HNI Corporation Annual Report 2006

FY2006 Annual Report · HNI Corporation
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408 East Second Street
Muscatine, Iowa 52761
www.hnicorp.com

HNI CORPORATION 2006 Annual Report

HNI Corporation provides products and solutions for the home 

and workplace environments. We are the second-largest ofﬁ ce 

furniture manufacturer in the world and the nation’s leading 

manufacturer and marketer of gas and wood-burning ﬁ replaces. 

The Corporation’s stock trades on the NYSE under the symbol HNI.

2006 proved to be a challenge.

Unprecedented increases in raw material costs, a dramatic 

decline in new housing starts, intense competition – 2006 

presented challenges that tested us as we haven’t been 

tested in quite a while. The challenges had an impact – 

our proﬁ ts declined.

We were built for challenges like these. With a culture 

centered on initiative, improvement and innovation, a 

business model designed for maximum agility and a clear 

vision, we moved steadily forward.

 We remain focused on the long-term strategy. Our people 

are focused. Our business model is strong. We see a future 

that continues to be bright with opportunity.

HNI CORPOR ATION  2006 ANNUAL REPORT 

1

 
FINANCIAL HIGHLIGHTS

(Amounts in thousands, except for per share data)

2006

2005

Change

Income Statement Data

Net sales

Gross proﬁ t

Selling and administrative expenses

Restructuring related charges

Operating income

Income from continuing operations

Net income

Net income as a % of:

  Net sales

  Average shareholders’ equity

Per common share:

$2,679,803

$2,433,316

926,921

717,676

2,829

206,416

129,672

123,375

4.6%

22.6%

883,841

663,667

3,462

216,712

138,166

137,420

5.6%

21.8%

  Net income from continuing operations – basic

$÷÷÷÷«2.59

$÷÷÷÷«2.53

  Net income – basic

  Net income from continuing operations – diluted

  Net income – diluted

  Cash dividends

Balance Sheet Data

Total assets

Long-term debt and capital lease obligations

Debt/capitalization ratio

Shareholders’ equity

Working capital

Other Data

Capital expenditures

Cash ﬂ ow from operations

Weighted-average shares outstanding during year – basic

Weighted-average shares outstanding during year – diluted

Share repurchases

Price/earnings ratio at year-end

Number of shareholders at year-end

Members (employees) at year-end

2.46

2.57

2.45

0.72

2.51

2.51

2.50

0.62

$1,226,359

$1,140,271

285,974

38.6%

103,869

19.5%

$÷«495,919

$÷«593,944

145,632

128,424

$÷÷«58,921

$÷÷«38,912

159,602

50,059,443

50,374,758

$÷«203,646

18

7,475

14,170

201,009

54,649,199

55,033,741

$÷«202,217

22

6,702

12,504

10.1%

4.9%

8.1%

–18.3%

–4.8%

–6.1%

–10.2%

–

–

2.4%

–2.0%

2.4%

–2.0%

16.1%

7.5%

175.3%

–

–16.5%

13.4%

51.4%

–20.6%

–8.4%

–8.5%

0.7%

–

11.5%

13.3%

Net Sales
(in millions)

Net Income
(in millions)

Return on Average
Shareholders’ Equity
(percent)

Diluted Earnings
per Share
(dollars)

2
9
6

,

1

2
0
0
2

6
5
7

,

1

3
0
0
2

3
9
0

,

2

4
0
0
2

1
5
4

,

2

5
0
0
2

0
8
6

,

2

6
0
0
2

1
9

2
0
0
2

8
9

3
0
0
2

4
1
1

4
0
0
2

7
3
1

5
0
0
2

3
2
1

6
0
0
2

7
.
4
1

2
0
0
2

5
.
4
1

3
0
0
2

5
.
6
1

4
0
0
2

8
.
1
2

5
0
0
2

6
.
2
2

6
0
0
2

5
5
.
1

2
0
0
2

8
6
.
1

3
0
0
2

7
9
.
1

4
0
0
2

0
5
.
2

5
0
0
2

5
4
.
2

6
0
0
2

2 

HNI CORPOR ATION  2006 ANNUAL REPORT 

DEAR SHAREHOLDERS

While we’re not satisﬁ ed with our results… 
we are competing well in our markets, and our 
growth strategies are working.

WE’RE MANAGING THROUGH COST AND ECONOMIC PRESSURES.

structure and continue to resize the hearth business 

We were hit by a record rise in the cost of materials 

to reﬂ ect lower anticipated demand levels.

in our ofﬁ ce furniture business. This was particularly 

tough because close to half of our furniture business  

is in the catalog channel. It takes longer to put price 

WE DELIVERED ENCOURAGING TOP-LINE AND MARKET SHARE GROWTH.

Our businesses are strong and competitive. 

increases into effect in this channel, resulting in a 

Industry growth in ofﬁ ce furniture was robust 

signiﬁ cant lag time between input cost increases 

across all sectors, and our sales more than kept pace. 

and price realization. We started to close the gap 

We continue to compete well in all of our markets 

by the fourth quarter.

and achieve market share gains. Our strategic 

In the hearth business, an unprecedented decrease 

in new housing starts negatively impacted our 

results. After a long run of new construction in 

investments made during the year performed at or 

above expectations. We also launched many new 

products across the business in 2006.

housing – close to a decade of industry growth – 

We’re the market leader in hearth products with 

the market declined more severely than anyone 

the best brands and the most competitive value 

anticipated. We have aggressively adjusted our cost 

propositions. Despite the decline in housing starts, 

HNI CORPOR ATION  2006 ANNUAL REPORT 

3

 
Stan A. Askren

C H A I R M A N ,   P R E S I D E N T   A N D 

C H I E F   E X E C U T I V E   O F F I C E R

we grew share in the new construction segment, 

The blend of HNI’s best practices in lean 

making major inroads with the nation’s largest 

manufacturing and marketing with Lamex’s 

builders. We also continued to grow our remodel/

local market knowledge and product line is 

retroﬁ t business.

already proving to be a potent combination.

WE KEPT OUR FOCUS ON SHAREHOLDER RETURN.  

We continued our strategy to selectively acquire 

As we navigated through 2006 challenges, we 

contract ofﬁ ce furniture distribution businesses to 

continued to invest to create both short- and 

accelerate Allsteel’s growth in large markets. Going 

long-term value. We announced a 16.1 percent 

forward, we’ll look for other opportunities, market 

increase in our quarterly dividend and continued 

by market, to grow in this way. We also continued 

an aggressive share buyback program, repurchasing 

making investments in developing new vertical 

4.3 million shares. Since 2003, we repurchased 

markets. 

approximately 20 percent of our outstanding shares.

WE WERE BUILT FOR CHALLENGES LIKE THESE.

We stayed focused on long-term growth and 

With our emphasis on agility, ﬂ exibility and 

shareholder value creation by making strategic 

adaptability, our model serves us well in any 

investments in many areas. We entered the large and 

economic environment. This is where our culture 

very fast-growing China ofﬁ ce furniture market by 

and our values shine.  

acquiring the leading company there, Lamex.

4 

HNI CORPOR ATION  2006 ANNUAL REPORT 

The strategic investments we’ve made are the right choices 
for our business. We’re going to stay focused on the long term 
while we continue to meet short-term challenges head on.

We will continue to leverage HNI’s unique culture 

We are also pleased to have named Mary H. Bell, 

and business model to drive continuous improvement. 

who is a Vice President of Caterpillar Inc. and 

We’re going to continue to emphasize lean. The lean 

Chairman and President of Caterpillar Logistics 

journey is never-ending. 

Services, Inc., to HNI’s Board of Directors. 

IT’S A LONG-TERM STRATEGY. 

We welcome Mary to the team.  

Our goal is aggressive, proﬁ table, sustainable growth.  

The coming year will be an exciting one. I have 

We have the strong fundamentals to achieve this 

a great deal of conﬁ dence in our members and 

objective. We’re going to work diligently to ensure 

management team, and I believe that working 

that we seize the opportunities ahead.     

together, we can drive continued success in 

THANK YOU.

I’d like to take this opportunity to thank all those 

who are a critical part of our current and future 

performance. We’re grateful to our members for 

our markets.

their dedication and hard work over the past year; 

to our customers, for the trust they put in us; and 

Stan A. Askren
C H A I R M A N ,   P R E S I D E N T   A N D 

C H I E F   E X E C U T I V E   O F F I C E R

to our directors, for their support and counsel.

HNI CORPOR ATION  2006 ANNUAL REPORT 

5

 
HNI is unique.

Our culture, business model, 

growth strategy and business mix 

differentiate us in the marketplace. 

These elements together form a 

solid foundation for strong, 

sustained performance over the 
long term.

6 

HNI CORPOR ATION  2006 ANNUAL REPORT 

Ours is a culture of owners.

We call our employees members, apt because virtually 

everyone who works here owns stock and shares in the proﬁ ts. 

That creates a workplace of performers and problem solvers, 

of shared risk and shared reward, a place where people aren’t 

just doing a job, they’re helping to build a company. 

A companywide attitude we call constructive discontent 

fuels Rapid Continuous Improvement (RCI), a formal HNI 

process designed to drive positive, ongoing change across 

every aspect of what we do. To our way of thinking, culture is 

key because it drives behaviors, and behaviors drive results.

HNI CORPOR ATION  2006 ANNUAL REPORT 

7

 
Our business model is like 
no other in our competitive set.

We call it split and focus – a unique decentralized philosophy 

in which independent business units each focus on a distinct 

group of end users in ofﬁ ce furniture and hearth products. 

Each has its own management team, strategic plan and tailored 

selling, fulﬁ llment and ﬁ nancial models to stay close to the 

customer and respond quickly to challenges and opportunities. 

At the same time, business units communicate and collaborate 

to beneﬁ t from collective scale in purchasing, IT, logistics and 

the sharing of best practices.

8 

HNI CORPOR ATION  2006 ANNUAL REPORT 

Core Plus: 
the HNI growth strategy.

We seek to grow aggressively and proﬁ tably overall by 

building market power, improving our enterprise, and 

enhancing our culture and capabilities. In Core Plus, we 

extract growth from our established businesses (the core) 

with an intense end-user focus that provides insights to 

guide branding, selling and marketing, and new product 

development. In the “plus” side of the strategy, we seek and 

develop new growth drivers adjacent to our core, whether 

new vertical markets, businesses, distribution models or 

geographic regions.

HNI CORPOR ATION  2006 ANNUAL REPORT 

9

 
Our business mix gives us 
broad market coverage in ofﬁ ce 
furniture and hearth products.

HNI’s business units focus on distinct end-user groups 

covering a wide spectrum within ofﬁ ce furniture and hearth 

products, from small businesses to large corporations, 

individual business people to designers and architects, large 

builders to individual homeowners. With strong brands and 

product lines that marry high design or traditional elegance 

with quality and durability, each HNI business unit shares 

a commitment to grow by delivering a winning buying 

experience to each customer.

10  HNI CORPOR ATION  2006 ANNUAL REPORT 

®

®
®

®

Allsteel Inc.  Purposefully designed, 

The HON Company  A full line of high- 

The Gunlocke Company, LLC  

relevant products for large corporate 

quality solutions designed for the small 

An industry leader in the design, 

and institutional clients and their 

and medium-sized workplace.

manufacture and marketing of premium 

design consultants.

wood ofﬁ ce furniture.

™

®

® 

Paoli Inc.  Wood desks and seating 

Lamex  China’s leading manufacturer 

Maxon Furniture Inc. Ofﬁ ce furniture 

preferred by designers and corporations 

and marketer of a full range of ofﬁ ce 

systems manufacturer with industry- 

for moderate pricing and responsive 

furniture solutions.

leading planning and design technologies 

service.

for mid-sized businesses.

™

™

™

basyx  A complete line of quality ofﬁ ce 

Omni Workspace Company  

Fireside Hearth & Home  America’s 

furniture for small business, at an 

Providing ofﬁ ce furniture facility 

largest provider of hearth products and 

exceptional price.

services across the United States.

services to consumers and builders.

®

™

®

Heatilator  Since 1927, the most 

Heat & Glo  Innovation leader in gas 

Quadra-Fire  Performance, durability 

preferred ﬁ replace brand among home-

hearth systems – the industry’s most 

and power in the wood, gas and 

builders.

award-winning brand.

pellet fuel categories.

HNI CORPOR ATION  2006 ANNUAL REPORT  11

 
MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPER ATIONS

The following discussion of the Corporation’s historical results of 
operations and of its liquidity and capital resources should be read 
in conjunction with the Consolidated Financial Statements of the 
Corporation and related notes. 

Overview

The Corporation has two reportable core operating segments: ofﬁ ce 
furniture and hearth products. The Corporation is the second largest 
ofﬁ ce furniture manufacturer in the world and the nation’s leading 
manufacturer and marketer of gas and wood burning ﬁ replaces. The 
Corporation utilizes its split and focus, decentralized business model 
to deliver value to its customers with various brands and selling 
models. The Corporation is focused on growing its existing businesses 
while seeking out and developing new opportunities for growth.

During 2006, the ofﬁ ce furniture industry experienced solid growth 
across all sectors that positively impacted the Corporation’s ofﬁ ce 
furniture segment. The housing market experienced its largest annual 
decline since the recession in 1991, which negatively impacted the 
Corporation’s hearth products segment during the second half of 
the year. 

In 2006, the Corporation experienced strong growth across its 
multiple brands and product lines in the ofﬁ ce furniture segment. 
Sales beneﬁ ted from price increases that were implemented in 
2005 and 2006 as well as acquisitions completed over the past two 
years. Despite the decline in housing starts, the Corporation 
increased market share in the new construction and remodel/retroﬁ t 
business. The Corporation experienced a signiﬁ cant rise in the cost 
of materials during 2006. The Corporation completed the acquisition 
of Lamex, a Chinese manufacturer and marketer of ofﬁ ce furniture as 
well as other small acquisitions to support speciﬁ c company strategies 
in both segments of its business. The Corporation made the decision 
to shut down one ofﬁ ce furniture facility and completed the shutdown 
of two ofﬁ ce furniture facilities which began in 2005. The Corporation 
also made the decision to sell a small non-core component of its 
ofﬁ ce furniture segment. Revenues and expenses associated with 
this component are presented as discontinued operations for all 
periods presented. The Corporation increased its debt levels during 
2006, consistent with its strategy of maintaining a leaner, more 
efﬁ cient capital structure.

Critical Accounting Policies and Estimates

G E N E R AL
Management’s Discussion and Analysis of Financial Condition and 
Results of Operations is based upon the Consolidated Financial 
Statements, which have been prepared in accordance with Generally 
Accepted Accounting Principles (“GAAP”). The preparation of these 
ﬁ nancial statements requires management to make estimates and 
assumptions that affect the reported amounts of assets, liabilities, 
revenue and expenses, and related disclosure of contingent assets 
and liabilities. Management bases its estimates on historical 

experience and on various other assumptions that are believed 
to be reasonable under the circumstances, the results of which 
form the basis for making judgments about the carrying values of 
assets and liabilities that are not readily apparent from other sources. 
Senior management has discussed the development, selection, 
and disclosure of these estimates with the Audit Committee of our 
Board of Directors. Actual results may differ from these estimates 
under different assumptions or conditions.

An accounting policy is deemed to be critical if it requires an 
accounting estimate to be made based on assumptions about 
matters that are uncertain at the time the estimate is made, and 
if different estimates that reasonably could have been used, or 
changes in the accounting estimates that are reasonably likely to 
occur periodically, could materially impact the ﬁ nancial statements. 
Management believes the following critical accounting policies 
reﬂ ect its more signiﬁ cant estimates and assumptions used in the 
preparation of the Consolidated Financial Statements.

Fiscal year end – The Corporation follows a 52/53-week ﬁ scal year 
which ends on the Saturday nearest December 31. Fiscal year 2006 
ended on December 30, 2006; ﬁ scal 2005 ended on December 31, 
2005; and ﬁ scal 2004 ended on January 1, 2005. The ﬁ nancial 
statements for ﬁ scal years 2006, 2005, and 2004 are all on a 52-week 
basis. A 53-week year occurs approximately every sixth year.

Revenue recognition – The Corporation normally recognizes revenue 
upon shipment of goods to customers. In certain circumstances, the 
Corporation does not recognize revenue until the goods are received 
by the customer or upon installation or customer acceptance based on 
the terms of the sale agreement. Revenue includes freight charged 
to customers; related costs are included in selling and administrative 
expense. Rebates, discounts, and other marketing program expenses 
directly related to the sale are recorded as a reduction to sales. 
Marketing program accruals require the use of management 
estimates and the consideration of contractual arrangements subject 
to interpretation. Customer sales that reach certain award levels can 
affect the amount of such estimates, and actual results could differ 
from these estimates. Future market conditions may require 
increased incentive offerings, possibly resulting in an incremental 
reduction in net sales at the time the incentive is offered.

Allowance for doubtful accounts receivable – The allowance for 
doubtful accounts receivable is based on several factors, including 
overall customer credit quality, historical write-off experience, and 
speciﬁ c account analysis that projects the ultimate collectibility of 
the account. As such, these factors may change over time causing 
the Corporation to adjust the reserve level accordingly. 

When the Corporation determines that a customer is unlikely to pay, 
a charge is recorded to bad debt expense in the income statement 
and the allowance for doubtful accounts is increased. When the 
Corporation is certain the customer cannot pay, the receivable is 
written off by removing the accounts receivable amount and reducing 
the allowance for doubtful accounts accordingly.

12  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPER ATIONS

As of December 30, 2006, there was approximately $329 million 
in outstanding accounts receivable and $13 million recorded in the 
allowance for doubtful accounts to cover potential future customer 
non-payments. However, if economic conditions deteriorate 
signiﬁ cantly or one of the Corporation’s large customers declares 
bankruptcy, a larger allowance for doubtful accounts might be 
necessary. The allowance for doubtful accounts was approximately 
$12 million at year end 2005 and $11 million at year end 2004.

Inventory valuation – The Corporation valued 86% of its inventory 
by the last-in, ﬁ rst-out (LIFO) method at December 30, 2006. 
Additionally, the Corporation evaluates inventory reserves in terms 
of excess and obsolete exposure. This evaluation includes such 
factors as anticipated usage, inventory turnover, inventory levels, 
and ultimate product sales value. As such, these factors may 
change over time causing the Corporation to adjust the reserve 
level accordingly. The Corporation’s reserves for excess and obsolete 
inventory were approximately $8 million at year-end 2006, 2005, 
and 2004. 

Long-lived assets – The Corporation reviews long-lived assets for 
impairment as events or changes in circumstances occur indicating 
that the amount of the asset reﬂ ected in the Corporation’s balance 
sheet may not be recoverable. The Corporation compares an 
estimate of undiscounted cash ﬂ ows produced by the asset, or 
the appropriate group of assets, to the carrying value to determine 
whether impairment exists. The estimates of future cash ﬂ ows 
involve considerable management judgment and are based upon 
the Corporation’s assumptions about future operating performance. 
The actual cash ﬂ ows could differ from management’s estimates 
due to changes in business conditions, operating performance, 
and economic conditions. Asset impairment charges associated 
with the Corporation’s restructuring activities are discussed in 
Restructuring Related Charges in the Notes to Consolidated Financial 
Statements.

