r10q3q07.htm
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
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FORM
10-Q
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(MARK
ONE)
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/
X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE
SECURITIES
EXCHANGE ACT OF 1934
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For
the quarterly period ended September 29, 2007
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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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For
the transition period from ____________________ to
____________________
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Commission
File Number 1-14225
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HNI
Corporation
(Exact
name of Registrant as specified in its charter)
|
|
|
Iowa
(State
or other jurisdiction of incorporation
or organization)
|
42-0617510
(I.R.S.
Employer Identification
Number)
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|
|
P.
O. Box 1109, 408 East Second Street, Muscatine,
Iowa
(Address
of principal executive offices)
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52761-0071
(Zip
Code)
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|
|
Registrant's
telephone number, including area code:
563/272-7400
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|
|
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
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
Common
Shares, $1 Par Value
|
Outstanding
at September 29, 2007
46,004,806
|
HNI
Corporation and SUBSIDIARIES
|
|
|
INDEX
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PART
I. FINANCIAL INFORMATION
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|
Page
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Item
1. Financial Statements (Unaudited)
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|
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|
Condensed
Consolidated Balance Sheets
September
29, 2007, and December 30, 2006
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3
|
|
|
Condensed
Consolidated Statements of Income
Three
Months Ended September 29, 2007, and September 30, 2006
|
5
|
|
|
Condensed
Consolidated Statements of Income
Nine
Months Ended September 29, 2007, and September 30, 2006
|
6
|
|
|
Condensed
Consolidated Statements of Cash Flows
Nine
Months Ended September 29, 2007, and September 30, 2006
|
7
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
8
|
|
|
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
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|
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PART
II. OTHER INFORMATION
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|
|
Item
1. Legal Proceedings
|
22
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|
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Item
1A. Risk Factors
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22
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|
|
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 - None
|
-
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|
|
Item
5. Other Information - None
|
-
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|
|
Item
6. Exhibits
|
22
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SIGNATURES
|
23
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EXHIBIT
INDEX
|
24
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PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
(Unaudited)
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
Sep.
29,
2007
(Unaudited)
|
|
|
Dec.
30,
2006
|
|
ASSETS
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
27,343
|
|
|
$ |
28,077
|
|
Short-term
investments
|
|
|
8,669
|
|
|
|
9,174
|
|
Receivables
|
|
|
318,263
|
|
|
|
316,568
|
|
Inventories
(Note C)
|
|
|
100,983
|
|
|
|
105,765
|
|
Deferred
income taxes
|
|
|
18,907
|
|
|
|
15,440
|
|
Prepaid
expenses and other current assets
|
|
|
24,372
|
|
|
|
29,150
|
|
Total
Current Assets
|
|
|
498,537
|
|
|
|
504,174
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT, AND EQUIPMENT, at cost
|
|
|
|
|
|
Land
and land improvements
|
|
|
23,706
|
|
|
|
27,700
|
|
Buildings
|
|
|
267,572
|
|
|
|
266,801
|
|
Machinery
and equipment
|
|
|
496,281
|
|
|
|
550,979
|
|
Construction
in progress
|
|
|
25,571
|
|
|
|
12,936
|
|
|
|
|
813,130
|
|
|
|
858,416
|
|
Less
accumulated depreciation
|
|
|
511,234
|
|
|
|
548,464
|
|
|
|
|
|
|
|
|
|
|
Net
Property, Plant, and Equipment
|
|
|
301,896
|
|
|
|
309,952
|
|
|
|
|
|
|
|
|
|
|
GOODWILL
|
|
|
252,912
|
|
|
|
251,761
|
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
158,834
|
|
|
|
160,472
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
1,212,179
|
|
|
$ |
1,226,359
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
Sep.
29,
2007
(Unaudited)
|
|
|
Dec.
30,
2006
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
(In
thousands, except share data)
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
364,328
|
|
|
$ |
328,882
|
|
Note
payable and current maturities of long-term
debt
and capital lease obligations
|
|
|
14,427
|
|
|
|
26,135
|
|
Current
maturities of other long-term obligations
|
|
|
1,670
|
|
|
|
3,525
|
|
Total
Current Liabilities
|
|
|
380,425
|
|
|
|
358,542
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT
|
|
|
277,800
|
|
|
|
285,300
|
|
|
|
|
|
|
|
|
|
|
CAPITAL
LEASE OBLIGATIONS
|
|
|
569
|
|
|
|
674
|
|
|
|
|
|
|
|
|
|
|
OTHER
LONG-TERM LIABILITIES
|
|
|
58,629
|
|
|
|
56,103
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
INCOME TAXES
|
|
|
23,325
|
|
|
|
29,321
|
|
|
|
|
|
|
|
|
|
|
MINORITY
INTEREST IN SUBSIDIARY
|
|
|
238
|
|
|
|
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 -
|
|
|
46,005
|
|
|
|
47,906
|
|
Sep.
29, 2007 – 46,004,806 shares;
|
|
|
|
|
|
|
|
|
Dec.
