULATED UNREALIZED GAIN ON INVESTMENTS Beginning of year 23 - - Net unrealized holding gain (loss) (2) 23 - - -------------------------------------------------------------------------------- End of year 21 23 - - -------------------------------------------------------------------------------- FOREIGN CURRENCY TRANSLATION ADJUSTMENT Beginning of year 14 10 (2) Translation adjustment (4) 4 12 - -------------------------------------------------------------------------------- End of year 10 14 10 - -------------------------------------------------------------------------------- TREASURY STOCK Beginning of year (185) (162) (147) Shares acquired (1996 - 1,425, 100; 1995 - 760,000; 1994 - 610,300) (51) (23) (20) Shares reissued 1 - 5 - -------------------------------------------------------------------------------- End of year (235) (185) (162) - -------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 787 $ 746 $ 693 - -------------------------------------------------------------------------------- SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -25- HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting policies specific to insurance operations are summarized in Note 10. 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." 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. ACCOUNTING STANDARDS SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in October 1995, and is effective for fiscal years beginning after December 15,1995 (not later than fiscal year 1997 for the Company). The new standard encourages companies to adopt a fair value based method of accounting for employee stock- based compensation plans, but allows companies to continue to account for those plans using the accounting prescribed by APB Opinion 25, "Accounting for Stock Issued to Employees." The Company will adopt this standard in 1997 and has not decided whether it will adopt the fair value based method or, alternatively, the pro-forma disclosure requirements of the new standard. NATURE OF OPERATIONS Hillenbrand Industries is organized into two segments - Health Care and Funeral Services. The Health Care segment consists of Hill-Rom Company, Medeco Security Locks (included in this segment for reporting purposes only) and Block Medical (sold in the third quarter of 1996). Hill-Rom generates the predominant share of this segment's revenue and operating profit and is a leading manufacturer of patient care products and leading provider of specialized rental therapy products designed to assist in managing the complications of patient immobility. Its products and services are marketed to acute and long-term health care facilities and home care patients primarily in North America and Europe. The Health Care segment generated 56% of Hillenbrand's revenues in 1996. The Funeral Services segment consists of Batesville Casket Company and The Forethought Group. Batesville Casket Company is a leading producer of protective metal and hardwood burial caskets and cremation urns, caskets and marketing support services. Its products are marketed to licensed funeral directors operating licensed funeral homes primarily in North America. Batesville generated 31% of Hillenbrand's revenues in 1996. The Forethought Group provides funeral homes in 42 U.S. states, the District of Columbia, Puerto Rico and Canada with life insurance policies and marketing support for pre-need, inflation-protected funeral planning. Forethought generated 13% of Hillenbrand's revenues in 1996. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Actual results could differ from those estimates. Refer to Notes 8 and 12 for discussion of certain significant estimates. -26- 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 or market. The last-in, first-out (LIFO) method was used for determining the cost of approximately 71% of total inventories at November 30, 1996, 65% at December 2, 1995 and 62% at December 3, 1994. The cost for the remaining portion of the inventories was determined using the first-in, first-out (FIFO) method. The LIFO reserve, which approximates the excess of the current cost of inventories over the stated LIFO values, increased from $9 million at year-end 1994 to $12 million at year-end 1995 and declined to $11 million at year-end 1996. EQUIPMENT LEASED TO OTHERS Equipment leased to others represents therapy rental units, which are recorded at cost and depreciated on a straight-line basis over their estimated 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 1996 and 1995 were: - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Land $ 25 $ 28 Buildings and building equipment 146 145 Machinery and equipment 485 477 - -------------------------------------------------------------------------------- Total $ 656 $ 650 - -------------------------------------------------------------------------------- INTANGIBLE AND OTHER NON-CURRENT ASSETS Intangible assets are stated at cost and are amortized on a straight-line basis over periods ranging from 3 to 40 years. The Company reviews goodwill and other non-current assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If the undiscounted expected future cash flows from use of the asset is less than its carrying value, an impairment loss is recognized. The amount of the impairment loss is determined by comparing the discounted expected future cash flows (including terminal value) with the carrying value. Goodwill related to Block Medical was written down $20 million in the fourth quarter of 1995. Changes in market conditions, the performance of certain products and increased competitive pressures resulted in a significant reduction in management's expectations regarding Block's future cash flows. Certain assets relative to the acquisition of Arnold in 1994 that were being held for disposal, were written down $6 million in the fourth quarter of 1995 to their estimated fair value less cost of disposition. These assets were sold in 1996. Accumulated amortization of intangible assets was $145 million and $164 million as of November 30, 1996, and December 2, 1995, respectively. -27- ENVIRONMENTAL LIABILITIES Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are expensed. A reserve is established when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. More specifically, each quarter, financial management, in consultation with its environmental engineer, estimates the range of liability based on current interpretation of environmental laws and regulations. For each site in which a Company unit is involved, a determination is made of the specific measures that are believed to be required to remediate the site, the estimated total cost to carry out the remediation plan and the periods in which the Company will make payments toward the remediation plan. The Company does not make an estimate of general or specific inflation for environmental matters since the number of sites is small, the magnitude of costs to execute remediation plans are not significant and the estimated time frames to remediate sites are not believed to be lengthy. Specific costs included in environmental expense are site assessment, development of a remediation plan, clean-up costs, post-remediation expenditures, monitoring, fines, penalties and legal fees. The reserve represents the expected undiscounted future cash outflows. Expenditures that relate to current operations are charged to expense. REVENUE RECOGNITION Sales are recognized upon shipment of products to customers. Rental revenues are recognized when services are rendered. COST OF REVENUES Health Care and Funeral Services cost of goods sold consist primarily of purchased material costs, fixed manufacturing expense, and variable direct labor and overhead costs. Health Care rental expenses are those costs associated directly with rental revenue, including depreciation and service of the Company's therapy rental units, service center facility and personnel costs, and regional sales expenses. 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 5.5%, respectively, for 1996, 7.5% and 5.5%, respectively, for 1995, and 8.0% and 6.0%, respectively, for 1994. The expected long-term rate of return on assets was 8.0% for 1996, 1995 and 1994. -28- Net pension expense includes the following components: - -------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- Service expense-benefits earned during the year $ 7 $ 6 $ 5 Interest expense on projected benefit obligation 8 7 7 Actual loss (return) on plan assets (7) (12) 7 Net amortization and deferral (1) 4 (13) - -------------------------------------------------------------------------------- Net pension expense $ 7 $ 5 $ 6 - --------------------------------------------------------------------------------
The funded status of the plans is shown in the table below: - ------------------------------------------------------------------------------------------- NOVEMBER 30, DECEMBER 2, 1996 1995 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $79 in 1996 and $69 in 1995 ($84) ($74) - ------------------------------------------------------------------------------------------- Projected benefit obligation for service rendered to date ($122) ($110) Plan assets at fair value, primarily U.S. Government obligations, corporate bonds and notes, and common stock issued by the Company. The value of this common stock at date of acquisition by the plans was $3 and the current market value was $17 in 1996 and $15 in 1995. 110 99 - ------------------------------------------------------------------------------------------- Plan assets less than projected benefit obligation (12) (11) Unrecognized net gain from past experience different from that assumed (14) (16) Unrecognized prior service cost 2 3 Unrecognized net asset at year-end being recognized over 14 to 22 years from the initial compliance date of December 1, 1985 (1) (1) - ------------------------------------------------------------------------------------------- Unfunded accrued expenses included in liabilities ($25) ($25) - -------------------------------------------------------------------------------------------
In addition to the above plans, the Company assumed the unfunded liabilities of a defined benefit plan in the acquisition of Arnold in 1994. The unfunded accumulated benefit obligation of this plan, included in accrued expenses, was $13 million on November 30, 1996, $14 million on December 2, 1995, and $13 million on December 3, 1994. Pension expense was approximately $1 million in 1996, 1995, and 1994. 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 million in 1996 and 1995 and $7 million in 1994. -29- INCOME TAXES The Company and its eligible subsidiaries file a consolidated income tax return. Deferred income taxes are computed in accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the income tax amounts. FOREIGN CURRENCY TRANSLATION Assets and liabilities of foreign operations are translated into U.S. dollars 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 into U.S. dollars 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 and are not material. 2. ACQUISITIONS In 1996, the Company's subsidiaries, Batesville Casket and Hill-Rom, each acquired two small companies. The combined purchase price was $6 million. Batesville Casket, purchased two regional casket distributors in 1995 and Hill-Rom purchased the remaining minority interest in a subsidiary of Arnold, which was initially acquired in 1994. The total purchase price for these businesses in 1995 was $4 million. In addition to the acquisition of Arnold by Hill-Rom, Batesville Casket acquired Industrias Arga, S.A. de C.V., a Mexican casket manufacturer and distributor, and a U.S. casket distributor, in 1994. The combined purchase price of these companies (the predominant share of which related to Arnold) consisted of cash in the amount of $40 million and the assumption of net liabilities of $6 million. The resulting goodwill of $46 million is being amortized on a straight-line basis, primarily over 40 years. 3. DISPOSITION On July 22, 1996, the Company sold the assets of Block Medical for cash and stock totaling $17 million. The Company recorded a gain on the sale of $3 million ($2 million after income taxes) and a related income tax benefit of approximately $6 million which will be realized from book and tax differences in the basis of the business. 4. FINANCING AGREEMENTS The Company's various financing agreements contain no provisions or conditions relating to dividend payments, working capital and additional indebtedness. -30- Long-term debt consists of the following: - ------------------------------------------------------------------------------------------- NOVEMBER 30, DECEMBER 2, 1996 1995 - ------------------------------------------------------------------------------------------- Unsecured 8 1/2% debentures due on December 1, 2011 $ 100 100 Unsecured 7% debentures due on February 15, 2024 100 100 Government sponsored bond with an interest rate of 5.0% and maturities to 2008 2 2 Other 3 6 - ------------------------------------------------------------------------------------------- Total 205 208 Less current portion 1 2 - ------------------------------------------------------------------------------------------- Total long-term debt $ 204 $ 206 - -------------------------------------------------------------------------------------------
