HNI CORP [HNI] Filings

10-Q 1 hni-20230401.htm 10-Q hni-20230401

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

April 1, 2023

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number:

1-14225

HNI Corporation

Iowa

42-0617510

(State of Incorporation)

(I.R.S. Employer Identification No.)

600 East Second Street

P.O. Box 1109

Muscatine

Iowa

52761-0071

(

563

)

272-7400

Securities registered pursuant to Section 12(b) of the Act:

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

April 1, 2023

41,699,265


HNI Corporation and Subsidiaries
Quarterly Report on Form 10-Q

Table of Contents

PART I. FINANCIAL INFORMATION
		Page
Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Comprehensive Income - Three Months Ended April 1, 2023 and A pril 2, 2022	3

	Condensed Consolidated Balance Sheets - April 1, 2023 and December 31, 2022	4

	Condensed Consolidated Statements of Equity - Three Months Ended April 1, 2023 and April 2, 2022	6

	Condensed Consolidated Statements of Cash Flows - Three Months Ended Apri l 1 , 2023 and April 2, 2022	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management ’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27

Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 1A.	Risk Factors	28

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults Upon Senior Securities - None	-

Item 4.	Mine Safety Disclosures - Not Applicable	-

Item 5.	Other Information - None	-

Item 6.	Exhibits	34

Signatures		35

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
	April 1, 2023		April 2, 2022

Net sales	$	479.1	$	572.3
Cost of sales	304.8		375.4
Gross profit	174.3		196.9
Selling and administrative expenses	167.9		176.5


Operating income	6.4		20.4
Interest expense, net	2.7		2.0
Income before income taxes	3.8		18.5
Income taxes	2.2		4.3
Net income	1.6		14.2
Less: Net loss attributable to non-controlling interest	(0.0)		(0.0)
Net income attributable to HNI Corporation	$	1.6	$	14.2

Average number of common shares outstanding – basic	41.5		42.4
Net income attributable to HNI Corporation per common share – basic	$	0.04	$	0.33
Average number of common shares outstanding – diluted	42.1		43.1
Net income attributable to HNI Corporation per common share – diluted	$	0.04	$	0.33

Foreign currency translation adjustments	$	0.1	$	(0.6)
Change in unrealized gains (losses) on marketable securities, net of tax	0.2		(0.4)

Change in derivative financial instruments, net of tax	(0.1)		0.9
Other comprehensive income (loss), net of tax	0.1		(0.1)
Comprehensive income	1.7		14.1
Less: Comprehensive loss attributable to non-controlling interest	(0.0)		(0.0)
Comprehensive income attributable to HNI Corporation	$	1.7	$	14.1

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)

	April 1, 2023		December 31, 2022
Assets
Current Assets:
Cash and cash equivalents	$	16.8	$	17.4
Short-term investments	2.0		2.0
Receivables	190.9		218.4
Allowance for doubtful accounts	(3.4)		(3.2)
Inventories, net	191.1		180.1

Prepaid expenses and other current assets	49.8		54.4

Total Current Assets	447.1		469.2

Property, Plant, and Equipment:
Land and land improvements	30.7		30.8
Buildings	278.3		275.4
Machinery and equipment	607.3		602.6
Construction in progress	39.8		34.2
	956.2		942.9
Less: Accumulated depreciation	(601.4)		(590.3)
Net Property, Plant, and Equipment	354.8		352.5

Right-of-use Finance Leases	10.9		11.4

Right-of-use Operating Leases	84.8		88.4

Goodwill and Other Intangible Assets, net	432.6		439.8

Other Assets	52.6		53.2

Total Assets	$	1,382.8	$	1,414.5

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)

	April 1, 2023		December 31, 2022
Liabilities and Equity
Current Liabilities:
Accounts payable and accrued expenses	$	326.3	$	367.7
Current maturities of debt	1.6		1.3
Current maturities of other long-term obligations	2.7		2.1
Current lease obligations - Finance	3.8		3.7
Current lease obligations - Operating	18.3		20.3

Total Current Liabilities	352.6		395.1

Long-Term Debt	206.3		188.8



Long-Term Lease Obligations - Finance	7.1		7.7

Long-Term Lease Obligations - Operating	75.6		78.9

Other Long-Term Liabilities	67.6		66.3

Deferred Income Taxes	60.4		61.0

Total Liabilities	769.7		797.7

Equity:









HNI Corporation shareholders’ equity	612.8		616.5

Non-controlling interest	0.3		0.3

Total Equity	613.2		616.8

Total Liabilities and Equity	$	1,382.8	$	1,414.5

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 - April 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)	—		—		1.6		—		(0.0)		1.6
Other comprehensive income (loss), net of tax	—		—		—		0.1		—		0.1



Dividends payable	—		—		(0.3)		—		—		(0.3)
Cash dividends; $0.32 per share	—		—		(13.3)		—		—		(13.3)
Common shares – treasury:
Shares purchased	—		—		—		—		—		—
Shares issued under Members’ Stock Purchase Plan and stock awards, net of tax	0.3		8.0		—		—		—		8.3
Balance, April 1, 2023	$	41.7	$	57.1	$	522.0	$	(7.9)	$	0.3	$	613.2





	Three Months Ended - April 2, 2022
	Common Stock		Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Non-controlling Interest		Total Shareholders’ Equity
Balance, January 1, 2022	$	42.6	$	39.2	$	514.6	$	(6.8)	$	0.3	$	590.0
Comprehensive income:
Net income (loss)	—		—		14.2		—		(0.0)		14.2
Other comprehensive income (loss), net of tax	—		—		—		(0.1)		—		(0.1)



Dividends payable	—		—		(0.1)		—		—		(0.1)
Cash dividends; $0.31 per share	—		—		(13.1)		—		—		(13.1)
Common shares – treasury:
Shares purchased	(0.6)		(8.5)		(14.9)		—		—		(23.9)
Shares issued under Members’ Stock Purchase Plan and stock awards, net of tax	0.4		14.7		—		—		—		15.0
Balance, April 2, 2022	$	42.4	$	45.4	$	500.8	$	(6.8)	$	0.3	$	582.0

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)

	Three Months Ended
	April 1, 2023		April 2, 2022
Net Cash Flows From (To) Operating Activities:
Net income	$	1.6	$	14.2
Non-cash items included in net income:
Depreciation and amortization	20.1		21.1
Other post-retirement and post-employment benefits	0.3		0.3
Stock-based compensation	4.5		5.6


Deferred income taxes	(0.6)		(1.2)


Other – net	0.6		(0.9)
Net decrease in cash from operating assets and liabilities	(10.5)		(74.4)
Increase (decrease) in other liabilities	1.4		(3.7)
Net cash flows from (to) operating activities	17.3		(39.0)

Net Cash Flows From (To) Investing Activities:
Capital expenditures	(19.9)		(15.1)

Capitalized software	(0.2)		(3.1)
Acquisition spending, net of cash acquired	—		(1.7)
Purchase of investments	(1.6)		(1.0)
Sales or maturities of investments	1.5		0.7

Other – net	0.1		—
Net cash flows from (to) investing activities	(20.0)		(20.2)

Net Cash Flows From (To) Financing Activities:
Payments of debt	(77.8)		(100.5)
Proceeds from debt	97.1		165.8
Dividends paid	(13.7)		(13.4)
Purchase of HNI Corporation common stock	—		(25.2)
Proceeds from sales of HNI Corporation common stock	0.6		2.7
Other – net	(4.0)		0.8
Net cash flows from (to) financing activities	2.1		30.3



Net decrease in cash and cash equivalents	(0.6)		(28.8)
Cash and cash equivalents at beginning of period	17.4		52.3
Cash and cash equivalents at end of period	$	16.8	$	23.5

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)

April 1, 2023

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 31, 2022, consolidated balance sheet included in this Form 10-Q was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three-month period ended April 1, 2023, are not necessarily indicative of the results expected for the fiscal year ending December 30, 2023. 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 31, 2022. Certain reclassifications have been made within the interim financial information to conform to the current presentation. All dollar amounts presented are in millions, except per share data or where otherwise indicated. Amounts may not sum due to rounding.

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
	April 1, 2023		April 2, 2022
Systems and storage	$	182.3	$	207.9
Seating	93.5		110.2
Other	23.9		35.0
Total workplace furnishings	299.6		353.1

Residential building products	179.4		219.2
Net sales	$	479.1	$	572.3

Sales by product category are subject to similar economic factors and market conditions. See "Note 14. Reportable Segment Information" in the Notes to Condensed Consolidated Financial Statements for further information about operating segments.

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:


	April 1, 2023		December 31, 2022
Trade receivables (1)	$	190.9	$	218.4
Contract assets (current) (2)	$	2.9	$	2.9
Contract assets (long-term) (3)	$	28.9	$	29.8
Contract liabilities - Customer deposits (4)	$	25.4	$	27.3
Contract liabilities - Accrued rebate and marketing programs (4)	$	23.7	$	31.3

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 $27.3 million as of December 31, 2022, of which, $12.0 million was recognized as revenue in the first three months of 2023.

