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Section 1: 10-Q (10-Q - Q2 2020)

hni-20200627
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period endedJune 27, 2020
 
OR
  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
Commission File Number:1-14225
  
HNI Corporation
Iowa42-0617510
(State of Incorporation)(I.R.S. Employer No.)
600 East Second Street
P.O. Box 1109
Muscatine,Iowa52761-0071
(563)272-7400
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockHNINew York Stock Exchange
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
                            No     
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  
Yes
                            No     
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Smaller reporting companyNon-accelerated filer
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No     
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Common Stock, $1 Par ValueOutstanding as ofJune 27, 202042,675,458



HNI Corporation and Subsidiaries
Quarterly Report on Form 10-Q
Table of Contents
  
PART I.  FINANCIAL INFORMATION
 Page
Item 1.Financial Statements (Unaudited) 
  
  
  
Item 2.
  
Item 3.
  
Item 4.
  
PART II.  OTHER INFORMATION
  
Item 1.
  
Item 1A.
  
Item 2.
  
Item 3.Defaults Upon Senior Securities - None-
Item 4.Mine Safety Disclosures - Not Applicable-
  
Item 5.Other Information - None-
  
Item 6.
  
  
2



PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
(Unaudited)
 Three Months EndedSix Months Ended
June 27,
2020
June 29,
2019
June 27,
2020
June 29,
2019
 
Net sales$417,456  $526,026  $886,161  $1,005,482  
Cost of sales266,551  333,437  559,238  643,279  
Gross profit150,905  192,589  326,923  362,203  
Selling and administrative expenses136,063  168,411  303,148  334,348  
Impairment and restructuring charges  930  32,661  930  
Operating income (loss)14,842  23,248  (8,886) 26,925  
Interest expense, net1,943  2,480  3,754  4,591  
Income (loss) before income taxes12,899  20,768  (12,640) 22,334  
Income taxes345  4,957  (1,299) 5,503  
Net income (loss)12,554  15,811  (11,341) 16,831  
Less: Net income (loss) attributable to non-controlling interest(2) 1  (2) (1) 
Net income (loss) attributable to HNI Corporation$12,556  $15,810  $(11,339) $16,832  
Average number of common shares outstanding – basic42,640  43,218  42,634  43,376  
Net income (loss) attributable to HNI Corporation per common share – basic$0.29  $0.37  $(0.27) $0.39  
Average number of common shares outstanding – diluted42,929  43,634  42,634  43,860  
Net income (loss) attributable to HNI Corporation per common share – diluted$0.29  $0.36  $(0.27) $0.38  
Foreign currency translation adjustments$45  $(333) $(555) $630  
Change in unrealized gains (losses) on marketable securities, net of tax244  126  302  216  
Change in pension and post-retirement liability, net of tax      (1,185) 
Change in derivative financial instruments, net of tax(283) (1,327) (2,499) (1,636) 
Other comprehensive income (loss), net of tax6  (1,534) (2,752) (1,975) 
Comprehensive income (loss)12,560  14,277  (14,093) 14,856  
Less: Comprehensive income (loss) attributable to non-controlling interest(2) 1  (2) (1) 
Comprehensive income (loss) attributable to HNI Corporation$12,562  $14,276  $(14,091) $14,857  
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

3



HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
June 27,
2020
December 28,
2019
Assets
Current Assets:  
Cash and cash equivalents$26,204  $52,073  
Short-term investments2,310  1,096  
Receivables208,795  278,124  
Allowance for doubtful accounts(5,778) (3,559) 
Inventories156,647  163,465  
Prepaid expenses and other current assets42,816  37,635  
Total Current Assets430,994  528,834  
Property, Plant, and Equipment: 
Land and land improvements29,750  29,394  
Buildings294,238  295,517  
Machinery and equipment568,265  581,225  
Construction in progress22,630  20,881  
 914,883  927,017  
Less accumulated depreciation546,036  545,510  
Net Property, Plant, and Equipment368,847  381,507  
Right-of-use Finance Leases2,282  2,129  
Right-of-use Operating Leases76,614  72,883  
Goodwill and Other Intangible Assets416,317  445,709  
Other Assets20,309  21,450  
Total Assets$1,315,363  $1,452,512  
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
4



HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
 June 27,
2020
December 28,
2019
Liabilities and Equity
Current Liabilities:  
Accounts payable and accrued expenses$334,719  $453,202  
Current maturities of long-term debt  790  
Current maturities of other long-term obligations2,953  1,931  
Current lease obligations - finance654  564  
Current lease obligations - operating23,266  22,218  
Total Current Liabilities361,592  478,705  
Long-Term Debt183,481  174,439  
Long-Term Lease Obligations - Finance1,639  1,581  
Long-Term Lease Obligations - Operating60,761  58,233  
Other Long-Term Liabilities67,337  67,990  
Deferred Income Taxes87,484  87,196  
Equity:  
HNI Corporation shareholders' equity:  
 Capital Stock:  
     Preferred stock - $1 par value, authorized 2,000 shares, no shares outstanding
    
     Common stock - $1 par value, authorized 200,000 shares, outstanding:
June 27, 2020 – 42,675 shares; December 28, 2019 – 42,595 shares
42,675  42,595  
Additional paid-in capital29,988  19,799  
Retained earnings490,909  529,723  
Accumulated other comprehensive income (loss)(10,825) (8,073) 
Total HNI Corporation shareholders' equity552,747  584,044  
Non-controlling interest322  324  
Total Equity553,069  584,368  
Total Liabilities and Equity$1,315,363  $1,452,512  
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
5



HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Equity
(In thousands, except per share data)
(Unaudited)
Three Months Ended - June 27, 2020
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestTotal Shareholders’ Equity
Balance, March 28, 2020$42,647  $28,086  $491,429  $(10,830) $323  $551,655  
Comprehensive income:
Net income (loss)—  —  12,556  —  (2) 12,554  
Other comprehensive income (loss), net of tax—  —  —  6  —  6  
Dividends payable—  —  (70) —  —  (70) 
Cash dividends; $0.305 per share
—  —  (13,006) —  —  (13,006) 
Common shares – treasury:
Shares purchased(28) (622) —  —  —  (650) 
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax56  2,524  —  —  —  2,580  
Balance, June 27, 2020$42,675  $29,988  $490,909  $(10,825) $322  $553,069  
Six Months Ended - June 27, 2020
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestTotal Shareholders’ Equity
Balance, December 28, 2019$42,595  $19,799  $529,723  $(8,073) $324  $584,368  
Comprehensive income:
Net income (loss)—  —  (11,339) —  (2) (11,341) 
Other comprehensive income (loss), net of tax—  —  —  (2,752) —  (2,752) 
Impact of new accounting standard related to credit losses—  —  (131) —  —  (131) 
Dividends Payable—  —  (116) —  —  (116) 
Cash dividends; $0.610 per share
—  —  (26,040) —  —  (26,040) 
Common shares – treasury:
Shares purchased(214) (4,988) (1,188) —  —  (6,390) 
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax294  15,177  —  —  —  15,471  
Balance, June 27, 2020$42,675  $29,988  $490,909  $(10,825) $322  $553,069  
6



Three Months Ended - June 29, 2019
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestTotal Shareholders’ Equity
Balance, March 30, 2019$43,339  $15,921  $489,707  $(4,040) $324  $545,251  
Comprehensive income:
Net income (loss)—  —  15,810  —  1  15,811  
Other comprehensive income (loss), net of tax—  —  —  (1,534) —  (1,534) 
Cash dividends; $0.305 per share
—  —  (13,203) —  —  (13,203) 
Common shares – treasury:
Shares purchased(929) (14,274) (17,795) —  —  (32,998) 
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax465  15,717  —  —  —  16,182  
Balance, June 29, 2019$42,875  $17,364  $474,519  $(5,574) $325  $529,509  
Six Months Ended - June 29, 2019
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestTotal Shareholders’ Equity
Balance, December 29, 2018$43,582  $18,041  $504,909  $(3,599) $326  $563,259  
Comprehensive income:
Net income (loss)—  —  16,832  —  (1) 16,831  
Other comprehensive income (loss), net of tax—  —  —  (1,236) —  (1,236) 
Reclassification of Stranded Tax Effects (ASU 2018-02)
—  —  739  (739) —    
Impact of Implementation of Lease Guidance—  —  2,999  —  —  2,999  
Cash dividends; $0.600 per share
—  —  (26,075) —  —  (26,075) 
Common shares – treasury:
Shares purchased(1,577) (31,222) (24,885) —  —  (57,684) 
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax870  30,545  —  —  —  31,415  
Balance, June 29, 2019$42,875  $17,364  $474,519  $(5,574) $325  $529,509  
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