The scheduled payments on the long-term debt as of November 30, 1996 total less than $1 million in each of the years 1997 through 2001. Short-term debt consists of various lines of credit maintained for foreign subsidiaries. The weighted average interest rate on all short-term borrowings outstanding as of November 30, 1996, and December 2, 1995, was 4% and 6%, respectively. At November 30, 1996, the Company had uncommitted credit lines totaling $159 million available for its operations. These agreements have no commitment fees, compensating balance requirements or fixed expiration dates. 5. SHAREHOLDERS' EQUITY One million shares of preferred stock, without par value, have been authorized and none have been issued. At November 30, 1996, the Company has three stock-based compensation plans; the Senior Executive Compensation Program, the Performance Compensation Plan, and the Restricted Stock Plan, which are described below. All shares issued under these plans are valued at market trading prices. 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 1,115,730 shares of common stock of the Company remain reserved for issuance under the program. Total tentative performance shares payable through November 30, 1996, were 147,642. 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 177,149 deferred shares are payable as of November 30, 1996. On April 7, 1992, the shareholders of the Company approved the adoption of the Performance Compensation Plan whereby key employees will be awarded tentative performance shares based upon achievement of performance targets. A total of 1,293,820 shares of common stock remain reserved for issuance under this plan as of November 30, 1996. In 1993, 386,096 shares were earned based on the Company's performance. A total of 4,886 deferred shares are payable as of November 30, 1996 under this plan. The plan will terminate on November 30, 2001. 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. Remaining authorized restricted shares may be awarded up to April 15, 1997, 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 30 1996. No additional awards are contemplated at this time. -31- Members of the Board of Directors may elect to defer fees earned as reinvested in common stock of the Company. A total of 8,134 deferred shares are payable as of November 30, 1996, under this program. 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 30, 1996, a total of 13,008,672 shares had been purchased at market trading prices, of which 11,537,632 shares remain in treasury. 6. 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 10) 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: - -------------------------------------------------------------------------------- NOVEMBER 30, 1996 - -------------------------------------------------------------------------------- Carrying Fair Amount Value - -------------------------------------------------------------------------------- Short-term debt $ 74 $ 74 Long-term debt $ 205 $ 221 - --------------------------------------------------------------------------------
The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined foreign currency risks. The Company occasionally enters into foreign currency forward contracts to hedge exposure to adverse exchange risk related to certain assets and obligations denominated in foreign currencies. The gains or losses arising from these contracts offset foreign exchange gains or losses on the underlying assets or liabilities and are recognized as offsetting adjustments to the carrying amounts. The Company had no material derivative financial instruments on November 30, 1996 and December 2, 1995. 7. SEGMENT INFORMATION INDUSTRY INFORMATION The Health Care segment consists of Hill-Rom and Block Medical (sold in the third quarter of 1996). 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, long-term care, home care and perinatal providers. It also provides rental therapy units to health care facilities and the home care market for wound therapy, the management of pulmonary complications associated with critically ill patients and incontinence management. Medeco produces and sells high-security mechanical locks and lock cylinders and electronic security systems for commercial, residential and government applications. -32- The Funeral Services segment consists of Batesville Casket Company and Forecorp. Batesville manufactures and sells a variety of metal and hardwood caskets and a line of urns and caskets 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, Inc., provide funeral planning professionals with marketing support for Forethought-Registered Trademark- funeral plans funded by life insurance policies. Note 10 contains additional information regarding insurance operations. Product transfers between industry segments are not material Financial information regarding the Company's industry segments is presented below: - ---------------------------------------------------------------------------------------------- NOVEMBER 30, DECEMBER 2, DECEMBER 3, Year Ended 1996 1995 1994 (53 weeks) - ---------------------------------------------------------------------------------------------- Net revenues: Health Care $ 941 $ 924 $ 924 Funeral Services 743 701 653 - ---------------------------------------------------------------------------------------------- Consolidated $ 1,684 $ 1,625 $ 1,577 - ---------------------------------------------------------------------------------------------- Operating profit: Health Care (a) (b) (c) $ 111 $ 62 $ 46 Funeral Services 144 134 123 Corporate and other (19) (17) (13) - ---------------------------------------------------------------------------------------------- Consolidated 236 179 156 Interest expense (22) (20) (23) Investment income 17 15 13 Other income (expense), net (d) 2 (4) (1) - ---------------------------------------------------------------------------------------------- Income before income taxes $ 233 $ 170 $ 145 - ---------------------------------------------------------------------------------------------- Identifiable assets: Health Care (a) (b) $ 647 $ 713 $ 701 Funeral Services 2,421 2,120 1,826 Corporate and other 328 237 187 - ---------------------------------------------------------------------------------------------- Consolidated $ 3,396 $ 3,070 $ 2,714 - ---------------------------------------------------------------------------------------------- Capital expenditures: Health Care $ 69 $ 77 $ 75 Funeral Services 21 24 23 Corporate and other 2 2 2 - ---------------------------------------------------------------------------------------------- Consolidated $ 92 $ 103 $ 100 - ---------------------------------------------------------------------------------------------- Depreciation and amortization: Health Care (a) $ 72 $ 100 $ 69 Funeral Services 24 24 24 Corporate and other 3 3 4 - ---------------------------------------------------------------------------------------------- Consolidated $ 99 $ 127 $ 97 - ----------------------------------------------------------------------------------------------
(a) REFLECTS CHARGES OF $20 MILLION IN 1995 FOR THE WRITEDOWN OF BLOCK MEDICAL GOODWILL. (b) REFLECTS A $6 MILLION CHARGE IN 1995 FOR THE WRITEDOWN OF CERTAIN ASSETS OF A MANUFACTURING FACILITY SOLD IN 1996. (c) REFLECTS AN $85 MILLION CHARGE IN 1994 FOR SETTLEMENT OF A PATENT INFRINGEMENT SUIT. (d) REFLECTS A GAIN OF $3 MILLION IN 1996 ON THE SALE OF BLOCK MEDICAL. -33- GEOGRAPHIC INFORMATION Sales between geographic area are at transfer prices, which are equivalent to market value. - ------------------------------------------------------------------------------------------------------------------------- United Other Corporate States (a) Europe (b) International and Other Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------- 1996: Net revenues: To unaffiliated customers $ 1,447 $ 188 $ 49 $ - $ - $ 1,684 Transfers to other geographic areas 37 - - - (37) - - ------------------------------------------------------------------------------------------------------------------------- Total net revenues $ 1,484 $ 188 $ 49 $ - $ (37) $ 1,684 - ------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) $ 284 $ (31) $ 2 $ (19) $ - $ 236 - ------------------------------------------------------------------------------------------------------------------------- Identifiable assets $ 2,869 $ 355 $ 24 $ 328 $ (180) $ 3,396 - ------------------------------------------------------------------------------------------------------------------------- 1995: Net revenues: To unaffiliated customers $ 1,355 $ 221 $ 49 $ - $ - $ 1,625 Transfers to other geographic areas 37 - - - (37) - - ------------------------------------------------------------------------------------------------------------------------- Total net revenues $ 1,392 $ 221 $ 49 $ - $ (37) $ 1,625 - ------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) $ 225 $ (30) $ - $ (17) $ 1 $ 179 - ------------------------------------------------------------------------------------------------------------------------- Identifiable assets $ 2,575 $ 377 $ 24 $ 237 $ (143) $ 3,070 - ------------------------------------------------------------------------------------------------------------------------- 1994 (53 weeks): Net revenues: To unaffiliated customers $ 1,350 $ 176 $ 51 $ - $ - $ 1,577 Transfers to other geographic areas 39 - - - (39) - - ------------------------------------------------------------------------------------------------------------------------- Total net revenues $ 1,389 $ 176 $ 51 $ - $ (39) $ 1,577 - ------------------------------------------------------------------------------------------------------------------------- Operating profit (loss) $ 181 $ (9) $ (4) $ (13) $ 1 $ 156 - ------------------------------------------------------------------------------------------------------------------------- Identifiable assets $ 2,364 $ 215 $ 25 $ 187 $ (77) $ 2,714 - -------------------------------------------------------------------------------------------------------------------------
