form10k.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
(Mark
One)
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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 January 3, 2009
OR
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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
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 ¨ No x
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 ¨ 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 ¨
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. ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check One):
Large
accelerated filer
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x
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Accelerated
filer
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Non-accelerated
filer
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¨ (Do
not check if a smaller reporting company)
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Smaller
reporting company
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¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes ¨ No x
The
aggregate market value of the voting stock held by nonaffiliates of the
registrant, as of June 28,
2008, was $610,437,151, assuming all 5% holders are affiliates.
The
number of shares outstanding of the registrant's common stock, as of February 6,
2009 was 44,324,409.
Documents
Incorporated by Reference
Portions
of the registrant's Proxy Statement dated March 30, 2009, for the May 12, 2009,
Annual Meeting of Shareholders are incorporated by reference into Part
III.
TABLE
OF CONTENTS
PART
I
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Item
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Item
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Item
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Item 2.
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Item 3.
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PART
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Item 6.
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Item 7.
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Item
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Item 8.
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Item 9.
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Item
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Item
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PART
III
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Item
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Item
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Item
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Item
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Item
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ANNUAL
REPORT ON FORM 10-K
PART
I
General
HNI
Corporation (the “Corporation”, “we”, “us” or “our”) 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. Dealers and
wholesalers are the major channels based on sales. Hearth products
include a full array of gas, electric, wood and biomass 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 2008,
the Corporation had net sales of $2.5 billion, of which approximately $2.1
billion or 83% was attributable to office furniture products and $0.4 billion or
17% 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 later in this report for additional related discussion.
Eight
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., Hickory Business Furniture, LLC (“HBF”), 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.(“Hearth & Home”)
participates in the hearth products industry. The retail and
distribution brand for this operating unit is Fireside Hearth &
Home.
During
fiscal 2008, the Corporation completed the acquisition of HBF, a leading
provider of premium upholstered seating, textiles, wood tables and wood case
goods for the office environment for a purchase price of $75
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 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” later in this report, 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 $11.2
billion in 2008, a decrease of 2% compared to 2007, which was a 6% increase from
2006 levels. The Corporation believes the decrease in 2008 was due to
weakness in the overall economy and declining 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 products 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 50% of its hearth
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 or new distribution models.
Employees/Members
As of
January 3, 2009, the Corporation employed approximately 12,200 persons, 12,000
of whom were full-time and 200 of whom were temporary personnel. The
Corporation employed approximately 300 persons who were members of
unions. The Corporation believes 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®,
HBF®,
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
& Glo®,
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
& Glo® 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, an
environmentally friendly 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 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. 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
$27.8 million, $24.0 million and $27.6 million in product development during
fiscal 2008, 2007 and 2006, respectively, and has budgeted $23 million for
product development in fiscal 2009.
Intellectual
Property
As of
January 3, 2009, the Corporation owned 357 U.S. and 349 foreign patents and had
applications pending for 49 U.S. and 100 foreign patents. In
addition, the Corporation holds 176 U.S. and 366 foreign trademark registrations
and has applications pending for 34 U.S. and 70 foreign trademarks.
The
Corporation's principal office furniture products do not require frequent
technical changes. The Corporation believes 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’s position in the market as an innovation leader, the Corporation believes
neither any individual hearth product patent nor the Corporation’s hearth
product 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 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
2008, the Corporation’s ten largest customers represented approximately 39% of
its consolidated net sales. One customer, United Stationers Inc.,
accounted for approximately 10% of the Corporation’s consolidated net sales in
fiscal 2008, 11% in fiscal 2007, and 12% in fiscal 2006. 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 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, 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 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 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 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
January 3, 2009, the Corporation had an order backlog of approximately $130.8
million, which will be filled in the ordinary course of business within the
first few weeks of the current fiscal year. This compares with $162.0
million as of December 29, 2007, and $182.7 million as of December 30,
2006. Backlog, in terms of percentage of net sales, was 5.3%, 6.3%
and 6.8%, for fiscal 2008, 2007 and 2006, 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 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 large
office furniture manufacturers, which cover 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 a broad range of manufacturers, including
Travis Industries, Inc., Lennox International Inc., Monessen Hearth Systems
Company, DESA Fmi LLC, Wolf Steel Ltd. (Napolean) and FPI Fireplace Products
International Ltd.
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 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” later in this report.
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. The Corporation also routinely
employs ongoing cost control disciplines. 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 use of materials and substances in products, the management of wastes
resulting from use of certain material and the remediation of contamination
associated with releases of hazardous substances used in the
past. Although the Corporation believes it is in material compliance
with all of the various regulations applicable to its business, there can be no
assurance 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 with the
Corporation’s environmental objectives creates a model of the triple bottom line
of sustainable development where members work toward shared goals of personal
growth, economic reward and a healthy environment for the future.
Over the
past several years, 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 2009
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 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 January
3, 2009, December 29, 2007, and December 30, 2006, is discussed in “Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations” later in this report.
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 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 Annual Report on Form 10-K (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,” “would” and variations of such words, and similar
expressions identify forward-looking statements.
Forward-looking
statements involve known and unknown risks and uncertainties, which may cause
the Corporation’s actual results in the future to differ materially from
expected results. 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 “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 “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 advises 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 SEC.
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.
Unfavorable
economic and market conditions could reduce our sales and profitability and as a
result, our operating results may be adversely affected.
Economic
conditions have recently deteriorated significantly in the U. S. and many of the
countries and regions in which we do business, and may remain challenging for
the foreseeable future. The recent downturns in the economy in the
U.S. and in international markets have had, and may continue to have, a
significant adverse impact on demand for our products. General
business and economic conditions that could affect us include short-term and
long-term interest rates, unemployment, inflation, fluctuations in debt and
equity capital markets, limited availability of consumer financing and weak
credit markets, and the strength of the U.S. economy and the local economies in
which we operate.
In
particular, the recent financial crisis affecting the banking system and
financial markets and the current uncertainty in global economic conditions have
resulted in a tightening in the credit markets, a low level of liquidity in many
financial markets, and volatility in credit, equity and fixed income
markets. There could be a number of other effects from these economic
developments on our business, including reduced demand for products; insolvency
of our dealers, resulting in increased provisions for credit losses; insolvency
of our key suppliers resulting in product delays; inability of customers to
obtain credit to finance purchases of our products; decreased customer demand,
including order delays or cancellations and counterparty failures negatively
impacting our treasury operations.
In
addition, the current negative worldwide economic conditions and market
instability makes it increasingly difficult for us, our customers and our
suppliers to accurately forecast future product demand trends, which could cause
us to incur excess costs. Additionally, this forecasting difficulty
could cause a shortage of products, labor, or materials used in our products
that could result in an inability to satisfy demand for our products and a loss
of market share.
We
may need to take additional impairment charges related to goodwill and
indefinite-lived intangible assets, which would adversely affect our results of
operations.
Goodwill
and other acquired intangible assets with indefinite lives are not amortized but
are annually tested for impairment, and when an event occurs or circumstances
change such that it is reasonably possible that an impairment may exist. We test
for impairment annually during the fourth quarter of the year and whenever
indicators of impairment exist. We test goodwill for impairment by
first comparing the carrying value of net assets to the fair value of the
reporting unit. If the fair value is determined to be less than carrying value,
a second step is performed to determine the implied fair value of goodwill
associated with the reporting unit. If the carrying value of goodwill
exceeds the implied fair value of goodwill, such excess represents the amount of
goodwill impairment, and, accordingly such impairment is
recognized.
We
estimate the fair values of the reporting units using discounted cash
flows. Forecasts of future cash flows are based on our best estimate
of longer-term broad market trends. We combine this trend data with
estimates of current economic conditions in the U.S., competitor behavior, the
mix of product sales, commodity costs, wage rates, the level of manufacturing
capacity, and the pricing environment. In addition, estimates of fair
value are impacted by estimates of the market-participant-derived weighted
average cost of capital. Changes in these forecasts could
significantly change the amount of impairment recorded, if any.
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., Monessen Hearth Systems Company, DESA Fmi LLC, Wolf
Steel Ltd. (Napolean) and FPI Fireplace Products International
Ltd.. 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 who
primarily manufacture and source products 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 2008, our ten largest customers represented
approximately 39% 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
an aggressive private label initiative to increase sales of office
furniture. If 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 source 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 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
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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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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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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adverse
impact on overall profitability if acquired businesses do not achieve the
financial results projected in our valuation
models;
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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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inaccurate
assessment of undisclosed, contingent, or other liabilities or problems
and unanticipated costs associated with the acquisition;
and
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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.
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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 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 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, commercial
construction and office vacancy rates. 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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changes
in labor laws and regulations affecting our ability to hire, retain or
dismiss employees;
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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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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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unfavorable
business conditions or economic instability in any particular country or
region; and
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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, term loan credit agreement and note purchase
agreement may limit our operating and financial flexibility.
Our
existing credit facility, term loan credit agreement, dated as of June 30, 2008,
pursuant to which we borrowed $50 million in the form of a term loan, 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 and term loan restrict 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. Our credit facility, term loan and note
purchase agreement also require us to maintain certain financial
covenants.
Our
failure to comply with the obligations under our credit facility or term loan
may result in an event of default, which, if not cured or waived, may cause
accelerated repayment of the indebtedness under both the credit facility and
term loan and could result in a cross default under our note purchase
agreement. We cannot be certain we will have sufficient funds
available to pay any accelerated repayments or that we will have the ability to
refinance accelerated repayments 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 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
relationship with the U.S. government and various state and local governments is
subject to uncertain future funding levels and federal, state and local
procurement laws and is governed by restrictive contract terms; any of these
factors could limit current or future business.
We derive
a significant portion of our revenue from sales to various U.S. federal, state
and local government agencies and departments. Our ability to compete
successfully for and retain business with the U.S. government, as well as with
state and local governments, is highly dependent on cost-effective
performance. Our government business is highly sensitive to changes
in procurement laws, national, international, state and local public priorities
and budgets at all levels of government.
Our
contracts with these government entities are subject to various statutes and
regulations that apply to companies doing business with the
government. The U.S. government as well as state and local
governments can typically terminate or modify their contracts with us either for
their convenience or if we default by failing to perform under the terms of the
applicable contract. A termination arising out of our default could
expose us to liability and impede our ability to compete in the future for
contracts and orders with agencies and departments at all levels of
government. Moreover, we are subject to investigation and audit for
compliance with the requirements governing government contracts, including
requirements related to procurement integrity, export controls, employment
practices, the accuracy of records and reporting of costs. If we were
found to have committed fraud or certain criminal offenses, we could be
suspended or debarred from all further federal, state or local government
contracting.
Disruptions
in financial markets may adversely impact availability and cost of credit and
business and consumer spending patterns.
As noted
in other risks identified above, our ability to make scheduled payments or to
refinance debt obligations will depend on our operating and financial
performance, which in turn is subject to prevailing economic conditions and to
financial, business and other factors beyond our control. Despite the
current subprime mortgage crisis and disruptions in the financial markets,
including the bankruptcy or restructuring of certain financial institutions, we
believe the lenders participating in our revolving credit facility will be
willing and able to provide financing in accordance with their contractual
obligations. However, the current economic environment may adversely
impact the availability and cost of credit in the future.
Disruptions
in the financial markets may have an adverse effect on the U.S. and world
economy, which could negatively impact business and consumer spending
patterns. Current tightening of credit in financial markets also
adversely affects the ability of customers and suppliers to obtain financing for
significant purchases and operations and could result in a decrease in or
cancellation of orders for our products. There is no assurance
government responses to the disruptions in the financial markets will restore
business and consumer confidence, stabilize the markets or increase liquidity
and the availability of credit.
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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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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changes
in labor laws and regulations may affect our ability to hire, retain or
dismiss members and the cost and structure of our corporate compliance
practices;
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changes
in securities laws, SEC rules or NYSE listing standards, may increase
governmental and non-governmental organization oversight of our business,
dictate changes in some of our corporate governance, securities disclosure
and corporate compliance practices and cause our legal and financial
accounting costs to increase;
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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 or
equipment;
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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 11.5 million
square feet. Of this total, approximately 3.0 million square feet are
leased.
Although
the plants are of varying ages, the Corporation believes they are well
maintained, equipped with modern and efficient equipment, in good operating
condition and suitable for the purposes for which they are being
used. The Corporation has sufficient capacity to increase output at
most locations by increasing the use of overtime or the number of production
shifts employed.
The
Corporation's principal manufacturing and distribution facilities (200,000
square feet in size or larger) are as follows:
Location
|
|
Approximate
Square
Feet
|
|
Owned
or
Leased
|
|
Description
of
Use
|
|
|
|
|
|
|
|
Cedartown,
Georgia
|
|
555,559
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture
|
|
|
|
|
|
|
|
Dongguan,
China
|
|
1,007,716
|
|
Owned
|
|
Manufacturing
wood and nonwood casegoods and seating office furniture
|
|
|
|
|
|
|
|
Florence,
Alabama
|
|
304,365
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture
|
|
|
|
|
|
|
|
Hickory,
North Carolina
|
|
206,316
|
|
Owned
|
|
Manufacturing
wood casegoods and seating office furniture
|
|
|
|
|
|
|
|
Lake
City, Minnesota
|
|
241,500
|
|
Owned
|
|
Manufacturing
metal prefabricated fireplaces (1)
|
|
|
|
|
|
|
|
Lithia
Springs, Georgia
|
|
585,000
|
|
Leased
|
|
Warehousing
office furniture
|
|
|
|
|
|
|
|
Mt.
Pleasant, Iowa
|
|
288,006
|
|
Owned
|
|
Manufacturing
metal prefabricated fireplaces (1)
|
|
|
|
|
|
|
|
Muscatine,
Iowa
|
|
272,900
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture
|
|
|
|
|
|
|
|
Muscatine,
Iowa
|
|
578,284
|
|
Owned
|
|
Warehousing
office furniture
|
|
|
|
|
|
|
|
Muscatine,
Iowa
|
|
236,100
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture
|
|
|
|
|
|
|
|
Muscatine,
Iowa
|
|
636,250
|
|
Owned
|
|
Manufacturing
nonwood casegoods and systems office furniture(1)
|
|
|
|
|
|
|
|
Muscatine,
Iowa
|
|
237,800
|
|
Owned
|
|
Manufacturing
nonwood seating office furniture
|
|
|
|
|
|
|
|
Orleans,
Indiana
|
|
1,196,946
|
|
Owned
|
|
Manufacturing
wood casegoods and seating office furniture(1)
|
|
|
|
|
|
|
|
Owensboro,
Kentucky
|
|
311,575
|
|
Owned
|
|
Manufacturing
wood seating office furniture
|
|
|
|
|
|
|
|
South
Gate, California
|
|
499,400
|
|
Owned
|
|
Manufacturing
nonwood casegoods office furniture (1)
|
|
|
|
|
|
|
|
Wayland,
New York
|
|
716,484
|
|
Owned
|
|
Manufacturing
wood casegoods and seating office furniture
(1)
|
|
(1)
|
Also
includes a regional warehouse/distribution
center
|
Other
Corporation facilities, under 200,000 square feet in size, are located in
various communities throughout the United States, 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 2.4 million square feet
are leased. The Corporation also leases sales showroom space in
office furniture market centers in several major metropolitan
areas.
There are
no major encumbrances on Corporation-owned properties. Refer to
Property, Plant, and Equipment in the Notes to Consolidated Financial Statements
for related cost, accumulated depreciation and net book value data.
The
Corporation is involved in various kinds of disputes and legal proceedings that
have arisen in the 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
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
January
3, 2009
Name
|
|
Age
|
|
Family
Relationship
|
|
Position
|
|
Position
Held
Since
|
|
Other
Business Experience
During Past Five Years
|
|
|
|
|
|
|
|
|
|
|
|
Stan
A. Askren
|
|
48
|
|
None
|
|
Chairman
of the Board Chief Executive Officer President Director
|
|
2004
2004
2003
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
M. Bradford
|
|
51
|
|
None
|
|
Vice
President, General Counsel and Secretary
|
|
2008
|
|
President
and Regional General Counsel for The Americas, ICI Group Services
(2003-08); General Counsel, North America, ICI Paints
(2004-08)
|
|
|
|
|
|
|
|
|
|
|
|
Marshall
H. Bridges
|
|
39
|
|
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
|
|
58
|
|
None
|
|
Vice
President, Member and Community Relations
|
|
2007
|
|
President
and CEO, Greater Muscatine Chamber of Commerce and Industry
(2003-07)
|
|
|
|
|
|
|
|
|
|
|
|
Bradley
D. Determan
|
|
47
|
|
None
|
|
Executive
Vice President President, Hearth & Home Technologies
Inc.
|
|
2005
2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerald
K. Dittmer
|
|
51
|
|
None
|
|
Executive
Vice President, President, The HON Company
|
|
2008
|
|
Vice
President and Chief Financial Officer (2001-08)
|
|
|
|
|
|
|
|
|
|
|
|
Robert
J. Driessnack
|
|
50
|
|
None
|
|
Vice
President, Controller
|
|
2004
|
|
Chief
Financial Officer, Retail Division, NCR Corporation
(2002-04)
|
|
|
|
|
|
|
|
|
|
|
|
Tamara
S. Feldman
|
|
48
|
|
None
|
|
Vice
President, Financial Reporting
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas
L. Jones
|
|
50
|
|
None
|
|
Vice
President and Chief Information Officer
|
|
2005
|
|
Vice
President, Business Systems (2001-05)
|
|
|
|
|
|
|
|
|
|
|
|
Marco
V. Molinari
|
|
49
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
Alan
R. Moorhead
|
|
57
|
|
None
|
|
Vice
President, Internal Audit
|
|
2008
|
|
Director,
Internal Audit (2006-08); Vice President, Audit Director, Assurance, Inc.
