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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 3, 2021
 
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 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 practical date.
Common Stock, $1 Par ValueOutstanding as ofApril 3, 202143,552,458



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 3,
2021
March 28,
2020
 
Net sales$484,293 $468,704 
Cost of sales304,347 292,686 
Gross profit179,946 176,018 
Selling and administrative expenses157,346 167,085 
Impairment charges 32,661 
Operating income (loss)22,600 (23,728)
Interest expense, net1,755 1,811 
Income (loss) before income taxes20,845 (25,539)
Income taxes5,827 (1,643)
Net income (loss)15,018 (23,896)
Less: Net loss attributable to non-controlling interest(1)(1)
Net income (loss) attributable to HNI Corporation$15,019 $(23,895)
Average number of common shares outstanding – basic43,163 42,628 
Net income (loss) attributable to HNI Corporation per common share – basic$0.35 $(0.56)
Average number of common shares outstanding – diluted43,584 42,628 
Net income (loss) attributable to HNI Corporation per common share – diluted$0.34 $(0.56)
Foreign currency translation adjustments$(132)$(600)
Change in unrealized gains (losses) on marketable securities, net of tax(100)59 
Change in derivative financial instruments, net of tax263 (2,216)
Other comprehensive income (loss), net of tax31 (2,757)
Comprehensive income (loss)15,049 (26,653)
Less: Comprehensive loss attributable to non-controlling interest(1)(1)
Comprehensive income (loss) attributable to HNI Corporation$15,050 $(26,652)
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

3



HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets

(In thousands)
(Unaudited)
April 3,
2021
January 2,
2021
Assets
Current Assets:  
Cash and cash equivalents$94,281 $116,120 
Short-term investments1,776 1,687 
Receivables198,039 207,971 
Allowance for doubtful accounts(4,904)(5,514)
Inventories154,176 137,811 
Prepaid expenses and other current assets42,204 37,660 
Total Current Assets485,572 495,735 
Property, Plant, and Equipment: 
Land and land improvements29,989 29,691 
Buildings294,760 293,708 
Machinery and equipment580,398 578,643 
Construction in progress20,460 17,750 
 925,607 919,792 
Less accumulated depreciation562,717 553,835 
Net Property, Plant, and Equipment362,890 365,957 
Right-of-use Finance Leases10,119 6,095 
Right-of-use Operating Leases66,897 70,219 
Goodwill and Other Intangible Assets455,486 458,896 
Other Assets24,617 21,130 
Total Assets$1,405,581 $1,418,032 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
4



HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
 April 3,
2021
January 2,
2021
Liabilities and Equity
Current Liabilities:  
Accounts payable and accrued expenses$367,072 $413,638 
Current maturities of long-term debt1,261 841 
Current maturities of other long-term obligations3,731 2,990 
Current lease obligations - finance2,398 1,589 
Current lease obligations - operating20,195 19,970 
Total Current Liabilities394,657 439,028 
Long-Term Debt174,545 174,524 
Long-Term Lease Obligations - Finance7,677 4,516 
Long-Term Lease Obligations - Operating50,222 53,249 
Other Long-Term Liabilities84,895 81,264 
Deferred Income Taxes75,824 74,706 
Equity:  
HNI Corporation shareholders' equity:  
 Capital Stock:  
     Preferred stock - $1 par value, authorized 2,000 shares, no shares outstanding
  
     Common stock - $1 par value, authorized 200,000 shares, outstanding:
April 3, 2021 – 43,552 shares; January 2, 2021 – 42,919 shares
43,552 42,919 
Additional paid-in capital63,447 38,659 
Retained earnings519,559 517,994 
Accumulated other comprehensive income (loss)(9,122)(9,153)
Total HNI Corporation shareholders' equity617,436 590,419 
Non-controlling interest325 326 
Total Equity617,761 590,745 
Total Liabilities and Equity$1,405,581 $1,418,032 
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 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 

