HNI Corporation 2007 Annual Report
HNI Corporation provides products and
solutions for the home and workplace
environments. We are the second largest
office furniture manufacturer in the world
and the nation’s leading manufacturer
and marketer of gas and wood-burning
fireplaces. The Corporation’s stock trades
on the NYSE under the symbol HNI.
LET TER TO SHAREHOLDERS
DE A R SH A REHOL DERS :
We were challenged by the business cycle in 2007.
Housing starts declined 56 percent from the peak in 2006, and we experienced softness
in the office supplies channel, where we enjoy our strongest office furniture position.
In the face of these challenges, we did what we have always done well at HNI: We adapted
to the marketplace and aggressively pursued improvement across the corporation.
We continued to pursue our core strategies, leveraging our unique structure to get
closer to our customers and create value. We strengthened our businesses and
positioned them for long-term growth.
The actions we took resulted in record revenue and operating profit in our
office furniture business and record operating cash flow for the corporation
during 2007. We also improved consolidated gross profit margin during the
year despite the market decline our hearth business faced.
POSi t iOning f OR vA LuE cRE At iOn A nD gROw t H
Every year, in good times and bad, we strive to position ourselves for profitable
growth by focusing on our markets and continuously strengthening and
streamlining our business. That’s what we did in 2007.
We aggressively retooled our hearth business to better align with dramatically
lower market demand, implementing more than $50 million in fixed and non-fixed
cost reductions. As a result, our hearth business continued to manage profitably through
the negative effects of the housing market. Even though its sales were down 23 percent
compared with 2006, the hearth business generated a 7.9 percent operating profit
margin in 2007.
STAN A. ASKREN
Chairman, President
and Chief Executive Officer
We also sharpened our focus by streamlining our office furniture businesses and
product lines during the year. We continued to increase our cost leverage of HNI’s scale
across the corporation, driving toward sharing more services and best practices. As a
result of these and many other actions, our office furniture business’s 2007 operating
profit grew more than four times faster than revenue.
At the same time, we worked to strengthen our market position, getting closer to our
customers to better understand their needs and tailoring our product offerings and selling
models accordingly. The result will be the launch of a record number of new product
solutions in 2008 and continued investment in our brands and selling models.
To enhance the fulfillment process for customers, we’re transforming our manufacturing
and transportation network model. We’re realigning our manufacturing capacity as part of
that effort, closing some facilities while improving and expanding others to support growth.
HNI CORPORATION ANNUAL REPORT 2007
FINANCIAL HIGHLIGHTS
Net Sales
(in millions)
6
5
7
.
1
3
0
3
9
0
,
2
4
0
1
5
4
,
2
5
0
0
8
6
,
2
6
0
0
7
5
,
2
7
0
Net Income
(in millions)
8
9
3
0
4
1
1
4
0
7
3
1
5
0
3
2
1
6
0
0
2
1
7
0
Return on Average
Shareholders’
Equity
(percent)
5
.
4
1
3
0
5
.
6
1
4
0
8
.
1
2
5
0
6
.
2
2
6
0
2
.
5
2
7
0
Diluted Earnings
per Share
(dollars)
8
6
.
1
3
0
7
9
.
1
4
0
0
5
.
2
5
0
5
4
.
2
6
0
7
5
.
2
7
0
(Amounts in thousands, except for per share data)
2007
2006
Change
Income Statement Data
Net sales
Gross profit
Selling and administrative expenses
Restructuring related and impairment charges
Operating income
Income from continuing operations
Net income
Net income as a % of:
Net sales
Average shareholders’ equity
Per common share:
$2,570,472
$÷2,679,803
905,775
702,329
9,788
193,658
119,864
120,378
4.7%
25.2%
926,921
717,676
2,829
206,416
129,672
123,375
4.6%
22.6%
Net income from continuing operations – basic
$÷«««««««2.57
$÷÷÷÷÷«2.59
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 flow from operations
2.58
2.55
2.57
0.78
2.46
2.57
2.45
0.72
$1,206,976
$÷1,226,359
281,091
39.2%
285,974
38.6%
$÷«458,908
$÷÷«495,919
$÷÷«58,568
$÷÷÷«58,921
291,187
159,602
104,611
145,632
–28.2%
Weighted-average shares outstanding during year
– basic
46,684,774
50,059,443
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
46,925,161
50,374,758
$«««147,675
$÷÷«203,646
14
7,625
13,271
18
7,475
14,170
–4.1%
–2.3%
–2.1%
246.0%
–6.2%
–7.6%
–2.4%
–
–
–0.8%
4.9%
–0.8%
4.9%
8.3%
–1.6%
–1.7%
–
–7.5%
–0.6%
82.4%
–6.7%
–6.8%
–27.5%
–
2.0%
–6.3%
2 HNI CORPORATION ANNUAL REPORT 2007
LET TER TO SHAREHOLDERS
We shut down our Monterrey, Mexico, facility earlier in the year. We announced
plans to close our Richmond, Virginia, plant in the first half of 2008 and consolidate production
into our Cedartown, Georgia, and Muscatine, Iowa, facilities. The Richmond closure alone
will eliminate approximately $10 million in annual costs when fully implemented in 2009.
We also outsourced a large part of our logistics management to a third-party provider,
which will result in a $7 million reduction in annual transportation costs when completed
in mid-2008.
We effectively responded to the business cycle in 2007, but we believe there is room for
more improvement. Rapid Continuous Improvement is at the heart of our culture and touches
everything we do. We’re managing better today than we did a year ago; we’ll manage even
more effectively a year from now.
Hni’S uniquE mODEL A nD gROw t H S t R At Egy cOn t inuE
Our decentralized split-and-focus business model succeeded in a year that presented
an unusually wide range of challenges and opportunities. Because our companies
are independent and focused on unique market segments, each was able to nimbly tailor
its response to its own environment without compromising HNI’s high standards of
quality and service.
Our contract-oriented office furniture businesses continued to expand and gain
market share while our supplies-oriented office furniture businesses dealt with softer market
demand. At the same time, our hearth business was able to resize significantly without
compromising its long-term competitive capability.
Each HNI company follows a “Core Plus” strategy, which focuses on growing the
existing businesses (the “Core”) while seeking out and developing new frontiers for growth
(the “Plus”). We grow the core profitably in two ways. First, by continually improving
operations through lean principles. Second, by focusing on end users and letting that guide
new branding, product development, marketing and selling strategies.
“Plus” growth opportunities include adjacent vertical markets like education or health
care; new distribution models, which have been a continued focus for our hearth and
contract-oriented office furniture businesses; and new geographies such as China, where
Lamex delivered strong performance in its first full year as an HNI company.
The Core Plus strategy is intended to renew our businesses continuously, enhancing
their competitiveness and producing growth faster than the industry. While Core Plus did
not fully offset major declines in our industry or in segments where we’re especially strong
during 2007, it has enabled us to gain market share over time in both the hearth and office
furniture industries and strengthened our prospects for the longer term.
HNI CORPORATION ANNUAL REPORT 2007
LET TER TO SHAREHOLDERS
gOing f OR wA RD : mEE t ing t HE cH A L L EngE
The business cycle and U.S. economy will continue to present challenges, at least in
the near term. We’re planning for the current market weakness to continue through 2008—
conditions in the hearth industry will continue to deteriorate with the general housing
market, and we expect the supplies-driven channel in office furniture to remain soft
into 2009. We’re projecting overall office furniture industry growth to soften during the
same period.
With the initiatives we’ve completed to resize our hearth business, we expect even
a modest recovery in new homebuilding to produce significant increases in profits. In our
hearth business and in all our office furniture businesses, we’ll continue to be aggressive
in pursuing opportunities to further streamline operations and generate cash while
investing to drive growth, both organically and through acquisitions.
We remain excited about the long-term prospects of this corporation. Our strong
fundamentals remain unchanged: motivated and engaged members; well-managed, strong
business positions in industries with attractive long-term potential; strong profitability and
solid cash flow generation; and a track record of growing faster than our industries.
HNI members are working hard every day, driving change in our business in ways that
both improve performance now and strengthen our ability to perform even better in the
future. We all share a growing confidence that HNI will come out of this cycle stronger
than ever.
We thank you for your support.
Sincerely,
STAN A. ASKREN
Chairman, President and Chief Executive Officer
HNI Corporation
HNI CORPORATION ANNUAL REPORT 2007
HNI Fundamentals:
OuR cuLt uRE REm A inS OuR gRE At ES t S t REngt H,
OuR BuSinESS mi X Pu tS uS in A BROA D,
f uEL ED By PERSOn A L AccOun tA BiL i t y
BA L A ncED R A ngE Of m A RK E tS A nD cH A nnEL S.
A nD A DRi v E f OR cOn t inuOuS imPROv EmEn t.
HNI’s business units focus on distinct end-user
HNI members are an aggressive, highly engaged
groups covering a wide spectrum within office
group who come to work every day with an attitude
furniture and hearth products, from small
of constructive discontent—performers and problem
businesses to large corporations, individual business
solvers who drive continuous improvement across
people to designers and architects, large builders to
our business. Because virtually everyone who works
individual homeowners. With category-leading
here owns stock and participates in our profit sharing
brands and product lines, each HNI business unit
plan, the HNI culture is about shared risk and shared
shares a commitment to grow by delivering a
reward. Culture is important because it drives
winning buying experience to each customer.
behaviors. Behaviors drive results.
OuR gROw t H S t R At Egy, cORE PLuS, f OcuSES On
OuR BuSinESS mODEL PRESER v ES En t REPREnEuRi A L
S t REngt HEning OuR cORE w HiL E E X t EnDing OuR RE AcH.
AgiL i t y w HiL E RE A Ping t HE f uL L BEnEf i t Of
SH A RED f unc t iOnS A nD Sc A L E .
Our Core Plus growth strategy positions us to grow in
the right areas with controlled risk. We drive growth in
Our split-and-focus business model keeps us close to
our established businesses (the “Core”) with an intense
our customers and maintains maximum agility to serve
end-user focus that guides new product development,
them. Each independent HNI business unit has a
branding, marketing and selling. In the “Plus” side of
dedicated management team, strategic plan and tailored
the strategy, we develop new growth drivers adjacent
operating approach focused on a specific market. At
to our core, whether it’s new businesses, vertical
the same time, business units communicate and share
markets, distribution models or geographic regions.
best practices while leveraging our collective scale in
non-customer-facing functions such as purchasing,
logistics and IT.
HNI CORPORATION ANNUAL REPORT 2007
HNI AT A GL ANCE
®
®
®
™
®
™
®
™
®
®
®
®
™
HNI comprises some of the strongest
and best-known brands in the marketplace.
HNI CORPORATION ANNUAL REPORT 2007
2007 Financials
HNI CORPORATION ANNUAL REPORT 2007 7
ManageMent’s Discussion anD analysis of financial conDition anD Results of opeRations
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. Statements that are not historical
are forward-looking and involve risks and uncertainties, including
those discussed under the caption “Risk Factors” in Item 1A of
the Corporation’s annual report on Form 10-K and elsewhere in
this report.
Overview
The Corporation has two reportable segments: office furniture
and hearth products. The Corporation is the second largest office
furniture manufacturer in the world and the nation’s leading
manufacturer and marketer of gas and wood-burning fireplaces. The
Corporation utilizes its split and focus, decentralized business model
to deliver value to its customers with various brands and selling
models. The Corporation is focused on growing its existing businesses
while seeking out and developing new opportunities for growth.
During 2007, the office furniture industry experienced solid growth.
The Corporation experienced softness in the supplies driven
channel and solid demand in its contract businesses in the office
furniture segment. Sales benefited from price increases as well as
acquisitions completed over the past two years. The housing market
continued to decline sharply, which negatively impacted the
Corporation’s hearth products segment.
To support specific company strategies in both segments of its
business, the Corporation completed the acquisition of Harman
Stove Company, a privately held domestic manufacturer of free-
standing stoves and fireplace inserts, as well as two small office
furniture dealer acquisitions. The Corporation made the decision to
shut down one office furniture facility and completed the shutdown
of another office furniture facility which had begun in 2006. The
Corporation also made the decision to sell several small non-core
components of its office furniture services business.
Critical Accounting Policies and Estimates
Ge n e r a l
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 financial 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 financial statements.
Management believes the following critical accounting policies
reflect its more significant estimates and assumptions used in the
preparation of the Consolidated Financial Statements.
