r10q2q07.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
10-Q
(MARK
ONE)
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For
the quarterly period ended June 30,
2007 |
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
|
For
the transition period from ____________________ to
____________________ |
Commission
File Number 1-14225
HNI
Corporation
(Exact
name of Registrant as specified in its charter)
Iowa
|
|
42-0617510
|
(State
or other jurisdiction of incorporation or organization)
|
|
(I.R.S.
Employer Identification Number)
|
P.
O. Box 1109, 408 East Second Street
|
|
52761-0071
|
Muscatine,
Iowa
|
|
(Zip
Code)
|
(Address
of principal executive offices)
|
|
|
Registrant's
telephone number, including area code: 563/272-7400
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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer x
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). YES o NO
x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practical date.
Class
|
|
Outstanding
at June 30, 2007
|
Common
Shares, $1 Par Value
|
|
46,331,932
|
|
|
|
HNI
Corporation and SUBSIDIARIES
INDEX
PART
I. FINANCIAL INFORMATION
|
|
|
Page
|
|
|
|
Item
1.
|
Financial
Statements (Unaudited)
|
|
|
|
|
|
Condensed
Consolidated Balance Sheets June 30, 2007, and December 30, 2006 |
|
|
|
|
|
Condensed
Consolidated Statements of Income Three Months Ended June 30, 2007,
and
July 1, 2006 |
|
|
|
|
|
Condensed
Consolidated Statements of Income Six Months Ended June 30, 2007, and
July
1, 2006 |
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows Six Months Ended June 30, 2007,
and
July 1, 2006 |
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements |
|
|
|
|
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
16
|
|
|
|
Item
3.
|
Quantitative
and Qualitative Disclosure about Market Risk
|
21
|
|
|
|
Item
4.
|
Controls
and Procedures
|
21
|
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
Item
1.
|
Legal
Proceedings
|
22
|
|
|
|
Item
1A.
|
Risk
Factors
|
22
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
22
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities – None
|
-
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
22
|
|
|
|
Item
5.
|
Other
Information - None
|
-
|
|
|
|
Item
6.
|
Exhibits
|
24
|
|
|
|
SIGNATURES
|
25
|
|
|
|
EXHIBIT
INDEX
|
26
|
PART
I. FINANCIAL INFORMATION
Item
1.
|
Financial
Statements (Unaudited)
|
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
June
30,
2007
(Unaudited)
|
|
|
Dec.
30,
2006
|
|
ASSETS
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
23,989
|
|
|
$ |
28,077
|
|
Short-term
investments
|
|
|
9,121
|
|
|
|
9,174
|
|
Receivables
|
|
|
296,813
|
|
|
|
316,568
|
|
Inventories
(Note C)
|
|
|
111,955
|
|
|
|
105,765
|
|
Deferred
income taxes
|
|
|
19,246
|
|
|
|
15,440
|
|
Prepaid
expenses and other current assets
|
|
|
19,937
|
|
|
|
29,150
|
|
Total
Current Assets
|
|
|
481,061
|
|
|
|
504,174
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT, AND EQUIPMENT, at cost
|
|
|
|
|
|
Land
and land improvements
|
|
|
27,543
|
|
|
|
27,700
|
|
Buildings
|
|
|
270,962
|
|
|
|
266,801
|
|
Machinery
and equipment
|
|
|
539,332
|
|
|
|
550,979
|
|
Construction
in progress
|
|
|
24,616
|
|
|
|
12,936
|
|
|
|
|
862,453
|
|
|
|
858,416
|
|
Less
accumulated depreciation
|
|
|
552,567
|
|
|
|
548,464
|
|
|
|
|
|
|
|
|
|
|
Net
Property, Plant, and Equipment
|
|
|
309,886
|
|
|
|
309,952
|
|
|
|
|
|
|
|
|
|
|
GOODWILL
|
|
|
252,044
|
|
|
|
251,761
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
159,632
|
|
|
|
160,472
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
1,202,623
|
|
|
$ |
1,226,359
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
June
30,
2007
(Unaudited)
|
|
|
Dec.
30,
2006
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
(In
thousands, except share and per share value data)
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
321,989
|
|
|
$ |
328,882
|
|
Note
payable and current maturities of long-term debt and capital lease
obligations
|
|
|
63,330
|
|
|
|
26,135
|
|
Current
maturities of other long-term obligations
|
|
|
1,670
|
|
|
|
3,525
|
|
Total
Current Liabilities
|
|
|
386,989
|
|
|
|
358,542
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT
|
|
|
279,300
|
|
|
|
285,300
|
|
|
|
|
|
|
|
|
|
|
CAPITAL
LEASE OBLIGATIONS
|
|
|
604
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
OTHER
LONG-TERM LIABILITIES
|
|
|
57,183
|
|
|
|
56,103
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
INCOME TAXES
|
|
|
21,104
|
|
|
|
29,321
|
|
|
|
|
|
|
|
|
|
|
MINORITY
INTEREST IN SUBSIDIARY
|
|
|
198
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
Capital
Stock:
|
|
|
|
|
|
|
|
|
Preferred,
$1 par value, authorized 2,000,000 shares, no shares
outstanding
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Common,
$1 par value, authorized 200,000,000 shares, outstanding -
|
|
|
46,332
|
|
|
|
47,906
|
|
June
30, 2007 – 46,331,932 shares;
|
|
|
|
|
|
|
|
|
Dec.
