form10k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC
20549
FORM 10-K
(Mark
One)
x
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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 29, 2007
OR
o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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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
Muscatine,
IA 52761-0071
563/272-7400
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. x
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 June 30,
2007, was $1,321,130,331, assuming all 5% holders are affiliates.
The
number of shares outstanding of the registrant's common stock, as of February 1,
2008 was: 44,482,666.
Documents
Incorporated by Reference
Portions
of the registrant's Proxy Statement dated March 19, 2008, for the May 6, 2008,
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
PART
I
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Page
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Item 1.
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4
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Item 1A.
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11
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Item 1B.
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17
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Item 2.
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17
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Item 3.
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19
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Item 4.
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19
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20
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PART
II
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Item 5.
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21
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Item 6.
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22
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Item 7.
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23
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Item 7A.
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32
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Item 8.
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32
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Item 9.
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33
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Item 9A.
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33
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Item 9B.
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33
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PART
III
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Item 10.
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34
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Item 11.
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34
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Item 12.
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34
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Item 13.
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34
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Item 14.
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34
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PART
IV
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Item 15.
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35
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37
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39
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40
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42
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75
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76
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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 and distributors, as well as Corporation-owned
distribution and retail outlets. In fiscal 2007, the Corporation had
net sales of $2.6 billion, of which approximately $2.1 billion or 82% was
attributable to office furniture products and $0.5 billion or 18% 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, 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 (Lamex), 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 2007, the Corporation completed the acquisition of two small office
furniture dealers and a manufacturer of free-standing stoves and fireplace
inserts. The combined purchase price of these acquisitions less cash
acquired was $40.9 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 systematically eliminating
waste 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, and deliver quality,
aesthetics, and style.
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 $11.4
billion in 2007, an increase of 6% compared to 2006, which was a 7% increase
from 2005 levels. The Corporation believes that the increase in 2007
was due to growth in the overall economy, white collar employment, and corporate
profitability.
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 exist to create value. The components of
this growth strategy are to introduce new products, build brand equity, provide
outstanding customer satisfaction by focusing on the end-user, strengthen the
distribution network, respond to global competition, pursue complementary
strategic acquisitions, enter markets not currently served, and continually
reduce costs.
The
Corporation’s strategy has a dual focus: working continuously to
extract new growth from its core markets while identifying and developing new,
adjacent potential areas of growth. The Corporation focuses on
extracting new growth from each of its existing businesses by deepening its
understanding of end users, using new insights gained to refine branding,
selling, and marketing, and developing new products to serve them
better. The Corporation also pursues opportunities in potential
growth drivers outside of, but related to, its core business, such as vertical
markets, new distribution models, or a new business entirely.
Employees/Members
As of
December 29, 2007, the Corporation employed approximately 13,300 persons, 12,600
of whom were full-time and 700 of whom were temporary personnel. The
Corporation employed approximately 300 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,
and pedestals; (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, and
Lamex®, 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 offering 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,
Quadra-Fire®, and
Harman StoveTM 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. Pellet-burning stoves and furnaces in the Quadra-Fire and
Harman product lines provide home heating solutions using renewable fuel, a
green trend that has come to the fore front in home heating and continues to
grow. See “Intellectual Property” under this Item 1. Business for
additional details.
Manufacturing
The
Corporation manufactures office furniture in Alabama, California, Georgia,
Indiana, Iowa, Kentucky, New York, North Carolina, Virginia, and
China. The Corporation manufactures hearth products in Iowa,
Maryland, Minnesota, Washington, California, and Pennsylvania.
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 cost, eliminating
waste, and improving product quality. In 1992, the Corporation
adopted the principles of RCI based on the Toyota Production System, which focus
on developing flexible and efficient design, manufacturing, and administrative
processes that remove excess cost. The Corporation’s lean
manufacturing philosophy leverages the creativity of its members to eliminate
and reduce costs. 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, differentiated and focused on quality,
aesthetics, style, sustainable design, 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
$24.0 million, $27.6 million, and $27.3 million in product development during
fiscal 2007, 2006, and 2005, respectively, and has budgeted in excess of $29
million for product development in fiscal 2008.
Intellectual
Property
As of
December 29, 2007, the Corporation owned 357 U.S. and 315 foreign patents and
had applications pending for 60 U.S. and 150 foreign patents. In
addition, the Corporation holds 159 U.S. and 337 foreign trademark registrations
and has applications pending for 52 U.S. and 91 foreign trademarks.
The
Corporation's principal office furniture products do not require frequent
technical changes. 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. 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
2007, the Corporation’s ten largest customers represented approximately 37% of
its consolidated net sales. One customer, United Stationers Inc.,
accounted for approximately 11% of the Corporation’s consolidated net sales in
fiscal 2007, 12% in fiscal 2006, and 12% in fiscal 2005. 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.
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
business, 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, the
Caribbean, and Middle East. With the acquisition of Lamex in 2006 the
Corporation manufactures and distributes office furniture directly to end users
through independent dealers and distributors in Greater China and
Asia.
Limited
quantities of select finished goods inventories primarily 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 29, 2007, the Corporation had an order backlog of approximately $162.0
million, which will be filled in the ordinary course of business within the
first few weeks of the current fiscal year. This compares with $182.7
million as of December 30, 2006, and $185.4 million as of December 31,
2005. Backlog, in terms of percentage of net sales, was 6.3%, 6.8%,
and 7.6%, for fiscal 2007, 2006, and 2005, 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, solutions, and a
high level of customer service. The Corporation competes with the
large office furniture manufacturers, which control a substantial portion of the
North America 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
Travis Industries, Inc., Lennox International Inc., and CFM Corporation Inc. (a
Canadian company).
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 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 materials and substances into the 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.
The
Corporation’s environmental management system has earned the recognition of
numerous state and federal agencies as well as non-government
organizations. The Corporation’s lean manufacturing philosophy
leverages the creativity of its members to eliminate waste and reduce
cost. Aligning these continuous improvement initiatives creates a
model of the triple bottom line where members work toward shared goals of
personal growth, economic reward, and a healthy environment for the
future.
Over the
past year, the Corporation has expanded its environmental management system and
established metrics to influence product design and development, supplier and
supply chain performance, energy and resource consumption, and the impacts of
its facilities. In addition, the Corporation is providing
sustainability training to senior decision makers and has assigned resources to
documenting and communicating its progress to an evermore sophisticated
market. Integrating sustainable objectives into core business systems
is consistent with the Corporation’s vision and ensures its commitment to being
a sustainable enterprise remains a priority for all members.
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 2008
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
29, 2007, December 30, 2006, and December 31, 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, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Words, such as “anticipate,” “believe,” “could,”
“confident,” “estimate,” “expect,” “forecast,” “hope,” “intend,” “likely,”
“may,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,”
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 Travis Industries, Inc.,
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. Competition from low-cost
Asian imports continues to represent a threat to our current market share in the
office furniture industry.
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 2007, our ten largest customers represented
approximately 37% 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:
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diversion
of management’s attention;
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·
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difficulties
in assimilating the operations and products of an acquired business or in
realizing projected efficiencies, cost savings, and revenue
synergies;
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·
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potential
loss of key employees or customers of the acquired businesses or adverse
effects on existing business relationships with suppliers and
customers;
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·
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adverse
impact on overall profitability if acquired businesses do not achieve the
financial results projected in our valuation
models;
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·
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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;
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·
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inaccurate
assessment of undisclosed, contingent, or other liabilities or problems
and unanticipated costs associated with the acquisition;
and
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·
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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 incur 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. The U.S.
homebuilding industry is currently experiencing a significant downturn, the
duration and ultimate severity of which are uncertain. Further
deterioration of the economic conditions in the homebuilding industry and the
hearth products market could further decrease demand for our hearth products and
have additional adverse effects on our operating results.
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:
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social
and political turmoil, official corruption, and civil
unrest;
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restrictive
government actions, such as the imposition of trade quotas and tariffs and
restrictions on transfers of funds;
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·
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changes
in labor laws and regulations affecting our ability to hire, retain, or
dismiss employees;
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·
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the
need to comply with multiple and potentially conflicting laws and
regulations, including environmental laws and
regulations;
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·
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preference
for locally branded products and laws and business practices favoring
local competition;
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less
effective protection of intellectual
property;
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·
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unfavorable
business conditions or economic instability in any particular country or
region; and
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·
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difficulty
in obtaining distribution and
support.
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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) of
future changes in tax laws or interpretations of such tax laws; (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 could 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:
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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;
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reduced
demand for our storage products caused by changes in office technology,
including the change from paper record storage to electronic record
storage;
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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;
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our
ability to realize cost savings and productivity improvements from our
cost containment, business simplification, manufacturing consolidation,
and logistical realignment
initiatives;
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increased
foreign sourcing of components and finished goods could reduce our level
of manufacturing in the United States and cause us to have excess capacity
issues;
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our
ability to realize financial benefits from our repurchases of common
stock;
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volatility
in the market price and trading volume of equity securities may adversely
affect the market price for our common
stock;
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our
ability to protect our intellectual
property;
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labor
or other manufacturing inefficiencies due to items such as new product
introductions, a new operating system or turnover in
personnel;
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our
ability to effectively manage working
capital;
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future
impairment of assets such as facilities, equipment, intangible assets or
goodwill;
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our
ability to successfully implement information technology
solutions;
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potential
claims by third-parties that we infringed upon their intellectual property
rights;
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our
insurance may not adequately insulate us from expenses for product
defects; and
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our
ability to retain our experienced management team and recruit other key
personnel.
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ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
The
Corporation maintains its corporate headquarters in Muscatine, Iowa, and
conducts its operations at locations throughout the United States, Canada,
China, Hong Kong, and Taiwan, which house manufacturing, distribution, and
retail operations and offices totaling an aggregate of approximately 12.0
million square feet. Of this total, approximately 3.7 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
|
|
|
|
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Cedartown,
Georgia
|
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537,660
|
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Owned
|
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Manufacturing
nonwood casegoods office furniture (1)
|
|
|
|
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|
Chester,
Virginia
|
|
382,082
|
|
Owned/
Leased(2)
|
|
Manufacturing
nonwood casegoods office furniture (1)
|
|
|
|
|
|
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Dongguan,
China
|
|
1,007,716
|
|
Owned
|
|
Manufacturing
wood casegoods office furniture
|
|
|
|
|
|
|
|
Florence,
Alabama
|
|
287,763
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture
|
|
|
|
|
|
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|
Lake
City, Minnesota
|
|
241,500
|
|
Owned
|
|
Manufacturing
metal prefabricated fireplaces (1)
|
|
|
|
|
|
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Lithia
Springs, GA
|
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585,000
|
|
Leased
|
|
Warehousing
office furniture
|
|
|
|
|
|
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|
Mt.
Pleasant, Iowa
|
|
288,006
|
|
Owned
|
|
Manufacturing
metal prefabricated fireplaces (1)
|
|
|
|
|
|
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|
Muscatine,
Iowa
|
|
272,900
|
|
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
|
|
636,250
|
|
Owned
|
|
Manufacturing
nonwood casegoods and systems office furniture(1)
|
|
|
|
|
|
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|
Muscatine,
Iowa
|
|
237,800
|
|
Owned
|
|
Manufacturing
nonwood seating office furniture
|
|
|
|
|
|
|
|
Orleans,
Indiana
|
|
1,196,946
|
|
Owned
|
|
Manufacturing
wood casegoods and seating office furniture(1)
|
|
|
|
|
|
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|
Owensboro,
Kentucky
|
|
311,575
|
|
Owned
|
|
Manufacturing
wood seating office furniture
|
|
|
|
|
|
|
|
Palmetto,
GA
|
|
384,000
|
|
Leased
|
|
Warehousing
office furniture (temporary)
|
|
|
|
|
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|
South
Gate, California
|
|
499,400
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture (1)
|
|
|
|
|
|
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|
Wayland,
New York
|
|
716,484
|
|
Owned
|
|
Manufacturing
wood casegoods and seating office furniture (1)
|
|
|
|
|
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(1)
Also includes a regional warehouse/distribution center
(2)
A capital lease
Other
Corporation facilities, under 200,000 square feet in size, are located in
various communities throughout the United States, Canada, China, Hong Kong, and
Taiwan. These facilities total approximately 3.6 million square feet
with approximately 2.3 million square feet used for the manufacture and
distribution of office furniture and approximately 1.3 million square feet for
hearth products. Of this total, approximately 2.5 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.
ITEM
3. LEGAL PROCEEDINGS
The
Corporation is involved in various kinds of disputes and legal proceedings that
have arisen in the ordinary course of its business, including pending
litigation, environmental remediation, taxes, and other claims. It is
the Corporation’s opinion, after consultation with legal counsel, that
additional liabilities, if any, resulting from these matters are not expected to
have a material adverse effect on the Corporation’s financial condition,
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.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None.
