Summary of Significant Accounting Policies | Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts and transactions of the Corporation and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Cash, Cash Equivalents, and Investments Cash and cash equivalents generally consist of cash and money market accounts. The fair value approximates the carrying value due to the short duration of the securities. These securities have original maturity dates not exceeding three months. The Corporation has short-term investments with maturities of less than one year and investments with maturities greater than one year included in "Other Assets" in the Consolidated Balance Sheets. Management classifies investments in marketable securities at the time of purchase and reevaluates such classification at each balance sheet date. Debt securities, including government and corporate bonds, are classified as available-for-sale and stated at current market value with unrealized gains and losses included as a separate component of equity, net of any related tax effect. The specific identification method is used to determine realized gains and losses on the trade date. Cash, cash equivalents, and investments consisted of the following (in thousands): December 29, 2018 December 30, 2017 Cash and cash equivalents Short-term investments Long-term investments Cash and cash equivalents Short-term investments Long-term investments Available-for-sale securities: Debt securities — 1,327 10,677 — 2,015 10,479 Cash and money market accounts 76,819 — — 23,348 — — Total $ 76,819 $ 1,327 $ 10,677 $ 23,348 $ 2,015 $ 10,479 The following table summarizes the amortized cost basis of the debt securities (in thousands): December 29, 2018 December 30, 2017 Amortized cost basis of debt securities $ 12,202 $ 12,660 Immaterial unrealized gains and losses are recorded in "Accumulated other comprehensive income (loss)" in the Consolidated Balance Sheets for these debt securities. Receivables The allowance for doubtful accounts is developed based on several factors including overall customer credit quality, historical write-off experience, and specific account analyses projecting the ultimate collectability of the account. As such, these factors may change over time causing the allowance level to adjust accordingly. The following table summarizes the change in the allowance for doubtful accounts (in thousands): Balance at beginning of period Adjustments to allowance Amounts written off, net of recoveries and other adjustments Divestitures Balance at end of period Year ended December 29, 2018 $ 1,904 $ 2,440 $ 477 $ — $ 3,867 Year ended December 30, 2017 $ 2,140 $ 846 $ 1,082 $ — $ 1,904 Year ended December 31, 2016 $ 4,287 $ (357 ) $ 1,598 $ 192 $ 2,140 Inventories The Corporation values its inventory at the lower of cost or net realizable value. Inventories included in the Consolidated Balance Sheets consisted of the following (in thousands): December 29, 2018 December 30, 2017 Finished products $ 97,398 $ 101,715 Materials and work in process 94,161 81,202 Last-in,first-out ("LIFO") allowance (34,381 ) (27,234 ) Total inventories $ 157,178 $ 155,683 Inventory valued by the LIFO costing method 81.40 % 83.36 % During 2018, inventory quantities were reduced at certain reporting units. This reduction resulted in a liquidation of LIFO inventory quantities carried at higher or lower costs prevailing in prior years as compared with the cost of current year purchases, the effect of which decreased cost of goods sold by approximately $0.5 million in 2018. There was no LIFO decrement in 2017. If the FIFO method had been in use, inventories would have been $34.4 million and $27.2 million higher than reported as of December 29, 2018 and December 30, 2017 , respectively. Property, Plant, and Equipment Property, plant, and equipment are carried at cost. Expenditures for repairs and maintenance are expensed as incurred. Major improvements that materially extend the useful lives of the assets are capitalized. Depreciation has been computed using the straight-line method over estimated useful lives: land improvements, 10 – 20 years; buildings, 10 – 40 years; and machinery and equipment, 3 – 12 years. Total depreciation expense was as follows (in thousands): 2018 2017 2016 Depreciation expense $ 51,063 $ 56,494 $ 57,171 Long-Lived Assets The Corporation evaluates long-lived assets for indicators of impairment as events or changes in circumstances occur indicating that an impairment risk may be present. The judgments regarding the existence of impairment are based on business and market conditions, operational performance, and estimated future cash flows. If the carrying value of a long-lived asset is considered impaired, an impairment charge is recorded to adjust the asset to its estimated fair value. Asset impairment charges associated with the Corporation’s long-lived assets are discussed in "Note 4. Restructuring and Impairment Charges" in the Notes to Consolidated Financial Statements. Goodwill and Other Intangible Assets The Corporation evaluates its goodwill for impairment on an annual basis during the fourth quarter or whenever indicators of impairment exist. Asset impairment charges associated with the Corporation’s goodwill impairment testing are discussed in "Note 7. Goodwill and Other Intangible Assets" in the Notes to Consolidated Financial Statements. The Corporation reviews goodwill at the reporting unit level within its office furniture and hearth products operating segments. These reporting units constitute components for which discrete financial information is available and regularly reviewed by segment management. The accounting standards for goodwill permit entities to first assess qualitative factors to determine whether it is more likely than not the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. If the quantitative test is required, the Corporation estimates the fair value of its reporting units. In estimating the fair value, the Corporation relies on an average of the income approach and the market approach. This estimated fair value is compared to the carrying value of the reporting unit and an impairment is recorded if the estimate is less than the carrying value. In the income approach, the estimate of fair value of each reporting unit is based on management’s projection of revenues, gross margin, operating costs, and cash flows considering historical and estimated future results, general economic and market conditions, as well as the impact of planned business and operational strategies. The valuations employ present value techniques to measure fair value and consider market factors. In the market approach, the Corporation utilizes the guideline company method, which involves calculating valuation multiples based on operating data from guideline publicly-traded companies. These multiples are then applied to the operating data for the reporting units and adjusted for factors similar to those used in the discounted cash flow analysis. Management believes the assumptions used for the impairment test are consistent with those utilized by a market participant in performing similar valuations of its reporting units. Management bases its fair value estimates on assumptions they believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual results may differ from those estimates. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses are reflected in the Consolidated Balance Sheets and were as follows (in thousands): December 29, 2018 December 30, 2017 Trade accounts payable $ 221,395 $ 235,577 Compensation 52,227 47,277 Profit sharing and retirement expense 28,300 30,884 Marketing expenses 36,529 41,751 Freight 13,892 13,121 Other accrued expenses 76,522 81,518 $ 428,865 $ 450,128 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. Allowances have been established for the anticipated future costs associated with the Corporation's warranty programs. A warranty allowance is determined by recording a specific allowance for known warranty issues and an additional allowance for unknown claims expected to be incurred based on historical claims experience. Actual claims incurred could differ from the original estimates, requiring adjustments to the allowance. Activity associated with warranty obligations was as follows (in thousands): 2018 2017 2016 Balance at beginning of period $ 15,388 $ 15,250 $ 16,227 Accruals settled from divestiture — — (538 ) Accruals for warranties issued during period 22,697 20,075 20,055 Adjustments related to pre-existing warranties 233 194 604 Settlements made during the period (22,868 ) (20,131 ) (21,098 ) Balance at end of period $ 15,450 $ 15,388 $ 15,250 The current and long-term portions of the allowance for the estimated settlements are included within "Accounts payable and accrued expenses" and "Other Long-Term Liabilities", respectively, in the Consolidated Balance Sheets. The following table summarizes when these estimated settlements are expected to be paid (in thousands): December 29, 2018 December 30, 2017 Current - in the next twelve months $ 9,455 $ 9,524 Long-term - beyond one year 5,995 5,864 $ 15,450 $ 15,388 Revenue Recognition The Corporation implemented ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), at the beginning of fiscal 2018 using the modified-retrospective method, which required the new guidance to be applied prospectively to revenue transactions completed on or after the effective date. Given the nature of the Corporation's revenue transactions, the new guidance did not have a material impact on the Corporation's results of operations or financial position. All necessary changes required by the new standard, including those to the Corporation's accounting policies, controls, and disclosures, have been identified and implemented as of the beginning of fiscal 2018. See "Note 3. Revenue from Contracts with Customers" in the Notes to Consolidated Financial Statements for policy elections and further information. Product Development Costs Product development costs relating to development of new products and processes, including significant improvements and refinements to existing products, are expensed as incurred. These costs include salaries, contractor fees, building costs, and administrative fees. The amounts charged against income and recorded in "Selling and administrative expenses" on the Consolidated Statements of Comprehensive Income were as follows (in thousands): 2018 2017 2016 Product development costs $ 33,420 $ 31,846 $ 28,089 Freight Expense Freight expense on shipments to customers were recorded in "Selling and administrative expenses" on the Consolidated Statements of Comprehensive Income as follows (in thousands): 2018 2017 2016 Freight expense $ 134,190 $ 119,096 $ 115,157 Stock-Based Compensation The Corporation measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes cost over the requisite service period. See "Note 12. Stock-Based Compensation" in the Notes to Consolidated Financial Statements for further information. Income Taxes The Corporation uses an asset and liability approach that takes into account guidance related to uncertain tax positions and requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Corporation’s financial statements or tax returns. Deferred income taxes are provided to reflect differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed into law, making significant changes to the Internal Revenue Code. In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as a period cost are both acceptable methods subject to an accounting policy election. Effective in the first quarter of fiscal 2018, the Corporation elected to treat any potential GILTI inclusions as a period cost, as no material impact is projected from GILTI inclusions and any deferred taxes related to any inclusion would not be material. Also under the Act, a corporation’s foreign earnings accumulated under legacy tax laws are deemed repatriated. The Corporation will continue to evaluate its ability to assert indefinite reinvestment to determine recognition of a deferred tax liability for other items such as Section 986(c) currency gain/loss, foreign withholding, and state taxes. There were approximately $34.5 million of accumulated earnings considered permanently reinvested in China, Hong Kong, Singapore, and Canada as of December 29, 2018 . The Corporation believes the tax costs on accumulated unremitted foreign earnings would be approximately $0.02 million if the amounts were not considered permanently reinvested. See "Note 9. Income Taxes" in the Notes to Consolidated Financial Statements for further information. Earnings Per Share Basic earnings per share are based on the weighted-average number of common shares outstanding during the year. Shares potentially issuable under stock options, restricted stock units, and common stock equivalents under the Corporation's deferred compensation plans have been considered outstanding for purposes of the diluted earnings per share calculation. 