The Corporation’s continuous focus on improving the manufacturing 
process tends to increase the likelihood of assets being replaced; 
therefore, the Corporation is constantly evaluating the expected useful 
lives of its equipment which can result in accelerated depreciation. 

Goodwill and other intangibles – In accordance with the Statement 
of Financial Accounting Standards (“SFAS”) No. 142, the Corporation 
evaluates its goodwill for impairment on an annual basis based on 
values at the end of third quarter or whenever indicators of impairment 
exist. The Corporation has evaluated its goodwill for impairment and 
has determined that the fair value of the reporting units included in 
continuing operations exceeded their carrying value, so no impairment 
of goodwill was recognized in continuing operations for the period 
ending December 30, 2006. The Corporation did record an impairment 
charge of $5.7 million related to its discontinued operations. Goodwill 
of approximately $252 million is shown on the consolidated balance 
sheet as of the end of ﬁ scal 2006.

Management’s assumptions about future cash ﬂ ows for the 
reporting units require signiﬁ cant judgment and actual cash ﬂ ows 
in the future may differ signiﬁ cantly from those forecasted today. 

The estimated future cash ﬂ ow for any reporting unit could be 
reduced by 35% without decreasing the fair value to less than the 
carrying value.

The Corporation also determines the fair value of indeﬁ nite lived 
trademarks on an annual basis or whenever indication of impairment 
exist. The Corporation has evaluated its trademarks for impairment 
and recorded an impairment charge of $1.0 million in 2006 and 
$0.5 million in 2005 related to two trademarks associated with its 
discontinued operations where the carrying value exceeded the 
current fair market value. The carrying value of the trademarks was 
approximately $43.2 million at the end of ﬁ scal 2006.

Self-insured reserves – The Corporation is partially self-insured 
or carries high deductibles for general, auto, and product liability, 
workers’ compensation, and certain employee health beneﬁ ts. 
The general, auto, product, and workers’ compensation liabilities 
are managed via a wholly-owned insurance captive; the related 
liabilities are included in the accompanying ﬁ nancial statements. 
The Corporation’s policy is to accrue amounts in accordance with 
the actuarially determined liabilities. The actuarial valuations are 
based on historical information along with certain assumptions about 
future events. Changes in assumptions for such matters as number 
of claims, medical cost inﬂ ation, and magnitude of change in actual 
experience development could cause these estimates to change in 
the near term. 

Stock-based compensation – The Corporation adopted the provisions 
of Statement of Financial Accounting Standards No. 123(R), “Share-
Based Payment” (“SFAS 123(R)”), beginning January 1, 2006, 
using the modiﬁ ed prospective transition method. This statement 
requires the Corporation to measure the cost of employee services 
in exchange for an award of equity instruments based on the grant-
date fair value of the award and to recognize cost over the requisite 
service period. This resulted in a cost of approximately $3 million 
in 2006. In 2005 and 2004 the Corporation accounted for its stock 
option plan using Accounting Principles Board Opinion (“APB”) 
No. 25, “Accounting for Stock Issued to Employees,” which resulted 
in no charge to earnings when options are issued at fair market 
value. If the fair value method had been adopted previously the 
Corporation’s net income for 2005 and 2004 would have been 
reduced by approximately $2 million and $5 million respectively. 

Income taxes – Deferred income taxes are provided for the temporary 
differences between the ﬁ nancial reporting basis and the tax basis 
of the Corporation’s assets and liabilities. The Corporation provides 
for taxes that may be payable if undistributed earnings of overseas 
subsidiaries were to be remitted to the United States, except for 
those earnings that it considers to be permanantly reinvested.

Recent Accounting Pronouncements

See the Notes to Consolidated Financial Statements for a full 
description of recent accounting pronouncements including the 
respective expected dates of adoption and effects on results of 
operations and ﬁ nancial conditions.

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  13

 
MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPER ATIONS

Results of Operations

The following table sets forth the percentage of consolidated net 
sales represented by certain items reﬂ ected in the Corporation’s 
statements of income for the periods indicated.

Fiscal

Net sales
Cost of products sold

Gross proﬁ t
Selling and administrative expenses
Restructuring related charges

Operating income
Interest income (expense) net

Earnings from continuing operations 
before income taxes and minority 
interest
Income taxes
Minority interest in earnings of 

subsidiary

Income from continuing operations

2006

100.0%
65.4

34.6
26.8
0.1

7.7
(0.5)

7.2
2.4

0.0

4.8%

2005

100.0%
63.7

36.3
27.3
0.1

8.9
0.0

8.9
3.2

0.0

5.7%

2004

100.0%
64.0

36.0
27.4
0.0

8.6
0.0

8.6
3.1

0.0

5.5%

N E T  SALES
Net sales during 2006 were $2.7 billion, an increase of 10.1 percent, 
compared to net sales of $2.4 billion in 2005. The increase in 2006 
was due to $113 million of incremental sales from acquisitions, 
$43 million in price increases implemented in 2005 and 2006, solid 
growth across all brands in the ofﬁ ce furniture segment offset by 
lower volume in the hearth products segment. Net sales during 2005 
were $2.4 billion, an increase of 16.7 percent, compared to net sales 
of $2.1 billion in 2004. The increase in 2005 was due to $84 million 
of incremental sales from acquisitions, $112 million in price increases 
implemented in 2004 and early 2005, and strong volume across all 
brands in both the ofﬁ ce furniture and hearth products segments. 

G R OS S  PR O F I T
Gross proﬁ t as a percent of net sales decreased 1.7 percentage 
points in 2006 as compared to 2005 due to broad based material 
price increases in both segments and lower volume in the hearth 
products segment. Gross proﬁ t as a percent of net sales increased 
0.3 percentage points in 2005 as compared to ﬁ scal 2004 due to 
ongoing cost reduction initiatives in addition to the beneﬁ t of price 
realization partially offsetting the signiﬁ cant steel and other material 
price increases experienced over the previous two years. 

S E LL I N G  AN D  AD M I N I ST R AT I V E  E XPE N S ES
Selling and administrative expenses, excluding restructuring 
charges, increased 8.1 percent and 16.4 percent in 2006 and 2005, 
respectively. The increase in 2006 was due to $40 million of 
additional costs from acquisitions; increased freight and distribution 
costs of $33 million due to volume, rate increases and fuel 
surcharges; $3.2 million of stock based compensation expense due 
to the adoption of SFAS 123(R) and $1.6 million of costs to resize the 
hearth business. These increases were partially offset by a gain on 
the sale of a vacated facility, lower incentive compensation expense 
and cost containment measures. The increase in 2005 was due to 

$26 million of additional costs from acquisitions; increased freight 
and distribution costs of $34 million due to volume, rate increases 
and fuel surcharges; investments in selling and marketing initiatives 
and product launches; and increased proﬁ t-sharing and incentive 
compensation expense due to strong results. 

Selling and administrative expenses include freight expense for 
shipments to customers, product development costs, and amortization 
expense of intangible assets. Refer to Selling and Administrative 
Expenses in the Notes to Consolidated Financial Statements for 
further information regarding the comparative expense levels for 
these major expense items.

R EST RUC T UR I N G  C H ARGES
As a result of the Corporation’s ongoing business simpliﬁ cation and 
cost reduction initiatives, management made the decision in fourth 
quarter 2006 to close an ofﬁ ce furniture facility in Monterrey, Mexico 
and consolidate production into other locations. In connection with 
the shutdown of the Monterrey facility, the Corporation recorded 
$0.8 million of severance costs for approximately 200 members. 
The closure and consolidation will be completed during the ﬁ rst half 
of 2007. The Corporation will incur additional charges of approximately 
$3.0 million in connection with the closure.

During 2006, the Corporation completed the shutdown of two ofﬁ ce 
furniture facilities which began in the third quarter of 2005. The 
facilities were located in Kent, Washington and Van Nuys, California 
and production from these facilities was consolidated into other 
locations. Pre-tax charges for these closures in 2005 totaled 
$4.1 million which included $0.6 million of accelerated depreciation 
of machinery and equipment recorded in cost of sales, $1.2 million 
of severance, $0.4 million of pension related expenses, and 
$1.9 million of facility exit, production relocation, and other costs 
which were recorded as restructuring costs. In connection with 
those shutdowns, the Corporation incurred $2.0 million of current 
period charges during 2006.

During 2003, the Corporation closed two ofﬁ ce furniture facilities 
located in Hazleton, Pennsylvania, and Milan, Tennessee and 
consolidated production into other manufacturing locations. In 
connection with these closures, the Corporation incurred $1.2 million 
of current period charges during 2004.

O PE R AT I N G  I N C O M E 
Operating income was $206 million in 2006, a decrease of 
4.8 percent compared to $216 million in 2005. The decrease in 
2006 is due to lower volume in the hearth products segment, broad 
based material cost increases, increased freight costs, and stock 
compensation expense due to the adoption of SFAS 123(R) offset 
by higher volume and price increases in the ofﬁ ce furniture segment. 
Operating income was $216 million in 2005, an increase of 
20.8 percent compared to $178 million in 2004. The increase in 2005 
was due to increased sales volume in both segments, and price 
increases, offset by increased material costs, investments in selling 
and marketing initiatives and product launches, increased freight 
costs, and restructuring costs due to plant closures and consolidations. 

14  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPER ATIONS

I N C O M E  F R O M  C O N T I N U I N G  O PE R AT I O N S
Income from continuing operations in 2006, which excludes the 
Corporation’s discontinued business (see Discontinued Operations in 
the Notes to Consolidated Financial Statements), was $130 million 
compared with $138 million in 2005, a 6.1 percent decrease. Income 
from continuing operations was negatively impacted by increased 
interest expense of $12 million on moderate debt levels, consistent 
with the Corporation’s strategy of maintaining a leaner, more efﬁ cient 
capital structure. The Corporation completed a detailed analysis of all 
deferred tax accounts, and determined that net deferred income tax 
liabilities were overstated. The overstatement primarily related to a 
deferred tax liability associated with property, plant and equipment, 
partially offset by an overstated deferred tax asset associated with 
inventory. In analyzing the difference, the Corporation determined 
that the items originated in ﬁ scal years prior to 2002. To correct this 
difference, the Corporation reduced income tax expense in the fourth 
quarter of 2006 by $4.1 million. The effect of this adjustment is to 
reduce the effective income tax rate related to continuing operations 
by 2.1 percentage points for the year and increase earnings per share 
from continuing operations by $0.08. Income from continuing 
operations increased 21.6 percent to $138 million in 2005 compared 
to $114 million in 2004. Income from continuing operations in 2005 
was favorably impacted by a decrease in the effective tax rate to 
36.0 percent in 2005 from 36.5 percent in 2004 due to beneﬁ ts 
resulting from the implementation of the American Jobs Creation Act 
of 2004. Income from continuing operations in 2005 was negatively 
impacted by increased interest expense due to a planned increase in 
debt. Income from continuing operations per diluted share increased 
by 2.4 percent to $2.57 in 2006 including a positive tax adjustment 
of $0.08 per share and by 27.4 percent to $2.51 in 2005. 

D I SC O N T I N UE D  O PE R AT I O N S
During December 2006, the Corporation committed to a plan 
to sell a small non-core component of its ofﬁ ce furniture segment. 
The Corporation reduced the assets to the fair market value and has 
classiﬁ ed them as held for sale. Revenues and expenses associated 
with this component are presented as discontinued operations for all 
periods presented. This operation was formerly reported within the 
Ofﬁ ce Furniture segment. Refer to Discontinued Operations in the 
Notes to Consolidated Financial Statements for further information.

N E T  I N C O M E
Net income decreased 10.2 percent to $123 million in 2006 compared 
to $137 million in 2005 which was an increase of 21.0 percent 
compared to 2004. Net income per diluted share decreased by 
2.0 percent to $2.45 in 2006 and increased 26.9 percent to $2.50 in 
2005. Net income per diluted share was positively impacted $0.21 
per share in 2006 and $0.11 per share in 2005 by the Corporation’s 
share repurchase program.

O FF I C E  FU R N I T U R E
Ofﬁ ce furniture comprised 78 percent, 76 percent, and 75 percent 
of consolidated net sales for 2006, 2005, and 2004, respectively. 
Net sales for ofﬁ ce furniture increased 13 percent in 2006 to 
$2.1 billion compared to $1.8 billion in 2005. The increase in 2006 
was due to approximately $95 million from the Corporation’s 
acquisitions and organic growth of $144 million or 7.8 percent, 

including increased price realization of $41 million. Net sales for ofﬁ ce 
furniture increased 18 percent in 2005 to $1.8 billion compared to 
$1.6 billion in 2004. The increase in 2005 was due to approximately 
$58 million of incremental sales from the Corporation’s acquisitions 
and organic growth of $219 million or 14.0 percent, including 
increased price realization of $91 million. The Business and 
Institutional Furniture Manufacturer’s Association (“BIFMA”) 
reported 2006 shipments up 7 percent and 2005 shipments up 
13 percent. The Corporation believes it was able to continue to 
outperform the industry by providing strong brands, innovative 
products and services, and value to end-users.

Operating proﬁ t as a percent of net sales was 8.8 percent in 2006, 
9.7 percent in 2005, and 9.9 percent in 2004. The decrease in 
operating margins in 2006 was due to higher material, transportation 
and other input costs offset partially by price realization, lower 
restructuring charges and a gain on the sale of a vacant facility. 
Acquisitions also negatively impacted proﬁ tability as anticipated. 
Included in 2005 were $4.1 million of net pre-tax charges related to 
the closure of two ofﬁ ce furniture facilities, which impacted operating 
margins by 0.2 percentage points. In addition the Corporation 
continued to make investments in the areas of selling, product 
launches, and strategic distribution acquisitions that had an expected 
negative impact on proﬁ tability in 2005. 

H E A R T H  PR O DUC T S
Hearth products sales increased 1 percent in 2006 to $603 million 
compared to $595 million in 2005 due to the contribution from new 
acquisitions of $18 million. The decrease in organic sales was due 
to a dramatic decline in the second half of 2006 as a result of the 
largest annual decline in the housing market since the 1991 recession. 
Hearth products sales increased 14 percent in 2005 to $595 million 
compared to $523 million in 2004. The growth in 2005 was 
attributable to strong housing starts, new product introductions, 
contributions from new acquisitions as well as price increases. 
Acquisitions accounted for $26 million, or approximately 
5 percentage points, of the increase in 2005.

Operating proﬁ t as a percent of sales in 2006 was 9.7 percent 
compared to 12.6 percent in 2005, and 11.9 percent in 2004, 
respectively. The decrease in operating margins in 2006 was due 
to lower overall volume, higher mix of lower margin remodel/retroﬁ t 
business and increased material and transportation costs. The 
increase in operating margins in 2005 was due to volume and 
increased price realization as well as continued focus on cost 
improvements. 

Liquidity and Capital Resources

During 2006, cash ﬂ ow from operations was $159.6 million, which 
along with available cash and short-term investments, funds from 
stock option exercises under employee stock plans, and proceeds 
from senior unsecured notes and the Corporation’s revolving credit 
agreement, provided the funds necessary to meet working capital 
needs, pay for strategic acquisitions, invest in capital improvements, 
repurchase common stock, and pay increased dividends.

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  15

 
MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPER ATIONS

AC QU I S I T I O N S
During 2006, the Corporation completed the acquisition of Lamex, a 
privately held Chinese manufacturer and marketer of ofﬁ ce furniture, 
as well as a small ofﬁ ce furniture services company, a small ofﬁ ce 
furniture dealer and a small manufacturer of ﬁ replace facings for a 
total combined purchase price of approximately $78 million. During 
2005, the Corporation completed the acquisition of four small ofﬁ ce 
furniture services companies, three ofﬁ ce furniture dealers and three 
small hearth distributors for a total combined purchase price of 
approximately $35 million. During 2004, the Corporation completed 
three ofﬁ ce furniture business acquisitions, the acquisitions of two 
hearth products distributors, as well as the acquisitions of a strategic 
sourcing entity for a combined purchase price of approximately 
$135 million. Each of the transactions was paid in cash and the results 
of the acquired entities have been included in the Consolidated 
Financial Statements since the date of acquisition. The Corporation 
did increase its borrowings under the revolving credit facility to fund 
the 2006 acquisitions.

LO N G -TE R M  DE BT
Long-term debt, including capital lease obligations, was 37% of total 
capitalization as of December 30, 2006, 15% as of December 31, 
2005, and 1% as of January 1, 2005. The increase in long-term debt 
during 2006 and 2005 was due to the Corporation issuing $150 million 
of senior unsecured notes through the private placement debt 
market and utilizing its revolving credit facility to fund acquisitions 
and share repurchases in accordance with its strategy of operating 
with a more efﬁ cient capital structure. On January 28, 2005, the 
Corporation replaced a $136 million revolving credit facility entered 
into on May 10, 2002 with a new revolving credit facility that provided 
for a maximum borrowing of $150 million subject to increase (to a 
maximum amount of $300 million) or reduction from time to time 
according to the terms of the agreement. On December 22, 2005, 
the Corporation increased the facility to the maximum amount of 
$300 million. On April 6, 2006, the Corporation reﬁ nanced $150 million 
of borrowings outstanding under its revolving credit facility with 
5.54 percent ten-year unsecured Senior Notes due in 2016 issued 
through the private placement debt market. Additional borrowing 
capacity of $156 million, less amounts used for designated letters 
of credit, is available through this revolving bank credit agreement in 
the event cash generated from operations should be inadequate to 
meet future needs. The Corporation does not expect future capital 
resources to be a constraint on planned growth. Certain of the 
Corporation’s credit agreements include covenants that limit the 
assumption of additional debt and lease obligations. The Corporation 
has been, and currently is, in compliance with the covenants related 
to the debt agreements.

Cash, cash equivalents, and short-term investments totaled 
$37.3 million at the end of 2006 compared to $84.7 million at the 
end of 2005 and $36.5 million at the end of 2004. These funds, 
coupled with cash from future operations and additional debt, if 
needed, are expected to be adequate to ﬁ nance operations, planned 
improvements, and internal growth. The Corporation is not presently 
aware of any known trends or demands, commitments, events, or 
uncertainties that are reasonably likely to result in its liquidity 
increasing or decreasing in any material way.

The Corporation places special emphasis on the management 
and control of its working capital with a particular focus on trade 
receivables and inventory levels. The success achieved in managing 
receivables is in large part a result of doing business with quality 
customers and maintaining close communication with them. Trade 
receivables at year-end 2006 increased from the prior year due 
to the Corporation’s new acquisitions and increased sales. The 
Corporation’s inventory turns were 18, 18, and 21, for 2006, 2005, 
and 2004, respectively. The Corporation is increasing its foreign-
sourced raw materials and ﬁ nished goods, which while reducing 
inventory turns does have a favorable impact on the overall total cost.