Fiscal year end – The Corporation follows a 52/53-week fiscal
year which ends on the Saturday nearest December 31. Fiscal
year 2007 ended on December 29, 2007; fiscal 2006 ended on
December 30, 2006; and fiscal 2005 ended on December 31, 2005.
The financial statements for fiscal years 2007, 2006, and 2005 are
all on a 52-week basis. A 53-week year occurs approximately
every sixth year.
Hni coRpoRation anD suBsiDiaRies 2007 annual RepoRt
ManageMent’s Discussion anD analysis of financial conDition anD Results of opeRations
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 achieve or do not achieve 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, the
length of time a receivable has been outstanding, and specific
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 reasonably certain the customer cannot pay, the
receivable is written off by removing the accounts receivable amount
and reducing the allowance for doubtful accounts accordingly.
As of December 29, 2007, there was approximately $300 million in
outstanding accounts receivable and $11 million recorded in the
allowance for doubtful accounts to cover potential future customer
non-payments. However, if economic conditions were to deteriorate
significantly 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
$13 million at year end 2006 and $12 million at year end 2005.
Inventory valuation – The Corporation valued 87% of its inventory
by the last-in, first-out (“LIFO”) method at December 29, 2007.
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 $9 million at year-end 2007
and $8 million at year-end 2006 and 2005.
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 reflected in the Corporation’s balance
sheet may not be recoverable. The Corporation compares an
estimate of undiscounted cash flows produced by the asset, or
the appropriate group of assets, to the carrying value to determine
whether impairment exists. The estimates of future cash flows
involve considerable management judgment and are based upon
the Corporation’s assumptions about future operating performance.
The actual cash flows 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 and Impairment 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 regularly 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
during the fourth 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 29, 2007. Goodwill of approximately
$257 million is shown on the consolidated balance sheet as of the
end of fiscal 2007.
Hni coRpoRation anD suBsiDiaRies 2007 annual RepoRt
ManageMent’s Discussion anD analysis of financial conDition anD Results of opeRations
Management’s assumptions about future cash flows for the
reporting units require significant judgment and actual cash flows
in the future may differ significantly from those forecasted today.
The Corporation also determines the fair value of indefinite lived
trademarks on an annual basis or whenever indication of impairment
exists. The Corporation has evaluated its trademarks for impairment
and has determined that the fair market value of the trademarks
exceeds carrying value, so no impairment was recognized. The
carrying value of the trademarks was approximately $43.5 million
at the end of fiscal 2007.
The Corporation has definite lived intangibles that are amortized
over their estimated useful lives. Impairment losses are recognized
if the carrying amount of an intangible, subject to amortization, is
not recoverable from expected future cash flows and its carrying
amount exceeds its fair value. Intangibles, net of amortization, of
approximately $74 million are included on the consolidated balance
sheet as of the end of fiscal 2007.
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 benefits.
The general, auto, product, and workers’ compensation liabilities
are managed via a wholly owned insurance captive; the related
liabilities are included in the accompanying financial 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 the number or severity of claims, medical cost inflation, 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 modified 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 $3.6 million
in 2007 and $3.2 million in 2006. In 2005 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 would have been
reduced by approximately $2 million.
Income taxes – Deferred income taxes are provided for the temporary
differences between the financial 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 permanently reinvested.
Recent Accounting Pronouncements
In July 2006, the FASB issued Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes a recognition
threshold and measurement attribute for the financial 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, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. This Interpretation is
effective for fiscal years beginning after December 15, 2006. The
Corporation adopted the provision of FIN 48 on December 31, 2006,
the beginning of fiscal 2007. See “Income Taxes” 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 financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within
those fiscal years. The Corporation does not anticipate any material
impact to its financial statements from the adoption of this standard.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS 159”),
which permits entities to choose to measure many financial
instruments and certain other items at fair value that are not
currently required to be measured at fair value. The objective of
SFAS 159 is to improve financial reporting by providing entities with
the opportunity to mitigate volatility in reported earnings caused by
measuring related assets and liabilities differently without having to
apply complex hedge accounting provisions. This statement is
effective as of the beginning of any fiscal year beginning after
November 15, 2007. The Corporation does not anticipate any
material impact to its financial statements from the adoption of this
standard.
10 Hni coRpoRation anD suBsiDiaRies 2007 annual RepoRt
ManageMent’s Discussion anD analysis of financial conDition anD Results of opeRations
In December 2007, the FASB issued SFAS No. 141 (Revised),
“Business Combinations” (“SFAS No. 141(R)”), replacing SFAS No.
141, “Business Combinations” (“SFAS No. 141”), and SFAS No.
160, “Noncontrolling Interests in Consolidation Financial Statements
– An Amendment of ARB No. 51” (“SFAS No. 160”). SFAS No.
141(R) retains the fundamental requirements of SFAS No. 141,
broadens its scope by applying the acquisition method to all
transactions and other events in which one entity obtains control
over one or more other businesses, and requires, among other
things, that assets acquired and liabilities assumed be measured at
fair value as of the acquisition date, that liabilities related to
contingent considerations be recognized at the acquisition date and
remeasured at fair value in each subsequent reporting period, that
acquisition-related costs be expensed as incurred, and that income
be recognized if the fair value of the net assets acquired exceeds
the fair value of the consideration transferred. SFAS No. 160
establishes accounting and reporting standards for noncontrolling
interests (i.e., minority interests) in a subsidiary, including changes
in a parent’s ownership interest in a subsidiary and requires, among
other things, that noncontrolling interests in subsidiaries be
classified as a separate component of equity. Except for the
presentation and disclosure requirements of SFAS No. 160, which
are to be applied retrospectively for all periods presented, SFAS No.
141 (R) and SFAS No. 160 are to be applied prospectively in financial
statements issued for fiscal years beginning after December 15,
2008. The Corporation does not anticipate any material impact to its
financial statements from the adoption of SFAS No. 160.
Results of Operations
The following table sets forth the percentage of consolidated net
sales represented by certain items reflected in the Corporation’s
statements of income for the periods indicated.
Fiscal
Net Sales
Cost of products sold
Gross profit
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
2007
100.0%
64.8
35.2
27.3
0.4
7.5
(0.7)
6.9
2.2
0.0
4.7%
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%
n e t S a l e S
Net sales during 2007 were $2.6 billion, a decrease of 4.1 percent,
compared to net sales of $2.7 billion in 2006. Acquisitions contributed
$46 million or 1.7 percentage points of sales. Higher price realization
of $84 million was offset by softer demand in the supplies driven
channel of the office furniture segment and lower volume in the
hearth products segment. 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, and solid growth across all brands in the office
furniture segment offset by lower volume in the hearth products
segment.
G r o S S P r o f i t
Gross profit as a percent of net sales increased 0.6 percentage
points in 2007 as compared to 2006 due to better price realization
and increased cost control offset partially by lower volume. Gross
profit 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.
S e l l in G a n d a d m ini S t r at i v e e x P e n S e S
Selling and administrative expenses decreased 2.1 percent in 2007
and increased 8.1 percent in 2006. The decrease in 2007 was due
to lower volume related expenses and cost containment measures
offset partially by additional costs from acquisitions, increased costs
related to brand building, new product and growth initiatives and
higher incentive based compensation. The increase in 2006 was
due to additional costs from acquisitions; increased freight and
distribution costs due to volume, rate increases and fuel surcharges;
stock based compensation expense due to the adoption of
SFAS 123(R), and 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.
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.
Hni coRpoRation anD suBsiDiaRies 2007 annual RepoRt 11
ManageMent’s Discussion anD analysis of financial conDition anD Results of opeRations
r e S t r u c t u r in G a n d i m Pa i r m e n t c h a r G e S
As a result of the Corporation’s ongoing business simplification
and cost reduction initiatives, management made the decision
in 2007 to close an office furniture facility in Richmond, Virginia
and consolidate production into other locations. In connection with
the shutdown of the Richmond facility, the Corporation recorded
$4.4 million of pre-tax charges which included $0.6 million of
accelerated depreciation of machinery and equipment recorded
in cost of sales and $3.8 million of severance recorded as
restructuring costs. The closure and consolidation will be completed
during the first half of 2008. The Corporation will incur additional
restructuring charges and transition costs of approximately $9 to
$11 million in connection with the closure.
The Corporation made the decision in 2007 to sell several small
non-core components of its office furniture services business and
recorded $2.7 million of impairment charges, included in the
restructuring related and impairment charges line item on the
statement of income, to reflect the fair market value of the assets
being held for sale.
The Corporation’s hearth products segment consolidated some
of its service and distribution locations during 2007. In connection
with those consolidations, the Corporation recorded $1.1 million
of severance and facility exit costs, which were recorded as
restructuring costs.
During 2007, the Corporation completed the shutdown of an office
furniture facility, which began in the fourth quarter of 2006. The
facility was located in Monterrey, Mexico, and production from this
facility was consolidated into other locations. In connection with
this shutdown, the Corporation recorded $0.8 million of severance
costs in 2006. The Corporation incurred $2.1 million of current
period charges during 2007.
During 2006, the Corporation completed the shutdown of two office
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. Charges for these closures in 2005 totaled $4.1 million,
which consisted of $0.6 million of accelerated depreciation of
machinery and equipment recorded as 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 $2.0 million of current period
charges during 2006.
oP e r at in G in c o m e
Operating income was $194 million in 2007, a decrease of
6.2 percent compared to $206 million in 2006. The decrease in
2007 is due to lower volume in the hearth products segment,
increased costs related to brand building, new product and growth
initiatives, higher incentive-based compensation and restructuring
charges offset partially by improved price realization and cost
containment measures. Operating income was $206 million in
2006, a decrease of 4.8 percent compared to $217 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
office furniture segment.
in c o m e f r o m c o n t in u in G oP e r at i o n S
Income from continuing operations in 2007, which excludes the
Corporation’s discontinued business (see Discontinued Operations
in the Notes to Consolidated Financial Statements), was $120 million
compared with $130 million in 2006, a 7.6 percent decrease. Income
from continuing operations was negatively impacted by increased
interest expense of $4 million on moderate debt levels, consistent
with the Corporation’s strategy of maintaining a more efficient
capital structure. Income from continuing operations in 2006 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 approximately $12 million
on moderate debt levels. The Corporation completed a detailed
analysis of all deferred tax accounts in 2006, 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
primarily in fiscal 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 was 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 per diluted share decreased by 0.8 percent to $2.55 in
2007 and increased by 2.4 percent to $2.57 in 2006 including a
positive tax adjustment of $0.08 per share.
12 Hni coRpoRation anD suBsiDiaRies 2007 annual RepoRt
ManageMent’s Discussion anD analysis of financial conDition anD Results of opeRations
di S c o n t in u e d oP e r at i o n S
During December 2006, the Corporation committed to a plan to
sell a small non-core component of its office furniture segment.
The Corporation reduced the assets to the fair market value and
classified them as held for sale. The sale was completed during the
second quarter of 2007. Revenues and expenses associated with
this component are presented as discontinued operations for all
periods presented. This operation was formerly reported within the
Office Furniture segment. Refer to Discontinued Operations in the
Notes to Consolidated Financial Statements for further information.
n e t in c o m e
Net income decreased 2.4 percent to $120 million in 2007
compared to $123 million in 2006 which was a decrease of
10.2 percent compared to 2005. Net income per diluted share
increased by 4.9 percent to $2.57 in 2007 and decreased
2.0 percent to $2.45 in 2006. Net income per diluted share was
positively impacted $0.18 per share in 2007 and $0.21 per share
in 2006 by the Corporation’s share repurchase program.
o f f i c e f u r ni t u r e
Office furniture comprised 82 percent, 78 percent, and 76 percent
of consolidated net sales for 2007, 2006, and 2005, respectively.
Net sales for office furniture increased 2 percent in 2007 to
$2.11 billion compared to $2.08 billion in 2006. The increase in
2007 was due to approximately $37 million from the Corporation’s
acquisitions. Organic sales were virtually flat, including increased
price realization of $78 million, due to softness in the supplies driven
channel of the business. Net sales for office 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 approximately
$144 million or 7.8 percent, including increased price realization of
$41 million. The Business and Institutional Furniture Manufacturer’s
Association (“BIFMA”) reported 2007 shipments up 6 percent and
2006 shipments up 7 percent.