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): 2018 2017 2016 Numerator: Numerator for both basic and diluted EPS attributable to HNI Corporation net income $ 93,377 $ 89,795 $ 85,577 Denominators: Denominator for basic EPS weighted-average common shares outstanding 43,639 43,839 44,414 Potentially dilutive shares from stock-based compensation plans 689 1,001 1,088 Denominator for diluted EPS 44,328 44,840 45,502 Earnings per share – basic $ 2.14 $ 2.05 $ 1.93 Earnings per share – diluted $ 2.11 $ 2.00 $ 1.88 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. 2018 2017 2016 Common stock equivalents excluded because their inclusion would be anti-dilutive 1,507,870 809,420 416,142 Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The critical areas requiring use of management estimates relate to goodwill and intangibles, accruals for self-insured medical claims, workers’ compensation, legal contingencies, general liability and auto insurance claims, valuation of long-lived assets, and estimates of income taxes. Other significant areas requiring use of management estimates relate to allowance for doubtful accounts, inventory allowances, marketing program accruals, warranty accruals, and useful lives for depreciation and amortization. Actual results could differ from those estimates. Self-Insurance The Corporation is primarily self-insured for general, auto, and product liability, workers’ compensation, and certain employee health benefits. Certain risk exposures are mitigated through the use of independent third party stop loss insurance coverages. The general, auto, product, and workers’ compensation liabilities are managed using a wholly-owned insurance captive and the related liabilities are included in the Consolidated Balance Sheets as follows (in thousands): December 29, 2018 December 30, 2017 General, auto, product, and workers' compensation liabilities $ 30,227 $ 27,591 The Corporation’s policy is to accrue amounts in accordance with the actuarially determined liabilities. The actuarial valuations are based on historical information along with certain assumptions about future events. Changes in assumptions for such matters as legal actions, medical cost inflation, and magnitude of change in actual experience development could cause these estimates to change in the future. Foreign Currency Translations Foreign currency financial statements of foreign operations, where the local currency is the functional currency, are translated using exchange rates in effect at period end for assets and liabilities and average exchange rates during the period for results of operations. Related translation adjustments are reported as a component of Shareholders’ Equity. Gains and losses on foreign currency transactions are included in "Selling and administrative expenses" in the Consolidated Statements of Comprehensive Income. Reclassifications Certain reclassifications have been made within the financial statements to conform to the current year presentation. Recently Adopted Accounting Standards In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) . The new standard replaces 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 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 Corporation implemented the new standard in the first quarter of fiscal 2018 using the modified-retrospective method, which required the new guidance to be applied prospectively to revenue transactions completed on or after the effective date. Given the nature of the Corporation's revenue transactions, the new guidance did not have a material impact on the Corporation's results of operations or financial position. All necessary changes required by the new standard, including those to the Corporation's accounting policies, controls, and disclosures, have been identified and implemented as of the beginning of fiscal 2018. See "Note 3. Revenue from Contracts with Customers" in the Notes to Consolidated Financial Statements for further information. 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 Corporation implemented the new standard in the first quarter of fiscal 2018. This standard did not have a material effect on the consolidated financial statements or related disclosures. In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory . The new standard requires an entity to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. The Corporation implemented the new standard in the first quarter of fiscal 2018. This standard did not have a material effect on the consolidated financial statements or related disclosures. In January 2017, the FASB issued ASU No. 2017-01, Clarifying the Definition of a Business . The new standard amends ASC 805, Business Combinations. This ASU provides a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of a group of assets or of a business. The Corporation implemented the new standard in the first quarter of fiscal 2018 on a prospective basis. The standard did not have a material effect on the consolidated financial statements or related disclosures. 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 post-retirement 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 Corporation implemented the new standard in the first quarter of fiscal 2018 and it was applied retrospectively to each period presented. This standard did not have a material effect on the consolidated financial statements or related disclosures. |