(a) REFLECTS UNUSUAL CHARGES OF $20 MILLION IN 1995 FOR THE WRITEDOWN OF BLOCK MEDICAL GOODWILL AND $85 MILLION IN 1994 FOR SETTLEMENT OF A PATENT INFRINGEMENT SUIT. (b) REFLECTS AN UNUSUAL CHARGE OF $6 MILLION IN 1995 FOR THE WRITEDOWN OF CERTAIN ASSETS OF A MANUFACTURING FACILITY SOLD IN 1996. 8. INCOME TAXES Income taxes are computed in accordance with SFAS No. 109. The significant components of the income tax provision (benefit) are as follows: - ------------------------------------------------------------------------------------------- 1996 1995 1994 (53 weeks) - ------------------------------------------------------------------------------------------- Income (loss) before income taxes: Domestic $ 267 $ 207 $ 163 Foreign (34) (37) (18) - ------------------------------------------------------------------------------------------- Total $ 233 $ 170 $ 145 - ------------------------------------------------------------------------------------------- Provision for income taxes: Current items: Federal $ 85 $ 83 $ 58 State 13 12 8 Foreign 1 (1) (1) - ------------------------------------------------------------------------------------------- Total current items 99 94 65 - ------------------------------------------------------------------------------------------- Deferred items: Federal (6) (11) (10) State - (2) - Foreign - (1) - - ------------------------------------------------------------------------------------------- Total deferred items (6) (14) (10) - ------------------------------------------------------------------------------------------- Provision for income taxes $ 93 $ 80 $ 55 - -------------------------------------------------------------------------------------------
-34- The fiscal year differences between the amounts recorded for income taxes for financial statement purposes and the amounts computed by applying the Federal statutory tax rate to income before taxes are explained as follows: - ------------------------------------------------------------------------------------------- 1996 1995 1994 (53 weeks) - ------------------------------------------------------------------------------------------- % OF % OF % OF PRETAX PRETAX PRETAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME - ------------------------------------------------------------------------------------------- Federal income tax (a) $81 35.0 $59 35.0 $51 35.0 State income tax (b) 9 3.8 7 4.0 5 3.5 Foreign income tax (c) 12 5.1 11 6.5 5 3.6 Goodwill write-down (a) - - 7 4.1 - - Sale of Block Medical (a) (6) (2.6) - - - - Other, net (3) (1.4) (4) (2.5) (6) (4.2) - ------------------------------------------------------------------------------------------- Provision for income taxes $93 39.9 $80 47.1 $55 37.9 - -------------------------------------------------------------------------------------------
(a) AT STATUTORY RATE. (b) NET OF FEDERAL BENEFIT. (c) FEDERAL TAX RATE DIFFERENTIAL. The tax effect of temporary differences that give rise to significant portions of the deferred tax balance sheet accounts were as follows: - ---------------------------------------------------------------------------------------------- NOVEMBER 30, 1996 DECEMBER 2, 1995 - ---------------------------------------------------------------------------------------------- NON-INSURANCE INSURANCE NON-INSURANCE INSURANCE - ---------------------------------------------------------------------------------------------- Deferred tax assets: Current: Inventories $ 4 $ - $ 4 $ - Employee benefit accruals 3 - 4 - Self insurance accruals 10 - 9 - Litigation accruals 1 - 1 - Other, net 7 3 7 2 Long-term: Employee benefit accruals 18 - 17 1 Deferred policy revenues - 185 - 159 Foreign loss carryforwards 66 - 55 - Foreign acquisition reserves 4 - 10 - Other, net 6 - 5 - - ---------------------------------------------------------------------------------------------- Total assets 119 188 112 162 - ---------------------------------------------------------------------------------------------- Deferred tax liabilities: Current: Inventories 2 - 2 - Other, net 2 - 2 - Long-term: Depreciation 35 - 35 - Amortization 2 - 2 - Unrealized gain on investments - 12 - 13 Benefit reserves - 9 - 8 Deferred acquisition costs - 119 - 98 Foreign asset step up 4 - 5 - Foreign investment writedown 16 - 17 - Other, net - 4 - 3 - ---------------------------------------------------------------------------------------------- Total liabilities 61 144 63 122 - ---------------------------------------------------------------------------------------------- Less valuation allowance for foreign loss carryforwards (50) - (43) - - ---------------------------------------------------------------------------------------------- Net asset $ 8 $ 44 $ 6 $ 40 - ----------------------------------------------------------------------------------------------
-35- Remaining unutilized foreign loss carryforwards were approximately $162 million and $136 million on November 30, 1996, and December 2, 1995, respectively. There is not currently sufficient positive evidence as required by SFAS No. 109 to substantiate recognition of net deferred tax assets in the financial statements for those foreign subsidiaries in net operating loss carryforward positions. Accordingly, a valuation allowance of $50 million has been recorded. It is reasonably possible that sufficient positive evidence could be generated in the near term at one or more of these foreign subsidiaries to support a reduction in the valuation allowance and a resulting recognition of net deferred tax assets. Included in the deferred tax valuation allowance is $7 million related to acquired German loss carryforward benefits and German acquisition purchase price allocation. The future reversal of this portion of the valuation allowance will not be recognized as an adjustment in the income statement. Income tax benefits recorded in years 1990 through 1996 relative to certain expenses associated with the Company's corporate-owned life insurance program have been reviewed by the Internal Revenue Service (IRS). At the date of this report, the Company and the IRS are requesting technical advice from the IRS' national office. The Company strongly believes such benefits were recorded in full compliance with existing and prior tax law. However, it is reasonably possible that the IRS may, in the near term, disallow the deductibility of some of these expenses. The Company believes that the ultimate amount of tax deductions disallowed, if any, will not have a material adverse effect on financial condition or cash flows. 9. SUPPLEMENTARY INFORMATION The following amounts were (charged) or credited to income in the year indicated: - -------------------------------------------------------------------------------- 1996 1995 1994 (53 weeks) - -------------------------------------------------------------------------------- Rental expense ($16) ($17) ($20) Research and development costs ($42) ($39) ($35) Investment income, net (a) $17 $15 $13 - -------------------------------------------------------------------------------- (a) EXCLUDES INSURANCE OPERATIONS. The table below indicates the minimum annual rental commitments (excluding renewable periods) aggregating $45 million, primarily for warehouses, under noncancellable operating leases. - -------------------------------------------------------------------------------- 1997 $ 14 1998 $ 10 1999 $ 7 2000 $ 5 2001 $ 3 2002 and beyond $ 6 - -------------------------------------------------------------------------------- -36- The table below provides supplemental information to the statement of consolidated cash flows. - ------------------------------------------------------------------------------- 1996 1995 1994 (53 weeks) - ------------------------------------------------------------------------------- Cash paid for: Income taxes $ 92 $ 90 $ 85 Interest $ 16 $ 20 $ 26 Non-cash investing and financing activities: Liabilities assumed from/incurred for the acquisition of businesses $ 1 $ 5 $ 50 Treasury stock issued under stock compensation plans $ 1 $ - $ 13 - ------------------------------------------------------------------------------- 10. INSURANCE OPERATIONS Forecorp, Inc., through its two subsidiaries, Forethought Life Insurance Company and The Forethought Group, Inc., serves funeral planning professionals with life insurance policies and marketing support for Forethought-Registered Trademark-funeral planning, a "pre-need" insurance program. The life insurance policies are limited to long-duration, whole-life policies, and, as such, are accounted for under SFAS No. 97. The benefits under these policies increase based on external inflationary indices. 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. Liabilities equal to policy holder account balances and amounts assessed against these balances for future insurance charges are established on the insurance contracts issued by Forethought Life Insurance Company. Investments are predominantly U.S. treasuries and agencies and high-grade corporate bonds with fixed maturities and are carried on the balance sheet at fair value. The Company's objective is to purchase investment securities with maturities that match the expected cash outflows of policy benefit payments. The investment portfolio is periodically realigned to better meet this objective. Securities are also sold in other carefully constrained circumstances such as concern about the credit quality of the issuer. Otherwise, it is management's intent that these investments be held to maturity. Cash (unrestricted as to use) is held for future investment. In accordance with the provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities", the Company has classified the investments in debt and equity securities of its insurance subsidiary as "available for sale" and reported them at fair value on the balance sheet with unrealized gains and losses charged or credited to a separate component of shareholders' equity and the insurance deferred tax asset adjusted for the income tax effect. The fair value of each security is based on the market value provided by brokers/dealers. The amortized cost and fair value of investment securities available for sale at November 30, 1996 were as follows: - ------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ------------------------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 553 $ 8 $ 9 $ 552 Corporate securities 991 27 2 1,016 Mutual funds 56 9 - 65 - ------------------------------------------------------------------------------- Total (a) $1,600 $ 44 $ 11 $1,633 - ------------------------------------------------------------------------------- -37- The amortized cost and fair value of investment securities available for sale at December 2, 1995 were as follows: - ------------------------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Fair Cost Gains Losses Value - ------------------------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 500 $ 9 $ 6 $ 503 Corporate securities 873 34 2 905 Mutual funds - - - - - ------------------------------------------------------------------------------- Total (a) $1,373 $ 43 $ 8 $1,408 - ------------------------------------------------------------------------------- (a) DOES NOT INCLUDE THE AMORTIZED COST OF OTHER INVESTMENTS CARRIED ON THE BALANCE SHEET IN THE AMOUNT OF $30 MILLION AT NOVEMBER 30, 1996, AND $24 MILLION AT DECEMBER 2, 1995, THE CARRYING VALUE OF WHICH APPROXIMATES FAIR VALUE. The amortized cost and fair value of investment securities available for sale at November 30, 1996, 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. - ------------------------------------------------------------------------------- Amortized Fair Cost Value - ------------------------------------------------------------------------------- Due in one year or less $ 49 $ 49 Due after 1 year through 5 years 303 309 Due after 5 years through 10 years 249 252 Due after ten years 494 510 Mortgage-backed securities 449 448 Mutual funds 56 65 - ------------------------------------------------------------------------------- Total $1,600 $ 1,633 - ------------------------------------------------------------------------------- The cost used to compute realized gains and losses is determined by specific