10Q Q2 2011


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM 10-Q
 
 
(MARK ONE)
 
 
 
     / X /   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended July 2, 2011.
 
 
OR
 
 
     /    /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from ____________________ to ____________________
 
 
Commission File Number: 1-14225
 
 
HNI Corporation
(Exact name of registrant as specified in its charter)
 
 
Iowa
(State or other jurisdiction of
incorporation or organization)
42-0617510
(I.R.S. Employer
Identification Number)
 
 
P. O. Box 1109, 408 East Second Street
Muscatine, Iowa 52761-0071
(Address of principal executive offices)
52761-0071
(Zip Code)
 
 
Registrant's telephone number, including area code:  563/272-7400
 
 
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       x                     NO     o               
 
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       x                     NO     o  
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer      x                                                                                                      Accelerated filer       o     
Non-accelerated filer        o   (Do not check if a smaller reporting company)                    Smaller reporting company     o       
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)                                                             YES        o                   NO      x        
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Class
Common Shares, $1 Par Value
Outstanding at July 2, 2011
44,780,796


HNI Corporation and SUBSIDIARIES
 
 
INDEX
 
 
PART I.    FINANCIAL INFORMATION
 
Page
 
 
Item 1.    Financial Statements
 
 
 
Condensed Consolidated Balance Sheets - July 2, 2011, and January 1, 2011
 
 
Condensed Consolidated Statements of Income - Three Months Ended July 2, 2011, and July 3, 2010
 
 
Condensed Consolidated Statements of Income - Six Months Ended July 2, 2011, and July 3, 2010
 
 
Condensed Consolidated Statements of Cash Flows - Six Months Ended July 2, 2011, and July 3, 2010
 
 
Notes to Condensed Consolidated Financial Statements
 
 
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4.    Controls and Procedures
 
 
PART II.    OTHER INFORMATION
 
 
Item 1.    Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 3.    Defaults Upon Senior Securities - None
-
 
 
Item 5.    Other Information - None
-
 
 
Item 6.    Exhibits
 
 
SIGNATURES
 
 
EXHIBIT INDEX

 
 

 

2


PART I.     FINANCIAL INFORMATION

Item 1. Financial Statements

HNI Corporation and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
July 2,
2011
 
January 1,
2011
 
 
ASSETS
(In thousands)
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
46,763

 
$
99,096

Short-term investments
13,210

 
10,567

Receivables
210,105

 
190,118

Inventories (Note C)
101,042

 
68,956

Deferred income taxes
21,985

 
18,467

Prepaid expenses and other current assets
30,040

 
20,957

Total Current Assets
423,145

 
408,161

 
 
 
 
PROPERTY, PLANT, AND EQUIPMENT, at cost
 
 
 

Land and land improvements
21,468

 
21,554

Buildings
258,135

 
257,819

Machinery and equipment
460,055

 
474,911

Construction in progress
7,914

 
10,221

 
747,572

 
764,505

Less accumulated depreciation
523,698

 
532,724

 
 
 
 
Net Property, Plant, and Equipment
223,874

 
231,781

 
 
 
 
GOODWILL
260,634

 
260,634

 
 
 
 
OTHER ASSETS
96,220

 
97,304

 
 
 
 
Total Assets
$
1,003,873

 
$
997,880


See accompanying Notes to Condensed Consolidated Financial Statements.
 


 


3


HNI Corporation and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
July 2,
2011
 
January 1,
2011
 
 
LIABILITIES AND  EQUITY
(In thousands, except share and per share value data)
 
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable and accrued expenses
$
320,753

 
$
311,066

  Note payable and current maturities of long-term
    debt and capital lease obligations
50,105

 
50,029

Current maturities of other long-term obligations
261

 
256

Total Current Liabilities
371,119

 
361,351

 
 
 
 
LONG-TERM DEBT
150,000

 
150,000

 
 
 
 
CAPITAL LEASE OBLIGATIONS
396

 
111

 
 
 
 
OTHER LONG-TERM LIABILITIES
50,647

 
47,437

 
 
 
 
DEFERRED INCOME TAXES
38,541

 
30,525

 
 
 
 
EQUITY
 

 
 

HNI Corporation shareholders' equity:
 

 
 

Capital Stock:
 

 
 

    Preferred, $1 par value, authorized 2,000,000 shares, no shares outstanding
—

 
—

 
 
 
 
    Common, $1 par value, authorized 200,000,000 shares, outstanding -


 
 

July 2, 2011 – 44,780,796 shares;


 
 

January 1, 2011 – 44,840,701 shares
44,781

 
44,841

 
 
 
 
Additional paid-in capital
19,364

 
18,011

Retained earnings
325,738

 
343,474

Accumulated other comprehensive income
2,887

 
1,659

Total HNI Corporation shareholders' equity
392,770

 
407,985

 
 
 
 
Noncontrolling interest
400

 
471

 
 
 
 
Total  Equity
393,170

 
408,456

 
 
 
 
Total Liabilities and  Equity
$
1,003,873

 
$
997,880


See accompanying Notes to Condensed Consolidated Financial Statements.
 

 


4


HNI Corporation and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended
 
July 2,
2011
 
July 3,
2010
 
 
 
(In thousands, except share and per share data)
Net sales
$
432,810

 
$
398,222

Cost of sales
285,880

 
256,905

Gross profit
146,930

 
141,317

Selling and administrative expenses
136,197

 
128,032

Restructuring and impairment
463

 
1,238

Operating income
10,270

 
12,047

Interest income
110

 
92

Interest expense
3,033

 
3,054

Earnings before income taxes
7,347

 
9,085

Income taxes
2,744

 
3,493

  Income from continuing operations, less applicable
  income taxes
4,603

 
5,592

Discontinued operations, less applicable income taxes
—

 
(827
)
Net income
4,603

 
4,765

Less: Net income (loss) attributable to the noncontrolling interest
(54
)
 
62

Net income attributable to HNI Corporation
$
4,657

 
$
4,703

 
 
 
 
Income from continuing operations attributable to HNI Corporation per common share – basic
$
0.10

 
$
0.12

Discontinued operations attributable to HNI Corporation per common share – basic
$
—

 
$
(0.02
)
Net income attributable to HNI Corporation per common share – basic
$
0.10

 
$
0.10

Average number of common shares outstanding – basic
44,745,474

 
45,193,336

Income from continuing operations attributable to HNI Corporation per common share – diluted
$
0.10

 
$
0.12

Discontinued operations attributable to HNI Corporation per common share – diluted
$
—

 
$
(0.02
)
Net income attributable to HNI Corporation per common share – diluted
$
0.10

 
$
0.10

Average number of common shares outstanding – diluted
45,667,453

 
46,011,691

Cash dividends per common share
$
0.230

 
$
0.215


 See accompanying Notes to Condensed Consolidated Financial Statements.

