# HNI Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [HNI Corp](/companies/hni.md) (CIK 48287)
- Form: 10-Q
- Filed: 2023-10-31
- Accepted by EDGAR: Oct 31, 2023, 16:43 ET
- Period: 2023-09-30
- Accession: 0000048287-23-000205
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/48287/000004828723000205/hni-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/48287/000004828723000205/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-02 to 2023-09-30 | $711.6m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.75bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-02 to 2023-09-30 | $426.3m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.08bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-02 to 2023-09-30 | $285.3m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $675.2m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2023-07-02 to 2023-09-30 | $223.3m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $602.2m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-02 to 2023-09-30 | $56.8m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $59.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-07-02 to 2023-09-30 | $9.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $15.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-02 to 2023-09-30 | $37.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $26.5m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-02 to 2023-09-30 | $0.80 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.60 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-02 to 2023-09-30 | $0.81 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $0.60 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-02 to 2023-09-30 | 47,300,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 44,500,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $162.5m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-07-02 to 2023-09-30 | $21.6m | us-gaap:PaymentsToAcquireProductiveAssets |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $62.8m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $43.5m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $24.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $572.4m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $2.02bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $502.3m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.28bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $493.2m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $15.4m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-09-30 | $740.8m | us-gaap:StockholdersEquity |
| Shares outstanding | at 2023-09-30 | 46,579,442 shares | dei:EntityCommonStockSharesOutstanding |

## Management's discussion and analysis

As filed, 30,735 characters.

The following discussion of the Corporation’s historical results of operations and of its liquidity and capital resources should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements of the Corporation and related notes included elsewhere in this Quarterly Report on Form 10-Q and with the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. All dollar amounts presented are in millions, except per share data or where otherwise indicated. Amounts may not sum due to rounding. Statements that are not historical are forward-looking and involve risks and uncertainties. See "Forward-Looking Statements" at the end of this section for further information.

### Overview

The Corporation has two reportable segments: workplace furnishings and residential building products. The Corporation is a leading global designer and provider of commercial furnishings, and a leading manufacturer and marketer of hearth products. The Corporation utilizes a multi-faceted go-to market business model to deliver value to customers via various brands and selling models. The Corporation is focused on growing its existing businesses while seeking out and developing new opportunities for growth.

Significant developments in the current year include the Corporation’s acquisition of Kimball International in a cash and stock transaction valued at approximately $504 million, which closed on June 1, 2023. Furthermore, in the third quarter of 2023, the Corporation completed its previously announced divestiture of Poppin, a business unit of Kimball International. See "Note 3. Acquisitions and Divestitures" in the Notes to Condensed Consolidated Financial Statements for more details on the Kimball International acquisition, the Poppin divestiture, and other related information.

Consolidated net sales for the third quarter of 2023 were $711.6 million, an increase of 18.8 percent compared to net sales of $598.8 million in the prior-year quarter. The change was due to a 43.1 percent increase in the workplace furnishings segment, partially offset by a 21.8 percent decrease in the residential building products segment. The acquisition of Kimball International increased year-over-year sales by $158.0 million. The sale of the Lamex business in the third quarter 2022 decreased year-over-year sales by $2.7 million.

Net income attributable to the Corporation in the third quarter of 2023 was $37.8 million compared to net income of $63.1 million in the third quarter of 2022. The third quarter of 2022 included a pre-tax gain of $50.6 million as a result of the divestiture of the Lamex business. Excluding this item, net income increased year-over-year driven by favorable price-cost, improved net productivity, lower core selling and administrative expenses ("SG&A"), and favorable impacts of the Kimball International acquisition, partially offset by lower volume in the legacy HNI businesses that exclude Kimball International, higher variable compensation, and higher interest expense.

