UNITED STATES SECURITIES AND EXCHANGE COMMISSION | |
FORM 10-Q | |
(MARK ONE) | |
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE | |
For the quarterly period ended | |
OR | |
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE | |
For the transition period from ____________________ to ____________________ | |
Commission File Number 0-2648 | |
HNI Corporation | |
Iowa | 42-0617510 |
P. O. Box 1109, 414 East Third Street | 52761-0071 |
Registrant's telephone number, including area code: 563/264-7400 | |
Indicate by check mark whether the registrant (1) has filed all required reports 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. | |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES X NO | |
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. | |
Class | Outstanding at |
HNI Corporation and SUBSIDIARIES | |
INDEX | |
PART I. FINANCIAL INFORMATION | |
Page | |
Item 1. Financial Statements (Unaudited) |
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Condensed Consolidated Balance Sheets |
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Condensed Consolidated Statements of Income |
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Condensed Consolidated Statements of Income
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Condensed Consolidated Statements of Cash Flows |
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Notes to Condensed Consolidated Financial Statements |
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Item 2. Management's Discussion and Analysis of |
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Item 4. Controls and Procedures |
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PART II. OTHER INFORMATION | |
Item 2. Changes in Securities and Use of Proceeds |
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Item 6. Exhibits and Reports on Form 8-K | 26 |
SIGNATURES | 27 |
EXHIBIT INDEX | 28 |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
HNI Corporation and SUBSIDIARIES | HNI Corporation and SUBSIDIARIES | HNI Corporation and SUBSIDIARIES | ||
Jul. 3, | Jan. 3, | Oct. 2, | Jan. 3, | |
ASSETS | (In thousands) | (In thousands) | ||
CURRENT ASSETS | ||||
Cash and cash equivalents | $ 74,667 | $ 138,982 | $ 2,678 | $ 138,982 |
Total Current Assets | 412,124 | 462,122 | 386,290 | 462,122 |
PROPERTY, PLANT, AND EQUIPMENT, at cost | PROPERTY, PLANT, AND EQUIPMENT, at cost | PROPERTY, PLANT, AND EQUIPMENT, at cost | ||
Land and land improvements | 24,865 | 23,065 | 24,938 | 23,065 |
| 770,596 | 739,836 | 778,732 | 739,836 |
Net Property, Plant, and Equipment | 320,960 | 312,368 | 316,006 | 312,368 |
GOODWILL | 202,462 | 192,086 | 223,251 | 192,086 |
OTHER ASSETS | 83,880 | 55,250 | 111,877 | 55,250 |
Total Assets | $ 1,019,426 | $ 1,021,826 | $ 1,037,424 | $ 1,021,826 |
See accompanying Notes to Condensed Consolidated Financial Statements.
HNI Corporation and SUBSIDIARIES | HNI Corporation and SUBSIDIARIES | HNI Corporation and SUBSIDIARIES | ||
Jul. 3, | Jan. 3, | Oct. 2, | Jan. 3, | |
LIABILITIES AND SHAREHOLDERS' EQUITY | (In thousands, except share and per share value data) | (In thousands, except share and per share value data) | ||
CURRENT LIABILITIES | ||||
Accounts payable and accrued expenses | $ 214,472 491 | $ 211,236 | $ 243,467 | $ 211,236 |
Total Current Liabilities | 238,666 | 245,816 | 270,600 | 245,816 |
LONG-TERM DEBT | 2,571 | 2,690 | 2,689 | 2,690 |
CAPITAL LEASE OBLIGATIONS | 1,252 | 1,436 | 1,161 | 1,436 |
OTHER LONG-TERM LIABILITIES | 27,380 | 24,262 | 33,362 | 24,262 |
DEFERRED INCOME TAXES | 38,842 | 37,733 | 43,052 | 37,733 |
SHAREHOLDERS' EQUITY | ||||
Capital Stock: |
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Common, $1 par value, authorized |
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Common, $1 par value, authorized |
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Paid-in capital | 617 | 10,324 | 664 | 10,324 |
Total Shareholders' Equity | 710,715 | 709,889 | 686,560 | 709,889 |
Total Liabilities and Shareholders' Equity | $ 1,019,426 | $ 1,021,826 | $ 1,037,424 | $ 1,021,826 |
See accompanying Notes to Condensed Consolidated Financial Statements.
HNI Corporation and SUBSIDIARIES | HNI Corporation and SUBSIDIARIES | HNI Corporation and SUBSIDIARIES | ||
Three Months Ended | Three Months Ended | |||
Jul. 3, | Jun. 28, | Oct. 2, | Oct. 4, | |
(In thousands, except share | (In thousands, except share | |||
Net Sales Operating Income | $ 508,605 40,827 | $ 406,793 31,182 | $ 573,457 | $ 500,091 |
Net income per common share - basic | $0.45 | $0.35 | $0.65 | $0.59 |
Average number of common shares outstanding - basic | 57,943,191 | 58,142,937 | 56,191,547 | 58,043,055 |
Net income per common share - diluted | $0.44 | $0.35 | $0.65 | $0.59 |
Average number of common shares outstanding - diluted | 58,377,864 | 58,467,617 | 56,635,074 | 58,447,954 |
Cash dividends per common share | $0.14 | $0.13 | $0.14 | $0.13 |
See accompanying Notes to Condensed Consolidated Financial Statements.
HNI Corporation and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended | Nine Months Ended | |||
Jul. 3, | Jun. 28, | Oct. 2, | Oct. 4, | |
(In thousands, except share | (In thousands, except share | |||
Net Sales | $ 972,642 | $ 798,764 | $ 1,546,099 | $ 1,298,855 |
Cost of products sold | 619,259 | 513,208 | 987,094 | 829,620 |
Gross Profit | 353,383 | 285,556 | 559,005 | 469,235 |
Selling and administrative expenses | 277,159 | 227,405 | 424,753 | 354,877 |
Restructuring and impairment charges | 735 | 2,265 | 870 | 6,146 |
Operating Income | 75,489 | 55,886 | 133,382 | 108,212 |
Interest income | 1,049 | 1,384 | 1,180 | 2,532 |
Interest expense | 574 | 1,798 | 734 | 2,329 |
Income Before Income Taxes | 75,964 | 55,472 | 133,828 | 108,415 |
Income taxes | 27,727 | 19,415 | 48,847 | 37,945 |
Net Income | $ 48,237 | $ 36,057 | $84,981 | $ 70,470 |
Net income per common share - basic | $0.83 | $0.62 | $1.48 | $1.21 |
Average number of common shares outstanding - basic | 58,091,706 | 58,230,106 | 57,458,319 | 58,164,638 |
Net income per common share - diluted | $0.82 | $0.62 | $1.47 | $1.21 |
Average number of common shares outstanding - diluted | 58,535,640 | 58,514,390 | 57,893,214 | 58,470,659 |
Cash dividends per common share | $0.28 | $0.26 | $0.42 | $0.39 |
See accompanying Notes to Condensed Consolidated Financial Statements.