(2001-06)
|
|
|
|
|
|
|
|
|
|
|
|
Jean
M. Reynolds
|
|
51
|
|
None
|
|
Vice
President, Corporate Marketing and E-Commerce President, Maxon Furniture
Inc.
|
|
2008
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kurt
A. Tjaden
|
|
45
|
|
None
|
|
Vice
President and Chief Financial Officer
|
|
2008
|
|
Vice
President and Chief Financial Officer, Asia, Whirlpool Corporation
(2007-08); Vice President and Chief Financial Officer, Pure Fishing, LLC
(2001-06)
|
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 2008, the Corporation
had 8,274 stockholders of record.
As of
February 2, 2009, Wells Fargo Shareowner Services, St. Paul, Minnesota, 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: Wells Fargo Shareowner Services, P.O. Box
64874, St. Paul, MN 55164-0874 or telephone 800/468-9716. Prior to
this date Computershare Investor Services, L.L.C. provided this
service.
Common
Stock Market Prices and Dividends (Unaudited) and Common Stock Market Price and
Price/Earnings Ratio (Unaudited) are presented in the Investor Information
section which follows the Notes to Consolidated Financial Statements filed as
part of this report.
The
Corporation expects to continue its policy of paying regular quarterly cash
dividends. Dividends have been paid each quarter since the
Corporation paid its first dividend in 1955. The average dividend
payout percentage for the most recent three-year period has been 29% of prior
year earnings. Future dividends are dependent on future earnings,
capital requirements and the Corporation’s financial condition.
The
following is a summary of share repurchase activity during the fourth quarter
ended January 3, 2009.
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
|
|
09/28/08-
11/01/08
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
163,612,128 |
|
11/02/08-
11/29/08
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
163,612,128 |
|
11/30/08-
01/03/09
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
$ |
163,612,128 |
|
Total
|
|
|
- |
|
|
$ |
- |
|
|
|
- |
|
|
|
|
|
(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 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.
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
Per
Common Share Data (Basic and Dilutive)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from Continuing Operations – basic
|
|
$ |
1.03 |
|
|
$ |
2.57 |
|
|
$ |
2.59 |
|
|
$ |
2.53 |
|
|
$ |
1.99 |
|
Income
from Continuing Operations – diluted
|
|
|
1.02 |
|
|
|
2.55 |
|
|
|
2.57 |
|
|
|
2.51 |
|
|
|
1.97 |
|
Net
Income – basic
|
|
|
1.03 |
|
|
|
2.58 |
|
|
|
2.46 |
|
|
|
2.51 |
|
|
|
1.99 |
|
Net
Income – diluted
|
|
|
1.02 |
|
|
|
2.57 |
|
|
|
2.45 |
|
|
|
2.50 |
|
|
|
1.97 |
|
Cash
Dividends
|
|
|
.86 |
|
|
|
.78 |
|
|
|
.72 |
|
|
|
.62 |
|
|
|
.56 |
|
Book
Value – year-end
|
|
|
10.13 |
|
|
|
10.24 |
|
|
|
10.35 |
|
|
|
11.46 |
|
|
|
12.10 |
|
Net
Working Capital – year-end
|
|
|
1.00 |
|
|
|
2.33 |
|
|
|
3.04 |
|
|
|
2.48 |
|
|
|
1.96 |
|
Operating
Results (Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Sales
|
|
$ |
2,477,587 |
|
|
$ |
2,570,472 |
|
|
$ |
2,679,803 |
|
|
$ |
2,433,316 |
|
|
$ |
2,084,435 |
|
Gross
Profit as a % of Net Sales
|
|
|
33.4 |
% |
|
|
35.2 |
% |
|
|
34.6 |
% |
|
|
36.3 |
% |
|
|
36.0 |
% |
Interest
Expense
|
|
$ |
16,865 |
|
|
$ |
18,161 |
|
|
$ |
14,323 |
|
|
$ |
2,355 |
|
|
$ |
886 |
|
Income
from Continuing Operations
|
|
|
45,450 |
|
|
|
119,864 |
|
|
|
129,672 |
|
|
|
138,166 |
|
|
|
113,660 |
|
Income
from Continuing Operations as a % of Net Sales
|
|
|
1.8 |
% |
|
|
4.7 |
% |
|
|
4.8 |
% |
|
|
5.7 |
% |
|
|
5.5 |
% |
Discontinued
Operations(a)
|
|
$ |
- |
|
|
$ |
514 |
|
|
$ |
(6,297 |
) |
|
$ |
(746 |
) |
|
$ |
(78 |
) |
Net
Income
|
|
|
45,450 |
|
|
|
120,378 |
|
|
|
123,375 |
|
|
|
137,420 |
|
|
|
113,582 |
|
Net
Income as a % of Net Sales
|
|
|
1.8 |
% |
|
|
4.7 |
% |
|
|
4.6 |
% |
|
|
5.6 |
% |
|
|
5.4 |
% |
Cash
Dividends
|
|
$ |
38,095 |
|
|
$ |
36,408 |
|
|
$ |
36,028 |
|
|
$ |
33,841 |
|
|
$ |
32,023 |
|
%
Return on Average Shareholders’ Equity
|
|
|
10.0 |
% |
|
|
25.2 |
% |
|
|
22.6 |
% |
|
|
21.8 |
% |
|
|
16.5 |
% |
Depreciation
and Amortization
|
|
$ |
70,155 |
|
|
$ |
68,173 |
|
|
$ |
69,503 |
|
|
$ |
65,514 |
|
|
$ |
66,703 |
|
Distribution
of Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
Paid to Shareholders
|
|
|
83.8 |
% |
|
|
30.2 |
% |
|
|
29.2 |
% |
|
|
24.6 |
% |
|
|
28.2 |
% |
%
Reinvested in Business
|
|
|
16.2 |
% |
|
|
69.8 |
% |
|
|
70.8 |
% |
|
|
75.4 |
% |
|
|
71.8 |
% |
Financial
Position (Thousands of Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
$ |
417,841 |
|
|
$ |
489,072 |
|
|
$ |
504,174 |
|
|
$ |
486,598 |
|
|
$ |
374,579 |
|
Current
Liabilities
|
|
|
373,625 |
|
|
|
384,461 |
|
|
|
358,542 |
|
|
|
358,174 |
|
|
|
266,250 |
|
Working
Capital
|
|
|
44,216 |
|
|
|
104,611 |
|
|
|
145,632 |
|
|
|
128,424 |
|
|
|
108,329 |
|
Current
Ratio
|
|
|
1.12 |
|
|
|
1.27 |
|
|
|
1.41 |
|
|
|
1.36 |
|
|
|
1.41 |
|
Total
Assets
|
|
$ |
1,165,629 |
|
|
$ |
1,206,976 |
|
|
$ |
1,226,359 |
|
|
$ |
1,140,271 |
|
|
$ |
1,021,657 |
|
%
Return on Beginning Assets Employed
|
|
|
7.0 |
% |
|
|
15.8 |
% |
|
|
18.1 |
% |
|
|
21.2 |
% |
|
|
17.5 |
% |
Long-Term
Debt and Capital Lease Obligations
|
|
$ |
267,343 |
|
|
$ |
281,091 |
|
|
$ |
285,974 |
|
|
$ |
103,869 |
|
|
$ |
3,645 |
|
Shareholders’
Equity
|
|
|
448,833 |
|
|
|
458,908 |
|
|
|
495,919 |
|
|
|
593,944 |
|
|
|
669,163 |
|
Current
Share Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of Shares Outstanding at Year-End
|
|
|
44,324,409 |
|
|
|
44,834,519 |
|
|
|
47,905,351 |
|
|
|
51,848,591 |
|
|
|
55,303,323 |
|
Weighted-Average
Shares Outstanding During Year – basic
|
|
|
44,309,765 |
|
|
|
46,684,774 |
|
|
|
50,059,443 |
|
|
|
54,649,199 |
|
|
|
57,127,110 |
|
Weighted-Average
Shares Outstanding During Year – diluted
|
|
|
44,433,945 |
|
|
|
46,925,161 |
|
|
|
50,374,758 |
|
|
|
55,033,741 |
|
|
|
57,577,630 |
|
Number
of Shareholders of Record at Year-End
|
|
|
8,274 |
|
|
|
7,625 |
|
|
|
7,475 |
|
|
|
6,702 |
|
|
|
6,465 |
|
Other
Operational Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures (Thousands of Dollars)
|
|
$ |
70,083 |
|
|
$ |
58,568 |
|
|
$ |
58,921 |
|
|
$ |
38,912 |
|
|
$ |
32,417 |
|
Members
(Employees) at Year-End
|
|
|
12,241 |
(b) |
|
|
13,271 |
(b) |
|
|
14,170 |
(b) |
|
|
12,504 |
(b) |
|
|
10,589 |
(b) |
|
(a)
|
Component
reported as discontinued operations acquired in
2004.
|
|
(b)
|
Includes
acquisitions completed during the fiscal
year.
|
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 heading
“Item 1A Risk Factors” 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.
The
Corporation’s results were negatively impacted by macroeconomic pressures during
2008. Small business confidence, corporate profits and employment all
decreased. Instability in the global financial markets caused credit
to become scarce and, when available, generally more expensive. New
housing starts continued to decline, reaching historic lows. Steel
and fuel costs experienced rapid, steep inflation before abating due to
widespread economic weakness toward the end of the year. These
factors impacted the supplies-driven channel of the Corporation’s office
furniture segment and the hearth segment dramatically during
2008. The contract channel of the office furniture segment began to
experience the impact in order trends at the end of 2008. As a result
the Corporation implemented actions to adjust to lower demand
levels. These included reductions in staffing, short work weeks and
other actions to reduce labor costs. The Corporation completed the
complicated task of consolidating a manufacturing facility, closing two
distribution centers and starting up a new distribution center in its office
furniture segment in 2008.
Net sales
during 2008 were $2.5 billion, a decrease of 3.6 percent, compared to net sales
of $2.6 billion in 2007. The sales decline was driven by lower volume
in the supplies-driven channel of the office furniture segment and the new
construction channel of the hearth products segment.
The
Corporation completed the acquisition of HBF a leading provider of premium
upholstered seating, textiles, wood tables and wood case goods for the office
environment during 2008. The Corporation recorded $21.8 million of
goodwill and intangible impairment charges during 2008 related to reporting
units acquired over the past five years in its office furniture segment due to
current and projected market and economic conditions.
Management
believes the volatile and uncertain economic outlook will negatively impact both
segments of its business in 2009. The Corporation is working to
mitigate substantial economic and market weakness by eliminating waste,
attacking structural cost and streamlining its 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 (the
“Board”). 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 2008 ended on January 3, 2009; 2007 ended on
December 29, 2007; and fiscal 2006 ended on December 30, 2006. The
financial statements for fiscal year 2008 are on a 53-week basis; 2007 and 2006
are 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 collectability of the account. As such, these factors may
change over time causing the Corporation to adjust the reserve level
accordingly.
When the
Corporation determines 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
January 3, 2009, there was approximately $247 million in outstanding accounts
receivable and $9 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 $11
million at year end 2007 and $13 million at year end 2006.
Inventory valuation – The
Corporation valued 83% of its inventory by the last-in, first-out (“LIFO”)
method at January 3, 2009. Additionally, the Corporation evaluates
inventory reserves in terms of excess and obsolete exposure. This
evaluation includes such factors as anticipated usage, inventory turnover,
inventory levels and ultimate product sales value. As such, these
factors may change over time causing the Corporation to adjust the reserve level
accordingly. The Corporation’s reserves for excess and obsolete
inventory were approximately $8 million at year end 2008, $9 million at year-end
2007 and $8 million at year-end 2006.
Long-lived assets - The
Corporation reviews long-lived assets for impairment as events or changes in
circumstances occur indicating 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, “Goodwill and Other Intangible Assets” the
Corporation evaluates its goodwill for impairment on an annual basis during the
fourth quarter or whenever indicators of impairment exist. The
Corporation estimates the fair value of its reporting units using various
valuation techniques, with the primary technique being a discounted cash flow
analysis. The Corporation has eleven reporting units within its
office furniture and hearth products operating segments, of which ten contained
goodwill. These reporting units constitute components for which
discrete financial information is available and regularly reviewed by segment
management. Determining the fair value of a reporting unit involves
the use of significant estimates and assumptions. The estimate of
fair value of each reporting unit is based on management’s projection of
revenues, gross margin, operating costs and cash flows considering historical
and estimated future results, general economic and market conditions as well as
the impact of planned business and operational strategies. The
valuations employ present value techniques to measure fair value and consider
market factors. Management believes the assumptions used for the
impairment test are consistent with those utilized by a market participant in
performing similar valuations of its reporting units. A separate
discount rate was utilized for each reporting unit with rates ranging from 10.5%
to 12.0%. Management bases its fair value estimates on assumptions
they believe to be reasonable at the time, but such assumptions are subject to
inherent uncertainty. Actual results may differ from those
estimates. In addition, for reasonableness, the summation of all
reporting units’ fair values is compared to the Corporation’s market
capitalization. If the fair value of the reporting unit is less than
its carrying value, an additional step is required to determine the implied fair
value of goodwill associated with that reporting unit. The implied
fair value of goodwill is determined by first allocating the fair value of the
reporting unit to all of its assets and liabilities and then computing the
excess of the reporting unit’s fair value over the amounts assigned to the
assets and liabilities. If the carrying value of goodwill exceeds the
implied fair value of goodwill, such excess represents the amount of goodwill
impairment, and, accordingly such impairment is recognized.
As a
result of the review performed in the fourth quarter of 2008, the Corporation
determined the carrying amount of certain reporting units acquired over the past
few years in the office furniture segment exceeded their fair
value. Management then compared the carrying value of goodwill to the
implied fair value of the goodwill in each of these reporting units, and
concluded that $17 million of impairment charges needed to be
recognized. The impacted reporting units included an office furniture
services unit, dealer distribution unit, and a recent acquisition with goodwill
charges of approximately $10 million, $5 million and $2 million,
respectively.
The
changes to fair value in the reporting units that triggered impairment charges
in the fourth quarter were primarily attributable to the deterioration in market
conditions experienced in late 2008 which also caused management to change its
estimates of future results. The Corporation factored these current
market conditions and estimates into its projected forecasts of sales, operating
income and cash flows of each reporting unit through the course of its strategic
planning process completed in the fourth quarter.
The
significant estimates and assumptions used in estimating future cash flows of
its reporting units are based on management’s view of longer-term broad market
trends. Management combines this trend data with estimates of current
economic conditions in the U.S., competitor behavior, the mix of product sales,
commodity costs, wage rates, the level of manufacturing capacity, and the
pricing environment. In addition, estimates of fair value are
impacted by estimates of the market participant derived weighted average cost of
capital. The Corporation’s cash flow projections in all of its
reporting units assumed declining revenue and cash flows in 2009 and that
significant recovery would not begin until after 2010. As a
reasonableness test, management also compared the market capitalization of the
Corporation at January 3, 2009 to the aggregate fair value of the reporting
units, resulting in an implied control premium of approximately 30
percent. Management believes this implied control premium is
reasonable, in light of the synergies across its operating units, lean
manufacturing environment and strong position in the markets it
serves.
Goodwill
of approximately $268 million remains on the consolidated balance sheet as of
the end of fiscal 2008.
The
Corporation also determines the fair value of indefinite lived trade names on an
annual basis during the fourth quarter or whenever indication of impairment
exists. The Corporation performed its fiscal 2008 assessment of
indefinite lived trade names during the fourth quarter. The estimate
of the fair value of the trade names was based on a discounted cash flow model
using inputs which included: projected revenues from management’s
long term plan, assumed royalty rates that could be payable if the trade names
were not owned and a discount rate. As a result of the review the
Corporation determined the carrying value of certain trade names acquired over
the past few years in the office furniture segment exceeded their fair value and
concluded that a $4.8 million impairment charge needed to be
recognized. A carrying value of trade names of approximately $61
million remains on the consolidated balance sheet at the end of fiscal
2008.
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. No impairment losses related to definite lived intangibles
were recorded. Intangibles, net of amortization, of approximately $79
million are included on the consolidated balance sheet as of the end of fiscal
2008.
