r10q442009.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 April 4, 2009.
|
|
|
OR
|
|
|
/ / 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
|
|
|
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)
|
|
|
P.
O. Box 1109, 408 East Second Street
Muscatine,
Iowa 52761-0071
(Address
of principal executive offices)
|
52761-0071
(Zip
Code)
|
|
|
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 has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T
(232.405 of this chapter) during the preceding 12 months (or for such
shorter prior that the registrant was required to submit and post such
files). YES X NO
______
|
|
|
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definition of "large accelerated filer,"
"accelerated filer" and "smaller reporting company" in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer X Accelerated
filer
Non-accelerated
filer
Smaller reporting company
|
|
|
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 April 4, 2009
44,880,734
|
HNI
Corporation and SUBSIDIARIES
|
|
|
INDEX
|
|
|
PART
I. FINANCIAL INFORMATION
|
|
Page
|
Item
1. Financial Statements (Unaudited)
|
|
|
|
Condensed
Consolidated Balance Sheets April
4, 2009, and January 3, 2009
|
3
|
|
|
Condensed
Consolidated Statements of Income Three
Months Ended April 4, 2009, and March 29, 2008
|
5
|
|
|
Condensed
Consolidated Statements of Cash Flows Three
Months Ended April 4, 2009, and March 29, 2008
|
6
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
7
|
|
|
Item
2. Management's Discussion and Analysis
of Financial
Condition and Results of Operations
|
17
|
|
|
Item
3. Quantitative and Qualitative Disclosures About
Market Risk
|
22
|
|
|
Item
4. Controls and Procedures
|
22
|
|
|
PART
II. OTHER INFORMATION
|
|
|
Item
1. Legal Proceedings
|
23
|
|
|
Item
1A. Risk Factors
|
23
|
|
|
Item
2. Unregistered Sales of Equity Securities and Use
of Proceeds
|
23
|
|
|
Item
3. Defaults Upon Senior Securities -
None
|
-
|
|
|
Item
4. Submission of Matters to a Vote of Security
Holders - None
|
-
|
|
|
Item
5. Other Information – None
|
-
|
|
|
Item
6. Exhibits
|
23
|
|
|
SIGNATURES
|
24
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|
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EXHIBIT
INDEX
|
25
|
PART
I. FINANCIAL INFORMATION
Item
1. Financial Statements
(Unaudited)
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
Apr.
4,
2009
(Unaudited)
|
|
|
Jan.
3,
2009
|
|
ASSETS
|
|
(In
thousands)
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
22,130 |
|
|
$ |
39,538 |
|
Short-term
investments
|
|
|
9,900 |
|
|
|
9,750 |
|
Receivables
|
|
|
183,943 |
|
|
|
238,327 |
|
Inventories
(Note C)
|
|
|
85,176 |
|
|
|
84,290 |
|
Deferred
income taxes
|
|
|
17,291 |
|
|
|
16,313 |
|
Prepaid
expenses and other current assets
|
|
|
33,778 |
|
|
|
29,623 |
|
Total
Current Assets
|
|
|
352,218 |
|
|
|
417,841 |
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT, AND EQUIPMENT, at cost
|
|
|
|
|
|
Land
and land improvements
|
|
|
23,705 |
|
|
|
23,753 |
|
Buildings
|
|
|
279,746 |
|
|
|
277,898 |
|
Machinery
and equipment
|
|
|
528,969 |
|
|
|
525,996 |
|
Construction
in progress
|
|
|
12,437 |
|
|
|
21,738 |
|
|
|
|
844,857 |
|
|
|
849,385 |
|
Less
accumulated depreciation
|
|
|
545,753 |
|
|
|
533,779 |
|
|
|
|
|
|
|
|
|
|
Net
Property, Plant, and Equipment
|
|
|
299,104 |
|
|
|
315,606 |
|
|
|
|
|
|
|
|
|
|
GOODWILL
|
|
|
268,392 |
|
|
|
268,392 |
|
|
|
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
158,220 |
|
|
|
163,790 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
1,077,934 |
|
|
$ |
1,165,629 |
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
Apr.
4,
2009
(Unaudited)
|
|
|
Jan.
3,
2009
(As
Adjusted)
|
|
LIABILITIES
AND EQUITY
|
|
(In
thousands, except share and per share value data)
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
248,312 |
|
|
$ |
313,431 |
|
Note
payable and current maturities of long-term
debt
and capital lease obligations
|
|
|
55,174 |
|
|
|
54,494 |
|
Current
maturities of other long-term obligations
|
|
|
380 |
|
|
|
5,700 |
|
Total
Current Liabilities
|
|
|
303,866 |
|
|
|
373,625 |
|
|
|
|
|
|
|
|
|
|
LONG-TERM
DEBT
|
|
|
260,550 |
|
|
|
267,300 |
|
|
|
|
|
|
|
|
|
|
CAPITAL
LEASE OBLIGATIONS
|
|
|
8 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
OTHER
LONG-TERM LIABILITIES
|
|
|
50,648 |
|
|
|
50,399 |
|
|
|
|
|
|
|
|
|
|
DEFERRED
INCOME TAXES
|
|
|
28,087 |
|
|
|
25,271 |
|
|
|
|
|
|
|
|
|
|
EQUITY
|
|
|
|
|
|
|
|
|
Parent
Company 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 -
|
|
|
44,881 |
|
|
|
44,324 |
|
April
4, 2009 – 44,880,734 shares;
|
|
|
|
|
|
|
|
|
January
3, 2009 – 44,324,409 shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital
|
|
|
12,930 |
|
|
|
6,037 |
|
Retained
earnings
|
|
|
378,843 |
|
|
|
400,379 |
|
Accumulated
other comprehensive income
|
|
|
(2,064 |
) |
|
|
(1,907 |
) |
Total
Parent Company shareholders' equity
|
|
|
434,590 |
|
|
|
448,833 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interest
|
|
|
185 |
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
Total Equity
|
|
|
434,775 |
|
|
|
448,991 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Equity
|
|
$ |
1,077,934 |
|
|
$ |
1,165,629 |
|
|
|
|
|
|
|
|
|
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
Three
Months Ended
|
|
Apr.
