Notes to Condensed Consolidated Financial Statements (Unaudited)
October 2, 2021
Note 1. Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. The January 2, 2021, consolidated balance sheet included in this Form 10-Q was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the nine-month period ended October 2, 2021, are not necessarily indicative of the results expected for the fiscal year ending January 1, 2022. For further information, refer to the consolidated financial statements and accompanying notes included in HNI Corporation's (the "Corporation") Annual Report on Form 10-K for the fiscal year ended January 2, 2021.
Note 2. Revenue from Contracts with Customers
Disaggregation of Revenue
Revenue from contracts with customers disaggregated by product category is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
|
October 2,
2021
|
|
September 26,
2020
|
Systems and storage
|
$
|
227,827
|
|
|
$
|
207,549
|
|
|
$
|
611,097
|
|
|
$
|
578,601
|
|
Seating
|
134,248
|
|
|
127,294
|
|
|
349,572
|
|
|
358,005
|
|
Other
|
31,066
|
|
|
18,518
|
|
|
79,357
|
|
|
63,221
|
|
Total workplace furnishings
|
393,141
|
|
|
353,361
|
|
|
1,040,026
|
|
|
999,827
|
|
|
|
|
|
|
|
|
|
Residential building products
|
193,609
|
|
|
153,702
|
|
|
541,472
|
|
|
393,397
|
|
Net sales
|
$
|
586,750
|
|
|
$
|
507,063
|
|
|
$
|
1,581,498
|
|
|
$
|
1,393,224
|
|
Sales by product category are subject to similar economic factors and market conditions. See “Note 16. Reportable Segment Information” in the Notes to Condensed Consolidated Financial Statements for further information about operating segments.
Contract Assets and Contract Liabilities
In addition to trade receivables, the Corporation has contract assets consisting of funds paid to certain workplace furnishings dealers in exchange for their multi-year commitment to market and sell the Corporation’s products. These contract assets are amortized over the term of the contracts and recognized as a reduction of revenue. For contracts with a duration of less than one year, the Corporation has elected the practical expedient to recognize incremental costs to obtain a contract as an expense when incurred. The Corporation has contract liabilities consisting of customer deposits and rebate and marketing program liabilities.
Contract assets and contract liabilities were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2,
2021
|
|
January 2,
2021
|
Trade receivables (1)
|
$
|
238,620
|
|
|
$
|
207,971
|
|
Contract assets (current) (2)
|
$
|
1,265
|
|
|
$
|
761
|
|
Contract assets (long-term) (3)
|
$
|
16,876
|
|
|
$
|
2,486
|
|
Contract liabilities (4)
|
$
|
58,976
|
|
|
$
|
53,070
|
|
The index below indicates the line item in the Condensed Consolidated Balance Sheets where contract assets and contract liabilities are reported:
(1) "Receivables"
(2) "Prepaid expenses and other current assets"
(3) "Other Assets"
(4) "Accounts payable and accrued expenses"
The increase in long-term contract assets is related to distribution agreements in the workplace furnishings segment. Contract liabilities for customer deposits paid to the Corporation prior to the satisfaction of performance obligations are recognized as revenue upon completion of the performance obligations. The contract liability balance related to customer deposits was $21.1 million as of January 2, 2021, all of which was recognized as revenue in the first quarter of 2021.
Performance Obligations
The Corporation recognizes revenue for sales of workplace furnishings and residential building products at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment of the product. In certain circumstances, transfer of control to the customer does not occur until the goods are received by the customer or upon installation and/or customer acceptance, depending on the terms of the underlying contracts. Contracts typically have a duration of less than one year and normally do not include a significant financing component. Generally, payment is due within 30 days of invoicing.
The Corporation's backlog orders are typically cancellable for a period of time and almost all contracts have an original duration of one year or less. As a result, the Corporation has elected the practical expedient permitted in the revenue accounting standard not to disclose the unsatisfied performance obligation as of period end. The backlog is typically fulfilled within a few months.
Significant Judgments
The amount of consideration the Corporation receives and revenue recognized varies with changes in rebate and marketing program incentives, as well as early pay discounts, offered to customers. The Corporation uses significant judgment throughout the year in estimating the reduction in net sales driven by variable consideration for rebate and marketing programs. Judgments made include expected sales levels and utilization of funds. However, this judgment factor is significantly reduced at the end of each year when sales volumes and the impact to rebate and marketing programs are known and recorded as the programs typically end near the Corporation's fiscal year end.
