Company Quick10K Filing
Quick10K
HNI
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$41.69 44 $1,830
10-Q 2018-09-29 Quarter: 2018-09-29
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-30 Annual: 2017-12-30
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-07-01 Quarter: 2017-07-01
10-Q 2017-04-01 Quarter: 2017-04-01
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-10-01 Quarter: 2016-10-01
10-Q 2016-07-02 Quarter: 2016-07-02
10-Q 2016-04-02 Quarter: 2016-04-02
10-K 2016-01-02 Annual: 2016-01-02
8-K 2019-02-13 Other Events
8-K 2018-11-07 Officers, Regulation FD, Exhibits
8-K 2018-10-22 Earnings, Exhibits
8-K 2018-08-07 Amend Bylaw, Exhibits
8-K 2018-07-23 Earnings, Exhibits
8-K 2018-06-28 Officers, Regulation FD, Exhibits
8-K 2018-05-31 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-05-08 Officers, Shareholder Vote
8-K 2018-04-20 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2018-03-20 Officers, Exhibits
8-K 2018-02-14 Amend Bylaw, Exhibits
8-K 2018-02-08 Earnings, Exhibits
8-K 2018-01-09 Officers
HDS HD Supply Holdings
NCR NCR
MLHR Miller Herman
SCS Steelcase
PBI Pitney Bowes
DBD Diebold Nixdorf
EBF Ennis
PAR Par Technology
USAT USA Technologies
AEY Addvantage Technologies Group
HNI 2018-09-29
Part I. Financial Information
Item 1. Financial Statements
Note 1. Basis of Presentation
Note 2. Revenue From Contracts with Customers
Note 3. Restructuring
Note 4. Acquisitions and Divestitures
Note 5. Inventories
Note 6. Goodwill and Other Intangible Assets
Note 7. Product Warranties
Note 8. Long-Term Debt
Note 9. Income Taxes
Note 10. Fair Value Measurements of Financial Instruments
Note 11. Accumulated Other Comprehensive Income (Loss) and Shareholders' Equity
Note 12. Earnings per Share
Note 13. Stock-Based Compensation
Note 14. Post-Retirement Health Care
Note 15. Recently Adopted Accounting Standards
Note 16. Guarantees, Commitments, and Contingencies
Note 17. Reportable Segment Information
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 6. Exhibits
EX-31.1 ex311q32018.htm
EX-31.2 ex312q32018.htm
EX-32.1 ex321q32018.htm

HNI Earnings 2018-09-29

HNI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 a10-qq32018.htm 10-Q - Q3 2018 Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-Q
 
 
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended September 29, 2018
 
 
OR
 
 
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
Commission File Number: 1-14225
 
 
HNI Corporation
Iowa
(State of Incorporation)
42-0617510
(I.R.S. Employer No.)
 
 
600 East Second Street
P. O. Box 1109
Muscatine, Iowa 52761-0071
(563) 272-7400
 
 
 
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 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).  
YES       x                     NO     o             
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x Accelerated filer o Non-accelerated filer o Smaller reporting company o  Emerging growth company o

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. 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.
Common Stock, $1 Par Value
Outstanding as of September 29, 2018 43,819,664
 




HNI Corporation and Subsidiaries
Quarterly Report on Form 10-Q
 
 
 
Table of Contents
 
 
 
PART I.  FINANCIAL INFORMATION
 
 
Page
Item 1.
Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
PART II.  OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
Defaults Upon Senior Securities - None
-
 
 
 
Item 4.
Mine Safety Disclosures - Not Applicable
-
 
 
 
Item 5.
Other Information - None
-
 
 
 
Item 6.
 
 
 
 
  

2




PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except share and per share data)
(Unaudited)
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
 
 
 
 
Net sales
$
611,120

 
$
599,455

 
$
1,659,803

 
$
1,591,607

Cost of sales
377,789

 
378,211

 
1,048,683

 
1,011,888

Gross profit
233,331

 
221,244

 
611,120

 
579,719

Selling and administrative expenses
179,577

 
169,547

 
524,445

 
495,897

Gain on sale and license of assets

 
(6,805
)
 

 
(6,805
)
Restructuring and impairment charges
128

 
783

 
2,303

 
3,325

Operating income
53,626

 
57,719

 
84,372

 
87,302

Interest income
80

 
71

 
282

 
467

Interest expense
2,602

 
1,835

 
7,657

 
4,228

Income before income taxes
51,104

 
55,955

 
76,997

 
83,541

Income taxes
11,197

 
18,624

 
16,033

 
27,573

Net income
39,907

 
37,331

 
60,964

 
55,968

Less: Net income (loss) attributable to non-controlling interest

 
60

 
(50
)
 
12

Net income attributable to HNI Corporation
$
39,907

 
$
37,271

 
$
61,014

 
$
55,956

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Average number of common shares outstanding – basic
43,822,757

 
43,682,805

 
43,616,046

 
43,970,377

Net income attributable to HNI Corporation per common share – basic
$
0.91

 
$
0.85

 
$
1.40

 
$
1.27

Average number of common shares outstanding – diluted
44,678,824

 
44,479,117

 
44,349,456

 
45,078,719

Net income attributable to HNI Corporation per common share – diluted
$
0.89

 
$
0.84

 
$
1.38

 
$
1.24

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(817
)
 
$
320

 
$
(1,944
)
 
$
779

Change in unrealized gains (losses) on marketable securities, net of tax
(6
)
 
7

 
(99
)
 
44

Change in derivative financial instruments, net of tax
106

 
38

 
1,459

 
(90
)
Other comprehensive income (loss), net of tax
(717
)
 
365

 
(584
)
 
733

Comprehensive income
39,190

 
37,696

 
60,380

 
56,701

Less: Comprehensive income (loss) attributable to non-controlling interest

 
60

 
(50
)
 
12

Comprehensive income attributable to HNI Corporation
$
39,190

 
$
37,636

 
$
60,430

 
$
56,689


See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


3




HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets

(In thousands)
(Unaudited)
 
 
 
 
 