identification. Proceeds and realized gains and losses from the sale of investment securities available for sale were as follows: - ------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- Proceeds $ 126 $ 290 $ 64 Realized gross gains $ 1 $ 5 $ 1 Realized gross losses $ 1 $ 4 $ 1 - ------------------------------------------------------------------------------- Summarized financial information of insurance operations included in the statement of consolidated income is as follows: - ------------------------------------------------------------------------------- 1996 1995 1994 - ------------------------------------------------------------------------------- Investment income $ 104 $ 92 $ 73 Earned premium revenue 115 93 81 Net gain on sale of investments - 1 - - ------------------------------------------------------------------------------- Total net revenues 219 186 154 Benefits paid 56 48 42 Credited interest 97 86 70 Deferred acquisition costs amortized 29 24 20 Other operating expenses 13 14 13 - ------------------------------------------------------------------------------- Income before income taxes $ 24 $ 14 $ 9 - ------------------------------------------------------------------------------- -38- Statutory data at December 31 includes: - ------------------------------------------------------------------------------- 1996 (unaudited) 1995 1994 - ------------------------------------------------------------------------------- Net income $ 29 $ 22 $ 28 Capital and surplus $ 129 $ 115 $ 104 - ------------------------------------------------------------------------------- 11. UNAUDITED QUARTERLY FINANCIAL INFORMATION - ------------------------------------------------------------------------------- TOTAL 1996 QUARTER ENDED 3/02/96 6/01/96 8/31/96 11/30/96 YEAR - ------------------------------------------------------------------------------- Net revenues $ 434 $ 424 $ 404 $ 422 $1,684 Gross profit 170 169 163 175 677 Net income (a) 33 34 34 39 140 Net income per common share (a) .48 .48 .50 .56 2.02 - ------------------------------------------------------------------------------- Total 1995 QUARTER ENDED 3/04/95 6/03/95 9/02/95 12/02/95 Year - ------------------------------------------------------------------------------- Net revenues $ 396 $ 405 $ 399 $ 425 $1,625 Gross profit 152 153 147 161 613 Net income (b) 27 28 26 9 90 Net income per common share (b) .39 .39 .37 .12 1.27 - ------------------------------------------------------------------------------- (a) REFLECTS INCOME OF $8 MILLION, OR $.12 PER SHARE, RELATIVE TO THE SALE OF BLOCK MEDICAL IN THE THIRD QUARTER. (b) REFLECTS THE WRITEDOWN OF BLOCK MEDICAL GOODWILL AND CERTAIN ASSETS OF A MANUFACTURING FACILITY SOLD IN 1996 TOTALING $26 MILLION, OR $.37 PER SHARE, IN THE FOURTH QUARTER. 12. CONTINGENCIES On August 16, 1995, Kinetic Concepts, Inc., and Medical Retro Design, Inc. (collectively, the "plaintiffs"), filed suit against Hillenbrand Industries, Inc., and its subsidiary Hill-Rom Company, Inc., in the United States District Court for the Western District of Texas, San Antonio Division. The plaintiffs allege violation of various antitrust laws, including illegal bundling of products, predatory pricing, refusal to deal and attempting to monopolize the hospital bed industry. They seek monetary damages totaling in excess of $269 million, trebling of any damages that may be allowed by the court, and injunctions to prevent further alleged unlawful activities. The Company believes that the claims are without merit and is aggressively defending itself against all allegations. Accordingly, it has not recorded any loss provision relative to damages sought by the plaintiffs. On November 20, 1996, the Company filed a Counterclaim to the above action against Kinetic Concepts, Inc. (KCI) in the U.S. District Court in San Antonio, Texas. The Counterclaim alleges, among other things, that KCI has attempted to monopolize the therapeutic bed market, interfere with the Company's and Hill-Rom's business relationships by conducting a campaign of anticompetitive conduct, and abused the legal process for its own advantage. -39- 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 $10 million. The Company has provided adequate reserves in its financial statements for these matters. 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. The Company is subject to various other claims and contingencies arising out of the normal course of business, including those relating to commercial transactions, product liability, safety, health, taxes, environmental and other matters. Management believes that the ultimate liability, if any, in excess of amounts already provided or covered by insurance, is not likely to have a material adverse effect on the Company's financial condition, results of operations or cash flows. ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with the independent accountants. -40- PART III 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 28, 1997, and to be filed with the Commission relating to the Company's 1997 Annual Meeting of Shareholders, which section is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION The section entitled "Executive Compensation" in the definitive Proxy Statement dated February 28, 1997, and to be filed with the Commission relating to the Company's 1997 Annual Meeting of Shareholders, is incorporated herein by reference. 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 28, 1997, and to be filed with the Commission relating to the Company's 1997 Annual Meeting of Shareholders, is incorporated herein by reference. 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 28, 1997, and to be filed with the Commission relating to the Company's 1997 Annual Meeting of Shareholders, are incorporated herein by reference. PART IV 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 19. (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 19. -41- (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 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: 10.1 Hillenbrand Industries, Inc. Senior Executive Compensation Program (Incorporated herein by reference to Exhibit 10 filed with Form 10-K for the year ended December 3, 1994) 10.2 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) 10.3 Hillenbrand Industries, Inc. 1996 Stock Option Plan (Incorporated herein by reference to the definitive Proxy Statement dated February 28, 1997, and filed with the Commission relative to the Company's 1997 Annual Meeting of Shareholders) 21 Subsidiaries of the Registrant 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedule -- 9 months, 1996 27.3 Restated Financial Data Schedule -- 6 months, 1996 27.4 Restated Financial Data Schedule -- 3 months, 1996 27.5 Restated Financial Data Schedule -- 12 months, 1995 27.6 Restated Financial Data Schedule -- 3 months, 1995 27.7 Restated Financial Data Schedule -- 6 months, 1995 27.8 Restated Financial Data Schedule -- 9 months, 1995 27.9 Restated Financial Data Schedule -- 12 months, 1994 (b) There were no reports on Form 8-K filed during the quarter ended November 30, 1996. -42- SCHEDULE II HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED NOVEMBER 30, 1996, DECEMBER 2, 1995 AND DECEMBER 3, 1994 (DOLLARS IN MILLIONS)
ADDITIONS ----------------------- BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE BEGINNING COSTS AND OTHER NET OF AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS (a) RECOVERIES (b) OF PERIOD - --------------------- ---------- --------- ----------- -------------- ---------- Reserves deducted from assets to which they apply: Allowance for possible losses and discounts - accounts receivable: Year Ended: November 30, 1996 $ 20 $ 1 $ - $ 2 $ 19 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ December 2, 1995 $ 14 $ 4 $ 5 $ 3 $ 20 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ December 3, 1994 $ 11 $ 3 $ 3 $ 3 $ 14 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
(a) REDUCTION OF GROSS REVENUES FOR CASH DISCOUNTS AND OTHER ADJUSTMENTS IN DETERMINING NET REVENUE. ALSO INCLUDES THE EFFECT OF ACQUISITION OF BUSINESSES. (b) INCLUDES THE SALE OF BLOCK MEDICAL OPERATION IN 1996. -43- 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 20, 1997 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/John C. Hancock - --------------------------- --------------------------- Daniel A. Hillenbrand John C. Hancock Chairman of the Board Director /s/Tom E. Brewer /s/W August Hillenbrand - --------------------------- --------------------------- Tom E. Brewer W August Hillenbrand Chief Financial Officer Director /s/James D. Van De Velde /s/George M. Hillenbrand II - --------------------------- --------------------------- James D. Van De Velde George M. Hillenbrand II Controller 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 /s/Leonard Granoff - --------------------------- Leonard Granoff Director Dated: January 20, 1997 -44- 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 10.1 Hillenbrand Industries, Inc. Senior Executive Compensation Program (Incorporated herein by reference to Exhibit 10 filed with Form 10-K for the year ended December 3, 1994) 10.2 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) 10.3 Hillenbrand Industries, Inc. 1996 Stock Option Plan (Incorporated herein by reference to the definitive Proxy Statement dated February 28, 1997, and filed with the Commission relative to the Company's 1997 Annual Meeting of Shareholders) 21 Subsidiaries of the Registrant 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedule -- 9 months, 1996 27.3 Restated Financial Data Schedule -- 6 months, 1996 27.4 Restated Financial Data Schedule -- 3 months, 1996 27.5 Restated Financial Data Schedule -- 12 months, 1995 27.6 Restated Financial Data Schedule -- 3 months, 1995 27.7 Restated Financial Data Schedule -- 6 months, 1995 27.8 Restated Financial Data Schedule -- 9 months, 1995 27.9 Restated Financial Data Schedule -- 12 months, 1994 -45- EX-3.II 2 FORM OF AMENDED BYLAWS EXHIBIT 3 (ii) CODE OF BY-LAWS OF HILLENBRAND INDUSTRIES, INC. ARTICLE 1 DEFINITION OF CERTAIN TERMS SECTION 1.01. CORPORATION. The term "Corporation," as used in this Code of By-laws, shall mean and refer to Hillenbrand Industries, Inc., a corporation duly organized and existing under and pursuant to the provisions of The Indiana General Corporation Act, as amended. SECTION 1.02. COMMON STOCK. The term "Common Stock," as used in this Code of By-laws, shall mean and refer to the shares of Common Stock, without par value, which the Corporation is authorized to issue under and pursuant to the provisions of the Amended Articles of Incorporation of the Corporation. SECTION 1.03. SHAREHOLDERS. The term "Shareholders," as used in this Code of By-laws, shall mean and refer to the persons shown by the records of the Corporation to be the holders of the duly authorized, issued and outstanding shares of Common Stock. SECTION 1.04. BOARD OF DIRECTORS. The term "Board of Directors," as used in this Code of By-laws, shall mean and refer to the Board of Directors of the Corporation. SECTION 1.05. EXECUTIVE COMMITTEE. The term "Executive Committee," as used in this Code of By-laws, shall mean and refer to the Executive Committee of the Corporation. SECTION 1.06. OFFICERS. The terms "President," "Vice-President," "Secretary," "Assistant Secretary," "Treasurer" and "Assistant Treasurer," as used in this Code of By-laws, shall mean and refer, respectively, to the individuals holding those offices of the Corporation in their capacities as such. SECTION 1.07. ACT. The term "Act," as used in this Code of By-laws, shall mean and refer to The Indiana General Corporation Act, as now in force or hereafter amended. (1) ARTICLE 2 SHARES OF THE CORPORATION SECTION 2.01. FORM OF CERTIFICATES. The share of the Corporation shall be represented by certificates which shall be in such form as