Operating profit as a percent of net sales was 9.2 percent in 2007,
8.8 percent in 2006, and 9.7 percent in 2005. The increase in
operating margins in 2007 was due to better price realization and
benefits of cost reduction initiatives partially offset by increased
costs related to brand building, new product and growth initiatives,
higher incentive based compensation and higher restructuring
costs. 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
profitability as anticipated.
h e a r t h P r o d u c t S
Hearth products sales decreased 23 percent in 2007 to $462 million
compared to $603 million in 2006. New acquisitions contributed
$9 million of sales. The decrease in organic sales was a result of a
severe and rapid two year decline in new home construction that
created one of the worst housing markets on record. 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, which began in the second half of 2006 as a result of the
decline in the housing market.
Operating profit as a percent of sales in 2007 was 7.9 percent
compared to 9.7 percent in 2006, and 12.6 percent in 2005,
respectively. The decrease in operating margins in 2007 was due
to lower overall volume offset partially by cost reduction initiatives.
The decrease in operating margins in 2006 was due to lower overall
volume, higher mix of lower margin remodel/retrofit business and
increased material and transportation costs.
Liquidity and Capital Resources
During 2007, cash flow from operations was $291.2 million driven
by broad-based improvements in working capital. Cash flow from
operations along with available cash and short-term investments
and funds from stock option exercises under employee stock plans,
provided the funds necessary to meet working capital needs, pay
for strategic acquisitions, invest in capital improvements, repurchase
common stock, and pay increased dividends.
Cash, cash equivalents, and short-term investments totaled
$43.8 million at the end of 2007 compared to $37.3 million at the
end of 2006 and $84.7 million at the end of 2005. These funds,
coupled with cash from future operations and additional debt,
if needed, are expected to be adequate to finance 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. The
Corporation’s inventory turns were 16, 18, and 18, for 2007, 2006,
and 2005, respectively. The Corporation is increasing its foreign-
sourced raw materials and finished goods, which while reducing
inventory turns does have a favorable impact on the overall total cost.
Hni coRpoRation anD suBsiDiaRies 2007 annual RepoRt 13
ManageMent’s Discussion anD analysis of financial conDition anD Results of opeRations
in v e S t m e n t S
Management classifies investments in marketable securities at the
time of purchase and reevaluates such classification at each balance
sheet date. Equity securities are classified 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 classified as held-to-maturity and are
stated at amortized cost. In 2005, the Corporation invested in an
investment fund, 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”);
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 2007, 2006, and 2005 is
included in the Cash, Cash Equivalents, and Investments note
included in the Consolidated Financial Statements.
c a P i ta l e x P e n di t u r e in v e S t m e n t S
Capital expenditures were $58.6 million in 2007, $58.9 million
in 2006, and $38.9 million in 2005. 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 2008 to be
$70 to $75 million due to increased focus on new products and
operational process improvement.
a c q u i S i t i o n S
During 2007, the Corporation completed the acquisition of Harman
Stove Company, a privately held domestic manufacturer of free-
standing stoves and fireplace inserts and two small office furniture
dealers for a total combined purchase price of approximately
$41 million. During 2006, the Corporation completed the acquisition
of Lamex, a privately held Chinese manufacturer and marketer of
office furniture, as well as a small office furniture services company,
a small office furniture dealer and a small manufacturer of fireplace
facings for a total combined purchase price of approximately
$78 million. During 2005, the Corporation completed the acquisition
of four small office furniture services companies, three office
furniture dealers and three small hearth distributors for a total
combined purchase price of approximately $35 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.
l o n G -t e r m d e b t
Long-term debt, including capital lease obligations, was 38% of total
capitalization as of December 29, 2007, 37% as of December 30,
2006, and 15% as of December 31, 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 efficient 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 refinanced $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
$172 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.
14 Hni coRpoRation anD suBsiDiaRies 2007 annual RepoRt
ManageMent’s Discussion anD analysis of financial conDition anD Results of opeRations
c o n t r a c t u a l 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
$385,507 $««29,673
$30,777 $145,321 $179,736
1,409
552
689
168
–
145,412
77,911
35,858
77,911
57,728
–
33,019
–
18,807
–
34,225
2,426
4,558
1,111
26,130
Total
$644,464 $146,420
$93,752 $179,619 $224,673
(1) Interest has been included for all debt at either the fixed rate or variable rate in effect as of
December 29, 2007, as applicable.
(2) Purchase obligations include agreements to purchase goods or services that are enforceable,
legally binding, and specify all significant 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, liability for unrecognized tax
liabilities in accordance with FIN 48, and contribution and benefit payments expected to be
made for our post-retirement benefit plans. It should be noted that the obligations related to
post-retirement benefit plans are not contractual and the plans could be amended at the
discretion of the Corporation. The disclosure of contributions and benefit payments has been
limited to 10 years, as information beyond this time period was not available.
c a S h di v i d e n d S
Cash dividends were $0.78 per common share for 2007, $0.72
for 2006, and $0.62 for 2005. Further, the Board of Directors
announced a 10.3 percent increase in the quarterly dividend from
$0.195 to $0.215 per common share effective with the February 29,
2008, dividend payment for shareholders of record at the close of
business February 22, 2008. The previous quarterly dividend increase
was from $0.18 to $0.195, effective with the March 1, 2007 dividend
payment for shareholders of record at the close of business on
February 23, 2007. 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 P u r c h a S e S
During 2007, the Corporation repurchased 3,581,707 shares
of its common stock at a cost of approximately $147.7 million,
or an average price of $41.23. The Board of Directors authorized
$200 million on November 11, 2005, an additional $200 million on
August 8, 2006, and an additional $200 million on November 9,
2007, for repurchases of the Corporation’s common stock.
As of December 29, 2007, approximately $192.2 million of this
authorized amount remained unspent. 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. 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.
l i t i G at i o n a n d u n c e r ta in 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, environmental remediation, taxes, and other
claims. It is the Corporation’s opinion, after consultation with legal
counsel, that additional liabilities, if any, resulting from these
matters are not expected to have a material adverse effect on the
Corporation’s financial condition, although such matters could have
a material effect on the Corporation’s quarterly or annual operating
results and cash flows when resolved in a future period.
Looking Ahead
Management believes that macroeconomic indicators point to
continued slowing in the office furniture business during 2008.
The Corporation expects to increase its investment in growth
opportunities and position for the market recovery by enhancing
its selling capabilities and launching a significant number of new
products. The Corporation will work to offset the market softness
and increased investment by eliminating waste, attacking
structural cost and streamlining its businesses.
The housing market is expected to decline during 2008 and continue
to significantly pressure both revenue and profit in the Corporation’s
hearth products segment. The Corporation intends to continue to
profitably manage through these conditions by streamlining its
operations; however, it will continue to position the business for
long-term growth once conditions stabilize.
The Corporation anticipates that its tax rate on average will be
35.5 percent in 2008 due to the expiration of the research tax credit.
In the event this credit is renewed in its most recent form, it would
lower the effective rate approximately 0.8 percentage points.
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 coRpoRation anD suBsiDiaRies 2007 annual RepoRt 15
Consolidated statements of inCome
(Amounts in thousands, except for per share data)
For the Years
2007
2006
2005
Net sales
Cost of products sold
Gross profit
Selling and administrative expenses
Restructuring related and impairment 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
Discontinued operations, less applicable income taxes
Net income
Net income from continuing operations – basic
Net income from discontinued operations – basic
Net income per common share – basic
Weighted average shares outstanding – basic
Net income from continuing operations – diluted
$2,570,472
1,664,697
$2,679,803
1,752,882
$2,433,316
1,549,475
905,775
702,329
9,788
193,658
1,229
18,161
176,726
57,141
119,585
(279)
119,864
514
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)
$÷«120,378
$«««««««««2.57
$÷«123,375
$÷«137,420
$÷÷÷÷«2.59
$÷÷÷÷«2.53
0.01
(0.13)
(0.02)
$÷÷÷÷«2.58
46,684,774
$÷÷÷÷«2.55
$÷÷÷÷«2.46
$÷÷÷÷«2.51
50,059,443
54,649,199
$÷÷÷÷«2.57
$÷÷÷÷«2.51
Net income from discontinued operations – diluted
0.02
(0.12)
(0.01)
Net income per common share – diluted
Weighted average shares outstanding – diluted
$÷÷÷÷«2.57
46,925,161
$÷÷÷÷«2.45
$÷÷÷÷«2.50
50,374,758
55,033,741
The accompanying notes are an integral part of the consolidated financial statements.
16 Hni CoRPoRation and sUBsidiaRies 2007 annUal RePoRt
Consolidated Bal anCe sHeets
(Amounts in thousands of dollars and shares except par value)
As of Year-End
2007
2006
2005
Assets
Current Assets
Cash and cash equivalents
Short-term investments
Receivables net
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 Subsidiaries
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: 2007 – 44,835; 2006 – 47,906; 2005 – 51,849
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 financial statements.
$÷÷«33,881
$÷÷«28,077
$÷÷«75,707
9,900
288,777
108,541
17,828
30,145
489,072
305,431
256,834
155,639
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
$1,206,976
$1,226,359
$1,140,271
$÷«367,320
$÷«328,882
$÷«309,222
14,715
2,426
384,461
280,315
776
55,843
26,672
1
–
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
–
–
44,835
47,906
51,849
3,152
410,075
846
458,908
2,807
448,268
(3,062)
495,919
941
540,822
332
593,944
$1,206,976
$1,226,359
$1,140,271
Hni CoRPoRation and sUBsidiaRies 2007 annUal RePoRt 17
Consolidated statements of sHaReHoldeRs’ eqUit y
(Amounts in thousands)
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 Member’s Stock Purchase Plan
and stock awards
Balance, December 30, 2006
Comprehensive income:
Net income
Other comprehensive income
Comprehensive income
Adoption of FIN 48 impact
Cash dividends
Common shares – treasury:
Shares purchased
Shares issued under Member’s Stock Purchase Plan
and stock awards
Balance, December 29, 2007
Common Stock
Additional
Paid-in Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss) Income
Total
Shareholders’
Equity
$55,303
$÷«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
3,908
120,378
(509)
(36,408)
(3,582)
(22,439)
(121,654)
511
22,784
120,378
3,908
124,286
(509)
(36,408)
(147,675)
23,295
$44,835
$÷«3,152
$«410,075
$÷÷846
$«458,908
The accompanying notes are an integral part of the consolidated financial statements.
18 Hni CoRPoRation and sUBsidiaRies 2007 annUal RePoRt
Consolidated statements of CasH flows
(Amounts in thousands)
For the Years
2007
2006
2005
Net Cash Flows From (To) Operating Activities:
Net income
Noncash items included in net income:
Depreciation and amortization
Other postretirement and post-employment benefits
Stock-based compensation
Excess tax benefits from stock compensation
Deferred income taxes
Net 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 flows 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 flows 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 financing
Proceeds from sale of HNI Corporation common stock
Excess tax benefits from stock compensation
Dividends paid
Net cash flows from (to) financing 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 financial statements.
$«120,378
$«123,375
$«137,420
68,173
2,132
3,603
(808)
(4,935)
1,662
6,611
(1,162)
39,941
20,380
2,264
30,944
1,169
835
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
291,187
159,602
201,009
(58,568)
12,145
(346)
(41,696)
–
(24,427)
20,576
294
(92,022)
(147,675)
289,503
(309,297)
9,708
808
(36,408)
(193,361)
5,804
28,077
(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
$÷«33,881
$÷«28,077
$÷«75,707
$÷«18,213
$÷«57,128
$÷«12,002
$÷«75,266
$÷÷«1,961
$÷«88,133
Hni CoRPoRation and sUBsidiaRies 2007 annUal RePoRt 19
Notes to CoNsolidated FiNaNCial statemeNts
Nature of Operations
HNI Corporation with its subsidiaries (the “Corporation”), is a
provider of office furniture and hearth products. Both industries are
reportable segments; however, the Corporation’s office furniture
business is its principal line of business. Refer to Operating
Segment Information for further information. Office 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 fireplaces, inserts, stoves,
facings, and accessories. These products are sold through a
national system of dealers and distributors, 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 manufactures and markets office
furniture in Asia; however, based on sales, these activities are
not significant.
from the scope of SFAS No. 115, “Accounting for Certain
Investments in Debt and Equity Securities”; however, the
Corporation’s ownership in this investment fund is such that the
underlying investments are recorded at fair market value.