I N V EST M E N T S
Management classiﬁ es investments in marketable securities at the 
time of purchase and reevaluates such classiﬁ cation at each balance 
sheet date. Equity securities are classiﬁ ed as available-for-sale and 
are stated at current market value with unrealized gains and losses 
included as a separate component of equity, net of any related tax 
effect. Debt securities are classiﬁ ed as held-to-maturity and are stated 
at amortized cost. In 2004 the Corporation made an investment, 
which was excluded from the scope of Statement of Financial 
Accounting Standards No. 115 “Accounting for Certain Investments 
in Debt and Equity Securities” (“SFAS No. 115”) due to the fact that 
the investment’s per unit value in a master fund was not readily 
available. Therefore, this investment was recorded at cost. The 
weighted average cost method was used to determine realized gains 
and losses on the trade date. In 2005, the Corporation liquidated this 
investment and subsequently invested in an investment fund that is 
also excluded from the scope of SFAS No. 115, however, the 
Corporation’s ownership in this investment fund is such that the 
underlying investments are recorded at fair market value. A table of 
holdings as of year-end 2006, 2005, and 2004 is included in the 
Cash, Cash Equivalents, and Investments note included in the 
Consolidated Financial Statements.

CAPI TAL  E XPE N D I T U R E  I N V EST M E N T S
Capital expenditures were $58.9 million in 2006, $38.9 million in 
2005, and $32.4 million in 2004, respectively. These expenditures 
have consistently focused on machinery and equipment and tooling 
required to support new products, continuous improvements in our 
manufacturing processes and cost savings initiatives. The Corporation 
anticipates capital expenditures for 2007 to be approximately 10 to 
20 percent higher than the previous year due to increased focus on 
new products and operational process improvement.

16  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

MANAGEMENT ’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPER ATIONS

C O N T R AC T UAL  O B L I G AT I O N S
The following table discloses the Corporation’s obligations and 

commitments to make future payments under contracts:

(In thousands)

Long-term debt 

obligations, including 
estimated interest (1)

Capital lease 
obligations
Operating lease 
obligations

Purchase obligations (2)
Other long-term 
obligations (3)

Payments Due by Period

Total

Less Than 
1 Year

1– 3 Years

3– 5 Years

More Than 
5 Years

$422,838 $÷31,669

$33,221

$25,644 $332,304

1,012

211

422

379

–

141,293
89,518

31,001
89,518

52,210
–

38,680
–

19,402
–

38,385

4,445

2,982

586

30,372

Total

$693,046 $156,844

$88,835

$65,289 $382,078

(1)  The $144 million in borrowings outstanding under the revolving credit facility at December 30, 
2006 are due in 2011; however, $11 million is included in current liabilities in the consolidated 
ﬁ nancial statements based on management’s intent to repay the $11 million during ﬁ scal 2007. 
Assuming the amount is repaid in 2007, interest obligation amounts included in this table would 
be reduced by approximately $1.3 million in the 1-3 year category and $0.7 million in the 3–5 year 
category. Interest has been included for all debt at either the ﬁ xed rate or variable rate in effect 
as of December 30, 2006, as applicable.

(2)  Purchase obligations include agreements to purchase goods or services that are enforceable, 
legally binding, and specify all signiﬁ cant terms, including the quantity to be purchased, the 
price to be paid, and the timing of the purchase. 

(3) Other long-term liabilities represent payments due to members who are participants in the 
Corporation’s salary deferral and long-term incentive compensation programs, mandatory 
purchases of the remaining unowned interest in four acquisitions, and contribution and beneﬁ t 
payments expected to be made for our post-retirement beneﬁ t plans. It should be noted that the 
obligations related to post-retirement beneﬁ t plans are not contractual and the plans could be 
amended at the discretion of the Corporation. The disclosure of contributions and beneﬁ t 
payments has been limited to 10 years, as information beyond this time period was not available.

CAS H  D I V I DE N DS
Cash dividends were $0.72 per common share for 2006, $0.62 for 
2005, and $0.56 for 2004. Further, the Board of Directors announced 
an 8.3 percent increase in the quarterly dividend from $0.18 to 
$0.195 per common share effective with the March 1, 2007, 
dividend payment for shareholders of record at the close of business 
February 23, 2007. The previous quarterly dividend increase was 
from $0.155 to $0.18, effective with the March 1, 2006 dividend 
payment for shareholders of record at the close of business on 
February 24, 2006. A cash dividend has been paid every quarter 
since April 15, 1955, and quarterly dividends are expected to 
continue. The average dividend payout percentage for the most 
recent three-year period has been 29 percent of prior year earnings.

C O M M O N  S H A R E  R E PU R C H AS E S
During 2006, the Corporation repurchased 4,336,987 shares 
of its common stock at a cost of approximately $203.6 million, 
or an average price of $46.96. The Board of Directors authorized 
$100 million on May 4, 2004, an additional $150 million on 
November 12, 2004, an additional $200 million on November 11, 

2005, and an additional $200 million on August 8, 2006, for 
repurchases of the Corporation’s common stock. As of December 30, 
2006, approximately $139.8 million of this authorized amount 
remained unspent. During 2005, the Corporation repurchased 
4,059,068 shares of its common stock at a cost of approximately 
$202.2 million, or an average price of $49.82. During 2004, the 
Corporation repurchased 3,641,400 shares of its common stock at a 
cost of approximately $145.6 million, or an average price of $39.99. 

L I T I G AT I O N  AN D  U N C E R TA I N T I E S
The Corporation is involved in various kinds of disputes and legal 
proceedings that have arisen in the course of its business, including 
pending litigation, preferential payment claims in customer 
bankruptcies, environmental remediation, taxes, and other claims. 
It is the Corporation’s opinion, after consultation with legal counsel, 
that additional liabilities, if any, resulting from these matters are 
not expected to have a material adverse effect on the Corporation’s 
ﬁ nancial condition, although such matters could have a material 
effect on the Corporation’s quarterly or annual operating results and 
cash ﬂ ows when resolved in a future period.

Looking Ahead

Management believes its growth in the ofﬁ ce furniture segment will 
be consistent with the industry and anticipates increasing proﬁ t 
momentum as the full beneﬁ t of price increases and cost reduction 
initiatives are realized.

Declining industry trends in the hearth product segment will make 
2007 very challenging. Management believes that proﬁ tability will 
be challenged through the ﬁ rst half of 2007 as its hearth products 
business continues to adjust to lower demand levels and cost 
reduction initiatives become effective. The Corporation will continue 
to implement structural and operating cost reduction initiatives to 
ensure that its cost structure is appropriately aligned with market 
conditions. 

The Corporation anticipates that its tax rate on average will be 
35.5 percent in 2007 due to increased beneﬁ t from the U.S. 
manufacturing deduction partially offset by the elimination of the 
extra-territorial income exclusion.

The Corporation remains focused on creating long-term shareholder 
value by growing its business through investment in building 
brands, product solutions, and selling models, enhancing its strong 
member-owner culture, and remaining focused on its long-standing 
rapid continuous improvement programs to build best total cost 
and a lean enterprise. 

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  17

 
CONSOLIDATED STATEMENTS OF INCOME

(Amounts in thousands, except for per share data)  

For the Years

Net sales

Cost of products sold

Gross proﬁ t

Selling and administrative expenses

Restructuring related charges

Operating income

Interest income

Interest expense

Earnings from continuing operations before income taxes and minority interest

Income taxes

Earnings from continuing operations before minority interest

Minority interest in earnings of subsidiary

Income from continuing operations

Loss from discontinued operations, net of income tax beneﬁ t

Net income

Net income from continuing operations – basic

Net loss from discontinued operations – basic

Net income per common share – basic

Weighted average common shares outstanding – basic

Net income from continuing operations – diluted

Net loss from discontinued operations – diluted

Net income per common share – diluted

Weighted average common shares outstanding – diluted

The accompanying notes are an integral part of the consolidated ﬁ nancial statements.

2006

$2,679,803

1,752,882

2005

$2,433,316

1,549,475

2004

$2,084,435

1,334,777

926,921

717,676

2,829

206,416

1,139

14,323

193,232

63,670

129,562

(110)

129,672

(6,297)

883,841

663,667

3,462

216,712

1,518

2,355

215,875

77,715

138,160

(6)

138,166

(746)

749,658

570,237

886

178,535

1,343

886

178,992

65,332

113,660

–

113,660

(78)

$«÷123,375

$÷«137,420

$÷«113,582

$÷÷÷÷«2.59

$÷÷÷÷«2.53

$÷÷÷÷«1.99

(0.13)

(0.02)

(0.00)

$÷÷«÷÷2.46

$÷÷÷÷«2.51

$÷÷÷÷«1.99

50,059,443

54,649,199

57,127,110

$÷÷«÷÷2.57

$÷÷÷÷«2.51

$÷÷÷÷«1.97

(0.12)

(0.01)

(0.00)

$÷÷«÷÷2.45

$÷÷÷÷«2.50

$÷÷÷÷«1.97

50,374,758

55,033,741

57,577,630

18  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

CONSOLIDATED BAL ANCE SHEE TS

(Amounts in thousands of dollars and shares except par value)  

As of Year-End

2006

2005

2004

Assets

Current Assets

Cash and cash equivalents

Short-term investments

Receivables

Inventories

Deferred income taxes

Prepaid expenses and other current assets

  Total current assets

Property, plant, and equipment

Goodwill

Other assets

  Total assets

Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable and accrued expenses

Note payable and current maturities of long-term debt and 

capital lease obligations

Current maturities of other long-term obligations

  Total current liabilities

Long-term debt

Capital lease obligations

Other long-term liabilities

Deferred income taxes

Minority interest in subsidiary

Commitments and contingencies

Shareholders’ Equity

Preferred stock – $1 par value

  Authorized: 2,000

Issued: None

Common stock – $1 par value

  Authorized: 200,000

Issued and outstanding 2006 – 47,906; 2005 – 51,849; 2004 – 55,303

Additional paid-in capital
Retained earnings

Accumulated other comprehensive (loss) income

  Total shareholders’ equity

  Total liabilities and shareholders’ equity

The accompanying notes are an integral part of the consolidated ﬁ nancial statements.

$÷«÷28,077

$÷÷«75,707

$÷÷«29,676

9,174

316,568

105,765

15,440

29,150

504,174

309,952

251,761

160,472

9,035

278,515

91,110

15,831

16,400

486,598

294,660

242,244

116,769

6,836

234,731

77,590

14,639

11,107

374,579

311,344

224,554

111,180

$1,226,359

$1,140,271

$1,021,657

$«÷328,882

$÷«309,222

$÷«260,726

26,135

3,525

358,542

285,300

674

56,103

29,321

500

40,350

8,602

358,174

103,050

819

48,671

35,473

140

–

–

646

4,842

266,250

2,627

1,018

40,045

42,554

–

–

47,906

51,849

55,303

2,807

448,268

(3,062)

495,919

941

540,822

332

593,944

6,879

606,632

349

669,163

$1,226,359

$1,140,271

$1,021,657

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  19

 
 
 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUIT Y

(Amounts in thousands)

Balance, January 3, 2004

Comprehensive income:

  Net income

  Other comprehensive income

Comprehensive income

Cash dividends

Common shares – treasury:

  Shares purchased

  Shares issued under Members’ Stock Purchase Plan 

  and stock awards

Balance, January 1, 2005

Comprehensive income:

  Net income

  Other comprehensive loss

Comprehensive income

Cash dividends

Common shares – treasury:

  Shares purchased

  Shares issued under Members’ Stock Purchase Plan 

  and stock awards

Balance, December 31, 2005

Comprehensive income:

  Net income

  Other comprehensive income

Comprehensive income

Adoption of FAS 158 impact

Cash dividends

Common shares – treasury:

  Shares purchased

  Shares issued under Members’ Stock Purchase Plan 

  and stock awards

Balance, December 30, 2006

Common Stock

Additional 
Paid-in Capital

Retained 
Earnings

Accumulated 
Other 
Comprehensive 
(Loss) Income

Total 
Shareholders’ 
Equity

$58,239

$«10,324

$«641,732

$÷«(406)

$«709,889

113,582

(32,023)

755

(3,642)

(25,303)

(116,659)

113,582

755

114,337

(32,023)

(145,604)

22,564

706

55,303

21,858

6,879

606,632

349

669,163

137,420

(33,841)

(17)

(4,059)

(28,769)

(169,389)

605

22,831

137,420

(17)

137,403

(33,841)

(202,217)

23,436

51,849

941

540,822

332

593,944

123,375

(36,028)

1,168

(4,562)

(4,337)

(19,408)

(179,901)

394

21,274

123,375

1,168

124,543

(4,562)

(36,028)

(203,646)

21,668

$47,906

$÷«2,807

$«448,268

$(3,062)

$«495,919

The accompanying notes are an integral part of the consolidated ﬁ nancial statements. 

20  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands) 

For the Years

2006

2005

2004

Net Cash Flows From (To) Operating Activities

Net income

Noncash items included in net income:

  Depreciation and amortization

  Other postretirement and post-employment beneﬁ ts

  Stock-based compensation

  Excess tax beneﬁ ts from stock compensation

  Deferred income taxes

  Loss on sales, retirements and impairments of long-lived 

  assets and intangibles

  Stock issued to retirement plan

  Other – net

Changes in working capital, excluding acquisition and disposition:

  Receivables

Inventories

  Prepaid expenses and other current assets

  Accounts payable and accrued expenses

Income taxes

Increase (decrease) in other liabilities

  Net cash ﬂ ows from (to) operating activities

Net Cash Flows From (To) Investing Activities

Capital expenditures

Proceeds from sale of property, plant, and equipment

Capitalized software

Acquisition spending, net of cash acquired

Short-term investments – net

Purchase of long-term investments

Sales or maturities of long-term investments

Other – net

  Net cash ﬂ ows from (to) investing activities

Net Cash Flows From (To) Financing Activities

Purchase of HNI Corporation common stock

Proceeds from long-term debt

Payments of note and long-term debt and other ﬁ nancing

Proceeds from sale of HNI Corporation common stock

Excess tax beneﬁ ts from stock compensation

Dividends paid

  Net cash ﬂ ows from (to) ﬁ nancing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental Disclosures of Cash Flow Information

Cash paid during the year for:

Interest

Income taxes

The accompanying notes are an integral part of the consolidated ﬁ nancial statements.

$«123,375

$«137,420

$«113,582

69,503

2,109

3,219

(865)

(3,712)

4,639

7,948

1,733

(24,059)

(7,123)

(9,541)

(2,794)

(2,088)

(2,742)

65,514

2,002

–

–

(8,933)

1,529

6,199

1,164

(25,654)

(10,488)

(4,207)

36,809

(5,534)

5,188

66,703

1,874

–

–

708

1,394

5,990

1,947

(26,960)

(9,409)

(145)

25,990

846

11,736

159,602

201,009

194,256

(58,921)

5,952

(1,003)

(78,569)

926

(13,600)

8,250

–

(136,965)

(203,646)

515,157

(352,401)

5,786

865

(36,028)

(70,267)

(47,630)

75,707

(38,912)

317

(2,890)

(33,804)

2,400

(34,495)

32,505

(68)

(74,947)

(202,217)

199,000

(57,970)

14,997

–

(33,841)

(80,031)

46,031

29,676

(32,417)

2,968

(3,383)

(134,848)

60,949

(24,496)

16,858

(350)

(114,719)

(145,604)

–

(26,795)

15,579

–

(32,023)

(188,843)

(109,306)

138,982

$«÷28,077

$÷«75,707

$÷«29,676

$÷12,002

$÷75,266

$÷÷«1,961

$÷«88,133

$÷÷÷÷883

$÷«59,938

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  21

 
 
 
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Nature of Operations

HNI Corporation with its subsidiaries (the “Corporation”), is a 
provider of ofﬁ ce furniture and hearth products. Both industries 
are reportable segments; however, the Corporation’s ofﬁ ce furniture 
business is its principal line of business. Refer to Operating Segment 
Information for further information. Ofﬁ ce furniture products are sold 
through a national system of dealers, wholesalers, retail superstores, 
and to end-user customers, and federal and state governments. 
Dealer, wholesaler, and retail superstores are the major channels 
based on sales. Hearth products include a full array of gas, electric, 
and wood burning ﬁ replaces, inserts, stoves, facings, and 
accessories. These products are sold through a national system 
of dealers, wholesalers, large regional contractors, as well as 
Corporation-owned distribution and retail outlets. The Corporation’s 
products are marketed predominantly in the United States and 
Canada. The Corporation exports select products to a limited number 
of markets outside North America, principally Latin America and the 
Caribbean, through its export subsidiary and manufacturers and 
markets ofﬁ ce furniture in Asia; however, based on sales, these 
activities are not signiﬁ cant.

Summary of Signiﬁ cant Accounting Policies

PR I N C I PLES  O F  C O N SO L I DAT I O N  AN D  F I S CAL  Y E A R - E N D
The consolidated ﬁ nancial statements include the accounts and 
transactions of the Corporation and its subsidiaries. Intercompany 
accounts and transactions have been eliminated in consolidation.

The Corporation follows a 52/53 week ﬁ scal year which ends on 
the Saturday nearest December 31. Fiscal year 2006 ended on 
December 30, 2006; 2005 ended on December 31, 2005; and 
2004 ended on January 1, 2005. The ﬁ nancial statements for ﬁ scal 
years 2006, 2005, and 2004 are on a 52-week basis.

CAS H ,  CAS H  EQU I VALE N T S,  AN D  I N V EST M E N T S
Cash and cash equivalents generally consist of cash, money market 
accounts, and debt securities. These securities have original maturity 
dates not exceeding three months from date of purchase. The 
Corporation has short-term investments with maturities of less than 
one year and also has investments with maturities greater than one 
year that are included in Other Assets on the Consolidated Balance 
Sheet. Management classiﬁ es investments in marketable securities 
at the time of purchase and reevaluates such classiﬁ cation at each 
balance sheet date. Equity securities are classiﬁ ed as available-for-
sale and are stated at current market value with unrealized gains and 
losses included as a separate component of equity, net of any related 
tax effect. Debt securities are classiﬁ ed as held-to-maturity and are 
stated at amortized cost. The speciﬁ c identiﬁ cation method is used 
to determine realized gains and losses on the trade date. Short-term 

investments include municipal bonds and money market preferred 
stock. Long-term investments include U.S. government securities, 
municipal bonds, certiﬁ cates of deposit, and asset-and mortgage-
backed securities. During 2004, the Corporation sold all of its 
available-for-sale securities to fund acquisitions and to move its 
investments to a master fund. The Corporation realized losses of 
approximately $0.8 million. This investment was excluded from the 
scope of SFAS No. 115 “Accounting for Certain Investments in Debt 
and Equity Securities” due to the fact that the investment’s per unit 
value in a master fund was not readily available. Therefore, this 
investment was recorded at cost. The weighted average cost 
method was used to determine realized gains and losses on the 
trade date. During 2005, the Corporation liquidated this master fund 
investment and subsequently invested in an investment fund that is 
also excluded from the scope of SFAS No. 115; however, the 
Corporation’s ownership in this investment fund is such that the 
underlying investments are recorded at fair market value.