EXECUTIVE
OFFICERS OF THE REGISTRANT
December
29, 2007
Name
|
Age
|
Family
Relationship
|
Position
|
Position
Held
Since
|
Other
Business Experience
During Past Five
Years
|
|
|
|
|
|
|
Stan
A. Askren
|
47
|
None
|
Chairman
of the Board
Chief
Executive Officer
President
Director
|
2004
2004
2003
2003
|
Executive
Vice President (2001-03); President, (1999-03), Allsteel
Inc.
|
|
|
|
|
|
|
Marshall
H. Bridges
|
38
|
None
|
Treasurer
and Vice President, Mergers and Acquisitions
|
2007
|
Treasurer
and Director, Mergers and Acquisitions (2007); Mergers and Acquisitions
Director (2006-07); Mergers and Acquisitions Manager (2004-06); Treasury
and Investor Relations Manager (2002-04)
|
|
|
|
|
|
|
Gary
L. Carlson
|
57
|
None
|
Vice
President, Member and Community Relations
|
2007
|
President
and CEO, Greater Muscatine Chamber of Commerce and Industry
(2003-07)
|
|
|
|
|
|
|
Bradley
D. Determan
|
46
|
None
|
Executive
Vice President
President,
Hearth & Home Technologies Inc.
|
2005
2003
|
Senior
Vice President, Operations (1995-03), Hearth & Home Technologies
Inc.
|
|
|
|
|
|
|
Jerald
K. Dittmer
|
50
|
None
|
Vice
President and Chief Financial Officer
|
2001
|
|
|
|
|
|
|
|
Robert
J. Driessnack
|
49
|
None
|
Vice
President, Controller
|
2004
|
Chief
Financial Officer, Retail Division (2002-04), NCR
Corporation
|
|
|
|
|
|
|
Tamara
S. Feldman
|
47
|
None
|
Vice
President, Financial Reporting
|
2001
|
|
|
|
|
|
|
|
Robert
D. Hayes
|
64
|
None
|
Vice
President, Business Analysis and General Auditor
|
2001
|
|
|
|
|
|
|
|
Douglas
L. Jones
|
49
|
None
|
Vice
President and Chief Information Officer
|
2005
|
Vice
President, Business Systems (2001-05)
|
|
|
|
|
|
|
Eric
K. Jungbluth
|
47
|
None
|
Executive
Vice President
|
2005
|
President,
Allsteel Inc. (2003-06); Vice President,
|
|
|
|
President,
The HON Company
|
2006
|
Sales
and Marketing (2003), Allsteel Inc. |
|
|
|
|
|
|
Jeffrey
D. Lorenger
|
42
|
None
|
Vice
President, General Counsel and Secretary
|
2005
|
Vice
President, Seating (2003-05), Vice President,
|
|
|
|
Vice
President, Sales, The HON Company
|
2007
|
Marketing
(2001-03), Allsteel Inc. |
|
|
|
|
|
|
Marco
V. Molinari
|
48
|
None
|
Executive
Vice President
President,
HNI International Inc.
|
2006
2003
|
President,
International and Business Development (2003-04); Vice President, HON
Products, The HON Company (2004-06)
|
|
|
|
|
|
|
Eugene
Sung
|
45
|
None
|
Executive
Vice President
President,
Allsteel Inc.
|
2007
2007
|
Senior
Vice President, The Scotts Miracle-Gro Company
(2003-06)
|
PART
II
ITEM
5. 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 2007, the Corporation
had 7,625 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 28% 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 29, 2007.
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
|
|
09/30/07-
10/27/07
|
|
|
82,159 |
|
|
$ |
36.46 |
|
|
|
82,159 |
|
|
$ |
34,800,014 |
|
10/28/07-
11/24/07
|
|
|
337,900 |
|
|
$ |
40.81 |
|
|
|
337,900 |
|
|
$ |
221,009,028 |
|
11/25/07-
12/29/07
|
|
|
790,900 |
|
|
$ |
36.47 |
|
|
|
790,900 |
|
|
$ |
192,165,613 |
|
Total
|
|
|
1,210,959 |
|
|
$ |
37.68 |
|
|
|
1,210,959 |
|
|
$ |
192,165,613 |
|
(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.
|
|
·
|
Plan
announced November 9, 2007, 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.
|
ITEM
6. SELECTED FINANCIAL DATA — FIVE-YEAR SUMMARY
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
2003
|
|
Per
Common Share Data (Basic and Dilutive)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations – basic
|
|
$ |
2.57 |
|
|
$ |
2.59 |
|
|
$ |
2.53 |
|
|
$ |
1.99 |
|
|
$ |
1.69 |
|
Income
from Continuing Operations – diluted
|
|
|
2.55 |
|
|
|
2.57 |
|
|
|
2.51 |
|
|
|
1.97 |
|
|
|
1.68 |
|
Net
Income – basic
|
|
|
2.58 |
|
|
|
2.46 |
|
|
|
2.51 |
|
|
|
1.99 |
|
|
|
1.69 |
|
Net
Income – diluted
|
|
|
2.57 |
|
|
|
2.45 |
|
|
|
2.50 |
|
|
|
1.97 |
|
|
|
1.68 |
|
Cash
Dividends
|
|
|
.78 |
|
|
|
.72 |
|
|
|
.62 |
|
|
|
.56 |
|
|
|
.52 |
|
Book
Value – year-end
|
|
|
10.24 |
|
|
|
10.35 |
|
|
|
11.46 |
|
|
|
12.10 |
|
|
|
12.19 |
|
Net
Working Capital – year-end
|
|
|
2.33 |
|
|
|
3.04 |
|
|
|
2.48 |
|
|
|
1.96 |
|
|
|
3.71 |
|
Operating
Results (Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$ |
2,570,472 |
|
|
$ |
2,679,803 |
|
|
$ |
2,433,316 |
|
|
$ |
2,084,435 |
|
|
$ |
1,755,728 |
|
Gross
Profit as a % of Net Sales
|
|
|
35.2 |
% |
|
|
34.6 |
% |
|
|
36.3 |
% |
|
|
36.0 |
% |
|
|
36.4 |
% |
Interest
Expense
|
|
$ |
18,161 |
|
|
$ |
14,323 |
|
|
$ |
2,355 |
|
|
$ |
886 |
|
|
$ |
2,970 |
|
Income
from Continuing Operations
|
|
|
119,864 |
|
|
|
129,672 |
|
|
|
138,166 |
|
|
|
113,660 |
|
|
|
98,105 |
|
Income
from Continuing Operations as a % of Net
Sales
|
|
|
4.7 |
% |
|
|
4.8 |
% |
|
|
5.7 |
% |
|
|
5.5 |
% |
|
|
5.6 |
% |
Discontinued
Operations(a)
|
|
$ |
514 |
|
|
$ |
(6,297 |
) |
|
$ |
(746 |
) |
|
$ |
(78 |
) |
|
|
- |
|
Net
Income
|
|
|
120,378 |
|
|
|
123,375 |
|
|
|
137,420 |
|
|
|
113,582 |
|
|
|
98,105 |
|
Net
Income as a % of Net Sales
|
|
|
4.7 |
% |
|
|
4.6 |
% |
|
|
5.6 |
% |
|
|
5.4 |
% |
|
|
5.6 |
% |
Cash
Dividends
|
|
$ |
36,408 |
|
|
$ |
36,028 |
|
|
$ |
33,841 |
|
|
$ |
32,023 |
|
|
$ |
30,299 |
|
%
Return on Average Shareholders’ Equity
|
|
|
25.2 |
% |
|
|
22.6 |
% |
|
|
21.8 |
% |
|
|
16.5 |
% |
|
|
14.5 |
% |
Depreciation
and Amortization
|
|
$ |
68,173 |
|
|
$ |
69,503 |
|
|
$ |
65,514 |
|
|
$ |
66,703 |
|
|
$ |
72,772 |
|
Distribution
of Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Paid to Shareholders
|
|
|
30.2 |
% |
|
|
29.2 |
% |
|
|
24.6 |
% |
|
|
28.2 |
% |
|
|
30.9 |
% |
%
Reinvested in Business
|
|
|
69.8 |
% |
|
|
70.8 |
% |
|
|
75.4 |
% |
|
|
71.8 |
% |
|
|
69.1 |
% |
Financial
Position (Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
$ |
489,072 |
|
|
$ |
504,174 |
|
|
$ |
486,598 |
|
|
$ |
374,579 |
|
|
$ |
462,122 |
|
Current
Liabilities
|
|
|
384,461 |
|
|
|
358,542 |
|
|
|
358,174 |
|
|
|
266,250 |
|
|
|
245,816 |
|
Working
Capital
|
|
|
104,611 |
|
|
|
145,632 |
|
|
|
128,424 |
|
|
|
108,329 |
|
|
|
216,306 |
|
Current
Ratio
|
|
|
1.27 |
|
|
|
1.41 |
|
|
|
1.36 |
|
|
|
1.41 |
|
|
|
1.88 |
|
Total
Assets
|
|
$ |
1,206,976 |
|
|
$ |
1,226,359 |
|
|
$ |
1,140,271 |
|
|
$ |
1,021,657 |
|
|
$ |
1,021,826 |
|
%
Return on Beginning Assets Employed
|
|
|
15.8 |
% |
|
|
18.1 |
% |
|
|
21.2 |
% |
|
|
17.5 |
% |
|
|
14.7 |
% |
Long-Term
Debt and Capital Lease Obligations
|
|
$ |
281,091 |
|
|
$ |
285,974 |
|
|
$ |
103,869 |
|
|
$ |
3,645 |
|
|
$ |
4,126 |
|
Shareholders’
Equity
|
|
|
458,908 |
|
|
|
495,919 |
|
|
|
593,944 |
|
|
|
669,163 |
|
|
|
709,889 |
|
Current
Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares Outstanding at Year-End
|
|
|
44,834,519 |
|
|
|
47,905,351 |
|
|
|
51,848,591 |
|
|
|
55,303,323 |
|
|
|
58,238,519 |
|
Weighted-Average
Shares Outstanding
During Year – basic
|
|
|
46,684,774 |
|
|
|
50,059,443 |
|
|
|
54,649,199 |
|
|
|
57,127,110 |
|
|
|
58,178,739 |
|
Weighted-Average
Shares Outstanding
During Year – diluted
|
|
|
46,925,161 |
|
|
|
50,374,758 |
|
|
|
55,033,741 |
|
|
|
57,577,630 |
|
|
|
58,545,353 |
|
Number
of Shareholders of Record at Year-End
|
|
|
7,625 |
|
|
|
7,475 |
|
|
|
6,702 |
|
|
|
6,465 |
|
|
|
6,416 |
|
Other
Operational Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures (Thousands of Dollars)
|
|
$ |
58,568 |
|
|
$ |
58,921 |
|
|
$ |
38,912 |
|
|
$ |
32,417 |
|
|
$ |
34,842 |
|
Members
(Employees) at Year-End
|
|
|
13,271 |
(b) |
|
|
14,170 |
(b) |
|
|
12,504 |
(b) |
|
|
10,589 |
(b) |
|
|
8,926 |
|
|
(a)
|
Component
reported as discontinued operations acquired in
2004.
|
|
(b)
|
Includes
acquisitions completed during the fiscal
year.
|
ITEM
7. 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 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
2007, the office furniture industry experienced solid growth. The
Corporation experienced softness in the supplies driven channel and solid demand
in its contract businesses in the office furniture segment. Sales
benefited from price increases as well as acquisitions completed over the past
two years. The housing market continued to decline sharply, which
negatively impacted the Corporation’s hearth products segment.
To
support specific company strategies in both segments of its business, the
Corporation completed the acquisition of Harman Stove Company, a privately held
domestic manufacturer of free-standing stoves and fireplace inserts, as well as
two small office furniture dealer acquisitions. The Corporation made
the decision to shut down one office furniture facility and completed the
shutdown of another office furniture facility which had begun in
2006. The Corporation also made the decision to sell several small
non-core components of its office furniture services business.
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 the Corporation’s 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 2007 ended on December 29, 2007; fiscal 2006
ended on December 30, 2006; and fiscal 2005 ended on December 31,
2005. The financial statements for fiscal years 2007, 2006, and 2005
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 achieve
or do not achieve 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, the length of time a
receivable has been outstanding, 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 reasonably 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 29, 2007, there was approximately $300 million in outstanding accounts
receivable and $11 million recorded in the allowance for doubtful accounts to
cover potential future customer non-payments. However, if economic
conditions were to 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 $13
million at year end 2006 and $12 million at year end 2005.
Inventory valuation – The
Corporation valued 87% of its inventory by the last-in, first-out (“LIFO”)
method at December 29, 2007. 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 $9 million at year-end 2007 and $8 million at
year-end 2006 and 2005.
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 and Impairment 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
regularly 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 during the fourth 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 29, 2007. Goodwill of approximately $257 million is
shown on the consolidated balance sheet as of the end of fiscal 2007.
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
Corporation also determines the fair value of indefinite lived trademarks on an
annual basis or whenever indication of impairment exists. The
Corporation has evaluated its trademarks for impairment and has determined that
the fair market value of the trademarks exceeds carrying value, so no impairment
was recognized. The carrying value of the trademarks was
approximately $43.5 million at the end of fiscal 2007.
The
Corporation has definite lived intangibles that are amortized over their
estimated useful lives. Impairment losses are recognized if the
carrying amount of an intangible, subject to amortization, is not recoverable
from expected future cash flows and its carrying amount exceeds its fair
value. Intangibles, net of amortization, of approximately $74 million
are included on the consolidated balance sheet as of the end of fiscal
2007.
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 the
number or severity 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 $3.6 million in 2007
and $3.2 million in 2006. In 2005 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
would have been reduced by approximately $2 million.
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
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
adopted the provision of FIN 48 on December 31, 2006, the beginning of fiscal
2007. See “Income Taxes” 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
February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”) which permits entities
to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair
value. The objective of SFAS 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This statement
is effective as of the beginning of any fiscal year beginning after November 15,
2007. The Corporation does not anticipate any material impact to its
financial statements from the adoption of this standard.
In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”
(“SFAS No. 141(R)”), replacing SFAS No. 141, “Business Combinations” (“SFAS No.
141”), and SFAS No. 160, “Noncontrolling Interests in Consolidation Financial
Statements – An Amendment of ARB No. 51” (“SFAS No. 160”). SFAS No.