7



HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Six Months Ended
 June 27,
2020
June 29,
2019
Net Cash Flows From (To) Operating Activities:  
Net income (loss)$(11,341) $16,831  
Non-cash items included in net income (loss):
Depreciation and amortization38,605  38,450  
Other post-retirement and post-employment benefits736  738  
Stock-based compensation5,659  4,072  
Reduction in carrying amount of right-of-use assets11,342  11,617  
Deferred income taxes1,092  1,360  
Impairment of goodwill and intangible assets32,661    
Other – net(284) 3,856  
Net increase (decrease) in operating assets and liabilities, net of divestitures(49,631) (56,281) 
Increase (decrease) in other liabilities(1,019) (7,876) 
Net cash flows from (to) operating activities27,820  12,767  
Net Cash Flows From (To) Investing Activities:  
Capital expenditures(15,739) (34,659) 
Proceeds from sale of property, plant, and equipment69  159  
Capitalized software(5,037) (2,948) 
Acquisition spending, net of cash acquired(10,857)   
Purchase of investments(1,631) (2,459) 
Sales or maturities of investments1,043  1,802  
Other – net  2,025  
Net cash flows from (to) investing activities(32,152) (36,080) 
Net Cash Flows From (To) Financing Activities:  
Payments of long-term debt(73,828) (40,272) 
Proceeds from long-term debt82,129  76,677  
Dividends paid(26,040) (26,075) 
Purchase of HNI Corporation common stock(6,764) (57,357) 
Proceeds from sales of HNI Corporation common stock1,294  18,906  
Other – net1,672  3,397  
Net cash flows from (to) financing activities(21,537) (24,724) 
Net increase (decrease) in cash and cash equivalents(25,869) (48,037) 
Cash and cash equivalents at beginning of period52,073  76,819  
Cash and cash equivalents at end of period$26,204  $28,782  
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

8



HNI Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
June 27, 2020

Note 1.  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 notes required by generally accepted accounting principles for complete financial statements.  The December 28, 2019 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 statement have been included. Operating results for the six-month period ended June 27, 2020 are not necessarily indicative of the results expected for the fiscal year ending January 2, 2021.  For further information, refer to the consolidated financial statements and accompanying notes included in HNI Corporation's (the "Corporation") Annual Report on Form 10-K for the fiscal year ended December 28, 2019. Certain reclassifications have been made within the interim financial information to conform to the current presentation.

In the second quarter of 2020, the Corporation rebranded its segments to workplace furnishings (formerly office furniture) and residential building products (formerly hearth products). These changes clarify how and where the Corporation's products are used, and are intended to reduce confusion. These changes did not impact the Corporation's condensed consolidated financial statements.

Note 2. Revenue from Contracts with Customers

Disaggregation of Revenue
Revenue from contracts with customers disaggregated by product category is as follows (in thousands):
Three Months EndedSix Months Ended
June 27,
2020
June 29,
2019
June 27,
2020
June 29,
2019
Systems and storage$167,007  $235,657  $371,028  $440,031  
Seating114,772  134,342  230,644  247,801  
Other26,302  39,513  44,795  75,191  
Total workplace furnishings308,081  409,512  646,467  763,023  
Residential building products109,375  116,514  239,694  242,459  
Net sales$417,456  $526,026  $886,161  $1,005,482  

Sales by product category are subject to similar economic factors and market conditions. See “Note 16. Reportable Segment Information” in the Notes to Condensed Consolidated Financial Statements for further information about operating segments.

Contract Assets and Contract Liabilities
In addition to trade receivables, the Corporation has contract assets consisting of funds paid to certain workplace furnishings dealers in exchange for their multi-year commitment to market and sell the Corporation’s products. These contract assets are amortized over the term of the contracts and recognized as a reduction of revenue. For contracts less than one year, the Corporation has elected the practical expedient to recognize incremental costs to obtain a contract as an expense when incurred. The Corporation has contract liabilities consisting of customer deposits and rebate and marketing program liabilities.