4,
2009
|
|
Mar.
29,
2008
(As
Adjusted)
|
|
(In
thousands, except share and per share data)
|
|
|
|
Net
sales
|
$ |
405,666 |
|
$ |
563,383 |
|
Cost
of sales
|
|
280,931 |
|
|
379,345 |
|
Gross
profit
|
|
124,735 |
|
|
184,038 |
|
Selling
and administrative expenses
|
|
136,257 |
|
|
172,555 |
|
Restructuring
and impairment
|
|
5,085 |
|
|
818 |
|
Operating
income (loss)
|
|
(16,607 |
|
|
10,665 |
|
Interest
income
|
|
135 |
|
|
463 |
|
Interest
expense
|
|
3,198 |
|
|
3,877 |
|
Earnings
(loss) before income taxes
|
|
(19,670 |
|
|
7,251 |
|
Income
taxes
|
|
(7,802 |
|
|
3,180 |
|
Net
income (loss)
|
|
(11,868 |
|
|
4,071 |
|
Less:
Net income attributable to the noncontrolling interest
|
|
(18 |
|
|
(94 |
) |
Net
income (loss) attributable to Parent Company
|
$ |
(11,886 |
|
$ |
3,977 |
|
|
|
|
|
|
|
|
Net
income (loss) attributable to Parent Company per common share –
basic
|
$ |
(0.27 |
|
$ |
0.09 |
|
Average
number of common shares outstanding – basic
|
|
44,612,079 |
|
|
44,537,399 |
|
Net
income (loss) attributable to Parent Company per common share –
diluted
|
$ |
(0.27 |
|
$ |
0.09 |
|
Average
number of common shares outstanding – diluted
|
|
44,612,079 |
|
|
44,705,603 |
|
Cash
dividends per common share
|
$ |
0.215 |
|
$ |
0.215 |
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
|
HNI
Corporation and SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
Three
Months Ended
|
|
|
|
Apr.
4, 2009
|
|
|
Mar.
29, 2008
|
|
|
|
(In
thousands)
|
|
Net
Cash Flows From (To) Operating Activities:
|
|
|
|
|
|
|
Net
income (loss)
|
|
$ |
(11,886 |
) |
|
$ |
3,977 |
|
Noncash
items included in net income:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
19,240 |
|
|
|
17,021 |
|
Other
postretirement and post employment
benefits
|
|
|
462 |
|
|
|
377 |
|
Stock-based
compensation
|
|
|
709 |
|
|
|
285 |
|
Excess
tax benefits from stock compensation
|
|
|
- |
|
|
|
(11 |
) |
Deferred
income taxes
|
|
|
1,712 |
|
|
|
159 |
|
(Gain)/Loss
on sale, retirement and impairment of
long-lived
assets and intangibles
|
|
|
132 |
|
|
|
619 |
|
Stock
issued to retirement plan
|
|
|
6,565 |
|
|
|
6,592 |
|
Other
– net
|
|
|
(501 |
) |
|
|
837 |
|
Net
increase (decrease) in operating
assets
and liabilities
|
|
|
(6,085 |
) |
|
|
(25,484 |
) |
Increase
(decrease) in other liabilities
|
|
|
(4,719 |
) |
|
|
(2,398 |
) |
Net
cash flows from (to) operating activities
|
|
|
5,629 |
|
|
|
1,974 |
|
|
|
|
|
|
|
|
|
|
Net
Cash Flows From (To) Investing Activities:
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(4,026 |
) |
|
|
(17,624 |
) |
Proceeds
from sale of property, plant and equipment
|
|
|
299 |
|
|
|
278 |
|
Capitalized
software
|
|
|
(590 |
) |
|
|
- |
|
Short-term
investments – net
|
|
|
- |
|
|
|
(250 |
) |
Purchase
of long-term investments
|
|
|
(285 |
) |
|
|
(381 |
) |
Sales
or maturities of long-term investments
|
|
|
3,550 |
|
|
|
2,275 |
|
Net
cash flows from (to) investing activities
|
|
|
(1,052 |
) |
|
|
(15,702 |
) |
|
|
|
|
|
|
|
|
|
Net
Cash Flows From (To) Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds
from sales of HNI Corporation
common
stock
|
|
|
- |
|
|
|
1,402 |
|
Purchase
of HNI Corporation common stock
|
|
|
- |
|
|
|
(22,076 |
) |
Excess
tax benefits from stock compensation
|
|
|
- |
|
|
|
11 |
|
Proceeds
from long-term debt
|
|
|
60,000 |
|
|
|
117,000 |
|
Payments
of note and long-term debt and other
financing
|
|
|
(72,336 |
) |
|
|
(76,599 |
) |
Dividends
paid
|
|
|
(9,649 |
) |
|
|
(9,581 |
) |
Net
cash flows from (to) financing activities
|
|
|
(21,985 |
) |
|
|
10,157 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and
cash
equivalents
|
|
|
(17,408 |
) |
|
|
(3,571 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
39,538 |
|
|
|
33,881 |
|
Cash
and cash equivalents at end of period
|
|
$ |
22,130 |
|
|
$ |
30,310 |
|
See
accompanying Notes to Condensed Consolidated Financial
Statements.
|
|
HNI
Corporation and SUBSIDIARIES
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 4,
2009
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 January 3, 2009 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 period ended April 4, 2009 are not necessarily indicative of the
results that may be expected for the year ending January 2, 2010. 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 January 3, 2009.
Note B.
Stock-Based Compensation
The
Corporation accounts for stock-based compensation in accordance with 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 months
ended April 4, 2009, and March 29, 2008, the Corporation recognized $0.7 million
and $0.3 million, respectively, of stock-based compensation expense for the cost
of stock options and time-based restricted stock units issued under the HNI
Corporation 2007 Stock-Based Compensation Plan and shares issued under the HNI
Corporation 2002 Members' Stock Purchase Plan.