HNI Corporation and SUBSIDIARIES | ||
Six Months Ended | ||
Jul. 3, | Jun. 28, | |
(In thousands) | ||
Net Cash Flows From (To) Operating Activities: |
939 550 (40,251) |
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Net Cash Flows From (To) Investing Activities: Additional purchase consideration |
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Net Cash Flows From (To) Financing Activities: |
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Net increase (decrease) in cash and | |
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Cash and cash equivalents at end of period | $ 74,667 | $ 128,292 |
HNI Corporation and SUBSIDIARIES | ||
Nine Months Ended | ||
Oct. 2, | Oct. 4, | |
(In thousands) | ||
Net Cash Flows From (To) Operating Activities: |
49,614 1,406 1,412 (41,965) |
56,394 1,670 3,951 (45,110) |
Net Cash Flows From (To) Investing Activities: |
465 |
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Net Cash Flows From (To) Financing Activities: |
6,262 |
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Net increase (decrease) in cash and | (136,304) 138,982 |
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Cash and cash equivalents at end of period | $ 2,678 | $ 73,645 |
See accompanying Notes to Condensed Consolidated Financial Statements.
HNI Corporation and SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)July 3,October 2, 2004
Note A. Basis of Presentation
The Company changed its name, with the approval of its shareholders, from HON INDUSTRIES Inc. to HNI Corporation effective May 5, 2004. The Company believes that changing its name will allow it to accomplish three important goals as it moves forward with its strategy of managing multiple distinct and independent brands: 1) create a corporate identity that clearly represents who it is today - the parent company for many of the leading brand name companies in the office furniture and hearth markets; 2) establish a corporate brand that better reflects the Corporation's strategic growth program - - product line extensions, market expansion, and strategic acquisitions; and 3) eliminate the confusion in the marketplace, resulting from the use of "HON" in both the corporate name and in the name of its largest operating company, and clarify the ownership of our other operating companies and their relationship with The HON Company.
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 footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-monthnine-month period ended July 3,October 2, 2004 are not necessarily indicative of the results that may be expected for the year ending January 1, 2005. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended January 3, 2004.
Note B. Summary of Significant Accounting Policies
Investments - The Company made an investment at the end of the second quarter of 2004 which is excluded from the scope of SFAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities" due to the fact that the investment's per unit value in a Master Fund is not readily available. Therefore this investment is recorded at cost. The weighted average cost method is used to determine realized gains and losses on the trade date.
Stock based compensation - The Company accounts for its stock option plan using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which results in no charge to earnings when options are issued at fair market value. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure," to stock-based employee compensation.
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||
(In thousands) | Jul. 3, | Jun. 28, | Jul. 3, | Jun. 28, | ||||
(In thousands except per share data) | Oct. 2, | Oct. 4, | Oct. 2, | Oct. 4, | ||||
Net income, as reported | $ 25,826 | $ 20,172 | $ 48,237 | $ 36,057 | $ 36,744 | $ 34,413 | $ 84,981 | $ 70,470 |
Deduct: Total stock-based employee | (708) |
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Pro forma net income | $ 25,118 | $ 19,223 | $ 46,880 | $ 34,536 | $ 35,917 | $ 33,619 | $ 82,798 | $ 68,155 |
Earnings per share: |
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Note C. Inventories
The Company values approximately 89%78% of its inventory at the lower of cost or market by the last-in, first-out (LIFO) method.
(In thousands) | Jul. 3, 2004 | Jan. 3, 2004 |
Finished products | $ 47,357 | $ 31,407 |
Materials and work in process | 35,346 | 28,287 |
LIFO allowance | (12,292) | (9,864) |
$ 70,411 | $ 49,830 |
| Oct. 2, 2004 | |
Finished products | $ 55,848 | $ 31,407 |
Materials and work in process | 39,008 | 28,287 |
LIFO allowance | (13,205) | (9,864) |
| $ 81,651 | $ 49,830 |
Note D. Comprehensive Income and Shareholders' Equity
The Company's comprehensive income for the first sixnine months of 2004 was $492,000$408,000 and consisted of changes in unrealized holding gains or losses on equity securities available-for-sale under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
Note E. 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 | Six months Ended | Three Months Ended | Nine Months Ended | |||||||
Jul. 3, 2004 | Jun. 28, 2003 | Jul. 3, 2004 | Jun. 28, 2003 | Oct. 2, 2004 | Oct. 4, 2003 | Oct. 2, 2004 | Oct. 4, 2003 | |||
Numerators: | $ 25,826 | $ 20,172 |
| $36,057 | $ 36,744 | $ 34,413 |
| $70,470 | ||
Denominators: | Denominators: | 57,943,191 | 58,142,937 | 58,091,706 |
| Denominators: | 56,191,547 | 58,043,055 | 57,458,319 |
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Potentially dilutive shares | Potentially dilutive shares | 434,673 | 324,680 | 443,934 |
| Potentially dilutive shares | 443,527 | 404,899 | 434,895 |
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Denominator for diluted EPS | Denominator for diluted EPS | 58,377,864 | 58,467,617 | 58,535,640 | 58,514,390 | Denominator for diluted EPS | 56,635,074 | 58,447,954 | 57,893,214 | 58,470,659 |
Earnings per share - basic | Earnings per share - basic | $0.45 | $0.35 | $0.83 | $0.62 | Earnings per share - basic | $0.65 | $0.59 | $1.48 | $1.21 |
Earnings per share - diluted | Earnings per share - diluted | $0.44 | $0.35 | $0.82 | $0.62 | Earnings per share - diluted | $0.65 | $0.59 | $1.47 | $1.21 |
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Note F. Restructuring Reserve
During 2003 the Company closed two office furniture facilities located in Milan, Tennessee and Hazleton, Pennsylvania and consolidated production into other U.S. manufacturing locations. In connection with those shutdowns, the Company incurred $0.5$0.1 million of current period charges during the quarter ended July 3,October 2, 2004. The Company reduced a previously recorded restructuring reserve for the shutdown of its Milan, Tennessee facility by approximately $0.3 million during the second quarter 2004. The reduction was due to the fact that the Company was able to exit a lease with the lessor at more favorable terms than previously estimated. The following is a summary of changes in restructuring accruals during the secondthird quarter of 2004:
(In thousands) | Severance | Facility | Total |
Accrual balance, | $ 139 | $ 315 | $ 454 |
Restructuring charges | 42 | 445 | 487 |
Restructuring credit | - | (272) | (272) |
Cash payments | (88) | (488) | (576) |
Accrual balance, | $ 93 | $ - | $ 93 |
(In thousands) | Severance | Facility | Total |
Accrual balance, | $ 93 | $ - | $ 93 |
Restructuring charges | - | 166 | 166 |
Restructuring credit | (31) | - | (31) |
Cash payments | (14) | (166) | (180) |
Accrual balance, | $ 48 | $ - | $ 48 |
Note G. Business Combinations
On January 5, 2004, the Company acquired certain assets of Paoli, Inc., a subsidiary of Klaussner Furniture Industries, Inc. The results of Paoli's operations have been included in the consolidated financial statements since that date. Paoli is a leading provider of wood case goods and seating with well-known brands, broad product offering, and strong independent representative sales and dealer networks.
