H
N
I
C
O
R
P
O
R
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I
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2
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1
6
A
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600 EAST SECOND STREET
MUSCATINE, IOWA 52761
WWW.HNICORP.COM
HNI Corporation
2016 ANNUAL REPORT
Financial Highlights
(Amounts in thousands, except for per share)
2016
2016
2015
Change
INCOME STATEMENT DATA
Net sales
Non-GAAP gross profit*
Non-GAAP gross margin*
Selling and administrative expenses
Non-GAAP net income attributable to HNI Corporation*
Non-GAAP net income as a % of net sales*
Per common share:
Non-GAAP net income attributable to HNI Corporation—diluted*
Cash dividends
BALANCE SHEET DATA
Total assets
Long-term debt
Debt/capitalization ratio
HNI Corporation’s shareholders’ equity
Working capital
OTHER DATA
Capital expenditures (including capitalized software)
Cash flow from operations
Weighted-average shares outstanding—diluted
$ 2,203,489
$ 849,649
$ 2,304,419
$ 852,894
38.6%
37.0%
$ 667,744
$ 119,190
$ 672,125
$ 117,020
5.4%
5.1%
$
$
2.62
1.09
$
$
2.58
1.045
(4.4)%
1.9%
1.6%
$ 1,330,234
$ 180,000
$ 1,263,925
$ 185,000
29.9%
28.5%
$ 500,603
(30,432)
$
$ 476,954
2,470
$
$ 119,584
$ 223,362
45,502,219
$ 114,966
$ 173,352
45,440,653
*GAAP to non-GAAP reconciliation
GAAP amount
% of net sales
Adjustments
Restructuring and impairment
Transition costs
(Gain) loss on sale of assets
Building donation
Non-recurring gain
Total adjustments
2016
Net
Income
Gross
Profit
Earnings
Per Share
Gross
Profit
2015
Net
Income
Earnings
Per Share
Gross
Profit
2014
Net
Income
Earnings
Per Share
$ 835,013
$ 85,577
$1.88
$847,398
$ 105,436
$2.32
$784,200
$ 61,471
$1.35
37.9%
3.9%
36.8%
4.6%
35.3%
2.8%
$ 5,302
$ 16,308
$ 9,334
$ 9,334
$ —
$ 22,613
$ —
$ 4,397
$ —
$ (2,042)
$
792
$ 12,569
$ 4,704
$ 4,704
$ —
$ —
$ —
$ —
$ —
$ —
$ 5,213
$ 4,894
$ 38,232
$ 4,894
$ —
$ (10,723)
$ —
$ —
$ —
$ —
$ 14,636
$ 50,610
$ 5,496
$ 17,273
$ 10,107
$ 32,403
Tax impact of adjustments
$ —
$ (16,997)
$ —
$ (5,689)
$ —
$ (4,144)
Non-GAAP amount
% of net sales
$ 849,649
$119,190
$2.62
$852,894
$117,020
$2.58
$794,307
$ 89,730
$1.97
38.6 %
5.4%
37.0 %
5.1%
35.7 %
4.0%
BOARD OF DIRECTORS
Stan A. Askren
Cheryl A. Francis**
Larry B. Porcellato
Ronald V. Waters, III**
Chairman, President and
Co-Chairman,
Former Chief Executive
Former Director,
Chief Executive Officer,
Corporate Leadership
Officer,
President and
Human Resources
and Compensation
Mary A. Bell
HNI Corporation
Center
The Homax Group, Inc.
Chief Executive Officer,
Miguel M. Calado
LoJack Corporation
Ronald V. Waters, III
Mary A. Bell
Retired Vice President,
Building Construction
Products Division,
Caterpillar Inc.
Miguel M. Calado
Vice President,
Corporate Development,
Hovione SA
*Lead Director
**Committee Chairperson
John R. Hartnett
Abbie J. Smith*
Executive Vice President,
Chaired Professor,
Illinois Tool Works Inc.
University of Chicago
Mary K. W. Jones
Senior Vice President
and General Counsel,
Deere & Company
Booth School of
Business
Brian E. Stern**
Director,
Starboard Capital
Partners, LLC
and Former Senior
Vice President,
Xerox Corporation
Public Policy and
Corporate Governance
Mary K. W. Jones
Abbie J. Smith
Brian R. Stern
COMMITTEES
OF THE BOARD
Audit
Cheryl A. Francis
John R. Hartnett
Larry B. Porcellato
HNI CORPORATION OFFICERS AND COMPANY EXECUTIVES
Stan A. Askren
Chairman, President and
Chief Executive Officer
Steven M. Bradford
Senior Vice President, General
Counsel and Secretary
Cooper V. Evans
Vice President,
Internal Audit
Julie M. Abramowski
Vice President,
Corporate Controller
Vincent P. Berger
President,
Marshall H. Bridges
Vice President and
Chief Financial Officer
Jack D. Herring
Treasurer, Director of Finance
and Investor Relations
Hearth & Home Technologies
and President,
and President,
The HON Company
HNI Contract Furniture Group
Jerald K. Dittmer
Jeffrey D. Lorenger
Executive Vice President,
Executive Vice President,
Kurt A. Tjaden
Donald T. Mead
Executive Vice President,
and President,
Gunlocke
Donna D. Meade
Vice President,
Member Relations
Senior Vice President,
and President,
HNI International
INVESTOR INFORMATION
Fiscal 2017 Quarter-End Dates
Form 10-K Report
Independent Registered Public
Transfer Agent
1st Quarter: April 1
2nd Quarter: July 1
3rd Quarter: September 30
4th Quarter: December 30
Financial information can be
Accounting Firm
accessed on the Corporation’s
website at www.hnicorp.com.
KPMG LLP
Suite 5500
Corporate Headquarters and
Chicago, IL 60601
200 East Randolph Street
Shareholders may report a change
of address or make inquiries by
writing or calling:
Wells Fargo Shareowner Services
1110 Centre Point Curve
Annual Meeting
The Corporation’s annual
Investor Relations
HNI Corporation
Common Stock
Suite 101
shareholders’ meeting will be
600 East Second Street
HNI Corporation common stock
Mendota Heights, MN 55120
held at 10:30 a.m. on Tuesday,
Muscatine, IA 52761-0071
trades on the New York Stock
Telephone: 800.468.9716
May 9, 2017, at the HNI Corporate
Telephone: 563.272.7400
Exchange (NYSE) under the
www.shareowneronline.com
Head quarters.
Investor Relations Email:
investorrelations@hnicorp.com
symbol: HNI.
50
50
50
40
40
40
30
30
30
20
20
20
10
10
10
0
0
0
50
40
30
20
10
0
150
150
150
125
125
125
100
100
100
75
75
75
50
50
50
150
125
100
75
50
225
225
225
180
180
180
135
135
135
90
90
90
25
25
25
Value Creation
45
25
0
0
0
0
0
45
45
0
0
225
180
135
90
45
0
GROSS MARGIN*
(in millions)
NET INCOME*
(in millions)
CASH FLOW FROM
OPERATIONS
(in millions)
%
7
%
7
.
.
5
3
5
3
%
7
.
5
3
%
0
%
0
.
.
7
3
7
3
%
0
.
7
3
%
6
%
6
.
.
8
3
8
3
%
%
6
7
8
5
3
3
.
.
2014
2014
2014
2015
2015
2015
2016
2016
2016
2014
%
0
.
7
3
2015
%
6
0
9
$
8
3
.
0
9
$
7
1
1
$
7
1
1
$
7
1
1
$
9
1
1
$
9
1
1
$
0
9
$
9
1
0
1
9
$
$
2014
2014
2016
2014
2015
2015
2015
2016
2016
2016
2014
7
1
1
$
2015
8
6
1
$
9
1
1
$
8
6
1
$
8
6
1
$
3
7
1
$
3
7
1
$
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7
1
$
3
2
2
$
3
2
2
$
3
8
2
6
2
1
$
$
3
7
1
$
3
2
2
$
2014
2014
2016
2014
2015
2015
2015
2016
2016
2016
2014
2015
2016
+290
BASIS POINT
INCREASE
(2014–2016)
33%
$564m
PROFIT GROWTH
CASH GENERATED
(2014–2016)
(2014–2016)
DIVIDEND
(per common share)
10%
2
7
.
0
$
INCREASE
2
2
8
7
7
7
.
.
.
0
0
0
$
$
$
(2014–2016)
8
7
.
0
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.
0
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9
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0
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0
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1
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9
0
.
1
$
2006
2006
2006
2007
2007
2007
2008
2008
2008
2009
2006
2009
2009
2010
2007
2010
2010
2011
2008
2011
2011
2012
2009
2012
2012
2013
2010
2013
2013
2014
2011
2014
2014
2015
2012
2015
2015
2016
2013
2016
2016
2014
* Amounts represent non-GAAP values. See GAAP to non-GAAP reconciliation on the inside front cover.
1.2
1.2
1.2
1.0
1.0
1.0
0.8
0.8
0.8
0.6
0.6
0.6
0.4
0.4
0.4
0.2
0.2
0.2
0.0
0.0
0.0
1.2
1.0
0.8
0.6
0.4
0.2
0.0
2015
2016
2016 ANNUAL REPORT
Dear Shareholder
OUR CULTURE—A COMPETITIVE ADVANTAGE
We remain committed to our unique culture, core beliefs and values. Our
member owner culture continues to stand the test of time and sets us
apart from the competition. We continue to build talent and capability
across the organization with the next generation of leaders.
LOOKING FORWARD—2017
As we look to 2017, we expect strong performance driven by top line
growth, continued benefit from our investments and relentless cost
reductions. Our office furniture businesses are strong and well positioned
to benefit from investments in selling capabilities and new products in an
improving market. Our hearth business continues to lead the industry. With
our strong brands, broadest market coverage and outstanding sales
partners, we are well positioned to continue delivering long term
shareholder value.
THANK YOU
We appreciate the continued trust placed in us by our customers, suppliers,
members and shareholders. One of our core beliefs is the concept of
collective gain. We believe when we provide more value to our customers
than their alternatives, we create value for all stakeholders. I want to thank
our committed partners for helping us drive long term value creation.
Stan A. Askren
Chairman, President and Chief Executive Officer
HNI Corporation
We are a stronger company than we were a year ago, well positioned for
long term success. We continue to streamline and strengthen our core
businesses, creating a platform to power long term profitable growth. Our
strategies are working: more from the core, split and focus with leverage,
and Rapid Continuous Improvement driven by the power of our member
owner culture. As a result, we are confident in our ability to double
earnings every three to five years based on the following key pillars.
BEST TOTAL COST—POSITIONED FOR THE FUTURE
We will be the best cost producer in the markets we serve. We will continue
to relentlessly drive structural cost reduction, significant productivity
improvements, product simplification, and design commonization—all of
which helped us increase profits in 2016 despite lower sales. Long term,
best total cost allows us to deliver greater value to customers, drive growth
and enhance profitability. Our commitment to operational excellence is a
sustainable competitive advantage delivering significant value to all
stakeholders.
OFFICE FURNITURE—STRONG MARKET POSITION AND
GROWTH OPPORTUNITY
We maintain the broadest and deepest coverage in office furniture with our
strong portfolio of brands. Our split and focus model continues to offer the
best opportunity to reach the most customers. Brands with focused
management teams tuned and tailored to specific customer segments
provide a laser focused, consistent, flawless customer experience. The
investments we have made in new products and selling capabilities will
drive greater returns because they are targeted to our customers’ unique
needs. Our relationships with winning customers provides a distribution
platform that remains a major sustainable competitive advantage.
HEARTH BUSINESS—LEADING POSITION IN ROBUST MARKET
Our hearth business is the clear leader in its market. We have the best
known and most preferred brands for builders and homeowners supported
by the industry’s best products, distribution and customer focused
organization. Our best in class supply chain provides unsurpassed financial
benefits to our resellers and their customers with a just in time delivery
model making them more profitable. Our leading value proposition for
builders and homeowners puts us in an excellent position to realize continued
benefits from the long term, sustainable growth in single family housing.
HNI CORPORATION
WE ARE A STRONGER COMPANY THAN WE WERE A YEAR
AGO. OUR STRATEGIES ARE WORKING AND WE ARE
WELL POSITIONED TO CONTINUE DELIVERING LONG
TERM PROFITABLE GROWTH FOR OUR SHAREHOLDERS.
LONG TERM PROFITABLE
GROWTH
$119 M illion*
of net income
COMBINED SALES
Office Furniture and Hearth Products
$2.2 Billion
of annual revenue
* Amount represents non-GAAP value. See GAAP to
non-GAAP reconciliation on the inside front cover.
2016 ANNUAL REPORT
®
®
®
®
®
®
Leader in Office Furniture
Leader in Hearth Products
We Believe
Collective
Gain
Our members create value for
shareholders by creating value for our
customers. When we do that,
everybody—customers, investors,
members, suppliers, communities—wins.
That’s collective gain.
in
Living
our beliefs
More, better,
faster, for less
What do customers want? The same thing
you want when you’re a customer. More,
better, faster, for less. You want to be
treated well, and you want it to be easy.
Our success and survival depend on
providing more than great products at a
fair price.
Our beliefs drive our actions and
our actions drive our outcomes.
Whether we succeed or fail
depends on what we believe and
how we act on those beliefs.
Integrity is
everything
We believe integrity is everything. We
believe intensely in treating members,
customers, shareholders and suppliers
with integrity and respect, because doing
so will ultimately create differentiation
and greater return for our company.
Integrity is being honest and upfront with
people and doing what we say we will do.
Constructive
Discontent
We believe in spending less time talking
about what we do well and more
examining what we can do better. We’re
always looking for a better way, which
means we are in a constant state of
transformation. We are never satisfied
with the status quo because no matter
how well we do, we can always improve.
Leaders serve every
member and every
customer
We believe the company’s leadership
exist for its members and customers, not
vice-versa. Our leaders’ job is to engage
our members and customers to share
their ideas, and, more important, leaders
must act on those ideas.
Pride without
pretense
Members here are humbly confident. Real,
down to earth. Not arrogant. We are proud of
our accomplishments, but we hate pretense.
Members are confident enough to lead the
way forward, but humble enough to stop,
listen, adapt and improve. We demand
excellence of ourselves and others, but we
are open, honest and straightforward.
Making a
difference in our
community and the
environment
We believe in the importance of working
to better our communities.
HNI CORPORATION
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2016
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
An Iowa Corporation
Commission File Number 1-14225
HNI Corporation
600 East Second Street
P. O. Box 1109
Muscatine, IA 52761-0071
563/272-7400
IRS Employer No. 42-0617510
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, with par value of $1.00 per share.
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a
smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Yes
No
The aggregate market value of the voting stock held by non-affiliates of the Registrant, as of July 2, 2016 was $1,697,789,756,
based on the New York Stock Exchange closing price for such shares on that date, assuming for purposes of this calculation that
all 10 percent holders and all directors and executive officers of the Registrant are affiliates.
The number of shares outstanding of the Registrant's common stock, as of February 3, 2017, was 43,983,489.
Documents Incorporated by Reference
Portions of the Registrant's Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders to be held on
May 9, 2017 are incorporated by reference into Part III.
Table of Contents
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
Page
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Table I – Executive Officers of the Registrant
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
PART III
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
PART IV
Management Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firms
Financial Statements
Financial Statement Schedules
Index of Exhibits
4
11
18
19
20
20
21
22
23
24
33
34
34
34
34
35
35
35
35
35
36
37
38
39
41
46
71
-3-
Table of Contents
ITEM 1. BUSINESS
General
ANNUAL REPORT ON FORM 10-K
PART I
HNI Corporation (the “Corporation”, “we”, “us” or “our”) is an Iowa corporation incorporated in 1944. The Corporation is a
provider of office furniture and hearth products. Office furniture products include panel-based and freestanding furniture systems,
seating, storage and tables. These products are sold primarily through a national system of dealers, wholesalers and office product
distributors but also directly to end-user customers and federal, state and local governments. Hearth products include a full array
of gas, wood and pellet 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. In fiscal 2016, the Corporation
had net sales of $2.2 billion, of which approximately $1.7 billion or 77 percent was attributable to office furniture products and
$0.5 billion or 23 percent was attributable to hearth products. Please refer to Reportable Segment Information in the Notes to
Consolidated Financial Statements for further information about operating segments.
The Corporation is organized into a corporate headquarters and operating units with offices, manufacturing plants, distribution
centers and sales showrooms in the United States, China, Hong Kong, India, Taiwan, Mexico and Dubai. See "Item 2. Properties"
for additional related discussion.
Nine operating units, marketing under various brand names, participate in the office furniture industry. These operating units
include:
The HON Company LLC ("HON")
Allsteel Inc. ("Allsteel")
Maxon Furniture Inc.
The Gunlocke Company LLC
Paoli LLC
Hickory Business Furniture, LLC (“HBF”)
OFM LLC ("OFM")
HNI Hong Kong Limited (“Lamex”)
BP Ergo Limited ("BP Ergo")
Each of these operating units provides products, which are sold through various channels of distribution and segments of the
industry. HNI Export sells office furniture products manufactured by the Corporation’s operating units in select markets outside
the United States and Canada.
The operating unit Hearth & Home Technologies LLC (“Hearth & Home”) participates in the hearth products industry. The retail
and distribution brand for this operating unit is Fireside Hearth & Home.
The Corporation has been committed to systematically eliminating waste through its process improvement approach known as
Rapid Continuous Improvement (“RCI”), which focuses on streamlining design, manufacturing and administrative processes. The
Corporation's RCI program has contributed to increased productivity, lower costs, improved product quality, enhanced workplace
safety and shorter average lead times.
The Corporation's product development efforts are focused on developing and providing relevant and differentiated solutions,
delivering quality, aesthetics and style.
An important element of the Corporation's success has been its member-owner culture, which has enabled it to attract, develop,
retain and motivate skilled, experienced and efficient members (i.e., employees). Each of the Corporation's eligible members has
the opportunity to own stock in the Corporation through a number of stock-based plans, including a member stock purchase plan
and a profit-sharing retirement plan. These ownership opportunities drive a unique level of commitment to the Corporation’s
success throughout the workforce.
For further financial-related information with respect to acquisitions, divestitures, operating segment information, restructuring
and the Corporation’s operations in general, refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in Part II of this report and the following sections in the Notes to Consolidated Financial Statements: Nature
of Operations, Business Combinations and Reportable Segment Information.
-4-
Table of Contents
Industry
According to the Business and Institutional Furniture Manufacturer's Association (“BIFMA”), North American 2016 sales of office
and institutional furniture grew 2 percent from 2015 levels. During 2016, BIFMA changed the data reporting structure whereby
reporting elements are not historically comparable. Under the previous methodology, BIFMA reported 2015 shipments were up
5 percent from 2014 levels.
The U.S. office furniture market consists of two primary channels—the contract channel and the supplies-driven channel. The
contract channel has traditionally been characterized by sales of office furniture and services to large corporations, primarily for
new office facilities, relocations or office redesigns. Sales to the contract channel are frequently customized to meet specific client
and designer preferences. Contract furniture is generally purchased through office furniture dealers who prepare a custom-designed
office layout emphasizing image and design. The selling process is complex, lengthy and generally has several manufacturers
competing for the same projects.
The supplies-driven channel of the market, in which the Corporation is a leader, primarily represents smaller orders of office
furniture purchased by small/medium businesses. Sales in this channel are driven on the basis of price, quality, selection, speed
and reliability of delivery. Office products dealers, wholesalers and national office product distributors are the primary distribution
channels in this market. Office products dealers publish content on the internet and periodic catalogs displaying office furniture
and products from various manufacturers.
The Corporation also competes in the hearth products industry, where it is a market leader. Hearth products are typically purchased
by builders during the construction of new homes and homeowners during the renovation of existing homes. Both types of
purchases involve seasonality with remodel/retrofit activity being concentrated in the September to December time-
frame. Distribution is primarily through independent dealers, who may buy direct from the manufacturer or from an intermediate
distributor.
Strategy
The Corporation's strategy is to build on its position as a leading manufacturer of office furniture and hearth products in North
America and pursue select global markets where opportunities exist to create shareholder value. The components of this growth
strategy are to introduce new products, build brand equity, provide outstanding customer satisfaction, strengthen the distribution
network, pursue complementary strategic acquisitions, enter markets not currently served and continually reduce costs.
The Corporation’s strategy has a dual focus: working continuously to extract new growth from its core markets while identifying
and developing new, adjacent potential areas of growth. The Corporation focuses on extracting new growth from each of its
existing businesses by deepening its understanding of end-users and using the insights gained to refine branding, selling, marketing
and product development. The Corporation also pursues opportunities in potential growth drivers related to its core business, such
as vertical markets or new distribution models.
Employees/Members
As of December 31, 2016, the Corporation employed approximately 9,400 persons, 8,900 of whom were full-time and 500 of
whom were temporary personnel. The Corporation believes its labor relations are good.
Products and Solutions
Office Furniture
The Corporation designs, manufactures and markets a broad range of office furniture systems and seating across a range of price
points. The Corporation's portfolio includes panel-based and freestanding furniture systems and complementary products such
as seating, storage, tables and relocatable architectural walls. The Corporation offers a complete line of office panel system
products and freestanding desks, bookshelves and credenzas in order to meet the needs of a wide spectrum of organizations. The
Corporation offers a variety of storage options designed either to be integrated into the Corporation's office systems products or
to function as freestanding furniture in office applications. The Corporation's seating line includes chairs designed for all types
of office work. The chairs are available in a variety of frame colors, coverings and a wide range of price points.
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To meet the demands of various markets, the Corporation's products are sold under various private labels in addition to the
Corporation's brands:
HON®
Allsteel®
Maxon®
Gunlocke®
Paoli®
HBF®
OFM®
basyx® by HON
Lamex®
ERGOTM
Hearth Products
The Corporation is North America’s largest manufacturer and marketer of prefabricated fireplaces, hearth stoves and related
products. These products are primarily for the home and are sold under the following widely recognized brands:
Heatilator®,
Heat & Glo®
Majestic®
Monessen®
Quadra-Fire®,
Harman StoveTM
Vermont Castings®
PelProTM
The Corporation’s line of hearth products includes a full array of gas, wood and pellet burning fireplaces, inserts, stoves, facings
and accessories. Heatilator®, Heat & Glo®, Majestic® and Monessen® are brand leaders in the two largest segments of the home
fireplace market: gas and wood fireplaces. The Corporation is the leader in “direct vent” fireplaces, which replace the chimney-
venting system used in traditional fireplaces with a less expensive vent through the roof or an outer wall. In addition, the Corporation
is the market leader in wood and pellet-burning stoves with its Quadra-Fire®, Harman StoveTM, Vermont Castings® and PelProTM
product lines which provide home heating solutions using renewable fuels. See “Intellectual Property” under "Item 1. Business"
for additional details.
Manufacturing
The Corporation manufactures office furniture in Georgia, Indiana, Iowa, New York, North Carolina, China and India. The
Corporation manufactures hearth products in Iowa, Maryland, Minnesota, Pennsylvania, Vermont and Washington.
The Corporation purchases raw materials and components from a variety of suppliers, and generally most items are available from
multiple sources. Major raw materials and components include coil steel, aluminum, zinc, castings, lumber, veneer, particleboard,
fabric, paint, lacquer, hardware, glass, plastic products and shipping cartons.
