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Section 1: 10-Q (10-Q)

hni-20200926
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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 endedSeptember 26, 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 ofSeptember 26, 202042,714,650



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 EndedNine Months Ended
September 26,
2020
September 28,
2019
September 26,
2020
September 28,
2019
 
Net sales$507,063 $625,386 $1,393,224 $1,630,868 
Cost of sales321,516 387,715 880,754 1,030,993 
Gross profit185,547 237,671 512,470 599,875 
Selling and administrative expenses146,785 176,731 449,933 511,080 
Impairment and restructuring charges 284 32,661 1,214 
Operating income38,762 60,656 29,876 87,581 
Interest expense, net1,517 2,205 5,271 6,795 
Income before income taxes37,245 58,451 24,605 80,786 
Income taxes6,558 12,375 5,259 17,878 
Net income30,687 46,076 19,346 62,908 
Less: Net income (loss) attributable to non-controlling interest(1)(2)(3)(2)
Net income attributable to HNI Corporation$30,688 $46,078 $19,349 $62,910 
Average number of common shares outstanding – basic42,684 42,899 42,651 43,217 
Net income attributable to HNI Corporation per common share – basic$0.72 $1.07 $0.45 $1.46 
Average number of common shares outstanding – diluted43,010 43,186 42,905 43,620 
Net income attributable to HNI Corporation per common share – diluted$0.71 $1.07 $0.45 $1.44 
Foreign currency translation adjustments$923 $(1,035)$368 $(406)
Change in unrealized gains (losses) on marketable securities, net of tax(33)36 269 252 
Change in pension and post-retirement liability, net of tax   (1,185)
Change in derivative financial instruments, net of tax106 (477)(2,393)(2,112)
Other comprehensive income (loss), net of tax996 (1,476)(1,756)(3,451)
Comprehensive income31,683 44,600 17,590 59,457 
Less: Comprehensive income (loss) attributable to non-controlling interest(1)(2)(3)(2)
Comprehensive income attributable to HNI Corporation$31,684 $44,602 $17,593 $59,459 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

3



HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets

(In thousands)
(Unaudited)
September 26,
2020
December 28,
2019
Assets
Current Assets:  
Cash and cash equivalents$109,385 $52,073 
Short-term investments1,495 1,096 
Receivables209,921 278,124 
Allowance for doubtful accounts(5,991)(3,559)
Inventories144,135 163,465 
Prepaid expenses and other current assets41,490 37,635 
Total Current Assets500,435 528,834 
Property, Plant, and Equipment: 
Land and land improvements29,782 29,394 
Buildings295,998 295,517 
Machinery and equipment577,442 581,225 
Construction in progress12,142 20,881 
 915,364 927,017 
Less accumulated depreciation551,031 545,510 
Net Property, Plant, and Equipment364,333 381,507 
Right-of-use Finance Leases2,193 2,129 
Right-of-use Operating Leases73,896 72,883 
Goodwill and Other Intangible Assets412,287 445,709 
Other Assets21,581 21,450 
Total Assets$1,374,725 $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)
 September 26,
2020
December 28,
2019
Liabilities and Equity
Current Liabilities:  
Accounts payable and accrued expenses$390,535 $453,202 
Current maturities of long-term debt 790 
Current maturities of other long-term obligations2,890 1,931 
Current lease obligations - finance691 564 
Current lease obligations - operating23,124 22,218 
Total Current Liabilities417,240 478,705 
Long-Term Debt174,502 174,439 
Long-Term Lease Obligations - Finance1,522 1,581 
Long-Term Lease Obligations - Operating57,948 58,233 
Other Long-Term Liabilities67,187 67,990 
Deferred Income Taxes82,736 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:
September 26, 2020 – 42,715 shares; December 28, 2019 – 42,595 shares
42,715 42,595 
Additional paid-in capital31,865 19,799 
Retained earnings508,518 529,723 
Accumulated other comprehensive income (loss)(9,829)(8,073)
Total HNI Corporation shareholders' equity573,269 584,044 
Non-controlling interest321 324 
Total Equity573,590 584,368 
Total Liabilities and Equity$1,374,725 $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 - September 26, 2020
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestTotal Shareholders’ Equity
Balance, June 27, 2020$42,675 $29,988 $490,909 $(10,825)$322 $553,069 
Comprehensive income:
Net income (loss)— — 30,688 — (1)30,687 
Other comprehensive income (loss), net of tax— — — 996 — 996 
Dividends payable— — (58)— — (58)
Cash dividends; $0.305 per share
— — (13,021)— — (13,021)
Common shares – treasury:
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax40 1,877 — — — 1,917 
Balance, September 26, 2020$42,715 $31,865 $508,518 $(9,829)$321 $573,590 
Nine Months Ended - September 26, 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)— — 19,349 — (3)19,346 
Other comprehensive income (loss), net of tax— — — (1,756)— (1,756)
Impact of new accounting standard related to credit losses— — (131)— (131)
Dividends payable— — (175)— — (175)
Cash dividends; $0.915 per share
— — (39,060)— — (39,060)
Common shares – treasury:
Shares purchased(214)(4,988)(1,188)— — (6,390)
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax334 17,054 — — — 17,388 
Balance, September 26, 2020$42,715 $31,865 $508,518 $(9,829)$321 $573,590 
6



HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Equity
(In thousands, except per share data)
(Unaudited)
Three Months Ended - September 28, 2019
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestTotal Shareholders’ Equity
Balance, June 29, 2019$42,875 $17,364 $474,519 $(5,574)$325 $529,509 
Comprehensive income:
Net income (loss)— — 46,078 — (2)46,076 
Other comprehensive income (loss), net of tax— — — (1,476)— (1,476)
Cash dividends; $0.305 per share
— — (13,088)— — (13,088)
Common shares – treasury:
Shares purchased(221)(5,175)(1,795)— — (7,191)
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax170 6,345 — — — 6,515 
Balance, September 28, 2019$42,824 $18,534 $505,714 $(7,050)$323 $560,345 
Nine Months Ended - September 28, 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)— — 62,910 — (2)62,908 
Other comprehensive income (loss), net of tax— — — (2,712)— (2,712)
Reclassification of Stranded Tax Effects (ASU 2018-02)
— — 739 (739)—  
Impact of Implementation of Lease Guidance— — 2,999 — — 2,999 
Cash dividends; $0.905 per share
— — (39,164)— — (39,164)
Common shares – treasury:
Shares purchased(1,797)(36,401)(26,679)— — (64,877)
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax1,039 36,893 — — — 37,932 
Balance, September 28, 2019$42,824 $18,534 $505,714 $(7,050)$323 $560,345 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

7



HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Nine Months Ended
 September 26,
2020
September 28,
2019
Net Cash Flows From (To) Operating Activities:  
Net income$19,346 $62,908 
Non-cash items included in net income:
Depreciation and amortization57,917 57,838 
Other post-retirement and post-employment benefits1,104 1,106 
Stock-based compensation6,746 5,408 
Reduction in carrying amount of right-of-use assets16,965 17,252 
Deferred income taxes(3,730)4,798 
Impairment of goodwill and intangible assets32,661  
Other – net815 4,473 
Net increase (decrease) in operating assets and liabilities, net of divestitures13,316 (28,359)
Increase (decrease) in other liabilities(1,779)(9,802)
Net cash flows from (to) operating activities143,361 115,622 
Net Cash Flows From (To) Investing Activities:  
Capital expenditures(24,751)(46,093)
Proceeds from sale of property, plant, and equipment81 247 
Capitalized software(7,250)(4,098)
Acquisition spending, net of cash acquired(10,857) 
Purchase of investments(3,922)(6,140)
Sales or maturities of investments3,246 3,889 
Other – net 2,327 
Net cash flows from (to) investing activities(43,453)(49,868)
Net Cash Flows From (To) Financing Activities:  
Payments of long-term debt(82,828)(125,039)
Proceeds from long-term debt82,119 115,775 
Dividends paid(39,060)(39,164)
Purchase of HNI Corporation common stock(6,764)(65,106)
Proceeds from sales of HNI Corporation common stock2,210 22,338 
Other – net1,727 1,636 
Net cash flows from (to) financing activities(42,596)(89,560)
Net increase (decrease) in cash and cash equivalents57,312 (23,806)
Cash and cash equivalents at beginning of period52,073 76,819 
Cash and cash equivalents at end of period$109,385 $53,013 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

8



HNI Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
September 26, 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 nine-month period ended September 26, 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 or disclosures.