Note 3. Acquisitions
During the first quarter of 2021, the Corporation acquired the assets of a residential building products installing distributor in an all-cash deal. The aggregate purchase price was approximately $1.6 million, and includes $1.2 million of tax deductible goodwill. The purchase accounting is complete, and the remaining assets and liabilities acquired were not material.
On December 31, 2020, the Corporation acquired Design Public Group ("DPG"), a leading e-Commerce distributor of high-design furniture and accessories for the office and home. This transaction, which was structured as an asset acquisition and consummated entirely in cash of approximately $50 million, aligns with the Corporation's long-term strategies related to digital and e-Commerce initiatives. DPG's assets and liabilities are included in the Corporation's workplace furnishings segment, and goodwill, which is tax-deductible, is assigned to its own reporting unit.
The DPG purchase price allocation and weighted average amortization periods of identified intangible assets as of the date of acquisition is as follows (dollars in thousands):
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|
|
|
|
|
|
|
|
Fair Value
|
Weighted Average Amortization Period
|
Inventories
|
$
|
1,597
|
|
|
Receivables
|
4
|
|
|
Prepaid expenses and other current assets
|
467
|
|
|
Accounts payable and accrued expenses
|
(8,035)
|
|
|
Goodwill
|
33,588
|
|
|
Customer lists
|
11,500
|
|
11 years
|
Software
|
5,500
|
|
5 years
|
Trade names
|
5,200
|
|
10 years
|
Other intangible assets
|
300
|
|
3 years
|
Total net assets
|
$
|
50,121
|
|
|
The valuation analysis required the use of complex management estimates and assumptions such as future cash flows, discount rates, royalty rates, long-term growth rates, and technology build costs. As a result of further reviews, measurement period adjustments were recorded in the third quarter of 2021 that increased working capital and decreased goodwill by $0.5 million. As of October 2, 2021, the DPG purchase accounting is complete.
All transactions disclosed above were deemed to be acquisitions of businesses, and were accounted for using the acquisition method pursuant to ASC 805, with goodwill being recorded as a result of future cash flows and related fair value exceeding the fair value of the identified assets and liabilities.
Note 4. Inventories
The Corporation values its inventory at the lower of cost or net realizable value. Inventories included in the Condensed Consolidated Balance Sheets consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
October 2,
2021
|
|
January 2,
2021
|
|
Finished products
|
$
|
140,955
|
|
|
$
|
98,527
|
|
Materials and work in process
|
86,615
|
|
|
70,264
|
|
Last-in, first-out ("LIFO") allowance
|
(38,980)
|
|
|
(30,980)
|
|
Total inventories
|
$
|
188,590
|
|
|
$
|
137,811
|
|
|
|
|
|
|
|
|
|
Inventory valued by the LIFO costing method
|
76
|
%
|
|
75
|
%
|
Note 5. Goodwill and Other Intangible Assets
Goodwill and other intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
October 2,
2021
|
|
January 2,
2021
|
Goodwill
|
$
|
287,443
|
|
|
$
|
292,434
|
|
Definite-lived intangible assets
|
132,763
|
|
|
139,863
|
|
Indefinite-lived intangible assets
|
26,552
|
|
|
26,599
|
|
Total goodwill and other intangible assets
|
$
|
446,758
|
|
|
$
|
458,896
|
|
Goodwill
The changes in the carrying amount of goodwill, by reporting segment, are as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Workplace Furnishings
|
|
Residential Building Products
|
|
Total
|
Balance as of January 2, 2021
|
|
|
|
|
|
Goodwill
|
$
|
168,477
|
|
|
$
|
196,976
|
|
|
$
|
365,453
|
|
Accumulated impairment losses
|
(72,876)
|
|
|
(143)
|
|
|
(73,019)
|
|
Net goodwill balance as of January 2, 2021
|
95,601
|
|
|
196,833
|
|
|
292,434
|
|
|
|
|
|
|
|
Goodwill acquired / measurement period adjustments
|
(6,211)
|
|
|
1,220
|
|
|
(4,991)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of October 2, 2021
|
|
|
|
|
|
Goodwill
|
162,266
|
|
|
198,196
|
|
|
360,462
|
|
Accumulated impairment losses
|
(72,876)
|
|
|
(143)
|
|
|
(73,019)
|
|
Net goodwill balance as of October 2, 2021
|
$
|
89,390
|
|
|
$
|
198,053
|
|
|
$
|
287,443
|
|
See "Note 3. Acquisitions" for additional information regarding goodwill acquired and related adjustments in the year-to-date period.