### Results of Operations

The following table presents certain results of operations:

|  | Three Months Ended September 30, 2023 | October 1, 2022 | Change | Nine Months Ended September 30, 2023 | October 1, 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $711.6 | $598.8 | 18.8% | $1,754.2 | $1,792.9 | (2.2)% |
| Cost of sales | 426.3 | 389.3 | 9.5% | 1,079.0 | 1,165.9 | (7.5)% |
| Gross profit | 285.3 | 209.5 | 36.2% | 675.2 | 627.0 | 7.7% |
| Selling and administrative expenses | 223.3 | 178.2 | 25.3% | 602.2 | 544.3 | 10.6% |
| Gain on sale of subsidiary | — | (50.6) | (100)% | — | (50.6) | (100)% |
| Restructuring and impairment charges | 5.3 | — | 100% | 13.4 | 1.0 | NM |
| Operating income | 56.8 | 81.9 | (30.7)% | 59.6 | 132.2 | (54.9)% |
| Interest expense, net | 9.4 | 2.4 | 299% | 17.5 | 6.5 | 172% |
| Income before income taxes | 47.4 | 79.5 | (40.4)% | 42.1 | 125.8 | (66.5)% |
| Income taxes | 9.6 | 16.4 | (41.5)% | 15.6 | 18.2 | (14.3)% |
| Net income (loss) attributable to non-controlling interest | 0.0 | (0.0) | 0.0% | 0.0 | (0.0) | 0.0% |
| Net income attributable to HNI Corporation | $37.8 | $63.1 | (40.2)% | $26.5 | $107.6 | (75.4)% |
| As a Percentage of Net Sales: |  |  |  |  |  |  |
| Net sales | 100.0% | 100.0% |  | 100.0% | 100.0% |  |
| Gross profit | 40.1 | 35.0 | 510 bps | 38.5 | 35.0 | 350 bps |
| Selling and administrative expenses | 31.4 | 29.8 | 160 bps | 34.3 | 30.4 | 390 bps |
| Gain on sale of subsidiary | — | 8.5 | -850 bps | — | 2.8 | -280 bps |
| Restructuring and impairment charges | 0.7 | — | 70 bps | 0.8 | 0.1 | 70 bps |
| Operating income | 8.0 | 13.7 | -570 bps | 3.4 | 7.4 | -400 bps |
| Income taxes | 1.4 | 2.7 | -130 bps | 0.9 | 1.0 | -10 bps |
| Net income attributable to HNI Corporation | 5.3 | 10.5 | -520 bps | 1.5 | 6.0 | -450 bps |

#### Results of Operations - Three Months Ended

#### Net Sales

Consolidated net sales for the third quarter of 2023 increased 18.8 percent compared to the same quarter last year. The change was driven by $158.0 million of favorable impact from the acquisition of Kimball International in the second quarter of 2023, as well as price realization in both the workplace furnishings and residential building products segments, partially offset by lower volume in the legacy HNI businesses due to continued headwinds from macroeconomic conditions. Also included in the sales results for the current quarter is a $2.7 million unfavorable impact from the divestiture of Lamex in the third quarter of 2022.

#### Gross Profit

Gross profit as a percentage of net sales increased 510 basis points in the third quarter of 2023 compared to the same quarter last year, driven by favorable price-cost, improved net productivity, and the impact of the Kimball International acquisition, partially offset by lower volume in the legacy HNI businesses. Favorable price-cost was attributable to the Corporation’s ability to implement price increases over the past several quarters in response to inflationary pressures. Additionally, prior-year quarter cost of sales included charges of $3.6 million primarily due to strategic restructuring of an eCommerce business in the workplace furnishings segment.

#### Selling and Administrative Expenses

Selling and administrative expenses as a percentage of net sales increased 160 basis points in the third quarter of 2023 compared to the same quarter last year. The increase was primarily driven by higher variable compensation, lower volume in the legacy HNI businesses, and the impact of the Kimball International acquisition, partially offset by lower core SG&A and price realization. The current quarter also included $2.8 million of acquisition-related fees and expenses, while the prior-year quarter included $5.6 million associated with a company-wide cost reduction initiative.

#### Gain on Sale of Subsidiary

In the third quarter of 2022, the Corporation recorded a one-time pretax gain of $50.6 million as a result of the divestiture of the Lamex business.

#### Restructuring and Impairment Charges

In the third quarter of 2023, the Corporation recorded $5.3 million of restructuring and impairment charges primarily in connection with the divestiture of Poppin.

