10-Q


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM 10-Q
 
 
(MARK ONE)
 
 
 
     / X /   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended April 2, 2016
 
 
OR
 
 
     /    /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from ____________________ to ____________________
 
 
Commission File Number: 1-14225
 
 
HNI Corporation
(Exact name of registrant as specified in its charter)
 
 
Iowa
(State or other jurisdiction of
incorporation or organization)
42-0617510
(I.R.S. Employer
Identification Number)
 
 
P. O. Box 1109, 408 East Second Street
Muscatine, Iowa 52761-0071
(Address of principal executive offices)
52761-0071
(Zip Code)
 
 
Registrant's telephone number, including area code:  563/272-7400
 
 
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     o               
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   
YES       x                     NO     o  
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer      x                                                                                                      Accelerated filer       o     
Non-accelerated filer        o   (Do not check if a smaller reporting company)                    Smaller reporting company     o       
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                                             YES        o                   NO      x        
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Class
Common Shares, $1 Par Value
Outstanding at April 2, 2016 45,375,427




HNI CORPORATION AND SUBSIDIARIES
 
 
INDEX
 
 
PART I.    FINANCIAL INFORMATION
 
Page
 
 
Item 1.    Financial Statements (Unaudited)
 
 
 
Condensed Consolidated Balance Sheets - April 2, 2016 and January 2, 2016
 
 
Condensed Consolidated Statements of Comprehensive Income - Three Months Ended April 2, 2016 and April 4, 2015
 
 
Consolidated Statements of Equity - April 2, 2016 and April 4, 2015
 
 
Condensed Consolidated Statements of Cash Flows - Three Months Ended April 2, 2016 and April 4, 2015
 
 
Notes to Condensed Consolidated Financial Statements
 
 
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4.    Controls and Procedures
 
 
PART II.    OTHER INFORMATION
 
 
Item 1.    Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 3.    Defaults Upon Senior Securities - None
-
 
 
Item 4.    Mine Safety Disclosures - Not Applicable
-
 
 
Item 5.    Other Information - None
-
 
 
Item 6.    Exhibits
 
 
SIGNATURES
 
 
EXHIBIT INDEX
  

2



PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements

HNI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
April 2,
2016
 
January 2,
2016
 
 
ASSETS
(In thousands)
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
38,566

 
$
28,548

Short-term investments
4,952

 
4,252

Receivables
218,179

 
243,409

Inventories
147,928

 
125,228

Prepaid expenses and other current assets
33,870

 
36,933

Total Current Assets
443,495

 
438,370

 
 
 
 
PROPERTY, PLANT, AND EQUIPMENT
 
 
 

Land and land improvements
29,240

 
28,801

Buildings
303,644

 
298,516

Machinery and equipment
530,572

 
515,131

Construction in progress
24,720

 
31,986

 
888,176

 
874,434

Less accumulated depreciation
540,867

 
533,275

 
 
 
 
Net Property, Plant, and Equipment
347,309

 
341,159

 
 
 
 
GOODWILL
294,262

 
277,650

 
 
 
 
DEFERRED TAX CHARGES
332

 

 
 
 
 
OTHER ASSETS
226,054

 
206,746

 
 
 
 
Total Assets
$
1,311,452

 
$
1,263,925


See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
 


 


3



HNI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
April 2,
2016
 
January 2,
2016
 
 
LIABILITIES AND EQUITY
(In thousands, except share and per share value data)
CURRENT LIABILITIES
 
 
 
Accounts payable and accrued expenses
$
349,841

 
$
424,405

Note payable and current maturities of long-term
debt and capital lease obligations
105,293

 
5,477

Current maturities of other long-term obligations
4,073

 
6,018

Total Current Liabilities
459,207

 
435,900

 
 
 
 
LONG-TERM DEBT
195,000

 
185,000

 
 
 
 
OTHER LONG-TERM LIABILITIES
77,315

 
76,792

 
 
 
 
DEFERRED INCOME TAXES
91,365

 
88,934

 
 
 
 
COMMITMENTS AND CONTINGENCIES


 


 
 
 
 
EQUITY
 

 
 

HNI Corporation shareholders' equity:
 

 
 

Capital Stock:
 

 
 

    Preferred, $1 par value, authorized 2,000,000 shares, no shares outstanding

 

 
 
 
 
    Common, $1 par value, authorized 200,000,000 shares, outstanding -


 


April 2, 2016 – 44,375,427 shares;


 


January 2, 2016 – 44,158,256 shares
44,375

 
44,158

 
 
 
 
Additional paid-in capital
15,689

 
4,407

Retained earnings
433,659

 
433,575

Accumulated other comprehensive income(loss)
(5,502
)
 
(5,186
)
Total HNI Corporation shareholders' equity
488,221

 
476,954

 
 
 
 
Noncontrolling interest
344

 
345

 
 
 
 
Total Equity
488,565

 
477,299

 
 
 
 
Total Liabilities and Equity
$
1,311,452

 
$
1,263,925


See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
 

 


4



HNI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 
Three Months Ended
 
April 2,
2016
 
April 4,
2015
 
 
 
(In thousands, except share and per share data)
Net sales
$
501,037

 
$
523,477

Cost of sales
315,326

 
338,977

Gross profit
185,711

 
184,500

Selling and administrative expenses
165,106

 
168,704

Restructuring charges
1,086

 
377

Operating income
19,519

 
15,419

Interest income
78

 
90

Interest expense
1,874

 
1,989

Income before income taxes
17,723

 
13,520

Income taxes
5,881

 
5,068

Net income
11,842

 
8,452

Less: Net loss attributable to the noncontrolling interest
(1
)
 
(26
)
Net income attributable to HNI Corporation
$
11,843

 
$
8,478

 
 
 
 
Net income attributable to HNI Corporation per common share – basic
$
0.27

 
$
0.19

Average number of common shares outstanding – basic
44,258,357

 
44,303,788

Net income attributable to HNI Corporation per common share – diluted
$
0.26

 
$
0.19

Average number of common shares outstanding – diluted
45,039,918

 
45,523,785

Cash dividends per common share
$
0.265

 
$
0.25

 
 