Three Months Ended - March 28, 2020
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive Income (Loss)Non-controlling InterestTotal Shareholders’ Equity
Balance, December 28, 2019$42,595 $19,799 $529,723 $(8,073)$324 $584,368 
Comprehensive income:
Net income (loss)— — (23,895)— (1)(23,896)
Other comprehensive income (loss), net of tax— — — (2,757)— (2,757)
Impact of new accounting standard related to credit losses— — (131)— — (131)
Dividends payable— — (46)— — (46)
Cash dividends; $0.305 per share
— — (13,033)— — (13,033)
Common shares – treasury:
Shares purchased(187)(4,365)(1,189)— — (5,741)
Shares issued under Members' Stock Purchase Plan and stock awards, net of tax239 12,652 — — — 12,891 
Balance, March 28, 2020$42,647 $28,086 $491,429 $(10,830)$323 $551,655 
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 3,
2021
March 28,
2020
Net Cash Flows From (To) Operating Activities:  
Net income (loss)$15,018 $(23,896)
Non-cash items included in net income:
Depreciation and amortization20,463 19,487 
Other post-retirement and post-employment benefits332 364 
Stock-based compensation5,220 4,358 
Reduction in carrying amount of right-of-use assets6,537 5,599 
Deferred income taxes1,076 12,258 
Impairment of goodwill and intangible assets 32,661 
Other – net1,315 (2,252)
Net increase (decrease) in operating assets and liabilities(51,436)(81,573)
Increase (decrease) in other liabilities3,159 (312)
Net cash flows from (to) operating activities1,684 (33,306)
Net Cash Flows From (To) Investing Activities:  
Capital expenditures(16,197)(8,488)
Proceeds from sale of property, plant, and equipment48 49 
Capitalized software(2,767)(4,671)
Acquisition spending, net of cash acquired(1,408)(9,321)
Purchase of investments(598)(1,456)
Sales or maturities of investments515 996 
Net cash flows from (to) investing activities(20,407)(22,891)
Net Cash Flows From (To) Financing Activities:  
Payments of long-term debt(118)(15,000)
Proceeds from long-term debt547 70,129 
Dividends paid(13,234)(13,033)
Purchase of HNI Corporation common stock (5,839)
Proceeds from sales of HNI Corporation common stock13,030 722 
Other – net(3,341)2,558 
Net cash flows from (to) financing activities(3,116)39,537 
Net increase (decrease) in cash and cash equivalents(21,839)(16,660)
Cash and cash equivalents at beginning of period116,120 52,073 
Cash and cash equivalents at end of period$94,281 $35,413 
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

7



HNI Corporation and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)
April 3, 2021

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 2, 2021, 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 3, 2021, are not necessarily indicative of the results expected for the fiscal year ending January 1, 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 2, 2021. 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 3,
2021
March 28,
2020
Systems and storage$182,859 $204,021 
Seating101,650 115,872 
Other18,239 18,493 
Total workplace furnishings302,748 338,386 
Residential building products181,545 130,318 
Net sales$484,293 $468,704 

Sales by product category are subject to similar economic factors and market conditions. See “Note 15. Reportable Segment Information” in the Notes to Condensed Consolidated Financial Statements for further information about operating segments.

Contract Assets and Contract Liabilities
In addition to trade receivables, the Corporation has contract assets consisting of funds paid to certain 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. For contracts with a duration of less than one year, the Corporation has elected the practical expedient to recognize incremental costs to obtain a contract as an expense when incurred. The Corporation has contract liabilities consisting of customer deposits and rebate and marketing program liabilities.