30, 2006 – 47,905,351 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
capital
|
|
|
3,159
|
|
|
|
2,807
|
|
Retained
earnings
|
|
|
409,830
|
|
|
|
448,268
|
|
Accumulated
other comprehensive income
|
|
|
(2,076 |
) |
|
|
(3,062 |
) |
|
|
|
|
|
|
|
|
|
Total
Shareholders' Equity
|
|
|
457,245
|
|
|
|
495,919
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$ |
1,202,623
|
|
|
$ |
1,226,359
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
June
30,
2007
|
|
|
July
1,
2006
|
|
|
|
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
618,160
|
|
|
$ |
667,706
|
|
Cost
of sales
|
|
|
402,523
|
|
|
|
434,060
|
|
Gross
profit
|
|
|
215,637
|
|
|
|
233,646
|
|
Selling
and administrative expenses
|
|
|
169,559
|
|
|
|
184,806
|
|
Restructuring
and impairment
|
|
|
728
|
|
|
|
228
|
|
Operating
income
|
|
|
45,350
|
|
|
|
48,612
|
|
Interest
income
|
|
|
196
|
|
|
|
192
|
|
Interest
expense
|
|
|
4,774
|
|
|
|
3,617
|
|
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
40,772
|
|
|
|
45,187
|
|
Income
taxes
|
|
|
14,404
|
|
|
|
16,493
|
|
Earnings
from continuing operations before minority interest
|
|
|
26,368
|
|
|
|
28,694
|
|
Minority
interest in earnings of subsidiary
|
|
|
(25 |
) |
|
|
(22 |
) |
Income
from continuing operations
|
|
|
26,393
|
|
|
|
28,716
|
|
Discontinued
operations, less applicable taxes
|
|
|
484
|
|
|
|
(64 |
) |
Net
income
|
|
$ |
26,877
|
|
|
$ |
28,652
|
|
Net
income from continuing operations – basic
|
|
$ |
0.56
|
|
|
$ |
0.56
|
|
Net
income from discontinued operations - basic
|
|
$ |
0.01
|
|
|
$ |
(0.00 |
) |
Net
income per common share – basic
|
|
$ |
0.57
|
|
|
$ |
0.56
|
|
Average
number of common shares outstanding – basic
|
|
|
46,936,567
|
|
|
|
51,009,288
|
|
Net
income from continuing operations – diluted
|
|
$ |
0.56
|
|
|
$ |
0.56
|
|
Net
income from discontinued operations – diluted
|
|
$ |
0.01
|
|
|
$ |
(0.00 |
) |
Net
income per common share – diluted
|
|
$ |
0.57
|
|
|
$ |
0.56
|
|
Average
number of common shares outstanding – diluted
|
|
|
47,199,397
|
|
|
|
51,339,367
|
|
Cash
dividends per common share
|
|
$ |
0.195
|
|
|
$ |
0.18
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
Six
Months Ended
|
|
|
|
June
30,
2007
|
|
|
July
1,
2006
|
|
|
|
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,227,360
|
|
|
$ |
1,313,271
|
|
Cost
of sales
|
|
|
805,023
|
|
|
|
850,670
|
|
Gross
profit
|
|
|
422,337
|
|
|
|
462,601
|
|
Selling
and administrative expenses
|
|
|
340,373
|
|
|
|
365,994
|
|
Restructuring
and impairment
|
|
|
592
|
|
|
|
1,947
|
|
Operating
income
|
|
|
81,372
|
|
|
|
94,660
|
|
Interest
income
|
|
|
448
|
|
|
|
471
|
|
Interest
expense
|
|
|
9,062
|
|
|
|
5,004
|
|
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
72,758
|
|
|
|
90,127
|
|
Income
taxes
|
|
|
25,767
|
|
|
|
32,896
|
|
Earnings
from continuing operations before minority interest
|
|
|
46,991
|
|
|
|
57,231
|
|
Minority
interest in earnings of subsidiary
|
|
|
(53 |
) |
|
|
(61 |
) |
Income
from continuing operations
|
|
|
47,044
|
|
|
|
57,292
|
|
Discontinued
operations, less applicable taxes
|
|
|
514
|
|
|
|
(170 |
) |
Net
income
|
|
$ |
47,558
|
|
|
$ |
57,122
|
|
Net
income from continuing operations – basic
|
|
$ |
0.99
|
|
|
$ |
1.11
|
|
Net
income from discontinued operations - basic
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
Net
income per common share – basic
|
|
$ |
1.00
|
|
|
$ |
1.11
|
|
Average
number of common shares outstanding – basic
|
|
|
47,466,147
|
|
|
|
51,422,647
|
|
Net
income from continuing operations – diluted
|
|
$ |
0.99
|
|
|
$ |
1.10
|
|
Net
income from discontinued operations – diluted
|
|
$ |
0.01
|
|
|
$ |
0.00
|
|
Net
income per common share – diluted
|
|
$ |
1.00
|
|
|
$ |
1.10
|
|
Average
number of common shares outstanding – diluted
|
|
|
47,733,977
|
|
|
|
51,781,098
|
|
Cash
dividends per common share
|
|
$ |
0.39
|
|
|
$ |
0.36
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six
Months Ended
|
|
|
|
June
30, 2007
|
|
|
July
1, 2006
|
|
|
|
(In
thousands)
|
|
Net
Cash Flows From (To) Operating Activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
47,558
|
|
|
$ |
57,122
|
|
Noncash
items included in net income:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
33,730
|
|
|
|
34,857
|
|
Other
postretirement and post employment benefits
|
|
|
1,066
|
|
|
|
1,055
|
|
Stock-based
compensation
|
|
|
1,909
|
|
|
|
1,584
|
|
Excess
tax benefits from stock compensation
|
|
|
(654 |
) |
|
|
(720 |
) |
Deferred
income taxes
|
|
|
(10,344 |
) |
|
|
(9,090 |
) |
Loss
on sale, retirement and impairment of long-lived assets and
intangibles
|
|
|
2,384
|
|
|
|
344
|
|
Stock
issued to retirement plan
|
|
|
6,611
|
|
|
|
7,948
|
|
Other
– net
|
|
|
754
|
|
|
|
2,350
|
|
Net
increase (decrease) in non-cash operating assets and
liabilities
|
|
|
14,598
|
|
|
|
(60,053 |
) |
Increase
(decrease) in other liabilities
|
|
|
(1,941 |
) |
|
|
(4,531 |
) |
Net
cash flows from (to) operating activities
|
|
|
95,671
|
|
|
|
30,866
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Flows From (To) Investing Activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(29,148 |
) |
|
|
(33,173 |
) |
Proceeds
from sale of property, plant and equipment
|
|
|
305
|
|
|
|
965
|
|
Acquisition
spending, net of cash acquired
|
|
|
(1,509 |
) |
|
|
(64,120 |
) |
Short-term
investments – net
|
|
|
-
|
|
|
|
926
|
|
Purchase
of long-term investments
|
|
|
(17,287 |
) |
|
|
(6,300 |
) |
Sales
or maturities of long-term investments
|
|
|
15,267
|
|
|
|
3,900
|
|
Other
– net
|
|
|
100
|
|
|
|
-
|
|
Net
cash flows from (to) investing activities
|
|
|
(32,272 |
) |
|
|
(97,802 |
) |
|
|
|
|
|
|
|
|
|
Net
Cash Flows From (To) Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sales of HNI Corporation common stock
|
|
|
5,456
|
|
|
|
2,908
|
|
Purchase
of HNI Corporation common stock
|
|
|
(85,000 |
) |
|
|
(107,858 |
) |
Excess
tax benefits from stock compensation
|
|
|
654
|
|
|
|
720
|
|
Proceeds
from long-term debt
|
|
|
141,470
|
|
|
|
411,675
|
|
Payments
of note and long-term debt and other financing
|
|
|
(111,594 |
) |
|
|
(270,728 |
) |
Dividends
paid
|
|
|
(18,473 |
) |
|
|
(18,554 |
) |
Net
cash flows from (to) financing activities
|
|
|
(67,487 |
) |
|
|
18,163
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(4,088 |
) |
|
|
(48,773 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
28,077
|
|
|
|
75,707
|
|
Cash
and cash equivalents at end of period
|
|
$ |
23,989
|
|
|
$ |
26,934
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
HNI
Corporation and SUBSIDIARIES
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June
30,
2007
Note
A.
|
Basis
of Presentation
|
The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10
of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. The December 30, 2006 consolidated
balance sheet included in this Form 10-Q was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
three-month and six-month periods ended June 30, 2007 are not necessarily
indicative of the results that may be expected for the year ending December
29,
2007. For further information, refer to the consolidated financial
statements and footnotes included in HNI Corporation’s (the "Corporation")
annual report on Form 10-K for the year ended December 30, 2006.