Performance Obligations

The Corporation recognizes revenue for sales of workplace furnishings and residential building products at a point in time following the transfer of control of such products to the customer, which typically occurs upon shipment of the product. In certain circumstances, transfer of control to the customer does not occur until the goods are received by the customer or upon installation and/or customer acceptance, depending on the terms of the underlying contracts. Contracts typically have a duration of less than one year and normally do not include a significant financing component. Generally, payment is due within 30 days of invoicing.

The Corporation’s backlog orders are typically cancellable for a period of time and almost all contracts have an original duration of one year or less. As a result, the Corporation has elected the practical expedient permitted in the revenue accounting standard not to disclose the unsatisfied performance obligation as of period end. The backlog is typically fulfilled within a few months.

Significant Judgments

The amount of consideration the Corporation receives and revenue recognized varies with changes in rebate and marketing program incentives, as well as early pay discounts, offered to customers. The Corporation uses significant judgment throughout the year in estimating the reduction in net sales driven by variable consideration for rebate and marketing programs. Judgments made include expected sales levels and utilization of funds. However, this judgment factor is significantly reduced at the end of each year when sales volumes and the impact to rebate and marketing programs are known and recorded as the programs typically end near the Corporation’s fiscal year end.

Note 3. Acquisitions and Divestitures

Planned Acquisition

On March 7, 2023, the Corporation entered into an Agreement and Plan of Merger (the "Merger Agreement") to acquire Kimball International, Inc. ("Kimball") for cash and stock currently valued at approximately $455 million. The Merger Agreement provides for the Corporation to acquire all outstanding shares of Kimball, resulting in Kimball becoming a wholly owned subsidiary of the Corporation. Under the terms of the Merger Agreement, holders of Kimball’s outstanding common stock will receive $9.00 in cash and 0.1301 shares of the Corporation’s common stock for each share of Kimball’s common stock. Immediately following the close of the transaction, Kimball shareholders are expected to own approximately 10 percent of the combined company. The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close by mid-2023, subject to the approval of Kimball shareholders, the receipt of required regulatory approval, and the satisfaction of other customary closing conditions. In the first quarter of 2023, the Corporation incurred acquisition-related expenses of $3.4 million that are included in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income.

Acquisition

In June 2022, the Corporation acquired Dickerson Hearth Products ("Dickerson"), an installing fireplace distributor in the Raleigh, North Carolina area, for approximately $8 million. The transaction, which aligns with the Corporation’s vertical integration strategy in the residential building products market, was structured as an asset acquisition and was consummated entirely in cash. The preliminary purchase price allocation includes $7.6 million of goodwill, which includes the impact of immaterial purchase adjustments made during the current quarter. The remaining assets and liabilities acquired were not material to the consolidated financial statements. The purchase accounting remains open as of April 1, 2023 and will be finalized in the second quarter of 2023. 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.

Divestiture

In July 2022, the Corporation closed on the sale of its China- and Hong Kong-based Lamex office furniture business ("Lamex"), which was a component of the workplace furnishings segment, to Kokuyo Co., Ltd, a leading manufacturer and provider of office furniture in Japan and across Asia, for approximately $75 million plus standard post-closing working capital adjustments, net of cash acquired by the buyer. The Corporation recorded a pre-tax gain on sale in the second half of 2022 of $50.4 million that included transaction-related expenses of approximately $6 million as well as a cumulative foreign currency translation benefit of $3.3 million that was reclassified from accumulated other comprehensive income.

The assets and liabilities of Lamex which were disposed of in conjunction with the sale are as follows:


	As of July 20, 2022
Assets:
Cash and cash equivalents	$	5.5
Receivables	20.1
Allowance for doubtful accounts	(0.5)
Inventories, net	6.9
Prepaid expenses and other current assets	6.4
Buildings	6.2
Machinery and equipment	25.9
Accumulated depreciation	(17.0)
Right-of-use - Operating Leases	5.8
Goodwill and Other Intangible Assets, net	10.9
Total Assets	$	70.4

Liabilities:
Accounts payable and accrued expenses	$	36.1
Current lease obligations - Operating	1.7
Long-Term Lease Obligations - Operating	4.9
Deferred Income Taxes	0.1
Total Liabilities	$	42.7

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:


	April 1, 2023			December 31, 2022

Finished products, net	$	138.2		$	121.0
Materials and work in process, net	106.5			112.8
LIFO allowance	(53.7)			(53.7)
Total inventories, net	$	191.1		$	180.1

Inventory valued by the LIFO costing method	91		%	91		%

In addition to the LIFO allowance, the Corporation recorded inventory allowances of $16.6 million and $14.9 million as of April 1, 2023 and December 31, 2022, 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:


	April 1, 2023		December 31, 2022
Goodwill, net	$	305.9	$	305.9
Definite-lived intangible assets, net	111.2		118.4
Indefinite-lived intangible assets	15.5		15.5
Total goodwill and other intangible assets, net	$	432.6	$	439.8

Goodwill

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


	Workplace Furnishings		Residential Building Products		Total
Balance as of December 31, 2022
Goodwill	$	148.7	$	222.4	$	371.1
Accumulated impairment losses	(65.0)		(0.1)		(65.2)
Net goodwill balance as of December 31, 2022	83.6		222.3		305.9





Balance as of April 1, 2023
Goodwill	148.7		222.4		371.1
Accumulated impairment losses	(65.0)		(0.1)		(65.2)
Net goodwill balance as of April 1, 2023	$	83.6	$	222.3	$	305.9

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:


	April 1, 2023						December 31, 2022
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net

Software	$	194.1	$	127.9	$	66.2	$	194.4	$	122.5	$	71.9
Trademarks and trade names	14.3		6.2		8.0		14.3		5.9		8.4
Customer lists and other	80.2		43.2		37.0		80.2		42.1		38.1
Net definite-lived intangible assets	$	288.5	$	177.4	$	111.2	$	288.8	$	170.4	$	118.4

Amortization expense is reflected in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income and was as follows:


	Three Months Ended
	April 1, 2023		April 2, 2022
Capitalized software	$	5.5	$	6.1
Other definite-lived intangibles	$	1.5	$	1.6

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 years is as follows:


	2023		2024		2025		2026		2027
Amortization expense	$	25.9	$	22.8	$	20.4	$	16.8	$	11.6

Indefinite-lived intangible assets

The Corporation also owns certain intangible assets, which are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely. These indefinite-lived intangible assets are reflected in "Goodwill and Other Intangible Assets, net" in the Condensed Consolidated Balance Sheets:


	April 1, 2023		December 31, 2022
Trademarks and trade names	$	15.5	$	15.5

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.

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 from the original estimates, requiring adjustments to the allowance.

Activity associated with warranty obligations was as follows:


	Three Months Ended
	April 1, 2023		April 2, 2022
Balance at beginning of period	$	14.8	$	16.0
Accruals for warranties issued during period	3.2		2.7
Adjustments related to pre-existing warranties	0.3		(0.1)
Settlements made during the period	(3.0)		(2.7)

Balance at end of period	$	15.3	$	16.0

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:


	April 1, 2023		December 31, 2022
Current - in the next twelve months	$	5.7	$	5.4
Long-term - beyond one year	9.6		9.4
Total	$	15.3	$	14.8

Note 7. Debt

Debt is as follows:


	April 1, 2023		December 31, 2022
Revolving credit facility with interest at a variable rate (April 1, 2023 - 6.0%; December 31, 2022 - 5.6%)	$	108.1	$	89.1
Fixed-rate notes due in 2025 with an interest rate of 4.22%	50.0		50.0
Fixed-rate notes due in 2028 with an interest rate of 4.40%	50.0		50.0
Other amounts	1.6		1.3
Deferred debt issuance costs	(1.8)		(0.3)
Total debt	207.9		190.1
Less: Current maturities of debt	1.6		1.3
Long-term debt	$	206.3	$	188.8

The carrying value of the Corporation’s outstanding variable-rate, long-term debt obligations at April 1, 2023, was $108 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 $101 million at April 1, 2023.

As of April 1, 2023, the Corporation’s revolving credit facility borrowings were under the amended and restated credit agreement entered into on June 14, 2022, as further amended on March 14, 2023, with a scheduled maturity of June 2027. The Corporation deferred the related debt issuance costs, which are classified as assets, and is amortizing them over the term of the credit agreement. The current portion of debt issuance costs of $0.3 million is the amount to be amortized over the next twelve months, based on the current credit agreement, and is reflected in "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets. The long-term portion of debt issuance costs of $1.1 million is reflected in "Other Assets" in the Condensed Consolidated Balance Sheets.