At December 29, 2007, December 30, 2006, and December 31,
2005, cash, cash equivalents, and investments consisted of the
following (cost approximates market value):
Year-End 2007
(In thousands)
Available for sale securities
Debt and equity securities
Cash and Cash
Equivalents
Short-term
Investments
Long-term
Investments
$÷÷÷÷«–
$÷÷÷«–
$÷4,996
Investment in master fund
–
9,900
25,705
Cash and money market accounts
33,881
–
–
Total
Year-End 2006
(In thousands)
Held-to-maturity securities
Certificates of deposit
Investment in master fund
$33,881
$9,900
$30,701
Cash and Cash
Equivalents
Short-term
Investments
Long-term
Investments
$÷÷÷÷«–
$÷÷÷«–
$÷÷«400
–
9,174
25,589
Summary of Significant Accounting Policies
Cash and money market accounts
28,077
–
–
P r in c iP l e s o f c o n s o l i d at i o n a n d f i s c a l Y e a r - e n d
The consolidated financial statements include the accounts and
transactions of the Corporation and its subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
Total
Year-End 2005
(In thousands)
$28,077
$9,174
$25,989
Cash and Cash
Equivalents
Short-term
Investments
Long-term
Investments
$÷÷«÷÷–
$÷÷«÷–
$«÷÷400
–
9,035
19,085
Held-to-maturity securities
Certificates of deposit
Investment in master fund
Cash and money market accounts
75,707
–
–
Total
$75,707
$9,035
$19,485
r e c e i va b l e s
Accounts receivable are presented net of an allowance for doubtful
accounts of $11.5 million, $12.8 million, and $12.0 million, for 2007,
2006, and 2005, respectively. The allowance is developed based on
several factors including overall customer credit quality, historical
write-off experience, and specific 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.
in v e n t o r i e s
The Corporation valued 87%, 86%, and 89% of its inventory
by the last-in, first-out (“LIFO”) method at December 29, 2007,
December 30, 2006, and December 31, 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
The Corporation follows a 52/53 week fiscal year which ends on
the Saturday nearest December 31. Fiscal year 2007 ended on
December 29, 2007; 2006 ended on December 30, 2006; and
2005 ended on December 31, 2005. The financial statements for
fiscal years 2007, 2006, and 2005 are on a 52-week basis. A fifty-
three week year occurs approximately every sixth year.
c a s h , c a s h e q u i va l e n t s , a n d in v e s t 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 classifies investments in marketable securities
at the time of purchase and reevaluates such classification at each
balance sheet date. Equity securities are classified 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 classified as held-to-maturity
and are stated at amortized cost. The specific identification method
is used to determine realized gains and losses on the trade date.
The Corporation has invested in an investment fund that is excluded
20 HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt
Notes to CoNsolidated FiNaNCial statemeNts
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 $9.1 million,
$7.7 million, and $8.2 million, at year-end 2007, 2006, and 2005,
respectively.
P r oP e r t Y, P l a n t, a n d e q u iP m 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.
l o n g - l i v e d a s 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
reflected in the Corporation’s balance sheet may not be recoverable.
An estimate of undiscounted cash flows 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
flows involve considerable management judgment and are based
upon assumptions about expected future operating performance.
The actual cash flows 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 fixed assets.
The Corporation’s continuous focus on improving the manufacturing
process tends to increase the likelihood of assets being replaced;
therefore, the Corporation is regularly evaluating the expected lives
of its equipment and accelerating depreciation where appropriate.
go o d w i l l a n d o t h e r in ta n gib l e a s 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 flows for the reporting units requires significant judgment, and
actual cash flows in the future may differ significantly from those
forecasted today. The goodwill associated with the reporting unit
held for sale was impaired in 2006 and were included as part of the
loss from discontinued operations.
The Corporation also determines the fair value of indefinite 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 related to two trademarks where the carrying value exceeded
the fair market value. These trademarks were associated with the
reporting unit classified as held for sale and were included as part
of the loss from discontinued operations.
The Corporation has definite lived intangibles that are amortized
over their estimated useful lives. Impairment losses are recognized
if the carrying amount of an intangible, subject to amortization, is
not recoverable from expected future cash flows and its carrying
amount exceeds its fair value. Intangibles, net of amortization, of
approximately $74 million are included on the consolidated balance
sheet as of the end of fiscal 2007.
P r o d u c t wa r r a n t i e s
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 specific reserve for known warranty
issues and an additional reserve for unknown claims that are
expected to be incurred based on historical claims experience.
Actual claims incurred could differ from the original estimates,
requiring adjustments to the reserve. Activity associated with
warranty obligations was as follows:
(In thousands)
2007
2006
2005
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
$«10,624
703
$«10,157
125
$«10,794
–
14,831
12,273
9,809
600
(14,635)
810
(12,741)
1,449
(11,895)
Balance at the end of the period
$«12,123
$«10,624
$«10,157
r e v e n u e r e c o gni 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; the
related costs are recorded 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 achieve or do
not achieve certain award levels can affect the amount of such
estimates and actual results could differ from these estimates.
P r o d u c t d e v e l oP m e n t c o s t s
Product development costs relating to the development of new
products and processes, including significant improvements
and refinements 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 $24.0 million in 2007, $27.6 million in 2006, and
$27.3 million in 2005.
HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt 21
Notes to CoNsolidated FiNaNCial statemeNts
s t o c k- b a s e d c o m P e n s at 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 modified
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 modified prospective transition method, financial
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.
in c o m e ta x e s
The Corporation accounts for income taxes under SFAS No. 109,
“Accounting for Income Taxes,” and in accordance with Interpretation
No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”).
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 financial statements or tax returns. Deferred income
taxes are provided to reflect the differences between the tax bases
of assets and liabilities and their reported amounts in the financial
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. There were approximately $7.7 million
of accumulated earnings considered to be permanently reinvested
as of December 29, 2007.
e a r nin g s P e 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.
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)
2007
2006
2005
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
$120,378
$123,375
$137,420
46,685
50,059
54,649
240
316
385
Denominator for diluted EPS
46,925
50,375
55,034
Earnings per share – basic
Earnings per share – diluted
$2.58
$2.57
$2.46
$2.45
$2.51
$2.50
22 HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt
Certain exercisable and non-exercisable stock options were not
included in the computation of diluted EPS for fiscal year 2007,
2006, and 2005, because their inclusion would have been anti-
dilutive. The number of stock options outstanding, which met this
criterion for 2007 was 412,916; for 2006 was 290,366; and for
2005 was 176,900.
u s e o f e s t i m at e s
The preparation of financial 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 financial statements and
accompanying notes. The more significant 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 - in s u r a n c e
The Corporation is partially self-insured for general, auto, and
product liability, workers’ compensation, and certain employee
health benefits. 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 financial 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 inflation, and magnitude of change in actual experience
development could cause these estimates to change in the future.
f o r e i gn c u r r e n c Y t r a n s l at i o n s
Foreign currency financial 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 e c l a s s i f i c at i o n s
Prior periods Statements of Income have been restated for
discontinued operations. Certain reclassifications have been made
within the footnotes to conform to the current year presentation.
r e c e n t a c c o u n t in g P r o n o u n c e m e n t s
In July 2006, the FASB issued Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109,
“Accounting for Income Taxes.” FIN 48 prescribes a recognition
Notes to CoNsolidated FiNaNCial statemeNts
threshold and measurement attribute for the financial 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, classification, interest and penalties, accounting in
interim periods, disclosure, and transition. This Interpretation is
effective for fiscal years beginning after December 15, 2006. The
Corporation adopted the provision of FIN 48 on December 31,
2006, the beginning of fiscal 2007. See “Income Taxes” 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 financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within
those fiscal years. The Corporation does not anticipate any material
impact to its financial statements from the adoption of this standard.
In February, 2007, the FASB issued SFAS No. 159, “The Fair Value
Option for Financial Assets and Financial Liabilities” (“SFAS 159”)
which permits entities to choose to measure many financial
instruments and certain other items at fair value that are not
currently required to be measured at fair value. The objective of
SFAS 159 is to improve financial reporting by providing entities
with the opportunity to mitigate volatility in reported earnings
caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions.
This statement is effective as of the beginning of any fiscal year
beginning after November 15, 2007. The Corporation does not
anticipate any material impact to its financial statements from the
adoption of this standard.
In December 2007, the FASB issued SFAS No. 141 (Revised),
“Business Combinations” (“SFAS No. 141(R)”), replacing SFAS
No. 141, “Business Combinations” (“SFAS No. 141”), and SFAS
No. 160, “Noncontrolling Interests in Consolidation Financial
Statements – An Amendment of ARB No. 51” (“SFAS No. 160”).
SFAS No. 141(R) retains the fundamental requirements of SFAS
No. 141, broadens its scope by applying the acquisition method to
all transactions and other events in which one entity obtains control
over one or more other businesses, and requires, among other
things, that assets acquired and liabilities assumed be measured
at fair value as of the acquisition date, that liabilities related to
contingent considerations be recognized at the acquisition date and
remeasured at fair value in each subsequent reporting period, that
acquisition-related costs be expensed as incurred, and that income
be recognized if the fair value of the net assets acquired exceeds
the fair value of the consideration transferred. SFAS No. 160
establishes accounting and reporting standards for noncontrolling
interests (i.e., minority interests) in a subsidiary, including changes
in a parent’s ownership interest in a subsidiary and requires,
among other things, that noncontrolling interests in subsidiaries
be classified as a separate component of equity. Except for the
presentation and disclosure requirements of SFAS No. 160, which
are to be applied retrospectively for all periods presented, SFAS
No. 141 (R) and SFAS No. 160 are to be applied prospectively in
financial statements issued for fiscal years beginning after
December 15, 2008. The Corporation does not anticipate any
material impact to its financial statements from the adoption of
SFAS No. 160.
Restructuring Related and Impairment Charges
As a result of the Corporation’s ongoing business simplification
and cost reduction initiatives, management made the decision in
2007 to close an office furniture facility in Richmond, Virginia and
consolidate production into other locations. In connection with
the shutdown of the Richmond facility, the Corporation recorded
$4.4 million of pre-tax charges which included $0.6 million of
accelerated depreciation of machinery and equipment recorded in
cost of sales and $3.8 million of severance which was recorded
as restructuring costs. The closure and consolidation will be
completed during the first half of 2008. The Corporation will
incur additional restructuring charges and transition costs of
approximately $9 to $11 million in connection with the closure.
The Corporation’s hearth products segment consolidated some
of its service and distribution locations during 2007. In connection
with those consolidations, the Corporation recorded $1.1 million
of severance and facility exit costs, which were recorded as
restructuring costs.
During 2007, the Corporation completed the shutdown of an office
furniture facility, which began in the fourth quarter of 2006. The
facility was located in Monterrey, Mexico, and production from this
facility was consolidated into other locations. In connection with
this shutdown, the Corporation recorded $0.8 million of severance
costs in 2006. The Corporation incurred $2.1 million of current
period charges during 2007.
During 2006, the Corporation completed the shutdown of two
office furniture facilities, which began in the third quarter of 2005.
The facilities were located in Kent, Washington and Van Nuys,
California, and production from those facilities was consolidated into
other 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.
HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt 23
Notes to CoNsolidated FiNaNCial statemeNts
The following table summarizes the restructuring accrual activity
since the beginning of fiscal 2005. 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 and Impairment Charges” in the
Consolidated Statements of Income.
(In thousands)
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
Restructuring charges
Cash payments
Restructuring reserve at
December 29, 2007
Severance
Costs
Facility
Termination and
Other Costs
$÷÷«÷–
1,142
(325)
$«÷817
865
(841)
$÷«841
3,539
(522)
$«÷÷«÷–
1,876
(632)
$«1,244
1,964
(3,208)
$÷÷÷÷–
3,523
(2,533)
Total
$«÷÷«÷–
3,018
(957)
$«2,061
2,829
(4,049)
$÷÷841
7,062
(3,055)
$3,858
$÷÷990
$«4,848
The Corporation made the decision in 2007 to sell several small
non-core components of its office furniture services business and
recorded $2.7 million of impairment charges, included in the
“Restructuring Related and Impairment Charges” line item on the
Consolidated Statements of Income, to reduce the assets being
held for sale to fair market value.
Business Combinations
The Corporation completed the acquisition of Harman Stove
Company, a privately held domestic manufacturer of free-standing
stoves and fireplace inserts, as well as two small office furniture
dealers during 2007. The combined purchase price of these
acquisitions, less cash acquired, totaled $40.9 million.