 


5



HNI Corporation and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Six Months Ended
 
July 2,
2011
 
July 3,
2010
 
 
 
(In thousands, except share and per share data)
Net sales
$
828,961

 
$
761,728

Cost of sales
547,307

 
501,231

Gross profit
281,654

 
260,497

Selling and administrative expenses
268,610

 
250,832

Restructuring and impairment
1,853

 
3,072

Operating income
11,191

 
6,593

Interest income
243

 
180

Interest expense
6,622

 
5,777

Earnings before income taxes
4,812

 
996

Income taxes
2,006

 
(454
)
  Income from continuing operations, less applicable
  income taxes
2,806

 
1,450

Discontinued operations, less applicable income taxes
—

 
(2,538
)
Net income (loss)
2,806

 
(1,088
)
Less: Net income (loss) attributable to the noncontrolling interest
(96
)
 
195

Net income (loss) attributable to HNI Corporation
$
2,902

 
$
(1,283
)
 
 
 
 
Income from continuing operations attributable to HNI Corporation per common share – basic
$
0.06

 
$
0.03

Discontinued operations attributable to HNI Corporation per common share – basic
$
—

 
$
(0.06
)
Net income (loss) attributable to HNI Corporation per common share – basic
$
0.06

 
$
(0.03
)
Average number of common shares outstanding – basic
44,799,013

 
45,179,893

Income from continuing operations attributable to HNI Corporation per common share – diluted
$
0.06

 
$
0.03

Discontinued operations attributable to HNI Corporation per common share – diluted
$
—

 
$
(0.06
)
Net income (loss) attributable to HNI Corporation per common share – diluted
$
0.06

 
$
(0.03
)
Average number of common shares outstanding – diluted
45,732,598

 
45,179,893

Cash dividends per common share
$
0.46

 
$
0.43


See accompanying Notes to Condensed Consolidated Financial Statements.


6


HNI Corporation and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Six Months Ended
 
July 2, 2011
 
July 3, 2010
 
(In thousands)
Net Cash Flows From (To) Operating Activities:
 
 
 
Net income (loss)
$
2,806

 
$
(1,088
)
Noncash items included in net income:


 
 

Depreciation and amortization
23,762

 
31,105

Other postretirement and post employment benefits
830

 
846

Stock-based compensation
3,398

 
3,081

Excess tax benefits from stock compensation
(30
)
 
 
Deferred income taxes
4,089

 
(1,950
)
Loss on sale, retirement and impairment of long-lived assets and intangibles
328

 
3,495

Stock issued to retirement plan
4,906

 
5,400

Other – net
364

 
292

Net increase (decrease) in operating assets and liabilities
(52,200
)
 
(38,833
)
Increase (decrease) in other liabilities
3,388

 
(807
)
Net cash flows from (to) operating activities
(8,359
)
 
1,541

 
 
 
 
Net Cash Flows From (To) Investing Activities:
 

 
 

Capital expenditures
(11,740
)
 
(12,300
)
Proceeds from sale of property, plant and equipment
595

 
1,669

Capitalized software
(2,832
)
 
(128
)
Purchase of long-term investments
(6,355
)
 
(4,805
)
Sales or maturities of long-term investments
3,802

 
2,570

Other – net
425

 
603

Net cash flows from (to) investing activities
(16,105
)
 
(12,391
)
 
 
 
 
Net Cash Flows From (To) Financing Activities:
 

 
 

Proceeds from sales of HNI Corporation common stock
2,034

 
1,651

Purchase of HNI Corporation common stock
(10,000
)
 
(10,297
)
Proceeds from long-term debt
5,000

 
50,000

Payments of note and long-term debt and other financing
(4,295
)
 
(54,081
)
Excess tax benefits from stock compensation
30

 
 
Dividends paid
(20,638
)
 
(19,474
)
Net cash flows from (to) financing activities
(27,869
)
 
(32,201
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(52,333
)
 
(43,051
)
Cash and cash equivalents at beginning of period
99,096

 
87,374

Cash and cash equivalents at end of period
$
46,763

 
$
44,323

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

7


HNI Corporation and SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
July 2, 2011

Note A.  Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  The January 1, 2011 consolidated balance sheet included in this Form 10-Q was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  An adjustment was made in the first quarter of 2011 to correct a fourth quarter freight over accrual of $0.4 million. This correction of the freight accrual was determined to be immaterial to the current and prior period financial statements. Operating results for the six-month period ended July 2, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011.  For further information, refer to the consolidated financial statements and accompanying notes included in HNI Corporation's (the "Corporation") Annual Report on Form 10-K for the fiscal year ended January 1, 2011.


Note B. Stock-Based Compensation

The Corporation measures stock-based compensation expense at grant date, based on the fair value of the award and recognizes expense over the employee requisite service period.  For the three and six months ended July 2, 2011, and July 3, 2010, the Corporation recognized $1.8 million and $3.4 million, and $1.6 million and $3.1 million, respectively, of stock-based compensation expense for the cost of stock options and time-based restricted stock units issued under the HNI Corporation 2007 Stock-Based Compensation Plan and shares issued under the HNI Corporation 2002 Members' Stock Purchase Plan.

At July 2, 2011, there was $11.6 million of unrecognized compensation cost related to nonvested stock-based compensation awards, which the Corporation expects to recognize over a weighted-average remaining requisite service period of 1.3 years.