Since its inception, the Corporation has focused on making its manufacturing facilities and processes more flexible while reducing
cost, eliminating waste and improving product quality. The Corporation applies the principles of RCI and a lean manufacturing
philosophy leveraging the creativity of its members to eliminate and reduce costs. To achieve flexibility and attain efficiency
goals, the Corporation has adopted a variety of production techniques, including cellular manufacturing, focused factories, just-
in-time inventory management, value engineering, business simplification and 80/20 principles. The application of RCI has
increased productivity by reducing set-up, processing times, square footage, inventory levels, product costs and delivery times,
while improving quality and enhancing member safety. The Corporation's RCI process involves members, customers and
suppliers. Manufacturing also plays a key role in the Corporation's concurrent product development process in order to design
new products for ease of manufacturability.
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Product Development
The Corporation's product development efforts are primarily focused on developing relevant and differentiated end-user solutions
focused on quality, aesthetics, style, sustainable design and reduced manufacturing costs. The Corporation accomplishes this
through improving existing products, extending product lines, applying ergonomic research, improving manufacturing processes,
leveraging alternative materials and providing engineering support to its operating units. The Corporation conducts its product
development efforts at both the corporate and operating unit level. The Corporation invested approximately $28.1 million, $31.1
million and $29.7 million in product development during fiscal 2016, 2015 and 2014, respectively.
Intellectual Property
As of December 31, 2016, the Corporation owned 197 U.S. and 223 foreign patents with expiration dates through 2040 and had
applications pending for 30 U.S. and 71 foreign patents. In addition, the Corporation holds 200 U.S. and 467 foreign trademark
registrations and has applications pending for 29 U.S. and 15 foreign trademarks.
The Corporation's principal office furniture products do not require frequent technical changes. The Corporation believes neither
any individual office furniture patent nor the Corporation's office furniture patents in the aggregate are material to the Corporation's
business as a whole.
The Corporation’s patents covering its hearth products protect various technical innovations. While the acquisition of patents
reflects Hearth & Home’s position in the market as an innovation leader, the Corporation believes neither any individual hearth
product patent nor the Corporation’s hearth product patents in the aggregate are material to the Corporation’s business as a whole.
The Corporation applies for patent protection when it believes the expense of doing so is justified and the duration of its registered
patents is adequate to protect these rights. The Corporation also pays royalties in certain instances for the use of patents on products
and processes owned by others.
The Corporation applies for trademark protection for brands and products when it believes the expense of doing so is justified.
The Corporation actively protects trademarks it believes have significant value. The Corporation believes neither the loss of any
individual trademark nor the loss of the Corporation's trademarks in the aggregate would materially or adversely affect the
Corporation's business as a whole, except for HON, Allsteel, Heat & Glo and Heatilator.
Sales and Distribution: Customers
The Corporation sells its office furniture products through five principal distribution channels. The first channel, consisting of
independent, local office products dealers, specializes in the sale of office furniture and office furniture systems to business,
government, education and health care entities.
The second distribution channel is comprised of national office product distributors that sell furniture and office supplies through
a national network of dealerships and sales offices. These distributors also sell through on-line and retail office products stores.
The third distribution channel involves the Corporation having the lead selling relationship with the end-user.
The fourth distribution channel is comprised of wholesalers serving as distributors of the Corporation's products to independent
dealers and national office products distributors. Wholesalers maintain inventory of standard product lines for resale to the various
dealers and national office products distributors. They also special order products from the Corporation in customer-selected
models and colors. Wholesalers maintain warehouse locations throughout the United States, which enables the Corporation to
make its products available for rapid delivery to resellers anywhere in the country.
The fifth distribution channel is comprised of direct sales of the Corporation's products to federal, state and local government
offices.
The Corporation's office furniture sales force consists of regional sales managers, salespersons and firms of independent
manufacturers' representatives who collectively provide national sales coverage. Sales managers and salespersons are compensated
by a combination of salary and variable performance compensation.
Office products dealers, national wholesalers and national office product distributors market their products over the internet and
through catalogs published periodically and distributed to existing and potential customers.
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The Corporation also makes export sales through HNI Export to office furniture dealers and wholesale distributors serving select
foreign markets. Distributors are principally located in the Middle East, Mexico, Latin America and the Caribbean. Through
Lamex and BP Ergo, the Corporation manufactures and distributes office furniture directly to end-users and through independent
dealers and distributors in Asia, primarily China and India.
Limited quantities of select finished goods inventories primarily built to order and awaiting shipment are at the Corporation's
principal manufacturing plants and at its various distribution centers.
Hearth & Home sells its fireplace and stove products through dealers, distributors and Corporation-owned distribution and retail
outlets. The Corporation has a field sales organization of regional sales managers, salespersons and firms of independent
manufacturers' representatives.
In fiscal 2016, the Corporation's five largest customers represented approximately 25 percent of its consolidated net sales. No
single customer accounted for 10 percent or more of the Corporation’s consolidated net sales in fiscal 2016. The substantial
purchasing power exercised by large customers may adversely affect the prices at which the Corporation can successfully offer
its products.
The above percentages do not include revenue from various government agencies. In aggregate, purchases by federal government
entities collectively accounted for approximately 4 percent of the Corporation's consolidated net sales.
As of December 31, 2016, the Corporation had an order backlog of approximately $175.7 million, which will be filled in the
ordinary course of business within the first few months of the fiscal year. This compares with $173.8 million as of January 2,
2016. Backlog, in terms of percentage of net sales, was 8.0 percent and 7.6 percent for fiscal 2016 and 2015, respectively. The
Corporation’s products are typically manufactured and shipped within a few weeks following receipt of order or later upon customer
request. Therefore, the dollar amount of the Corporation’s order backlog is not considered by management to be a leading indicator
of the Corporation’s expected sales in any particular fiscal period.
Competition
The Corporation is a leading global office furniture manufacturer and is North America's largest manufacturer and marketer of
fireplaces.
The office furniture industry is highly competitive, with a significant number of competitors offering similar products. The
Corporation competes by emphasizing its ability to deliver compelling value products, solutions and a high level of tailored
customer service. The Corporation competes with large office furniture manufacturers, which cover a substantial portion of the
North America market share in the contract-oriented office furniture market including manufacturers such as Steelcase Inc.,
Haworth, Inc., Herman Miller, Inc. and Knoll, Inc. The Corporation also competes with a number of other office furniture
manufacturers, including The Global Group (a Canadian company), Kimball International, Inc., Krueger International Inc. (KI)
and Teknion Corporation (a Canadian company), as well as global importers. The Corporation faces significant price competition
from its competitors and may encounter competition from new market entrants.
Hearth products, consisting of prefabricated fireplaces and related products, are manufactured by a number of national and regional
competitors. The Corporation competes against a broad range of manufacturers, including Travis Industries Inc., Innovative Hearth
Products, Wolf Steel Ltd. (Napoleon) and FPI Fireplace Products International Ltd. (Regency).
Both office furniture and hearth products compete on the basis of performance, quality, price, customer service and complete and
on-time delivery. The Corporation believes it competes principally by providing compelling value products designed to be among
the best in their price range for product quality, performance, superior customer service and short lead-times. This is made possible,
in part, by the Corporation's on-going investment in brands, product development, low cost manufacturing operations and extensive
distribution network.
For further discussion of the Corporation's competitive situation, refer to “Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations” later in this report.
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Effects of Inflation
Certain business costs may, from time to time, increase at a rate exceeding the general rate of inflation. The Corporation’s objective
is to offset the effect of normal inflation primarily through productivity improvements combined with certain adjustments to the
selling price of its products as competitive market and general economic conditions permit.
Investments are routinely made in modernizing plants, equipment, information technology and RCI programs. These investments
collectively focus on business simplification and increasing productivity which help to offset the effect of rising material and labor
costs. The Corporation also routinely employs ongoing cost control disciplines. In addition, the last-in, first-out ("LIFO")
valuation method is used for most of the Corporation's inventories. The use of LIFO ensures changing material and labor costs
are recognized in reported income and pricing decisions.
Environmental
The Corporation is subject to a variety of environmental laws and regulations governing the use of materials and substances in
products, the management of wastes resulting from use of certain material and the remediation of contamination associated with
releases of hazardous substances used in the past. Although the Corporation believes it is in material compliance with all of the
various regulations applicable to its business, there can be no assurance requirements will not change in the future or the Corporation
will not incur material costs to comply with such regulations. The Corporation has trained staff responsible for monitoring
compliance with environmental, health and safety requirements. The Corporation’s staff works with responsible personnel at each
manufacturing facility, the Corporation’s environmental legal counsel and consultants on the management of environmental, health
and safety issues. The Corporation’s environmental objective is to reduce and, when practical, eliminate the human and ecosystem
impacts of materials and manufacturing processes.
The Corporation’s environmental management system has earned the recognition of numerous state and federal agencies as well
as non-government organizations. Aligning continuous improvement initiatives with the Corporation’s environmental objectives
creates a model of the triple bottom line of sustainable development where members work toward shared goals of personal growth,
economic reward and a healthy environment for the future.
Over the past several years, the Corporation has expanded its environmental management system and established metrics to
influence product design and development, supplier and supply chain performance, energy and resource consumption and the
impacts of its facilities. In addition, the Corporation is providing sustainability training to senior decision makers and has assigned
resources to documenting and communicating its progress to an increasingly knowledgeable market. Integrating sustainable
objectives into core business systems is consistent with the Corporation’s vision and ensures its commitment to being a sustainable
enterprise remains a priority for all members.
Compliance with federal, state and local environmental regulations has not had a material effect on the capital expenditures,
earnings or competitive position of the Corporation to date. The Corporation does not anticipate financially material capital
expenditures will be required during fiscal 2017 for environmental control facilities. In management’s judgment, compliance with
current regulations should not have a material effect on the Corporation’s financial condition or results of operations. However,
there can be no assurance new environmental legislation, material science or technology in this area will not result in or require
material capital expenditures.
Business Development
The development of the Corporation's business during the fiscal years ended December 31, 2016, January 2, 2016 and January 3,
2015 is discussed in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Available Information
Information regarding the Corporation’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, and any amendments to these reports, will be made available, free of charge, on the Corporation’s website at www.hnicorp.com,
as soon as reasonably practicable after the Corporation electronically files such reports with or furnishes them to the Securities
and Exchange Commission (the “SEC”). The Corporation’s information is also available from the SEC’s Public Reference room
at 100 F Street, N.E., Washington, D.C. 20549, or on the SEC website at www.sec.gov.
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Forward-Looking Statements
Statements in this report to the extent they are not statements of historical or present fact, 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 as amended and Section 21E of the Securities Exchange Act of 1934 as amended and are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995. Words, such as “anticipate,” “believe,” “could,”
“confident,” “estimate,” “expect,” “forecast,” “hope,” “intend,” “likely,” “may,” “plan,” “possible,” “potential,” “predict,”
“project,” “should,” “will,” “would” and variations of such words and similar expressions identify forward-looking statements.
Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Corporation’s actual results
in the future to differ materially from expected results. The most significant factors known to the Corporation that may adversely
affect the Corporation’s business, operations, industries, financial position or future financial performance are described later in
this report under the heading “Item 1A. Risk Factors.” The Corporation cautions readers not to place undue reliance on any
forward-looking statement, which speaks only as of the date made, and to recognize forward-looking statements are predictions
of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-
looking statements and from historical results due to the risks and uncertainties described elsewhere in this report, including under
the heading “Item 1A. Risk Factors,” as well as others that the Corporation may consider immaterial or does not anticipate at this
time. The risks and uncertainties described in this report, including those under the heading “Item 1A. Risk Factors,” are not
exclusive and further information concerning the Corporation, including factors that potentially could materially affect the
Corporation’s financial results or condition, may emerge from time to time.
The Corporation assumes no obligation to update, amend or clarify forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by applicable law. The Corporation advises you, however, to consult
any further disclosures made on related subjects in future quarterly reports on Form 10-Q and current reports on Form 8-K filed
with or furnished to the SEC.
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ITEM 1A. RISK FACTORS
The following risk factors and other information included in this report should be carefully considered. If any of the following
risks actually occur, our business, operating results, cash flows or financial condition could be materially adversely affected.
The existence of various unfavorable macroeconomic and industry factors, or deterioration of economic conditions, for a prolonged
period could adversely affect our business operating results or financial condition.
Office furniture industry sales are impacted by a variety of macroeconomic factors including service-sector employment levels,
corporate profits, small business confidence, commercial construction and office vacancy rates. Industry factors, including
corporate restructuring, technology changes, corporate relocations, health and safety concerns, including ergonomic considerations,
and the globalization of companies also influence office furniture industry revenues.
Hearth products industry sales are impacted by a variety of macroeconomic factors including housing starts, overall employment
levels, interest rates, consumer confidence, energy costs, disposable income and changing demographics. Industry factors, such
as technology changes, health and safety concerns and environmental regulation, including indoor air quality standards, also
influence hearth products industry revenues. Deterioration of economic conditions or a slowdown in the recovery in the
homebuilding industry and the hearth products market could decrease demand for our hearth products and have additional adverse
effects on our operating results. Additionally, the decline in oil and other fuel prices has negatively impacted demand for pellet
stoves and we expect demand to remain soft in the pellet business while oil and other fuel prices remain low.
Economic growth has slowed, and may continue to slow, in several key international markets, including China and India, which
could have adverse effects on our international office furniture sales and our operating results.
Deteriorating economic conditions could affect our business significantly, including: reduced demand for products; insolvency
of our dealers resulting in increased provisions for credit losses; insolvency of our key suppliers resulting in product delays;
inability of customers to obtain credit to finance purchases of our products; and decreased customer demand, including order
delays or cancellations.
We may need to take additional impairment charges related to goodwill and indefinite-lived intangible assets, which would adversely
affect our results of operations.
Goodwill and other acquired intangible assets with indefinite lives are not amortized but are tested for impairment annually, and
when an event occurs or circumstances change making it reasonably possible an impairment may exist. We test for impairment
annually during the fourth quarter of the year and whenever indicators of impairment exist. We test goodwill for impairment by
first comparing the carrying value of net assets to the fair value of the reporting unit. If the fair value is determined to be less than
carrying value, a second step is performed to determine the implied fair value of goodwill associated with the reporting unit. If
the carrying value of goodwill exceeds the implied fair value of goodwill, the excess represents the amount of goodwill impairment,
and accordingly, an impairment is recognized.
We estimate the fair values of the reporting units using discounted cash flows. Forecasts of future cash flows are based on our
best estimate of longer term, broad market trends. We combine this trend data with estimates of current economic conditions in
the U.S. and other countries where we have a presence, competitor behavior, the mix of product sales, commodity costs, wage
rates, the level of manufacturing capacity and the pricing environment. In addition, estimates of fair value are impacted by estimates
of the market-participant-derived weighted average cost of capital. Changes in these forecasts could significantly change the
amount of impairment recorded, if any. As a result of impairment testing, we recorded goodwill and other long-lived asset
impairments of $6 million during 2016.
The office furniture and hearth products industries are highly competitive and, as a result, we may not always be successful.
Both the office furniture and hearth products industries are highly competitive, with a significant number of competitors in both
industries offering similar products. While competitive factors vary geographically and between differing sales situations, typical
factors for both industries include: price; delivery and service; product design and features; product quality; strength of dealers
and other distributors; and relationships with customers and key influencers, including architects, designers, home-builders and
facility managers. Our principal competitors in the office furniture industry include The Global Group, Haworth, Inc., Kimball
International, Inc., Steelcase Inc., Herman Miller, Inc., Teknion Corporation and Knoll, Inc. Our principal competitors in the
hearth products industry include Travis Industries Inc., Innovative Hearth Products, Wolf Steel Ltd. (Napoleon) and FPI Fireplace
Products International Ltd. (Regency). In both industries, most of our top competitors have an installed base of products that can
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be a source of significant future sales through repeat and expansion orders. These competitors manufacture products with strong
acceptance in the marketplace and are capable of developing products that have a competitive advantage over our products.
Our continued success will depend on many factors, including our ability to continue to manufacture and market high quality,
high performance products at competitive prices and our ability to adapt our business model to effectively compete in the highly
competitive environments of both the office furniture and hearth products industries. Our success is also subject to our ability to
sustain and grow our positive brand reputation and recognition among existing and potential customers and use our brands and
trademarks effectively in entering new markets.
In both the office furniture and hearth products industries, we also face price competition from our competitors and from new
market entrants who primarily manufacture and source products from lower cost countries. Price competition impacts our ability
to implement price increases or, in some cases, even maintain prices, which could lower our profit margins. In addition, we may
not be able to maintain or raise the prices of our products in response to rising raw material prices and other inflationary pressures.
The concentration of our customer base, changes in demand and order patterns from our customers, as well as the increased
purchasing power of these customers, could adversely affect our business, operating results or financial condition.
We sell our products through multiple distribution channels. These distribution channels have been consolidating and may continue
to consolidate in the future. Consolidation may result in a greater proportion of our sales being concentrated in fewer
customers. The increased purchasing power exercised by larger customers may adversely affect the prices at which we can
successfully offer our products. As a result of this consolidation, changes in the purchase patterns or the loss of a single customer
may have a greater impact on our business, operating results or financial condition than the events would have had prior to the
consolidation. In fiscal 2016, the Corporation's five largest customers represented approximately 25 percent of its consolidated
sales. No single customer accounted for 10 percent or more of the Corporation's consolidated net sales in fiscal 2016.
The growth in sales of private-label products by some of our largest office furniture customers may reduce our revenue and
adversely affect our business, operating results or financial condition.
Private-label products are products sold under the name of the distributor or retailer, but manufactured by another party. Some
of our largest customers have aggressive private-label initiatives to increase their sales of office furniture. If successful, they may
reduce our revenue and inhibit our ability to raise prices and may, in some cases, force us to lower prices, which could result in
an adverse effect on our business, operating results or financial condition.
Increases in basic commodity, raw material, component and transportation costs, as well as disruptions to the supply of basic
commodities, raw materials and components or transportation and shipping challenges, could adversely affect our profitability.
Fluctuations in the price, availability and quality of the commodities, raw materials and components used in manufacturing could
have an adverse effect on our costs of sales, profitability and our ability to meet customers' demand. We source commodities, raw
materials and components from domestic and international suppliers for both our office furniture and hearth products. From both
domestic and international suppliers, the cost, quality and availability of commodities, raw materials and components, including
steel, have been significantly affected in recent years by, among other things, changes in global supply and demand, changes in
laws and regulations (including tariffs and duties), changes in exchange rates and worldwide price levels, natural disasters, labor
disputes, terrorism and political unrest or instability. These factors could lead to further price increases or supply interruptions in
the future. Our profit margins could be adversely affected if commodity, raw material and component costs remain high or escalate
further, and we are either unable to offset such costs through strategic sourcing initiatives and continuous improvement programs
or, as a result of competitive market dynamics, unable to pass along a portion of the higher costs to our customers.
We rely primarily on third-party freight and transportation providers to deliver our products to customers. Increasing demand for
freight providers and a shortage of qualified drivers may cause delays in our shipments and increase the cost to ship our products,
which may adversely affect our profitability. Additionally, we import and export products and components, primarily using
container ships, which load and unload through North American ports. Port-caused delays in the shipment or receipt of products
and components, including labor disputes, could cause delayed receipt of our products and components. These delays could cause
manufacturing disruptions, increased expense resulting from alternate shipping methods or the inability to meet customer delivery
expectations, which may adversely affect our sales and profitability.
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Our efforts to introduce new products to meet customer and workplace requirements may not be successful, which could limit our
sales growth or cause our sales to decline.
To meet the changing needs of our customers and keep pace with market trends in both the office furniture and hearth products
industries, we regularly introduce new products. Trends include changes in workplace and home design and increases in the use
of technology and evolving regulatory and industry requirements, including environmental, health, safety and similar standards
for the workplace and home and for product performance. The introduction of new products in both industries requires the
coordination of the design, manufacturing and marketing of the products, which may be affected by factors beyond our control. The
design and engineering of certain new products can take up to a year or more, and further time may be required to achieve client
acceptance. In addition, we may face difficulties introducing new products if we cannot successfully align ourselves with
independent architects, home-builders and designers who are able to design, in a timely manner, high quality products consistent
with our image and our customers' needs. Accordingly, the launch of any particular product may be later or less successful than
we originally anticipated. Difficulties or delays introducing new products or lack of customer acceptance of new products could
limit our sales growth or cause our sales to decline and may result in an adverse effect on our business, operating results or financial
condition.
We have grown, and may continue to grow, our business through acquisitions and alliances, which could adversely affect our
business, operating results or financial condition.
One of our growth strategies is to supplement our organic growth through acquisitions of, and or strategic alliances with, businesses
with technologies or products complimenting or augmenting our existing products or distribution or adding new products or
distribution to our business. In the past few years, we acquired OFM, a small office furniture company, and Vermont Castings
Group, a hearth stoves and fireplace company. The benefits of these acquisitions, or future acquisitions or alliances may take
more time than expected to develop or integrate into our operations, and we cannot guarantee any completed or future acquisitions
or alliances will in fact produce any benefits. In addition, acquisitions and alliances involve a number of risks, including, without
limitation:
•
•
•
•
•
•
•
diversion of management’s attention, including significant management time devoted to integrating acquisitions;
difficulties in assimilating the operations and products of an acquired business or in realizing projected efficiencies, cost
savings and revenue synergies;
potential loss of key employees or customers of the acquired businesses or adverse effects on existing business relationships
with suppliers and customers;
adverse impact on overall profitability if acquired businesses do not achieve the financial results projected in our valuation
models;
reallocation of amounts of capital from other operating initiatives or an increase in our leverage and debt service
requirements to pay the acquisition purchase prices, which could in turn restrict our ability to access additional capital
when needed or to pursue other important elements of our business strategy;
inaccurate assessment of undisclosed, contingent or other liabilities or problems and unanticipated costs associated with
the acquisition; and
incorrect estimates made in accounting for acquisitions, incurrence of non-recurring charges and write-off of significant
amounts of goodwill that could adversely affect our financial results.
Our ability to grow through future acquisitions will depend, in part, on the availability of suitable acquisition candidates at an
acceptable price, our ability to compete effectively for these acquisition candidates and the availability of capital to complete the
acquisitions. These risks could be heightened if we complete several acquisitions within a relatively short period of time. In
addition, there can be no assurance we will be able to continue to identify attractive opportunities or enter into any transactions
with acceptable terms in the future. If an acquisition is completed, there can be no assurance we will be able to successfully
integrate the acquired entity into our operations or achieve sales and profitability justifying our investment in the businesses. Any
potential acquisition may not be successful and could adversely affect our business, operating results or financial condition.
Our continuing activities to reduce structural costs may result in customer disruption and may distract management from other
activities.
As part of our commitment to taking structural cost out of our business, we regularly close, reconfigure or transform manufacturing
and distribution facilities. Over the past several years, we have closed a number of facilities in the United States and internationally.
We have implemented, and will continue to implement, restructuring actions to transform our business and reduce our manufacturing
footprint. These actions may take longer than anticipated, prove costlier than expected and may distract management from other
activities. If we do not fully realize the expected benefits of our restructuring activities, our financial condition and ability to meet
customer needs could be negatively affected.
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We are subject to extensive environmental regulation and have exposure to potential environmental liabilities.
The past and present operation and ownership by us of manufacturing facilities and real property are subject to extensive and
changing federal, state and local environmental laws and regulations, including those relating to discharges in air, water and land,
the handling and disposal of solid and hazardous waste and the remediation of contamination associated with releases of hazardous
substances. Compliance with environmental regulations has not had a material effect on our capital expenditures, earnings or
competitive position to date; however, compliance with current laws or more stringent laws or regulations which may be imposed
on us in the future, stricter interpretation of existing laws or discoveries of contamination at our real property sites which occurred
prior to our ownership or the advent of environmental regulation may require us to incur additional expenditures in the future,
some of which may be material.