#### Operating Income

In the third quarter of 2023, operating margin decreased 570 basis points compared to the same quarter last year, driven by the gain on the sale of the Lamex business in the prior year. Excluding this item, operating margin increased driven by favorable price-cost, improved net productivity, lower core SG&A, and favorable impact of the acquisition of Kimball International, partially offset by lower volume in the legacy HNI businesses and higher variable compensation.

#### Interest Expense, Net

Interest expense, net for the third quarter of 2023 was $9.4 million, compared to $2.4 million in the same quarter last year, driven by increased borrowings associated with the acquisition of Kimball International, along with higher average interest rates on the Corporation’s variable-rate debt.

#### Income Taxes

The Corporation’s income tax provision for the third quarter of 2023 was $9.6 million of expense on pre-tax income of $47.4 million, or an effective tax rate of 20.3 percent. For the third quarter of 2022, the Corporation’s income tax expense was $16.4 million on pre-tax income of $79.5 million, or an effective tax rate of 20.7 percent.

#### Net Income Attributable to HNI Corporation

Net income attributable to the Corporation was $37.8 million, or $0.80 per diluted share in the third quarter of 2023, compared to net income of $63.1 million, or $1.51 per diluted share in the third quarter of 2022.

#### Results of Operations - Nine Months Ended

#### Net Sales

Consolidated net sales for the first nine months of 2023 decreased 2.2 percent compared to the same period last year. The change was driven by lower volume in the legacy HNI business due to continued headwinds from macroeconomic conditions, backlog normalization versus the prior year period, and a $46.9 million unfavorable impact from the divestiture of Lamex in the third quarter of 2022, partially offset by a $214.0 million favorable impact from the acquisition of Kimball International and price realization in both the residential building products and workplace furnishings segments. Also included in the sales results for the current period is a $2.4 million favorable impact from acquiring a residential building products company in the second quarter of 2022.

#### Gross Profit

Gross profit as a percentage of net sales increased 350 basis points in the first nine months of 2023 compared to the same period last year, driven by favorable price-cost, improved operational productivity, and favorable impacts from the acquisition of

Kimball International, partially offset by lower volume in the legacy HNI businesses. Favorable price-cost was attributable to the Corporation’s continued ability to implement price increases in response to inflationary pressures.

#### Selling and Administrative Expenses

Selling and administrative expenses as a percentage of net sales increased 390 basis points in the first nine months of 2023 compared to the same period last year. The increase was driven by $37.5 million in transaction costs associated with the acquisition of Kimball International, as well as lower volume in the legacy HNI businesses. These factors were partially offset by lower core SG&A and price realization.

#### Gain on Sale of Subsidiary

In the first nine months of 2022, the Corporation recorded a one-time pretax gain of $50.6 million as a result of the divestiture of the Lamex business.

#### Restructuring and Impairment Charges

In the first nine months of 2023, the Corporation recorded $13.4 million of restructuring and impairment charges, compared to $1.0 million in the same period last year. The current period charges are primarily in connection with the divestiture of Poppin.

#### Operating Income

In the first nine months of 2023, operating margin decreased 400 basis points compared to the same period last year. The decrease was driven by the gain on the sale of the Lamex business in the prior year and transaction costs related to the acquisition of Kimball International in the current year. Excluding these items, operating margin increased driven by favorable price-cost, improved net productivity, lower core SG&A, and favorable impacts of the acquisition of Kimball International, partially offset by lower volume in the legacy HNI businesses.

#### Interest Expense, Net

Interest expense, net for the first nine months of 2023 was $17.5 million, compared to $6.5 million in the same period last year, driven by increased borrowings associated with the acquisition of Kimball International, along with higher average interest rates on the Corporation’s variable-rate debt.

#### Income Taxes

The Corporation’s income tax provision for the first nine months of 2023 was $15.6 million of expense on pre-tax income of $42.1 million, or an effective tax rate of 37.1 percent. For the first nine months of 2022, the Corporation’s income tax provision was $18.2 million of expense on pre-tax income of $125.8 million, or an effective tax rate of 14.5 percent. The variation in the rate is primarily due to non-deductible transaction costs in the current year related to the acquisition of Kimball International, as well as tax benefits recognized in the prior-year period for valuation adjustments related to existing deferred tax assets and basis differences tied to the sale of Lamex in 2022.

