UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
(Mark
One)
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the
fiscal year ended December 30, 2006
OR
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
Commission
File Number 1-14225
HNI
Corporation
An
Iowa Corporation
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408
East Second Street
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IRS
Employer No. 42-0617510
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P.
O. Box 1109
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Muscatine,
IA 52761-0071
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563/272-7400
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Securities
registered pursuant to Section 12(b) of the Act: None.
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, with par value of $1.00 per share.
Preferred
Share Purchase Rights to purchase shares of Series A Junior Participating.
Preferred
Stock, with par value of $1.00 per share.
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
in
Rule 405 of the Securities Act. Yes
x
No o
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements
for
the past 90 days. Yes
x
No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer x
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes
o
No x
The
aggregate market value of the voting stock held by nonaffiliates of the
registrant, as of July
1,
2006, was $1,641,673,764, assuming all 5% holders are affiliates.
The
number of shares outstanding of the registrant's common stock, as of February
13, 2007 was: 47,915,040.
Documents
Incorporated by Reference
Portions
of the registrant's Proxy Statement dated March 16, 2007, for the May 8, 2007,
Annual Meeting of Shareholders are incorporated by reference into Part
III.
Index
of
Exhibits is located on Page 76.
ANNUAL
REPORT ON FORM 10-K
TABLE
OF CONTENTS
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PART
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PART
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PART
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PART
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ANNUAL
REPORT ON FORM 10-K
PART
I
General
HNI
Corporation (the “Corporation”) is an Iowa corporation incorporated in 1944. The
Corporation is a provider of office furniture and hearth products. A broad
office furniture product offering is sold to dealers, wholesalers, retail
superstores, end-user customers, and federal, state, and local governments.
Dealer, wholesaler, and retail superstores are the major channels based on
sales. Hearth products include a full array of gas, electric, and wood burning
fireplaces, inserts, stoves, facings, and accessories. These products are sold
through a national system of dealers, wholesalers, large regional contractors,
as well as Corporation-owned distribution and retail outlets. In fiscal 2006,
the Corporation had net sales of $2.7 billion, of which approximately $2.1
billion or 78% was attributable to office furniture products and $0.6 billion
or
22% was attributable to hearth products. Please refer to Operating Segment
Information in the Notes to Consolidated Financial Statements for further
information about operating segments.
The
Corporation is organized into a corporate headquarters and operating units
with
offices, manufacturing plants, distribution centers, and sales showrooms in
the
United States, Canada, Mexico, China, Hong Kong, and Taiwan. See Item 2.
Properties for additional related discussion.
Seven
operating units, marketing under various brand names, participate in the office
furniture industry. These operating units include: The HON Company, Allsteel
Inc., Maxon Furniture Inc., The Gunlocke Company L.L.C., Paoli Inc., HNI Hong
Kong Limited, and Omni Workspace Company. Each of these operating units provides
products which are sold through various channels of distribution and segments
of
the industry.
The
operating unit Hearth & Home Technologies Inc. participates in the hearth
industry. The retail and distribution brand for this operating unit is Fireside
Hearth & Home.
During
fiscal 2006, the Corporation completed the acquisition of Lamex, a privately
held Chinese manufacturer and marketer of office furniture and established
the
HNI Hong Kong Limited operating unit. The Corporation also completed the
acquisition of a small office furniture services company, a small office
furniture dealer and a small manufacturer of fireplace facings during fiscal
2006. The combined purchase price of these acquisitions less cash acquired
was
$78.2 million.
HNI
International Inc. (“HNI International”) sells office furniture products
manufactured by the Corporation’s operating units in select markets outside the
United States and Canada. With dealers and servicing partners located in more
than fifty countries, HNI International provides project management services
virtually anywhere in the world.
Since
its
inception, the Corporation has been committed to improvement in manufacturing
and in 1992 introduced its process improvement approach known as Rapid
Continuous Improvement (“RCI”) which focuses on streamlining design,
manufacturing, and administrative processes. The Corporation's RCI program,
in
which most members participate, has contributed to increased productivity,
lower
manufacturing costs, improved product quality, and workplace safety. In
addition, the Corporation's RCI efforts enable it to offer short average lead
times, from receipt of order to delivery and installation, for most of its
products.
The
Corporation distributes its products through an extensive network of independent
office furniture dealers, office products dealers, wholesalers, and retailers.
The Corporation is a supplier of office furniture to the largest nationwide
distributors of office products, including Corporate Express Inc., A Buhrmann
Company; Office Depot, Inc.; Office Max Incorporated; and Staples, Inc.
The
Corporation's product development efforts are focused on developing and
providing solutions that are relevant and differentiated, deliver quality,
aesthetics, and style, and are focused on reducing manufacturing costs.
An
important element of the Corporation's success has been its member-owner
culture, which has enabled it to attract, develop, retain, and motivate skilled,
experienced, and efficient members (i.e., employees). Each of the Corporation's
eligible members own stock in the Corporation through a number of stock-based
plans, including a member stock purchase plan and a profit-sharing retirement
plan, which drives a unique level of commitment to the Corporation’s success
throughout the entire workforce.
For
further financial-related information with respect to acquisitions,
restructuring, and the Corporation’s operations in general, refer to Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, and the following sections in the Notes to Consolidated Financial
Statements: Nature of Operations, Business Combinations, and Operating Segment
Information.
Industry
According
to the Business and Institutional Furniture Manufacturer's Association
(“BIFMA”), U.S. office furniture industry shipments were estimated to be $10.8
billion in 2006, an increase of 7% compared to 2005, which was a 13% increase
from 2004 levels. The Corporation believes that the increase was due to
improving economic conditions and price increases due to higher material
costs.
The
U.S.
office furniture market consists of two primary segments—the project or contract
segment and the commercial segment. The project segment has traditionally been
characterized by sales of office furniture and services to large corporations,
primarily for new office facilities, relocations, or department or office
redesigns, which are frequently customized to meet specific client and designer
preferences. Project furniture is generally purchased through office furniture
dealers who typically prepare a custom-designed office layout emphasizing image
and design. The selling process is often complex and lengthy and generally
has
several manufacturers competing for the same projects.
The
commercial segment of the market, in which the Corporation is a leader,
primarily represents smaller orders of office furniture purchased by businesses
and home office users on the basis of price, quality, selection, and speed
and
reliability of delivery. Office products dealers, wholesalers, and retailers,
such as office products superstores, are the primary distribution channels
in
this market segment. Office furniture and products dealers publish periodic
catalogs that display office furniture and products from various manufacturers.
The
Corporation also competes in the domestic hearth industry, where it is a market
leader. Hearth products are typically purchased by builders during the
construction of new homes and homeowners during the renovation of existing
homes. Both types of purchases involve seasonality with remodel/retrofit
activity being concentrated in the September to December time-frame.
Distribution is primarily through independent dealers, who may buy direct from
the manufacturer or from an intermediate distributor. The Corporation sells
approximately 70% of its products to the new construction/builder
channel.
Growth
Strategy
The
Corporation's strategy is to build on its position as a leading manufacturer
of
office furniture and hearth products in North America and pursue select global
markets where opportunities are strong. The components of this growth strategy
are to introduce new products, build brand equity, continually reduce costs,
provide outstanding customer satisfaction by focusing on the end-user,
strengthen the distribution network, respond to global competition, pursue
complementary strategic acquisitions, and enter markets not currently
served.
Employees/Members
As
of
December 30, 2006, the Corporation employed approximately 14,200 persons, 13,400
of who were full-time and 800 of who were temporary personnel. The Corporation
employed approximately 400 persons who were members of unions. The Corporation
believes that its labor relations are good.
Products
and Solutions
Office
Furniture
The
Corporation designs, manufactures, and markets a broad range of office furniture
in four basic categories: (i) storage, including vertical files, lateral files,
pedestals, and high density filing; (ii) seating, including task chairs,
executive desk chairs, conference/training chairs, and side chairs; (iii) office
systems (typically modular and moveable workspaces with integrated work
surfaces, space dividers, and lighting); and (iv) desks and related products,
including tables, bookcases, and credenzas. In order to meet the demands of
various markets, the Corporation's products are sold under the Corporation's
brands - HON®,
Allsteel®,
Maxon®,
Gunlocke®,
Paoli®, Whitehall®,
basyxTM,
Lamex®,
IntraSpec SolutionsTM,
and
Smartspace®
as
well
as private labels.
The
following is a description of the Corporation's major product categories and
product lines:
Storage
The
Corporation offers a variety of storage options designed either to be integrated
into the Corporation's office systems products or to function as freestanding
furniture in office applications. The Corporation sells most of its freestanding
storage through independent office products and office furniture dealers,
nationwide chains of office products dealers, wholesalers, office products
superstores, and mail order distributors.
Seating
The
Corporation's seating line includes chairs designed for all types of office
work. The chairs are available in a variety of frame colors, coverings, and
a
wide range of price points. Key customer criteria in seating includes superior
design, ergonomics, aesthetics, comfort, and quality.
Office
Panel Systems
The
Corporation offers a complete line of office panel system products in order
to
meet the needs of a wide spectrum of organizations. Office panel systems may
be
used for team work settings, private offices, and open floor plans. They are
typically modular and movable workspaces composed of adjustable partitions,
work
surfaces, desk extensions, storage cabinets and electrical lighting systems
which can be moved, reconfigured and reused within the office. Office panel
systems offer a cost-effective and flexible alternative to traditional drywall
office construction. A typical installation of office panels often includes
related sales of seating, storage, and accessories.
The
Corporation offers whole office solutions, movable panels, storage units, and
work surfaces that can be installed easily and reconfigured to accommodate
growth and change in organizations. The Corporation also offers consultative
selling and design services for its office system products.
Desks
and Related Products
The
Corporation's collection of desks and related products includes stand-alone
steel, laminate, and wood furniture items, such as desks, bookshelves,
credenzas, and mobile desking. These products are available in a range of
designs and price points. The Corporation's desks and related products are
sold
to a wide variety of customers from those designing large office configurations
to small retail and home office purchasers. The Corporation offers a variety
of
tables designed for use in conference rooms, private offices, training areas,
team work settings, and open floor plans.
Hearth
Products
The
Corporation is North America’s largest manufacturer and marketer of
prefabricated fireplaces and related products, primarily for the home, which
it
sells under its widely recognized Heatilator®,
Heat
& GloTM,
and
Quadra-Fire®
brand
names.
The
Corporation’s line of hearth products includes a full array of gas, electric and
wood burning fireplaces, inserts, stoves, facings and accessories.
Heatilator®
and Heat
& GloTM
are
brand leaders in the two largest segments of the home fireplace market:
vented-gas and wood fireplaces. The Corporation is the leader in “direct vent”
fireplaces, which replace the chimney-venting system used in traditional
fireplaces with a less expensive vent through the roof or an outer wall. See
“Intellectual Property” under this Item 1. Business for additional
details.
Manufacturing
The
Corporation manufactures office furniture in Alabama, California, Georgia,
Indiana, Iowa, Kentucky, Minnesota, New York, North Carolina, Virginia, Mexico,
and China. The Corporation manufactures hearth products in Iowa, Maryland,
Minnesota, Washington, California, and Virginia.
The
Corporation purchases raw materials and components from a variety of suppliers,
and generally most items are available from multiple sources. Major raw
materials and components include coil steel, aluminum, castings, lumber, veneer,
particleboard, fabric, paint, lacquer, hardware, plastic products, and shipping
cartons.
Since
its
inception, the Corporation has focused on making its manufacturing facilities
and processes more flexible while at the same time reducing costs and improving
product quality. In 1992, the Corporation adopted the principles of RCI, which
focus on developing flexible and efficient design, manufacturing and
administrative processes that remove excess cost. To achieve flexibility and
attain efficiency goals, the Corporation has adopted a variety of production
techniques, including cellular manufacturing, focused factories, just-in-time
inventory management, value engineering, business simplification, and 80/20
principles. The application of RCI has increased productivity by reducing set-up
and processing times, square footage, inventory levels, product costs, and
delivery times, while improving quality and enhancing member safety. The
Corporation's RCI process involves production and administrative employees,
management, customers, and suppliers. The Corporation has facilitators, coaches,
and consultants dedicated to the RCI process and strives to involve all members
in the RCI process. In addition, the Corporation has organized a group that
designs, fabricates, tests, and installs proprietary manufacturing equipment.
Manufacturing also plays a key role in the Corporation's concurrent product
development process that primarily seeks to design new products for ease of
manufacturability.
Product
Development
The
Corporation's product development efforts are primarily focused on developing
end-user solutions that are relevant and differentiated and focused on quality,
aesthetics, style, and on reducing manufacturing costs. The Corporation
accomplishes this through improving existing products, extending product lines,
applying ergonomic research, improving manufacturing processes, applying
alternative materials, and providing engineering support and training to its
operating units. The Corporation conducts its product development efforts at
both the corporate and operating unit level. At the corporate level, the staff
at the Corporation's Stanley M. Howe Technical Center, working in conjunction
with operating unit staff, seeks breakthrough developments in product design,
manufacturability, and materials usage. At the operating unit level, development
efforts are focused on achieving improvements in product features and
manufacturing processes. The Corporation invested approximately $27.6 million,
$27.3 million, and $27.4 million in product development during fiscal 2006,
2005, and 2004, respectively, and has budgeted in excess of $26 million for
product development in fiscal 2007.
Intellectual
Property
As
of
December 30, 2006, the Corporation owned 352 U.S. and 278 foreign patents and
had applications pending for 70 U.S. and 212 foreign patents. In addition,
the
Corporation holds 158 U.S. and 271 foreign trademark registrations and has
applications pending for 51 U.S. and 107 foreign trademarks.
The
Corporation's principal office furniture products do not require frequent
technical changes. The majority of the Corporation's office furniture patents
are design patents which expire at various times depending on the patent's
date
of issuance. The Corporation believes that neither any individual office
furniture patent nor the Corporation's office furniture patents in the aggregate
are material to the Corporation's business as a whole.
The
Corporation’s patents covering its hearth products protect various technical
innovations and expire at various times depending upon each patent’s date of
issuance. While the acquisition of patents reflects Hearth & Home
Technologies Inc.’s position in the market as an innovation leader, the
Corporation believes that neither any individual hearth product’s patent nor the
Corporation’s hearth products’ patents in the aggregate are material to the
Corporation’s business as a whole.
The
Corporation applies for patent protection when it believes the expense of doing
so is justified, and the Corporation believes that the duration of its
registered patents is adequate to protect these rights. The Corporation also
pays royalties in certain instances for the use of patents on products and
processes owned by others.
The
Corporation actively protects its trademarks that it believes have significant
value.
Sales
and Distribution: Customers
In
fiscal
2006, the Corporation’s ten largest customers represented approximately 34% of
its consolidated net sales. One customer, United Stationers Inc., accounted
for
approximately 12% of the Corporation’s consolidated net sales in fiscal 2006,
12% in fiscal 2005 and 13% in fiscal 2004. The substantial purchasing power
exercised by large customers may adversely affect the prices at which the
Corporation can successfully offer its products. In addition, there can be
no
assurance that the Corporation will be able to maintain its customer
relationships as consolidation of its customers occurs.
The
Corporation today sells its office furniture products through five principal
distribution channels. The first channel, which consists of independent, local
office furniture and office products dealers, specializes in the sale of a
broad
range of office furniture and office furniture systems to commercial,
government, education, health care entities, and home office
owners.
The
second distribution channel comprises national office product distributors
including Office Max Incorporated; Corporate Express Inc., A Buhrmann Company;
Office Depot, Inc.; and Staples, Inc. These distributors sell furniture along
with office supplies through a national network of dealerships and sales offices
which assist their customers with the evaluation of office space requirements,
systems layout and product selection, and design and office solution services
provided by professional designers. All of these distributors, except for
Corporate Express Inc., also sell through retail office products
superstores.
The
third
distribution channel, comprising corporate accounts, is where the Corporation
has the lead selling relationship with the end-user. Installation and service
are normally provided through a dealer.
The
fourth distribution channel comprises wholesalers that serve as distributors
of
the Corporation's products to independent dealers, national supply dealers,
and
superstores. The Corporation sells to the nation's largest wholesalers, United
Stationers Inc. and S.P. Richards Company, as well as to regional wholesalers.
Wholesalers maintain inventory of standard product lines for resale to the
various dealers and retailers. They also special order products from the
Corporation in customer-selected models and colors. The Corporation's
wholesalers maintain warehouse locations throughout the United States, which
enables the Corporation to make its products available for rapid delivery to
retailers anywhere in the country.
The
fifth
distribution channel comprises direct sales of the Corporation's products to
federal, state, and local government offices.
The
Corporation's office furniture sales force consists of regional sales managers,
salespersons, and firms of independent manufacturers' representatives who
collectively provide national sales coverage. Sales managers and salespersons
are compensated by a combination of salary and incentive bonus.
Office
products dealers, national wholesalers, and retailers market their products
over
the Internet and through catalogs published periodically. These catalogs are
distributed to existing and potential customers. The Corporation believes that
the inclusion of the Corporation's product lines in customer catalogs and
e-business listings offers strong potential for increased sales of the listed
product lines due to the exposure provided.
The
Corporation also makes export sales through HNI International to office
furniture dealers and wholesale distributors serving select foreign markets.
Distributors are principally located in Latin America and the Caribbean. With
the acquisition of Lamex in 2006 the Corporation manufactures and distributes
office furniture through owned and independent dealers in Asia.
Limited
quantities of select finished goods inventories built to order awaiting shipment
are at the Corporation's principal manufacturing plants and at its various
distribution centers.
Hearth
& Home Technologies Inc. sells its fireplace and stove products through
dealers, distributors, and Corporation-owned distribution and retail outlets.
The Corporation has a field sales organization of regional sales managers,
salespersons, and firms of independent manufacturers'
representatives.
As
of
December 30, 2006, the Corporation had an order backlog of approximately $182.7
million which will be filled in the ordinary course of business within the
first
few weeks of the current fiscal year. This compares with $185.4 million as
of
December 31, 2005, and $133.6 million as of January 1, 2005. Backlog, in terms
of percentage of net sales, was 6.8%, 7.6%, and 6.4%, for fiscal 2006, 2005,
and
2004, respectively. The Corporation’s products are typically manufactured and
shipped within a few weeks following receipt of order. The dollar amount of
the
Corporation’s order backlog is therefore not considered by management to be a
leading indicator of the Corporation’s expected sales in any particular fiscal
period.
Competition
The
Corporation is one of the largest office furniture manufacturers in the world,
and believes that it is the largest provider of furniture to small- and
medium-sized workplaces. The Corporation is the largest manufacturer and
marketer of fireplaces in North America.
The
office furniture industry is highly competitive, with a significant number
of
competitors offering similar products. The Corporation competes by emphasizing
its ability to deliver compelling value products and unsurpassed customer
service. The Corporation competes with the large office furniture manufacturers,
which control a substantial portion of the market share in the project-oriented
office furniture market, such as Steelcase Inc.; Haworth, Inc.; Herman Miller,
Inc.; and Knoll, Inc. The Corporation also competes with a number of other
office furniture manufacturers, including The Global Group (a Canadian company);
Kimball International, Inc.; KI; and Teknion Corporation (a Canadian company),
as well as global importers. The Corporation faces significant price competition
from its competitors and may encounter competition from new market entrants.
Hearth
products, consisting of prefabricated fireplaces and related products, are
manufactured by a number of national and regional competitors. The Corporation
competes primarily against other large manufacturers, including CFM Corporation
Inc. (a Canadian company) and Lennox International Inc.
Both
office furniture and hearth products compete on the basis of performance,
quality, price, complete and on-time delivery to the customer, and customer
service and support. The Corporation believes that it competes principally
by
providing compelling value products designed to be among the best in their
price
range for product quality and performance, superior customer service, and short
lead-times. This is made possible, in part, by the Corporation's significant
on-going investment in product development, highly efficient and low cost
manufacturing operations, and an extensive distribution network.
For
further discussion of the Corporation's competitive situation, refer to Item
7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Effects
of Inflation
Certain
business costs may, from time to time, increase at a rate exceeding the general
rate of inflation. The Corporation’s objective is to offset the effect of
inflation on its costs primarily through productivity increases in combination
with certain adjustments to the selling price of its products as competitive
market and general economic conditions permit.
Investments
are routinely made in modernizing plants, equipment, support systems, and RCI
programs. These investments collectively focus on business simplification and
increasing productivity which helps to offset the effect of rising material
and
labor costs. Ongoing cost control disciplines are also routinely employed.
In
addition, the last-in, first-out (LIFO) valuation method is used for most of
the
Corporation's inventories, which ensures that changing material and labor costs
are recognized in reported income, and, more importantly, these costs are
recognized in pricing decisions.
Environmental
The
Corporation is subject to a variety of environmental laws and regulations
governing discharges of air and water; the handling, storage, and disposal
of
hazardous or solid waste materials; and the remediation of contamination
associated with releases of hazardous substances. Although the Corporation
believes it is in material compliance with all of the various regulations
applicable to its business, there can be no assurance that requirements will
not
change in the future or that the Corporation will not incur material costs
to
comply with such regulations. The Corporation has trained staff responsible
for
monitoring compliance with environmental, health, and safety requirements.
The
Corporation’s environmental staff works with responsible personnel at each
manufacturing facility, the Corporation’s environmental legal counsel, and
consultants on the management of environmental, health and safety issues. The
Corporation’s ultimate goal is to reduce and, when practical, eliminate the
generation of environmental pollutants in its manufacturing
processes.
Compliance
with federal, state, and local environmental regulations has not had a material
effect on the capital expenditures, earnings, or competitive position of the
Corporation to date. The Corporation does not anticipate that financially
material capital expenditures will be required during fiscal 2007 for
environmental control facilities. It is management’s judgment that compliance
with current regulations should not have a material effect on the Corporation’s
financial condition or results of operations. However, there can be no assurance
that new environmental legislation and technology in this area will not result
in or require material capital expenditures.
Business
Development
The
development of the Corporation's business during the fiscal years ended December
30, 2006, December 31, 2005, and January 1, 2005, is discussed in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Available
Information
Information
regarding the Corporation’s annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, and any amendments to these reports,
will be made available, free of charge, on the Corporation’s Internet website at
www.hnicorp.com,
as soon
as reasonably practicable after the Corporation electronically files such
reports with or furnishes them to the Securities and Exchange Commission (the
“SEC”). The Corporation’s information is also available from the SEC’s Public
Reference room at 100 F Street, N.E., Washington, D.C. 20549 or on the SEC
website at www.sec.gov.
Forward-Looking
Statements
Statements
in this report that are not strictly historical, including statements as to
plans, outlook, objectives, and future financial performance, are
“forward-looking” statements that 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,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,”
“predict,” “project,” “should,” and variations of such words, and similar
expressions identify forward-looking statements.
Forward-looking
statements involve risks and uncertainties. The most significant factors known
to the Corporation that may adversely affect the Corporation’s business,
operations, industries, financial position or future financial performance
are
described later in this report under the heading entitled “Item 1A. Risk
Factors.” 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
that 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 under
the heading entitled “Item 1A. Risk Factors,” as well as others that the
Corporation may consider immaterial or does not anticipate at this time. The
risks and uncertainties described in this report, including those under the
heading entitled “Item 1A. Risk Factors,” are not exclusive and further
information concerning the Corporation, including factors that potentially
could
materially affect the Corporation’s financial results or condition, may emerge
from time to time.
The
Corporation assumes 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. The Corporation does advise you, however,
to consult any further disclosures made on related subjects in future quarterly
reports on Form 10-Q and current reports on Form 8-K filed with or furnished
to
the Securities and Exchange Commission.
The
following risk factors and other information included in this Annual Report
on
Form 10-K should be carefully considered. The risks and uncertainties described
below are not the only ones we face. Additional risks and uncertainties not
presently known to us or that we presently deem less significant may also
adversely affect our business, operating results, cash flows, and financial
condition. If any of the following risks actually occur, our business, operating
results, cash flows and financial condition could be materially adversely
affected.
We
operate in a highly competitive environment and, as a result, we may not always
be successful.
Both
the
office furniture and hearth products industries are highly competitive, with
a
significant number of competitors in both industries offering similar products.
While competitive factors vary geographically and between differing sales
situations, typical factors for both industries include: price; delivery and
service; product design and features; product quality; strength of dealers
and
other distributors; and relationships with customers and key influencers, such
as architects, designers, home-builders and facility managers. Our principal
competitors in the office furniture industry include The Global Group (a
Canadian company), Haworth, Inc., Kimball International, Inc., Steelcase Inc.,
Herman Miller, Inc., Teknion Corporation (a Canadian company), KI and Knoll,
Inc. Our principal competitors in the hearth products industry include Lennox
International Inc. and CFM Corporation (a Canadian company). In both industries,
most of our top competitors have an installed base of products that can be
a
source of significant future sales through repeat and expansion orders. These
competitors manufacture products with strong acceptance in the marketplace
and
are capable of developing products that have a competitive advantage over our
products.
Our
continued success will depend on many things, including our ability to continue
to manufacture and market high quality, high performance products at competitive
prices and our ability to adapt our business model to effectively compete in
the
highly competitive environments of both the office furniture and hearth products
industries. Our success is also subject to our ability to sustain and grow
our
positive brand reputation and recognition among existing and potential customers
and use our brands and trademarks effectively in entering new
markets.