As of April 1, 2023, there was $108 million outstanding under the $400 million revolving credit facility. The entire amount drawn under the revolving credit facility is considered long-term as the Corporation assumes no obligation to repay any of the amounts borrowed in the next twelve months. Based on current earnings before interest, taxes, depreciation, and amortization, the Corporation can access the full remaining $292 million of borrowing capacity available under the revolving credit facility and maintain compliance with applicable covenants.

In addition to cash flows from operations, the revolving credit facility under the credit agreement is the primary source of daily operating capital for the Corporation and provides additional financial capacity for capital expenditures, repurchases of common stock, payment of dividends, and investments in strategic initiatives.

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, 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 April 1, 2023, the deferred debt issuance costs balance of $0.3 million related to the private placement note agreements is reflected in "Long-Term Debt" in the Condensed Consolidated Balance Sheets.

In connection with the Corporation’s planned acquisition of Kimball, the Corporation obtained new committed financing and amended its revolving credit facility as follows:

•on March 7, 2023, in connection with the Merger Agreement with Kimball, the Corporation entered into a commitment letter with Wells Fargo Bank, National Association, Wells Fargo Securities, LLC, and U.S. Bank, National Association to provide a 364-day senior unsecured bridge term loan facility in an aggregate principal amount of up to $440 million;

•on March 14, 2023, the Corporation entered into an amendment to its revolving credit facility. The amendment, among other things, makes $160 million of the revolving credit facility available for the consummation of the merger, subject

to the satisfaction of certain limited conditions (including the consummation of the merger in accordance with the Merger Agreement);

•on March 31, 2023, the Corporation entered into a term loan credit agreement that provides for an unsecured, delayed draw, term loan facility in the aggregate principal amount of $280 million. This loan may be used by the Corporation solely for the consummation of the merger, subject to the satisfaction of certain limited conditions (including the consummation of the merger in accordance with the Merger Agreement); and

•on March 31, 2023, the 364-day senior unsecured bridge term loan facility was extinguished and replaced by the amended revolving credit facility and new term loan credit facility.

The Corporation deferred the debt issuance costs related to the acquisition financing, which are classified as a reduction of long-term debt, and will amortize them over the loan terms of the acquisition financing in the event that the financing is drawn upon. As of April 1, 2023, the deferred debt issuance costs balance of $1.5 million related to the acquisition financing is reflected in "Long-Term Debt" in the Condensed Consolidated Balance Sheets. See "Note 3. Acquisitions and Divestitures" in the Notes to Condensed Consolidated Financial Statements for more information on the acquisition of Kimball.

The credit agreements and private placement notes all contain financial and non-financial covenants. The covenants under the agreements 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, depreciation, and amortization of intangibles, as well as non-cash items that increase or decrease net income. As of April 1, 2023, 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.

In the event the private placement notes are extinguished, the revolving credit facility and term loan credit agreement contain provisions to allow for certain covenant adjustments providing the Corporation additional financial flexibility. The Corporation retains the right to repay the private notes upon executing defined notice requirements and delivering any applicable make-whole payments related to current interest conditions. As of April 1, 2023, the make-whole provision on these notes would be an incremental cost to the Corporation of $0.7 million.

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
	April 1, 2023			April 2, 2022
Income before income taxes	$	3.8		$	18.5
Income taxes	$	2.2		$	4.3
Effective tax rate	58.4		%	23.2		%

The Corporation’s effective tax rate was higher in the three months ended April 1, 2023, compared to the same period last year, due to lower income before income taxes impacted by non-deductible transaction costs related to the planned acquisition of Kimball, as well as tax decrements on equity-based compensation.

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, put option liabilities, and deferred stock-based compensation. The marketable securities are comprised of money market funds, government securities, and corporate bonds. When available, the Corporation uses quoted market prices to determine fair value and classifies such measurements within Level 1. Where market prices are not available, the Corporation makes use of observable market-based inputs (prices or quotes from published exchanges and indexes) to calculate fair value using the market approach, in which case the measurements are classified within Level 2. Significant unobservable inputs, which are classified within Level 3, are used in the estimation of the fair value of put options related to private entities, determined using a simulation model based on assumptions including future cash flows, discount rates, and volatility.