Key to
recoverability of goodwill, indefinite-lived intangibles and long-lived assets
is the forecast of the depth and duration of the economic downturn and its
impact on future revenues, operating margins, and cash
flows. Management’s projection for the U.S. office furniture and
domestic hearth markets and global economic conditions is inherently subject to
a number of uncertain factors, such as the depth and duration of the global
economic slowdown, U.S housing market, credit availability and borrowing rates,
and overall consumer confidence. In the near term, as management
monitors the above factors, it is possible they may change the revenue and cash
flow projections of certain reporting units, which may require the recording of
additional asset impairment charges. There are certain reporting
units that have been recently acquired and therefore have a historical cost that
is closer to the current fair value. For one of its reporting units
within the office furniture segment, a minor downward modification in forecasted
results would result in additional impairment charges. This reporting
unit has approximately $9 million of goodwill at January 3, 2009. For
all other reporting units, where impairment charges have not been recorded, the
calculated fair value exceeds the carrying value of the reporting unit by at
least 15%.
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. As
of January 3, 2009, those liabilities totaled $29 million. 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. 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 $1.6 million
in 2008, $3.6 million in 2007 and $3.2 million in 2006. The decrease
in cost in 2008 was due to a true-up adjustment to estimated forfeitures based
on current year events.
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 Financial Accounting Standards Board (“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 in the Notes to
Consolidated Financial Statements for additional information.
In
September 2006, the FASB issued SFAS No. 157 “Fair Value Measurements” (“SFAS
157”) 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. The Corporation partially adopted SFAS 157 on December
30, 2007, the beginning of its 2008 fiscal year. The Corporation has
not applied the provisions of SFAS 157 to goodwill and intangibles in accordance
with Financial Accounting Standards Board Staff Position 157-2. The
Corporation will adopt the new standard on January 4, 2009, the beginning of its
2009 fiscal year. The Corporation is still evaluating the impact but
does not expect the adoption to have a material impact on its financial
statements.
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. The Corporation
adopted SFAS 159 on December 30, 2007, the beginning of fiscal
2008. As the Corporation did not elect to fair value any additional
assets or liabilities it did not have a material impact on its financial
statements.
In
December 2007, the FASB issued SFAS No. 141 (Revised), “Business Combinations”
(“SFAS 141(R)”), replacing SFAS No. 141, “Business Combinations” (“SFAS 141”),
and SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements
– An Amendment of ARB No. 51” (“SFAS 160”). SFAS 141(R) retains the
fundamental requirements of SFAS 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 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 160, which are to be applied retrospectively for
all periods presented, SFAS 141(R) and SFAS 160 are to be applied prospectively
in financial statements issued for fiscal years beginning after December 15,
2008. The Corporation is not able to predict the impact this guidance
will have on the accounting for acquisitions it may complete in future
periods. For acquisitions completed prior to January 3, 2009, the new
standard requires that changes in deferred tax asset valuation allowances and
acquired income tax uncertainties after the measurement period must be
recognized in earnings rather than as an adjustment to the cost of the
acquisition. The Corporation does not expect this new guidance or the
adoption of FAS160 to have a significant impact on its consolidated financial
statements.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No. 133 (“SFAS
161”). SFAS 161 expends disclosures for derivative instruments by
requiring entities to disclose the fair value of derivative instruments and
their gains or losses in tabular format. SFAS 161 also requires
disclosures of information about credit risk-related contingent features in
derivative agreements, counterparty credit risk and strategies and objectives
for using derivative instruments. SFAS 161 will become effective for
fiscal years beginning after November 15, 2008. The Corporation will
adopt this new accounting standard on January 4, 2009, the beginning of its
fiscal year. The Corporation does not expect the adoption to have a
material impact on its financial statements.
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
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net
Sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost
of products sold
|
|
|
66.6 |
|
|
|
64.8 |
|
|
|
65.4 |
|
Gross
profit
|
|
|
33.4 |
|
|
|
35.2 |
|
|
|
34.6 |
|
Selling
and administrative expenses
|
|
|
29.0 |
|
|
|
27.3 |
|
|
|
26.8 |
|
Restructuring
related charges
|
|
|
1.0 |
|
|
|
0.4 |
|
|
|
0.1 |
|
Operating
income
|
|
|
3.4 |
|
|
|
7.5 |
|
|
|
7.7 |
|
Interest
income (expense) net
|
|
|
(0.6 |
) |
|
|
(0.7 |
) |
|
|
(0.5 |
) |
Earnings
from continuing operations before
income
taxes and minority interest
|
|
|
2.8 |
|
|
|
6.9 |
|
|
|
7.2 |
|
Income
taxes
|
|
|
1.0 |
|
|
|
2.2 |
|
|
|
2.4 |
|
Minority
interest in earnings of subsidiary
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
Income
from continuing operations
|
|
|
1.8 |
% |
|
|
4.7 |
% |
|
|
4.8 |
% |
Net
Sales
Net sales
during 2008 were $2.5 billion, a decrease of 3.6 percent, compared to net sales
of $2.6 billion in 2007. Acquisitions contributed $118 million
or 4.6 percentage points of sales. Higher price realization of $66
million was offset by continued softness in the supplies driven channel of the
office furniture segment and lower volume in the hearth products segment driven
by the continuing decline in the new construction channel. 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 soft demand in the supplies driven channel of the office furniture
segment and lower volume in the hearth products segment.
Gross
Profit
Gross
profit as a percent of net sales decreased 1.8 percentage points in 2008 as
compared to 2007 due to lower volume, higher material costs and restructuring
and transition costs offset partially by better price
realization. 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.
Selling
and Administrative Expenses
Selling
and administrative expenses increased 2.2 percent in 2008 and decreased 2.1
percent in 2007. The increase in 2008 was due to increased freight
and distribution costs due to freight increases and fuel surcharges, additional
costs from acquisitions, increased costs related to new product development and
gains recorded in 2007 from the sale of a facility and the corporate
airplane. These were offset partially by lower volume related
expenses, lower incentive based compensation costs, favorable adjustments to the
current fair value of mandatorily redeemable liabilities from prior acquisitions
and cost control initiatives. 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.
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
During
2008, the Corporation completed the shutdown of an office furniture facility in
Richmond, Virginia, consolidated production into other manufacturing locations,
closed two distribution centers and started up a new distribution
center. The Corporation announced and started these activities during
third quarter 2007. 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 during 2007. During 2008, the Corporation
incurred $4.2 million of current period charges which included $0.4 million of
accelerated depreciation of machinery and equipment recorded in cost of sales
and $3.8 million of other costs which were recorded as restructuring
costs.
As part
of the Corporation’s annual impairment review, management concluded due to
market and economic conditions that a portion of its goodwill and
indefinite-lived intangibles had carrying values greater than their fair market
value and recorded an impairment charge of $21.8 million.
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 in 2007. The
Corporation incurred $0.3 million of current period charges during 2008 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. In connection with
those shutdowns, the Corporation incurred $1.9 million of current period charges
during 2006.
Operating
Income
Operating
income was $84.9 million in 2008, a decrease of 56.2 percent compared to $194
million in 2007. The decrease in 2008 was due to lower volume in the
supplies-driven channel of the office furniture segment and the hearth products
segment, higher material and freight and distribution costs, investments in
product development, restructuring, transition and impairment charges, gains
recorded in 2007 from the sale of a facility and a corporate airplane and
severance costs. These were offset partially by improved price
realization, lower volume related and incentive based compensation expenses,
favorable adjustments to the current fair value of mandatorily redeemable
liabilities from prior acquisitions and cost control
initiatives. Operating income was $194 million in 2007, a decrease of
6.2 percent compared to $206 million in 2006. The decrease in 2007
was 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.
Income
From Continuing Operations
Income
from continuing operations in 2008, which excludes the Corporation’s
discontinued business (see Discontinued Operations in the Notes to Consolidated
Financial Statements), was $45.5 million compared with $119.9 million in 2007, a
62.1 percent decrease. Income from continuing operations was
positively impacted by decreased interest expense of $1.3 million on moderate
debt levels due to lower average interest rates. Income from
continuing operations in 2007 was $119.9 million compared with $129.7 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. Income from continuing operations per diluted share decreased
by 60.0 percent to $1.02 in 2008 and decreased by 0.8 percent to $2.55 in
2007.
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 62.2 percent to $45.5 million in 2008 compared to $120.4
million in 2007 which was a decrease of 2.4 percent compared to
2006. Net income per diluted share decreased by 60.3 percent to $1.02
in 2008 and increased by 4.9 percent to $2.57 in 2007. Net income per
diluted share was positively impacted $0.05 per share in 2008 and $0.18 per
share in 2007 by the Corporation’s share repurchase program.
Office
Furniture
Office
furniture comprised 83 percent, 82 percent and 78 percent of consolidated net
sales for 2008, 2007, and 2006, respectively. Net sales for office
furniture decreased 3 percent in 2008 to $2.05 billion compared to $2.11 billion
in 2007. Acquisitions contributed $61 million of additional
sales. Organic sales decreased $115 million or 5 percent, including
increased price realization of $50 million, due to continuing softness in the
supplies-driven channel which was impacted by the current economic
conditions. 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 of net sales generated by 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. BIFMA reported 2008
shipments down 2 percent from 2007 levels and 2007 shipments up 6 percent from
2006 levels.
Operating
profit as a percent of net sales was 4.9 percent in 2008, 9.2 percent in 2007
and 8.8 percent in 2006. The decrease in operating margins in 2008
was due to additional restructuring and impairment charges of $17 million
compared to 2007 as well as lower volume, higher material and fuel costs and
severance expenses offset partially by better price realization, cost reduction
initiatives, lower incentive based compensation and favorable adjustments to the
current fair value of mandatorily redeemable liabilities from prior
acquisitions. 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.
Hearth
Products
Hearth
products sales decreased 8 percent in 2008 to $424 million compared to $462
million in 2007. New acquisitions contributed $57 million of net
sales. The decrease in organic sales was due to the continuing
decline in new home construction which began in 2006 and has reached historic
lows. This was partially offset by the high demand for alternative
fuel 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 decline in new home construction.
Operating
profit as a percent of sales in 2008 was 2.8 percent compared to 7.9 percent in
2007 and 9.7 percent in 2006, respectively. The decrease in operating
margins in 2008 was due to lower overall volume, rising material costs and
increased mix of lower margin remodel/retrofit business offset partially by
price increases, cost reduction initiatives and lower restructuring
expenses. The decrease in operating margins in 2007 was due to lower
overall volume offset partially by cost reduction initiatives.
Liquidity
and Capital Resources
Cash
Flow – Operating Activities
Cash
generated from operating activities in 2008 totaled $174.4 million compared to
$291.2 million generated in 2007. Changes in working capital balances
resulted in a $27.6 million source of cash in the current fiscal year compared
to a $94.7 million source of cash in the prior year.
The
source of cash related to working capital balances in 2008 was primarily driven
from lower trade receivables of $58.6 million and lower inventory of $31.8
million due to strong collection efforts and the company wide shutdown for the
last two weeks of the fiscal year. These sources of cash were offset
partially by decreased current liabilities of $60.4 million. The
decrease in current liabilities is comprised of $36.5 million of decreased trade
accounts payable, $1.3 million in tax-related accruals and $22.6 million of
other accruals namely compensation, retirement and marketing expense
accruals.
The
source of cash related to working capital balances in 2007 was primarily driven
by lower trade receivables of $39.9 million, lower inventory of $20.4 million
and increased current liabilities of $32.1 million. The increase in
current liabilities was comprised of $30.9 million of increased trade accounts
payable and $1.2 million in tax-related accruals. The working capital
investment in 2006 resulted principally from increases in trade receivables and
inventory.
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. During these uncertain economic times
management is placing additional emphasis on monitoring its trade
receivables. Management believes its recorded trade receivable
valuation allowances at the end of 2008 are adequate to cover the risk of
potential bad debts. Allowances for non-collectible trade
receivables, as a percent of gross trade receivables, totaled 3.6 percent, 3.8
percent and 3.9 percent at the end of fiscal years 2008, 2007 and 2006,
respectively. The Corporation’s inventory turns were 17, 16 and 18, for 2008,
2007 and 2006, respectively. The Corporation increased its relative
proportion of foreign-sourced raw materials and finished goods, which while
reducing inventory turns does have a favorable impact on the overall total
cost.
Cash
Flow – Investing Activities
Capital
expenditures were $70.1 million in 2008, $58.6 million in 2007, and $58.9
million in 2006. 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 increase in capital expenditures in 2008 was due to
the facility consolidations that were completed in 2008. The
Corporation anticipates capital expenditures for 2009 to total $30 to $40
million and be primarily related to new products and operational process
improvement.
Included
in 2008 investing activities is a net cash outflow of $75.5 million related to
the acquisition of HBF. The addition of HBF bolsters the
Corporation’s contract office furniture business with its strong brand
recognition among interior designers and emphasis on new products. In
2007, the investing activities reflected a cash outflow of $41.7 million related
to the acquisition of Harman Stove Company (“Harman”) and two small office
furniture dealers. The acquisition of Harman added to the hearth
products segment alternative fuel business. In 2006, the investing
activities reflected a cash outflow of $78.6 million related to 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. The
acquisition of Lamex provided the Corporation with access to the Chinese market
as well as other international expansion opportunities. Refer to the
Business Combination note in the Notes to Consolidated Financial Statements for
additional information.
In 2008,
the Corporation completed the sale of a facility located in Richmond,
Virginia. In 2007, the Corporation completed the sale of a corporate
airplane and a facility located in Monterrey, Mexico. In 2006, the
Corporation completed the sale of a facility located in Van Nuys,
California. The proceeds from these sales of $5 million, $11 million
and $4 million are reflected in the Consolidated Statement of Cash Flows as
“Proceeds from sale of property, plant and equipment” for 2008, 2007 and 2006,
respectively.
Cash
Flow – Financing Activities
On June
30, 2008, the Corporation entered into a term loan credit agreement which
allowed for a one-time borrowing of $50 million in the form of a term
loan. The term loan may not be repaid and reborrowed and must be
fully repaid by June 30, 2011, unless extended pursuant to the terms of the
agreement. The term loan can be partially or fully repaid prior to
June 30, 2011 without penalty. Interest payments are due quarterly
and the principal is due in quarterly installments of $1.25 million with the
balance due on the maturity date.
The
Corporation has a revolving credit facility that provides for a maximum
borrowing of $300 million. Amounts borrowed under the revolving
credit facility may be borrowed, repaid and reborrowed from time to time until
January 28, 2011. As of January 3, 2009, $35 million of the
borrowings outstanding were classified as short-term as the Corporation expects
to repay that portion of the borrowings within a year.
In 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.
Additional
borrowing capacity of $192 million, less amounts used for designated letters of
credit, is available through the revolving credit facility in the event cash
generated from operations should be inadequate to meet future
needs. The Corporation does not currently 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. Long-term debt, including
capital lease obligations, was 37% of total capitalization as of January 3,
2009, 38% as of December 29, 2007, and 37% as of December 30, 2006.
Certain
of the above borrowing arrangements include covenants which limit the assumption
of additional debt and lease obligations. The most restrictive of the
financial covenants is a maximum Consolidated Funded Debt to Consolidated EBITDA
ratio requirement of 3.0 to 1.0. Adjusted EBITDA is defined as
consolidated net income before interest expense, income taxes, and depreciation
and amortization of intangibles, as well as non-cash, nonrecurring charges and
all non-cash items increasing net income. At January 3, 2009, the
Corporation was below this ratio by a wide margin. The Corporation
currently expects to remain in compliance over the next twelve
months. If the Corporation’s actual results over the next twelve
months are lower than current projections, the margin by which the Corporation
is below this covenant ratio will decrease. However, even if a 10
percent decline in expected results were to occur, the Corporation would remain
in compliance with the covenant.
In 2008,
the Corporation entered into an interest rate swap agreement with one of its
relationship banks, designated as a cash flow hedge, for purposes of managing
its benchmark interest rate fluctuation risk. The fair value of its
interest rate swap arrangement, as further described in the Derivative Financial
Instrument note in the Notes to Consolidated Financial Statements, was a
negative $3.1 million at the end of 2008. The fair value of the swap
arrangement changes based on fluctuations in market interest
rates. The changes in fair value are recorded as a component of
accumulated other comprehensive income in the equity section of the
Corporation’s consolidated balance sheet. This interest rate swap had
the effect of increasing total interest expense by $0.1 million in
2008.
During
2008, the Corporation repurchased 1,004,700 shares of its common stock at a cost
of approximately $28.6 million, or an average price of
$28.42. The Board of Directors authorized $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 January 3, 2009,
approximately $163.6 million of this authorized amount remained
unspent. 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. 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. A portion of the 2006 repurchases were made out of a
previously approved Board repurchase authorization.
The Board
of Directors increased the rate of the quarterly cash dividend in each of the
last three fiscal years. The last increase was a 10.3 percent
increase in the quarterly dividend effective with the February 29, 2008,
dividend payment for shareholders of record at the close of business on February
22, 2008. Cash dividends were $0.86 per common share for 2008, $0.78
for 2007, and $0.72 for 2006. A cash dividend has been paid every
quarter since April 15, 1955, and quarterly dividends are expected to
continue. The average dividend payout percentage for the most recent
three-year period has been 29 percent of prior year earnings.