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Contract assets and contract liabilities were as follows (in thousands):
April 3,
2021
January 2,
2021
Trade receivables (1)$198,039 $207,971 
Contract assets (current) (2)$761 $761 
Contract assets (long-term) (3)$2,174 $2,486 
Contract liabilities (4)$47,022 $53,070 

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

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

Changes in contract asset and contract liability balances during the three months ended April 3, 2021, were as follows (in thousands):
Contract assets increase (decrease)Contract liabilities (increase) decrease
Reclassification of contract assets to contra-revenue$(312)$— 
Contract liabilities recognized and recorded to contra-revenue as a result of performance obligations satisfied— (47,347)
Contract liabilities paid— 54,735 
Cash received in advance and not recognized as revenue— (51,014)
Reclassification of cash received in advance to revenue as a result of performance obligations satisfied— 49,674 
Net change$(312)$6,048 

Changes in contract asset and contract liability balances during the three months ended March 28, 2020 were as follows (in thousands):
Contract assets increase (decrease)Contract liabilities (increase) decrease
Reclassification of contract assets to contra-revenue$(164)$— 
Contract liabilities recognized and recorded to contra-revenue as a result of performance obligations satisfied— (24,610)
Contract liabilities paid— 39,064 
Cash received in advance and not recognized as revenue— (19,220)
Reclassification of cash received in advance to revenue as a result of performance obligations satisfied— 21,710 
Net change$(164)$16,944 

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 amount of revenue recognized during the three months ended April 3, 2021, that was included in the January 2, 2021, contract liabilities balance was $21.1 million.

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
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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

During the three months ended April 3, 2021, the Corporation acquired the assets of a residential building products distributor in an all-cash deal. The aggregate purchase price was approximately $1.6 million, and the preliminary allocation includes $1.3 million of tax deductible goodwill. The Corporation will finalize the allocation of the purchase price during 2021 based on the final purchase price and any adjustments required over the remaining measurement period.

On December 31, 2020, the Corporation acquired Design Public Group ("DPG"), a leading e-Commerce distributor of high-design furniture and accessories for the office and home. This transaction, which was structured as an asset acquisition and consummated entirely in cash of approximately $50 million, aligns with the Corporation's long-term strategies related to digital and e-Commerce initiatives. Due to the timing of the transaction, DPG had no net sales or expenses included in the Corporation's Consolidated Statement of Comprehensive Income for fiscal 2020. DPG's preliminary assets and liabilities are included in the Corporation's workplace furnishings segment, and preliminary goodwill, which is expected to be tax-deductible, is assigned to its own reporting unit.

The provisional DPG purchase price allocation and estimated amortization periods of identified intangible assets as of the date of acquisition is as follows (dollars in thousands):
Fair ValueWeighted Average Amortization Period
Inventories$1,058 
Prepaid expenses and other current assets381 
Accounts payable and accrued expenses(8,299)
Goodwill39,800 
Customer lists9,700 6 years
Software3,800 4 years
Trade names3,400 10 years
Other intangible assets200 3 years
Total net assets$50,040 

The provisional purchase accounting remains open with respect to the valuation of intangible assets and goodwill. The valuation analysis requires the use of complex management estimates and assumptions such as future cash flows, discount rates, royalty rates, long-term growth rates, and technology build costs. At this time, intangible assets and goodwill are recorded based on preliminary assumptions, and the Corporation has not obtained all of the information necessary to finalize the determination of fair values of intangible assets. 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 later in 2021.

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All transactions disclosed above were deemed to be acquisitions of businesses, and were accounted for using the acquisition method pursuant to ASC 805, with goodwill being recorded as a result of future cash flows and related fair value exceeding the fair value of the identified assets and liabilities.