September 29,
2018
 
December 30,
2017
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
43,738

 
$
23,348

Short-term investments
1,880

 
2,015

Receivables
254,898

 
258,551

Inventories
174,551

 
155,683

Prepaid expenses and other current assets
38,839

 
49,283

Total Current Assets
513,906

 
488,880

 
 
 
 
Property, Plant, and Equipment:
 
 
 

Land and land improvements
28,120

 
28,593

Buildings
292,048

 
306,137

Machinery and equipment
553,236

 
556,571

Construction in progress
31,243

 
39,788

 
904,647

 
931,089

Less accumulated depreciation
525,316

 
540,768

Net Property, Plant, and Equipment
379,331

 
390,321

 
 
 
 
Goodwill and Other Intangible Assets
480,812

 
490,892

 
 
 
 
Deferred Income Taxes
193

 
193

 
 
 
 
Other Assets
21,504

 
21,264

 
 
 
 
Total Assets
$
1,395,746

 
$
1,391,550


See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


4




HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
 
 
 
 
 
September 29,
2018
 
December 30,
2017
Liabilities and Equity
 
 
 
Current Liabilities:
 
 
 
Accounts payable and accrued expenses
$
430,723

 
$
450,128

Current maturities of long-term debt
720

 
36,648

Current maturities of other long-term obligations
4,518

 
2,927

Total Current Liabilities
435,961

 
489,703

 
 
 
 
Long-Term Debt
249,334

 
240,000

 
 
 
 
Other Long-Term Liabilities
77,628

 
70,409

 
 
 
 
Deferred Income Taxes
79,749

 
76,861

 
 
 
 
Equity:
 

 
 

HNI Corporation shareholders' equity:
 

 
 

 Capital Stock:
 

 
 

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

 

 
 
 
 
    Common stock - $1 par value, authorized 200,000 shares, outstanding:
 
 
 
September 29, 2018 – 43,820 shares
 
 
 
December 30, 2017 – 43,354 shares
43,820

 
43,354

 
 
 
 
Additional paid-in capital
27,517

 
7,029

Retained earnings
485,432

 
467,296

Accumulated other comprehensive income (loss)
(4,195
)
 
(3,611
)
Total HNI Corporation shareholders' equity
552,574

 
514,068

 
 
 
 
Non-controlling interest
500

 
509

 
 
 
 
Total Equity
553,074

 
514,577

 
 
 
 
Total Liabilities and Equity
$
1,395,746

 
$
1,391,550


See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


5




HNI Corporation and Subsidiaries
Consolidated Statements of Equity
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended - September 29, 2018
 
Common Stock

 
Additional Paid-in Capital

 
Retained Earnings

 
Accumulated Other Comprehensive Income (Loss)

 
Non-controlling Interest

 
Total Shareholders’ Equity

Balance, June 30, 3018
$
43,736

 
$
26,077

 
$
458,458

 
$
(3,477
)
 
$
500

 
$
525,294

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 
39,907

 

 

 
39,907

Other comprehensive income (loss), net of tax

 

 

 
(717
)
 

 
(717
)
Change in ownership of non-controlling interest

 

 

 

 

 

Cash dividends; $0.295 per share

 

 
(12,933
)
 

 

 
(12,933
)
Common shares – treasury:
 
 
 
 
 
 
 
 
 
 
 
Shares purchased
(163
)
 
(6,758
)
 

 

 

 
(6,921
)
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax
247

 
8,198

 

 

 

 
8,445

Balance, September 29, 2018
$
43,820

 
$
27,517

 
$
485,432

 
$
(4,195
)
 
$
500

 
$
553,074



 
Nine Months Ended - September 29, 2018
 
Common Stock

 
Additional Paid-in Capital

 
Retained Earnings

 
Accumulated Other Comprehensive Income (Loss)

 
Non-controlling Interest

 
Total Shareholders’ Equity

Balance, December 30, 2017
$
43,354

 
$
7,029

 
$
467,296

 
$
(3,611
)
 
$
509

 
$
514,577

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 
61,014

 

 
(50
)
 
60,964

Other comprehensive income (loss), net of tax

 

 

 
(584
)
 

 
(584
)
Change in ownership of non-controlling interest

 

 
(41
)
 

 
41

 

Cash dividends; $0.875 per share

 

 
(38,201
)
 

 

 
(38,201
)
Common shares – treasury:
 
 
 
 
 
 
 
 
 
 
 
Shares purchased
(369
)
 
(9,879
)
 
(4,636
)
 

 

 
(14,884
)
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax
835

 
30,367

 

 

 

 
31,202

Balance, September 29, 2018
$
43,820

 
$
27,517

 
$
485,432

 
$
(4,195
)
 
$
500

 
$
553,074


See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


6




HNI Corporation and Subsidiaries
Consolidated Statements of Equity
(In thousands, except per share data)
(Unaudited)
 
 
Three Months Ended - September 30, 2017
 
Common Stock

 
Additional Paid-in Capital

 
Retained Earnings

 
Accumulated Other Comprehensive Income (Loss)

 
Non-controlling Interest

 
Total Shareholders’ Equity

Balance, July 1, 2017
$
44,056

 
$
5,438

 
$
449,130

 
$
(4,633
)
 
$
358

 
$
494,349

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 
37,271

 

 
60

 
37,331

Other comprehensive income (loss), net of tax

 

 

 
365

 

 
365

Change in ownership of non-controlling interest

 

 

 

 

 

Cash dividends; $0.285 per share

 

 
(12,448
)
 

 

 
(12,448
)
Common shares – treasury:
 
 
 
 
 
 
 
 
 
 
 
Shares purchased
(779
)
 
(4,379
)
 
(23,864
)
 

 

 
(29,022
)
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax
150

 
5,155

 

 

 

 
5,305

Balance, September 30, 2017
$
43,427

 
$
6,214

 
$
450,089

 
$
(4,267
)
 
$
418

 
$
495,881



 
Nine Months Ended - September 30, 2017
 
Common Stock

 
Additional Paid-in Capital

 
Retained Earnings

 
Accumulated Other Comprehensive Income (Loss)