Note C.  Inventories

The Corporation values its inventory at the lower of cost or market with approximately 81% valued by the last-in, first-out ("LIFO") costing method.

 
(In thousands)
 
July 2, 2011
 
January 1, 2011
 
(Unaudited)
 
Finished products
 
$
66,850

 
$
43,389

Materials and work in process
 
58,029

 
49,404

LIFO allowance
 
(23,837
)
 
(23,837
)
 
 
$
101,042

 
$
68,956




8


Note D.  Comprehensive Income and Shareholders' Equity

The following table reconciles net income to comprehensive income attributable to HNI Corporation:
 
 
Three Months Ended
 
Six Months Ended
 
(In thousands)
 
July 2, 2011
 
July 3, 2010
 
July 2, 2011
 
July 3, 2010
Net income (loss)
 
$
4,603

 
$
4,765

 
$
2,806

 
$
(1,088
)
Other comprehensive income, net of income tax as applicable:
 
 

 
 

 
 
 
 
Foreign currency translation adjustments
 
321

 
151

 
542

 
146

Change in unrealized gains (losses) on marketable securities
 
92

 
—

 
57

 
—

Change in pension and postretirement liability
 
80

 
79

 
159

 
158

Change in derivative financial instruments
 
(348
)
 
(310
)
 
470

 
(136
)
Comprehensive income (loss)
 
4,748

 
4,685

 
4,034

 
(920
)
Comprehensive income (loss) attributable to noncontrolling interest
 
(54
)
 
62

 
(96
)
 
195

Comprehensive income (loss) attributable to HNI Corporation
 
$
4,802

 
$
4,623

 
$
4,130

 
$
(1,115
)

The following table summarizes the components of accumulated other comprehensive loss and the changes in accumulated other comprehensive loss, net of tax, as applicable for the six months ended July 2, 2011:
 
 
 
 
(In thousands)
 
Foreign Currency Translation Adjustment
 
Unrealized Gains(Losses) on Marketable Securities
 
 
Pension Postretirement Liability
 
 
Derivative Financial Instruments
 
Accumulated Other Comprehensive Loss
Balance at January 1, 2011
 
$
4,415

 
(48
)
 
$
(2,313
)
 
$
(395
)
 
$
1,659

Year-to date change
 
542

 
57

 
159

 
470

 
1,228

Balance at July 2, 2011
 
$
4,957

 
$
9

 
$
(2,154
)
 
$
75

 
$
2,887



During the six months ended July 2, 2011, the Corporation repurchased 323,965 shares of its common stock at a cost of approximately $10 million.  As of July 2, 2011, $135.8 million of the Corporation's Board of Directors' current repurchase authorization remained unspent.



9


Note E.  Earnings Per Share

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

 
 
Three Months Ended
 
Six Months Ended
(In thousands, except per share data)
 
July 2, 2011
 
July 3, 2010
 
July 2, 2011
 
July 3, 2010
Numerators:
 
 
 
 
 
 
 
 
Numerator for both basic and diluted EPS attributable to Parent Company net income
 
$
4,657

 
$
4,703

 
$
2,902

 
$
(1,283
)
Denominators:
 
 

 
 

 
 
 
 
Denominator for basic EPS weighted-average common shares outstanding
 
44,745

 
45,193

 
44,799

 
45,180

Potentially dilutive shares from stock-based compensation plans
 
922

 
818

 
934

 
—

Denominator for diluted EPS
 
45,667

 
46,012

 
45,733

 
45,180

Earnings per share – basic
 
$
0.10

 
$
0.10

 
$
0.06

 
$
(0.03
)
Earnings per share – diluted
 
$
0.10

 
$
0.10

 
$
0.06

 
$
(0.03
)

Certain exercisable and non-exercisable stock options were not included in the computation of diluted EPS at July 2, 2011 and July 3, 2010, because their inclusion would have been anti-dilutive. The number of stock options which met this anti-dilutive criterion for the three and six months ended July 2, 2011 was 1,783,651 and 1,159,965, respectively. The number of stock options outstanding which met this anti-dilutive criterion for the three months ended July 3, 2010 was 1,752,242. None of the outstanding stock options or restricted stock units were included in the computation of diluted EPS for the six-month computation of diluted EPS at July 3, 2010, as all would be anti-dilutive due to the current period loss.


Note F.  Restructuring Reserve and Plant Closures

In connection with office furniture plant closures announced in 2010 and 2009, the Corporation recorded $0.4 million of current period restructuring charges during the quarter ended July 2, 2011.

In connection with the consolidation of production at the hearth products locations, the Corporation recorded $0.1 million of current period restructuring charges during the quarter ended July 2, 2011.

The following is a summary of changes in restructuring accruals during the six months ended July 2, 2011.  

 
(In thousands)
 
Severance
 
Facility Exit Costs & Other
 
Total
Balance as of January 1, 2011
 
$
2,389

 
$
243

 
$
2,632

Restructuring charges
 
426

 
1,427

 
1,853

Cash payments
 
(871
)
 
(1,449
)
 
(2,320
)
Balance as of July 2, 2011
 
$
1,944

 
$
221

 
$
2,165




10


Note G.  Discontinued Operations

The Corporation completed the sale of a small, non-core business in the office furniture segment and a small non-core component of its hearth products segment during 2010.  Revenues and expenses associated with these business operations are presented as discontinued operations for all periods presented in the financial statements.