#### Net Income Attributable to HNI Corporation

Net income attributable to the Corporation was $26.5 million, or $0.60 per diluted share in the first nine months of 2023, compared to net income of $107.6 million, or $2.54 per diluted share in the first nine months of 2022.

### Workplace Furnishings

The following table presents summarized results of operations in the workplace furnishings segment:

|  | Three Months Ended September 30, 2023 | October 1, 2022 | Change | Nine Months Ended September 30, 2023 | October 1, 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $536.8 | $375.2 | 43.1% | $1,249.5 | $1,135.0 | 10.1% |
| Operating income | $47.3 | $5.6 | 738% | $59.2 | $11.1 | 431% |
| Operating income % | 8.8% | 1.5% | 730 bps | 4.7% | 1.0% | 370 bps |

#### Three months ended

Third quarter 2023 net sales for the workplace furnishings segment increased 43.1 percent compared to the same quarter last year. The acquisition of Kimball International during the current-year quarter increased net sales by $158.0 million compared to the prior-year quarter, while the sale of the Lamex business during the third quarter of 2022 decreased net sales by $2.7 million compared to the prior year quarter. Excluding the impact of these items, segment sales increased 1.7 percent year-over-year, driven by price realization, partially offset by lower volume across most customer segments in the legacy HNI workplace businesses as a result of macroeconomic headwinds.

Operating income as a percentage of net sales in the third quarter of 2023 improved 730 basis points compared to the same period in 2022. The increase was driven by favorable price-cost, improved net productivity, favorable impacts from the Kimball International acquisition, and lower core SG&A. These factors were partially offset by restructuring and impairment costs primarily related to the exit of Poppin, higher variable compensation, and lower volume in the legacy HNI workplace businesses.

#### Nine Months Ended

Net sales for the first nine months of 2023 for the workplace furnishings segment increased 10.1 percent compared to the same period last year. The acquisition of Kimball International during the current-year period increased net sales by $214.0 million compared to the prior-year period, while the sale of the Lamex business during the third quarter of 2022 decreased net sales by $46.9 million compared to the prior year period. Aside from these items, segment sales decreased 4.8 percent year-over-year, with lower volume across most customer segments in the legacy HNI workplace businesses, partially offset by price realization. In addition to macroeconomic headwinds that have negatively affected volume in the current year period, during much of 2022 the workplace furnishings segment was in the midst of managing through an elevated sales order backlog as a result of supply chain issues and capacity constraints that arose in 2021. These challenges were largely resolved by the end of 2022, resulting in a more normal backlog heading into 2023 and thus lower relative volume in the current year period, compared to the prior year period.

Operating income as a percentage of net sales in the first nine months of 2023 improved 370 basis points compared to the same period in 2022. The increase was driven by favorable price-cost, lower core SG&A, improved operational productivity, and favorable impacts from the Kimball International acquisition, partially offset by lower volume in the legacy HNI workplace businesses, $11.1 million in acquisition costs, and $11.1 million in restructuring costs related to the exit of Poppin.

### Residential Building Products

The following table presents summarized results of operations in the residential building products segment:

|  | Three Months Ended September 30, 2023 | October 1, 2022 | Change | Nine Months Ended September 30, 2023 | October 1, 2022 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Net sales | $174.8 | $223.6 | (21.8)% | $504.7 | $657.9 | (23.3)% |
| Operating income | $30.9 | $39.6 | (22.1)% | $74.5 | $117.0 | (36.3)% |
| Operating income % | 17.7% | 17.7% | 0 bps | 14.8% | 17.8% | -300 bps |

30

#### Three months ended

Third quarter 2023 net sales for the residential building products segment decreased 21.8 percent compared to the same quarter last year. The decline was driven by lower volume in both the new construction and existing home channels as a result of a drop in housing starts and reduced home remodeling activity due to higher interest rates and broader macroeconomic concerns, partially offset by price realization versus the prior-year quarter.

Operating profit as a percentage of net sales was flat in the third quarter of 2023 compared to the same quarter last year, with the impact of lower volume fully offset by favorable price-cost, improved net productivity, lower core SG&A, and lower variable compensation.