Definite-lived intangible assets
The table below summarizes amortizable definite-lived intangible assets, which are reflected in "Goodwill and Other Intangible Assets" in the Condensed Consolidated Balance Sheets (in thousands):
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2, 2021
|
|
January 2, 2021
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
Gross
|
|
Accumulated Amortization
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
$
|
193,634
|
|
|
$
|
96,041
|
|
|
$
|
97,593
|
|
|
$
|
182,127
|
|
|
$
|
78,619
|
|
|
$
|
103,508
|
|
Trademarks and trade names
|
11,764
|
|
|
4,337
|
|
|
7,427
|
|
|
9,964
|
|
|
3,546
|
|
|
6,418
|
|
Customer lists and other
|
92,777
|
|
|
65,034
|
|
|
27,743
|
|
|
91,002
|
|
|
61,065
|
|
|
29,937
|
|
Net definite-lived intangible assets
|
$
|
298,175
|
|
|
$
|
165,412
|
|
|
$
|
132,763
|
|
|
$
|
283,093
|
|
|
$
|
143,230
|
|
|
$
|
139,863
|
|
Amortization expense is reflected in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income and was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
|
October 2,
2021
|
|
September 26,
2020
|
Capitalized software
|
$
|
6,070
|
|
|
$
|
4,910
|
|
|
$
|
17,497
|
|
|
$
|
14,288
|
|
Other definite-lived intangibles
|
$
|
1,626
|
|
|
$
|
1,136
|
|
|
$
|
4,881
|
|
|
$
|
3,811
|
|
The occurrence of events such as acquisitions, dispositions, or impairments may impact future amortization expense. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five years is as follows (in millions):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
Amortization expense
|
|
$
|
29.9
|
|
|
$
|
27.3
|
|
|
$
|
23.1
|
|
|
$
|
19.0
|
|
|
$
|
17.3
|
|
Indefinite-lived intangible assets
The Corporation also owns certain intangible assets, which are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely. These indefinite-lived intangible assets are reflected in "Goodwill and Other Intangible Assets" in the Condensed Consolidated Balance Sheets (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2,
2021
|
|
January 2,
2021
|
Trademarks and trade names
|
$
|
26,552
|
|
|
$
|
26,599
|
|
The immaterial change in the indefinite-lived intangible assets balances shown above is related to foreign currency translation impacts.
Impairment Analysis
The Corporation evaluates its goodwill and indefinite-lived intangible assets for impairment on an annual basis during the fourth quarter, or whenever indicators of impairment exist. The Corporation also evaluates long-lived assets (which include definite-lived intangible assets) for impairment if indicators exist.
Note 6. Product Warranties
The Corporation issues certain warranty policies on its workplace furnishings and residential building products that provide for repair or replacement of any covered product or component that fails during normal use because of a defect in design, materials, or workmanship. Allowances have been established for the anticipated future costs associated with the Corporation's warranty programs.
A warranty allowance is determined by recording a specific allowance for known warranty issues and an additional allowance for unknown claims expected to be incurred based on historical claims experience. Actual costs incurred could differ from the original estimates, requiring adjustments to the allowance. Activity associated with warranty obligations was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
Balance at beginning of period
|
$
|
16,109
|
|
|
$
|
15,865
|
|
Accruals for warranties issued during period
|
6,580
|
|
|
5,483
|
|
Adjustments related to pre-existing warranties
|
—
|
|
|
(272)
|
|
Settlements made during the period
|
(5,411)
|
|
|
(6,013)
|
|
Balance at end of period
|
$
|
17,278
|
|
|
$
|
15,063
|
|
The current and long-term portions of the allowance for estimated settlements are included within "Accounts payable and accrued expenses" and "Other Long-Term Liabilities", respectively, in the Condensed Consolidated Balance Sheets. The following table summarizes when these estimated settlements are expected to be paid (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2,
2021
|
|
January 2,
2021
|
Current - in the next twelve months
|
$
|
6,080
|
|
|
$
|
5,918
|
|
Long-term - beyond one year
|
11,198
|
|
|
10,191
|
|
Total
|
$
|
17,278
|
|
|
$
|
16,109
|
|
Note 7. Long-Term Debt
Long-term debt is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
October 2,
2021
|
|
January 2,
2021
|
Revolving credit facility with interest at a variable rate
(October 2, 2021 - 1.1%; January 2, 2021 - 1.2%)
|
$
|
75,000
|
|
|
$
|
75,000
|
|
Fixed rate notes due in 2025 with an interest rate of 4.22%
|
50,000
|
|
|
50,000
|
|
Fixed rate notes due in 2028 with an interest rate of 4.40%
|
50,000
|
|
|
50,000
|
|
Other amounts
|
3,345
|
|
|
841
|
|
Deferred debt issuance costs
|
(413)
|
|
|
(476)
|
|
Total debt
|
177,932
|
|
|
175,365
|
|
Less: Current maturities of long-term debt
|
3,345
|
|
|
841
|
|
Long-term debt
|
$
|
174,587
|
|
|
$
|
174,524
|
|
The carrying value of the Corporation's outstanding variable-rate, long-term debt obligations at October 2, 2021, was $75 million, which approximated fair value. The fair value of the fixed rate notes was estimated based on a discounted cash flow method (Level 2) to be $116 million at October 2, 2021.