In
both
the office furniture and hearth products industries, we also face significant
price competition from our competitors and from new market entrants primarily
from lower-cost countries. Such price competition impacts our ability to
implement price increases or, in some cases, even maintain prices, which could
lower our profit margins. In addition, we may not be able to maintain or raise
the prices of our products in response to rising raw material prices and other
inflationary pressures. Increased competition from low-cost Asian imports
represents one of the most significant threats to our current market share
in
the office furniture industry. In the hearth products industry, big box
retailers, such as Lowe’s and Home Depot, with whom we currently do not do
business, have increased their penetration into the market. If such market
penetration continues, it could adversely affect our business, operating
results, or financial condition.
There
can
be no assurance that we will be able to compete successfully in our various
markets in the future.
The
concentration of our customer base, changes in demand and order patterns from
our customers, particularly the top ten customers, as well as the increased
purchasing power of such customers, could adversely affect our business,
operating results, or financial condition.
We
sell
our products through multiple distribution channels. These distribution channels
have been consolidating in the past several years and may continue to
consolidate in the future. Such consolidation may result in a greater proportion
of our sales being concentrated in fewer customers. In fiscal 2006, our ten
largest customers represented approximately 34% of consolidated net sales.
The
increased purchasing power exercised by larger customers may adversely affect
the prices at which we can successfully offer our products. As a result of
this
consolidation, changes in the purchase patterns or the loss of a single customer
may have a greater impact on our business, operating results, or financial
condition than such events would have had prior to such consolidation. There
can
be no assurance that we will be able to maintain our relationships with
customers if this consolidation continues.
The
growth in sales of private label products by some of our largest office
furniture customers may reduce our revenue and adversely affect our business,
operating results, or financial condition.
Private
label products are products sold under the name of the distributor or retailer,
but manufactured by another party. Some of our largest customers have begun
an
aggressive private label initiative to increase sales of office furniture.
If
these initiatives are successful, they may reduce our revenue and inhibit our
ability to raise prices and may, in some cases, even force us to lower prices,
which could result in an adverse effect on our business, operating results,
or
financial condition.
Increases
in basic commodity, raw material, and component costs as well as disruptions
to
the supply of such basic commodities, raw materials, and components could
adversely affect our profitability.
Fluctuations
in the price, availability, and quality of the commodities, raw materials,
and
components used by us in manufacturing could have an adverse effect on our
costs
of sales, profitability, and our ability to meet the demand of customers. We
are
increasingly sourcing commodities, raw materials, and components from low-cost,
international suppliers for both our office furniture and hearth products.
From
both domestic and international suppliers, the cost, quality, and availability
of commodities, raw materials, and components, including steel, our largest
raw
material category, have been significantly affected in recent years by, among
other things, changes in global supply and demand, changes in laws and
regulations (including tariffs and duties), changes in exchange rates and
worldwide price levels, natural disasters, labor disputes, terrorism, and
political unrest or instability. These factors could lead to further price
increases or supply interruptions in the future. Our profit margins could be
adversely affected if commodity, raw material, and component costs remain high
or escalate further, and we are either unable to offset such costs through
strategic sourcing initiatives and continuous improvement programs or, as a
result of competitive market dynamics, unable to pass along a portion of the
higher costs to our customers.
We
are affected by the cost of energy, and increases in energy prices could
adversely affect our gross margins and profitability.
Our
gross
margins and the profitability of our business operations are sensitive to the
cost of energy because the cost of energy is reflected in our transportation
costs, the cost of petroleum-based materials like plastics, and the cost of
operating our manufacturing facilities. If the price of petroleum-based
products, the cost of operating our manufacturing facilities, and our
transportation costs continue to increase, it could adversely affect our gross
margins and profitability.
We
may not be successful in implementing and managing the risks inherent in our
growth strategy.
As
a part
of our growth strategy, we seek to increase sales and market share by
introducing new products, further enhancing our existing line of products,
and
continuing to pursue complementary acquisitions. This strategy depends on our
ability to increase sales through our existing customer network, principally
dealers, wholesalers and retailers. Furthermore, the ability to effectuate
and
manage profitable growth will depend on our ability to contain costs, including
costs associated with increased manufacturing, sales and marketing efforts,
freight utilization, warehouse capacity, product development, and acquisition
efforts.
Our
efforts to introduce new products that meet customer and workplace/home
requirements may not be successful, which could limit our sales growth or cause
our sales to decline.
To
keep
pace with market trends in both the office furniture and hearth products
industries, such as changes in workplace and home design and increases in the
use of technology, and with evolving regulatory and industry requirements,
including environmental, health, safety, and similar standards for the workplace
and home and for product performance, we must periodically introduce new
products. The introduction of new products in both industries requires the
coordination of the design, manufacturing, and marketing of such products,
which
may be affected by factors beyond our control. The design and engineering of
certain of our new products can take up to a year or more, and further time
may
be required to achieve client acceptance. In addition, we may face difficulties
in introducing new products if we cannot successfully align ourselves with
independent architects, home-builders and designers who are able to design,
in a
timely manner, high quality products consistent with our image. Accordingly,
the
launch of any particular product may be later or less successful than we
originally anticipated. Difficulties or delays in introducing new products
or
lack of customer acceptance of new products could limit our sales growth or
cause our sales to decline, and may result in an adverse effect on our business,
operating results, or financial condition.
We
intend to grow our business through additional acquisitions, alliances, and
joint venture arrangements, which could adversely affect our business, operating
results, or financial condition.
One
of
our growth strategies is to supplement our internal growth through acquisitions
of and alliances and joint venture arrangements with, businesses with
technologies or products that complement or augment our existing products or
distribution or add new products or distribution to our business. The benefits
of an acquisition, alliance, or joint venture may take more time than expected
to develop or integrate into our operations, and we cannot guarantee that any
completed or future acquisitions, alliances, or joint ventures will in fact
produce any benefits. In addition, acquisitions, alliances, and joint ventures
involve a number of risks, including, without limitation:
|
·
|
diversion
of management’s attention;
|
|
·
|
difficulties
in assimilating the operations and products of an acquired business
or in
realizing projected efficiencies, cost savings, and revenue
synergies;
|
|
·
|
potential
loss of key employees or customers of the acquired businesses or
adverse
effects on existing business relationships with suppliers and
customers;
|
|
·
|
adverse
impact on overall profitability if acquired businesses do not achieve
the
financial results projected in our valuation
models;
|
|
·
|
reallocation
of amounts of capital from other operating initiatives or an increase
in
our leverage and debt service requirements to pay the acquisition
purchase
prices, which could in turn restrict our ability to access additional
capital when needed or to pursue other important elements of our
business
strategy;
|
|
·
|
inaccurate
assessment of undisclosed, contingent, or other liabilities or problems
and unanticipated costs associated with the acquisition;
and
|
|
·
|
incorrect
estimates made in accounting for acquisitions, incurrence of non-recurring
charges, and write-off of significant amounts of goodwill that could
adversely affect our operating
results.
|
Our
ability to grow through acquisitions will depend, in part, on the availability
of suitable acquisition candidates at an acceptable price, our ability to
compete effectively for these acquisition candidates, and the availability
of
capital to complete such acquisitions. These risks could be heightened if we
complete several acquisitions within a relatively short period of time. In
addition, there can be no assurance that we will be able to continue to identify
attractive opportunities or enter into any such transactions with acceptable
terms in the future. If an acquisition is completed, there can be no assurance
that we will be able to successfully integrate the acquired entity into our
operations or that we will achieve sales and profitability that justify our
investment in such businesses. Any potential acquisition may not be successful
and could adversely affect our business, operating results, or financial
condition.
We
are subject to extensive environmental regulation and have exposure to potential
environmental liabilities.
The
past
and present operation and ownership by us of manufacturing facilities and real
property are subject to extensive and changing federal, state, and local
environmental laws and regulations, including those relating to discharges
in
air, water and land, the handling and disposal of solid and hazardous waste
and
the remediation of contamination associated with releases of hazardous
substances. Compliance with environmental regulations has not had a material
affect on our capital expenditures, earnings, or competitive position to date;
however, compliance with current laws or more stringent laws or regulations
which may be imposed on us in the future, stricter interpretation of existing
laws, or discoveries of contamination at our real property sites which occurred
prior to our ownership or the advent of environmental regulation may require
us
to make additional expenditures in the future, some of which may be
material.
The
existence of various unfavorable macroeconomic and industry factors for a
prolonged period could adversely affect our business, operating results, or
financial condition.
Office
furniture industry revenues are impacted by a variety of macroeconomic factors
such as service-sector employment levels, corporate profits, non-residential
fixed investment, and commercial construction. Industry factors, such as
corporate restructuring, technology changes, corporate relocations, health
and
safety concerns, including ergonomic considerations, and the globalization
of
companies also influence office furniture industry revenues.
Hearth
products industry revenues are impacted by a variety of macroeconomic factors
as
well, including housing starts, overall employment levels, interest rates,
consumer confidence, energy costs, disposable income, and changing demographics.
Industry factors, such as technology changes, health and safety concerns, and
environmental regulation, including indoor air quality standards, also influence
hearth products industry revenues.
There
can
be no assurance that current or future economic or industry trends will not
adversely affect our business, operating results, or financial
condition.
Increasing
healthcare costs could adversely affect our business, operating results, or
financial condition.
We
provide healthcare benefits to the majority of our members. Healthcare costs
have continued to rise over time and could adversely affect our business,
operating results, or financial condition.
Our
inability to improve the quality/capability of our network of independent
dealers or the loss of a significant number of such dealers could adversely
affect our business, operating results, or financial
condition.
In
both
the office furniture and hearth products industries, we rely in large part
on a
network of independent dealers to market our products to customers. We also
rely
upon these dealers to provide a variety of important specification,
installation, and after-market services to our customers. Our dealers may
terminate their relationships with us at any time and for any reason. The loss
or termination of a significant number of dealer relationships could cause
difficulties for us in marketing and distributing our products, resulting in
a
decline in our sales, which may adversely affect our business, operating
results, or financial condition.
Our
increasing international operations expose us to risks related to conducting
business in multiple jurisdictions outside the United States.
We
primarily sell our products and report our financial results in U.S. Dollars;
however we have increasingly been conducting business in countries outside
the
United States, which exposes us to fluctuations in foreign currency exchange
rates. Paying our expenses in other currencies can result in a significant
increase or decrease in the amount of those expenses in terms of U.S. Dollars,
which may affect our profits. In the future, any foreign currency appreciation
relative to the U.S. Dollar would increase our expenses that are denominated
in
that currency. Additionally, as we report currency in the U.S. Dollar, our
financial position is affected by the strength of the currencies in countries
where we have operations relative to the strength of the U.S.
Dollar.
We
periodically review our foreign currency exposure and evaluate whether we should
enter into hedging transactions.
Our
international sales and operations are subject to a number of additional risks,
including, without limitation:
|
·
|
social
and political turmoil, official corruption, and civil
unrest;
|
|
·
|
restrictive
government actions, such as the imposition of trade quotas and tariffs
and
restrictions on transfers of funds;
|
|
·
|
changes
in labor laws and regulations affecting our ability to hire, retain,
or
dismiss employees;
|
|
·
|
the
need to comply with multiple and potentially conflicting laws and
regulations, including environmental laws and
regulations;
|
|
·
|
preference
for locally branded products and laws and business practices favoring
local competition;
|
|
·
|
less
effective protection of intellectual
property;
|
|
·
|
unfavorable
business conditions or economic instability in any particular country
or
region; and
|
|
·
|
difficulty
in obtaining distribution and
support.
|
There
can
be no assurance that these and other factors will not have an adverse affect
on
our business, operating results, or financial condition.
We
may not be able to maintain our effective tax rate.
We
may
not be able to maintain our effective tax rate because (1) income tax
benefits may be offset by an increase in the valuation allowance due to the
uncertainty regarding the ability to utilize the benefits in the future,
(2) the losses incurred in certain jurisdictions may not offset the tax
expense in profitable jurisdictions, (3) there are differences between
foreign and U.S. income tax rates, and (4) many tax years are subject to
audit by different tax jurisdictions, which may result in additional taxes
payable.
Restrictions
imposed by the terms of our existing credit facility and note purchase agreement
may limit our operating and financial flexibility.
Our
existing credit facility and note purchase agreement, dated as of April 6,
2006,
pursuant to which we issued $150 million of senior, unsecured notes designated
as Series 2006-A Senior Notes, limit our ability to finance operations, service
debt, or engage in other business activities that may be in our interest.
Specifically, our credit facility restricts our ability to incur additional
indebtedness, create or incur certain liens with respect to any of our
properties or assets, engage in lines of business substantially different than
those currently conducted by us, sell, lease, license, or dispose of any of
our
assets, enter into certain transactions with affiliates, make certain restricted
payments or take certain restricted actions, and enter into certain
sale-leaseback arrangements. Our note purchase agreement contains customary
restrictive covenants that, among other things, place limits on our ability
to
incur liens on assets, incur additional debt, transfer or sell our assets,
merge
or consolidate with other persons, or enter into material transactions with
affiliates. Both our credit facility and note purchase agreement also require
us
to maintain certain financial covenants.
Our
failure to comply with the obligations under our credit facility may result
in
an event of default, which, if not cured or waived, may permit acceleration
of
the indebtedness under the credit facility and result in a cross default under
our note purchase agreement. We cannot be certain that we will have sufficient
funds available to pay any accelerated indebtedness or that we will have the
ability to refinance accelerated indebtedness on terms favorable to us or at
all.
We
may require additional capital in the future, which may not be available or
may
be available only on unfavorable terms.
Our
capital requirements depend on many factors, including capital improvements,
tooling, new product development, and acquisitions. To the extent that our
existing capital is insufficient to meet these requirements and cover any
losses, we may need to raise additional funds through financings or curtail
our
growth and reduce our assets. Our ability to generate cash depends on economic,
financial, competitive, legislative, regulatory, and other factors that may
be
beyond our control. Future borrowings or financings may not be available to
us
under our credit facility or otherwise in an amount sufficient to enable us
to
pay our debt or meet our liquidity needs.
Any
equity or debt financing, if available at all, could have terms that are not
favorable to us. In addition, financings could result in dilution to our
shareholders or the securities may have rights, preferences, and privileges
that
are senior to those of our common stock. If our need for capital arises because
of significant losses, the occurrence of these losses may make it more difficult
for us to raise the necessary capital.
Our
business is subject to a number of other miscellaneous risks that may adversely
affect our business, operating results, or financial
condition.
Other
miscellaneous risks include, without limitation:
|
·
|
uncertainty
related to disruptions of business by accidents, third-party labor
disputes, terrorism, military action, natural disasters, epidemic,
acts of
God, or other force majeure events;
|
|
·
|
reduced
demand for our storage products caused by changes in office technology,
including the change from paper record storage to electronic record
storage;
|
|
·
|
the
effects of economic conditions on demand for office furniture and
hearth
products, customer insolvencies, bankruptcies and related bad debts
and
claims against us that we received preferential
payments;
|
|
·
|
our
ability to realize cost savings and productivity improvements from
our
cost containment and business simplification
initiatives;
|
|
·
|
our
ability to realize financial benefits from our repurchases of common
stock;
|
|
·
|
volatility
in the market price and trading volume of equity securities may adversely
affect the market price for our common
stock;
|
|
·
|
our
ability to protect our intellectual
property;
|
|
·
|
potential
claims by third-parties that we infringed upon their intellectual
property
rights;
|
|
·
|
our
insurance may not adequately insulate us from expenses for product
defects; and
|
|
·
|
our
ability to retain our experienced management team and recruit other
key
personnel.
|
|
UNRESOLVED
STAFF COMMENTS
|
None.
The
Corporation maintains its corporate headquarters in Muscatine, Iowa, and
conducts its operations at locations throughout the United States, Canada,
Mexico, China, and Taiwan, which house manufacturing, distribution, and retail
operations and offices totaling an aggregate of approximately 11.3 million
square feet. Of this total, approximately 2.9 million square feet are leased,
including approximately .3 million square feet under a capital
lease.
Although
the plants are of varying ages, the Corporation believes they are well
maintained, equipped with modern and efficient equipment, in good operating
condition, and suitable for the purposes for which they are being used. The
Corporation has sufficient capacity to increase output at most locations by
increasing the use of overtime or the number of production shifts
employed.
The
Corporation's principal manufacturing and distribution facilities (200,000
square feet in size or larger) are as follows:
Location
|
|
Approximate
Square
Feet
|
|
Owned
or Leased
|
|
Description
of
Use
|
|
|
|
|
|
|
|
Cedartown,
Georgia
|
|
547,014
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture (1)
|
|
|
|
|
|
|
|
Chester,
Virginia
|
|
382,082
|
|
Owned/
Leased(2)
|
|
Manufacturing
nonwood casegoods office furniture (1)
|
|
|
|
|
|
|
|
Dongguan,
China
|
|
1,007,716
|
|
Owned
|
|
Manufacturing
wood casegoods office furniture
|
|
|
|
|
|
|
|
Florence,
Alabama
|
|
308,763
|
|
Owned
|
|
Manufacturing
nonwood casegoods
office furniture
|
|
|
|
|
|
|
|
Lake
City, Minnesota
|
|
235,000
|
|
Owned
|
|
Manufacturing
metal prefabricated fireplaces (1)
|
|
|
|
|
|
|
|
Mt.
Pleasant, Iowa
|
|
288,006
|
|
Owned
|
|
Manufacturing
metal prefabricated fireplaces (1)
|
|
|
|
|
|
|
|
Muscatine,
Iowa
|
|
286,000
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture
|
|
|
|
|
|
|
|
Muscatine,
Iowa
|
|
578,284
|
|
Owned
|
|
Warehousing
office furniture
(1)
|
|
|
|
|
|
|
|
Muscatine,
Iowa
|
|
236,100
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture
|
|
|
|
|
|
|
|
Muscatine,
Iowa
|
|
630,000
|
|
Owned
|
|
Manufacturing
nonwood casegoods and systems office furniture(1)
|
|
|
|
|
|
|
|
Muscatine,
Iowa
|
|
237,800
|
|
Owned
|
|
Manufacturing
nonwood seating office furniture
|
|
|
|
|
|
|
|
Orleans,
Indiana
|
|
1,196,946
|
|
Owned
|
|
Manufacturing
wood casegoods and seating office furniture(1)
|
|
|
|
|
|
|
|
Owensboro,
Kentucky
|
|
311,575
|
|
Owned
|
|
Manufacturing
wood seating office furniture
|
|
|
|
|
|
|
|
South
Gate, California
|
|
520,270
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture (1)
|
|
|
|
|
|
|
|
Wayland,
New York
|
|
716,484
|
|
Owned
|
|
Manufacturing
wood casegoods and seating office furniture
(1)
|
____
(1)
|
Also
includes a regional warehouse/distribution
center
|
Other
Corporation facilities, under 200,000 square feet in size, are located in
various communities throughout the United States, Mexico, Canada, China, and
Taiwan. These facilities total approximately 3.8 million square feet with
approximately 2.6 million square feet used for the manufacture and distribution
of office furniture and approximately 1.2 million square feet for hearth
products. Of this total, approximately 2.6 million square feet are leased.
The
Corporation also leases sales showroom space in office furniture market centers
in several major metropolitan areas. There
are
no major encumbrances on Corporation-owned properties. Refer to Property, Plant,
and Equipment in the Notes to Consolidated Financial Statements for related
cost, accumulated depreciation, and net book value data.
The
Corporation is involved in various kinds of disputes and legal proceedings
that
have arisen in the course of its business, including pending litigation,
preferential payment claims in customer bankruptcies, environmental remediation,
taxes, and other claims. It is the Corporation’s opinion, after consultation
with legal counsel, that additional liabilities, if any, resulting from these
matters are not expected to have a material adverse effect on the Corporation’s
financial condition, although such matters could have a material effect on
the
Corporation’s quarterly or annual operating results and cash flows when resolved
in a future period.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
EXECUTIVE
OFFICERS OF THE REGISTRANT
December
30, 2006
Name
|
|
Age
|
|
Family
Relationship
|
|
Position
|
|
Position
Held Since
|
|
Other
Business Experience During
Past Five Years
|
|
|
|
|
|
|
|
|
|
|
|
Stan
A. Askren
|
|
46
|
|
None
|
|
Chairman
of the Board
Chief
Executive Officer
President
Director
|
|
2004
2004
2003
2003
|
|
Executive
Vice President (2001-03); President, (1999-03), Allsteel
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
David
C. Burdakin
|
|
51
|
|
None
|
|
Executive
Vice President
|
|
2001
|
|
President,
The HON Company (2000-2006)
|
|
|
|
|
|
|
|
|
|
|
|
Bradley
D. Determan
|
|
45
|
|
None
|
|
Executive
Vice President
President,
Hearth & Home Technologies Inc.
|
|
2005
2003
|
|
Senior
Vice President, Operations (1995-2003), Hearth & Home Technologies
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
Jerald
K. Dittmer
|
|
49
|
|
None
|
|
Vice
President and Chief Financial Officer
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Driessnack
|
|
48
|
|
None
|
|
Vice
President, Controller
|
|
2004
|
|
Chief
Financial Officer, Retail Division (2002-04), Corporate Controller
(2000-02), NCR Corporation
|
|
|
|
|
|
|
|
|
|
|
|
Melinda
C. Ellsworth
|
|
48
|
|
None
|
|
Vice
President, Treasurer and Investor Relations
|
|
2002
|
|
Vice
President, International Finance & Treasury (1998-02), Sunbeam
Corporation
|
|
|
|
|
|
|
|
|
|
|
|
Tamara
S. Feldman
|
|
46
|
|
None
|
|
Vice
President, Financial Reporting
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
W. Gardner
|
|
47
|
|
None
|
|
Vice
President, Lean Enterprise
|
|
2006
|
|
Vice
President, Lean Operations Improvement (2005-2006); Vice President,
Operations, The Gunlocke Company LLC (2003-2005)
|
|
|
|
|
|
|
|
|
|
|
|
Robert
D. Hayes
|
|
63
|
|
None
|
|
Vice
President, Business Analysis and General Auditor
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
L. Jones
|
|
48
|
|
None
|
|
Vice
President and Chief Information Officer
|
|
2005
|
|
Vice
President, Business Systems (2001-2005)
|
|
|
|
|
|
|
|
|
|
|
|
Eric
K. Jungbluth
|
|
46
|
|
None
|
|
President,
The HON Company
Executive
Vice President
|
|
2006
2005
|
|
President,
Allsteel Inc. (2003-2006); Vice President, Sales and Marketing (2003),
Allsteel Inc.; Vice President and General Manager, Creative Specialties
(2000-03), Fortune Brands/Moen
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey
D. Lorenger
|
|
41
|
|
None
|
|
Vice
President, General
Counsel
and Secretary
|
|
2005
|
|
Vice
President, Seating (2003-05), Vice President, Marketing (2001-03),
Allsteel Inc.
|
|
|
|
|
|
|
|
|
|
|
|
Marco
V. Molinari
|
|
47
|
|
None
|
|
Executive
Vice President
President,
HNI International Inc.
|
|
2006
2003
|
|
President,
International and Business Development (2003-2004); Vice President,
HON
Products, The HON Company (2004-2006); and Chairman and Group MD,
Goodyear-Dunlap, UK (2002)
|
PART
II
|
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES
|
The
Corporation’s common stock is listed for trading on the New York Stock Exchange
(“NYSE”), trading symbol HNI. As of year-end 2006, the Corporation had 7,475
stockholders of record.
Computershare
Investor Services, L.L.C., Chicago, Illinois, serves as the Corporation’s
transfer agent and registrar of its common stock. Shareholders may report a
change of address or make inquiries by writing or calling: Computershare
Investor Services, L.L.C., P.O. Box 1689, Chicago, IL 60690-1689 or telephone
312/588-4991.
Common
Stock Market Prices and Dividends (Unaudited) and Common Stock Market Price
and
Price/Earnings Ratio (Unaudited) are presented in the Investor Information
section which follows the Notes to Consolidated Financial Statements filed
as
part of this report.
The
Corporation expects to continue its policy of paying regular quarterly cash
dividends. Dividends have been paid each quarter since the Corporation paid
its
first dividend in 1955. The average dividend payout percentage for the most
recent three-year period has been 29% of prior year earnings. Future dividends
are dependent on future earnings, capital requirements, and the Corporation’s
financial condition.
The
following is a summary of share repurchase activity during the fourth quarter
ended December 30, 2006.
Period
|
(a) Total
Number of Shares (or Units) Purchased (1)
|
(b)
Average Price Paid per Share or Unit
|
(c)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced
Plans or Programs
|
(d)
Maximum Number (or Approximate Dollar Value) of Shares (or Units)
that May
Yet be Purchased Under the Plans or Programs
|
10/01/06-
10/28/06
|
413,726
|
$42.72
|
413,726
|
$155,504,919
|
10/29/06-
11/25/06
|
348,458
|
$44.95
|
348,458
|
$139,840,212
|
11/26/06-
12/30/06
|
-
|
-
|
-
|
$139,840,212
|
Total
|
762,184
|
$43.74
|
762,184
|
$139,840,212
|
(1)
|
No
shares were purchased outside of a publicly announced plan or
program.
|
The
Corporation repurchases shares under previously announced plans authorized
by
the Corporation’s Board of Directors as follows:
|
·
|
Plan
announced August 8, 2006, providing share repurchase authorization
of
$200,000,000 with no specific expiration
date.
|
|
·
|
No
repurchase plans expired or were terminated during the fourth quarter,
nor
do any plans exist under which the Corporation does not intend to
make
further purchases.
|
|
SELECTED
FINANCIAL DATA — FIVE-YEAR
SUMMARY
|
|
|
2006
|
|
2005
|
|
2004
|
|
2003
|
|
2002
|
|
Per
Common Share Data (Basic and Dilutive)
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations - basic
|
|
$
|
2.59
|
|
$
|
2.53
|
|
$
|
1.99
|
|
$
|
1.69
|
|
$
|
1.55
|
|
Income
from Continuing Operations - diluted
|
|
|
2.57
|
|
|
2.51
|
|
|
1.97
|
|
|
1.68
|
|
|
1.55
|
|
Net
Income - basic
|
|
|
2.46
|
|
|
2.51
|
|
|
1.99
|
|
|
1.69
|
|
|
1.55
|
|
Net
Income - diluted
|
|
|
2.45
|
|
|
2.50
|
|
|
1.97
|
|
|
1.68
|
|
|
1.55
|
|
Cash
Dividends
|
|
|
.72
|
|
|
.62
|
|
|
.56
|
|
|
.52
|
|
|
.50
|
|
Book
Value - basic
|
|
|
10.35
|
|
|
11.46
|
|
|
12.10
|
|
|
12.19
|
|
|
11.08
|
|
Net
Working Capital - basic
|
|
|
3.04
|
|
|
2.48
|
|
|
1.96
|
|
|
3.71
|
|
|
1.82
|
|
Operating
Results (Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$
|
2,679,803
|
|
$
|
2,433,316
|
|
$
|
2,084,435
|
|
$
|
1,755,728
|
|
$
|
1,692,622
|
|
Gross
Profit as a % of Net Sales
|
|
|
34.6
|
%
|
|
36.3
|
%
|
|
36.0
|
%
|
|
36.4
|
%
|
|
35.4
|
%
|
Interest
Expense
|
|
$
|
14,323
|
|
$
|
2,355
|
|
$
|
886
|
|
$
|
2,970
|
|
$
|
4,714
|
|
Income
from Continuing Operations
|
|
|
129,672
|
|
|
138,166
|
|
|
113,660
|
|
|
98,105
|
|
|
91,360
|
|
Income
from Continuing Operations as a % of Net Sales
|
|
|
4.8
|
%
|
|
5.7
|
%
|
|
5.5
|
%
|
|
5.6
|
%
|
|
5.4
|
%
|
Loss
from Discontinued Operations(a)
|
|
$
|
(6,297
|
)
|
$
|
(746
|
)
|
$
|
(78
|
)
|
|
-
|
|
|
-
|
|
Net
Income
|
|
|
123,375
|
|
|
137,420
|
|
|
113,582
|
|
|
98,105
|
|
|
91,360
|
|
Net
Income as a % of Net Sales
|
|
|
4.6
|
%
|
|
5.6
|
%
|
|
5.4
|
%
|
|
5.6
|
%
|
|
5.4
|
%
|
Cash
Dividends
|
|
$
|
36,028
|
|
$
|
33,841
|
|
$
|
32,023
|
|
$
|
30,299
|
|
$
|
29,386
|
|
%
Return on Average Shareholders’ Equity
|
|
|
22.6
|
%
|
|
21.8
|
%
|
|
16.5
|
%
|
|
14.5
|
%
|
|
14.7
|
%
|
Depreciation
and Amortization
|
|
$
|
69,503
|
|
$
|
65,514
|
|
$
|
66,703
|
|
$
|
72,772
|
|
$
|
68,755
|
|
Distribution
of Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Paid to Shareholders
|
|
|
29.2
|
%
|
|
24.6
|
%
|
|
28.2
|
%
|
|
30.9
|
%
|
|
32.2
|
%
|
%
Reinvested in Business
|
|
|
70.8
|
%
|
|
75.4
|
%
|
|
71.8
|
%
|
|
69.1
|
%
|
|
67.8
|
%
|
Financial
Position (Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
$
|
504,174
|
|
$
|
486,598
|
|
$
|
374,579
|
|
$
|
462,122
|
|
$
|
405,054
|
|
Current
Liabilities
|
|
|
358,542
|
|
|
358,174
|
|
|
266,250
|
|
|
245,816
|
|
|
298,680
|
|
Working
Capital
|
|
|
145,632
|
|
|
128,424
|
|
|
108,329
|
|
|
216,306
|
|
|
106,374
|
|
Current
Ratio
|
|
|
1.41
|
|
|
1.36
|
|
|
1.41
|
|
|
1.88
|
|
|
1.36
|
|
Total
Assets
|
|
$
|
1,226,359
|
|
$
|
1,140,271
|
|
$
|
1,021,657
|
|
$
|
1,021,826
|
|
$
|
1,020,552
|
|
%
Return on Beginning Assets Employed
|
|
|
18.1
|
%
|
|
21.2
|
%
|
|
17.5
|
%
|
|
14.7
|
%
|
|
14.8
|
%
|
Long-Term
Debt and Capital Lease Obligations
|
|
$
|
285,974
|
|
$
|
103,869
|
|
$
|
3,645
|
|
$
|
4,126
|
|
$
|
9,837
|
|
Shareholders’
Equity
|
|
|
495,919
|
|
|
593,944
|
|
|
669,163
|
|
|
709,889
|
|
|
646,893
|
|
Current
Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares Outstanding at Year-End
|
|
|
47,905,351
|
|
|
51,848,591
|
|
|
55,303,323
|
|
|
58,238,519
|
|
|
58,373,607
|
|
Weighted-Average
Shares Outstanding During Year - basic
|
|
|
50,059,443
|
|
|
54,649,199
|
|
|
57,127,110
|
|
|
58,178,739
|
|
|
58,789,851
|
|
Weighted-Average
Shares Outstanding During Year - diluted
|
|
|
50,374,758
|
|
|
55,033,741
|
|
|
57,577,630
|
|
|
58,545,353
|
|
|
59,021,071
|
|
Number
of Shareholders of Record at Year-End
|
|
|
7,475
|
|
|
6,702
|
|
|
6,465
|
|
|
6,416
|
|
|
6,777
|
|
Other
Operational Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures (Thousands of Dollars)
|
|
$
|
58,921
|
|
$
|
38,912
|
|
$
|
32,417
|
|
$
|
34,842
|
|
$
|
25,885
|
|
Members
(Employees) at Year-End
|
|
|
14,170
|
(b)
|
|
12,504
|
(b)
|
|
10,589
|
(b)
|
|
8,926
|
|
|
8,828
|
|
|
(a)
|
Component
reported as discontinued operations acquired in
2004.
|
|
(b)
|
Includes
acquisitions completed during the fiscal
year.
|
|
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
Consolidated Financial Statements of the Corporation and related notes.
Statements that are not historical are forward-looking and involve risks and
uncertainties, including those discussed under the caption “Risk Factors” in
Item 1A of this Annual Report on Form 10-K and elsewhere in this
report.
Overview
The
Corporation has two reportable core operating segments: office furniture and
hearth products. The Corporation is the second largest office furniture
manufacturer in the world and the nation’s leading manufacturer and marketer of
gas and wood burning fireplaces. The Corporation utilizes its split and focus,
decentralized business model to deliver value to its customers with various
brands and selling models. The Corporation is focused on growing its existing
businesses while seeking out and developing new opportunities for
growth.
During
2006, the office furniture industry experienced solid growth across all sectors
that positively impacted the Corporation’s office furniture segment. The housing
market experienced its largest annual decline since the recession in 1991,
which
negatively impacted the Corporation’s hearth products segment during the second
half of the year.
In
2006,
the Corporation experienced strong growth across its multiple brands and product
lines in the office furniture segment. Sales benefited from price increases
that
were implemented in 2005 and 2006 as well as acquisitions completed over the
past two years. Despite the decline in housing starts, the Corporation increased
market share in the new construction and remodel/retrofit business. The
Corporation experienced a significant rise in the cost of materials during
2006.
The Corporation completed the acquisition of Lamex, a Chinese manufacturer
and
marketer of office furniture as well as other small acquisitions to support
specific company strategies in both segments of its business. The Corporation
made the decision to shut down one office furniture facility and completed
the
shutdown of two office furniture facilities which began in 2005. The Corporation
also made the decision to sell a small non-core component of its office
furniture segment. Revenues and expenses associated with this component are
presented as discontinued operations for all periods presented. The Corporation
increased its debt levels during 2006, consistent with its strategy of
maintaining a leaner, more efficient capital structure.
Critical
Accounting Policies and Estimates
General
Management’s
Discussion and Analysis of Financial Condition and Results of Operations is
based upon the Consolidated Financial Statements, which have been prepared
in
accordance with Generally Accepted Accounting Principles (“GAAP”). The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities.
Management bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Senior management has discussed the development, selection, and disclosure
of
these estimates with the Audit Committee of our Board of Directors. Actual
results may differ from these estimates under different assumptions or
conditions.
An
accounting policy is deemed to be critical if it requires an accounting estimate
to be made based on assumptions about matters that are uncertain at the time
the
estimate is made, and if different estimates that reasonably could have been
used, or changes in the accounting estimates that are reasonably likely to
occur
periodically, could materially impact the financial statements. Management
believes the following critical accounting policies reflect its more significant
estimates and assumptions used in the preparation of the Consolidated Financial
Statements.
Fiscal
year end
- The
Corporation follows a 52/53-week fiscal year which ends on the Saturday nearest
December 31. Fiscal year 2006 ended on December 30, 2006; fiscal 2005 ended
on
December 31, 2005; and fiscal 2004 ended on January 1, 2005. The financial
statements for fiscal years 2006, 2005, and 2004 are all on a 52-week basis.
A
53-week year occurs approximately every sixth year.
Revenue
recognition
- The
Corporation normally recognizes revenue upon shipment of goods to customers.
In
certain circumstances, the Corporation does not recognize revenue until the
goods are received by the customer or upon installation or customer acceptance
based on the terms of the sale agreement. Revenue includes freight charged
to
customers; related costs are included in selling and administrative expense.
Rebates, discounts, and other marketing program expenses directly related to
the
sale are recorded as a reduction to sales. Marketing program accruals require
the use of management estimates and the consideration of contractual
arrangements subject to interpretation. Customer sales that reach certain award
levels can affect the amount of such estimates, and actual results could differ
from these estimates. Future market conditions may require increased incentive
offerings, possibly resulting in an incremental reduction in net sales at the
time the incentive is offered.
Allowance
for doubtful accounts receivable
- The
allowance for doubtful accounts receivable is based on several factors,
including overall customer credit quality, historical write-off experience,
and
specific account analysis that projects the ultimate collectibility of the
account. As such, these factors may change over time causing the Corporation
to
adjust the reserve level accordingly.
When
the
Corporation determines that a customer is unlikely to pay, a charge is recorded
to bad debt expense in the income statement and the allowance for doubtful
accounts is increased. When the Corporation is certain the customer cannot
pay,
the receivable is written off by removing the accounts receivable amount and
reducing the allowance for doubtful accounts accordingly.
As
of
December 30, 2006, there was approximately $329 million in outstanding accounts
receivable and $13 million recorded in the allowance for doubtful accounts
to
cover potential future customer non-payments. However, if economic conditions
deteriorate significantly or one of the Corporation’s large customers declares
bankruptcy, a larger allowance for doubtful accounts might be necessary. The
allowance for doubtful accounts was approximately $12 million at year end 2005
and $11 million at year end 2004.
Inventory
valuation
- The
Corporation valued 86% of its inventory by the last-in, first-out (LIFO) method
at December 30, 2006. Additionally, the Corporation evaluates inventory reserves
in terms of excess and obsolete exposure. This evaluation includes such factors
as anticipated usage, inventory turnover, inventory levels, and ultimate product
sales value. As such, these factors may change over time causing the Corporation
to adjust the reserve level accordingly. The Corporation’s reserves for excess
and obsolete inventory were approximately $8 million at year-end 2006, 2005,
and
2004.
Long-lived
assets
- The
Corporation reviews long-lived assets for impairment as events or changes in
circumstances occur indicating that the amount of the asset reflected in the
Corporation’s balance sheet may not be recoverable. The Corporation compares an
estimate of undiscounted cash flows produced by the asset, or the appropriate
group of assets, to the carrying value to determine whether impairment exists.
The estimates of future cash flows involve considerable management judgment
and
are based upon the Corporation’s assumptions about future operating performance.
The actual cash flows could differ from management’s estimates due to changes in
business conditions, operating performance, and economic conditions. Asset
impairment charges associated with the Corporation’s restructuring activities
are discussed in Restructuring Related Charges in the Notes to Consolidated
Financial Statements.
The
Corporation’s continuous focus on improving the manufacturing process tends to
increase the likelihood of assets being replaced; therefore, the Corporation
is
constantly evaluating the expected useful lives of its equipment which can
result in accelerated depreciation.
Goodwill
and other intangibles -
In
accordance with the Statement of Financial Accounting Standards (“SFAS”) No.
142, the Corporation evaluates its goodwill for impairment on an annual
basis
based on values at the end of third quarter or whenever indicators of impairment
exist. The Corporation has evaluated its goodwill for impairment and has
determined that the fair value of the reporting units included in continuing
operations exceeded their carrying value, so no impairment of goodwill
was
recognized in continuing operations for the period ending December 30,
2006. The
Corporation did record an impairment charge of $5.7 million related to
its
discontinued operations. Goodwill of approximately $252 million is shown
on the
consolidated balance sheet as of the end of fiscal
2006.
Management’s
assumptions about future cash flows for the reporting units require significant
judgment and actual cash flows in the future may differ significantly from
those
forecasted today. The estimated future cash flow for any reporting unit could
be
reduced by 35% without decreasing the fair value to less than the carrying
value.
The
Corporation also determines the fair value of indefinite lived trademarks on
an
annual basis or whenever indication of impairment exist. The Corporation has
evaluated its trademarks for impairment and recorded an impairment charge of
$1.0 million in 2006 and $0.5 million in 2005 related to two trademarks
associated with its discontinued operations where the carrying value exceeded
the current fair market value. The carrying value of the trademarks was
approximately $43.2 million at the end of fiscal 2006.
Self-insured
reserves -
The
Corporation is partially self-insured or carries high deductibles for general,
auto, and product liability, workers’ compensation, and certain employee health
benefits. The general, auto, product, and workers’ compensation liabilities are
managed via a wholly-owned insurance captive; the related liabilities are
included in the accompanying financial statements. 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
number of claims, medical cost inflation, and magnitude of change in actual
experience development could cause these estimates to change in the near term.
Stock-based
compensation
- The
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), beginning January
1, 2006, using the modified prospective transition method. This statement
requires the Corporation to measure the cost of employee services in exchange
for an award of equity instruments based on the grant-date fair value of the
award and to recognize cost over the requisite service period. This resulted
in
a cost of approximately $3 million in 2006. In 2005 and 2004 the Corporation
accounted for its stock option plan using Accounting Principles Board Opinion
(“APB”) No. 25, “Accounting for Stock Issued to Employees,” which resulted in no
charge to earnings when options are issued at fair market value. If the fair
value method had been adopted previously the Corporation’s net income for 2005
and 2004 would have been reduced by approximately $2 million and $5 million
respectively.
Income
taxes
-
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Corporation’s assets and
liabilities. The Corporation provides for taxes that may be payable if
undistributed earnings of overseas subsidiaries were to be remitted to the
United States, except for those earnings that it considers to be permanently
reinvested.
Recent
Accounting Pronouncements
See
the
Notes to Consolidated Financial Statements for a full description of recent
accounting pronouncements including the respective expected dates of adoption
and effects on results of operations and financial conditions.
Results
of Operations
The
following table sets forth the percentage of consolidated net sales represented
by certain items reflected in the Corporation’s statements of income for the
periods indicated.
Fiscal
|
|
2006
|
|
2005
|
|
2004
|
|
Net
Sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Cost
of products sold
|
|
|
65.4
|
|
|
63.7
|
|
|
64.0
|
|
Gross
profit
|
|
|
34.6
|
|
|
36.3
|
|
|
36.0
|
|
Selling
and administrative expenses
|
|
|
26.8
|
|
|
27.3
|
|
|
27.4
|
|
Restructuring
related charges
|
|
|
0.1
|
|
|
0.1
|
|
|
0.0
|
|
Operating
income
|
|
|
7.7
|
|
|
8.9
|
|
|
8.6
|
|
Interest
income (expense) net
|
|
|
(0.5
|
)
|
|
0.0
|
|
|
0.0
|
|
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
7.2
|
|
|
8.9
|
|
|
8.6
|
|
Income
taxes
|
|
|
2.4
|
|
|
3.2
|
|
|
3.1
|
|
Minority
interest in earnings of subsidiary
|
|
|
0.0
|
|
|
0.0
|
|
|
0.0
|
|
Income
from continuing operations
|
|
|
4.8
|
%
|
|
5.7
|
%
|
|
5.5
|
%
|
Net
Sales
Net
sales
during 2006 were $2.7 billion, an increase of 10.1 percent, compared to net
sales of $2.4 billion in 2005. The increase in 2006 was due to $113 million
of
incremental sales from acquisitions, $43 million in price increases implemented
in 2005 and 2006, solid growth across all brands in the office furniture segment
offset by lower volume in the hearth products segment. Net sales during 2005
were $2.4 billion, an increase of 16.7 percent, compared to net sales of $2.1
billion in 2004. The increase in 2005 was due to $84 million of incremental
sales from acquisitions, $112 million in price increases implemented in 2004
and
early 2005, and strong volume across all brands in both the office furniture
and
hearth products segments.
Gross
Profit
Gross
profit as a percent of net sales decreased 1.7 percentage points in 2006 as
compared to 2005 due to broad based material price increases in both segments
and lower volume in the hearth products segment. Gross profit as a percent
of
net sales increased 0.3 percentage points in 2005 as compared to fiscal 2004
due
to ongoing cost reduction initiatives in addition to the benefit of price
realization partially offsetting the significant steel and other material price
increases experienced over the previous two years.
Selling
and Administrative Expenses
Selling
and administrative expenses, excluding restructuring charges, increased 8.1
percent and 16.4 percent in 2006 and 2005, respectively. The increase in 2006
was due to $40 million of additional costs from acquisitions; increased freight
and distribution costs of $33 million due to volume, rate increases and fuel
surcharges; $3.2 million of stock based compensation expense due to the adoption
of SFAS 123(R) and $1.6 million of costs to resize the hearth business. These
increases were partially offset by a gain on the sale of a vacated facility,
lower incentive compensation expense and cost containment measures. The increase
in 2005 was due to $26 million of additional costs from acquisitions; increased
freight and distribution costs of $34 million due to volume, rate increases
and
fuel surcharges; investments in selling and marketing initiatives and product
launches; and increased profit-sharing and incentive compensation expense due
to
strong results.
Selling
and administrative expenses include freight expense for shipments to customers,
product development costs, and amortization expense of intangible assets. Refer
to Selling and Administrative Expenses in the Notes to Consolidated Financial
Statements for further information regarding the comparative expense levels
for
these major expense items.
Restructuring
Charges
As
a
result of the Corporation’s ongoing business simplification and cost reduction
initiatives, management made the decision in fourth quarter 2006 to close an
office furniture facility in Monterrey, Mexico and consolidate production into
other locations. In connection with the shutdown of the Monterrey facility,
the
Corporation recorded $0.8 million of severance costs for approximately 200
members. The closure and consolidation will be completed during the first half
of 2007. The Corporation will incur additional charges of approximately $3
million in connection with the closure.
During
2006, the Corporation completed the shutdown of two office furniture facilities
which began in the third quarter of 2005. The facilities were located in Kent,
Washington and Van Nuys, California and production from these facilities was
consolidated into other locations. Pre-tax charges for these closures in 2005
totaled $4.1 million which included $0.6 million of accelerated depreciation
of
machinery and equipment recorded in cost of sales, $1.2 million of severance,
$0.4 million of pension related expenses, and $1.9 million of facility exit,
production relocation, and other costs which were recorded as restructuring
costs. In connection with those shutdowns, the Corporation incurred $2.0 million
of current period charges during 2006.
During
2003, the Corporation closed two office furniture facilities located in
Hazleton, Pennsylvania, and Milan, Tennessee and consolidated production into
other manufacturing locations. In connection with these closures, the
Corporation incurred $1.2 million of current period charges during
2004.
Operating
Income
Operating
income was $206 million in 2006, a decrease of 4.8 percent compared to $216
million in 2005. The decrease in 2006 is due to lower volume in the hearth
products segment, broad based material cost increases, increased freight costs,
and stock compensation expense due to the adoption of SFAS 123(R) offset by
higher volume and price increases in the office furniture segment. Operating
income was $216 million in 2005, an increase of 20.8 percent compared to $178
million in 2004. The increase in 2005 was due to increased sales volume in
both
segments, and price increases, offset by increased material costs, investments
in selling and marketing initiatives and product launches, increased freight
costs, and restructuring costs due to plant closures and consolidations.
Income
From Continuing Operations
Income
from continuing operations in 2006, which excludes the Corporation’s
discontinued business (see Discontinued Operations in the Notes to Consolidated
Financial Statements), was $130 million compared with $138 million in 2005,
a
6.1 percent decrease. Income from continuing operations was negatively impacted
by increased interest expense of $12 million on moderate debt levels, consistent
with the Corporation’s strategy of maintaining a leaner, more efficient capital
structure. The Corporation completed a detailed analysis of all deferred tax
accounts, and determined that net deferred income tax liabilities were
overstated. The overstatement primarily related to a deferred tax liability
associated with property, plant and equipment, partially offset by an overstated
deferred tax asset associated with inventory. In analyzing the difference,
the
Corporation determined that the items originated in fiscal years prior to 2002.
To correct this difference, the Corporation reduced income tax expense in the
fourth quarter of 2006 by $4.1 million. The effect of this adjustment is to
reduce the effective income tax rate related to continuing operations by 2.1
percentage points for the year and increase earnings per share from continuing
operations by $0.08. Income from continuing operations increased 21.6 percent
to
$138 million in 2005 compared to $114 million in 2004. Income from continuing
operations in 2005 was favorably impacted by a decrease in the effective tax
rate to 36.0 percent in 2005 from 36.5 percent in 2004 due to benefits resulting
from the implementation of the American Jobs Creation Act of 2004. Income from
continuing operations in 2005 was negatively impacted by increased interest
expense due to a planned increase in debt. Income from continuing operations
per
diluted share increased by 2.4 percent to $2.57 in 2006 including a positive
tax
adjustment of $0.08 per share and by 27.4 percent to $2.51 in 2005.
Discontinued
Operations
During
December 2006, the Corporation committed to a plan to sell a small non-core
component of its office furniture segment. The Corporation reduced the assets
to
the fair market value and has classified them as held for sale. Revenues and
expenses associated with this component are presented as discontinued operations
for all periods presented. This operation was formerly reported within the
Office Furniture segment. Refer to Discontinued Operations in the Notes to
Consolidated Financial Statements for further information.
Net
Income
Net
income decreased 10.2 percent to $123 million in 2006 compared to $137 million
in 2005 which was an increase of 21.0 percent compared to 2004. Net income
per
diluted share decreased by 2.0 percent to $2.45 in 2006 and increased 26.9
percent to $2.50 in 2005 Net income per diluted share was positively impacted
$0.21 per share in 2006 and $0.11 per share in 2005 by the Corporation’s share
repurchase program.
Office
Furniture
Office
furniture comprised 78 percent, 76 percent, and 75 percent of consolidated
net
sales for 2006, 2005, and 2004, respectively. Net sales for office furniture
increased 13 percent in 2006 to $2.1 billion compared to $1.8 billion in 2005.
The increase in 2006 was due to approximately $95 million from the Corporation’s
acquisitions and organic growth of $144 million or 7.8 percent, including
increased price realization of $41 million. Net sales for office furniture
increased 18 percent in 2005 to $1.8 billion compared to $1.6 billion in 2004.
The increase in 2005 was due to approximately $58 million of incremental sales
from the Corporation’s acquisitions and organic growth of $219 million or 14.0
percent, including increased price realization of $91 million. The Business
and
Institutional Furniture Manufacturer’s Association (“BIFMA”) reported 2006
shipments up 7 percent and 2005 shipments up 13 percent. The Corporation
believes it was able to continue to outperform the industry by providing strong
brands, innovative products and services, and value to end-users.
Operating
profit as a percent of net sales was 8.8 percent in 2006, 9.7 percent in 2005,
and 9.9 percent in 2004. The decrease in operating margins in 2006 was due
to
higher material, transportation and other input costs offset partially by price
realization, lower restructuring charges, and a gain on the sale of a vacant
facility. Acquisitions also negatively impacted profitability as anticipated.
Included in 2005 were $4.1 million of net pre-tax charges related to the closure
of two office furniture facilities, which impacted operating margins by 0.2
percentage points. In addition the Corporation continued to make investments
in
the areas of selling, product launches, and strategic distribution acquisitions
that had an expected negative impact on profitability in 2005.
Hearth
Products
Hearth
products sales increased 1 percent in 2006 to $603 million compared to $595
million in 2005 due to the contribution from new acquisitions of $18 million.
The decrease in organic sales was due to a dramatic decline in the second half
of 2006 as a result of the largest annual decline in the housing market since
the 1991 recession. Hearth products sales increased 14 percent in 2005 to $595
million compared to $523 million in 2004. The growth in 2005 was attributable
to
strong housing starts, new product introductions, contributions from new
acquisitions as well as price increases. Acquisitions accounted for $26 million,
or approximately 5 percentage points, of the increase in 2005.
Operating
profit as a percent of sales in 2006 was 9.7 percent compared to 12.6 percent
in
2005, and 11.9 percent in 2004, respectively. The decrease in operating margins
in 2006 was due to lower overall volume, higher mix of lower margin
remodel/retrofit business and increased material and transportation costs.
The
increase in operating margins in 2005 was due to volume and increased price
realization as well as continued focus on cost improvements.
Liquidity
and Capital Resources
During
2006, cash flow from operations was $159.6 million, which along with available
cash and short-term investments, funds from stock option exercises under
employee stock plans, and proceeds from senior unsecured notes and the
Corporation’s revolving credit agreement, provided the funds necessary to meet
working capital needs, pay for strategic acquisitions, invest in capital
improvements, repurchase common stock, and pay increased dividends.
Cash,
cash equivalents, and short-term investments totaled $37.3 million at the end
of
2006 compared to $84.7 million at the end of 2005 and $36.5 million at the
end
of 2004. These funds, coupled with cash from future operations and additional
debt, if needed, are expected to be adequate to finance operations, planned
improvements, and internal growth. The Corporation is not presently aware of
any
known trends or demands, commitments, events, or uncertainties that are
reasonably likely to result in its liquidity increasing or decreasing in any
material way.
The
Corporation places special emphasis on the management and control of its working
capital with a particular focus on trade receivables and inventory levels.
The
success achieved in managing receivables is in large part a result of doing
business with quality customers and maintaining close communication with them.
Trade receivables at year-end 2006 increased from the prior year due to the
Corporation’s new acquisitions and increased sales. The Corporation’s inventory
turns were 18, 18, and 21, for 2006, 2005, and 2004, respectively. The
Corporation is increasing its foreign-sourced raw materials and finished goods,
which while reducing inventory turns does have a favorable impact on the overall
total cost.
Investments
Management
classifies investments in marketable securities at the time of purchase and
reevaluates such classification at each balance sheet date. Equity securities
are classified as available-for-sale and are stated at current market value
with
unrealized gains and losses included as a separate component of equity, net
of
any related tax effect. Debt securities are classified as held-to-maturity
and
are stated at amortized cost. In 2004 the Corporation made an investment, which
was excluded from the scope of Statement of Financial Accounting Standards
No.
115 “Accounting for Certain Investments in Debt and Equity Securities” (“SFAS
No. 115”) due to the fact that the investment’s per unit value in a master fund
was not readily available. Therefore, this investment was recorded at cost.
The
weighted average cost method was used to determine realized gains and losses
on
the trade date. In 2005, the Corporation liquidated this investment and
subsequently invested in an investment fund that is also excluded from the
scope
of SFAS No. 115, however, the Corporation’s ownership in this investment fund is
such that the underlying investments are recorded at fair market value. A table
of holdings as of year-end 2006, 2005, and 2004 is included in the Cash, Cash
Equivalents, and Investments note included in the Consolidated Financial
Statements.
Capital
Expenditure Investments
Capital
expenditures were $58.9 million in 2006, $38.9 million in 2005, and $32.4
million in 2004, respectively. These expenditures have consistently focused
on
machinery and equipment and tooling required to support new products, continuous
improvements in our manufacturing processes and cost savings initiatives. The
Corporation anticipates capital expenditures for 2007 to be approximately 10
to
20 percent higher than the previous year due to increased focus on new products
and operational process improvement.
Acquisitions
During
2006, the Corporation completed the acquisition of Lamex, a privately held
Chinese manufacturer and marketer of office furniture, as well as a small office
furniture services company, a small office furniture dealer and a small
manufacturer of fireplace facings for a total combined purchase price of
approximately $78 million. During 2005, the Corporation completed the
acquisition of four small office furniture services companies, three office
furniture dealers and three small hearth distributors for a total combined
purchase price of approximately $35 million. During 2004, the Corporation
completed three office furniture business acquisitions, the acquisitions of
two
hearth products distributors, as well as the acquisitions of a strategic
sourcing entity for a combined purchase price of approximately $135 million.
Each of the transactions was paid in cash and the results of the acquired
entities have been included in the Consolidated Financial Statements since
the
date of acquisition. The Corporation did increase its borrowings under the
revolving credit facility to fund the 2006 acquisitions.
Long-Term
Debt
Long-term
debt, including capital lease obligations, was 37% of total capitalization
as of
December 30, 2006, 15% as of December 31, 2005, and 1% as of January 1, 2005.
The increase in long-term debt during 2006 and 2005 was due to the Corporation
issuing $150 million of senior unsecured notes through the private placement
debt market and utilizing its revolving credit facility to fund acquisitions
and
share repurchases in accordance with its strategy of operating with a more
efficient capital structure. On January 28, 2005, the Corporation replaced
a
$136 million revolving credit facility entered into on May 10, 2002 with a
new
revolving credit facility that provided for a maximum borrowing of $150 million
subject to increase (to a maximum amount of $300 million) or reduction from
time
to time according to the terms of the agreement. On December 22, 2005, the
Corporation increased the facility to the maximum amount of $300 million. On
April 6, 2006, the Corporation refinanced $150 million of borrowings outstanding
under its revolving credit facility with 5.54 percent ten-year unsecured Senior
Notes due in 2016 issued through the private placement debt market. Additional
borrowing capacity of $156 million, less amounts used for designated letters
of
credit, is available through this revolving bank credit agreement in the event
cash generated from operations should be inadequate to meet future needs. The
Corporation does not expect future capital resources to be a constraint on
planned growth. Certain of the Corporation’s credit agreements include covenants
that limit the assumption of additional debt and lease obligations. The
Corporation has been, and currently is, in compliance with the covenants related
to the debt agreements.
Contractual
Obligations
The
following table discloses the Corporation’s obligations and commitments to make
future payments under contracts:
|
|
Payments
Due by Period
|
|
(In
thousands)
|
|
Total
|
|
Less
than 1
Year
|
|
1
-
3
Years
|
|
3
-
5
Years
|
|
More
than
5
Years
|
|
Long-term
debt obligations, including estimated interest (1)
|
|
$
|
422,838
|
|
$
|
31,669
|
|
$
|
33,221
|
|
$
|
25,644
|
|
$
|
332,304
|
|
Capital
lease obligations
|
|
|
1,012
|
|
|
211
|
|
|
422
|
|
|
379
|
|
|
-
|
|
Operating
lease obligations
|
|
|
141,293
|
|
|
31,001
|
|
|
52,210
|
|
|
38,680
|
|
|
19,402
|
|
Purchase
obligations (2)
|
|
|
89,518
|
|
|
89,518
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Other
long-term obligations (3)
|
|
|
38,385
|
|
|
4,445
|
|
|
2,982
|
|
|
586
|
|
|
30,372
|
|
Total
|
|
$
|
693,046
|
|
$
|
156,844
|
|
$
|
88,835
|
|
$
|
65,289
|
|
$
|
382,078
|
|
|
(1)
|
The
$144 million in borrowings outstanding under the revolving credit
facility
at December 30, 2006 are due in 2011; however, $11 million is included
in
current liabilities in the consolidated financial statements based
on
management’s intent to repay the $11 million during fiscal 2007. Assuming
the amount is repaid in 2007, interest obligation amounts included
in this
table would be reduced by approximately $1.3 million in the 1-3 year
category and $0.7 million in the 3-5 year category. Interest has
been
included for all debt at either the fixed rate or variable rate in
effect
as of December 30, 2006, as
applicable.
|
|
(2)
|
Purchase
obligations include agreements to purchase goods or services that
are
enforceable, legally binding, and specify all significant terms,
including
the quantity to be purchased, the price to be paid, and the timing
of the
purchase.
|
|
(3)
|
Other
long-term liabilities represent payments due to members who are
participants in the Corporation’s salary deferral and long-term incentive
compensation programs, mandatory purchases of the remaining unowned
interest in four acquisitions, and contribution and benefit payments
expected to be made for our post-retirement benefit plans. It should
be
noted that the obligations related to post-retirement benefit plans
are
not contractual and the plans could be amended at the discretion
of the
Corporation. The disclosure of contributions and benefit payments
has been
limited to 10 years, as information beyond this time period was not
available.
|
Cash
Dividends
Cash
dividends were $0.72 per common share for 2006, $0.62 for 2005, and $0.56 for
2004. Further, the Board of Directors announced an 8.3 percent increase in
the
quarterly dividend from $0.18 to $0.195 per common share effective with the
March 1, 2007, dividend payment for shareholders of record at the close of
business February 23, 2007. The previous quarterly dividend increase was from
$0.155 to $0.18, effective with the March 1, 2006 dividend payment for
shareholders of record at the close of business on February 24, 2006. A cash
dividend has been paid every quarter since April 15, 1955, and quarterly
dividends are expected to continue. The average dividend payout percentage
for
the most recent three-year period has been 29 percent of prior year
earnings.
Common
Share Repurchases
During
2006, the Corporation repurchased 4,336,987 shares of its common stock at a
cost
of approximately $203.6 million, or an average price of $46.96. The Board of
Directors authorized $100 million on May 4, 2004, an additional $150 million
on
November 12, 2004, an additional $200 million on November 11, 2005, and an
additional $200 million on August 8, 2006, for repurchases of the Corporation’s
common stock. As of December 30, 2006, approximately $139.8 million of this
authorized amount remained unspent. During 2005, the Corporation repurchased
4,059,068 shares of its common stock at a cost of approximately $202.2 million,
or an average price of $49.82. During 2004, the Corporation repurchased
3,641,400 shares of its common stock at a cost of approximately $145.6 million,
or an average price of $39.99.
Litigation
and Uncertainties
The
Corporation is involved in various kinds of disputes and legal proceedings
that
have arisen in the course of its business, including pending litigation,
preferential payment claims in customer bankruptcies, environmental remediation,
taxes, and other claims. It is the Corporation’s opinion, after consultation
with legal counsel, that additional liabilities, if any, resulting from these
matters are not expected to have a material adverse effect on the Corporation’s
financial condition, although such matters could have a material effect on
the
Corporation’s quarterly or annual operating results and cash flows when resolved
in a future period.
Looking
Ahead
Management
believes its growth in the office furniture segment will be consistent with
the
industry and anticipates increasing profit momentum as the full benefit of
price
increases and cost reduction initiatives are realized.
Declining
industry trends in the hearth product segment will make 2007 very challenging.
Management believes that profitability will be challenged through the first
half
of 2007 as its hearth product business continues to adjust to lower demand
levels and cost reduction initiatives become effective. The Corporation will
continue to implement structural and operating cost reduction initiatives to
ensure that its cost structure is appropriately aligned with market conditions.
The
Corporation anticipates that its tax rate on average will be 35.5 percent in
2007 due to increased benefit from the U.S. manufacturing deduction partially
offset by the elimination of the extra-territorial income
exclusion.
The
Corporation remains focused on creating long-term shareholder value by growing
its business through investment in building brands, product solutions, and
selling models, enhancing its strong member-owner culture, and remaining focused
on its long-standing rapid continuous improvement programs to build best total
cost and a lean enterprise.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
During
the normal course of business the Corporation is subjected to market risk
associated with interest rate movements. Interest rate risk arises from our
variable interest debt obligations. For information related to the Corporation’s
long-term debt, refer to the Long-Term Debt disclosure in the Notes to
Consolidated Financial Statements filed as part of this report. The Corporation
does not currently have any significant foreign currency exposure.
The
Corporation is exposed to risks arising from price changes for certain direct
materials and assembly components used in its operations. The largest such
costs
incurred by the Corporation are for steel, plastics, textiles, wood
particleboard, and cartoning. Steel is the most significant raw material used
in
the manufacturing of products. The market price of plastics and textiles in
particular are sensitive to the cost of oil and natural gas. Oil and natural
gas
prices have increased sharply in the last several years and as a result the
cost
of plastics and textiles have increased. The cost of wood particleboard has
been
impacted by continued downsizing of production capacity in the wood market
as
well as increased cost in transportation related to oil increases. The
Corporation works to offset these increased costs through global sourcing
initiatives and price increases on its products, however, margins have been
negatively impacted due to the lag between cost increases and the Corporation’s
ability to increase its prices. The Corporation believes future market price
increases on its key direct materials and assembly components are likely.
Consequently, it views the prospect of such increases as an outlook risk to
the
business.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
|
The
financial statements listed under Item 15(a)(1) and (2) are filed as part of
this report.
The
Summary of Unaudited Quarterly Results of Operations follows the Notes to
Consolidated Financial Statements filed as part of this report.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
Disclosure
controls and procedures are designed to ensure that information required to
be
disclosed by the Corporation in the reports that it files or submits under
the
Securities Exchange Act of 1934 is recorded, processed, summarized, and
reported, within the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures are also
designed to ensure that information is accumulated and communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosures.
Under
the
supervision and with the participation of management, the Chief Executive
Officer and Chief Financial Officer of the Corporation have evaluated the
effectiveness of the design and operation of the Corporation’s disclosure
controls and procedures as defined in Rules 13a - 15(e) and 15d - 15(e) under
the Securities Exchange Act of 1934. As of December 30, 2006, and, based on
their evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these controls and procedures are effective. There have not
been
any changes in the Corporation’s internal control over financial reporting that
occurred during the fiscal quarter ended December 30, 2006 that have materially
affected, or are reasonably likely to materially affect, the Corporation’s
internal control over financial reporting.
Disclosure
controls and procedures are also designed to ensure that information is
accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Management’s
annual report on internal control over financial reporting and the attestation
report of the Corporation’s independent registered public accounting firm are
included in Item 15 of this report under the headings “Management Report on
Internal Control Over Financial Reporting” and “Report of Independent Registered
Public Accounting Firm,” respectively.
None.
PART
III
|
DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
|
The
information under the caption "Election of Directors" of the Corporation's
Proxy
Statement for the Annual Meeting of Shareholders to be held on May 8, 2007,
is
incorporated herein by reference. For information with respect to executive
officers of the Corporation, see Part I, Table I "Executive Officers of the
Registrant."
Information
relating to the identification of the audit committee, audit committee financial
expert, and director nomination procedures of the registrant is contained under
the caption “Information Regarding the Board” of the Corporation’s Proxy
Statement for the Annual Meeting of Shareholders to be held on May 8, 2007,
and
is incorporated herein by reference.
Code
of Ethics
The
information under the caption “Code of Business Conduct and Ethics” of the
Corporation’s Proxy Statement for the Annual Meeting of Shareholders to be held
on May 8, 2007, is incorporated herein by reference.
Section
16(a) Beneficial Ownership Reporting Compliance
The
information under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" of the Corporation's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 8, 2007, is incorporated herein by
reference.
The
information under the captions “Executive Compensation,” “Compensation Committee
Report,” and “Director Compensation” of the Corporation's Proxy Statement for
the Annual Meeting of Shareholders to be held on May 8, 2007, is incorporated
herein by reference.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
The
information under the captions “Security Ownership” and “Equity Compensation
Plan Information” of the Corporation's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 8, 2007, is incorporated herein by
reference.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The
information under the captions “Director Independence,” “Certain Relationships
and Related Transactions,” and “Review, Approval or Ratification of Transactions
with Related Persons” of the Corporation's Proxy Statement for the Annual
Meeting of Shareholders to be held on May 8, 2007, is incorporated herein by
reference.
|
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
The
information under the caption “Fees Incurred for PricewaterhouseCoopers LLP” of
the Corporation’s Proxy Statement for the Annual Meeting of Shareholders to be
held on May 8, 2007, is incorporated herein by reference.
PART
IV
|
EXHIBITS,
FINANCIAL STATEMENT
SCHEDULES
|
|
(a)
|
(1)
|
Financial
Statements
|
The
following consolidated financial statements of the Corporation and its
subsidiaries included in the Corporation's 2006 Annual Report to Shareholders
are filed as a part of this report pursuant to Item 8:
|
Page
|
|
|
|
38
|
|
|
|
39
|
|
|
|
41
|
|
|
|
42
|
|
|
|
43
|
|
|
|
44
|
|
|
|
45
|
|
|
|
73
|
|
(2)
|
Financial
Statement Schedules
|
The
following consolidated financial statement schedule of the Corporation and
its
subsidiaries is attached pursuant to Item 15(d):
All
other
schedules for which provision is made in the applicable accounting regulation
of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, therefore, have been omitted.
An
exhibit index of all exhibits incorporated by reference into, or filed with,
this Form 10-K appears on Page
75.
The
following exhibits are filed herewith:
Exhibit
|
(21)
|
Subsidiaries
of the Registrant
|
|
(23)
|
Consent
of Independent Registered Public Accounting
Firm
|
|
(31.1)
|
Certification
of the CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
(31.2)
|
Certification
of the CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
(32.1)
|
Certification
of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002
|
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this Annual Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
|
HNI
Corporation
|
|
|
|
|
|
|
|
|
Date:
|
February
26, 2007 |
|
By:
|
/s/
Stan A. Askren
|
|
|
|
Stan
A. Askren
|
|
|
|
Chairman,
President and CEO
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated. Each Director whose signature appears
below authorizes and appoints Stan A. Askren as his or her attorney-in-fact
to
sign and file on his or her behalf any and all amendments and post-effective
amendments to this report.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
/s/
Stan A. Askren
|
|
Chairman,
President and CEO,
|
|
February 26, 2007 |
Stan
A. Askren
|
|
Principal
Executive Officer,
|
|
|
|
|
and
Director
|
|
|
|
|
|
|
|
/s/
Jerald K. Dittmer
|
|
Vice
President, Chief Financial
|
|
February 26, 2007 |
Jerald
K. Dittmer
|
|
Officer
and Principal Accounting Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Mary H. Bell
|
|
Director
|
|
February 26, 2007 |
Mary
H. Bell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Miguel M. Calado
|
|
Director
|
|
February 26, 2007 |
Miguel
M. Calado
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Gary M. Christensen
|
|
Director
|
|
February 26, 2007 |
Gary
M. Christensen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Cheryl A. Francis
|
|
Director
|
|
February 26, 2007 |
Cheryl
A. Francis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
John A. Halbrook
|
|
Director
|
|
February 26, 2007 |
John
A. Halbrook
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
James R. Jenkins
|
|
Director
|
|
February 26, 2007 |
James
R. Jenkins
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Dennis J. Martin
|
|
Director
|
|
February 26, 2007 |
Dennis
J. Martin
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
/s/
Larry B. Porcellato
|
|
Director
|
|
February 26, 2007 |
Larry
B. Porcellato
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Joseph Scalzo
|
|
Director
|
|
February 26, 2007 |
Joseph
Scalzo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Abbie J. Smith
|
|
Director
|
|
February 26, 2007 |
Abbie
J. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Brian E. Stern
|
|
Director
|
|
February 26, 2007 |
Brian
E. Stern
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Ronald V. Waters, III
|
|
Director
|
|
February 26, 2007 |
Ronald
V. Waters, III
|
|
|
|
|
Management
Report on Internal Control Over Financial
Reporting
Management
of HNI Corporation is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934. HNI Corporation’s internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. The Corporation’s
internal control over financial reporting includes those written policies and
procedures that:
|
·
|
pertain
to the maintenance of records that, in reasonable detail, accurately
and
fairly reflect the transactions and dispositions of the assets of
HNI
Corporation;
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and
that
receipts and expenditures of HNI Corporation are being made only
in
accordance with authorizations of management and directors of HNI
Corporation; and
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could
have a
material effect on the consolidated financial
statements.
|
Internal
control over financial reporting includes the controls themselves, monitoring
(including internal auditing practices), and actions taken to correct
deficiencies as identified.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
On
March
1, 2006, the Corporation completed the acquisition of Lamex as discussed in
the
Business Combination footnote to the Corporation’s consolidated financial
statements. Management excluded Lamex from it’s assessment of the Corporation’s
internal control over financial reporting as it was acquired during the fiscal
year. Lamex is a wholly-owned subsidiary, whose total assets and total revenues
represent 3% and 2%, respectively, of the consolidated financial statement
amounts as of and for the year ended December 30, 2006.
Management
assessed the effectiveness of HNI Corporation’s internal control over financial
reporting as of December 30, 2006. Management based this assessment on criteria
for effective internal control over financial reporting described in
Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission.
Management’s assessment included an evaluation of the design of the
Corporation’s internal control over financial reporting and testing of the
operational effectiveness of the Corporation’s internal control over financial
reporting. Management reviewed the results of its assessment with the Audit
Committee of our Board of Directors.
Based
on
this assessment, management determined that, as of December 30, 2006, HNI
Corporation maintained effective internal control over financial
reporting.
Management’s
assessment of the effectiveness of the Corporation’s internal control over
financial reporting as of December 30, 2006 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
as
stated in its report which appears herein.
February
22, 2007
Report
of Independent Registered Public Accounting
Firm
To
the
Board of Directors and Shareholders of
HNI
Corporation:
We
have
completed an integrated audit of HNI Corporation’s consolidated financial
statements and of its internal control over financial reporting as of December
30, 2006, in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Our opinions, based on our audits, are
presented below.
Consolidated
financial statements
In
our
opinion, the consolidated financial statements listed in the index appearing
under Item 15(a)(1), present fairly, in all material respects, the financial
position of HNI Corporation and its subsidiaries (the “Corporation”) at December
30, 2006, December 31, 2005, and January 1, 2005, and the results of their
operations and their cash flows for each of the three years in the period ended
December 30, 2006 in conformity with accounting principles generally accepted
in
the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 15(a)(2) presents
fairly, in all material respects, the information set forth therein when read
in
conjunction with the related consolidated financial statements. These
financial statements are the responsibility of the Corporation’s management. Our
responsibility is to express an opinion on these financial statements based
on
our audits. We conducted our audits of these statements in accordance with
the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
As
discussed in the notes to the consolidated financial statements, the Company
changed the manner in which it accounts for share-based compensation effective
January 1, 2006 and the manner in which obligations associated with defined
benefit pension and other postretirement plans are presented effective December
30, 2006
Internal
control over financial reporting
Also,
in
our opinion, management’s assessment, included in the Management Report on
Internal Control Over Financial Reporting appearing under Item 15, that the
Corporation maintained effective internal control over financial reporting
as of
December 30, 2006 based on criteria established in Internal
Control - Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”), is fairly stated, in all material respects, based on those criteria.
Furthermore, in our opinion, the Corporation maintained, in all material
respects, effective internal control over financial reporting as of December
30,
2006, based on criteria established in Internal
Control - Integrated Framework
issued
by the COSO. The Corporation’s management is responsible for maintaining
effective internal control over financial reporting and for its assessment
of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management’s assessment and on the
effectiveness of the Corporation’s internal control over financial reporting
based on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management’s assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (i) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures
of
the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use,
or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
As
described in the Management Report on Internal Control Over Financial Reporting,
management has excluded Lamex from its assessment of internal control over
financial reporting as of December 30, 2006 because it was acquired by the
Company in a purchase business combination during 2006. We have also excluded
Lamex from our audit of internal control over financial reporting. Lamex is
a
wholly-owned subsidiary, whose total assets and total revenues represent 3%
and
2%, respectively, of the related consolidated financial statement amounts as
of
and for the year ended December 30, 2006.
