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3: EX-31.2 Certification -- §302 - SOA'02 HTML 26K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 25K
10: R1 Cover HTML 75K
11: R2 Condensed Consolidated Statements of Comprehensive HTML 125K
Income
12: R3 Condensed Consolidated Balance Sheets HTML 154K
13: R4 Condensed Consolidated Statements of Equity HTML 79K
14: R5 Condensed Consolidated Statements of Equity HTML 26K
(Parenthetical)
15: R6 Condensed Consolidated Statements of Cash Flows HTML 98K
16: R7 Basis of Presentation HTML 25K
17: R8 Revenue from Contracts with Customers HTML 56K
18: R9 Acquisitions HTML 42K
19: R10 Inventories HTML 32K
20: R11 Goodwill and Other Intangible Assets HTML 84K
21: R12 Product Warranties HTML 38K
22: R13 Debt HTML 45K
23: R14 Income Taxes HTML 37K
24: R15 Fair Value Measurements of Financial Instruments HTML 61K
25: R16 Accumulated Other Comprehensive Income (Loss) and HTML 90K
Shareholders' Equity
26: R17 Earnings Per Share HTML 48K
27: R18 Stock-Based Compensation HTML 41K
28: R19 Guarantees, Commitments and Contingencies HTML 27K
29: R20 Reportable Segment Information HTML 82K
30: R21 Business Held for Sale HTML 36K
31: R22 Basis of Presentation (Policies) HTML 56K
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33: R24 Acquisitions (Tables) HTML 38K
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Shareholders' Equity (Tables)
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Disaggregation of Revenue (Details)
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Assets and Liabilities (Details)
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(Details)
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49: R40 Acquisitions - Purchase Price Allocation and HTML 54K
Estimated Amortization (Details)
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52: R43 Goodwill and Other Intangible Assets - Schedule of HTML 32K
Goodwill and Intangible Assets (Details)
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Intangible Assets (Details)
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Amortization Expense (Details)
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Amortization Expense (Details)
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Lived Intangible Assets (Details)
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Assets (Details)
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Shareholders' Equity - Components (Details)
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Shareholders' Equity - Narrative (Details)
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Shareholders' Equity - Reclassification (Details)
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Shareholders' Equity - Dividend (Details)
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Shareholders' Equity - Stock Repurchases (Details)
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Share Basic and Diluted (Details)
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Balance Sheets (Details)
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Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
iCommon Stock
iHNI
iNew
York Stock Exchange
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.
iYes
☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
iYes
☒ No ☐
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.
iLarge accelerated filer
☒
Accelerated
filer
☐
Smaller reporting company
i☐
Non-accelerated filer
☐
Emerging growth company
i☐
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 Exchange Act).
Yes
i☐
No ☒
Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
iThe 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 notes required by generally accepted accounting principles for complete financial statements. The January 1, 2022, 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 statement have been included. Operating results for the six-month period ended July 2, 2022, are not necessarily indicative of the results expected for the fiscal year
ending December 31, 2022. 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, 2022. All dollar amounts presented are in millions, except per share data or where otherwise indicated. Amounts may not sum due to rounding.
Sales
by product category are subject to similar economic factors and market conditions. See "Note 14. Reportable Segment Information" in the Notes to Condensed Consolidated Financial Statements for further information about operating segments.
In addition to trade receivables, the Corporation has contract assets consisting of funds paid or payable to certain workplace furnishings dealers in exchange for their multi-year commitment to market and sell the Corporation's products. These contract
assets are amortized over the term of the contracts and recognized as a reduction of revenue. The Corporation has contract liabilities consisting of customer deposits and rebate and marketing program liabilities.
Balances
as of July 2, 2022 in the table above exclude amounts classified as held for sale. See "Note 15. Business Held for Sale" in the Notes to Condensed Consolidated Financial Statements for further information.
9
The index below indicates the line item in the Condensed Consolidated Balance Sheets where contract assets and contract liabilities are reported:
(1) "Receivables"
(2)
"Prepaid expenses and other current assets"
(3) "Other Assets"
(4) "Accounts payable and accrued expenses"
The increase in long-term contract assets is related to multi-year distribution agreements in the workplace furnishings segment. Contract liabilities for customer deposits paid to the Corporation prior to the satisfaction of performance obligations are recognized as revenue upon completion of the performance obligations. The contract liability balance related to customer deposits was $i27.2
million as of January 1, 2022, of which, $i23.7 million was recognized as revenue in the first six months of 2022.
i
Performance
Obligations
The Corporation recognizes revenue for sales of workplace furnishings and residential building products at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment of the product. In certain circumstances, transfer of control to the customer does not occur until the goods are received by the customer or upon installation and/or customer acceptance, depending on the terms of the underlying contracts. Contracts typically have a duration of less than one year and normally do not include a significant financing component. Generally, payment is due within i30
days of invoicing.
The Corporation's backlog orders are typically cancellable for a period of time and almost all contracts have an original duration of one year or less. As a result, the Corporation has elected the practical expedient permitted in the revenue accounting standard not to disclose the unsatisfied performance obligation as of period end. The backlog is typically fulfilled within a few months.