As of October 2, 2021, the Corporation’s revolving credit facility borrowings were under the credit agreement entered into on April 20, 2018, with a scheduled maturity of April 20, 2023. The Corporation deferred the debt issuance costs related to the credit agreement, which are classified as assets, and is amortizing them over the term of the credit agreement. The current portion of debt issuance costs of $0.4 million is the amount to be amortized over the next twelve months based on the current credit agreement and is reflected in "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets. The long-term portion of debt issuance costs of $0.2 million is reflected in "Other Assets" in the Condensed Consolidated Balance Sheets.
As of October 2, 2021, there was $75 million outstanding under the $450 million revolving credit facility. The entire amount drawn under the revolving credit facility is considered long-term as the Corporation assumes no obligation to repay any of the amounts borrowed in the next twelve months. Based on current earnings before interest, taxes, depreciation and amortization, the Corporation can access the full remaining $375 million of borrowing capacity available under the revolving credit facility and maintain compliance with applicable covenants.
In addition to cash flows from operations, the revolving credit facility under the credit agreement is the primary source of daily operating capital for the Corporation and provides additional financial capacity for capital expenditures, repurchases of common stock, and strategic initiatives, such as acquisitions.
In addition to the revolving credit facility, the Corporation also has $100 million of borrowings outstanding under private placement note agreements entered into on May 31, 2018. Under the agreements, the Corporation issued $50 million of seven-year fixed rate notes with an interest rate of 4.22 percent, due May 31, 2025, and $50 million of ten-year fixed rate notes with an interest rate of 4.40 percent, due May 31, 2028. The Corporation deferred the debt issuance costs related to the private placement note agreements, which are classified as a reduction of long-term debt, and is amortizing them over the terms of the private placement note agreements. The deferred debt issuance costs do not reduce the amount owed by the Corporation under the terms of the private placement note agreements. As of October 2, 2021, the debt issuance costs balance of $0.4 million related to the private placement note agreements is reflected in "Long-Term Debt" in the Condensed Consolidated Balance Sheets.
The credit agreement and private placement notes both contain financial and non-financial covenants. The covenants under both are substantially the same. Non-compliance with covenants under the agreements could prevent the Corporation from being able to access further borrowings, require immediate repayment of all amounts outstanding, and/or increase the cost of borrowing.
Covenants require maintenance of financial ratios as of the end of any fiscal quarter, including:
•a consolidated interest coverage ratio (as defined in the credit agreement) of not less than 4.0 to 1.0, based upon the ratio of (a) consolidated EBITDA for the last four fiscal quarters to (b) the sum of consolidated interest charges; and
•a consolidated leverage ratio (as defined in the credit agreement) of not greater than 3.5 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness to (b) consolidated EBITDA for the last four fiscal quarters.
The most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.5 to 1.0. Under the credit agreement, consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, and depreciation and amortization of intangibles, as well as non-cash items that increase or decrease net income. As of October 2, 2021, the Corporation was below the maximum allowable ratio and was in compliance with all of the covenants and other restrictions in the credit agreement. The Corporation expects to remain in compliance with all of the covenants and other restrictions in the credit agreement over the next twelve months.