At April
4, 2009, there was $9.0 million of unrecognized compensation cost related to
nonvested stock-based compensation awards, which the Corporation expects to
recognize over a weighted-average remaining requisite service period of 1.5
years.
Note
C. Inventories
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)
|
|
Apr.
4, 2009
(Unaudited)
|
|
|
Jan.
3, 2009
|
|
Finished
products
|
|
$ |
60,990 |
|
|
$ |
51,807 |
|
Materials
and work in process
|
|
|
51,858 |
|
|
|
60,155 |
|
LIFO
allowance
|
|
|
(27,672 |
) |
|
|
(27,672 |
) |
|
|
$ |
85,176 |
|
|
$ |
84,290 |
|
Note
D. Comprehensive Income and Shareholders' Equity
The
following table reconciles net income to comprehensive income attributable to
HNI Corporation:
|
|
Three Months Ended
|
|
(In
thousands)
|
|
Apr.
4,
2009
|
|
|
Mar.
29,
2008
|
|
Net
income (loss)
|
|
$ |
(11,868 |
) |
|
$ |
4,071 |
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income, net of income tax as applicable:
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
(91 |
) |
|
|
795 |
|
Change
in unrealized gains (losses) on marketable securities
|
|
|
(133 |
) |
|
|
(153 |
) |
Change
in pension and postretirement liability
|
|
|
79 |
|
|
|
79 |
|
Change
in derivative financial instruments
|
|
|
(12 |
) |
|
|
- |
|
Comprehensive
income (loss)
|
|
$ |
(12,025 |
) |
|
$ |
4,792 |
|
Comprehensive
(income) attributable to noncontrolling interest
|
|
|
(18 |
) |
|
|
(94 |
) |
Comprehensive
income (loss) attributable to HNI Corporation
|
|
$ |
(12,043 |
) |
|
$ |
4,698 |
|
The
following table summarizes the components of accumulated other comprehensive
loss and the changes in accumulated other comprehensive loss, net of tax as
applicable for the three months ended April 4, 2009:
(in
thousands)
|
|
Foreign
Currency Translation Adjustment
|
|
|
Unrealized
Gains (Losses) on Marketable Securities
|
|
|
Pension
Postretirement Liability
|
|
|
Derivative
Financial Instruments
|
|
|
Accumulated
Other Comprehensive Loss
|
|
Balance
at January 3, 2009
|
|
$ |
3,620 |
|
|
$ |
(134 |
) |
|
$ |
(3,455 |
) |
|
$ |
(1,938 |
) |
|
$ |
(1,907 |
) |
Year-to
date change
|
|
|
(91 |
) |
|
|
(133 |
) |
|
|
79 |
|
|
|
(12 |
) |
|
|
(157 |
) |
Balance
at April
4, 2009
|
|
$ |
3,529 |
|
|
$ |
(267 |
) |
|
$ |
(3,376 |
) |
|
$ |
(
1,950 |
) |
|
$ |
(2,064 |
) |
For the
three months ended April 4, 2009, the Corporation did not repurchase any of its
common stock. As of April 4, 2009, $163.6 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
|
|
(In
thousands, except per share data)
|
|
Apr.
4,
2009
|
|
|
Mar.
29,
2008
|
|
Numerators:
|
|
|
|
|
|
|
Numerator
for both basic and diluted EPS attributable to Parent Company net income
(loss)
|
|
$ |
(11,886 |
) |
|
$ |
3,977 |
|
Denominators:
|
|
|
|
|
|
|
|
|
Denominator
for basic EPS weighted-average common shares outstanding
|
|
|
44,612 |
|
|
|
44,537 |
|
Potentially
dilutive shares from stock-based compensation plans
|
|
|
- |
|
|
|
169 |
|
Denominator
for diluted EPS
|
|
|
44,612 |
|
|
|
44,706 |
|
Earnings
per share – basic
|
|
$ |
(0.27 |
) |
|
$ |
0.09 |
|
Earnings
per share – diluted
|
|
$ |
(0.27 |
) |
|
$ |
0.09 |
|
None of
the outstanding stock options or restricted stock units were included in the
computation of diluted EPS at April 4, 2009, as all would be anti-dilutive due
to the current period loss. Certain exercisable and non-exercisable
stock options totaling 774,983 were not included in the computation of diluted
EPS at March 29, 2008, because their inclusion would have been
anti-dilutive.
Note
F. Restructuring Reserve and Plant Shutdowns
As a
result of challenging market conditions and the Corporation's ongoing business
simplification and cost reduction strategies, management made the decision to
close an office furniture manufacturing facility located in South Gate,
California and consolidate production into its Cedartown, Georgia and Muscatine,
Iowa facilities. In connection with the shutdown of the South Gate
facility, the Corporation recorded $3.0 million of severance costs for
approximately 250 members during the quarter ended April 4, 2009. The
closure and consolidation will be substantially complete by the end of
2009.
The
Corporation's hearth product segment disposed and consolidated five retail and
distribution locations during the quarter ended April 4, 2009. The
Corporation recorded $2.1 million of severance and facility exit costs,
including accelerated depreciation of $1.3 million, which were recorded as
restructuring costs during the period.
The
following is a summary of changes in restructuring accruals during the three
months ended April 4, 2009. This summary does not include accelerated
depreciation as this item was not accounted for through the restructuring
accrual on the Consolidated Balance Sheets but is included as a component of
"Restructuring and Impairment" in the Consolidated Statements of
Income.
(In
thousands)
|
|
Severance
|
|
|
Facility
Exit Costs & Other
|
|
|
Total
|
|
Balance
as of January 3, 2009
|
|
$ |
155 |
|
|
$ |
224 |
|
|
$ |
379 |
|
Restructuring
charges
|
|
|
3,118 |
|
|
|
629 |
|
|
|
3,747 |
|
Cash
payments
|
|
|
(49 |
) |
|
|
(177 |
) |
|
|
(226 |
) |
Balance
as of April 4, 2009
|
|
$ |
3,224 |
|
|
$ |
676 |
|
|
$ |
3,900 |
|
Note G.
