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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
 
FORM 10-Q
 
 
(MARK ONE)
 
 
 
     / X /   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarterly period ended April 2, 2011.
 
 
OR
 
 
     /    /   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the transition period from ____________________ to ____________________
 
 
Commission File Number: 1-14225
 
 
HNI Corporation
(Exact name of registrant as specified in its charter)
 
 
Iowa
(State or other jurisdiction of
incorporation or organization)
42-0617510
(I.R.S. Employer
Identification Number)
 
 
P. O. Box 1109, 408 East Second Street
Muscatine, Iowa 52761-0071
(Address of principal executive offices)
52761-0071
(Zip Code)
 
 
Registrant's telephone number, including area code:  563/272-7400
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES       x                     NO     o               
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).   
YES       x                     NO     o  
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer      x                                                                                                      Accelerated filer       o     
Non-accelerated filer        o   (Do not check if a smaller reporting company)                    Smaller reporting company     o       
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act                                                             YES        o                   NO      x        
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date.
Class
Common Shares, $1 Par Value
Outstanding at April 2, 2011
44,730,691
 

HNI Corporation and SUBSIDIARIES
 
 
INDEX
 
 
PART I.    FINANCIAL INFORMATION
 
Page
 
 
Item 1.    Financial Statements
 
 
 
Condensed Consolidated Balance Sheets - April 2, 2011, and January 1, 2011
 
 
Condensed Consolidated Statements of Income - Three Months Ended April 2, 2011, and April 3, 2010
 
 
Condensed Consolidated Statements of Cash Flows - Three Months Ended April 2, 2011, and April 3, 2010
 
 
Notes to Condensed Consolidated Financial Statements
 
 
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3.    Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4.    Controls and Procedures
 
 
PART II.    OTHER INFORMATION
 
 
Item 1.    Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 3.    Defaults Upon Senior Securities - None
-
 
 
Item 5.    Other Information - None
-
 
 
Item 6.    Exhibits
 
 
SIGNATURES
 
 
EXHIBIT INDEX
 
 
 
 
 

2
 

PART I.     FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
HNI Corporation and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
April 2,
2011
 
January 1,
2011
 
(Unaudited)
 
ASSETS
(In thousands)
CURRENT ASSETS
 
 
 
Cash and cash equivalents
$
52,363
 
 
$
99,096
 
Short-term investments
13,243
 
 
10,567
 
Receivables
171,109
 
 
190,118
 
Inventories (Note C)
88,087
 
 
68,956
 
Deferred income taxes
21,681
 
 
18,467
 
Prepaid expenses and other current assets
25,988
 
 
20,957
 
Total Current Assets
372,471
 
 
408,161
 
 
 
 
 
PROPERTY, PLANT, AND EQUIPMENT, at cost
 
 
 
 
Land and land improvements
21,618
 
 
21,554
 
Buildings
256,478
 
 
257,819
 
Machinery and equipment
457,137
 
 
474,911
 
Construction in progress
10,641
 
 
10,221
 
 
745,874
 
 
764,505
 
Less accumulated depreciation
518,421
 
 
532,724
 
 
 
 
 
Net Property, Plant, and Equipment
227,453
 
 
231,781
 
 
 
 
 
GOODWILL
260,634
 
 
260,634
 
 
 
 
 
OTHER ASSETS
95,748
 
 
97,304
 
 
 
 
 
Total Assets
$
956,306
 
 
$
997,880
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 
 
 

3
 

HNI Corporation and SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 
April 2,
2011
 
January 1,
2011
 
(Unaudited)
 
LIABILITIES AND  EQUITY
(In thousands, except share and per share value data)
 
 
 
 
CURRENT LIABILITIES
 
 
 
Accounts payable and accrued expenses
$
272,840
 
 
$
311,066
 
  Note payable and current maturities of long-term
    debt and capital lease obligations
50,432
 
 
50,029
 
Current maturities of other long-term obligations
265
 
 
256
 
Total Current Liabilities
323,537
 
 
361,351
 
 
 
 
 
LONG-TERM DEBT
150,000
 
 
150,000
 
 
 
 
 
CAPITAL LEASE OBLIGATIONS
1,437
 
 
111
 
 
 
 
 
OTHER LONG-TERM LIABILITIES
50,592
 
 
47,437
 
 
 
 
 
DEFERRED INCOME TAXES
35,017
 
 
30,525
 
 
 
 
 
EQUITY
 
 
 
 
 
HNI Corporation shareholders' equity:
 
 
 
 
 
Capital Stock:
 
 
 
 
 
    Preferred, $1 par value, authorized 2,000,000 shares, no shares outstanding
—
 
 
—
 
 
 
 
 
    Common, $1 par value, authorized 200,000,000 shares, outstanding -
 
 
 
 
 
April 2, 2011 – 44,730,691 shares;
 
 
 
 
 
January 1, 2011 – 44,840,701 shares
44,731
 
 
44,841
 
 
 
 
 
Additional paid-in capital
16,382
 
 
18,011
 
Retained earnings
331,371
 
 
343,474
 
Accumulated other comprehensive income
2,742
 
 
1,659
 
Total HNI Corporation shareholders' equity
395,226
 
 
407,985
 
 
 
 
 
Noncontrolling interest
497
 
 
471
 
 
 
 
 
Total  Equity
395,723
 
 
408,456
 
 
 
 
 
Total Liabilities and  Equity
$
956,306
 
 
$
997,880
 
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 
 

4
 

HNI Corporation and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
Three Months Ended
 
April 2,
2011
 
April 3,
2010
 
 
 
(In thousands, except share and per share data)
Net sales
$
396,151
 
 
$
363,506
 
Cost of sales
261,427
 
 
244,326
 
Gross profit
134,724
 
 
119,180
 
Selling and administrative expenses
132,413
 
 
122,800
 
Restructuring and impairment
1,390
 
 
1,834
 
Operating income (loss)
921
 
 
(5,454
)
Interest income
133
 
 
88
 
Interest expense
3,589
 
 
2,723
 
Earnings (loss) before income taxes
(2,535
)
 
(8,089
)
Income taxes
(738
)
 
(3,947
)
  Income (loss) from continuing operations, less applicable
  income taxes
(1,797
)
 
(4,142
)
Discontinued operations, less applicable income taxes
—
 
 
(1,711
)
Net income (loss)
(1,797
)
 
(5,853
)
Less: Net income (loss) attributable to the noncontrolling interest
(42
)
 
133
 
Net income (loss) attributable to HNI Corporation
$
(1,755
)
 
$
(5,986
)
 
 
 
 
Income (loss) from continuing operations attributable to HNI Corporation per common share – basic
$
(0.04
)
 
$
(0.09
)
Discontinued operations attributable to HNI Corporation per common share – basic
$
—
 
 
$
(0.04
)
Net income (loss) attributable to HNI Corporation per common share – basic
$
(0.04
)
 
$
(0.13
)
Average number of common shares outstanding – basic
44,852,553
 
 
45,166,450
 
Income (loss) from continuing operations attributable to HNI Corporation per common share – diluted
$
(0.04
)
 
$
(0.09
)
Discontinued operations attributable to HNI Corporation per common share – diluted
$
—
 
 
$
(0.04
)
Net income (loss) attributable to HNI Corporation per common share – diluted
$
(0.04
)
 
$
(0.13
)
Average number of common shares outstanding – diluted
44,852,553
 
 
45,166,450
 
Cash dividends per common share
$
0.230
 
 
$
0.215
 
 
 See accompanying Notes to Condensed Consolidated Financial Statements.
 
 
 

5
 

HNI Corporation and SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Three Months Ended
 
April 2, 2011
 
April 3, 2010
 
(In thousands)
Net Cash Flows From (To) Operating Activities:
 
 
 
Net income (loss)
$
(1,797
)
 
$
(5,853
)
Noncash items included in net income:
 
 
 
 
 
Depreciation and amortization
12,148
 
 
16,060
 
Other postretirement and post employment benefits
415
 
 
423
 
Stock-based compensation
1,581
 
 
1,509
 
Excess tax benefits from stock compensation
(30
)
 
 
Deferred income taxes
756
 
 
(68
)
Loss on sale, retirement and impairment of long-lived assets and intangibles
169
 
 
818
 
Stock issued to retirement plan
4,906
 
 
5,400
 
Other – net
492
 
 
(128
)
Net increase (decrease) in operating assets and liabilities
(43,307
)
 
(43,121
)
Increase (decrease) in other liabilities
2,684
 
 
(442
)
Net cash flows from (to) operating activities
(21,983
)
 
(25,402
)
 
 
 
 
Net Cash Flows From (To) Investing Activities:
 
 
 
 
 
Capital expenditures (1)
(4,186
)
 
(4,706
)
Proceeds from sale of property, plant and equipment
409
 
 
1,327
 
Capitalized software
(412
)
 
(93
)
Purchase of long-term investments
(4,435
)
 
(2,805
)
Sales or maturities of long-term investments
1,707
 
 
900
 
Other – net
468
 
 
603
 
Net cash flows from (to) investing activities
(6,449
)
 
(4,774
)
 
 
 
 
Net Cash Flows From (To) Financing Activities:
 
 
 
 
 
Proceeds from sales of HNI Corporation common stock
1,447
 
 
608
 
Purchase of HNI Corporation common stock
(10,000
)
 
(3,291
)
Proceeds from long-term debt
—
 
 
—
 
Payments of note and long-term debt and other financing
570
 
 
(1,729
)
Excess tax benefits from stock compensation
30
 
 
 
Dividends paid
(10,348
)
 
(9,745
)
Net cash flows from (to) financing activities
(18,301
)
 
(14,157
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
(46,733
)
 
(44,333
)
Cash and cash equivalents at beginning of period
99,096
 
 
87,374
 
Cash and cash equivalents at end of period
$
52,363
 
 
$
43,041
 
 
(1) Capital expenditures do not include $1.8 million of equipment acquired by a capital lease.
 
See accompanying Notes to Condensed Consolidated Financial Statements.
 
 

6
 

HNI Corporation and SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
April 2, 2011
 
Note A.  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 footnotes required by generally accepted accounting principles for complete financial statements.  The January 1, 2011 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 presentation have been included.  An adjustment was made in the first quarter of 2011 to correct a fourth quarter freight over accrual of $0.4 million. This correction of the freight accrual was determined to be immaterial to the current and prior period financial statements. Operating results for the three-month period ended April 2, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2011.  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, 2011.
 
 
Note B. Stock-Based Compensation
 
The Corporation measures stock-based compensation expense at grant date, based on the fair value of the award and recognizes expense over the employee requisite service period.  For the three months ended April 2, 2011, and April 3, 2010, the Corporation recognized $1.6 million and $1.5 million, respectively, of stock-based compensation expense for the cost of stock options and time-based restricted stock units issued under the HNI Corporation 2007 Stock-Based Compensation Plan and shares issued under the HNI Corporation 2002 Members' Stock Purchase Plan.
 
At April 2, 2011, there was $12.9 million of unrecognized compensation cost related to nonvested stock-based compensation awards, which the Corporation expects to recognize over a weighted-average remaining requisite service period of 1.4 years.
 
 
Note C.  Inventories
 
The Corporation values its inventory at the lower of cost or market with approximately 79% valued by the last-in, first-out ("LIFO") method.
 
 
(In thousands)
 
April 2, 2011
 
January 1, 2011
 
(Unaudited)
 
Finished products
 
$
58,255
 
 
$
43,389
 
Materials and work in process
 
53,669
 
 
49,404
 
LIFO allowance
 
(23,837
)
 
(23,837
)
 
 
$
88,087
 
 
$
68,956
 
 
 

7
 

Note D.  Comprehensive Income and Shareholders' Equity
 
The following table reconciles net income to comprehensive income attributable to HNI Corporation:
 
 
Three Months Ended
 
(In thousands)
 
April 2, 2011
 
April 3, 2010
Net income (loss)
 
$
(1,797
)
 
$
(5,853
)
Other comprehensive income, net of income tax as applicable:
 
 
 
 
 
 
Foreign currency translation adjustments
 
221
 
 
(4
)
Change in unrealized gains (losses) on marketable securities
 
(35
)
 
—
 
Change in pension and postretirement liability
 
79
 
 
79
 
Change in derivative financial instruments
 
818
 
 
173
 
Comprehensive income (loss)
 
(714
)
 
(5,605
)
Comprehensive income (loss) attributable to noncontrolling interest
 
(42
)
 
133
 
Comprehensive income (loss) attributable to HNI Corporation
 
$
(672
)
 
$
(5,738
)
 
The following table summarizes the components of accumulated other comprehensive loss and the changes in accumulated other comprehensive loss, net of tax, as applicable for the three months ended April 2, 2011:
 
 
 
 
(In thousands)
 
Foreign Currency Translation Adjustment
 
Unrealized Gains(Losses) on Marketable Securities
 
 
Pension Postretirement Liability
 
 
Derivative Financial Instruments
 
Accumulated Other Comprehensive Loss
Balance at January 1, 2011
 
$
4,415
 
 
(48
)
 
$
(2,313
)
 
$
(395
)
 
$
1,659
 
Year-to date change
 
221
 
 
(35
)
 
79
 
 
818
 
 
1,083
 
Balance at April 2, 2011
 
$
4,636
 
 
$
(83
)
 
$
(2,234
)
 
$
423
 
 
$
2,742
 
 
 
During the three months ended April 2, 2011, the Corporation repurchased 323,965 shares of its common stock at a cost of approximately $10 million.  As of April 2, 2011, $135.8 million of the Corporation's Board of Directors' current repurchase authorization remained unspent.
 
 

8
 

Note E.  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
(In thousands, except per share data)
 
April 2, 2011
 
April 3, 2010
Numerators:
 
 
 
 
Numerator for both basic and diluted EPS attributable to Parent Company net income
 
$
(1,755
)
 
$
(5,986
)
Denominators:
 
 
 
 
 
 
Denominator for basic EPS weighted-average common shares outstanding
 
44,853
 
 
45,166
 
Potentially dilutive shares from stock-based compensation plans
 
—
 
 
—
 
Denominator for diluted EPS
 
44,853
 
 
45,166
 
Earnings per share – basic
 
$
(0.04
)
 
$
(0.13
)
Earnings per share – diluted
 
$
(0.04
)
 
$
(0.13
)
 
None of the outstanding stock options or restricted stock units were included in the computation of diluted EPS for the three-month computation of diluted EPS at April 2, 2011 and April 3, 2010, as all would be anti-dilutive due to the current period loss.
 
 
Note F.  Restructuring Reserve and Plant Closures
 
In connection with office furniture plant closures announced in 2010 and 2009, the Corporation recorded $1.0 million of current period restructuring charges during the quarter ended April 2, 2011.
 
The Corporation made the decision to consolidate production and close certain hearth products distribution locations during the first quarter of 2011. A pre-tax charge of $0.4 million was recorded for severance and facility exit costs.
 
The following is a summary of changes in restructuring accruals during the three months ended April 2, 2011.  
 
 
(In thousands)
 
Severance
 
Facility Exit Costs & Other
 
Total
Balance as of January 1, 2011
 
$
2,389
 
 
$
243
 
 
$
2,632
 
Restructuring charges
 
599
 
 
791
 
 
1,390
 
Cash payments
 
(656
)
 
(706
)
 
(1,362
)
Balance as of April 2, 2011
 
$
2,332
 
 
$
328
 
 
$
2,660
 
 
 

9
 

Note G.  Discontinued Operations
 
The Corporation completed the sale of a small, non-core business in the office furniture segment and a small non-core component of its hearth products segment during 2010.  Revenues and expenses associated with these business operations are presented as discontinued operations for all periods presented in the financial statements.
 
 
Summarized financial information for discontinued operations is as follows:
 
 
 
Three Months Ended
(In thousands)
 
April 2, 2011
 
April 3, 2010
Discontinued operations:
 
 
 
 
Operating profit (loss) before tax
 
$
—
 
 
$
(1,290
)
Income tax provision (benefit)
 
—
 
 
(506
)
Net profit (loss) from discontinued
  operations, net of income tax
 
—
 
 
(784
)
Impairment loss and loss on sale of
  discontinued operations:
 
 
 
 
 
Impairment loss and loss on sale of discontinued operations before tax
 
—
 
 
(1,403
)
Income tax provision (benefit)
 
—
 
 
(476
)
Net impairment loss and loss on sale
  of discontinued operations
 
—
 
 
(927
)
Loss from discontinued operations, net
of income tax benefit
 
$
—
 
 
$
(1,711
)
 
 
 
Note H. Goodwill and Other Intangible Assets
 
The table below summarizes amortizable definite-lived intangible assets as of April 2, 2011 and January 1, 2011, which are reflected in the "Other Assets" line item in the Corporation's Condensed Consolidated Balance Sheets:
 
(In thousands)
 
April 2, 2011
 
January 1, 2011
Patents
 
$
18,605
 
 
$
18,605
 
Customer relationships and other
 
107,964
 
 
107,964
 
Less: accumulated amortization
 
71,646
 
 
70,139
 
Less:  impairments
 
4,879
 
 
4,879
 
 
 
$
50,044
 
 
$
51,551
 
 
Aggregate amortization expense for the three months ended April 2, 2011 and April 3, 2010 was $1.5 million and $3.0 million, respectively.  Based on the current amount of intangible assets subject to amortization, the estimated amortization expense for each of the following five fiscal years is as follows:
 
(In millions)
 
2011
 
2012
 
2013
 
2014
 
2015
Amortization Expense
 
$
5.7
 
 
$
5.1
 
 
$
4.7
 
 
$
4.1
 
 
$
3.8
 
 
As events such as potential acquisitions, dispositions or impairments occur in the future, these amounts may change.
 
The Corporation also owns trademarks and trade names with a net carrying amount of $41.0 million.  The trademarks are deemed to have indefinite useful lives because they are expected to generate cash flows indefinitely.
 
 
 

10
 

The changes in the carrying amount of goodwill since January 1, 2011 are as follows by reporting segment:
 
 
(In thousands)
 
Office
Furniture
 
Hearth
Products
 
Total
Balance as of January 1, 2011
 
 
 
 
 
 
Goodwill
 
$
123,948
 
 
$
166,188
 
 
$
290,136
 
Accumulated impairment losses
 
(29,359
)
 
(143
)
 
(29,502
)
 
 
94,589
 
 
166,045
 
 
260,634
 
Goodwill acquired
 
—
 
 
—
 
 
—
 
Impairment losses
 
—
 
 
—
 
 
—
 
Goodwill related to the sale of business units
 
—
 
 
—
 
 
—
 
Balance as of April 2, 2011
 
 
 
 
 
 
 
 
Goodwill
 
123,948
 
 
166,188
 
 
290,136
 
Accumulated impairment losses
 
(29,359
)
 
(143
)
 
(29,502
)
 
 
$
94,589
 
 
$
166,045
 
 
$
260,634
 
 
The Corporation evaluates its goodwill for impairment on an annual basis during the fourth quarter, or whenever indicators of impairment exist of which none existed during the three months ended April 2, 2011.  The Corporation estimates the fair value of its reporting units using various valuation techniques, with the primary technique being a discounted cash flow method.  This method employs assumptions that are market participant based.  
 
 
Note I.  Product Warranties
 
The Corporation issues certain warranty policies on its office furniture and hearth products that provide for repair or replacement of any covered product or component that fails during normal use because of a defect in design or workmanship.
 
A warranty reserve is determined by recording a specific reserve for known warranty issues and an additional reserve for unknown claims that are expected to be incurred based on historical claims experience.  Actual claims incurred could differ from the original estimates, requiring adjustments to the reserve.  Activity associated with warranty obligations was as follows during the periods noted:
 
 
 
Three Months Ended
(In thousands)
 
April 2, 2011
 
April 3, 2010
Balance at beginning of period
 
$
12,930
 
 
$
12,684
 
Accruals for warranties issued during period
 
4,660
 
 
4,107
 
Adjustments related to pre-existing warranties
 
(200
)
 
749
 
Settlements made during the period
 
(4,631
)
 
(4,644
)
Balance at end of period
 
$
12,759
 
 
$
12,896
 
 
 

11
 

Note J.  Postretirement Health Care
 
The following table sets forth the components of net periodic benefit cost included in the Corporation's Condensed Consolidated Statements of Income for:
 
 
 
Three Months Ended
(In thousands)
 
April 2, 2011
 
April 3, 2010
Service cost
 
$
91
 
 
$
90
 
Interest cost
 
201
 
 
210
 
Amortization of transition obligation
 
127
 
 
127
 
Amortization of (gain)/loss
 
(4
)
 
(4
)
Net periodic benefit cost
 
$
415
 
 
$
423
 
  
 
Note K.  Income Taxes
 
The provision for income taxes for continuing operations for the three months ended April 2, 2011 and April 3, 2010 reflect an effective tax rate of 29.6 percent and 48.0 percent, respectively. The 2011 estimated annual effective tax rate is expected to be 36.5 percent. The first quarter 2010 effective tax rate was impacted by a discrete benefit associated with an adjustment of deferred tax assets.
 
 
Note L.  Derivative Financial Instruments
 
The Corporation uses derivative financial instruments to reduce its exposure to adverse fluctuations in interest rates and diesel fuel.  On the date a derivative is entered into, the Corporation designates the derivative as (i) a fair value hedge, (ii) a cash flow hedge, (iii) a hedge of a net investment in a foreign operation or (iv) a risk management instrument not designated for hedge accounting.  The Corporation recognizes all derivatives on its Condensed Consolidated Balance Sheets at fair value.
 
Interest Rate Risk
In June 2008, the Corporation entered into an interest rate swap agreement, designated as a cash flow hedge, for purposes of managing its benchmark interest rate fluctuation risk.  Under the interest rate swap agreement, the Corporation pays a fixed rate of interest and receives a variable rate of interest equal to the one-month London Interbank Offered Rate (LIBOR) as determined on the last day of each monthly settlement period on an aggregated notional principal amount of $50 million.  The net amount paid or received upon monthly settlements is recorded as an adjustment to interest expense, while the effective change in fair value is recorded as a component of accumulated other comprehensive income in the equity section of the Corporation's Condensed Consolidated Balance Sheets.  The interest rate swap agreement matures on May 27, 2011.
 
As of April 2, 2011, $0.4 million of deferred net losses, net of tax, included in equity ("Accumulated other comprehensive income" in the Corporation's Condensed Consolidated Balance Sheets) related to this interest rate swap, are expected to be reclassified to current earnings ("Interest expense" in the Corporation's Condensed Consolidated Statements of Income) over the next twelve months.
 
Diesel Fuel Risk
The Corporation uses independent freight carriers to deliver its products.  These carriers charge the Corporation a basic rate per mile that is subject to a mileage surcharge for diesel fuel price increases.  The Corporation entered into variable to fixed rate commodity swap agreements beginning in April 2010 with two financial counterparties to manage fluctuations in fuel costs.  The Corporation will hedge approximately 40% of its diesel fuel surcharge exposure for the next twelve months.  The Corporation uses the hedge agreements to mitigate the volatility of diesel fuel prices and related fuel surcharges, and not to speculate the future price of diesel fuel.  The hedge agreements are designed to add stability to the Corporation's costs, enabling the Corporation to make pricing decisions and lessen the economic impact of abrupt changes in diesel fuel prices over the term of the contract.  The hedging instruments consist of a series of financially settled fixed forward contracts with expiration dates ranging up to twelve months.  The contracts have been designated as cash flow hedges of future diesel purchases, and as such, the net amount paid or received upon monthly settlements is recorded as an adjustment to freight expense, while the effective change in fair value is recorded as a component of accumulated other comprehensive income in the equity section of the Corporation's Condensed Consolidated Balance Sheets.
 

12
 

As of April 2, 2011, $0.8 million of deferred net gains, net of tax, included in equity ("Accumulated other comprehensive income" in the Corporation's Condensed Consolidated Balance Sheets) related to the diesel hedge agreements, are expected to be reclassified to current earnings ("Selling and administrative expenses" in the Corporation's Condensed Consolidated Statements of Income) over the next twelve months.
 
The location and fair value of derivative instruments reported in the Corporation's Condensed Consolidated Balance Sheets are as follows (in thousands):
 
 
 
 
Asset (Liability) Fair Value
 
 
Balance Sheet Location
 
April 2, 2011
 
January 1, 2011
Interest rate swap
 
Accounts payable and accrued expenses
 
$
(567
)
 
$
(907
)
Diesel fuel swap
 
Prepaid expenses and other current assets
 
1,250
 
 
277
 
 
 
 
 
$
683
 
 
$
(630
)
 
The effect of derivative instruments on the Corporation's Condensed Consolidated Statements of Income for the three months ended April 2, 2011 was as follows (in thousands):
 
Derivatives in Cash Flow Hedge Relationship
 
Before-tax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
 
Locations of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Before-Tax Gain (Loss) Reclassified from AOCI Into Income (Effective Portion)
 
Locations of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
 
Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap
 
$
(914
)
 
Interest expense
 
$
(559
)
 
None
 
$
—
 
Diesel fuel swap
 
1,263
 
 
Selling and administrative expenses
 
256
 
 
Selling and administrative expenses
 
5
 
Total
 
$
349
 
 
 
 
$
(303
)
 
 
 
$
5
 
 
 
The effect of derivative instruments on the Corporation's Condensed Consolidated Statements of Income for the three months ended April 3, 2010 was as follows (in thousands):
 
Derivatives in Cash Flow Hedge Relationship
 
Before-tax Gain (Loss) Recognized in AOCI on Derivative (Effective Portion)
 
Locations of Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
 
Before-Tax Gain (Loss) Reclassified from AOCI Into Income (Effective Portion)
 
Locations of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
 
Gain (Loss) Recognized in Income on Derivative (Ineffective Portion)
Interest rate swap
 
$
(249
)
 
Interest expense
 
$
(527
)
 
None
 
$
—
 
Diesel fuel swap
 
—
 
 
Selling and administrative expenses
 
—
 
 
None
 
—
 
Total
 
$
(249
)
 
 
 
$
(527
)
 
 
 
$
—
 
 
 

13
 

Note M.  Fair Value Measurements
 
For recognition purposes, on a recurring basis the Corporation is required to measure at fair value its marketable securities and its investment in target funds.  The marketable securities were comprised of government securities, corporate bonds and money market funds. When available the Corporation uses quoted market prices to determine fair value and classify such measurements within Level 1.  In some cases where market prices are not available, the Corporation makes use of observable market-based inputs to calculate fair value, in which case the measurements are classified within Level 2.
 
Assets measured at fair value during the three months ended April 2, 2011 were as follows:
 
 
 
 
 
(In thousands)
 
 
Fair value as of measurement date
 
Quoted prices in active markets for identical assets
(Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
Government securities
 
$
9,285
 
 
$
—
 
 
$
9,285
 
 
$
—
 
Corporate bonds
 
$
3,701
 
 
$
—
 
 
$
3,701
 
 
$
—
 
Derivative financial instrument
 
$
683
 
 
$
—
 
 
$
683
 
 
$
—
 
 
 
Assets measured at fair value for the year ended January 1, 2011 were as follows:
 
 
 
 
 
(In thousands)
 
 
Fair value as of measurement date
 
Quoted prices in active markets for identical assets
(Level 1)
 
Significant other observable inputs
(Level 2)
 
Significant unobservable inputs
(Level 3)
Investment in target funds
 
$
705
 
 
$
—
 
 
$
705
 
 
$
—
 
Government securities
 
$
8,364
 
 
$
—
 
 
$
8,364
 
 
$
—
 
Corporate bonds
 
$
1,243
 
 
$
—
 
 
$
1,243
 
 
$
—
 
Derivative financial instrument
 
$
(630
)
 
$
—
 
 
$
(630
)
 
$
—
 
 
In addition to the methods and assumptions the Corporation uses to record the fair value of financial instruments as discussed in the section above, it uses the following methods and assumptions to estimate the fair value of its financial instruments.
 
Cash and cash equivalents
The carrying amount approximated fair value.
 
Long-term debt (including current portion)
The carrying value of the Corporation's outstanding variable-rate, long-term debt obligations at April 2, 2011 and January 1, 2011, the end of the Corporation's 2010 fiscal year, approximated the fair value.  The fair value of the Corporation's outstanding fixed-rate, long-term debt obligations is estimated to be $160 million at April 2, 2011 and $156 million at January 1, 2011, compared to the carrying value of $150 million.
 
 
Note N.  Commitments and Contingencies
 
The Corporation utilizes letters of credit in the amount of $17 million to back certain insurance policies and payment obligations.  The letters of credit reflect fair value as a condition of their underlying purpose and are subject to competitively determined fees.
 
 The Corporation has contingent liabilities which have arisen in the ordinary course of its business, including pending litigation, environmental remediation, taxes, and other claims.  It is the Corporation's opinion that liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Corporation's financial condition, although such matters could have a material effect on the Corporation's quarterly or annual operating results and cash flows when resolved in a future period.
 
 

14
 

Note O.  New Accounting Standards
 
There were no new accounting standards issued during the quarter that the Corporation expects to have a material impact on the financial statements.
 
 
Note P.  Business Segment Information
 
Management views the Corporation as operating in two business segments: office furniture and hearth products with the former being the principal business segment.
 
The office furniture segment manufactures and markets a broad line of metal and wood office furniture which includes storage products, desks, credenzas, chairs, tables, bookcases, freestanding office partitions and panel systems and other related products.  The hearth products segment manufactures and markets a broad line of manufactured gas, electric, wood and biomass burning fireplaces, inserts, stoves, facings and accessories, principally for the home.
 
For purposes of segment reporting, intercompany sales transfers between segments are not material and operating profit is income before income taxes exclusive of certain unallocated corporate expenses.  These unallocated corporate expenses include the net cost of the Corporation's corporate operations, interest income and interest expense.  Management views interest income and expense as corporate financing costs rather than a business segment cost.  In addition, management applies one effective tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis.
 
The Corporation's primary market and capital investments are concentrated in the United States.

15
 

 
Reportable segment data reconciled to the Corporation's condensed consolidated financial statements for the three-month periods ended April 2, 2011, and April 3, 2010, is as follows:
 
Three Months Ended
(In thousands)
April 2, 2011
 
April 3, 2010
Net Sales:
 
 
 
Office Furniture
$
331,127
 
 
$
300,032
 
Hearth Products
65,024
 
 
63,474
 
 
396,151
 
 
363,506
 
Operating Profit (Loss):
 
 
 
 
 
Office furniture
 
 
 
 
 
Operations before restructuring charges
$
9,115
 
 
$
7,980
 
Restructuring and impairment charges
(1,022
)
 
(1,733
)
Office furniture – net
8,093
 
 
6,247
 
Hearth products
 
 
 
 
 
Operations before restructuring charges
(227
)
 
(2,805
)
Restructuring and impairment charges
(368
)
 
(101
)
Hearth products – net
(595
)
 
(2,906
)
Total operating profit
7,498
 
 
3,341
 
Unallocated corporate expense
(10,033
)
 
(11,430
)
Income (loss) before income taxes
$
(2,535
)
 
$
(8,089
)
 
 
 
 
Depreciation & Amortization Expense:
 
 
 
 
 
Office furniture
$
9,430
 
 
$
11,641
 
Hearth products
2,152
 
 
3,779
 
General corporate
566
 
 
640
 
 
$
12,148
 
 
$
16,060
 
 
 
 
 
Capital Expenditures:
 
 
 
 
 
Office furniture
$
3,635
 
 
$
3,561
 
Hearth products
464
 
 
442
 
General corporate
499
 
 
796
 
 
$
4,598
 
 
$
4,799
 
 
 
 
 
 
As of
 
As of
 
April 2,
2011
 
April 3,
2010
Identifiable Assets:
 
 
 
 
 
Office furniture
$
582,295
 
 
$
565,226
 
Hearth products
264,817
 
 
284,881
 
General corporate
109,194
 
 
85,588
 
 
$
956,306
 
 
$
935,695
 
 

16
 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Overview
 
The Corporation has two reportable segments:  office furniture and hearth products.  The Corporation is the second largest office furniture manufacturer in the world and the nation's leading manufacturer and marketer of gas- and wood-burning fireplaces.  The Corporation utilizes its split and focus, decentralized business model to deliver value to its customers with its various brands and selling models.  The Corporation is focused on growing its existing businesses while seeking out and developing new opportunities for growth.
 
Net sales for the first quarter of fiscal 2011 increased 9.0 percent to $396.2 million when compared to the first quarter of fiscal 2010.  The increase was driven by all channels of the office furniture segment and the remodel/retrofit channel of the hearth products segment.  Gross margins for the quarter increased from prior year levels due to higher volume, cost reduction initiatives and lower restructuring and transition costs partially offset by increased material costs.  Selling and administrative expenses, as a percent of sales, decreased due to higher volume and lower restructuring charges partially offset by higher fuel costs, investments in growth initiatives and higher incentive-based compensation.
 
The Corporation recorded $1.4 million of restructuring costs in the first quarter of fiscal 2011 in connection with previously announced office furniture plant closures and restructuring of hearth operations.
 
 
 
Critical Accounting Policies
 
The preparation of the financial statements requires the Corporation to make estimates and judgments that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  The Corporation continually evaluates its accounting policies and estimates.  The Corporation bases its estimates on historical experience and on a variety of other assumptions believed by management to be reasonable in order to make judgments about the carrying value of assets and liabilities.  Actual results may differ from these estimates under different assumptions or conditions.  A summary of the more significant accounting policies that require the use of estimates and judgments in preparing the financial statements is provided in the Corporation's Annual Report on Form 10-K for the year ended January 1, 2011.  During the first three months of fiscal 2011, there were no material changes in the accounting policies and assumptions previously disclosed.
 
New Accounting Standards
 
There were no new accounting standards issued during the quarter that the Corporation expects to have a material impact on the financial statements.
 

17
 

Results of Operations
 
The following table presents certain key highlights from the results of operations for the periods indicated:
 
 
Three Months Ended
 
(In thousands)
April 2, 2011
 
April 3, 2010
 
Percent
Change
Net sales
$
396,151
 
 
$
363,506
 
 
9.0
 %
Cost of sales
261,427
 
 
244,326
 
 
7.0
 %
Gross profit
134,724
 
 
119,180
 
 
13.0
 %
Selling and administrative expenses
132,413
 
 
122,800
 
 
7.8
 %
Restructuring and impairment charges
1,390
 
 
1,834
 
 
(24.2
)%
Operating income (loss)
921
 
 
(5,454
)
 
116.9
 %
Interest expense, net
3,456
 
 
2,635
 
 
31.2
 %
Earnings (loss) before income taxes
(2,535
)
 
(8,089
)
 
68.7
 %
Income taxes
(738
)
 
(3,947
)
 
81.3
 %
Income (loss) from continuing operations
$
(1,797
)
 
$
(4,142
)
 
56.6
 %
 
 
 
 
 
 
 
 
 
 
Consolidated net sales for the first quarter increased 9.0 percent or $32.6 million compared to the same quarter last year.  The increase was driven by all channels of the office furniture segment and the remodel/retrofit channel of the hearth products segment.
 
Gross margin for the first quarter increased to 34.0 percent compared to 32.8 percent for the same quarter last year.  The increase in gross margin was driven by higher volume, cost reduction initiatives and lower restructuring and transition charges offset partially by increased material costs .  First quarter 2010 included $1.5 million of accelerated depreciation and transition costs related to the closure and consolidation of office furniture manufacturing facilities and hearth consolidation.
 
Total selling and administrative expenses, including restructuring charges, as a percent of sales decreased to 33.8 percent compared to 34.3 percent for the same quarter last year due to higher volume, lower restructuring charges and an adjustment to correct a fourth quarter 2010 freight over accrual of $0.4 million partially offset by increased fuel costs, investments in selling, marketing and product initiatives and higher incentive-based compensation.  First quarter 2011 included $1.4 million of restructuring charges associated with plant consolidations compared to $1.8 million in the same period in the prior year. The Corporation recorded a gain of $0.5 million on the sale of one of the closed office furniture manufacturing facilities during the first quarter of 2010.
 
The Corporation experienced a net loss from continuing operations of $(1.8) million or $(0.04) per diluted share in the first quarter of 2011 compared to $(4.1) million or $(0.09) per diluted share in the first quarter of 2010.
 
The provision for income taxes for continuing operations for the three months ended April 2, 2011 and April 3, 2010 reflect an effective tax rate of 29.6 percent and 48.0 percent, respectively.   The 2011 estimated annual effective tax rate is expected to be 36.5 percent. The first quarter 2010 effective tax rate was impacted by a discrete benefit associated with an adjustment of deferred tax assets.
 
The Corporation completed the sale of a small, non-core business in the office furniture segment and a small non-core component of the hearth products segment during 2010.  Revenues and expenses associated with these business operations are presented as discontinued operations for all periods presented in the financial statements.
 
Office Furniture
 
First quarter 2011 sales for the office furniture segment increased 10.4 percent or $31.1 million to $331.1 million from $300.0 million for the same quarter last year driven by a increase in the supplies-driven channel and a more substantial increase in the contract and international channel.  Operating profit prior to unallocated corporate expenses increased $1.8 million to $8.1 million as a result of higher volume and lower restructuring and transition costs.  These were partially offset by lower price realization, increased input costs, investments in strategic growth initiatives and higher incentive-based compensation.  First quarter 2011 included $1.0 million of restructuring and transition costs compared to $3.1 million of restructuring and transition costs including accelerated depreciation in first quarter 2010.
 

18
 

 
Hearth Products
 
First quarter 2011 net sales for the hearth products segment increased 2.4 percent or $1.6 million to $65.0 million from $63.5 million for the same quarter last year driven by an increase in the remodel-retrofit channel partially offset by a decline in the new construction channel.  Operating profit prior to unallocated corporate expenses increased $2.3 million to a $0.6 million loss due to better price realization and cost control initiatives partially offset by investments in strategic growth initiatives and higher incentive based compensation.  First quarter 2011 included $0.4 million of restructuring and transition costs compared to $0.2 million of restructuring and transition costs in first quarter 2010.
 
 
Liquidity and Capital Resources
 
Cash Flow – Operating Activities
Operating activities used $22.0 million of cash in the first three months of 2011 compared to a $25.4 million use in the first three months of 2010.  Working capital performance resulted in a $43.3 million use of cash in the first three months of the current fiscal year compared to a $43.1 million use of cash in the same period of the prior year.  The Corporation's first quarter is historically the lowest quarter for operating cash flow due to seasonal business patterns and funding requirements. Cash flow from operating activities is expected to be positive for the year.
 
Cash Flow – Investing Activities
Capital expenditures including capitalized software for the first three months of fiscal 2011 were $4.6 million compared to $4.8 million in the same period of fiscal 2010 and were primarily for tooling and equipment for new products.  In addition $1.8 million of equipment was purchased via a capital lease transaction during the first quarter of 2011. For the full year 2011, capital expenditures are expected to be approximately $30 to $35 million, primarily focused on new product development and related tooling.
 
Cash Flow – Financing Activities
During the first three months of fiscal 2011, net borrowings under the revolving credit facility remained at $50 million and are classified as short-term as the Corporation expects to repay the borrowings within a year.
 
The credit agreement governing the Corporation's revolving credit facility contains a number of covenants, including covenants requiring maintenance of the following financial ratios as of the end of any fiscal quarter:
 
•
a consolidated interest coverage ratio of not less than 4.0 to 1.0, based upon the ratio of (a) consolidated EBITDA (as defined in the credit agreement) for the last four fiscal quarters to (b) the sum of consolidated interest charges; and
•
a consolidated leverage ratio of not greater than 3.0 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness (as defined in the credit agreement) to (b) consolidated EBITDA for the last four fiscal quarters.
 
The note purchase agreement pertaining to the Corporation's Senior Notes also contains a number of covenants, including a covenant requiring maintenance of consolidated debt to consolidated EBITDA (as defined in the note purchase agreement) of not greater than 3.5 to 1.0, based upon the ratio of (a) the quarter-end consolidated funded indebtedness (as defined in the note purchase agreement) to (b) consolidated EBITDA for the last four fiscal quarters.
 
The revolving credit facility and Senior Notes are the primary sources of committed funding from which the Corporation finances its planned capital expenditures, strategic initiatives, such as acquisitions, repurchases of common stock and certain working capital needs.  Non-compliance with the various financial covenant ratios could prevent the Corporation from being able to access further borrowings under the revolving credit facility, require immediate repayment of all amounts outstanding with respect to the revolving credit facility and Senior Notes and/or increase the cost of borrowing.
 
The most restrictive of the financial covenants is the consolidated leverage ratio requirement of 3.0 to 1.0 included in the credit agreement governing the revolving credit facility.  Under that credit agreement, adjusted EBITDA is defined as consolidated net income before interest expense, income taxes and depreciation and amortization of intangibles, as well as non-cash, nonrecurring charges and all non-cash items increasing net income.  At April 2, 2011, the Corporation was well below this ratio and was in compliance with all of the covenants and other restrictions in the credit agreement and the note purchase agreement.  The Corporation currently expects to remain in compliance over the next twelve months.
 
On February 16, 2011, the Corporation's Board of Directors (the "Board") approved a 6.98 percent increase in the common stock quarterly cash dividend from $0.215 per share to $0.23 per share. The dividend was paid on March 7, 2011, to shareholders of record at the close of business on February 28, 2011.  

19
 

 
During the three months ended April 2, 2011, the Corporation repurchased 323,965 shares of common stock at a cost of approximately $10.0 million, or an average price of $30.87 per share.  As of April 2, 2011, approximately $135.8 million of the Board's current repurchase authorization remained unspent.
 
Off-Balance Sheet Arrangements
 
The Corporation does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on the Corporation's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
 
Contractual Obligations
 
Contractual obligations associated with ongoing business and financing activities will result in cash payments in future periods.  A table summarizing the amounts and estimated timing of these future cash payments was provided in the Corporation's Annual Report on Form 10-K for the year ended January 1, 2011.  During the first three months of fiscal 2011 there were no material changes outside the ordinary course of business in the Corporation's contractual obligations or the estimated timing of the future cash payments.
 
Commitments and Contingencies
 
The Corporation is involved in various kinds of disputes and legal proceedings that have arisen in the ordinary course of its business, including pending litigation, environmental remediation, taxes and other claims.  It is the Corporation's opinion that liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Corporation's financial condition, although such matters could have a material effect on the Corporation's quarterly or annual operating results and cash flows when resolved in a future period.
 
Looking Ahead
 
Management is optimistic about the office furniture and hearth products markets and the improving economy.  The Corporation continues its investments in selling, marketing and product initiatives to drive improvement.  Management believes the Corporation is well positioned for growth.
 
The Corporation continues to focus on creating long-term shareholder value by growing its businesses through investment in building brands, product solutions and selling models, enhancing its strong member-owner culture and remaining focused on its long-standing continuous improvement programs to build best total cost and a lean enterprise.
 
Forward-Looking Statements
 
Statements in this report that are not strictly historical, including statements as to plans, outlook, objectives and future financial performance, are "forward-looking" statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Words, such as "anticipate," "believe," "could," "confident," "estimate," "expect," "forecast," "hope," "intend," "likely," "may," "plan," "possible," "potential," "predict," "project," "should," "will," "would" and variations of such words and similar expressions identify forward-looking statements.  Forward-looking statements involve known and unknown risks, which may cause the Corporation's actual results in the future to differ materially from expected results.  These risks include, without limitation:  the Corporation's ability to realize financial benefits from its (a) price increases, (b) cost containment and business simplification initiatives for the entire Corporation, (c) investments in strategic acquisitions, new products and brand building, (d) investments in distribution and rapid continuous improvement, (e) ability to maintain its effective tax rate, (f) repurchases of common stock and (g) consolidation and logistical realignment initiatives; uncertainty related to the availability of cash and credit, and the terms and interest rates on which credit would be available, to fund operations and future growth; lower than expected demand for the Corporation's products due to uncertain political and economic conditions, including the recent credit crisis, slow or negative growth rates in global and domestic economies and the protracted decline in the housing market; lower industry growth than expected; major disruptions at our key facilities or in the supply of any key raw materials, components or finished goods; uncertainty related to disruptions of business by terrorism, military action, epidemic, acts of God or other Force Majeure events; competitive pricing pressure from foreign and domestic competitors; higher than expected costs and lower than expected supplies of materials (including steel and petroleum based materials); higher than expected costs for energy and fuel; changes in the mix of products sold and of customers purchasing; relationships with distribution channel partners, including the financial viability of distributors and dealers; restrictions imposed by the terms of the Corporation's revolving credit facility and

20
 

note purchase agreement; currency fluctuations and other factors described in the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q.  The Corporation undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
As of April 2, 2011, there were no material changes to the financial market risks that affect the quantitative and qualitative disclosures presented in Item 7A of the Corporation's Annual Report on Form 10-K for the year ended January 1, 2011.
 
Item 4. Controls and Procedures
 
Disclosure controls and procedures are designed to ensure information required to be disclosed by the Corporation in the reports it files or submits under the Securities Exchange Act of 1934 (the "Exchange Act"), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures are also designed to ensure that information is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Under the supervision and with the participation of management, the chief executive officer and chief financial officer of the Corporation carried out an evaluation of the Corporation's disclosure controls and procedures pursuant to Exchange Act Rules 13a – 15(e) and 15d – 15(e).   As of April 2, 2011, based on this evaluation, the chief executive officer and chief financial officer have concluded these disclosure controls and procedures are effective.
 
Furthermore, there have been no changes in the Corporation's internal control over financial reporting during the fiscal quarter covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
 

21
 

PART II.     OTHER INFORMATION
 
 
Item 1. Legal Proceedings
 
There are no new legal proceedings or material developments to report other than ordinary routine litigation incidental to the business.
 
 
Item 1A. Risk Factors
 
There have been no material changes from the risk factors disclosed in the "Risk Factors" section of the Corporation's Annual Report on Form 10-K for the year ended January 1, 2011.
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
Issuer Purchases of Equity Securities:
 
The following is a summary of share repurchase activity during the quarter ended April 2, 2011.
 
 
 
 
Period
 
(a) Total Number of Shares (or Units) Purchased (1)
 
(b) Average
price Paid
per Share or
Unit
 
(c) Total Number of
Shares (or Units)
Purchased as Part of Publicly Announced
Plans or Programs
 
(d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet be
Purchased Under
the Plans or
Programs
01/02/11 – 01/29/11
 
—
 
—
 
—
 
 
—
 
 
$
145,795,524.19
 
01/30/11 – 02/26/11
 
15,475
 
 
$
32.27
 
 
15,475
 
 
$
145,296,220.19
 
02/27/11 – 04/02/11
 
308,490
 
 
$
30.80
 
 
308,490
 
 
$
135,795,532.23
 
Total
 
323,965
 
 
 
 
 
323,965
 
 
 
 
(1) No shares were purchased outside of a publicly announced plan or program.
 
The Corporation repurchases shares under previously announced plans authorized by the Board as follows:
•
Plan announced November 9, 2007, providing share repurchase authorization of $200,000,000 with no specific expiration date.
•
No repurchase plans expired or were terminated during the first quarter of fiscal 2011, nor do any plans exist under which the Corporation does not intend to make further purchases.
 
 
Item 6. Exhibits
 
See Exhibit Index.
 

22
 

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
HNI Corporation
 
 
 
 
 
Date: May 4, 2011
By:
/s/ Kurt A. Tjaden
 
 
 
Kurt A. Tjaden
 
 
 
Vice President and Chief Financial Officer
 
  

23
 

 
EXHIBIT INDEX
(10.1)
Credit Agreement, including all schedules and exhibits, dated as of June 11, 2010, by and among HNI Corporation, as Borrower, certain domestic subsidiaries of HNI Corporation from time to time party thereto, as Guarantors, certain lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent
(31.1)
Certification of the CEO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
(31.2)
Certification of the CFO Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
(32.1)
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

24