is prescribed by law and approved by the Board of Directors. SECTION 2.02. TRANSFER OF SHARES. Shares of the Corporation may be transferred on the books thereof only by the holder of such shares or by his duly authorized representative, upon the surrender to the Corporation or its transfer agent of the certificate for such share properly endorsed. SECTION 2.03. LOST, DESTROYED OR STOLEN STOCK CERTIFICATES. No share certificates shall be issued in place of any certificate alleged to have been lost, destroyed or stolen unless the Board of Directors is, or such officer or officers as may be designated by the Board of Directors are, satisfied as to such loss, destruction or theft and unless an indemnity bond acceptable to the Board or such officers has been furnished by the owner of such lost, destroyed or stolen certificate, or his legal representative. SECTION 2.04. REGULATIONS RELATING TO THE TRANSFER AGENTS AND REGISTRARS OF THE CORPORATION. The provisions governing the appointment of the Transfer Agents, Registrars and Dividend Disbursing Agent of the Corporation, conferring upon them their respective powers, rights, duties and obligations in their capacities as such, allocating and delimiting their power to make original issue and transfer of the shares of Common Stock, specifying to whom the Shareholders shall give notice of changes of their addresses, allocating and imposing the duty of maintaining the original stock ledgers or transfer books, or both, of the Corporation and of disclosing the names of the Shareholders, the number of shares of Common Stock held by each and the address of each Shareholder as it appears upon the records of the Corporation, and dealing with other related matters are contained in the "Regulations Relating to the Transfer Agents and Registrars of Hillenbrand Industries, Inc." duly adopted by the Board of Directors, certified copies of which are on file with, and may be inspected at the office of: Harris Trust and Savings Bank 111 West Monroe Street Chicago, Illinois 60690 (2) the Registrar and Transfer Agents of the Corporation. ARTICLE 3 THE SHAREHOLDERS SECTION 3.01. ANNUAL MEETING. The Shareholders shall hold their annual meeting during the month of April of each year for the purposes of electing individuals to each position upon the Board of Directors, acting upon such other questions or matters as are proposed to be submitted to a vote at the meeting and acting upon such further questions or matters as may properly come before the meeting. The annual meeting shall be called by the Board of Directors. SECTION 3.02. SPECIAL MEETING. The Shareholders may hold a special meeting at any time for the purposes of electing individuals to vacant positions upon the Board of Directors, acting upon such other questions or matters as are proposed to be submitted to a vote at the meeting and acting upon such further questions or matters as may properly come before the meeting. A special meeting of the Shareholders may be called by the Board of Directors, by the President or by Shareholders holding not less than one-fourth (1/4) of the duly authorized, issued and outstanding shares of Common Stock (determined as of the date upon which the special meeting is called). SECTION 3.03. PLACE OF MEETINGS. Meetings of the Shareholders may be held at the Principal Office of the Corporation or any other place, within or without the State of Indiana. SECTION 3.04. PROCEDURE FOR CALLING MEETINGS. Any meeting of the Shareholders which is called by the Board of Directors shall be deemed duly to have been called upon the adoption of a resolution by the Board of Directors, not less than ten (10) days before the date of the meeting, setting forth the time, date and place of the meeting and containing a concise statement of the questions or matters proposed to be submitted to a vote at the meeting. Any special meeting of the Shareholders which is called by the President shall be deemed duly to have been called upon delivery to the Secretary, not less than ten (10) days before the date of the meeting, of a written instrument, executed by the President, setting forth the time, date and place of the meeting and containing a concise statement of the questions or matters proposed to be submitted to a vote at the meeting. Any special meeting of the Shareholders which is called by the Shareholders shall be deemed duly to have been called upon delivery to the Secretary, not less than fifty (50) days before the date of the meeting, of a written instrument, executed by each of the Shareholders calling the meeting, setting forth the time, date and place of the meeting and (3) containing a concise statement of the questions or matters proposed to be submitted to a vote at the meeting. SECTION 3.05. RECORD DATE. For the purpose of determining the Shareholders entitled to notice of, or to vote at, any meeting of the Shareholders, for the purpose of determining the Shareholders entitled to receive payment of any dividend or other distribution, or in order to make a determination of the Shareholders for any other corporate purpose, the Board of Directors may fix in advance a date as the record date for that determination of the Shareholders, that date, in any case, to be not more than seventy (70) days and, in case of a meeting of the Shareholders, not less than ten (10) days, before the date upon which the particular action, requiring that determination of the Shareholders, is to be taken. If no record date is fixed for the determination of the Shareholders entitled to notice of, or to vote at, a meeting of the Shareholders, then the date ten (10) days before the date of the meeting shall be the record date for the meeting. If no record date is fixed for the determination of the Shareholders entitled to receive payment of a dividend or other distribution, then the date upon which the resolution of the Board of Directors declaring the dividend or other distribution is adopted shall be the record date for the determination of the Shareholders. When a determination of the Shareholders entitled to notice of, or to vote at, a meeting of the Shareholders has been made, the determination shall apply to any adjournment of the meeting. The Shareholders upon any record date shall be the Shareholders as of the close of business on that record date. SECTION 3.06. NOTICE OF MEETINGS. Notice of any meeting of the Shareholders shall be deemed duly to have been given if, at least ten (10) days before the date of the meeting, a written notice stating the date, time and place of meeting, and containing a concise statement of the questions or matters proposed to be submitted to a vote at the meeting, is delivered by the Secretary to each Shareholder entitled to notice of, and to vote at, the meeting. The written notice shall be deemed duly to have been delivered by the Secretary to a Shareholder at the date upon which: (1) it is delivered personally to the Shareholders; (2) it is deposited in the United States First Class Mail, postage prepaid, addressed to the address of the Shareholder set forth upon the records of the Corporation; or (3) it is deposited with a telegraph company, transmission charges prepaid, addressed to the address of the Shareholder set forth upon the records of the Corporation. (4) Written notice of the meeting shall be deemed duly to have been waived by any Shareholder present, in person or by proxy, at the meeting. Written notice of the meeting may be waived by any Shareholder not present, in person or by proxy, at the meeting, either before or after the meeting, by written instrument, executed by the Shareholder, delivered to the Secretary. SECTION 3.07. VOTING LISTS. The Secretary shall, not less than five (5) days before the date of each meeting of the Shareholders, prepare, or cause to be prepared, a complete list of the Shareholders entitled to notice of, and to vote at, the meeting. The voting list shall disclose the names and addresses of those Shareholders, arranged in alphabetical order, and the number of duly authorized, issued and outstanding shares of Common Stock held by each of those Shareholders (determined as of the record date for the meeting). The Secretary shall cause the voting list to be produced and kept open at the Principal Office of the Corporation where it shall be subject to inspection by any Shareholder during the five (5) days before the meeting. The Secretary shall also cause the voting list to be produced and kept open at the time and place of the meeting where it shall be subject to inspection by any Shareholder during the course of the meeting. SECTION 3.08. QUORUM AT MEETINGS. At any meeting of the Shareholders the presence, in person or by proxy, of Shareholders holding a majority of the duly authorized, issued and outstanding shares of Common Stock (determined as of the record date for the meeting) shall constitute a quorum. SECTION 3.09. VOTING AT MEETINGS. Any action required or permitted to be taken at any meeting of the Shareholders with respect to any question or matter shall be taken pursuant to the affirmative vote of a majority of the duly authorized, issued and outstanding shares of Common Stock (determined as of the record date for the meeting) present at the meeting, in person or by proxy, unless a greater number is required by the provisions of the Act, in which event the action shall be taken only pursuant to the affirmative vote of the greater number. SECTION 3.10. VOTING BY PROXY. A shareholder may vote at any meeting of the Shareholders, either in person or by proxy. Each proxy shall be in the form of a written instrument executed by the Shareholder or a duly authorized agent of the Shareholder. No proxy shall be voted at any meeting unless and until it has been filed with the Secretary. SECTION 3.11. NOTICE OF SHAREHOLDER BUSINESS. At any meeting of the shareholders, only such business may be conducted as shall have been properly (5) brought before the meeting, and as shall have been determined to be lawful and appropriate for consideration by Shareholders at the meeting. To be properly brought before a meeting business must be (a) specified in the notice of meeting given in accordance with Section 3.06 of this Article 3, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors or the Chairman of the Board or the Chief Executive Officer, or (c) otherwise properly brought before the meeting by a Shareholder. For business to be properly brought before a meeting by a Shareholder pursuant to clause (c) above, the Shareholder must have given timely notice thereof in writing to the Secretary of the Corporation at the principal place of business of the Corporation. To be timely, a Shareholder's notice must be delivered to or mailed and received by the Secretary not later than 100 days prior to the anniversary of the date of the immediately preceding annual meeting which was specified in the initial formal notice of such meeting (but if the date of the forthcoming annual meeting is more than 30 days after such anniversary date, such written notice will also be timely if received by the Secretary by the later of 100 days prior to the forthcoming meeting date and the close of business 10 days following the date on which the Company first makes public disclosure of the meeting date). A Shareholder's notice to the Secretary shall set forth as to each matter the Shareholder proposes to bring before the meeting (a) a brief description of the business desire to be brought before the meeting, (b) the name and address of the Shareholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by the Shareholder, and (d) any interest of the Shareholder in such business. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 3.11. The person presiding at the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the Code of By-laws, or that business was not lawful or appropriate for consideration by Shareholders at the meeting, and if he should so determine, he shall so declare to the meeting and any such business shall not be transacted. SECTION 3.12. NOTICE OF SHAREHOLDER NOMINEES. Nominations of persons for election to the Board of Directors of the Corporation may be made at any meeting of Shareholders by or at the direction of the Board of Directors or by any Shareholder of the Corporation entitled to vote for the election of members of the Board of Directors at the meeting. For nominations to be made by a Shareholder, the Shareholder must have given timely notice thereof in writing to the Secretary of the Corporation at the principal place of business of the Corporation. To be timely, a Shareholder's nomination must be delivered to or mailed and received by the Secretary not later than (i) in the case of the annual meeting, 100 days prior to the anniversary of the date of the immediately (6) preceding annual meeting which was specified in the initial formal notice of such meeting (but if the date of the forthcoming annual meeting is more than 30 days after such anniversary date, such written notice will also be timely if received by the Secretary by the later of 100 days prior to the forthcoming meeting date and the close of business 10 days following the date on which the Company first makes public disclosure of the meeting date) and (ii) in the case of a special meeting, the close of business on the tenth day following the date on which the Corporation first makes public disclosure of the meeting date. Each notice given by such Shareholder shall set forth: (i) the name and address of the Shareholder who intends to make the nomination and of the person or persons to be nominated; (ii) a representation that the Shareholder is a holder of record, setting forth the shares so held, and intends to appear in person or by proxy as a holder of record at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between such Shareholder and each nominee proposed by the Shareholder and any other person or persons (identifying such person or persons) pursuant to which the nomination or nominations are to be made by the shareholders; (iv) such other information regarding each nominee proposed by such Shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (v) the consent in writing of each nominee to serve as a director of the Corporation if so elected. If facts show that a nomination was not made in accordance with the foregoing provisions, the Chairman of the meeting shall so determine and declare to the meeting, whereupon the defective nomination shall be disregarded. ARTICLE 4 THE BOARD OF DIRECTORS SECTION 4.01. NUMBER OF MEMBERS. The Board of Directors shall consist of ten (10) members. SECTION 4.02. QUALIFICATION OF MEMBERS. Each member of the Board of Directors shall be an adult individual. Members of the Board of Directors need not be Shareholders and need not be residents of the State of Indiana or citizens of the United States of America. (7) SECTION 4.03. ELECTION OF MEMBERS. The members of the Board of Directors shall be elected by the Shareholders at the annual meeting of the Shareholders, at a special meeting of the Shareholders called for that purpose or by the unanimous written consent of the Shareholders, except that a majority of the duly elected and qualified members of the Board of Directors then occupying office to fill any vacancy in the membership of the Board of Directors caused by the resignation, death, or adjudication or legal incompetency of a member of the Board of Directors, or caused by an increase in the number of the members of the Board of Directors. The members of the Board of Directors shall be classified with respect to the terms with respect to which they shall severally serve as such by dividing them into three classes, each such class constituted as follows: Class One - Four Members Class Two - Three Members Class Three - Three Members At the annual meeting of the Shareholders to be held in 1979, the members of the Board of Directors in Class One shall be elected for a three year term expiring at the close of the Annual Meeting of the Shareholders to be held in 1982. The members of the Board of Directors in Class Two shall continue to serve a two year term expiring at the close of the annual meeting of the Shareholders to be held in 1980. The members of the Board of Directors in Class Three shall continue to serve a three year term expiring at the close of the annual meeting of the Shareholders held in 1981. At the annual meetings of the Shareholders held after 1978, the successors of the class of members of the Board of Directors whose terms shall expire at the conclusion of that annual meeting shall be elected to serve as such for a term of three years, so that the terms of members of the Board of Directors of no more than one class shall expire at the conclusion of any annual meeting. Each member of the Board of Directors shall serve as such throughout the term for which he is elected, or until his successor is duly elected and qualified. SECTION 4.04. REMOVAL OF MEMBERS. Any member of the Board of Directors may be removed at any time, with or without cause, by the Shareholders at a special meeting called for that purpose. SECTION 4.05. RESIGNATIONS OF MEMBERS. Any member of the Board of Directors may resign at any time, with or without cause, by delivering written notice of his resignation to the Board of Directors. The resignation shall take effect at the time specified in the written notice or upon receipt by the Board of Directors, as the case may be, and, unless otherwise specified in the written (8) notice, the acceptance of the resignation shall not be necessary to make it effective. SECTION 4.06. ANNUAL MEETING. The Board of Directors shall hold its annual meeting immediately following the annual meeting of the Shareholders for the purposes of electing individuals to each position upon the Executive Committee, electing individuals to each of the offices of the Corporation and acting upon such other questions or matters as may properly come before the meeting. SECTION 4.07. SPECIAL MEETINGS. The Board of Directors may hold a special meeting at any time for the purposes of electing individuals to each vacant position on the Board of Directors, electing individuals to each vacant position on the Executive Committee, electing individuals to each vacant office of the Corporation and acting upon such other questions and matters as may properly come before the meeting. A special meeting of the Board of Directors may be called by any member of the Board of Directors. SECTION 4.08. PLACE OF MEETINGS. The annual meeting of the Board of Directors shall be held at the same place at which the annual meeting of the Shareholders is held. Special meeting of the Board of Directors may be held at the Principal Office of the Corporation or at any other place, within or without the State of Indiana. SECTION 4.09. PROCEDURE FOR CALLING MEETINGS. Any special meeting of the Board of Directors shall be deemed duly to have been called by a member of the Board of Directors upon delivery to the Secretary, not less than seven (7) days before the date of such meeting, of a written instrument, executed by the member of the Board of Directors calling the meeting, setting forth the time, date and place of the meeting. The written instrument may also contain, at the option of the member of the Board of Directors calling the meeting, a concise statement of the questions or matters proposed to be submitted to a vote, or otherwise considered, at the meeting. Any special meeting of the Board of Directors with respect to which all members of the Board of Directors are either present or duly waive written notice, either before or after the meeting, shall also be deemed duly to have been called. SECTION 4.10. NOTICE OF MEETINGS. No notice of the annual meeting of the Board of Directors shall be required. Notice of any special meeting of the Board of Directors shall be deemed duly to have been given if, at least seven (7) days before the date of the meeting, a written notice stating the date, time and place of the meeting and, to the extent set forth in the written instrument by which the meeting is called, containing a concise statement of the questions or (9) matters proposed to be submitted to a vote, or otherwise considered, at the meeting is delivered by the Secretary to each member of the Board of Directors. The written notice shall be deemed duly to have been delivered by the Secretary to a member of the Board of Directors at the date upon which: (1) it is delivered personally to the member of the Board of Directors; (2) it is deposited in the United States First Class Mail, postage prepaid, addressed to the last known address of the member of the Board of Directors; or (3) it is deposited with a telegraph company, transmission charges prepaid, addressed to the last known address of the member of the Board of Directors. Written notice of the meeting shall be deemed duly to have been waived by any member of the Board of Directors present at the meeting. Written notice of the meeting may be waived by any member of the Board of Directors not present at the meeting, either before or after the meeting, by written instrument, executed by the member of the Board of Directors, delivered to the Secretary. SECTION 4.11. QUORUM AT MEETINGS. At any annual or special meeting of the Board of Directors the presence of two-thirds of the then duly elected and qualified members of the Board of Directors then occupying office shall constitute a quorum. SECTION 4.12. VOTING AT MEETINGS. Any action required or permitted to be taken at any meeting of the Board of Directors with respect to any question or matter shall be taken pursuant to the affirmative vote of a majority of the then duly elected and qualified members of the Board of Directors present at the meeting, unless a greater number is required by the provisions of the Act, in which event the action shall be taken only pursuant to the affirmative vote of that greater number. SECTION 4.13. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors with respect to any question or matter may be taken without a meeting, if, before that action is taken, a unanimous written consent to that action is executed by all of the then duly elected and qualified members of the Board of Directors and the written consent is filed with the minutes of the preceding of the Board of Directors. SECTION 4.14. THE CHAIRMAN OF THE BOARD. The Chairman of the Board shall be a member of the Board of Directors. The Chairman of the Board shall provide leadership to the Board of Directors, advice and counsel to the (10) President and other officers of the Corporation, shall preside at all meetings of the Shareholders and the Board of Directors, and shall, in addition, have such further powers and perform such further duties as are specified in the Code of By-laws or as the Board of Directors may, from time to time, assign or delegate to him. ARTICLE 5 THE EXECUTIVE COMMITTEE SECTION 5.01. ESTABLISHMENT OF EXECUTIVE COMMITTEE. During the intervals between the meetings of the Board of Directors, the Executive Committee shall have and may exercise all powers of the Board of Directors except for the following powers: (1) powers in reference to amending the Articles of Incorporation; (2) powers in reference to adopting an agreement or plan of merger of consolidation; (3) powers in reference to proposing a special corporate transaction; (4) powers in reference to recommending to the Shareholders a voluntary dissolution of the Corporation or revocation of voluntary dissolution proceedings; and (5) powers in reference to the amendment of this Code of By-laws. SECTION 5.02. NUMBER OF MEMBERS. The Executive Committee shall consist of six (6) members. SECTION 5.03. QUALIFICATIONS OF MEMBERS. Each member of the Executive Committee shall be a duly elected and qualified member of the Board of Directors. SECTION 5.04. ELECTION OF MEMBERS. The members of the Executive Committee shall be elected by the Board of Directors. Each member of the Executive Committee shall serve as such for a term coextensive with his term as a member of the Board of Directors, except as hereinafter provided. Each member of the Executive Committee shall be deemed to have qualified as such upon his election. (11) SECTION 5.05. REMOVAL OF MEMBERS. Any members of the Executive Committee may be removed at any time, with or without cause, by the Board of Directors. SECTION 5.06. RESIGNATIONS OF MEMBERS. Any member of the Executive Committee may resign at any time, with or without cause, by delivering written notice of his resignation to the Board of Directors. The resignation shall take effect at the time specified in the written notice or upon receipt, as the case may be, and, unless otherwise specified in the written notice, the acceptance of the resignation shall not be necessary to make it effective. SECTION 5.07. FILLING OF VACANCIES. Any vacancies in the membership of the Executive Committee because of death, adjudication of incompetency, resignation or removal of a member of the Executive Committee, or caused by an increase in the number of members of the Executive Committee, shall be filled for the unexpired portion of the term of such position by the Board of Directors. SECTION 5.08. MEETINGS. The Executive Committee may hold meetings at any time for the purpose of acting upon such questions and matters as may properly come before such meeting. A meeting of the Executive Committee may be called by any member of the Executive Committee. SECTION 5.09. PLACE OF MEETINGS. Meetings of the Executive Committee may be held at the Principal Office of the Corporation or at any other place, within or without the State of Indiana. SECTION 5.10. PROCEDURE FOR CALLING MEETINGS. Any meeting of the Executive Committee shall be deemed duly to have been called by a member of the Executive Committee upon delivery to the Secretary, not less than three (3) days before the date of the meeting, of a written instrument, executed by the member of the Executive Committee calling the meeting, setting forth the time, date and place of such meeting. The written instrument may also contain, at the option of the member of the Executive Committee calling the meeting, a concise statement of the questions or matters proposed to be submitted to vote, or discussed, at the meeting. Any meeting of the Executive Committee with respect to which all members of the Executive Committee are either present or duly waive written notice, either before or after the meeting, shall also be deemed duly to have been called. SECTION 5.11. NOTICE OF MEETINGS. Notice of any meeting of the Executive Committee shall be deemed duly to have been given if, at least three (3) days before the date of the meeting, a written notice stating the date, time and (12) place of the meeting and, to the extent set forth in the written instrument by which the meeting is called, containing a concise statement of the questions or matters proposed to be submitted to a vote at the meeting is delivered by the Secretary to each of the members of the Executive Committee. The written notice shall be deemed duly to have been delivered by the Secretary to a member of the Executive Committee at the date upon which: (1) it is delivered personally to the member of the Executive Committee; (2) it is deposited in the United States First Class Mail, postage prepaid, addressed to the last known address of the member of the Executive Committee; or (3) it is deposited with a telegraph company, transmission charges prepaid, addressed to the last known address of the member of the Executive Committee. Written notice of the meeting shall be deemed duly to have been waived by any member of the Executive Committee present at the meeting. Written notice of the meeting may be waived by any member of the Executive Committee not present at the meeting, either before or after the meeting, by written instrument, executed by the member of the Executive Committee, delivered to the Secretary. SECTION 5.12. QUORUM AT MEETINGS. At any meeting of the Executive Committee the presence of a majority of the then duly elected and qualified members of the Executive Committee shall constitute a quorum. SECTION 5.13. VOTING AT MEETINGS. Any action required or permitted to be taken at any meeting of the Executive Committee with respect to any question or matter shall be taken pursuant to a vote of a majority of the then duly elected and qualified members of the Executive Committee present at the meeting, unless a greater number is required by the provisions of the Act, in which event the action shall be taken only pursuant to the vote of that greater number. SECTION 5.14. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Executive Committee with respect to any question or matter may be taken without a meeting, if, before that action is taken, a unanimous written consent to that action is executed by all of the duly elected and qualified members of the Executive Committee then occupying office and the written consent is filed with the minutes of the proceedings of the Executive Committee. (13) ARTICLE 6 THE OFFICERS SECTION 6.01. NUMBER OF OFFICERS. The officers of the Corporation shall consist of a President, a Secretary and a Treasurer, and may, in addition, consist of one or more Executive Vice-Presidents, Senior Vice-Presidents, Vice-Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers. Any two or more offices may be held by the same person except that the offices of President and Secretary shall not be held by the same person. SECTION 6.02. QUALIFICATIONS OF OFFICERS. Each officer of the Corporation shall be an adult individual. The officers of the Corporation need not be Shareholders and need not be residents of the State of Indiana or citizens of the United States of America. SECTION 6.03. ELECTION OF OFFICERS. The officers of the Corporation shall be elected by the Board of Directors. Each officer shall serve as such until the next ensuing annual meeting of the Board of Directors or until his successor shall have been duly elected and shall have qualified, except as hereinafter provided. Each officer shall be deemed to have qualified as such upon his election. SECTION 6.04. REMOVAL OF OFFICERS. Any officer of the Corporation may be removed at any time, with or without cause by the Board of Directors. SECTION 6.05. RESIGNATION OF OFFICERS. Any officer of the Corporation may resign at any time, with or without cause, by delivering written notice of his resignation to the Board of Directors. The resignation shall take effect at the time specified in the written notice, or upon receipt by the Board of Directors, as the case may be, and, unless otherwise specified in the written notice, the acceptance of the resignation shall not be necessary to make it effective. SECTION 6.06. FILLING OF VACANCIES. Any vacancies in the offices of the Corporation because of death, adjudication of incompetency, resignation, removal or any other cause shall be filled for the unexpired portion of the term of that office by the Board of Directors. SECTION 6.07. THE PRESIDENT. The President shall be the chief executive officer of the Corporation. He shall be responsible for the active overall direction and administration of the affairs of the Corporation, subject, however, to the control of the Board of Directors and the Chairman of the Board. In general, he shall have such powers and perform such duties as are incident to the office of (14) President and chief executive officer of a business corporation and shall, in addition, have further powers and perform such further duties as are specified in this Code of By-laws or as the Board of Directors may, from time to time, assign to or delegate to him. At the request of the Chairman of the Board, the President may, in the case of absence or inability to act as the Chairman of the Board, temporarily act in his place. SECTION 6.08. THE VICE-PRESIDENTS. Each Vice-President (if one or more Vice-Presidents are elected) shall assist the Chairman of the Board and the President in their duties and shall have such other powers and perform such other duties as the Board of Directors, the Chairman of the Board or the President may, from time to time, assign or delegate to him. At the request of the President, any Vice-President may, in the case of absence or inability to act of the President, temporarily act in his place. In the case of the death or inability to act without having designated a Vice-President to act temporarily in his place, the Vice-President so to perform the duties of the President shall be designated by the Board of Directors. SECTION 6.09. THE SECRETARY. The Secretary shall be the chief custodial officer of the Corporation. He shall keep or cause to be kept, in minute books provided for the purpose, the minutes of the proceedings of the Shareholders, the Board of Directors and the Executive Committee. He shall see that all notices are duly given in accordance with the provisions of this Code of By-laws and as required by law. He shall be custodian of the minute books, archives, records and the seal of the Corporation and see that the seal is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized by the Shareholders, the Board of Directors, the Executive Committee, the Chairman of the Board or the President or as required by law. In general, he shall have such powers and perform such duties as are incident to the office of Secretary of a business corporation and shall, in addition, have such further powers and perform such further duties as are specified in this Code of By-laws or as the Board of Directors, the Executive Committee, the Chairman of the Board, or the President may, from time to time, assign or delegate to him. SECTION 6.10. THE ASSISTANT SECRETARIES. Each Assistant Secretary (if one or more Assistant Secretaries are elected) shall assist the Secretary in his duties, and shall have such other powers and perform such other duties as the Board of Directors, the Executive Committee, the Chairman of the Board, the President or the Secretary may, from time to time, assign or delegate to him. At the request of the Secretary, any Assistant Secretary may, in the case of the absence or inability to act of the Secretary, temporarily act in his place. In the case of the death or resignation of the Secretary, or in the case of his absence or inability to act without having designated an Assistant Secretary to act temporarily in his (15) place, the Assistant Secretary so to perform the duties of the Secretary shall be designated by the President. SECTION 6.11. THE TREASURER. The Treasurer shall have such powers and perform such duties as are incident to the office of Treasurer of a business corporation and have such further powers and perform such further duties as the Board of Directors, the Executive Committee, the Chairman of the Board, the President or the Vice-President - Finance, may, from time to time, assign or delegate to him. In the absence of the Vice-President - Finance, the Treasurer shall be the Chief Financial Officer of the Corporation. SECTION 6.12. THE ASSISTANT TREASURERS. Each Assistant Treasurer (if one or more Assistant Treasurers are elected) shall assist the Treasurer in his duties, and shall have such other powers and perform such other duties as the Board of Directors, the Executive Committee, the Chairman of the Board, the President or the Treasurer may, from time to time, assign or delegate to him. At the request of the Treasurer, any Assistant Treasurer may, in the case of the absence or inability to act of the Treasurer, temporarily act in his