At December 30, 2006, December 31, 2005, and January 1, 2005, 
cash, cash equivalents, and investments consisted of the following 
(cost approximates market value):

Year-End 2006

(In thousands)

Held-to-maturity securities
Certiﬁ cates of deposit

Investment in master fund

Cash and Cash 
Equivalents

Short-term 
Investments

Long-term 
Investments

$÷÷«÷÷–

$÷«÷÷–

$÷÷«400

–

9,174

25,589

Cash and money market accounts

28,077

–

–

Total

Year-End 2005

(In thousands)

Held-to-maturity securities
Certiﬁ cates of deposit

Investment in master fund

$28,077

$9,174

$25,989

Cash and Cash 
Equivalents

Short-term 
Investments

Long-term 
Investments

$÷÷«÷÷–

$÷÷«÷–

$«÷÷400

–

9,035

19,085

Cash and money market accounts

75,707

–

–

Total

Year-End 2004

(In thousands)

Held-to-maturity securities
Municipal bonds
Certiﬁ cates of deposit

Investment in master fund

$75,707

$9,035

$19,485

Cash and Cash 
Equivalents

Short-term 
Investments

Long-term 
Investments

$÷÷«÷÷–
–

$2,400
–

$÷÷«÷÷–
400

–

4,436

20,187

Cash and money market accounts

29,676

–

–

Total

$29,676

$6,836

$20,587

22  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

R EC E I VAB LES
Accounts receivable are presented net of an allowance for doubtful 
accounts of $12.8 million, $12.0 million, and $11.4 million, for 2006, 
2005, and 2004, respectively. The allowance is developed based on 
several factors including overall customer credit quality, historical 
write-off experience and speciﬁ c account analyses that project the 
ultimate collectibility of the account. As such, these factors may 
change over time causing the reserve level to adjust accordingly.

I N V E N TO R I ES
The Corporation valued 86%, 89%, and 80% of its inventory by the 
last-in, ﬁ rst-out (LIFO) method at December 30, 2006, December 31, 
2005, and January 1, 2005, respectively. Additionally, the 
Corporation evaluates its inventory reserves in terms of excess and 
obsolete exposures. This evaluation includes such factors as 
anticipated usage, inventory turnover, inventory levels, and ultimate 
product sales value. As such, these factors may change over time 
causing the reserve level to adjust accordingly. The reserves for 
excess and obsolete inventory were $7.7 million, $8.2 million, and 
$7.7 million, at year-end 2006, 2005, and 2004, respectively.

PRO PE R T Y,  PL AN T,  AN D  EQU I PM E N T
Property, plant, and equipment are carried at cost. Depreciation has 
been computed using the straight-line method over estimated useful 
lives: land improvements, 10–20 years; buildings, 10–40 years; and 
machinery and equipment, 3–12 years. 

LO N G - L I V E D  AS S E T S
Long-lived assets are reviewed for impairment as events or changes 
in circumstances occur indicating that the amount of the asset 
reﬂ ected in the Corporation’s balance sheet may not be recoverable. 
An estimate of undiscounted cash ﬂ ows produced by the asset, or 
the appropriate group of assets, is compared to the carrying value to 
determine whether impairment exists. The estimates of future cash 
ﬂ ows involve considerable management judgment and are based 
upon assumptions about expected future operating performance. 
The actual cash ﬂ ows could differ from management’s estimates 
due to changes in business conditions, operating performance, and 
economic conditions. Asset impairment charges recorded in 
connection with the Corporation’s restructuring activities are 
discussed in Restructuring Related Charges. These assets included 
real estate, manufacturing equipment, and certain other ﬁ xed assets. 
The Corporation’s continuous focus on improving the manufacturing 
process tends to increase the likelihood of assets being replaced; 
therefore, the Corporation is constantly evaluating the expected lives 
of its equipment and accelerating depreciation where appropriate. 

GOO DW I LL  AN D  OT H E R  I N TAN G I B LE  AS S E T S
In accordance with SFAS No. 142, “Goodwill and Other Intangible 
Assets” (“SFAS 142”), the Corporation evaluates its goodwill for 
impairment on an annual basis based on values at the end of third 
quarter or whenever indicators of impairment exist. The Corporation 
has evaluated its goodwill for impairment and has determined that 
the fair value of reporting units in continuing operations exceeds their 
carrying value so no impairment of goodwill was recognized in 
continuing operations. Management’s assumptions about future cash 
ﬂ ows for the reporting units requires signiﬁ cant judgment and actual 
cash ﬂ ows in the future may differ signiﬁ cantly from those 
forecasted today. The goodwill associated with the reporting unit 
held for sale was impaired and is included as part of the loss from 
discontinued operations.

The Corporation also determines the fair value of indeﬁ nite lived 
trademarks on an annual basis or whenever indications of impairment 
exist. The Corporation has evaluated its trademarks for impairment 
and recognized an impairment charge of $1.0 million in 2006 and 
$0.5 million in 2005 related to two trademarks where the carrying 
value exceeded the fair market value. These trademarks were 
associated with the reporting unit classiﬁ ed as held for sale and is 
included as part of the loss from discontinued operations.

PRO DUC T  WA R R ANT I ES
The Corporation issues certain warranty policies on its furniture 
and hearth products that provides for repair or replacement of any 
covered product or component that fails during normal use because 
of a defect in design, materials, or workmanship. A warranty reserve 
is determined by recording a speciﬁ c 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:

(In thousands)

2006

2005

2004

Balance at the beginning of the period
Accrual assumed from acquisition
Accruals for warranties issued 

during the period

Accrual related to pre-existing 

warranties

Settlements made during the period

$«10,157
125

$«10,794
–

$÷«8,926
688

12,273

9,809

10,486

810
(12,741)

1,449
(11,895)

1,054
(10,360)

Balance at the end of the period

$«10,624

$«10,157

«$«10,794

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  23

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

R E V E N UE  R EC O G N I T I O N
Revenue is normally recognized upon shipment of goods to 
customers. In certain circumstances revenue is not recognized until 
the goods are received by the customer or upon installation and 
customer acceptance based on the terms of the sales agreement. 
Revenue includes freight charged to customers; related costs are in 
selling and administrative expense. Rebates, discounts, and other 
marketing program expenses that are directly related to the sale are 
recorded as a reduction to net sales. Marketing program accruals 
require the use of management estimates and the consideration of 
contractual arrangements that are subject to interpretation. Customer 
sales that reach certain award levels can affect the amount of such 
estimates and actual results could differ from these estimates.

PRO DUC T  DE VE LO PM E N T  COSTS
Product development costs relating to the development of new 
products and processes, including signiﬁ cant improvements and 
reﬁ nements to existing products, are expensed as incurred. These 
costs include salaries, contractor fees, building costs, utilities, 
and administrative fees. The amounts charged against income 
were $27.6 million in 2006, $27.3 million in 2005, and $27.4 million 
in 2004. 

S TO C K- B AS E D  C O M PE N SAT I O N
The Corporation adopted the provisions of Statement of Financial 
Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 
123(R)”), beginning January 1, 2006, using the modiﬁ ed prospective 
transition method. This statement requires the Corporation to 
measure the cost of employee services in exchange for an award of 
equity instruments based on the grant-date fair value of the award 
and to recognize cost over the requisite service period. Under the 
modiﬁ ed prospective transition method, ﬁ nancial statements for 
periods prior to the date of adoption are not adjusted for the change 
in accounting. See “Stock-Based Compensation” footnote for 
further information.

I N C O M E  TA XES
The Corporation accounts for income taxes under SFAS No. 109, 
“Accounting for Income Taxes.” This Statement uses an asset and 
liability approach that requires the recognition of deferred tax assets 
and liabilities for the expected future tax consequences of events 
that have been recognized in the Corporation’s ﬁ nancial statements 
or tax returns. Deferred income taxes are provided to reﬂ ect the 
differences between the tax bases of assets and liabilities and their 
reported amounts in the ﬁ nancial statements. The Corporation 
provides for taxes that may be payable if undistributed earnings of 
overseas subsidiaries were to be remitted to the United States, except 
for those earnings that it considers to be permanently reinvested.

E A R N I N G S  PE R  S H A R E
Basic earnings per share are based on the weighted-average number 
of common shares outstanding during the year. Shares potentially 
issuable under options and deferred restricted stock have been 
considered outstanding for purposes of the diluted earnings per 
share calculation.

US E  O F  EST I M ATES
The preparation of ﬁ nancial statements in conformity with 
accounting principles generally accepted in the United States 
requires management to make estimates and assumptions that 
affect the amounts reported in the ﬁ nancial statements and 
accompanying notes. The more signiﬁ cant areas requiring the use of 
management estimates relate to allowance for doubtful accounts, 
inventory reserves, marketing program accruals, warranty accruals, 
accruals for self-insured medical claims, workers’ compensation, 
legal contingencies, general liability and auto insurance claims, and 
useful lives for depreciation and amortization. Actual results could 
differ from those estimates.

S E L F - I N SU R A N C E
The Corporation is partially self-insured for general, auto, and 
product liability, workers’ compensation, and certain employee health 
beneﬁ ts. The general, auto, product, and workers’ compensation 
liabilities are managed using a wholly owned insurance captive; the 
related liabilities are included in the accompanying consolidated 
ﬁ nancial statements. The Corporation’s policy is to accrue amounts 
in accordance with the actuarially determined liabilities. The actuarial 
valuations are based on historical information along with certain 
assumptions about future events. Changes in assumptions for such 
matters as legal actions, medical cost inﬂ ation, and magnitude of 
change in actual experience development could cause these 
estimates to change in the future.

F O R E I G N  C U R R E N CY  T R AN S L AT I O N S
Foreign currency ﬁ nancial statements of foreign operations where 
the local currency is the functional currency are translated using 
exchange rates in effect at period end for assets and liabilities and 
average exchange rates during the period for results of operations. 
Related translation adjustments are reported as a component of 
Stockholders’ Equity. Gains and losses on foreign currency 
transactions are included in the “Selling and administrative 
expenses” caption of the Consolidated Statements of Income.

R EC L AS S I F I CAT I O N S
Prior periods Statements of Income have been restated for 
discontinued operations. Certain reclassiﬁ cations have been made 
within the footnotes to conform to the current year presentation. 

R EC E N T  AC C O U N T I N G  P R O N O U N C E M E N T S
In September 2006, the Financial Accounting Standards Board 
(“FASB”) issued SFAS No. 158 “Employers’ Accounting for Deﬁ ned 
Beneﬁ t Pension and Other Postretirement Plans, an amendment 
of FASB Statements No. 87, 88, 106, and 132(R).” This statement 
requires an employer that is a business entity to recognize in its 
statement of ﬁ nancial position the over funded or under funded 
status of a deﬁ ned beneﬁ t postretirement plan measured as the 
difference between the fair value of plan assets and the beneﬁ t 
obligation. The recognition of the net liability or asset will require an 
offsetting adjustment to accumulated other comprehensive income 
in shareholders’ equity. SFAS No. 158 does not change how 

24  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

pensions and other postretirement beneﬁ ts are accounted for and 
reported in the income statement. This statement is effective for 
ﬁ scal years ending after December 15, 2006. The Corporation 
adopted the new standard for its 2006 year-end ﬁ nancial statement 
and recognized on the 2006 balance sheet the funded status of 
pension and other postretirement beneﬁ t plans. The adoption of 
this statement increased the Corporation’s recorded liabilities by 
$6.1 million with no impact to the income statement. See 
“Postretirement Health Care” footnote for additional information.

In September 2006, the FASB issued SFAS No. 157 “Fair Value 
Measurements” which provides enhanced guidance for using fair 
value to measure assets and liabilities. The standard also expands 
the amount of disclosure regarding the extent to which companies 
measure assets and liabilities at fair value, the information used to 
measure fair value, and the effect of fair value measurements on 
earnings. The standard applies whenever other standards require 
(or permit) assets or liabilities to be measured at fair value but does 
not expand the use of fair value in any new circumstances. This 
statement is effective for ﬁ nancial statements issued for ﬁ scal years 
beginning after November 15, 2007, and interim periods within those 
ﬁ scal years. The Corporation does not anticipate any material impact 
to its ﬁ nancial statements from the adoption of this standard.

In July 2006, the FASB issued Interpretation No. 48, “Accounting 
for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clariﬁ es the 
accounting for uncertainty in income taxes recognized in an 
enterprise’s ﬁ nancial statements in accordance with SFAS No. 109, 
“Accounting for Income Taxes.” FIN 48 prescribes a recognition 
threshold and measurement attribute for the ﬁ nancial statement 
recognition and measurement of a tax position taken or expected 
to be taken in a tax return. FIN 48 also provides guidance on 
derecognition, classiﬁ cation, interest and penalties, accounting in 
interim periods, disclosure, and transition. This Interpretation is 
effective for ﬁ scal years beginning after December 15, 2006. The 
Corporation has completed its initial evaluation of the impact of 
the adoption of FIN 48 for ﬁ scal year 2007 and determined that 
such adoption is not expected to have a material impact on the 
Corporation’s ﬁ nancial position or results of operations.

In December 2004, the FASB issued SFAS No. 123(R) which 
replaces Original SFAS No. 123 and supersedes Accounting 
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock 
Issued to Employees” (“APB 25”). SFAS No. 123(R) requires all 
share-based payments to employees, including grants of employee 
stock options, to be recognized in the ﬁ nancial statements based on 
their fair values, beginning with the ﬁ rst annual ﬁ scal period after 
June 15, 2005. Under the Original SFAS No. 123, this accounting 
treatment was optional with pro forma disclosures required. The 
Corporation adopted SFAS No. 123(R) in the ﬁ rst quarter of ﬁ scal 
2006, beginning January 1, 2006. See “Stock Based Compensation” 
footnote for the impact of the adoption of SFAS No. 123(R) on net 
income and net income per share.

Restructuring Related Charges

As a result of the Corporation’s ongoing business simpliﬁ cation and 
cost reduction strategies, management made the decision in fourth 
quarter 2006 to close an ofﬁ ce furniture facility in Monterrey, Mexico 
and consolidate production into other manufacturing locations. 
In connection with the shutdown of the Monterrey facility, the 
Corporation recorded $0.8 million of severance costs. The closure 
and consolidation will be completed during the ﬁ rst half of 2007. 
The Corporation anticipates additional restructuring charges of 
approximately $3.0 million.

During 2006, the Corporation completed the shutdown of two ofﬁ ce 
furniture facilities which began in the third quarter of 2005. The 
facilities were located in Kent, Washington and Van Nuys, California 
and production from these facilities was consolidated into other 
manufacturing locations. Charges for these closures in 2005 
totaled $4.1 million which consisted of $0.6 million of accelerated 
depreciation of machinery and equipment recorded in cost of sales, 
$1.2 million of severance, $0.4 million of pension related expenses 
and $1.9 million of factory exit, production relocation, and other costs 
which were recorded as restructuring costs. In connection with 
those shutdowns, the Corporation incurred $1.9 million of current 
period charges during 2006.

During 2003, the Corporation closed two ofﬁ ce furniture facilities 
located in Milan, Tennessee and Hazleton, Pennsylvania and 
consolidated production into other manufacturing locations. In 
connection with those shutdowns, the Corporation incurred 
$1.2 million of current period charges during 2004.

The following table summarizes the restructuring accrual activity 
since the beginning of ﬁ scal 2004. This summary does not include 
the effect of the Corporation’s employee retirement plans in 2005, 
as this item was not accounted for through the restructuring accrual 
on the Consolidated Balance Sheets but is included as a component 
of “Restructuring Related Charges” in the Consolidated Statements 
of Operations.

(In thousands)

Restructuring reserve at 

January 3, 2004
Restructuring charges
Restructuring credit
Cash payments

Restructuring reserve at 

January 1, 2005
Restructuring charges
Cash payments

Restructuring reserve at 
December 31, 2005
Restructuring charges
Cash payments

Restructuring reserve at 
December 30, 2006

Severance
Costs

Facility
Termination and 
Other Costs

$«÷334
42
(31)
(345)

$÷÷«÷–
1,142
(325)

$«÷817
865
(841)

$«1,100
1,147
(272)
(1,975)

$«÷÷«÷–
1,876
(632)

$«1,244
1,964
(3,208)

Total

$«1,434
1,189
(303)
(2,320)

$«÷÷«÷–
3,018
(957)

$«2,061
2,829
(4,049)

$«÷841

$«÷÷«÷–

$««÷841

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  25

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Business Combinations

The Corporation completed the acquisition of Lamex, a privately 
held Chinese manufacturer and marketer of ofﬁ ce furniture, as well 
as a small ofﬁ ce furniture services company, a small ofﬁ ce furniture 
dealer, and a small manufacturer of ﬁ replace facings during 2006. 
The combined purchase price of these acquisitions less cash 
acquired totaled $78.2 million. The Corporation increased its 
borrowings under the revolving credit facility to fund the acquisitions. 
The Corporation acquired controlling interest in the ofﬁ ce furniture 
dealer and the ability to call the remaining interest on or after 
ﬁ scal year-end 2011. The Corporation must exercise its call on or 
before the end of ﬁ scal 2016. SFAS No. 150 “Accounting for Certain 
Financial Instruments with Characteristics of both Liabilities and 
Equity” (“SFAS No. 150”) requires a mandatorily redeemable ﬁ nancial 
instrument to be classiﬁ ed as a liability unless the redemption is 
required to occur only upon the liquidation or termination of the 
reporting entity. It also requires that mandatorily redeemable ﬁ nancial 
instruments be measured at fair value. Therefore, the Corporation 
has recorded a liability for the remaining interest at fair value as of 
the acquisition date.

The Corporation has ﬁ nalized the allocation of the purchase price 
for all acquisitions other than the ofﬁ ce furniture dealer acquisition 
which occurred in the ﬁ nal month of the year. Any modiﬁ cation is 
not expected to be signiﬁ cant. There are approximately $51.7 million 
of intangibles associated with these acquisitions. Of these acquired 
intangible assets, $14 million was assigned to a trade name that 
is not subject to amortization. The remaining $37.7 million have 
estimated useful lives ranging from two to ﬁ fteen years with 
amortization recorded based on the projected cash ﬂ ow associated 
with the respective intangible assets’ existing relationships. There 
is approximately $13.9 million of goodwill associated with these 
acquisitions of which $11.1 million was assigned to the furniture 
segment and $2.8 was assigned to the hearth segment. 
Approximately $6.9 million of the goodwill is not deductible for 
income tax purposes.