Cash,
cash equivalents and short-term investments totaled $49.3 million at the end of
2008 compared to $43.8 million at the end of 2007 and $37.3 million at the end
of 2006. These funds, coupled with cash from future operations and
additional borrowings, if needed, are expected to be adequate to finance
operations, planned improvements and internal growth. Due to the
volatile and uncertain economic outlook for 2009, the Corporation will manage
cash to maintain strategic flexibility. The Corporation currently
expects to be able to satisfy its cash flow needs over the next twelve months
with existing facilities.
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)
|
|
$ |
390,896 |
|
|
$ |
31,146 |
|
|
$ |
171,932 |
|
|
$ |
16,684 |
|
|
$ |
171,134 |
|
Capital
lease obligations
|
|
|
253 |
|
|
|
209 |
|
|
|
44 |
|
|
|
- |
|
|
|
- |
|
Operating
lease obligations
|
|
|
122,329 |
|
|
|
33,429 |
|
|
|
54,030 |
|
|
|
17,743 |
|
|
|
17,127 |
|
Purchase
obligations (2)
|
|
|
107,503 |
|
|
|
107,503 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Other
long-term obligations (3)
|
|
|
30,205 |
|
|
|
6,786 |
|
|
|
6,613 |
|
|
|
2,760 |
|
|
|
14,046 |
|
Total
|
|
$ |
651,186 |
|
|
$ |
179,073 |
|
|
$ |
232,619 |
|
|
$ |
37,187 |
|
|
$ |
202,307 |
|
|
(1)
|
Interest
has been included for all debt at either the fixed rate or variable rate
in effect as of January 3, 2009, 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 obligations represent payments due to members who are
participants in the Corporation’s deferred and long-term incentive
compensation programs, mandatory purchases of the remaining unowned
interest in an acquisition, liability for unrecognized tax liabilities in
accordance with FIN 48, and contribution and benefit payments expected to
be made pursuant to the Corporation’s post-retirement benefit
plans. It should be noted 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.
|
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
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 the volatile and uncertain economic outlook will result in continued
slowing in the office furniture industry during 2009. The Corporation
will leverage its split-and-focus model to adapt to market realities and
identify future growth opportunities. The Corporation will continue
to invest in new products and brand development. The Corporation will
work to offset substantial market weakness and increased investment by
eliminating waste, attacking structural cost and streamlining its
businesses.
The
housing market and demand for alternative fuel products are expected to continue
to decline during 2009 putting pressure on both revenue and profit in the
Corporation’s hearth products segment. The Corporation intends to
continue to manage through and adapt to these conditions. The
Corporation’s strong brands, manufacturing capabilities and world-class service
to builders on a national basis position it well when the housing market begins
to recover.
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. As of January 3, 2009, the Corporation has one interest rate
swap agreement. Under the interest rate swap agreement, the
Corporation pays a fixed rate of interest and receives a variable rate of
interest equal to the one-month London Interbank Offered Rate (“LIBOR”) as
determined on the last day of each monthly settlement period on an aggregated
notational principal amount of $50 million. The interest rate swap
derivative instrument is held and used by the Corporation as a tool for managing
interest rate risk. It is not used for trading or speculative
purposes. The fair market value of the effective swap instrument was
negative $3.1 million at January 3, 2009. The impact of this swap
instrument on total interest expense was an addition to interest expense of $0.1
million in 2008. 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.
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.
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 (the “Exchange Act”) is recorded, processed,
summarized and reported, within the time periods specified in the SEC’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 Exchange Act. As of January 3, 2009, 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 January 3, 2009 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. Exhibits, Financial Statement Schecules of this report
under the headings “Management Report on Internal Control Over Financial
Reporting” and “Report of Independent Registered Public Accounting Firm,”
respectively.
None.
PART
III
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 12, 2009, 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" included in this report.
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 12, 2009, 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 12, 2009, 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 12, 2009, is incorporated herein by
reference.
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 12, 2009, 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 12, 2009, is incorporated herein by
reference.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The
information under the captions “Information Regarding the Board - 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 12, 2009, 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 12, 2009, 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 2008 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
|
43
|
|
|
Report
of Independent Registered Public Accounting Firm
|
44
|
|
|
Consolidated
Statements of Income for the Years Ended January 3, 2009, December 29,
2007, and December 30, 2006
|
45
|
|
|
Consolidated
Balance Sheets – January 3, 2009, December 29, 2007 and December 30,
2006
|
46
|
|
|
Consolidated
Statements of Shareholders’ Equity for the Years Ended January 3, 2009,
December 29, 2007, and December 30, 2006
|
47
|
|
|
Consolidated
Statements of Cash Flows for the Years Ended January 3, 2009, December 29,
2007, and December 30, 2006
|
48
|
|
|
Notes
to Consolidated Financial Statements
|
49
|
|
|
Investor
Information
|
78
|
|
(2)
|
Financial Statement
Schedules
|
The
following consolidated financial statement schedule of the Corporation and its
subsidiaries is attached:
Schedule
II
|
Valuation and
Qualifying Accounts for the Years Ended January 3, 2009, December 29, 2007 and December 30,
2006
|
79
|
All other
schedules for which provision is made in the applicable accounting regulation of
the SEC 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 Report
appears
on Page 80. The following exhibits are filed herewith:
Exhibit
|
|
|
|
(10vii)
|
Form
of HNI Corporation 2007 Stock-Based Compensation Plan Stock Option Award
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 27, 2009
|
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
27, 2009
|
Stan
A. Askren
|
|
Principal
Executive Officer,
|
|
|
|
|
and
Director
|
|
|
|
|
|
|
|
/s/
Kurt A. Tjaden
|
|
Vice
President and Chief Financial
|
|
February
27, 2009
|
Kurt
A. Tjaden
|
|
Officer,
Principal Financial Officer and Principal Accounting
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Mary H. Bell
|
|
Director
|
|
February
27, 2009
|
Mary
H. Bell
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Miguel M. Calado
|
|
Director
|
|
February
27, 2009
|
Miguel
M. Calado
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Gary M. Christensen
|
|
Director
|
|
February
27, 2009
|
Gary
M. Christensen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Cheryl A. Francis
|
|
Director
|
|
February
27, 2009
|
Cheryl
A. Francis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
John A. Halbrook
|
|
Director
|
|
February
27, 2009
|
John
A. Halbrook
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
James R. Jenkins
|
|
Director
|
|
February
27, 2009
|
James
R. Jenkins
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Dennis J. Martin
|
|
Director
|
|
February
27, 2009
|
Dennis
J. Martin
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Larry B. Porcellato
|
|
Director
|
|
February
27, 2009
|
Larry
B. Porcellato
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Joseph Scalzo
|
|
Director
|
|
February
27, 2009
|
Joseph
Scalzo
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Abbie J. Smith
|
|
Director
|
|
February
27, 2009
|
Abbie
J. Smith
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Brian E. Stern
|
|
Director
|
|
February
27, 2009
|
Brian
E. Stern
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Ronald V. Waters, III
|
|
Director
|
|
February
27, 2009
|
Ronald
V. Waters, III
|
|
|
|
|
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. HNI 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.
Management
assessed the effectiveness of HNI Corporation’s internal control over financial
reporting as of January 3, 2009. 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 HNI Corporation’s internal control over financial reporting and
testing of the operational effectiveness of HNI Corporation’s internal control
over financial reporting. Management reviewed the results of its
assessment with the Audit Committee of the Board of Directors.
Based on
this assessment, management determined that, as of January 3, 2009, HNI
Corporation maintained effective internal control over financial
reporting.
Management’s
assessment of the effectiveness of HNI Corporation’s internal control over
financial reporting as of January 3, 2009 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in its report which appears herein.
February
26, 2009
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 January
3, 2009, December 29, 2007, and December 30, 2006, and the results of their
operations and their cash flows for each of the three years in the period ended
January 3, 2009 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 Company maintained, in all
material respects, effective internal control over financial reporting as of
January 3, 2009, 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.
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.
PricewaterhouseCoopers
LLP
Chicago,
Illinois
February
27, 2009
HNI CORPORATION AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF INCOME
(Amounts
in thousands, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Years
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,477,587 |
|
|
$ |
2,570,472 |
|
|
$ |
2,679,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of products sold
|
|
|
1,648,975 |
|
|
|
1,664,697 |
|
|
|
1,752,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
828,612 |
|
|
|
905,775 |
|
|
|
926,921 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
and administrative expenses
|
|
|
717,870 |
|
|
|
702,329 |
|
|
|
717,676 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
related and impairment charges
|
|
|
25,859 |
|
|
|
9,788 |
|
|
|
2,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
84,883 |
|
|
|
193,658 |
|
|
|
206,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
1,172 |
|
|
|
1,229 |
|
|
|
1,139 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
16,865 |
|
|
|
18,161 |
|
|
|
14,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
69,190 |
|
|
|
176,726 |
|
|
|
193,232 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
|
23,634 |
|
|
|
57,141 |
|
|
|
63,670 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
from continuing operations before minority interest
|
|
|
45,556 |
|
|
|
119,585 |
|
|
|
129,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority
interest in earnings (losses) of subsidiary
|
|
|
106 |
|
|
|
(279 |
) |
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations
|
|
|
45,450 |
|
|
|
119,864 |
|
|
|
129,672 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
operations, less applicable income taxes
|
|
|
- |
|
|
|
514 |
|
|
|
(6,297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
45,450 |
|
|
$ |
120,378 |
|
|
$ |
123,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations – basic
|
|
$ |
1.03 |
|
|
$ |
2.57 |
|
|
$ |
2.59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from discontinued operations – basic
|
|
|
- |
|
|
|
0.01 |
|
|
|
(0.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share – basic
|
|
$ |
1.03 |
|
|
$ |
2.58 |
|
|
$ |
2.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding – basic
|
|
|
44,309,765 |
|
|
|
46,684,774 |
|
|
|
50,059,443 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from continuing operations – diluted
|
|
$ |
1.02 |
|
|
$ |
2.55 |
|
|
$ |
2.57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income from discontinued operations – diluted
|
|
|
- |
|
|
|
0.02 |
|
|
|
(0.12 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share – diluted
|
|
$ |
1.02 |
|
|
$ |
2.57 |
|
|
$ |
2.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding - diluted
|
|
|
44,433,945 |
|
|
|
46,925,161 |
|
|
|
50,374,758 |
|
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
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Assets
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
39,538 |
|
|
$ |
33,881 |
|
|
$ |
28,077 |
|
Short-term
investments
|
|
|
9,750 |
|
|
|
9,900 |
|
|
|
9,174 |
|
Receivables,
net
|
|
|
238,327 |
|
|
|
288,777 |
|
|
|
316,568 |
|
Inventories
|
|
|
84,290 |
|
|
|
108,541 |
|
|
|
105,765 |
|
Deferred
income taxes
|
|
|
16,313 |
|
|
|
17,828 |
|
|
|
15,440 |
|
Prepaid
expenses and other current assets
|
|
|
29,623 |
|
|
|
30,145 |
|
|
|
29,150 |
|
Total
Current Assets
|
|
|
417,841 |
|
|
|
489,072 |
|
|
|
504,174 |
|
Property,
Plant, and Equipment
|
|
|
315,606 |
|
|
|
305,431 |
|
|
|
309,952 |
|
Goodwill
|
|
|
268,392 |
|
|
|
256,834 |
|
|
|
251,761 |
|
Other
Assets
|
|
|
163,790 |
|
|
|
155,639 |
|
|
|
160,472 |
|
Total
Assets
|
|
$ |
1,165,629 |
|
|
$ |
1,206,976 |
|
|
$ |
1,226,359 |
|
Liabilities
and Shareholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
313,431 |
|
|
$ |
367,320 |
|
|
$ |
328,882 |
|
Note
payable and current maturities of long-term debt and capital lease
obligations
|
|
|
54,494 |
|
|
|
14,715 |
|
|
|
26,135 |
|
Current
maturities of other long-term obligations
|
|
|
5,700 |
|
|
|
2,426 |
|
|
|
3,525 |
|
Total
Current Liabilities
|
|
|
373,625 |
|
|
|
384,461 |
|
|
|
358,542 |
|
Long-Term
Debt
|
|
|
267,300 |
|
|
|
280,315 |
|
|
|
285,300 |
|
Capital
Lease Obligations
|
|
|
43 |
|
|
|
776 |
|
|
|
674 |
|
Other
Long-Term Liabilities
|
|
|
50,399 |
|
|
|
55,843 |
|
|
|
56,103 |
|
Deferred
Income Taxes
|
|
|
25,271 |
|
|
|
26,672 |
|
|
|
29,321 |
|
Minority
Interest in Subsidiaries
|
|
|
158 |
|
|
|
1 |
|
|
|
500 |
|
Commitments
and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock - $1 par value
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Authorized: 2,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued: None
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock - $1 par value
|
|
|
44,324 |
|
|
|
44,835 |
|
|
|
47,906 |
|
Authorized: 200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
and outstanding: 2008-44,324; 2007-44,835;
2006-47,906
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
6,037 |
|
|
|
3,152 |
|
|
|
2,807 |
|
Retained
earnings
|
|
|
400,379 |
|
|
|
410,075 |
|
|
|
448,268 |
|
Accumulated
other comprehensive (loss) income
|
|
|
(1,907 |
) |
|
|
846 |
|
|
|
(3,062 |
) |
Total
Shareholders’ Equity
|
|
|
448,833 |
|
|
|
458,908 |
|
|
|
495,919 |
|
Total
Liabilities and Shareholders’ Equity
|
|
$ |
1,165,629 |
|
|
$ |
1,206,976 |
|
|
$ |
1,226,359 |
|
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,
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 Members’ 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 Members’ Stock Purchase Plan and stock awards
|
|
|
511 |
|
|
|
22,784 |
|
|
|
|
|
|
|
|
|
|
|
23,295 |
|
Balance,
December 29, 2007
|
|
|
44,835 |
|
|
|
3,152 |
|
|
|
410,075 |
|
|
|
846 |
|
|
|
458,908 |
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
45,450 |
|
|
|
|
|
|
|
45,450 |
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,753 |
) |
|
|
(2,753 |
) |
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
|
|
|
|
|
|
|
|
(38,095 |
) |
|
|
|
|
|
|
(38,095 |
) |
Common
shares – treasury:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
purchased
|
|
|
(1,005 |
) |
|
|
(10,497 |
) |
|
|
(17,051 |
) |
|
|
|
|
|
|
(28,553 |
) |
Shares
issued under Members’ Stock Purchase Plan and stock awards
|
|
|
494 |
|
|
|
13,382 |
|
|
|
|
|
|
|
|
|
|
|
13,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 3, 2009
|
|
$ |
44,324 |
|
|
$ |
6,037 |
|
|
$ |
400,379 |
|
|
$ |
(1,907 |
) |
|
$ |
448,833 |
|
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
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net
Cash Flows From (To) Operating Activities:
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
45,450 |
|
|
$ |
120,378 |
|
|
$ |
123,375 |
|
Noncash
items included in net income:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
70,155 |
|
|
|
68,173 |
|
|
|
69,503 |
|
Other
postretirement and post-employment benefits
|
|
|
1,509 |
|
|
|
2,132 |
|
|
|
2,109 |
|
Stock-based
compensation
|
|
|
1,616 |
|
|
|
3,603 |
|
|
|
3,219 |
|
Excess
tax benefits from stock compensation
|
|
|
(11 |
) |
|
|
(808 |
) |
|
|
(865 |
) |
Deferred
income taxes
|
|
|
2,600 |
|
|
|
(4,935 |
) |
|
|
(3,712 |
) |
Net
loss on sales, retirements and impairments of long-lived assets and
intangibles
|
|
|
22,691 |
|
|
|
1,662 |
|
|
|
4,639 |
|
Stock
issued to retirement plan
|
|
|
6,592 |
|
|
|
6,611 |
|
|
|
7,948 |
|
Other
– net
|
|
|
(3,908 |
) |
|
|
(1,162 |
) |
|
|
1,733 |
|
Changes
in working capital, excluding acquisition and disposition:
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables
|
|
|
58,570 |
|
|
|
39,941 |
|
|
|
(24,059 |
) |
Inventories
|
|
|
31,842 |
|
|
|
20,380 |
|
|
|
(7,123 |
) |
Prepaid
expenses and other current assets
|
|
|
306 |
|
|
|
2,264 |
|
|
|
(9,541 |
) |
Accounts
payable and accrued expenses
|
|
|
(59,145 |
) |
|
|
30,944 |
|
|
|
(2,794 |
) |
Income
taxes
|
|
|
(1,255 |
) |
|
|
1,169 |
|
|
|
(2,088 |
) |
Increase
(decrease) in other liabilities
|
|
|
(2,643 |
) |
|
|
835 |
|
|
|
(2,742 |
) |
Net
cash flows from (to) operating activities
|
|
|
174,369 |
|
|
|
291,187 |
|
|
|
159,602 |
|
Net
Cash Flows From (To) Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(70,083 |
) |
|
|
(58,568 |
) |
|
|
(58,921 |
) |
Proceeds
from sale of property, plant and equipment
|
|
|
6,191 |
|
|
|
12,145 |
|
|
|
5,952 |
|
Capitalized
software
|
|
|
(1,413 |
) |
|
|
(346 |
) |
|
|
(1,003 |
) |
Acquisition
spending, net of cash acquired
|
|
|
(75,479 |
) |
|
|
(41,696 |
) |
|
|
(78,569 |
) |
Short-term
investments – net
|
|
|
(250 |
) |
|
|
- |
|
|
|
926 |
|
Purchase
of long-term investments
|
|
|
(10,650 |
) |
|
|
(24,427 |
) |
|
|
(13,600 |
) |
Sales
or maturities of long-term investments
|
|
|
20,158 |
|
|
|
20,576 |
|
|
|
8,250 |
|
Other
– net
|
|
|
- |
|
|
|
294 |
|
|
|
- |
|
Net
cash flows from (to) investing activities
|
|
|
(131,526 |
) |
|
|
(92,022 |
) |
|
|
(136,965 |
) |
Net
Cash Flows From (To) Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
of HNI Corporation common stock
|
|
|
(28,553 |
) |
|
|
(147,675 |
) |
|
|
(203,646 |
) |
Proceeds
from long-term debt
|
|
|
359,500 |
|
|
|
289,503 |
|
|
|
515,157 |
|
Payments
of note and long-term debt and other financing
|
|
|
(334,200 |
) |
|
|
(309,297 |
) |
|
|
(352,401 |
) |
Proceeds
from sale of HNI Corporation common stock
|
|
|
4,151 |
|
|
|
9,708 |
|
|
|
5,786 |
|
Excess
tax benefits from stock compensation
|
|
|
11 |
|
|
|
808 |
|
|
|
865 |
|
Dividends
paid
|
|
|
(38,095 |
) |
|
|
(36,408 |
) |
|
|
(36,028 |
) |
Net
cash flows from (to) financing activities
|
|
|
(37,186 |
) |
|
|
(193,361 |
) |
|
|
(70,267 |
) |
Net
increase (decrease) in cash and cash equivalents
|
|
|
5,657 |
|
|
|
5,804 |
|
|
|
(47,630 |
) |
Cash
and cash equivalents at beginning of year
|
|
|
33,881 |
|
|
|
28,077 |
|
|
|
75,707 |
|
Cash
and cash equivalents at end of year
|
|
$ |
39,538 |
|
|
$ |
33,881 |
|
|
$ |
28,077 |
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$ |
17,160 |
|
|
$ |
18,213 |
|
|
$ |
12,002 |
|
Income
taxes
|
|
$ |
22,852 |
|
|
$ |
57,128 |
|
|
$ |
75,266 |
|
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 directly to end-user
customers, and federal and state governments. Dealers and wholesalers 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 2008 ended on January 3, 2009; 2007 ended on December
29, 2007; and 2006 ended on December 30, 2006. The financial
statements for fiscal year 2008 are on a 53-week basis; fiscal 2007 and 2006 are
on a 52-week basis. A 53-week year occurs approximately every sixth
year.