30, 2006 – 47,905,351 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
capital
|
|
|
3,398
|
|
|
|
2,807
|
|
Retained
earnings
|
|
|
423,494
|
|
|
|
448,268
|
|
Accumulated
other comprehensive income
|
|
|
(1,704 |
) |
|
|
(3,062 |
) |
|
|
|
|
|
|
|
|
|
Total
Shareholders' Equity
|
|
|
471,193
|
|
|
|
495,919
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders' Equity
|
|
$ |
1,212,179
|
|
|
$ |
1,226,359
|
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
Three
Months Ended
|
|
|
|
Sep.
29,
2007
|
|
|
Sep.
30, 2006
|
|
|
|
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
674,628
|
|
|
$ |
684,317
|
|
Cost
of sales
|
|
|
434,385
|
|
|
|
447,587
|
|
Gross
profit
|
|
|
240,243
|
|
|
|
236,730
|
|
Selling
and administrative expenses
|
|
|
176,904
|
|
|
|
176,134
|
|
Restructuring
and impairment
|
|
|
4,264
|
|
|
|
(27 |
) |
Operating
income
|
|
|
59,075
|
|
|
|
60,623
|
|
Interest
income
|
|
|
326
|
|
|
|
339
|
|
Interest
expense
|
|
|
4,815
|
|
|
|
4,450
|
|
Earnings
from continuing operations before income taxes and
minority
interest
|
|
|
54,586
|
|
|
|
56,512
|
|
Income
taxes
|
|
|
19,342
|
|
|
|
20,627
|
|
Earnings
from continuing operations before minority interest
|
|
|
35,244
|
|
|
|
35,885
|
|
Minority
interest in earnings of subsidiary
|
|
|
(63 |
) |
|
|
(24 |
) |
Income
from continuing operations
|
|
|
35,307
|
|
|
|
35,909
|
|
Discontinued
operations, less applicable taxes
|
|
|
-
|
|
|
|
(147 |
) |
Net
income
|
|
$ |
35,307
|
|
|
$ |
35,762
|
|
Net
income from continuing operations – basic
|
|
$ |
0.76
|
|
|
$ |
0.73
|
|
Net
income from discontinued operations – basic
|
|
|
-
|
|
|
$ |
(0.00 |
) |
Net
income per common share – basic
|
|
$ |
0.76
|
|
|
$ |
0.73
|
|
Average
number of common shares outstanding – basic
|
|
|
46,256,366
|
|
|
|
49,323,698
|
|
Net
income from continuing operations – diluted
|
|
$ |
0.76
|
|
|
$ |
0.72
|
|
Net
income from discontinued operations – diluted
|
|
|
-
|
|
|
$ |
(0.00 |
) |
Net
income per common share – diluted
|
|
$ |
0.76
|
|
|
$ |
0.72
|
|
Average
number of common shares outstanding – diluted
|
|
|
46,486,724
|
|
|
|
49,591,889
|
|
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)
|
|
Nine
Months Ended
|
|
|
|
Sep.
29,
2007
|
|
|
Sep.
30,
2006
|
|
|
|
(In
thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,901,988
|
|
|
$ |
1,997,588
|
|
Cost
of sales
|
|
|
1,239,408
|
|
|
|
1,298,257
|
|
Gross
profit
|
|
|
662,580
|
|
|
|
699,331
|
|
Selling
and administrative expenses
|
|
|
517,277
|
|
|
|
542,128
|
|
Restructuring
and impairment
|
|
|
4,856
|
|
|
|
1,920
|
|
Operating
income
|
|
|
140,447
|
|
|
|
155,283
|
|
Interest
income
|
|
|
774
|
|
|
|
810
|
|
Interest
expense
|
|
|
13,877
|
|
|
|
9,454
|
|
Earnings
from continuing operations before income taxes and
minority
interest
|
|
|
127,344
|
|
|
|
146,639
|
|
Income
taxes
|
|
|
45,109
|
|
|
|
53,523
|
|
Earnings
from continuing operations before minority interest
|
|
|
82,235
|
|
|
|
93,116
|
|
Minority
interest in earnings of subsidiary
|
|
|
(116 |
) |
|
|
(85 |
) |
Income
from continuing operations
|
|
|
82,351
|
|
|
|
93,201
|
|
Discontinued
operations, less applicable taxes
|
|
|
514
|
|
|
|
(317 |
) |
Net
income
|
|
$ |
82,865
|
|
|
$ |
92,884
|
|
Net
income from continuing operations – basic
|
|
$ |
1.75
|
|
|
$ |
1.84
|
|
Net
income from discontinued operations – basic
|
|
$ |
0.01
|
|
|
$ |
(0.01 |
) |
Net
income per common share – basic
|
|
$ |
1.76
|
|
|
$ |
1.83
|
|
Average
number of common shares outstanding – basic
|
|
|
47,062,887
|
|
|
|
50,722,997
|
|
Net
income from continuing operations – diluted
|
|
$ |
1.74
|
|
|
$ |
1.83
|
|
Net
income from discontinued operations – diluted
|
|
$ |
0.01
|
|
|
$ |
(0.01 |
) |
Net
income per common share – diluted
|
|
$ |
1.75
|
|
|
$ |
1.82
|
|
Average
number of common shares outstanding – diluted
|
|
|
47,298,590
|
|
|
|
51,051,237
|
|
Cash
dividends per common share
|
|
$ |
0.585
|
|
|
$ |
0.54
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
|
|
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine
Months Ended
|
|
|
|
Sep.