#### Nine months ended

Net sales for the first nine months of 2023 for the residential building products segment decreased 23.3 percent compared to the same period last year. The decline was driven by lower volume in both the new construction and existing home channels as a result of a drop in housing starts and reduced home remodeling activity due to higher interest rates and broader macroeconomic concerns, partially offset by price realization versus the prior-year period. Sales in the existing home channel were also negatively impacted by the normalization of trade inventory. Included in the sales results for the current year period was a $2.4 million favorable impact from acquiring a residential building products company in the second quarter of 2022.

Operating profit as a percentage of net sales decreased 300 basis points in the first nine months of 2023 compared to the same period last year, driven by lower volume, which was partially offset by favorable price-cost, improved net productivity, and lower variable compensation.

### Liquidity and Capital Resources

Cash, cash equivalents, and short-term investments, coupled with cash flow from future operations, borrowing capacity under the existing credit agreements, and the ability to access capital markets, are expected to be adequate to fund operations and satisfy cash flow needs for at least the next twelve months. Based on current earnings before interest, taxes, depreciation, and amortization, the Corporation can access the full $425 million of borrowing capacity available under the revolving credit facility, which includes the $111 million currently outstanding, and maintain compliance with applicable covenants.

#### Cash Flow – Operating Activities

Operating activities were a source of $162.5 million of cash in the first nine months of 2023 compared to a source of $33.9 million of cash in the first nine months of 2022. Cash provided by working capital activity in the current period versus significant working capital cash usage in the prior period was the main driver of the variance. This factor was partially offset by lower net income in the current period driven by costs associated with the acquisition of Kimball International.

#### Cash Flow – Investing Activities

Capital Expenditures - Capital expenditures, including capitalized software, for the first nine months of 2023 were $62.8 million compared to $48.7 million in the same period last year. The increase in capital expenditures over the prior year was driven by the acquisition of Kimball International. These expenditures are primarily focused on machinery, equipment, and tooling required to support new products, continuous improvements, and cost savings initiatives in manufacturing processes. Additionally, in support of the Corporation’s long-term strategy to create effortless winning experiences for customers, the Corporation continues to invest in technology and digital assets. For the full year 2023, capital expenditures are expected to be approximately $80 to $85 million.

Acquisitions and Divestitures - Investing activities in the current year-to-date period include $369.7 million spent related to the acquisition of Kimball International, and $3.1 million received from the sale of Poppin (net of costs to sell). Prior year activity includes $71.4 million received from the sale of the Lamex business as well as $9.2 million spent primarily to acquire residential building products companies. See "Note 3. Acquisitions and Divestitures" in the Notes to the Condensed Consolidated Financial Statements for further information.

#### Cash Flow – Financing Activities

Debt - The Corporation maintains a revolving credit facility as the primary source of committed funding from which the Corporation finances its planned capital expenditures, strategic initiatives, and seasonal working capital needs. Cash flows included in financing activities represent periodic borrowings and repayments under the revolving credit facility.

Additionally, in the current year, the Corporation borrowed $300 million in connection with a term loan agreement entered into on March 31, 2023, as further amended on May 25, 2023, to support funding of the acquisition of Kimball International, which closed in June 2023.

See "Note 7. Debt" in the Notes to Condensed Consolidated Financial Statements for further information.

Dividend - The Corporation is committed to maintaining or modestly growing the quarterly dividend. Cash dividends declared and paid per common share were as follows:

|  | Three Months Ended September 30, 2023 | October 1, 2022 | Nine Months Ended September 30, 2023 | October 1, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Dividends per common share | $0.32 | $0.32 | $0.96 | $0.95 |

During the third quarter, the Board declared the regular quarterly cash dividend on August 15, 2023. The dividend was paid on September 8, 2023, to shareholders of record as of August 25, 2023.