Cash,
Cash Equivalents and Investments
Cash and
cash equivalents generally consist of cash and money market
accounts. 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. The Corporation recognized $1.5 million of
other than temporary impairments on these investments during 2008 due to the
length of time and extent of which the market value was below cost and current
financial conditions. Debt securities are normally classified as
held-to-maturity and are stated at amortized cost. Certain debt
securities were reclassified to trading securities at the end of 2008 due to the
Corporation’s intentions to sell. A loss of $41,000 was recognized on
these securities. The specific identification method is used to
determine realized gains and losses on the trade date. The
Corporation has invested in an investment fund in which the Corporation’s
ownership in this investment fund is such that the underlying investments are
recorded at fair market value through the income statement.
At
January 3, 2009, December 29, 2007 and December 30, 2006, cash, cash equivalents
and investments consisted of the following (cost approximates market
value):
Year-End 2008
(In
thousands)
|
|
Cash
and
cash
equivalents
|
|
|
Short-term
investments
|
|
|
Long-term
investments
|
|
Trading
securities
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,541 |
|
Held-to-maturity
securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
|
- |
|
|
|
- |
|
|
|
250 |
|
Debt
securities
|
|
|
- |
|
|
|
- |
|
|
|
181 |
|
Available
for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
- |
|
|
|
- |
|
|
|
1,974 |
|
Investment
in target fund
|
|
|
- |
|
|
|
9,750 |
|
|
|
15,297 |
|
Cash
and money market accounts
|
|
|
39,538 |
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
39,538 |
|
|
$ |
9,750 |
|
|
$ |
19,243 |
|
Year-End 2007
(In
thousands)
|
|
Cash
and
cash
equivalents
|
|
|
Short-term
investments
|
|
|
Long-term
investments
|
|
Held-to-maturity
securities
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
1,858 |
|
Available
for sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
securities
|
|
|
- |
|
|
|
- |
|
|
|
3,138 |
|
Investment
in target 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 target fund
|
|
|
- |
|
|
|
9,174 |
|
|
|
25,589 |
|
Cash
and money market accounts
|
|
|
28,077 |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
28,077 |
|
|
$ |
9,174 |
|
|
$ |
25,989 |
|
Receivables
Accounts
receivable are presented net of an allowance for doubtful accounts of $8.8
million, $11.5 million, and $12.8 million, for 2008, 2007 and 2006,
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 83%, 87% and 86% of its inventory by the last-in, first-out
(“LIFO”) method at January 3, 2009, December 29, 2007 and December 30, 2006,
respectively. During 2008, inventory quantities were
reduced. This reduction resulted in a liquidation of LIFO inventory
quantities carried at lower costs prevailing in prior years as compared with the
cost of 2008 purchases, the effect of which decreased cost of goods sold by
approximately $3.7 million. Additionally, the Corporation evaluates
its inventory reserves in terms of excess and obsolete
exposures. This evaluation includes such factors as anticipated
usage, inventory turnover, inventory levels, and ultimate product sales
value. As such, these factors may change over time causing the
reserve level to adjust accordingly. The reserves for excess and
obsolete inventory were $7.8 million, $9.1 million and $7.7 million, at year-end
2008, 2007 and 2006, 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 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 during the fourth quarter or whenever indicators of impairment
exist. The Corporation estimates the fair value of its reporting
units using various valuation techniques, with the primary technique being a
discounted cash flow method. Determining the fair value of a
reporting unit involves the use of significant estimates and
assumptions. Management bases its fair value estimates on assumptions
it believes to be reasonable at the time, but such assumptions are subject to
inherent uncertainty. Actual results may differ from those
estimates.
The
Corporation also determines the fair value of indefinite-lived trade names on an
annual basis or whenever indications of impairment exist. The
Corporation estimates the fair value of the trade names based on a discounted
cash flow model using inputs which include projected revenues from management’s
long term plan, assumed royalty rates that could be payable if the trade names
were not owned and a discount rate. Determining the fair value of a
trade name involves the use of significant estimates and
assumptions. Actual results may differ from those
estimates.
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 $79 million
are included on the consolidated balance sheet as of the end of fiscal
2008.
See
Goodwill and Other Intangible Assets footnote for further
information.
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)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Balance
at the beginning of the period
|
|
$ |
12,123 |
|
|
$ |
10,624 |
|
|
$ |
10,157 |
|
Accrual
assumed from acquisition
|
|
|
250 |
|
|
|
703 |
|
|
|
125 |
|
Accruals
for warranties issued during the period
|
|
|
20,008 |
|
|
|
14,831 |
|
|
|
12,273 |
|
Accrual
related to pre-existing warranties
|
|
|
1,368 |
|
|
|
600 |
|
|
|
810 |
|
Settlements
made during the period
|
|
|
(19,801 |
) |
|
|
(14,635 |
) |
|
|
(12,741 |
) |
Balance
at the end of the period
|
|
$ |
13,948 |
|
|
$ |
12,123 |
|
|
$ |
10,624 |
|
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 $27.8 million in 2008, $24.0 million in 2007 and
$27.6 million in 2006.
Stock-Based
Compensation
The
Corporation adopted the provisions 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. See the
Stock-Based Compensation footnote for further information.
Income
Taxes
The
Corporation accounts for income taxes under SFAS 109. 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 it considers
to be permanently reinvested. There were approximately $10.5 million
of accumulated earnings considered to be permanently reinvested as of January 3,
2009. The Corporation adopted FIN 48. See the Income Tax
footnote for further information.
Earnings
Per Share
Basic
earnings per share are based on the weighted-average number of common shares
outstanding during the year. Shares potentially issuable under
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)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Numerators:
|
|
|
|
|
|
|
|
|
|
Numerators
for both basic and diluted EPS net income
|
|
$ |
45,450 |
|
|
$ |
120,378 |
|
|
$ |
123,375 |
|
Denominators:
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS weighted- average common shares outstanding
|
|
|
44,310 |
|
|
|
46,685 |
|
|
|
50,059 |
|
Potentially
dilutive shares from stock option plans
|
|
|
124 |
|
|
|
240 |
|
|
|
316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for diluted EPS
|
|
|
44,434 |
|
|
|
46,925 |
|
|
|
50,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per share – basic
|
|
$ |
1.03 |
|
|
$ |
2.58 |
|
|
$ |
2.46 |
|
Earnings
per share – diluted
|
|
$ |
1.02 |
|
|
$ |
2.57 |
|
|
$ |
2.45 |
|
Certain
exercisable and non-exercisable stock options were not included in the
computation of diluted EPS for fiscal years 2008, 2007 and 2006, because their
inclusion would have been anti-dilutive. The number of stock options
outstanding, which met this criterion for 2008, was 1,350,886; for 2007 was
412,916; and for 2006 was 290,366.
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. As of January 3,
2009, these liabilities totaled $29 million. The Corporation’s policy
is to accrue amounts in accordance with the actuarially determined
liabilities. The actuarial valuations are based on historical
information along with certain assumptions about future
events. Changes in assumptions for such matters as legal actions,
medical cost inflation and magnitude of change in actual experience development
could cause these estimates to change in the future.
Foreign
Currency Translations
Foreign
currency financial statements of foreign operations where the local currency is
the functional currency are translated using exchange rates in effect at period
end for assets and liabilities and average exchange rates during the period for
results of operations. Related translation adjustments are reported
as a component of Shareholders’ Equity. Gains and losses on foreign
currency transactions are included in the “Selling and administrative expenses”
caption of the Consolidated Statements of Income.
Reclassifications
Certain
reclassifications have been made within the footnotes to conform to the current
year presentation.
Recent
Accounting Pronouncements
In July
2006, the FASB issued 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 157 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. The Corporation partially adopted SFAS 157 on December
30, 2007, the beginning of its 2008 fiscal year. The Corporation has
not applied the provisions of SFAS 157 to goodwill and intangibles in accordance
with Financial Accounting Standards Board Staff Position 157-2. The
Corporation will adopt the new standard on January 4, 2009, the beginning of its
2009 fiscal year. The Corporation is still evaluating the impact but
does not expect the adoption to have a material impact on its financial
statements.
For
recognition purposes, on a recurring basis the Corporation is required to
measure at fair value its marketable securities and its investment in target
funds. The marketable securities were comprised of investments in
money market funds. They are reported as noncurrent assets as they
are not anticipated to be used for current operations. The target
funds are reported as both current and noncurrent assets based on the portion
that is anticipated to be used for current operations.
Assets
measured at fair value for the year ended January 3, 2009 were as
follows:
(in
thousands)
|
|
Fair
value as of measurement date
|
|
|
Quoted
prices in active markets for identical assets
(Level
1)
|
|
|
Significant
other observable inputs
(Level
2)
|
|
|
Significant
unobservable inputs
(Level
3)
|
|
Marketable
securities
|
|
$ |
3,696 |
|
|
$ |
3,696 |
|
|
$ |
- |
|
|
$ |
- |
|
Investment
in target funds
|
|
$ |
25,047 |
|
|
$ |
- |
|
|
$ |
25,047 |
|
|
$ |
- |
|
Derivative
financial instrument
|
|
$ |
(3,106 |
) |
|
$ |
- |
|
|
$ |
(3,106 |
) |
|
$ |
- |
|
In
February, 2007, the FASB issued 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. The Corporation adopted SFAS 159
on December 30, 2007, the beginning of fiscal 2008. As the
Corporation did not elect to fair value any additional assets or liabilities it
did not have a material impact on its financial statements.
In
December 2007, the FASB issued SFAS 141(R), replacing SFAS 141, and SFAS
160. SFAS 141(R) retains the fundamental requirements of SFAS 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 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 160, which are to be applied retrospectively for all periods presented,
SFAS 141 (R) and SFAS 160 are to be applied prospectively in financial
statements issued for fiscal years beginning after December 15,
2008. The Corporation is not able to predict the impact this guidance
will have on the accounting for acquisitions it may complete in future
periods. For acquisitions completed prior to January 3, 2009, the new
standard requires that changes in deferred tax asset valuation allowances and
acquired income tax uncertainties after the measurement period must be
recognized in earnings rather than as an adjustment to the cost of the
acquisition. The Corporation does not expect this new guidance or the
adoption of FAS160 to have a significant impact on its consolidated financial
statements.
In March
2008, the FASB issued SFAS 161. SFAS 161 expands disclosures for
derivative instruments by requiring entities to disclose the fair value of
derivative instruments and their gains or losses in tabular
format. SFAS 161 also requires disclosure of information about credit
risk-related contingent features in derivative agreements, counterparty credit
risk, and strategies, and objectives for using derivative
instruments. SFAS 161 will become effective for fiscal years
beginning after November 15, 2008. The Corporation will adopt this
new accounting standard on January 4, 2009, the beginning of its 2009 fiscal
year. The Corporation does not expect the adoption to have a material
impact on its financial statements.
Restructuring
Related and Impairment Charges
During
2008, the Corporation completed the shutdown of an office furniture facility in
Richmond, Virginia, consolidated production into other manufacturing locations,
closed two distribution centers and started up a new distribution center that
began in third quarter 2007. In connection with these activities the
Corporation recorded $4.4 million of pre-tax charges which included $0.6 million
of accelerated deprecation of machinery and equipment recorded in cost of sales
and $3.8 million of severance which were recorded as restructuring costs in
2007. The Corporation incurred $4.2 million of current period charges
during 2008 which included $0.4 million of accelerated depreciation of machinery
and equipment recorded in cost of sales and $3.8 million of other costs which
were recorded as restructuring costs.
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 in 2007. The
Corporation incurred $0.3 million of current period charges during 2008 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. 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 2006.
(In
thousands)
|
|
Severance
Costs
|
|
|
Facility
Termination
&
Other
Costs
|
|
|
Total
|
|
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 |
|
Restructuring
charges
|
|
|
(135 |
) |
|
|
4,197 |
|
|
|
4,062 |
|
Cash
payments
|
|
|
(3,568 |
) |
|
|
(4,963 |
) |
|
|
(8,531 |
) |
Restructuring
reserve at January 3, 2009
|
|
$ |
155 |
|
|
$ |
224 |
|
|
$ |
379 |
|
The
Corporation recorded $21.8 million of goodwill and trade name impairment charges
in 2008, included in the “Restructuring Related and Impairment Charges” line
item on the Consolidated Statements of Income, as a result of its annual
impairment testing. See Goodwill and Other Intangible Assets footnote
for more information.
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 HBF, a leading provider of premium
upholstered seating, textiles, wood tables and wood case goods for the office
environment on March 29, 2008 for a purchase price of approximately $75
million. The transaction was funded on March 31, 2008 with the
proceeds of the Corporation’s revolving credit facility. The
Corporation finalized the allocation of the purchase price during the fourth
quarter of 2008. There are approximately $32.7 million of intangible
assets other than goodwill associated with this acquisition. Of these
acquired intangible assets, $19.8 million was assigned to a trade name that is
not subject to amortization. The remaining $12.9 million have
estimated useful lives ranging from four to twenty years with amortization
recorded based on the projected cash flow associated with the respective
intangible assets’ existing relationship. There is approximately
$33.0 million of goodwill associated with this acquisition assigned to the
office furniture segment. The goodwill is deductible for income tax
purposes.
