10-Q 1 hni-20220402.htm 10-Q hni-20220402
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period endedApril 2, 2022
 
OR
  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  
Commission File Number:1-14225
  
HNI Corporation
Iowa42-0617510
(State of Incorporation)(I.R.S. Employer Identification No.)
600 East Second Street
P.O. Box 1109
Muscatine,Iowa52761-0071
(563)272-7400
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockHNINew 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 filerAccelerated filer
Smaller reporting companyNon-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 ValueOutstanding as ofApril 2, 202242,385,326



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

2


PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(In thousands, except per share data)
(Unaudited)
 Three Months Ended
April 2,
2022
April 3,
2021
 
Net sales$572,328 $484,293 
Cost of sales375,419 304,347 
Gross profit196,909 179,946 
Selling and administrative expenses176,472 157,346 
Operating income20,437 22,600 
Interest expense, net1,986 1,755 
Income before income taxes18,451 20,845 
Income taxes4,274 5,827 
Net income14,177 15,018 
Less: Net loss attributable to non-controlling interest(1)(1)
Net income attributable to HNI Corporation$14,178 $15,019 
Average number of common shares outstanding – basic42,388 43,163 
Net income attributable to HNI Corporation per common share – basic$0.33 $0.35 
Average number of common shares outstanding – diluted43,072 43,584 
Net income attributable to HNI Corporation per common share – diluted$0.33 $0.34 
Foreign currency translation adjustments$(568)$(132)
Change in unrealized gains (losses) on marketable securities, net of tax(410)(100)
Change in derivative financial instruments, net of tax913 263 
Other comprehensive income (loss), net of tax(65)31 
Comprehensive income14,112 15,049 
Less: Comprehensive loss attributable to non-controlling interest(1)(1)
Comprehensive income attributable to HNI Corporation$14,113 $15,050 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


3


HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets

(In thousands)
(Unaudited)
April 2,
2022
January 1,
2022
Assets
Current Assets:  
Cash and cash equivalents$23,483 $52,270 
Short-term investments1,335 1,392 
Receivables253,075 239,955 
Allowance for doubtful accounts(3,093)(2,813)
Inventories, net206,561 181,591 
Prepaid expenses and other current assets51,559 51,099 
Total Current Assets532,920 523,494 
Property, Plant, and Equipment: 
Land and land improvements30,940 30,851 
Buildings295,715 294,545 
Machinery and equipment601,776 593,630 
Construction in progress27,905 29,663 
 956,336 948,689 
Less: Accumulated depreciation(592,695)(581,909)
Net Property, Plant, and Equipment363,641 366,780 
Right-of-use Finance Leases11,444 10,173 
Right-of-use Operating Leases95,812 82,881 
Goodwill and Other Intangible Assets467,217 471,502 
Other Assets53,970 43,067 
Total Assets$1,525,004 $1,497,897 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

4


HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)
(Unaudited)
 April 2,
2022
January 1,
2022
Liabilities and Equity
Current Liabilities:  
Accounts payable and accrued expenses$434,793 $473,753 
Current maturities of debt2,165 3,221 
Current maturities of other long-term obligations1,880 3,910 
Current lease obligations - finance3,226 2,765 
Current lease obligations - operating20,797 22,799 
Total Current Liabilities462,861 506,448 
Long-Term Debt240,929 174,608 
Long-Term Lease Obligations - Finance8,173 7,373 
Long-Term Lease Obligations - Operating78,779 63,757 
Other Long-Term Liabilities78,198 80,736 
Deferred Income Taxes74,024 75,008 
     Total Liabilities942,964 907,930 
Equity:  
HNI Corporation shareholders' equity581,718 589,644 
Non-controlling interest322 323 
Total Equity582,040 589,967 
Total Liabilities and Equity$1,525,004 $1,497,897 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