Note 4.  Inventories

The Corporation values its inventory at the lower of cost or net realizable value. Inventories included in the Condensed Consolidated Balance Sheets consisted of the following (in thousands):
April 3,
2021
January 2,
2021
Finished products$113,531 $98,527 
Materials and work in process71,625 70,264 
Last-in, first-out ("LIFO") allowance(30,980)(30,980)
Total inventories$154,176 $137,811 
Inventory valued by the LIFO costing method77 %75 %

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 3,
2021
January 2,
2021
Goodwill$293,684 $292,434 
Definite-lived intangible assets135,237 139,863 
Indefinite-lived intangible assets26,565 26,599 
Total goodwill and other intangible assets$455,486 $458,896 

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 2, 2021   
Goodwill$168,477 $196,976 $365,453 
Accumulated impairment losses(72,876)(143)(73,019)
Net goodwill balance as of January 2, 202195,601 196,833 292,434 
Goodwill acquired 1,250 1,250 
Balance as of April 3, 2021  
Goodwill168,477 198,226 366,703 
Accumulated impairment losses(72,876)(143)(73,019)
Net goodwill balance as of April 3, 2021$95,601 $198,083 $293,684 

See "Note 3. Acquisitions" for additional information regarding goodwill acquired in the year-to-date period.




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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 3, 2021January 2, 2021
GrossAccumulated AmortizationNetGrossAccumulated AmortizationNet
Software$184,752 $84,205 $100,547 $182,127 $78,619 $103,508 
Trademarks and trade names9,964 3,764 6,200 9,964 3,546 6,418 
Customer lists and other90,910 62,420 28,490 91,002 61,065 29,937 
Net definite-lived intangible assets$285,626 $150,389 $135,237 $283,093 $143,230 $139,863 

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 3,
2021
March 28,
2020
Capitalized software$5,348 $4,550 
Other definite-lived intangibles$1,899 $1,523 

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):
20212022202320242025
Amortization expense$28.7 $25.1 $21.0 $18.0 $16.3 

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 3,
2021
January 2,
2021
Trademarks and trade names$26,565 $26,599 

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. Allowances have been established for the anticipated future costs associated with the Corporation's warranty programs.

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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 3,
2021
March 28,
2020
Balance at beginning of period$16,109 $15,865 
Accruals for warranties issued during period2,370 3,224 
Adjustments related to pre-existing warranties 514 
Settlements made during the period(2,192)(3,382)
Balance at end of period$16,287 $16,221 

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 3,
2021
January 2,
2021
Current - in the next twelve months$5,942 $5,918 
Long-term - beyond one year10,345 10,191 
Total$16,287 $16,109 

Note 7.  Long-Term Debt

Long-term debt is as follows (in thousands):
April 3,
2021
January 2,
2021
Revolving credit facility with interest at a variable rate
(April 3, 2021 - 1.1%; January 2, 2021 - 1.2%)
$75,000 $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 amounts1,261 841 
Deferred debt issuance costs(455)(476)
Total debt175,806 175,365 
Less: Current maturities of long-term debt1,261 841 
Long-term debt$174,545 $174,524 

The carrying value of the Corporation's outstanding variable-rate, long-term debt obligations at April 3, 2021, was $75 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 $116 million at April 3, 2021.

As of April 3, 2021, the Corporation’s revolving credit facility borrowings were under the credit agreement entered into on April 20, 2018, with a scheduled maturity of April 20, 2023. The Corporation deferred the debt issuance costs related to the credit agreement, which are classified as assets, and is amortizing them over the term of the credit agreement. The current portion of debt issuance costs of $0.4 million is the amount to be amortized over the next twelve months based on the current credit agreement and is reflected in "Prepaid expenses and other current assets" in the Condensed Consolidated Balance Sheets. The long-term portion of debt issuance costs of $0.4 million is reflected in "Other Assets" in the Condensed Consolidated Balance Sheets.

As of April 3, 2021, there was $75 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
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amounts borrowed in the next twelve months. Based on current earnings before interest, taxes, depreciation and amortization, the Corporation can access the full remaining $375 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.

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 3, 2021, the debt issuance costs balance of $0.5 million related to the private placement note agreements is reflected in "Long-Term Debt" in the Condensed Consolidated Balance Sheets.

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 3, 2021, 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 (dollars in thousands):
Three Months Ended
April 3,
2021
March 28,
2020
Income (loss) before income taxes$20,845 $(25,539)
Income taxes$5,827 $(1,643)
Effective tax rate28.0 %6.4 %

The Corporation's effective tax rate was higher in the three months ended April 3, 2021, compared to the same period last year. The variance is due to higher financial performance in the current year period and an improved full year 2021 income outlook, relative to the prior year quarter performance and full year outlook which were adversely impacted by the onset of the COVID-19 pandemic and resulting significant economic disruption. This resulted in a greater rate benefit from tax credits in the first quarter of 2020.

Note 9.  Fair Value Measurements of Financial Instruments

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

Financial instruments measured at fair value were as follows (in thousands):
Fair value as of measurement 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 3, 2021
Cash and cash equivalents (including money market funds) (1)$94,281 $94,281 $ $ 
Government securities (2)$6,315 $ $6,315 $ 
Corporate bonds (2)$7,227 $ $7,227 $ 
Derivative financial instruments - liability (3)$1,953 $ $1,953 $ 
Deferred stock-based compensation (4)$7,607 $ $7,607 $ 
Balance as of January 2, 2021
Cash and cash equivalents (including money market funds) (1)$116,120 $116,120 $ $ 
Government securities (2)$6,371 $ $6,371 $ 
Corporate bonds (2)$7,228 $ $7,228 $ 
Derivative financial instruments - liability (3)$2,328 $ $2,328 $ 
Deferred stock-based compensation (4)$7,207 $ $7,207 $ 

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

(1) "Cash and cash equivalents"
(2) Current portion - "Short-term investments"; Long-term portion - "Other Assets"
(3) Current portion - "Accounts payable and accrued expenses"; Long-term portion - "Other Long-Term Liabilities"
(4) Current portion - "Current maturities of other long-term obligations"; Long-term portion - "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 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)$(9,122)
Amounts in parentheses indicate reductions to equity.
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Foreign Currency Translation AdjustmentUnrealized Gains (Losses) on Debt SecuritiesPension and Post-retirement LiabilitiesDerivative Financial InstrumentsAccumulated Other Comprehensive Income (Loss)
Balance as of December 28, 2019$(2,912)$95 $(5,762)$506 $(8,073)
Other comprehensive income (loss) before reclassifications(600)75  (2,756)(3,281)
Tax (expense) or benefit (16) 648 632 
Amounts reclassified from accumulated other comprehensive income (loss), net of tax   (108)(108)
Balance as of March 28, 2020$(3,512)$154 $(5,762)$(1,710)$(10,830)
Amounts in parentheses indicate reductions to equity.

Interest Rate Swap
In 2019, concurrent with the termination of a previous interest rate swap, the Corporation entered into a new 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 3, 2021, the fair value of the Corporation's interest rate swap liability was $2.0 million. The unrecognized change in value of the interest rate swap is reported net of tax as $(1.5) million in "Accumulated other comprehensive income (loss)" in the Condensed Consolidated Balance Sheets.

The following table details the reclassifications from accumulated other comprehensive income (loss) (in thousands):
Three Months Ended
Details about Accumulated Other Comprehensive Income (Loss) ComponentsAffected Line Item in the Statement Where Net Income is PresentedApril 3,
2021
March 28,
2020
Derivative financial instruments
Interest rate swapInterest expense, net$(214)$114 
Income taxes50 (6)
Net of tax$(164)$108 
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 3,
2021
March 28,
2020
Dividends per common share$0.305 $0.305 

Stock Repurchase
The following table summarizes shares repurchased and settled by the Corporation (in thousands, except share and per share data):
Three Months Ended
April 3,
2021
March 28,
2020
Shares repurchased 186,700 
Average price per share$ $30.75 
Cash purchase price$ $(5,741)
Purchases unsettled as of quarter end 276 
Prior year purchases settled in current year (374)
Shares repurchased per cash flow$ $(5,839)
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As of April 3, 2021, approximately $158.3 million of the Corporation's Board of Directors' ("Board") current repurchase authorization remained unspent.

