-----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, K5A9i+DYRtSVP5fX2v57nhucAK3k+cQa/VtjCNg85LkBqLVm0D+FCNForAyMgfmk UY657nbeVi9uPF4lwSv8dQ== 0000950137-01-000751.txt : 20010224 0000950137-01-000751.hdr.sgml : 20010224 ACCESSION NUMBER: 0000950137-01-000751 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001202 FILED AS OF DATE: 20010222 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: SEC FILE NUMBER: 001-06651 FILM NUMBER: 1551910 BUSINESS ADDRESS: STREET 1: 700 STATE ROUTE 46 E CITY: BATESVILLE STATE: IN ZIP: 47006-8835 BUSINESS PHONE: 8129347000 10-K 1 c60266e10-k.txt ANNUAL REPORT 1 ================================================================================ 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 December 2, 2000 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 common stock held by non-affiliates of the registrant. Common Stock, without par value - $2,323,707,084 as of February 13, 2001 (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 - 62,444,763 as of February 13, 2001. Documents incorporated by reference. Portions of the 2001 Proxy Statement furnished to Shareholders - Parts I and III. Portions of the 1997 Proxy Statement furnished to Shareholders - Part IV. ================================================================================ 1 2 HILLENBRAND INDUSTRIES, INC. Annual Report On Form 10-K December 2, 2000 TABLE OF CONTENTS Page PART I Item 1. Business 1 Item 2. Properties 7 Item 3. Legal Proceedings 7 Item 4. Submission of Matters to a Vote of Security Holders 8 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 19 Item 8. Financial Statements and Supplementary Data 21 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 47 PART III Item 10. Directors and Executive Officers of the Registrant 48 Item 11. Executive Compensation 48 Item 12. Security Ownership of Certain Beneficial Owners and Management 48 Item 13. Certain Relationships and Related Transactions 48 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 48 SIGNATURES 52 2 3 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 three major operating companies serving the funeral services and health care industries. Unless the context otherwise requires, the terms "Hillenbrand" and the "Company" refer to Hillenbrand Industries, Inc., and its consolidated subsidiaries, and the terms "Hill-Rom Company", "Batesville Casket Company" and "Forethought Financial Services", and derivations thereof, refer to one or more of the subsidiary companies of Hillenbrand that comprise those businesses. The Company's Health Care Group consists of Hill-Rom Company, a manufacturer of equipment for the health care market and provider of wound care and pulmonary/trauma management services. The assets of Medeco Security Locks, Inc. ("Medeco"), a manufacturer of high security locks and access control products for commercial and residential use, were sold to Assa Abloy AB on July 1, 1998. Results for Medeco are included in the Company's financial statements within the Health Care Group through that date and had an immaterial effect on the operating results of this group. Hillenbrand's Funeral Services Group consists of Batesville Casket Company, a manufacturer of caskets and other products for the funeral industry, and Forethought Financial Services, a provider of funeral planning financial products. Health Care Hill-Rom Company is a recognized leader in the worldwide health care community providing sales, rentals, service and support for products including beds, therapy surfaces, stretchers, infant warmers, incubators, furniture, communication systems, surgical columns, medical gas management systems, modular headwalls, lighting systems and operating room equipment. The Hill-Rom(R) line of electrically, hydraulically 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 manufactures beds for special departments such as intensive care, emergency, perinatal, recovery rooms, neonatal and labor and delivery rooms. Other Hill-Rom(R) 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. Products introduced and acquired recently include the Affinity(R) Three birthing bed, TotalCare(R) bed, Advanta(TM) bed, and the Amatech product line of surgical table accessories and patient positioning devices for the operating room in the acute care market. The Company continues to expand its line of specialty accessories to improve both patient comfort and serviceability for the health care provider. Also, the Company focuses on furnishing the total health care suite, which includes improved room groupings to enhance the comfort of both the patient and family members. Hill-Rom also remanufactures hospital beds. The remanufacturing process includes disassembly, washing, sanding, painting and reassembly with new components. Hill-Rom(R) products are sold directly to acute and long-term health care facilities throughout the United States, Canada and Europe by Hill-Rom account executives. Most Hill-Rom(R) products sold in the United States are delivered by trucks owned by Hill-Rom. Hill-Rom also sells its domestically produced products through distributorships throughout the world. Hill-Rom operates hospital bed, therapy bed and patient room manufacturing facilities in France. These products are sold and leased directly to hospitals and nursing homes throughout Europe. 1 4 Within the wound care and trauma management market, CLINITRON(R) Air Fluidized Therapy is provided as a therapeutic adjunct in the treatment of advanced pressure sores, flaps, grafts and burns. The CLINITRON(R) 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. Various CLINITRON(R) products are designed to meet the specific requirements of acute care, long-term care and home-care settings. Other products utilizing this technology include the Clinitron(R) Rite-Hite(R) Air Fluidized Therapy unit, designed to meet the requirements of long-term care facilities and the Clinitron At-Home(R) unit, which was designed for delivery and use in the home. Hill-Rom's other wound care and pulmonary/trauma management technology, low airloss therapy, consists of a sleep surface with air-filled cushions separated into integrated zones. Air pressure is automatically adjusted whenever the patient changes position. Micro air vents on the cushions allow for the controlled release of air. This technology is applied to either an integrated unit or as an overlay to an existing bed. Low airloss products include the Flexicair Eclipse(R) mattress, a portable, rental mattress replacement for the acute care market and the Silkair(R) mattress, a low airloss overlay product for the home care market, and the V-Cue(TM) mattress, a rotational mattress for the pulmonary market. In addition to the above products, the European operations have introduced the Primo mattress, a modestly priced, low airloss product to enhance the product line. In Europe, the Company also rents and sells the Duo(R) mattress, a pressure relieving and alternating pressure mattress. Clinical support for Hill-Rom's wound care and pulmonary/trauma 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. Hill-Rom(R) therapy systems are made available to hospitals, long-term care facilities and homes on a rental basis through more than 175 Service Centers located in the United States, Canada and Western Europe. Funeral Services Batesville Casket Company was founded in 1884 and acquired by the Hillenbrand family in 1906. Batesville manufactures and sells caskets made of stainless steel, copper, bronze, and hardwood. It also manufactures and sells cloth-covered caskets, all wood construction (orthodox) caskets and a line of urns and other memorialization products for the cremation market. In addition, Batesville markets a line of non-protective steel caskets. Batesville also supplies selection room display fixturing through its Applied Retail Systems division. All Batesville-produced metal caskets are protective caskets that are electronically welded and resistant to the entry of air, water and gravesite substances through the use of rubber gaskets and a locking bar mechanism. Batesville's Monoseal(R) steel caskets also employ a magnesium alloy bar to cathodically protect the casket from rust and corrosion. The Company believes that this system of Cathodic Protection is featured only on Batesville produced caskets. Batesville(R) 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 cloth-covered caskets are constructed with a patented process using cellular fiberboard construction. 2 5 The Options by Batesville cremation division offers a complete cremation marketing system for funeral services professionals. In addition to a broad line of cremation caskets, cremation containers and urns, the system includes training, merchandising support and marketing support materials. Cremation caskets and containers are manufactured primarily of hardwoods and fiberboard. Options' wide assortment of memorial urns are made from a variety of materials, including cast bronze, cast acrylic, wood, sheet bronze, cloisonne' and marble. Batesville offers several other marketing and merchandising programs to funeral directors for both casket and cremation products. Batesville(R) caskets are marketed by Batesville's direct sales force to licensed funeral directors operating licensed funeral homes throughout the United States, the United Kingdom, Australia, Canada, Mexico and Puerto Rico. Batesville maintains inventory at 80 company-operated Customer Service Centers (CSCs) and seven Rapid Deployment Centers (RDCs) in North America. Batesville(R) caskets are delivered in specially equipped vehicles owned by Batesville. Batesville mainly manufactures and distributes products in the U.S. It also has small manufacturing and distribution facilities in Canada and Mexico. Forethought Financial Services was founded in 1985. It, along with its principal subsidiaries, Forethought Life Insurance Company, Forethought Federal Savings Bank, The Forethought Group, Inc. and Arkansas National Life Insurance Company serve a network of funeral planning professionals with marketing support for Forethought(R) funeral plans funded by life insurance policies and trust products. These specialized funeral planning products are offered through funeral homes and cemeteries. Consumers choose the funeral home, type of service and merchandise they want. The selected funeral home contracts with the consumer to provide the funeral services and merchandise when needed. With funds made available by a Forethought(R) financial product, the funeral home agrees to provide the planned funeral as specified. Forethought(R) life insurance policies are offered by over 5,000 independent funeral homes. Forethought Life Insurance Company is licensed in 49 states, nine Canadian provinces, Puerto Rico and the District of Columbia. Forethought entered the trust business in 1997 and offers trust products in twenty-three states. Its trust products are offered through funeral homes and cemeteries. Forethought received a federal savings bank charter in July 1998. In November 1999, Forethought National Trust Bank was merged into Forethought Federal Savings Bank, as required with the granting of the savings bank charter. BUSINESS SEGMENT INFORMATION Net revenues, segment profitability, identifiable assets and other measures of segment reporting for each reporting segment are set forth in Note 10 to the Consolidated Financial Statements, which statements are included under Item 8. While the Company serves two predominant industries, as denoted by its Health Care and Funeral Services Groups, for segment reporting purposes each of the Company's three major operating companies constitute a reporting segment. The Company's three reporting segments are defined as Health Care ("Hill-Rom"), Funeral Services Products ("Batesville") and Funeral Services Insurance ("Forethought"). 3 6 RAW MATERIALS Health Care Principal materials used in Hill-Rom(R) products include carbon 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 and hydraulically operated beds and certain other components are purchased from one or more manufacturers. Funeral Services Batesville employs carbon and stainless steel, copper and bronze sheet, wood and wood by-products, fabrics, finishing materials, rubber gaskets, zinc and magnesium alloy in the manufacture of its caskets. These materials are available from several sources. COMPETITION Health Care Hill-Rom believes it is the U.S. market share leader in the sale of electrically and hydraulically 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 the products and services it provides. In both the United States and Europe there are other companies which provide low airloss and other methods of patient support and patient relief. Funeral Services Batesville believes its sales of finished caskets are 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. Forethought competes on the basis of services to its customers and products offered. Forethought sells its products in competition with other life insurance companies and banks. Forethought believes it is the leading provider of insurance-funded pre-arranged funerals in North America. Forethought Federal Savings Bank competes with local banks and master trusts offered through industry trade or state funeral director associations. 4 7 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: (millions) 2000 1999 1998 ---- ---- ---- Total research and development expenditures $45 $47 $46 PATENTS AND TRADEMARKS The Company owns a number of patents on its products and manufacturing processes which are of importance to it, but does not believe 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 does not believe any single trademark or service mark is of material significance to the business of the Company as a whole. EMPLOYEES As of February 13, 2001, the Company employed approximately 10,800 persons in its operations. ENVIRONMENTAL PROTECTION Hillenbrand Industries, Inc. is committed to operating all of its businesses in a way that protects the environment. The Company has voluntarily entered into remediation agreements with environmental authorities, and has been issued Notices of Violation alleging violations of certain permit conditions. Accordingly, the Company is in the process of implementing plans of abatement in compliance with agreements and regulations. The Company has also been notified as a potentially responsible party in investigations of certain offsite disposal facilities. The cost of all plans of abatement and waste-site cleanups in which the Company is currently involved is not expected to exceed $5 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 are not expected to materially affect the Company's capital expenditures, earnings or competitive position. Further changes in environmental law might affect the Company's future operations, capital expenditures and earnings; however, the cost of complying with these provisions, if any, 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 10 to the Consolidated Financial Statements, which statements are included under Item 8. The Company's export revenues constituted less than 10% of consolidated revenues in 2000 and prior years. 5 8 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 13, 2001. Frederick W. Rockwood, 53, was elected Chief Executive Officer and President of the Company on December 3, 2000 after being President since December 6, 1999. He has been employed by the Company since 1977. Previous positions held within the Company include President and Chief Executive Officer of Hillenbrand Funeral Services Group, Inc., President and Chief Executive Officer of Forethought Financial Services, Inc., Senior Vice President of Corporate Planning and Director of Corporate Strategy. Michael L. Buettner, 43, 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 R. Lindenmeyer, M.D., 54, 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. David L. Robertson, 55, has been employed by the Company since March 23, 1998, and was elected Vice President, Executive Leadership Development on June 26, 2000. He previously served as Vice President, Administration from December 8, 1999 to June 26, 2000 and Vice President, Human Resources from March 23, 1998 to December 8, 1999. Prior to joining the Company, he was Senior Vice President, Human Resources for Rubbermaid, Inc. in Wooster, Ohio. From 1982 to 1994 Mr. Robertson served as Vice President, Human Resources for Hillenbrand Industries, Inc. Chris Ruberg, 42, was elected Vice President of Strategic Planning on March 13, 2000 and has been employed by the Company since 1985. Previous positions held within the Company include Vice President of Strategic Planning at Hill-Rom Company, Vice President of Strategy and Development at Hillenbrand Funeral Services Group, Inc. and Vice President of Strategic Planning at Forethought Financial Services, Inc. James D. Van De Velde, 54, 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 (now PricewaterhouseCoopers LLP). 6 9 Item 2. PROPERTIES The principal properties of the Company and its subsidiaries are listed below, and are owned or leased by the Company or its subsidiaries subject to no material encumbrances except for those facilities (*) which were constructed with funds obtained through government sponsored bonds (see Note 6 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: 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 Hatboro, PA Manufacturing plant and Administration and manufacture office facility of infant-care equipment Pluvigner, France Manufacturing plant and Administration and manufacture office facility of health care equipment FUNERAL SERVICES: Batesville, IN Manufacturing plants Manufacture of metal caskets Office facilities Administration and Insurance Operations Manchester, TN Manufacturing plants Manufacture of metal caskets Vicksburg, MS Kiln drying and lumber Drying and dimensioning of 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 other manufacturing facilities, warehouse distribution centers, service centers and sales offices throughout the United States, Canada, Western Europe and Mexico. 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. 7 10 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 urging them 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. The original claims by the plaintiffs against Hillenbrand Industries and the counterclaims by the Company against KCI are currently scheduled to go to trial in late 2001. 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 December 2, 2000. PART II DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS Certain statements in this Annual Report on Form 10-K contain forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995 (the "Act") or by the Securities and Exchange Commission (SEC) in its rules, regulations and releases regarding the Company's future plans, objectives and expected performance. 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 Items 7 and 7A on Form 10-K), and the 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. Specifically, statements in this filing that are not historical facts, including statements accompanied by words such as "the Company believes," "may continue," "could continue," "is expected" or "expects," are intended to identify forward-looking statements and convey the uncertainty of future events or outcomes, but their absence does not mean that the statement is not forward-looking. 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 range 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: outlook for health care customers, demand for products, actual and anticipated death rates, differences in anticipated and actual product introduction dates, the ultimate success of those products in the marketplace, changes in Medicare reimbursement trends, the success of cost control and restructuring efforts and the integration of acquisitions, 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 8 11 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 2000 and 1999. 2000 1999 ------------------- --------------------- High Low High Low ---- --- ---- --- First Quarter $38 3/8 $29 5/8 $58 1/8 $41 Second Quarter $34 7/16 $28 3/4 $49 1/8 $40 15/16 Third Quarter $34 3/4 $29 3/4 $45 5/16 $28 7/8 Fourth Quarter $51 1/2 $33 3/4 $37 3/8 $26 1/8 Holders On February 13, 2001, there were approximately 18,100 shareholders of record. 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 $.80 ($.20 per quarter) in 2000 and $.78 ($.195 per quarter) in 1999 were paid on each share of common stock outstanding. Cash dividends will be $.21 in the first quarter of 2001. Item 6. SELECTED FINANCIAL DATA The following table presents selected consolidated financial data of Hillenbrand Industries, Inc., for fiscal years 1996 through 2000.