29, 2007
|
|
|
Sep.
30, 2006
|
|
|
|
(In
thousands)
|
|
Net
Cash Flows From (To) Operating Activities:
|
|
|
|
|
|
|
Net
income
|
|
$ |
82,865
|
|
|
$ |
92,884
|
|
Noncash
items included in net income:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
50,796
|
|
|
|
52,044
|
|
Other
postretirement and post employment
benefits
|
|
|
1,599
|
|
|
|
1,582
|
|
Stock-based
compensation
|
|
|
2,784
|
|
|
|
2,412
|
|
Excess
tax benefits from stock compensation
|
|
|
(816 |
) |
|
|
(742 |
) |
Deferred
income taxes
|
|
|
(7,711 |
) |
|
|
(4,725 |
) |
(Gain)/Loss
on sale, retirement and impairment of
long-lived
assets and intangibles
|
|
|
(2,027 |
) |
|
|
(2,878 |
) |
Stock
issued to retirement plan
|
|
|
6,611
|
|
|
|
7,948
|
|
Other
– net
|
|
|
209
|
|
|
|
2,248
|
|
Net
increase (decrease) in non-cash operating
assets
and liabilities
|
|
|
44,770
|
|
|
|
(76,530 |
) |
Increase
(decrease) in other liabilities
|
|
|
(821 |
) |
|
|
(3,094 |
) |
Net
cash flows from (to) operating activities
|
|
|
178,259
|
|
|
|
71,149
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Flows From (To) Investing Activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(41,699 |
) |
|
|
(47,443 |
) |
Proceeds
from sale of property, plant and equipment
|
|
|
11,957
|
|
|
|
5,266
|
|
Capitalized
software
|
|
|
(48 |
) |
|
|
(903 |
) |
Acquisition
spending, net of cash acquired
|
|
|
(4,266 |
) |
|
|
(78,292 |
) |
Short-term
investments – net
|
|
|
-
|
|
|
|
926
|
|
Purchase
of long-term investments
|
|
|
(20,517 |
) |
|
|
(9,600 |
) |
Sales
or maturities of long-term investments
|
|
|
17,467
|
|
|
|
6,100
|
|
Other
– net
|
|
|
294
|
|
|
|
-
|
|
Net
cash flows from (to) investing activities
|
|
|
(36,812 |
) |
|
|
(123,946 |
) |
|
|
|
|
|
|
|
|
|
Net
Cash Flows From (To) Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sales of HNI Corporation
common
stock
|
|
|
8,396
|
|
|
|
4,291
|
|
Purchase
of HNI Corporation common stock
|
|
|
(102,045 |
) |
|
|
(170,309 |
) |
Excess
tax benefits from stock compensation
|
|
|
816
|
|
|
|
742
|
|
Proceeds
from long-term debt
|
|
|
174,569
|
|
|
|
497,531
|
|
Payments
of note and long-term debt and other
financing
|
|
|
(196,394 |
) |
|
|
(293,605 |
) |
Dividends
paid
|
|
|
(27,523 |
) |
|
|
(27,409 |
) |
Net
cash flows from (to) financing activities
|
|
|
(142,181 |
) |
|
|
11,241
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and
cash
equivalents
|
|
|
(734 |
) |
|
|
(41,556 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
28,077
|
|
|
|
75,707
|
|
Cash
and cash equivalents at end of period
|
|
$ |
27,343
|
|
|
$ |
34,151
|
|
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
|
|
HNI
Corporation and SUBSIDIARIES
NOTES
TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September
29, 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 nine-month periods ended September 29, 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 audited 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 ("SFAS") 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 nine months
ended September 29, 2007, and September 30, 2006, the Corporation recognized
$0.9 million and $2.8 million, and $0.8 million and $2.4 million, respectively,
of stock-based compensation for the cost of stock options and shares issued
under the HNI Corporation 2002 Members' Stock Purchase Plan.
At
September 29, 2007, the Corporation had $4.9 million of unrecognized
compensation cost related to nonvested awards, which the Corporation expects
to
recognize over a weighted-average period of 1.4 years.
Note
C. Inventories
The
Corporation values its inventory at the lower of cost or market with
approximately 84% valued by the last-in, first-out (LIFO) method.
(In
thousands)
|
|
Sep.
29, 2007
(Unaudited)
|
|
|
Dec.