The Corporation has finalized the allocation of the purchase price for
all acquisitions other than the Harman Stove Company acquisition,
which occurred in the final quarter of the year. Any modification is not
expected to be significant. A reclassification between goodwill and
other intangible assets will occur based on the final valuation report
for the Harman Stove Company acquisition. There are approximately
$1.6 million of intangibles associated with these acquisitions. Of
these acquired intangibles, $0.4 million was assigned to trade names
that are not subject to amortization. The remaining $1.2 million have
estimated useful lives ranging from one to fifteen years with
amortization recorded based on the projected cash flow associated
with the respective intangible assets’ existing relationships. There is
approximately $8.6 million of goodwill associated with these
acquisitions of which $3.6 million was assigned to the office furniture
segment and $5.0 million was assigned to the hearth products
segment. All goodwill is deductible for income tax purposes.
24 HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt
The Corporation completed the acquisition of Lamex, a privately
held Chinese manufacturer and marketer of office furniture, as
well as a small office furniture services company, a small office
furniture dealer, and a small manufacturer of fireplace 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
office furniture dealer and the ability to call the remaining interest
on or after fiscal year-end 2011. The Corporation must exercise its
call on or before the end of fiscal 2016. SFAS No. 150 “Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity” (“SFAS No. 150”) requires a mandatorily
redeemable financial instrument to be classified as a liability unless
the redemption is required to occur only upon the liquidation or
termination of the reporting entity. It also requires that mandatorily
redeemable financial instruments be measured at fair value.
Therefore, the Corporation has recorded a liability for the remaining
interest 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 $53.7 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 $39.7 million have estimated useful lives ranging
from two to fifteen years with amortization recorded based on the
projected cash flow associated with the respective intangible
assets’ existing relationships. There is approximately $11.7 million
of goodwill associated with these acquisitions, of which $8.9 million
was assigned to the office furniture segment and $2.8 million was
assigned to the hearth products segment. Approximately $6.9 million
of the goodwill is not deductible for income tax purposes.
The Corporation completed the acquisition of four small office
furniture services companies, three office 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 office furniture dealers and the
ability to call the remaining interests on or after fiscal year-end 2008
and 2010. The Corporation must exercise its calls on or before the
end of fiscal 2014 and 2015. SFAS No. 150 requires a mandatorily
redeemable financial instrument to be classified as a liability unless
the redemption is required to occur only upon the liquidation or
termination of the reporting entity. It also requires that mandatorily
redeemable financial instruments be measured at fair value.
Therefore, the Corporation has recorded a liability for the remaining
interest 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 indefinite-lived trademarks
Notes to CoNsolidated FiNaNCial statemeNts
that are not subject to amortization. The remaining $12.6 million
have estimated useful lives ranging from two to fifteen years with
amortization recorded based on the projected cash flow 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 office
furniture segment and $5.2 million was assigned to the hearth
products segment. Approximately $2.1 million of the goodwill
assigned to the office furniture segment is not deductible for tax
purposes.
The results of the acquired entities have been included in the
Consolidated Financial Statements since the date of acquisition.
Discontinued Operations
During December 2006, the Corporation committed to a plan to sell
a small non-core component of its office furniture segment. The
sale was completed during the second quarter of 2007. Revenues
and expenses associated with this component are presented as
discontinued operations for all periods presented. During the fourth
quarter 2006, the Corporation recorded a pre-tax charge of
approximately $7.1 million to reduce the assets to the fair market
value. The charge was mainly due to the writedown of goodwill and
other intangibles not deductible for tax purposes.
Summarized financial information for discontinued operations is
as follows:
(In thousands)
2007
2006
2005
Discontinued operations:
Operating income (loss) before tax
Income tax
Net income (loss) from discontinued
operations
Impairment loss on discontinued
operations:
Impairment loss on discontinued
operations before tax
Benefit for income tax
Net impairment loss on discontinued
operations
Discontinued operations, net of
income tax
Inventories
$796
282
$÷(818)
(294)
$(666)
(240)
514
(524)
(426)
–
–
–
(7,125)
(1,352)
(500)
(180)
(5,773)
(320)
$514
$(6,297)
$(746)
(In thousands)
2007
2006
2005
Finished products
Materials and work in process
LIFO reserve
$÷76,804
52,641
(20,904)
$÷66,238
58,789
(19,262)
$«61,027
46,398
(16,315)
$108,541
$105,765
$«91,110
Property, Plant, and Equipment
(In thousands)
2007
2006
2005
Land and land improvements
Buildings
Machinery and equipment
Construction and equipment
installation in progress
Less: accumulated depreciation
$÷23,805
268,650
501,950
$÷27,700
266,801
550,979
$÷26,361
240,174
523,240
25,858
12,936
23,976
820,263
514,832
858,416
548,464
813,751
519,091
$305,431
$309,952
$294,660
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 in 2006, which was included in
discontinued operations on the Consolidated Statements of Income.
The Corporation also owns trademarks having a net value of
$43.5 million as of December 29, 2007, $43.2 million as of
December 30, 2006, and $30.2 million as of December 31, 2005.
The trademarks are deemed to have an indefinite useful life
because they are expected to generate cash flow indefinitely.
The Corporation recorded an impairment charge of $1.0 million
in 2006 and $0.5 million in 2005 related to two office 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 definite-lived intangible
assets, which are reflected in Other Assets in the Corporation’s
consolidated balance sheets:
(In thousands)
2007
2006
2005
Patents
Customer lists and other
Less: accumulated amortization
$÷18,780
101,320
45,833
$÷18,780
103,492
39,796
$18,480
67,211
28,758
Net intangible assets
$÷74,267
$÷82,476
$56,933
HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt 25
Notes to CoNsolidated FiNaNCial statemeNts
Amortization expense for definite-lived intangibles for 2007,
2006, and 2005, was $9.2 million, $10.4 million, and $7.3 million,
respectively. Based on the current amount of intangible assets
subject to amortization, the estimated amortization expense for
each of the following five fiscal years is as follows:
(In thousands)
Amortization expense
2008
$6.8
2009
$6.5
2010
$5.6
2011
$4.9
2012
$4.8
The occurrence of events such as acquisitions, dispositions, or
impairments in the future may result in changes to amounts.
The changes in the carrying amount of goodwill since January 1,
2005, are as follows by reporting segment:
Long-Term Debt
(In thousands)
2007
2006
2005
Note payable to bank, revolving credit
agreement with interest at a variable
rate (2007 – 5.46%; 2006 – 5.70%;
2005 – 4.69%)
Note payable to bank, with interest at a
fixed rate (2007 – 5.03%; 2006 – 6.11%)
Senior notes due in 2016 with interest
at a fixed rate of 5.54% per annum.
Industrial development revenue
bonds, payable 2018 with interest
at 3.55% per annum
Other notes and amounts
$128,000
$144,000
$140,000
14,205
14,200
150,000
150,000
–
–
2,300
63
294,568
14,253
2,300
794
2,300
900
311,294
25,994
143,200
40,150
$280,315
$285,300
$103,050
(In thousands)
Office
Furniture
Hearth
Products
Total
Balance as of January 1, 2005
$65,531
$159,023
$224,554
Goodwill increase during period
12,128
5,562
17,690
Total debt
Less: current portion
Long-term debt
Balance as of December 31, 2005
$77,659
$164,585
$242,244
Aggregate maturities of long-term debt are as follows:
Goodwill increase during period
Goodwill decrease during period
Balance as of December 30, 2006
Goodwill increase during period
Goodwill decrease during period
12,810
(5,654)
$84,815
3,577
(3,118)
2,790
(429)
$166,946
5,001
(387)
15,600
(6,083)
$251,761
8,578
(3,505)
Balance as of December 29, 2007
$85,274
$171,560
$256,834
(in thousands)
2007
2008
2009
2010
2011
Thereafter
$÷14,253
15
–
128,000
–
$152,300
The goodwill increases relate to acquisitions completed. See
Business Combinations note. The decrease in goodwill in the office
furniture segment in 2007 is due to goodwill associated with office
services business units held for sale and final purchase price
allocations for previous acquisitions. The decrease in goodwill in the
office furniture segment in 2006 is due to the impairment of the
goodwill associated with discontinued operations. The decreases
in the hearth products segment relates to the sale of a few small
service and distribution locations.
Accounts Payable and Accrued Expenses
(In thousands)
2007
2006
2005
Trade accounts payable
Compensation
Profit sharing and retirement expense
Marketing expenses
Other accrued expenses
$133,293
30,544
30,441
57,361
115,681
$102,436
27,835
29,545
60,676
108,390
$««86,945
34,272
32,461
54,797
100,747
$367,320
$328,882
$309,222
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 29, 2007, none of the borrowings outstanding
was classified as short-term as the Corporation does not expect
to repay any of the borrowings within a year.
On April 6, 2006, the Corporation refinanced $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.
26 HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt
Notes to CoNsolidated FiNaNCial statemeNts
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
2007 approximates the recorded aggregate amount.
Selling and Administrative Expenses
(In thousands)
2007
2006
2005
Freight expense for shipments
to customers
Amortization of intangible and
other assets
Product development costs
Other selling and administrative
expenses
$164,062
$182,814
$158,329
11,702
23,967
12,456
27,567
10,155
27,338
502,598
494,839
467,845
$702,329
$717,676
$663,667
Income Taxes
Significant components of the provision for income taxes are as follows:
(In thousands)
Current:
Federal
State
Foreign
2007
2006
2005
$53,965
6,588
811
$61,399
8,671
678
$77,343
8,954
131
Current provision
61,364
70,748
86,428
Deferred:
Federal
State
Foreign
Deferred provision
(3,031)
(353)
(418)
(3,802)
(7,528)
(651)
(483)
(8,662)
(8,048)
(1,081)
–
(9,129)
$57,562
$62,086
$77,299
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
Excludable foreign income
True-up of deferred tax items
Other – net
Effective tax rate
2007
35.0%
2.3
(0.9)
(1.4)
–
(2.0)
–
(0.7)
32.3%
2006
35.0%
2.8
(0.7)
(0.8)
(0.4)
(0.7)
(2.1)
(0.1)
33.0%
2005
35.0%
2.4
(0.4)
(0.9)
(0.3)
–
–
0.2
36.0%
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
fiscal 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.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes.
Significant components of the Corporation’s deferred tax liabilities
and assets are as follows:
(In thousands)
2007
2006
2005
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
$÷«1,614
4,624
(38,559)
5,649
$÷(1,052)
4,899
(33,826)
658
$(16,458)
5,907
(30,499)
5,577
(26,672)
(29,321)
(35,473)
3,491
5,302
2,572
(4,484)
4,234
6,713
3,563
5,323
3,096
(5,880)
3,906
5,432
3,858
4,924
5,720
(6,596)
3,847
4,078
Total net current deferred tax assets
17,828
15,440
15,831
Net deferred tax (liabilities) assets
$÷(8,844)
$(13,881)
$(19,642)
In June 2006, the Financial Accounting Standards Board (the
“FASB”) issued Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes” (“FIN 48”). FIN 48 addresses the determination of
whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under FIN 48,
the Corporation may recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the
financial statements from such a position should be measured
based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. FIN 48 also
provides guidance on derecognition, classification, interest and
penalties on income taxes, and accounting in interim periods and
requires increased disclosures.
HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt 27
Notes to CoNsolidated FiNaNCial statemeNts
The Corporation adopted the provisions of FIN 48 on December 31,
2006, the beginning of fiscal 2007. As a result of the implementation
of FIN 48, the Corporation recognized a $1.7 million increase in the
liability for unrecognized benefits. This increase in liability resulted
in a decrease to the December 31, 2006 retained earnings balance
in the amount of $0.5 million and a reduction in deferred tax
liabilities of $1.2 million.
(in thousands)
Unrecognized tax benefits, December 31, 2006
Increases in positions taken in a prior period
Decreases in positions taken in a prior period
Increases in positions taken in a current period
Decreases due to settlements
Unrecognized tax benefits, December 29, 2007
$«3,895
49
(6)
1,018
(2,117)
$«2,839
The amount of unrecognized tax benefits which would impact the
Corporation’s effective tax rate, if recognized, was $2.7 million at
December 31, 2006 and $2.3 million at December 29, 2007.
The Corporation recognized interest accrued related to
unrecognized tax benefits in interest expense and penalties in
operating expenses, which is consistent with the recognition of
these items in prior reporting. Interest and penalties recognized
in the Income Statement amounted to a benefit of $0.5 million.
As of December 31, 2006, the Corporation had recorded a liability
for interest and penalties related to unrecognized tax benefits of
$0.9 million. As of December 29, 2007, the Corporation had a
recorded liability for interest and penalties related to unrecognized
tax benefits of $0.4 million.
The Internal Revenue Service (the “IRS”) has completed the
examination of all federal income tax returns through 2003 with no
issues pending or unresolved. The years 2004 through 2007 remain
open for examination by the IRS. The years 2002 through 2007 are
currently under examination or remain open to examination by
several states.