 
Non-controlling Interest

 
Total Shareholders’ Equity

Balance, December 31, 2016
$
44,079

 
$

 
$
461,524

 
$
(5,000
)
 
$
406

 
$
501,009

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)

 

 
55,956

 

 
12

 
55,968

Other comprehensive income (loss), net of tax

 

 

 
733

 

 
733

Change in ownership of non-controlling interest

 

 

 

 

 

Cash dividends; $0.845 per share

 

 
(37,175
)
 

 

 
(37,175
)
Common shares – treasury:
 
 
 
 
 
 
 
 
 
 
 
Shares purchased
(1,301
)
 
(21,333
)
 
(30,216
)
 

 

 
(52,850
)
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax
649

 
27,547

 

 

 

 
28,196

Balance, September 30, 2017
$
43,427

 
$
6,214

 
$
450,089

 
$
(4,267
)
 
$
418

 
$
495,881


See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


7




HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 
 
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
Net Cash Flows From (To) Operating Activities:
 
 
 
Net income
$
60,964

 
$
55,968

Non-cash items included in net income:
 
 
 
Depreciation and amortization
55,887

 
54,524

Other post-retirement and post-employment benefits
1,325

 
1,194

Stock-based compensation
6,215

 
6,759

Deferred income taxes
2,733

 
8,128

(Gain) loss on sale, retirement, license, and impairment of long-lived assets and intangibles, net
1,283

 
(5,085
)
Amortization of deferred gain on sale leaseback transaction
(285
)
 

Other – net
2,599

 
(1,649
)
Net increase (decrease) in operating assets and liabilities, net of divestitures
(16,533
)
 
(53,096
)
Increase (decrease) in other liabilities
849

 
(9,399
)
Net cash flows from (to) operating activities
115,037

 
57,344

 
 
 
 
Net Cash Flows From (To) Investing Activities:
 

 
 

Capital expenditures
(39,887
)
 
(87,142
)
Proceeds from sale and license of property, plant, equipment, and intangibles
22,686

 
8,646

Capitalized software
(7,092
)
 
(16,749
)
Acquisition spending, net of cash acquired
(2,850
)
 
(898
)
Purchase of investments
(2,471
)
 
(2,874
)
Sales or maturities of investments
2,375

 
2,678

Other – net
1,135

 
1,511

Net cash flows from (to) investing activities
(26,104
)
 
(94,828
)
 
 
 
 
Net Cash Flows From (To) Financing Activities:
 

 
 

Payments of long-term debt and other financing
(352,795
)
 
(185,390
)
Proceeds from long-term debt
322,755

 
287,188

Dividends paid
(38,201
)
 
(37,175
)
Purchase of HNI Corporation common stock
(16,043
)
 
(52,850
)
Proceeds from sales of HNI Corporation common stock
15,896

 
12,024

Withholding related to net share settlements of equity based awards
(155
)
 
(209
)
Net cash flows from (to) financing activities
(68,543
)
 
23,588

 
 
 
 
Net increase (decrease) in cash and cash equivalents
20,390

 
(13,896
)
Cash and cash equivalents at beginning of period
23,348

 
36,312

Cash and cash equivalents at end of period
$
43,738

 
$
22,416

 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


8




HNI Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
September 29, 2018

Note 1.  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 notes required by generally accepted accounting principles for complete financial statements.  The December 30, 2017 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 nine-month period ended September 29, 2018 are not necessarily indicative of the results expected for the fiscal year ending December 29, 2018.  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 December 30, 2017.

Note 2. Revenue from Contracts with Customers

The Corporation implemented ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), at the beginning of fiscal 2018 using the modified-retrospective method, which required the new guidance to be applied prospectively to revenue transactions completed on or after the effective date. Given the nature of the Corporation's revenue transactions, the new guidance did not have a material impact on the Corporation's results of operations or financial position. All necessary changes required by the new standard, including those to the Corporation's accounting policies, controls, and disclosures, have been identified and implemented as of the beginning of fiscal 2018.

Disaggregation of Revenue
Revenue from contracts with customers disaggregated by sales channel and by segment is as follows (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
Segment
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Supplies-driven channel
Office Furniture
$
265,971

 
$
238,542

 
$
680,656

 
$
620,602

Contract channel
Office Furniture
205,716

 
226,770

 
595,824

 
611,135

Hearth
Hearth Products
139,433

 
134,143

 
383,323

 
359,870

Net sales
 
$
611,120

 
$
599,455

 
$
1,659,803

 
$
1,591,607


The majority of revenue presented as "Net sales" in the Condensed Consolidated Statements of Comprehensive Income is the result of contracts with customers. All other sources of revenue are not material to the Corporation's results of operations.

Sales by channel type are subject to similar economic factors and market conditions regardless of the channel under which the product is sold. See “Note 17. Reportable Segment Information” in the Notes to Condensed Consolidated Financial Statements for further information about operating segments.

Contract Assets and Contract Liabilities
In addition to trade receivables, the Corporation has contract assets consisting of funds paid to certain office furniture dealers in exchange for their multi-year commitment to market and sell the Corporation’s product. These dealer investments are amortized over the term of the contract. For contracts less than one year, the Corporation has elected the practical expedient to recognize incremental costs to obtain a contract as an expense when incurred. The Corporation has contract liabilities consisting of deferred revenue and rebate and marketing program liabilities.