Stock Repurchase - The Corporation’s capital strategy related to stock repurchase is focused on offsetting the dilutive impact of issuances for various compensation related matters. The Corporation may elect to opportunistically purchase additional shares based on excess cash generation and/or share price considerations. The Board most recently authorized an additional $200 million on May 17, 2022, for repurchases of the Corporation’s common stock. As of September 30, 2023, $234.0 million remained of the Board’s current repurchase authorizations. See "Note 10. Accumulated Other Comprehensive Income (Loss) and Shareholders’ Equity" in the Notes to Condensed Consolidated Financial Statements for further information.

Sales of Stock - The Corporation records cash flows received from the sale of its common stock held in treasury, primarily in connection with stock option exercises and the HNI Corporation Members’ Stock Purchase Plan. See "Note 10. Accumulated Other Comprehensive Income (Loss) and Shareholders’ Equity" and "Note 12. Stock-Based Compensation" in the Notes to Condensed Consolidated Financial Statements for further information.

### Cash Requirements

Various commitments and obligations associated with ongoing business and financing activities will result in cash payments in future periods. A summary of the amounts and estimated timing of these future cash payments was provided in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Except for the item described below, 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 during the first nine months of 2023.

In connection with the acquisition of Kimball International, the Corporation assumed certain cash obligations and commitments. These obligations include contractual commitments for items such as raw materials, supplies, ocean freight, capital expenditures, services, software acquisition and licenses, operating lease liabilities, and SERP liabilities. See "Note 3. Acquisitions and Divestitures" in the Notes to the Condensed Consolidated Financial Statements for further information.

### Commitments and Contingencies

See "Note 13. Guarantees, Commitments, and Contingencies" in the Notes to Condensed Consolidated Financial Statements for further information.

### Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon the Consolidated Financial Statements, prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on a variety of other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Senior management has discussed the development, selection, and disclosure of these estimates with the Audit Committee of the Board. Actual results may differ from these estimates under different assumptions or conditions. A summary of the more significant accounting policies requiring the use of estimates and assumptions in preparing the financial statements is provided in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

### Looking Ahead

The Corporation continues to navigate near-term uncertainty driven by macroeconomic conditions. However, management remains optimistic about the long-term prospects in the workplace furnishings and residential building products markets. Management believes the Corporation continues to compete well and remains confident the investments made in the business will continue to generate strong returns for shareholders.

### Forward-Looking Statements

Statements in this report to the extent they are not statements of historical or present fact, including statements as to plans, outlook, objectives, and future financial performance, are "forward-looking" statements, within the meaning of Section 21 of the Securities Exchange Act of 1934, as amended, and 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 and uncertainties, which may cause the Corporation’s actual results in the future to differ materially from expected results. The most significant factors known to the Corporation that may adversely affect the Corporation’s business, operations, industries, financial position, or future financial performance are described within Part II, Item 1A of this report and Item 1A of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022. The Corporation cautions readers not to place undue reliance on any forward-looking statement, which is based necessarily on assumptions made at the time the Corporation provides such statement, and to recognize forward-looking statements are predictions of future results, which may not occur as anticipated. Actual results could differ materially from those anticipated in the forward-looking statements and from historical results due to the risks and uncertainties described elsewhere in this report, including but not limited to: the Corporation’s ultimate realization of the anticipated benefits of the acquisition of Kimball International and the sale of Poppin; disruptions in the global supply chain; the effects of prolonged periods of inflation and rising interest rates; labor shortages; the levels of office furniture needs and housing starts; overall demand for the Corporation’s products; general economic and market conditions in the United States and internationally; industry and competitive conditions; the consolidation and concentration of the Corporation’s customers; the Corporation’s reliance on its network of independent dealers; changes in trade policy; changes in raw material, component, or commodity pricing; market acceptance and demand for the Corporation’s new products; changing legal, regulatory, environmental, and healthcare conditions; the risks associated with international operations; the potential impact of product defects; the various restrictions on the Corporation’s financing activities; an inability to protect the Corporation’s intellectual property; cybersecurity threats, including those posed by potential ransomware attacks; impacts of tax legislation; force majeure events outside the Corporation’s control, including those that may result from the effects of climate change; and other risks as described in the Corporation’s annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q, as well as others that the Corporation may consider not material or does not anticipate at this time. The risks and uncertainties described in this report, as well as those described within Item 1A of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, are not exclusive and further information concerning the Corporation, including factors that potentially could have a material effect on the Corporation’s financial results or condition, may emerge from time to time.