 
 
 
 
 
 
Other comprehensive income/(loss), net of tax: three months 2016 $(332); 2015 $134
(316
)
 
319

Comprehensive income
11,526

 
8,771

Less: Comprehensive (loss) attributable to noncontrolling interest
(1
)
 
(26
)
Comprehensive income attributable to HNI Corporation
$
11,527

 
$
8,797




See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


5



         HNI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
Common
Stock

 
Additional
Paid-in
Capital

 
Retained
Earnings

 
Accumulated Other
Comprehensive
(Loss)/Income

 
Non-
controlling
Interest

 
Total
Shareholders’
Equity

Balance, January 2, 2016
$
44,158

 
$
4,407

 
$
433,575

 
$
(5,186
)
 
$
345

 
$
477,299

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 
11,843

 

 
(1
)
 
11,842

Other comprehensive (loss) (net of tax)

 

 

 
(316
)
 

 
(316
)
Change in ownership of noncontrolling interest

 

 


 

 


 

Cash dividends; $0.265 per share

 

 
(11,759
)
 

 

 
(11,759
)
Common shares – treasury:
 
 
 
 
 
 
 
 
 
 
 
Shares purchased
(49
)
 
(1,643
)
 

 

 

 
(1,692
)
Shares issued under Members’ Stock Purchase Plan and stock awards
266

 
12,925

 

 

 

 
13,191

Balance, April 2, 2016
$
44,375

 
$
15,689

 
$
433,659

 
$
(5,502
)
 
$
344

 
$
488,565



(In thousands)
Common
Stock

 
Additional
Paid-in
Capital

 
Retained
Earnings

 
Accumulated Other
Comprehensive
(Loss)/Income

 
Non-
controlling
Interest

 
Total
Shareholders’
Equity

Balance, January 3, 2015
$
44,166

 
$
867

 
$
374,929

 
$
(5,375
)
 
$
(86
)
 
$
414,501

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 
8,478

 

 
(26
)
 
8,452

Other comprehensive (loss) (net of tax)

 

 

 
319

 

 
319

Change in ownership of noncontrolling interest

 

 
(462
)
 

 
462

 

Cash dividends; $0.25 per share

 

 
(11,117
)
 

 

 
(11,117
)
Common shares – treasury:
 
 
 
 
 
 
 
 
 
 
 
Shares purchased
(104
)
 
(5,190
)
 

 

 

 
(5,294
)
Shares issued under Members’ Stock Purchase Plan and stock awards
423

 
20,296

 

 

 

 
20,719

Balance, April 4, 2015
$
44,485

 
$
15,973

 
$
371,828

 
$
(5,056
)
 
$
350

 
$
427,580



See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


6



HNI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
 
April 2, 2016
 
April 4, 2015
 
(In thousands)
Net Cash Flows From (To) Operating Activities:
 
 
 
Net income
$
11,842

 
$
8,452

Noncash items included in net income:


 


Depreciation and amortization
15,251

 
13,860

Other postretirement and post employment benefits
411

 
417

Stock-based compensation
5,340

 
3,485

Excess tax benefits from stock compensation
(6
)
 
(1,313
)
Deferred income taxes
2,711

 
2,084

(Gain) loss on sale, retirement and impairment of long-lived assets and intangibles, net
60

 
76

Other – net
1,589

 
2,405

Net increase (decrease) in operating assets and liabilities
(54,239
)
 
(80,938
)
Increase (decrease) in other liabilities
(3,189
)
 
2,155

Net cash flows from (to) operating activities
(20,230
)
 
(49,317
)
 
 
 
 
Net Cash Flows From (To) Investing Activities:
 

 
 

Capital expenditures
(21,270
)
 
(20,085
)
Proceeds from sale of property, plant and equipment
151

 
52

Capitalized software
(6,187
)
 
(8,138
)
Acquisition spending, net of cash acquired
(34,064
)
 

Purchase of investments
(958
)
 

Sales or maturities of investments
900

 

Other – net
502

 

Net cash flows from (to) investing activities
(60,926
)
 
(28,171
)
 
 
 
 
Net Cash Flows From (To) Financing Activities:
 

 
 

Proceeds from sales of HNI Corporation common stock
1,005

 
8,954

Purchase of HNI Corporation common stock
(1,692
)
 
(5,294
)
Proceeds from note and long-term debt
273,154

 
130,524

Payments of note and long-term debt and other financing
(169,540
)
 
(55,567
)
Excess tax benefits from stock compensation
6

 
1,313

Dividends paid
(11,759
)
 
(11,117
)
Net cash flows from (to) financing activities
91,174

 
68,813

 
 
 
 
Net increase (decrease) in cash and cash equivalents
10,018

 
(8,675
)
Cash and cash equivalents at beginning of period
28,548

 
34,144

Cash and cash equivalents at end of period
$
38,566

 
$
25,469

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

 

7



HNI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 2, 2016

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, 2016 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 three-month period ended April 2, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016.  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, 2016.


Note 2. Stock-Based Compensation

The Corporation measures stock-based compensation expense at grant date, based on the fair value of the award, and recognizes expense over the employees' requisite service periods.  For the three months ended April 2, 2016 the Corporation recognized $5.3 million of stock based compensation expense. For the three months ended April 4, 2015 the Corporation recognized $3.5 million of stock based compensation expense. Stock-based compensation expense is the cost of stock options and time-based restricted stock units issued under the HNI Corporation 2007 Stock-Based Compensation Plan and shares issued under the HNI Corporation 2002 Members' Stock Purchase Plan. The Corporation granted stock options with fair values of $7.6 million and $6.5 million and time-based restricted stock units with adjusted fair values of $0.5 million and $1.1 million in the three months ended April 2, 2016 and April 4, 2015, respectively.

At April 2, 2016, there was $5.0 million of unrecognized compensation cost related to nonvested stock options, which the Corporation expects to recognize over a weighted-average remaining service period of 1.5 years and $1.3 million of unrecognized compensation cost related to nonvested restricted stock units, which the Corporation expects to recognize over a weighted-average remaining service period of 1.2 years.