Increasing healthcare costs could adversely affect our business, operating results and financial condition.
We provide healthcare benefits to the majority of our members and are self-insured. Healthcare costs have continued to rise over
time, which increases our annual spending on healthcare and could adversely affect our business, operating results and financial
condition.
Our inability to improve the quality/capability of our network of independent dealers or the loss of a significant number of dealers
could adversely affect our business, operating results or financial condition.
In both the office furniture and hearth products industries, we rely in large part on a network of independent dealers to market our
products to customers. We also rely upon these dealers to provide a variety of important specification, installation and after-market
services to our customers. Some of our dealers may terminate their relationships with us at any time and for any reason. The loss
or termination of a significant number of dealer relationships could cause difficulties for us in marketing and distributing our
products, resulting in a decline in our sales, which may adversely affect our business, operating results or financial condition.
Our international operations expose us to risks related to conducting business in multiple jurisdictions outside the United States.
We manufacture, market, and sell our products in international markets, including in China and India. We plan to continue to
grow internationally. We primarily sell our products and report our financial results in U.S. dollars; however, our increased business
in countries outside the United States exposes us to fluctuations in foreign currency exchange rates. Paying our expenses in other
currencies can result in a significant increase or decrease in the amount of those expenses in terms of U.S. dollars, which may
affect our profits. In the future, any foreign currency appreciation relative to the U.S. dollar would increase our expenses that are
denominated in that currency. Additionally, as we report currency in the U.S. dollar, our financial position is affected by the
strength of the currencies in countries where we have operations relative to the strength of the U.S. dollar.
Further, certain countries have complex regulatory systems which impose administrative and legal requirements which make
managing international operations more difficult, including approvals to transfer funds into certain countries. If we are unable to
provide financial support to our international operations in a timely manner, our business, operating results and financial condition
could be adversely affected.
We periodically review our foreign currency exposure and evaluate whether we should enter into hedging transactions.
Our international sales and operations are subject to a number of additional risks, including, without limitation:
•
•
•
•
•
•
•
•
•
•
•
social and political turmoil, official corruption and civil and labor unrest;
restrictive government actions, including the imposition of trade quotas and tariffs and restrictions on transfers of funds;
changes in labor laws and regulations affecting our ability to hire, retain or dismiss employees;
the need to comply with multiple and potentially conflicting laws and regulations, including environmental and corporate
laws and regulations;
the failure of our compliance programs and internal training to prevent violations of the U.S. Foreign Corrupt Practices
Act and similar anti-bribery laws;
preference for locally branded products and laws and business practices favoring local competition;
less effective protection of intellectual property and increased possibility of loss due to cyber-theft;
unfavorable business conditions or economic instability in any particular country or region;
infrastructure disruptions;
potentially conflicting cultural and business practices;
difficulty in obtaining distribution and support; and
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• Ability to repatriate cash held overseas without paying substantial federal income tax.
• Changes to border taxes or other international tax reforms
Restrictions imposed by the terms of our credit facility may limit our operating and financial flexibility.
Our credit facility and other financing arrangements may limit our ability to finance operations, service debt or engage in other
business activities that may be in our interests. Specifically, our credit facility restricts our ability to incur additional indebtedness,
create or incur certain liens with respect to any of our properties or assets, engage in lines of business substantially different than
those currently conducted by us, sell, lease, license or dispose of any of our assets, enter into certain transactions with affiliates,
make certain restricted payments or take certain restricted actions and enter into certain sale-leaseback arrangements. Our credit
facility also requires us to maintain certain financial covenants.
Our failure to comply with the obligations under our credit facility may result in an event of default, which, if not cured or waived,
may cause accelerated repayment of the indebtedness under the credit facility. We cannot be certain we will have sufficient funds
available to pay any accelerated repayments or we will have the ability to refinance accelerated repayments on terms favorable to
us or at all.
Costs related to product defects, including product liability costs, could adversely affect our profitability.
We incur various expenses related to product defects, including product warranty costs, product recall and retrofit costs and product
liability costs. These expenses relative to product sales vary and could increase. We use chemicals and materials in our products
and include components in our products from external suppliers, which we believe are safe and appropriate for their designated
use; however, harmful effects may become known which could subject us to litigation, including health-related litigation, and
significant losses. We maintain reserves for product defect-related costs based on estimates and our knowledge of circumstances
indicating the need for such reserves. We cannot, however, be certain these reserves will be adequate to cover actual product
defect-related claims in the future. We also purchase insurance coverage to reduce our exposure to significant levels of product
liability claims and maintain a reserve for our self-insured losses based upon estimates of the aggregate liability using claims
experience and actuarial assumptions, but we cannot be certain insurance would cover all losses related to product claims. Incorrect
estimates or any significant increase in the rate of our product defect expenses could have a material adverse effect on operations.
We may require additional capital in the future, which may not be available or may be available only on unfavorable terms.
Our capital requirements depend on many factors, including our need for capital improvements, tooling, new product development
and acquisitions. To the extent our existing capital is insufficient to meet these requirements and cover any losses, we may need
to raise additional funds through financings or curtail our growth and reduce our assets. Our ability to generate cash depends on
economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. Future borrowings or
financings may not be available to us under our credit facility or otherwise in an amount sufficient to enable us to pay our debt or
meet our liquidity needs.
Any equity or debt financing, if available at all, could have terms unfavorable to us. In addition, financings could result in dilution
to our shareholders or the securities may have rights, preferences and privileges senior to those of our common stock. If our need
for capital arises because of significant losses, the occurrence of these losses may make it more difficult for us to raise the necessary
capital.
Our sales to the U.S. government have declined in recent years and our sales to the U.S. state and local governments are subject
to uncertain future funding levels and federal, state and local procurement laws and are governed by restrictive contract terms;
any of these factors could limit current or future business.
We derive a portion of our revenue from sales to various U.S. federal, state and local government agencies and departments. Our
ability to compete successfully for and retain business with the U.S. government, as well as with state and local governments, is
highly dependent on cost-effective performance. Our government business is highly sensitive to changes in procurement laws;
national, international, state and local public priorities; and budgets at all levels of government, which have recently experienced
downward pressure and, in the case of the federal budget, are subject to uncertainty. Sales to federal government entities decreased
by less than 1 percent in 2016 after decreasing 8 percent in the prior year and may decline going forward, which could adversely
impact our operating results.
Our contracts with government entities are subject to various statutes and regulations that apply to companies doing business with
the government. The U.S. government, as well as state and local governments, can typically terminate or modify their contracts
with us either for their convenience or if we default by failing to perform under the terms of the applicable contract. A termination
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arising out of our default could expose us to liability and impede our ability to compete in the future for contracts and orders with
agencies and departments at all levels of government. Moreover, we are subject to investigation and audit for compliance with
the requirements governing government contracts, including requirements related to procurement integrity, export controls,
employment practices, the accuracy of records and reporting of costs. If we were found to not be a responsible supplier or to have
committed fraud or certain criminal offenses, we could be suspended or debarred from all further federal, state or local government
contracting.
Changes in governmental regulation and enforcement priorities may significantly increase our operating costs.
Laws and regulations are subject to change and differing interpretations, including in the areas of antitrust and competition, foreign
corrupt practices, government contracting, securities and public company reporting, labor and employment practices, data
protection, fraud and abuse and tax reporting. Changes in the political climate or in existing laws or regulations, or their
interpretations, or the enactment of new laws or the issuance of new regulations or changes in enforcement priorities or activity
could adversely affect us by, among other things:
•
•
•
•
•
increasing our administrative, compliance, and other costs;
increasing our tax obligations, including unfavorable outcomes from audits performed by various tax authorities;
affecting cash management practices and repatriation efforts;
forcing us to alter or restructure our relationships with dealers and customers; and
requiring us to implement additional or different programs and systems
Compliance with regulations is costly and time-consuming, and we may encounter difficulties, delays or significant expenses in
connection with such compliance. Should we become the target of a regulatory investigation or enforcement action, we could
incur significant costs and suffer damage to our reputation which could adversely impact our business, operating results or financial
condition.
Our implementation and use of a new business software system, and accompanying transformation of our business processes,
could result in problems that could negatively impact our business and results of operations.
We are engaged in a multi-year, broad-based program, which we refer to as business systems transformation ("BST"), to implement
new integrated software systems to support and streamline our business processes. In 2016 we implemented BST across several
of our smaller operating companies. We expect full implementation across domestic furniture operations during 2017. We anticipate
implementation of BST will require transformation of business and financial processes to realize the full benefits of the project.
Significant efforts are required to design, test and implement BST, requiring investment of resources, including additional selling,
general and administrative and capital expenditures. There can be no assurance other issues relating to BST implementation will
not occur, including compatibility issues, integration challenges and delays, and higher than expected implementation costs.
Additionally, when implemented, BST could function improperly or not deliver the projected benefits, which could significantly
disrupt our business, including our ability to provide quotes, process orders, ship products, invoice customers, process payments,
generate management and financial reports and otherwise run our business. Our business and results of operations may be adversely
affected if we experience problems related to BST.
We rely on information technology systems to manage numerous aspects of our business, and a disruption or failure of these
systems could adversely affect our business.
We rely upon information technology networks and systems to process, transmit and store electronic information as well as to
manage numerous aspects of our business and provide information to management. Additionally, we collect and store sensitive
data of our customers, suppliers and employees in data centers and on information technology networks. The secure operation of
these information technology networks and the processing and maintenance of this information is critical to our business operations
and strategy. These networks and systems, despite security and precautionary measures, are vulnerable to natural events and
malicious activity. Though we attempt to detect and prevent these incidents, we may not be successful. Any disruption of our
information technology networks or systems, or access to or disclosure of information stored in or transmitted by our systems,
could result in legal claims and damages, loss of intellectual property or other proprietary information, including customer data,
disrupt operations, result in competitive disadvantage and damage our reputation, which could adversely affect our business and
results of operations. We are also required to comply with certain information technology standards, including standards imposed
by credit card providers regarding the storage, processing and transmission of card holder data. Any failure of our systems to
meet these standards could result in our inability to accept certain forms of customer payments or risk of card holder data being
breached as described above.
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Our results of operations and earnings may not meet guidance or expectations.
We provide public guidance on our expected results of operations for future periods. This guidance is comprised of forward-
looking statements subject to risks and uncertainties, including the risks and uncertainties described in this Annual Report on
Form 10-K and in our other public filings and public statements, and is based necessarily on assumptions we make at the time
we provide such guidance. Our guidance may not always be accurate. If, in the future, our results of operations for a particular
period do not meet our guidance or the expectations of investment analysts or if we reduce our guidance for future periods, the
market price of our common stock could decline significantly.
Iowa law and provisions in our charter documents may have the effect of preventing or hindering a change in control and
adversely affecting the market price of our common stock.
Our Articles of Incorporation give our Board of Directors the authority to issue up to two million shares of preferred stock and
to determine the rights and preferences of the preferred stock without obtaining shareholder approval. The existence of this
preferred stock could make it more difficult or discourage an attempt to obtain control of the Corporation by means of a tender
offer, merger, proxy contest or otherwise. Furthermore, this preferred stock could be issued with other rights, including
economic rights, senior to our common stock, thereby having a potentially adverse effect on the market price of our common
stock.
Our Board of Directors is divided into three classes. Our classified Board, along with other provisions of our Articles of
Incorporation and Bylaws and Iowa corporate law, could make it more difficult for a third party to acquire us or remove our
directors by means of a proxy contest, even if doing so would be beneficial to our shareholders. For example, Section 490.1110
of the Iowa Business Corporation Act prohibits publicly held Iowa corporations to which it applies from engaging in a business
combination with an interested shareholder for a period of three years after the date of the transaction in which the person
became an interested shareholder unless the business combination is approved in a prescribed manner. Further, Section
490.1108A of the Iowa Business Corporation Act permits a board of directors, in the context of a takeover proposal, to consider
not only the effect of a proposed transaction on shareholders, but also on a corporation’s employees, suppliers, customers,
creditors and on the communities in which the corporation operates. These provisions could discourage others from bidding for
our shares and could, as a result, reduce the likelihood of an increase in our stock price that would otherwise occur if a bidder
sought to buy our stock.
We may, in the future, adopt other measures (such as a shareholder rights plan or “poison pill”) that could have the effect of
delaying, deferring, or preventing an unsolicited takeover, even if such a change in control were at a premium price or favored
by a majority of unaffiliated shareholders. These measures may be adopted without any further vote or action by our
shareholders.
An inability to protect our intellectual property could have a significant impact on our business.
We attempt to protect our intellectual property rights, both in the United States and in foreign countries, through a combination
of patent, trademark, copyright and trade secret laws, as well as licensing agreements and third-party nondisclosure and assignment
agreements. Because of the differences in foreign trademark, copyright, patent and other laws concerning proprietary rights, our
intellectual property rights do not generally receive the same degree of protection in foreign countries as they do in the United
States. In some parts of the world, we have limited protections, if any, for our intellectual property. The degree of protection
offered by the claims of the various patents, copyrights, trademarks and service marks may not be broad enough to provide
significant proprietary protection or competitive advantages to us, and patents, copyrights, trademarks or service marks may not
be issued on our pending or contemplated applications. In addition, not all of our products are covered by patents or similar
intellectual property protections. It is also possible that our patents, copyrights, trademarks and service marks may be challenged,
invalidated, canceled, narrowed or circumvented.
In the past, certain of our products have been copied and sold by others. We try to enforce our intellectual property rights, but we
have to make choices about where and how we pursue enforcement and where we seek and maintain intellectual property protection.
In many cases, the cost of enforcing our rights is substantial, and we may determine that the costs of enforcement outweigh the
potential benefits.
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If third parties claim that we infringe upon their intellectual property rights, we may incur liabilities and costs and may have to
redesign or discontinue an infringing product.
We face the risk of claims that we have infringed upon third parties’ intellectual property rights. Companies operating in our
industry routinely seek patent protection for their product designs, and many of our principal competitors have large patent
portfolios. Prior to launching major new products in our key markets, we normally evaluate existing intellectual property rights.
However, our competitors and suppliers may have filed for patent protection which is not, at the time of our evaluation, a matter
of public knowledge. Our efforts to identify and avoid infringing upon third parties’ intellectual property rights may not always
be successful. Any claims of patent or other intellectual property infringement, even those without merit, could be expensive and
time consuming to defend; cause us to cease making, licensing or using products that incorporate the challenged intellectual
property; require us to redesign, re-engineer, or re-brand our products or packaging, if feasible; or require us to enter into royalty
or licensing agreements in order to obtain the right to use a third party’s intellectual property.
Natural disasters, acts of God, force majeure events or other catastrophic events may impact the Corporation's production capacity
and, in turn, negatively impact profitability.
Natural disasters, acts of God, force majeure events or other catastrophic events, including severe weather, military action, terrorist
attacks, power interruptions and fires, could disrupt operations and likewise the ability to produce or deliver our products. Several
of our production facilities, members and key management are located within a small geographic area in eastern Iowa and a natural
disaster or catastrophe in the area could have a significant adverse effect on our results of operations and business conditions.
Further, several of our production facilities are single-site manufacturers of certain products, and an adverse event affecting any
of those facilities could significantly delay production of certain products and adversely affect our operations and business
conditions. Members are an integral part of our business and events including an epidemic could reduce the availability of members
reporting for work. In the event we experience a temporary or permanent interruption in our ability to produce or deliver product,
revenues could be reduced, and business could be materially adversely affected. In addition, any continuing disruption in our
computer system could adversely affect our ability to receive and process customers' orders, manufacture products and ship products
on a timely basis and could adversely affect relations with customers, potentially resulting in reduction in orders from customers
or loss of customers. We maintain insurance to help protect us from costs relating to some of these events, but it may not be
sufficient or paid in a timely manner in the event we suffer such an event.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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Table of Contents
ITEM 2. PROPERTIES
The Corporation maintains its corporate headquarters in Muscatine, Iowa, and conducts operations at locations throughout the
United States, Canada, China, Hong Kong, India and Taiwan, which house manufacturing, distribution and retail operations and
offices totaling an aggregate of approximately 10.2 million square feet. Of this total, approximately 2.0 million square feet are
leased.
Although the plants are of varying ages, the Corporation believes they are well maintained, equipped with modern and efficient
equipment, in good operating condition and suitable for the purposes for which they are being used. The Corporation has sufficient
capacity to increase output at most locations by increasing the use of overtime or the number of production shifts employed.
The Corporation's principal manufacturing and distribution facilities (200,000 square feet in size or larger) are as follows:
Location
Cedartown, Georgia
Dongguan, China
Hickory, North Carolina
Lake City, Minnesota
Mechanicsburg, Pennsylvania
Mt. Pleasant, Iowa
Muscatine, Iowa
Muscatine, Iowa
Muscatine, Iowa
Muscatine, Iowa
Muscatine, Iowa
Nagpur, India
Orleans, Indiana
Wayland, New York
Approximate
Square Feet
550,000
1,007,716
206,316
241,500
400,000
288,006
272,900
578,284
236,100
636,250
237,800
355,135
1,196,946
716,484
Owned or
Leased
Owned
Owned
Owned
Owned
Leased
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Description
of Use
Manufacturing office furniture (1)
Manufacturing office furniture (1)
Manufacturing office furniture
Manufacturing fireplaces
Warehousing office furniture
Manufacturing fireplaces (1)
Manufacturing office furniture
Manufacturing office furniture (1)
Manufacturing office furniture
Manufacturing office furniture (1)
Manufacturing office furniture
Manufacturing office furniture
Manufacturing office furniture (1)
Manufacturing office furniture (1)
(1) Also includes a regional warehouse/distribution center
Other Corporation facilities, under 200,000 square feet in size, are located in various communities throughout the United States,
China, Hong Kong, India, Mexico, Dubai and Taiwan. These facilities total approximately 2.9 million square feet with
approximately 1.7 million square feet used for the selling, manufacture and distribution of office furniture, approximately 1.0
million square feet for hearth products and approximately 0.2 million square feet used for corporate administration. Of this total,
approximately 1.6 million square feet are leased. The Corporation also leases sales showroom space in office furniture market
centers in several major metropolitan areas.
There are no major encumbrances on Corporation-owned properties. Refer to Property, Plant, and Equipment in the Notes to
Consolidated Financial Statements for related cost, accumulated depreciation and net book value data.
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Table of Contents
ITEM 3. LEGAL PROCEEDINGS
Withdrawal Liability From Multi-Employer Pension
On February 2, 2017, the Corporation was notified of a withdrawal liability from a multi-employer pension fund associated with
a business sold by the Corporation as a going concern in 2013. The business subsequently ceased operations, triggering the liability
for which it was responsible. The trustee of the pension fund has asserted a claim against the Corporation as a prior indirect owner
of the business. The Corporation has not recorded any liability associated with this claim because it believes the likelihood of an
unfavorable outcome is neither probable nor remote. The Corporation believes it has strong legal and factual defenses, and intends
to vigorously defend itself against this claim.
Other Litigation
The Corporation is involved in various disputes and legal proceedings that have arisen in the ordinary course of its business,
including pending litigation, environmental remediation, taxes and other claims. It is the Corporation’s opinion, after consultation
with legal counsel, that liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the
Corporation’s financial condition, cash flows or on the Corporation’s quarterly or annual operating results when resolved in a
future period.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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Table of Contents
TABLE I
EXECUTIVE OFFICERS OF THE REGISTRANT
Name
Julie M. Abramowski
Age
41
Family
Relationship
None
Position
Vice President, Corporate Controller
Position
Held Since
2015
Stan A. Askren
56
None
Vincent P. Berger
44
None
Chairman of the Board
Chief Executive Officer
President
Director
President, Hearth & Home
Technologies Group
Steven M. Bradford
Marshall H. Bridges
59
47
None
None
Senior Vice President, General
Counsel and Secretary
Vice President and Chief Financial
Officer
Jerald K. Dittmer
59
None
Jeffrey D. Lorenger
51
None
Donald T. Mead*
57
None
Donna D. Meade
51
None
Executive Vice President, HNI
Corporation;
President, The HON Company LLC
Executive Vice President; HNI
Corporation;
President, HNI Contract Furniture
Group
Executive Vice President; HNI
Corporation
President, The Gunlocke Company
L.L.C.
Vice President, Member Relations
Kurt A. Tjaden
53
None
President, HNI International;
Senior Vice President, HNI
Corporation
* Mr. Mead will be retiring effective February 28, 2017.
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Other Business Experience
During Past Five Years
Director, Financial Reporting
(2014-2015); Director, Financial
Planning and Analysis, Leveraged
Furniture Operations (2013-2014);
Corporate Controller, The HON
Company (2007-2013)
Senior Vice President, Sales and
Operations, Hearth & Home
Technologies Group (2014-2016);
Senior Vice President, Operations,
Hearth & Home Technologies Group
(2011-2014)
Vice President, General Counsel and
Secretary (2008-2015)
Vice President, Finance, HNI Contract
Furniture Group (2014-2017);
Vice President, Finance, Allsteel
(2010-2014)
2004
2004
2003
2003
2016
2015
2017
2008
2008
2010
President, Allsteel, Inc. (2008-2014)
2014
2011
2008
2014
2017
2015
Vice President, Member and
Community Relations, Allsteel Inc.
(2009-14)
Senior Vice President and Chief
Financial Officer (2015-2017)
Vice President and Chief Financial
Officer (2008-2015)
Table of Contents
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND
ISSUER PURCHASES OF EQUITY SECURITIES
The Corporation’s common stock is listed for trading on the New York Stock Exchange (NYSE) under the trading symbol HNI. As
of year-end 2016, the Corporation had 7,055 stockholders of record.
Wells Fargo Shareowner Services, St. Paul, Minnesota, serves as the Corporation’s transfer agent and registrar of its common
stock. Shareholders may report a change of address or make inquiries by writing or calling: Wells Fargo Shareowner Services,
P.O. Box 64874, St. Paul, MN 55164-0854 or telephone 800-468-9716.
Information regarding historical sale prices of and dividends paid on the Corporation's common stock is presented in the Investor
Information section which follows the Notes to Consolidated Financial Statements filed as part of this report and is incorporated
herein by reference.
The Corporation expects to continue its policy of paying regular quarterly cash dividends. Dividends have been paid each quarter
since the Corporation paid its first dividend in 1955. The average dividend payout percentage for the most recent three-year period
has been 60% of prior year earnings. Future dividends are dependent on future earnings, capital requirements and the Corporation’s
financial condition, and are declared in the sole discretion of the Corporation’s Board of Directors.
Issuer Purchases of Equity Securities:
The following is a summary of share repurchase activity during the quarter ended December 31, 2016.
(a) Total Number
of Shares (or
Units) Purchased
(1)
(b) Average
Price Paid
per Share or
Unit
—
96,650
377,788
474,438
—
$49.99
$54.50
(d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet be
Purchased Under
the Plans or
Programs
$162,315,178
$157,483,908
$136,895,702
(c) Total Number
of
Shares (or Units)
Purchased as Part
of Publicly
Announced
Plans or Programs
—
96,650
377,788
474,438
Period
10/02/16 - 10/29/16
10/30/16 - 11/26/16
11/27/16 - 12/31/16
Total
(1) No shares were purchased outside of a publicly announced plan or program.
The Corporation repurchases shares under previously announced plans authorized by the Board as follows:
•
Plan announced November 9, 2007, providing share repurchase authorization of $200,000,000 with no specific expiration
date, with increase announced November 7, 2014, providing additional share repurchase authorization of $200,000,000
with no specific expiration date.
• No repurchase plans expired or were terminated during the fourth quarter of fiscal 2016, nor do any plans exist under
which the Corporation does not intend to make further purchases.