The
Corporation completed the acquisition of Harman, 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 finalized the allocation of the purchase price for the Harman Stove
Company acquisition in 2008. A reclassification of $4.2 million
between goodwill and other intangible assets occurred in 2008 based on the final
valuation report for the Harman Stove Company acquisition. There are
approximately $5.7 million of intangibles associated with these
acquisitions. Of these acquired intangibles, $2.5 million was
assigned to trade names that are not subject to amortization. The
remaining $3.2 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 $4.4 million of goodwill associated with these acquisitions of
which $3.6 million was assigned to the office furniture segment and $0.8 million
was assigned to the hearth products 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 in 2006 and acquired the
remaining interest during the fourth quarter of 2008. 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 million was
assigned to the hearth segment. Approximately $6.9 million of the
goodwill is not deductible for income 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)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Discontinued
Operations:
|
|
|
|
|
|
|
|
|
|
Operating
income (loss) before tax
|
|
$ |
- |
|
|
$ |
796 |
|
|
$ |
(818 |
) |
Income
tax
|
|
|
- |
|
|
|
282 |
|
|
|
(294 |
) |
Net
income (loss) from discontinued operations
|
|
|
- |
|
|
|
514 |
|
|
|
(524 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
Loss on Discontinued Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
loss on discontinued operations before tax
|
|
|
- |
|
|
|
- |
|
|
|
(7,125 |
) |
Benefit
for income tax
|
|
|
- |
|
|
|
- |
|
|
|
(1,352 |
) |
Net
impairment loss on discontinued operations
|
|
|
- |
|
|
|
- |
|
|
|
(5,773 |
) |
Discontinued
operations, net of income tax
|
|
$ |
- |
|
|
$ |
514 |
|
|
$ |
(6,297 |
) |
Inventories
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Finished
products
|
|
$ |
51,807 |
|
|
$ |
76,804 |
|
|
$ |
66,238 |
|
Materials
and work in process
|
|
|
60,155 |
|
|
|
52,641 |
|
|
|
58,789 |
|
LIFO
reserve
|
|
|
(27,672 |
) |
|
|
(20,904 |
) |
|
|
(19,262 |
) |
|
|
$ |
84,290 |
|
|
$ |
108,541 |
|
|
$ |
105,765 |
|
Property,
Plant, and Equipment
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Land
and land improvements
|
|
$ |
23,753 |
|
|
$ |
23,805 |
|
|
$ |
27,700 |
|
Buildings
|
|
|
277,898 |
|
|
|
268,650 |
|
|
|
266,801 |
|
Machinery
and equipment
|
|
|
525,996 |
|
|
|
501,950 |
|
|
|
550,979 |
|
Construction
and equipment installation in progress
|
|
|
21,738 |
|
|
|
25,858 |
|
|
|
12,936 |
|
|
|
|
849,385 |
|
|
|
820,263 |
|
|
|
858,416 |
|
Less: accumulated
depreciation
|
|
|
533,779 |
|
|
|
514,832 |
|
|
|
548,464 |
|
|
|
$ |
315,606 |
|
|
$ |
305,431 |
|
|
$ |
309,952 |
|
Goodwill
and Other Intangible Assets
In
accordance with SFAS 142, the Corporation evaluates its goodwill for impairment
on an annual basis during the fourth quarter or whenever indicators of
impairment exist. The Corporation estimates the fair value of its
reporting units using various valuation techniques, with the primary technique
being a discounted cash flow analysis. The Corporation has eleven
reporting units within its office furniture and hearth products operating
segments, of which ten contained goodwill during the fourth quarter
analysis. These reporting units constitute components for which
discrete financial information is available and regularly reviewed by segment
management. Determining the fair value of a reporting unit involves
the use of significant estimates and assumptions. The estimate of
fair value of each reporting unit is based on management’s projection of
revenues, gross margin, operating costs and cash flows considering historical
and estimated future results, general economic and market conditions as well as
the impact of planned business and operational strategies. The
valuations employ present value techniques to measure fair value and consider
market factors. Management believes the assumptions used for the
impairment test are consistent with those utilized by a market participant in
performing similar valuations of its reporting units. A separate
discount rate was utilized for each reporting unit with rates ranging from 10.5%
to 12.0%. Management bases its fair value estimates on assumptions
they believe to be reasonable at the time, but such assumptions are subject to
inherent uncertainty. Actual results may differ from those
estimates. In addition, for reasonableness, the summation of all the
reporting units’ fair values is compared to the Corporation’s market
capitalization. If the fair value of the reporting unit is less than
its carrying value, an additional step is required to determine the implied fair
value of goodwill associated with that reporting unit. The implied
fair value of goodwill is determined by first allocating the fair value of the
reporting unit to all of its assets and liabilities and then computing the
excess of the reporting unit’s fair value over the amounts assigned to the
assets and liabilities. If the carrying value of goodwill exceeds the
implied fair value of goodwill, such excess represents the amount of goodwill
impairment, and, accordingly such impairment is recognized.
As a
result of the review performed in the fourth quarter of 2008, the Corporation
determined the carrying amount of certain reporting units acquired over the past
few years in the office furniture segment exceeded their fair
value. Management then compared the carrying value of goodwill to the
implied fair value of the goodwill in each of these reporting units, and
concluded that $17 million of impairment charges needed to be
recognized. The reporting units impacted included an office furniture
services unit, dealer distribution unit, and a recent acquisition with goodwill
charges of approximately $10 million, $5 million and $2 million,
respectively.
The
changes to fair value in the reporting units that triggered impairment charges
in the fourth quarter were primarily attributable to the deterioration in market
conditions experienced in late 2008 which also caused management to change its
estimates of future results. The Corporation factored these current
market conditions and estimates into its projected forecasts of sales, operating
income and cash flows of each reporting unit through the course of its strategic
planning process completed in the fourth quarter.
The
significant estimates and assumptions used in estimating future cash flows of
its reporting units are based on management’s view of longer-term broad market
trends. Management combines this trend data with estimates of current
economic conditions in the U.S., competitor behavior, the mix of products sales,
commodity costs, wage rates, the level of manufacturing capacity, and the
pricing environment. In addition, estimates of fair value are
impacted by estimates of the market participant derived weighted average cost of
capital. The Corporation’s cash flow projections in all of its
reporting units assumed declining revenue and cash flows in 2009 and that
significant recovery would not begin until after 2010. As a
reasonableness test, management also compared the market capitalization of the
Corporation at January 3, 2009 to the aggregate fair value of the reporting
units, resulting in an implied control premium of approximately 30
percent. Management believes this implied control premium is
reasonable, in light of the synergies across its operating units, lean
manufacturing environment and strong position in the markets it
serves.
The
Corporation also owns trade names having a net value of $60.6 million as of
January 3, 2009, $43.5 million as of December 29, 2007, and $43.2 million as of
December 30, 2006. The trade names are deemed to have an indefinite
useful life because they are expected to generate cash flow
indefinitely. The Corporation determines the fair value of indefinite
lived trade names on an annual basis during the fourth quarter or whenever
indication of impairment exists. The Corporation performed its fiscal
2008 assessment of indefinite lived trade names during the fourth
quarter. The estimate of the fair value of the trade names was based
on a discounted cash flow model using inputs which
included: projected revenues from management’s long term plan,
assumed royalty rates that could be payable if the trade names were not owned
and a discount rate. As a result of the review the Corporation
determined the carrying value of certain trade names acquired over the past few
years in the office furniture segment exceeded their fair value and recorded a
$4.8 million impairment charge. The Corporation recorded an
impairment charge of $1.0 million in 2006 which was included in discounted
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)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Patents
|
|
$ |
19,325 |
|
|
$ |
18,780 |
|
|
$ |
18,780 |
|
Customer
lists and other
|
|
|
115,664 |
|
|
|
101,320 |
|
|
|
103,492 |
|
Less: accumulated
amortization
|
|
|
56,098 |
|
|
|
45,833 |
|
|
|
39,796 |
|
Net
intangible assets
|
|
$ |
78,891 |
|
|
$ |
74,267 |
|
|
$ |
82,476 |
|
Amortization
expense for definite-lived intangibles for 2008, 2007, and 2006, was $10.3
million, $9.2 million, and $10.4 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)
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
Amortization
expense
|
|
$ |
9.1 |
|
|
$ |
8.6 |
|
|
$ |
7.4 |
|
|
$ |
6.4 |
|
|
$ |
5.9 |
|
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 December 31, 2005, are as
follows by reporting segment:
(In
thousands)
|
|
Office
Furniture
|
|
|
Hearth
Products
|
|
|
Total
|
|
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 |
|
Goodwill
increase during period
|
|
|
33,020 |
|
|
|
- |
|
|
|
33,020 |
|
Goodwill
decrease during period
|
|
|
(16,955 |
) |
|
|
(4,507 |
) |
|
|
(21,462 |
) |
Balance
as of January 3, 2009
|
|
$ |
101,339 |
|
|
$ |
167,053 |
|
|
$ |
268,392 |
|
The
goodwill increases relate to acquisitions completed. See the Business
Combinations note. The decrease in goodwill in the office furniture
segment in 2008 is due to the impairment charge described above. 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 and final purchase price allocations for previous
acquisitions.
Accounts
Payable and Accrued Expenses
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Trade
accounts payable
|
|
$ |
96,820 |
|
|
$ |
133,293 |
|
|
$ |
102,436 |
|
Compensation
|
|
|
27,764 |
|
|
|
30,544 |
|
|
|
27,835 |
|
Profit
sharing and retirement expense
|
|
|
26,905 |
|
|
|
30,441 |
|
|
|
29,545 |
|
Marketing
expenses
|
|
|
51,786 |
|
|
|
61,568 |
|
|
|
64,736 |
|
Other
accrued expenses
|
|
|
110,156 |
|
|
|
111,474 |
|
|
|
104,330 |
|
|
|
$ |
313,431 |
|
|
$ |
367,320 |
|
|
$ |
328,882 |
|
Long-Term
Debt
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Note
payable to bank, revolving credit agreement with interest at a variable
rate (2008-0.79%; 2007-5.46%; 2006-5.70%)
|
|
$ |
107,500 |
|
|
$ |
128,000 |
|
|
$ |
144,000 |
|
Note
payable to bank, with interest at a fixed rate (2008-3.08%; 2007-5.03%;
2006-6.11%)
|
|
|
14,294 |
|
|
|
14,205 |
|
|
|
14,200 |
|
Senior
notes due in 2016 with interest at a fixed rate of 5.54% per
annum.
|
|
|
150,000 |
|
|
|
150,000 |
|
|
|
150,000 |
|
Note
payable to bank, with interest at a variable rate
(2008-2.36%)
|
|
|
47,500 |
|
|
|
- |
|
|
|
- |
|
Industrial
development revenue bonds, payable 2018 with interest at a variable rate
(2008-1.40%; 2007-3.55%; 2006-4.02%)
|
|
|
2,300 |
|
|
|
2,300 |
|
|
|
2,300 |
|
Other
notes and amounts
|
|
|
- |
|
|
|
63 |
|
|
|
794 |
|
Total
debt
|
|
|
321,594 |
|
|
|
294,568 |
|
|
|
311,294 |
|
Less: current
portion
|
|
|
54,294 |
|
|
|
14,253 |
|
|
|
25,994 |
|
Long-term
debt
|
|
$ |
267,300 |
|
|
$ |
280,315 |
|
|
$ |
285,300 |
|
Aggregate
maturities of long-term debt are as follows:
|
|
(In
thousands)
|
|
|
|
2009
|
|
$ |
54,294 |
|
2010
|
|
|
5,000 |
|
2011
|
|
|
110,000 |
|
2012
|
|
|
- |
|
2013
|
|
|
- |
|
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 facility. On December 22, 2005, the Corporation
increased the facility to the maximum amount of $300 million. Amounts
borrowed under the revolving credit facility may be borrowed, repaid, and
reborrowed from time to time until January 28, 2011. As of January 3,
2009, $35 million of the borrowings outstanding were classified as short-term as
the Corporation expects to repay that portion of the borrowings within a
year.
On April
6, 2006, the Corporation refinanced $150 million of borrowings outstanding under
the revolving credit facility with 5.54 percent ten-year unsecured Senior Notes
due in 2016 issued through the private placement debt
market. Interest payments are due semi-annually on April 1 and
October 1 of each year and the principal is due in a lump sum in
2016. The Corporation maintained the revolving credit facility with a
maximum borrowing of $300 million.
On June
30, 2008, the Corporation entered into a Credit Agreement which allowed for a
one-time borrowing of $50 million in the form of a term loan. The
term loan may not be repaid and reborrowed and must be fully repaid by June 30,
2011, unless extended pursuant to the terms of the
agreement. Interest payments are due quarterly and the principal is
due in quarterly installments of $1.25 million with the balance due on the
maturity date.
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 variable
rate long-term debt obligations at year-end 2008 approximates the carrying
value. The fair value of the Corporation’s outstanding fixed rate
long-term debt obligations is estimated to be $137 million slightly below the
carrying value of $150 million.
Selling
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Freight
expense for shipments to customers
|
|
$ |
169,219 |
|
|
$ |
164,062 |
|
|
$ |
182,814 |
|
Amortization
of intangible and other assets
|
|
|
12,349 |
|
|
|
11,702 |
|
|
|
12,456 |
|
Product
development costs
|
|
|
27,845 |
|
|
|
23,967 |
|
|
|
27,567 |
|
Other
selling and administrative expenses
|
|
|
508,457 |
|
|
|
502,598 |
|
|
|
494,839 |
|
|
|
$ |
717,870 |
|
|
$ |
702,329 |
|
|
$ |
717,676 |
|
Income
Taxes
Significant
components of the provision for income taxes including those related to minority
interest and discontinued operations are as follows:
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$ |
18,165 |
|
|
$ |
53,965 |
|
|
$ |
61,399 |
|
State
|
|
|
2,402 |
|
|
|
6,588 |
|
|
|
8,671 |
|
Foreign
|
|
|
482 |
|
|
|
811 |
|
|
|
678 |
|
Current
provision
|
|
|
21,049 |
|
|
|
61,364 |
|
|
|
70,748 |
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
3,265 |
|
|
|
(3,031 |
) |
|
|
(7,528 |
) |
State
|
|
|
222 |
|
|
|
(353 |
) |
|
|
(651 |
) |
Foreign
|
|
|
(954 |
) |
|
|
(418 |
) |
|
|
(483 |
) |
Deferred
provision
|
|
|
2,533 |
|
|
|
(3,802 |
) |
|
|
(8,662 |
) |
|
|
$ |
23,582 |
|
|
$ |
57,562 |
|
|
$ |
62,086 |
|
A
reconciliation of the statutory federal income tax rate to the Corporation’s
effective income tax rate for continuing operations is as follows:
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Federal
statutory tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
State
taxes, net of federal tax effect
|
|
|
2.5 |
|
|
|
2.3 |
|
|
|
2.8 |
|
Credit
for increasing research activities
|
|
|
(2.5 |
) |
|
|
(0.9 |
) |
|
|
(0.7 |
) |
Deduction
related to domestic production activities
|
|
|
(1.8 |
) |
|
|
(1.4 |
) |
|
|
(0.8 |
) |
Extraterritorial
income exclusion
|
|
|
- |
|
|
|
- |
|
|
|
(0.4 |
) |
Excludable
foreign income
|
|
|
(1.6 |
) |
|
|
(2.0 |
) |
|
|
(0.7 |
) |
True-up
of deferred tax items
|
|
|
- |
|
|
|
- |
|
|
|
(2.1 |
) |
Basis
in subsidiary
|
|
|
(4.5 |
) |
|
|
- |
|
|
|
- |
|
Valuation
allowance
|
|
|
4.5 |
|
|
|
- |
|
|
|
- |
|
Other
– net
|
|
|
2.6 |
|
|
|
(0.7 |
) |
|
|
(0.1 |
) |
Effective
tax rate
|
|
|
34.2 |
% |
|
|
32.3 |
% |
|
|
33.0 |
% |
The
Corporation recorded additional deferred tax assets for the tax basis in the
stock of a subsidiary in excess of the net tax basis of the subsidiary’s assets
and liabilities. The valuation allowance relates to capital losses
that are expected to expire unused.
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
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)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net
long-term deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Tax
over book depreciation
|
|
$ |
(1,028 |
) |
|
$ |
1,614 |
|
|
$ |
(1,052 |
) |
Compensation
|
|
|
3,175 |
|
|
|
4,624 |
|
|
|
4,899 |
|
Goodwill
|
|
|
(42,802 |
) |
|
|
(38,559 |
) |
|
|
(33,826 |
) |
Basis
in subsidiary
|
|
|
5,314 |
|
|
|
- |
|
|
|
- |
|
Valuation
allowance
|
|
|
(1,981 |
) |
|
|
- |
|
|
|
- |
|
Other
– net
|
|
|
12,051 |
|
|
|
5,649 |
|
|
|
658 |
|
Total
net long-term deferred tax liabilities
|
|
|
(25,271 |
) |
|
|
(26,672 |
) |
|
|
(29,321 |
) |
Net
current deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts
|
|
|
2,601 |
|
|
|
3,491 |
|
|
|
3,563 |
|
Vacation
accrual
|
|
|
3,646 |
|
|
|
5,302 |
|
|
|
5,323 |
|
Inventory
differences
|
|
|
3,878 |
|
|
|
2,572 |
|
|
|
3,096 |
|
Deferred
income
|
|
|
(3,836 |
) |
|
|
(4,484 |
) |
|
|
(5,880 |
) |
Warranty
accruals
|
|
|
5,177 |
|
|
|
4,234 |
|
|
|
3,906 |
|
Valuation
allowance
|
|
|
(1,092 |
) |
|
|
- |
|
|
|
- |
|
Other
– net
|
|
|
5,939 |
|
|
|
6,713 |
|
|
|
5,432 |
|
Total
net current deferred tax assets
|
|
|
16,313 |
|
|
|
17,828 |
|
|
|
15,440 |
|
Net
deferred tax (liabilities) assets
|
|
$ |
(8,958 |
) |
|
$ |
(8,844 |
) |
|
$ |
(13,881 |
) |
In June
2006, the FASB issued 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)
|
|
2008
|
|
|
2007
|
|
Unrecognized
tax benefits, beginning of period
|
|
$ |
2,839 |
|
|
$ |
3,895 |
|
Increases
in positions taken in a prior period
|
|
|
796 |
|
|
|
49 |
|
Decreases
in positions taken in a prior period
|
|
|
(52 |
) |
|
|
(6 |
) |
Increases
in positions taken in a current period
|
|
|
834 |
|
|
|
1,018 |
|
Decreases
due to settlements
|
|
|
(392 |
) |
|
|
(2,117 |
) |
Decrease
due to lapse of statute of limitations
|
|
|
(380 |
) |
|
|
- |
|
Unrecognized
tax benefits, end of period
|
|
$ |
3,646 |
|
|
$ |
2,839 |
|
The
amount of unrecognized tax benefits which would impact the Corporation’s
effective tax rate, if recognized, was $3.2 million at January 3, 2009, $2.3
million at December 29, 2007 and $2.7 million at December 31, 2006.