PricewaterhouseCoopers
LLP
Chicago,
Illinois
February
26, 2007
HNI
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Amounts
in thousands, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Years
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
2,679,803
|
|
$
|
2,433,316
|
|
$
|
2,084,435
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
|
1,752,882
|
|
|
1,549,475
|
|
|
1,334,777
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
926,921
|
|
|
883,841
|
|
|
749,658
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
|
|
717,676
|
|
|
663,667
|
|
|
570,237
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
related charges
|
|
|
2,829
|
|
|
3,462
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
206,416
|
|
|
216,712
|
|
|
178,535
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,139
|
|
|
1,518
|
|
|
1,343
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
14,323
|
|
|
2,355
|
|
|
886
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
193,232
|
|
|
215,875
|
|
|
178,992
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
63,670
|
|
|
77,715
|
|
|
65,332
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before minority interest
|
|
|
129,562
|
|
|
138,160
|
|
|
113,660
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in earnings of subsidiary
|
|
|
(110
|
)
|
|
(6
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
129,672
|
|
|
138,166
|
|
|
113,660
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of income tax benefit
|
|
|
(6,297
|
)
|
|
(746
|
)
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
123,375
|
|
$
|
137,420
|
|
$
|
113,582
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations - basic
|
|
$
|
2.59
|
|
$
|
2.53
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
from discontinued operations - basic
|
|
|
(0.13
|
)
|
|
(0.02
|
)
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share - basic
|
|
$
|
2.46
|
|
$
|
2.51
|
|
$
|
1.99
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - basic
|
|
|
50,059,443
|
|
|
54,649,199
|
|
|
57,127,110
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations - diluted
|
|
$
|
2.57
|
|
$
|
2.51
|
|
$
|
1.97
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
from discontinued operations - diluted
|
|
|
(0.12
|
)
|
|
(0.01
|
)
|
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share - diluted
|
|
$
|
2.45
|
|
$
|
2.50
|
|
$
|
1.97
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - diluted
|
|
|
50,374,758
|
|
|
55,033,741
|
|
|
57,577,630
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
HNI
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Amounts
in thousands of dollars and shares except par value)
As
of Year-end
|
|
2006
|
|
2005
|
|
2004
|
|
Assets
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
28,077
|
|
$
|
75,707
|
|
$
|
29,676
|
|
Short-term
investments
|
|
|
9,174
|
|
|
9,035
|
|
|
6,836
|
|
Receivables
|
|
|
316,568
|
|
|
278,515
|
|
|
234,731
|
|
Inventories
|
|
|
105,765
|
|
|
91,110
|
|
|
77,590
|
|
Deferred
income taxes
|
|
|
15,440
|
|
|
15,831
|
|
|
14,639
|
|
Prepaid
expenses and other current assets
|
|
|
29,150
|
|
|
16,400
|
|
|
11,107
|
|
Total
Current Assets
|
|
|
504,174
|
|
|
486,598
|
|
|
374,579
|
|
Property,
Plant, and Equipment
|
|
|
309,952
|
|
|
294,660
|
|
|
311,344
|
|
Goodwill
|
|
|
251,761
|
|
|
242,244
|
|
|
224,554
|
|
Other
Assets
|
|
|
160,472
|
|
|
116,769
|
|
|
111,180
|
|
Total
Assets
|
|
$
|
1,226,359
|
|
$
|
1,140,271
|
|
$
|
1,021,657
|
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
328,882
|
|
$
|
309,222
|
|
$
|
260,762
|
|
Note
payable and current maturities of long-term debt and capital lease
obligations
|
|
|
26,135
|
|
|
40,350
|
|
|
646
|
|
Current
maturities of other long-term obligations
|
|
|
3,525
|
|
|
8,602
|
|
|
4,842
|
|
Total
Current Liabilities
|
|
|
358,542
|
|
|
358,174
|
|
|
266,250
|
|
Long-Term
Debt
|
|
|
285,300
|
|
|
103,050
|
|
|
2,627
|
|
Capital
Lease Obligations
|
|
|
674
|
|
|
819
|
|
|
1,018
|
|
Other
Long-Term Liabilities
|
|
|
56,103
|
|
|
48,671
|
|
|
40,045
|
|
Deferred
Income Taxes
|
|
|
29,321
|
|
|
35,473
|
|
|
42,554
|
|
Minority
Interest in Subsidiaries
|
|
|
500
|
|
|
140
|
|
|
-
|
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock - $1 par value
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Authorized:
2,000
|
|
|
|
|
|
|
|
|
|
|
Issued:
None
|
|
|
|
|
|
|
|
|
|
|
Common
stock - $1 par value
|
|
|
47,906
|
|
|
51,849
|
|
|
55,303
|
|
Authorized:
200,000
|
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding: 2006-47,906; 2005-51,849; 2004-55,303
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
2,807
|
|
|
941
|
|
|
6,879
|
|
Retained
earnings
|
|
|
448,268
|
|
|
540,822
|
|
|
606,632
|
|
Accumulated
other comprehensive (loss) income
|
|
|
(3,062
|
)
|
|
332
|
|
|
349
|
|
Total
Shareholders’ Equity
|
|
|
495,919
|
|
|
593,944
|
|
|
669,163
|
|
Total
Liabilities and Shareholders’ Equity
|
|
$
|
1,226,359
|
|
$
|
1,140,271
|
|
$
|
1,021,657
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
HNI
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
|
|
Common
Stock
|
|
Additional
Paid-in Capital
|
|
Retained
Earnings
|
|
Accumulated
Other Comprehensive (Loss)/Income
|
|
Total
Shareholders’ Equity
|
|
Balance,
January 3, 2004
|
|
$
|
58,239
|
|
$
|
10,324
|
|
$
|
641,732
|
|
$
|
(406
|
)
|
$
|
709,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
113,582
|
|
|
|
|
|
113,582
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
755
|
|
|
755
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
|
|
|
|
|
|
(32,023
|
)
|
|
|
|
|
(32,023
|
)
|
Common
shares - treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
purchased
|
|
|
(3,642
|
)
|
|
(25,303
|
)
|
|
(116,659
|
)
|
|
|
|
|
(145,604
|
)
|
Shares
issued under Members’ Stock Purchase Plan and stock awards
|
|
|
706
|
|
|
21,858
|
|
|
|
|
|
|
|
|
22,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2005
|
|
|
55,303
|
|
|
6,879
|
|
|
606,632
|
|
|
349
|
|
|
669,163
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
137,420
|
|
|
|
|
|
137,420
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
(17
|
)
|
|
(17
|
)
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
137,403
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
|
|
|
|
|
|
(33,841
|
)
|
|
|
|
|
(33,841
|
)
|
Common
shares - treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
purchased
|
|
|
(4,059
|
)
|
|
(28,769
|
)
|
|
(169,389
|
)
|
|
|
|
|
(202,217
|
)
|
Shares
issued under Members’ Stock Purchase Plan and stock awards
|
|
|
605
|
|
|
22,831
|
|
|
|
|
|
|
|
|
23,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
51,849
|
|
|
941
|
|
|
540,822
|
|
|
332
|
|
|
593,944
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
123,375
|
|
|
|
|
|
123,375
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
1,168
|
|
|
1,168
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,543
|
|
Adoption
of FAS158 impact
|
|
|
|
|
|
|
|
|
|
|
|
(4,562
|
)
|
|
(4,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
|
|
|
|
|
|
(36,028
|
)
|
|
|
|
|
(36,028
|
)
|
Common
shares - treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
purchased
|
|
|
(4,337
|
)
|
|
(19,408
|
)
|
|
(179,901
|
)
|
|
|
|
|
(203,646
|
)
|
Shares
issued under Member’s Stock Purchase Plan and stock awards
|
|
|
394
|
|
|
21,274
|
|
|
|
|
|
|
|
|
21,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 30, 2006
|
|
$
|
47,906
|
|
$
|
2,807
|
|
$
|
448,268
|
|
$
|
(3,062
|
)
|
$
|
495,919
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
HNI
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
For
the Years
|
|
2006
|
|
2005
|
|
2004
|
|
Net
Cash Flows From (To) Operating Activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
123,375
|
|
$
|
137,420
|
|
$
|
113,582
|
|
Noncash
items included in net income:
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
69,503
|
|
|
65,514
|
|
|
66,703
|
|
Other
postretirement and post-employment benefits
|
|
|
2,109
|
|
|
2,002
|
|
|
1,874
|
|
Stock-based
compensation
|
|
|
3,219 |
|
|
- |
|
|
- |
|
Excess
tax benefits from stock compensation
|
|
|
(865
|
)
|
|
-
|
|
|
-
|
|
Deferred
income taxes
|
|
|
(3,712
|
)
|
|
(8,933
|
)
|
|
708
|
|
Loss
on sales, retirements and impairments of long-lived assets and
intangibles
|
|
|
4,639
|
|
|
1,529
|
|
|
1,394
|
|
Stock
issued to retirement plan
|
|
|
7,948
|
|
|
6,199
|
|
|
5,990
|
|
Other
- net
|
|
|
1,733
|
|
|
1,164
|
|
|
1,947
|
|
Changes
in working capital, excluding acquisition and disposition:
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
(24,059
|
)
|
|
(25,654
|
)
|
|
(26,960
|
)
|
Inventories
|
|
|
(7,123
|
)
|
|
(10,488
|
)
|
|
(9,409
|
)
|
Prepaid
expenses and other current assets
|
|
|
(9,541
|
)
|
|
(4,207
|
)
|
|
(145
|
)
|
Accounts
payable and accrued expenses
|
|
|
(2,794
|
)
|
|
36,809
|
|
|
25,990
|
|
Income
taxes
|
|
|
(2,088
|
)
|
|
(5,534
|
)
|
|
846
|
|
Increase
(decrease) in other liabilities
|
|
|
(2,742
|
)
|
|
5,188
|
|
|
11,736
|
|
Net
cash flows from (to) operating activities
|
|
|
159,602
|
|
|
201,009
|
|
|
194,256
|
|
Net
Cash Flows From (To) Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(58,921
|
)
|
|
(38,912
|
)
|
|
(32,417
|
)
|
Proceeds
from sale of property, plant and equipment
|
|
|
5,952
|
|
|
317
|
|
|
2,968
|
|
Capitalized
software
|
|
|
(1,003
|
)
|
|
(2,890
|
)
|
|
(3,383
|
)
|
Acquisition
spending, net of cash acquired
|
|
|
(78,569
|
)
|
|
(33,804
|
)
|
|
(134,848
|
)
|
Short-term
investments - net
|
|
|
926
|
|
|
2,400
|
|
|
60,949
|
|
Purchase
of long-term investments
|
|
|
(13,600
|
)
|
|
(34,495
|
)
|
|
(24,496
|
)
|
Sales
or maturities of long-term investments
|
|
|
8,250
|
|
|
32,505
|
|
|
16,858
|
|
Other
- net
|
|
|
-
|
|
|
(68
|
)
|
|
(350
|
)
|
Net
cash flows from (to) investing activities
|
|
|
(136,965
|
)
|
|
(74,947
|
)
|
|
(114,719
|
)
|
Net
Cash Flows From (To) Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
Purchase
of HNI Corporation common stock
|
|
|
(203,646
|
)
|
|
(202,217
|
)
|
|
(145,604
|
)
|
Proceeds
from long-term debt
|
|
|
515,157
|
|
|
199,000
|
|
|
-
|
|
Payments
of note and long-term debt and other financing
|
|
|
(352,401
|
)
|
|
(57,970
|
)
|
|
(26,795
|
)
|
Proceeds
from sale of HNI Corporation common stock
|
|
|
5,786
|
|
|
14,997
|
|
|
15,579
|
|
Excess
tax benefits from stock compensation
|
|
|
865
|
|
|
-
|
|
|
-
|
|
Dividends
paid
|
|
|
(36,028
|
)
|
|
(33,841
|
)
|
|
(32,023
|
)
|
Net
cash flows from (to) financing activities
|
|
|
(70,267
|
)
|
|
(80,031
|
)
|
|
(188,843
|
)
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(47,630
|
)
|
|
46,031
|
|
|
(109,306
|
)
|
Cash
and cash equivalents at beginning of year
|
|
|
75,707
|
|
|
29,676
|
|
|
138,982
|
|
Cash
and cash equivalents at end of year
|
|
$
|
28,077
|
|
$
|
75,707
|
|
$
|
29,676
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
12,002
|
|
$
|
1,961
|
|
$
|
883
|
|
Income
taxes
|
|
$
|
75,266
|
|
$
|
88,133
|
|
$
|
59,938
|
|
The
accompanying notes are an integral part of the consolidated financial
statements.
HNI
CORPORATION
and subsidiaries
Notes
to Consolidated Financial Statements
Nature
of Operations
HNI
Corporation with its subsidiaries (the “Corporation”), is a provider of office
furniture and hearth products. Both industries are reportable segments; however,
the Corporation’s office furniture business is its principal line of business.
Refer to Operating Segment Information for further information. Office furniture
products are sold through a national system of dealers, wholesalers, retail
superstores, and to end-user customers, and federal and state governments.
Dealer, wholesaler, and retail superstores are the major channels based on
sales. Hearth products include a full array of gas, electric, and wood burning
fireplaces, inserts, stoves, facings, and accessories. These products are sold
through a national system of dealers, wholesalers, large regional contractors,
as well as Corporation-owned distribution and retail outlets. The Corporation’s
products are marketed predominantly in the United States and Canada. The
Corporation exports select products to a limited number of markets outside
North
America, principally Latin America and the Caribbean, through its export
subsidiary and manufactures and markets office furniture in Asia; however,
based
on sales, these activities are not significant.
Summary
of Significant Accounting Policies
Principles
of Consolidation and Fiscal Year-End
The
consolidated financial statements include the accounts and transactions of
the
Corporation and its subsidiaries. Intercompany accounts and transactions have
been eliminated in consolidation.
The
Corporation follows a 52/53 week fiscal year which ends on the Saturday nearest
December 31. Fiscal year 2006 ended on December 30, 2006; 2005 ended on December
31, 2005; and 2004 ended on January 1, 2005. The financial statements for fiscal
years 2006, 2005, and 2004 are on a 52-week basis.
Cash,
Cash Equivalents, and Investments
Cash
and
cash equivalents generally consist of cash, money market accounts, and debt
securities. These securities have original maturity dates not exceeding three
months from date of purchase. The Corporation has short-term investments with
maturities of less than one year and also has investments with maturities
greater than one year that are included in Other Assets on the Consolidated
Balance Sheet. Management classifies investments in marketable securities at
the
time of purchase and reevaluates such classification at each balance sheet
date.
Equity securities are classified as available-for-sale and are stated at current
market value with unrealized gains and losses included as a separate component
of equity, net of any related tax effect. Debt securities are classified as
held-to-maturity and are stated at amortized cost. The specific identification
method is used to determine realized gains and losses on the trade date.
Short-term investments include municipal bonds and money market preferred stock.
Long-term investments include U.S. government securities, municipal bonds,
certificates of deposit, and asset-and mortgage-backed securities. During 2004,
the Corporation sold all of its available-for-sale securities to fund
acquisitions and to move its investments to a master fund. The Corporation
realized losses of approximately $0.8 million. This investment was excluded
from
the scope of SFAS No. 115 “Accounting for Certain Investments in Debt and Equity
Securities” due to the fact that the investment’s per unit value in a master
fund was not readily available. Therefore, this investment was recorded at
cost.
The weighted average cost method was used to determine realized gains and losses
on the trade date. During 2005, the Corporation liquidated this master fund
investment and subsequently invested in an investment fund that is also excluded
from the scope of SFAS No. 115; however, the Corporation’s ownership in this
investment fund is such that the underlying investments are recorded at fair
market value.
At
December 30, 2006, December 31, 2005, and January 1, 2005, cash, cash
equivalents, and investments consisted of the following (cost approximates
market value):
Year-End
2006
(In
thousands)
|
|
Cash
and cash equivalents
|
|
Short-term
investments
|
|
Long-term
investments
|
|
Held-to-maturity
securities
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
$
|
-
|
|
$
|
-
|
|
$
|
400
|
|
Investment
in master fund
|
|
|
-
|
|
|
9,174
|
|
|
25,589
|
|
Cash
and money market accounts
|
|
|
28,077
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
28,077
|
|
$
|
9,174
|
|
$
|
25,989
|
|
Year-End
2005
(In
thousands)
|
|
Cash
and cash equivalents
|
|
Short-term
investments
|
|
Long-term
investments
|
|
Held-to-maturity
securities
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
$
|
-
|
|
$
|
-
|
|
$
|
400
|
|
Investment
in master fund
|
|
|
-
|
|
|
9,035
|
|
|
19,085
|
|
Cash
and money market accounts
|
|
|
75,707
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
75,707
|
|
$
|
9,035
|
|
$
|
19,485
|
|
Year-End
2004
(In
thousands)
|
|
Cash
and cash equivalents
|
|
Short-term
investments
|
|
Long-term
investments
|
|
Held-to-maturity
securities
|
|
|
|
|
|
|
|
Municipal
bonds
|
|
$
|
-
|
|
$
|
2,400
|
|
$
|
-
|
|
Certificates
of deposit
|
|
|
-
|
|
|
-
|
|
|
400
|
|
Investment
in master fund
|
|
|
-
|
|
|
4,436
|
|
|
20,187
|
|
Cash
and money market accounts
|
|
|
29,676
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
29,676
|
|
$
|
6,836
|
|
$
|
20,587
|
|
Receivables
Accounts
receivable are presented net of an allowance for doubtful accounts of $12.8
million, $12.0 million, and $11.4 million, for 2006, 2005, and 2004,
respectively. The allowance is developed based on several factors including
overall customer credit quality, historical write-off experience and specific
account analyses that project the ultimate collectibility of the account. As
such, these factors may change over time causing the reserve level to adjust
accordingly.
Inventories
The
Corporation valued 86%, 89%, and 80% of its inventory by the last-in, first-out
(LIFO) method at December 30, 2006, December 31, 2005, and January 1, 2005,
respectively. Additionally, the Corporation evaluates its inventory reserves
in
terms of excess and obsolete exposures. This evaluation includes such factors
as
anticipated usage, inventory turnover, inventory levels, and ultimate product
sales value. As such, these factors may change over time causing the reserve
level to adjust accordingly. The reserves for excess and obsolete inventory
were
$7.7 million, $8.2 million, and $7.7 million, at year-end 2006, 2005, and 2004,
respectively.
Property,
Plant, and Equipment
Property,
plant, and equipment are carried at cost. 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.
Long-Lived
Assets
Long-lived
assets are reviewed for impairment as events or changes in circumstances occur
indicating that the amount of the asset reflected in the Corporation’s balance
sheet may not be recoverable. An estimate of undiscounted cash flows produced
by
the asset, or the appropriate group of assets, is compared to the carrying
value
to determine whether impairment exists. The estimates of future cash flows
involve considerable management judgment and are based upon assumptions about
expected future operating performance. The actual cash flows could differ from
management’s estimates due to changes in business conditions, operating
performance, and economic conditions. Asset impairment charges recorded in
connection with the Corporation’s restructuring activities are discussed in
Restructuring Related Charges. These assets included real estate, manufacturing
equipment, and certain other fixed assets. The Corporation’s continuous focus on
improving the manufacturing process tends to increase the likelihood of assets
being replaced; therefore, the Corporation is constantly evaluating the expected
lives of its equipment and accelerating depreciation where appropriate.
Goodwill
and Other Intangible Assets
In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS
142”), the Corporation evaluates its goodwill for impairment on an annual basis
based on values at the end of third quarter or whenever indicators of impairment
exist. The Corporation has evaluated its goodwill for impairment and has
determined that the fair value of reporting units in continuing operations
exceeds their carrying value so no impairment of goodwill was recognized in
continuing operations. Management’s assumptions about future cash flows for the
reporting units requires significant judgment and actual cash flows in the
future may differ significantly from those forecasted today. The goodwill
associated with the reporting unit held for sale was impaired and is included
as
part of the loss from discontinued operations.
The
Corporation also determines the fair value of indefinite lived trademarks on
an
annual basis or whenever indications of impairment exist. The Corporation has
evaluated its trademarks for impairment and recognized an impairment charge
of
$1.0 million in 2006 and $0.5 million in 2005 related to two trademarks where
the carrying value exceeded the fair market value. These trademarks were
associated with the reporting unit classified as held for sale and is included
as part of the loss from discontinued operations.
Product
Warranties
The
Corporation issues certain warranty policies on its furniture and hearth
products that provides for repair or replacement of any covered product or
component that fails during normal use because of a defect in design, materials,
or workmanship. A warranty reserve is determined by recording a specific reserve
for known warranty issues and an additional reserve for unknown claims that
are
expected to be incurred based on historical claims experience. Actual claims
incurred could differ from the original estimates, requiring adjustments to
the
reserve. Activity associated with warranty obligations was as
follows:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Balance
at the beginning of the period
|
|
$
|
10,157
|
|
$
|
10,794
|
|
$
|
8,926
|
|
Accrual
assumed from acquisition
|
|
|
125
|
|
|
-
|
|
|
688
|
|
Accruals
for warranties issued during the period
|
|
|
12,273
|
|
|
9,809
|
|
|
10,486
|
|
Accrual
related to pre-existing warranties
|
|
|
810
|
|
|
1,449
|
|
|
1,054
|
|
Settlements
made during the period
|
|
|
(12,741
|
)
|
|
(11,895
|
)
|
|
(10,360
|
)
|
Balance
at the end of the period
|
|
$
|
10,624
|
|
$
|
10,157
|
|
$
|
10,794
|
|
Revenue
Recognition
Revenue
is normally recognized upon shipment of goods to customers. In certain
circumstances revenue is not recognized until the goods are received by the
customer or upon installation and customer acceptance based on the terms of
the
sales agreement. Revenue includes freight charged to customers; related costs
are in selling and administrative expense. Rebates, discounts, and other
marketing program expenses that are directly related to the sale are recorded
as
a reduction to net sales. Marketing program accruals require the use of
management estimates and the consideration of contractual arrangements that
are
subject to interpretation. Customer sales that reach certain award levels can
affect the amount of such estimates and actual results could differ from these
estimates.
Product
Development Costs
Product
development costs relating to the 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, utilities, and administrative fees. The amounts charged against income
were $27.6 million in 2006, $27.3 million in 2005, and $27.4 million in 2004.
Stock-Based
Compensation
The
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), beginning January
1, 2006, using the modified prospective transition method. This statement
requires the Corporation to measure the cost of employee services in exchange
for an award of equity instruments based on the grant-date fair value of the
award and to recognize cost over the requisite service period. Under the
modified prospective transition method, financial statements for periods prior
to the date of adoption are not adjusted for the change in accounting. See
“Stock-Based Compensation” footnote for further information.
Income
Taxes
The
Corporation accounts for income taxes under SFAS No. 109, “Accounting for Income
Taxes.” This Statement uses an asset and liability approach that 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 the
differences between the tax bases of assets and liabilities and their reported
amounts in the financial statements. The Corporation provides for taxes that
may
be payable if undistributed earnings of overseas subsidiaries were to be
remitted to the United States, except for those earnings that it considers
to be
permanently reinvested.
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 options and
deferred restricted stock have been considered outstanding for purposes of
the
diluted earnings per share calculation.
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 financial statements
and
accompanying notes. The more significant areas requiring the use of management
estimates relate to allowance for doubtful accounts, inventory reserves,
marketing program accruals, warranty accruals, accruals for self-insured medical
claims, workers’ compensation, legal contingencies, general liability and auto
insurance claims, and useful lives for depreciation and amortization. Actual
results could differ from those estimates.
Self-Insurance
The
Corporation is partially self-insured for general, auto, and product liability,
workers’ compensation, and certain employee health benefits. The general, auto,
product, and workers’ compensation liabilities are managed using a wholly owned
insurance captive; the related liabilities are included in the accompanying
consolidated financial statements. 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 Stockholders’ Equity. Gains and losses on foreign currency
transactions are included in the “Selling and administrative expenses” caption
of the Consolidated Statements of Income.
Reclassifications
Prior
periods Statements of Income have been restated for discontinued operations.
Certain reclassifications have been made within the footnotes to conform to
the
current year presentation.
Recent
Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS
No. 158 “Employers’ Accounting for Defined Benefit Pension and Other
Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and
132(R)”. This statement requires an employer that is a business entity to
recognize in its statement of financial position the over funded or under funded
status of a defined benefit postretirement plan measured as the difference
between the fair value of plan assets and the benefit obligation. The
recognition of the net liability or asset will require an offsetting adjustment
to accumulated other comprehensive income in shareholders’ equity. SFAS No. 158
does not change how pensions and other postretirement benefits are accounted
for
and reported in the income statement. This statement is effective for fiscal
years ending after December 15, 2006. The Corporation adopted the new standard
for its 2006 year-end financial statement and recognized on the 2006 balance
sheet the funded status of pension and other postretirement benefit plans.
The
adoption of this statement increased the Corporation’s recorded liabilities by
$6.1 million with no impact to the income statement. See “Postretirement Health
Care” footnote for additional information.
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” which
provides enhanced guidance for using fair value to measure assets and
liabilities. The standard also expands the amount of disclosure regarding the
extent to which companies measure assets and liabilities at fair value, the
information used to measure fair value, and the effect of fair value
measurements on earnings. The standard applies whenever other standards require
(or permit) assets or liabilities to be measured at fair value but does not
expand the use of fair value in any new circumstances. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. The
Corporation does not anticipate any material impact to its financial statements
from the adoption of this standard.
In
July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance
with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken
in a
tax return. FIN 48 also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. This Interpretation is effective for fiscal years beginning after
December 15, 2006. The Corporation has completed its initial evaluation of
the
impact of the adoption of FIN 48 for fiscal year 2007 and determined that such
adoption is not expected to have a material impact on the Corporation’s
financial position or results of operations.
In
December 2004, the FASB issued SFAS No. 123(R) which replaces Original SFAS
No.
123 and supersedes Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). SFAS No. 123(R) requires
all share-based payments to employees, including grants of employee stock
options, to be recognized in the financial statements based on their fair
values, beginning with the first annual fiscal period after June 15, 2005.
Under
the Original SFAS No. 123, this accounting treatment was optional with pro
forma
disclosures required. The Corporation adopted SFAS No. 123(R) in the first
quarter of fiscal 2006, beginning January 1, 2006. See “Stock Based
Compensation” footnote for the impact of the adoption of SFAS No. 123(R) on net
income and net income per share.
Restructuring
Related Charges
As
a
result of the Corporation’s ongoing business simplification and cost reduction
strategies, management made the decision in fourth quarter 2006 to close an
office furniture facility in Monterrey, Mexico and consolidate production into
other manufacturing locations. In connection with the shutdown of the Monterrey
facility, the Corporation recorded $0.8 million of severance costs. The closure
and consolidation will be completed during the first half of 2007. The
Corporation anticipates additional restructuring charges of approximately $3.0
million.