Note 3.  Inventories

The Corporation values its inventory at the lower of cost or market with approximately 75% valued by the last-in, first-out ("LIFO") costing method.

 
(In thousands)
 
April 2, 2016
 
January 2, 2016
 
 
Finished products
 
$
91,794

 
$
68,478

Materials and work in process
 
81,244

 
81,860

LIFO allowance
 
(25,110
)
 
(25,110
)
 
 
$
147,928

 
$
125,228




8



Note 4.  Accumulated Other Comprehensive Income (Loss) and Shareholders' Equity

The following table summarizes the components of accumulated other comprehensive income (loss) and the changes in accumulated other comprehensive income (loss), net of tax, as applicable for the three months ended April 2, 2016:
 
 
 
 
(In thousands)
 
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses) on Marketable Securities
 
 
Pension Postretirement Liability
 
 
Derivative Financial Instruments
 
Accumulated Other Comprehensive Income (Loss)
Balance at January 2, 2016
 
$
322

 
$
(2
)
 
$
(5,506
)
 
$

 
$
(5,186
)
Other comprehensive income (loss) before reclassifications
 
157

 
50

 


 
(582
)
 
(375
)
Amounts reclassified from accumulated other comprehensive (income)loss
 


 


 


 
59

 
59

Balance at April 2, 2016
 
$
479

 
$
48

 
$
(5,506
)
 
$
(523
)
 
$
(5,502
)
All amounts are net-of tax. Amounts in parentheses indicate debits.

In March 2016, the Corporation entered in to an interest rate swap transaction to hedge $150 million of outstanding variable rate revolver borrowings against future interest rate volatility. Under the terms of the interest rate swap, the Corporation pays a fixed rate of 1.29 percent and receives 1 month LIBOR on a $150 million notional value expiring January 2021. As of April 2, 2016, the fair value of the Corporation's interest rate swap was a liability of $0.8 million reported net of tax as $0.5 million in accumulated other comprehensive income.

The following table details the reclassifications from accumulated other comprehensive income (loss) for the three months ended April 2, 2016 and April 4, 2015 (in thousands):
 
 
 
 
Three Months Ended
Details about Accumulated Other Comprehensive Income (Loss) Components
 
Affected Line Item in the Statement Where Net Income Is Presented
 
April 2, 2016
 
April 4, 2015
Derivative financial instruments
 
 
 
 
 
 
Interest rate swap
 
Selling and administrative expenses
 
$
(93
)
 
$

 
 
Tax (expense) or benefit
 
34

 

 
 
Net of tax
 
$
(59
)
 
$

 
 
 
 
 
 
 
Diesel hedge
 
Selling and administrative expenses
 
$

 
$
(694
)
 
 
Tax (expense) or benefit
 

 
232

 
 
Net of tax
 
$

 
$
(462
)
Net
 
 
 
$
(59
)
 
$
(462
)
Amounts in parentheses indicate reductions to profit.

During the three months ended April 2, 2016, the Corporation repurchased 49,400 shares of its common stock at a cost of approximately $1.7 million.  As of April 2, 2016, $191.0 million of the Corporation's Board of Directors' ("Board") current repurchase authorization remained unspent.

During the three months ended April 2, 2016, the Corporation paid dividends to shareholders of $0.265 per share.



9



Note 5.  Earnings Per Share

The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS"):
 
 
Three Months Ended
(In thousands, except per share data)
 
April 2, 2016
 
April 4, 2015
Numerators:
 
 
 
 
Numerator for both basic and diluted EPS attributable to HNI Corporation net income
 
$
11,843

 
$
8,478

Denominators:
 
 

 
 

Denominator for basic EPS weighted-average common shares outstanding
 
44,258

 
44,304

Potentially dilutive shares from stock-based compensation plans
 
782

 
1,220

Denominator for diluted EPS
 
45,040

 
45,524

Earnings per share – basic
 
$
0.27

 
$
0.19

Earnings per share – diluted
 
$
0.26

 
$
0.19


The weighted average common stock equivalents presented above do not include the effect of 1,446,530 and 268,494 common stock equivalents for the three months ended April 2, 2016 and April 4, 2015, respectively, because their inclusion would be anti-dilutive.
  

Note 6.  Restructuring

As a result of the Corporation's ongoing business simplification and structural cost transformation strategies, the Corporation has closed, consolidated, and realigned a number of its facilities. Restructuring costs associated with these activities during the quarters ended April 2, 2016 and April 4, 2015 were $1.1 million and $0.4 million, respectively.

The following is a summary of changes in restructuring accruals during the three months ended April 2, 2016.  

 
(In thousands)
 
Severance
 
Facility Exit Costs & Other
 
Total
Balance as of January 2, 2016
 
$
206

 
$
15

 
$
221

Restructuring charges
 
416

 
670

 
1,086

Cash payments
 
(121
)
 
(670
)
 
(791
)
Balance as of April 2, 2016
 
$
501

 
$
15

 
$
516


The portion of the restructuring reserve expected to be paid in the next twelve months was $0.5 million as of April 2, 2016 and is included in "Accounts payable and accrued expenses" in the Condensed Consolidated Balance Sheets.


10



Note 7. Goodwill and Other Intangible Assets

The table below summarizes amortizable definite-lived intangible assets as of April 2, 2016 and January 2, 2016, which are reflected in the "Other Assets" line item in the Corporation's Condensed Consolidated Balance Sheets:
 
 
April 2, 2016
 
January 2, 2016
(In thousands)
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Patents
 
$
18,645

 
$
18,617

 
$
28

 
$
18,645

 
$
18,615

 
$
30

Software
 
130,585

 
22,178

 
108,407

 
122,892

 
21,193

 
101,699

Trademarks and trade names
 
8,564

 
893

 
7,671

 
6,564

 
753

 
5,811

Customer lists and other
 
114,852

 
59,978

 
54,874

 
105,586

 
60,063

 
45,523

Net definite lived intangible assets
 
$
272,646

 
$
101,666

 
$
170,980

 
$
253,687

 
$
100,624

 
$
153,063


Aggregate amortization expense for the three months ended April 2, 2016 and April 4, 2015 was $2.4 million and $2.8 million, respectively. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five fiscal years is as follows:

(In millions)
 
2016
 
2017
 
2018
 
2019
 
2020
Amortization expense
 
$
13.2

 
$
19.7

 
$
19.9

 
$
19.0

 
$
18.6


As events such as acquisitions, dispositions or impairments occur in the future, these amounts may change.