Significant Judgments
The amount of consideration the Corporation receives and revenue recognized varies with changes in rebate and marketing program incentives, as well as early pay discounts, offered to customers. The Corporation uses significant judgment throughout
the year in estimating the reduction in net sales driven by variable consideration for rebate and marketing programs. Judgments made include expected sales levels and utilization of funds. However, this judgment factor is significantly reduced at the end of each year when sales volumes and the impact to rebate and marketing programs are known and recorded as the programs typically end near the Corporation's fiscal year end.
/
Note 3. iAcquisitions
In
June 2022, the Corporation acquired Dickerson Hearth Products ("Dickerson"), an installing fireplace distributor in the Raleigh, North Carolina area, for approximately $i8 million. The transaction, which aligns with the Corporation's vertical integration strategy, was structured as an asset acquisition and was consummated entirely in cash. The preliminary purchase price allocation includes $i7.9 million
of goodwill. The remaining assets and liabilities acquired were not material to the consolidated financial statements. The Corporation expects to finalize the allocation of the purchase price during 2022.
In December 2021, the Corporation acquired The Outdoor GreatRoom Company ("OGC"), a leading manufacturer and supplier of premium outdoor fire tables and fire pits, for approximately $i15 million. This transaction, which positions the Corporation to grow and develop a leading position
in the fast-growing outdoor living market, was structured as a stock acquisition and was consummated entirely in cash.
In October 2021, the Corporation acquired Trinity Hearth & Home ("Trinity"), an installing fireplace distributor in the Dallas/Fort Worth area, for approximately $i31 million. This transaction, which aligns with the Corporation's vertical integration strategy in the residential building products market and provides a hub to better serve customers in the rapidly
growing Southwest region, was structured as an asset acquisition and was consummated entirely in cash.
The assets and liabilities of Trinity, OGC, and Dickerson are included in the Corporation's residential building products segment. The related goodwill, which is expected to be tax deductible, is assigned to the residential building products reporting unit.
10
i
The
purchase price allocation for Trinity and OGC, and estimated amortization periods of identified intangible assets as of the respective dates of acquisition is as follows:
Trinity
OGC
Fair Value
Amortization Period
Fair
Value
Amortization Period
Cash
$
i—
$
i0.3
Inventories
i1.9
i4.5
Receivables
i4.6
i1.8
Prepaid
expenses and other current assets
i—
i1.2
Property,
plant, and equipment
i0.3
i0.5
Accounts
payable and accrued expenses
(i1.7)
(i2.8)
Goodwill
i14.2
i2.4
Customer
lists
i12.0
i13 Years
i4.9
i10
Years
Trade names
i—
i2.5
i10
Years
Total Net Assets
$
i31.3
$
i15.3
/
As
a result of further review and refinement, measurement period adjustments were recorded in the first quarter of 2022 which decreased Trinity's inventory acquired by $i0.2 million and increased goodwill related to both acquisitions by $i0.9 million
in the aggregate. Additionally, the aggregate purchase price of the deals increased by $i0.8 million as a result of post-closing working capital settlements. There were ino
measurement period adjustments recorded in the second quarter of 2022. As of July 2, 2022, the purchase accounting for the Trinity and OGC acquisitions is complete.
All acquisitions above were accounted for using the acquisition method pursuant to ASC 805, with goodwill being recorded as a result of the purchase price exceeding the fair value of identifiable tangible and intangible assets and liabilities.
Note 4. iInventories
iThe
Corporation's residential building products inventories, and a majority of its workplace furnishings inventories, are valued at cost, on the "last-in, first-out" (LIFO) basis. Remaining inventories are generally valued at the lower of cost, on the "first-in, first-out" (FIFO) basis, or net realizable value.iInventories included in the Condensed Consolidated Balance Sheets consisted of the following:
Balances
as of July 2, 2022 in the table above exclude amounts classified as held for sale. See "Note 15. Business Held for Sale" in the Notes to Condensed Consolidated Financial Statements for further information.
In addition to the LIFO allowance, the Corporation recorded inventory allowances of $i18.7 million and $i19.9 million
as of July 2, 2022 and January 1, 2022, respectively, to adjust for excess and obsolete inventory or otherwise reduce FIFO-basis inventory to net realizable value.
11
Note 5. iGoodwill
and Other Intangible Assets
i
Goodwill and other intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following:
See
"Note 3. Acquisitions" for additional information regarding goodwill acquired and related adjustments.
Definite-lived intangible assets
i
The table below summarizes amortizable definite-lived intangible assets, which are reflected in "Goodwill and Other Intangible Assets" in the Condensed Consolidated Balance Sheets:
Balances
as of July 2, 2022 in the table above exclude amounts classified as held for sale. See "Note 15. Business Held for Sale" in the Notes to Condensed Consolidated Financial Statements for further information.
12
i
Amortization
expense is reflected in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income and was as follows:
The
occurrence of events such as acquisitions, dispositions, or impairments may impact future amortization expense. iBased on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five years is as follows:
2022
2023
2024
2025
2026
Amortization
expense
$
i30.4
$
i26.3
$
i21.9
$
i19.1
$
i16.6
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. iThese indefinite-lived intangible assets are reflected in "Goodwill and Other Intangible Assets" in the Condensed Consolidated Balance Sheets:
Balances
as of July 2, 2022 in the table above exclude amounts classified as held for sale. See "Note 15. Business Held for Sale" in the Notes to Condensed Consolidated Financial Statements for further information.
iImpairment Analysis
The Corporation evaluates its goodwill and indefinite-lived intangible assets for impairment on an annual basis during the fourth quarter, or whenever indicators
of impairment exist. The Corporation also evaluates long-lived assets (which include definite-lived intangible assets) for impairment if indicators exist.
Note 6. iProduct Warranties
iThe
Corporation issues certain warranty policies on its workplace furnishings and residential building 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. The duration of warranty policies on the Corporation's products varies based on the type of product. 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 costs incurred could differ from the original estimates, requiring adjustments to the allowance. iActivity
associated with warranty obligations was as follows:
The
current and long-term portions of the allowance for estimated settlements are included within "Accounts payable and accrued expenses" and "Other Long-Term Liabilities," respectively, in the Condensed Consolidated Balance Sheets. The following table summarizes when these estimated settlements are expected to be paid:
Balances
as of July 2, 2022 in the table above exclude amounts classified as held for sale. See "Note 15. Business Held for Sale" in the Notes to Condensed Consolidated Financial Statements for further information.
Fixed-rate
notes due in 2025 with an interest rate of i4.22%
i50.0
i50.0
Fixed-rate
notes due in 2028 with an interest rate of i4.40%
i50.0
i50.0
Other
amounts
i1.7
i3.2
Deferred
debt issuance costs
(i0.3)
(i0.4)
Total
debt
i310.3
i177.8
Less: Current maturities of debt
i1.7
i3.2
Long-term
debt
$
i308.7
$
i174.6
/
The
carrying value of the Corporation's outstanding variable-rate, long-term debt obligations at July 2, 2022, was $i209 million, which approximated fair value. The fair value of the fixed rate notes was estimated based on a discounted cash flow method (Level 2) to be $i103
million at July 2, 2022.
As of July 2, 2022, the Corporation's revolving credit facility borrowings were under the amended and restated credit agreement entered into on June 14, 2022, with a scheduled maturity of June 2027. The Corporation deferred the related debt issuance costs, which are classified as assets, and is amortizing them over the term of the credit agreement. The current portion of debt issuance costs of $i0.3
million is the amount to be amortized over the next twelve months based on the current credit agreement and is reflected in "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets. The long-term portion of debt issuance costs of $i1.3 million is reflected in "Other Assets" in the Condensed Consolidated Balance Sheets.
As of July 2, 2022, there was $i209
million outstanding under the $i400 million revolving credit facility. The entire amount drawn under the revolving credit facility is considered long-term as the Corporation assumes no obligation to repay any of the amounts borrowed in the next twelve months. Based on current earnings before interest, taxes, depreciation and amortization, the Corporation can access the full remaining $i191
million of borrowing capacity available under the revolving credit facility and maintain compliance with applicable covenants.
In addition to cash flows from operations, the revolving credit facility under the credit agreement is the primary source of daily operating capital for the Corporation and provides additional financial capacity for capital expenditures, repurchases of common stock, and strategic initiatives, such as acquisitions.
In addition to the revolving credit facility, the Corporation also has $i100
million of borrowings outstanding under private placement note agreements entered into on May 31, 2018. Under the agreements, the Corporation issued $i50 million of iseven-year fixed-rate notes with an interest rate
of i4.22 percent, due May 31, 2025, and $i50 million of iten-year
fixed-rate notes with an interest rate of i4.40 percent, due May 31, 2028. The Corporation deferred the debt issuance costs related to the private placement note agreements, which are classified as a reduction of long-term debt, and is amortizing them over the terms of the
14
private
placement note agreements. The deferred debt issuance costs do not reduce the amount owed by the Corporation under the terms of the private placement note agreements. As of July 2, 2022, the deferred debt issuance costs balance of $i0.3 million related to the private placement note agreements is reflected in "Long-Term Debt" in the Condensed Consolidated Balance Sheets.
The credit agreement and private placement notes
both contain financial and non-financial covenants. The covenants under both are substantially the same. Non-compliance with covenants under the agreements could prevent the Corporation from being able to access further borrowings, require immediate repayment of all amounts outstanding, and/or increase the cost of borrowing.
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 i4.0
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 i3.5 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 i3.5 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 items that increase or decrease net income. As of July 2, 2022, 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 with all of the covenants and other restrictions in the credit agreement over the next twelve months.
Note 8. iIncome Taxes
The Corporation's tax provision for interim periods is determined using an
estimate of its annual effective tax rate, adjusted for discrete items. iThe following table summarizes the Corporation's income tax provision:
The
Corporation's effective tax rate was lower in the three and six months ended July 2, 2022, compared to the same periods last year, primarily due to the sale of the Corporation's China- and Hong Kong-based Lamex office furniture business ("Lamex") in July 2022. This transaction created tax benefits recognized in the second quarter for valuation adjustments related to existing deferred tax assets, as well as basis differences. See "Note 15. Business Held for Sale" in the Notes to Condensed Consolidated Financial Statements for further information regarding the sale of Lamex.
Note 9. iFair
Value Measurements of Financial Instruments
iFor recognition purposes, on a recurring basis, the Corporation is required to measure at fair value its marketable securities, derivative financial instruments, put option liabilities, 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. Significant unobservable inputs, which are classified within Level 3, are used in the estimation of the fair value of put options related to private entities, determined using a simulation model based on assumptions including future cash flows, discount rates, and volatility.
15
i
Financial
instruments measured at fair value were as follows:
Fair value as of measurement date
Quoted prices in active markets for identical assets (Level 1)
Cash and cash equivalents (including money market funds) (1)
$
i52.3
$
i52.3
$
i—
$
i—
Government
securities (2)
$
i5.5
$
i—
$
i5.5
$
i—
Corporate
bonds (2)
$
i7.8
$
i—
$
i7.8
$
i—
Derivative
financial instruments - liability (3)
$
(i1.0)
$
i—
$
(i1.0)
$
i—
Deferred
stock-based compensation (4)
$
(i8.1)
$
i—
$
(i8.1)
$
i—
Put
option liability (5)
$
(i5.1)
$
i—
$
i—
$
(i5.1)
Amounts
in parentheses indicate liabilities.
Balances as of July 2, 2022 in the table above exclude amounts classified as held for sale. See "Note 15. Business Held for Sale" in the Notes to Condensed Consolidated Financial Statements for further information.
The index below indicates the line item in the Condensed Consolidated Balance Sheets where the financial instruments are reported:
(3) Current portion - "Accounts payable and accrued expenses";
Long-term portion - "Other Long-Term Liabilities"
(4) Current portion - "Current maturities of other long-term obligations"; Long-term portion - "Other Long-Term Liabilities"
(5) "Other Long-Term Liabilities"
/
16
Note
10. iAccumulated Other Comprehensive Income (Loss) and Shareholders' Equity
i
The
following tables summarize the components of accumulated other comprehensive income (loss) and the changes in accumulated other comprehensive income (loss), net of tax, as applicable:
Amounts
in parentheses indicate reductions to equity.
/
Interest Rate Swap Termination
In April 2022, the Corporation terminated its interest rate swap agreement and received cash proceeds of $i0.4 million, the fair value of the swap on the termination
date. The proceeds were recorded as cash provided by operating activities in the Condensed Consolidated Statement of Cash Flows. The $i0.4 million gain from the termination of this interest rate swap agreement was recorded to "Accumulated other comprehensive income (loss)" and will be amortized to interest expense through April 2023, the remaining term of the original interest rate swap agreement.
i
The
following table details the reclassifications from accumulated other comprehensive income (loss):
Three Months Ended
Six Months Ended
Details
about Accumulated Other Comprehensive Income (Loss) Components
Affected Line Item in the Statement Where Net Income is Presented
Numerator
for both basic and diluted EPS attributable to HNI Corporation net income
$
i30.3
$
i17.4
$
i44.5
$
i32.4
Denominators:
Denominator
for basic EPS weighted-average common shares outstanding
i41.8
i43.8
i42.1
i43.5
Potentially
dilutive shares from stock-based compensation plans
i0.6
i0.7
i0.6
i0.5
Denominator
for diluted EPS
i42.4
i44.5
i42.7
i44.0
Earnings
per share – basic
$
i0.73
$
i0.40
$
i1.06
$
i0.75
Earnings
per share – diluted
$
i0.72
$
i0.39
$
i1.04
$
i0.74
/
i
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
i2.0
i1.0
i1.8
i1.3
/
18
Note
12. iStock-Based Compensation
iThe Corporation measures
stock-based compensation expense at grant date, based on the fair value of the award. Forms of awards issued under shareholder approved plans include stock options, restricted stock units based on a service condition ("restricted stock units"), restricted stock units based on both performance and service conditions ("performance stock units"), and shares issued under member stock purchase plans. Stock-based compensation expense related to stock options, restricted stock units, and performance stock units is recognized over the employees' requisite service periods, adjusted for an estimated forfeiture rate for those shares not expected to vest. Additionally, expense related to performance stock units is adjusted for the probability that the Corporation will perform within an established target range of cumulative profitability over a multi-year period.
i
The
following table summarizesexpense associated with these plans:
The
following table summarizes unrecognized compensation expense and the weighted-average remaining service period for non-vested stock options and stock units as of July 2, 2022:
Unrecognized Compensation Expense
Weighted-Average Remaining Service Period (years)
Non-vested stock options
$
i0.3
i0.4
Non-vested
restricted stock units
$
i7.2
i0.8
Non-vested
performance stock units
$
i7.6
i1.1
/
Note
13. iGuarantees, Commitments, and Contingencies
The Corporation utilizes letters of credit and surety bonds in the amount of approximately $i26
million to back certain insurance policies and payment obligations. Additionally, the Corporation periodically utilizes trade letters of credit and bankers' acceptances to guarantee certain payments to overseas suppliers; as of July 2, 2022, there were ino outstanding amounts related to these types of guarantees. The letters of credit, bonds, and bankers' acceptances reflect fair value as a condition of their underlying purpose and are subject to competitively determined fees.
The
Corporation periodically guarantees borrowing arrangements involving certain workplace furnishings dealers and third-party financial institutions. The terms of these guarantees, which range from less than ione year to ifive years, generally require the Corporation to make payments directly
to the financial institution in the event that the dealer is unable to repay its borrowings in accordance with the stated terms. The aggregate amount guaranteed by the Corporation in connection with these agreements is approximately $i12 million as of July 2, 2022. The Corporation has determined the likelihood of making future payments under these guarantees is not probable and therefore no liability has been accrued.
In
the first quarter of 2022, the Corporation entered into an agreement to lease a new facility. The lease requires approximately $i61 million of legally binding minimum payments over the approximate i15-year
term of the agreement. The contractual payments and lease accounting are expected to commence in 2023 when construction of the facility is complete.
19
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, 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.
Note 14. iReportable Segment Information
i
Management
views the Corporation as itwo reportable segments based on industries: workplace furnishings and residential building products.
The aggregated workplace furnishings segment manufactures and markets a broad line of commercial and home office furniture, which includes panel-based and freestanding furniture systems, seating, storage, tables, and architectural products. The residential building products segment manufactures and markets a full array of gas, wood, electric, and pellet
fueled fireplaces, inserts, stoves, facings, and accessories.
For purposes of segment reporting, intercompany sales between segments are not material, and operating profit is income before income taxes exclusive of certain unallocated general corporate expenses. These unallocated general corporate expenses include the net costs of the Corporation's corporate operations. 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, IT infrastructure,
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.
/
20
i
Reportable
segment data reconciled to the Corporation's condensed consolidated financial statements was as follows:
In July 2022, subsequent to the end of the second fiscal quarter, the Corporation closed on the sale of its Lamex business, which is a component of the workplace furnishings segment, for approximately $i75 million,
subject to standard post-closing adjustments. Based on an evaluation of the events leading up to the sale of this business, the Corporation determined Lamex's assets and liabilities met the criteria for held-for-sale presentation, as established in ASC 360, as of the end of the second quarter 2022.
i
The following table summarizes assets and liabilities held for sale in the "Condensed
Consolidated Balance Sheets," by major class:
In connection with the Lamex transaction, certain tax benefits were recognized in
earnings in the second quarter due to valuation adjustments related to existing deferred tax assets, as well as basis differences. There were no other asset valuation adjustments recorded in the second quarter as a result of the held-for-sale accounting determination.
22
Item 2. 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 Unaudited Condensed Consolidated Financial Statements of the Corporation and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the Corporation's Annual Report on Form 10-K for the fiscal year ended January 1, 2022. All dollar amounts presented are in millions, except per share data or where otherwise indicated. Statements that are not historical are forward-looking and involve risks and uncertainties. See "Forward-Looking Statements" at the end of this section for further information.
Overview
The Corporation has two reportable segments: workplace furnishings and residential
building products. The Corporation is a leading global designer and provider of commercial furnishings, and a leading manufacturer and marketer of hearth products. The Corporation utilizes a 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.
Consolidated net sales for the second quarter of 2022 were $621.7 million, an increase of 21.8 percent compared to net sales of $510.5 million in the prior-year quarter. The change was due to a 29.3 percent increase in the residential building products segment and an 18.2 percent increase in the workplace furnishings segment. The acquisition of residential building products companies, as discussed in "Note 3. Acquisitions," contributed incremental year-over-year sales of
$14.6 million.
Net income attributable to the Corporation in the second quarter of 2022 was $30.3 million compared to $17.4 million in the second quarter of 2021. The increase was driven by higher volume, favorable price-cost, and tax benefits recorded in connection with the sale of Lamex, partially offset by lower operational productivity, higher investment spend, and higher core selling and administrative expenses ("SG&A").
23
Results of Operations
The
following table presents certain results of operations:
Net income (loss) attributable to non-controlling interest
0.0
(0.0)
0.0%
(0.0)
(0.0)
0.0%
Net
income attributable to HNI Corporation
$
30.3
$
17.4
74.0%
$
44.5
$
32.4
37.2%
As
a Percentage of Net Sales:
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Gross
profit
35.5
36.8
-130
bps
35.0
37.0
-200
bps
Selling and administrative expenses
30.5
32.0
-150
bps
30.7
32.2
-150
bps
Impairment
charges
0.2
—
20
bps
0.1
—
10
bps
Operating income
4.8
4.8
0
bps
4.2
4.8
-60
bps
Income
taxes
(0.4)
1.1
-150
bps
0.1
1.1
-100
bps
Net income attributable to HNI Corporation
4.9
3.4
150
bps
3.7
3.3
40
bps
Results
of Operations - Three Months Ended
Net Sales
Consolidated net sales for the second quarter of 2022 increased 21.8 percent compared to the same quarter last year. The change was driven by higher volume and price realization in both the residential building products and workplace furnishings segments. Included in the sales results for the current quarter was a $14.6 million favorable impact from acquiring residential building products companies.
Gross Profit
Gross profit as a percentage of net sales decreased 130 basis points in the second quarter of 2022 compared to the same quarter last year, driven by price-cost dilution and lower
operational productivity, partially offset by higher volume.
Selling and Administrative Expenses
Selling and administrative expenses as a percentage of net sales decreased 150 basis points in the second quarter of 2022 compared to the same quarter last year, driven by dilution from price realization along with higher volume, partially offset by increased freight costs, higher investment spend, and higher core SG&A.
24
Impairment Charges
In
the second quarter of 2022, the Corporation recorded a corporate charge of $1.0 million related to the full impairment of an equity investment. The Corporation did not record any impairment charges during the second quarter of 2021.
Operating Income
In the second quarter of 2022, operating income was $29.9 million, compared to $24.7 million in the same quarter last year. The increase was driven by higher volume and favorable price-cost, partially offset by lower operational productivity, higher investment spend, and higher core SG&A.
Interest Expense, Net
Interest expense, net for the second quarter of 2022 was $2.1 million, compared
to $1.9 million in the same quarter last year, driven by an increase in the average debt balance year-over-year.
Income Taxes
The Corporation's income tax provision for the second quarter of 2022 was a benefit of $2.5 million on income before taxes of $27.8 million, or an effective tax rate of (9.0) percent. For the second quarter of 2021, the Corporation's income tax provision was an expense of $5.4 million on pre-tax income of $22.8 million, or an effective tax rate of 23.7 percent. The decrease was primarily due to the sale of Lamex in July 2022, which created tax benefits of approximately $9.1 million that were recognized in the second quarter for valuation adjustments related to existing deferred tax assets, as well as basis differences. See "Note 15. Business Held for Sale" in the Notes
to Condensed Consolidated Financial Statements for further information regarding the sale of Lamex.
Net Income Attributable to HNI Corporation
Net income attributable to the Corporation was $30.3 million, or $0.72 per diluted share in the second quarter of 2022, compared to $17.4 million, or $0.39 per diluted share in the second quarter of 2021.
Results of Operations - Six Months Ended
Net Sales
Consolidated net sales for the first six months of 2022 increased 20.0 percent compared to the same period last year. The change was due to a 24.8 percent increase in
the residential building products segment and a 17.5 percent increase in the workplace furnishings segment. Price realization and higher volumes were drivers of the improved sales performance in both segments. Included in the sales results for the current period was a $28.6 million favorable impact from acquiring residential building products companies.
Gross Profit
Gross profit as a percentage of net sales decreased 200 basis points in the first six months of 2022 compared to the same period last year primarily driven by price-cost dilution and lower operational productivity, partially offset by higher volume.
Selling and Administrative Expenses
Selling
and administrative expenses as a percentage of net sales decreased 150 basis points in the first six months of 2022 compared to the same period last year due to dilution from price realization along with higher volume, partially offset by increased freight costs and higher core SG&A.
Impairment Charges
In the first six months of 2022, the Corporation recorded a corporate charge of $1.0 million related to the full impairment of an equity investment. The Corporation did not record any impairment charges during the first six months of 2021.
25
Operating
Income
In the first six months of 2022, operating income was $50.3 million, compared to operating income of $47.3 million in the same period last year. Results improved compared to the prior-year period driven by higher volume and favorable price-cost, partially offset by lower operational productivity, higher core SG&A, and increased investment spend.
Interest Expense, Net
Interest expense, net for the first six months of 2022 was $4.1 million, compared to $3.6 million in the same period last year.
The increase was driven by an increase in the average debt balance year-over-year.
Income
Taxes
The Corporation's income tax provision for the first six months of 2022 was $1.8 million on income before taxes of $46.2 million, or an effective tax rate of 3.8 percent. For the first six months of 2021, the Corporation's income tax provision was an expense of $11.2 million on income before taxes of $43.7 million, or an effective tax rate of 25.7 percent. The decrease was primarily due to the sale of Lamex in July 2022, which created tax benefits of approximately $9.1 million that were recognized in the second quarter for valuation adjustments related to existing deferred tax assets, as well as basis differences. See "Note 15. Business Held for Sale" in the Notes to Condensed Consolidated Financial Statements for further information regarding the sale of Lamex.
Net Income Attributable to
HNI Corporation
Net income attributable to the Corporation was $44.5 million, or $1.04 per diluted share in the first six months of 2022, compared to net income attributable to the Corporation of $32.4 million, or $0.74 per diluted share in the first six months of 2021.
Workplace Furnishings
The following table presents certain results of operations in the workplace furnishings segment:
Second quarter 2022 net sales for the workplace furnishings segment increased 18.2 percent compared to the same quarter last year. The results were driven by price realization and volume growth with small- and medium-sized business, contract, and international customers, partially offset by lower eCommerce volume as a result of a previously announced restructuring at one of the Corporation's eCommerce businesses.
Operating profit as a percentage of net sales in the second quarter of 2022 increased 40 basis points compared to the same period in 2021. The increase was driven by higher volume and favorable price-cost, partially offset by lower operational productivity and increased investment
spend.
Six months ended
Net sales for the first six months of 2022 for the workplace furnishings segment increased 17.5 percent compared to the same period last year. The results were driven by price realization and volume growth with small- and medium-sized business, contract, and international customers, partially offset by lower eCommerce volume as a result of a previously announced restructuring at one of the Corporation's eCommerce businesses.
Operating profit as a percentage of net sales decreased 20 basis points in the first six months of 2022 compared to the same period last year. The decrease was primarily driven by lower operational productivity, along with
higher core SG&A and IT
26
spend, partially offset by higher volume and favorable price-cost. Additionally, the prior year period included $1.4 million of one-time costs from exiting showrooms.
Residential Building Products
The following table presents certain results of operations in the residential building products segment:
Second quarter 2022 net sales for the residential building products segment increased 29.3 percent compared to the same quarter last year, driven by price realization and volume growth in both the new construction and existing home channels. Included in the sales results for the current quarter was a $14.6 million favorable impact from acquiring residential building products companies.
Operating profit as a percentage of net sales decreased 120 basis points in the second quarter of 2022 compared to the same quarter last year, driven by lower operational productivity and the impact of acquisitions, partially offset by increased volume.
Six months ended
Net sales for the first six months of 2022 for the
residential building products segment increased 24.8 percent compared to the same period last year, driven by price realization and volume growth in both the new construction and existing home channels. Included in the sales results was a $28.6 million favorable impact from acquiring residential building products companies.
Operating profit as a percentage of net sales decreased 240 basis points in the first six months of 2022 compared to the same period last year. The decrease was primarily driven by lower operational productivity, the impact of acquisitions, higher core SG&A, and increased investment spend, partially offset by increased volume.
Liquidity and Capital Resources
Cash,
cash equivalents, and short-term investments, 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. During June 2022, the Corporation's revolving credit facility, which was previously set to mature in April 2023, was amended and the maturity extended until June 2027 with a revised maximum borrowing capacity of $400 million. Based on current earnings before interest, taxes, depreciation, and amortization, the Corporation can access the full $400 million of borrowing capacity available under the revolving credit facility, which includes the $209 million currently outstanding, and maintain compliance with applicable covenants.
Cash Flow – Operating Activities
Operating
activities were a use of $25.2 million of cash in the first six months of 2022 compared to a source of $37.3 million of cash in the first six months of 2021. Working capital requirements are the primary driver of the variance from prior year, particularly inventory levels which have risen as market conditions continue to moderate from pandemic-induced disruption over the last several quarters, and as the Corporation has taken a higher inventory position to mitigate against further supply chain challenges. Inflationary cost pressures are also a driver of the higher working capital requirements.
Cash Flow – Investing Activities
Capital Expenditures - Capital expenditures, including capitalized software, for the first six months of 2022 were $33.2 million compared to $32.3 million in the same period last year. These expenditures
are primarily focused on machinery, equipment, and tooling required to support new products, continuous improvements, and cost savings initiatives in manufacturing processes. Additionally, in support of the Corporation's long-term strategy to create effortless winning experiences for customers, the Corporation continues to invest in technology and digital assets. For the full year 2022, capital expenditures are expected to be approximately $70 to $80 million.
27
Acquisitions - Investing activities include acquisition spending for residential building products companies. See "Note 3. Acquisitions" in the Notes to the Condensed
Consolidated Financial Statements for further information.
Cash Flow – Financing Activities
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. Debt" in the Notes to Condensed Consolidated Financial Statements for further information.
Dividend - The Corporation is committed to maintaining or modestly growing the quarterly dividend. Cash dividends declared and paid per common share were as
follows:
During
the second quarter, the Board declared the regular quarterly cash dividend on May 16, 2022. The dividend was paid on June 8, 2022, to shareholders of record as of May 27, 2022.
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. The Board most recently authorized an additional $200 million on May 17, 2022, for repurchases of the Corporation's common stock. As of July 2,
2022, approximately $234 million remained of the Board's current repurchase authorizations. See "Note 10. Accumulated Other Comprehensive Income (Loss) and Shareholders' Equity" in the Notes to Condensed Consolidated Financial Statements for further information.
Cash Requirements
Various commitments and obligations associated with ongoing business and financing activities will result in cash payments in future periods. A summary of the amounts and estimated timing of these future cash payments was provided in the Corporation's Annual Report on Form 10-K for the fiscal year ended January 1, 2022. Except for the item described
below, 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 during the first six months of 2022.
In the first quarter of 2022, the Corporation entered into an agreement to lease a new facility. The lease requires approximately $61 million of legally binding minimum payments over the approximate 15-year term of the agreement. The contractual payments and lease accounting are expected to commence in 2023 when construction of the facility is complete.
Commitments and Contingencies
See "Note
13. Guarantees, Commitments, and Contingencies" in the Notes to Condensed Consolidated Financial Statements for further information.
Critical Accounting Policies and Estimates
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 a variety of 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. A summary of the more significant accounting policies requiring the use of estimates and assumptions in preparing the financial statements is provided in the Corporation's Annual Report on Form 10-K for the fiscal year ended January 1, 2022.