As of December 29, 2007 it is reasonably possible that the amount
of unrecognized tax benefits may increase or decrease within the
twelve months following the reporting date. These increases or
decreases in the unrecognized tax benefits would be due to new
positions that may be taken on income tax returns, settlement of
tax positions and the closing of statues of limitation. It is not
expected that any of the changes will be significant individually or
in total to the results or financial position of the Corporation.
Shareholders’ Equity
Common Stock, $1 Par Value
Authorized
Issued and outstanding
Preferred Stock, $1 Par Value
Authorized
Issued and outstanding
2007
2006
2005
200,000,000
44,834,519
200,000,000
47,905,351
200,000,000
51,848,591
2,000,000
–
2,000,000
–
2,000,000
–
The Corporation purchased 3,581,707; 4,336,987; and 4,059,068
shares of its common stock during 2007, 2006, and 2005,
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.
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 pension and postretirement
liability – net of tax
Adjustment to initially apply SFAS 158,
net of tax
2007
2006
$(3,062)
$÷÷332
765
(147)
3,290
631
–
537
–
(4,562)
2005
$«349
293
–
(310)
–
Balance at end of period
$÷÷846
$(3,062)
$«332
In May 2007, the Corporation registered 300,000 shares of its
common stock under its 2007 Equity Plan for Non-Employee
Directors of HNI Corporation. This plan permits the Corporation
to issue to its non-employee directors options to purchase shares
of the Corporation’s common stock, restricted stock of the
Corporation, and awards of the Corporation’s 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 the Corporation’s common stock. Upon approval of this
plan in May 2007, no awards are granted under the 1997 Equity Plan
for Non-Employee Directors of HNI Corporation, but all outstanding
awards previously granted under that plan shall remain outstanding
in accordance with their terms. During 2007, 2006, and 2005,
16,194; 13,947; and 13,621 shares of the Corporation’s common
stock were issued under these plans, respectively.
Cash dividends declared and paid per share for each year are:
(In dollars)
Common shares
2007
$.78
2006
$.72
2005
$.62
28 HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt
Notes to CoNsolidated FiNaNCial statemeNts
During 2002, shareholders approved the 2002 Members’ Stock
Purchase Plan, as amended January 1, 2007. 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
customarily work 20 hours or more per week and who customarily
work for five months or more in any calendar year. The price of the
stock purchased under the plan is 85% of the closing price on the
exercise date. No member may purchase stock under the plan in an
amount which exceeds a maximum fair value of $25,000 in any
calendar year. During 2007, 127,436 shares of common stock were
issued under the plan at an average price of $33.43. 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.
An additional 280,180 shares were available for issuance under
the plan at December 29, 2007.
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 some corporate officers and certain other key
employees. According to the agreements, a change in control
occurs when a third person or entity becomes the beneficial 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 agreement with the Corporation, and all of his or her
benefits vest under the Corporation’s 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 defined in the agreement, then the key employee is
entitled to receive, among other benefits, a severance payment
equal to two times (three times for the Corporation’s Chairman,
President and CEO) his or her annual salary and the average of the
prior two years’ bonuses.
Stock-Based Compensation
Under the Corporation’s 2007 Stock-Based Compensation Plan
(the “Plan”), as amended effective May 8, 2007, 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. Upon approval of this plan in May 2007, no future
awards are granted under the Corporation’s 1995 Stock-Based
Compensation Plan, as amended, but all outstanding awards
previously granted under that plan shall remain outstanding in
accordance with their terms. As of December 29, 2007 there were
approximately 5.0 million shares available for future issuance under
the 2007 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 members 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 2007, 127,436 shares of the Corporation’s
common stock were issued under the MSP Plan at an average
price of $33.43.
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 modified
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 modified prospective transition method, financial
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 29, 2007 decreased by
$3.6 million, and net earnings decreased by $2.4 million, or $.05 per
basic share and $.05 per diluted share. These results reflect stock
compensation expense of $3.6 million and tax benefits of
$1.2 million for the period. For the year ended December 30, 2006,
earnings before income taxes decreased by $3.2 million and net
earnings decreased by $2.1 million, or $.04 per basic share and
$.04 per diluted share.
HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt 29
Expected volatilities are based on historical volatility as the
Corporation does 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 simplified method as allowed by Staff Accounting Bulletin
No. 107 “Share Based Payment” (“SAB No. 107”) to determine
the expected term since the awards qualified as “plain vanilla”
options as defined 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 fiscal 2005.
Number of Shares
Weighted-Average
Exercise Price
Outstanding at January 1, 2005
Granted
Exercised
Forfeited
Outstanding at December 31, 2005
Granted
Exercised
Forfeited
Outstanding at December 30, 2006
Granted
Exercised
Forfeited
Outstanding at December 29, 2007
1,308,450
175,800
(331,500)
(24,100)
1,128,650
135,946
(68,500)
(22,480)
1,173,616
185,823
(214,000)
(102,373)
1,043,066
$28.65
42.81
25.14
30.95
$31.84
58.06
22.51
39.91
$35.27
48.66
24.86
46.14
$38.72
A summary of the Corporation’s nonvested shares as of
December 29, 2007 and changes during the year are presented
below:
Nonvested Shares
Nonvested at December 30, 2006
Granted
Vested
Forfeited
Nonvested at December 29, 2007
Weighted-
Average
Grant-Date
Fair Value
$15.97
15.67
11.17
17.64
$17.34
Shares
665,966
185,823
(202,500)
(102,373)
546,916
Notes to CoNsolidated FiNaNCial statemeNts
Adoption of the new standard also affected the presentation of
cash flows. The change is related to tax benefits associated with
tax deductions that exceed the amount of compensation expense
recognized in the financial statements. For the years ended
December 29, 2007, and December 30, 2006, cash flow from
operating activities was reduced by $0.8 million and $0.9 million and
cash flow from financing activities was increased by $0.8 million
and $0.9 million, respectively, as a result of the new standard.
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 year ended December 31, 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 in 2005:
(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
1.8
$135.6
$÷2.51
$÷2.48
$÷2.50
$÷2.47
The stock compensation expense for the years ended
December 29, 2007 and December 30, 2006, and the stock
compensation expense used in the preceding disclosure of pro
forma earnings for the year ended December 31, 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. 29, 2007
Year Ended
Dec. 30, 2006
Year Ended
Dec. 31, 2005
7 years
7 years
7 years
26.97%
26.97%
29.75%– 31.23%
31.21%
31.77%– 33.49%
33.47%
1.60%
1.60%
4.71%
1.24%–1.43%
1.24%
1.17%–1.45%
1.45%
4.62%– 5.09%
4.21%– 4.57%
30 HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt
Notes to CoNsolidated FiNaNCial statemeNts
At December 29, 2007, 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 29, 2007, follows:
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 benefit costs
recognized in the Corporation’s balance sheets for the years prior
to the adoption of the new standard.
Options
Vested or expected to vest
Exercisable
Number
998,626
496,150
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Life in Years
$38.32
$29.73
6.1
4.5
Aggregate
Intrinsic
Value
($000s)
–
$2.893
The weighted-average grant-date fair value of options granted was
$15.67, $21.39, and $15.74 for 2007, 2006, and 2005, respectively.
Other information for the year follows:
(In thousands)
Dec. 29, 2007
Dec. 30, 2006
Dec. 31, 2005
Year Ended
Total fair value of shares vested
Total intrinsic value of options
exercised
Cash received from exercise of
stock options
Tax benefit realized from exercise of
stock options
Retirement Benefits
$2,261
$1,702
$«««875
1,987
8,447
1,542
8,334
4,673
5,321
1,551
(In thousands)
2007
2006
2005
Change in benefit obligation
Benefit obligation at
beginning of year
Service cost
Interest cost
Plan changes
Benefits paid
Actuarial (gain) or loss
$19,082
480
1,067
(584)
(1,361)
(3,081)
$«19,738
326
1,053
0
(1,218)
(817)
$«18,958
303
1,057
0
(1,503)
923
Benefit obligation at end of year
$15,603
$«19,082
$«19,738
Change in plan assets
Fair value at beginning of year
Actual return on assets
Employer contributions
Benefits paid
$÷6,693
487
0
(1,361)
$÷«7,582
326
3
(1,218)
$÷«8,777
300
8
(1,503)
Fair value at end of year
$÷5,819
$÷«6,693
$÷«7,582
725
2,999
Funded status of plan
$«(9,784)
$(12,388)
$(12,156)
Amounts recognized in the Statement
of Financial Position consist of:
Current liabilities
Noncurrent liabilities
$÷÷÷÷«0
$÷9,784
$÷÷÷÷÷0
$«12,388
–
–
–
–
–
–
–
–
–
–
–
–
–
The Corporation has defined contribution profit-sharing plans
covering substantially all members who are not participants in
certain defined benefit plans. The Corporation’s annual contribution
to the defined contribution plans is based on member eligible
earnings and results of operations and amounted to $28.1 million,
$28.2 million, and $27.4 million, in 2007, 2006, and 2005, respectively.
The Corporation sponsors defined benefit plans which include a
limited number of salaried and hourly members 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, $0, and $653,000, in
2007, 2006, and 2005, respectively. The increase in 2005 is due to
a plan curtailment resulting from the shutdown of an office furniture
facility in Van Nuys, California. The actuarial present value of
obligations, less related plan assets at fair value, is not significant.
The Corporation also participates in a multi-employer plan, which
provides defined benefits to certain of the Corporation’s union
members. Pension expense for this plan amounted to $376,000,
$352,000, and $353,000, in 2007, 2006, and 2005, respectively.
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
Change due to unrecognized
actuarial (gain)/loss
Change due to unrecognized
transition (asset)/obligation
Change due to unrecognized prior
service cost
$«(1,273)
$÷«2,069
2,654
0
3,618
431
$÷1,381
$÷«6,118
$÷6,118
$÷÷÷÷÷0
–
–
(3,342)
(964)
(431)
0
6,118
0
0
0
Amount disclosed at end of year
$÷1,381
$÷«6,118
Postretirement Health Care
The Corporation adopted SFAS No. 158 “Employers’ Accounting
for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106, and 132(R)” for
its 2006 year-end financial statement and recognized on the 2006
balance sheet the funded status of other postretirement benefit
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
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
$(12,156)
3,132
4,199
661
$÷(4,164)
HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt 31
Notes to CoNsolidated FiNaNCial statemeNts
Estimated future benefit payments (In thousands)
Leases
Fiscal 2008
Fiscal 2009
Fiscal 2010
Fiscal 2011
Fiscal 2012
Fiscal 2013–2017
Expected contributions during fiscal 2008
Total
Plan Assets – Percentage of Fair Value by Category
Cash equivalents
Equity
Debt
Other
Total
2007
2006
0%
25%
75%
0%
100%
1%
25%
74%
0%
100%
$1,120
1,116
1,126
1,127
1,149
6,296
$÷÷÷«0
2005
0%
0%
0%
100%
100%
The Corporation invested these funds in high-grade money market
instruments in 2005 and 2004.
The discount rates at fiscal year-end 2007, 2006, and 2005, were
6.4%, 5.8%, and 5.5% respectively. The Corporation’s payment for
these benefits 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 Benefit Cost
(In thousands)
Service cost
Interest cost
Expected return on assets
Amortization of unrecognized net (gain)/loss
Net periodic postretirement benefit cost/(income)
2008
$÷«396
963
(358)
508
$1,509
A discount rate of 6.4% and an expected long-term return on
plan assets of 6.8% were used to determine net periodic benefit
cost for 2008. The discount rate is set at the measurement date to
reflect the yield of a portfolio of high quality, fixed income debt
instruments. The expected return on plan assets is based on the
specific allocation of assets and an analysis of current market
conditions.
The Corporation leases certain warehouses, plant facilities,
and equipment. Commitments for minimum rentals under
non-cancelable leases at the end of 2007 are as follows:
(In thousands)
2008
2009
2010
2011
2012
Thereafter
Total minimum lease payments
Less: amount representing interest
Present value of net minimum lease payments,
including current maturities of $462
Capitalized Leases
Operating Leases
$÷35,858
30,871
26,857
22,795
10,224
18,807
$145,412
$÷«552
431
258
168
–
–
1,409
171
$1,238
Property, plant, and equipment at year-end include the following
amounts for capitalized leases:
(In thousands)
Buildings
Machinery and equipment
Office equipment
Less: allowances for depreciation
2007
$3,299
906
–
4,205
3,084
2006
$3,299
–
–
3,299
2,954
2005
$3,299
38
761
4,098
3,564
$1,121
$÷«345
$÷«534
Rent expense for the years 2007, 2006, and 2005, amounted to
approximately $35.6 million, $32.1 million, and $19.5 million,
respectively. The Corporation has an operating lease for a production
facility with annual rentals totaling approximately $380,000 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 $0, $165,000,
and $169,000, for the years 2007, 2006, and 2005, respectively.