30, 2006
|
|
Finished
products
|
|
$ |
68,848
|
|
|
$ |
66,238
|
|
Materials
and work in process
|
|
|
51,381
|
|
|
|
58,789
|
|
LIFO
allowance
|
|
|
(19,246 |
) |
|
|
(19,262 |
) |
|
|
$ |
100,983
|
|
|
$ |
105,765
|
|
Note
D. Comprehensive Income and Shareholders' Equity
The
Corporation's comprehensive income for the three-month period ended September
29, 2007 consisted of net income, adjustments to net periodic benefit costs
of
$0.1 million, and foreign currency adjustments of $0.2 million.
The
Corporation's comprehensive income for the nine-month period ended September
29,
2007 consisted of net income, adjustments to net periodic benefit costs of
$0.4
million, and foreign currency adjustments of $1.0 million.
For
the
nine-month period ended September 29, 2007, the Corporation repurchased
2,370,748 shares of its common stock at a cost of approximately $102.0
million. As of September 29, 2007, $37.8 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
|
|
|
Nine
Months Ended
|
(In
thousands, except per share data)
|
|
Sep.
29, 2007
|
|
|
Sep.
30, 2006
|
|
|
Sep.
29, 2007
|
|
|
Sep.
30, 2006
|
Numerators:
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
for both
basic
and diluted EPS
net
income
|
|
$ |
35,307
|
|
|
$ |
35,762
|
|
|
$ |
82,865
|
|
|
$ |
92,884
|
Denominators:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS
weighted-average
common
shares
outstanding
|
|
|
46,256
|
|
|
|
49,324
|
|
|
|
47,063
|
|
|
|
50,723
|
Potentially
dilutive shares
from
stock option plans
|
|
|
231
|
|
|
|
268
|
|
|
|
236
|
|
|
|
328
|
Denominator
for diluted EPS
|
|
|
46,487
|
|
|
|
49,592
|
|
|
|
47,299
|
|
|
|
51,051
|
Earnings
per share – basic
|
|
$ |
0.76
|
|
|
$ |
0.73
|
|
|
$ |
1.76
|
|
|
$ |
1.83
|
Earnings
per share – diluted
|
|
$ |
0.76
|
|
|
$ |
0.72
|
|
|
$ |
1.75
|
|
|
$ |
1.82
|
Certain
exercisable and non-exercisable stock options were not included in the
computation of diluted EPS at September 29, 2007, and September 30, 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 nine months ended September 29, 2007, was 424,584 and 419,584,
respectively. The number of stock options outstanding, which met this
anti-dilutive criterion for the three and nine months ended September 30, 2006,
was 300,466 and 290,366, respectively.
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 to close an office furniture facility
in Richmond, Virginia and consolidate production into other manufacturing
locations. In connection with the shutdown of the Richmond facility,
the Corporation recorded $3.5 million of severance costs for approximately
370
members during the quarter ended September 29, 2007. The closure and
consolidation will be substantially completed during the first half of
2008.
The
Corporation also recorded $0.8 million of current period charges during the
quarter ended September 29, 2007 in connection with a previously announced
office furniture facility shutdown substantially completed during the
quarter.
The
following is a summary of changes in restructuring accruals during the nine
months ended September 29, 2007:
(In
thousands)
|
|
Severance
|
|
|
Facility
Exit Costs & Other
|
|
|
Total
|
|
Balance
as of December 30, 2006
|
|
$ |
841
|
|
|
$ |
-
|
|
|
$ |
841
|
|
Restructuring
charges
|
|
|
3,097
|
|
|
|
1,759
|
|
|
|
4,856
|
|
Cash
payments
|
|
|
(487 |
) |
|
|
(1,759 |
) |
|
|
(2,246 |
) |
Balance
as of September 29, 2007
|
|
$ |
3,451
|
|
|
$ |
-
|
|
|
$ |
3,451
|
|
Note
G. Business Combinations
The
Corporation completed the acquisition of two small office furniture dealers
during the first nine months of 2007 for a combined purchase price of
approximately $4.0 million. The Corporation acquired the entire
interest for one of the acquisitions and a controlling interest and the ability
to call the remaining interest on or after fiscal year-end 2012 for the other
acquisition. The Corporation must exercise its call right on or
before the end of fiscal 2017. 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. The Corporation is in the process of finalizing the allocation
of the purchase price of these acquisitions.
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
|
|
|
Nine
Months Ended
|
|
(In
thousands)
|
|
Sep.
29,
2007
|
|
|
Sep.
30,
2006
|
|
|
Sep.
29,
2007
|
|
|
Sep.
30,
2006
|
|
Discontinued
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income/(loss) before tax
|
|
$ |
-
|
|
|
$ |
(232 |
) |
|
$ |
796
|
|
|
$ |
(500 |
) |
Tax
impact
|
|
|
-
|
|
|
|
85
|
|
|
|
(282 |
) |
|
|
183
|
|
Income/(loss)
from discontinued
operations,
net of income tax
|
|
$ |
-
|
|
|
$ |
(147 |
) |
|
$ |
514
|
|
|
$ |
(317 |
) |
Note
I.