The aggregate purchase price was $81.0$81.1 million and was paid in cash. The Company has completed the allocation of the purchase price. The following table summarizes (in thousands) the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
Current assets $27,304$ 27,304
Property, plant and equipment 26,455
Intangible assets 26,330
Goodwill 9,0469,188
Total assets acquired 89,13589,277
Current liabilities 8,147
Net assets acquired $80,988 81,130
Of the $26.3 million of acquired intangible assets, $18.3 million was assigned to registered trademarks that are not subject to amortization. The remaining $8.0 million of acquired intangible assets have a weighted-average useful life of approximately 15 years with amortization recorded based on the projected cash flow associated with the respective intangible assets existing relationships. The intangible assets that make up that amount include customer relationships of $5.4 million (19-year weighted-average useful life), patents and proprietary technology of $2.4 million (8-year weighted-average useful life), and other assets of $0.2 million (3-year weighted-average useful life).
The $9.0$9.2 million of goodwill was assigned to the office furniture segment and is all deductible for income tax purposes.
Assuming the acquisition of Paoli Inc. had occurred on December 29, 2002, the beginning of the Company's 2003 fiscal year, instead of the actual date reported above, the Company's pro forma consolidated net sales would have been $430$523 million for the secondthird quarter of 2003 and $846 million$1.4 billion for the sixnine months ended June 28,October 4, 2003. Pro forma consolidated net income for secondthird quarter 2003 and for the sixnine months ended June 28,October 4, 2003 would have been $22.1$35.1 million or $0.38$0.60 per diluted share and $38.9$74.0 million or $0.66$1.27 per diluted share, respectively.
The Company also completed the acquisition of Hearth and Home Distributors of Delaware, Inc., a small hearth distributor, on January 5, 2004 for a purchase price of $4.5 million, which was paid in cash. The Company has completed the allocation of the purchase price. The following table summarizes (in thousands) the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
Current assets $ 526
Property, plant and equipment 91
Intangible assets 2,554
Goodwill 1,330
Total assets acquired 4,501
Current liabilities 1
Net assets acquired $4,500
The intangible assets primarily are customer relationships and have an estimated useful life of 10 years. The $1.3 million of goodwill was assigned to the hearth products segment and is all deductible for income tax purposes.
On July 6, 2004, the Company acquired a controlling interest in Omni Remanufacturing, Inc. The results of Omni's operations have been included in the consolidated financial statements since that date. Omni is comprised of two division - IntraSpec Solutions, a panel systems re-manufacturer, and A&M Business Interior Services, an office furniture services company.
The Company acquired 80% of the common stock and the ability to call the remaining 20% of the shares on or after the fiscal year end 2009. The Company must exercise its Call on or before the end of fiscal year end 2014. SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" requires a mandatorily redeemable financial instrument to be classified as a liability unless the redemption is required to occur only upon the liquidation or termination of the reporting entity. It also requires that mandatorily redeemable financial instruments be measured at fair value. Therefore the Company has recorded a liability for the remaining 20% of the shares at fair value.
The aggregate purchase price of the 80% interest net of cash acquired was $18.6 million and was paid in cash. The Company is in the process of finalizing the allocation of the purchase price. Any modification is not expected to be significant. The following table summarizes (in thousands) the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
Current assets, other than cash $ 5,414
Property, plant and equipment 1,881
Other assets 8
Intangible assets 12,680
Goodwill 11,567
Total assets acquired 31,550
Current liabilities 4,492
Deferred tax liability 3,636
Liability for right to call remaining 20% 4,800
Net assets acquired $ 18,622
Of the $12.7 million of acquired intangible assets, $2.8 million was assigned to registered trademarks that are not subject to amortization. The remaining $9.9 million of acquired intangible assets have a weighted-average useful life of approximately 9 years with amortization recorded based on the projected cash flow associated with the respective intangible assets existing relationships. The intangible assets that make up that amount include customer relationships of $6.9 million (10-year weighted-average useful life), computer software of $1.6 million (7-year weighted-average useful life), and other assets of $1.4 million (6-year weighted-average useful life).
The $11.6 million of goodwill was assigned to the office furniture segment and is not deductible for income tax purposes.
On July 19, 2004, the Company completed the acquisitions of Edward George Company, a distributor of fireplaces, stone products, barbecues, and other building materials throughout Illinois, Indiana, and Kentucky; and an affiliate, Wisconsin Fireplace Systems with locations in Wisconsin for a purchase price of $27.7 million, which was paid in cash. The Company is in the process of finalizing the allocation of the purchase price. Any modification is not expected to be significant. The following table summarizes (in thousands) the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.