141(R) retains the fundamental requirements of SFAS No. 141, broadens its scope
by applying the acquisition method to all transactions and other events in which
one entity obtains control over one or more other businesses, and requires,
among other things, that assets acquired and liabilities assumed be measured at
fair value as of the acquisition date, that liabilities related to contingent
considerations be recognized at the acquisition date and remeasured at fair
value in each subsequent reporting period, that acquisition-related costs be
expensed as incurred, and that income be recognized if the fair value of the net
assets acquired exceeds the fair value of the consideration
transferred. SFAS No. 160 establishes accounting and reporting
standards for noncontrolling interests (i.e., minority interests) in a
subsidiary, including changes in a parent’s ownership interest in a subsidiary
and requires, among other things, that noncontrolling interests in subsidiaries
be classified as a separate component of equity. Except for the
presentation and disclosure requirements of SFAS No. 160, which are to be
applied retrospectively for all periods presented, SFAS No. 141 (R) and SFAS No.
160 are to be applied prospectively in financial statements issued for fiscal
years beginning after December 15, 2008. The Corporation does not
anticipate any material impact to its financial statements from the adoption of
SFAS No. 160.
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
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net
Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of products sold
|
|
|
64.8 |
|
|
|
65.4 |
|
|
|
63.7 |
|
Gross
profit
|
|
|
35.2 |
|
|
|
34.6 |
|
|
|
36.3 |
|
Selling
and administrative expenses
|
|
|
27.3 |
|
|
|
26.8 |
|
|
|
27.3 |
|
Restructuring
related charges
|
|
|
0.4 |
|
|
|
0.1 |
|
|
|
0.1 |
|
Operating
income
|
|
|
7.5 |
|
|
|
7.7 |
|
|
|
8.9 |
|
Interest
income (expense) net
|
|
|
(0.7 |
) |
|
|
(0.5 |
) |
|
|
0.0 |
|
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
6.9 |
|
|
|
7.2 |
|
|
|
8.9 |
|
Income
taxes
|
|
|
2.2 |
|
|
|
2.4 |
|
|
|
3.2 |
|
Minority
interest in earnings of subsidiary
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Income
from continuing operations
|
|
|
4.7 |
% |
|
|
4.8 |
% |
|
|
5.7 |
% |
Net Sales
Net sales
during 2007 were $2.6 billion, a decrease of 4.1 percent, compared to net sales
of $2.7 billion in 2006. Acquisitions contributed $46 million
or 1.7 percentage points of sales. Higher price realization of $84
million was offset by softer demand in the supplies driven channel of the office
furniture segment and lower volume in the hearth products
segment. 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, and solid growth across
all brands in the office furniture segment offset by lower volume in the hearth
products segment.
Gross
Profit
Gross
profit as a percent of net sales increased 0.6 percentage points in 2007 as
compared to 2006 due to better price realization and increased cost control
offset partially by lower volume. 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.
Selling
and Administrative Expenses
Selling
and administrative expenses decreased 2.1 percent in 2007 and increased 8.1
percent in 2006. The decrease in 2007 was due to lower volume related
expenses and cost containment measures offset partially by additional costs from
acquisitions, increased costs related to brand building, new product and growth
initiatives and higher incentive based compensation. The increase in
2006 was due to additional costs from acquisitions; increased freight and
distribution costs due to volume, rate increases and fuel surcharges; stock
based compensation expense due to the adoption of SFAS 123(R), and 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.
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
and Impairment Charges
As a
result of the Corporation’s ongoing business simplification and cost reduction
initiatives, management made the decision in 2007 to close an office furniture
facility in Richmond, Virginia and consolidate production into other
locations. In connection with the shutdown of the Richmond facility,
the Corporation recorded $4.4 million of pre-tax charges which included $0.6
million of accelerated depreciation of machinery and equipment recorded in cost
of sales, and $3.8 million of severance recorded as restructuring
costs. The closure and consolidation will be completed during the
first half of 2008. The Corporation will incur additional
restructuring charges and transition costs of approximately $9 to $11 million in
connection with the closure.
The
Corporation made the decision in 2007 to sell several small non-core components
of its office furniture services business and recorded $2.7 million of
impairment charges, included in the restructuring related and impairment charges
line item on the statement of income, to reflect the fair market value of the
assets being held for sale.
The
Corporation’s hearth product segment consolidated some of its service and
distribution locations during 2007. In connection with those
consolidations the Corporation recorded $1.1 million of severance and facility
exit costs which were recorded as restructuring costs.
During
2007, the Corporation completed the shutdown of an office furniture facility,
which began in the fourth quarter of 2006. The facility was located
in Monterrey, Mexico and production from this facility was consolidated into
other locations. In connection with this shutdown, the Corporation
recorded $0.8 million of severance costs in 2006. The Corporation
incurred $2.1 million of current period charges during 2007.
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. Charges for these
closures in 2005 totaled $4.1 million which consisted of $0.6 million of
accelerated depreciation of machinery and equipment recorded as 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 $2.0 million of current period charges during
2006.
Operating
Income
Operating
income was $194 million in 2007, a decrease of 6.2 percent compared to $206
million in 2006. The decrease in 2007 is due to lower volume in the
hearth products segment, increased costs related to brand building, new product
and growth initiatives, higher incentive based compensation and restructuring
charges offset partially by improved price realization and cost containment
measures. Operating income was $206 million in 2006, a decrease of
4.8 percent compared to $217 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.
Income
From Continuing Operations
Income
from continuing operations in 2007, which excludes the Corporation’s
discontinued business (see Discontinued Operations in the Notes to Consolidated
Financial Statements), was $120 million compared with $130 million in 2006, a
7.6 percent decrease. Income from continuing operations was
negatively impacted by increased interest expense of $4 million on moderate debt
levels, consistent with the Corporation’s strategy of maintaining a more
efficient capital structure. Income from continuing operations in
2006 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 approximately $12 million on moderate debt
levels. The Corporation completed a detailed analysis of all deferred
tax accounts in 2006, 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
primarily 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 was 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 per diluted share decreased
by 0.8 percent to $2.55 in 2007 and increased by 2.4 percent to $2.57 in 2006
including a positive tax adjustment of $0.08 per share.
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 classified them as held for
sale. The sale was completed during the second quarter of
2007. 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 2.4 percent to $120 million in 2007 compared to $123 million in
2006 which was a decrease of 10.2 percent compared to 2005. Net
income per diluted share increased by 4.9 percent to $2.57 in 2007 and decreased
2.0 percent to $2.45 in 2006. Net income per diluted share was
positively impacted $0.18 per share in 2007 and $0.21 per share in 2006 by the
Corporation’s share repurchase program.
Office
Furniture
Office
furniture comprised 82 percent, 78 percent, and 76 percent of consolidated net
sales for 2007, 2006, and 2005, respectively. Net sales for office
furniture increased 2 percent in 2007 to $2.11 billion compared to $2.08 billion
in 2006. The increase in 2007 was due to approximately $37 million
from the Corporation’s acquisitions. Organic sales were virtually
flat, including increased price realization of $78 million, due to softness in
the supplies driven channel of the business. 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 approximately $144
million or 7.8 percent, including increased price realization of $41
million. The Business and Institutional Furniture Manufacturer’s
Association (“BIFMA”) reported 2007 shipments up 6 percent and 2006 shipments up
7 percent.
Operating
profit as a percent of net sales was 9.2 percent in 2007, 8.8 percent in 2006,
and 9.7 percent in 2005. The increase in operating margins in 2007
was due to better price realization and benefits of cost reduction initiatives
partially offset by increased costs related to brand building, new product and
growth initiatives, higher incentive based compensation and higher restructuring
costs. 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.
Hearth
Products
Hearth
products sales decreased 23 percent in 2007 to $462 million compared to $603
million in 2006. New acquisitions contributed $9 million of
sales. The decrease in organic sales was a result of a severe and
rapid two year decline in new home construction that created one of the worst
housing markets on record. 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, which began in the second half of 2006 as a
result of the decline in the housing market.
Operating
profit as a percent of sales in 2007 was 7.9 percent compared to 9.7 percent in
2006, and 12.6 percent in 2005, respectively. The decrease in
operating margins in 2007 was due to lower overall volume offset partially by
cost reduction initiatives. 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.
Liquidity
and Capital Resources
During
2007, cash flow from operations was $291.2 million driven by broad-based
improvements in working capital. Cash flow from operations along with
available cash and short-term investments and funds from stock option exercises
under employee stock plans, 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 $43.8 million at the end of
2007 compared to $37.3 million at the end of 2006 and $84.7 million at the end
of 2005. 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. The Corporation’s inventory turns were 16,
18, and 18, for 2007, 2006, and 2005, 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 2005, the
Corporation invested in an investment fund 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”), 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 2007, 2006, and 2005 is included in the Cash, Cash Equivalents, and
Investments note included in the Consolidated Financial Statements.
Capital
Expenditure Investments
Capital
expenditures were $58.6 million in 2007, $58.9 million in 2006, and $38.9
million in 2005. 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
2008 to be $70 to $75 million due to increased focus on new products and
operational process improvement.
Acquisitions
During
2007, the Corporation completed the acquisition of Harman Stove Company, a
privately held domestic manufacturer of free-standing stoves and fireplace
inserts and two small office furniture dealers for a total combined purchase
price of approximately $41 million. 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. 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.
Long-Term
Debt
Long-term
debt, including capital lease obligations, was 38% of total capitalization as of
December 29, 2007, 37% as of December 30, 2006, and 15% as of December 31,
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 $172 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)
|
|
$ |
385,507 |
|
|
$ |
29,673 |
|
|
$ |
30,777 |
|
|
$ |
145,321 |
|
|
$ |
179,736 |
|
Capital
lease obligations
|
|
|
1,409 |
|
|
|
552 |
|
|
|
689 |
|
|
|
168 |
|
|
|
- |
|
Operating
lease obligations
|
|
|
145,412 |
|
|
|
35,858 |
|
|
|
57,728 |
|
|
|
33,019 |
|
|
|
18,807 |
|
Purchase
obligations (2)
|
|
|
77,911 |
|
|
|
77,911 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
long-term obligations (3)
|
|
|
34,225 |
|
|
|
2,426 |
|
|
|
4,558 |
|
|
|
1,111 |
|
|
|
26,130 |
|
Total
|
|
$ |
644,464 |
|
|
$ |
146,420 |
|
|
$ |
93,752 |
|
|
$ |
179,619 |
|
|
$ |
224,673 |
|
|
(1)
|
Interest
has been included for all debt at either the fixed rate or variable rate
in effect as of December 29, 2007, 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, liability for unrecognized tax liabilities
in accordance with FIN 48, 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 $0.78 per common share for 2007, $0.72 for 2006, and $0.62 for
2005. Further, the Board of Directors announced a 10.3 percent
increase in the quarterly dividend from $0.195 to $0.215 per common share
effective with the February 29, 2008, dividend payment for shareholders of
record at the close of business February 22, 2008. The previous
quarterly dividend increase was from $0.18 to $0.195, effective with the March
1, 2007 dividend payment for shareholders of record at the close of business on
February 23, 2007. 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
2007, the Corporation repurchased 3,581,707 shares of its common stock at a cost
of approximately $147.7 million, or an average price of $41.23. The
Board of Directors authorized $200 million on November 11, 2005, an additional
$200 million on August 8, 2006, and an additional $200 million on November 9,
2007, for repurchases of the Corporation’s common stock. As of
December 29, 2007, approximately $192.2 million of this authorized amount
remained unspent. 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. 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.
Litigation
and Uncertainties
The
Corporation is involved in various kinds of disputes and legal proceedings that
have arisen in the ordinary course of its business, including pending
litigation, environmental remediation, taxes, and other claims. It is
the Corporation’s opinion, after consultation with legal counsel, that
additional liabilities, if any, resulting from these matters are not expected to
have a material adverse effect on the Corporation’s financial condition,
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 that macroeconomic indicators point to continued slowing in the office
furniture business during 2008. The Corporation expects to increase
its investment in growth opportunities and position for the market recovery by
enhancing its selling capabilities and launching a significant number of new
products. The Corporation will work to offset the market softness and
increased investment by eliminating waste, attacking structural cost and
streamlining its businesses.
The
housing market is expected to decline during 2008 and continue to significantly
pressure both revenue and profit in the Corporation’s hearth products
segment. The Corporation intends to continue to profitably manage
through these conditions by streamlining its operations, however, it will
continue to position the business for long-term growth once conditions
stabilize.
The
Corporation anticipates that its tax rate on average will be 35.5 percent in
2008 due to the expiration of the research tax credit. In the event
this credit is renewed in its most recent form it would lower the effective rate
approximately 0.8 percentage points.
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.
ITEM
7A. 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 most
significant material purchases and cost for 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. All of these materials are impacted increasingly by global
market pressure and impacts. 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.
ITEM
8. 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.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM
9A. CONTROLS AND PROCEDURES
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 29, 2007, 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 29, 2007 that
have materially affected, or are reasonably likely to materially affect, the
Corporation's internal control over financial reporting.
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.
ITEM
9B. OTHER INFORMATION
None.
PART
III
ITEM
10. 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 6, 2008, 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 6, 2008, 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 6, 2008, 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 6, 2008, is incorporated herein by
reference.
ITEM
11. EXECUTIVE COMPENSATION
The
information under the captions “Executive Compensation” and “Director
Compensation” of the Corporation's Proxy Statement for the Annual Meeting of
Shareholders to be held on May 6, 2008, is incorporated herein by
reference.
ITEM
12. 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 6, 2008, is incorporated herein by
reference.
ITEM
13. 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 6, 2008, is incorporated herein by
reference.
ITEM
14. 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 6, 2008, is incorporated herein by reference.