place. In the case of the death or resignation of the Treasurer, or in the case of his inability to act without having designated an Assistant Treasurer to act temporarily in his place, the Assistant Treasurer so to perform the duties of the Treasurer shall be designated by the President. SECTION 6.13. FUNCTION OF OFFICES. The offices of the Corporation are established in order to facilitate the day to day administration of the affairs of the Corporation in the ordinary course of its business and to provide an organization capable of executing and carrying out the decisions and directions of the Board of Directors and the Executive Committee. The officers of the Corporation shall have such powers and perform such duties as may be necessary or desirable to conduct and effect all transactions in the ordinary course of the business of the Corporation without further authorization by the Board of Directors or the Executive Committee and such further powers as are granted by this Code of By-laws or are otherwise granted by the Board of Directors or the Executive Committee. ARTICLE 7 MISCELLANEOUS MATTERS SECTION 7.01. FISCAL YEAR. The fiscal year of the Corporation shall end at midnight on the Saturday closest to November 30th of each calendar year, and the succeeding fiscal year shall begin on the Sunday immediately following. (16) SECTION 7.02. NEGOTIABLE INSTRUMENTS. All checks, drafts, bills of exchange and orders for the payment of money may, unless otherwise directed by the Board of Directors or the Executive Committee, or unless otherwise required by law, be executed in its name by the President, a Vice-President, the Treasurer or an Assistant Treasurer, singly and without necessity of countersignature. The Board of Directors of the Executive Committee may, however, authorize any other officer or employee of the Corporation to sign checks, drafts and orders for the payment of money, singly and without necessity of countersignature. SECTION 7.03. NOTES AND OBLIGATIONS. All notes and obligations of the Corporation for the payment of money other than those to which reference is made in Section 7.02 of this Code of By-laws, may, unless otherwise directed by the Board of Directors of the Executive Committee, or unless otherwise required by law, be executed in its name by the President, a Vice President, or the Treasurer, singly and without necessity of either attestation or affixation of the corporate seal by the Secretary or an Assistant Secretary. SECTION 7.04. DEEDS AND CONTRACTS. All deeds and mortgages made by the Corporation and all other written contracts and agreements to which the Corporation shall be a party may, unless otherwise directed by the Board of Directors or the Executive Committee, or unless otherwise required by law, be executed in its name by the President or a Vice-President singly and without necessity of either attestation or affixation of the corporate seal by the Secretary or an Assistant Secretary. SECTION 7.05. ENDORSEMENT OF STOCK CERTIFICATES. Any certificate for shares of stock issued by any corporation and owned by the Corporation (including Common Stock held by the Corporation as treasury stock) may, unless otherwise required by law, be endorsed for sale or transfer by the President or a Vice-President, and attested by the Secretary or an Assistant Secretary; the Secretary or an Assistant Secretary, when necessary or required, may affix the corporate seal to the certificate. SECTION 7.06. VOTING OF STOCK. Any shares of stock issued by any other corporation and owned by the Corporation may be voted at any shareholders' meeting of the other corporation by the President, if he is present, or in his absence by a Vice-President. Whenever, in the judgment of the President, it is desirable for the Corporation to execute a proxy or to give a shareholders' consent with respect to any shares of stock issued by any other corporation and owned by the Corporation, the proxy or consent may be executed in the name of the Corporation by the President or a Vice-President singly and without necessity of either attestation or affixation of the corporate seal by the Secretary (17) or an Assistant Secretary. Any person or persons designated in the manner above stated as the proxy or proxies of the Corporation shall have full right, power and authority to vote the share or shares of stock issued by the other corporation and owned by the Corporation the same as the share might be voted by the Corporation. SECTION 7.07. CORPORATE SEAL. The corporate seal of the Corporation shall be circular in form and mounted on a metal die, suitable for impressing the same on paper. About the upper periphery of the seal shall appear the words "Hillenbrand Industries, Inc.," and about the lower periphery of the seal shall appear the word "Indiana." In the center of the seal shall appear the words "Corporate Seal." No instrument executed by any of the officers of the Corporation shall be invalid or ineffective in any respect by reason of the fact that the corporate seal has not been affixed to it. (18) EX-21 3 EXHIBIT 21 EXHIBIT 21 HILLENBRAND INDUSTRIES, INC. SUBSIDIARIES OF THE REGISTRANT All subsidiaries of the Company are wholly-owned Indiana corporations, unless otherwise noted. Batesville Casket Company, Inc. Hill-Rom, Inc. Forecorp, Inc. (doing business as Forethought) Hillenbrand Industries FSC (Barbados), Inc., a Barbados corporation Hillenbrand Investment Advisory Corporation, a Delaware corporation Hillenbrand Properties, Inc. Medeco Security Locks, Incorporated, a Virginia corporation Sherman House Corporation Tudor Travel, Inc. Cutler Property, Inc. Old Brick Property, Inc. Memory Showcase, Inc. Sleep Options, Inc. The Acorn Development Group, Inc. Subsidiaries of Batesville Casket Company, Inc. Batesville International Corporation Batesville Casket de Mexico, S.A. de C.V., a Mexican corporation Affiliated Funeral Supply of Abilene, Inc., a Texas corporation Subsidiary of Batesville Casket de Mexico, S.A. de C.V. Industrias Arga, S.A. de C.V. Subsidiary of Hill-Rom, Inc. Hill-Rom Company, Inc. Subsidiaries of Hill-Rom Company, Inc. PaTMark Company, Inc., a Delaware corporation Support Systems International, Inc. Tron Business Systems, Inc., a Nevada corporation APEX Information Services, Inc. Jointly owned subsidiary of Hill-Rom, Inc. and Hill-Rom Company, Inc. Hill-Rom International, Inc., a Delaware corporation Subsidiaries of Hill-Rom International, Inc. Support Systems International B.V., a Netherlands corporation Hill-Rom SARL, a French corporation (1) Subsidiaries of Support Systems International B.V. SSI Medical Services B.V., a Netherlands corporation Support Systems International Finance, Ltd., a United Kingdom corporation SSI Medical Services, Spa, an Italian corporation Systems Investments B.V., a Netherlands corporation SSI Leasing and Investments B.V., a Netherlands corporation John Bukowansky A.G., an Austrian corporation Hillrom S.A., a Switzerland corporation Subsidiary of Support Systems International Finance, Ltd. Support Systems International Services, Ltd., a United Kingdom corporation SSI Medical Services, Ltd., a United Kingdom corporation Subsidiaries of Hill-Rom GmbH SSI Support Systems International GmbH, a German corporation L. & C. Arnold GmbH, a German corporation Jointly owned subsidiary of Hill-Rom, Inc. and L. & C. Arnold GmbH L. & C. Arnold (Canada), Inc., an Ontario (Canada) corporation Jointly owned subsidiary of Support Systems International B.V. and Hill-Rom International, Inc. Hill-Rom GmbH, a German corporation Subsidiaries of Hill-Rom SARL SSI Industries SARL, a French corporation Le Couviour, S.A., a French corporation Hill-Rom B.V., a Netherlands corporation SCI Port Mirabeau, a French corporation SCI Le Couviour Immoblier, a French corporation Subsidiary of SSI Industries SARL SSI Medical SARL, a French corporation Subsidiaries of Forecorp, Inc. Forethought Life Insurance Company The Forethought Group, Inc. Forethought Florida, Inc. ForeLife Agency, Inc. Forethought National TrustBank, federally chartered Forethought Investment Management, Inc. Subsidiary of Forethought Life Insurance Company Forethought Properties, Inc. Jointly owned subsidiary of Batesville International Corporation, Hill-Rom Company, Inc., Hill-Rom, Inc. and Medeco Security Locks, Incorporated Hillenbrand Industries Canada, Ltd., an Ontario (Canada) corporation (2) EX-27.1 4 EXHIBIT 27.1 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED UNDER ITEM 8 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 12-MOS NOV-30-1996 DEC-03-1995 NOV-30-1996 266 0 306 19 96 694 934 588 3,396 320 204 0 0 4 783 3,396 1,092 1,684 612 1,007 441 1 22 233 93 140 0 0 0 140 2.02 2.02
EX-27.2 5 EXHIBIT 27.2 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 1 OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED AUGUST 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS NOV-30-1996 DEC-03-1995 AUG-31-1996 213 0 308 18 97 647 939 583 3,230 299 205 0 0 4 707 3,230 821 1,262 465 760 327 2 19 169 67 102 0 0 0 102 1.46 1.46
EX-27.3 6 EXHIBIT 27.3 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 1 OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 1, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS NOV-30-1996 DEC-03-1995 JUN-01-1996 191 0 318 18 104 649 931 570 3,153 308 206 0 0 4 701 3,153 562 858 319 519 220 2 13 112 45 67 0 0 0 67 .96 .96
EX-27.4 7 EXHIBIT 27.4 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 1 OF THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED MARCH 2, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS NOV-30-1996 DEC-03-1995 MAR-02-1996 203 0 333 18 104 669 915 554 3,130 322 206 0 0 4 736 3,130 286 434 164 264 111 1 6 56 22 33 0 0 0 33 .48 .48
EX-27.5 8 EXHIBIT 27.5 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 8 OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 2, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 12-MOS DEC-02-1995 DEC-04-1994 DEC-02-1995 171 0 333 20 112 640 911 544 3,070 301 206 0 0 4 742 3,070 1,071 1,625 625 1,012 434 3 20 170 80 90 0 0 0 90 1.27 1.27 REFLECTS UNUSUAL CHARGES IN THE FOURTH QUARTER TOTALING $26 ($.37 PER SHARE) FOR THE WRITEDOWN OF GOODWILL AND CERTAIN ASSETS OF A MANUFACTURING FACILITY TO BE DISPOSED OF
EX-27.6 9 EXHIBIT 27.6 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 1 OF THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED MARCH 4, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-02-1995 DEC-04-1994 MAR-04-1995 142 0 308 12 111 591 847 493 2,763 254 208 0 0 4 669 2,763 261 396 148 244 104 0 5 44 17 27 0 0 0 27 .39 .39
EX-27.7 10 EXHIBIT 27.7 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 1 OF THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 3, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 6-MOS DEC-02-1995 DEC-04-1994 JUN-03-1995 162 0 295 14 122 610 876 515 2,909 275 208 0 0 4 726 2,909 530 801 305 496 208 0 11 89 34 55 0 0 0 55 .78 .78
EX-27.8 11 EXHIBIT 27.8 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 1 OF THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 2, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 9-MOS DEC-02-1995 DEC-04-1994 SEP-02-1995 164 0 292 15 115 605 896 532 2,979 260 209 0 0 4 735 2,979 790 1,200 460 748 306 0 16 135 54 81 0 0 0 81 1.15 1.15
EX-27.9 12 EXHIBIT 27.9 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDED UNDER ITEM 8 OF THE COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 3, 1994, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 12-MOS DEC-03-1994 NOV-28-1993 DEC-03-1994 120 0 314 14 104 566 836 478 2,714 259 209 0 0 4 689 2,714 1,090 1,577 605 939 482 3 23 145 55 90 0 0 0 90 1.26 1.26 REFLECTS AN UNUSUAL CHARGE OF $85, OR $52 ($.74 PER SHARE) AFTER INCOME TAXES, FOR SETTLEMENT OF A PATENT INFRINGEMENT SUIT IN THE THIRD QUARTER.
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