The Corporation completed the acquisition of four small ofﬁ ce 
furniture services companies, three ofﬁ ce furniture dealers, 
and three small hearth distributors during 2005. The combined 
purchase price of these acquisitions totaled $35.4 million, of which 
$33.4 million was paid in cash and the remaining is due to the sellers 
over the next several years. The Corporation acquired controlling 
interests in the three ofﬁ ce furniture dealers and the ability to call 
the remaining interests on or after ﬁ scal year-end 2008 and 2010. 
The Corporation must exercise its calls on or before the end of ﬁ scal 
2014 and 2015. SFAS No. 150 requires a mandatorily redeemable 
ﬁ nancial instrument to be classiﬁ ed as a liability unless the 
redemption is required to occur only upon the liquidation or 
termination of the reporting entity. It also requires that mandatorily 
redeemable ﬁ nancial instruments be measured at fair value. 

Therefore, the Corporation has recorded a liability for the remaining 
interest at fair value. The Corporation continues to monitor and adjust 
the recorded amount to accrete the obligation to the estimated 
redemption amount through a charge to earnings as required. There 
are approximately $14.1 million of intangibles associated with these 
acquisitions. Of these acquired intangible assets, $1.5 million was 
assigned to indeﬁ nite-lived trademarks that are not subject to 
amortization. The remaining $12.6 million have estimated useful lives 
ranging from two to ﬁ fteen years with amortization recorded based 
on the projected cash ﬂ ow associated with the respective intangible 
assets’ existing relationships. There is approximately $18.9 million of 
goodwill associated with these acquisitions, of which $13.7 million 
was assigned to the furniture segment and $5.2 million was 
assigned to the hearth products segment. Approximately $2.1 million 
of the goodwill assigned to the furniture segment is not deductible 
for tax purposes.

On January 5, 2004, the Corporation acquired certain assets of 
Paoli, Inc., a subsidiary of Klaussner Furniture Industries, Inc. for 
$81.1 million. Paoli Inc. is a leading provider of wood case goods and 
seating with well-known brands, broad product offering, and strong 
independent representatives sales and dealer networks located in 
Orleans, Indiana. 

The Corporation acquired $26.3 million of intangible assets from the 
Paoli acquisition, of which $18.3 million was assigned to registered 
trademarks that are not subject to amortization. The remaining 
$8.0 million of acquired intangible assets have a weighted-average 
useful life of approximately 15 years with amortization recorded 
based on the projected cash ﬂ ow associated with the respective 
intangible assets existing relationships. The $9.2 million of goodwill 
was assigned to the ofﬁ ce furniture segment and is deductible for 
income tax purposes.

On July 6, 2004, the Corporation acquired a controlling interest in 
Omni Workspace Company (formerly Omni Remanufacturing, Inc.). 
Omni Workspace Company is comprised of two divisions – A&M 
Business Interior Services (“A&M”), an ofﬁ ce furniture services 
company, and IntraSpec Solutions (“ISS”), a panel systems 
re-manufacturer. The Corporation acquired 80 percent of the 
common stock of Omni Workspace Company and the ability to call 
the remaining 20 percent of the shares on or after the ﬁ scal year 
end 2009. The Corporation must exercise its call on or before the 
end of ﬁ scal year end 2014. SFAS No. 150 requires a mandatorily 
redeemable ﬁ nancial instrument to be classiﬁ ed as a liability unless 
the redemption is required to occur only upon the liquidation or 
termination of the reporting entity. It also requires that mandatorily 
redeemable ﬁ nancial instruments be measured at fair value. 
Therefore, the Corporation has recorded a liability at the acquisition 
date for the remaining 20 percent of the shares at fair value. The 
Corporation continues to monitor and adjust the recorded amount to 
accrete the obligation to the estimated redemption amount in 2014 
through a charge to earnings as required. 

26  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Corporation acquired $12.7 million of intangible assets from the 
Omni acquisition, of which $7.3 million was associated with the 
A&M division and $5.4 million was associated with the ISS division. 
Included in the A&M intangibles was a registered trademark that is 
not subject to amortization of $1.3 million. The remaining $6.0 million 
of acquired intangible assets have estimated useful lives ranging 
from four to ﬁ fteen years with amortization recorded based on the 
projected cash ﬂ ow associated with the respective intangible assets’ 
existing relationships. Included in the ISS intangibles were registered 
trademarks not subject to amortization of $1.5 million. The remaining 
$3.9 million of acquired intangible assets had estimated useful lives 
of ﬁ ve to ten years. There was approximately $12.9 million of 
goodwill associated with the acquisition, of which $7.2 million was 
associated with the A&M division and $5.7 million was associated 
with the ISS division. 

On July 19, 2004, the Corporation acquired Edward George 
Company (“Edward George”), a distributor of ﬁ replaces, stone 
products, barbecues, and other building materials throughout Illinois, 
Indiana, and Kentucky, and its afﬁ liate, Wisconsin Fireplace Systems 
with locations in Wisconsin for $27.7 million.

The acquired intangible assets from the Edward George acquisition 
of $9.3 million have a weighted-average useful life of approximately 
13 years with amortization recorded based on the projected cash 
ﬂ ow associated with the respective intangible assets existing 
relationships. The $9.6 million of goodwill was assigned to the 
hearth products segment and is deductible for income tax purposes.

The consideration for each of these transactions was paid in cash. 
The results of the acquired entities have been included in the 
Consolidated Financial Statements since the date of acquisition. 

The Corporation also completed the acquisition of a small ofﬁ ce 
furniture services company, a small hearth distributor and a 
strategic sourcing entity during 2004. The combined purchase price 
for these acquisitions totaled approximately $8.5 million. There is 
approximately $5.4 million of intangibles associated with these 
acquisitions with estimated useful lives ranging from one to ten years. 
There is approximately $2.2 million of goodwill associated with 
these acquisitions of which $0.9 million was assigned to the ofﬁ ce 
furniture segment and $1.3 million was assigned to the hearth 
products segment. All goodwill is deductible for income tax purposes. 

Discontinued Operations

During December 2006, the Corporation committed to a plan to 
sell a small non-core component of its ofﬁ ce furniture segment. 
Revenues and expenses associated with this component are 
presented as discontinued operations for all periods presented.

During the fourth quarter the Corporation recorded a pre-tax charge 
to reduce the assets to the fair market value of approximately 
$7.1 million. The charge was mainly due to the writedown of goodwill 
and other intangibles not deductible for tax purposes.

Summarized ﬁ nancial information for discontinued operations is 
as follows:

(In thousands)

2006

2005

2004

$«÷(818)
(294)

(524)

$(666)
(240)

(426)

$(123)
(45)

(78)

Discontinued operations:
  Operating loss before tax
  Beneﬁ t for income tax

  Net loss from discontinued operations

Impairment loss on discontinued 

operations:
Impairment loss on discontinued 
  operations before tax
  Beneﬁ t for income tax

(7,125)
(1,352)

(500)
(180)

–
–

–

  Net impairment loss on discontinued

  operations

(5,773)

(320)

Loss from discontinued operations, 

net of income tax beneﬁ t

$(6,297)

$(746)

$÷(78)

Assets to be disposed of as of December 30, 2006 recorded in 
Prepaid Expenses and Other Current Assets are as follows:

(In thousands)

Inventory
Property and equipment

  Total assets held for sale

Inventories

2006

$1,030
720

$1,750

(In thousands)

2006

2005

2004

Finished products
Materials and work in process
LIFO reserve

$÷66,238
58,789
(19,262)

$«61,027
46,398
(16,315)

$«52,796
40,712
(15,918)

$105,765

$«91,110

$«77,590

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  27

 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property, Plant, and Equipment

(In thousands)

2006

2005

2004

Land and land improvements
Buildings
Machinery and equipment
Construction and equipment 

installation in progress

Less: accumulated depreciation

$÷27,700
266,801
550,979

$÷26,361
240,174
523,240

$÷26,042
234,421
512,544

12,936

23,976

13,686

858,416
548,464

813,751
519,091

786,693
475,349

$309,952

$294,660

$311,344

Goodwill and Other Intangible Assets

Pursuant to Statement of Financial Accounting Standards (SFAS) 
No. 142, the Corporation evaluates its goodwill for impairment on an 
annual basis based on values at the end of third quarter or whenever 
indicators of impairment exist. The Corporation has evaluated its 
goodwill for impairment and has determined that the fair value 
of its reporting units included as continuing operations exceeds 
the carrying values and therefore, no impairment of goodwill was 
recorded in continuing operations. The Corporation did record an 
impairment charge of $5.7 million which was included in 
discontinued operations on the Consolidated Statements of Income. 

The Corporation also owns trademarks having a net value of 
$43.2 million as of December 30, 2006, $30.2 million as of 
December 31, 2005, and $29.2 million as of January 1, 2005. 
The trademarks are deemed to have an indeﬁ nite useful life because 
they are expected to generate cash ﬂ ow indeﬁ nitely. The Corporation 
recorded an impairment charge of $1.0 million in 2006 and 
$0.5 million in 2005 related to two ofﬁ ce furniture trademarks 
associated with the discontinued operation where the carrying 
amount exceeded the current fair market value. The charge was 
included in discontinued operations on the Consolidated Statements 
of Income.

The table below summarizes amortizable deﬁ nite-lived intangible 
assets, which are reﬂ ected in Other Assets in the Corporation’s 
consolidated balance sheets:

(In thousands)

2006

2005

2004

Patents
Customer lists and other
Less: accumulated amortization

$÷18,780
103,492
39,796

$18,480
67,211
28,758

$18,820
54,702
21,785

Net intangible assets

$÷82,476

$56,933

$51,737

Amortization expense for deﬁ nite-lived intangibles for 2006, 
2005, and 2004, was $10.4 million, $7.3 million, and $5.1 million, 
respectively. Amortization expense is estimated to range between 
$5.9 and $9.2 million per year over the next ﬁ ve years.

The changes in the carrying amount of goodwill since January 3, 
2004, are as follows by reporting segment:

(In thousands)

Ofﬁ ce
 Furniture

Hearth 
Products

Total

Balance as of January 3, 2004

$43,611

$148,475

$192,086

Goodwill increase during period

21,920

10,548

32,468

Balance as of January 1, 2005

$65,531

$159,023

$224,554

Goodwill increase during period

12,128

5,562

17,690

Balance as of December 31, 2005

$77,659

$164,585

$242,244

Goodwill increase during period
Goodwill decrease during period

12,810
(5,654)

2,790
(429)

15,600
(6,083)

Balance as of December 30, 2006

$84,815

$166,946

$251,761

The goodwill increases relate to acquisitions completed. See 
Business Combinations note. The decrease in goodwill in the ofﬁ ce 
furniture segment in 2006 is due to the impairment of the goodwill 
associated with discontinued operations. The decrease in the hearth 
products segment relates to the sale of a few small distribution 
locations.

Accounts Payable and Accrued Expenses

(In thousands)

2006

2005

2004

Trade accounts payable
Compensation
Proﬁ t sharing and retirement expense
Marketing expenses
Other accrued expenses

$102,436
27,835
29,545
60,676
108,390

$÷86,945
34,272
32,461
54,797
100,747

$÷64,319
25,722
30,516
50,939
89,266

$328,882

$309,222

$260,762

28  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Debt

(In thousands)

2006

2005

2004

Note payable to bank, revolving credit 
agreement with interest at a variable 
rate (2006 – 5.70%; 2005 – 4.69%)
Note payable to bank, with interest at 

a variable rate (2006 – 6.11%)

Senior notes due in 2016 with interest 
at a ﬁ xed rate of 5.54% per annum

Industrial development revenue 

bonds, payable 2018 with interest 
at 4.02% per annum
Other notes and amounts

Total debt
Less: current portion

Long-term debt

$144,000

$140,000

$÷÷«÷–

14,200

150,000

–

–

2,300
794

2,300
900

311,294
25,994

143,200
40,150

–

–

2,300
560

2,860
233

$285,300

$103,050

$2,627

Aggregate maturities of long-term debt are as follows:

Certain of the above borrowing arrangements include covenants 
which limit the assumption of additional debt and lease obligations. 
The Corporation has been and currently is in compliance with the 
covenants related to these debt agreements. The fair value of the 
Corporation’s outstanding long-term debt obligations at year-end 
2006 approximates the recorded aggregate amount.

Selling and Administrative Expenses

(In thousands)

2006

2005

2004

Freight expense for shipments 

to customers

Amortization of intangible and 

other assets

Product development costs
Other selling and administrative 

expenses

$182,814

$158,329

$132,498

12,456
27,567

10,155
27,338

8,275
27,401

494,839

467,845

402,063

$717,676

$663,667

$570,237

(In thousands)

2007
2008
2009
2010
2011
Thereafter

$÷25,994
–
–
–
133,000
$152,300

On January 28, 2005, the Corporation replaced a $136 million 
revolving credit facility entered into on May 10, 2002 with a new 
revolving credit facility that provided for a maximum borrowing 
of $150 million subject to increase (to a maximum amount of 
$300 million) or reduction from time to time according to the 
terms of the agreement. On December 22, 2005, the Corporation 
increased the facility to the maximum amount of $300 million. 
Amounts borrowed under the Credit Agreement may be borrowed, 
repaid, and reborrowed from time to time until January 28, 2011. 
As of December 30, 2006, $11 million was classiﬁ ed as short-term 
as the Corporation expects to repay that portion of the borrowings 
within a year.

On April 6, 2006, the Corporation reﬁ nanced $150 million of 
borrowings outstanding under the revolving credit facility with 
5.54 percent ten-year unsecured Senior Notes due in 2016 issued 
through the private placement debt market. Interest payments are due 
semi-annually on April 1 and October 1 of each year and the principal 
is due in a lump sum in 2016. The Corporation maintained the 
revolving credit facility with a maximum borrowing of $300 million.

Income Taxes

Signiﬁ cant components of the provision for income taxes are as 
follows:

(In thousands)

Current:
  Federal
  State

2006

2005

2004

$61,943
8,671

$77,474
8,954

$60,425
5,976

  Current provision

70,614

86,428

66,401

Deferred:
  Federal
  State

  Deferred provision

(7,877)
(651)

(8,528)

(8,048)
(1,081)

(9,129)

(1,008)
(106)

(1,114)

$62,086

$77,299

$65,287

A reconciliation of the statutory federal income tax rate to the 
Corporation’s effective income tax rate for continuing operations is 
as follows:

(In thousands)

Federal statutory tax rate
State taxes, net of federal tax effect
Credit for increasing research activities
Deduction related to domestic 

production activities

Extraterritorial income exclusion
True-up of deferred tax items
Other – net

Effective tax rate

2006

35.0%
2.8
(0.7)

(0.8)
(0.4)
(2.1)
(0.8)

33.0%

2005

35.0%
2.4
(0.4)

(0.9)
(0.3)
–
0.2

36.0%

2004

35.0%
2.2
(0.6)

–
(0.3)
–
0.2

36.5%

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  29

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the fourth quarter of 2006, the Corporation completed a detailed 
analysis of all deferred tax accounts, and determined that net 
deferred income tax liabilities were overstated by $4.1 million. This 
overstatement primarily relates to a deferred tax liability associated 
with property, plant, and equipment, partially offset by an overstated 
deferred tax asset associated with inventory. In analyzing the 
difference, the Corporation determined that the items originated in 
ﬁ scal years prior to 2002. To correct this difference, the Corporation 
has reduced income tax expense in the fourth quarter of 2006 by 
$4.1 million. The effect of this adjustment is to reduce the effective 
income tax rate related to continuing operations by 2.1 percentage 
points for the year and increase earnings per share from continuing 
operations by $0.08.

Deferred income taxes reﬂ ect the net tax effects of temporary 
differences between the carrying amounts of assets and liabilities 
for ﬁ nancial reporting purposes and the amounts used for income 
tax purposes. 

Signiﬁ cant components of the Corporation’s deferred tax liabilities 
and assets are as follows:

(In thousands)

2006

2005

2004

Net long-term deferred tax liabilities:
  Tax over book depreciation
  Compensation
  Goodwill
  Other – net

Total net long-term deferred 

tax liabilities

Net current deferred tax assets:
  Allowance for doubtful accounts
  Vacation accrual

Inventory differences

  Deferred income
  Warranty accruals
  Other – net

$÷(1,052)
4,899
(33,826)
658

$(16,458)
5,907
(30,499)
5,577

$(25,549)
5,697
(24,362)
1,660

(29,321)

(35,473)

(42,554)

3,563
5,323
3,096
(5,880)
3,906
5,432

3,858
4,924
5,720
(6,596)
3,847
4,078

3,512
4,588
4,304
(6,238)
3,504
4,969

Total net current deferred tax assets

15,440

15,831

14,639

Net deferred tax (liabilities) assets

$(13,881)

$(19,642)

$(27,915)

Shareholders’ Equity and Earnings Per Share

Common Stock, $1 Par Value
  Authorized

Issued and outstanding
Preferred Stock, $1 Par Value
  Authorized

Issued and outstanding

2006

2005

2004

200,000,000
47,905,351

200,000,000
51,848,591

200,000,000
55,303,323

2,000,000
–

2,000,000
–

2,000,000
–

The Corporation purchased 4,336,987; 4,059,068; and 3,641,400 
shares of its common stock during 2006, 2005, and 2004, respectively. 
The par value method of accounting is used for common stock 
repurchases. The excess of the cost of shares acquired over their 
par value is allocated to Additional Paid-In Capital with the excess 
charged to Retained Earnings.

30  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

The following table reconciles the numerators and denominators 
used in the calculation of basic and diluted earnings per share (EPS): 

(In thousands, except per share data)

2006

2005

2004

Numerators:
  Numerators for both basic 

  and diluted EPS net 

income 
Denominators:
  Denominator for basic EPS 

  weighted-average common 
  shares outstanding
Potentially dilutive shares 

  from stock option plans

$123,375

$137,420

$113,582

50,059

54,649

57,127

316

385

451

Denominator for diluted EPS

50,375

55,034

57,578

Earnings per share – basic
Earnings per share – diluted

$÷÷÷2.46
$÷÷÷2.45

$÷÷÷2.51
$÷÷÷2.50

$÷÷÷1.99
$÷÷÷1.97

Certain exercisable and non-exercisable stock options were not 
included in the computation of diluted EPS for ﬁ scal year 2006, 
2005, and 2004, because their inclusion would have been anti-
dilutive. The number of stock options outstanding, which met this 
criterion for 2006 was 290,366; for 2005 was 176,900; and for 
2004 was 25,000. 

Components of accumulated other comprehensive income (loss) 
consist of the following:

(In thousands)

Balance at beginning of period
Foreign currency translation 
adjustments – net of tax

Change in unrealized gains (losses) 

on marketable securities – net of tax

Change in minimum pension 

liability – net of tax

Adjustment to initially apply 

FASB 158, net of tax

2006

$«÷«332

631

–

537

(4,562)

2005

$«349

293

–

(310)

–

2004

$(406)

348

407

–

–

Balance at end of period

$(3,062)

$«332

$«349

In May 1997, the Corporation registered 400,000 shares of its 
common stock under its 1997 Equity Plan for Non-Employee 
Directors. This plan permits the Corporation to issue to its non-
employee directors options to purchase shares of Corporation 
common stock, restricted stock of the Corporation, and awards of 
Corporation common stock. The plan also permits non-employee 
directors to elect to receive all or a portion of their annual retainers 
and other compensation in the form of shares of Corporation 
common stock. During 2006, 2005, and 2004, 13,947; 13,621; 
and 10,738 shares of Corporation common stock were issued 
under the plan, respectively.

Cash dividends declared and paid per share for each year are:

(In dollars)

Common shares

2006

$.72

2005

$.62

2004

$.56

 
 
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 2002, shareholders approved the 2002 Members’ Stock 
Purchase Plan. Under the plan, 800,000 shares of common stock 
were registered for issuance to participating members. Beginning on 
June 30, 2002, rights to purchase stock are granted on a quarterly 
basis to all members who have one year of employment eligibility 
and work a minimum of 20 hours a week. The price of the stock 
purchased under the plan is 85% of the closing price on the 
applicable purchase date. No member may purchase stock under 
the plan in an amount which exceeds the lesser of 20% of his/her 
gross earnings or a maximum fair value of $25,000 in any calendar 
year. During 2006, 114,397 shares of common stock were issued 
under the plan at an average price of $40.03. During 2005, 77,410 
shares of common stock were issued under the plan at an average 
price of $44.87. During 2004, 73,921 shares of common stock were 
issued under the plan at an average price of $34.70. An additional 
407,616 shares were available for issuance under the plan at 
December 30, 2006. 

The Corporation has granted rights to purchase shares of the 
Corporation’s common stock pursuant to a shareholders’ rights plan. 
The rights become exercisable in connection with certain 
acquisitions of 20% or more of the Corporation’s common stock by 
any person or group in a transaction not approved by the 
Corporation’s Board of Directors. Each right entitles its holder to 
purchase shares of common stock of the Corporation with a market 
value of $400 at a price of $200, unless the Board authorizes the 
rights be redeemed. The rights may be redeemed for $0.01 per right 
at any time before the rights become exercisable. In certain 
instances, the right to purchase applies to the capital stock of the 
acquirer instead of the common stock of the Corporation. The 
Corporation has reserved preferred shares necessary for issuance 
should the rights be exercised. The rights are scheduled to expire 
on August 20, 2008.

The Corporation has entered into change in control employment 
agreements with corporate ofﬁ cers and certain other key employees. 
According to the agreements, a change in control occurs when a 
third person or entity becomes the beneﬁ cial owner of 20% or more 
of the Corporation’s common stock, when more than one-third of the 
Corporation’s Board of Directors is composed of persons not 
recommended by at least three-fourths of the incumbent Board of 
Directors, upon certain business combinations involving the 
Corporation or upon approval by the Corporation’s shareholders of a 
complete liquidation or dissolution. Upon a change in control, a key 
employee is deemed to have a two-year employment with the 
Corporation, and all of his or her beneﬁ ts vest under the Corporation 
compensation plans. If, at any time within two years of the change in 
control, his or her employment is terminated by the Corporation for 
any reason other than cause or disability, or by the key employee for 
good reason, as such terms are deﬁ ned in the agreement, then the 
key employee is entitled to receive, among other beneﬁ ts, a 
severance payment equal to two times annual salary and the average 
of the prior two years’ bonuses.

Stock-Based Compensation

Under the Corporation’s 1995 Stock-Based Compensation Plan 
(the “Plan”), as amended effective August 8, 2006, the Corporation 
may award options to purchase shares of the Corporation’s common 
stock and grant other stock awards to executives, managers, and 
key personnel. As of September 30, 2006 there are approximately 
2.5 million shares available for future issuance under the Plan. The 
Plan is administered by the Human Resources and Compensation 
Committee of the Board of Directors. Restricted stock awarded 
under the Plan is expensed ratably over the vesting period of the 
awards. Stock options awarded to employees under the Plan must 
be at exercise prices equal to or exceeding the fair market value of 
the Corporation’s common stock on the date of grant. Stock options 
are generally subject to four-year cliff vesting and must be exercised 
within 10 years from the date of grant.

The Corporation also has a shareholder approved Members’ Stock 
Purchase Plan (the “MSP Plan”). The price of the stock purchased 
under the MSP Plan is 85% of the closing price on the applicable 
purchase date. During 2006, 114,397 shares of the Corporation’s 
common stock were issued under the MSP Plan at an average price 
of $40.03.

The Corporation adopted the provisions of Statement of Financial 
Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS 
123(R)”), beginning January 1, 2006, using the modiﬁ ed prospective 
transition method. This statement requires the Corporation to 
measure the cost of employee services in exchange for an award of 
equity instruments based on the grant-date fair value of the award 
and to recognize cost over the requisite service period. Under the 
modiﬁ ed prospective transition method, ﬁ nancial statements for 
periods prior to the date of adoption are not adjusted for the change 
in accounting.

Prior to January 1, 2006, the Corporation used the intrinsic value 
method to account for stock-based employee compensation under 
Accounting Principles Board Opinion No. 25, “Accounting for Stock 
Issued to Employees,” and therefore did not recognize compensation 
expense in association with options granted at or above the market 
price of common stock at the date of grant.

As a result of adopting the new standard, earnings before income 
taxes for the year ended December 30, 2006 decreased by 
$3.2 million, and net earnings decreased by $2.1 million, or $.04 per 
basic share and $.04 per diluted share. These results reﬂ ect stock 
compensation expense of $3.2 million and tax beneﬁ ts of 
$1.1 million for the period. 

Adoption of the new standard also affected the presentation of 
cash ﬂ ows. The change is related to tax beneﬁ ts associated with 
tax deductions that exceed the amount of compensation expense 
recognized in the ﬁ nancial statements. For the year ended 
December 30, 2006, cash ﬂ ow from operating activities was 
reduced by $0.9 million and cash ﬂ ow from ﬁ nancing activities 
was increased by $0.9 million as a result of the new standard.

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  31

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concurrent with the adoption of the new statement, the Corporation 
began to use the non-substantive vesting period approach for 
attributing stock compensation to individual periods. The nominal 
vesting period approach was used in determining the stock 
compensation expense for the Corporation’s pro forma net earnings 
disclosure for the years ended December 31, 2005, and January 1, 
2005, as presented in the table below. The change in the attribution 
method will not affect the ultimate amount of stock compensation 
expense recognized, but it has accelerated the recognition of such 
expense for non-substantive vesting conditions, such as retirement 
eligibility provisions. Under both approaches, the Corporation elected 
to recognize stock compensation on a straight-line basis.

The following table presents a reconciliation of reported net earnings 
and per share information to pro forma net earnings and per share 
information that would have been reported if the fair value method 
had been used to account for stock-based employee compensation 
last year:

(In millions, except per share data)

Net income, as reported
Deduct: Total stock-based employee 

compensation expense determined 
under fair value based method for 
all awards, net of related tax effects

Pro forma net income

Earnings per share:
  Basic – as reported
  Basic – pro forma
  Diluted – as reported
  Diluted – pro forma

2005

$137.4

2004

$113.6

1.8

5.0

$135.6

$108.6

$÷2.51
$÷2.48
$÷2.50
$÷2.47

$÷1.99
$÷1.90
$÷1.97
$÷1.89

The stock compensation expense for the year ended December 30, 
2006 and the stock compensation expense used in the preceding 
disclosure of pro forma earnings for the years ended December 31, 
2005 and January 1, 2005 was estimated on the date of grant using 
the Black-Scholes option-pricing model that used the following 
assumptions by grant year:

Expected term
Expected volatility:
  Range used
  Weighted-average
Expected dividend yield:
  Range used
  Weighted-average
Risk-free interest rate:
  Range used

Year Ended
Dec. 30, 2006

Year Ended
Dec. 31, 2005

7 years

7 years

Year Ended
Jan. 1, 2005

7 years

29.75%– 31.23%
31.21%

31.77%– 33.49%
33.47%

34.81%– 35.13%
35.12%

1.24%–1.43%
1.24%

1.17%–1.45%
1.45%

1.31%–1.49%
1.32%

4.62%– 5.08%

4.21%– 4.57%

4.36%– 4.80%

Expected volatilities are based on historical volatility due to the 
fact that they Corporation did not feel that future volatility over the 
expected term of the options is likely to differ from the past. The 
Corporation used a simple-average calculation method based on 
monthly frequency points for the prior seven years. The Corporation 
used the current dividend yield as there are no plans to substantially 
increase or decrease its dividends. The Corporation elected to 
use the simpliﬁ ed method as allowed by Staff Accounting Bulletin 
No. 107 “Share Based Payment” (“SAB No. 107”) to determine 
the expected term since the awards qualiﬁ ed as “plain vanilla” 
options as deﬁ ned in SAB No. 107. The risk-free interest rate was 
selected based on yields from U.S. Treasury zero-coupon issues 
with a remaining term equal to the expected term of the options 
being valued.

The following table summarizes the changes in outstanding stock 
options since the beginning of ﬁ scal 2004.

Number of Shares

Weighted-Average 
Exercise Price

Outstanding at January 3, 2004
Granted
Exercised
Forfeited

Outstanding at January 1, 2005
Granted
Exercised
Forfeited

Outstanding at December 31, 2005
Granted
Exercised
Forfeited

Outstanding at December 30, 2006

1,469,250
340,900
(448,500)
(53,200)

1,308,450
175,800
(331,500)
(24,100)

1,128,650
135,946
(68,500)
(22,480)

1,173,616

$24.15
39.59
22.33
27.61

$28.65
42.81
25.14
30.95

$31.84
58.06
22.51
39.91

$35.27

A summary of the Corporation’s nonvested shares as of December 
30, 2006 and changes during the year are presented below:

Nonvested Shares

Nonvested at December 31, 2005
Granted
Vested
Forfeited

Nonvested at December 30, 2006

Weighted-
Average 
Grant-Date 
Fair Value

$14.07
21.39
11.91
15.90

$15.97

Shares

695,400
135,946
(142,900)
(22,480)

665,966

32  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 30, 2006, there was $4.2 million of unrecognized 
compensation cost related to nonvested awards, which the 
Corporation expects to recognize over a weighted-average period 
of 1.3 years. Information about stock options that are vested or 
expected to vest and that are exercisable at December 30, 
2006, follows:

Options

Vested or expected to vest
Exercisable

Number

1,138,296
507,650

Weighted-
Average 
Exercise 
Price

$34.95
$28.57

Weighted-
Average 
Remaining 
Life in Years

5.3
2.6

Aggregate 
Intrinsic 
Value 
($000s)

$10,768
$÷8,041

The weighted-average grant-date fair value of options granted was 
$21.39, $15.74, and $17.70 for 2006, 2005 and 2004, respectively. 
Other information for the years follows:

Year Ended

(In thousands)

Dec. 30, 2006

Dec. 31, 2005

Jan. 1, 2005

Total fair value of shares vested
Total intrinsic value of options 

exercised

Cash received from exercise of 

stock options

Tax beneﬁ t realized from exercise 

of stock options

$1,702

$«÷875

$÷9,242

1,987

8,447

8,100

1,542

8,334

10,014

725

2,999

2,956

Retirement Beneﬁ ts

The Corporation has deﬁ ned contribution proﬁ t-sharing plans 
covering substantially all employees who are not participants in 
certain deﬁ ned beneﬁ t plans. The Corporation’s annual contribution 
to the deﬁ ned contribution plans is based on employee eligible 
earnings and results of operations and amounted to $28.2 million, 
$27.4 million, and $27.3 million, in 2006, 2005, and 2004, 
respectively.

The Corporation sponsors deﬁ ned beneﬁ t plans which include a 
limited number of salaried and hourly employees at certain 
subsidiaries. The Corporation’s funding policy is generally to 
contribute annually the minimum actuarially computed amount. Net 
pension costs relating to these plans were $0, $653,000, and $0, in 
2006, 2005, and 2004, respectively. The increase in 2005 is due to a 
plan curtailment resulting from the shutdown of an ofﬁ ce furniture 
facility in Van Nuys, California. The actuarial present value of 
obligations, less related plan assets at fair value, is not signiﬁ cant.

The Corporation also participates in a multi-employer plan, which 
provides deﬁ ned beneﬁ ts to certain of the Corporation’s union 
employees. Pension expense for this plan amounted to $352,000, 
$353,000, and $322,000, in 2006, 2005, and 2004, respectively.

Postretirement Health Care

The Corporation adopted SFAS No. 158 “Employers’ Accounting 
for Deﬁ ned Beneﬁ t Pension and Other Postretirement Plans, an 
amendment of FASB Statements No. 87, 88, 106, and 132(R)” for 
its 2006 year-end ﬁ nancial statement and recognized on the 2006 
balance sheet the funded status of other postretirement beneﬁ t 
plans. The following table provides the information required by SFAS 
No. 158. The table also provides the funded status of the plan, 
reconciled to the accrued postretirement beneﬁ ts costs recognized 
in the Corporation’s balance sheets for the years prior to the 
adoption of the new standard.

(In thousands)

2006

2005

2004

Change in beneﬁ t obligation
  Beneﬁ t obligation at 
  beginning of year

  Service cost
Interest cost
  Beneﬁ ts paid
  Actuarial (gain) or loss

$«19,738
326
1,053
(1,218)
(817)

$«18,958
303
1,057
(1,503)
923

$«18,331
284
1,066
(1,780)
1,057

  Beneﬁ t obligation at end of year

$«19,082

$«19,738

$«18,958

Change in plan assets
  Fair value at beginning of year
  Actual return on assets
  Employer contributions
  Beneﬁ ts paid

$«÷7,582
326
3
(1,218)

$÷«8,777
300
8
(1,503)

$«10,250
112
195
(1,780)

  Fair value at end of year

$«÷6,693

$÷«7,582

$÷«8,777

Funded status of plan

$(12,388)

$(12,156)

$(10,181)

Amounts recognized in the Statement 

of Financial Position consist of:

  Current liabilities
  Noncurrent liabilities

Amounts recognized in Accumulated 

Other Comprehensive Income 
(before tax) consist of:

  Unrecognized actuarial (gain)/loss
  Unrecognized transition 
(asset)/obligation

  Unrecognized prior service cost

Change in Accumulated Other 

Comprehensive Income (before tax):

  Amount disclosed at 
  beginning of year

  Change during year prior to 

  SFAS 158 adoption

  Change due to the adoption of 

  SFAS 158

  Amount disclosed at end of year

Reconciliation of funded status
  Funded status
  Unrecognized actuarial (gain) or loss
  Unrecognized transition obligation 

  or (asset)

  Unrecognized prior service cost

  Net amount recognized at year-end

$÷÷«÷÷«0
$«12,388

$÷«2,069

3,618
431

$÷«6,118

$÷÷«÷÷«0

0

6,118

$÷«6,118

–
–

–

–
–

–

–

–

–

–

–
–

–

–
–

–

–

–

–

–

N/A

N/A

N/A

N/A

N/A

$(12,156)
3,132

$(10,181)
2,340

4,199
661

4,780
892

$÷(4,164)

$÷(2,169)

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  33

 
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Estimated future beneﬁ t payments (In thousands)

Leases

The Corporation leases certain warehouse, plant facilities, and 
equipment. Commitments for minimum rentals under non-cancelable 
leases at the end of 2006 are as follows:

Capitalized Leases

Operating Leases

(In thousands)

2007
2008
2009
2010
2011
Thereafter

Total minimum lease payments

Less: amount representing interest

Present value of net minimum lease payments, 

including current maturities of $141

$÷31,001
27,740
24,407
21,516
17,164
19,402

$141,230

$«÷211
211
211
211
168
–

1,012

197

$«÷815

Property, plant, and equipment at year-end include the following 
amounts for capitalized leases:

(In thousands)

Buildings
Machinery and equipment
Ofﬁ ce equipment

Less: allowances for depreciation

2006

$3,299
–
–

3,299
2,954

2005

$3,299
38
761

4,098
3,564

2004

$3,299
196
761

4,256
3,307

$«÷345

$«÷534

$«÷949

Rent expense for the years 2006, 2005, and 2004, amounted to 
approximately $32.1 million, $19.5 million, and $16.1 million, 
respectively. The Corporation has an operating lease for a production 
facility with annual rentals totaling approximately $371,000 with a 
corporation in which the minority owner of one of the Corporation’s 
consolidated subsidiaries is an investor. Contingent rent expense 
under both capitalized and operating leases (generally based on 
mileage of transportation equipment) amounted to $165,000, 
$169,000, and $241,000, for the years 2006, 2005, and 2004, 
respectively.

Guarantees, Commitments and Contingencies

The Corporation utilizes letters of credit in the amount of $25 million 
to back certain ﬁ nancing instruments, insurance policies and 
payment obligations. The letters of credit reﬂ ect fair value as a 
condition of their underlying purpose and are subject to fees 
competitively determined.

  Fiscal 2007
  Fiscal 2008
  Fiscal 2009
  Fiscal 2010
  Fiscal 2011
  Fiscal 2012 – 2016

Expected contributions during ﬁ scal 2007
  Total

Plan Assets – Percentage of Fair Value by Category

Cash equivalents
Equity
Debt
Other

Total

2006

1%
25%
74%
0%

100%

2005

0%
0%
0%
100%

100%

$1,376
1,344
1,335
1,332
1,331
7,321

$÷÷«÷0

2004

0%
0%
0%
100%

100%

The Corporation invested these funds in high-grade money market 
instruments in 2005 and 2004.

The discount rates at ﬁ scal year-end 2006, 2005, and 2004, were 
5.8%, 5.5%, and 5.75%, respectively. The Corporation payment 
for these beneﬁ ts has reached the maximum amounts per the 
plan; therefore, healthcare trend rates have no impact on the 
Corporation’s cost. 

Components of Net Periodic Postretirement Beneﬁ t Cost

(In thousands)

Service cost
Interest cost
Expected return on assets
Amortization of unrecognized net (gain)/loss
Amortization of unrecognized transition (asset)/obligation
Amortization of unrecognized prior service cost

Net periodic postretirement beneﬁ t cost/(income)

2007

$«÷481
1,067
(240)
13
581
230

$2,132

A discount rate of 5.8% and an expected long-term return on plan 
assets of 4.0% were used to determine net periodic beneﬁ t cost 
for 2007.

In May 2004, the FASB issued FASB Staff Position No. 106-2, 
“Accounting and Disclosure Requirements Related to the Medicare 
Prescription Drug, Improvement and Modernization Act of 2003” 
(“FSP 106-2”). The Corporation adopted FSP 106-2 on July 4, 2004. 
The Corporation has determined that the beneﬁ ts provided by the 
plan are not actuarially equivalent to the Medicare Part D beneﬁ t 
under the Modernization Act based on the percentage of the cost of 
the plan that the Corporation provides. Therefore, the adoption of 
FSP 106-2 did not have an impact on the Corporation’s ﬁ nancial 
statements during 2004. The Corporation will continue to monitor 
the effect as regulations evolve regarding actuarial equivalency. 

34  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Corporation is involved in various kinds of disputes and legal 
proceedings that have arisen in the course of its business, including 
pending litigation, preferential payment claims in customer 
bankruptcies, environmental remediation, taxes, and other claims. 
It is the Corporation’s opinion, after consultation with legal counsel, 
that additional liabilities, if any, resulting from these matters are not 
expected to have a material adverse effect on the Corporation’s 
quarterly or annual operating results and cash ﬂ ows when resolved 
in a future period.

Signiﬁ cant Customer

One ofﬁ ce furniture customer accounted for approximately 12%, 
12%, and 13% of consolidated net sales in 2006, 2005, and 2004, 
respectively.

Operating Segment Information

In accordance with SFAS No. 131, “Disclosures about Segments of 
an Enterprise and Related Information,” management views the 
Corporation as being in two operating segments: ofﬁ ce furniture and 
hearth products, with the former being the principal segment. The 
ofﬁ ce furniture segment manufactures and markets a broad line of 
metal and wood commercial and home ofﬁ ce furniture which 
includes storage products, desks, credenzas, chairs, tables, 
bookcases, freestanding ofﬁ ce partitions and panel systems, and 
other related products. The hearth products segment manufactures 
and markets a broad line of gas, electric, and wood burning 
ﬁ replaces, inserts, stoves, facings, and accessories, principally for 
the home.

For purposes of segment reporting, intercompany sales transfers 
between segments are not material, and operating proﬁ t is income 
before income taxes exclusive of certain unallocated corporate 
expenses. These unallocated corporate expenses include the net 
costs of the Corporation’s corporate operations, interest income, and 
interest expense. Management views interest income and expense 
as corporate ﬁ nancing costs and not as an operating segment cost. 
In addition, management applies an effective income tax rate to its 
consolidated income before income taxes so income taxes are not 
reported or viewed internally on a segment basis. Identiﬁ able assets 
by segment are those assets applicable to the respective industry 
segments. Corporate assets consist principally of cash and cash 
equivalents, short-term investments, and corporate ofﬁ ce real estate 
and related equipment.

No geographic information for revenues from external customers 
or for long-lived assets is disclosed since the Corporation’s 
primary market and capital investments are concentrated in the 
United States.

Reportable segment data reconciled to the consolidated ﬁ nancial 
statements for the years ended 2006, 2005, and 2004, is as follows 
for continuing operations:

(In thousands)

Net sales:
  Ofﬁ ce furniture
  Hearth products

Operating proﬁ t:
  Ofﬁ ce furniture (a)(b)
  Hearth products

2006

2005

2004

$2,077,040
602,763

$1,838,386
594,930

$1,561,765
522,670

$2,679,803

$2,433,316

$2,084,435

$«÷181,811
58,699

$«÷177,487
74,822

$«÷155,019
62,158

Total operating proﬁ t
Unallocated corporate expenses

240,510
(47,105)

252,309
(36,424)

217,177
(38,185)

Income before income taxes

$«÷193,405

$«÷215,885

$«÷178,992

Depreciation and amortization 

expense:

  Ofﬁ ce furniture
  Hearth products
  General corporate

Capital expenditures:
  Ofﬁ ce furniture
  Hearth products
  General corporate

Identiﬁ able assets:
  Ofﬁ ce furniture
  Hearth products
  General corporate

$«÷÷48,753
16,559
4,191

$«÷÷43,967
15,275
6,272

$«÷÷45,737
15,061
5,905

$«÷÷69,503

$«÷÷65,514

$«÷÷66,703

$«÷÷42,126
11,093
6,705

$«÷÷27,760
8,498
5,544

$«÷÷18,635
13,878
3,287

$«÷÷59,924

$«÷÷41,802

$«÷÷35,800

$«÷748,285
359,646
118,428

$«÷617,591
361,568
161,112

$«÷570,294
338,602
112,761

$1,226,359

$1,140,271

$1,021,657

(a)  Included in operating proﬁ t for the ofﬁ ce furniture segment are pretax charges of 

$2.8 million, $3.5 million, and $0.9 million, for closing of facilities and impairment charges 
in 2006, 2005, and 2004, respectively.

(b)  Includes minority interest.

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  35

 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Quarterly Results of Operations (Unaudited)

The following table presents certain unaudited quarterly ﬁ nancial information for each of the past 12 quarters. In the opinion of the 
Corporation’s management, this information has been prepared on the same basis as the consolidated ﬁ nancial statements appearing 
elsewhere in this report and includes all adjustments (consisting only of normal recurring accruals) necessary to present fairly the ﬁ nancial 
results set forth herein. Results of operations for any previous quarter are not necessarily indicative of results for any future period.

(In thousands, except per share data)

Year-End 2006
Net sales
Cost of products sold

Gross proﬁ t
Selling and administrative expenses
Restructuring related charges (income)

Operating income
Interest income (expense) – net

Earnings from continuing operations before income taxes and minority interest
Income taxes (1)
Minority interest in earnings of a subsidiary

Income from continuing operations
Discontinued operations, less applicable taxes

Net income

Net income from continuing operations – basic
Net income from discontinued operations – basic
Net income per common share – basic
Weighted-average common shares outstanding – basic 

Net income from continuing operations – diluted
Net income from discontinued operations – diluted 
Net income per common share – diluted
Weighted-average common shares outstanding – diluted

  As a Percentage of Net Sales
  Net sales
  Gross proﬁ t
  Selling and administrative expenses
  Restructuring related charges
  Operating income

Income taxes
Income from continuing operations

  Discontinued operations, less applicable taxes
  Net income

First 
Quarter

Second 
Quarter

Third 
Quarter

Fourth 
Quarter

$645,565
416,610

228,955
181,188
1,719

46,408
(1,108)

44,940
16,403
(39)

28,576
(106)

$667,706
434,060

233,646
184,806
228

48,612
(3,425)

45,187
16,493
(22)

28,716
(64)

$684,317
447,587

236,730
176,134
(27)

60,623
(4,111)

56,512
20,627
(24)

35,909
(147)

$682,215
454,625

227,590
175,548
909

51,133
(4,540)

46,593
10,147
(25)

36,471
(5,980)

$÷28,470

$÷28,652

$÷35,762

$÷30,491

$÷÷÷÷.55
(.00)
$÷÷÷÷.55
51,836

$÷÷÷÷.55
(.00)
$÷÷÷÷.55
52,229

100.0%
35.5
28.1
0.3
7.2
2.5
4.4
(0.0)
4.4

$÷÷÷÷.56
(.00)
$÷÷÷÷.56
51,009

$÷÷÷÷.56
(.00)
$÷÷÷÷.56
51,339

100.0%
35.0
27.7
0.0
7.3
2.5
4.3
(0.0)
4.3

$÷÷÷÷.73
(.00)
$÷÷÷÷.73
49,324

$÷÷÷÷.72
(.00)
$÷÷÷÷.72
49,592

100.0%
34.6
25.7
(0.0)
8.9
3.0
5.2
(0.0)
5.2

$÷÷÷÷.76
(.13)
$÷÷÷÷.63
48,069

$÷÷÷÷.75
(.12)
$÷÷÷÷.63
48,363

100.0%
33.4
25.7
0.1
7.5
1.5
5.3
(0.9)
4.5

(1)  The Corporation recorded a $4.1 million tax beneﬁ t in the 4th quarter of 2006 as discussed in the “Income Taxes” footnote to the ﬁ nancial statements.

36  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

Year-End 2005
Net sales
Cost of products sold

Gross proﬁ t
Selling and administrative expenses
Restructuring related charges

Operating income
Interest income (expense) – net

Earnings from continuing operations before income taxes and minority interest
Income taxes
Minority interest in earnings of a subsidiary

Income from continuing operations
Discontinued operations, less applicable taxes

Net income

Net income from continuing operations – basic 
Net income from discontinued operations – basic
Net income per common share – basic
Weighted-average common shares outstanding – basic 

Net income from continuing operations – diluted
Net income from discontinued operations – diluted 
Net income per common share – diluted
Weighted-average common shares outstanding – diluted

  As a Percentage of Net Sales
  Net sales
  Gross proﬁ t
  Selling and administrative expenses
  Restructuring related charges
  Operating income

Income taxes
Income from continuing operations

  Discontinued operations, less applicable taxes
  Net income

First 
Quarter

Second 
Quarter

Third 
Quarter

Fourth 
Quarter

$558,168
363,139

195,029
154,244
–

40,785
55

40,840
14,498
–

26,342
(220)

$589,620
376,169

213,451
158,936
–

54,515
98

54,613
19,386
–

35,227
(242)

$628,291
393,200

235,091
170,837
1,071

63,183
(498)

62,685
22,251
(11)

40,445
116

$657,237
416,967

240,270
179,650
2,391

58,229
(492)

57,737
21,580
5

36,152
(400)

$÷26,122

$÷34,985

$÷40,561

$÷35,752

$÷÷÷÷.48
(.01)
$÷÷÷÷.47
55,176

$÷÷÷÷.47
(.00)
$÷÷÷÷.47
55,551

100.0%
34.9
27.6
–
7.3
2.6
4.7
(0.0)
4.7

$÷÷÷÷.64
(.01)
$÷÷÷÷.63
55,131

$÷÷÷÷.63
(.00)
$÷÷÷÷.63
55,513

100.0%
36.2
27.0
–
9.2
3.3
6.0
(0.0)
5.9

$÷÷÷÷.74
.00
$÷÷÷÷.74
55,012

$÷÷÷÷.73
.00
$÷÷÷÷.73
55,447

100.0%
37.4
27.2
0.2
10.1
3.5
6.4
0.0
6.5

$÷÷÷÷.68
(.01)
$÷÷÷÷.67
53,278

$÷÷÷÷.67
(.00)
$÷÷÷÷.67
53,693

100.0%
36.6
27.3
0.4
8.9
3.3
5.5
(0.1)
5.4

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  37

 
 
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share data)

Year-End 2004
Net sales
Cost of products sold

Gross proﬁ t
Selling and administrative expenses
Restructuring related charges

Operating income
Interest income (expense) – net

Earnings from continuing operations before income taxes
Income taxes

Income from continuing operations
Discontinued operations, less applicable taxes

Net income

Net income from continuing operations – basic
Net income from discontinued operations – basic
Net income per common share – basic
Weighted-average common shares outstanding – basic 

Net income from continuing operations – diluted
Net income from discontinued operations – diluted 
Net income per common share – diluted
Weighted-average common shares outstanding – diluted

  As a Percentage of Net Sales
  Net sales
  Gross proﬁ t
  Selling and administrative expenses
  Restructuring related charges
  Operating income

Income taxes
Income from continuing operations

  Discontinued operations, less applicable taxes
  Net income

First 
Quarter

Second 
Quarter

Third 
Quarter

Fourth 
Quarter

$464,037
294,275

169,762
134,580
520

34,662
355

35,017
12,606

22,411
–

$508,605
324,984

183,621
142,579
215

40,827
120

40,947
15,121

25,826
–

$569,485
364,748

204,737
146,657
135

57,945
(29)

57,916
21,139

36,777
(33)

$542,308
350,770

191,538
146,421
16

45,101
11

45,112
16,466

28,646
(45)

$÷22,411

$÷25,826

$÷36,744

$÷28,601

$÷÷÷÷.38
–
$÷÷÷÷.38
58,240

$÷÷÷÷.38
–
$÷÷÷÷.38
58,690

100.0%
36.6
29.0
0.1
7.5
2.7
4.8
–
4.8

$÷÷÷÷.45
–
$÷÷÷÷.45
57,943

$÷÷÷÷.44
–
$÷÷÷÷.44
58,378

100.0%
36.1
28.0
0.0
8.0
3.0
5.1
–
5.1

$÷÷÷÷.65
(.00)
$÷÷÷÷.65
56,192

$÷÷÷÷.65
(.00)
$÷÷÷÷.65
56,635

100.0%
36.0
25.8
0.0
10.2
3.7
6.5
(0.0)
6.5

$÷÷÷÷.52
(.00)
$÷÷÷÷.52
55,511

$÷÷÷÷.51
(.00)
$÷÷÷÷.51
55,897

100.0%
35.3
27.0
0.0
8.3
3.0
5.3
(0.0)
5.3

38  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

 
 
SELEC TED FINANCIAL DATA – FIVE-YE AR SUMMARY

Per Common Share Data (Basic and Dilutive)

Income from continuing operations – basic

Income from continuing operations – diluted

Net income – basic

Net income – diluted

Cash dividends

Book value – basic

Net working capital – basic

Operating Results (Thousands of Dollars)

Net sales

Gross proﬁ t as a % of net sales

Interest expense

Income from continuing operations

Income from continuing operations as a % of net sales
Loss from discontinued operations (a)
Net income

Net income as a % of net sales

Cash dividends

% return on average shareholders’ equity

Depreciation and amortization

Distribution of Net Income

% paid to shareholders

% reinvested in business

Financial Position (Thousands of Dollars)

Current assets

Current liabilities

Working capital

Current ratio

Total assets

% return on beginning assets employed

Long-term debt and capital lease obligations

Shareholders’ equity

Current Share Data

2006

2005

2004

2003

2002

$÷÷÷«÷2.59

$÷÷÷÷«2.53

$÷÷÷÷«1.99

$÷÷÷÷«1.69

$÷÷÷÷«1.55

2.57

2.46

2.45

.72

10.35

3.04

2.51

2.51

2.50

.62

11.46

2.48

1.97

1.99

1.97

.56

12.10

1.96

1.68

1.69

1.68

.52

12.19

3.71

1.55

1.55

1.55

.50

11.08

1.82

$2,679,803

$2,433,316

$2,084,435

$1,755,728

$1,692,622

34.6%

36.3%

36.0%

36.4%

35.4%

$«÷÷14,323

$÷÷÷«2,355

$÷÷÷÷÷886

$÷÷÷«2,970

$÷÷÷«4,714

129,672

138,166

113,660

98,105

91,360

4.8%

5.7%

5.5%

$÷÷÷(6,297)

$÷÷÷÷«(746)

$÷÷÷÷÷«(78)

123,375
4.6%

137,420
5.6%

113,582
5.4%

5.6%

–

98,105
5.6%

5.4%

–

91,360
5.4%

$÷«÷36,028

$÷÷«33,841

$÷÷«32,023

$÷÷«30,299

$÷÷«29,386

22.6%

21.8%

16.5%

14.5%

14.7%

$÷«÷69,503

$÷÷«65,514

$÷÷«66,703

$÷÷«72,772

$÷÷«68,755

29.2%

70.8%

24.6%

75.4%

28.2%

71.8%

30.9%

69.1%

32.2%

67.8%

$÷«504,174

$÷«486,598

$÷«374,579

$÷«462,122

$÷«405,054

358,542

145,632

1.41

358,174

128,424

1.36

266,250

108,329

1.41

245,816

216,306

1.88

298,680

106,374

1.36

$1,226,359

$1,140,271

$1,021,657

$1,021,826

$1,020,552

18.1%

21.2%

17.5%

14.7%

14.83%

$÷«285,974

$÷«103,869

$÷÷÷«3,645

$÷÷÷«4,126

$÷÷÷«9,837

495,919

593,944

669,163

709,889

646,893

Number of shares outstanding at year-end

Weighted-average shares outstanding during year – basic

Weighted-average shares outstanding during year – diluted

Number of shareholders of record at year-end

47,905,351

51,848,591

55,303,323

58,238,519

58,373,607

50,059,443

54,649,199

57,127,110

58,178,739

58,789,851

50,374,758

55,033,741

57,577,630

58,545,353

59,021,071

7,475

6,702

6,465

6,416

6,777

Other Operational Data

Capital expenditures (thousands of dollars)

Members (employees) at year-end

(a)  Component reported as discontinued operations acquired in 2004.

(b)  Includes acquisitions completed during the ﬁ scal year.

$÷«÷58,921

$÷÷«38,912

$÷÷«32,417

$÷÷«34,842

$÷÷«25,885

14,170 (b)

12,504 (b)

10,589 (b)

8,926

8,828

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  39

 
OTHER INVESTOR INFORMATION

C O M PA R I SO N  O F  F I V E -YE A R  C U M U L AT I V E  TOTAL  R E T U R N

$220.00

$200.00

$180.00

$160.00

$140.00

$120.00

$100.00

$80.00

$60.00

$40.00

2001

2002

2003

2004

2005

2006

HNI Corporation

S&P 500

OFIG*

Annual Return

HNI Corporation

S&P 500

OFIG*

2001

$100.00

$100.00

$100.00

2002

$99.24

$76.32

$76.27

2003

$158.92

$÷98.75

$100.91

2004

$160.09

$109.94

$105.36

2005

$206.78

$115.33

$105.42

2006

$169.67

$133.55

$135.67

* The Ofﬁ ce Furniture Industry Group is a composite peer index constructed by the Corporation and weighted by market capitalization and is comprised of the following companies: Herman Miller, Inc.; Kimball 
International, Inc.; Teknion Corporation; and Steelcase Inc. It is weighted each quarter according to the market capitalization of its constituents on the last trading day of the Corporation’s prior ﬁ scal quarter.

  The total return assumes $100.00 invested in each of the Corporation’s Common Stock, the S&P 500 Index, and the Ofﬁ ce Furniture Industry Group index on December 29, 2001 and assumes that 

dividends are reinvested.

  The comparative performance of the Corporation’s Common Stock against the indexes as depicted in this graph is dependent upon the price of stock at a particular measurement point in time. Since 

individual stocks are more volatile than broader stock indexes, the perceived comparative performance of the Corporation’s Common Stock may vary based on the strength or weakness of the stock price at 
the new measurement point used in future performance graphs. For this reason, the Corporation does not believe that this graph should be considered as the sole indicator of the Corporation’s performance.

Common Stock Market Prices and Dividends 
(Unaudited)

Common Stock Market Price and Price/Earnings Ratio 
(Unaudited)

QUA R TE R LY  20 0 6 – 20 0 4

F I S CAL  Y E A R S  2 0 0 6 – 20 0 2

2006 by Quarter

High

Low

Dividends 
per Share

$61.68

$54.83

$÷.18

Year

2006
2005
2004
2003
2002

Five-year average

Market Price

High

Low

Diluted 
Earnings 
per Share

Price/Earnings Ratio

High

Low

$61.68
62.41
45.71
44.12
30.85

$38.34
38.80
35.25
24.65
22.88

$2.45
2.50
1.97
1.68
1.55

25
25
23
26
20

24

16
16
18
15
15

16

1st

2nd

3rd
4th

Total dividends paid

2005 by Quarter

1st

2nd

3rd
4th

Total dividends paid

59.70

46.14
48.31

44.68

38.34
41.05

High

Low

$45.70

$38.80

54.23

60.23
62.41

44.65

50.92
46.94

.18

.18
.18

$÷.72

Dividends 
per Share

$.155

.155

.155
.155

$÷.62

Dividends 
per Share

2004 by Quarter

High

Low

1st

2nd

3rd
4th

Total dividends paid

$45.71

$35.25

$÷.14

42.42

42.13
43.65

36.56

36.97
38.52

.14

.14
.14

$÷.56

4 0  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

FORWARD-LOOKING STATEMENTS

Statements in this report that are not strictly historical, including 
statements as to plans, outlook, objectives, and future ﬁ nancial 
performance, are “forward-looking” statements that are made 
pursuant to the safe harbor provisions of the Private Securities 
Litigation Reform Act of 1995. Words such as “anticipate,” 
“believe,” “could,” “conﬁ dent,” “estimate,” “expect,” “forecast,” 
“intend,” “likely,” “may,” “plan,” “possible,” “potential,” “ predict,” 
“project,” “should,” and variations of such words and similar 
expressions identify forward-looking statements. Forward-looking 
statements involve known and unknown risks, which may cause the 
Corporation’s actual results in the future to differ materially from 
expected results.