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) |
(1) |
Financial Statements
|
The following consolidated financial
statements of the Corporation and its subsidiaries included in the Corporation's
2007 Annual Report to Shareholders are filed as a part of this report pursuant
to Item 8:
|
Page
|
|
|
Management
Report on Internal Control Over Financial Reporting
|
39
|
|
|
Report
of Independent Registered Public Accounting Firm
|
40
|
|
|
Consolidated
Statements of Income for the Years Ended December 29, 2007, December 30,
2006, and December 31, 2005
|
42
|
|
|
Consolidated
Balance Sheets – December 29, 2007; December 30, 2006; and December 31,
2005;
|
43
|
|
|
Consolidated
Statements of Shareholders' Equity for the Years Ended December 29, 2007,
December 30, 2006, and December 31, 2005
|
44
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended December 29, 2007, December
30, 2006, and December 31, 2005
|
45
|
|
|
Notes
to Consolidated Financial Statements
|
46
|
|
|
Investor
Information
|
74
|
|
(2)
|
Financial Statement
Schedules
|
The following consolidated financial
statement schedule of the Corporation and its subsidiaries is attached pursuant
to Item 15(d):
Schedule II
|
Valuation
and Qualifying Accounts for the Years Ended December
29, 2007, December 30, 2006, and December
31, 2005
|
75
|
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 Annual Report on Form 10-K appears on Page 76. The following
exhibits are filed herewith:
Exhibit
|
|
|
|
|
|
(10vii)
|
|
Form
of 2007 Equity Plan for Non-Employee Directors of HNI Corporation
Participation Agreement
|
|
|
|
(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
25, 2008
|
|
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 below 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
25, 2008
|
Stan
A. Askren
|
|
Principal
Executive Officer,
|
|
|
|
and
Director
|
|
|
|
|
|
/s/
Jerald K. Dittmer
|
|
Vice
President, Chief Financial
|
February
25, 2008
|
Jerald
K. Dittmer
|
|
Officer,
Principal Financial Officer and Principal Accounting
Officer
|
|
|
|
|
|
|
|
|
|
/s/
Mary H. Bell
|
|
Director
|
February
25, 2008
|
Mary
H. Bell
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Miguel M. Calado
|
|
Director
|
February
25, 2008
|
Miguel
M. Calado
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Gary M. Christensen
|
|
Director
|
February
25, 2008
|
Gary
M. Christensen
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Cheryl A. Francis
|
|
Director
|
February
25, 2008
|
Cheryl
A. Francis
|
|
|
|
|
|
|
|
|
|
|
|
/s/
John A. Halbrook
|
|
Director
|
February
25, 2008
|
John
A. Halbrook
|
|
|
|
|
|
|
|
|
|
|
|
/s/
James R. Jenkins
|
|
Director
|
February
25, 2008
|
James
R. Jenkins
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Dennis J. Martin
|
|
Director
|
February
25, 2008
|
Dennis
J. Martin
|
|
|
|
Signature
|
|
Title
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Larry B. Porcellato
|
|
Director
|
February
25, 2008
|
Larry
B. Porcellato
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Joseph Scalzo
|
|
Director
|
February
25, 2008
|
Joseph
Scalzo
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Abbie J. Smith
|
|
Director
|
February
25, 2008
|
Abbie
J. Smith
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Brian E. Stern
|
|
Director
|
February
25, 2008
|
Brian
E. Stern
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Ronald V. Waters, III
|
|
Director
|
February
25, 2008
|
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
November 13, 2007 the Corporation completed the acquisition of Harman Stove
Company (“Harman”) as discussed in the Business Combination footnote to the
Corporation’s consolidated financial statements. Management excluded
Harman from it’s assessment of the Corporation’s internal control over financial
reporting as it was acquired during the fiscal year. Harman’s total
assets and total revenues represent 3% and less than 1%, respectively, of the
consolidated financial statement amounts as of and for the year ended December
29, 2007.
Management
assessed the effectiveness of HNI Corporation’s internal control over financial
reporting as of December 29, 2007. 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 29, 2007, 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 29, 2007 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in its report which appears herein.
February 22,
2008
Report of Independent
Registered Public Accounting Firm
To the
Board of Directors and Shareholders of
HNI
Corporation:
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
29, 2007, December 30, 2006, and December 31, 2005, and the results of their
operations and their cash flows for each of the three years in the period ended
December 29, 2007 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. Also in our opinion, the Corporation maintained, in all
material respects, effective internal control over financial reporting as
of December 29,
2007, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Corporation's management is responsible for
these financial statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the
Management Report on Internal Control Over Financial Reporting appearing under
Item 15. Our responsibility is to express opinions on these financial
statements, on the financial statement schedule, and on the Corporation's
internal control over financial reporting based on our integrated
audits. We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial
statements included 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. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.
As
discussed in the notes to the consolidated financial statements, the Corporation
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.
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
Management's Report on Internal Control over Financial Reporting, management has
excluded Harman Stove Company ("Harman") from its assessment of internal control
over financial reporting as of December 29, 2007 because it was acquired by the
Corporation in a purchase combination on November 13, 2007. We have also
excluded Harman from our audit of internal control over financial reporting.
Harman's total assets and total revenues represent 3% and less than 1%,
respectively, of the related consolidated financial statement amounts as of and
for the year ended December 29, 2007.
PricewaterhouseCoopers
LLP
Chicago,
Illinois
February
25, 2008
HNI CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Amounts
in thousands, except for per share data)
|
|
|
|
|
|
|
|
|
|
For
the Years
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,570,472 |
|
|
$ |
2,679,803 |
|
|
$ |
2,433,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
|
1,664,697 |
|
|
|
1,752,882 |
|
|
|
1,549,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
905,775 |
|
|
|
926,921 |
|
|
|
883,841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
|
|
702,329 |
|
|
|
717,676 |
|
|
|
663,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
related and impairment charges
|
|
|
9,788 |
|
|
|
2,829 |
|
|
|
3,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
193,658 |
|
|
|
206,416 |
|
|
|
216,712 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,229 |
|
|
|
1,139 |
|
|
|
1,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
18,161 |
|
|
|
14,323 |
|
|
|
2,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
176,726 |
|
|
|
193,232 |
|
|
|
215,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
57,141 |
|
|
|
63,670 |
|
|
|
77,715 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before minority interest
|
|
|
119,585 |
|
|
|
129,562 |
|
|
|
138,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in earnings of subsidiary
|
|
|
(279 |
) |
|
|
(110 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
119,864 |
|
|
|
129,672 |
|
|
|
138,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations, less applicable income taxes
|
|
|
514 |
|
|
|
(6,297 |
) |
|
|
(746 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
120,378 |
|
|
$ |
123,375 |
|
|
$ |
137,420 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations – basic
|
|
$ |
2.57 |
|
|
$ |
2.59 |
|
|
$ |
2.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from discontinued operations – basic
|
|
|
0.01 |
|
|
|
(0.13 |
) |
|
|
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share – basic
|
|
$ |
2.58 |
|
|
$ |
2.46 |
|
|
$ |
2.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding – basic
|
|
|
46,684,774 |
|
|
|
50,059,443 |
|
|
|
54,649,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations – diluted
|
|
$ |
2.55 |
|
|
$ |
2.57 |
|
|
$ |
2.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from discontinued operations – diluted
|
|
|
0.02 |
|
|
|
(0.12 |
) |
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share – diluted
|
|
$ |
2.57 |
|
|
$ |
2.45 |
|
|
$ |
2.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - diluted
|
|
|
46,925,161 |
|
|
|
50,374,758 |
|
|
|
55,033,741 |
|
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
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
33,881 |
|
|
$ |
28,077 |
|
|
$ |
75,707 |
|
Short-term
investments
|
|
|
9,900 |
|
|
|
9,174 |
|
|
|
9,035 |
|
Receivables,
net
|
|
|
288,777 |
|
|
|
316,568 |
|
|
|
278,515 |
|
Inventories
|
|
|
108,541 |
|
|
|
105,765 |
|
|
|
91,110 |
|
Deferred
income taxes
|
|
|
17,828 |
|
|
|
15,440 |
|
|
|
15,831 |
|
Prepaid
expenses and other current assets
|
|
|
30,145 |
|
|
|
29,150 |
|
|
|
16,400 |
|
Total
Current Assets
|
|
|
489,072 |
|
|
|
504,174 |
|
|
|
486,598 |
|
Property,
Plant, and Equipment
|
|
|
305,431 |
|
|
|
309,952 |
|
|
|
294,660 |
|
Goodwill
|
|
|
256,834 |
|
|
|
251,761 |
|
|
|
242,244 |
|
Other
Assets
|
|
|
155,639 |
|
|
|
160,472 |
|
|
|
116,769 |
|
Total
Assets
|
|
$ |
1,206,976 |
|
|
$ |
1,226,359 |
|
|
$ |
1,140,271 |
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
367,320 |
|
|
$ |
328,882 |
|
|
$ |
309,222 |
|
Note
payable and current maturities of long-term debt and capital lease
obligations
|
|
|
14,715 |
|
|
|
26,135 |
|
|
|
40,350 |
|
Current
maturities of other long-term obligations
|
|
|
2,426 |
|
|
|
3,525 |
|
|
|
8,602 |
|
Total
Current Liabilities
|
|
|
384,461 |
|
|
|
358,542 |
|
|
|
358,174 |
|
Long-Term
Debt
|
|
|
280,315 |
|
|
|
285,300 |
|
|
|
103,050 |
|
Capital
Lease Obligations
|
|
|
776 |
|
|
|
674 |
|
|
|
819 |
|
Other
Long-Term Liabilities
|
|
|
55,843 |
|
|
|
56,103 |
|
|
|
48,671 |
|
Deferred
Income Taxes
|
|
|
26,672 |
|
|
|
29,321 |
|
|
|
35,473 |
|
Minority
Interest in Subsidiaries
|
|
|
1 |
|
|
|
500 |
|
|
|
140 |
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock - $1 par value
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Authorized: 2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued: None
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock - $1 par value
|
|
|
44,835 |
|
|
|
47,906 |
|
|
|
51,849 |
|
Authorized: 200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding: 2007-44,835; 2006-47,906;
2005-51,849
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
3,152 |
|
|
|
2,807 |
|
|
|
941 |
|
Retained
earnings
|
|
|
410,075 |
|
|
|
448,268 |
|
|
|
540,822 |
|
Accumulated
other comprehensive (loss) income
|
|
|
846 |
|
|
|
(3,062 |
) |
|
|
332 |
|
Total
Shareholders’ Equity
|
|
|
458,908 |
|
|
|
495,919 |
|
|
|
593,944 |
|
Total
Liabilities and Shareholders’ Equity
|
|
$ |
1,206,976 |
|
|
$ |
1,226,359 |
|
|
$ |
1,140,271 |
|
The
accompanying notes are an integral part of the consolidated financial
statements.
HNI
CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY
(Amounts
in thousands)
|
|
Common
Stock
|
|
|
Additional
Paid-in
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
(Loss)/Income
|
|
|
Total
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
120,378 |
|
|
|
|
|
|
|
120,378 |
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,908 |
|
|
|
3,908 |
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124,286 |
|
Adoption
of FIN 48 impact
|
|
|
|
|
|
|
|
|
|
|
(509 |
) |
|
|
|
|
|
|
(509 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
|
|
|
|
|
|
|
|
(36,408 |
) |
|
|
|
|
|
|
(36,408 |
) |
Common
shares – treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
purchased
|
|
|
(3,582 |
) |
|
|
(22,439 |
) |
|
|
(121,654 |
) |
|
|
|
|
|
|
(147,675 |
) |
Shares
issued under Member’s Stock Purchase Plan and stock awards
|
|
|
511 |
|
|
|
22,784 |
|
|
|
|
|
|
|
|
|
|
|
23,295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 29, 2007
|
|
$ |
44,835 |
|
|
$ |
3,152 |
|
|
$ |
410,075 |
|
|
$ |
846 |
|
|
$ |
458,908 |
|
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
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net
Cash Flows From (To) Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
120,378 |
|
|
$ |
123,375 |
|
|
$ |
137,420 |
|
Noncash
items included in net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
68,173 |
|
|
|
69,503 |
|
|
|
65,514 |
|
Other
postretirement and post-employment benefits
|
|
|
2,132 |
|
|
|
2,109 |
|
|
|
2,002 |
|
Stock-based
compensation
|
|
|
3,603 |
|
|
|
3,219 |
|
|
|
- |
|
Excess
tax benefits from stock compensation
|
|
|
(808 |
) |
|
|
(865 |
) |
|
|
- |
|
Deferred
income taxes
|
|
|
(4,935 |
) |
|
|
(3,712 |
) |
|
|
(8,933 |
) |
Net
loss on sales, retirements and impairments of long-lived assets and
intangibles
|
|
|
1,662 |
|
|
|
4,639 |
|
|
|
1,529 |
|
Stock
issued to retirement plan
|
|
|
6,611 |
|
|
|
7,948 |
|
|
|
6,199 |
|
Other
– net
|
|
|
(1,162 |
) |
|
|
1,733 |
|
|
|
1,164 |
|
Changes
in working capital, excluding acquisition and disposition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
39,941 |
|
|
|
(24,059 |
) |
|
|
(25,654 |
) |
Inventories
|
|
|
20,380 |
|
|
|
(7,123 |
) |
|
|
(10,488 |
) |
Prepaid
expenses and other current assets
|
|
|
2,264 |
|
|
|
(9,541 |
) |
|
|
(4,207 |
) |
Accounts
payable and accrued expenses
|
|
|
30,944 |
|
|
|
(2,794 |
) |
|
|
36,809 |
|
Income
taxes
|
|
|
1,169 |
|
|
|
(2,088 |
) |
|
|
(5,534 |
) |
Increase
(decrease) in other liabilities
|
|
|
835 |
|
|
|
(2,742 |
) |
|
|
5,188 |
|
Net
cash flows from (to) operating activities
|
|
|
291,187 |
|
|
|
159,602 |
|
|
|
201,009 |
|
Net
Cash Flows From (To) Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(58,568 |
) |
|
|
(58,921 |
) |
|
|
(38,912 |
) |
Proceeds
from sale of property, plant and equipment
|
|
|
12,145 |
|
|
|
5,952 |
|
|
|
317 |
|
Capitalized
software
|
|
|
(346 |
) |
|
|
(1,003 |
) |
|
|
(2,890 |
) |
Acquisition
spending, net of cash acquired
|
|
|
(41,696 |
) |
|
|
(78,569 |
) |
|
|
(33,804 |
) |
Short-term
investments – net
|
|
|
- |
|
|
|
926 |
|
|
|
2,400 |
|
Purchase
of long-term investments
|
|
|
(24,427 |
) |
|
|
(13,600 |
) |
|
|
(34,495 |
) |
Sales
or maturities of long-term investments
|
|
|
20,576 |
|
|
|
8,250 |
|
|
|
32,505 |
|
Other
– net
|
|
|
294 |
|
|
|
- |
|
|
|
(68 |
) |
Net
cash flows from (to) investing activities
|
|
|
(92,022 |
) |
|
|
(136,965 |
) |
|
|
(74,947 |
) |
Net
Cash Flows From (To) Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of HNI Corporation common stock
|
|
|
(147,675 |
) |
|
|
(203,646 |
) |
|
|
(202,217 |
) |
Proceeds
from long-term debt
|
|
|
289,503 |
|
|
|
515,157 |
|
|
|
199,000 |
|
Payments
of note and long-term debt and other financing
|
|
|
(309,297 |
) |
|
|
(352,401 |
) |
|
|
(57,970 |
) |
Proceeds
from sale of HNI Corporation common stock
|
|
|
9,708 |
|
|
|
5,786 |
|
|
|
14,997 |
|
Excess
tax benefits from stock compensation
|
|
|
808 |
|
|
|
865 |
|
|
|
- |
|
Dividends
paid
|
|
|
(36,408 |
) |
|
|
(36,028 |
) |
|
|
(33,841 |
) |
Net
cash flows from (to) financing activities
|
|
|
(193,361 |
) |
|
|
(70,267 |
) |
|
|
(80,031 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
5,804 |
|
|
|
(47,630 |
) |
|
|
46,031 |
|
Cash
and cash equivalents at beginning of year
|
|
|
28,077 |
|
|
|
75,707 |
|
|
|
29,676 |
|
Cash
and cash equivalents at end of year
|
|
$ |
33,881 |
|
|
$ |
28,077 |
|
|
$ |
75,707 |
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
18,213 |
|
|
$ |
12,002 |
|
|
$ |
1,961 |
|
Income
taxes
|
|
$ |
57,128 |
|
|
$ |
75,266 |
|
|
$ |
88,133 |
|
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 and distributors, 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 2007 ended on December 29, 2007; 2006 ended on December
30, 2006; and 2005 ended on December 31, 2005. The financial
statements for fiscal years 2007, 2006, and 2005 are on a 52-week
basis. A fifty-three week year occurs approximately every sixth
year.