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 April 1, 2023
Cash and cash equivalents (including money market funds) (1)	$	16.8	$	16.8	$	—	$	—
Government securities (2)	$	5.8	$	—	$	5.8	$	—
Corporate bonds (2)	$	7.3	$	—	$	7.3	$	—


Deferred stock-based compensation (3)	$	(4.9)	$	—	$	(4.9)	$	—
Put option liability (4)	$	(5.1)	$	—	$	—	$	(5.1)

Balance as of December 31, 2022
Cash and cash equivalents (including money market funds) (1)	$	17.4	$	17.4	$	—	$	—
Government securities (2)	$	5.6	$	—	$	5.6	$	—
Corporate bonds (2)	$	7.2	$	—	$	7.2	$	—

Deferred stock-based compensation (3)	$	(4.7)	$	—	$	(4.7)	$	—
Put option liability (4)	$	(5.1)	$	—	$	—	$	(5.1)

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) Current portion - "Current maturities of other long-term obligations"; Long-term portion - "Other Long-Term Liabilities"

(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 31, 2022	$	(6.4)	$	(0.6)	$	(1.1)	$	0.1	$	(8.0)
Other comprehensive income (loss) before reclassifications	0.1		0.2		—		—		0.2
Tax (expense) or benefit	—		(0.0)		—		—		(0.0)

Amounts reclassified from accumulated other comprehensive income (loss), net of tax	—		0.0		—		(0.1)		(0.1)
Balance as of April 1, 2023	$	(6.3)	$	(0.5)	$	(1.1)	$	—	$	(7.9)

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 January 1, 2022	$	(0.7)	$	0.1	$	(5.4)	$	(0.7)	$	(6.8)
Other comprehensive income (loss) before reclassifications	(0.6)		(0.5)		—		1.0		(0.1)
Tax (expense) or benefit	—		0.1		—		(0.2)		(0.1)

Amounts reclassified from accumulated other comprehensive income (loss), net of tax	—		0.0		—		0.2		0.2
Balance as of April 2, 2022	$	(1.2)	$	(0.4)	$	(5.4)	$	0.2	$	(6.8)

Amounts in parentheses indicate reductions to equity.

Interest Rate Swap Termination

In April 2022, the Corporation terminated its interest rate swap agreement and received cash proceeds of $0.4 million, the fair value of the swap on the termination date. The proceeds were recorded as cash provided by operating activities in the Condensed Consolidated Statement of Cash Flows. The $0.4 million gain from the termination of this interest rate swap agreement was recorded to "Accumulated other comprehensive income (loss)" and has been fully amortized to interest expense as of April 1, 2023.

The following table details the reclassifications from accumulated other comprehensive income (loss):


		Three Months Ended
Details about Accumulated Other Comprehensive Income (Loss) Components	Affected Line Item in the Statement Where Net Income is Presented	April 1, 2023		April 2, 2022
Derivative financial instrument
Interest rate swap	Interest expense, net	$	0.1	$	(0.2)
	Income taxes	(0.0)		0.1
Unrealized gains on debt securities
Gain on sale of debt securities	Selling and administrative expenses	0.0		0.0
	Income tax expense	(0.0)		(0.0)





	Net of tax	$	0.1	$	(0.2)

Amounts in parentheses indicate reductions to profit.

Dividend

The Corporation declared and paid cash dividends per common share as follows:


	Three Months Ended
	April 1, 2023		April 2, 2022
Dividends per common share	$	0.32	$	0.31

Stock Repurchase

The following table summarizes shares repurchased and settled by the Corporation:


	Three Months Ended
	April 1, 2023		April 2, 2022
Shares repurchased	—		0.6
Average price per share	$	—	$	41.95

Cash purchase price	$	—	$	(23.9)

Prior year purchases settled in current year	—		(1.3)
Shares repurchased per cash flow	$	—	$	(25.2)

As of April 1, 2023, $234.0 million of the Corporation’s Board of Directors’ ("Board") current repurchase authorizations remained unspent.

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
	April 1, 2023		April 2, 2022
Numerator:
Numerator for both basic and diluted EPS attributable to HNI Corporation net income	$	1.6	$	14.2
Denominators:
Denominator for basic EPS weighted-average common shares outstanding	41.5		42.4
Potentially dilutive shares from stock-based compensation plans	0.5		0.7
Denominator for diluted EPS	42.1		43.1
Earnings per share – basic	$	0.04	$	0.33
Earnings per share – diluted	$	0.04	$	0.33

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

April 1,
2023

April 2,
2022

Common stock equivalents excluded because their inclusion would be anti-dilutive

2.2

1.1

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
	April 1, 2023		April 2, 2022
Compensation cost	$	4.5	$	5.6

The units granted by the Corporation had fair values as follows:


	Three Months Ended
	April 1, 2023		April 2, 2022

Restricted stock units	$	6.0	$	6.8
Performance stock units	$	6.0	$	6.1