Note 8. Income Taxes
The Corporation's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. The following table summarizes the Corporation's income tax provision (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
|
October 2,
2021
|
|
September 26,
2020
|
Income before income taxes
|
$
|
24,390
|
|
|
$
|
37,245
|
|
|
$
|
68,065
|
|
|
$
|
24,605
|
|
Income taxes
|
$
|
5,232
|
|
|
$
|
6,558
|
|
|
$
|
16,476
|
|
|
$
|
5,259
|
|
Effective tax rate
|
21.5
|
%
|
|
17.6
|
%
|
|
24.2
|
%
|
|
21.4
|
%
|
The Corporation's effective tax rate was higher in the three and nine months ended October 2, 2021, compared to the same periods last year. The variance was driven by an improved full year 2021 income outlook, relative to the prior-year full year outlook which was adversely impacted by the onset of the COVID-19 pandemic, resulting in asset impairment charges and other one-time costs recorded in the U.S. jurisdictions. These factors drove a greater rate benefit from tax credits in the prior-year periods. Additionally, the increased rate was impacted by higher equity-based compensation and the timing of tax reserves released year-over-year.
Note 9. Fair Value Measurements of Financial Instruments
For recognition purposes, on a recurring basis, the Corporation is required to measure at fair value its marketable securities, derivative financial instruments, put option liabilities and deferred stock-based compensation. The marketable securities comprise money market funds, government securities, and corporate bonds. When available, the Corporation uses quoted market prices to determine fair value and classifies such measurements within Level 1. Where market prices are not available, the Corporation makes use of observable market-based inputs (prices or quotes from published exchanges and indexes) to calculate fair value using the market approach, in which case the measurements are classified within Level 2. Significant unobservable inputs, which are classified within Level 3, are used in the estimation of the fair value of put option liabilities, determined using a simulation model based on assumptions including future cash flows, discount rates, and volatility.
Financial instruments measured at fair value were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value as of measurement date
|
|
Quoted prices in active markets for identical assets
(Level 1)
|
|
Significant other observable inputs
(Level 2)
|
|
Significant unobservable inputs
(Level 3)
|
Balance as of October 2, 2021
|
|
|
|
|
|
|
|
Cash and cash equivalents (including money market funds) (1)
|
$
|
126,436
|
|
|
$
|
126,436
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Government securities (2)
|
$
|
5,557
|
|
|
$
|
—
|
|
|
$
|
5,557
|
|
|
$
|
—
|
|
Corporate bonds (2)
|
$
|
7,936
|
|
|
$
|
—
|
|
|
$
|
7,936
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments - liability (3)
|
$
|
1,543
|
|
|
$
|
—
|
|
|
$
|
1,543
|
|
|
$
|
—
|
|
Deferred stock-based compensation (4)
|
$
|
7,245
|
|
|
$
|
—
|
|
|
$
|
7,245
|
|
|
$
|
—
|
|
Put option liability (5)
|
$
|
5,100
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,100
|
|
|
|
|
|
|
|
|
|
Balance as of January 2, 2021
|
|
|
|
|
|
|
|
Cash and cash equivalents (including money market funds) (1)
|
$
|
116,120
|
|
|
$
|
116,120
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Government securities (2)
|
$
|
6,371
|
|
|
$
|
—
|
|
|
$
|
6,371
|
|
|
$
|
—
|
|
Corporate bonds (2)
|
$
|
7,228
|
|
|
$
|
—
|
|
|
$
|
7,228
|
|
|
$
|
—
|
|
Derivative financial instruments - liability (3)
|
$
|
2,328
|
|
|
$
|
—
|
|
|
$
|
2,328
|
|
|
$
|
—
|
|
Deferred stock-based compensation (4)
|
$
|
7,207
|
|
|
$
|
—
|
|
|
$
|
7,207
|
|
|
$
|
—
|
|
The index below indicates the line item in the Condensed Consolidated Balance Sheets where the financial instruments are reported:
(1) "Cash and cash equivalents"
(2) Current portion - "Short-term investments"; Long-term portion - "Other Assets"
(3) Current portion - "Accounts payable and accrued expenses"; Long-term portion - "Other Long-Term Liabilities"
(4) Current portion - "Current maturities of other long-term obligations"; Long-term portion - "Other Long-Term Liabilities"