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. The Corporation has invested in an investment fund that
is excluded from the scope of SFAS No. 115, “Accounting for Certain Investments
in Debt and Equity Securities”; however, the Corporation’s ownership in this
investment fund is such that the underlying investments are recorded at fair
market value.
At
December 29, 2007, December 30, 2006, and December 1, 2005, cash, cash
equivalents, and investments consisted of the following (cost approximates
market value):
Year-End
2007
(In
thousands)
|
|
Cash
and
cash
equivalents
|
|
|
Short-term
investments
|
|
|
Long-term
investments
|
|
Available
for sale securities
|
|
|
|
|
|
|
|
|
|
Debt
and equity securities
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
4,996 |
|
Investment
in master
fund
|
|
|
- |
|
|
|
9,900 |
|
|
|
25,705 |
|
Cash
and money market accounts
|
|
|
33,881 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
33,881 |
|
|
$ |
9,900 |
|
|
$ |
30,701 |
|
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 |
|
Receivables
Accounts
receivable are presented net of an allowance for doubtful accounts of $11.5
million, $12.8 million, and $12.0 million, for 2007, 2006, and 2005,
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 87%, 86%, and 89% of its inventory by the last-in, first-out
(“LIFO”) method at December 29, 2007, December 30, 2006, and December 31, 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 $9.1 million, $7.7 million, and
$8.2 million, at year-end 2007, 2006, and 2005, 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 regularly 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 in 2006
and were 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 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 were included
as part of the loss from discontinued operations.
The
Corporation has definite lived intangibles that are amortized over their
estimated useful lives. Impairment losses are recognized if the
carrying amount of an intangible, subject to amortization, is not recoverable
from expected future cash flows and its carrying amount exceeds its fair
value. Intangibles, net of amortization, of approximately $74 million
are included on the consolidated balance sheet as of the end of fiscal
2007.
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)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Balance
at the beginning of the period
|
|
$ |
10,624 |
|
|
$ |
10,157 |
|
|
$ |
10,794 |
|
Accrual
assumed from acquisition
|
|
|
703 |
|
|
|
125 |
|
|
|
- |
|
Accruals
for warranties issued during the period
|
|
|
14,831 |
|
|
|
12,273 |
|
|
|
9,809 |
|
Accrual
related to pre-existing warranties
|
|
|
600 |
|
|
|
810 |
|
|
|
1,449 |
|
Settlements
made during the period
|
|
|
(14,635 |
) |
|
|
(12,741 |
) |
|
|
(11,895 |
) |
Balance
at the end of the period
|
|
$ |
12,123 |
|
|
$ |
10,624 |
|
|
$ |
10,157 |
|
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;
the related costs are recorded 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 achieve or do not achieve 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 $24.0 million in 2007, $27.6 million in 2006, and
$27.3 million in 2005.
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,” and in accordance with Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (“FIN 48”). 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. There were approximately $7.7
million of accumulated earnings considered to be permanently reinvested as of
December 29, 2007.
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.
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)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Numerators:
|
|
|
|
|
|
|
|
|
|
Numerators
for both basic and diluted EPS net income
|
|
$ |
120,378 |
|
|
$ |
123,375 |
|
|
$ |
137,420 |
|
Denominators:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS weighted-average common shares outstanding
|
|
|
46,685 |
|
|
|
50,059 |
|
|
|
54,649 |
|
Potentially
dilutive shares from stock option plans
|
|
|
240 |
|
|
|
316 |
|
|
|
385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted EPS
|
|
|
46,925 |
|
|
|
50,375 |
|
|
|
55,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share – basic
|
|
$ |
2.58 |
|
|
$ |
2.46 |
|
|
$ |
2.51 |
|
Earnings
per share – diluted
|
|
$ |
2.57 |
|
|
$ |
2.45 |
|
|
$ |
2.50 |
|
Certain
exercisable and non-exercisable stock options were not included in the
computation of diluted EPS for fiscal year 2007, 2006, and 2005, because their
inclusion would have been anti-dilutive. The number of stock options
outstanding, which met this criterion for 2007 was 412,916; for 2006 was
290,366; and for 2005 was 176,900.
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 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
adopted the provision of FIN 48 on December 31, 2006, the beginning of fiscal
2007. See “Income Taxes” 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
February, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”) which permits entities
to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair
value. The objective of SFAS 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This statement
is effective as of the beginning of any fiscal year beginning after November 15,
2007. The Corporation does not anticipate any material impact to its
financial statements from the adoption of this standard.
In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”
(“SFAS No. 141(R)”), replacing SFAS No. 141, “Business Combinations” (“SFAS No.
141”), and SFAS No. 160, “Noncontrolling Interests in Consolidation Financial
Statements – An Amendment of ARB No. 51” (“SFAS No. 160”). SFAS No.
141(R) retains the fundamental requirements of SFAS No. 141, broadens its scope
by applying the acquisition method to all transactions and other events in which
one entity obtains control over one or more other businesses, and requires,
among other things, that assets acquired and liabilities assumed be measured at
fair value as of the acquisition date, that liabilities related to contingent
considerations be recognized at the acquisition date and remeasured at fair
value in each subsequent reporting period, that acquisition-related costs be
expensed as incurred, and that income be recognized if the fair value of the net
assets acquired exceeds the fair value of the consideration
transferred. SFAS No. 160 establishes accounting and reporting
standards for noncontrolling interests (i.e., minority interests) in a
subsidiary, including changes in a parent’s ownership interest in a subsidiary
and requires, among other things, that noncontrolling interests in subsidiaries
be classified as a separate component of equity. Except for the
presentation and disclosure requirements of SFAS No. 160, which are to be
applied retrospectively for all periods presented, SFAS No. 141 (R) and SFAS No.
160 are to be applied prospectively in financial statements issued for fiscal
years beginning after December 15, 2008. The Corporation does not
anticipate any material impact to its financial statements from the adoption of
SFAS No. 160.
Restructuring
Related and Impairment Charges
As a
result of the Corporation’s ongoing business simplification and cost reduction
initiatives, management made the decision in 2007 to close an office furniture
facility in Richmond, Virginia and consolidate production into other
locations. In connection with the shutdown of the Richmond facility,
the Corporation recorded $4.4 million of pre-tax charges which included $0.6
million of accelerated depreciation of machinery and equipment recorded in cost
of sales and $3.8 million of severance which were recorded as restructuring
costs. The closure and consolidation will be completed during the
first half of 2008. The Corporation will incur additional
restructuring charges and transition costs of approximately $9 to $11 million in
connection with the closure.
The
Corporation’s hearth product segment consolidated some of its service and
distribution locations during 2007. In connection with those
consolidations, the Corporation recorded $1.1 million of severance and facility
exit costs which were recorded as restructuring costs.
During
2007, the Corporation completed the shutdown of an office furniture facility,
which began in the fourth quarter of 2006. The facility was located
in Monterrey, Mexico and production from this facility was consolidated into
other locations. In connection with this shutdown, the Corporation
recorded $0.8 million of severance costs in 2006. The Corporation
incurred $2.1 million of current period charges during 2007.
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 those
facilities was consolidated into other 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.
The
following table summarizes the restructuring accrual activity since the
beginning of fiscal 2005. 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 and Impairment
Charges” in the Consolidated Statements of Income.
(In
thousands)
|
|
Severance
Costs
|
|
|
Facility
Termination
&
Other
Costs
|
|
|
Total
|
|
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 |
|
Restructuring
charges
|
|
|
3,539 |
|
|
|
3,523 |
|
|
|
7,062 |
|
Cash
payments
|
|
|
(522 |
) |
|
|
(2,533 |
) |
|
|
(3,055 |
) |
Restructuring
reserve at December 29, 2007
|
|
$ |
3,858 |
|
|
$ |
990 |
|
|
$ |
4,848 |
|
The
Corporation made the decision in 2007 to sell several small non-core components
of its office furniture services business and recorded $2.7 million of
impairment charges, included in the “Restructuring Related and Impairment
Charges” line item on the Consolidated Statements of Income, to reduce the
assets being held for sale to fair market value.
Business
Combinations
The
Corporation completed the acquisition of Harman Stove Company, a privately held
domestic manufacturer of free-standing stoves and fireplace inserts, as well as
two small office furniture dealers during 2007. The combined purchase
price of these acquisitions less cash acquired totaled $40.9 million.
The
Corporation has finalized the allocation of the purchase price for all
acquisitions other than the Harman Stove Company acquisition which occurred in
the final quarter of the year. Any modification is not expected to be
significant. A reclassification between goodwill and other intangible
assets will occur based on the final valuation report for the Harman Stove
Company acquisition. There are approximately $1.6 million of
intangibles associated with these acquisitions. Of these acquired
intangibles, $0.4 million was assigned to trade names that are not subject to
amortization. The remaining $1.2 million have estimated useful lives
ranging from one to fifteen years with amortization recorded based on the
projected cash flow associated with the respective intangible assets’ existing
relationships. There is approximately $8.6 million of goodwill
associated with these acquisitions of which $3.6 million was assigned to the
furniture segment and $5.0 million was assigned to the hearth
segment. All goodwill is deductible for income tax
purposes.
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. 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 $53.7 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 $39.7 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 $11.7 million of goodwill
associated with these acquisitions, of which $8.9 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.
The
results of the acquired entities have been included in the Consolidated
Financial Statements since the date of acquisition.
Discontinued
Operations
During
December 2006, the Corporation committed to a plan to sell a small non-core
component of its office furniture segment. The sale was completed
during the second quarter of 2007. Revenues and expenses associated
with this component are presented as discontinued operations for all periods
presented. During the fourth quarter 2006 the Corporation recorded a
pre-tax charge of approximately $7.1 million to reduce the assets to the fair
market value. 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)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Discontinued
Operations:
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) before tax
|
|
$ |
796 |
|
|
$ |
(818 |
) |
|
$ |
(666 |
) |
Income
tax
|
|
|
282 |
|
|
|
(294 |
) |
|
|
(240 |
) |
Net
income (loss) from discontinued operations
|
|
|
514 |
|
|
|
(524 |
) |
|
|
(426 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
Discontinued
operations, net of income tax
|
|
$ |
514 |
|
|
$ |
(6,297 |
) |
|
$ |
(746 |
) |
Inventories
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Finished
products
|
|
$ |
76,804 |
|
|
$ |
66,238 |
|
|
$ |
61,027 |
|
Materials
and work in process
|
|
|
52,641 |
|
|
|
58,789 |
|
|
|
46,398 |
|
LIFO
reserve
|
|
|
(20,904 |
) |
|
|
(19,262 |
) |
|
|
(16,315 |
) |
|
|
$ |
108,541 |
|
|
$ |
105,765 |
|
|
$ |
91,110 |
|
Property,
Plant, and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Land
and land improvements
|
|
$ |
23,805 |
|
|
$ |
27,700 |
|
|
$ |
26,361 |
|
Buildings
|
|
|
268,650 |
|
|
|
266,801 |
|
|
|
240,174 |
|
Machinery
and equipment
|
|
|
501,950 |
|
|
|
550,979 |
|
|
|
523,240 |
|
Construction
and equipment installation in progress
|
|
|
25,858 |
|
|
|
12,936 |
|
|
|
23,976 |
|
|
|
|
820,263 |
|
|
|
858,416 |
|
|
|
813,751 |
|
Less: accumulated
depreciation
|
|
|
514,832 |
|
|
|
548,464 |
|
|
|
519,091 |
|
|
|
$ |
305,431 |
|
|
$ |
309,952 |
|
|
$ |
294,660 |
|
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 in 2006 which was included in discontinued operations on
the Consolidated Statements of Income.