28
Looking
Ahead
The Corporation continues to navigate near-term uncertainty driven by macroeconomic conditions including the impacts of the pandemic and recent dynamics around labor availability, supply chain capacity, and cost inflation. However, management remains optimistic about the long-term prospects in the workplace furnishings and residential building products markets. Management believes the Corporation continues to compete well and remains confident the investments made in the business will continue to generate strong returns for shareholders.
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,""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 within Item 1A of the Corporation's Annual Report on Form 10-K for the fiscal year ended January 1, 2022. The Corporation cautions readers not to place undue reliance on any forward-looking statement, which is based necessarily on assumptions made at the time the Corporation provides such statement, 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 duration and scope of the COVID-19
pandemic, including any emerging variants of the virus, and its effect on people and the economy; potential disruptions in the global supply chain; the effects of prolonged periods of inflation; potential labor shortages; the levels of office furniture needs and housing starts; overall demand for the Corporation's products; general economic and market conditions in the United States and internationally; industry and competitive conditions; the consolidation and concentration of the Corporation's customers; the Corporation's reliance on its network of independent dealers; changes in trade policy; changes in raw material, component, or commodity pricing; market acceptance and demand for the Corporation's new products; changing legal, regulatory, environmental, and healthcare conditions; the risks associated with international operations; the potential impact of product defects; the various restrictions on the Corporation's financing activities; an inability to protect
the Corporation's intellectual property; cybersecurity threats, including those posed by potential ransomware attacks; impacts of tax legislation; force majeure events outside the Corporation's control, including those that may result from the effects of climate change; and other risks as described in the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q, 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, as well as those described within Item 1A of the Corporation's Annual Report on Form 10-K for the fiscal year ended January 1, 2022, 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 3. Quantitative and Qualitative Disclosures About Market Risk
As of July 2, 2022, there have been no material changes to the financial market risks affecting the quantitative and qualitative disclosures presented in Item 7A of the
Corporation's Annual Report on Form 10-K for the fiscal year ended January 1, 2022, except as described below.
In the second quarter of 2022, the Corporation terminated an interest rate swap agreement that had formerly been in place to fix the interest rate on $75 million of borrowings from the Corporation's revolving credit facility. As of July 2, 2022, the Corporation does not have any interest rate swap agreements or other derivative instruments outstanding. Also in the quarter, the Corporation and its lenders agreed to amend and restate the revolving credit facility, which decreased the borrowing
29
capacity
from $450 million to $400 million, at the preference of the Corporation, while extending the maturity from April 2023 to June 2027. The amended facility bears interest at a variable rate based on the Secured Overnight Financing Rate.
As of July 2, 2022, the Corporation had $310.3 million of outstanding borrowings, of which $209 million was under the revolving credit facility and thus subject to market risk from interest rate fluctuations. The majority of the remaining debt balance is under private placement note agreements that bear interest at fixed rates. See "Note 7. Debt" and "Note 10. Accumulated Other Comprehensive Income (Loss) and Shareholders' Equity" in the Notes to Condensed Consolidated Financial Statements for further information.
Item
4. Controls and Procedures
Evaluation of Disclosure 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 Securities and Exchange Commission'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 disclosure.
Under the supervision and with the participation of the Chief
Executive Officer and Chief Financial Officer of the Corporation, the Corporation's management carried out an evaluation of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rules 13a – 15 and 15d – 15. As of July 2, 2022, based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded these disclosure controls and procedures are effective.
Changes in Internal Controls
There have been no changes in the Corporation's internal controls 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.
30
PART
II. OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding legal proceedings, see "Note 13. Guarantees, Commitments, and Contingencies" in the Notes to Condensed Consolidated Financial Statements, which information is incorporated herein by reference.
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 fiscal year ended January 1, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities:
The Corporation repurchases shares under previously announced plans authorized by the Board. The Corporation's most recent share purchase authorization from May 17, 2022, provides for repurchases of an additional $200 million with no specific expiration date. The authorization
does not obligate the Corporation to purchase any shares and the authorization may be terminated, increased, or decreased by the Board at any time. No repurchase plans expired or were terminated during the second quarter of fiscal 2022, and no current plans are expected to expire or terminate.
The following is a summary of share repurchase activity during the quarter:
Period
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 (in millions)
04/03/22 - 04/30/22
385,568
$
36.06
385,568
$
60.1
05/01/22
- 05/28/22
338,183
$
36.46
338,183
$
247.7
05/29/22 - 07/02/22
383,427
$
35.90
383,427
$
234.0
Total
1,107,178
1,107,178
(1)
No shares were purchased outside of a publicly announced plan or program.
The following materials
from HNI Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 2022 are formatted in Inline XBRL (eXtensible Business Reporting Language) and filed electronically herewith: (i) Condensed Consolidated Statements of Comprehensive Income; (ii) Condensed Consolidated Balance Sheets; (iii) Condensed Consolidated Statements of Equity; (iv) Condensed Consolidated Statements of Cash Flows; and (v) Notes to Condensed Consolidated Financial Statements+
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
+ Filed or furnished herewith.
32
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.