Summarized financial information for discontinued operations is as follows:

 
 
Three Months Ended
 
Six Months Ended
(In thousands)
 
July 2, 2011
 
July 3, 2010
 
July 2, 2011
 
July 3, 2010
Discontinued operations:
 
 
 
 
 
 
 
 
Operating profit (loss) before tax
 
$
—

 
$
296

 
$
—

 
$
(994
)
Income tax provision (benefit)
 
—

 
118

 
—

 
(388
)
Net profit (loss) from discontinued
  operations, net of income tax
 
—

 
178

 
—

 
(606
)
Impairment loss and loss on sale of
  discontinued operations:
 
 
 
 

 
 
 
 
Impairment loss and loss on sale of discontinued operations before tax
 
—

 
(1,673
)
 
—

 
(3,076
)
Income tax provision (benefit)
 
—

 
(668
)
 
—

 
(1,144
)
Net impairment loss and loss on sale
  of discontinued operations
 
—

 
(1,005
)
 
—

 
(1,932
)
Loss from discontinued operations, net
of income tax benefit
 
$
—

 
$
(827
)
 
$
—

 
$
(2,538
)



Note H. Goodwill and Other Intangible Assets

The table below summarizes amortizable definite-lived intangible assets as of July 2, 2011 and January 1, 2011, which are reflected in the "Other Assets" line item in the Corporation's Condensed Consolidated Balance Sheets:

(In thousands)
 
July 2, 2011
 
January 1, 2011
Patents
 
$
18,605

 
$
18,605

Customer relationships and other
 
88,225

 
107,964

Less: accumulated amortization
 
58,197

 
70,139

Less:  impairments
 
—

 
4,879

 
 
$
48,633

 
$
51,551


Aggregate amortization expense for the six months ended July 2, 2011 and July 3, 2010 was $2.9 million and $4.9 million, respectively.  Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five fiscal years is as follows:

(In millions)
 
2011
 
2012
 
2013
 
2014
 
2015
Amortization Expense
 
$
5.7

 
$
5.1

 
$
4.7

 
$
4.1

 
$
3.8


As events such as potential acquisitions, dispositions or impairments occur in the future, these amounts may change.

The Corporation also owns trademarks and trade names with a net carrying amount of $41.0 million.  The trademarks are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely.



11



The changes in the carrying amount of goodwill since January 1, 2011 are as follows by reporting segment:

 
(In thousands)
 
Office
Furniture
 
Hearth
Products
 
Total
Balance as of January 1, 2011
 
 
 
 
 
 
Goodwill
 
$
123,948

 
$
166,188

 
$
290,136

Accumulated impairment losses
 
(29,359
)
 
(143
)
 
(29,502
)
 
 
94,589

 
166,045

 
260,634

Goodwill acquired
 
—

 
—

 
—

Impairment losses
 
—

 
—

 
—

Goodwill related to the sale of business units
 
—

 
—

 
—

Balance as of July 2, 2011
 
 

 
 

 
 
Goodwill
 
123,948

 
166,188

 
290,136

Accumulated impairment losses
 
(29,359
)
 
(143
)
 
(29,502
)
 
 
$
94,589

 
$
166,045

 
$
260,634


The Corporation evaluates its goodwill for impairment on an annual basis during the fourth quarter, or whenever indicators of impairment exist of which none existed during the six months ended July 2, 2011.  The Corporation estimates the fair value of its reporting units using various valuation techniques, with the primary technique being a discounted cash flow method.  This method employs assumptions that are market participant based.  


Note I.  Product Warranties

The Corporation issues certain warranty policies on its office 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 or workmanship.

A warranty reserve is determined by recording a specific reserve for known warranty issues and an additional reserve for unknown claims that are expected to be incurred based on historical claims experience.  Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve.  Activity associated with warranty obligations was as follows during the periods noted:

 
 
Six Months Ended
(In thousands)
 
July 2, 2011
 
July 3, 2010
Balance at beginning of period
 
$
12,930

 
$
12,684

Accruals for warranties issued during period
 
7,649

 
7,913

Adjustments related to pre-existing warranties
 
(378
)
 
750

Settlements made during the period
 
(7,998
)
 
(8,582
)
Balance at end of period
 
$
12,203

 
$
12,765




12


Note J.  Postretirement Health Care

The following table sets forth the components of net periodic benefit cost included in the Corporation's Condensed Consolidated Statements of Income for:

 
 
Six Months Ended
(In thousands)
 
July 2, 2011
 
July 3, 2010
Service cost
 
$
182

 
$
181

Interest cost
 
402

 
420

Amortization of transition obligation
 
254

 
254

Amortization of (gain)/loss
 
(8
)
 
(9
)
Net periodic benefit cost
 
$
830

 
$
846

  

Note K.  Income Taxes

The provision for income taxes for continuing operations for the three months ended July 2, 2011 and July 3, 2010 reflect an effective tax rate of 37.3 percent and 38.4 percent, respectively. The 2011 estimated annual effective tax rate is expected to be 36.1 percent.


Note L.  Derivative Financial Instruments

The Corporation uses derivative financial instruments to reduce its exposure to adverse fluctuations in interest rates and diesel fuel.  On the date a derivative is entered into, the Corporation designates the derivative as (i) a fair value hedge, (ii) a cash flow hedge, (iii) a hedge of a net investment in a foreign operation or (iv) a risk management instrument not designated for hedge accounting.  The Corporation recognizes all derivatives on its Condensed Consolidated Balance Sheets at fair value.

Interest Rate Risk
In June 2008, the Corporation entered into an interest rate swap agreement, designated as a cash flow hedge, for purposes of managing its benchmark interest rate fluctuation risk.  Under the interest rate swap agreement, the Corporation pays a fixed rate of interest and receives a variable rate of interest equal to the one-month London Interbank Offered Rate (LIBOR) as determined on the last day of each monthly settlement period on an aggregated notional principal amount of $50 million.  The net amount paid or received upon monthly settlements is recorded as an adjustment to interest expense, while the effective change in fair value is recorded as a component of accumulated other comprehensive income in the equity section of the Corporation's Condensed Consolidated Balance Sheets.  The interest rate swap agreement matured on May 27, 2011.


Diesel Fuel Risk
The Corporation uses independent freight carriers to deliver its products.  These carriers charge the Corporation a basic rate per mile that is subject to a mileage surcharge for diesel fuel price increases.  The Corporation entered into variable to fixed rate commodity swap agreements beginning in April 2010 with two financial counterparties to manage fluctuations in fuel costs.  The Corporation will hedge approximately 40% of its diesel fuel surcharge exposure for the next twelve months.  The Corporation uses the hedge agreements to mitigate the volatility of diesel fuel prices and related fuel surcharges, and not to speculate the future price of diesel fuel.  The hedge agreements are designed to add stability to the Corporation's costs, enabling the Corporation to make pricing decisions and lessen the economic impact of abrupt changes in diesel fuel prices over the term of the contract.  The hedging instruments consist of a series of financially settled fixed forward contracts with expiration dates ranging up to twelve months.  The contracts have been designated as cash flow hedges of future diesel purchases, and as such, the net amount paid or received upon monthly settlements is recorded as an adjustment to freight expense, while the effective change in fair value is recorded as a component of accumulated other comprehensive income in the equity section of the Corporation's Condensed Consolidated Balance Sheets.

As of July 2, 2011, $0.1 million of deferred net gains, net of tax, included in equity ("Accumulated other comprehensive income" in the Corporation's Condensed Consolidated Balance Sheets) related to the diesel hedge agreements, are expected to be reclassified to current earnings ("Selling and administrative expenses" in the Corporation's Condensed Consolidated Statements of Income) over the next twelve months.


13


The location and fair value of derivative instruments reported in the Corporation's Condensed Consolidated Balance Sheets are as follows (in thousands):
 
 
 
 
Asset (Liability) Fair Value
 
 
Balance Sheet Location
 
July 2, 2011
 
January 1, 2011
Interest rate swap
 
Accounts payable and accrued expenses
 
$
—

 
$
(907
)
Diesel fuel swap
 
Accounts payable and accrued expenses
 
(274
)
 
—

Diesel fuel swap
 
Prepaid expenses and other current assets
 
396

 
277

 
 
 
 
$
122

 
$
(630
)

The effect of derivative instruments on the Corporation's Condensed Consolidated Statements of Income for the six months ended July 2, 2011 was as follows (in thousands):

Derivatives in Cash Flow Hedge Relationship
 
Before-tax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
 
Locations of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Before-Tax Gain (Loss) Reclassified from AOCI Into Income (Effective Portion)
 
Locations of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
 
Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap
 
$
(10
)
 
Interest expense
 
$
(898
)
 
None
 
$
—

Diesel fuel swap
 
(480
)
 
Selling and administrative expenses
 
876

 
Selling and administrative expenses
 
1

Total
 
$
(490
)
 
 
 
$
(22
)
 
 
 
$
1

 
 
The effect of derivative instruments on the Corporation's Condensed Consolidated Statements of Income for the six months ended July 3, 2010 was as follows (in thousands):

Derivatives in Cash Flow Hedge Relationship
 
Before-tax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
 
Locations of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Before-Tax Gain (Loss) Reclassified from AOCI Into Income (Effective Portion)
 
Locations of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
 
Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap
 
$
(333
)
 
Interest expense
 
$
(1,045
)
 
None
 
$
—

Diesel fuel swap
 
(931
)
 
Selling and administrative expenses
 
(82
)
 
None
 
—

Total
 
$
(1,264
)
 
 
 
$
(1,127
)
 
 
 
$
—




14


Note M.  Fair Value Measurements

For recognition purposes, on a recurring basis the Corporation is required to measure at fair value its marketable securities and its investment in target funds.  The marketable securities were comprised of government securities, corporate bonds and money market funds. When available the Corporation uses quoted market prices to determine fair value and classify such measurements within Level 1.  In some cases where market prices are not available, the Corporation makes use of observable market-based inputs to calculate fair value, in which case the measurements are classified within Level 2.

Assets measured at fair value during the three months ended July 2, 2011 were as follows:

 
 
 
 
(In thousands)
 
 
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)
Government securities
 
$
9,216

 
$
—

 
$
9,216

 
$
—

Corporate bonds
 
$
3,738

 
$
—

 
$
3,738

 
$
—

Derivative financial instrument
 
$
(122
)
 
$
—

 
$
(122
)
 
$
—



Assets measured at fair value for the year ended January 1, 2011 were as follows:

 
 
 
 
(In thousands)
 
 
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)
Investment in target funds
 
$
705

 
$
—

 
$
705

 
$
—

Government securities
 
$
8,364

 
$
—

 
$
8,364

 
$
—

Corporate bonds
 
$
1,243

 
$
—

 
$
1,243

 
$
—

Derivative financial instrument
 
$
(630
)
 
$
—

 
$
(630
)
 
$
—


In addition to the methods and assumptions the Corporation uses to record the fair value of financial instruments as discussed in the section above, it uses the following methods and assumptions to estimate the fair value of its financial instruments.

Cash and cash equivalents
The carrying amount approximated fair value.

Long-term debt (including current portion)
The carrying value of the Corporation's outstanding variable-rate, long-term debt obligations at July 2, 2011 and January 1, 2011, the end of the Corporation's 2010 fiscal year, approximated the fair value.  The fair value of the Corporation's outstanding fixed-rate, long-term debt obligations is estimated to be $160 million at July 2, 2011 and $156 million at January 1, 2011, compared to the carrying value of $150 million.


Note N.  Commitments and Contingencies

The Corporation utilizes letters of credit in the amount of $17 million to back certain insurance policies and payment obligations.  The letters of credit reflect fair value as a condition of their underlying purpose and are subject to competitively determined fees.

 The Corporation has contingent liabilities which have arisen in the ordinary course of its business, including 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, although such matters could have a material effect on the Corporation's quarterly or annual operating results and cash flows when resolved in a future period.



15


Note O.  New Accounting Standards

In June 2011, the Financial Accounting Standards Board ("FASB") issued accounting guidance updating the presentation format of comprehensive income. The guidance provided two options for presenting net income and other comprehensive income. The total of comprehensive income, the components of net income and the components of other comprehensive income may be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance will be effective January 1, 2012 and the Corporation does not expect the adoption to have a material impact on its financial statements.

In May 2011, the FASB amended accounting guidance to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U. S. generally accepted accounting principles ("GAAP") and International Financial Reporting Standards ("IFRS"). This guidance will be effective January 1, 2012 and the Corporation does not expect the adoption to have a material impact on its financial statements.


Note P.  Business Segment Information

Management views the Corporation as operating in two business segments: office furniture and hearth products with the former being the principal business segment.

The office furniture segment manufactures and markets a broad line of metal and wood 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 manufactured 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 cost of the Corporation's corporate operations, interest income and interest expense.  Management views interest income and expense as corporate financing costs rather than a business segment cost.  In addition, management applies one effective tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis.

The Corporation's primary market and capital investments are concentrated in the United States.

16



Reportable segment data reconciled to the Corporation's condensed consolidated financial statements for the three and six month periods ended July 2, 2011, and July 3, 2010, is as follows:
 
Three Months Ended
 
Six Months Ended
(In thousands)
July 2, 2011
 
July 3, 2010
 
July 2, 2011
 
July 3, 2010
Net Sales:
 
 
 
 
 
 
 
Office Furniture
$
372,643

 
$
342,698

 
$
703,770

 
$
642,730

Hearth Products
60,167

 
55,524

 
125,191

 
118,998

 
432,810

 
398,222

 
828,961

 
761,728

Operating Profit (Loss):
 

 
 

 
 
 
 
Office furniture
 

 
 

 
 
 
 
Operations before restructuring charges
$
18,270

 
$
23,945

 
$
27,385

 
$
31,925

Restructuring and impairment charges
(412
)
 
(1,238
)
 
(1,434
)
 
(2,971
)
Office furniture – net
17,858

 
22,707

 
25,951

 
28,954

Hearth products
 

 
 

 
 
 
 
Operations before restructuring charges
(899
)
 
(2,633
)
 
(1,126
)
 
(5,438
)
Restructuring and impairment charges
(51
)
 
—

 
(419
)
 
(101
)
Hearth products – net
(950
)
 
(2,633
)
 
(1,545
)
 
(5,539
)
Total operating profit
16,908

 
20,074

 
24,406

 
23,415

Unallocated corporate expense
(9,561
)
 
(10,989
)
 
(19,594
)
 
(22,419
)
Income before income taxes
$
7,347

 
$
9,085

 
$
4,812

 
$
996

 
 
 
 
 
 
 
 
Depreciation & Amortization Expense:
 

 
 

 
 
 
 
Office furniture
$
9,023

 
$
11,731

 
$
18,453

 
$
23,373

Hearth products
1,955

 
2,714

 
4,107

 
6,493

General corporate
636

 
599

 
1,202

 
1,239

 
$
11,614

 
$
15,044

 
$
23,762

 
$
31,105

 
 
 
 
 
 
 
 
Capital Expenditures:
 

 
 

 
 
 
 
Office furniture
$
7,599

 
$
7,046

 
$
11,234

 
$
10,607

Hearth products
541

 
387

 
1,005

 
829

General corporate
1,834

 
196

 
2,333

 
992

 
$
9,974

 
$
7,629

 
$
14,572

 
$
12,428

 
 
 
 
 
 
 
 
 
 
 
 
 
As of
 
As of
 
 
 
 
 
July 2,
2011
 
July 3,
2010
Identifiable Assets:
 

 
 

 
 
 
 
Office furniture
 
 
 
 
$
629,014

 
$
603,106

Hearth products
 
 
 
 
270,126

 
286,072

General corporate
 
 
 
 
104,733

 
83,628

 
 
 
 
 
$
1,003,873

 
$
972,806



17


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


Overview

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

Net sales for the second quarter of fiscal 2011 increased 8.7 percent to $432.8 million when compared to the second quarter of fiscal 2010.  The increase was driven by the contract and international channels of the office furniture segment and the remodel/retrofit channel of the hearth products segment.  Gross margins for the quarter decreased from prior year levels due to lower price realization, increased material costs and unfavorable mix offset partially by higher volume and lower restructuring and transition costs.  Selling and administrative expenses, as a percent of sales, decreased due to higher volume and lower restructuring charges partially offset by higher fuel costs, investments in growth initiatives and higher incentive-based compensation.

The Corporation recorded $0.5 million of restructuring costs in the second quarter of fiscal 2011 in connection with previously announced office furniture plant closures and restructuring of hearth operations.



Critical Accounting Policies

The preparation of the financial statements requires the Corporation to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  The Corporation continually evaluates its accounting policies and estimates.  The Corporation bases its estimates on historical experience and on a variety of other assumptions believed by management to be reasonable in order to make judgments about the carrying value of assets and liabilities.  Actual results may differ from these estimates under different assumptions or conditions.  A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Corporation's Annual Report on Form 10-K for the year ended January 1, 2011.  During the first six months of fiscal 2011, there were no material changes in the accounting policies and assumptions previously disclosed.

New Accounting Standards

For information pertaining to the Corporation's adoption of new accounting standards and any resulting impact to the Corporation's financial statements, please refer to Note O. New Accounting Standards of the Notes to the Condensed Consolidated Financial Statements, in Part 1, Item 1 of this Quarterly Report on Form 10-Q.
 

18


Results of Operations

The following table presents certain key highlights from the results of operations for the periods indicated:

 
Three Months Ended
 
Six Months Ended
 
(In thousands)
July 2, 2011
 
July 3, 2010
 
Percent
Change
 
July 2, 2011
 
July 3, 2010
 
Percent Change
Net sales
$
432,810

 
$
398,222

 
8.7
 %
 
$
828,961

 
$
761,728

 
8.8
 %
Cost of sales
285,880

 
256,905

 
11.3
 %
 
547,307

 
501,231

 
9.2
 %
Gross profit
146,930

 
141,317

 
4.0
 %
 
281,654

 
260,497

 
8.1
 %
Selling and administrative expenses
136,197

 
128,032

 
6.4
 %
 
268,610

 
250,832

 
7.1
 %
Restructuring and impairment charges
463

 
1,238

 
(62.6
)%
 
1,853

 
3,072

 
(39.7
)%
Operating income
10,270

 
12,047

 
(14.8
)%
 
11,191

 
6,593

 
69.7
 %
Interest expense, net
2,923

 
2,962

 
(1.3
)%
 
6,379

 
5,597

 
14.0
 %
Earnings before income taxes
7,347

 
9,085

 
(19.1
)%
 
4,812

 
996

 
383.1
 %
Income taxes
2,744

 
3,493

 
(21.4
)%
 
2,006

 
(454
)
 
541.9
 %
Income from continuing operations
$
4,603

 
$
5,592

 
(17.7
)%
 
$
2,806

 
$
1,450

 
93.5
 %
 
 

 
 

 
 

 
 
 
 
 
 

Consolidated net sales for the second quarter of 2011 increased 8.7 percent or $34.6 million compared to the same quarter last year.  The increase was driven by the contract and international channels of the office furniture segment and the remodel/retrofit channel of the hearth products segment. The increase was partially offset by decreases in the supplies-driven channel of the office furniture segment and the new construction channel of the hearth products segment.