Goodwill and Other Intangible Assets
The
table
below summarizes amortizable definite-lived intangible assets as of September
29, 2007 and December 30, 2006, which are reflected in the "Other Assets" line
item in the Corporation's
condensed consolidated balance sheets:
(In
thousands)
|
|
Sep.
29, 2007
|
|
|
Dec.
30, 2006
|
Patents
|
|
$ |
18,780
|
|
|
$ |
18,780
|
Customer
relationships and other
|
|
|
104,677
|
|
|
|
103,492
|
Less: accumulated
amortization
|
|
|
45,556
|
|
|
|
39,796
|
Balance
at end of period
|
|
$ |
77,901
|
|
|
$ |
82,476
|
Aggregate
amortization expense for the three and nine month periods ended September 29,
2007 and September 30, 2006 was $2.4 million and $7.1 million, and $2.9 million
and $8.1 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
|
|
$ |
9.4
|
|
|
$ |
8.6
|
|
|
$ |
7.3
|
|
|
$ |
6.9
|
|
|
$ |
5.9
|
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
|
|
|
1,540
|
|
|
|
(389 |
) |
|
|
1,151
|
Balance
as of September 29, 2007
|
|
$ |
86,355
|
|
|
$ |
166,557
|
|
|
$ |
252,912
|
In
accordance with 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 has previously evaluated its goodwill for impairment and has
determined that the fair value of the reporting unit exceed
their
carrying
value so no impairment of goodwill was recognized. The increase in
the office furniture segment goodwill relates to the acquisitions completed
during the first and third quarters 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:
|
|
Nine
Months Ended
|
|
(In
thousands)
|
|
Sep.
29, 2007
|
|
|
Sep.
30, 2006
|
|
Balance
at beginning of period
|
|
$ |
10,624
|
|
|
$ |
10,157
|
|
Accrual
assumed for acquisition
|
|
|
-
|
|
|
|
125
|
|
Accruals
for warranties issued during period
|
|
|
10,424
|
|
|
|
8,642
|
|
Adjustments
related to pre-existing warranties
|
|
|
-
|
|
|
|
366
|
|
Settlements
made during the period
|
|
|
(10,295 |
) |
|
|
(9,242 |
) |
Balance
at end of period
|
|
$ |
10,753
|
|
|
$ |
10,048
|
|
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:
|
|
Nine
Months Ended
|
|
(In
thousands)
|
|
Sep.
29, 2007
|
|
|
Sep.
30, 2006
|
|
Service
cost
|
|
$ |
360
|
|
|
$ |
245
|
|
Interest
cost
|
|
|
800
|
|
|
|
789
|
|
Expected
return on plan assets
|
|
|
(180 |
) |
|
|
(131 |
) |
Amortization
of transition obligation
|
|
|
436
|
|
|
|
436
|
|
Amortization
of prior service cost
|
|
|
173
|
|
|
|
173
|
|
Amortization
of (gain)/loss
|
|
|
10
|
|
|
|
70
|
|
Net
periodic benefit cost
|
|
$ |
1,599
|
|
|
$ |
1,582
|
|
Note
L. Income Taxes
In
June
2006, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN
48"). FIN 48 addresses the determination of whether tax benefits
claimed or expected to be claimed on a tax return should be recorded in the
financial statements. Under FIN 48, the Corporation may recognize the
tax
benefit from an uncertain tax position only if it is more likely than not that
the tax position will be sustained on examination by the taxing authorities,
based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position should be measured
based on the largest benefit that has a greater than fifty percent likelihood
of
being realized upon ultimate settlement. FIN 48 also provides
guidance on derecognition, classification, interest and penalties on income
taxes, and accounting in interim periods and requires increased
disclosures.
The
Corporation adopted the provisions of FIN 48 on December 31, 2006, the beginning
of fiscal 2007. As a result of the implementation of FIN 48, the
Corporation recognized a $1.7 million increase in the liability for unrecognized
benefits. This increase in liability resulted in a decrease to the
December 31, 2006 retained earnings balance in the amount of $0.5 million and
a
reduction in deferred tax liabilities of $1.2 million. 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 (the "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 September 29, 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 $28.1 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, 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. SFAS No. 157 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 direct
vent 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 as compared to the same period in the 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 nine month periods ended September 29, 2007 and September 30, 2006, is
as
follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(In
thousands)
|
|
Sep.
29,
2007
|
|
|
Sep.
30,
2006
|
|
|
Sep.
29,
2007
|
|
|
Sep.