Note
B.
|
Stock-Based
Compensation
|
Effective
January 1, 2006, the Corporation adopted the provisions of Statement of
Financial Accounting Standards No. 123(R), "Share-Based
Payment." Accordingly, stock-based compensation expense is measured at
grant date, based on the fair value of the award and is recognized as expense
over the employee requisite service period. For the three and six
months ended June 30, 2007, and July 1, 2006, the Corporation recognized $0.9
million and $1.9 million, and $0.8 million, and $1.6 million, respectively,
of
stock-based compensation for the cost of stock options and shares issued under
the Corporation's Members' Stock Purchase Plan.
At
June
30, 2007, there was $5.6 million of unrecognized compensation cost related
to
nonvested awards, which the Corporation expects to recognize over a
weighted-average period of 1.6 years.
The
Corporation values its inventory at the lower of cost or market with
approximately 85% valued by the last-in, first-out (LIFO) method.
(In
thousands)
|
|
June
30, 2007
(Unaudited)
|
|
|
Dec.
30, 2006
|
|
Finished
products
|
|
$ |
76,273
|
|
|
$ |
66,238
|
|
Materials
and work in process
|
|
|
54,944
|
|
|
|
58,789
|
|
LIFO
allowance
|
|
|
(19,262 |
) |
|
|
(19,262 |
) |
|
|
$ |
111,955
|
|
|
$ |
105,765
|
|
Note
D.
|
Comprehensive
Income and Shareholders' Equity
|
The
Corporation's comprehensive income for the three-month period ended June 30,
2007 consisted of net income, adjustments to net periodic benefit costs of
$0.1
million, unrealized holding gains or losses on marketable securities of $0.1
million, and foreign currency adjustments of $0.5 million.
The
Corporation's comprehensive income for the first six months of 2007 consisted
of
net income, adjustments to net periodic benefit costs of $0.3 million, and
foreign currency adjustments of $0.7 million.
For
the
six months ended June 30, 2007, the Corporation repurchased 1,933,895 shares
of
its common stock at a cost of approximately $85.0 million. As of June
30, 2007, $54.8 million of the Corporation's Board of Directors' current
repurchase authorization remained unspent.
Note
E.
|
Earnings
Per Share
|
The
following table reconciles the numerators and denominators used in the
calculation of basic and diluted earnings per share (EPS):
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(In
thousands, except per share data)
|
|
June
30,
2007
|
|
|
July
1,
2006
|
|
|
June
30,
2007
|
|
|
July
1,
2006
|
|
Numerators:
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
for both basic and diluted EPS net income
|
|
$ |
26,877
|
|
|
$ |
28,652
|
|
|
$ |
47,558
|
|
|
$ |
57,122
|
|
Denominators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS weighted-average common shares outstanding
|
|
|
46,937
|
|
|
|
51,009
|
|
|
|
47,466
|
|
|
|
51,423
|
|
Potentially
dilutive shares from stock option plans
|
|
|
262
|
|
|
|
330
|
|
|
|
268
|
|
|
|
358
|
|
Denominator
for diluted EPS
|
|
|
47,199
|
|
|
|
51,339
|
|
|
|
47,734
|
|
|
|
51,781
|
|
Earnings
per share – basic
|
|
$ |
0.57
|
|
|
$ |
0.56
|
|
|
$ |
1.00
|
|
|
$ |
1.11
|
|
Earnings
per share – diluted
|
|
$ |
0.57
|
|
|
$ |
0.56
|
|
|
$ |
1.00
|
|
|
$ |
1.10
|
|
Certain
exercisable and non-exercisable stock options were not included in the
computation of diluted EPS at June 30, 2007, and July 1, 2006, because their
inclusion would have been anti-dilutive. The number of stock options
outstanding, which met this anti-dilutive criterion for the three and six months
ended June 30, 2007, was 469,878. The number of stock options
outstanding, which met this anti-dilutive criterion for the three and six months
ended July 1, 2006, was 135,566.
Note
F.
|
Restructuring
Reserve and Plant Shutdowns
|
As
a
result of the Corporation's ongoing business simplification and cost reduction
strategies, management made the decision in fourth quarter 2006 to close an
office furniture facility and consolidate production into other manufacturing
locations. In connection with the shutdown, the Corporation incurred
$0.7 million of current period charges during the quarter
ended
June 30, 2007. The closure and consolidation is substantially
completed. The Corporation anticipates additional restructuring
charges of approximately $0.4 million. The following is a summary of
changes in restructuring accruals during the six months ended June 30,
2007:
(In
thousands)
|
|
Severance
|
|
|
Facility
Exit Costs & Other
|
|
|
Total
|
|
Balance
as of December 30, 2006
|
|
$ |
841
|
|
|
$ |
-
|
|
|
$ |
841
|
|
Restructuring
charges
|
|
|
(337 |
) |
|
|
929
|
|
|
|
592
|
|
Cash
payments
|
|
|
(404 |
) |
|
|
(929 |
) |
|
|
1,333
|
|
Balance
as of June 30, 2007
|
|
$ |
100
|
|
|
$ |
-
|
|
|
$ |
100
|
|
Note
G.
|
Business
Combinations
|
The
Corporation completed the acquisition of a small office furniture dealer during
the first quarter ended March 31, 2007 for a purchase price of approximately
$1.0 million. The Corporation acquired a controlling interest and the
ability to call the remaining interest on or after fiscal year-end
2012. The Corporation must exercise its call on or before the end of
fiscal 2017. Statement of Financial Accounting Standards ("SFAS") No.
150, "Accounting for Certain Financial Instruments with Characteristics of
both
Liabilities and Equity," requires a mandatorily redeemable financial instrument
to be classified as a liability unless the redemption is required to occur
only
upon the liquidation or termination of the reporting entity. It also
requires that mandatorily redeemable financial instruments be measured at fair
value. Therefore, the Corporation has recorded a liability for the
remaining interest in the dealer at fair value as of the acquisition
date.