The
Corporation also owns trademarks having a net value of $43.5 million as of
December 29, 2007, $43.2 million as of December 30, 2006, and $30.2 million as
of December 31, 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)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Patents
|
|
$ |
18,780 |
|
|
$ |
18,780 |
|
|
$ |
18,480 |
|
Customer
lists and other
|
|
|
101,320 |
|
|
|
103,492 |
|
|
|
67,211 |
|
Less: accumulated
amortization
|
|
|
45,833 |
|
|
|
39,796 |
|
|
|
28,758 |
|
Net
intangible assets
|
|
$ |
74,267 |
|
|
$ |
82,476 |
|
|
$ |
56,933 |
|
Amortization
expense for definite-lived intangibles for 2007, 2006, and 2005, was $9.2
million, $10.4 million, and $7.3 million, respectively. Based on the
current amount of intangible assets subject to amortization, the estimated
amortization expense for each of the following five fiscal years is as
follows:
(in
millions)
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
Amortization
expense
|
|
$ |
6.8 |
|
|
$ |
6.5 |
|
|
$ |
5.6 |
|
|
$ |
4.9 |
|
|
$ |
4.8 |
|
The
occurrence of events such as acquisitions, dispositions, or impairments in the
future may result in changes to amounts.
The
changes in the carrying amount of goodwill since January 1, 2005, are as follows
by reporting segment:
(In
thousands)
|
|
Office
Furniture
|
|
|
Hearth
Products
|
|
|
Total
|
|
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 |
|
Goodwill
increase during period
|
|
|
3,577 |
|
|
|
5,001 |
|
|
|
8,578 |
|
Goodwill
decrease during period
|
|
|
(3,118 |
) |
|
|
(387 |
) |
|
|
(3,505 |
) |
Balance
as of December 29, 2007
|
|
$ |
85,274 |
|
|
$ |
171,560 |
|
|
$ |
256,834 |
|
The
goodwill increases relate to acquisitions completed. See Business
Combinations note. The decrease in goodwill in the office furniture
segment in 2007 is due to goodwill associated with office services business
units held for sale and final purchase price allocations for previous
acquisitions. The decrease in goodwill in the office furniture
segment in 2006 is due to the impairment of the goodwill associated with
discontinued operations. The decreases in the hearth products segment
relates to the sale of a few small service and distribution
locations.
Accounts
Payable and Accrued Expenses
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Trade
accounts payable
|
|
$ |
133,293 |
|
|
$ |
102,436 |
|
|
$ |
86,945 |
|
Compensation
|
|
|
30,544 |
|
|
|
27,835 |
|
|
|
34,272 |
|
Profit
sharing and retirement expense
|
|
|
30,441 |
|
|
|
29,545 |
|
|
|
32,461 |
|
Marketing
expenses
|
|
|
57,361 |
|
|
|
60,676 |
|
|
|
54,797 |
|
Other
accrued expenses
|
|
|
115,681 |
|
|
|
108,390 |
|
|
|
100,747 |
|
|
|
$ |
367,320 |
|
|
$ |
328,882 |
|
|
$ |
309,222 |
|
Long-Term
Debt
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Note
payable to bank, revolving credit agreement with
interest at a variable rate (2007-5.46%;
2006-5.70%; 2005-4.69%)
|
|
$ |
128,000 |
|
|
$ |
144,000 |
|
|
$ |
140,000 |
|
Note
payable to bank, with interest at a fixed rate
(2007-5.03%; 2006-6.11%)
|
|
|
14,205 |
|
|
|
14,200 |
|
|
|
- |
|
Senior
notes due in 2016 with interest at a fixed rate of
5.54% per annum.
|
|
|
150,000 |
|
|
|
150,000 |
|
|
|
- |
|
Industrial
development revenue bonds, payable 2018
with interest at 3.55% per annum
|
|
|
2,300 |
|
|
|
2,300 |
|
|
|
2,300 |
|
Other
notes and amounts
|
|
|
63 |
|
|
|
794 |
|
|
|
900 |
|
Total
debt
|
|
|
294,568 |
|
|
|
311,294 |
|
|
|
143,200 |
|
Less: current
portion
|
|
|
14,253 |
|
|
|
25,994 |
|
|
|
40,150 |
|
Long-term
debt
|
|
$ |
280,315 |
|
|
$ |
285,300 |
|
|
$ |
103,050 |
|
Aggregate
maturities of long-term debt are as follows:
|
|
(In
thousands)
|
|
|
|
2007
|
|
$ |
14,253 |
|
2008
|
|
|
15 |
|
2009
|
|
|
- |
|
2010
|
|
|
128,000 |
|
2011
|
|
|
- |
|
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 29, 2007, none of
the borrowings outstanding was classified as short-term as the Corporation does
not expect to repay any 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 2007 approximates the recorded aggregate
amount.
Selling
and Administrative Expenses
|
|
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Freight
expense for shipments to customers
|
|
$ |
164,062 |
|
|
$ |
182,814 |
|
|
$ |
158,329 |
|
Amortization
of intangible and other assets
|
|
|
11,702 |
|
|
|
12,456 |
|
|
|
10,155 |
|
Product
development costs
|
|
|
23,967 |
|
|
|
27,567 |
|
|
|
27,338 |
|
Other
selling and administrative expenses
|
|
|
502,598 |
|
|
|
494,839 |
|
|
|
467,845 |
|
|
|
$ |
702,329 |
|
|
$ |
717,676 |
|
|
$ |
663,667 |
|
Income
Taxes
Significant
components of the provision for income taxes are as follows:
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
53,965 |
|
|
$ |
61,399 |
|
|
$ |
77,343 |
|
State
|
|
|
6,588 |
|
|
|
8,671 |
|
|
|
8,954 |
|
Foreign
|
|
|
811 |
|
|
|
678 |
|
|
|
131 |
|
Current
provision
|
|
|
61,364 |
|
|
|
70,748 |
|
|
|
86,428 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(3,031 |
) |
|
|
(7,528 |
) |
|
|
(8,048 |
) |
State
|
|
|
(353 |
) |
|
|
(651 |
) |
|
|
(1,081 |
) |
Foreign
|
|
|
(418 |
) |
|
|
(483 |
) |
|
|
- |
|
Deferred
provision
|
|
|
(3,802 |
) |
|
|
(8,662 |
) |
|
|
(9,129 |
) |
|
|
$ |
57,562 |
|
|
$ |
62,086 |
|
|
$ |
77,299 |
|
A
reconciliation of the statutory federal income tax rate to the Corporation’s
effective income tax rate for continuing operations is as follows:
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Federal
statutory tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State
taxes, net of federal tax effect
|
|
|
2.3 |
|
|
|
2.8 |
|
|
|
2.4 |
|
Credit
for increasing research activities
|
|
|
(0.9 |
) |
|
|
(0.7 |
) |
|
|
(0.4 |
) |
Deduction
related to domestic production activities
|
|
|
(1.4 |
) |
|
|
(0.8 |
) |
|
|
(0.9 |
) |
Extraterritorial
income exclusion
|
|
|
- |
|
|
|
(0.4 |
) |
|
|
(0.3 |
) |
Excludable
foreign income
|
|
|
(2.0 |
) |
|
|
(0.7 |
) |
|
|
- |
|
True-up
of deferred tax items
|
|
|
- |
|
|
|
(2.1 |
) |
|
|
- |
|
Other
– net
|
|
|
(0.7 |
) |
|
|
(0.1 |
) |
|
|
0.2 |
|
Effective
tax rate
|
|
|
32.3 |
% |
|
|
33.0 |
% |
|
|
36.0 |
% |
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 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)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net
long-term deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Tax
over book depreciation
|
|
$ |
1,614 |
|
|
$ |
(1,052 |
) |
|
$ |
(16,458 |
) |
Compensation
|
|
|
4,624 |
|
|
|
4,899 |
|
|
|
5,907 |
|
Goodwill
|
|
|
(38,559 |
) |
|
|
(33,826 |
) |
|
|
(30,499 |
) |
Other
– net
|
|
|
5,649 |
|
|
|
658 |
|
|
|
5,577 |
|
Total
net long-term deferred tax liabilities
|
|
|
(26,672 |
) |
|
|
(29,321 |
) |
|
|
(35,473 |
) |
Net
current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
3,491 |
|
|
|
3,563 |
|
|
|
3,858 |
|
Vacation
accrual
|
|
|
5,302 |
|
|
|
5,323 |
|
|
|
4,924 |
|
Inventory
differences
|
|
|
2,572 |
|
|
|
3,096 |
|
|
|
5,720 |
|
Deferred
income
|
|
|
(4,484 |
) |
|
|
(5,880 |
) |
|
|
(6,596 |
) |
Warranty
accruals
|
|
|
4,234 |
|
|
|
3,906 |
|
|
|
3,847 |
|
Other
– net
|
|
|
6,713 |
|
|
|
5,432 |
|
|
|
4,078 |
|
Total
net current deferred tax assets
|
|
|
17,828 |
|
|
|
15,440 |
|
|
|
15,831 |
|
Net
deferred tax (liabilities) assets
|
|
$ |
(8,844 |
) |
|
$ |
(13,881 |
) |
|
$ |
(19,642 |
) |
In June
2006, the Financial Accounting Standards Board (the “FASB”) issued
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN
48”). FIN 48 addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the
financial statements. Under FIN 48, the Corporation may recognize the
tax benefit from an uncertain tax position only if it is more likely than not
that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN 48 also
provides guidance on derecognition, classification, interest and penalties on
income taxes, and accounting in interim periods and requires increased
disclosures.
The
Corporation adopted the provisions of FIN 48 on December 31, 2006, the beginning
of fiscal 2007. As a result of the implementation of FIN 48, the
Corporation recognized a $1.7 million increase in the liability for unrecognized
benefits. This increase in liability resulted in a decrease to the
December 31, 2006 retained earnings balance in the amount of $0.5 million and a
reduction in deferred tax liabilities of $1.2 million.
(in
thousands)
|
|
|
|
Unrecognized
tax benefits, December 31, 2006
|
|
$ |
3,895 |
|
Increases
in positions taken in a prior period
|
|
|
49 |
|
Decreases
in positions taken in a prior period
|
|
|
(6 |
) |
Increases
in positions taken in a current period
|
|
|
1,018 |
|
Decreases
due to settlements
|
|
|
(2,117 |
) |
Unrecognized
tax benefits, December 29, 2007
|
|
$ |
2,839 |
|
The
amount of unrecognized tax benefits which would impact the Corporation’s
effective tax rate, if recognized, was $2.7 million at December 31, 2006 and
$2.3 million at December 29, 2007.
The
Corporation recognized interest accrued related to unrecognized tax benefits in
interest expense and penalties in operating expenses which is consistent with
the recognition of these items in prior reporting. Interest and
penalties recognized in the Income Statement amounted to a benefit of $0.5
million. As of December 31, 2006, the Corporation had recorded a
liability for interest and penalties related to unrecognized tax benefits of
$0.9 million. As of December 29, 2007, the Corporation had a recorded
liability for interest and penalties related to unrecognized tax benefits of
$0.4 million.
The
Internal Revenue Service (the “IRS”) has completed the examination of all
federal income tax returns through 2003 with no issues pending or
unresolved. The years 2004 through 2007 remain open for examination
by the IRS. The years 2002 through 2007 are currently under
examination or remain open to examination by several states.
As of
December 29, 2007, it is reasonably possible that the amount of unrecognized tax
benefits may increase or decrease within the twelve months following the
reporting date. These increases or decreases in the unrecognized tax
benefits would be due to new positions that may be taken on income tax returns,
settlement of tax positions and the closing of statues of
limitation. It is not expected that any of the changes will be
significant individually or in total to the results or financial position of the
Corporation.
Shareholders’
Equity
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Common
Stock, $1 Par Value
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
200,000,000 |
|
|
|
200,000,000 |
|
|
|
200,000,000 |
|
Issued
and outstanding
|
|
|
44,834,519 |
|
|
|
47,905,351 |
|
|
|
51,848,591 |
|
Preferred
Stock, $1 Par Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
Issued
and outstanding
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
The
Corporation purchased 3,581,707; 4,336,987; and 4,059,068 shares of its common
stock during 2007, 2006, and 2005, 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.
Components
of accumulated other comprehensive income (loss) consist of the
following:
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Balance
at beginning of period
|
|
$ |
(3,062 |
) |
|
$ |
332 |
|
|
$ |
349 |
|
Foreign
currency translation adjustments – net of tax
|
|
|
765 |
|
|
|
631 |
|
|
|
293 |
|
Change
in unrealized gains (losses) on marketable securities – net of
tax
|
|
|
(147 |
) |
|
|
- |
|
|
|
- |
|
Change
in pension and postretirement liability – net of tax
|
|
|
3,290 |
|
|
|
537 |
|
|
|
(310 |
) |
Adjustment
to initially apply SFAS 158, net of tax
|
|
|
- |
|
|
|
(4,562 |
) |
|
|
- |
|
Balance
at end of period
|
|
$ |
846 |
|
|
$ |
(3,062 |
) |
|
$ |
332 |
|
In May
2007, the Corporation registered 300,000 shares of its common stock under its
2007 Equity Plan for Non-Employee Directors of HNI Corporation. 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. Upon approval of this plan in May 2007, no awards are granted under the
1997 Equity Plan for Non-Employee Directors of HNI Corporation, but all
outstanding awards previously granted under that plan shall remain outstanding
in accordance with their terms. During 2007, 2006, and 2005, 16,194;
13,947; and 13,621 shares of Corporation common stock were issued under these
plans, respectively.
