HNI Corporation
2017 Annual Report
Market Leading
Value Creation
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 are 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.
Making a Difference in Our Community
and the Environment
We believe in the importance of working to better
our communities.
Collective Gain
Our members (employees) create value for share-
holders by creating value for our customers. When we
do that, everyone—customers, investors, members,
suppliers, communities—wins. That’s collective gain.
More, Better, Faster, for Less
What do customers want? The same thing you want
when you are 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.
Leaders Serve Every Member
and Every Customer
We believe the company’s leadership exists 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 at HNI 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.
HNI Corporation | 2017 Annual Report | 1
Letter to Shareholders
Dear Shareholders: 2017 was a year of transition. We confronted
multiple challenges—some planned and some not. We dealt with
rapid and significant change in our markets. We took on large-scale
transformations involving our operational network, fulfillment
models, business portfolio, product offerings, and enterprise
system. It was a difficult year, but we responded to our challenges,
made investments, and positioned our businesses to better deliver
long-term profitable growth in a new and dynamic environment.
Strengthening Our Positions
Our multi-year effort to reduce structural cost
has put us in a position to drive new levels of
productivity and take advantage of improving
market demand. We continued to adapt our
product portfolio to the changing office, which
is becoming less formal, more open, and
increasingly collaborative. We advanced our
Business Systems Transformation initiative and
successfully switched over to the new enterprise
system in early 2018. This project has been one
of our most significant undertakings and is a
critical enabler to long-term value creation.
Our supplies-driven office furniture business
experienced significant change during the year.
We saw an acceleration of channel shifts that
have been steadily taking place for some time.
Our large customers are seeking more efficient
engagement and direct fulfillment models.
Accordingly, we stepped up our investments
during the year to broaden our service
capabilities. Our scale, brands, products,
and services are unmatched in the supplies-
driven market. We continue to strengthen our
leading position and long-term partnerships
with the strongest resellers.
Our contract office furniture and hearth
businesses have strong momentum. In contract
office furniture, we’re winning across multiple
fronts by strengthening distribution, expanding
our product offering, and delivering customer
value. Our hearth business is the clear leader
in its market, generating record profits in 2017.
Our unmatched position with home builders
and homeowners puts us in a unique position
to drive long-term value creation.
Clear Path for Long-term Value Creation
We believe significant profit and sales growth
opportunities exist in our core businesses. In all
of our businesses, customers are increasingly
seeking more for their money and a more
convenient purchasing experience. As part of
our long-term strategy, we are positioning to
dramatically lower the effort required to buy
our products—making the whole process more
convenient for sellers and customers. We will
also be the best cost producer in the markets
we serve. Our commitment to operational
excellence allows us to deliver greater value to
customers. Our split and focus business model
offers the best opportunity to serve our core
customers and market segments with brands
tuned and tailored to their needs.
2 | 2017 Annual Report | HNI Corporation
Defined by Our Culture
Our strong member owner culture defines
who we are and what we do. Our culture
drives our core beliefs, our beliefs drive actions,
and our actions drive outcomes. We remain
committed to our unique culture that continues
to stand the test of time and sets us apart from
the competition.
Thank You
We greatly appreciate the continued trust
placed in us by our customers and shareholders.
I would like to thank our members for their
dedication and hard work through a challenging
year. We remain committed to delivering long
term value and look forward to delivering on the
opportunities in front of us.
Looking Ahead with Confidence
In 2018, we will continue profitable growth.
We have momentum in our markets and expect
sales growth across our businesses. We will
conclude our restructurings and deliver record
core productivity improvements and structural
cost reductions.
We remain a strong company with leading
market positions and the financial capacity
to aggressively pursue profitable growth for
our shareholders. I anticipate 2018 will be a
good year for HNI.
Sincerely,
Stan A. Askren
Chairman, President and
Chief Executive Officer
HNI Corporation | 2017 Annual Report | 3
Office
Furniture
HNI is a leading global office furniture company. Our brands
are among the strongest, most widely known and respected
in our industry. The depth and breadth of our brands, the
scale and capability of our manufacturing and the strength of
our distribution enables us to provide the best office furniture
solutions to meet the needs of every customer—from the
largest multinational organizations to the local entrepreneur.
Market Leading
Breadth & Depth
Hearth
Products
Wherever there is warmth and the welcome glow from a
fireplace or heating stove, chances are it’s an HNI brand.
We are the world’s leader in hearth products. Our hearth
brands are the strongest, most respected in the industry
and include a full array of gas, electric, wood and biomass
burning fireplaces, inserts, stoves, facings and accessories.
4 | 2017 Annual Report | HNI Corporation
HNI Corporation | 2017 Annual Report | 5
Financial Summary
Amounts in thousands, except for per share
Income Statement Data
Net sales
Non-GAAP gross profit*
Non-GAAP gross margin*
2017
2016
CHANGE
$ 2,175,882
$ 2,203,489
(1.3%)
$ 811,279
$ 849,649
37.3%
38.6%
Selling and administrative expenses
$ 671,831
$ 667,744
Non-GAAP net income attributable to HNI Corporation*
$
88,145
$ 119,190
(26.0%)
Non-GAAP net income as a % of net sales*
4.1%
5.4%
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
1.97
1.13
2.62
(24.9%)
1.09
$ 1,391,550
$ 1,330,234
$ 240,000
$ 180,000
35.0%
29.9%
$ 514,068
$ 500,603
$
(823)
(30,432)
Capital expenditures (including capitalized software)
$ 127,391
$ 119,584
Cash flow from operations
$ 133,149
$ 223,362
Weighted-average shares outstanding—diluted
44,839,813
45,502,219
*GAAP to non-GAAP reconciliation
GAAP amount
% of net sales
Adjustments
Restructuring charges
Impairment charges
Charitable donation of building
Transition costs
Valuation allowance of long-term note receivable
Non-recurring gain
(Gain) loss on sale, disposal, and license of assets
Tax Legislation
Non-GAAP amount
% of Net Sales
2017
2016
GROSS
PROFIT
NET
INCOME
EARNINGS
PER SHARE
GROSS
PROFIT
NET
INCOME
EARNINGS
PER SHARE
$ 783,988 $ 89,795 $ 2.00
$ 835,013 $ 85,577 $ 1.88
36.0%
4.1%
37.9%
3.9%
$ 10,327 $ 10,939 $ 0.25
$
$
— $ 13,861 $ 0.31
— $
— $ —
$ 16,964 $ 11,225 $ 0.25
$
$
$
$
— $ 9,842 $ 0.22
— $
—
—
— $
(2,686) $ (0.06)
— $ (44,831) $ (1.00)
$
$
$
$
$
$
$
$
5,302 $ 6,995 $ 0.16
— $ 3,836 $ 0.08
— $ 2,920 $ 0.06
9,334 $ 6,199 $ 0.14
— $
— $ —
— $ (1,356) $ (0.03)
— $ 15,019 $ 0.33
— $
— $ —
$ 811,279 $ 88,145 $ 1.97
$ 849,649 $ 119,190 $ 2.62
37.3%
4.1%
38.6%
5.4%
6 | 2017 Annual Report | HNI Corporation
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2017
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-14225
HNI Corporation
Iowa
(State of Incorporation)
42-0617510
(I.R.S. Employer No.)
600 East Second Street
P. O. Box 1109
Muscatine, Iowa 52761-0071
(563) 272-7400
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $1 Par Value
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, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting
company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
YES
NO
The aggregate market value of the voting stock held by non-affiliates of the Registrant as of July 1, 2017 was $1,434,431,574 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 2, 2018, was 43,246,359.
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 8,
2018 are incorporated by reference into Part III.
HNI Corporation and Subsidiaries
Annual Report on Form 10-K
Table of Contents
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Table I - Executive Officers of the Registrant
PART II
Item 5.
Item 6.
Item 7.
Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers, and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits, Financial Statement Schedules
Form 10-K Summary
Management Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Financial Statements
Notes to Consolidated Financial Statements
Page
4
10
16
17
17
17
18
19
20
21
31
31
31
32
32
33
33
33
33
33
34
35
36
37
38
40
45
Item 1. Business
General
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 independent 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 independent dealers and distributors, as well as Corporation-owned distribution and retail outlets. In fiscal 2017, the
Corporation had net sales of $2.2 billion, of which $1.7 billion or 76 percent was attributable to office furniture products and $0.5
billion or 24 percent was attributable to hearth products. See "Note 16. 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.
Eight operating units, marketed 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. ("Maxon")
The Gunlocke Company LLC ("Gunlocke")
Hickory Business Furniture, LLC (''HBF'')
OFM LLC ("OFM")
HNI Hong Kong Limited (''Lamex'')
HNI Office India Limited ("HNI India") - formerly BP Ergo Limited
Each of these operating units provides products, which are sold through various channels of distribution and segments of the industry.
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. Member's own approximately 6 percent of the Corporation's stock.
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: "Note 1. Nature
of Operations", "Note 4. Acquisitions and Divestitures", and "Note 16. Reportable Segment Information".
4
Industry
According to the Business and Institutional Furniture Manufacturer's Association ("BIFMA"), North American 2017 sales of office
and institutional furniture grew 2 percent from 2016 levels. North American 2016 sales of office and institutional furniture grew 2
percent from 2015 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 independent 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, 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.
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 30, 2017, the Corporation employed approximately 9,600 persons, 9,100 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.
5
To meet the demands of various markets, the Corporation's products are sold primarily under the Corporation's brands:
HON®
Allsteel®
Maxon®
Gunlocke®
HBF®
OFM®
basyx® by HON
Lamex®
HNI India®
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 replaces 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" below for additional details.
Manufacturing
The Corporation manufactures office furniture in Georgia, Iowa, New York, North Carolina, China, and India. The Corporation
manufactures hearth products in Iowa, Minnesota, Pennsylvania, and Vermont.
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.
6
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 levels. The Corporation invested in product development as follows (in thousands):
Product development investments
Intellectual Property
2017
2016
2015
$
31,846
$
28,089
$
31,103
As of December 30, 2017, the Corporation owned 181 U.S. and 187 foreign patents with expiration dates through 2040 and had
applications pending for 20 U.S. and 59 foreign patents. In addition, the Corporation holds 169 U.S. and 446 foreign trademark
registrations and has applications pending for 28 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
independent dealers and national office products distributors.
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.
Independent office products dealers, national wholesalers, and national office product distributors market their products over the
Internet and through catalogs periodically published and distributed to existing and potential customers.
7
The Corporation also makes export sales through HNI Export to independent 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 HNI India, 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. Additionally, the Corporation holds select finished goods inventories
to enable direct fulfillment capabilities.
Hearth & Home sells its fireplace and stove products through independent 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 2017, the Corporation's five largest customers represented approximately 24 percent of its consolidated net sales. No single
customer accounted for 10 percent or more of the Corporation’s consolidated net sales in fiscal 2017. The substantial purchasing
power exercised by large customers may adversely affect the prices at which the Corporation can successfully offer its products.
The Corporation has an order backlog, which will be filled in the ordinary course of business. Order backlog in dollars and in terms
of percentage of net sales was as follows (in thousands):
Net sales
Order backlog
Percent of net sales
December 30,
2017
December 31,
2016
$ 2,175,882
$ 2,203,489
$
202,255
$
175,732
9.3%
8.0%
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" in Part II of this report.
8
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 substantially compliant 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.
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 2018 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 30, 2017, December 31, 2016, and January 2,
2016 is discussed in ''Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II of
this report.
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 information on the Corporation's website is not, and shall not be, deemed to be a part hereof
or incorporated into this or any of the Corporation's other filings with 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.
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 21 of the Securities
Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. Words, such as "anticipate," "believe,"
9
"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 but not limited
to: the levels of office furniture needs and housing starts; overall demand for our products; general economic and market conditions
in the United States and internationally; industry and competitive conditions; the consolidation and concentration of our customers;
our reliance on our network of independent dealers; changes in raw material, component, or commodity pricing; market acceptance
and demand for our new products; our ability to successfully execute our business software system implementation; our ability to
achieve desired results from closures and structural cost reduction initiatives; our ability to achieve the anticipated benefits from
integrating our acquired businesses and alliances; changing legal, regulatory, environmental, and healthcare conditions; the risks
associated with international operations; the potential impact of product defects; the various restrictions on our financing activities;
an inability to protect our intellectual property; the impact of recent tax legislation; force majeure events outside the Corporation’s
control; and other risks as described under the heading "Item 1A. Risk Factors," as well as others that the Corporation may consider
not material 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 have a material effect on 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.
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
occur, our business, operating results, cash flows, or financial condition could be materially adversely affected.
Unfavorable economic and industry factors 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 remains solid in our key international markets, including China and India. A deterioration of economic conditions
in those markets could have adverse effects on our international office furniture sales and operating results.
Deteriorating economic conditions could affect our business significantly, including: reduced demand for products; insolvency of
our independent 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.
10
The office furniture and hearth products industries are highly competitive and, as a result, we may not be successful in winning new
business.
Both the office furniture and hearth products industries are highly competitive. Many of our competitors in both industries offer
similar products. Competitive factors include price, delivery and service, product design, product quality, strength of dealers and
other distributors, and relationships with customers and key influencers, including architects, designers, home-builders, and facility
managers. In both industries, most of our top competitors have an installed base of products that can be a source of significant future
sales through repeat and expansion orders. Our main competitors manufacture products with strong acceptance in the marketplace
and are capable of developing products that have a competitive advantage over our products, which could make it difficult for us to
win new business.
In both the office furniture and hearth products industries, we 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 and adversely affect our
future financial performance.
Changes in industry dynamics, including demand and order patterns from our customers, distribution changes, or the loss of a
significant number of dealers, could adversely affect our business, operating results, or financial condition.
We sell our products through multiple distribution channels, which primarily includes independent dealers, national dealers, and
wholesalers. Within these distribution channels, there has been, and may continue to be, consolidation. We rely on distribution
partners to provide a variety of important specification, installation, and after-market services to our customers. Some of our
distribution partners may terminate their relationships with us at any time and for any reason. We have experienced demand shift
to direct fulfillment, reducing two-step distribution that was previously provided by wholesale partners. Our ability to provide
increased direct fulfillment and/or the loss or termination of a significant number of reseller 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 profitability may be adversely affected by increases in raw material and commodity costs as well as transportation and shipping
challenges.
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.
11
Our efforts to introduce new products to meet customer and workplace demands 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, we regularly introduce new office furniture and
hearth products. The introduction of new products 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. We may face difficulties 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 a product may be later or less successful
than we originally anticipated, limiting our sales growth or causing our sales to decline.
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"). The BST
initiative includes the introduction of a new software system along with process changes and new ways to work, which simplify and
streamline our business processes. In 2016 and 2017, we implemented BST across several of our smaller operating companies. The
remaining in-scope domestic office furniture operations switched over to the new system on February 1, 2018. At this early stage
of implementation, there can be no assurance issues relating to BST will not occur, including compatibility issues, integration
challenges and further delays, and higher than expected implementation costs. While not experienced to date, BST may not function
properly or 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 continuing activities to reduce structural costs may result in customer disruption, may distract management from other activities,
and may not achieve the desired results.
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.
We may not be able to successfully integrate and manage our acquired businesses and alliances.
One of our growth strategies is to supplement our organic growth through acquisitions and strategic alliances. The benefits of
acquisitions or alliances may take more time than expected to develop or integrate into our operations. In addition, acquisitions and
alliances involve a number of risks, including:
•
•
•
•
•
•
diversion of management’s attention;
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;
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. Any potential acquisition may not be successful and could adversely affect our business, operating results, or financial
condition.
12
We may need to take additional impairment charges related to goodwill and indefinite-lived intangible assets, which would adversely
affect our financial results.
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. Poor performance in portions
of our business where we have goodwill or intangible assets, or declines in the market value of our equity, may result in impairment
charges, which would adversely affect our results of operations.
We are subject to extensive environmental regulation and have exposure to potential environmental liabilities.
Through our past and present operation and ownership by us of manufacturing facilities and real property, we 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 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 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 that 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:
•
•
•
•
•
•
•
•
•
•
•
•
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
changes to border taxes or other international tax reforms.
13
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 may restrict 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 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 and significant losses. We maintain reserves for
product defect-related costs but cannot be certain these reserves will be adequate to cover actual claims. We also purchase insurance
coverage and maintain a reserve for our self-insured losses based upon estimates 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. 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, 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. federal, 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.
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 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.
14
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 and loss of intellectual property or other proprietary information.
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. Additionally, we may, in the future, adopt 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.
15
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.
16
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, Mexico, Dubai, and Taiwan, which house manufacturing, distribution, and retail operations
and offices, totaling an aggregate of approximately 10.0 million square feet. Of this total, approximately 2.9 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
Mt. Pleasant, Iowa
Muscatine, Iowa
Muscatine, Iowa
Muscatine, Iowa
Muscatine, Iowa
Nagpur, India
Wayland, New York
Approximate
Square Feet
550,000
1,007,716
206,316
241,500
400,000
288,006
250,000
272,900
578,284
810,000
237,800
355,135
716,484
Owned or
Leased
Owned
Owned
Owned
Owned
Leased
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 fireplaces (1)
Manufacturing office furniture
Manufacturing office furniture (1)
Manufacturing office furniture (1)
Manufacturing office furniture
Manufacturing office furniture
Manufacturing office furniture (1)
(1) Also includes a regional warehouse/distribution center
Other facilities total approximately 3.8 million square feet, of which approximately 2.5 million square feet are leased. Approximately
2.2 million square feet are used for the selling, manufacturing, and distribution of office furniture, approximately 1.4 million square
feet are used for the selling, manufacturing, and distribution of hearth products, and approximately 0.2 million square feet are used
for corporate administration.
There are no major encumbrances on Corporation-owned properties. Refer to the Property, Plant, and Equipment section in "Note
2. Summary of Significant Accounting Policies" for related cost, accumulated depreciation, and net book value data.
Item 3. Legal Proceedings
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.
17
Table I
Executive Officers of the Registrant
Name
Julie M. Abramowski
Age
42
Family
Relationship Position
None
Vice President, Corporate
Controller
Position
Held Since
2015
Stan A. Askren
57
None
Vincent P. Berger
45
None
Chairman of the Board
Chief Executive Officer
President
Director
President, The HON
Company
Executive Vice President,
HNI Corporation
President, Hearth &
Home Technologies
Steven M. Bradford
Marshall H. Bridges
60
48
None
None
Senior Vice President,
General Counsel and
Secretary
Senior Vice President and
Chief Financial Officer
2004
2004
2003
2003
2017
2018
2016
2015
2018
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 (2014-2016);
Senior Vice President, Operations,
Hearth & Home Technologies
(2011-2014)
Vice President, General Counsel and
Secretary (2008-2015)
Vice President and Chief Financial
Officer (2017-2018);
Vice President, Finance, HNI Contract
Furniture Group (2014-2017);
Vice President, Finance, Allsteel Inc.
(2010-2014)
Jeffrey D. Lorenger
52
None
President, Office
Furniture, HNI
Corporation
2017 Executive Vice President, HNI
Corporation (2014-2017);
President, HNI Contract Furniture
Group (2014-2017);
President, Allsteel Inc. (2008-2014)
Vice President, Member and
Community Relations, Allsteel Inc.
(2009-2014)
Senior Vice President and Chief
Financial Officer (2015-2017);
Vice President and Chief Financial
Officer (2008-2015)
Donna D. Meade
Kurt A. Tjaden
52
54
None
None
Vice President, Member
and Community Relations
President, HNI
International
Senior Vice President,
HNI Corporation
2014
2017
2015
18
PART II
Item 5. Market for Registrant's Common Equity, Related Shareholder 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 2017, the Corporation had 6,220 shareholders of record.
EQ 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: EQ Shareowner Services, P.O. Box
64874, St. Paul, MN 55164-0854, or 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 57 percent 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 fourth quarter of fiscal 2017:
Total Number
of Shares (or
Units) Purchased
(1)
Average Price
Paid per Share
(or Unit)
Total Number of
Shares (or Units)
Purchased as Part
of Publicly
Announced Plans
or Programs
Maximum Number
(or Approximate
Dollar Value) of
Shares (or Units)
that May Yet be
Purchased Under
the Plans or
Programs
— $
— $
162,000
$
162,000
—
—
37.26
— $
— $
162,000
$
162,000
84,045,144
84,045,144
78,008,673
Period
10/01/17 - 10/28/17
10/29/17 - 11/25/17
11/26/17 - 12/30/17
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:
• Corporation's share purchase program ("Program") announced November 9, 2007, providing share repurchase authorization
of $200,000,000 with no specific expiration date, with an 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 2017, nor do any plans exist under which
the Corporation does not intend to make further purchases. The Program does not obligate the Corporation to purchase any
shares and the authorization for the Program may be terminated, increased, or decreased by the Board at any time.
19
Item 6. Selected Financial Data - Five Year Summary
(In thousands, except share and per share data)
Operating Results
2017
2016
2015
2014
2013
Net Sales
$ 2,175,882
$ 2,203,489
$ 2,304,419
$ 2,222,695
$ 2,059,964
Gross Profit as a Percentage of Net Sales
36.0%
37.9%
36.8%
35.3%
34.7%
Net Income Attributable to HNI Corporation
Net Income Attributable to HNI Corporation as
a Percentage of Net Sales
$
89,795
$
85,577
$
105,436
$
61,471
$
63,683
4.1%
3.9%
4.6%
2.8%
3.1%
Share and Per Share Data (Basic and Dilutive)
Net Income Attributable to HNI Corporation –
basic
Net Income Attributable to HNI Corporation –
diluted
Cash Dividends
Average Number of Common Shares
Outstanding – basic
Average Number of Common Shares
Outstanding – diluted
$
$
$
2.05
2.00
1.13
$
$
$
1.93
1.88
1.09
$
$
$
2.38
2.32
1.045
$
$
$
1.37
1.35
0.99
$
$
$
1.41
1.39
0.96
43,839,004
44,413,941
44,285,298
44,759,716
45,250,665
44,839,813
45,502,219
45,440,653
45,578,872
45,956,280
Financial Position
Current Assets
Current Liabilities
Working Capital
Total Assets
$
488,880
$
433,041
$
489,703
(823)
$ 1,391,550
$
$
463,473
(30,432)
$ 1,330,234
$
438,370
$
455,559
$
$
$
435,900
2,470
$ 1,263,925
$
457,333
(1,774)
$ 1,239,334
$
$
$
$
433,228
411,584
21,644
$ 1,134,705
Percent Return on Beginning Assets Employed
5.8%
10.6%
13.2%
9.9%
9.8%
Long-Term Debt and Capital Lease Obligations $
240,000
$
514,068
$
$
180,000
500,603
$
$
185,000
476,954
$
$
197,736
414,587
$
$
150,197
436,328
17.7%
17.5%
23.7%
14.4%
14.9%
Shareholders’ Equity
Percent Return on Average Shareholders’
Equity
2014 reflects a 53-week year.
Reflects VCG acquisition beginning in Q4 2014, OFM acquisition in Q1 2016, and Artcobell divestiture on December 31, 2016.
20
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. See "Item 1A. Risk Factors" and the Forward-Looking Statements section
within "Item 1. Business" for further information.
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 focus,
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.
2017 was a year of transition. The Corporation dealt with rapid and significant market changes while taking on large-scale
transformations of the operational network, fulfillment models, and the business portfolio. The Corporation believes the investments
have positioned the business to drive new levels of productivity and take advantage of improving market demand. The Corporation’s
most significant investment, the Business Systems Transformation ("BST") initiative, is a key enabler for long-term value creation.
Final implementation stages of BST began in February 2018. Other initiatives around operational transformations progressed well
and are delivering a more stable network while lowering costs. The Corporation remains committed to driving long-term profitable
growth through productivity improvements and strong financial returns on investments.
Net sales for 2017 were $2,176 million, a decrease of 1.3 percent, compared to net sales of $2,203 million in 2016. The change was
driven by a decrease in sales in the office furniture segment, partially offset by an increase in sales in the hearth products segment.
The acquisitions and divestitures of small office furniture companies resulted in a net decrease in sales of $92.2 million compared
to 2016.
Net income attributable to the Corporation in 2017 was $89.8 million, an increase of 4.9 percent, compared to net income of $85.6
million in 2016. The increase was primarily driven by the one-time tax benefit of $44.8 million related to new tax legislation, lower
incentive based compensation, and the impact of stock price change on deferred compensation. These factors were partially offset
by strategic investments, input cost inflation, unfavorable product mix, higher restructuring and transition costs, $20.9 million of
goodwill and intangible impairment charges primarily due to the closure of the Paoli office furniture brand, and a $10.3 million
valuation allowance of a long-term note receivable.
Results of Operations
The following table presents certain key highlights from the results of operations (in thousands):
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
(Gain) loss on sale, disposal, and license of
assets
Restructuring and impairment charges
Operating income
Interest expense, net
Income before income taxes
Income tax expense (benefit)
Net income (loss) attributable to the non-
controlling interest
Net income attributable to HNI
Corporation
$
2017
2,175,882
1,391,894
783,988
671,831
(1,949)
37,416
76,690
(6,078)
70,612
% Change
from 2016
2016
% Change
from 2015
2015
(1.3)% $
1.7 %
2,203,489
1,368,476
(4.4)% $
(6.1)%
2,304,419
1,457,021
(6.1)%
0.6 %
(108.6)%
240.0 %
(42.6)%
27.1 %
(45.2)%
835,013
667,744
22,572
11,005
133,692
(4,781)
128,911
43,273
(1.5)%
(0.7)%
(11,675.4)%
(6.7)%
(18.3)%
(26.5)%
(18.0)%
(16.4)%
847,398
672,125
(195)
11,792
163,676
(6,506)
157,170
51,764
(19,286)
(144.6)%
103
68.9 %
61
(303.3)%
(30)
$
89,795
4.9 % $
85,577
(18.8)% $
105,436
21
Net Sales
For 2017, consolidated net sales decreased 1.3 percent or $27.6 million to $2,175.9 million compared to $2,203.5 million in 2016. The
change was driven by a decrease in sales in the office furniture segment, partially offset by an increase in sales in the hearth products
segment. Office furniture segment sales were down due to a decline in the supplies-driven business combined with a $92.2 million
negative net impact of acquisitions and divestitures of small office furniture companies. This decrease in office furniture was partially
offset by an increase in the North American contract business. The hearth products segment saw an increase in the new construction
business due to growth in single family housing and an increase in the retail business due to growth in pellet appliance demand.
For 2016, consolidated net sales decreased 4.4 percent or $100.9 million to $2,203.5 million compared to $2,304.4 million in
2015. The change was driven by a decrease in sales across both the office furniture and hearth products segments. Office furniture
segment sales were down due to strategic portfolio moves and a challenging market environment, partially offset by a $27.2 million
positive net impact of acquisitions and divestitures of small office furniture companies. The hearth products segment saw mixed
results as solid growth in new construction was more than offset by declines in the retail business due to comparatively low energy
prices and unseasonably warm weather.
Gross Profit Margin
Gross profit as a percentage of net sales decreased 190 basis points in 2017 compared to 2016 primarily driven by input cost inflation,
unfavorable product mix, and higher restructuring and transition costs, partially offset by higher sales volume and the impact of
divestitures. Gross profit as a percentage of net sales increased 110 basis points in 2016 compared to 2015 primarily driven by strong
operational performance, favorable material cost and productivity, and price realization, partially offset by lower volume.
Cost of sales in 2017 included $10.3 million of restructuring costs and $17.0 million of transition costs related to the previously
announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington and the office furniture
manufacturing facility in Orleans, Indiana and structural realignments in China and between office furniture facilities in Muscatine,
Iowa. Specific items incurred include accelerated depreciation and production move costs.
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 in China and between office furniture facilities in Muscatine, Iowa. Specific items incurred
include accelerated depreciation and production move costs.
Cost of sales in 2015 included $0.8 million of restructuring costs and $4.7 million of transition costs related to previously announced
closures and structural realignments in the office furniture segment and acquisition integration and the decision to exit a small line
of business within the hearth products segment. Specific items incurred include accelerated depreciation and production move costs.
Selling and Administrative Expenses
Selling and administrative expenses increased in 2017 compared to 2016 primarily driven by strategic investments, partially offset
by lower incentive based compensation, the impact of divestitures, and the impact of stock price change on deferred compensation.
In 2016, the Corporation also recorded a $2.0 million nonrecurring gain on a litigation settlement and $4.4 million of accelerated
depreciation in conjunction with the charitable donation of a building. Selling and administrative expenses increased in 2016 compared
to 2015 due to strategic investments and higher incentive based compensation.
Selling and administrative expenses include freight expense for shipments to customers, product development costs, and amortization
expense of intangible assets. Refer to "Note 2. Summary of Significant Accounting Policies" and "Note 6. 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, Disposal, and License of Assets
The Corporation recorded a net $1.9 million gain in 2017, which included a $6.0 million nonrecurring gain from the sale and license
of an intangible asset, a $0.8 million gain on the sale of a closed facility, and a $4.8 million loss on the disposal of a manufacturing
facility, in addition to other gains and losses incurred in the ordinary course of business. 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.
22
Restructuring and Impairment Charges
In 2017, the Corporation recorded $6.2 million of restructuring costs due to the previously announced closures of the hearth
manufacturing facilities in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans,
Indiana.
In 2016, the Corporation recorded $5.2 million of restructuring costs as part of selling and administrative expenses due to the
previously announced closures of the Paris, Kentucky hearth manufacturing facility and Orleans, Indiana office furniture
manufacturing facility.
In 2015, the Corporation recorded $0.5 million of restructuring costs as part of selling and administrative expenses related primarily
to previously announced closures.
The Corporation recorded $20.9 million, $5.8 million, and $11.2 million of goodwill and intangible asset impairments in 2017, 2016,
and 2015, 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. The impairment charge in 2017 also includes the impact
of closing the Paoli office furniture brand. See "Note 6. Goodwill and Other Intangible Assets" in the Notes to Consolidated Financial
Statements for more information on goodwill and intangible asset impairments.
In 2017, the Corporation recorded a $10.3 million valuation allowance of a long-term note receivable. See "Note 4. Acquisitions
and Divestitures" in the Notes to Consolidated Financial Statements for more information.
Operating Income
For 2017, operating income decreased 42.6 percent or $57.0 million to $76.7 million compared to $133.7 million in 2016. The
change was primarily driven by the impairment charges recorded in conjunction with the closure of the Paoli office furniture brand,
the valuation allowance recorded against a long-term note receivable, strategic investments, and input cost inflation, partially offset
by higher sales volume, lower incentive based compensation, and the impact of stock price change on deferred compensation.
For 2016, operating income decreased 18.3 percent or $30.0 million to $133.7 million compared to $163.7 million in 2015. The
change was primarily driven by the non-cash loss on the sale of Artcobell and lower volume, partially offset by strong operational
performance and cost reductions.
Income Taxes
The provision for income taxes reflected an effective tax rate as follows:
Effective tax rate
2017
2016
2015
(27.3)%
33.6%
32.9%
The decrease in the current year effective tax rate is primarily driven by the enactment of the Tax Cuts and Jobs Act (the "Act"). The
effective tax rate of the Corporation without the Act would have been 36.2 percent for the year. The increased rate for the year
without the Act is primarily driven by the establishment of valuation allowances on certain deferred tax assets partially offset by the
benefits of new treatment for equity based compensation under ASU No. 2016-09, Improvements to Employee Share-Based Payment
Accounting, and a permanent deduction for a charitable contribution of property. 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. See Recently Adopted Accounting
Standards in "Note 2. Summary of Significant Accounting Policies" in the Notes to Consolidated Financial Statements for further
information about ASU No. 2016-09. See "Note 8. Income Taxes" in the Notes to Consolidated Financial Statements for further
information relating to income taxes.
Net Income Attributable to HNI Corporation
Net income attributable to the Corporation was $89.8 million or $2.00 per diluted share in 2017 compared to $85.6 million or $1.88
per diluted share in 2016 and $105.4 million or $2.32 per diluted share in 2015.
23
Office Furniture
The following table presents certain key highlights from the results of operations in the office furniture segment (in thousands):
Net sales
Operating profit
2017
$
$
1,660,723
50,176
% Change
from 2016
2016
% Change
from 2015
2015
(2.5)% $
1,703,885
(4.2)% $
1,777,804
(57.3)% $
117,397
(14.1)% $
136,593
Net sales in 2017 for the office furniture segment decreased 2.5 percent or $43.2 million to $1,660.7 million compared to $1,703.9
million in 2016. Sales were down due to a decline in the supplies-driven business combined with the net impact of acquisitions and
divestitures of small office furniture companies, which was a net decrease in sales of $92.2 million. This decrease was partially
offset by an increase in the North American contract business.
Net sales in 2016 for the office furniture segment decreased 4.2 percent or $73.9 million to $1,703.9 million compared to $1,777.8
million in 2015. The Corporation experienced a decline in the contract business while the supplies-driven business remained flat
due to strategic portfolio moves and a soft market. This decrease was partially offset by the net impact of acquisitions and divestitures
of small office furniture companies, which was a net increase in sales of $27.2 million.
Operating profit as a percentage of net sales was 3.0 percent in 2017, 6.9 percent in 2016, and 7.7 percent in 2015. The decrease in
operating margin for 2017 compared to 2016 was primarily driven by unfavorable product and business mix, input cost inflation,
strategic investments, and higher restructuring and transition costs, including the impairment of goodwill and intangible assets
primarily relating to the closure of the Paoli office furniture brand. These factors were partially offset by higher sales volume, lower
incentive based compensation, and the impact of divestitures. The decrease in operating margin for 2016 compared to 2015 was
primarily 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.
In 2017, the office furniture segment recorded $11.6 million of restructuring costs and $13.7 million of transition costs associated
with the previously announced closure of the office furniture manufacturing facility in Orleans, Indiana and structural realignments
in China and between office furniture facilities in Muscatine, Iowa. Specific items incurred include severance, accelerated
depreciation, and production move costs. Of these charges, $21.5 million was included in cost of sales. The office furniture segment
also recorded a loss of $4.8 million related to the disposal of a manufacturing facility and $20.9 million of goodwill and intangible
asset impairments related to reporting units in the office furniture segment, of which $16.1 million of the goodwill and intangible
asset impairment charges related to the closure of the Paoli office furniture brand.
In 2016, the office furniture segment recorded $5.1 million of restructuring costs and $7.1 million of transition costs associated with
the previously announced closure of the office furniture manufacturing facility in Orleans, Indiana and structural realignments in
China and between office furniture facilities in Muscatine, Iowa. Specific items incurred include accelerated depreciation and
production move costs. Of these charges, $9.2 million was included in cost of sales. The office furniture segment also recorded a
non-cash loss of $22.6 million related to the sale of Artcobell, a K-12 education furniture company, and $5.8 million of goodwill
and intangible impairments related to a reporting unit in the office furniture segment.
In 2015, the office furniture segment recorded $0.4 million of restructuring costs and $3.3 million of transition costs related to
previously announced closures and structural realignments. Of these charges, $3.3 million was included in cost of sales. The office
furniture segment also recorded $11.2 million of goodwill and intangible impairments related to a reporting unit in the office furniture
segment.
24
Hearth Products
The following table presents certain key highlights from the results of operations in the hearth products segment (in thousands):
Net sales
Operating profit
2017
$
$
515,159
83,649
% Change
from 2016
2016
% Change
from 2015
2015
3.1% $
499,604
(5.1)% $
526,615
19.6% $
69,960
(10.5)% $
78,162
Net sales in 2017 for the hearth products segment increased 3.1 percent or $15.6 million to $515.2 million compared to $499.6 million
in 2016. The change was driven by an increase in the new construction business due to growth in single family housing and an
increase in the retail business due to an increase in pellet appliance demand.
Net sales in 2016 for the hearth products segment decreased 5.1 percent or $27.0 million to $499.6 million compared to $526.6
million in 2015. Sales in new construction grew as the housing market continued to recover but were offset by declines in the retail
business due to unseasonably warm weather and comparatively low energy prices.
Operating profit as a percentage of sales was 16.2 percent in 2017, 14.0 percent in 2016, and 14.8 percent in 2015. The increase in
operating margin in 2017 compared to 2016 was primarily driven by structural cost reductions, higher volume, and nonrecurring
gains. These factors were partially offset by higher restructuring and transition costs. The decrease in operating margin in 2016
compared to 2015 was primarily driven 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 material cost and productivity, and cost reductions.
In 2017, the hearth products segment recorded $4.9 million of restructuring costs and $3.3 million of transition costs associated with
the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington. Specific items
incurred include severance, accelerated depreciation, and production move costs. Of these charges, $5.8 million was included in
cost of sales. The hearth products segment also recorded a $6.0 million nonrecurring gain from the sale and license of an intangible
asset and a $0.8 million gain on the sale of a closed facility.
In 2016, the hearth products segment recorded $5.5 million of restructuring costs and $2.2 million of transition costs associated with
the previously announced closure of the Paris, Kentucky hearth manufacturing facility. Specific items incurred include severance,
accelerated depreciation, and production move costs. Of these charges, $5.5 million was included in cost of sales.
In 2015, the hearth products segment recorded $0.9 million of restructuring costs and $1.4 million of transition costs related to
acquisition integration and the decision to exit a small line of business. Of these charges, $2.2 million was included in cost of sales.
Liquidity and Capital Resources
Cash Flow – Operating Activities
Cash generated from operating activities in 2017 totaled $133.1 million compared to $223.4 million generated in 2016. The decrease
was driven by lower operating profits and working capital changes. Changes in working capital balances resulted in a $29.4 million
use of cash in 2017 compared to a $17.4 million source of cash in the prior year. Cash generated from operating activities in 2015
totaled $173.4 million and changes in working capital balances resulted in a $28.1 million use of cash.
The use of cash related to working capital changes in 2017 was primarily driven by strategic investments in inventory and lower
incentive compensation accruals.
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 Corporation places special emphasis on management and control of working capital, including accounts receivable and
inventory. Management believes recorded trade receivable valuation allowances at the end of 2017 are adequate to cover the risk
of potential bad debts. Allowances for non-collectible trade receivables, as a percent of gross trade receivables, totaled 0.7 percent,
0.9 percent, and 1.7 percent at the end of fiscal years 2017, 2016, and 2015, respectively. The Corporation’s inventory turns were
8.9, 11.6, and 11.6, for fiscal years 2017, 2016, and 2015, respectively.
25
Cash Flow – Investing Activities
Capital expenditures, including capitalized software, were $127.4 million in 2017, $119.6 million in 2016, and $115.0 million in
2015. These expenditures continue to focus on machinery, equipment, and tooling required to support new products, continuous
improvements, and cost savings initiatives in manufacturing processes, as well as the implementation of new integrated information
systems to support business systems transformation. The Corporation anticipates capital expenditures for 2018 to total $75 million
to $85 million, primarily related to new products and operational process improvements driven by rapid continuous improvement.
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. Refer to "Note 4. Acquisitions
and Divestitures" in the Notes to Consolidated Financial Statements for additional information.
Cash Flow – Financing Activities
Long-Term Debt - The Corporation maintains a revolving credit facility as the primary source of committed funding from which the
Corporation finances its planned capital expenditures, strategic initiatives, and seasonal working capital needs. Cash flows included
in financing activities represent periodic borrowings and repayments under the revolving credit facility. See "Note 7. Long-Term
Debt" in the Notes to Consolidated Financial Statements for further information.
Dividend - The Corporation is committed to maintaining and/or modestly growing the quarterly dividend. Cash dividends declared
and paid per share are as follows (in dollars):
Common shares
2017
2016
2015
$
1.130
$
1.090
$
1.045
The last quarterly dividend increase was from $0.275 to $0.285 per common share effective with the June 1, 2017 dividend payment
for shareholders of record at the close of business on May 19, 2017. The average dividend payout percentage for the most recent
three-year period has been 57 percent of prior year earnings or 26 percent of prior year cash flow from operating activities.
Stock Repurchase - The Corporation’s capital strategy related to stock repurchase is focused on offsetting the dilutive impact of
issuances for various compensation related matters. The Corporation may elect to opportunistically purchase additional shares based
on excess cash generation and/or share price considerations. During 2017, the Corporation repurchased 1,462,936 shares of its
common stock at a cost of approximately $58.9 million, or an average price of $40.25 per share. As of December 30, 2017, there
was a payable of $1.4 million reflected in "Accounts payable and accrued expenses" in the Consolidated Balance Sheets relating to
shares repurchased but not yet settled. 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 30, 2017, approximately $78.0 million of
this authorized amount remained unspent. 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. 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.
Cash, cash equivalents, and short-term investments totaled $25.4 million at the end of 2017 compared to $38.6 million at the end of
2016 and $32.8 million at the end of 2015. These funds, coupled with cash flow from future operations, borrowing capacity under
the existing credit agreement, 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 2017, $6.1 million of cash was held overseas and considered
permanently reinvested. If such amounts were repatriated, it could result in additional foreign withholding and state 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.
26
Contractual Obligations
The following table discloses the Corporation's obligations and commitments to make future payments, by period, under contracts
(in thousands):
Long-term debt obligations, including
estimated interest (1)
Operating lease obligations
Purchase obligations (2)
Other long-term obligations (3)
Less than
1 Year
1 – 3
Years
3 – 5
Years
More than
5 Years
Total
$
43,737
$
12,408
$
240,517
$
— $
29,135
55,180
2,927
41,967
—
7,726
23,135
—
4,682
19,481
—
25,122
296,662
113,718
55,180
40,457
Total
$
130,979
$
62,101
$
268,334
$
44,603
$
506,017
(1) Interest has been included for all debt at the fixed or variable rate in effect as of December 30, 2017, as applicable. See
"Note 7. Long-Term Debt" in the Notes to Consolidated Financial Statements for further information. The Corporation has
classified $36.6 million of long-term debt as current because the Corporation expects, but is not required, to repay this
portion of debt in 2018.
(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 $32.9 million, primarily insurance allowances 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 15. 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.
27
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 to 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.
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 "Note
6. 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 quantitative goodwill impairment test. If the quantitative 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
involves 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.
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
an 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.
28
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.
The 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.
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. Any asset impairment charges associated with the Corporation’s restructuring
activities are discussed in "Note 3. Restructuring and Impairment Charges" in the Notes to Consolidated Financial Statements.
Self-Insurance
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 Consolidated Balance Sheets. 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.
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.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law, making significant changes to the Internal Revenue
Code. Under the Act, a corporation’s foreign earnings accumulated under legacy tax laws are deemed repatriated. The Corporation
will continue to evaluate its ability to assert indefinite reinvestment to determine recognition of a deferred tax liability for other items
such as Section 986(c) currency gain/loss, foreign withholding, and state taxes. The Corporation currently provides for taxes that
29
may be payable if undistributed earnings of overseas subsidiaries were to be remitted to the United States, except for earnings it
considers to be permanently reinvested. See "Note 8. Income Taxes" in the Notes to Consolidated Financial Statements for further
information.
Recently Issued Accounting Standards Not Yet Adopted
In May 2014, the 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 ASU 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 ASU 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 FASB has
recently issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, ASU No.
2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and ASU No. 2016-12,
Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients to provide further clarification and
guidance. The new standard becomes effective for the Corporation in fiscal 2018, and allows for both retrospective and modified-
retrospective methods of adoption. The Corporation will adopt the standard in fiscal 2018 using the modified-retrospective method,
which requires the new guidance to be applied prospectively to revenue transactions completed on or after the effective date. Given
the nature of the Corporation's revenue transactions, the new guidance will not have a material impact on the Corporation's results
of operations or financial position. All necessary changes required by the new standard, including those to the Corporation's accounting
policies, controls, and disclosures, have been identified and implemented as of the beginning of fiscal 2018.
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 affecting 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 June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The new standard
replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses by
requiring consideration of a broader range of reasonable and supportable information and is intended to provide financial statement
users with more useful information about expected credit losses on financial instruments. The new standard becomes effective for
the Corporation in fiscal 2020 and requires a cumulative effect adjustment in retained earnings as of the beginning of the year of
adoption. The Corporation is currently evaluating the effect the standard will have on consolidated financial statements and related
disclosures.
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
not have a material effect on consolidated statements of cash flows.
In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost. The new standard requires an entity with defined benefit and postretirement benefit plans to present
the service cost component of the net periodic benefit cost in the same income statement line item or items as other compensation
costs arising from services rendered by employees during the period. All other components of net periodic benefit cost will be
presented outside of operating income, if a subtotal is presented. The new standard is to be applied retrospectively to each period
presented and becomes effective for the Corporation in fiscal 2018. The Corporation anticipates the standard will not have a material
effect on consolidated statements of comprehensive income.
30
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 variable interest debt obligations. The interest rate swap derivative instrument is held and used by the Corporation
as a tool for managing interest rate risk. It is not used for trading or speculative purposes.
As of December 30, 2017, the Corporation had $267.5 million of debt outstanding under the Corporation's $400 million revolving
credit facility, which bore variable interest based on one month LIBOR. As of December 30, 2017, the Corporation had an interest
rate swap agreement in place to fix the interest rate on $150 million of the Corporation's revolving credit facility. The Corporation's
interest rate risk not covered by the interest rate swap agreement was $117.5 million of variable rate debt outstanding as of
December 30, 2017.
The Corporation monitors market interest rate risk exposures using a sensitivity analysis. The Corporation's sensitivity analysis
estimates the exposure to market interest rate risk sensitive instruments assuming a hypothetical 1 percent change in interest rates
on $117.5 million unhedged variable rate debt. If interest rates were to increase or decrease by 1 percent, the corresponding increase
or decrease, as applicable, in interest expense on variable rate debt would increase or decrease, as applicable, future earnings and
cash flows by approximately $1.2 million per year.
This analysis does not consider the effect of any change in overall economic activity that could impact interest rates. Further, in the
event of an increase in interest rates of significant magnitude, the Corporation may take actions to further mitigate exposure to the
change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, this analysis assumes
no changes in the financial structure.
For information related to the Corporation’s long-term debt, refer to "Note 7. Long-Term Debt" in the Notes to Consolidated Financial
Statements. For information related to the Corporation's interest rate swap, refer to "Note 10. Accumulated Other Comprehensive
Income (Loss) and Shareholders’ Equity" in the Notes to Consolidated Financial Statements.
The Corporation currently does not 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 industry 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 Quarterly Results of Operations (Unaudited) 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.
31
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 has 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 30, 2017, 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 30, 2017 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
As previously reported on the Current Report on Form 8-K filed by the Corporation on January 9, 2018, Jerald K. Dittmer, Senior
Vice President of Strategic Development, HNI Corporation, notified the Corporation of his intent to retire effective February 16,
2018. The Corporation entered into an agreement with Mr. Dittmer (the "Agreement") on February 16, 2018, which will become
effective February 23, 2018, if not revoked before then.
The Agreement provides Mr. Dittmer is entitled to receive a lump payment equal to 39 weeks of base salary, less applicable
withholdings and deductions, as consideration for commitments including (a) an agreement not to compete with the Corporation or
solicit business contacts or employees of the Corporation for one year following his retirement, and (b) a release of claims relating
to his employment with or separation from the Corporation.
Any interests held by Mr. Dittmer in any compensation or benefit plan in which Mr. Dittmer participates will be distributed to him
in accordance with the terms of those plans and applicable law.
The foregoing description of the Agreement is only a summary and is qualified in its entirety by reference to the Agreement itself,
a copy of which is attached as an exhibit to this Form 10-K as Exhibit 10.25 and is incorporated by reference herein.
32
Item 10. Directors, Executive Officers, and Corporate Governance
PART III
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 8, 2018 (the "2018 Proxy Statement") 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 "Board Committees" of the 2018 Proxy Statement and is incorporated herein by reference.
Code of Ethics
The information under the caption "Code of Business Conduct and Ethics" of the 2018 Proxy Statement 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 2018 Proxy Statement is
incorporated herein by reference.
Item 11. Executive Compensation
The information under the captions "Executive Compensation" and "Director Compensation" of the 2018 Proxy Statement is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
The information under the captions "Security Ownership" and "Equity Compensation Plan Information" of the 2018 Proxy Statement
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information under the captions "Corporate Governance and Board Matters" and ''Policy for Review of Related Person
Transactions'' of the 2018 Proxy Statement is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information under the caption "Fees Incurred for KPMG LLP" of the 2018 Proxy Statement is incorporated herein by reference.
33
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
2017 Annual Report on Form 10-K 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 Firm
Consolidated Statements of Comprehensive Income for the Years Ended December 30, 2017, December
31, 2016, and January 2, 2016
Consolidated Balance Sheets - December 30, 2017 and December 31, 2016
Consolidated Statements of Equity for the Years Ended December 30, 2017, December 31, 2016, and
January 2, 2016
Consolidated Statements of Cash Flows for the Years Ended December 30, 2017, December 31, 2016,
and January 2, 2016
Notes to Consolidated Financial Statements
Summary of Quarterly Results of Operations (Unaudited)
Investor Information (Unaudited)
(2) Financial Statement Schedules
Page
37
38
40
41
43
44
45
70
72
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
(3.1)
(3.2)
(10.1)
(10.2)
(10.3)
(10.4)
(10.5)
(10.6)
(10.7)
(10.8)
(10.9)
(10.10)
Amended and Restated Articles of Incorporation of HNI Corporation (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 (incorporated by reference to Exhibit 3.1 to the
Registrant's Current Report on Form 8-K filed February 15, 2018)
HNI Corporation 2017 Stock-Based Compensation Plan (incorporated by reference to Exhibit 4.3 to the
Corporation's Form S-8 filed May 9, 2017)*
2017 Equity Plan for Non-Employee Directors of HNI Corporation (incorporated by reference to Exhibit
4.4 to the Registrant’s Form S-8 filed May 9, 2017)*
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 2017 Equity Plan for Non-Employee Directors of HNI Corporation Participation Agreement
(incorporated by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2017)*
Form of HNI Corporation 2017 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 September 30, 2017)*
Form of HNI Corporation 2017 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 September 30, 2017)*
34
(10.11)
(10.12)
(10.13)
(10.14)
(10.15)
(10.16)
(10.17)
(10.18)
(10.19)
(10.20)
(10.21)
(10.22)
(10.23)
(10.24)
(10.25)
(21)
(23.1)
(31.1)
(31.2)
(32.1)
101
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 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 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)*
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)*
Form of HNI Corporation 2007 Stock-Based Compensation Plan Restricted Stock Unit Award Agreement
(incorporated by reference to Exhibit 10.1 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)*
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 Annual Incentive Plan, as amended (incorporated by reference to Appendix B to the Corporation's
Definitive Proxy Statement filed with the SEC March 23, 2015)*
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)*
Agreement between HNI Corporation and Jerald K. Dittmer, dated February 16, 2018*+
Subsidiaries of the Registrant+
Consent of Independent Registered Public Accounting Firm+
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 30, 2017 are formatted in XBRL (eXtensible Business Reporting Language) and filed
electronically herewith: (i) Consolidated Statements of Comprehensive Income; (ii) Consolidated Balance
Sheets; (iii) Consolidated Statements of Equity; (iv) Consolidated Statements of Cash Flows; and (iv) Notes
to Consolidated Financial Statements
*
+
Indicates management contract or compensatory plan.
Filed or furnished herewith.
Item 16. Form 10-K Summary
None.
35
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.
Signatures
Date: February 23, 2018
HNI Corporation
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
February 23, 2018
Senior Vice President and Chief Financial
Officer, Principal Financial Officer, and
Principal Accounting Officer
Director
Director
Director
Director
Director
Lead Director
Director
Director
Director
36
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
February 23, 2018
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 30,
2017. 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 30, 2017, HNI Corporation maintained effective internal control
over financial reporting.
The effectiveness of HNI Corporation’s internal control over financial reporting as of December 30, 2017 has been audited by KPMG
LLP, an independent registered public accounting firm, as stated in its report which appears herein.
February 23, 2018
37
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
HNI Corporation:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of HNI Corporation and subsidiaries (the "Company") as of
December 30, 2017 and December 31, 2016, the related consolidated statements of comprehensive income, equity, and cash flows
for each of the years in the three-year period ended December 30, 2017, and the related notes (collectively, the "consolidated financial
statements"). We also have audited the Company’s internal control over financial reporting as of December 30, 2017, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 30, 2017 and December 31, 2016, and the results of its operations and its cash flows for each of the
years in the three-year period ended December 30, 2017, in conformity with U.S. generally accepted accounting principles. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 30,
2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
Basis for Opinion
The Company’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
the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of
the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated financial statements. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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.
38
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.
/s/ KPMG LLP
We have served as the Company's auditor since 2015.
Chicago, Illinois
February 23, 2018
39
Financial Statements
HNI Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands, except share and per share data)
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
(Gain) loss on sale, disposal, and license of assets
Restructuring and impairment charges
Operating income
Interest income
Interest expense
Income before income taxes
Income tax expense (benefit)
Net income
Less: Net income (loss) attributable to the non-controlling interest
Net income attributable to HNI Corporation
Average number of common shares outstanding – basic
Net income attributable to HNI Corporation per common share – basic
Average number of common shares outstanding – diluted
Net income attributable to HNI Corporation per common share – diluted
Foreign currency translation adjustments
Change in unrealized gains (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 income (loss) attributable to non-controlling interest
Year Ended
2017
2016
2015
$
2,175,882
$
2,203,489
$
2,304,419
1,391,894
1,368,476
1,457,021
783,988
671,831
(1,949)
37,416
76,690
297
6,375
70,612
(19,286)
89,898
103
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)
$
$
$
$
89,795
$
85,577
$
105,436
43,839,004
44,413,941
44,285,298
2.05
$
1.93
$
2.38
44,839,813
45,502,219
45,440,653
$
$
2.00
1,219
(27)
(463)
660
1,389
91,287
103
1.88
$
2.32
(1,510) $
(103)
339
1,460
186
85,824
61
(1,901)
(39)
1,256
873
189
105,595
(30)
Comprehensive income attributable to HNI Corporation
$
91,184
$
85,763
$
105,625
The accompanying notes are an integral part of the consolidated financial statements.
40
HNI Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands)
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 and Other Intangible Assets
Deferred Income Taxes
Other Assets
Total Assets
The accompanying notes are an integral part of the consolidated financial statements.
December 30,
2017
December 31,
2016
$
23,348
$
2,015
258,551
155,683
49,283
488,880
28,593
306,137
556,571
39,788
931,089
540,768
390,321
36,312
2,252
229,436
118,438
46,603
433,041
27,403
283,930
528,099
51,343
890,775
534,330
356,445
490,892
511,419
193
719
21,264
28,610
$
1,391,550
$
1,330,234
41
HNI Corporation and Subsidiaries
Consolidated Balance Sheets
(In thousands, 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 30,
2017
December 31,
2016
$
450,128
$
425,046
36,648
2,927
489,703
34,017
4,410
463,473
240,000
180,000
70,409
75,044
76,861
110,708
Preferred stock - $1 par value, authorized 2,000 shares, no shares outstanding
—
—
Common stock - $1 par value, authorized 200,000 shares, outstanding:
December 30, 2017 - 43,354 shares;
December 31, 2016 - 44,079 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Total HNI Corporation shareholders’ equity
Non-controlling interest
Total Equity
43,354
44,079
7,029
467,296
(3,611)
514,068
—
461,524
(5,000)
500,603
509
406
514,577
501,009
Total Liabilities and Equity
$
1,391,550
$
1,330,234
The accompanying notes are an integral part of the consolidated financial statements.
42
HNI Corporation and Subsidiaries
Consolidated Statements of Equity
(In thousands, except per share data)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Total
Shareholders’
Equity
$
44,166
$
867
$ 374,929
$
(5,375) $
(86) $
414,501
—
—
—
—
—
—
—
—
105,436
—
(461)
(46,329)
—
189
—
—
(30)
105,406
—
461
—
189
—
(46,329)
(26,657)
Balance, January 3, 2015
Comprehensive income:
Net income (loss)
Other comprehensive income (loss),
net of tax
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 income (loss),
net of tax
Change in ownership of non-
controlling interest
Cash dividends; $1.090 per share
Common shares – treasury:
Shares purchased
Shares issued under Members’
Stock Purchase Plan and stock
awards, net of tax
(550)
(26,107)
542
29,647
—
—
$
44,158
$
4,407
$ 433,575
$
—
—
—
—
—
—
—
—
85,577
—
(89)
(48,495)
(1,082)
(45,699)
(9,044)
1,003
41,292
—
Balance, December 31, 2016
$
44,079
$
— $ 461,524
$
Comprehensive income:
Net income (loss)
Other comprehensive income (loss),
net of tax
Change in ownership of non-
controlling interest
Cash dividends; $1.130 per share
Common shares – treasury:
Shares purchased
Shares issued under Members’
Stock Purchase Plan and stock
awards, net of tax
—
—
—
—
—
—
—
—
89,795
—
—
(49,557)
(1,463)
(22,958)
(34,466)
738
29,987
—
Balance, December 30, 2017
$
43,354
$
7,029
$ 467,296
$
The accompanying notes are an integral part of the consolidated financial statements.
43
—
(5,186) $
—
30,189
345
$
477,299
—
186
—
—
—
—
(5,000) $
—
1,389
—
—
—
—
(3,611) $
61
—
—
—
—
—
85,638
186
(89)
(48,495)
(55,825)
42,295
406
$
501,009
103
89,898
—
—
—
—
—
1,389
—
(49,557)
(58,887)
30,725
509
$
514,577
HNI Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Net Cash Flows From (To) Operating Activities:
Net income
Non-cash items included in net income:
Depreciation and amortization
Other post-retirement and post-employment benefits
Stock-based compensation
Excess tax benefits from stock-based compensation
Deferred income taxes
(Gain) loss on sale, retirement, license, 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 and license of property, plant, equipment, and
intangibles
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:
Payments of note and long-term debt and other financing
Proceeds from long-term debt
Dividends paid
Purchase of HNI Corporation common stock
Proceeds from sales of HNI Corporation common stock
Withholding related to net share settlements of equity based awards
Excess tax benefits from stock-based compensation
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
2017
2016
2015
$
89,898
$
85,638
$
105,406
72,872
1,592
7,750
—
(33,606)
30,892
(1,949)
(29,409)
(4,891)
133,149
68,947
1,643
8,141
(2,713)
20,495
28,868
4,523
17,430
(9,610)
223,362
57,564
1,856
9,097
(1,581)
15,257
12,463
(1,216)
(28,075)
2,581
173,352
(109,243)
(93,425)
(82,610)
9,009
(18,148)
(898)
(3,451)
3,197
1,510
(118,024)
(274,343)
339,337
(49,557)
(57,505)
14,224
(245)
—
(28,089)
(12,964)
36,312
1,055
(26,159)
(34,302)
(8,724)
8,619
(90)
(153,026)
(594,547)
611,986
(48,495)
(55,825)
21,596
—
2,713
(62,572)
7,764
28,548
$
23,348
$
36,312
$
2,201
(32,356)
—
(3,660)
3,550
—
(112,875)
(455,222)
448,449
(46,329)
(26,657)
12,276
(171)
1,581
(66,073)
(5,596)
34,144
28,548
The accompanying notes are an integral part of the consolidated financial statements.
44
HNI Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 30, 2017
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 "Note 16.
Reportable Segment Information" in the Notes to Consolidated Financial Statements 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 independent 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 independent 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.
Fiscal year-end – The Corporation follows a 52/53-week fiscal year, which ends on the Saturday nearest December 31. Fiscal year
2017 ended on December 30, 2017, fiscal year 2016 ended on December 31, 2016, and fiscal year 2015 ended on January 2, 2016.
The financial statements for fiscal years 2017, 2016, and 2015 are on a 52-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 investments with maturities greater than one year included in
"Other Assets" in 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.
Cash, cash equivalents, and investments consisted of the following (in thousands):
December 30, 2017
December 31, 2016
Cash and cash
equivalents
Short-term
investments
Long-term
investments
Cash and cash
equivalents
Short-term
investments
Long-term
investments
Available-for-sale
securities:
Debt securities
Cash and money market
accounts
Total
—
23,348
2,015
—
10,479
—
—
36,312
2,252
—
10,033
—
$
23,348
$
2,015
$
10,479
$
36,312
$
2,252
$
10,033
45
The following table summarizes the amortized cost basis of the debt securities (in thousands):
Amortized cost basis of debt securities
December 30,
2017
December 31,
2016
$
12,660
$
12,445
Immaterial unrealized gains and losses are recorded in "Accumulated other comprehensive income (loss)" in the Consolidated Balance
Sheets for these debt securities.
Receivables
The allowance for doubtful accounts 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 allowance level to adjust accordingly. The following table summarizes the change in the allowance for doubtful
accounts (in thousands):
Year ended December 30, 2017
Year ended December 31, 2016
Year ended January 2, 2016
Balance at
beginning of
period
$
$
$
2,140
4,287
5,096
Adjustments
to Allowance
846
$
$
(357) $
$
1,394
$
$
Amounts
written off,
net of
recoveries
and other
adjustments
1,082
Divestitures
$
— $
Balance at
end of period
1,904
1,598
2,203
$
$
192
$
— $
2,140
4,287
Inventories
The Corporation values its inventory at the lower of cost or net realizable value with approximately 83 percent and 79 percent valued
by the last-in, first-out ("LIFO") costing method as of December 30, 2017 and December 31, 2016, respectively.
(In thousands)
Finished products
Materials and work in process
LIFO allowance
December 30,
2017
December 31,
2016
$
$
101,715
$
81,202
(27,234)
155,683
71,223
71,375
(24,160)
$
118,438
During 2016, 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. There was no similar LIFO decrement in 2017 and
2015. If the FIFO method had been in use, inventories would have been $27.2 million and $24.2 million higher than reported as of
December 30, 2017 and December 31, 2016, respectively.
The increase in finished products inventory is primarily due to investments in direct fulfillment capabilities and production leveling
related to higher volume.
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. Total depreciation expense was as follows (in thousands):
Depreciation expense
2017
2016
$
56,494
$
57,171
$
2015
46,512
46
Long-Lived Assets
The Corporation evaluates long-lived assets for indicators of impairment as events or changes in circumstances occur indicating that
an impairment risk may be present. The judgments regarding the existence of impairment are based on business and market conditions,
operational performance, and estimated future cash flows. If the carrying value of a long-lived asset is considered impaired, an
impairment charge is recorded to adjust the asset to its estimated fair value. Asset impairment charges associated with the Corporation’s
long-lived assets are discussed in "Note 3. Restructuring and Impairment Charges" in the Notes to Consolidated Financial Statements.
Goodwill and Other Intangible Assets
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 "Note
6. Goodwill and Other Intangible Assets" in the Notes to Consolidated Financial Statements.
Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses are reflected in the Consolidated Balance Sheets and were as follows (in thousands):
Trade accounts payable
Compensation
Profit sharing and retirement expense
Marketing expenses
Freight
Other accrued expenses
December 30,
2017
December 31,
2016
$
235,577
$
201,810
32,582
30,884
41,751
13,121
96,213
47,280
32,335
41,963
14,251
87,407
$
450,128
$
425,046
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 that fails during normal use because of a defect in design, materials, or workmanship. Allowances
have been established for the anticipated future costs associated with the Corporation's warranty programs.
A warranty allowance is determined by recording a specific allowance for known warranty issues and an additional allowance 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 allowance. Activity associated with warranty obligations was as follows (in thousands):
Balance at beginning of period
Accruals settled from divestiture
Accruals for warranties issued during period
Adjustments related to pre-existing warranties
Settlements made during the period
Balance at end of period
2017
$
15,250
$
—
20,075
194
(20,131)
15,388
$
$
2016
16,227
(538)
20,055
604
(21,098)
15,250
$
$
2015
16,719
—
19,995
(334)
(20,153)
16,227
The current and long-term portions of the allowance for the estimated settlements are included within "Accounts payable and accrued
expenses" and "Other Long-Term Liabilities", respectively, in the Consolidated Balance Sheets. The following table summarizes
when these estimated settlements are expected to be paid (in thousands):
Current - in the next twelve months
Long-term - beyond one year
47
December 30,
2017
December 31,
2016
$
$
9,524
5,864
15,388
$
$
6,959
8,291
15,250
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 and recorded in "Selling and administrative expenses" on the Consolidated
Statements of Comprehensive Income were as follows (in thousands):
Product development costs
2017
2016
$
31,846
$
28,089
$
2015
31,103
Freight Expense
Freight expense on shipments to customers were recorded in "Selling and administrative expenses" on the Consolidated Statements
of Comprehensive Income as follows (in thousands):
Freight expense
2017
2016
2015
$
119,096
$
115,157
$
133,384
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 "Note 11. Stock-Based Compensation" in the Notes 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 bases
of assets and liabilities and their reported amounts in the consolidated financial statements.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (the "Act") was signed into law, making significant changes to the Internal
Revenue Code. In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income
("GILTI") provisions of the Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible
assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating
any taxes on GILTI inclusions as a period cost are both acceptable methods subject to an accounting policy election. Effective in
the first quarter of fiscal 2018, the Corporation will elect to treat any potential GILTI inclusions as a period cost, as no material
impact is projected from GILTI inclusions and any deferred taxes related to any inclusion would not be material. Also under the
Act, a corporation’s foreign earnings accumulated under legacy tax laws are deemed repatriated. The Corporation will continue to
evaluate its ability to assert indefinite reinvestment to determine recognition of a deferred tax liability for other items such as Section
986(c) currency gain/loss, foreign withholding, and state taxes. There were approximately $33.6 million of accumulated earnings
considered permanently reinvested in China, Hong Kong, Singapore, and Canada as of December 30, 2017. The Corporation believes
the tax costs on accumulated unremitted foreign earnings would be approximately $0.2 million if the amounts were not considered
permanently reinvested.
See "Note 8. Income Taxes" in the Notes to Consolidated Financial Statements for further information.
48
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):
Numerator:
Numerator for both basic and diluted EPS attributable to HNI Corporation
net income
Denominators:
Denominator for basic EPS weighted- average common shares outstanding
Potentially dilutive shares from stock-based compensation plans
Denominator for diluted EPS
Earnings per share – basic
Earnings per share – diluted
2017
2016
2015
$
89,795
$
85,577
$
105,436
43,839
1,001
44,840
44,414
1,088
45,502
$
$
2.05
2.00
$
$
1.93
1.88
$
$
44,285
1,156
45,441
2.38
2.32
The weighted-average common stock equivalents presented above do not include the effect of the common stock equivalents in the
table below because their inclusion would be anti-dilutive.
Common stock equivalents excluded because their inclusion would be anti-
dilutive
2017
2016
2015
809,420
416,142
493,202
The Corporation implemented ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, in the first quarter
of fiscal 2017, which had an immaterial impact on the number of potentially dilutive shares from stock-based compensation plans
for the year ended December 30, 2017. See "Recently Adopted Accounting Standards" below for more information regarding the
implementation of ASU No. 2016-09.
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 consolidated financial statements and
accompanying notes. The critical areas requiring use of management estimates relate to goodwill and intangibles, accruals for self-
insured medical claims, workers’ compensation, legal contingencies, general liability and auto insurance claims, valuation of long-
lived assets, and estimates of income taxes. Other significant areas requiring use of management estimates relate to allowance for
doubtful accounts, inventory allowances, marketing program accruals, warranty accruals, 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 Consolidated Balance Sheets as follows (in thousands):
General, auto, product, and workers' compensation liabilities
December 30,
2017
December 31,
2016
$
27,591
$
26,526
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.
49
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 "Selling and administrative expenses" in the Consolidated Statements of Comprehensive Income.
Reclassifications
Certain reclassifications have been made within the financial statements to conform to the current year presentation.
Recently Adopted Accounting Standards
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 Corporation implemented the new standard in the first quarter of fiscal 2017. The primary impact
of implementation was the recognition of excess tax benefits in the Corporation's provision for income taxes rather than paid-in
capital beginning with the first quarter of fiscal 2017. Excess tax benefits will be recorded in the operating section of the Consolidated
Statements of Cash Flows on a prospective basis. Prior to fiscal 2017, the tax benefits or shortfalls were recorded in financing cash
flows. The presentation requirements for cash flows related to employee taxes paid for withheld shares in the financing section had
no impact to any of the periods presented in the Corporation's Consolidated Statements of Cash Flows since such cash flows have
historically been presented as a financing activity. The ongoing impact of the new standard resulted in the recognition of excess tax
benefits in the Corporation's provision for income taxes of $1.5 million as a net tax benefit for the year ended December 30, 2017.
Prior to the adoption of this standard, those amounts would have been recognized as an adjustment to "Additional paid-in capital"
in the Consolidated Balance Sheets. See "Note 8. Income Taxes" in the Notes to Consolidated Financial Statements for further
information.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. The new standard is intended to simplify
the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost or net realizable value rather
than the previous guidance of measuring inventory at the lower of cost or market. The Corporation implemented the new standard
in the first quarter of fiscal 2017. As the Corporation previously calculated net realizable value when measuring inventory at the
lower of cost or market, this standard did not have a material effect on the consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350). The new standard is to simplify
the test for goodwill impairment by eliminating the step 2 requirement. Instead, an entity will perform its annual or interim goodwill
impairment test by comparing the fair value of a reporting unit with its carrying amount. The standard is effective for fiscal 2020,
but the Corporation has early adopted the standard in 2017. The Corporation performed its annual test for goodwill impairment
during the fourth quarter of fiscal 2017 under the guidance of this standard. See "Note 6. Goodwill and Other Intangible Assets" in
the Notes to Consolidated Financial Statements for further information.
50
Note 3. Restructuring and Impairment Charges
Restructuring costs, goodwill and long-lived asset impairments, and a valuation allowance recorded in the Consolidated Statements
of Comprehensive Income are as follows (in thousands):
Cost of sales - accelerated depreciation
Restructuring charges
Goodwill and long-lived asset impairments
Valuation allowance of long-term note receivable
Restructuring and impairment charges
$
$
2017
10,327
6,205
20,947
10,264
$
$
2016
5,302
5,229
5,776
—
2015
792
551
11,241
—
37,416
$
11,005
$
11,792
$
$
$
Restructuring costs in 2017, which include accelerated depreciation recorded in "Cost of sales" in the Consolidated Statements of
Comprehensive Income, were primarily incurred as part of the previously announced closures of the hearth manufacturing facilities
in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana. As of December 30,
2017, the estimated fair value of the Paris, Kentucky hearth manufacturing facility of $4.6 million was classified as held for sale and
is included in "Prepaid expenses and other current assets" in the Consolidated Balance Sheets.
Restructuring costs in 2016, which include accelerated depreciation recorded in "Cost of sales" in the Consolidated Statements of
Comprehensive Income, were primarily incurred as part of the previously announced closures of the Paris, Kentucky hearth
manufacturing facility and the Orleans, Indiana office furniture manufacturing facility.
Restructuring costs in 2015, which include accelerated depreciation recorded in "Cost of sales" in the Consolidated Statements of
Comprehensive Income, were primarily incurred as part of the Corporation's decision to exit a line of business within the hearth
products segment and the remaining costs relating to the closures of three office furniture manufacturing facilities announced in
2014.
See "Note 6. Goodwill and Other Intangible Assets" in the Notes to Consolidated Financial Statements for more information on
goodwill and long-lived asset impairments.
See "Note 4. Acquisitions and Divestitures" in the Notes to Consolidated Financial Statements for more information on the valuation
allowance of a long-term note receivable.
The accrued restructuring expenses are expected to be paid in the next twelve months and are included in "Accounts payable and
accrued expenses" in the Consolidated Balance Sheets. The following is a summary of changes in restructuring accruals (in thousands):
Restructuring allowance as of January 3, 2015
Restructuring charges
Cash payments
Restructuring allowance as of January 2, 2016
Restructuring charges
Cash payments
Restructuring allowance as of December 31, 2016
Restructuring charges
Cash payments
Restructuring allowance as of December 30, 2017
Severance
Costs
Facility Exit
Costs & Other
Total
$
$
1,213
(704)
(303)
206
3,883
(1,385)
2,704
1,436
(2,797)
1,343
$
— $
1,255
(1,240)
15
1,346
(1,361)
—
4,769
(4,253)
516
$
$
1,213
551
(1,543)
221
5,229
(2,746)
2,704
6,205
(7,050)
1,859
51
Note 4. Acquisitions and Divestitures
OFM
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.
Office Furniture Dealerships
As part of the Corporation's ongoing business strategy, it continues to acquire and divest small office furniture dealerships. There
was no change to Goodwill in 2017 as a result of this activity. Goodwill increased approximately $2 million in 2016 as a result of
this activity.
Artcobell
The Corporation completed the sale of substantially all the assets of ArtcoBell Corporation ("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 was included in "Other Assets" in the Corporation's Consolidated Balance Sheets in Form 10-K for the fiscal year ended
December 31, 2016, were recorded in relation to the sale. Artcobell had been included as part of the Corporation's office furniture
segment. As of December 30, 2017, a valuation allowance was recorded against the long-term note receivable.
Note 5. Supplemental Cash Flow Information
The Corporation's cash payments for interest, 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. Goodwill and Other Intangible Assets
2017
2016
2015
$
$
$
$
6,236
13,733
$
$
6,644
23,120
(10,370) $
(237) $
3,599
603
$
$
$
$
7,066
28,252
(327)
(2,806)
Goodwill and other intangible assets included in the Consolidated Balance Sheets consisted of the following (in thousands):
Goodwill
Definite-lived intangible assets
Indefinite-lived intangible assets
December 30,
2017
December 31,
2016
$
$
279,505
$
182,186
29,201
290,699
182,666
38,054
490,892
$
511,419
52
Goodwill
The changes in the carrying amount of goodwill, by reporting segment, are as follows (in thousands):
Balance as of January 2, 2016
Goodwill
Accumulated impairment losses
Net goodwill balance as of January 2, 2016
Goodwill acquired during the year
Impairment losses
Foreign currency translation adjustment
Balance as of December 31, 2016
Goodwill
Accumulated impairment losses
Net goodwill balance as of December 31, 2016
Goodwill acquired during the year
Impairment losses
Foreign currency translation adjustment
Balance as of December 30, 2017
Goodwill
Accumulated impairment losses
Net goodwill balance as of December 30, 2017
Office
Furniture
Hearth
Products
Total
$
$
121,964
(27,370)
94,594
183,199
(143)
183,056
15,928
(2,876)
(3)
137,889
(30,246)
107,643
—
(11,150)
(44)
—
—
—
183,199
(143)
183,056
—
—
—
$
305,163
(27,513)
277,650
15,928
(2,876)
(3)
321,088
(30,389)
290,699
—
(11,150)
(44)
137,845
(41,396)
96,449
$
183,199
(143)
183,056
$
321,044
(41,539)
$
279,505
The increases in goodwill relate to completed acquisitions. See "Note 4. Acquisitions and Divestitures" in the Notes to Consolidated
Financial Statements for further information. The decreases in goodwill in the office furniture segment were due to impairment
charges, which are described below.
Paoli - On December 6, 2017, the Corporation made the decision to discontinue the Paoli office furniture brand. The manufacturing
of Paoli branded products will cease in the first quarter of 2018. The Corporation made this decision as part of continued efforts to
drive efficiency and simplification, delivering increased value to its shareholders. As a result of this decision, the Corporation
recorded a $6.3 million goodwill impairment charge, an $8.3 million impairment charge related to an indefinite-lived trade name,
and a $1.5 million impairment charge related to a definite-lived customer list. These impairment charges reduced the total amount
of Paoli's goodwill and other intangible assets to $0 on the Consolidated Balance Sheets as of December 30, 2017.
Annual Goodwill Impairment Assessment - As a result of the required annual impairment assessment performed in the fourth quarter
of 2017, 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 primarily driven by reducing long-term margin expectations
for the reporting unit. 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 13.5
percent, near term growth rates ranging from 7 percent to 10 percent, and a terminal growth rate of 3 percent. Based on the quantitative
analysis, the Corporation recorded a $4.8 million goodwill impairment charge in 2017. There was $19.6 million net goodwill
remaining in the reporting unit as of December 30, 2017. Holding other assumptions constant, a 100 basis point increase in the
discount rate would result in a $3.3 million decrease in the estimated fair value of the reporting unit. Holding other assumptions
constant, a 100 basis point decrease in the long-term growth rate would result in a $1.4 million decrease in the estimated fair value
of the reporting unit. Prior to the goodwill impairment assessment, the Corporation completed a qualitative review of long-lived
assets for all asset groups to determine if events or changes in circumstances indicated that the carrying amount of each asset group
53
may not be recoverable (if a "triggering event" existed). Based on this review, the Corporation tested the recoverability of the long-
lived assets, other than goodwill and indefinite-lived intangible assets, in certain asset groups where a triggering event existed, and
found no impairments, except for the $1.5 million impairment charge to remove the Paoli definite-lived customer list asset, based
on the closure of this office furniture brand.
Based on the results of the annual impairment test, 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 quantitative impairment test, the estimated
fair value is significantly in excess of the carrying value.
Definite-lived intangible assets
The table below summarizes amortizable definite-lived intangible assets, which are reflected in "Goodwill and Other Intangible
Assets" in the Corporation’s Consolidated Balance Sheets (in thousands):
December 30, 2017
Gross
Accumulated
Amortization
Net
Gross
December 31, 2016
Accumulated
Amortization
Patents
$
40
$
26
$
14
$
18,645
$
18,623
$
Software
Trademarks and trade
names
Customer lists and other
Net definite lived
intangible assets
167,105
7,564
106,090
34,792
2,061
61,734
132,313
5,503
44,356
149,587
7,564
117,789
25,792
1,401
65,103
$
280,799
$
98,613
$
182,186
$
293,585
$
110,919
$
182,666
Net
22
123,795
6,163
52,686
Amortization expense is reflected in "Selling and administrative expenses" in the Consolidated Statements of Comprehensive Income
and was as follows (in thousands):
Capitalized software
Other definite-lived intangibles
2017
9,389
6,989
$
$
2016
4,722
7,055
$
$
2015
3,482
7,570
$
$
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
2018
23.0
$
2019
21.9
$
2020
21.0
$
2021
20.2
$
2022
17.2
$
The occurrence of events such as acquisitions, dispositions, or impairments in the future may result in changes to amounts.
Indefinite-lived intangible assets
The Corporation also owns certain intangible assets, which are deemed to have indefinite useful lives because they are expected to
generate cash flows indefinitely. These indefinite-lived intangible assets are reflected in "Goodwill and Other Intangible Assets" in
the Consolidated Balance Sheets (in thousands):
Trademarks and trade names
December 30,
2017
December 31,
2016
$
29,201
$
38,054
In the fourth quarter of 2017, the Corporation recorded an impairment charge of $8.3 million to remove the Paoli trade name asset,
based on the closure of this office furniture brand. As a result of the required annual impairment assessment performed in the fourth
quarter of 2017, the Corporation did not record any other impairment charges related to indefinite-lived intangible assets.
Sale and License of an Intangible Asset
In the third quarter of 2017, the Corporation recorded a $6.0 million nonrecurring gain from the sale and license of an intangible
asset, which had a zero carrying value. This nonrecurring gain is reflected in "(Gain) loss on sale, disposal, and license of assets"
in the Consolidated Statements of Comprehensive Income.
54
Note 7. Long-Term Debt
Long-term debt is as follows (in thousands):
Revolving credit facility with interest at a variable rate (2017 - 2.7%; 2016 - 1.8%)
$
267,500
$
214,000
2017
2016
Other amounts
Total debt
Less: Current maturities of long-term debt
Long-term debt
9,148
276,648
36,648
17
214,017
34,017
$
240,000
$
180,000
Aggregate maturities of long-term debt are as follows (in thousands):
Maturities of long-term
debt
$
36,648
$
— $
— $
240,000
$
— $
—
2018
2019
2020
2021
2022
Thereafter
The Corporation’s revolving credit facility under the current credit agreement was entered into January 6, 2016 and matures January
6, 2021. The Corporation deferred the debt issuance costs related to the credit agreement, which are classified as assets, and is
amortizing them over the term of the credit agreement. The current portion of $0.4 million, which is to be amortized over the next
twelve months, is reflected in "Prepaid expenses and other current assets" in the Consolidated Balance Sheets. The long-term portion
of $0.7 million is reflected in "Other Assets" in the Consolidated Balance Sheets.
As of December 30, 2017, there was $267.5 million outstanding under the $400 million revolving credit facility of which $240
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 $27.5 million in 2018, 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.
The credit agreement contains a number of covenants. Non-compliance with covenants 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.
Certain covenants require maintenance of financial ratios as of the end of any fiscal quarter, including:
•
•
a consolidated interest coverage ratio (as defined in the credit agreement) of not less than 4.0 to 1.0, based upon the ratio
of (a) consolidated EBITDA for the last four fiscal quarters to (b) the sum of consolidated interest charges; and
a consolidated leverage ratio (as defined in the credit agreement) of not greater than 3.5 to 1.0, based upon the ratio of (a)
the quarter-end consolidated funded indebtedness 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. 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. As of December 30, 2017,
the Corporation was 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.
55
Note 8. 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
2017
2016
2015
$
9,501
$
18,963
$
27,768
3,408
789
13,698
(35,914)
2,552
378
(32,984)
(19,286) $
3,740
1,450
24,153
18,167
2,533
(1,580)
19,120
43,273
$
5,258
1,713
34,739
15,348
2,217
(540)
17,025
51,764
$
The differences between the actual tax expense and tax expense computed at the statutory U.S. federal tax rate are explained as
follows (in thousands):
Federal statutory tax expense
State taxes, net of federal tax effect
Credit for increasing research activities
Deduction related to domestic production activities
Valuation allowance
Federal rate adjustment to deferred taxes
Equity based compensation
Change in uncertain tax positions
Foreign income tax rate differential
Other – net
Total income tax expense
2017
2016
$
24,678
$
45,098
$
2,197
(3,407)
(1,537)
4,232
(45,386)
(1,544)
(163)
2,094
(450)
(19,286) $
3,874
(3,808)
(2,243)
231
—
—
117
845
(841)
43,273
$
$
2015
55,020
4,269
(3,320)
(3,320)
565
—
—
(1,344)
1,074
(1,180)
51,764
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law, making significant changes to the Internal Revenue
Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after
December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time
transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. The Corporation has
calculated its best estimate of the impact of the Act in its year-end income tax provision in accordance with its understanding of the
Act and guidance available as of the date of this filing and as a result has recorded $44.8 million as an additional income tax benefit
in the fourth quarter of 2017, the period in which the legislation was enacted. The amount related to the remeasurement of certain
deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future was a $45.4 million benefit.
The one-time transition tax is based on the Corporation's total post-1986 earnings and profits ("E&P") that were previously deferred
from U.S. income taxes. The Corporation recorded a provisional amount for the one-time transition tax liability for all of its foreign
subsidiaries, resulting in an increase in income tax expense of $0.1 million. The Corporation has not yet completed its calculation
of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based, in part, on the amount of those earnings
held in cash and other specified assets. This amount may change when the Corporation finalizes the calculation of post-1986 foreign
E&P previously deferred from U.S. federal taxation and finalize the amounts held in cash or other specified assets. The provisional
amount related to other tax legislation changes from the Act is an additional $0.5 million of tax expense.
56
Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in the reporting period that
includes December 22, 2017 in situations when a registrant does not have the necessary information available, prepared, or analyzed
(including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance
with SAB 118, the Corporation has determined that the $45.4 million of the deferred tax benefit recorded in connection with the
remeasurement of certain deferred tax assets and liabilities and the $0.1 million of current tax expense recorded in connection with
the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate as
of December 30, 2017. Additional work is necessary to do a more detailed analysis of historical foreign earnings as well as potential
correlative adjustments. Any subsequent adjustment to these amounts will be recorded to current tax expense in the quarter of fiscal
2018 when the analysis is complete.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Corporation’s deferred tax liabilities and assets are as follows (in thousands):
2017
2016
Deferred Taxes
Allowance for doubtful accounts
Compensation
Inventory differences
Marketing accrual
Stock-based compensation
Accrued post-retirement benefit obligations
Vacation accrual
Warranty accrual
Net operating loss carryforward
Charitable contributions carryforward
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
$
2,679
$
5,618
2,541
1,653
8,224
6,896
2,577
3,737
6,534
2,839
6,372
$
49,670
(4,330)
(53,255)
(5,862)
(54,227)
(117,674) $
(8,664)
(76,668) $
495
16,684
3,977
1,458
11,607
10,106
4,153
5,725
5,820
—
7,224
67,249
(5,716)
(87,146)
(9,271)
(70,946)
(173,079)
(4,159)
(109,989)
193
(76,861)
(76,668) $
719
(110,708)
(109,989)
$
$
$
$
The valuation allowance for deferred tax assets is as follows (in thousands):
Year ended December 30, 2017
Year ended December 31, 2016
Year ended January 2, 2016
Balance at
beginning of
period
Charged to
expenses
Adjustments
to balance
sheet
Balance at
end of period
$
$
$
4,159
3,978
3,413
$
$
$
4,505
231
565
$
$
$
— $
(50) $
— $
8,664
4,159
3,978
The current year increase in the valuation allowance of $4.5 million primarily relates to a foreign tax net operating loss and a domestic
deferred tax asset recorded during the period that would give rise to a capital loss.
57
As of December 30, 2017, the Corporation had approximately $0.2 million of U.S. state tax net operating losses and $2.3 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):
Balance at 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
Balance at end of period
2017
$
3,043
$
—
(45)
569
(363)
(680)
2,524
$
2016
2,858
86
—
792
(560)
(133)
$
3,043
The amount of unrecognized tax benefits, which would impact the Corporation’s effective tax rate, if recognized, was $2.5 million
as of December 30, 2017 and $3.0 million as of December 31, 2016.
As of December 30, 2017, 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 periods. Interest, penalties, and benefits recognized in the
Consolidated Statements of Comprehensive Income were as follows (in thousands):
Interest, penalties, and (benefits)
December 30,
2017
December 31,
2016
January 2,
2016
$
(25) $
70
$
(66)
The Corporation recorded a liability for interest and penalties related to unrecognized tax benefits in the Consolidated Statements
of Comprehensive Income as follows (in thousands):
Liability related to unrecognized tax benefits
December 30,
2017
December 31,
2016
$
183
$
208
Tax years 2014 through 2016 remain open for examination by the Internal Revenue Service ("IRS"). The Corporation is currently
under examination in various state jurisdictions, of which years 2013 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. Under the Act, a corporation’s foreign earnings accumulated under legacy tax laws are deemed repatriated.
The tax on those deemed repatriated earnings is no longer indefinitely deferred but may be paid over eight years. This is a one-time
transition tax. The Corporation will continue to evaluate its ability to assert indefinite reinvestment to determine recognition of a
deferred tax liability for other items such as Section 986(c) currency gain/loss, foreign withholding, and state taxes. There were
approximately $33.6 million of accumulated earnings considered permanently reinvested in China, Hong Kong, Singapore, and
Canada as of December 30, 2017. The Corporation believes the tax costs on accumulated unremitted foreign earnings would be
approximately $0.2 million if the amounts were not considered permanently reinvested.
58
Note 9. 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, derivative
financial instruments, variable-rate debt obligations, and deferred stock-based compensation. The marketable securities are
comprised of money market funds, government securities, and corporate bonds. When available, the Corporation uses quoted market
prices to determine fair value and classifies such measurements within Level 1. Where market prices are not available, the Corporation
makes use of observable market-based inputs (prices or quotes from published exchanges and indexes) to calculate fair value using
the market approach, in which case the measurements are classified within Level 2.
Financial instruments measured at fair value were as follows (in thousands):
Balance as of December 30, 2017
Cash and cash equivalents (including money market
funds) (1)
Government securities (2)
Corporate bonds (2)
Derivative financial instruments (3)
Variable-rate debt obligations (4)
Deferred stock-based compensation (5)
Balance as of December 31, 2016
Cash and cash equivalents (including money market
funds) (1)
Government securities (2)
Corporate bonds (2)
Derivative financial instruments (3)
Variable-rate debt obligations (4)
Deferred stock-based compensation (5)
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)
$
$
$
$
$
$
$
$
$
$
$
$
23,348
6,345
6,149
3,354
267,500
8,885
36,312
6,268
6,017
2,309
214,000
12,203
$
$
$
$
$
$
$
$
$
$
$
$
23,348
$
— $
— $
— $
— $
— $
— $
6,345
6,149
3,354
267,500
8,885
$
$
$
$
$
36,312
$
— $
— $
— $
— $
— $
— $
6,268
6,017
2,309
214,000
12,203
$
$
$
$
$
—
—
—
—
—
—
—
—
—
—
—
—
The index below indicates the line item in the Consolidated Balance Sheets where the financial instruments are reported:
(1) "Cash and cash equivalents"
(2) Current portion - "Short-term investments"; Long-term portion - "Other Assets"
(3) Current portion - "Prepaid expenses and other current assets"; Long-term portion - "Other Assets"
(4) Current portion - "Current maturities of long-term debt"; Long-term portion - "Long-Term Debt"
(5) Current portion - "Current maturities of other long-term obligations"; Long-term portion - "Other Long-Term Liabilities"
59
Note 10. Accumulated Other Comprehensive Income (Loss) and Shareholders’ Equity
The following table summarizes the components of accumulated other comprehensive income (loss) and the changes in accumulated
other comprehensive income (loss) (in thousands):
Foreign
Currency
Translation
Adjustment
$
2,223
Unrealized
Gains
(Losses) on
Marketable
Securities
37
$
Pension and
Post-retirement
Liabilities
Derivative
Financial
Instruments
Accumulated
Other
Comprehensive
Income (Loss)
$
(6,763) $
(872) $
(5,375)
Balance as of January 3, 2015
Other comprehensive income (loss) before
reclassifications
Tax (expense) or benefit
Amounts reclassified from accumulated
other comprehensive income, net of tax
(1,901)
—
—
Balance as of January 2, 2016
$
322
$
Other comprehensive income (loss) before
reclassifications
Tax (expense) or benefit
Amounts reclassified from accumulated
other comprehensive income, net of tax
(1,510)
—
—
Balance as of December 31, 2016
$
(1,188) $
Other comprehensive income (loss) before
reclassifications
Tax (expense) or benefit
Amounts reclassified from accumulated
other comprehensive income, net of tax
Balance as of December 30, 2017
$
Amounts in parentheses indicate reductions to equity.
1,219
—
—
31
$
(60)
21
—
(2) $
(158)
55
—
(105) $
(6)
(21)
1,975
(718)
—
(5,506) $
(1,188)
433
1,627
— $
499
(160)
1,317
(485)
—
(5,167) $
628
1,460
$
(733)
270
714
(263)
209
2,120
$
(1,174)
(264)
1,627
(5,186)
148
(590)
628
(5,000)
1,194
(14)
209
(3,611)
—
(132) $
—
(5,630) $
Interest Rate Swap
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 30,
2017, the fair value of the Corporation's interest rate swap was an asset of $3.4 million, which is reflected in "Other Assets" in the
Consolidated Balance Sheets. The change in value of the interest rate swap is reported net of tax as $2.1 million in "Accumulated
other comprehensive income (loss)" in the Consolidated Balance Sheets.
The following table details the reclassifications from accumulated other comprehensive income (loss) (in thousands):
Details about Accumulated Other
Comprehensive Income (Loss)
Components
Derivative financial instruments
Interest rate swap
Affected Line Item in the Statement
Where Net Income is Presented
2017
2016
2015
Interest income or (expense)
Tax (expense) or benefit
Net of tax
$
$
$
$
(330) $
121
(209) $
— $
—
— $
(993) $
365
(628) $
— $
—
— $
—
—
—
(2,562)
935
(1,627)
Diesel hedge
Selling and administrative expenses
Amounts in parentheses indicate reductions to profit.
Tax (expense) or benefit
Net of tax
60
During 2017, shareholders approved the 2017 Equity Plan for Non-Employee Directors of HNI Corporation (the "2017 Director
Plan") to replace the expired 2007 Equity Plan for Non-Employee Directors of HNI Corporation (the "2007 Director Plan" and
together with the 2017 Director Plan, the "Director Plans"). Under the 2017 Director Plan, 300,000 shares of common stock were
registered for issuance to participating Directors. After approval of the 2017 Director Plan, no awards were granted under the 2007
Director Plan. The 2017 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 2017 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. Common stock was issued under the Director Plans as
follows:
Director Plan issued common stock
2017
27,196
2016
24,352
2015
20,146
Dividend
Cash dividends declared and paid per share for each year were as follows (in dollars):
Common shares
2017
2016
$
1.130
$
1.090
$
2015
1.045
During 2017, shareholders approved the HNI Corporation Members' Stock Purchase Plan (the "2017 MSPP") to replace the expired
2007 Members' Stock Purchase Plan (the "2007 MSPP" and together with the 2017 MSPP, the "MSPPs"). Under the 2017 MSPP,
800,000 shares of common stock were registered for issuance to participating members. After approval of the 2017 MSPP, no awards
were granted under the 2007 MSPP. Under the 2017 MSPP, 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 MSPP is 85 percent of the closing price on the exercise date. No member may purchase stock under the MSPP
in an amount which exceeds a maximum fair value of $25,000 in any calendar year. The following table provides the details of stock
under the MSPPs:
Shares of common stock issued
Average price per share
2017
74,694
2016
75,098
$
29.01
$
31.11
$
2015
73,874
32.18
An additional 743,284 shares were available for issuance under the 2017 MSPP as of December 30, 2017.
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.
Stock Repurchase
The par value method of accounting is used for common stock repurchases. During 2017, the Corporation repurchased 1,462,936
shares of its common stock at a cost of approximately $58.9 million, or an average price of $40.25 per share. As of December 30,
2017, there was a payable of $1.4 million reflected in "Accounts payable and accrued expenses" in the Consolidated Balance Sheets
relating to shares repurchased but not yet settled. As of December 30, 2017, approximately $78.0 million of the Corporation's Board
of Directors' current repurchase authorization remained unspent. 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. 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.
61
Note 11. Stock-Based Compensation
Under the Corporation’s 2017 Stock-Based Compensation Plan (the "Plan"), effective May 9, 2017, 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 2017, no future awards were granted under the Corporation’s 2007 Stock-
Based Compensation Plan, but all outstanding awards previously granted under that plan shall remain outstanding in accordance
with their terms. As of December 30, 2017, there were approximately 3.4 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 the 2017 MSPP described in "Note 10. Accumulated Other
Comprehensive Income (Loss) and Shareholders' Equity" in the Notes to Consolidated Financial Statements was as follows (in
thousands):
Compensation cost
December 30,
2017
December 31,
2016
January 2,
2016
$
7,750
$
8,141
$
9,097
The total income tax benefit recognized in the income statement for share-based compensation arrangements was as follows (in
thousands):
Income tax benefit
December 30,
2017
December 31,
2016
January 2,
2016
$
2,581
$
2,809
$
3,086
The stock-based compensation expense for the following year-end dates were 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 (weighted-average)
December 30,
2017
December 31,
2016
January 2,
2016
6 years
38.07%
2.36%
2.17%
6 years
38.96%
3.30%
1.41%
6 years
43.54%
1.94%
1.69%
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. The Corporation used the current dividend yield as there are no plans to substantially increase or decrease its dividends. The
Corporation used historical exercise experience 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.
62
The following table summarizes the changes in outstanding stock options:
Outstanding as of January 3, 2015
Granted
Exercised
Forfeited or Expired
Outstanding as of January 2, 2016
Granted
Exercised
Forfeited or Expired
Outstanding as of December 31, 2016
Granted
Exercised
Forfeited or Expired
Outstanding as of December 30, 2017
Number of
Shares
3,335,445
350,038
(302,635)
(24,525)
3,358,323
877,277
(609,663)
(121,602)
3,504,335
537,795
(446,817)
(33,029)
3,562,284
Weighted
Average
Exercise Price
29.93
$
51.54
30.22
39.14
32.09
32.18
30.52
52.24
31.68
46.61
25.55
40.81
34.63
$
$
$
A summary of the Corporation’s non-vested stock options and changes during the year are presented below:
Non-vested as of December 31, 2016
Granted
Vested
Forfeited
Non-vested as of December 30, 2017
Weighted
Average
Grant-Date
Fair Value
11.12
14.41
11.02
12.19
12.05
Shares
2,162,157
$
537,795
(731,085)
(33,029)
1,935,838
$
As of December 30, 2017, there was $3.5 million of unrecognized compensation cost related to non-vested stock option awards,
which the Corporation expects to recognize over a weighted-average period of 1.2 years. Information about stock options expected
to vest or currently exercisable is as follows:
Expected to vest
Exercisable
December 30, 2017
Weighted-
Average
Exercise Price
Number
1,819,673
1,626,446
$
$
39.31
28.97
Weighted-
Average
Remaining
Service
Period
(years)
Aggregate
Intrinsic
Value
($000s)
7.8
3.7
$
$
5,900
16,440
63
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
Weighted-average grant-date fair value of options granted
December 30,
2017
December 31,
2016
January 2,
2016
$
$
$
$
$
8,057
7,270
11,418
2,423
14.41
$
$
$
$
$
7,206
11,985
18,609
4,142
8.80
$
$
$
$
$
5,554
6,412
9,145
2,111
18.45
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:
Outstanding as of January 3, 2015
Granted
Vested
Forfeited
Outstanding as of January 2, 2016
Granted
Vested
Forfeited
Outstanding as of December 31, 2016
Granted
Vested
Forfeited
Outstanding as of December 30, 2017
Number of
Shares
Weighted-
Average
Grant Date
Fair Value
26,026
$
23,000
(10,526)
—
38,500
$
25,000
—
(3,000)
60,500
—
(18,500)
(5,000)
37,000
$
$
27.76
51.54
21.19
—
43.77
32.06
—
51.54
38.54
—
35.36
51.54
38.38
As of December 30, 2017, there was $0.3 million of unrecognized compensation cost related to RSUs, which the Corporation expects
to recognize over a weighted-average period of 0.7 year. The total value of shares vested was as follows (in thousands):
Value of shares vested
2017
654
$
2016
— $
2015
223
$
64
The following table details deferred compensation, which is a combination of cash and stock, and the affected line item in the
Consolidated Balance Sheets where deferred compensation is presented (in thousands):
Current maturities of other long-term obligations
Other long-term liabilities
Total deferred compensation
Total fair-market value of deferred compensation
Note 12. Retirement Benefits
December 30,
2017
December 31,
2016
$
$
$
719
11,581
12,300
8,885
$
$
$
876
15,104
15,980
12,203
The Corporation has a defined contribution retirement plan covering substantially all employees.
The Corporation's annual contribution to the plan is based on employee eligible earnings. A portion of the contribution is also based
on results of operations, and a portion is contributed in the form of common stock of the Corporation. The following table reconciles
the annual contribution (in thousands):
Stock contribution
Other contribution
Total annual contribution
Note 13. Post-Retirement Health Care
2017
7,327
23,834
31,161
$
$
2016
7,170
25,349
32,519
$
$
2015
6,828
22,268
29,096
$
$
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 service 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. The following
table sets forth the activity and reporting location of the benefit obligation and plan assets (in thousands):
65
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
Amounts recognized in the Statement of Financial Position consist of:
Current liabilities
Non-current liabilities
Amounts recognized in Accumulated Other Comprehensive Income (before tax) consist
of:
Actuarial (gain) loss
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 are as follows (in thousands):
Fiscal 2018
Fiscal 2019
Fiscal 2020
Fiscal 2021
Fiscal 2022
Fiscal 2023 – 2027
Expected contributions are as follows (in thousands):
Fiscal 2018
2017
2016
$
21,153
$
20,884
$
$
$
$
$
$
$
$
$
741
825
(1,003)
1,217
22,933
$
— $
—
1,003
—
(1,003)
— $
(22,933) $
735
846
(1,017)
(295)
21,153
—
—
1,017
—
(1,017)
—
(21,153)
1,050
21,883
$
$
1,034
20,119
3,565
$
2,373
2,373
$
1,217
(25)
3,565
$
$
$
$
$
$
$
2,730
(295)
(62)
2,373
1,050
1,056
1,067
1,085
1,122
6,206
$
1,050
The discount rate is set at the measurement date to reflect the yield of a portfolio of high quality, fixed income debt instruments. The
discount rate used was as follows:
Discount rate
2017
3.5%
2016
4.0%
2015
4.2%
66
The Corporation's payment for these benefits is a fixed subsidy per the plan; therefore, healthcare trend rates have no impact on the
Corporation’s cost. There were no funds designated as plan assets. A discount rate of 3.5 percent was used to determine net periodic
benefit costs for 2018. The following table sets forth the components of net periodic benefit costs (in thousands):
Service cost
Interest cost
Amortization of net (gain) loss
Net periodic post-retirement benefit cost (income)
Note 14. Leases
2018
853
789
125
1,767
$
$
The Corporation leases certain showrooms, office space, warehouse and plant facilities and equipment. Commitments for minimum
rentals under non-cancelable leases are as follows (in thousands):
2018
2019
2020
2021
2022
Thereafter
Total minimum lease payments
$
Operating
Leases
29,135
24,018
17,949
13,883
9,252
19,480
$
113,717
There are no capitalized leases as of December 30, 2017 and December 31, 2016.
Rent expense was as follows (in thousands):
Rent expense
2017
2016
$
32,158
$
35,288
$
2015
33,970
There was no contingent rent expense under operating leases for the years 2017, 2016, and 2015.
Note 15. Guarantees, Commitments, and Contingencies
The Corporation utilizes letters of credit and surety bonds in the amount of $18 million to back certain insurance policies and payment
obligations. The Corporation utilizes trade letters of credit and banker's acceptances in the amount of $4 million to guarantee certain
payments to overseas suppliers. The letters of credit, bonds, and banker's acceptances reflect fair value as a condition of their
underlying purpose and are subject to competitively determined fees.
The Corporation initiated litigation in Iowa on August 15, 2017 against the purchasers of Artcobell for amounts owed in connection
with the sale of Artcobell. Artcobell initiated litigation against the Corporation in Texas on June 14, 2017 regarding a dispute arising
after the sale of Artcobell, for which the Corporation believes it has strong legal and factual defenses. The Corporation intends to
vigorously prosecute the Iowa action and defend the Texas action.
The Corporation has contingent liabilities which have arisen in the ordinary course of its business, including liabilities relating to
pending litigation, environmental remediation, taxes, and other claims. It is the Corporation's opinion 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.
67
Note 16. Reportable Segment Information
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 Corporation's consolidated financial statements was as follows for continuing operations
(in thousands):
68
Net Sales:
Office furniture
Hearth products
Total
Income Before Income Taxes:
Office furniture (a)
Hearth products (b)
General corporate
Total
Depreciation and Amortization Expense:
Office furniture
Hearth products
General corporate
Total
Capital Expenditures (including capitalized software):
Office furniture
Hearth products
General corporate
Total
Identifiable Assets:
Office furniture
Hearth products
General corporate
Total
$
$
$
$
$
$
$
$
$
2017
2016
2015
1,660,723
515,159
2,175,882
$
$
1,703,885
499,604
2,203,489
$
$
1,777,804
526,615
2,304,419
50,176
$
117,397
$
136,593
83,649
(63,213)
70,612
$
69,960
(58,446)
128,911
78,162
(57,585)
$
157,170
48,435
$
45,088
$
42,415
10,109
14,328
12,486
11,373
8,430
6,719
72,872
$
68,947
$
57,564
79,458
$
65,944
$
17,356
30,577
11,217
42,423
64,850
11,078
39,038
127,391
$
119,584
$
114,966
821,767
$
749,145
$
347,189
222,594
340,494
240,595
739,915
341,813
182,197
$
1,391,550
$
1,330,234
$
1,263,925
(a) Included in operating profit for the office furniture segment are pretax charges of $32.5 million, $10.9 million, and $11.6
million, for closing of facilities and impairment charges in 2017, 2016, and 2015, respectively.
(b) Included in operating profit for the hearth products segment are pretax charges of $4.9 million and $5.5 million for closing
facilities in 2017 and 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 (in thousands):
Systems and storage
Seating
Other
Hearth products
2017
2016
2015
$
1,069,518
$
1,072,518
$
1,140,369
536,501
54,704
515,159
539,839
91,528
499,604
561,392
76,043
526,615
$
2,175,882
$
2,203,489
$
2,304,419
69
Summary of Quarterly Results of Operations (Unaudited)
In the opinion of the Corporation’s management, the following 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.
The following tables present certain unaudited quarterly financial information for each of the past 8 quarters (in thousands, except
per share data):
Net sales
Cost of sales
Gross profit
Selling and administrative expenses
(Gain) loss on sale, disposal, and license of assets
Restructuring and impairment charges
Operating income (loss)
Interest income
Interest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income
Less: Net income (loss) attributable to the non-controlling
interest
Net income attributable to HNI Corporation
Average number of common shares outstanding - basic
Net income attributable to HNI Corporation per common
share – basic
Average number of common shares outstanding - diluted
Net income attributable to HNI Corporation per common
share – diluted
$
$
$
As a Percentage of Net Sales:
Net sales
Gross profit
Selling and administrative expenses
(Gain) loss on sale, disposal, and license of assets
Restructuring and impairment charges
Operating income (loss)
Income tax expense (benefit)
Net income attributable to HNI Corporation
2017
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
477,667
$
514,485
$
599,455
$
584,275
303,944
173,723
163,666
—
2,123
7,934
71
1,046
6,959
2,178
4,781
(56)
4,837
329,733
184,752
162,684
—
419
21,649
325
1,347
20,627
6,771
13,856
8
378,211
221,244
169,547
(6,805)
783
57,719
71
1,835
55,955
18,624
37,331
60
380,006
204,269
175,934
4,856
34,091
(10,612)
(170)
2,147
(12,929)
(46,859)
33,930
91
$
13,848
$
37,271
$
33,839
44,050,040
44,178,287
43,682,805
43,444,885
0.11
45,452,664
0.11
$
$
0.31
45,305,547
0.31
$
$
0.85
44,479,117
0.84
$
$
0.78
44,153,300
0.77
100.0%
100.0%
100.0%
100.0%
36.4
34.3
—
0.4
1.7
0.5
1.0
35.9
31.6
—
0.1
4.2
1.3
2.7
36.9
28.3
(1.1)
0.1
9.6
3.1
6.2
35.0
30.1
0.8
5.8
(1.8)
(8.0)
5.8
70
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
Net income attributable to HNI Corporation
Average number of common shares outstanding - basic
Net income attributable to HNI Corporation per common
share – basic
Average number of common shares outstanding - diluted
Net income attributable to HNI Corporation per common
share – diluted
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
Income taxes
Net income attributable to HNI Corporation
2016
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
$
501,037
$
536,538
$
584,629
$
581,285
315,326
185,711
165,106
—
1,086
19,519
78
1,874
17,723
5,881
11,842
(1)
11,843
44,258,357
0.27
45,039,918
0.26
$
$
$
327,618
208,920
162,320
(1)
572
46,029
63
1,131
44,961
15,934
29,027
(2)
29,029
44,431,198
0.65
45,632,284
0.64
$
$
$
$
$
$
363,075
221,554
169,535
(40)
399
51,660
80
1,091
50,649
16,837
33,812
(1)
33,813
362,457
218,828
170,783
22,613
8,948
16,484
84
990
15,578
4,621
10,957
65
$
10,892
44,547,375
44,418,833
0.76
45,844,566
0.74
$
$
0.25
45,587,997
0.24
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
71
Investor Information
Common Stock Market Prices and Dividends
(Unaudited)
2017
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total Dividends Paid
2016
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total Dividends Paid
2015
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total Dividends Paid
$
$
$
$
$
$
$
$
$
$
$
$
High
56.94
48.32
41.60
43.42
High
39.59
48.50
56.96
56.91
High
56.47
57.74
52.52
47.68
$
$
$
$
$
$
$
$
$
$
$
$
Low
44.27
37.32
34.60
31.16
Low
29.84
38.30
39.30
37.24
Low
38.01
46.19
41.29
35.53
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Dividends
per Share
0.275
0.285
0.285
0.285
1.130
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
Common Stock Market Price and Price/Earnings Ratio
(Unaudited)
Market Price
High
56.94 $
56.96 $
57.74 $
52.90 $
40.73 $
Low
31.16
29.84
35.53
31.00
28.28
$
$
$
$
$
$
$
$
$
$
Diluted
Earnings
per Share
2.00
1.88
2.32
1.35
1.39
Year
2017
2016
2015
2014
2013