The Corporation also owns certain trademarks and trade names with a net carrying amount of $41.0 million as of April 2, 2016 and January 2, 2016.  These trademarks and trade names, which are reflected in the "Other Assets" line in the Corporation's Condensed Consolidated Balance Sheets, are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely.

The changes in the carrying amount of goodwill since January 2, 2016 are as follows by reporting segment:
 
(In thousands)
 
Office
Furniture
 
Hearth
Products
 
Total
Balance as of January 2, 2016
 
 
 
 
 
 
Goodwill
 
$
149,718

 
$
183,199

 
$
332,917

Accumulated impairment losses
 
(55,124
)
 
(143
)
 
(55,267
)
Net goodwill balance as of January 2, 2016
 
94,594

 
183,056

 
277,650

Goodwill acquired
 
16,615

 

 
16,615

Foreign currency translation adjustments
 
(3
)
 

 
(3
)
Balance as of April 2, 2016
 
 

 
 

 
 
Goodwill
 
166,330

 
183,199

 
349,529

Accumulated impairment losses
 
(55,124
)
 
(143
)
 
(55,267
)
Net goodwill balance as of April 2, 2016
 
$
111,206

 
$
183,056

 
$
294,262


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 estimates the fair value of its reporting units using various valuation techniques, with the primary technique being a discounted cash flow method.  This method employs market participant based assumptions.


11



Note 8.  Product Warranties

The Corporation issues certain warranty policies on its office furniture and hearth products that provide for repair or replacement of any covered product or component that fails during normal use because of a defect in design or workmanship. Reserves have been established for the various costs associated with the Corporation's warranty programs.

A warranty reserve is determined by recording a specific reserve for known warranty issues and an additional reserve for unknown claims that are expected to be incurred based on historical claims experience.  Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve.  Activity associated with warranty obligations was as follows during the periods noted:
 
 
Three Months Ended
(In thousands)
 
April 2, 2016
 
April 4, 2015
Balance at beginning of period
 
$
16,227

 
$
16,719

Accruals for warranties issued during period
 
5,480

 
6,102

Adjustments related to pre-existing warranties
 
281

 
339

Settlements made during the period
 
(5,831
)
 
(6,381
)
Balance at end of period
 
$
16,157

 
$
16,779


The portion of the reserve for estimated settlements expected to be paid in the next twelve months was $8.1 million and $8.5 million as of April 2, 2016 and April 4, 2015, respectively, and is included in "Accounts payable and accrued expenses" in the Condensed Consolidated Balance Sheets. The portion of the reserve for settlements expected to be paid beyond one year was $8.1 million and $8.3 million as of April 2, 2016 and April 4, 2015, respectively, and is included in "Other Long-Term Liabilities" in the Condensed Consolidated Balance Sheets.


Note 9.  Postretirement Health Care

The following table sets forth the components of net periodic benefit cost included in the Corporation's Condensed Consolidated Statements of Comprehensive Income for:
 
 
Three Months Ended
(In thousands)
 
April 2, 2016
 
April 4, 2015
Service cost
 
$
185

 
$
201

Interest cost
 
211

 
204

Amortization of (gain)/loss
 
15

 
59

Net periodic benefit cost
 
$
411

 
$
464

  

Note 10.  Income Taxes

The Corporation's income tax provision for the three months ended April 2, 2016 was $5.9 million on pre-tax income of $17.7 million or an effective tax rate of 33.2 percent. For the three months ended April 4, 2015, the Corporation's income tax provision was $5.1 million on pre-tax income of $13.5 million or an effective tax rate of 37.5 percent. The effective tax rate was lower in the three months ended April 2, 2016 principally due to timing of the enactment of the R&D tax credit and change in mix related to foreign earnings.



Note 11.  Fair Value Measurements

For recognition purposes, on a recurring basis the Corporation is required to measure at fair value its marketable securities and derivative instruments.  The marketable securities are comprised of government securities, corporate bonds and money market funds. 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

12



from published exchanges and indexes) to calculate fair value using the market approach, in which case the measurements are classified within Level 2.

Assets measured at fair value as of April 2, 2016 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)
Government securities
 
$
9,378

 
$

 
$
9,378

 
$

Corporate bonds
 
$
2,820

 
$

 
$
2,820

 
$

Derivative financial instruments
 
$
(1,667
)
 
$

 
$
(1,667
)
 
$



Assets measured at fair value as of January 2, 2016 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)
Government securities
 
$
9,663

 
$

 
$
9,663

 
$

Corporate bonds
 
$
2,405

 
$

 
$
2,405

 
$

Derivative financial instruments
 
$
(1,252
)
 
$

 
$
(1,252
)
 
$


In addition to the methods and assumptions the Corporation uses to record the fair value of financial instruments as discussed above in this section, it uses the following methods and assumptions to estimate the fair value of its financial instruments.

Cash and cash equivalents - Level 1
The carrying amount approximated fair value and includes money market funds.


Long-term debt (including current portion) - Level 2
The carrying value of the Corporation's outstanding variable-rate debt obligations at April 2, 2016 and January 2, 2016, the end of the Corporation's 2015 fiscal year, was $150 million and $40 million, respectively, which approximated the fair value.  The fair value of the Corporation's outstanding fixed-rate, long-term debt obligations is estimated based on a discounted cash flow method to be $147 million at April 2, 2016 and $148 million at January 2, 2016, compared to the carrying value of $150 million. This debt is classified as long term on the Condensed Consolidated Balance Sheet as of April 2, 2016 since the Corporation subsequently paid off its senior notes upon maturity on April 6, 2016 with revolving credit facility borrowings expected to remain outstanding for more than twelve months.