30,
2006
|
|
Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
Furniture
|
|
$ |
558,787
|
|
|
$ |
536,045
|
|
|
$ |
1,560,225
|
|
|
$ |
1,534,392
|
|
Hearth
Products
|
|
|
115,841
|
|
|
|
148,272
|
|
|
|
341,763
|
|
|
|
463,196
|
|
|
|
$ |
674,628
|
|
|
$ |
684,317
|
|
|
$ |
1,901,988
|
|
|
$ |
1,997,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations
before restructuring charges
|
|
$ |
62,366
|
|
|
$ |
50,401
|
|
|
$ |
146,609
|
|
|
$ |
131,348
|
|
Restructuring
and impairment charges
|
|
|
(4,264 |
) |
|
|
27
|
|
|
|
(4,856 |
) |
|
|
(1,920 |
) |
Office
Furniture – net
|
|
|
58,102
|
|
|
|
50,428
|
|
|
|
141,753
|
|
|
|
129,428
|
|
Hearth
products
|
|
|
8,650
|
|
|
|
18,524
|
|
|
|
26,094
|
|
|
|
48,463
|
|
Total
operating profit
|
|
|
66,752
|
|
|
|
68,952
|
|
|
|
167,847
|
|
|
|
177,891
|
|
Unallocated
corporate expense
|
|
|
(12,068 |
) |
|
|
(12,402 |
) |
|
|
(40,323 |
) |
|
|
(31,119 |
) |
Income
before income taxes
|
|
$ |
54,684
|
|
|
$ |
56,550
|
|
|
$ |
127,524
|
|
|
$ |
146,772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
& Amortization Expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
12,131
|
|
|
$ |
12,149
|
|
|
$ |
36,408
|
|
|
$ |
36,276
|
|
Hearth
products
|
|
|
3,829
|
|
|
|
3,992
|
|
|
|
11,046
|
|
|
|
12,689
|
|
General
corporate
|
|
|
1,106
|
|
|
|
1,045
|
|
|
|
3,342
|
|
|
|
3,079
|
|
|
|
$ |
17,066
|
|
|
$ |
17,186
|
|
|
$ |
50,796
|
|
|
$ |
52,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
11,396
|
|
|
$ |
11,478
|
|
|
$ |
33,489
|
|
|
$ |
33,337
|
|
Hearth
products
|
|
|
913
|
|
|
|
3,047
|
|
|
|
7,292
|
|
|
|
8,491
|
|
General
corporate
|
|
|
290
|
|
|
|
648
|
|
|
|
966
|
|
|
|
6,518
|
|
|
|
$ |
12,599
|
|
|
$ |
15,173
|
|
|
$ |
41,747
|
|
|
$ |
48,346
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
Sep.
29,
2007
|
|
|
As
of
Sep.
30,
2006
|
|
Identifiable
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
|
|
|
|
|
|
|
|
$ |
745,025
|
|
|
$ |
746,007
|
|
Hearth
products
|
|
|
|
|
|
|
|
|
|
|
355,845
|
|
|
|
396,733
|
|
General
corporate
|
|
|
|
|
|
|
|
|
|
|
111,309
|
|
|
|
114,872
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,212,179
|
|
|
$ |
1,257,612
|
|
(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 third quarter of 2007 decreased 1.4 percent to $674.6
million. The decrease was driven primarily by the decline in the
hearth business. Gross margins for the quarter increased from prior
year levels due primarily to increased cost control and better price realization
offset partially by lower volume. Selling and administrative expenses
increased primarily due to restructuring expenses.
The
Corporation recently announced the decision to shutdown an office furniture
facility as a result of its ongoing business simplification and cost reduction
strategies. The Corporation recorded $3.5 million of severance costs
in connection with the shutdown in the third quarter and an additional $0.8
million of expense associated with a previously announced facility shutdown
which was substantially completed in the quarter.
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 nine 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
|
|
|
Nine
Months Ended
|
|
(In
thousands)
|
|
Sep.
29,
2007
|
|
|
Sep.
30,
2006
|
|
|
Percent
Change
|
|
|
Sep.
29,
2007
|
|
|
Sep.
30,
2006
|
|
|
Percent
Change
|
|
Net
sales
|
|
$ |
674,628
|
|
|
$ |
684,317
|
|
|
|
-1.4 |
% |
|
$ |
1,901,988
|
|
|
$ |
1,997,588
|
|
|
|
-4.8 |
% |
Cost
of sales
|
|
|
434,385
|
|
|
|
447,587
|
|
|
|
-2.9
|
|
|
|
1,239,408
|
|
|
|
1,298,257
|
|
|
|
-4.5
|
|
Gross
profit
|
|
|
240,243
|
|
|
|
236,730
|
|
|
|
1.5
|
|
|
|
662,580
|
|
|
|
699,331
|
|
|
|
-5.3
|
|
Selling
& administrative
expenses
|
|
|
176,904
|
|
|
|
176,134
|
|
|
|
0.4
|
|
|
|
517,277
|
|
|
|
542,128
|
|
|
|
-4.6
|
|
Restructuring
& impairment
charges
|
|
|
4,264
|
|
|
|
(27 |
) |
|
N/M
|
|
|
|
4,856
|
|
|
|
1,920
|
|
|
|
152.9
|
|
Operating
income
|
|
|
59,075
|
|
|
|
60,623
|
|
|
|
-2.6
|
|
|
|
140,447
|
|
|
|
155,283
|
|
|
|
-9.6
|
|
Interest
expense, net
|
|
|
(4,489 |
) |
|
|
(4,111 |
) |
|
|
9.2
|
|
|
|
(13,103 |
) |
|
|
(8,644 |
) |
|
|
51.6
|
|
Earnings
from continuing
operations
before income
taxes
and minority interest
|
|
|
54,586
|
|
|
|
56,512
|
|
|
|
-3.4
|
|
|
|
127,344
|
|
|
|
146,639
|
|
|
|
-13.2
|
|
Income
taxes
|
|
|
19,342
|
|
|
|
20,627
|
|
|
|
-6.2
|
|
|
|
45,109
|
|
|
|
53,523
|
|
|
|
-15.7
|
|
Minority
interest in earnings
of
a subsidiary
|
|
|
(63 |
) |
|
|
(24 |
) |
|
|
162.5
|
|
|
|
(116 |
) |
|
|
(85 |
) |
|
|
36.5
|
|
Income
from continuing
operations
|
|
$ |
35,307
|
|
|
$ |
35,909
|
|
|
|
-1.7 |
% |
|
$ |
82,351
|
|
|
$ |
93,201
|
|
|
|
-11.6 |
% |
Consolidated
net sales for the third quarter decreased 1.4 percent or $9.7 million compared
to the same quarter last year. Acquisitions contributed $9.3 million
or 1.4 percentage points of sales. Organic sales growth was down due
primarily to the decline in the hearth business.