Goodwill and Other Intangible Assets
The table
below summarizes amortizable definite-lived intangible assets as of April 4,
2009 and January 3, 2009, which are reflected in the "Other Assets" line item in
the Corporation's Condensed Consolidated Balance Sheets:
(In
thousands)
|
|
Apr.
4, 2009
|
|
|
Jan.
3, 2009
|
|
Patents
|
|
$ |
19,325 |
|
|
$ |
19,325 |
|
Customer
relationships and other
|
|
|
115,664 |
|
|
|
115,664 |
|
Less: accumulated
amortization
|
|
|
58,372 |
|
|
|
56,098 |
|
|
|
$ |
76,617 |
|
|
$ |
78,891 |
|
Aggregate
amortization expense for the three months ended April 4, 2009 and March 29, 2008
was $2.3 million and $2.2 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)
|
|
2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
Amortization
Expense
|
|
$ |
9.1 |
|
|
$ |
8.6 |
|
|
$ |
7.4 |
|
|
$ |
6.4 |
|
|
$ |
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
$60.6 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 January 3, 2009, are as follows
by reporting segment:
(In
thousands)
|
|
Office
Furniture
|
|
|
Hearth
Products
|
|
|
Total
|
|
Balance
as of January 3, 2009
|
|
$ |
101,339 |
|
|
$ |
167,053 |
|
|
$ |
268,392 |
|
Goodwill
increase (decrease) during period
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Balance
as of April 4, 2009
|
|
$ |
101,339 |
|
|
$ |
167,053 |
|
|
$ |
268,392 |
|
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 estimates the fair value of its reporting units
using
various valuation techniques, with the primary technique being a discounted cash
flow method. This method employs assumptions that are market
participant based.
During
the first quarter of fiscal 2009, the Corporation's results were negatively
impacted by significant declines in customer demand, most notably in the hearth
products segment. In consideration of the current economic situation
and the current period operating loss, the Corporation considered whether there
had been any significant changes in future projections of operating results and
cash flows, or to any of the significant valuation assumptions underlying the
most recent annual impairment analysis. As a result, management
reviewed the valuation of the Hearth and Home Technologies reporting
unit. The Corporation's analysis of this reporting unit concluded
that the fair value exceeded the carrying value by approximately 10% and as
such, no impairment charges during first quarter were necessary. For
all other reporting units, the Corporation concluded that there was not a need
for an interim assessment in accordance with criteria in paragraph 28 of FAS
142.
Due to
the ongoing uncertainty in market conditions, which may continue to negatively
impact the Corporation's operating results and overall market value, management
will continue to monitor and evaluate the carrying value of goodwill and
indefinite-lived trade names, particularly with respect to the Hearth and Home
Technologies reporting unit.
Note
H. Product Warranties
The
Corporation issues certain warranty policies on its office 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)
|
|
Apr.
4, 2009
|
|
|
Mar.
29, 2008
|
|
Balance
at beginning of period
|
|
$ |
13,948 |
|
|
$ |
12,123 |
|
Accruals
for warranties issued during period
|
|
|
4,039 |
|
|
|
4,442 |
|
Adjustments
related to pre-existing warranties
|
|
|
(180 |
) |
|
|
526 |
|
Settlements
made during the period
|
|
|
(4,092 |
) |
|
|
(4,612 |
) |
Balance
at end of period
|
|
$ |
13,715 |
|
|
$ |
12,479 |
|
Note
I. 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:
|
|
Three
Months Ended
|
|
(In
thousands)
|
|
Apr.
4, 2009
|
|
|
Mar.
29, 2008
|
|
Service
cost
|
|
$ |
97 |
|
|
$ |
99 |
|
Interest
cost
|
|
|
240 |
|
|
|
241 |
|
Expected
return on plan assets
|
|
|
- |
|
|
|
(90 |
) |
Amortization
of transition obligation
|
|
|
127 |
|
|
|
127 |
|
Amortization
of (gain)/loss
|
|
|
(2 |
) |
|
|
- |
|
Net
periodic benefit cost
|
|
$ |
462 |
|
|
$ |
377 |
|
Note
J. Income Taxes
The
provision for income taxes in the first quarter reflects an actual effective tax
rate of 39.7 percent, compared to an estimated annual tax rate of 43.9 percent
for the first quarter 2008 and actual tax rate for the full year 2008 of 34.2
percent. A discrete calculation was used to report the first quarter
tax provision rather than an estimated annual tax rate as uncertainty in the
full year outlook produces significant variability in the estimated annual
effective tax rate.
Note
K. Derivative Financial Instruments
The
Corporation uses derivative financial instruments to reduce its exposure to
adverse fluctuations in interest rates. In accordance with Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and related amendments and interpretations,
on the date a derivative is entered into, the Corporation designates the
derivative as (i) a fair value hedge, (ii) a cash flow hedge, (iii) a hedge of a
net investment in a foreign operation, or (iv) a risk management instrument not
eligible for hedge accounting. The Corporation recognizes all
derivatives on its consolidated balance sheet at fair value.
In June
2008, the Corporation entered into an interest rate swap agreement, designated
as a cash flow hedge, for purposes of managing its benchmark interest rate
fluctuation risk. Under the interest rate swap agreement, the
Corporation pays a fixed rate of interest and receives a variable rate of
interest equal to the one-month London Interbank Offered Rate ("LIBOR") as
determined on the last day of each monthly settlement period on an aggregated
notional principal amount of $50 million. The net amount paid or
received upon monthly settlements is recorded as an adjustment to interest
expense, while the change in fair value is recorded as a component of
accumulated other comprehensive income in the equity section of the
Corporation's consolidated balance sheet. The interest rate swap
agreement matures on May 27, 2011.