The Corporation assumes 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. The Corporation advises you, however, to consult any further disclosures made on related subjects in future reports filed with or furnished to the SEC.

## Market risk

As filed, 260 characters.

As of September 30, 2023, there have been no material changes to the financial market risks affecting the quantitative and qualitative disclosures presented in Item 7A of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

## Controls and procedures

As filed, 1,921 characters.

#### Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that 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 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 the Chief Executive Officer and Chief Financial Officer of the Corporation, the Corporation’s management carried out an evaluation of the Corporation’s disclosure controls and procedures pursuant to Exchange Act Rules 13a – 15 and 15d – 15. As of September 30, 2023, based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded these disclosure controls and procedures are effective.

#### Changes in Internal Controls

There have been no changes in the Corporation’s internal controls 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.

In June 2023, the Corporation acquired Kimball International (see "Note 3. Acquisitions and Divestitures" in the Notes to the Condensed Consolidated Financial Statements). In conducting its evaluation of the effectiveness of internal control over financial reporting, the Corporation has elected to exclude Kimball International from its evaluation as of September 30, 2023, as permitted by the regulations of the Securities and Exchange Commission.

## Risk factors

As filed, 10,591 characters.

In addition to the risk factors disclosed in the "Risk Factors" section of the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, the following risks relating to the merger between the Corporation and Kimball International, Inc., among others, could adversely affect the Corporation’s business, financial condition, and results of operations.

*The Corporation may not achieve the intended benefits of the merger, and the merger may disrupt its current plans or operations.*

There can be no assurance that the Corporation will be able to successfully integrate Kimball International’s assets or otherwise realize the expected benefits of the transaction (including operating and other cost synergies). Difficulties in integrating Kimball International into the Corporation may result in the Corporation performing differently than expected, in operational challenges, in the failure to realize anticipated run-rate cost synergies and efficiencies in the expected time frame or at all, or in the difficulty or failure of utilizing available U.S. tax attributes, in which case the merger may not be accretive to earnings per share, may not improve the Corporation’s balance sheet position, may not enhance the Corporation’s ability to de-lever and may not generate additional free cash flow due to reduced cash tax payments. The integration of the two companies may result in material challenges, including the diversion of management’s attention from ongoing business concerns; retaining key management and other employees; retaining or attracting business and operational relationships; the possibility of faulty assumptions underlying expectations regarding the integration process and associated expenses; consolidating corporate and administrative infrastructures and eliminating duplicative operations; coordinating geographically separate organizations; unanticipated issues in integrating information technology, communications and other systems; as well as potential unknown liabilities, or unforeseen expenses relating to integration.

*The future results of the Corporation may be adversely impacted if the Corporation does not effectively manage its expanded operations following the completion of the merger.*

The Corporation’s business is significantly larger than the pre-merger size of either the Corporation’s or Kimball International’s respective businesses. The Corporation’s ability to successfully manage this expanded business will depend, in part, upon management’s ability to design and implement strategic initiatives that address not only the integration of two independent stand-alone companies, but also the increased scale and scope of the combined business with its associated increased costs and complexity. There can be no assurances that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the merger.

*The combined company incurred substantial expenses related to the completion of the merger and expects to continue to incur substantial expenses relating to the integration of the Corporation and Kimball International.*

The combined company incurred substantial expenses in connection with the completion of the merger and is expected to continue to incur substantial expenses in connection with the integration of the Corporation and Kimball International. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, potentially including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. The substantial majority of these costs are non-recurring expenses related to the merger (including financing of the merger), facilities and systems consolidation. The Corporation may incur additional costs to maintain employee morale and to attract, motivate or retain management personnel and other key employees. The Corporation and Kimball International also incurred transaction fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs. These incremental transaction- and merger-related costs may exceed the savings the combined company expects to achieve from the elimination of duplicative costs and the realization of other efficiencies related to the integration of the businesses, particularly in the near term and in the event there are material unanticipated costs.