Current assets, other than cash $ 12,534
Property, plant and equipment 831
Intangible assets 9,270
Goodwill 9,079
Total assets acquired 31,714
Current liabilities 4,036
Net assets acquired $ 27,678
The acquired intangible assets of $9.3 million have a weighted-average useful life of approximately 13 years with amortization recorded based on the projected cash flow associated with the respective intangible assets existing relationships. The intangible assets that make up that amount include customer relationships of $8.8 million (14-year weighted-average useful life) and other assets of $0.5 million (2-year weighted-average useful life).
The $9.1 million of goodwill was assigned to the hearth products segment and is deductible for income tax purposes.
Note H. Goodwill and Other Intangible Assets
The following table below summarizes amortizable definite-lived intangible assets as of July 3,October 2, 2004 and January 3, 2004, which are reflected in Other Assets in the Company's condensed consolidated balance sheets:
(In thousands) | Jul. 3, 2004 | Jan. 3, 2004 |
Patents | $ 18,820 | $ 16,450 |
Customer relationships and other | 34,290 | 26,076 |
Less: accumulated amortization | (18,613) | (16,671) |
| $ 34,497 | $ 25,855 |
(In thousands) | Oct. 2, 2004 | Jan. 3, 2004 |
Patents | $ 18,820 | $ 16,450 |
Customer relationships and other | 51,840 | 26,076 |
Less: accumulated amortization | (19,828) | (16,671) |
$ 50,832 | $ 25,855 |
Aggregate amortization expense for the three and sixnine months ended July 3,October 2, 2004 and June 28,October 4, 2003 was $1.0$1.2 million and $1.9$3.2 million, and $0.7 million and $1.3$2.0 million, respectively. Amortization expense is estimated to decrease from $3.9 to $2.0range between $3.6 and $5.7 million per year over the next five years.
The Company also owns trademarks with a net carrying amount of $26.4$29.2 million and $8.1 million as of July 3,October 2, 2004 and January 3, 2004, respectively. The trademarks 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 3, 2004, are as follows by reporting segment:
(In thousands) | Office | Hearth |
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Balance as of January 3, 2004 | $43,611 | $148,475 | $192,086 | $43,611 | $148,475 | $192,086 |
Goodwill acquired during period | 9,046 | 1,330 | 10,376 | 20,755 | 10,410 | 31,165 |
Balance as of July 3, 2004 | $ 52,657 | $ 149,805 | $ 202,462 | |||
Balance as of October 2, 2004 | $ 64,366 | $ 158,885 | $ 223,251 |
In accordance with SFAS No. 142 "Goodwill and Other Intangible Assets", the Company evaluates its goodwill for impairment on an annual basis based on values at the end of third quarter or whenever indicators of impairment exist. The Company has previously evaluated its goodwill for impairment and has determined that the fair value of the reporting unit exceeds their carrying value so no impairment of goodwill was recognized. The increase in goodwill of $10.4$31.2 million relates to the acquisitions completed during the first quarter.and third quarters. See Business Combination footnote for further information.
Note I. Product Warranties
The Company issues certain warranty policies on its 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.
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 period:
SixNine Months Ended
(In thousands) | Jul. 3, 2004 | Jun.28, 2003 | Oct. 2, 2004 | Oct. 4, |
Balance at beginning of period | $ 8,926 | $ 8,405 | $ 8,926 | $ 8,405 |
Balance at end of period | $ 10,224 | $ 8,362 | $ 10,379 | $ 8,425 |
Note J. Postretirement Health Care
In accordance with the interim disclosure requirements of revised SFAS No. 132, "Employers' Disclosures about Pensions and other Postretirement Benefits," the following table sets forth the components of net periodic benefit cost included in the Company's income statement for:
Six Months Ended | ||
(In thousands) | Jul. 3, | Jun. 28, |
Service cost | $ 142 | $ 125 |
Interest cost | 533 | 553 |
Expected return on plan assets | (145) | - |
Amortization of transition obligation | 290 | 290 |
Amortization of prior service cost | 115 | 115 |
Net periodic benefit cost | $ 935 | $ 1,083 |
Nine Months Ended | ||
(In thousands) | Oct. 2, | Oct. 4, |
Service cost | $ 213 | $ 187 |
Interest cost | 799 | 829 |
Expected return on plan assets | (218) | - |
Amortization of transition obligation | 436 | 436 |
Amortization of prior service cost | 173 | 173 |
Net periodic benefit cost | $ 1,403 | $1,625 |
Note K. Commitments and Contingencies
During the second quarter ended June 28, 2003, the Company entered into a one-year financial agreement for the benefit of one of its distributor chain partners, which has been extended. The maximum financial exposure assumed by the Company as a result of this arrangement is currently $2.8$2.6 million of which over 79%89% is secured by collateral. In accordance with the provisions of FIN 45, the Company has recorded the fair value of this guarantee, which is estimated to be less than $0.1 million.
The Company utilizes letters of credit in the amount of $15$19.5 million to back certain financing instruments, insurance policies and payment obligations. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined.
The Company is contingently liable for future minimum payments totaling $7.3$6.1 million under a transportation service contract. The transportation agreement is for a three-year period and is automatically renewable for periods of one year unless either party gives sixty days written notice of its intent to terminate at the end of the original three-year term or any subsequent term. The minimum payments remaining are $2.4$1.2 million in 2004, and $4.9 million in 2005.
The Company has guaranteed a contractual lease obligation of an independent contract furniture dealership. The lease term expires in the fourth quarter of 2004. As of April 3,October 2, 2004, the remaining unpaid lease payments subject to this guarantee totaled approximately $28,000.$12,000. In accordance with the provisions of FIN 45 no liability has been recorded, as the Company entered into this agreement prior to December 31, 2002.
The Company has contingent liabilities, which have arisen in the course of its business, including pending litigation, preferential payment claims in customer bankruptcies, environmental remediation, taxes, and other claims. The Company currently has a claim for approximately $7.6 million pending against it arising out of the bankruptcy of a customer filed in 2001. The Company was named a critical vendor by the bankruptcy court and, accordingly, was paid in full for all outstanding receivables. The claim alleges that the Company received preferential payments from the customer during the ninety days before the customer filed for bankruptcy protection. The claim was brought in February 2003. The Company has recorded an accrual with respect to this contingency, in an amount substantially less than the full amount of the claim, which represents the best estimate within the range of likely exposure and intends to vigorously defend against the claim. Given the nature of this claim, it is possible that the ultimate outcome could differ from the recorded amount.