Cash
dividends declared and paid per share for each year are:
(In
dollars)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Common
shares
|
|
$ |
.78 |
|
|
$ |
.72 |
|
|
$ |
.62 |
|
During
2002, shareholders approved the 2002 Members’ Stock Purchase Plan, as amended
January 1, 2007. 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 customarily work 20 hours or more per week and who customarily work
for five months or more in any calendar year. The price of the stock
purchased under the plan is 85% of the closing price on the exercise
date. No member may purchase stock under the plan in an amount which
exceeds a maximum fair value of $25,000 in any calendar year. During
2007, 127,436 shares of common stock were issued under the plan at an average
price of $33.43. 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. An additional 280,180 shares were available for issuance
under the plan at December 29, 2007.
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 agreement 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 (three times for the Corporation’s Chairman,
President and CEO) annual salary and the average of the prior two years’
bonuses.
Stock-Based
Compensation
Under the
Corporation’s 2007 Stock-Based Compensation Plan (the “Plan”), as amended
effective May 8, 2007, 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. Upon approval of this plan in May 2007,
no future awards are granted under the Corporation’s 1995 Stock-Based
Compensation Plan, as amended, but all outstanding awards previously granted
under that plan shall remain outstanding in accordance with their
terms. As of December 29, 2007 there were approximately 5.0 million
shares available for future issuance under the 2007 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
2007, 127,436 shares of the Corporation’s common stock were issued under the MSP
Plan at an average price of $33.43.
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 29, 2007 decreased by $3.6 million, and net earnings decreased by
$2.4 million, or $.05 per basic share and $.05 per diluted
share. These results reflect stock compensation expense of $3.6
million and tax benefits of $1.2 million for the period. For the year
ended December 30, 2006, earnings before income taxes decreased by $3.2 million
and net earnings decreased by $2.1 million, or $.04 per basic share and $.04 per
diluted share.
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 years ended December 29, 2007, and December 30,
2006, cash flow from operating activities was reduced by $0.8 million and $0.9
million and cash flow from financing activities was increased by $0.8 million
and $0.9 million, respectively, 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 year ended December 31, 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 in 2005:
(In
millions, except for per share data)
|
|
2005
|
|
Net
income, as reported
|
|
$ |
137.4 |
|
Deduct: Total
stock-based employee compensation expense determined under fair value
based method for all awards, net of related tax effects
|
|
|
1.8 |
|
Pro
forma net income
|
|
$ |
135.6 |
|
Earnings
per share:
|
|
|
|
|
Basic
– as reported
|
|
$ |
2.51 |
|
Basic
– pro forma
|
|
$ |
2.48 |
|
Diluted
– as reported
|
|
$ |
2.50 |
|
Diluted
– pro forma
|
|
$ |
2.47 |
|
The stock
compensation expense for the years ended December 29, 2007 and December 30,
2006, and the stock compensation expense used in the preceding disclosure of pro
forma earnings for the year ended December 31, 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.
29, 2007
|
Year
Ended
Dec.
30, 2006
|
Year
Ended
Dec.
31, 2005
|
Expected
term
|
7
years
|
7
years
|
7
years
|
Expected
volatility:
|
|
|
|
Range
used
|
26.97%
|
29.75%
- 31.23%
|
31.77%
- 33.49%
|
Weighted-average
|
26.97%
|
31.21%
|
33.47%
|
Expected
dividend yield:
|
|
|
|
Range
used
|
1.60%
|
1.24%
- 1.43%
|
1.17%
- 1.45%
|
Weighted-average
|
1.60%
|
1.24%
|
1.45%
|
Risk-free
interest rate:
|
|
|
|
Range
used
|
4.71%
|
4.62%
- 5.09%
|
4.21%
- 4.57%
|
Expected
volatilities are based on historical volatility as the Corporation does 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 2005.
|
|
Number
of
Shares
|
|
|
Weighted-Average
Exercise
Price
|
|
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 |
|
Granted
|
|
|
185,823 |
|
|
|
48.66 |
|
Exercised
|
|
|
(214,000 |
) |
|
|
24.86 |
|
Forfeited
|
|
|
(102,373 |
) |
|
|
46.14 |
|
Outstanding
at December 29, 2007
|
|
|
1,043,066 |
|
|
$ |
38.72 |
|
A summary
of the Corporation’s nonvested shares as of December 29, 2007 and changes during
the year are presented below:
Nonvested
Shares
|
|
Shares
|
|
|
Weighted-Average
Grant-Date
Fair
Value
|
|
Nonvested
at December 30, 2006
|
|
|
665,966 |
|
|
$ |
15.97 |
|
Granted
|
|
|
185,823 |
|
|
|
15.67 |
|
Vested
|
|
|
(202,500 |
) |
|
|
11.17 |
|
Forfeited
|
|
|
(102,373 |
) |
|
|
17.64 |
|
Nonvested
at December 29, 2007
|
|
|
546,916 |
|
|
$ |
17.34 |
|
At
December 29, 2007, 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 29,
2007, follows:
Options
|
|
Number
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Weighted-Average
Remaining
Life in
Years
|
|
|
Aggregate
Intrinsic
Value
($000s)
|
|
Vested
or expected to vest
|
|
|
998,626 |
|
|
$ |
38.32 |
|
|
|
6.1 |
|
|
|
- |
|
Exercisable
|
|
|
496,150 |
|
|
$ |
29.73 |
|
|
|
4.5 |
|
|
$ |
2,893 |
|
The
weighted-average grant-date fair value of options granted was $15.67, $21.39,
and $15.74 for 2007, 2006, and 2005, respectively. Other information
for the year follows:
|
|
Year
ended
|
|
(In
thousands)
|
|
Dec.
29, 2007
|
|
|
Dec.
30, 2006
|
|
|
Dec.
31, 2005
|
|
Total
fair value of shares vested
|
|
$ |
2,261 |
|
|
$ |
1,702 |
|
|
$ |
875 |
|
Total
intrinsic value of options exercised
|
|
|
4,673 |
|
|
|
1,987 |
|
|
|
8,447 |
|
Cash
received from exercise of stock options
|
|
|
5,321 |
|
|
|
1,542 |
|
|
|
8,334 |
|
Tax
benefit realized from exercise of stock options
|
|
|
1,551 |
|
|
|
725 |
|
|
|
2,999 |
|
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 $28.1 million, $28.2 million, and $27.4 million, in
2007, 2006, and 2005, 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, $0, and $653,000, in 2007, 2006, and 2005,
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 $376,000, $352,000, and $353,000, in 2007,
2006, and 2005, 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 benefit costs recognized in the
Corporation’s balance sheets for the years prior to the adoption of the new
standard.
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Change
in benefit obligation
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$ |
19,082 |
|
|
$ |
19,738 |
|
|
$ |
18,958 |
|
Service
cost
|
|
|
480 |
|
|
|
326 |
|
|
|
303 |
|
Interest
cost
|
|
|
1,067 |
|
|
|
1,053 |
|
|
|
1,057 |
|
Plan
changes
|
|
|
(584 |
) |
|
|
0 |
|
|
|
0 |
|
Benefits
paid
|
|
|
(1,361 |
) |
|
|
(1,218 |
) |
|
|
(1,503 |
) |
Actuarial
(gain) or loss
|
|
|
(3,081 |
) |
|
|
(817 |
) |
|
|
923 |
|
Benefit
obligation at end of year
|
|
$ |
15,603 |
|
|
$ |
19,082 |
|
|
$ |
19,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value at beginning of year
|
|
$ |
6,693 |
|
|
$ |
7,582 |
|
|
$ |
8,777 |
|
Actual
return on assets
|
|
|
487 |
|
|
|
326 |
|
|
|
300 |
|
Employer
contributions
|
|
|
0 |
|
|
|
3 |
|
|
|
8 |
|
Benefits
paid
|
|
|
(1,361 |
) |
|
|
(1,218 |
) |
|
|
(1,503 |
) |
Fair
value at end of year
|
|
$ |
5,819 |
|
|
$ |
6,693 |
|
|
$ |
7,582 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
Status of Plan
|
|
$ |
(9,784 |
) |
|
$ |
(12,388 |
) |
|
$ |
(12,156 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in the Statement of Financial Position consist
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$ |
0 |
|
|
$ |
0 |
|
|
|
- |
|
Noncurrent
liabilities
|
|
$ |
9,784 |
|
|
$ |
12,388 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in Accumulated Other Comprehensive Income (before tax) consist
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
actuarial (gain)/loss
|
|
$ |
(1,273 |
) |
|
$ |
2,069 |
|
|
|
- |
|
Unrecognized
transition (asset)/obligation
|
|
|
2,654 |
|
|
|
3,618 |
|
|
|
- |
|
Unrecognized
prior service cost
|
|
|
0 |
|
|
|
431 |
|
|
|
- |
|
|
|
$ |
1,381 |
|
|
$ |
6,118 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Accumulated Other Comprehensive Income (before tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
disclosed at beginning of year
|
|
$ |
6,118 |
|
|
$ |
0 |
|
|
|
- |
|
Change
during year prior to SFAS 158 adoption
|
|
|
- |
|
|
|
0 |
|
|
|
- |
|
Change
due to the adoption of SFAS 158
|
|
|
- |
|
|
|
6,118 |
|
|
|
- |
|
Change
due to unrecognized actuarial(gain)/loss
|
|
|
(3,342 |
) |
|
|
0 |
|
|
|
- |
|
Change
due to unrecognized transition(asset)/obligation
|
|
|
(964 |
) |
|
|
0 |
|
|
|
- |
|
Change
due to unrecognized prior service cost
|
|
|
(431 |
) |
|
|
0 |
|
|
|
- |
|
Amount
disclosed at end of year
|
|
$ |
1,381 |
|
|
$ |
6,118 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of funded status
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
(12,156 |
) |
Unrecognized
actuarial (gain) or loss
|
|
|
N/A |
|
|
|
N/A |
|
|
|
3,132 |
|
Unrecognized
transition obligation or (asset)
|
|
|
N/A |
|
|
|
N/A |
|
|
|
4,199 |
|
Unrecognized
prior service cost
|
|
|
N/A |
|
|
|
N/A |
|
|
|
661 |
|
Net
amount recognized at year-end
|
|
|
N/A |
|
|
|
N/A |
|
|
$ |
(4,164 |
) |
Estimated Future Benefit
Payments (In thousands)
|
|
|
|
Fiscal
2008
|
|
$ |
1,120 |
|
Fiscal
2009
|
|
|
1,116 |
|
Fiscal
2010
|
|
|
1,126 |
|
Fiscal
2011
|
|
|
1,127 |
|
Fiscal
2012
|
|
|
1,149 |
|
Fiscal
2013 – 2017
|
|
|
6,296 |
|
|
|
|
|
|
Expected
Contributions During Fiscal 2008
|
|
|
|
|
Total
|
|
$ |
0 |
|
Plan
Assets – Percentage of Fair Value by Category
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Cash
Equivalents
|
|
|
0 |
% |
|
|
1 |
% |
|
|
0 |
% |
Equity
|
|
|
25 |
% |
|
|
25 |
% |
|
|
0 |
% |
Debt
|
|
|
75 |
% |
|
|
74 |
% |
|
|
0 |
% |
Other
|
|
|
0 |
% |
|
|
0 |
% |
|
|
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 2007, 2006, and 2005, were 6.4%, 5.8%, and
5.5% 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)
|
|
2008
|
|
Service
cost
|
|
$ |
396 |
|
Interest
cost
|
|
|
963 |
|
Expected
return on assets
|
|
|
(358 |
) |
Amortization
of unrecognized transition (asset)/obligation
|
|
|
508 |
|
Net
periodic postretirement benefit cost/(income)
|
|
$ |
1,509 |
|
A
discount rate of 6.4% and an expected long-term return on plan assets of 6.8%
were used to determine net periodic benefit cost for 2008. The
discount rate is set at the measurement date to reflect the yield of a portfolio
of high quality, fixed income debt instruments. The expected return
on plan assets is based on the specific allocation of assets and an analysis of
current market conditions.