Gross
margins for the third quarter increased to 35.6 percent compared to 34.6 percent
for the same quarter last year. The increase was primarily due to
increased cost control and better price realization offset partially by lower
volume.
The
Corporation continues to implement its business simplification and cost
reduction strategies. As a result, the Corporation made the decision to
close its office furniture facility in Richmond, Virginia and consolidate
production into other locations. The Corporation's third quarter
2007 results include $3.5 million of severance costs in connection with the
Richmond shutdown and an additional $0.8 million of current period charges
associated with a previously announced facility shutdown substantially completed
in the quarter. The Corporation anticipates additional restructuring
charges related to the Richmond shutdown of $2.5 - $3.5 million during the
fourth quarter of 2007 and $8 - $9 million in 2008.
Total
selling and administrative expenses for the quarter increased by $5.1 million
compared to the same quarter last year. Included in third quarter
2007 are $4.3 million of restructuring charges as described above and an
additional $3.2 million associated with new acquisitions. These costs
were offset by gains on the sale of a vacant office furniture facility and
a
corporate aircraft
totaling $5.0 million. Third quarter 2006 included a gain on the sale
of a vacant office furniture facility of $3.4 million.
Income
from continuing operations decreased 1.7 percent while income from continuing
operations per diluted share increased 5.6 percent 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 $0.4 million during
the quarter on moderate debt levels, consistent with the Corporation's capital
structure strategy.
The
annualized effective tax rate for third quarter 2007 decreased to 35.4 percent
compared to 36.5 percent in third quarter 2006 due to additional benefits from
the U.S. manufacturing deduction and the reinstatement of the research tax
credit partially offset by higher state taxes.
For
the
first nine months of 2007, consolidated net sales decreased $95.6 million,
or
4.8 percent, to $1.9 billion compared to $2.0 billion in
2006. Acquisitions added $30.9 million, or 1.5 percentage points of
sales. Gross margins decreased to 34.8 percent compared to 35.0
percent last year. Income from continuing operations was $82.4
million compared to $93.2 million in 2006, a decrease of 11.6
percent. Earnings per share from continuing operations decreased 4.9
percent to $1.74 per diluted share compared to $1.83 per diluted share last
year. Earnings per share was positively impacted $0.13 as a result of
the Corporation's share repurchase program.
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.
Office
Furniture
Third
quarter net sales for the office furniture segment increased 4.2 percent or
$22.7 million to $558.8 million from $536.0 million for the same quarter last
year including $6.1 million of incremental sales from
acquisitions. The Corporation continued to experience softness in the
supplies driven channel and solid demand in its contract
businesses. Operating profit prior to unallocated corporate expenses
increased 15.2 percent or $7.7 million to $58.1 million compared to third
quarter 2006 primarily as a result of price increases and cost improvement
initiatives. Operating profit was negatively impacted during the
quarter by $4.3 million in incremental restructuring related
costs. Operating profit for third quarter 2007 included a $2.0
million gain on the sale of a vacated facility while third quarter 2006 included
a $3.4 million gain on the sale of a vacated facility.
Net
sales
for the first nine months of 2007 increased 1.7 percent or $25.8 million to
$1.6
billion compared to $1.5 million in 2006. Operating profit increased
9.5 percent or $12.3 million to $141.8 million compared to 2006 as a result
of
price increases and cost improvement initiatives.
Hearth
Products
Third
quarter net sales for the hearth products segment decreased 21.9 percent or
$32.4 million to $115.8 million from $148.3 million for the same quarter last
year. The Corporation continued to be negatively impacted by housing
market conditions. Operating profit prior to unallocated corporate
expenses decreased 53.3 percent or $9.9 million to $8.7 million compared to
third quarter 2006 due to lower volume offset partially by cost reduction
initiatives.