Note L. New Accounting Standards
In December 2003, the Financial Accounting Standards Board issued Interpretation 46R (FIN 46R), a revision to Interpretation 46 (FIN 46), "Consolidation of Variable Interest Entities." FIN 46R clarifies some of the provisions of FIN 46 and exempts certain entities from its requirements. FIN 46R was effective at the end of the first interim period ending after March 15, 2004. The Company adopted FIN 46R on April 3, 2004, and it did not have an impact on the Company's financial statements.
In May 2004, the FASB issued FASB Staff Position No. 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" ("FSP 106-2"). FSP 106-2 is effective for the first interim or annual period beginning after June 15, 2004. Therefore, in accordance withThe Company adopted FSP 106-2 the accumulated postretirement benefit obligation or net period postretirement benefit cost included in the consolidated financial statements do not reflect any amount associated with the subsidy because theon July 4, 2004. The Company is unable to conclude whetherhas determined that the benefits provided by the plan are not actuarially equivalent to the Medicare Part D benefit under the Act.Act based on percentage of the cost of the plan that the Company provides. Therefore, the adoption of FSP 106-2 did not have an impact on the Company's financial statements during the current period. The Company is currently evaluatingwill continue to monitor the impact of the Act and will adopt FSP 106-2 in the third quarter of 2004.effect as regulations evolve regarding actuarial equivalency.
Note M. Business Segment Information
Management views the Company as being in two business segments: office furniture and hearth products with the former being the principal business segment.
The office furniture segment manufactures and markets a broad line of metal and wood commercial and home office furniture which includes file cabinets, desks, credenzas, chairs, storage cabinets, tables, bookcases, freestanding office partitions and panel systems, and other related products. The hearth product segment manufactures and markets a broad line of manufactured gas-, pellet- and wood-burning fireplaces and stoves, fireplace inserts, and chimney systems principally for the home.
For purposes of segment reporting, intercompany sales transfers 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 Company's corporate operations, interest income, and interest expense. The increase in unallocated corporate expenses compared to prior year is due to costs and investment in corporate resources related to the Company's strategy and growth initiatives. Management views interest income and expense as corporate financing costs and not as a business segment cost. In addition, management applies one effective tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis.
No geographic information for revenues from external customers or for long-lived assets is disclosed as the Company's primary market and capital investments are concentrated in the United States.
Reportable segment data reconciled to the consolidated financial statements for the three and sixnine month periods ended July 3,October 2, 2004, and June 28,October 4, 2003, is as follows:
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||||||
(In thousands) | Jul. 3, | Jun. 28, | Jul. 3, | Jun. 28, | Oct. 2, | Oct. 4, | Oct. 2, | Oct. 4, | ||||
Net Sales: |
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$ 508,605 | $ 406,793 | $ 972,642 | $ 798,764 | $ 573,457 | $ 500,091 | $1,546,099 | $ 1,298,855 | |||||
Operating Profit: |
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$ 69,583 |
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Depreciation & Amortization Expense: | | | |
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Capital Expenditures (including capitalized software): |
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As of | As of | As of | As of | |||||||||
Identifiable Assets: |
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Note N. Subsequent Events
Subsequent to the end of second quarter, the Company finalized its acquisitions of Omni Remanufacturing, Inc., a panel systems remanufacturer and office services company; and Edward George Company, a Midwest hearth products distributor and its affiliate, Wisconsin Fireplace Systems, for a combined purchase price of $47 million in cash.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
The Company has two reportable core operating segments: office furniture and hearth products. The Company is the second largest office furniture manufacturer in the United States and the nation's leading manufacturer and marketer of gas- and wood-burning fireplaces.
During the secondthird quarter, the Company continued to experience strong growth in both its office furniture and hearth products segments due to an improving economy and market share gain. On January 5,segment. In July 2004 the Company completed the acquisition of Omni Remanufacturing, Inc., a panel systems re-manufacturer and office furniture services company and Edward George Company, a distributor of fireplaces and other building materials. Sales from the Company's acquisition of Paoli, Inc. a leading providerin January 2004, along with the acquisitions completed during third quarter 2004, accounted for approximately $40 million of wood case goods and seating. Sales from Paoli contributed approximately one-third of the growth in the office furniture segment.third quarter sales. The Company also had an increasebenefited from increases in sales due to customer purchases being made in advanceprice of communicated price increases that will take effect later this year.approximately $14 million during third quarter.
The Company's net income increased to $25.8$36.7 million for secondthird quarter 2004 compared to $20.2$34.4 million for the same period last year. Net income per share was $0.44$0.65 per diluted share compared to $0.35$0.59 per diluted share in the secondthird quarter of 2003, an increase of 25.710.2 percent. The Company increased its annual effective tax rate for 2004 to 36.5 percent duringthird quarter 2003 represented a 14-week period rather than the second quarter compared to 36.0 percent in first quarter 2004 and 35.0 percent in 2003 due to increased state taxes andnormal 13-week period as a reduced benefit from federal and state tax credits. This resulted in an effective tax rate forresult of the second quarter 2004 of 36.9 percent.
The Company continues to invest in building its brands. DuringCompany's 52/53-week fiscal year. Net income per share was positively impacted by the second quarter the Company invested an incremental $5 million in its brand building and selling initiatives.Company's share repurchase program.
The Company experienced increased steel costs of approximately $12$22 million and other material costs of approximately $3$4 million during the secondthird quarter, when compared to the same quarter last year, which more than offset productivity improvements and other cost reductions from the effectCompany's rapid continuous improvement initiatives, benefit of the price increases and leveraging of fixed costs over higher volumes.volume.
Critical Accounting Policies
The preparation of the financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate our accounting policies and estimates. We base our estimates on historical experience and on a variety of other assumptions believed 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 Company's 10-K report for the year ended January 3, 2004. During the first sixnine months of fiscal 2004, there was no material change in the accounting estimates and assumptions previously disclosed.
Results of Operations
The following table presents changes in the results of operations for the periods indicated.