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Table of Contents
ITEM 6. SELECTED FINANCIAL DATA — FIVE-YEAR SUMMARY
Operating Results (Thousands of Dollars)
Net Sales
$2,203,489
$2,304,419
$2,222,695
$2,059,964
$2,004,003
Gross Profit as a Percentage of Net Sales
37.9%
36.8%
35.3%
34.7%
34.4%
Net Income Attributable to HNI Corporation
$85,577
$105,436
$61,471
$63,683
$48,967
2016
2015
2014
2013
2012
Net Income Attributable to HNI Corporation as
a Percentage of Net Sales
Share and Per Share Data (Basic and Dilutive)
Net Income Attributable to HNI Corporation –
basic
Net Income Attributable to HNI Corporation –
diluted
Cash Dividends
Weighted-Average Shares Outstanding During
Year – basic (in Thousands)
Weighted-Average Shares Outstanding During
Year – diluted (in Thousands)
Financial Position (Thousands of Dollars)
3.9%
4.6%
2.8%
3.1%
2.4%
$1.93
$1.88
$1.09
$2.38
$2.32
$1.045
$1.37
$1.35
$0.99
$1.41
$1.39
$0.96
$1.08
$1.07
$0.95
44,414
44,285
44,760
45,251
45,211
45,502
45,441
45,579
45,956
45,820
Current Assets
Current Liabilities
Working Capital
Total Assets
$433,041
$463,473
($30,432)
$1,330,234
$438,370
$435,900
$2,470
$1,263,925
$455,559
$457,333
($1,774)
$1,239,334
$433,228
$411,584
$21,644
$402,375
$389,171
$13,204
$1,134,705
$1,077,066
% Return on Beginning Assets Employed
10.6%
13.2%
9.9%
9.8%
8.3%
Long-Term Debt and Capital Lease Obligations
Shareholders’ Equity
$180,000
$500,603
$185,000
$476,954
$197,736
$414,587
$150,197
$436,328
$150,372
$420,359
Percent Return on Average Shareholders’ Equity
17.5%
23.7%
14.4%
14.9%
11.7%
2014 reflects a 53-week year.
Reflects VCG acquisition beginning in Q4 2014, OFM acquisition in Q1 2016 and Artcobell divestiture December 31, 2016.
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Table of Contents
ITEM 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 "Item 1A. Risk Factors" and
elsewhere in this report.
Overview
The Corporation has two reportable segments: office furniture and hearth products. The Corporation is a leading global office
furniture manufacturer and the leading manufacturer and marketer of hearth products. The Corporation utilizes a split and focused,
decentralized business model to deliver value to customers via various brands and selling models. The Corporation is focused on
growing its existing businesses while seeking out and developing new opportunities for growth.
The Corporation delivered another strong year in 2016, generating significant cash flow and increasing dividends. Our businesses
performed well as we strategically repositioned and simplified our portfolio to increase profitability. The Corporation continued
to invest in our businesses to drive long term profitable growth. Sales decreased in the office furniture segment due to strategic
portfolio moves and a soft market environment. The Corporation's hearth products segment saw mixed results as solid growth in
new construction business was more than offset by declines in the retail gas and retail pellet businesses due to comparatively low
energy prices and unseasonably warm weather.
Net sales during 2016 were $2,203 million, a decrease of 4.4 percent, compared to net sales of $2,304 million in 2015. The sales
decrease was driven by decreased volume in the office furniture segment as well as the retail gas and retail pellet businesses of
the hearth products segment. The acquisitions and divestitures of small office furniture companies resulted in a net increase in
sales of $27.2 million compared to 2015.
The Corporation recorded $10.5 million of restructuring costs and $9.3 million of transition costs in 2016 in connection with the
previously announced closures of the Paris, Kentucky hearth manufacturing facility and the Orleans, Indiana office furniture
manufacturing facility and structural realignments among office furniture facilities in Muscatine, Iowa and China. Specific items
incurred include severance, accelerated depreciation and production move costs. Of these charges, $14.6 million were included
in cost of sales. The Corporation recorded $4.4 million of expense in conjunction with the charitable donation of a building. The
Corporation also recorded a $22.6 million non-cash loss on the sale of Artcobell, a K-12 education furniture company, which was
partially offset by a $2.0 million gain on a nonrecurring litigation settlement. The Corporation recorded $5.8 million of goodwill
and intangible impairment charges during the year related to a reporting unit in the office furniture segment. These impairment
charges are the result of current and projected market conditions and product and operational transformation.
Both fiscal 2016 and fiscal 2015 included 52 weeks compared to 53 weeks in 2014. Due to the Corporation's holiday schedule
and production shutdowns, the extra week in 2014 had minimal impact on net sales and operating income.
The Corporation remains committed to long-term profitable growth across its core businesses and continued focused investments
in selling, marketing, manufacturing and product initiatives.
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Results of Operations
The following table sets forth the percentage of consolidated net sales represented by certain items reflected in the Corporation’s
Consolidated Statements of Income for the periods indicated.
Fiscal
Net Sales
Cost of products sold
Gross profit
Selling and administrative expenses
(Gain) loss on sale of assets
Restructuring related charges
Operating income
Interest expense net
Income before income taxes
Income taxes
Net income attributable to the non-controlling interest
Net income attributable to HNI Corporation
Net Sales
2016
100.0%
62.1
37.9
30.3
1.0
0.5
6.1
0.2
5.9
2.0
—
3.9%
2015
100.0%
63.2
36.8
29.2
—
0.5
7.1
0.3
6.8
2.2
—
4.6%
2014
100.0%
64.7
35.3
29.2
(0.5)
1.5
5.1
0.4
4.7
2.0
—
2.8%
Net sales during 2016 were $2,203 million, a decrease of 4.4 percent, compared to net sales of $2,304 million in 2015. The change
was driven by a decrease in organic sales across both the office furniture and hearth products segments. Sales decreased in the
office furniture segment due to strategic portfolio moves and a challenging market environment. The Corporation's hearth products
segment saw mixed results as solid growth in new construction was more than offset by declines in the retail gas and retail pellet
businesses due to comparatively low energy prices and unseasonably warm weather. The acquisitions and divestitures of small
office furniture companies resulted in a net increase in sales of $27.2 million compared to 2015. Both segments experienced price
realization compared to 2015.
Net sales during 2015 were $2,304 million, an increase of 3.7 percent, compared to net sales of $2,223 million in 2014. Compared
to 2014, the fourth quarter 2014 acquisition of Vermont Castings Group ("VCG"), a manufacturer of free-stranding hearth stoves
and fireplaces, increased sales $62.7 million in 2015. Sales in the office furniture segment were driven by continued momentum
in the contract business while the supplies business was flat due to muted small business confidence. Sales in the hearth products
segment were driven by new construction growth while the retail pellet business declined due to the impact of warm weather and
low energy prices on retail pellet sales. Both segments experienced price realization compared to 2014.
Fiscal 2016 and 2015 included 52 weeks compared to 53 weeks in 2014. Due to the Corporation's 2014 holiday schedule and
production shutdowns, the extra week had minimal impact on net sales.
Gross Profit Margin
Gross profit as a percentage of net sales increased 110 basis points in 2016 as compared to 2015 driven by strong operational
performance, favorable material cost and productivity and price realization partially offset by lower volume. Gross profit as a
percentage of net sales increased 150 basis points in 2015 as compared to 2014 driven by strong operational performance, structural
cost reductions, lower restructuring charges and price realization partially offset by lower volume and unfavorable product mix.
Cost of sales in 2016 included $5.3 million of restructuring costs and $9.3 million of transition costs related to the previously
announced closures of the hearth manufacturing facility in Paris, Kentucky and the office furniture manufacturing facility in
Orleans, Indiana and structural realignments among office furniture companies in Muscatine, Iowa and China. Specific items
incurred include accelerated depreciation and production move costs.
Cost of sales in 2015 included $0.8 million of restructuring costs related to the decision to exit a small line of business within the
hearth products segment and $4.7 million of transition costs related to previously announced closures and structural realignments
in the office furniture segment. During 2014, the Corporation made decisions to close office furniture manufacturing facilities in
Florence, Alabama; Chicago, Illinois; and Nalagarh, India and consolidate production into existing office furniture manufacturing
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facilities. In connection with these decisions, the Corporation recorded $5.2 million of restructuring costs and $4.9 million of
transition costs in cost of sales in 2014.
Selling and Administrative Expenses
Selling and administrative expenses increased 110 basis points in 2016 driven by the impact of lower volume, strategic investments
and incentive based compensation. Selling and administrative costs decreased 100 basis points in 2015 compared to 2014 due to
lower incentive based compensation, cost reductions and lower restructuring and impairments partially offset by higher freight
costs, strategic investments and acquisition impact.
The Corporation recorded $5.2 million of restructuring costs in 2016 as part of selling and administrative costs due to the previously
announced closures of the Paris, Kentucky hearth manufacturing facility and Orleans, Indiana office furniture manufacturing
facility. The Corporation also recorded $4.4 million of accelerated depreciation in conjunction with the announced charitable
donation of a building.
In 2015 the Corporation recorded $0.5 million in restructuring costs as part of selling and administrative costs related to previously
announced closures. In 2014 the Corporation recorded $3.6 million of restructuring costs as part of selling and administrative
costs related to the closure of office furniture manufacturing facilities in Florence, Alabama; Chicago, Illinois and Nalagarh, India.
The Corporation recorded $5.8 million, $11.2 million, and $29.4 million of goodwill and intangible impairments as part of selling
and administrative costs in 2016, 2015, and 2014, respectively, related to reporting units in the office furniture segment. These
impairment charges are the result of current and projected market conditions and product and operational transformation.
Selling and administrative expenses include freight expense for shipments to customers, product development costs and
amortization expense of intangible assets. Refer to Summary of Significant Accounting Policies and Goodwill and Other Intangible
Assets in the Notes to Consolidated Financial Statements for further information regarding the comparative expense levels for
these items.
Gain/Loss on Sale of Assets
The Corporation realized a non-cash loss of $22.6 million in 2016 related to the sale of Artcobell, a K-12 education furniture
company in addition to other gains and losses incurred in the ordinary course of business. The Corporation recorded gains totaling
$10.7 million on the sale of two facilities and California air emission credits in 2014.
Operating Income
Operating income decreased $30.0 million to $133.7 million in 2016, compared to $163.7 million in 2015, driven by the non-cash
loss on the sale of Artcobell and lower volume, partially offset by strong operational performance and cost reductions.
Operating income increased $50.9 million to $163.7 million in 2015, compared to $112.8 million in 2014, driven by strong
operational performance, structural cost reductions, lower restructuring and impairment charges, favorable material costs and price
realization. These factors were offset partially by lower volume, unfavorable product mix, higher freight costs and strategic
investments.
Income Taxes
The provision for income taxes reflects an effective tax rate of 33.6 percent, 32.9 percent and 41.7 percent for 2016, 2015 and
2014, respectively. The effective tax rate was higher in 2016 than 2015 primarily due to the one-time release of tax contingency
reserves for personal goodwill in 2015. The 2015 decrease in the effective tax rate from 2014 was driven by the non-deductibility
of goodwill impairment in 2014, an increased tax benefit for the U.S. Manufacturing Deduction and an increase in the R&D credit.
Net Income Attributable to HNI Corporation
Net income attributable to HNI Corporation decreased 18.8 percent to $85.6 million in 2016 compared to $105.4 million in 2015
and $61.5 million in 2014. Net income per diluted share decreased 19.0 percent to $1.88 in 2016 compared to $2.32 in 2015 and
$1.35 in 2014.
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Office Furniture
Net sales for office furniture decreased $73.9 million or 4.2 percent in 2016 to $1,704 million compared to $1,778 million in 2015
including price realization of $12 million. The net impact of small office furniture acquisitions and divestitures increased sales
$27.2 million. The Corporation experienced a decline in the contract business while the supplies business remained flat due to
strategic portfolio moves and a soft market. BIFMA reported 2016 North American sales of office and institutional furniture grew
2 percent from 2015 levels. During 2016, BIFMA changed the data reporting structure whereby reporting elements are not
historically comparable. Under the previous methodology, BIFMA reported 2015 shipments were up 5 percent from 2014 levels.
Net sales for office furniture increased $38.8 million or 2.2 percent in 2015 to $1,778 million compared to $1,739 million in 2014
including price realization of $31 million. The Corporation experienced growth in the contract business while the supplies business
remained flat.
Operating profit as a percent of net sales was 6.9 percent in 2016, 7.7 percent in 2015 and 5.0 percent in 2014. The decrease in
operating profit for 2016 was driven by lower volume, strategic investments, and the impacts of the sale of Artcobell, previously
announced closures, and impairments of goodwill and other intangibles. These factors were partially offset by strong operational
performance, favorable material costs and productivity and cost reductions. The improvement in operating margins for 2015 was
due to increased volume, strong operational performance, cost reductions, lower restructuring and impairment charges, favorable
material costs and price realization. These drivers were partially offset by unfavorable product mix, higher freight costs, strategic
investments, and incentive based compensation. Total restructuring and transition costs impacting office furniture in 2016 were
$12.2 million of which $9.2 million were recorded in cost of sales. Total restructuring and transition costs impacting office
furniture in 2015 were $3.7 million of which $3.3 million were recorded in cost of sales.
Hearth Products
Hearth products sales decreased $27.0 million or 5.1 percent in 2016 to $500 million compared to $527 million in 2015 including
price realization of $5 million. Sales in new construction grew as the housing market continued to recover but were offset by a
declines in the retail pellet and retail gas businesses due to unseasonably warm weather and comparatively low energy prices.
Hearth products sales increased 8.9 percent in 2015 to $527 million compared to $484 million in 2014 including price realization
of $6 million and incremental sales from the VCG acquisition of $63 million. Sales in new construction grew as the housing
market continued to recover but were offset by a decline in the retail pellet business due to unseasonably warm weather and
comparatively low energy prices.
Operating profit as a percent of sales in 2016 was 14.0 percent compared to 14.8 percent in 2015 and 15.9 percent in 2014. The
2016 change was caused by restructuring and transition costs related to the previously announced closure of the hearth
manufacturing facility in Paris, Kentucky, lower volume and higher freight costs. These factors were partially offset by price
realization, strong operational performance, favorable materials cost and productivity and cost reductions. The 2015 decrease in
operating margins compared to 2014 was due to dilution caused by the VCG acquisition and decreased volume partially offset by
cost reductions, lower material costs, and price realization. Total restructuring and transition costs impacting hearth product in
2016 were $7.7 million of which $5.5 million were recorded in cost of sales. Total restructuring and transition costs impacting
hearth products in 2015 were $2.3 million of which $2.2 million were recorded in cost of sales.
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Liquidity and Capital Resources
Cash Flow – Operating Activities
Cash generated from operating activities in 2016 totaled $223.4 million compared to $173.4 million generated in 2015. The
increase in cash generated was driven by favorable working capital changes partially offset by lower net income. Changes in
working capital balances resulted in a $17.4 million source of cash in 2016 compared to $28.1 million use of cash in the prior
year. Cash generated from operating activities in 2014 totaled $167.8 million and changes in working capital balances resulted
in a $2.3 million source of cash.
The source of cash related to working capital changes in 2016 was primarily driven from lower accounts receivable of $11.2
million due to sales timing and higher accounts payable and accrued expense balances of $11.1 million due to timing of payments.
This was partially offset by uses of cash for strategic investments in inventory.
The use of cash related to working capital changes in 2015 was primarily driven from lower accounts payable of $26.3 million
due to timing of payments. Other uses of cash include higher receivables due to sales timing and increased inventory due to
strategic investments.
The Corporation places special emphasis on management and control of working capital. The success achieved in managing
receivables is in large part a result of doing business with quality customers and maintaining close communication with
them. Management believes recorded trade receivable valuation allowances at the end of 2016 are adequate to cover the risk of
potential bad debts. Allowances for non-collectible trade receivables, as a percent of gross trade receivables, totaled 0.9 percent,
1.7 percent and 2.1 percent at the end of fiscal years 2016, 2015 and 2014, respectively. The Corporation’s inventory turns were
12, 12 and 12, for fiscal years 2016, 2015 and 2014, respectively.
Cash Flow – Investing Activities
Capital expenditures, including capitalized software, were $119.6 million in 2016, $115.0 million in 2015 and $112.7 million in
2014. These expenditures continue to focus on machinery, equipment and tooling required to support new products, continuous
improvements and cost savings initiatives in our manufacturing processes as well as the implementation of new integrated
information systems to support business process transformation. The Corporation anticipates capital expenditures for 2017 to
total $100 million to $110 million, primarily related to new products, operational process improvements and capabilities and the
business process transformation project referred to above.
In 2016, the investing activities reflected a net cash outflow of $34.3 million related to the acquisition of OFM, an office furniture
company, and also a small office furniture dealership that offered strategic value to the Corporation. In 2014, the investing activities
reflected a net cash outflow of $61.8 million related to the acquisition of VCG as part of the Corporation's Hearth and Home
Technologies business. Refer to the Acquisitions and Divestitures note in the Notes to Consolidated Financial Statements for
additional information.
In 2014, the Corporation completed the sales of a facility located in South Gate, California, a facility and equipment located in
Chicago, Illinois and California air emission credits. The proceeds from these sales of $16 million are reflected in the Consolidated
Statement of Cash Flows as “Proceeds from sale of property, plant and equipment” for 2014.
Cash Flow – Financing Activities
The Corporation, certain domestic subsidiaries of the Corporation, the lenders and Wells Fargo Bank, National Association, as
administrative agent, entered into the First Amendment to Second Amended and Restated Credit Agreement (the "Credit
Agreement") on January 6, 2016. The Credit Agreement amends the Second Amended and Restated Credit Agreement dated as
of June 9, 2015.
The Credit Agreement was amended to increase the revolving commitment of the lenders from $250 million to $400 million (while
retaining the Corporation's option under the Credit Agreement to increase its borrowing capacity by an additional $150 million)
in order to provide funding for the payoff of its maturing senior notes on April 6, 2016 and to extend the maturity date of the Credit
Agreement from June 2020 to January 2021. The Corporation deferred the debt issuance costs related to the Credit Agreement,
which were classified as assets, and is amortizing them over the term of the Credit Agreement.
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As of December 31, 2016, there was $214 million outstanding under the $400 million revolving credit facility of which $180
million was classified as long-term as the Corporation does not expect to repay the borrowings within a year. Because the
Corporation expects, but is not required, to repay the remaining $34 million during 2017 it is classified as current.
The revolving credit facility under the Credit Agreement is the primary source of committed funding from which the Corporation
finances its planned capital expenditures and strategic initiatives, such as acquisitions, repurchases of common stock and certain
working capital needs. Non-compliance with the various financial covenant ratios in the Credit Agreement could prevent the
Corporation from being able to access further borrowings under the revolving credit facility, require immediate repayment of all
amounts outstanding with respect to the revolving credit facility and/or increase the cost of borrowing.
The Credit Agreement contains a number of covenants, including covenants requiring maintenance of the following financial
ratios as of the end of any fiscal quarter:
•
•
a consolidated interest coverage ratio of not less than 4.0 to 1.0, based upon the ratio of (a) consolidated EBITDA (as
defined in the Credit Agreement) for the last four fiscal quarters to (b) the sum of consolidated interest charges; and
a consolidated leverage ratio of not greater than 3.5 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded
indebtedness (as defined in the Credit Agreement) to (b) consolidated EBITDA for the last four fiscal quarters.
The most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.5 to 1.0 included in the Credit
Agreement. Under the Credit Agreement, consolidated EBITDA is defined as consolidated net income before interest expense,
income taxes and depreciation and amortization of intangibles, as well as non-cash, nonrecurring charges and all non-cash items
increasing net income. On December 31, 2016, the Corporation was well below the maximum allowable ratio and was in
compliance with all of the covenants and other restrictions in the Credit Agreement. The Corporation expects to remain in
compliance over the next twelve months.
In 2006, the Corporation refinanced $150 million of borrowings outstanding under its prior revolving credit facility with 5.54
percent, ten-year unsecured senior notes ("Senior Notes") due April 6, 2016 issued through the private placement debt
market. Interest payments were due semi-annually on April 6 and October 6 of each year. The Corporation paid off the Senior
Notes on April 6, 2016 with revolving credit facility borrowings.
In March 2016, the Corporation entered in to an interest rate swap transaction to hedge $150 million of outstanding variable rate
revolver borrowings against future interest rate volatility. Under the terms of the interest rate swap, the Corporation pays a fixed
rate of 1.29 percent and receives one month LIBOR on a $150 million notational value expiring January 2021. As of December 31,
2016, the fair value of the Corporation's interest rate swap was a net asset of $2.3 million reported net of tax as $1.5 million in
accumulated other comprehensive income.
During 2016, the Corporation repurchased 1,082,938 shares of its common stock at a cost of approximately $55.8 million, or an
average price of $51.55 per share. The Board authorized $200 million on November 9, 2007 and an additional $200 million on
November 7, 2014 for repurchases of the Corporation’s common stock. As of December 31, 2016, approximately $136.9 million
of this authorized amount remained unspent. During 2015, the Corporation repurchased 550,000 shares of its common stock at
a cost of approximately $26.7 million, or an average price of $48.47 per share. During 2014, the Corporation repurchased 1,665,850
shares of its common stock at a cost of approximately $67.9 million, or an average price of $40.76 per share.
A cash dividend has been paid every quarter since April 15, 1955, and quarterly dividends are expected to continue. Cash dividends
were $1.09 per common share for 2016, $1.045 for 2015 and $0.99 for 2014. The last quarterly dividend increase was from $0.265
to $0.275 per common share effective with the June 1, 2016 dividend payment for shareholders of record at the close of business
on May 20, 2016. The average dividend payout percentage for the most recent three-year period has been 60 percent of prior year
earnings or 27 percent of prior year cash flow from operating activities.
Cash, cash equivalents and short-term investments totaled $38.6 million at the end of 2016 compared to $32.8 million at the end
of 2015 and $37.2 million at the end of 2014. These funds, coupled with cash from future operations, borrowing capacity under
the existing facility as amended January 6, 2016 and the ability to access capital markets are expected to be adequate to fund
operations and satisfy cash flow needs for at least the next twelve months. As of the end of 2016, $11.8 million of cash was held
overseas and considered permanently reinvested. If such amounts were repatriated it could result in additional tax expense to the
Corporation. The Corporation does not believe treating this cash as permanently reinvested will have any impact on the ability
of the Corporation to meet its obligations as they come due.
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Contractual Obligations
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)
Operating lease obligations
Purchase obligations (2)
Other long-term obligations (3)
Total
Payments Due by Period
Total
Less than
1 Year
1 – 3
Years
3 – 5
Years
More than
5 Years
$227,861
$37,871
94,626
51,405
46,197
27,671
51,405
5,444
$6,480
35,458
—
9,468
$183,510
—
17,962
$
13,535
—
4,529
—
26,756
$40,291
$420,089
$122,391
$51,406
$206,001
(1) Interest has been included for all debt at the fixed or variable rate in effect as of December 31, 2016, as applicable. See
"Note 10 Long-Term Debt" in the Notes to Consolidated Financial Statements for further information. The Corporation
has classified $34 million of long-term debt as current because the Corporation expects, but is not required, to repay this
portion of debt in 2017.
(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 obligations represent payments due to members who are participants in the Corporation’s deferred and
long-term incentive compensation programs, liability for unrecognized tax liabilities and contribution and benefit
payments expected to be made pursuant to the Corporation’s post-retirement benefit plans. It should be noted 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. Other long term obligations of $34.3 million, primarily insurance reserves
and long term warranty, are not included in the table above due to the Corporation's inability to predict their timing.