Net
sales
for the first nine months of 2007 decreased 26.2 percent to $341.8 million
compared to $463.2 million in 2006. Operating profit decreased 46.2
percent or $22.4 million to $26.1 million compared to 2006 due to the same
factors as described for the third quarter.
Liquidity
and Capital Resources
As
of
September 29, 2007, cash and short-term investments were $36.0 million compared
to $37.3 million at year-end 2006. Cash flow from operations for the
first nine months of 2007 was $178.3 million compared to $71.1 million for
the
first nine months of 2006 due to broad-based improvements in working
capital. Management is focused on cash flow and working capital
management. The Corporation has sufficient liquidity to manage its
operations and as of September 29, 2007 maintained additional borrowing capacity
of $146 million, net of amounts designated for letters of credit, through a
$300
million revolving credit facility.
Capital
expenditures for the first nine months of 2007 were $41.7 million compared
to
$48.3 million for the first nine months of 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 $55 to $60 million
due
to new product development and related tooling and other infrastructure
efficiencies.
The
Corporation completed the acquisition of two small office furniture dealers
during the first nine months of 2007 for a combined purchase price of
approximately $4.0 million. During the first nine months of 2007, net
borrowings under the Corporation's revolving credit facility decreased $18.5
million as excess cash was utilized to pay down the revolver
borrowings. As of September 29, 2007, $125.5 million of the revolving
credit facility was outstanding with the entire portion classified as long-term
as the Corporation does not expect to repay any of the remaining outstanding
amount 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 August 7, 2007, to shareholders of record at
the
close of business on August 17, 2007. It was paid on August 31,
2007. This was the 210th consecutive quarterly dividend paid by the
Corporation.
For
the
nine months ended September 29, 2007, the Corporation repurchased 2,370,748
shares of its common stock at a cost of approximately $102.0 million, or an
average price of $43.04 per share. As of September 29, 2007,
approximately $37.8 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 nine 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,
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 third
quarter. The Corporation has experienced softness in the 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 decline with the general housing
market. Management believes the timing of any housing market recovery
remains uncertain. The Corporation will continue to reduce structural
costs and properly align expenses 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,
(f) ability to maintain its effective tax rate, and (g) consolidation and
logistical realignment initiatives; 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, including, with
respect to the Corporation's hearth products, the protracted decline in the
housing market; 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
September 29, 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 September 29, 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 from the proceedings
discussed in the "Legal Proceedings" section of the Corporation's Annual Report
on Form 10-K for the year ended December 30, 2006.
Item
1A. Risk Factors
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 third quarter
ended September 29, 2007.
Period
|
|
(a)
Total Number of Shares (or Units) Purchased (1)
|
|
|
(b)
Average
price
Paid
per
Share or
Unit
|
|
|
(c)
Total Number of
Shares
(or Units)
Purchased
as Part of
Publicly
Announced
Plans
or Programs
|
|
|
(d)
Maximum Number (or
Approximate
Dollar
Value)
of Shares (or
Units)
that May Yet be
Purchased
Under the
Plans
or Programs
|
|
7/1/07
– 7/28/07
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$ |
54,840,239
|
|
7/29/07
– 8/25/07
|
|
|
149,653
|
|
|
$ |
39.78
|
|
|
|
149,653
|
|
|
$ |
48,887,066
|
|
8/26/07
– 9/29/07
|
|
|
287,200
|
|
|
$ |
38.62
|
|
|
|
287,200
|
|
|
$ |
37,795,326
|
|
Total
|
|
|
436,853
|
|
|
$ |
39.02
|
|
|
|
436,853
|
|
|
$ |
37,795,326
|
|
(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:
·
|
Plan
announced August 8, 2006, providing share repurchase authorization
of
$200,000,000 with no specific expiration
date.
|
·
|
No
repurchase plans expired or were terminated during the third quarter
of
2007, nor do any plans exist under which the Corporation does not
intend
to make further purchases.
|
Item
6. Exhibits
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 |
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Dated:
November 1, 2007
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By:
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/s/ Jerald
K. Dittmer |
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Jerald
K. Dittmer |
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Vice
President and Chief
Financial Officer |
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EXHIBIT INDEX
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(10.1)
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HNI
Corporation 2007 Stock-Based Compensation Plan
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(10.2)
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2007
Equity Plan for Non-Employee Directors of HNI Corporation
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(10.3)
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HNI
Corporation ERISA Supplemental Retirement Plan
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(10.4)
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HNI
Corporation Executive Bonus Plan
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(10.5)
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HNI
Corporation Executive Deferred Compensation Plan
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(10.6)
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HNI
Corporation Long-Term Performance Plan
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(10.7)
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HNI
Corporation Directors Deferred Compensation Plan
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(31.1)
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Certification
of the CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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(31.2)
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Certification
of the CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
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(32.1)
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Certification
of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to
Section 906 of the Sarbanes-Oxley Act of
2002
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