2000 (53 weeks) 1999 1998 1997 1996 ---- ---- ---- ---- ----- (In millions except per share data) Net revenues $ 2,096 $ 2,047 $ 2,001 $ 1,776 $ 1,684 Net income (a) $ 154 $ 124 $ 184 $ 157 $ 140 Basic and diluted net income per share (a) $ 2.44 $ 1.87 $ 2.73 $ 2.28 $ 2.02 Total assets $ 4,597 $ 4,433 $ 4,280 $ 3,828 $ 3,396 Long-term debt $ 302 $ 302 $ 303 $ 203 $ 204 Cash dividends per share $ .80 $ .78 $ .72 $ .66 $ .62
(a) Results in 2000 include unusual charges of $2 million, net-of-tax, ($.03 per share) related to the retirement of the Company's Chief Executive Officer, the gain on dispositions of facilities idled as a part of prior unusual charges, the reversal of certain prior unusual charge provisions as actual costs were less than originally estimated and other items. Results in 1999 reflect unusual charges of $24 million, net-of-tax, ($.36 per share). The charges include costs related to work force reduction activities, facility closure costs, certain asset impairment charges and other items. Results in 1998 include income of $47 million, net-of-tax, ($.70 per share) relative to the sale of Medeco Security Locks, Inc. The Company also recorded unusual charges totaling $42 million, net-of-tax, ($.62 per share). The charges include the write-off of goodwill, other asset impairment charges and other closing costs related to the discontinuance of manufacturing operations at Hill-Rom facilities in Germany and Austria; tax benefits related to the write-off of the Company's investments in Germany and Austria; and provisions for certain income tax exposures. Results in 1996 reflect income of $8 million ($.12 per share) relative to the sale of Block Medical. 9 12 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 is organized into two business groups. The Health Care Group, which is considered as one reporting segment, consists of Hill-Rom. Results for Medeco Security Locks, Inc. (Medeco), which was sold on July 1, 1998, were included in this group through this date. Medeco sales included in the Health Care Group were $27 million in 1998. Unless otherwise specifically identified, Medeco related activities are excluded from amounts and explanations related to the Health Care Group throughout the Management's Discussion and Analysis of Results of Operations. The Funeral Services Group consists of two reporting segments, Funeral Services Products (Batesville Casket Company - Batesville) and Funeral Services Insurance (Forethought Financial Services - Forethought). RESULTS OF OPERATIONS 2000 Compared with 1999 Summary Consolidated net revenues of $2,096 million increased 2%, or $49 million, in 2000. Approximately $15 million of this increase can be attributed to the 53rd week in fiscal 2000. Fiscal 1999 was, and fiscal 2001 will be, 52-week years. Operating profit increased $33 million, or 16%, to $244 million. Net income of $154 million increased $30 million, or 24%, over 1999 and earnings per share increased 30% to $2.44. Excluding unusual items discussed below, operating profit decreased 1% and net income increased 5%. 2000 results include net unusual charges of $2 million, net-of-tax, ($.03 per share) related to the retirement of the Company's former Chief Executive Officer; gains from the disposition of facilities idled as part of prior unusual charges; the reversal of certain accruals provided for in prior unusual charges due to actual costs being less than originally estimated; and other items. 1999 results reflect unusual charges of $24 million, net-of-tax, ($.36 per share) related to work force reduction activities, facility closure costs, certain asset impairment charges and other items. Net Revenues Health Care sales increased $34 million, or 4%, to $800 million due to strengthening sales in U.S. acute care, Europe and international exports, partially offset by decreased sales in the long-term care market and the negative impact of currency fluctuations. The increase of approximately 5% in U.S. acute care market sales was due to the mid-1999 acquisition of AMATECH and increased shipments in ambulatory, operating room, infant care, and hospital beds and furniture partially offset by decreases in communications and the piped-medical gas portion of architectural products. The Company believes that the recent uncertainty experienced by our U.S. acute care customers is beginning to subside as they continue to react to cuts in Medicare reimbursements in their operations. Europe experienced increased sales mainly in the United Kingdom and the Netherlands. Excluding the impact of currency fluctuations, European sales were up approximately 26% compared to 1999. The decrease in long-term care sales was due to several large shipments occurring in 1999 that did not repeat in 2000. 10 13 Health Care rental revenue of $312 million decreased $12 million, or 4%, compared to 1999 due to declines in home care, long-term care and Europe, partially offset by an increase in acute care. Rental revenue in the home care market dropped nearly 40% as a result of continued lower Medicare reimbursement experience despite a large increase in unit volume and mix. The U.S. long-term care market also experienced decreased revenue due to declines in volume and mix, partially offset by an increase in rate as this market's customers continue to adjust to changes in Medicare Part A patient reimbursement practices. European rental revenues also fell during the year, but on a local currency basis were flat with 1999. These reductions were partially offset by a 7% increase in acute care rental revenue, that was due to increased volume partially offset by a decrease in mix and rate. Funeral Services sales grew $15 million, or 2%, to $617 million due to increased unit volume across certain product lines and an improvement in product mix. Batesville Casket Company was once again able to increase unit volume in a market that is flat for casketed deaths. Insurance revenues of $367 million were up 3%, or $12 million, compared to $355 million in 1999 despite $24 million less in capital gains in 2000 than in 1999. Excluding capital gains in both years, revenues would have increased approximately 11%. Investment income grew approximately $20 million due to the increased size of the investment portfolio and earned premium revenue increased approximately $16 million mainly due to increased policies in-force year over year. 2000 policy sales were up approximately 6% over 1999 as Forethought continues to recover from the loss of policy sales from funeral home consolidators that acquired or started preneed insurance operations to supply their customers policies. Since premium revenues are earned over the life of the policyholder, current year sales will primarily affect revenues and earnings in future years. The trust business did not have a significant effect on Forethought's operations in 2000 or in prior years. Gross Profit Gross profit on Health Care sales of $368 million increased $54 million, or 17%, over 1999 and as a percentage of sales was 46% in 2000 compared to 41% in 1999. The significant increase in gross profit and gross profit as a percentage of sales is due to productivity improvements from cost alignment efforts and lower warranty costs and provisions for inventory in 2000. Health Care rental gross profit declined $2 million, or 2%, to $86 million. Gross profit as a percentage of sales increased to 28% compared to 27% in 1999. This slight increase was primarily due to higher volume in acute care and home care and productivity improvements largely offset by lower Medicare reimbursement experience within the U.S. home care market. Funeral Services sales gross profit of $305 million increased $13 million, or 4%, compared to $292 million in 1999. As a percentage of sales, Batesville Casket's gross profit was 49%, which is comparable to 1999. Profit before other operating expenses and unusual charges in insurance operations decreased $15 million, or 18%, to $67 million in 2000. This decrease was primarily due to $24 million less in capital gains and an increase in death benefits paid and reserved due to the larger base of policies in-force, partially offset by increased profits earned on a larger base of policies in-force and higher investment income (with minimal direct cost). Other Operating Expenses Other operating expenses, consisting of selling, marketing, distribution and general administrative costs, increased $52 million, or 10% in 2000. As a percentage of consolidated revenues, these expenses increased from 26% in 1999 to 28% in 2000 primarily due to increased incentive compensation and company-wide investments in new business development opportunities, offset in part by improved productivity and better cost alignment. 11 14 Operating Profit Health Care operating profit increased $61 million to $116 million. This increase was largely due to an increase in Health Care sales gross profit, resulting from increased Health Care sales and an improvement in gross profit as a percentage of sales. The improvement in gross profit percentage is primarily due to productivity improvements from cost alignment efforts and lower warranty costs and provisions for inventory in 2000. Health Care operating profit was also impacted by a $25 million unusual charge in 1999 related to work force reduction activities, facility closure costs, certain asset impairment charges and other items, while $5 million of income was classified as unusual in 2000. The income recognized in 2000 relates to gains on the sale of facilities idled as part of prior unusual charges and the reversal of accruals provided for in previous unusual charges due to actual costs being less than originally estimated. Excluding unusual charges in 2000 and 1999, operating profit would have been $111 million in 2000 and $80 million in 1999, a 39% increase. Operating profit in the Funeral Services Group of $182 million increased $9 million, or 5%, compared to 1999. At Batesville Casket, operating profit increased approximately 14% as a result of increased shipments, improved product mix and improved productivity. During 1999, Batesville incurred a $9 million unusual charge related to the closure of a manufacturing facility. Excluding this unusual charge, Batesville's operating profit would have increased approximately 6% in 2000. At Forethought, a $24 million decrease in capital gains was partially offset by higher investment income, increased earned premiums and a decrease in operating expenses, which resulted in a 22% decrease in operating profit. In 2000 and 1999, Forethought incurred unusual charges of $1 million related to the realignment of certain operations and $3 million related to an impaired asset, respectively. Excluding these unusual charges, operating profit would have decreased approximately 25% in 2000. Consolidated operating profit of $244 million increased $33 million, or 16%. Excluding the unusual charges discussed above as well as a $7 million and $1 million unusual charge in 2000 and 1999, respectively, at the consolidated company level, consolidated operating profit would have been $247 million, a 1% decrease compared to 1999. The unusual charges at the consolidated company level related to the retirement of the Company's former Chief Executive Officer, partially offset by a gain on the sale of a facility idled as part of a prior unusual charge in 2000 and an impaired asset in 1999. Other Income and Expense Interest expense of $27 million remained unchanged compared to 1999 as the Company's level of debt was essentially constant until near the end of the year. Investment income increased $8 million primarily from the gain on the sale of an investment. Income Taxes The effective income tax rate was 36.1% in 2000 compared to 36.7% in 1999. The decrease in the effective tax rate was primarily due to tax initiatives undertaken by the Company and the profitability of Europe. 12 15 RESULTS OF OPERATIONS 1999 Compared with 1998 Summary Consolidated net revenues of $2,047 million increased $46 million, or 2%, in 1999. Operating profit decreased 7% to $211 million. Net income of $124 million decreased 33%, and earnings per share decreased 32% to $1.87. Excluding the unusual items discussed in the remainder of this paragraph, operating profit decreased 15% and net income decreased 17%. 1999 results reflect unusual charges of $24 million, net-of-tax, ($.36 per share) related to work force reduction activities, facility closure costs, certain asset impairment charges and other items. 1998 results reflect income of $47 million, net-of-tax, ($.70 per share) related to the sale of Medeco. The Company also recorded unusual charges in 1998 totaling $42 million, net-of-tax, ($.62 per share). These charges included the write-off of goodwill, other asset impairment charges and other closing costs related to the discontinuance of manufacturing operations at Hill-Rom facilities in Germany and Austria; tax benefits related to the write-off of the Company's investments in Germany and Austria; and provisions for certain income tax exposures. Net Revenues Health Care sales of $766 million increased $45 million, or 6%, due to continued good market acceptance of the TotalCare(R) bed and increased shipments of communications and procedural products in Hill-Rom's U.S. acute care market. Hill-Rom also experienced increased shipments of the Resident(R) LTC bed as it continued to have good market acceptance. North American sales decreased compared to 1998 during the third and fourth quarters of 1999. The Company believes these declines were attributable to some shipment delays and decreased orders by our acute care customers as they responded to uncertainty and cuts in Medicare reimbursements in their operations. European revenues decreased slightly compared to 1998 primarily due to decreased sales in Germany and Austria, which were impacted by the discontinuance of manufacturing in these countries during fiscal 1999. Health Care rental revenue was down $79 million, or 20%. Nearly all of the decrease was in the U.S. long-term care market, which experienced lower rates, product mix and volume as a result of changes in Medicare Part A patient reimbursement practices effective July 1, 1998. U.S. acute care and European rental revenues were slightly above 1998 levels. In the U.S. acute care market, higher volume was offset by lower rates with very little change in product mix. The U.S. home care market experienced lower revenues compared to 1998 as a result of lower reimbursement experience partially offset by higher volume and product mix. Funeral Services sales grew $61 million, or 11%, to $602 million due to increased unit volume across all product lines and an increase in product mix. In 1999, Batesville was able to continue to increase unit volume in a market that is currently flat for casketed deaths. Insurance revenues increased $46 million or 15% at Forethought. Earned premium revenue increased approximately $25 million due primarily to increased policies in-force year over year. Investment income grew about $18 million because of the increased size of the investment portfolio. Realized net gains on the sale of investments were approximately $3 million more than in 1998. Policy sales were down nearly 13% in 1999 primarily due to several funeral home consolidators recently acquiring or starting preneed insurance operations to supply their customers policies. Since premium revenues are earned over the life of the policyholder, current year sales will primarily affect revenues and earnings in future years. The trust business did not have a significant effect on Forethought's operations in 1999 and prior years. 13 16 Gross Profit Gross profit on Health Care sales of $314 million decreased $7 million, or 2%. As a percentage of sales, gross profit was approximately 41% in 1999 versus 43% in 1998. The decline in gross profit as a percentage of sales was primarily due to increased warranty costs, product mix, increased provisions for inventory and other items partially offset by increased volume. Continuous improvement initiatives in the United States and Europe helped to partially offset the lower gross profit margin. Gross profit on Health Care rentals was down $74 million, or 46%, to $88 million. In addition, gross profit as a percentage of sales decreased to 27% in 1999 compared to 40% in 1998. This decline reflects the changes in Medicare Part A reimbursement practices affecting the U.S. long-term care market and, to a smaller extent, lower reimbursement experience within the U.S. home care market. A slight increase in gross margin percentage in the acute care market partially offset the impact of these other matters. Funeral Services sales gross profit increased 12%, or $32 million, to $292 million in 1999. As a percentage of sales, Batesville's gross profit increased one percentage point to 49% compared to 48% in 1998. This increase in gross profit percentage reflects the increased unit volume experienced in 1999 combined with successful process improvements and cost controls. Profit before other operating expenses and unusual charges in insurance operations increased $6 million, or 8%, to $82 million in 1999 due to increased profits earned on a larger base of policies in-force, higher investment income (with minimal direct cost) and net gains on the sale of investments. Consistent with prior years, these items were partially offset by an increase in death benefits paid and reserved due to the larger base of policies in-force. Other Operating Expenses These expenses, consisting of selling, marketing, distribution and general administrative costs, increased $3 million, or 1% in 1999. As a percentage of consolidated revenues, these expenses remained essentially unchanged at 26% compared to 1998. This is a result of continued cost control, process improvement throughout the Company and lower incentive compensation. Operating Profit Operating profit in Health Care decreased $23 million, or 29%, to $55 million. This decrease was primarily due to a large decline in rental revenue and a $25 million unusual charge related to work force reduction activities, facility closure costs, certain asset impairment charges and other items. The large decrease in rental revenue was primarily due to changes in Medicare Part A reimbursement practices affecting the U.S. long-term care market. 1998 operating profit at Hill-Rom was negatively impacted by a $70 million charge for the write-off of goodwill, other asset impairment charges and other closing costs related to the discontinuance of manufacturing operations at facilities in Germany and Austria. Excluding these charges in 1999 and 1998, operating profit would have been $80 million in 1999 and $148 million in 1998, or a 46% decrease. Operating profit in the Funeral Services Group of $173 million increased $3 million, or 2%, from 1998. At Batesville, operating profit increased significantly in 1999 as a result of increased shipments and improved product mix. During 1999, Batesville incurred a $9 million unusual charge related to the closure of a manufacturing facility. Excluding this charge, Batesville's operating profit would have increased approximately 15%. At Forethought, higher investment income, increased earned premiums and higher capital gains were more than offset by increased expenses, most of which were related to new business development, and an unusual charge of $3 million related to an impaired asset. Excluding the unusual charge incurred by Forethought, operating profit would have decreased 15%. Excluding the unusual charges incurred by both Batesville and Forethought in 1999, Funeral Services Group operating profit would have increased about 9%. Consolidated operating profit of $211 million decreased $17 million, or 7%. Excluding the unusual charges discussed above and a $1 million unusual charge at the consolidated company level, consolidated operating profit would have been $249 million in 1999 compared to $298 million in 1998, a 16% decrease. 14 17 Other Income and Expense Interest expense was unchanged compared to 1998 as the Company's level of long-term debt was essentially constant. Investment income decreased $3 million primarily due to a lower average balance of cash, cash equivalents and short-term investments throughout 1999. Excluding the gain of $75 million on the sale of Medeco in 1998, other income and expense, net decreased $3 million. Income Taxes The effective income tax rate was 36.7% for 1999 and 37.0% for 1998. The 1998 tax rate includes the recognition of a tax benefit associated with the discontinuance of manufacturing operations in Germany and Austria. The decrease in the tax rate for 1999 reflects a reduction in state taxes and lower operating losses in Europe. LIQUIDITY AND CAPITAL RESOURCES Cash Flows Net cash flows from operating activities and selected borrowings represent the Company's primary source of funds for growth of the business, including capital expenditures and acquisitions. Cash, cash equivalents and short-term investments (excluding investments of insurance operations) at December 2, 2000 decreased $38 million to $132 million compared to November 27, 1999, mainly due to capital expenditures, the purchase of treasury stock, the repayment of short-term debt totaling $56 million and the payment of cash dividends partially offset by cash generated from operating activities. Operating Activities Net cash generated by operating activities of $296 million increased $112 million compared to 1999. Contributing to the improvement were increased earnings and favorable movements in most components of working capital. The decrease in depreciation, amortization and write-down of intangibles is due to a 1999 unusual charge of $3 million consisting of a write-off of goodwill related to an asset impairment and a decrease in the manufacture of new rental units in 2000. The favorable changes in working capital are due to good working capital management. Consolidated days revenues outstanding in accounts receivable decreased to 80 in 2000 compared to 86 in 1999 as a result of company-wide efforts to decrease this measure in 2000 along with increased provisions for unrecoverable receivables in the Health Care rental business. Accrued expenses and other liabilities decreased in 2000 due to a reduction in income taxes payable, along with reduced accruals related to unusual charges and warranty related matters. Investing Activities Net cash used in investing activities increased to $321 million compared to $266 million in 1999. This increase was due to $27 million in additional capital expenditures in 2000, along with unfavorable effects from investment activities at Forethought. 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 resulted in a net loss in 2000 and net gains in 1999 and 1998. Financing Activities The Company's long-term debt-to-capital ratio was 27% at year-end 2000 compared to 26% at year-end 1999. This slight increase was primarily due to a $7 million decrease in the Company's equity resulting from the purchase of treasury stock, a decrease in accumulated other comprehensive (loss) income and the payment of normal dividends partially offset by current year earnings. During the fourth quarter of fiscal 2000, the Company repaid $52 million of short-term debt denominated in Euros. 15 18 Quarterly cash dividends per share were $.18 in 1998, $.195 in 1999 and $.20 in 2000. An additional increase to $.21 per share was approved by the Board of Directors in January 2001 for the first quarter of 2001. Insurance Assets and Liabilities Insurance assets of $3,314 million grew 7% over the past year. Cash and invested assets of $2,465 million constitute 74% of the assets. The investments are concentrated in U.S. Treasuries and agencies and high-grade corporate bonds, with smaller investments in equities and foreign denominated securities. The invested assets are more than adequate to fund the insurance reserves and other liabilities of $2,336 million. Statutory reserves represent 62% of the face value of insurance in-force. Forethought Life Insurance Company made dividend payments to Hillenbrand Industries of $24 million and $14 million in January 2001 and in 1998, respectively. The statutory capital and surplus as a percentage of statutory liabilities of Forethought was 12% and 11% at December 31, 2000 and 1999, respectively. The non-current 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 policyholder. These revenues are recognized in the year of policy issue for tax purposes. This results in a deferred tax benefit. Insurance policy acquisition expenses must be capitalized and amortized for both financial accounting and tax purposes, although under different methods and amounts. Financial accounting rules require a greater amount to be capitalized and amortized than for tax reporting. This results in a deferred tax cost, which partially offsets the deferred tax benefit. Excluding the tax effect of adjusting the investment portfolio to fair value, the net deferred tax benefit remained essentially unchanged in 2000 and 1999. Shareholders' Equity Cumulative treasury stock acquired in open market and private transactions increased to 19,502,767 shares in 2000, up from 18,322,467 shares in 1999. The Company currently has Board of Directors' authorization to repurchase up to a total of 24,289,067 shares. Repurchased shares are to be used for general business purposes. From the cumulative shares acquired, 45,185 shares, net of shares converted to cash to pay withholding taxes, were reissued in 2000 to individuals under the provisions of the Company's various stock-based compensation plans. OTHER ISSUES Accounting Standards The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in June 1998. This Standard, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be recognized on the balance sheet at fair value. As the Company is not active in the use of derivative products or arrangements, adoption of this Standard will not have a material effect on the Company's consolidated financial statements. The Company will adopt the Standard in the first quarter of fiscal 2001. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB No. 101) "Revenue Recognition in Financial Statements." The Company is currently studying the impact of adopting SAB No. 101, as amended, which is required to be adopted no later than the fourth quarter of fiscal 2001, but believes its effect will be immaterial. 16 19 Unusual Charges 2000 Actions On October 11, 2000, the Company announced that W August Hillenbrand, Chief Executive Officer, would retire effective December 2, 2000. In relation to Mr. Hillenbrand's retirement, the Company incurred a charge of $8 million related to future payments and other compensation related items under the terms of the retirement agreement. This charge is reflected within the Unusual charges line of the Statement of Consolidated Income. In November 2000, Forethought announced the realignment of certain of its operations. Forethought incurred an unusual charge of $1 million in relation to this realignment. 1999 Actions In November 1999, the Company announced a plan to reduce the future operating cost structure at Hill-Rom, to write-down the value of certain impaired assets and to recognize a liability associated with the estimated cost of a field corrective action for a previously acquired product line. The total estimated cost of these actions necessitated an unusual charge of $29 million in the fourth quarter of 1999. The cash component of this charge was $19 million. Included in the cost-cutting actions announced at Hill-Rom was the reduction of 350 employees in the United States and Europe and the closure of select manufacturing and sales, service/distribution facilities in the United States and Europe. Estimated costs for the work force and facility closure actions were $8 million and $3 million, respectively. The unusual charge also included $10 million relative to asset impairments for a small Hill-Rom investment that has been liquidated and the write-off of other strategic investments which have discontinued operations. The remaining component of the 1999 fourth quarter unusual charge related to an $8 million field corrective action taken relative to a previously acquired product line. As of December 2, 2000, approximately $7 million in work force reduction costs, $2 million in facility closure costs and $4 million related to the field corrective action have been incurred. The Company expects substantially all employee-related costs to be completed within the next three months as the payments to previously eliminated employees are completed. The facility closures are near completion and the field corrective action is expected to be completed by the end of the third quarter of 2001. During 2000, approximately $2 million of the original 1999 provision was reversed to income within the Unusual charges line of the Statement of Consolidated Income as actual costs incurred were favorable to those originally expected. In March 1999, Batesville Casket Company announced the planned closing of its Campbellsville, Kentucky casket manufacturing plant. Approximately 200 employees were affected and the closure necessitated a $9 million unusual charge in the second quarter of 1999. Production of Campbellsville casket units was transferred to existing plants located in Batesville, Indiana and Manchester, Tennessee. All accrued costs related to this action have been incurred. The idled facility was sold in October 2000 for a gain of $1 million which is reflected within the Unusual charges line of the Statement of Consolidated Income. 1998 Actions In August 1998, the Company approved a plan to close all manufacturing facilities in Germany and Austria. The plan necessitated the provision of a $70 million asset impairment and restructuring charge including a non-cash charge of $53 million for the write-off of goodwill and other asset impairments. The plan also included additional charges for severance and employee benefit costs of $10 million and other estimated plant closing costs of $7 million. 17 20 Manufacturing operations were discontinued in Germany and Austria by the second quarter of 1999 and all actions required under the plan have been completed. During 2000 and 1999, approximately $1 million and $2 million of the originally recorded provisions were reversed to income within the Unusual charges line of the Statement of Consolidated Income as actual costs were less than originally estimated. The disposition of the facility in Austria was completed in December 1999 for a gain of $2 million and the facility in Germany was sold in November 2000 for a gain of $1 million. These gains are reflected within the Unusual charges line of the Statement of Consolidated Income. Other In addition to costs accrued under the above outlined plans, approximately $1 million and $2 million of incremental costs were incurred in relation to these actions in 2000 and 1999, respectively. These incremental costs were expensed as incurred as required by generally accepted accounting principles and are included within the Unusual charges line of the Statement of Consolidated Income as such incremental costs were incurred directly in conjunction with the execution of the respective plans. The reserve balances for the above plans included in other current liabilities approximated $8 million and $21 million as of December 2, 2000 and November 27, 1999, respectively. The reserve balance included in other long-term liabilities for the retirement of the Company's CEO is approximately $7 million as of December 2, 2000. 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 $5 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 are not expected to materially affect the Company's capital expenditures, earnings or competitive position. Further changes in environmental law might affect the Company's future operations, capital expenditures and earnings; however, the cost of complying with these provisions, if any, is not known. Factors That May Affect Future Results Legislative changes phased in beginning July 1, 1998 have had, and may continue to have, a dampening effect on the Company's rental revenue derived from Medicare patients in the long-term care market. Cuts in Medicare funding mandated by the Balanced Budget Act of 1997 (BBA) have had, and could continue to have, an adverse effect on the Company's health care sales derived from the acute-care market. However, based on recent order patterns, the Company does believe the acute-care market is starting to adapt to these cuts in Medicare funding. The Company is experiencing, and may continue to experience, pressure on reimbursement rates related to its home care rental business. On January 22, 2001, the Company announced that it would realign its home care and long-term care businesses. Due to this action, the Company expects rental revenues to decrease over the near-term and, on an annual basis, to reduce fixed expenses between $18 million and $20 million. The market for casketed deaths is expected to remain flat for the foreseeable future. Batesville Casket has been able to increase its share of this market, as well as the growing cremation market, by providing innovative products and marketing programs for its funeral director customers. 18 21 Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to various market risks, including fluctuations in interest rates, mismatches in funding obligations and receipts and variability in currency exchange rates. The Company has established policies, procedures and internal processes governing its management of market risks and the use of financial instruments to manage its exposure to such risks. The Company's insurance operation is subject to fluctuations in interest rates on its investment portfolio and, to a lesser extent, prepayment and equity pricing risks. The investment portfolio is concentrated in high-grade corporate, foreign and U.S. agency and Treasury bonds with predominantly fixed interest rates. The portfolio is managed in accordance with the Company's objective to substantially match investment durations with policy liability durations and within applicable insurance industry regulations. Investments may be liquidated prior to maturity to meet the matching objective and manage fluctuations in interest rates and prepayments. They are, accordingly, classified as "available for sale" and are not purchased for trading purposes. The Company uses various techniques, including duration analysis, to assess the sensitivity of the investment portfolio to interest rate fluctuations, prepayment activity, equity price changes and other risks. The insurance operation also performs and reports results for asset adequacy analysis as required by the National Association of Insurance Commissioners. Based on the duration of the investment portfolio at December 2, 2000 and November 27, 1999, a hypothetical 10% increase in weighted average interest rates could reduce the market value of the investment portfolio approximately $121 and $111 million, respectively, over a 12-month period. The Company believes its investment policy minimizes the risk of adverse fluctuation in surplus value. In addition, the long-term fixed nature of portfolio assets reduces the effect of short-term interest rate fluctuations on earnings. The Company is subject to variability in foreign currency exchange rates primarily in its European operations. Exposure to this variability is periodically managed primarily through the use of natural hedges, whereby funding obligations and assets are both managed in the local currency. The Company, from time to time, enters into currency exchange agreements to manage its exposure arising from fluctuating exchange rates related to specific transactions. The sensitivity of earnings and cash flows to variability in exchange rates is assessed by applying an appropriate range of potential rate fluctuations to the Company's assets, obligations and projected results of operations denominated in foreign currencies. Based on the Company's overall currency rate exposure at December 2, 2000, movements in currency rates would not materially affect the financial position of the Company. 19 22
- --------------------------------------------------------------------------------------------------------------------------------- Key Financial Data - --------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 (53 weeks) - --------------------------------------------------------------------------------------------------------------------------------- Income Statement - --------------------------------------------------------------------------------------------------------------------------------- % Pretax, preinterest expense, income (EBIT) to revenues 13 11 16 16 15 % Pretax, preinterest expense, pre-depreciation and amortization expense, income (EBITDA) to revenues (a) 17 16 23 22 21 % Net income to revenues 7 6 9 9 8 % Income taxes to pretax income 36 37 37 39 40 - --------------------------------------------------------------------------------------------------------------------------------- Balance Sheet - --------------------------------------------------------------------------------------------------------------------------------- % Long-term debt-to-total capital 27 26 24 19 21 % Total debt-to-total capital 27 31 29 24 28 Current assets/current liabilities (b) 2.6 2.1 2.3 2.3 2.2 Working capital turnover (b) (c) 5.6 7.0 9.1 15.4 13.6 - --------------------------------------------------------------------------------------------------------------------------------- Profitability - --------------------------------------------------------------------------------------------------------------------------------- % Return on total capital 14 11 15 14 14 % Return on average shareholders' equity 19 13 21 20 19 - --------------------------------------------------------------------------------------------------------------------------------- Asset Turnover - --------------------------------------------------------------------------------------------------------------------------------- Revenues/inventories (b) 15.4 15.0 16.1 19.1 15.3 Revenues/receivables (b) 4.2 4.1 4.3 4.5 5.1 - --------------------------------------------------------------------------------------------------------------------------------- Stock Market - --------------------------------------------------------------------------------------------------------------------------------- Year-end price/earnings (P/E) 21 19 21 20 18 Year-end price/book value 3.8 2.8 4.1 3.4 3.3 - --------------------------------------------------------------------------------------------------------------------------------- (a) EBITDA is the sum of operating profit, investment income, other income and expense and depreciation and amortization expense including the write-down of intangibles. The Company's EBITDA, which represents a non-GAAP measure of cash flow, may not be comparable to other companies' EBITDA due to differences in the calculation. (b) Excludes insurance operations. (c) Excludes cash. ================================================================================================================================= Statement of Consolidated Income Comparison - --------------------------------------------------------------------------------------------------------------------------------- Fiscal Year Percent Change - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in millions) 2000 1999 1998 2000/99 1999/98 1998/97 (53 WEEKS) - --------------------------------------------------------------------------------------------------------------------------------- Net revenues: Health Care sales $ 800 $ 766 $ 748 4% 2% 27% Health Care rentals 312 324 403 (4%) (20%) 7% Funeral Services sales 617 602 541 2% 11% (1%) Insurance revenues 367 355 309 3% 15% 17% - --------------------------------------------------------------------------------------------------------------------------------- Total revenues $ 2,096 $ 2,047 $ 2,001 2% 2% 13% - --------------------------------------------------------------------------------------------------------------------------------- Gross profit: Health Care sales $ 368 $ 314 $ 320 17% (2%) 20% Health Care rentals 86 88 162 (2%) (46%) 13% Funeral Services sales 305 292 260 4% 12% (2%) Insurance revenues 67 82 76 (18%) 8% 36% - --------------------------------------------------------------------------------------------------------------------------------- Total gross profit 826 776 818 6% (5%) 12% Other operating expenses 579 527 524 10% 1% 13% Unusual charges (3) (38) (66) N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Operating profit 244 211 228 16% (7%) (14%) Other income (expense), net (4) (16) 65 N/A N/A N/A - --------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 240 195 293 23% (33%) 13% Income taxes 86 71 109 21% (35%) 7% - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 154 $ 124 $ 184 24% (33%) 17% - ---------------------------------------------------------------------------------------------------------------------------------
20 23 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Financial Statements: Report of Independent Accountants 22 Statements of Consolidated Income for the three years ended December 2, 2000 23 Consolidated Balance Sheets at December 2, 2000 and November 27, 1999 24 Statements of Consolidated Cash Flows for the three years ended December 2, 2000 26 Statements of Consolidated Shareholders' Equity for the three years ended December 2, 2000 27 Notes to Consolidated Financial Statements 28 Financial Statement Schedule for the three years ended December 2, 2000: Schedule II - Valuation and Qualifying Accounts 50 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto.
21 24 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 December 2, 2000 and November 27, 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 2, 2000, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /S/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Indianapolis, Indiana January 12, 2001, except as to Note 16, which is as of January 22, 2001 22 25 Hillenbrand Industries, Inc. and Subsidiaries STATEMENTS OF CONSOLIDATED INCOME (Dollars in millions except per share data)
- -------------------------------------------------------------------------------------------------------------------- Year Ended December 2, November 27, November 28, 2000 1999 1998 - -------------------------------------------------------------------------------------------------------------------- (53 weeks) - -------------------------------------------------------------------------------------------------------------------- Net Revenues Health Care sales $ 800 $ 766 $ 748 Health Care rentals 312 324 403 Funeral Services sales 617 602 541 Insurance revenues 367 355 309 - -------------------------------------------------------------------------------------------------------------------- Total revenues 2,096 2,047 2,001 - -------------------------------------------------------------------------------------------------------------------- Cost of Revenues Health Care cost of goods sold 432 452 428 Health Care rental expenses 226 236 241 Funeral Services cost of goods sold 312 310 281 Insurance cost of revenues 300 273 233 - -------------------------------------------------------------------------------------------------------------------- Total cost of revenues 1,270 1,271 1,183 - -------------------------------------------------------------------------------------------------------------------- Gross Profit 826 776 818 Other operating expenses 579 527 524 Unusual charges (Note 5) (3) (38) (66) - -------------------------------------------------------------------------------------------------------------------- Operating Profit 244 211 228 Other income (expense), net: Interest expense (27) (27) (27) Investment income, net 24 16 19 Other (Note 4) (1) (5) 73 - -------------------------------------------------------------------------------------------------------------------- Income Before Income Taxes 240 195 293 Income taxes 86 71 109 - -------------------------------------------------------------------------------------------------------------------- Net Income $ 154 $ 124 $ 184 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Basic and Diluted Net Income Per Common Share $ 2.44 $ 1.87 $ 2.73 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Dividends Per Common Share $ .80 $ .78 $ .72 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- Average Number of Common Shares Outstanding 62,912,909 66,295,770 67,577,803 - --------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 23 26 Hillenbrand Industries, Inc. and Subsidiaries CONSOLIDATED BALANCE SHEETS (Dollars in millions)
- ----------------------------------------------------------------------------------------------------- December 2, November 27, 2000 1999 - ----------------------------------------------------------------------------------------------------- ASSETS - ----------------------------------------------------------------------------------------------------- Current Assets Cash, cash equivalents and short-term investments $ 132 $ 170 Trade accounts receivable, less allowances of $61 in 2000 and $54 in 1999 407 413 Inventories (Note 1) 112 113 Other 73 86 - ----------------------------------------------------------------------------------------------------- Total current assets 724 782 - ----------------------------------------------------------------------------------------------------- Equipment Leased to Others (Note 1) 244 273 Less accumulated depreciation 177 204 - ----------------------------------------------------------------------------------------------------- Equipment leased to others, net 67 69 - ----------------------------------------------------------------------------------------------------- Property (Note 1) 617 624 Less accumulated depreciation 412 426 - ----------------------------------------------------------------------------------------------------- Property, net 205 198 - ----------------------------------------------------------------------------------------------------- Other Assets Intangible assets at amortized cost: Patents and trademarks 14 19 Excess of cost over net asset values of acquired companies (Note 3) 145 159 Other 22 14 Deferred charges and other assets 106 101 - ----------------------------------------------------------------------------------------------------- Total other assets 287 293 - ----------------------------------------------------------------------------------------------------- Insurance Assets (Note 13) Investments 2,465 2,311 Deferred acquisition costs 636 584 Deferred income taxes 100 79 Other 113 117 - ----------------------------------------------------------------------------------------------------- Total insurance assets 3,314 3,091 - ----------------------------------------------------------------------------------------------------- Total Assets $ 4,597 $ 4,433 - -----------------------------------------------------------------------------------------------------
24 27
- -------------------------------------------------------------------------------------------------- December 2, November 27, 2000 1999 - -------------------------------------------------------------------------------------------------- LIABILITIES - -------------------------------------------------------------------------------------------------- CURRENT LIABILITIES Short-term debt (Notes 6 and 9) $ - $ 52 Trade accounts payable 68 80 Income taxes payable (Note 11) 16 22 Accrued compensation 89 53 Other 109 164 - -------------------------------------------------------------------------------------------------- Total current liabilities 282 371 - -------------------------------------------------------------------------------------------------- Long-term Debt (Notes 6 and 9) 302 302 - -------------------------------------------------------------------------------------------------- Other Long-term Liabilities (Note 7) 85 68 - -------------------------------------------------------------------------------------------------- Deferred Income Taxes (Notes 1 and 11) 3 3 - -------------------------------------------------------------------------------------------------- Insurance Liabilities (Note 13) Benefit reserves 2,276 2,092 Unearned revenue 758 719 General liabilities 60 40 - -------------------------------------------------------------------------------------------------- Total insurance liabilities 3,094 2,851 - -------------------------------------------------------------------------------------------------- Total Liabilities 3,766 3,595 - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- Commitments and Contingencies (Note 15) - -------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY (Notes 7 and 8) - -------------------------------------------------------------------------------------------------- Common stock - without par value: Authorized - 199,000,000 shares Issued - 80,323,912 shares in 2000 and 1999 4 4 Additional paid-in capital 24 24 Retained earnings (Note 6) 1,397 1,293 Accumulated other comprehensive loss (Note 1) (108) (38) Treasury stock, at cost: 2000 - 17,919,611 shares; 1999 - 16,777,137 shares (486) (445) - -------------------------------------------------------------------------------------------------- Total Shareholders' Equity 831 838 - -------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 4,597 $ 4,433 - --------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 25 28 Hillenbrand Industries, Inc. and Subsidiaries STATEMENTS OF CONSOLIDATED CASH FLOWS (Dollars in millions)