Litigation and Uncertainties
See "Note 18 Guarantees, Commitments and Contingencies" in the Notes to Consolidated Financial Statements for further
information.
Looking Ahead
Management remains optimistic about the office furniture and hearth markets and the Corporation's long-term prospects.
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.
Off-Balance Sheet Arrangements
The Corporation does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future
material effect on the Corporation's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures
or capital resources.
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Critical Accounting Policies and Estimates
General
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Consolidated Financial
Statements, 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 the Board.
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 be made based on assumptions about matters
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.
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 collectability of the account. As such, these factors may change over time causing the
Corporation to adjust the reserve level accordingly.
Long-lived assets - The Corporation reviews long-lived assets for impairment as events or changes in circumstances occur indicating
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.
Goodwill and other intangibles – The Corporation evaluates its goodwill for impairment on an annual basis during the fourth
quarter or whenever indicators of impairment exist. Asset impairment charges associated with the Corporation’s goodwill
impairment testing are discussed in Goodwill and Other Intangible Assets in the Notes to Consolidated Financial Statements.
The Corporation reviews goodwill at the reporting unit level within its office furniture and hearth products operating
segments. These reporting units constitute components for which discrete financial information is available and regularly reviewed
by segment management. The accounting standards for goodwill permit entities to first assess qualitative factors to determine
whether it is more likely than not the fair value of a reporting unit is less than its carrying amount as a basis for determining whether
it is necessary to perform a two-step goodwill impairment test. If the two-step test is required, the Corporation estimates the fair
value of its reporting units. In estimating the fair value, the Corporation relies on an average of the income approach and the
market approach. In the income approach, the estimate of fair value of each reporting unit is based on management’s projection
of revenues, gross margin, operating costs and cash flows considering historical and estimated future results, general economic
and market conditions as well as the impact of planned business and operational strategies. The valuations employ present value
techniques to measure fair value and consider market factors. In the market approach, the Corporation utilizes the guideline
company method, which involved calculating valuation multiples based on operating data from guideline publicly-traded
companies. These multiples are then applied to the operating data for the reporting units and adjusted for factors similar to those
used in the discounted cash flow analysis. Management believes the assumptions used for the impairment test are consistent with
those utilized by a market participant in performing similar valuations of its reporting units. Management bases its fair value
estimates on assumptions they believe to be reasonable at the time, but such assumptions are subject to inherent uncertainty. Actual
results may differ from those estimates.
If the fair value of the reporting unit is less than its carrying value, an additional step is required to determine the implied fair
value of goodwill associated with that reporting unit. The implied fair value of goodwill is determined by first allocating the fair
value of the reporting unit to all of its assets and liabilities and then computing the excess of the reporting unit’s fair value over
the amounts assigned to the assets and liabilities. If the carrying value of goodwill exceeds the implied fair value of goodwill,
such excess represents the amount of goodwill impairment and, accordingly, such impairment is recognized.
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Assessing the fair value of goodwill includes, among other things, making key assumptions for estimating future cash flows and
appropriate market multiples. These assumptions are subject to a high degree of judgment and complexity. The Corporation
makes every effort to estimate future cash flows as accurately as possible with the information available at the time the forecast
is developed. However, changes in assumptions and estimates may affect the estimated fair value of the reporting unit, and could
result in an impairment charge in future periods. Factors that have the potential to create variances in the estimated fair value of
the reporting unit include but are not limited to economic conditions in the U.S. and other countries where the Corporation has a
presence, competitor behavior, the mix of product sales, commodity costs, wage rates, the level of manufacturing capacity, the
pricing environment and currency exchange fluctuations. In addition, estimates of fair value are impacted by estimates of the
market-participant derived weighted average cost of capital.
Additionally, the Corporation compares the estimated aggregate fair value of its reporting units to its overall market capitalization.
The Corporation also evaluates the fair value of indefinite-lived trade names on an annual basis during the fourth quarter or
whenever indication of impairment exists. The estimate of the fair value of the trade names is based on a discounted cash flow
model using inputs which include: projected revenues from management’s long-term plan, assumed royalty rates that could be
payable if the trade names were not owned and a discount rate.
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.
Key to recoverability of goodwill, indefinite-lived intangibles and long-lived assets is the forecast of economic conditions and its
impact on future revenues, operating margins and cash flows. Management’s projection for the U.S. office furniture and domestic
hearth markets and global economic conditions is inherently subject to a number of uncertain factors, such as global economic
improvement, the U.S housing market, credit availability and borrowing rates, and overall consumer confidence. In the near term,
as management monitors the above factors, it is possible it may change the revenue and cash flow projections of certain reporting
units, which may require the recording of additional asset impairment charges.
Self-insured reserves – The Corporation is primarily 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 and 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.
Income taxes – The Corporation uses an asset and liability method to account for income taxes. Under this method, deferred tax
assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial
statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets are also recorded with
respect to net operating losses and other tax attribute carry-forwards. Deferred tax assets and liabilities are measured using enacted
tax rates in effect for the years in which temporary differences are expected to be recovered or settled. Valuation allowances are
established when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset
will not be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the income of the
period that includes the enactment date.
The ultimate recovery of deferred tax assets is dependent upon the amount and timing of future taxable income and other
factors such as the taxing jurisdiction in which the asset is to be recovered. Significant judgment is applied to determine if, and
the extent to which, valuation allowances should be recorded against deferred tax assets. Although the Corporation believes the
approach to estimates and judgments as described herein is reasonable, actual results could differ and they may be exposed to
increases or decreases in income taxes that could be material.
The Corporation recognizes the tax benefit from an uncertain tax position claimed or expected to be claimed on a tax return
only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the
technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based
on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. Interest and
penalties related to unrecognized tax benefits are reported as interest expense and operating expense, respectively.
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The Corporation applies the intra-period tax allocation rules to allocate income taxes among continuing operations,
discontinued operations, other comprehensive income (loss), and additional paid-in capital when they meet the criteria as
prescribed in the guidance.
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 it considers to be permanently reinvested. See the Income Tax note to the financial
statements for further information.
Recently Issued Accounting Standards Not Yet Adopted
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with
Customers (Topic 606). The new standard will replace most existing revenue recognition guidance in U.S. GAAP. The core principle
of the standard requires companies to reevaluate when revenue is recorded on a transaction based upon newly defined criteria,
either at a point in time or over time as goods or services are delivered. The standard requires additional disclosure about the
nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments
and estimates, and changes in those estimates. The new standard becomes effective for the Corporation in fiscal 2018, and allows
for both retrospective and modified-retrospective methods of adoption. The Corporation has completed a preliminary review of
the impact of the new standard and expects changes in the way the Corporation recognizes certain marketing programs and pricing
incentives, which are not anticipated to be financially significant. The Corporation expects to adopt the standard in fiscal 2018
using the modified-retrospective approach.
In February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard requires lessees to recognize most leases, including
operating leases, on-balance sheet via a right of use asset and lease liability. Changes to the lessee accounting model may change
key balance sheet measures and ratios, potentially effecting analyst expectations and compliance with financial covenants. The
new standard becomes effective for the Corporation in fiscal 2019, but may be adopted at any time, and requires a modified
retrospective transition. The Corporation is currently evaluating the effect the standard will have on consolidated financial
statements and related disclosures.
In March 2016, the FASB issued ASU No. 2016-07, Simplifying the Transition to the Equity Method of Accounting. The new
standard eliminates the requirement for an investor to retroactively apply the equity method when an increase in ownership
interest in an investee triggers equity method accounting. The new standard becomes effective for the Corporation in fiscal
2017. The Corporation anticipates the standard will have an immaterial effect on consolidated financial statements and related
disclosures.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting. The new
standard is intended to simplify accounting for share based employment awards to employees. Changes include: all excess tax
benefits/deficiencies should be recognized as income tax expense/benefit; entities can make elections on how to account for
forfeitures; and cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as
a financing activity on the cash flow statement. The standard becomes effective for fiscal years beginning after December 15,
2016. The Corporation will implement the new standard in fiscal 2017.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash
Payments. The new standard provides classification guidance on eight cash flow issues including debt prepayment, settlement of
zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlements of
insurance claims, proceeds from the settlement of corporate-owned life insurance policies and distributions received from equity
method investees. The new standard becomes effective for the Corporation in fiscal 2018. The Corporation anticipates the standard
will have an immaterial effect on consolidated financial statements and related disclosures.
ITEM 7A. 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. In March 2016, the
Corporation entered in to an interest rate swap transaction to hedge $150 million of outstanding variable rate revolver borrowings
against future interest rate volatility. Under the terms of the interest rate swap, the Corporation pays a fixed rate of 1.29 percent
and receives one month LIBOR on a $150 million notational value expiring January 2021. As of December 31, 2016, the fair
value of the Corporation's interest rate swap was a net asset of $2.3 million reported net of tax as $1.5 million in accumulated
other comprehensive income. The interest rate swap derivative instrument is held and used by the Corporation as a tool for
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managing interest rate risk. It is not used for trading or speculative purposes. The Corporation believes it has limited exposure
to interest rate risk due to the interest rate swap and other alternative capital structure levels available. 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 most significant material purchases and cost for the Corporation are for steel, plastics, textiles, wood particleboard
and cartoning. The market price of plastics and textiles, in particular, are sensitive to the cost of oil and natural gas. The cost of
wood particleboard has been impacted by continued downsizing of production capacity as well as increased volatility in input and
transportation costs. All of these materials are impacted increasingly by global market pressure. The Corporation works to offset
these increased costs through global sourcing initiatives, product re-engineering and price increases on its products. Margins have
been negatively impacted in the past 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed under Item 15(a)(1) and (2) are filed as part of this report and are incorporated herein by reference.
The Summary of Unaudited Quarterly Results of Operations follows the Notes to Consolidated Financial Statements filed as part
of this report and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to ensure that information required to be disclosed by the Corporation in the
reports it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized
and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed
to ensure information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosures.
Under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer of the Corporation,
the Corporation's management have evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls
and procedures as defined in Rules 13a – 15(e) and 15d – 15(e) under the Exchange Act as of the end of the period covered by
this Annual Report on Form 10-K. As of December 31, 2016, and, based on this evaluation, the Chief Executive Officer and Chief
Financial Officer have concluded these controls and procedures are effective. There have not been any changes in the Corporation’s
internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2016 that have materially
affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.
Management’s annual report on internal control over financial reporting and the attestation report of the Corporation’s independent
registered public accounting firm are included in Item 15. Exhibits, Financial Statement Schedules of this report under the headings
“Management Report on Internal Control Over Financial Reporting” and “Report of Independent Registered Public Accounting
Firm,” respectively and management's annual report is incorporated herein by reference.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information under the caption "Proposal No. 1 - Election of Directors" of the Corporation's Definitive Proxy Statement on
Schedule 14A for the Annual Meeting of Shareholders to be held on May 9, 2017, is incorporated herein by reference. For
information with respect to executive officers of the Corporation, see Table I - Executive Officers of the Registrant included in
Part I of this report.
Information relating to the identification of the audit committee and audit committee financial expert of the Corporation is contained
under the caption “Information Regarding the Board” of the Corporation’s Definitive Proxy Statement on Schedule 14A for the
Annual Meeting of Shareholders to be held on May 9, 2017, and is incorporated herein by reference.
Code of Ethics
The information under the caption “Code of Business Conduct and Ethics” of the Corporation’s Definitive Proxy Statement on
Schedule 14A for the Annual Meeting of Shareholders to be held on May 9, 2017, is incorporated herein by reference.
Compliance with Section 16(a) of the Exchange Act
The information under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" of the Corporation's Definitive
Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders to be held on May 9, 2017, is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information under the captions “Executive Compensation” and “Director Compensation” of the Corporation's Definitive
Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders to be held on May 9, 2017, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information under the captions “Security Ownership” and “Equity Compensation Plan Information” of the Corporation's
Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders to be held on May 9, 2017, is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information under the captions “Information Regarding the Board” and “Review, Approval or Ratification of Transactions
with Related Persons” of the Corporation's Definitive Proxy Statement on Schedule 14A for the Annual Meeting of Shareholders
to be held on May 9, 2017, is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information under the caption “Fees Incurred for KPMG LLP of the Corporation’s Definitive Proxy Statement on Schedule
14A for the Annual Meeting of Shareholders to be held on May 9, 2017, is incorporated herein by reference.
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
PART IV
The following consolidated financial statements of the Corporation and its subsidiaries included in the Corporation's
2016 Annual Report on Form 10K are filed as a part of this Report pursuant to Item 8:
Management Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firms
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2016, January 2, 2016, and January 3,
2015
Consolidated Balance Sheets – December 31, 2016 and January 2, 2016
Consolidated Statements of Equity for the Years Ended December 31, 2016, January 2, 2016 and January 3, 2015
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016, January 2, 2016, and January 3, 2015
Notes to Consolidated Financial Statements
Investor Information
(2) Financial Statement Schedules
Page
38
39
41
42
44
45
46
70
All other schedules for which provision is made in the applicable accounting regulation of the SEC are not
required under the related instructions or are inapplicable and, therefore, have been omitted.
(b)
Exhibits
Exhibit index of all exhibits incorporated by reference into, or filed with, this Report
Page
71
The following exhibits are filed herewith:
Exhibit
(21)
(23.1)
(23.2)
(31.1)
(31.2)
(32.1)
101
Subsidiaries of the Registrant
Consent of Independent Registered Public Accounting Firm (KPMG)
Consent of Independent Registered Public Accounting Firm (PwC)
Certification of the CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
The following materials from HNI Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 2016 formatted in XBRL (eXtensible Business Reporting Language) and furnished
electronically herewith: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of
Comprehensive Income; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash
Flows; and (iv) Notes to Consolidated Financial Statements
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
HNI Corporation
Date: February 24, 2017
By:
/s/ Stan A. Askren
Stan A. Askren
Chairman, President and CEO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated. Each Director whose signature appears below authorizes
and appoints Stan A. Askren as his or her attorney-in-fact to sign and file on his or her behalf any and all amendments and post-
effective amendments to this report.
Signature
Title
Date
/s/ Stan A. Askren
Stan A. Askren
/s/ Marshall H. Bridges
Marshall H. Bridges
/s/ Mary A. Bell
Mary A. Bell
/s/ Miguel M. Calado
Miguel M. Calado
/s/ Cheryl A. Francis
Cheryl A. Francis
/s/ Mary K. W. Jones
Mary K. W. Jones
/s/ John R. Hartnett
John R. Hartnett
/s/ Larry B. Porcellato
Larry B. Porcellato
/s/ Abbie J. Smith
Abbie J. Smith
/s/ Brian E. Stern
Brian E. Stern
/s/ Ronald V. Waters, III
Ronald V. Waters, III
Chairman, President and CEO,
Principal Executive Officer, and Director
Vice President and Chief Financial
Officer, Principal Financial Officer and
Principal Accounting Officer
Director
Director
Director
Director
Director
Director
Lead Director
Director
Director
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February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
February 24, 2017
Table of Contents
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. HNI 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 controls may become inadequate because of
changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of HNI Corporation’s internal control over financial reporting as of December 31,
2016. Management based this assessment on criteria for effective internal control over financial reporting described in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Management’s assessment included an evaluation of the design of HNI Corporation’s internal control over financial
reporting and testing of operational effectiveness of HNI Corporation’s internal control over financial reporting. Management
reviewed the results of its assessment with the Audit Committee of the Board of Directors.
Based on this assessment, management determined, as of December 31, 2016, HNI Corporation maintained effective internal
control over financial reporting.
The effectiveness of HNI Corporation’s internal control over financial reporting as of December 31, 2016 has been audited by
KPMG LLP, an independent registered public accounting firm, as stated in its report which appears herein.
February 24, 2017
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders HNI Corporation:
We have audited the accompanying consolidated balance sheets of HNI Corporation and subsidiaries as of December 31,
2016 and January 2, 2016, and the related consolidated statements of comprehensive income, equity, and cash flows
for each of the years in the two-year period ended December 31, 2016. We also have audited HNI Corporation’s internal
control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). HNI
Corporation’s management is responsible for these consolidated 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 accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control
over financial reporting based on our 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 consolidated 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.
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 (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) 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 (3) 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.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of HNI Corporation and subsidiaries as of December 31, 2016 and January 2, 2016, and the results
of their operations and their cash flows for each of the years in the two-year period ended December 31, 2016, in
conformity with U.S. generally accepted accounting principles. Also in our opinion, HNI Corporation maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).
Chicago, Illinois
February 24, 2017
/s/ KPMG LLP
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Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of HNI Corporation:
In our opinion, the consolidated statements of comprehensive income, of equity, and of cash flows for the fiscal year
ended January 3, 2015 present fairly, in all material respects, the results of operations and cash flows of HNI Corporation
and its subsidiaries for the fiscal year ended January 3, 2015, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted
our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes 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. We believe
that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 27, 2015
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Table of Contents
HNI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands, except for per share data)
For the Years
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
(Gain) loss on sale of assets
Restructuring and impairment charges
Operating income
Interest income
Interest expense
Income before income taxes
Income taxes
Net income
Less: Net income (loss) attributable to the non-controlling interest
2016
2015
2014
$
2,203,489
$
2,304,419
$
2,222,695
1,368,476
1,457,021
1,438,495
835,013
667,744
22,572
11,005
133,692
305
5,086
128,911
43,273
85,638
61
847,398
672,125
(195)
11,792
163,676
395
6,901
157,170
51,764
105,406
(30)
105,436
$
784,200
649,055
(10,723)
33,019
112,849
418
8,336
104,931
43,776
61,155
(316)
61,471
Net income attributable to HNI Corporation
$
85,577
$
Net income attributable to HNI Corporation per common share – basic
$1.93
$2.38
$1.37
Weighted average shares outstanding – basic
44,413,941
44,285,298
44,759,716
Net income attributable to HNI Corporation per common share – diluted
$1.88
$2.32
$1.35
Weighted average shares outstanding – diluted
45,502,219
45,440,653
45,578,872
Foreign currency translation adjustments
Change in unrealized gains and (losses) on marketable securities (net of
tax)
Change in pension and post-retirement liability (net of tax)
Change in derivative financial instruments (net of tax)
Other comprehensive income (loss) (net of tax)
Comprehensive income
Less: Comprehensive (loss) attributable to non-controlling interest
Comprehensive income attributable to HNI Corporation
$
$
$
(1,510) $
(1,901) $
(691)
(103)
339
1,460
186
$
85,824
61
85,763
$
(39)
1,256
873
189
105,595
(30)
105,625
$
$
(44)
(4,622)
(983)
(6,340)
54,815
(316)
55,131
The accompanying notes are an integral part of the consolidated financial statements.
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HNI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars and shares except par value)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Short-term investments
Receivables
Inventories
Prepaid expenses and other current assets
Total Current Assets
PROPERTY, PLANT, AND EQUIPMENT
Land and land improvements
Buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
Net Property, Plant, and Equipment
GOODWILL
DEFERRED INCOME TAXES
OTHER ASSETS
Total Assets
The accompanying notes are an integral part of the consolidated financial statements.
December 31,
2016
January 2,
2016
$
$
36,312
2,252
229,436
118,438
46,603
433,041
27,403
283,930
528,099
51,343
890,775
534,330
28,548
4,252
243,409
125,228
36,933
438,370
28,801
298,516
515,131
31,986
874,434
533,275
356,445
341,159
290,699
277,650
719
—
249,330
206,746
$
1,330,234
$
1,263,925
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Table of Contents
HNI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of dollars and shares except par value)
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses
Current maturities of long-term debt
Current maturities of other long-term obligations
Total Current Liabilities
LONG-TERM DEBT
OTHER LONG-TERM LIABILITIES
DEFERRED INCOME TAXES
EQUITY
HNI Corporation shareholders' equity:
Capital Stock:
December 31,
2016
January 2,
2016
$
425,046
$
424,405
34,017
4,410
463,473
5,477
6,018
435,900
180,000
185,000
75,044
76,792
110,708
88,934
Preferred stock - $1 par value, authorized 2,000 shares, no shares outstanding
—
—
Common stock - $1 par value, 200,000 shares, outstanding:
December 31, 2016 - 44,079;
January 2, 2016 - 44,158
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Total HNI Corporation shareholders’ equity
Non-controlling interest
Total Equity
44,079
44,158
—
461,524
(5,000)
500,603
4,407
433,575
(5,186)
476,954
406
345
501,009
477,299
Total Liabilities and Equity
$
1,330,234
$
1,263,925
The accompanying notes are an integral part of the consolidated financial statements.
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HNI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands except per share data)
Balance, December 28, 2013
Comprehensive income:
Net income (loss)
Other comprehensive income (net of
tax)
Distributions to non-controlling interest
Change in ownership of non-controlling
interest
Cash dividends; $0.99 per share
Common shares – treasury:
Shares purchased
Shares issued under Members’ Stock
Purchase Plan and stock awards (net of
tax)
Balance, January 3, 2015
Comprehensive income:
Net income (loss)
Other comprehensive (loss) (net of tax)
Distributions to non-controlling interest
Change in ownership of non-controlling
interest
Cash dividends; $1.045 per share
Common shares – treasury:
Shares purchased
Shares issued under Members’ Stock
Purchase Plan and stock awards (net of
tax)
Balance, January 2, 2016
Comprehensive income:
Net income (loss)
Other comprehensive (loss) (net of tax)
Distributions to non-controlling interest
Change in ownership of non-controlling
interest
Cash dividends; $1.09 per share
Common shares – treasury:
Parent Company Shareholders’ Equity
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
(Loss)/Income
Non-
controlling
Interest
Total
Shareholders’
Equity
$16,729
$373,652
$965
$89
$436,417
Common
Stock
$44,982
61,471
—
(316)
61,155
—
—
—
—
—
—
—
—
—
—
—
—
(146)
(44,328)
(1,666)
(50,522)
(15,720)
(6,340)
—
—
—
—
—
(5)
146
—
—
(6,340)
(5)
—
(44,328)
(67,908)
850
34,660
—
$44,166
$867
$374,929
—
($5,375)
—
($86)
35,510
$414,501
—
—
—
—
—
—
—
—
—
—
(550)
(26,107)
542
$44,158
29,647
$4,407
—
—
—
—
—
—
—
—
—
—
105,436
—
—
(461)
(46,329)
—
—
$433,575
85,577
—
—
(89)
(48,495)
—
189
—
—
—
—
(30)
105,406
—
—
461
—
—
189
—
—
(46,329)
(26,657)
—
($5,186)
—
$345
30,189
$477,299
—
186
—
—
—
—
61
—
—
—
—
—
85,638
186
—
(89)
(48,495)
(55,825)
Shares purchased
(1,082)
(45,699)
(9,044)
Shares issued under Members’ Stock
Purchase Plan and stock awards (net of
tax)
Balance, December 31, 2016
1,003
$44,079
41,292
—
— $461,524
—
($5,000)
—
$406
42,295
$501,009
The accompanying notes are an integral part of the consolidated financial statements.
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Table of Contents
HNI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
For the Years
Net Cash Flows From (To) Operating Activities:
Net income
Noncash items included in net income:
Depreciation and amortization
Other post-retirement and post-employment benefits
Stock-based compensation
Excess tax benefits from stock compensation
Deferred income taxes
(Gain) loss on sale, retirement and impairment of long-lived assets and
intangibles, net
Other – net
Net increase (decrease) in operating assets and liabilities, net of acquisitions
and divestitures
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
Purchase of investments
Sales or maturities of investments
Other – net
Net cash flows from (to) investing activities
Net Cash Flows From (To) Financing Activities:
Proceeds from sale of HNI Corporation common stock
Withholding related to net share settlements of equity based awards
Purchase of HNI Corporation common stock
Proceeds from note and long-term debt
Payments of note and long-term debt and other financing
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
$
The accompanying notes are an integral part of the consolidated financial statements.