Note 11.  Earnings Per Share

The following table reconciles the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS") (in thousands, except per share data):
 Three Months Ended
April 3,
2021
March 28,
2020
Numerator:  
Numerator for both basic and diluted EPS attributable to HNI Corporation net income (loss)$15,019 $(23,895)
Denominators:  
Denominator for basic EPS weighted-average common shares outstanding43,163 42,628 
Potentially dilutive shares from stock-based compensation plans421  
Denominator for diluted EPS43,584 42,628 
Earnings per share – basic$0.35 $(0.56)
Earnings per share – diluted$0.34 $(0.56)

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 3,
2021
March 28,
2020
Common stock equivalents excluded because their inclusion would be anti-dilutive2,112 2,841 

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 3,
2021
March 28,
2020
Compensation cost$5,220 $4,358 

The units granted by the Corporation had fair values as follows (in thousands):
Three Months Ended
April 3,
2021
March 28,
2020
Restricted stock units$15,707 $5,777 
Performance stock units$6,013 $5,777 

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The following table summarizes unrecognized compensation expense and the weighted-average remaining service period for non-vested stock options and stock units as of April 3, 2021:
Unrecognized Compensation Expense
(in thousands)
Weighted-Average Remaining
Service Period (years)
Non-vested stock options$1,037 0.9
Non-vested restricted stock units$10,334 1.3
Non-vested performance stock units$6,761 1.4

Note 13.  Recently Adopted Accounting Standards

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes. This update simplifies various aspects related to accounting for income taxes, removes certain exceptions to the general principles in ASC 740, and clarifies and amends existing guidance to improve consistent application. The Corporation adopted ASC 740 in the first quarter of fiscal 2021, with no material effect on the Condensed Consolidated Financial Statements and related footnote disclosures.

Note 14.  Guarantees, Commitments, and Contingencies

The Corporation utilizes letters of credit and surety bonds in the amount of approximately $24 million to back certain insurance policies and payment obligations.  Additionally, the Corporation periodically utilizes trade letters of credit and banker's acceptances to guarantee certain payments to overseas suppliers; as of April 3, 2021, there were no outstanding amounts related to these types of guarantees. The letters of credit, bonds, and banker's acceptances reflect fair value as a condition of their underlying purpose and are subject to competitively determined fees.

The Corporation has contingent liabilities which have arisen in the ordinary course of its business, including liabilities relating to pending litigation, environmental remediation, taxes, and other claims.  It is the Corporation's opinion, after consultation with legal counsel, that liabilities, if any, resulting from these matters are not expected to have a material adverse effect on the Corporation's financial condition, cash flows, or on the Corporation's quarterly or annual operating results when resolved in a future period.

Note 15.  Reportable Segment Information

Management views the Corporation as being in two reportable segments based on industries: workplace furnishings and residential building products, with the former being the principal segment.

The aggregated workplace furnishings segment manufactures and markets a broad line of commercial and home office furniture which includes panel-based and freestanding furniture systems, seating, storage, tables, and architectural products.  The residential building products segment manufactures and markets a full array of gas, wood, electric, and pellet fueled fireplaces, inserts, stoves, facings, and accessories.

For purposes of segment reporting, intercompany sales between segments are not material, and operating profit is income before income taxes exclusive of certain unallocated general corporate expenses.  These unallocated general corporate expenses include the net costs of the Corporation's corporate operations.  Management views interest income and expense as corporate financing costs and not as a reportable segment cost.  In addition, management applies an effective income tax rate to its consolidated income before income taxes so income taxes are not reported or viewed internally on a segment basis. Identifiable assets by segment are those assets applicable to the respective industry segments. Corporate assets consist principally of cash and cash equivalents, short-term investments, long-term investments, IT infrastructure, and corporate office real estate and related equipment.

No geographic information for revenues from external customers or for long-lived assets is disclosed since the Corporation's primary market and capital investments are concentrated in the United States.




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