The Corporation, certain domestic subsidiaries of the Corporation, the lenders and Wells Fargo Bank, National Association, as administrative agent, entered into the First Amendment to Second Amended and Restated Credit Agreement (the "Credit Agreement") on January 6, 2016. The Credit Agreement amends the Second Amended and Restated Credit Agreement dated as of June 9, 2015.

The Credit Agreement was amended to increase the revolving commitment of the lenders from $250 million to $400 million (while retaining the Corporation's option under the Credit Agreement to increase its borrowing capacity by an additional $150 million) in order to provide funding for the pay off of its maturing senior notes on April 6, 2016 and to extend the maturity date of the Credit Agreement from June 2020 to January 2021. The Corporation deferred the debt issuance costs related to the Credit Agreement, which were classified as assets, and is amortizing them over the term of the Credit Agreement.

As of April 2, 2016, there was $150 million outstanding under the $400 million revolving credit facility of which $45 million was classified as long-term since the Corporation does not expect to repay the borrowings within a year and the remaining $105 million was classified as current.




13




Note 12.  Commitments and Contingencies

The Corporation utilizes letters of credit in the amount of $9 million to back certain insurance policies and payment obligations.  The Corporation utilizes trade letters of credit and bankers acceptances in the amount of $3 million to guarantee certain payments to overseas suppliers. The letters of credit and bankers 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 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.

14



Note 13.  New Accounting Standards

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2015-05, Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The ASU applies to cloud computing arrangements including software as a service, platform as a service, infrastructure as a service, and other similar hosting arrangements, and was issued to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The ASU provides guidance about whether the arrangement includes a software license. The core principle of the ASU is that if a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance did not change U.S. GAAP for a customer’s accounting for service contracts. The Corporation adopted the guidance effective January 3, 2016, the beginning of the Corporation's 2016 fiscal year. The guidance did not have a material impact on the Corporation's financial statements.

The FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying Presentation of Debt Issuance Costs in April 2015, which was further clarified by ASU No. 2015-15 in August 2015. The core principle of the ASUs is that an entity should present debt issuance costs as a direct deduction from the face amount of that debt in the balance sheet similar to the manner in which a debt discount or premium is presented, and not reflected as a deferred charge or deferred credit. The ASU requires additional disclosure about the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial statement line item (that is, the debt issuance cost asset and the debt liability). Debt issuance costs related to line-of-credit arrangements can still be presented as assets and subesquently amortized. The Corporation adopted the guidance effective January 3, 2016, the beginning of the Corporation's 2016 fiscal year. The guidance did not have an impact on the Corporation's financial statements.


Note 14.  Business Segment Information

Management views the Corporation as being in two reportable segments based on industries: office furniture and hearth products, with the former being the principal business segment.

The aggregated office furniture segment manufactures and markets a broad line of office furniture which includes storage products, desks, credenzas, chairs, tables, bookcases, classroom solutions, freestanding office partitions and panel systems and other related products.  The hearth products segment manufactures and markets a broad line of manufactured gas, electric, wood and pellet fireplaces, inserts and 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 corporate expenses.  These unallocated corporate expenses include the net cost of the Corporation's corporate operations, interest income and interest expense.  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 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.


15



Reportable segment data reconciled to the Corporation's condensed consolidated financial statements for the three month periods ended April 2, 2016, and April 4, 2015, is as follows:
 
Three Months Ended
(In thousands)
April 2, 2016
 
April 4, 2015
Net Sales:
 
 
 
Office Furniture
$
387,339

 
$
407,429

Hearth Products
113,698

 
116,048

 
$
501,037

 
$
523,477

Operating Profit:
 
 
 
Office furniture
21,300

 
20,152

Hearth products
12,561

 
12,501

Total operating profit
33,861

 
32,653

Unallocated corporate expense
(16,138
)
 
(19,133
)
Income before income taxes
$
17,723

 
$
13,520

 
 
 
 
Depreciation & Amortization Expense:
 
 
 
Office furniture
$
10,693

 
$
10,377

Hearth products
2,656

 
1,958

General corporate
1,902

 
1,525

 
$
15,251

 
$
13,860

 
 
 
 
Capital Expenditures (including capitalized software):
 
 
 
Office furniture
$
16,468

 
$
14,551

Hearth products
2,553

 
2,404

General corporate
8,436

 
11,268

 
$
27,457

 
$
28,223

 
 
 
 
 
As of
 
As of
(In thousands)
April 2,
2016
 
January 2,
2016
Identifiable Assets:
 
 
 
Office furniture
$
764,741

 
$
739,915

Hearth products
348,194

 
341,813

General corporate
198,517

 
182,197

 
$
1,311,452

 
$
1,263,925




Note 15. Business Combinations

On January 29, 2016, the Corporation acquired a small office furniture company with annual sales of approximately $30 million at a purchase price of approximately $34 million, net of cash acquired. The Corporation will finalize the allocation of purchase price during 2016 based on final purchase price and fair value adjustments. Based on the preliminary allocation, there were approximately $13 million of intangible assets other than goodwill associated with this acquisition with estimated useful lives ranging from three to twelve years with amortization recorded on a straight line basis based on the projected cash flow associated with the respective intangible assets’ existing relationship. There was approximately $17 million of goodwill associated with this acquisition.



16



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


Overview

The Corporation is a leading global office furniture manufacturer and North America's leading manufacturer and marketer of gas and wood-burning fireplaces. The Corporation has two reportable segments:  office furniture and hearth products.   The Corporation utilizes a split and focused, decentralized business model to deliver value to customers through various brands and selling models.  The Corporation is focused on growing existing businesses while seeking out and developing new opportunities for growth.

Net sales for the first quarter of fiscal 2016 decreased 4.3 percent to $501.0 million when compared to the first quarter of fiscal 2015.  The change was driven by a decrease in organic sales across both the office furniture and hearth products segments. The office furniture segment sales are down due to strong prior year comparisons and a softer market environment. The hearth segment saw continued growth in the new construction channel offset by an ongoing decline in the retail pellet channel due to warm weather and low oil prices.  Gross margin for the quarter increased from prior year levels due to strong operational performance, lower material costs, and price realization partially offset by lower volume.  Total selling and administrative expenses increased as a percentage of sales due to higher incentive based compensation and strategic investments partially offset by broad based cost reductions.