32 HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt
Notes to CoNsolidated FiNaNCial statemeNts
Guarantees, Commitments and Contingencies
The Corporation utilizes letters of credit in the amount of
$25 million to back certain financing instruments, insurance policies
and payment obligations. The letters of credit reflect fair value as
a condition of their underlying purpose and are subject to fees
competitively determined.
The Corporation is involved in various kinds of disputes and legal
proceedings that have arisen in the course of its business, including
pending litigation, environmental remediation, taxes, and other
claims. It is the Corporation’s opinion, after consultation with legal
counsel, that additional liabilities, if any, resulting from these
matters are not expected to have a material adverse effect on the
Corporation’s quarterly or annual operating results and cash flows
when resolved in a future period.
Significant Customer
One office furniture customer accounted for approximately 11%,
12%, and 12% of consolidated net sales in 2007, 2006, and 2005,
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: office furniture
and hearth products, with the former being the principal segment.
The office furniture segment manufactures and markets a broad
line of metal and wood commercial and home office furniture,
which includes storage products, desks, credenzas, chairs, tables,
bookcases, freestanding office partitions and panel systems, and
other related products. The hearth products segment manufactures
and markets a broad line of gas, electric, and wood-burning
fireplaces, inserts, stoves, facings, and accessories, principally
for the home.
For purposes of segment reporting, intercompany sales transfers
between segments are not material, and operating profit is income
before income taxes exclusive of certain unallocated corporate
expenses. These unallocated corporate expenses include the net
costs of the Corporation’s corporate operations, interest income, and
interest expense. Management views interest income and expense
as corporate financing 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. Identifiable
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 office 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 financial
statements for the years ended 2007, 2006, and 2005, is as follows
for continuing operations:
(In thousands)
Net sales:
Office furniture
Hearth products
Operating profit:
Office furniture (a)(b)
Hearth products (c)
2007
2006
2005
$2,108,439
462,033
$2,077,040
602,763
$1,838,386
594,930
$2,570,472
$2,679,803
$2,433,316
$÷«194,692
36,444
$÷«181,811
58,699
$÷«177,487
74,822
Total operating profit
Unallocated corporate expenses
231,136
(53,992)
240,510
(47,105)
252,309
(36,424)
Income before income taxes
$÷«177,144
$÷«193,405
$÷«215,885
Depreciation and amortization
expense:
Office furniture
Hearth products
General corporate
Capital expenditures:
Office furniture
Hearth products
General corporate
Identifiable assets:
Office furniture
Hearth products
General corporate
$÷÷«49,294
14,453
4,426
$÷÷«48,753
16,559
4,191
$÷÷«43,967
15,275
6,272
$÷÷«68,173
$÷÷«69,503
$÷÷«65,514
$÷÷«47,408
8,736
2,770
$÷÷«42,126
11,093
6,705
$÷÷«27,760
8,498
5,544
$÷÷«58,914
$÷÷«59,924
$÷÷«41,802
$÷«724,447
356,273
126,256
$÷«748,285
359,646
118,428
$÷«617,591
361,568
161,112
$1,206,976
$1,226,359
$1,140,271
(a) Included in operating profit for the office furniture segment are pretax charges of $8.7 million,
$2.8 million, and $3.5 million, for closing of facilities and impairment charges in 2007, 2006,
and 2005, respectively.
(b) Includes minority interest.
(c) Included in operating profit for the hearth products segment are pretax charges of $1.1 million
for closing facilities in 2007.
HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt 33
Notes to CoNsolidated FiNaNCial statemeNts
Summary of Quarterly Results of Operations (Unaudited)
The following table presents certain unaudited quarterly financial 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 financial statements appearing
elsewhere in this report and includes all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial
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 2007
Net sales
Cost of products sold
Gross profit
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
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 profit
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
$609,200
402,500
206,700
170,814
(136)
36,022
(4,036)
31,986
11,363
(28)
20,651
30
$618,160
402,523
215,637
169,559
728
45,350
(4,578)
40,772
14,404
(25)
26,393
484
$674,628
434,385
240,243
176,904
4,264
59,075
(4,489)
54,586
19,342
(63)
35,307
–
$668,484
425,289
243,195
185,052
4,932
53,211
(3,829)
49,382
12,032
(163)
37,513
–
$÷20,681
$÷26,877
$÷35,307
$÷37,513
$÷÷÷÷.43
÷.00
$÷÷÷÷.43
47,996
$÷÷÷÷.43
÷.00
$÷÷÷÷.43
48,278
100.0%
33.9
28.0
(0.0)
5.9
1.9
3.4
0.0
3.4
$÷÷÷÷.56
÷.01
$÷÷÷÷.57
46,937
$÷÷÷÷.56
÷.01
$÷÷÷÷.57
47,199
100.0%
34.9
27.4
0.1
7.3
2.3
4.3
0.1
4.3
$÷÷÷÷.76
–
$÷÷÷÷.76
46,256
$÷÷÷÷.76
–
$÷÷÷÷.76
46,487
100.0%
35.6
26.2
0.6
8.8
2.9
5.2
–
5.2
$÷÷÷÷.82
–
$÷÷÷÷.82
45,550
$÷÷÷÷.82
–
$÷÷÷÷.82
45,775
100.0%
36.4
27.7
0.7
8.0
1.8
5.6
–
5.6
34 HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt
Notes to CoNsolidated FiNaNCial statemeNts
(In thousands, except per share data)
Year-End 2006
Net sales
Cost of products sold
Gross profit
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 profit
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 benefit in the 4th quarter of 2006 as discussed in the “Income Taxes” footnote to the financial statements.
HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt 35
Notes to CoNsolidated FiNaNCial statemeNts
(In thousands, except per share data)
Year-End 2005
Net sales
Cost of products sold
Gross profit
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 profit
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
36 HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt
seleCted 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 – year-end
Net working capital – year-end
Operating Results (Thousands of Dollars)
Net sales
Gross profit as a % of net sales
Interest expense
Income from continuing operations
Income from continuing operations as a % of net sales
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
2007
2006
2005
2004
2003
$÷÷÷÷«2.57
$÷÷÷÷«2.59
$÷÷÷÷«2.53
$÷÷÷÷«1.99
$÷÷÷÷«1.69
2.55
2.58
2.57
.78
10.24
2.33
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
$2,570,472
$2,679,803
$2,433,316
$2,084,435
$1,755,728
35.2%
$÷÷«18,161
119,864
4.7%
34.6%
36.3%
36.0%
36.4%
$÷÷«14,323
$÷÷÷«2,355
$÷÷÷÷÷886
$÷÷÷«2,970
129,672
138,166
113,660
98,105
4.8%
5.7%
5.5%
$÷÷÷÷÷514
$÷÷÷(6,297)
$÷÷÷÷«(746)
$÷÷÷÷÷«(78)
120,378
4.7%
123,375
4.6%
137,420
5.6%
113,582
5.4%
$÷÷«36,408
$÷÷«36,028
$÷÷«33,841
$÷÷«32,023
$÷÷«30,299
25.2%
22.6%
21.8%
16.5%
14.5%
$÷÷«68,173
$÷÷«69,503
$÷÷«65,514
$÷÷«66,703
$÷÷«72,772
30.2%
69.8%
29.2%
70.8%
24.6%
75.4%
28.2%
71.8%
30.9%
69.1%
$÷«489,072
$÷«504,174
$÷«486,598
$÷«374,579
$÷«462,122
384,461
104,611
1.27
358,542
145,632
1.41
358,174
128,424
1.36
266,250
108,329
1.41
245,816
216,306
1.88
$1,206,976
$1,226,359
$1,140,271
$1,021,657
$1,021,826
5.6%
–
98,105
5.6%
% return on beginning assets employed
Long-term debt and capital lease obligations
Shareholders’ equity
Current Share Data
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
15.8%
$÷«281,091
458,908
44,834,519
46,684,774
46,925,161
7,625
18.1%
21.2%
17.5%
14.7%
$÷«285,974
$÷«103,869
$÷÷÷«3,645
$÷÷÷«4,126
495,919
593,944
669,163
709,889
47,905,351
51,848,591
55,303,323
58,238,519
50,059,443
54,649,199
57,127,110
58,178,739
50,374,758
55,033,741
57,577,630
58,545,353
7,475
6,702
6,465
6,416
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 fiscal year.
$÷÷«58,568
$÷÷«58,921
$÷÷«38,912
$÷÷«32,417
$÷÷«34,842
13,271(b)
14,170(b)
12,504(b)
10,589(b)
8,926
HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt 37
otHeR iNvestoR iNFoRmatioN
c o m Pa r i s o n o f f i v e -Y e a r c u m u l at i v e 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
2002
2003
2004
2005
2006
2007
HNI Corporation
S&P 500
OFIG*
Annual Return
HNI Corporation
S&P500
OFIG*
2002
$100.0
$100.0
$100.0
2003
$160.1
$128.9
$131.6
2004
$161.3
$143.3
$137.5
2005
$208.4
$150.3
$145.2
2006
$171.0
$174.0
$186.9
2007
$139.5
$184.8
$161.9
* The Office Furniture Industry Group (OFIG) is a composite peer index constructed by the Corporation. It is weighted by market capitalization and 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
fiscal quarter.
Total returns for HNI Corporation, S&P 500 and OFIG are depicted at the end of Corporation’s fiscal years. The total return assumes $100.00 invested in each of HNI Corporation’s Common Stock, the
S&P 500 and the Office Furniture Industry Group Stocks on December 27, 2002, plus further reinvestment of dividends on the date of dividend payment. S&P 500 returns assume S&P 500 dividends are
paid and reinvested on the last trading day of the Corporation’s fiscal quarter.
The comparative performance of the Corporation’s Common Stock against the indexes as depicted in this graph is dependent on 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 each future annual report graph. 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)
q u a r t e r lY 2 0 0 7 – 2 0 0 5
f i s c a l Y e a r s 2 0 0 7 – 2 0 0 3
2007 by Quarter
High
Low
1st
2nd
3rd
4th
Total dividends paid
$51.65
$43.95
47.94
45.35
44.32
40.14
35.56
33.79
2006 by Quarter
High
Low
Dividends
per Share
$.195
.195
.195
.195
$÷.78
Dividends
per Share
Year
2007
2006
2005
2004
2003
Five-year average
Market Price
High
Low
Diluted
Earnings
per Share
Price/Earnings Ratio
High
Low
$51.65
61.68
62.41
45.71
44.12
$33.79
38.34
38.80
35.25
24.65
$2.57
2.45
2.50
1.97
1.68
20
25
25
23
26
24
13
16
16
18
15
15
1st
2nd
3rd
4th
Total dividends paid
2005 by Quarter
1st
2nd
3rd
4th
Total dividends paid
$61.68
$54.83
$÷.18
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
38 HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt
FoRwaRd-lookiNg statemeNts
Statements in this report that are not strictly historical, including
statements as to plans, outlook, objectives, and future financial
performance, are “forward-looking” statements, within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Words such as “anticipate,” “believe,” “could,” “confident,”
“estimate,” “expect,” “forecast,” “hope,” “intend,” “likely,” “may,”
“plan,” “possible,” “potential,” “predict,” “project,” “should,”
“will,” and variations of such words and similar expressions identify
forward-looking statements. Forward-looking statements involve
known and unknown risks, which may cause the Corporation’s
actual results in the future to differ materially from expected results.
These risks include, without limitation:
• the Corporation’s ability to realize financial benefits from its
(a) price increases, (b) cost containment and business simplification
initiatives for the entire Corporation, (c) investments in strategic
acquisitions, new products, and brand building, (d) investments
in distribution and rapid continuous improvement, (e) repurchases
of common stock, (f) ability to maintain its effective tax rate, and
(g) consolidation and logistical realignment initiatives;
• uncertainty related to the availability of cash to fund future growth;
• lower than expected demand for the Corporation’s products due
to uncertain political and economic conditions, including, with
respect to the Corporation’s hearth products, the protracted
decline in the housing market;
• lower industry growth than expected;
• major disruptions at our key facilities or in the supply of key raw
materials, components, or finished goods;
• uncertainty related to disruptions of business by terrorism, military
action, epidemic, acts of God, or other Force Majeure events;
• competitive pricing pressure from foreign and domestic competitors;
• higher than expected costs and lower than expected supplies of
materials (including steel and petroleum-based materials);
• higher than expected costs for energy and fuel;
• changes in the mix of products sold and customers purchasing;
• restrictions imposed by the terms of the Corporation’s revolving
credit facility and note purchase agreement; and
• currency fluctuations and other factors described in the
Corporation’s annual and quarterly reports filed with the
Securities and Exchange Commission on Forms 10-K and 10-Q.