Leases
The
Corporation leases certain warehouse, plant facilities, and
equipment. Commitments for minimum rentals under non-cancelable
leases at the end of 2007 are as follows:
(In
thousands)
|
|
Capitalized
Leases
|
|
|
Operating
Leases
|
|
2008
|
|
$ |
552 |
|
|
$ |
35,858 |
|
2009
|
|
|
431 |
|
|
|
30,871 |
|
2010
|
|
|
258 |
|
|
|
26,857 |
|
2011
|
|
|
168 |
|
|
|
22,795 |
|
2012
|
|
|
- |
|
|
|
10,224 |
|
Thereafter
|
|
|
- |
|
|
|
18,807 |
|
Total
minimum lease payments
|
|
|
1,409 |
|
|
$ |
145,412 |
|
Less: amount
representing interest
|
|
|
171 |
|
|
|
|
|
Present
value of net minimum lease payments,
including current maturities of $462
|
|
$ |
1,238 |
|
|
|
|
|
Property,
plant, and equipment at year-end include the following amounts for capitalized
leases:
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Buildings
|
|
$ |
3,299 |
|
|
$ |
3,299 |
|
|
$ |
3,299 |
|
Machinery
and equipment
|
|
|
906 |
|
|
|
- |
|
|
|
38 |
|
Office
equipment
|
|
|
- |
|
|
|
- |
|
|
|
761 |
|
|
|
|
4,205 |
|
|
|
3,299 |
|
|
|
4,098 |
|
Less: allowances
for depreciation
|
|
|
3,084 |
|
|
|
2,954 |
|
|
|
3,564 |
|
|
|
$ |
1,121 |
|
|
$ |
345 |
|
|
$ |
534 |
|
Rent
expense for the years 2007, 2006, and 2005, amounted to approximately $35.6
million, $32.1 million, and $19.5 million, respectively. The
Corporation has an operating lease for a production facility with annual rentals
totaling approximately $380,000 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 $0, $165,000, and $169,000, for the years 2007, 2006, and 2005,
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,
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 11%, 12%, and 12% of
consolidated net sales in 2007, 2006, and 2005, 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 2007, 2006, and 2005, is as follows for continuing
operations:
(In
thousands)
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
2,108,439 |
|
|
$ |
2,077,040 |
|
|
$ |
1,838,386 |
|
Hearth
products
|
|
|
462,033 |
|
|
|
602,763 |
|
|
|
594,930 |
|
|
|
$ |
2,570,472 |
|
|
$ |
2,679,803 |
|
|
$ |
2,433,316 |
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture (a)(b)
|
|
$ |
194,692 |
|
|
$ |
181,811 |
|
|
$ |
177,487 |
|
Hearth
products (c)
|
|
|
36,444 |
|
|
|
58,699 |
|
|
|
74,822 |
|
Total
operating profit
|
|
|
231,136 |
|
|
|
240,510 |
|
|
|
252,309 |
|
Unallocated
corporate expenses
|
|
|
(53,992 |
) |
|
|
(47,105 |
) |
|
|
(36,424 |
) |
Income
before income taxes
|
|
$ |
177,144 |
|
|
$ |
193,405 |
|
|
$ |
215,885 |
|
Depreciation
and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
49,294 |
|
|
$ |
48,753 |
|
|
$ |
43,967 |
|
Hearth
products
|
|
|
14,453 |
|
|
|
16,559 |
|
|
|
15,275 |
|
General
corporate
|
|
|
4,426 |
|
|
|
4,191 |
|
|
|
6,272 |
|
|
|
$ |
68,173 |
|
|
$ |
69,503 |
|
|
$ |
65,514 |
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
47,408 |
|
|
$ |
42,126 |
|
|
$ |
27,760 |
|
Hearth
products
|
|
|
8,736 |
|
|
|
11,093 |
|
|
|
8,498 |
|
General
corporate
|
|
|
2,770 |
|
|
|
6,705 |
|
|
|
5,544 |
|
|
|
$ |
58,914 |
|
|
$ |
59,924 |
|
|
$ |
41,802 |
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
724,447 |
|
|
$ |
748,285 |
|
|
$ |
617,591 |
|
Hearth
products
|
|
|
356,273 |
|
|
|
359,646 |
|
|
|
361,568 |
|
General
corporate
|
|
|
126,256 |
|
|
|
118,428 |
|
|
|
161,112 |
|
|
|
$ |
1,206,976 |
|
|
$ |
1,226,359 |
|
|
$ |
1,140,271 |
|
|
(a)
|
Included
in operating profit for the office furniture segment are pretax charges of
$8.7 million, $2.8 million, and $3.5 million, for closing of
facilities and impairment charges in 2007, 2006, and 2005,
respectively.
|
|
(b)
|
Includes
minority interest.
|
|
(c)
|
Included
in operating profit for the hearth segment are pretax charges of $1.1
million for closing facilities in
2007.
|
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
2007:
(In
thousands, except per share data)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Net
sales
|
|
$ |
609,200 |
|
|
$ |
618,160 |
|
|
$ |
674,628 |
|
|
$ |
668,484 |
|
Cost
of products sold
|
|
|
402,500 |
|
|
|
402,523 |
|
|
|
434,385 |
|
|
|
425,289 |
|
Gross
profit
|
|
|
206,700 |
|
|
|
215,637 |
|
|
|
240,243 |
|
|
|
243,195 |
|
Selling
and administrative expenses
|
|
|
170,814 |
|
|
|
169,559 |
|
|
|
176,904 |
|
|
|
185,052 |
|
Restructuring
related charges (income)
|
|
|
(136 |
) |
|
|
728 |
|
|
|
4,264 |
|
|
|
4,932 |
|
Operating
income
|
|
|
36,022 |
|
|
|
45,350 |
|
|
|
59,075 |
|
|
|
53,211 |
|
Interest
income (expense) – net
|
|
|
(4,036 |
) |
|
|
(4,578 |
) |
|
|
(4,489 |
) |
|
|
(3,829 |
) |
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
31,986 |
|
|
|
40,772 |
|
|
|
54,586 |
|
|
|
49,382 |
|
Income
taxes
|
|
|
11,363 |
|
|
|
14,404 |
|
|
|
19,342 |
|
|
|
12,032 |
|
Minority
interest in earnings of a subsidiary
|
|
|
(28 |
) |
|
|
(25 |
) |
|
|
(63 |
) |
|
|
(163 |
) |
Income
from continuing operations
|
|
|
20,651 |
|
|
|
26,393 |
|
|
|
35,307 |
|
|
|
37,513 |
|
Discontinued
operations, less applicable taxes
|
|
|
30 |
|
|
|
484 |
|
|
|
- |
|
|
|
- |
|
Net
income
|
|
$ |
20,681 |
|
|
$ |
26,877 |
|
|
$ |
35,307 |
|
|
$ |
37,513 |
|
Net
income from continuing operations – basic
|
|
$ |
.43 |
|
|
$ |
.56 |
|
|
$ |
.76 |
|
|
$ |
.82 |
|
Net
income from discontinued operations –basic
|
|
|
.00 |
|
|
|
.01 |
|
|
|
- |
|
|
|
- |
|
Net
income per common share – basic
|
|
$ |
.43 |
|
|
$ |
.57 |
|
|
$ |
.76 |
|
|
$ |
.82 |
|
Weighted-average
common sharesoutstanding – basic
|
|
|
47,996 |
|
|
|
46,937 |
|
|
|
46,256 |
|
|
|
45,550 |
|
Net
income from continuing operations –diluted
|
|
$ |
.43 |
|
|
$ |
.56 |
|
|
$ |
.76 |
|
|
$ |
.82 |
|
Net
income from discontinued operations –diluted
|
|
|
.00 |
|
|
|
.01 |
|
|
|
- |
|
|
|
- |
|
Net
income per common share – diluted
|
|
$ |
.43 |
|
|
$ |
.57 |
|
|
$ |
.76 |
|
|
$ |
.82 |
|
Weighted-average
common sharesoutstanding – diluted
|
|
|
48,278 |
|
|
|
47,199 |
|
|
|
46,487 |
|
|
|
45,775 |
|
As a Percentage of Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Gross
profit
|
|
|
33.9 |
|
|
|
34.9 |
|
|
|
35.6 |
|
|
|
36.4 |
|
Selling
and administrative expenses
|
|
|
28.0 |
|
|
|
27.4 |
|
|
|
26.2 |
|
|
|
27.7 |
|
Restructuring
related charges
|
|
|
(0.0 |
) |
|
|
0.1 |
|
|
|
0.6 |
|
|
|
0.7 |
|
Operating
income
|
|
|
5.9 |
|
|
|
7.3 |
|
|
|
8.8 |
|
|
|
8.0 |
|
Income
taxes
|
|
|
1.9 |
|
|
|
2.3 |
|
|
|
2.9 |
|
|
|
1.8 |
|
Income
from continuing operations
|
|
|
3.4 |
|
|
|
4.3 |
|
|
|
5.2 |
|
|
|
5.6 |
|
Discontinued
operations, less applicable taxes
|
|
|
0.0 |
|
|
|
0.1 |
|
|
|
- |
|
|
|
- |
|
Net
income
|
|
|
3.4 |
|
|
|
4.3 |
|
|
|
5.2 |
|
|
|
5.6 |
|
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 beforeincome 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 sharesoutstanding – 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 sharesoutstanding – 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 beforeincome 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 sharesoutstanding – 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 sharesoutstanding – 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 |
|
INVESTOR
INFORMATION
Common
Stock Market Prices and Dividends (Unaudited)
Quarterly
2007 – 2005
2007
by
Quarter
|
|
High
|
|
|
Low
|
|
|
Dividends
per
Share
|
|
1st
|
|
$ |
51.65 |
|
|
$ |
43.95 |
|
|
$ |
.195 |
|
2nd
|
|
|
47.94 |
|
|
|
40.14 |
|
|
|
.195 |
|
3rd
|
|
|
45.35 |
|
|
|
35.56 |
|
|
|
.195 |
|
4th
|
|
|
44.32 |
|
|
|
33.79 |
|
|
|
.195 |
|
Total
Dividends Paid
|
|
|
$ |
.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
Common
Stock Market Price and Price/Earnings Ratio (Unaudited)
Fiscal
Years 2007 – 2003
|
|
Market
Price
|
|
|
Diluted
|
|
|
Price/Earnings
Ratio
|
|
Year
|
|
High
|
|
|
Low
|
|
|
Earnings
per
Share
|
|
|
High
|
|
|
Low
|
|
2007
|
|
$ |
51.65 |
|
|
$ |
33.79 |
|
|
$ |
2.57 |
|
|
|
20 |
|
|
|
13 |
|
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 |
|
Five-Year
Average
|
|
|
|
24 |
|
|
|
15 |
|
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
HNI
CORPORATION AND SUBSIDIARIES
December
29, 2007
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 29, 2007: Allowance for doubtful accounts
|
|
$ |
12,796 |
|
|
$ |
3,906 |
|
|
|
- |
|
|
$ |
5,244 |
|
|
$ |
11,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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 HNI Corporation, as amended, incorporated by reference
to Exhibit 3(i) to the Registrant’s Current Report on Form 8-K filed May
8, 2007
|
|
|
|
|
|
(3ii)
|
|
By-laws
of HNI Corporation, as amended, incorporated by reference to Exhibit 3(ii)
to the Registrant’s Current Report on Form 8-K filed August 10,
2007
|
|
|
|
|
|
(4i)
|
|
Rights
Agreement dated as of August 13, 1998, by and between HNI Corporation 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)
|
|
HNI
Corporation 2007 Stock-Based Compensation Plan, as amended effective May
8, 2007, incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 29, 2007
*
|
|
|
|
|
|
(10ii)
|
|
2007
Equity Plan for Non-Employee Directors of HNI Corporation, as amended
effective May 8, 2007, incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September
29, 2007*
|
|
|
|
|
|
(10iii)
|
|
Form
of HNI Corporation Change In Control Employment Agreement, incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed November 16, 2006*
|
|
|
|
|
|
(10iv)
|
|
HNI
Corporation ERISA Supplemental Retirement Plan, as amended effective
January 1, 2005, incorporated by reference to Exhibit 10.3 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September
29, 2007*
|
|
|
|
|
|
(10v)
|
|
HNI
Corporation 2002 Members Stock Purchase Plan, 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*
|
|
|
|
|
|
(10vi)
|
|
Form
of HNI Corporation Amended and Restated Indemnity Agreement, incorporated
by reference to Exhibit 10.1 to the Registrant’s Current Report on Form
8-K filed November 14, 2007*
|
|
|
|
|
|
|
|
Form
of 2007 Equity Plan For Non-Employee Directors of HNI Corporation
Participation Agreement
|
|
|
|
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(10viii)
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Form
of HNI Corporation Stock-Based Compensation Plan Stock Option Award
Agreement, incorporated by reference to Exhibit 99D to the Registrant’s
Current Report on Form 8-K filed February 22, 2005*
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(10ix)
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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
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Exhibit
Number
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Description of
Document
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(10x)
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HNI
Corporation Profit-Sharing Retirement Plan, as amended effective January
1, 2001, incorporated by reference to Exhibit 10(xiv) to the Registrant’s
Annual Report on Form 10-K for the year ended December 29,
2001*
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(10xi)
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HNI
Corporation Long-Term Performance Plan, as amended effective January 1,
2005, incorporated by reference to Exhibit 10.6 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 29,
2007*
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(10xii)
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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
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(10xiii)
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HNI
Corporation Executive Deferred Compensation Plan, as amended effective
January 1, 2005, incorporated by reference to Exhibit 10.5 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended September
29, 2007*
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(10xiv)
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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, incorporated by reference to Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed April 10,
2006
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(10xv)
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Note
Purchase Agreement dated as of April 6, 2006, by and among HNI Corporation
and the Purchasers named therein, incorporated by reference to Exhibit
10.2 to the Registrant’s Current Report on Form 8-K filed April 10,
2006
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(10xvi)
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HNI
Corporation Directors Deferred Compensation Plan, as amended effective
January 1, 2005, incorporated by reference to Exhibit 10.7 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September
29, 2007*
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(10xvii)
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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, incorporated by
reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K
filed November 8, 2006
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(10xviii)
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HNI
Corporation Executive Bonus Plan as amended effective January 1, 2005,
incorporated by reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 29,
2007*
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(10xix)
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Form
of HNI Corporation Amendment No. 1 to Change in Control Employment
Agreement incorporated by reference to Exhibit 10.1 to the Registrant's
Current Report on Form 8-K filed August 10, 2007*
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Subsidiaries
of the Registrant
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Consent
of Independent Registered Public Accounting Firm
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Exhibit
Number
|
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Description of
Document
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Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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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
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*
Indicates management contract or compensatory plan.