Three Months Ended | Six Months Ended | Three Months Ended | Nine Months Ended | |||||
(In thousands) | Jul. 3, 2004 & | Oct. 2, 2004 & | Oct. 2 2004 & | |||||
Net Sales | $ 101,812 | 25.0% | $ 173,878 | 21.8% | $ 73,366 | 14.7% | $ 247,244 | 19.0 % |
Cost of products sold | 64,617 | 24.8 | 106,051 | 20.7 | 51,423 | 16.3 | 157,474 | 19.0 |
Selling & administrative expenses | 29,600 | 26.2 | 49,754 | 21.9 | 20,122 | 15.8 | 69,876 | 19.7 |
Restructuring & impairment charges | (2,050) | -90.5 | (1,530) | -67.5 | (3,746) | (96.5) | (5,276) | (85.8) |
Interest Income | (239) | -42.5 | (335) | -24.2 | (1,017) | (88.6) | (1,352) | (53.4) |
Interest Expense | (508) | -71.3 | (1,224) | -68.1 | (371) | (69.9) | (1,595) | (68.5) |
Income Taxes | 4,260 | 39.2 | 8,312 | 42.8 | 2,590 | 14.0 | 10,902 | 28.7 |
Net Income | 5,654 | 28.0 | 12,180 | 33.8 | 2,331 | 6.8 | 14,511 | 20.6 |
Net sales for the secondthird quarter increased 25.014.7 percent to $508.6$573.5 million, compared to $406.8$500.1 million for the same quarter last year. The Company experienced strong growththird quarter 2003 represented a 14-week period rather than the normal 13-week period as a result of the Company's 52/53-week fiscal year. Excluding the extra week in both its office furniture and hearth products segments. On January 5,third quarter 2003 net sales, on a comparative basis, increased approximately 23.5 percent. In July 2004 the Company completed the acquisition of Omni Remanufacturing, Inc., a panel systems re-manufacturer and office furniture services company and Edward George Company, a distributor of fireplaces and other building materials. Sales from the Company's acquisition of Paoli, Inc. a leading provider of wood case goods and seating. Sales from Paoliin January 2004, along with the acquisitions completed during third quarter 2004, accounted for approximately $26$40 million or one-fourth of the revenue increase for the quarter.third quarter sales. The Company also had an increasebenefited from increases in salesprice of approximately $21$14 million due to customer purchases being made in advance of communicated price increases that will take effect later this year.during third quarter.
Gross margins for the third quarter increasedwere 35.9 percent compared to 36.1 percent from 36.036.7 percent for the same quarter last year. While the Company continued to experience productivity improvements and other cost reductions from its rapid continuous improvement initiatives, the impact of approximately $22 million in increased steel costs and $4 million of other material costs, more than offset the benefit of price increases and leveraging of fixed costs over higher volumes. The increased steel and material costs, net of price increases, reduced gross margins approximately 2.0 percentage points for the quarter. Included in gross margin for the secondthird quarter of 2003 was $1.6$5.1 million of accelerated depreciation of machinery and equipment related to facility shutdownsthe shutdown of two facilities reducing margins by 0.41.0 percentage points. The Company experienced increases in steel costs of approximately $12 million, and other material costs of approximately $3 million that offset productivity improvements and the effect of leveraging fixed costs over higher volumes.
Total selling and administrative expenses, excluding restructuring charges, for the quarter were 28.025.7 percent of net sales compared to 27.825.5 percent for the same quarter last year. Included in secondthird quarter 2004 were incremental investments of approximately $5$3 million in brand building and selling initiatives, increased freight and distribution costs of $8$5 million due to volume, rate increases and fuel surcharges, and additional selling and administrative costs of new acquisitions of $8$11 million and increased consulting and other costs associated with growth initiatives at the corporation level of $4 million.new acquisitions.
During the secondthird quarter of 2003, the Company closed two office furniture facilities and consolidated production into other U.S. manufacturing locations to increase efficiencies, streamline processes, and reduce overhead costs. The two facilities were located in Hazleton, Pennsylvania, and Milan, Tennessee. In connection with those shutdowns, the Company incurred $0.2$0.1 million of net restructuring charges during the secondthird quarter of 2004 and $2.3$3.9 million of restructuring charges during the same quarter last year.
The Company's annual effective tax rate for 2004 increased to 36.5 percent during second quarter 2004 and remained at that level for the secondthird quarter compared to 36.0 percent in first quarter 2004 and 35.0 percent for 2003. The increase in 2003the effective tax rate was due to increased state taxes and a reduced benefit from federal and state tax credits. This resulted in an effective tax rate forEffective October 4, 2004, as part of the second quarterWorking Families Tax Relief Act of 2004, of 36.9 percent.the research tax credit that expired on June 30, 2004 was reinstated. The Company does not anticipate that this will have a material impact. The Company currently expects the effective tax rate to remain at 36.5 percent in 2004.
Net income was $25.8$36.7 million compared to $20.2$34.4 million in the same period in 2003, an increase of 28.06.8 percent. Net income per share was $0.44$0.65 per diluted share compared to $0.35$0.59 per diluted share in secondthird quarter 2003, an increase of 25.710.2 percent. Net income per share was positively impacted $0.02 by the Company's share repurchase program.
For the first sixnine months of 2004, consolidated net sales increased 21.819.0 percent to $972.6 million$1.5 billion compared to $798.8 million$1.3 billion in 2003. PaoliSales from the Company's acquisitions during 2004 accounted for approximately $51$91 million or 6.4 percentage points of the sales increase. Approximately $16 million was due to price increases. Gross margins year-to-date increased to 36.336.2 percent compared to 35.736.1 percent last year. Included in 2004 gross margins is approximately $36 million of increased steel costs and $7 million of additional other material costs. Included in 2003 gross margins was $1.6$6.7 million of accelerated depreciation related to facility shutdowns, which reduced margins 0.20.5 percentage points. Increased steel and other material costs in 2004 partially offset productivity improvements and the effect of leveraging fixed costs over higher volumes. Net income was $48.2$85.0 million or $0.82$1.47 per diluted share compared to $36.1$70.5 million or $0.62$1.21 per diluted share in 2003, an increase of 33.821.5 percent.