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 EndedNine Months Ended
September 26,
2020
September 28,
2019
September 26,
2020
September 28,
2019
Systems and storage$207,549 $297,934 $578,601 $737,984 
Seating127,294 163,353 358,005 411,142 
Other18,518 23,468 63,221 98,652 
Total workplace furnishings353,361 484,755 999,827 1,247,778 
Residential building products153,702 140,631 393,397 383,090 
Net sales$507,063 $625,386 $1,393,224 $1,630,868 

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):
September 26,
2020
December 28,
2019
Trade receivables (1)$209,921 $278,124 
Contract assets (current) (2)$747 $857 
Contract assets (long-term) (3)$2,676 $2,700 
Contract liabilities (4)$51,492 $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 nine months ended September 26, 2020 were as follows (in thousands):
Contract assets increase (decrease)Contract liabilities (increase) decrease
Contract assets recognized$358 $— 
Reclassification of contract assets to contra-revenue(492)— 
Contract liabilities recognized and recorded to contra-revenue as a result of performance obligations satisfied— (88,981)
Contract liabilities paid— 102,985 
Cash received in advance and not recognized as revenue— (68,840)
Reclassification of cash received in advance to revenue as a result of performance obligations satisfied— 58,316 
Net change$(134)$3,480 

Changes in contract asset and contract liability balances during the nine months ended September 28, 2019 were as follows (in thousands):
Contract assets increase (decrease)Contract liabilities (increase) decrease
Contract assets recognized$1,313 $— 
Reclassification of contract assets to contra-revenue(328)— 
Contract liabilities recognized and recorded to contra-revenue as a result of performance obligations satisfied— (110,789)
Contract liabilities paid— 109,592 
Cash received in advance and not recognized as revenue— (49,962)
Reclassification of cash received in advance to revenue as a result of performance obligations satisfied— 51,554 
Net change$985 $395 

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 nine months ended September 26, 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 nine months ended September 26, 2020, the Corporation acquired three residential building products distribution businesses, in January 2020, March 2020 and June 2020. All transactions were structured as asset acquisitions and were consummated entirely in cash. The aggregate purchase price was approximately $12 million, and the preliminary allocation as of September 26, 2020 includes $10.4 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):
September 26,
2020
December 28,
2019
Finished products$107,792 $118,633 
Materials and work in process67,037 75,526 
Last-in, first-out ("LIFO") allowance(30,694)(30,694)
Total inventories$144,135 $163,465 
Inventory valued by the LIFO costing method81 %65 %

Note 5. Goodwill and Other Intangible Assets

Goodwill and other intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following (in thousands):
September 26,
2020
December 28,
2019
Goodwill$259,663 $270,820 
Definite-lived intangible assets126,021 146,040 
Indefinite-lived intangible assets26,603 28,849 
Total goodwill and other intangible assets$412,287 $445,709 
11



Goodwill
The changes in the carrying amount of goodwill, by reporting segment, are as follows (in thousands):
Workplace FurnishingsResidential Building ProductsTotal
Balance as of December 28, 2019   
Goodwill$128,677 $186,662 $315,339 
Accumulated impairment losses(44,376)(143)(44,519)
Net goodwill balance as of December 28, 201984,301 186,519 270,820 
Goodwill acquired 10,422 10,422 
Impairment losses(21,607) (21,607)
Foreign currency translation adjustment28  28 
Balance as of September 26, 2020  
Goodwill128,705 197,084 325,789 
Accumulated impairment losses(65,983)(143)(66,126)
Net goodwill balance as of September 26, 2020$62,722 $196,941 $259,663 

In the first quarter of 2020, the Corporation recorded goodwill impairment charges of $14.1 million and $7.5 million, respectively, related to two reporting units in the workplace furnishings segment.

See "Note 3. Acquisitions" for additional information regarding goodwill acquired in the year-to-date period.

Definite-lived intangible assets
The table below summarizes amortizable definite-lived intangible assets, which are reflected in "Goodwill and Other Intangible Assets" in the Condensed Consolidated Balance Sheets (in thousands):
September 26, 2020