During
2006, the Corporation completed the shutdown of two office furniture facilities
which began in the third quarter of 2005. The facilities were located in Kent,
Washington and Van Nuys, California and production from these facilities was
consolidated into other manufacturing locations. Charges for these closures
in
2005 totaled $4.1 million which consisted of $0.6 million of accelerated
depreciation of machinery and equipment recorded in cost of sales, $1.2 million
of severance, $0.4 million of pension related expenses and $1.9 million of
factory exit, production relocation, and other costs which were recorded as
restructuring costs. In connection with those shutdowns, the Corporation
incurred $1.9 million of current period charges during 2006.
During
2003, the Corporation closed two office furniture facilities located in Milan,
Tennessee and Hazleton, Pennsylvania and consolidated production into other
manufacturing locations. In connection with those shutdowns, the Corporation
incurred $1.2 million of current period charges during 2004.
The
following table summarizes the restructuring accrual activity since the
beginning of fiscal 2004. This summary does not include the effect of the
Corporation’s employee retirement plans in 2005, as this item was not accounted
for through the restructuring accrual on the Consolidated Balance Sheets but
is
included as a component of “Restructuring Related Charges” in the Consolidated
Statements of Operations.
(In
thousands)
|
|
Severance
Costs
|
|
Facility
Termination & Other Costs
|
|
Total
|
|
Restructuring
reserve at January 3, 2004
|
|
$
|
334
|
|
$
|
1,100
|
|
$
|
1,434
|
|
Restructuring
charges
|
|
|
42
|
|
|
1,147
|
|
|
1,189
|
|
Restructuring
credit
|
|
|
(31
|
)
|
|
(272
|
)
|
|
(303
|
)
|
Cash
payments
|
|
|
(345
|
)
|
|
(1,975
|
)
|
|
(2,320
|
)
|
Restructuring
reserve at January 1, 2005
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Restructuring
charges
|
|
|
1,142
|
|
|
1,876
|
|
|
3,018
|
|
Cash
payments
|
|
|
(325
|
)
|
|
(632
|
)
|
|
(957
|
)
|
Restructuring reserve
at December 31, 2005
|
|
$
|
817
|
|
$
|
1,244
|
|
$
|
2,061
|
|
Restructuring
charges
|
|
|
865
|
|
|
1,964
|
|
|
2,829
|
|
Cash
payments
|
|
|
(841
|
)
|
|
(3,208
|
)
|
|
(4,049
|
)
|
Restructuring
reserve at December 30, 2006
|
|
$
|
841
|
|
$
|
-
|
|
$
|
841
|
|
Business
Combinations
The
Corporation completed the acquisition of Lamex, a privately held Chinese
manufacturer and marketer of office furniture, as well as a small office
furniture services company, a small office furniture dealer, and a small
manufacturer of fireplace facings during 2006. The combined purchase price
of
these acquisitions less cash acquired totaled $78.2 million. The Corporation
increased its borrowings under the revolving credit facility to fund the
acquisitions. The Corporation acquired controlling interest in the office
furniture dealer and the ability to call the remaining interest on or after
fiscal year-end 2011. The Corporation must exercise its call on or before the
end of fiscal 2016. SFAS No. 150 “Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity” (“SFAS No. 150”) requires a
mandatorily redeemable financial instrument to be classified as a liability
unless the redemption is required to occur only upon the liquidation or
termination of the reporting entity. It also requires that mandatorily
redeemable financial instruments be measured at fair value. Therefore, the
Corporation has recorded a liability for the remaining interest at fair value
as
of the acquisition date.
The
Corporation has finalized the allocation of the purchase price for all
acquisitions other than the office furniture dealer acquisition which occurred
in the final month of the year. Any modification is not expected to be
significant. There are approximately $51.7 million of intangibles associated
with these acquisitions. Of these acquired intangible assets, $14 million was
assigned to a trade name that is not subject to amortization. The remaining
$37.7 million have estimated useful lives ranging from two to fifteen years
with
amortization recorded based on the projected cash flow associated with the
respective intangible assets’ existing relationships. There is approximately
$13.9 million of goodwill associated with these acquisitions of which $11.1
million was assigned to the furniture segment and $2.8 was assigned to the
hearth segment. Approximately $6.9 million of the goodwill is not deductible
for
income tax purposes.
The
Corporation completed the acquisition of four small office furniture services
companies, three office furniture dealers, and three small hearth distributors
during 2005. The combined purchase price of these acquisitions totaled $35.4
million, of which $33.4 million was paid in cash and the remaining is due to
the
sellers over the next several years. The Corporation acquired controlling
interests in the three office furniture dealers and the ability to call the
remaining interests on or after fiscal year-end 2008 and 2010. The Corporation
must exercise its calls on or before the end of fiscal 2014 and 2015. SFAS
No.150 requires a mandatorily redeemable financial instrument to be classified
as a liability unless the redemption is required to occur only upon the
liquidation or termination of the reporting entity. It also requires that
mandatorily redeemable financial instruments be measured at fair value.
Therefore, the Corporation has recorded a liability for the remaining interest
at fair value. The Corporation continues to monitor and adjust the recorded
amount to accrete the obligation to the estimated redemption amount through
a
charge to earnings as required. There are approximately $14.1 million of
intangibles associated with these acquisitions. Of these acquired intangible
assets, $1.5 million was assigned to indefinite-lived trademarks that are not
subject to amortization. The remaining $12.6 million have estimated useful
lives
ranging from two to fifteen years with amortization recorded based on the
projected cash flow associated with the respective intangible assets’ existing
relationships. There is approximately $18.9 million of goodwill associated
with
these acquisitions, of which $13.7 million was assigned to the furniture segment
and $5.2 million was assigned to the hearth products segment. Approximately
$2.1
million of the goodwill assigned to the furniture segment is not deductible
for
tax purposes.
On
January 5, 2004, the Corporation acquired certain assets of Paoli, Inc., a
subsidiary of Klaussner Furniture Industries, Inc. for $81.1 million. Paoli
Inc.
is a leading provider of wood case goods and seating with well-known brands,
broad product offering, and strong independent representatives sales and dealer
networks located in Orleans, Indiana.
The
Corporation acquired $26.3 million of intangible assets from the Paoli
acquisition, of which $18.3 million was assigned to registered trademarks that
are not subject to amortization. The remaining $8.0 million of acquired
intangible assets have a weighted-average useful life of approximately 15 years
with amortization recorded based on the projected cash flow associated with
the
respective intangible assets existing relationships. The $9.2 million of
goodwill was assigned to the office furniture segment and is deductible for
income tax purposes.
On
July
6, 2004, the Corporation acquired a controlling interest in Omni Workspace
Company (formerly Omni Remanufacturing, Inc.). Omni Workspace Company is
comprised of two divisions - A&M Business Interior Services (“A&M”), an
office furniture services company, and IntraSpec Solutions (“ISS”), a panel
systems re-manufacturer. The Corporation acquired 80 percent of the common
stock
of Omni Workspace Company and the ability to call the remaining 20 percent
of
the shares on or after the fiscal year end 2009. The Corporation must exercise
its call on or before the end of fiscal year end 2014. SFAS No. 150 requires
a
mandatorily redeemable financial instrument to be classified as a liability
unless the redemption is required to occur only upon the liquidation or
termination of the reporting entity. It also requires that mandatorily
redeemable financial instruments be measured at fair value. Therefore, the
Corporation has recorded a liability at the acquisition date for the remaining
20 percent of the shares at fair value. The Corporation continues to monitor
and
adjust the recorded amount to accrete the obligation to the estimated redemption
amount in 2014 through a charge to earnings as required.
The
Corporation acquired $12.7 million of intangible assets from the Omni
acquisition, of which $7.3 million was associated with the A&M division and
$5.4 million was associated with the ISS division. Included in the A&M
intangibles was a registered trademark that is not subject to amortization
of
$1.3 million. The remaining $6.0 million of acquired intangible assets have
estimated useful lives ranging from four to fifteen years with amortization
recorded based on the projected cash flow associated with the respective
intangible assets’ existing relationships. Included in the ISS intangibles were
registered trademarks not subject to amortization of $1.5 million. The remaining
$3.9 million of acquired intangible assets had estimated useful lives of five
to
ten years. There was approximately $12.9 million of goodwill associated with
the
acquisition, of which $7.2 million was associated with the A&M division and
$5.7 million was associated with the ISS division.
On
July
19, 2004, the Corporation acquired Edward George Company (“Edward George”), a
distributor of fireplaces, stone products, barbecues, and other building
materials throughout Illinois, Indiana, and Kentucky, and its affiliate,
Wisconsin Fireplace Systems with locations in Wisconsin for $27.7
million.
The
acquired intangible assets from the Edward George acquisition of $9.3 million
have a weighted-average useful life of approximately 13 years with amortization
recorded based on the projected cash flow associated with the respective
intangible assets existing relationships. The $9.6 million of goodwill was
assigned to the hearth products segment and is deductible for income tax
purposes.
The
consideration for each of these transactions was paid in cash. The results
of
the acquired entities have been included in the Consolidated Financial
Statements since the date of acquisition.
The
Corporation also completed the acquisition of a small office furniture services
company, a small hearth distributor and a strategic sourcing entity during
2004.
The combined purchase price for these acquisitions totaled approximately $8.5
million. There is approximately $5.4 million of intangibles associated with
these acquisitions with estimated useful lives ranging from one to ten years.
There is approximately $2.2 million of goodwill associated with these
acquisitions of which $0.9 million was assigned to the office furniture segment
and $1.3 million was assigned to the hearth products segment. All goodwill
is
deductible for income tax purposes.
Discontinued
Operations
During
December 2006, the Corporation committed to a plan to sell a small non-core
component of its office furniture segment. Revenues and expenses associated
with
this component are presented as discontinued operations for all periods
presented. During the fourth quarter the Corporation recorded a pre-tax charge
to reduce the assets to the fair market value of approximately $7.1 million.
The
charge was mainly due to the writedown of goodwill and other intangibles not
deductible for tax purposes.
Summarized
financial information for discontinued operations is as follows:
|
|
|
|
|
|
|
|
(in
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Discontinued
Operations:
|
|
|
|
|
|
|
|
Operating
loss before tax
|
|
$
|
(818
|
)
|
$
|
(666
|
)
|
$
|
(123
|
)
|
Benefit
for income tax
|
|
|
(294
|
)
|
|
(240
|
)
|
|
(45
|
)
|
Net
loss from discontinued operations
|
|
|
(524
|
)
|
|
(426
|
)
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
Loss on Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
Impairment
loss on discontinued operations before tax
|
|
|
(7,125
|
)
|
|
(500
|
)
|
|
-
|
|
Benefit
for income tax
|
|
|
(1,352
|
)
|
|
(180
|
)
|
|
-
|
|
Net
impairment loss on discontinued operations
|
|
|
(5,773
|
)
|
|
(320
|
)
|
|
-
|
|
Loss
from discontinued operations, net of income tax benefit
|
|
$
|
(6,297
|
)
|
$
|
(746
|
)
|
$
|
(78
|
)
|
Assets
to
be disposed of as of December 30, 2006 recorded in Prepaid Expenses and Other
Current Assets are as follows:
(In
thousands)
|
|
2006
|
|
Inventory
|
|
$
|
1,030
|
|
Property
and equipment
|
|
|
720
|
|
Total
Assets Held for Sale
|
|
$
|
1,750
|
|
Inventories
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Finished
products
|
|
$
|
66,238
|
|
$
|
61,027
|
|
$
|
52,796
|
|
Materials
and work in process
|
|
|
58,789
|
|
|
46,398
|
|
|
40,712
|
|
LIFO
reserve
|
|
|
(19,262
|
)
|
|
(16,315
|
)
|
|
(15,918
|
)
|
|
|
$
|
105,765
|
|
$
|
91,110
|
|
$
|
77,590
|
|
Property,
Plant, and Equipment
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Land
and land improvements
|
|
$
|
27,700
|
|
$
|
26,361
|
|
$
|
26,042
|
|
Buildings
|
|
|
266,801
|
|
|
240,174
|
|
|
234,421
|
|
Machinery
and equipment
|
|
|
550,979
|
|
|
523,240
|
|
|
512,544
|
|
Construction
and equipment installation in progress
|
|
|
12,936
|
|
|
23,976
|
|
|
13,686
|
|
|
|
|
858,416
|
|
|
813,751
|
|
|
786,693
|
|
Less:
accumulated depreciation
|
|
|
548,464
|
|
|
519,091
|
|
|
475,349
|
|
|
|
$
|
309,952
|
|
$
|
294,660
|
|
$
|
311,344
|
|
Goodwill
and Other Intangible Assets
Pursuant
to Statement of Financial Accounting Standards (SFAS) No. 142, the Corporation
evaluates its goodwill for impairment on an annual basis based on values at
the
end of third quarter or whenever indicators of impairment exist. The Corporation
has evaluated its goodwill for impairment and has determined that the fair
value
of its reporting units included as continuing operations exceeds the carrying
values and therefore, no impairment of goodwill was recorded in continuing
operations. The Corporation did record an impairment charge of $5.7 million
which was included in discontinued operations on the Consolidated Statements
of
Income.
The
Corporation also owns trademarks having a net value of $43.2 million as of
December 30, 2006, $30.2 million as of December 31, 2005, and $29.2 million
as
of January 1, 2005. The trademarks are deemed to have an indefinite useful
life
because they are expected to generate cash flow indefinitely. The Corporation
recorded an impairment charge of $1.0 million in 2006 and $0.5 million in 2005
related to two office furniture trademarks associated with the discontinued
operation where the carrying amount exceeded the current fair market value.
The
charge was included in discontinued operations on the Consolidated Statements
of
Income.
The
table
below summarizes amortizable definite-lived intangible assets, which are
reflected in Other Assets in the Corporation’s consolidated balance
sheets:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Patents
|
|
$
|
18,780
|
|
$
|
18,480
|
|
$
|
18,820
|
|
Customer
lists and other
|
|
|
103,492
|
|
|
67,211
|
|
|
54,702
|
|
Less:
accumulated amortization
|
|
|
39,796
|
|
|
28,758
|
|
|
21,785
|
|
Net
intangible assets
|
|
$
|
82,476
|
|
$
|
56,933
|
|
$
|
51,737
|
|
Amortization
expense for definite-lived intangibles for 2006, 2005, and 2004, was $10.4
million, $7.3 million, and $5.1 million, respectively. Amortization expense
is
estimated to range between $5.9 and $9.2 million per year over the next five
years.
The
changes in the carrying amount of goodwill since January 3, 2004, are as follows
by reporting segment:
(In
thousands)
|
|
Office
Furniture
|
|
Hearth
Products
|
|
Total
|
|
Balance
as of January 3, 2004
|
|
$
|
43,611
|
|
$
|
148,475
|
|
$
|
192,086
|
|
Goodwill
increase during period
|
|
|
21,920
|
|
|
10,548
|
|
|
32,468
|
|
Balance
as of January 1, 2005
|
|
$
|
65,531
|
|
$
|
159,023
|
|
$
|
224,554
|
|
Goodwill
increase during period
|
|
|
12,128
|
|
|
5,562
|
|
|
17,690
|
|
Balance
as of December 31, 2005
|
|
$
|
77,659
|
|
$
|
164,585
|
|
$
|
242,244
|
|
Goodwill
increase during period
|
|
|
12,810
|
|
|
2,790
|
|
|
15,600
|
|
Goodwill
decrease during period
|
|
|
(5,654
|
)
|
|
(429
|
)
|
|
(6,083
|
)
|
Balance
as of December 30, 2006
|
|
$
|
84,815
|
|
$
|
166,946
|
|
$
|
251,761
|
|
The
goodwill increases relate to acquisitions completed. See Business Combinations
note. The decrease in goodwill in the office furniture segment in 2006 is due
to
the impairment of the goodwill associated with discontinued operations. The
decrease in the hearth products segment relates to the sale of a few small
distribution locations.
Accounts
Payable and Accrued Expenses
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Trade
accounts payable
|
|
$
|
102,436
|
|
$
|
86,945
|
|
$
|
64,319
|
|
Compensation
|
|
|
27,835
|
|
|
34,272
|
|
|
25,722
|
|
Profit
sharing and retirement expense
|
|
|
29,545
|
|
|
32,461
|
|
|
30,516
|
|
Marketing
expenses
|
|
|
60,676
|
|
|
54,797
|
|
|
50,939
|
|
Other
accrued expenses
|
|
|
108,390
|
|
|
100,747
|
|
|
89,266
|
|
|
|
$
|
328,882
|
|
$
|
309,222
|
|
$
|
260,762
|
|
Long-Term
Debt
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Note
payable to bank, revolving credit agreement with interest at a variable
rate (2006-5.70%; 2005-4.69%)
|
|
$
|
144,000
|
|
$
|
140,000
|
|
$
|
-
|
|
Note
payable to bank, with interest at a variable rate
(2006-6.11%)
|
|
|
14,200
|
|
|
-
|
|
|
-
|
|
Senior
notes due in 2016 with interest at a fixed rate of 5.54% per
annum.
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
Industrial
development revenue bonds, payable 2018 with interest at 4.02% per
annum
|
|
|
2,300
|
|
|
2,300
|
|
|
2,300
|
|
Other
notes and amounts
|
|
|
794
|
|
|
900
|
|
|
560
|
|
Total
debt
|
|
|
311,294
|
|
|
143,200
|
|
|
2,860
|
|
Less:
current portion
|
|
|
25,994
|
|
|
40,150
|
|
|
233
|
|
Long-term
debt
|
|
$
|
285,300
|
|
$
|
103,050
|
|
$
|
2,627
|
|
Aggregate
maturities of long-term debt are as follows:
|
|
(In
thousands)
|
|
|
|
2007
|
|
$
|
25,994
|
|
2008
|
|
|
-
|
|
2009
|
|
|
-
|
|
2010
|
|
|
-
|
|
2011
|
|
|
133,000
|
|
Thereafter
|
|
$
|
152,300
|
|
On
January 28, 2005, the Corporation replaced a $136 million revolving credit
facility entered into on May 10, 2002 with a new revolving credit facility
that
provided for a maximum borrowing of $150 million subject to increase (to a
maximum amount of $300 million) or reduction from time to time according to
the
terms of the agreement. On December 22, 2005, the Corporation increased the
facility to the maximum amount of $300 million. Amounts borrowed under the
Credit Agreement may be borrowed, repaid, and reborrowed from time to time
until
January 28, 2011. As of December 30, 2006, $11 million was classified as
short-term as the Corporation expects to repay that portion of the borrowings
within a year.
On
April
6, 2006, the Corporation refinanced $150 million of borrowings outstanding
under
the revolving credit facility with 5.54 percent ten-year unsecured Senior Notes
due in 2016 issued through the private placement debt market. Interest payments
are due semi-annually on April 1 and October 1 of each year and the principal
is
due in a lump sum in 2016. The Corporation maintained the revolving credit
facility with a maximum borrowing of $300 million.
Certain
of the above borrowing arrangements include covenants which limit the assumption
of additional debt and lease obligations. The Corporation has been and currently
is in compliance with the covenants related to these debt agreements. The fair
value of the Corporation’s outstanding long-term debt obligations at year-end
2006 approximates the recorded aggregate amount.
Selling
and Administrative Expenses
|
|
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Freight
expense for shipments to customers
|
|
$
|
182,814
|
|
$
|
158,329
|
|
$
|
132,498
|
|
Amortization
of intangible and other assets
|
|
|
12,456
|
|
|
10,155
|
|
|
8,275
|
|
Product
development costs
|
|
|
27,567
|
|
|
27,338
|
|
|
27,401
|
|
Other
selling and administrative expenses
|
|
|
494,839
|
|
|
467,845
|
|
|
402,063
|
|
|
|
$
|
717,676
|
|
$
|
663,667
|
|
$
|
570,237
|
|
Income
Taxes
Significant
components of the provision for income taxes are as follows:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Current:
|
|
|
|
|
|
|
|
Federal
|
|
$
|
61,943
|
|
$
|
77,474
|
|
$
|
60,425
|
|
State
|
|
|
8,671
|
|
|
8,954
|
|
|
5,976
|
|
Current
provision
|
|
|
70,614
|
|
|
86,428
|
|
|
66,401
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(7,877
|
)
|
|
(8,048
|
)
|
|
(1,008
|
)
|
State
|
|
|
(651
|
)
|
|
(1,081
|
)
|
|
(106
|
)
|
Deferred
provision
|
|
|
(8,528
|
)
|
|
(9,129
|
)
|
|
(1,114
|
)
|
|
|
$
|
62,086
|
|
$
|
77,299
|
|
$
|
65,287
|
|
A
reconciliation of the statutory federal income tax rate to the Corporation’s
effective income tax rate for continuing operations is as follows:
|
|
2006
|
|
2005
|
|
2004
|
|
Federal
statutory tax rate
|
|
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State
taxes, net of federal tax effect
|
|
|
2.8
|
|
|
2.4
|
|
|
2.2
|
|
Credit
for increasing research activities
|
|
|
(0.7
|
)
|
|
(0.4
|
)
|
|
(0.6
|
)
|
Deduction
related to domestic production activities
|
|
|
(0.8
|
)
|
|
(0.9
|
)
|
|
-
|
|
Extraterritorial
income exclusion
|
|
|
(0.4
|
)
|
|
(0.3
|
)
|
|
(0.3
|
)
|
True-up
of deferred tax items
|
|
|
(2.1
|
)
|
|
-
|
|
|
-
|
|
Other
- net
|
|
|
(0.8
|
)
|
|
0.2
|
|
|
0.2
|
|
Effective
tax rate
|
|
|
33.0
|
%
|
|
36.0
|
%
|
|
36.5
|
%
|
In
the
fourth quarter of 2006, the Corporation completed a detailed analysis of all
deferred tax accounts, and determined that net deferred income tax liabilities
were overstated by $4.1 million. This overstatement primarily relates to a
deferred tax liability associated with property, plant, and equipment, partially
offset by an overstated deferred tax asset associated with inventory. In
analyzing the difference, the Corporation determined that the items originated
in fiscal years prior to 2002. To correct this difference, the Corporation
has
reduced income tax expense in the fourth quarter of 2006 by $4.1 million. The
effect of this adjustment is to reduce the effective income tax rate related
to
continuing operations by 2.1 percentage points for the year and increase
earnings per share from continuing operations by $0.08.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes.
Significant
components of the Corporation’s deferred tax liabilities and assets are as
follows:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Net
long-term deferred tax liabilities:
|
|
|
|
|
|
|
|
Tax
over book depreciation
|
|
$
|
(1,052
|
)
|
$
|
(16,458
|
)
|
$
|
(25,549
|
)
|
Compensation
|
|
|
4,899
|
|
|
5,907
|
|
|
5,697
|
|
Goodwill
|
|
|
(33,826
|
)
|
|
(30,499
|
)
|
|
(24,362
|
)
|
Other
- net
|
|
|
658
|
|
|
5,577
|
|
|
1,660
|
|
Total
net long-term deferred tax liabilities
|
|
|
(29,321
|
)
|
|
(35,473
|
)
|
|
(42,554
|
)
|
Net
current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
3,563
|
|
|
3,858
|
|
|
3,512
|
|
Vacation
accrual
|
|
|
5,323
|
|
|
4,924
|
|
|
4,588
|
|
Inventory
differences
|
|
|
3,096
|
|
|
5,720
|
|
|
4,304
|
|
Deferred
income
|
|
|
(5,880
|
)
|
|
(6,596
|
)
|
|
(6,238
|
)
|
Warranty
accruals
|
|
|
3,906
|
|
|
3,847
|
|
|
3,504
|
|
Other
- net
|
|
|
5,432
|
|
|
4,078
|
|
|
4,969
|
|
Total
net current deferred tax assets
|
|
|
15,440
|
|
|
15,831
|
|
|
14,639
|
|
Net
deferred tax (liabilities) assets
|
|
|
(13,881
|
)
|
|
(19,642
|
)
|
|
(27,915
|
)
|
Shareholders’
Equity and Earnings Per Share
|
|
2006
|
|
2005
|
|
2004
|
|
Common
Stock, $1 Par Value
|
|
|
|
|
|
|
|
Authorized
|
|
|
200,000,000
|
|
|
200,000,000
|
|
|
200,000,000
|
|
Issued
and outstanding
|
|
|
47,905,351
|
|
|
51,848,591
|
|
|
55,303,323
|
|
Preferred
Stock, $1 Par Value
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
2,000,000
|
|
|
2,000,000
|
|
|
2,000,000
|
|
Issued
and outstanding
|
|
|
-
|
|
|
-
|
|
|
-
|
|
The
Corporation purchased 4,336,987; 4,059,068; and 3,641,400 shares of its common
stock during 2006, 2005, and 2004, respectively. The par value method of
accounting is used for common stock repurchases. The excess of the cost of
shares acquired over their par value is allocated to Additional Paid-In Capital
with the excess charged to Retained Earnings.
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)
|
|
2006
|
|
2005
|
|
2004
|
|
Numerators:
|
|
|
|
|
|
|
|
Numerators
for both basic and diluted EPS net income
|
|
|
123,375
|
|
|
137,420
|
|
$
|
113,582
|
|
Denominators:
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS weighted- average common shares outstanding
|
|
|
50,059
|
|
|
54,649
|
|
|
57,127
|
|
Potentially
dilutive shares from stock option plans
|
|
|
316
|
|
|
385
|
|
|
451
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted EPS
|
|
|
50,375
|
|
|
55,034
|
|
|
57,578
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share - basic
|
|
$
|
2.46
|
|
$
|
2.51
|
|
$
|
1.99
|
|
Earnings
per share - diluted
|
|
$
|
2.45
|
|
$
|
2.50
|
|
$
|
1.97
|
|
Certain
exercisable and non-exercisable stock options were not included in the
computation of diluted EPS for fiscal year 2006, 2005, and 2004, because their
inclusion would have been anti-dilutive. The number of stock options
outstanding, which met this criterion for 2006 was 290,366; for 2005 was
176,900; and for 2004 was 25,000.
Components
of accumulated other comprehensive income (loss) consist of the
following:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Balance
at beginning of period
|
|
$
|
332
|
|
$
|
349
|
|
$
|
(406
|
)
|
Foreign
currency translation adjustments - net of tax
|
|
|
631
|
|
|
293
|
|
|
348
|
|
Change
in unrealized gains (losses) on marketable securities - net of
tax
|
|
|
-
|
|
|
-
|
|
|
407
|
|
Change
in minimum pension liability - net of tax
|
|
|
537
|
|
|
(310
|
)
|
|
-
|
|
Adjustment
to initially apply FASB 158, net of tax
|
|
|
(4,562
|
)
|
|
-
|
|
|
-
|
|
Balance
at end of period
|
|
$
|
(3,062
|
)
|
$
|
332
|
|
$
|
349
|
|
In
May
1997, the Corporation registered 400,000 shares of its common stock under its
1997 Equity Plan for Non-Employee Directors. This plan permits the Corporation
to issue to its non-employee directors options to purchase shares of Corporation
common stock, restricted stock of the Corporation, and awards of Corporation
common stock. The plan also permits non-employee directors to elect to receive
all or a portion of their annual retainers and other compensation in the form
of
shares of Corporation common stock. During 2006, 2005, and 2004, 13,947; 13,621;
and 10,738 shares of Corporation common stock were issued under the plan,
respectively.
Cash
dividends declared and paid per share for each year are:
(In
dollars)
|
|
2006
|
|
2005
|
|
2004
|
|
Common
shares
|
|
$
|
.72
|
|
$
|
.62
|
|
$
|
.56
|
|
During
2002, shareholders approved the 2002 Members’ Stock Purchase Plan. Under the
plan, 800,000 shares of common stock were registered for issuance to
participating members. Beginning on June 30, 2002, rights to purchase stock
are
granted on a quarterly basis to all members who have one year of employment
eligibility and work a minimum of 20 hours a week. The price of the stock
purchased under the plan is 85% of the closing price on the applicable purchase
date. No member may purchase stock under the plan in an amount which exceeds
the
lesser of 20% of his/her gross earnings or a maximum fair value of $25,000
in
any calendar year. During 2006, 114,397 shares of common stock were issued
under
the plan at an average price of $40.03. During 2005, 77,410 shares of common
stock were issued under the plan at an average price of $44.87. During 2004,
73,921 shares of common stock were issued under the plan at an average price
of
$34.70. An additional 407,616 shares were available for issuance under the
plan
at December 30, 2006.
The
Corporation has granted rights to purchase shares of the Corporation’s common
stock pursuant to a shareholders’ rights plan. The rights become exercisable in
connection with certain acquisitions of 20%
or more
of the Corporation’s common
stock by any person or group in a transaction not approved by the Corporation’s
Board of Directors. Each right entitles its holder to purchase shares of common
stock of the Corporation with a market value of $400
at a
price of $200, unless the Board authorizes the rights be redeemed. The rights
may be redeemed for $0.01 per right at any time before the rights become
exercisable. In certain instances, the right to purchase applies to the capital
stock of the acquirer instead of the common stock of the Corporation. The
Corporation has reserved preferred shares necessary for issuance should the
rights be exercised. The rights are scheduled to expire on August 20,
2008.
The
Corporation has entered into change in control employment agreements with
corporate officers and certain other key employees.
According to the agreements, a change in control occurs when a
third
person or entity becomes the beneficial owner of 20% or more of the
Corporation’s common stock when more than one-third of the Corporation’s Board
of Directors is composed of persons not
recommended by at least three-fourths of the incumbent Board of
Directors, upon certain business combinations involving the Corporation or
upon
approval by the Corporation’s shareholders of a complete liquidation or
dissolution. Upon a change in control, a key employee is deemed to have a
two-year employment with the Corporation, and all of his or her benefits vest
under the Corporation compensation plans. If, at any time within two years
of
the change in control, his or her employment
is terminated by the Corporation for any reason other than cause or disability,
or by the key employee for good reason, as such terms are defined in the
agreement, then the key employee is entitled to receive, among other benefits,
a
severance payment equal to two times annual salary and the average of the prior
two years’ bonuses.
Stock-Based
Compensation
Under
the
Corporation’s 1995 Stock-Based Compensation Plan (the “Plan”), as amended
effective August 8, 2006, the Corporation may award options to purchase shares
of the Corporation’s common stock and grant other stock awards to executives,
managers, and key personnel. As of September 30, 2006 there are approximately
2.5 million shares available for future issuance under the Plan. The Plan is
administered by the Human Resources and Compensation Committee of the Board
of
Directors. Restricted stock awarded under the Plan is expensed ratably over
the
vesting period of the awards. Stock options awarded to employees under the
Plan
must be at exercise prices equal to or exceeding the fair market value of the
Corporation’s common stock on the date of grant. Stock options are generally
subject to four-year cliff vesting and must be exercised within 10 years from
the date of grant.
The
Corporation also has a shareholder approved Members’ Stock Purchase Plan (the
“MSP Plan”). The price of the stock purchased under the MSP Plan is 85% of the
closing price on the applicable purchase date. During 2006, 114,397 shares
of
the Corporation’s common stock were issued under the MSP Plan at an average
price of $40.03.
The
Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 123(R), “Share-Based Payment” (“SFAS 123(R)”), beginning January
1, 2006, using the modified prospective transition method. This statement
requires the Corporation to measure the cost of employee services in exchange
for an award of equity instruments based on the grant-date fair value of the
award and to recognize cost over the requisite service period. Under the
modified prospective transition method, financial statements for periods prior
to the date of adoption are not adjusted for the change in
accounting.
Prior
to
January 1, 2006, the Corporation used the intrinsic value method to account
for
stock-based employee compensation under Accounting Principles Board Opinion
No.
25, “Accounting for Stock Issued to Employees,” and therefore did not recognize
compensation expense in association with options granted at or above the market
price of common stock at the date of grant.
As
a
result of adopting the new standard, earnings before income taxes for the year
ended December 30, 2006 decreased by $3.2 million, and net earnings decreased
by
$2.1 million, or $.04 per basic share and $.04 per diluted share. These results
reflect stock compensation expense of $3.2 million and tax benefits of $1.1
million for the period.
Adoption
of the new standard also affected the presentation of cash flows. The change
is
related to tax benefits associated with tax deductions that exceed the amount
of
compensation expense recognized in the financial statements. For the year ended
December 30, 2006, cash flow from operating activities was reduced by $0.9
million and cash flow from financing activities was increased by $0.9 million
as
a result of the new standard.
Concurrent
with the adoption of the new statement, the Corporation began to use the
non-substantive vesting period approach for attributing stock compensation
to
individual periods. The nominal vesting period approach was used in determining
the stock compensation expense for the Corporation’s pro forma net earnings
disclosure for the years ended December 31, 2005, and January 1, 2005, as
presented in the table below. The change in the attribution method will not
affect the ultimate amount of stock compensation expense recognized, but it
has
accelerated the recognition of such expense for non-substantive vesting
conditions, such as retirement eligibility provisions. Under both approaches,
the Corporation elected to recognize stock compensation on a straight-line
basis.
The
following table presents a reconciliation of reported net earnings and per
share
information to pro forma net earnings and per share information that would
have
been reported if the fair value method had been used to account for stock-based
employee compensation last year:
(In
millions, except for per share data)
|
|
2005
|
|
2004
|
|
Net
income, as reported
|
|
$
|
137.4
|
|
$
|
113.6
|
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
|
|
1.8
|
|
|
5.0
|
|
Pro
forma net income
|
|
$
|
135.6
|
|
$
|
108.6
|
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
- as reported
|
|
$
|
2.51
|
|
$
|
1.99
|
|
Basic
- pro forma
|
|
$
|
2.48
|
|
$
|
1.90
|
|
Diluted
- as reported
|
|
$
|
2.50
|
|
$
|
1.97
|
|
Diluted
- pro forma
|
|
$
|
2.47
|
|
$
|
1.89
|
|
The
stock
compensation expense for the year ended December 30, 2006 and the stock
compensation expense used in the preceding disclosure of pro forma earnings
for
the years ended December 31, 2005 and January 1, 2005 was estimated on the
date
of grant using the Black-Scholes option-pricing model that used the following
assumptions by grant year:
|
Year
Ended
Dec.
30, 2006
|
Year
Ended
Dec.
31, 2005
|
Year
Ended
Jan.
1, 2005
|
Expected
term
|
7
years
|
7
years
|
7
years
|
Expected
volatility:
|
|
|
|
Range
used
|
29.75%
- 31.23%
|
31.77%
- 33.49%
|
34.81%
- 35.13%
|
Weighted-average
|
31.21%
|
33.47%
|
35.12%
|
Expected
dividend yield:
|
|
|
|
Range
used
|
1.24%
- 1.43%
|
1.17%
- 1.45%
|
1.31%
- 1.49%
|
Weighted-average
|
1.24%
|
1.45%
|
1.32%
|
Risk-free
interest rate:
|
|
|
|
Range
used
|
4.62%
- 5.08%
|
4.21%
- 4.57%
|
4.36%
- 4.80%
|
Expected
volatilities are based on historical volatility due to the fact that they
Corporation did not feel that future volatility over the expected term of the
options is likely to differ from the past. The Corporation used a simple-average
calculation method based on monthly frequency points for the prior seven years.
The Corporation used the current dividend yield as there are no plans to
substantially increase or decrease its dividends. The Corporation elected to
use
the simplified method as allowed by Staff Accounting Bulletin No. 107 “Share
Based Payment” (“SAB No. 107”) to determine the expected term since the awards
qualified as “plain vanilla” options as defined in SAB No. 107. The risk-free
interest rate was selected based on yields from U.S. Treasury zero-coupon issues
with a remaining term equal to the expected term of the options being
valued.
The
following table summarizes the changes in outstanding stock options since the
beginning of fiscal 2004.
|
|
Number
of Shares
|
|
Weighted-Average
Exercise Price
|
|
Outstanding
at January 3, 2004
|
|
|
1,469,250
|
|
$
|
24.15
|
|
Granted
|
|
|
340,900
|
|
|
39.59
|
|
Exercised
|
|
|
(448,500
|
)
|
|
22.33
|
|
Forfeited
|
|
|
(53,200
|
)
|
|
27.61
|
|
Outstanding
at January 1, 2005
|
|
|
1,308,450
|
|
$
|
28.65
|
|
Granted
|
|
|
175,800
|
|
|
42.81
|
|
Exercised
|
|
|
(331,500
|
)
|
|
25.14
|
|
Forfeited
|
|
|
(24,100
|
)
|
|
30.95
|
|
Outstanding
at December 31, 2005
|
|
|
1,128,650
|
|
$
|
31.84
|
|
Granted
|
|
|
135,946
|
|
|
58.06
|
|
Exercised
|
|
|
(68,500
|
)
|
|
22.51
|
|
Forfeited
|
|
|
(22,480
|
)
|
|
39.91
|
|
Outstanding
at December 30, 2006
|
|
|
1,173,616
|
|
$
|
35.27
|
|
A
summary
of the Corporation’s nonvested shares as of December 30, 2006 and changes during
the year are presented below:
Nonvested
Shares
|
|
Shares
|
|
Weighted-Average
Grant-Date Fair Value
|
|
Nonvested
at December 31, 2005
|
|
|
695,400
|
|
$
|
14.07
|
|
Granted
|
|
|
135,946
|
|
|
21.39
|
|
Vested
|
|
|
(142,900
|
)
|
|
11.91
|
|
Forfeited
|
|
|
(22,480
|
)
|
|
15.90
|
|
Nonvested
at December 30, 2006
|
|
|
665,966
|
|
$
|
15.97
|
|
At
December 30, 2006, there was $4.2 million of unrecognized compensation cost
related to nonvested awards, which the Corporation expects to recognize over
a
weighted-average period of 1.3 years. Information about stock options that
are
vested or expected to vest and that are exercisable at December 30, 2006,
follows:
Options
|
|
Number
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining Life in Years
|
|
Aggregate
Intrinsic Value ($000s)
|
|
Vested
or expected to vest
|
|
|
1,138,296
|
|
$
|
34.95
|
|
|
5.3
|
|
$
|
10,768
|
|
Exercisable
|
|
|
507,650
|
|
$
|
28.57
|
|
|
2.6
|
|
$
|
8,041
|
|
The
weighted-average grant-date fair value of options granted was $21.39, $15.74,
and $17.70 for 2006, 2005, and 2004, respectively. Other information for the
year follows:
|
|
Year
ended
|
|
(In
thousands)
|
|
Dec.
30, 2006
|
|
Dec.
31, 2005
|
|
Jan.
1, 2005
|
|
Total
fair value of shares vested
|
|
$
|
1,702
|
|
$
|
875
|
|
$
|
9,242
|
|
Total
intrinsic value of options exercised
|
|
|
1,987
|
|
|
8,447
|
|
|
8,100
|
|
Cash
received from exercise of stock options
|
|
|
1,542
|
|
|
8,334
|
|
|
10,014
|
|
Tax
benefit realized from exercise of stock options
|
|
|
725
|
|
|
2,999
|
|
|
2,956
|
|
Retirement
Benefits
The
Corporation has defined contribution profit-sharing plans covering substantially
all employees who are not participants in certain defined benefit plans. The
Corporation’s annual contribution to the defined contribution plans is based on
employee eligible earnings and results of operations and amounted to $28.2
million, $27.4 million, and $27.3 million, in 2006, 2005, and 2004,
respectively.
The
Corporation sponsors defined benefit plans which include a limited number of
salaried and hourly employees at certain subsidiaries. The Corporation’s funding
policy is generally to contribute annually the minimum actuarially computed
amount. Net pension costs relating to these plans were $0, $653,000, and $0,
in
2006, 2005, and 2004, respectively. The increase in 2005 is due to a plan
curtailment resulting from the shutdown of an office furniture facility in
Van
Nuys, California. The actuarial present value of obligations, less related
plan
assets at fair value, is not significant.
The
Corporation also participates in a multi-employer plan, which provides defined
benefits to certain of the Corporation’s union employees. Pension expense for
this plan amounted to $352,000, $353,000, and $322,000, in 2006, 2005, and
2004,
respectively.
Postretirement
Health Care
The
Corporation adopted SFAS No. 158 “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No.
87,
88, 106, and 132(R)” for its 2006 year-end financial statement and recognized on
the 2006 balance sheet the funded status of other postretirement benefit plans.
The following table provides the information required by SFAS No. 158. The
table
also provides the funded status of the plan, reconciled to the accrued
postretirement benefits costs recognized in the Corporation’s balance sheets for
the years prior to the adoption of the new standard.
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Change
in benefit obligation
|
|
Benefit
obligation at beginning of year
|
|
$
|
19,738
|
|
$
|
18,958
|
|
$
|
18,331
|
|
Service
cost
|
|
|
326
|
|
|
303
|
|
|
284
|
|
Interest
cost
|
|
|
1,053
|
|
|
1,057
|
|
|
1,066
|
|
Benefits
paid
|
|
|
(1,218
|
)
|
|
(1,503
|
)
|
|
(1,780
|
)
|
Actuarial
(gain) or loss
|
|
|
(817
|
)
|
|
923
|
|
|
1,057
|
|
Benefit
obligation at end of year
|
|
$
|
19,082
|
|
$
|
19,738
|
|
$
|
18,958
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets
|
Fair
value at beginning of year
|
|
$
|
7,582
|
|
$
|
8,777
|
|
$
|
10,250
|
|
Actual
return on assets
|
|
|
326
|
|
|
300
|
|
|
112
|
|
Employer
contributions
|
|
|
3
|
|
|
8
|
|
|
195
|
|
Benefits
paid
|
|
|
(1,218
|
)
|
|
(1,503
|
)
|
|
(1,780
|
)
|
Fair
value at end of year
|
|
$
|
6,693
|
|
$
|
7,582
|
|
$
|
8,777
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
Status of Plan
|
|
$
|
(12,388
|
)
|
$
|
(12,156
|
)
|
$
|
(10,181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in the Statement of Financial Position consist
of:
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$
|
0
|
|
|
*
|
|
|
*
|
|
Noncurrent
liabilities
|
|
$
|
12,388
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in Accumulated Other Comprehensive Income (before tax)
consist
of:
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
Actuarial (Gain)/Loss
|
|
$
|
2,069
|
|
|
*
|
|
|
*
|
|
Unrecognized
Transition (Asset)/Obligation
|
|
|
3,618
|
|
|
*
|
|
|
*
|
|
Unrecognized
prior service cost
|
|
|
431
|
|
|
*
|
|
|
*
|
|
|
|
$
|
6,118
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Accumulated Other Comprehensive Income (before
tax):
|
|
|
|
|
|
|
|
|
|
|
Amount
disclosed at beginning of year
|
|
$
|
0
|
|
|
*
|
|
|
*
|
|
Change
during year prior to SFAS 158 adoption
|
|
|
0
|
|
|
*
|
|
|
*
|
|
Change
due to the adoption of SFAS 158
|
|
|
6,118
|
|
|
*
|
|
|
*
|
|
Amount
disclosed at end of year
|
|
$
|
6,118
|
|
|
*
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of funded status
|
Funded
status
|
|
|
N/A
|
|
$
|
(12,156
|
)
|
$
|
(10,181
|
)
|
Unrecognized
actuarial (gain) or loss
|
|
|
N/A
|
|
|
3,132
|
|
|
2,340
|
|
Unrecognized
transition obligation or (asset)
|
|
|
N/A
|
|
|
4,199
|
|
|
4,780
|
|
Unrecognized
prior service cost
|
|
|
N/A
|
|
|
661
|
|
|
892
|
|
Net
amount recognized at year-end
|
|
|
N/A
|
|
$
|
(4,164
|
)
|
$
|
(2,169
|
)
|
Estimated
Future Benefit Payments (In
thousands)
|
|
Fiscal
2007
|
|
$
|
1,376
|
|
Fiscal
2008
|
|
|
1,344
|
|
Fiscal
2009
|
|
|
1,335
|
|
Fiscal
2010
|
|
|
1,332
|
|
Fiscal
2011
|
|
|
1,331
|
|
Fiscal
2012 - 2016
|
|
|
7,321
|
|
|
|
|
|
|
Expected
Contributions During Fiscal 2007
|
|
|
|
|
Total
|
|
$
|
0
|
|
Plan
Assets - Percentage of Fair Value by Category
|
|
|
|
2006
|
|
2005
|
|
2004
|
|
Cash
Equivalents
|
|
|
1
|
%
|
|
0
|
%
|
|
0
|
%
|
Equity
|
|
|
25
|
%
|
|
0
|
%
|
|
0
|
%
|
Debt
|
|
|
74
|
%
|
|
0
|
%
|
|
0
|
%
|
Other
|
|
|
0
|
%
|
|
100
|
%
|
|
100
|
%
|
Total
|
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
The
Corporation invested these funds in high-grade money market instruments in
2005
and 2004.
The
discount rates at fiscal year-end 2006, 2005, and 2004, were 5.8%, 5.5%, and
5.75%, respectively. The Corporation payment for these benefits has reached
the
maximum amounts per the plan; therefore, healthcare trend rates have no impact
on the Corporation’s cost.
Components
of Net Periodic Postretirement Benefit Cost (in
thousands)
|
|
|
2007
|
|
Service
cost
|
|
$
|
481
|
|
Interest
cost
|
|
|
1,067
|
|
Expected
return on assets
|
|
|
(240
|
)
|
Amortization
of unrecognized net (gain)/loss
|
|
|
13
|
|
Amortization
of unrecognized transition (asset)/obligation
|
|
|
581
|
|
Amortization
of unrecognized prior service cost
|
|
|
230
|
|
Net
periodic postretirement benefit cost/(income)
|
|
$
|
2,132
|
|
A
discount rate of 5.8% and an expected long-term return on plan assets of 4.0%
were used to determine net periodic benefit cost for 2007.
In
May
2004, the FASB issued FASB Staff Position No. 106-2, “Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003” (“FSP 106-2”). The Corporation adopted FSP 106-2 on
July 4, 2004. The Corporation has determined that the benefits provided by
the
plan are not actuarially equivalent to the Medicare Part D benefit under the
Modernization Act based on the percentage of the cost of the plan that the
Corporation provides. Therefore, the adoption of FSP 106-2 did not have an
impact on the Corporation’s financial statements during 2004. The Corporation
will continue to monitor the effect as regulations evolve regarding actuarial
equivalency.
Leases
The
Corporation leases certain warehouse, plant facilities, and equipment.
Commitments for minimum rentals under non-cancelable leases at the end of 2006
are as follows:
(In
thousands)
|
|
Capitalized
Leases
|
|
Operating
Leases
|
|
2007
|
|
$
|
211
|
|
$
|
31,001
|
|
2008
|
|
|
211
|
|
|
27,740
|
|
2009
|
|
|
211
|
|
|
24,407
|
|
2010
|
|
|
211
|
|
|
21,516
|
|
2011
|
|
|
168
|
|
|
17,164
|
|
Thereafter
|
|
|
-
|
|
|
19,402
|
|
Total
minimum lease payments
|
|
|
1,012
|
|
$
|
141,230
|
|
Less:
amount representing interest
|
|
|
197
|
|
|
|
|
Present
value of net minimum lease payments, including current maturities
of
$141
|
|
$
|
815
|
|
|
|
|
Property,
plant, and equipment at year-end include the following amounts for capitalized
leases:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Buildings
|
|
$
|
3,299
|
|
$
|
3,299
|
|
$
|
3,299
|
|
Machinery
and equipment
|
|
|
-
|
|
|
38
|
|
|
196
|
|
Office
equipment
|
|
|
-
|
|
|
761
|
|
|
761
|
|
|
|
|
3,299
|
|
|
4,098
|
|
|
4,256
|
|
Less:
allowances for depreciation
|
|
|
2,954
|
|
|
3,564
|
|
|
3,307
|
|
|
|
$
|
345
|
|
$
|
534
|
|
$
|
949
|
|
Rent
expense for the years 2006, 2005, and 2004, amounted to approximately $32.1
million, $19.5 million, and $16.1 million, respectively. The Corporation has
an
operating lease for a production facility with annual rentals totaling
approximately $371,000 with a corporation in which the minority owner of one
of
the Corporation’s consolidated subsidiaries is an investor. Contingent rent
expense under both capitalized and operating leases (generally based on mileage
of transportation equipment) amounted to $165,000, $169,000, and $241,000,
for
the years 2006, 2005, and 2004, respectively.
Guarantees,
Commitments and Contingencies
The
Corporation utilizes letters of credit in the amount of $25 million to back
certain financing instruments, insurance policies and payment obligations.
The
letters of credit reflect fair value as a condition of their underlying purpose
and are subject to fees competitively determined.
The
Corporation is involved in various kinds of disputes and legal proceedings
that
have arisen in the course of its business, including pending litigation,
preferential payment claims in customer bankruptcies, environmental remediation,
taxes, and other claims. It is the Corporation’s opinion, after consultation
with legal counsel, that additional liabilities, if any, resulting from these
matters are not expected to have a material adverse effect on the Corporation’s
quarterly or annual operating results and cash flows when resolved in a future
period.
Significant
Customer
One
office furniture customer accounted for approximately 12%, 12%, and 13% of
consolidated net sales in 2006, 2005, and 2004, respectively.
Operating
Segment Information
In
accordance with SFAS No. 131, “Disclosures about Segments of an Enterprise and
Related Information,” management views the Corporation as being in two operating
segments: office furniture and hearth products, with the former being the
principal segment. The 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, and
wood burning fireplaces, inserts, stoves, facings, and accessories, principally
for the home.