Office Furniture
For the second quarter, net sales for the office furniture segment increased 26.615.2 percent to $384.7$435.7 million from $304.0$378.4 million for the same quarter last year. SecondAdjusting for the extra week in third quarter 20042003, net sales, were positively impacted byon a comparative basis, increased approximately $21 million24 percent. Sales from the Company's acquisition of customer purchases made in advance of price increases. In addition the Paoli acquisitionand Omni Remanufacturing accounted for approximately 8.5 percentage points$32 million of the increase in office furniture sales. The remaining increasewhile approximately $9.5 million was driven by continued improvement in the economy and the industry and market share gains by all of the Company's brands.due to price increases. Operating profit prior to unallocated corporate expenses increased to $37.2$48.0 million compared to $27.3$45.2 million in 2003. Operating profit as a percent of net sales increaseddecreased to 9.711.0 percent versus 9.0compared to 12.0 percent in 2003.2003 due to higher steel, other material and freight costs. Included in second quarter 2004 results were $0.2 million of net restructuring charges and included in secondthird quarter 2003 results were $1.6$5.1 million of accelerated depreciation and $2.3$3.9 million of restructuring charges related to plant shutdowns. The increase in operating profit is a result of increased volumes, new products, and benefits received from restructuring initiatives and the rapid continuous improvement program, offset by increased freight expense and material costs including steel in addition to continued investments in brand building and selling initiatives. Net sales on a year-to-date basis increased 22.619.7 percent to $734.3$1.2 billion compared to $1.0 billion in 2003. Operating profit as a percent of sales was flat at 10.0 percent for both years.
Hearth Products
For the quarter, net sales for the hearth products segment increased 13.2 percent to $137.8 million from $121.7 million for the same quarter last year. Adjusting for the extra week in third quarter 2003, net sales, on a comparative basis, increased approximately 22 percent. Sales from the Company's acquisition of Edward George Company accounted for approximately $7.8 million of the increase while approximately $4.4 million was due to price increases. Operating profit prior to unallocated corporate expenses remained flat at $17.5 million. Operating profit as a percent of sales decreased to 12.7 percent compared to 14.3 percent for the same quarter last year due to increased steel and freight costs and realization of lower margin on the initial of inventory at Edward George which was acquired during the third quarter. Net sales on a year-to-date basis increased 16.9 percent to $376.1 million compared to $598.8$321.7 million. Operating profit as a percent of sales increased to 9.411.6 percent compared to 8.810.5 percent in 2003.
Hearth Products
For the second quarter, net sales for the hearth products segment increased 20.5 percent to $123.9 million from $102.8 million for the same quarter last year. This growth is attributable to strong housing starts, growth in market share in all channels, innovative new proprietary product introductions, as well as a price increase. Operating profit prior to unallocated corporate expenses was $15.6 million compared to $10.6 million in the same quarter last year. Operating profit as a percent of net sales increased to 12.6 percent versus 10.3 percent for 2003. Improved profitability was theon a year-to-date basis is a result of leveraging fixed costs over a higher sales volume, a stronger mix of sales through owned distribution, and price increases partially offset by higher steel and freight costs. Net sales on a year-to-date basis increased 19.2 percent to $238.3 million compared to $199.9 million. Operating profit as a percent of sales increased to 11.0 percent compared to 8.2 percent in 2003.
Liquidity and Capital Resources
As of July 3,October 2, 2004, cash and short-term investments were $78.0$9.4 million compared to $204.2 million at year-end 2003. Cash flow from operations for the first sixnine months increased to $56.0$110.1 million compared to $54.5$94.7 million last year due to improved operating results. Trade receivables and inventory levels have increased from year-end due to the Paoli acquisitionCompany's acquisitions and increased volume. Inventory turns have also been negatively impacted by an increase in foreign sourcing which will reduce the Company's overall costs. Cash flow and working capital management continue to be a major focus of management to ensure the Company is poised for growth. The Company has sufficient liquidity to manage its operations and maintains borrowing capacity of $136 million, less amounts for designated letters of credit through a revolving bank credit agreement.
Net capital expenditures, including capitalized software, for the first sixnine months of 2004 were $15.8$24.4 million versus $24.4$32.1 million in 2003 and were primarily for tooling and equipment for new products. The first sixnine months of 2003 included funding for the purchase of a previously leased hearth products plant. Cash from operations funded these investments.
The Company completed the acquisitionacquisitions of Paoli Inc., Omni Remanufacturing Inc., Edward George Company, and a small hearth distributor for a total of $85.5 million.$131.9 million during 2004. The Company paid off $26.1 million of convertible debentures related to a previous hearth acquisition during the first quarter of 2004. The Company has received approximately $5.3$6.3 million of proceeds from issuance of its stock due to the exercise of previously vested stock options and the Company's member stock ownership plan.
The Board of Directors declared a regular quarterly cash divided of $0.14 per share on its common stock on May 4,August 2, 2004, to shareholders of record at the close of business on May 14,August 12, 2004. It was paid on JuneSeptember 1, 2004.
For the sixnine months ended July 3,October 2, 2004, the Company repurchased 1,124,3002,469,800 shares of its common stock at a cost of approximately $43.7$97.7 million. On May 4, 2004, the Board of Directors authorized an additional $100 million for the Company's share repurchase program. As of July 3,October 2, 2004, $97.6$43.6 million of the Board's current repurchase authorization remained unspent.
On August 2, 2004, the Board of Directors declared a $0.14 per common share cash dividend to shareholders of record on August 12, 2004 to be paid on September 1, 2004.
Commitments and Contingencies
During the second quarter ended June 28, 2003, the Company entered into a one-year financial agreement for the benefit of one of its distributor chain partners, which was extended. The maximum financial exposure assumed by the Company as a result of this arrangement totals $2.8$2.6 million of which over 79%89% is secured by collateral. In accordance with the provisions of FIN 45, the Company has recorded the fair value of this guarantee, which is estimated to be less than $0.1 million.
The Company utilizes letters of credit in the amount of $15$19.5 million to back certain financing instruments, insurance policies and payment obligations. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined.
The Company is contingently liable for future minimum payments totaling $7.3$6.1 million under a transportation service contract. The transportation agreement is for a three-year period and is automatically renewable for periods of one year unless either party gives sixty days written notice of its intent to terminate at the end of the original three-year term or any subsequent term. The minimum payments remaining are $2.4$1.2 million in 2004, and $4.9 million in 2005.