5


HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Equity
(In thousands, except per share data)
(Unaudited)
Three Months Ended - April 2, 2022
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestTotal Shareholders' Equity
Balance, January 1, 2022$42,582 $39,192 $514,645 $(6,775)$323 $589,967 
Comprehensive income:
Net income (loss)— — 14,178 — (1)14,177 
Other comprehensive income (loss), net of tax— — — (65)— (65)
Dividends payable— — (57)— — (57)
Cash dividends; $0.310 per share
— — (13,138)— — (13,138)
Common shares – treasury:
Shares purchased(569)(8,458)(14,862)— — (23,889)
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax372 14,673 — — — 15,045 
Balance, April 2, 2022$42,385 $45,407 $500,766 $(6,840)$322 $582,040 


Three Months Ended - April 3, 2021
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestTotal Shareholders' Equity
Balance, January 2, 2021$42,919 $38,659 $517,994 $(9,153)$326 $590,745 
Comprehensive income:
Net income (loss)— — 15,019 — (1)15,018 
Other comprehensive income (loss), net of tax— — — 31 — 31 
Dividends payable— — (281)— — (281)
Cash dividends; $0.305 per share
— — (13,173)— — (13,173)
Common shares – treasury:
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax633 24,788 — — — 25,421 
Balance, April 3, 2021$43,552 $63,447 $519,559 $(9,122)$325 $617,761 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).




6


HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
 Three Months Ended
 April 2,
2022
April 3,
2021
Net Cash Flows From (To) Operating Activities:  
Net income$14,177 $15,018 
Non-cash items included in net income:
Depreciation and amortization21,098 20,463 
Other post-retirement and post-employment benefits330 332 
Stock-based compensation5,638 5,220 
Reduction in carrying amount of right-of-use assets6,328 6,537 
Deferred income taxes(1,157)1,076 
Other – net(882)1,315 
Net decrease in cash from operating assets and liabilities(80,773)(51,436)
Increase (decrease) in other liabilities(3,709)3,159 
Net cash flows from (to) operating activities(38,950)1,684 
Net Cash Flows From (To) Investing Activities:  
Capital expenditures(15,098)(16,197)
Proceeds from sale of property, plant, and equipment 48 
Capitalized software(3,138)(2,767)
Acquisition spending, net of cash acquired(1,654)(1,408)
Purchase of investments(971)(598)
Sales or maturities of investments704 515 
Net cash flows from (to) investing activities(20,157)(20,407)
Net Cash Flows From (To) Financing Activities:  
Payments of debt(100,538)(118)
Proceeds from debt165,822 547 
Dividends paid(13,359)(13,234)
Purchase of HNI Corporation common stock(25,158) 
Proceeds from sales of HNI Corporation common stock2,749 13,030 
Other – net804 (3,341)
Net cash flows from (to) financing activities30,320 (3,116)
Net decrease in cash and cash equivalents(28,787)(21,839)
Cash and cash equivalents at beginning of period52,270 116,120 
Cash and cash equivalents at end of period$23,483 $94,281 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).


7


HNI Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
April 2, 2022

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 January 1, 2022, consolidated balance sheet included in this Form 10-Q was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three-month period ended April 2, 2022, are not necessarily indicative of the results expected for the fiscal year ending December 31, 2022. For further information, refer to the consolidated financial statements and accompanying notes included in HNI Corporation's (the "Corporation") Annual Report on Form 10-K for the fiscal year ended January 1, 2022. Certain reclassifications have been made within the interim financial information to conform to the current presentation.

Note 2. Revenue from Contracts with Customers

Disaggregation of Revenue
Revenue from contracts with customers disaggregated by product category is as follows (in thousands):
Three Months Ended
April 2,
2022
April 3,
2021
Systems and storage$207,893 $182,859 
Seating110,247 101,650 
Other34,966 18,239 
Total workplace furnishings353,106 302,748 
Residential building products219,222 181,545 
Net sales$572,328 $484,293 

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 or payable to certain workplace furnishings dealers in exchange for their multi-year commitment to market and sell the Corporation's products. These contract assets are amortized over the term of the contracts and recognized as a reduction of revenue. The Corporation has contract liabilities consisting of customer deposits and rebate and marketing program liabilities.

Contract assets and contract liabilities were as follows (in thousands):
April 2,
2022
January 1,
2022
Trade receivables (1)$253,075 $239,955 
Contract assets (current) (2)$2,182 $1,471 
Contract assets (long-term) (3)$29,431 $18,198 
Contract liabilities (4)$60,247 $58,716 



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The index below indicates the line item in the Condensed Consolidated Balance Sheets where contract assets and contract liabilities are reported:

(1)     "Receivables"
(2)     "Prepaid expenses and other current assets"
(3)     "Other Assets"
(4)     "Accounts payable and accrued expenses"

The increase in long-term contract assets is related to multi-year distribution agreements in the workplace furnishings segment. Contract liabilities for customer deposits paid to the Corporation prior to the satisfaction of performance obligations are recognized as revenue upon completion of the performance obligations. The contract liability balance related to customer deposits was $27.2 million as of January 1, 2022, of which, $17.0 million was recognized as revenue in the first quarter of 2022.

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

On October 14, 2021, the Corporation acquired Trinity Hearth & Home ("Trinity"), an installing fireplace distributor in the Dallas/Fort Worth area, for approximately $31 million. This transaction, which aligns with the Corporation's vertical integration strategy in the residential building products market and provides a hub to better serve customers in the rapidly growing Southwest region, was structured as an asset acquisition and was consummated entirely in cash.

On December 17, 2021, the Corporation acquired The Outdoor GreatRoom Company ("OGC"), a leading manufacturer and supplier of premium outdoor fire tables and fire pits, for approximately $15 million. This transaction, which positions the Corporation to grow and develop a leading position in the fast-growing outdoor living market, was structured as a stock acquisition and was consummated entirely in cash.

The preliminary assets and liabilities of Trinity and OGC are included in the Corporation's residential building products segment, and goodwill, which is expected to be tax deductible, is assigned to the residential building products reporting unit.











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The provisional purchase price allocation for Trinity and OGC, and estimated amortization periods of identified intangible assets as of the date of acquisition is as follows (dollars in thousands):
TrinityOGC
Fair ValueAmortization PeriodFair ValueAmortization Period
Cash$ $331 
Inventories1,901 4,460 
Receivables4,604 1,783 
Prepaid expenses and other current assets 1,247 
Property, plant, and equipment281 520 
Accounts payable and accrued expenses(1,726)(2,844)
Goodwill14,228 2,366 
Customer lists12,000 13 Years4,900 10 Years
Trade names 2,500 10 Years
Total Net Assets$31,288 $15,263 

At this time, the provisional purchase price accounting of both acquisitions remains open, and intangible assets and goodwill are recorded based on preliminary assumptions. As a result of further review and refinement, measurement period adjustments were recorded in the first quarter of 2022 which decreased Trinity's inventory acquired by $0.2 million and increased goodwill related to both acquisitions by $0.9 million in the aggregate. Additionally, the aggregate purchase price of the deals increased by $0.8 million as a result of post-closing working capital settlements. The portions of the allocation that are provisional may be adjusted to reflect the finally determined amounts, and those adjustments may be material. The Corporation expects to finalize the purchase price allocation of both of these acquisitions later in 2022.

Both acquisitions were accounted for using the acquisition method pursuant to ASC 805, with goodwill being recorded as a result of the purchase price exceeding the fair value of identifiable tangible and intangible assets and liabilities.

Note 4.  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 (in thousands):
April 2,
2022
January 1,
2022
Finished products$153,483 $137,187 
Materials and work in process107,370 91,996 
LIFO allowance(54,292)(47,592)
Total inventories, net$206,561 $181,591 
Inventory valued by the LIFO costing method87 %84 %

In addition to the LIFO allowance, the Corporation recorded inventory allowances of $20.0 million and $19.9 million as of April 2, 2022 and January 1, 2022, respectively, to adjust for excess and obsolete inventory or otherwise reduce FIFO-basis inventory to net realizable value.

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Note 5. Goodwill and Other Intangible Assets

Goodwill and other intangible assets included in the Condensed Consolidated Balance Sheets consisted of the following (in thousands):
April 2,
2022
January 1,
2022
Goodwill$298,286 $297,339 
Definite-lived intangible assets142,447 147,627 
Indefinite-lived intangible assets26,484 26,536 
Total goodwill and other intangible assets$467,217 $471,502 

Goodwill
The changes in the carrying amount of goodwill, by reporting segment, are as follows (in thousands):
Workplace FurnishingsResidential Building ProductsTotal
Balance as of January 1, 2022   
Goodwill$162,266 $213,842 $376,108 
Accumulated impairment losses(78,626)(143)(78,769)
Net goodwill balance as of January 1, 2022
83,640 213,699 297,339 
Goodwill acquired / measurement period adjustments 947 947 
Balance as of April 2, 2022  
Goodwill162,266 214,789 377,055 
Accumulated impairment losses(78,626)(143)(78,769)
Net goodwill balance as of April 2, 2022
$83,640 $214,646 $298,286 

See "Note 3. Acquisitions" for additional information regarding goodwill acquired and related adjustments.

Definite-lived intangible assets
The table below summarizes amortizable definite-lived intangible assets, which are reflected in "Goodwill and Other Intangible Assets" in the Condensed Consolidated Balance Sheets (in thousands):
April 2, 2022January 1, 2022
GrossAccumulated AmortizationNetGrossAccumulated AmortizationNet
Software$198,720 $107,597 $91,123 $196,754 $102,072 $94,682 
Trademarks and trade names14,264 4,927 9,337 14,264 4,600 9,664 
Customer lists and other109,493 67,506 41,987 109,635 66,354 43,281 
Net definite-lived intangible assets$322,477 $180,030 $142,447 $320,653 $173,026 $147,627 









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Amortization expense is reflected in "Selling and administrative expenses" in the Condensed Consolidated Statements of Comprehensive Income and was as follows (in thousands):
Three Months Ended
April 2,
2022
April 3,
2021
Capitalized software$6,116 $5,623 
Other definite-lived intangibles$1,620 $1,624 

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 (in millions):
20222023202420252026
Amortization expense$30.3 $26.1 $21.8 $19.0 $16.6 

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" in the Condensed Consolidated Balance Sheets (in thousands):
April 2,
2022
January 1,
2022
Trademarks and trade names$26,484 $26,536 

The immaterial change in the indefinite-lived intangible assets balances shown above is related to foreign currency translation impacts.

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 costs incurred could differ from the original estimates, requiring adjustments to the allowance. Activity associated with warranty obligations was as follows (in thousands):
Three Months Ended
April 2,
2022
April 3,
2021
Balance at beginning of period$16,041 $16,109 
Accruals for warranties issued during period2,704 2,370 
Settlements made during the period(2,792)(2,192)
Balance at end of period$15,953 $16,287 



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The current and long-term portions of the allowance for estimated settlements are included within "Accounts payable and accrued expenses" and "Other Long-Term Liabilities", respectively, in the Condensed Consolidated Balance Sheets. The following table summarizes when these estimated settlements are expected to be paid (in thousands):
April 2,
2022
January 1,
2022
Current$5,354 $5,442 
Long-term10,599 10,599 
Total$15,953 $16,041 

Note 7.  Debt

Debt is as follows (in thousands):
April 2,
2022
January 1,
2022
Revolving credit facility with interest at a variable rate
 (April 2, 2022 - 1.5%; January 1, 2022 - 1.1%)
$141,300 $75,000 
Fixed rate notes due in 2025 with an interest rate of 4.22%
50,000 50,000 
Fixed rate notes due in 2028 with an interest rate of 4.40%
50,000 50,000 
Other amounts2,165 3,221 
Deferred debt issuance costs(371)(392)
Total debt243,094 177,829 
Less: Current maturities of debt2,165 3,221 
Long-term debt$240,929 $174,608 

The carrying value of the Corporation's outstanding variable-rate, long-term debt obligations at April 2, 2022, was $141 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 $107 million at April 2, 2022.

As of April 2, 2022, the Corporation's revolving credit facility borrowings were under the credit agreement entered into on April 20, 2018, with a scheduled maturity of April 20, 2023. The Corporation deferred the debt issuance costs related to the credit agreement, which are classified as assets, and is amortizing them over the term of the credit agreement. The debt issuance costs of $0.4 million are reflected in "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets.

As of April 2, 2022, there was $141 million outstanding under the $450 million revolving credit facility. The entire amount drawn under the revolving credit facility is considered long-term as the Corporation assumes no obligation to repay any of the amounts borrowed in the next twelve months. Based on current earnings before interest, taxes, depreciation and amortization, the Corporation can access the full remaining $309 million of borrowing capacity available under the revolving credit facility and maintain compliance with applicable covenants.

In addition to cash flows from operations, the revolving credit facility under the credit agreement is the primary source of daily operating capital for the Corporation and provides additional financial capacity for capital expenditures, repurchases of common stock, and strategic initiatives, such as acquisitions. The Corporation expects to refinance the revolving credit facility prior to its scheduled maturity in April 2023.

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 2, 2022, the deferred debt issuance costs balance of $0.4 million related to the private placement note agreements is reflected in "Long-Term Debt" in the Condensed Consolidated Balance Sheets.

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The credit agreement and private placement notes both contain financial and non-financial covenants. The covenants under both are substantially the same. Non-compliance with covenants under the agreements could prevent the Corporation from being able to access further borrowings, require immediate repayment of all amounts outstanding, and/or increase the cost of borrowing.

Covenants require maintenance of financial ratios as of the end of any fiscal quarter, including:

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

The most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.5 to 1.0. Under the credit agreement, consolidated EBITDA is defined as consolidated net income before interest expense, income taxes, and depreciation and amortization of intangibles, as well as non-cash items that increase or decrease net income. As of April 2, 2022, the Corporation was below the maximum allowable ratio and was in compliance with all of the covenants and other restrictions in the credit agreement. The Corporation expects to remain in compliance with all of the covenants and other restrictions in the credit agreement over the next twelve months.

Note 8.  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 (in thousands):
Three Months Ended
April 2,
2022
April 3,
2021
Income before income taxes$18,451 $20,845 
Income taxes$4,274 $5,827 
Effective tax rate23.2 %28.0 %

The Corporation's effective tax rate was lower in the three months ended April 2, 2022, compared to the same period last year, primarily due to the effect of tax benefits of equity-based compensation and the impact of foreign subsidiaries.

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, 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.














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Financial instruments measured at fair value were as follows (in thousands):
Fair value as of measurement dateQuoted prices in active markets for identical assets
(Level 1)
Significant other observable inputs
(Level 2)
Significant unobservable inputs
(Level 3)
Balance as of April 2, 2022
Cash and cash equivalents (including money market funds) (1)$23,483 $23,483 $ $ 
Government securities (2)$5,403 $ $5,403 $ 
Corporate bonds (2)$7,677 $ $7,677 $ 
Derivative financial instruments - asset (3)$326 $ $326 $ 
Derivative financial instruments - liability (4)$(90)$ $(90)$ 
Deferred stock-based compensation (5)$(6,098)$ $(6,098)$ 
Put option liability (6)$(5,100)$ $ $(5,100)
Balance as of January 1, 2022
Cash and cash equivalents (including money market funds) (1)$52,270 $52,270 $ $ 
Government securities (2)$5,489 $ $5,489 $ 
Corporate bonds (2)$7,816 $ $7,816 $ 
Derivative financial instruments - liability (4)$(959)$ $(959)$ 
Deferred stock-based compensation (5)$(8,079)$ $(8,079)$ 
Put option liability (6)$(5,100)$ $ $(5,100)
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) Current portion - "Accounts payable and accrued expenses"; Long-term portion - "Other Long-Term Liabilities"
(5) Current portion - "Current maturities of other long-term obligations"; Long-term portion - "Other Long-Term Liabilities"
(6) "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 (in thousands):
Foreign Currency Translation AdjustmentUnrealized Gains (Losses) on Debt SecuritiesPension and Post-retirement LiabilitiesDerivative Financial InstrumentsAccumulated Other Comprehensive Income (Loss)
Balance as of January 1, 2022$(654)$59 $(5,444)$(736)$(6,775)
Other comprehensive income (loss) before reclassifications(568)(519) 959 (128)
Tax (expense) or benefit 109  (227)(118)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax   181 181 
Balance as of April 2, 2022$(1,222)$(351)$(5,444)$177 $(6,840)
Amounts in parentheses indicate reductions to equity.


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Foreign Currency Translation AdjustmentUnrealized Gains (Losses) on Debt SecuritiesPension and Post-retirement LiabilitiesDerivative Financial InstrumentsAccumulated Other Comprehensive Income (Loss)
Balance as of January 2, 2021$(1,071)$360 $(6,682)$(1,760)$(9,153)
Other comprehensive income (loss) before reclassifications(132)(127) 130 (129)
Tax (expense) or benefit 27  (31)(4)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax   164 164 
Balance as of April 3, 2021$(1,203)$260 $(6,682)$(1,497)$(9,122)
Amounts in parentheses indicate reductions to equity.

Interest Rate Swap
In 2019, the Corporation entered into an interest rate swap transaction to hedge $75 million of outstanding variable rate revolver borrowings against future interest rate volatility. Under the terms of this interest rate swap, the Corporation pays a fixed rate of 1.42 percent and receives one month LIBOR on a $75 million notional value expiring April 2023. As of April 2, 2022, the fair values of the Corporation's interest rate swap asset and liability were $0.3 million and $0.1 million, respectively; 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 $0.2 million in "HNI Corporation Shareholders' Equity" in the Condensed Consolidated Balance Sheets.

The following table details the reclassifications from accumulated other comprehensive income (loss) (in thousands):
Three Months Ended
Details about Accumulated Other Comprehensive Income (Loss) ComponentsAffected Line Item in the Statement Where Net Income is PresentedApril 2,
2022
April 3,
2021
Derivative financial instruments
Interest rate swapInterest expense, net$(236)$(214)
Income taxes55 50 
Net of tax$(181)$(164)
Amounts in parentheses indicate reductions to profit.

Dividend
The Corporation declared and paid cash dividends per common share as follows (in dollars):
Three Months Ended
April 2,
2022
April 3,
2021
Dividends per common share$0.310 $0.305 

Stock Repurchase
The following table summarizes shares repurchased and settled by the Corporation (in thousands, except per share data):
Three Months Ended
April 2,
2022
April 3,
2021
Shares repurchased569  
Average price per share$41.95 $ 
Cash purchase price$(23,889)$ 
Prior year purchases settled in current year(1,269) 
Shares repurchased per cash flow$(25,158)$ 

As of April 2, 2022, approximately $74 million remained of the Corporation's Board of Directors' ("Board") current repurchase authorization.

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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") (in thousands, except per share data):
 Three Months Ended
April 2,
2022
April 3,
2021
Numerator:  
Numerator for both basic and diluted EPS attributable to HNI Corporation net income$14,178 $15,019 
Denominators:  
Denominator for basic EPS weighted-average common shares outstanding42,388 43,163 
Potentially dilutive shares from stock-based compensation plans684 421 
Denominator for diluted EPS43,072 43,584 
Earnings per share – basic$0.33 $0.35 
Earnings per share – diluted$0.33 $0.34 

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 (in thousands):
Three Months Ended
April 2,
2022
April 3,
2021
Common stock equivalents excluded because their inclusion would be anti-dilutive1,065 2,112 

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 adjusted for the probability that the Corporation will perform within an established target range of cumulative profitability over a multi-year period.

The following table summarizes expense associated with these plans (in thousands):
Three Months Ended
April 2,
2022
April 3,
2021
Compensation cost$5,638 $5,220 

The units granted by the Corporation had fair values as follows (in thousands):
Three Months Ended
April 2,
2022
April 3,
2021
Restricted stock units$6,771