- --------------------------------------------------------------------------------------------------------------------------- Year Ended DECEMBER 2, November 27, November 28, 2000 1999 1998 (53 WEEKS) - --------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income $ 154 $ 124 $ 184 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation, amortization and write-down of intangibles 89 98 149 Change in noncurrent deferred income taxes 6 (2) (3) Gain on sale of business - - (75) Change in working capital excluding cash, current debt, acquisitions and dispositions: Trade accounts receivable 6 (18) (36) Inventories 1 (6) (2) Other current assets 12 (21) 2 Trade accounts payable (12) 10 (12) Accrued expenses and other liabilities (25) (6) (14) Change in insurance deferred policy acquisition costs (52) (48) (63) Change in insurance unearned revenue 39 45 69 Change in other insurance items, net 82 39 28 Other, net (4) (31) (5) - --------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 296 184 222 - --------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Capital expenditures (106) (79) (88) Proceeds on disposal of property and equipment leased to others 13 4 10 Acquisitions of businesses, net of cash acquired - (54) (188) Other investments (3) (4) (11) Proceeds on sale of business - - 64 Insurance investments: Purchases (814) (797) (746) Proceeds on maturities 161 177 168 Proceeds on sales 428 487 364 - --------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (321) (266) (427) - --------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Additions to short-term debt 14 12 39 Reductions to short-term debt (56) (13) (13) Additions to long-term debt 1 - 101 Reductions to long-term debt - (1) (1) Payment of cash dividends (50) (52) (48) Treasury stock acquired (42) (113) (85) Insurance deposits received 375 361 355 Insurance benefits paid (251) (237) (210) - --------------------------------------------------------------------------------------------------------------------------- Net cash (used in) provided by financing activities (9) (43) 138 - --------------------------------------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes on Cash (4) (2) - - --------------------------------------------------------------------------------------------------------------------------- TOTAL CASH FLOWS (38) (127) (67) CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS At beginning of year 170 297 364 - --------------------------------------------------------------------------------------------------------------------------- At end of year $ 132 $ 170 $ 297 - ---------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 26 29 Hillenbrand Industries, Inc. and Subsidiaries STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY (Dollars in millions)
- ---------------------------------------------------------------------------------------------------------------------------- Accumulated Other Common Additional Retained Comprehensive Treasury Stock Paid-in-Capital Earnings (Loss) Income Stock Total - ---------------------------------------------------------------------------------------------------------------------------- Balance At November 29, 1997 $ 4 $ 18 $ 1,085 $ 31 $ (248) $ 890 Comprehensive Income Net income - - 184 - - 184 Foreign currency translation adjustment - - - (4) - (4) Net change in unrealized gain (loss) on available for sale securities - - - 18 - 18 ------ Total comprehensive income 198 Dividends - - (48) - - (48) Treasury shares acquired (1,768,100) - - - - (85) (85) Other - 2 - - - 2 - ---------------------------------------------------------------------------------------------------------------------------- Balance At November 28, 1998 4 20 1,221 45 (333) 957 Comprehensive Income Net income - - 124 - - 124 Foreign currency translation adjustment - - - (1) - (1) Net change in unrealized gain (loss) on available for sale securities - - - (82) - (82) ------ Total comprehensive income 41 Dividends - - (52) - - (52) Treasury shares acquired (3,255,300) - - - - (113) (113) Other - 4 - - 1 5 - ---------------------------------------------------------------------------------------------------------------------------- Balance At November 27, 1999 4 24 1,293 (38) (445) 838 Comprehensive Income Net income - - 154 - - 154 Foreign currency translation adjustment - - - (20) - (20) Net change in unrealized gain (loss) on available for sale securities - - - (50) - (50) ------ Total comprehensive income 84 Dividends - - (50) - - (50) Treasury shares acquired (1,180,300) - - - - (42) (42) Other - - - - 1 1 - ---------------------------------------------------------------------------------------------------------------------------- Balance At December 2, 2000 $ 4 $ 24 $ 1,397 $ (108) $ (486) $ 831 - ----------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 27 30 Hillenbrand Industries, Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in millions except per share data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. 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. Nature of Operations Hillenbrand Industries is organized into two groups - the Health Care Group and the Funeral Services Group. The Health Care Group, which is considered a separate reporting segment, consists of Hill-Rom. Medeco Security Locks, Inc. was included in this group prior to its sale in 1998 based upon its relative immateriality. Hill-Rom is a leading manufacturer of patient care products and a 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 53% of Hillenbrand's revenues in 2000. The Funeral Services Group consists of two reporting segments, Funeral Services Products (Batesville Casket Company - Batesville) and Funeral Services Insurance (Forethought Financial Services - Forethought). Batesville is a leading producer of metal and hardwood burial caskets, cremation urns and caskets and marketing support services. Its products are marketed to licensed funeral directors operating licensed funeral homes primarily in North America. Batesville generated 29% of Hillenbrand's revenues in 2000. Forethought provides funeral homes in 49 U.S. states, the District of Columbia, Puerto Rico and nine Canadian provinces with marketing support for Forethought(R) funeral plans funded by life insurance policies and trust products. It entered the preneed trust market in 1997. Forethought generated 18% of Hillenbrand's revenues in 2000. 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. 28 31 Cash, Cash Equivalents and Short-term Investments The Company considers investments in marketable securities and other highly liquid instruments with a maturity of three months or less at date of purchase to be cash equivalents. Investments with a maturity at the date of purchase greater than three months or which have no stated maturity are considered short-term investments. All of the Company's short-term investments contain put options or may be freely traded. Cash, cash equivalents and short-term investments at year end consist of the following: - ------------------------------------------------------------------------ 2000 1999 - ------------------------------------------------------------------------ Cash and cash equivalents $ 43 $ 26 Short-term investments 89 144 - ------------------------------------------------------------------------ Total $ 132 $ 170 - ------------------------------------------------------------------------ Inventories Inventories are valued at the lower of cost or market. Inventory costs are determined by the last-in, first-out (LIFO) method for approximately 59% and 52% of the Company's inventories at December 2, 2000 and November 27, 1999, respectively. Costs for other inventories have been determined principally by the first-in, first-out (FIFO) method. Inventories at year end consist of the following: - ------------------------------------------------------------------------ 2000 1999 - ------------------------------------------------------------------------ Finished products $ 73 $ 67 Work in process 26 31 Raw materials 13 15 - ------------------------------------------------------------------------ Total $ 112 $ 113 - ------------------------------------------------------------------------ If the FIFO method of inventory accounting, which approximates current cost, had been used for all inventories, they would have been approximately $7 million higher than reported at December 2, 2000 and November 27, 1999, respectively. Equipment Leased to Others Equipment leased to others primarily represents therapy rental units, which are recorded at cost and depreciated on a straight-line basis over their estimated economic life. The majority of 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. 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 2000 and 1999 were: - ------------------------------------------------------------------------ 2000 1999 - ------------------------------------------------------------------------ Land $ 15 $ 17 Buildings and building equipment 132 148 Machinery and equipment 470 459 - ------------------------------------------------------------------------ Total $ 617 $ 624 - ------------------------------------------------------------------------ 29 32 Intangible and Other Non-current Assets Intangible assets are stated at cost and amortized on a straight-line basis over periods ranging from 3 to 40 years. The Company reviews intangible 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 are less than the carrying value, an impairment loss is recognized. The amount of the impairment loss is determined by comparing the discounted expected future cash flows with the carrying value. Intangible asset write-offs approximated $3 million and $43 million in 1999 and 1998, respectively. See Note 5 for additional information. Accumulated amortization of intangible assets was $108 million and $99 million as of December 2, 2000 and November 27, 1999, respectively. Investments In accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company has classified its investments in debt and equity securities as "available for sale" and reported them at fair value on the balance sheet. Unrealized gains and losses are charged or credited to accumulated other comprehensive (loss) income in shareholders' equity and deferred taxes are recorded for the income tax effect of such unrealized gains and losses. The fair value of each security is based on the market value provided by brokers/dealers or estimates made by management in situations where no quoted price is available. 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. These reserves are determined without consideration of possible loss recoveries from third parties. 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 delivery of products to customers for Funeral Services products and upon shipment of products to customers for Health Care products. 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. 30 33 Earnings Per Common Share Basic earnings per share is calculated based upon the weighted-average number of outstanding common shares for the period, plus the effect of deferred vested shares. Diluted earnings per share is calculated consistent with the basic earnings per share calculation including the effect of dilutive potential common shares. For all years presented, anti-dilutive stock options were excluded in the calculation of dilutive earnings per share. Comprehensive Income The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in the first quarter of 1999. The adoption of this Standard did not affect the Company's financial position or results of operations. SFAS No. 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income. The composition of accumulated other comprehensive (loss) income at December 2, 2000 and November 27, 1999 is the cumulative adjustment for unrealized losses or gains on available-for-sale securities, mainly relating to the insurance portfolio, of ($80) million and ($30) million, respectively, and the foreign currency translation adjustment of ($28) million and ($8) million, respectively. Stock-based Compensation SFAS No. 123, "Accounting for Stock-Based Compensation," encourages companies to adopt a fair-value approach to valuing stock-based compensation. The Company has elected, as permitted by the Standard, to continue to follow its intrinsic value-based method of accounting for its stock-based compensation plans consistent with the provisions of APB No. 25. Under the intrinsic method, compensation cost for stock-based compensation is measured as the excess, if any, of the quoted market price of the instrument at the measurement date over the exercise price. The Company has provided the pro forma disclosures, required by SFAS No. 123 in Note 7. Income Taxes The Company and its eligible domestic subsidiaries file a consolidated U.S. income tax return. Foreign operations file income tax returns in a number of jurisdictions. 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 corresponding income tax amounts. Foreign Currency Translation Assets and liabilities of foreign operations are primarily 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, but included as a component of comprehensive income. Foreign currency gains and losses resulting from foreign currency transactions are included in results of operations and are not material. 31 34 Insurance Liabilities, Recognition of Insurance Policy Income, and Related Benefits and Expenses Forethought Life Insurance Company, Forethought Life Assurance Company and Arkansas National Life Insurance Company sell certain long duration contracts. Revenue is recognized on traditional limited pay life insurance contracts when due. Premiums received in excess of the portion required to provide for all benefits and expenses is deferred and recognized in income in a constant relationship with the actuarially determined life of the contract. Benefit reserves for these life insurance contracts are calculated using the net-level-premium method, based on assumptions as to investment yields, mortality, withdrawals and credited interest. These assumptions are made at the time the contract is issued. For annuity contracts, the companies record premium deposits or benefit payments as increases or decreases to the insurance liability, rather than as revenue and expense. Revenue is recognized on amounts charged against the liability account such as, cost of insurance, administration fees and surrender penalties. Expenses are recorded for any interest credited to the account and any benefit payments that exceed the contract liabilities. Deferred Acquisition Costs Policy acquisition costs, consisting of commissions, certain policy issue expenses and premium taxes, vary with, and are primarily related to, the production of new business. These deferred acquisition costs are being amortized consistently with unearned revenues. Amortization charged to expense for the years ended December 2, 2000 and November 27, 1999 was $45 million and $42 million, respectively. Reclassification Certain prior year amounts have been reclassified to conform to the current year's presentation. Accounting Standards The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," in June 1998. This Standard, as amended, establishes accounting and reporting standards for derivative instruments and hedging activities and requires that all derivatives be recognized on the balance sheet at fair value. As the Company is not active in the use of derivative products or arrangements, adoption of this Standard will not have a material effect on the Company's consolidated financial statements. The Company will adopt the Standard in the first quarter of fiscal 2001. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101 (SAB No. 101) "Revenue Recognition in Financial Statements." The Company is currently studying the impact of adopting SAB No. 101, as amended, which is required to be adopted no later than the fourth quarter of fiscal 2001, but believes its effect will be immaterial. 2. 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. Effective November 27, 1999, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Standard revised disclosure requirements for employers' pensions and other retiree benefits as presented below. Implementation of this Standard did not affect the Company's financial position or results of operations. 32 35 The components of net pension expense in the United States are as follows: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Service cost $ 9 $ 11 $ 8 Interest cost 12 11 10 Expected return on plan assets (12) (11) (10) Recognized net gain (1) - - - -------------------------------------------------------------------------------- Net pension expense $ 8 $ 11 $ 8 - -------------------------------------------------------------------------------- The change in benefit obligation, change in plan assets, funded status and amounts recognized in the consolidated balance sheets at December 2, 2000 and November 27, 1999 for the Company's domestic defined benefit retirement plans were as follows:
DECEMBER 2, November 27, 2000 1999 - --------------------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year................ $161 $161 Service cost........................................... 9 11 Interest cost.......................................... 12 11 Amendments............................................. 1 - Actuarial gain......................................... (8) (18) Benefits paid.......................................... (5) (4) ------------------------------- Benefit obligation at end of year...................... 170 161 ------------------------------- Change in plan assets: Fair value of plan assets at beginning of year......... 140 144 Actual return/(loss) on plan assets.................... 14 (9) Employer contributions................................. 9 9 Benefits paid.......................................... (5) (4) ------------------------------- Fair value of plan assets at end of year............... 158 140 ------------------------------- Funded status.......................................... (12) (21) Unrecognized net actuarial gain........................ (16) (8) Unrecognized prior service cost........................ 2 2 ------------------------------- Accrued benefit cost................................... $(26) $(27) -------------------------------
The weighted-average assumptions used in accounting for the domestic pension plans are as follows: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Discount rate 7.75% 7.75% 7.25% Expected rate of return on plan assets 8.0% 8.0% 8.0% Rate of compensation increase 5.5% 5.5% 5.5% - -------------------------------------------------------------------------------- For all of the Company's domestic pension plans, the fair value of plan assets exceeded the accumulated benefit obligation as of December 2, 2000 and November 27, 1999. In addition to the above plans, the Company has an unfunded liability for a defined benefit plan in Germany. The unfunded benefit obligation of this plan, included in accrued expenses, was $8 million on December 2, 2000 and $10 million on November 27, 1999. Pension expense was negligible in 2000, 1999 and 1998. 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 $6 million in 2000, $5 million in 1999 and $6 million in 1998. 33 36 3. Acquisitions On July 30, 1999, Hill-Rom, a wholly owned subsidiary, purchased the assets of AMATECH Corporation, a manufacturer and distributor of surgical table accessories and patient positioning devices for the operating room, for approximately $28 million, including costs of acquisition and the assumption of certain liabilities totaling approximately $1 million. If the purchased entity achieves certain financial milestones by the end of January 2003, the Company could make additional payments. This acquisition has been accounted for as a purchase, and the results of operations have been included in the consolidated financial statements since the acquisition date. The excess of the purchase price over the fair value of net assets acquired, based on the Company's purchase price allocation, including payments of $3 million made in 2000 for the achievement of certain financial milestones, is approximately $26 million which is being amortized on a straight-line basis over 20 years. On December 31, 1998, Forethought Life Insurance Company, a wholly owned subsidiary of Forethought Financial Services, Inc., acquired the stock of Arkansas National Life Insurance Company for approximately $31 million, including costs of acquisition. This acquisition has been accounted for as a purchase, and the results of operations of the acquired business have been included in the consolidated financial statements since the acquisition date. The excess of the purchase price over the fair value of net assets acquired was approximately $3 million which is being amortized on a straight-line basis over 20 years. On June 4, 1998, Forethought Financial Services purchased Chrysler Life Insurance Company for approximately $14 million, including costs of acquisition. This acquisition has been accounted for as a purchase, and the results of operations of the acquired business have been included in the consolidated financial statements since the acquisition date. The excess of the purchase price over the fair value of net assets acquired, which were primarily state insurance licenses, was approximately $4 million which is being amortized on a straight-line basis over 40 years. On February 9, 1998, Hill-Rom acquired the stock of MEDAES Holdings, Inc., a manufacturer of medical architectural systems for $62 million, including costs of acquisition, and the assumption of certain liabilities totaling $16 million. This acquisition was accounted for as a purchase, and the results of operations have been included in the consolidated financial statements since the date of acquisition. The excess of the purchase price over the fair value of net assets acquired was approximately $50 million which is being amortized on a straight-line basis over 20 years. On December 18, 1997, Hill-Rom acquired the stock of Air-Shields, Inc., a manufacturer and supplier of infant incubators and warmers, and certain other businesses of Vickers PLC for $93 million, net of cash acquired and including costs of acquisition, and the assumption of certain liabilities totaling $22 million. This acquisition has been accounted for as a purchase, and the results of the operations of the acquired business have been included in the consolidated financial statements since the date of acquisition. The excess of the purchase price over the fair value of net assets acquired was approximately $53 million which is being amortized on a straight-line basis over 20 years. In the second quarter of 1999, the final purchase price for this acquisition was negotiated, resulting in a $5 million reduction in the excess of the purchase price over the fair value of net assets acquired. Hill-Rom, Batesville and the Company each acquired one small company during 1998 in addition to those outlined above. The combined purchase price of these companies was approximately $14 million, net of cash acquired. Assuming the two fiscal 1999 acquisitions and all fiscal 1998 acquisitions had occurred November 30, 1997, unaudited fiscal 1998 and 1999 pro forma revenue, net income and earnings per share would not have been materially different from reported amounts. 34 37 4. Disposition On July 1, 1998, the Company sold its high security and access control business, Medeco Security Locks, Inc., to Assa Abloy AB for approximately $92 million. The Company recorded an after-tax gain of approximately $47 million in the third quarter of 1998. Results for Medeco were included in the Health Care Group through the date of disposition and did not have a material effect on the results of that group or the Company's consolidated earnings, cash flows and financial position. The gain on the sale of Medeco is classified within the Other line under Other income (expense), net in the Statement of Consolidated Income. 5. Unusual Charges 2000 Actions On October 11, 2000, the Company announced that W August Hillenbrand, Chief Executive Officer, would retire effective December 2, 2000. In relation to Mr. Hillenbrand's retirement, the Company incurred a charge of $8 million related to future payments and other compensation related items under the terms of the retirement agreement. This charge is reflected within the Unusual charges line of the Statement of Consolidated Income. In November 2000, Forethought announced the realignment of certain of its operations. Forethought incurred an unusual charge of $1 million in relation to this realignment. 