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2016
2015
2014
$
85,638
$
105,406
$
61,155
68,947
1,643
8,141
(2,713)
20,495
28,868
4,523
17,430
(9,610)
223,362
(93,425)
1,055
(26,159)
(34,302)
(8,724)
8,619
(90)
(153,026)
21,596
—
(55,825)
611,986
(594,547)
2,713
(48,495)
(62,572)
7,764
28,548
36,312
$
57,564
1,856
9,097
(1,581)
15,257
12,463
(1,216)
(28,075)
2,581
173,352
(82,610)
2,201
(32,356)
—
(3,660)
3,550
—
(112,875)
12,276
(171)
(26,657)
448,449
(455,222)
1,581
(46,329)
(66,073)
(5,596)
34,144
28,548
$
56,722
1,239
8,597
(2,161)
14,655
19,055
4,693
2,322
1,519
167,796
(74,323)
16,361
(38,390)
(61,823)
(3,801)
7,770
(4)
(154,210)
18,469
(79)
(67,908)
282,808
(235,595)
2,161
(44,328)
(44,472)
(30,886)
65,030
34,144
Table of Contents
HNI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1. 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 Reportable
Segment Information for further information. Office furniture products include panel-based and freestanding furniture systems
seating, storage and tables. These products are sold primarily through a national system of dealers, wholesalers and office product
distributors but also directly to end-user customers and federal, state and local governments. Hearth products include a full array
of gas, wood and pellet 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 through its export subsidiary
to a limited number of markets outside North America, principally the Middle East, Mexico, Latin America and the Caribbean.
The Corporation also manufactures and markets office furniture in Asia and India. Activities outside the United States and Canada,
as a percent of sales, are insignificant.
Fiscal year-end – The Corporation follows a 52/53-week fiscal year which ends on the Saturday nearest December 31. Fiscal
year 2016 ended on December 31, 2016; 2015 ended on January 2, 2016; and 2014 ended on January 3, 2015. The financial
statements for fiscal years 2016 and 2015 are on a 52-week basis. The financial statements for fiscal year 2014 are on a 53-week
basis. A 53-week year occurs approximately every sixth year.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts and transactions of the Corporation and its subsidiaries. Intercompany
accounts and transactions have been eliminated in consolidation.
Cash, Cash Equivalents and Investments
Cash and cash equivalents generally consist of cash and money market accounts. The fair value approximates the carrying value
due to the short duration of the securities. These securities have original maturity dates not exceeding three months. The
Corporation has short-term investments with maturities of less than one year and also has investments with maturities greater than
one year included in Other Assets on the Consolidated Balance Sheets. Management classifies investments in marketable securities
at the time of purchase and reevaluates such classification at each balance sheet date. Debt securities including government and
corporate bonds are classified as available-for-sale and stated at current market value with unrealized gains and losses included
as a separate component of equity, net of any related tax effect. The specific identification method is used to determine realized
gains and losses on the trade date.
At December 31, 2016 and January 2, 2016, cash, cash equivalents and investments consisted of the following:
Year-End 2016
(In thousands)
Available-for-sale securities
Debt securities
Cash and money market accounts
Total
Cash and cash
equivalents
Short-term
investments
Long-term
investments
—
$36,312
$36,312
$2,252
—
$2,252
$10,033
—
$10,033
The amortized cost basis of the debt securities as of December 31, 2016 was $12.3 million. Immaterial unrealized gains and losses
are recorded in accumulated other comprehensive income as of December 31, 2016 for these debt securities.
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Year-End 2015
(In thousands)
Held-to-maturity securities
Certificates of deposit
Available-for-sale securities
Debt securities
Cash and money market accounts
Total
Cash and cash
equivalents
Short-term
investments
Long-term
investments
$
$
— $
252
$
—
—
28,548
4,000
—
28,548
$
4,252
$
8,067
—
8,067
The amortized cost basis of the debt securities as of January 2, 2016 was $12.1 million. Immaterial unrealized gains and losses
are recorded in accumulated other comprehensive income as of January 2, 2016 for these debt securities.
Receivables
Accounts receivable are presented net of allowance for doubtful accounts of $2.1 million and $4.3 million for 2016 and 2015,
respectively. The allowance is developed based on several factors including overall customer credit quality, historical write-off
experience, and specific account analyses projecting the ultimate collectability of the account. As such, these factors may change
over time causing the reserve level to adjust accordingly.
Allowance for doubtful accounts
Year ended December 31, 2016
Year ended January 2, 2016
Year ended January 3, 2015
Balance at
beginning of
period
Charged to
costs and
expenses
$4,287
$5,096
$6,208
(357)
1,394
343
Amounts
written off,
net of
recoveries
and other
adjustments
1,598
2,203
1,455
Divestitures
192
—
—
Balance at
end of
period
$2,140
$4,287
$5,096
Inventories
The Corporation valued 79 percent and 78 percent of its inventory by the LIFO method at December 31, 2016 and January 2,
2016, respectively. During 2016 and 2014, inventory quantities were reduced at certain reporting units. This reduction resulted
in a liquidation of LIFO inventory quantities carried at higher or lower costs prevailing in prior years as compared with the cost
of current year purchases, the effect of which increased cost of goods sold by approximately $0.05 million in 2016 and decreased
cost of goods sold by approximately $0.03 million in 2014. There was no similar LIFO decrement in 2015. If the FIFO method
had been in use, inventories would have been $24.2 million and $25.1 million higher than reported at December 31, 2016 and
January 2, 2016, respectively.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Expenditures for repairs and maintenance are expensed as incurred. Major
improvements that materially extend the useful lives of the assets are capitalized. 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.
Long-Lived Assets
Long-lived assets are reviewed for impairment as events or changes in circumstances occur indicating 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 include 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.
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Goodwill and Other Intangible Assets
See Goodwill and Other Intangible Assets note to consolidated financial statements.
Product Warranties
The Corporation issues certain warranty policies on its furniture and hearth products that provide for repair or replacement of any
covered product or component failing during normal use because of a defect in design, materials or workmanship. Reserves have
been established for the various costs associated with the Corporation's warranty programs.
A warranty reserve is determined by recording a specific reserve for known warranty issues and an additional reserve for unknown
claims 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)
Balance at the beginning of the period
Accrual assumed from acquisition
Accrual settled from divestiture
Accruals for warranties issued during the period
Accrual (Recovery) related to pre-existing warranties
Settlements made during the period
Balance at the end of the period
2016
$16,227
—
(538)
20,055
604
(21,098)
$15,250
2015
$16,719
—
—
19,995
(334)
(20,153)
$16,227
2014
$13,840
1,100
—
18,951
172
(17,344)
$16,719
The portion of the reserve for estimated settlements expected to be paid in the next twelve months was $7.0 million and $8.2
million as of December 31, 2016 and January 2, 2016, respectively, and is included in "Accounts payable and accrued expenses"
in the Consolidated Balance Sheets. The portion of the reserve for settlements expected to be paid beyond one year was $8.3
million and $8.0 million, as of December 31, 2016 and January 2, 2016, respectively, and is included in "Other Long-Term
Liabilities" in the Consolidated Balance Sheets.
Revenue Recognition
Sales of office furniture and hearth products are generally recognized when title transfers and the risks and rewards of ownership
have passed to customers. Typically title and risk of ownership transfer when the product is shipped. In certain circumstances,
title and risk of ownership do not transfer until the goods are received by the customer or upon installation and customer
acceptance. Revenue includes freight charged to customers; related costs are recorded in selling and administrative
expense. Rebates, discounts and other marketing program expenses 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
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.
Product Development Costs
Product development costs relating to 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 $28.1 million in 2016, $31.1 million in 2015 and $29.7 million
in 2014 and were recorded in "Selling and Administrative Expenses" on the Consolidated Statements of Income.
Freight Expense
The Corporation records freight expense on shipments to customers in "Selling and Administrative Expenses" on the Consolidated
Statements of Income. Amounts recorded were $115.2 million in 2016, $133.4 million in 2015 and $131.0 million in 2014.
Stock-Based Compensation
The Corporation measures the cost of employee services in exchange for an award of equity instruments based on the grant-date
fair value of the award and recognizes cost over the requisite service period. See the Stock-Based Compensation note to
consolidated financial statements for further information.
Income Taxes
The Corporation uses an asset and liability approach that takes into account guidance related to uncertain tax positions and 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 differences between the tax
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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 it
considers to be permanently reinvested. There were approximately $32.4 million of accumulated earnings considered permanently
reinvested in China, Hong Kong and India as of December 31, 2016. The Corporation believes the U.S. tax cost on unremitted
foreign earnings would be approximately $9.6 million if the amounts were not considered permanently reinvested. See the Income
Tax note to consolidated financial statements for further information.
Earnings Per Share
Basic earnings per share are based on the weighted-average number of common shares outstanding during the year. Shares
potentially issuable under stock options, restricted stock units and common stock equivalents under the Corporation's deferred
compensation plans 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)
Numerators:
2016
2015
2014
Numerators for both basic and diluted EPS net income attributable to
parent company
$85,577
$105,436
$
61,471
Denominators:
Denominator for basic EPS weighted- average common shares
outstanding
Potentially dilutive shares from stock option plans
Denominator for diluted EPS
Earnings per share – basic
Earnings per share – diluted
44,414
1,088
45,502
$1.93
$1.88
44,285
1,156
45,441
$2.38
$2.32
44,760
819
45,579
$1.37
$1.35
Certain exercisable and non-exercisable stock options were not included in the computation of diluted EPS for fiscal years 2016,
2015 and 2014 because inclusion would have been anti-dilutive. The number of stock options outstanding which met this criterion
was 416,142; 493,202 and 500,058 for 2016, 2015 and 2014, respectively.
Use of Estimates
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 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, valuation of long-lived assets, and useful lives for depreciation and
amortization. Actual results could differ from those estimates.
Self-Insurance
The Corporation is primarily 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 and the related liabilities are included in the accompanying consolidated financial statements. As of December 31, 2016
and January 2, 2016, these liabilities totaled $26.5 million and $27.7 million, respectively. 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.
Foreign Currency Translations
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 Shareholders’ Equity. Gains and losses on foreign
currency transactions are included in the “Selling and administrative expenses” caption of the Consolidated Statements of Income.
Reclassifications
Certain reclassifications have been made within the financial statements to conform to the current year presentation.
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Recently Adopted Accounting Standards
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2015-05,
Internal-Use Software (Subtopic 350-40) - Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. The ASU
applies to cloud computing arrangements including software as a service, platform as a service, infrastructure as a service and
other similar hosting arrangements and was issued to help entities evaluate the accounting for fees paid by a customer in a cloud
computing arrangement. The ASU provides guidance about whether the arrangement includes a software license. The core principle
of the ASU is that if a cloud computing arrangement includes a software license, then the customer should account for the software
license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement
does not include a software license, the customer should account for the arrangement as a service contract. The guidance did not
change U.S. generally accepted accounting principles for a customer’s accounting for service contracts. The Corporation adopted
the guidance effective January 3, 2016, the beginning of the Corporation's 2016 fiscal year. The guidance did not have a material
impact on the Corporation's financial statements.
The FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30) - Simplifying Presentation of Debt Issuance
Costs in April 2015, which was further clarified by ASU No. 2015-15 in August 2015. The core principle of the ASUs is that an
entity should present debt issuance costs as a direct deduction from the face amount of that debt in the balance sheet similar to
the manner in which a debt discount or premium is presented, and not reflected as a deferred charge or deferred credit. The ASU
requires additional disclosure about the nature of and reason for the change in accounting principle, the transition method, a
description of the prior-period information that has been retrospectively adjusted and the effect of the change on the financial
statement line item (that is, the debt issuance cost asset and the debt liability). Debt issuance costs related to line-of-credit
arrangements can still be presented as assets and subsequently amortized. The Corporation adopted the guidance effective January
3, 2016, the beginning of the Corporation's 2016 fiscal year. The guidance did not have an impact on the Corporation's financial
statements because all debt currently held is a line-of-credit arrangement.
Note 3. Restructuring and Impairment Charges
The Corporation recorded $10.5 million of restructuring costs in 2016 in connection with the previously announced closures of
the Paris, Kentucky hearth manufacturing facility and the Orleans, Indiana office furniture manufacturing facility. Specific items
incurred include severance and accelerated depreciation. Of these charges, $5.3 million were included in cost of sales. As of
December 31, 2016, the estimated fair value of the Paris, Kentucky hearth manufacturing facility of $5.2 million was classified
as held for sale and is included in "Prepaid expenses and other current assets" in the Consolidated Balance Sheets.
The Corporation made the decision to exit a line of business within our hearth products segment during 2015. The Corporation
incurred $0.9 million of restructuring charges as the result of this decision, of which $0.8 million were included in cost of sales.
The Corporation also incurred $0.4 million of restructuring charges in 2015 related to office furniture closures announced in 2014
in the form of facility exit costs partially offset by lower than anticipated post employment costs.
During 2014, the Corporation made decisions to close three office furniture manufacturing facilities located in Florence, Alabama;
Chicago, Illinois; and Nalagarh, India and consolidate production into existing office furniture manufacturing facilities. In
connection with these decisions, the Corporation recorded $8.8 million of pre-tax charges in 2014, which included $5.2 million
of accelerated depreciation on machinery and equipment recorded in cost of sales and $3.6 million of severance and facility exit
costs which were recorded as restructuring charges during the year.
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The restructuring accrual is classified as current in the Condensed Consolidated Balance Sheets as it is expected to be paid out
within the next twelve months. The following table summarizes the restructuring accrual activity since the beginning of fiscal
2014.
(In thousands)
Restructuring reserve at December 28, 2013
Restructuring charges
Cash payments
Restructuring reserve at January 3, 2015
Restructuring charges
Cash payments
Restructuring reserve at January 2, 2016
Restructuring charges
Cash Payments
Restructuring reserve at December 31, 2016
Severance
Costs
Facility
Termination &
Other Costs
Total
$49
2,933
(1,769)
$1,213
(750)
(257)
$206
3,883
(1,385)
$2,704
$6
705
(711)
—
1,255
(1,240)
15
1,346
(1,361)
—
$55
3,638
(2,480)
$1,213
505
(1,497)
$221
5,229
(2,746)
$2,704
The Corporation recorded $5.8 million, $11.2 million, and $29.4 million of goodwill and long-lived asset impairments in 2016,
2015, and 2014, respectively. These charges were included in the “Restructuring and Impairment Charges” line item on the
Consolidated Statements of Income. See Goodwill and Other Intangible Assets note to consolidated financial statements for more
information.
Note 4. Acquisitions and Divestitures
On January 29, 2016, the Corporation acquired OFM, an office furniture company, with annual sales of approximately $30 million
at a purchase price of $34.1 million, net of cash acquired, in an all cash transaction. The Corporation finalized the allocation of
the purchase price during fourth quarter 2016. There were $15 million of intangible assets other than goodwill associated with
this acquisition with estimated useful lives ranging from three to ten years with amortization recorded on a straight line basis based
on the projected cash flow associated with the respective intangible assets. There was $14 million of goodwill associated with
this acquisition. The goodwill is deductible for income tax purposes.
As part of the Corporation's ongoing business strategy, it continues to acquire and divest small office furniture dealerships. Goodwill
increased approximately $2 million in 2016 as a result of this activity.
The Corporation completed the sale of Artcobell, a K-12 education furniture business, on December 31, 2016. A pre-tax non-cash
charge of approximately $23 million and a $10 million long term note receivable, which is included on "Other Assets" in the
Consolidated Balance Sheets, were recorded in relation to the sale. Artcobell had been included as part of the Corporation's office
furniture segment.
The Corporation completed the acquisition of Vermont Castings Group, a leading manufacturer of free-standing hearth stoves and
fireplaces, as part of its hearth products segment on October 1, 2014 for a purchase price of $62.2 million in an all cash transaction.
There were $24.9 million of intangible assets other than goodwill associated with this acquisition with estimated useful lives
ranging from five to fifteen years with amortization recorded on a straight line basis based on the projected cash flow associated
with the respective intangible assets' existing relationships. There was $17.0 million of goodwill associated with this acquisition
assigned to the hearth products segment. The goodwill is not deductible for income tax purposes.
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Note 5. Supplemental Cash Flow Information
The Corporation's cash payments for interest and income taxes and non-cash investing and financing activities are as follows:
(In thousands)
Cash paid for:
Interest paid (net of capitalized interest)
Income taxes paid
Changes in accrued expenses due to:
Purchases of property and equipment
Purchases of capitalized software
Note 6. Inventories
(In thousands)
Finished products
Materials and work in process
LIFO reserve
Note 7. Property, Plant, and Equipment
(In thousands)
Land and land improvements
Buildings
Machinery and equipment
Construction and equipment installation in progress
Less: accumulated depreciation
2016
2015
2014
$6,644
23,120
3,599
603
$7,066
28,252
(327)
(2,806)
$8,301
36,637
3,873
2,183
2016
$71,223
71,375
(24,160)
$118,438
2015
$68,478
81,860
(25,110)
$125,228
2016
$27,403
283,930
528,099
51,343
890,775
534,330
2015
$28,801
298,516
515,131
31,986
874,434
533,275
$356,445
$341,159
Total depreciation expense was $57.2 million, $46.5 million and $46.1 million in 2016, 2015 and 2014, respectively.
Note 8. Goodwill and Other Intangible Assets
As a result of the required annual impairment assessment performed in the fourth quarter of 2016, the Corporation determined the
fair value of a reporting unit within the office furniture segment was below its carrying value. The decline in the estimated fair
value of this reporting unit was largely driven by lower than expected operating performance in 2016. The projections used in
the impairment model reflected management's assumptions regarding revenue growth rates, economic and market trends, cost
structure, investments required for operational transformation and other expectations about the anticipated short-term and long-
term operating results of the reporting unit. The Corporation assumed a discount rate of 14 percent, near term growth rates ranging
from negative 25 percent to positive 9 percent and a terminal growth rate of 3 percent. Based on the two-step analysis, the
Corporation recorded a $2.9 million goodwill impairment charge in 2016. There was $6.3 million net goodwill remaining in the
reporting unit as of December 31, 2016. Holding other assumptions constant, a 100 basis point increase in the discount rate would
result in a $2.9 million decrease in the estimated fair value of the reporting unit and a 100 basis point decrease in the long-term
growth rate would result in a $1.2 million decrease in the estimated fair value of the reporting unit. Additionally, and prior to the
goodwill impairment assessment, the Corporation tested the recoverability of the long-lived assets in that reporting unit other than
goodwill, and found no impairments. The Corporation recorded an impairment charge of $2.9 million related to an indefinite-
lived trade name. There was an $8.3 million net indefinite-lived trade name remaining in the reporting unit as of December 31,
2016. The Corporation assumed a royalty rate of 3 percent, near term growth rates ranging from 1 percent to 9 percent and a
terminal growth rate of 3 percent. Holding other assumptions constant, a 50 basis point decrease in the royalty rate would result
in a $1.7 million decrease in the estimated fair value of the intangible and a 50 basis point decrease in the terminal growth rate
would result in a $0.1 million decrease in the estimated fair value of the intangible.
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Based on the results of the annual impairment tests, the Corporation concluded that no other goodwill impairment existed apart
from the impairment charges discussed above. For all other reporting units included in the annual two-step impairment test except
the two noted below, the estimated fair value is significantly in excess of carrying value.
For one of the office furniture reporting units that exceeded its carrying value by approximately 5 percent, the Corporation assumed
a discount rate of 14 percent, near term growth rates ranging from 3 percent to 7 percent and a terminal growth rate of 3.0 percent.
The fair value model assumes continued positive economic momentum and transformation of the reporting unit including sales
and marketing initiatives, new product development and operational processes. Holding other assumptions constant, a 100 basis
point increase in the discount rate would result in a $4.5 million decrease in the estimated fair value of the reporting unit and a
100 basis point decrease in the long-term growth rate would result in a $1.9 million decrease in the estimated fair value of the
reporting unit. Both of these scenarios individually would result in the reporting unit failing step one. There is $24.5 million of
goodwill associated with this reporting unit.
For the other office furniture reporting unit that exceeded its carrying value by approximately 18 percent, the Corporation assumed
a discount rate of 16 percent, near term growth rates ranging from 4 percent to 20 percent and a terminal growth rate of 3 percent.
The fair value model assumes continued positive economic momentum of the reporting unit including investments in sales,
marketing and distribution, market growth and expansion in other channels. Holding other assumptions constant, a 100 basis
point increase in the discount rate would result in a $3.2 million decrease in the estimated fair value of the reporting unit and a
100 basis point decrease in the long-term growth rate would result in a $1.1 million decrease in the estimated fair value of the
reporting unit. Neither of these scenarios individually would result in the reporting unit failing step one. There is $14.1 million
of goodwill associated with this reporting unit.
The Corporation also owns certain trademarks and trade names having a carrying value of $38.1 million as of December 31, 2016,
and $41.0 million as of January 2, 2016. These trademarks and trade names are deemed to have indefinite useful lives because
they are expected to generate cash flows indefinitely. As a result of the review performed in the fourth quarter of 2016, the
Corporation recorded an impairment charge of $2.9 million to adjust the trade name associated with a small office furniture
reporting unit to fair market value as discussed above.
The table below summarizes amortizable definite-lived intangible assets, which are reflected in Other Assets in the Corporation’s
Consolidated Balance Sheets:
(In thousands)
Patents
Software
Trademarks and trade names
Customer lists and other
Net definite lived intangible
assets
December 31, 2016
January 2, 2016
Gross
$18,645
149,587
7,564
117,789
Accumulated
Amortization
$18,623
25,792
1,401
65,103
Net
$22
123,795
6,163
52,686
Gross
$18,645
122,892
6,564
105,586
Accumulated
Amortization
$18,615
21,193
753
60,063
Net
$30
101,699
5,811
45,523
$293,585
$110,919
$182,666
$253,687
$100,624
$153,063
Amortization expense for capitalized software for 2016, 2015 and 2014, was $4.7 million, $3.5 million and $3.3 million,
respectively. Amortization expense for all other definite-lived intangibles for 2016, 2015 and 2014, was $7.1 million, $7.6 million
and $7.2 million, respectively. All amortization expense was recorded in Selling and Administrative Expenses on the Consolidated
Statements of Income. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense
for each of the following five fiscal years is as follows:
(in millions)
Amortization expense
2017
$16.7
2018
$21.5
2019
$20.5
2020
$19.7
2021
$19.6
The occurrence of events such as acquisitions, dispositions or impairments in the future may result in changes to amounts.
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The changes in the carrying amount of goodwill since January 3, 2015, are as follows by reporting segment:
(In thousands)
Balance as of January 3, 2015
Goodwill
Accumulated impairment losses
Goodwill acquired during the year
Impairment losses
Final purchase price allocations/contingent payments from prior year
acquisitions
Foreign currency translation adjustment
Balance as of January 2, 2016
Goodwill
Accumulated impairment losses
Goodwill acquired during the year
Impairment losses
Foreign currency translation adjustment
Balance as of December 31, 2016
Goodwill
Accumulated impairment losses
Office
Furniture
Hearth
Products
Total
$
$
149,713
(52,161)
97,552
—
(2,963)
—
5
149,718
(55,124)
94,594
15,928
(2,876)
(3)
$
181,901
(143)
181,758
—
—
1,298
—
183,199
(143)
183,056
—
—
—
165,643
(58,000)
107,643
$
183,199
(143)
183,056
$
$
331,614
(52,304)
279,310
—
(2,963)
1,298
5
332,917
(55,267)
277,650
15,928
(2,876)
(3)
348,842
(58,143)
290,699
The goodwill increases relate to acquisitions completed. See the Acquisitions and Divestitures note. The decreases in goodwill
in the office furniture segment in 2015 and 2016 were due to the impairment charges described above.