(5) "Other Long-Term Liabilities"
Note 10. Accumulated Other Comprehensive Income (Loss) and Shareholders' Equity
The following tables summarize the components of accumulated other comprehensive income (loss) and the changes in accumulated other comprehensive income (loss), net of tax, as applicable (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
Unrealized Gains (Losses) on Debt Securities
|
|
Pension and Post-retirement Liabilities
|
|
Derivative Financial Instruments
|
|
Accumulated Other Comprehensive Income (Loss)
|
Balance as of January 2, 2021
|
|
$
|
(1,071)
|
|
|
$
|
360
|
|
|
$
|
(6,682)
|
|
|
$
|
(1,760)
|
|
|
$
|
(9,153)
|
|
Other comprehensive income (loss) before reclassifications
|
|
107
|
|
|
(199)
|
|
|
—
|
|
|
42
|
|
|
(50)
|
|
Tax (expense) or benefit
|
|
—
|
|
|
42
|
|
|
—
|
|
|
(10)
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
545
|
|
|
545
|
|
Balance as of October 2, 2021
|
|
$
|
(964)
|
|
|
$
|
203
|
|
|
$
|
(6,682)
|
|
|
$
|
(1,183)
|
|
|
$
|
(8,626)
|
|
Amounts in parentheses indicate reductions to equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
Unrealized Gains (Losses) on Debt Securities
|
|
Pension and Post-retirement Liabilities
|
|
Derivative Financial Instruments
|
|
Accumulated Other Comprehensive Income (Loss)
|
Balance as of December 28, 2019
|
|
$
|
(2,912)
|
|
|
$
|
95
|
|
|
$
|
(5,762)
|
|
|
$
|
506
|
|
|
$
|
(8,073)
|
|
Other comprehensive income (loss) before reclassifications
|
|
368
|
|
|
341
|
|
|
—
|
|
|
(3,236)
|
|
|
(2,527)
|
|
Tax (expense) or benefit
|
|
—
|
|
|
(72)
|
|
|
—
|
|
|
758
|
|
|
686
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
|
|
—
|
|
|
—
|
|
|
—
|
|
|
85
|
|
|
85
|
|
Balance as of September 26, 2020
|
|
$
|
(2,544)
|
|
|
$
|
364
|
|
|
$
|
(5,762)
|
|
|
$
|
(1,887)
|
|
|
$
|
(9,829)
|
|
Amounts in parentheses indicate reductions to equity.
Interest Rate Swap
In 2019, the Corporation entered into an interest rate swap transaction to hedge $75 million of outstanding variable rate revolver borrowings against future interest rate volatility. Under the terms of this interest rate swap, the Corporation pays a fixed rate of 1.42 percent and receives one month LIBOR on a $75 million notional value expiring April 2023. As of October 2, 2021, the fair value of the Corporation's interest rate swap liability was $1.5 million; see "Note 9. Fair Value Measurements of Financial Instruments". The unrecognized change in value of the interest rate swap is reported net of tax as $(1.2) million in "HNI Corporation Shareholders' Equity" in the Condensed Consolidated Balance Sheets.
The following table details the reclassifications from accumulated other comprehensive income (loss) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
Details about Accumulated Other Comprehensive Income (Loss) Components
|
Affected Line Item in the Statement Where Net Income is Presented
|
October 2,
2021
|
|
September 26,
2020
|
|
October 2,
2021
|
|
September 26,
2020
|
Derivative financial instruments
|
|
|
|
|
|
|
|
Interest rate swap
|
Interest expense, net
|
$
|
(250)
|
|
|
$
|
(147)
|
|
|
$
|
(713)
|
|
|
$
|
(107)
|
|
|
Income taxes
|
59
|
|
|
33
|
|
|
168
|
|
|
22
|
|
|
Net of tax
|
$
|
(191)
|
|
|
$
|
(114)
|
|
|
$
|
(545)
|
|
|
$
|
(85)
|
|
Amounts in parentheses indicate reductions to profit.
Dividend
The Corporation declared and paid cash dividends per common share as follows (in dollars):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
Dividends per common share
|
$
|
0.925
|
|
|
$
|
0.915
|
|
Stock Repurchase
The following table summarizes shares repurchased and settled by the Corporation (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
Shares repurchased
|
500
|
|
|
214
|
|
Average price per share
|
$
|
39.52
|
|
|
$
|
29.83
|
|
|
|
|
|
Cash purchase price
|
$
|
(19,774)
|
|
|
$
|
(6,390)
|
|
Purchases unsettled as of quarter end
|
1,313
|
|
|
—
|
|
Prior year purchases settled in current year
|
—
|
|
|
(374)
|
|
Shares repurchased per cash flow
|
$
|
(18,461)
|
|
|
$
|
(6,764)
|
|
As of October 2, 2021, approximately $138.5 million of the Corporation's Board of Directors' ("Board") current repurchase authorization remained unspent.