1999 Actions In November 1999, the Company announced a plan to reduce the future operating cost structure at Hill-Rom, to write-down the value of certain impaired assets and to recognize a liability associated with the estimated cost of a field corrective action for a previously acquired product line. The total estimated cost of these actions necessitated an unusual charge of $29 million in the fourth quarter of 1999. The cash component of this charge was $19 million. Included in the cost-cutting actions announced at Hill-Rom was the reduction of 350 employees in the United States and Europe and the closure of select manufacturing and sales, service/distribution facilities in the United States and Europe. Estimated costs for the work force and facility closure actions were $8 million and $3 million, respectively. The unusual charge also included $10 million relative to asset impairments for a small Hill-Rom investment that has been liquidated and the write-off of other strategic investments which have discontinued operations. The remaining component of the 1999 fourth quarter unusual charge related to an $8 million field corrective action taken relative to a previously acquired product line. As of December 2, 2000, approximately $7 million in work force reduction costs, $2 million in facility closure costs and $4 million related to the field corrective action have been incurred. The Company expects substantially all employee related costs to be completed within the next three months as the payments to previously eliminated employees are completed. The facility closures are near completion and the field corrective action is expected to be completed by the end of the third quarter of 2001. During 2000, approximately $2 million of the original 1999 provision was reversed to income within the Unusual charges line of the Statement of Consolidated Income as actual costs incurred were favorable to those originally expected. In March 1999, Batesville Casket Company announced the planned closing of its Campbellsville, Kentucky casket manufacturing plant. Approximately 200 employees were affected and the closure necessitated a $9 million unusual charge in the second quarter of 1999. Production of Campbellsville casket units was transferred to existing plants located in Batesville, Indiana and Manchester, Tennessee. All accrued costs related to this action have been incurred. The idled facility was sold in October 2000 for a gain of $1 million which is reflected within the Unusual charges line of the Statement of Consolidated Income. 35 38 1998 Actions In August 1998, the Company approved a plan to close all manufacturing facilities in Germany and Austria. The plan necessitated the provision of a $70 million asset impairment and restructuring charge including a non-cash charge of $53 million for the write-off of goodwill and other asset impairments. The plan also included additional charges for severance and employee benefit costs of $10 million and other estimated plant closing costs of $7 million. Manufacturing operations were discontinued in Germany and Austria by the second quarter of 1999 and all actions required under the plan have been completed. During 2000 and 1999, approximately $1 million and $2 million of the originally recorded provisions were reversed to income within the Unusual charges line of the Statement of Consolidated Income as actual costs were less than originally estimated. The disposition of the facility in Austria was completed in December 1999 for a gain of $2 million and the facility in Germany was sold in November 2000 for a gain of $1 million. These gains are reflected within the Unusual charges line of the Statement of Consolidated Income. Other In addition to costs accrued under the above outlined plans, approximately $1 million and $2 million of incremental costs were incurred in relation to those actions in 2000 and 1999, respectively. These incremental costs were expensed as incurred as required by generally accepted accounting principles and are included within the Unusual charges line of the Statement of Consolidated Income as such incremental costs were incurred directly in conjunction with the execution of the respective plans. The reserve balances for the above plans included in other current liabilities approximated $8 million and $21 million as of December 2, 2000 and November 27, 1999, respectively. The reserve balance included in other long-term liabilities for the retirement of the Company's CEO is approximately $7 million as of December 2, 2000. 6. Financing Agreements The Company's various financing agreements contain no restrictive provisions or conditions relating to dividend payments, working capital or additional indebtedness. Long-term debt consists of the following:
- ----------------------------------------------------------------------------------------- December 2, November 27, 2000 1999 - ----------------------------------------------------------------------------------------- Unsecured 8 1/2% debentures due on December 1, 2011 $ 100 $ 100 Unsecured 7% debentures due on February 15, 2024 100 100 Unsecured 6 3/4% debentures due on December 15, 2027 100 100 Government-sponsored bond with an interest rate of 5.0% and maturities to 2008 1 2 Other 1 - - ----------------------------------------------------------------------------------------- Total long-term debt $ 302 $ 302 - -----------------------------------------------------------------------------------------
Scheduled payments on long-term debt as of December 2, 2000 total less than $1 million in each of the years 2001 through 2005. Short-term debt in 1999 consisted of borrowings under various lines of credit maintained for foreign subsidiaries. There were no short-term borrowings outstanding at December 2, 2000. The weighted average interest rate on all short-term borrowings outstanding as of November 27, 1999 was approximately 4.0%. At December 2, 2000, the Company had uncommitted credit lines totaling $95 million available for its operations. These agreements have no commitment fees, compensating balance requirements or fixed expiration dates. 36 39 7. Stock-based Compensation At December 2, 2000, the Company has four active stock-based compensation programs; the Senior Executive Compensation Program, the Performance Compensation Plan, the 1996 Stock Option Plan and the Hillenbrand Industries Stock Award Program which are described below. These programs are administered by the Compensation Committee of the Board of Directors. All shares issued under these programs 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 share awards to participants contingent on their continued employment and the achievement of pre-established financial objectives of the Company over succeeding three-year periods. A total of 2,500,000 shares of common stock of the Company remains reserved for issuance under the program. Total tentative performance shares payable through December 2, 2000, were 176,264. In addition, the Senior Executive Compensation Program mandates and or provides for participants to defer payment of long-term performance shares earned in prior years. A total of 253,486 shares are deferred of which 234,490 are vested and payable as of December 2, 2000. The fair value of common stock granted under this program was $34.81, $57.94 and $44.56 per share in 2000, 1999 and 1998, respectively. Under the Performance Compensation Plan, key employees are awarded tentative performance shares based upon achievement of performance targets. A total of 1,288,897 shares of common stock remain reserved for issuance under this plan as of December 2, 2000. No shares have been awarded under this plan since 1993. This plan will terminate on November 30, 2001. Under the 1996 Stock Option Plan, key employees and directors are granted the opportunity to acquire the Company's common stock. Under the terms of the plan, options may be either incentive or non-qualified. Stock appreciation rights may be awarded in conjunction with either an incentive stock option or non-qualified stock option. The exercise price per share shall be the average fair market price of the common stock on the date of the grant. Options granted to employees vest one-third on each of the first three anniversaries of the date of grant. Options granted to directors vest entirely on the first anniversary of the date of grant. All options have a maximum term of ten years. Three million shares of common stock have been reserved for issuance under this plan and options were initially granted in 1997. As of December 2, 2000 there were 1,126,995 shares of common stock available for future grants. The fair value for each option grant is estimated on the date of the grant using the Black-Scholes option pricing model. The weighted average fair value of options granted was $12.41, $12.31 and $14.19 per share in 2000, 1999 and 1998, respectively. The following weighted average assumptions were used: 2000 1999 1998 ---- ---- ---- Risk-free interest rate 6.52% 5.23% 5.63% Dividend yield 1.62% 1.68% 1.49% Volatility factor .2418 .2319 .1926 Weighted average expected life 5.81 years 5.98 years 5.98 years The following table summarizes the transactions of the Company's stock option plan:
2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Number of Exercise Number of Exercise Number of Exercise Shares Price Shares Price Shares Price - ------------------------------------------------------------------------------------------------------------------------- Unexercised options outstanding - beginning of year 1,435,248 $46.85 734,998 $50.04 283,500 $44.31 Options granted 554,000 $35.99 777,750 $44.23 499,000 $52.98 Options exercised (20,968) $38.41 (500) $44.31 (10,339) $44.31 Options canceled (127,082) $47.62 (77,000) $50.98 (37,163) $47.37 - ------------------------------------------------------------------------------------------------------------------------- Unexercised options outstanding - end of year 1,841,198 $43.62 1,435,248 $46.85 734,998 $50.04 - ------------------------------------------------------------------------------------------------------------------------- Exercisable options - end of year 873,484 $47.41 355,566 $49.16 94,867 $44.31 - -------------------------------------------------------------------------------------------------------------------------
37 40 The following table summarizes information about stock options outstanding at December 2, 2000:
Options Outstanding Options Exercisable - -------------------------------------------------------------------------------------------------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price - -------------------------------------------------------------------------------------------------------------------- $29.97-$33.84 293,199 8.81 $30.27 79,067 $29.97 $36.31-$36.31 496,500 9.13 $36.31 60,000 $36.31 $42.81-$46.44 243,665 6.65 $44.60 235,667 $44.58 $52.16-$52.16 753,834 7.62 $52.16 456,748 $52.16 $57.09-$63.25 54,000 7.44 $59.76 42,002 $60.26 - -------------------------------------------------------------------------------------------------------------------- $29.97-$63.25 1,841,198 8.08 $43.62 873,484 $47.41 - --------------------------------------------------------------------------------------------------------------------
On October 5, 1999, key employees were awarded 40,000 shares of the Company's common stock with a fair value of $27.75 per share under the Hillenbrand Industries Stock Award Program. The stock awards are contingent upon those employees continued employment until October 5, 2002. Dividends accrued to date of 1,160 additional shares are also contingent upon continued employment until October 5, 2002. Under a prior restricted stock plan, key employees were granted restricted shares of the Company's stock. As of December 2, 2000 there were 6,923 shares which remain deferred under this program. No awards were made in fiscal 2000 and the plan has been terminated. The amount of income/(expense) recognized for all stock-based compensation plans was ($4) million in 2000, $4 million in 1999 and ($8) million in 1998. The pro forma effect on net income for all stock-based compensation plans, if accounted for under SFAS No. 123, is $6 million and $9 million additional compensation expense or $.06 and $.09 per share in 2000 and 1999, respectively, and less than $1 million additional expense in 1998. Members of the Board of Directors may elect to defer fees earned and invest them in common stock of the Company. A total of 12,966 deferred shares are payable as of December 2, 2000 under this program. 8. Shareholders' Equity One million shares of preferred stock, without par value, have been authorized and none have been issued. As of December 2, 2000, the Board of Directors had authorized the repurchase, from time to time, of up to 24,289,067 shares of the Company's stock. The purchased shares will be used for general corporate purposes. As of December 2, 2000, a total of 19,502,767 shares had been purchased at market trading prices, of which 17,919,611 shares remain in treasury. 9. 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 13) for which it is practicable to estimate that value. The carrying amounts of current assets and liabilities 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 carrying value and estimated fair values of the Company's long-term debt instruments were $302 million and $292 million at December 2, 2000 and $302 million and $294 million at November 27, 1999, respectively. 38 41 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 and equity risks. The Company occasionally enters into foreign currency forward contracts and equity options to hedge exposure to adverse exchange risk related to certain assets and obligations denominated in foreign currencies and price fluctuations related to certain equity investments. The gains or losses arising from these contracts offset 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 outstanding on December 2, 2000 and November 27, 1999. 10. Segment Reporting Effective November 27, 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 requires reporting of segment information that is consistent with the way in which management operates and views the Company. The adoption of SFAS No. 131 did not affect the Company's financial position or results of operations. The Company is organized into two groups - the Health Care Group and the Funeral Services Group. The Health Care Group, which is considered a separate reporting segment, consists of Hill-Rom. Hill-Rom produces, sells and rents mechanically, electrically and hydraulically adjustable hospital beds, infant incubators and warmers, hospital procedural stretchers, hospital patient room furniture, medical gas and vacuum systems, architectural systems and wound care and trauma management products designed to meet the needs of medical-surgical, critical care, long-term care, home care and perinatal providers. The Funeral Services Group consists of two reporting segments, Funeral Services Products (Batesville Casket Company - Batesville) and Funeral Services Insurance (Forethought Financial Services - Forethought). Batesville Casket Company 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. Forethought Financial Services and its subsidiaries provide funeral planning professionals with marketing support for Forethought(R) funeral plans funded by life insurance policies and trust products. Corporate manages areas that affect all segments such as taxes, interest income and expense, debt, legal, treasury, continuous improvement and business development. Nearly all interest expense, investment income and other income and expense amounts relate to activities undertaken at Corporate to benefit the Company as a whole. In analyzing segment performance, the Company's management reviews income before income taxes, unusual items, and capital charges and segment income (income before income taxes and unusual items). The capital charge is an estimate of the cost of capital a segment would incur if not a part of Hillenbrand Industries, and the resulting segment income is used as a measure of segment profitability. Based on criteria established in SFAS No. 131, the Company's reporting segments are Health Care, Funeral Services Products and Funeral Services Insurance. Corporate, while not a segment, is presented separately to aid in the reconciliation of segment information to that reported in the Consolidated Financial Statements. 39 42 Financial information regarding the Company's reportable segments is presented below:
- ---------------------------------------------------------------------------------------------------------------------- Funeral Services Corporate Health ---------------- and Other Care Products Insurance Other (a) Expense Consolidated - ---------------------------------------------------------------------------------------------------------------------- 2000 - ---------------------------------------------------------------------------------------------------------------------- Net revenues $ 1,112 $ 617 $ 367 $ - $ - $ 2,096 Income before income taxes, unusual items and capital charges $ 123 $ 152 $ 33 $ - $ (65) $ 243 Capital charges (45) (18) - - 63 - ----------------------------------------------------------------------------- Segment income $ 78 $ 134 $ 33 $ - $ (2) $ 243 Unusual items (b) $ 5 $ - $ (1) $ - $ (7) (3) ------------ Income before income taxes $ 240 Assets $ 758 $ 276 $ 3,257 $ - $ 306 $ 4,597 Capital expenditures $ 67 $ 30 $ 5 $ - $ 4 $ 106 Depreciation and amortization $ 69 $ 15 $ 3 $ - $ 2 $ 89 - ---------------------------------------------------------------------------------------------------------------------- 1999 - ---------------------------------------------------------------------------------------------------------------------- Net revenues $ 1,090 $ 602 $ 355 $ - $ - $ 2,047 Income before income taxes, unusual items and capital charges $ 83 $ 142 $ 45 $ - $ (37) $ 233 Capital charges (47) (17) - - 64 - ----------------------------------------------------------------------------- Segment income $ 36 $ 125 $ 45 $ - $ 27 $ 233 Unusual items (c) $ (25) $ (9) $ (3) $ - $ (1) (38) ------------ Income before income taxes $ 195 Assets $ 794 $ 245 $ 3,028 $ - $ 366 $ 4,433 Capital expenditures $ 62 $ 9 $ 6 $ - $ 2 $ 79 Depreciation and amortization (d) $ 73 $ 18 $ 5 $ - $ 2 $ 98 - ---------------------------------------------------------------------------------------------------------------------- 1998 - ---------------------------------------------------------------------------------------------------------------------- Net revenues $ 1,124 $ 541 $ 309 $ 27 $ - $ 2,001 Income before income taxes, unusual items and capital charges $ 156 $ 124 $ 52 $ 3 $ (47) $ 288 Capital charges (43) (17) - (1) 61 - ----------------------------------------------------------------------------- Segment income $ 113 $ 107 $ 52 $ 2 $ 14 $ 288 Unusual Items (e) (f) $ (70) $ - $ - $ 75 $ - 5 ------------ Income before income taxes $ 293 Assets $ 801 $ 254 $ 2,833 $ - $ 392 $ 4,280 Capital expenditures $ 53 $ 20 $ 9 $ - $ 6 $ 88 Depreciation and amortization (g) $ 124 $ 21 $ 1 $ 1 $ 2 $ 149 - ----------------------------------------------------------------------------------------------------------------------
(a) All Other consists of Medeco Security Locks, Inc., which was sold in July 1998. (b) Health Care reflects $5 million in income for gains from the disposition of facilities idled as part of prior unusual charges and the reversal of accruals provided for in previous unusual charges due to actual costs being less than originally estimated. Funeral Services Insurance reflects a $1 million charge related to the realignment of certain operations. Corporate and Other Expense reflects a $7 million charge related to the retirement of the Company's former Chief Executive Officer partially offset by a gain from the disposition of a facility idled as part of a prior unusual charge. (c) Health Care reflects a $25 million charge for work force reduction activities, facility closure costs, certain asset impairment charges and other items. Funeral Services Products reflects a $9 million charge for the closure of a manufacturing facility. Funeral Services Insurance and Corporate and Other Expense reflect certain asset impairment charges. (d) Funeral Services Insurance reflects a $3 million write-off of goodwill related to an asset impairment. (e) Health Care reflects a $70 million charge for the write-off of goodwill, other asset impairment charges and other closing costs related to the discontinuance of manufacturing operations at facilities in Germany and Austria. (f) Other reflects a gain of $75 million on the sale of Medeco Security Locks, Inc. (g) Health Care reflects a $43 million write-off of goodwill related to the discontinuance of manufacturing operations at Hill-Rom facilities in Germany. 40 43 Geographic Information Most of the Company's operations outside the United States are in Europe and consist of the manufacturing, selling and renting of Health Care products. Geographic data for net revenues and long-lived assets (which consist mainly of property, plant, equipment and intangibles) were as follows: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Net revenues to unaffiliated customers: (a) United States $ 1,846 $ 1,816 $ 1,758 Foreign 250 231 243 - -------------------------------------------------------------------------------- Total revenues $ 2,096 $ 2,047 $ 2,001 - -------------------------------------------------------------------------------- Long-lived assets: United States $ 400 $ 391 $ 417 Foreign 53 68 83 - -------------------------------------------------------------------------------- Total long-lived assets $ 453 $ 459 $ 500 - -------------------------------------------------------------------------------- (a) Net revenues are attributed to geographic areas based on the location of the operation making the sale. 11. Income Taxes Income taxes are computed in accordance with SFAS No. 109. The significant components of income (loss) before income taxes and the consolidated income tax provision are as follows: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Income (loss) before income taxes: Domestic $ 222 $ 201 $ 370 Foreign 18 (6) (77) - -------------------------------------------------------------------------------- Total $ 240 $ 195 $ 293 - -------------------------------------------------------------------------------- Provision for income taxes: Current provision: Federal $ 53 $ 79 $ 90 State 7 11 19 Foreign 6 3 4 - -------------------------------------------------------------------------------- Total current provision 66 93 113 - -------------------------------------------------------------------------------- Deferred provision: Federal 20 (20) (4) State (1) (5) - Foreign 1 3 - - -------------------------------------------------------------------------------- Total deferred provision 20 (22) (4) - -------------------------------------------------------------------------------- Provision for income taxes $ 86 $ 71 $ 109 - -------------------------------------------------------------------------------- Differences between the provision for income taxes reported for financial reporting purposes and that computed based upon the application of the statutory U.S. Federal tax rate to reported income before income taxes is as follows: 41 44
- -------------------------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------------------------- % of % of % of Pretax Pretax Pretax Amount Income Amount Income Amount Income - -------------------------------------------------------------------------------------------------- Federal income tax (a) $84 35.0 $68 35.0 $103 35.0 State income tax (b) 4 1.7 4 2.1 12 4.1 Foreign income tax (c) - - 8 4.2 30 10.3 Adjustment of estimated income tax accruals - - 9 4.6 19 6.5 Utilization of foreign net operating losses - - (9) (4.6) (47) (16.1) Other, net (2) (0.6) (9) (4.6) (8) (2.8) - -------------------------------------------------------------------------------------------------- Provision for income taxes $86 36.1 $71 36.7 $109 37.0 - --------------------------------------------------------------------------------------------------
(a) At statutory rate. (b) Net of Federal benefit. (c) Federal tax rate differential. With the 1998 discontinuance of manufacturing operations in Germany and Austria, the Company recognized tax benefits for the majority of operating losses available in such countries, approximating $47 million. During 1999, with the substantial completion of those restructuring activities and the resolution of other related matters, an additional $9 million of tax benefit was recognized. The tax effects of temporary differences that give rise to the deferred tax balance sheet accounts are as follows:
- ------------------------------------------------------------------------------------------------------------ December 2, 2000 November 27, 1999 - ------------------------------------------------------------------------------------------------------------ Non-insurance Insurance Non-insurance Insurance - ------------------------------------------------------------------------------------------------------------ Deferred tax assets: Current: Inventories $ 4 $ - $ 6 $ - Employee benefit accruals 4 - 3 - Self insurance accruals 7 - 9 - Litigation accruals 2 - 2 - Other, net 35 7 48 5 Long-term: Employee benefit accruals 25 1 24 1 Amortization - 1 - 1 Unrealized loss on investments - 44 - 17 Deferred policy revenues - 264 - 251 Foreign loss carryforwards and other tax attributes 11 - 11 - Other, net 5 1 11 - - ------------------------------------------------------------------------------------------------------------ Total assets 93 318 114 275 - ------------------------------------------------------------------------------------------------------------ Deferred tax liabilities: Current: Inventories 1 - 2 - Other, net 3 - 3 - Long-term: Depreciation 32 2 33 3 Amortization - - 2 - Benefit reserves - 17 - 14 Deferred acquisition costs - 194 - 175 Other, net 1 5 1 4 - ------------------------------------------------------------------------------------------------------------ Total liabilities 37 218 41 196 - ------------------------------------------------------------------------------------------------------------ Less valuation allowance for foreign loss and other tax attributes (11) - (11) - - ------------------------------------------------------------------------------------------------------------ Net asset $ 45 $ 100 $ 62 $ 79 - ------------------------------------------------------------------------------------------------------------
42 45 As of December 2, 2000, the Company has available foreign loss carryforwards and other tax attributes of approximately $11 million on a tax-effected basis. The loss carryforwards are subject to varying carryforward periods. Realization of deferred tax assets for the operating loss carryforwards and other tax attributes is dependent upon the generation of sufficient taxable income within the carryback and carryforward periods available in each of the respective foreign tax jurisdictions. There is not currently sufficient positive evidence to support financial statement recognition of the benefits available in the Company's foreign operations. Accordingly, a full valuation allowance of $11 million has been recorded relative to these available tax benefits. It is reasonably possible that sufficient positive evidence may be generated in the near term at one or more of the Company's foreign operations to allow recognition of certain of the available tax benefits. In conjunction with a routine audit by the Internal Revenue Service (IRS) of the Company's 1990-1995 federal income tax returns, the IRS has disallowed significant portions of the deductions associated with the Company's corporate-owned life insurance (COLI) program. The Company continues to believe all tax benefits relative to this program were taken in full compliance with existing and prior year tax laws. The Company has made deposits against the IRS' assessed liability for COLI to preclude the continuing assessment of interest charges while this matter continues to be disputed. The Company is currently undergoing a routine audit cycle by the IRS relative to the 1996 to 1998 tax years. The Company does not believe that the outcome of tax positions taken by the Company during this period, or those related to the COLI program, will have a materially adverse effect on its financial condition, results of operations or cash flows. 12. SUPPLEMENTARY INFORMATION The following amounts were (charged) or credited to income in the year indicated: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Rental expense $ (20) $ (21) $ (21) Research and development costs $ (44) $ (47) $ (46) Investment income, net (a) $ 24 $ 16 $ 19 - -------------------------------------------------------------------------------- (a) Excludes insurance operations. The table below indicates the minimum annual rental commitments (excluding renewable periods) aggregating $54 million, for manufacturing facilities, warehouse distribution centers, service centers and sales offices, under noncancelable operating leases. - -------------------------------------------------------------------------------- 2001 $ 19 2002 $ 14 2003 $ 9 2004 $ 5 2005 $ 3 2006 and beyond $ 4 - -------------------------------------------------------------------------------- The table below provides supplemental information to the Statements of Consolidated Cash Flows. - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Cash paid for: Income taxes $ 81 $ 106 $ 113 Interest $ 32 $ 27 $ 24 Non-cash investing and financing activities: Liabilities assumed from/incurred for the acquisition of businesses $ - $ 1 $ 39 Treasury stock issued under stock compensation plans $ 1 $ 2 $ 1 - -------------------------------------------------------------------------------- 43 46 13. Financial Services Forethought Financial Services, through its subsidiaries, Forethought Life Insurance Company, Forethought Federal Savings Bank, Forethought Life Assurance Company, Arkansas National Life Insurance Company and The Forethought Group, Inc., serves funeral planning professionals with life insurance policies, trust products and marketing support for Forethought(R) funeral planning. Forethought entered the preneed trust market in 1997. This business did not materially affect the financial results of Forethought or Hillenbrand Industries in 2000 or in prior years. In November 1999, Forethought National TrustBank was merged into Forethought Federal Savings Bank, as required with the granting of the savings bank charter. Investments are predominantly U.S. Treasuries and agencies and high-grade corporate bonds, with smaller investments in equities and foreign denominated securities. Investments 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 constantly monitored to ensure assets match the expected payment of the liabilities. Securities are also sold in other carefully constrained circumstances such as concern about the credit quality of the issuer. Cash (unrestricted as to use) is held for future investment. The amortized cost and fair value of investment securities available for sale at December 2, 2000 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, Canada and other countries $ 584 $ 7 $ 13 $ 578 Corporate securities and short term investments 1,723 8 127 1,604 Mutual funds and short term equities 85 - 4 81 Preferred and common stocks 50 11 4 57 - ------------------------------------------------------------------------------------------------------------------- Total (a) $ 2,442 $ 26 $ 148 $ 2,320 - -------------------------------------------------------------------------------------------------------------------
The amortized cost and fair value of investment securities available for sale at November 27, 1999 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, Canada and other countries $ 846 $ 5 $ 41 $ 810 Corporate securities and short term investments 1,329 2 24 1,307 Mutual funds and short term equities 24 9 - 33 Preferred and common stocks 20 5 1 24 - ------------------------------------------------------------------------------------------------------------------- Total (a) $ 2,219 $ 21 $ 66 $ 2,174 - -------------------------------------------------------------------------------------------------------------------
(a) Does not include the amortized cost of other investments carried on the balance sheet in the amount of $145 million at December 2, 2000 and $137 million at November 27, 1999. The carrying value of which approximates fair value. The amortized cost and fair value of investment securities available for sale at December 2, 2000, 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. 44 47 - -------------------------------------------------------------------------------- Amortized Fair Cost Value - -------------------------------------------------------------------------------- Due in one year or less $ 109 $ 108 Due after 1 year through 5 years 254 247 Due after 5 years through 10 years 465 425 Due after 10 years 902 825 Mortgage-backed securities 577 577 Mutual funds and short term equities 85 81 Preferred and common stocks 50 57 - -------------------------------------------------------------------------------- Total $ 2,442 $ 2,320 - -------------------------------------------------------------------------------- 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: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Proceeds $ 428 $ 487 $ 364 Realized gross gains $ 13 $ 26 $ 24 Realized gross losses $ 14 $ 3 $ 4 - -------------------------------------------------------------------------------- Summarized financial information of insurance operations included in the Statement of Consolidated Income is as follows: - -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Investment income $ 176 $ 156 $ 138 Earned premium revenue 192 176 151 Net (loss) gain on sale of investments (1) 23 20 - -------------------------------------------------------------------------------- Total net revenues 367 355 309 Benefits paid 87 81 71 Credited interest 153 145 123 Other costs of revenue 60 47 39 Unusual charges 1 3 - Other operating expenses 33 37 23 - -------------------------------------------------------------------------------- Income before income taxes $ 33 $ 42 $ 53 - -------------------------------------------------------------------------------- Insurance liabilities consisted of the following:
- -------------------------------------------------------------------------------------------------------------------- Mortality or Interest Withdrawal Morbidity Rate Assumptions Assumptions Assumptions 2000 1999 - -------------------------------------------------------------------------------------------------------------------- Life Insurance Varies by Varies by Varies by age $2,231 $2,051 Contracts age/plan/duration age/plan/duration and issue year SP: up to 0.2% 1979-81 US Census MP: up to 60%; Mortality Table 3% to 5.5% avg. 5%-10% in Equals ultimate; duration 1 Select = % of 1979-81 table - -------------------------------------------------------------------------------------------------------------------- Annuity Contracts Varies by Varies by Varies by age 45 41 age/plan/duration age/plan/duration and issue year SP: up to 0.2% 1979-81 US Census MP: up to 60%; Mortality Table 4% to 8.75% avg. 5%-10% in Equals ultimate; duration 1 Select = % of 1979-81 table - -------------------------------------------------------------------------------------------------------------------- Total Benefit $2,276 $2,092 Liabilities - --------------------------------------------------------------------------------------------------------------------
45 48 Statutory data at December 31 includes: - -------------------------------------------------------------------------------- 2000 (unaudited) 1999 1998 - -------------------------------------------------------------------------------- Net income $ 33 $ 38 $ 35 Capital and surplus $ 276 $ 234 $ 153 - -------------------------------------------------------------------------------- Forethought Life Insurance Company (FLIC), Forethought Life Assurance Company (FLAC), and Arkansas National Life Insurance Company (ANLIC) are restricted in the amount of dividends that they can distribute to their shareholders without approval of the department of insurance in their respective states of domicile. On January 2, 2001 Forethought Life Insurance Company paid a dividend of $24 million to Hillenbrand Industries, Inc. The remaining amount of dividends that can be paid in fiscal year 2001 without approval is $1 million for FLIC and FLAC, respectively, and $2 million for ANLIC. In 1998, the National Association of Insurance Commissioners (NAIC) adopted Codification of Statutory Accounting Principles guidance, which replaces the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting as of January 1, 2001. The Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas; e.g. deferred income taxes are recorded. The State of Indiana has adopted the Codification guidance, effective January 1, 2001. The effect of adoption on the Company's statutory surplus is not expected to have a material effect on surplus. 14. Unaudited Quarterly Financial Information
- ------------------------------------------------------------------------------------------------------- Total 2000 Quarter Ended 2/26/00 5/27/00 8/26/00 12/02/00 Year (53 weeks) - ------------------------------------------------------------------------------------------------------- Net revenues $514 $503 $492 $587 $2,096 Gross profit 195 193 192 246 826 Net income 36 36 34 48 154 Basic and diluted net income per common share .58 .56 .54 .76 2.44 - ------------------------------------------------------------------------------------------------------- Total 1999 Quarter Ended 2/27/99 5/29/99 8/28/99 11/27/99 Year - ------------------------------------------------------------------------------------------------------- Net revenues $516 $524 $481 $526 $2,047 Gross profit 204 204 175 193 776 Net income 45 35 23 21 124 Basic and diluted net income per common share .67 .53 .35 .32 1.87 - -------------------------------------------------------------------------------------------------------
15. Contingencies On August 16, 1995, Kinetic Concepts, Inc. (KCI), 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. 46 49 On November 20, 1996, the Company filed a Counterclaim to the above action against 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. The original claims by the plaintiffs against Hillenbrand Industries and the counterclaims by the Company against KCI are currently scheduled to go to trial in late 2001. 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, employee related matters, safety, health, taxes, environmental and other matters. Litigation is subject to many uncertainties, and the outcome of individual litigated matters is not predictable with assurance. It is reasonably possible that some litigation matters for which reserves have not been established could be decided unfavorably to the Company. Management believes, however, 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. The Company has voluntarily entered into remediation agreements with environmental authorities, and has been issued Notices of Violation alleging violations of certain permit conditions. Accordingly, the Company is in the process of implementing plans of abatement in compliance with agreements and regulations. The Company has also been notified as a potentially responsible party in investigations of certain offsite disposal facilities. The cost of all plans of abatement and waste-site cleanups in which the Company is currently involved is not expected to exceed $5 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. Changes in environmental law might affect the Company's future operations, capital expenditures and earnings. The cost of complying with these provisions, if any, is not known. 16. Subsequent Event On January 22, 2001, Hill-Rom announced that it would realign its home care and long-term care businesses. As a result, the Company expects to take a charge of between $9 million and $12 million in the first quarter of 2001. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with the independent accountants. 47 50 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 March 2, 2001, and to be filed with the Commission relating to the Company's 2001 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 March 2, 2001, and to be filed with the Commission relating to the Company's 2001 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 March 2, 2001, and to be filed with the Commission relating to the Company's 2001 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 March 2, 2001, and to be filed with the Commission relating to the Company's 2001 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 21. (2) Financial Statement Schedules The financial statement schedule filed in response to Item 8 and Item 14(d) of Form 10-K is listed on the Index to Consolidated Financial Statements on page 21. 48 51 (3) Exhibits The following exhibits have been filed as part of this report in response to Item 14(c) of Form 10-K: 3.1 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) 3.2 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 and as amended and filed with Form 10-Q for the quarter ended February 27, 1999) 10.2 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 and as amended and filed with Form 10-Q for the quarter ended February 27, 1999) 10.3 Hillenbrand Industries, Inc. Split Dollar Life Insurance Plan (Incorporated herein by reference to Exhibit 10 filed with Form 10-K for the year ended November 27, 1999) 10.4 Form of Stock Award granted to certain executive officers. (Incorporated herein by reference to Exhibit 10 filed with Form 10-K for the year ended November 27, 1999) 10.5 Agreement between W August Hillenbrand and Hillenbrand Industries, Inc. 10.6 Hillenbrand Industries, Inc. Director Indemnity Agreement Other Exhibits 21 Subsidiaries of the Registrant 23 Consent of Independent Accountants (b) Reports on Form 8-K During the quarter ended December 2, 2000, the Company filed two reports on Form 8-K. The Form 8-K dated October 11, 2000 reported under "Item 5. Other Events" the Company's announcement that W August Hillenbrand, Chief Executive Officer of Hillenbrand Industries, Inc., had announced his retirement effective December 2, 2000. The Form 8-K dated November 13, 2000 reported under "Item 5. Other Events" the Company's announcement that Donald G. Barger, Jr., Vice President and Chief Financial Officer, had accepted a position with another company. 49 52 SCHEDULE II HILLENBRAND INDUSTRIES, INC. AND SUBSIDIARIES Valuation and Qualifying Accounts For The Years Ended December 2, 2000, November 27, 1999 and November 28, 1998 (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: December 2, 2000 $ 54 $ 3 $ 44 $ 40 $ 61 ========== ========== ========= ========== ========== November 27, 1999 $ 29 $ 10 $ 27 $ 12 $ 54 ========== ========== ========= ========== ========== November 28, 1998 $ 25 $ 1 $ 13 $ 10 $ 29 ========== ========== ========= ========== ==========
(a) Reduction of gross revenues for uncollectable health care rental reimbursements, cash discounts and other adjustments in determining net revenue. Also includes the effect of acquisition of businesses. (b) Generally reflects the write-off of specific receivables against recorded reserves. 50 53
ADDITIONS ------------------------- BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS BALANCE BEGINNING COSTS AND OTHER NET OF AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES OF PERIOD - ------------------------------ --------- -------- -------- ---------- --------- Allowances for unusual charges: Year Ended: December 2, 2000 Severance and Employee Benefit Costs $ 9 $ 1 $ - $ 8 $ 2 Other Plant Closing Costs $ 4 $ - $ - $ 3 $ 1 Field Corrective Action $ 8 $ - $ - $ 4 $ 4 Retirement of CEO $ - $ 8 $ - $ - $ 8 ---------- ---------- --------- ---------- ---------- $ 21 $ 9 $ - $ 15 $ 15 ========== ========== ========= ========== ========== November 27, 1999 Inventory $ 3 $ - $ - $ 3 $ - Severance and Employee Benefit Costs $ 10 $ 11 $ - $ 12 $ 9 Other Plant Closing Costs $ 7 $ 4 $ - $ 7 $ 4 Field Corrective Action $ - $ 8 $ - $ - $ 8 ---------- ---------- --------- ---------- ---------- $ 20 $ 23 $ - $ 22 $ 21 ========== ========== ========= ========== ==========
51 54 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/ Frederick W. Rockwood ----------------------------------------- Frederick W. Rockwood President and Chief Executive Officer Dated: February 19, 2001 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/ Ray J. Hillenbrand /S/ John C. Hancock - -------------------------------------- ------------------------------------ Ray J. Hillenbrand John C. Hancock Chairman of the Board Director /S/ James D. Van De Velde /S/ Daniel A. Hillenbrand - -------------------------------------- ------------------------------------ James D. Van De Velde Daniel A. Hillenbrand Vice President and Controller Chairman Emeritus and Director /S/ Lawrence R. Burtschy /S/ George M. Hillenbrand II - -------------------------------------- ------------------------------------ Lawrence R. Burtschy George M. Hillenbrand II Director Director /S/ Peter F. Coffaro /S/ John A. Hillenbrand II - -------------------------------------- ------------------------------------ Peter F. Coffaro John A. Hillenbrand II Director Director /S/ Edward S. Davis /S/ W August Hillenbrand - -------------------------------------- ------------------------------------ Edward S. Davis W August Hillenbrand Director Director /S/ Leonard Granoff /S/ Frederick W. Rockwood - -------------------------------------- ------------------------------------ Leonard Granoff Frederick W. Rockwood Director Director Dated: February 19, 2001 52 55 HILLENBRAND INDUSTRIES, INC. INDEX TO EXHIBITS 3.1 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) 3.2 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 and as amended and filed with Form 10-Q for the quarter ended February 27, 1999.) 10.2 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 and as amended and filed with Form 10-Q for the quarter ended February 27, 1999.) 10.3 Hillenbrand Industries, Inc. Split Dollar Life Insurance Plan (Incorporated herein by reference to Exhibit 10 filed with Form 10-K for the year ended November 27, 1999) 10.4 Form of Stock Award granted to certain executive officers. (Incorporated herein by reference to Exhibit 10 filed with Form 10-K for the year ended November 27, 1999) 10.5 Agreement between W August Hillenbrand and Hillenbrand Industries, Inc. 10.6 Hillenbrand Industries, Inc. Director Indemnity Agreement 21 Subsidiaries of the Registrant 23 Consent of Independent Accountants 53 EX-3.2 2 c60266ex3-2.txt FORM OF AMENDED BYLAWS 1 EXHIBIT 3.2 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. 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. 1 2 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 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. 2 3 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 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. 3 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. 4 5 Section 3.11. Notice of Shareholder Business. At any meeting of the shareholders, only such business may be conducted as shall have been properly 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 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. 5 6 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 eleven (11) 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. 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 - Four 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 notice, the acceptance of the resignation shall not be necessary to make it effective. 6 7 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 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. 7 8 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 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. 8 9 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 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. 9 10 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. 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. 10 11 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. In general, he shall have such powers and perform such duties as are incident to the office of the President and Chief Executive Officer of a business corporation and shall, in addition, have such other and further powers and perform such other 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. 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 6.9. 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 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. 11 12 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. 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. 12 13 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 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. 13 EX-10.5 3 c60266ex10-5.txt AGREEMENT 1 EXHIBIT 10.5 AGREEMENT THIS AGREEMENT (the "Agreement") is made and entered into as of the tenth (10th) day of October, 2000 (the "Effective Date"), by and between W August Hillenbrand ("Executive") and Hillenbrand Industries, Inc., an Indiana corporation (the "Company"). STATEMENT OF PURPOSE Executive serves as Chief Executive Officer of the Company and intends to retire from his position as Chief Executive Officer on December 2, 2000. He shall continue to serve as a member of the Board of Directors of the Company and shall make himself available as a consultant to the Company. Executive's employment with the Company and service as Chief Executive Officer shall cease on December 2, 2000 (the "Date of Termination"). The Company and Executive wish to confirm in this Agreement that Executive's employment shall terminate and to specify the payments and other benefits that shall be provided to Executive by the Company under documents, contracts and plans, as well as certain other consideration, and to settle in full all matters relating to Executive's employment with the Company. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, the parties hereto agree as follows: 1. Termination of Employment; Payments. (a) The Company and Executive acknowledge that Executive shall serve as an officer and employee of the Company, and shall remain on the Company's payroll and receive base salary at an annual rate of $902,700, through the Date of Termination, at which date Executive's employment with the Company shall be terminated, and Executive shall receive any bonus due him as Chief Executive Officer for the fiscal year 2000, payable in a lump sum on or before February 28, 2001. In addition, Executive shall receive payments and benefits as provided in this Agreement, including, without limitation, the payments and benefits described in the following subsections of this Section 1. (b) In consideration of Executive's obligations under Sections 11(b) and (c) and 15 below, commencing on the Date of Termination and ending on September 18, 2005 (the "Consulting/Noncompetition Period"), Executive shall receive compensation of $34,911.54 biweekly, annualized at $907,700. Executive and the Company hereby agree that $227,000 of the annualized payments is for Executive's obligations under Section 11(b) and (c) below, and $680,700 of the annualized payments is for Executive's obligations under Section 15 below. (c) In consideration of Executive's obligations under Section 11(b) and (c) below, payouts in respect of performance share awards shall be made based on actual results for full cycles as follows: on or before February 28, 2002 for the 1999-2001 cycle; on or before February 28, 2003 for the 2000-2002 cycle. (d) On the first day of the first calendar month that commences after the end of the Consulting/Noncompetition Period, payment of retirement benefits shall commence as provided in Section 4 below. 1 2 (e) In the event of Executive's death before payments due under Section 1(b) or 1(c) above are completed, remaining payments shall become due and payable to Executive's beneficiary (or estate, as the case may be) in a lump sum, without discount and in the case of payments due under Section 1(c) above, assuming achievement in full of target goals for full cycles. 2. Continuation of Medical and Dental Benefits. For the remainder of Executive's life and that of his spouse, the Company shall continue to provide Executive and his spouse with medical and dental benefits on no less favorable a basis than such benefits are provided to other senior executives of the Company. In the event that Executive or his spouse shall cease to be eligible for coverage under any plan or program of the Company, the Company shall pay Executive no less frequently than quarterly in advance an amount which is sufficient for Executive to purchase coverage equivalent to that otherwise required to be provided pursuant to this Section 2. 3. Stock Awards. Executive has been granted stock options on the Company's common stock under the 1996 Stock Option Plan. The Company agrees that all stock options, to the extent not already exercisable, shall become exercisable as of the Date of Termination and that all stock options shall remain exercisable through their respective originally scheduled expiration dates. 4. Retirement Benefit. (a) Executive shall be entitled to a retirement benefit under the Hillenbrand Industries, Inc. Pension Plan (the "Pension Plan") and the Hillenbrand Industries, Inc. Senior Executive Compensation Program (the "SECP") as in effect on the Effective Date, provided, however, that (i) the retirement benefit payments shall commence on the first day of the first calendar month that commences after the end of the Consulting/Noncompetition Period, (ii) the retirement benefit payments shall not be reduced for commencement prior to Executive's Normal Retirement Age (as defined in the Pension Plan), (iii) for purposes of determining the retirement benefit payments, Executive shall be credited with the number of years of Credited Service (as defined in the Pension Plan) that he would have had if he had continued to be employed by the Company until Normal Retirement Age, and (iv) for purposes of determining the amount of the retirement benefit payments, $902,700 of the annual payments made pursuant to Section 1(b) above shall be included in the computation of Average Monthly Earnings (as defined in the Pension Plan). (b) To the extent that any retirement benefit payment determined as provided in this Section 4 cannot be made under either the Pension Plan or the SECP, such payment shall be made pursuant to this Section 4. 2 3 5. Deferral Program. Pursuant to the terms of the SECP as supplemented by the policies and practices of the Company, Executive has deferred certain amounts of base salary, incentive compensation and/or perquisite compensation, resulting in a Deferred Compensation Account ("DCA") for Executive, credited in part at a prime interest rate and in part at a rate equal to the change in the S&P 500 index (which includes, for clarification, reinvested dividends). Further, under the SECP, certain amounts of "Performance Share Compensation", as defined in the SECP, have been deferred, resulting in a Deferred Stock Ownership Program ("DSOP") for Executive, which are assumed to be invested in common stock of the Company. The Company agrees that any unvested stock in the DSOP shall vest and become nonforfeitable on the Date of Termination. The Company further agrees that Executive shall, both before and after the Date of Termination, continue to be eligible to continue to defer the deferred funds in the DCA and the stock in the DSOP on the Date of Termination until November 30, 2019, under the same terms and conditions as are available to continuing senior executives. To the extent that the Company's deferral plans do not permit such continued deferral arrangements, Executive shall be provided with equivalently beneficial deferral arrangements under this Agreement. 6. Other Benefits. In addition to the foregoing, in consideration of Executive's obligations under Section 11(b) and (c) below, the Company agrees as follows: (a) The Company shall through the Consulting/Noncompetition Period continue to provide Executive with perquisites and perquisite compensation (including, without limitation, a car allowance) on no less favorable a basis than the basis on which Executive received such benefits as of the Effective Date. (b) The Split Dollar Life Insurance Agreement ("Split Dollar Agreement") between the Company and Executive dated as of March 11, 1998 shall continue in effect until the date Executive reaches age 72 or, if later, the date on which the difference between (i) the cash value of the life insurance policy attached to the Split Dollar Agreement as Exhibit A to such Agreement (the "Policy") and (ii) the Company's total net outlay with respect to the Policy is sufficient to fully fund a death benefit in the amount of $5 million. In this regard, the Company and Executive shall continue to pay premiums on the Policy as contemplated in the Split Dollar Agreement and the Policy. (c) The Company shall, at its sole expense, provide Executive for life with: (i) an office, comparable in both quality and location to Executive's office as of the Effective Date; (ii) a secretary, who may be his current secretary or another secretary of his choosing; and (iii) security systems and services on no less favorable a basis than the basis as of the Effective Date. (d) As of the Date of Termination, the Company shall transfer ownership to Executive of his current office furniture and equipment (as well as any home-office equipment supplied by the Company). (e) Following the Date of Termination, the Company shall continue to take telephone, e-mail and other messages for Executive and forward such messages and any personal mail received by the Company addressed to him (other than mail relating to the Company's business and not to Executive in his personal capacity). 3 4 (f) Executive shall, through the Consulting/Noncompetition Period, and thereafter to the extent reasonable (as determined by the Company), continue to have access to the use of Company aircraft on no less favorable a basis than such access and use are made available to other senior executives of the Company for personal use. The use of Company aircraft shall be for Executive's individual personal use only and he shall reimburse the Company for such use in the same manner as he had reimbursed the Company in the past. In the event the Company determines to lease aircraft rather than own aircraft, Executive shall continue to have access to the use of such leased aircraft on a basis no less favorable than such access and use are made available to other senior executives of the Company for personal use, and Executive shall reimburse the Company based on the actual leasing cost to the Company for the aircraft. (g) The Company shall promptly reimburse to Executive any reasonable business expenses properly incurred before the Date of Termination in accordance with the Company's expense reimbursement policies and practices. 7. Tax Withholding and Reporting. The Company shall be entitled to withhold from the benefits and payments described herein all federal, state and local taxes required to be withheld by applicable law. 8. Release of the Company. Executive agrees that on the Date of Termination he will execute and deliver to the Company the Release attached hereto as Exhibit A. Any revocation by Executive of such Release during the revocation period provided for therein shall cancel any and all undertakings, promises, and obligations of the Company set forth in this Agreement. Provision to Executive by the Company of the considerations provided for in this Agreement shall be conditional upon Executive not revoking the Release. 9. Release of Executive. In consideration of Executive's entering into this Agreement and only to the extent permitted by applicable law, the Company, for itself, its affiliates, their respective predecessors and successors, and all of the present and former directors, officers, employees, agents, representatives, successors and assigns of any of the foregoing, hereby releases and forever discharges Executive and his heirs, personal representatives, successors and assigns from any and all claims, demands, damages, actions, and causes of action, of whatever kind or nature, in law, equity or otherwise, that the Company or any of said persons or entities now has, may ever have had or may have hereafter upon or by reason of any matter, cause or thing occurring, done or omitted to be done prior to the Effective Date, including without limitation all rights and claims the Company or any of said persons or entities have or might have as a result of Executive's status as an officer, director, agent, representative or employee of the Company or any of said entities or the termination of that status; provided, however, that this release shall not apply to (i) any claim by the Company for repayment of costs and expenses advanced to Executive pursuant to Section 10 of this Agreement to the extent that it is ultimately determined that Executive is not entitled to be indemnified against such costs and expenses or (ii) any rights the Company may have to obtain contribution in the event of the entry of judgment against the Company as a result of any act or failure to act for which both Executive and the Company are jointly responsible. As of the Effective Date, the Company has no knowledge of any claim, or potential claim, against Executive arising out of any of the events described above. 10. Indemnification. (a) If Executive is made a party, or is threatened to be made a party, to any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that he was a director, officer, employee, consultant, representative or agent of the Company or was serving at the request of the Company as director, officer, member, employee, consultant, representative or agent of another corporation, 4 5 partnership, joint venture, trust or other entity or enterprise, including service with respect to employee benefit plans, or if any claim, demand, threat, discovery request, or request for testimony or information (a "Claim") is made or is threatened to be made that arises out of or relates to Executive's service in any of the foregoing capacities, Executive shall be indemnified and held harmless by the Company to the fullest extent permitted or authorized by the Company's certificate of incorporation, bylaws or the laws of the State of Indiana against any and all costs, expenses, liabilities and losses (including without limitation, attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by Executive in connection therewith, and such indemnification shall continue as to Executive even though he has ceased to be a director, officer, member, employee, consultant, representative or agent of the Company or other entity and shall inure to the benefit of Executive's heirs, executors and administrators. To the extent permitted or authorized by the Company's certificate of incorporation, bylaws, or the laws of the State of Indiana the Company shall advance to Executive all costs and expenses incurred by him in connection with any such Proceeding or Claim promptly after receipt by the Company of a written request for such advance. Such request shall, to the extent required by law, include an undertaking by Executive to repay the amount advanced to the extent that it is ultimately determined that he is not entitled to be indemnified against such costs and expenses. (b) The Company agrees to provide Executive with coverage under its directors' and officers' liability insurance policy until such time as suits against Executive are no longer permitted by law, to the extent and in the amount that such coverage is then being provided to any other present or former directors, or present or former senior executives, of the Company. 11. Confidentiality; Non-Competition. (a) Executive shall not at any time without the prior approval of the Company disclose to any person, firm, corporation or other entity any trade secret, confidential customer information, or other Confidential Information, except in the ordinary course of carrying out his duties under this Agreement or if ordered to so disclose by a court or government agency with apparent jurisdiction. For purposes of this Agreement, the term "Confidential information" shall mean any proprietary information not known within the industry or by the public generally regarding the business then being conducted by the Company, including, without limitation, financial information, marketing and sales information and business and strategic plans. (b) Executive shall not at any time without the prior approval of the Company during the Consulting/Noncompetition Period, directly or indirectly (either individually or as an agent, employee, director, officer, stockholder, partner or individual proprietor, consultant or as an investor who has made advances on loan capital or contributions to equity capital), engage in any activity which he knows (or reasonably should have known) to be competitive with the business of the Company as being carried on both at the Date of Termination and at the future date in question. Nothing in this Agreement, however, shall prevent Executive from owning, as an investment, up to two (2%) percent of the outstanding capital stock of any competitor of the Company, shares of which are regularly traded on a national securities exchange or in over-the-counter markets. (c) Executive shall not at any time without the prior approval of the Company during the Consulting/Noncompetition Period solicit any persons who are employed by the Company to terminate their employment with the Company (other than secretarial or clerical employees). 5 6 (d) For purposes of this Section 11, the term "Company" includes any corporation more than 50% of the voting stock of which is owned, directly or indirectly, by the Company. 12. Mutual Nondisparagement. Executive shall not knowingly make any public statement that disparages or defames the Company or any of its directors or officers. The Company shall not knowingly make any public statement that disparages or defames Executive. Notwithstanding the foregoing, nothing in this Section 12 shall prohibit any person from (x) making truthful statements when required by law or by order of a court or other body having jurisdiction or (y) responding publicly to incorrect, disparaging or derogatory public statements made in violation hereof to the extent reasonably necessary to correct or refute such public statements. 13. Resolution of Disputes. Any dispute arising under or relating to this Agreement, any other agreement to which Executive and the Company or any of its affiliates are parties, Executive's employment with the Company, or the termination of such employment shall, at the election of Executive or the Company, be resolved by binding arbitration, to be held in Indianapolis, Indiana in accordance with the Commercial Arbitration Rules (and not the National Rules for the Resolution of Employment Disputes) of the American Arbitration Association. Judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Each party shall pay its own costs and expenses relating to any such dispute, including, without limitation, attorneys' fees. 14. No Mitigation; No Offset. Executive shall be under no obligation to seek other employment and there shall be no offset against amounts due to him on account of any remuneration or benefit attributable to any subsequent employment that he may obtain or on account of any claim the Company may assert against him. 15. Consulting Services. Until the end of the Consulting/Noncompetition Period, Executive shall make himself available, upon reasonable notice, to provide such advice as may from time to time be reasonably requested by the Company, provided, however, that the rendering of any such advice shall be subject to Executive's personal and business commitments. Executive shall be reimbursed on a fully-tax-grossed-up basis for any reasonable out-of-pocket expenses that he incurs in connection with providing such advice. 16. Notices. All notices, requests, demands or other communications under this Agreement shall be in writing and shall be deemed to have been duly given (x) when delivered in person, (y) five days after being deposited in the United States mail, postage prepaid, by registered or certified mail, return receipt requested and addressed as set forth below, and two (2) days after being sent via nationally-recognized overnight courier service to the party to whom such notice is being given addressed as set forth below: If to Executive: 334 North Huntersville Road Batesville, Indiana 47006 If to the Company: 700 State Route, 46 East Batesville, Indiana 47006 Attention: General Counsel Either party may change his or its address or the name of the person to whose attention the notice or other communication shall be directed from time to time by serving notice thereof upon the other party as provided herein. 6 7 17. Miscellaneous. (a) This Agreement, and the rights and obligations of the parties hereto, shall be governed by and construed in accordance with the laws of the State of Indiana, without regard to principles of conflicts of laws. (b) If any provision hereof is unenforceable, such provision shall be fully severable, and this Agreement shall be construed and enforced as if such unenforceable provision had never comprised a part hereof. The remaining provisions hereof shall remain in full force and effect and the arbitrators or court construing the Agreement shall add as a part hereof a provision as similar in terms and effect to such unenforceable provision as may be enforceable, in lieu of the unenforceable provision. (c) No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing that is signed by Executive and an officer of the Company. No waiver by any party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time. (d) The headings of sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. (e) This Agreement (which includes for all purposes its Exhibits), and the agreements, plans, contracts, documents, programs and arrangements described or referenced herein, contain the entire agreement between the Company and Executive in respect of the subject matter hereof, and supersede any previous agreements or contracts in respect of such subject matter that are not so described or referenced herein. (f) As used in this Agreement, the term "affiliate" means any entity which controls, is controlled by, or is under common control with the Company. (g) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. (h) Neither this Agreement nor any right or obligation hereunder may be transferred or assigned by Executive (other than by will or by operation of law) without the prior written consent of the Company. Notwithstanding the foregoing, Executive shall be entitled, to the extent permitted under applicable law and applicable Company plans, to select and change a beneficiary or beneficiaries to receive any compensation or benefit hereunder following Executive's death by giving the Company written notice thereof. (i) In the event of Executive's death or a judicial determination of his incompetence, references in this Agreement to Executive shall be deemed, where appropriate, to refer to his beneficiary, estate or other legal representative. (j) No rights or obligations of the Company under this Agreement may be assigned or transferred by the Company except that such rights or obligations may be assigned or transferred pursuant to a merger or consolidation in which the Company is not the continuing entity, or the sale or liquidation of all or substantially all of the assets of the Company, provided that the assignee or transferee is the successor to all or substantially all of the assets of the Company and such assignee or transferee assumes the liabilities, obligations and duties of the Company as contained in this Agreement, either contractually or as a matter of law. The Company further agrees to require any successor (whether direct or indirect, by 7 8 purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company in one or more related transactions expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. (k) As used in this Agreement other than in Section 11, the term "Company" shall mean (x) the Company as defined in the preamble to this Agreement, (y) any entity that assumes or agrees to perform this Agreement, by operation of law or otherwise, and (z) any successor to all or substantially all of the business or assets of any of the foregoing. 18. Representations of the Company. The Company represents and warrants to Executive that the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized on behalf of the Company by its Board of Directors; that this Agreement does not violate any other agreement to which the Company is a party or any applicable law; that all action required to be taken by the Company or any other person or entity for the execution, delivery and performance of this Agreement has been duly and effectively taken; that any action required to be taken by the Board of Directors or any person or committee responsible for administering any plan of the Company to amend, interpret or otherwise act with respect to such plans, has been duly and effectively taken; and that this Agreement is legal, valid and binding, and enforceable in accordance with its terms, except as may be limited by applicable bankruptcy, insolvency or similar laws. The Company acknowledges that Executive has relied upon such representations and warranties in entering into this Agreement. 19. Counterpart. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. Signatures delivered by facsimile shall be effective for all purposes. 