In conjunction with previously announced closures, consolidation, and realignments, the Corporation recorded $2.9 million of restructuring and transition costs in the quarter ended April 2, 2016 of which $1.8 million were included in cost of sales. Transition costs include items such as equipment moves and facility transformations.

Results of Operations

The following table presents certain key highlights from the results of operations for the periods indicated:

        
 
Three Months Ended
 
(In thousands)
April 2, 2016
 
April 4, 2015
 
Percent
Change
Net sales
$
501,037

 
$
523,477

 
(4.3
)%
Cost of sales
315,326

 
338,977

 
(7.0
)%
Gross profit
185,711

 
184,500

 
0.7
 %
Selling and administrative expenses
165,106

 
168,704

 
(2.1
)%
Restructuring charges
1,086

 
377

 
188.1
 %
Operating income
19,519

 
15,419

 
26.6
 %
Interest expense, net
1,796

 
1,899

 
(5.4
)%
Income before income taxes
17,723

 
13,520

 
31.1
 %
Income taxes
5,881

 
5,068

 
16.0
 %
Net income
$
11,842

 
$
8,452

 
40.1
 %
 
 

 
 

 
 



Consolidated net sales for the first quarter of 2016 decreased 4.3 percent or $22.4 million compared to the same quarter last year. The change was driven by a decrease in organic sales across both the office furniture and hearth products segments. The office furniture segment sales are down due to strong prior year comparisons and a softer market environment. The hearth segment saw continued growth in the new construction channel offset by an ongoing decline in the retail pellet channel due to warm weather and low oil prices.

Gross margin for the first quarter of 2016 increased to 37.1 percent compared to 35.2 percent for the same quarter last year.  The increase in gross margin was driven by strong operational performance, lower material costs, and price realization partially offset by lower volume. First quarter 2016 included $1.8 million of transition and restructuring costs related to previously announced closures and structural realignment. First quarter 2015 included $1.1 million of accelerated depreciation and transition costs related to previously announced closures.

17



  
Total selling and administrative expenses as a percentage of net sales increased to 33.0 percent compared to 32.2 percent for the same quarter last year driven by higher incentive based compensation and strategic investments partially offset by lower volume. In the first quarter of 2016, the Corporation recorded $1.1 million in restructuring costs due to previously announced closures, consolidations, and realignments. First quarter 2015 included $0.4 million of restructuring costs on these activities.

The Corporation's income tax provision for the three months ended April 2, 2016 was $5.9 million on pre-tax income of $17.7 million or an effective tax rate of 33.2 percent. For the three months ended April 4, 2015, the Corporation's income tax provision was $5.1 million on pre-tax income of $13.5 million or an effective tax rate of 37.5 percent. The effective tax rate was lower in the three months ended April 2, 2016 principally due to timing of the enactment of the R&D tax credit and change in mix related to foreign earnings.

Net income attributable to the Corporation was $11.8 million or $0.26 per diluted share in the first quarter of 2016 compared to $8.5 million or $0.19 per diluted share in the first quarter of 2015.


Office Furniture

First quarter 2016 net sales for the office furniture segment decreased 4.9 percent or $20.1 million to $387.3 million from $407.4 million for the same quarter last year. Sales for the quarter decreased across both the supplies-driven and contract channels due to strong prior year comparisons and a softer market environment. First quarter 2016 operating profit increased 5.7 percent or $1.1 million to $21.3 million from $20.2 million in the prior year quarter as a result of strong operational performance, favorable material costs, price realization and cost reductions. These factors were partially offset by lower volume and higher incentive based compensation. In the first quarter of 2016, the office furniture segment recorded $1.7 million of restructuring and transition costs associated with previously announced facility closures. In the first quarter of 2015, the office furniture segment recorded $1.5 million of restructuring and transition costs for these closures.


Hearth Products

First quarter 2016 net sales for the hearth products segment decreased 2.0 percent or $2.4 million to $113.7 million from $116.0 million for the same quarter last year. Warm weather and low oil prices drove the decline in the retail pellet channel but were partially offset by continued growth in the new construction channel. Operating profit increased 0.5 percent or $0.1 million to $12.6 million compared to $12.5 million in the prior year quarter. Strong operational performance, favorable material costs and price realization were largely offset by lower volume and higher incentive based compensation. In the first quarter of 2016, the hearth products segment recorded $1.2 million of restructuring and transition costs associated with the closure of its Paris, Kentucky facility.


Liquidity and Capital Resources

Cash Flow – Operating Activities
Operating activities used $20.2 million of cash in the first three months of 2016 compared to $49.3 million used in the first three months of 2015.  Working capital resulted in a $54.2 million use of cash in the first three months of the current fiscal year compared to a $80.9 million use of cash in the same period of the prior year. The decreased use of cash compared to prior year is due to lower Accounts Receivable as a result of timing and lower sales. Cash flow from operating activities is expected to be positive for the year.
     
Cash Flow – Investing Activities
Capital expenditures, including capitalized software, for the first three months of fiscal 2016 were $27.5 million compared to $28.2 million in the same period of fiscal 2015 and were primarily for tooling and equipment for new products, continuous improvements in manufacturing processes and the on-going implementation of an integrated information systems to support business process transformation.  For the full year 2016, capital expenditures are expected to be approximately $115 to $120 million.

Cash Flow – Financing Activities
The Corporation, certain domestic subsidiaries of the Corporation, the lenders and Wells Fargo Bank, National Association, as administrative agent, entered into the First Amendment to Second Amended and Restated Credit Agreement on January 6, 2016. The Credit Agreement amends the Second Amended and Restated Credit Agreement dated as of June 9, 2015.