Note
H.
|
Discontinued
Operations
|
The
Corporation completed the sale of a previously announced small non-core
component of its office furniture segment. Revenues and expenses
associated with this component are presented as discontinued operations for
the
periods presented.
Summarized
financial information for discontinued operations is as follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(In
thousands)
|
|
June
30,
2007
|
|
|
July
1,
2006
|
|
|
June
30,
2007
|
|
|
July
1,
2006
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income/(loss) before tax
|
|
$ |
749
|
|
|
$ |
(101 |
) |
|
$ |
796
|
|
|
$ |
(268 |
) |
Tax
impact
|
|
|
265
|
|
|
|
(37 |
) |
|
|
282
|
|
|
|
(98 |
) |
Income/(loss)
from discontinued operations, net of income tax
|
|
$ |
484
|
|
|
$ |
(64 |
) |
|
$ |
514
|
|
|
$ |
(170 |
) |
Note
I.
|
Goodwill
and Other Intangible Assets
|
The
table
below summarizes amortizable definite-lived intangible assets as of June 30,
2007 and December 30, 2006, which are reflected in the "Other Assets" line
item
in the Corporation’s condensed consolidated balance sheets:
(In
thousands)
|
|
June
30, 2007
|
|
|
Dec.
30, 2006
|
|
Patents
|
|
$ |
18,780
|
|
|
$ |
18,780
|
|
Customer
relationships and other
|
|
|
104,677
|
|
|
|
103,492
|
|
Less: accumulated
amortization
|
|
|
43,171
|
|
|
|
39,796
|
|
Balance
at end of period
|
|
$ |
80,286
|
|
|
$ |
82,476
|
|
Aggregate
amortization expense for the three and six months ended June 30, 2007 and July
1, 2006 was $2.3 million and $4.7 million, and $2.9 million and $5.2 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)
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
Amortization
Expense
|
|
$ |
9.1
|
|
|
$ |
8.3
|
|
|
$ |
7.0
|
|
|
$ |
6.6
|
|
|
$ |
5.7
|
|
As
events
such as potential acquisitions, dispositions or impairments occur in the future,
these amounts may change.
The
Corporation also owns trademarks and trade names with a net carrying amount
of
$43.4 million. The trademarks are deemed to have indefinite useful
lives because they are expected to generate cash flows
indefinitely.
The
changes in the carrying amount of goodwill since December 30, 2006, are as
follows by reporting segment:
(In
thousands)
|
|
Office
Furniture
|
|
|
Hearth
Products
|
|
|
Total
|
|
Balance
as of December 30, 2006
|
|
$ |
84,815
|
|
|
$ |
166,946
|
|
|
$ |
251,761
|
|
Goodwill
change during period
|
|
|
671
|
|
|
|
(388 |
) |
|
|
283
|
|
Balance
as of June 30, 2007
|
|
$ |
85,486
|
|
|
$ |
166,558
|
|
|
$ |
252,044
|
|
In
accordance with SFAS No. 142 "Goodwill and Other Intangible Assets," the
Corporation evaluates its goodwill for impairment on an annual basis based
on
values at the end of the third quarter, or whenever indicators of impairment
exist. The Corporation has previously evaluated its goodwill for
impairment and has determined that the fair value of the reporting unit exceeds
their carrying value so no impairment of goodwill was recognized in the
quarter. The increase in the office furniture segment goodwill
relates to the acquisitions completed during the first quarter and final
purchase price adjustments related to prior acquisitions. The
decrease in the hearth products segment relates to the sale of a few small
retail locations.
Note
J.
|
Product
Warranties
|
The
Corporation issues certain warranty policies on its furniture and hearth
products that provide for repair or replacement of any covered product or
component that fails during normal use because of a defect in design 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
during the period:
|
|
Three
Months Ended
|
|
(In
thousands)
|
|
June
30, 2007
|
|
|
July
1, 2006
|
|
Balance
at beginning of period
|
|
$ |
10,624
|
|
|
$ |
10,157
|
|
Accruals
for warranties issued during period
|
|
|
7,152
|
|
|
|
5,993
|
|
Adjustments
related to pre-existing warranties
|
|
|
(42 |
) |
|
|
445
|
|
Settlements
made during the period
|
|
|
(7,098 |
) |
|
|
(6,160 |
) |
Balance
at end of period
|
|
$ |
10,636
|
|
|
$ |
10,435
|
|
Note
K.
|
Postretirement
Health Care
|
In
accordance with the interim disclosure requirements of revised SFAS No. 132,
"Employers' Disclosures about Pensions and other Postretirement Benefits,"
the
following table sets forth the components of net periodic benefit cost included
in the Corporation’s income statement for:
|
|
Six
Months Ended
|
|
(In
thousands)
|
|
June
30, 2007
|
|
|
July
1, 2006
|
|
Service
cost
|
|
$ |
240
|
|
|
$ |
163
|
|
Interest
cost
|
|
|
533
|
|
|
|
526
|
|
Expected
return on plan assets
|
|
|
(120 |
) |
|
|
(87 |
) |
Amortization
of transition obligation
|
|
|
291
|
|
|
|
291
|
|
Amortization
of prior service cost
|
|
|
115
|
|
|
|
115
|
|
Amortization
of (gain)/loss
|
|
|
7
|
|
|
|
47
|
|
Net
periodic benefit cost
|
|
$ |
1,066
|
|
|
$ |
1,055
|
|
In
June
2006, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN
48"). The Interpretation 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. The amount of
unrecognized tax benefits at December 31, 2006 was $3.9 million of which $2.7
million would impact the Corporation's effective tax rate, if
recognized.
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. As of December 31,
2006, the Corporation had recorded a liability for interest
and penalties related to unrecognized tax benefits of $0.5 million and $0.4
million, respectively.
The
Internal Revenue Service ("IRS") has completed the examination of all federal
income tax returns through 2003 with no issues pending or
unresolved. The years 2004 through 2006 remain open for examination
by the IRS. The years 2002 through 2006 are currently under
examination or remain open to examination by several states.
As
of
December 31, 2006 it is reasonably possible that the amounts of several of
the
unrecognized tax benefits may increase or decrease within the twelve months
following the reporting date. 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. As of June 30, 2007 there have been no
material changes to the information included in this footnote.
Note
M.
|
Commitments
and Contingencies
|
The
Corporation utilizes letters of credit in the amount of $25.1 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 competitively determined
fees.