9




Contract assets and contract liabilities were as follows (in thousands):
 
September 29,
2018
 
December 30,
2017
Trade receivables (1)
$
257,191

 
$
260,455

Contract assets (current) (2)
$
483

 
$
300

Contract assets (long-term) (3)
$
3,905

 
$
2,350

Contract liabilities (4)
$
53,495

 
$
54,527


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"

Changes in contract asset and contract liability balances during the nine months ended September 29, 2018 were as follows (in thousands):
 
Contract assets increase (decrease)
 
Contract liabilities (increase) decrease
Contract assets recognized
$
2,100

 
$

Reclassification of contract assets to contra revenue
(362
)
 

Contract liabilities recognized and recorded to contra revenue as a result of performance obligations satisfied

 
(87,674
)
Contract liabilities paid

 
86,329

Cash received in advance and not recognized as revenue

 
(43,878
)
Reclassification of cash received in advance to revenue as a result of performance obligations satisfied

 
46,178

Impact of business combination

 
77

Net change
$
1,738

 
$
1,032


For the three months ended September 29, 2018, no revenue was recognized in the Condensed Consolidated Statements of Comprehensive Income related to contract liabilities as of December 30, 2017, as the entire liability was recognized as revenue during the three months ended March 31, 2018. For the nine months ended September 29, 2018, the Corporation recognized revenue of $12.5 million in the Condensed Consolidated Statements of Comprehensive Income related to contract liabilities as of December 30, 2017.

Performance Obligations
The Corporation recognizes revenue for sales of office furniture and hearth 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 30 days of invoicing. See “Note 7. Product Warranties” in the Notes to Condensed Consolidated Financial Statements for additional information on warranty obligations.

Significant Judgments
The Corporation uses significant judgment throughout the year in estimating the reduction in net sales driven by 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.


10




Accounting Policies and Practical Expedients Elected
The Corporation elected to use the modified-retrospective method of adopting the new standard on revenue recognition. The new standard has been applied to all contracts not completed as of December 30, 2017, the end of the Corporation’s fiscal 2017. The impact of the Corporation's transition adjustment for the new revenue recognition guidance was not material to the Corporation's results of operations or financial position. The additional disclosures required as a result of adopting the new revenue recognition guidance were material to the Corporation's financial statements.

The Corporation elected the following accounting policies as a result of adopting the new standard on revenue recognition:

Shipping and Handling Activities - The Corporation has elected to apply the accounting policy election permitted in ASC 606-10-25-18B, which allows an entity to account for shipping and handling activities as fulfillment activities. The Corporation accrues for shipping and handling costs at the same time revenue is recognized, which is in accordance with the policy election. When shipping and handling activities occur prior to the customer obtaining control of the good(s), they are considered fulfillment activities rather than a performance obligation and the costs are accrued for as incurred.

Sales Taxes - The Corporation has elected to apply the accounting policy election permitted in ASC 606-10-32-2A, which allows an entity to exclude from the measurement of the transaction price all taxes assessed by a governmental authority associated with the transaction, including sales, use, excise, value-added, and franchise taxes (collectively referred to as sales taxes). This allows the Corporation to present revenue net of these certain types of taxes.

These policies have been applied consistently to all revenue transactions.

The Corporation has elected the following practical expedients as a result of adopting the new standard on revenue recognition:

Incremental Costs of Obtaining a Contract - The Corporation has elected the practical expedient permitted in ASC 340-40-25-4, which permits an entity to recognize incremental costs to obtain a contract as an expense when incurred if the amortization period will be less than one year. The Corporation will apply this practical expedient when the requirements to apply it are met.

Significant Financing Component - The Corporation has elected the practical expedient permitted in ASC 606-10-32-18, which allows an entity to not adjust the promised amount of consideration for the effects of a significant financing component if a contract has a duration of one year or less. As the Corporation's contracts are typically less than one year in length, consideration will not be adjusted.

These accounting policies and practical expedients have been applied consistently to all revenue transactions.

Note 3.  Restructuring

Restructuring costs recorded in the Condensed Consolidated Statements of Comprehensive Income are as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Cost of sales - accelerated depreciation
$

 
$
1,552

 
$

 
$
8,711

Restructuring and impairment charges
128

 
783

 
2,303

 
3,325

Total restructuring costs
$
128

 
$
2,335

 
$
2,303

 
$
12,036


Restructuring costs in the third quarter of 2018 were primarily incurred as part of the previously announced closure of the hearth manufacturing facility in Paris, Kentucky. Restructuring costs in the year-to-date period for 2018 also include an impairment charge from the sale of the closed manufacturing facility in Paris, Kentucky and costs incurred as part of the previously announced closure of the office furniture manufacturing facility in Orleans, Indiana. Restructuring costs in both the quarter and year-to-date periods for 2017, which include accelerated depreciation recorded in "Cost of sales" in the Condensed Consolidated Statements of Comprehensive Income, were primarily incurred as part of the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana.

11




The accrued restructuring expenses are expected to be paid in the next twelve months and are included in "Accounts payable and accrued expenses" in the Condensed Consolidated Balance Sheets. The following is a summary of changes in restructuring accruals (in thousands):
 
Severance Costs
 
Facility Exit Costs & Other
 
Total
Restructuring allowance as of December 30, 2017
$
1,343

 
$
516

 
$
1,859

Restructuring charges
350

 
1,953

 
2,303

Cash payments
(1,573
)
 
(2,469
)
 
(4,042
)
Restructuring allowance as of September 29, 2018
$
120

 
$

 
$
120


Real Estate Transaction
As part of the Corporation's continued efforts to drive efficiency and simplification, the Corporation entered into a sale-leaseback transaction in the first quarter of 2018, selling a manufacturing facility and subsequently leasing back a portion of the facility for a term of 10 years. The net proceeds from the sale of the facility of $16.9 million are reflected in "Proceeds from sale and license of property, plant, equipment, and intangibles" in the Condensed Consolidated Statements of Cash Flows. In accordance with ASC 840, Leases, the $5.1 million gain on the sale of the facility was deferred and is being amortized as a reduction to rent expense evenly over the term of the lease. As of September 29, 2018, the current portion of the deferred gain is $0.5 million and included within "Accounts payable and accrued expenses" and the long-term portion of the deferred gain is $4.4 million and included within "Other Long-Term Liabilities" in the Condensed Consolidated Balance Sheets. The transaction did not have a material impact to the Condensed Consolidated Statements of Comprehensive Income.

Note 4. Acquisitions and Divestitures

On September 21, 2018, the Corporation acquired a small hearth products company at a purchase price of approximately $3 million, resulting in a preliminary goodwill valuation of $3.4 million. The remaining assets and liabilities recorded in the third quarter of 2018 were not material to the Corporation's financial statements. The Corporation will finalize the allocation of the purchase price over the next few quarters based on the final purchase price and fair value adjustments.

As part of the Corporation's ongoing business strategy, it continues to acquire and divest small office furniture dealerships, for which the impact is not material to the Corporation's financial statements.

Note 5.  Inventories

The Corporation values its inventory at the lower of cost or net realizable value with approximately 83 percent valued by the last-in, first-out ("LIFO") costing method. Inventories included in the Condensed Consolidated Balance Sheets consisted of the following (in thousands):
 
September 29,
2018
 
December 30,
2017
 
Finished products
$
106,349

 
$
101,715

Materials and work in process
95,584

 
81,202

LIFO allowance
(27,382
)
 
(27,234
)
Total inventories
$
174,551

 
$
155,683



12




Note 6. Goodwill and Other Intangible Assets

Goodwill and other intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following (in thousands):
 
September 29,
2018
 
December 30,
2017
Goodwill
$
282,939

 
$
279,505

Definite-lived intangible assets
168,692

 
182,186

Indefinite-lived intangible assets
29,181

 
29,201

Total goodwill and other intangible assets
$
480,812

 
$
490,892


Goodwill
The changes in the carrying amount of goodwill, by reporting segment, are as follows (in thousands):
 
Office Furniture
 
Hearth Products
 
Total
Balance as of December 30, 2017
 
 
 
 
 
Goodwill
$
128,657

 
$
183,199

 
$
311,856

Accumulated impairment losses
(32,208
)
 
(143
)
 
(32,351
)
Net goodwill balance as of December 30, 2017
96,449

 
183,056

 
279,505

 
 
 
 
 
 
Goodwill acquired during the year

 
3,444

 
3,444

Foreign currency translation adjustment
(10
)
 

 
(10
)
 
 
 
 
 
 
Balance as of September 29, 2018
 

 
 

 
 
Goodwill
128,647

 
186,643

 
315,290

Accumulated impairment losses
(32,208
)
 
(143
)
 
(32,351
)
Net goodwill balance as of September 29, 2018
$
96,439

 
$
186,500

 
$
282,939


Definite-lived intangible assets
The table below summarizes amortizable definite-lived intangible assets, which are reflected in "Goodwill and Other Intangible Assets" in the Condensed Consolidated Balance Sheets (in thousands):
 
September 29, 2018
 
December 30, 2017
 
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Patents
$
40

 
$
32

 
$
8

 
$
40

 
$
26

 
$
14

Software
169,915

 
46,110

 
123,805

 
167,105

 
34,792

 
132,313

Trademarks and trade names
7,564

 
2,556

 
5,008

 
7,564

 
2,061

 
5,503

Customer lists and other
105,946

 
66,075

 
39,871

 
106,090

 
61,734

 
44,356

Net definite-lived intangible assets
$
283,465

 
$
114,773

 
$
168,692

 
$
280,799

 
$
98,613

 
$
182,186



13




Amortization expense is reflected in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income and was as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Capitalized software
$
4,290

 
$
2,658

 
$
12,734

 
$
5,225

Other definite-lived intangibles
$
1,642

 
$
1,746

 
$
4,972

 
$
5,267


The occurrence of events such as acquisitions, dispositions, or impairments may impact future amortization expense. 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):
 
 
2018
 
2019
 
2020
 
2021
 
2022
Amortization expense
 
$
23.6

 
$
22.9

 
$
22.0

 
$
20.7

 
$
18.5


Indefinite-lived intangible assets
The Corporation also owns certain intangible assets, which are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely. These indefinite-lived intangible assets are reflected in "Goodwill and Other Intangible Assets" in the Condensed Consolidated Balance Sheets (in thousands):
 
September 29,
2018
 
December 30,
2017
Trademarks and trade names
$
29,181

 
$
29,201


Sale and License of an Intangible Asset
In the third quarter of 2017, the Corporation recorded a $6.0 million nonrecurring gain from the sale and license of an intangible asset, which had a zero carrying value. This nonrecurring gain is reflected in "Gain on sale and license of assets" in the Condensed Consolidated Statements of Comprehensive Income.

Impairment 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. During the third quarter of 2018, the Corporation determined a triggering event occurred for one of the Corporation's reporting units within the office furniture segment due to lower projected operating results for the year. Accordingly, interim quantitative impairment tests were performed for goodwill and an indefinite-lived intangible asset. The tests indicated no impairment. In conjunction with the interim impairment tests, the Corporation also tested the recoverability of the remaining long-lived assets for the reporting unit and found no impairments.

The projections used in the impairment model reflected management's assumptions regarding revenue growth rates, economic and market trends, cost structure, investments required for operational transformation, and other expectations about the anticipated short-term and long-term operating results of the reporting unit. The Corporation assumed a discount rate of 13.5 percent, near term growth rates ranging from 3 percent to 12 percent, and a terminal growth rate of 3 percent. Holding other assumptions constant, a 100 basis point increase in the discount rate would result in a $3.8 million decrease in the estimated fair value of the reporting unit. Holding other assumptions constant, a 100 basis point decrease in the long-term growth rate would result in a $1.8 million decrease in the estimated fair value of the reporting unit. Neither of these scenarios individually would result in an impairment of the reporting unit's goodwill. There is $19.6 million of goodwill associated with this reporting unit as of September 29, 2018.


14




Note 7.  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, materials, or workmanship. Allowances have been established for the anticipated future costs associated with the Corporation's warranty programs.

A warranty allowance is determined by recording a specific allowance for known warranty issues and an additional allowance for unknown claims expected to be incurred based on historical claims experience.  Actual claims incurred could differ from the original estimates, requiring adjustments to the allowance.  Activity associated with warranty obligations was as follows (in thousands):
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
Balance at beginning of period
$
15,388

 
$
15,250

Accruals for warranties issued during period
22,130

 
15,197

Adjustments related to pre-existing warranties
116

 
(298
)
Settlements made during the period
(22,203
)
 
(15,424
)
Balance at end of period
$
15,431

 
$
14,725


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 (in thousands):
 
September 29,
2018
 
December 30,
2017
Current - in the next twelve months
$
9,372

 
$
9,524

Long-term - beyond one year
6,059

 
5,864

Total estimated settlements
$
15,431

 
$
15,388


Note 8.  Long-Term Debt

Long-term debt is as follows (in thousands):
 
September 29,
2018
 
December 30,
2017
Revolving credit facility with interest at a variable rate
(September 29, 2018 - 3.4%; December 30, 2017 - 2.7%)
$
150,000

 
$
267,500

Fixed rate notes due in 2025 with an interest rate of 4.22%
50,000

 

Fixed rate notes due in 2028 with an interest rate of 4.40%
50,000

 

Other amounts
720

 
9,148

Deferred debt issuance costs
(666
)
 

Total debt
250,054

 
276,648

Less: Current maturities of long-term debt
720

 
36,648

Long-term debt
$
249,334

 
$
240,000



15




As of September 29, 2018, the Corporation’s revolving credit facility borrowings were under the credit agreement entered into on April 20, 2018 with a scheduled maturity of April 20, 2023. The Corporation deferred the debt issuance costs related to the credit agreement, which are classified as assets, and is amortizing them over the term of the credit agreement. The current portion of $0.4 million 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 $1.6 million is reflected in "Other Assets" in the Condensed Consolidated Balance Sheets.

As of September 29, 2018, there was $150 million outstanding under the $450 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.

In addition to the revolving credit facility, the Corporation also has $100 million of borrowings outstanding under private placement note agreements entered into on May 31, 2018. Under the agreements, the Corporation issued $50 million of seven-year fixed rate notes with an interest rate of 4.22 percent, due May 31, 2025, and $50 million of ten-year fixed rate notes with an interest rate of 4.40 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 in accordance with ASU No. 2015-03, and is amortizing them over the terms of the 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. The current portion of $0.1 million is the amount to be amortized over the next twelve months based on the private placement note agreements and is reflected in "Current maturities of long-term debt" in the Condensed Consolidated Balance Sheets. The long-term portion of $0.6 million is reflected in "Long-Term Debt" in the Condensed Consolidated Balance Sheets.

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 and strategic initiatives, such as acquisitions and repurchases of common stock.

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 4.0 to 1.0, based upon the ratio of (a) consolidated EBITDA for the last four fiscal quarters to (b) the sum of consolidated interest charges; and
a consolidated leverage ratio (as defined in the credit agreement) of not greater than 3.5 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness to (b) consolidated EBITDA for the last four fiscal quarters.

The most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.5 to 1.0.  Under the credit agreement, consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, and depreciation and amortization of intangibles, as well as non-cash items that increase or decrease net income.  As of September 29, 2018, 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.


16




Note 9.  Income Taxes

The Corporation's tax provision for interim periods is determined using an estimate of its annual effective tax rate, adjusted for discrete items. The following table summarizes the Corporation's income tax provision (dollars in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Income before income taxes
$
51,104

 
$
55,955

 
$
76,997

 
$
83,541

Income taxes
$
11,197

 
$
18,624

 
$
16,033

 
$
27,573

Effective tax rate
21.9
%
 
33.3
%
 
20.8
%
 
33.0
%

The Corporation's effective tax rate was lower in the three and nine months ended September 29, 2018 compared to the same periods last year primarily due to the enactment of the Tax Cuts and Jobs Act in 2017 (the "Act"). An additional driver of the change in the effective tax rate for the first nine months of 2018 was the release of a valuation allowance for certain foreign jurisdictions.

On December 22, 2017, the Act was signed into law, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35 percent to 21 percent effective for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide tax system to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017.

Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in the reporting period that includes December 22, 2017 in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Corporation determined as of the end of fiscal 2017, the $45.4 million of the deferred tax benefit recorded in connection with the remeasurement of certain deferred tax assets and liabilities and the $0.1 million of current tax expense recorded in connection with the transition tax on the mandatory deemed repatriation of foreign earnings was a provisional amount and a reasonable estimate as of December 30, 2017. Additional work was necessary to complete a more detailed analysis of historical foreign earnings as well as potential correlative adjustments. Subsequent adjustments to these amounts, which were not material, were recorded to current tax expense in the third quarter of 2018 when the analysis was completed.

During the third quarter of 2018, the 2017 federal income tax return was completed resulting in a $0.5 million detriment related to the reversal of net deferred tax liabilities based on the rates at which they are expected to reverse in the future as a result of tax reform rate changes. The Corporation finalized its calculation of the full impact of the Act on its 2017 federal income tax return during the third quarter of 2018.


17




Note 10.  Fair Value Measurements of Financial Instruments

For recognition purposes, on a recurring basis, the Corporation is required to measure at fair value its marketable securities, derivative financial instruments, variable-rate and fixed-rate debt obligations, and deferred stock-based compensation.  The marketable securities are comprised of money market funds, government securities, and corporate bonds. When available, the Corporation uses quoted market prices to determine fair value and classifies such measurements within Level 1.  Where market prices are not available, the Corporation makes use of observable market-based inputs (prices or quotes from published exchanges and indexes) to calculate fair value using the market approach, in which case the measurements are classified within Level 2.

Financial instruments measured at fair value were as follows (in thousands):
 
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)
Balance as of September 29, 2018
 
 
 
 
 
 
 
Cash and cash equivalents (including money market funds) (1)
$
43,738

 
$
43,738

 
$

 
$

Government securities (2)
$
7,094

 
$

 
$
7,094

 
$

Corporate bonds (2)
$
5,341

 
$

 
$
5,341

 
$

Derivative financial instruments (3)
$
5,286

 
$

 
$
5,286

 
$

Variable-rate debt obligations (4)
$
150,000

 
$

 
$
150,000

 
$

Fixed-rate debt obligations (4)
$
100,000

 
$

 
$
100,000

 
$

Deferred stock-based compensation (5)
$
10,665

 
$

 
$
10,665

 
$

 
 
 
 
 
 
 
 
Balance as of December 30, 2017
 
 
 
 
 
 
 
Cash and cash equivalents (including money market funds) (1)
$
23,348

 
$
23,348

 
$

 
$

Government securities (2)
$
6,345

 
$

 
$
6,345

 
$

Corporate bonds (2)
$
6,149

 
$

 
$
6,149

 
$

Derivative financial instruments (3)
$
3,354

 
$

 
$
3,354

 
$

Variable-rate debt obligations (4)
$
267,500

 
$

 
$
267,500

 
$

Deferred stock-based compensation (5)
$
8,885

 
$

 
$
8,885

 
$


The index below indicates the line item in the Condensed Consolidated Balance Sheets where the financial instruments are reported:

(1)     "Cash and cash equivalents"
(2)     Current portion - "Short-term investments"; Long-term portion - "Other Assets"
(3)     Current portion - "Prepaid expenses and other current assets"; Long-term portion - "Other Assets"
(4)     Current portion - "Current maturities of long-term debt"; Long-term portion - "Long-Term Debt"
(5)     Current portion - "Current maturities of other long-term obligations"; Long-term portion - "Other Long-Term Liabilities"


18




Note 11.  Accumulated Other Comprehensive Income (Loss) and Shareholders' Equity

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 (in thousands):
 
 
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses) on Marketable Securities
 
Pension and Post-retirement Liabilities
 
Derivative Financial Instruments
 
Accumulated Other Comprehensive Income (Loss)
Balance as of December 30, 2017
 
$
31

 
$
(132
)
 
$
(5,630
)
 
$
2,120

 
$
(3,611
)
Other comprehensive income (loss) before reclassifications
 
(1,944
)
 
(125
)
 

 
2,593

 
524

Tax (expense) or benefit
 

 
26

 

 
(635
)
 
(609
)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax
 

 

 

 
(499
)
 
(499
)
Balance as of September 29, 2018
 
$
(1,913
)
 
$
(231
)
 
$
(5,630
)
 
$
3,579

 
$
(4,195
)
Amounts in parentheses indicate reductions to equity.

 
 
Foreign Currency Translation Adjustment
 
Unrealized Gains (Losses) on Marketable Securities
 
Pension and Post-retirement Liabilities
 
Derivative Financial Instruments
 
Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2016
 
$
(1,188
)
 
$
(105
)
 
$
(5,167
)
 
$
1,460

 
$
(5,000
)
Other comprehensive income (loss) before reclassifications
 
779

 
68

 

 
(471
)
 
376

Tax (expense) or benefit
 

 
(24
)
 

 
174

 
150

Amounts reclassified from accumulated other comprehensive income (loss), net of tax
 

 

 

 
207

 
207

Balance as of September 30, 2017
 
$
(409
)
 
$
(61
)
 
$
(5,167
)
 
$
1,370

 
$
(4,267
)
Amounts in parentheses indicate reductions to equity.

Interest Rate Swap
In March 2016, the Corporation entered into an interest rate swap transaction to hedge $150 million of outstanding variable rate revolver borrowings against future interest rate volatility. Under the terms of the interest rate swap, the Corporation pays a fixed rate of 1.29 percent and receives one month LIBOR on a $150 million notional value expiring January 2021. As of September 29, 2018, the fair value of the Corporation's interest rate swap was an asset of $5.3 million, which is reflected in "Other Assets" in the Condensed Consolidated Balance Sheets. The unrecognized change in value of the interest rate swap is reported net of tax as $3.6 million in "Accumulated other comprehensive income (loss)" in the Condensed Consolidated Balance Sheets.

The following table details the reclassifications from accumulated other comprehensive income (loss) (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
Details about Accumulated Other Comprehensive Income (Loss) Components
Affected Line Item in the Statement Where Net Income is Presented
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Derivative financial instruments
 
 
 
 
 
 
 
 
Interest rate swap
Interest (expense) or income
$
305

 
$
(27
)
 
$
661

 
$
(328
)
 
Tax (expense) or benefit
(75
)
 
10

 
(162
)
 
121

 
Net of tax
$
230

 
$
(17
)
 
$
499

 
$
(207
)
Amounts in parentheses indicate reductions to profit.


19




Stock Repurchase
The following table summarizes shares repurchased and settled by the Corporation (in thousands, except share data):
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
Shares repurchased
368,822

 
1,300,936

 
 
 
 
Cash purchase price
$
(14,884
)
 
$
(52,850
)
Purchases unsettled as of quarter end
222

 

Prior year purchases settled in current year
(1,381
)
 

Shares repurchased per cash flow
$
(16,043
)
 
$
(52,850
)

As of September 29, 2018, approximately $63.1 million of the Corporation's Board of Directors' ("Board") current repurchase authorization remained unspent.

Dividend
The Corporation declared and paid cash dividends per share as follows (in dollars):
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
Common shares
$
0.875

 
$
0.845


Note 12.  Earnings Per Share

The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS") (in thousands, except per share data):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Numerator:
 
 
 
 
 
 
 
Numerator for both basic and diluted EPS attributable to HNI Corporation net income
$
39,907

 
$
37,271

 
$
61,014

 
$
55,956

Denominators:
 

 
 

 
 
 
 
Denominator for basic EPS weighted-average common shares outstanding
43,823

 
43,683

 
43,616

 
43,970

Potentially dilutive shares from stock-based compensation plans
856

 
796

 
733

 
1,109

Denominator for diluted EPS
44,679

 
44,479

 
44,349

 
45,079

Earnings per share – basic
$
0.91

 
$
0.85

 
$
1.40

 
$
1.27

Earnings per share – diluted
$
0.89

 
$
0.84

 
$
1.38

 
$
1.24


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.
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Common stock equivalents excluded because their inclusion would be anti-dilutive (in thousands)
1,273

 
1,111

 
1,474

 
788



20




Note 13. 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 employees' requisite service periods. Stock-based compensation expense is the cost of stock options and time-based restricted stock units issued under the shareholder approved stock-based compensation plans and shares issued under the shareholder approved member stock purchase plans. The following table summarizes expense associated with these plans (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Compensation cost
$
1,307

 
$
956

 
$
6,215

 
$
6,759


The options and units granted by the Corporation had fair values as follows (in thousands):
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
Stock options
$
7,200

 
$
7,206

Restricted stock units
$
76

 
$


The following table summarizes unrecognized compensation expense and the weighted-average remaining service period for non-vested stock options and restricted stock units as of September 29, 2018:
 
Unrecognized Compensation Expense
(in thousands)
 
Weighted-Average Remaining
Service Period (years)
Non-vested stock options
$
4,419

 
1.2
Non-vested restricted stock units
$
980

 
1.1

Note 14.  Post-Retirement Health Care

The following table sets forth the components of net periodic benefit costs included in the Condensed Consolidated Statements of Comprehensive Income (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Service cost
$
213

 
$
185

 
$
639

 
$
556

Interest cost
197

 
206

 
591

 
619

Amortization of net (gain) loss
32

 
6

 
95

 
19

Net periodic post-retirement benefit cost
$
442

 
$
397

 
$
1,325

 
$
1,194



21




Note 15.  Recently Adopted Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The new standard replaces most existing revenue recognition guidance in U.S. GAAP. The core principle of the ASU requires companies to reevaluate when revenue is recorded on a transaction based upon newly defined criteria, either at a point in time or over time as goods or services are delivered. The ASU requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and estimates, and changes in those estimates. The FASB has issued ASU No. 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, ASU No. 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue from Contracts with Customers: Narrow Scope Improvements and Practical Expedients to provide further clarification and guidance. The Corporation implemented the new standard in the first quarter of fiscal 2018 using the modified-retrospective method, which required the new guidance to be applied prospectively to revenue transactions completed on or after the effective date. Given the nature of the Corporation's revenue transactions, the new guidance did not have a material impact on the Corporation's results of operations or financial position. All necessary changes required by the new standard, including those to the Corporation's accounting policies, controls, and disclosures, have been identified and implemented as of the beginning of fiscal 2018. See "Note 2. Revenue from Contracts with Customers" in the Notes to Condensed Consolidated Financial Statements for further information.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments. The new standard provides classification guidance on eight cash flow issues including debt prepayment, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlements of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. The Corporation implemented the new standard in the first quarter of fiscal 2018. This standard did not have a material effect on the condensed consolidated financial statements or related disclosures.

In October 2016, the FASB issued ASU No. 2016-16, Intra-Entity Transfers of Assets Other Than Inventory. The new standard requires an entity to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. The Corporation implemented the new standard in the first quarter of fiscal 2018. This standard did not have a material effect on the condensed consolidated financial statements or related disclosures.

In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-retirement Benefit Cost. The new standard requires an entity with defined benefit and post-retirement benefit plans to present the service cost component of the net periodic benefit cost in the same income statement line item or items as other compensation costs arising from services rendered by employees during the period. All other components of net periodic benefit cost will be presented outside of operating income, if a subtotal is presented. The Corporation implemented the new standard in the first quarter of fiscal 2018 and it was applied retrospectively to each period presented. This standard did not have a material effect on the condensed consolidated financial statements or related disclosures.

Note 16.  Guarantees, Commitments, and Contingencies

The Corporation utilizes letters of credit and surety bonds in the amount of approximately $19 million to back certain insurance policies and payment obligations.  The Corporation utilizes trade letters of credit and banker's acceptances in the amount of approximately $3 million to guarantee certain payments to overseas suppliers. The letters of credit, bonds, and banker's acceptances reflect fair value as a condition of their underlying purpose and are subject to competitively determined fees.

The Corporation initiated litigation in Iowa on August 15, 2017 against the purchasers of Artcobell for amounts owed in connection with the sale of Artcobell.  Artcobell initiated litigation against the Corporation in Texas on June 14, 2017 regarding a dispute arising after the sale of Artcobell. On October 9, 2018, the Corporation resolved all claims related to the disputes. The Corporation is not required to make any payments and expects to record an immaterial recovery in the fourth quarter of 2018.

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.


22




Note 17.  Reportable Segment Information

Management views the Corporation as being in two reportable segments based on industries: office furniture and hearth products, with the former being the principal segment.

The aggregated office furniture segment manufactures and markets a broad line of commercial and home office furniture which includes storage products, desks, credenzas, chairs, tables, bookcases, freestanding office partitions and panel systems, and other related products.  The hearth products segment manufactures and markets a broad line of gas, electric, wood, and biomass burning fireplaces, inserts, stoves, facings, and accessories, principally for the home.

For purposes of segment reporting, intercompany sales 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.


23




Reportable segment data reconciled to the Corporation's condensed consolidated financial statements was as follows (in thousands):
 
Three Months Ended
 
Nine Months Ended
 
September 29,
2018
 
September 30,
2017
 
September 29,
2018
 
September 30,
2017
Net Sales:
 
 
 
 
 
 
 
Office furniture
$
471,687

 
$
465,312

 
$
1,276,480

 
$
1,231,737

Hearth products
139,433

 
134,143

 
383,323

 
359,870

Total
$
611,120

 
$
599,455

 
$
1,659,803

 
$
1,591,607

 
 
 
 
 
 
 
 
Income Before Income Taxes:
 
 
 
 
 
 
 
Office furniture
$
46,075

 
$
39,729

 
$
66,207

 
$
65,856

Hearth products
21,824

 
28,737

 
55,250

 
52,651

General corporate
(14,273
)
 
(10,747
)
 
(37,085
)
 
(31,205
)
Operating income
53,626

 
57,719

 
84,372

 
87,302

Interest expense, net
2,522

 
1,764

 
7,375

 
3,761

Total
$
51,104

 
$
55,955

 
$
76,997

 
$
83,541

 
 
 
 
 
 
 
 
Depreciation and Amortization Expense:
 
 
 
 
 
 
 
Office furniture
$
11,012

 
$
12,132

 
$
33,202

 
$
37,515

Hearth products
2,026

 
1,973

 
6,080

 
8,167

General corporate
5,569