The Company has guaranteed a contractual lease obligation of an independent contract furniture dealership. The lease term expires in the fourth quarter of 2004. As of April 3,October 2, 2004, the remaining unpaid lease payments subject to this guarantee totaled approximately $28,000.$12,000. In accordance with the provisions of FIN 45 no liability has been recorded, as the Company entered into this agreement prior to December 31, 2002.
The Company has contingent liabilities, which have arisen in the course of its business, including pending litigation, preferential payment claims in customer bankruptcies, environmental remediation, taxes, and other claims. The Company currently has a claim for approximately $7.6 million pending against it arising out of the bankruptcy of a customer filed in 2001. The Company was named a critical vendor by the bankruptcy court and, accordingly, was paid in full for all outstanding receivables. The claim alleges that the Company received preferential payments from the customer during the ninety days before the customer filed for bankruptcy protection. The claim was brought in February 2003. The Company has recorded an accrual with respect to this contingency, in an amount substantially less than the full amount of the claim, which represents the best estimate within the range of likely exposure and intends to vigorously defend against the claim. Given the nature of this claim, it is possible that the ultimate outcome could differ from the recorded amount.
Looking Ahead
Management believes that its volumesmoderate growth trends in the overall office furniture and hearth products markets will remain strong forcontinue. The Company's core businesses have been performing well but have been negatively impacted by increased steel costs and oil based material prices. The Company continues to look at price increases driven by material costs, but due to the competitive environment and a timing lag of price effectivity, the Company anticipates it will continue to experience a lag between price increases and steel costs through the remainder of the year. The Company has implemented selective price increases that will become effective during the third quarter.
The Company's greatest challenge will be the impact of rising steel costs. The steel market is very volatile. Management believes that steel prices are trending up and continues to work aggressively to offset the rising costs through various initiatives including sourcing and material utilization.
Due to the Company's 52/53-week fiscal year, third quarter 2003 included an extra week than third quarter 2004.
Subsequent to the end of second quarter, the Company finalized its acquisitions of Omni Remanufacturing, Inc., a panel systems remanufacturer and office services company; and Edward George Company, a Midwest hearth products distributor and its affiliate, Wisconsin Fireplace Systems, for a combined purchase price of $47 million in cash. The two acquisitions account for combined annual sales of about $75 million and have comparable margins to our existing operations.
The Company continues its focus on creating long-term shareholder value by growing its businesses through aggressive investmentinvestments in building brands, enhancing its strong member-owner culture and remaining focused on its rapid continuous improvement programs to build best total cost.
Forward-Looking Statements
Statements in this report that are not strictly historical, including statements as to plans, objectives, and future financial performance, are "forward-looking" statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, which may cause the Company's actual results in the future to differ materially from expected results. These risks include, among others: the Company's ability to realize financial benefits (a) from (a) its price increases, (b) from its cost containment and business simplification initiatives, (c) from its investments in strategic acquisitions, new products and brand building, and (d) from its investments in distribution and rapid continuous improvement;improvement and (e) from its repurchases of common stock; uncertainty related to the availability of cash to fund future growth; lower than expected demand for the Company's products due to uncertain political and economic conditions andconditions; lower industry growth than expected; uncertainty related to disruptions of business by terrorism or military action; competitive pricing pressure from foreign and domestic competitors; higher than expected material costs;costs and lower than expected supplies of materials (including steel and petroleum based materials); and other factors described in the Company's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q.
Item 4. Controls and Procedures
Under the supervision and with the participation of management, the chief executive officer and chief financial officer of the Company have evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of July 3,October 2, 2004, and, based on their evaluation, the chief executive officer and chief financial officer have concluded that these controls and procedures are effective. There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under 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.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(E) Issuer Purchases of Equity Securities
The following is a summary of share repurchase activity during the secondthird quarter ended July 3,October 2, 2004.
Period | (a) Total Number of Shares (or Units) Purchased (1) | (b) Average | (c) Total Number of | (d) Maximum Number (or |
4/4/04 - 5/1/04 |
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5/2/04 - 5/29/04 |
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5/30/04- |
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Total | 683,100 | $39.92 | 683,100 | $97,559,440.76 |
Period |
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7/4/04 - 7/31/04 | | | | |
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415,800 |
$39.03 |
415,800 | $63,299,274.49 |
8/29/04- | 490,000 | $40.11 | 490,000 | $43,643,848.41 |
Total | 1,345,500 | $40.07 | 1,345,500 | $43,643,848.41 |
(1) No shares were purchased outside of a publicly announced plan or program.
The company repurchases shares under a previously announced planplans authorized by the Board of Directors as follows:
No repurchase plans expired or were terminated during the secondthird quarter, nor do any plans exist under which the company does not intend to make further purchases.
Item 4. Submission of Matters to a Vote of Security Holders
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Item 6. Exhibits and Reports on Form 8-K
Exhibits. See Exhibit Index.
Reports on Form 8-K: The Company filed a periodic report on Form 8-K dated The Company filed a periodic report on Form 8-K dated July 22, 2004, to furnish the Company's earnings release for the The Company filed a periodic report on Form 8-K dated
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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 |
EXHIBIT INDEX | |
(3ii) | By-laws of the Registrant, as amended |
(10xv) | HNI Corporation Long-Term Performance Plan of the Registrant, as amended and restated on August 2, 2004, effective as of January 1, 2004 |
(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 |
(99A) | Executive Bonus Plan of the Registrant as amended and restated on August 2, 2004, effective as of January 1, 2004 |
Exhibit 31.1 | |
CERTIFICATION OF CHIEF EXECUTIVE OFFICER | |
I, Stan A. Askren, President and Chief Executive Officer of HNI Corporation, certify that:
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Date: | /s/ Stan A. Askren |
Name: Stan A. Askren Chief Executive Officer |
Exhibit 31.2 | |
CERTIFICATION OF CHIEF FINANCIAL OFFICER | |
I, Jerald K. Dittmer, Vice President and Chief Financial Officer of HNI Corporation, certify that:
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Date: | /s/ Jerald K. Dittmer |
Name: Jerald K. Dittmer |
(EXHIBIT 32.1)
Certification of CEO and CFO Pursuant to | |
In connection with the Quarterly Report on Form 10-Q of HNI Corporation (the "Company") for the quarterly period ended | |
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Name: Stan A. Askren Chief Executive Officer | |
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Name: Jerald K. Dittmer Chief Financial Officer | |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |