See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
HNI Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2017June 29, 2019
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 December 31, 201629, 2018 consolidated balance sheet included in this Form 10-Q was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the nine-monthsix-month period ended September 30, 2017June 29, 2019 are not necessarily indicative of the results expected for the fiscal year ending December 30, 2017.28, 2019. 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 December 31, 2016.29, 2018. Certain reclassifications have been made within the interim financial statementsinformation to conform to the current year presentation.
Note 2. Stock-Based CompensationRevenue from Contracts with Customers
The Corporation measures stock-based compensation expense at grant date, based on the fair valueDisaggregation of the award,Revenue
Revenue from contracts with customers disaggregated by sales channel and recognizes expense over the employees' requisite service periods. Stock-based compensation expenseby segment 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 and the HNI Corporation Members' Stock Purchase Plan adopted in 2017. The following table summarizes stock-based compensation expenseas follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| | Segment | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Supplies-driven channel | Office Furniture | $ | 212,327 |
| | $ | 223,457 |
| | $ | 389,020 |
| | $ | 414,685 |
|
| Contract channel | Office Furniture | 197,185 |
| | 200,421 |
| | 374,003 |
| | 390,108 |
|
| Hearth | Hearth Products | 116,514 |
| | 119,736 |
| | 242,459 |
| | 243,890 |
|
| Net sales | | $ | 526,026 |
| | $ | 543,614 |
| | $ | 1,005,482 |
| | $ | 1,048,683 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Stock-based compensation expense | $ | 956 |
| | $ | 959 |
| | $ | 6,759 |
| | $ | 7,400 |
|
The optionsmajority of revenue presented as "Net sales" in the Condensed Consolidated Statements of Comprehensive Income is the result of contracts with customers. All other sources of revenue are not material to the Corporation's results of operations.
Sales by channel type are subject to similar economic factors and units granted bymarket conditions regardless of the channel under which the product is sold. See “Note 18. Reportable Segment Information” in the Notes to Condensed Consolidated Financial Statements for further information about operating segments.
Contract Assets and Contract Liabilities
In addition to trade receivables, the Corporation had fair valueshas contract assets consisting of funds paid to certain office furniture dealers in exchange for their multi-year commitment to market and sell the Corporation’s products. These contract assets are amortized over the term of the contracts and recognized as a reduction of revenue. For contracts less than one year, the Corporation has elected the practical expedient to recognize incremental costs to obtain a contract as an expense when incurred. The Corporation has contract liabilities consisting of customer deposits and rebate and marketing program liabilities.
Contract assets and contract liabilities were as follows (in thousands):
|
| | | | | | | |
| | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 |
| Stock options | $ | 7,206 |
| | $ | 7,720 |
|
| Time-based restricted stock units | $ | — |
| | $ | 712 |
|
|
| | | | | | | |
| | June 29,
2019 | | December 29,
2018 |
| Trade receivables (1) | $ | 248,857 |
| | $ | 259,075 |
|
| Contract assets (current) (2) | $ | 768 |
| | $ | 529 |
|
| Contract assets (long-term) (3) | $ | 2,652 |
| | $ | 2,188 |
|
| Contract liabilities (4) | $ | 40,592 |
| | $ | 44,858 |
|
The following table summarizes unrecognized compensation expense andindex below indicates the weighted-average remaining service period for non-vested stock options and restricted stock units as of September 30, 2017:
|
| | | | | |
| | Unrecognized Compensation Expense (in thousands) | | Weighted-Average Remaining Service Period (years) |
| Non-vested stock options | $ | 4,103 |
| | 1.2 |
| Non-vested restricted stock units | $ | 474 |
| | 0.8 |
Note 3. Inventories
The Corporation values its inventory at the lower of cost or net realizable value with approximately 83 percent valued by the last-in, first-out ("LIFO") costing method.
|
| | | | | | | |
(In thousands) | September 30,
2017 | | December 31, 2016 |
| |
| Finished products | $ | 96,275 |
| | $ | 71,223 |
|
| Materials and work in process | 81,970 |
| | 71,375 |
|
| LIFO allowance | (24,160 | ) | | (24,160 | ) |
| | $ | 154,085 |
| | $ | 118,438 |
|
Note 4. Accumulated Other Comprehensive Income (Loss) and Shareholders' Equity
The following tables summarize the components of accumulated other comprehensive income (loss) and the changes in accumulated other comprehensive income (loss), net of tax, as applicable for the nine months ended (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | | Foreign Currency Translation Adjustment | | Unrealized Gains (Losses) on Marketable Securities | | Pension and Post-retirement Liabilities | | Derivative Financial Instruments | | Accumulated Other Comprehensive Income (Loss) |
| Balance as of December 31, 2016 | | $ | (1,188 | ) | | $ | (105 | ) | | $ | (5,167 | ) | | $ | 1,460 |
| | $ | (5,000 | ) |
| Other comprehensive income (loss) before reclassifications | | 779 |
| | 68 |
| | — |
| | (471 | ) | | 376 |
|
| Tax (expense) or benefit | | — |
| | (24 | ) | | — |
| | 174 |
| | 150 |
|
| Amounts reclassified from accumulated other comprehensive (income) loss, net of tax | | — |
| | — |
| | — |
| | 207 |
| | 207 |
|
| Balance as of September 30, 2017 | | $ | (409 | ) | | $ | (61 | ) | | $ | (5,167 | ) | | $ | 1,370 |
| | $ | (4,267 | ) |
Amounts in parentheses indicate reductions in equity.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Foreign Currency Translation Adjustment | | Unrealized Gains (Losses) on Marketable Securities | | Pension and Post-retirement Liabilities | | Derivative Financial Instruments | | Accumulated Other Comprehensive Income (Loss) |
| Balance as of January 2, 2016 | | $ | 322 |
| | $ | (2 | ) | | $ | (5,506 | ) | | $ | — |
| | $ | (5,186 | ) |
| Other comprehensive income (loss) before reclassifications | | (678 | ) | | 17 |
| | — |
| | (2,506 | ) | | (3,167 | ) |
| Tax (expense) or benefit | | — |
| | (6 | ) | | — |
| | 922 |
| | 916 |
|
| Amounts reclassified from accumulated other comprehensive (income) loss, net of tax | | — |
| | — |
| | — |
| | 453 |
| | 453 |
|
| Balance as of October 1, 2016 | | $ | (356 | ) | | $ | 9 |
| | $ | (5,506 | ) | | $ | (1,131 | ) | | $ | (6,984 | ) |
Amounts in parentheses indicate reductions in equity.
Interest Rate Swap
In March 2016, the Corporation entered into 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 one month LIBOR on a $150 million notional value expiring January 2021. As of September 30, 2017, the fair value of the Corporation's interest rate swap was an asset of $2.2 million, which is reflected in "Other Assets"line item in the Condensed Consolidated Balance Sheets. As of September 30, 2017Sheets where contract assets and contract liabilities are reported:
(1) "Receivables"
(2) "Prepaid expenses and other current assets"
(3) "Other Assets"
(4) "Accounts payable and accrued expenses"
Changes in contract asset and contract liability balances during the fair value of the interest rate swap is reported net of taxsix months ended June 29, 2019 were as $1.4 million in "Accumulated other comprehensive income (loss)" in the Condensed Consolidated Balance Sheets.
The following table details the reclassifications from accumulated other comprehensive income (loss)follows (in thousands):
|
| | | | | | | |
| | Contract assets increase (decrease) | | Contract liabilities (increase) decrease |
| Contract assets recognized | $ | 888 |
| | $ | — |
|
| Reclassification of contract assets to contra revenue | (185 | ) | | — |
|
| Contract liabilities recognized and recorded to contra revenue as a result of performance obligations satisfied | — |
| | (71,517 | ) |
| Contract liabilities paid | — |
| | 73,522 |
|
| Cash received in advance and not recognized as revenue | — |
| | (33,520 | ) |
| Reclassification of cash received in advance to revenue as a result of performance obligations satisfied | — |
| | 35,781 |
|
| Net change | $ | 703 |
| | $ | 4,266 |
|
|
| | | | | | | | | | | | | | | | | | |
| | | | | Three Months Ended | | Nine Months Ended |
| Details about Accumulated Other Comprehensive Income (Loss) Components | | Affected Line Item in the Statement Where Net Income is Presented | | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Derivative financial instruments | | | | | | | | | | |
| Interest rate swap | | Interest (expense) or income | | $ | (27 | ) | | $ | (302 | ) | | $ | (328 | ) | | $ | (717 | ) |
| | | Tax (expense) or benefit | | 10 |
| | 111 |
| | 121 |
| | 264 |
|
| | | Net of tax | | $ | (17 | ) | | $ | (191 | ) | | $ | (207 | ) | | $ | (453 | ) |
Amounts in parentheses indicate reductionsContract liabilities for customer deposits paid to profit.
Stock Repurchase
During the nineCorporation prior to the satisfaction of performance obligations are recognized as revenue upon completion of the performance obligations. The amount of revenue recognized during the three and six months ended SeptemberJune 29, 2019 that was included in the December 29, 2018 contract liabilities balance was $0.0 million and $8.3 million, respectively.
Performance Obligations
The Corporation recognizes revenue for sales of office furniture and hearth products at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment of the product. In certain circumstances, transfer of control to the customer does not occur until the goods are received by the customer or upon installation and/or customer acceptance, depending on the terms of the underlying contracts. Contracts typically have a duration of less than one year and normally do not include a significant financing component. Generally, payment is due within 30 2017,days of invoicing.
The Corporation's backlog orders are typically cancelable for a period of time and almost all contracts have an original duration of one year or less. As a result, the Corporation repurchased 1,300,936 shareshas elected the practical expedient permitted in the revenue accounting standard not to disclose the unsatisfied performance obligation as of its common stock at a costJune 29, 2019. The backlog is typically fulfilled within one or two quarters.
Significant Judgments
The amount of approximately $52.9 million. During the nine months ended October 1, 2016,consideration the Corporation repurchased 608,500 sharesreceives and revenue recognized varies with changes in rebate and marketing program incentives, as well as early pay discounts, offered to customers. The Corporation uses significant judgment throughout the year in estimating the reduction in net sales driven by variable consideration for rebate and marketing programs. Judgments made include expected sales levels and utilization of its common stockfunds. However, this judgment factor is significantly reduced at a costthe end of approximately $30.4 million. As of September 30, 2017, $84.0 million ofeach year when sales volumes and the Corporation's Board of Directors' ("Board") current repurchase authorization remained unspent.impact to rebate and marketing programs are known and recorded as the programs typically end near fiscal year end.
Dividend
During the nine months ended September 30, 2017 and October 1, 2016, the Corporation paid dividends to shareholders of $0.845 and $0.815 per share, respectively.
Note 5. Earnings Per Share3. Restructuring and Impairment Charges
The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS") (in thousands, except per share data):
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Numerator: | | | | | | | | |
| Numerator for both basic and diluted EPS attributable to HNI Corporation net income | | $ | 37,271 |
| | $ | 33,813 |
| | $ | 55,956 |
| | $ | 74,685 |
|
| Denominators: | | |
| | |
| | | | |
| Denominator for basic EPS weighted-average common shares outstanding | | 43,683 |
| | 44,547 |
| | 43,970 |
| | 44,412 |
|
| Potentially dilutive shares from stock-based compensation plans | | 796 |
| | 1,298 |
| | 1,109 |
| | 1,076 |
|
| Denominator for diluted EPS | | 44,479 |
| | 45,845 |
| | 45,079 |
| | 45,488 |
|
| Earnings per share – basic | | $ | 0.85 |
| | $ | 0.76 |
| | $ | 1.27 |
| | $ | 1.68 |
|
| Earnings per share – diluted | | $ | 0.84 |
| | $ | 0.74 |
| | $ | 1.24 |
| | $ | 1.64 |
|
The weighted-average common stock equivalents presented above do not include the effect of the common stock equivalents in the table below because their inclusion would be anti-dilutive.
|
| | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Common stock equivalents excluded because their inclusion would be anti-dilutive | 1,111,336 |
| | 352,380 |
| | 788,193 |
| | 437,684 |
|
The Corporation implemented ASU No. 2016-09 in the first quarter of fiscal 2017, which had an immaterial impact on the number of potentially dilutive shares from stock-based compensation plans for the three months and nine months ended September 30, 2017. See "Note 14. Recently Adopted Accounting Standards" for more information regarding the implementation of ASU No. 2016-09.
Note 6. Restructuring
Restructuring costs recorded in the Condensed Consolidated Statements of Comprehensive Income are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Restructuring and impairment charges | $ | 930 |
| | $ | 837 |
| | $ | 930 |
| | $ | 2,175 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Cost of sales - accelerated depreciation | $ | 1,552 |
| | $ | 731 |
| | $ | 8,711 |
| | $ | 2,154 |
|
| Restructuring charges | 783 |
| | 399 |
| | 3,325 |
| | 2,057 |
|
| | $ | 2,335 |
| | $ | 1,130 |
| | $ | 12,036 |
| | $ | 4,211 |
|
Restructuring costs in both the quarter and year-to-date periods for 20172019 were incurred as partprimarily comprised of the previously announced closures of the hearth manufacturing facilitiesseverance costs related to a structural realignment in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana. Thesegment. Restructuring and impairment costs in both the quarter and year-to-date periods for 20162018 were primarily incurred as part of the previously announced closure of the hearth manufacturing facility in Paris, Kentucky hearthand the office furniture manufacturing facility.facility in Orleans, Indiana.
The accrued restructuring expenses are expected to be paid in the next twelve months and are includedreflected in "Accounts payable and accrued expenses" in the Condensed Consolidated Balance Sheets. The following is a summary of changes in restructuring accruals during(in thousands):
|
| | | | | | | | | | | |
| | Severance Costs | | Facility Exit Costs & Other | | Total |
| Restructuring allowance as of December 29, 2018 | $ | 136 |
| | $ | 150 |
| | $ | 286 |
|
| Restructuring charges | 884 |
| | 46 |
| | 930 |
|
| Cash payments | (313 | ) | | (74 | ) | | (387 | ) |
| Restructuring allowance as of June 29, 2019 | $ | 707 |
| | $ | 122 |
| | $ | 829 |
|
Note 4. Acquisitions and Divestitures
As part of the nineCorporation's ongoing business strategy, it continues to acquire and divest small office furniture dealerships, for which the impact is not material to the Corporation's financial statements.
Note 5. Inventories
The Corporation values its inventory at the lower of cost or net realizable value with approximately 79 percent valued by the last-in, first-out ("LIFO") costing method. Inventories included in the Condensed Consolidated Balance Sheets consisted of the following (in thousands):
|
| | | | | | | |
| | June 29,
2019 | | December 29,
2018 |
| |
| Finished products | $ | 143,806 |
| | $ | 97,398 |
|
| Materials and work in process | 84,260 |
| | 94,161 |
|
| LIFO allowance | (34,114 | ) | | (34,381 | ) |
| Total inventories | $ | 193,952 |
| | $ | 157,178 |
|
Note 6. Leases
The Corporation implemented ASU No. 2016-02, Leases (Topic 842), at the beginning of fiscal 2019 using the modified-retrospective transition approach. The new standard requires lessees to recognize most leases, including operating leases, on-balance sheet via a right of use ("ROU") asset and lease liability. The Corporation selected a technology tool to assist with the accounting and disclosure requirements of the new standard. All necessary changes required by the new standard, including those to the Corporation's accounting policies, business process, systems, controls, and disclosures, were identified and implemented as of the first quarter 2019.
Implementation of ASU No. 2016-02 increased retained earnings by $3.0 million. This included an increase of $3.3 million driven by the recognition of the remaining deferred gain on a 2018 sale-leaseback directly into retained earnings. An offsetting decrease of $0.3 million was driven by the calculation of beginning ROU assets and lease liabilities. The Corporation recognized $73.8 million in ROU assets and $82.0 million in lease liabilities as a result of the implementation of this standard.
The Corporation leases certain showrooms, office space, manufacturing facilities, distribution centers, retail stores and equipment and determines if an arrangement is a lease at inception. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Leases with an initial term of twelve months endedor less are not recorded on the Condensed Consolidated Balance Sheets; expense for these leases is recognized on a straight-line basis over the lease term.
As none of the leases provide an implicit rate, the Corporation uses a secured incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The Corporation uses separate discount rates for its U.S. operations and overseas operations.
Certain real estate leases include one or more options to renew with renewal terms that can extend the lease term from one to ten years. The exercise of lease renewal options is at the Corporation's sole discretion. Certain real estate leases include an option to terminate the lease term earlier than the specified lease term for a fee. These options are not included as part of the lease term unless they are reasonably certain to be exercised.
Many of the Corporation's real estate lease agreements include periods of rent holidays and payments that escalate over the lease term by specified amounts. While not significant, certain equipment leases have variable lease payments based on machine hours and certain real estate leases have rate changes based on the Consumer Price Index. The Corporation's lease agreements do not contain any material residual value guarantees.
The Corporation has lease agreements with lease and non-lease components, which are generally accounted for as a single lease component.
On occasion, the Corporation rents or subleases certain real estate to third parties. This sublease portfolio consists mainly of operating leases for office furniture showrooms and is not significant.
Leases included in the Condensed Consolidated Balance Sheet consisted of the following (in thousands):
|
| | | |
| Classification | June 29,
2019 |
| Assets | |
| Right-of-use operating leases | $ | 68,257 |
|
| Right-of-use finance leases | 1,984 |
|
| Total Right-of-use operating / finance leases | $ | 70,241 |
|
| | |
| Liabilities | |
| Current lease obligations - operating | $ | 21,759 |
|
| Current lease obligations - finance | 435 |
|
| Total Current lease obligations - operating / finance | 22,194 |
|
| | |
| Long-term lease obligations - operating | 54,752 |
|
| Long-term lease obligations - finance | 1,555 |
|
| Total Long-term lease obligations - operating / finance | 56,307 |
|
| | |
| Total lease obligations - operating / finance | $ | 78,501 |
|
Approximately 85 percent of the value of the leased assets is for real estate. The remaining 15 percent of the value of the leased assets is for equipment.
Lease costs included in the Condensed Consolidated Statements of Comprehensive Income consisted of the following (in thousands):
|
| | | | | | | | | | | | |
| | | Severance | | Facility Exit Costs & Other | | Total |
| Balance as of December 31, 2016 | | $ | 2,704 |
| | $ | — |
| | $ | 2,704 |
|
| Restructuring charges, excluding accelerated depreciation | | 841 |
| | 2,484 |
| | 3,325 |
|
| Cash payments | | (2,711 | ) | | (1,349 | ) | | (4,060 | ) |
| Balance as of September 30, 2017 | | $ | 834 |
| | $ | 1,135 |
| | $ | 1,969 |
|
|
| | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| | Classification | June 29,
2019 | | June 29,
2019 |
| Operating lease costs | | | | |
| Fixed | Cost of sales | $ | 410 |
| | $ | 928 |
|
| | Selling and administrative expenses | 6,207 |
| | 12,299 |
|
| Short-term / variable | Cost of sales | 235 |
| | 318 |
|
| | Selling and administrative expenses | 207 |
| | 422 |
|
| Finance lease costs | | | | |
| Amortization | Cost of sales, selling and administrative, and interest expense | 149 |
| | 153 |
|
| Less: Sublease income (a) | | 47 |
| | 85 |
|
| Total lease costs | | $ | 7,161 |
| | $ | 14,035 |
|
| |
| (a) | Excludes immaterial rental income from owned properties for the three and six months ended June 29, 2019, which is reflected in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income. |
Maturity of lease liabilities as of June 29, 2019 is as follows (in thousands):
|
| | | | | | | | | | | |
| | Operating Leases (a) | | Finance Leases (b) | | Total |
| 2019 (remaining portion of year) | $ | 12,979 |
| | $ | 250 |
| | $ | 13,229 |
|
| 2020 | 22,641 |
| | 518 |
| | 23,159 |
|
| 2021 | 15,854 |
| | 492 |
| | 16,346 |
|
| 2022 | 10,459 |
| | 420 |
| | 10,879 |
|
| 2023 | 8,410 |
| | 374 |
| | 8,784 |
|
| Thereafter | 15,142 |
| | 98 |
| | 15,240 |
|
| Total lease payments | 85,485 |
| | 2,152 |
| | 87,637 |
|
| Less: Interest | 8,974 |
| | 162 |
| | 9,136 |
|
| Present value of lease liabilities | $ | 76,511 |
| | $ | 1,990 |
| | $ | 78,501 |
|
| |
| (a) | At this time there are no operating lease options to extend lease terms that are reasonably certain of being exercised. Currently the Corporation has $0.3 million of legally binding minimum lease payments for operating leases signed but not yet commenced, and which are excluded from operating lease liabilities. |
| |
| (b) | At this time there are no finance lease options to extend lease terms that are reasonably certain of being exercised. Currently the Corporation has $0.2 million of legally binding minimum lease payments for finance leases signed but not yet commenced, and which are excluded from finance lease liabilities. |
The following table summarizes the weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases as of June 29, 2019:
|
| | | | |
| | Weighted-Average Discount Rate (percent) | | Weighted-Average Remaining Lease Term (years) |
| Operating leases | 4.40 | % | | 4.5 |
| Finance leases | 3.62 | % | | 4.9 |
The following table summarizes cash paid for amounts included in the measurements of lease liabilities and the leased assets obtained in exchange for new operating and finance lease liabilities (in thousands):
|
| | | |
| | Six Months Ended |
| | June 29,
2019 |
| Cash paid for amounts included in the measurements of lease liabilities | |
| Operating cash flows from operating / finance leases | $ | 13,326 |
|
| Financing cash flows from finance leases | $ | 142 |
|
| Leased assets obtained in exchange for new operating / finance lease liabilities | $ | 8,444 |
|
Accounting Policies and Practical Expedients Elected
The Corporation elected to use the modified-retrospective method of adopting ASU 2016-02. It has been applied to all leases active on or after December 30, 2018, the start of the Corporation's fiscal year.
The Corporation elected the following practical expedients as a result of adopting ASU 2016-02:
The Corporation has made an accounting election by class of underlying assets to not separate non-lease components of a contract from the lease components to which they relate for all classes of assets except for embedded leases.
The Corporation has elected not to restate prior period financial statements for the effects of the new standard. Required ASC 840 disclosures for periods prior to 2019 have been provided.
The Corporation has elected not to use hindsight in determining the lease term and in assessing the likelihood that a lessee purchase option will be exercised.
The Corporation has elected for all asset classes to not recognize ROU assets and lease liabilities for leases that at the acquisition date have a remaining lease term of twelve months or less.
Presented below are the final disclosures utilizing ASC 840 treatment which was provided in the Corporation's Annual Report on Form 10-K for the fiscal year ended December 29, 2018:
Commitments for minimum rentals under non-cancelable leases were as follows (in thousands):
|
| | | |
| | Operating Leases |
| 2019 | $ | 24,387 |
|
| 2020 | 18,250 |
|
| 2021 | 13,324 |
|
| 2022 | 9,082 |
|
| 2023 | 6,228 |
|
| Thereafter | 10,469 |
|
| Total minimum lease payments | $ | 81,740 |
|
There were no capitalized leases as of December 29, 2018 and December 30, 2017.
Rent expense under ASC 840 was as follows (in thousands):
|
| | | | | | | | | | | |
| | 2018 |
| | 2017 |
| | 2016 |
|
| Rent expense | $ | 31,027 |
| | $ | 32,158 |
| | $ | 35,288 |
|
There was no contingent rent expense under operating leases for the years 2018, 2017, and 2016.
As part of the Corporation's continued efforts to drive efficiency and simplification, the Corporation entered into a sale-leaseback transaction in the first quarter of 2018, selling a manufacturing facility and subsequently leasing back a portion of the facility for a term of 10 years. The net proceeds from the sale of the facility of $16.9 million were reflected in "Proceeds from sale and license
of property, plant, equipment, and intangibles" in the Consolidated Statements of Cash Flows in 2018. In accordance with ASC 840, the $5.1 million gain on the sale of the facility was deferred and was being amortized as a reduction to rent expense evenly over the term of the lease.
In accordance with the ASU No. 2016-02 adoption, the remaining unamortized deferred gain related to the sale-leaseback as of December 29, 2018 was recognized directly in "Retained earnings" in the Condensed Consolidated Balance Sheets in the first quarter of 2019 as a cumulative-effect adjustment as the Corporation transferred control of the asset.
Note 7. Goodwill and Other Intangible Assets
Goodwill and other intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following (in thousands):
|
| | | | | | | |
| | June 29,
2019 | | December 29,
2018 |
| Goodwill | $ | 270,801 |
| | $ | 270,788 |
|
| Definite-lived intangible assets | 153,742 |
| | 163,714 |
|
| Indefinite-lived intangible assets | 28,813 |
| | 28,788 |
|
| Total goodwill and other intangible assets | $ | 453,356 |
| | $ | 463,290 |
|
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Goodwill | $ | 290,657 |
| | $ | 290,699 |
|
| Definite-lived intangible assets | 185,814 |
| | 182,666 |
|
| Indefinite-lived intangible assets | 37,505 |
| | 38,054 |
|
| | $ | 513,976 |
| | $ | 511,419 |
|
Goodwill
The changes in the carrying amount of goodwill, by reporting segment, are as follows (in thousands):
|
| | | | | | | | | | | |
| | Office Furniture | | Hearth Products | | Total |
| Balance as of December 29, 2018 | | | | | |
| Goodwill | $ | 128,645 |
| | $ | 186,662 |
| | $ | 315,307 |
|
| Accumulated impairment losses | (44,376 | ) | | (143 | ) | | (44,519 | ) |
| Net goodwill balance as of December 29, 2018 | 84,269 |
| | 186,519 |
| | 270,788 |
|
| | | | | | |
| Foreign currency translation adjustment | 13 |
| | — |
| | 13 |
|
| | | | | | |
| Balance as of June 29, 2019 | |
| | |
| | |
| Goodwill | 128,658 |
| | 186,662 |
| | 315,320 |
|
| Accumulated impairment losses | (44,376 | ) | | (143 | ) | | (44,519 | ) |
| Net goodwill balance as of June 29, 2019 | $ | 84,282 |
| | $ | 186,519 |
| | $ | 270,801 |
|
|
| | | | | | | | | | | | |
| | | Office Furniture | | Hearth Products | | Total |
| Balance as of December 31, 2016 | | | | | | |
| Goodwill | | $ | 165,643 |
| | $ | 183,199 |
| | $ | 348,842 |
|
| Accumulated impairment losses | | (58,000 | ) | | (143 | ) | | (58,143 | ) |
| Net goodwill balance as of December 31, 2016 | | 107,643 |
| | 183,056 |
| | 290,699 |
|
| | | | | | | |
| Foreign currency translation adjustments | | (42 | ) | | — |
| | (42 | ) |
| | | | | | | |
| Balance as of September 30, 2017 | | |
| | |
| | |
| Goodwill | | 165,601 |
| | 183,199 |
| | 348,800 |
|
| Accumulated impairment losses | | (58,000 | ) | | (143 | ) | | (58,143 | ) |
| Net goodwill balance as of September 30, 2017 | | $ | 107,601 |
| | $ | 183,056 |
| | $ | 290,657 |
|
Definite-lived intangible assets
The table below summarizes amortizable definite-lived intangible assets, which are reflected in "Goodwill and Other Intangible Assets" in the Condensed Consolidated Balance Sheets (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | June 29, 2019 | | December 29, 2018 |
| | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| Patents | $ | 40 |
| | $ | 38 |
| | $ | 2 |
| | $ | 40 |
| | $ | 34 |
| | $ | 6 |
|
| Software | 172,640 |
| | 58,762 |
| | 113,878 |
| | 170,274 |
| | 49,561 |
| | 120,713 |
|
| Trademarks and trade names | 7,564 |
| | 3,051 |
| | 4,513 |
| | 7,564 |
| | 2,721 |
| | 4,843 |
|
| Customer lists and other | 103,905 |
| | 68,556 |
| | 35,349 |
| | 103,840 |
| | 65,688 |
| | 38,152 |
|
| Net definite-lived intangible assets | $ | 284,149 |
| | $ | 130,407 |
| | $ | 153,742 |
| | $ | 281,718 |
| | $ | 118,004 |
| | $ | 163,714 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| | | Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| Patents | | $ | 40 |
| | $ | 24 |
| | $ | 16 |
| | $ | 18,645 |
| | $ | 18,623 |
| | $ | 22 |
|
| Software | | 163,741 |
| | 31,022 |
| | 132,719 |
| | 149,587 |
| | 25,792 |
| | 123,795 |
|
| Trademarks and trade names | | 7,564 |
| | 1,896 |
| | 5,668 |
| | 7,564 |
| | 1,401 |
| | 6,163 |
|
| Customer lists and other | | 111,503 |
| | 64,092 |
| | 47,411 |
| | 117,789 |
| | 65,103 |
| | 52,686 |
|
| Net definite lived intangible assets | | $ | 282,848 |
| | $ | 97,034 |
| | $ | 185,814 |
| | $ | 293,585 |
| | $ | 110,919 |
| | $ | 182,666 |
|
Aggregate amortizationAmortization expense is reflected in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income and was as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Capitalized software | $ | 4,612 |
| | $ | 4,277 |
| | $ | 9,207 |
| | $ | 8,444 |
|
| Other definite-lived intangibles | $ | 1,570 |
| | $ | 1,642 |
| | $ | 3,145 |
| | $ | 3,330 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Amortization expense | $ | 4,404 |
| | $ | 3,235 |
| | $ | 10,492 |
| | $ | 8,575 |
|
The occurrence of events such as acquisitions, dispositions, or impairments may impact future amortization expense. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five fiscal years is as follows (in millions):
|
| | | | | | | | | | | | | | | | | | | | |
| | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
| Amortization expense | | $ | 24.4 |
| | $ | 23.3 |
| | $ | 22.1 |
| | $ | 19.4 |
| | $ | 17.0 |
|
|
| | | | | | | | | | | | | | | | | | | | |
| | | 2017 | | 2018 | | 2019 | | 2020 | | 2021 |
| Amortization expense | | $ | 16.4 |
| | $ | 23.2 |
| | $ | 22.1 |
| | $ | 21.2 |
| | $ | 20.5 |
|
As events, such as acquisitions, dispositions, or impairments, occur in the future, these amounts may change.
Indefinite-lived intangible assets
The Corporation also owns certain intangible assets, which are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely. These indefinite-lived intangible assets are reflected in "Goodwill and Other Intangible Assets" in the Condensed Consolidated Balance Sheets (in thousands):
|
| | | | | | | |
| | June 29,
2019 | | December 29,
2018 |
| Trademarks and trade names | $ | 28,813 |
| | $ | 28,788 |
|
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Trademarks and trade names | $ | 37,505 |
| | $ | 38,054 |
|
In the third quarter of 2017, the Corporation recorded a $6.0 million nonrecurring gain from the sale and license of an intangible asset, which is reflected in "Gain on sale and license of assets"The immaterial change in the Condensed Consolidated Statements of Comprehensive Income.indefinite-lived intangible assets balances shown above is related to foreign currency translation impacts.
Impairment Analysis
The Corporation evaluates its goodwill and indefinite-lived intangible assets for impairment on an annual basis during the fourth quarter or whenever indicators of impairment exist. The Corporation 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.
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, materials, or workmanship. ReservesAllowances have been established for the anticipated future costs associated with the Corporation's warranty programs.
A warranty reserveallowance is determined by recording a specific reserveallowance for known warranty issues and an additional reserveallowance for unknown claimsissues expected to be incurred based on historical claims experience. Actual claimscosts incurred could differ from the original estimates, requiring adjustments to the reserve.allowance. Activity associated with warranty obligations was as follows (in thousands):
|
| | | | | | | |
| | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 |
| Balance at beginning of period | $ | 15,450 |
| | $ | 15,388 |
|
| Accruals for warranties issued during period | 10,504 |
| | 12,219 |
|
| Adjustments related to pre-existing warranties | 126 |
| | 93 |
|
| Warranty issues resolved during the period | (10,512 | ) | | (12,234 | ) |
| Balance at end of period | $ | 15,568 |
| | $ | 15,466 |
|
|
| | | | | | | | |
| | | Nine Months Ended |
| | | September 30,
2017 | | October 1,
2016 |
| Balance at beginning of period | | $ | 15,250 |
| | $ | 16,227 |
|
| Accruals for warranties issued during period | | 15,197 |
| | 14,762 |
|
| Adjustments related to pre-existing warranties | | (298 | ) | | 359 |
|
| Settlements made during the period | | (15,424 | ) | | (15,379 | ) |
| Balance at end of period | | $ | 14,725 |
| | $ | 15,969 |
|
The current and long-term portions of the reserveallowance for estimated settlementswarranty issues are included underreflected within "Accounts payable and accrued expenses" and "Other Long-Term Liabilities", respectively, in the Condensed Consolidated Balance Sheets.
The following table summarizes when these estimated settlementswarranty issues are expected to be paid (in thousands):
|
| | | | | | | |
| | June 29,
2019 | | December 29,
2018 |
| Current - in the next twelve months | $ | 9,399 |
| | $ | 9,455 |
|
| Long-term - beyond one year | 6,169 |
| | 5,995 |
|
| Total | $ | 15,568 |
| | $ | 15,450 |
|
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
| Current - in the next twelve months | $ | 8,958 |
| | $ | 6,975 |
|
| Long-term - beyond one year | 5,767 |
| | 8,275 |
|
| | $ | 14,725 |
| | $ | 15,250 |
|
Note 9. Post-Retirement Health Care
The following table sets forth the components of net periodic benefit costs included in the Condensed Consolidated Statements of Comprehensive Income (in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Nine Months Ended |
| | | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Service cost | | $ | 185 |
| | $ | 184 |
| | $ | 556 |
| | $ | 552 |
|
| Interest cost | | 206 |
| | 212 |
| | 619 |
| | 634 |
|
| Amortization of (gain)/loss | | 6 |
| | 16 |
| | 19 |
| | 46 |
|
| Net periodic benefit cost | | $ | 397 |
| | $ | 412 |
| | $ | 1,194 |
| | $ | 1,232 |
|
Note 10. Income Taxes
The Corporation's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. The following table summarizes the Corporation's income tax provision (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Income before income taxes | $ | 55,955 |
| | $ | 50,649 |
| | $ | 83,541 |
| | $ | 113,333 |
|
| Income taxes | $ | 18,624 |
| | $ | 16,837 |
| | $ | 27,573 |
| | $ | 38,652 |
|
| Effective tax rate | 33.3 | % | | 33.2 | % | | 33.0 | % | | 34.1 | % |
The effective tax rate was minimally higher in the three months ended September 30, 2017. The decrease in the effective tax rate for the first nine months was principally due to the impact of adopting ASU No. 2016-09 related to stock compensation in the first quarter of 2017. The new guidance requires excess tax benefits and tax deficiencies to be recorded in the income statement when awards vest or are settled. See "Note 14. Recently Adopted Accounting Standards" in the Notes to Condensed Consolidated Financial Statements. The Corporation's tax provision for the nine months ended September 30, 2017 includes a tax benefit of $1.0 million related to the impact of this standard.
Note 11. Fair Value Measurements of Financial Instruments
For recognition purposes, on a recurring basis, the Corporation is required to measure at fair value its marketable securities, derivative financial instruments, variable-rate debt obligations, and deferred stock-based compensation. The marketable securities are comprised of money market funds, government securities, and corporate bonds. When available, the Corporation uses quoted market prices to determine fair value and classifies such measurements within Level 1. Where market prices are not available, the Corporation makes use of observable market-based inputs (prices or quotes from published exchanges and indexes) to calculate fair value using the market approach, in which case the measurements are classified within Level 2.
Financial instruments measured at fair value were as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Fair value as of measurement date | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
| Balance as of September 30, 2017 | | | | | | | | |
| Cash and cash equivalents (including money market funds) (1) | | $ | 22,416 |
| | $ | 22,416 |
| | $ | — |
| | $ | — |
|
| Government securities (2) | | $ | 6,101 |
| | $ | — |
| | $ | 6,101 |
| | $ | — |
|
| Corporate bonds (2) | | $ | 6,419 |
| | $ | — |
| | $ | 6,419 |
| | $ | — |
|
| Derivative financial instruments (3) | | $ | 2,166 |
| | $ | — |
| | $ | 2,166 |
| | $ | — |
|
| Variable-rate debt obligations (4) | | $ | 306,800 |
| | $ | — |
| | $ | 306,800 |
| | $ | — |
|
| Deferred stock-based compensation (5) | | $ | 9,476 |
| | $ | — |
| | $ | 9,476 |
| | $ | — |
|
| | | | | | | | | |
| Balance as of December 31, 2016 | | | | | | | | |
| Cash and cash equivalents (including money market funds) (1) | | $ | 36,312 |
| | $ | 36,312 |
| | $ | — |
| | $ | — |
|
| Government securities (2) | | $ | 6,268 |
| | $ | — |
| | $ | 6,268 |
| | $ | — |
|
| Corporate bonds (2) | | $ | 6,017 |
| | $ | — |
| | $ | 6,017 |
| | $ | — |
|
| Derivative financial instruments (3) | | $ | 2,309 |
| | $ | — |
| | $ | 2,309 |
| | $ | — |
|
| Variable-rate debt obligations (4) | | $ | 214,000 |
| | $ | — |
| | $ | 214,000 |
| | $ | — |
|
| Deferred stock-based compensation (5) | | $ | 12,203 |
| | $ | — |
| | $ | 12,203 |
| | $ | — |
|
The index below indicates the line item in the Condensed Consolidated Balance Sheets where the financial instruments are reported:
(1) "Cash and cash equivalents"
(2) Current portion - "Short-term investments"; Long-term portion - "Other Assets"
(3) Current portion - "Prepaid expenses and other current assets"; Long-term portion - "Other Assets"
(4) Current portion - "Current maturities of long-term debt"; Long-term portion - "Long-Term Debt"
(5) Current portion - "Current maturities of other long-term obligations"; Long-term portion - "Other Long-Term Liabilities"
Note 12. Long-Term Debt
Long-term debt is as follows (in thousands):
|
| | | | | | | |
| | June 29,
2019 | | December 29,
2018 |
Revolving credit facility with interest at a variable rate (June 29, 2019 - 3.5%; December 29, 2018 - 3.5%) | $ | 186,000 |
| | $ | 150,000 |
|
| Fixed rate notes due in 2025 with an interest rate of 4.22% | 50,000 |
| | 50,000 |
|
| Fixed rate notes due in 2028 with an interest rate of 4.40% | 50,000 |
| | 50,000 |
|
| Other amounts | 1,101 |
| | 679 |
|
| Deferred debt issuance costs | (603 | ) | | (645 | ) |
| Total debt | 286,498 |
| | 250,034 |
|
| Less: Current maturities of long-term debt | 1,101 |
| | 679 |
|
| Long-term debt | $ | 285,397 |
| | $ | 249,355 |
|
|
| | | | | | | |
| | September 30,
2017 | | December 31,
2016 |
Note payable to bank, revolving credit facility with interest at a variable rate (September 30, 2017 - 2.5%; December 31, 2016 - 1.8%) | $ | 306,800 |
| | $ | 214,000 |
|
| Other notes and amounts | 5,470 |
| | 17 |
|
| Total debt | 312,270 |
| | 214,017 |
|
| Less: Current maturities of long-term debt | 17,270 |
| | 34,017 |
|
| Long-term debt | $ | 295,000 |
| | $ | 180,000 |
|
TheAs of June 29, 2019, the Corporation’s revolving credit facility borrowings were under the current credit agreement was entered into January 6, 2016 and matures January 6, 2021.on April 20, 2018 with a scheduled maturity of April 20, 2023. The Corporation deferred the debt issuance costs related to the credit agreement, which are classified as assets, and is amortizing them over the term of the credit agreement. The current portion whichof $0.4 million is the amount to be amortized over the next twelve months based on the current credit agreement and is reflected in "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets. The long-term portion of $1.2 million is reflected in "Other Assets" in the Condensed Consolidated Balance Sheets.
As of September 30, 2017,June 29, 2019, there was $307$186 million outstanding under the $400$450 million revolving credit facility. The entire amount drawn under the revolving credit facility of which $295 million was classified asis considered long-term as the Corporation does not expectassumes no obligation to repay any of the borrowings within a year. Because the Corporation expects, but is not required, to repay the remaining $12 millionamounts borrowed in the next twelve months, it was classified as current.months. Based on current earnings before interest, taxes, depreciation and amortization, the Corporation can access the full remaining $264 million of borrowing capacity available under the revolving credit facility and maintain compliance with applicable covenants.
TheIn addition to cash flows from operations, the revolving credit facility under the credit agreement is the primary source of committed funding from whichdaily operating capital for the Corporation finances its plannedand provides additional financial capacity for capital expenditures, repurchases of common stock, and strategic initiatives, such as acquisitions, repurchasesacquisitions.
In addition to the revolving credit facility, the Corporation also has $100 million of common stock,borrowings outstanding under private placement note agreements entered into on May 31, 2018. Under the agreements, the Corporation issued $50 million of seven-year fixed rate notes with an interest rate of 4.22 percent, due May 31, 2025, and certain working capital needs. $50 million of ten-year fixed rate notes with an interest rate of 4.40 percent, due May 31, 2028. The Corporation deferred the debt issuance costs related to the private placement note agreements, which are classified as a reduction of long-term debt in accordance with ASU No. 2015-03, and is amortizing them over the terms of the private placement note agreements. The deferred debt issuance costs do not reduce the amount owed by the Corporation under the terms of the private placement note agreements. As of June 29, 2019 the debt issuance costs balance of $0.6 million is reflected in "Long-Term Debt" in the Condensed Consolidated Balance Sheets.
The credit agreement contains a number ofand private placement notes both contain financial and non-financial covenants. The covenants under both are substantially the same. Non-compliance with covenants inunder the credit agreementagreements 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.
Covenants require maintenance of financial ratios as of the end of any fiscal quarter, including:
a consolidated interest coverage ratio (as defined in the credit agreement) of not less than 4.0 to 1.0, based upon the ratio of (a) consolidated EBITDA for the last four fiscal quarters to (b) the sum of consolidated interest charges; and
a consolidated leverage ratio (as defined in the credit agreement) of not greater than 3.5 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness to (b) consolidated EBITDA for the last four fiscal quarters.
The most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.5 to 1.0. Under the credit agreement, consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, and depreciation and amortization of intangibles, as well as non-cash nonrecurring charges, and all non-cash items increasingthat increase or decrease net income. As of September 30, 2017,June 29, 2019, the Corporation was below the maximum allowable ratio and was in compliance with all of the covenants and other restrictions in the credit agreement. The Corporation expects to remain in compliance with all of the covenants and other restrictions in the credit agreement over the next twelve months.
Note 10. Income Taxes
The Corporation's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. The following table summarizes the Corporation's income tax provision (dollars in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Income before income taxes | $ | 20,768 |
| | $ | 24,431 |
| | $ | 22,334 |
| | $ | 25,893 |
|
| Income taxes | $ | 4,957 |
| | $ | 5,835 |
| | $ | 5,503 |
| | $ | 4,836 |
|
| Effective tax rate | 23.9 | % | | 23.9 | % | | 24.6 | % | | 18.6 | % |
The Corporation's effective tax rate remained the same in the three months ended June 29, 2019 compared to the same period last year. The effective tax rate was higher in the six months ended June 29, 2019 compared to the same period last year primarily due to the release of a valuation allowance for certain foreign jurisdictions in 2018.
On February 14, 2018 the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which provides entities an option to reclassify stranded tax effects related to the Tax Cuts and Jobs Act (the "Act") within accumulated other comprehensive income ("AOCI") to retained earnings for each period in which the effects of the Act is recorded. ASU 2018-02 does not modify the existing requirement to allocate the income tax effects of changes in tax laws or rates directly to continuing operations as a component of income tax expense (benefit). The amendments are effective for all organizations for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years with early adoption permitted.
The Corporation adopted in Q1 2019 and applied the portfolio approach of accounting related to releasing income tax effects from AOCI. During the three months ended March 30, 2019, the Corporation reclassified $0.7 million of federal income taxes that were stranded in AOCI due to the Act to retained earnings. No income tax effects were reclassified in the three months ended June 29, 2019.
Note 11. Fair Value Measurements of Financial Instruments
For recognition purposes, on a recurring basis, the Corporation is required to measure at fair value its marketable securities, derivative financial instruments, variable-rate and fixed-rate debt obligations, and deferred stock-based compensation. The marketable securities are comprised of money market funds, government securities, and corporate bonds. When available, the Corporation uses quoted market prices to determine fair value and classifies such measurements within Level 1. Where market prices are not available, the Corporation makes use of observable market-based inputs (prices or quotes from published exchanges and indexes) to calculate fair value using the market approach, in which case the measurements are classified within Level 2.
Financial instruments measured at fair value were as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Fair value as of measurement date | | Quoted prices in active markets for identical assets (Level 1) | | Significant other observable inputs (Level 2) | | Significant unobservable inputs (Level 3) |
| Balance as of June 29, 2019 | | | | | | | |
| Cash and cash equivalents (including money market funds) (1) | $ | 28,782 |
| | $ | 28,782 |
| | $ | — |
| | $ | — |
|
| Government securities (2) | $ | 7,485 |
| | $ | — |
| | $ | 7,485 |
| | $ | — |
|
| Corporate bonds (2) | $ | 5,436 |
| | $ | — |
| | $ | 5,436 |
| | $ | — |
|
| Derivative financial instruments (3) | $ | 1,076 |
| | $ | — |
| | $ | 1,076 |
| | $ | — |
|
| Variable-rate debt obligations (4) | $ | 186,000 |
| | $ | — |
| | $ | 186,000 |
| | $ | — |
|
| Fixed-rate debt obligations (4) | $ | 100,000 |
| | $ | — |
| | $ | 100,000 |
| | $ | — |
|
| Deferred stock-based compensation (5) | $ | 8,686 |
| | $ | — |
| | $ | 8,686 |
| | $ | — |
|
| | | | | | | | |
| Balance as of December 29, 2018 | | | | | | | |
| Cash and cash equivalents (including money market funds) (1) | $ | 76,819 |
| | $ | 76,819 |
| | $ | — |
| | $ | — |
|
| Government securities (2) | $ | 7,384 |
| | $ | — |
| | $ | 7,384 |
| | $ | — |
|
| Corporate bonds (2) | $ | 4,620 |
| | $ | — |
| | $ | 4,620 |
| | $ | — |
|
| Derivative financial instruments (3) | $ | 3,797 |
| | $ | — |
| | $ | 3,797 |
| | $ | — |
|
| Variable-rate debt obligations (4) | $ | 150,000 |
| | $ | — |
| | $ | 150,000 |
| | $ | — |
|
| Fixed-rate debt obligations (4) | $ | 100,000 |
| | $ | — |
| | $ | 100,000 |
| | $ | — |
|
| Deferred stock-based compensation (5) | $ | 7,857 |
| | $ | — |
| | $ | 7,857 |
| | $ | — |
|
The index below indicates the line item in the Condensed Consolidated Balance Sheets where the financial instruments are reported:
(1) "Cash and cash equivalents"
(2) Current portion - "Short-term investments"; Long-term portion - "Other Assets"
(3) Current portion - "Prepaid expenses and other current assets"; Long-term portion - "Other Assets"
(4) Current portion - "Current maturities of long-term debt"; Long-term portion - "Long-Term Debt"
(5) Current portion - "Current maturities of other long-term obligations"; Long-term portion - "Other Long-Term Liabilities"
Note 12. Accumulated Other Comprehensive Income (Loss) and Shareholders' Equity
The following tables summarize the components of accumulated other comprehensive income (loss) and the changes in accumulated other comprehensive income (loss), net of tax, as applicable (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | | Foreign Currency Translation Adjustment | | Unrealized Gains (Losses) on Marketable Securities | | Pension and Post-retirement Liabilities | | Derivative Financial Instruments | | Accumulated Other Comprehensive Income (Loss) |
| Balance as of December 29, 2018 | | $ | (2,973 | ) | | $ | (156 | ) | | $ | (2,929 | ) | | $ | 2,459 |
| | $ | (3,599 | ) |
| Other comprehensive income (loss) before reclassifications | | 630 |
| | 273 |
| | — |
| | (1,817 | ) | | (914 | ) |
| Tax (expense) or benefit | | — |
| | (57 | ) | | — |
| | 427 |
| | 370 |
|
| Reclassification of stranded tax impact | | — |
| | — |
| | (1,185 | ) | | 446 |
| | (739 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | — |
| | — |
| | — |
| | (692 | ) | | (692 | ) |
| Balance as of June 29, 2019 | | $ | (2,343 | ) | | $ | 60 |
| | $ | (4,114 | ) | | $ | 823 |
| | $ | (5,574 | ) |
Amounts in parentheses indicate reductions to equity.
|
| | | | | | | | | | | | | | | | | | | | |
| | | Foreign Currency Translation Adjustment | | Unrealized Gains (Losses) on Marketable Securities | | Pension and Post-retirement Liabilities | | Derivative Financial Instruments | | Accumulated Other Comprehensive Income (Loss) |
| Balance as of December 30, 2017 | | $ | 31 |
| | $ | (132 | ) | | $ | (5,630 | ) | | $ | 2,120 |
| | $ | (3,611 | ) |
| Other comprehensive income (loss) before reclassifications | | (1,127 | ) | | (117 | ) | | — |
| | 2,147 |
| | 903 |
|
| Tax (expense) or benefit | | — |
| | 25 |
| | — |
| | (526 | ) | | (501 | ) |
| Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | — |
| | — |
| | — |
| | (268 | ) | | (268 | ) |
| Balance as of June 30, 2018 | | $ | (1,096 | ) | | $ | (224 | ) | | $ | (5,630 | ) | | $ | 3,473 |
| | $ | (3,477 | ) |
Amounts in parentheses indicate reductions to equity.
Interest Rate Swap
In March 2016, the Corporation entered into 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 one month LIBOR on a $150 million notional value expiring January 2021. As of June 29, 2019, the fair value of the Corporation's interest rate swap was an asset of $1.1 million, which is reflected in "Other Assets" in the Condensed Consolidated Balance Sheets. The unrecognized change in value of the interest rate swap is reported net of tax as $0.8 million in "Accumulated other comprehensive income (loss)" in the Condensed Consolidated Balance Sheets.
The following table details the reclassifications from accumulated other comprehensive income (loss) (in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Three Months Ended | | Six Months Ended |
| Details about Accumulated Other Comprehensive Income (Loss) Components | Affected Line Item in the Statement Where Net Income is Presented | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Derivative financial instruments | | | | | | | |
| Interest rate swap | Interest (expense) or income | $ | 445 |
| | $ | 241 |
| | $ | 905 |
| | $ | 355 |
|
| | Tax (expense) or benefit | (105 | ) | | (59 | ) | | (213 | ) | | (87 | ) |
| | Net of tax | $ | 340 |
| | $ | 182 |
| | $ | 692 |
| | $ | 268 |
|
Amounts in parentheses indicate reductions to profit.
Dividend
The Corporation declared and paid cash dividends per common share as follows (in dollars):
|
| | | | | | | |
| | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 |
| Dividends per common share | $ | 0.600 |
| | $ | 0.580 |
|
Stock Repurchase
The following table summarizes shares repurchased and settled by the Corporation (in thousands, except share data):
|
| | | | | | | |
| | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 |
| Shares repurchased | 1,576,608 |
| | 205,822 |
|
| Average price per share | $ | 36.59 |
| | $ | 38.69 |
|
| | | | |
| Cash purchase price | $ | (57,684 | ) | | $ | (7,963 | ) |
| Purchases unsettled as of quarter end | 681 |
| | 224 |
|
| Prior year purchases settled in current year | (354 | ) | | (1,381 | ) |
| Shares repurchased per cash flow | $ | (57,357 | ) | | $ | (9,120 | ) |
As of June 29, 2019, approximately $190.9 million of the Corporation's Board of Directors' ("Board") current repurchase authorization remained unspent.
Note 13. Earnings Per Share
The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS") (in thousands, except per share data):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Numerator: | | | | | | | |
| Numerator for both basic and diluted EPS attributable to HNI Corporation net income | $ | 15,810 |
| | $ | 18,597 |
| | $ | 16,832 |
| | $ | 21,107 |
|
| Denominators: | |
| | |
| | | | |
| Denominator for basic EPS weighted-average common shares outstanding | 43,218 |
| | 43,665 |
| | 43,376 |
| | 43,513 |
|
| Potentially dilutive shares from stock-based compensation plans | 416 |
| | 625 |
| | 484 |
| | 688 |
|
| Denominator for diluted EPS | 43,634 |
| | 44,290 |
| | 43,860 |
| | 44,201 |
|
| Earnings per share – basic | $ | 0.37 |
| | $ | 0.43 |
| | $ | 0.39 |
| | $ | 0.49 |
|
| Earnings per share – diluted | $ | 0.36 |
| | $ | 0.42 |
| | $ | 0.38 |
| | $ | 0.48 |
|
The weighted-average common stock equivalents presented above do not include the effect of the common stock equivalents in the table below because their inclusion would be anti-dilutive.
|
| | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Common stock equivalents excluded because their inclusion would be anti-dilutive (in thousands) | 2,232 |
| | 1,747 |
| | 2,084 |
| | 1,393 |
|
Note 14. 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. Stock-based compensation expense is the cost of stock options and time-based restricted stock units issued under the shareholder approved stock-based compensation plans and shares issued under the shareholder approved member stock purchase plans. The following table summarizesexpense associated with these plans (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Compensation cost | $ | 1,620 |
| | $ | 1,196 |
| | $ | 4,072 |
| | $ | 4,908 |
|
The options and units granted by the Corporation had fair values as follows (in thousands):
|
| | | | | | | |
| | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 |
| Stock options | $ | 6,211 |
| | $ | 7,200 |
|
| Restricted stock units | $ | 361 |
| | $ | — |
|
The following table summarizes unrecognized compensation expense and the weighted-average remaining service period for non-vested stock options and restricted stock units as of June 29, 2019:
|
| | | | | |
| | Unrecognized Compensation Expense (in thousands) | | Weighted-Average Remaining Service Period (years) |
| Non-vested stock options | $ | 5,661 |
| | 1.2 |
| Non-vested restricted stock units | $ | 843 |
| | 1.1 |
Note 15. Post-Retirement Health Care
The following table sets forth the components of net periodic benefit costs included in the Condensed Consolidated Statements of Comprehensive Income (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Service cost | $ | 170 |
| | $ | 213 |
| | $ | 340 |
| | $ | 426 |
|
| Interest cost | 199 |
| | 197 |
| | 398 |
| | 394 |
|
| Amortization of net (gain) loss | — |
| | 26 |
| | — |
| | 63 |
|
| Net periodic post-retirement benefit cost | $ | 369 |
| | $ | 436 |
| | $ | 738 |
| | $ | 883 |
|
Note 16. Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires lessees to recognize most leases, including operating leases, on-balance sheet via a right of use asset and lease liability. The new standard became effective for the Corporation in fiscal 2019 and was implemented using a modified-retrospective transition approach. The Corporation selected a technology tool to assist with the accounting and disclosure requirements of the new standard. All necessary changes required by the new standard, including those to the Corporation's accounting policies, business process, systems, controls, and disclosures, were identified and implemented as of the first quarter 2019. See "Note 6. Leases" in the Notes to Condensed Consolidated Financial Statements for financial impacts, accounting elections, and further information.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The new standard allows entities to reclassify certain stranded tax effects from accumulated other comprehensive income to retained earnings resulting from the Tax Cuts and Jobs Act of 2017 (the "Act"). The standard also requires certain disclosures about stranded tax effects. The new standard became effective for the Corporation in fiscal 2019. See "Note 10. Income Taxes" in the Notes to Condensed Consolidated Financial Statements for further information.
In August 2017, the FASB issued ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities. The new standard improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements and make certain targeted improvements to simplify the application of the hedge accounting guidance through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The new standard became effective for the Corporation in fiscal 2019. The standard requires a cumulative effect adjustment to the opening balance of retained earnings as of the beginning of the fiscal year of adoption for the previously recorded ineffectiveness included in retained earnings related to existing net investment hedges as of the date of adoption. The Corporation did not record a cumulative effect adjustment to retained earnings as no net investment hedges existed as of the ASU adoption date. New hedging relationships entered after the adoption date have been presented in the financial statements using the guidance of the ASU. The standard did not have a material effect on consolidated financial statements and related disclosures.
Note 17. Guarantees, Commitments, and Contingencies
The Corporation utilizes letters of credit and surety bonds in the amount of $19approximately $21 million to back certain insurance policies and payment obligations. The Corporation utilizes trade letters of credit and banker's acceptances in the amount of $5approximately $3 million to guarantee certain payments to overseas suppliers. The letters of credit, bonds, and banker's acceptances reflect fair value as a condition of their underlying purpose and are subject to competitively determined fees.
The Corporation has contingent liabilities which have arisen in the ordinary course of its business, including liabilities relating to pending litigation, environmental remediation, taxes, and other claims. It is the Corporation's opinion, after consultation with legal counsel, that liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Corporation's financial condition, cash flows, or on the Corporation's quarterly or annual operating results when resolved in a future period.
Note 14. Recently Adopted Accounting Standards
In March 2016, the FASB issued 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 Corporation implemented the new standard in the first quarter of fiscal 2017. The primary impact of implementation was the recognition of excess tax benefits in the Corporation's provision for income taxes rather than paid-in capital beginning with the first quarter of fiscal 2017. Excess tax benefits will be recorded in the operating section of the Condensed Consolidated Statements of Cash Flows on a prospective basis. Prior to fiscal 2017, the tax benefits or shortfalls were recorded in financing cash flows. The presentation requirements for cash flows related to employee taxes paid for withheld shares in the financing section had no impact to any of the periods presented in the Corporation's Condensed Consolidated Statements of Cash Flows since such cash flows have historically been presented as a financing activity. The ongoing impact of the new standard resulted in the recognition of excess tax benefits in the Corporation's provision for income taxes of $0.0 million and $1.0 million as a net tax benefit for the three months and nine months ended September 30, 2017, respectively. Prior to the adoption of this standard, those amounts would have been recognized as an adjustment to "Additional paid-in capital" in the Condensed Consolidated Balance Sheets. See "Note 10. Income Taxes" in the Notes to Condensed Consolidated Financial Statements for further information.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. The new standard is intended to simplify the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost or net realizable value rather than the previous guidance of measuring inventory at the lower of cost or market. The Corporation implemented the new standard in the first quarter of fiscal 2017. As the Corporation previously calculated net realizable value when measuring inventory at the lower of cost or market, this standard had an immaterial effect on the condensed consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). The new standard is to simplify the test for goodwill impairment by eliminating the step 2 requirement. Instead, an entity will perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The standard is effective for fiscal 2020, but the Corporation has early adopted the standard in 2017. The Corporation has not been required to test for goodwill impairment through the third quarter of 2017.
Note 15.18. Reportable 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 metal and wood commercial and home office furniture which includes storage products, desks, credenzas, chairs, tables, bookcases, freestanding office partitions and panel systems, and other related products. The hearth products segment manufactures and markets a broad line of gas, electric, wood, and biomass burning fireplaces, inserts, stoves, facings, and accessories, principally for the home.
For purposes of segment reporting, intercompany sales between segments are not material, and operating profit is income before income taxes exclusive of certain unallocated general corporate expenses. These unallocated general corporate expenses include the net costs of the Corporation's corporate operations, interest income, and interest expense.operations. Management views interest income and expense as corporate financing costs and not as a reportable segment cost. In addition, management applies an effective income tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis. Identifiable assets by segment are those assets applicable to the respective industry segments. Corporate assets consist principally of cash and cash equivalents, short-term investments, long-term investments, IT infrastructure, and corporate office real estate and related equipment.
No geographic information for revenues from external customers or for long-lived assets is disclosed since the Corporation's primary market and capital investments are concentrated in the United States.
Reportable segment data reconciled to the Corporation's condensed consolidated financial statements iswas as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Net Sales: | | | | | | | |
| Office furniture | $ | 409,512 |
| | $ | 423,878 |
| | $ | 763,023 |
| | $ | 804,793 |
|
| Hearth products | 116,514 |
| | 119,736 |
| | 242,459 |
| | 243,890 |
|
| Total | $ | 526,026 |
| | $ | 543,614 |
| | $ | 1,005,482 |
| | $ | 1,048,683 |
|
| | | | | | | | |
| Income Before Income Taxes: | | | | | | | |
| Office furniture | $ | 18,749 |
| | $ | 20,035 |
| | $ | 17,018 |
| | $ | 19,177 |
|
| Hearth products | 13,362 |
| | 16,312 |
| | 30,970 |
| | 33,426 |
|
| General corporate | (8,863 | ) | | (9,287 | ) | | (21,063 | ) | | (21,857 | ) |
| Operating income | 23,248 |
| | 27,060 |
| | 26,925 |
| | 30,746 |
|
| Interest expense, net | 2,480 |
| | 2,629 |
| | 4,591 |
| | 4,853 |
|
| Total | $ | 20,768 |
| | $ | 24,431 |
| | $ | 22,334 |
| | $ | 25,893 |
|
| | | | | | | | |
| Depreciation and Amortization Expense: | | | | | | | |
| Office furniture | $ | 11,247 |
| | $ | 11,204 |
| | $ | 22,307 |
| | $ | 22,190 |
|
| Hearth products | 2,174 |
| | 2,092 |
| | 4,230 |
| | 4,054 |
|
| General corporate | 5,989 |
| | 5,539 |
| | 11,913 |
| | 11,036 |
|
| Total | $ | 19,410 |
| | $ | 18,835 |
| | $ | 38,450 |
| | $ | 37,280 |
|
| | | | | | | | |
| Capital Expenditures (including capitalized software): | | | | | | | |
| Office furniture | $ | 12,347 |
| | $ | 13,420 |
| | $ | 22,666 |
| | $ | 24,997 |
|
| Hearth products | 2,577 |
| | 1,229 |
| | 7,575 |
| | 4,167 |
|
| General corporate | 3,587 |
| | 1,344 |
| | 7,366 |
| | 3,160 |
|
| Total | $ | 18,511 |
| | $ | 15,993 |
| | $ | 37,607 |
| | $ | 32,324 |
|
| | | | | | | | |
| | | | | | As of
June 29,
2019 | | As of
December 29,
2018 |
| Identifiable Assets: | | | | | | | |
| Office furniture | | | | | $ | 864,155 |
| | $ | 797,574 |
|
| Hearth products | | | | | 375,817 |
| | 352,060 |
|
| General corporate | | | | | 202,137 |
| | 252,210 |
|
| Total | | | | | $ | 1,442,109 |
| | $ | 1,401,844 |
|
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | September 30,
2017 | | October 1,
2016 |
| Net Sales: | | | | | | | |
| Office furniture | $ | 465,312 |
| | $ | 454,946 |
| | $ | 1,231,737 |
| | $ | 1,270,398 |
|
| Hearth products | 134,143 |
| | 129,683 |
| | 359,870 |
| | 351,806 |
|
| Total | $ | 599,455 |
| | $ | 584,629 |
| | $ | 1,591,607 |
| | $ | 1,622,204 |
|
| | | | | | | | |
| Income Before Income Taxes: | | | | | | | |
| Office furniture | $ | 39,729 |
| | $ | 44,729 |
| | $ | 65,856 |
| | $ | 109,396 |
|
| Hearth products | 28,737 |
| | 19,108 |
| | 52,651 |
| | 41,623 |
|
| General corporate | (12,511 | ) | | (13,188 | ) | | (34,966 | ) | | (37,686 | ) |
| Total | $ | 55,955 |
| | $ | 50,649 |
| | $ | 83,541 |
| | $ | 113,333 |
|
| | | | | | | | |
| Depreciation and Amortization Expense: | | | | | | | |
| Office furniture | $ | 12,132 |
| | $ | 10,889 |
| | $ | 37,515 |
| | $ | 32,709 |
|
| Hearth products | 1,973 |
| | 3,034 |
| | 8,167 |
| | 9,012 |
|
| General corporate | 3,955 |
| | 3,354 |
| | 8,842 |
| | 7,187 |
|
| Total | $ | 18,060 |
| | $ | 17,277 |
| | $ | 54,524 |
| | $ | 48,908 |
|
| | | | | | | | |
| Capital Expenditures (including capitalized software): | | | | | | | |
| Office furniture | $ | 27,102 |
| | $ | 13,875 |
| | $ | 64,467 |
| | $ | 43,923 |
|
| Hearth products | 5,606 |
| | 1,957 |
| | 12,818 |
| | 8,969 |
|
| General corporate | 7,095 |
| | 10,811 |
| | 26,606 |
| | 29,607 |
|
| Total | $ | 39,803 |
| | $ | 26,643 |
| | $ | 103,891 |
| | $ | 82,499 |
|
| | | | | | | | |
| | | | | | | | |
| | | | | | As of
September 30,
2017 | | As of
December 31,
2016 |
| Identifiable Assets: | | | | | | | |
| Office furniture | | | | | $ | 838,094 |
| | $ | 749,145 |
|
| Hearth products | | | | | 361,241 |
| | 340,494 |
|
| General corporate | | | | | 226,081 |
| | 240,595 |
|
| Total | | | | | $ | 1,425,416 |
| | $ | 1,330,234 |
|
Note 16. Acquisitions and Divestitures
OFM
On January 29, 2016, the Corporation acquired OFM, an office furniture company, with annual sales of approximately $30 million at a purchase price of $34.1 million, net of cash acquired, in an all cash transaction. The Corporation finalized the allocation of the purchase price during fourth quarter 2016. There were $15 million of intangible assets other than goodwill associated with this acquisition with estimated useful lives ranging from three to ten years with amortization recorded on a straight-line basis based on the projected cash flow associated with the respective intangible assets. There was $14 million of goodwill associated with this acquisition. The goodwill is deductible for income tax purposes.
Office Furniture Dealerships
As part of the Corporation's ongoing business strategy, it continues to acquire and divest small office furniture dealerships. There was no change to Goodwill in the first nine months of 2017 as a result of this activity. Goodwill increased approximately $2 million in fiscal 2016 as a result of this activity.
Artcobell
The Corporation completed the sale of Artcobell, a K-12 education furniture business, on December 31, 2016. A pre-tax non-cash charge of approximately $23 million and a $10 million long-term note receivable, which was included in "Other Assets" in the Corporation's Consolidated Balance Sheets in Form 10-K for the fiscal year ended December 31, 2016, were recorded in relation to the sale. Artcobell had been included as part of the Corporation's office furniture segment. As of September 30, 2017, $0.8 million of the note receivable is current and is included in "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of the Corporation's historical results of operations and of its liquidity and capital resources should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements of the Corporation and related notes. Statements that are not historical are forward-looking and involve risks and uncertainties. See "Forward-Looking Statements" at the end of this section.section for further information.
Overview
The Corporation has two reportable segments: office furniture and hearth products. The Corporation is a leading global office furniture manufacturer and the leading manufacturer and marketer of hearth products. The Corporation utilizes a split and focused, decentralized business model to deliver value to customers via various brands and selling models. The Corporation is focused on growing its existing businesses while seeking out and developing new opportunities for growth.
Net sales for the thirdsecond quarter of fiscal 2017 increased 2.52019 were $526.0 million, a decrease of 3.2 percent, to $599.5 million when compared to net sales of $543.6 million in the thirdsecond quarter of fiscal 2016.2018. The change was driven by an increasea 3.4 percent decrease in both the office furniture andsegment, along with a 2.7 percent decline in the hearth products segments. Office furniture segment sales increased in the North American contract, supplies-driven, and international businesses, but were partially offset by a decrease of $42.5 million from the net impact of acquisitionssegment. The closure and divestitures of small office furniture companies. The hearth products segment saw an increasecompanies resulted in a net decrease in sales of $5.0 million compared to the second quarter of 2018.
Net income attributable to the Corporation in the new construction business duesecond quarter of 2019 was $15.8 million compared to growth in single family housing and an increasenet income of $18.6 million in the retail business due to an increase in pellet appliance demand.
Gross profit percentage for thesecond quarter decreased from prior year levelsof 2018. The decrease was primarily driven by unfavorable product and business mix, input cost inflation,lower sales volume and higher restructuring and transitioninput costs, partially offset by higher volumeprice realization and the impact of divestitures.improved operational performance.
Total selling and administrative expenses decreased as a percentage of sales due to lower incentive based compensation and the impact of divestitures, partially offset by strategic investments.
The Corporation recorded $2.3 million of restructuring costs and $3.6 million of transition costs in the third quarter of 2017 in connection with the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana and structural realignments in China and between office furniture facilities in Muscatine, Iowa. Specific items incurred include accelerated depreciation and production move costs. Of these charges, $5.1 million was included in cost of sales. The Corporation also recorded a $6.0 million nonrecurring gain from the sale and license of an intangible asset and a $0.8 million gain on the sale of a closed facility in the third quarter.
Results of Operations
The following table presents certain key highlights from the results of operations (in thousands): | | | | Three Months Ended | | Nine Months Ended | Three Months Ended | | Six Months Ended |
| | September 30,
2017 | | October 1,
2016 | | Percent Change | | September 30,
2017 | | October 1,
2016 | | Percent Change | June 29,
2019 | | June 30,
2018 | | Change | | June 29,
2019 | | June 30,
2018 | | Change |
| Net sales | $ | 599,455 |
| | $ | 584,629 |
| | 2.5 | % | | $ | 1,591,607 |
| | $ | 1,622,204 |
| | (1.9 | )% | $ | 526,026 |
| | $ | 543,614 |
| | (3.2 | %) | | $ | 1,005,482 |
| | $ | 1,048,683 |
| | (4.1 | %) |
| Cost of sales | 378,211 |
| | 363,075 |
| | 4.2 | % | | 1,011,888 |
| | 1,006,019 |
| | 0.6 | % | 333,437 |
| | 342,744 |
| | (2.7 | %) | | 643,279 |
| | 670,894 |
| | (4.1 | %) |
| Gross profit | 221,244 |
| | 221,554 |
| | (0.1 | )% | | 579,719 |
| | 616,185 |
| | (5.9 | )% | 192,589 |
| | 200,870 |
| | (4.1 | %) | | 362,203 |
| | 377,789 |
| | (4.1 | %) |
| Selling and administrative expenses | 169,547 |
| | 169,495 |
| | — | % | | 495,897 |
| | 496,920 |
| | (0.2 | )% | 168,411 |
| | 172,973 |
| | (2.6 | %) | | 334,348 |
| | 344,868 |
| | (3.1 | %) |
| Gain on sale and license of assets | (6,805 | ) | | — |
| | (100.0 | )% | | (6,805 | ) | | — |
| | (100.0 | )% | |
| Restructuring charges | 783 |
| | 399 |
| | 96.2 | % | | 3,325 |
| | 2,057 |
| | 61.6 | % | |
| Restructuring and impairment charges | | 930 |
| | 837 |
| | 11.1 | % | | 930 |
| | 2,175 |
| | (57.2 | %) |
| Operating income | 57,719 |
| | 51,660 |
| | 11.7 | % | | 87,302 |
| | 117,208 |
| | (25.5 | )% | 23,248 |
| | 27,060 |
| | (14.1 | %) | | 26,925 |
| | 30,746 |
| | (12.4 | %) |
| Interest expense, net | 1,764 |
| | 1,011 |
| | 74.5 | % | | 3,761 |
| | 3,875 |
| | (2.9 | )% | 2,480 |
| | 2,629 |
| | (5.7 | %) | | 4,591 |
| | 4,853 |
| | (5.4 | %) |
| Income before income taxes | 55,955 |
| | 50,649 |
| | 10.5 | % | | 83,541 |
| | 113,333 |
| | (26.3 | )% | 20,768 |
| | 24,431 |
| | (15.0 | %) | | 22,334 |
| | 25,893 |
| | (13.7 | %) |
| Income taxes | 18,624 |
| | 16,837 |
| | 10.6 | % | | 27,573 |
| | 38,652 |
| | (28.7 | )% | 4,957 |
| | 5,835 |
| | (15.0 | %) | | 5,503 |
| | 4,836 |
| | 13.8 | % |
| Net income | $ | 37,331 |
| | $ | 33,812 |
| | 10.4 | % | | $ | 55,968 |
| | $ | 74,681 |
| | (25.1 | )% | |
| Net income (loss) attributable to non-controlling interest | | 1 |
| | (1 | ) | | 200.0 | % | | (1 | ) | | (50 | ) | | 98.0 | % |
| Net income attributable to HNI Corporation | | $ | 15,810 |
| | $ | 18,597 |
| | (15.0 | %) | | $ | 16,832 |
| | $ | 21,107 |
| | (20.3 | %) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| As a Percentage of Net Sales: | | | | | | | | | | | | |
| Net sales | | 100.0 | % | | 100.0 | % | |
|
| | 100.0 | % | | 100.0 | % | |
|
|
| Gross profit | | 36.6 |
| | 37.0 |
| | -40 | bps | | 36.0 |
| | 36.0 |
| | — |
|
| Selling and administrative expenses | | 32.0 |
| | 31.8 |
| | 20 | bps | | 33.3 |
| | 32.9 |
| | 40 | bps |
| Restructuring and impairment charges | | 0.2 |
| | 0.2 |
| | — |
| | 0.1 |
| | 0.2 |
| | -10 | bps |
| Operating income | | 4.4 |
| | 5.0 |
| | -60 | bps | | 2.7 |
| | 2.9 |
| | -20 | bps |
| Income taxes | | 0.9 |
| | 1.1 |
| | -20 | bps | | 0.5 |
| | 0.5 |
| | — |
|
| Net income attributable to HNI Corporation | | 3.0 |
| | 3.4 |
| | -40 | bps | | 1.7 |
| | 2.0 |
| | -30 | bps |
Results of Operations - Three Months Ended
Net Sales
Consolidated net sales for the thirdsecond quarter of 2017 increased 2.52019 decreased 3.2 percent or $14.8 million compared to the same quarter last year. The change was driven by an increase in both the office furniture and hearth products segments. Office furniture segment sales increased in the North American contract, supplies-driven, and international businesses, but were partially offset by a decrease of $42.5 million from the net impact of acquisitions and divestitures of small office furniture companies. The hearth products segment saw an increase in the new construction business due to growth in single family housing and an increase in the retail business due to an increase in pellet appliance demand.
Gross profit percentage for the third quarter of 2017 decreased to 36.93.4 percent compared to 37.9 percent for the same quarter last year. Gross margin for the quarter declined from prior year levels driven by unfavorable product and business mix, input cost inflation, and higher restructuring and transition costs, partially offset by higher volume and the impact of divestitures.
Third quarter 2017 cost of sales included $1.6 million of restructuring costs and $3.6 million of transition costs related to the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana and structural realignments in China and between office furniture facilities in Muscatine, Iowa. Specific items incurred include accelerated depreciation and production move costs. Third quarter 2016 cost of sales included $0.7 million of restructuring costs and $1.6 million of transition costs related to the previously announced closure of the hearth manufacturing facility in Paris, Kentucky and structural realignments among office furniture facilities in Muscatine, Iowa.
Total selling and administrative expenses as a percentage of net sales decreased to 28.3 percent compared to 29.0 percent for the same quarter last year driven by lower incentive based compensation and the impact of divestitures, partially offset by strategic investments.
In the third quarter of 2017, the Corporation recorded $0.8 million in restructuring costs as part of selling and administrative costs due to the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana. The Corporation also recorded a $6.0 million nonrecurring gain from the sale and license of an intangible asset and a $0.8 million gain on the sale of a closed facility in the third quarter of 2017. In the third quarter of 2016, the Corporation recorded $0.4 million of restructuring costs as part of selling and administrative costs in connection with the previously announced closure of the Paris, Kentucky hearth manufacturing facility. The Corporation also recorded $1.6 million of accelerated depreciation in conjunction with the announced charitable donation of a building in the third quarter of 2016.
The Corporation's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. The Corporation's income tax provision for the three months ended September 30, 2017 was $18.6 million on pre-tax income of $56.0 million, or an effective tax rate of 33.3 percent. For the three months ended October 1, 2016, the Corporation's income tax provision was $16.8 million on pre-tax income of $50.6 million, or an effective tax rate of 33.2 percent. Refer to "Note 10. Income Taxes" for further information.
Net income attributable to the Corporation was $37.3 million or $0.84 per diluted share in the third quarter of 2017 compared to $33.8 million or $0.74 per diluted share in the third quarter of 2016.
Nine Months Ended
For the first nine months of 2017, consolidated net sales decreased 1.9 percent or $30.6 million to $1,591.6 million compared to $1,622.2 million in the same period in 2016. The change was driven by a decrease in sales in the office furniture segment, partially offset by an increase in salesalong with a 2.7 percent decline in the hearth products segment. Office furniture segment sales were downdecreased primarily due to a declinedecrease in the supplies-driven business, combinedalong with a $74.3decrease of $5.0 million from the net impact of acquisitionsclosing and divestitures ofdivesting small office furniture companies. This decrease in office furniture was partially offset by an increase in the North American contract business. The hearthHearth products segment saw an increasesales decreased in both the new construction business due to growth in single family housing and an increase in the retail business due to an increase in pellet appliance demand.businesses.
Gross Profit
Gross profit as a percentage forof net sales decreased 40 basis points in the first nine monthssecond quarter of 2017 decreased to 36.4 percent2019 compared to 38.0 percent for the same periodquarter last year. The decline in gross margin wasyear primarily driven by unfavorable product and business mix, input cost inflation, operational investments,lower sales volume and higher restructuring and transitioninput costs, partially offset by productivity, structuralprice realization and improved operational performance.
Second quarter 2018 cost reductions, higher volume, and the impact of divestitures.
During the first nine months of 2017, the Corporation recorded $8.7 million of restructuring costs and $11.7sales included $0.3 million of transition costs in cost of salesprimarily related to the previously announced closures of the hearth manufacturing facilitiesstructural realignment in Paris, KentuckyChina.
Selling and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana and structural realignments in China and between office furniture facilities in Muscatine, Iowa. Specific items incurred include severance, accelerated depreciation and production move costs. During the first nine months of 2016, the Corporation recorded $2.2 million of restructuring costs and $6.9 million of transition costs in cost of sales related to the previously announced closure of the hearth manufacturing facility in Paris, Kentucky and structural realignments among office furniture facilities in Muscatine, Iowa.Administrative Expenses
For the first nine months of 2017, total sellingSelling and administrative expenses as a percentage of net sales increased to 31.2 percent compared to 30.6 percent for the same period last year. This increase was driven by strategic investments, partially offset by lower incentive based compensation and the impact of divestitures. The Corporation also recorded a $2.0 million nonrecurring gain on a litigation settlement20 basis points in the second quarter of 2016.2019 compared to the same quarter last year primarily driven by lower sales volume, partially offset by lower Business System Transformation costs and freight expenses.
TheRestructuring and Impairment Charges
In the second quarter of 2019, the Corporation recorded $3.3$0.9 million of restructuring costs in the first nine months of 2017 as part of selling and administrative expenses due to the previously announced closures of the hearth manufacturing facilitiesconnection with a structural realignment in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana. The Corporation also recorded a $6.0 million nonrecurring gain fromsegment.
In the sale and license of an intangible asset and a $0.8 million gain on the sale of a closed facility in the thirdsecond quarter of 2017. In the same period last year,2018, the Corporation recorded $2.1$0.8 million of restructuring costs as part of selling and administrative expenses due primarily toassociated with the previously announced closure of the hearth manufacturing facility in Paris, Kentucky. The Corporation also recorded $1.6These costs include an impairment charge due to an updated valuation of the closed manufacturing facility held for sale.
Interest Expense, Net
Interest expense, net for the second quarter of 2019 was $2.5 million, of accelerated depreciation in conjunction with the announced charitable donation of a buildingcompared to $2.6 million in the thirdsame quarter of 2016.last year.
Income Taxes
The Corporation's income tax provision for the nine months ended September 30, 2017second quarter of 2019 was $27.6an expense of $5.0 million on pre-tax income before taxes of $83.5$20.8 million, or an effective tax rate of 33.023.9 percent. For the nine months ended October 1, 2016,second quarter of 2018, the Corporation's income tax provision was $38.7an expense of $5.8 million on pre-tax income before taxes of $113.3$24.4 million, or an effective tax rate of 34.123.9 percent. Refer to "Note 10. Income Taxes" for further information.
Net Income Attributable to HNI Corporation
Net income attributable to the Corporation was $56.0$15.8 million or $1.24$0.36 per diluted share in the second quarter of 2019 compared to $18.6 million or $0.42 per diluted share in the second quarter of 2018.
Results of Operations - Six Months Ended
Net Sales
For the first six months of 2019, consolidated net sales decreased 4.1 percent compared to the same period last year. The change was driven by a 5.2 percent decrease in the office furniture segment. Office furniture segment sales decreased primarily due to a decrease in the supplies-driven business, along with a decrease of $13.6 million from the net impact of closing and divesting small office furniture companies. Hearth products segment sales decreased 0.6 percent compared to the same period last year.
Gross Profit
Gross profit as a percentage of net sales was flat in the first six months of 2019 compared to the same period last year. A decrease of 20 basis points was driven by lower volume, higher input costs, and investments, partially offset by price realization and improved operational performance. An offsetting increase of 20 basis points was due to transition costs incurred in the prior year period.
During the first six months of 2018, the Corporation recorded $1.5 million of transition costs in cost of sales primarily related to structural realignment in China and the previously announced closure of the office furniture manufacturing facility in Orleans, Indiana.
Selling and Administrative Expenses
Selling and administrative expenses as a percentage of net sales increased 40 basis points in the first six months of 2019 compared to the same period last year primarily driven by lower sales volume and investments, partially offset by lower Business System Transformation costs and freight expenses.
Restructuring and Impairment Charges
During the first six months of 2019, the Corporation recorded $0.9 million of restructuring costs in connection with a structural realignment in the office furniture segment.
During the first six months of 2018, the Corporation recorded $2.2 million of restructuring and impairment charges primarily associated with the previously announced closures of the office furniture manufacturing facility in Orleans, Indiana and the hearth manufacturing facility in Paris, Kentucky. These costs include an impairment charge due to an updated valuation of the closed manufacturing facility held for sale.
Interest Expense, Net
Interest expense, net for the first six months of 2019 was $4.6 million, compared to $4.9 million in the same period last year.
Income Taxes
The Corporation's income tax provision for the first six months of 2019 was an expense of $5.5 million on income before taxes of $22.3 million, or an effective tax rate of 24.6 percent. For the first six months of 2018, the Corporation's income tax provision was an expense of $4.8 million on income before taxes of $25.9 million, or an effective tax rate of 18.6 percent. The income tax provision reflects a higher rate in 2019 compared to the prior year period primarily due to the release of a valuation allowance for certain foreign jurisdictions in 2018. Refer to "Note 10. Income Taxes" for further information.
Net Income Attributable to HNI Corporation
Net income attributable to the Corporation was $16.8 million or $0.38 per diluted share for the first ninesix months of 20172019 compared to $74.7$21.1 million or $1.64$0.48 per diluted share for the first ninesix months of 2016.2018.
Office Furniture
The following table presents certain key highlights from the results of operations in the office furniture segment (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | Percent Change | | September 30,
2017 | | October 1,
2016 | | Percent Change |
| Net sales | $ | 465,312 |
| | $ | 454,946 |
| | 2.3 | % | | $ | 1,231,737 |
| | $ | 1,270,398 |
| | (3.0 | )% |
| Cost of sales | 302,305 |
| | 287,597 |
| | 5.1 | % | | 809,430 |
| | 804,238 |
| | 0.6 | % |
| Gross profit | 163,007 |
| | 167,348 |
| | (2.6 | )% | | 422,307 |
| | 466,159 |
| | (9.4 | )% |
| Selling and administrative expenses | 122,776 |
| | 122,604 |
| | 0.1 | % | | 355,103 |
| | 356,537 |
| | (0.4 | )% |
| Restructuring charges | 502 |
| | 15 |
| | 3246.7 | % | | 1,348 |
| | 226 |
| | 496.5 | % |
| Operating profit | $ | 39,729 |
| | $ | 44,729 |
| | (11.2 | )% | | $ | 65,856 |
| | $ | 109,396 |
| | (39.8 | )% |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | Change | | June 29,
2019 | | June 30,
2018 | | Change |
| Net sales | $ | 409,512 |
| | $ | 423,878 |
| | (3.4 | %) | | $ | 763,023 |
| | $ | 804,793 |
| | (5.2 | %) |
| Operating profit | $ | 18,749 |
| | $ | 20,035 |
| | (6.4 | %) | | $ | 17,018 |
| | $ | 19,177 |
| | (11.3 | %) |
| Operating profit % | 4.6 | % | | 4.7 | % | | -10 | bps | | 2.2 | % | | 2.4 | % | | -20 | bps |
Three Months Ended
ThirdSecond quarter 20172019 net sales for the office furniture segment increased 2.3decreased 3.4 percent or $10.4 millioncompared to $465.3 million from $454.9 million for the same quarter last year. Sales increaseddecreased primarily due to a decrease in the North American contract, supplies-driven and international businesses, but were partially offset bybusiness, along with a decrease of $42.5$5.0 million due to the net impact of acquisitionsclosing and divestitures ofdivesting small office furniture companies.
Third quarter 2017 operatingOperating profit as a percentage of net sales decreased 11.2 percent or $5.0 million to $39.7 million from $44.7 million10 basis points in the prior yearsecond quarter as a result of unfavorable product2019 compared to the same quarter last year. Lower sales volume, higher input costs, and business mix, input cost inflation, strategic investments were offset by price realization and improved operational performance, Business System Transformation costs, and freight expenses. Additionally, higher restructuring and transition costs and the impact of divestitures, partially offset by higher volume and lower incentive based compensation.drove a 10 basis points decrease.
In the thirdsecond quarter of 2017,2019, the Corporation recorded $0.9 million of restructuring costs in connection with a structural realignment in the office furniture segment.
In the second quarter of 2018, the office furniture segment recorded $2.0$0.1 million of restructuring costs and $2.8$0.3 million of transition costs primarily associated with structural realignments in China and the previously announced closure of the office furniture manufacturing facility in Orleans, Indiana and
structural realignments in China and between office furniture facilities in Muscatine, Iowa. Specific items incurred include accelerated depreciation and production move costs.Indiana. Of these charges, $4.3$0.3 million was included in cost of sales. In
Six Months Ended
Net sales for the third quarterfirst six months of 2016,2019 for the office furniture segment decreased 5.2 percent compared to the same period last year. Sales decreased primarily due to a decrease in the supplies-driven business, along with a decrease of $13.6 million due to the net impact of closing and divesting small office furniture companies.
Operating profit as a percentage of net sales decreased 20 basis points for the first six months of 2019 compared to the same period last year. Of this decrease, 30 basis points were driven by lower sales volume, higher input costs, and investments, partially offset by price realization and improved operational performance, Business System Transformation costs, and freight expenses. This decrease was partially offset by a 10 basis points increase due to lower restructuring costs, as well as one-time transition costs recorded in the prior year period.
During the first six months of 2019, the Corporation recorded $0.9 million of restructuring costs in connection with a structural realignment in the office furniture segment.
During the first six months of 2018, the office furniture segment recorded $0.1$1.3 million of restructuring costs and $1.2 million of transition costs primarily associated with structural realignments among office furniture facilities in Muscatine, Iowa, all of which were included in cost of sales.
Nine Months Ended
Net sales for the first nine months of 2017 for the office furniture segment decreased 3.0 percent or $38.7 million to $1,231.7 million compared to $1,270.4 million for the same period in 2016. Sales were down due a decline in the supplies-driven business combined with the net impact of acquisitions and divestitures of small office furniture companies, which was a net decrease in sales of $74.3 million. This decrease was partially offset by an increase in the North American contract business.
Operating profit for the first nine months of 2017 decreased 39.8 percent or $43.5 million to $65.9 million compared to $109.4 million for the same period in 2016. The year-to-date decrease in operating profit was driven by unfavorable product and business mix, input cost inflation, strategic investments, and higher restructuring and transition costs, partially offset by higher volume, lower incentive based compensation, and the impact of divestitures.
During the first nine months of 2017, the office furniture segment recorded $7.8 million of restructuring costs and $9.0 million of transition costs associated with the previously announced closure of the office furniture manufacturing facility in Orleans, Indiana and structural realignments in China and between office furniture facilities in Muscatine, Iowa. Specific items incurred include severance, accelerated depreciation, and production move costs.China. Of these charges, $15.5 million was included in cost of sales. During the first nine months of 2016, the office furniture segment recorded $0.4 million of restructuring costs and $5.2 million of transition costs primarily associated with structural realignments among office furniture facilities in Muscatine, Iowa. Of these charges, $5.3$1.2 million was included in cost of sales.
Hearth Products
The following table presents certain key highlights from the results of operations in the hearth products segment (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | September 30,
2017 | | October 1,
2016 | | Percent Change | | September 30,
2017 | | October 1,
2016 | | Percent Change |
| Net sales | $ | 134,143 |
| | $ | 129,683 |
| | 3.4 | % | | $ | 359,870 |
| | $ | 351,806 |
| | 2.3 | % |
| Cost of sales | 75,905 |
| | 75,478 |
| | 0.6 | % | | 202,457 |
| | 201,780 |
| | 0.3 | % |
| Gross profit | 58,238 |
| | 54,205 |
| | 7.4 | % | | 157,413 |
| | 150,026 |
| | 4.9 | % |
| Selling and administrative expenses | 36,025 |
| | 34,713 |
| | 3.8 | % | | 109,591 |
| | 106,572 |
| | 2.8 | % |
| Gain on sale and license of assets | (6,805 | ) | | — |
| | (100.0 | )% | | (6,805 | ) | | — |
| | (100.0 | )% |
| Restructuring charges | 281 |
| | 384 |
| | (26.8 | )% | | 1,976 |
| | 1,831 |
| | 7.9 | % |
| Operating profit | $ | 28,737 |
| | $ | 19,108 |
| | 50.4 | % | | $ | 52,651 |
| | $ | 41,623 |
| | 26.5 | % |
|
| | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | Change | | June 29,
2019 | | June 30,
2018 | | Change |
| Net sales | $ | 116,514 |
| | $ | 119,736 |
| | (2.7 | %) | | $ | 242,459 |
| | $ | 243,890 |
| | (0.6 | %) |
| Operating profit | $ | 13,362 |
| | $ | 16,312 |
| | (18.1 | %) | | $ | 30,970 |
| | $ | 33,426 |
| | (7.3 | %) |
| Operating profit % | 11.5 | % | | 13.6 | % | | -210 | bps | | 12.8 | % | | 13.7 | % | | -90 | bps |
Three Months Ended
ThirdSecond quarter 20172019 net sales for the hearth products segment increased 3.4decreased 2.7 percent or $4.4 millioncompared to $134.1 million from $129.7 million for the same quarter last year. The hearth products segment saw an increaseSales decreased in both the new construction businessand retail businesses.
Operating profit as a percentage of net sales decreased 210 basis points in the second quarter of 2019 compared to the same quarter last year. Of this decrease, 280 basis points were driven by lower sales volume, higher input costs, and investments, partially offset by price realization, and lower core SG&A spend. This decline was partially offset by a 70 basis points increase due to growth in single family housingrestructuring and an increase in the retail business due to an increase in pellet appliance demand.
Third quarter 2017 operating profit increased 50.4 percent or $9.6 million to $28.7 million from $19.1 millionimpairment charges, and transition costs, incurred in the prior year quarter as a result of structural cost reductions, higher volume, nonrecurring gains, and lower restructuring and transition costs.quarter.
In the thirdsecond quarter of 2017,2018, the hearth products segment recorded $0.3$0.7 million of restructuring and impairment charges primarily associated with the previously announced closure of the hearth manufacturing facility in Paris, Kentucky.
Six Months Ended
Net sales for the first six months of 2019 for the hearth products segment decreased 0.6 percent compared to the same period last year. Sales decreased in both the new construction and retail businesses.
Operating profit as a percentage of net sales decreased 90 basis points for the first six months of 2019 compared to the same period last year. Of this decrease, 140 basis points were driven by lower sales volume, higher input costs, and investments, partially offset by price realization and lower core SG&A spend. This decline was partially offset by a 50 basis points increase due to restructuring and impairment charges, and transition costs, incurred in the prior year period.
During the first six months of 2018, the hearth products segment recorded $0.8 million of restructuring and impairment charges and $0.3 million of transition costs primarily associated with the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington. Specific items incurred include accelerated depreciation and production move costs. Of these charges, $0.8 million was included in cost of sales. The hearth products segment also recorded a $6.0 million nonrecurring gain from the sale and license of an intangible asset and a $0.8 million gain on the sale of a closed facility in the third quarter of 2017. In the third quarter of 2016, the hearth products segment recorded $1.0 million of restructuring costs and $0.4 million of transition costs associated with the
previously announced closure of the Paris, Kentucky hearth manufacturing facility. Of these charges, $1.0$0.3 million was included in cost of sales.
Nine Months Ended
Net sales for the first nine months of 2017 for the hearth products segment increased 2.3 percent or $8.1 million to $359.9 million compared to $351.8 million for the same period in 2016. The change was driven by an increase in the new construction business due to growth in single family housing and an increase in the retail business due to an increase in pellet appliance demand.
Operating profit for the first nine months of 2017 increased 26.5 percent or $11.0 million to $52.7 million compared to $41.6 million for the same period in 2016. The year-to-date increase in operating profit was driven by structural cost reductions, higher volume, and nonrecurring gains, partially offset by higher restructuring and transition costs.
During the first nine months of 2017, the hearth products segment recorded $4.2 million of restructuring costs and $2.6 million of transition costs associated with the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington. Specific items incurred include severance, accelerated depreciation, and production move costs. Of these charges, $4.9 million was included in cost of sales. The hearth products segment also recorded a $6.0 million nonrecurring gain from the sale and license of an intangible asset and a $0.8 million gain on the sale of a closed facility in the third quarter of 2017. During the first nine months of 2016, the hearth products segment recorded $3.9 million of restructuring costs and $1.6 million of transition costs associated with the previously announced closure of the Paris, Kentucky hearth manufacturing facility. Of these charges, $3.7 million was included in cost of sales.
Liquidity and Capital Resources
Cash Flow – Operating Activities
Operating activities were a source of $57.3$12.8 million of cash in the first ninesix months of 20172019 compared to a source of $113.7$29.5 million of cash in the first ninesix months of 2016.2018. The lower operational cash generation compared toversus the prior year was primarily due to the impacttiming of plant consolidations and operational transformations on net income in addition to changes in working capital timing, primarily driven by lower incentive compensation accruals and investments in inventory. Cash flow from operating activities is expected to be positive for the year.balances.
Cash Flow – Investing Activities
Capital expenditures, including capitalized software, for the first ninesix months of fiscal 20172019 were $103.9$37.6 million compared to $32.3 million in the same period last year. These expenditures are primarily focused on machinery, equipment, and were primarily for tooling and equipment forrequired to support new products, continuous improvements, and cost savings initiatives in manufacturing processes, building reconfiguration, and the on-going implementation of an integrated information system to support business process transformation.processes. For the full year 2017,2019, capital expenditures are expected to be approximately $120$65 to $130$75 million.
Real Estate Transaction - In the first quarter of 2018, the Corporation entered into a sale-leaseback transaction, selling a manufacturing facility and subsequently leasing back a portion of the facility for a term of 10 years. The net proceeds from the sale of the facility of $16.9 million are reflected in "Proceeds from sale of property, plant, equipment" in the Condensed Consolidated Statements of Cash Flows. See "Note 6. Leases" in the Notes to Condensed Consolidated Financial Statements for further information.
Cash Flow – Financing Activities
Long-Term Debt - The Corporation maintains a revolving credit facility as the primary source of committed funding from which the Corporation finances its planned capital expenditures, strategic initiatives, and seasonal working capital needs. Cash flows included in financing activities represent periodic borrowings and repayments under the revolving credit facility. During the second quarter of 2018, the Corporation issued $100 million of private placement notes. The proceeds were used to repay outstanding borrowings under the revolving credit facility. See "Note 12.9. Long-Term Debt" in the Notes to Condensed Consolidated Financial Statements for further information.
Dividend - The Corporation is committed to maintaining and/or modestly growing the quarterly dividend. Cash dividends declared and paid per common share were as follows (in dollars):
|
| | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 | | June 29,
2019 | | June 30,
2018 |
| Dividends per common share | $ | 0.305 |
| | $ | 0.295 |
| | $ | 0.600 |
| | $ | 0.580 |
|
During the second quarter, the Board declared athe regular quarterly cash dividend of $0.285 per share on the Corporation's common stock on August 8, 2017.May 7, 2019. The dividend was paid on September 1, 2017June 3, 2019 to shareholders of record on August 18, 2017.May 17, 2019. This was a 3.63.4 percent per share increase over the comparable prior year quarterly dividend of $0.275 paid on SeptemberJune 1, 2016.2018.
Stock Repurchase - The Corporation’s capital strategy related to stock repurchase is focused on offsetting the dilutive impact of issuances for various compensation related matters. The Corporation may elect to opportunistically purchase additional shares based on excess cash generation and/or share price considerations. DuringThe Board authorized $200 million on November 9, 2007 and an additional $200 million each on November 7, 2014 and February 13, 2019 for repurchases of the nine months ended September 30, 2017, the Corporation repurchased 1,300,936 shares ofCorporation’s common stock at a cost of $52.9 million, or an average price of $40.63 per share. stock.
As of September 30, 2017, $84.0June 29, 2019, approximately $190.9 million of the Board's current repurchase authorization remainedauthorizations remain unspent. The following table summarizes shares repurchased and settled by the Corporation (in thousands, except share and per share data):
|
| | | | | | | |
| | Six Months Ended |
| | June 29,
2019 | | June 30,
2018 |
| Shares repurchased | 1,576,608 |
| | 205,822 |
|
| Average price per share | $ | 36.59 |
| | $ | 38.69 |
|
| | | | |
| Cash purchase price | $ | (57,684 | ) | | $ | (7,963 | ) |
| Purchases unsettled as of quarter end | 681 |
| | 224 |
|
| Prior year purchases settled in current year | (354 | ) | | (1,381 | ) |
| Shares repurchased per cash flow | $ | (57,357 | ) | | $ | (9,120 | ) |
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. Additionally, based on current earnings before interest, taxes, depreciation and amortization generation, the Corporation can access the full remaining $264 million of borrowing capacity available under the revolving credit facility and maintain compliance with applicable covenants.
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 fiscal year ended December 31, 2016.29, 2018. 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 forduring the first ninesix months of fiscal 2017.2019.
Commitments and Contingencies
See "Note 13.17. Guarantees, Commitments, and Contingencies" in the Notes to Condensed Consolidated Financial Statements for further information.
Critical Accounting Policies and Estimates
The preparation of the financial statements requires the Corporation to make estimates and judgments affecting 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 requiring 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 fiscal year ended December 31, 2016. 29, 2018.
Recently Issued Accounting Standards Not Yet Adopted
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 FASB has recently issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients to provide further clarification and guidance. The new standard becomes effective for the Corporation in fiscal 2018, and allows for both retrospective and modified-retrospective methods of adoption. The Corporation has completed a review of the impact of the new standard and has determined there will be no material changes in the way the Corporation recognizes revenue. The Corporation will adopt the standard in fiscal 2018 using the modified-retrospective approach, which will not have a material impact on the results of operations. The Corporation continues to review accounting policies and disclosures to determine changes needed to comply with this new standard, as well as identify changes to the Corporation's business processes, systems, and controls needed to support adoption of this ASU. The Corporation expects all necessary changes required by the new standard will be identified and implemented by the beginning of fiscal 2018.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires lessees 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 June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments and also issued subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04, and ASU 2019-05 (collectively, Topic 326). The new standardTopic 326 replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses by requiring consideration of a broader range of reasonable and supportable information and is intended to provide financial statement users with more useful information about expected credit losses on financial instruments. The new standardTopic 326 becomes effective for the Corporation in fiscal 2020 and requires a cumulative effect adjustment in retained earnings as of the beginning of the year of adoption. The Corporation is currently evaluating the effect the standardTopic 326 will have on the consolidated financial statements and related disclosures.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. The new standard provides classification guidance on eight cash flow issues including debt prepayment, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlements of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. The new standard becomes effective for the Corporation in fiscal 2018. The Corporation anticipates the standard will have an immaterial effect on consolidated statements of cash flows.30
In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The new standard requires an entity with defined benefit and postretirement benefit plans to present the service cost component of the net periodic benefit cost in the same income statement line item or items as other compensation costs arising from services rendered by employees during the period. All other components of net periodic benefit cost will be presented outside of operating income, if a subtotal is presented. The new standard is to be applied retrospectively to each period presented and becomes effective for the Corporation in fiscal 2018. The Corporation anticipates the standard will have an immaterial effect on consolidated statements of comprehensive income.
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 thatto the extent they are not strictlystatements of historical or present fact, including but not limited to statements as to future plans, outlook, objectives, and future financial performance, are "forward-looking" statements, within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E21 of the Securities Exchange Act of 1934, as amended, 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," "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 and uncertainties, 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) closing, consolidation, and logistical realignment initiatives; uncertainty relatedThe most significant factors known to the availability of cash and credit, andCorporation that may adversely affect the terms and interest rates on which credit would be available, to fundCorporation’s business, operations, andindustries, financial position, or 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 the Corporation's 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 termsperformance are described within Item 1A of the Corporation's revolving credit facility; changing legal, regulatory, environmental, and healthcare conditions; currency fluctuations; and other factors described inAnnual Report on Form 10-K for the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q.fiscal year ended December 29, 2018. The Corporation cautions readers not to place undue reliance on any forward-looking statement, which speaks only as of the date made, and to recognize forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results due to the risks and uncertainties described elsewhere in this report, including but not limited to: the levels of office furniture needs and housing starts; overall demand for the Corporation's products; general economic and market conditions in the United States and internationally; industry and competitive conditions; the consolidation and concentration of the Corporation's customers; the Corporation's reliance on its network of independent dealers; changes in trade policy; changes in raw material, component, or commodity pricing; market acceptance and demand for the Corporation's new products; changing legal, regulatory, environmental, and healthcare conditions; the risks associated with international operations; the potential impact of product defects; the various restrictions on the Corporation's financing activities; an inability to protect the Corporation's intellectual property; impacts of tax legislation; force majeure events outside the Corporation's control; and other risks described in the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q, as well as others the Corporation may consider not material or does not anticipate at this time. The risks and uncertainties described in this report, as well as those described within Item 1A of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 29, 2018, are not exclusive and further information concerning the Corporation, including factors that potentially could have a material effect on the Corporation's financial results or condition, may emerge from time to time.
The Corporation undertakesassumes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2017,June 29, 2019, there were no material changes to the financial market risks affecting the quantitative and qualitative disclosures presented in Item 7A of the Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 2016.29, 2018.
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 information is accumulated and communicated to management, including the chief executive officerChief Executive Officer and chief financial officer,Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of the chief executive officerChief Executive Officer and chief financial officerChief Financial Officer of the Corporation, management of the CorporationCorporation's management 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 September 30, 2017,June 29, 2019, based on this evaluation, the chief executive officerChief Executive Officer and chief financial officerChief 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 controlcontrols 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are no materialFor information regarding legal proceedings.proceedings, see "Note 17. Guarantees, Commitments, and Contingencies" in the Notes to Condensed Consolidated Financial Statements, which information is incorporated herein by reference.
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 fiscal year ended December 31, 2016.29, 2018.
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:
|
| | | | | | | | | | | | | | |
Period | | Total Number of Shares (or Units) Purchased (1) | | Average Price Paid per Share or Unit | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs |
| 07/02/17 – 07/29/17 | | 205,000 |
| | $ | 38.98 |
| | 205,000 |
| | $ | 105,077,544 |
|
| 07/30/17 – 08/26/17 | | 300,000 |
| | $ | 36.06 |
| | 300,000 |
| | $ | 94,259,896 |
|
| 08/27/17 – 09/30/17 | | 274,374 |
| | $ | 37.23 |
| | 274,374 |
| | $ | 84,045,144 |
|
| Total | | 779,374 |
| | | | 779,374 |
| | |
|
|
| | | | | | | | | | | | | | |
| Period | | Total Number of Shares (or Units) Purchased (1) | | Average Price Paid per Share (or Unit) | | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs |
| 03/31/19 – 04/27/19 | | 144,000 |
| | $ | 36.82 |
| | 144,000 |
| | $ | 218,596,788 |
|
| 04/28/19 – 05/25/19 | | 320,000 |
| | $ | 36.22 |
| | 320,000 |
| | $ | 207,007,657 |
|
| 05/26/19 – 06/29/19 | | 465,318 |
| | $ | 34.62 |
| | 465,318 |
| | $ | 190,899,867 |
|
| Total | | 929,318 |
| | | | 929,318 |
| | |
|
(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 increaseincreases announced November 7, 2014 and February 13, 2019, providing additional share repurchase authorizationauthorizations each of $200,000,000 with no specific expiration date.
No repurchase plans expired or were terminated during the thirdsecond quarter of fiscal 2017,2019, 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. |
| |
| (31.1) | |
| (31.2) | |
| (32.1) | |
| 101 | The following materials from HNI Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2019 are formatted in XBRL (eXtensible Business Reporting Language) and filed electronically herewith: (i) Condensed Consolidated Statements of Comprehensive Income; (ii) Condensed Consolidated Balance Sheets; (iii) Condensed Consolidated Statements of Equity; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements |
+ Filed or furnished herewith.
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: October 31, 2017July 30, 2019 | By: | /s/ Marshall H. Bridges | |
| | | Marshall H. Bridges | |
| | | Senior Vice President and Chief Financial Officer | |
|
| |
EXHIBIT INDEX |
(10.1) | |
(10.2) | |
(10.3) | |
(31.1) | |
(31.2) | |
(32.1) | |
101 | The following materials from HNI Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2017 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 |