The
Corporation has contingent liabilities, which have arisen in the course of
its
business, including pending litigation, preferential payment claims in customer
bankruptcies, environmental remediation, taxes, and other claims. It
is the Corporation's opinion, after consultation with legal counsel, that
additional liabilities, if any, resulting from these matters are not expected
to
have a material adverse effect on the Corporation’s financial condition,
although such matters could have a material effect on the Corporation’s
quarterly or annual operating results and cash flows when resolved in a future
period.
Note
N.
|
New
Accounting Standards
|
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. SFAS 157 also expands the amount of disclosure
regarding the extent to which companies measure assets and liabilities at fair
value, the information used to measure fair value, and the effect of fair value
measurements on earnings. The standard applies whenever other
standards require (or permit) assets or liabilities to be measured at fair
value
but does not expand the use of fair value in any new
circumstances. This statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The Corporation does not anticipate any
material impact to its financial statements from the adoption of this
standard.
In
February, 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS 159") which permits entities
to choose to measure many financial instruments and certain other items at
fair
value that are not currently required to be measured at fair
value. The objective of SFAS 159 is to improve financial reporting by
providing entities with the opportunity to mitigate volatility in reported
earnings caused by measuring related assets and liabilities differently without
having to apply complex hedge accounting provisions. This statement
is effective as of the beginning of any fiscal year beginning after November
15,
2007. The Corporation is currently reviewing the impact, if any, that
SFAS 159 will have on its consolidated financial statements.
Note
O.
|
Business
Segment Information
|
Management
views the Corporation as operating in two business segments: office furniture
and hearth products, with the former being the principal business
segment.
The
office furniture segment manufactures and markets a broad line of metal and
wood
commercial and home office furniture which includes file cabinets, desks,
credenzas, chairs, storage cabinets, tables, bookcases, freestanding office
partitions and panel systems, and other related products. The hearth
product segment manufactures and markets a broad line of manufactured gas-,
pellet- and wood-burning fireplaces and stoves, fireplace inserts, and chimney
systems 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 cost of the Corporation’s corporate operations,
interest income, and interest expense. The increase in unallocated
corporate expenses compared to prior year is due to increased interest expense
and group medical costs. Management views interest income and expense
as corporate financing costs rather than a business segment cost. In
addition, management applies one effective tax rate to its consolidated income
before income taxes so income taxes are not reported or viewed internally on
a
segment basis.
The
Corporation’s primary markets and capital investments are concentrated in the
United States.
Reportable
segment data reconciled to the consolidated financial statements for the three
and six month periods ended June 30, 2007 and July 1, 2006, is as
follows:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(In
thousands)
|
|
June
30,
2007
|
|
|
July
1,
2006
|
|
|
June
30,
2007
|
|
|
July
1,
2006
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
Furniture
|
|
$ |
503,587
|
|
|
$ |
510,740
|
|
|
$ |
1,001,438
|
|
|
$ |
998,347
|
|
Hearth
Products
|
|
|
114,573
|
|
|
|
156,966
|
|
|
|
225,922
|
|
|
|
314,924
|
|
|
|
$ |
618,160
|
|
|
$ |
667,706
|
|
|
$ |
1,227,360
|
|
|
$ |
1,313,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
before restructuring charges
|
|
$ |
45,317
|
|
|
$ |
38,601
|
|
|
$ |
84,243
|
|
|
$ |
80,947
|
|
Restructuring
and impairment charges
|
|
|
(728 |
) |
|
|
(228 |
) |
|
|
(592 |
) |
|
|
(1,947 |
) |
Office
Furniture – net
|
|
|
44,589
|
|
|
|
38,373
|
|
|
|
83,651
|
|
|
|
79,000
|
|
Hearth
products
|
|
|
9,723
|
|
|
|
18,206
|
|
|
|
17,444
|
|
|
|
29,939
|
|
Total
operating profit
|
|
|
54,312
|
|
|
|
56,579
|
|
|
|
101,095
|
|
|
|
108,939
|
|
Unallocated
corporate expense
|
|
|
(13,502 |
) |
|
|
(11,358 |
) |
|
|
(28,255 |
) |
|
|
(18,717 |
) |
Income
before income taxes
|
|
$ |
40,810
|
|
|
$ |
45,221
|
|
|
$ |
72,840
|
|
|
$ |
90,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
& Amortization Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
11,923
|
|
|
$ |
12,971
|
|
|
$ |
24,277
|
|
|
$ |
24,126
|
|
Hearth
products
|
|
|
3,529
|
|
|
|
4,164
|
|
|
|
7,217
|
|
|
|
8,697
|
|
General
corporate
|
|
|
1,096
|
|
|
|
894
|
|
|
|
2,236
|
|
|
|
2,034
|
|
|
|
$ |
16,548
|
|
|
$ |
18,029
|
|
|
$ |
33,730
|
|
|
$ |
34,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
11,268
|
|
|
$ |
12,388
|
|
|
$ |
22,093
|
|
|
$ |
21,859
|
|
Hearth
products
|
|
|
4,172
|
|
|
|
2,674
|
|
|
|
6,379
|
|
|
|
5,444
|
|
General
corporate
|
|
|
383
|
|
|
|
3,863
|
|
|
|
676
|
|
|
|
5,870
|
|
|
|
$ |
15,823
|
|
|
$ |
18,925
|
|
|
$ |
29,148
|
|
|
$ |
33,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
June
30, 2007
|
|
|
As
of
July
1, 2006
|
|
Identifiable
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
|
|
|
|
|
|
|
|
$ |
734,835
|
|
|
$ |
737,297
|
|
Hearth
products
|
|
|
|
|
|
|
|
|
|
|
361,431
|
|
|
|
387,641
|
|
General
corporate
|
|
|
|
|
|
|
|
|
|
|
106,357
|
|
|
|
104,012
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,202,623
|
|
|
$ |
1,228,950
|
|
(1) Includes
minority interest.
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
Overview
The
Corporation has two reportable core operating segments: office
furniture and hearth products. The Corporation is the second largest
office furniture manufacturer in the world and the nation's leading manufacturer
and marketer of gas- and wood-burning fireplaces. The Corporation
utilizes its split and focus, decentralized business model to deliver value
to
its customers with its various brands and selling models. The
Corporation is focused on growing its existing businesses while seeking out
and
developing new opportunities for growth.
Net
sales
for the second quarter of 2007 decreased 7.4 percent to $618.2
million. The decrease was driven primarily by the decline in the
hearth business and softness in the supplies driven channel of the office
furniture business. Gross margins for the quarter decreased slightly
from prior year levels due primarily to decreased volume. Selling and
administrative expenses decreased due to lower volume, cost containment
initiatives and lower incentive based compensation expense.