The
aggregate fair market value of the interest rate swap as of April 4, 2009 was a
liability of $3.1 million, of which $1.5 million is included in current
liabilities and $1.6 million is included in long-term liabilities in the
Corporation's consolidated balance sheet as of April 4,
2009. For
the three
month period ended April 4, 2009, the Corporation recorded a deferred net loss
of $419,000 in other comprehensive income, and reclassified $400,000 from other
comprehensive income to current period earnings as interest expense in the
consolidated statement of income. As of April 4, 2009, $943,000 of
deferred net losses, net of tax, included in equity ("Accumulated other
comprehensive income (loss)" in the Consolidated Balance sheet) related to this
interest rate swap, are expected to be reclassified to current earnings
("Interest expense" in the Consolidated Statement of Income) over the next
twelve months.
Note
L. Fair Value Measurements
On
December 30, 2007, the beginning of its 2008 fiscal year, the Corporation
adopted SFAS No. 157 "Fair Value Measurements" ("SFAS No. 157") which provides
enhanced guidance for using fair value to measure assets and liabilities for
financial assets and liabilities. The standard also expands the
amount of required disclosure regarding the extent to which companies measure
assets and liabilities at fair value, the information used to measure fair
value, and the effect of fair value measurements on earnings. The
standard applies whenever other standards require (or permit) assets or
liabilities to be measured at fair value but does not expand the use of fair
value in any new circumstances. The Corporation adopted the
provisions of SFAS No. 157 with regard to its nonfinancial assets and
liabilities on January 4, 2009 in accordance with Financial Accounting Standards
Board Staff Position 157-2. The adoption of SFAS 157 did not have a
material impact on its financial statements.
For
recognition purposes, on a recurring basis the Corporation is required to
measure at fair value its marketable securities, which are classified as
available-for-sale, and its investment in target funds. The
marketable securities were comprised of investments in money market
funds. They are reported as noncurrent assets as they are not
anticipated to be used for current operations. The target funds are
reported as both current and noncurrent assets based on the portion that is
anticipated to be used for current operations.
Assets
measured at fair value during the three months ended April 4, 2009 were as
follows:
(in
thousands)
|
|
Fair
value as of measurement date
|
|
|
Quoted
prices in active markets for identical assets
(Level
1)
|
|
|
Significant
other observable inputs
(Level
2)
|
|
|
Significant
unobservable inputs
(Level
3)
|
|
Marketable
securities
|
|
$ |
3,501 |
|
|
$ |
3,501 |
|
|
$ |
- |
|
|
$ |
- |
|
Investment
in target funds
|
|
$ |
21,957 |
|
|
$ |
- |
|
|
$ |
21,957 |
|
|
$ |
- |
|
Derivative
financial instrument
|
|
$ |
(
3,124 |
) |
|
$ |
- |
|
|
$ |
(
3,124 |
) |
|
$ |
- |
|
Assets
measured at fair value for the year ended January 3, 2009 were as
follows:
(in
thousands)
|
|
Fair
value as of measurement date
|
|
|
Quoted
prices in active markets for identical assets
(Level
1)
|
|
|
Significant
other observable inputs
(Level
2)
|
|
|
Significant
unobservable inputs
(Level
3)
|
|
Marketable
securities
|
|
$ |
3,696 |
|
|
$ |
3,696 |
|
|
$ |
- |
|
|
$ |
- |
|
Investment
in target funds
|
|
$ |
25,047 |
|
|
$ |
- |
|
|
$ |
25,047 |
|
|
$ |
- |
|
Derivative
financial instrument
|
|
$ |
(
3,106 |
) |
|
$ |
- |
|
|
$ |
(
3,106 |
) |
|
$ |
- |
|
Note
M. Commitments and Contingencies
The
Corporation utilizes letters of credit in the amount of $20.9 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 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
December 2007, the Financial Accounting Standards Board ("FASB") issued SFAS No.
141 (Revised), "Business Combinations" ("SFAS 141(R)"), replacing SFAS No. 141,
"Business Combinations". SFAS 141(R) retains the fundamental
requirements of SFAS 141, broadens its scope by applying the acquisition method
to all transactions and other events in which one entity obtains control over
one or more other businesses, and requires, among other things, that assets
acquired and liabilities assumed be measured at fair value as of the acquisition
date, that liabilities related to contingent considerations be recognized at the
acquisition date and remeasured at fair value in each subsequent reporting
period, that acquisition-related costs be expensed as incurred, and that income
be recognized if the fair value of the net assets acquired exceeds the fair
value of the consideration transferred. The Corporation will apply
the provisions of this statement prospectively to business combinations for
which the acquisition date is on or after January 3, 2009 and can only assess
the impact of the standard once an acquisition is consummated.
In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements – an amendment of ARB No. 51" ("SFAS
160"). SFAS 160 requires that a noncontrolling interest in a
subsidiary be reported as equity and the amount of consolidated net income
specifically attributable to the noncontrolling interest be identified in the
consolidated financial statements. It also requires consistency in
the manner of reporting changes in the parent's ownership interest and requires
fair value measurement of any noncontrolling equity
investment
retained in a deconsolidation. The Corporation adopted the provisions
of SFAS 160 in the first quarter of 2009. As a result of the
adoption, the Corporation has reported noncontrolling interests as a component
of equity in the Condensed Consolidated Balance Sheets and the net income or
loss attributable to noncontrolling interests has been separately identified in
the Condensed Consolidated Statements of Income. The prior periods
presented have also been reclassified to conform to the current classification
required by SFAS 160.
In March
2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments
and Hedging Activities – an amendment of FASB Statement No.
133." SFAS 161 expands the disclosure requirements of SFAS 133 with
the intent to provide users of financial statements with an enhanced
understanding of an entity's derivative activity. The Corporation adopted SFAS
161 as of January 4, 2009 and has included related disclosures in Note K.
Derivative Financial Instruments.
In April
2009, the FASB issued FASB Staff Position ("FSP") on FAS 107-1 and APB 28-1,
"Interim Disclosures about Fair Value of Financial Instruments" ("FSP FAS 107-1
and APB 28-1"). This FSP requires that the fair value disclosures
required by SFAS 107 "Disclosures about Fair Value of Financial Instruments" be
included for interim reporting periods. The Corporation will adopt
this new accounting standard effective April 5, 2009. The Corporation
does not expect the adoption of FSP 107-1 and APB 28-1 will have a material
impact on its financial statements.
In April
2009, the FASB issued FSP on FAS 157-4, "Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly" ("FSP FAS
157-4"). FSP FAS 157-5 provides guidance on determining when the
trading volume and activity for an asset or liability has significantly
decreased, which may indicate an inactive market, and on measuring the fair
value of an asset or liability in inactive markets. The Corporation
will adopt this new accounting standard effective April 5, 2009. The
Corporation does not expect the adoption of FSP FAS 157-4 will have a material
impact on the 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 storage products, desks,
credenzas, chairs, tables, bookcases, freestanding office partitions and panel
systems, and other related products. The hearth products segment
manufactures and markets a broad line of manufactured gas, electric, wood
and biomass burning fireplaces, inserts, stoves, facings and
accessories, principally for the home.
For
purposes of segment reporting, intercompany sales transfers between segments are
not material and operating profit is income before income taxes exclusive of
certain unallocated corporate expenses. These unallocated corporate
expenses include the net cost of the Corporation's corporate operations,
interest income, and interest expense. 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 market and capital investments are concentrated in the
United States.
Reportable
segment data reconciled to the consolidated financial statements for the three
month periods ended April 4, 2009, and March 29, 2008, is as
follows:
|
|
Three Months Ended
|
|
(In
thousands)
|
|
Apr.
4, 2009
|
|
|
Mar.
29, 2008
|
|
Net
Sales:
|
|
|
|
|
|
|
Office
Furniture
|
|
$ |
337,872 |
|
|
$ |
466,025 |
|
Hearth
Products
|
|
|
67,794 |
|
|
|
97,358 |
|
|
|
$ |
405,666 |
|
|
$ |
563,383 |
|
Operating
Profit (Loss):
|
|
|
|
|
|
|
|
|
Office
furniture (1)
|
|
|
|
|
|
|
|
|
Operations
before restructuring charges
|
|
$ |
3,509 |
|
|
$ |
19,550 |
|
Restructuring
and impairment charges
|
|
|
(2,989 |
) |
|
|
(799 |
) |
Office
furniture – net
|
|
|
520 |
|
|
|
18,751 |
|
Hearth
products
|
|
|
|
|
|
|
|
|
Operations
before restructuring charges
|
|
|
(9,351 |
) |
|
|
(2,847 |
) |
Restructuring
and impairment charges
|
|
|
(2,096 |
) |
|
|
(19 |
) |
Hearth
products – net
|
|
|
(11,447 |
) |
|
|
(2,866 |
) |
Total
operating profit
|
|
|
(10,927 |
) |
|
|
15,885 |
|
Unallocated
corporate expense
|
|
|
(8,770 |
) |
|
|
(8,778 |
) |
Income
(loss) before income taxes
|
|
$ |
(19,697 |
) |
|
$ |
7,107 |
|
|
|
|
|
|
|
|
|
|
Depreciation
& Amortization Expense:
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
13,165 |
|
|
$ |
12,076 |
|
Hearth
products
|
|
|
5,014 |
|
|
|
3,846 |
|
General
corporate
|
|
|
1,061 |
|
|
|
1,099 |
|
|
|
$ |
19,240 |
|
|
$ |
17,021 |
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures:
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
2,910 |
|
|
$ |
13,912 |
|
Hearth
products
|
|
|
1,469 |
|
|
|
2,844 |
|
General
corporate
|
|
|
237 |
|
|
|
868 |
|
|
|
$ |
4,616 |
|
|
$ |
17,624 |
|
|
|
|
|
|
|
|
|
|
|
|
As
of
Apr.
4, 2009
|
|
|
As
of
Mar.
29, 2008
|
|
Identifiable
Assets:
|
|
|
|
|
|
|
|
|
Office
furniture
|
|
$ |
659,776 |
|
|
$ |
776,650 |
|
Hearth
products
|
|
|
321,115 |
|
|
|
339,552 |
|
General
corporate
|
|
|
97,043 |
|
|
|
117,022 |
|
|
|
$ |
1,077,934 |
|
|
$ |
1,233,224 |
|
(1) Includes
noncontrolling interest.
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The
Corporation has two reportable segments: office furniture and hearth
products. The Corporation is the second largest office furniture
manufacturer in the world and the nation's leading manufacturer and marketer of
gas- and wood-burning fireplaces. The Corporation utilizes its split
and focus, decentralized business model to deliver value to its customers with
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 first quarter of fiscal 2009 decreased 28.0 percent to $405.7
million. The decrease was driven by large declines in both segments
due to adverse market conditions. Gross margins for the quarter
decreased from prior year levels due primarily to decreased
volume. Selling and administrative expenses decreased due to cost
control initiatives, lower volume related costs and incentive-based compensation
offset partially by increased restructuring and transition costs.
Due to
challenging market conditions and its ongoing business simplification and cost
reduction strategies the Corporation is taking actions to reset its cost
structure. The Corporation recently announced the decision to
shutdown an office furniture manufacturing facility and recorded $3.0 million of
severance costs in connection with the shutdown in the first
quarter. In addition $2.1 million of charges related to the
disposition and consolidation of several hearth retail and distribution
locations were recorded during the first 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 by
management 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 January 3, 2009. During
the first three months of fiscal 2009, there were no material changes in the
accounting policies and assumptions previously disclosed. Given the
continued challenging market condition and the operating loss for the current
period, the Corporation evaluated paragraph 28 of FAS 142 to determine whether
an interim triggering even existed. Refer to Note G. Goodwill and Other Intangible
Assets for further discussion.