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 Consolidated Statements of Income amounted to a
benefit of $0.1 million. The Corporation had recorded a liability for
interest and penalties related to unrecognized tax benefits of $0.4 million,
$0.4 million, and $0.9 million as of January 3, 2009, December 29, 2007 and
December 31, 2006, respectively.
The
Internal Revenue Service (the “IRS”) has completed the examination of all
federal income tax returns through 2004 with no issues pending or
unresolved. The years 2005 through 2008 remain open for examination
by the IRS. The years 2004 through 2008 are currently under
examination or remain open to examination by several states.
As of
January 3, 2009, it is reasonably possible 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.
Derivative
Financial Instruments
The
Corporation uses derivative financial instruments to reduce its exposure to
adverse fluctuations in interest rates. In accordance with Statement
of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," on the date a
derivative is entered into, the Corporation designates the derivative as (i) a
fair value hedge, (ii) a cash flow hedge, (iii) a hedge of a net investment in a
foreign operation or (iv) a risk management instrument not eligible for hedge
accounting. The Corporation recognizes all derivatives on its
consolidated balance sheet at fair value.
In June
2008, the Corporation entered into an interest rate swap agreement, designated
as a cash flow hedge, for purposes of managing its benchmark interest rate
fluctuation risk. Under the interest rate swap agreement, the
Corporation pays a fixed rate of interest and receives a variable rate of
interest equal to the one-month LIBOR as determined on the last day of each
monthly settlement period on an aggregated notional principal amount of $50
million. The net amount paid or received upon monthly settlements is
recorded as an adjustment to interest expense, while the change in fair value is
recorded as a component of accumulated other comprehensive income in the equity
section of the Corporation’s Consolidated Balance Sheet. The interest
rate swap agreement matures on May 27, 2011.
The
aggregate fair market value of the interest rate swap as of January 3, 2009 was
a liability of $3.1 million, of which $1.3 million is included in current
liabilities and $1.8 million is included in long-term liabilities in the
Corporation's Consolidated Balance Sheet as of January 3, 2009. For
the year ended January 3, 2009, the Corporation recognized an aggregate net loss
related to the agreement of $3,183,000 of which $78,000 was recorded as interest
expense and $3,105,000 pre-tax was recorded in other comprehensive
income.
Shareholders’
Equity
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Common
Stock, $1 Par Value
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
200,000,000 |
|
|
|
200,000,000 |
|
|
|
200,000,000 |
|
Issued
and outstanding
|
|
|
44,324,409 |
|
|
|
44,834,519 |
|
|
|
47,905,351 |
|
Preferred
Stock, $1 Par Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
|
|
2,000,000 |
|
Issued
and outstanding
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
The
Corporation purchased 1,004,700; 3,581,707 and 4,336,987 shares of its common
stock during 2008, 2007 and 2006, 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 on the Corporation’s
Consolidated Balance Sheet.
Components
of accumulated other comprehensive income (loss) consist of the
following:
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Balance
at beginning of period
|
|
$ |
846 |
|
|
$ |
(3,062 |
) |
|
$ |
332 |
|
Foreign
currency translation adjustments
|
|
|
1,355 |
|
|
|
765 |
|
|
|
631 |
|
Change
in unrealized gains (losses) on marketable securities – net of
tax
|
|
|
14 |
|
|
|
(147 |
) |
|
|
- |
|
Change
in pension and postretirement liability – net of tax
|
|
|
(2,184 |
) |
|
|
3,290 |
|
|
|
537 |
|
Change
in fair value of derivative financial instrument – net of
tax
|
|
|
(1,938 |
) |
|
|
- |
|
|
|
- |
|
Adjustment
to initially apply SFAS 158, net of tax
|
|
|
- |
|
|
|
- |
|
|
|
(4,562 |
) |
Balance
at end of period
|
|
$ |
(1,907 |
) |
|
$ |
846 |
|
|
$ |
(3,062 |
) |
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, as amended (the
“Director Plan”). 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 2008, 2007, and 2006, 31,599; 17,349; and 13,947
shares, respectively, of Corporation common stock were issued under these
plans.
Cash
dividends declared and paid per share for each year are:
(In
dollars)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Common
shares
|
|
$ |
.86 |
|
|
$ |
.78 |
|
|
$ |
.72 |
|
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
2008, 209,061 shares of common stock were issued under the plan at an average
price of $17.90. 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. An additional 71,119 shares were available for issuance under
the plan at January 3, 2009.
The
Corporation previously granted rights to purchase shares of the Corporation’s
common stock pursuant to a shareholders’ rights plan, which rights expired on
August 20, 2008. 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 Board. Each
right entitled 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 authorized the
rights be redeemed. The rights could have been redeemed for $0.01 per
right at any time before the rights become exercisable. In certain
instances, the right to purchase applied to the capital stock of the acquirer
instead of the common stock of the Corporation. The Corporation
reserved preferred shares necessary for issuance should the rights be
exercised.
The
Corporation has entered into change in control employment agreements with
certain corporate officers and other key members. 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 Board is composed of persons not recommended by at least
three-fourths of the incumbent Board, 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 member is deemed to have a two-year employment agreement with the
Corporation, and all of his or her benefits vest under the Corporation’s
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 member for good reason, as such
terms are defined in the agreement, then the key member 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 shareholder approval of the Plan in
May 2007, no future awards were granted under the Corporation’s 1995 Stock-Based
Compensation Plan, but all outstanding awards previously granted under that plan
shall remain outstanding in accordance with their terms. As of
January 3, 2009, there were approximately 4.4 million shares available for
future issuance under the Plan. The Plan is administered by the Human
Resources and Compensation Committee of the Board. Restricted stock
awarded under the Plan is expensed ratably over the vesting period of the
awards. Stock options awarded to members 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.
As
discussed above, 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 2008, 209,061 shares of the Corporation’s common stock
were issued under the MSP Plan at an average price of $17.90.
The
Corporation adopted the provisions of SFAS 123(R) beginning January 1,
2006. 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.
Compensation
cost that has been charged against operations for the two plans described above
was $1.6 million, $3.6 million, and $3.2 million for the years ended January 3,
2009, December 29, 2007, and December 30, 2006, respectively. The
total income tax benefit recognized in the income statement for share-based
compensation arrangements was $0.5 million, $1.2 million and $1.1 million for
the years ended January 3, 2009, December 29, 2007, and December 30, 2006,
respectively.
Adoption
of SFAS 123(R) 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 ending January 3, 2009, December 29, 2007,
and December 30, 2006, cash flow from operating activities was reduced by $0.0
million, $0.8 million and $0.9 million, and cash flow from financing activities
was increased by $0.0 million, $0.8 million and $0.9 million, respectively, as a
result of the new standard.
The stock
compensation expense for the years ended January 3, 2009, December 29, 2007 and
December 30, 2006, was estimated on the date of grant using the Black-Scholes
option-pricing model that used the following assumptions by grant
year:
|
|
Year
Ended
Jan.
3, 2009
|
|
Year
Ended
Dec.
29, 2007
|
|
Year
Ended
Dec.
30, 2006
|
Expected
term
|
|
7
years
|
|
7
years
|
|
7
years
|
Expected
volatility:
|
|
|
|
|
|
|
Range
used
|
|
25.62%
- 30.61%
|
|
26.97%
|
|
29.75%
- 31.23%
|
Weighted-average
|
|
26.15%
|
|
26.97%
|
|
31.21%
|
Expected
dividend yield:
|
|
|
|
|
|
|
Range
used
|
|
2.71%
- 5.06%
|
|
1.60%
|
|
1.24%
- 1.43%
|
Weighted-average
|
|
3.11%
|
|
1.60%
|
|
1.24%
|
Risk-free
interest rate:
|
|
|
|
|
|
|
Range
used
|
|
3.48%
- 4.62%
|
|
4.71%
|
|
4.62%
- 5.09%
|
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 continue to use the simplified method as allowed by Staff
Accounting Bulletin No. 110 (“SAB 110”), which amended SAB No. 107, to determine
the expected term since the awards qualified as “plain vanilla” options
accounted for under FAS123R Share-Based Payment. 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 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 |
|
Granted
|
|
|
560,786 |
|
|
|
28.70 |
|
Exercised
|
|
|
(19,500 |
) |
|
|
21.00 |
|
Forfeited
or Expired
|
|
|
(119,293 |
) |
|
|
38.13 |
|
Outstanding
at January 3, 2009
|
|
|
1,465,059 |
|
|
$ |
35.17 |
|
A summary
of the Corporation’s nonvested shares as of January 3, 2009 and changes during
the year are presented below:
Nonvested
Shares
|
|
Shares
|
|
|
Weighted-Average
Grant-Date
Fair
Value
|
|
Nonvested
at December 29, 2007
|
|
|
546,916 |
|
|
$ |
17.34 |
|
Granted
|
|
|
560,786 |
|
|
|
6.64 |
|
Vested
|
|
|
(134,000 |
) |
|
|
17.60 |
|
Forfeited
|
|
|
(101,293 |
) |
|
|
11.41 |
|
Nonvested
at January 3, 2009
|
|
|
872,409 |
|
|
$ |
11.11 |
|
At
January 3, 2009, there was $4.0 million of unrecognized compensation cost
related to nonvested awards, which the Corporation expects to recognize over a
weighted-average period of 1.4 years. Information about stock options
that are vested or expected to vest and that are exercisable at January 3, 2009,
follows:
Options
|
|
Number
|
|
|
Weighted-Average
Exercise
Price
|
|
|
Weighted-Average
Remaining
Life in
Years
|
|
|
Aggregate
Intrinsic
Value
($000s)
|
|
Vested
or expected to vest
|
|
|
1,389,144 |
|
|
$ |
35.11 |
|
|
|
6.5 |
|
|
|
- |
|
Exercisable
|
|
|
592,650 |
|
|
$ |
32.11 |
|
|
|
4.0 |
|
|
|
- |
|
The
weighted-average grant-date fair value of options granted was $6.64, $15.67 and
$21.39, for 2008, 2007 and 2006, respectively. Other information for
the last three years follows:
|
|
|
|
(In
thousands)
|
|
Jan.
3, 2009
|
|
|
Dec.
29, 2007
|
|
|
Dec.
30, 2006
|
|
Total
fair value of shares vested
|
|
$ |
2,358 |
|
|
$ |
2,261 |
|
|
$ |
1,702 |
|
Total
intrinsic value of options exercised
|
|
|
222 |
|
|
|
4,673 |
|
|
|
1,987 |
|
Cash
received from exercise of stock options
|
|
|
410 |
|
|
|
5,321 |
|
|
|
1,542 |
|
Tax
benefit realized from exercise of stock options
|
|
|
79 |
|
|
|
1,551 |
|
|
|
725 |
|
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 $24.5 million, $28.1 million, and $28.2 million, in
2008, 2007 and 2006, respectively. A portion of the annual
contribution is in the form of common stock of the Corporation. The
amount of the stock contribution was $6.6 million, $6.6 million and $7.9 million
in 2008, 2007 and 2006, respectively.
The
Corporation sponsors defined benefit plans which include a limited number of
salaried and hourly members at certain subsidiaries. The
Corporation’s funding policy is generally to contribute annually the minimum
actuarially computed amount. Net pension costs were not material in
2008, 2007 and 2006. 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 $320,000, $376,000 and $352,000, in 2008, 2007
and 2006, 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.
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Change
in benefit obligation
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$ |
15,603 |
|
|
$ |
19,082 |
|
|
$ |
19,738 |
|
Service
cost
|
|
|
396 |
|
|
|
480 |
|
|
|
326 |
|
Interest
cost
|
|
|
963 |
|
|
|
1,067 |
|
|
|
1,053 |
|
Plan
changes
|
|
|
- |
|
|
|
(584 |
) |
|
|
- |
|
Benefits
paid
|
|
|
(1,147 |
) |
|
|
(1,361 |
) |
|
|
(1,218 |
) |
Actuarial
(gain)/loss
|
|
|
(951 |
) |
|
|
(3,081 |
) |
|
|
(817 |
) |
Benefit
obligation at end of year
|
|
$ |
14,864 |
|
|
$ |
15,603 |
|
|
$ |
19,082 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value at beginning of year
|
|
$ |
5,819 |
|
|
$ |
6,693 |
|
|
$ |
7,582 |
|
Actual
return on assets
|
|
|
(274 |
) |
|
|
487 |
|
|
|
326 |
|
Employer
contribution
|
|
|
159 |
|
|
|
- |
|
|
|
3 |
|
Transferred
out
|
|
|
(4,557 |
) |
|
|
- |
|
|
|
- |
|
Benefits
paid
|
|
|
(1,147 |
) |
|
|
(1,361 |
) |
|
|
(1,218 |
) |
Fair
value at end of year
|
|
$ |
- |
|
|
$ |
5,819 |
|
|
$ |
6,693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
Status of Plan
|
|
$ |
(14,864 |
) |
|
$ |
(9,784 |
) |
|
$ |
(12,388 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts
recognized in the Statement of Financial Position consist
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
$ |
1,089 |
|
|
$ |
- |
|
|
$ |
- |
|
Noncurrent
liabilities
|
|
$ |
13,775 |
|
|
$ |
9,784 |
|
|
$ |
12,388 |
|
Amounts
recognized in Accumulated Other Comprehensive Income (before tax) consist
of:
|
|
|
|
|
|
|
|
|
|
Actuarial
(gain)/loss
|
|
$ |
(1,592 |
) |
|
$ |
(1,273 |
) |
|
$ |
2,069 |
|
Transition
(asset)/obligation
|
|
|
2,147 |
|
|
|
2,654 |
|
|
|
3,618 |
|
Prior
service cost
|
|
|
- |
|
|
|
- |
|
|
|
431 |
|
|
|
$ |
555 |
|
|
$ |
1,381 |
|
|
$ |
6,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Accumulated Other Comprehensive Income (before tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
disclosed at beginning of year
|
|
$ |
1,381 |
|
|
$ |
6,118 |
|
|
$ |
- |
|
Actuarial
(gain)/loss
|
|
|
(319 |
) |
|
|
- |
|
|
|
- |
|
Change
due to the adoption of SFAS 158
|
|
|
- |
|
|
|
- |
|
|
|
6,118 |
|
Amortization
of actuarial gain or loss
|
|
|
- |
|
|
|
(3,342 |
) |
|
|
- |
|
Amortization
of transition amount
|
|
|
(507 |
) |
|
|
(964 |
) |
|
|
- |
|
Amortization
of prior service cost
|
|
|
- |
|
|
|
(431 |
) |
|
|
- |
|
Amount
disclosed at end of year
|
|
$ |
555 |
|
|
$ |
1,381 |
|
|
$ |
6,118 |
|
Estimated Future Benefit
Payments (In thousands)
|
|
Fiscal
2009
|
|
|
1,089 |
|
Fiscal
2010
|
|
|
1,090 |
|
Fiscal
2011
|
|
|
1,090 |
|
Fiscal
2012
|
|
|
1,103 |
|
Fiscal
2013
|
|
|
1,119 |
|
Fiscal
2014 – 2018
|
|
|
6,196 |
|
|
|
|
|
|
Expected
Contributions During Fiscal 2009
|
|
|
|
|
Total
|
|
$ |
1,089 |
|
Plan
Assets – Percentage of Fair Value by Category
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Cash
Equivalents
|
|
|
0 |
% |
|
|
0 |
% |
|
|
1 |
% |
Equity
|
|
|
0 |
% |
|
|
25 |
% |
|
|
25 |
% |
Debt
|
|
|
0 |
% |
|
|
75 |
% |
|
|
74 |
% |
Other
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Total
|
|
|
0 |
% |
|
|
100 |
% |
|
|
100 |
% |
The
discount rates at fiscal year-end 2008, 2007 and 2006, were 6.7%, 6.4% and 5.8%,
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. Approximately $4.5 million of
assets previously held in a voluntary employee benefit association (VEBA) fund
designated to pay retiree healthcare claims were transferred into a VEBA fund
designated to pay active healthcare claims during 2008.
Components of Net Periodic
Postretirement Benefit Cost (in thousands)
|
|
2009
|
|
Service
cost
|
|
$ |
391 |
|
Interest
cost
|
|
|
959 |
|
Expected
return on assets
|
|
|
0 |
|
Amortization
of net (gain)/loss
|
|
|
(9 |
) |
Amortization
of unrecognized transition (asset)/obligation
|
|
|
508 |
|
Net
periodic postretirement benefit cost/(income)
|
|
$ |
1,849 |
|
A
discount rate of 6.7% was used to determine net periodic benefit cost for
2009. The discount rate is set at the measurement date to reflect the
yield of a portfolio of high quality, fixed income debt
instruments. There are no plan assets invested.