9



Contract assets and contract liabilities were as follows (in thousands):
June 27,
2020
December 28,
2019
Trade receivables (1)$208,795  $278,124  
Contract assets (current) (2)$686  $857  
Contract assets (long-term) (3)$2,543  $2,700  
Contract liabilities (4)$50,077  $54,972  

The index below indicates the line item in the Condensed Consolidated Balance Sheets where contract assets and contract liabilities are reported:

(1)  "Receivables"
(2)  "Prepaid expenses and other current assets"
(3)  "Other Assets"
(4)  "Accounts payable and accrued expenses"

Changes in contract asset and contract liability balances during the six months ended June 27, 2020 were as follows (in thousands):
Contract assets increase (decrease)Contract liabilities (increase) decrease
Reclassification of contract assets to contra-revenue$(328) $—  
Contract liabilities recognized and recorded to contra-revenue as a result of performance obligations satisfied—  (53,784) 
Contract liabilities paid—  66,851  
Cash received in advance and not recognized as revenue—  (41,567) 
Reclassification of cash received in advance to revenue as a result of performance obligations satisfied—  33,395  
Net change$(328) $4,895  

Changes in contract asset and contract liability balances during the six months ended June 29, 2019 were as follows (in thousands):
Contract assets increase (decrease)Contract liabilities (increase) decrease
Contract assets recognized$888  $—  
Reclassification of contract assets to contra-revenue(185) —  
Contract liabilities recognized and recorded to contra-revenue as a result of performance obligations satisfied—  (71,517) 
Contract liabilities paid—  73,522  
Cash received in advance and not recognized as revenue—  (33,520) 
Reclassification of cash received in advance to revenue as a result of performance obligations satisfied—  35,781  
Net change$703  $4,266  

Contract liabilities for customer deposits paid to the Corporation prior to the satisfaction of performance obligations are recognized as revenue upon completion of the performance obligations. The amount of revenue recognized during the three and six months ended June 27, 2020 that was included in the December 28, 2019 contract liabilities balance was $0.0 million and $8.6 million, respectively.



10



Performance Obligations
The Corporation recognizes revenue for sales of workplace furnishings and residential building products at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment of the product. In certain circumstances, transfer of control to the customer does not occur until the goods are received by the customer or upon installation and/or customer acceptance, depending on the terms of the underlying contracts. Contracts typically have a duration of less than one year and normally do not include a significant financing component. Generally, payment is due within 30 days of invoicing.

The Corporation's backlog orders are typically cancellable for a period of time and almost all contracts have an original duration of one year or less. As a result, the Corporation has elected the practical expedient permitted in the revenue accounting standard not to disclose the unsatisfied performance obligation as of period end. The backlog is typically fulfilled within a few months.

Significant Judgments
The amount of consideration the Corporation receives and revenue recognized varies with changes in rebate and marketing program incentives, as well as early pay discounts, offered to customers. The Corporation uses significant judgment throughout the year in estimating the reduction in net sales driven by variable consideration for rebate and marketing programs. Judgments made include expected sales levels and utilization of funds. However, this judgment factor is significantly reduced at the end of each year when sales volumes and the impact to rebate and marketing programs are known and recorded as the programs typically end near the Corporation's fiscal year end.

Note 3. Acquisitions

During the six months ended June 27, 2020, the Corporation acquired three residential building products distributors, in January 2020, March 2020 and June 2020. All transactions were asset acquisitions and were consummated entirely in cash. The aggregate purchase price was approximately $12 million, and the preliminary allocation includes $10.5 million of goodwill, which is tax deductible. The remaining assets and liabilities acquired are not material. The Corporation will finalize the allocation of the purchase price during 2020 based on the final purchase price and any adjustments required over the remaining measurement period.

Note 4.  Inventories

The Corporation values its inventory at the lower of cost or net realizable value. Inventories included in the Condensed Consolidated Balance Sheets consisted of the following (in thousands):
June 27,
2020
December 28,
2019
Finished products$117,601