The factors identified 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
qualified 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 financial 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.
QUaNtitative aNd QUalitative disClosURes aBoUt maRket Risk
During the normal course of business, the Corporation is subjected
to market risk associated with interest rate movements. Interest
rate risk arises from our variable interest debt obligations. For
information related to the Corporation’s long-term debt, refer to the
Long-Term Debt disclosure in the Notes to Consolidated Financial
Statements filed as part of this report. The Corporation does not
currently have any significant foreign currency exposure.
The Corporation is exposed to risks arising from price changes for
certain direct materials and assembly components used in its
operations. The largest such costs incurred by the Corporation are
for steel, plastics, textiles, wood particleboard and cartoning. Steel
is the most significant raw material used in the manufacturing of
products. The market price of plastics and textiles in particular are
sensitive to the cost of oil and natural gas. Oil and natural gas prices
have increased sharply in the last several years, and as a result,
the cost of plastics and textiles has increased. The cost of wood
particleboard has been impacted by continued downsizing of
production capacity in the wood market as well as increased cost
in transportation related to oil increases.
The Corporation works to offset these increased costs through
global sourcing initiatives and price increases on its products;
however, margins have been negatively impacted due to the lag
between cost increases and the Corporation’s ability to increase
its prices. The Corporation believes future market price increases
on its key direct materials and assembly components are likely.
Consequently, it views the prospect of such increases as an
outlook risk to the business.
HNi CoRPoRatioN aNd sUBsidiaRies 2007 aNNUal RePoRt 39
REPORT Of INDEPENDENT REgISTERED PUBlIC ACCOUNTINg fIRm
To The Boa rd of direc Tors and sha rehol ders of hni corpor aTion :
In our opinion, the accompanying consolidated balance sheets and
related consolidated statements of income, shareholders’ equity
and cash flows, present fairly, in all material respects, the financial
position of HNI Corporation and its subsidiaries (the “Corporation”)
at December 29, 2007, December 30, 2006, and December 31, 2005,
and the results of their operations and their cash flows for each of the
three years in the period ended December 29, 2007 in conformity
with accounting principles generally accepted in the United States
of America. Also in our opinion, the Corporation maintained, in all
material respects, effective internal control over financial reporting as
of December 29, 2007, based on criteria established in Internal Control
– Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Corporation’s
management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial
reporting, included in the Management Report on Internal Control
Over Financial Reporting. Our responsibility is to express opinions on
these financial statements and on the Corporation’s internal control
over financial reporting based on our integrated audits. We conducted
our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement
and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing
the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
As discussed in the notes to the consolidated financial 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 defined benefit pension and other
postretirement plans are presented effective December 30, 2006.
A company’s internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial 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
financial statements.
Because of its inherent limitations, internal control over financial
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 Harman Stove
Company (“Harman”) from its assessment of internal control over
financial reporting as of December 29, 2007 because it was acquired
by the Corporation in a business purchase combination during 2007.
We have also excluded Harman from our audit of internal control
over financial reporting. Harman’s total assets and total revenues
represent approximately 3% and less than 1%, respectively, of the
related consolidated financial statement amounts as of and for the
year ended December 29, 2007.
PricewaterhousecooPers LLP
Chicago, Illinois
February 25, 2008
40 HNI CORPORATION AND SUBSIDIARIES 2007 ANNUAl REPORT
mANAgEmENT REPORT ON INTERNAl CONTROl OvER fINANCIAl REPORTINg
Management of HNI Corporation is responsible for establishing
and maintaining adequate internal control over financial reporting as
defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
Act of 1934. HNI Corporation’s internal control over financial reporting
is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. The
Corporation’s internal control over financial reporting includes those
written policies and procedures that:
• pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of HNI Corporation;
• provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial 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
• 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 financial
statements.
Internal control over financial reporting includes the controls
themselves, monitoring (including internal auditing practices), and
actions taken to correct deficiencies as identified.
Because of its inherent limitations, internal control over financial
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 November 13, 2007, the Corporation completed the acquisition
of Harman Stove Company (“Harman”) as discussed in the Business
Combination footnote to the Corporation’s consolidated financial
statements. Management excluded Harman from its assessment of the
Corporation’s internal control over financial reporting as it was acquired
during the fiscal year. Harman’s total assets and total revenues represent
3% and less than 1%, respectively, of the consolidated financial
statement amounts as of and for the year ended December 29, 2007.
Management assessed the effectiveness of HNI Corporation’s
internal control over financial reporting as of December 29, 2007.
Management based this assessment on criteria for effective internal
control over financial 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
financial reporting and testing of the operational effectiveness of the
Corporation’s internal control over financial 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 29, 2007, HNI Corporation maintained effective internal
control over financial reporting.
Management’s assessment of the effectiveness of the Corporation’s
internal control over financial reporting as of December 29, 2007
has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in its report which
appears herein.
staN a. asKreN
Chairman, President
and Chief Executive Officer
February 22, 2008
JeraLD K. DittMer
Vice President and
Chief Financial Officer
HNI CORPORATION AND SUBSIDIARIES 2007 ANNUAl REPORT 41
A MESSAGE FROM THE BOARD OF DIRECTORS
DE A R SH A REHOL DERS :
The pillars of the HNI Corporation Vision statement
straightforward management style and conservative
(as shown on page 44) are operating profitability, creating
financial management. We also believe shareholder
long-term shareholder value, pursuing profitable growth,
interests are best served by well-informed, active and
delivering quality in all we do, being a great place to work
engaged Board members, and this is what each of
and, above all, being a responsible corporate citizen.
us strives to be.
Our role as members of the Board of Directors is to do
We are proud to serve on this Board. We are committed
our utmost to ensure the realization of the HNI Vision.
to ensuring the highest standards of ethics and
We do this by supporting HNI Corporation’s sound
corporate governance in all we do. We thank you for
policies and practices, clear and open communications,
your continued support.
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 E. Scalzo
Abbie J. Smith
Brian E. Stern
Ronald V. Waters, III
Board of Directors: (left to right, standing)
Ronald V. Waters, III, Abbie J. Smith, Brian E. Stern,
James R. Jenkins, Larry B. Porcellato, Miguel M. Calado,
Stan A. Askren, John A. Halbrook; (left to right, seated)
Joseph E. Scalzo, Dennis J. Martin, Mary H. Bell,
Gary M. Christensen, Cheryl A. Francis
42 HNI CORPORATION ANNUAL REPORT 2007
BOARD OF DIRECTORS AND OFFICERS
BOA RD OF DIREC TORS
Stan A. Askren
Chairman, President and
Chief Executive Officer,
HNI Corporation
Mary H. Bell
Vice President,
Building Construction
Products Division,
Caterpillar Inc.
Miguel M. Calado
Director and Chief
Financial Officer,
Hovione, SA
Gary M. Christensen
Lead Director,
HNI Corporation
Advisor, Wind Point Partners
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
Independent Business
Consultant
Former Chief Executive Officer,
ICI Paints North America
Joseph E. Scalzo
President and
Chief Executive Officer,
WhiteWave and
Morningstar Foods, LLC
Abbie J. Smith
Chaired Professor,
The University of Chicago
Graduate School of Business
Brian E. Stern
Director,
Starboard Capital
Partners, LLC
Ronald V. Waters, III
Director, President and
Chief Operating Officer,
LoJack Corporation
COMMI T T EES OF T HE BOA RD
Audit
Ronald V. Waters, III,
Chairperson
Miguel M. Calado
James R. Jenkins
Joseph E. Scalzo
Human Resources
and Compensation
Abbie J. Smith,
Chairperson
Gary M. Christensen
John A. Halbrook
Larry B. Porcellato
Public Policy and
Corporate Governance
Dennis J. Martin,
Chairperson
Mary H. Bell
Cheryl A. Francis
Brian E. Stern
HNI CORPOR AT ION OF F ICERS
OPER AT ING COMPA NIES
Stan A. Askren
Chairman, President and
Chief Executive Officer
Timothy J. Anderson
President,
Omni Workspace Company
Marshall H. Bridges
Treasurer and Vice President,
Mergers and Acquisitions
Farida Chow
President,
Lamex
Gary L. Carlson
Vice President, Member
and Community Relations
Jerald K. Dittmer
Vice President and
Chief Financial Officer
Robert J. Driessnack
Vice President,
Controller
Tamara S. Feldman
Vice President,
Financial Reporting
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
Bradley D. Determan
Executive Vice President,
HNI Corporation
President,
Hearth & Home Technologies Inc.
David W. Gardner
President,
Paoli 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.
Eugene Sung
Executive Vice President,
HNI Corporation
President,
Allsteel Inc.
Donald C. Wharton
President,
The Gunlocke Company LLC
HNI CORPORATION ANNUAL REPORT 2007 4 3
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 simplification, rapid continuous improvement and innovation
in everything we do, individual and collective integrity, and the relentless pursuit
of the following long-standing beliefs:
W E W IL L BE PROF I TA BL E .
W E W IL L BE A GRE AT PL ACE TO WORK .
We pursue mutually profitable relationships with
We pursue a participative environment and support
customers and suppliers. Only when our company
a culture that encourages and recognizes excellence,
achieves an adequate profit can the other elements
active involvement, ongoing learning and contributions
of this Vision be realized.
of each member; that seeks out and values diversity; and
W E W IL L CRE AT E LONG-T ERM VA LuE F OR SH A REHOL DERS.
We create long-term value for shareholders by earning
financial returns significantly greater than our cost of
that attracts and retains the most capable people who
work safely, are motivated and are devoted to making
our company and our members successful.
capital and pursuing profitable growth opportunities.
W E W IL L BE A RESPONSIBL E CORPOR AT E CI T Iz EN.
We will safeguard our shareholders’ equity by maintain-
We conduct our business in a way that sustains the well-
ing a strong balance sheet to allow flexibility in
being of society, our environment and the economy in
responding to a continuously changing market and
which we live and work. We follow ethical and legal
business environment.
business practices. Our company supports our volunteer
W E W IL L PuRSuE PROF I TA BL E GROW T H.
We pursue profitable growth on a global basis in order
to provide continued job opportunities for members
efforts and provides charitable contributions so that we
can actively participate in the civic, cultural, educational,
environmental and governmental affairs of our society.
and financial success for all stakeholders.
TO OuR S TA K EHOL DERS :
W E W IL L BE A SuPPL IER OF quA L I T y PRODuC TS A ND SER V ICES.
When our company is appreciated by its members,
favored by its customers, supported by its suppliers,
We provide reliable products and services of high quality
respected by the public and admired by its shareholders,
and brand value to our end-users. Our products and
this Vision is fulfilled.
services exceed our customers’ expectations and enable
our distributors and our company to make a fair profit.
4 4 HNI CORPORATION ANNUAL REPORT 2007
INVESTOR INFORMATION
Fiscal 2008 Quarter-End Dates
1st Quarter: Saturday, March 29
2nd Quarter: Saturday, June 28
3rd Quarter: Saturday, September 27
4th Quarter: Saturday, January 3
Annual Meeting
The Corporation’s annual shareholders’ meeting will be held
at 10:30 a.m. on Tuesday, May 6, 2008, 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: 563.272.7347
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.
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 30, 2007, the Corporation submitted to the NYSE, the Annual CEO
Certification required by Section 303A.12(a) of the NYSE Listed Company
Manual certifying that the Corporation’s CEO is not aware of any violation
by the Corporation of NYSE corporate governance listing standards. The
Corporation also filed with the Securities and Exchange Commission the
CEO/CFO Certifications regarding the quality of the Corporation’s public
disclosure required under Sections 302 and 906 of the Sarbanes-Oxley Act
of 2002 as Exhibits 31.1, 31.2, and 32.1 to the Corporation’s annual report
on Form 10-K for the fiscal year ended December 29, 2007.
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408 East Second Street
Muscatine, Iowa 52761
www.hnicorp.com