Leases
The
Corporation leases certain warehouse and plant facilities and
equipment. Commitments for minimum rentals under non-cancelable
leases at the end of 2008 are as follows:
(In
thousands)
|
|
Capitalized
Leases
|
|
|
Operating
Leases
|
|
2009
|
|
$ |
209 |
|
|
$ |
33,429 |
|
2010
|
|
|
44 |
|
|
|
29,204 |
|
2011
|
|
|
0 |
|
|
|
24,826 |
|
2012
|
|
|
- |
|
|
|
11,479 |
|
2013
|
|
|
- |
|
|
|
6,264 |
|
Thereafter
|
|
|
- |
|
|
|
17,127 |
|
Total
minimum lease payments
|
|
|
253 |
|
|
$ |
122,329 |
|
Less: amount
representing interest
|
|
|
10 |
|
|
|
|
|
Present
value of net minimum lease payments, including current maturities of
$200
|
|
$ |
243 |
|
|
|
|
|
Property,
plant and equipment at year-end include the following amounts for capitalized
leases:
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Buildings
|
|
$ |
- |
|
|
$ |
3,299 |
|
|
$ |
3,299 |
|
Machinery
and equipment
|
|
|
869 |
|
|
|
906 |
|
|
|
- |
|
Office
equipment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
869 |
|
|
|
4,205 |
|
|
|
3,299 |
|
Less: allowances
for depreciation
|
|
|
126 |
|
|
|
3,084 |
|
|
|
2,954 |
|
|
|
$ |
743 |
|
|
$ |
1,121 |
|
|
$ |
345 |
|
The
Corporation purchased the leased building and sold it during 2008.
Rent
expense for the years 2008, 2007 and 2006, amounted to approximately $43.2
million, $35.6 million and $32.1 million, respectively. The
Corporation has an operating lease for a production facility with annual rentals
totaling approximately $357,000 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, $0 and $165,000, for the years 2008, 2007 and 2006,
respectively.
Guarantees,
Commitments and Contingencies
The
Corporation utilizes letters of credit in the amount of $24 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 10%, 11% and 12% of
consolidated net sales in 2008, 2007 and 2006, 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, wood and biomass 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, long-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 2008, 2007 and 2006, is as follows for continuing operations:
(In
thousands)
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
Net
sales:
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
2,054,037 |
|
|
$ |
2,108,439 |
|
|
$ |
2,077,040 |
|
Hearth
products
|
|
|
423,550 |
|
|
|
462,033 |
|
|
|
602,763 |
|
|
|
$ |
2,477,587 |
|
|
$ |
2,570,472 |
|
|
$ |
2,679,803 |
|
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture (a)(b)
|
|
$ |
101,289 |
|
|
$ |
194,692 |
|
|
$ |
181,811 |
|
Hearth
products (c)
|
|
|
11,759 |
|
|
|
36,444 |
|
|
|
58,699 |
|
Total
operating profit
|
|
|
113,048 |
|
|
|
231,136 |
|
|
|
240,510 |
|
Unallocated
corporate expenses
|
|
|
(44,016 |
) |
|
|
(53,992 |
) |
|
|
(47,105 |
) |
Income
before income taxes
|
|
$ |
69,032 |
|
|
$ |
177,144 |
|
|
$ |
193,405 |
|
Depreciation
and amortization expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
50,511 |
|
|
$ |
49,294 |
|
|
$ |
48,753 |
|
Hearth
products
|
|
|
15,212 |
|
|
|
14,453 |
|
|
|
16,559 |
|
General
corporate
|
|
|
4,432 |
|
|
|
4,426 |
|
|
|
4,191 |
|
|
|
$ |
70,155 |
|
|
$ |
68,173 |
|
|
$ |
69,503 |
|
Capital
expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
59,101 |
|
|
$ |
47,408 |
|
|
$ |
42,126 |
|
Hearth
products
|
|
|
10,530 |
|
|
|
8,736 |
|
|
|
11,093 |
|
General
corporate
|
|
|
1,865 |
|
|
|
2,770 |
|
|
|
6,705 |
|
|
|
$ |
71,496 |
|
|
$ |
58,914 |
|
|
$ |
59,924 |
|
Identifiable
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
730,348 |
|
|
$ |
724,447 |
|
|
$ |
748,285 |
|
Hearth
products
|
|
|
326,168 |
|
|
|
356,273 |
|
|
|
359,646 |
|
General
corporate
|
|
|
109,113 |
|
|
|
126,256 |
|
|
|
118,428 |
|
|
|
$ |
1,165,629 |
|
|
$ |
1,206,976 |
|
|
$ |
1,226,359 |
|
|
(a)
|
Included
in operating profit for the office furniture segment are pretax charges of
$25.5 million, $8.7 million and $2.8 million, for closing of facilities
and impairment charges in 2008, 2007 and 2006,
respectively.
|
|
(b)
|
Includes
minority interest.
|
|
(c) |
Included
in operating profit for the hearth products segment are pretax charges of
$0.3 million and $1.1 million for closing facilities in 2008 and 2007,
respectively. |
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
2008:
(In
thousands, except per share data)
|
|
First
Quarter
|
|
|
Second
Quarter
|
|
|
Third
Quarter
|
|
|
Fourth
Quarter
|
|
Net
sales
|
|
$ |
563,383 |
|
|
$ |
613,114 |
|
|
$ |
663,141 |
|
|
$ |
637,949 |
|
Cost
of products sold
|
|
|
379,345 |
|
|
|
403,671 |
|
|
|
438,423 |
|
|
|
427,536 |
|
Gross
profit
|
|
|
184,038 |
|
|
|
209,443 |
|
|
|
224,718 |
|
|
|
210,413 |
|
Selling
and administrative expenses
|
|
|
172,555 |
|
|
|
182,673 |
|
|
|
189,577 |
|
|
|
173,065 |
|
Restructuring
related charges (income)
|
|
|
818 |
|
|
|
2,029 |
|
|
|
1,497 |
|
|
|
21,515 |
|
Operating
income
|
|
|
10,665 |
|
|
|
24,741 |
|
|
|
33,644 |
|
|
|
15,833 |
|
Interest
income (expense) – net
|
|
|
(3,414 |
) |
|
|
(4,184 |
) |
|
|
(4,037 |
) |
|
|
(4,058 |
) |
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
7,251 |
|
|
|
20,557 |
|
|
|
29,607 |
|
|
|
11,775 |
|
Income
taxes
|
|
|
3,180 |
|
|
|
7,095 |
|
|
|
10,107 |
|
|
|
3,252 |
|
Minority
interest in earnings of a subsidiary
|
|
|
94 |
|
|
|
(7 |
) |
|
|
11 |
|
|
|
8 |
|
Net
income
|
|
$ |
3,977 |
|
|
$ |
13,469 |
|
|
$ |
19,489 |
|
|
$ |
8,515 |
|
Net
income per common share – basic
|
|
$ |
0.09 |
|
|
$ |
0.30 |
|
|
$ |
0.44 |
|
|
$ |
0.19 |
|
Weighted-average
common shares outstanding – basic
|
|
|
44,537 |
|
|
|
44,233 |
|
|
|
44,213 |
|
|
|
44,259 |
|
Net
income per common share – diluted
|
|
$ |
0.09 |
|
|
$ |
0.30 |
|
|
$ |
0.44 |
|
|
$ |
0.19 |
|
Weighted-average
common shares outstanding – diluted
|
|
|
44,706 |
|
|
|
44,371 |
|
|
|
44,340 |
|
|
|
44,386 |
|
As a Percentage of Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Gross
profit
|
|
|
32.7 |
|
|
|
34.2 |
|
|
|
33.9 |
|
|
|
33.0 |
|
Selling
and administrative expenses
|
|
|
30.6 |
|
|
|
29.8 |
|
|
|
28.6 |
|
|
|
27.1 |
|
Restructuring
related charges
|
|
|
0.1 |
|
|
|
0.3 |
|
|
|
0.2 |
|
|
|
3.4 |
|
Operating
income
|
|
|
1.9 |
|
|
|
4.0 |
|
|
|
5.1 |
|
|
|
2.5 |
|
Income
taxes
|
|
|
0.6 |
|
|
|
1.2 |
|
|
|
1.5 |
|
|
|
0.5 |
|
Net
income
|
|
|
0.7 |
|
|
|
2.2 |
|
|
|
2.9 |
|
|
|
1.3 |
|
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 shares outstanding – 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 shares outstanding – 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 before income taxes and minority
interest
|
|
|
44,940 |
|
|
|
45,187 |
|
|
|
56,512 |
|
|
|
46,593 |
|
Income
taxes (1)
|
|
|
16,403 |
|
|
|
16,493 |
|
|
|
20,627 |
|
|
|
10,147 |
|
Minority
interest in earnings of a subsidiary
|
|
|
(39 |
) |
|
|
(22 |
) |
|
|
(24 |
) |
|
|
(25 |
) |
Income
from continuing operations
|
|
|
28,576 |
|
|
|
28,716 |
|
|
|
35,909 |
|
|
|
36,471 |
|
Discontinued
operations, less applicable taxes
|
|
|
(106 |
) |
|
|
(64 |
) |
|
|
(147 |
) |
|
|
(5,980 |
) |
Net
income
|
|
$ |
28,470 |
|
|
$ |
28,652 |
|
|
$ |
35,762 |
|
|
$ |
30,491 |
|
Net
income from continuing operations – basic
|
|
$ |
.55 |
|
|
$ |
.56 |
|
|
$ |
.73 |
|
|
$ |
.76 |
|
Net
income from discontinued operations – basic
|
|
|
(.00 |
) |
|
|
(.00 |
) |
|
|
(.00 |
) |
|
|
(.13 |
) |
Net
income per common share – basic
|
|
$ |
.55 |
|
|
$ |
.56 |
|
|
$ |
.73 |
|
|
$ |
.63 |
|
Weighted-average
common shares outstanding – basic
|
|
|
51,836 |
|
|
|
51,009 |
|
|
|
49,324 |
|
|
|
48,069 |
|
Net
income from continuing operations – diluted
|
|
$ |
.55 |
|
|
$ |
.56 |
|
|
$ |
.72 |
|
|
$ |
.75 |
|
Net
income from discontinued operations – diluted
|
|
|
(.00 |
) |
|
|
(.00 |
) |
|
|
(.00 |
) |
|
|
(.12 |
) |
Net
income per common share – diluted
|
|
$ |
.55 |
|
|
$ |
.56 |
|
|
$ |
.72 |
|
|
$ |
.63 |
|
Weighted-average
common shares outstanding – diluted
|
|
|
52,229 |
|
|
|
51,339 |
|
|
|
49,592 |
|
|
|
48,363 |
|
As a Percentage of Net
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Gross
profit
|
|
|
35.5 |
|
|
|
35.0 |
|
|
|
34.6 |
|
|
|
33.4 |
|
Selling
and administrative expenses
|
|
|
28.1 |
|
|
|
27.7 |
|
|
|
25.7 |
|
|
|
25.7 |
|
Restructuring
related charges
|
|
|
0.3 |
|
|
|
0.0 |
|
|
|
(0.0 |
) |
|
|
0.1 |
|
Operating
income
|
|
|
7.2 |
|
|
|
7.3 |
|
|
|
8.9 |
|
|
|
7.5 |
|
Income
taxes
|
|
|
2.5 |
|
|
|
2.5 |
|
|
|
3.0 |
|
|
|
1.5 |
|
Income
from continuing operations
|
|
|
4.4 |
|
|
|
4.3 |
|
|
|
5.2 |
|
|
|
5.3 |
|
Discontinued
operations, less applicable taxes
|
|
|
(0.0 |
) |
|
|
(0.0 |
) |
|
|
(0.0 |
) |
|
|
(0.9 |
) |
Net
income
|
|
|
4.4 |
|
|
|
4.3 |
|
|
|
5.2 |
|
|
|
4.5 |
|
(1)
|
The
Corporation recorded a $4.1 million tax benefit in the 4th
quarter of 2006 as discussed in the Income Taxes
footnote.
|
INVESTOR
INFORMATION
Common
Stock Market Prices and Dividends (Unaudited)
Quarterly
2008 – 2006
2008
by
Quarter
|
|
High
|
|
|
Low
|
|
|
Dividends
per
Share
|
|
1st
|
|
$ |
37.97 |
|
|
$ |
26.64 |
|
|
$ |
.215 |
|
2nd
|
|
|
28.37 |
|
|
|
18.07 |
|
|
|
.215 |
|
3rd
|
|
|
34.37 |
|
|
|
16.71 |
|
|
|
.215 |
|
4th
|
|
|
25.76 |
|
|
|
9.09 |
|
|
|
.215 |
|
Total
Dividends Paid
|
|
|
$ |
.86 |
|
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 |
|
Common
Stock Market Price and Price/Earnings Ratio (Unaudited)
Fiscal
Years 2008 – 2004
|
|
Market
Price
|
|
|
Diluted
|
|
|
Price/Earnings
Ratio
|
|
Year
|
|
High
|
|
|
Low
|
|
|
Earnings
per
Share
|
|
|
High
|
|
|
Low
|
|
2008
|
|
$ |
37.97 |
|
|
$ |
9.09 |
|
|
$ |
1.02 |
|
|
|
37 |
|
|
|
9 |
|
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 |
|
Five-Year
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26 |
|
|
|
14 |
|
HNI
CORPORATION AND SUBSIDIARIES
January
3, 2009
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 January 3, 2009:
|
|
$ |
11,458 |
|
|
$ |
3,107 |
|
|
|
- |
|
|
$ |
5,777 |
(A) |
|
$ |
8,788 |
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation
allowance for deferred tax asset
|
|
|
- |
|
|
$ |
3,073 |
|
|
|
- |
|
|
|
- |
|
|
$ |
3,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 29, 2007:
|
|
$ |
12,796 |
|
|
$ |
3,906 |
|
|
|
- |
|
|
$ |
5,244 |
|
|
$ |
11,458 |
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 30, 2006:
|
|
$ |
11,977 |
|
|
$ |
3,363 |
|
|
|
- |
|
|
$ |
2,544 |
(A) |
|
$ |
12,796 |
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
A: Excess of accounts written off over recoveries.
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 November 12,
2008
|
|
|
|
(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)
|
|
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*
|
|
|
|
(10vi)
|
|
Form
of 2007 Equity Plan For Non-Employee Directors of HNI Corporation
Participation Agreement, incorporated by reference to Exhibit 10vii to the
Registrant’s Annual Report on Form 10-K for the year ended December 29,
2007*
|
|
|
|
|
|
Form
of HNI Corporation 2007 Stock-Based Compensation Plan Stock Option Award
Agreement*
|
|
|
|
(10viii)
|
|
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
|
|
|
|
(10ix)
|
|
Description
of Material Compensatory Arrangements Contained in Offer Letter between
HNI Corporation and Kurt Tjaden, incorporated by reference to Exhibit 10.3
to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended
September 27,
2008*
|
Exhibit Number
|
|
Description of Document
|
|
|
|
(10x)
|
|
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*
|
|
|
|
(10xi)
|
|
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
|
|
|
|
(10xii)
|
|
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*
|
|
|
|
(10xiii)
|
|
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
|
|
|
|
(10xiv)
|
|
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
|
|
|
|
(10xv)
|
|
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*
|
|
|
|
(10xvi)
|
|
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
|
|
|
|
(10xvii)
|
|
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*
|
|
|
|
(10xviii)
|
|
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*
|
|
|
|
(10xix)
|
|
HNI
Corporation Stock-Based Compensation Plan, as amended effective August 8,
2006, incorporated by reference to Exhibit 10.1 to the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended September 30,
2006*
|
|
|
|
(10xx)
|
|
Form
of Exercise Stock Option granted under the HNI Corporation Stock-Based
Compensation Plan, incorporated by reference to Exhibit 10.2 to the
Registrant’s Quarterly Report on Form 10-Q for the quarter ended September
27, 2008*
|
Exhibit Number
|
|
Description of Document
|
|
|
|
(10xxi)
|
|
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*
|
|
|
|
(10xxii)
|
|
Fourth
Amendment to Credit Agreement dated as of June 20, 2008, 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 July 7,
2008
|
|
|
|
(10xxiii)
|
|
Credit
Agreement dated as of June 30, 2008, by and among HNI Corporation, as
Borrower, certain domestic subsidiaries of HNI Corporation from time to
time party thereto, as Guarantors, certain lenders party thereto and
Wachovia Bank, National Association, as Administrative Agent, incorporated
by reference to Exhibit 10.2 to the Registrant’s Current Report on Form
8-K filed July 7, 2008
|
|
|
|
|
|
Subsidiaries
of the Registrant
|
|
|
|
|
|
Consent
of Independent Registered Public Accounting Firm
|
|
|
|
|
|
Certification
of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
Certification
of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
|
|
|
Certification
of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
|
*
Indicates management contract or compensatory plan.