For
purposes of segment reporting, intercompany sales transfers between segments
are
not material, and operating profit is income before income taxes exclusive
of
certain unallocated corporate expenses. These unallocated corporate expenses
include the net costs of the Corporation’s corporate operations, interest
income, and interest expense. Management views interest income and expense
as
corporate financing costs and not as an operating 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, 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 consolidated financial statements
for the years ended 2006, 2005, and 2004, is as follows for continuing
operations:
(In
thousands)
|
|
2006
|
|
2005
|
|
2004
|
|
Net
sales:
|
|
|
|
|
|
|
|
Office
furniture
|
|
$
|
2,077,040
|
|
$
|
1,838,386
|
|
$
|
1,561,765
|
|
Hearth
products
|
|
|
602,763
|
|
|
594,930
|
|
|
522,670
|
|
|
|
$
|
2,679,803
|
|
$
|
2,433,316
|
|
$
|
2,084,435
|
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
Office
furniture (a)(b)
|
|
$
|
181,811
|
|
$
|
177,487
|
|
$
|
155,019
|
|
Hearth
products
|
|
|
58,699
|
|
|
74,822
|
|
|
62,158
|
|
Total
operating profit
|
|
|
240,510
|
|
|
252,309
|
|
|
217,177
|
|
Unallocated
corporate expenses
|
|
|
(47,105
|
)
|
|
(36,424
|
)
|
|
(38,185
|
)
|
Income
before income taxes
|
|
$
|
193,405
|
|
$
|
215,885
|
|
$
|
178,992
|
|
Depreciation
and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$
|
48,753
|
|
$
|
43,967
|
|
$
|
45,737
|
|
Hearth
products
|
|
|
16,559
|
|
|
15,275
|
|
|
15,061
|
|
General
corporate
|
|
|
4,191
|
|
|
6,272
|
|
|
5,905
|
|
|
|
$
|
69,503
|
|
$
|
65,514
|
|
$
|
66,703
|
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$
|
42,126
|
|
$
|
27,760
|
|
$
|
18,635
|
|
Hearth
products
|
|
|
11,093
|
|
|
8,498
|
|
|
13,878
|
|
General
corporate
|
|
|
6,705
|
|
|
5,544
|
|
|
3,287
|
|
|
|
$
|
59,924
|
|
$
|
41,802
|
|
$
|
35,800
|
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$
|
748,285
|
|
$
|
617,591
|
|
$
|
570,294
|
|
Hearth
products
|
|
|
359,646
|
|
|
361,568
|
|
|
338,602
|
|
General
corporate
|
|
|
118,428
|
|
|
161,112
|
|
|
112,761
|
|
|
|
$
|
1,226,359
|
|
$
|
1,140,271
|
|
$
|
1,021,657
|
|
|
(a)
|
Included
in operating profit for the office furniture segment are pretax charges
of
$2.8 million, $3.5 million, and $0.9 million, for closing of facilities
and impairment charges in 2006, 2005, and 2004,
respectively.
|
|
(b)
|
Includes
minority interest.
|
Summary
of Quarterly Results of Operations (Unaudited)
The
following table presents certain unaudited quarterly financial information
for
each of the past 12 quarters. In the opinion of the Corporation’s management,
this information has been prepared on the same basis as the consolidated
financial statements appearing elsewhere in this report and includes all
adjustments (consisting only of normal recurring accruals) necessary to present
fairly the financial results set forth herein. Results of operations for any
previous quarter are not necessarily indicative of results for any future
period.
Year-End
2006:
(In
thousands, except per share data)
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Net
sales
|
|
$
|
645,565
|
|
$
|
667,706
|
|
$
|
684,317
|
|
$
|
682,215
|
|
Cost
of products sold
|
|
|
416,610
|
|
|
434,060
|
|
|
447,587
|
|
|
454,625
|
|
Gross
profit
|
|
|
228,955
|
|
|
233,646
|
|
|
236,730
|
|
|
227,590
|
|
Selling
and administrative expenses
|
|
|
181,188
|
|
|
184,806
|
|
|
176,134
|
|
|
175,548
|
|
Restructuring
related charges (income)
|
|
|
1,719
|
|
|
228
|
|
|
(27
|
)
|
|
909
|
|
Operating
income
|
|
|
46,408
|
|
|
48,612
|
|
|
60,623
|
|
|
51,133
|
|
Interest
income (expense) - net
|
|
|
(1,108
|
)
|
|
(3,425
|
)
|
|
(4,111
|
)
|
|
(4,540
|
)
|
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
44,940
|
|
|
45,187
|
|
|
56,512
|
|
|
46,593
|
|
Income
taxes (1)
|
|
|
16,403
|
|
|
16,493
|
|
|
20,627
|
|
|
10,147
|
|
Minority
interest in earnings of a subsidiary
|
|
|
(39
|
)
|
|
(22
|
)
|
|
(24
|
)
|
|
(25
|
)
|
Income
from continuing operations
|
|
|
28,576
|
|
|
28,716
|
|
|
35,909
|
|
|
36,471
|
|
Discontinued
operations, less applicable taxes
|
|
|
(106
|
)
|
|
(64
|
)
|
|
(147
|
)
|
|
(5,980
|
)
|
Net
income
|
|
$
|
28,470
|
|
$
|
28,652
|
|
$
|
35,762
|
|
$
|
30,491
|
|
Net
income from continuing operations - basic
|
|
$
|
.55
|
|
$
|
.56
|
|
$
|
.73
|
|
$
|
.76
|
|
Net
income from discontinued operations - basic
|
|
|
(.00
|
)
|
|
(.00
|
)
|
|
(.00
|
)
|
|
(.13
|
)
|
Net
income per common share - basic
|
|
$
|
.55
|
|
$
|
.56
|
|
$
|
.73
|
|
$
|
.63
|
|
Weighted-average
common shares outstanding - basic
|
|
|
51,836
|
|
|
51,009
|
|
|
49,324
|
|
|
48,069
|
|
Net
income from continuing operations - diluted
|
|
$
|
.55
|
|
$
|
.56
|
|
$
|
.72
|
|
$
|
.75
|
|
Net
income from discontinued operations - diluted
|
|
|
(.00
|
)
|
|
(.00
|
)
|
|
(.00
|
)
|
|
(.12
|
)
|
Net
income per common share - diluted
|
|
$
|
.55
|
|
$
|
.56
|
|
$
|
.72
|
|
$
|
.63
|
|
Weighted-average
common shares outstanding - diluted
|
|
|
52,229
|
|
|
51,339
|
|
|
49,592
|
|
|
48,363
|
|
As
a Percentage of Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Gross
profit
|
|
|
35.5
|
|
|
35.0
|
|
|
34.6
|
|
|
33.4
|
|
Selling
and administrative expenses
|
|
|
28.1
|
|
|
27.7
|
|
|
25.7
|
|
|
25.7
|
|
Restructuring
related charges
|
|
|
0.3
|
|
|
0.0
|
|
|
(0.0
|
)
|
|
0.1
|
|
Operating
income
|
|
|
7.2
|
|
|
7.3
|
|
|
8.9
|
|
|
7.5
|
|
Income
taxes
|
|
|
2.5
|
|
|
2.5
|
|
|
3.0
|
|
|
1.5
|
|
Income
from continuing operations
|
|
|
4.4
|
|
|
4.3
|
|
|
5.2
|
|
|
5.3
|
|
Discontinued
operations, less applicable taxes
|
|
|
(0.0
|
)
|
|
(0.0
|
)
|
|
(0.0
|
)
|
|
(0.9
|
)
|
Net
income
|
|
|
4.4
|
|
|
4.3
|
|
|
5.2
|
|
|
4.5
|
|
(1)
|
The
Corporation recorded a $4.1 million tax benefit in the 4th
quarter of 2006 as discussed in the “Income Taxes” footnote to the
financial statements.
|
Year-End
2005:
(In
thousands, except per share data)
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Net
sales
|
|
$
|
558,168
|
|
$
|
589,620
|
|
$
|
628,291
|
|
$
|
657,237
|
|
Cost
of products sold
|
|
|
363,139
|
|
|
376,169
|
|
|
393,200
|
|
|
416,967
|
|
Gross
profit
|
|
|
195,029
|
|
|
213,451
|
|
|
235,091
|
|
|
240,270
|
|
Selling
and administrative expenses
|
|
|
154,244
|
|
|
158,936
|
|
|
170,837
|
|
|
179,650
|
|
Restructuring
related charges
|
|
|
-
|
|
|
-
|
|
|
1,071
|
|
|
2,391
|
|
Operating
income
|
|
|
40,785
|
|
|
54,515
|
|
|
63,183
|
|
|
58,229
|
|
Interest
income (expense) - net
|
|
|
55
|
|
|
98
|
|
|
(498
|
)
|
|
(492
|
)
|
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
40,840
|
|
|
54,613
|
|
|
62,685
|
|
|
57,737
|
|
Income
taxes
|
|
|
14,498
|
|
|
19,386
|
|
|
22,251
|
|
|
21,580
|
|
Minority
interest in earnings of a subsidiary
|
|
|
-
|
|
|
-
|
|
|
(11
|
)
|
|
5
|
|
Income
from continuing operations
|
|
|
26,342
|
|
|
35,227
|
|
|
40,445
|
|
|
36,152
|
|
Discontinued
operations, less applicable taxes
|
|
|
(220
|
)
|
|
(242
|
)
|
|
116
|
|
|
(400
|
)
|
Net
income
|
|
$
|
26,122
|
|
$
|
34,985
|
|
$
|
40,561
|
|
$
|
35,752
|
|
Net
income from continuing operations - basic
|
|
$
|
.48
|
|
$
|
.64
|
|
$
|
.74
|
|
$
|
.68
|
|
Net
income from discontinued operations - basic
|
|
|
(.01
|
)
|
|
(.01
|
)
|
|
.00
|
|
|
(.01
|
)
|
Net
income per common share - basic
|
|
$
|
.47
|
|
$
|
.63
|
|
$
|
.74
|
|
$
|
.67
|
|
Weighted-average
common shares outstanding - basic
|
|
|
55,176
|
|
|
55,131
|
|
|
55,012
|
|
|
53,278
|
|
Net
income from continuing operations - diluted
|
|
$
|
.47
|
|
$
|
.63
|
|
$
|
.73
|
|
$
|
.67
|
|
Net
income from discontinued operations - diluted
|
|
|
(.00
|
)
|
|
(.00
|
)
|
|
.00
|
|
|
(.00
|
)
|
Net
income per common share - diluted
|
|
$
|
.47
|
|
$
|
.63
|
|
$
|
.73
|
|
$
|
.67
|
|
Weighted-average
common shares outstanding - diluted
|
|
|
55,551
|
|
|
55,513
|
|
|
55,447
|
|
|
53,693
|
|
As
a Percentage of Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Gross
profit
|
|
|
34.9
|
|
|
36.2
|
|
|
37.4
|
|
|
36.6
|
|
Selling
and administrative expenses
|
|
|
27.6
|
|
|
27.0
|
|
|
27.2
|
|
|
27.3
|
|
Restructuring
related charges
|
|
|
-
|
|
|
-
|
|
|
0.2
|
|
|
0.4
|
|
Operating
income
|
|
|
7.3
|
|
|
9.2
|
|
|
10.1
|
|
|
8.9
|
|
Income
taxes
|
|
|
2.6
|
|
|
3.3
|
|
|
3.5
|
|
|
3.3
|
|
Income
from continuing operations
|
|
|
4.7
|
|
|
6.0
|
|
|
6.4
|
|
|
5.5
|
|
Discontinued
operations, less applicable taxes
|
|
|
(0.0
|
)
|
|
(0.0
|
)
|
|
0.0
|
|
|
(0.1
|
)
|
Net
income
|
|
|
4.7
|
|
|
5.9
|
|
|
6.5
|
|
|
5.4
|
|
Year-End
2004:
(In
thousands, except per share data)
|
|
First
Quarter
|
|
Second
Quarter
|
|
Third
Quarter
|
|
Fourth
Quarter
|
|
Net
sales
|
|
$
|
464,037
|
|
$
|
508,605
|
|
$
|
569,485
|
|
$
|
542,308
|
|
Cost
of products sold
|
|
|
294,275
|
|
|
324,984
|
|
|
364,748
|
|
|
350,770
|
|
Gross
profit
|
|
|
169,762
|
|
|
183,621
|
|
|
204,737
|
|
|
191,538
|
|
Selling
and administrative expenses
|
|
|
134,580
|
|
|
142,579
|
|
|
146,657
|
|
|
146,421
|
|
Restructuring
related charges
|
|
|
520
|
|
|
215
|
|
|
135
|
|
|
16
|
|
Operating
income
|
|
|
34,662
|
|
|
40,827
|
|
|
57,945
|
|
|
45,101
|
|
Interest
income (expense) - net
|
|
|
355
|
|
|
120
|
|
|
(29
|
)
|
|
11
|
|
Earnings
from continuous operations before income taxes
|
|
|
35,017
|
|
|
40,947
|
|
|
57,916
|
|
|
45,112
|
|
Income
taxes
|
|
|
12,606
|
|
|
15,121
|
|
|
21,139
|
|
|
16,466
|
|
Income
from continuous operations
|
|
|
22,411
|
|
|
25,826
|
|
|
36,777
|
|
|
28,646
|
|
Discontinued
operations, less applicable taxes
|
|
|
-
|
|
|
-
|
|
|
(33
|
)
|
|
(45
|
)
|
Net
income
|
|
$
|
22,411
|
|
$
|
25,826
|
|
$
|
36,744
|
|
$
|
28,601
|
|
Net
income from continuing operations - basic
|
|
$
|
.38
|
|
$
|
.45
|
|
$
|
.65
|
|
$
|
.52
|
|
Net
income from discontinued operations - basic
|
|
|
-
|
|
|
-
|
|
|
(.00
|
)
|
|
(.00
|
)
|
Net
income per common share - basic
|
|
$
|
.38
|
|
$
|
.45
|
|
$
|
.65
|
|
$
|
.52
|
|
Weighted-average
common shares outstanding - basic
|
|
|
58,240
|
|
|
57,943
|
|
|
56,192
|
|
|
55,511
|
|
Net
income from continuing operations - diluted
|
|
$
|
.38
|
|
$
|
.44
|
|
$
|
.65
|
|
$
|
.51
|
|
Net
income from discontinued operations - diluted
|
|
|
-
|
|
|
-
|
|
|
(.00
|
)
|
|
(.00
|
)
|
Net
income per common share - diluted
|
|
$
|
.38
|
|
$
|
.44
|
|
$
|
.65
|
|
$
|
.51
|
|
Weighted-average
common shares outstanding - diluted
|
|
|
58,690
|
|
|
58,378
|
|
|
56,635
|
|
|
55,897
|
|
As
a Percentage of Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
Gross
profit
|
|
|
36.6
|
|
|
36.1
|
|
|
36.0
|
|
|
35.3
|
|
Selling
and administrative expenses
|
|
|
29.0
|
|
|
28.0
|
|
|
25.8
|
|
|
27.0
|
|
Restructuring
related charges
|
|
|
0.1
|
|
|
0.0
|
|
|
0.0
|
|
|
0.0
|
|
Operating
income
|
|
|
7.5
|
|
|
8.0
|
|
|
10.2
|
|
|
8.3
|
|
Income
taxes
|
|
|
2.7
|
|
|
3.0
|
|
|
3.7
|
|
|
3.0
|
|
Income
from continuing operations
|
|
|
4.8
|
|
|
5.1
|
|
|
6.5
|
|
|
5.3
|
|
Discontinued
operations, less applicable taxes
|
|
|
-
|
|
|
-
|
|
|
(0.0
|
)
|
|
(0.0
|
)
|
Net
income
|
|
|
4.8
|
|
|
5.1
|
|
|
6.5
|
|
|
5.3
|
|
Common
Stock Market Prices and Dividends (Unaudited)
Quarterly
2006 - 2004
2006
by Quarter
|
|
High
|
|
Low
|
|
Dividends
per Share
|
|
1st
|
|
$
|
61.68
|
|
$
|
54.83
|
|
$
|
.18
|
|
2nd
|
|
|
59.70
|
|
|
44.68
|
|
|
.18
|
|
3rd
|
|
|
46.14
|
|
|
38.34
|
|
|
.18
|
|
4th
|
|
|
48.31
|
|
|
41.05
|
|
|
.18
|
|
Total
Dividends Paid
|
$
|
.72
|
|
2005
by Quarter
|
|
High
|
|
Low
|
|
Dividends
per Share
|
|
1st
|
|
$
|
45.70
|
|
$
|
38.80
|
|
$
|
.155
|
|
2nd
|
|
|
54.23
|
|
|
44.65
|
|
|
.155
|
|
3rd
|
|
|
60.23
|
|
|
50.92
|
|
|
.155
|
|
4th
|
|
|
62.41
|
|
|
46.94
|
|
|
.155
|
|
Total
Dividends Paid
|
$
|
.62
|
|
2004
by Quarter
|
|
High
|
|
Low
|
|
Dividends
per Share
|
|
1st
|
|
$
|
45.71
|
|
$
|
35.25
|
|
$
|
.14
|
|
2nd
|
|
|
42.42
|
|
|
36.56
|
|
|
.14
|
|
3rd
|
|
|
42.13
|
|
|
36.97
|
|
|
.14
|
|
4th
|
|
|
43.65
|
|
|
38.52
|
|
|
.14
|
|
Total
Dividends Paid
|
$
|
.56
|
|
Common
Stock Market Price and Price/Earnings Ratio (Unaudited)
Fiscal
Years 2006 - 2002
|
|
Market
Price
|
|
Diluted
|
|
Price/Earnings
Ratio
|
|
Year
|
|
High
|
|
Low
|
|
Earnings
per Share
|
|
High
|
|
Low
|
|
2006
|
|
$
|
61.68
|
|
$
|
38.34
|
|
$
|
2.45
|
|
|
25
|
|
|
16
|
|
2005
|
|
|
62.41
|
|
|
38.80
|
|
|
2.50
|
|
|
25
|
|
|
16
|
|
2004
|
|
|
45.71
|
|
|
35.25
|
|
|
1.97
|
|
|
23
|
|
|
18
|
|
2003
|
|
|
44.12
|
|
|
24.65
|
|
|
1.68
|
|
|
26
|
|
|
15
|
|
2002
|
|
|
30.85
|
|
|
22.88
|
|
|
1.55
|
|
|
20
|
|
|
15
|
|
Five-Year
Average
|
|
24
|
|
|
16
|
|
SCHEDULE
II -- VALUATION AND QUALIFYING
ACCOUNTS
HNI
CORPORATION AND SUBSIDIARIES
December
30, 2006
COL.
A
|
|
COL.
B
|
|
COL.
C
|
|
COL.
D
|
|
COL.
E
|
|
|
|
|
|
ADDITIONS
|
|
|
|
|
|
DESCRIPTION
|
|
BALANCE
AT
BEGINNING
OF
PERIOD
|
|
(1)
CHARGED
TO
COSTS
AND
EXPENSES
|
|
(2)
CHARGED
TO
OTHER
ACCOUNTS
(DESCRIBE)
|
|
DEDUCTIONS
(DESCRIBE)
|
|
BALANCE
AT END OF PERIOD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 30, 2006:
Allowance
for doubtful accounts
|
|
|
11,977
|
|
|
3,363
|
|
|
-
|
|
|
2,544
(A
|
)
|
|
12,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2005:
Allowance
for doubtful accounts
|
|
|
11,388
|
|
|
3,738
|
|
|
-
|
|
|
3,149
(A
|
)
|
|
11,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended January 1, 2005:
Allowance
for doubtful accounts
|
|
|
10,859
|
|
|
2,784
|
|
|
-
|
|
|
2,255
(A
|
)
|
|
11,388
|
|
Note
A:
Excess of accounts written off over recoveries.
ITEM
15(c) - INDEX OF EXHIBITS
Exhibit
Number
|
Description
of Document
|
|
|
|
|
(3i)
|
Articles
of Incorporation of the Registrant, incorporated by reference to
Exhibit
99.5 to the Registrant’s Current Report on Form 8-K filed May 4, 2004
|
|
|
|
|
(3ii)
|
By-Laws
of the Registrant, as amended, incorporated by reference to Exhibit
3(ii)
to the Registrant’s Current Report on Form 8-K filed November 16,
2006
|
|
|
|
|
(4i)
|
Rights
Agreement dated as of August 13, 1998, by and between the Registrant
and
Harris Trust and Savings Bank, as Rights Agent, incorporated by reference
to Exhibit 4.1 to Registration Statement on Form 8-A filed August
14,
1998, as amended by Form 8-A/A filed September 14, 1998, incorporated
by
reference to Exhibit 4.1 on Form 8-K filed August 10, 1998
|
|
|
|
|
(10i)
|
1995
Stock-Based Compensation Plan, as amended effective August 8, 2006,
incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2006
|
|
|
|
|
(10ii)
|
1997
Equity Plan for Non-Employee Directors, as amended August 8, 2006,
incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended September 30, 2006
|
|
|
|
|
(10iii)
|
Form
of Registrant's Change in Control Agreement as amended November 10,
2006,
incorporated by reference to Exhibit 10.1 to the Registrant's Current
Report on Form 8-K dated November 10, 2006
|
|
|
|
|
(10iv)
|
Executive
Long-Term Incentive Compensation Plan of the Registrant, incorporated
by
reference to Exhibit 99B to the Registrant's Annual Report on Form
10-K
for the year ended December 30, 1995*
|
|
|
|
|
(10v)
|
ERISA
Supplemental Retirement Plan of the Registrant, incorporated by reference
to Exhibit 99C to the Registrant's Annual Report on Form 10-K for
the year
ended December 31, 2005*
|
|
|
|
|
(10vi)
|
2002
Members Stock Purchase Plan of the Registrant, incorporated by reference
to Exhibit B to the Registrant’s proxy statement dated March 22, 2002,
related to the Registrant’s Annual Meeting of Shareholders held on May 6,
2002*
|
|
|
|
|
(10vii)
|
Agreement
as Consultant and Director, dated November 15, 1995, between the
Registrant and Robert L. Katz, incorporated by reference to the same
numbered exhibit filed with the Registrant's Annual Report on Form
10-K/A
for the fiscal year ended December 28, 1996*
|
|
|
|
|
(10viii)
|
Form
of Director and Officer Indemnification Agreement of the Registrant,
incorporated by reference to the same numbered exhibit filed with
the
Registrant's Annual Report on Form 10-K/A for the fiscal year ended
December 28, 2002
|
|
Exhibit
Number
|
Description
of Document
|
|
|
|
|
(10ix)
|
Form
of Common Stock Grant Agreement of the Registrant, incorporated by
reference to the same numbered exhibit filed with the Registrant's
Annual
Report on Form 10-K/A for the fiscal year ended December 28, 1996*
|
|
|
|
|
(10x)
|
Form
of HNI Corporation Stock-Based Compensation Plan Stock Option Award
Agreement of the Registrant, incorporated by reference to Exhibit
99D to
the Registrant’s Current Report on Form 8-K filed February 18,
2005
|
|
|
|
|
(10xi)
|
Stock
Purchase Agreement of the Registrant, dated September 18, 1985, as
amended
by amendment dated February 11, 1991, between the Registrant and
Stanley
M. Howe, incorporated by reference to Exhibit 10(xi) to the Registrant’s
Annual Report on Form 10-K for the year ended January 3,
1998*
|
|
|
|
|
(10xii)
|
Credit
Agreement dated as of January 28, 2005, among HNI Corporation, as
Borrower, certain domestic subsidiaries of the Borrower from time
to time
party thereto, as Guarantors, the lenders parties thereto and Wachovia
Bank, National Association, as Administrative Agent, incorporated
by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed February 2, 2005
|
|
|
|
|
(10xiii)
|
HNI
Corporation Profit-Sharing Retirement Plan of the Registrant as amended
effective January 1, 2001, incorporated by reference to Exhibit 10(xiv)
to
the Registrant’s Annual Report on 10-K for the year ended December 29,
2001*
|
|
|
|
|
(10xiv)
|
HNI
Corporation Long-Term Performance Plan of the Registrant, as amended
on
August 8, 2006, incorporated by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September
30, 2006
|
|
|
|
|
(10xv)
|
First
Amendment to Credit Agreement dated as of December 22, 2005, by and
among
HNI Corporation, as Borrower, certain domestic subsidiaries of HNI
Corporation, as guarantors, certain lenders party thereto and Wachovia
Bank, National Association, as Administrative Agent, incorporated
by
reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K
filed February 17, 2006
|
|
|
|
|
(10xvi)
|
Executive
Deferred Compensation Plan of the Registrant as amended and restated
on
August 8, 2006, incorporated by reference to Exhibit 10.5 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September
30, 2006
|
|
|
|
|
(10xvii)
|
Second
Amendment to Credit Agreement dated as of April 6, 2006, by and among
HNI
Corporation as borrower, certain domestic subsidiaries of HNI Corporation,
as Guarantors, certain lenders party thereto and Wachovia Bank, National
Association, as Administrative Agent is incorporated by reference
to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed April
10, 2006
|
|
|
|
|
(10xviii)
|
Note
Purchase Agreement dated as of April 6, 2006, by and among HNI Corporation
and the Purchasers named therein is incorporated by reference to
Exhibit
10.2 to the Registrant’s Current Report on Form 8-K filed April 10,
2006
|
|
Exhibit
Number
|
Description
of Document
|
|
|
|
|
(10xix)
|
Directors
Deferred Compensation Plan of the Registrant as amended on August
8, 2006,
incorporated by reference to Exhibit 10.6 to the Registrant’s Quarterly
Report on Form 10-Q for the quarter ended September 30,
2006
|
|
|
|
|
(10xx)
|
Third
Amendment to Credit Agreement dated as of November 8, 2006, by and
among
HNI Corporation as borrower, certain domestic subsidiaries of HNI
Corporation, as Guarantors, certain lenders party thereto and Wachovia
Bank, National Association, as Administrative Agent is incorporated
by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed November 8, 2006
|
|
|
|
|
|
Subsidiaries
of the Registrant
|
|
|
|
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
|
|
|
Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
Certification
of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
(99A)
|
Executive
Bonus Plan of the Registrant as amended and restated on August 8,
2006,
incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
2006
|
|
*
|
Indicates
management contract or compensatory
plan.
|
-
77
-