Note 9. Accounts Payable and Accrued Expenses
(In thousands)
Trade accounts payable
Compensation
Profit sharing and retirement expense
Marketing expenses
Freight
Other accrued expenses
2016
2015
$201,810
$197,579
47,280
32,335
41,963
14,251
87,407
$425,046
43,380
29,089
35,969
16,384
102,004
$424,405
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Note 10. Long-Term Debt
(In thousands)
2016
2015
Note payable to bank, revolving credit facility with interest at a variable rate (2016 -
1.8%; 2015 - 1.5%)
Senior notes paid off April 2016 with interest at a fixed rate of 5.54% per annum.
Other notes and amounts
Total debt
Less: current portion
Long-term debt
Aggregate maturities of long-term debt are as follows:
$214,000
—
17
214,017
34,017
$180,000
(In thousands)
2017
2018
2019
2020
2021
Thereafter
$40,300
150,000
177
190,477
5,477
$185,000
$34,017
—
—
—
180,000
—
The carrying value of the Corporation's outstanding variable-rate, long-term debt obligations at December 31, 2016 and January 2,
2016 was $214 million and $40 million, respectively, which approximated fair value. The Corporation paid off its outstanding
fixed-rate, long-term debt obligation on April 6, 2016 with revolving credit facility borrowings. The value of these senior notes
was estimated based on a discounted cash flow method (Level 2) to be $148 million at January 2, 2016 compared to the carrying
value of $150 million.
The Corporation, certain domestic subsidiaries of the Corporation, the lenders and Wells Fargo Bank, National Association, as
administrative agent, entered into the First Amendment to Second Amended and Restated Credit Agreement (the "Credit
Agreement") on January 6, 2016. The Credit Agreement amends the Second Amended and Restated Credit Agreement dated as
of June 9, 2015.
The Credit Agreement was amended to increase the revolving commitment of the lenders from $250 million to $400 million (while
retaining the Corporation's option under the Credit Agreement to increase its borrowing capacity by an additional $150 million)
in order to provide funding for the payoff of its maturing senior notes on April 6, 2016 and to extend the maturity date of the Credit
Agreement from June 2020 to January 2021. The Corporation deferred the debt issuance costs related to the Credit Agreement,
which were classified as assets, and is amortizing them over the term of the Credit Agreement.
As of December 31, 2016, there was $214 million outstanding under the $400 million revolving credit facility of which $180
million was classified as long-term since the Corporation does not expect to repay the borrowings within a year. Because the
Corporation expects, but is not required, to repay the remaining $34 million in 2017, it is classified as current.
The revolving credit facility under the Credit Agreement is the primary source of committed funding from which the Corporation
finances its planned capital expenditures and strategic initiatives, such as acquisitions, repurchases of common stock and certain
working capital needs. Non-compliance with the various financial covenant ratios in the Credit Agreement could prevent the
Corporation from being able to access further borrowings under the revolving credit facility, require immediate repayment of all
amounts outstanding with respect to the revolving credit facility and/or increase the cost of borrowing.
The Credit Agreement contains a number of covenants, including covenants requiring maintenance of the following financial
ratios as of the end of any fiscal quarter:
•
a consolidated interest coverage ratio of not less than 4.0 to 1.0, based upon the ratio of (a) consolidated EBITDA (as
defined in the Credit Agreement) for the last four fiscal quarters to (b) the sum of consolidated interest charges; and
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•
a consolidated leverage ratio of not greater than 3.5 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded
indebtedness (as defined in the Credit Agreement) to (b) consolidated EBITDA for the last four fiscal quarters.
The most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.5 to 1.0 included in the Credit
Agreement. Under the Credit Agreement, consolidated EBITDA is defined as consolidated net income before interest expense,
income taxes and depreciation and amortization of intangibles, as well as non-cash, nonrecurring charges and all non-cash items
increasing net income. On December 31, 2016, the Corporation was well below the maximum allowable ratio and was in
compliance with all of the covenants and other restrictions in the Credit Agreement. The Corporation expects to remain in
compliance over the next twelve months.
In March 2016, the Corporation entered in to an interest rate swap transaction to hedge $150 million of outstanding variable rate
revolver borrowings against future interest rate volatility. Under the terms of the interest rate swap, the Corporation pays a fixed
rate of 1.29 percent and receives one month LIBOR on a $150 million notational value expiring January 2021. As of December 31,
2016, the fair value of the Corporation's interest rate swap was a net asset of $2.3 million reported net of tax as $1.5 million in
accumulated other comprehensive income.
Note 11. Income Taxes
Significant components of the provision for income taxes including those related to non-controlling interest are as follows:
(In thousands)
Current:
Federal
State
Foreign
Current provision
Deferred:
Federal
State
Foreign
Deferred provision
Total income tax expense
2016
2015
2014
$18,963
3,740
1,450
24,153
18,167
2,533
(1,580)
19,120
$43,273
$27,768
5,258
1,713
34,739
15,348
2,217
(540)
17,025
$51,764
$22,738
4,623
972
28,333
13,692
2,013
(262)
15,443
$43,776
The differences between the actual tax expense and tax expense computed at the statutory U.S. Federal tax rate are explained as
follows:
Federal statutory tax expense
State taxes, net of federal tax effect
Credit for increasing research activities
Deduction related to domestic production activities
Valuation allowance
Goodwill Impairment
Change in uncertain tax positions
Other – net
Total income tax expense
2016
$45,098
3,874
(3,808)
(2,243)
231
—
117
4
$43,273
2015
$55,020
4,269
(3,320)
(3,320)
565
—
(1,344)
(106)
$51,764
2014
$36,836
4,118
(2,569)
(1,751)
2,474
4,298
1,099
(729)
$43,776
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.
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Significant components of the Corporation’s deferred tax liabilities and assets are as follows:
(In thousands)
Deferred Taxes
Allowance for doubtful accounts
Compensation
Inventory differences
Marketing accrual
Stock-based compensation
Accrued post-retirement benefit obligations
Vacation accrual
Warranty accrual
Other – net
Total deferred tax assets
Deferred income
Goodwill and other intangible assets
Prepaids
Tax over book depreciation
Total deferred tax liabilities
Valuation allowance
Total net deferred tax liabilities
Long term net deferred tax assets
Long term net deferred tax liabilities
Total net deferred tax liabilities
2016
2015
$495
16,684
3,977
1,458
11,607
10,106
4,153
5,725
13,044
$67,249
(5,716)
(87,146)
(9,271)
(70,946)
($173,079)
(4,159)
($109,989)
719
(110,708)
($109,989)
$1,089
15,491
4,497
1,355
11,923
9,851
4,181
6,052
12,167
$66,606
(4,907)
(79,471)
(7,876)
(59,308)
($151,562)
(3,978)
($88,934)
—
(88,934)
($88,934)
The valuation allowance for deferred tax assets is as follows:
Valuation allowance for deferred tax asset (in
thousands)
Year ended December 31, 2016
Year ended January 2, 2016
Year ended January 3, 2015
Balance at
beginning of
period
$3,978
$3,413
$1,579
Charged to
expenses
Adjustments to
balance sheet
Balance at end of
period
231
565
$2,474
($50)
—
($640)
$4,159
$3,978
$3,413
At December 31, 2016, the Corporation has approximately $0.1 million of U.S. state tax net operating losses and $2.0 million
of U.S. state tax credits which expire over the next twenty years.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
(in thousands)
Unrecognized tax benefits, beginning of period
Increases in positions taken in a prior period
Decreases in positions taken in a prior period
New positions taken in a current period
Decrease due to settlements
Decrease due to lapse of statute of limitations
Unrecognized tax benefits, end of period
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2016
$2,858
86
—
792
(560)
(133)
$3,043
2015
$4,250
82
(1,611)
793
—
(656)
$2,858
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The amount of unrecognized tax benefits which would impact the Corporation’s effective tax rate, if recognized, was $3.0 million
at December 31, 2016 and $2.8 million at January 2, 2016.
As of December 31, 2016, it is reasonably possible 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 statutes of limitation. It is not
expected any of the changes will be material individually or in total to the results or financial position of the Corporation.
The Corporation recognized interest accrued related to unrecognized tax benefits in interest expense and penalties in operating
expenses consistent with the recognition of these items in prior reporting. Interest and penalties recognized in the Consolidated
Statements of Income amounted to a detriment of $0.1 million, a benefit of $0.1 million and $0.0 million in the years ended
December 31, 2016, January 2, 2016 and January 3, 2015, respectively. The Corporation had recorded a liability for interest and
penalties related to unrecognized tax benefits of $0.2 million and $0.1 million as of December 31, 2016 and January 2, 2016,
respectively.
Tax years 2013 through 2016 remain open for examination by the Internal Revenue Service ("IRS"). The Corporation is currently
under examination for the 2014 federal tax return and in various state jurisdictions, of which years 2012 through 2016 remain
open to examination.
Deferred income taxes are provided to reflect differences between the tax basis 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 it considers to be permanently reinvested. There were
approximately $32.4 million of accumulated earnings considered permanently reinvested in Canada, China, and Hong Kong as
of December 31, 2016. The Corporation believes the U.S tax cost on unremitted foreign earnings would be approximately $9.6
million if the amounts were not considered permanently reinvested.
Note 12. Fair Value Measurements of Financial Instruments
For recognition purposes, on a recurring basis, the Corporation is required to measure at fair value its marketable securities. The
marketable securities are comprised of investments in government securities and corporate bonds. When available, the Corporation
uses quoted market prices to determine fair value and classifies such measurements within Level 1. In some cases, where market
prices are not available, the Corporation makes use of observable market based inputs (prices or quotes from published exchanges/
indexes) to calculate fair value using the market approach, in which case the measurements are classified within Level 2.
Assets measured at fair value for the year ended December 31, 2016 were as follows:
(in thousands)
Government securities
Corporate bonds
Derivative financial instruments
Fair value as of
measurement date
$6,268
$6,017
$2,309
Quoted prices in active
markets for identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable inputs
(Level 3)
—
—
—
$6,268
$6,017
$2,309
—
—
—
Assets measured at fair value for the year ended January 2, 2016 were as follows:
(in thousands)
Government securities
Corporate bonds
Derivative financial instruments
Fair value as of
measurement date
Quoted prices in active
markets for identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable inputs
(Level 3)
$9,663
$2,405
($1,252)
—
—
—
$9,663
$2,405
($1,252)
—
—
—
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Note 13. Shareholders’ Equity
Common Stock, $1 Par Value
Authorized
Issued and outstanding
Preferred Stock, $1 Par Value
Authorized
Issued and outstanding
2016
2015
200,000,000
200,000,000
44,078,782
44,158,256
2,000,000
2,000,000
—
—
The Corporation purchased 1,082,938, 550,000, and 1,665,850 shares of its common stock during 2016, 2015 and 2014,
respectively. The par value method of accounting is used for common stock repurchases.
The following table summarizes the components of accumulated other comprehensive income (loss) and the changes in accumulated
other comprehensive income loss:
Pension and
Post-retirement
Liabilities
Derivative
Financial
Instruments
($2,140)
$111
(7,280)
2,657
—
(6,763)
1,975
(718)
—
(5,506)
499
(160)
(1,728)
631
114
(872)
(1,188)
433
1,627
—
1,317
(485)
Accumulated
Other
Comprehensive
Loss
$965
(9,765)
3,311
114
(5,375)
(1,174)
(264)
1,627
(5,186)
148
(590)
—
($5,167)
628
$1,460
628
($5,000)
(in thousands)
Foreign
Currency
Translation
Adjustment
Unrealized Gains
Losses) on
Marketable
Securities
Balance at December 28, 2013
$2,913
Other comprehensive income
before reclassifications
Tax (expense) or benefit
Amounts reclassified from
accumulated other comprehensive
income, net of tax
Balance at January 3, 2015
Other comprehensive income
before reclassifications
Tax (expense) or benefit
Amounts reclassified from
accumulated other comprehensive
income, net of tax
Balance at January 2, 2016
Other comprehensive income
before reclassifications
Tax (expense) or benefit
Amounts reclassified from
accumulated other comprehensive
income, net of tax
(690)
—
—
2,223
(1,901)
—
—
322
(1,510)
—
—
Balance at December 31, 2016
($1,188)
$81
(67)
23
—
37
(60)
21
—
(2)
(158)
55
—
($105)
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The following table details the reclassifications from accumulated other comprehensive income (loss) for the years ended
January 2, 2016 and December 31, 2016 (in thousands):
Details about Accumulated Other
Comprehensive Income Components
Affected Line Item in the Statement Where
Net Income is Presented
2016
2015
Derivative financial instruments
Interest rate swap
Interest income or (expense)
Tax (expense) or benefit
Net of Tax
Diesel hedge
Selling and administrative expenses
Tax (expense) or benefit
Net of tax
Net
($993)
365
($628)
—
—
—
($628)
—
—
—
($2,562)
935
($1,627)
($1,627)
The Corporation determined in fourth quarter 2015 that the qualifications for hedge accounting treatment on the diesel hedge
derivative financial instruments were not met and reversed $1.3 million recorded in accumulated other comprehensive income
as a reduction to net income.
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, as amended (the “Director Plan”). The Director Plan permits the Corporation to issue to its non-
employee directors options to purchase shares of Corporation common stock, restricted stock or restricted stock units of the
Corporation and awards of Corporation common stock. The Director Plan also permits non-employee directors to elect to receive
all or a portion of their annual retainers and other compensation in the form of shares of Corporation common stock. During 2016,
2015, and 2014, 24,352; 20,146; and 27,272 shares, respectively, of Corporation common stock were issued under the Director
Plan.
Cash dividends declared and paid per share for each year are:
(In dollars)
Common shares
2016
$1.090
2015
$1.045
2014
$0.990
During 2007, shareholders approved the 2002 Members’ Stock Purchase Plan (the "Purchase Plan"), as amended January 1,
2007. Under the plan, 800,000 shares of common stock were initially registered for issuance to participating members. On June
12, 2009, an additional 1,000,000 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 participating members who customarily work 20
hours or more per week and for five months or more in any calendar year. The price of the stock purchased under the Purchase
Plan is 85 percent of the closing price on the exercise date. No member may purchase stock under the Purchase Plan in an amount
which exceeds a maximum fair value of $25,000 in any calendar year. During 2016, 75,098 shares of common stock were issued
under the Purchase Plan at an average price of $31.11. During 2015, 73,874 shares of common stock were issued under the plan
at an average price of $32.18. During 2014, 84,065 shares of common stock were issued under the Purchase Plan at an average
price of $27.92. An additional 298,170 shares were available for issuance under the Purchase Plan at December 31, 2016.
The Corporation has entered into change in control employment agreements with certain officers. According to the agreements,
a change in control occurs when a third person or entity becomes the beneficial owner of 20 percent or more of the Corporation’s
common stock, when more than one-third of the Board is composed of persons not recommended by at least three-fourths of the
incumbent Board, 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 member 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 member for good reason, as such terms are defined in the agreement, then the key member
is entitled to receive, among other benefits, a severance payment equal to two times (three times for the Corporation’s Chairman,
President and CEO) annual salary and the average of the prior two years’ bonuses.
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Note 14. Stock-Based Compensation
Under the Corporation’s 2007 Stock-Based Compensation Plan (the “Plan”), effective May 8, 2007, as amended, 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 shareholder approval of the Plan in May 2007, no future awards were granted under the Corporation’s
1995 Stock-Based Compensation Plan, but all outstanding awards previously granted under that plan shall remain outstanding in
accordance with their terms. As of December 31, 2016, there were approximately 2.8 million shares available for future issuance
under the Plan. The Plan is administered by the Human Resources and Compensation Committee of the Board. Restricted stock
units awarded under the Plan are 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 measures the cost of employee services in exchange for an award of equity instruments based on the grant-date
fair value of the award and recognizes cost over the requisite service period.
Compensation cost charged against operations for the Plan and Purchase Plan described in Note 13 of the consolidated financial
statements was $8.1 million, $9.1 million and $8.6 million for the years ended December 31, 2016, January 2, 2016 and January 3,
2015, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements
was $2.8 million, $3.1 million and $3.1 million for the years ended December 31, 2016, January 2, 2016 and January 3, 2015,
respectively.
The stock compensation expense for the years ended December 31, 2016, January 2, 2016 and January 3, 2015, was estimated on
the date of grant using the Black-Scholes option-pricing model with the following assumptions by grant year:
Expected term
Expected volatility:
Weighted-average
Expected dividend yield:
Weighted-average
Risk-free interest rate:
Range used
Year Ended
Dec 31, 2016
Year Ended
Jan 2, 2016
Year Ended
Jan 3, 2015
6 years
6 years
5 years
38.96%
43.54%
42.49%
3.30%
1.41%
1.94%
1.69%
2.76%
1.54%
Expected volatilities were 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 calculation method based on daily frequency for the
prior six years for 2016 and 2015 and a simple-average calculation method based on monthly frequency points for the prior five
years for 2014. The Corporation used the current dividend yield in all years as there are no plans to substantially increase or
decrease its dividends. The Corporation used historical exercise experience in all years to determine the expected term. The risk-
free interest rate was selected based on yields from treasury securities as published by the Federal Reserve equal to the expected
term of the options being valued for 2016 and 2015 and yields from U.S. Treasury zero-coupon issues with a remaining term equal
to the expected term of the options being valued for 2014.
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The following table summarizes the changes in outstanding stock options since the beginning of fiscal 2014.
Outstanding at December 28, 2013
Granted
Exercised
Forfeited or Expired
Outstanding at January 3, 2015
Granted
Exercised
Forfeited or Expired
Outstanding at January 2, 2016
Granted
Exercised
Forfeited or Expired
Outstanding at December 31, 2016
Number of
Shares
3,630,567
536,275
(542,837)
(288,560)
3,335,445
350,038
(302,635)
(24,525)
3,358,323
877,277
(609,663)
(121,602)
3,504,335
Weighted-
Average
Exercise Price
$29.94
34.78
28.53
38.55
$29.93
51.54
30.22
39.14
$32.09
32.18
30.52
52.24
$31.68
A summary of the Corporation’s non-vested stock options as of December 31, 2016 and changes during the year are presented
below:
Non-vested Stock Options
Non-vested at January 2, 2016
Granted
Vested
Forfeited
Non-vested at December 31, 2016
Weighted-
Average
Grant-Date
Fair Value
$11.18
8.80
8.78
11.74
$11.12
Shares
2,138,724
877,277
(820,915)
(32,929)
2,162,157
At December 31, 2016, there was $3.3 million of unrecognized compensation cost related to non-vested stock option awards,
which the Corporation expects to recognize over a weighted-average period of 1.3 years. Information about stock options expected
to vest or currently exercisable at December 31, 2016, is as follows:
Options
Expected to vest
Exercisable
Weighted-
Average
Exercise Price
$35.48
$25.50
Number
2,049,938
1,342,178
Weighted-
Average
Remaining Life
in
Years
Aggregate
Intrinsic
Value
($000s)
7.7
4.0
$41,893
$40,827
The weighted-average grant-date fair value of options granted was $8.80, $18.45 and $10.48, for 2016, 2015 and 2014,
respectively. Other information for the last three years is as follows:
(In thousands)
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
Dec. 31, 2016
Jan. 2, 2016
Jan. 3, 2015
$7,206
11,985
18,609
4,142
$5,554
6,412
9,145
2,111
$5,735
8,389
15,489
2,982
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Table of Contents
The Corporation has occasionally issued restricted stock units (“RSUs”) to executives, managers and key personnel. The RSUs
vest at the end of three years after the grant date. No dividends are accrued on the RSUs. The share-based compensation expense
associated with the RSUs is based on the quoted market price of HNI Corporation shares on the date of grant less the discounted
present value of dividends not received on the shares and is amortized using the straight-line method from the grant date through
the vesting date.
The following table summarizes the changes in outstanding RSUs since the beginning of fiscal 2014:
Outstanding at December 28, 2013
Granted
Vested
Forfeited
Outstanding at January 3, 2015
Granted
Vested
Forfeited
Outstanding at January 2, 2016
Granted
Vested
Forfeited
Outstanding at December 31, 2016
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
24,526
15,500
(14,000)
—
26,026
23,000
(10,526)
—
38,500
25,000
—
(3,000)
60,500
$23.01
32.23
21.47
—
$27.76
51.54
21.19
—
$43.77
32.06
—
51.54
$38.54
At December 31, 2016, there was $1.0 million of unrecognized compensation cost related to RSUs which the Corporation expects
to recognize over a weighted-average period of 1.0 year. The total value of shares vested in 2016, 2015 and 2014 was $0.0 million,
$0.2 million and $0.3 million, respectively.
As of December 31, 2016 the Corporation had $16.0 million of deferred compensation of which $0.9 million was recorded in
"Current maturities of other long-term obligations" and $15.1 million was recorded in "Other long-term liabilities" in the
Consolidated Balance Sheets, with $10.6 million of the total fair-market valued based on the price increase or decrease of common
stock on a quarterly basis. As of January 2, 2016 the Corporation had $13.2 million of deferred compensation of which $0.4
million was recorded in "Current maturities of other long-term obligations" and $12.8 million was recorded in "Other long-term
liabilities" in the Consolidated Balance Sheets, with $9.1 million of the total fair-market valued based on the price increase or
decrease of common stock on a quarterly basis.
Note 15. Retirement Benefits
The Corporation has defined contribution profit-sharing plans covering substantially all employees who are not participants in
certain defined benefit plans. The Corporation’s annual contribution to the defined contribution plans is based on employee eligible
earnings and results of operations and amounted to $32.5 million, $29.1 million, and $26.8 million, in 2016, 2015, and 2014,
respectively. A portion of the annual contribution is in the form of common stock of the Corporation. The amount of the stock
contribution was $7.2 million, $6.8 million, and $6.4 million in 2016, 2015, and 2014, respectively.
The Corporation sponsors a defined benefit plan which covers a limited number of former salaried and hourly members. The
Corporation’s funding policy is generally to contribute annually the minimum actuarially computed amount. Net pension costs
relating to these plans were $376,000, $281,000 and $167,000, in 2016, 2015 and 2014, respectively. The actuarial present value
of obligations, less related plan assets at fair value, is not significant.
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Note 16. Post-Retirement Health Care
Guidance on employers’ accounting for other post-retirement plans requires recognition of the overfunded or underfunded status
on the balance sheet. Under this guidance, gains and losses, prior services costs and credits and any remaining transition amounts
under previous guidance not yet recognized through net periodic benefit cost are recognized in accumulated other comprehensive
income (loss), net of tax effects, until they are amortized as a component of net periodic benefit cost. Also, the measurement date
– the date at which the benefit obligation and plan assets are measured – is required to be the Corporation’s fiscal year-end.