Note 11. Earnings Per Share
The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS") (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
|
October 2,
2021
|
|
September 26,
2020
|
Numerator:
|
|
|
|
|
|
|
|
Numerator for both basic and diluted EPS attributable to HNI Corporation net income
|
$
|
19,158
|
|
|
$
|
30,688
|
|
|
$
|
51,592
|
|
|
$
|
19,349
|
|
Denominators:
|
|
|
|
|
|
|
|
Denominator for basic EPS weighted-average common shares outstanding
|
43,781
|
|
|
42,684
|
|
|
43,573
|
|
|
42,651
|
|
Potentially dilutive shares from stock-based compensation plans
|
561
|
|
|
326
|
|
|
472
|
|
|
254
|
|
Denominator for diluted EPS
|
44,342
|
|
|
43,010
|
|
|
44,045
|
|
|
42,905
|
|
Earnings per share – basic
|
$
|
0.44
|
|
|
$
|
0.72
|
|
|
$
|
1.18
|
|
|
$
|
0.45
|
|
Earnings per share – diluted
|
$
|
0.43
|
|
|
$
|
0.71
|
|
|
$
|
1.17
|
|
|
$
|
0.45
|
|
The weighted-average common stock equivalents presented above do not include the effect of the common stock equivalents in the table below because their inclusion would be anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
|
October 2,
2021
|
|
September 26,
2020
|
Common stock equivalents excluded because their inclusion would be anti-dilutive
|
1,768
|
|
|
3,124
|
|
|
1,671
|
|
|
3,183
|
|
Note 12. Stock-Based Compensation
The Corporation measures stock-based compensation expense at grant date, based on the fair value of the award. Forms of awards issued under shareholder approved plans include stock options, restricted stock units based on a service condition ("restricted stock units"), restricted stock units based on both performance and service conditions ("performance stock units"), and shares issued under member stock purchase plans. Stock-based compensation expense related to stock options, restricted stock units, and performance stock units is recognized over the employees' requisite service periods, adjusted for an estimated forfeiture rate for those shares not expected to vest. Additionally, expense related to performance stock units is adjusted for the probability that the Corporation will perform within an established target range of cumulative profitability over a multi-year period.
The following table summarizes expense associated with these plans (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
|
October 2,
2021
|
|
September 26,
2020
|
Compensation cost
|
$
|
1,752
|
|
|
$
|
1,087
|
|
|
$
|
9,540
|
|
|
$
|
6,746
|
|
The units granted by the Corporation had fair values as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
|
|
|
|
Restricted stock units
|
$
|
15,923
|
|
|
$
|
6,431
|
|
Performance stock units
|
$
|
6,054
|
|
|
$
|
5,920
|
|
The following table summarizes unrecognized compensation expense and the weighted-average remaining service period for non-vested stock options and stock units as of October 2, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized Compensation Expense
(in thousands)
|
|
Weighted-Average Remaining
Service Period (years)
|
Non-vested stock options
|
$
|
709
|
|
|
0.7
|
Non-vested restricted stock units
|
$
|
8,005
|
|
|
1.1
|
Non-vested performance stock units
|
$
|
4,249
|
|
|
1.2
|
Note 13. Recently Adopted Accounting Standards
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This update simplifies various aspects related to accounting for income taxes, removes certain exceptions to the general principles in ASC 740, and clarifies and amends existing guidance to improve consistent application. The Corporation adopted ASC 740 in the first quarter of fiscal 2021, with no material effect on the Condensed Consolidated Financial Statements and related footnote disclosures.
Note 14. Guarantees, Commitments, and Contingencies
The Corporation utilizes letters of credit and surety bonds in the amount of approximately $31 million to back certain insurance policies and payment obligations. Additionally, the Corporation periodically utilizes trade letters of credit and banker's acceptances to guarantee certain payments to overseas suppliers; as of October 2, 2021, there were no outstanding amounts related to these types of guarantees. The letters of credit, bonds, and banker's acceptances reflect fair value as a condition of their underlying purpose and are subject to competitively determined fees.
The Corporation has contingent liabilities which have arisen in the ordinary course of its business, including liabilities relating to pending litigation, environmental remediation, taxes, and other claims. It is the Corporation's opinion, after consultation with legal counsel, that liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Corporation's financial condition, cash flows, or on the Corporation's quarterly or annual operating results when resolved in a future period.
Note 15. Subsequent Events
In October 2021, the Corporation acquired a residential building products installing distributor at a purchase price of approximately $30 million. The acquired company builds on the Corporation's strategy to expand the Fireside Hearth & Home owned-distribution component of the residential building products segment.
Due to the recent timing of the close of the acquisition, the Corporation has not yet allocated the purchase price to the fair value of the assets acquired and the liabilities assumed at the acquisition date.