New Accounting
Standards
For
information pertaining to the Corporation's adoption of new accounting standards
and any resulting impact to the Corporation's financial statements, please refer
to the first paragraph of Note L. Fair Value Measurements and the entirety of
Note N. New Accounting Standards of the Notes to
the Condensed Consolidated Financial Statements included in Part 1, Item 1 of
this Quarterly Report on Form 10-Q.
Results of
Operations
The
following table presents certain key highlights from the results of operations
for the periods indicated:
|
|
Three
Months Ended
|
|
(In
thousands)
|
|
Apr.
4,
2009
|
|
|
Mar.
29,
2008
|
|
|
Percent
Change
|
|
Net
sales
|
|
$ |
405,666 |
|
|
$ |
563,383 |
|
|
|
-28.0 |
% |
Cost
of sales
|
|
|
280,931 |
|
|
|
379,345 |
|
|
|
-25.9 |
|
Gross
profit
|
|
|
124,735 |
|
|
|
184,038 |
|
|
|
-32.2 |
|
Selling
& administrative expenses
|
|
|
136,257 |
|
|
|
172,555 |
|
|
|
-21.0 |
|
Restructuring
& impairment charges
|
|
|
5,085 |
|
|
|
818 |
|
|
|
521.6 |
|
Operating
income (loss)
|
|
|
(16,607 |
) |
|
|
10,665 |
|
|
|
-255.7 |
|
Interest
expense, net
|
|
|
3,063 |
|
|
|
3,414 |
|
|
|
-10.3 |
|
Earnings
(loss) before income taxes
|
|
|
(19,670 |
) |
|
|
7,251 |
|
|
|
-371.3 |
|
Income
taxes
|
|
|
(7,802 |
) |
|
|
3,180 |
|
|
|
-345.3 |
|
Less: Net
income attributable to the
noncontrolling
interest
|
|
|
(18 |
) |
|
|
(94 |
) |
|
|
-80.9 |
|
Net
income (loss) attributable to Parent Company
|
|
$ |
(11,886 |
) |
|
$ |
3,977 |
|
|
|
-398.9 |
|
Consolidated
net sales for the first quarter decreased 28.0 percent or $157.7 million
compared to the same quarter last year. Acquisitions contributed
$10.2 million or 1.8 percentage points of sales. Organic sales growth
was down due to challenging market conditions in both the office furniture and
hearth products segments.
Gross
margins for the first quarter decreased to 30.7 percent compared to 32.7 percent
for the same quarter last year. The reduction in gross margin was due
to decreased volume and increased material costs offset partially by increased
price realization. First quarter 2008 included $4.3 million of
accelerated depreciation and transition costs related to the shutdown and
consolidation of an office furniture manufacturing facility.
As a
result of challenging market conditions and the Corporation's ongoing business
simplification and cost reduction strategies, management made the decision to
close an office furniture facility located in South Gate, California and
consolidate production into its Cedartown, Georgia and Muscatine, Iowa
facilities. The Corporation's first quarter 2009 results include $3.0
million of severance costs in connection with the South Gate
shutdown. The Corporation anticipates additional restructuring
charges of approximately $7.2 million related to this shutdown during the
remainder of 2009. The Corporation also recorded $2.1 million of
restructuring costs due to the disposition and consolidation of five hearth
retail and distribution locations during the first quarter of 2009.
Total
selling and administrative expenses, including restructuring charges, as a
percent of sales increased to 34.8 percent compared to 30.8 percent for the same
quarter last year due to lower volume. Actual selling and
administrative expenses decreased $32.0 million as a result of cost control
initiatives, lower volume related expenses and reduced incentive-based
compensation expense. First quarter 2008 included $0.8 million of
restructuring charges and $3.4 million of other transition costs associated with
a plant consolidation.
The
Corporation experienced a net loss of ($11.9) million or ($0.27) per diluted
share in the first quarter of 2009 compared to net income of $4.0 million or
$0.09 per diluted share in first quarter
2008. Net
interest expense decreased $0.4 million during the quarter due to lower average
interest rates and lower borrowing.
The
provision for income taxes in the first quarter reflects an actual effective tax
rate of 39.7 percent, compared to an estimated annual tax rate of 43.9 percent
for the first quarter 2008 and actual tax rate for the full year 2008 of 34.2
percent. A discrete calculation was used to report the first quarter
tax provision rather than an estimated annual tax rate as uncertainty in the
full year outlook produces significant variability in the estimated annual
effective tax rate.
Office
Furniture
First
quarter sales for the office furniture segment decreased 27.5 percent or $128.2
million to $337.9 million from $466.0 million for the same quarter last year
driven by substantial weakness in all channels of the office furniture
industry. Acquisitions contributed $10.2 million or 2.2 percentage
points of sales. Operating profit prior to unallocated corporate
expenses decreased $18.2 million to $0.5 million as a result of lower organic
volume and higher material costs. These were partially offset by
price realization, contributions from acquisitions, cost control initiatives and
lower variable compensation expense.
Hearth
Products
First
quarter net sales for the hearth products segment decreased 30.4 percent or
$29.6 million to $67.8 million from $97.4 million for the same quarter last year
driven by significant declines in both the new construction and remodel-retrofit
channels. Operating profit prior to unallocated corporate expenses
decreased $8.6 million to a $11.4 million loss due to lower volume, higher
material costs and restructuring expenses partially offset by price increases
and cost reduction initiatives.
Liquidity and Capital
Resources
Cash
Flow – Operating Activities
Cash
generated from operating activities in the first quarter 2009 totaled $5.6
million compared to $2.0 million generated in first quarter
2008. Improved working capital performance resulted in a $6.1 million
use of cash in the current fiscal year compared to $25.5 million use of cash in
the prior year.
Cash
Flow – Investing Activities
Capital
expenditures including capitalized software for the first three months of fiscal
2009 were $4.6 million compared to $17.6 million in the same period of fiscal
2008 and were primarily for tooling and equipment for new
products. For the full year 2009, capital expenditures are expected
to be approximately $30 million due to new product development and related
tooling.