(In thousands)
Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Benefits paid
Actuarial (gain)/loss
Benefit obligation at end of year
Change in plan assets
Fair value at beginning of year
Actual return on assets
Employer contribution
Transferred out
Benefits paid
Fair value at end of year
Funded Status of Plan
2016
2015
$20,884
735
846
(1,017)
(295)
$21,153
—
—
1,017
—
(1,017)
—
($21,153)
$21,972
803
816
(1,009)
(1,698)
$20,884
—
—
1,009
—
(1,009)
—
($20,884)
Amounts recognized in the Statement of Financial Position consist of:
Current liabilities
Noncurrent liabilities
$1,034
$20,119
$1,014
$19,870
Amounts recognized in Accumulated Other Comprehensive Income (before tax)
consist of:
Actuarial (gain)/loss
$2,373
$2,730
Change in Accumulated Other Comprehensive Income (before tax):
Amount disclosed at beginning of year
Actuarial (gain)/loss
Amortization of transition amount
Amount disclosed at end of year
Estimated Future Benefit Payments (In thousands)
Fiscal 2017
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022 – 2026
$2,730
(295)
(62)
$2,373
$
$4,665
(1,698)
(237)
$2,730
1,034
1,025
1,036
1,060
1,083
6,013
Expected Contributions During Fiscal 2017
Total
$
1,034
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The discount rates at fiscal year-end 2016, 2015 and 2014, were 4.0 percent, 4.2 percent and 3.8 percent, 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. There were no funds designated as plan assets.
Components of Net Periodic Post-Retirement Benefit Cost (in thousands)
Service cost
Interest cost
Amortization of net (gain)/loss
Net periodic post-retirement benefit cost/(income)
2017
742
825
25
1,592
$
$
A discount rate of 4.0 percent was used to determine net periodic benefit cost for 2017. The discount rate is set at the measurement
date to reflect the yield of a portfolio of high quality, fixed income debt instruments. There are no plan assets invested.
Note 17. Leases
The Corporation leases certain showrooms, office space, warehouse and plant facilities and equipment. Commitments for minimum
rentals under non-cancelable leases at the end of 2016 are as follows:
(In thousands)
2017
2018
2019
2020
2021
Thereafter
Total minimum lease payments
Operating
Leases
$27,671
20,678
14,780
10,149
7,813
13,535
$94,626
There are no capitalized leases at December 31, 2016 and January 2, 2016.
Rent expense for the years 2016, 2015 and 2014, amounted to approximately $33.5 million, $34.0 million and $48.0 million,
respectively. There was no contingent rent expense under either capitalized or operating leases for the years 2016, 2015, and 2014.
Note 18. Guarantees, Commitments and Contingencies
The Corporation utilizes letters of credit in the amount of $9 million to back certain financing instruments, insurance policies and
payment obligations. The Corporation utilizes trade letters of credit and bankers' acceptances in the amount of $4 million to
guarantee certain payments to overseas suppliers. The letters of credit reflect fair value as a condition of their underlying purpose
and are subject to fees competitively determined.
Withdrawal Liability From Multi-employer Pension
On February 2, 2017, the Corporation was notified of a withdrawal liability from a multi-employer pension fund associated with
a business sold by the Corporation as a going concern in 2013. The business subsequently ceased operations, triggering the liability
for which it was responsible. The trustee of the pension fund has asserted a claim against the Corporation as a prior indirect owner
of the business. The Corporation has not recorded any liability associated with this claim because it believes the likelihood of an
unfavorable outcome is neither probable nor remote. The Corporation believes it has strong legal and factual defenses, and intends
to vigorously defend itself against this claim.
Other Litigation
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.
Note 19. Reportable Segment Information
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Management views the Corporation as being in two reportable segments based on industries: office furniture and hearth products,
with the former being the principal segment. The aggregated 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, wood and biomass burning fireplaces, inserts, stoves, facings and accessories, principally for the
home.
For purposes of segment reporting, intercompany sales transfers between segments are not material, and operating profit is income
before income taxes exclusive of certain unallocated corporate expenses. These unallocated corporate expenses include the net
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 a reportable 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, long-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 2016, 2015, and 2014, is as follows
for continuing operations:
(In thousands)
Net sales:
Office furniture
Hearth products
Operating profit:
Office furniture (a)
Hearth products (b)
Total operating profit
Unallocated corporate expenses
Income (loss) before income taxes
Depreciation and amortization expense:
Office furniture
Hearth products
General corporate
Capital expenditures (including capitalized software):
Office furniture
Hearth products
General corporate
Identifiable assets:
Office furniture
Hearth products
General corporate
2016
2015
2014
$
$
$
$
$
$
$
$
$
1,703,885
499,604
2,203,489
117,397
69,960
187,357
(58,446)
128,911
45,088
12,486
11,373
68,947
65,944
11,217
42,423
119,584
749,145
340,494
240,595
$
$
$
$
$
$
$
$
$
1,777,804
526,615
2,304,419
136,593
78,162
214,755
(57,585)
157,170
42,415
8,430
6,719
57,564
64,850
11,078
39,038
114,966
739,915
341,813
182,197
1,739,049
483,646
2,222,695
87,053
77,066
164,119
(59,188)
104,931
45,891
5,415
5,416
56,722
62,696
6,342
43,675
112,713
724,293
341,315
173,726
1,330,234
$
1,263,925
$
1,239,334
$
$
$
$
$
$
$
$
$
$
(a) Included in operating profit for the office furniture segment are pretax charges of $10.9 million, $11.6 million and $38.2
million, for closing of facilities and impairment charges in 2016, 2015 and 2014, respectively.
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(b) Included in operating profit for the hearth products segment are pretax charges of $5.5 million for closing a facility in
2016 and $0.9 million related to exiting a line of business in 2015.
The Corporation's net sales by product category were as follows for the years ended 2016, 2015 and 2014:
(in thousands)
Systems and storage
Seating
Other
Hearth products
2016
2015
2014
$904,748
$1,140,369
$1,156,170
707,609
91,528
499,604
561,392
76,043
526,615
498,389
84,490
483,646
$2,203,489
$2,304,419
$2,222,695
Note 20. Subsequent Events
On February 6, 2017, the Corporation announced the closure of its Colville, Washington hearth manufacturing facility as part of
its continued efficiency and simplification activities to deliver consistent, flawless execution to customers and to reduce structural
costs. The Corporation estimates the consolidation will save $2.8 million annually beginning in Q4 2017. The Corporation
estimates pre-tax charges of $6.7 million related to the closure and consolidation.
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Summary of Quarterly Results of Operations (Unaudited)
The following table presents certain unaudited quarterly financial information for each of the past 8 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 state
fairly the financial results set forth herein. Results of operations for any previous quarter are not necessarily indicative of
results for any future period.
Year-End 2016:
(In thousands, except per share data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
501,037
$
536,538
$
584,629
$
Net sales
Cost of products sold
Gross profit
Selling and administrative expenses
(Gain) loss on sale of assets
Restructuring and impairment charges
Operating income (loss)
Interest income (expense) – net
Income (loss) before income taxes
Income taxes
Net income (loss)
315,326
185,711
165,106
—
1,086
19,519
(1,796)
17,723
5,881
11,842
327,618
208,920
162,320
(1)
572
46,029
(1,068)
44,961
15,934
29,027
Less: net income attributable to the non-
controlling interest
Net income (loss) attributable to HNI Corporation $
(1)
11,843
$
(2)
29,029
$
Net income (loss) attributable to HNI Corporation
per common share – basic
Weighted-average common shares outstanding –
basic
Net income (loss) attributable to HNI Corporation
per common share – diluted
Weighted-average common shares outstanding –
diluted
$0.27
44,258
$0.26
45,040
$0.65
44,431
$0.64
45,632
363,075
221,554
169,535
(40)
399
51,660
(1,011)
50,649
16,837
33,812
(1)
33,813
$0.76
44,547
$0.74
45,845
581,285
362,457
218,828
170,783
22,613
8,948
16,484
(906)
15,578
4,621
10,957
65
$
10,892
$0.25
44,419
$0.24
45,588
As a Percentage of Net Sales
Net sales
Gross profit
Selling and administrative expenses
(Gain) loss on sale of assets
Restructuring and impairment charges
Operating income (loss)
Income taxes
Net income (loss) attributable to HNI Corporation
100.0%
100.0%
100.0%
100.0%
37.1
33.0
—
0.2
3.9
1.2
2.4
38.9
30.3
—
0.1
8.6
3.0
5.4
37.9
29.0
—
0.1
8.8
2.9
5.8
37.6
29.4
3.9
1.5
2.8
0.8
1.9
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Year-End 2015:
(In thousands, except per share data)
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
523,477
$
568,226
$
615,850
$
Net sales
Cost of products sold
Gross profit
Selling and administrative expenses
(Gain) on sale of assets
Restructuring and impairment charges (income)
Operating income (loss)
Interest income (expense) – net
Income (loss) before income taxes
Income taxes
Net income (loss)
Less: net income attributable to the non-
controlling interest
Net income (loss) attributable to HNI Corporation $
Net income (loss) attributable to HNI Corporation
per common share – basic
$
Weighted-average common shares outstanding –
basic
Net income (loss) attributable to HNI Corporation
per common share – diluted
$
Weighted-average common shares outstanding –
diluted
As a Percentage of Net Sales
Net sales
Gross profit
Selling and administrative expenses
(Gain) on sale of assets
Restructuring and impairment charges
Operating income (loss)
Income taxes
Net income (loss) attributable to HNI Corporation
338,977
184,500
168,704
—
377
15,419
(1,899)
13,520
5,068
8,452
(26)
8,478
0.19
$
$
362,102
206,124
167,278
—
(560)
39,406
(1,849)
37,557
13,680
23,877
(2)
23,879
0.54
$
$
384,219
231,631
170,371
—
172
61,088
(1,623)
59,465
18,619
40,846
(2)
40,848
0.92
$
$
596,866
371,723
225,143
165,772
(195)
11,803
47,763
(1,135)
46,628
14,397
32,231
—
32,231
0.73
44,304
44,416
44,263
44,158
0.19
$
0.52
$
0.90
$
0.71
45,524
45,621
45,403
45,199
100.0%
100.0%
100.0%
100.0%
35.2
32.2
—
0.1
2.9
1.0
1.6
36.3
29.4
—
(0.1)
6.9
2.4
4.2
37.6
27.7
—
—
9.9
3.0
6.6
37.7
27.8
—
2.0
8.0
2.4
5.4
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Table of Contents
INVESTOR INFORMATION
Common Stock Market Prices and Dividends (Unaudited)
Quarterly 2016 – 2014
2016 by
Quarter
1st
2nd
3rd
4th
Total Dividends Paid
2015 by
Quarter
1st
2nd
3rd
4th
Total Dividends Paid
2014 by
Quarter
1st
2nd
3rd
4th
Total Dividends Paid
High
$39.59
48.50
56.96
56.91
High
$56.47
57.74
52.52
47.68
High
$39.42
39.29
40.43
52.90
Low
$29.84
38.30
39.30
37.24
Low
$38.01
46.19
41.29
35.53
Low
$31.00
31.61
34.62
34.75
Dividends
per Share
$0.265
0.275
0.275
0.275
$1.090
Dividends
per Share
$0.250
0.265
0.265
0.265
$1.045
Dividends
per Share
$0.240
0.250
0.250
0.250
$0.990
Common Stock Market Price and Price/Earnings Ratio (Unaudited)
Fiscal Years 2016 – 2012
Year
2016
2015
2014
2013
2012
Five-Year Average
Market Price
High
$56.96
57.74
52.90
40.73
32.02
Diluted
Earnings
per
Share
$1.88
2.32
1.35
1.39
1.07
Low
$29.84
35.53
31.00
28.28
21.57
Price/Earnings Ratio
High
Low
30
25
39
29
30
31
16
15
23
20
20
19
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Table of Contents
ITEM 15(c) - INDEX OF EXHIBITS
Exhibit Number
Description of Document
(3.1)
(3.2)
(10.1)
(10.2)
(10.3)
(10.4)
(10.5)
(10.6)
(10.7)
(10.8)
(10.9)
(10.10)
(10.11)
(10.12)
(10.13)
(10.14)
(10.15)
(10.16)
Articles of Incorporation of HNI Corporation, as amended, incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended January 2, 2010
Amended and restated By-laws of HNI Corporation, as amended, incorporated by reference to Exhibit 3.1
to the Registrant's Current Report on Form 8-K filed on August 9, 2016
HNI Corporation 2007 Stock-Based Compensation Plan, as amended (incorporated by reference to Appendix
A to the Corporation's Definitive Proxy Statement filed with the SEC March 23, 2015)*
2007 Equity Plan for Non-Employee Directors of HNI Corporation, as amended (incorporated by reference
to Appendix D to the Corporation’s Definitive Proxy Statement filed with the SEC March 23, 2015)*
Form of HNI Corporation Change In Control Employment Agreement, incorporated by reference to Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed November 16, 2006*
Form of HNI Corporation Amendment No. 1 to Change in Control Employment Agreement incorporated
by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed August 10, 2007*
Form of HNI Corporation Change In Control Employment Agreement, incorporated by reference to
Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed January 19, 2017*
HNI Corporation Supplemental Income Plan (f/k/a HNI Corporation ERISA Supplemental Retirement Plan),
as amended and restated, incorporated by reference to Exhibit 10.4 to the Registrant's Current Report on Form
8-K filed February 22, 2010*
Form of HNI Corporation Amended and Restated Indemnity Agreement, incorporated by reference to Exhibit
10.1 to the Registrant’s Current Report on Form 8-K filed November 14, 2007*
Form of 2007 Equity Plan For Non-Employee Directors of HNI Corporation Participation Agreement,
incorporated by reference to Exhibit 10.26 to the Registrant's Annual Report on Form 10-K for the year ended
January 2, 2010*
Form of HNI Corporation 2007 Stock-Based Compensation Plan Stock Option Award Agreement,
incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended July 4, 2009*
Second Amended and Restated Credit Agreement, including all schedules and exhibits, dated as of June 9,
2015, by and among HNI Corporation, as Borrower, certain domestic subsidiaries of HNI Corporation, as
Guarantors, certain lenders party thereto and Wells Fargo Bank, National Association, as Administrative
Agent, incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed June
12, 2015
First Amendment to Second Amended and Restated Credit Agreement, dated as of January 6, 2016,
incorporated by reference to Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed January 11,
2016
HNI Corporation Long-Term Performance Plan, as amended (incorporated by reference to Appendix C to the
Corporation’s Definitive Proxy Statement filed with the SEC March 23, 2015)*
HNI Corporation Executive Deferred Compensation Plan, as amended, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 4, 2015*
HNI Corporation Directors Deferred Compensation Plan, as amended, incorporated by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended July 4, 2015*
HNI Corporation Stock-Based Compensation Plan, as amended, incorporated by reference to Exhibit 10.1 to
the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006*
Form of HNI Corporation 2007 Stock-Based Compensation Plan Restricted Stock Unit Award Agreement,
incorporated by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended April 4, 2009 (for restricted stock unit awards granted in 2009)*
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Table of Contents
Exhibit Number
Description of Document
(10.17)
(10.18)
(10.19)
(10.20)
(10.21)
(10.22)
(21)
(23.1)
(23.2)
(31.1)
(31.2)
(32.1)
101
HNI Corporation Stock-Based Compensation Plan, as amended, incorporated by reference to Exhibit 10.1 to
the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2006*
Form of Exercise of Stock Option granted under the HNI Corporation Stock-Based Compensation Plan,
incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended September 27, 2008*
Form of HNI Corporation Stock-Based Compensation Plan Stock Option Award Agreement, incorporated by
reference to Exhibit 99D to the Registrant’s Current Report on Form 8-K filed February 22, 2005*
Form of HNI Corporation 2007 Stock-Based Compensation Plan Restricted Stock Unit Award Agreement,
incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q for the quarter
ended April 3, 2010 (for restricted stock unit awards granted in 2010)*
Form of HNI Corporation Executive Deferred Compensation Plan Deferral Election Agreement, incorporated
by reference to Exhibit 10.25 to the Registrant's Annual Report on Form 10-K for the year ended January 2,
2010*
Form of HNI Corporation Directors Deferred Compensation Plan Deferral Election Agreement, incorporated
by reference to Exhibit 10.6 to the Registrant's Annual Report on Form 10-K for the year ended January 2,
2010*
Subsidiaries of the Registrant+
Consent of Independent Registered Public Accounting Firm+ (KPMG)
Consent of Independent Registered Public Accounting Firm+ (PwC)
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002+
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002+
The following materials from HNI Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 2016 formatted in XBRL (eXtensible Business Reporting Language) and furnished
electronically herewith: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Comprehensive
Income; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes
to Consolidated Financial Statements
*
+
Indicates management contract or compensatory plan.
Filed herewith.
-72-
Performance Graph
Comparison of Five-Year Cumulative Return
HNI Corporation
S&P 500
OFIG*
$275
$250
$225
$200
$175
$150
$125
$100
$75
2011
2012
2013
2014
2015
2016
Annual Return
HNI Corporation
S&P500
OFIG*
2011
$100
$100
$100
2012
$115
$114
$154
2013
$161
$153
$210
2014
$211
$174
$194
2015
$154
$177
$186
2016
$245
$198
$271
*The Office Furniture Industry Group (OFIG) is a composite peer index constructed by the Corporation weighted by market
capitalization and comprised of the following companies: Herman Miller, Inc.; Kimball International, Inc., Knoll, Inc. and
Steelcase Inc. It is weighted at the beginning of each year according to the market capitalization of its constituents on the
last trading day of the Corporation's prior fiscal year.
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 the Corporation's common stock, the S&P 500 and OFIG stocks at the end of the
Corporation's 2011 fiscal year, 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 each of the Corporation's fiscal quarters.
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 performance graph. For this reason, the
Corporation does not believe this graph should be considered as the sole indicator of the Corporation's performance.
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Financial Highlights
(Amounts in thousands, except for per share)
2016
2016
2015
Change
INCOME STATEMENT DATA
Net sales
Non-GAAP gross profit*
Non-GAAP gross margin*
Selling and administrative expenses
Non-GAAP net income attributable to HNI Corporation*
Non-GAAP net income as a % of net sales*
Non-GAAP net income attributable to HNI Corporation—diluted*
Per common share:
Cash dividends
BALANCE SHEET DATA
Total assets
Long-term debt
Debt/capitalization ratio
Working capital
OTHER DATA
HNI Corporation’s shareholders’ equity
Capital expenditures (including capitalized software)
Cash flow from operations
Weighted-average shares outstanding—diluted
$ 2,203,489
$ 849,649
$ 2,304,419
$ 852,894
38.6%
37.0%
$ 667,744
$ 119,190
$ 672,125
$ 117,020
5.4%
5.1%
$
$
2.62
1.09
$
$
2.58
1.045
(4.4)%
1.9%
1.6%
$ 1,330,234
$ 180,000
$ 1,263,925
$ 185,000
29.9%
28.5%
$ 500,603
$
(30,432)
$ 476,954
$
2,470
$ 119,584
$ 223,362
45,502,219
$ 114,966
$ 173,352
45,440,653
*GAAP to non-GAAP reconciliation
GAAP amount
% of net sales
Adjustments
Restructuring and impairment
Transition costs
(Gain) loss on sale of assets
Building donation
Non-recurring gain
Total adjustments
Non-GAAP amount
% of net sales
2016
Net
Income
2015
Net
Income
Gross
Profit
Earnings
Per Share
Gross
Profit
Earnings
Per Share
Gross
Profit
2014
Net
Income
Earnings
Per Share
$ 835,013
$ 85,577
$1.88
$847,398
$ 105,436
$2.32
$784,200
$ 61,471
$1.35
37.9%
3.9%
36.8%
4.6%
35.3%
2.8%
$ 5,302
$ 16,308
$ 9,334
$ 9,334
$ —
$ 22,613
$ —
$ 4,397
$ —
$ (2,042)
$
792
$ 12,569
$ 4,704
$ 4,704
$ —
$ —
$ —
$ —
$ —
$ —
$ 5,213
$ 4,894
$ 38,232
$ 4,894
$ —
$ (10,723)
$ —
$ —
$ —
$ —
$ 14,636
$ 50,610
$ 5,496
$ 17,273
$ 10,107
$ 32,403
$ 849,649
$119,190
$2.62
$852,894
$117,020
$2.58
$794,307
$ 89,730
$1.97
38.6 %
5.4%
37.0 %
5.1%
35.7 %
4.0%
Tax impact of adjustments
$ —
$ (16,997)
$ —
$ (5,689)
$ —
$ (4,144)
BOARD OF DIRECTORS
Stan A. Askren
Chairman, President and
Chief Executive Officer,
HNI Corporation
Cheryl A. Francis**
Co-Chairman,
Corporate Leadership
Center
Larry B. Porcellato
Former Chief Executive
Officer,
The Homax Group, Inc.
Ronald V. Waters, III**
Former Director,
President and
Chief Executive Officer,
LoJack Corporation
Human Resources
and Compensation
Mary A. Bell
Miguel M. Calado
Ronald V. Waters, III
Mary A. Bell
Retired Vice President,
Building Construction
Products Division,
Caterpillar Inc.
Miguel M. Calado
Vice President,
Corporate Development,
Hovione SA
*Lead Director
**Committee Chairperson
John R. Hartnett
Executive Vice President,
Illinois Tool Works Inc.
Mary K. W. Jones
Senior Vice President
and General Counsel,
Deere & Company
Abbie J. Smith*
Chaired Professor,
University of Chicago
Booth School of
Business
Brian E. Stern**
Director,
Starboard Capital
Partners, LLC
and Former Senior
Vice President,
Xerox Corporation
Public Policy and
Corporate Governance
Mary K. W. Jones
Abbie J. Smith
Brian R. Stern
COMMITTEES
OF THE BOARD
Audit
Cheryl A. Francis
John R. Hartnett
Larry B. Porcellato
HNI CORPORATION OFFICERS AND COMPANY EXECUTIVES
Stan A. Askren
Chairman, President and
Chief Executive Officer
Steven M. Bradford
Senior Vice President, General
Counsel and Secretary
Cooper V. Evans
Vice President,
Internal Audit
Julie M. Abramowski
Vice President,
Corporate Controller
Vincent P. Berger
President,
Hearth & Home Technologies
Marshall H. Bridges
Vice President and
Chief Financial Officer
Jerald K. Dittmer
Executive Vice President,
and President,
The HON Company
Jack D. Herring
Treasurer, Director of Finance
and Investor Relations
Jeffrey D. Lorenger
Executive Vice President,
and President,
HNI Contract Furniture Group
Donald T. Mead
Executive Vice President,
and President,
Gunlocke
Donna D. Meade
Vice President,
Member Relations
Kurt A. Tjaden
Senior Vice President,
and President,
HNI International
INVESTOR INFORMATION
Fiscal 2017 Quarter-End Dates
1st Quarter: April 1
2nd Quarter: July 1
3rd Quarter: September 30
4th Quarter: December 30
Annual Meeting
The Corporation’s annual
shareholders’ meeting will be
held at 10:30 a.m. on Tuesday,
May 9, 2017, at the HNI Corporate
Head quarters.
Form 10-K Report
Financial information can be
accessed on the Corporation’s
website at www.hnicorp.com.
Corporate Headquarters and
Investor Relations
HNI Corporation
600 East Second Street
Muscatine, IA 52761-0071
Telephone: 563.272.7400
Investor Relations Email:
investorrelations@hnicorp.com
Independent Registered Public
Accounting Firm
KPMG LLP
Suite 5500
200 East Randolph Street
Chicago, IL 60601
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:
Wells Fargo Shareowner Services
1110 Centre Point Curve
Suite 101
Mendota Heights, MN 55120
Telephone: 800.468.9716
www.shareowneronline.com
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600 EAST SECOND STREET
MUSCATINE, IOWA 52761
WWW.HNICORP.COM
HNI Corporation
2016 ANNUAL REPORT