18



The Credit Agreement was amended to increase the revolving commitment of the lenders from $250 million to $400 million (while retaining the Corporation's option under the Credit Agreement to increase its borrowing capacity by an additional $150 million) in order to provide funding for the pay off of its maturing senior notes on April 6, 2016 and to extend the maturity date of the Credit Agreement from June 2020 to January 2021. The Corporation deferred the debt issuance costs related to the Credit Agreement, which were classified as assets, and is amortizing them over the term of the Credit Agreement.

As of April 2, 2016, there was $150 million outstanding under the $400 million revolving credit facility of which $45 million was classified as long-term since the Corporation does not expect to repay the borrowings within a year and the remaining $105 million was classified as current.

The revolving credit facility under the Credit Agreement is the primary source of committed funding from which the Corporation finances its planned capital expenditures and strategic initiatives, such as acquisitions, repurchases of common stock and certain working capital needs.  Non-compliance with the various financial covenant ratios in the Credit Agreement could prevent the Corporation from being able to access further borrowings under the revolving credit facility, require immediate repayment of all amounts outstanding with respect to the revolving credit facility and/or increase the cost of borrowing.

The Credit Agreement contains a number of covenants, including covenants requiring maintenance of the following financial ratios as of the end of any fiscal quarter:

a consolidated interest coverage ratio of not less than 4.0 to 1.0, based upon the ratio of (a) consolidated EBITDA (as defined in the Credit Agreement) for the last four fiscal quarters to (b) the sum of consolidated interest charges; and
a consolidated leverage ratio of not greater than 3.5 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness (as defined in the Credit Agreement) 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, nonrecurring charges and all non-cash items increasing net income.  At April 2, 2016, the Corporation was well 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 over the next twelve months.

In 2006, the Corporation refinanced $150 million of borrowings outstanding under its prior revolving credit facility with 5.54 percent, ten-year unsecured senior notes ("Senior Notes") due April 6, 2016 issued through the private placement debt market.  Interest payments were due semi-annually on April 6 and October 6 of each year and the principal was due in a lump sum on April 6, 2016. The $150 million of indebtedness related to the Senior Notes was classified as long term as of April 2, 2016 since the Corporation subsequently paid off the Senior Notes upon maturity on April 6, 2016 as planned with $150 million of revolving credit facility borrowings expected to remain outstanding for more than twelve months.
 
In March 2016, the Corporation entered in to an interest rate swap transaction to hedge $150 million of outstanding variable rate revolver borrowings against future interest rate volatility. Under the terms of the interest rate swap, the Corporation pays a fixed rate of 1.29 percent and receives 1 month LIBOR on a $150 million notional value expiring January 2021. As of April 2, 2016, the fair value of the Corporation's interest rate swap was a liability of $0.8 million reported net of tax as $0.5 million in accumulated other comprehensive income.

On February 17 2016, the Corporation's Board of Directors (the "Board") declared a regular quarterly cash dividend of $0.265 per share on the Corporation's common stock to shareholders of record at the close of business on February 29, 2016. The dividend was paid on March 7, 2016.

During the three months ended April 2, 2016, the Corporation repurchased 49,400 shares of common stock at a cost of $1.7 million, or an average price of $34.25 per share.  As of April 2, 2016, $191.0 million of the Board's current repurchase authorization remained unspent.

Cash, cash equivalents and short-term investments, coupled with cash flow from future operations, borrowing capacity under the existing Credit Agreement and the ability to access capital markets, are expected to be adequate to fund operations and satisfy cash flow needs for at least the next twelve months.






19



Off-Balance Sheet Arrangements

The Corporation does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Corporation's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

Contractual obligations associated with ongoing business and financing activities will result in cash payments in future periods.  A table summarizing the amounts and estimated timing of these future cash payments was provided in the Corporation's Annual Report on Form 10-K for the year ended January 2, 2016.  With the exception of the debt refinancing as described in Note 11 of the Notes to the Condensed Consolidated Financial Statements, there were no material changes outside the ordinary course of business in the Corporation's contractual obligations or the estimated timing of the future cash payments for the three months of fiscal 2016.

Commitments and Contingencies

The Corporation is involved in various kinds of disputes and legal proceedings that have arisen in the ordinary course of business, including pending litigation, environmental remediation, taxes and other claims.  It is the Corporation's opinion, after consultation with legal counsel, that additional 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.


Critical Accounting Policies and Estimates

The preparation of the financial statements requires the Corporation to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  The Corporation continually evaluates its accounting policies and estimates.  The Corporation bases its estimates on historical experience and on a variety of other assumptions believed by management to be reasonable in order to make judgments about the carrying value of assets and liabilities.  Actual results may differ from these estimates under different assumptions or conditions.  A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Corporation's Annual Report on Form 10-K for the year ended January 2, 2016.  


New Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard will replace most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU requires companies to reevaluate when revenue is recorded on a transaction based upon newly defined criteria, either at a point in time or over time as goods or services are delivered. The ASU requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates, and changes in those estimates. The new standard becomes effective for the Corporation in fiscal 2018, and allows for both retrospective and modified-retrospective methods of adoption. The Corporation is currently evaluating the effect, if any, that the updated standard will have on consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires lesees to recognize most leases, including operating leases, on-balance sheet via a right of use asset and lease liability. Changes to the lessee accounting model may change key balance sheet measures and ratios, potentially affecting analyst expectations and compliance with financial covenants. The new standard becomes effective for the Corporation in fiscal 2019, but may be adopted at any time, and requires a modified retrospective transition. The Corporation is currently evaluating the effect the standard will have on consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU No. 2016-07 Simplifying the Transition to the Equity Method of Accounting. The new standard eliminates the requirement for an investor to retroactively apply the equity method when an increase in ownership interest in an investee triggers equity method accounting. The new standard becomes effective for the Corporation in fiscal 2017. The Corporation anticipates the standard will have an immaterial effect on consolidated financial statements and related disclosures.


20



In March 2016, the FASB issue ASU No. 2016-09 Improvements to Employee Share-Based Payment Accounting. The new standard is intended to simplify accounting for share based employment awards to employees. Changes include: all excess tax benefits/deficiencies should be recognized as income tax expense/benefit; entities can make elections on how to account for forfeitures; and cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity on the cash flow statement. The new standard becomes effective for the Corporation in fiscal 2017. The Corporation is currently evaluating the impact to the consolidated financial statements and related disclosures.