Gross margin for the second quarter of 2011 decreased to 33.9 percent compared to 35.5 percent for the same quarter last year.  The decrease in gross margin was driven by lower price realization, increased material costs and unfavorable mix offset partially by higher volume and lower restructuring and transition charges.  Second quarter 2010 included $1.1 million of accelerated depreciation and transition costs related to the closure and consolidation of office furniture manufacturing facilities.

Total selling and administrative expenses, including restructuring charges, as a percent of sales decreased to 31.6 percent for the second quarter of 2011 compared to 32.5 percent for the same quarter last year due to higher volume and lower restructuring charges partially offset by increased fuel costs, investments in growth initiatives and higher incentive-based compensation.  Second quarter 2011 included $0.5 million of restructuring charges associated with plant consolidations compared to $1.2 million in the same period in the prior year.
 
Income from continuing operations for the second quarter of 2011 was $4.6 million or $0.10 per diluted share compared to $5.6 million or $0.12 per diluted share in the second quarter of 2010.

The provision for income taxes for continuing operations for the three months ended July 2, 2011 and July 3, 2010 reflect an effective tax rate of 37.3 percent and 38.4 percent, respectively.   The 2011 estimated annual effective tax rate is expected to be 36.1 percent.

The Corporation completed the sale of a small, non-core business in the office furniture segment and a small non-core component of the hearth products segment during 2010.  Revenues and expenses associated with these business operations are presented as discontinued operations for all periods presented in the financial statements.

For the first six months of 2011, consolidated net sales increased $67.2 million, or 8.8 percent, to $829.0 million compared to $761.7 million for the first six months of 2010. Gross margins decreased to 34.0 percent compared to 34.2 percent for the same period last year. Income from continuing operations was $2.8 million for the first six months of 2011 compared to $1.5 million for the first six months of 2010. Earnings per share from continuing operations increased to $0.06 per diluted share compared to $0.03 per diluted share for the same period last year.




19


Office Furniture

Second quarter 2011 sales for the office furniture segment increased 8.7 percent or $29.9 million to $372.6 million from $342.7 million for the same quarter last year driven by an increase in the contract and international channels offset by a decline in the supplies-driven channel.  The supplies-driven channel was adversely impacted by a substantial inventory reduction by the Corporation's large wholesale partners who took advantage of the Corporation's streamlined fulfillment model and their initiatives to improve return on invested capital. Second quarter 2011 operating profit prior to unallocated corporate expenses decreased $4.8 million to $17.9 million as a result of lower price realization, higher input costs, unfavorable mix and investments in strategic growth initiatives.  These were partially offset by higher volume and lower restructuring and transition costs.  Second quarter 2011 included $0.4 million of restructuring costs compared to $2.4 million of restructuring and transition costs including accelerated depreciation in second quarter 2010.

Net sales for the first six months of 2011 increased 9.5 percent or $61.0 million to $703.8 million compared to $642.7 million for the same period in 2010. Operating profit for the first six months of 2011 decreased 10.4 percent or $3.0 million to $26.0 million compared to $29.0 million for the same period in 2010.


Hearth Products

Second quarter 2011 net sales for the hearth products segment increased 8.4 percent or $4.6 million to $60.2 million from $55.5 million for the same quarter last year driven by an increase in the remodel-retrofit channel partially offset by a decline in the new construction channel.  Operating profit prior to unallocated corporate expenses increased $1.7 million to a $1.0 million loss due to increased volume and higher price realization offset partially by higher material costs and incentive-based compensation.  Second quarter 2011 included $0.1 million of restructuring costs.

Net sales for the first six months of 2011 increased 5.2 percent or $6.2 million to $125.2 million compared to $119.0 million for the same period in 2010. Operating profit increased $4.0 million to a $1.5 million loss when compared to the same period last year.


Liquidity and Capital Resources

Cash Flow – Operating Activities
Operating activities used $8.4 million of cash in the first six months of 2011 compared to generating $1.5 million in the first six months of 2010.  Working capital performance resulted in a $52.2 million use of cash in the first six months of the current fiscal year compared to a $38.8 million use of cash in the same period of the prior year.  Inventory increased $18 million from the same period last year due to the timing of large contract projects that will ship in the third quarter of the current fiscal year, an inventory investment made to level load production which is expected to ship in the balance of 2011 and increased volume and higher material costs. Cash flow from operating activities is expected to be positive for the year.

Cash Flow – Investing Activities
Capital expenditures including capitalized software for the first six months of fiscal 2011 were $14.6 million compared to $12.4 million in the same period of fiscal 2010 and were primarily for tooling and equipment for new products.  For the full year 2011, capital expenditures are expected to be approximately $30 to $35 million, primarily focused on new product development and related tooling.

Cash Flow – Financing Activities
During the first six months of fiscal 2011, net borrowings under the revolving credit facility peaked at $55 million. The net borrowings at the end of second quarter were $50 million and are classified as short-term as the Corporation expects to repay the borrowings within a year.

The credit agreement governing the Corporation's revolving credit facility contains a number of covenants, including covenants requiring maintenance of the following financial ratios as of the end of any fiscal quarter:

•
a consolidated interest coverage ratio of not less than 4.0 to 1.0, based upon the ratio of (a) consolidated EBITDA (as defined in the credit agreement) for the last four fiscal quarters to (b) the sum of consolidated interest charges; and
•
a consolidated leverage ratio of not greater than 3.0 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness (as defined in the credit agreement) to (b) consolidated EBITDA for the last four fiscal quarters.
 