Critical
Accounting Policies
The
preparation of the financial statements requires the Corporation to make
estimates and judgments that affect the reported amount of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. The Corporation continually evaluates its accounting
policies and estimates. The Corporation bases its estimates on
historical experience and on a variety of other assumptions believed to be
reasonable in order to make judgments about the carrying value of assets and
liabilities. Actual results may differ from these estimates under
different assumptions or conditions. A summary of the more
significant accounting policies that require the use of estimates and judgments
in preparing the financial statements is provided in the Corporation's Annual
Report on Form 10-K for the year ended December 30, 2006. As of
December 31, 2006, the Corporation adopted FIN 48, which 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." During the first six months of 2007, there were no material
changes in the accounting policies and assumptions previously disclosed, except
for the Corporation’s adoption of FIN 48.
Results
of Operations
The
following table presents certain key highlights from the results of operations
for the periods indicated:
|
|
|
|
|
|
|
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
(In
thousands)
|
|
June
30,
2007
|
|
|
July
1,
2006
|
|
|
Percent
Change
|
|
|
June
30,
2007
|
|
|
July
1,
2006
|
|
|
Percent
Change
|
|
Net
sales
|
|
$ |
618,160
|
|
|
$ |
667,706
|
|
|
|
-7.4 |
% |
|
$ |
1,227,360
|
|
|
$ |
1,313,271
|
|
|
|
-6.5 |
% |
Cost
of sales
|
|
|
402,523
|
|
|
|
434,060
|
|
|
|
-7.3
|
|
|
|
805,023
|
|
|
|
850,670
|
|
|
|
-5.4
|
|
Gross
profit
|
|
|
215,637
|
|
|
|
233,646
|
|
|
|
-7.7
|
|
|
|
422,337
|
|
|
|
462,601
|
|
|
|
-8.7
|
|
Selling
& administrative expenses
|
|
|
169,559
|
|
|
|
184,806
|
|
|
|
-8.3
|
|
|
|
340,373
|
|
|
|
365,994
|
|
|
|
-7.0
|
|
Restructuring
& impairment charges
|
|
|
728
|
|
|
|
228
|
|
|
|
219.3
|
|
|
|
592
|
|
|
|
1,947
|
|
|
|
-69.6
|
|
Operating
income
|
|
|
45,350
|
|
|
|
48,612
|
|
|
|
-6.7
|
|
|
|
81,372
|
|
|
|
94,660
|
|
|
|
-14.0
|
|
Interest
expense, net
|
|
|
(4,578 |
) |
|
|
(3,425 |
) |
|
|
33.7
|
|
|
|
(8,614 |
) |
|
|
(4,533 |
) |
|
|
90.0
|
|
Earnings
from continuing operations before income taxes and minority
interest
|
|
|
40,772
|
|
|
|
45,187
|
|
|
|
-9.8
|
|
|
|
72,758
|
|
|
|
90,127
|
|
|
|
-19.3
|
|
Income
taxes
|
|
|
14,404
|
|
|
|
16,493
|
|
|
|
-12.7
|
|
|
|
25,767
|
|
|
|
32,896
|
|
|
|
-21.7
|
|
Minority
interest in earnings of a subsidiary
|
|
|
(25 |
) |
|
|
(22 |
) |
|
|
13.6
|
|
|
|
(53 |
) |
|
|
(61 |
) |
|
|
-13.1
|
|
Income
from continuing operations
|
|
$ |
26,393
|
|
|
$ |
28,716
|
|
|
|
-8.1 |
% |
|
$ |
47,044
|
|
|
$ |
57,292
|
|
|
|
-17.9 |
% |
Consolidated
net sales for the second quarter decreased 7.4 percent or $49.5 million compared
to the same quarter last year. Acquisitions contributed $6.1 million
or 0.9 percentage points of sales. Organic sales growth was down due
primarily to the decline in the hearth business and softness in the supplies
driven channel of the office furniture business.
Gross
margins for the second quarter decreased slightly to 34.9 percent compared
to
35.0 percent for the same quarter last year. The decrease was
primarily due to decreased volume. Price increases implemented in the
prior year more than offset the moderate increases in material costs experienced
during the quarter.
Total
selling and administrative expenses for the quarter decreased by $14.7 million
compared to the same quarter last year. The decrease was due to lower
volume related costs, cost containment initiatives, and lower incentive based
compensation expense. The shutdown of a small office furniture
facility in Monterrey, Mexico was largely completed during the
quarter. The Corporation incurred $0.7 million of current period
charges during the quarter. The Corporation anticipates additional
restructuring charges related to this shutdown of approximately $0.4
million.
Income
from continuing operations decreased 8.1 percent while income from continuing
operations per diluted share remained flat compared to the same quarter in
2006
due to a $0.05 per share positive impact of the Corporation's share repurchase
program. Interest expense increased $1.2 million during the quarter
on moderate debt levels, consistent with the Corporation’s capital structure
strategy.
The
annualized effective tax rate was reduced slightly from 35.5 percent to 35.4
percent during the quarter, resulting in an effective tax rate of 35.3 percent
for the second quarter. The annualized effective tax rate for second
quarter 2006 was 36.5 percent. The decrease from prior year is due to
additional benefits from the U.S. manufacturing deduction and the reinstatement
of the research tax credit partially offset by higher state taxes.
The
Corporation completed the sale of a previously announced small, non-core
component of the office furniture segment during the second quarter of
2007. Revenues and expenses associated with the business operations
are presented as discontinued operations for all periods presented in the
financial statements.
For
the
first six months of 2007, consolidated net sales decreased $85.9 million, or
6.5
percent, to $1.2 billion compared to $1.3 billion in
2005. Acquisitions added $21.6 million or 1.6 percentage points of
sales. Gross margins decreased to 34.4 percent compared to 35.2
percent last year. Income from continuing operations was $47.0
million compared to $57.3 million in 2006, a decrease of 17.9
percent. Earnings per share from continuing operations decreased 10.8
percent to $0.99 per diluted share compared to $1.11 per diluted share last
year. Earnings per share was positively impacted $0.08 as a result of
the Corporation’s share repurchase program.
Office
Furniture
Second
quarter net sales for the office furniture segment decreased 1.4 percent or
$7.2
million to $503.6 million from $510.7 million for the same quarter last year
as
$6.1 million of incremental sales from acquisitions partially offset lower
sales
from the supplies driven channel. Operating profit prior to
unallocated corporate expenses increased 16.2 percent or $6.2 million to $44.6
million primarily as a result of price increases and cost improvement
initiatives. Operating profit was negatively impacted by $0.5 million
higher restructuring related costs compared to second quarter 2006.
Net
sales
for the first six months of 2007 increased 0.3 percent or $3.1 million to
$1,001.4 million compared to $998.3 million in 2006. Operating profit
increased 5.9 percent or $4.7 million to $83.7 million as a result of price
increases, cost improvement initiatives, and lower restructuring related costs
compared to 2006.
Hearth
Products
Second
quarter net sales for the hearth products segment decreased 27.0 percent or
$42.4 million to $114.6 million from $157.0 million for the same quarter last
year. The Corporation continued to be negatively impacted by housing
market conditions and lower comparable sales of alternative fuel
products. Operating profit prior to unallocated corporate expenses
decreased 46.6 percent or $8.5 million to $9.7 million due to lower volume
offset partially by cost reduction initiatives and a favorable product
mix.
Net
sales
for the first six months of 2007 decreased 28.3 percent to $225.9 million
compared to $314.9 million in 2006. Operating profit decreased 41.7
percent or $12.5 million to $17.4 million due to the same factors as described
for the second quarter.
Liquidity
and Capital Resources
As
of
June 30, 2007, cash and short-term investments were $33.1 million compared
to
$37.3 million at year-end 2006. Cash flow from operations for the
first six months of 2007 was $95.7
million
compared to $30.9 million in 2006 primarily due to timing of trade receivable
collections. Management is focused on cash flow and working capital
management. The Corporation has sufficient liquidity to manage its
operations and as of June 30, 2007 maintained additional borrowing capacity
of
$99 million, net of amounts designated for letters of credit, through a $300
million revolving bank credit agreement.
Capital
expenditures for the first six months of 2007 were $29.1 million compared to
$33.2 million in 2006 and were primarily for tooling and equipment for new
products and efficiency initiatives. For the full year 2007, capital
expenditures are expected to be $60 to $70 million due to new product
development and related tooling and other infrastructure
efficiencies.
The
Corporation completed the acquisition of a small office furniture dealer during
the first quarter ended March 31, 2007 for a purchase price of approximately
$1.0 million. During the first six months of 2007, net borrowings
under the Corporation's revolving credit facility increased $32 million to
fund
share repurchases. As of June 30, 2007, $176 million of the revolving
credit facility was outstanding with $49 million classified as short-term as
the
Corporation expects to repay that portion of the borrowings within the next
twelve months.
The
Corporation's Board of Directors (the "Board") declared a regular quarterly
cash
dividend of $0.195 per share on the Corporation's common stock on May 8, 2007,
to shareholders of record at the close of business on May 18,
2007. It was paid on June 1, 2007. This was the 209th consecutive
quarterly dividend paid by the Corporation.
For
the
six months ended June 30, 2007, the Corporation repurchased 1,933,895 shares
of
its common stock at a cost of approximately $85.0 million, or an average price
of $43.95 per share. As of June 30, 2007, approximately $54.8 million
of the Board's current repurchase authorization remained unspent.
Off-Balance
Sheet Arrangements
The
Corporation does not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Contractual
Obligations
Contractual
obligations associated with ongoing business and financing activities will
result in cash payments in future periods. A table summarizing the
amounts and estimated timing of these future cash payments was provided in
the
Corporation's Annual Report on Form 10-K for the year ended December 30,
2006. During the first six months of fiscal 2007 there were no
material changes outside the ordinary course of business in the Corporation's
contractual obligations or the estimated timing of the future cash
payments.
Commitments
and Contingencies
The
Corporation is involved in various kinds of disputes and legal proceedings
that
have arisen in the course of its business, including pending litigation,
preferential payment claims in customer bankruptcies, environmental remediation,
taxes and other claims. It is the Corporation's opinion, after
consultation with legal counsel, that additional liabilities, if any, resulting
from these matters are not expected to have a material adverse effect on the
Corporation's financial condition, although such matters could have a material
effect on the Corporation's quarterly or annual operating results and cash
flows
when resolved in a future period.
Looking
Ahead
The
office furniture industry continued to show moderate growth in the second
quarter. The Corporation has experienced softness in the
transactional supplies driven channel. Management anticipates similar
market conditions for the remainder of 2007. Management is actively
identifying and implementing structural and operating cost reductions in
response to the market conditions while continuing to focus on accelerating
growth.
The
hearth business continues to be negatively impacted by housing market
conditions. Management does not anticipate a housing recovery during
2007. The Corporation will continue to evaluate its cost structure to
ensure it is properly aligned with anticipated demand levels.
The
Corporation continues to focus on creating long-term shareholder value by
growing its businesses through investment in building brands, product solutions,
and selling models, enhancing its strong member-owner culture and remaining
focused on its long-standing continuous improvement programs to build best
total
cost and a lean enterprise.
Forward-Looking
Statements
Statements
in this report that are not strictly historical, including statements as to
plans, outlook, objectives, and future financial performance, are
"forward-looking" statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Words, such as "anticipate," "believe," "could," "confident,"
"estimate," "expect," "forecast," "intend," "likely," "may," "plan," "possible,"
"potential," "predict," "project," "should," and variations of such words and
similar expressions identify forward-looking
statements. Forward-looking statements involve known and unknown
risks, which may cause the Corporation's actual results in the future to differ
materially from expected results. These risks include, without
limitation: the Corporation's ability to realize financial benefits
from its (a) price increases, (b) cost containment and business
simplification initiatives for the entire Corporation, (c) investments in
strategic acquisitions, new products and brand building, (d) investments in
distribution and rapid continuous improvement, (e) repurchases of common stock,
and (f) ability to maintain its effective tax rate; uncertainty related to
the
availability of cash to fund future growth; lower than expected demand for
the
Corporation's products due to uncertain political and economic conditions;
lower
industry growth than expected; major disruptions at our key facilities or in
the
supply of any key raw materials, components or finished goods; uncertainty
related to disruptions of business by terrorism, military action, acts of God
or
other Force Majeure events; competitive pricing pressure from foreign and
domestic competitors; higher than expected costs and lower than expected
supplies of materials (including steel and petroleum based materials); higher
than expected costs for energy and fuel; changes in the mix of products sold
and
of customers purchasing; restrictions imposed by the terms of the Corporation’s
revolving credit facility and note purchase agreement; currency fluctuations
and
other factors described in the Corporation's annual and quarterly reports filed
with the Securities and Exchange Commission on Forms 10-K and
10-Q. The Corporation undertakes no obligation to update, amend, or
clarify forward-looking statements, whether as a result of new information,
future events, or otherwise, except as required by applicable law.
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
As
of
June 30, 2007, there were no material changes to the financial market risks
that
affect the quantitative and qualitative disclosures presented in item 7A of
the
Corporation's Annual Report on Form 10-K for the year ended December 30,
2006.