8 9 IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this Agreement to be executed by its duly authorized representative, all as of the date first above written. Witness: /s/ Merrilee W. Heinlein /s/ W August Hillenbrand - ----------------------------------- -------------------------------------- W August Hillenbrand HILLENBRAND INDUSTRIES, INC. By: /s/ Frederick W. Rockwood ------------------------------------- Name: Frederick W. Rockwood Title: President 9 10 EXHIBIT A RELEASE In consideration of the covenants, promises and undertakings set forth in the Agreement, dated as of October 10, 2000, between W August Hillenbrand ("Executive") and Hillenbrand Industries, Inc., an Indiana corporation (the "Agreement"), acceptance of which is hereby acknowledged, Executive, on behalf of himself and his heirs, estate, executors, administrators, personal representatives, successors and assigns, hereby releases and forever discharges the Company, any successor to the Company, and any of their present, former and future owners, partners, affiliates, subsidiaries, successors, directors, officers, employees, agents, representatives, attorneys, heirs, and assigns (the "Released Parties"), from and against any and all claims, demands, damages, actions, causes of action, costs, expenses, obligations and liabilities of whatever kind or nature, in law, equity or otherwise, which Executive now has, may ever have had or may have hereafter with respect to the Released Parties, whether known or unknown from the beginning of time to the date of the Release. Without limiting the generality of the foregoing release, Executive releases the Released Parties from any and all known and unknown Employment Related Claims (as defined below) occurring from the beginning of time to the date of this Release, whether based on contract, tort, or employment discrimination laws, including, but not limited to any and all claims arising under the Worker Adjustment and Retraining Notification Act, the Age Discrimination in Employment Act of 1967 ("ADEA"), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Rehabilitation Act of 1973, the Civil Rights Act of 1866, the Civil Rights Act of 1991, the Employee Retirement Income Security Act of 1974, the Family and Medical Leave Act, as each such act and law may be amended, or any other federal or state or local labor law, civil rights law, or human rights law, and whether or not Executive is presently aware of the existence of such claim, damage, action and cause of action, suit or demand; provided, however, that this Release shall not apply to any claims which Executive may have for the payments or provision of the benefits under the Agreement, or under any agreements, plans, contracts, documents or programs described or referenced in the Agreement, and provided, further, that this Release shall not apply (i) to Executive's eligibility for indemnification in accordance with the Agreement, any other agreement, any insurance policy and applicable laws and the corporate bylaws of the Company with respect to his employment with or service as an officer, director or employee of the Company or in any other capacity on behalf of the Company or its affiliates or (ii) to any rights Executive may have to obtain contribution in the event of the entry of judgment against him as a result of any act or failure to act for which both Executive and the Company are jointly responsible. As of the date hereof, Executive has no knowledge of any claim, or potential claim, against the Company arising out of any of the events described in this Release. For purposes of this Release, "Employment Related Claims" means all rights and claims Executive has or may have related to his employment by or status as an employee, officer or director of the Company or any of its affiliates or to the termination of that employment or status or to any employment practices and policies of the Company or its affiliates. Executive acknowledges and agrees that he has read this Release in its entirety and that this Release is a general release of all known and unknown claims, including rights and claims arising under ADEA. Executive and the Company further acknowledge and agree that: (i) This Release does not release, waive or discharge any rights or claims that may arise for actions or omissions after the date hereof; (ii) Executive has entered into the Agreement and is releasing, waiving and discharging rights or claims hereunder only in exchange for consideration which he is not already entitled to receive; (iii) Executive has been advised, and is being advised by this Release, to consult with an attorney before executing this Agreement; 1 11 (iv) Executive has been advised, and is being advised by this Release, that he has up to twenty-one (21) days within which to consider this Release; and (v) Executive is aware that this Release shall not become effective or enforceable until seven (7) days following his execution of this Release and that he may revoke this Release at any time during such period by delivering (or causing to be delivered) to the Company at the address provided in Section 16 of the Agreement written notice of his revocation of this Release no later than 5:00 p.m., central time on the seventh (7th) day following the day on which he executes this Release. Any such revocation by Executive shall cancel any and all undertakings, promises, and obligations of the Company set forth in the Agreement. Provision to Executive by the Company of the considerations provided for in the Agreement shall be conditional upon Executive not revoking this Release. December 2, 2000 ---------------------------- W August Hillenbrand Subscribed and sworn to before me this ______ day of December, 2000. - ----------------------------------- Notary Public 2 EX-10.6 4 c60266ex10-6.txt DIRECTOR INDEMNITY AGREEMENT 1 EXHIBIT 10.6 DIRECTOR INDEMNITY AGREEMENT THIS AGREEMENT is made as of October 10, 2000 by and between Hillenbrand Industries, Inc., an Indiana corporation (the "Corporation"), and _____________________ (the "Director") residing at ___________________________. WHEREAS, the Corporation is aware that competent and experienced persons are increasingly reluctant to serve as directors of corporations unless they are protected by director liability insurance and/or indemnification, due to the increasing amount of litigation against directors and the increasing expense of defending such claims, and due to the fact that the exposure frequently bears no reasonable relationship to the compensation of such directors; and WHEREAS, it is essential to the Corporation to retain and attract as directors the most capable and qualified persons available; and WHEREAS, it is now and has been the express policy of the Corporation to indemnify its directors so as to provide them with the maximum possible protection permitted by law; and WHEREAS, the Corporation's articles of incorporation and the Indiana Business Corporation Law, by their nonexclusive nature, permit contracts between the Corporation and its directors with respect to indemnification of directors. NOW, THEREFORE, the Corporation and the Director agree as follows: 1. Definitions. As used in this Agreement: (a) "expenses" includes all direct and indirect costs of any type or nature whatsoever (including, without limitation, all attorneys' fees and related disbursements and other out-of-pocket costs) actually and reasonably incurred by the Director in connection with the investigation, defense, settlement or appeal of a proceeding or establishing or enforcing a right to indemnification or advancement of expenses under this Agreement; provided, however, that expenses shall not include any judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement of a proceeding. (b) "proceeding" includes, without limitation, any threatened, pending, or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or any other proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal, whether by a third party or by or in the right of the Corporation, by reason of the fact that the Director is or was a director of the Corporation or, while a director of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, member, manager, trustee, employee, or agent of another foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, or other enterprise, or an affiliate of the Corporation, whether for profit or not. 1 2 2. Indemnity. The Corporation shall indemnify the Director in accordance with the provisions of this Section 2 if the Director is a party to or threatened to be made a party to any proceeding against all expenses, judgments, fines (including any excise tax or penalty assessed with respect to any employee benefit plan) and amounts paid in settlement actually and reasonably incurred by the Director in connection with such proceeding, but only (a) if the Director acted in good faith, and (b) (i) in the case of conduct in the Director's official capacity with the Corporation, if the Director acted in a manner which the Director reasonably believed to be in the best interests of the Corporation, or (ii) in the case of conduct other than in the Director's official capacity with the Corporation, if the Director acted in a manner which the Director reasonably believed was at least not opposed to the best interests of the Corporation, and (c) in the case of a criminal proceeding, the Director had reasonable cause to believe that the Director's conduct was lawful or had no reasonable cause to believe that the Director's conduct was unlawful, and (d) if required by the Indiana Business Corporation Law, as amended or as may be amended, revised or superseded (the "Act"), the Corporation makes a determination that indemnification of the Director is permissible because the Director has met the standard of conduct as set forth in the Act. 3. Indemnification of Expenses of Successful Party. Notwith-standing any other provisions of this Agreement, to the extent that the Director has been wholly successful, on the merits or otherwise, in the defense of any proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, the Corporation shall indemnify the Director against all expenses incurred in connection therewith. 4. Additional Indemnification. Notwithstanding any limitation in Sections 2 or 3, the Corporation shall indemnify the Director to the full extent authorized or permitted by any amendments to or replacements of the Act adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its directors if the Director is a party to or threatened to be made a party to any proceeding against all expenses, judgments, fines (including any excise tax or penalty assessed with respect to any employee benefit plan) and amounts paid in settlement actually and reasonably incurred by the Director in connection with such proceeding. 5. Exclusions. Notwithstanding any provision in this Agreement, the Corporation shall not be obligated under this Agreement to make any indemnity or advance expenses in connection with any claim made against the Director: (a) for which payment has actually been made to or on behalf of the Director under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under such insurance or other indemnity provision; (b) for any transaction from which the Director derived an improper personal benefit; (c) for recovery of profits resulting from the purchase and sale or sale and purchase by the Director of securities of the Corporation in violation of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law or common law; (d) if a court having jurisdiction in the matter shall finally determine that such indemnification is not lawful under any applicable statute or public policy (in this respect, if applicable, both the Corporation and the Director have been advised that the Securities and Exchange Commission takes the position that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); or 2 3 (e) in connection with any proceeding (or part thereof) initiated by the Director against the Corporation or its directors, officers or employees, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under applicable law, or (iv) the proceeding is initiated pursuant to Section 8 hereof and the Director is successful in whole or in part in such proceeding. 6. Advancement of Expenses. The expenses incurred by the Director in any proceeding shall be paid promptly by the Corporation upon demand and in advance of final disposition of the proceeding at the written request of the Director, if (a) the Director furnishes the Corporation with a written affirmation of the Director's good faith belief that the Director has met the standard of conduct required by the Act or this Agreement, (b) the Director furnishes the Corporation with a written undertaking to repay such advance to the extent that it is ultimately determined that the Director did not meet the standard of conduct that would entitle the Director to indemnification, and (c) if required by the Act, the Corporation makes a determination that the facts known to those making the determination would not preclude indemnification under the Act. Such advances shall be made without regard to the Director's ability to repay such expenses. 7. Notification and Defense of Claim. As soon as practicable after receipt by the Director of notice of the commencement of any proceeding, the Director will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; provided, however, that the omission so to notify the Corporation will not relieve the Corporation from any liability which it may have to the Director otherwise than under this Agreement. With respect to any such proceeding as to which the Director notifies the Corporation of the commencement thereof: (a) The Corporation will be entitled to participate therein at its own expense. (b) Except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with legal counsel reasonably satisfactory to the Director. The Director shall have the right to employ separate counsel in such proceeding, but the Corporation shall not be liable to the Director under this Agreement, including Section 6 hereof, for the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense, unless (i) the Director reasonably concludes that there may be a conflict of interest between the Corporation and the Director in the conduct of the defense of such proceeding or (ii) the Corporation does not employ counsel to assume the defense of such proceeding. The Corporation shall not be entitled to assume the defense of any proceeding brought by the Corporation or as to which the Director shall have made the conclusion provided for in (i) above. (c) If two or more persons who may be entitled to indemnification from the Corporation, including the Director, are parties to any proceeding, the Corporation may require the Director to engage the same legal counsel as the other parties. The Director shall have the right to employ separate legal counsel in such proceeding, but the Corporation shall not be liable to the Director under this Agreement, including Section 6 hereof, for the fees and expenses of such counsel incurred after notice from the Corporation of the requirement to engage the same counsel as other parties, unless the Director reasonably concludes that there may be a conflict of interest between the Director and any of the other parties required by the Corporation to be represented by the same legal counsel. 3 4 (d) The Corporation shall not be liable to indemnify the Director under this Agreement for any amounts paid in settlement of any proceeding effected without its written consent in advance which consent shall not be unreasonably withheld. The Corporation shall be permitted to settle any proceeding the defense of which it assumes, except the Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on the Director without the Director's written consent, which consent shall not be unreasonably withheld. 8. Enforcement. Any right to indemnification or advances granted by this Agreement to the Director shall be enforceable by or on behalf of the Director in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within 90 days of a written request therefor. The Director, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. Neither the failure of the Corporation (including its Board of Directors or its shareholders) to make a determination prior to the commencement of such enforcement action that indemnification of the Director is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors or its shareholders) that such indemnification is improper, shall be a defense to the action or create a presumption that the Director is not entitled to indemnification under this Agreement or otherwise. The termination of any proceeding by judgment, order of court, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Director is not entitled to indemnification under this Agreement or otherwise. 9. Partial Indemnification. If the Director is entitled under any provisions of this Agreement to indemnification by the Corporation for some or a portion of the expenses, judgments, fines (including any excise tax or penalty assessed with respect to any employee benefit plan) and amounts paid in settlement actually and reasonably incurred by the Director in the investigation, defense, appeal or settlement of any proceeding but not, however, for the total amount thereof, the Corporation shall indemnify the Director for the portion of such expenses, judgments, fines (including any excise tax or penalty assessed with respect to any employee benefit plan) and amounts paid in settlement to which the Director is entitled. 10. Nonexclusivity; Survival; Successors and Assigns. The indemnification and advance payment of expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which the Director may be entitled under the Corporation's articles of incorporation, the by-laws, any other agreement, any vote of shareholders or disinterested directors, the Act, or otherwise, both as to action in the Director's official capacity and as to action in another capacity while holding such office. The indemnification under this Agreement shall survive any actual or purported termination of this Agreement by the Corporation or its successors or assigns whether by operation of law or otherwise and shall survive termination of the Director's services to the Corporation and shall inure to the benefit of the heirs, personal representatives and estate of the Director. This Agreement shall be binding, and the Corporation shall take such action to ensure that it is binding, upon all successors and assigns of the Corporation, including any transferee of all or substantially all of its assets and any successor by merger, consolidation, or operation of law. 11. Severability. If this Agreement or any portion thereof is invalidated on any ground by any court of competent jurisdiction, the Corporation shall indemnify the Director as to expenses, judgments, fines (including any excise tax or penalty assessed with respect to any employee benefit plan) and amounts paid in settlement with respect to any proceeding to the full extent permitted by any applicable portion of this Agreement that is not invalidated or by any other applicable law. 4 5 12. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Director, who shall execute all documents required and shall do all acts necessary or desirable to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 13. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall constitute a waiver of any other provisions hereof (whether or nor similar) nor shall such waiver constitute a continuing waiver. 14. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) if delivered by hand and receipted for by the party to whom such notice or other communication shall have been directed, at the time of such delivery, or (ii) if mailed by certified or registered mail, return receipt requested, with postage prepaid, three (3) business days after deposit into the United States mail if to an address in the United States, or if delivered by recognized overnight courier three (3) business days after receipt by such courier if to an address outside the United States: (a) If to the Director, at the address indicated above. (b) If to the Corporation, to: Hillenbrand Industries, Inc. 700 State Route 46 East Batesville, Indiana 47006 Attention: General Counsel or to such other address as may have been furnished to either party by the other party. 15. Counterparts. This Agreement may be executed in any number of counterparts, which shall together constitute one agreement. 16. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Indiana, without giving effect to conflicts of laws principles requiring application of the substantive laws of another jurisdiction. 17. Scope of Agreement. This Agreement constitutes the entire agreement between the parties hereto for the purposes herein contained, and this Agreement shall supercede any other agreements, understandings, representations, or warranties, oral or written, relating to the subject matter of this Agreement, which shall be deemed to exist or to bind any of the parties hereto or their respective successors or assigns, except as expressly referred to herein. IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as of the date first written above. HILLENBRAND INDUSTRIES, INC. DIRECTOR By: ----------------------------------- ------------------------------------ Printed Name: Printed Name: ------------------------- ----------------------- Title: -------------------------------- 5 EX-21 5 c60266ex21.txt SUBSIDIARIES 1 EXHIBIT 21 HILLENBRAND INDUSTRIES, INC. SUBSIDIARIES OF THE REGISTRANT All subsidiaries of the Company are wholly-owned Indiana corporations, unless otherwise noted. Hillenbrand Funeral Services Group, Inc. Hill-Rom, Inc. Forethought Financial Services, Inc. Hillenbrand Industries FSC (Barbados), Inc., a Barbados corporation Hillenbrand Investment Advisory Corporation, a Delaware corporation Hillenbrand Properties, Inc. Sherman House Corporation Travel Services, Inc. Memory Showcase, Inc. Sleep Options, Inc. The Acorn Development Group, Inc. Sycamore Insurance Company Limited, a Bermuda corporation Subsidiaries of Hillenbrand Funeral Services Group, Inc. Hillenbrand Funeral Services International, Inc., a Delaware corporation Batesville Services, Inc. I.F.A., Inc. Subsidiary of Hillenbrand Funeral Services International, Inc. Hillenbrand International Funeral Services, Ltd., an Ireland corporation Subsidiary of Hillenbrand International Funeral Services, Ltd. Forethought Life International, Ltd., an Ireland Corporation Subsidiary of Forethought Life International, Ltd. Hillenbrand Distribution Services, Ltd., a United Kingdom corporation Subsidiaries of Batesville Services, Inc. Batesville Casket Company, Inc. Batesville International Corporation Batesville Casket de Mexico, S.A. de C.V., a Mexican corporation Batesville Logistics, Inc. Batesville Manufacturing, Inc. Subsidiary of Batesville Casket de Mexico, S.A. de C.V. Industrias Arga, S.A. de C.V., a Mexican corporation Subsidiaries of Hill-Rom, Inc. Hill-Rom Company, Inc. MEDAES Holdings, Inc., a Georgia corporation The OR Group, Inc. Subsidiaries of Hill-Rom Company, Inc. PaTMark Company, Inc., a Delaware corporation Hill-Rom International, Inc. Narco Medical Services, Inc., a Georgia corporation Subsidiary of PaTMark Company, Inc. Hill-Rom Manufacturing, Inc., a Delaware corporation (1) 2 Subsidiary of Hill-Rom Manufacturing Inc. Hill-Rom Services, Inc., a Delaware corporation Fisher Berkeley Corporation, a California corporation Subsidiaries of Hill-Rom Services, Inc. Hill-Rom SARL, a French corporation MIE Holdings Limited, a United Kingdom corporation Subsidiary of MIE Holdings Limited Medical Industrial Equipment Limited, a United Kingdom corporation Subsidiaries of MEDAES Holdings, Inc. Hill-Rom MEDAES, Inc., a Georgia corporation Subsidiary of The OR Group, Inc. AMATECH Corporation Jointly owned subsidiary of Hill-Rom Services, Inc. and MEDAES Holdings, Inc. Hill-Rom International B.V., a Netherlands corporation Subsidiaries of Hill-Rom International B.V. Hill-Rom B.V., a Netherlands corporation Hill-Rom Ltd., a United Kingdom corporation Hill-Rom, Spa, an Italian corporation Hillrom S.A., a Switzerland corporation SSI Leasing and Investments B.V., a Netherlands corporation Systems Investments B.V., a Netherlands corporation Subsidiary of Hill-Rom, Ltd. (UK) Hill-Rom (UK), Ltd., a United Kingdom corporation Batesville Casket U.K., Ltd., a United Kingdom corporation MEDAES Ltd., a United Kingdom corporation Jointly owned subsidiary of Hill-Rom International B.V. and Hill-Rom Services, Inc. Hill-Rom Holding GmbH, a German corporation Subsidiaries of Hill-Rom Holding GmbH Hill-Rom Therapy GmbH, a German corporation Hill-Rom GmbH, a German corporation Jointly owned subsidiary of Hill-Rom International B.V. and Hill-Rom GmbH Hill-Rom Austria GmbH, an Austrian corporation Subsidiaries of Hill-Rom SARL Hill-Rom Industries SA, a French corporation Hill-Rom SAS, a French corporation Hill-Rom Holland B.V., a Netherlands corporation SCI Le Couviour Immoblier, a French corporation (2) 3 Subsidiaries of Forethought Financial Services, Inc. Forethought Life Insurance Company The Forethought Group, Inc. Forethought Florida, Inc. ForeLife Agency, Inc. Forethought Federal Savings Bank, federally chartered Forethought Investment Management, Inc. Forethought Life Assurance Company National Council for Senior Americans of Virginia, Inc., a Virginia Corporation Subsidiaries of Forethought Life Insurance Company Forethought Properties, Inc. Arkansas National Life Insurance Company, an Arkansas company Jointly owned subsidiaries of Batesville International Corporation, Hill-Rom, Inc., Hill-Rom Manufacturing, Inc. and Hill-Rom Company, Inc. Hillenbrand Industries Canada, Ltd., an Ontario (Canada) corporation Subsidiaries of Hillenbrand Properties, Inc. Cutler Property, Inc. Old Brick Property, Inc. (3) EX-23 6 c60266ex23.txt CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-49669) of Hillenbrand Industries, Inc. of our report dated January 12, 2001, except as to Note 16, which is as of January 22, 2001, relating to the financial statements and financial statement schedule, which appear in this Form 10-K. /S/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Indianapolis, Indiana February 21, 2001 -----END PRIVACY-ENHANCED MESSAGE-----