 
Looking Ahead

Management remains optimistic about the long term prospects in the office furniture and hearth products markets.  Management believes the Corporation continues to compete well and remains confident the investments made in the business will continue to generate strong returns for shareholders.


Forward-Looking Statements

Statements in this report that are not strictly historical, including statements as to plans, outlook, objectives and future financial performance, are "forward-looking" statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Words, such as "anticipate," "believe," "could," "confident," "estimate," "expect," "forecast," "hope,"

21



"intend," "likely," "may," "plan," "possible," "potential," "predict," "project," "should," "will," "would" and variations of such words and similar expressions identify forward-looking statements.  Forward-looking statements involve known and unknown risks, which may cause the Corporation's actual results in the future to differ materially from expected results.  These risks include, without limitation:  the Corporation's ability to realize financial benefits from its (a) price increases, (b) cost containment and business simplification initiatives, including its business system transformation, (c) investments in strategic acquisitions, production capacity, new products and brand building, (d) investments in distribution and rapid continuous improvement, (e) ability to maintain its effective tax rate, (f) repurchases of common stock and (g) consolidation and logistical realignment initiatives; uncertainty related to the availability of cash and credit, and the terms and interest rates on which credit would be available, to fund operations and future growth; lower than expected demand for the Corporation's products due to uncertain political and economic conditions, slow or negative growth rates in global and domestic economies or in the domestic housing market; lower industry growth than expected; major disruptions at our key facilities or in the supply of any key raw materials, components or finished goods; competitive pricing pressure from foreign and domestic competitors; higher than expected costs and lower than expected supplies of materials; higher costs for energy and fuel; changes in the mix of products sold and of customers purchasing; relationships with distribution channel partners, including the financial viability of distributors and dealers; restrictions imposed by the terms of the Corporation's revolving credit facility and note purchase agreement; currency fluctuations and other factors described in the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q.  The Corporation undertakes no obligation to update, amend, or clarify forward-looking statements.



22



Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of April 2, 2016, there were no material changes to the financial market risks that affect the quantitative and qualitative disclosures presented in Item 7A of the Corporation's Annual Report on Form 10-K for the year ended January 2, 2016.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure information required to be disclosed by the Corporation in the reports it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of management, the chief executive officer and chief financial officer of the Corporation carried out an evaluation of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rules 13a – 15(e) and 15d – 15(e).   As of April 2, 2016, based on this evaluation, the chief executive officer and chief financial officer have concluded these disclosure controls and procedures are effective.

Changes in Internal Controls
There have been no changes in the Corporation's internal control over financial reporting during the fiscal quarter covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting. On January 29, 2016, the Corporation completed the acquisition of a small office furniture company. In conducting our evaluation of the effectiveness of internal control over financial reporting, we have elected to exclude the acquisition from our evaluation as of April 2, 2016, as permitted by the Securities and Exchange Commission.


23



PART II.     OTHER INFORMATION


Item 1. Legal Proceedings

There are no new legal proceedings or material developments to report other than ordinary routine litigation incidental to the business.


Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the "Risk Factors" section of the Corporation's Annual Report on Form 10-K for the year ended January 2, 2016.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities:

The following is a summary of share repurchase activity during the quarter ended April 2, 2016.
 
 
 
 
Period
 
(a) Total Number of Shares (or Units) Purchased (1)
 
(b) Average
Price Paid
per Share or
Unit
 
(c) Total Number of
Shares (or Units)
Purchased as Part of Publicly Announced
Plans or Programs
 
(d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet be
Purchased Under
the Plans or
Programs
01/03/16 – 01/30/16
 

 
$

 

 
$
192,721,564

01/31/16 – 02/27/16
 
15,600

 
$
32.84

 
15,600

 
$
192,209,243

02/28/16 – 04/02/16
 
33,800

 
$
34.90

 
33,800

 
$
191,029,541

Total
 
49,400

 
 
 
49,400

 
 

(1) No shares were purchased outside of a publicly announced plan or program.

The Corporation repurchases shares under previously announced plans authorized by the Board as follows:
Corporation's share purchase program ("Program") announced November 9, 2007, providing share repurchase authorization of $200,000,000 with no specific expiration date, with an increase announced November 7, 2014, providing additional share repurchase authorization of $200,000,000 with no specific expiration date.
No repurchase plans expired or were terminated during the first quarter of fiscal 2016, nor do any plans exist under which the Corporation does not intend to make further purchases. The Program does not obligate the Corporation to purchase any shares and the authorization for the Program may be terminated, increased or decreased by the Board at any time.




Item 6. Exhibits

See Exhibit Index.


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SIGNATURES

Pursuant to the requirements 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.
 
 
HNI Corporation
 
 
 
 
 
Date: May 3, 2016
By:
/s/ Kurt A. Tjaden
 
 
 
Kurt A. Tjaden
 
 
 
Senior Vice President and Chief Financial Officer
 
  

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EXHIBIT INDEX
(3.1)
Amended and Restated Bylaws of the Corporation, as amended (incorporated herein by reference to Exhibit 3.1 to the Corporation's Current Report on Form 8-K filed with the SEC on February 18, 2016
(10.1)
First Amendment to Second Amended and Restated Credit Agreement, dated as of January 6, 2016, by and among the Corporation, certain domestic subsidiaries of the Corporation and Wells Fargo Bank National Association (incorporated herein by reference to Exhibit 10.1 to the Corporation's Current Report on Form 8-K filed with the SEC on January 11, 2016)
(31.1)
Certification of the CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
(31.2)
Certification of the CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
(32.1)
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following materials from HNI Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended April 2, 2016 are formatted in XBRL (eXtensible Business Reporting Language) and filed electronically herewith: (i) Condensed Consolidated Balance Sheets; (ii) Condensed Consolidated Statements of Comprehensive Income; (iii) Consolidated Statements of Equity; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements


 
 
 

 
 
 
 


 
 
 
 


 
 
 
 

26