*Uncertainties associated with the merger may cause a loss of management personnel and other key employees, and the Corporation may have difficulty attracting and motivating management personnel and other key employees, which could adversely affect the future business and operations of the Corporation after the completion of the merger.*

The Corporation is dependent on the experience and industry knowledge of its management personnel and other key employees to execute its business plans. The success of the Corporation after the completion of the merger depends in part upon the ability of the Corporation to attract, motivate and retain key management personnel and other key employees. Current and prospective employees of the Corporation may experience uncertainty about their roles within the combined company, which may have an adverse effect on the ability of the Corporation to attract, motivate or retain management personnel and other key employees. In addition, no assurance can be given that the Corporation will be able to attract, motivate or retain management personnel and other key employees of the Corporation to the same extent that the Corporation and Kimball International have previously been able to attract or retain their own employees prior to the merger.

*The merger may result in a loss of customers, distributors, suppliers, vendors, landlords and other business partners and may result in the termination of existing contracts.*

Some of the customers, distributors, suppliers, vendors, landlords and other business partners of Kimball International may terminate or scale back their current or prospective business relationships with the Corporation. Some customers may not wish to source a larger percentage of their needs from a single company or may feel that the Corporation is too closely allied with one of its former competitors. If relationships with customers, distributors, suppliers, vendors, landlords and other business partners are adversely affected by the merger, or if the Corporation loses the benefits of the contracts of Kimball International, the Corporation’s business and financial performance could suffer.

*The combined company has significantly more indebtedness than the indebtedness of the Corporation prior to the merger.*

Upon completion of the merger, the Corporation incurred approximately $390.2 million in additional indebtedness and has consolidated indebtedness of approximately $508.6 million, up from $207.9 million before the merger. The increased indebtedness of the combined company in comparison to that of the Corporation on a historical basis may have the effect, among other things, of reducing the flexibility of the Corporation to respond to changing business and economic conditions and increasing borrowing costs.

*The financing arrangements that the Corporation entered into in connection with the merger contain restrictions and limitations that may, under certain circumstances, significantly impact the Corporation’s ability to operate its business.*

The Corporation incurred significant new indebtedness in connection with the merger. The agreements governing the indebtedness that the Corporation incurred in connection with the merger, including, but not limited to, the Term Loan Credit Agreement may, under certain circumstances, impose significant operating and financial restrictions on the Corporation. These restrictions may affect the Corporation’s ability to operate its business and may limit the Corporation’s ability to take advantage of potential business opportunities as they arise.

In addition, the agreements governing such indebtedness require the Corporation to comply with a consolidated leverage ratio financial covenant and consolidated interest coverage ratio financial covenant. The Corporation’s ability to comply with such covenants will depend on its ongoing financial and operating performance, which in turn will be subject to economic conditions and to financial, market and competitive factors, many of which are beyond the Corporation’s control. The ability to comply with these covenants will also depend on the Corporation’s ability to successfully implement its overall business strategy and realize the anticipated benefits of the merger, including synergies, cost savings, innovation and operational efficiencies.

Various risks, uncertainties and events beyond the Corporation’s control could affect its ability to comply with the covenants contained in its financing agreements. Failure to comply with any of the covenants in its existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements. Under these circumstances, the Corporation might not have sufficient funds or other resources to satisfy all of its obligations. In addition, the limitations imposed by financing agreements on the Corporation’s ability to incur additional debt and to take other actions might significantly impair its ability to obtain other financing.

If the Corporation incurs additional indebtedness in future periods, the risks related to the substantial indebtedness of the Corporation after the completion of the merger may intensify.

*The market price of the Corporation’s common stock after the merger may be affected by factors different from those affecting the price of the Corporation’s common stock before the merger.*

As the businesses of the Corporation and Kimball International are different, the results of operations as well as the price of the Corporation’s common stock may be affected by factors different from those factors that previously affected the Corporation as an independent stand-alone company. Following the transaction, the Corporation faces additional risks and uncertainties that the Corporation or Kimball International may not have previously been exposed to as independent companies.

Filed Oct 31, 2023.
Source: SEC EDGAR, the filing index for accession 0000048287-23-000205. Last ingested by Listed: Nov 3, 2026, 19:07 ET. No prices; not investment advice.