Item
4.
|
Controls
and Procedures
|
Disclosure
controls and procedures are designed to ensure that information required to
be
disclosed by the Corporation in the reports that it files or submits under
the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange Commission's
rules and forms. Disclosure controls and procedures are also designed to
ensure that information is accumulated and communicated to management, including
the chief executive officer and chief financial officer, as appropriate, to
allow timely decisions regarding required disclosure.
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 of June 30, 2007, and, based on their evaluation,
the
chief executive officer and chief financial officer have concluded that these
controls and procedures are effective.
Furthermore,
there have been no changes in the Corporation’s internal control over financial
reporting during the fiscal quarter covered by this Form 10-Q that have
materially affected, or are reasonably likely to materially affect, its internal
control over financial reporting.
PART
II. OTHER INFORMATION
Item
1.
|
Legal
Proceedings
|
There
are
no new legal proceedings or material developments to report.
There
have been no material changes from the risk factors disclosed in the "Risk
Factors" section of the Corporation's Annual Report on Form 10-K for the year
ended December 30, 2006.
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Issuer
Purchases of Equity Securities
The
following is a summary of share repurchase activity during the second quarter
ended June 30, 2007.
Period
|
|
(a)
Total Number of Shares (or Units) Purchased (1)
|
|
|
(b)
Average price Paid per Share or Unit
|
|
|
(c)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced
Plans or Programs
|
|
|
(d)
Maximum Number (or Approximate Dollar Value) of Shares (or Units)
that May
Yet be Purchased Under the Plans or Programs
|
|
4/01/07
– 4/28/07
|
|
|
315,535
|
|
|
$ |
44.99
|
|
|
|
315,535
|
|
|
$ |
112,524,497
|
|
4/29/07
– 5/26/07
|
|
|
1,283,383
|
|
|
$ |
43.26
|
|
|
|
1,283,383
|
|
|
$ |
57,001,538
|
|
5/27/07
– 6/30/07
|
|
|
49,332
|
|
|
$ |
43.81
|
|
|
|
49,332
|
|
|
$ |
54,840,239
|
|
Total
|
|
|
1,648,250
|
|
|
$ |
43.61
|
|
|
|
1,648,250
|
|
|
$ |
54,840,239
|
|
(1) No
shares were purchased outside of a publicly announced plan or
program.
The
Corporation repurchases shares under previously announced plans authorized
by
the Board as follows:
Ÿ
|
Plan
announced August 8, 2006, providing share repurchase authorization
of
$200,000,000 with no specific expiration
date.
|
Ÿ
|
No
repurchase plans expired or were terminated during the second quarter
of
2007, nor do any plans exist under which the Corporation does not
intend
to make further purchases.
|
Item
4.
|
Submission
of Matters to a Vote of Security
Holders
|
The
Annual Meeting of Shareholders of HNI Corporation was held on May 8, 2007,
for
purposes of electing five Directors to the Board, to approve amendments to
the
Corporation's Articles of Incorporation to eliminate supermajority shareholder
voting requirements, to approve the HNI Corporation 2007 Stock-Based
Compensation Plan, to approve the 2007 Equity Plan for Non-Employee Directors
of
HNI Corporation and to ratify the Audit Committee's selection of
PricewaterhouseCoopers LLP as the Corporation’s independent registered public
accountant for
the
fiscal year ended December 29, 2007. As of March 2, 2007, the record
date for the meeting, there were 48,156,613 shares of common stock issued and
outstanding and entitled to vote at the meeting. The first proposal
voted upon was the election of five Directors for a term of three years or
until
their successors are elected and qualify. The five persons nominated
by the Board received the following votes and were elected:
Three-Year
Term: |
For
|
Withheld/Abstained
|
Against
|
Mary
H. Bell |
39,732,535
or
82.51%
|
4,022,626
or
8.35%
|
-0-
or
0%
|
John
A. Halbrook |
38,442,055
or
79.83%
|
5,313,106
or
11.03%
|
-0-
or
0%
|
James
R. Jenkins |
39,789,039
or
82.62%
|
3,966,122
or
8.24%
|
-0-
or
0%
|
Dennis
J. Martin |
39,625,712
or
82.28%
|
4,129,449
or
8.58%
|
-0-
or
0%
|
Abbie
J. Smith |
38,446,235
or
79.84%
|
5,308,926
or
11.02%
|
-0-
or
0%
|
Other
Directors whose term of office as a Director continued after the meeting
are: Stan A. Askren, Miguel M. Calado, Gary M. Christensen, Cheryl A.
Francis, Larry B. Porcellato, Dennis J. Martin, Joseph Scalzo, Brian E. Stern,
and Ronald V. Waters, III.
The
second proposal voted upon was the approval of amendments to the Corporation's
Articles of Incorporation to eliminate supermajority shareholder voting
requirements. The proposal was approved with 37,157,811 votes, or
77.16% voting for; 6,241,199 votes or 12.96% voting against; and 356,150 votes
or 0.74% abstaining.
The
third
proposal voted upon was the approval of the HNI Corporation 2007 Stock-Based
Compensation Plan. The proposal was approved with 30,702,417 votes,
or 63.76% voting for; 10,051,505 votes or 20.87% voting against; and 514,283
votes or 1.07% abstaining.
The
fourth proposal voted upon was the approval of the 2007 Equity Plan for
Non-Employee Directors of HNI Corporation. The proposal was approved
with 32,404,733 votes, or 67.30% voting for; 8,442,998 votes or 17.53% voting
against; and 420,473 votes or 0.87% abstaining.
The
fifth
proposal voted upon was the ratification of the Audit Committee's selection
of
PricewaterhouseCoopers LLP as the Corporation's independent registered public
accountant for the fiscal year ended December 29, 2007. The proposal
was approved with 38,578,637 votes, or 80.11% voting for; 1,573,083 votes,
or
3.27% voting against; and 3,603,440 votes, or 7.48% abstaining.
As
to the
third and fourth proposal, there were 2,486,956 broker non-votes.
See
Exhibit Index.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
HNI
Corporation |
|
|
|
|
|
Dated:
August 2, 2007
|
By:
|
/s/ Jerald
K. Dittmer |
|
|
|
Name:
Jerald
K.
Dittmer |
|
|
|
Title:
Vice
President and Chief Financial Officer |
|
|
|
|
|
EXHIBIT
INDEX
(10.1)
|
Form
of common stock grant agreement granted under the 2007 Equity Plan
for
Non-Employee Directors of HNI
Corporation
|
(10.2)
|
Form
of option award agreement granted under the HNI Corporation 2007
Stock-Based Compensation Plan
|
(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
|