Price / Earnings Ratio
High
Low
28
30
25
39
29
Five Year Average
30
16
16
15
23
20
18
72
Performance Graph
(cid:30)(cid:22)(cid:27)(cid:23)(cid:26)(cid:13)(cid:15)(cid:19)(cid:22)(cid:14)(cid:6)(cid:22)(cid:8)(cid:6)(cid:11)(cid:15)5(cid:5):;(cid:5)(cid:26)(cid:13)(cid:6)(cid:30)(cid:12)(cid:27)(cid:12)"(cid:26)(cid:16)(cid:15)5(cid:5)(cid:6)<(cid:5)(cid:16)(cid:12)(cid:13)(cid:14)
HNI Corporation
S&P 500
OFIG*
$275
$250
$225
$200
$175
$150
$125
$100
$75
2012
2013
2014
Annual Return
HNI Corporation
S&P 500
OFIG*
2012
$100
$100
$100
2013
$140
$134
$137
2015
2014
$183
$153
$143
2016
2017
2015
$134
$155
$133
2016
$213
$174
$180
2017
$151
$211
$181
(cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:5)(cid:6)(cid:11)(cid:12)(cid:13)(cid:14)(cid:15)(cid:16)(cid:12)(cid:13)(cid:5)(cid:6)(cid:17)(cid:14)(cid:18)(cid:12)(cid:19)(cid:16)(cid:13)(cid:20)(cid:6)(cid:21)(cid:13)(cid:22)(cid:12)(cid:23)(cid:6)(cid:24)(cid:7)(cid:11)(cid:17)(cid:21)(cid:25)(cid:6)(cid:15)(cid:19)(cid:6)(cid:26)(cid:6)(cid:10)(cid:22)(cid:27)(cid:23)(cid:22)(cid:19)(cid:15)(cid:16)(cid:5)(cid:6)(cid:23)(cid:5)(cid:5)(cid:13)(cid:6)(cid:15)(cid:14)(cid:18)(cid:5)(cid:28)(cid:6)(cid:10)(cid:22)(cid:14)(cid:19)(cid:16)(cid:13)(cid:12)(cid:10)(cid:16)(cid:5)(cid:18)(cid:6)(cid:29)(cid:20)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)(cid:6)(cid:31)(cid:5)(cid:15) (cid:4)(cid:16)(cid:5)(cid:18)(cid:6)(cid:29)(cid:20)(cid:6)(cid:27)(cid:26)(cid:13)!(cid:5)(cid:16)(cid:6)
(cid:10)(cid:26)(cid:23)(cid:15)(cid:16)(cid:26)"(cid:15)#(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)(cid:6) (cid:26)(cid:14)(cid:18)(cid:6) (cid:10)(cid:22)(cid:27)(cid:23)(cid:13)(cid:15)(cid:19)(cid:5)(cid:18)(cid:6) (cid:22)(cid:8)(cid:6) (cid:16)(cid:4)(cid:5)(cid:6) (cid:8)(cid:22)""(cid:22)(cid:31)(cid:15)(cid:14) (cid:6) (cid:10)(cid:22)(cid:27)(cid:23)(cid:26)(cid:14)(cid:15)(cid:5)(cid:19)$(cid:6) %(cid:5)(cid:13)(cid:27)(cid:26)(cid:14)(cid:6) &(cid:15)""(cid:5)(cid:13)’(cid:6) (cid:17)(cid:14)(cid:10)()(cid:6) *(cid:15)(cid:27)(cid:29)(cid:26)""(cid:6) (cid:17)(cid:14)(cid:16)(cid:5)(cid:13)(cid:14)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)(cid:26)"’(cid:6) (cid:17)(cid:14)(cid:10)(’(cid:6) *(cid:14)(cid:22)""’(cid:6) (cid:17)(cid:14)(cid:10)((cid:6) (cid:26)(cid:14)(cid:18)(cid:6)
+(cid:16)(cid:5)(cid:5)"(cid:10)(cid:26)(cid:19)(cid:5)(cid:6)(cid:17)(cid:14)(cid:10)((cid:6)(cid:17)(cid:16)(cid:6)(cid:15)(cid:19)(cid:6)(cid:31)(cid:5)(cid:15) (cid:4)(cid:16)(cid:5)(cid:18)(cid:6)(cid:26)(cid:16)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:29)(cid:5) (cid:15)(cid:14)(cid:14)(cid:15)(cid:14) (cid:6)(cid:22)(cid:8)(cid:6)(cid:5)(cid:26)(cid:10)(cid:4)(cid:6)(cid:20)(cid:5)(cid:26)(cid:13)(cid:6)(cid:26)(cid:10)(cid:10)(cid:22)(cid:13)(cid:18)(cid:15)(cid:14) (cid:6)(cid:16)(cid:22)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:27)(cid:26)(cid:13)!(cid:5)(cid:16)(cid:6)(cid:10)(cid:26)(cid:23)(cid:15)(cid:16)(cid:26)"(cid:15)#(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)(cid:6)(cid:22)(cid:8)(cid:6)(cid:15)(cid:16)(cid:19)(cid:6)(cid:10)(cid:22)(cid:14)(cid:19)(cid:16)(cid:15)(cid:16)(cid:12)(cid:5)(cid:14)(cid:16)(cid:19)(cid:6)(cid:22)(cid:14)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)"(cid:26)(cid:19)(cid:16)(cid:6)
(cid:16)(cid:13)(cid:26)(cid:18)(cid:15)(cid:14) (cid:6)(cid:18)(cid:26)(cid:20)(cid:6)(cid:22)(cid:8)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14),(cid:19)(cid:6)(cid:23)(cid:13)(cid:15)(cid:22)(cid:13)(cid:6)(cid:9)(cid:19)(cid:10)(cid:26)"(cid:6)(cid:20)(cid:5)(cid:26)(cid:13)((cid:6)
(cid:3)(cid:22)(cid:16)(cid:26)"(cid:6)(cid:13)(cid:5)(cid:16)(cid:12)(cid:13)(cid:14)(cid:19)(cid:6)(cid:8)(cid:22)(cid:13)(cid:6)%-(cid:17)(cid:6)(cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)’(cid:6)+./(cid:6)011(cid:6)(cid:26)(cid:14)(cid:18)(cid:6)(cid:7)(cid:11)(cid:17)(cid:21)(cid:6)(cid:26)(cid:13)(cid:5)(cid:6)(cid:18)(cid:5)(cid:23)(cid:15)(cid:10)(cid:16)(cid:5)(cid:18)(cid:6)(cid:26)(cid:16)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:5)(cid:14)(cid:18)(cid:6)(cid:22)(cid:8)(cid:6)(cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)2(cid:19)(cid:6)(cid:9)(cid:19)(cid:10)(cid:26)"(cid:6)(cid:20)(cid:5)(cid:26)(cid:13)(cid:19)((cid:6)(cid:3)(cid:4)(cid:5)(cid:6)(cid:16)(cid:22)(cid:16)(cid:26)"(cid:6)(cid:13)(cid:5)(cid:16)(cid:12)(cid:13)(cid:14)(cid:6)
(cid:26)(cid:19)(cid:19)(cid:12)(cid:27)(cid:5)(cid:19)(cid:6) 3411(11(cid:6) (cid:15)(cid:14)5(cid:5)(cid:19)(cid:16)(cid:5)(cid:18)(cid:6) (cid:15)(cid:14)(cid:6) (cid:5)(cid:26)(cid:10)(cid:4)(cid:6) (cid:22)(cid:8)(cid:6) (cid:16)(cid:4)(cid:5)(cid:6) (cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)2(cid:19)(cid:6) (cid:10)(cid:22)(cid:27)(cid:27)(cid:22)(cid:14)(cid:6) (cid:19)(cid:16)(cid:22)(cid:10)!’(cid:6) (cid:16)(cid:4)(cid:5)(cid:6) +./(cid:6) 011(cid:6) (cid:26)(cid:14)(cid:18)(cid:6) (cid:7)(cid:11)(cid:17)(cid:21)(cid:6) (cid:19)(cid:16)(cid:22)(cid:10)!(cid:19)(cid:6) (cid:26)(cid:16)(cid:6) (cid:16)(cid:4)(cid:5)(cid:6) (cid:5)(cid:14)(cid:18)(cid:6) (cid:22)(cid:8)(cid:6) (cid:16)(cid:4)(cid:5)(cid:6)
(cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)2(cid:19)(cid:6)7147(cid:6)(cid:9)(cid:19)(cid:10)(cid:26)"(cid:6)(cid:20)(cid:5)(cid:26)(cid:13)’(cid:6)(cid:23)"(cid:12)(cid:19)(cid:6)(cid:8)(cid:12)(cid:13)(cid:16)(cid:4)(cid:5)(cid:13)(cid:6)(cid:13)(cid:5)(cid:15)(cid:14)5(cid:5)(cid:19)(cid:16)(cid:27)(cid:5)(cid:14)(cid:16)(cid:6)(cid:22)(cid:8)(cid:6)(cid:18)(cid:15)5(cid:15)(cid:18)(cid:5)(cid:14)(cid:18)(cid:19)(cid:6)(cid:22)(cid:14)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:18)(cid:26)(cid:16)(cid:5)(cid:6)(cid:22)(cid:8)(cid:6)(cid:18)(cid:15)5(cid:15)(cid:18)(cid:5)(cid:14)(cid:16)(cid:6)(cid:23)(cid:26)(cid:20)(cid:27)(cid:5)(cid:14)(cid:16)((cid:6)+./(cid:6)011(cid:6)(cid:13)(cid:5)(cid:16)(cid:12)(cid:13)(cid:14)(cid:19)(cid:6)(cid:26)(cid:19)(cid:19)(cid:12)(cid:27)(cid:5)(cid:6)
+./(cid:6)011(cid:6)(cid:18)(cid:15)5(cid:15)(cid:18)(cid:5)(cid:14)(cid:18)(cid:19)(cid:6)(cid:26)(cid:13)(cid:5)(cid:6)(cid:23)(cid:26)(cid:15)(cid:18)(cid:6)(cid:26)(cid:14)(cid:18)(cid:6)(cid:13)(cid:5)(cid:15)(cid:14)5(cid:5)(cid:19)(cid:16)(cid:5)(cid:18)(cid:6)(cid:22)(cid:14)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)"(cid:26)(cid:19)(cid:16)(cid:6)(cid:16)(cid:13)(cid:26)(cid:18)(cid:15)(cid:14) (cid:6)(cid:18)(cid:26)(cid:20)(cid:6)(cid:22)(cid:8)(cid:6)(cid:5)(cid:26)(cid:10)(cid:4)(cid:6)(cid:22)(cid:8)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)2(cid:19)(cid:6)(cid:9)(cid:19)(cid:10)(cid:26)"(cid:6)8(cid:12)(cid:26)(cid:13)(cid:16)(cid:5)(cid:13)(cid:19)(
(cid:3)(cid:4)(cid:5)(cid:6)(cid:10)(cid:22)(cid:27)(cid:23)(cid:26)(cid:13)(cid:26)(cid:16)(cid:15)5(cid:5)(cid:6)(cid:23)(cid:5)(cid:13)(cid:8)(cid:22)(cid:13)(cid:27)(cid:26)(cid:14)(cid:10)(cid:5)(cid:6)(cid:22)(cid:8)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)2(cid:19)(cid:6)(cid:10)(cid:22)(cid:27)(cid:27)(cid:22)(cid:14)(cid:6)(cid:19)(cid:16)(cid:22)(cid:10)!(cid:6)(cid:26) (cid:26)(cid:15)(cid:14)(cid:19)(cid:16)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:15)(cid:14)(cid:18)(cid:5)(cid:28)(cid:5)(cid:19)(cid:6)(cid:26)(cid:19)(cid:6)(cid:18)(cid:5)(cid:23)(cid:15)(cid:10)(cid:16)(cid:5)(cid:18)(cid:6)(cid:15)(cid:14)(cid:6)(cid:16)(cid:4)(cid:15)(cid:19)(cid:6) (cid:13)(cid:26)(cid:23)(cid:4)(cid:6)(cid:15)(cid:19)(cid:6)(cid:18)(cid:5)(cid:23)(cid:5)(cid:14)(cid:18)(cid:5)(cid:14)(cid:16)(cid:6)
(cid:22)(cid:14)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:23)(cid:13)(cid:15)(cid:10)(cid:5)(cid:6)(cid:22)(cid:8)(cid:6)(cid:19)(cid:16)(cid:22)(cid:10)!(cid:6)(cid:26)(cid:16)(cid:6)(cid:26)(cid:6)(cid:23)(cid:26)(cid:13)(cid:16)(cid:15)(cid:10)(cid:12)"(cid:26)(cid:13)(cid:6)(cid:27)(cid:5)(cid:26)(cid:19)(cid:12)(cid:13)(cid:5)(cid:27)(cid:5)(cid:14)(cid:16)(cid:6)(cid:23)(cid:22)(cid:15)(cid:14)(cid:16)(cid:6)(cid:15)(cid:14)(cid:6)(cid:16)(cid:15)(cid:27)(cid:5)((cid:6)+(cid:15)(cid:14)(cid:10)(cid:5)(cid:6)(cid:15)(cid:14)(cid:18)(cid:15)5(cid:15)(cid:18)(cid:12)(cid:26)"(cid:6)(cid:19)(cid:16)(cid:22)(cid:10)!(cid:19)(cid:6)(cid:26)(cid:13)(cid:5)(cid:6)(cid:27)(cid:22)(cid:13)(cid:5)(cid:6)5(cid:22)"(cid:26)(cid:16)(cid:15)"(cid:5)(cid:6)(cid:16)(cid:4)(cid:26)(cid:14)(cid:6)(cid:29)(cid:13)(cid:22)(cid:26)(cid:18)(cid:5)(cid:13)(cid:6)(cid:19)(cid:16)(cid:22)(cid:10)!(cid:6)(cid:15)(cid:14)-
(cid:18)(cid:5)(cid:28)(cid:5)(cid:19)’(cid:6) (cid:16)(cid:4)(cid:5)(cid:6) (cid:23)(cid:5)(cid:13)(cid:10)(cid:5)(cid:15)5(cid:5)(cid:18)(cid:6) (cid:10)(cid:22)(cid:27)(cid:23)(cid:26)(cid:13)(cid:26)(cid:16)(cid:15)5(cid:5)(cid:6) (cid:23)(cid:5)(cid:13)(cid:8)(cid:22)(cid:13)(cid:27)(cid:26)(cid:14)(cid:10)(cid:5)(cid:6) (cid:22)(cid:8)(cid:6) (cid:16)(cid:4)(cid:5)(cid:6) (cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)2(cid:19)(cid:6) (cid:10)(cid:22)(cid:27)(cid:27)(cid:22)(cid:14)(cid:6) (cid:19)(cid:16)(cid:22)(cid:10)!(cid:6) (cid:27)(cid:26)(cid:20)(cid:6) 5(cid:26)(cid:13)(cid:20)(cid:6) (cid:29)(cid:26)(cid:19)(cid:5)(cid:18)(cid:6) (cid:22)(cid:14)(cid:6) (cid:16)(cid:4)(cid:5)(cid:6) (cid:19)(cid:16)(cid:13)(cid:5)(cid:14) (cid:16)(cid:4)(cid:6) (cid:22)(cid:13)(cid:6)
(cid:31)(cid:5)(cid:26)!(cid:14)(cid:5)(cid:19)(cid:19)(cid:6) (cid:22)(cid:8)(cid:6) (cid:16)(cid:4)(cid:5)(cid:6) (cid:19)(cid:16)(cid:22)(cid:10)!(cid:6) (cid:23)(cid:13)(cid:15)(cid:10)(cid:5)(cid:6) (cid:26)(cid:16)(cid:6) (cid:16)(cid:4)(cid:5)(cid:6) (cid:14)(cid:5)(cid:31)(cid:6) (cid:27)(cid:5)(cid:26)(cid:19)(cid:12)(cid:13)(cid:5)(cid:27)(cid:5)(cid:14)(cid:16)(cid:6) (cid:23)(cid:22)(cid:15)(cid:14)(cid:16)(cid:6) (cid:12)(cid:19)(cid:5)(cid:18)(cid:6) (cid:15)(cid:14)(cid:6) (cid:5)(cid:26)(cid:10)(cid:4)(cid:6) (cid:8)(cid:12)(cid:16)(cid:12)(cid:13)(cid:5)(cid:6) (cid:23)(cid:5)(cid:13)(cid:8)(cid:22)(cid:13)(cid:27)(cid:26)(cid:14)(cid:10)(cid:5)(cid:6) (cid:13)(cid:26)(cid:23)(cid:4)((cid:6) (cid:11)(cid:22)(cid:13)(cid:6) (cid:16)(cid:4)(cid:15)(cid:19)(cid:6) (cid:13)(cid:5)(cid:26)(cid:19)(cid:22)(cid:14)’(cid:6) (cid:16)(cid:4)(cid:5)(cid:6)
(cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)(cid:6)(cid:18)(cid:22)(cid:5)(cid:19)(cid:6)(cid:14)(cid:22)(cid:16)(cid:6)(cid:29)(cid:5)"(cid:15)(cid:5)5(cid:5)(cid:6)(cid:16)(cid:4)(cid:15)(cid:19)(cid:6) (cid:13)(cid:26)(cid:23)(cid:4)(cid:6)(cid:19)(cid:4)(cid:22)(cid:12)"(cid:18)(cid:6)(cid:29)(cid:5)(cid:6)(cid:10)(cid:22)(cid:14)(cid:19)(cid:15)(cid:18)(cid:5)(cid:13)(cid:5)(cid:18)(cid:6)(cid:26)(cid:19)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:19)(cid:22)"(cid:5)(cid:6)(cid:15)(cid:14)(cid:18)(cid:15)(cid:10)(cid:26)(cid:16)(cid:22)(cid:13)(cid:6)(cid:22)(cid:8)(cid:6)(cid:16)(cid:4)(cid:5)(cid:6)(cid:30)(cid:22)(cid:13)(cid:23)(cid:22)(cid:13)(cid:26)(cid:16)(cid:15)(cid:22)(cid:14)2(cid:19)(cid:6)(cid:23)(cid:5)(cid:13)(cid:8)(cid:22)(cid:13)(cid:27)(cid:26)(cid:14)(cid:10)(cid:5)(
[This page intentionally left blank]
[This page intentionally left blank]
[This page intentionally left blank]
Board of Directors
Stan A. Askren
Chairman, President and
Chief Executive Officer,
HNI Corporation
Mary A. Bell
Retired Vice President,
Building Construction
Products Division,
Caterpillar Inc.
Miguel M. Calado
Chairman and President,
WY Group
Cheryl A. Francis
Co-Chairman, Corporate
Leadership Center
John R. Hartnett
Executive Vice President,
Illinois Tool Works Inc.
Mary K. W. Jones
Senior Vice President and General
Counsel, Deere & Company
Larry B. Porcellato*
Former Chief Executive Officer,
The Homax Group, Inc.
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
Ronald V. Waters, III
Former Director, President
and Chief Executive Officer,
LoJack Corporation
*Lead Director
HNI Corporation Officers
and Company Executives
Investor Information
Stan A. Askren
Chairman, President and
Chief Executive Officer
Julie M. Abramowski
Vice President,
Corporate Controller
Vincent P. Berger
Executive Vice President, and
President, Hearth & Home
Technologies
Steven M. Bradford
Senior Vice President,
General Counsel and Secretary
Marshall H. Bridges
Senior Vice President and
Chief Financial Officer
Cooper V. Evans
Vice President,
Internal Audit
Jack D. Herring
Treasurer, Director of
Finance and Investor
Relations
Jeffrey D. Lorenger
President, Office Furniture,
HNI Corporation
Donna D. Meade
Vice President,
Member and Community
Relations
Timothy R. Summers
Senior Vice President,
Operations,Procurement,
and Logistics,
HNI Office Furniture
Kurt A. Tjaden
Senior Vice President,
and President,
HNI International
Fiscal 2018
Quarter-End Dates
1st Quarter: March 31
2nd Quarter: June 30
3rd Quarter: September 29
4th Quarter: December 29
Annual Meeting
The Corporation’s annual
shareholders’ meeting will
beheld at 10:30 a.m. on
Tuesday, May 8, 2018, at the
HNI Corporate Headquarters.
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:
EQ Shareowner Services
1110 Centre Point Curve
Suite 101
Mendota Heights, MN 55120
Telephone: 800.468.9716
www.shareowneronline.com
HNI Corporation | 2017 Annual Report |
www.hnicorp.com
HNI Corporation | 600 East Second Street | Muscatine, Iowa 52761