These risks include, without limitation:

(cid:129)  the Corporation’s ability to realize ﬁ nancial beneﬁ ts from its (a) 

price increases, (b) cost containment and business simpliﬁ cation 
initiatives for the entire Corporation, (c) investments in strategic 
acquisitions, new products and brand building, (d) investments in 
distribution and rapid continuous improvement, (e) repurchases of 
common stock, and (f) ability to maintain its effective tax rate;

(cid:129)  uncertainty related to the availability of cash to fund future growth;

(cid:129)  lower than expected demand for the Corporation’s products due 

to uncertain political and economic conditions;

(cid:129)  lower industry growth than expected;

(cid:129)  major disruptions at our key facilities or in the supply of key raw 

materials, components or ﬁ nished goods;

(cid:129)  uncertainty related to disruptions of business by terrorism, military 

action, epidemic, acts of God or other Force Majeure events;

(cid:129)  competitive pricing pressure from foreign and domestic 

competitors;

(cid:129)  higher than expected costs and lower than expected supplies of 

materials (including steel and petroleum based materials);

(cid:129)  higher than expected costs for energy and fuel;

(cid:129)  changes in the mix of products sold and customers purchasing;

(cid:129)  restrictions imposed by the terms of the Corporation’s revolving 

credit facility and note purchase agreement; and

(cid:129)  currency ﬂ uctuations and other factors described in the 

Corporation’s annual and quarterly reports ﬁ led with the Securities 
and Exchange Commission on Forms 10-K and 10-Q.

The factors identiﬁ ed above are believed to be important factors 
(but not necessarily all of the important factors) that could cause 
actual results to differ materially from those expressed in any 
forward-looking statement. Unpredictable or unknown factors could 
also have material adverse effects on the Corporation. All forward-
looking statements included in this report are expressly qualiﬁ ed in 
their entirety by the foregoing cautionary statements. Because of the 
foregoing risks, as well as other variables affecting the Corporation’s 
operating results, past ﬁ nancial performance may not be a reliable 
indicator of future performance, and historical trends should not be 
used to anticipate results or trends in future periods. The Corporation 
undertakes no obligation to update, amend, or clarify any forward-
looking statement, whether as a result of new information, future 
events, or otherwise, except as required by applicable law.

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  41

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of HNI Corporation:
We have completed an integrated audit of HNI Corporation’s consolidated ﬁ nancial statements and of its internal control over ﬁ nancial reporting 
as of December 30, 2006, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, 
based on our audits, are presented below.

CONSOLIDATED FINANCIAL STATEMENTS
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, shareholders’ equity and cash 
ﬂ ows, present fairly, in all material respects, the ﬁ nancial position of HNI Corporation and its subsidiaries (the “Corporation”) at December 30, 2006, 
December 31, 2005, and January 1, 2005, and the results of their operations and their cash ﬂ ows for each of the three years in the period ended 
December 30, 2006 in conformity with accounting principles generally accepted in the United States of America. These ﬁ nancial statements are 
the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these ﬁ nancial statements based on our audits. 
We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). 
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁ nancial statements are free of material 
misstatement. An audit of ﬁ nancial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁ nancial 
statements, assessing the accounting principles used and signiﬁ cant estimates made by management, and evaluating the overall ﬁ nancial statement 
presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in the notes to the consolidated ﬁ nancial statements, the Corporation changed the manner in which it accounts for share-based 
compensation effective January 1, 2006 and the manner in which obligations associated with deﬁ ned beneﬁ t pension and other postretirement 
plans are presented effective December 30, 2006.

INTERNAL CONTROL OVER FINANCIAL REPORTING
Also, in our opinion, management’s assessment, included in the Management Report on Internal Control Over Financial Reporting, that the Corporation 
maintained effective internal control over ﬁ nancial reporting as of December 30, 2006 based on criteria established in Internal Control – Integrated 
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), is fairly stated, in all material respects, 
based on those criteria. Furthermore, in our opinion, the Corporation maintained, in all material respects, effective internal control over ﬁ nancial 
reporting as of December 30, 2006, based on criteria established in Internal Control – Integrated Framework issued by the COSO. The Corporation’s 
management is responsible for maintaining effective internal control over ﬁ nancial reporting and for its assessment of the effectiveness of internal 
control over ﬁ nancial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of the Corporation’s 
internal control over ﬁ nancial reporting based on our audit. We conducted our audit of internal control over ﬁ nancial reporting in accordance with the 
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain 
reasonable assurance about whether effective internal control over ﬁ nancial reporting was maintained in all material respects. An audit of internal 
control over ﬁ nancial reporting includes obtaining an understanding of internal control over ﬁ nancial reporting, evaluating management’s assessment, 
testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary 
in the circumstances. We believe that our audit provides a reasonable basis for our opinions. 

A company’s internal control over ﬁ nancial reporting is a process designed to provide reasonable assurance regarding the reliability of ﬁ nancial 
reporting and the preparation of ﬁ nancial statements for external purposes in accordance with generally accepted accounting principles. A company’s 
internal control over ﬁ nancial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, 
accurately and fairly reﬂ ect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are 
recorded as necessary to permit preparation of ﬁ nancial statements in accordance with generally accepted accounting principles, and that receipts and 
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide 
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could 
have a material effect on the ﬁ nancial statements. 

Because of its inherent limitations, internal control over ﬁ nancial reporting may not prevent or detect misstatements. Also, projections of any evaluation 
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree 
of compliance with the policies or procedures may deteriorate.

As described in the Management Report on Internal Control Over Financial Reporting, management has excluded Lamex from its assessment of 
internal control over ﬁ nancial reporting as of December 30, 2006 because it was acquired by the Company in a purchase business combination during 
2006. We have also excluded Lamex from our audit of internal control over ﬁ nancial reporting.  Lamex is a wholly-owned subsidiary, whose total 
assets and total revenues represent 3% and 2%, respectively, of the related consolidated ﬁ nancial statement amounts as of and for the year ended 
December 30, 2006. 

PricewaterhouseCoopers LLP
Chicago, Illinois
February 26, 2007

42  HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT 

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of HNI Corporation is responsible for establishing and maintaining adequate internal control over ﬁ nancial reporting as 
deﬁ ned in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. HNI Corporation’s internal control over ﬁ nancial 
reporting is a process designed to provide reasonable assurance regarding the reliability of ﬁ nancial reporting and the preparation of 
ﬁ nancial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. 
The Corporation’s internal control over ﬁ nancial reporting includes those written policies and procedures that:

(cid:129)  Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reﬂ ect the transactions and dispositions of the 

assets of HNI Corporation;

(cid:129)  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁ nancial statements in accordance 
with accounting principles generally accepted in the United States of America, and that receipts and expenditures of HNI Corporation 
are being made only in accordance with authorizations of management and directors of HNI Corporation; and

(cid:129)  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that 

could have a material effect on the consolidated ﬁ nancial statements.

Internal control over ﬁ nancial reporting includes the controls themselves, monitoring (including internal auditing practices), and actions 
taken to correct deﬁ ciencies as identiﬁ ed.

Because of its inherent limitations, internal control over ﬁ nancial reporting may not prevent or detect misstatements. Also, projections 
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes 
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

On March 1, 2006, the Corporation completed the acquisition of Lamex as discussed in the Business Combination footnote to the 
Corporation’s consolidated ﬁ nancial statements. Management excluded Lamex from its assessment of the Corporation’s internal control over 
ﬁ nancial reporting as it was acquired during the ﬁ scal year. Lamex is a wholly-owned subsidiary, whose total assets and total revenues 
represent 3% and 2%, respectively, of the consolidated ﬁ nancial statement amounts as of and for the year ended December 30, 2006.

Management assessed the effectiveness of HNI Corporation’s internal control over ﬁ nancial reporting as of December 30, 2006.  
Management based this assessment on criteria for effective internal control over ﬁ nancial reporting described in Internal Control – Integrated 
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included 
an evaluation of the design of the Corporation’s internal control over ﬁ nancial reporting and testing of the operational effectiveness of the 
Corporation’s internal control over ﬁ nancial reporting. Management reviewed the results of its assessment with the Audit Committee 
of our Board of Directors.

Based on this assessment, management determined that, as of December 30, 2006, HNI Corporation maintained effective internal control 
over ﬁ nancial reporting.

Management’s assessment of the effectiveness of the Corporation’s internal control over ﬁ nancial reporting as of December 30, 2006 
has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting ﬁ rm, as stated in its report which 
appears herein.

Stan A. Askren 
Chairman, President and Chief Executive Ofﬁ cer 

Jerald K. Dittmer
Vice President and Chief Financial Ofﬁ cer

February 22, 2007

HNI CORPOR ATION AND SUBSIDIARIES  2006 ANNUAL REPORT  4 3

 
 
A MESSAGE FROM THE BOARD OF DIRECTORS

Dear shareholders:

The foundations of the HNI Corporation Vision statement (as shown on page 46) are operating profitably, creating long-term 

shareholder value, pursuing profitable growth, delivering quality in all we do, being a great place to work and, above all, being 

a responsible corporate citizen.

In our role as members of the Board of Directors, we do our utmost to ensure the realization of the HNI Vision. We achieve this 

by supporting HNI Corporation’s sound policies and practices, clear and open communications, and conservative and straight-

forward financial management. We also believe shareholder interests are best served by well-informed, active and engaged Board 

members, and this is what each of us strives to be.

We are proud to serve on this Board and are committed to ensuring the highest standards of ethics and corporate governance.

Sincerely,

The HNI Corporation Board of Directors

Stan A. Askren

Mary H. Bell

Miguel M. Calado

Gary M. Christensen

Cheryl A. Francis

John A. Halbrook

James R. Jenkins

Dennis J. Martin

Larry B. Porcellato

Joseph Scalzo

Abbie J. Smith

Brian E. Stern

Ronald V. Waters, III

4 4  HNI CORPOR ATION  2006 ANNUAL REPORT 

BOARD OF DIRECTORS AND OFFICERS

Board of Directors

Stan A. Askren
Chairman, President and 
Chief Executive Officer,
HNI Corporation

Mary H. Bell
Vice President,
Caterpillar Inc.
Chairman and President, 
Caterpillar Logistics
Services, Inc.

Miguel M. Calado
Chief Financial Officer, 
Hovione, SA
Former Executive Vice 
President and President, 
International, 
Dean Foods Company

Gary M. Christensen
Lead Director,
HNI Corporation
Advisor, Wind Point Partners 
Retired President and
Chief Executive Officer, 
Pella Corporation

Cheryl A. Francis
Vice Chairman,
Corporate Leadership Center
Independent Business and 
Financial Advisor

John A. Halbrook
Chairman,
Woodward Governor 
Company

James R. Jenkins
Senior Vice President
and General Counsel,
Deere & Company

Dennis J. Martin
Independent Business 
Consultant 
Retired Chairman, President 
and Chief Executive Officer,
General Binding Corporation

Larry B. Porcellato
Chief Executive Officer,
ICI Paints North America

Joseph Scalzo
President and 
Chief Executive Officer, 
WhiteWave Foods Company

Abbie J. Smith
Chaired Professor,
The University of Chicago
Graduate School of Business

Brian E. Stern
Senior Vice President, 
Xerox,
Fuji Xerox Operations,
Xerox Corporation

Ronald V. Waters, III
Independent Business 
Consultant
Former Chief 
Operating Officer,
Wm. Wrigley Jr. Company

Committees of the Board

Audit
Ronald V. Waters, III, 
Chairperson

Miguel M. Calado
James R. Jenkins
Joseph Scalzo

Human Resources 
and Compensation
Abbie J. Smith,  
Chairperson

Gary M. Christensen
John A. Halbrook
Larry B. Porcellato

Public Policy and 
Corporate Governance
Brian E. Stern, 
Chairperson

Mary H. Bell
Cheryl A. Francis
Dennis J. Martin

HNI Corporation Officers

Operating Companies

Stan A. Askren
Chairman, President and 
Chief Executive Officer

David C. Burdakin
Executive Vice President 

Jerald K. Dittmer
Vice President and 
Chief Financial Officer

Robert J. Driessnack 
Vice President, Controller

Melinda C. Ellsworth
Vice President, Treasurer 
and Investor Relations

Tamara S. Feldman 
Vice President, 
Financial Reporting

David W. Gardner
Vice President, 
Lean Enterprise

Robert D. Hayes
Vice President, 
Business Analysis and 
General Auditor

Douglas L. Jones
Vice President and Chief 
Information Officer

Jeffrey D. Lorenger
Vice President, General 
Counsel and Secretary, 
Member and Community 
Relations

Timothy J. Anderson
President, 
Omni Workspace Company

Stan A. Askren
Acting President,
Allsteel Inc.

Farida Chow
President,
Lamex

Bradley D. Determan
Executive Vice President,
HNI Corporation
President, 
Hearth & Home Technologies Inc.

Eric K. Jungbluth
Executive Vice President,
HNI Corporation
President, 
The HON Company

Marco V. Molinari
Executive Vice President, 
HNI Corporation
President, 
HNI International Inc. 

Jean M. Reynolds
President, 
Maxon Furniture Inc.

Thomas A. Tolone
President, 
Paoli Inc.

Donald C. Wharton
President, 
The Gunlocke Company LLC

HNI CORPOR ATION  2006 ANNUAL REPORT  45

 
 
OUR VISION

We, the members of HNI Corporation, are dedicated to creating long-term value for all of our stakeholders, to exceeding our 

customers’ expectations and to making our company a great place to work. We will always treat each other, as well as customers, 

suppliers, shareholders and our communities, with fairness and respect. Our success depends upon business simpliﬁ cation, rapid 

continuous improvement and innovation in  everything we do, individual and collective integrity, and the relentless pursuit of 

the following long-standing beliefs:

WE WILL BE PROFITABLE.

WE WILL BE A GREAT PLACE TO WORK.

We pursue mutually proﬁ table relationships with customers 

We pursue a participative environment and support a culture 

and suppliers. Only when our company achieves an  adequate 

that encourages and recognizes excellence, active involvement, 

proﬁ t can the other elements of this Vision be realized.

ongoing learning and contributions of each member; that 

WE WILL CREATE LONG-TERM VALUE FOR SHAREHOLDERS.

We create long-term value for shareholders by earning 

ﬁ nancial returns signiﬁ cantly greater than our cost of capital 

seeks out and values diversity; and that attracts and retains the 

most capable people who work safely, are motivated and are 

devoted to making our company and our members successful.

and pursuing proﬁ table growth opportunities. We will 

WE WILL BE A RESPONSIBLE CORPORATE CITIZEN.

safeguard our shareholders’ equity by maintaining a strong 

We conduct our business in a way that sustains the well-being 

balance sheet to allow ﬂ exibility in responding to a 

of society, our environment and the economy in which we live 

continuously changing market and business environment.

and work. We follow ethical and legal business practices. Our 

WE WILL PURSUE PROFITABLE GROWTH.

We pursue proﬁ table growth on a global basis in order to 

provide continued job opportunities for members and 

 ﬁ nancial success for all stakeholders.

WE WILL BE A SUPPLIER OF QUALITY PRODUCTS AND SERVICES.

We provide reliable products and services of high quality 

and brand value to our end-users. Our products and services 

exceed our customers’ expectations and enable our distributors 

and our company to make a fair proﬁ t.

company supports our volunteer efforts and provides charitable 

contributions so that we can actively participate in the civic, 

cultural, educational, environmental and governmental affairs 

of our society.

TO OUR STAKEHOLDERS:

When our company is appreciated by its members, favored 

by its customers, supported by its suppliers, respected by the 

public and admired by its shareholders, this Vision is fulﬁ lled.

4 6  HNI CORPOR ATION  2006 ANNUAL REPORT 

INVESTOR INFORMATION

Fiscal 2007 Quarter-End Dates
1st Quarter: Saturday, March 31
2nd Quarter: Saturday, June 30
3rd Quarter: Saturday, September 29
4th Quarter: Saturday, December 29

Annual Meeting
The Corporation’s annual shareholders’ meeting will be held 
at 10:30 a.m. on Tuesday, May 8, 2007, at the Holiday Inn, 
Highways 61 & 38 North, Muscatine, Iowa. Shareholders and 
other interested investors are encouraged to attend the meeting.

Form 10-K Report
A copy of the Corporation’s annual report on Form 10-K, filed with 
the Securities and Exchange Commission, is available without 
charge upon request to:

Investor Relations
HNI Corporation
408 East Second Street
Muscatine, IA 52761
Telephone: 563.272.7400
Fax: 563.272.7655
Email: investorrelations@hnicorp.com

All financial information, including the Corporation’s annual report 
on Form 10-K, can be accessed on the Corporation’s website at 
www.hnicorp.com.

Corporate Headquarters
HNI Corporation
408 East Second Street
P.O. Box 1109
Muscatine, IA 52761-0071
Telephone: 563.272.7400
Fax: 563.272.7217
Website: www.hnicorp.com

Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
One North Wacker Drive
Chicago, IL 60606

Common Stock
HNI Corporation common stock trades on the New York Stock Exchange
(NYSE) under the symbol: HNI. Stock price quotations can be found in major 
daily newspapers and The Wall Street Journal.

Transfer Agent
Shareholders may report a change of address or make inquiries by writing 
or calling:

Computershare Investor Services, LLC
2 North LaSalle Street
Chicago, IL 60602
Telephone: 312.588.4991

Management Certifications
On May 24, 2006, the Corporation submitted to the NYSE, the Annual CEO 
Certification required by Section 303A.12(a) of the NYSE Listed Company 
Manual. The Corporation also filed with the Securities and Exchange 
Commission the CEO/CFO Certification required under Section 302 of the 
Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 to the Corporation’s 
annual report on Form 10-K for the fiscal year ended December 30, 2006.

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HNI Corporation provides products and solutions for the home 

and workplace environments. We are the second-largest ofﬁ ce 

furniture manufacturer in the world and the nation’s leading 

manufacturer and marketer of gas and wood-burning ﬁ replaces. 

The Corporation’s stock trades on the NYSE under the symbol HNI.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
408 East Second Street
Muscatine, Iowa 52761
www.hnicorp.com

HNI CORPORATION 2006 Annual Report