20


The note purchase agreement pertaining to the Corporation's Senior Notes also contains a number of covenants, including a covenant requiring maintenance of consolidated debt to consolidated EBITDA (as defined in the note purchase agreement) of not greater than 3.5 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness (as defined in the note purchase agreement) to (b) consolidated EBITDA for the last four fiscal quarters.

The revolving credit facility and Senior Notes are the primary sources of committed funding from which the Corporation finances its planned capital expenditures, strategic initiatives, such as acquisitions, repurchases of common stock and certain working capital needs.  Non-compliance with the various financial covenant ratios 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 Senior Notes and/or increase the cost of borrowing.

The most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.0 to 1.0 included in the credit agreement governing the revolving credit facility.  Under that credit agreement, adjusted 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.  At July 2, 2011, the Corporation was well below this ratio and was in compliance with all of the covenants and other restrictions in the credit agreement and the note purchase agreement.  The Corporation currently expects to remain in compliance over the next twelve months.

The Corporation's Board of Directors (the "Board") declared a regular quarterly cash dividend of $0.23 per share on the Corporation's common stock on May 10, 2011, to shareholders of record at the close of business on May 20, 2011. The dividend was paid on June 1, 2011.  

During the six months ended July 2, 2011, the Corporation repurchased 323,965 shares of common stock at a cost of approximately $10.0 million, or an average price of $30.87 per share.  As of July 2, 2011, approximately $135.8 million of the Board's current repurchase authorization remained unspent.

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.

Contractual Obligations

Contractual obligations associated with ongoing business and financing activities will result in cash payments in future periods.  A table summarizing the amounts and estimated timing of these future cash payments was provided in the Corporation's Annual Report on Form 10-K for the year ended January 1, 2011.  During the first six months of fiscal 2011 there were no material changes outside the ordinary course of business in the Corporation's contractual obligations or the estimated timing of the future cash payments.

Commitments and Contingencies

The Corporation is involved in various kinds of disputes and legal proceedings that have arisen in the ordinary course of business, including 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, although such matters could have a material effect on the Corporation's quarterly or annual operating results and cash flows when resolved in a future period.

Looking Ahead

Management is optimistic about the office furniture and hearth products markets and the prospects for its businesses.  The Corporation continues its investments in selling, marketing and product initiatives to drive growth.  Management believes the Corporation is well positioned for growth.

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


21


Forward-Looking Statements

Statements in this report that are not strictly historical, including statements as to plans, outlook, objectives and future financial performance, are "forward-looking" statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Words, such as "anticipate," "believe," "could," "confident," "estimate," "expect," "forecast," "hope," "intend," "likely," "may," "plan," "possible," "potential," "predict," "project," "should," "will," "would" and variations of such words and similar expressions identify forward-looking statements.  Forward-looking statements involve known and unknown risks, which may cause the Corporation's actual results in the future to differ materially from expected results.  These risks include, without limitation:  the Corporation's ability to realize financial benefits from its (a) price increases, (b) cost containment and business simplification initiatives for the entire Corporation, (c) investments in strategic acquisitions, new products and brand building, (d) investments in distribution and rapid continuous improvement, (e) ability to maintain its effective tax rate, (f) repurchases of common stock and (g) consolidation and logistical realignment initiatives; uncertainty related to the availability of cash and credit, and the terms and interest rates on which credit would be available, to fund operations and future growth; lower than expected demand for the Corporation's products due to uncertain political and economic conditions, slow or negative growth rates in global and domestic economies and the protracted decline in the housing market; lower industry growth than expected; major disruptions at our key facilities or in the supply of any key raw materials, components or finished goods; uncertainty related to disruptions of business by terrorism, military action, epidemic, acts of God or other Force Majeure events; competitive pricing pressure from foreign and domestic competitors; higher than expected costs and lower than expected supplies of materials (including steel and petroleum based materials); higher than expected costs for energy and fuel; changes in the mix of products sold and of customers purchasing; relationships with distribution channel partners, including the financial viability of distributors and dealers; restrictions imposed by the terms of the Corporation's revolving credit facility and note purchase agreement; currency fluctuations and other factors described in the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q.  The Corporation undertakes 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.


Item 3. Quantitative and Qualitative Disclosures About Market Risk

As of July 2, 2011, there were no material changes to the financial market risks that affect the quantitative and qualitative disclosures presented in Item 7A of the Corporation's Annual Report on Form 10-K for the year ended January 1, 2011.

Item 4. Controls and Procedures

Disclosure controls and procedures are designed to ensure 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 Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of management, the chief executive officer and chief financial officer of the Corporation carried out an evaluation of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rules 13a – 15(e) and 15d – 15(e).   As of July 2, 2011, based on this evaluation, the chief executive officer and chief financial officer have concluded these disclosure controls and procedures are effective.

Furthermore, there have been no changes in the Corporation's internal control over financial reporting during the fiscal quarter covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.


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PART II.     OTHER INFORMATION


Item 1. Legal Proceedings

There are no new legal proceedings or material developments to report other than ordinary routine litigation incidental to the business.


Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the "Risk Factors" section of the Corporation's Annual Report on Form 10-K for the year ended January 1, 2011.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Corporation did not repurchase any of its shares during the second quarter ended July 2, 2011. As of July 2, 2011, $135.8 million was authorized and available for the repurchase of shares by the Corporation.



Item 6. Exhibits

See Exhibit Index.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
HNI Corporation
 
 
 
 
 
Date: August 3, 2011
By:
/s/ Kurt A. Tjaden
 
 
 
Kurt A. Tjaden
 
 
 
Vice President and Chief Financial Officer
 
  

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EXHIBIT INDEX
(31.1)
Certification of the CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
(31.2)
Certification of the CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
(32.1)
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


 

 
 
 
 


 
 
 
 


 
 
 
 

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