Note 16. Reportable Segment Information
Management views the Corporation as having two reportable segments based on industries: workplace furnishings and residential building products.
The aggregated workplace furnishings segment manufactures and markets a broad line of commercial and home office furniture which includes panel-based and freestanding furniture systems, seating, storage, tables, and architectural products. The
residential building products segment manufactures and markets a full array of gas, wood, electric, and pellet fueled fireplaces, inserts, stoves, facings, and accessories.
For purposes of segment reporting, intercompany sales between segments are not material, and operating profit is income before income taxes exclusive of certain unallocated general corporate expenses. These unallocated general corporate expenses include the net costs of the Corporation's corporate operations. Management views interest income and expense as corporate financing costs and not as a reportable segment cost. In addition, management applies an effective income tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis. Identifiable assets by segment are those assets applicable to the respective industry segments. Corporate assets consist principally of cash and cash equivalents, short-term investments, long-term investments, IT infrastructure, and corporate office real estate and related equipment.
No geographic information for revenues from external customers or for long-lived assets is disclosed since the Corporation's primary market and capital investments are concentrated in the United States.
Reportable segment data reconciled to the Corporation's condensed consolidated financial statements was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
October 2,
2021
|
|
September 26,
2020
|
|
October 2,
2021
|
|
September 26,
2020
|
Net Sales:
|
|
|
|
|
|
|
|
Workplace furnishings
|
$
|
393,141
|
|
|
$
|
353,361
|
|
|
$
|
1,040,026
|
|
|
$
|
999,827
|
|
Residential building products
|
193,609
|
|
|
153,702
|
|
|
541,472
|
|
|
393,397
|
|
Total
|
$
|
586,750
|
|
|
$
|
507,063
|
|
|
$
|
1,581,498
|
|
|
$
|
1,393,224
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes:
|
|
|
|
|
|
|
|
Workplace furnishings
|
$
|
3,893
|
|
|
$
|
16,826
|
|
|
$
|
9,578
|
|
|
$
|
(8,619)
|
|
Residential building products
|
33,392
|
|
|
30,197
|
|
|
103,766
|
|
|
65,232
|
|
General corporate
|
(11,042)
|
|
|
(8,261)
|
|
|
(39,814)
|
|
|
(26,737)
|
|
Operating income
|
26,243
|
|
|
38,762
|
|
|
73,530
|
|
|
29,876
|
|
Interest expense, net
|
1,853
|
|
|
1,517
|
|
|
5,465
|
|
|
5,271
|
|
Total
|
$
|
24,390
|
|
|
$
|
37,245
|
|
|
$
|
68,065
|
|
|
$
|
24,605
|
|
|
|
|
|
|
|
|
|
Depreciation and Amortization Expense:
|
|
|
|
|
|
|
|
Workplace furnishings
|
$
|
11,882
|
|
|
$
|
11,065
|
|
|
$
|
35,918
|
|
|
$
|
33,177
|
|
Residential building products
|
2,545
|
|
|
2,351
|
|
|
7,403
|
|
|
6,976
|
|
General corporate
|
6,443
|
|
|
5,896
|
|
|
18,689
|
|
|
17,764
|
|
Total
|
$
|
20,870
|
|
|
$
|
19,312
|
|
|
$
|
62,010
|
|
|
$
|
57,917
|
|
|
|
|
|
|
|
|
|
Capital Expenditures (including capitalized software):
|
|
|
|
|
|
|
|
Workplace furnishings
|
$
|
6,494
|
|
|
$
|
6,946
|
|
|
$
|
24,001
|
|
|
$
|
18,340
|
|
Residential building products
|
5,456
|
|
|
2,695
|
|
|
12,113
|
|
|
5,874
|
|
General corporate
|
3,549
|
|
|
1,584
|
|
|
11,681
|
|
|
7,787
|
|
Total
|
$
|
15,499
|
|
|
$
|
11,225
|
|
|
$
|
47,795
|
|
|
$
|
32,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of,
October 2, 2021
|
|
As of
January 2, 2021
|
Identifiable Assets:
|
|
|
|
|
|
|
|
Workplace furnishings
|
|
|
|
|
$
|
832,055
|
|
|
$
|
762,780
|
|
Residential building products
|
|
|
|
|
415,092
|
|
|
381,550
|
|
General corporate
|
|
|
|
|
287,219
|
|
|
273,702
|
|
Total
|
|
|
|
|
$
|
1,534,366
|
|
|
$
|
1,418,032
|
|