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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 |
| | | | | | | | | | |
| | | | | | | | | | |
| | | FORM | 10-Q | |
| | | | | | | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| | | | | | | | | | |
| For the quarterly period ended | | June 29, 2024 |
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| OR |
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| Commission File Number: | 1-14225 | |
| | | | | | | | | | |
| HNI Corporation |
| Iowa | (Exact name of registrant as specified in its charter) | 42-0617510 |
| (State or other jurisdiction of incorporation or organization) | | | | | | | | | (I.R.S. Employer Identification No.) |
| 600 East Second Street |
| | P.O. Box 1109 | |
| Muscatine | , | Iowa | 52761-0071 | |
| | (Address of principal executive offices) (Zip Code) | |
| | | | | | | | | | |
| | | ( | 563 | ) | 272-7400 | |
| | (Registrant's telephone number, including area code) | |
|
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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 |
| Common Stock | HNI | New 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. |
| Yes | ☒ 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). |
| Yes | ☒ 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. |
| Large accelerated filer | ☒ | Accelerated filer | ☐ |
| Smaller reporting company | ☐ | Non-accelerated filer | ☐ |
| Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ |
|
| Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). |
| Yes | ☐ | No ☒ | |
|
| Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. |
| Common Stock, $1 Par Value | Outstanding as of | June 29, 2024 | 47,138,842 |
|
| | | | | | | | |
| HNI Corporation and Subsidiaries |
| Quarterly Report on Form 10-Q |
| | |
| Table of Contents |
| | |
| PART I. FINANCIAL INFORMATION |
| | Page |
| Item 1. | Financial Statements (Unaudited) | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| PART II. OTHER INFORMATION |
| | |
| Item 1. | | |
| | |
| Item 1A. | | |
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| Item 2. | | |
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| Item 3. | Defaults Upon Senior Securities - None | - |
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| Item 4. | Mine Safety Disclosures - Not Applicable | - |
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| Item 5. | | |
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| Item 6. | | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | |
HNI Corporation and Subsidiaries Condensed Consolidated Statements of Comprehensive Income (In millions, except per share data) |
| (Unaudited) |
| | | |
| | Three Months Ended | | Six Months Ended |
| June 29,
2024 | | July 1,
2023 | | June 29,
2024 | | July 1,
2023 |
| | |
| Net sales | $ | 623.7 | | | $ | 563.5 | | | $ | 1,211.7 | | | $ | 1,042.5 | |
| Cost of sales | 362.4 | | | 347.9 | | | 717.5 | | | 652.7 | |
| Gross profit | 261.3 | | | 215.5 | | | 494.2 | | | 389.8 | |
| Selling and administrative expenses | 205.9 | | | 211.0 | | | 409.0 | | | 378.9 | |
| | | | | | | |
| Restructuring and impairment charges | 2.0 | | | 8.1 | | | 2.1 | | | 8.1 | |
| Operating income (loss) | 53.4 | | | (3.6) | | | 83.1 | | | 2.9 |
| Interest expense, net | 7.4 | | | 5.5 | | | 15.1 | | | 8.2 |
| Income (loss) before income taxes | 46.0 | | | (9.0) | | | 68.0 | | | (5.3) | |
| Income tax expense | 10.0 | | | 3.8 | | | 14.3 | | | 6.0 |
| Net income (loss) | 36.0 | | | (12.8) | | | 53.7 | | | (11.3) | |
| Less: Net income (loss) attributable to non-controlling interest | (0.0) | | | (0.0) | | | 0.0 | | | (0.0) | |
| Net income (loss) attributable to HNI Corporation | $ | 36.0 | | | $ | (12.8) | | | $ | 53.7 | | | $ | (11.3) | |
| | | | | | | |
| Average number of common shares outstanding – basic | 47.2 | | | 43.3 | | | 47.1 | | | 42.4 | |
| Net income (loss) attributable to HNI Corporation per common share – basic | $ | 0.76 | | | $ | (0.30) | | | $ | 1.14 | | | $ | (0.27) | |
| Average number of common shares outstanding – diluted | 48.2 | | | 43.3 | | | 48.2 | | | 42.4 | |
| Net income (loss) attributable to HNI Corporation per common share – diluted | $ | 0.75 | | | $ | (0.30) | | | $ | 1.11 | | | $ | (0.27) | |
| | | | | | | |
| Foreign currency translation adjustments | $ | (0.1) | | | $ | (0.0) | | | $ | (0.1) | | | $ | 0.0 | |
| Change in unrealized gains (losses) on marketable securities, net of tax | 0.0 | | | (0.1) | | | (0.0) | | | 0.1 | |
| | | | | | | |
| Change in derivative financial instruments, net of tax | 0.3 | | | — | | | 1.7 | | | (0.1) | |
| Other comprehensive income (loss), net of tax | 0.3 | | | (0.1) | | | 1.7 | | | 0.0 | |
| Comprehensive income (loss) | 36.3 | | | (12.9) | | | 55.4 | | | (11.2) | |
| Less: Comprehensive income (loss) attributable to non-controlling interest | (0.0) | | | (0.0) | | | 0.0 | | | (0.0) | |
| Comprehensive income (loss) attributable to HNI Corporation | $ | 36.3 | | | $ | (12.9) | | | $ | 55.4 | | | $ | (11.2) | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
Amounts may not sum due to rounding.
| | | | | | | | | | | |
HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In millions) |
| (Unaudited) |
| | | |
| June 29,
2024 | | December 30,
2023 |
| Assets | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 28.2 | | | $ | 28.9 | |
| Short-term investments | 5.3 | | | 5.6 | |
| Receivables | 258.9 | | | 247.1 | |
| Allowance for doubtful accounts | (2.3) | | | (3.5) | |
| Inventories, net | 222.8 | | | 196.6 | |
| | | |
| Prepaid expenses and other current assets | 55.1 | | | 61.3 | |
| | | |
| Total Current Assets | 568.1 | | | 535.9 | |
| | | |
| Property, Plant, and Equipment: | | | |
| Land and land improvements | 59.2 | | | 58.9 | |
| Buildings | 413.4 | | | 406.8 | |
| Machinery and equipment | 708.1 | | | 705.8 | |
| Construction in progress | 23.3 | | | 22.2 | |
| | 1,204.1 | | | 1,193.7 | |
| Less accumulated depreciation | (656.0) | | | (638.5) | |
| Net Property, Plant, and Equipment | 548.1 | | | 555.2 | |
| | | |
| Right-of-use - Finance Leases | 12.7 | | | 12.2 | |
| | | |
| Right-of-use - Operating Leases | 111.5 | | | 115.2 | |
| | | |
| Goodwill and Other Intangible Assets, net | 638.7 | | | 651.9 | |
| | | |
| Other Assets | 61.8 | | | 58.4 | |
| | | |
| Total Assets | $ | 1,940.8 | | | $ | 1,928.8 | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
Amounts may not sum due to rounding.
| | | | | | | | | | | |
HNI Corporation and Subsidiaries Condensed Consolidated Balance Sheets (In millions) |
| (Unaudited) |
| | | |
| | June 29,
2024 | | December 30,
2023 |
| Liabilities and Equity | | | |
| Current Liabilities: | | | |
| Accounts payable and accrued expenses | $ | 390.9 | | | $ | 418.7 | |
| Current maturities of debt | 50.7 | | | 7.5 | |
| Current maturities of other long-term obligations | 2.2 | | | 7.3 | |
| Current lease obligations - Finance | 4.8 | | | 4.4 | |
| Current lease obligations - Operating | 25.7 | | | 25.9 | |
| | | |
| Total Current Liabilities | 474.2 | | | 463.7 | |
| | | |
| Long-Term Debt | 411.7 | | | 428.3 | |
| | | |
| | | |
| | | |
| Long-Term Lease Obligations - Finance | 7.9 | | | 7.9 | |
| | | |
| Long-Term Lease Obligations - Operating | 101.6 | | | 104.0 | |
| | | |
| Other Long-Term Liabilities | 79.6 | | | 78.0 | |
| | | |
| Deferred Income Taxes | 77.7 | | | 85.1 | |
| | | |
| Total Liabilities | 1,152.7 | | | 1,167.0 | |
| | | |
| Equity: | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| HNI Corporation shareholders’ equity | 787.8 | | | 761.4 | |
| | | |
| Non-controlling interest | 0.3 | | | 0.3 | |
| | | |
| Total Equity | 788.1 | | | 761.8 | |
| | | |
| Total Liabilities and Equity | $ | 1,940.8 | | | $ | 1,928.8 | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
Amounts may not sum due to rounding.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Equity (In millions, except per share data) |
| (Unaudited) |
|
| Three Months Ended - June 29, 2024 |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interest | | Total Shareholders’ Equity |
| Balance, March 30, 2024 | $ | 47.3 | | | $ | 208.1 | | | $ | 525.4 | | | $ | (9.3) | | | $ | 0.3 | | | $ | 771.8 | |
| Comprehensive income: | | | | | | | | | | | |
| Net income (loss) | — | | | — | | | 36.0 | | | — | | | (0.0) | | | 36.0 | |
| Other comprehensive income (loss), net of tax | — | | | — | | | — | | | 0.3 | | | — | | | 0.3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Dividends payable | — | | | — | | | (0.2) | | | — | | | — | | | (0.2) | |
Cash dividends; $0.33 per share | — | | | — | | | (15.6) | | | — | | | — | | | (15.6) | |
| | | | | | | | | | | |
| Common shares – treasury: | | | | | | | | | | | |
| Shares purchased | (0.3) | | | (10.8) | | | — | | | — | | | — | | | (11.0) | |
| | | | | | | | | | | |
| Shares issued under Members’ Stock Purchase Plan and stock awards, net of tax | 0.1 | | | 6.7 | | | — | | | — | | | — | | | 6.8 | |
| Balance, June 29, 2024 | $ | 47.1 | | | $ | 204.0 | | | $ | 545.7 | | | $ | (9.0) | | | $ | 0.3 | | | $ | 788.1 | |
| | | | | | | | | | | |
| Six Months Ended - June 29, 2024 |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interest | | Total Shareholders’ Equity |
| Balance, December 30, 2023 | $ | 46.9 | | | $ | 201.6 | | | $ | 523.6 | | | $ | (10.6) | | | $ | 0.3 | | | $ | 761.8 | |
| Comprehensive income: | | | | | | | | | | | |
| Net income | — | | | — | | | 53.7 | | | — | | | 0.0 | | | 53.7 | |
| Other comprehensive income (loss), net of tax | — | | | — | | | — | | | 1.7 | | | — | | | 1.7 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Dividends payable | — | | | — | | | (0.9) | | | — | | | — | | | (0.9) | |
Cash dividends; $0.65 per share | — | | | — | | | (30.7) | | | — | | | — | | | (30.7) | |
| Common shares – treasury: | | | | | | | | | | | |
| Shares purchased | (0.3) | | | (13.2) | | | — | | | — | | | — | | | (13.6) | |
| | | | | | | | | | | |
| Shares issued under Members’ Stock Purchase Plan and stock awards, net of tax | 0.6 | | | 15.6 | | | — | | | — | | | — | | | 16.2 | |
| Balance, June 29, 2024 | $ | 47.1 | | | $ | 204.0 | | | $ | 545.7 | | | $ | (9.0) | | | $ | 0.3 | | | $ | 788.1 | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
Amounts may not sum due to rounding.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
| | | | | | | | | | | |
| Three Months Ended - July 1, 2023 |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interest | | Total Shareholders’ Equity |
| Balance, April 1, 2023 | $ | 41.7 | | | $ | 57.1 | | | $ | 522.0 | | | $ | (7.9) | | | $ | 0.3 | | | $ | 613.2 | |
| Comprehensive income: | | | | | | | | | | | |
| Net income (loss) | — | | | — | | | (12.8) | | | — | | | (0.0) | | | (12.8) | |
| Other comprehensive income (loss), net of tax | — | | | — | | | — | | | (0.1) | | | — | | | (0.1) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Dividends payable | — | | | — | | | (0.3) | | | — | | | — | | | (0.3) | |
Cash dividends; $0.32 per share | — | | | — | | | (14.9) | | | — | | | — | | | (14.9) | |
| Common shares – treasury: | | | | | | | | | | | |
| Shares purchased | — | | | — | | | — | | | — | | | — | | | — | |
| Shares issued in connection with Kimball International, Inc. acquisition | 4.7 | | | 116.1 | | | — | | | — | | | — | | | 120.8 | |
| Shares issued under Members’ Stock Purchase Plan and stock awards, net of tax | 0.1 | | | 9.4 | | | — | | | — | | | — | | | 9.5 | |
| Balance, July 1, 2023 | $ | 46.5 | | | $ | 182.5 | | | $ | 493.9 | | | $ | (8.0) | | | $ | 0.3 | | | $ | 715.3 | |
| | | | | | | | | | | |
| Six Months Ended - July 1, 2023 |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non-controlling Interest | | Total Shareholders’ Equity |
| Balance, December 31, 2022 | $ | 41.4 | | | $ | 49.1 | | | $ | 534.0 | | | $ | (8.0) | | | $ | 0.3 | | | $ | 616.8 | |
| Comprehensive income: | | | | | | | | | | | |
| Net income (loss) | — | | | — | | | (11.3) | | | — | | | (0.0) | | | (11.3) | |
| Other comprehensive income (loss), net of tax | — | | | — | | | — | | | 0.0 | | | — | | | 0.0 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Dividends payable | — | | | — | | | (0.6) | | | — | | | — | | | (0.6) | |
Cash dividends; $0.64 per share | — | | | — | | | (28.2) | | | — | | | — | | | (28.2) | |
| Common shares – treasury: | | | | | | | | | | | |
| Shares purchased | — | | | — | | | — | | | — | | | — | | | — | |
| Shares issued in connection with Kimball International, Inc. acquisition | 4.7 | | | 116.1 | | | — | | | — | | | — | | | 120.8 | |
| Shares issued under Members’ Stock Purchase Plan and stock awards, net of tax | 0.4 | | | 17.3 | | | — | | | — | | | — | | | 17.8 | |
| Balance, July 1, 2023 | $ | 46.5 | | | $ | 182.5 | | | $ | 493.9 | | | $ | (8.0) | | | $ | 0.3 | | | $ | 715.3 | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
Amounts may not sum due to rounding.
| | | | | | | | | | | |
HNI Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows (In millions) |
| (Unaudited) |
| |
| | Six Months Ended |
| | June 29,
2024 | | July 1,
2023 |
| Net Cash Flows From (To) Operating Activities: | | | |
| Net income (loss) | $ | 53.7 | | | $ | (11.3) | |
| Non-cash items included in net income: | | | |
| Depreciation and amortization | 52.8 | | | 42.7 | |
| Other post-retirement and post-employment benefits | 0.5 | | | 0.5 | |
| Stock-based compensation | 11.7 | | | 7.6 | |
| | | |
| | | |
| Deferred income taxes | (7.6) | | | (9.5) | |
| | | |
| | | |
| Other – net | 2.3 | | | 2.3 | |
| Net increase (decrease) in cash from operating assets and liabilities | (61.2) | | | 4.8 | |
| Increase (decrease) in other liabilities | (5.1) | | | 2.7 | |
| Net cash flows from (to) operating activities | 47.0 | | | 39.8 | |
| | | |
| Net Cash Flows From (To) Investing Activities: | | | |
| Capital expenditures | (27.3) | | | (37.7) | |
| | | |
| Capitalized software | (1.4) | | | (3.4) | |
| Acquisition spending, net of cash acquired | — | | | (369.8) | |
| Purchase of investments | (1.9) | | | (3.1) | |
| Sales or maturities of investments | 3.4 | | | 3.0 | |
| | | |
| Other – net | 0.2 | | | 0.2 | |
| Net cash flows from (to) investing activities | (26.9) | | | (410.8) | |
| | | |
| Net Cash Flows From (To) Financing Activities: | | | |
| Payments of debt | (202.4) | | | (161.7) | |
| Proceeds from debt | 228.6 | | | 572.3 | |
| Dividends paid | (32.1) | | | (28.6) | |
| Purchase of HNI Corporation common stock | (13.4) | | | — | |
| Proceeds from sales of HNI Corporation common stock | 1.2 | | | 1.2 | |
| Other – net | (2.7) | | | (5.9) | |
| Net cash flows from (to) financing activities | (20.8) | | | 377.3 | |
| | | |
| | | |
| | | |
| Net increase (decrease) in cash and cash equivalents | (0.7) | | | 6.3 | |
| Cash and cash equivalents at beginning of period | 28.9 | | | 17.4 | |
| Cash and cash equivalents at end of period | $ | 28.2 | | | $ | 23.8 | |
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
Amounts may not sum due to rounding.
HNI Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 29, 2024
Note 1. Basis of Presentation
The accompanying unaudited, condensed consolidated financial statements of HNI Corporation (individually and together with its consolidated subsidiaries, the "Corporation") have been prepared in accordance with generally accepted accounting principles ("GAAP") 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 GAAP for complete financial statements. The December 30, 2023 consolidated balance sheet included in this Form 10-Q was derived from audited financial statements but does not include all disclosures required by GAAP. 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 June 29, 2024, are not necessarily indicative of the results expected for the fiscal year ending December 28, 2024 or for any other period. For further information, refer to the consolidated financial statements and accompanying notes included in the Corporation's Annual Report on Form 10-K for the fiscal year ended December 30, 2023. All dollar amounts presented are in millions, except per share data or where otherwise indicated. Amounts may not sum due to rounding.
On June 1, 2023, the Corporation acquired Kimball International, Inc. ("Kimball International"). The Corporation included the financial results of Kimball International in the Condensed Consolidated Financial Statements starting as of the date of acquisition. See "Note 3. Acquisition and Divestitures" for further information.
Note 2. Revenue from Contracts with Customers
Disaggregation of Revenue
Revenue from contracts with customers disaggregated by product category is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 29,
2024 | | July 1,
2023 | | June 29,
2024 | | July 1,
2023 |
| Systems and storage | $ | 290.7 | | | $ | 251.4 | | | $ | 570.3 | | | $ | 433.7 | |
| Seating | 145.4 | | | 123.4 | | | 271.4 | | | 216.9 | |
| Other | 44.0 | | | 38.3 | | | 78.3 | | | 62.1 | |
| Total workplace furnishings | 480.2 | | | 413.0 | | | 920.0 | | | 712.7 | |
| | | | | | | |
| Residential building products | 143.5 | | | 150.4 | | | 291.7 | | | 329.8 | |
| Net sales | $ | 623.7 | | | $ | 563.5 | | | $ | 1,211.7 | | | $ | 1,042.5 | |
Sales by product category are subject to similar economic factors and market conditions. See "Note 14. Reportable Segment Information" 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 up-front 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.
Contract assets and contract liabilities were as follows:
| | | | | | | | | | | |
| June 29,
2024 | | December 30,
2023 |
| Trade receivables (1) | $ | 258.9 | | | $ | 247.1 | |
| Contract assets (current) (2) | $ | 3.2 | | | $ | 3.1 | |
| Contract assets (long-term) (3) | $ | 26.8 | | | $ | 28.1 | |
| Contract liabilities - Customer deposits (4) | $ | 39.7 | | | $ | 35.6 | |
| Contract liabilities - Accrued rebate and marketing programs (4) | $ | 29.5 | | | $ | 31.4 | |
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"
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 $35.6 million as of December 30, 2023, of which $33.9 million was recognized as revenue in the first six months of 2024.
Note 3. Acquisitions and Divestitures
Acquisition - Kimball International
On June 1, 2023, the Corporation completed its acquisition of Kimball International, a leading commercial furnishings company with expertise in workplace, health, and hospitality, resulting in Kimball International becoming a wholly-owned subsidiary of the Corporation. The Corporation has incurred aggregate acquisition-related expenses of $41.1 million to date, of which $28.6 million were incurred as corporate costs and $12.5 million were recorded in the workplace furnishings segment. Of these expenses, corporate costs of $24.4 million and workplace furnishings costs of $10.3 million were incurred in the six-month period ended July 1, 2023, and are included in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income. Additionally, acquisition-related financing costs of $2.8 million and $0.2 million were recorded to the Condensed Consolidated Balance Sheets in "Long-term Debt" and "Other Assets," respectively, while $0.3 million of acquisition-related stock issuance costs were recorded to "Additional paid-in capital."
The acquired assets and assumed liabilities and results of Kimball International's operations are included in the Corporation's workplace furnishings reportable segment. The acquisition was 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. Goodwill, which is not tax-deductible, is primarily attributable to the assembled workforce of Kimball International and anticipated synergies.
The total fair market value of consideration was approximately $503.7 million, which is allocated as follows:
| | | | | | | | | | | | | | | | | | | |
| Kimball International Shares | | HNI Shares Exchanged | | Fair Value | | |
| Cash Consideration: | | | | | | | |
| Shares of Kimball International common stock issued and outstanding as of June 1, 2023 | 36.4 | | | | $ | 327.8 | | | |
| Kimball International equivalent shares | 0.2 | | | | 2.3 | | | |
| Total number of Kimball International shares for cash consideration | 36.6 | | | | 330.0 | | | |
| | | | | | | |
| Consideration for payment to settle Kimball International's outstanding debt | | | | | 50.2 | | | |
| | | | | | | |
| Share Consideration: | | | | | | | |
| Shares of Kimball International common stock issued and outstanding as of June 1, 2023 | 36.4 | | 4.7 | | 120.8 | | | |
| | | | | | | |
| Replacement Share-Based Awards: | | | | | | | |
| Outstanding awards of Kimball International restricted stock units relating to Kimball International common stock as of June 1, 2023 | 0.5 | | 0.2 | | 2.6 | | | |
| | | | | | | |
| Total acquisition date fair value of purchase consideration | | | | | $ | 503.7 | | | |
Consideration provided in the form of HNI Corporation shares and HNI Corporation replacement share-based awards represents non-cash consideration.
The purchase price allocation at the date of acquisition, including measurement period adjustments made in the first quarter of 2024, is shown below. The one-year accounting measurement period closed in the second quarter of 2024, and the purchase price allocation was finalized with no additional adjustments recorded.
| | | | | | | | | | | | | | | | | |
| Preliminary at December 30, 2023 | | Measurement period adjustments | | Final |
| Goodwill | $ | 162.7 | | | $ | 1.1 | | | $ | 163.8 | |
| Intangible assets | 110.1 | | | — | | | 110.1 | |
| Other assets acquired and liabilities assumed, net | 231.0 | | | (1.1) | | | 229.9 | |
| Net Assets and Liabilities | $ | 503.7 | | | $ | — | | | $ | 503.7 | |
The following table summarizes the acquired identified intangible assets and weighted average useful lives:
| | | | | | | | | | | | | | |
| Category | | Weighted-average useful life | | Fair Value |
| Software | | 3 years | | $ | 5.6 | |
| Customer lists and other | | 12 years | | 47.2 | |
| Acquired technology | | 18 years | | 16.5 | |
| Trademarks and trade names - Definite-lived | | 17 years | | 3.8 | |
| Trademarks and trade names - Indefinite-lived | | Indefinite-lived | | 37.0 | |
| Total intangible assets | | | | $ | 110.1 | |
The following table summarizes the results of Kimball International operations that are included in the Corporation's Condensed Consolidated Statement of Comprehensive Income for the three- and six-month periods ended June 29, 2024 and July 1, 2023. These amounts include the results of Poppin Furniture, Inc. ("Poppin") for the prior-year period during which it was owned by the Corporation. Poppin was determined not to require discontinued operations presentation as this entity was not material to the consolidated results of the prior periods presented.
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 29,
2024 | July 1,
2023 | | June 29,
2024 | July 1,
2023 |
| Net sales | $ | 139.6 | | $ | 56.0 | | | $ | 287.1 | | $ | 56.0 | |
| Net income (loss) | $ | 10.1 | | $ | (21.3) | | | $ | 16.3 | | $ | (21.3) | |
Pro Forma Results of Operations
The following table provides, on a pro forma basis, the combined results of operations of HNI Corporation and Kimball International for the three- and six-month periods ended July 1, 2023, as though the acquisition and related financing had occurred as of January 2, 2022, the first day of the Corporation's 2022 fiscal year. The pro forma results include certain purchase accounting adjustments such as: reclassifications to conform Kimball International's results to the Corporation's financial statement presentation; estimated depreciation and amortization expense on acquired tangible and intangible assets; estimated share-based compensation expense for Kimball International equity awards converted to the Corporation's equity awards; interest associated with additional borrowings to finance the acquisition; non-recurring transaction costs as outlined above; and the impact to income tax expense. This pro forma information is not necessarily reflective of what the Corporation's results would have been had the acquisition occurred on the date indicated, nor is it indicative of future results.
| | | | | | | | | | | | | | | |
| | | Three Months Ended | | | | Six Months Ended |
| | | July 1,
2023 | | | | July 1,
2023 |
| Net sales | | | $ | 666.3 | | | | | $ | 1,306.6 | |
| Net income | | | $ | 10.4 | | | | | $ | 14.7 | |
Divestiture - Poppin
On September 12, 2023, the Corporation closed on the sale of substantially all of the assets of Poppin for $2.7 million in cash, net of selling costs, which transaction was structured as an asset sale. Poppin had been acquired as part of the Kimball International transaction in June 2023 and was a component of the workplace furnishings segment. Balances divested include $9.7 million of inventory, $3.1 million of various other assets, $7.0 million of accounts payable and accrued expenses, and $3.0 million of operating lease obligations.
Note 4. Inventories
The 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. Inventories included in the Condensed Consolidated Balance Sheets consisted of the following:
| | | | | | | | | | | |
| June 29,
2024 | | December 30,
2023 |
|
| Finished products, net | $ | 143.9 | | | $ | 112.9 | |
| Materials and work in process, net | 123.4 | | | 128.2 | |
| LIFO allowance | (44.5) | | | (44.5) | |
| Total inventories, net | $ | 222.8 | | | $ | 196.6 | |
| | | |
| Inventory valued by the LIFO costing method | 93 | % | | 91 | % |
The year-to-date increase in the net inventory balance was driven by seasonality in both the workplace furnishings and residential building products segments.
In addition to the LIFO allowance, the Corporation recorded inventory allowances reducing finished products, materials, and work in process of $15.0 million and $14.2 million as of June 29, 2024 and December 30, 2023, respectively, to adjust for excess and obsolete inventory or otherwise reduce FIFO-basis inventory to net realizable value.
Note 5. Goodwill and Other Intangible Assets
Goodwill and other intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following:
| | | | | | | | | | | |
| June 29,
2024 | | December 30,
2023 |
| Goodwill, net | $ | 442.1 | | | $ | 441.0 | |
| Definite-lived intangible assets, net | 147.4 | | | 161.7 | |
| Indefinite-lived intangible assets | 49.1 | | | 49.1 | |
| Total goodwill and other intangible assets, net | $ | 638.7 | | | $ | 651.9 | |
Goodwill
The activity in the carrying amount of goodwill, by reporting segment, was as follows:
| | | | | | | | | | | | | | | | | |
| Workplace Furnishings | | Residential Building Products | | Total |
| Balance as of December 30, 2023 | | | | | |
| Goodwill | $ | 297.2 | | | $ | 222.4 | | | $ | 519.6 | |
| Accumulated impairment losses | (78.5) | | | (0.1) | | | (78.6) | |
Net goodwill balance as of December 30, 2023 | 218.7 | | | 222.3 | | | 441.0 | |
| | | | | |
| Goodwill measurement period adjustments | 1.1 | | | — | | | 1.1 | |
| | | | | |
| | | | | |
| | | | | |
| Balance as of June 29, 2024 | | | | | |
| Goodwill | 298.3 | | | 222.4 | | | 520.7 | |
| Accumulated impairment losses | (78.5) | | | (0.1) | | | (78.6) | |
Net goodwill balance as of June 29, 2024 | $ | 219.8 | | | $ | 222.3 | | | $ | 442.1 | |
Goodwill measurement period adjustments were made in the first quarter of 2024 related to the acquisition of Kimball International. The measurement period was closed during the second quarter of 2024. See "Note 3. Acquisitions and Divestitures" for further information.
Definite-lived intangible assets
The table below summarizes amortizable definite-lived intangible assets, which are reflected in "Goodwill and Other Intangible Assets, net" in the Condensed Consolidated Balance Sheets:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 29, 2024 | | December 30, 2023 |
| Gross | | Accumulated Amortization | | Net | | Gross | | Accumulated Amortization | | Net |
| | | | | | | | | | | |
| Software | $ | 192.0 | | | $ | 144.8 | | | $ | 47.2 | | | $ | 199.6 | | | $ | 143.4 | | | $ | 56.2 | |
| Trademarks and trade names | 17.9 | | | 7.7 | | | 10.2 | | | 18.1 | | | 7.3 | | | 10.8 | |
| Customer lists and other | 139.7 | | | 49.7 | | | 90.1 | | | 143.9 | | | 49.2 | | | 94.7 | |
| Net definite-lived intangible assets | $ | 349.6 | | | $ | 202.1 | | | $ | 147.4 | | | $ | 361.6 | | | $ | 199.8 | | | $ | 161.7 | |
Amortization expense is reflected in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income and was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 29,
2024 | | July 1,
2023 | | June 29,
2024 | | July 1,
2023 |
| Capitalized software | $ | 5.2 | | | $ | 5.5 | | | $ | 10.4 | | | $ | 10.9 | |
| Other definite-lived intangibles | $ | 2.6 | | | $ | 1.9 | | | $ | 5.2 | | | $ | 3.4 | |
The occurrence of events such as acquisitions, dispositions, or impairments may impact future amortization expense. Over the next several years, amortization expense is expected to decline due primarily to the completion of the amortization of the Corporation's Business Systems Transformation investment. Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five years is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2024 | | 2025 | | 2026 | | 2027 | | 2028 |
| Amortization expense | | $ | 30.2 | | | $ | 27.5 | | | $ | 22.9 | | | $ | 16.9 | | | $ | 9.0 | |
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, net" in the Condensed Consolidated Balance Sheets:
| | | | | | | | | | | |
| June 29,
2024 | | December 30,
2023 |
| Trademarks and trade names | $ | 49.1 | | | $ | 49.1 | |
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. The Corporation also evaluates long-lived assets (which include definite-lived intangible assets) for impairment if indicators exist. No impairment triggers were identified that warranted further impairment analysis in the current period.
Note 6. Product Warranties
The 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 claims incurred could differ materially from the original estimates, requiring adjustments to the allowance.
Activity associated with warranty obligations was as follows:
| | | | | | | | | | | |
| Six Months Ended |
| June 29,
2024 | | July 1,
2023 |
| Balance at beginning of period | $ | 18.0 | | | $ | 14.8 | |
| Accruals related to acquisitions | — | | | 3.5 | |
| Accruals for warranties issued | 8.1 | | | 6.2 | |
| | | |
| | | |
| | | |
| Settlements and other | (7.1) | | | (5.6) | |
| Balance at end of period | $ | 19.0 | | | $ | 19.0 | |
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:
| | | | | | | | | | | |
| June 29,
2024 | | December 30,
2023 |
| Current - in the next twelve months | $ | 6.7 | | | $ | 6.0 | |
| Long-term - beyond one year | 12.4 | | | 12.0 | |
| Total | $ | 19.0 | | | $ | 18.0 | |
Note 7. Debt
Debt is as follows:
| | | | | | | | | | | |
| June 29,
2024 | | December 30,
2023 |
Revolving credit facility with interest at a variable rate (June 29, 2024 - 6.7%; December 30, 2023 - 6.9%) | $ | 114.0 | | | $ | 38.5 | |
Term loan with interest at a variable rate (June 29, 2024 - 6.8%; December 30, 2023 - 7.0%) | 250.0 | | | 300.0 | |
Fixed-rate notes due in 2025 with an interest rate of 4.2% | 50.0 | | | 50.0 | |
Fixed-rate notes due in 2028 with an interest rate of 4.4% | 50.0 | | | 50.0 | |
| Other amounts | 0.7 | | | — | |
| Deferred debt issuance costs | (2.4) | | | (2.7) | |
| Total debt | 462.3 | | | 435.8 | |
| Less: Current maturities of debt | 50.7 | | | 7.5 | |
| Long-term debt | $ | 411.7 | | | $ | 428.3 | |
The aggregate carrying value of the Corporation’s variable-rate, long-term debt obligations under the revolving credit and term loan facilities at June 29, 2024, was $364 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 $95 million at June 29, 2024.
As of June 29, 2024, the Corporation’s revolving credit facility borrowings were incurred under the amended and restated credit agreement entered into on June 14, 2022, as further amended on March 14, 2023 and June 1, 2023 with a scheduled maturity of June 14, 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 $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 debt issuance costs of $0.7 million is reflected in "Other Assets" in the Condensed Consolidated Balance Sheets.
As of June 29, 2024, there was $114 million of borrowings outstanding under the $425 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 consolidated EBITDA, as defined in the credit agreement, for the last four fiscal quarters, the Corporation can access the full $425 million of borrowing capacity available under the revolving credit facility, which includes the $114 million currently outstanding, and maintain compliance with the financial covenants under the facility described below.
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.
As of June 29, 2024, the Corporation had $250 million principal amount of borrowings outstanding under a term loan agreement entered into on March 31, 2023, as amended on May 25, 2023. The initial $300 million of proceeds from the term loan were used to support funding of the Corporation's acquisition of Kimball International on June 1, 2023. In May 2024, the Corporation executed a $50 million early repayment of the outstanding principal balance on the term loan. Borrowings under the revolving credit facility were used to finance the early repayment. The term loan is subject to principal amortization which
was scheduled to begin on June 30, 2024. As a result of the early repayment executed by the Corporation, a portion of the principal amortization requirements were satisfied. No principal amortization is due to be repaid prior to March 2027, with incremental amounts due each subsequent quarter until the expiration of the term loan on the fifth year of the funding date, defined as June 1, 2028. The Corporation deferred the debt issuance costs related to the agreement, which are classified as a reduction of long-term debt, and is amortizing them over the term of the agreement. The deferred debt issuance costs do not reduce the amount owed by the Corporation under the terms of the agreement. As of June 29, 2024, the deferred debt issuance costs balance of $2.2 million related to the agreement is reflected in "Long-Term Debt" in the Condensed Consolidated Balance Sheets.
As of June 29, 2024, the Corporation also had $100 million principal amount 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 4.2 percent, due May 31, 2025, and $50 million of ten-year fixed-rate notes with an interest rate of 4.4 percent, due May 31, 2028. The principal amounts due on May 31, 2025 are classified as "Current maturities of debt" and the principal amounts due May 31, 2028 are classified as "Long-Term Debt" in the Condensed Consolidated Balance Sheets. The Corporation deferred the debt issuance costs related to the private placement note agreements, which are classified as reductions of current maturities of debt and long-term debt based on note maturity, 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. As of June 29, 2024, the current portion of the deferred debt issuance costs balance related to the private placement note agreements is not material and is reflected in "Current maturities of debt" in the Condensed Consolidated Balance Sheets, and the long term portion of the deferred debt issuance costs balance related to the private placement note agreements is $0.2 million and is reflected in "Long-Term Debt" in the Condensed Consolidated Balance Sheets. As of June 29, 2024, due to current market rates, the Corporation would not owe any amounts to the note holders under a make-whole provision.
The revolving credit facility, term loan credit facility, and private placement notes all contain financial and non-financial covenants. 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. The covenants under all the agreements are substantially the same. In the event the private placement notes are repaid by the Corporation, the revolving credit facility and term loan credit facility include certain fall-away provisions to allow for modification of the covenant measures whereby the Corporation would have increased financial flexibility. In such an event, the definitions of consolidated EBITDA and the maximum leverage under the consolidated leverage ratio would adjust to a more flexible definition while the interest coverage ratio would no longer be an included measure.
The Corporation is subject to financial covenants requiring it to maintain the following financial ratios as of the end of any fiscal quarter:
•a consolidated interest coverage ratio (as defined in the credit agreements) 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 agreements) 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 more restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.5 to 1.0. Under the credit agreements, 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 June 29, 2024, the Corporation was in compliance with the financial covenants.
Note 8. 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:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 29,
2024 | | July 1,
2023 | | June 29,
2024 | | July 1,
2023 |
| Income (loss) before income taxes | $ | 46.0 | | | $ | (9.0) | | | $ | 68.0 | | | $ | (5.3) | |
| Income taxes | $ | 10.0 | | | $ | 3.8 | | | $ | 14.3 | | | $ | 6.0 | |
| Effective tax rate | 21.7 | % | | (41.8) | % | | 21.0 | % | | (113.1) | % |
The Corporation’s income tax expense was higher in the three- and six-month periods ended June 29, 2024 compared to the same periods last year. The variation in the effective tax rates was primarily due to lower pre-tax income in the comparable prior-year periods impacted by non-deductible transaction costs in connection with the acquisition of Kimball International.
Note 9. Fair Value Measurements of Financial Instruments
For recognition purposes, on a recurring basis, the Corporation is required to measure at fair value its marketable securities, derivative financial instruments, and put option liabilities. The marketable securities are comprised of money market funds, government securities, corporate bonds, and mutual funds. 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 option liabilities, determined using a simulation model based on assumptions including future cash flows, discount rates, and volatility.
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) | | Significant other observable inputs
(Level 2) | | Significant unobservable inputs
(Level 3) |
| Balance as of June 29, 2024 | | | | | | | |
| Cash and cash equivalents (including money market funds) (1) | $ | 28.2 | | | $ | 28.2 | | | $ | — | | | $ | — | |
| Mutual funds (2) | $ | 10.9 | | | $ | 10.9 | | | $ | — | | | $ | — | |
| Government securities (2) | $ | 5.5 | | | $ | — | | | $ | 5.5 | | | $ | — | |
| Corporate bonds (2) | $ | 7.9 | | | $ | — | | | $ | 7.9 | | | $ | — | |
| Interest rate swap derivative - asset (3) | $ | 0.2 | | | $ | — | | | $ | 0.2 | | | $ | — | |
| Interest rate swap derivative - liability (4) | $ | (1.5) | | | $ | — | | | $ | (1.5) | | | $ | — | |
| | | | | | | |
| | | | | | | |
| Put option liability (4) | $ | (5.7) | | | $ | — | | | $ | — | | | $ | (5.7) | |
| | | | | | | |
| Balance as of December 30, 2023 | | | | | | | |
| Cash and cash equivalents (including money market funds) (1) | $ | 28.9 | | | $ | 28.9 | | | $ | — | | | $ | — | |
| Mutual funds (2) | $ | 11.3 | | | $ | 11.3 | | | $ | — | | | $ | — | |
| Government securities (2) | $ | 5.7 | | | $ | — | | | $ | 5.7 | | | $ | — | |
| Corporate bonds (2) | $ | 7.8 | | | $ | — | | | $ | 7.8 | | | $ | — | |
| Interest rate swap derivative - liability (4) | $ | (3.5) | | | $ | — | | | $ | (3.5) | | | $ | — | |
| | | | | | | |
| Put option liability (4) | $ | (5.7) | | | $ | — | | | $ | — | | | $ | (5.7) | |
Amounts in parentheses indicate liabilities.
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) "Prepaid expenses and other current assets"
(4) "Other Long-Term Liabilities"
Note 10. 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:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustment | | Unrealized Gains (Losses) on Debt Securities | | Pension and Post-retirement Liabilities | | Derivative Financial Instrument | | Accumulated Other Comprehensive Income (Loss) |
| Balance as of December 30, 2023 | | $ | (6.5) | | | $ | (0.3) | | | $ | (1.2) | | | $ | (2.7) | | | $ | (10.6) | |
| Other comprehensive income (loss) before reclassifications | | (0.1) | | | (0.0) | | | — | | | 2.6 | | | 2.5 | |
| Tax (expense) or benefit | | — | | | 0.0 | | | — | | | (0.6) | | | (0.6) | |
| | | | | | | | | | |
| Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | — | | | 0.0 | | | — | | | (0.2) | | | (0.2) | |
| Balance as of June 29, 2024 | | $ | (6.6) | | | $ | (0.3) | | | $ | (1.2) | | | $ | (1.0) | | | $ | (9.0) | |
Amounts in parentheses indicate reductions to equity.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Foreign Currency Translation Adjustment | | Unrealized Gains (Losses) on Debt Securities | | Pension and Post-retirement Liabilities | | Derivative Financial Instrument | | Accumulated Other Comprehensive Income (Loss) |
| Balance as of December 31, 2022 | | $ | (6.4) | | | $ | (0.6) | | | $ | (1.1) | | | $ | 0.1 | | | $ | (8.0) | |
| Other comprehensive income (loss) before reclassifications | | 0.0 | | | 0.0 | | | — | | | — | | | 0.1 | |
| Tax (expense) or benefit | | — | | | (0.0) | | | — | | | — | | | (0.0) | |
| | | | | | | | | | |
| Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | — | | | 0.1 | | | — | | | (0.1) | | | (0.0) | |
| Balance as of July 1, 2023 | | $ | (6.3) | | | $ | (0.5) | | | $ | (1.1) | | | $ | — | | | $ | (8.0) | |
Amounts in parentheses indicate reductions to equity.
Interest Rate Swap
During the normal course of business, the Corporation is subjected to market risk associated with interest rate movements. Interest rate risk arises from variable interest debt obligations. Interest rate swap derivative instruments are periodically held and used by the Corporation as a tool for managing interest rate risk. They are not used for trading or speculative purposes.
In November 2023, the Corporation entered into an interest rate swap transaction to hedge $100 million of outstanding variable-rate term loan borrowings against future interest rate volatility. Under the terms of this interest rate swap, the Corporation pays a fixed rate of 4.7 percent and receives one-month SOFR on a $100 million notional value expiring June 14, 2027. As of June 29, 2024, the fair value of the Corporation’s interest rate swap was comprised of a current asset of $0.2 million and a non-current liability of $1.5 million. See "Note 9. Fair Value Measurements of Financial Instruments." The unrecognized change in value of the interest rate swap is reported net of tax as $(1.0) 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):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | 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 | | June 29,
2024 | | July 1,
2023 | | June 29,
2024 | | July 1,
2023 |
| Derivative financial instrument | | | | | | | | |
| Interest rate swap | Interest expense, net | | $ | 0.2 | | | $ | — | | | $ | 0.3 | | | $ | 0.1 | |
| Income taxes | | (0.0) | | | — | | | (0.1) | | | (0.0) | |
| Unrealized gains (losses) on debt securities | | | | | | | | | |
| Gain (loss) on sale of debt securities | Selling and administrative expenses | | (0.0) | | | 0.0 | | | (0.0) | | | (0.1) | |
| Income taxes | | 0.0 | | | (0.0) | | | 0.0 | | | 0.0 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Net of tax | | $ | 0.1 | | | $ | 0.0 | | | $ | 0.2 | | | $ | 0.0 | |
Amounts in parentheses indicate reductions to profit.
Dividend
The Corporation declared and paid cash dividends per common share as follows:
| | | | | | | | | | | |
| Six Months Ended |
| June 29,
2024 | | July 1,
2023 |
| Dividends per common share | $ | 0.65 | | | $ | 0.64 | |
Stock Repurchase
The following table summarizes shares repurchased and settled by the Corporation:
| | | | | | | | | | | |
| Six Months Ended |
| June 29,
2024 | | July 1,
2023 |
| Shares repurchased | 0.3 | | | — | |
| Average price per share | $ | 43.53 | | | $ | — | |
| | | |
| Cash purchase price | $ | (13.6) | | | $ | — | |
| Purchases unsettled as of quarter end | 0.3 | | | — | |
| Prior year purchases settled in current year | (0.1) | | | — | |
| Shares repurchased per cash flow | $ | (13.4) | | | $ | — | |
As of June 29, 2024, $220.0 million of the Corporation’s stock repurchase authorization by the Board of Directors remained available.
Note 11. Earnings Per Share
The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS"):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| June 29,
2024 | | July 1,
2023 | | June 29,
2024 | | July 1,
2023 |
| Numerator: | | | | | | | |
| Numerator for both basic and diluted EPS attributable to HNI Corporation net income (loss) | $ | 36.0 | | | $ | (12.8) | | | $ | 53.7 | | | $ | (11.3) | |
| Denominators: | | | | | | | |
| Denominator for basic EPS weighted-average common shares outstanding | 47.2 | | | 43.3 | | | 47.1 | | | 42.4 | |
| Potentially dilutive shares from stock-based compensation plans | 1.0 | | | — | | | 1.1 | | | — | |
| Denominator for diluted EPS | 48.2 | | | 43.3 | | | 48.2 | | | 42.4 | |
| Earnings per share – basic | $ | 0.76 | | | $ | (0.30) | | | $ | 1.14 | | | $ | (0.27) | |
| Earnings per share – diluted | $ | 0.75 | | | $ | (0.30) | | | $ | 1.11 | | | $ | (0.27) | |
The year-over-year increase in shares outstanding is primarily due to the issuance of 4.7 million shares in June 2023 as part of the consideration to acquire Kimball International. See "Note 3. Acquisition and Divestitures" for further information.
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 | | Six Months Ended |
| June 29,
2024 | | July 1,
2023 | | June 29,
2024 | | July 1,
2023 |
| Common stock equivalents excluded because their inclusion would be anti-dilutive | 0.8 | | | 3.0 | | | 0.8 | | | 2.8 | |
Note 12. Stock-Based Compensation
The 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 periodically adjusted for the probable number of shares to be awarded based on Corporation achievement within an established target range of cumulative profitability over a multi-year period.
The following table summarizes expense associated with these plans:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 29,
2024 | | July 1,
2023 | | June 29,
2024 | | July 1,
2023 |
| Compensation cost | $ | 4.0 | | | $ | 3.1 | | | $ | 11.7 | | | $ | 7.6 | |
The increase in stock compensation cost was driven by higher forecasted Corporation achievement relative to performance stock unit targets, as well as an increase in members participating in stock-based incentive plans as a result of the Kimball International acquisition.
The units granted by the Corporation had fair values as follows:
| | | | | | | | | | | |
| Six Months Ended |
| June 29,
2024 | | July 1,
2023 |
| | | |
| Restricted stock units | $ | 7.3 | | | $ | 12.1 | |
| Performance stock units | $ | 7.2 | | | $ | 6.0 | |
The decrease in the fair value of restricted stock units granted compared to the prior-year period was driven by replacement awards issued in the second quarter of 2023 in connection with the Kimball International acquisition. See "Note 3.
Acquisitions and Divestitures" for further information.
The following table summarizes unrecognized compensation expense and the weighted-average remaining service period for non-vested stock units as of June 29, 2024:
| | | | | | | | | | | |
| Unrecognized Compensation Expense | | Weighted-Average Remaining
Service Period (years) |
| | | |
| Non-vested restricted stock units | $ | 4.2 | | | 0.8 |
|