Cash
Flow – Financing Activities
During
the first three months of fiscal 2009, net borrowings under the Corporation's
revolving credit facility increased $9.5 million primarily to pay off a
short-term credit line associated with one of its foreign
subsidiaries. As of April 4, 2009, $117 million of the revolving
credit facility was
outstanding with $50 million classified as short-term as the Corporation expects
to repay that portion of the borrowings within the next twelve
months.
The
credit agreements governing the Corporation's revolving credit facility and term
loan contain a number of covenants, including covenants requiring maintenance of
the following financial ratios as of the end of any fiscal
quarter:
|
·
|
a
consolidated interest coverage ratio of not less than 4.0 to 1.0, based
upon the ratio of (a) consolidated EBITDA (as defined in the respective
credit agreement) for the last four fiscal quarters to (b) the sum of
consolidated interest charges; and
|
|
·
|
a
consolidated leverage ratio of not greater than 3.0 to 1.0, based upon the
ratio of (a) the quarter-end consolidated funded indebtedness (as defined
in the respective credit agreement) to (b) consolidated EBITDA for the
last four fiscal quarters.
|
The note
purchase agreement pertaining to its Senior Notes also contains a number of
covenants, including a covenant requiring maintenance of consolidated debt to
consolidated EBITDA (as defined in the note purchase agreement) of not greater
than 3.5 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded
indebtedness (as defined in the note purchase agreement) to (b) consolidated
EBITDA for the last four fiscal quarters.
The
revolving credit facility, term loan and Senior Notes are the primary sources of
committed funding from which the Corporation finances its planned capital
expenditures, strategic initiatives such as repurchases of common stock and
certain working capital needs. Non-compliance with the various
financial covenant ratios could prevent the Corporation from being able to
access further borrowings under the revolving credit facility, require immediate
repayment of all amounts outstanding with respect to the revolving credit
facility, term loan and Senior Notes and increase the cost of
borrowing.
The most
restrictive of the financial covenants is the consolidated leverage ratio
requirement of 3.0 to 1.0 included in the credit agreements governing both the
revolving credit facility and term loan. Under both credit
agreements, adjusted EBITDA is defined as consolidated net income before
interest expense, income taxes and depreciation and amortization of intangibles,
as well as non-cash, nonrecurring charges and all non-cash items increasing net
income. At April 4, 2009, the Corporation was well below this ratio
and was in compliance with all of the covenants and other restrictions in the
credit agreements and note purchase agreement. The Corporation
currently expects to remain in compliance over the next twelve
months. If the Corporation's actual results over the next twelve
months are lower than current projections, the margin by which the Corporation
is below the consolidated leverage ratio will decrease. However, even
if a 10 percent decline in expected results over the next twelve months were to
occur, the Corporation would remain in compliance with the
covenant.
The
Corporation's Board of Directors (the "Board") declared a regular quarterly cash
dividend of $0.215 per share on the Corporation's common stock on February 11,
2009, to shareholders of record at the close of business on February 20,
2009. It was paid on February 27, 2009.
The
Corporation did not repurchase any shares of common stock during the first
quarter of 2009. For the three months ended March 29, 2008, the
Corporation repurchased 704,700 shares of its common stock at a cost of
approximately $22.1 million, or an average price of $31.33 per share.
As of
April 4, 2009, approximately $163.6 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 the
Corporation's 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 January 3,
2009. During the first three months of fiscal 2009 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 liabilities,
if any, resulting from these matters are not expected to have a material adverse
effect on the Corporation's financial condition, although such matters could
have a material effect on the Corporation's quarterly or annual operating
results and cash flows when resolved in a future period.
Looking
Ahead
Management
expects weak demand to continue across its businesses during the remainder of
2009. The Corporation will continue to reset its cost structure to
the current challenging market conditions while investing in new products,
selling initiatives and operational improvements.
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, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934
and 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," "hope,"
"intend," "likely," "may," "plan," "possible," "potential," "predict,"
"project," "should," "will," "would" and variations of such words, and similar
expressions identify forward-looking statements. Forward-looking
statements involve known and unknown risks, 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) ability to maintain its effective tax rate and (f)
consolidation and logistical realignment initiatives; uncertainty related to the
availability of cash and credit, and the terms and interest rates on which
credit would be available, to fund operations and future growth; lower than
expected demand for the Corporation's products due to uncertain political and
economic conditions, including the current credit crisis, slow or negative
growth rates in global and domestic economies and 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, epidemic, 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; relationships with distribution
channel partners, including the financial viability of distributors and dealers;
restrictions imposed by the terms of the Corporation's revolving credit
facility, term loan credit agreement 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
April 4, 2009, 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 January 3,
2009.
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 (the "Exchange Act"), 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 carried out an evaluation
of the Corporation's disclosure controls and procedures pursuant to Exchange Act
Rules 13a – 15(e) and 15d – 15(e). As of April 4, 2009, and,
based on this evaluation, the chief executive officer and chief financial
officer have concluded that these disclosure 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 quarterly report on 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 other than ordinary
routine litigation incidental to the business.
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 January 3, 2009.
Item
2. Unregistered Sales of Equity Securities
and Use of Proceeds
The
Corporation did not repurchase any of its shares during the first quarter ended
April 4, 2009. As of April 4, 2009, $163 million was authorized and
available for the repurchase of shares by the Corporation.
Item
6. Exhibits
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:
May 6, 2009
|
By:
|
/s/ Kurt
A. Tjaden |
|
|
|
Kurt
A. Tjaden |
|
|
|
Vice
President and Chief Financial Officer |
|
|
|
|
|
|
EXHIBIT
INDEX
|
(10.1)
|
Form
of HNI Corporation 2007 Stock-Based Compensation Plan*
|
(10.2)
|
Form
of HNI Corporation 2007 Stock-Based Compensation Plan Restricted Stock
Unit Award Agreement*
|
(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
|
*Indicates
management contract of compensatory plan.